Consideration
59 It was submitted on behalf of Huntley that cl 7.1 of the CWSA is unambiguously clear in its terms. The parties to the CWSA, according to the submissions made on behalf of Huntley, fully intended to trigger the consequences and actions embodied in subcl 7.1(b) and subcl 7.1(c) of the CWSA as soon as the original manager under the CWSA (AOL) was removed or retired as manager (responsible entity) of any one or more of the projects covered by the CWSA as at the date of its execution (viz Projects 1 to 4). It was submitted on behalf of Huntley that it was open to the parties to the CWSA to make an agreement which, in effect, denied to any incoming responsible entity control over the water supply for irrigating the groves in the projects supported by the CWSA and which compelled the ultimate transfer to COGL of all relevant pumping and reticulation equipment.
60 AOHL submitted that such a construction of cl 7.1 did not make good commercial sense.
61 Counsel for AOHL submitted that:
(a) Upon the true construction of cl 7.1, the essential common feature of each of the events described in subcll 7.1(a)(i) to (iii) is the termination of the projects. The consequences described in subcll 7.1(b) and (c), does not sit comfortably with a state of affairs whereby the projects continued beyond the termination of the CWSA;
(b) The event covered by subcl 7.1(a)(i) is the termination of the projects themselves. The event described in subcl 7.1(a)(ii) (being the termination of the Lease) is an event which has the necessary consequence of terminating the projects because, upon termination of the Lease, the responsible entity and the investors in the projects cease to have access to the Water Resource. Accordingly, subcl 7.1(a)(iii) should be similarly construed as applying only if there is an event which effectively terminates the projects. Having regard to the various matters of context to which reference has been made at [48]-[58] above, subcl 7.1(a)(iii) should be read as if the following words appeared at the very end of that subclause, namely "… without a replacement being appointed"; and
(c) AOHL advanced the following reasons in support of these submissions, namely:
(i) Such a construction would give effect to the objective commercial purpose of the CWSA. The identity of the responsible entity under the CWSA and related agreements, at any given point in time, is irrelevant as long as that responsible entity is suitably qualified and appointed in accordance with the Act and the relevant contracts;
(ii) Any attempt to entrench the position of any particular responsible entity offended the obvious purpose of Ch 5C of the Act;
(iii) Clause 6.1 of the CWSA provides that the manager may assign its rights and interests under that Agreement. AOHL's construction avoids any conflict between cl 6.1 and cl 6.3;
(iv) The CWSA contemplates AOL having a successor or substitute which (in light of s 601FS and s 601FT) is apt to include a new responsible entity; and
(v) Under the Constitutions for Projects 4, 5 and 6, the parties contemplated the possibility that a responsible entity could retire or be removed without replacement and that the consequence of that event was winding up (see cl 6.1 of the Constitution).
62 We think that the construction of cl 7.1 propounded by Huntley and accepted by the learned primary Judge is to be preferred. Our reasons for this conclusion are:
(a) The argument advanced by AOHL, both at trial and on appeal, was that, on the proper construction of subcl 7.1 of the CWSA, that clause is only triggered if the relevant event referred to in subcl 7.1(a) has the effect of terminating the projects. Thus, AOHL's argument was put only as a construction argument. AOHL did not contend that the words which it sought to have added to the very end of subcl 7.1(a)(iii) (viz without a replacement being appointed) should be read into that clause as an implied term;
(b) AOHL's contentions in support of its ultimate submission were that the consequences spelt out in subcl 7.1(b) and subcl 7.1(c) only made sense in circumstances where the projects had come to an end in the ordinary course of events or had been terminated. It was therefore submitted that subcll 7.1(a)(i), (ii) and (iii) only operated when the projects had come to an end or were terminated. It was also submitted that the Court should avoid a construction of cl 7.1 which allows the parties to the CWSA to circumvent the evident object of s 601FS and s 601FT of the Act;
(c) Contrary to the submissions of AOHL, however, although subcl 7.1(a)(i) clearly contemplates the end of the projects or the valid termination of the projects as the relevant trigger for the operation of cl 7.1, the event postulated in subcl 7.1(a)(ii) is not an event which necessarily involves the termination of the projects. The event postulated in subcl 7.1(a)(ii) is the termination of the lease of Yallamundi Lagoon and the surrounding land upon which the administration block is constructed. That termination might occur because there is a default on the part of AOL under the lease, because the CWSA is terminated or because there is an assignment by AOL of its rights and interests under the CWSA pursuant to cl 6.1 of the CWSA. Such an assignment might involve the assignment of the lease or the termination of the lease and the execution of a fresh lease between AOHL and the new manager (responsible entity). Both of these latter circumstances are expressly contemplated by subcl 7.1(a)(ii). However, as already mentioned, none of these postulated events necessarily involves the termination of the projects. The Grove Agreements, the Grove Licence Agreements and the Constitutions would all remain on foot notwithstanding the termination of the lease. At most, the occurrence of these events might make it difficult for AOL or its replacement to perform its obligations to irrigate the projects pursuant to the Grove Agreements;
(d) When regard is had to the terms of subcl (b) and subcl (c) of cl 7.1, the essential trigger for the operation of the clause appears to be the removal or replacement of AOL as the manager (responsible entity) of the projects. If the relevant trigger is the occurrence of one or more of the events described in subcl 7.1(a)(i) of the CWSA, then not only must there be an end or valid termination of the projects for the consequences in subcl 7.1(b) and subcl 7.1(c) to follow, but there must also be satisfaction of a second requirement embodied in the following words in both subclauses viz "… and in the case of the event in cl 7.1(a)(i), the Manager is not the manager of the olive groves on the Land". In other words, if the projects come to an end or are otherwise validly terminated but AOL is still the manager of the olive groves on the land, then subcl 7.1(b) and subcl 7.1(c) are not engaged;
(e) The Act does not expressly provide that any contract or any clause in a contract which prohibits the retirement or removal of a responsible entity of a managed investment scheme is void. Nor does the Act expressly prohibit or even address third party contractual provisions which might be seen as attempts to circumvent the policy of the Act to the effect that the members of a managed investment scheme should have the right to remove the responsible entity and replace it with a responsible entity of their choice. The provisions of the Act which deal with changing the responsible entity (s 601FJ to s 601FT) are part of the setting in which the CWSA is to be construed and thus potentially constitute a relevant surrounding circumstance in aid of that construction. In the present case, however, we think that those provisions provide little or no assistance in resolving the question of construction with which we are concerned. The Act does not prohibit parties to a contract pursuant to which services are provided to a responsible entity of a managed investment scheme for the purposes of that scheme from agreeing to terms which bring that contract to an end in the event that the incumbent responsible entity is removed. That which is not prohibited is permitted. It is no different from parties to such a contract agreeing that it should automatically come to an end if one of the parties becomes insolvent;
(f) Whilst the evident commercial purpose of the CWSA is to secure a long term water supply for irrigating the projects, that purpose is just as easily served by COGL directly arranging with AOHL the supply of water to irrigate the land upon which the olive trees are planted;
(g) It is true that the effect of subcl 7.1(b) and subcl 7.1(c) is that:
(i) The CWSA is terminated (see esp subcl 7.1(b)(ii));
(ii) The Manager is released from its obligation to pay future annual base fees under the CWSA;
(iii) AOHL and COGL are obliged to make a new contract substantially on the same terms as the CWSA in order to maintain a water supply to the Groves (if the projects are still on foot) or to that part of COGL's land which is planted with olive trees (in the event that the projects are terminated); and
(iv) The Manager is obliged to sell and COGL is obliged to purchase the pumping equipment and reticulation equipment then being used to irrigate the projects but only on the basis that that equipment will remain on the plantation land and be used to irrigate the projects.
But the removal of the Manager as a party to the CWSA and the effective termination of the CWSA do not necessarily spell the end of the projects nor are the consequences described in subcl 7.1(b) and subcl 7.1(c) only consistent with the projects no longer being on foot. Once cl 7.1 is triggered, AOHL and COGL are obliged to maintain a water supply to the land where the olive trees are planted. Presumably, if the projects are still on foot, AOHL and COGL would only maintain that supply if satisfactory commercial terms are agreed to by the new responsible entity and (possibly) the investors in the projects;
(h) Under par (f) of the Rules for Interpretation applicable to the CWSA (Schedule 2 to the CWSA), unless the context indicates a contrary intention, headings do not affect the interpretation of the CWSA. No such contrary intention is indicated here. Therefore, we must ignore the headings when interpreting cl 7;
(i) Our preferred construction of cl 7.1 accommodates cl 6.3 whereas the construction advanced by AOHL does not. AOHL's construction requires further words to be added to cl 6.3. There is no conflict between cl 6.1 and cl 6.3 of the CWSA when subcl 7.1(a)(iii) is properly understood. Those clauses say nothing about the responsibility of a newly appointed responsible entity that replaces an incumbent responsible entity; and
(j) Huntley's construction recognises and sensibly accommodates the fact that the annual base fee required to be paid under the CWSA is paid for the supply of specified quantities of water to four projects - Projects 1 to 4. The quantum of the fee constitutes an agreed price for the supply of quantities of water for four projects (not three). If AOL is removed as the responsible entity/manager of one of those projects, assuming for the moment that the fee cannot be apportioned, upon AOHL's construction, AOL would thereafter be required to pay the full fee notwithstanding the fact that the quantity of water required to be supplied to AOL will have been reduced. Clause 4.1 specifies the quantities of water to be supplied under the CWSA on a per hectare basis and thus by reference to the area of land involved. By way of contrast, the fee is a fixed sum ($1,490,000 per annum) subject to upward adjustment. It is not quantified contractually on a per hectare basis. It is not adjusted if the quantity of water required to be supplied is reduced because one of the projects (Project 4) is no longer covered by the CWSA.
63 Here, there was a removal of the Manager under the Act in April 2008 when the investors in Project 4 resolved to remove AOL as the responsible entity of that project. Subclause 7.1(a)(iii) was, therefore, engaged.
64 Despite the terms of par (d) of the Rules for Interpretation governing the CWSA, we think that the term Manager when used in cl 7.1 is a reference to AOL, and to AOL alone. In our view, the context indicates that rule (d) should not be applied to that term when it is used in cl 7.1. The consequences provided for in subcll 7.1(b), (c) and (d) are consequences which can only occur once. Further, in subcl 7.1(b) and subcl 7.1(c) there is a clear distinction being drawn between the Manager (referring to AOL) and the manager referring to the incumbent responsible entity whoever that may be. Finally, the Dictionary does not define Manager. Rather, the term appears to be deliberately confined to denoting the party named as Manager in the CWSA viz AOL.
65 The reference to "a retirement or removal" (our emphasis) in subcl 7.1(a)(iii) (our emphasis) is a reference to the retirement or removal of AOL as the responsible entity of at least one of the projects for which water is to be supplied under the CWSA. The definition of Projects in the Dictionary and the terms of subcll 4.1(a) to (e) make clear that projects which came into existence after 1 July 2002 but before 22 October 2022 were covered by the CWSA. Projects which commenced after 22 October 2002 were not covered by the CWSA, unless expressly brought within its scope by a variation to the CWSA. No such variation was ever agreed. Therefore, as noted at [58] above, Projects 5 and 6 were never covered by the CWSA. This conclusion is reinforced by the fact that the sole water resource referred to in the CWSA was Yallamundi Lagoon which could not service Project 6 nor could it service most of Project 5. For these reasons, we are of the view that the removal of AOL as the responsible entity of Projects 5 and 6 was not an event within subcl 7.1(a)(iii) and did not therefore engage cl 7.1.
66 The removal of AOL as the responsible entity of Project 4, however, was an event within subcl 7.1(a)(iii). As a matter of contract and ignoring the impact (if any) of s 601FS and s 601FT of the Act, the occurrence of that event triggered the consequences specified in subcll 7.1(b), (c) and (d) of the CWSA.
67 The consequences summarised at [62(g)] above flowed immediately upon the removal of AOL as the responsible entity of Project 4 (ie on or about 29 April 2008).
68 For these reasons, and subject to our consideration of the remaining issues, AOHL's claim in debt, looked at solely as a matter of contract and assuming for the moment that Huntley can somehow be made liable under the CWSA, must inevitably be confined to Project 4 and must be confined to the months of May to September 2008.