This appeal concerned the proper construction of a unilateral variation provision in a contract and whether the provision was subject to implied terms, including an implied term of good faith.
The first respondent operates Queensland’s largest a freight rail network, which is used in part for shipping coal from mines to port facilities in Queensland. The appellants are coal mining companies which use the network as customers. The customers contracted with the first respondent to complete very substantial upgrades of the capacity of the rail network to facilitate the transport of coal to a new port facility, the Wiggins Island Coal Export Terminal (“WICET”). After most of the upgrade work had occurred, the appellants gave a notices in purported exercise of the variation power, which if valid would have extinguished their liability to pay over AUD 100 million in ongoing fees for the upgrade work, despite the fact that the customers were using, and intended to continue using, the upgraded network.
At trial, the first respondent succeeded on the basis that the variation power was subject to an implied term of good faith which had been breached.
On appeal, the first respondent also maintained a contention, not accepted at trial, that on the proper construction of the contract, or as a result of an implied term, a notice could not be given in exercise of the variation power unless the upgraded part of the network was no longer necessary for the customer to transport its coal to WICET.
The Court of Appeal accepted the respondent’s construction of the variation power set out above, and held that the notices given by the appellants were ineffective, as a result of which it was not necessary to finally resolve the question of whether the variation power was subject to an implied term of good faith which had been breached.
The Court of Appeal also held that the variation power had been exercised too late.
The judgment is available here.