Bowen Central Coal Pty Ltd v Aquila Coal Pty Ltd & Anor [2011] QCA 334

EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - RELEVANT CONSIDERATIONS - BALANCE OF CONVENIENCE GENERALLY - where the appellant and first respondent are parties to a joint venture agreement to develop a coal mine - where the agreement contained a procedure by which the parties could put forward and vote upon a resolution for the mine development - where the procedure required two meetings of the Management Committee - where if one party voted against the resolution at both meetings an "option" to buy the other party's interest may arise - where the first respondent voted against the appellant's resolution at the first meeting - where the first respondent brought proceedings against the appellant alleging that the proposal for mine development did not comply with the agreement - where the first respondent alleged that the appellant had breached its obligation of good faith in putting forward the resolution - where the first respondent successfully applied for an interlocutory injunction restraining the second meeting of the Management Committee from taking place - whether the primary judge's discretion in granting the injunction miscarried

Active Leisure (Sports) Pty Ltd v Sportsman's Australia Limited [1991] 1 Qd R 301, considered

Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39, considered

American Cyanamid Co v Ethicon Ltd [1975] AC 396; [1975] UKHL 1, considered

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

Aquila Steel Pty Ltd v AMCI (IO) Pty Ltd [2010] WASC 410, cited

Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46, considered

Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1, cited

Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670, considered

In re the Will of F B Gilbert (dec'd) [1946] NSWStRp 24; (1946) 46 SR (NSW) 318, cited

National Commercial Bank Jamaica Ltd v Olint Corporation Ltd [2009] 1 WLR 1405; [2009] UKPC 16, considered

W Sofronoff QC SG, with A Pomerenke, for the appellant

F M Douglas, with B Dharmananda and D J Butler, for the first respondent

[1] FRASER JA: The appellant ("BCC") appeals against an interlocutory injunction granted in favour of the first respondent ("Aquila") restraining BCC until trial or earlier order from convening, holding, attending, or voting at a meeting of the Management Committee of their joint venture to consider BCC's proposal that the joint venture should proceed to develop a coal mine in the Bowen Basin in accordance with Schedule A of a study prepared by the second respondent ("EDCM").

[2] BCC and Aquila are the parties to a joint venture agreement to develop a coal mine in the Bowen Basin. EDCM, a company owned and controlled by BCC and Aquila, was appointed by them to have the day-to-day management of the joint venture. Decisions about the business and affairs of the joint venture are made by a "Management Committee" in which BCC and Aquila each have one voting representative. Under cl 5.1 of the Agreement, both venturers are required to approve any decision to undertake "Mine Development" for a "Development Area". This litigation concerns the potential operation of cl 6.1, which relevantly provides:

"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,

(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 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; ...".

[3] In May 2011, EDCM provided Aquila and BCC with the "Front-End Loading 3/Definitive Feasibility Study" ("FEL3/DFS") which included two scenarios, Schedule A and Schedule B. BCC proposes to develop a mine in accordance with Schedule A whereas Aquila favours development in accordance with Schedule B. FEL3/DFS reports a higher net present value for Schedule A. Otherwise, the essential differences between Schedule A and Schedule B are that:[1]

"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."

[4] At a Management Committee meeting held on 17 June 2011, BCC's proposal to develop a mine in accordance with Schedule A of FEL3/DFS was not approved because Aquila's representative opposed it. On the same day, BCC called a second meeting of the Management Committee for 17 September 2011 to again consider and vote upon the Schedule A proposal. Accordingly, Aquila faced the prospect that, if it did not vote in favour of BCC's proposal at the 17 September meeting, BCC might claim to be entitled to an "option to acquire" Aquila's "Venture Interest" under cl 6.1(d) for the purchase price of "50% of the fair market value of the Development Area Interest" ascertained in accordance with cl 6.1(e) of the Agreement.

[5] On 1 August 2011 Aquila commenced proceedings against BCC and EDCM claiming a declaration that any resolution for Mine Development in accordance with Schedule A does not constitute a proposal to undertake Mine Development for the purposes of cl 6. The pleaded grounds of the claimed declaration, and of a consequential injunction added by amendment to the claim, are that:

(a) BCC's proposal to undertake development in accordance with Schedule A of FEL3/DFS is not a proposal for "Mine Development" in terms of cl 6 of the Agreement because it is, or by 17 September 2011 will be, no longer possible to undertake development of a mine in accordance with Schedule A;

(b) FEL3/DFS is not a "Feasibility Study" as defined in the Agreement; and

(c) BCC's conduct and threatened conduct in putting that proposal to the Management Committee is in breach of the obligations in cl 2.11 of the Agreement that the participants "will at all times act in good faith and in the best interests of the Joint Venture".

[6] On 23 August 2011 Aquila applied for an interlocutory injunction restraining BCC until trial or earlier order from convening, holding, attending, or voting at a meeting of the Management Committee to consider BCC's proposal to undertake Mine Development in accordance with Schedule A of FEL3/DFS. On 6 September 2011, after a two day hearing on 31 August and 1 September 2011, the primary judge granted the interlocutory injunction.[2]

[7] In relation to the ground summarised in [5](a), the primary judge held that Aquila had a weak case that the Schedule A resolution was not a proposal for "Mine Development" and that Aquila had not shown that it had sufficient probability of success on that ground to justify an interlocutory[3]injunction.3

[8] In relation to the ground summarised in [5](b), Aquila's pleaded case that FEL3/DFS is not a "Feasibility Study" as defined in the Agreement is that it does not comply with a requirement of the definition of "Feasibility Study" that it 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 pro[4]ect."4 Aquila alleges that "[i]n 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 Fin[5]nce."5

[9] The definition of "Feasibility Study" in the Agreement identifies the necessary topics of such a study conducted to determine the commercial feasibility and viability of exploiting a deposit of coal within the Project Area. It also requires that the study be "of a standard customarily required by major financial institutions in support of Project Finance for the operations contemplated in the study." The term "Project Finance" is defined to mean "financial accommodation to be provided by a reputable financial institution experienced in funding projects similar to that of the Joint Venture, for the purposes of funding the Venture Activities and which funding is to be secured over the Venture Property." BCC denies Aquila's allegations that the proper construction of the definition of "Feasibility Study" requires that the study be of a standard "which in fact would secure or be likely to secure Project Finance" and that the definition requires that Project Finance be an amount in the order of the capital expenditure contemplated by the study or in the amount of $1.3 billion.[6]

[10] In support of its case that FEL3/DFS is not a "Feasibility Study" in accordance with its construction of the definition, Aquila adduced evidence from an expert in relation to access to transport infrastructure in the resources industry (Mr Morton), an expert in relation to project finance in the industry (Mr Correia), and evidence of investigations by EDCM.

[11] Under Schedule A, Eagle Downs Mine was forecast to produce development coal between 1 April 2014 and 30 June 2015 with full or nearly full production from 1 July 2015. The primary judge referred to Mr Morton's opinions that: long term contracting of logistics capacity was most attractive, given the constrained nature of the supply of logistics capacity; "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... and at the mercy of its competitors"; there is likely to be capacity available for short term secondary trade in the period to 2014 and perhaps 2015; after 2015 the availability of trading capacity on the short term market "becomes increasingly uncertain"; 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"; and that there is no "currently available logistics option suitable in circumstances where the Schedule A Project development timeframe is adopted."[7]

[12] His Honour also referred to Mr Correia's opinions 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" and that "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."[8]

[13] Aquila also adduced evidence that EDCM, with the approval of Aquila and BCC, made enquiries about what financial institutions required for a feasibility study to support a project finance application. After approaching six major financial institutions, EDCM reported in October 2010 that 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'". The financial institutions said that "with the current rail and port constraints ... this would likely mean executed contracts or contracts ready for execution". EDCM's report concluded that "[r]ail, port and market development are not currently being addressed to a standard as advised by major Financial Institutions in support of Project Finance".[9] EDCM confirmed that opinion on 8 March 2011 and again on 14 June 2011.

[14] The primary judge considered that EDCM's investigations accorded with Mr Correia's evidence 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."[10] The primary judge noted that BCC did not call evidence casting doubt upon the evidence of Mr Morton, Mr Correia or EDCM's investigations and did not require Mr Morton or Mr Correia for cross-examination. His Honour then concluded that Aquila had advanced a "substantial case" that FEL3/DFS is not a "Feasibility Study" within the meaning of the Agreement.[11]

[15] However the primary judge would not have granted an interlocutory injunction on this ground. Following a decision relating to a similar joint venture agreement which included cl 6 in the same terms as cl 6 of the Agreement,[12] his Honour held that the fact that FEL3/DFS might be found after a trial not to be a Feasibility Study within the meaning of the Agreement does not disentitle BCC from putting a proposal based on FEL3/DFS to a meeting.[13]

Breach of the obligation in cl 2.11 of the Agreement that the participants "will at all times act in good faith and in the best interests of the Joint Venture"

[16] The primary judge considered that the ground summarised in [5](c) of these reasons did justify the grant of an interlocutory injunction. Aquila's case on that ground is that "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 [Aquila] from the consequences of BCC's br[14]ch."14 Aquila pleads that BCC's conduct in putting the disputed resolution to the 17 June 2011 meeting, and giving notice of its intention to put the same resolution again to the 17 September 2011 meeting with the intention of relying upon cl 6 of the Agreement to exercise an option to acquire Aquila's interest under the Agreement, was "not primarily" for the purpose of proceeding with Mine Development in accordance with Schedule A and was for a purpose or purposes "which included" acquiring an option under cl 6 of the Agreement to acquire Aquila Coal's interest in the Joint Venture at an [15]der value.15

[17] The reference to an "under value" is apparently based on the view that the "purchase price" under cl 6.1(e) is 50 per cent of the fair market value of the Dissenting Participant's interest.[16] That seems a surprising construction. An alternative construction, which BCC's senior counsel articulated in the course of argument in the appeal, is that the price is 50 per cent of the fair market value of the entire joint venture interest in the Development Area. However, the primary judge, whilst noting that the provision was ambiguous, observed that the parties agreed that it should be construed so that the purchase price was 50 per cent of the fair market value of the Dissenting Participant's Venture Interest in the Development Area.[17] BCC acknowledged that the appeal should be conducted on the same footing. Accordingly it is not appropriate to reach any conclusion about the proper construction of the clause in this respect.

[18] In support of its case under cl 2.11, Aquila referred to the evidence of Mr Morton and Mr Correia and the evidence concerning EDCM's investigations mentioned earlier. In addition Aquila relied upon evidence given by its General Manager - Coal, Mr Pilcher. The primary judge analysed Mr Pilcher's evidence[18] and concluded that whilst his evidence "adds some colour to the evidence", "suggests that Vale SA/BCC was interested in stalling the progress of the Joint Venture", and provides "some circumstantial evidence of an absence of good faith on the part of BCC", his evidence did not prove that BCC's conduct in relation to the Schedule A resolution was made with an absence of good faith.[19]

[19] The primary judge addressed Aquila's claim that BCC acted in breach of cl 2.11 on the premise that the proper construction of cl 6, with reference to the definitions of "Feasibility Study" and "Project Finance", was 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."[20] That assumed the correctness of Aquila's construction of the term "Feasibility Study". On that basis, his Honour found that Aquila advanced 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."[21] In holding that Aquila's case for breach of cl 2.11 was strong, the primary judge repeatedly emphasised BCC's omission to contest Aquila's evidence relating to the alleged breach.[22]

[20] BCC submitted that the primary judge should have found that Aquila's case that BCC breached cl 2.11 of the Agreement was a weak one. BCC argued that the allegations pleaded by Aquila did not make out a case of bad faith and that the primary judge should not have drawn conclusions about the strength of Aquila's case from BCC's failure to call contradictory evidence. On the second point, BCC referred to the primary judge's remarks before the hearing discouraging BCC's counsel from arguing that Aquila's evidence did not establish a prima facie case[23] and a letter to both parties' solicitors from the primary judge's associate sent before the hearing in which the primary judge encouraged the parties "to approach the hearing on the basis that it is not a mini-trial".[24]

[21] However, in oral submissions BCC's senior counsel disclaimed any challenge to the primary judge's provisional findings concerning Aquila's case for breach of cl 2.11 of the Agreement. I also note that the grounds of BCC's notice of appeal do not comprehend any such challenge.

[22] Having concluded that Aquila had established a prima facie case of breach of cl 2.11,[25] the primary judge turned to the related enquiry "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."[26] His Honour concluded that the damages that Aquila would suffer if an interlocutory injunction were not awarded were substantial and difficult to quantify, whereas the compensation to which BCC would be entitled if it succeeded at trial and sought compensation pursuant to the usual undertaking as to damages given by Aquila and by its parent company was capable of reasonable calculation;[27] the balance of convenience favoured the grant of an injunction and, in the circumstances, Aquila had shown a sufficient likelihood of success to justify the preservation of the status quo pending the trial or further earlier order.[28]

[23] The primary judge was not persuaded that the practical consequence of the interlocutory injunction was to give Aquila the final relief that it sought because "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."[29]

[24] BCC argued that the primary judge should have taken into account that an interlocutory injunction would give Aquila the final relief which it sought, namely, the permanent prevention of the Schedule A proposal being pursued on its merits. Aquila argued to the contrary, that the effect of the interlocutory injunction was merely to delay, rather than disallow development altogether in accordance with Schedule A.

[25] The true position seems to lie somewhere in the middle. The injunction prevented a vote being taken at the meeting on 17 September 2011, and it therefore precluded the crystallisation of BCC's rights under cl 6.1 at that time. It also put at risk the prospect that there ever could be development in accordance with Schedule A. Reference to the "major milestones" in Schedule A and Schedule B as summarised by the primary judge supports BCC's argument that with each passing day there is an increasing prospect that Schedule A will permanently be superseded:[30]

Roadheader Overhaul (Scenario A) / Roadheader Delivery (Scenario B)

[26] Schedule A assumes project sanction on 15 July 2011 and achievement of the "Roadheader" milestone by 10 February 2012. At some time before 16 April 2012, when Schedule B assumes project sanction, Schedule A may cease to be a viable option.

[27] The primary judge considered that: the trial of Aquila's claim was likely to take two weeks; if the matter were ready for trial in a few months a trial listing in the second half of 2011 would depend upon the settlement of another proceeding of similar duration; and that if the proceeding cannot be tried this year "it may be able to be accommodated in the civil sittings listed for the first half of 2012" and "it might be able to be offered trial dates in February 2012 in the Commercial List."[31] On that timetable there must have been a significant prospect that by the time of judgment it would be too late for BCC to be able to propose Schedule A for a second time.

[28] However the primary judge took into account the possibility that a practical consequence of the interlocutory injunction would be to prevent Schedule A from being implemented, although his Honour was not satisfied that this was likely.[32] His Honour considered that the possibility that interlocutory relief would mean that there would be no trial was not sufficiently strong to justify refusal of the interlocutory injunction, taking into account that Aquila had a strong case on the issue of contractual interpretation in respect of the "Feasibility Study" and for the alleged breach of cl 2.11.[33]

[29] That conclusion depended in part upon the primary judge's appreciation of the "float" in the dates in Schedule A. In concluding that Aquila had a weak case that the Schedule A resolution was not a proposal for Mine Development because certain events in Schedule A had already passed, his Honour concluded that Aquila had not established that the need to reschedule relevant events meant that critical path activities in Schedule A could not be met so as to achieve the production of coal at about the time the Schedule contemplated.[34] The Court was not taken to any evidence which falsified the primary judge's related conclusion that the proceeding might yet be tried and determined during a period in which key dates in respect of Schedule A could still be met in terms of the production of development coal and longwall coal.[35] Rather, the point pressed in BCC's argument was that, in considering whether the interlocutory injunction would give Aquila the final relief it sought, the primary judge wrongly equated "final relief" with the question whether there would be a trial in which BCC sought to establish a right to compensation pursuant to the usual undertaking as to damages. This argument was based upon his Honour's statement that "[i]f 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."[36] That is an insufficient foundation for challenging the primary judge's conclusion that, whilst it was possible an interlocutory injunction would prevent Schedule A from being implemented, that was not likely.

[30] I accept that there is a significant prospect that the interlocutory injunction will effectively give Aquila final relief, but that is not itself a ground for setting aside the primary judge's order.

Would Aquila suffer loss if an injunction were not granted?

[31] There is more substance in BCC's contention that, in concluding that the balance of convenience favoured the grant of an interlocutory injunction, the primary judge mistakenly concluded and took into account that:

(a) If Aquila did not support the Schedule A resolution it would suffer loss because it would be exposed to a forced sale of its interest at an under value under cl 6 of the Agreement; and

(b) To avoid that result, Aquila might instead support the Schedule A resolution, and thereby suffer loss of a different kind.

[32] BCC argued that Aquila had no exposure to a forced sale of its interest under cl 6.1 unless it failed in its claim that BCC was in breach of cl 2.11, but the balance of convenience should be assessed on the assumption that Aquila would succeed at trial. BCC argued that if Aquila succeeded at trial, no legal consequences would flow from the proposed vote at the proposed meeting, and if Aquila suffered any adverse consequences if it did not support BCC's resolution in favour of Schedule A, those consequences flowed merely from the Agreement and did not justify the grant of an interlocutory injunction. To the extent that Aquila's case on the balance of convenience involved the proposition that the potential consequences for it of not supporting the Schedule A resolution might "force" it to support the resolution, BCC argued that it was not the function of an interlocutory injunction to relieve a party against a decision required to be made in case the party failed at trial.

[33] Aquila argued that it was legitimate for the primary judge to take into account that the effect of the breach of cl 2.11 alleged by Aquila was to put it "upon the horns of a dilemma", namely, either (as it preferred) to oppose development of a mine in accordance with the Schedule A resolution, thereby exposing itself to the potential loss of its interest under cl 6.1, or to support the Schedule A resolution, thereby exposing itself to the avoidable risk and adverse financial consequences of such a development.

[34] Arguments to similar effect were put to the primary judge. His Honour's reasons for accepting Aquila's argument are encapsulated in the following passages of the reasons:[37]

"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 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. ...

... [BCC] 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.

... If [Aquila] 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.

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.

... 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.

... 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."

[35] In my respectful opinion, Aquila was not exposed to any adverse consequence which could justify the grant of this interlocutory injunction.

[36] In American Cyanamid Co v Ethicon Ltd Lord Diplock, with whose reasons Viscount Dilhorne and Lords Cross, Salmon and Edmund-Davies agreed, described the object of an interlocutory injunction in a case of this kind:[38]

"The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial."

[37] Lord Diplock went on to consider what the plaintiff needed to prove at this interlocutory stage in order to establish the right which it sought to protect by the injunction. That aspect of the decision is not the law in Australia. In that respect, Aquila referred to the statement by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill that:[39]

"The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:

'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.'

By using the phrase 'prima facie case', their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff 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. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal:

'How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.'" (citations omitted)

[38] The issue there concerned the content of the requirement that the plaintiff make out a "prima facie case". Contrary to one of Aquila's arguments, the High Court did not need to consider the manner in which a court should conduct the "second inquiry", that 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."[40] However, that way of describing the second inquiry is consistent both with Lord Diplock's description of the object of the remedy and with his Lordship's following statement of the manner in which a court should consider whether the balance of convenience favours the grant or refusal of the relief:[41]

"As to that, the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff's undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction.

It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case."

[39] It was held in Active Leisure (Sports) Pty Ltd v Sportsman's Australia Limited[42] that the adequacy of an award of damages and the availability or sufficiency of an undertaking on the part of the plaintiff must be considered "as part of the totality of determining the balance of convenience and not as a step anterior thereto". It remains necessary as part of that process, however, to identify the loss against which the plaintiff requires protection; in Lord Diplock's words, "the loss [the plaintiff] would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial". The issue in this appeal primarily concerns proof of loss of that kind. Aquila's case in that respect was that, between the time of the application and the time of a trial at which it vindicated its claim that BCC was in breach of cl 2.11, it would suffer one of the two different kinds of loss identified in [31] of these reasons unless the interlocutory injunction were granted. It argued, and the primary judge accepted, that it should not be forced to elect which loss it would suffer.

[40] It is convenient first to consider the evidence upon which Aquila relied for its contention that it might suffer loss if it again voted against a resolution for development in accordance with Schedule A. There was an apparent contradiction in Aquila's case for an injunction on this ground, reflected in the primary judge's summary of the effect of the evidence as being that "Aquila might be forced to sell its interest in the Joint Venture to BCC ... in circumstances where BCC is not entitled to force it to do so."[43]

[41] Aquila did not adduce direct evidence of its voting intentions, but Mr Pilcher, Aquila's General Manager - Coal (the employee of Aquila responsible for managing its interest in the Joint Venture), deposed to his belief that "it makes no commercial sense to commence development in accordance with Schedule A (even assuming that that was possible) in the present circumstances" and that he believed to be correct his statement at a Management Committee meeting on 22 July 2011 that Aquila "... cannot support [the Schedule A Resolution] on the basis it is obvious that no reasonable company would make a decision to proceed on the basis that we have described." That evidence certainly justified an inference that, if BCC put the resolution for a second time at a Management Committee meeting, Aquila would not support it.

[42] Aquila's evidence of the consequences of taking that course was contained in an affidavit by Mr Alciaturi. As Aquila's General Manager - Finance and Corporate, he is responsible for financing Aquila's share of the Eagle Downs project. Under the heading "Consequences of Not Voting in Favour of the Schedule A Resolution", Mr Alciaturi states that Aquila would suffer extreme prejudice if the injunction is not granted "and BCC seeks to compulsorily acquire [Aquila's] interest" in the joint venture. The subsequent paragraphs in which Mr Alciaturi describes the "extreme prejudice" are premised on his understanding that BCC would effect an acquisition of Aquila's interest in the joint venture. He deposes, for example, that "[i]f Aquila Coal is required to sell its interest ... for 50% of fair market value in circumstances where BCC is not entitled to force it to do so, this will obviously result in Aquila Coal losing half the value of its asset, as well as future income from the asset." Similarly, under the heading "Reputational Damage", Mr Alciaturi deposes that "[i]f Aquila Coal does not vote in favour of the Schedule A Resolution and is divested of its interest in [the joint venture] by reason of the operation of clause 6, then the effect on Aquila Resources' share price is likely to be even more detrimental as Eagle Downs is a valuable asset, and its loss has obvious financial consequences for the Aquila Group."

[43] This evidence does not support a finding that, if Aquila vindicates its claim that BCC is in breach of cl 2.11, it faces any adverse consequences as a result of that breach at all, much less such consequences as might justify the strong step of granting an interlocutory injunction which ultimately might delay the development of a substantial coal mine for many months. Mr Alciaturi's evidence is based on a misunderstanding of the legal position. Although cl 6.1(d) of the Agreement speaks of an "option to acquire the other Participant's ... Venture Interest", its legal effect is that, upon satisfaction of the conditions specified in the preceding provisions of cl 6.1, the "Assenting Participant" may bring the parties' joint venture to an end, in which event the Assenting Participant will be obliged to pay the "Dissenting Participant" the amount described in cl 6.1(e) as "the purchase price" (subject to any operation of cl 6.1(f)). None of those legal consequences will occur if BCC's proposal for development in accordance with Schedule A is put to a meeting of the Management Committee in breach of its obligation under cl 2.11 to act in good faith and in the interests of the joint venture. Indeed, that was the very basis of Aquila's case for an injunction. The primary judge accurately described Aquila's case as being that "the rights which BCC claims do not arise because the Schedule A Resolution is advanced in breach of obligations of good faith".[44]

[44] Consistently with its own case, Aquila did not seek to contradict BCC's submission that, if BCC was guilty of the breach of contract which Aquila alleged and Aquila did not support BCC's proposed resolution, cl 6.1 would not produce any legal consequences. It also did not contradict BCC's submission that there are no practical means by which, before a trial, BCC could enforce any claimed entitlement to exercise the option. Aquila was unable to identify any adverse consequence which it might suffer before a trial in such a case.

[45] Furthermore, at the hearing before the primary judge, BCC offered an undertaking not to pursue any putative rights under cl 6 pending trial. It also submitted that, if the primary judge was disposed to grant an interlocutory injunction, it should be limited to restraining BCC from exercising the option conferred by cl 6.1(d) if such an option arose in consequence of Aquila voting against the Schedule A resolution.[45] Aquila contended that this was insufficient protection because, on the primary judge's provisional findings, it would be a contravention of cl 2.11 for BCC even to put the Schedule A resolution. That does not answer the point that the only evidence that Aquila would suffer significant adverse consequences if it did not support the Schedule A resolution was based upon a misapprehension that BCC might compulsorily acquire Aquila's interest before a trial.

[46] Nor, in my respectful opinion, did Aquila establish any ground justifying the grant of an interlocutory injunction on the footing that it would face adverse consequences if it voted in support of the Schedule A resolution. On that topic, Mr Alciaturi concluded that "there are serious potential adverse consequences for Aquila ... if the vote were to be in favour of the Schedule A Resolution." He then expressed opinions about the consequences for Aquila of supporting a resolution for development in accordance with Schedule A. The primary judge accepted that evidence, making (provisional) findings that: the absence of contractual arrangements for rail and port infrastructure would make it impossible to secure "unconditional debt funding" for the project; the consequential adverse consequences arising from an obligation by Aquila to raise equity "up front" to fund its share of the initial capital development (approximately $650 million over approximately four years) included the loss to the value of shares in Aquila's parent company which would be extremely difficult to quantify; and if rail and port access were not obtained in the very near future, the loss "could be very substantial."[46]

[47] Mr Alciaturi also deposed that should Aquila ultimately be unable to secure any debt funding, it "could be obliged to sell its interest" in the joint venture "as it may not be possible to finance [Aquila's] full share of the cost of the development by equity alone", and any such sale would be on unfavourable terms because the market would perceive that Aquila was a "distressed seller". He expressed the opinion that if Aquila voted in favour of the Schedule A resolution that would be perceived as an "unwelcome outcome" for Aquila because it would be apparent from its parent company's previous public disclosures that Aquila had been forced into taking the decision to develop the mine at this time against its will. Mr Alciaturi deposed that a decrease in share price "would further exacerbate the difficulties referred to above in respect of raising equity funding", but he did not quantify or even generally describe the magnitude of any damage to reputation which Aquila or its parent company might suffer in that situation.

[48] However, Mr Alciaturi did not suggest that Aquila might in fact vote in support of such a development. His evidence concerned the loss which Aquila might suffer if it did vote that way. When this topic was raised at the hearing of the appeal, Aquila did not point to any evidence that Aquila might decide to vote in support of the Schedule A resolution, whether to avoid the possible operation of cl 6 of the Agreement or for any other reason. That is not surprising in view of the strength of Mr Pilcher's opinions quoted in [41] of these reasons.

[49] Aquila referred the Court to the following paragraph in Mr Alciaturi's affidavit:

"If the injunction is not granted, a decision will be required on 17 September 2011 as to whether to vote for the Schedule A Resolution (as opposed to Schedule B which Aquila Coal voted in favour of at the Management Committee Meeting on 17 June 2011) 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."

[50] That is not evidence that there is a prospect that Aquila might support the resolution which its General Manager - Coal has so thoroughly condemned in his evidence. The primary judge's decision to take that prospect into account might have reflected the convention apparently adopted by the parties for the purposes of argument that the "purchase price" under cl 6.1(e) is 50 per cent of the fair market value of the Dissenting Participant's interest. Even so, there seems to have been no evidence that this assumed, potential consequence of not supporting the Schedule A resolution might cause Aquila to re-consider its consistent and vehement opposition to it.

[51] Furthermore, the primary judge's finding that the consequences of BCC's alleged breach of cl 2.11 potentially included Aquila being "forced to support" what it considers to be a commercially disadvantageous development "in order to avoid" the operation of cl 6.1[47] assumes that Aquila would act on the view that BCC was not in breach of the contract. That departs from the approach expounded by Lord Diplock in American Cyanamid Co of considering whether the applicant for an injunction would sustain loss between the time of the application and the time of the trial on the assumption that the plaintiff will succeed at the trial.

[52] Contrary to Aquila's submission, Lord Diplock's statement of the relevant principle is not inconsistent with the Privy Council's decision in National Commercial Bank Jamaica Ltd v Olint Corporation Ltd[48] that the purpose of an interlocutory injunction is "to improve the chances of the court being able to do justice after a determination of the merits at the trial" and that at the interlocutory stage "the court must therefore assess whether granting or withholding an injunction is more likely to produce a just result." In that case, Lord Hoffmann referred to and did not cast any doubt upon American Cyanamid Co.[49]

[53] Aquila also submitted that the decision of Hoffmann J (as his Lordship then was) in Films Rover International Ltd v Cannon Film Sales Ltd[50] supported Aquila's argument that the primary judge was right to grant an interlocutory injunction to protect Aquila against the prospect that, as a result of BCC's alleged breach of

cl 2.11, Aquila might have to choose "the lesser of two evils" by voting in favour of the Schedule A resolution rather than risking the loss of its Venture Interest.

[54] That decision does not justify any departure in this case from the conventional approach to assessing the balance of convenience. Hoffmann J granted an interlocutory mandatory injunction requiring the defendant to perform an alleged contractual obligation to supply films to the plaintiff to permit the plaintiff to have them dubbed into Italian in time for their release in Italy. Unlike Aquila in this case, the plaintiff in that case established that it would suffer a substantial loss if it succeeded at trial and an interlocutory injunction were not granted to protect its position in the meantime. The films were "mercurial, finite and wasting assets" and failure to deliver them to the plaintiff would cause it loss which might be very difficult to quantify.[51] It is therefore clear that the plaintiff's potential loss which justified the injunction was not found merely in the evidence mentioned by Hoffmann J that the commercial pressure which the plaintiffs were under would force them to re-negotiate so that "a refusal of the injunction will mean that although [the plaintiffs] may have had a good case, it will have been unable to bring it to trial."

[55] Hoffmann J also took into account evidence that a representative of a group of companies which took over the defendant made a public statement effectively repudiating its contracts and challenging those who would not re-negotiate that they could sue the defendant[52] and that the defendant's solicitors had made various unsupported assertions throwing light on the defendant's "true motives" in refusing to deliver the films. In light of that evidence, denial of the injunction might enable the defendant to achieve a commercial objective by a "calculated disregard of the basic principle of a civil society that 'men perform their covenants made.'"[53] There was no similar finding by the primary judge here.

[56] Aquila argued that the authorities did not require that the balance of convenience must be assessed upon the assumption that the plaintiff seeking an interlocutory injunction then knows what will be the result of the trial. That is so, but it does not follow that it is legitimate to take into account loss which the plaintiff might suffer only if it does not have the right which it claims and in respect of which it seeks the Court's protection. Lord Diplock's statement in American Cyanamid Co of the principles to be applied in assessing the balance of convenience should not be construed as though it were an Act of Parliament, and the justice of each case must be assessed on its own facts. In this case, it is not easy to see the justice in granting an interlocutory injunction to protect Aquila against consequences it will bear if it supports the resolution proposed by BCC in order to avoid different consequences Aquila might suffer only if it were to fail in its claim against BCC at a trial.

[57] I respectfully conclude that the primary judge's discretion miscarried. Aquila did not make out a case for an interlocutory injunction.

[58] Aquila submitted that Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc[54] was authority for the proposition that, even in the case of an error of principle, an appellate court should not review a decision to grant an interlocutory injunction unless it is also satisfied that the decision worked a "substantial injustice" to the appellant. Gibbs CJ, Aickin, Wilson and Brennan JJ referred to authority to that effect, but after quoting a well known passage from the judgment of Sir Frederick Jordan in In re the Will of F B Gilbert (dec'd)[55] which counselled a cautious approach to interfering with interlocutory decisions, their Honours ultimately concluded that it was "safe to say that the question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration."[56]

[59] In considering that issue, it is important to bear in mind my earlier conclusion that a practical consequence of the interlocutory injunction might be to prevent Schedule A from being implemented at all. If so, and if BCC succeeds at trial, the interlocutory decision will be found to have had a serious impact upon BCC's substantive rights. BCC has the benefit of a valuable undertaking as to damages, but a potential effect of the interlocutory injunction, which protects Aquila against the risk of adverse consequences it will bear only if it fails at trial, is to defeat the timely operation of express provisions of the Agreement which were apparently designed to promote the progress of a very substantial mining venture. It is not possible to predict whether the injunction will in fact materially delay the project, but it may do so. If it does, the consequences might be very significant and wide ranging. In addition to the effect upon BCC's interests, it is obvious that the interests of numerous other parties might be adversely affected by avoidable delay in a project of this magnitude.

2. Set aside the orders numbered 1 and 4 made in the Trial Division on 6 September 2011.

3. The first respondent's application for an injunction is dismissed, with costs.

[61] WHITE JA: I have read the reasons for judgment of Fraser JA and agree with his Honour's reasons and with the orders which he proposes.

[62] MARGARET WILSON AJA: I agree with the orders proposed by Fraser JA and with his Honour's reasons for judgment.

[1] Aquila Coal Pty Ltd v Bowen Central Coal Pty Ltd & Anor [2011] QSC 264 at [102].

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

[3] [2011] QSC 264 at [48] - [49].

[4] Amended statement of claim, para 45(a).

[5] Amended statement of claim, para 45(b).

[7] [2011] QSC 264 at [53] - [55].

[8] [2011] QSC 264 at [58].

[9] [2011] QSC 264 at [59].

[10] [2011] QSC 264 at [62].

[11] [2011] QSC 264 at [64].

[12] Aquila Steel Pty Ltd v AMCI (IO) Pty Ltd [2010] WASC 410.

[13] [2011] QSC 264 at [65] - [70].

[14] [2011] QSC 264 at [171].

[15] Amended statement of claim, para 56A.

[16] [2011] QSC 264 at [96].

[17] [2011] QSC 264 at footnotes 2 and 22.

[18] [2011] QSC 264 at [71] - [85].

[19] [2011] QSC 264 at [128].

[20] [2011] QSC 264 at [97].

[21] [2011] QSC 264 at [105].

[22] [2011] QSC 264 at [34], [107], [108], [109], [110], [111], [112], [114], [115], [116], [117], [118], [120], [121], [122], [123], [124].

[23] Transcript 19 August 2011, 1-56, 1-57.

[24] Letter from the primary judge's associate to the solicitors dated 26 August 2011 at AB 3311 - 3312.

[25] [2011] QSC 264 at [130].

[26] Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 at 623.

[27] [2011] QSC 264 at [174] - [175].

[28] [2011] QSC 264 at [178] - [179].

[29] [2011] QSC 264 at [158].

[30] [2011] QSC 264 at [44].

[31] [2011] QSC 264 at [26].

[32] [2011] QSC 264 at [160].

[33] [2011] QSC 264 at [161].

[34] [2011] QSC 264 at [48].

[35] [2011] QSC 264 at [158].

[36] [2011] QSC 264 at [161].

[37] [2011] QSC 264 at [164] - [166], [170] - [171].

[38] [1975] UKHL 1; [1975] AC 396 at 406.

[39] [2006] HCA 46; (2006) 227 CLR 57 at 81 - 82 [65], with which Gleeson CJ and Crennan J agreed at 68 - 69 [19].

[40] Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 at 623.

[41] American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 at 408 (emphasis added).

[42] [1991] 1 Qd R 301 at 311 per Cooper J (Kneipp and Shepherdson JJ agreeing).

[43] [2011] QSC 264 at [141].

[44] [2011] QSC 264 at [171].

[45] [2011] QSC 264 at [165].

[46] [2011] QSC 264 at [140].

[47] [2011] QSC 264 at [170].

[48] [2009] 1 WLR 1405; [2009] UKPC 16.

[49] [2009] UKPC 16; [2009] 1 WLR 1405 at 1409 [16]; [2009] UKPC 16.

[50] [1987] 1 WLR 670.

[51] [1987] 1 WLR 670 at 683, 685.

[52] [1987] 1 WLR 670 at 675.

[53] [1987] 1 WLR 670 at 678, 686.

[54] [1981] HCA 39; (1981) 148 CLR 170.

[55] [1946] NSWStRp 24; (1946) 46 SR (NSW) 318 at 323.

[56] [1981] HCA 39; (1981) 148 CLR 170 at 177.