MP Water Pty Ltd in its capacity as Trustee for the MP Water Trust v Veolia Water Australia Pty Ltd

[2022] NSWCA 127

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

MP Water Pty Ltd in its capacity as Trustee for the MP Water Trust v Veolia Water Australia Pty Ltd [2022] NSWCA 127

Hearing dates:

4 April 2022

Date of orders:

21 July 2022

Decision date:

21 July 2022

Before:

Ward P at [1]
Macfarlan JA at [2]
Mitchelmore JA at [3]

Decision:

(1) Grant leave to appeal.

(2) Order that the applicant file a notice of appeal in accordance with the draft Notice of Appeal within 7 days.

(3) Appeal allowed.

(4) Set aside orders 1 and 2 of the orders of the primary judge dated 13 August 2021.

(5) Declare that clause 44 of the contract between the parties, described in the Services Provider Agreement (SPA) conferred on the appellant a power to direct the respondent as to the actions the respondent must undertake, and a correlative obligation imposed on the respondent to undertake the directed actions, to operate the Facility and provide the Services so as to overcome the Services Provider Default which had occurred and which was the subject of the notice dated 13 May 2021 that the appellant gave to the respondent (each of the capitalised terms as defined in the SPA).

(6) Remit the costs of the proceedings below to the trial judge.

(7) The respondent pay the appellant’s costs of the appeal.

Catchwords:

CONTRACTS – construction – contract for the provision of services in relation to water treatment facility – “step-in” clause requiring subcontractor to “assist” principal contractor – whether clause authorises the principal to direct the subcontractor to operate the facility and provide the services and requires subcontractor to comply with such direction – whether “Facility” as defined in the contract had come into existence as a condition to the exercise of step-in rights

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW), r 12.1

Cases Cited:

H Lundbeck A/S v Sandoz Pty Ltd; CNS Pharma Pty Ltd v Sandoz Pty Ltd [2022] HCA 4; (2022) 399 ALR 184

Lawrence v Ciantar [2020] NSWCA 89

Category:

Principal judgment

Parties:

MP Water Pty Ltd in its capacity as trustee for the MP Water Trust (Applicant)
Veolia Water Australia Pty Ltd (Respondent)

Representation:

Counsel:
Mr J Giles SC, Mr J Hutton and Mr W Marshall (Applicant)
Mr M Ashurst SC and Ms J Wright (Respondent)

Solicitors:
Gilbert + Tobin (Applicant)
Norton Rose Fulbright Australia (Respondent)

File Number(s):

2021/257944

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of NSW

Jurisdiction:

Equity – Commercial List

Citation:

[2021] NSWSC 1023

Date of Decision:

13 August 2021

Before:

Williams J

File Number(s):

2021/138389

HEADNOTE

[This headnote is not to be read as part of the judgment]

The applicant, MP Water Pty Ltd in its capacity as Trustee for the MP Water Trust (“MP Water”), sought leave to appeal from a decision of the Supreme Court dismissing its application for orders requiring the respondent, Veolia Water Australia Pty Ltd (“Veolia”), to comply with a notice that MP Water issued under a Services Provider Agreement (“SPA”). 

The SPA related to the Springvale Water Treatment Facility (“the Facility”), which is adjacent to two underground coal mines and provides treated water for use at a nearby power station.  The Facility was defined in the SPA by reference to a number of parts, including, relevantly, the Mine Water Buffer Pond.  A dispute arose between MP Water and Veolia as to whether the MP Water had handed over the Mine Water Buffer Pond in accordance with the contract.  While that dispute was ongoing, the flow of mine water into the Buffer Pond exceeded the maximum capacity under the SPA, causing MP Water to request the mine operator to cease the flow of mine water to the Facility. 

MP Water considered that the circumstances surrounding the cessation of the flow of mine water to the Facility constituted a Major Service Failure under the SPA and issued a Services Provider Default Notice, which Veolia disputed.  On 13 May 2013, MP Water issued a notice under clause 44 of the SPA directing Veolia to provide the Services it had contracted to provide, including to treat the mine water in accordance with the SPA so as to reduce the level in the Mine Water Buffer Pond.  Clause 44(a) relevantly provided that, if at any time during the Operations Phase, a Services Provider Default Termination Event occurred, MP Water could elect, and Veolia would “assist … wherever and however possible to ensure that [MP Water] is able to”, among other things:

“temporarily take or assume total or partial possession, management and control of the Facility (or any part of the Facility) and the provision of the Services (or any of them)”.

Veolia disputed that clause 44 of the SPA authorised MP Water to issue a notice in the terms that it did.  It also contended that conditions for the engagement of clause 44 were not satisfied, there being no “Facility” within the meaning of the SPA because there had been no handover of the Mine Water Buffer Pond.  

On 13 August 2021, the primary judge dismissed MP Water’s application.  Contrary to Veolia’s argument, the primary judge found MP Water could exercise the rights under clause 44.  However, her Honour concluded that the Notice that MP Water issued was not authorised by clause 44; Veolia’s obligation to “assist” MP Water did not require Veolia to comply with instructions or directions that MP Water issued specifying the steps Veolia was to take.

On appeal, MP Water contended that the primary judge erred in the construction of clause 44.  By Notice of Contention, Veolia argued that the primary judge erred in concluding that the Facility had come into existence in contractual terms as at the date of the Major Service Failure, and default had occurred.

The Court held (Mitchelmore JA, Ward P and Macfarlan JA agreeing), granting leave to appeal, allowing the appeal, and making the declaration sought by the applicant:

As to the decision of the primary judge:

1. Clause 44(a) authorises MP Water to give a direction to Veolia as to the operation of part of the Facility, or the provision of some or all of the Services, of which MP Water takes or assumes possession, management and control. Veolia’s obligation to “assist” in any such action the subject of an election under paragraphs (7), (8), or (9) extends to operating the Facility and providing the services at MP Water’s direction: [1], [2], [87], [90]-[94]. The primary judge erred in adopting a more limited construction of “assist”: [1], [2], [95]-[100].

As to MP Water’s Notice of Contention:

2. The primary judge was correct to dismiss the argument raised by Veolia on the Notice of Contention. Veolia’s proposed construction of the definition of “Facility” would subvert the regime in the SPA dealing with the commencement of its obligations, and the primary judge was correct to describe it as unworkable having regard to the reality of the numerous components and parts comprising the Facility. Her Honour’s construction was consistent with the commercial purpose and the safety objects of the SPA: [1], [2], [112]-[114].

Judgment

1. WARD P: I have had the advantage of reading in advance the comprehensive reasons of Mitchelmore JA, with which I agree. I also agree with the orders her Honour proposes.

2. MACFARLAN JA: I agree with Mitchelmore JA.

3. MITCHELMORE JA: The applicant, MP Water Pty Ltd in its capacity as trustee for the MP Water Trust (“MP Water”), seeks leave to appeal from the decision of Williams J in MP Water Pty Ltd v Veolia Water Australia Pty Ltd (No 3) [2021] NSWSC 1023. The proposed ground of appeal concerns the scope of a clause in a contract for the provision of services that confers what might generally be described as “step-in rights”.

4. The issue arises in the context of a joint venture between Energy Australia NSW Pty Ltd (“Energy Australia”), Springvale SK Kores Pty Ltd, and Centennial Springvale Pty Ltd (collectively, “the Customer”) to conduct underground coal mining operations at the Springvale and Angus Place Mines in the western coalfields of New South Wales. The Springvale Mine is the primary source of coal for the Mt Piper Power Station (“MPPS”), which is owned by Energy Australia.

5. On 13 November 2017, the Customer and MP Water entered into a Water Treatment Services Contract (“WTSC”) for the design and construction, operation, and maintenance of the Springvale Water Treatment Facility (“the Facility”), adjacent to the MPPS. On the same day, MP Water entered into a Design and Construct Contract (“D&C Contract”) and a Services Provider Agreement (“SPA”) with the respondent, Veolia Water Australia Pty Ltd (“Veolia”). Pursuant to the D&C Contract and the SPA, MP Water subcontracted its obligations under the WTSC to Veolia.

6. The clause that is the focus of the application for leave to appeal is clause 44 of the SPA, on which MP Water sought to rely in issuing a step-in notice to Veolia dated 13 May 2021 (“13 May Step-in Notice”). I will refer to the terms of the 13 May Step-in Notice and the circumstances which gave rise to it in more detail below. For the purpose of outlining the issue it is sufficient to note that by the 13 May Step-in Notice, MP Water directed Veolia to operate the Facility and provide the services it had contracted to provide under the SPA, in accordance with the SPA. The primary judge concluded that clause 44 did not authorise a notice in those terms.

7. MP Water challenges the primary judge’s construction of clause 44. It submits that the clause entitled it to direct Veolia as to how Veolia was to operate the Facility. It submits that the primary judge’s conclusion to the contrary rested on an unduly narrow construction of the clause as entitling MP Water only to obtain assistance from Veolia, in order for it (that is, for MP Water) to operate the Facility.

8. MP Water accepts that it requires leave to appeal due to the interlocutory nature of the judgment: s 101(2)(e) of the Supreme Court Act 1970 (NSW). It is also presently unable to quantify its exposure on the undertaking as to damages, for the purposes of s 101(2)(f) of the Supreme Court Act. The issue MP Water raises is of significance to the contractual relationship between the parties, the SPA having some 13 years left to run, and in relation to infrastructure the functions of which include maintaining safe mining operations. Accordingly, I would grant leave to MP Water to appeal. I would also uphold MP Water’s challenge to the primary judge’s construction of clause 44 of the SPA.

9. By a draft Notice of Contention, Veolia submits that MP Water could not exercise the rights in subclause 44(a) of the SPA because none of the conditions precedent for its exercise was established. In particular, Veolia contends that at the time of the default on which MP Water relied, there was no Facility in accordance with the terms of the SPA. It followed that MP Water could not rely on a failure that, in turn, relied on the Facility’s existence as triggering the operation of subclause 44(a). I do not consider that the primary judge’s rejection of Veolia’s argument was affected by error.

Background to the appeal

10. As I noted above, the case concerns a suite of contracts entered into on 13 November 2017: the WTSC between the Customer and MP Water (referred to in the WTSC as “Project Co”), and the D&C Contract and the SPA between MP Water and Veolia (referred to variously in the agreements as the “Contractor”, “Construction Contractor” and “Services Provider”). The primary judge comprehensively addressed the relevant provisions of each of the contracts, and provided a summary of the background that was relevant to the broader range of issues before her Honour.

11. As the SPA contains the provision that is in issue on the appeal, I will primarily focus on the terms of that agreement. I will refer to the terms of the D&C Contract and the WTSC (which are addressed in the reasons of the primary judge) only where necessary. I will also outline the background which gives rise to the dispute before this Court. Although the issues are within a narrower compass than before the primary judge, some detail is still required in order to place the issues of construction in their contractual and factual context. I have primarily relied in this regard on the primary judge’s extremely helpful summary, which is referenced below.

The SPA, WTSC, and D&C Contract

12. As I noted above, and as is set out in the Recitals to the WTSC, which are extracted in [5] of the judgment below, the underground coal mining operations at, relevantly, the Springvale Mine (paragraph 1), provide the primary source of coal for the MPPS (paragraph 2). Mr Michael Clark, Executive General Manager, Strategy/Projects for Centennial Coal, gave evidence before the primary judge that normal mining operations at the Springvale Mine (by which coal is extracted using the longwall mining method) generate approximately 25 megalitres (“ML”) of water each day: at [6]. The water is generated irrespective of the specific activities being conducted and cannot be stopped or reduced. In order to avoid saturating the strata, and the associated risk to the structural integrity of the underground tunnels, the water needs to be extracted: at [6]. Paragraph 3 of the Recitals to the WTSC records that the MPPS also requires, “in addition to coal, Treated Water for its cooling circuits”.

13. Paragraphs 4 and 5 of the Recitals to the WTSC provide as follows:

“4. The Customer wishes to engage Project Co [that is, MP Water] to perform:

• the Works (including the design, engineering, procurement, supply, construction, testing and commissioning of the Facility); and

• the Services (including the operation and maintenance of the Facility, treatment of the Mine Water, treatment of Blowdown Brine and the supply of Treated Water from the Facility and the delivery of Water Product to the relevant Water Product Delivery Points),

in accordance with this Contract.

5. Project Co has agreed to perform the Works and Services in accordance with this Contract.”

14. The Recitals to the SPA repeat the first three paragraphs of the recitals to the WTSC. Paragraph 4 refers to the Customer’s engagement of MP Water to perform “the Works (as defined in the WTSC)” and “the Services (as defined in the WTSC)” in accordance with the WTSC. The Recitals to the SPA continue:

“5. Project Co [being MP Water] wishes to engage the Services Provider [being Veolia] to perform the Services in accordance with this Contract.

6. The Services Provider has agreed to perform the Services in accordance with this Contract.”

15. Paragraphs 5 and 6 of the Recitals to the D&C Contract are equivalent to paragraphs 5 and 6 of the Recitals in the SPA in relation to carrying out the “Works”.

16. Clause 8.2 of the SPA provides that Veolia “must operate and maintain the Facility and perform and complete the Services, in accordance with”, relevantly for present purposes, “the Scope of Services”. The primary judge observed that clause 19.1 of the SPA similarly provides that Veolia must provide the “Services … in the manner and to the standard described in the Scope of Services” during the “Operations Phase”.

17. The term “Services” is defined in clause 1.1 of the SPA to mean “the services in respect of the Facility to be provided by [Veolia] and includes … all services described in the Scope of Services, Variations and any incidental services or functions required for the proper performance of those services”. The term “Facility” is defined in clause 1.1 and the Glossary in the Scope of Services as:

“the whole of the facility to be designed, engineered, procured, supplied, constructed, tested, commissioned, operated, maintained and owned by Project Co on the Site in accordance with the WTSC, and includes:

1 the Water Transfer System;

2 the Mine Water Buffer Pond;

3 the Water Treatment Facility;

4 the Mixed Brine Pond;

5 the OPUS Treatment Plant;

6 the Brine Crystalliser Plant;

7 the Brine Waste Ponds;

8 the Lime Salt Storage and Delivery System, and

9 the Mixed Salt Storage and Delivery System,

as further described in the Scope of Works and Services.”

18. The definition of “Mine Water Buffer Pond” is relevant to the dispute before this Court. It is defined in the Glossary to the Scope of Services as:

“the existing Blowdown Pond B owned by Energy Australia at MPPS after it has been repurposed by the Construction Contractor [being Veolia] to function as the Mine Water Buffer Pond and which will be part of the Facility, with all modifications and additions necessary to be compliant with Schedule 20 of the Construction Contract [being the D&C Contract]; where

1    all modifications and additions are to be designed, engineered, procured, supplied, constructed, tested, and commissioned by the Construction Contractor, as further described in Attachment 1; and

2    which will be operated and maintained by the Services Provider [also Veolia] in accordance with Schedule 20 of this Contract and the Mine Water Buffer Pond Operating Protocol.”

19. Mr Benjamin Bowen, a chemical engineer who acted as MP Water’s representative under the SPA, gave evidence about the purpose of the Mine Water Buffer Pond, to which the primary judge referred at [16]-[17]. Mr Bowen, whose evidence Veolia also embraced (see [18]), stated that if a disruptive event occurs, such as restricted flow to the Facility or water from the Springvale Mine not being able to be treated in the Facility immediately, the Buffer Pond enables the Facility to continue to receive Mine Water, in effect storing it until the event is remedied.

20. The definition of Mine Water Buffer Pond refers to the repurposing of Blowdown Pond B (“Pond B”): see [109]. Subclause 5.9(a) of the Scope of Services contains an express acknowledgment by Veolia that “the existing Blowdown Pond B will be repurposed by [Veolia] as the Mine Water Buffer Pond, including isolation of the pond from Blowdown Pond A, and all diversion work required”. This acknowledgement reflects subclause 5.9(a) of the Scope of Works in the D&C Contract, which provides that Veolia, as the Contractor, is “wholly responsible for all Works necessary to repurpose the existing Blowdown Pond B as the Mine Water Buffer Pond, including isolation of the pond from Blowdown Pond A, and all diversion work required; except as otherwise provided in Schedule 20 of the Contract”. Subclause 5.9(a) of the Scope of Works and Services in the WTSC is the mirror provision, with the obligation there cast on MP Water and providing for the exception by reference to Schedule 20 of that agreement.

21. Schedule 20 of the D&C Contract, to which subclause 5.9(a) of the Scope of Works refers, requires MP Water to obtain and provide to Veolia a report prepared by an experienced and competent contractor in relation to (relevantly) “the condition and integrity of the liner in each Pond”, including Pond B (the “Pond Baseline Condition Report”). Subclause 2(c)(3) of Schedule 20 provides that to the extent that the Pond Baseline Condition Report identifies that “the integrity of the liner in any Pond will, or is reasonably expected to, materially adversely affect the performance of the Services”, MP Water must request Veolia to provide, and Veolia will provide, a quotation to (relevantly) “remediate or replace any relevant liner to the extent necessary to ensure the integrity of the liner will not materially adversely affect the performance of the Services”. The primary judge referred to this as “Liner Remediation Work”: at [62], referring back to [29]-[32].

22. The term “Mine Water” is defined in clause 1.1 of the SPA by reference to the definition in the WTSC. It is defined in clause 1.1 of the WTSC as water discharged from, relevantly, the Springvale Mine and delivered to a “Mine Water Receipt Point”. Clause 5.1 of the Scope of Services to the SPA provides that the Services include all activities and services required to, inter alia, receive Mine Water at the Mine Water Receipt Points (see clause 6.2), transfer Mine Water to the Water Treatment Facility, treat Mine Water at the Water Treatment Facility, and transfer Treated Water to three specified delivery points. The “Water Treatment Facility”, which forms part of the definition of “Facility”, is defined relevantly to mean “the water treatment plant and associated equipment to be utilised for treating Mine Water and producing Treated Water, Mine Water Brine and Residuals”.

19. Subclause 20.2(a) of the SPA provides that Veolia “must accept and process all … Mine Water made available at the Mine Water Receipt Points subject to the Guaranteed Flow and Process Capacity” unless another provision of the SPA expressly provides otherwise. The “Guaranteed Flow and Process Capacity”, which the primary judge shortened at [24] to the “Guaranteed Capacity”, is addressed in clause 5.3 of the Scope of Services. By that clause, Veolia, as the Services Provider, acknowledges that the Construction Contractor (also Veolia) must design the Works so that the Facility is capable of achieving, and will be operated to achieve, specified flow and process capacities. For the Water Treatment Facility, subclause 5.3(a) specifies the Guaranteed Capacity as:

“(1)   capacity for continuous and uninterrupted acceptance of Mine Water at the rate of not less than 36ML per Day throughout the Term (‘Normal Flow’) without using Facility equipment designated as standby or backup equipment …;

(2)   capacity for occasional acceptance of Mine Water at the rate of not less than 42ML per Day for up to 60 Days in respect of any one event (‘Occasional Flow’); …”

24. Subclause 20.2(b) of the SPA and subclause 1.1(a) of Annexure 3 to the Scope of Services provide that neither the Customer nor MP Water gives any warranty as to the quality of the Mine Water. However, where the quality of Mine Water delivered is outside or materially outside the range of specified parameters set out in subclause 1.1(f) of Annexure 3 (“Out-of-Envelope Mine Water”), clause 20.3 of the SPA makes provision for what is to occur. Essentially, Veolia must receive and process water that it notifies as Out-of-Envelope Mine Water but MP Water must pay a charge in respect of that Water. Clause 21.5 of the SPA provides:

“No Relief

Other than as expressly stated in this Contract, the quality or volume of Mine Water delivered by the Customer to a Mine Water Receipt Point will not relieve [Veolia] from or alter its liabilities or obligations under this Contract (including [Veolia]’s obligation under clauses 21.1(a) and 21.2).”

25. Subclause 21.1(a) of the SPA, which is referred to in clause 21.5, requires Veolia to process Mine Water at the Facility and to deliver the resulting Treated Water to specified delivery points. Clause 21.2, which is also referred to, requires Veolia to make all Treated Water available for delivery to the Customer at the “MPPS Treated Water Delivery Point”, subject to the Customer’s sole and absolute discretion to take as much Treated Water as is available and without being obliged to take any Treated Water at that particular delivery point.

26. Clause 5.5 of the Scope of Services deals with the treatment processes. Consistently with clauses 20 and 21 of the SPA, subclause 5.5(g), which deals with water management, relevantly provides:

“(1)   Subject to section 1.1(c) of Annexure 3, the Water Treatment Facility must accept and treat Mine Water, including Out-of-Envelope Mine Water.

(2)   The Mine Water Buffer Pond may be used by [Veolia] to manage Out-of-Envelope Mine Water in accordance with the Mine Water Buffer Pond Operating Protocol. [Veolia] must ensure that the Mine Water Buffer Pond does not overflow at any time during the term.

(3)   If [Veolia] requires [MP Water] to stop or reduce the flow of Mine Water due to one or more of the following events (each a ‘Facility Outage’):

…

(B)   an actual or expected overflow of the Mine Water Buffer Pond;

…

[Veolia] must provide a written request to [MP Water] to direct the Customer to stop or reduce the flow of Mine Water as soon as [Veolia] becomes aware of the relevant event or circumstance set out above, but in any event no later than 20 hours prior to when [Veolia] requires [MP Water] to take such action. [MP Water] must procure that the Customer promptly complies with any such request, having regard to the 20-hour notice requirement. Other than as expressly stated in this Contract, and subject to section 1.1(c) of Annexure 3, a request from [Veolia] pursuant to this section 5.5(g)(3) or otherwise to the Customer or [MP Water] to stop, reduce or divert the flow of Mine Water in response to any request by [Veolia] pursuant to this section 5.5(g)(3) or otherwise will not relieve [Veolia] of any obligation or liability under this Contract …”

27. Mr Bowen’s unchallenged evidence was that the overall capacity of Pond B is 104ML: at [19]. Subclause 5.5(h) of the Scope of Services contains an acknowledgment by Veolia that MP Water requires the Buffer Pond to have a minimum reserve storage volume of 42ML. This design capacity of the Mine Water Buffer Pond supports subclause 5.6(a), which provides that the Water Treatment Facility must be able continuously to accept Mine Water up to the Guaranteed Capacity (see above at [23]) whilst accommodating regular maintenance activities at the Water Treatment Facility. It also contains the following acknowledgment:

“[Veolia] acknowledges that the Customer is unable to vary Mine Water pumping rates without twenty-four hours prior notification from [MP Water], and that [Veolia] must at all times maintain not less than 42ML of available freeboard storage at the Mine Water Buffer Pond for the sole purpose of receiving Mine Water inflow from the Customers on an unfettered basis (‘Customer Freeboard’).”

28. If the Facility fails or ceases to be able to accept Mine Water at a capacity which is at least the Guaranteed Capacity for a continuous period of 48 hours, that constitutes a “Major Service Failure” as defined in clause 1.1 of the SPA. The occurrence of a Major Service Failure is one of the listed circumstances that fall within the definition of a “Services Provider Default”. Clause 42.2 of the SPA relevantly provides:

“(a) If the Services Provider commits a Services Provider Default, Project Co may give the Services Provider a written notice requiring the Services Provider to remedy the Services Provider Default (Services Provider Default Notice).

(b) A Services Provider Default Notice must:

(1) state that it is a Services Provider Default Notice;

(2) specify the alleged Services Provider Default; and

(3) if the Services Provider Default is:

(A) capable of being remedied, specify a time and date by which the Services Provider must remedy the Services Provider Default, which must allow for a reasonable period of time to remedy the Services Provider Default in the circumstances; or

(B) not capable of being remedied, specify the requirements of Project Co which the Services Provider must comply with in order to overcome the effects of the Services Provider Default and a time and date by which the Services Provider must comply with those requirements, which must allow for a reasonable period of time to overcome the effects of the Service Provider Default in the circumstances.

(Applicable Cure Period).

(ba) Not used.

(c) Upon receipt of a Services Provider Default Notice, the Services Provider must remedy the Services Provider Default or comply with the requirements of Project Co to overcome the effects of the Services Provider Default by the time prescribed by, and otherwise in accordance with the Services Provider Default Notice.

(d) Not used.

…”

29. As the primary judge observed at [104], the WTSC contains provisions with which the default provisions of the SPA essentially operate back-to-back. The WTSC defines “Major Service Failure” in the same terms as the definition in the SPA, save that the failures in items 1 and 2 of the former definition refer to failures by “Project Co” (that is, MP Water) rather than by the Services Provider. The definition of a “Project Co Default” in the WTSC includes “where … a Major Service Failure occurs”. Additionally, clause 42.2 of the WTSC permits the Customer to issue a “Project Co Default Notice” if MP Water commits a “Project Co Default”. The requirements for a “Project Co Default Notice” and the rights and obligations of the Customer and MP Water in relation to such a notice under clause 42.2 of the WTSC are the same in all relevant respects as those in clause 42.2 of the SPA.

30. A Services Provider Default that has not been remedied, or the effects of which have not been overcome, in accordance with clause 42.2, falls within the scope of a “Services Provider Default Termination Event”, as defined in clause 1.1 of the SPA.

31. Clause 44 is central to the present proceedings. It provides as follows:

“Step-in Rights

(a) If at any time during the Operations Phase:

(1) a Services Provider Default Termination Event occurs;

(2) a Services Provider Default occurs and the Services Provider has failed to diligently pursue the relevant Services Provider Default Notice; or

(3) it is necessary for Project Co to take immediate action to discharge its statutory duties or powers, or comply with its obligations under applicable Laws and Approvals,

(4) a ‘Project Co Default Termination Event’ occurs under and as defined in the WTSC;

(5) a ‘Project Co Default’ occurs under and as defined in the WTSC and Project Co has failed to diligently pursue the relevant ‘Project Co Default Notice’ under and as defined in the WTSC; or

(6) it is necessary for the Customer to take immediate action to discharge its statutory duties or powers, or comply with its obligations under applicable Laws and Approvals,

Project Co (in the case of paragraphs (1) to (3)) or the Customer (in the case of paragraphs (4) to (6) and in accordance with clause 44 of the WTSC) may elect, and if it so elects the Services Provider will assist Project Co or the Customer wherever and however possible to ensure that Project Co or the Customer is able, to:

(7) temporarily take or assume total or partial possession, management and control of the Facility (or any part of the Facility) and the provision of the Services (or any of them);

(8) take such other steps as are necessary or desirable to continue the provision of the Services as required by this Contract or to minimise the risk to the Environment, to other members of the general public or of material damage to the Facility, as applicable; and

(9) do anything which the Services Provider is entitled to do under an O&M Project Contract or with respect to the Project.

(each a Step-in Right).

(b) When exercising Step-In Rights, Project Co will use (or procure that the Customer uses) reasonable endeavours to operate the Facility in a manner which is consistent with the provision of the Services required by this Contract.

(c) Each of Project Co and the Customer may exercise its Step-in Rights without prior notice to the Services Provider but Project Co will, if reasonably practical to do so, give prior notice to the Services Provider and in any event will, as soon as practical, provide notice to the Services Provider that it or the Customer is exercising its Step-in Rights.

(d) Upon either Project Co or the Customer exercising its Step-in Rights, the Services Provider’s rights and obligations under this Contract are suspended to the extent necessary to permit Project Co or the Customer to exercise those Step-in Rights.

(e) The Services Provider:

(1) irrevocably appoints Project Co, and such persons as are from time to time nominated by Project Co, jointly and severally as its attorney with full power and authority to exercise its Step-in Rights; and

(2) agrees to ratify and confirm whatever action an attorney appointed under clause 44(e)(1) takes in accordance with that clause.

(f) If Project Co or the Customer has exercised its Step-in Rights, it may cease to exercise those Step-in Rights at any time and in any event Project Co will cease (or will procure that the Customer will cease) to exercise those Step-in Rights as soon as:

...

(2) if Project Co has exercised its Step-in Rights pursuant to clause 44(a)(2), the Services Provider Default has been remedied or its effects overcome or Project Co ceases to pursue a remedy or the overcoming of its effects;

…

(g) Project Co or the Customer may elect to cease to exercise its Step-in Rights without prior notice to the Services Provider but Project Co will (or procure that the Customer will), if reasonably practical to do so, give prior notice to the Services Provider and in any event will (or procure that the Customer will), as soon as practical, provide notice to the Services Provider that Project Co or the Customer has ceased to exercise its Step-in-Rights.

(h) The Services Provider acknowledges and agrees that:

(1) neither Project Co nor the Customer will have any liability to the Services Provider, and the Services Provider will not be entitled to make any Claim and the Services Provider releases Project Co and the Customer from any such Claim, arising out of or in connection with the exercise of Step-in Rights by Project Co or the Customer, subject to Project Co’s express obligations under this clause 44 and except to the extent that such liability or Claim is a result of a fraudulent, unlawful or negligent act or omission of Project Co or the Customer;

(2) neither Project Co nor the Customer is obliged to remedy or overcome the effects of any Services Provider Default Termination Event, Services Provider Default, ‘Project Co Default Termination Event’ (as defined in the WTSC) or ‘Project Co Default’ (as defined in the WTSC), or overcome or mitigate any risk or risk consequences in respect of which Project Co or the Customer exercises Step-in Rights;

(3) the exercise of any Step-in Rights does not limit any other right of Project Co under this Contract or the Customer under the WTSC, including any rights arising pursuant to the applicable Services Provider Default Termination Event or Project Co Default Termination Event (as defined in the WTSC); and

(4) it will not (by act or omission) do anything which materially prejudices or frustrates Project Co’s or the Customer’s exercise of its Step-in-Rights.

(i) Upon Project Co or the Customer ceasing to exercise any Step-in-Rights pursuant to clause 44(g):

(1) the Services Provider must immediately recommence performance of the Services Provider’s obligations which were suspended pursuant to clause 44(d); and

(2) Project Co will (or procure that the Customer will), at the cost and expense of:

(A) the Services Provider, to the extent the Step-In Right has been exercised under clause 44(a)(1) or 44(a)(2), or clause 44(a)(4) or 44(a)(5) (where caused or contributed to by the Services Provider or a Services Provider Responsible Party);

(B) Project Co, to the extent the Step-In Right has been exercised under clause 44(a)(3), 44(a)(4), 44(a)(5) or 44(a)(6) where not caused or contributed to by the Services Provider or Services Provider Responsible Party,

give reasonable assistance to the Services Provider to ensure that the process of Project Co or the Customer ceasing to exercise Step-in Rights and the Services Provider recommencing to the perform its obligations is effected as smoothly as possible.

(j) During any period in which Project Co or the Customer has exercised its Step-in Rights then for so long as and to the extent that the Step-in Rights are being exercised in a manner preventing the Services Provider from providing any part of the Services:

(1) the Services Provider will be relieved from its obligations to provide that part of the Services and no further Services Provider Default or Services Provider Default Termination Event will arise to the extent caused by the exercise of the Step-in Rights;

(2) in circumstances of a Step-in Right being exercised pursuant to clauses 44(a)(1) and 44(a)(2), or clauses 44(a)(4) and 44(a)(5) (where caused or contributed to by the Services Provider or a Services Provider Responsible Party), the O&M Charges for the relevant Month will be reduced by:

(A) the greater of any costs avoided by the Services Provider and the amount of the costs actually incurred by Project Co or the Customer in providing the relevant Services; and

(B) the costs incurred by Project Co or the Customer in curing the Services Provider Default, Services Provider Default Termination Event, ‘Project Co Default’ (as defined in the WTSC) or ‘Project Co Default Termination Event’ (as defined in the WTSC); and

(3) in circumstances of Step-in Rights being exercised pursuant to clause 44(a)(3) or 44(a)(6), the O&M Charges for that Month will be reduced by the amount Project Co reasonably determines to be the amount of the costs not incurred by the Services Provider by reason of the exercise of that Step-in Right.

(k) The Services Provider acknowledges that Project Co or the Customer may exercise any Step-in Right through a delegate or nominee of Project Co or the Customer (as applicable).”

32. As the primary judge noted at [108], the Customer has equivalent Step-in Rights against MP Water under clause 44 of the WTSC.

Commencement of the SPA

33. Given the argument on the Notice of Contention, it is necessary to say something briefly about the provisions of the SPA regarding its commencement. I noted above that clause 19 of the SPA refers to Veolia’s obligation to provide the Services during the “Operations Phase”. That term is defined in clause 1.1 of the SPA as “the period commencing on the Services Commencement Date and expiring on the Expiry Date or earlier termination of this Contract”: at [70]. Clause 8.3 of the SPA also requires Veolia to commence performing the Services on the “Services Commencement Date”. Relevantly for present purposes, that term involves a series of cascading definitions:

1. “Services Commencement Date” is defined in the WTSC, relevantly, as the day after the “Commercial Acceptance Date”.

2. “Commercial Acceptance Date” relevantly means the date set out in the “Commercial Acceptance Certificate” as the date on which “Commercial Acceptance” is achieved.

3. A “Commercial Acceptance Certificate” is a document that is identified as such and issued by the Independent Completion Certifier under subclauses 17.11(a) or (b), certifying that “Commercial Acceptance” has been achieved and from what date. Subclause 17.11(a), which is the relevant subclause for present purposes, provides:

“The Independent Completion Certifier must issue a Commercial Acceptance Certificate where Project Co has submitted a Commercial Acceptance Claim and the Independent Completion Certifier is satisfied that Commercial Acceptance has been achieved.”

34. The primary judge reproduced clause 17.6 of the WTSC, which deals with “Commercial Acceptance”, at [37] (clause 17.6 of the D&C Contract operates back-to-back with this clause). The clause provides that “Commercial Acceptance” means the stage in the execution of the Works when:

“(a) those Works are complete in accordance with this Contract except for minor Defects:

(1) which do not prevent those works from being used for the Intended Purpose;

(2) which the Independent Completion Certifier determines, acting reasonably, Project Co has reasonable grounds for not promptly rectifying;

(3) the existence and making good of which will not inconvenience or adversely affect the Customer, having regard to the Intended Purpose; and

(4) which do not cause any legal impediment to the use or occupation of the Works;

(b) the Works have achieved Provisional Commercial Acceptance;

(c) Project Co has delivered to the Customer and the Independent Completion Certifier:

(1) all Key Documents and other information required by this Contract to have been delivered by Project Co to the Customer, prior to Commercial Acceptance, in a form approved by the Customer acting reasonably;

(2) certification from each of Project Co’s Design consultants who performed design work in respect of the Works (in the form set out in Schedule 19) that those Works have been executed, and those Works completed, in accordance with the design prepared by that design consultant;

(3) certification from each of Project Co’s design consultants and proof engineers (in the form set out in Schedule 19) stating the Key Documents submitted by Project Co to the Customer comply with the requirements of this Contract; and

(4) certification from a licenced surveyor (in the form set out in Schedule 19) to the effect that the Works are within the boundaries required by this Contract and that the structural elements of the Works are within the spatial tolerances specified in this Contract;

(d) the Commissioning and the Acceptance Testing and all other tests required to be performed by this Contract prior to or at Commercial Acceptance, have been carried out, have been passed and demonstrate that those Works are in a state that is capable of being operated in accordance with this Contract;

(e) the Works have achieved the Guaranteed Flow and Process Capacity and Water Product Performance Standards;

(f) all Approvals (other than the Customer Approvals) which are necessary for the use of the Works in accordance with the requirements of this Contract have been obtained and are in effect and copies of which have been provided to the Customer and Independent Completion Certifiers; and

(g) any other matters or conditions required by this Contract in order to achieve Commercial Acceptance have been satisfied (including those specified in Annexure 10).”

The dispute regarding the re-purposing of Pond B

35. In 2018, MP Water passed on to Veolia two reports it had received from the Customer as constituting the Pond Baseline Condition Report pursuant to Schedule 20 of the D&C Contract. One of the two reports, prepared by Total Lining Systems (“TLS”), detailed a number of issues with the integrity of the liner in Pond B. The report gave rise to a disagreement as to whether the issues that TLS had identified would, or would reasonably be expected to, materially adversely affect Veolia’s performance of the Services under the SPA within the meaning of subclause 2(c)(3) of Schedule 20: at [128]. As the primary judge observed, “this disagreement was continuing almost two years after MP Water provided the TLS Report to Veolia”: at [129].

36. On 4 March 2020, Veolia wrote to MP Water advising that it did not accept any purported handover of Pond B and that MP Water needed to undertake remediation work: at [130]. In the same letter, Veolia stated that neither the handover of Pond B, nor any work required prior to handover, was “required to achieve (and accordingly does not impact the timing of) Commercial Acceptance on 5 March 2020”: at [131]. Veolia maintained this position, both as to the lack of handover of Pond B in accordance with the D&C Contract and not delaying Commercial Acceptance, in subsequent correspondence with MP Water dated 9 April 2020 and 14 May 2020: see [132]-[136].

37. On 29 May 2020, the Customer and MP Water entered into an agreement that the parties referred to as the “Side Agreement”: at [137]. The Side Agreement relevantly provided, in clause 2:

“Immediately upon signing of this letter by both parties, the Customer and Project Co will issue a joint instruction to the Independent Completion Certifier in the form of Annexure A in relation to completion of the ‘Deferred Works’ (Deferred Works), the settled solid and liner remediation works to Blowdown Pond B required to achieve the criteria set out in sections 2(c)(4) and 2(c)(5) of Schedule 20 of the WTSC and otherwise as set out in Annexure B to be performed in accordance with section 6 of Schedule 20 of the WTSC (Mine Water Buffer Pond Works) and the ‘Mine Water Buffer Pond Demonstration Criteria Work’ (Mine Water Buffer Pond Demonstration Criteria Work) as defined in Annexure C. …”

[Emphasis in original.]

38. Clause 3 of the Side Agreement provided that following the issue of the joint instruction to which clause 2 referred, the Independent Completion Certifier was promptly to assess “whether Commercial Acceptance has occurred in accordance with the Independent Certifier Deed of Appointment”. Clause 5 provided that if the Certifier issued a Commercial Acceptance Certificate, MP Water would issue the equivalent Commercial Acceptance Certificate to Veolia pursuant to clause 17.11 of the [D&C Contract].”

39. On 29 May 2020, MP Water and the Customer jointly issued an instruction to the Independent Completion Certifier in accordance with the Side Agreement. Among other things, the instruction stated that the Mine Water Buffer Pond Demonstration Criteria Work was not required to be completed as a pre-condition to Commercial Acceptance. It also stated:

“The Customer and Project Co have agreed that the Customer will procure the performance of the settled solid and liner remediation works to Blowdown Pond B required to achieve the criteria set out in sections 2(c)(4) and 2(c)(5) of Schedule 20 of the WTSC and otherwise as set out in Attachment 3 to be performed in accordance with section 6 of Schedule 20 of the WTSC (Mine Water Buffer Pond Works).”

40. The Independent Completion Certifier issued a letter dated 29 May 2020 as a Commercial Acceptance Certificate, stating that Commercial Acceptance was achieved on 29 May 2020. As the primary judge observed, the Certifier referred to issuing the certificate based on compliance with, inter alia, clause 17.6 of the WTSC: at [151]. In assessing compliance with that clause, the Certifier observed that the Mine Water Buffer Pond had not been commissioned or demonstrated as complete, “however has been agreed by the parties as a ‘Deferred Works Item’ under the instruction to the ICC”. The assessment also stated that the Mine Water Buffer Pond had been removed from acceptance testing during a commissioning meeting on 27 November 2019.

41. According to the primary judge’s summary, MP Water forwarded the Commercial Acceptance Certificate issued under the WTSC to Veolia, together with a certificate that MP Water issued under clause 17.11 of the D&C Contract. By this certificate, which was also dated 29 May 2020, MP Water notified Veolia that Commercial Acceptance had been achieved on that date and that it did not relieve Veolia of any of its obligations under the D&C Contract, including its obligation to perform the Works in accordance with that Contract: at [159].

42. On the following day, MP Water sent Veolia a notice of defects (“Defects Notice”), which included the “Mine Water Buffer Pond Defect”. This was defined as a “failure to perform the Commissioning and Acceptance Testing of the Mine Water Buffer Pond and treatment of MPPS Mixed Waters, Blowdown Diversion and Blowdown MF Waste at the Mine Water Buffer Pond prior to the Commercial Acceptance Date”: at [160]-[161]. MP Water directed Veolia to rectify the Mine Water Buffer Pond Defect, and other defects included in the notice, “within 10 Business Days of the date [Pond B] is handed over to [Veolia]”: at [163]. The handover of Pond B was to occur following completion of certain works by the Customer: at [163].

43. As foreshadowed in MP Water’s notice of defects, Energy Australia, on behalf of the Customer, engaged Lendlease Services Pty Ltd (“LLS”) to carry out rectification works on the lining of Pond B: at [165]. LLS carried out the work during August and September 2020. During this time, as agreed in the Side Agreement, the water that would otherwise have flowed into Pond B was diverted to Pond D: at [169].

44. On 26 October 2020, the Independent Completion Certifier wrote to MP Water and the Customer in relation to the completion of the Mine Water Buffer Pond Works, including references to supporting evidence: at [170]. On 2 November 2020, there was a meeting between the Customer, MP Water, and Veolia regarding the steps to be taken to hand over Pond B to Veolia, including removing the diversion of water to Pond D: at [177]. By letter dated 3 November 2020, MP Water informed Veolia that the Certifier had certified that the Mine Water Buffer Pond Works were complete, and that Pond B would be handed over to Veolia on 4 November 2020 to enable it to carry out the works referred to in the Defects Notice: at [178].

45. On 4 November 2020, in accordance with its letter of 3 November 2020, MP Water handed over Pond B to Veolia. The pipe diverting water to Pond D was removed on the same day: at [179]. As at that date, Pond B was “empty of liquids”: at [177].

46. Veolia commissioned a review of the Certifier’s letter of 26 October 2020 and the accompanying documents. Relying on the report it received, Veolia informed MP Water, by letter dated 6 November 2020, that it did not accept the “purported handover” of Pond B: at [187].

47. In the proceedings before the primary judge, Veolia contended that Pond B had not been handed over to it, either under the D&C Contract or the SPA, and that commissioning of Pond B had not occurred. It followed, on Veolia’s argument, that it was unable to treat water in Pond B: at [188]. The issues concerning the condition and integrity of the lining of Pond B were resolved in the proceeding below in favour of MP Water and are not directly challenged on appeal, except to the extent that Veolia submits on the Notice of Contention that the Facility did not exist under the SPA at the date of the “May Major Service Failure”: see [51] and [102] below.

The flow of water into Pond B

48. Following removal of the diversion to Pond D on 4 November 2020, water commenced flowing into Pond B. By email dated 21 April 2021, Veolia informed MP Water and the Customer that the volume of water in Pond B was at 72ML, and that water continued to flow into the pond. Having regard to the capacity of Pond B, the volume was above the maximum level permitted in order to maintain the minimum reserve storage of 42ML (see [27] above): at [190]. As the primary judge set out in [190], Veolia gave MP Water three options to address the situation: (1) permit further inflows to Pond B, effectively using up the capacity that was required to be maintained as customer freeboard; (2) MP Water could issue an instruction to Veolia under the SPA to treat the water in Pond B; or (3) the Mine Water flow could be reduced.

49. On 5 May 2021, Veolia wrote to MP Water. The primary judge summarised that letter at [191] (emphasis below in original):

“On 5 May 2021, Veolia wrote to MP Water under the SPA contending that the Mine Water Buffer Pond had not yet come into existence due to MP Water’s failure to handover Pond B and that Veolia therefore had no obligation to comply with clause 5.6 of the Scope of Services in the SPA to the extent that the requirements of that clause applied to the Mine Water Buffer Pond. Against the possibility that Veolia was obliged to comply with clause 5.6 of the Scope of Services (which was denied), Veolia gave notice pursuant to clause 28.2 of the SPA that it was prevented from doing so ‘because of [MP Water’s] wilful and entirely avoidable failure to handover Blowdown Pond B’.”

50. On 6 May 2021, following further correspondence between the parties on 5 May 2021, Veolia notified MP Water that the volume of water in Pond B had reached 85ML. It further advised that in order to prevent overflow or spillage from Pond B into the environment, the flow of Mine Water must stop before the water level in Pond B reached 90ML. Veolia referred to its power under the SPA to stop or reduce the flow of mine water in the event of an actual or expected overflow of Pond B, whilst also maintaining that the “Mine Water Buffer Pond” had not yet come into existence: at [194].

51. At 6:32pm on 6 May 2021, MP Water gave 24 hours’ notice to the Customer to stop Mine Water flow: at [195]. The Customer implemented the stop from approximately 7pm on 7 May 2021. On 10 May 2021, the Customer issued a Default Notice to MP Water under the WTSC, on the basis that a Major Service Failure had occurred because the Facility had failed or ceased to be able to accept Mine Water at the Guaranteed Capacity for a continuous period from 48 hours from the time the stop had been implemented. The primary judge referred to this Major Service Failure as the “May Major Service Failure”, and to the Customer’s notice as the “10 May WTSC Default Notice”: at [196].

52. On 11 May 2021, after receiving the 10 May WTSC Default Notice, MP Water issued two notices to Veolia. It issued the first notice under clause 42.2 of the SPA (see [28] above) (“11 May SPA Default Notice”). MP Water stated that there had been a “Major Service Failure”, identifying the same failure to which the Customer referred in the 10 May WTSC Default Notice, and identified this as a Services Provider Default. MP Water also issued a direction to Veolia to ensure that Pond B would not overflow, and to recommence treating the Mine Water (“11 May SPA Direction”): at [200].

53. On 12 May 2021, Veolia disputed the 11 May Default Notice and the 11 May SPA Direction (although the letter disputing the latter set out two options for dewatering and commissioning Pond B): at [201]-[202]. In response, MP Water complained that Veolia had failed to comply with the 11 May SPA Direction and alleged that this constituted wilful and deliberate default under the SPA. MP Water directed Veolia to commence treatment of Mine Water and to attend an online conference that evening: at [203]-[204]. In its response on the same day, Veolia denied the allegations in MP Water’s letter: at [205].

54. Separately, but also on 12 May 2021, the Customer wrote to MP Water, maintaining that there had been a Major Services Failure and that MP Water was in default under the WTSC. The Customer required MP Water to remedy that default by restoring the Facility’s ability to accept Mine Water at the Guaranteed Capacity by 5pm that day: at [206].

The 13 May Step-in Notice

55. On 13 May 2021, MP Water issued the 13 May Step-in Notice to Veolia, which stated:

“This is a Step-in Notice under clause 44.1(a) and (b) of the SPA. Pursuant to clause 44(c) of the SPA, Project Co hereby notifies the Services Provider of its intention to exercise Step-in Rights for the sole purpose of remedying the Services Provider Default described in the Services Provider Default Notice.

The extent of the Step-in Right being exercised will be limited to the matters below.

With immediate effect, pursuant to clause 44.1 of the SPA, Project Co elects and the Services Provider, must assist Project Co wherever and however possible to ensure Project Co is able to exercise its Step-in Rights to:

(a) to commence treatment of Mine Water by providing the Services as set out in clause 19.1 of the SPA, and including treatment of Mine Water at the Facility delivered to the Services Provider pursuant to clause 20.1 (which includes all Mine Water currently in the Mine Water Buffer Pond, and Mine Water which has been placed or directed into that pond by the Services Provider) and specifically to accept and treat at the Facility:

(i) Mine Water at the rate of between 19ML per Day and 25ML per Day from the Mine Water Transfer Pipeline,

blended with

(ii) Mine Water at the rate of 1ML per Day from the Mine Water Buffer Pond or such greater amount that can be safely and effectively treated at the Facility so as to reduce the level in the Mine Water Buffer Pond to less than 80ML,

(b) take such other steps as are necessary or desirable to continue the provision of the Services as required by the SPA or to minimise the risk to the Environment, to other members of the general public or of material damage to the Facility, as applicable,

(the Step-in Direction).

Project Co will Step-in only to the limited extent and duration described above. Except to the extent and direction of that Step-in, the Services Provider’s obligations under the SPA are not and will not be suspended.

Project Co’s Representative will attend site for the purposes of the Step-in on Friday, 14 May 2021 at 9am and requires the Services Provider to make itself available for the purpose of implementing the Step-in Direction described above.

Once the Step-in Direction has been given [and], in Project Co’s opinion, the necessary steps to commence Mine Water Treatment as described in the Step-in Direction has occurred, Project Co will, by written notice to the Services Provider cease to exercise its Step-in Rights pursuant to clause 44(f) of the SPA (Project Co Step-out), unless Project Co gives a further notice. Upon the occurrence of the Project Co Step-out and, pursuant to clause 44(i)(1), the Services Provider must immediately recommence performance of those Services Provider’s obligations suspended pursuant to clause 44(d) of the SPA.

Project Co reserves its rights under the SPA and at law.”

[Emphasis in original.]

56. Veolia disputed that MP Water had any entitlement to step in and rejected the Notice as unlawful. Veolia declined to assist MP Water with what it described as the “purported” step-in and said that it would “not be complicit in an environmental incident or causing damage to the Facility as a result of the Step-in”: at [210].

Interim injunction

57. On 14 May 2021, MP Water filed a Summons in the Technology and Construction List seeking a mandatory interim injunction requiring that Veolia comply with the 13 May Step-in Notice. On 20 May 2021, Rees J granted the interim injunction. The primary judge described the injunction as requiring Veolia to comply with the 13 May Step-in Notice and to do “all things necessary to comply with any directions” given by MP Water, including “to treat the water in Blowdown Pond B using the Facility”: at [213].

58. In correspondence dated 12 August 2021, MP Water notified the Court that the level of water in Blowdown Pond B had reduced to a level below the 42ML minimum reserve, with a flow rate of 36ML/day. As a consequence of these events, MP Water advised that the effects of the Major Service Failure had been overcome, and that it had informed Veolia accordingly of its position: at [219].

The reasons of the primary judge regarding clause 44

59. Before addressing the primary judge’s construction of clause 44, it is necessary to note her Honour’s findings on a number of anterior issues. First, her Honour found that MP Water had complied with its obligations under Schedule 20 of the D&C Contract in relation to the Mine Water Buffer Pond by 26 October 2020, when the Independent Completion Certifier provided the letter to which I have referred in [43] above: at [384]. Secondly, her Honour found, contrary to Veolia’s submission, that the Mine Water Buffer Pond was available from early November 2020. It was Veolia’s failure to commission and test the Pond that caused the May Major Service Failure: at [385].

60. Thirdly, the primary judge found that Veolia failed to pursue and comply diligently with the 11 May SPA Default Notice: at [386]. This failure engaged subclause 44(a)(2) of the SPA, which refers to a Services Provider Default occurring and the Services Provider failing to diligently pursue the relevant Services Provider Default Notice.

The 13 May Step-in Notice and clause 44 of the SPA

61. The primary judge noted that the terms of the 13 May Step-in Notice “do not make it clear that MP Water intended only to direct Veolia to take the steps set out in (a) and (b) of the Notice (as opposed to MP Water itself taking those steps)”. Nonetheless, her Honour considered that MP Water’s submissions made it plain that “it intended the Notice to convey only that it would be issuing directions to Veolia”; and that this was “in fact all that MP Water purported to do in giving effect to the Notice”: at [388]. The primary judge summarised the issue between the parties in this regard as “whether Veolia’s obligation in clause 44(a) to ‘assist’ MP Water where MP Water elects to step in requires Veolia to comply with instructions or directions issued by MP Water specifying the steps to be taken by Veolia in providing the Services or overcoming the effects of a Services Provider Default”: at [378].

62. The primary judge stated that “if MP Water elects to step in under clause 44, Veolia’s obligation to assist requires it to do all things possible to ensure that MP Water is able to achieve all of the objectives in sub-clauses (7), (8) and (9) of clause 44(a)”. Contrary to MP Water’s submission that those three “sub-clauses” (which I will refer to as “paragraphs”) constituted separate rights, any one or more of which MP Water was entitled to exercise, her Honour considered that the paragraphs were cumulative: at [379]. It was also clear, in her Honour’s opinion, from the language used in subclauses (i)(2), (j)(2), and (j)(3), that the words “each a Step-in Right” referred to paragraphs (1) through (6) inclusive.

61. With the benefit of this context, the primary judge concluded the following regarding the operation of the text in the unnumbered paragraph in subclause 44(a) (at [380]):

“If one of the Step-in Rights under clauses 44(a)(1) to (3) is exercised, Veolia must do all things possible to ensure that MP Water is able to take possession, management and control of the Facility and the Services. It is plain from the word ‘and’ that the words ‘possession, management and control’ are a composite expression applying to both the Facility (or part of it) and the Services (or any of them). The possession, management and control may be total or partial, and may relate to only part of the Facility and some of the Services. However, sub-clause 44(a)(7) does not require Veolia to assist MP Water to take total or partial management of some or all Services (by issuing directions or instructions or instructions to Veolia) whilst Veolia remains in possession and control of the whole of the Facility and performs the Services under MP Water’s instructions.”

[Emphasis in original.]

64. The primary judge rejected MP Water’s submission that this construction involved reading an implied limitation into clause 44, describing it as “consistent with the ordinary meaning of the words in clause 44(a)” and reflecting “what a reasonable businessperson would have understood them to mean in the context of clause 44 as a whole”: at [381]. Her Honour accepted Veolia’s submission that the construction was also supported by the language of subclauses 44(b), (d), (i), and (j): at [381].

65. The primary judge rejected MP Water’s submission that the construction of clause 44 deprived it of a valuable right: at [382]. The avenue for MP Water to have Veolia do, or refrain from doing, a specific thing consistently with their respective contractual rights and obligations was “to apply to the Court for injunctive relief, including on an urgent interim basis”. Clause 44 provided MP Water with “a different right to step in and take total or partial possession, management and control in each of the circumstances referred to in clause 44(a)(1) to (3), and to require Veolia to step aside”.

MP Water’s ground of appeal

66. By its draft Notice of Appeal, MP Water advances the following ground:

“The primary judge erred in holding that clause 44 of [the SPA] did not confer on the appellant a power to direct the respondent as to the actions the respondent must undertake, and a correlative obligation imposed on the respondent to undertake the directed actions, to operate the Facility and provide the Services so as to overcome the Service Provider Default which her Honour had held to have occurred and which was the subject of the notice dated 13 May 2021 (capitalised terms as defined in the SPA).”

MP Water’s submissions

67. MP Water contended that each of paragraphs (1) to (6) in subclause 44(a) constitutes a condition the satisfaction of which enlivens the election referred to in the unnumbered paragraph that follows paragraph (6). It submitted that the primary judge was wrong to read the parenthetical phrase “(each a Step-in Right)” as accompanying those paragraphs. Instead, the definition accompanied subclauses 44(a)(7), (8), and (9), which identify the actions MP Water can elect to take in the event that one or more of paragraphs (1) through (6) are satisfied.

68. MP Water submitted that the list in paragraphs (7), (8), and (9) is expansive. Contrary to the construction that the primary judge adopted, the paragraphs should be read dispersively, such that MP Water does not have to do everything for which those paragraphs provide. This would give work to the word “each” in the phrase “each a Step-in Right”. Similarly, the use of the singular form in subclause 44(i) and subclauses 44(j)(2) and (3) indicated that each of the rights within or as between paragraphs (7), (8), and (9) in subclause 44(a) could be exercised without the others.

69. MP Water emphasised in this regard the terms of paragraph (7), which accommodates the temporary taking or assumption of “total or partial possession, management and control”, of the Facility “(or any part the Facility)”, and the provision of the Services “(or any of them)”. Contrary to the primary judge’s construction of “possession, management and control” as a cumulative phrase, MP Water submitted that when read with the qualifying words “total or partial”, the phrase should be construed in a “distributive sense”. It conferred on MP Water the right and power to take or assume so much possession, management and control as necessary to remedy that which engaged the power. MP Water submitted that the giving of a direction as to the operation of the Facility in the 13 May Step-in Notice fell within the terms of paragraph (7), as it involved taking or assuming at least partial possession, management and control of the Facility and of the provision of the Services.

70. MP Water submitted that the correlative obligation imposed on Veolia is to assist it “wherever and however possible to ensure [MP Water] … is able” to take the action variously referred to in paragraphs (7), (8), and (9). MP Water submitted that “assist” is not a word of limitation, and that the words “wherever and however possible” were broad in their scope. The language accommodated Veolia doing such things as were necessary to give effect to a direction that MP Water issued.

71. Consistently with its construction of subclause 44(a), MP Water submitted that, subclauses 44(d), (i), and (j) contemplate that the performance of the obligation to operate the Facility and provide the Services may be shared, providing for a limited suspension of Veolia’s rights and obligations (and, conversely, their recommencement). It relied in this respect, for example, on the qualifying language “to the extent necessary” in subclause 44(d), and “for so long as and to the extent that the Step-in Rights are being exercised” in subclause 44(j)(2). MP Water submitted that on its construction, where Veolia provided the Services at its direction, subclause 44(j)(1) would relieve Veolia of its obligation to provide the Services, such that no further Services Provider Default or Services Provider Default Termination Event would arise “to the extent caused by the exercise of the Step-in Rights”. In the meantime, pursuant to subclause 44(j)(2), Veolia’s remuneration would continue, subject to adjustment for MP Water’s costs or for Veolia avoiding certain costs.

72. MP Water submitted that its construction was consistent with the remedial nature of the power in clause 44, engaged by “consequences which are at least potentially severe (flooding of the mines and shutting down the power plant)”. It contended that viewed through the lens of reasonable people of commerce, there was “every reason to ensure the remedial power is given the full amplitude of the language used”. MP Water also noted that it was known to the parties that it was a special purpose vehicle which did not employ staff who were capable of operating the Facility. This supported subclause 44(a) being construed so as to permit MP Water to direct Veolia, as “the skilled contractor”, in relation to the functions to be performed. It was significant in this respect that the SPA was a long-term relational contract, “in which many circumstances for the exercise of power may arise”, including potential environmental or other emergencies.

73. Relying on the broad terms in which the obligation on Veolia to assist is formulated, and the objects to which that assistance is directed, MP Water submitted that the primary judge erred in concluding that subclause 44(a) did not authorise the issuing of the directions in the 13 May Step-in Notice. On its construction, where MP Water said the Facility had to be operating and Veolia said it could not be operated, subclause 44(a) authorised MP Water to direct Veolia to operate the Facility and required Veolia to comply with that direction.

Veolia’s submissions

74. Veolia submitted that requiring it to “operate” the Facility or “take such other steps as are necessary or desirable to continue the provision of the Services” did not constitute “assistance” within the meaning of paragraph (7) of subclause 44(a). In its submission, it was for MP Water (or the Customer) to take the actions which are contemplated in subclauses 44(a)(7) to (9). Veolia’s role was not to undertake those actions at the direction of MP Water but only to assist in their undertaking.

75. Senior Counsel for Veolia placed particular emphasis in this regard on subclause 44(h), in which Veolia makes a series of acknowledgments, including, relevantly:

“(1) neither Project Co nor the Customer will have any liability to the Services Provider, and the Services Provider will not be entitled to make any Claim and the Services Provider releases Project Co and the Customer from any such Claim, arising out of or in connection with the exercise of Step-in Rights by Project Co or the Customer, subject to Project Co’s express obligations under this clause 44 and except to the extent that such liability or Claim is a result of a fraudulent, unlawful or negligent act or omission of Project Co or the Customer; …”

[Emphasis added.]

76. Senior Counsel gave as an example a third-party contractor taking possession on behalf of MP Water exercising its rights under clause 44, where compliance with a direction from MP Water caused an environmental overflow or other safety risk. In that circumstance, the third-party contractor would have the usual entitlement of an agent to make a claim for indemnity against MP Water as principal, in relation to damage caused by implementing the instruction. By contrast, if on MP Water’s construction of clause 44, Veolia were required to perform the role of a third-party contractor, subclause 44(h) would preclude it from being indemnified by MP Water in the same circumstance. Instead of construing the provision as bringing about that uncommercial consequence, the words in the chapeau to paragraph (7) of subclause 44(a) could be construed to mean exactly what they say: Veolia’s role, as service provider, is only to “assist” MP Water (or the Customer).

77. Veolia submitted that the primary judge’s construction to this effect was consistent with subclause 44(b), implicit in the terms of which was that MP Water was to undertake the operation of the Facility and provision of the Services. That construction was also consistent with subclause 44(d), which refers to Veolia’s rights and obligations being “suspended to the extent necessary to permit Project Co or the Customer to exercise those Step-in Rights”. Veolia also relied on subclause 44(i)(1), which mirrors subclause 44(d), and the reference to Veolia “recommencing to perform its obligations” in subclause 44(i)(2), upon the cessation of MP Water exercising Step-in Rights pursuant to subclause 44(g).

78. Additionally, Veolia submitted that the terms of subclause 44(j)(1) were consistent with Veolia being relieved from its obligations, as was subclause 44(j)(3), which deals with operation and maintenance (“O&M”) charges. Veolia submitted that the content of subclause 44(j)(3) was consistent with a third party carrying out the operation and maintenance of the Facility and was inconsistent with Veolia operating the Facility during the period of a step-in notice. Senior Counsel for Veolia summarised the argument on construction in this way:

“All of these clauses work consistently to produce a situation such that it is Project Co or the Customer that is performing the acts and the service provider has to stand back from their usual rights and obligations to allow those acts to be performed.

Consistently with that, they [being Veolia] have no right to claim any indemnity from that standing back. That’s entirely a different scenario if instead of standing back and not performing acts this clause was authorising instructions to be given to the service provider to be performing those acts and making itself, therefore, liable to third parties.”

79. In response to the argument that MP Water lacked sufficiently qualified staff to carry out those tasks, Veolia submitted that MP Water could retain subcontractors. In any event, the Court had no power to remake the bargain between the parties notwithstanding that the wording of the clause may create an inconvenient result.

Consideration

80. There was no dispute between the parties as to the principles that apply to the construction of commercial contracts, which are well established. The primary judge adopted Bathurst CJ’s summary of the principles in Lawrence v Ciantar [2020] NSWCA 89 (Meagher and Gleeson JJA agreeing), where his Honour stated at [98]-[99]:

“The principles surrounding the construction of commercial contracts in this country are well established. In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], the plurality (French CJ, Hayne, Crennan and Kiefel JJ) stated that ‘[t]he meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean’ in context. The Court stated that ‘it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract’: see also Mount Bruce Mining [Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37] at [46]-[49]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [78]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]; Victoria v Tatts Group Ltd (2016) 90 ALJR 392; [2016] HCA 5 at [51].

In Mount Bruce Mining it was pointed out at [46] that context includes ‘the entire text of the contract as well as any contract, document or statutory provision referred in the text of the contract’.”

81. Clause 44 of the SPA applies “at any time during the Operations Phase”, at the election of MP Water or the Customer upon the occurrence of one or more of the circumstances for which paragraphs (1) to (6) of subclause 44(a) make provision. Paragraphs (1) to (3) prescribe circumstances on the basis of which MP Water can elect to take action, while paragraphs (4) to (6) prescribe equivalent circumstances in relation to the Customer under the upstream WTSC.

82. Paragraphs (1) and (2), and (4) and (5), anticipate equivalent events under the SPA and the WTSC respectively, namely, the occurrence of a default termination event due to a failure on the part of Veolia (or MP Water in the case of the WTSC) “to diligently pursue” a default notice. By contrast, paragraphs (3) and (6) do not depend on any default or failure of Veolia or MP Water. Rather, they turn on the necessity for MP Water or the Customer to take “immediate action” to discharge statutory duties or powers, or to comply with legislative or other requirements. That necessity may arise as a consequence of, or with the contribution of, conduct by Veolia (in the case of the SPA) or MP Water (in the case of the WTSC). Alternatively, the circumstances to which the clause refers may arise without Veolia or MP Water being wholly or even partially responsible.

83. In concluding that each of paragraphs (1) to (6) were the subject of the definitional phrase “each a Step-in Right”, her Honour relied on the language of subclauses (i)(2), (j)(2), and (j)(3): at [379]. Although her Honour did not identify the particular language of those subclauses, each adopts the singular form “Step-in Right”. Each also refers to that “Right” being, or having been, “exercised under” (subclause (i)(2)) or “exercised pursuant to” (subclause (j)(2) and (3)) particular paragraphs in subclause 44(a).

84. Read in isolation, those features of subclauses (i)(2) and (j)(2), and (j)(3) of clause 44 may suggest that the words “each a Step-in Right” refer to paragraphs (1) to (6) in subclause 44(a). However, as a matter of structure, the conclusion her Honour reached is not consistent with the placement of the defined term at the end of subclause 44(a). More significantly, reading subclauses (i) and (j) as a whole does not support the construction that her Honour adopted. Instead, the language her Honour relied on was selected to delineate between the various circumstances to which paragraphs (1) through (6) refer, for the purposes of attributing responsibility for certain costs. By way of example, subclause (i)(2) provides:

(i) Upon Project Co or the Customer ceasing to exercise any Step-in-Rights pursuant to clause 44(g):

…

(2) Project Co will (or procure that the Customer will), at the cost and expense of:

(A) the Services Provider, to the extent the Step-In Right has been exercised under clause 44(a)(1) or 44(a)(2), or clause 44(a)(4) or 44(a)(5) (where caused or contributed to by the Services Provider or a Services Provider Responsible Party);

(B) Project Co, to the extent the Step-In Right has been exercised under clause 44(a)(3), 44(a)(4), 44(a)(5) or 44(a)(6) where not caused or contributed to by the Services Provider or Services Provider Responsible Party,

give reasonable assistance to the Services Provider to ensure that the process of Project Co or the Customer ceasing to exercise Step-in Rights and the Services Provider recommencing to the perform its obligations is effected as smoothly as possible.

[Emphasis added.]

Subclause (f) adopts a similar technique, albeit referring to the plural “Step-in Rights”, in order to identify the point at which MP Water or the Customer will cease to exercise the rights invoked under clause 44.

85. Accordingly, I accept MP Water’s submission that paragraphs (1) to (6) prescribe the circumstances that trigger the election referred to in the unnumbered paragraph, and do not each constitute a “Step-in Right”. Reading subclause 44(a) as a whole, the parenthetical definition is better construed as attaching to paragraphs (7), (8), and (9) as triggered by one or more of paragraphs (1) to (6) during the Operations Phase. That construction is supported when one sees how the defined term is deployed in the balance of clause 44, most frequently in the plural form and in combination with the verb “exercise”.

86. Having regard to the content of paragraphs (1) through (6), I also accept MP Water’s submission that the election that clause 44 confers on MP Water and the Customer is for a remedial purpose. Paragraphs (7), (8), and (9) collectively constitute the actions which MP Water (and the Customer) may elect to take if one or more of paragraphs (1) to (3), or (4) to (6), occurs. It is inherent in the use of the phrase “may elect” that MP Water may exercise some, or all, or none, of the actions so conferred.

87. If MP Water elects to take action that is the subject of paragraphs (7), (8), and (9), Veolia is required to “assist Project Co wherever and however possible to ensure that Project Co or the Customer is able to” take the action to which those paragraphs refer. The obligation imposed on Veolia is triggered by MP Water making an election and is correlative to the action MP Water takes pursuant thereto. The scope of the rights that MP Water and/or the Customer may elect to exercise thus informs the content of Veolia’s obligation to “assist”.

88. The primary judge held at [380] that paragraphs (7), (8), and (9) were cumulative, not separate, rights that MP Water (or the Customer) was entitled to elect to exercise. I agree that the use of “and” between (8) and (9) indicates that MP Water or the Customer may undertake all of the action to which paragraphs (7), (8), and (9) refer. However, it does not follow that MP Water or the Customer must take all of that action, which is what her Honour found at [379]. Nor, in my view, is it the case that in order to take the action described in (9), for example, MP Water or the Customer must also take the action described in (7) and (8).

89. The terms of each of paragraphs (7), (8), and (9) are expansive, individually contemplating differing degrees of action which MP Water can avail itself of, consistently with the remedial purpose of clause 44. Paragraph (8), for example, confers an entitlement to take “such other steps as are necessary or desirable either to continue the provision of the Services or to minimise risk to the Environment, the public or of material damage to the Facility”. The right that paragraph (9) confers is “anything” which Veolia “is entitled to do” either under an O&M Project Contract (which is defined by reference to a suite of agreements) or, even more generally, “with respect to the Project”.

85. The focus of the dispute in the present case is paragraph (7), pursuant to which MP Water may take or assume total, or partial, “possession, management and control” of the Facility and provision of the Services, or any part thereof. The composite phrase “possession, management and control” accommodates a broad range of action that MP Water may elect to take in response to the occurrence of one of the circumstances in paragraphs (1) to (3). MP Water may, for example, take or assume total possession, management and control of the Facility and provision of the Services; it may take or assume total possession, management and control of any part of the Facility and provision of any part of the Services; or it may take partial possession, management and control in either respect.

86. I agree with MP Water that, as a matter of language, the taking or assumption of total or partial possession, management and control of all or any part of the Facility and provision of all or any part of the Services accommodates MP Water giving a direction to Veolia. One can readily envisage a need for directions, for example where, by reason of MP Water’s election, Veolia remains in partial control of the whole Facility and provision of the Services, or in total or partial control of part of the Facility and part of the Services. Coordination would be necessary as between MP Water and Veolia, and directions would be an incident of the action MP Water has taken under the paragraph.

87. As a matter of language, the paragraph would also accommodate MP Water giving Veolia a direction as to the operation of part of the Facility, or the provision of some or all of the Services, of which MP Water takes or assumes possession, management and control pursuant to subclause 44(a). Such a direction would be an incident of MP Water’s taking or assumption of control of the Facility or part thereof, and/or provision of the Services or part thereof, in response to the occurrence of the circumstances in one of paragraphs (1) to (3). Construing subclause 44(a) as encompassing the giving of such a direction to Veolia would be consistent with the remedial purpose of clause 44, and with the types of circumstances which might trigger its exercise. That includes, for example, the necessity for MP Water “to take immediate action” to discharge its statutory duties or powers, or comply with its obligations under applicable Laws and Approvals” in paragraph (3).

88. If MP Water “so elects” to take action pursuant to paragraph (7), Veolia “will assist wherever and however possible to ensure that [MP Water] is able to” take the action the subject of its election. Consistently with Veolia’s correlative function, the terms in which its obligation to assist is formulated are capable of expanding or contracting to meet the extent of such “possession management and control” that MP Water elects to take (total or partial; as to the whole or any part of the Facility and/or any part of the Services). The ultimate end of that assistance, however, is to ensure that MP Water is able to achieve its elected level of control over the Facility and the Services.

89. Having regard to the purpose of the clause, I consider that where MP Water has determined to take action pursuant to paragraph (7) of subclause 44(a), the clause authorises a direction of the nature that it issued in the 13 May Step-in Notice. Further, the correlative obligation that the clause imposes on Veolia to “assist” MP Water extends to Veolia operating the Facility and providing the Services at MP Water’s direction.

90. The primary judge’s conclusion to the contrary rested on a number of matters. First, towards the end of [380], her Honour considered the construction for which MP Water contended was anomalous:

“sub-clause 44(a)(7) does not require Veolia to assist MP Water to take total or partial management of some or all of the Services (by issuing directions or instructions or instructions to Veolia) whilst Veolia remains in possession and control of the whole Facility and performs the Services under MP Water’s instructions.”

[Emphasis added.]

96. Properly understood, and assuming for present purposes that Veolia’s conduct in the lead-up to the 13 May Step-in Notice fell within paragraph (2) of subclause 44(a), the Notice constituted the manifestation of an election on the part of MP Water to take or assume partial “possession, management and control” of the Facility and provision of the Services, or some part thereof. It certainly involved more than the assumption of total or partial management of the Services, from which it followed, inexorably, that Veolia did not “remain in possession and control of the whole Facility”. The passage I have emphasised in the extract above indicates that her Honour’s reasoning proceeded in this regard on a false dichotomy.

97. That the dichotomy was significant to the primary judge’s construction of subclause 44(a) can be seen in the following paragraph of her Honour’s reasons. After referring to the consistency of her preferred construction with the ordinary meaning of the words in subclause 44(a), reflecting “what a reasonable businessperson would have understood them to mean in the context of clause 44 as a whole”, her Honour referred with approval to Veolia’s reliance on the language of subclauses 44(b), (d), (i), and (j), stating:

“Those clauses describe the consequence of the exercise of a Step-in Right as being that MP Water (or, where applicable, the Customer) will be operating the Facility or part of the Facility (clause 44(b)) and that Veolia’s rights and obligations under the SPA will be suspended to the extent necessary to facilitate that (clause 44(d)). Veolia is relieved from its obligations to provide the Services ‘for so long as and to the extent that’ MP Water’s exercise of the Step-in Rights has prevented Veolia from providing the Services (clause 44(j)(1)). The quoted words convey that the exercise of the Step-in Rights will prevent Veolia from providing the Services to some extent. That is consistent with the Step-in Rights involving MP Water taking total or partial possession, management and control of the Facility and the provision of the Services, rather than merely instructing or directing Veolia what to do for the purpose of Veolia providing the Services. It also explains the requirement for Veolia to ‘recommence’ the performance of the Services upon MP Water (or the Customer) ceasing to exercise the Step-in Rights (clause 44(i)).”

[Emphasis added.]

98. The emphasised passage in the above extract again shows reliance on the false dichotomy that giving a direction in the terms of the 13 May Step-in Notice did not also constitute the assumption of possession, management and control within the meaning of paragraph (7). If that were correct, it would indeed be the case, as her Honour found, that subclause 44(b) would have no work to do, because the issuing of an instruction to Veolia would not constitute operating the Facility. There would also be no cause to suspend Veolia’s rights and obligations under the SPA under subclause 44(d). The similar language in sub-clause (j) (to which I have referred above), and the notion of Veolia “recommencing” the performance of the Services in clause 44(i), would also be of no utility. Absent the false dichotomy, however, those clauses operate in a manner that does not derogate from the construction for which MP Water contended, and which I accept. The terms of those clauses accommodate MP Water (or the Customer) taking or assuming differing degrees of possession, management and control over the Facility and the Services.

99. The strongest argument that Veolia advanced in support of the construction adopted by the primary judge related to subclause 44(h) (see [75] above). However, as Senior Counsel for MP Water observed in reply, the release of indemnity in subclause 44(h) that Veolia emphasised is subject to MP Water’s express obligations under clause 44. Senior Counsel for MP Water referred in this respect to subclause 44(b), which requires MP Water to use reasonable endeavours to operate the facility in a manner consistent with the provision of the Services. If MP Water failed to do that, he submitted, there would be a breach of clause 44 and the release from liability would be negated. The release in clause 44(h) is also subject to any fraudulent, unlawful, or negligent act or omission of MP Water. The inclusion of those exceptions is consistent with Veolia’s general acceptance of the risks and costs associated, inter alia, with the performance of the Services, the operation and maintenance of the Facility and the processing of Mine Water by the Facility: see clause 9.3 of the SPA.

100. To the extent that a question remains as to whether it made commercial sense for Veolia to agree to subclause 44(h) in so far as it limits its avenues of recourse when directed by MP Water (or the Customer) to operate and maintain the Facility pursuant to subclause 44(a), the observations of Edelman J in H Lundbeck A/S v Sandoz Pty Ltd; CNS Pharma Pty Ltd v Sandoz Pty Ltd (2022) 399 ALR 184; [2022] HCA 4 at [104] are apposite:

“Whilst it will always be an important matter of context for the interpretation of a commercial agreement if an interpretation would be ‘commercial nonsense’, it will rarely assist for the interpretation of an agreement that the court considers that, from the perspective of one party, one or more clauses are not commercially wise or convenient. As Neuberger LJ said in Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [[2006] EWCA Civ 1732 at [22]]:

[T]he court must be careful before departing from the natural meaning of the provision in the contract merely because it may conflict with its notions of commercial common sense of what the parties may must or should have thought or intended. Judges are not always the most commercially-minded, let alone the most commercially experienced, of people, and should, I think, avoid arrogating to themselves overconfidently the role of arbiter of commercial reasonableness or likelihood.”

[Full citations omitted.]

101. MP Water advanced a similar response to Veolia’s reliance on subclause 44(j) (see [78] above). Looking at subclause 44(j)(1), Veolia is still to be paid the O&M charges, reduced only by the greater of the costs avoided by Veolia or the amount of costs incurred by MP Water. In those circumstances, the subclause does not derogate from the construction for which MP Water contended. If Veolia undertakes performance of the Services, subject to the control or management of MP Water or by MP Water giving a direction, the commercial sense in the arrangement is apparent.

The notice of contention

102. By its Notice of Contention, Veolia submits that the primary judge erred in not dismissing MP Water’s claims on the basis that the Facility had not come into existence in contractual terms at the date of the “May Major Service Failure”. In the absence of such a failure, there could not have been any default on its part in failing to treat the mine water at 36ML a day.

Reasons of the primary judge on the Notice of Contention point

103. The primary judge addressed Veolia’s Notice of Contention point consistently with the nature of the issue as one that sought to answer MP Water’s complaint that there had been a Major Services Failure under the SPA. The primary judge summarised Veolia’s argument at [232]:

“Veolia submitted that a Major Service Failure of the kind relied on by MP Water occurs only if the ‘Facility’ (as defined in clause 1.1 of the SPA) fails or ceases to be able to accept Mine Water at a capacity of at least the ‘Guaranteed Flow and Process Capacity’ for 48 hours continuously. The relevant ‘Guaranteed Flow and Process Capacity’ is that specified in clause 5.3(a) of the Scope of Services for the ‘Water Treatment Facility’. The ‘Facility’ and the ‘Water Treatment Facility’ include the Mine Water Buffer Pond. The ‘Mine Water Buffer Pond’ as defined in the Scope of Services does not yet exist because Pond B has not yet been repurposed, commissioned and tested by Veolia. It was submitted that there was therefore no ‘Major Services Failure’ within the meaning of the SPA because there was no ‘Facility’ in existence that had failed or ceased to accept Mine Water.”

104. MP Water submitted to the primary judge that clause 8.3 of the SPA required Veolia to provide the Services from the Services Commencement Date, with clause 8.2 requiring that provision to be in accordance with the Scope of Services. The services in the Scope of Services included receiving Mine Water at the Mine Water Receipt points. Unless expressly provided otherwise by another provision of the SPA, subclause 20.2(a) of the SPA required Veolia to accept and process all Mine Water made available at the Mine Water Receipt Points subject to the Guaranteed Capacity: at [238]. MP Water contended that the only express provision which qualified that obligation was subclause 20.3(d), which neither party submitted was relevant. The primary judge considered that clause 35A also qualified Veolia’s obligation in subclause 20.2(a) but otherwise agreed with MP Water’s submission. It followed that Veolia was required to comply with subclause 20.2(a), which applied from the Services Commencement Date: at [243].

105. The primary judge stated that resolution of this issue turned on the proper construction of the definition of “Facility” as it applied in the context of the definition of “Major Service Failure” in the SPA, and the definition of “Mine Water Buffer Pond”: at [233], [245]. Her Honour accepted that Veolia’s obligation to perform the Services, including accepting Mine Water at the Guaranteed Capacity, did not arise until the Services Commencement Date: at [248]. Her Honour also accepted that by reason of the tying of the Services Commencement Date to the Commercial Acceptance Date under the WTSC, “the intention to be attributed to the parties to the SPA is that the Services Commencement Date would not occur before the Facility reached a sufficient state of completion to satisfy the Certifier that Commercial Acceptance had been achieved”. That said, the parties had employed specific and confined contractual mechanisms to give effect to that intention, in the definition of Services Commencement Date and the requirement for Veolia to provide the Services from that date, subject only to the limited qualifications for which the SPA made provision: at [249].

106. The primary judge noted MP Water’s submission that the definition of “Facility” was cast in the future tense as “the whole of the facility to be designed, engineered, procured, supplied, constructed, tested, commissioned, operated, maintained and owned by [MP Water] on the Site in accordance with the WTSC”. Having regard to that definition, her Honour considered that a reasonable businessperson would not have understood the definition of “Major Services Failure” to be engaged only in circumstances where each of those actions had occurred in relation to every element of the Facility (of which there were nine, each of which was in turn defined by reference to further components). Her Honour continued at [252]:

“Such a construction would require the parties to satisfy themselves of those matters in order to know whether, at any given time during the 15 year term, a failure to accept Mine Water at the Guaranteed Capacity would constitute a Major Services Failure. The position would be liable to change if, for example, latent defects were discovered in the design or construction of any element or component of the Facility that represented a departure from the requirements of the WTSC. In my opinion, that would give the definition of ‘Major Services Failure’ an impractical and uncommercial operation that would be inconsistent with the commercial purpose and object of the SPA, as referred to below. Veolia endeavoured to draw attention away from this outcome by submitting that it is only the nine elements that one has to take into account. However, this involves a rewriting of the definition of ‘Facility’ as limited to the nine elements, and also ignores the many components and parts included within each of the nine elements.”

107. The primary judge considered that the construction that was consistent with the apparent commercial purpose and object of the SPA was that in the context of the definition of “Major Service Failure”, the term “Facility” was “descriptive of the facility in the state in which it exists whenever there is a cessation or failure after the Services Commencement Date to achieve the Guaranteed Capacity for a continuous period of 48 hours”: at [253]. The Customer required extraction of water for safety reasons, and to comply with relevant laws, on an ongoing basis. Any decrease in the rate of Mine Water acceptance below the Guaranteed Capacity required prior notice, and only then in very limited circumstances: at [254]. Her Honour considered that it would be inconsistent with the purpose of the requirements, and would create much uncertainty for MP Water in discharging its obligations under the WTSC, if the Guaranteed Capacity obligations in the SPA were subject to change according to the state of the Facility at any given time: at [255].

Submissions on the Notice of Contention

108. As was the case below, Veolia’s argument on the Notice of Contention relied on the definition of Major Services Failure in clause 1.1 of the SPA, which relevantly includes, in item 3:

“3   The Facility fails or ceases to be able to accept Mine Water at a capacity which is at least the Guaranteed Flow and Process Capacity for a continuous period of 48 hours (unless otherwise agreed in writing by Project Co).”

109. Veolia submitted that the terms of this definition assume the existence of the Facility. The definition of Facility, which I have set out at [17] above, includes, relevantly, the Mine Water Buffer Pond. The definition of Mine Water Buffer Pond, which I have set out at [18] above, relevantly includes its being “commissioned” by the Construction Contractor, Veolia. In the 11 May 2021 SPA Default Notice that MP Water issued to Veolia, to which I have referred in [52] above, MP Water described the Mine Water Buffer Pond as not having been commissioned. Veolia submitted that it followed that the Facility as defined did not exist, and that item 3 of the definition of Major Services Failure was not satisfied and could not be relied on for the purposes of clause 44 of the SPA. Veolia further submitted that the primary judge erred in reaching the contrary conclusion as at the date of the May Major Service Failure.

110. MP Water submitted that Veolia was seeking to take advantage of what it now accepts was a breach of the SPA, namely, its failure to repurpose Blowdown Pond B as the Mine Water Buffer Pond. It submitted that Veolia’s argument was inconsistent with the ordinary meaning of the language used in the definition of “Facility”, in particular the use of the future tense in the definition. MP Water submitted that if Veolia’s argument were accepted, it would render ineffective the creation by the SPA of the many rights and obligations expressed, in considerable detail, by reference to the “Facility” either directly or indirectly.

111. MP Water further submitted that Veolia’s argument subverted the regime in the SPA for Commercial Acceptance. The certification regime in the SPA determined, amongst other things, when Veolia’s obligations to provide the “Services” under the SPA come into effect. That was the “Services Commencement Date” or “Commercial Acceptance Date”, being 29 May 2020 (the date on which the Independent Completion Certifier issued the “Commercial Acceptance Certificate” under the WTSC) (see [40] above). Senior Counsel for MP Water submitted that what the parties contemplated in clause 8.3 of the SPA was that the Services would commence on the Services Commencement Date, one of which was the Guaranteed Capacity in clause 5.3 of the Scope of Services. The obligation to provide the Services was not contingent on the occurrence of construction, testing, maintenance and operation of all of the components that Veolia promised to design, test, construct, maintain and operate.

Consideration

112. The primary judge was correct to dismiss the argument that Veolia raises on the Notice of Contention. As her Honour observed at [237]-[243], the SPA makes specific and careful provision for the commencement of Veolia’s obligations to provide the Services under the SPA, including Veolia’s obligation in subclause 20.2(a) to accept and process Mine Water. Veolia’s submissions in reliance on the definition of Facility and Mine Water Buffer Pond, if accepted, would subvert the regime in the SPA dealing with commencement of those obligations: [249]-[250].

113. Given the use of the future tense, the definition of Facility in clause 1.1 of the SPA does not need to be read, and should not be read, as requiring each of the component parts to have been “designed, engineered, procured, supplied, constructed, tested and commissioned” and “being operated and maintained in accordance with the WTSC”: at [252]. There is significant force in the primary judge’s reasoning at [252] that this would be unworkable having regard to the many components and parts included within each of the nine elements making up the Facility. In particular, before the parties could know whether a failure to accept Mine Water at the Guaranteed Capacity constituted a Major Service Failure, the parties would first need to satisfy themselves as to whether each and every component of the Facility had those features.

114. The preferable construction, which the primary judge adopted at [253], is to understand the term “Facility” in item 3 of the definition of Major Service Failure as descriptive of the Facility in the state in which it exists whenever there is a cessation or failure after the Services Commencement Date to achieve the Guaranteed Capacity for a continuous period of 48 hours. I agree with her Honour’s conclusion that this construction was consistent with the commercial purpose of the SPA and also the safety objects which its provisions are intended to serve. It follows that I would not uphold Veolia’s Notice of Contention.

Conclusion

115. I propose the following orders:

1. Grant leave to appeal.

2. Order that the applicant file a notice of appeal in accordance with the draft Notice of Appeal within 7 days.

3. Appeal allowed.

4. Set aside orders 1 and 2 of the orders of the primary judge dated 13 August 2021.

5. Declare that clause 44 of the contract between the parties, described in the Services Provider Agreement (SPA) conferred on the appellant a power to direct the respondent as to the actions the respondent must undertake, and a correlative obligation imposed on the respondent to undertake the directed actions, to operate the Facility and provide the Services so as to overcome the Service Provider Default which had occurred and which was the subject of the notice dated 13 May 2021 that the appellant gave to the respondent (each of the capitalised terms as defined in the SPA).

6. Remit the costs of the proceedings below to the trial judge.

7. The respondent pay the appellant’s costs of the appeal.

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Amendments

18 August 2022 - 18 August 2022 - The Respondent's name corrected on the coversheet and in the headnote.

Decision last updated: 18 August 2022