Western Metropolitan Regional Council v Dicom Awt Operations Pty Ltd - [2018] WASC 229

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   WESTERN METROPOLITAN REGIONAL COUNCIL -v- DICOM AWT OPERATIONS PTY LTD [2018] WASC 229
CORAM:   ARCHER J
HEARD:   13 - 14 MARCH 2018, 20 APRIL 2018, 1 JUNE 2018
DELIVERED:   8 AUGUST 2018
FILE NO/S:   CIV 2938 of 2017
BETWEEN:   WESTERN METROPOLITAN REGIONAL COUNCIL
Plaintiff
AND
DICOM AWT OPERATIONS PTY LTD
First Defendant
CITY OF STIRLING
Second Defendant

Catchwords:

Waste Supply Agreement - Declarations consequent upon proper construction - Turns on its own facts

Legislation:

Nil

Result:

Declarations made

Category: B

Representation:

Counsel:

Plaintiff	:	Mr P J Ward & Mr E J Sylwestrzak
First Defendant	:	Mr R D Shaw & Mr G E Nairn
Second Defendant	:	Mr K M Pettit SC & Mr A K Sharpe

Solicitors:

Plaintiff	:	Jones Day
First Defendant	:	Lavan Legal
Second Defendant	:	McLeods

Case(s) referred to in decision(s):

Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113
City of Stirling v DiCOM AWT Operations Pty Ltd [2018] WASC 228

TABLE OF CONTENTS

Introduction

Commercial purposes and objects of the Council Agreement

Should I have regard to extrinsic material?

'Practical Completion in respect of Stage 2' (proposed declaration 1)

'Practical Completion in respect of Stage 2' means 'Practical Completion' under the DC Contract

Relevant clauses in the Council Agreement

DiCOM's original construction

DiCOM's second construction

Proper construction

Conclusion on 'Practical Completion'

Certification requirement

What does Practical Completion actually mean under the DC Contract?

Is its attainment a question of fact or opinion?

When will Practical Completion under the DC Contract be achieved?

Conclusion on certification

Conclusion on proposed declaration 1

'Process' under the Council Agreement (proposed declaration 2)

DiCOM's submissions

Is there a relevant dispute?

Is it inappropriate to apply a single definition of 'process'?

Would the proposed declaration preclude the commissioning of the Facility?

What does 'process' mean in the Council Agreement

Conclusion on proposed declaration 2

Waste Characterisation Study in cl 4.6 (proposed declaration 5)

Waste Characterisation Study in cl 5.2 (proposed declaration 6)

Proposed declaration 6.1

Proposed declaration 6.2

Compost (proposed declaration 7)

Schedule 10

Potential impact on fees

Is schedule 10 operative?

DiCOM® Compost

Conclusion on proposed declaration 7

Explanatory declaration (proposed declaration 8)

Conclusion

ARCHER J:

Introduction

The plaintiff, the Western Metropolitan Regional Council (Council), entered into a waste supply agreement with the defendant (DiCOM). The City of Stirling (City) also entered into a waste supply agreement with DiCOM. In these reasons, I will refer to the Council and the City collectively as 'the Councils'. Under the agreements, DiCOM was to process the Councils' waste using a patented waste processing system (DiCOM® System) in return for payment. The aim of the system was to provide an environmentally sustainable alternative to landfill disposal of municipal solid waste.
Disputes have arisen under the agreements. The Councils have each filed an originating summons seeking declarations consequent to the determination of questions of construction arising under their respective agreements. They also sought injunctions to restrain DiCOM from, among other things, submitting invoices until certain events had occurred. As there was a significant overlap in the issues raised by the two originating summonses, I ordered that the two proceedings be heard and determined together.
I incorporate into this judgment my reasons in City of Stirling v DiCOM AWT Operations Pty Ltd [2018] WASC 228 (City Judgment), including the defined terms. To understand this judgment, it is necessary to first read the introductory sections of the City Judgment.
The Council's agreement with DiCOM (Council Agreement) contains a 'most favoured supplier clause'.[1] That clause provides a mechanism by which the Council can require the Council Agreement to be varied to reflect terms of a third party waste supply agreement that are more favourable than its own. The Council asserted that it is entitled to have its agreement varied to reflect various terms of the City's agreement with DiCOM (City Agreement).
[1] Council Agreement cl 5.12.
As explained in the City Judgment, it was agreed that the current hearing would deal only with those issues that did not require the resolution of disputed facts. Determining the application of the most favoured supplier clause would have required the resolution of disputed facts. Therefore, it was agreed that it would not be determined in the current hearing. Nevertheless, it was agreed that there was utility in resolving, in the Council proceedings, some of the issues that arise under the City Agreement. In particular, the issue of when 'Final Completion' will occur under the City Agreement is relevant to some of the issues that arise under the Council Agreement.
DiCOM asserts that Final Completion has occurred under the City Agreement. The Councils dispute this. The Councils and DiCOM advance different constructions of when Final Completion will occur under the City Agreement.
DiCOM asserts that Final Completion occurs when it itself is satisfied that the waste processing facility (Facility) can process waste at 55,000 tpa. The Councils assert that Final Completion occurs when the Facility has been certified in accordance with the contract under which it was constructed (Construction Contract) to be able to process waste at 55,000 tpa. Further, the Councils assert that this will occur when 'Practical Completion' under the Construction Contract has been certified.
It was common ground that the Facility was constructed under the 'Contract for Design and Construction DiCOM System Shenton Park Stage 2' (DC Contract).
Related to the issue of Final Completion under the City Agreement is the Council's further contention in relation to the phrase 'Practical Completion in respect of Stage 2' in the Council Agreement. The Council contends that the phrase means, in effect, the certification of Practical Completion under the DC Contract. DiCOM disputes this.
In addition to the issues of Final Completion and Practical Completion, the parties disagree about what it means to say that the Facility is able to 'process' waste. Both agree that the Facility had to process waste under, and as required by, the DiCOM® System. The dispute was as to whether specific outputs had to be achieved. Using the organic fraction of waste as an example, the Council asserts that 'process' requires that it be converted into compost and biogas. However, DiCOM asserts, in effect, that 'process' means the organic waste will be conveyed through the Facility for the purposes of converting it into compost and biogas. DiCOM asserts that 'process' does not mean specific outputs will be achieved.
Further, the Council seeks declarations in relation to two different waste characterisation studies. The first study is required by cl 4.6 of the Council Agreement (Clause 4.6 Waste Study). The second is required by cl 5.2 (Clause 5.2 Waste Study).
The Council seeks a declaration that the Clause 4.6 Waste Study must be done solely on the Council's waste before DiCOM can invoice the Council. DiCOM says there is no utility in making that declaration.
In relation to the Clause 5.2 Waste Study, it was common ground that it is the same as the 'Initial Waste Characterisation Study' under the City Agreement (Initial Study).
The Councils assert that, under the City Agreement, the Initial Study must be conducted on waste delivered by the City in the six months leading up to Final Completion. DiCOM disputes this. The parties also disagree about whether the study can be properly described as a condition precedent to DiCOM's contractual right to invoice the City in relation to 'Residual Material'.[2]
[2] This is explained in the discussion of proposed declaration 6.
Finally, the Council asserts that the 'DiCOM® Compost' produced by the Facility must comply with Australian Standard AS4454-2003.
The declarations sought by the Council are as follows:[3]
[3] Plaintiff's Supplementary Submissions dated 21 March 2018 [1].
1.[T]hat, on the proper construction of the Waste Supply Agreement dated 5 April 2007 between DiCOM AWT Operations Pty Ltd and the Western Metropolitan Regional Council (the WMRC WSA), 'Practical Completion in respect of Stage 2' for the purposes of clause [4.2] and Section 1 of Schedule 4 will not occur until the Facility has been certified as having reached Practical Completion in accordance with the Contract for Design and Construction DiCOM System Shenton Park Stage 2 between Brockway DiCOM Facility Pty Ltd and AnaeCo Ltd and Monadelphous Group Ltd dated 3 December 2010.
2.[T]hat, on the proper construction of the WMRC WSA, for the purposes of:
2.1 the definitions of the terms 'Commission Date', 'Services', 'Stage 2', and 'Residual Material' in the WMRC WSA; and
2.2 item 2.2 of Section 2 of Schedule 10 to the WMRC WSA;
'processing' of Waste requires the Facility to:
a.recover Recyclables;
b.convert the organic fraction of Waste into DiCOM® Bioconversion Products, being:
i. DiCOM® Compost; and
ii. DiCOM® Biogas; and
c.value-add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.
3.[T]hat, on the proper construction of the City of Stirling Waste Supply Agreement dated 13 August 2008 as amended on 7 November 2008 (the CoS WSA):
3.1'Final Completion' for the purposes of clauses 3.5, 4.2 and 10.2 of the CoS WSA will not occur before the Facility has been certified in accordance with the agreement under which the Facility has been constructed to be able to process Waste at a rate of 55,000 tonnes per annum.
3.2For the purposes of Declaration 3.1, an ability of the Facility to 'process' Waste requires the Facility to:
a.recover Recyclables;
b.convert the organic fraction of Waste into DiCOM® Bioconversion Products, being:
i. DiCOM® Compost; and
ii. DiCOM® Biogas; and
c.value-add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.
4.[T]hat, as from 3 December 2010, 'Final Completion' for the purposes of clauses 3.5, 4.2 and 10.2 of the City of Stirling Waste Supply Agreement required certification of Practical Completion of the Facility in accordance with the Contract for Design and Construction DiCOM System Shenton Park Stage 2 dated 3 December 2010 between Brockway DiCOM Facility Pty Ltd and AnaeCo Ltd and Monadelphous Group Ltd.
5.[T]hat, the carrying out by DiCOM AWT Operations Pty Ltd of a Waste Characterisation Study on Waste delivered solely by the Western Metropolitan Regional Council in accordance with clause 4.6 and Section 1 of Schedule 3 to the WMRC WSA is a condition precedent to:
5.1the Council's contractual obligation to deliver Municipal Solid Waste pursuant to clauses 4.1(c), 4.1(d), 4.2 or 4.8 of the WMRC WSA; and
5.2DiCOM's contractual right to submit a Monthly Claim pursuant to clause 10.2 of the WMRC WSA.
6.[T]hat the waste characterisation study required by clause 5.2 and item 2 of Section 2 of Schedule 4 of the WMRC WSA, being the same study as the Initial Waste Characterisation Study to be conducted in accordance with clause 4.10 of the CoS WSA:
6.1must be conducted on Waste delivered by the City of Stirling pursuant to cl 4.1 of the CoS WSA in the period of not more than 6 months leading up to the date of Final Completion under the CoS WSA; and
6.2is, by clause 5.2(a) of the WMRC WSA, a condition precedent to DiCOM accepting delivery of any Waste from the City of Stirling for processing by the Facility following the date of Final Completion under the CoS WSA.
7. [T]hat, on the proper construction of the WMRC WSA, DiCOM Compost® derived from MSW processed by the Facility is required to comply with Australian Standard AS4454-2003.
8. [T]hat, for the purposes of Declarations 1 to 7 above:
8.1 The following expressions used in Declarations 1 and 4 have the meanings as defined in the Contract for Design and Construction DiCOM System Shenton Park Stage 2, namely: 'Facility' and 'Practical Completion'.
8.2The following expressions used in Declaration 2, 5 and 7 have the meanings as defined in Schedules 1 and 2 of the WMRC WSA, namely: 'Facility'; 'Waste'; 'Municipal Solid Waste' or 'MSW'; 'Recyclables'; 'DiCOM® Bioconversion Products'; 'DiCOM® Compost'; 'DiCOM® Biogas' and 'Waste Characterisation Study'.
8.3 The following expressions used in Declaration 3 and 6 have the meanings as defined in Schedules 1 and 2 of the CoS WSA, namely: 'Facility'; 'Waste'; 'Recyclables'; 'DiCOM® Bioconversion Products'; 'DiCOM® Compost'; 'DiCOM® Biogas' and 'Initial Waste Characterisation Study'.
8.4 The expression 'Facility' as used in each of Declarations 1 to 7 above refers to the same facility, namely the facility constructed under the Contract for Design and Construction DiCOM System Shenton Park Stage 2 on lot 11541 on Deposited Plan 189946 on the corner of Brockway Road and Lemnos Street, Shenton Park Western Australia.
For the reasons I gave in the City Judgment, I would make the declarations sought by the Council that are in identical terms to those sought by the City. These are the Council's proposed declarations 3 and 4.
There is also a significant overlap between the Council's proposed declarations in relation to the Clause 5.2 Waste Study, proposed declarations 6.1 and 6.2, and the City's proposed declarations 3 and 4. In the City Judgment, I explained why I would make proposed declaration 3 but would not make proposed declaration 4. For the same reasons, I would make the Council's proposed declaration 6.2 but would not make proposed declaration 6.1. I will, however, briefly discuss those proposed declarations later.
The issues raised by the remaining declarations sought by the Council are as follows:
1.Does 'Practical Completion in respect of Stage 2' in the Council Agreement mean, in effect, Practical Completion under the DC Contract?
2.If so, must the Facility be certified as having reached 'Practical Completion' under the DC Contract before 'Practical Completion in respect of Stage 2' is achieved?
3.What does 'process' mean in this context? Does it mean that the waste will be processed in accordance with the DiCOM® System? Or does it mean only that there is an intention to process it in that way? Must specific outputs be achieved?
4.Is there any utility in making a declaration in relation to the Clause 4.6 Waste Study?
5.Must the DiCOM® Compost produced by the Facility comply with Australian Standard AS4454‑2003?
Before dealing with these issues, it is useful to first describe the commercial purposes and objects of the Council Agreement.

Commercial purposes and objects of the Council Agreement

The commercial purposes and objects of the Council Agreement are apparent from the Council Agreement as a whole. These purposes and objects are similar to those of the City Agreement, which are set out in the City Judgment. With only minor variations between the parties (and the City), it was common ground that the following commercial purposes and objects could be gleaned from the Council Agreement itself.[4]
[4] ts 395 ‑ 398, 416 ‑ 417.
First, an ultimate object of the Council Agreement was that, subject to certain events occurring, the Council would deliver waste to the Facility and DiCOM would process that waste under the DiCOM® System for a fee. An ultimate object was that this would recover recyclables and convert some waste into compost and other renewable resources so as to significantly reduce the amount of waste going to landfill.[5] That was what the DiCOM® System promised to do. That is what the Council agreed to pay for.
[5] See, in particular, Council Agreement pages 1 - 4, the Schedule 1 section 1 definitions of each of the 'DiCOM®' items and 'Facility', the Schedule 2 definitions, Schedule 11, Annexure A and Annexure J.
Second, it was a commercial purpose of the Council Agreement that the Council would not be required to pay unless its waste was processed under, and as required by, the DiCOM® System. In these reasons (as I did in the City Judgment), I will use the shorthand description 'the DiCOM® System worked' to refer to processing waste 'under, and as required by, the DiCOM® System'.
As noted in the City Judgment, it was a commercial purpose of the City Agreement that the City would not be required to pay unless the DiCOM® System worked. While the City agreed to assist DiCOM to reach Final Completion, the City was not required to pay DiCOM until DiCOM could, and did, process waste under, and as required by, the DiCOM® System.
A similar commercial purpose can be gleaned from the Council Agreement, with two differences. First, under the Council Agreement, the Council was required to assist DiCOM to reach the Operational Period,[6] whereas under the City Agreement, the City had to assist DiCOM to reach Final Completion. Second, subject to the operation of the most favoured supplier clause, the Council had to pay for waste delivered for the ramp‑up,[7] while the City did not. However, the waste still had to be processed under the DiCOM® System. The Council was not required to pay anything unless the DiCOM® System worked.[8]
[6] For example, the Council Agreement cl 4.1.
[7] After the 'Commission Date', the Council had to deliver waste for the commissioning, ramp up and bank tests - see the Council Agreement cl 4.1(c) and (d). DiCOM's obligation to provide the 'Services', and the Council's obligation to pay for those Services, commenced on the Commission Date - see cl 3.5 and 10.2.
[8] ts 174 - 175.
DiCOM agreed that an ultimate object was that the processing would recover recyclables and convert some waste into compost and other renewable resources so as to significantly reduce the amount of waste going to landfill. DiCOM agreed that the Council would not have to pay if DiCOM was not processing waste under, and as required by, the DiCOM® System. However, DiCOM submitted that this did not mean that any specific outputs would be achieved.[9]

Should I have regard to extrinsic material?

[9] ts 416 ‑ 417.

In the City Judgment, I discussed extrinsic material on which the Council sought to rely.[10] DiCOM accepted there is ambiguity in the Council Agreement but submitted it can be cured by looking solely at the agreement.[11] DiCOM submitted that it is impermissible to have regard to any exchanges between the Council and DiCOM prior to the execution of the Council Agreement.
[10] See City Judgment under the heading 'Bad faith?''.
[11] ts 170.
It is unnecessary to resolve this issue. I do not need to have regard to those materials to determine the issues in this case.

'Practical Completion in respect of Stage 2' (proposed declaration 1)

The Council sought a declaration that 'Practical Completion in respect of Stage 2' for the purposes of cl 4.2 and Section 1 of Schedule 4 will not occur until the Facility has been certified as having reached Practical Completion in accordance with the DC Contract.
This proposed declaration turns upon the proper construction of the phrase '[o]n achievement of Practical Completion in respect of Stage 2 (as notified by [DiCOM] to [the Council])' in cl 4.2 of the Council Agreement.
This raises two issues:
1.Does 'Practical Completion in respect of Stage 2' in cl 4.2 mean 'Practical Completion' under the DC Contract?
2.If so, must the Facility be certified as having reached Practical Completion under the DC Contract before Practical Completion will be achieved as required by cl 4.2?

'Practical Completion in respect of Stage 2' means 'Practical Completion' under the DC Contract

Relevant clauses in the Council Agreement

The Council Agreement distinguishes between Stage 1 (the non‑commercial demonstration stage) and Stage 2 (the expansion, if the project proceeded).[12]
[12] For example, see the Council Agreement cl 4.2 and Schedule 1 section 1 definitions of 'Commission Date', 'Facility' and 'Stage 2'.
'Stage 2' is defined in the Council Agreement to mean 'the development of an additional two vessels to process Municipal [Solid] Waste [at] the Site, and associated additional infrastructure'.[13]
[13] Council Agreement Schedule 1 section 1 definition of 'Stage 2'.
'Practical Completion' is not a defined term in the Council Agreement.
It appears, in capital letters, in cl 4.2 of the Council Agreement. Clause 4.2 provides:
On achievement of Practical Completion in respect of Stage 2 (as notified by [DiCOM] to [the Council]), [the Council] must procure the delivery of the following tonnes of Municipal Solid Waste [and then the clause lists the amounts required].
The only other place in which 'Practical Completion' appears is in paragraph 2 of section 1 of Schedule 4. The relevant paragraph provides (emphasis omitted):
The Project Committee to meet and to determine the most appropriate procedures to be followed to achieve the Desired Outcomes in respect of:
…
operation after Practical Completion in respect of Stage 2 - [the Council] Site Procedures for Steady State,
…
each being an Operational Procedure, and more than one being [the Council] Site Procedures.

DiCOM's original construction

DiCOM argued that 'Practical Completion' in cl 4.2 was not a reference to 'Practical Completion' under the Construction Contract. Up until the third day of hearing, DiCOM argued that it was merely a reference to the stage that would follow the previous stages in the Council Agreement.[14]
[14] ts 209.
DiCOM referred to cl 3.2 to 3.5 of the Council Agreement, which set out the time periods of three stages – the 'Commission Period', the 'Bank Test Period', and the 'Operational Period'.
DiCOM then referred to cl 4.1. Clauses 4.1(c) and (d) set out the Council's delivery obligations during the Commission Period and the Bank Test Period. DiCOM said that cl 4.2 then 'follows on from those periods. And so practical completion under this document is no more than those two processes under [cl 4.1](c) and (d) have been achieved, and then you move into the Operational Period'.[15]
[15] ts 209. See also ts 211 ‑ 212.
Counsel for DiCOM said:[16]
So there will be a Commission Period, a Bank Test Period, and then, at the end of the Bank Test Period, the Operational Period will begin. Clause 4.2, for some reason, they have said on achievement of Practical Completion, effectively, the Operational Period begins. And so the only meaning you can give to practical completion - I'm looking at this document alone - is to say: well, that will be at the end of the Bank Test Period.
[16] ts 209 ‑ 210.
DiCOM confirmed that its submission was that 'Practical Completion in respect of Stage 2 (as notified by [DiCOM] to the [Council])' means 'when the Operational Period begins'. DiCOM agreed that, if that is what it meant, it would have been a lot clearer if the clause had simply said that. Counsel for DiCOM said 'we've got to make do with what we've got'.[17]
[17] ts 211 ‑ 212.
DiCOM also confirmed that it contended that the Council's obligation to deliver waste under cl 4.2 arose automatically the day after the Bank Test Period ended.[18]
[18] ts 379.
On DiCOM's construction, there is no requirement for anyone to be satisfied that the Facility can process under the DiCOM® System before the Council's obligation to deliver waste under cl 4.2 is triggered.[19]
[19] ts 405.
I do not accept DiCOM's construction for the following reasons.

No work to do

The first reason is that it would give the words 'Practical Completion in respect of Stage 2' no work to do.
DiCOM conceded it was clear from the Council Agreement as a whole that cl 4.2 was dealing with the Operational Period.[20] There is no need for any explicit words to say the clause applies during the Operational Period. Therefore, if 'Practical Completion in respect of Stage 2' only means 'when the Operational Period begins', as DiCOM contended, then the words would have no work to do.

Inconsistent with plain meaning

[20] ts 405 ‑ 406.

Second, DiCOM's construction would be inconsistent with the plain meaning of cl 4.2.
Clause 4.2 sets up a pre‑condition to the Council's obligation to deliver waste during the Operational Period. The pre‑condition is that Practical Completion in respect of Stage 2 has been achieved and that DiCOM has notified the Council of that fact. DiCOM's construction, that the Council's obligation to deliver waste during the Operational Period would automatically arise the day after the end of the Bank Test Period, is inconsistent with cl 4.2's plain meaning.
During the third day of hearing, DiCOM conceded that cl 4.2 set up a pre‑condition to the Council's obligation to deliver waste during the Operational Period. However, DiCOM then argued that the trigger was when Stage 2, as defined, had been completed.[21] In other words, DiCOM's new argument was that the trigger is Practical Completion in respect of 'the development of an additional two vessels to process Municipal [Solid] Waste [at] the Site, and associated additional infrastructure'.[22] This second construction will be discussed later.

Not businesslike

[21] ts 407.

[22] Council Agreement Schedule 1 section 1 definition of 'Stage 2'.

The third reason for rejecting DiCOM's (first) construction is that it would not be businesslike.
Under the Council Agreement, the Council is obliged to deliver waste prior to the Operational Period, for various purposes.
Prior to the Commission Date (which occurs before the Operational Period), the Council must deliver waste in stipulated periods for the pre‑performance test commissioning and the Stage 1 performance tests.[23] The Council is not obliged to pay a service charge for the waste it delivers for these purposes.[24] Then, if Stage 1 is successful and the venture is to proceed, Stage 2 begins.
[23] Council Agreement cl 4.1(a) and (b) and Schedule 5 section 1.
[24] The Council's obligation to pay a Service Charge for waste it delivers commences on the Commission Date - cl 10.2.
The 'Commission Date' in respect of Stage 2 occurs when DiCOM notifies the Council that the Facility is ready to process waste for the purposes of commencing the Commission Period. The Commission Period begins on the Commission Date.[25]
[25] Council Agreement cl 3.2 and Schedule 1 section 1 definition of 'Commission Date'.
During the Commission Period, the Council must deliver waste in accordance with the 'Commission Schedule', the 'Ramp Up Schedule', and the 'Bank Test Schedule'.[26] This is to enable the commissioning, ramp-up and bank tests for the purposes of Stage 2.[27] The Council is obliged to pay a service charge for the waste it delivers for these purposes.[28]
[26] Each is defined in the Council Agreement Schedule 1 section 1. See also Council Agreement Schedule 5.
[27] Council Agreement cl 4.1(c) and (d) and Schedule 5 section 2.
[28] The Council's obligation to pay a Service Charge for waste it delivers commences on the Commission Date ‑ cl 10.2.
It was common ground that the 'ramp‑up' was testing the Facility in operation by gradually increasing throughput and the processing capability over a period to ensure it met the performance criteria.[29]
[29] First Defendant's Submissions dated 8 March 2018 (DiCOM's Council Agreement Submissions) [28.1.3(b)].
The bank tests were for the purposes of the debt facility that the parties assumed would be entered into following the construction stage.[30]
[30] Council Agreement Annexure J Assumptions Book.
The Operational Period begins on the day immediately after the Bank Test Period and ends on the 'Expiry Date'.[31] The Council's delivery obligations during the Operational Period are prescribed by cl 4.2. Once the delivery obligations in the Operational Period are triggered by cl 4.2, there are significant changes to the Council's obligations.[32]
[31] Council Agreement cl 3.4.
[32] Effectively conceded by DiCOM at ts 408 ‑ 409.
First, from this point, the Council's delivery obligations are limited only by the term of the Council Agreement. The Operational Period is to last at least 20 years.[33]
[33] Council Agreement cl 3.1, 3.4 and Schedule 1 section 1 definition of 'Expiry Date'.
Second, the Council's delivery obligations are no longer limited to deliveries for the specified testing purposes.
Third, a 'deliver‑or‑pay' clause is triggered.[34] In essence, regardless of how much the Council delivers during the Operational Period, it must pay a service charge as if it had delivered the full amount required. This service charge can be up to 110% of the alternative cost of waste disposal (or even more if the parties agree).[35] This underscores the significance of the Council's delivery obligations during the Operational Period.
[34] Council Agreement cl 4.8.
[35] Council Agreement Annexure A. This was conceded by DiCOM - see ts 410.
DiCOM submitted, in effect, that the Operational Period (and the Council's deliver‑or‑pay obligation) would begin when it said so. DiCOM said this was demonstrated by the fact that earlier periods in the Council Agreement were said to begin and end when DiCOM notified the Council. However, this missed the point of the Council's contention as to cl 4.2. The Council said that, because cl 4.2 triggers the Council's delivery obligations in the Operational Period, 'Practical Completion in respect of Stage 2' must mean something substantive.
It would be surprising if a commercial contract provided that such a deliver‑or‑pay obligation could be triggered without any determination that the Facility was capable of processing waste under the DiCOM® System and capable of doing so at the required volumes. Further, this would not sit well with the commercial purpose of the Council Agreement that the Council would not have to pay unless the DiCOM® System actually worked.
DiCOM said this could be explained by the fact that, if the Facility had proceeded to Stage 2, it meant that the technology had been 'proved up' during Stage 1.[36] This is an inadequate explanation. First, it would still be surprising if a commercial contract imposed such a deliver‑or‑pay obligation when the technology was only proved in a non‑commercial context. Second, the fact that the technology was to be 'proved up' in Stage 1 does not provide a commercially sensible reason for the parties to contract on the basis that the Council's obligation would arise automatically after the Bank Test Period, particularly in view of the commercial purposes of the Council Agreement. Third, under the Council Agreement, extensive testing was required in Stage 2.[37] The parties clearly contracted on the basis that the Facility could not be said to be capable of being fully operational simply because Stage 1 had been concluded.
[36] ts 410.
[37] Council Agreement Schedule 5 section 2.
DiCOM's construction would mean that the Council's obligation to deliver or pay, over at least 20 years and at a cost of up to 110% of what it would cost elsewhere, could be triggered without any determination of the Facility's ability to process waste under the DiCOM® System in the amounts required. This is not a businesslike interpretation.

DiCOM's say so

I also do not accept that the proper construction is influenced by the fact that some periods under the Council Agreement begin and end when DiCOM says so.
The Commission Date means 'in respect of Stage 2, the date on which [DiCOM] notifies [the Council] that the Facility is ready to receive, sort, process and treat Municipal Solid Waste for the purpose of commencing the Commission Period'.[38] The Commission Period begins on the Commission Date and ends at the end of the Ramp Up Period 'as notified to [the Council] by [DiCOM]'.[39] The Bank Test Period 'begins and ends on the dates notified to [the Council] by [DiCOM]'.[40]
[38] Council Agreement Schedule 1 section 1 definition of 'Commission Date'.
[39] Council Agreement cl 3.2.
[40] Council Agreement cl 3.3.
DiCOM conceded that each of these periods necessarily must be determined by DiCOM.[41] Only DiCOM can say when it is ready to receive, sort, process and treat Municipal Solid Waste for the purpose of commencing the Commission Period. Only DiCOM can say when it is ready to begin the ramp‑up tests. Only DiCOM can say when it is ready for the bank tests.
[41] ts 411.
DiCOM conceded that the same could not be said for cl 4.2.[42]
[42] ts 411.
As noted earlier, during each of the Commission Period, Ramp Up Period and Bank Test Period, the Council's obligation to deliver waste is limited to deliveries for the specified purposes, and the deliver‑or‑pay clause does not apply. This changes once the Council's obligation to deliver in the Operational Period is triggered. In my view, it is precisely for that reason that cl 4.2 provides that the Council's obligation to deliver in the Operational Period only arises on achievement of Practical Completion in respect of Stage 2. In other words, it is because cl 4.2 triggers the Council's obligation to deliver waste in the Operational Period that the clause makes it clear that the obligation will only arise when, in effect, the Facility is capable of performing as required.
DiCOM disputed that this was the reason for cl 4.2. DiCOM submitted the phrase 'Practical Completion in respect of Stage 2' at the start of cl 4.2 was '[m]ore than likely … put in there by accident'.[43] I do not accept this. There is an obvious and clear reason why the parties would include the pre-condition of 'Practical Completion in respect of Stage 2' before the Council's delivery obligations during the Operational Period could be triggered. If it were otherwise, DiCOM could insist that the Council deliver or pay, even if the system did not work.

DiCOM's second construction

[43] ts 411.

On the third day of hearing, DiCOM conceded that cl 4.2 set out what was required to trigger the Council's delivery obligations during the Operational Period. However, DiCOM then argued that the trigger was when Stage 2, as defined, had been completed.[44]
[44] ts 407.
As noted above, 'Stage 2' means the development of an additional two vessels to process waste and associated infrastructure. Therefore, argued DiCOM, the Council's obligation to deliver waste during the Operational Period is triggered by the development of those vessels and associated infrastructure.[45]
[45] ts 407.
This second construction suffers less defects than DiCOM's original construction. It does give the phrase work to do and also does not rely on DiCOM's argument as to its 'say‑so'. However, while it is less inconsistent with the plain meaning than the original construction, it is still not entirely consistent. In addition, it is not businesslike.

Inconsistent with plain meaning

In relation to DiCOM's second construction, cl 4.2 does not say that the Council's obligation to deliver waste is triggered by the development of the vessels and associated infrastructure required by Stage 2. It refers to 'On achievement of Practical Completion in respect of Stage 2' (emphasis added).
Stage 2 is the stage under which the Facility would be expanded to a commercial operation.[46] During Stage 2, the Council was required to deliver waste for the commissioning, ramp‑up and bank tests. In that context, cl 4.2 suggests on its face that, to trigger the Council's delivery obligations in the Operational Period, something more is required than simply the completion of the construction of the additional vessels and infrastructure.

Not businesslike

[46] See the history set out in the City Judgment in relation to the joint presentation and the Council Agreement in relation to Stage 2.

DiCOM's second construction is not businesslike for the same reasons as for its first. Both constructions would mean that the Council's obligation to deliver or pay, over at least 20 years and at a cost of up to 110% of what it would cost elsewhere, could be triggered without any determination of the Facility's ability to process waste under the DiCOM® System in the amounts required, and even if the DiCOM® System did not work as promised.
Indeed, on DiCOM's constructions, even if the principal under the Construction Contract had not received what was promised, DiCOM could still demand that the Council deliver or pay as if the Facility had been completed and was operating in accordance with the project specifications, subject only to what DiCOM submitted its good faith obligation required.

Proper construction

As I will explain, in my view, the proper construction of the phrase '[o]n achievement of Practical Completion in respect of Stage 2 (as notified by [DiCOM] to [the Council])' is that it means 'on achievement of Practical Completion under the DC Contract'.
I have already explained that the plain meaning of cl 4.2 is that it sets up a pre‑condition to the Council's obligation to deliver waste during the Operational Period. Further, on its face and in the context of the Council Agreement as a whole, cl 4.2 suggests that, to trigger the Council's delivery obligations in the Operational Period, something more is required than simply the completion of the construction of the additional vessels and infrastructure.
The next issue is whether the phrase 'On achievement of Practical Completion in respect of Stage 2 (as notified by [DiCOM] to the [Council])' in cl 4.2 is referring to Practical Completion under the DC Contract.

Refers to an external event

There are numerous indicators that the phrase is a reference to an external event.
First, 'Practical Completion' is not defined in the Council Agreement. However, the words 'Practical Completion' in cl 4.2 are capitalised.
Second, the very fact that cl 4.2 refers to DiCOM notifying the Council that Practical Completion has been achieved suggests it was something that DiCOM, and not the Council, would be told about. This is consistent with it being something under the Construction Contract. It would be extraordinary if an agreement to construct a facility of this size did not include the usual provisions for certification of practical completion.
It was anticipated that the Construction Contract would be entered into by companies related to DiCOM. That is what happened. Brockway and AnaeCo were parties to both the EPCM Agreement and the DC Contract.[47]
[47] See the City Judgment.
Third, the work required for Stage 2 is not covered by the Council Agreement.
The Council Agreement was executed before the EPCM Agreement and the DC Contract. However, it was premised on the fact that another entity would construct the Facility. The Council Agreement refers to a lease being granted to a trust to enable it to build the Facility.[48] The Council Agreement also refers to the trust granting a sub‑lease to DiCOM to operate the Facility.[49]
[48] Council Agreement Background recital A. A draft lease is annexed to the Council Agreement as Annexure F.
[49] Council Agreement Background recital B.
As noted earlier, 'Stage 2' is defined in the Council Agreement to mean the development of additional vessels and associated additional infrastructure.[50] Nothing is being constructed under the Council Agreement. This work of developing additional vessels and infrastructure is not covered by the Council Agreement. It can only be referring to work done under a different contract. It can only be referring to work done under the Construction Contract.

Refers to the DC Contract

[50] Council Agreement Schedule 1 section 1 definition of 'Stage 2'.

The work associated with Stage 2 of the Council Agreement was done under the DC Contract.[51] Indeed, the full title of the DC Contract was 'Contract for Design and Construction DiCOM System Shenton Park Stage 2'.
[51] Statement of Agreed Facts rows 25 and 27. DiCOM asserted that the EPCM Agreement dealt with Stage 1, but was incomplete in relation to Stage 2. DiCOM asserted that the EPCM Agreement was meant to be completed if Stage 2 proceeded - see Statement of Agreed Facts row 18, far right column. However, the DC Contract replaced the EPCM Agreement - see Statement of Agreed Facts row 25.

In my view, a reasonable person would have understood the phrase '[o]n achievement of Practical Completion in respect of Stage 2 (as notified by [DiCOM] to [the Council])' to mean 'on achievement of Practical Completion under the contract under which Stage 2 was completed'. As events transpired, this was the DC Contract.
This conclusion is supported by the commercial purposes and objects of the Council Agreement. In particular, it was a commercial purpose that the Council would not need to pay DiCOM unless the DiCOM® System worked. While the Council had to pay for waste delivered for the ramp‑up, the waste still had to be processed under the DiCOM® System.

Businesslike

In the City Judgment, I explained what 'Practical Completion' requires under the DC Contract. In simplistic terms, Practical Completion under the DC Contract means, among other things, that the Facility will be able to process 55,000 tpa of waste under the DiCOM® System.
In my view, construing cl 4.2 so that the Council's deliver-or-pay obligation will be triggered when the Facility is able to process 55,000 tpa of waste under the DiCOM® System is a businesslike construction. It is a significant obligation that would last over at least 20 years and at a cost of up to 110% of what it would cost elsewhere.

Conclusion on 'Practical Completion'

In my view, cl 4.2 refers to Practical Completion under whatever contract the Facility was constructed, in the obvious expectation that such a contract would provide for certification of practical completion. It was common ground that the Construction Contract was the DC Contract. Therefore, '[o]n achievement of Practical Completion in respect of Stage 2' in cl 4.2 means on achievement of Practical Completion under the DC Contract.

Certification requirement

The next issue is whether the Facility must be certified as having reached 'Practical Completion' under the DC Contract before Practical Completion will be achieved as required by cl 4.2.
As said earlier, cl 4.2 refers to an external event - the achievement of Practical Completion under the DC Contract. When that event will occur depends upon the terms of the DC Contract. As noted in the City Judgment, DiCOM argued it was not permissible to have regard to the DC Contract in determining when 'Final Completion' will be established under the City Agreement. In the City Judgment, I explained why I rejected DiCOM's arguments on this issue. The same reasons apply here. The DC Contract is not relied upon to construe cl 4.2 of the Council Agreement. Rather, it contains the external event referred to in cl 4.2.

What does Practical Completion actually mean under the DC Contract?

DiCOM submitted that 'Practical Completion' would ordinarily mean completion of a structure. DiCOM referred to the EPCM Agreement, in which 'Practical Completion', in respect of Stage 2, will, in effect, occur before the ramp‑up.[52]
[52] EPCM Agreement cl 1.1 definition of 'Practical Completion', sub-paragraph (d).
In my view, not a lot of weight can be given to the EPCM agreement in this context. This is because DiCOM asserted, in the Statement of Agreed Facts, that the EPCM Agreement dealt with Stage 1, but was incomplete in relation to Stage 2. DiCOM asserted that the EPCM Agreement would be completed if Stage 2 proceeded.[53] In addition, the EPCM Agreement had not been executed at the time the Council Agreement was executed. Its terms would not have been in the contemplation of the parties to the Council Agreement.
[53] Statement of Agreed Facts row 18, far right column.
In any event, DiCOM conceded that, if the contract was a 'turnkey' contract, 'Practical Completion' would mean, in effect, that 'all you then need to do is turn up and it works perfectly'.[54] However, DiCOM said it would still depend on how the words were used.
[54] ts 402 ‑ 403
The object of the DC Contract is 'to deliver a turnkey Facility to the Principal that operates in accordance with the Project Specification'.[55] The 'Facility' means 'the plant, equipment, operating systems and supporting infrastructure at the site incorporating the Project Specification'.[56]
[55] DC Contract cl 2.1(c).
[56] DC Contract cl 1.1 definition of 'Facility'.
As noted earlier, in simplistic terms, Practical Completion under the DC Contract means, among other things, that the Facility will be able to process 55,000 tpa of waste under the DiCOM® System. It means much more than simply the completion of structures and building works.

Is its attainment a question of fact or opinion?

The Council submitted that the determination as to whether Practical Completion has been met will, in the context of the construction industry, inevitably involve an evaluative judgment. The Council pointed out that the nature of construction work is that there will inevitably be some defects. Construction contracts can deal with this by allowing for a determination to be made that the building is sufficiently complete to allow it to be occupied and used for its intended purpose while the builder tidies up any odds and ends and fixes any minor defects. The determination is usually made by an independent superintendent.[57]
[57] ts 392.
In such a scenario, the superintendent is necessarily required to make an evaluative judgment. The expression of the judgment is binary - either the superintendent is of the opinion that practical completion has been reached or the superintendent is not.
DiCOM submitted there was no need for a construction contract to include a certification of practical completion. DiCOM submitted that whether or not practical completion had been reached was a pure question of fact. It may well be, but it is a question of fact that will usually involve an evaluative judgment, and it has the capacity to provoke disputes. This is why it is common for construction contracts to provide for a process of certification. Indeed, it would be a courageous solicitor who advised a party to a construction contract to omit such a process.
Further, the real issue here is not that a construction contract does not have to include a certification of practical completion. Nor is the issue whether practical completion is a question of fact. The real issue is: when will Practical Completion under the DC Contract be achieved? As I have said, the phrase '[o]n achievement of Practical Completion in respect of Stage 2 (as notified by [DiCOM] to [the Council])' in cl 4.2 means 'on achievement of Practical Completion under the DC Contract'.

When will Practical Completion under the DC Contract be achieved?

'Practical Completion' is defined in the DC Contract to mean the stage in the execution of the 'Work' when, among other things, the 'Works' are complete except for minor omissions and minor defects:[58]
(i)which do not prevent the Works from being reasonably capable of being used in accordance with the Project Specifications;
(ii)which the Superintendent determines the Contractor has reasonable grounds not to rectify promptly; and
(iii)rectification of which will not prejudice the convenient use of the Works for the Purpose.
[58] DC Contract cl 1.1 definition of 'Practical Completion'.
Clause 34.6 of the DC Contract provides the conditions under which a certificate of Practical Completion will be issued. The effect of this clause is that a certificate can be given in two circumstances. First, if the 'Contractor' is of the opinion that Practical Completion has been reached, the Contractor may request the 'Superintendent' to issue a certificate. The Superintendent will then either give the Contractor the certificate 'evidencing the date of Practical Completion' or give reasons for not doing so. Second, if the Superintendent is of the opinion that Practical Completion has been reached, the Superintendent can issue the certificate of his/her own accord.[59]
[59] DC Contract cl 34.6.
The 'Date of Practical Completion' is defined in the DC Contract to mean 'the date evidenced in a Certificate of Practical Completion as the date upon which Practical Completion was reached', unless an alternative date is determined by arbitration or litigation.[60]
[60] DC Contract cl 1.1 definition of 'Date of Practical Completion'.
In Abergeldie Contractors Pty Ltd v Fairfield City Council,[61] the New South Wales Court of Appeal considered relevantly identical provisions[62] in a construction contract. Basten JA, with whom Beazley ACJ and Meagher JA agreed, found that the issue of the certificate of practical completion provides the date on which practical completion is achieved.[63] The reasoning for that conclusion applies to the DC Contract.[64]
[61] Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113.
[62] See Abergeldie [23] for the definition of 'practical completion', [31] for the clause (cl 34.6) dealing with the certificate of practical completion and [36] for the definition of the 'date of practical completion'. The clause in the DC Contract dealing with the certificate of Practical Completion is also cl 34.6.
[63] Abergeldie [34].
[64] Abergeldie [34]-[36], [39] ‑ [46], [48] ‑ [49] (with the exception of the reference to cl 34.8 in [45] and the reference to the legislative scheme for progress payments in [49]). See also the additional reasons of Meagher JA, with whom Beazley ACJ also agreed, at [65] ‑ [69].
Applying that reasoning, Practical Completion under the DC Contract will be 'achieved' on the date on which a certificate of Practical Completion is issued.

Conclusion on certification

DiCOM pointed out that, if it was intended that a certification of Practical Completion be required, cl 4.2 of the Council Agreement could have said so. This is true. However, from my consideration of the above, the proper construction of cl 4.2 is that 'Practical Completion' cannot be achieved within the meaning of that clause until there is a certification of 'Practical Completion' under the DC Contract.
This is reinforced by the words 'as notified by [DiCOM] to [the Council])' in cl 4.2. The words suggest that a determination had been made under the DC Contract that Practical Completion had been reached. This could only occur when Practical Completion was certified.

Conclusion on proposed declaration 1

DiCOM agreed there was utility in making this declaration.[65]
[65] ts 401.
In the City Judgment, I discussed the period of time over which the declaration in relation to Final Completion should cover. I concluded it was appropriate to make the declaration as from 3 December 2010 (the date the DC Contract was executed) to at least 9 February 2016 (the date a deed in relation to the DC Contract was executed). DiCOM did not argue in the Council proceedings that the Council's proposed declaration 1 should be limited to a defined period. Nevertheless, I will hear from the parties as to this issue.
Subject to that, it is appropriate to make a declaration in terms of proposed declaration 1.

'Process' under the Council Agreement (proposed declaration 2)

In the City Judgment, I made declarations as to when Final Completion could occur under the City Agreement and what 'process' meant in that context. These were the City's proposed declarations 1 and 2. The Council's proposed declarations 3 and 4 seek identical declarations. I would make the Council's proposed declarations 3 and 4 for the same reasons as I made the City's proposed declarations 1 and 2.
The Council also seeks a declaration as to the meaning of 'process' in the Council Agreement for the purposes of various clauses in the Council Agreement. This is the Council's proposed declaration 2.
The various clauses nominated by the Council are the definitions of the terms 'Commission Date', 'Services', 'Stage 2', and 'Residual Material' and item 2.2 in Section 2 of Schedule 10. I will refer to these as 'the nominated clauses'.
The Council seeks a declaration that, for the purposes of the nominated clauses, 'processing' of Waste requires the Facility to:
(a)recover Recyclables;
(b)convert the organic fraction of Waste into DiCOM® Bioconversion Products, being:
i.DiCOM® Compost; and
ii.DiCOM® Biogas; and
(c)value‑add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.

DiCOM's submissions

DiCOM opposed this proposed declaration on three grounds. DiCOM contended:
1.such a declaration would not resolve any identified dispute, and would therefore be of no utility;
2.it is inappropriate to apply a single definition of 'process' to each of the nominated clauses because they use the word in different contexts; and
3.the proposed declaration would preclude the commissioning of the Facility.

Is there a relevant dispute?

During the third day of hearing, DiCOM conceded there was a dispute as to the meaning of 'process' in the Council Agreement for the purposes of the definitions for 'Commission Date' and 'Services'.[66] This concession was properly made.
[66] ts 414.
It is an agreed fact that DiCOM sent invoices to the Council that included a component for 'Monthly Claims for Service Charges'. It is an agreed fact that the Council denies DiCOM is entitled to make Monthly Claims for Service Charges.[67]
[67] Statement of Agreed Facts rows 33 and 34.
DiCOM's right to charge for 'Services' is controlled by cl 10. Clause 10 provides that the 'Service Charge' will be determined in accordance with Annexure A. Clause 10.2 provides that DiCOM's right to charge for Services arises after the Commission Date. It is an agreed fact that the Commission Date occurred no later than 21 October 2013.[68]
[68] Statement of Agreed Facts row 28. See also ts 235 ‑ 236, in which DiCOM accepted a submission made by the Council that DiCOM has been obliged to provide 'Services', which includes 'processing' of waste, since 21 October 2013.
On and from the Commission Date, DiCOM was required to commence providing the Services.[69] 'Services' means 'the sorting and processing of Municipal Solid Waste at the Facility'.[70]
[69] Council Agreement cl 3.5.
[70] Council Agreement Schedule 1 definition of 'Services'.
From these provisions, it can be seen that DiCOM's right to charge for Services depends upon its 'processing' of waste delivered by the Council. Further, the Services only commence on the Commission Date. Therefore, there is a relevant dispute as to the meaning of 'process' in the Council Agreement for the purposes of the definitions of 'Commission Date' and 'Services'.

Is it inappropriate to apply a single definition of 'process'?

DiCOM's second ground of objection was that it is inappropriate to apply a single definition of 'process' in each of the nominated clauses because they use that word in different contexts.[71] DiCOM submitted that, for example, the definition of 'Stage 2' deals with processing within the vessels. By contrast, 'processing' in other contexts includes recovering recyclables.
[71] DiCOM Response to WMRC Supplementary Submissions dated 28 March 2018 (DiCOM's Response to Council Submissions) [7] ‑ [8].
There is force in this submission. In my view, 'processing' for the purposes of the definition of 'Stage 2' does not require the Facility to do all of the matters listed in proposed declaration 2 (Listed Matters). It only requires the Facility to do the matters listed in par (b) and (c) of proposed declaration 2. Therefore, I would not include the definition of 'Stage 2' in any declaration made.
I would also not include item 2.2 of Section 2 of Schedule 10 in any declaration made. Item 2.2 deals with the processing component of the performance tests in respect of Stage 1. Item 2.2(a) refers to 'Municipal Solid Waste processing (material handling) through material preparation equipment'. Item 2.2(b) refers to the recovery of the compostable organic fraction of Municipal Solid Waste 'suitable for DiCOM® processing'. Item 2.2(c) refers to bio‑conversion from 'batch cycles, each batch within 21 day DiCOM® process cycle'. In my view, it cannot be said that each time 'processing' or 'process' is used in item 2.2 the word is intended to incorporate all of the Listed Matters.
I would, however, include each of the other nominated clauses in any declaration made, for these reasons.
The Commission Date means 'in respect of Stage 2, the date on which [DiCOM] notifies [the Council] that the Facility is ready to receive, sort, process and treat Municipal Solid Waste for the purpose of commencing the Commission Period'. In view of the definition of 'DiCOM® System', 'process' in this context requires the Facility to do all of the Listed Matters. For the same reason, 'process' in the definition of 'Services' requires the Facility to do all of the Listed Matters.
'Residual Material' means 'material derived from Waste or otherwise produced by the processing of Waste, other than Recyclables and Renewable Resources'.[72] In this context, 'processing' contemplates that the Facility will be doing all of the Listed Matters.

Would the proposed declaration preclude the commissioning of the Facility?

[72] Council Agreement Schedule 2 definition of 'Residual Material'.

DiCOM's third contention was that the proposed declaration would preclude the commissioning of the Facility. This argument was based on DiCOM's assumption that the proposed declaration was to the effect that the Facility had to be recovering recyclables and producing compost every single day on which the Facility was contractually required to operate. DiCOM said this did not allow for the possibility that the Facility would need to shut down from time to time in the commissioning phase to make adjustments. DiCOM said that, on the Council's construction, DiCOM would be in breach of its obligation to process during the days on which the Facility was not operating.[73]
[73] ts 508 ‑ 514.
This is not the effect of the proposed declaration. The proposed declaration seeks to establish what the Facility must do to 'process' waste. It only deals with what the Facility must do when waste is actually processed. It does not require waste to be put through the Facility on a daily basis. It only requires that, when waste is put through the Facility, it will be processed under the DiCOM® System. DiCOM accepted that whatever waste was processed had to be processed under the DiCOM® System.[74]

What does 'process' mean in the Council Agreement

[74] ts 508, 512 ‑ 514.

In the City Judgment, I explained why 'processing' in the City Agreement requires the Facility to: recover Recyclables; convert the organic fraction of Waste into DiCOM® Bioconversion Products; and value-add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner, or solid recovered fuel briquettes. For ease of reference, I will refer to this as the requirement that the Facility 'recover recyclables, convert the organic fraction of waste and value‑add'.
I also explained in the City Judgment why I rejected DiCOM's submission that 'process' means only an ability to accept and convey waste through the Facility for the purposes of recovering Recyclables and Renewables. I explained in the City Judgment why I rejected DiCOM's submission that one of the components of the DiCOM® System was merely 'aspirational'.
'Facility' and 'DiCOM® System' are defined in the Council Agreement in relevantly the same way as they are in the City Agreement.[75] In addition, like the City, the Council must deliver waste of a composition consistent with the composition previously determined under the relevant waste characterisation study. Accordingly, the Council cannot deliver waste that contains, for example, less recoverable material than the proportion determined by the relevant study.[76] Further, the Council Agreement contains provisions equivalent to cl 2.5, 4.14 and 20.1 of the City Agreement.[77]
[75] See Council Agreement Schedule 1 section 1 and City Agreement Schedule 1 section 1.
[76] See Council Agreement cl 2.4, 4.1 and Schedule 2 definition of 'Municipal Solid Waste'. The Council Agreement also provides a mechanism for dealing with any change in waste composition - see cl 4.4, 4.5, Schedule 2 definition of 'Municipal Solid Waste', and Schedule 3 section 2. This is relevant to DiCOM's submission that DiCOM could not control inputs. I deal with this issue in the City Judgment.
[77] See Council Agreement cl 2.5, 4.7 and 20.1. These are relevant to DiCOM's submission that the parties anticipated changes in outputs. I explain my reasons for rejecting DiCOM's submission on this issue in the City Judgment.

For the same reasons as I gave in the City Judgment, 'processing' in the Council Agreement requires the Facility to recover recyclables, convert the organic fraction of waste and value-add. In other words, where, for example, DiCOM is obliged to provide 'Services', this is an obligation to process waste by recovering recyclables, converting the organic fraction of waste and value-adding.
Finally, as DiCOM pointed out, if a declaration was to be made in these terms, it should refer to 'Municipal Solid Waste', not 'Waste'. The Council accepted this.[78]

Conclusion on proposed declaration 2

[78] ts 419 ‑ 420.

Accordingly, I conclude that, on the proper construction of the Council Agreement, 'processing' Municipal Solid Waste for the purposes of the definitions of 'Commission Date', 'Services', and 'Residual Material' (but not for the definition of 'Stage 2' or for item 2.2 in Section 2 of Schedule 10) requires the Facility to:
(a)recover Recyclables;
(b)convert the organic fraction of Municipal Solid Waste into DiCOM® Bioconversion Products, being:
i.DiCOM® Compost; and
ii.DiCOM® Biogas; and
(c)value‑add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.
I would make a declaration in these terms.

Waste Characterisation Study in cl 4.6 (proposed declaration 5)

Proposed declaration 5 relates to the Clause 4.6 Waste Study. This study is required by cl 4.6 and Section 1 of Schedule 3 to the Council Agreement.
The Council seeks a declaration that the carrying out by DiCOM of the Clause 4.6 Waste Study on waste delivered solely by the Council is a condition precedent to:
5.1the Council's contractual obligation to deliver Municipal Solid Waste pursuant to clauses 4.1(c), 4.1(d), 4.2 or 4.8 of the [Council Agreement]; and
5.2DiCOM’s contractual right to submit a Monthly Claim pursuant to clause 10.2 of the [Council Agreement].
DiCOM did not challenge the substance of this proposed declaration. The requirement for a waste characterisation study on the Council's waste and its significance were common ground. DiCOM agreed that a Clause 4.6 Waste Study had to have been done before the Council's delivery obligations and DiCOM's right to submit a claim would arise.[79]
[79] ts 427.
DiCOM opposed proposed declaration 5 on these two grounds:
1.'[t]here is a factual dispute as to the waste characterisation studies carried out and until that dispute is pleaded there is no utility in making any declaration';[80] and
2.'[i]t is a re‑writing of the Contract that is unnecessary and, by paraphrasing the clear words of the Contract, increases the prospect of a dispute rather than resolving any dispute'.[81]
[80] DiCOM's Council Agreement Submissions [25]. See also ts 277.
[81] DiCOM's Response to Council Submissions [13].
In my view, it is appropriate to make proposed declaration 5. It will promote certainty to declare, in legally certain terms, that conducting the Clause 4.6 Waste Study is a condition precedent, as it is. I do not accept that making the declaration would increase the prospects of a dispute. If, as DiCOM contends, all that the declaration does is use the phrase 'condition precedent' to reflect the fact that a Clause 4.6 Waste Study had to have been done before the delivery obligations and right to submit a claim would arise, this could not increase the chances of a dispute.
In light of the history of these proceedings, there is significant utility in promoting certainty and avoiding unnecessary disputes. I set out in the City Judgment the repeated changes in DiCOM's position on significant issues over time. I also referred to the fact that DiCOM did not file formal and binding concessions.
For these reasons, it is appropriate to make a declaration in the terms of proposed declaration 5.

Waste Characterisation Study in cl 5.2 (proposed declaration 6)

In proposed declaration 6, the Council seeks a declaration that the Clause 5.2 Waste Study, being the same study as the Initial Study in the City Agreement:
6.1must be conducted on Waste delivered by the [City] pursuant to cl 4.1 of the [City Agreement] in the period of not more than 6 months leading up to the date of Final Completion under the [City Agreement]; and
6.2is, by clause 5.2(a) of the [Council Agreement], a condition precedent to DiCOM accepting delivery of any Waste from the [City] for processing by the Facility following the date of Final Completion under the [City Agreement].
It was common ground that the Clause 5.2 Waste Study is the same study as the Initial Study in the City Agreement. Nevertheless, I will briefly explain why that is so.
Under the City Agreement, the only waste study that is definitely required to be carried out on City waste is the Initial Study. It must be conducted on City waste delivered before Final Completion. It is conducted on waste delivered for that purpose and for which the City is not charged.
Under cl 5.2 of the Council Agreement, before waste can be delivered by a third party (such as the City), a waste study must be conducted on that third party's waste. The results are used to determine the liability of each waste deliverer for the subsequent costs of Residual Material. The Council Agreement does not require any other study to be conducted on the City's waste.
Therefore, the Clause 5.2 Study is the same as the City Agreement's Initial Study.

Proposed declaration 6.1

Proposed declaration 6.1 is relevantly identical to the City's proposed declaration 4. In the City Judgment, I explained why I would not make the City's proposed declaration 4. For the same reasons, I would not include par 6.1 in a declaration.

Proposed declaration 6.2

Proposed declaration 6.2 is similar to the City's proposed declaration 3. The only difference is that proposed declaration 6.2 says that that is the effect of cl 5.2(a) of the Council Agreement. Nothing turns on this.
DiCOM opposed proposed declaration 6.2 for the same reasons as it opposed the City's proposed declaration 3. DiCOM submitted that it would have no utility because no dispute had been identified. This submission was not related to which party was seeking the declaration. DiCOM agreed that the Council has an interest in this declaration.[82]
[82] ts 429.
For the same reasons as I gave in the City Judgment for making the City's proposed declaration 3, it is appropriate to make a declaration in the terms of par 6.2 of the Council's proposed declaration 6.
The introductory words in proposed declaration 6 assert that the Clause 5.2 Waste Study is required by cl 5.2 and item 2 in Section 2 of Schedule 4 of the Council Agreement. In my view, it would be more accurate to say that the Clause 5.2 Waste Study is required by cl 5.2 and will typically address the matters set out in item 2 in Section 2 of Schedule 4.

Compost (proposed declaration 7)

In proposed declaration 7, the Council seeks a declaration that 'DiCOM® Compost derived from MSW processed by the Facility is required to comply with Australian Standard AS4454‑2003'. The Council's argument on this point relies upon Schedule 10 of the Council Agreement.

Schedule 10

As I have said, the Council Agreement deals with, among other things, Stage 1 (the non‑commercial demonstration stage) and Stage 2 (the expansion, if the construction proceeded to Stage 2, by developing two additional processing vessels and associated infrastructure).
Schedule 10 deals with how the commissioning in respect of Stage 1 was to occur. There was to be a progressive ramp‑up to operating conditions with an 'initial focus … on ensuring system reliability, rather than compost quality aspects'.[83]
[83] Council Agreement Schedule 10 section 1.
Section 2 of Schedule 10 stipulates the requirements of the Stage 1 'Performance Tests'. Section 2.4 provides that the compost quality is to satisfy the AS4454-2003 requirements. There are two footnotes to s 2.4, which state:
Stage 1 Plant Compost to be exempt from AS4454-2003 Appendix H requirements of Table 3.1 for level of visible contaminants such as glass, metal, rigid plastics, and stones. Such contaminants in Stage 2 Plant Compost to comply with AS445‑2003 Appendix H requirements.
Stage 1 Plant Compost to be exempt from AS4454‑2003 Cl 2.1.1 - (ie. WA Guidelines for Direct Land Application of Biosolids and Biosolids Products - February 2002) for chemical (heavy metals) and organic contaminants (pesticides). These properties subject to Municipal Solid Waste input quality from [the Council]; characterisation to be carried out during Stage 1 trials by an accredited laboratory to the satisfaction of [the Council].
It can be seen that, for the purposes of the Stage 1 Performance Tests, the compost had to meet the AS4454‑2003 standard, with the exception of the Appendix H requirements of Table 3.1 and cl 2.1.1 of that standard.
It can also be seen that 'Stage 2 Plant Compost' was required to comply with the 'AS445‑2003 Appendix H requirements'.
Finally, the Council's interest in the compost quality is recognised by the second footnote. This interest is also recognised in s 2.5 of Schedule 10, by the requirement that DiCOM deliver the 'Stage 1 Final Commissioning Test Report' to the Council.

Potential impact on fees

It was common ground that both parties had an interest in the Performance Tests demonstrating that the Facility could produce compost of a minimum standard, before proceeding to Stage 2.[84]
[84] ts 424 ‑ 425.
As I will explain, the quality of the compost could affect the fees that the Council would have to pay to DiCOM.
It was common ground that the compost's quality would affect its sale price. It was also common ground that the income from selling the compost would be part of the benefit that DiCOM would receive under the Council Agreement.[85]
[85] See DiCOM's Council Agreement Submissions [18].
The determination of the amount of the Service Charge could be influenced by the income expected to be derived by DiCOM from the sale of compost.[86]
[86] Council Agreement Annexure A cl 1(b). This was common ground - see ts 517 ‑ 518.
Further, where the cap on the Service Charge in cl 1(a) of Annexure A applies, any reduction in income from the sale of compost would still affect the extent of 'Overrun' for the purposes of cl 3.1 ‑ 3.4 of Annexure A.[87]
[87] This was common ground - see ts 518.
In addition, the Service Charge could later be reduced[88] if a change in 'Waste Composition' led to increased profits to DiCOM from the sale of compost.[89]

Is schedule 10 operative?

[88] See Council Agreement cl 4.4(i) and (n).

[89] This was common ground - see ts 518.

DiCOM submitted there was nothing in the substantive parts of the Council Agreement that made Schedule 10 mandatory or required compliance with the Performance Tests. DiCOM said Schedule 10 had been put in 'as a guide'. DiCOM said it was a guide to the performance testing process under the construction contract.[90]
[90] ts 193 ‑ 194.
DiCOM is right that there is nothing in the substantive part of the Council Agreement that expressly brings in Schedule 10. However, I do not accept it is merely 'a guide' or that it was relevant only to the construction contract, for the following reasons.
Under the Council Agreement, the Council was obliged to deliver waste, during stipulated periods, to enable the pre‑performance test commissioning and the Stage 1 performance tests to be done.[91] The Council was also obliged to deliver waste, during stipulated periods, to enable the commissioning, ramp-up and bank tests for the purposes of Stage 1.[92] Schedule 10 deals with how the commissioning in respect of Stage 1 was to occur. It stipulates the requirements of the Stage 1 'Performance Tests'. It expressly recognises the Council's interest in the compost quality.
[91] Council Agreement cl 4.1(a) and (b) and Schedule 5 section 1.
[92] Council Agreement cl 4.1(c) and (d) and Schedule 5 section 2.
The Council had a financial interest in the quality of the compost.
Schedule 10 stipulated that the compost had to meet AS4454‑2003.
The Council Agreement is badly written and very difficult to interpret. That said, neither party submitted that it was so ambiguous as to not constitute an agreement. In my view, it does constitute an agreement. I am left to attempt to interpret what Schedule 10 means.
It is true there is no operative clause. However, in view of the poor quality of drafting, this does not indicate that the objective intention of the parties was that it would not have operative effect.
Schedule 10 is included in the Council Agreement. I do not accept that it is a 'guide' of no contractual effect. The parties chose to include it in the Council Agreement as a schedule. If it is a 'guide', it is a guide in the sense that it sets out what must be achieved.
In my view, having regard to the Council Agreement as a whole, Schedule 10 set an agreed standard of compost quality that had to be met.

DiCOM® Compost

The Council asks for a declaration that DiCOM® Compost derived from MSW processed by the Facility is required to comply with Australian Standard AS4454‑2003.
By this, the Council is not suggesting that DiCOM® Compost as defined in the Council Agreement means compost that complies with the Australian Standard. Rather, the Council submitted that the effect of the Council Agreement is that compost produced by the Facility, which is required to be DiCOM® Compost, must comply with the Australian Standard. The distinction is not of practical importance, but it is necessary to make the distinction in order to understand the Council's proposed declaration.
In broad terms, the Council's contention follows these steps:
1.To 'process', the Facility must, among other things, convert the organic fraction of waste into DiCOM® Bioconversion products.
2.'DiCOM® Bioconversion Products' includes 'DiCOM® Compost'.[93] In other words, one of the products required to be produced from processing the organic fraction of waste is DiCOM® Compost.
3.Further, by Schedule 10 of the Council Agreement, the compost produced (DiCOM® Compost) must also meet AS4454‑2003.
[93] Council Agreement Schedule 2 definition of 'DiCOM® Bioconversion Products'.
As I have said, the proper construction of the Council Agreement is that the compost produced had to meet AS4454‑2003.

Conclusion on proposed declaration 7

Accordingly, I conclude that the Council's proposed declaration 7 accurately reflects the proper construction of the Council Agreement. It is appropriate to make a declaration in these terms.

Explanatory declaration (proposed declaration 8)

Proposed declaration 8 seeks a declaration as to the meanings of various expressions. For the same reasons I gave in the City Judgment in relation to the City's proposed declaration 5, it is appropriate to make this declaration.

Conclusion

In these reasons, I have explained my conclusions as to the proper construction of the Council Agreement and, where relevant, its application to the agreed facts.
I have concluded that, on the proper construction of the Council Agreement:
1.'Practical Completion in respect of Stage 2' for the purposes of cl 4.2 and Section 1 of Schedule 4 will not occur until the Facility has been certified as having reached Practical Completion in accordance with the DC Contract.
2.For the purposes of the definitions of the terms 'Commission Date', 'Services', and 'Residual Material', 'processing' of Municipal Solid Waste requires the Facility to:
a.recover Recyclables;
b.convert the organic fraction of Municipal Solid Waste into DiCOM® Bioconversion Products, being:
i.DiCOM® Compost; and
ii.DiCOM® Biogas; and
c.value‑add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.
3.The carrying out by DiCOM of a Waste Characterisation Study on Waste delivered solely by the Council in accordance with cl 4.6 and Section 1 of Schedule 3 to the Council Agreement is a condition precedent to:
1the Council's contractual obligation to deliver Municipal Solid Waste pursuant to cl 4.1(c), 4.1(d), 4.2 or 4.8; and
2DiCOM's contractual right to submit a Monthly Claim pursuant to cl 10.2.
4.DiCOM® Compost derived from MSW processed by the Facility is required to comply with Australian Standard AS4454‑2003.
Further, I have noted that proposed declarations 3 and 4 are identical to the City's proposed declarations 1 and 2, and should be made for the reasons given in my City Judgment.
I have also noted the significant overlap between the Council’s proposed declaration 6 and the City's proposed declarations 3 and 4. For the same reasons as I gave in the City Judgment, I would not make a declaration that included the words in par 6.1 of the Council's proposed declaration, but it is appropriate to make a declaration in the terms of par 6.2 of the Council's proposed declaration. The introductory words to proposed declaration 6 should be amended to reflect that the Clause 5.2 Waste Study is required by cl 5.2 and will typically address the matters set out in item 2 in Section 2 of Schedule 4.
Finally, I have noted it is appropriate to make the declaration set out in proposed declaration 8, which explains the meanings of various terms for the purposes of the other declarations.
I will hear from the parties in relation to any time period for proposed declaration 1 and will otherwise make declarations in these terms.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AK
COURT OFFICER
8 AUGUST 2018