Conclusion
49 For the foregoing reasons in my opinion the primary judge's construction of clause 6.2(a) to the effect that the words "that material" where appearing in that provision mean "Input Material" was correct with the consequence that where, acting reasonably, GRL believes that a Delivery of Input Material contains Out of Specification Material, it is empowered to either accept that material for processing or to notify WSN of its intention to place it in a Reject Bin.
50 I would therefore propose that the appeal be dismissed with costs.
51 BASTEN JA: The respondent is the commercial operator of a waste processing facility at Eastern Creek. It receives waste for processing from the appellant. A "Waste Processing Deed" identified the kinds of waste material which are to be supplied by the appellant and processed at the facility. The facility is said to be a state of the art operation which seeks not merely to recycle waste materials where appropriate, but to use other materials in a productive and energy efficient manner. That which cannot be used is turned into landfill, but there is a financial incentive for the respondent to minimise that which goes into landfill.
52 That which is to be processed at the facility is described in the deed as "Specification Material". How it is defined is a matter of some importance. That which is not specification material is described as "Out of Specification Material".
53 In broad terms, the appellant is required to supply, and the respondent to accept and process, specification material. However, it is acknowledged and agreed that trucks delivering waste material to the facility are likely to include both specification and out of specification material. Some out of specification material can be processed, but there appear to be technical or commercial limits on the capability of the facility in that regard. If the respondent "accepts" out of specification material it is deemed to be specification material.
54 A sub-category of out of specification material is "Hazardous Material". The deed deals separately with the rejection by the respondent of both hazardous and out of specification material. The present dispute is limited to the proper construction of the clause in the deed which deals with the rejection of out of specification material: cl 6.2, set out at [13] above.
55 The conflicting positions of the parties may be shortly stated. The respondent says that whenever it has reason to believe that a truckload of "Input Material" contains out of specification material, it may give notice to the appellant of its intention to reject that material. It may do so by reference to the whole of a truckload. It is then a matter for the appellant, if it so wishes, to inspect the material and separate it into specification material and out of specification material and require the respondent to accept the former.
56 The appellant's position is that it is necessary for the respondent, in giving a notice of intention to reject, to identify that which is to be rejected as out of specification material. To do so, it must, in effect, separate that material from any specification material. The appellant is then entitled to inspect that asserted to be out of specification material and, if it thinks that it can be separated into specification material and out of specification material within a given timeframe, to undertake that task. If that task results in the identification of specification material, the respondent must accept that material, subject to its power to require an independent audit.
57 The difference between the two positions may vary depending on the circumstances of the case and, stated in the bland form set out above, may not appear to involve issues of significance. However, there are clearly degrees of responsibility involved in the identification, separation and disposal of out of specification material, the cost of which will tend to fall more heavily on one party than the other, depending on which approach is adopted.
58 To understand the place of cl 6.2 in the scheme of the deed, it is necessary to have regard to four earlier provisions. The first is cl 4.3, which requires that the respondent supply services to the appellant. Those services are "the acceptance of Input Material to enable the facility to process" identified tonnages of "Specification Material", in each year.
59 Clause 4.4 requires, subject to certain qualifications, that the respondent accept "all Specification Material … delivered to the Facility by or on behalf of [the appellant]". (The qualifications are not presently relevant.)
60 Clause 5.1 deals with the obligations of the appellant. Paragraph (a) obliges the appellant to procure "the delivery of a quantity of Input Material to the Facility such that Specification Material is delivered …" in accordance with an identified "Daily Base Capacity" measured in tonnes per day. (After the "ramp up period", the daily tonnage varied from approximately 500 to 700: Schedule 4.) The fee payable by the appellant to the respondent is fixed by reference to the required level of tonnage, whether that tonnage is in fact delivered or not.
61 Finally, it is necessary to refer to cl 6.1, set out at [12] above. That clause had three functions. The first was an acknowledgment and agreement by the parties that input material delivered to the facility would contain both out of specification and hazardous material; that the appellant had no obligation to ensure that the input material delivered to the facility was specification material and that the appellant made no warranty or representation that input material would be specification material. Secondly, cl 6.1 provided a right in the respondent to reject hazardous material.
62 A third function of cl 6.1 was to provide that all input material delivered to the facility and "accepted" by the respondent was "deemed to be Specification Material … from the time of acceptance".
63 Turning to cl 6.2, which deals with "Out of Specification Material", a different regime is provided to that which permits the unchallengeable rejection by the respondent of hazardous material. First, cl 6.2(a) is premised upon the respondent, acting reasonably, forming a belief that a delivery of input material "contains" out of specification material. Having formed that belief, the respondent may either accept "that material" or notify the appellant of its intention to reject "that material".
64 The belief in question must be one about the contents of a "Delivery", which is defined to mean a single truckload of material delivered to the facility. The subject-matter of the belief relates to the contents of that truckload, namely that it contains out of specification material. In the context of a deed which requires the respondent to accept specification material but makes other provision in relation to hazardous material and out of specification material, the natural reading of the "material", which the respondent must either decide to accept or notify an intention to reject, is the out of specification material believed to be in the delivery.
65 Before the amendments of June 2008, cl 6.2(a) required a belief that the delivery "is" out of specification material. In that form, it was reasonably arguable that the belief had to relate to the whole of the delivery; the use of the word "contains" suggests that the current situation is otherwise.
66 It remains to consider whether there are factors which tend to support a different construction. On first reading, the reference to "a delivery of Input Material" in par (a) seems to involve an elision of the differently expressed sub-paragraphs of 6.1(a)(i) and (ii). However, there are circumstances in which the respondent's belief as to there being out of specification material delivered to the facility may in fact be formed only by reference to a delivery. That is because specification material is defined to mean material which meets the specifications in Schedule 12 of the deed: see [14**] above. Schedule 12 has four parts. Paragraph (a) requires that the material satisfy the conditions of licenses and approvals relating to the facility. No reliance was placed on this provision by either party. Paragraphs (b) and (c) are expressed in exclusionary terms. Paragraph (d) identifies proportions by reference to ranges.
67 Paragraph (b) excludes material which has been subjected to a "compaction process greater than good industry practice … from the point of collection at kerbside". The purpose of the provision is to ensure that the waste material is in a state in which it can be separated into component parts at the facility. Whether it could apply only to a complete truckload or might apply to parts thereof was not addressed in argument.
68 Paragraph (c) requires that "material" must not contain material over a certain size, or greater than a specified weight or "stringy objects". The terminology, "does not contain", suggests a larger volume within which the prohibited items or material may be found. However, there is no clear indication that the larger volume is a delivery, nor that, if the offending item or material were removed, the rest of the delivery would not be specification material.
69 Paragraph (d) has a different operation. It requires that a proportion of "total Input Material" be within a specified percentage. The categories include "Organic Material", "Recyclables", "Residual Material" and "Hazardous Material". Each of these categories is defined in Schedule 12.
70 The reference to "total" input material requires the specification of a form of delivery or period of delivery. It was accepted by the appellant (with the concurrence of the respondent) that the proportions were to be measured by reference to a "Delivery", namely a single truckload of material delivered to the facility.
71 For the purposes of the appeal, nothing appeared to turn on the fact that paragraph (d) of Schedule 12 was concerned not merely with material delivered to the facility, but with "Input Material". Input material is not defined as the content of a delivery, but, with certain additions, as "MSW". "MSW" was in turn defined (by reference to an environmental instrument) as "class 3 putrescible waste". The relationship between the definitions of "Input Material" and "Specification Material" was not explored.
72 The respondent's contention was that if a delivery was believed to contain any material excluded from specification material under Schedule 12, it could give a notice of intention to reject the whole delivery. The appellant argued that such a construction was not only inconsistent with the reading of cl 6.2(a), set out above, but was also inconsistent with the process which followed a notice of intention to reject, namely that the appellant could inspect and separate specification material from out of specification material, and require the respondent to accept the specification material (subject to a process of independent audit, which does not affect the argument).
73 These arguments may have differential consequences, depending on the paragraph of Schedule 12 which is engaged in a particular case. Thus, in the case of the exclusions contained in paragraphs (b) and (c), it is by no means clear why the removal of (say) an offending section of electrical cable would not permit the remaining material to be specification material.
74 The operation of paragraph (d) is less clear. If a delivery has more than 55% organic material, it will be excluded from the definition of specification material. That decision can only be made (on the assumption noted at [70]) by reference to the whole of the delivery. If, on inspection, the appellant were merely to separate the excess of (say) 10%, there is, again, no obvious reason why the remainder should not be "Specification Material".
75 A greater and separate difficulty arises in respect of hazardous material, which is contained within paragraph (d) but has a proscribed proportion of 0%. Hazardous material includes a range of items varying from "treated and painted timber", which may readily be separated, to liquids, which may escape from containers and permeate surrounding material. Further, hazardous material may be rejected without notice of intention to reject by the respondent but, if it is not rejected, the appellant will need to collect it as "Residual Material": cl 6.1.
76 Given the breadths of the exclusions and the kind of material which is likely to be contained in household waste, it seems likely that most if not all deliveries might engage the relevant belief on the part of the respondent and thus be subject to a notice of intention to reject, if the respondent's construction were correct. The consequence of adopting that approach would be to impose on the appellant an obligation to separate non-specification material at the facility. As the appellant submitted, such a construction would not sit well with the acknowledgment and agreement that input material will contain out of specification material and hazardous material (cl 6.1(a)(i)), that the appellant has no obligation to ensure that input material is specification material (cl 6.1(b)) and that the appellant made no warranty or representation that input material delivered to the facility will be specification material and will not contain hazardous or out of specification material (cl 6.1(c)).
77 If the respondent is required to form a belief in respect of specific out of specification material, and not simply impose an obligation to separate every delivery into specification material and out of specification material, then it must have a basis for its belief in respect of any particular notification of intention to reject. The parties were each inclined to base their respective constructions upon extreme examples designed to demonstrate the commercial unreality of the alternative construction. However, these arguments were not persuasive. Thus, it is unlikely that significant difficulties would arise in respect of small quantities of material which were readily identifiable as out of specification material. There would no doubt be a commercial cost to the respondent in invoking the "intention to reject" power, which may not be fully off-set by any later saving if it were required to accept the bulk of the load after inspection and separation by the appellant. There would also be a commercial cost for the appellant if it took steps under cl 6.2(b) to inspect and separate out the specification material. However, it does not have to exercise that right and no doubt would not exercise it unless the respondent were threatening to place the whole or a large part of a delivery into the reject bin.
78 Clause 6.2(a) envisages that the respondent may accept out of specification material, and would no doubt do so if the amount or nature of it was not significant in terms of the capability of the facility to deal with it and the volume would not greatly increase the material which would need to form landfill. Further, there would, presumably, be some commercial disincentive for the respondent giving notice of intention to reject whole deliveries, which could not then be immediately processed.
79 It is apparent from the evidence that the present dispute arose because the respondent was concerned at the volume of out of specification material being delivered to the facility and the appellant was concerned as to the costs imposed on it in having to inspect and separate significant volumes of material, pursuant to cl 6.2(b). Nevertheless, the point of construction appears to have been argued largely in the abstract, without reference to specific circumstances. This causes some difficulty in formulating appropriate declaratory relief.
80 Furthermore, declaratory relief formulated in general terms will be inappropriate if, as indicated above, cl 6.2 will operate differentially depending upon the basis for believing that a delivery contains out of specification material.
81 The evidence does not suggest that all deliveries are being rejected on the basis that the respondent has a generalised belief that they contain out of specification material and it is entitled to reject them all in toto. Whether such a view would be justifiable in any circumstances would depend upon the evidence, and not on the construction of the deed in the abstract.
82 Once that position is put to one side, the question is whether there is some basis for the respondent, acting reasonably, to form the view that a particular delivery contains out of specification material. If the reason for the belief depends on the operation of paragraphs (b), (c), or (d) (in relation to hazardous material) such a belief is likely to be based upon some inspection of the particular delivery.
83 The next question is, assuming that the appellant did not exercise its rights of inspection and separation, whether the respondent would then be entitled to reject the whole of the delivery.
84 The answer to this question is by no means clear, in part because cl 6.2 does not expressly deal with the situation. It must be inferred that the respondent is entitled to place the out of specification material in the reject bin, in accordance with its notice of intention, in the event that the appellant does not exercise its rights under cl 6.2(b). However, if it is not the whole delivery which may be rejected, but only the part which the respondent believes to be out of specification material, it must undertake the process of separation. Nevertheless, there may be circumstances in which the separation of material is not readily achievable and the respondent is therefore entitled to place in the reject bin material which it may not believe to be out of specification material but which can properly be identified as including out of specification material which is not readily separable.
85 In relation to material sought to be rejected because the proportions in a particular delivery were outside the proportions prescribed by (d) of Schedule 12 (other than hazardous material) it would seem that the only basis upon which a notice of intention to reject could be given would be one that referred to the whole of the delivery. Accordingly, if the appellant did not exercise its rights of inspection and separation, the whole of the delivery could be placed in the reject bin in accordance with the respondent's notification of intention.
86 To the extent that this last element in the construction of cl 6.2 and Schedule 12 imposes an obligation on the appellant which is inconsistent with the acknowledgments, together with the absence of obligations, warranties and representations, in cl 6.1, the implication derived from that clause is limited by the express language of cl 6.2 and Schedule 12.
87 Although the primary contentions of the respondent in relation to cl 6.2 should not be accepted, it is also necessary to reject the general form of declaratory relief sought by the appellant. Whether it is possible to formulate more specific declaratory relief, absent specific circumstances identified in the evidence, is a matter for speculation. It is sufficient for present purposes to say that the relief sought by the appellant is not available in the circumstances presented to the Court. Accordingly the appeal must be dismissed. Costs should follow the event because, although the construction contended for by the appellant is not wholly erroneous, the appellant submitted the issues for determination in a form which do not permit the grant of the relief sought.