Aquila Coal Pty Ltd v Bowen Central Coal Pty Ltd & Anor [2011] QSC 264

SUPREME COURT OF QUEENSLAND CITATION: Aquila Coal Pty Ltd v Bowen Central Coal Pty Ltd & Anor [2011] QSC 264 PARTIES: AQUILA COAL PTY LTD ACN 097 801 940 (plaintiff/applicant) v BOWEN CENTRAL COAL PTY LTD ACN 107 198 676 (first defendant/respondent) and EAGLE DOWNS COAL MANAGEMENT PTY LTD ACN 107 199 619 (second defendant/respondent) FILE NO: 6641 of 2011 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 6 September 2011 DELIVERED AT: Brisbane HEARING DATE: 31 August and 1 September 2011 JUDGE: Applegarth J ORDER: Upon the plaintiff and Aquila Resources Limited by their counsel giving the usual undertaking as to damages; And upon the plaintiff by its counsel giving the further undertaking recorded in Exhibit 4; An interlocutory injunction be granted in accordance with the application filed on 23 August 2011. CATCHWORDS: EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – JURISDICTION AND GENERALLY – where plaintiff and defendant are parties to a coal mining joint venture – where feasibility study outlined two scenarios for mine development – where Schedule A scenario envisaged project sanction before contracts for port and rail capacity were secured – where Schedule B envisaged project sanction upon securing port and rail capacity, with major development of the mine not to be undertaken before then – where $1.3 billion is required for initial development of mine – where risks associated with Schedule A are said to make the proposal not one that a major financial institution would support by way of project finance – where defendant has already voted for Schedule A at a -- 1 of 56 -- 2 meeting of the joint management committee – where plaintiff voted against Schedule A and for Schedule B – where defendant proposes to vote for Schedule A again at forthcoming meeting – where joint venture agreement provides that if the plaintiff votes against the Schedule A resolution a second time at the forthcoming meeting, then the defendant has the option to purchase the plaintiff‘s share of the joint venture at 50 per cent of its fair market value – where plaintiff alleges that the defendant‘s strategy in proposing Schedule A is to exert pressure on the plaintiff and obtain the plaintiff‘s share of the venture at an under-value – where plaintiff alleges that this ulterior purpose is in breach of clause 2.11 of the joint venture agreement which requires the joint venture participants to act in ―good faith and in the best interests of the Joint Venture‖ – where plaintiff seeks interlocutory injunction to restrain the defendant from breaching this clause by proposing Schedule A development at pending meeting – whether injunction should be granted ACN 096 278 483 Pty Ltd v Vercorp Pty Ltd [2011] QCA 189 cited Active Leisure (Sports) Pty Ltd v Sportsman’s Australia Ltd [1991] 1 Qd R 301 cited Aquila Steel Pty Ltd v AMCI (IO) Pty Ltd [2010] WASC 410 discussed Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63 cited Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46 applied Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1 applied Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148; [1986] HCA 58 cited Cayne v Global Natural Resources Plc [1984] 1 All ER 225 cited Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 cited Frazer v Macquarie Airports Management Ltd (2009) 27 ACLC 1,517; [2009] NSWSC 1057 cited Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] ATPR 41-703; [1999] FCA 903 cited Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49 cited Gutnick v Bondi Mizrachi Synagogue [2009] NSWSC 257 cited Heavener v Loomes (1924) 34 CLR 306; [1924] HCA 10 cited Kolbac Securities v Epoch Mining N/L (1987) 18 NSWLR 533 cited Kounis v Kounis (1987) 11 ACLR 854 cited Macquarie International Health Clinic Pty Ltd v Sydney -- 2 of 56 -- 3 South West Area Health Service [2010] NSWCA 268 discussed Magna Alloys & Research Pty Ltd v Coffey [1981] VR 23 cited NWL v Woods [1979] 1 WLR 1294 cited Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 cited Pettaras v Pettaras [2004] NSWSC 1212 cited Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317 cited South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611; [2000] FCA 1541 cited Williamson v Schmidt [1998] 2 Qd R 317 cited COUNSEL: F M Douglas QC, with B Dharmananda and D J Butler for the plaintiff/applicant G A Thompson SC, with A W Duffy and D P de Jersey for the first defendant/respondent SOLICITORS: Mallesons Stephen Jaques for the plaintiff/applicant Clayton Utz for the first defendant/respondent [1] The plaintiff (―Aquila‖) and the first defendant (―BCC‖) are parties to the Bowen Central Coal Joint Venture (―the Joint Venture‖), which was formed to undertake defined ―Venture Activities‖ within certain coal mine tenements that Aquila and BCC own as tenants in common in equal shares. Venture Activities include activities for the purpose of exploration, mining development and mining operations within the project area. The Joint Venture Agreement (―JVA‖) dated 17 January 2004 defines ―Feasibility Study‖ to mean a feasibility study relating to any part of the Project Area conducted to determine the commercial feasibility and viability of exploiting a Deposit. The ―Feasibility Study‖ is to be ―of a standard customarily required by major financial institutions in support of Project Finance for the operations contemplated in the study.‖ [2] In May 2011 the Manager of the Joint Venture (―EDCM‖) provided Aquila and BCC with the ―Front-End Loading 3/Definitive Feasibility Study‖. That feasibility study developed two Schedule scenarios. One of these, described as Schedule A envisages: (a) project sanction before contracts for port and rail capacity for the Project are secured (contracted or reassigned); (b) sale of coal extracted during the development phase of the Project being reliant on obtaining access to ad hoc or reassigned port and rail logistics capacity; and (c) the extraction of coal using the longwall process (once development is complete) which as a matter of timing may be aligned with the commissioning of the first available new port and rail logistics capacity. The other scenario, described as Schedule B, envisages project sanction upon ―financial close of the first available new port and rail logistics capacity‖, with coal -- 3 of 56 -- 4 not to be extracted during the development phase before the first available new port and rail capacity is commissioned. [3] BCC proposed at the Management Committee of the Joint Venture held on 17 June 2011 that the Management Committee undertake a Mine Development in accordance with Schedule A (―the Schedule A Resolution‖). But this proposal was not approved because Aquila‘s representative opposed it. BCC intends to have the Management Committee again consider and vote upon the Schedule A Resolution at a meeting that it has called for 17 September 2011. If Aquila‘s representative again opposes the Schedule A Resolution, then this may engage clause 6 of the JVA which allows, on certain terms, the Participant whose representative voted in favour of the proposal to acquire the dissenting participant‘s Venture Interest. [4] The first substantial issue in this proceeding is whether the proposal for mine development that BCC supports, and which Aquila opposes, constitutes a proposal to undertake mine development for the purposes of clause 6 of the JVA. Aquila‘s essential contentions are that: (a) the feasibility study that contains this proposal is not a ―Feasibility Study‖ as defined in the JVA; and (b) BCC‘s Schedule A resolution is not a proposal for ―Mine Development‖ and is not capable of being relied upon for the purposes of clause 6 of the JVA as it is, or by 17 September 2011 will be, no longer possible to undertake Mine Development in accordance with Schedule A. [5] The second substantial issue is the allegation raised by Aquila that BCC‘s past and threatened conduct in respect of the Schedule A Resolution is not in good faith and not in the best interest of the Joint Venture, and BCC is thereby in breach of clause 2.11 of the JVA. This clause obliges the parties to ―act in good faith and in the best interests of the Joint Venture‖. In particular, Aquila alleges that BCC‘s conduct in advancing the Schedule A Resolution on 17 June and proposing it for a vote on 17 September is attempting to bring about a situation in which BCC would acquire an option, pursuant to clause 6 of the JVA, to acquire Aquila‘s interest in the Joint Venture at an undervalue (―the Clause 6 Buy-Out Purpose‖). [6] Aquila seeks an interlocutory injunction to restrain BCC from convening, holding or attending a meeting of the Management Committee at which the Schedule A Resolution is to be voted upon, and from voting at such a meeting on any resolution or proposal to undertake Mine Development in accordance with, or substantially in accordance with, Schedule A of the Feasibility Study. Background [7] On or about 27 January 2004 Aquila, BCC and EDCM1 entered into a Management Agreement which appointed EDCM to manage the joint venture and the Management Agreement. A Management Committee is established that represents each of Aquila and BCC. The Committee is authorised at any meeting to make all decisions on the nature and extent of, and the business and affairs of, the Joint Venture. Only one representative appointed by a participant may vote at a meeting. 1 EDCM is the second defendant in the proceeding, but by direction made on 2 August 2011 plays no active role in the proceeding. -- 4 of 56 -- 5 Aquila and BCC are the only participants and each has a Venture Interest of 50 per cent. Subject to clause 5.1 of the JVA, decisions of the Management Committee are by majority vote. However, clause 5.1 provides that a decision to undertake Mine Development for a Development Area requires 100 per cent approval of all Representatives entitled to vote at a meeting of the Management Committee in favour of such a proposal before it can be adopted or implemented. [8] Clause 6 of the JVA provides, among other things, an option for the participant whose representative voted in favour of a proposal to undertake a mine development (―the Assenting Participant‖) to acquire the other participant‘s Venture Interest in the Development Area for 50 per cent of the fair market value of that interest,2 with that value being determined by an independent expert. After receiving the independent expert‘s determination of the fair market value in accordance with clause 6.1(e) of the JVA, the Dissenting Participant has 90 days in which to obtain a binding letter of offer from a third party in relation to the purchase by the third party of the Development Area Interest at a value greater than the amount which would be payable by the Assenting Participant under clause 6.1(e). If such an offer is obtained, other provisions of the JVA apply to that third party offer. [9] Clause 6 relevantly provides: ―6. OPTION TO PURCHASE WHERE MINE DEVELOPMENT NOT APPROVED 6.1 If a proposal is put to the Management Committee to undertake a Mine Development and: (a) the proposal included a Feasibility Study for the Development Area and which study shows an after tax return on investment greater than 15% for that Development Area and included a delineation of the Development Area; (b) the proposal is not approved by the Management Committee at two or more Management Committee Meetings (the first and last such non-approval occurring not less than 3 months apart); and (c) votes were cast in favour of the proposal by Participants having at least 50% of the voting entitlement in respect of the proposal, then: (d) the Participant whose Representative voted in favour of the proposal (‗Assenting Participant‘) has an option to acquire the other Participant‘s (‗Dissenting Participant‘) Venture Interest (and not just a part of it) in the Development Area including its interest in the Tenements forming the subject of the Development Area and all other related assets 2 The parties agree that this is the preferred interpretation of clause 6.1(d) and (e). -- 5 of 56 -- 6 including the benefit of any Feasibility Study and the Mining Information in relation to that Development Area (the ‗Development Area Interest‘), at a purchase price determined in accordance with clause 6.1(e); (e) the purchase price for the Development Area Interest will be 50% of the fair market value of the Development Area Interest determined as at the date of exercise of the option by an Independent Expert with the valuation to be requested by the Assenting Participant within 30 days of the date of exercise of the option; (f) the Dissenting Participant will have 90 days following the date on which the Independent Expert determines the fair market value in accordance with clause 6.1(e), in which to obtain a binding letter of offer from a third party in relation to the purchase by the third party of the Development Area Interest at a value greater than the amount which would be payable by the Assenting Participant under clause 6.1(e) and if such an offer is obtained, the provisions of clause 19 will apply to that offer and if no such offer is obtained the remaining provisions of this clause 6 will apply;…‖ [10] The Eagle Downs Coal Project involves proposed construction, development and operation of an underground longwall hard coking coal mine in the Bowen Basin. The proposed mine is located south of the town of Moranbah, and is planned to produce and export metalliferous coal from three target seams. Planned coal production from the mine is anticipated to be in excess of five million tonnes per annum, of which the majority will be classified as hard coking coal. When constructed, the project will have access to rail infrastructure that traverses the south-east corner of the site. A Mining Lease for the project was granted on 18 August 2011. A rail spur and balloon loop will be constructed within the area of the mining lease, with connections to the Peak Downs branch of the Goonyella Coal Network. Coal will then be transported to regional ports on the Queensland coast. [11] Various feasibility studies have been undertaken during the course of the Joint Venture. A conceptual pre-feasibility study was completed in August 2008. Upon Joint Venture approval, the next study phase (FEL2/FS) commenced and was completed in June 2009. After requesting additional information, the Joint Venture approved the project progressing to the Front-End Loading 3/Definitive Feasibility Study. This proceeding relates to this feasibility study, which for ease of reference I will refer to as ―the Feasibility Study‖. [12] On 10 June 2011 BCC put forward the following resolution for the Management Committee meeting to be held on 17 June 2011: ―[t]he Management Committee hereby approves, pursuant to clause 5.1(1) of the JVA, the undertaking of Mine Development for a Development Area as described in Schedule A included in the [Feasibility Study] presented by [EDCM] on 25 May 2011 subject to the Participants obtaining the usual board approval by 30 September -- 6 of 56 -- 7 2011 and notifying the other Participant of the outcome within 2 Business days of that date. All capitalized terms in this resolution have the same meaning given to them in the [JVA]‖. I shall refer to this as the Schedule A Resolution. [13] The parties are agreed that the Schedule A Resolution was put to the Management Committee at the 17 June meeting and was not approved, and that votes were cast in favour of it by BCC as a Participant having at least 50 per cent of the voting entitlement with respect to the Resolution. [14] BCC has called a meeting of the Management Committee for 17 September 2011 to consider and vote upon the Schedule A Resolution for a second time. It intends to rely upon the vote that is taken for the purpose of clause 6. The proceeding [15] This proceeding was commenced on 1 August 2011. Aquila seeks a declaration that, on the proper construction of the JVA, any resolution for Mine Development in accordance with Schedule A of the Feasibility Study does not constitute a proposal to undertake Mine Development for the purposes of clause 6 of that agreement. [16] Aquila sought to have the proceeding heard and determined before 17 September 2011. At a review hearing that was held soon after the claim was served on BCC, I was told by Senior Counsel for Aquila that the trial could be conducted in three days, and I subsequently made arrangements for the trial to be listed for three days commencing on 31 August 2011. I also made directions for the expedited close of pleadings and the filing and service of affidavit material by Aquila by 22 August and by BCC by 29 August 2011. I also ordered that the parties be relieved of the duty of disclosure. Legal representatives of BCC were not in a position at the review on 2 August 2011 effectively to contest the three day estimate, or to predict how long they would take to assemble their evidence, including expert evidence. Upon considering the matter, including the various factual matters in the statement of claim that were contested by BCC, a further review was held at BCC‘s request on 19 August 2011. At that further review I reached the conclusion that the trial should not be heard on the three days allocated to it because of the factual issues in contest and the inability of BCC to assemble the expert evidence required by it to contest Aquila‘s factual allegations at a final hearing. This involved obtaining expert evidence in response to Aquila‘s proposed expert evidence (which had yet to be served at that stage). As a result of my adjourning the trial, Aquila foreshadowed an application for interlocutory relief, which I listed to commence on 31 August. [17] Aquila amended its Claim to include injunctive relief restraining BCC, whether by itself, its servants, agents or otherwise howsoever, from doing the following acts or any of them: (a) convening, holding or attending a meeting, or any adjournment of such a meeting, of the Management Committee (as that term is defined in the agreement between the plaintiff and the first defendant dated 27 January 2004 and titled ―Joint Venture Agreement Constituting the Bowen Central Coal -- 7 of 56 -- 8 Joint Venture‖ (the JVA)), at which a resolution that ―[t]he Management Committee hereby approves, pursuant to clause 5.1(1) of the JVA, the undertaking of Mine Development for a Development Area as described in Schedule A included in the Eagle Downs Coal Project Front-End Loading 3 Definitive Feasibility Study presented by Eagle Downs Coal Management Pty Ltd on 25 May 2011 subject to the Participants obtaining the usual board approval by 30 September 2011 and notifying the other Participant of the outcome within 2 Business days of that date. All capitalized terms in this resolution have the same meaning given to them in the JVA‖ (the ―Schedule A Resolution‖) is to be voted upon; (b) convening, holding or attending a meeting, or any adjournment of such a meeting, of the Management Committee at which a resolution or proposal to undertake Mine Development (as that term is defined in the JVA) in accordance with, or substantially in accordance with, Schedule A (as that term is defined in paragraph 36 of the Amended Statement of Claim) is to be voted upon; (c) voting at a meeting, or any adjournment of such a meeting, of the Management Committee on any resolution or proposal to undertake Mine Development (as that term is defined in the JVA) in accordance with, or substantially in accordance with, Schedule A (as that term is defined in paragraph 36 of the Amended Statement of Claim). Aquila also filed an application for interlocutory relief seeking orders that BCC be restrained in the same terms until the trial of this action, or earlier order. [18] Aquila also amended its Statement of Claim to remove or amend some allegations, and also to include a significant new issue. It alleges that BCC‘s conduct in relation to the Schedule A Resolution, including its proposal to put the resolution to a meeting to be held on 17 September 2011, ―was, or will be, as the case may be, not in good faith and not in the best interests of the Joint Venture, and thereby in breach of clause 2.11 of the JVA, in that the conduct was: ―(a) not primarily for the purpose of proceeding with a Mine Development in accordance with Schedule A, but rather, was for the purpose of purposes set out in paragraph (b) below; (b) for a purpose or purposes which included the purpose of attempting to bring about a situation in which BCC would acquire an option, pursuant to clause 6 of the JVA, to acquire Aquila Coal‘s interest in the Joint Venture at an under value (Clause 6 Buy-out Purpose).‖ This plea and additional pleas in relation to BCC‘s alleged ―Clause 6 Buy-out Purpose‖ appear in new paragraphs of Aquila‘s pleading under the heading ―BCC‘s bad faith‖. Aquila alleges that: ―there was, and is, no commercial justification, or alternatively, no reasonable commercial justification, for wishing to undertake a Mine Development in accordance with the Schedule A Resolution.‖ -- 8 of 56 -- 9 On the basis of this and other allegations, Aquila seeks a finding that BCC‘s conduct in relation to the Schedule A Resolution was, or will be, as the case may be, conduct: (a) not in good faith and not in the best interests of the Joint Venture; and (b) in breach of clause 2.11 of the JVA. Clause 2.11 of the JVA provides: ―The Participants will at all times act in good faith and in the best interests of the Joint Venture and the Participants must make their respective interests in the Tenements and the other Venture Property available for the purpose of the Joint Venture‖. [19] It is difficult to estimate how long the parties will take to prepare the proceeding for trial, the length of any trial and when it can be accommodated in the Court‘s calendar. Pre-trial preparation depends to a significant extent on the scope of disclosure and document management, and the narrowing of issues, including any matters in issue between the experts relied upon by each party. Even with case management to contain the extent of disclosure, a substantial volume of documents that bear upon contested issues, including the issue of ―bad faith‖, may need to be disclosed. [20] In other proceedings brought by Aquila against BCC (BS 2197 of 2010, which I will refer to as ―the Logistics Proceeding‖), the parties are in dispute about the meaning of the JVA and BCC‘s failure in February 2010 to execute, or authorise EDCM to execute, what are described in those proceedings as the Proposed Abbot Point Coal Terminal (APCT) and Goonyella to Abbot Point Expansion (GAPE) Agreements, which would have delivered rights to port and rail access and capacity to the parties. The issues in the Logistics Proceeding include whether: (a) port and rail logistics are Venture Activities; (b) port and rail logistics must be contracted in order to prepare a Feasibility Study; (c) port and rail logistics are required to deliver Extracted Coal to buyers; (d) port and rail logistics are required to be contracted by the parties in their capacity as Participants; (e) under the terms of the Joint Venture Agreement port and rail logistics can be dealt with by way of an ―off-take‖ arrangement; (f) an ―off-take‖ arrangement is inconsistent with the Joint Venture Agreement; (g) BCC is required to subordinate its own interests to Aquila‘s opportunity to obtain Project Finance; (h) actions by the Manager in relation to procuring port and rail logistics for the Project were done in accordance with the Management Agreement; and -- 9 of 56 -- 10 (i) the Manager had authority to agree commercial principles with QR Network Limited in respect of the GAPE Project. [21] Other issues between the parties in that proceeding include whether, as at February 2010: (a) the risks to the parties associated with executing the Proposed APCT and GAPE Agreements were limited by virtue of the fact that capacity at the APCT that would have been secured by the parties could have been resold on the secondary market; and (b) existing excess contracted capacity at the Dalrymple Bay Coal Terminal (DBCT) held by one of BCC‘s related companies could be used by the Joint Venture provided an agreement was reached between the parties and BCC‘s related company. [22] In the Logistics Proceeding, Aquila alleges that BCC acted in breach of clause 2.11 of the JVA in failing to authorise the execution of the Proposed APCT and GAPE Agreements because it: (a) acted for an ulterior purpose, being the ―Off-take Purpose‖; (b) acted for an ulterior purpose, being the ―Buy-out Purpose‖; and (c) acted unreasonably. [23] The real issues in dispute in the Logistics Proceeding are many and varied, and they are summarised in a Joint Report to the Court. The Logistics Proceeding is being case managed by Boddice J in the Supervised Case List. Since it was commenced on 4 March 2010 there have been extensive amendments to pleadings. A third further amended statement of claim was filed by Aquila on 8 July 2011. BCC filed its defence to that pleading on 8 August 2011. The Joint Report that was submitted to the Court on 30 May 2011 canvassed issues in relation to disclosure and document management. The parties agreed in that report that there ought to be disclosure of documents pertaining to the requirements of the relevant Feasibility Study. The parties also agreed that opinion evidence from experts in a number of areas would assist the Court, including in respect of: (a) port and rail logistics in Queensland; (b) coal mine development and project management to determine the issues in dispute concerning the appropriate timing for the Project to commit to port and rail logistics; and (c) project finance to determine the issues in dispute concerning whether, in the absence of contractual arrangements for port and rail logistics being secured for the Project, the Feasibility Study would be of the standard necessary to provide Aquila with the opportunity to obtain project finance. [24] As at the date of the Joint Report in the Logistics Proceeding substantial interlocutory applications were in prospect. -- 10 of 56 -- 11 [25] Even before Aquila amended its statement of claim in these proceedings to allege that BCC‘s conduct in respect of the Schedule A Resolution was not in good faith and thereby breached clause 2.11 of the JVA because, among other things, it was for a purpose or purposes that included the ―Clause 6 Buy-out Purpose‖, BCC raised in correspondence between solicitors the fact that this proceeding and the Logistics Proceeding raised certain common issues, and that it is undesirable for those common issues to be determined separately, and perhaps inconsistently, by different judges at separate trials. Aquila‘s solicitors responded about the extent to which there were common issues in the two proceedings. They also observed that similar facts may be raised in separate proceedings if different causes of action are raised. They acknowledged that if an issue was decided in this proceeding, and that issue also arose later in the Logistics Proceeding, then an issue estoppel may arise. However, that was said not to be a reason to postpone the early hearing and determination of this proceeding. [26] I am not presently in a position to predict whether the just and expeditious determination of each proceeding will require this proceeding to be tried and determined first, or whether, upon further review, it will be appropriate for both proceedings to be heard at the same time. For the purposes of determining Aquila‘s application for an interlocutory injunction, I shall assume that the two proceedings will be tried separately, that this proceeding will be tried first, that disclosure of documents in it will be limited and that the issues between the parties at trial will be the same issues that are presently pleaded. Even on those assumptions, I consider that the trial of the proceeding is likely to take two weeks. If this proceeding could be ready for trial in a few months then a trial listing in the second half of 2011 would depend upon the settlement of another proceeding of similar duration. The calendar for the first half of 2012 has been released, and a number of long trials are listed in the weeks available for civil sittings in the first half of 2012. If this proceeding cannot be prepared for trial and tried this year, it may be able to be accommodated in the civil sittings listed for the first half of 2012. If this proceeding is likely to take more than two weeks then it would not ordinarily be given trial dates in the Commercial List, which are reserved for proceedings that will take up to 10 days to try. If the parties were able to agree a realistic trial plan that permitted this proceeding to be tried in less than two weeks, then it might be able to be offered trial dates in February 2012 in the Commercial List. [27] In short, there is substantial uncertainty about how long the proceeding will take to prepare for trial and the duration of a trial. The earliest the matter could be tried is late this year (depending upon the settlement of other trials currently listed). Otherwise, it is likely to be listed in 2012. I assume that this proceeding will be separately tried, but the possibility exists that, upon review or upon an application, the view will be taken that it is necessary or convenient for this proceeding to be heard together with the Logistics Proceeding. If this view is taken, then the trial of this proceeding is likely to be delayed. [28] The issue of the duration of any interlocutory restraint assumes importance for a number of reasons. A substantial delay by reason of an interlocutory injunction upon BCC being able to put the Schedule A Resolution (or a resolution substantially in accordance with it) may make it practically impossible to implement that proposal, given the steps that are involved. These include the awarding of earthwork contracts, contracts for temporary site accommodation, port access allocation, rail operations agreements and other works. Schedule A of the -- 11 of 56 -- 12 Feasibility Study is based on a number of assumptions, and it envisaged these kinds of contracts being awarded in recent months. As noted, one of the points raised by Aquila in these proceedings is that the Schedule A Resolution is not a proposal for Mine Development and is not capable of being relied upon for the purposes of clause 6 of the JVA, as it is or, alternatively, by 17 September 2011 it will be, no longer possible to undertake Mine Development in accordance with that Schedule. Aquila relies upon the fact that Schedule A is dependent upon events occurring as early as 26 May 2011 and needs to be rescheduled. [29] BCC responds that, whilst Schedule A is based on a number of assumptions, including the awarding of contracts and other steps in the course of full project sanction, the project execution plan is indicative only and the viability of the proposed mine development in Schedule A does not depend upon strict compliance with the dates allocated for the awarding of contracts between May and July 2011. It says that these events are not ―critical path activities‖ required to be undertaken on the dates particularised and that, in the alternative, there is ―sufficient float‖ in the Project Execution Plan to enable mine development to proceed notwithstanding that the dates pleaded by Aquila in its statement of claim have passed. It contends that it presently is, and still will be by 17 September 2011, possible to undertake Mine Development in accordance with Schedule A. [30] However, if BCC is restrained by an interlocutory injunction from obtaining approval for the Schedule A Resolution, and if the resultant delay is substantial, then it may prove practically impossible to undertake Mine Development in accordance with Schedule A. [31] If the period of any interlocutory restraint is substantial and has the practical effect of making it impossible to undertake Mine Development in accordance with Schedule A, then a number of issues arise for consideration. One is the exposure of Aquila to greater potential liability on its undertaking as to damages if Aquila fails at trial and the occasion arises to assess the compensation due to BCC and affected third parties on Aquila‘s undertaking as to damages. [32] If an interlocutory restraint of substantial duration would make it practically impossible to undertake Mine Development in accordance with Schedule A, then an issue arises as to whether the decision on this interlocutory application will determine the substance of the matter in issue. Aquila opposes Schedule A, but says that it wishes to proceed with the Project in accordance with Schedule B. If the effect of an interlocutory injunction is to make it practically impossible to undertake the Mine Development in accordance with Schedule A, then its practical effect may be to give Aquila the result that it seeks in this proceeding. This scenario invites consideration of the principles that apply when, as a practical matter, the decision on an interlocutory application for an injunction will determine the proceeding. In some kinds of case, it is necessary for the purpose of deciding where the balance of convenience lies (or, more specifically, the ―balance of the risk of doing an injustice‖3) for the Court to evaluate the strength of the applicant‘s case for final relief. One such class of case is where the decision to grant or refuse an interlocutory injunction will determine, in a practical sense, the substance of the matter in issue.4 3 Cayne v Global Natural Resources Plc [1984] 1 All ER 225 at 237. 4 NWL Ltd v Woods [1979] 1 WLR 1294 at 1306-1307; Cayne v Global Natural Resources Plc [1984] 1 ALL ER 225; Kolbac Securities v Epoch Mining N/L (1987) 18 NSWLR 533 at 536, cited with -- 12 of 56 -- 13 [33] Leaving aside that possible consideration, and dealing with the general principles that apply to an application for an interlocutory injunction, the first step is to identify the legal or equitable rights that the applicant seeks to protect. The applicant must establish a ―prima facie case‖ as that phrase is explained in Australian Broadcasting Corporation v O’Neill.5 Next, the ―balance of convenience‖ must be considered. In this case, that includes balancing the injustice which might be suffered by Aquila if an interlocutory injunction is not granted and it later succeeds at trial, against the injustice that might be suffered by BCC if the injunction is granted and it succeeds at trial. As Lord Hoffmann stated in Films Rover International Ltd v Cannon Film Sales Ltd6: ―there is by definition a risk that the court may make the ‗wrong‘ decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is, therefore, that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‗wrong‘ in the sense I have described.‖ [34] Very substantial material, including the Feasibility Study and expert reports, was put in evidence at the interlocutory hearing. In the interests of deciding the application and providing my reasons in advance of the 17 September meeting, I will not make detailed reference to this material. Substantial parts of the Feasibility Study and some of the affidavits contain commercially sensitive and confidential information, and this is an additional reason not to canvass it in detail in this judgment. However, the principal reason is because an application of this kind is not a ―mini-trial‖ or the occasion to make findings on disputed questions of fact which are of a kind that can only be properly resolved at trial. That said, the determination of whether Aquila has established a ―prima facie case‖ and where the balance of convenience lies requires a provisional assessment of the strength of the parties‘ respective cases at this stage. That assessment must be made in circumstances in which the matter has come on for the interlocutory hearing relatively quickly and BCC has had limited time to respond to the substantial expert reports and other evidence that were served on its lawyers shortly before midnight on 22 August 2011. BCC‘s affidavit material, which was served on 29 August 2011, consisted of an affidavit from Professor Gray, which addressed the estimated cost of delaying the project under various scenarios, and a solicitor‘s affidavit that addressed evidence relevant to the value of an undertaking as to damages. BCC did not rely on affidavits that sought to contest Aquila‘s affidavit material in relation to the issue of an alleged breach of clause 2.11 or the evidence called by Aquila about the risk of proceeding with Schedule A without contractual arrangements for port and rail logistics. approval in Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317 at 326 and 333; Williamson v Schmidt [1998] 2 Qd R 317 at 328; Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [72]; and see W. Sofronoff, ―Interlocutory Injunctions Having Final Effect‖ (1987) 61 Australian Law Journal 341; R. P. Meagher, J. D. Heydon and M. J. Leeming, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 4th ed. (Chatswood: Butterworths LexisNexis, 2002), 782-3 [21-370]; P. W. Young, C. Croft and M. L. Smith, On Equity (Pyrmont: Lawbook Co, 2009), 1047 [16.400]. 5 (2006) 227 CLR 57; [2006] HCA 46. 6 [1987] 1 WLR 670 at 680. -- 13 of 56 -- 14 The Feasibility Study [35] In its full form, with all of its supporting materials, the Feasibility Study consists of more than 80 volumes. A copy of it, including only the following Annexures: (a) Annexure 1 – Project Execution Plan; and (b) Annexure 6 – Additional Reports: Volume 1 – Financial reports: (i) 1 – Economic Evaluation: Report by Runge Limited titled ―Economic Evaluation of the Eagle Downs Resource Area‖; (ii) 2 – Marketing Report: Reports by MinAsix Pty Ltd and AME Group; and (iii) 3 – Business Risk Profile: Report by Marsh Pty Ltd titled ―Business Risk Profile‖ is Exhibit KSD-1 to the affidavit of Ms Dovey sworn on 18 August 2011. The Feasibility Study contains commercially sensitive information and a claim for confidentiality was made in respect of its contents. As a result, on 19 August 2011, I made an order that Exhibit KSD-1 be placed in a sealed envelope and marked ―Confidential – not to be opened except by an order of a Judge of this Court.‖ However, some of the contents of the Feasibility Study have been referred to in publicly-accessible pleadings. It is appropriate that I refer in these reasons to matters of substance, many of which are also referred to in the pleadings, whilst not unnecessarily disclosing, in a publicly-released judgment, commercially sensitive information in respect of which there is a legitimate claim to maintain confidentiality. I will provide to the parties an opportunity to make submissions in relation to parts of the judgment which should be redacted prior to public release in order to preserve legitimate claims to confidentiality on the grounds that the information is commercially sensitive, and to submit that it is not in the interests of justice for such information to be contained in a publicly-released judgment. [36] The Feasibility Study includes an Economic Evaluation that contains a cashflow analysis for the execution of Schedule A and Schedule B. Both schedules are said to show ―attractive internal rates of return‖. The Net Present Value (NPV) of the project is calculated on certain assumptions, and Schedule A produces a higher NPV. [37] Project commitment capital, defined as the capital commitments required during the project phase of the Eagle Downs Mine Development, is in excess of $1.25 billion. This figure is different to the project capital defined by the JVA. Project capital is the capital spent until the first 100,000 tonnes of longwall coal are produced. [38] At the time the Feasibility Study was prepared, all approvals for project execution had been granted, including environmental approvals, save for the formal grant of the Mining Lease which was expected to be granted in June 2011. It was in fact granted by Executive Council on 18 August 2011. [39] The Feasibility Study addresses risk management in Chapter 11. A ―Fatal-Flaw Analysis‖ identified no fatal flaws. EDCM engaged Marsh Pty Ltd (―Marsh‖) to -- 14 of 56 -- 15 facilitate development of a Business Risk Profile for the project. Marsh produced a risk register for the two construction/delivery schedules. Some 59 risks were identified in the review and given a risk rating (Extreme, High, Medium or Low). Two extreme risks were identified in respect of Schedule A, namely: ―Delay in project approval affects critical path‖; and ―Contracted logistics not available for development coal (rail/port)‖. [40] The Business Risk Profile prepared by Marsh dated 9 May 2011 indicates that it aims to provide management with ―a high level overview and assessment of the identified risks‖ so as to assist in the prioritisation of risk improvement strategies. The risk rating takes into account the likelihood of each risk, based on a consensus within a workshop that was undertaken on 5 May 2011 with various participants, and also considers the consequences of each risk. The Marsh report does not descend into any detail concerning the additional control actions required in respect of the identified risk of ―Contracted logistics not available for development coal (rail, port)‖. Additional control actions are said to be: ―Review methods and strategies to retain coal quality in stockpiles‖. The control action for the risk of ―Delay in project approval affects critical path‖ is simply stated to be: ―Determine logistics solution for project‖. The Risk Management chapter goes on to address technical risks assessment and the availability of various forms of insurance. [41] The Feasibility Study analysed logistics in Chapter 13. EDCM identified rail and port options. The following is a summary taken from pages 68-69 of the Feasibility Study in relation to Logistics: ―While Eagle Downs has not yet secured rail and port capacity, logistics possibilities include: Ad hoc access to contracted but unused port and rail capacity Re-assignment of contracted but unused port and rail capacity Contracts for capacity at new ports (and rail contracts for upgraded capacity to complement the new port capacity). … [The Feasibility Study then set out certain matters in relation to logistics] … After extensive research, EDCM developed two schedule scenarios: Schedule A Project sanction before contracts for port and rail capacity are secured (contracted or re-assigned) Development coal reliant on ad hoc or re-assigned capacity Longwall coal aligned with commissioning of first available new capacity (WICET Stage 2A). -- 15 of 56 -- 16 Schedule B Project sanction upon financial close of the first available new capacity (WICET Stage 2A) Development coal not before first available new capacity commissioned.‖ Chapter 13 more fully discussed commercial aspects including indicative rail charges for ―ad hoc railings‖, potential sources of re-assignment of contracted capacity and various options for new port capacity at Dalrymple Bay Coal Terminal (DBCT), Wiggins Island Coal Export Terminal (WICET) at Gladstone and the Abbot Point Coal Terminal (APCT). It also addressed indicative access proposals from providers of below-rail and above-rail access. [42] The Feasibility Study includes, as an Annexure, a detailed Project Execution Plan and accompanying schedules. The Feasibility Study was completed by technical consultants on the basis of a schedule which assumed project sanction by June 2011. Because it was not possible for this initial schedule to be met, EDCM completed two project execution schedules for consideration by the Joint Venture participants. These schedules are: Schedule A: project sanction achieved 56 days after completion of the Feasibility Study with longwall coal production aligned with the next known available new port capacity; and Schedule B: project sanction being achieved when the next known port capacity arrangements are finalised and no coal is produced until after the port is available. Understandably, both schedules include many of the same elements in relation to the awarding of contracts and development work. Schedule A assumes project sanction was achieved 56 days after completion of the Feasibility Study, namely by 15 July 2011, whereas Schedule B assumes project sanction when the next known new port capacity is available and agreements are finalised in April 2012. Schedule A allows for periods of float between certain events. [43] The Project Execution Plan consisted of a baseline schedule, being the target against which the project status and all variances are measured, allowing the baseline schedule to be revised at various project levels. A ―critical-path methodology‖ was used for identifying activities within the baseline schedule which determines the project completion date. These critical activities are normally set at ―zero float‖ and are monitored and micro-managed over the project life. [44] Each of Schedule A and Schedule B contains a detailed execution plan in relation to matters such as tenement management, site mobilisation and services, service infrastructure, mine access, development and procurement of underground equipment and the letting of the coal handling and processing plant. It is unnecessary to refer to these details. The major milestones stated in Schedule A and Schedule B may be summarised as follows: -- 16 of 56 -- 17 Major Milestones Schedule A Start Finish Schedule B Start Finish FEL3/ DFS Study Report Presentation 18-May-11 25-May-11 FY12 Budget Approval 26-May-11 26-May-11 Project Sanction 15-Jul-11 16-Apr-12 Roadheader Overhaul (Scenario A) / Roadheader Delivery (Scenario B) 10-Feb-12 15-Aug-13 End Drift 24-Mar-14 19-Oct-15 Longwall Start Production 01-Jul-15 05-Oct-16 Aquila’s contention that the Schedule A Resolution is not a proposal for Mine Development because it is no longer possible to undertake Mine Development in accordance with it [45] At this point it is convenient to refer to Aquila‘s contention that the Schedule A Resolution is not capable of being relied upon for the purposes of clause 6 of the JVA as it is, or alternatively, by 17 September 2011 it will be, no longer possible to undertake Mine Development in accordance with it. Aquila points to the fact that Schedule A is reliant on events occurring from as early as 26 May 2011 and needs to be rescheduled, and that the Schedule assumed that the Mining Lease would be granted by 28 June 2011 whereas it was not granted until 18 August 2011. In paragraph 38 of its Amended Statement of Claim, Aquila identifies assumptions made in Schedule A. It starts with the assumption that an earthworks detail design contract would be awarded on 3 May 2011, and that a contract for temporary site accommodation involving 50 rooms would be signed by 26 May 2011. It includes other contracts which were to be awarded in June or July 2011. Paragraph 42 points to other assumptions in the period prior to 17 September 2011 which are said to be unlikely to eventuate, including the allocation of other contracts for the construction of temporary site accommodation, construction offices and so on. [46] In response, BCC pleads that the viability of the proposed mine development in Schedule A does not depend upon strict compliance with the dates particularised in Aquila‘s pleading, that these events are not ―critical path activities‖ required to be undertaken on the dates particularised and that, in the alternative, there is ―sufficient float‖ in the Project Execution Plan to enable mine development to proceed notwithstanding that these dates have passed. It also relies upon the fact that Schedule A contemplates longwall coal by the third quarter of 2015, which provides three months in addition to the float already allowed in the Project Execution Plan to enable mine development to proceed, notwithstanding that the dates pleaded by Aquila have passed. In the further alternative, BCC pleads that adherence to the contemplated dates in the Project Execution Plan is not material to whether the Feasibility Study constitutes a ―Feasibility Study‖ within the meaning of the JVA. -- 17 of 56 -- 18 [47] Mr Pilcher, who has been employed by Aquila Resources Ltd as General Manager - Coal since January 2009, and who is responsible for managing the Joint Venture on behalf of Aquila, says that many aspects of the development work set out in the Schedule A Project Execution Plan must be undertaken consecutively, with the result that delay in the completion of a matter early in the development is likely to cause delay later in its development as well. He gives the example of the preparation for the drift driveage which could have been completed prior to the wet season commencing in December 2011 if sanction had been achieved in July 2011. However, if the project receives sanction in September 2011 this activity would most likely commence in March 2012 after the wet season ends. Mr Pilcher deposes that the impact of delay in respect of the matters pleaded by Aquila and referred to in paragraphs 50 and 52 of his second affidavit ―does not have a linear result in moving the timetable, but rather it will have to be reconstructed and a new completion date developed.‖ However, Mr Pilcher‘s affidavit does not suggest that approval of Schedule A with revised dates for the matters which have now passed would prevent the project from being completed so as to enable production of development coal within the timeframes contemplated by Schedule A. His oral evidence explained that certain critical activities that are programmed to occur through the pending wet season could still occur. I am not persuaded that there is not sufficient float in the schedule program to reconstruct that program so that production, both of development coal and of longwall coal, commences on or about the dates envisaged by Schedule A. [48] I consider that Aquila has a weak case that the Schedule A Resolution is not a proposal for Mine Development because certain of the events outlined in Schedule A have already passed. As a matter of construction it seems unlikely that a resolution that sought the adoption of a proposal for mine development to take place in accordance with a detailed schedule would cease to be a proposal for mine development because certain events could not be undertaken on the dates originally nominated. To take an extreme example, if the proposal envisaged only a temporary site office being delivered within the first three months after project approval, but the proposal was not approved at a meeting in June 2011, it seems unlikely that the proposal could not be put again at a September 2011 meeting, even though it was no longer possible to deliver the portable office by the date originally scheduled. I am not persuaded that the fact that certain of the events contained in Schedule A need to be rescheduled renders the proposal one that is not a proposal for Mine Development within the meaning of the JVA. Aquila has not established that the need to reschedule these matters means that the critical path activities in Schedule A cannot be met so as to achieve the production of coal at about the time the schedule contemplates. It is understandable that such a schedule was prepared on the assumption that it or the alternative schedule would be approved, or at least might be approved, at the June 2011 meeting of the Management Committee. It would be an odd thing, and contrary to a commercial interpretation of the JVA, to require a schedule to be premised upon neither proposal being adopted at the relevant meeting, and providing for nothing to be done in the weeks and months that followed the date of the meeting at which each proposal was expected to be considered and voted upon. [49] Leaving aside the threshold question of whether this aspect of Aquila‘s case involves an infringement of any legal or equitable right which would attract the jurisdiction to grant an interlocutory injunction, I conclude that if it does, Aquila has -- 18 of 56 -- 19 not shown a sufficient probability of success to justify an interlocutory injunction being granted on the basis of this contention. Aquila’s contention that the Feasibility Study is not a “Feasibility Study” as defined in the JVA [50] As noted at the start of these reasons, the JVA defines a Feasibility Study to mean a feasibility study relating to any part of the Project Area conducted to determine the commercial feasibility and viability of exploiting a Deposit. The ―Feasibility Study‖ as defined in the JVA is to be ―of a standard customarily required by major financial institutions in support of Project Finance for the operations contemplated in the study.‖ [51] Aquila‘s case, as pleaded in paragraph 45 of the amended statement of claim is that the Feasibility Study is not a ―Feasibility Study‖ as defined by the JVA because: ―(a) In order to be a Feasibility Study as defined by the JVA it would be necessary for the FEL3/DFS to be of a standard customarily required by major financial institutions in support of Project Finance for the operations contemplated in the study, and in particular, would need to be of a standard which in fact would secure or be likely to secure project finance in [the] order of the capital expenditure contemplated by that study, being $1.3 billion, on the security of that project. (b) In the absence of contracted logistics for rail and port, or at the very least, conditional arrangements capable of being enforced upon the making of a decision to undertake mine development, FEL3/DFS insofar as it incorporates Schedule A as a proposal for mine development is not capable of being used in support of Project Finance. (c) The failure to secure port and rail contracts and the unreliability of the cost estimates and projections, means that the cost inputs assumed for port and rail are so uncertain that they render Schedule A incapable of giving any reliable indication of the after tax return. ... (e) Schedule A is now redundant in that it is anachronistic. (f) There was no Mining Lease granted as at 17 June 2011 in respect of the area the subject of the FEL3/DFS.‖ On the basis of these allegations, Aquila pleads in paragraph 54 of the amended statement of claim that the Schedule A Resolution is incapable of being relied upon for the purposes of clause 6 of the JVA. [52] In support of its case that the Feasibility Study is not of a standard customarily required by major financial institutions in support of Project Finance due to the absence of contracted logistics for rail and port, or, at the very least, conditional arrangements insofar as the Feasibility Study incorporates Schedule A, Aquila relies -- 19 of 56 -- 20 upon the expert reports of Mr Morton in respect of logistics and Mr Correia in respect of project finance. It also relies upon evidence of investigations undertaken by EDCM which also support its case in that regard. Mr Morton’s report [53] Mr Morton is a highly-qualified expert in relation to access to transport infrastructure in the resources industry, including access pricing and supply chain co-ordination. He was engaged by Aquila‘s solicitors to address a number of questions including the logistics possibilities that exist at the present time for the Project (including any secondary market), the logistics possibilities that may exist in the future for the Project and the time when those possibilities may be available. His opinion was based upon a number of matters in relation to the Project that he was asked to assume. These included assumptions about expected production if the Project proceeds in accordance with Schedule A. I note that the questions that Mr Morton was asked to address relate to both Schedule A (including the cost estimates assumed for port and rail that are included in it) and the Project in general. Unsurprisingly, Mr Morton expresses the opinion that long-term contracting of logistics capacity is most attractive, given the constrained nature of the supply of logistics capacity. He says that if ―the supply constraint was expected to be removed and a situation of pervasive and extended supply logistics capacity was to eventuate, then it is conceivable that the market for secondary trading of logistics capacity could reasonably be relied upon‖. However, in the absence of significant surplus logistics capacity, Mr Morton considers that ―reliance on secondary trading to secure critical logistics capacity for a new project will leave the Project developer reliant on the willingness of competing mines to trade capacity (assuming that competing mines actually have spare capacity to trade). As such, it leaves a mine dependent upon secondary trade and at the mercy of its competitors. [54] As to short-term secondary trade, Mr Morton expresses the following opinions: ―4.91 In my opinion, there is likely to be capacity available for short term secondary trade (although not necessarily continuous) in the period to 2014 and perhaps 2015. After that, the availability of traded capacity on the short term market becomes increasingly uncertain. I base this opinion on the capacity that is expected to be available at Adani Abbot Point Coal Terminal and Wiggins Island Coal Export Terminal Stage 1 and the likelihood that not all producers will immediately use all contracted capacity. 4.92 Project development coal at the Eagle Downs mine is forecast to be produced over the period 1 April 2014 to 30 June 2015 with full or nearly full production being achieved from 1 July 2015. Accordingly, the period beyond 2015 becomes increasingly uncertain for securing capacity through short term secondary trade. Whilst technical problems at competing mines do provide a source of capacity for secondary trade, by their nature such opportunities are not capable of being forecast and therefore do not offer any certainty as to -- 20 of 56 -- 21 availability when required. Moreover, there is no guarantee that affected mines will be willing to temporarily transfer their capacity to a competing mine, or that, if they were, that EDCM would be the successful counterparty to such trades.‖ [55] On the question of the attractiveness of logistics possibilities that may exist in the future in terms of the likely cost and risks to the realisation of each logistics possibility, Mr Morton expresses the following conclusions: ―4.94 Given the expected ongoing constrained supply of logistics capacity suitable to support the Project, it is my opinion that the critical factor in selecting the preferred logistics option will be the level of confidence that contracted throughput will be achieved and the timing of that availability. 4.95 The above discussion has identified what in my opinion, are the earliest likely development dates for critical expanded coal terminal infrastructure: Wiggins Island Stage 2A – 2015 Wiggins Island Stage 2B – 2016 Abbot Point T4 to T7 – 2017 Dudgeon Point -2017 4.96 All logistics options remain uncertain until at least definitive allocations of capacity are made. Uncertainty will reduce as binding capacity agreements are able to be entered into for delivery of Project coal (noting that there will still be uncertainty around the timing in which the necessary construction work will be completed and therefore the date from which capacity will be available). 4.97 In my opinion, relying on the short term secondary market for traded logistics capacity to enable shipping of Project coal does not provide a realistic option as there is a very real risk that no significant (or at least materially insufficient) capacity can be captured and that the capacity will not be available continuously as is necessary for mining operations. 4.98 As such, it is my opinion that there is no currently available logistics option suitable in circumstances where the Schedule A Project development timeframe is adopted.‖ Mr Correia’s Report [56] Mr Correia is a Director of Corporate Finance for PCF Capital Group. He has substantial experience in relation to project finance. He was asked by Aquila‘s solicitors to consider a number of questions. These related to: (a) the standard of feasibility study a major and reputable financial institution would require for the purposes of funding a proposal to undertake Mine Development in respect of the Eagle Downs Project; -- 21 of 56 -- 22 (b) whether a major and reputable financial institution would require such a feasibility study to show that it had identified appropriate markets and customers for the extracted coal; (c) if the customers in those markets were overseas customers, whether a major and reputable financial institution would require such a feasibility study to show that the Participants (either together or separately) had secured, or had a contractual entitlement to secure port and rail logistics so that the extracted coal would be able to be sold to overseas customers; and (d) whether or not the Feasibility Study meets the standard in (a) above. [57] For reasons more fully developed in his report, Mr Correia explains that a lender from whom project finance was sought would ask a number of questions and would customarily require a feasibility study to demonstrate with a high degree of certainty that the extracted coal could be, among other things, rail hauled, shipped through an export port and sold to credit-worthy counter-parties. He states that in the case of a project requiring access to third party infrastructure, such as port and rail, the lender would inquire whether there are formal agreements in place that confirm the ability of the project to access that infrastructure at the capacities and cost that had been assumed in the feasibility study. He considers that in order to be satisfied that the project is able to complete the sales of its extracted coal—that is, to ship the coal to its customers—the financial institution would require that the project had secured, or had a contractual entitlement to secure, coal, and: (a) the ability to transport the extracted coal from the mine site to a port; and (b) the ability to use the port. [58] He considers that because the Feasibility Study fails to evidence ―firm, committed contractual capacity for rail and port and fails to evidence firm, committed offtake agreements‖ it does not meet the standard of a feasibility study of a major and reputable financial institution experienced in funding projects. Incidentally, Mr Correia considers that the Feasibility Study ―has to a large degree been developed to a very high standard appropriate for a project of this nature‖, but that the information and assumptions made with respect to proposed port and rail logistics identify a number of critical and concerning issues. He expresses the following opinions: ―In my opinion, there are significant uncertainties in relation to contracted capacity for rail and port access. This raises questions concerning the capacity to ship coal in the projected quantities, meet the development timetable and verify port, rail and operating cost assumptions. As matters currently stand, there is no ‗clear line of sight‘ with respect to the export of coal from the mine, or the value to be received from that coal. In that context, as a project financier, I would also be concerned about the absence of any offtake agreements or at the very least MOUs in relation to Extracted Coal. Whilst it is my understanding that the spot price for coking coal is attractive at this time, a project -- 22 of 56 -- 23 financier would wish to ensure that there was a readily available long term market for a significant percentage of the Extracted Coal, secured by appropriate offtake agreements. Any of these issues would, in my opinion, lead to a situation where a project financier would not be prepared to consider an application for project finance for the Eagle Downs Project, based on the current status of the Eagle Downs Project as disclosed in FEL3/DFS.‖ EDCM’s investigations [59] On 20 July 2010 EDCM obtained approval at a Management Committee Meeting from Aquila and BCC to approach financial institutions to seek advice about what they required for a feasibility study to support a project finance application. EDCM approached six major financial institutions, and in October 2010 provided a written report in relation to its investigations. It reported that the financial institutions were looking for certainty that the debt could be recovered through the project‘s activities, and that in ―a constrained infrastructure market they need not only confidence in cost but also in certainty of delivery ...‖. This was said to apply to power, water, rail and port. The institutions would not definitely state what they required to satisfy their requirement for ―certainty‖, but they reiterated their need to be certain that the product could be delivered to market to recover their debt. They said that ―with the current rail and port constraints that this would likely mean executed contracts or contracts ready for execution. Terms of intent would be insufficient.‖ Some lenders also required a technical consultant to review the rail and port contracts. The report concluded under the heading ―Implications for [EDCM] completion of FEL3/DFS study‖: ―Rail, port and market development are not currently being addressed to a standard as advised by major Financial Institutions in support of Project Finance‖. [60] Correspondence ensued between the parties between November 2010 and May 2011 in relation to whether it was possible for EDCM to prepare a feasibility study to the standard required by major financial institutions in support of project finance, in the absence of any firm arrangements for port and rail infrastructure. By a letter dated 12 January 2011, EDCM advised the parties: ―The Manager advised that, if a contracted Port and rail solution is not forthcoming by end March 2011 then, based on the advice received by him from financial institutions the study undertaken by [EDCM] will not be complete to the standard required ‗in support of Project Finance for the operations contemplated in the study‘ and therefore will not satisfy the definition of Feasibility Study as defined in the JVA.‖ [61] EDCM confirmed this advice in a letter to the parties dated 8 March 2011. EDCM confirmed the advice that it had received that, contrary to the position stated by BCC, port and rail agreements were required. On 9 June 2011 Aquila sought the Manager‘s confirmation that, in the absence of a contracted port and rail solution, the Feasibility Study presented on 25 May 2011 did not constitute a ―Feasibility Study‖ as defined in the JVA and that the Manager‘s view had not changed in that regard. On 14 June 2011 EDCM responded to that inquiry, referred to previous -- 23 of 56 -- 24 correspondence in which it had explained its understanding of the definition of ―Feasibility Study‖, as conveyed in its letter of 8 March 2011, and advised that ―since then the Manager has not received alternate advice from BCC JV nor has it sought or received alternate advice from financial institutions.‖ [62] In short, EDCM‘s investigations are in accord with Mr Correia‘s evidence concerning the requirements of major financial institutions, and support Aquila‘s case that the Feasibility Study is not of a standard customarily required by major financial institutions in support of Project Finance due to the absence of contracted logistics for port and rail. BCC’s case in response as to whether the Feasibility Study is a “Feasibility Study” as defined by the JVA [63] BCC did not call evidence that contradicted or cast doubt upon the evidence of Mr Morton, Mr Correia or EDCM‘s investigations concerning the requirements of financial institutions in respect of Project Finance. Mr Morton was not required for cross-examination. No evidence was called by BCC for the purpose of the interlocutory hearing that contradicted his evidence or provided any basis to not act upon it. The same applies in relation to the evidence of Mr Correia, which is uncontradicted. He was not required for cross-examination. There is no suggestion that EDCM‘s report in relation to its investigations and subsequent correspondence do not reflect the information it received concerning the requirements of major financial institutions. [64] In the circumstances, Aquila has advanced a substantial case that the Feasibility Study is not a ―Feasibility Study‖ within the meaning of the JVA. What right of Aquila is infringed if the Feasibility Study is not a “Feasibility Study” within the meaning of the JVA? [65] If Aquila is correct in its contention that the Feasibility Study is not a ―Feasibility Study‖ within the meaning of the JVA, or at least insofar as it incorporates Schedule A as a proposal for mine development, then this may entitle it, subject to the Court‘s discretion, to the declaratory relief that it originally sought concerning the proper interpretation of the JVA. It does not, however, necessarily entitle Aquila to injunctive relief. So far as injunctive relief is concerned, it is necessary to identify the legal or equitable rights which are to be determined at trial and in respect of which final relief is sought.7 [66] This threshold issue arose for consideration in the context of a dispute between equal participants in a joint venture in Aquila Steel Pty Ltd v AMCI (IO) Pty Ltd.8 The Joint Venture Agreement in that case related to a joint venture for the exploration and mining of iron ore deposits. The relevant terms of the Joint Venture Agreement in that case were essentially the same as the JVA in this case. Relevantly, the agreement in that case included a clause 6 in the same terms as clause 6 in this case. Aquila Steel Pty Ltd commenced proceedings claiming declaratory and injunctive relief. It sought interlocutory and final injunctive relief to restrain the defendant in that case (―AMCI‖) from putting a particular resolution 7 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at 217, 248; [2001] HCA 63 at [11], [105]. 8 [2010] WASC 410. -- 24 of 56 -- 25 to a vote at a management committee meeting and from voting on the resolution. One of Aquila Steel Pty Ltd‘s contentions was that AMCI‘s resolution did not comply with clause 6 because it was based on a feasibility study that was not a feasibility study for the purpose of clause 6 of the Joint Venture Agreement. This required a feasibility study to be of the standard customarily required by a major financial institution in support of project finance, and Aquila Steel contended that a feasibility study (described as ―the August feasibility study‖) did not meet that standard. [67] AMCI submitted that the August feasibility study complied with the Joint Venture Agreement and was sufficient for the purposes of clause 6. It also submitted that even if Aquila had a prima facie case on any of its contentions, AMCI was still entitled to put its proposal to undertake mine development to the meeting. It submitted that the ability of a participant in the joint venture to call a meeting, and to put a proposal to that meeting that the joint venture undertake a mine development, was not conditioned in the way that Aquila Steel claimed. The meeting having been properly called and the resolution included as an agenda item, AMCI submitted that there was no breach of the Joint Venture Agreement, and no legal wrong in putting a proposal to the meeting. [68] Allanson J accepted this and other arguments advanced by AMCI. His Honour stated9: ―26. ...The plaintiff‘s contentions go to whether cl 6 will give AMCI an option to acquire its interest, should the defendant‘s resolution be put and Aquila vote against it. But Aquila can point to no breach of the agreement and no legal wrong in AMCI putting the proposal. Its claims do not provide a basis to restrain either the holding of the meeting, or the consideration of the defendant‘s resolution. 27. Whether the defendant‘s resolution is one to which cl 6 would attach the consequence of compulsory acquisition of Aquila‘s interest by AMCI may not be resolved. Each party has been explicit about the practical consequences of whatever decision I make. The plaintiff says that, unless the restraint is granted, it will be compelled to support the resolution at the meeting of 22 December 2010. The commercial implications of triggering the option in cl 6 are so serious that no other decision is open. The defendant is similarly frank. If the meeting proceeds, and AMCI votes in favour of the resolution and Aquila votes against it, AMCI proposes, subject to Board approval, to exercise the option to acquire Aquila‘s interest in the development area. 28. Notwithstanding the practical consequences, in my opinion the decision must be made by reference to the parties‘ legal rights under the agreement.‖ 9 Ibid at [26]-[28]. -- 25 of 56 -- 26 In the circumstances, his Honour did not find it necessary to consider closely the balance of convenience. He observed10: ―30. Aquila is left with a commercial judgment for the meeting of 22 December 2010. It may have no alternative but to support the resolution because of the potential consequences of not doing so. But both parties are entitled to exercise their rights under the agreement. 31. Because, in my opinion, there is no legal basis to restrain the meeting, the application should be dismissed.‖ [69] Although the factual bases upon which Aquila Steel sought to challenge the feasibility study in that case are different to the factual basis upon which Aquila argues the Feasibility Study in this proceeding is outside the JVA definition, the point of substance is the same. Insofar as it relies only upon the contention that the Feasibility Study is not a ―Feasibility Study‖ within the meaning of the JVA, Aquila can point to no legal wrong in BCC putting the proposal to a meeting. The fact that, upon further analysis, the ―Feasibility Study‖ might be found after a trial to be one that is not a ―Feasibility Study‖ within the meaning of the JVA does not, of itself, disentitle BCC from putting a proposal, based on that feasibility study, to a meeting. [70] Had it not been for the inclusion of an alleged breach by BCC of clause 2.11 in putting the Schedule A Resolution to the June meeting, and proposing to put it again at the September meeting, I would have dismissed the application for an interlocutory injunction on the same grounds as the application for an interlocutory injunction was dismissed in Aquila Steel Pty Ltd v AMCI (IO) Pty Ltd. However, the allegation that, in putting the Schedule A Resolution, BCC breached clause 2.11, and that BCC threatens again to breach clause 2.11 in putting the Schedule A Resolution to a vote on 17 September, creates a point of distinction. Aquila Steel failed to identify a breach of the joint venture agreement or any other legal wrong by AMCI in putting a proposal to a meeting. In this proceeding, Aquila does identify an alleged breach of the Joint Venture Agreement, and therefore an alleged legal wrong in BCC putting the Schedule A Resolution to a meeting. This necessitates consideration of its allegation of a breach of BCC‘s contractual duty under clause 2.11 of the JVA to ―act in good faith and in the best interests of the Joint Venture‖. Aquila’s evidence in support of an alleged breach or threatened breach of clause 2.11 [71] As noted at the start of these reasons, Aquila pleads that BCC‘s conduct in putting the Schedule A Resolution to the Management Committee on 17 June, and in proposing to put it again to the meeting to be held on 17 September, is conduct that is in breach of clause 2.11 of the JVA. It alleges that BCC‘s conduct is not primarily for the purpose of proceeding with a Mine Development in accordance with Schedule A, but was for a purpose, or purposes which included the purpose, of attempting to bring about a situation in which BCC would acquire an option, pursuant to clause 6, to acquire Aquila‘s interest in the Joint Venture at an undervalue (―the Clause 6 Buy-Out Purpose‖). 10 Ibid at [30]-[31]. -- 26 of 56 -- 27 [72] Aquila pleads that BCC‘s Clause 6 Buy-Out Purpose is evidenced from, or can be inferred from, a number of matters. They include statements made by Mr Fernando Nobrega, Chief Financial Officer of Vale SA, at a meeting in about mid-2008, in which he stated in reference to the Joint Venture and other joint ventures between companies related to Aquila and BCC that: (a) while Vale SA was involved in a number of joint ventures around the world, it does not like being involved in joint ventures in circumstances where it does not have control and does not manage the joint venture; and (b) it would only be a matter of time before Vale SA would buy out Aquila Resources Ltd‘s interest in the joint ventures between them, including the Joint Venture. Aquila also relies upon various offers and inquiries made by representatives of Vale SA since 2008 in relation to acquiring Aquila‘s interest in the Joint Venture. [73] Next, reliance is placed upon the convening of meetings of Vale employees, from early November 2009 onwards, which were referred to as meetings of the ―War Council‖. Aquila pleads that the purpose of the War Council meetings was to ―stall the progress of the Joint Venture with the aim of exerting pressure on Aquila Coal to sell its interest in the Joint Venture to BCC.‖ In support of this allegation, Aquila‘s General Manager (Coal), Mr Pilcher, gives evidence of a telephone conversation that he had on or about 9 November 2009 with Mr Richard Webb, who was responsible for managing and co-ordinating all of Vale SA‘s joint ventures with Aquila Resources. Mr Pilcher says that Mr Webb used words to the effect that a meeting of certain Vale employees (who he identifies by name) was scheduled for 10 November 2009. That meeting was to consider Vale‘s management of its relationship with Aquila Resources in the future, as a decision had to be made to focus management attention on that relationship. Mr Webb is said to have referred to the meeting as the ―War Council‖. Mr Pilcher says that Mr Webb said that one of the ways Vale suggested stalling the progress of the Joint Venture was to deal with Aquila Resources only through formal processes such as the Management Committee and written correspondence supervised by Vale‘s legal department. Mr Webb‘s role was to co-ordinate and manage the process. Mr Webb told Mr Pilcher that he planned to resign prior to the ―War Council‖ meeting so that he was not required to attend. On 11 December 2009 Mr Webb commenced employment with Aquila Resources in the role of Commercial Manager. [74] Mr Pilcher gives evidence that after November 2009 he noticed a change in the manner in which representatives of BCC and Vale dealt with him and other employees of Aquila in relation to the Joint Venture. Mr Andrew Clough, who took over Mr Webb‘s role of managing the joint ventures between Vale and Aquila, told Mr Pilcher that Vale employees were instructed not to speak to Aquila Resources personnel other than through formal Management Committee meetings and formal correspondence which was required to be approved by Vale‘s legal department. That Vale might have issued such an instruction, and conducted itself through such formal means of communication, is not that surprising in the light of an emerging dispute between the parties in late 2009. This dispute, which culminated in ―the Logistics Proceedings‖, arose after EDCM received an offer dated 10 December 2009 from North Queensland Bulk Ports Corporation. That was an offer to enter into contractual arrangements for access to port infrastructure at the -- 27 of 56 -- 28 Abbot Point Coal Terminal for the transport of coal from the proposed mine. This offer was subject to terms, including that Aquila and BCC: (a) commit to take-or-pay commitments in the following amounts: (i) in the financial year 2013, 0.5 million tonnes; (ii) in the financial year 2014, 0.5 million tonnes; and (iii) from the financial year 2015 to financial year 2027, 4 million tonnes per annum, and that it execute a standard Abbot Point Coal Terminal User Agreement (Coal) and other relevant agreements by 26 February 2010. [75] In about late December 2009 EDCM also received an offer from Queensland Rail to enter into contractual arrangements for access to below-rail infrastructure for transporting coal from the proposed mine to the Abbot Point Coal Terminal (―APCT‖) via the Goonyella to Abbot Point Expansion Project (―the GAPE Project‖). The offer was subject to terms, including that Aquila and BCC execute the GAPE Project Deed and other relevant agreements. [76] In January 2010 Aquila agreed that EDCM should accept the offer of rail and port logistics. Aquila says that there were no other logistics alternatives that coincided with the then scheduled commencement of production at the mine. But on 22 January 2010 BCC refused to provide its consent for EDCM to accept the offer for rail and port logistics. Aquila alleges that BCC‘s conduct in refusing its consent was for the purpose of attempting to bring about a situation in which Aquila would be ―economically compelled to sell its interest in the Joint Venture to BCC.‖ The following month, on 22 February 2010, Mr Tony Poli, the Chief Executive Officer of Aquila Resources, received an email from Mr Décio Amaral to the effect that Vale was interested in acquiring Aquila‘s interest in the Joint Venture. Mr Amaral had taken over as Chief Executive Officer of Vale in about October 2009. [77] Mr Pilcher says that if Aquila and BCC had executed the standard APCT User Agreement, the GAPE Project Deed and other relevant agreements, they would have obtained long-term access to port and rail infrastructure to transport coal from the proposed mine, and that this port and rail infrastructure would have allowed the proposed mine to be developed in accordance with the estimated production schedule outlined in the addendum to the FEL2/Feasibility Study prepared in January 2010. This schedule contemplated completion of the definitive Feasibility Study by March 2011, approval for the construction and operation of the proposed mine by May 2011, construction to commence by June 2011 and the first production of coal to commence by March 2013. [78] The reasons that BCC was not prepared to execute the APCT and GAPE agreements is the subject of the Logistics Proceedings. For the purposes of this application, Aquila relies upon discussions that occurred on 22 January 2010 between representatives of Aquila, BCC and the Manager. Notes of the meeting appear as Exhibit SJP-21 to the affidavit of Mr Pilcher. The notes of the meeting appear to canvass different rail options including Dalrymple Bay Coal Terminal and the Dudgeon Point Expansion. There was said to be a queue in the Dalrymple Bay -- 28 of 56 -- 29 Coal Terminal system and that it was highly unlikely for BCC to be able to jump the queue. There was discussion as to the relative certainty of Abbot Point as against Dalrymple Bay Coal Terminal. Relative costs also were discussed. Mr Poli is recorded as saying that uncertainty was the key risk for the project and that one could not allow the Joint Venture to forego the option at Abbot Point in favour of the DBCT development due to uncertainties and delays. [79] Mr Pilcher says that, based on his knowledge of port and rail infrastructure in Queensland, in February 2010 there was no alternative but to execute the APCT and GAPE agreements which would have granted contractual rights to port and rail infrastructure for the Joint Venture so as to coincide with the scheduled commencement of production at the proposed mine in March 2013. His evidence is that, as at 26 February 2010, Aquila and BCC could not: ―practically negotiate their own arrangements for Port and Rail Infrastructure because, among other things, if their arrangements for Port and Rail Infrastructure were not aligned then they would have had competing and inconsistent imperatives with respect to the timing of the development of the mine. This meant that it could have been possible for BCC to take advantage of any contractual obligations made by Aquila Coal for Port and Rail Infrastructure (with take or pay obligations) by delaying the mine development and thereby exposing Aquila Coal to take or pay payment obligations.‖ [80] Also, at that time, Aquila had no certainty as to when the mine would be built in circumstances where BCC had decided not to take up the port and rail infrastructure opportunity presented at Abbot Point. Mr Pilcher says that BCC‘s then approach in relation to the development of the mine was ―negative and difficult to predict‖. He says that: (a) the offers from Ports Corporation of Queensland and Queensland Rail to contract for access as to port and rail infrastructure lapsed; (b) Aquila and (to the best of his belief) BCC do not currently have contractual rights to port and rail infrastructure to transport coal from the proposed mine; and (c) the development of the proposed mine has been delayed. [81] Next, as evidence of BCC‘s lack of good faith in the matter, Aquila points to documents that are said to show that a result of EDCM‘s own investigations with major financial institutions into whether the Feasibility Study was a ―Feasibility Study‖ as defined in the JVA was that EDCM had concluded that it was not such a Feasibility Study. Aquila also relies upon the allegation that, up until at least 8 June 2011, BCC was of the opinion that it would not be in a position by the time of the 17 June meeting to decide whether or not to approve at that meeting a resolution by Aquila to undertake mine development in accordance with Schedule B. However, on 10 June 2011, BCC sought to have the Schedule A Resolution put to the Management Committee. [82] In support of its case concerning BCC‘s alleged lack of good faith, Aquila also relies upon the allegation that, as at 17 June 2011, and at the time when BCC gave -- 29 of 56 -- 30 notice of the meeting to be held on 17 September 2011, it was not possible to undertake mine development in accordance with the Schedule A Resolution as there was no certainty as to when it would be possible to undertake mine development in accordance with the Schedule A Resolution. It also relies upon the fact that, as at 17 June 2011, and at the present time, all port and rail logistics for the project were, and are, fully contracted and there is no certainty as to whether and, if so, when such logistics may become available. This is said to have the effect that: (a) if the Schedule A Resolution was to be approved at the 17 September meeting, there would be no certainty as to whether, and if so when, the project would be capable of generating any revenue; and (b) if the Schedule A Resolution was to be approved at the 17 September meeting, the project will be exposed to an ―extreme risk‖ as assessed in the Marsh Report. Aquila pleads that the result of exposure to that extreme risk will be a reduction in estimated profits of over $100 million in the start up period. However, this allegation is not supported by the material that is particularised in the pleading. [83] In any event, Aquila relies upon matters in relation to the putting of the Schedule A Resolution, and the uncertainty that is said to be attached to it, in support of the allegation that: ―there was, and is, no commercial justification, or alternatively, no reasonable commercial justification, for wishing to undertake a Mine Development in accordance with the Schedule A Resolution‖. [84] Based upon its pleading of the various matters that I have summarised, commencing with Mr Nobrega‘s statement of intention in mid-2008 that it would only be a matter of time before Vale SA would buy out Aquila‘s interests in the Joint Venture, Aquila alleges that BCC‘s conduct in relation to the Schedule A Resolution is in breach of clause 2.11 of the JVA. [85] Mr Pilcher‘s affidavit relies upon other matters as evidence of Vale SA‘s ―war‖ on Aquila Resources, including a dispute over the 2009/10 budget. He also relies on Vale‘s refusal to approve the financial year 2012 budget over an extended period in mid-2011 until, shortly before a meeting on 29 July 2011, he received advice that BCC had unconditionally approved it. BCC’s evidentiary response to Aquila’s allegation of a breach of clause 2.11 [86] Mr Pilcher‘s evidence concerning: Vale SA‘s intention to buy-out Aquila Resources‘ interests in the Joint Venture and other joint ventures; his dealings with representatives of Vale SA/BCC, including his conversation with Mr Webb on 9 November 2009; and other aspects concerning the relationship between the parties and their parent companies -- 30 of 56 -- 31 was not contradicted by evidence called by BCC. No affidavit evidence was given by any employee of Vale SA/BCC. No affidavit, even one given on information and belief, was relied upon to contradict Mr Pilcher‘s evidence. Mr Pilcher was cross- examined, but it was not put to him that his account of events, including his conversation with Mr Webb on 9 November 2009, was inaccurate. He acknowledged that Mr Webb had been offered a position with Aquila the day before that conversation. However, I have no reason to reject Mr Pilcher‘s evidence about what Mr Webb said concerning the ―war council‖ meeting that was scheduled for 10 November 2009 or concerning Vale‘s intention to stall the progress of the Joint Venture by dealing with Aquila Resources only through formal processes. [87] BCC did not call any evidence to contradict the evidence relied upon by Aquila to the effect that Vale SA/BCC‘s conduct in relation to the Joint Venture from late 2009 onwards was to stall the progress of the Joint Venture with a view to purchasing Aquila‘s interest in it. Has Aquila established a “prima facie case” in relation to its claim of a breach of clause 2.11? [88] In hearing an application for an interlocutory injunction, a court addresses itself to two related inquiries: ―The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief.... The second inquiry is.... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.‖11 [89] The phrase ―prima facie case‖ does not mean that the plaintiff must show that it is more probable than not that at trial it will succeed. It is sufficient that the plaintiff show ―a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.‖12 As to the first inquiry: ―How strong the probability needs to be depends, no doubt, upon the nature of the rights [the applicant] asserts and the practical consequences likely to flow from the order he seeks.‖13 Good faith [90] For present purposes, it is unnecessary to essay the law about the content of a contractual obligation to act in good faith. I respectfully adopt the observations of Hodgson JA (with whom Allsop P and Macfarlan JA agreed) in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health 11 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622, [1968] HCA 1 at [4]-[5]; Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, [2006] HCA 46. 12 Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 82, [2006] HCA 46 at [65]. 13 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622, [1968] HCA 1 at [4]; followed in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 82, [2006] HCA 46 at [65]. -- 31 of 56 -- 32 Service14 to the effect that a contractual obligation of good faith embraces no less than three related notions: (a) an obligation on the parties to co-operate in achieving the contractual objects; (b) compliance with honest standards of conduct; and (c) compliance with standards of conduct that are reasonable having regard to the interests of the parties. Hodgson JA also stated:15 ―However, a contractual obligation of good faith does not require a party to act in the interests of the other party or to subordinate its own legitimate interest to the interests of the other party; although it does require it to have due regard to the legitimate interests of both parties‖. [91] Allsop P observed that the usual content of the obligation of good faith, as extracted from Australian case law, was as follows: (a) obligations to act honestly and with a fidelity to the bargain; (b) obligations not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and (c) an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained.16 [92] His Honour added that the content of the clause in that case (one to act ―with utmost good faith‖), like the content of an express obligation to act in good faith in any case, is to be understood and ascertained by construing the language of the parties in the context in which the clause appears.17 The obligation must be assessed and interpreted in the light of the bargain and its contractual terms.18 Allsop P stated: ―The standard of fair dealing or reasonableness is to be applied recognising the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty. That a normative standard is introduced is clear. That is what the commercial parties chose by their words. The normative standard of good faith will not call for the same acts from all contracting parties in all cases. The legal norm should not be confused with the factual question of its fulfilment or breach. The contractual and factual context is vital to understand what, in any case, is required to be done or not done to satisfy the normative standard. Here, the standard exists as an express term in a particular 14 [2010] NSWCA 268 at [146]. 15 Ibid at [147]. 16 Ibid at [12]. 17 Ibid at [8]. 18 Ibid at [14]. -- 32 of 56 -- 33 contract, which, to be satisfied, called for certain conduct of one party in the circumstances that arose.‖19 [93] Other authorities support the general proposition that a contractual obligation to act in good faith ―ordinarily would not operate so as to restrict decisions and actions, reasonably taken, which are designed to promote the legitimate interests of a party and which are not otherwise in breach of an express contractual term‖.20 Clause 2.11 in its contractual context [94] Clause 2.11 does not simply require each party to act in ―good faith‖. It obliges each of them at all times to ―act in good faith and in the best interests of the Joint Venture‖. The obligation to act in good faith arises in the context of a joint venture where, if the tenements are able to be exploited and mining operations prove viable, the parties may be in a long-term relationship. As matters have transpired, a mine with a life of more than 40 years is in prospect. The Joint Venture terminates on the date that all the Participants agree in writing to terminate it, or upon one party holding 100 per cent of the Venture Interests. [95] One aspect of the duty to act in good faith, namely the requirement to co-operate in achieving the contractual objects, requires the parties to have due regard to ―the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms.‖21 Reference to the terms of the JVA is necessary to determine the interests of the parties and the aims and purposes of the contract, objectively ascertained. At a level of generality, the aim of the JVA is for the participants to co-operate to develop a viable project. However, neither party contracted to be in the commercial equivalent of a marriage, or not to exercise contractual rights that were to the financial disadvantage of the other. Acting in good faith and in the best interests of the Joint Venture might require a proposal for mining development to proceed that was not to the commercial advantage of one participant, for example, due to the individual circumstances of a participant which has a temporary lack of financial resources to fund its share of the proposal. [96] Clause 6 permits a financially-disadvantaged Dissenting Participant which is unable to effect a sale of its interest to a third party purchaser pursuant to clause 6.1(f) to have its interest in the venture acquired by the Assenting Participant at 50 per cent of its fair market value.22 This provision is part of the parties‘ agreement. It is one of the contractual benefits for which each party bargained. 19 Ibid at [17]. 20 South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 at 696, [2000] FCA 1541 at [394]; see also at 703-4, [426]-[427]; and see further Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] ATPR 41-703; [1999] FCA 903. 21 Overlook Management BV v Foxtel Management Pty Ltd (2002) Aust Contract Reports 90-143 at 91- 970, [2002] NSWSC 17 at [67] (emphasis added); cited with approval in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [147] and in ACN 096 278 483 Pty Ltd v Vercorp Pty Ltd [2011] QCA 189 at [73]. 22 The parties agree that clauses 6.1(d) and (e) should be construed so that the purchase price is 50 per cent of the fair market value of the Dissenting Participant‘s Venture Interest in the Development Area, not 50 per cent of the Development Area Interest of the parties. These clauses seem ambiguous, but I deal with this application on the basis of the interpretation adopted by the parties. -- 33 of 56 -- 34 [97] Aquila‘s submissions address the proper construction of clause 6 and explain, by reference to its terms and the definitions of ―Feasibility Study‖ and ―Project Finance‖ that: ―The Participants manifested an intention that neither Participant could seek to exercise an option to acquire the other‘s Development Area Interest at 50% of fair market value unless the proposal for Mine Development was sufficiently advanced to be able (hypothetically) to secure or obtain Project Finance.‖ Expressed differently, and in terms of a contractual benefit, it could be said that the Participants manifested an intention that a Participant could seek to exercise an option to acquire the other‘s Development Area Interest at 50 per cent of fair market value, provided the proposal for Mine Development was sufficiently advanced to be able (hypothetically) to secure or obtain Project Finance. [98] The terms of the JVA do not preclude a Participant from coveting the other‘s property, and a Participant is entitled to express an interest in purchasing the other party‘s interest. I do not treat as sinister Vale SA/BCC‘s expressed interest in purchasing Aquila‘s interest in the Joint Venture. One Participant may buy the other‘s interest, provided it acts in accordance with the provisions of the JVA, including clause 2.11. [99] The contractual obligation contained in clause 2.11 applies in this case in the context of a threat to exercise an option to purchase Aquila‘s interest at 50 per cent of its fair market value pursuant to clause 6.1(e) in the event that Aquila does not support the Schedule A Resolution at the pending meeting. That threat may force Aquila to support the Schedule A Resolution, despite its adverse financial and other consequences for Aquila. [100] Clause 6.1(e) is premised upon, among other things, the relevant proposal including a ―Feasibility Study‖ as defined in the JVA. Aquila advances a persuasive case that a proposal to undertake Mine Development in accordance with Schedule A is not a ―Feasibility Study‖ in circumstances where the Joint Venture does not have contracted port and rail logistics. Its case is supported by Mr Correia‘s expert report and the investigations undertaken by EDCM on behalf of the Joint Venture. [101] One of the benefits given by the contract is that a Participant should not suffer the consequences of a purchase of its interest pursuant to clause 6.1(e) unless a proposal for Mine Development includes a Feasibility Study into the commercial feasibility and viability of exploiting the deposit, and the Feasibility Study is of a standard customarily required by major financial institutions in support of project finance for the operations contemplated in the study. That contractual benefit exists in the context of the express obligation in clause 2.11 which obliges a Participant to advance a proposal to undertake Mine Development in accordance with its obligation to act ―in good faith and in the best interests of the Joint Venture‖. Alleged breach of clause 2.11 [102] As noted, Aquila‘s essential case in relation to the putting of the Schedule A Resolution, and the uncertainty that is associated with it, is that there was, and is, no commercial justification or, alternatively, no reasonable commercial justification, for wishing to undertake a Mine Development in accordance with Schedule A at -- 34 of 56 -- 35 this time. The essential difference between Schedule A and Schedule B is that Schedule B envisages project sanction upon the ―financial close of the first available new port and rail logistics capacity‖ whereas Schedule A envisages project sanction before contracts for port and rail capacity for the project are secured (whether by contract or reassignment) and envisages that coal extracted during the development phase will obtain access to ad hoc and reassigned port and rail logistics capacity. It also assumes that the longwall coal will be aligned with the commissioning of the first available new port and rail logistics capacity. Aquila supports Schedule B on the basis that this proposal would eliminate the risk that the mine could be developed in circumstances where there is no port and rail capacity for the Extracted Coal. [103] In the context of clause 2.11, Aquila submits that it ―cannot be in the best interests of the Joint Venture, in circumstances where it is envisaged that there will be $1.3 billion in expenditure, before any coal becomes available, apart from developmental coal, to press ahead with that development where it could quite possibly involve a circumstance in which that substantial investment has been made, personnel employed, and the mine ready for production in circumstances where the Joint Venture does not have port and rail capacity and, as such, cannot transport the Product to overseas customers.‖ Its case is that, in seeking to have the Schedule A Resolution put, BCC has not acted in good faith or in the best interests of the Joint Venture. The focus of its case in relation to breach of clause 2.11 is the absence of a reasonable, commercial justification for wishing to undertake Mine Development in accordance with the Schedule A proposal, being a proposal that exposes the Joint Venture to the extreme risk that the mine could be developed in circumstances in which there is no, or no adequate, port and rail capacity for the coal it produces. [104] With specific reference to the obligation to act in ―good faith‖, Aquila submits that BCC is not acting in good faith because it is not being loyal to the promises made by it in the JVA. Aquila submits that BCC promised that it would have the benefit of the protections expressly built into clause 6 before ―the draconian outcome contemplated by clause 6 would arise.‖ [105] On the current state of the evidence, particularly the evidence of Mr Pilcher, Mr Morton and Mr Correia and the investigations undertaken by the Joint Venture Manager, there is a substantial case that BCC has not acted in good faith, or in the best interests of the Joint Venture, in proposing Schedule A. In particular, there is a strong case that it is not in the best interests of the Joint Venture to commit to a proposal that carries the risks identified by Mr Morton and which, in the absence of contracted port and rail capacity, does not constitute a Feasibility Study as defined in the JVA, namely one which addresses port and rail capacity in a way that would be required by a major financial institution in supporting Project Finance. [106] It might be said that Schedule A has a higher NPV than Schedule B, based upon the calculations undertaken in the Feasibility Study. However, those calculations may require adjustment in the light of Mr Morton‘s uncontested evidence concerning the risks associated with relying upon ad hoc port and rail capacity. The calculations of NPV contained in the Feasibility Study may be correct on the basis of the assumptions made in those calculations concerning the availability of port and rail capacity in respect of Schedule A. However, those assumptions are called into question by the evidence in these proceedings. If the calculation of NPV does not adequately take into account the risk identified by Mr Morton (being a risk which -- 35 of 56 -- 36 was succinctly described by Marsh as an extreme risk), then the NPV of the Schedule A proposal will be closer to the NPV of Schedule B, or even less than the NPV of Schedule B, depending upon the assumptions that are made in relation to access to port and rail logistics before long-term port and rail contracts are finalised. [107] There is a substantial body of evidence that: (a) Schedule A is not in the best interests of the Joint Venture at this time, in the absence of evidence of available port and rail logistics which may be suitably aligned to transport coal production once it starts; (b) the Feasibility Study, at least in respect of Schedule A, is not a ―Feasibility Study‖ for the purpose of clause 6 of the JVA; (c) the absence of a reasonable commercial justification for undertaking a Mining Development in accordance with Schedule A, once the significant risk identified by Marsh, by Mr Pilcher in his affidavit evidence, and by Mr Morton in his expert report, is taken into account; and (d) in those circumstances, the Schedule A proposal is not made by BCC in good faith and in the best interests of the Joint Venture. As against that evidence, there is a relative lack of evidence pointing to different conclusions. There is also a virtual absence of evidence, and no sworn evidence at all, that BCC believes that Schedule A is in the best interests of the Joint Venture. [108] The absence of expert witnesses to contradict the expert evidence of Mr Morton and Mr Correia may be explained, in part, by the difficulty of engaging and briefing experts in time to prepare a report in response for the purpose of this interlocutory hearing. BCC also explained the absence of expert evidence on its part on the basis that the Feasibility Study itself is in the nature of an expert report when regard is had to the consultants who contributed to its contents. Yet the Feasibility Study is thin on details about the source of ad hoc rail and port logistics to satisfy Schedule A. The section on Logistics Opportunities in relation to ad hoc capacity (13.2.2.1) adds few details to the summary which I have already quoted. It reports the widely held view that ―5 to 7% of contracted capacity becomes available on the short-term market‖, and states that a number of participants in two expansion proposals are understood to have capacity undertakings that are greater than their latest production plans, so that further ad hoc capacity may be available prior to the longwall operation. The Feasibility Study refers to indicative proposals from QR National for ad hoc railings. It also mentions an offer from a company ―to discuss short-term arrangements‖ if that company does not use its full capacity at a particular terminal. No evidence from EDCM or any other source was called to supplement the limited information in the Feasibility Study concerning the nature and extent of ad hoc capacity and whether it was likely to align with the dates of production anticipated by Schedule A. [109] To the extent that the Feasibility Study is treated as akin to an expert report, it identifies an ―extreme risk‖ associated with Schedule A that does not arise with respect to Schedule B, and offers no practical solution to avoid that extreme risk. BCC did not call witnesses from EDCM to explain how the identified extreme risk was taken into account by its Economic Evaluation consultant in calculating the -- 36 of 56 -- 37 discounted cashflow upon which the estimated NPVs were based. The only evidence given on the point was by one of Aquila‘s witnesses who is familiar with the Joint Venture and, as Aquila‘s General Manager (Coal), is responsible for managing it. Under cross-examination, Mr Pilcher explained his understanding that EDCM, in calculating a valuation for the project, applied the discount rates that were provided to them by each party to the joint venture. In his affidavit, Mr Pilcher explained that the discount rates of 10 per cent and 12 per cent were nominated by Aquila and BCC respectively. These percentage figures were applied to both the Schedule A and the Schedule B cashflows. Incidentally, there is no suggestion that either discount rate attempted to factor in the risk associated with port and rail logistics not being available, as contemplated by Schedule A. In addition, Professor Gray‘s evidence is that to use such a percentage figure would not have been a conventional approach to factoring in this kind of risk. Mr Pilcher also explained in his oral evidence that EDCM made assumptions for port and rail. In Schedule B it assumed that Wiggins Stage 2B was available. Schedule A also assumed that Wiggins Stage 2B would be available, but assumed further that ―ad hoc rail was there‖. As Mr Pilcher explained: ―So it was a given. It wasn‘t taken as a risk. It was basically just put into the model and assumed that it was there. The only point where the risk is discussed is in the section in the DFS that talks about risk.‖ There is no evidence to contradict this. As Professor Gray explained, a cashflow that took account of the risk that ad hoc logistics would not become available would require an adjustment to the discounted cashflow that appears in the Feasibility Study. Depending on the extent of the adjustments on account of risk, the calculated NPV of the Schedule A proposal might be substantially reduced. [110] In the absence of independent expert witnesses called by BCC, and in the absence of evidence from EDCM to contradict the evidence of Mr Pilcher, Mr Morton and Mr Correia concerning the risks associated with Schedule A, one might have expected a witness from, or even a consultant to BCC to address the consideration given by BCC to the ―extreme risk‖ identified in the Feasibility Study before BCC proposed a $1.3 billion development without contracted rail and port logistics. No one was called to explain why Schedule A commended itself to BCC, and to explain the reasonable commercial justification for its adoption in the interests of the Joint Venture. There was no cross-examination of Aquila‘s witnesses, Mr Morton or Mr Correia, and no cross-examination of Mr Pilcher on his sworn evidence concerning the risks associated with proceeding with the project on the basis of access to port and rail infrastructure on either an ad hoc basis or by the reassignment of longer-term contracts. Mr Pilcher‘s affidavit evidence in that regard was that: ―to proceed with the project in the hope that this will occur would be speculative at best as there is no certainty (or even probability) that this will occur within the time frame envisaged for the transportation of Development Coal or indeed at the commencement of long wall mining under Schedule A. Nor is there any certainty as to the terms on which such access could be secured or how those terms would affect the rate of return of the project.‖ -- 37 of 56 -- 38 [111] Apart from not calling a witness from BCC (or a consultant to it) in relation to this important topic, and to explain the commercial justification for such an apparently risky proposal, BCC did not place a single piece of paper into evidence relating to its internal consideration of the commercial justification for Schedule A and the risks associated with it. It seems unlikely that BCC would not have produced some internal working documents in relation to these matters leading up to its decision to propose the Schedule A Resolution, and in continuing to press for adoption of that resolution. For example, when it was considering different matters in late 2009 and early 2010 in relation to port and rail access, it produced peer reviewed options reports and analyses of supply chain options. This is not to say that similar documents were not generated in recent months in connection with the risks and rewards associated with Schedule A and Schedule B, including access to port and rail logistics. The simple point is that whatever documents BCC has that bear upon its internal deliberations on those issues were not put into evidence. [112] In the absence of affidavit evidence concerning BCC‘s assessment of the commercial justification for Schedule A, including how account should be taken of the extreme risk identified by Marsh, Mr Thompson SC made some submissions to the effect that the Feasibility Study contained EDCM‘s assessment of the availability of secondary market opportunities, that Schedule A was put forward by EDCM as one way in which the project can be advanced, based upon the existence of that market, and that if EDCM thought that Schedule A faced insurmountable problems, then it would not have been proposed. He also developed points relating to risks associated with Schedule B. [113] Those points were very well-made. However, they do not address the key question of risk assessment in respect of the Schedule A proposal if ad hoc port and rail logistics are not available within the time envisaged for development coal production or, indeed, after the commencement of longwall coal production if the long-term contracts envisaged by both Schedule A and Schedule B do not eventuate. [114] In summary, as against Aquila‘s substantial evidence that Schedule A is not in the best interests of the Joint Venture at this time, that the Feasibility Study is not a ―Feasibility Study‖ within the meaning of the JVA and that there is no reasonable commercial justification for Schedule A in the absence of contracted rail and port logistics, there is no evidence of substance pointing in a different direction. There was not even sworn evidence from BCC that it believed Schedule A to be in the best interests of the Joint Venture and that the Feasibility Study is a ―Feasibility Study‖ within the meaning of the JVA. [115] I was taken by Counsel for BCC to the transcript of an exchange that occurred on 22 July 2011 at a Management Committee meeting at which Mr Pilcher asked BCC‘s representative, Mr Coombes, whether BCC considered that the Feasibility Study was a ―Feasibility Study‖ as defined in the JVA, to which Mr Coombes responded that BCC did. Mr Pilcher also asked other questions relevant to that topic, and made reference to, among other things, logistics. Mr Coombes indicated that if Mr Pilcher wished to discuss the economics of the project, based on logistics, coal quality, taxes and other developments that were occurring and/or that may occur ―going forward‖, then Mr Coombes was happy to do so, but that was not the purpose of the meeting. Counsel for BCC pointed to this transcript as some evidence of BCC‘s belief that the Feasibility Study is a ―Feasibility Study‖ within -- 38 of 56 -- 39 the meaning of the JVA. BCC also stated the same opinion in correspondence. But the assertions by Mr Coombes at the 22 July 2011 meeting, and by BCC in correspondence, are not matched by sworn evidence of BCC‘s belief in that regard, and, more importantly, the basis for that belief is not explained. I accept that there is some unsworn evidence of BCC‘s belief that the Feasibility Study is a ―Feasibility Study‖ within the meaning of the JVA. However, the fact that such a belief is held does not necessarily prove that it is genuinely and honestly held, let alone reasonably held. BCC‘s evidence does not explain who on its behalf held, or still holds, the belief that Schedule A is a proposal that includes a ―Feasibility Study‖ within the meaning of the JVA, and how such a belief is held in the face of the Manager‘s report on its investigations in respect of the views of large financial institutions. BCC‘s evidence does not address how such a belief has been maintained in the face of the expert evidence of Mr Morton and Mr Correia in recent times, the correctness of which was not called into question through cross-examination in these proceedings and which, on its face, calls into serious question whether the Schedule A Resolution can be relied upon at a further meeting of the Management Committee for the purposes of clause 6 of the JVA. [116] The absence of any substantial evidence from BCC about the commercial justification for Schedule A, in the light of identified risks associated with the absence of contracted port and rail logistics, seriously calls into question BCC‘s good faith in proposing, and pressing, the Schedule A Resolution. In other words, the lack of evidence of a reasonable commercial justification for Schedule A in the circumstances suggests that BCC could not honestly or reasonably believe that Schedule A presently is in the best interests of the Joint Venture. [117] The evidence called by Aquila, and the absence of any substantial evidence called by BCC, supports the conclusion that Schedule A is being advanced for the purpose of creating a contractual basis to acquire Aquila‘s interest in the Joint Venture pursuant to clause 6, and not for the purpose of the Joint Venture and the advancement of its interests. [118] BCC pleads that it believes it can obtain port and rail capacity, but has given no particulars of this allegation, and no sworn evidence concerning the source of its belief. The Feasibility Study provides only a general indication of the possibility of ad hoc logistics as a means to achieve the Schedule A proposal. It provides no detailed information as a basis for supposing that the volume and timing of any ad hoc capacity will align with Schedule A‘s requirements. If BCC, or a company related to it, has such capacity, then BCC has not disclosed this to the other party to the Joint Venture, or placed any evidence about this before the Court (if necessary, on a confidential basis to be published only to the parties, their legal advisers and the Court). BCC has called no evidence about the existence of ad hoc capacity that is suitable to the project‘s timing. Mr Morton‘s evidence is that ad hoc port and rail capacity (also described as the ―secondary market option‖) must be aligned so that it matches the Schedule A project development timeframe. His report canvasses known capacity (some of which, to Mr Morton‘s knowledge, has been traded to another capacity seeker). He ultimately reaches the conclusion that there is no currently available logistics option suitable in circumstances where the Schedule A project development timeframe is adopted. It was not put to Mr Morton that such capacity exists, and there is no reason for me not to act upon his expert report for the purposes of this interlocutory hearing. -- 39 of 56 -- 40 [119] The risk identified in Aquila‘s evidence, including the risk management chapter and relevant annexure of the Feasibility Study, is not limited simply to the risk that ad hoc capacity will not be available to transport development coal. Schedule A carries the risk that, contrary to the expected availability of long-term coal contracts from WICET Stage 2B or in the form of some other long-term contract, longwall coal production will not have access to port and rail logistics if the project proceeds in accordance with Schedule A. The financial consequence to the Joint Venture of such a risk, whether rated ―extreme‖ (Marsh‘s rating based upon consultations with persons involved in the project) or by some other description is significant. Its financial consequence would appear to be greater than the risk identified by Mr Thompson SC in his submissions concerning the risk of excess port and rail capacity in connection with the early stages of production in accordance with Schedule B. [120] Aquila‘s submissions pose the rhetorical question of why Vale SA and BCC ―would be so anxious to press on with Schedule A in circumstances where the Participants had not yet secured port and rail capacity.‖ That question is not satisfactorily answered in BCC‘s evidence. [121] Aquila‘s material raises a substantial case that there was, and is, no commercial justification or, alternatively, no reasonable commercial justification, for wishing to undertake a Mine Development in accordance with the Schedule A Resolution at this time. No commercial justification was forthcoming in BCC‘s evidence. The difficulty which it may have encountered in recent weeks in engaging expert witnesses to respond to Aquila‘s expert witnesses does not explain the absence of sworn evidence from BCC‘s witnesses concerning the commercial justification for undertaking a Mine Development in accordance with the Schedule A Resolution in the face of the logistical risks identified in Chapter 13 of the Feasibility Study. [122] In the absence of any substantial evidence from BCC to the effect that Schedule A is in the best interests of the Joint Venture, or that BCC honestly or reasonably believed that this was the case, and still believes that this is the case notwithstanding the evidence assembled by Aquila, Aquila has established a strong case that Schedule A is not in the best interests of the Joint Venture at this stage. [123] The evidence called by Aquila concerning the absence of a reasonable commercial justification for undertaking a Mine Development in accordance with the Schedule A Resolution, and the absence of substantial evidence from BCC in relation to such a commercial justification, leads me to conclude that Aquila has established a strong case that the Schedule A Resolution has been presented, and pressed, by BCC in breach of clause 2.11. The dual aspects of clause 2.11 are engaged. The first is that proposing the resolution is not in the best interests of the Joint Venture. That aspect, combined with the absence of evidence that BCC honestly believes the resolution to be in the best interests of the Joint Venture (as distinct from the interest of BCC and its corporate parent), leads to the second aspect: good faith or, more precisely, its absence. [124] Aquila has established a prima facie case of breach of clause 2.11 by BCC in proposing the Schedule A Resolution on 17 June 2011, and a prima facie case of a threatened breach of clause 2.11 by BCC in proposing to put that resolution again on 17 September, for the purpose of having the Schedule A Resolution trigger the option to purchase pursuant to clause 6. -- 40 of 56 -- 41 [125] My conclusion that Aquila has established a prima facie case of breach of clause 2.11, and a threatened breach of clause 2.11, in respect of the Schedule A Resolution makes it unnecessary to canvass other matters relied upon by Aquila in further support of its case in relation to clause 2.11. I shall briefly state my conclusions in relation to these topics. First, Aquila sought to rely upon certain documents that had been disclosed in the Logistics Proceedings in respect of which it obtained an order (without opposition by BCC) allowing use of such documents for the purpose of this application. I did not find those documents particularly probative. They reveal the course of decision-making by BCC in late 2009 and early 2010 in relation to Abbot Point. Apart from confirming that one of Vale SA/BCC‘s aims is to ―[c]ease the current JV arrangement with Aquila Resources‖, the documents are not particularly illuminating concerning BCC‘s intent and good faith in relation to the Schedule A Resolution and the later-developed Feasibility Study which has different logistical proposals. [126] Next, Aquila relied upon evidence about BCC‘s approach to budget approval. Aquila submits that BCC‘s conduct in delaying approval of the financial year 2012 budget stands in stark contrast to its stated desire to proceed with Mine Development as soon as possible, and that its course of conduct in relation to budget approval calls into question its bona fides in calling the meeting for 17 September 2011. The evidence concerning the course of budget approval is not contested. However, BCC‘s conduct in relation to it may be capable of explanation and the evidence, as it currently stands, does not constitute strong circumstantial evidence of a Clause 6 Buy-Out Purpose or a breach of clause 2.11. [127] Next, Aquila relies upon the fact that, initially, BCC said that it needed more time to consider the Feasibility Study given the level of significant capital expenditure, and proposed that the 17 June meeting be adjourned until both parties had time to complete a full and proper due diligence on it. However, two days later, on 10 June 2011, BCC proposed to undertake Mine Development in accordance with Schedule A. Aquila submits that this shows that BCC was not itself satisfied that proceeding with Schedule A was appropriate. Aquila therefore asks: ―How then can it be acting in good faith to propose that the Joint Venture proceed with Schedule A?‖ I find this argument unpersuasive. Aquila pressed BCC to reach a decision about the proposals contained in the Feasibility Study in time for a meeting to be held on 17 June 2011. BCC may have acted in haste in deciding to support Schedule A rather than Schedule B. But that hasty decision was prompted by Aquila. BCC might argue that its preparedness to make a decision leading up to the meeting on 17 June 2011 is a sign of its good faith and a willingness to act in the best interests of the Joint Venture by accommodating the urgent demands of Aquila to make a decision after considering the Feasibility Study. [128] Finally, the fact that Vale SA/BCC apparently established a ―war council‖ to manage its relationship with Aquila adds some colour to the evidence. The evidence of Mr Pilcher‘s conversation with Mr Webb suggests that Vale SA/BCC was interested in stalling the progress of the Joint Venture. It provides some circumstantial evidence of an absence of good faith on the part of BCC. However, BCC‘s decision to deal with the relationship through formal processes, and to have written correspondence supervised by lawyers, is not particularly damning. The parties to the Joint Venture may have perceived that they were at war with each other, and there is no dispute that Vale SA/BCC would like to gain 100 per cent control of the project. The existence of such an intent, and friction (to say the least) -- 41 of 56 -- 42 in the relationship between the parties to the Joint Venture, does not prove that BCC‘s conduct in relation to the Schedule A Resolution is made with an absence of good faith. [129] There is nothing wrong in BCC wishing to acquire Aquila‘s interest in the project. Clause 6 envisages such an outcome, as a matter of contractual right, in certain circumstances. What, however, would be wrong, and a breach of clause 2.11, would be not to act in good faith and in the interests of the Joint Venture in advancing a proposal for Mine Development with a view to acquiring the other party‘s interest pursuant to clause 6. On the evidence before me, Aquila has established a strong case of a breach of clause 2.11 in this regard. [130] I am satisfied that Aquila has established a prima facie case in relation to its claim of a breach of clause 2.11. Balance of convenience [131] As to the ―balance of convenience‖: (a) an interlocutory injunction is awarded in a case such as this to avoid the plaintiff suffering irreparable harm prior to trial if the defendant carries out the threatened act, and at the trial of the action the plaintiff is entitled to relief on its underlying cause of action; (b) the purpose of an interlocutory injunction is not to shelter a party from harm, or even irreparable harm, that is unrelated to enforcement of its legal or equitable rights; (c) the plaintiff must demonstrate a prima facie case for the existence of an underlying cause of action (there is no ―free standing‖ right to interlocutory relief);23 (d) there is no power to grant an interlocutory injunction other than in protection of some legal or equitable right the Court might enforce by final judgment;24 (e) the focus of attention for the purpose of both the related inquiries discussed in Beecham and later cases is upon the nature of the legal or equitable rights the plaintiff asserts, and whether the plaintiff has shown sufficient likelihood of success to justify in the circumstances the grant of an injunction pending the trial. [132] Against this background, it is not sufficient for Aquila on its application simply to show that it will suffer irreparable economic loss, reputational damage or some other form of irreparable harm if required to vote for or against the Schedule A Resolution on 17 September. The consequences of voting for or against such a resolution are part and parcel of the rights it negotiated under the JVA. Aquila, like BCC, must face the practical consequences of the agreement it made, including: 23 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at 218, [2001] HCA 63 at [16] per Gleeson CJ. 24 Ibid at 217, [11] per Gleeson CJ and at 248, [105] per Gummow and Hayne JJ. -- 42 of 56 -- 43 (a) the financial consequences of supporting a resolution to proceed with a particular mining development; and (b) the exercise by it or BCC of the option to purchase the other party‘s interest pursuant to clause 6 of the JVA. It is not the function of the Court to shelter a party such as Aquila from difficult, and potentially financially disadvantageous, decisions to either support or oppose a proposal to undertake mining development. Instead, the Court is concerned to protect legal and equitable rights that may be established at trial by Aquila, and also to protect BCC and third parties from unnecessary, irreparable harm in the event that an injunction is granted and Aquila does not succeed in establishing its legal or equitable rights at trial. The Court seeks to balance the risk of irreparable harm being suffered by Aquila if its rights are not protected pending trial against the risk that BCC will suffer irreparable harm if restrained pending trial in circumstances in which Aquila fails to establish its cause of action at trial. [133] In the present context, the balance of convenience relates to a threatened breach of Aquila‘s rights pursuant to clause 2.11 of the JVA. Aquila seeks an interlocutory injunction to protect it from what it says is the irreparable harm it may suffer if BCC proceeds with the Schedule A Resolution in breach of clause 2.11. Proof that irreparable harm will be suffered is not a precondition to the grant of an interlocutory injunction.25 Still, the suffering of harm that cannot be adequately compensated by an award of damages is said by Aquila to be the practical consequence of not granting it an interlocutory injunction. [134] The balance of convenience requires examination of the consequences to BCC of granting an injunction in the event that Aquila fails to establish an infringement of its rights and an entitlement to relief at trial. As Heydon J stated in Australian Broadcasting Corporation v O’Neill,26 after citing the passage that I have earlier quoted from the judgment of Hoffmann J (as Lord Hoffmann then was): ―Avoiding the risk of a ‗wrong‘ decision requires some attention to the strength of the defendant‘s defences, but it does not suggest that the plaintiff must completely exclude them.‖ [135] Reference in the authorities to terms such as ―the risk of injustice‖ and ―the irreparable harm‖ that a party will suffer if the plaintiff either succeeds or fails at trial requires attention to be given to the adequacy of damages as a remedy. This arises in two contexts: the adequacy of damages as a remedy to the plaintiff in the event that an interlocutory injunction is refused, and the adequacy of compensation to the defendant and affected third parties pursuant to the usual undertaking as to damages if an interlocutory injunction is granted. Judicial views differ about whether the adequacy of damages is a separate issue, or falls for consideration in assessing the ―balance of convenience‖. Active Leisure (Sports) Pty Ltd v Sportsman’s Australia Ltd supports the latter approach. Cooper J (with whom the other members of the Court agreed) stated: 25 Heavener v Loomes (1924) 34 CLR 306 at 325, [1924] HCA 10 per Isaacs an Rich JJ; Active Leisure (Sports) Pty Ltd v Sportsman’s Australia Ltd [1991] 1 Qd R 301; cf Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153, [1986] HCA 58 at [11] per Mason ACJ. 26 (2006) 227 CLR 57 at 146, [2006] HCA 46 at [248]. -- 43 of 56 -- 44 ―The adequacy of an award of damages, or the availability or sufficiency of an undertaking on the part of a plaintiff, are two important matters to be considered in the balancing process whereby the Court is required to determine where the greater convenience lies. In some cases, depending upon the particular facts of that case, they may ultimately as a matter of importance and weight be determinative of the matter. However, they are to be considered as part of the totality of determining the balance of convenience and not as a step anterior thereto.‖27 [136] The term ―balance of convenience‖ is a term which covers a number of considerations including the type of damage a party will suffer if the injunction is not granted. Part of the inquiry into the ―balance of convenience‖ is captured in the phrase ―the balance of the risk of doing an injustice‖.28 The risk of injustice in this context is the risk of injustice if the Court should turn out to have been ―wrong‖ in the sense described by Hoffmann J. The ―wrong‖ decision in this sense is the granting of an injunction to a party which fails to establish its right at the trial (or would fail if there was a trial) or, alternatively, the failure to grant an injunction to a party which succeeds (or would succeed) at trial. [137] The strength of each party‘s case and their chances of success may be relevant matters when assessing the balance of convenience.29 This does not mean that the Court attempts at the interlocutory stage to resolve questions of fact, such as conflicts of evidence on affidavit, and other matters that are best determined at trial. In Beecham Group Ltd v Bristol Laboratories Pty Ltd it was said that, where the defendant goes into evidence on the interlocutory application, ―the Court does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case.‖30 Instead, the probability that the plaintiff will be held entitled to relief in the protection of some legal or equitable right is taken into account in determining whether the plaintiff has shown a sufficient likelihood of success to justify in the circumstances the granting of interlocutory relief. [138] Applying these principles, I assess whether Aquila has shown a sufficient likelihood of success in establishing conduct by BCC in respect of the Schedule A Resolution in breach of clause 2.11 so as to justify in the circumstances the granting of interlocutory injunctive relief. The present issue is not Aquila‘s prospects of establishing that, on a proper interpretation of the JVA, the Schedule A Resolution proposal does not constitute a proposal to undertake Mine Development for the purposes of clause 6 of that agreement. It is Aquila‘s prospects of obtaining final relief in respect of an alleged breach of clause 2.11 that must be assessed in determining whether to grant or decline injunctive relief. Still, Aquila‘s contentions about: the uncertainty as to whether and if so when, port and rail logistics for the project will become available if the Schedule A Resolution was to be approved; and 27 [1991] 1 Qd R 301 at 311. 28 Cayne v Global Natural Resources Plc [1984] 1 All ER 225 at 237. 29 Magna Alloys & Research Pty Ltd v Coffey [1981] VR 23 at 27; Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49 at 54-55. 30 (1968) 118 CLR 618 at 622; [1968] HCA 1 at [4]. -- 44 of 56 -- 45 the ―extreme risk‖ to which the project will be exposed if it proceeds without greater certainty in respect of port and rail logistics, which underlie its contention that the Feasibility Study is not a ―Feasibility Study‖ within the meaning of the JVA, also form part of its case in relation to breach of clause 2.11 of clause 6 of the JVA. However, Aquila‘s case in relation to breach of clause 2.11 does not depend upon proving that the Schedule A proposal is not a proposal within the meaning of the JVA. Even if BCC succeeds at trial in establishing that the Schedule A proposal constitutes a proposal to undertake Mine Development for the purposes of clause 6 of that agreement, Aquila may still succeed in establishing that the Schedule A Resolution has been advanced by BCC in breach of clause 2.11 so as to achieve the alleged Clause 6 Buy-Out Purpose. Aquila’s evidence in relation to the balance of convenience [139] The consequences for Aquila of the Court not restraining the Schedule A Resolution from being put and voted upon on 17 September 2011 was the subject of evidence given on affidavit by the General Manager (Finance and Corporate) of Aquila Resources Ltd, Mr Alciaturi. In summary, Mr Alciaturi contends that, if an injunction is not granted, on 17 September 2011 a decision about the Schedule A Resolution will be required, without any certainty as to whether a failure to vote in favour of that resolution will entitle BCC to take advantage of clause 6 of the JVA. He also says that, if the injunction is not granted, there are serious potential adverse consequences for Aquila even if the vote was to be in favour of the Schedule A Resolution. [140] The consequences of voting in favour of the Schedule A Resolution, according to Mr Alciaturi, are that Aquila will have to find funding for its share of the initial capital development, which would be approximately $650 million, to be spent over approximately four years. For reasons which he explains by reference to the nature of debt funding and equity funding, he believes that the absence of contractual arrangements for rail and port infrastructure that would allow Aquila to transport coal to buyers will make it impossible to secure unconditional debt funding for the project. He identifies a number of adverse consequences that would arise if Aquila was obliged to raise equity ―up front to fund its share of initial Mine Development costs which are scheduled to be undertaken before rail and port logistics are able to be secured‖, including the prejudice that would be suffered, and which would be very difficult to calculate, if Aquila Resources‘ shareholders were to suffer a significant dilution in the value of their shares. He says that the loss to Aquila Resources and its shareholders and/or Aquila Coal would be extremely difficult to quantify, and if rail and port access is not obtained in the very near future could be very substantial. [141] Mr Alciaturi also addresses the consequences of Aquila not voting in favour of the Schedule A Resolution. Aquila might be forced to sell its interest in the Joint Venture to BCC for 50 per cent of fair market value in circumstances where BCC is not entitled to force it to do so. This would result in Aquila losing half the value of its asset, as well as future income from the asset. Mr Alciaturi has reference to clause 6.1(f) of the JVA which allows a Dissenting Participant 90 days following the date on which the independent expert determines the fair market value in accordance with clause 6.1(e) to obtain a binding letter of offer from a third party in -- 45 of 56 -- 46 relation to the purchase of the relevant interest at a value greater than the amount that would be payable to the Assenting Participant under clause 6.1(e). Such an offer is subject to the provisions of clause 19 of the JVA which, in essence, gives an existing participant such as BCC certain pre-emptive rights. Based on Mr Alciaturi‘s extensive experience, he considers the fact that BCC retains a right of pre-emption pursuant to clause 19 of the JVA would ―significantly limit the prospects of Aquila Coal finding a third party to make a binding letter of offer‖. He has worked on transactions where prospective purchasers who were otherwise interested in purchasing an asset refused to make any offer due to the fact that another party had such a pre-emptive right. He says that, in such circumstances, prospective purchasers often will consider it a waste of their time and resources to participate in the process. He also refers to the limited time in which a prospective third party purchaser would be able to undertake due diligence and the significant time and resources required in undertaking due diligence and participating in a sale process. [142] Mr Alciaturi identifies the prejudice that will arise from a disposal pursuant to clause 6. Aquila would be deprived of the significant future cash flow that would be generated over the anticipated 40 or more year life of the mine, and he says that 50 per cent of the interest‘s current fair market value or any payment a third party is likely to make pursuant to clauses 6 and 19 is not a fair substitute for that interest. [143] Next, Mr Alciaturi points to reputational damage that Aquila is likely to suffer if an injunction is not granted, regardless of which way Aquila chooses to vote. He says that there is likely to be an adverse impact upon its share price. In this regard he points to the impact of previous public disclosures, including Aquila‘s expressed preference for Schedule B, and that if Aquila is required to vote, and votes in favour of the Schedule A Resolution it will be apparent that it is being forced into taking the decision to develop the mine at this time against its will. He notes that Aquila‘s shares suffered a demonstrable fall following disclosure of a dispute between Vale and Aquila in respect of another joint venture at the Isaac Plains Coal Mine. A decrease in share price would exacerbate difficulties in raising equity funding. [144] Finally, Mr Alciaturi contrasts the respective assets of each party‘s parent company. Vale is reported to have full year revenue ending 31 December 2010 of US$45.3 billion which is more than 300 times Aquila Resources‘ full year revenue for the financial year ending 30 June 2010. Vale reported having total assets for the financial year ending 31 December 2010 of US$129.1 billion, which is more than 200 times Aquila Resources‘ total assets as at 31 December 2010 of AU$460.7 million. Vale‘s market capitalisation as at 22 August 2010 is US$133.7 billion, while Aquila Resources‘ market capitalisation as at 22 August 2010 is AU$2.1 billion. The Eagle Downs Project is said to be a key asset for Aquila Resources, with analysts considering it to be the second most valuable asset in the company‘s portfolio. BCC’s evidence in relation to the balance of convenience [145] Professor Gray, who is a Professor of Finance at the University of Queensland Business School, was asked by BCC‘s solicitors to consider certain material and: (a) provide an estimate of the cost of delaying the project until April 2012, being the Schedule B project sanction date; -- 46 of 56 -- 47 (b) provide an estimate of the cost of delaying the project beyond April 2012 on the assumption that the parties may not commence any Schedule A development until a judgment is given in these Court proceedings; and (c) determine the capacity of the Plaintiff to pay damages pursuant to an undertaking as to damages for 50 per cent of the estimate of loss due to delay (50 per cent being the ownership interest of BCC in the Joint Venture). Understandably, his work was based on the Feasibility Study, which contains a standard discounted cash flow (DCF) analysis. In a DCF analysis, the forecasted future cashflows for the project are set out and are then ―discounted‖ back to their equivalent value, using a discount rate that reflects the time value of money and the risk (or uncertainty of the cashflows). The discount rate is an estimate of the return that investors would require in order to commit capital to the project, and depends on their assessment of the risk of the project. The Feasibility Study sets out NPV calculations using discount rates of 10 per cent and 12 per cent per annum. Both discount rates are expressed in real terms (that is, after taking account of the effect of inflation). [146] The purpose of Professor Gray‘s report is to provide estimates of the cost of delaying the project. Under the DCF framework, there will be a cost to delaying the project—a delay will push the project‘s cashflows further into the future, in which case their present value will reduce. Another potential cost in delaying the project is that the hard coking coal (HCC) price may fall over time from its current high value. In this regard Professor Gray relies upon a schedule of recent historical HCC prices for the Peak Downs region, which is adjacent to the Eagle Downs region. This data indicates that the current price of HCC is higher than the long-run price used in the Feasibility Study. If the current high value was to fall, then a delay to the project would result in less coal being sold at the high prices over the short-run. However, as Professor Gray acknowledges, the extent of any such loss depends on the time that it is expected to take for the currently high HCC prices to revert to the long-run forecast prices. He acknowledges that this and a number of variables will affect the estimate of the loss that may be caused by delaying the project. Other variables that will affect the estimate of loss are: (a) Whether a 10 per cent or 12 per cent discounted rate is used; (b) The length of the delay—a longer delay will result in a larger loss; (c) Assumptions about how the joint venture manager would manage the project in the event of a delay, including: (i) Whether the joint venture manager would seek, or be permitted, to incur any expenses or make any outlays during the period of delay; (ii) Whether the length, or the likely length, of the delay was known from the outset or determined with the passage of time and how this would affect the manager‘s decision about whether to follow a delayed Schedule A or to switch to Schedule B or to follow a different plan altogether; and -- 47 of 56 -- 48 (iii) What, if anything, the manager might be able to do to advance the project during the period of delay. [147] Professor Gray‘s report provides a range of estimates for different discount rates and delay periods. He also has given estimates for different assumptions about the management of the project in the event of a delay and for different assumptions about the speed of reversion in HCC prices. [148] The first scenario that he addresses assumes that the preferred approach is to follow Schedule A, it having the higher net present value, but with it ―known from the outset that the project will be delayed until approximately April 2012 (the project sanction date for Schedule B), in which case Schedule A is immediately abandoned and Schedule B is to be followed instead.‖ Estimates of loss based on this scenario were calculated. [149] Professor Gray then addresses other scenarios including the scenario that the project is ―mothballed‖ until the delay is resolved. Various calculations are given in relation to the cost of delays ranging from six months to 36 months. However, Professor Gray does not suggest that a particular period of delay is in fact likely. Other scenarios are considered, including the realistic assumption that certain budgeted cash outflows associated with the approved budget for 2011-2012 will be incurred irrespective of whether or not there is any delay in sanctioning the project. [150] In his oral evidence, Professor Gray assisted the Court in relation to the discounted cashflow valuation approach that was adopted in the Feasibility Study, and the approach of the capital asset pricing model in relation to systemic risk and diversifiable risks. He observed that the discounted cashflow analysis did not contain any particular note about having treated cashflows any differently from a normal study and that, within a DCF framework, the expected volume of rail and port logistics that could be contracted on the spot market would be included. He expected that if the Manager had intended not to take into account the risk relating to port and coal logistics, and had excluded it from identifying or estimating the cashflow, then this would have been noted. If, however, the discounted cashflow analysis did not take account of risk in relation to port and rail logistics, then the cashflows would need to be recalculated. [151] Under cross-examination, Professor Gray was asked to assume in relation to Schedule A that port and rail logistics were not available ―on the spot market‖. He accepted that the worst case scenario was that the Manager would have no choice other than to ―mothball the project‖. Other, less extreme scenarios are obviously open. The point made by Professor Gray in his evidence is that the discounted cashflow analysis contained in the Feasibility Study presently assumes a revenue stream for both the development coal and the longwall coal. A worst case scenario, and one contemplated in Mr Morton‘s report, is that the project would be unable to obtain port and rail logistics on the secondary market, that it would be at the mercy of its competitors, and that where presently there is a revenue stream in the cashflow analysis there would be none. More favourable scenarios than that contained in the cashflow analysis are also possible. In any event, if the risk of port and rail logistics not being available at all, or not available in the capacity required by the project, was taken into account, then it would need to be factored into the discounted cashflow analysis in terms of the price that would need to be paid for the logistics -- 48 of 56 -- 49 and the reduced (or non-existent) flow of revenue. As Professor Gray explained, if the assumptions contained in the Feasibility Study were found, for some reason, to be unreasonable, then the cashflow would need to be revised. The conventional way to revise it would be in relation to relevant cost inputs and expected revenue flows, not by way of an adjustment to the percentage figure that was applied to reflect systemic risk. [152] Professor Gray was asked whether he would be in a position to assess the loss suffered by the Project (50 per cent of which would feature in BCC‘s claim on Aquila‘s undertaking as to damages) in the event that an interlocutory injunction delayed the adoption of the Schedule A resolution for a period and this caused a loss. Professor Gray accepted that he, or another suitably-qualified expert, could readily calculate the actual loss, based upon the events that had transpired prior to undertaking the assessment of the loss. The calculation of loss would be on a ―look back basis, taking account of what‘s actually occurred over the intervening time‖. This was a different exercise from the comparison undertaken in his report, which relates to differences in estimated net present value, based upon a range of assumptions concerning what will occur in the future. [153] Both parties called evidence in relation to their net assets and the net assets of their parent companies. It is unnecessary to canvass this evidence. An undertaking as to damages was proffered by both Aquila and its parent company, Aquila Resources Ltd. There is no issue concerning the worth of that undertaking in respect of the compensation that might be awarded, pursuant to it, to BCC and third parties in the event of an interlocutory injunction being awarded to Aquila. [154] BCC‘s submissions in relation to the balance of convenience are that it will suffer ―significant loss‖ by the proposed restraint because it wishes immediately to proceed to develop the project in accordance with Schedule A of the Feasibility Study, and significant losses will be suffered by it if an interlocutory injunction is granted restraining the Management Committee from voting for Schedule A. It relies upon the report of Professor Gray. I accept the analysis undertaken by Professor Gray, on the basis of the assumptions made by him. Those assumptions include assumptions about the extent to which the Feasibility Study‘s discounted cashflow analysis, and the net present values arrived at in it, accurately reflect the level of risk inherent in the Schedule A proposal on account of the absence of contracted port and rail logistics, and the risk that ad hoc capacity will not be available, at least to the extent assumed in the study. [155] The losses that may be suffered by BCC if an interlocutory injunction is granted to restrain the Management Committee from voting on Schedule A cannot be calculated with any precision. However, they will be capable of reasonable assessment if an interlocutory injunction is awarded and BCC succeeds at trial. [156] Further as to the balance of convenience, BCC submits that development of the mine ―will be prevented until after the trial.‖ I do not accept this submission. Any interlocutory injunction restrains a vote upon the Schedule A Resolution. Absent a restraint, the Schedule A Resolution might be passed. A restraint on such a vote, and on the progress of development in accordance with Schedule A, does not, however, prevent any development of the project. If an interlocutory injunction is granted, then it is a matter for the parties whether, in the interim, they proceed in accordance with Schedule B or some other schedule which progresses the -- 49 of 56 -- 50 development in accordance with the existing budget, or in accordance with a larger budget that includes the kind of initial works appearing in both schedules, including procurement or overhauling of roadheaders and drift development. The adoption of Schedule B or a modified version of it is a matter for the parties in the event of such a resolution being put to a meeting of the Management Committee. [157] EDCM has submitted an expression of interest to secure port access at the proposed Wiggins Island port near Gladstone for Stage 2A. The due diligence process to select preferred proponents for capacity allocations in that stage is expected to be concluded in September 2011. There is no evidence as to when EDCM is likely to be notified whether it will be allocated any capacity in WICET Stage 2B Expansion. This evidence serves to illustrate that long-term logistics contracts may become available sooner or later than anticipated in Schedule B, or at about the time anticipated by that schedule. In any event, given the ability of the parties to commit to an appropriate schedule in lieu of Schedule A, I am not persuaded that an injunction restraining voting for Schedule A will prevent development of the mine until after the trial. One factor in that regard is the likely date of any trial. If a trial occurs in late 2011 or early 2012, then the extent of development prior to trial will depend upon decisions to be made by the parties in relation to the development of the project. Both parties say they are keen to develop the project, and Aquila has pleaded and sworn that it supports the Schedule B program. Aquila‘s potential liability on the undertaking as to damages may be reduced if it and BCC agree to progress in the coming months some of the works that are programmed for the start of the project. The Cayne v Global Natural Resources Plc point [158] I am not persuaded that the practical consequence of awarding an interlocutory injunction in the form sought is to give to Aquila the final relief that it seeks. I am not persuaded that the interlocutory injunction will have the effect of disposing of the action finally. An interlocutory injunction is awarded on the assumption that the matter will proceed to trial. I consider that such an assumption is reasonable in the present case. If BCC is interested in advancing the Schedule A Resolution so as to implement it, then it may be possible for the proceeding to be tried and determined during a period in which key dates in respect of Schedule A can still be met in terms of production of development coal and longwall coal. In any event, if BCC succeeds at trial then it will have an interest in pursuing what it claims will be substantial losses arising from the interlocutory injunction. [159] Aquila wishes to obtain a judicial determination of whether the Feasibility Study is a ―Feasibility Study‖ within the meaning of the JVA, since such a determination in the form of the declaratory relief sought by it will put an end to BCC‘s threat to exercise an option under clause 6. [160] I take account of the possibility that the practical consequence of awarding an interlocutory injunction will be to prevent Schedule A from being implemented. However, I am not satisfied that this is likely to be the practical consequence of awarding an interlocutory injunction. Both parties have issues to determine at trial. The determination at trial of issues in relation to the Feasibility Study, Schedule A and BCC‘s alleged breach of clause 2.11 will have practical consequences. This makes it likely that the matter will proceed to trial if the parties do not resolve their disputes by some other means. -- 50 of 56 -- 51 [161] I am not persuaded that granting an interlocutory injunction, subject to the usual undertakings as to damages and the additional undertakings offered by Aquila Resources and the plaintiff, and to other directions concerning the early trial of relevant issues, will effectively grant final relief in respect of Aquila‘s claim for declaratory relief and relief in respect of breach of contract. The possibility that interlocutory relief will mean that there will be no trial is not sufficiently strong to persuade me to refuse an interlocutory injunction if other factors support such an order. I reach this view in circumstances in which, on the current evidence, Aquila has a strong case, not only on the issue of contractual interpretation in respect of the Feasibility Study about which it seeks declaratory relief, but also in relation to an alleged breach of clause 2.11. If BCC thinks that it has a strong case in defence of Aquila‘s claims, then presumably it will go to trial, attempt to win the trial and subsequently seek compensation on the undertaking as to damages. Does the interlocutory injunction seek to insulate Aquila from contractual consequences and relieve it from a commercial risk? [162] BCC submits that the consequences, both financial and reputational, deposed to by Mr Alciaturi, flow from the provisions of the JVA, and that Aquila should not be relieved of having to vote on the Schedule A Resolution and to face the consequences of either voting for or against the resolution. [163] The function of an interlocutory injunction is not to shield a party such as Aquila from the consequences of its contractual bargain, if those consequences are unrelated to rights which it seeks to protect by legal proceedings. However, the fact that Aquila might have been required to vote on a Schedule A Resolution in different circumstances, and to face the contractual, financial and reputational consequences of voting in a particular way, does not alter the fact that it is being asked to vote upon Schedule A in the present circumstances. Those circumstances include an alleged breach of clause 2.11 in respect of which Aquila has established a prima facie case. [164] If Aquila succeeds in relation to its clause 2.11 claim, then it will establish that BCC was not contractually entitled to advance the Schedule A Resolution. If BCC has advanced, and proposes to continue to advance the Schedule A Resolution, in breach of clause 2.11, then Aquila should either be compensated for the consequences of that breach of contract by an award of damages at trial (if the losses it suffers as a consequence of that breach are capable of being adequately compensated by an award of damages) or protected from those consequences prior to trial. The present application is not one about relieving Aquila of a difficult commercial choice as to whether to support or oppose the Schedule A Resolution. It is a case of breach of contract, and one in which Aquila has established a prima facie case. If the Schedule A Resolution is not restrained, then Aquila faces the consequences addressed in Mr Alciaturi‘s affidavit. These are substantial consequences and they cannot be adequately compensated by an award of damages. Subject to other considerations in relation to the balance of convenience, and in the light of the apparent strength of Aquila‘s case, Aquila should not be exposed to the substantial consequences of being required to vote on a resolution which is alleged by it to have been advanced in breach of clause 2.11, being consequences which are apt to cause Aquila irreparable harm. -- 51 of 56 -- 52 Should any restraint be limited to restraining BCC from exercising the option conferred by clause 6.1(d) if that option arises? [165] BCC submits that if, contrary to its principal submissions concerning the existence of a prima facie case and where the balance of convenience lies, the Court is disposed to grant an interlocutory injunction, then the injunction should be directed to restraining it from exercising the option conferred by clause 6.1(d) if that option arises in consequence of Aquila voting against the Schedule A Resolution. It submits that the meeting for 17 September 2011 has been regularly constituted. It relies upon Aquila Steel Pty Ltd v AMCI (IO) Pty Ltd31 to submit that the object for which it is proposed to call the meeting is one that can be carried out in a lawful way. It submits that clause 6 is concerned with resolving a ―deadlock‖ and that whether or not there is a deadlock should be tested at the meeting. It notes that the Management Committee may vote in a number of different ways, and submits that there are no immediate consequences of the Management Committee voting in any of these ways beyond consequences that flow from the operation of the terms of the JVA. I recognise the force of these submissions. However, they do not take adequate account of the facts that: (a) the calling of the meeting itself, so as to put the Schedule A Resolution, is alleged to be in breach of clause 2.11; and (b) voting either for or against the Schedule A Resolution has significant financial and other consequences for Aquila, being consequences to which it should not be exposed if BCC‘s conduct is in breach of clause 2.11. BCC has made clear that it intends to rely upon the Schedule A Resolution that it proposes to put at the 17 September meeting for the purposes of clause 6. I am not persuaded that Aquila should be exposed to those clause 6 consequences, even if there is some restraint upon BCC purporting to exercise any option conferred by clause 6. On the state of the current evidence concerning Aquila‘s prospects of success and the consequences to it of voting either for or against the Schedule A Resolution on 17 September, I am not persuaded that it should be required to vote. If it voted against the Schedule A Resolution then it would be exposed to the significant clause 6 consequences, subject to a restraint upon BCC in exercising that option. Pending any trial, it and the value of its interests would be under a cloud brought about by BCC‘s alleged breach of contract. The eventual lifting of that cloud in the event of success at trial by Aquila would not undo the damage done in the meantime, including damage done to it and its parent company‘s ability to raise funds for necessary development of the project. [166] If, in order to avoid those consequences, Aquila was to vote in support of the Schedule A Resolution, then it would face different, but still damaging consequences. Its case for interlocutory relief is that it should not face either the consequences of voting for the resolution or the consequences of voting against it because the resolution is put forward in breach of contract, and it has shown a prima facie case of such a breach. [167] BCC cites authorities in support of the proposition that the general policy of courts is not to restrain the holding of meetings of companies since it is thought that it is 31 [2010] WASC 410 at [29]-[30]. -- 52 of 56 -- 53 usually better to allow the shareholders or members of a group to meet to discuss their differences.32 However, the courts recognise that this general approach needs to be modified on occasions depending upon the nature of the issue at hand and the consequences of passing a particular resolution at a meeting.33 For example, in Gutnick v Bondi Mizrachi Synagogue34 the plaintiff, who was employed by the defendant as a rabbi and chief minister, sought an injunction to restrain a meeting that was called to consider and, if thought fit, pass resolutions that his employment be terminated. White J stated:35 ―Although courts are very wary about restraining meetings of companies on the ground of deficiencies in the notice convening the meeting, usually because such questions can be determined after the meeting has been held, in this case the deficiencies in the notice are relevant to the balance of convenience as to why the injunction sought should be granted. It seems to me that if the resolutions were passed prima facie there would be strong grounds for the plaintiff to contend that the resolution was, in any event, void, because the notice accompanying the resolution did not fully and fairly inform and instruct the members about the matters required by article 6.3.5.‖ An injunction was ordered so as to preserve the status quo. [168] In Pettaras v Pettaras,36 Palmer J granted an interlocutory injunction restraining shareholders from voting at a shareholders‘ meeting to remove a director in breach of a shareholders‘ agreement. After referring to authorities to the effect that the Court, in considering the balance of convenience, generally speaking, preserves the status quo in a shareholders‘ or directors‘ dispute by leaving such rights as the shareholders or directors have under the constitution of the company to be exercised as they determine, Palmer J continued: ―There is, however, as has been pointed out in these authorities, an exception to that general proposition. When the shareholders have regulated their rights, as they have done by two agreements in this case, and have thereby provided that they shall exercise their votes in a certain way or shall not exercise their votes in a certain way, then the status quo is represented by the agreement of the shareholders as to what will be done in a certain circumstance.‖37 [169] Kounis v Kounis38 is another example of an interlocutory restraint that was designed to prevent a party from purporting to exercise voting rights. [170] The suggested analogy between a meeting of the Management Committee in this case and a meeting of shareholders or directors of a company is not particularly precise. However, to the extent that similar principles apply in determining the 32 Frazer v Macquarie Airports Management Ltd (2009) 27 ACLC 1,517 at 1,525, [2009] NSWSC 1057 at [52]. 33 Ibid. 34 [2009] NSWSC 257. 35 Ibid at [42]. 36 [2004] NSWSC 1212. 37 Ibid at [16]. 38 (1987) 11 ACLR 854. -- 53 of 56 -- 54 balance of convenience in this case, the general policy not to restrain the holding of meetings yields when the circumstances require it, including when the passage of an impugned resolution will disturb the status quo and cause irreparable harm. This is not a case in which there is some defect in the form of notice given to convene the meeting, being an alleged defect which can be conveniently addressed after the meeting has been held and its business transacted. The allegation in this case relates to a fundamental condition which governs or qualifies the parties‘ conduct in relation to the joint venture, including the convening of meetings. It requires each party to act in good faith and in the best interests of the joint venture. Aquila‘s case is that BCC‘s conduct, including its conduct in calling the 17 June meeting and in calling a meeting for 17 September, is in breach of this provision. I am not persuaded to exercise my discretion to limit any injunction to restraining BCC from exercising the option conferred by clause 6.1(d). Aquila‘s complaint not only relates to the threatened exercise of that option following the meeting of 17 September. It also relates to the consequences to Aquila of effectively being forced to support Schedule A in order to avoid those clause 6 consequences. I am not persuaded that Aquila should be exposed to the consequences of having to vote upon a resolution that Aquila has shown on a prima facie basis to have been advanced in breach of the agreement that constitutes the Joint Venture and controls its affairs. [171] I am not persuaded that the grant of an interlocutory injunction restraining a meeting that had been called for the purpose of putting the Schedule A Resolution operates to ―disenfranchise the Joint Venture participants from exercising rights expressly granted by the Joint Venture Agreement.‖ On Aquila‘s case, the rights which BCC claims do not arise because the Schedule A Resolution is advanced in breach of obligations of good faith, and the Court should protect it from the consequences of BCC‘s breach. The effect of an interlocutory injunction would be to delay a vote on the Schedule A Resolution, not to preclude such a resolution ever being put. The manner in which BCC proposes to vote is apparent. In the course of the hearing, and as a means of facilitating proof by BCC of any claim for compensation on the usual undertaking as to damages, I suggested that Aquila provide an undertaking concerning the way in which it would have voted had the resolution been put. In all the circumstances, I do not consider that the application for injunctive relief is premature or that any injunctive relief should be limited to restraining BCC from exercising the option conferred by clause 6. [172] Views may differ as to what constitutes the status quo in a case such as this. I consider that the status quo for present purposes is the position that applied prior to the proposing of the Schedule A Resolution which is alleged to be in breach of clause 2.11. I consider that that position should be maintained until at least the issue in relation to the point of construction about the Feasibility Study is determined, and possibly until Aquila‘s claim for breach of clause 2.11 is determined. [173] BCC‘s claimed ―contractual entitlement to put Schedule A to the Management Committee‖ is a contractual entitlement that is subject to the terms of the JVA, including BCC‘s obligations pursuant to clause 2.11. If it does have a contractual entitlement to put Schedule A to the Management Committee meeting, and its entitlement to do so is deferred pending the trial of the issues in these proceedings, then this is because Aquila has established a prima facie case in support of the legal rights it asserts in respect of the Schedule A Resolution. Subject to a consideration -- 54 of 56 -- 55 of the adequacy of damages in respect of the consequences of BCC being deprived of the opportunity to put Schedule A to a Management Committee meeting pending the trial of the proceeding, or further earlier order, I consider that Aquila has established the basis for an exercise of my discretion to grant an interlocutory injunction. Adequacy of damages [174] For the reasons previously given, and for the reasons addressed in Mr Alciaturi‘s affidavit, the damages that Aquila will suffer if an interlocutory injunction is not awarded are substantial and difficult to quantify. [175] By contrast, the compensation to which BCC will be entitled if it succeeds at trial and seeks compensation pursuant to the usual undertaking as to damages given by Aquila Resources Ltd and by Aquila Coal Pty Ltd is capable of reasonable calculation. On Professor Gray‘s approach, based upon the NPV of the Joint Venture under various scenarios, being calculations that use that value as a proxy for financial loss, the consequences to the Joint Venture of Schedule A being delayed in its approval are capable of calculation. [176] Whereas damages pursuant to the usual undertaking are an adequate remedy for BCC, I do not consider that damages are an adequate remedy for Aquila. [177] I shall not detail in these reasons each of the consequences that are alleged by Aquila to follow if an interlocutory injunction is not granted. I have already summarised them. One area of complexity is whether certain financial consequences would be suffered by Aquila or by Aquila Resources and its shareholders, and whether Aquila could recover for losses that flow as a consequence of a breach of clause 2.11 which are caused indirectly to it by reason of the consequences of that breach upon Aquila Resources‘ ability to secure project funding. These issues add an additional layer of complexity to the proof and quantification of damages that would be sustained by Aquila if an interlocutory injunction is not ordered, the Schedule A Resolution is put to a vote and, at trial, Aquila succeeds in establishing that the resolution was advanced in breach of clause 2.11. Conclusion: balance of convenience [178] I conclude that the balance of convenience favours the grant of an injunction. To facilitate the proof of any damages which may be awarded pursuant to the undertakings given by Aquila Resources Ltd and by Aquila Coal Pty Ltd, the plaintiff, through its Senior Counsel, gave an additional undertaking in the form of Exhibit 4. Conclusion [179] Aquila has made out a prima facie case. In the circumstances, it has shown a sufficient likelihood of success to justify the preservation of the status quo pending the trial, or further earlier order. The harm, including irreparable harm, which Aquila would be likely to suffer if an interlocutory injunction was refused outweighs the injury which BCC will suffer if an interlocutory injunction is granted. Other discretionary factors justify the grant of an interlocutory injunction. -- 55 of 56 -- 56 [180] Subject to any submissions as to the form of order, and upon both Aquila Resources Ltd and Aquila Coal Pty Ltd giving the usual undertaking as to damages, and Aquila giving the additional undertaking set out in Exhibit 4, there will be an injunction until the trial of the proceeding, or further earlier order, in terms of the application filed by Aquila on 23 August 2011. [181] I will hear the parties in relation to the further conduct of the proceeding. -- 56 of 56 --