Centennial Coal Company Ltd v Xstrata Coal Pty Ltd

CENTENNIAL COAL COMPANY LIMITED (First Appellant) PARTIES: CENTENNIAL HUNTER PTY LIMITED (Second Appellant) XSTRATA COAL PTY LIMITED (First Respondent) XSTRATA MANGOOLA PTY LIMITED (Second Respondent)

COUNSEL: A J MEAGHER SC/ M A JONES/ E M PEDEN (Appellants) A J L BANNON SC/ G K J RICH (Respondents)

SOLICITORS: Clayton Utz (Appellants) Chang, Pistilli & Simmons (Respondents)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT DATE OF DECISION: 11 August 2009

LOWER COURT MEDIUM NEUTRAL CITATION: Centennial Coal Company Ltd v Xstrata Coal Pty Ltd [2009] NSWSC 788

• 29 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40295/09 SC 50072/09

HODGSON JA TOBIAS JA CAMPBELL JA

16 OCTOBER 2009 CENTENNIAL COAL COMPANY LIMITED and Anor v XSTRATA COAL PTY LIMITED and Anor Judgment 1 HODGSON JA: On 11 August 2009, Brereton J dismissed with costs proceedings brought by the appellants (Centennial and Hunter) against the respondents (Xstrata and Mangoola) seeking declarations concerning an agreement called the Anvil Hill Asset Sale Deed (Asset Sale Deed) entered into on 17 September 2007. 2 The appellants appeal from that decision.

Circumstances 3 Hunter is a subsidiary of Centennial, and one of a group of companies that has been referred to as the Centennial group. Mangoola is a subsidiary of Xstrata, and is one of a group of companies that has been referred to as the Xstrata group. Both the Centennial group and the Xstrata group own coalmines in the Hunter Valley. 4 Coal exported from the Hunter Valley is exported through the Port of Newcastle. At relevant times there were two coal loading facilities at that port, both operated by Port Waratah Coal Services Limited (PWCS). The lease pursuant to which PWCS held the facilities requires that they be maintained as a "common user" facility so that, in broad terms, it must be available to all shippers of coal under conditions and terms that are not discriminatory. Since about 2004, the volume of coal that producers wish to export from the Port of Newcastle has exceeded the port's capacity, giving rise to queues of vessels forming off the port. 5 In 2005, Newcastle Coal Infrastructure Group (NCIG) was formed for the purpose of building and operating a third terminal; and in April 2007, the New South Wales government gave conditional approval to this project. 6 The arrangements between NCIG shareholders were contained in a document referred to in this case as the Heads of Agreement, which was entered into on 10 June 2005 and amended in October 2005. Part B of the Heads of Agreement dealt with what was called the Design and Approval Period, this period commencing on the execution of an agreement for lease and ending on the execution of the lease of the terminal site (which occurred on 22 January 2008); and Part C of the Heads of Agreement dealt with the subsequent Construction and Operations Period. 7 At the time the Asset Sale Deed was entered into (17 September 2007), Centennial held 81 of 922 shares in NCIG; and the provisions of the Heads of Agreement applying at that time were those of Part B, which included clauses 11.5 and 11.6: 11.5 A Shareholder (Transferring Initial Shareholder) may at any time during the Design & Approval Period seek to transfer some or all of its holding of initial Shares (Transferring Initial Shares) by offering its Transferring Initial Shares (whether or not for consideration) to the other Shareholders pro rata in proportion to the Initial Shares held by such Shareholders. Any Transferring Initial Shares not acquired by the other shareholders as a result of such offer must then be offered pro rata to any other of the remaining Shareholders who accepted the first offer for Initial Shares on the same terms as they were originally offered. Upon the transfer of the Transferring Initial Shares, the Transferring Initial Shareholder must pay to NCIG that share of all funding amounts then owing to NCIG by the Transferring Shareholder (as contemplated in clause 8) equal to the proportion that the Transferring Initial Shares bears to all its Initial Shares.

11.6 A Shareholder may not transfer any Initial Shares held by it except pursuant to clause 7.3 and 7.5. If any transfer by a Shareholder of its Initial Shares would result in a default under the Agreement for Lease, then NCIG must obtain necessary consents under the Agreement for Lease prior to such transfer occurring. 8 The reference to clause 7.3 and 7.5 involves a mistake in enumeration, and may be taken as a reference to clause 11.3 and 11.5. Clause 11.3 is not relevant to this case. 9 Further provisions of Part B were set out as follows by the primary judge: [9] The NCIG Heads of Agreement provided that the shareholders should investigate and if appropriate establish one or more legal entities through which to pursue the project in substitution for NCIG and arrange for the transfer of NCIG's rights and liabilities to such entity, and during the Design & Approval Period finalise such project agreements as they consider appropriate to pursue the project, including an agreement setting out the terms of the NCIG Heads of Agreement on a more developed and detailed basis (cll 8, 9(e)). At the end of the Design & Approval Period, all shareholders who wished to proceed with the project were to have the opportunity to enter into "Take or Pay Commitments", by which they would agree to ship tonnage through the facility in proportion to their holding of initial shares as at the end of the Design & Approval Period (or pay for such tonnage as if they had shipped it). From the commencement of the Construction & Operation Period, the NCIG shareholders would be issued with voting shares in proportion to the Take or Pay Commitments actually entered into by them (cl 10.2). The shares and the Take or Pay Commitments would be "coupled on a pro rata basis and cannot be transferred separately" (cl 16.1).

[10] As to transfer of shares during the Construction and Operation Period, cl 19 relevantly provided as follows: 19.1 A Shareholder may transfer some or all of its Take or Pay Commitment and corresponding Voting Shares by offering it proportionally to the other Shareholders. The Take or Pay Commitment and Voting Shares will be divided proportionally between those Shareholders wishing to take on the related Take or Pay Commitment. Any remaining Take or Pay Commitment and Voting Shares not acquired by other Shareholders may then be offered to other independent shippers of substance and credit status reasonably acceptable to the Board.

19.2 A third party may not acquire Voting Shares or any interest therein except in accordance with clause 14.2 and 15.1 or where the Facility is to be expanded (see clause 17 below).

[11] Again, the reference to cll 14.2 and 15.1 involves enumeration errors and was intended to be a reference to cll 18.2 and 19.1; cl 18.2 is not, in the circumstances, relevant.

[12] Clause 33.8 provided: 33.8 Assignment

A Party must not assign or otherwise deal with this Agreement or any rights under this Agreement without the consent of the other Parties. 10 In June 2007 PWCS announced that it would apply to the government to amend the "common user" provisions with effect from January 2010, so as to give preference to customers not having access to the NCIG facility. That application was opposed by NCIG, and has not been acceded to by the government. 11 As at August 2007, Hunter had recently received approval to develop an open-cut coalmine known as Anvil Hill in the Hunter Valley. 12 On 21 August 2007, Xstrata wrote to Centennial proposing a purchase of Centennial's interest in the Anvil Hill project and in another mine for $1 billion, the purchase of the Anvil Hill project to include "Centennial's interest in the NCIG project" (Blue 264). 13 Subsequent to that letter, Centennial advised Xstrata of difficulties in including its NCIG interest in such a sale, and Xstrata's solicitors inspected the Heads of Agreement (Black 3). 14 On 30 August 2007, Xstrata wrote again to Centennial, with an increased offer of $1.06 billion, and among other things this letter stated: 3. In view of Centennial's stated difficulties in including its NCIG interest as originally contemplated, Xstrata is willing to discuss this further to find a mutually acceptable solution. 15 In the result, the Asset Sale Deed was entered into on 17 September 2007 between Hunter (described in the deed as the Seller), Centennial (described as the Seller's Guarantor), Mangoola (described by its former name as the Buyer) and Xstrata (described as the Buyer's Guarantor). 16 The Asset Sale Deed provided in cl 3.1 for the sale by the Seller and purchase by the Buyer of the "Anvil Hill Assets" for the "Anvil Hill Purchase Price", the latter being something over $400 million. The Anvil Hill Assets were a number of identified assets, not including the NCIG Arrangements, which were defined as follows: Any interest and/or entitlement of the Seller's Guarantor (however described, howsoever arising and of whatever nature) under, in and to:

2 any other contract, agreement, deed or similar arrangement as at the date of this deed in relation to the NCIG Project to which the Seller's Guarantor is a party or has an interest and/or entitlement. 17 Clause 2 of the Asset Sale Deed dealt with certain conditions precedent, and provided for obligations to use reasonable endeavours to obtain third party consents, a cut-off date, and rights to terminate if the conditions were not satisfied by the cut-off date. 18 Clause 7 related to the transfer of contracts, and cll 7.1 to 7.4 provided as follows: 7.1 Transfer of Contracts

(a) The Seller and the Buyer must use all reasonable endeavours to, in respect of each Key Contract and Contract: (1) novate each Seller Group Member's rights and obligations under that Key Contract or Contract (other than the Property Leases) to the Buyer by Completion; and

(2) to the extent that a novation of a Key Contract or Contract has not occurred by Completion and, in respect of the Property Leases, assign to the Buyer the benefit of that Key Contract or Contract by Completion (to the extent permitted by the terms of the relevant Key Contract or Contract); or and to procure that the novation or assignment takes effect on and from Completion.

(b) Where a novation or assignment required under clause 7.1(a) has not occurred by Completion, the Buyer and the Seller must use all reasonable endeavours to ensure that novation or assignment occurs in accordance with this deed as soon as reasonably practicable after Completion. Except where the Seller has not discharged its obligations under clauses 7.1(a) or 7.1(b) or 7.3(a)(1), the Buyer will not be entitled to make any Claim in respect of the failure to novate or assign in accordance with clause 7.1.

(c) The obligation in this clause 7.1 to use all reasonable endeavours includes the Buyer paying the reasonable costs and expenses incurred or charged by Third Parties in relation to the novation of rights and obligations or assignment of rights under any of the Contracts.

(d) The obligation in this clause 7.1 to use all reasonable endeavours includes the Buyer procuring as part of the novation or assignment with effect from Completion: (1) the release of any Seller Group Member or director of a Seller Group Member from all obligations in relation to the relevant Key Contract or Contracts; and

(2) the release, discharge or repayment of any guarantee, performance bond, security deposit or other like security provided in relation to the Key Contract or Contracts.

(e) If the Buyer is unable to procure the release of a Seller Group Member or director of a Seller Group Member in accordance with clause 7.1(d)(1) or the release, discharge or repayment of any guarantee, performance bond, security deposit or other like security in accordance with clause 7.1(d)(2), the Buyer indemnifies each Seller Group Member and director of a Seller Group Member and must keep each Seller Group Member and director of a Seller Group Member indemnified against any Loss which the Seller Group Member or director of a Seller Group Member may pay, suffer, incur or be liable for as a result of any obligations after the Effective Date under any such guarantee, performance bond, security deposit or other like security except to the extent that such Loss arises as a result of the fraud, wilful misconduct or intentional breach of law or contract by a Seller Group Member or director of a Seller Group Member.

(f) Any novation under this clause 7.1 must be substantially in the form of the Novation Deed.

7.2 Transfer of guarantees For the avoidance of doubt, the Buyer's Guarantor must provide a guarantee of the Buyer's obligations when and as required by a Key Contract, Contract, the Hogan Land Agreements or a Third Party.

(a) If a novation or assignment required under clause 7.1 has not occurred by Completion, then after Completion and until such novation or assignment: (1) to the extent it lawfully can, the Seller must permit the Buyer to have the benefit of and exercise the Seller's rights under the Key Contract or Contract from Completion; and

(2) the Buyer must, to the extent it lawfully can, perform all of the non-personal obligations of the Seller under each Key Contract or Contract from Completion.

(b) Nothing in this deed is to be construed as an attempt to assign the benefit of any Key Contract or Contract that by its terms or by law is not assignable without a third party consent, unless such consent has been given.

7.4 Indemnities Where the Buyer is required to perform a Seller Group Member's obligations under: (a) a Key Contract or Contract that has not been novated or assigned; or

(b) an Exchanged Contract, the Put and Call Options, the Co-operation Agreements and the Hogan Land Agreements, the Buyer indemnifies the Seller Group Member and director of a Seller Group Member in respect of any Loss which the Seller Group Member or director of a Seller Group Member pays, suffers, incurs or is liable for at any lime after Completion as a result of any act or default of the Buyer in performing the Seller Group Member's obligations, except to the extent that such Loss is caused or contributed to by the fraud, wilful misconduct or intentional breach of law or contract by a Seller Group Member or director of a Seller Group Member. 19 Clause 8 related to the period after completion, and cl 8.6 provided as follows: 8.6 Transfer of interest in NCIG Arrangements

(a) The Seller and the Buyer must use all reasonable endeavours to: (1) novate the Seller's Guarantor's rights and obligations under the NCIG Arrangements to the Buyer and

(2) transfer to the Buyer or its nominee the Seller's Guarantor shares in NCIG,

(b) Where the novation and transfer of shares required under clause 8.6(a) has not occurred on and with effect from Completion, the Buyer and the Seller must use all reasonable endeavours to ensure that the novation and transfer occurs as soon as reasonably practicable after Completion.

(c) Where the novation and transfer of shares required under clause 8.6(a) has not occurred on and with effect from Completion, the Seller's Guarantor must use reasonable endeavours (subject to existing contractual obligations) to: (1) continue to hold its interest and/or entitlement under, in and to the NCIG Arrangements;

(2) not dispose of or otherwise deal with its interest and/or entitlement under, in and to in the NCIG Arrangements;

(3) take into full consideration its commitments to the Buyer in this clause during any negotiations with NCIG when entering into contracts with NCIG and must take reasonable care that the results of those commitments, negotiations or contracts do not contradict those commitments; and

(4) make available any capacity that it may be entitled to under the NCIG Arrangements at the NCIG terminal for output of the Anvil Hill Mine.

In return, the Buyer's Guarantor must use reasonable endeavours to assist any application by the Seller Group for throughput entitlement at the coal loading facility owned by Port Waratah Coal Services Limited for output from the Seller Group's Mandalong and Newstan mines.

(d) If the novation and transfer of shares required under clause 8.6(a) occurs the parties acknowledge and understand the terms of clause 12.4 of the NCIG Heads of Agreement and agree that the Preliminary Expenses (as that term is defined in the NCIG Heads of Agreement) funded by the Seller's Guarantor under or in connection with the NCIG Heads of Agreement will be reimbursed to the Seller's Guarantor in the circumstances contemplated by that clause, together with interest at the rate described in that clause.

(e) If the novation and transfer required under clause 8.6(a) has not occurred, the Buyer may without any liability exclude the NCIG Arrangements from this deed and the provisions in clause 8.6(c) cease to apply. 20 Prior to completion of the agreement, Centennial wrote as follows to Xstrata on 9 October 2007: NCIG - Clause 8.6 of Asset Sale Deed

The purpose of this letter is to request Xstrata Coal Pty Ltd's and Andros Australia Pty Ltd's acknowledgement that Centennial Coal is acting in accordance with, and is not in breach of, its obligations under Clause 8.6 of the Asset Sale Deed dated 17 September 2007 (" Asset Sale Deed ") in respect of the following:

That Centennial Coal will nominate its Mandalong and Newstan South mines as its source mine in respect of NCIG (and therefore, among other things, for the purpose of preparing an information memorandum to be provided to potential financiers of the NCIG Project, will state this). However, Centennial Coal will continue to seek to honour its obligations under clause 8.6 of the Asset Sale Deed, and it is understood that to the maximum extent possible, the capacity under NCIG will remain reserved for Xstrata's use.

I understand that the nomination of Mandalong and Newstan South as Centennial Coal's source mine for NCIG has been agreed between ourselves.

Would you kindly provide in writing the above acknowledgement by having the attached copy of this letter signed and returned.

Xstrata gave a signed acknowledgement of this letter. 21 The Asset Sale Deed was completed on or about 17 October 2007. The novation and transfer of shares required under cl 8.6(a) did not occur on and with effect from Completion. 22 On 29 November 2007, Centennial wrote to Xstrata as follows: Centennial Coal Company Limited is looking to finalise arrangements in relation to its participation in the NCIG Project. Under those arrangements, Centennial will be taking on long term take or pay commitments in respect of [its] capacity entitlement at the new NCIG terminal (that is, 8.8% of the total capacity of the NCIG terminal), including establishing and maintaining a letter of credit in support of Centennial's share of the take or pay.

Clause 8.6 of the Anvil Hill Asset Sale Deed imposes certain obligations on Centennial in respect of Centennial's NCIG interest. Included in those obligations is a requirement for Centennial to use all reasonable endeavours to ensure the novation and transfer of its NCIG shares to Xstrata. Until that transfer occurs, Centennial must continue to hold its NCIG interest and not dispose of or otherwise deal with that interest. Centennial must also make its Capacity entitlement at the NCIG terminal available to Xstrata.

Until such time as Centennial transfers its shares in NCIG to Xstrata, Centennial will be required to comply with its take or pay obligations in respect of its capacity entitlement.

I am writing to request that Xstrata confirm the understanding between us: that for so long as Centennial remains a shareholder in NCIG, Xstrata will, if requested by Centennial, take up some or all of Centennial's capacity entitlement at the NCIG terminal and will also be wholly responsible for the equivalent proportion of Centennial's take or pay commitments in respect of that capacity entitlement, including the reasonable cost of providing a letter of credit. It is currently expected this will be based on 8.8% of 30mtpa at an assumed toll charge in the range of $4.50 to $5.00 (ie, maximum of $13.2 million) at our current cost of 0.35% per annum.

Further, Xstrata will use reasonable endeavours to assist any application by Centennial for throughput entitlement at the coal loading facility owned by Port Waratah Coal Services Limited for output from Centennial's Mandalong and Newstan mines.

Would you kindly confirm Xstrata's agreement to the foregoing by signing and returning the attached copy of this letter to me at your earliest convenience.

Xstrata provided a signed acknowledgment to this letter, as requested. 23 Between October 2007 and January 2008, the parties to the Heads of Agreement negotiated and executed a revised shareholder agreement. These and subsequent events were recounted as follows by the primary judge: [14] On 19 December 2007, NCIG, Centennial Mandalong Pty Ltd and Centennial Newstan Pty Ltd entered into a Ship-or-Pay Agreement for a term of ten years, under which the mine owners nominated Centennial's Mandalong and Newstan mines as their source mines. Pursuant to the ship-or-pay agreements, NCIG is obliged to make available for utilisation by Centennial Mandalong and Centennial Newstan in the loading of ships their "capacity entitlement", which represents 8.79% of the nominal capacity of the NCIG terminal. Clause 10.1 of the ship-or-pay agreement permits the shipper to "make available to any other person ready to ship coal from the terminal … all or any part of its capacity entitlement", by notice for a period of up to twelve months, but which can be renewed repeatedly (cll 10.1, 10.3, 10.7).

[15] The revised NCIG Shareholders Agreement was finalised and dated 15 January 2008, and on 22 January 2008 NCIG executed a lease of the proposed terminal site. As permitted by cll 8 and 9 of the NCIG Heads of Agreement, the arrangements between the original NCIG shareholders and the vehicle by which they were to hold their interests in NCIG were restructured. The original shareholders, or their nominees, became shareholders in a new vehicle, NCIG Holdings Pty Ltd, in the same proportions as they had held shares in NCIG; NCIG became a wholly owned subsidiary of NCIG Holdings; long term ten year Ship-or-Pay Agreements were entered into by each original shareholder or its nominee; and Centennial Coal transferred the shares it acquired in NCIG Holdings to its wholly owned subsidiary Centennial Coal Infrastructure Pty Ltd ("CCI").

[16] Clause 14 of the NCIG Shareholders Agreement (Disposal of Terminal Interests) relevantly provided as follows: 14.1 Restriction on Disposal of Terminal Interests. A shareholder may not Dispose of any Share, and the Board must not register any transfer of Shares, unless:

(a) the transfer is under clause 14.2 or clause 14.3;

(b) the transfer is pursuant to the exercise of a put option or a call option under clause 14.8; or

(c) the Shareholder and its Affiliated SoP Shipper comply with Schedule 7, and in each case the transfer would not constitute a deemed assignment of the Agreement for Lease or the Dry Land Lease.

14.2 Permitted transfer of Shares to Related Bodies Corporate Despite anything in Schedule 7, a Shareholder may Dispose of all or part of its Shares to a Related Body Corporate of the Shareholder provided that: (a) the transferee is also a Related Body Corporate of the relevant Affiliated SoP Shipper; (b) the transferee obtains all necessary Authorisation to the transfer from Government Agencies; and (c) the transferee enters into a Deed of Accession and Novation.

14.3 Permitted transfer to Qualifying Third Parties. Despite anything in Schedule 7: (a) a Shareholder may transfer all or part of its Shares; and

(b) the Affiliated SoP Shipper of the Shareholder may assign and novate all or part of its Capacity Entitlement and its rights and obligations under its Ship-or-Pay Agreement

(c) the proposed SoP Shipper is, or is guaranteed by, a New Mine Owner;

(d) the proposed Shareholder is a Related Body Corporate of the proposed SoP Shipper;

(e) the Qualifying Third Parties obtain all necessary Authorisations to the transfer from Government Agencies; and

(f) the Qualifying Third Parties enter into a Deed of Accession and Novation.

[17] A "Qualifying Third Party" is a person (proposed SoP Shipper) that has marketable coal reserves sufficient to enable the proposed SoP Shipper to meet its obligations under a ship-or-pay agreement in respect of the proposed capacity entitlement if it were to become an SoP Shipper, jointly with a proposed shareholder that is a related body corporate of the proposed SoP Shipper. Schedule 7 prescribed a procedure for the invocation of the pre-emptive rights of the existing shareholders in the event of a proposed transfer of shares and Ship-or-Pay Agreements, relevantly providing that: Proposing transferors must give an assignment notice to the company, specifying the number of the subject interests, the transfer price (which must be a cash price) and all other terms of payment, accompanied by the certificate for the shares held by the shareholder and the ship-or-pay agreement between the affiliated SoP shipper and NCIG; The company must give an offer notice to each shareholder and its affiliated SoP shipper(s) collectively, other than the proposing transferors, offering the subject interests for sale at the transfer price on the basis that each shareholder and affiliated SoP shipper collectively have a right of first refusal in respect of its initial allocation and on terms that if not accepted within 30 days the offer was taken to have been declined, and may be accepted for all or some only of the offeree's initial allocation; A shareholder and its affiliated SoP shipper collectively may exercise the right of first refusal by giving to the company within the offer period an acceptance notice and the transfer price, and may add an offer to buy additional shares at that price; The Board must allocate any subject interests not accepted by shareholders who had a right of first refusal amongst those that included offers to buy additional subject interests; If the Board has not allocated all subject interests to other shareholders and affiliated shippers within 90 days after the assignment notice, it may not dispose of any of them and the company must immediately repay any amounts paid by shareholders and their affiliated shippers for the transfer price and return the share certificates to the proposing transferors; If within 90 days after the assignment notice the company has not allocated all subject interests to other shareholders and their affiliated shippers or qualifying third parties, the proposing transferor may transfer the shares and novate its ship-or-pay agreement or so much as has not been allocated by the Board to qualifying third parties at the transfer price and otherwise on terms no less favourable than those set out in the assignment notice.

[18] Thus, if a shareholder wishes to transfer all or any proportion of its terminal interests (constituted by its shares, and its capacity entitlement under its Ship-or-Pay Agreement), it is required first to offer them to existing shareholders, and only if existing shareholders did not acquire all of the terminal interests can the residue be transferred to a third party, who must satisfy the definition of "Qualifying Third Party".

Are Centennial Hunter's obligations under clauses 8.6(a), (b) and (c) discharged or released?

[19] If an NCIG shareholder wishes to transfer its interests, the Sch 7 procedure requires that it inform NCIG Holdings of the subject interests to be sold, the proposed transfer price, and all other terms of the payment. On 2 May 2008, Centennial informed Xstrata that transfer of Centennial NCIG Arrangements shares pursuant to cl 8.6 of the Anvil Hill Asset Sale Deed would require that an assignment notice be given to the other NCIG shareholders, and requested that Xstrata supply the requisite information to prepare such a notice. It has since reiterated this position. Xstrata has sought access to the NCIG Shareholders' Agreement and related documentation, to which Centennial has responded by asserting that the material sought is confidential and inviting Xstrata to identify those parts to which it requires access, so that approval of other NCIG shareholders can be sought. It has also invited Xstrata to say that it was a bona fide prospective purchaser of Centennial's NCIG terminal interests, which would have enabled Centennial to provide access to the Shareholders Agreement and related documentation without approval from other NCIG shareholders (cl 12.8 of the Shareholders Agreement), but Xstrata has declined to do so. Centennial has also proposed that it write to the other NCIG shareholders to obtain consent to disclosure of the Shareholders Agreement and Ship-or-Pay Agreement and sought Xstrata's views; Xstrata ultimately responded that it considered it "impractical" to send such a request to the other NCIG shareholders. Xstrata has never accepted that the transfer of shares to it should proceed under the pre-emptive provisions in the NCIG Shareholders Agreement. 24 These proceedings then ensued.

Decision of primary judge 25 So far as relevant to the appeal, the primary judge noted the appellant's submissions as follows: [20] Centennial Coal and Hunter submit that Centennial Hunter has been discharged by performance of its obligations under cl 8.6(a), (b) and (c) of the Anvil Hill Asset Sale Deed, and alternatively is relieved from further performance, by reason of breach by Mangoola of those provisions. In essence, this submission proceeds as follows: although no novation or transfer had occurred as at completion on 17 October 2007, they could only have occurred if all other parties to the NCIG Heads of Agreement agreed to waive the provisions of cll 11.5 and 11.6, which did not permit the transfer of shares to third parties during the Design & Approval Period; the entry by Centennial Coal and its subsidiaries into the NCIG Shareholders Agreement and the Ship-or-Pay Agreement involved no breach by Centennial of any obligations under 8.6(c), but happened in accordance with Centennial's existing contractual obligations under the NCIG Heads of Agreement; after 15 January 2008, when the NCIG Shareholders Agreement was finalised, the only way in which the shares and Ship-or-Pay Agreements could be transferred to Mangoola was in accordance with the Sch 7 procedure; in circumstances where the shares could not be transferred except pursuant to the Sch 7 procedure, Centennial Hunter's obligation under cl 8.6(b) to "use all reasonable endeavours" (or to procure that CCI do so), required no more than seeking to effect a transfer in accordance with the Sch 7 procedure; Centennial Coal and Hunter have endeavoured to do precisely that, but Xstrata Mangoola has refused to cooperate by providing the requisite information to enable the preparation and giving of an assignment notice; in those circumstances, Centennial Hunter has done everything it is reasonably able to do to produce a real chance of achieving the transfer and novation and is discharged from further performance of cl 8.6(b), or alternatively Mangoola is in breach of its obligations under that clause, which breach relieves Hunter from further performance; the obligations in cl 8.6(c) are subsidiary to the "paramount" obligations in cll 8.6(a) and (b) and are intended only to preserve the utility and value of the rights and obligations in shares the subject of cll 8.6(a) and (b) while the obligations in those clauses continue, and as those obligations have been discharged so too are the obligations under cl 8.6(c). 26 He gave the following reasons for rejecting these submissions: [25] As Mr Meagher SC for the plaintiffs emphasises, cl 8.6(b) is not, in terms or in effect, an obligation to "ensure that the novation and transfer occurs as soon as reasonably practicable"; it is an obligation to "use all reasonable endeavours" to that end.

[26] While the content of a "best endeavours" clause depends upon the particular obligation and the circumstances in which it was undertaken, it posits an objective standard to be addressed by reference to what was done or not done in the circumstances that existed; it requires the doing of what can reasonably be done in the circumstances to achieve the contractual object [ Hospital Products Ltd v United State Surgical Corporation (1984) 156 CLR 41 at 64-65, 91-92 and 118]. It necessarily includes an obligation not to hinder or prevent achievement of the contractual object [ Hospital Products , 64-65 (Gibbs CJ), 95 (Mason J)]. The obligation continues until the obligor "should reasonably judge in the circumstances that further efforts would have such remote prospects of success that they are simply likely to be wasted" [ Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135 at 150-151 and 152]; however, one must allow for events, including extraordinary events, as they unfold, as Lewison J said in Yewbelle Ltd v London Green Developments Ltd [2006] EWHC 3166 (Ch) (at [123]); affirmed [2007] EWCACiv 475 [29], [33], [122], [124]] (emphasis added): I come back to the question: for how long must the seller continue to use reasonable endeavours to achieve the desired result? In his opening address, Mr Morgan said that the obligation to use reasonable endeavours requires you to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted. You would simply be repeating yourself to go through the same matters again. I am prepared to accept this formulation, subject to the qualification that account must be taken of events as they unfold, including extraordinary events .

[27] Centennial Coal and Hunter submit that such an obligation may be discharged by performance, in circumstances where there is nothing reasonably available to be done which has a realistic chance of achieving that outcome. However, this proposition must be subject at least to the following qualifications: first, that such endeavours as could be made to achieve the outcome have been made; and secondly, that even though there may be no realistic chance of achieving the contractual object presently, regard must be had to the possibility of that situation changing - to what extent and for how long that will be so will depend on the contractual context in each individual case.

[28] In the present case, the relevant contractual object was the transfer of Centennial's shareholding and capacity entitlement to Mangoola. Other than invoking the Sch 7 procedure, one way in which that object could have been - and still could be - achieved is if the other parties to the NCIG Shareholders Agreement waived their pre-emptive rights. Seeking the agreement of the other shareholders to that course would ordinarily be a reasonable step towards achieving the contractual object, and one that an obligation to use "all reasonable endeavours" would require be taken. It has not been taken, Centennial Hunter having formed the view that the other shareholders would not agree. Xstrata does not assert the contrary. In those circumstances, it cannot be said that Centennial Hunter has failed to use all reasonable endeavours by not seeking the agreement of the other NCIG shareholders to the transfer and novation. Xstrata has suggested two other means (apart from the Sch 7 procedure) by which the contractual object might be achieved. It is unnecessary for me to examine them in detail; I am unconvinced that either could lawfully achieve the contractual object, and it follows that I am unsatisfied that they would be "reasonable endeavours". In those circumstances, Centennial contends that the only way in which the contractual object could be achieved is by invoking the Sch 7 procedure, that its invocation is a "reasonable endeavour" to secure the contractual object, that it has done everything it can to invoke it, and that Mangoola is obliged to co-operate in it but has failed to do so.

[29] However, the purpose of the Sch 7 procedure is to permit existing shareholders in NCIG to acquire shares from any shareholder who wishes to sell, in priority to an external party. If a low transfer price were nominated, there would be a very substantial probability that the shares would be snapped up by the existing NCIG shareholders, and not transferred to Mangoola at all. If so high a price were nominated as to deter other existing shareholders, Mangoola would become obliged to pay - and Centennial entitled to receive - a very substantial premium over and above the consideration provided for by the Anvil Hill Asset Sale Deed. It is impossible to see how the invocation of a procedure which in all probability will result in the shares and ship-or-pay agreements being transferred to other existing shareholders and not to Mangoola, or at best Mangoola having to pay a substantial consideration over and above that in the Asset Sale Deed, could be a reasonable endeavour to achieve the contractual object. To the contrary, its likely consequence would be to defeat the contractual object by resulting in the shares and ship-or-pay agreements being transferred to persons other than Mangoola. To invoke such a procedure would be contrary to Centennial Hunter's obligations under cl 8.6(c)(i) and (ii). Far from being a "reasonable endeavour" to achieve the contractual object that Hunter is obliged to take, it would be calculated to defeat the contractual object and prohibited.

[30] It also follows that the Sch 7 procedure is not one in which Mangoola is obliged to cooperate. Accordingly, its refusal to cooperate is not a breach of its obligations under cl 8.6(b), and does not discharge Hunter from its obligation.

[31] It follows that, other than by seeking consent - which both parties appear to accept would at present be futile - there is no reasonable step which Centennial could take to procure the transfer and novation. The plaintiffs contend that the result is that they are discharged by performance.

[32] However, that there is no step than can presently be taken to that end is not to say that reasonable endeavours to achieve the result "as soon as reasonably practicable after completion" have been exhausted, so as to discharge the obligation. It may be accepted that Centennial Hunter is not in breach of its obligation to use "best endeavours" under cl 8.6(a) and (b). But breach and discharge by performance are not the only possibilities; a party may be not in breach of a contractual obligation, and still not yet have been discharged from that obligation by performance. Just because novation and transfer are not presently reasonably practicable does not mean that the position is forever frozen. The evidence shows that there are currently on foot negotiations in relation to the implementation of a long-term solution for access to and the expansion of export capacity at the port. The climate for obtaining consent from the other NCIG shareholders may change, and some other commercial realignment of interests may emerge, presenting an opportunity not presently perceived for a transfer: these possibilities are, at least in the context of this case, within the concept of "events, including extraordinary events, as they unfold" referred to by Lewison J in Yewbelle Ltd v London Green Developments Ltd , in the passage cited above.

[33] In this respect, context is of importance. It is not as if the parties did not give consideration to and make provision for the circumstance that it might be impracticable and remain impracticable for the novation and transfer to take place. Indeed, it was because they recognised the difficulties in securing that end that they adopted the "reasonable endeavours" approach, and the interim arrangements in cl 8.6(c). Together, cll 8.6(a), (b) and (c) recognise that it may not be reasonably practicable to effect the novation and transfer upon completion. Clause 8.6(b) appears in the context of the remainder of cl 8.6, which involves ongoing mutual obligations of each party, unless and until they are "excluded" by Mangoola pursuant to cl 8.6(e). Clause 8.6(c) is intended to achieve the contractual object to the best of the parties' ability, unless and until the novation and transfer takes place, or the NCIG arrangements are excluded under 8.6(e). The obligation imposed by cl 8.6(b) is to use all reasonable endeavours to ensure that the novation and transfer occurs "as soon as reasonably practicable after completion". The obligation to use reasonable endeavours is connected with the state of affairs that the novation and transfer be "reasonably practicable". The evidence establishes that it was not at completion, and is not now (and in the interim has not been) "reasonably practicable" to effect the novation and transfer. If and when it becomes "reasonably practicable", cl 8.6(b) will oblige Centennial then to use reasonable endeavours to effect it. Unless and until that happens, cl 8.6(c) operates to govern the position.

[34] In my view, therefore, the obligation imposed by cl 8.6(b) is an on-going one which subsists until a novation and transfer is achieved, or the NCIG arrangements are excluded under cl 8.6(e). Clause 8.6(c) regulates the relevant arrangements in the meantime.

[35] I also reject the submission about cl 8.6(c) - that the obligations in cl 8.6(c) are subsidiary to the "paramount" obligations in cll 8.6(a) and (b) and are intended to preserve the utility and value of the shares and contractual rights and obligations the subject of those clauses only so long as the obligations in cl 8.6(a) and (b) continue - for the following reasons.

[36] First and foremost, even if the submission were otherwise correct, for the reasons already advanced Hunter has not been discharged from its obligations under cl 8.6(b), which subsist.

[37] Secondly , cl 8.6(c) expressly applies "where the novation and transfer of shares required under cl 8.6(a) has not occurred on and with effect from completion". It contains no hint that it is to cease to apply if the parties cannot effect a novation or transfer after completion.

[38] Thirdly , the parties provided by cl 8.6(e) for Mangoola - but not Hunter - to have the ability to exclude the NCIG Arrangements, whereupon cl 8.6(c) would cease to apply. That provision would be superfluous if cl 8.6(c) expired automatically upon discharge of the obligations to use "all reasonable endeavours" under cl 8.6(a) and (b).

[39] Fourthly , a reasonable person with knowledge of the facts known to both parties would conclude that they intended the obligation imposed by cl 8.6(c) to subsist, even if "reasonable endeavours" did not result in a novation and transfer under cll 8.6(a) or (b), or that such novation and transfer never became "reasonably practicable". Part of the factual matrix known to both parties when the Anvil Hill Asset Sale Deed was agreed was that there were significant capacity constraints at the port; under the Asset Sale Deed Xstrata acquired a new coal mine for which port capacity would be required; initially, the parties contemplated including Centennial's interest in NCIG in the sale, but because of the contractual difficulties imposed by the NCIG Heads of Agreement sought an alternative solution; that alternative solution involved Centennial agreeing to make capacity available through NCIG for the output of the Anvil Hill Mine; and when the sale deed was negotiated, the NCIG terminal was not expected to be operational until late 2009, when Anvil Hill itself was expected to commence production, some two years after completion - so that cl 8.6(c)(iv) was always intended to operate, if at all, some years after completion.

[40] Centennial urged that such a construction would leave it in a position of uncertainty in the longer term, with on-going and indeterminate obligations under the ship-or-pay agreement, but potentially no ability to use its capacity entitlement at NCIG because of the on-going obligation to make it available for Mangoola for out-put from the Anvil Hill Mine, with the consequence that it could not rely on its capacity entitlement at NCIG for output from its own Newstan and Mandalong mines. I do not find this persuasive, for multiple reasons: (1) if the contractual object were achieved and the transfer and novation effected, Centennial would have exactly the same problem with access to port capacity for coal extracted from Newstan and Mandalong; (2) the PWCS facility is a common user facility, and it is not self-evident that capacity would not be available to Centennial through PWCS - the mere possibility that its accessibility to NCIG shareholders might in the future be reduced is not a compelling consideration; and (3) in any event, this was a billion dollar deal, and the assumption of some commercial risk by Centennial in return is far from incomprehensible. Far more telling, in my judgment, is that for the acquisition of Anvil Hill to be a commercial proposition, shipping capacity was necessary; conceptually, the Anvil Hill project had included as an aspect the securing of shipping capacity through NCIG, and Anvil Hill was to come on line at about the same time as NCIG; the parties initially contemplated including Centennial's interest in NCIG in the asset sale, and when that proved impracticable - having regard to the terms of the NCIG Heads of Agreement - substituted an alternative mechanism for the purpose of securing, so far as they were able to do so without contravening existing obligations, access to capacity through the NCIG terminal so long as the transfer of shares and novation of the ship-or-pay agreement had not taken place.

[41] It follows that cl 8.6(c) is not temporarily limited the way in which the plaintiffs contend. It was intended to be of indeterminate operation, to secure to Mangoola as best as the parties were able, in the context of existing legal constraints, access to capacity at the NCIG terminal, unless and until there was a transfer and novation, or the NCIG arrangements were excluded by Mangoola.

[42] It follows that the plaintiffs' claims for declarations to the effect that they have no further obligations under cl 8.6(a), (b) and (c) fail. My conclusion that invocation of the Sch 7 procedure is not a "reasonable endeavour" within cl 8.6(b) sufficiently disposes of the alternative claim, insofar as it was pressed, for specific performance, by which the plaintiffs contended that the defendants ought to be required to provide the requisite information to facilitate the preparation and issue of an assignment notice to trigger the Sch 7 procedure.

Issues on appeal 27 The appellants rely on the following grounds of appeal: 1 The primary judge erred in construing clause 8.6(c) of the Anvil Hill Asset Sale Deed ("Deed") as not being temporally limited and as being of indeterminate operation [J41]. The appellants contend that the primary judge ought to have held that, on its proper construction, clause 8.6(c) was dependent on clause 8.6(b), and that its operation came to an end upon discharge by the Second Appellant of its obligations under clause 8.6(b).

2 The primary judge erred in construing clause 8.6(b) of the Deed as imposing an on-going obligation which subsists until a novation or transfer is achieved, or the NCIG arrangements are excluded under clause 8.6(e) [J34]. The appellants contend that clause 8.6(b) is not an obligation to 'ensure' novation and transfer occur, but rather an obligation to use 'reasonable endeavours" to achieve that result, and that the primary judge ought to have held that, on its proper construction, clause 8.6(b) was also capable of coming to an end through: a. the Second Appellant's performance of its obligations under clause 8.6(b); or

b. the Second Respondent's breach of its interdependent obligations under clause 8.6(b).

3 The primary judge erred in construing clause 8.6(b) as requiring that the Second Appellant must wait in relation to performance of its obligations under that clause for an indefinite period if necessary, if there was a possibility the circumstances may change so as to make a novation and transfer of the shares possible or 'practicable' [J32]. The appellants contend that this is an approach inconsistent with the proper construction of the 'reasonable endeavours' obligation imposed by clause 8.6(b) of the Deed.

4 The primary judge erred in holding that the taking of steps consistent with the pre-emptive rights procedures described in Schedule 7 of the NCIG Shareholders Agreement was not a reasonable endeavour within the meaning of clause 8.6(b) [J29], and in holding that the Second Respondent's refusal to co-operate in the procedure was not a breach of the Second Respondent's obligations under clause 8.6(b) so as to discharge the Second Appellant from its obligations under that clause [J30]. The appellants contend that the primary judge ought to have found that the taking of such steps was a reasonable endeavour to ensure that the novation and transfer occurred as soon as reasonably practicable after Completion.

5 The primary judge erred in finding [J29] that: a. If the Schedule 7 procedure was complied with and a "low transfer price" was nominated by the Second Respondent, there would be a "very substantial I probability" that the shares would be "snapped up" by the existing NCIG shareholders, and not transferred to the second Respondent at all;

b. the "likely consequence" of the invocation of the Schedule 7 procedure would be to defeat the contractual object because it would result in the shares and ship or pay agreements being transferred to persons other than the Second Respondent;

c. pursuit of the Schedule 7 procedure "would be calculated to defeat the contractual object". The appellants contend that the evidence before the primary judge did not enable findings to be made as to any of these matters.

6 The primary judge erred in finding that the parties accepted (or appeared to accept) that seeking consent of the other NCIG shareholders to the novation and transfer, or a waiver of the pre-emptive rights, would be futile [J31].

7 The primary judge erred in not holding that: a. the Second Respondent was in breach of its obligations under clause 8.6(b) in refusing to co-operate in the Schedule 7 procedure;

b. by reason of the Second Respondent's breach of its obligations under clause 8.6(b) the First and Second Appellants were relieved from further performance of their obligations under clauses 8.6(b) and (c);

c. in the circumstances the Second Appellant had discharged its obligations under clause 8.6(b) and accordingly it and the First Appellant had no further obligations under clause 8.6(b) and (c).

Submissions 28 In addition to relying on submissions similar to those made to the primary judge, Mr Meagher SC for the appellants submitted that the NCIG Arrangements were not included in the assets sold under the Asset Sale Deed, and that accordingly the question of what was required by way of "reasonable endeavours" by both Hunter and Mangoola was to be approached on the basis that Mangoola had not purchased any entitlement to the NCIG Arrangements but rather was, along with Hunter, obliged to use reasonable endeavours to bring about a novation to Mangoola of the rights and obligations of Centennial under those Arrangements. Accordingly, where the only practical way in which such a result could be achieved was by going through the procedure for transfer of rights and obligations provided for under the NCIG arrangements, Mangoola's obligation to use all reasonable endeavours extended to an obligation to offer to Centennial a price for those rights and obligations which, if Centennial was prepared to accept that price, could be the basis for going through the pre-emption procedure and, if pre-emptive rights were not exercised, enable a transfer of the rights and obligations to Mangoola. 29 Mr Meagher submitted that cl 8.6(b) provided that, if this not be achieved on Completion, then both Mangoola and Hunter had to use all reasonable endeavours to ensure that the novation and transfer occurred as soon as reasonably practicable after Completion, disclosing an intention that this was something to be achieved within a reasonable time of completion, and not to be left unresolved indefinitely; and accordingly, he submitted, cl 8.6(c) was not a provision having an indefinite independent life but rather was a temporary provision to hold the position during the limited time while the result contemplated by cl 8.6(b) was being sought. This confirmed that the reasonable endeavours of Mangoola did extend to doing what for its part was required to bring about the result, namely participating in the pre-emption process. 30 Mr Meagher further submitted that cl 8.6(c) could not reasonably be considered as having indefinite operation in circumstances (known to all parties) where Centennial had to make take or pay commitments in order that it become entitled to capacity at the NCIG terminal pursuant to the NCIG Arrangements, and there was no provision in cl 8.6 giving Mangoola or Xstrata any obligation to make any payment, undertaking or commitment or give any indemnity. He submitted that this was an uncommercial position that could not have been intended; and it also contrasted with the provision made in cll 7.3 and 7.4 for appropriate payments and indemnities. Mr Meagher also referred to cl 2 as an example of how the parties spelt out the operation of conditions, counting against the existence of any implication to overcome the uncommercial operation of cl 8.6(c) on the construction found by the primary judge. 31 Mr Meagher then submitted that the primary judge erred, in particular, in holding to the effect that the obligation to use all reasonable endeavours to achieve the desirable result extended only to measures certain to achieve that result, whereas he should have held that it extended to taking measures capable of achieving that result, even if they were not certain of achieving that result or would not on the balance of probabilities achieve that result; and he referred to IBM United Kingdom Limited v Rockware Glenn Limited [1980] FSR 335 and O'Rourke v P & B Corporation Pty Limited [2008] WASC 36; (2008) 36 WAR 197. 32 Mr Meagher also submitted that the primary judge was in error in considering that activation of the pre-emptive process could be a breach of Centennial's obligations under cl 8.6(c), because such obligations were "subject to existing contractual obligations", which included the obligations of Hunter and Mangoola to use reasonable endeavours to effect the novation and transfer referred to in cl 8.6(a) and (b); and in circumstances where, on its true construction, cl 8.6(c) was to facilitate compliance with cl 8.6(b), it could not be a breach of Centennial's obligation for it to engage in the pre-emption process. 33 Mr Meagher accordingly submitted that Mangoola's breach of its obligation under cl 8.6 discharged Centennial and Hunter from further performance of cl 8.6; or at least, in circumstances where, but for Mangoola's wrong there would not be an occasion for further performance of cl 8.6, that for Mangoola to seek further performance would be impermissibly to seek to rely on its own wrong.

Decision 34 In my opinion, no error is shown in the reasoning of the primary judge, with which I generally agree. 35 I accept Mr Meagher's submission that the Asset Sale Deed does not specify the NCIG Arrangements, or rights thereunder, as being included in the assets sold by that agreement; but that does not significantly support the view that the agreement manifests an intention that Mangoola was to pay more for whatever it was to receive under cl 8.6. Plainly, in my opinion, if reasonable endeavours could have brought about a novation through agreement of the other parties to the NCIG Arrangements, without the need for any payment, Mangoola should have received the benefit of that novation without having to pay any more for rights under the NCIG Arrangements. It was a common understanding of the parties at the time of the Asset Sale Deed that the agreement of other parties to the NCIG Arrangements to such a novation could not then be obtained; but in my opinion that was insufficient to justify reading the requirement that Mangoola use reasonable endeavours as extending to a requirement that it pay some additional price. 36 In the implementation of the pre-emption provisions, a price that might be offered by Mangoola would not be a basis for proceeding with the pre-emption process unless Centennial was prepared to accept that price. There is no market for the rights and obligations under the NCIG Arrangements and no apparent basis for determining what would be a reasonable price which Mangoola would be required to offer as part of reasonable endeavours on its part, or which Centennial would be expected to accept as a result of reasonable endeavours on Hunter's part. And since it could be anticipated that other NCIG participants, who included BHP controlled companies, might be prepared to exercise pre-emptive rights if the price was "reasonable" (whatever that might mean) to give them a competitive advantage over Xstrata, it is in my opinion more difficult still to determine what price "reasonable endeavours" would require Mangoola to offer. This fundamental uncertainty counts against the construction argued for by Mr Meagher. 37 I accept Mr Meagher's submission that reasonable endeavours may require action that is not assured of success, and may in some circumstances require action that has not a better than even chance of success; but this would rarely be so if lack of success would mean total loss of the asset sought to be transferred. This consideration applied particularly strongly in this case, where there is a positive obligation imposed by cl 8.6(c) to preserve the asset. 38 There is some force in Mr Meagher's contention that there is no spelling out in cl 8.6(c) of any entitlement of Centennial to be indemnified against loss from undertaking whatever commitments or liabilities might be required by cl 8.6(c)(4). However, in my opinion that concern is met by the fact that what cl 8.6(c) requires is only that Centennial "use reasonable endeavours" to make the capacity referred to in cl 8.6(c)(4) available; and for Centennial to do what was required to make that capacity available to Mangoola without Xstrata and/or Mangoola giving appropriate undertakings and/or indemnities would in my opinion go beyond "reasonable endeavours". 39 The view of the primary judge has further support from the consideration that the obligation under cl 8.6(c)(4) to "make available capacity" suggests that the parties envisaged that this obligation could still be in force when the NCIG terminal came into service and for some time thereafter, in circumstances where it was not expected that the NCIG terminal would come into service until the second half of 2009. This counts against cl 8.6(c) being regarded as a temporary measure simply to support cl 8.6(b). Mr Meagher submitted that cl 8.6(c)(4) related to supporting Centennial's entitlement to the capacity during an interim period; but the language used is that capacity be made available, suggesting an intention that the provision operate when the capacity is there to be made available. 40 Another reason counting against Mr Meagher's submission is that what cl 8.6 contemplates is novation of rights and obligations as well as transfer of shares; and novation means the making of a new agreement by existing parties and a new party. A mere transfer of rights following implementation of the pre-emption provision would not be a novation at all; and thus engaging in the pre-emption process would not be using reasonable endeavours to achieve a novation, but rather would be using endeavours to achieve something else other than a novation. 41 Although it is not necessary to have regard to pre-contractual correspondence or post-contractual correspondence, in my opinion this gives further support to the primary judge's view. 42 As regards pre-contractual correspondence, it can at most be used as part of the objective circumstances known to the parties against which the intention manifested by their signing of the agreement is to be understood. One circumstance is that Xstrata made an offer to purchase assets including Centennial's interest in the NCIG project, and that after the restraint on transfer of that interest was made known, there was a further offer from Xstrata at a slightly higher price, on the basis that there would be further discussions to find a mutually acceptable solution. This tends to support an inference that cl 8.6 was that mutually acceptable solution. 43 As regards post-contractual correspondence, this bears on Mr Meagher's submission that it could not have been intended that cl 8.6(c)(4) operate indefinitely into the future, because this would be uncommercial. Arguments as to interpretation of contracts based on uncommerciality must, in my opinion, turn at least in part on what the Court thinks the common understanding of the parties as to the commerciality of the arrangement was at the time it was entered into, which would reflect back on to what understanding was manifested by their conduct. If that is right, then evidence going to the parties' common understanding at a later time as to the commerciality of the arrangement, on the relevant construction of it, would be relevant to their actual common understanding at the time of the contract, relevant in turn to what understanding was manifested by their conduct, and thus relevant to arguments based on considerations of commerciality. Centennial's letter of 29 November 2007 and Xstrata's response to it indicate a common understanding that it was not uncommercial for Centennial to undertake commitments so as to make available to Mangoola capacity at the NCIG terminal, on the basis of appropriate reciprocal commitments by Xstrata; and this in my opinion further undermines Mr Meagher's arguments based on considerations of uncommerciality. 44 For those reasons, in addition to the reasons advanced by the primary judge, in my opinion the construction adopted by the primary judge was correct. It is accordingly unnecessary to consider submissions concerning the effect of breach of cl 8.6.

Conclusion 45 For those reasons, in my opinion the appeal should be dismissed with costs. 46 TOBIAS JA: I agree with the reasons and orders of Hodgson JA subject to the observations of Campbell JA at [48] with which I agree. 47 CAMPBELL JA: Subject to one observation, I agree with the reasons of Hodgson JA. 48 That observation is that any use of post-contractual conduct as an aid to construction cannot undermine the fundamental principle of contractual construction whereby the document must be construed in the light of those surrounding circumstances that were known to the parties at the time the contract was entered. If subsequent conduct operates as a type of retrospectant evidence, to cast light on the surrounding circumstances known to the parties at the time the contract was entered, it may be had regard to, but otherwise it may not. I reach the same conclusion as Hodgson JA has reached, without needing to rely upon any post-contractual conduct. 49 I agree with the orders proposed by Hodgson JA. **********

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