NSW Supreme Court Declares Binding Agreement and Orders Specific Performance

The plaintiff claimed that it had entered into a binding agreement with the defendant for the transportation of export goods. The court declared the agreement binding and ordered specific performance, emphasising the enforceability of agreements in principle.

OUTCOME: Allowed

New South Wales Supreme Court

CITATION : [COMPANY_2] v [COMPANY_4] [2007] NSWSC 1446

HEARING DATE(S) : 10 December 2007

JUDGMENT DATE : 14 December 2007

JURISDICTION : Equity Division Commercial List

JUDGMENT OF : Bergin J

DECISION : Declaration that the plaintiff and the defendant entered into a binding agreement. Order for specific performance.

CATCHWORDS : [CONTRACT] - Commercial setting - Export of [NAME_3] from port with inadequate capacity to meet demand - Institution of co-operative arrangements to share the burden of the inadequacy - Whether parties entered into a binding agreement - "In principle agreement" - Meaning in context - [EQUITY] - Whether specific performance should be ordered.

LEGISLATION CITED : Trade Practices Act 1974 (Cth)

Air Great Lakes Pty Limited v KS Easter (Holdings) Pty Limited (1985) 2 NSWLR 309 Baulkham Hills Private Hospital Pty Limited v GR Securities Pty Limited (1986) 40 NSWLR 622 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 [NAME_6] No 1 Colliery Pty Limited v Pacific Power [2002] NSWCA 278 CASES CITED : Masters v Cameron (1954) 91 CLR 353 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 [COMPANY_7] v [NAME_6] No 1 Colliery Pty Limited [2001] NSWSC 1100 Sinclair, Scott & Co Limited v Naughton (1929) 43 CLR 310 Stephenson v Dwyer [2006] NSWSC 1439 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165

PARTIES : [COMPANY_2] - plaintiff [COMPANY_4] - defendant

FILE NUMBER(S) : SC 50209/2007

COUNSEL : [redacted] WG [NAME_10] SC/[NAME_11] - defendant

SOLICITORS : [redacted] Deacons - defendant

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

BERGIN J

14 DECEMBER 2007

50209/07 [COMPANY_2] v [COMPANY_12]

JUDGMENT Introduction 1 The plaintiff, [COMPANY_2], a [NAME_3] producer and operator of two mines in the Hunter Valley, New South Wales, claims that it has entered into a binding agreement with the defendant, [COMPANY_4], a rail haulage operator, pursuant to which the defendant has agreed to transport the plaintiff's export [NAME_3] to the port of Newcastle for loading onto ships. The plaintiff seeks declarations to that effect and orders for specific performance of the agreement.

2 The defendant denies that the parties entered in the agreement as alleged and claims that in any event, the agreement as alleged is incapable of performance. Infrastructure and capacity 3 The plaintiff's [NAME_3] is marketed and sold to [NAME_3] traders, who then on-sell the [NAME_3] to users worldwide. [NAME_3] trucks haul the [NAME_3] won from the plaintiff's mines to facilities at the adjacent mine operated by [COMPANY_14] ([NAME_14]). [NAME_14] processes the plaintiff's [NAME_3] at its facilities before it is loaded onto trains operated by the defendant and transported by rail to the Port at Newcastle for loading onto ships. The ship loading terminal at Newcastle Port is operated by [COMPANY_15] ([NAME_15]). 4 As a result of the expanding [NAME_3] output in the Hunter Valley to meet demand for [NAME_3] from offshore buyers, Newcastle Port has reached its capacity limit. In about 2004 [NAME_15] sought to address capacity issues through a proposed Capacity Balancing System ([NAME_16]), for which it sought interim authorisation from the Australian Competition & Consumer Commission ([NAME_17]) under s 88 of the Trade Practices Act 1974 (Cth) (TPA). The authorisation process took about seven months and the [NAME_16] was approved for a one year period which expired on 31 December 2004. Although the [NAME_16] included a common user provision that allowed all [NAME_3] producers access to the terminal, it was initially quite controversial and was not supported by the plaintiff, nor by approximately half of the [NAME_18]. This was due to a concern that the [NAME_16] did not address the need to expand the existing port loading facilities which the plaintiff and others, regarded as the only solution to the capacity problems, especially as [NAME_3] production in the Hunter Valley was projected to increase. 5 In late 2004 the [COMPANY_19] ([NAME_20]) was set up as a lobby group on broad infrastructure issues seeking to address the growing need for expanded loading facilities at Newcastle Port and for the purpose of making submissions to the [NAME_17] on the [NAME_16]. [NAME_20] subsequently became a proprietary company with a view to becoming the developer and owner of a third [NAME_3] loader in Newcastle Port, in addition to the existing facilities operated by [NAME_15]. [NAME_20]'s facility will not be operational until 2010. 6 The [NAME_16] was subsequently improved during 2005 by a series of checks and balances introduced to protect the interests of the smaller [NAME_3] producers such as the plaintiff, resulting in general support for the revised [NAME_16], for which authorisation was obtained from the [NAME_17] for a three year period due to expire on 31 December 2007. As part of that process, in about August 2005 [NAME_15] sought binding nominations of anticipated [NAME_3] tonnage from the [NAME_3] producers that were to be applied under the [NAME_16]. The [NAME_16] was temporarily suspended at the end of 2006 but was reinstated by broad industry agreement when in March 2007 the queue of ships at Newcastle Port had reached about 70 ships. 7 The infrastructure to deliver [NAME_3] from the [NAME_3] mines in the Hunter Valley, and adjacent loading points, to the export [NAME_3] terminals and onto vessels for export is referred to as the [NAME_3] ([NAME_3]). The [NAME_3] ([NAME_21]) was set up in about 2004 pursuant to a memorandum of understanding between all the participants in the [NAME_3] to co-ordinate all logistics in the Hunter Valley. 2004 Agreement to [NAME_3] 8 On 1 October 2004 the plaintiff and the defendant executed an "Agreement to [NAME_3]". The commencement date of that agreement was 1 January 2004 with a termination date of 31 December 2006 (cl 1.1 and 2). The agreement provided that if the defendant was given a direction by [NAME_15]: it would notify the plaintiff immediately of the details of the direction; the plaintiff was required to do such things necessary to enable the defendant to comply with the direction; and the defendant was not liable to the plaintiff for anything done in compliance with the direction from [NAME_15] (cl 6.2). Clause 12 provided for termination of the agreement for breach or the affects of Force Majeure, or by seven days notice if the other party was in Financial Default. 9 "Haulage Rate" was defined as "the sum of the 'capacity component', the 'fuel component' and 'variable component', exclusive of GST, set out, and described as such, in paragraph 1 of schedule 1, as varied in accordance with paragraph 1 of schedule 2". Paragraph 1 of Schedule 1 provided as follows:

1. Haulage Rate

1.1 From: Loading Facility

To: Port

Variable component Fuel component Haulage Loading Performance Level Maximum Loading Time Capacity component ($/tonne) ($/tonne) ($/tonne) Rate ($/tonne) 1 153 minutes $0.43 $0.64 $0.07 $1.14 2 140 minutes $0.43 $0.61 $0.07 $1.11 3 125 minutes $0.43 $0.59 $0.07 $1.09 4 110 minutes $0.43 $0.55 $0.07 $1.05

1.2 The Haulage Rate to apply on and from the Commencement Date will be the Haulage Rate set out in the above table for Performance Level 2 (loading time of 140 minutes). Movement to a higher Loading Performance Level If at least 75% of all trains in a Quarter achieved the maximum loading time for a higher Loading Performance Level (as set out in the table in paragraph 1.1 above) than the maximum loading time for the Loading Performance Level applicable in that Quarter, then on and from the commencement of the next Quarter: a) the maximum loading time will be the maximum loading time that corresponds to the higher Loading Performance Level in respect of which at least 75% of all trains in that Quarter achieved the applicable loading time; and b) the Haulage Rate for that higher Loading Performance Level so achieved will apply. [NAME_5] will advise [NAME_1] in writing (to the person specified in clause 15(b)) as soon as practicable after any change. Example Assumptions 1) Haulage is being charged at the Haulage Rate corresponding with Loading Performance Level 3 (maximum loading time of 125 minutes).

2) In a particular Quarter, 10% of trains have a loading time between 125 and 140 minutes (Loading Performance Level 2), 10% of trains have a loading time between 110 and 125 minutes (Loading Performance Level 3) and 80% of trains have a loading time between 1 and 110 minutes (Loading Performance Level 4). Conclusion 80% of trains achieved a maximum loading time which corresponds to Loading Performance Level 4 which is higher than the current Loading Performance Level 3. Action With effect from the commencement of the next Quarter, the applicable Haulage Rate will be the Haulage Rate corresponding with Loading Performance Level 4 (as set out in paragraph 1.1 of this schedule). [NAME_5] will advise [NAME_1] in writing of the change.

Movement to a lower Loading Performance Level If less than 75% of all trains in a Quarter achieved the maximum loading time for the Loading Performance Level applicable in that Quarter as set out in the table in paragraph 1.1 above, then on and from the commencement of the next Quarter: a) the maximum loading time will be the maximum loading time that corresponds to the Loading Performance Level in respect of which at least 75% of all trains in that Quarter achieved the applicable loading time; and b) the Haulage Rate to apply will be the Haulage Rate that corresponds with the Loading Performance Level in respect of which at least 75% of all trains in that Quarter achieved the applicable maximum loading time. [NAME_5] will advise [NAME_1] in writing (to the person specified in clause 15(b)) as soon as practicable after any change. Example Assumptions 1) Haulage is being charged at the Haulage Rate corresponding with Loading Performance Level 4 (maximum loading time of 110 minutes).

2) In a particular Quarter, 20% of trains have a loading time between 1 and 110 minutes (Loading Performance Level 4), 45% of trains have a loading time between 110 and 125 minutes (Loading Performance Level 3), 30% of trains have a loading time between 125 and 140 minutes (Loading Performance Level 2) and 5% of trains have a loading time between 140 and 153 minutes (Loading Performance Level 1). Conclusion Less than 75% of trains achieved the maximum loading time (110 minutes) corresponding to the current Loading Performance Level 4. [NAME_1] will move to Loading Performance Level achieved by at least 75% of trains, being Loading Performance Level 2. Action With effect from the commencement of the next Quarter, the applicable Haulage Rate will be the Haulage Rate corresponding with Loading Performance Level 2 (as set out in paragraph 1.1 of this schedule). [NAME_5] will advise [NAME_1] in writing of the change.

Maximum loading time is calculated as set out in paragraph (h) of schedule 4. 10 Clause 6 of Schedule 1 provided: Nominated Annual Tonnage The Nominated Annual Tonnage for the year 1 January 2004 to 31 December 2004 is 1.5 million tonnes. [NAME_1] may, by notice to [NAME_5] prior to each 1 January, commencing 1 January 2005, initiate negotiations with a view to agreeing the Nominated Annual Tonnage to apply for the year commencing on that 1 January. If the parties do not reach agreement as to the Nominated Annual Tonnage prior to the applicable 1 January, or if [NAME_1] does not initiate negotiations, then the Nominated Annual Tonnage will be the same as applied for the previous year.

In the event of any [NAME_3] capacity adjustment mechanism being implemented by [NAME_15] which impacts on available [NAME_3] capacity for [NAME_1], the parties agree to meet to agree amended Nominated Annual Tonnage levels in accordance with the reduction of tonnes imposed by the adjustment mechanism.

11 Paragraph 1 of Schedule 2 provided as follows:

1. Adjustment of Haulage Rates The 'capacity component' and the 'variable component' of the Haulage Rates will be adjusted on 1 January 2005 and 1 January 2006, in accordance with the following adjustment mechanisms: Labour adjustment 25% of the 'capacity component' and the 'variable component' of the Haulage Rates applicable during the year immediately preceding the relevant 1 January will be escalated by a percentage which is equal to the increases (if any) in wage rates granted to [NAME_3] under any applicable Enterprise Agreement to which [NAME_5] is a party. For the purpose of this paragraph ' [NAME_3] ' means drivers of trains carrying export [NAME_3] in the Hunter Valley for [NAME_5]. CPI adjustment 75% of the 'capacity component' and the 'variable component' of the Haulage Rates applicable during the year immediately preceding the relevant 1 January will be adjusted by a percentage which is equal to the nominal percentage increase or decrease in the CPI for the year ending the September quarter immediately preceding the relevant 1 January. For the purpose of this paragraph ' CPI ' means the Consumer Price Index for Sydney, as calculated by the Australian Bureau of Statistics.

1.2 Quarterly fuel adjustment The 'fuel component' of the Haulage Rates will be adjusted on 1 January, 1 April, 1 July, and 1 October of each year ( Quarterly Adjustment Date ), commencing on 1 April 2004, in accordance with the following adjustment mechanism:

The 'fuel component' of the Haulage Rates applicable immediately prior to the relevant Quarterly Adjustment Date will be adjusted by a percentage which is equal to the percentage change in the average monthly price of diesel fuel paid by [NAME_5] in the 3 calendar months immediately prior to the relevant Quarterly Adjustment Date compared to the previous 3 months except in the case of the 1 April 2004 adjustment in which case it will be compared to a diesel fuel price of $0.35/litre.

1.3 Rounding and application The Haulage Rates determined in accordance with the adjustment mechanisms set out in paragraphs 1.1 and 1.2 above will (sic) rounded as per Australian Standard AS2706. 12 The defendant's obligations under the agreement were set out in Schedule 3 and included the following:

[NAME_5] must:

(Train orders and rail program )

(a) subject to paragraph (a) of schedule 4, as soon as practicable after receipt of an Order, in collaboration with [NAME_15] prepare a [NAME_3] for the haulage of the [NAME_3] the subject of the Order. [NAME_5] may (acting reasonably) alter the detail and/or timing of the [NAME_3] in consideration of improving or for the benefit of the [NAME_3]. [NAME_5] will promptly advise [NAME_1] of any such alterations;

(b) subject to paragraph (a) of schedule 4, provide to [NAME_1] by 1200 hours each day a rolling daily Live Rail Plan for up to the next 36 hours (but not less than the next 24 hours) for the movement of [NAME_3] which is the subject of an Order under paragraph (a) of schedule 4;

(Provision of trains)

(c) use its reasonable endeavours to provide Scheduled Trains to [NAME_1] at the Loading Facility;

(d) if [NAME_5] accepts a request from [NAME_1] for any Additional Trains, or if [NAME_1] accepts a request from [NAME_5] to run an Additional Train pursuant to paragraph (b) of schedule 4, use its reasonable endeavours to provide those Additional Trains;

(Wagons)

(e) in providing trains under this agreement, use wagons that have not contained anything but [NAME_3] immediately prior to the journey to the Loading Facility, or which have otherwise been cleaned and made suitable to haul [NAME_3];

(Capacity) (f) provide capacity to haul one half of 75% of the Nominated Annual Tonnage in each Half Year;

(g) use its reasonable endeavours to provide capacity to haul in excess of one half of 75%, and up to one half of 100%, of the Nominated Annual Tonnage in each Half Year;

(h) as soon as practicable after the end of each Half Year, review the tonnage of [NAME_3] hauled under this agreement in that Half Year;

(Loading and unloading)

(i) during the loading and unloading of any wagon or train under this agreement, ensure its Personnel operate its trains in accordance with the signals properly exhibited by the Personnel of [NAME_1]; 13 The plaintiff's obligations were set out in Schedule 4 and included the following:

[NAME_1] must:

(Train orders and rail program)

(a) if it wants [NAME_5] to provide trains (other than Additional Trains) to haul [NAME_3] under this agreement, provide [NAME_5] with an Order to allow the planning of rail [NAME_3] deliveries with consideration of Port and RIC Network capacity available at the time and the Loading Facility standards including those set out in paragraphs (o) to (s) below. [NAME_1] may request an Additional Train at any time without providing an Order;

(b) use its reasonable endeavours to accept any request by [NAME_5] to run an Additional Train;

(c) not cancel a Scheduled Train;

(Loading and unloading)

(d) ensure (whether itself or through its Personnel or any third party) that all [NAME_3] hauled by [NAME_5] under this agreement is loaded safely and Evenly into, and unloaded safely out of, wagons, without causing damage to any property of [NAME_5];

(e) ensure (whether itself or through its Personnel or any third party), that any wagon which [NAME_5] advises [NAME_1] that it considers has not been loaded safely or Evenly is promptly made safe or Even;

(f) ensure that any train loaded by or on behalf of [NAME_1] is loaded to at least its Minimum Net Load Limit. If a train is loaded with less than its Minimum Net Load Limit, [NAME_1] must pay the applicable Make-up Charge;

(g) ensure that any wagon loaded by or on behalf of [NAME_1] is not loaded with more than its Maximum Gross Load Limit. If a wagon is loaded with more than its Maximum Gross Load Limit, without prejudice to clause 9.1, [NAME_1] must pay the applicable Overload Charge;

(h) accept for loading at the Loading Facility each train which has departed the Hunter Bulk Terminal for loading at the Loading Facility and ensure that each train is loaded and ready for departure within a maximum loading time of 153 minutes for a 5,500 tonne train (maximum loading time is measured from the time of arrival of a train for loading at the Loading Facility or from the time any delay begins to affect the arrival of the train at the Loading Facility, to the time the train is loaded and [NAME_1] advises [NAME_5] that the train is ready for departure). If in [NAME_5]'s opinion (acting reasonably) the maximum loading time for a train significantly exceeds 153 minutes for a 5,500 tonne train, for the avoidance of doubt, [NAME_5] may withdraw the train and cause it to depart from the Loading Facility and in such case [NAME_1] must pay a Make-up Charge on the difference between the actual tonnage of [NAME_3] loaded (including if it is nil) and the Minimum Net Load Limit of the train;

(i) (not used)

(j) ensure that all trains unloaded at the Port are unloaded and ready for departure from the Port in a timely fashion;

(Capacity)

(k) pay Capacity Charges if the actual tonnage of [NAME_3] hauled in a Half Year is less than one half of 75% of the applicable Nominated Annual Tonnage;

2004 [NAME_3] Agreement with [NAME_15] 14 On 22 December 2004 the plaintiff entered into a [NAME_3] Agreement with [NAME_15]. The plaintiff was obliged to make an application to [NAME_15] for the loading of its [NAME_3] onto a particular vessel at the [NAME_3] facility. On receipt of the application [NAME_15] would determine the suitability of the vessel identified to load the [NAME_3] at its facility with the discretion to refuse to provide [NAME_3] handling services to load a vessel which did not comply with certain criteria, or to impose conditions on the way in which the vessel would be permitted to be loaded with the plaintiff's [NAME_3] (Section 3; clause 3.1). The plaintiff was obliged to ensure that the [NAME_3] required under a shipment contract to load a vessel would be available to be transported to the facility not later than seven days prior to the estimated time of commencement of loading of the particular vessel (cl 3.5.1). The only basis upon which direct loading of [NAME_3] from trains onto vessels would occur was in accordance with the "Five Point Plan" (cl 3.6.2). The Five Point Plan was a set of protocols endorsed by the [NAME_3] Group from time to time and developed by customers, transport providers and [NAME_22] to provide a framework for continuous improvements to the [NAME_3] delivery system to the Port of Newcastle. 15 Annexure 4D to the Agreement included Part A – General Conditions of Capacity Distribution System which provided, inter alia: 2.3 The objectives of the Scheme are to: (a) secure a reduction in the vessel queues at the Port of Newcastle as soon as is reasonably practicable; (b) achieve maximum export [NAME_3] throughput consistent with minimum vessel demurrage; (c) be fair and equitable; (d) comply with all relevant legal requirements. 16 Schedule 2 to the Agreement provided that [NAME_15] would calculate the [NAME_3] and that it would also determine the Forecast Requirement for each producer and the Forecast System demand for the particular year. It also provided a formula in respect of each producer's loading allocation to manage the scheme in a fair and equitable manner. 17 On 27 September 2005 the defendant wrote to [NAME_15] complaining that it had unilaterally proposed certain amendments to the [NAME_3] Agreement purporting to require the plaintiff to submit five year forecasts of its loading requirements at Newcastle. It noted that the forecasts for the first three years were said to be binding and subject to "take or pay" penalties. That meant that the plaintiff was obliged to pay [NAME_15] an amount equivalent to that which was nominated irrespective of whether such amount had actually been handled. The plaintiff also complained about the assertion by [NAME_15] of a right to deny the plaintiff all [NAME_3] loading services, irrespective of available capacity, if the forecasts were not provided. The plaintiff alleged that [NAME_15] held a monopoly in the market for [NAME_3] receiving, storage and loading facilities at Newcastle and that it was exercising its monopoly power to impose what the plaintiff regarded as penalties. The plaintiff claimed that [NAME_15] was threatening the viability of the plaintiff's business and alleged that the scheme proposed was obviously discriminatory and designed to induce shippers not to consider shifting any tonnage to a rival loader. 18 The tension that developed between the plaintiff and [NAME_15] seems to have been caused by the inadequate port capacity to handle the volume of export [NAME_3]. It is apparent that the rail operators were able to handle the capacity but that they and the [NAME_3] producers were frustrated by the inadequate capacity at Newcastle Port. Notwithstanding the number of committees and organisations that have been established over the last five years to attempt to co-ordinate this very difficult situation, the structure between [NAME_15] and the [NAME_3] producers on the one hand and the [NAME_3] producers and the rail operators on the other is clearly less than optimal by reason of the lack of commercial certainty from year to year in relation to the export tonnages that will be allocated by [NAME_15]. Notwithstanding this lack of commercial certainty it appears that all parties have attempted to accommodate this very uncomfortable commercial situation, which will apparently not ease until 2010 when the next [NAME_3] loader will become operational.

19 Although initially the subject of the abovementioned tension the plaintiff has nominated its annual tonnage allocation for the Newcastle Port to [NAME_15] each year for the following calendar year. On 11 December 2006 the plaintiff sent an email to Queensland Rail enclosing its forecast annual volume of [NAME_3] handling services required with [NAME_15] for the period 2007 to 2013. The forecast for 2007 was 2.06 million tonnes; for 2008 2.65 million tonnes; for 2009 2.81 million tonnes and for 2010 4.15 million tonnes (Ex.A).

2004 [NAME_14] Agreement 20 Also on 1 October 2004 [NAME_14] executed an "Agreement to [NAME_3]" with the defendant (the [NAME_14] Agreement), in similar terms to the agreement between the plaintiff and the defendant, with a commencement date of 1 January 2004 and a termination date of 31 December 2006, for the haulage by the defendant of [NAME_14]'s export [NAME_3] to Newcastle. Clause 6 of Schedule 3 of that Agreement provided:

Nominated Annual Tonnage The Nominated Annual Tonnage for the year 1 January 2004 to 31 December 2004 is 0.5 million tonnes. [NAME_14] may, by notice to [NAME_5] prior to each 1 January, commencing 1 January 2005, initiate negotiations with a view to agreeing the Nominated Annual Tonnage to apply for the year commencing on that 1 January. If the parties do not reach agreement as to the Nominated Annual Tonnage prior to the applicable 1 January, or if [NAME_14] does not initiate negotiations, then the Nominated Annual Tonnage will be the same as applied for the previous year.

In the event of any [NAME_3] capacity adjustment mechanism being implemented by [NAME_15] which impacts on available [NAME_3] capacity for [NAME_14], the parties agree to meet to agree amended Nominated Annual Tonnage levels in accordance with the reduction of tonnes imposed by the adjustment mechanism. 2006 Extension of [NAME_14] Agreement 21 On 21 December 2006 the defendant's General Manager ([NAME_3]), [NAME_23], wrote to [NAME_14] in the following terms: RAIL HAULAGE AGREEMENT – LETTER OF INTENT As you are aware our existing Rail Haulage Agreement for the haulage of [NAME_3] from [NAME_14] to the Port expires on 31st December 2006. I apologise for not having worked this through earlier than now, but from my perspective the operation of this agreement is working suitably and the commercial terms are acceptable given the ongoing [NAME_24] volumes and contractual position. It is for this reason that I propose a roll-over of the existing [NAME_14] agreement until 30th June 2008 to line up with current expiry date for the [NAME_24] agreement. It is clear to me that continuing to contract for the rail haulage volumes from the two mines separately will lead to less than optimal commercial outcomes due to the decreasing [NAME_14] volumes over time. It is for this reason that I suggest rolling over the [NAME_14] agreement to align with [NAME_24], and commencing a discussion regarding a future agreement for the combined volumes post June 2008, in early 2007. Also as we have discussed I suggest that: as a part of our discussions we contemplate and explore the inclusion of [NAME_1] volumes into a combined rail haulage agreement, and re-agreements for the combined volumes and the potential for exclusive haulage agreements, that [NAME_5] is willing to agree amended terms and apply these upon agreement rather than from July 2008 onwards

This Letter of Intent if signed on behalf of [COMPANY_14] will reflect the terms under which [COMPANY_14] and [NAME_5] intend to contract for rail haulage services from 1 January 2007 onwards. The below points outline the key components of this agreement : Nominated Annual Tonnes for 2007 and onwards (subject to annual confirmation) of 0.5Mt. An extension of the term of the existing agreement by 18 months, to expire on 30th June 2008. An obligation on [NAME_5] to provide rolling stock to haul 100% of [NAME_14]'s export [NAME_3] haulage requirements. All other terms and conditions to continue as per the existing agreement no. L10424. A commitment by Pacific Nationl to commence discussions re combined volume haulage agreements (including the potential to include [NAME_1] volumes) before the end of January 2007. [NAME_5] is willing to operate on the basis of this signed Letter of Intent and the pre-existing agreement until 28th February 2007 or the completion of execution of agreements reflecting the above amendments. Upon your confirmation I will have drafting of the new agreement variations completed on the basis of the contents of this letter and will forward these to you as soon as they are available.] 2006 Extension of the plaintiff's Rail Haulage Agreement 22 On 13 November 2006 the defendant wrote to the plaintiff in the following terms:

RAIL HAULAGE AGREEMENT – REQUEST FOR THREE MONTH EXTENSION OF TERM

Thanks for your phone call last week. As agreed in this discussion, I confirm that [NAME_5] will extend the term of our existing agreement until 31st March 2007 to allow suitable time for discussion regarding [NAME_1]'s future rail haulage requirements and to negotiate appropriate commercial terms and conditions. 20 March 2007 Haulage Proposal 23 It is apparent that there were discussions between the plaintiff, the defendant and [NAME_14] in early 2007 and on 20 March 2007 the defendant wrote a joint letter to [NAME_14] and the plaintiff (the Haulage Proposal) in the following terms: RAIL HAULAGE PROPOSAL: [NAME_14] [NAME_1] discussions with regards to the development of a rail haulage proposal incorporating [NAME_14] and [NAME_1]. · Nominated Annual Tonnes for 2007 and onwards (subject to annual confirmation) of o [NAME_14] 500,000 t o [NAME_1] 2,000,000 t · An extension of the term of the existing agreement by 6 years to 30th June 2013. · Reduced haulage rate if 75% of trains each quarter achieve set levels of loading performance. · Volume Rebate - $0.02 pt for all tonnes over 2.5m to 3.5m - $0.04 pt for all tonnes over 3.5m to 4.5m - $0.06 pt for all tonnes over 4.5m to 7.0m · Capacity charges calculated as per the existing agreement to apply if the [NAME_3] hauled under this agreement in a Quarter is less than 85% (or 75% under alternate proposal) of the Nominated Annual Tonnes divided by four. · An obligation on [NAME_5] to provide rolling stock to haul 100% of [NAME_14] & [NAME_1] export [NAME_3] haulage requirements. · An annual CPI adjustment will be applicable from the 1st January 2008. The CPI adjustment is based upon the movements in the September CPI for Sydney as published by the Australian Bureau of Statistics, as 75% of the 'variable component' & 'capacity component' of the haulage rate escalated by a percentage which is equal to the nominal percentage increase in the CPI. · 25% of the 'capacity component' and the 'variable component' of the Haulage Rates applicable during the year immediately preceding the relevant 1 January will be escalated by a percentage which is equal to the increases (if any) in wage rates granted to [NAME_3] under any applicable Enterprise Agreement to which [NAME_5] is a party. · The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distillate. · Rail Access charges are passed through. · If [NAME_5] is unable to provide a Scheduled Train or a Scheduled Train does not discharge [NAME_3] at the Port substantially in accordance with the Live Rail Plan and that results in a delay to the planned ship loading of a [NAME_1] or [NAME_14] cargo, even if reasonable endeavours are used, then [NAME_5] must pay a delay charge of $3,000.00 (exclusive of GST) for each 24 hour period in which a Scheduled Train is not provided or a Scheduled Train does not discharge [NAME_3] at the Port.

On this basis [NAME_5] proposes (subject to board approval) the below haulage rate structures.

[NAME_1]

75% Capacity Commitment

Variable component Fuel component Haulage Loading Performance Level Maximum Loading Time Capacity component ($/tonne) ($/tonne) ($/tonne) Rate ($/tonne) 1 153 minutes $0.45 $0.67 $0.15 $1.27 2 140 minutes $0.45 $0.64 $0.15 $1.24 3 125 minutes $0.45 $0.62 $0.15 $1.22 4 110 minutes $0.45 $0.58 $0.15 $1.18

85% Capacity Commitment

Variable component Fuel component Haulage Loading Performance Level Maximum Loading Time Capacity component ($/tonne) ($/tonne) ($/tonne) Rate ($/tonne) 1 153 minutes $0.45 $0.63 $0.15 $1.23 2 140 minutes $0.45 $0.60 $0.15 $1.20 3 125 minutes $0.45 $0.59 $0.15 $1.19 4 110 minutes $0.45 $0.55 $0.15 $1.15

After reviewing this proposal please give me a call to discuss further. I look forward to working together to service your requirements now and in the future. 24 The "Live Rail Plan" referred to in the last bullet point in this letter is the timetable to which train services are provided to [NAME_3] producers in the Hunter Valley distributed each day notifying services for the following 36 hours, starting at 12 noon and finishing at midnight the following day. 22 March 2007 Meeting 25 [NAME_25], the Commercial Manager for [NAME_3] with the defendant was present at a meeting at the [NAME_14] on 22 March 2007, the purpose of which was to discuss the 20 March 2007 letter. Also present at the meeting were [NAME_26] from [NAME_14], [NAME_27] from the plaintiff, [NAME_23], the General Manager [NAME_3] with the defendant and [NAME_28]. At that meeting [NAME_25] claimed that the following conversation occurred: [NAME_25]: Until we reach agreement on a contract between all three parties we will just continue under the terms of the 2004 agreement for [NAME_1] and the existing agreement with [NAME_14]. Are you both happy with that arrangement? [NAME_27]: Yes, [NAME_1] is happy with that arrangement. [NAME_26]: Yes, [NAME_14] is happy with that arrangement too. 26 In cross-examination [NAME_27] agreed that [NAME_25] may have said those words at the meeting and that he agreed (tr 23). Plaintiff's conditional acceptance of Haulage Proposal 27 On 3 April 2007 the plaintiff, by its Chief Executive Officer, responded to the defendant's Haulage Proposal in the following terms:

[NAME_1] has reviewed the Rail Haulage Proposal from the [NAME_5] dated 20 March 2007 and advises that it is prepared to accept the offer conditional on some amendments as discussed on 22 March in the offices of [NAME_14].

1 The Nominated Annual Tonnes must be subject to reduction caused by circumstances beyond the control of [NAME_1]. For example, any Capacity Balancing Scheme or other allocation system implemented by the port terminal operators or other [NAME_3] chain participant. The current clause 6 in Schedule 1 is acceptable with amendment to include any [NAME_3] chain party (not just [NAME_15]).

2 The term of the agreement should be 3 years with an option for a further 3 years.

3 Haulage rate amendments acceptable as per the existing agreement clause 1.2, Schedule 1.

4 Volume rebate should be applicable for all tonnes when the level reaches the trigger level: a. $0.02 pt for all tonnes to 2.5mt when volume exceeds 2.5mt b. $0.04 pt for all tonnes to 4.5mt when volume exceeds 3.5mt c. $0.06 pt for all tonnes to 7.0mt when volume exceeds 4.5mt.

5 Capacity charge acceptable under the conditions of Clause 5, Schedule 1 where the calculation is on a half yearly basis not quarterly.

6 The base date for CPI adjustments (April 2007) is to be included in the agreement.

7 Details of the Enterprise Agreement should be included for verification.

8 Access to the shell Terminal Gate Price for Bulk Distillate to be included for verification.

9 The offer with respect to ship delay charges needs to be modified to respond more adequately to our concerns. The following is suggested: a. If trains rescheduled from the 72 hr plan, without our agreement, each train that does not materialize as per the plan incurs a cost penalty to [NAME_4] of $5000 for the first train and increases by $5000 increments for each subsequent train of each cargo. b. Any demmurage caused by [NAME_4] failure to supply to trains in a timely manner to be met by [NAME_4] c. All cargoes railed have an expected single unit make up train at the end of the railing campaign. If [NAME_4] fails to provide this train and quality is not as could have been achieved, [NAME_4] to cover any penalties or loss of revenue to [NAME_1].

10 Clause 20.2 Insurance to be modified to reduce public liability cover to $50 million.

We trust that this meets with your approval and that the contract can be redrafted and executed in a timely manner. 28 The reference in paragraph 10 of that letter to "Clause 20.2 Insurance" is clearly a reference to that clause in the 2004 Rail Haulage agreement. Meeting 23 April 2007 29 On 23 April 2007 [NAME_27] met with [NAME_25] in relation to the defendant's Haulage Proposal and the plaintiff's conditional acceptance date in 3 April 2007. At that meeting the following conversation occurred: [NAME_27]: I just have to make sure you know how important it is to [NAME_1] to keep the delay charges in the agreement. This charge has to work incrementally. Otherwise they wouldn't be much of an incentive to run the trains on time. [NAME_25]: Well I don't think that [NAME_4] would wear that. We cannot agree to the cumulative charge. We also think the charge is too high. I mean, I think the $3,000 would be enough. [NAME_27]: I don't think that [NAME_1] is going to accept anything less than five. As to the marriage payments and the make up train, you need to discuss those items further with [NAME_29] of [NAME_30], our rail service/shipping coordinator. 14 May 2007 amended proposal 30 After a further meeting between [NAME_25] and [NAME_27] on Friday 11 May 2007 the defendant sent an amended proposal to the defendant on 14 May 2007. [NAME_25] advised in his e-mail to [NAME_27] that he had "made the changes as needed" to the proposal and asked [NAME_27] to review the changes and "if agreed" the defendant would "prepare the documents formally". That document attached to the e-mail was in the following terms: Following discussions with regards to the development of a rail haulage proposal incorporating [NAME_14] and [NAME_1]. · Nominated Annual Tonnes for 2007 and onwards (subject to annual confirmation) of o [NAME_14] 500,000 t o [NAME_1] 2, 000,000 t · An extension of the term of the existing agreement by 3 years with an option for a further 3 years to 30th June 2013. · Reduced haulage rate if 75% of trains each quarter achieve set levels of loading performance. · Volume Rebate on all tonnes adjusted annually when volume reaches trigger levels. - $0.02 pt for all tonnes over 2.5m to 3.5m - $0.04 pt for all tonnes over 3.5m to 4.5m - $0.06 pt for all tonnes over 4.5m to 7.0m · Capacity charges calculated as per the existing agreement to apply if the [NAME_3] hauled under this agreement on a half yearly basis less than 75% of the Nominated Annual Tonnes divided by four.An obligation on [NAME_5] to provide rolling stock to haul 100% of [NAME_14] % [NAME_1] export [NAME_3] haulage requirements. · An annual CPI adjustment will be applicable from the 1st January 2008.The CPI adjustment is based upon the movements in the September CPI for Sydney as published by the Australian Bureau of Statistics, as 75% of the 'variable component' & 'capacity component' of the haulage rate escalated by a percentage which is equal to the nominal percentage increase in the CPI. The basis of CPI adjustments will be made available as justification of the increase. · 25% of the 'capacity component' and the 'variable component' of the Haulage Rates applicable during the year immediately preceding the relevant 1 January will be escalated by a percentage which is equal to the increases (if any) in wage rates granted to [NAME_3] under any applicable Enterprise Agreement to which [NAME_5] is a party.Details of the EA will be included within the agreement for verification. · The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distillate. Access to the Shell Terminal Gate price to be included for verification within the agreement. · Rail Access charges are passed through. · If [NAME_5] is unable to provide a Scheduled Train or a Scheduled Train does not discharge [NAME_3] at the Port substantially in accordance with the Live Rail Plan(72hr plan) without agreement and that results in a delay to the planned ship loading of a [NAME_1] or [NAME_14] cargo, even if reasonable endeavours are used, then [NAME_5] must pay a delay charge of $5,000.00 (exclusive of GST) for the first train and increases by $5000 increments for each subsequent train. · Any demmurage caused by [NAME_4] rail operations to supply trains in a timely manner will be discussed to agree an outcome. · All cargoes railed have an expected single unit make up train at the end of the railing campaign, failure to supply a planned train that has been scheduled will result in a delay charge of $5000 per train as stipulated above. · Insurance to be modified to reduce public liability to $50 mill .

[NAME_1] (agreed rates)

75% Capacity Commitment Variable component Fuel component Haulage Loading Performance Level Maximum Loading Time Capacity component ($/tonne) ($/tonne) ($/tonne) Rate ($/tonne) 1 153 minutes $0.45 $0.67 $0.15 $1.27 2 140 minutes $0.45 $0.64 $0.15 $1.24 3 125 minutes $0.45 $0.62 $0.15 $1.22 4 110 minutes $0.45 $0.58 $0.15 $1.18

After reviewing this proposal please give me a call to discuss further. I look forward to working together to service your requirements now and in the future. 19 May 2007 clarification 31 On 19 May 2007 the plaintiff requested clarification of the defendant's "proposal" in the following terms:

With respect (sic) your proposal dated 14th May 2007, the following needs to be clarified/amended – have numbered your blank dot points

Dot point 5 re capacity charges needs a two divisor not four if it is half yearly?

Dot point 10 to be revised "If [NAME_5] is unable to provide a scheduled train, or a scheduled train does not discharge [NAME_3] at the port in accordance with the confirmed status with the live rail plan, without agreement from [NAME_1], then [NAME_4] must pay a delay charge of $5000 (ex GST) for the first train and increases by $5000 increments for each subsequent train of that cargo

Dot point 11 to have added "if an agreed position is not reached the [NAME_4] will cover the demurrage costs incurred as a result of the failure to supply trains in a timely manner"

Dot point 12 need to clarify that the make up train schedule is that "confirmed status, with the live rail plan and penalties per train and any subsequent trains to be as per dot point 10" 32 On 1 June 2007 [NAME_27] wrote to [NAME_25] asking him "how are we going with the finalisation of the letter, as per my previous comments?". By return e-mail later that day [NAME_25] wrote to [NAME_27], "sorry [NAME_8] I will have the final details to you later today with an area for you to sign and then I can get the contract draft complete". 4 June 2007 draft letter 33 On 4 June 2007 [NAME_25] wrote to [NAME_27] advising that he had made "further changes as per your note on the 19th May and requested him "review and you agree with "the 'in principle' agreement I can then get the draft contract drawn up and submitted to you". The attached document was addressed only to [NAME_27] and was in the following terms: [NAME_1] AGREEMENT Thank you for your time and active participation in the discussions and negotiations which have allowed us to reach an 'in principle' agreement regarding future rail haulage for [NAME_1].

I outline the key agreement terms, principles and rates which will be included in the detail of the contractual agreement being developed:

Agreement terms:

Agreement Term 3 Years from July 2007, with an option for a further 3 year to July 2013. Agreement Volume 2.5mta for the first year rising to 4.15mta by 2010 subject to annual confirmation. [NAME_4] to provide required capacity to haul 100% of nominated annual volumes. Capacity Charges If the actual tonnage of [NAME_3] hauled in a half year is less than one half of 75%of the applicable Nominated Annual Tonnage, a capacity charge will be payable equivalent to the tonnage difference multiplied by the applicable 'capacity component' of the applicable Haulage rate. Load Point Performance Reduced haulage rate if 75% of trains in each quarter achieve set levels of loading performance as stipulated in agreed rates table. A rebate on all tonnes adjusted annually when the volume trigger is reached in any 12 month period. Volume Rebate 0.02 cent pert (sic) tonne over 2.5m to 3.5m 0.04 cents per tonne over 3.5 m to 4.5m 0.06 cents per tonne over 4.5 to 7.0m Adjustment of Haulage Rates The 'capacity component' and the variable component of the haulage rates will be adjusted on the 1st January each year of the agreement based upon 75% of the 'capacity component for CPI adjustments and 25% of the variable component for Labour adjustments. The basis of each will be made available prior to any change of the haulage rate. Fuel Adjustment The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distilate. Changes to fuel and the calculation will be made available prior to any change. Access Charges The parties acknowledge that all access charges are pass through. Scheduled Train Delay Charge If [NAME_5] is unable to provide a scheduled train, or a scheduled train does not discharge [NAME_3] at the port in accordance with the confirmed status with the live run plan, without agreement from [NAME_1], then [NAME_4] will pay a delay charge of $5000 (ex GST) for the first train and a further $5000 for each subsequent train of that cargo. Make up Train All cargoes railed have an expected single unit make up train at the end of the railing campaign, failure to supply a planned train that has been scheduled will result in a delay charge of $5000 per train as stipulated above. Vessel Demurrage Any demurrage caused by [NAME_4] rail operations to supply trains in a timely manner will be discussed to agree an outcome to satisfy [NAME_1] or [NAME_14] dependent on the party that has been affected.

Rate Table:

[NAME_1] component Fuel component Haulage Loading Performance Level Maximum Loading Time Capacity component ($/tonne) ($/tonne) ($/tonne) Rate ($/tonne) 1 153 minutes $0.45 $0.67 $0.15 $1.27 2 140 minutes $0.45 $0.64 $0.15 $1.24 3 125 minutes $0.45 $0.62 $0.15 $1.22 4 110 minutes $0.45 $0.58 $0.15 $1.18

Would you please confirm [NAME_1] 'in principle' agreement to the above terms, and rates (subject to resolution of the detailed contractual terms) by arranging for a copy of this letter to be signed by an authorized person, dated and returned to [NAME_25] at the above address as soon as convenient. Yours sincerely [NAME_25] Manager-[NAME_3] on behalf of [NAME_1] ………………………… ………………….. Signature Name Date………………………… Title…………………………. 34 Also on 4 June 2007 [NAME_27] responded to [NAME_25] by e-mail in the following terms: Have reviewed with our people. So there is no misinterpretation, would you reword the following items. Volume rebate-refers to the volume trigger being reached in "any 12 month period". This needs to clearly indicate it is at any point in each calendar year, not in any 12 month period. The scheduled train delay charge is (sic) needs to be worded such that the initial train has a $5,000 penalty and each subsequent train is subject to $5,000 increments over and above its predecessor i.e. train 1 = $5,000 train 2 = $10,000 train 3 = $15,000. With respect [to] the vessel demurrage I think it should reflect [NAME_1] or [NAME_14], whoever is affected at the time, not both unless both are affected Apart from that, looks okay to me. Could you amend the wording and resend so we can get the contract drawn up.

35 On 8 June 2007 [NAME_27] wrote to [NAME_25] asking him how "is the revision to the letter going?". On the same day [NAME_25] wrote to [NAME_27] advising "you will have its first thing on Tuesday, I've been travelling over the past three days and have not been in the office". 12 June 2007 draft letter 36 On 12 June 2007 [NAME_25] wrote to [NAME_27] in the following terms: I hope you did not get too much damage in the recent storms, and all is well at the site. I have attached the hopefully final 'in principle' agreement so we can get the contract drawn up, with regards to the scheduled train delay charge, I can agree on $5,000 per train, and $5,000 for each subsequent train in a cargo.

37 The attached letter dated 12 June 2007 was addressed only to the plaintiff. It was an identical terms to the letter dated 4 June 2007, except that in the "Volume Rebate" section the word "annually" was deleted and in the "Vessel Demurrage" section the words "dependant (sic) on the party that has been affected" were added after the word "[NAME_14]". 38 When [NAME_27] read the letter dated 12 June 2007 attached to [NAME_25]'s e-mail, he noticed that it did not contain the amendments relating to the delay charges that he had suggested in his e-mail of 4 June 2007. [NAME_27] wrote to [NAME_25] on 14 June 2007 following terms: Thanks for the note. At our meeting on site, the charge per train was agreed as incremental. As explained at the time the diversions/cancellations were of major concern to [NAME_1], and although many promises were made in the past to address the matter, nothing eventuated, hence our logic behind the charges. My concern is now that without some form of escalation the people who disorganize our railing will continue to do what has been done in the past and consider the charge to be ok. Our real focus is to not "lose" the trains once confirmed. If you require a fixed charge per train, let's make it $20,000 for each train. The loss of these consists (sic) will become a greater problem for us once tonnages increase.

Give me a call, or we'll meet again to sort out.

Also you have not changed the volume rebate period. If we don't acknowledge a set period i.e. annual or fiscal or an agreed period, [NAME_4] may be paying a rebate full time due to rolling twelve months. 39 On 14 June 2007 [NAME_25] wrote back to [NAME_27] advising: I have made the changes to the rebate. In terms of the train cancellations I believe that 5k is fair per train, we can discuss again if you require. 40 The only change to the letter dated 12 June 2007 was the re-insertion of the word "annually" in the Volume Rebate section of the letter. 21 June 2007 meeting 41 On 21 June 2007 [NAME_27] met with [NAME_25] and they had the following conversation: [NAME_27]: If the delay charge does not escalate the situation of the trains is not going to change. [NAME_25]: Well, [NAME_4] cannot agree to an escalating charge. [NAME_27]: What about the higher figure, say $7,000? [NAME_25]: For each train? [NAME_27]: Yes, not escalating. [NAME_25]: I think that should be fine. 22 June 2007 letter 42 On 22 June 2007 [NAME_25] wrote by e-mail to [NAME_27] in relation to the subject, "In Principle Agreement", in the following terms: Attached is the detail as discussed yesterday, the 7 K. is applicable from train cancellations not agreed after the live run plan is complete which generally comes out at noon, I have increased the makeup train to reflect the 7 K. amount as well, and added in the 85% capacity if nominated, but at this stage we are going with 75%, when it signed can you either e-mail or post to me please.

43 The letter attached to the e-mail was dated 22nd June 2007 and was addressed only to the plaintiff. It was in the following terms:

Thank you for your time and active participation in the discussions and negotiations which have allowed us to reach an 'in principle' agreement regarding future rail haulage for [NAME_1].

Agreement terms:

Agreement Term 3 Years from July 2007, with an option for a further 3 year to July 2013. Agreement Volume 2.5mta for the first year rising to 4.15mta by 2010 subject to annual confirmation. [NAME_4] to provide required capacity to haul 100% of nominated annual volumes. Capacity Charges If the actual tonnage of [NAME_3] hauled in a half year is less than one half of 75%of the applicable Nominated Annual Tonnage, a capacity charge will be payable equivalent to the tonnage difference multiplied by the applicable 'capacity component' of the applicable Haulage rate. Load Point Performance Reduced haulage rate if 75% of trains in each quarter achieve set levels of loading performance as stipulated in agreed rates table. A rebate on all tonnes adjusted when the volume trigger is reached in any 12 month period. Volume Rebate 0.02 cent pert (sic) tonne over 2.5m to 3.5m 0.04 cents per tonne over 3.5 m to 4.5m 0.06 cents per tonne over 4.5 to 7.0m Adjustment of Haulage Rates The 'capacity component' and the variable component of the haulage rates will be adjusted on the 1st January each year of the agreement based upon 75% of the 'capacity component for CPI adjustments and 25% of the variable component for Labour adjustments. The basis of each will be made available prior to any change of the haulage rate. Fuel Adjustment The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distilate. Changes to fuel and the calculation will be made available prior to any change. Access Charges The parties acknowledge that all access charges are pass through. Scheduled Train Delay Charge If [NAME_5] is unable to provide a scheduled train, or a scheduled train does not discharge [NAME_3] at the port in accordance with the confirmed status with the live run plan, without agreement from [NAME_1], then [NAME_4] will pay a delay charge of $7000 (ex GST) for the first train and a further $7000 for each subsequent train of that cargo. Make up Train All cargoes railed have an expected single unit make up train at the end of the railing campaign, failure to supply a planned train that has been scheduled will result in a delay charge of $7000 per train as stipulated above. Vessel Demurrage Any demurrage caused by [NAME_4] rail operations to supply trains in a timely manner will be discussed to agree an outcome to satisfy [NAME_1] or [NAME_14] dependant (sic) on the party that has been affected.

Rate Table:

[NAME_1] 75% Capacity

85% Capacity Commitment (If nominated)

Variable component Fuel component Haulage Loading Performance Level Maximum Loading Time Capacity component ($/tonne) ($/tonne) ($/tonne) Rate ($/tonne) 1 211 minutes $0.45 $0.63 $0.15 $1.23 2 193 minutes $0.45 $0.60 $0.15 $1.20 3 173 minutes $0.45 $0.59 $0.15 $1.19 4 152 minutes $0.45 $0.55 $0.15 $1.15

Would you please confirm [NAME_1] 'in principle' agreement to the above terms, and rates (subject to resolution of the detailed contractual terms) by arranging for a copy of this letter to be signed by an authorized person, dated and returned to [NAME_25] at the above address as soon as convenient. Yours sincerely [NAME_25] Manager-[NAME_3] on behalf of [NAME_1] ………………………… ………………….. Signature Name Date………………………… Title………………………….

27 June 2007 – plaintiff signs 22 June 2007 letter 44 On 27 June 2007 [NAME_31] signed this letter in the space provided for "Signature", as "CEO" and dated it 27 June 2007.

Separate agreements 45 In early July 2007 [NAME_25] had the following conversation with [NAME_27]: [NAME_25]: We are going to have to separate agreements between [NAME_5] and [NAME_1], and [NAME_5] and [NAME_14]. [NAME_27]: That's fine, but the rates have to stay the same as in the in principle agreement. [NAME_25]: No problem. The "contract agreement" 46 On 13 July 2007 [NAME_25] wrote by email to [NAME_27] in the following terms: Please find attached a marked up and clear copy of the new agreement, I have sent as separate agreement to [NAME_14] based upon this [NAME_1] agreement. Can you have your people review the information and send back any changes or amendments so we can move to execution plays. I was wanting to have the agreement applicable from the 1st August 47 On 20 July 2007 [NAME_27] responded to [NAME_25]'s email in terms that included the following: Thanks for the document. What concerns me is that you have not included the various points as discussed/agreed/and/or corresponded on during the course of formulating this document.

I do not wish to "find [NAME_32]" each time you go to print

In order to stop wasting your time, our time and our legal people's time, please amend the document to reflect our agreed items. Any items outside that can be addressed in due course.

Once you have completed please forward the document and note in your email what you have altered.

We will then be in a position to review and move forward. 48 On 20 July 2007 [NAME_25] responded to [NAME_27] in the following terms:

There should be no changes to what we have agreed, I shall give you call to run through the concerns you have. 49 On 23 July 2007 [NAME_27] responded to [NAME_25] stating: "

I agree there should be no changes but the reality is that there has been. Some areas which have been altered by [NAME_4] -

P11 Weighing – it was agreed that if the [NAME_4] weighbridge was not operational, then the [NAME_15] conveyor scales would be the next measuring instrument. Following that the deemed weight scenario

20.2 [NAME_4] have previously agreed verbally to [NAME_33]'s letter of April 3 2007 - $50M is the insurance liability

P27 cont. 1.3 the haulage rebate is for all tonnes once the rebate hurdle point is reached – the document must reflect this position – also previously agreed with [NAME_4]

P31 'c" (i) ref the In Principle Agreement dated 22 June 07" – we have not agreed that the payment is only due when" and that results in a delay to the planned ship loading of a [NAME_1] cargo" and [NAME_4] have agreed this is not the wording as well. The payment is due when [NAME_4] fail to achieve the live run plan!

Ditto Par.3 of (ii) ref the same letter of 22 June 07 – "any demurrage caused by [NAME_4] rail operations to supply trains in a timely manner will be discussed to agree an outcome to satisfy [NAME_1]" – (this is all we will agree to and [NAME_4] agreed)

P32 [NAME_4] commitment as per correspondence 20th March was to provide 100% of [NAME_1] export haulage requirements. 50 On the same day after discussing the matter with [NAME_25], [NAME_27] wrote again in the following terms:

Further to our brief discussion this morning, I am in SA at the moment with limited access to emails etc, I shall review this over the next few days and come back to you. The wording of the agreement was as per our agreed 'in principle agreement' of the 22nd. 51 On the same day [NAME_27] sent a further copy of the 22 June 2007 letter (as signed by the plaintiff) to [NAME_25] who responded by thanking [NAME_27] and advising him that he was well aware of the document and had copies of it. 52 After further email exchanges of the marked up document [NAME_25] wrote again to [NAME_27] on 21 August 2007 enclosing the document with the following message:

I'm hoping this will be it, I am in Newcastle at the moment and I can drop in tomorrow late morning if you wish or early next week, I will give you a call in the morning to see what suits. 53 On 22 August 2007 [NAME_25] sent a further copy of the document to [NAME_27] with the following message:

I have made the requested changes, I have not added anything in about [NAME_20] as the document does refer to [NAME_22] at a number of times throughout the document and we do not know at this stage how [NAME_20] would be set up and how the operation would run, we could deal with [NAME_20] via a Deed of Variation when that is clear of how that operation would run. 54 On 23 August 2007 [NAME_25] wrote to [NAME_27] in relation to the identified subject "2008 Port & Rail Allocations" in the following terms:

[NAME_8], if your (sic) happy with the detail below can you email it back to me so I can release this information to [NAME_22] for the 2008 port and rail allocations, if you require any further information let me know.

…

We hereby give approval for the [COMPANY_2] Agreement (No. L11266) with [COMPANY_12], dated 12/06/2007, to be released (excluding rail freight rates) to [NAME_22] for the Purpose outlined in the Confidentiality Deed Poll between [NAME_22], [COMPANY_15], [NAME_34], [COMPANY_12] and each of the Parties listed in Schedule A. 55 In response to this email [NAME_27] wrote:

With respect the tonnages that were changed in the latest version of the contract document, the [NAME_1] requirements for each calendar year is as follows: 2008 2.4M t 2009 3.0M t 2010 3.5M t

Can you make the changes to suit the above and advise when done so we can then give the okay for the below to occur!

I'd also like to look at how we can align the contract periods with each calendar year as well, so we need to address how we get aligned from Jan next year if possible. This will then align our budget and reporting times with the contract periods. 56 On the same day [NAME_25] wrote back to [NAME_27] in the following terms:

I only need 08 numbers, I did have [NAME_1] down at 2.0mta, I will call you as the Deed stipulates agreements prior to the 18th July, can you forward the email that you would have sent stipulating 2.4mta? 57 Later the same day [NAME_27] responded:

The original numbers would have come from [NAME_28] I believe. Can you confirm where/who you received the numbers from, as your 2007 numbers in the latest version are different from your previous version draft 12 July 07. 58 Also on 23 August 2007 [NAME_27] wrote to [NAME_25] in the following terms:

We require the contract document to commence 1 July 07, and have the initial period to the end of Dec 07 and based on the allocated tonnage we have at the port of 847464t at this point in time. We then need to have calendar year 2008 at 2.4M t for [NAME_1].

We will you make the appropriate changes and advise so we can then sign the document for Price Waterhouse to-day. 59 Later that same day [NAME_27] wrote to [NAME_25] in the following terms:

Agree with details going, provided it pertains to the timing of our contract commencing being as below, namely 12 July 2007, the nominated tonnage for [NAME_1] being as per the balance of tonnage as per port allocation for the second half of 2007 which is currently 847464t and the tonnage for [NAME_1] in 2008 being 2.4M t. 60 On 24 August 2007 [NAME_27] wrote to [NAME_25] in the following terms:

I notice that there are two further changes that you have made to the document that we have previous agreement on. Schedule 1 5 Capacity Charges – we have agreed in our correspondence 22 June 07 that the capacity charge is reviewed half yearly.

Schedule 3 c(ii) train make-up charge is $7,000 per train as stipulated in scheduled delay charge as agreed in our correspondence 22 June 07, and not as you have it for a single train.

At this stage, if you have not changed anything else we are basically ready to have the document prepared for signature once you make the above changes. 61 After further emails between the plaintiff and the defendant in relation to tonnages [NAME_25] finally advised [NAME_27] on 27 August 2007 that he then had all the supporting documents that he would submit to [NAME_22] (apart from rates and rebates). 62 On 30 August 2007 [NAME_31], the Chief Executive Officer of the plaintiff, telephoned [NAME_25] to confirm when the contract would be available for execution. [NAME_25] advised [NAME_31] that it would be available the following Monday or Tuesday as there were no outstanding issues and that he would deliver it to [NAME_31] at the plaintiff's Sydney office. [NAME_31] advised [NAME_25] that he would be in Dubai the following week and asked him to email it to [NAME_27] who would have the authority to sign it on the plaintiff's behalf. 63 On 3 September 2007 [NAME_27] wrote by e-mail to [NAME_25] advising that the plaintiff's "corporate and legal people" had reviewed the document and had amended it. [NAME_27] advised that the "commencement date changed to suit". That date in the document was changed from 1 August 2007 to 1 July 2007. There was a change to an e-mail address in clause 15. Clause 6 of schedule 1 was amended in the marked up document as follows: 6.1 Year commencing 1 August 2007 The Nominated Annual Tonnage for the Year commencing 1 July 2007 is 2,100,000 1,950,000 tonnes of which 1,250,000 t is allocated from 1 Jan 08 to 30 June 08 6.2 Each subsequent Year (a) The Nominated Annual Tonnage for the Year commencing 1 July 2008 is 2.5 2.75M tonnes of which 1,250,000 t is allocated from 1 July 08 to 31 Dec 08 or [NAME_1]'s tonnage allocation under the [NAME_15] for that Year, whichever is the lesser. The Nominated Annual Tonnage for each Year will be nominated on the anniversary date of the agreement.

(b) In respect of each of the Years referred to in paragraph 6.2(a) above, [NAME_1] may, by notice to [NAME_5] prior to relevant 1 August July, advise [NAME_5] of the Nominated Annual Tonnage it proposes for that Year, if different from that set out in paragraph 6.2(a) above or [NAME_1]'s tonnage allocation under the [NAME_15] for that Year, whichever is the lesser. Any change from the Nominated Annual Tonnage set out in paragraph 6.2(a) above requires agreement in writing by both parties, and it can not be less than that which applied in previous Year. If the parties do not reach such agreement prior to the applicable 1 August, or if [NAME_1] does not give [NAME_5] a notice pursuant to this paragraph 6.2(b), then the Nominated Annual Tonnage for that Year will be as set out in paragraph 6.2(a) above , or [NAME_1]'s tonnage allocation under the [NAME_15] for that Year, whichever is the lesser.

(c) [NAME_1] must notify [NAME_5] of [NAME_1]'s tonnage allocation under the [NAME_15] within 7 days of receiving same.

(d) For the purposes of this paragraph 6, "[NAME_15]" means the system in place at [NAME_15] to allocate tonnages of export [NAME_3] to be shipped by [NAME_3] exporters in a given period or such other system that replaces that system. 64 [NAME_27]'s comments on these changes were as follows:

Our corporate view was that the 2.5M t was to specifically refer to 2008, so I have amended the words and tonnages to suit, as our production here is calendar and not as per the document. Par 1 August changed to July Our legal advice is that the second paragraph is that the default position is the [NAME_15] allocation so the second paragraph is not required and also the first line in the third paragraph up to "if". 65 On 10 September 2007 [NAME_27] wrote to [NAME_25] by e-mail asking whether the "final document" was "ready for signatures?". [NAME_25] advised that it was "with our internal lawyers" and he would "chase it up again today". On 10 September 2007 [NAME_31] telephoned [NAME_25] to follow up [NAME_27]'s e-mail in relation to the contract. [NAME_25] advised [NAME_31] that the lawyer looking at it had been away on sick leave but that he would follow it up immediately. Capacity Imbalance for 2008 66 The [NAME_18]' Working Group ([COMPANY_18]) was set up in January 2007 to provide an informal discussion forum between [NAME_3] producers, the rail operators and [NAME_15] to discuss ways to address the issue of capacity imbalance for 2008. The Working Group could not reach agreement about how the vessel queue at Newcastle Port could be reduced and how [NAME_3] capacity could be allocated. There were four allocation options proposed by the Working Group: Scenario 1 – allocation based on pro-rata of revised demand nominations for 2008; Scenario 2 – allocation based on a pro-rata of revised demand nominations for 2007; Scenario 3 – allocation based on past actual usage or demand nomination for new mines and the balance pro rated; and Scenario 4 – allocation based on pro-rata of less or revised demand nomination for 2008 or aggregate rail contract for 2008. 67 In about August 2007, as a result of legal advice regarding potential TPA issues arising from [COMPANY_18]'s activities, [COMPANY_18] agreed that an independent organisation should be engaged to assist in reaching a compromise solution in relation to the 2008 allocations. [NAME_22] ([NAME_22]) was appointed to review the proposed allocation methods. [NAME_22] entered into a Confidentiality Deed Poll with [NAME_15], Queensland Rail and the defendant under which it was required to review each [NAME_3] producer's contracted [NAME_3] loading requirements for 2008 with [NAME_15] and contracted rail haulage requirements for 2008 with Queensland Rail and the defendant, known as the "Contracted Volume". It was also required to calculate for each [NAME_3] producer, the lesser of the sum of that producer's contracted volumes with Queensland Rail and or the defendant or the producer's contracted volume with [NAME_15], known as the "Minimum Contracted Volume". It was also required to calculate the amount, known as the "Reduction", by which the producer's contracted volume with [NAME_15], Queensland Rail or the defendant would need to be reduced to ensure that each producer's contracted volume with [NAME_15] and the sum of each producer's contracted volume with the defendant and Queensland Rail was equal to the amount of the Minimum Contracted Volume. 68 The Deed Poll defined "Contracted Volume" as follows:

Contracted Volume means the quantity of [NAME_3] handling services which [NAME_3] producers have requested [NAME_15] to provide to [NAME_3] producers during the 2008 calendar year under commercial contracts entered into with [NAME_3] producers on or prior to 18 July 2007 or the quantity of rail haulage volumes which [NAME_34] and [NAME_4] are obliged to provide to [NAME_3] producers during the 2008 calendar year under commercial contracts (including pursuant to any extensions of or nominations under such commercial contracts) entered into with [NAME_3] producers on or prior to 18 July 2007. For the avoidance of any doubt, in the case of rail haulage volumes, such volumes are the amount that [NAME_4] or [NAME_34] (as the case may be) have confirmed is accepted for 2008. [NAME_15] tonnage allocations 69 On 5 September 2007 [NAME_25] wrote by email to [NAME_27] in relation to the "[NAME_22]" in the following terms:

I understand that new numbers will be distributed today highlighting the lesser of rail & port which were discussed at last weeks [COMPANY_18] meeting. This came about from [NAME_4]'s commitment to review current agreements in place as at the 18th July 2007 using the definition in the deed poll to review and amend numbers as necessary to provide [NAME_22] with [NAME_4]'s confirmation of commitments under rail haulage agreements for 2008. We have reviewed each of the agreements and provided [NAME_22] with a new set of numbers based upon current agreements and interpretations within the contract. Prior to next Wednesday's meeting I would like to meet with you to identify the critical issues that will need to be resolved through the [COMPANY_18] process.

I will be in Newcastle & the Hunter Valley on Monday 10th September, would you be available to meet to discuss the current agreement and finding of the [NAME_22] review in the afternoon. 70 On 5 September 2007 [NAME_15] advised all [NAME_3] producers that [NAME_22] had re-calculated the "lesser of port or rail contracts" to be 103.72Mt. [NAME_15] also advised that this forecast still exceeded the [NAME_3] chain capacity forecast and that a revised pro-rata calculation for that option was to be performed based on 97.5/103.72. [NAME_15] further advised that it had also revised the calculations for the other options based on the latest 2008 [NAME_3] chain capacity estimate of 97.5Mt and that they would be emailed to individual [NAME_3] producers later that day. 71 Also on 5 September 2007 [NAME_15] wrote by email to the plaintiff advising it of the calculations for the plaintiff's allocation for the 2008 calendar year. The allocation pursuant to Scenario 1 (pro-rata of revised demand nominations for 2008 to capacity) was 2.227Mt. The allocation pursuant to Scenario 2 (pro-rata of revised demand nominations for 2007 (106Mt) to capacity (97.5Mt)) was 2.227Mt. The allocation pursuant to Scenario 3 (based on best actual with protection of new mines, pro-rata remainder) was 2.505Mt. The allocation pursuant to Scenario 4 (pro-rata of lesser of demand nomination for 2008 or aggregate rail contract for 2008) was zero.

72 On 12 September 2007 [NAME_31] wrote to [NAME_15] in relation to the calculations contained in the email of 5 September 2007. That letter included the following:

It appears that based on [NAME_1] not having executed a formal contract with [NAME_5] (" [NAME_4] ") for rail haulage services during 2008 by 18 July 2007, [NAME_22] has decreed that [NAME_1] would receive no allocation under scenario 4 of the port and rail analysis.

This is clearly not an acceptable outcome for [NAME_1]. Nor does it comply with the deed we signed or the broader obligations governing [NAME_15]' allocation scheme.

The basis upon which [NAME_1] agreed to participate in this port and rail analysis was to apply the accepted rail haulage volumes between [NAME_4] and [NAME_1].

[NAME_1] would not have agreed to have participate in this analysis if it resulted in [NAME_1] receiving a Minimum Contracted Volume of Zero, by disregarding the communications between ourselves and [NAME_4]. To do so is obvious commercial nonsense.

[NAME_4] and [NAME_1] had agreed as to the rail haulage services for 2008 by a signed letter agreement dated 22 June 2007 ( attached ). The nominated annual tonnage for [NAME_1] for 2008 was agreed in this document to be 2.5 million tonnes.

This letter is a binding contract.

As such that volume is Contracted Volume for the purposes of the exercise undertaken by [NAME_22].

As requested in your email of 5 September 2007, [NAME_4] has confirmed [NAME_1]'s contracted rail haulage volumes for 2008 (at approximately 2.5 million tonnes) and has forwarded this supporting material to [NAME_22].

Please confirm that [NAME_1]'s Minimum Contracted Volume will be adjusted accordingly. 73 On 12 September 2007 [NAME_27] sent a copy of the plaintiff's letter to [NAME_15] to [NAME_25] and [NAME_23]. Eight minutes later [NAME_25] wrote back to [NAME_27] in the following terms:

I am concerned you have provided information to [NAME_15] that relates directly between [NAME_4] and [NAME_1], the letter is fine but sending an agreement between [NAME_4] and [NAME_1] is confidential information.

74 On 12 September 2007 [NAME_25] telephoned [NAME_31] to advise him that he was extremely upset that the plaintiff had provided [NAME_15] "with a copy of the letter of offer signed by [NAME_1] on 22 June 2007". [NAME_31] explained to [NAME_25] that he believed that the only way he could substantiate that the plaintiff had an agreed tonnage position for 2008 was to provide that letter. [NAME_25] said that the zero allocation for the plaintiff was not relevant as option 4 would not "get up" and that the defendant was taking legal advice to argue against the strict interpretation of the definition of contract adopted by [NAME_22]. 75 After further e-mails asking for the production of the final document [NAME_27] wrote to [NAME_25] on 2 October 2007 in the following terms: We returned the final document to you on about the 3rd September for processing. For the last three weeks you have been indicating it would be ready "next week". As the final changes were minimal and agreed to, I don't understand what the hold-up is in getting the signed copies to us. Please advise! 76 On 2 October 2007 [NAME_23] wrote by e-mail to [NAME_27] in the following terms: In the context of where we are regarding capacity allocation in 2008 and the discussions which have been ongoing during over the last 6-8 weeks, we are in a position to be signing any agreements until these issues are resolved. I understand discussions have been had between [NAME_4] and [NAME_1] and documents exchange, but we need to continue the current process before finalising any new agreements. We will be in touch to discuss further with [NAME_1] shortly. 77 Also on 2 October 2007 [NAME_31] responded to [NAME_23]'s e-mail in the following terms: I am overseas at present, but will be back at the end of the week. I do not see the relationship between current industry discussions and the execution of our contract. [NAME_1] and [NAME_4] have agreed a position and I expect a document to be executed as agreed. [NAME_1] will not accept being discriminated against because of issues outside of its control. 78 On 3 October 2007 [NAME_25] wrote to [NAME_27] in the following terms: [NAME_5] ([NAME_4]) has been a participant in discussions with the [COMPANY_18] ([COMPANY_18]) assessing cold chain capacity and demand imbalances for 2008. To further inform discussions at the next [COMPANY_18] meeting I would appreciate if you can advise your Nominated Annual Tonnes within the context of rail haulage agreement, for 2008 calendar year by Friday 5th October 2007. (I recognize that the period for nomination in agreement is different to calendar years, but request your nomination for this period to simplify discussions). This nomination should not exceed your binding 2008 Port nomination tonnage. After receiving this information from all customers, [NAME_4] will contact you to discuss your nomination prior to the next [COMPANY_18] meeting scheduled for October 10th 2007. 79 On 4 October 2007 [NAME_27] advised [NAME_25] that the plaintiff's 2008 calendar year tonnage for the rail contract was 2.5 million tonnes. 8 October 2007 meeting 80 On 8 October 2007 there was a meeting between the plaintiff and the defendant. Present at the meeting for the plaintiff were [NAME_31] and [NAME_27] and for the defendant [NAME_25] and [NAME_23]. [NAME_27]'s recollection of what was said at the meeting included the following: [NAME_31]: Are you telling is that you are not going to honour our agreement? [NAME_23]: We are not trying to get out of the agreement. I am just trying to explore if a compromise solution for scenario four is possible. We could offer you 1.3 million tonnes for 2008. [NAME_31]: That is a 'go broke' number for us. What's the basis for that number? [NAME_23]: I can't say. The problem is the capacity of the port, not the railway. The rail providers could carry up to 120 million tonnes. [NAME_31]: your compromise solution is not acceptable to [NAME_1]. We want you to sign the formal contract that has been agreed. [NAME_25]: I'll follow up the contract. 81 [NAME_31]'s recollection of the conversation was as follows: [NAME_23]: We are trying to broker a compromise solution for the [NAME_3] producers who have been adversely affected by scenario 4. [NAME_1] will be offered 1.39 million tonnes, but that's going to be scaled back to 1.1 million tonnes by [NAME_15]. [NAME_31]: Is this mean that you are not going to honour what you agreed to in the letter of offer that we accepted in June? Are you saying that you are now not going to execute the contract? [NAME_23]: No, that's not the case at all. What I am saying is that the additional industry knowledge that came out of the [COMPANY_18] process means that we need to review our position in the Hunter Valley. [NAME_31]: I am not aware of any new information coming out of that process which materially changes anyone's understanding of the industry and the capacity issues. [NAME_23]: Well, how much do you need then for next year? [NAME_31]: We need 2.5 million tonnes. This has been our position all along. It has not changed. We cannot support a position that would give substantially less. So, when will we get our contract? [NAME_25]: I will follow it up straight away. 82 [NAME_23] gave affidavit evidence of his recall of the conversation at that meeting as follows: [NAME_23]: What is your position on true tonnages for 2008? [NAME_31]: We need 2.5. [NAME_23]: The system capacity is only 95, we are not able to give the 2.5. [NAME_31]: 2.5 is like a drop dead, otherwise we have a shut the mine. [NAME_23]: We want to haul [NAME_1], but we have to come up with a solution and a compromise. Everybody is being scaled back. Everybody wants more than the system can provide. [NAME_31]: We will take this further. Where is the contract? [NAME_23]: It's been held up as some people have been away. It is difficult for us to finalise any contract given that we don't know what the allocations are going to be for 2008. I will find out where it is at. Proceedings commenced 83 After these discussions and further communications the parties were unable to move forward consensually and the plaintiff commenced the litigation on 28 November 2007 by the filing of a Summons and Commercial List Statement. Having regard to the urgency of the matter and the commercial importance for the parties to have a speedy resolution of their differences the matter was heard on a final urgent basis on 10 December 2007 when [NAME_8] leading Mr [NAME_9] SC appeared for the plaintiff and WG [NAME_10] SC leading [NAME_11] appeared for the defendant. Consideration 84 The applicable legal principles in determining whether or not the parties entered into a binding contract are not in issue. The meaning of the terms of a contractual document are to be determined by what a reasonable person would have understood them to mean and requires consideration of the text, the surrounding circumstances known to the parties and the purpose and object of the transaction: [NAME_35] (2004) 219 CLR 165 per Gleeson CJ, [NAME_36], Hayne, Callinan & Heydon JJ at 179, par [40]. This is a commercial transaction of some significance and although the test identified in Toll refers to a "reasonable person" it is appropriate in this case to apply the test of the reasonable "businesslike" person: [NAME_37] (2000) 203 CLR 579 per Gleeson CJ at 589, par [22]. 85 The plaintiff submitted that the evidence establishes that the parties intended to be immediately bound to perform the Haul Agreement when the letter of 22 June 2007 was signed on 27 June 2007. It was also submitted that the evidence establishes that at the same time the parties intended to have the terms restated in a form that would be fuller and more precise but not different in effect. In this regard it was submitted that this agreement was within the first class referred to in [NAME_38] (1954) 91 CLR 353. [NAME_39], McTiernan & Kitto JJ said at 360:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time proposed to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be the case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract; in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in [NAME_40] v [NAME_41] when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation.

86 The plaintiff submitted that there are a number of factors on the face of the letter of 22 June 2007 which demonstrate that the parties intended to be immediately bound. In this regard the plaintiff emphasised the first paragraph of the letter in which the defendant thanked the plaintiff for its "active participation in the discussions and negotiations which have allowed us to reach an 'in principle' agreement". The plaintiff submitted that this refers to concluded discussions resulting in agreement. The plaintiff also emphasised the fact that the words "in principle" were in quotations thus signifying that they had a concluded agreement and had emphasised the point by the use of the quotations. In support of this submission the plaintiff relied upon the following analysis by McLelland J in Baulkham Hills Private Hospital Pty Limited v GR Securities Pty Limited (1986) 40 NSWLR 622 at 628 as follows:

… I do not accept that the words "agreement in principle" in the present context import the idea that there must necessarily be agreement on further terms to be embodied in the "formal contract" provided for in the consensus, as opposed to an expectation that there would or might be agreement on further terms to be so embodied. In other words, I do not consider that the phrase in question should be construed as an "agreement to agree" on further terms, but rather as an indication, at the most, of an expectation of agreement on further terms.

…

I do not consider that any implication of an intention not to be legally bound which might otherwise be suggested by the words "agreement in principle" can prevail over the clear import of the words "legally binding". The intention of the parties to be legally bound by their consensus is sufficiently clearly expressed to take the case out of the third class of cases referred to in Masters v Cameron (1954) 91 CLR 353 at 360-362, that is, "…cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own" (at 361). This is in reality a fourth class of case additional to the three mentioned in [NAME_42] v [NAME_43] as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely, "…one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms". 87 The plaintiff submitted that the second paragraph of the letter of 22 June 2007 acknowledged the "key agreement terms, principles and rates" which were to be included in the detail of a contractual agreement. It submitted that this sentence is particularly significant as all essential terms have been agreed including the term of the agreement, the haulage volume, the capacity obligations, the capacity charges, the volume rebates, haulage rates and delay charges. The plaintiff submitted that this statement in the second paragraph must be read with the expression "(subject to resolution of the detailed contractual terms)" on the last page of the letter. It was submitted that in other words, there would be an agreement which would contain more detail but it would not be different in effect from the key terms. It was also submitted that the fact that the defendant required the letter to be signed by an authorised officer of the plaintiff was to confirm the terms of the agreement. 88 The defendant submitted that the following passage of Mahoney JA's judgment in Air Great Lakes Pty Limited v KS Easter (Holdings) Pty Limited (1985) 2 NSWLR 309 at 326 should guide the determination of the question before the Court:

In considering this question, in a context such as the present, it is of assistance to distinguish between three questions: did the parties arrive at a consensus?; (if they did) was it such a consensus as was capable of forming a binding contract?; and (if it was) did the parties intend that the consensus at which they arrived should constitute a binding contract. 89 The defendant submitted that the letter of 22 June 2007 evidenced agreement on a framework for an agreement, but not an agreement. It was submitted that the evidence does not establish an intention that any consensus should constitute a binding contract. The defendant also relied upon the words "in principle" as evincing an intention not to enter into a legally binding agreement. In support of this submission the defendant relied upon the following passage of Biscoe AJ's judgment in Stephenson v Dwyer [2006] NSWSC 1439 at [37]:

The phrase "in principle agreement" or similar is commonly used in pre-contractual negotiations and generally indicates, unless the context requires otherwise, that there is no intention yet to enter into a binding contract. In Cacace v Bayside Operations Pty Limited [2006] NSWSC 572 Brereton J said at [18]: "Although no general rule can be stated about the phrase 'agreed in principle', I think it can be said that it is a phrase often used by lawyers to indicate that, although consensus on a matter has apparently been reached, there is not yet a final agreement. 'Settled in principle' is a state of consensus somewhat short of 'settled' ". 90 The defendant recognised the fourth class of case referred to in [NAME_44] v Naughton but submitted that the evidence did not support such a conclusion. Further it was submitted that the cases which have followed Sinclair, Scott have involved dealings between parties who had no prior contractual relationship in relation to the subject matter of the alleged contract. I am not sure that this submission is entirely accurate having regard to the decision in [COMPANY_7] v [COMPANY_6] & Ors, [2001] NSWSC 1100; [NAME_6] No. 1 Colliery Pty Ltd v Pacific Power & Anor [2002] NSWCA 278. Indeed in Pacific Power, the expression "in principle", was used by the parties in correspondence that was the subject of detailed consideration in determining whether they had entered into a binding agreement. At paragraph [122] of the judgment at first instance the following was said:

The documents, the Letters and the conduct of the parties have required close scrutiny. The use of the words "in principle" in the letter of 30 May 1994 may present to some as persuasive to a finding that there was no intention in the parties to be immediately legally bound. However when the surrounding circumstances and the parties' conduct are analysed those words do not carry the significance that they may otherwise have had and are in my view no more than curious: GR Securities Pty Limited v Baulkham Hills Private Hospital [COMPANY_13] (1986) 40 NSWLR 631 at 635E-F. 91 It is inappropriate to construe the words "'in principle' agreement" without placing them in the context in which they appear and the commercial setting in which the parties were operating. It is also necessary to analyse the nature of the transaction in which the parties had reached such an agreement. Much will depend upon the individual circumstances of each case as to whether those words demonstrate that the parties had or had not reached a consensus on the essential terms of their bargain and whether they intended to be immediately bound by them. Both parties relied upon the language used in the letter and on the conduct prior to and after the letter in support of their competing submissions. It is necessary to apply the principles identified by Heydon JA in Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 at 163-164, pars [24]-[27] in particular the principle that post-contractual conduct may be considered on the question of whether a contract was formed.

92 [NAME_46] submitted that one relevant circumstance for consideration is that the plaintiff was being charged the rates applicable in the 2004 Rail Haul Agreement and not the rates identified in the letter of 22 June 2007. [NAME_8] submitted that the history between these parties demonstrates that when new agreements are negotiated and indeed reached between them, they have previously allowed the rates applicable in former contracts to apply during the negotiation phase and even after the new agreement is reached. When the new agreement is signed later than the commencement date the parties have conducted a form of reconciliation so as to apply the new rates from the commencement date of the new agreement rather than from the date the agreement was signed. This approach is supported by the conversation in which [NAME_25] suggested that the terms of the 2004 Agreement would apply until a new agreement was reached, as opposed to when it was signed. This history between the parties seems to me to render the circumstance of the 2004 rates being applied as a neutral factor in the determination of whether the parties reached a binding agreement. 93 The defendant also relied heavily on the fact that the letter of 22 June 2007 referred to both [NAME_14] and the plaintiff. [NAME_46] submitted that this was not a document setting out an agreement, if that is what it is, between two parties but between three parties. He submitted that there was no authority for anyone from the plaintiff to sign the letter on behalf of [NAME_14]. In those circumstances it was submitted that it is not possible that any binding agreement could have been reached in the absence of one of the proposed contracting parties. 94 There is no doubt that the original plan put forward by the defendant was to combine the volume of [NAME_3] for export produced by both [NAME_14] and the plaintiff. That much appears from the contents of the correspondence prior to June 2007 and the fact that the Haulage Proposal of 20 March 2007 was addressed to both [NAME_14] and the plaintiff. The amended proposal in May 2007 was addressed to the plaintiff alone, but it is clear that the content of the letter of 22 June 2007 included [NAME_14]. When the plaintiff signed the letter on 27 June 2007 it signed it on its own behalf and not on behalf of [NAME_14]. It agreed to the terms, rates and principles set out in that letter which included 500,000 tonnes of [NAME_14]'s [NAME_3] to be transported by the defendant and 2 million tonnes of the plaintiff's [NAME_3] to be transported by the defendant for the first year rising to a combined 4.15 Mt by 2010 "subject to annual confirmation". It is clear that the parties agreed that both the plaintiff and [NAME_14] would be parties to the agreement with the defendant, in particular having regard to the amendment made to the section on "Vessel Demurrage" to include the words "dependant (sic) on the party that has been affected". 95 Although there is no separate letter signed by [NAME_14] in evidence the correspondence between [NAME_25] and [NAME_47] of [NAME_14] on 9 August 2007 leads to the irresistible conclusion that [NAME_14] agreed to the terms of the 22 June 2007 letter. In his e-mail to [NAME_25] dated 9 August 2007 [NAME_47] thanked [NAME_25] for the draft contract and noted that "some of the commercial terms contained in the original letters of offer" were not reflected in the draft contract. That e-mail included the following: It was my intention that all terms agreed between [NAME_48]/BC and [NAME_4] would be reflected in the RC contract, as we are being viewed as one group from [NAME_4]'s viewpoint. 96 The reference to "RC" is to "[NAME_49]" referred to in earlier correspondence, however the significance of [NAME_47]'s statement is that he wished to have the draft contract reflect what had been "agreed" between "[NAME_48]", meaning the plaintiff, "BC" meaning [NAME_14] and "[NAME_4]" meaning the defendant. [NAME_47] also requested [NAME_25] to remove references to the defendant evidencing [NAME_14]'s agreement that it was to contract with the defendant individually and separately from the plaintiff. [NAME_47]'s subjective feelings are not relevant. It is the fact that [NAME_47] referred what had been "agreed" that is to be weighed in the balance when considering whether an agreement was entered into in June 2007. That is the limit of the use to which this evidence can be put in applying the principle referred to in Brambles in relation to the utilisation of post-contractual conduct. 97 [NAME_25]'s evidence was that in "early July 2007" he said to [NAME_27]: "We are going to have to separate agreements between [NAME_5] and [NAME_1], and [NAME_5] and [NAME_14]". The affidavit evidence used the words "to separate agreements" and not "two separate agreements". [NAME_25] was cross-examined about this statement and [NAME_8] did not use either the word "to" or "two" in his question, to which there was no objection. That cross-examination was as follows (tr 32): Q. I just want to deal with one aspect of your evidence. In par 42 of your affidavit you depose to a conversation you had with [NAME_27] in or about early July 2007 in which you recount that you said words to the following effect "We are going to have separate agreements between [NAME_5] and [NAME_1] and [NAME_5] and [NAME_14]" and he's said to have responded "That's fine with me but the rates have to stay the same as in the in principle agreement" and you have yourself responding "no problems". Do you recall that? A. Yes, I do.

98 It was suggested to [NAME_25] in cross-examination that the conversation may have occurred earlier than July 2007 but he resisted that suggestion (tr 32). Once the plaintiff agreed to the defendant separating [NAME_14] and the plaintiff into separate agreements with it, or put another way, the defendant having two separate agreements, one between it and the plaintiff and one between it and [NAME_14], the plaintiff and the defendant moved forward in drawing up what was referred to in the letter of 22 June 2007 as the "contractual agreement". 99 The evidence establishes that this conversation occurred prior to 13 July 2007. It was on 13 July 2007 that [NAME_25] wrote to [NAME_27] enclosing the draft contract between the plaintiff and the defendant advising that he had sent a "separate agreement" to [NAME_14] based upon the agreement between the plaintiff and the defendant. 100 The text or language used by the parties in the alleged agreement is of significance. The first paragraph of the letter is a clear indication that the parties have concluded their discussions and negotiations. The second paragraph of the letter makes it abundantly clear that the parties have agreed on the "key" terms and I am satisfied that they intended that these were the essential terms of their agreement. That same paragraph makes it very clear that those essential or "key" terms would not be changed. That much is clear from the use of the words "which will be included in the detail of the contractual agreement being developed". In its context, the word "developed" simply means that the parties will prepare the document. It would defy common sense, commercial or otherwise, to suggest that these parties having spent three months concluding their discussions and negotiations, would then agree to recommence their discussions and negotiations to develop some other form of agreement. Negotiations had concluded and agreement had been reached. All that was being developed or prepared was the "contract agreement" (as referred to in the letter) or the form of formal contract referred to in the letter as the "detailed contractual terms" of the agreement as reached. The reliance the defendant placed on the use of the word "developed" to submit that it demonstrates a lack of agreement is in my view without foundation. 101 In the final paragraph of the letter the plaintiff was asked to confirm the "in principle" agreement to the terms and the rates "(subject to resolution of the detailed contractual terms)" by having an "authorised person" sign, date and return the letter. [NAME_46] submitted that this language demonstrates that the parties did not intend to be bound by the terms of this letter and that the terms of the letter were effectively "subject to contract" or put another way, the parties would not be bound by the terms of this letter until the contract was signed. I disagree. I am of the view that the language used both in the first paragraph of the letter referring to the "in principle agreement" and this language in the final paragraph support a finding that the parties intended to be immediately bound by the terms of the in principle agreement whilst they prepared a more "detailed" document reflecting their agreement. The formality of having an "authorised person" within the plaintiff sign this document, date it and return it to the defendant, supports the conclusion that the parties wished to have the agreement documented so that they knew the applicable "key" terms then and there whilst the more "detailed" document was being "developed" or prepared. 102 The post-22 June 2007 conduct and the surrounding circumstances are also of significance. The parties utilised the defendant's pro forma agreement that had been used for the 2004 Rail Haul Agreement. As appears from the above history the defendant forwarded both a clean copy and a marked up copy to the plaintiff suggesting that amendments had been made to the pro forma document to reflect what had been agreed. On 20 July 2007 [NAME_27] complained about the difficulty in identifying the amendments that had been made to the document and suggested to [NAME_25] that to avoid wasting time and money he should simply amend the document "to reflect our agreed items". On the same day [NAME_25] agreed that there should be no changes "to what we have agreed". On 23 July 2007 [NAME_27] agreed that there "should be no changes" although acknowledging that in reality some had been made in the document that had been prepared or developed. His e-mail went on to press [NAME_25] to return the language to that which had been "previously agreed". This language is in my view supportive of a finding that the parties decided that they would be bound by the terms of the agreement they reached on 27 June 2007 by the plaintiff signing the defendant's letter. 103 The language used in the conversation in early July 2007 supports a finding that the parties agreed that as from that date they would be bound by the terms in the letter of 22 June 2007 as it applied to the plaintiff and the defendant to the exclusion of [NAME_14]. The defendant agreed with the plaintiff that the "rates" as they appeared in the agreement were not to change notwithstanding the exclusion of [NAME_14]. The term was "from July 2007", that is commencing in July 2007 for three years. The volume the defendant agreed to was not 2.5mta for the plaintiff, but only 2mta. That is because the 500mta was applicable to [NAME_14]. 104 [NAME_46] submitted that the heading to the table in the letter "85% Capacity Commitment (If nominated)" demonstrates that the parties had not reached agreement because no nomination had been made. I disagree with this submission. The parties agreed to proceed with the 75% capacity commitment, however at some stage in the future there may be a nomination to 85%. This was a contract formed in very difficult commercial circumstances where the intervention of [NAME_15] with its annual allocations of tonnages required flexibility in the parties' contractual relationship. It is apparent from the correspondence, as I have alluded to earlier, that it is not the [NAME_3] producers or the rail operators who lack capacity, but rather the Port authority. These parties were aware that whatever they decided by way of volume might have to be adjusted by reason the intervention of the [NAME_15] allocation of tonnages. That is reflected in the section on Volume wherein they agreed that the amounts were "subject to annual confirmation". In the circumstances, the fact that those tonnages may be vulnerable to the intervention of [NAME_15] does not mean that the parties did not agree to be bound by the terms of the agreement made on 27 June 2007 as varied in early July 2007. 105 [NAME_46] made a further submission that because the parties had not identified the Maximum Loading Time within the 75% table in the letter they had not agreed on all the terms of their bargain. Once again I disagree with that submission. The essential and key term in this regard was the agreement as to the "75%" capacity and that these rates would apply. The key term on these rates provided that the "adjustments" would be made on 1 January each year with the basis of any change being made available prior to the change occurring. The section of the letter dealing with "Load Point Performance" refers to the "set levels" (as opposed to "level") of loading performance as stipulated in agreed rates table". [NAME_46] suggested that "a" level had to be agreed, this wording does not to my mind require such a stipulation or agreement. The machinery provisions in this agreement mean that in the first quarter performance will dictate the haulage rate. The time it takes for loading will dictate the rate and thereafter the adjustments will be made pursuant to the key terms. Alternatively the parties may adjust or choose the rates dependent upon the actions taken by [NAME_15]. 106 The plaintiff also relied upon the statement made by [NAME_25] on 12 September 2007 in his rebuke of [NAME_27] for sending [NAME_15] "an agreement between [NAME_4] and [NAME_1]" because it was "confidential information". I am satisfied that the plaintiff is entitled to use this statement in support of its submission that the parties had reached an agreement, however the earlier references to their communications in which they were striving to ensure that the more "detailed contractual terms" reflected what had "been agreed" seems to me to be more powerful.

107 The purpose and object of the transaction was to have in place agreed terms as to haulage in the commercial setting that has been described. This enabled the plaintiff to take part in the cooperative nomination for tonnages in the overloaded system at Newcastle Port and the defendant to carry the plaintiff's export [NAME_3] to Newcastle, either as agreed or as adjusted by [NAME_15] pursuant to the [NAME_16]. The fact that [NAME_15] may take a particular view about the status of the contractual relationship between these parties is irrelevant to the questions to be decided in this case. I am satisfied that these parties agreed on the terms of their bargain and intended to be immediately bound to the performance of them but at the same time proposed to have the terms restated in a form which would be fuller or more precise but not different in effect. If that be wrong then I am satisfied that they were content to be bound immediately by the terms which they had agreed upon and having regard to the anticipated allocation of tonnages by [NAME_15] they expected to make a further contract in substitution therefore or alternatively, as [NAME_25] suggested, by Deed of Variation, when [NAME_15] allocated the tonnages.

108 The defendants submitted that an order for specific performance of the agreement should not be made because the agreement cannot be performed. Once again I disagree. These parties have agreed on the terms of their bargain. They have also agreed that their bargain will be restated in a fuller document. The defendant has refused to produce the "fuller" document to the plaintiff by reason (it seems) of the conduct of [NAME_15]. That is not a reasonable basis upon which to refuse to provide the fuller document. This aspect of the agreement can be performed and the plaintiff is entitled to an order for specific performance in relation to the production of that document. However I am not satisfied that it is appropriate to make the more general order for specific performance of the obligations under the agreement. However should circumstances arise wherein the plaintiff seeks to move for such an order it may apply for leave to make that application. Conclusion 109 I declare that the plaintiff and the defendant entered into a binding agreement on 27 June 2007 in the terms of the letter dated 22 June 2007 to commence from 1 July 2007, as amended prior to 13 July 2007, to exclude [NAME_14] from the agreement and to exclude 500,000 tonnes from the "Agreement Volume" section of the agreement for the first year. 110 I order that the defendant prepare the "contract agreement" reflecting the terms of the agreement I have declared was reached and provide it to the plaintiff for its execution by no later than 24 December 2007 or such other date as the parties may agree. The parties are to agree on a costs order otherwise I will hear argument when the matter is listed for finalisation on 1 February 2008. ***************************

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