Buller Coal Limited v Brightwater Engineers Limited
[2014] NZHC 3237
•16 December 2014
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2014-442-000054 [2014] NZHC 3237
BETWEEN BULLER COAL LIMITED
Plaintiff
AND
BRIGHTWATER ENGINEERS LIMITED Defendant
Hearing: 5 December 2014 Appearances:
R J Gordon and D Mackenzie for Plaintiff
D G Hurd and S Stokes for DefendantJudgment:
16 December 2014
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] Buller Coal Limited (Buller) is a wholly owned subsidiary of Bathurst Resources Limited. Since 2010 it has been pursuing the possible development of an open cast coalmine in the Mount Rochfort Conservation Area on the Denniston Plateau (the Escarpment Mine).
[2] In 2010 it approached Brightwater Engineers Limited (Brightwater) to provide engineering and contracting services in respect of development of the mine. At the same time Buller was to pursue applications for resource consents and other required consents for its development and operation. These applications met with considerable opposition. It was not until May 2014 that required resource consents were finalised.
[3] Late in 2010 Buller and Brightwater entered negotiations with a view to Brightwater providing engineering and design services for the Escarpment Mine project. This project had potential to be substantial. Whilst Brightwater had the
expertise and experience necessary to provide the services Buller required, and was
BULLER COAL LTD v BRIGHTWATER ENGINEERS LTD [2014] NZHC 3237 [16 December 2014]
keen to be engaged, the scale of the project meant that Brightwater would need to substantially expand its resources and capabilities, both in terms of personnel and infrastructure. This, in turn, would involve significant financial outlay for Brightwater.
[4] Buller and Brightwater entered a series of contracts. The first, in January
2011, is called a Form of Agreement for Engagement of Consultant (described by an acronym of its name as the FEED Study Agreement). By this document Brightwater was engaged to:
1. Fast track as much of the:
• front end engineering design and specification;
• engineering, procurement and construction planning;
• procurement of long lead items
as is deemed prudent & practicable in order to minimise potential delays to mine start-up and production.
2. Develop sufficient detailed engineering drawings and documentation, project execution plan(s), and detailed pricing schedules and cost estimates to establish a “Guaranteed Maximum Price” contract (hereinafter referred to as “the GMP Contract”) for completion of the Works.
[5] The FEED Study Agreement went on to provide that the scope of the FEED study and the GMP contract were to provide for all physical works and associated documentation, training, commissioning, plant warranties and guarantees required to establish coal processing and load-out facilities for the Escarpment Mine development.
[6] In July 2011 Buller and Brightwater entered a Contract for Consultancy Services (CCS). It is this document which is principally in issue in this case. Buller and Brightwater had negotiated a means by which Buller would assist Brightwater with a payment of $4,000,000 to assist with the expected significant upfront investment required on the part of Brightwater.
[7] The agreement of Buller and Brightwater on this issue is recorded in clause
5.3. Brightwater is the consultant, Buller the client.
(a) Subject to clause 5.3(b), on 1 July 2011, or the Working Day after the date on which this Agreement is signed by the last party to sign it, whichever is later, the Client shall make available to the Consultant NZ$4,000,000. The Consultant shall be liable to pay to the Client, in accordance with clause 5.3(d), interest at the rate of 5.75% pa for the duration of the advance.
(b) Prior to the Consultant being entitled to any pre-payment from the Client, the Consultant must provide to the Client an irrevocable, unconditional, on demand pre-payment security for NZ$4,000,000 in a form, and from a financial institution, acceptable to the Client in its absolute discretion.
(c) Where a progress payment becomes due and payable by the Client to the Consultant under this Agreement in accordance with clause 5.1 and Appendix B, the amount of accrued interest on the NZ$4,000,000 at the 5.75% pa equivalent rate at the date of invoice is to be deducted from the amount due to the Consultant as a set off.
(d) If, on completion of the Services, the Client and Consultant have entered into a contract relating to the construction of any part of the substantive works, then the Consultant shall repay the NZ$4,000,000 plus interest accrued but not set off in accordance with clause 5.3(c) to the Client in eight equal monthly instalments commencing from January 2012. Interest shall continue to accrue at the rate of 5.75% pa (calculated daily) on all outstanding amounts until all amounts are repaid.
(e) If:
(i) on completion of the Services, the Client and the Consultant have not entered into a contract for the construction of any part of the substantive works; or
(i) this Agreement is terminated by either party prior to completion of the Services, other than for the convenience of the Client; or
(ii) if the Consultant becomes insolvent; or
(iii) if the Client considers, acting reasonably, that the Consultant is likely not to complete the Services in accordance with the programme, the principal and all outstanding accrued interest shall immediately become a debt due to the Consultant that shall be immediately repaid by the Consultant to the Client. If the full amount is not repaid within five Working Days of the date of termination, the Client shall be entitled to draw down any outstanding amount from the pre-payment security. If such draw down does not cover all outstanding amounts owed, the Client shall make demand on the Consultant for the shortfall and the Consultant shall pay such shortfall within five Working Days of receiving that demand.
[8] Brightwater received the payment. Buller and Brightwater worked closely and in harmony as envisaged by the FEED agreement and the CCS. Buller actively
pursued its resource consents, and on 5 December 2011 Buller provided Brightwater with a letter of intent in the following terms:
Further to our discussions, we confirm that Buller Coal Limited (BCL) subject to obtaining Resource Consents for the Escarpment Project to its satisfaction, and Brightwater Group Ltd (BGL) intend to enter into good faith negotiations to reach agreement on acceptable commercial terms for the design and construction of BCL’s Escarpment project including:
1. The CHPP, including water treatment works.
2. Coal transportation system from the plateau to the Coal Load
Out Facility.
3. The Coal Load Out Facility.
4. Phases II and III of the Coal Export Facility at Westport port.
Based on current understanding of the Resource Consent process it is anticipated that instruction can be given to commence detailed design in respect to items 1 and 4 above prior to Christmas 2011, with Formal Agreements being signed early in the New Year 2012. Prior to entering into a Formal Agreement, BGL shall act in good faith in the provision of such services and undertake such services in accordance with all laws and other reasonable requirements of BCL. It is acknowledged that upon execution of the Formal Agreement, such services shall be deemed to have been carried out under the terms of the Formal Agreement.
The parties intend that the base contract shall be NZS3910:2003 Conditions of Contract for Building and Civil Engineering Construction with all necessary amendments in relation to the Contract Model specific to the Escarpment projects individual components as per items 1 to 4 above.
We look forward to working with you to conclude the Contract in due course.
[9] On 9 February 2012 and on 19 March 2012 Buller and Brightwater entered two further agreements, a Heads of Agreement and a Services Contract. I refer to these further, below.
[10] On 23 April 2012 they varied, by an exchange of correspondence, cl 5.3 of the CCS by replacing paragraph (d). It was agreed that paragraph (d) would now read:
Due to delays in commencing the Escarpment project the Consultant will repay NZ$4,000,000 pre-payment as Works Contracts are commenced under the Services Contract between Buller Coal Ltd and Brightwater Engineers Ltd as follows:
1.As BEL become entitled to Advanced Payments under cl 23 of the Services Contract 2% of contract price of each Works Contract shall be set off against the balance then owing of the pre-payment under the Special Clause.
2.At the commencement of the Coal Transport System or Coal Handling and Processing plants Works Contracts (whichever occurs earlier), the balance then owing of the pre-payment under the Special Clause will be repaid in eight equal monthly instalments.
[11] Brightwater and Buller entered one service contract and a sum was deducted from the payment of the contract price under 1. It is common ground that the repayment programme in 2 has not been triggered.
[12] On 16 May 2014 Buller wrote to Brightwater advising that in its opinion the CCS had come to an end. Alternatively, Buller gave notice of termination. The relevant passages of the letter are these:
You will be aware that, for an extended period of time, work required under the [CCS] has come to an end. Our email of 15 August 2011 (when Andy Saunders of Buller sent an email to Gerry Cooper of Brightwater asking for confirmation “that all detailed Engineering work has now ceased and that your team is now working only on closing out the FEED studies and establishing GMP estimates”) made this clear. It has now been nearly three years since that time, with no further new work undertaken under the [CCS]. In these circumstances, we consider that there can be no doubt that the [CCS] has come to an end, by the passage of time and/or with the completion of the services that had been required. Accordingly the obligation to repay the unpaid balance of the Loan has already arisen (refer the first clause 5.3(e)(i) – note two clauses in the [CCS] were numbered (i)).
Even if we are wrong in our view, it is clear that further services are not required under the [CCS]. Therefore, and without prejudice to our primary position above, we also give notice of termination now under the (second) clause 5.3(e)(i) of the [CCS]. Thus the obligation to repay the unpaid balance of the Loan arises.
Formal Demand
On either basis, Buller now makes demand on Brightwater for the immediate repayment of the unpaid balance of the Loan being $3,908,338 plus the
interest due thereon.
[13] The figure for which demand was made is slightly under $4,000,000 for the reason set out in [11] above.
[14] Brightwater has not paid any further sum on account of the initial payment of
$4,000,000. In this proceeding Buller seeks judgment for the balance together with interest and costs; as well, it applies for summary judgment, contending that Brightwater does not have a defence to its claim.
[15] On this application for summary judgment Buller relies entirely on clause
5.3(e)(i) of the CCS. It will be noted that there are two sub-paragraphs (i). Buller relies on the second of these; it says that it has terminated the CCS prior to completion of those services, and that it has done so other than for its own convenience. Therefore, it says, the principal and all outstanding accrued interest is a debt due which is to be repaid immediately.
[16] Buller denies that the debt is repayable upon demand. It says that cl 5.3(e)(i) (the second) does not apply for two reasons: first, the agreement was not terminated by Buller prior to completion of the services required by the agreement, and secondly, it was terminated entirely for the convenience of Buller.
[17] Rule 12.2 of the High Court Rules provides:
12.2Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
...
[18] The principles the Court is to apply on an application for summary judgment are summarised in Krukziener v Hanover Finance Ltd:1
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ
84 (CA).
[19] In Auckett v Falvey, Eichelbaum J said:2
On a summary judgment application, the onus is on the plaintiff to show that there is no defence. On the present facts, the plaintiffs are able to pass an evidential onus to the defendants by exhibiting the contract which on its face, entitles them to the remedy they now seek. The defendants are then in a position of having to demonstrate a tenable defence. However, the overall position concerning onus on the application is that at the end of the day the question is whether the plaintiffs have satisfied the Court as to the absence of a defence.
[20] I take from these authorities that the correct approach of the Court is to consider the following:
(a) Does the evidence for the plaintiff establish a position which on its face would entitle it to the remedies it now seeks?
(b) If so, has the defendant demonstrated a tenable defence?
(c) The onus which shifts to the defendant is an evidential one only; the burden of proving that the defendant does not have a defence rests throughout with the plaintiff.
[21] In addition to maintaining that it has an arguable defence to Buller’s claim on the interpretation of cl 5.3(e)(i) (the second) Brightwater also says that Buller is stopped from asserting a claim for immediate repayment, and that it has a counterclaim, in respect of which it is entitled to a set-off; therefore summary judgment should not be entered for the claim.
[22] The first issue to be decided is whether, on the facts, cl 5.3(e)(i) (the second)
applies, giving Buller the right to demand immediate repayment of the balance of the
$4,000,000 payment.
[23] Only if this issue is determined against Brightwater is it necessary to consider whether, in any event, Buller is estopped from demanding repayment, or whether Brightwater has a counterclaim and is entitled to a set-off.
First issue – clause 5.3(e)
[24] As noted, Buller says first, that it terminated the CCS prior to completion of the services, and secondly, that it did so other than for its own convenience.
Was the Contract for Consultancy Services terminated prior to the completion of the services required by it?
[25] Evidence for Buller on this issue is given by Mr R J Tacon, a director. After referring to delays in the resource consenting process through mid to late-2011, Mr Tacon says that these made it clear that there was significant ongoing opposition to the proposed mine from environmental groups and as a result it became ever more apparent that the April 2012 start date, as provided for in the FEED agreement, was not going to be achieved. These delays were beyond the control of both Buller and Brightwater but had a direct impact on the work that was going to be required of Brightwater, under the CCS.
[26] As a result, on 15 August 2011 Mr Cooper of Buller sent to Mr Saunders of
Brightwater an email to make clear the position under the CCS. Mr Saunders said:
Please confirm that all detailed engineering work has now ceased and that your team is now working only on closing out the FEED studies and establishing GMP estimates.
[27] Mr Tacon says that it was about that time that Brightwater’s provision of services under the CCS “came to a halt”. He then says that Brightwater has not provided any further services to Buller under the CCS, from a point shortly after that email.
[28] Mr Tacon goes on to say that nonetheless Buller wanted to maintain a good working relationship with Brightwater. It still believed that the Escarpment Mine project would eventually be undertaken largely as envisaged. For that reason, on
5 December 2011, Buller and Brightwater signed a letter of intent confirming:
Buller Coal Limited (BCL) subject to obtaining Resource Consents for the Escarpment Project to its satisfaction, and Brightwater Group Ltd (BGL) intend to enter into good faith negotiations to reach agreement on acceptable commercial terms for the design and construction of BCL’s Escarpment Project.
[29] Mr Tacon says that the expectation of the parties at that time was that Brightwater would ultimately be awarded the substantive contract for the design and construction of the Escarpment mine. It was hoped at that point that consents would be confirmed during 2012 so Buller wanted to make progress with other parts of the project. That led to Buller and Brightwater entering the Heads of Agreement on
9 February 2012 and a Services Contract in March 2012 to which I have referred in paragraph [9].
[30] The Heads of Agreement set out agreement in principle on key commercial terms of an intended contract by which Brightwater would provide engineering, and project and construction management services for certain listed components of the Escarpment Mine project.
[31] The Services Contract runs to some 60 pages. It appoints Brightwater to act as the construction manager for the project, which is defined as the facilities associated with the mining, transport, processing, storage and shipping of coal from Buller Coal’s Escarpment Mine. There are detailed provisions describing the roles of Brightwater and the services to be delivered.
[32] Buller says that Brightwater has carried out a significant amount of work since this contract was entered, all pursuant to this contract, and not pursuant to the contract for Consultancy Services. Work under the latter had, as Mr Tacon puts it, come to a halt around August 2011.
[33] The CCS was terminated on 16 May 2014, by the letter written on that date set out in [12]. Therefore it is necessary, in terms of cl 5.3(e)(i) (the second) to decide whether the services required by the CCS had been completed by that date. If they had, the monies claimed have not become a debt due which is immediately repayable.
[34] Here the evidence of Mr Tacon does not support Buller’s case in the way one
might have expected. He maintains not only in his first affidavit,3 but also in his
affidavit in reply,4 that Brightwater’s provision of services under the CCS came to a halt in August 2011 and any services carried out subsequently have been pursuant to the subsequent Services Contract. But that is not the issue: were there still parts of the services required under the CCS, which had not been completed in May 2014?
[35] In paragraph 29 of his first affidavit Mr Tacon gives evidence that the scale of the Escarpment Mine will be smaller than had been intended, because it is no longer financially viable to export coal that may be mined from the proposed mine. He then says:
This change to the initial scale of the Escarpment Mine means that the engineering and design services anticipated to be provided by Brightwater to Buller under the Consultancy Agreement are either now not required or at very best will be significantly delayed.
[36] In paragraph 8 of his affidavit in reply Mr Tacon refers to services that Brightwater has provided since August 2011, and says that they were carried out under the separate Services Contract to which I have referred. He then says:
From that point on, Brightwater was no longer providing services to Buller under the Consultancy Agreement; and this was without the “services” as described in that contract having been completed.
[37] Whilst the latter part of this sentence expresses Mr Tacon’s view of the position clearly, it is certainly brief and lacking in detail in relation to the services required by the CCS which had not been completed.
[38] Evidence for Buller is given by Mr D J McGregor, the chief executive officer of Brightwater. He says that whilst Brightwater was told to cease certain specific tasks under the CCS, because of delays in the resource consent process, Brightwater continued to receive assurances that the project would proceed, that Brightwater was to carry out all the engineering and project management services required, and that it would either be awarded, or would at least be regarded as the preferred contractor to be awarded, the role as head contractor for all or part of the construction works.
[39] In relation to whether the services required on the part of Brightwater under the CCS had been completed at the time of termination, Mr McGregor says:
… It is extremely difficult to see how Buller could undertake any of the Project, even on a limited scale, without some of the work remaining under the Consultancy Agreement being completed. It is just not feasible to think that it could be. Eventually therefore, it is inevitable, that further work of the nature still to be undertaken and completed under the Consultancy Agreement, will need to be undertaken by Buller.
[40] Evidence is also given for Brightwater by Mr R A Herd who was the chief executive officer of Brightwater between April 2005 and June 2012. On this point, Mr Herd says that work under the CCS did not cease, rather Buller redirected Brightwater’s efforts to five areas of work all of which were necessary to advance the project overall. Buller remained optimistic and confident, he says, and continually expressed a firm belief that it would resolve issues regarding required resource consents and that the project would go ahead, and further that Brightwater would have a significant role in it.
[41] Buller also sent Brightwater a letter on 15 August 2011 regarding the current status of the project, and setting out various work that Buller had at that time instructed Brightwater to carry out, or would instruct it to carry out soon after that. Relevant portions of the letter state:
This letter summarises our understanding of the current work being undertaken by Brightwater Engineers Limited for Buller Coal Limited.
… Westport Harbor and Buller Coal have discussed the suitability of the Port [to load and ship the coal produced] and Buller Coal has commissioned a scoping study relating to the final design, specification and capital cost of the Port facilities to be used by Buller Coal. Buller Coal has engaged Brightwater to undertake that study.
In connection with its proposed coal mining operations … Buller Coal also proposes to establish a coal dewatering, storage and loading facility … Buller Coal’s current intention is that it will engage Brightwater to assist it with the scoping study for the facility and to assist it with the design and engineering work for the facility (subject in each case to the parties agreeing mutually acceptable commercial terms for the work to be undertaken by Brightwater).
[42] Based on this correspondence Mr Herd says that Mr Tacon is not correct in stating that the project had effectively ground to a halt by August 2011, or that Buller was, as a result, requesting Brightwater to cease all work. To the contrary, Mr Herd says, it is clear that Brightwater was continuing to undertake work relating to the project.
[43] Despite there being extensive evidence before the Court, the evidence for Buller precisely on the point of whether any services required under the CCS remained to be completed at May 2014 is the brief statement by Mr Tacon in his affidavit in reply, to which I have referred and the implication that as provision of services had ceased, there must remain some yet to be provided.
[44] This must be compared to the assertion by Buller in its letter of 16 May 2014 that:
It has now been nearly three years since that time, with no further new work undertaken under the [CCS]. In these circumstances, we consider that there can be no doubt that the [CCS] has come to an end, by the passage of time and/or with the completion of the services that had been required. ...
[45] This assertion is as vague, in terms of detail, as the converse assertion by
Mr Tacon in his affidavit in reply.
[46] I am left with the clear impression that at the time the letter of cancellation was given Buller had not analysed whether any services remained to be undertaken under the CCS, or, if so, what they were.
[47] Mr Hurd notes that Mr McGregor does not say that work under the CCS had not been completed. Rather, he says that if Buller continued with the project, there would still be work to do of the nature of the work required by the CCS. However, the parties had subsequently entered the Services Agreement, by which Brightwater was to perform services which were required, also, and earlier, by the CCS. Therefore, Mr Hurd says, it is not established that services under the CCS had not been completed. This seems to align with Buller’s position that services Brightwater says were performed under the CCS were in fact performed under the Services
Agreement.5
[48] Overall the evidence leaves me with a real element of doubt on precisely what was the position in relation to the services required under the CCS as at May
2014. On one hand, there is evidence that some required services had not been
completed, though those services are not specified. On the other hand there is
5 Affidavit of R J Tacon in reply, paras 8 to 11.
evidence that any such services were no longer required under the CCS and were now to be performed under the Services Agreement. This raises a question whether, if some services were no longer required by Buller to be performed under the CCS, the services the CCS required had been completed, for the purposes of cl 5.3(e)(i) (the second). And Buller’s letter of termination is remarkably unhelpful for a company now (and then) asserting a right to repayment of monies on the premise that all services under the CCS had been completed: it says, in effect, that either the services had been completed, or they had not been but were no longer required.
[49] As a result Buller has not established that the termination at that time took place prior to completion of the services required by the CCS.
Was the contract for Consultancy Services terminated “other than for the
convenience of” Buller?
[50] The letter on which Buller relies as terminating the CCS gives as the reason for doing so that further services are not required under it. No elaboration of this reason is given. On its face the stated reason does not seem capable of any interpretation other than that it is Buller that does not require any further services to be performed under the CCS. Buller does not disclose in the notice why that view had been formed.
[51] Mr Tacon gives evidence on the reason in his affidavit in support of the application. He says:
28.The delays that have been encountered by Buller have meant that work to construct the Escarpment Mine has been delayed beyond anything anticipated at the outset of the project. For example, while (at the time of the FEED Study Agreement in 2011) construction was anticipated to have started, if not been substantially completed, by April 2012, more than two years have now passed since that date. (Initial preparatory earthworks by Buller itself have only recently begun in July 2014).
29.Most relevantly, there has in that extended period of time been a dramatic drop in the worldwide price of export coal. The outcome of that global economic development is that it is no longer financially viable to export coal that may be mined from the Escarpment Mine. That position will endure unless and until global coal prices should return to their 2011 levels (i.e. at or about the level they were at when the Consultancy Agreement was entered into). Instead, and by
economic necessity in this changed global environment for coal sales, the Escarpment Mine will only be mined on a smaller scale for the sale of coal into the New Zealand industrial market. This change to the initial scale of the Escarpment Mine means that the engineering and design services anticipated to be provided by Brightwater to Buller under the Consultancy Agreement are either now not required, or at very best will be significantly delayed.
30.As such, not only is it the case that Brightwater has not performed any work under the Consultancy Agreement since around August 2011, there will (now) not be a need for that extensive breadth of design and engineering work on the Escarpment Mine in the future. Even if a substantive GMP contract were to be entered into with Brightwater in the future, there would not be sufficient work required of Brightwater under such a contract for it to be able to repay the $4 million advance by way of set-off.
[52] These paragraphs comprise the totality of the evidence on why Buller terminated the CCS. Therefore the question is whether the termination undertaken for these reasons was for the convenience of Buller.
[53] Mr Gordon says that Buller was entitled to terminate the CCS under either cl 11.1, or cl 12.4, and that it did so under “either or both” of those contractual rights. Clause 11.1 provides that Buller may terminate the agreement at any time, or under the provisions of cl 12.4, by written notice to Brightwater.
[54] Clause 12.4 provides that if any event should occur which is beyond the control of either party, and is neither directly nor indirectly caused by either party, and prevents the performance of the services in whole or in part required under the agreement, then the services are to be suspended until such time as it becomes practicable to recommence the services. In the event that there is a reasonable likelihood that the services are not able to be recommenced then the agreement may be terminated by Buller.
[55] Mr Gordon says that Buller suspended Brightwater’s services on 15 August
2011, in terms of cl 12.4, and terminated the agreement either under that clause or under cl 11.
[56] I am unable to accept that Buller has established that any event prevented the performance of the services in whole or in part, under the agreement. Buller seems
to rely on the delays experienced in working through the resource consent process, and a fall in coal prices, as events beyond its control, neither directly nor indirectly caused by either Buller or Brightwater, which I accept. It is quite unclear, however, how Buller says this prevented the performance of the services, in whole or in part. Certainly consenting delays may have made it desirable to suspend the performance of the services in part, otherwise the project might have moved ahead of the consenting process, and of course funds would have necessarily been expended which might not, in the event, have been required, if resource consent were not ultimately obtained. However, that is not to say that the resource consent process prevented the performance of the services.
[57] Nor does a drop in coal prices prevent the performance of services directed at developing the mine, even though it may have made it financially unattractive to do so.
[58] Further, even if grounds for suspension in terms of cl 12.4 did exist, is it not established that there is a reasonable likelihood that the services are not able to be recommenced. I understand that Buller has formed the view that the services should not be recommenced, at least for the present, because of the downturn in international coal prices, but that is not to say that the services are not able to be recommenced.
[59] I therefore reject Buller’s argument that it could cancel the contract under cl 12.4.
[60] There is an alternative right to terminate under cl 11.1, which seems to be unrestricted by any form of precondition. However, it is plain on the face of the letter of termination that Buller did not rely on cl 11.1:
Therefore, and without prejudice to our primary position above, we also give notice of termination now under the [second] clause 5.3(e)(i) of the Consultancy Agreement.
[61] On the face of the document upon which Buller relies, it did not exercise any right to terminate that it might have had under cl 11.1 (or, for that matter, 12.4).
[62] Mr Gordon undertook an analysis of the meaning of the word “convenience” in clause 5.3(e)(i) (the second). He says that the word “convenience” should have its plain and ordinary meaning, and that it is defined by the Shorter Oxford English Dictionary as:
the quality of being personally convenient; material advantage; personal comfort; trouble saving.
[63] He says that given that under cls 11.1 and 12.4 Buller had a contractual entitlement to terminate the contract simply by giving notice, the words “other than for the convenience of” Buller were inserted to offer Brightwater some protection if Buller had terminated the contract in effect on a whim, such as, for example, finding a cheaper provider for the same services.
[64] Mr Gordon then says that the significant unexpected delays in obtaining resource consents, and the decrease in the worldwide price of coal, have significantly altered the Escarpment Mine as a business proposition, by adding significant cost to the project through the resource consent process and in terms of anticipated lost revenue from coal sales. Mr Gordon notes that both of these effects were beyond the control of Buller, and says that neither can properly be described as matters of convenience to Buller.
[65] Mr Hurd says that termination of a contract by a party contracting for construction law services “for convenience” is an accepted concept in construction law. He cites Hudson’s Building and Engineering Contracts:6
Convenience clauses are Employers’ determination clauses expressly not conditioned on any breach or event of default for which the Contractor could be regarded as legally responsible, but exercisable simply at the discretion of the Employer. No special wording is required, and in principle it is sufficient if the wording of the contract simply distinguishes the right of termination from one based on Contractor default or responsibility. …
[66] Mr Hurd says that terminations of contracts “for convenience” include
terminations which may be carefully considered and may well be entirely justified commercially from the point of view of the party exercising the right. They are not
6 Atkin Chambers Hudson’s Building and Engineering Contracts (12th ed, Sweet and Maxwell, London, 2010) at [8-033].
just terminations on a whim. He cites as an example BP Exploration Operating Company Ltd v Dolphin Drilling Ltd.7 BP sought to use a termination for convenience provision to terminate a drilling contract because, subsequent to negotiation of the contract, the market had changed significantly meaning that the commercial terms of the contract no longer reflected market realities. The Court (and all parties) proceeded on the basis that a termination in those circumstances was
a termination for convenience.
[67] Mr Herd notes that there is no suggestion that the termination by Buller was as a result of any breach or failure by Brightwater. It was a decision in Buller’s own commercial interests, and is therefore what Mr Herd describes as a classic case of termination for convenience. The sole reason established in the evidence for termination of the agreement is the altered financial equation which applied by May
2014: expenditure on the resource consent process, and significantly lowered income expectations from export of coal. These are the same kind of economic forces faced by BP in the BP Exploration case.
[68] Mr Herd also notes that not only did the parties use the phrase “for convenience” in the CCS, but it also appears in the heading to clause 24.1 in the Services Contract: Termination or Suspension for convenience. The clause goes on to set out a right of termination even though Brightwater is not in breach. Clause
24.2, by contrast, allows Buller to terminate if Brightwater is in breach, or specific financially related circumstances arise. This supports the view that the use of the phrase in clause 5.3(e)(i) (the second) was intended to convey the meaning described in Hudson.
[69] Mr Herd therefore says that reasons unrelated to the actions of Brightwater are those which are for the convenience of Buller. These include the altered economic imperatives which, on the evidence, led Buller to make its decision.
[70] To enter summary judgment for Buller the Court would need to be satisfied that the given reasons for terminating the CCS were not for the convenience of
Buller. I am not satisfied that is the position, for two reasons.
7 BP Exploration Operating Company Ltd v Dolphin Drilling Ltd (2009) EWHC 3119 (Comm).
[71] First, the given reasons entirely relate to Buller’s operations. Using the definition of convenience proposed by Mr Gordon, material advantage, the reasons are within the meaning of the word.
[72] Secondly, I am not satisfied that the phrase “for the convenience of [Buller]” is not used in the sense of that phrase as it is understood in construction documents, as Mr Gordon submits. The CCS obliges Brightwater to provide the services which are set out in Appendix A of the document. The scope of the services set out in Appendix A are defined thus:
The Services are to pick up on the FEED Study work and to complete all Engineering and Design and continue the Project Management required for the construction works to be undertaken in relation to Coal Handling, Processing, Transportation and Loadout Facility at the Escarpment Mine (the Facility), including all constituent processes.
The purpose of the Services is to allow the Client to enter into a construction contract for the Facility (including procurement, construction, commissioning and testing) which excludes major design, with all major design work having been completed pursuant to the FEED Study agreement and this Advanced Work agreement subject to Special Conditions Part B, Clause 1 paragraph 4.
[73] Whilst this contemplates a separate construction contract for the construction of the Escarpment Mine, there seems no obvious reason why a term used in the CCS should not bear the meaning that it might be expected to bear in the construction industry. I do not agree with Mr Gordon that the meaning should differ because the CCS is a consultancy agreement, and the specific context is is a finance clause. The phrase is used by two partners used to entering construction contracts. And there is no evidence which supports Mr Gordon’s submission.
[74] Mr Gordon submits that the adverse financial circumstances facing Buller are not matters of convenience to it. That misses the point: the convenience to Buller is taking steps to avoid proceeding with the Escarpment Mine project because of those circumstances.
[75] I find that terminating “for the convenience of [Buller]” encompasses terminating because of the financial imperatives on Buller which are its given reason for cancellation.
[76] Accordingly I am not satisfied that Buller was entitled to cancel the contract under paragraph 5.3(e)(i) (the second).
[77] I acknowledge Mr Gordon’s argument that if that is the case, there is no provision in the contract by which Buller can call up and require repayment of the sum it says it advanced to Brightwater, and which Brightwater says was a prepayment for services to be provided. That may be so, but is less surprising than it might appear given the context in which this agreement, and all the subsequent agreements, were entered: namely the express and ongoing intention of Buller to proceed with the project, and its statements that Brightwater was its preferred contractor.
[78] Whilst there is room for debate about the degree to which Buller committed to ultimately contracting with Brightwater, an issue on which there would be a good deal of evidence at trial, no doubt some of it conflicting, the CCS was structured in such a way that ultimately the advance or prepayment would be paid back by monthly instalments deducted from payments due to Brightwater for carrying out its work in relation to the Escarpment Mine project. Events conspired against Buller, resulting in it deciding not to proceed. As cl 5.3(e)(i) (the second) did not engage just because it may not suit Buller to proceed, perhaps that was a time to approach Brightwater and negotiate a variation of contract to take into account the changed circumstances in which Buller found itself. Certainly it is not established, nor as far as I am aware suggested, that Brightwater has brought about or materially contributed to Buller’s position, and it is entitled to rely on the provision which sets out the basis upon which it would ultimately repay the prepayment. Buller cannot alter Brightwater’s obligations just because the viability of the project did not turn out as expected.
Outcome
[79] As this conclusion is sufficient to determine Buller’s application for summary judgment, I need not examine Brightwater’s claim that Buller is estopped from demanding repayment, or its alleged counterclaim and right to set-off. As dismissing the application for summary judgment opens the way for this proceeding to move on
to trial it is preferable that I do not make a decision on any issue, or further observations, which would be obiter.
[80] The application for summary judgment is dismissed.
[81] As agreed by counsel, Buller will pay Brightwater costs on a 2C basis plus disbursements fixed by the Registrar.
J G Matthews
Associate Judge
Solicitors:
Minter Ellison Rudd Watts, Wellington.
Dawson Harford & Partners, Auckland.
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