North Queensland Pipeline No 1 Pty Ltd v QNI Resources Pty Ltd
[2021] QSC 190
•6 August 2021
SUPREME COURT OF QUEENSLAND
CITATION:
North Queensland Pipeline No 1 Pty Ltd v QNI Resources Pty Ltd [2021] QSC 190
PARTIES:
NORTH QUEENSLAND PIPELINE NO 1 PTY LTD ABN 64 100 946 281
(first plaintiff)
AND
NORTH QUEENSLAND PIPELINE NO 2 PTY LTD ABN 60 100 946 263
(second plaintiff)v
QNI RESOURCES PTY LTD ABN 14 054 117 921
(first defendant)
AND
QNI METALS PTY LTD ABN 56 066 656 175
(second defendant)
FILE NO/S:
8063 of 2018
DIVISION:
Trial Division
PROCEEDING:
Civil Trial
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
6 August 2021
DELIVERED AT:
Brisbane
HEARING DATES:
16, 17 June and 21, 22 July 2021
JUDGE:
Freeburn J
ORDERS:
Judgment for the plaintiffs against the defendants in the proportions specified by the GTA (i.e. 80:20).
The counterclaim is dismissed.
The parties are to make submissions on the issues of the precise calculation of the debt, on interest, and on costs.
CATCHWORDS:
CONTRACTS – CONSTRUCTION AND INTERPRETATION OF COMERCIAL CONTRACTS – GOOD FAITH CLAUSES – THE IMPLIED OBLIGATION OF GOOD FAITH – FORCE MAJEURE CLAUSES – COSTS – TAKE OR PAY CLAUSES
Where the plaintiffs entered into a gas transportation agreement with the defendants - Where the agreement required the plaintiffs to reserve capacity in the pipeline for the defendants - Where the defendants were required to pay a Firm Forward Shortfall Charge - Where the quantities of gas introduced in the pipeline by industrial customers differed from the quantity taken out, the defendant were to pay an Imbalance Charge - Where the shares in the defendants’ companies were transferred from BHP Billiton PLC to Clive Palmer or entities associated with him - Where the defendants entered voluntary administration, followed by liquidation -Whether the interpretation of the gas transport agreement was proper - Whether a force majeure argument could be raised - Whether the imbalance charge and the Firm Forward Shortfall Charge constitute penalties - Whether good faith can be implied into the contract - Whether, if good faith is implied, it was breached - Whether there is an issue about the calculation of compound interest in the event that the plaintiffs were entitled to a money judgment.
Work Health and Safety Act 2011 (Qld)
Work Health and Safety Regulation 2011 (Qld)Andrews v ANZ Banking Group Ltd (2012) 247 CLR 205, distinguished.
Associated British Ports v Ferryways NV [2008] EWHC 1265, considered.
Aurizon Network Pty Ltd v Glencore Coal Queensland Pty Ltd (2019) 1 QR 392, followed.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, applied.
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, considered.
Commonwealth Bank v Barker (2014) 253 CLR 169, considered.
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd (2010) 41 WAR 23, considered.
Esso Petroleum Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228, considered.
E-Nik Ltd v Department for Communities and Local Government [2012] EWHC 3027 (Comm), considered.
Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560, distinguished.
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, applied.
M & J Polymers Ltd v Imerys Minerals Ltd [2008] EWHC 344, considered.
Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525, distinguished.
QNI Resources Pty Ltd v Park [2016] QSC 222, referred to.
QNI Resources Pty Ltd v Queensland Nickel Pty Ltd (in liq) [2017] QCA 167, referred to.
Queensland Nickel Sales Pty Ltd v Mount Isa Mines Limited [2019] QCA 32, applied.
Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516, considered.
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, applied.
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, considered.
Thomas v Balanced Securities Ltd [2012] 2 Qd R 482, considered.
Tobin Ray v Classic FM [1998] FSR 622, applied.
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15, considered.COUNSEL:
Mr G Beacham QC and Ms B O’Brien
(Plaintiffs)
Mr DF Villa SC and Mr PF Santaucci
(Defendants)SOLICITORS:
King & Wood Mallesons
(Plaintiffs)
Alexander Law
(Defendants)
TABLE OF CONTENTS
INTRODUCTION
The Pipeline
The GTA
Queensland Nickel enters Administration
FIRST ISSUE: PROPER INTERPRETATION
Who is QNI?
The Defendants’ Arguments
Prior Consideration of the Issue
The Factors Supporting the Defendants’ View
The Mixed Use of the Expression ‘QNI’
Who Owes the ‘Primary’ Obligation?
Interpretation of Clause 41.6.4 of the GTA
The Parties’ Arguments About Clause 41.6.3
The Two Limbs of Clause 41.6.3
A Guarantee in Substance?
Contract Interpretation Principles Applied
One Further Issue – the Precondition
Another Further Issue – Damages not Debt?
ISSUE 2: FORCE MAJEURE
Was There a Force Majeure Event?
QNR & QNM’s Argument About the Force Majeure Event
What is the Force Majeure Event?
Without Fault or Negligence?
The Letter of 14 July 2016
The Litigation Against the Liquidators
Proper Notice of Force Majeure
ISSUE 3: PENALTY
Consequences of a Finding of Force Majeure
A Collateral Stipulation?
Was the Clause a Penalty?
The Further Penalty Issue: Are the Imbalance Charges Penalties?
Are the Penalties Principles Engaged?
Is Clause 14.7 a Penalty?
ISSUE 4: FAILURE OF CONSIDERATION
The QNR and QNM Factual Contention
Pipeliners’ Response
No Service?
Respecting the Contractual Regime
The factual question
ISSUE 5: BREACH OF GOOD FAITH
QNR and QNM’s Contentions
Implied Term of Good Faith: A Summary of the Authorities
Implication in law/Generally
Implication in Fact in this Contract?
A Breach of the Duty of Good Faith?
ISSUE 6: COMPOUND INTEREST
CONCLUSIONS
INTRODUCTION
The Pipeline
Some 17 years ago, in 2004, the plaintiffs (the Pipeliners) designed, financed, built, commissioned and commenced to operate a high-pressure natural gas pipeline from the gasfields near Moranbah, north to Yabulu, an industrial suburb of Townsville. The pipeline is 370 kilometres long. It is capable of transporting up to 108 terajoules of gas per day.
The objective was to transport gas in the pipeline for third party industrial customers of natural gas. As it turned out there were only two such industrial customers, the Townsville Power Station and Queensland Nickel Pty Ltd (Queensland Nickel).
The customers purchased gas from third party suppliers in Moranbah. The gas was then received into the pipeline at an injection point in Moranbah, and transported in the pipeline to one of two delivery points – either at Yabulu (the location of the Townsville Power Station) or at Mt Stuart near Townsville. The gas delivered to Queensland Nickel was delivered to a metering and delivery point at Yabulu and then via an underground pipe to Queensland Nickel’s Refinery.
Of course, the transportation of gas in this way involves input of the gas at the southern end of the pipeline and then extraction of gas from the pipeline at the northern end. The gas in the pipeline at any one time comprises gas introduced into the pipeline by the customers, and what is called ‘linepack’. Linepack is the quantity of gas owned by the Pipeliners[1] which needs to stay in the pipeline in order to enable the pipeline to operate under pressure.
[1]The ownership of the gas is dealt with in clause 17 of the GTA.
The GTA
In 2005, the Pipeliners entered into a gas transportation agreement (GTA) with Queensland Nickel for the transportation of gas on the pipeline.[2] It was a long-term agreement with an initial period of 15 years. The initial period was to expire in 2022.[3] The GTA provided for an option to extend for five years.
[2]The GTA is dated 12 May 2005.
[3]The GTA was to expire 15 years after what is described as the ‘Tranche 2 Commissioning Period’ (i.e. 15 years from 31 March 2007): see clause 2.5s and Annexure A of the GTA.
It is not in dispute that Queensland Nickel entered into the GTA with the Pipeliners in its capacity as manager of the Queensland Nickel joint venture and as agent for the joint venture participants, namely QNI Resources Pty Ltd (QNR) and QNI Metals Pty Ltd (QNM).
At the time the GTA was entered into Queensland Nickel was a subsidiary of BHP Billiton PLC. Sometime in 2009, the Refinery, as well as the shares in Queensland Nickel, were purchased from BHP Billiton by Mr Clive Palmer or entities associated with him. The joint venture participants, QNR and QNM were also transferred from the control of BHP Billiton to the control of Mr Palmer in 2009.
From 2005 until 2016, gas was transported pursuant to the GTA and Queensland Nickel paid invoices for that transportation of the gas. Of course, the gas introduced into the Moranbah end of the pipeline by the industrial customers was not physically the same as the gas extracted at the Townsville end. However, there were controls which ensured that the quality of the gas remained constant.
The GTA obliged the Pipeliners to reserve capacity in the pipeline for Queensland Nickel which gained a right to transport gas along the pipeline each day up to a maximum daily quantity expressed in gigajoules (GJ) or terajoules (TJ).[4]
[4]A joule, also called newton meter, is a unit of energy in the international system of units. There are a billion joules in a gigajoule and 1,000 times that quantity (i.e. a trillion joules)
The service charges which were to be paid by Queensland Nickel to the Pipeliners involved various components. One component, for example, was the Firm Forward Charge which comprised a tariff rate multiplied by the lesser of the Delivered Quantity of gas and the maximum daily quantity of gas (MDQ). In some situations the quantities of gas introduced into the pipeline by industrial customers such as Queensland Nickel differed from the quantity taken out. That caused what the GTA described as an ‘imbalance’. There were charges for either positive or negative imbalances. More on those charges later.
Queensland Nickel enters Administration
On 18 January 2016, Queensland Nickel entered into voluntary administration. On 22 April 2016 liquidators were appointed to Queensland Nickel.[5]
[5]The background set out in paragraphs [1] to [8] is largely taken from the plaintiff’s submissions. They are not in dispute.
Once Queensland Nickel was placed into liquidation, the Pipeliners looked to QNR and QNM to pay sums they said were owed under the GTA. Statutory demands were issued. The attempts by QNR and QNM to set aside the statutory demands were unsuccessful. QNR and QNM then paid certain 2016 invoices under protest. Those are what are described by the parties as the 2016 Invoices. The amount paid by QNR and QNM was $9,134,187.
The Pipeliners pursue what they say is owed under the GTA for invoices issued from January 2017 to 10 May 2021 (the Outstanding Invoices). The sum the Pipeliners seek is for the Outstanding Invoices is $26,611,755.[6] QNR and QNM counterclaim seeking to recover the amount of $9,134,187 they paid under protest in respect of the 2016 Invoices.
[6]This is the total of the figures claimed against each of QNR and QNM at page 24 of the further amended statement of claim filed on 27 May 2021. However, the figures used by Mr Wood, the plaintiffs’ expert appear to be different.
There were originally four broad issues, namely:
(a) the proper interpretation of the GTA;
(b) a force majeure argument;
(c) a penalty argument;[7] and
(d) a failure of consideration argument.
[7]During the course of the trial this argument was expanded to include an allegation that clause 14.7 is a penalty.
However, during the course of the hearing, two new issues were added,[8] namely:
(a)a breach of good faith argument; and
(b)an issue about the calculation of compound interest in the event that the plaintiffs were entitled to a money judgment.
[8]As explained, the further hearing also added a further component to the penalty argument, namely whether clause 14.7 of the GTA was a penalty. For convenience, that issue is dealt with as part of the more general penalty issue.
Each of those six issues is considered below.
FIRST ISSUE: PROPER INTERPRETATION
There are two broad areas of disagreement about the interpretation of the GTA. The first is the meaning of the abbreviation ‘QNI’ where it is used in the GTA. That issue is not a decisive issue but a discussion of that issue is helpful because it identifies the parties, their roles and the operation of the GTA. The second broad issue concerns the proper interpretation of clause 41.6.3 of the GTA.
Who is QNI?
The parties argued about the meaning of the expression ‘QNI’ in the GTA.
The starting point is that the description of the parties at the commencement of the GTA is as follows:
1. PARTIES
Between:
(a) Enertrade (NQ) Pipeline No 1 Pty Ltd ABN 64 100 946 281 (‘ENQP1’) and Enertrade (NQ) Pipeline No 2 Pty Ltd ABN 60 100 946 263 (‘ENQP2’) both of Level 10, Comalco Place, 12 Creek Street, Brisbane, Queensland (collectively ENQP1 and ENQP2 are referred to as the ‘Pipeliners’ and each as a ‘Pipeliner’); and
(b) Queensland Nickel Pty Ltd ABN 85 009 842 068 of Level 14, Riverside Centre, 123 Eagle Street, Brisbane, Queensland in its capacity as manager of the Queensland Nickel Joint Venture and as agent for and on behalf of the joint venture participants QNI Resources Pty Ltd ABN 14 054 117 921 (‘QNR’) and QNI Metals Pty Ltd ABN 56 066 656 175 (‘QNM’) (referred to as ‘QNI’).
It can be seen that, in the case of the Pipeliners, there are individual definitions or labels for the two individual participants and a group definition for those entities together. The individual definitions or labels are ‘ENQP1’ and ‘ENQP2’, and the group definition for both ‘ENQP1’ and ‘ENQP2’ is ‘Pipeliners’.[9]
[9]The two Pipeline companies Enertrade (NQ) Pipeline No 1 Pty Ltd and Enertrade (NQ) Pipeline No 2 Pty Ltd subsequently changed their names to the two plaintiff companies, namely North Queensland Pipeline No 1 Pty Ltd and North Queensland Pipeline No 2 Pty Ltd.
In the case of the Queensland Nickel joint venturers, the individual joint venturers are abbreviated to ‘QNR’ and ‘QNM’. The abbreviation ‘QNI’ at the end of paragraph 1(b) is a little less clear. Queensland Nickel is described as a party to the GTA in its capacity as manager of the Queensland Nickel Joint Venture and as agent for and on behalf of the two joint venture participants, QNR and QNM. On that basis, the label ‘QNI’ could apply to QNR and QNM together, or it could refer to all three QNI entities, namely QNR, QNM and Queensland Nickel, or it could be intended to refer to Queensland Nickel only (albeit in its two capacities).
QNR and QNM contend for the last of those alternative interpretations, namely that the abbreviation ‘QNI’ refers to Queensland Nickel in its capacity as manager of the Queensland Nickel Joint Venture and as agent for and on behalf of the joint venture participants QNR and QNM.[10] In other words, they say the abbreviation ‘QNI’ is shorthand for Queensland Nickel in both its capacities, and it is not shorthand for the two joint venture participants QNR and QNM, or for all three entities, Queensland Nickel, QNR and QNM. The Pipeliners contended that, in the GTA the abbreviation was intended to refer to all three entities in accordance with some decisions of this court and the Court of Appeal during the litigation over the statutory demands.
[10]Defendant’s submissions at [20].
The Defendants’ Arguments
QNR and QNM contend that their interpretation is supported by the following:
(a)Where the draftsperson has sought to refer to multiple entities, such as the reference to ‘Pipeliners’) the draftsperson has used the expression ‘collectively’ as in the first part of the heading/description of the parties quoted above;
(b)That is also the terminology used in a separate document, the Credit Support Deed,[11] signed contemporaneously;
(c)That interpretation makes sense in the context where it is Queensland Nickel that entered into the gas supply contracts for gas that is then transported by the Pipeliners by the ‘firm forward haulage service’ provided to Queensland Nickel.
[11]PLF.0001.0002.3110 (ex DLG-23 to Mr Giri’s first affidavit).
Both parties contended that the terms of the Credit Support Deed supported their arguments about the interpretation of the GTA. Certainly, the court is entitled to have regard to, as an aid to interpretation, a document executed contemporaneously with the primary document and which forms part of the same transaction.[12] However, it is doubtful that the interpretation of the Credit Support Deed is of much assistance in interpreting the GTA. Queensland Nickel is not a party to that agreement and the abbreviation ‘QNI’ is expressly defined as Queensland Nickel.
[12]EDWF Holdings 1 Pty Ltd v EDWF Holdings 1 Pty Ltd [2010] WASCA 78 at [104]; Lewison & Hughes, ‘The Interpretation of Contracts in Australia’, Law Book Co (2012) at [3.03].
Prior Consideration of the Issue
Byrne SJA considered the interpretation issue at an earlier stage in this litigation when Queensland Nickel applied to set aside a statutory demand made by Pipeline No. 2.[13] His Honour was not willing to attach too much significance to interpretations based on grammar, or on the use of singular rather than plural expressions. His Honour decided that the language of clause 1(b) was clear enough: the expression ‘QNI’ referred to the entities named in the paragraph, that is Queensland Nickel and the joint venture participants for which it acted as agent – QNR and QNM.
[13]QNI Resources Pty Ltd v North Queensland Pipeline No. 2 Pty Ltd (no 2742 of 2017) 23 May 2017 at transcript page 6.
Queensland Nickel appealed Byrne SJA’s decision.[14] In the Court of Appeal Holmes CJ (with whom Fraser and McMurdo JJA agreed) broadly agreed with Byrne SJA that the abbreviation ‘QNI’ embraced all the entities referred to in the subclause.[15] Holmes CJ pointed out that clause 41.6.3 (discussed below) refers to obligations that cannot be performed severally by QNI which then become the joint liability of QNR and QNM. Her Honour took the view that the reference to the several performances of QNI’s obligations was entirely inconsistent with the argument that QNI referred to only Queensland Nickel.
[14]QNI Resources Pty Ltd v North Queensland Pipeline No. 1 Pty Ltd [2017] QCA 297.
[15]QNI Resources Pty Ltd v North Queensland Pipeline No. 1 Pty Ltd [2017] QCA 297 at [33].
Holmes CJ took the view that clause 41.6.3 had no purpose if it were not to impose obligations and liabilities on QNR and QNM as members of QNI. It is certainly true that the evident intention of clause 41.6.3 is to impose liabilities on QNR and QNM – an aspect discussed in more detail below. However, clause 41.6.3 can be viewed as saying either:
(a)to the extent that an obligation cannot be performed severally (i.e. separately or individually) by the three entities comprising QNI, then QNR and QNM are to jointly perform that obligation; or
(b)to the extent that an obligation cannot be performed severally (i.e. separately or individually) by Queensland Nickel, then QNR and QNM are to jointly perform that obligation.
Her Honour also referred to clause 6 which required each ‘QNI Participant’ to remain creditworthy. Her Honour’s view was that that reference to each ‘QNI Participant’ meant that the expression ‘QNI’ could not possibly have been limited to Queensland Nickel. However, as QNR and QNM point out, the expression ‘QNI Participant’ is defined in the GTA to mean ‘QNR and QNM and their successors and assigns and each is referred to as a QNI Participant’.[16] QNR and QNM argue that that definition would be superfluous if QNI was intended to always refer to each of Queensland Nickel, QNR and QNM.[17]
[16]Clause 41.1 of the GTA (at page 72).
[17]Paragraph [23] of the revised final submissions of QNR and QNM.
The use of the expression ‘QNI Participant’ recognises that there are multiple entities on the QNI side of the transaction, and also that they have different capacities. Thus, the joint venture participants are QNR and QNM, at least for the time being, because the GTA contemplates that the number, identity, and percentage interests of the joint venture participants may change. The joint venture participants have a different capacity to Queensland Nickel which has a role as manager of the Queensland Nickel Joint Venture as well as agent for and on behalf of the joint venture participants.
That said, there is force in the Chief Justice’s view that the draftsperson’s use of the expression ‘QNI Participant’ is consistent with ‘QNI’ having a composite element. There is less force in the opposite view that the definition of ‘QNI Participant’ would be superfluous if ‘QNI’ was a composite expression. There is still a need to delineate the separate obligations of the joint venture participants. Indeed there is an importance in providing that the joint venture participants are obliged to stay creditworthy given the obligations in clause 27.1 to the effect that a QNI Participant’s failure to pay any amount payable on the due date gives rise to certain rights.
The Factors Supporting the Defendants’ View
On the other hand, QNR and QNM rely on clause 27.3 which provides that, in the event of a permanent closure of the QNI Plant, ‘QNI’ is required to give to the Pipeliners a certified copy of a resolution of the board of directors to permanently close the QNI Plant. That rather suggests that, at least at that point of the GTA, the expression ‘QNI’ is intended to refer to one corporate entity. Curiously, the expression ‘QNI Plant’ is defined,[18] but without any reference to the corporate entity that actually owns and operates the QNI Plant at Yabulu.
[18]See clause 41.1 of the GTA (at page 72).
Clause 2.7(a) of the GTA also supports the view that ‘QNI’ means Queensland Nickel only. That clause provides that ‘QNI’ has the option to extend the term of this contract. Given that the contract was executed by Queensland Nickel and is the only contracting party for the three QNI entities, the likelihood is that in clause 2.7(a) the draftsperson was referring to Queensland Nickel possessing the option to extend – albeit on behalf of the joint venture participants.
Curiously, the front page of the GTA rather supports QNR and QNM’s argument. The front page has this description in this format:
CONTRACT FOR GAS TRANSPORTATION
ON
THE
MORANBAH TO TOWNSVILLE PIPELINE
BETWEEN
ENERTRADE (NQ) PIPELINE NO. 1 PTY LTD
&
ENERTRADE (NQ) PIPELINE NO. 2 PTY LTD
“THE PIPELINERS”
&
QUEENSLAND NICKEL PTY LTD
“QNI”Clause 41.9 of the GTA contains a provision usually found in commercial contracts to the effect that the headings and notes in the contract are for convenience only and do not affect interpretation. It is doubtful that the title page qualifies as a ‘heading or note’, but it seems to me that the title page would have little or no weight in the interpretation exercise. A better guide to the interpretation of the agreement can be gained from the substantive provisions of the GTA.
Thus, there are conflicting and rather mixed indications of the proper meaning of the expression ‘QNI’ in the GTA.
The Mixed Use of the Expression ‘QNI’
The interpretations of the GTA adopted by Byrne SJA and by the Court of Appeal are highly persuasive.[19] And, it is important to remember that before Byrne SJA, and before the Court of Appeal, QNR was arguing that it was not bound by the GTA at all and that therefore the statutory demand should be set aside. That argument was a brave one because the GTA recorded that Queensland Nickel entered into the GTA on its own behalf and on behalf of QNR and QNM. By that stage, gas had been supplied to Queensland Nickel pursuant to the GTA for 12 years, and no evidence was led to the effect that Queensland Nickel was not in fact the agent for QNR and QNM.
[19]The decisions were properly interlocutory in nature: Milbor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 296-7. And no party contended that the court was bound by the prior decisions. See, for example, Transcript at T4-10 line 27.
The argument here is less radical. The real dispute here concerns the correct interpretation of each party’s rights under a specific clause (clause 41.6.3). Indeed, neither party contended that there was anything decisive to this court’s resolution of the issue of what entities are comprised by the expression ‘QNI’.[20]
[20]See, for example, the submission of the defendants to the effect that ‘prima facie references to “QNI” in the GTA should be construed as references to Queensland Nickel.’ (defendants’ revised closing submissions at [25].
Byrne SJA explained that the GTA may not be an exemplar in drafting,[21] and the Chief Justice recognised the prospect that the use of the expression may be the product of clumsy drafting.[22] Certainly, the attention of the draftsperson may have been on recording the complex commercial deal rather than ensuring that there was a consistency of expression. The strong impression gained after undertaking this survey of the different parts of the GTA is that the expression ‘QNI’ is susceptible of different interpretations at different points in the agreement.
[21]QNI Resources Pty Ltd v North Queensland Pipeline No. 2 Pty Ltd (no 2742 of 2017) 23 May 2017 at transcript page 6 line 23.
[22]QNI Resources Pty Ltd v North Queensland Pipeline No. 1 Pty Ltd [2017] QCA 297 at [33].
In any event, that issue concerning the abbreviation ‘QNI’ may not be particularly significant for two reasons. The first is that, as I have mentioned, neither party contended that the view the court takes of the draftsperson’s use of the expression ‘QNI’ was decisive. That was because, and this is the second reason, the view one takes of the expression ‘QNI’ is subsidiary to the more important interpretation issues considered below.
Who Owes the ‘Primary’ Obligation?
QNR and QNM contend that, contrary to the Pipeliners’ arguments, the primary obligation of the Pipeliners is not to provide a capacity to transport the gas, but rather an obligation to actually transport gas purchased from third parties and to deliver the gas to specified delivery points. Thus, QNR and QNM argue that Queensland Nickel owes a primary obligation to pay the Service Charges as specified by clause 5.4.
The submission emphasised by QNR and QNM is that:
The obligation on Queensland Nickel to pay the Service Charges does not arise by reason of cl 41.6.3 with [clause] 5.4 being merely explanatory. That cl 5.4 imposes the primary obligation to pay is clear from the fact that the machinery provisions relating to payments (cl 21 Billing and Payment) refer to the obligation to pay the various charges “referred to in clause 5.4” (cl 21.1(a)).[23]
[23]Defendant’s submissions at [25].
Thus, paragraph 58 of the defence is in these terms:
No liability until performance by Queensland Nickel determined
58. In further answer, the defendants say as follows:
(a)to the extent cl 41.6.3 imposes obligations on the defendants, it does so only as a secondary obligation in the nature of a guarantee or surety; an essential precondition of which is the failure of performance by Queensland Nickel;
(b)to trigger the obligation in cl 41.6.3, there must be a failure to perform by Queensland Nickel;
(c)the plaintiffs have pursued Queensland Nickel, by proving in the liquidation of that entity;
Particulars
(i)Proofs of debt lodged by the plaintiffs in the liquidation of Queensland Nickel dated 7 March 2016.
(d)if (which is denied) the defendants have a liability to guarantee the obligations of Queensland Nickel, it is not possible to ascertain the ‘extent’ (cl 41.6.3(a)) of any failure until:
(i)the liquidators of Queensland Nickel have adjudicated on the proofs of the debt; and
(ii)made a payment to creditors.
(e)There is no failure to perform on the part of Queensland Nickel until the above steps have been completed, with the effect that the defendants have no liability until such failure to perform has occurred.
QNR and QNM also argue that:
Breach of cl 41.6.3 of the GTA gives rise to a claim in damages not debt
59. Even if (which is denied) the defendants are liable under clause 41.6.3 of the GTA the defendants deny that cl 41.6.3 imposes a primary obligation on the defendants to pay specified sums or debts to the plaintiffs under the GTA and say further that:
(a)to the extent cl 41.6.3 of the GTA imposes obligations on the defendants it does so only as a secondary obligation in the nature of a guarantee or surety arising from a failure by Queensland Nickel to perform an obligation under the GTA;
(b)as a matter of principle, and/or as a matter of the proper construction of cl 41.6.3 of the GTA, any breach of an obligation by Queensland Nickel to pay an amount to the plaintiffs results in a breach of the surety obligation on the defendants to ‘see to it’ that Queensland Nickel performed its obligation;
(c)the breach of that obligation on the part of the defendants gives rise to a claim only in damages (and not in debt);
(d)the plaintiffs bring a claim only in debt against the defendants, and have expressly disavowed pursuing any case (even in the alternative) against the defendants in damages;
Particulars
That was the premises on the plaintiffs approach to the interlocutory application in North Queensland Pipeline No 1 Pty Ltd & Anor v QNI Resources Pty Ltd & Anor [2020] QSC 158.
(e)in the premises the defendants are not and were not liable to the plaintiffs for amounts claimed in the Amended Statement of Claim.[24]
[24]Second Further Amended Defence filed 16 June 2021 at [58].
Thus, it can be seen that QNR and QNM seek to characterise their obligations under clause 41.6.3 as ‘secondary’ obligations owed by QNR and QNM in the nature of a guarantee or surety. Therefore, it is argued, QNR and QNM only become liable in the event that Queensland Nickel fails to perform its ‘primary’ obligation. And, even then, any liability is limited to a right to sue for damages (rather for debt).
The Pipeliners argue that clause 41.6.3 imposes on QNR and QNM a primary liability to pay.[25] The Pipeliners contend that there are five separate reasons why clause 41.6.3 should be interpreted in that way.[26]
[25]Plaintiff’s submissions at [131].
[26]Plaintiff’s submissions at [133]-[142].
It is therefore necessary to resolve the proper interpretation of clause 41.6.3 of the GTA.
Interpretation of Clause 41.6.4 of the GTA
Clause 41.6.3 is as follows:
41.6.3 Several Liability of QNI
In this contract:
(a) to the extent that an obligation cannot be performed severally by QNI (an ‘Integral QNI Obligation’), QNR and QNM shall be jointly liable to perform that Integral QNI Obligation; and
(b) all liability to pay, or cause to pay, an amount of money (including, for avoidance of doubt, liability to pay money in respect of failure to perform an Integral QNI Obligation) shall:
(i)while the Queensland Nickel Joint Venture exists between QNR and QNM and the aggregate of the percentage interests each such person holds in that joint venture is 100%, be borne by QNR and QNM severally (and not jointly or jointly and severally), according to the percentage interests which each holds from time to time in the Queensland Nickel Joint Venture which, at the date of this contract are:
AQNR: 80%; and
BQNM: 20%; or
(ii)otherwise, be borne by QNR and QNM jointly and severally.
The first observation that can be made about clause 41.6.3 is that the words of clause 41.6.3(a) in particular, make it clear that ‘QNI’ is there being spoken about as a distinct and separate entity from QNR and QNM. In other words, here the context demonstrates that the contract is referring to QNR and QNM as being jointly liable to perform an obligation owed by QNI, that is, Queensland Nickel.
It would make no sense for the abbreviation ‘QNI’ here to be referring to all three entities (Queensland Nickel, QNR and QNM) because the effect would be that, if an obligation cannot be performed severally by the three entities, then two of those entities, QNR and QNM, who were already obliged to perform the obligation, are required by the clause to be jointly liable to perform that QNI obligation.
The second observation concerning clause 41.6.3 is that it is not helpful to try to characterise the obligations under that clause as primary or secondary. That invites an interpretation of the GTA which gives some obligations priority over others. The GTA itself does not, at least in an explicit way, adopt such a tiered system of obligations.
The third observation is that clause 41.6.3(a), that is the first limb of clause 41.6.3, envisages that QNR and QNM shall be jointly liable to perform an obligation that cannot be performed by Queensland Nickel. In other words, QNR and QNM are jointly liable if Queensland Nickel is unable to perform. Thus, the liability of QNR and QNM is contingent on Queensland Nickel being unable to perform all or part of its obligations.
Fourth, it can be seen that clause 41.6.3(b), the second limb, provides that QNR and QNM are to bear responsibility for a proportion of their liability in accordance with the percentage interest which each holds from time to time in the Queensland Nickel Joint Venture. Thus, at the time of the execution of the GTA, the proportion was to be split by QNR and QNM in the proportion of 80:20 respectively. That was to be the position for so long as their joint venture existed and the percentage interests were apportioned in that way. If the joint venture altered the percentage interests held by each then the apportionment under clause 41.6.3 was to be commensurately altered. And if, for some reason, the joint venture ceased to exist at the time the particular obligation arose, then QNR and QNM were required to share liability under the clause jointly and severally.
The fifth observation is to reinforce a point already made in an indirect way. There are in fact two separate limbs to clause 41.6.3 and they operate differently. The first limb, in clause 41.6.3(a), is to the effect that, to the extent that an obligation cannot be performed by Queensland Nickel, QNR and QNM are jointly liable to perform that obligation. The second limb in clause 41.6.3 is that all liability to pay money shall be paid in the relevant proportions by QNR and QNM severally according to their percentage interests which each holds from time to time in the joint venture, or otherwise shall be borne by QNR and QNM jointly and severally.
Thus, the first limb applies to any obligation that cannot be performed by Queensland Nickel. The second limb applies only to money obligations. The two limbs have a connection. The words in brackets at the beginning of the second limb makes clear that the second limb applies to money obligations which arise because Queensland Nickel has failed to perform one of its obligations.
Nevertheless, it is clear that each limb is a separate and independent obligation. As will be explained, it is necessary for the court to give effect to both limbs.
Sixth, both limbs refer to an ‘Integral QNI Obligation’. That term is not defined but its context makes plain that the expression refers to obligations that cannot be performed severally by Queensland Nickel.
It is necessary to turn to the parties’ arguments about the interpretation of clause 41.6.3 of the GTA.
The Parties’ Arguments About Clause 41.6.3
The Pipeliners argue that:
134.First, cl 41.6.3(b) is the operative clause regarding liability for payment. The language of cl 41.6.3(b) indicates that where liability to pay money is concerned (including in respect of the failure of an ‘Integral QNI Obligation’) cl 41.6.3(b) covers the field and cl 41.6.3(a) has no application.
135.Secondly, cl 41.6.3(b) is expressed in absolute terms (i.e. ‘all liability to pay, or cause to pay, an amount of money shall … be borne by [Resources] and [Metals] …’) and there is no qualification on the words ‘all liability to pay’, such as by reference to a requirement that Queensland Nickle must first fail to pay the relevant amount.
136.Had the parties intended the Defendants’ liability to be contingent on Queensland Nickel’s failure to pay, they would have used express language like that in cl 41.6.3(a). Instead, cl 41.6.3(b) is framed in absolute terms and is not conditioned on any anterior failure to pay. Those features are suggestive of the parties’ objective intention that the Defendants would be primarily liable.
137.Thirdly, apart from cl 41.6.3, no other clause in the GTA address liability to pay. There is no provision in the GTA to the effect that Queensland Nickel has a liability to pay and that the Pipeliners must look to it for payment.
138.To the extent clauses like cl 5.4 state that ‘QNI must pay’ certain charges, such wording does not indicate where the actual liability for payment falls. Clause 41.6.3(b) explicitly addresses this. Clause 5.4 simply explains that an obligation to pay falls on the ‘QNI’ side of the contract.[27]
[27]Plaintiff’s submissions at [134]-[138]. This is an incomplete quote of the plaintiff’s submissions on this point.
On the other hand, QNR and QNM argue that:
28.It is clear that a parties’ contractual obligation to pay a fixed sum can be construed as giving rise to an action for damages.
29.In Sunbird Plaza Pty Ltd v Maloney (1987) 166 CLR 245 at 256, Mason CJ endorsed Lord Reid’s analysis that there are two types of guarantee: (i) a promise to pay a sum of money which is enforceable if the debtor does not, and (ii) a promise by the guarantor to ensure the principal debtor’s performance. The latter type of promise gives rise to an action for damages for breach of contract against the surety, and not a debt.
30.Assuming cl 41.6.3 does not impose a liability on QNR and QNM, the nature of the liability imposed on QNR and QNM includes a ‘liability to pay money in respect of a failure to perform an Integral QNI obligation.’ It is clearly an obligation of the second kind contemplated by Mason J in Sunbird as a promise by the guarantor (in this case QNR and QNM) to ensure the principal debtor’s (in this case Queensland Nickel) performance.
31.In those circumstances the defendants are only liable in damages. In circumstances where on the basis of a deliberate forensic decision the Pipeliners have elected to abandon any claim in damages against the defendants (see Defence [59]), their claim can be dismissed, and the amount of the 2016 Invoices ought to be repaid by way of restitution on cross-claim.[28]
[28]Defendant’s opening submissions at [28]-[31].
The Two Limbs of Clause 41.6.3
As explained, it is clear that clause 41.6.3 has two limbs. Both must be given effect.[29] They operate differently. The first limb operates if there is an obligation, which need not be an obligation to pay money, that cannot be performed by Queensland Nickel. In that event QNR and QNM are jointly liable to perform that obligation. The second limb operates if there is a liability to pay money. All liabilities to pay money under the GTA are to be borne by QNR and QNM in their designated proportions under their joint venture agreement or, if the joint venture does not exist, by them jointly and severally.
[29]In construing a contract all parts of it must be given effect where possible, and no part of it should be treated as in operative or surplus: Lewison & Hughes, ‘The Interpretation of Contracts in Australia’ LBC 2012 at [7.03] page 291.
Thus, the likely commercial purpose of clause 41.6.3 from the point of view of the Pipeliners was to give the Pipeliners something akin to an assurance. For all money obligations QNR and QNM were liable in their designated proportions (e.g. 80:20). But non-monetary obligations are not so easily divided. For example, pursuant to clause 10 of the GTA Queensland Nickel is obliged to give to the Pipeliners annual, monthly and weekly nominations of the quantities of gas to be delivered at each delivery point. And so, for the non-monetary obligations of Queensland Nickel, the parties agreed that, in the event that Queensland Nickel was unable to perform those obligations, QNR and QNM would become jointly and severally liable to perform those non-monetary obligations.[30]
[30]A guarantee can apply to either the monetary or non-monetary obligations of a principal debtor: see the observations of Mason CJ in Sunbird Plaza Pty Ltd v Maloney (1987) 166 CLR 245 at 256: ‘However, the payment of a debt is but one instance of the wide range of obligations the performance of which may be made the subject of a guarantee. Just as I may guarantee the payment of a debt so I may guarantee the performance of a contractual obligation which does not involve the payment of money.’
From the point of view of Queensland Nickel, QNR and QNM it also makes commercial sense that the manager, Queensland Nickel would be primarily responsible for the non-monetary obligations, and that the joint venturers themselves would bear the monetary costs in the proportions they held from time to time.
It is true that the first limb of clause 41.6.3 has the hallmarks of a guarantee. The promise by QNR and QMN is that they shall be jointly and severally liable for the obligations of Queensland Nickel to the extent that an obligation cannot be performed severally by Queensland Nickel. In that sense it resembles the general nature of a guarantee described by Jordan CJ in Jowitt v Callaghan.[31]
[31](1938) 38 SR (NSW) 512 at 516. See also Moschi v Lep Air Services Ltd [1973] AC 331 and Sunbird Plaza Pty Ltd v Maloney (1987) 166 CLR 245
However, the focus in this case is the second limb of clause 41.6.3. The plaintiff seeks payment under the second limb.[32] The express words of the second limb do not bear the character of a guarantee. The second limb expressly requires that all liabilities to pay amounts of money under the GTA are to ‘be borne by QNR and QNM severally’ in their designated proportions. That promise by QNR and QNM, or at least by Queensland Nickel on behalf of QNR and QNM, is not a contingent promise that QNR and QNM shall be liable for the obligations of Queensland Nickel in the event that, or to the extent that, an obligation of Queensland cannot be performed by QNI. It is a direct attribution of liability.
[32]See, for example, the Plaintiff’s Submissions at [134].
Nor does the second limb of clause 41.6.3 fall into either of the common categories of guarantee referred to by Mason CJ in Sunbird Plaza Pty Ltd v Maloney.[33] The second limb in clause 41.6.3 does not expressly say that QNR and QNM promise to pay in the event that Queensland Nickel does not. Nor does the second limb expressly say that QNR and QNM promise to ensure Queensland Nickel’s performance.
[33](1987) 166 CLR 245 at 256 (per Mason CJ): ‘There are, however, two common classes of guarantee of the payment of instalments by the principal debtor. The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay. This is a conditional agreement. The guarantor's obligation to pay arises on the debtor's failure to pay. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his.’
A Guarantee in Substance?
Can those ‘secondary’ promises be implied? Or, put another way, despite the express words, is it possible to construe the second limb as, in reality, a guarantee by QNR and QNM of Queensland Nickel’s obligations?[34]
[34]This discussion assumes that the GTA comprises sufficient memorandum in writing to comply with the Statute of Frauds requirements. See Re Hoyle, Hoyle v Hoyle [1893] 1 Ch 84 at 99.
The operative part of the second limb is that ‘all liability to pay…shall…be borne by QNR and QNM severally’. One possible argument is that those words assume that there are existing liabilities under other clauses of the GTA so that, in substance, the clause is a guarantee by QNR and QNM of the monetary liabilities of Queensland Nickel under the contract.
There are some significant problems with that interpretation of the second limb. First, the substance of a guarantee is a contract between A and B that B will secure the performance of C.[35] The promise here is not of that character. There is not only no reference to the obligations of Queensland Nickel (i.e. C) but there is no reference to QNR and QNM securing Queensland Nickel’s performance or becoming liable in the event that Queensland Nickel does not perform.
[35]See the discussion of Jordan CJ in Jowitt v Callaghan (1938) 38 SR (NSW) 512 at 516.
Second, as the Pipeliners point out in their submissions,[36] the wording of the second limb is expressed in absolute terms as ‘all liability to pay’. The use of the word ‘all’ suggests that what was intended was that all liabilities to pay ‘an amount of money’ under the GTA were to be paid by QNR and QNM. That is in contradistinction to the introduction to the first limb which sets out a precondition to the liability of QNR and QNM, namely Queensland Nickel’s inability to perform its obligation.
[36]Plaintiff’s submissions at [137].
That language of ‘all liability to pay’ does not exclude the liability of Queensland Nickel for its obligations.[37] It simply specifies that all of the monetary obligations of the service acquirers are to be assumed ‘directly’ by QNR and QNM in their relevant proportions.
[37]See, for example, clause 5.4.
Contract Interpretation Principles Applied
All parties accepted that the court should interpret this commercial contract bearing in mind the principles set out in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:
[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[38]
[38](2015) 256 CLR 104 at [46]-[48] (footnotes omitted).
Viewed objectively and applying those principles, the text of the second limb in clause 41.6.3 makes plain that ‘all liability to pay…shall…be borne by QNR and QNM severally…’. In other words, the text speaks of QNR and QNM having a direct liability to pay. The text would not signal to a reasonable businessperson that QNR and QNM only became liable in the event that Queensland Nickel did not pay.
The context does not suggest a different interpretation.
Nor is there an ambiguity in the language, let alone an external circumstance which QNR and QNM point to as requiring a different interpretation.
In the course of the earlier statutory demand proceedings Byrne SJA decided that clause 41.6.3 did in fact impose direct liability on QNR and QNM:
The notice of statutory demand is founded upon the notion that clause 41.6.3 makes Resources [i.e. QNR] directly liable to the pipeliners for the payment of the moneys which “QNI” is otherwise obliged to pay under the terms of the GTA. That interpretation of the effect of clause 41.6.3 accords with the language of the document and its evident commercial purposes. It has the practical consequence, in the present circumstances where there is no dispute with respect to quantum, of obliging Resources to pay its prescribed 80% share of the charges claimed.
The inclusion of clause 46.1.3 [sic, 41.6.3] in the GTA makes no sense unless the provision was intended to affect the contractual relations between Resources and the two pipeliners, not merely relations between the joint venture participants inter se or between one or other of them and Queensland Nickel – arrangements which would be expected to be the subject of the joint venture agreement and such other arrangements as those parties may choose to conclude.
Clause 41.6.3 has the effect for which the pipeliners contend and imposes the burden to pay the amount claimed.[39]
[39]QNI Resources Pty Ltd v North Queensland Pipeline No. 2 Pty Ltd (No. 2742 of 2017) 23 May 2017 at page 8 lines 13 to 29.
The decision of Byrne SJA was upheld on appeal.[40]
[40]QNI Resources Pty Ltd v North Queensland Pipeline No. 1 Pty Ltd [2017] QCA 297. An application for special leave was dismissed: [2018] HCASL 67.
It follows that, for those reasons, I accept the Pipeliners submission that clause 41.6.3(b) should be interpreted as imposing a direct obligation on the QNR and QNM to pay monies under the GTA, or at least an obligation that is not contingent on Queensland Nickel’s failure to pay.
One Further Issue – the Precondition
If I am wrong in that conclusion there is an issue as to the consequences of the opposite interpretation of clause 41.6.3(b) of the GTA. Even if it was necessary to prove that Queensland Nickel failed to perform its monetary obligations under the GTA, it seems beyond argument that Queensland Nickel did in fact fail to pay the 2016 Invoices, which QNR and QNM then paid under protest in 2018. The Outstanding Invoices remain outstanding. The precondition to the liability of the guarantors has been satisfied.
QNR and QNM argue that:
(a)an essential precondition to the liability of QNR and QNM is the failure of performance of Queensland Nickel;
(b)there must be a failure to perform by Queensland Nickel requiring the Pipeliners to first pursue Queensland Nickel;
(c)the Pipeliners have pursued Queensland Nickel by proving in the liquidation of that entity;
(d)if (which QNR and QNM deny) the defendants have a liability to guarantee the obligations of Queensland Nickel, it is not possible to ascertain the ‘extent’ of any failure until the liquidators have adjudicated on the proofs of debt and made a payment to creditors;
(e)there is no failure to perform on the part of Queensland Nickel until the above steps have been completed.[41]
[41]This is a paraphrased version of paragraph 58 of the defence.
There is no proper basis for the argument that the indebtedness under clause 41.6.3 of the GTA arises only when the liquidators have adjudicated on the proofs of debt and have made a payment to creditors.
First, clause 41.6.3 does not contain such a provision.
Second, the reference to the ‘extent’ of an obligation is a reference to the first limb of clause 41.6.3. As explained, the Pipeliners sue on the second limb.
Third, even if clause 41.6.3 could be construed as requiring proof that Queensland Nickel has been unable to perform its payment obligations under the GTA, the fact is that:
(a)Queensland Nickel failed to comply with its obligations in respect of the 2016 Invoices (which QNR and QNM paid in 2018 under protest);
(b)Queensland Nickel failed to pay the Outstanding Invoices which cover the period from 1 January 2017 to 30 April 2021; and
(c)Queensland Nickel is in liquidation – and is deemed to be insolvent.
Those facts would enable the court to conclude that Queensland Nickel is unable to pay this debt. Certainly, there is no evidence to suggest that Queensland Nickel is able to pay its debts but refuses to do so.[42]
[42]Note the rather peculiar language of clause 41.6.3(a) which speaks of obligations that ‘can not be performed severally by QNI’. That suggests and inability to perform rather a refusal to perform.
Fourth, even if one ignores the second limb of clause 41.6.3, the requirement that there be evidence of the extent to which an obligation cannot be performed cannot be interpreted in such an onerous way as to require the Pipeliners to prove that they have exhausted all avenues for recovery. The focus of the first limb is the extent to which the obligation cannot be performed. For a monetary obligation, the failure to comply with that obligation occurs when the money is not paid on the day it is due. Of course, if Queensland Nickel only paid part of the amount due then the extent of the obligation not performed is the amount unpaid on the due date. A reasonable businessperson can hardly be taken to have understood that the first limb of clause 41.6.3 required that, as a precondition to liability, it was necessary for the Pipeliners spend months, or even years, pursuing and exhausting all of its execution and liquidation rights against Queensland Nickel.
Fifth, the Pipeliners submit another interpretation of clause 41.6.3(a) which is also preferrable to the onerous interpretation adopted by QNR and QNM:
Clause 41.6.3(a) states that: “to the extent that an obligation cannot be performed severally by QNI…”, Resources and Metals would then be jointly liable for that obligation. In other words: to the extent that an obligation cannot be separated out into parts that Resources can perform and parts that Metals can perform (so that they can be performed by them severally), they are both then jointly liable for the whole obligation. That is, they are both liable for the performance of the whole obligation and performance by one of them is performance by both of them.[43]
[43]Plaintiffs’ Opening Submissions at [158].
Another Further Issue – Damages not Debt?
At paragraph [31] of their revised closing submissions QNR and QNM make this submission:
QNR/QNM submit that the liability imposed by GTA 41.6.3 is secondary to the obligation of Queensland Nickel. It is in the nature of a guarantor’s obligation, that only arises following a breach by Queensland Nickel of its primary obligation under the GTA. It is further submitted that the nature of the secondary obligation in this case is such as to give rise only to a claim in damages for breach of Queensland Nickel’s failure to perform the contract (even if the damages may be quantified by reference to fixed sums). Following earlier interlocutory proceedings, the Pipeliners elected to run their case (and resistance to the counter-claim) on the basis that the defendants were only liable for a debt, and accepted that if the defendants are liable in damages their claim would fail (see Defence [59(d)]).
That submission appears to rest on the rather controversial footing that the Pipeliners are restricted to a claim against the guarantors in damages rather than in debt. That footing is unsound. As the Pipeliners submit, Australian courts have long recognised that a creditor can sue a guarantor in debt. See, for example, the judgment of Mason CJ in Sunbird Plaza Pty Ltd v Maloney:
The respondents' promise was that the purchaser would perform its contractual obligations including the payment of all moneys payable under the contract. The promise falls within the second class discussed above, except, perhaps, in so far as the promise relates specifically to the payment of all moneys payable. In that respect the promise might well fall within the first category. Accordingly, if the balance of the purchase price had become payable, and had not been paid by the purchaser, the vendor might well have been entitled to sue the respondents for a liquidated amount, rather than claim damages for breach of contract. As it is, the balance of the purchase price did not become payable.[44]
[44](1988) 166 CLR 245 at 257. This reasoning is contrary to the view taken by Lord Diplock in Moschi v Lep Air Services [1973] AC 331 at 348-9.
And, the Pipeliners’ counsel referred me to the decision of the Queensland Court of Appeal in Thomas v Balanced Securities Ltd where White JA, with whom Margaret Wilson AJA and Martin J agreed, explained: ‘The nature of proceedings to enforce a guarantee, if the principal transaction guaranteed is a debt or liquidated sum is for a money sum and is appropriately framed in debt.’[45]
[45][2012] 2 Qd R 482 at [60].
It follows that, even if the court were to accept that clause 41.6.3 operated as a guarantee, the Pipeliners were entitled to sue for the debt owed by Queensland Nickel.
ISSUE 2: FORCE MAJEURE
QNR and QNM point out that Queensland Nickel went into administration on 18 January 2016 and liquidators were appointed on 22 April 2016. On 3 March 2016, Queensland Nickel was replaced by Queensland Nickel Sales Pty Ltd (QNS) as ‘Manager’ of the Queensland Nickel Joint Venture.[46] QNS was unable to secure appropriate licences. On that basis, explained in more detail below, QNR and QNM argue that they are entitled to rely on the force majeure clause in the GTA.
[46]Affidavit of Daren Wolfe affirmed 2 October 2020.
Was There a Force Majeure Event?
The force majeure clause in the GTA starts with a qualifying clause (clause 20.1):
An event is a Force Majeure Event if:
(a) The event occurred without the fault or negligence of a party (“Affected Party”); and
(b) The Affected Party could not have prevented the event by acting as a Reasonable Prudent Operator and using Good Engineering and Operating Practices.
It can be seen that the focus of the clause is an ‘event’.
Clause 20.2 gives examples of the ‘events’ that constitute Force Majeure Events, provided they comply with clause 20.1:
20.2 Events that are Force Majeure Events
Without limiting clause 20.1, the following are examples of events that are Force Majeure Events provided they are of the nature specified in clause 20.1:
(a) force of nature, including without limitation earthquakes, floods, washouts, landslides, lightning, storms and the elements;
(b) fire, explosion, riots, civil commotion, malicious damage, sabotage, act of a public enemy, act of terrorism, war (declared or undeclared), blockade, revolution, radioactive contamination, toxic or dangerous chemical contamination;
(c) action or inaction by, or orders, judgments, directions, rulings, decisions or enforcement actions of, any court, Government Body, tribunal or other authority (including denial, refusal or failure to grant any authorisation despite timely reasonable endeavours to obtain same);
(d) strikes, lockouts, industrial and/or labour disputes, work bans, blockades or picketing;
(e) mechanical or electrical breakdown and failure of plant, equipment, pipelines or transmission lines; and
(f) situations of emergency relating to the Pipeline, or to any gas processing plant, gas production field or any other facilities that may affect QNI’s deliveries of gas into or out of the Pipeline, being a risk of injury to or death or any person or damage to property (including the Pipeline) or the environment.
Clause 20.3 identifies events that are not Force Majeure Events, including changes in economic conditions.
QNR & QNM’s Argument About the Force Majeure Event
QNR and QNM argue that:
(a)For Queensland Nickel to operate its refinery it was necessary, among other things, for it to hold a number of licences including an Environmental Authority and a Major Hazard Facility Licence (the Licence);
(b)On 3 March 2016, after Queensland Nickel was placed into administration, Queensland Nickel was replaced as ‘Manager’ of the Queensland Nickel Joint Venture by QNS;
(c)QNR and QNM then sought the transfer of the Licence from QNI to QNS;
(d)QNR and QNM were unsuccessful in effecting that transfer of the Licence;
(e)By a force majeure notice dated 10 March 2016 QNR and QNM relied on the following as a force majeure event:
action or inaction by, or orders, judgments, rulings, decisions or enforcement actions of, any court, Government Body, tribunal or other authority (including denial, refusal or failure to grant any Authorisation despite timely reasonable endeavours to obtain same);[47]
(f)By a further force majeure notice dated 14 July 2016 QNR and QNM further explained that the Licence to operate a Major Hazard Facility issued to Queensland Nickel by the relevant government body had not been formally transferred to the successor manager of the Queensland Nickel Joint Venture, and consequently the Yabulu Refinery could not be operated.
[47]Rather than being an identification of a force majeure event, this is simply a quote from clause 20.2(c) of the agreement.
I am not prepared to take that large step. Particularly so in the circumstances of this case, where the element of necessity is not present, and the contract is a relatively sophisticated commercial contract between ‘commercial leviathans’,[162] and the contract contains, as will be explained, terms which are contra-indicators of either a general or a more specific implied term of good faith.
[162]Esso Petroleum Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 at [4]; see the quote below.
In Esso Petroleum Resources Pty Ltd v Southern Pacific Petroleum NL Warren CJ sounded a warning about implying a term of good faith into commercial contracts:
Ultimately, the interests of certainty in contractual activity should be interfered with only when the relationship between the parties is unbalanced and one party is at a substantial disadvantage, or is particularly vulnerable in the prevailing context. Where commercial leviathans are contractually engaged, it is difficult to see that a duty of good faith will arise, leaving aside duties that might arise in a fiduciary relationship. If one party to a contract is more shrewd, more cunning and out-manoeuvres the other contracting party who did not suffer a disadvantage and who was not vulnerable, it is difficult to see why the latter should have greater protection than that provided by the law of contract.[163]
[163]Esso Petroleum Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 at [4]; see also in Lewison & Hughes, ‘The Interpretation of Contracts in Australia’ Law Book Co 2012 at [6.14].
Her Honour also addressed the vagueness of a proposed implied term of good faith:
There has also been consideration of the capacity of a contractual party to look after itself and its own interests rather than turn to concepts of good faith for relief. These approaches, more aptly described as judicial reticence, regarding the application of the doctrine of good faith, may be construed as hesitation at the courts’ involvement in contractual performance. If a duty of good faith exists, it really means that there is a standard of contractual conduct that should be met. The difficulty is that the standard is nebulous. Therefore, the current reticence attending the application and recognition of a duty of good faith probably lies as much with the vagueness and imprecision inherent in defining commercial morality. The modern law of contract has developed on the premise of achieving certainty in commerce. If good faith is not readily capable of definition then that certainty is undermined. It might be that a duty of good faith is no more than a duty to act reasonably in performance and enforcement, a long established duty. Of course, some commentators have regarded the duty to act reasonably as properly subsumed within the duty of good faith.[164]
[164]Ibid.
For those reasons a generally applicable implied term of good faith should not be implied into the GTA.
In any event, counsel for QNR and QNM made only a rather tentative invitation for this court to imply a generally applicable term of good faith as a matter of law. QNR and QNM’s counsel agreed with the analysis of the Pipeliners counsel to the effect that in Queensland it remains an open question whether a duty of good faith can be implied into all commercial contracts.[165] QNR and QNM then submitted that it was only on the defendants’ alternative case for an implication in law, that the court would need to concern itself with divergent lines of intermediate appellate authority. The QNR and QNM submissions then focussed on what was described as an ‘ad hoc’ implication of a term of good faith but did not return to the alternative case that the court should imply a generally applicable term of good faith as a matter of law.
[165]Defendants’ Revised Closing Submissions at [134]. Note that those submissions say that it remains an open question whether a duty to cooperate can be implied into all commercial contracts. I have assumed that is a mistake and that the intended reference is to a duty of good faith. Of course, where performance of the contract cannot take place without the cooperation of both parties it is implied that there is a duty to cooperate. That has been accepted in a long line of cases since Mackay v Dick (1881) 6 App Cas 251 at 263.
In any event, for the reasons stated, a generally applicable implied term of good faith should not be implied in this case.
Implication in Fact in this Contract?
The next question is whether an obligation of good faith can be implied in the particular circumstances of the GTA. Implying a term of good faith as a matter of fact is a difficult hurdle to overcome. A term may be implied in fact if the elements in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[166] are satisfied. The proposed implied term:
(a)must be reasonable and equitable;
(b)must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(c)must be so obvious that ‘it goes without saying’;
(d)must be capable of clear expression; and
(e)must not contradict any express term of the contract.
[166](1977) 180 CLR 266.
First, construing the GTA in a reasonable and businesslike manner, it is difficult to conclude that the pleaded term needs to be implied. Good faith takes into account the relative sophistication of both parties,[167] and in this case QNR and QNM can be taken to be capable of identifying measures that would protect and further their respective interests.
[167]Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 at [2] and [3] per Warren CJ (agreeing with Buchanan JA) citing Forklift Engineering Australia Pty Ltd v Powerlift (Nissan) Pty Ltd [2000] VSC 443 at [91] and [94].
The obligation of good faith should not require a party to subordinate its own interest to those of the counterparty to the contract.[168] In this case, the pleaded implied term would require the Pipeliners to take steps to prevent Queensland Nickel from incurring a debt to the Pipeliners under the GTA. In that way the Pipeliners’ obligation would be to protect and look after the interests of Queensland Nickel and to thereby subordinate their interests to those of QNR and QNM.
[168]Paciocco v Australia and New Zealand Banking Group Ltd (2012) 236 FCR 1999. At [289], [290], [292]; Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534 at [149].
Second, the expression ‘business efficacy’ was defined by Bowen LJ in The Moorcook as:
In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen…[169]
[169](1889) 14 PD at 68.
Similarly, in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,[170] Mason J said that:
The courts have been at pains to emphasize that it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract. [emphasis added]
[170](1982) 149 CLR 337 at 346.
Applying the minimalist approach introduced by Lightman J in Tobin Ray v Classic FM,[171] the pleaded term does not appear necessary for the business efficacy of the GTA, because the contract is capable of sensible operation in the absence of such term.
[171][1998] FSR 622
Third, the test whether a term is so obvious it goes without saying was defined by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd,[172] as:
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’
[172][1939] 2 KB 206 at 227
Here, it is difficult to conceive that the pleaded term is so obvious it goes without saying.
Finally, a term should not be implied in fact if it is inconsistent with the express terms of the contract or its general tenor. The proposed implied term is inconsistent with the express terms of the GTA.
Here, clause 14.3 expressly requires that Queensland Nickel take reasonable steps to control and, if necessary, adjust receipts and deliveries of gas, in order to ensure that, on any day, the imbalance did not exceed the imbalance limit of zero. QNR and QNM’s proposed implied term seeks to reverse that obligation and to make it the Pipeliners’ obligation to eliminate or correct the QNI imbalance. That would be to re-make the contract.
An express term in a contract excludes the possibility of implying any term dealing with the same subject-matter as the express term.[173] The principle is based on the common sense precept that, if parties explicitly provide for the giving of rights in a stated way, it is unlikely that they have intended to subject themselves by implication to some regime of rights and duties of a similar kind which goes beyond the terms upon which they have agreed.[174]
[173]This is an application of the principle expressum facit cessare tactitum: The express makes the implied cease. See the discussion of this topic in Lewison & Hughes, ‘The Interpretation of Contracts in Australia’ Law Book Co 2012 at [7.07].
[174]Biki v Chessells [2004] ANZ Conv R 296 at [26] per Ormiston JA.
Here, clause 14.3 expressly imposes the relevant obligation on Queensland Nickel. That excludes an implied term that, in effect, reverses the responsibilities.
For the reasons outlined above, QNR and QNM’s pleaded implied good faith obligation is rejected.
A Breach of the Duty of Good Faith?
Even if there was an obligation to act in good faith, it is difficult to discern a breach from the evidence. There is no evidence that:
(a)Queensland Nickel or QNR or QNM were ignorant of the imbalance charges; QNR and QNM have been pursued for those charges since 2016; in fact, on 29 March 2016 the Pipeliners’ representative emailed Mr Mensink, Queensland Nickel’s director and representative, advising of the imbalance position, advising charges were accruing on a daily basis, and saying that unless the imbalance was brought back within tolerance, the charges would continue to accrue daily;[175]
(b)the Pipeliners prevented QNR and QNM from remedying the imbalance; and
(c)the Pipeliners were asked to but refused to deal with the imbalance in a way provided for in the GTA.
[175]See Mr Giri’s first affidavit at [84(c)] and exhibit DLG-55.
In fact, it is not clear why no steps were taken to clear the imbalance. As explained previously, there is no reason as to why the administrators/liquidators or even QNS did not take steps to address the imbalance.
The allegation of breach appears to amount to an allegation that the good faith obligation required the Pipeliners – proactively, unilaterally, and without request by QNR and QNM – to prevent the imbalance charge from accruing or continuing under the GTA.
The Pipeliners respond that it cannot be a lack of good faith to fail to proactively offer solutions, and that Queensland Nickel or QNR and QNM could and should have at least raised or asked for (even in general terms).[176]
[176]Clause 14.8 of the GTA allowed Queensland Nickel to deal with the imbalance themselves, at least by trading imbalances with another user or by selling the gas. See affidavit of Sean Coffey affirmed 12 July 2021 at [16], [34] and [48].
The problem is the mystery surrounding the circumstances of the continuing imbalance. In the circumstances, it is impossible to find that there was such an implied obligation of good faith, or that the obligation was breached.
ISSUE 6: COMPOUND INTEREST
Under the GTA interest is payable on any amounts outstanding. Clause 21.4 provides:
21.4 If a party does not pay on time
Subject to clause 21.6 [which relates to disputed bills], if a party does not pay the amount shown on a bill on time and in full, that party must pay interest to the other party on the amount outstanding.
Interest starts accruing on the day the amount was payable and stops accruing on the day the payee is actually paid in full. The interest rate is the Default Rate.
A payee can charge interest back to the day the original amount became due and payable, even if there is a court judgment against the payer for what the payer owes under this contract.
The ‘Default Rate’ is defined by clause 41.1 as ‘for a day, means a rate of interest equal to 2% plus the Bank Bill Rate for that day.’
The ‘amount outstanding’ refers to clause 21.1 which specifies that the Pipeliners are required to give Queensland Nickel a bill, setting out the amount payable by Queensland Nickel and details of the various charge components. One of the charge components is ‘other charges on QNI’s account for the preceding month imposed in accordance with this contract’.[177]
[177]GTA clause 21.1(f)).
QNR and QNM argue that the effect of GTA clauses 21.1 and 21.4 is that the Pipeliners were entitled to compound interest on a monthly basis, and not on the daily basis that the Pipeliners’ expert, Mr Wood was instructed to perform his calculations.
In my view that submission is correct. The evident intention of those clauses was for the monthly bill to be issued on or before the 20th day of each month containing the charges for the previous month, including (if relevant) the other charges such as interest charged for that prior month.
It will be necessary for Mr Wood to recalculate interest on a monthly compounding basis rather than a daily compounding basis.
CONCLUSIONS
It follows that there will be judgment for the plaintiffs against the defendants in the proportions specified by the GTA (i.e. 80:20). The counterclaim will be dismissed.
I will hear the parties on the issues of the precise calculation of the debt, on the calculation of interest, and on costs.
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