65 One of the issues which emerged in the negotiations between Watpac and the receivers was the question whether the receivers had the authority to engage Watpac to load the ship or provide any other services at the Mine. That issue emerged after Wise's solicitors wrote to Watpac asserting that the receivers had no authority to act as the Manager of the Joint Venture.59 That issue was resolved by the appointment of Pluton as the Manager of the Joint Venture pursuant to the JV Variation Deed.
66 Another issue which emerged on 7 November 2014 was the need for urgent grout works to a sea wall on Cockatoo Island which was said to be 'vital to maintaining future mining operations'.60
2. Whether the appointment of the receivers was a breach of the Wise Security Deed
67 In short, Wise's case is that by 17 October 2014, by reason of the 10 shipments of Product, or alternatively, by reason of the shipments of Product and the conversion of debt to equity, the Wise Liability Cap had been reduced to nil and Wise's security was deemed to have been automatically discharged.
68 The defendants deny that this was the case.
69 Each party's case turned on its construction of cl 2.2(b) of the Wise Security Deed, read in the context of the other related contractual documents, as I explain below.
70 There was no dispute about the principles of contractual interpretation which were applicable in this case.
71 The construction of a written commercial contract involves ascertaining what a reasonable business person would have understood the parties to mean and on the assumption that the parties to the contract intended to produce a commercial result.61 If the language is open to two constructions, the preferable construction will be one which avoids consequences which appear to be capricious, unreasonable, inconvenient or unjust.62 The exercise of construction thus involves determining the meaning of the words used by the parties, having regard to the context in which they are used, which includes the surrounding circumstances known to the parties and the commercial purpose of their contract.63 In order to understand the commercial purpose of the contract, it is necessary to understand the genesis of the transaction, the background, the context and the market in which the parties are operating.64
72 Where a commercial transaction is implemented by several contracts or documents, all of the contracts or documents may be read together for the purpose of ascertaining their proper construction and legal effect, at least where the contracts or documents are executed contemporaneously or within a short period.65
73 Finally, the words used in a contract must be construed within the context of the contract as a whole. The words of every clause must be construed in a way which permits them to operate harmoniously with one another,66 and no part of the contract should be treated as inoperative or otiose.67
Wise's case in relation to the construction of cl 2.2(b) of the Wise Security Deed
74 Wise essentially advanced three arguments in relation to the construction of cl 2.2(b) of the Wise Security Deed.
75 First, Wise relied upon the ordinary meaning of the text of cl 2.2(b). Counsel for Wise submitted that the meaning of the words used were clear on their face, and that those words meant that once 10 shipments of Product had been made, the Wise Liability Cap was discharged.
76 The planks in that textual argument were as follows. Counsel for Wise submitted that the reference to the delivery being 'in accordance with clause 6 of the [Pluton] Loan Agreement' was intended to refer to the timing and scheduling of each of the 10 shipments as set out in sch 1 to the Pluton Loan Agreement.68
77 Wise placed particular reliance on the fact that cl 2.2(b) provided that the 'Liability Cap shall reduce by US$1,200,000 upon the delivery of each shipment of Product'.69 Counsel for Wise submitted that this indicated that 'the Liability Cap would reduce by US$1,200,000 upon the delivery of each shipment of Product to [GNR(HK)]'.70
78 In addition, counsel for Wise submitted that the definition of 'Secured Money' in the Wise Security Deed supported this construction because that definition referred to the Secured Money as 'limited to the [Wise] Liability Cap at that time'. Counsel for Wise submitted that this indicated that Wise's liability was intended to be limited to the amount outstanding under the Wise Liability Cap at a particular point in time having regard to the reductions in the Wise Liability Cap as a result of shipments delivered by Pluton.
79 Counsel for Wise also submitted that the other contractual documents referred to in the Wise Security Deed, and which were relevant in the construction of cl 2.2(b) of the Wise Security Deed - namely the Pluton Loan Agreement, and the Sales and Purchase Contract - were defined in the Wise Security Deed as the Pluton Loan Agreement dated 26 April 2013, the Sales and Purchase Contract dated 28 February 2013 and the Deed of Addendum dated 28 February 2013, but did not incorporate the Addenda to the Sales and Purchase Contract. Counsel for Wise submitted that this definition indicated that 'it was never within the parties' contemplation that the Wise Security Deed would secure anything other than that which was expressly contained within the definition itself'.71
80 Secondly, counsel for Wise submitted that the ordinary textual meaning of the words in cl 2.2(b) was supported by reference to what he submitted was the object of the Wise Security Deed, in light of the Pluton Loan Agreement. Counsel for Wise characterised the object of cl 2.2(b) of the Wise Security Deed in the following way:72
GNR was making the prepayment primarily for the purpose of [GNR(HK)] receiving shipments of iron ore and Pluton's primary obligation was to deliver those shipments and repay the loan in kind at a specified amount per shipment rather than to repay the loan in cash. That concept is evident from the original contractual documents … being the [Sales and Purchase Contract] and the Deed of Addendum. …
In the event of default, Wise was agreeing to be liable to GNR for an amount calculated as the difference between US$12 million and the number of shipments which had been delivered to [GNR(HK)] up to the date of default.
Such an agreement makes commercial sense. It provides Wise, as a third party to the sale and purchase arrangements between [GNR(HK)] and Pluton with certainty at any point in time as to the amount of its liability and circumstances in which its liability to GNR would be discharged. It is commercially understandable for Wise to have sought to limit and control its liability in this way (ie by reference to a fixed reduction of its Liability Cap per shipment). It avoids the uncertainty and protects against the risk that would attend Wise's liability under the Wise Security Deed if, for example, the mechanism for calculating the deduction of the Wise Liability Cap had been expressed to be dependent upon the spot price for each shipment or otherwise an amount to be determined for each shipment at the discretion of GNR and Pluton.
81 Thirdly, counsel for Wise submitted that the construction for which he contended produced a sensible commercial outcome. He submitted that the Wise Security Deed was:73
a bespoke security instrument granted by a third party … [as] security for a Loan Agreement between Pluton and GNR, in respect of which Wise was not a party. As between Wise and GNR, the only agreement in place was the Wise Security Deed, in respect of which there was a clearly defined mechanism by which Wise's liability would be capped and reduced at the fixed rate of US$1.2m per shipment. There is nothing uncommercial about such a construction. It makes sense that Wise, as the provider of a third party security, should (as it has done here) seek to limit its liability by reference to a Liability Cap with a fixed reduction per shipment, in order to avoid the uncertainty and risk that would attend Wise's liability if, for example, the deduction was expressed to be dependent upon an amount to be determined for each shipment at the discretion of GNR and Pluton. The fixed US$1.2m deduction mechanism represents the important and sole overriding protection mechanism for Wise.
The proper construction of cl 2.2(b) of the Wise Security Deed 82 I am unable to accept the submissions advanced on behalf of Wise as to the proper construction of cl 2.2(b) of the Wise Security Deed, having regard to four considerations, namely:
i. The ordinary meaning of the words used in cl 2.2(b) viewed in their contractual context; ii. The object of the Wise Security Deed;
iii. The correlation between the words used in the Wise Security Deed and those in the Pluton Security Deed;
iv. The A and A Deed.
i. The ordinary meaning of the words used in cl 2.2(b), viewed in their contractual context 83 Clause 2.2(a) of the Wise Security Deed sets out the amount of the Wise Liability Cap. That is, it sets the limit of Wise's total liability for the security provided to GNR, and thus the total amount which may be recovered by GNR from Wise, at $12 million.
84 Turning next to cl 2.2(b), that clause explains how Wise's liability will be reduced. Clause 2.2(b) explains that the Wise Liability Cap will be reduced by a fixed amount ($1.2 million) upon the delivery of each shipment of Product to GNR(HK) 'in accordance with clause 6 of the [Pluton] Loan Agreement'. The latter words are of significance. Clause 2.2(b) does not provide that the Wise Liability Cap will be reduced upon the delivery of each shipment of Product to GNR(HK). Only those shipments which are 'in accordance with clause 6 of the [Pluton] Loan Agreement' will result in a reduction of the Wise Liability Cap.
85 The next question is what is meant by a shipment which is 'in accordance with clause 6 of the [Pluton] Loan Agreement'. The word 'accord' means (amongst other things) to agree, to be consistent or to correspond.74 The words 'in accordance with' thus refer to something which corresponds with, or which meets the requirements of, something else, in this case cl 6 of the Pluton Loan Agreement.
86 Clause 6 of the Pluton Loan Agreement deals with a variety of matters. The only part of cl 6 of the Pluton Loan Agreement which appears to have any bearing on shipments of Product is cl 6(a), which is set out above at [23]. That clause makes clear that Pluton's repayment of the 'loan' from GNR is to be in equal instalments of US$2.4 million, not in cash, but in the form of delivery of Product to GNR(HK). However, cl 6(a) of the Pluton Loan Agreement also makes clear that it is not any delivery of Product to GNR(HK) which will constitute a repayment of the loan but only delivery of Product which is both 'in accordance with the payment schedule set out in Schedule 1' to the Pluton Loan Agreement, and which is 'otherwise in accordance with the Sales and Purchase Contract'.
87 What is described as a 'payment schedule' in sch 1 to the Pluton Loan Agreement is not a payment schedule at all, but rather a timetable for 10 shipments of Product, required to take place within a period between a proposed and final delivery date. If it were considered in isolation, the requirement for delivery of Product in accordance with the 'payment schedule' in sch 1 to the Pluton Loan Agreement might convey the impression that a repayment of the loan would be effected by the delivery of Product in each of the 10 shipments referred to in sch 1. However, that is not the only criterion for the repayment of the loan in cl 6(a) of the Pluton Loan Agreement.
88 The delivery of Product which would result in the repayment of the loan, and thus in the reduction of the Wise Liability Cap, was the delivery of Product 'otherwise in accordance with the Sales and Purchase Contract'. The proposed delivery dates set out in sch 1 to the Pluton Loan Agreement matched the shipment dates set out in cl 4 of the Sales and Purchase Contract (which required that each shipment be loaded within 14 days of those dates). That correlation provides some support for the view that a shipment within each of those date ranges would result in a reduction of the Wise Liability Cap.
89 However, a consideration which strongly militates against that conclusion is the presence of the word 'otherwise' in cl 6(a) of the Pluton Loan Agreement. The shipments which would result in a repayment of the loan, and thus a reduction in the Wise Liability Cap were those which were 'otherwise in accordance with the Sales and Purchase Contract'. The word 'otherwise' means differently; of another nature or kind.75 Accordingly, a delivery of Product which is 'otherwise in accordance with the Sales and Purchase Contract' refers to one which accords with, or corresponds to, the Sales and Purchase Contract in ways other than in respect of the timing of the deliveries (the dates for which are referred to in sch 1 to the Pluton Loan Agreement).
90 The Sales and Purchase Contract deals with the requirements for delivery of Product in a variety of ways, including by the specifications for the Product,76 the quantity of the Product,77 the calculation of the price to be charged for each shipment,78 and adjustments able to be made to the price.79 The requirement that the delivery of Product to GNR(HK) be otherwise in accordance with the Sales and Purchase Contract was not limited to accordance with any particular aspect of that Contract, and I see no warrant for reading down those broads words, for example by construing them so that they are understood to refer only to deliveries which meet the specifications for Product under the Sales and Purchase Contract. In my view, the words 'otherwise in accordance with the Sales and Purchase Contract' refer to deliveries of Product which correspond with, or comply with, all of the terms of the Sales and Purchase Contract. One of those terms, as I have said, pertains to the basis on which the price of a delivery of Product under the Sales and Purchase Contract will be calculated - that is, by the application of the formula in cl 6(b) of the Sales and Purchase Contract, which includes the deduction of US$2.4 million prepayment per shipment.
91 Accordingly, the ordinary meaning of the words 'upon the delivery of each shipment of Product … in accordance with clause 6 of the [Pluton] Loan Agreement' in cl 2.2(b) of the Wise Security Deed refers, amongst other things, to those shipments which meet the requirements of the Sales and Purchase Contract, including the requirement that the price of the shipment be calculated by the application of the formula in cl 6(b) of that Contract, including the deduction of US$2.4 million.
92 The application of that price calculation in delineating those shipments of Product which would result in a repayment of the Pluton Loan Agreement (and thus the reduction of the Wise Liability Cap) was particularly important given that the Pluton Loan Agreement and the Deed of Addendum80 contemplated that more than 10 shipments of Product would be made by Pluton to GNR(HK).
ii. The object of the Wise Security Deed
93 The construction of the words used in cl 2.2(b) of the Wise Security Deed must have regard to the object of that agreement. The object of the Wise Security Deed, viewed within the context of the Pluton Loan Agreement and the Sales and Purchase Contract, supports the conclusion that Wise's construction of cl 2.2(b) of the Wise Security Deed should not be accepted.
94 The object of the Wise Security Deed can be discerned from the purpose for which the Security Interest was granted. Wise granted the Security Interest to GNR for 'the due and punctual payment and satisfaction of the Secured Money'. The Secured Money was defined to mean all money, obligations and liabilities of any kind which were or may be owed by Pluton to GNR. As I have already observed, the Pluton Loan Agreement was an agreement which reflected a prepayment of $24 million by GNR for the delivery of Product by Pluton to GNR(HK). Pending the delivery of the Product, the prepayment was able to be utilised by Pluton for various payments contemplated in the Pluton Loan Agreement.81 Under the Pluton Loan Agreement, the amount outstanding from Pluton to GNR was to be reduced by the delivery of shipments of Product to GNR(HK) if those shipments met certain criteria. As I have explained, one criterion was that GNR(HK) would not be required to pay the full price for the shipment, but rather the full price less a deduction of $2.4 million.
95 Pluton was required to provide security for that 'loan' pursuant to the Pluton Security Deed, as was Wise once it became a Joint Venturer with Pluton. Wise's liability to GNR was limited to 50% of the total amount of the 'loan' to reflect its own 50% share in the Joint Venture, and its 50% liability for the amount owed by Pluton under the Pluton Loan Agreement, as a Joint Venturer.82
96 Accordingly, the object of the Wise Security Deed was to provide a security for 50% of the value of the amount pre-paid by GNR to Pluton, which liability was to reduce as GNR(HK) (and in turn GNR) derived the benefit of the delivery of a shipment of Product in respect of which GNR(HK) had not had to pay the full price.
97 Viewed in the context of the object of the Wise Security Deed, it is not at all surprising that Wise's liability to GNR in respect of that security was not limited to a particular time period, or to a particular number of shipments of Product, but was limited by reference to the overall quantum of the security, reflecting the reduction in the amount of the outstanding 'loan' from GNR to Pluton over time. From a commercial perspective, that is an entirely rational and unsurprising result.
98 Wise's construction of cl 2.2(b), on the other hand, appears irrational from a commercial perspective. The effect of its construction is that the Wise Liability Cap reduced by $1.2 million for each of the first 10 shipments of Product made by Pluton to GNR(HK). However, it was not the case that the price for each of those shipments was calculated by reference to cl 6(b) of the Sales and Purchase Contract. The result of Wise's construction of cl 2.2(b) of the Wise Security Deed is thus that the Wise Liability Cap reduced by $1.2 million for each shipment made, even though GNR(HK) did not receive the benefit of a reduction in the price it paid for each shipment of $2.4 million. The effect of that construction would be that after 10 shipments of Product there would remain 'Secured Money' under the Pluton Loan Agreement, yet GNR would have lost the benefit of the security provided by Wise for that remaining Secured Money.
99 At first blush, one of the more attractive arguments advanced by counsel for Wise was that
[i]f GNR's proposed construction was correct, the Wise Security Deed could, in effect, be preserved indefinitely by agreement between Pluton and GNR (ie by amending the shipping schedule to cover any number of further shipments at whatever nominal loan repayment amount Pluton and GNR agreed). This would be an uncommercial and nonsensical outcome that no reasonable person could interpret cl 2.2(b) to permit.83
100 In my view, the answer to this submission is that if the parties had intended that the Wise Liability Cap would reduce upon the delivery of each and every shipment of Product, or upon the delivery of the first 10 shipments of Product, or upon the delivery of 10 shipments of Product within a particular prescribed time frame, that could easily have been made clear. The fact that the deliveries of Product which were to result in a repayment of the loan under the Pluton Loan Agreement, and thus a reduction in the Wise Liability Cap, were those which met additional requirements (namely deliveries in accordance with the Sales and Purchase Contract more generally), suggests that the parties did not intend that the Wise Liability Cap was directed to securing only a particular number of shipments in a particular period of time.