Supreme Court of WA|2008-11-28|Before: Martin CJ

EDWF HOLDINGS 1 PTY LTD -v- EDWF HOLDINGS 2 PTY LTD [2008] WASC 275 (28 November 2008)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : EDWF HOLDINGS 1 PTY LTD -v- EDWF HOLDINGS 2 PTY LTD [2008] WASC 275

BETWEEN : EDWF HOLDINGS 1 PTY LTD (ACN 114 267 748)

Assignment - Construction and effect - Joint venture agreement - Change of control of a participant - Provision for change of control of a participant with prior written consent of other participant - Consent not to be unreasonably withheld - Proviso that the new party in control of the affected participant must have 'the financial and technical resources and experience to adequately support the affected participant' - Burden of proof on party seeking consent - Satisfaction of proviso a matter of objective fact - Determination of the considerations which are relevant to the assessment of the reasonableness of refusal - Turns on own facts

First Defendant : Mr M J McCusker QC & Mr A J Power

Second Defendant : Mr M J McCusker QC & Mr A J Power

1 The plaintiff, EDWF Holdings 1 Pty Ltd (EDWF 1) seeks a declaration that the first defendant, EDWF Holdings 2 Pty Ltd (EDWF 2) has unreasonably withheld its consent to a proposed Change in Control of EDWF 1, in breach of the terms of the Emu Downs Wind Farm Joint Venture Agreement (JVA) between EDWF 1 and EDWF 2 relating to the construction and operation of the Emu Downs Wind Farm. The joint venture between EDWF 1 and EDWF 2 is managed by EDWF Manager Pty Ltd (Manager). All the issued shares in Manager are held equally by EDWF 1 and EDWF 2. Manager was joined as a second defendant, but took no active part in the proceedings.

2 I will set out my findings in respect of the detailed ownership structures of the parties and their associated entities later in these reasons. For present purposes, an overview of the proceedings can be provided by speaking in less than exact terms. The ultimate owner of EDWF 1 is the State of Queensland (Queensland). The interest of Queensland in the Emu Downs Wind Farm is part of a portfolio of wind farm assets acquired by Queensland over a number of years. In the latter part of 2007, Queensland decided to sell its portfolio of wind farm assets. After a competitive tender process, a conditional agreement was entered into, pursuant to which ultimate ownership of Queensland's interest in the Emu Downs Wind Farm would pass to Transfield Services Infrastructure Ltd (TSIL), as a result of a change in the ownership of shares in the corporate entities which ultimately control EDWF 1.

3 In very general terms, the JVA between EDWF 1 and EDWF 2 provides that if there is a change in control of the ultimate owners of the shares in those companies without the prior written consent of the other party to the Joint Venture, which consent is not to be unreasonably withheld, the party whose controller has changed is deemed to offer to sell its interest in the joint venture to the other party. EDWF 1 sought the consent of EDWF 2 to the Change in Control to TSIL. EDWF 2 is a company ultimately owned by Griffin Energy Group Pty Ltd (Griffin), a company which has various interests in the energy market in Western Australia. EDWF 2 sought and obtained detailed information with respect to the proposed Change in Control. After evaluating that information, it decided to withhold its consent. EDWF 1 asserts that it acted unreasonably in doing so, with the consequence that the Change in Control can proceed notwithstanding the refusal of consent.

4 The statement of claim recites the history of the relationships between the parties and the ownership structures. These matters are not controversial and are the subject of findings set out below. The JVA and various specific terms within it are also pleaded. They are also addressed below in detail.

5 The statement of claim further asserts that since the commencement of operations of the Emu Downs Wind Farm, in about October 2006, the revenue received by EDWF 1 from the sale of its share of the proceeds of the joint venture has substantially exceeded its share of the costs of operating the Emu Downs Wind Farm. Particulars of that allegation are annexed to the statement of claim. They show that the operating revenue of the Emu Downs Wind Farm exceeds its operating expenses by an amount of approximately $20 million per annum (in very general terms). These figures, of course, make no allowance for capital costs and depreciation. These assertions are admitted by EDWF 2. EDWF 2 also admits the allegation that as from the time at which its consent was sought, it was reasonable to expect that the revenue to be received by EDWF 1 from the sale of its share of the proceeds of the joint venture would substantially exceed its share of the costs of operating the Emu Downs Wind Farm.

6 EDWF 1 also pleads that after the Change in Control, it will continue to have the necessary financial and technical resources and experience to operate the Emu Downs Wind Farm, and that TSIL has the financial and technical resources and experience to support, reasonably adequately, the pursuit of the purposes of the joint venture which remained to be pursued. EDWF 2 denies those allegations.

7 EDWF 1 pleads that consent to the proposed Change in Control was withheld by EDWF 2 for essentially two reasons, being:

(a) its concerns about TSIL's financial and technical resources and experience to reasonably adequately support EDWF 1; and

(b) the prospect of competition between companies associated with TSIL and companies associated with Griffin.

EDWF 2 does not admit that these were the reasons for the refusal of consent.

8 In the context of its plea as to the reasons for withholding consent, EDWF 1 pleads that the refusal of consent was unreasonable and in breach of the JVA because:

(a) TSIL has the financial and technical resources and experience to reasonably adequately support EDWF 1;

(b) taking account of the prospect of competition between companies associated with TSIL and companies associated with Griffin is inconsistent with an express term of the JVA which permits the participants in the JVA to compete with each other and with the joint venture (cl 3.10), and such a prospect of competition does not sustain a reasonable withholding of consent.

9 In its defence, EDWF 2 makes allegations as to its belief at the time of entry into the joint venture to the effect that neither the ultimate holding company of EDWF 1, nor its related bodies corporate, would compete with Griffin in the Western Australian energy generation market for the term of the JVA. It is further alleged that EDWF 2 was entitled to rely upon the prospect of competition between entities associated with EDWF 2 and entities associated with EDWF 1 as a reasonable basis for withholding consent.

10 EDWF 2 also pleads that in or about April 2007, parties related to each of EDWF 1 and EDWF 2 entered into an agreement relating to the prospective development of other wind farm projects, including projects at Badgingarra, Joanna Plains, and at other possible sites (the Joint Development Agreement, or JDA).

11 By its defence, EDWF 2 joins issues with the allegations made by EDWF 1 with respect to the unreasonable withholding of consent, and further alleges that the information provided by or on behalf of EDWF 1 in response to its requests was inadequate. EDWF 2 further alleges that the decision withholding consent was not unreasonable and was made for five reasons being:

(i) its concerns about the adequacy of the technical expertise and capacity of TSIL and Transfield Services Limited (TSE) with respect to the design, development, construction, commissioning, testing, operation, maintenance and modification of wind farms, including the Emu Downs Wind Farm and any future wind farm arising out of the JDA (which I will collectively depict by the expression 'wind farm operations');

(ii) its concerns about the adequacy of the financial resources available to, and the capacity of TSIL and TSE to adequately finance wind farm operations;

(iii) its concerns about the commercial detriment likely to be caused to EDWF 2 as a result of being in a joint venture in the Western Australian energy market with a competitor in that market;

(iv) its concerns about the adequacy of the information provided; and

(v) its concerns with respect to the transfer of rights in the JDA to another Transfield entity, Transfield Services (Renewables) Pty Ltd (TS Renewables).

12 By its reply, EDWF 1 joined issue with each allegation made in the defence other than the allegations relating to the execution of the JDA, and the intended assignment of the interest in that agreement to TS Renewables.

13 The following facts are established by the documents tendered in evidence.

14 On 14 June 2000, Stanwell Corporation Ltd (Stanwell) entered into a memorandum of understanding (MOU) with The Griffin Coal Mining Co Pty Ltd (Griffin Coal Mining) and W R Carpenter Agriculture Pty Ltd (Carpenter). The MOU recites that Griffin Coal Mining and/or Carpenter own lands in Western Australia that may have the potential to be suitable for a wind farm, and that Stanwell has a track record in rapid low-cost, large scale wind farm developments, and has a number of wind farm sites around Australia at various stages of development. The MOU further recites that the parties have agreed to enter into discussions to investigate whether or not it is economically feasible for Stanwell to develop one or more wind farms upon the land owned by either Griffin Coal Mining and/or Carpenter. Clause 3 provides that the primary purpose of the MOU was to confirm the intention of Griffin Coal Mining and Carpenter to co-operate exclusively with Stanwell for the purpose of working together to achieve the development of a wind farm or wind farms. By a schedule to the MOU, the land which was to be the subject of investigation for the purposes of the possible development of wind farms was specified, and includes land known as Emu Downs.

15 On 16 April 2003, the same parties entered into an agreement described as the Emu Downs Wind Farm Phase 1 Development Agreement. By this agreement, the parties recorded their intention to continue to investigate the development of a wind farm, including by gathering wind data from the relevant land, and agreed to negotiate in good faith in respect of the grant of a lease over that land.

16 By a lease dated 21 July 2005, Carpenter leased the land known as Emu Downs to EDWF 1 and EDWF 2 (as tenants in common in equal shares) for a term of 22 years commencing on 23 July 2005, together with an option of renewal for a further 10 years commencing on 23 July 2027. At that time, EDWF 1 was a wholly-owned subsidiary of Wind Portfolio Pty Ltd (Wind Portfolio), which was a wholly-owned subsidiary of Stanwell. EDWF 2 was a wholly owned subsidiary of Stanwell. At all material times, all of the issued shares in Stanwell have been held by ministers of the State of Queensland on behalf of Queensland.

17 On the same day, a number of other agreements relating to the Emu Downs Wind Farm project were executed. One of those agreements was the JVA. The construction and effect of the provisions of the JVA lie at the heart of this case.

18 The parties to the JVA are EDWF 1, EDWF 2 and EDWF Manager Pty Ltd (Manager). The shares in Manager are, and have at all material times been held by EDWF 1 and EDWF 2 in equal proportions.

19 The JVA recites that on or about the date of its execution, Wind Portfolio would enter into a call option with Griffin Windfarm Holdings Pty Ltd (Griffin Windfarm) by which Griffin Windfarm would have the right, subject to certain conditions, to call on Wind Portfolio to transfer all of the issued shares in EDWF 2 to Griffin Windfarm. The JVA further recites that Manager is to be engaged by the 'Participants' (see definition in following paragraph) to manage their joint venture.

20 Clause 1 of the JVA defines the terms used in the JVA. I will refer to those definitions where relevant to my consideration of the operative provisions of the JVA. I will indicate the use of those defined terms throughout the judgment capitalising the first letter of each word of the term. Four preliminary terms should be set out here. 'Participants' means EDWF 1 and EDWF 2 and any person with a JV Interest from time to time. 'JV Interest' means an interest of a Participant in the 'Joint Venture Property', rights arising under the JVA or JV Documents and any benefits arising from the foregoing. 'Joint Venture Property' is defined and has a broad definition including all 'JV Documents', real and personal property, plant, equipment, etcetera. Finally, 'JV Documents' are a series of documents related to and including the JVA.

21 Clause 2 defines the term of the JVA. It provides that the JVA commences upon its execution and continues until the earliest of the 'JV Termination Date' (defined by cl 1 to mean the date of termination of the lease of the land), the date on which one Participant acquires the whole of the interests of the other, or a date agreed in writing by each of the Participants. Accordingly, unless terminated earlier, the JVA will continue until July 2027, or if the option to renew the lease is exercised, until July 2037.

22 By cl 3.1 of the JVA, the Participants agree to associate as joint venturers to implement and carry the 'Project' into effect. Clause 1 then defines 'Joint Venture' to mean the unincorporated Joint Venture established under cl 3.1. The 'Project' is defined by cl 1 to mean:

[T]he Emu Downs Wind Farm Project involving the design, development, construction, commissioning, testing, operation, maintenance and modification by or on behalf of the Participants of the Wind Farm at the Site but excluding the utilisation or sale of JV Output produced by the Wind Farm.

23 Clause 1 defines the expression 'Wind Farm' to mean:

[T]he development of two wind powered electricity generating plants at the Site of 40MW capacity each (or such other capacity as the Participants determine) and comprising the Wind Farm Facilities.

24 In this judgment I had been previously using the term 'Emu Downs Wind Farm' to connote the same meaning. 'Site' is defined by the same clause to mean the land on which the Wind Farm is to be constructed, defined by reference to specific title descriptions.

25 The expression 'JV Output' is defined by cl 1 to mean the JV Power (which is defined to mean all Energy Production generated by the Joint Venture during its term) and various other consequences of the conduct of the Joint Venture including 'Renewable Energy Certificates', 'Green Electricity', 'Carbon Credits' and so on (the terms 'Energy Production', 'Renewable Energy Certificates', 'Green Electricity' and 'Carbon Credit' are defined in cl 1 but their exact definitions are not relevant to this judgment).

26 The expression 'Wind Farm Facilities' is defined by cl 1 to mean all wind turbines and other facilities including electricity transformation equipment, the electricity transmission and/or distribution lines used to convey the electricity for injection into an electricity transmission network and all associated plants and structures.

27 Clause 3 of the JVA also provides that the rights, duties, obligations and liabilities of each Participant under the Joint Venture are in each case several and proportioned to their interests in the Joint Venture, and that nothing in the JVA is to be considered or interpreted as constituting the relationship between the Participants as a partnership or any other relation in which any one or more of the Participants may be liable for the acts or omissions of any other Participants, or in which the Participants may share profits. There are similar provisions in the clause precluding a construction of the JVA which would constitute any Participant the agent, representative or trustee for any other Participant. The same clause provides that the Joint Venture Project (which does not include the JV Output) is to be beneficially owned by the Participants as tenants in common in proportion to their JV Interests.

28 Clause 3.8 provides that each Participant is entitled to receive and take in kind its share of all JV Output equal to its JV Interest, and to dispose of that share. Accordingly, each Participant in the JVA derives its return from the operation of the Joint Venture from the electricity generated, and the various other benefits arising from electricity generation, and to which I have referred, rather than in the form of a share in the proceeds of sale of those items.

29 Clauses 3.9 and 3.10 are in the following terms:

3.9 Joint Venture Limited to JV Purpose

The Joint Venture is, unless the Participants otherwise agree, strictly limited to the JV Purpose and is not to be construed as extending further by implication or otherwise.

3.10 Activities outside JV Purpose

Each Participant has an unrestricted right to engage in and receive the full benefit of any activity outside the JV Purpose (whether or not in competition with the JV Purpose of another Participant) without consulting the other Participants or permitting the other Participants to participate, and without any liability or accountability to the other Participants provided such activity does not unreasonably interfere with, impede or compromise the JV Purpose.

30 The term 'JV Purpose' is defined by reference to cl 3.1, and therefore by reference to the agreement of the parties to associate as Joint venturers to implement and carry out the Project.

31 Clause 3.13 provides that each Participant is to be just and faithful in all activities and dealings with the other Participants in relation to the Joint Venture.

32 Clause 3.14 deals with intellectual property and provides that each Participant grants to the other a licence to use intellectual property which it owned prior to the commencement of the Joint Venture. 'Intellectual Property' is defined in cl 1 but its exact definition is not relevant to this judgment.

33 Clause 4.2 contains a covenant by each Participant not to 'Dispose' of the whole or any part of its JV Interest except as specifically provided in or permitted by clauses 7.14, 9 or 11. The term 'Dispose' is defined by cl 1 to mean 'to sell, transfer, assign, novate, part with the benefit of, declare oneself a trustee of, or otherwise deal with the whole or in part of property'.

34 Clause 7.14 makes provision for the procedure to be followed in the event of a deadlock in relation to decisions of the Management Committee (see [37]). Clause 9 deals with defaults of various categories, and cl 11 deals with the disposal of JV Interests. I will deal with cl 11 in more detail in due course.

35 Clause 5 of the JVA makes provision for the appointment and removal of a manager which is to undertake the management, supervision and conduct of the Joint Venture, and further provides that the first manager is to be Manager.

36 Clause 6 provides that the Participants will enter into the 'EPC Contract' with the 'EPC Contractor' as soon as possible after the execution of the JVA. The 'EPC Contractor' is defined to mean Vestas-Australian Wind Technology Pty Ltd (Vestas), and the 'EPC Contract' is defined to mean the contract between the Participants and that company for the construction of the Wind Farm at the Site. The EPC Contract was entered into on 22 July 2005 - the day after execution of the JVA.

37 Clause 7 of the JVA deals with the Management Committee. It provides that each Participant is to appoint two representatives to serve on the Management Committee, and further provides that at meetings of the Management Committee, each Participant is entitled to that number of votes which is equal to the number of percentage points comprised in its JV Interest.

38 Clause 7.10 provides that the Management Committee is to be the principal forum for receiving and considering reports on Joint Venture activities and discussing and resolving issues relating to the management of the Joint Venture, and the sole forum for providing directions to the Manager.

39 Clause 8 of the JVA is concerned with the administration of the Joint Venture. It makes provision for the delivery of 'Cash Calls' (defined in cl 1 as an amount specified by the Manager as being required to be contributed by a Participant for expenses associated with the Joint Venture) to the Participants by the Manager and obliges each Participant to pay all Cash Calls received. It also makes provision for the preparation of Annual Programmes and Capital Expenditure Programmes. The former expression is defined to include a work programme and budget for the conduct of the Joint Venture during a financial year prepared by the Manager and to be approved by the Management Committee, but excluding any capital works. Capital works are to be dealt with under the separate Capital Expenditure Programme.

40 Clause 10 of the JVA is concerned with 'Encumbrances' and 'Cross Charges'. Both 'Encumbrances' and 'Cross Charges' are defined in cl 1. They take their general meaning. Clause 10.1 provides that each Participant is not to encumber the whole or any part of its JV Interest or JV Output other than as provided by the clause or as expressly contemplated by any JV Document or as arises by operation of law. Clause 10.4 provides that a Participant may grant an Encumbrance over its JV Interest if it obtains from the Encumbrancee a 'Deed of Priority' (defined in cl 1 to mean a Deed of Priority substantially in the form and to the effect of the Deed of Priority set out in sch 2) giving priority to the rights and entitlements arising under the Cross Charge, and contains a further covenant that in the event of the exercise of any power of sale or other right, power or remedy under the Encumbrance, the Encumbrancee will comply with the provisions of the JVA, including the provisions relating to assignment of an interest.

41 Clause 10.6 provides that contemporaneously with the execution of the JVA, each of the Participants and the Manager is to execute and deliver a Cross Charge which will encumber each Participant's JV Interest and the JV Output of the Joint Venture as security for the performance of its duties and obligations arising under the JVA, and which will rank ahead of any and all other Encumbrances given, created or entered into by a Participant.

42 As I have mentioned, cl 11 deals with the disposal of JV Interests. Clause 11.1 provides that a Participant may not Dispose of the whole or any part of its rights under, or interest in, the JVA other than in accordance with the provisions of the clause. Clause 11.3 makes provision for a Disposal to a Related Body Corporate (the latter term defined as bearing the meaning which it bears in the Corporations Act 2001 (Cth)).

43 Clause 11.4 provides that a Participant may Dispose of its JV Interest in the Joint Venture to a third party with the prior written consent of each other Participant. This consent is not to be unreasonably withheld or delayed if:

(i) the Assignee has agreed to be bound by the terms of the JVA and the JV Documents by a Deed of Assumption; and

(ii) the Assignor has demonstrated that the Assignee is reputable and of good financial standing and has the capability to fulfil all the obligations of the Assignor under this Agreement and the JV Documents.

44 Clause 11.7 deals with changes in control. The term 'Change in Control' is defined by cl 1 to mean a change in the ultimate holding company of a Participant. As it is agreed that the proposed transaction which has given rise to these proceedings would involve a Change in Control within the meaning of that clause, it is unnecessary to consider the definition in detail.

Change in Control

Subject to cl 11.8, if there is a Change in Control of a Participant, such Participant shall immediately give notice in writing thereof to the other Participants and, unless the other Participants had given their prior written consent to the Change in Control (such consent not to be unreasonably withheld or delayed or given subject to unreasonable conditions provided that the new party in Control of the affected Participant must have the financial and technical resources and experience to adequately support the affected Participant), the affected Participant shall be deemed, whether or not such notice has been given, to have offered to assign the whole of its JV Interest to the other Participants ...

46 Clause 11.8 makes a provision for certain exceptions to the operation of cl 11.7, none of which is presently relevant, other than the exception that a Change in Control arising as a consequence of the valid exercise of the 'Call Option' with respect to EDWF 2 does not fall within cl 11.7. The 'Call Option' is defined by cl 1 to mean the document bearing the title 'Call Option to Buy EDWF Holdings 2 Pty Ltd' and dated on or about the date of the JVA. That document does not appear to have been tendered in evidence, but it is common ground that the effect of the document was to give Griffin Windfarm an option to acquire all the shares in EDWF 2. It is also common ground that the option was exercised in December 2005.

47 Clause 15 of the JVA obliges each party to keep 'Confidential Information' confidential and not disclose it to any third party. The term 'Confidential Information' is defined by cl 1 of the JVA. The terms of that definition are not material to the matters in issue.

48 Clause 15.2 provides that the obligation of confidentiality does not extend to disclosure to any Related Body Corporate of the disclosing party.

49 Clause 17.11 of the JVA is an 'entire agreement' clause in conventional terms.

50 I will return to the proper construction and effect of the JVA later in these reasons.

51 As I have mentioned, there were a number of documents executed at about the same time as the JVA which are associated with it. They include the lease agreement between Carpenter and EDWF 1 and EDWF 2 and the Call Option. There was also a Deed of Cross Charge executed. Although this latter document does not appear to have been tendered in its executed form, I assume that it took the form of a document which is a schedule to the JVA, and had the general effect described in the JVA.

52 Another document executed contemporaneously with the JVA and by the same parties was the Emu Downs Wind Farm Joint Venture Management Agreement (Management Agreement). By cl 2 of the Management Agreement, EDWF 1 and EDWF 2 acknowledge that the Manager had been appointed to manage the Joint Venture in accordance with cl 5.1 of the JVA. The clause further provides that subject to provisions of the clause relating to removal or replacement of the Manager, the appointment was to endure for the term of the Joint Venture. Clause 3 of the Management Agreement provides that the Manager is obliged to manage the Joint Venture, including all its activities, as agent for the Participants, subject to the control and direction of the Management Committee. Other provisions of that clause specify the precise duties which are to be performed by the Manager. The Management Agreement contains various other provisions which are not material to the issues in this case.

53 At about the time of execution of the JVA and associated documents, the parties entered into agreements with third parties for the sale and purchase of electricity to be produced through the Joint Venture. As I have mentioned, the day after the execution of the JVA and associated documents, on 22 July 2005, EDWF 1 and EDWF 2 entered into the EPC Contract with Vestas relating to the construction of the Wind Farm.

54 On 20 September 2005, the parties to the JVA entered into a Shareholders' Deed relating to their equal shareholdings in the Manager. By cl 3 of the Shareholders' Deed, each shareholder agreed not to use 'Confidential Information' in a way which damages or is reasonably likely to damage the Manager or any of the other shareholders. The expression 'Confidential Information' is defined by cl 1 of the Shareholders' Deed in terms which are not material to the issues in this case.

55 Clause 4 of the Shareholders' Deed deals with appointments to, and the proceedings of, the board of directors of the Manager. Clause 5 deals with Shareholders' meetings. Clause 6 of the Shareholders' Deed specifies a number of matters which require the unanimous resolution of directors or shareholders.

56 Clause 11 of the Shareholders' Deed provides an acknowledgement by each of the parties to the Deed that no shareholder has given any warranties or made any representations (express or implied) to the other parties in relation to the existing businesses of the shareholders or the proposed business of the Manager, or as to future matters, including future or forecast costs, revenues or profits. EDWF 1 relies upon this clause to exclude any implied representation as to its future business activities, including in particular, any activities which might be competitive with either the Joint Venture or Griffin entities.

57 Clause 14 of the Shareholders' Deed contains another covenant of confidentiality.

58 On 26 August 2005, the Manager entered into a Technical Services Agreement with Stanwell. Under that Agreement, Stanwell was to provide engineering, operations, maintenance, environmental, health and safety, electricity marketing and trading and drafting services, and such other services as the Manager may reasonably require in relation to the Wind Farm, for a fee assessed by reference to specified hourly rates.

59 On 21 December 2005, the Manager entered into a further Technical Services Agreement (the Service Agreement) with Stanwell and Griffin Coal Mining which replaced the earlier agreement. Under the Service Agreement, each of Stanwell and Griffin Coal Mining were to provide services defined in the same terms as the earlier Technical Services Agreement between the Manager and Stanwell, on the same fee basis. The Service Agreement was specified to endure for the term of the Emu Downs Wind Farm Project, subject to earlier termination in the event of default or at the option of a service provider in the event that it divested itself of its interest in the Joint Venture. It is common ground that if Stanwell is entitled to assign its interest in EDWF 1, it will exercise its right to terminate its obligation to provide services under the Service Agreement.

The corporate structure of the Joint Venture

60 Pursuant to the various agreements to which I have referred, and as a result of the corporate structures of the Participants in the Joint venture, the corporate structure of the Joint Venture and its Participants as from December 2005 can be depicted in the following diagram:

State of Queensland Devereaux Holdings Pty Ltd

↓ ↓

Stanwell Corporation Limited W R Carpenter Holdings Pty Ltd

↓ ↓

Wind Portfolio Pty Ltd Griffin Energy Group Pty Ltd

↓

The Griffin Coal Mining Company Pty Ltd

↓ ↓

Griffin Windfarm Holdings Pty Ltd

↓

EDWF Holdings 1 Pty Ltd EDWF Holdings 2 Pty Ltd

61 Construction of the Wind Farm was completed in October 2006, and the generation and sale of electricity from the Wind Farm commenced shortly thereafter.

62 On 26 April 2007, Stanwell and Griffin Windfarm 2 Pty Ltd (another subsidiary of Griffin) entered into the JDA (formally entitled 'Wind Farms - Joint Development Agreement'). The JDA recites the history of the association of related bodies of the parties in relation to the Wind Farm, and their desire to investigate the feasibility of developing further wind farms at Emu Downs North (sometimes described as Badgingarra), Joanna Plains and such as other sites as may be agreed. The general effect of the JDA was to oblige the parties to share joint responsibility for the preparation of a technical feasibility report, a comprehensive economic model of each prospective wind farm, a set of specifications and designs for each wind farm sufficient to take the project to bankability, and various other reports and feasibility assessments in relation to each wind farm project. Under the JDA, those obligations were to be achieved by the appointment of a Project Manager under the control of a committee described as the Project Control Group, to which each venturer was entitled to appoint two members.

63 On 28 November 2007, Queensland, Stanwell, TSI (Wind Farms) Pty Ltd (TSI (WF)) and TSIL entered into an agreement entitled 'WP Sale and Purchase Agreement'. Under that agreement, TSI (WF) agreed to purchase all the issued shares in Wind Portfolio and in EDWF 1 subject to the satisfaction of a number of conditions precedent including the receipt of EDWF 2's consent to the transaction, or an order of a court (which finally determines the matter in dispute) has been made which has the same effect as such consent. That condition was required to be satisfied by 25 February 2008, but if not satisfied by that date, the State of Queensland was entitled to give notice extending the time for satisfaction of that condition until 19 December 2008. It is common ground that such a notice was given.

64 On 29 November 2007, Stanwell entered into an agreement assigning its interest in the JDA to Wind Portfolio. The consequence of that assignment was that Stanwell's interest in the JDA would pass to the purchaser under the WP Sale and Purchase Agreement.

65 On 30 November 2007, EDWF 1 sought the consent of EDWF 2 to the proposed Change in Control. That request precipitated a substantial correspondence between solicitors representing the parties. Much of that correspondence focused upon requests by Griffin for the provision of information, and TSIL's responses to those requests.

66 On 15 January 2008, solicitors acting for TSIL provided answers to a number of specific questions which had been posed by solicitors acting on behalf of Griffin. That information included a diagram setting out the proposed corporate structure by which the interest in the Joint Venture was to be held. A copy of that diagram is attached to these reasons. That diagram shows that if the WP Sale and Purchase Agreement becomes unconditional and is completed, the ultimate controller of EDWF 1 will be TSIL.

67 Griffin's questions sought information in relation to a number of the corporate entities identified in that diagram, including TSIL, TSE, TSI (WF) and TS Renewables. In relation to those entities, information was sought on a variety of topics including general experience and capabilities; specific experience in wind power and renewable energy generation as well as planning, maintenance and management of wind farms; the key personnel proposed to be appointed to EDWF 1 and to the Management Committee; the future plans for Emu Downs and wind power generation in Western Australia; financial matters; prospective competition in the power generation sector; and whether parent company guarantees were proposed. Information was provided on each of those topics.

68 On 1 February 2008, solicitors acting on behalf of Griffin sent a further request for detailed information to the solicitors acting on behalf of TSIL. Further information was provided in response to those questions on 8 and 12 February 2008. Correspondence continued to pass between the solicitors relating to the information sought by Griffin during February and early March 2008.

69 Included in the information provided to Griffin was a copy of a document entitled 'O and M Alliance Agreement' apparently executed on 6 March 2008 by TSIL, TSI International Limited and TSE. The general effect of that agreement is to provide a structure under which Transfield Services (Australia) Pty Ltd is to provide services with respect to the operation and maintenance of assets held by other entities within the 'Transfield group' (Transfield).

70 On 6 March 2008, representatives of the Queensland Treasury, Transfield and Griffin met at the Sydney offices of Griffin's solicitors to discuss the issues associated with the request for consent to the Change in Control. Notes of that meeting prepared by various Participants have been tendered in evidence, and evidence has been given as to the matters discussed. It is clear that those matters included TSIL's wind farm expertise; the linkage between the Wind Farm and the proposed project at Badgingarra; TSIL's capacity to perform a role in relation to the management and administration of the Wind Farm; TSIL's financial position with particular reference to the prospective development of the Badgingarra project; and competition by entities associated with TSIL with Griffin in the Western Australian energy supply market.

The Griffin board meeting and the Griffin Board Paper

71 A meeting of the boards of various companies in the Griffin group, including EDWF 2 was held on 17 March 2008. A paper was presented to that meeting dealing with the request for the consent of EDWF 2 to various changes in control, including Change in Control relating to the JVA (the Griffin Board Paper). The Griffin Board Paper contained many attachments, and included most of the information which had been provided by TSIL.

72 The Griffin Board Paper recited the history of the relationship between Griffin and Stanwell and asserted, as the reasons for Griffin's development of that relationship, the fact that Stanwell was financially sound, had specific expertise in wind farm development and wind farm asset management, and was not in competition with Griffin in any energy market in Western Australia. The Griffin Board Paper further asserted that Stanwell had assured Griffin that it had no intention of entering any energy market in Western Australia in which it might be in such competition.

73 The Griffin Board Paper provides background on Stanwell and the energy markets in which it operates, and upon Transfield and the energy markets in which it operates. The Griffin Board Paper also summarises Griffin's role in the energy market in Western Australia which includes its interest in the Wind Farm, the Bluewaters power station near Collie (which is nearing completion), the proposal to develop another wind farm at Badgingarra, the proposal to construct an open cycle gas turbine to be known as the North Peak power station, and a potential wave technology project at Yanchep. The Griffin Board Paper identifies entities associated with TSIL as competitors of Griffin in the Western Australian energy market.

74 The Griffin Board Paper also summarises the principal agreements underpinning the Joint Venture and the arrangements for the management of the Joint Venture. The Griffin Board Paper goes on to group Griffin's concerns with respect to the proposed Change in Control into three areas namely:

75 The Griffin Board Paper asserts that neither TSIL nor TSI (WF) has the personnel to perform the necessary services, and assumes that TSE would be contracted to supply the relevant services. The Griffin Board Paper summarises the expertise which has been claimed on behalf of TSE and asserts that this expertise comprises a small portion of the technical expertise required to develop, operate and maintain wind farms. Two tables are contained in the Griffin Board Paper to justify that assertion. The first table deals with the expertise required in the development of wind farms and lists a number of the skills said to be required in that regard, and purports to assess the capacity of each of TSIL and TSE to supply those skills. The second table undertakes the same exercise in relation to the expertise required in the operation and maintenance of wind farms. Mr Trumble (whose evidence I will refer to below) confirmed that the first table was aimed at assessing the likely implications of a Change in Control with respect to the development of the proposed Badgingarra wind farm, whereas the second table was directed at assessing the implications of a Change in Control in relation to the existing Joint Venture.

76 The Griffin Board Paper also asserts that a Change in Control would result in loss of access to Stanwell's computer systems and processes and that TSE would have difficulty in replacing those computer systems and processes in the short to medium term.

77 The Griffin Board Paper further assessed the skills and experience of each of the personnel proposed by TSIL and TSE to be engaged in the operation of the Joint Venture, including the two persons proposed for appointment to the Management Committee, Mr David Jones and Mr Albert Jubian. Following that review, the Griffin Board Paper asserts that the combined expertise of the proposed employees is not substantial when compared to the expertise presently provided by Stanwell's personnel. The Griffin Board Paper also asserts that neither of TSIL/TSE's proposed appointees to the Management Committee have any management or technical expertise relevant to the development, construction, operation or maintenance of wind farms. This section of the Griffin Board Paper concludes with a summary in which it is asserted that Transfield had no significant wind farm development, operation or maintenance experience, and were on a steep learning curve which could not be easily scaled, and which was likely to prejudice the operation of the Joint Venture, at least in the short to medium term. The summary further asserts that Transfield did not have sufficient contracted personnel with a sufficient depth of experience in wind farm development, operation and maintenance, and did not have wind farm development, operations or maintenance systems in place. It is further asserted that if consent was given to a Change in Control, through the Joint Venture and the Badgingarra development, Griffin would inevitably 'educate' Transfield in the development, operation and maintenance of wind farms, to the detriment of Griffin in relation to future competitive opportunities in the wind farm generation sector.

78 In this section of the Griffin Board Paper, a distinction is drawn between Stanwell, which is not a competitor of Griffin's in the WA energy market, and the Transfield entities which are. The Griffin Board Paper asserts that there is significant concern that in the event of a Change in Control, Transfield would obtain an understanding of Griffin's business model and economic and financial parameters relating to the development of projects and sales models which could be used by the Transfield entities or their associates against Griffin in the energy generation market generally. The identified concerns relate to information with respect to rates of return for a given risk profile, as a result of which it is asserted that Transfield would understand Griffin's approach to risk, its accepted rates of return for a given risk profile, and its approach to evaluating the financial performance of projects, all of which were said to give Transfield a competitive advantage. In this context, reference is made to the prospects of expansion of Wind Farm, and to the development of wind farms in general, including Badgingarra and Joanna Plains. It is asserted that transmission connection is a critical factor in wind farm development because only one wind farm would be connected to the transmission grid in a particular area, as it is neither economically nor technically desirable to connect two wind farms in the same area. Following on from this, it is asserted that an expansion of the Wind Farm is under active consideration, but might be resisted by Transfield, because of its desire to prefer its own interests by supplying energy from its energy generation assets in Western Australia.

79 The Griffin Board Paper further asserts that Griffin would be inhibited in its discussions with Transfield concerning future trends and opportunities in the energy generation market including the renewable energy market, opportunities for the financing or refinancing of wind farm projects, its business know-how, business model and economic and financial parameters relating to development projects and sales models, methods of financing, debt to equity ratios, financing costs, internal rates of return and the like, and in discussing various other aspects of its business.

80 In this section of the Griffin Board Paper, concerns are expressed as to the capacity of Transfield to fund the Badgingarra development or any expansion of the Wind Farm, or any other development, including Joanna Plains. The Griffin Board Paper asserts that TSIL has debt facilities of $900 million, which are currently drawn to $770 million, and that if the Emu Downs acquisition proceeds, TSIL will only have unborrowed debt of about $30 million, of which $25 million would be committed to pay forecast dividends/distributions. Accordingly, it is asserted that TSIL will then have utilised all of its current debt facility, and is highly leveraged with a limited capacity to borrow further, and because of its highly leveraged position, is vulnerable to significant changes in interest rates.

81 However, the Griffin Board Paper goes on to acknowledge that there are currently no forecast major capital expenditures for the Joint Venture, and that TSIL/TSE's current financial position is adequate to cover ongoing work and capital requirements of about $1 million per month.

82 The Griffin Board Paper also expresses concern in relation to Transfield's approach to financing, and in particular its preference for corporate financing, as compared to Griffin's preference for project financing. The Griffin Board Paper asserts that it may be difficult for Griffin to procure project financing if Transfield utilises corporate financing. Observations are made that the current financing of the Joint Venture expires in around six to seven years, but that refinancing may be required within that time-frame if the Wind Farm is expanded. The Griffin Board Paper expresses doubt as to the capacity of TSIL to refinance, given that its existing debt facilities are near to fully utilised, and its capacity to raise further equity would be limited given that its shares were then trading at a substantial discount to its listing price.

83 The Griffin Board Paper concludes with an overall summary, and repeats the specific concerns identified in earlier sections of the paper. By reason of those concerns, the paper recommends that Griffin not consent to the Change in Control.

84 The board of Griffin (relevantly for the purposes of these proceedings acting as the board of EDWF 2) accepted this recommendation. On 18 March 2008, by letter from EDWF 2 addressed to the relevant representative of the Queensland Treasury, EDWF 2 advised that its board had resolved that it not consent to the proposed Change in Control of EDWF 1. The letter asserts that EDWF 2 has, and continues to have, a number of concerns arising from the Change in Control relating to the future role of each of TSIL and TSE with respect to their technical expertise and capacity in the operation and maintenance of wind farms and in the development and construction of wind farms, with respect to their financial capacity, and the potential commercial detriment to EDWF 2 and related Griffin entities arising from these matters, and the fact that the Transfield and Griffin entities are and will continue to be competitors. By a letter of the same date from Devereaux Holdings Pty Ltd to the Queensland Treasury, notice was given to the effect that the various other consents to changes in control and assignment that were associated with the proposed Change in Control of EDWF 1 were also refused.

86 The documentary evidence took the form of the consensual tender of a trial bundle which contained a large number of documents. I have referred above to the documents within that bundle that appear to me to be most material. I will refer to more documents when reviewing the evidence of the witnesses. However, many of the documents within the trial bundle appeared to me to be of very marginal significance to the resolution of the issues in this case.

87 The evidence-in-chief of all witnesses called took the form of the tender of their statements of evidence. Some of the witnesses were cross-examined. Only a small number of the witnesses were cross-examined at any significant length. I will now summarise the evidence given by the witnesses, and identify the findings of fact which I make based upon that evidence. Because there was very little controversy in relation to the evidence adduced from the witnesses, any reference below to the evidence of a witness should be taken as a finding of fact to that effect, unless I expressly indicate otherwise.

88 The plaintiff's witnesses can be grouped into two categories - officers of Stanwell and officers of Transfield. I will deal first with the officers of Stanwell.

89 Mr Sutcliffe is the finance manager of Stanwell. He was not required for cross-examination and his witness statement was tendered by consent. It establishes that in preparation for the sale of the wind farm assets of Stanwell, all moneys owing in respect of EDWF 1's interest in the Joint Venture were repaid, with the result that its interest is currently unencumbered.

90 Mr Sutcliffe's statement describes the financial operations of the Joint Venture. The Manager maintains a bank account with a balance of approximately $150,000. Monthly estimates are made of likely expenses for the following month, after which a Cash Call is issued by the Manager to the Joint Venture Participants. If an unexpected expense arises, the Manager issues an extraordinary Cash Call. The extraordinary Cash Calls issued by the Manager to date were:

being, in each case, the amount called from both Participants. Stanwell does not provide accounting services to the Joint Venture. Those services are provided by a Griffin entity.

91 Mr Sutcliffe's statement also deals with the off-take agreements which have been entered into in respect of the energy and other tradeable commodities produced by the Wind Farm. He observes that those agreements are all long-term, fixed price contracts with mechanisms for the future calculation of price, with the result that none of the electricity or other tradeable commodities produced by the Wind Farm is traded on the spot market. His evidence does not deal with the circumstances in which those contracts might be terminated.

92 Mr Wheeler is a project manager employed by Stanwell. From the latter part of 2003 until about July 2005, he was the project manager for the feasibility phase of the Wind Farm. From July 2005 until December 2006 or January 2007, he was a technical adviser for Stanwell in relation to its participation in the Management Committee. Shortly after Emu Downs commenced operations, he was replaced in that capacity by Mr Andrew Longbottom. Prior to Mr Wheeler's engagement with respect to the Wind Farm, he had been the project manager for the Toora wind farm in Victoria.

93 Mr Wheeler's statement describes the wind turbine generators of the type that are used at the Wind Farm, and lists the technical expertise required at each stage of the design, construction, operation and maintenance of a wind farm. In the case of Emu Downs, that expertise was largely provided by Vestas. In order to provide those services, Vestas employs skilled electrical and mechanical engineers who have been trained on their wind turbines.

94 In cross-examination, Mr Wheeler confirmed that he had been contacted by Mr Kerry Roberts, an employee of the Manager, on a number of occasions. Mr Roberts had sought his advice in relation to his understanding of the Vestas contract.

95 Mr Longbottom holds the position of 'Manager, Strategy and Commercial' for Stanwell. He has experience in the development and implementation of operating arrangements in relation to wind farms at Windy Hill, Toora and the Wind Farm.

96 In his statement, Mr Longbottom describes the various components of a wind farm, which include the turbines, the meteorological masts, electrical cabling network, substation and operations buildings. The maintenance of a wind farm is primarily associated with the maintenance of the wind turbines. Their operation is controlled by sensors located all over the wind turbine, which communicate with an electric controller. That controller in turn communicates back to a central system which controls the overall operation of the Wind Farm.

97 In his statement, Mr Longbottom deals with the daily operation and maintenance of a wind farm. He also describes his particular role in relation to the Wind Farm. He has visited the site on about six or seven occasions.

98 Mr Longbottom confirmed that Stanwell has been requested to give technical assistance to the Manager on a number of occasions since practical completion of the Wind Farm, under the terms of the Service Agreement. In his experience in the operation of the Wind Farm, the persons most involved in its operations and maintenance are Mr Roberts (an employee of the Manager), officers and employees of Vestas, employees of Power Plan Pty Ltd (an Electrical Engineering Consultant), employees of Downer EDI and Robin Johnson Engineering Pty Ltd (who are contracted by Vestas to conduct routine maintenance and servicing of electrical substations and infrastructure), and various other identified consultants. Mr Longbottom acknowledges that while a majority of the expertise in the operation and maintenance of the Wind Farm is outsourced, there are personnel employed by Stanwell who provide expertise. He identifies five other employees of Stanwell from whom he has sought advice and assistance in relation to the operation of the Wind Farm.

99 In a statement which is responsive to the statement of evidence of Mr Roberts, Mr Longbottom expresses the view that the extent of his involvement in the management of the Wind Farm has been overstated by Mr Roberts. He refers in particular to a number of specified paragraphs of the statement of Mr Roberts. I will deal with his evidence with respect to those paragraphs in the context of the evidence given by Mr Roberts.

100 In cross-examination, Mr Longbottom confirmed that, save for those paragraphs of the statement of Mr Roberts to which he had responded, he accepted the assertions made in Mr Roberts' statement. He confirmed that he would speak with Mr Roberts most weeks, and if there was a topical issue, up to two or three times per day. He agreed that he gave advice to Mr Roberts from time to time.

101 Mr Mott is employed by Transfield Services (Australia) Pty Ltd but is seconded exclusively to Transfield Services Infrastructure Fund (Infrastructure Fund) as its Chief Financial Officer. In his statement, he describes the Transfield group. TSE is publicly listed, and in 2006/07 had a turnover of $2.4 billion. That company owns 49% of the Infrastructure Fund which is also publicly listed. The remainder of the fund, not owned by TSE, is publicly owned.

102 Transfield Services (Australia) Pty Ltd is the main operating subsidiary of TSE. It employs 8,500 people around Australia, with a range of experience in project construction, project management and infrastructure development.

103 TSI (WF) is a wholly owned subsidiary of TSIL incorporated in late November 2007 solely for the purpose of acquiring the operating wind farms which were being sold by Queensland. TSI (WF) is the parent company for a number of entities, including entities which own the Windy Hill wind farm in North Queensland, the Toora wind farm in south-east Victoria, the Starfish Hill wind farm in South Australia, and the Mt Millar wind farm also located in South Australia. Wind Portfolio, which holds the issued shares in EDWF 1, will be a subsidiary of TSI (WF) if the transaction with Queensland proceeds.

104 Mr Mott's statement deals with the relationship between the Infrastructure Fund and TSE. The Infrastructure Fund is an independent enterprise and receives no external credit or financial support from any of its unit holders or other external sources. The Infrastructure Fund wholly owns power stations at Collinsville and Townsville in Queensland, and at Kemerton in Western Australia, and the wind farms to which I have referred. The fund also has an investment stake in the Loy Yang A power station in the La Trobe Valley near Melbourne, and a stake in the Kwinana power station in Western Australia.

105 Mr Mott's statement confirms that if the transaction proceeds, the funds required for the purchase of the interest will be obtained by drawdown of an existing debt facility. Mr Mott confirmed the accuracy of the information given to Griffin in response to the questions it posed.

106 In cross-examination, Mr Mott confirmed that at the time of Transfield's bid for the wind farm assets of Queensland, it had limited wind farm operation experience.

107 Mr Neil is employed by TSE and holds the position of General Manager, Wind Farm Development. In that role, he is responsible for the development of an existing portfolio of 13 potential wind farm sites, acquired as a result of the recent transaction with Queensland. The primary focus of the Wind Farm Development Group which Mr Neil heads is aimed at progressing the Barn Hill wind farm project.

108 In addition to Mr Neil, the Wind Farm Development Group of Transfield consists of Mr Terry Johannesen and Mr Anil Nangia. Mr Neil's statement sets out the qualifications and experience of those persons.

109 Mr Neil's qualification is in accountancy. He has had 18 years experience in the power generation industry, including 10 years experience within Australia. For most of that time he has been involved in project development covering a variety of projects, including renewable energy projects.

110 In his statement, Mr Neil describes in detail the process which is followed when developing a new project, and also sets out the precise point which has been reached in relation to the Barn Hill wind farm project. His statement also sets out in detail the personnel engaged in that project, and their qualifications and experience. Mr Neil asserts in his statement, that in his experience, and particularly based on what has been done at Barn Hill, TSE is capable of developing a wind farm project.

111 Although Mr Neil was produced for cross-examination, he was not challenged on any portion of his statement.

112 Mr Nedov is the General Manager Operations of Power Generation Services for TSE. In that capacity he is responsible for the management of the power generation assets held by the Infrastructure Fund. He describes those assets in his statement. In relation to the wind farm assets, since 20 December 2007, his duties have included responsibility for the wind farm assets acquired from Queensland.

113 TSE has significant experience in providing services to the power generation, transmission and distribution markets in Australia and New Zealand. Mr Nedov sets out in his statement the entities to whom those services have been supplied. TSE also has experience in relation to Codrington wind farm in Victoria, Challicum Hills wind farm, also in Victoria, and Walkaway wind farm in Western Australia. It is currently developing a training programme and operating instructions for the Waubra wind farm.

114 TSE has 2,000 staff located in Western Australia, who provide operations and maintenance services. TSE specialises in managing and maintaining public and private assets. Mr Nedov's statement sets out the personnel who report to him.

115 Mr Nedov was not required for cross-examination and his statement was tendered by consent.

116 Mr Ware holds the position of Operations Manager - Wind Farm for TSE. In that role, he is responsible for the operational performance and maintenance of the wind farms owned by the Infrastructure Fund.

117 Mr Ware's experience in power generation began in 1985 at the Collinsville Power Station in Queensland. His first exposure to wind farm power generation occurred in 2001, when he took up a position as the Construction and Operations Co-ordinator for the Starfish Hill wind farm project. He held an equivalent position in relation to the Mt Millar wind farm. He holds trades and engineering qualifications.

118 In his statement, Mr Ware sets out his experience in relation to power stations generally, and wind farm projects in particular. At the wind farm projects owned by Transfield, day to day responsibility for site activities rests with maintenance and service contractors, being Vestas and Enercon Wind Farm Services Australia, although at Toora, TSE manages the site with its own personnel.

119 Mr Ware's statement lists the personnel within Transfield responsible for the management of the wind farm portfolio. Transfield also has access to specialist engineering support relating to wind farms when required. His statement also confirms the accuracy of the information provided by TSE to Griffin in response to its requests.

120 Mr Ware was not required for cross-examination and his statement was tendered by consent.

121 Mr Johannesen holds the position of Project Development Manager, Wind Farm Development for TSE. He reports to Mr Neil. He is qualified in civil engineering.

122 In his statement, Mr Johannesen sets out his experience in connection with a number of general power generation facilities in Queensland. From 1999 until December 2007, he held the position of Civil Engineer/Wind Engineer with Stanwell. His first exposure to wind farm generation occurred when he took up that position. His duties with Stanwell involved managing the development for wind projects through pre-feasibility and feasibility studies and providing general technical expertise in matters relating to wind resources and wind farms. He was involved in the technical analysis, evaluation and documentation for all stages of project development of the Wind Farm and the Toora wind farm in Victoria, and in the later stages of the project development for the Windy Hill wind farm in North Queensland. He continued to provide technical assistance during the operation of those three sites.

123 Mr Johannesen's employment with TSE commenced at the time of its acquisition of Stanwell's wind farm portfolio. He is now TSE's technical point of contact with respect to wind farm developments, and is currently engaged in the development of the wind project at Barn Hill in South Australia.

124 Mr Johannesen was not required for cross-examination and his statement was tendered by consent.

125 Mr Roberts is employed by the Manager, and holds the position of General Manager. He has held that position since June 2006. Prior to that time he had a variety of experience in relation to electricity generation projects, but no prior experience with wind farm development, or in the operation and maintenance of a wind farm.

126 The Wind Farm is located around 200 km north of Perth and 30 km east of Cervantes on a working beef cattle property known as Emu Downs, which is approximately 5,000 ha in area. The farm comprises 48 Vestas wind turbines providing a total generation capacity of 79.2 mw. It has two 40 mt substations and associated infrastructure, roads and buildings.

127 In his statement Mr Roberts sets out his roles and responsibilities as manager on behalf of the Manager of the Joint Venture. On four occasions in 2007, Stanwell provided services to the Manager on a formal basis pursuant to the provisions of the Services Agreement. However, Stanwell has provided informal advice and direction to Mr Roberts on a regular basis. Mr Roberts states that without that advice, he would find it extremely difficult to properly manage the Joint Venture.

128 In his statement, Mr Roberts provides details of the persons within Stanwell from whom he has sought and obtained advice. They include Mr Longbottom.

129 Mr Roberts asserts in his statement that he has received advice from Mr Kevin Ramm, an employee of Stanwell, in terms which suggest that advice is ongoing. However, in Mr Longbottom's supplementary statement, he asserts that so far as he is aware, the only work done by Mr Ramm was in respect of the preparation of an Asset Life Plan for the Wind Farm, which work was completed in or about September 2007, after which Mr Ramm has had no ongoing involvement with the Wind Farm. As Mr Ramm was not called, and neither Mr Longbottom, nor Mr Roberts were cross-examined on this issue, it is not possible for me to resolve this conflict in testimony. However, it does not seem to me that anything turns upon this issue.

130 Mr Roberts confirms that apart from himself, there are generally six full-time Vestas personnel on site. His role includes ensuring that Vestas complies with its contractual obligations. As the EPC contract was to expire on October 2008, the Manager recently completed a process aimed at identifying possible new contractors. Mr Roberts relied heavily on Mr Longbottom's advice in relation to that issue. He has also relied upon Mr Longbottom's advice and assistance in relation to the negotiation of a new contract with Vestas.

131 Mr Roberts also reviews the data relating to forecast and actual winds, for the purposes of making operational and maintenance decisions. He relies to some extent upon the advice provided by Mr Longbottom in that regard. Mr Longbottom asserts that his role is essentially limited to reviewing the data and looking for trends or inconsistencies. This appears consistent with Mr Roberts' evidence.

132 There are relatively minor differences between the evidence of Mr Roberts and Mr Longbottom with respect to the extent of the advice given by Mr Longbottom to Mr Roberts in relation to scheduled maintenance of the plant. However, it is clear that both witnesses accept that advice is given by Mr Longbottom on this subject on a relatively regular basis. Advice is also given by Mr Longbottom in relation to unscheduled maintenance. There is also a difference between Mr Roberts and Mr Longbottom on the question of whether Mr Longbottom has ever given Mr Roberts advice with respect to the isolation of wind turbines. Mr Longbottom asserts in his responsive statement that he does not recall ever providing direction to Mr Roberts on that subject. However, in cross-examination, Mr Roberts was adamant to the effect that advice had been given by Mr Longbottom on that subject, and I accept that evidence.

133 Further, although there is a difference between the two witnesses as to the time at which Mr Longbottom gave advice in relation to staffing issues and substation usage, they agree that these matters were discussed. Mr Roberts also receives advice from Mr Longbottom on a quarterly basis regarding commercial issues arising under the power sale contracts.

134 In his statement, Mr Roberts refers to the various consultants, other than Vestas who provide services to the Manager. In relation to the engagement of those consultants, he has relied heavily on Stanwell and its personnel for advice in respect of the engagement, and the terms of engagement. Mr Roberts' statement provides a number of specific examples of advice given by Stanwell and its personnel, in the areas of operational issues, maintenance issues, asset management, inventory issues and technical support generally. There are some relatively minor differences to the evidence given by Mr Longbottom on these topics - such as, in relation to the time at which advice was given with respect to the supervisory control and data acquisition system. However, the differences in the evidence are marginal and do not detract from the general thrust of Mr Roberts' evidence, which is to the effect that he has been in the habit of relying upon the personnel of Stanwell to provide advice across a range of areas pertaining to the operation and maintenance of the Wind Farm.

135 Mr Roberts asserts in his statement that where it has been necessary to obtain a consultant, there has been no wind farm consultant with a substantial presence in Western Australia, with the result that he has often had to wait for a consultant to fly to Western Australia before a problem can be attended to. However, by reason of his dealings with Stanwell, he has often been in a position to obtain expertise without requiring somebody to travel to the Site. He further expresses the view that based on his experience, he is not aware of any wind farm consultant who could provide the breadth and depth of wind farm expertise that Stanwell provides. Those statements were not challenged in cross-examination and I accept them.

136 In cross-examination, Mr Roberts confirmed that he had resigned from his position with effect from October of this year, after which he was to take up employment with the Griffin group.

137 Mr Johnstone is a director of Corpac Partners Pty Ltd, which provides corporate financial advice to government and other clients. He is a qualified chartered accountant. Mr Johnstone was the source of the information relating to the financial position of Transfield contained in the Griffin Board Paper and which I have summarised. In his statement he sets out the information upon which he relied for the preparation of that material, and expresses the view that the material in the Griffin Board Paper is accurate. Mr Johnstone was not required for cross-examination and his statement was tendered by consent, but on the basis that it was not evidence of the truth of the assertions made in the Griffin Board Paper. The limited basis of the tender gives rise to an issue with respect to the onus of proof in the context of a case in which it is alleged that consent was unreasonably withheld. I will address this issue later in these reasons.

138 Mr Trumble holds the position of Executive General Manager, Power Generation of 'Griffin Energy' (a business name held by various Griffin entities involved in the operation and development of power generation projects). Mr Trumble is responsible for the management of Griffin's existing energy generation projects and the development of future projects, including various projects to which I have already referred. Mr Trumble has 20 years experience in the energy generation sector in various countries.

139 Mr Trumble was cross-examined at some length. I found the testimony which he gave to be careful, considered, consistent with the documentary evidence, and plausible. I have no hesitation in accepting his evidence in its entirety.

140 Mr Trumble is one of Griffin's two representatives on the Management Committee established to manage the Joint Venture. That Management Committee receives weekly and monthly reports from the Manager.

141 In 2003 Mr Trumble was responsible for Griffin's involvement in a competitive process relating to the supply of electricity to Western Power. In that process, Griffin was in competition with Transfield entities, which were successful. The success of the Transfield entities resulted in the construction of the Kemerton power plant near Bunbury.

142 Mr Trumble was responsible for the material contained in substantial portions of the Griffin Board Paper. In his statement he describes in general terms the matters upon which he relied for the assertions made in the Griffin Board Paper. As with Mr Johnstone, Mr Trumble's evidence was not tendered as evidence of the truth of those assertions. Accordingly, the issue relating to onus which I have already foreshadowed arises also in respect of this evidence.

143 At the board meeting at which the Griffin Board Paper was considered, Mr Trumble explained each section of the Griffin Board Paper to the directors present. No questions were asked by any of the directors regarding any aspect of the Griffin Board Paper. Following his presentation, which took 20 to 25 minutes, the directors resolved unanimously to accept the recommendation not to consent to the Change in Control.

144 In cross-examination, Mr Trumble confirmed that in assessing the issues relating to technical capacity, he had compared the technical capability of Transfield not only to Stanwell, but also to other Participants within the wind farm industry. Further, in preparing his recommendation to the board, Mr Trumble understood that the criteria specified in cl 11.7 of the JVA required the proposed assignee to have a level of technical capability and financial capability that would be acceptable to the continuing Participant. However, in making his recommendation, he did not consider that Griffin was confined to the matters specified in cl 11.7, and included considerations relevant to Griffin's broader commercial position.

145 Mr Trumble admitted that the prospect of being in a Joint Venture with a commercial competitor was one of the principal reasons for his recommendation to refuse consent, but denied that it was the main reason.

146 In relation to that portion of the Griffin Board Paper dealing with the expansion of the Wind Farm, Mr Trumble advised that Griffin has had under consideration the addition of up to six further turbines. The addition of those turbines would not take the Wind Farm beyond a capacity of 80 mw, but would increase the power generated up to 80 mw during the many times at which the Wind Farm operated below maximal output because of reduced winds. He estimated that the capital cost of each of those six turbines would be approximately $2.5 million - producing a total capital cost of about $15 million.

147 Mr Trumble identified a number of unique features of a wind farm generation project, including the intermittent nature of its operations, and the generation of limited amounts of electricity spread across a large area. Mr Trumble did not give any consideration to the question of whether TSIL would have the capacity to fund expenditure of the order of $15 million at the time he prepared the Griffin Board Paper, and was not able to say whether it would be within its capacity or not. He confirmed that the Wind Farm was strongly cash flow positive, although the profitability of the wind farming operation depended upon such things as financing costs and depreciation.

148 Mr Trumble confirmed that it was the intention of the Joint venturers to negotiate an extension or renewal of the EPC Contract with Vestas and at the time of his evidence, they were close to concluding such a contract.

149 Mr Trumble accepted that in the Griffin Board Paper he had understated Mr Ware's operational experience in relation to the Starfish Hill wind farm. He confirmed that he did not form a view, positively or negatively, either way as to Mr Ware's capability with respect to the management of operations and maintenance of wind farms.

150 Mr Trumble confirmed that in preparing the Griffin Board Paper, he did not have regard to the confidentiality provisions in the Management Agreement. However, his concerns with respect to confidentiality were not related to those provisions, but arose from the fact that confidential commercial information would be made available to Transfield who were competitors of Griffin. So far as he was aware, the confidentiality provisions only related to the passage of information to third parties beyond the associates of the parties.

151 Mr Trumble further confirmed that because consent had been sought in relation to assignment of a portion of the obligations relating to the Badgingarra wind farm, he had addressed that wind farm in the Griffin Board Paper.

152 Mr Trumble stated that some expertise would be required to expand the Wind Farm by adding another six turbines - particularly in the area of regulatory and licensing approval, and also in the technical issues relating to the placement of those turbines.

153 In relation to the role of Vestas, Mr Trumble stated that Vestas provides what he described as 'the arms and legs' for maintenance and operation of the Wind Farm, but that issues like long life asset management, planning for the whole of the Wind Farm and commercial matters were matters for the owners. He further stated that the monthly report provided by Vestas was reviewed by Mr Longbottom, as the technical adviser to the Management Committee, who would provide comment to the Management Committee on those reports.

154 Mr Crossman is a director of EDWF 2, and a number of other companies within the Griffin group. He is also a director of Corpac Partners Pty Ltd, along with Mr Johnstone. Mr Crossman is a qualified lawyer and investment banker.

155 Mr Crossman was involved in the provision of information and comment which was included within the Griffin Board Paper presented to the Griffin board on 17 March 2008. In his witness statement, Mr Crossman identifies those portions of the Griffin Board Paper for which he was responsible, and affirms his belief in the accuracy of those statements. As with the evidence of Mr Johnstone and Mr Trumble, that evidence was not received as evidence of the truth of the assertions made in the Griffin Board Paper, and gives rise to the same issue as to onus of proof.

156 In his witness statement, Mr Crossman also describes the events at the board meeting on 17 March 2008. He confirms that Mr Trumble spoke to the Griffin Board Paper for approximately 25 minutes, and that no questions were asked of Mr Trumble during that presentation. Mr Crossman's statement then sets out his recollection of the discussions between the directors. That evidence was received over objection as evidence of the state of mind of the directors, and as evidence going to the subjective reasons for the refusal of consent, and not as evidence of the truth of the matters stated. On that basis, I overruled an objection to the evidence on the ground that it was hearsay. In any event, the discussions related by Mr Crossman are relatively brief, and do not appear to me to either add to, or detract from, the propositions and reasoning set out in the Griffin Board Paper, which I regard as the best evidence of the reasons why consent was refused.

157 Mr Crossman was cross-examined. For the reasons which I will give, I was unimpressed with his testimony. I do not accept the assertions which he made in cross-examination, unless they are corroborated by other evidence.

158 Mr Crossman initially stated that he saw a draft of the Griffin Board Paper. Shortly after that statement, he resiled from that assertion. He also stated that he had reference to the JVA, both before and during the board meeting. However, shortly after those assertions, his evidence as to the extent to which he had referred to the JVA became much less definite - initially stating that he 'probably', then 'would' have a copy of the JVA, but then stating that he 'would have had, for example, a copy extract of the relevant sections'. He then said that he 'may have got out a copy' of the JVA, and then said that he believed he had a copy in his office.

159 Many of the answers given by Mr Crossman were unresponsive to the questions asked, and appeared to be intended to argue Griffin's cause. For example, when asked if he had called for any information other than the questions and answers and the Griffin Board Paper prior to the board meeting, he replied that he:

... did ask for someone to look into who were other potential - could have been potential buyers of the project and I think we came up with about a list of 20 very strong technical expert companies.

160 I think it is of some significance that there is only vague reference to this proposition in Mr Crossman's witness statement, and no reference to this in the Griffin Board Paper, or in any document tendered in evidence. The vague reference consisted of a statement recollecting a response of Mr Crossman to Don Pearson. Mr Crossman stated that he responded 'with words to the following effect' that 'I believe there are a number of players who would have been interested in these assets who were strong financially, had windfarm expertise and were not competitors of ours'. This statement is very broad and makes no reference to 'looking' for potential buyers or the number found. Therefore, I do not accept Mr Crossman's assertion.

161 When asked whether, at the board meeting, he had considered 'as an entire question' the proposed Change in Control in relation to the JVA and the JDA, Mr Crossman replied:

To some degree. We really focused on the Emu Downs joint venture agreement.

162 It was then suggested to him that he focused on both, to which he replied:

No, we focused more on the Emu Downs joint venture agreement.

164 That evidence appears to me to be inconsistent with the terms of the Griffin Board Paper, and the discussions of the directors related by Mr Crossman in his witness statement. I do not accept that evidence. The Griffin Board Paper, which is the best evidence of the reasons for refusal of consent, makes clear that the proposed change of entity in relation to the JDA was regarded as just as significant as the proposed Change in Control of EDWF 1.

165 When Mr Crossman was asked what he understood to be the question that the board of EDWF 2 had to address, he responded by giving evidence as to the reasons why Griffin had entered into the relationship with Stanwell in the first place, in a manner which was unresponsive to the question asked and argumentatively directed to advancing Griffin's cause.

166 Similarly, when asked if he understood that there was some criterion or standard by which the technical and financial issues were to be assessed, he again replied with evidence going to the negotiations which preceded entry into the original arrangement with Stanwell. That answer was not responsive to the question he was asked.

167 When the question was repeated, included within his answer was an assertion that there was nobody in Western Australia to whom tasks associated with the Wind Farm could be outsourced. He elaborated on that proposition in the answer to the next question. His assertions in that regard go beyond the evidence of Mr Trumble and Mr Roberts in their generality, are not consistent with the assertions made in the Griffin Board Paper, were not included in his witness statement, and do not appear to be substantiated by any documentary evidence. I do not accept those general assertions, although I do accept the evidence of Mr Roberts that on occasion there have been problems sourcing specialist wind farm advice within Western Australia.

168 Further, when asked how many people Stanwell had supplied on the ground to assist with the practical management of the Wind Farm, in the course of answering the question, Mr Crossman went on to assert, unresponsively, that there had been a recent issue with a problem with the turbines where they had completely relied on Stanwell. That assertion was not made in his witness statement, and appears to go beyond the evidence of either Mr Trumble or Mr Roberts, who could be expected to have greater knowledge of these matters. Further, when Mr Crossman was asked whether he had any expertise which would enable him to form a reliable opinion of Mr Ware's capability to supervise the operations and maintenance of a wind farm, he initially gave an argumentative answer which was entirely unresponsive to the question asked. Ultimately, when the question was repeated, he conceded that he lacked the technical expertise to assess Mr Ware's capability.

169 At another point in his evidence, Mr Crossman asserted that there was a risk that revenues received by the Wind Farm would not exceed operating costs. That proposition, which is of obvious significance, was not contained in his witness statement, nor in the Griffin Board Paper. It is contrary to an admission made by EDWF 2 in its defence. I gained the distinct impression that it was an assertion made by Mr Crossman in an attempt to advance Griffin's cause.

170 For these reasons, I do not accept the oral testimony of Mr Crossman, unless it is corroborated by other evidence.

171 Dr Gaynor is the founder of a consulting company providing services to industry, including the Western Australian energy generation industry. He has extensive experience in that industry, including the provision of project development services in relation to power generation projects in Western Australia.

172 EDWF 2 tendered a report from Dr Gaynor covering the following subjects:

(a) an overview of the Western Australian energy generation market;

EDWF HOLDINGS 1 PTY LTD -v- EDWF HOLDINGS 2 PTY LTD [2008] WASC 275 (28 November 2008)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (356 paragraphs)

EDWF HOLDINGS 1 PTY LTD -v- EDWF HOLDINGS 2 PTY LTD [2008] WASC 275 (28 November 2008)

Houlder Bros & Co Ltd v Gibbs [1925] 1 Ch 575

Premier Confectionery (London) Co Ltd v London Commercial Sale Rooms Ltd [1933] Ch 904

Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547

Bickel v Duke of Westminster [1977] 1 QB 517

International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513

Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180

Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd [1986] 1 Qd R 406

Caltex Oil (Aust) Pty Ltd v Allan (Unreported, NSWSC, 10 June 1987)

Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1

Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205

Cathedral Place Pty Ltd v Hyatt of Australia Ltd [2003] VSC 385

The framework of the issues to be considered and the onus of proof

Has satisfaction of the proviso been established?

Legislation Cited (1)

Cases Cited (2)