UPPER HUNTER TIMBERS PTY LTD v FORESTRY COMMISSION OF NSW

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3609/97 UPPER HUNTER TIMBERS PTY LTD v. FORESTRY COMMISSION OF NEW SOUTH WALES

JUDGMENT 1 HIS HONOUR: These reasons deal with the determination of the matter remitted to the Equity Division by order 3 of the orders of the Court of Appeal of 21 May 1999. These reasons should be read with my reasons of 17 August 1998 and the judgment of Sheller JA in the Court of Appeal [1999] NSWCA 125. The matter remitted relates to the Mount Royal claim referred to in paras 4 to 9 of the Further Amended Statement of Claim. The Court of Appeal ordered: "3. remit the matter to the Equity Division for the determination of the extent, if any, to which the [Forestry Commission] was in breach of the agreement made on 14 November 1988 during the period on and from 14 August 1991 to 31 December 1996 and the damages, if any, the result of such breach for which the [Forestry Commission] is liable having regard to the provisions of the Frustrated Contracts Act". 2 In my understanding Order 3 of the Court of Appeal's order refers to breaches on and from 14 August 1991 to 31 December 1996, and does not refer to breaches committed before that period which had continuing effects. 3 When the proceedings came before me for determination of the matter remitted the plaintiff's counsel told me that he proposed to read two further affidavits on the issue of liability; these affidavits, which have been filed are those of Mr Bromley sworn 23 June 1999 and Mr R.J. Sims sworn 22 July 1999. Defendant's counsel opposed this course. I did not allow the affidavits to be read because the trial of the proceedings took place earlier and the parties' evidence on the issue of liability was heard then, the appeal did not involve fresh evidence and the evidence proposed to be read could not have been fresh evidence, no ground was advanced on which leave to re-open the evidence ought to be given, and the order of the Court of Appeal did not order a new trial but ordered only the determination of stated questions, in terms which require determination in relation to the issues and the evidence as they already are. While there is power to re-open a hearing and allow further evidence after judgment has been reserved, that power is only to be exercised where there is some substantial ground for exercising it. I refused the application and embarked on determining the question of liability under the Court of Appeal's order on the evidence at the earlier hearing. I did not embark on hearing or determining any question of quantum, as I earlier decided that quantum would be decided separately. Nothing has happened which limits the evidence which parties may read on quantum. 4 The agreement and the breach alleged appear from paras 4,5 and 8 of the Further Amended Statement of Claim and are to the effect that by the agreement of 14 November 1988 the Forestry Commission agreed

(a) to sell to Upper Hunter a parcel of timber in the Mount Royal State Forest; (b) to make the timber available for harvesting by Upper Hunter. 5 It is alleged that there were implied terms that (a) the Forestry Commission would do all such things as were necessary on its part to enable Upper Hunter to have the benefit of the agreement; (b) the Forestry Commission would refrain from doing anything which would prevent Upper Hunter from having the benefit of the agreement. 6 The breaches alleged are that the Forestry Commission has: (a) refused to permit Upper Hunter to continue to harvest the timber; (b) otherwise failed to take such steps as are necessary on its part to make sure that Upper Hunter has the benefit of the agreement. 7 The pleading does not give particulars of the breaches. 8 To establish what matters of fact or law are required to be decided to determine the matter remitted it is necessary to identify the parts of my earlier decision which were erroneous and were set aside. It is not appropriate to reopen any other matter. 9 Paragraph 53 of the judgment of Sheller JA deals with the effect of the frustration of the agreement of 14 November 1988 which occurred on 1 January 1997 when the Forestry Revocation and National Parks Reservation Act 1996 came into force. Sheller JA observed that the frustration prevented any claim for damages for loss of bargain. By implication this shows his Honour's view that the contract of 14 November 1988 was still in effect and was still at least potentially an advantageous bargain for Upper Hunter. 10 Sheller JA went on to say in paragraph 53: "Since the contract had not been terminated by the Commission's wrongful conduct, the frustration defeated any claim for damages for loss of bargain and left [Upper Hunter] to such claim for damages for breaches of promise before the time of frustration, as it might otherwise have. These in turn would be defeated by s14(1) of the Limitation Act 1969 if the cause of action had accrued before 14 August 1991." 11 In para 54 Sheller JA restated a number of findings in my earlier judgment. (I have given numbers to the findings). " Bryson J found that the cause of UHT's inability to work the Mount Royal State Forest throughout the whole six years before the proceedings began and earlier was the injunction which arose out of the Commission's failure to comply with s 112(1) of the EPA Act in 1988. The injunction applied only to compartments 200 to 204. In addition his Honour made the following findings:

(1) That no evidence dealt with whether UHT sought or was refused licenses to take timber in the Mount Royal State Forest for periods after 31 December 1993. Accordingly, there was no contractually effectual entitlement to take timber from 1 January 1994 due to the effect of General Condition 5 which provided:

'Supply of timber for the successful tenderer/s will be made under, and subject to , the provisions of the Forestry Act 1916, the Forestry Regulation 1983 and subject to the conditions of licenses issued under these statutes.

(2) That the contractual obligation did not extend to oblige the Commission to exercise the discretionary statutory power to issue licenses in any particular way.

(3) That the Commission when it entered into the agreement on 14 November 1988 was obliged to comply with s 112(1) of the EPA Act and was in breach of its implied obligation under the contract to do so.

(4) That the Commission was in breach of its obligation to comply with s 112(1) of the EPA Act on each occasion until 12 March 1992, when it granted another timber license.

(5) That, after the commencement of the TIIP Act, the implied contractual obligation would have obliged the Commission to take reasonable steps, in respect of the eight compartments to which schedule 1 of the TIIP Act applied, to overcome the prohibition found in s6 by obtaining an environmental impact statement and the Minister of Planning's determination under s 9 if there were to be any operations in the eight compartments.

(6) That the timber license which UHT had by then obtained for 1992 did not relate to any of those compartments, so no action in relation to them was contractually required of the Commission.

(7) That with respect to other parts, which included compartments 180,181,182 and 187 to which the 1992 license applied, the Commission needed to comply with s8 by obtaining an environmental impact statement and a determination from the Minister of Planning but, as its environmental impact statement was rejected by the Minister of Planning as inadequate, it failed to do so.

(8) That the Commission, in not submitting an acceptable environmental impact statement and not obtaining a determination from the Minister of Planning under the TIIP Act, was not in breach of the Commission's implied obligation.

(9) That, if it had been a breach, it had not been shown to have had any effect to prevent logging operations on any land which UHT would otherwise have worked and therefore as a cause of damage. The TIIP Act did not forbid logging operations on land in schedule 4, presumably because during the period of operation of the Act the application of Pt 5 of the EPA Act in respect of logging operations being carried out or proposed to be carried out on land specified in schedule 4 was suspended.

(10) That, as the terms of the timber license for 1993, did not identify the relevant land by compartments, UHT had not shown by evidence whether the prohibition in s6 had any operation in respect of the land subject to that license or whether that prohibition was a practical impediment to getting timber in accordance with the license.". 12 Sheller JA said at paragraphs 55 and 56: "55. The result of these findings would be that, although the claim for damages caused by breaches of contract which had occurred before 14 August 1991 was statute barred, UHT was entitled to damages for the Commission's failure to comply with s 112(1) of the EPA Act at the time of granting licenses for the period on and after 14 August 1991 up to the timber license granted for 1992. It is not clear whether any damages in the sense of any loss of timber harvesting was suffered during this period. Thereafter, as I understand it, because of the limited areas covered by the licenses subsequently issued, either there was no breach of contract or, alternatively if there was, no damage suffered. This was particularly so from 1 January 1994.

56. In the course of submissions the Court was told that the extent to which compartments were covered by the various licenses, which his Honour analysed, were not the subject of any argument before him. However, for reasons that I have sought to explain, the Commission may well have been under a contractual obligation to issues licenses, an obligation the performance of which could not be enforced but the breach of which would have entitled UHT to damages.". 13 In my understanding the holding in the first sentence of para 55 is to the effect that it was erroneous to find that the cause of Upper Hunter's inability to work the Mount Royal State Forest throughout the whole six years before the proceedings began and earlier was the injunction which arose out of the Commission's failure in 1988 to comply, in 1988 with s112(1) of the Environmental Planning and Assessment Act 1979. The holding on appeal was to the effect that, because (finding 4) the Forestry Commission was in breach of its obligation to comply with s112(1) of the Environmental Planning and Assessment Act 1979 on each occasion until 12 March 1992 when it granted another timber license, the breaches of contract committed on each of those occasions could have caused damages which Upper Hunter is now entitled to recover. Sheller JA observed in the second sentence of para 55 that it was not clear that any damages in the sense of any loss of any timber harvesting was suffered during this period. It is a subject for further determination whether any damages in that sense had been suffered and the quantum. 14 The last two sentences of paragraph 55 and first sentence of para 56 deal with a connected subject. The Court of Appeal's view was that because my findings about the extent to which compartments were covered by various licenses had not been the subject of argument, there should be an opportunity to determine again what areas the licences covered so as to establish whether it was correct to understand that either there was no breach of contract or that no damage was suffered because of the limited areas covered by the licenses. Questions of fact relating to which Compartments were covered by various licences have been reopened for argument and determination. 15 I understand Sheller JA's reference in the second sentence of paragraph 56 to a contractual obligation to issue licenses which the Commission may well have been under as a reference to paragraphs 37 and 41 of his Honour's reasons which dealt with whether the making of such a contract as was alleged had been made for Stewart's Brook would amount to an anticipatory restriction or stultification of the ambit of the Forestry Commission's statutory licensing discretion. 16 I dealt with this question in my earlier judgment particularly in pages 5 and 6 and was of the view that "A contractual arrangement which committed the Forestry Commission to issue a licence for a future year, or a series of future years, would be inconsistent with [the] statutory regime for issuing licences for fixed periods….." and that such an arrangement "…could not be binding on the Forestry Commission because of its inconsistency with the discretionary nature of the power to issue licences which must be exercised on whatever relevant considerations presented themselves at the time when the proposed issue of a licence for a period came to be considered". 17 This view was erroneous and the correct view was stated at paragraph 41 by Sheller JA: "Thus, if the Commission had contracted to grant to a sawmiller a license to extract timber up to a particular quota each year for a period into the future and the contract was subject to the provisions of the Act and any regulations it would not have involved any divestiture by the Commission of its powers or duties. The statutory discretion to grant or refuse a license would have remained unfettered. If the discretion was exercised otherwise than in accordance with the contract, the other party would have been left to its remedy in damages. In the words of Mason J in Ansett at 76 such an outcome works a reasonable compromise between the desirability of recognising the binding nature of contracts and the need to preserve the free and unfettered exercise of the discretion." 18 The second sentence of paragraph 56 shows that the Court of Appeal did not proceed to conclude that the Forestry Commission actually was under a contractual obligation to issue licenses, because some matters of defence pleaded by the Forestry Commission had not been adjudicated, and would be an appropriate subject for determination in the Equity Division. 19 No evidence establishes or deals at all with the terms of the applications for licences for 1991,1992 or 1993, or shows whether an application was made for licences governing Compartments 200 to 204, or shows for what reasons licences for those Compartments were not granted. 20 As obligations of the Forestry Commission under the agreement of 14 November 1998 were subject by General Condition 5 to the need for compliance with the Forestry Act and the need to obtain licences it cannot be said that there was any breach by the Forestry Commission in not issuing a licence to take timber in Compartments 200 to 204 unless the procedure prescribed by legislation including Regulations 39, 40 and 41 was followed. If it was not, General Condition 5 would not be fulfilled. 21 The injunction related only to Compartments 200-204, the Davis Creek Compartments. Compartments 180,184,185 and 187 are the West Carrowbrook Compartments. As they were fully worked out by August 1991 they have no practical importance for remedies in these proceedings. Compartments 181,182 and 183 are outside the contract area. When dealing with my earlier findings about the areas covered by the licenses Upper Hunter's counsel did not challenge the finding that the license for the year 1991 related to one Compartment only, and reference to the licence at Appeal Book 550 shows that it relates to Compartment 183 which is not subject to the contract. Counsel did not challenge the finding at page 28 that the licence for 1992 relates to four Compartments only. At Appeal Book 552 those Compartments can be seen to be 180, 181, 182, 187. 22 With respect to the year 1991, any failure to comply with s 112(1) of the Environmental Planning and Assessment Act 1979 at the time of granting the license occurred on the date of issue of the licence on 7 February 1991 and the recovery of damages caused thereby is time-barred. As the license did not relate to any compartment which was within the contract or within the injunction, there was no failure. 23 The licence for the year 1992 Appeal Book 551 covers four Compartments, 180 and 187 which are within the contract, and 181 and 182 which are not. The injunction did not affect working in these areas. There can be no finding that any failure by the Forestry Commission to comply with s 112(1) of the Environmental Planning and Assessment Act 1979 caused loss for the year 1992, because there is no evidence and there can be no finding that the plaintiff applied for a licence to take timber in the Davis Creek Compartments 200 to 204 for that year, and the Forestry Commission did not have a contractual obligation to grant licenses to take timber from those Compartments. If there was a failure, there is no time-bar. 24 With respect to the year 1993, the timber licence at Appeal Book 552 was issued on 4 February 1993 ; it relates to an area stated thus: "Description of area: Gloucester management area. Mount Royal management area. Timber authorised to be taken as per attached Allocation Schedule.". 25 No particular Compartments are specified. In my earlier judgment at p28 I found to the effect that the licence for 1993 related to four Compartments only. In the context of the agreement of 14 November 1998, which does not describe land by reference to compartments, there is a high probability that the land referred to as Mount Royal Management Area in the licence included whatever land and timber in the Mount Royal State Forest that Upper Hunter had contract rights to. The description in Schedule 4 of the Timber Industry Interim Protection Act 1992 treats Compartments 200 to 204 as being part of the Mount Royal Management Area. The volume of timber in the first item relating to Mount Royal Management Area in the Allocation Schedule to the 1993 license is 2250 cubic metres, a significant figure in relation to the contractual entitlement. With the assistance of counsel's observations on the evidence I now see that the 1993 license relates to the whole Mount Royal Management Area including Compartments 200 to 204, and so find. My earlier finding on the area affected by the 1993 license was wrong. 26 If there had been an application for a timber license in relation to any of the Davis Creek Compartments for 1993, the Forestry Commission would have been obliged to take reasonable steps to overcome the prohibition found in s.6 of the Timber Industry Interim Preservation Act 1992: see Sheller JA at para 54(5). An application of that kind would have required compliance with the Forestry Commission's implied contractual undertaking to do all such things as were necessary on its part to enable Upper Hunter to have the benefit of the Agreement. However as there was no such application there was no further breach in 1993. 27 I turn to the last two sentences of paragraph 55 of Sheller JA's Judgment. The licence issued for 1993 is not limited in area in a way which shows that there was no breach of contract. It was not been established that any relevant licence was applied for or was issued for the years 1994 or later and hence the understanding stated by Sheller JA for that period has not been disturbed. There were no breaches in respect of the years 1994, 1995 and 1996. 28 In its Amended Defence of 1 June 1998 the Forestry Commission pleaded a number of matters of defence. In paragraph 4 the Forestry Commission alleged that the agreement of 14 November 1988 is illegal and unenforceable, and gave particulars of four grounds. Ground 4(b) was : "The agreement was and is beyond the power of the Forestry Commission under the [Forestry Act 1916 (NSW)] including sections 11 and 27A". 29 Other matters pleaded in paragraph 4 of the amended defence do not require detailed consideration. In Ground 4(a) it was alleged that performance was prohibited by section 27 in the absence of the timber licence. Section 27 did not deal expressly with the legality of contracts and imposed criminal penalties on taking timber without a license. Under the Agreement of 14 November 1988 timber could only be taken if its taking was licensed, because the agreement was subject to General Condition 5. For this reason performance of the agreement was not prohibited by s27. I would not uphold this ground. 30 Ground 4(aa) made a similar contention with respect to s112 of the Environmental Planning and Assessment Act 1979 (NSW). I would not uphold this contention, because it was a contractual obligation of the Forestry Commission to comply with s112, and the Agreement did not require development to take place in breach of s112. Ground 4(e) raised a contention relating to an invalid fetter on discretion which has been established to be incorrect. 31 I return to the question of the Forestry Commissions' powers raised by the Amended Defence para.4(b). In my earlier judgment I dealt with the question of the Minister's approval and the operation of sub-section 11(1)(m)(ii) of the Forestry Act 1916 at pages 24 and at 27 to 28 but I did not dispose the proceedings on that basis. Section 11 now deals with the powers and duties of the Commission in an altogether different way to its provisions in force at the earlier time to which Sheller JA gave detailed attention at paragraph 29 and following of his judgment when dealing with contractual commitment to issue discretionary licenses. There is now undoubtedly power in the Forestry Commission to enter into an agreement by which the Commission agrees to issue timber licences; the terms of the agreement can be very wide with respect to the time , quantity and kinds of timber to be taken, so they could extend to a commitment for a number of future years. The existence of an effective agreement of that kind would in practical terms be an overwhelming consideration when the time came to exercise the discretion. There is no room for the concern I earlier felt about pre-committing a discretionary decision. However the approval of the Minister of the agreement to issue the licences is one of the necessary circumstances for the power to exist and be exercised. Evidence established that the approval of the Minister has not been given. 32 In my opinion the meaning and effect of s11(1)(m)(ii) are that a purported agreement to issue timber licences which is not made with the approval of the Minister is outside the Forestry Commission's power and has no effect: it is not the Forestry Commission's agreement, and it is not an agreement at all. To adopt expressions used by Sheller JA at paragraph 39, it is impliedly prohibited by and it is incompatible with s11(1)(m)(ii). 33 The requirement is established by the terms of sub-s 11(1) to be a limitation on the power of the Commission to enter into such an agreement; in this respect the legislation is quite different from the legislation considered in Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 116 CLR 454. In that case the legislation, in a directory provision separate from the provisions conferring powers, required the Corporation to obtain the Minister's approval for contracts of a certain value, and in the opinion of the majority this provision did not limit the powers of the Corporation to make the agreement. That analysis is not available for subsection 11(1)(m)(ii). 34 I earlier observed at page 27 to the effect that there was no agreement to obtain the Minister's approval. It was not alleged in the Further Amended Statement of Claim that there was an agreement to obtain the Minister's approval or that not obtaining the Minister's approval was a breach of contract. If there was a breach of that kind it occurred in 1988 and in these proceedings it would have been time-barred. 35 Paragraph 5 of the Amended Deffence pleads that the 14 November 1988 Agreement has been discharged by frustration. Ground (a) relating to frustration on and from 1 January 1997 has been conceded. Ground (b) relating to frustration by the injunction should not be upheld because the injunction flowed from the failure of the Forestry Commission to comply with the Environmental Planning and Assessment Act 1979. Ground (bb) relating to the operation of the Timber Industry (Interim Preservation) Act 1992 should not be upheld for reasons which I stated in my earlier judgment. 36 The plaintiff's counsel contended that in assessing how the Forestry Commission should be taken to have dealt with an application for a timber license the Court should not ignore the facts and the relevant circumstances in which the Commission would have acted. At the same time the Commission's probable decision should be determined on the basis that a defendant cannot take advantage of his own wrong; and from this it was submitted that it would follow that the influence of the injunction on a discretionary decision to withhold a license should be disregarded, it should be assumed that these had been no failure to comply with s.112(1) and no injunction and in the assumed circumstances a decision to issue a license would be fairly certain. Counsel referred to TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 and to Alghussein Establishment v Eton College [1988] 1 WLR 587: see too Suttor v.Gundowda Pty Ltd (1950) 81 CLR 418 at 441. 37 Counsel referred me extensively to judgments in the High Court dealing with causation and damages, in developing his submission on the effect of the Forestry Commission's earlier breaches on the conjectural outcome of a discretionary decision on a conjectural application for a timber license for the contract area made at some time after 14 August 1991. Counsel referred to The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, extensively and to Sellars v. Adelaide Petroleum NL & Ors (1994) 179 CLR 332 at 349-356. Counsel's position was to the effect that the Court should in calculating damages act on the footing that there had been no earlier breaches, and that in their absence there was no significant discretionary consideration against the grant of a license. The conjecture should I suppose relate to an application for a license to take timber in the contract area and at a reasonable rate of extraction. 38 These submissions do not require adjudication as I have concluded that there was no contractual obligation and that if there was, there was no breach. 39 My orders are: (1) Determine that the defendant was not to any extent in breach of the agreement made on 14 November 1988 during the period on and from 14 August 1991 to 31 December 1996.

(2) Give judgment for the defendant with costs, such costs to include the costs of the hearing before Bryson J on 15 May and 1 June 1998.

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