MP Water Pty Ltd v Veolia Water Australia Pty Ltd

SERIOUS ISSUE TO BE TRIED

1. Veolia submits that the "Step-In Notice" demands that Veolia perform acts that it is not required to perform pursuant to clauses 44(a)(7)-(9) of the Services Provider Agreement. The Step-In Notice requires Veolia to operate the Facility. That is not Veolia providing "assistance" to the plaintiff for the plaintiff to take possession of the Facility and for the plaintiff to "provide the Services" in accordance with clause 44(a)(7). This is the plaintiff demanding that Veolia itself provide the Services. The Step-In rights are limited to the plaintiff taking possession of the Facility and the plaintiff or the Customer providing the Services, as was said to be made plain by clauses 44(b) and (d) of the Services Provider Agreement. Thus, the Step-in Notice was invalid.
2. Further, the requirement on Veolia at paragraph (a) of the Step-in Notice to "assist" was "so widely and ambiguously worded as to be deprived of effect": Optus Networks Pty Ltd v City of Boroondara [1997] 2 VR 318 per Ormiston, Charles and Callaway JJA at 337. The requirement on Veolia at paragraph (b) of the Step-in Notice was said to fall foul of the principle that one does not grant an injunction to compel the defendant to do what is "necessary" without further definition: Greetings Oxford Koala v Oxford Square Investments Pty Ltd (1989) 18 NSWLR 33 per Young J at 42. Paragraph (b) failed to define what was "necessary" or "desirable". It is not for the Court to formulate the type of order that can be made: Greetings at 42. Further, it was submitted that the Court could not be satisfied that making the injunction would carry a "lower risk of injustice": Albarran v Envirostar Energy Ltd [2002] NSWSC 108 per Barrett J at [29].
3. The plaintiff submitted that the power in clause 44(a)(7) is to "take or assume total or partial possession, management and control". The words "total or partial" condition the "possession, management and control". That there can be a partial assumption of management or control was said to be demonstrated by clause 44(d), which is a partial suspension of the defendant's obligations "to the extent necessary". Further, Veolia must "assist" the plaintiff take that partial management or control. The assistance Veolia is obliged to provide is described as assistance "wherever and however possible to ensure". That is not merely an obligation not to hinder the plaintiff if it takes partial management and possession by attending to give a direction that water treatment services recommence.
4. By attending the site and giving a direction, the plaintiff submitted that Mr Bowen would be taking temporary, and partial, "possession, management and control of the Facility" within the meaning of clause 44(a)(7). But even were that not the case, the identified Step-in Rights include the plaintiff taking "such other steps as are necessary or desirable to continue the provision of the Services" (clause 44(a)(7)) and doing "anything which the Services Provider is entitled to do under an O&M Project Contract or with respect to the Project" (clause 44(a)(9)). The giving of the direction by Mr Bowen was a step necessary for the continued provision of the Services (for the purposes of clause 44(a)(8)) and defendant would undoubtedly be able to give a direction of the type given by Mr Bowen (for the purposes of clause 44(a)(9)). The Step-in Notice was therefore within power, in the sense that it was an exercise of an identified Step-in Right within the meaning of clause 44(a)(8) and (9), as well as clause 44(a)(7).
5. The plaintiff submitted that there is no minimum requirement for a notice which conditions the exercise of the power. The power may be exercised without giving a notice at all: clause 44(d). The purpose and, therefore, required content of any notice is identified in clause 44(d), being to provide notice to the defendant that the plaintiff is exercising its Step-in Rights. The notice given performed its contractual function. No more was required. Further, the plaintiff submitted that the notice given identified that which must be done. Veolia must assist the plaintiff to commence treatment of mine water at the Facility and do those further things directed as necessary or desirable to continue provision of the Services. That is within the power of requiring that Veolia assist the plaintiff. Veolia will be required to show the plaintiff how to recommence operation and, if the plaintiff cannot do that itself, to assist the plaintiff in restarting operation of the Facility.
6. There is no doubt that, in appropriate cases, a court may determine the proper construction of a contract in determining an interlocutory application. As to when a court may embark upon such a determination, the authorities suggest that the following matters will bear upon that choice: 1. The complexity involved in construing the contract: Cohen v Peko-Wallsend Ltd [1986] HCA 70; (1986) 68 ALR 394 at 397 per Gibbs CJ, Mason and Wilson JJ. 2. The urgency of the matter and the time available to hear and determine the application: Cohen v Peko-Wallsend Ltd at 397; ETT v IPSTAR Australia [2008] NSWSC 644 at [29] per White J ("if time permits and it is otherwise possible to do so"). 3. Whether construing the contract is likely to require considering evidence of the objective matrix of facts in which the contract was made or otherwise require making findings of fact on further evidence adduced at trial: ETT at [29]; The Trust Company (Australia) Ltd v NextDC Ltd [2018] NSWSC 736 at [30]-[31] per Parker J. 4. The strength of the applicant's substantive case, especially where the grant or refusal of the interlocutory injunction would, in effect, finally determine the matter at hand in favour of the party successful in the application: Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238; [2011] FCAFC 156 at [72]-[73] per Dowsett, Foster and Yates JJ, citing NWL Ltd v Woods [1979] 1 WLR 1294 at 1305-1307 per Diplock LJ. 5. The prejudice that would be suffered by each of the respective parties, including the extent to which an undertaking as to damages would ameliorate the prejudice: Garnock v Black [2005] NSWSC 1052 at [23] and [31]-[32] per Campbell J (see also Garnock v Black [2005] NSWCA 475 at [15]-[19] and [28] per Basten JA). 6. Whether the commercial purpose of the contract would be defeated if an interlocutory injunction were granted contrary to its proper construction: Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [34]-[38] per Osborn and Ferguson JJA and [122]-[123] per Kaye JA. 7. Whether determination in an interlocutory judgment will fail to achieve finality as the matter will be re-argued at a final hearing or on appeal: The Trust Company (Australia) Ltd v NextDC Ltd at [29] per Parker J ("I think it is inevitable, given the intensity of the forensic contest, that the losing party will challenge my decision and accordingly no time will be saved.")
7. As I understand it, Veolia does not dispute on this application that, in the circumstances when the "Step-in" Notice was issued, the plaintiff was entitled to exercise Step-in rights. The issue is the scope of those rights and whether the notice was valid and clear. The most relevant portions of clause 44 provide: (a) If at any time during the Operations Phase: (1) a Services Provider Default Termination Event occurs; (2) a Services Provider Default occurs and the Services Provider has failed to diligently pursue the relevant Services Provider Default Notice; or … Project Co (in the case of paragraphs (1) to (3)) or the Customer (in the case of paragraphs (4) to (6) and in accordance with clause 44 of the WTSC) may elect, and if it so elects the Services Provider will assist Project Co or the Customer wherever and however possible to ensure that Project Co or the Customer is able, to: (7) temporarily take or assume total or partial possession, management and control of the Facility (or any part of the Facility) and the provision of the Services (or any of them); (8) take such other steps as are necessary or desirable to continue the provision of the Services as required by this Contract or to minimise the risk to the Environment, to other members of the general public or of material damage to the Facility, as applicable; and (9) do anything which the Services Provider is entitled to do under an O&M Project Contract or with respect to the Project, (each a Step-in Right). (b) When exercising Step-in Rights, Project Co will use (or procure that the Customer uses) reasonable endeavours to operate the Facility in a manner which is consistent with the provision of the Services as required by this Contract. (c) Each of Project Co and the Customer may exercise its Step-in Rights without prior notice to the Services Provider but Project Co will, if reasonably practical to do so, give prior notice to the Services Provider and in any event will, as soon as practical, provide notice to the Services Provider that it or the Customer is exercising its Step-in Rights. (d) Upon either Project Co or the Customer exercising its Step-in Rights, the Services Provider's rights and obligations under this Contract are suspended to the extent necessary to permit Project Co or the Customer to exercise those Step-in Rights.
8. The Facility is defined as the whole of the Facility to be designed, engineered, procured, supplied, constructed, tested, commissioned, operated, maintained and owned by the plaintiff on the Site including the Mine Water Buffer Pond, as further described in the Scope of Works and Services.
9. The Mine Water Buffer Pond is defined as: Mine Water Buffer Pond [T]he existing Blowdown Pond B owned by Energy Australia at MPPS after it has been repurposed by the Construction Contractor to function as the Mine Water Buffer Pond and which will be part of the Facility, with all modifications and additions necessary to be compliant with Schedule 20 of the Construction Contract; where: 1 all modifications and additions are to be designed, engineered, procured, supplied, constructed, tested, and commissioned by the Construction Contractor, as further described in Attachment 1; and 2. which will be operated and maintained by the Services Provider in accordance with Schedule 20 of this Contract and the Mine Water Buffer Pond Operating Protocol.
10. Veolia says it is the Construction Contractor and, unless it repurposes Blowdown Pond B, then the pond can never become a Mine Water Buffer Pond. The plaintiff submits that the present dispute is to be resolved by reference to the obligations of Veolia under the Services Provider Agreement to take and treat water from the mine, come what may. That obligation is not derogated from by Veoila's definitional argument as to whether Pond B exists as defined in the Services Provider Agreement. In a physical sense, Pond B does exist and is presently being used to hold untreated mine water. Veoila having refused to operate the Facility, the plaintiff has a contractual right to "Step-in". The plaintiff wishes to exercise its contractual right to cause the Facility to operate including Pond B.
11. Services are defined as the services in respect of the Facility to be provided by Veolia, including all services described in the Scope of Services, Variations and any incidental services or functions required for the proper performance and provision of those services. The Scope of Services is itself a voluminous document.
12. Clause 44 occupies three pages of a 495 page contract, which itself is part of a suite of transactional documents, of which only three are in evidence. The clause is imbedded with numerous defined terms. Many of the definitions themselves include further defined terms. The definition of Mine Water Buffer Pond is curious as it does not appear to envisage - as Schedule 20 does - that whilst Veolia is entitled to provide a quotation to remediate Blowdown Pond B, the plaintiff or the Customer may undertake that work instead. I cannot exclude the prospect that extrinsic evidence will be adduced in respect of the construction of this definition.
13. Construing clause 44 is necessarily a task requiring detailed analysis and a considerable amount of time which a Duty Judge does not ordinarily possess. I am loathe to definitively construe clause 44 in the midst of an urgent application such as this, particularly where the Services Provider Agreement governs the arrangements between the plaintiff and Veolia for 15 years. Nor is it clear what prejudice Veolia will suffer if the clause is not construed today, for which the usual undertaking as to damages will not give adequate protection.
14. It is not expedient to decide on a final basis the difficult questions of law that are involved in this application today. However, I am satisfied that there is a serious question to be tried as to whether the plaintiff is entitled to require Veolia to treat the water in Pond B, and whether the Step-in Notice was sufficiently clear to enable Veolia to understand that request.

BALANCE OF CONVENIENCE

1. The level of water in Pond B can be reduced by pumping the water elsewhere or treating the water at the Facility. The Customer has offered to accept 5 ML into one of its ponds in order to reduce the level of Pond B sufficiently to allow the Facility to re-start and treat the water in Pond B but is not prepared, nor obliged, to take more water. Thus, the balance of convenience requires the Court to assess the risk that treating the mine water in Pond B in the Facility will cause harm to the Facility, and to also consider the risks of what may happen if the water is not so treated.

Damage to the Facility

1. Ms Waterfall says that the directions in the Step-in Notice may cause damage to the Facility as the chemistry of the water in Pond B is unknown. Exotic and heavy metals and hydro carbonates may be present in the waters in such quantities as cannot be treated by the Facility. This would destroy reverse osmosis membranes and cartridge filters. The cost of replacing this equipment is some $1.25 million.
2. Mr Bowen says the only water in Blowdown Pond B is rainwater and mine water which Veolia has put there. He does not believe that the treatment of this water will cause any damage to the Facility, as the Facility is designed to treat this water. Veolia has in fact used Pond B as a buffer pond. It is currently full of mine water, working as a buffer to other aspects of the Facility. Mr Bowen says the ability to urgently remove water from Pond B is not related to the liner condition of Pond B. Nor does any lack of information prevent the use of Pond B as a buffer pond and the treatment of the mine water which it contains.
3. On the evidence, there is a risk that, if Veolia treats the water in Pond B in the Facility, damage may occur in the order of some $1.25 million. The risk of such damage, however, appears possible but not likely.

Impact on mines

1. Approximately 32 to 33 ML is accumulating per day in Springvale and Angus Place. If water is not removed from the mines, water can damage the mechanical, electrical and other infrastructure and equipment in the mine, such as the ventilation system, trunk conveyor and the longwall equipment, which itself is worth approximately $140 million.

Springvale Mine

1. Springvale Mine has gone into "protective mode". The mine is on high alert and starting to plan next steps which, by 20 May or 21 May 2021, are likely to include the relocation of pumps. From 21 May 2021, impacts to the mine's ventilation circuit are expected to commence. Due to rising water levels and the subsequent reduction in the area for air to flow, the amount of air which can be distributed throughout the mine is reduced and parts of the mine have to cease operations.
2. Once the water fills the disused mine workings, it will start flooding the 'tail pulley' area at the bottom of the mine where the conveyor which transports coal out of the mine is located. If pumping to the Facility is not restored, this area of the mine is expected to flood by 2 June 2021, with the conveyor needing to cease operations within a week of that date, as a result of which mining activities will need to cease. To avoid this, water will need to commence flowing to the Facility by 31 May at the latest. If the mine shuts down, a workforce of some 400 people will be stood down.
3. If pumping to the Facility is not restored, the longwall area will begin flooding on 7 June 2021. If flooded, the longwall will be irrecoverable and, as the longwall is designed specifically for each mine, will take some two years to replace. Moving the longwall equipment usually takes five to six weeks. Attempting to move the longwall equipment as part of an unplanned move would require all coal in that panel to be sacrificed as it would not be possible to get back into that area to recommence mining at a later point. The longwall is not in a location where it can easily be moved. It would be a high-risk operation from the perspective of successfully recovering the longwall and from an employee safety perspective. The bolts and mesh used to support the tunnels would begin to deteriorate from June 2021 and, by mid-September 2021, significant strata deterioration would have occurred, leading to roof areas falling in on mine roadways.

Angus Place

1. At the Angus Place Mine, due to the inability to send water to the Facility, one of the old mine working areas (800 panel) is now full. Water in 800 panel has high levels of hardness and is usually blended with water from the other old mine working storage area (900 panel) before sending it to the Facility to ensure that the water meets the required specifications. As 800 panel is now full, water from 800 panel is flooding into 900 panel, effectively contaminating the water in 900 panel in an uncontrolled manner. This is occurring at a rate of approximately 0.5 ML per day through water 'weeping' through the walls. This will impact on the way that water can be blended from the Angus Place Mine to ensure that water flowing to the Facility remains within the required envelope.
2. Varying estimates have been given as to when the mine workings at Angus Place are expected to flood, depending on the rate of water flow, ranging from 21 May 2021 to 22 June 2021. Continued flooding of the mining areas gives rise to the same loss of strata control issues already described, with significant costs associated with checking and restoring these strata controls, assuming they can be restored. Estimates were given that, by early August 2021, the mine void would be filled resulting in a loss of mining equipment and, by early November 2021, the roof areas of the mine would fall in on mine roadways, jeopardising future mining operations, in around early November 2021.

Water for use in cooling towers

1. As the Facility is not presently operating, Mount Piper Power Station has had to obtain water from other sources to use in its cooling towers. This has caused EnergyAustralia to incur additional costs, which would not otherwise have been incurred if treated water was available from the Facility. Using water from other sources requires extra chemicals to be used in the cooling water system to manage water chemistry and this process results in extra blowdown being created, which must then be processed at additional cost. As I understand it, the plaintiff is exposed to these costs.

Coal supply

1. The main impact of the non-operation of the Facility on Mount Piper Power Station is in relation to the supply of coal. There is currently enough coal stockpiled at the power station for about three months' worth of operations. After that, the power station will need to arrange for the supply of coal from an alternate source, which would need to be transported by train at significant cost. As I understand it, the plaintiff will be exposed to these costs.
2. In the events which have occurred, the Customer has issued a default notice to the plaintiff. The Customer has extended time for the plaintiff to remedy its breach (arising from Veolia's breach) until 20 May 2021. The risk faced by the plaintiff is termination of the Water Treatment Services Contract, together with a claim for damages.

CONCLUSION

1. Having regard to [62]-[75], I am satisfied that there is a serious issue to be tried. Having regard to [76]-[88], I am satisfied that the balance of convenience favours the granting of interim relief.
2. As to the form of orders sought, the plaintiff submitted that the mandatory injunction sought involved no more than restarting the Facility and otherwise reverting to a course of conduct that was sustained before the present dispute. Veolia submitted that the lack of clarity in the terms of the mandatory injunction, which adopted the terms of the Step-in Notice, was such that the Court could not be satisfied that any mandatory order it made could be complied with. The lack of description in the Step-in Notice, of the "assistance" that Veolia is to provide, meant that an order to comply with the Step-in Notice Veolia would not be certain nor enable Veolia to know exactly what can and cannot be done: Greetings at 41, Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 per Meagher, Handley and Cripps JJA at 348. The form of orders was said to be are "ambiguous, uncertain and indefinite", with the result that Veolia cannot be sure whether any steps it takes will be sufficient to "loyally comply with them": Greetings at 41; Curro at 349.
3. I consider that an interim mandatory injunction is appropriate here, in circumstances where the orders sought require Veolia to treat mine water as it is obliged to do under the Services Provider Agreement, albeit accepting that the water in Pond B has the 'history' outlined in this judgment. To address Veolia's suggestion that the form of the orders sought is not sufficiently clear, I have amended the orders to enable Veolia to know exactly what can or cannot be done, including having regard to evidence and offers which have transpired since these proceedings were commenced. I have endeavoured to "steer the course which appears to 'carry the lower risk of injustice'": Albarran v Envirostar Energy Ltd per Barrett J at [29].

ORDERS

1. For these reasons, I made the following orders on 20 May 2021: 1. NOTE that the plaintiff: 1. By its counsel, gives the Court the usual undertaking as to damages; 2. Agrees to pump 5 megalitres (ML) of water from "Blowdown Pond B" (being "Blowdown Pond B" identified on the Facility Diagram at Exhibit BB-1, page 3) to BWC Pond as soon as possible. 1. NOTE that the second, third and fourth defendants: 1. CONSENT to receiving 5 ML of water pumped by the plaintiff from Blowdown Pond B into their BWC Pond, or such other of their ponds as the second, third and fourth defendants direct. 2. ACKNOWLEDGE that, after the plaintiff has completed pumping 5ML of water as recorded in Note 3(b) and the first defendant has commenced to comply with Order 5, the first defendant may issue a Crash Stop or Interlock should the water in the Blowdown Pond B reach or exceed 80 ML. 3. STATE that they do not any ability to override any Crash Stop or Interlock described in NOTE 4(b), nor intend to override any such Crash Stop or Interlock. 1. UPON the plaintiff's undertaking as to damages in Note 3(a), the plaintiff pumping 5ML of water as agreed in Note 3(b), and the second, third and fourth defendants' consent, acknowledgment and statements in Note 4: 1. Order the first defendant to do all things necessary to comply with the "Step-in Notice" (being Exhibit KN-1, page 1924-1925), including the Step-in Direction (as that term is defined in the Step-in Notice), by 2pm on 21 May 2021; 2. Order that the first defendant do all things necessary to comply with any directions given by the plaintiff to the first defendant under the Step-in Notice; including to treat the water in Blowdown Pond B using the Facility. 1. Reserve all question of the costs of today. 2. Stand the Summons over for directions on Friday 28 May in the Technology and Construction List. 3. Grant liberty to the parties to apply on 24 hours' notice to the Commercial List Judge. 4. These Orders to be entered forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 May 2021