FEDERAL COURT OF AUSTRALIA

Alumina and Bauxite Company Ltd v Queensland Alumina Ltd [2024] FCAFC 142

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellants pay the respondents’ costs of the appeal, as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    This appeal relates to sanctions imposed by the Australian Government in mid-March 2022 against Russia and certain Russian business-people pursuant to the Autonomous Sanctions Act 2011 (Cth) and the Autonomous Sanctions Regulations 2011 (Cth) (the Regulations). There are two relevant sanctions:

(a)    a sanction (the Export Sanction) imposed by the combined effect of regs 4 and 12 of the Regulations and the Autonomous Sanctions (Export Sanctioned Goods—Russia) Designation 2022 (Cth) (made under reg 4(3)); and

(b)    a sanction (the Designated Persons Sanction) imposed by the combined effect of reg 14 of the Regulations and the Autonomous Sanctions (Designated Persons and Entities and Declared Persons—Russia and Ukraine) Amendment (No 7) Instrument 2022 (Cth) (made under reg 6(a)),

(together, the Russia Sanctions). The sanctions referred to above commenced on 20 March 2022 and 18 March 2022 respectively.

2    The appellants (the Russian parties), who were the applicants at first instance, are: Alumina and Bauxite Company Ltd (ABC), Rusal Limited and JSC Rusal. These companies are subsidiaries of United Company Rusal IPJSC (UC Rusal), which is registered as an international public joint stock company in the Russian Federation.

3    The respondents, who were the respondents at first instance, are:

(a)    Queensland Alumina Ltd (QAL), an Australian company that operates an alumina refinery in Gladstone, Queensland (the Gladstone Plant); and

(b)    five companies that are part of the Rio Tinto Group: RTA Holdco Australia 5 Pty Ltd (RTA Holdco), Rio Tinto Aluminium (Holdings) Limited, Rio Tinto Limited, Rio Tinto Plc and Rio Tinto Aluminium Limited (RTA) (collectively, the Rio parties).

4    QAL operates the Gladstone Plant under an agreement (the Participants Agreement) with the Russian parties and the Rio parties. The business venture between QAL, the Russian parties and the Rio parties may be described as the Gladstone alumina joint venture, using that expression in a non-technical sense.

5    UC Rusal and its subsidiaries (the Rusal Group) engage in business activities involving bauxite and nepheline mining, alumina production, electrolytic production of primary aluminium, and the production of value-added aluminium products. The Rusal Group is Russia’s only primary aluminium producer and currently operates nine aluminium smelters in Russia. Each of Messrs Deripaska and Vekselberg, who are referred to in the Designated Persons Sanction, indirectly holds significant shareholdings in UC Rusal.

6    Under the Participants Agreement, QAL refines bauxite into alumina on a toll basis for ABC, RTA Holdco and RTA (collectively, the Participants). ABC holds 20% of the shares in QAL and RTA Holdco and RTA collectively hold 80%.

7    QAL, the Russian parties and the Rio parties are also parties to a series of Tolling Contracts, under which a percentage of the capacity of the Gladstone Plant is allocated to each Participant. There are five Tolling Contracts because new contracts were made at various times when the capacity of the Gladstone Plant was increased. The contracts are in substantially the same terms.

8    The Rio parties have also entered into the following agreements with the Russian parties relating to the supply of bauxite to ABC and the shipment of the bauxite to the Gladstone Plant for processing into alumina:

(a)    the Monohydrate Bauxite Supply Agreement and the Low Mono Bauxite Supply Agreement, both dated 16 February 2022, under which RTA supplies bauxite from its mines in Cape York, Queensland and Gove, Northern Territory, to ABC to be processed into alumina at the Gladstone Plant; and

(b)    the Shipping Agreement dated 31 December 2021, under which RTA ships the bauxite that has been supplied to ABC to the Gladstone Plant.

9    On 4 April 2022, QAL invoked Art 14A of the Participants Agreement and implemented the “step-in” arrangements pursuant to that article in reliance upon the Russia Sanctions. Article 14A provides that the step-in arrangements in Appendix E to the Participants Agreement apply if, relevantly, an Australian Government authority imposes sanctions “on” UC Rusal, ABC or any of their “affiliates” that are likely to prevent QAL from undertaking business activity with ABC and its affiliates. The effect of the step-in arrangements was to reallocate ABC’s entitlement to refine bauxite into alumina at the Gladstone Plant to RTA and RTA Holdco, and thereby exclude ABC from participation in the Gladstone alumina joint venture for the duration of the Russia Sanctions. From 11.59 pm on 4 April 2022 (AEST), QAL ceased to accept bauxite deliveries from ABC and ceased to refine and deliver alumina to ABC in accordance with the Participants Agreement and the Tolling Contracts.

10    On 8 April 2022, RTA invoked “force majeure” provisions in the Monohydrate Bauxite Supply Agreement, the Low Mono Bauxite Supply Agreement and the Shipping Agreement in reliance upon the Russia Sanctions. Since then, RTA has ceased to supply bauxite or shipping services to ABC under those agreements.

11    On 17 August 2022, the Russian parties commenced the proceeding at first instance against QAL and the Rio parties seeking declaratory and injunctive relief and damages. The Russian parties alleged that, in the circumstances that pertained on and since 18 March 2022, the acceptance of bauxite by QAL from ABC, the refining of alumina by QAL for ABC, and the delivery of alumina by QAL to ABC for sale to third parties outside Russia, did not amount to a contravention by QAL of the Russia Sanctions and that Art 14A of the Participants Agreement was not applicable. The Russian parties alleged that QAL had breached its contractual obligations under the Participants Agreement and the Tolling Contracts by ceasing to deliver alumina to ABC pursuant to those agreements. The Russian parties further alleged that the Rio parties had breached their contractual obligations under the Monohydrate Bauxite Supply Agreement, the Low Mono Bauxite Supply Agreement and the Shipping Agreement by ceasing to supply and ship bauxite to ABC at the Gladstone Plant pursuant to those agreements.

12    The hearing before the primary judge occupied seven days. On the last day of the hearing, the Russian parties proffered undertakings (the Rusal Group Undertaking) to the Court which, they submitted, would remove any risk that ABC’s continuing participation in the Gladstone alumina joint venture would result in contraventions of the Russia Sanctions.

13    On 1 February 2024, the primary judge dismissed the Russian parties’ amended originating application and published reasons for judgment: Alumina and Bauxite Company Ltd v Queensland Alumina Ltd [2024] FCA 43 (the Reasons). The primary judge concluded, in summary:

(a)    on the balance of probabilities, at all times on and after 20 March 2022, the delivery of alumina by QAL to ABC would have been contrary to the Export Sanction (Reasons, [250], [290]);

(b)    on the balance of probabilities, at all times on and after 19 March 2022, the production of alumina by QAL for ABC and the delivery of the alumina to ABC would have been contrary to the Designated Persons Sanction (Reasons, [288], [291]);

(c)    Art 14A of the Participants Agreement was not engaged because:

(i)    the Export Sanction was not a sanction imposed “on” UC Rusal, ABC or their affiliates (Reasons, [323], [342]);

(ii)    although the Designated Persons Sanction was imposed “on” Messrs Deripaska and Vekselberg, neither of them was an “affiliate” of UC Rusal (or ABC) within the meaning of Art 14A (Reasons, [334], [342]);

(d)    as a result of the conclusions in (a) and (b) above, the defence of supervening illegality was available to QAL (Reasons, [359], [365]);

(e)    as a result of the conclusions in (a) and (b) above, the Russia Sanctions were an event of force majeure within the meaning of Art 17 of the Tolling Contracts (Reasons, [362], [365]);

(f)    RTA was relieved of its obligations to supply and ship bauxite to ABC at the Gladstone Plant by the operation of:

(i)    the force majeure provisions in Art 21 of the Monohydrate Bauxite Supply Agreement, Art 18.1 of the Low Mono Bauxite Supply Agreement and cl 11.1 of the Shipping Agreement (Reasons, [381]); and

(ii)    the “sanctions provisions” in Art 26.2 of the Monohydrate Bauxite Supply Agreement, Art 19.3(b) of the Low Mono Bauxite Supply Agreement and cl 12.2 of the Shipping Agreement (Reasons, [410]); and

(g)    without deciding the question of the Court’s power to accept the Rusal Group Undertaking, the undertaking should not be accepted by the Court as a basis on which the Court would grant declaratory and injunctive relief on a prospective basis (Reasons, [432]).

14    The Russian parties appeal from the whole of the judgment of the primary judge. By their notice of appeal, they raise eight grounds. The Russian parties accept that they need to succeed on all of grounds 1, 2 and 3 in order to succeed in the appeal (T19). The grounds can be summarised as follows:

(a)    the primary judge erred in concluding that, on and after March 2022, alumina delivered by QAL to ABC would have been exported to Russia for use in aluminium smelters owned and operated by UC Rusal (and for the benefit of Russia) in contravention of the Export Sanction (ground 1);

(b)    the primary judge erred in concluding that, on a proper construction of the Export Sanction, a transfer of alumina by ABC and/or UC Rusal otherwise than to Russia would directly or indirectly result in a transfer of alumina for the benefit of Russia in contravention of the Export Sanction (ground 2);

(c)    the primary judge erred in concluding that the production of alumina by QAL for ABC and the delivery of the alumina to ABC pursuant to the parties’ contractual arrangements would constitute directly or indirectly making an asset available to, or for the benefit of, Messrs Deripaska and Vekselberg in contravention of the Designated Persons Sanction (ground 3);

(d)    by reason of the matters outlined in grounds 1 to 3, the primary judge erred in holding that the doctrine of supervening illegality applied to excuse QAL from its performance obligations under the Participants Agreement and the Tolling Contracts (ground 4);

(e)    by reason of the matters outlined in grounds 1 to 3, the primary judge erred in holding that the force majeure clauses in the Tolling Contracts applied to excuse QAL from failing to perform the Tolling Contracts (ground 5);

(f)    by reason of the matters outlined in grounds 1 to 3, the primary judge erred in holding that the force majeure clauses in the Monohydrate Bauxite Supply Agreement, the Low Mono Bauxite Supply Agreement and the Shipping Agreement applied entitling RTA to refuse to perform its obligations thereunder (ground 6);

(g)    by reason of the matters outlined in grounds 1 to 3, the primary judge erred in holding that the sanctions provisions of the Monohydrate Bauxite Supply Agreement, the Low Mono Bauxite Supply Agreement and the Shipping Agreement applied entitling RTA to refuse to perform its obligations thereunder (ground 7);

(h)    by reason of the matters outlined in grounds 1 to 7:

(i)    the Russian parties were entitled to the declaratory and injunctive relief sought and there was no occasion to consider that undertakings should form a necessary condition of any relief sought;

(ii)    in any event, the exercise of discretion by the primary judge with respect to the undertakings proffered by the Russian parties miscarried, such that if and to the extent that undertakings are considered a necessary condition of any relief sought, such discretion is liable to be re-exercised according to law and favourably to the appellants

(ground 8).

15    In relation to ground 8, we note that, at the hearing of the appeal, the Russian parties said that they were not proffering comparable undertakings to those proffered in the proceeding at first instance (T37).

16    QAL and the Rio parties have each filed a notice of contention by which they contend that the judgment of the primary judge should be affirmed on additional bases. The grounds relied on include grounds that can be summarised as follows:

(a)    the primary judge’s conclusion that the Export Sanction applied (that is the subject of challenge by ground 2 of the notice of appeal) should be affirmed on the additional basis that the availability in Russia of alumina (that would otherwise not be available) is by itself a benefit for Russia within the meaning of the Export Sanction (ground 1 of QAL’s notice of contention); and

(b)    Art 14A of the Participants Agreement applied because, within the meaning of that Article:

(i)    the Export Sanction was a sanction imposed “on” UC Rusal and/or ABC; and the Export Sanction was likely to prevent QAL from undertaking business activity with ABC; and/or

(ii)    Messrs Deripaska and Vekselberg were “affiliates” of UC Rusal and/or ABC; the Designated Persons Sanction was imposed on them; and the Designated Persons Sanction was likely to prevent QAL from undertaking business activity with ABC,

(ground 2 of QAL’s notice of contention and ground 1 of the Rio parties’ notice of contention) (the Art 14A issue). For the contention based on Art 14A to succeed, it is sufficient for QAL and the Rio parties to establish either (i) or (ii) in paragraph (b) above.

17    For the reasons that follow, we have concluded in summary that:

(a)    ground 1 is not made out;

(b)    ground 2 is not made out (including on the basis of ground 1 of QAL’s notice of contention);

(c)    it is therefore unnecessary to determine ground 3;

(d)    it follows from our conclusions that grounds 1 and 2 are not made out that grounds 4 to 8 are not made out.

18    Although it is not necessary for our decision to consider the Art 14A issue, we consider it appropriate to deal with it in part, as it has practical significance for the parties. In our view, Art 14A was engaged on the basis that: the Export Sanction was a sanction imposed “on” ABC; and the Export Sanction was likely to prevent QAL from undertaking business activity with ABC. To that extent we respectfully differ from the conclusions of the primary judge. It is unnecessary to consider, and we do not consider, the question whether Messrs Deripaska and Vekselberg were “affiliates” of UC Rusal or ABC within the meaning of Art 14A.

19    The appeal is therefore to be dismissed.

Background facts

20    The following statement of the background facts is substantially based on the Reasons. The background facts set out in this section were not the subject of challenge in the appeal.

Global trade in alumina

21    Alumina is aluminium oxide and is usually produced as a white crystalline powder. Aluminium smelters require a continuous supply of alumina. The primary aluminium smelting process is a high-temperature, fully continuous process that takes place in large electrolytic cells. Each cell is connected in series through an electrical circuit to a number of other cells, collectively known as a potline. For an aluminium smelter to forcibly shut down an entire potline, the losses incurred are substantial. For that reason, smelters hold sufficient alumina inventory to avoid short-term disruptions.

22    Approximately 139 million tonnes of alumina (chemical and metallurgical grade) were produced globally in 2021, from an estimated world alumina capacity of 153 million tonnes per annum. China was the largest alumina-producing country in 2021, at approximately 75.3 million tonnes, accounting for 54% of the world total. Australia was the second largest, producing approximately 20 million tonnes, with the third largest being Brazil at over 10 million tonnes. Together, these three countries accounted for 77% of the world’s 2021 production.

23    Over the past decade, China consolidated its dominant position as the world’s largest alumina producer, by steadily growing its domestic capacity. In 2014, China’s total refining capacity accounted for over half the world’s total for the first time, and its proportion has been increasing ever since, reaching 54% in 2021. China became a significant net exporter of alumina in 2018, before swinging back to a net importer in 2019.

24    Australia’s 2021 alumina production was 20.4 million tonnes, of which an estimated 89% was exported.

25    Alumina can be considered as fungible, meaning it is interchangeable or replaceable with other alumina; this is the basis on which global alumina is traded, contracts can be swapped and material interchanged in different parts of the world. While alumina is considered to be fungible, different alumina refineries do produce alumina of different qualities, different levels (and types) of impurities and different crystalline structure.

26    Alumina is regularly stored in bonded warehouses prior to completing customs clearance requirements or waiting to be on-sold. Storage times in bonded warehouses are often measured in weeks and months depending on market conditions at the time.

27    As China began to emerge as the world’s largest producer and consumer of alumina, global trade patterns began adjusting to accommodate a new global supply/demand balance. The result is in effect a dual market, whereby China’s domestic alumina production generally met the requirements of its domestic smelting sector, and alumina supply in the rest of the world (ROW) met ROW smelting demand. The ROW market can be further divided between the Atlantic and Pacific markets, with the difference in prices reflecting supply/demand and freight differentials between the two regions. Heading into 2022, under “steady-state” global alumina market conditions, China’s market was absorbing surplus alumina from the ROW market under favourable economic conditions. In other words, the Chinese alumina market was acting as a “sponge” for surplus alumina produced in the ROW market.

28    Swap arrangements are a common instrument used in the global alumina market. They can be broadly categorised into two groups: planned and unplanned. Planned swaps are usually between two alumina suppliers, which can include refining companies, traders or other groups, and involve swapping of alumina in different geographical regions to save on transport costs and are agreed in advance of production. Unplanned swaps are between suppliers typically on a short-term basis to cover some unforeseen set of circumstances that have led to either a shortage or oversupply of alumina emerging in a specific location.

Russia’s aluminium industry and UC Rusal’s business operations

29    The Rusal Group engages in business activities involving bauxite and nepheline mining, alumina production, electrolytic production of primary aluminium, and the production of value-added aluminium products. UC Rusal conducts its business activities globally, including in Armenia, Australia, Germany, Guinea, Guyana, the Republic of Ireland, Italy, Jamaica, Kazakhstan, Nigeria, Russia, Sweden and Ukraine.

30    UC Rusal owns eleven aluminium smelters, of which nine are in Russia, one is in Sweden, and one is in Nigeria (which is currently idle). A tenth Russian smelter commenced operations at the end of 2021, but is only running at a very low production rate because of market conditions (making aluminium production unprofitable). In the financial year ending 31 December 2022, UC Rusal’s Russian smelters had a requirement for 7.9 million tonnes of alumina. UC Rusal is Russia’s only primary aluminium producing company.

31    UC Rusal owns ten alumina refineries, of which four are in Russia, two are in Jamaica, one is in Ireland, one is in Ukraine, one is in Italy, and one is in Guinea. The Mykolaiv refinery in Ukraine ceased operating on 26 February 2022 following Russia’s invasion of Ukraine. Prior to that, it produced approximately 1.75 million tonnes of alumina per annum of which about 98% was supplied to UC Rusal’s aluminium smelters in Russia.

32    Through ABC, UC Rusal also has an interest in the Gladstone Plant operated by QAL. Immediately prior to April 2022, ABC received an annual entitlement of 760,000 tonnes of alumina from the Gladstone alumina joint venture.

33    Pursuant to a contract of sale entered into on 15 September 2005, ABC sold all of the alumina produced at the Gladstone Plant to which it was entitled to another subsidiary of UC Rusal, namely Rual Trade Limited. Under that contract, the purchaser obtained title to the alumina once it passed the ship’s rail at QAL’s wharf.

34    On 5 December 2012, the purchase obligations under that contract of sale were novated to a different subsidiary of UC Rusal, RTI Limited (RTI), by a deed of novation. On 23 November 2018, the term of the contract of sale (now with RTI) was extended to 31 December 2025. Thus, as at March/April 2022, ABC had sold all of the alumina produced at the Gladstone Plant to which it was entitled to RTI.

35    Prior to the imposition of the Russia Sanctions, UC Rusal also acquired a further 750,000 tonnes of alumina from Australia under swap agreements with Rio Tinto, Glencore International AG and Norsk Hydro. The purpose of those arrangements was to optimise the logistics of alumina supply to UC Rusal’s subsidiaries in Russia. The swap arrangement with Rio Tinto involved the swap of alumina produced at UC Rusal’s Aughinish refinery in Ireland for alumina produced by Rio Tinto in Australia. The swap was suspended on 21 March 2022. The swap arrangement with Norsk Hydro involved a swap of alumina produced at different locations in Australia. That arrangement was suspended on 18 March 2022.

36    Following Russia’s invasion of Ukraine, UC Rusal lost the supply of approximately 3.4 million tonnes per annum of alumina in aggregate from the Mykolaiv refinery and from Australia, which equated to approximately 40% of UC Rusal’s Russian requirements. At that time, UC Rusal became a net purchaser of alumina, rather than a seller of alumina. It acquired alumina from traders, including alumina sourced in China, as well as through its own subsidiary based in China. Alumina acquired in China is able to be transported to Russia by truck or barge.

37    According to China Customs data, Russia imported approximately 1.1 million tonnes of alumina from China over the 14-month period ending February 2023.

The Gladstone alumina joint venture

38    QAL is the owner and operator of an alumina refinery in Gladstone, Queensland. QAL’s facilities include the refinery, two storage sheds and a wharf known as South Trees.

39    QAL receives bauxite from ABC and the Rio Tinto companies, RTA Holdco and RTA, and processes that bauxite into alumina on a toll basis for those companies. QAL’s operations are governed by the Participants Agreement and the Tolling Contracts. The parties to those agreements are QAL, the Russian parties and the Rio parties. The Participants Agreement has been amended and restated a number of times. The Tolling Contracts have also each been restated and extended a number of times.

40    Article 2 of the Participants Agreement states the purpose of the Gladstone alumina joint venture in the following terms:

ARTICLE 2. The Project. The Participants (or their predecessors in interest) formed QAL for the sole purpose of constructing the Gladstone Plant at Gladstone, Queensland, Australia, and thereafter operating it for the conversion into alumina, on a toll basis, of bauxite owned by the Participants. Title to the bauxite furnished by a Participant, the material in process and the alumina into which it is converted shall at all times remain in that Participant. Where materials are commingled in transportation, storage or processing, a Participant shall have an undivided interest in such materials.

41    QAL refines approximately 3.65 million tonnes of alumina per year. QAL delivers and loads the processed alumina on board vessels chartered or owned by the Participants at the eastern end of its wharf which is known as South Trees East.

42    Prior to the imposition of the Russia Sanctions in March 2022, the vast majority of alumina produced for ABC at the Gladstone Plant was shipped to Russia.

Domicile, ownership and governance of the Russian parties and UC Rusal

43    ABC is incorporated in the British Virgin Islands. It is an indirect wholly-owned subsidiary of UC Rusal. Each of Rusal Limited and JSC Rusal are also wholly-owned subsidiaries of UC Rusal. Rusal Limited is incorporated in Jersey and JSC Rusal is incorporated in the Russian Federation.

44    The primary judge implicitly accepted, and it does not appear to have been in issue, that ABC was economically dependent upon the Rusal Group, ABC’s operating and financing decisions and a significant part of its transactions and settlements were controlled by UC Rusal, and UC Rusal had the power to direct the transactions of ABC at its discretion and for the group’s benefit.

45    UC Rusal was incorporated in Jersey and, until December 2020, known as United Company Rusal Plc. Also prior to December 2020, UC Rusal was a tax resident in Cyprus and managed and controlled from Cyprus. In December 2020, UC Rusal was redomiciled from Cyprus to Russia and is now registered in the Russian Federation and known as United Company Rusal IPJSC.

46    UC Rusal’s shares are listed on the Hong Kong Stock Exchange and the Moscow Exchange. UC Rusal is a tightly held public company with the two largest shareholders being En+ (holding approximately 56.88%) and SUAL Partners ILLC (SUAL) (holding approximately 25.52%). The public hold only 17.59% of the issued shares. En+ is a company registered as an international public joint stock company in the Russian Federation. Its shares are listed on the Moscow Exchange. SUAL is an international limited liability company incorporated in the Russian Federation.

47    Messrs Deripaska and Vekselberg are significant indirect shareholders of UC Rusal and thereby ABC. Given the bases upon which we have determined the appeal, it is not necessary to detail the nature and extent of Messrs Deripaska and Vekselberg’s indirect shareholdings.

OFAC Sanctions (2018)

48    On 6 April 2018, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Mr Deripaska and entities associated with him including En+ and UC Rusal, and Mr Vekselberg and entities associated with him comprising the Renova Group, on OFAC’s list of “Specially Designated Nationals and Blocked Persons” (SDN List) pursuant to Executive Order 13661 of 16 March 2014 (Blocking Property of Additional Persons Contributing to the Situation in Ukraine) and Executive Order 13662 of 20 March 2014 (Blocking Property of Additional Persons Contributing to the Situation in Ukraine) (the OFAC Sanctions). A press release dated 6 April 2018 issued by OFAC included the following statements:

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), in consultation with the Department of State, today designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.

“The Russian government operates for the disproportionate benefit of oligarchs and government elites,” said Treasury Secretary Steven T. Mnuchin. “The Russian government engages in a range of malign activity around the globe, including continuing to occupy Crimea and instigate violence in eastern Ukraine, supplying the Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities. Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities.”

…

All assets subject to U.S. jurisdiction of the designated individuals and entities, and of any other entities blocked by operation of law as a result of their ownership by a sanctioned party, are frozen, and U.S. persons are generally prohibited from dealings with them. Additionally, non-U.S. persons could face sanctions for knowingly facilitating significant transactions for or on behalf of the individuals or entities blocked today.

…

Oleg Deripaska is being designated pursuant to E.O. 13661 for having acted or purported to act for or on behalf of, directly or indirectly, a senior official of the Government of the Russian Federation, as well as pursuant to E.O. 13662 for operating in the energy sector of the Russian Federation economy. Deripaska has said that he does not separate himself from the Russian state. He has also acknowledged possessing a Russian diplomatic passport, and claims to have represented the Russian government in other countries. Deripaska has been investigated for money laundering, and has been accused of threatening the lives of business rivals, illegally wiretapping a government official, and taking part in extortion and racketeering. There are also allegations that Deripaska bribed a government official, ordered the murder of a businessman, and had links to a Russian organized crime group.

…

Viktor Vekselberg is being designated for operating in the energy sector of the Russian Federation economy. Vekselberg is the founder and Chairman of the Board of Directors of the Renova Group. The Renova Group is comprised of asset management companies and investment funds that own and manage assets in several sectors of the Russian economy, including energy. In 2016, Russian prosecutors raided Renova’s offices and arrested two associates of Vekselberg, including the company’s chief managing director and another top executive, for bribing officials connected to a power generation project in Russia.

…

EN+ Group is being designated for being owned or controlled by, directly or indirectly, Oleg Deripaska, B-Finance Ltd., and Basic Element Limited. EN+ Group is located in Jersey and is a leading international vertically integrated aluminum and power producer.

…

United Company RUSAL PLC is being designated for being owned or controlled by, directly or indirectly, EN+ Group. United Company RUSAL PLC is based in Jersey and is one of the world’s largest aluminum producers, responsible for seven percent of global aluminum production.

…

Renova Group is being designated for being owned or controlled by Viktor Vekselberg. Renova Group, based in Russia, is comprised of investment funds and management companies operating in the energy sector, among others, in Russia’s economy.

49    During 2018, En+ and UC Rusal negotiated with OFAC for their removal from the SDN List. On 19 December 2018, En+, UC Rusal and OFAC entered into an agreement by which En+ and UC Rusal agreed a number of measures (relating to shareholdings, voting of shares, director positions and dividend payments) and OFAC agreed to remove En+ and UC Rusal from the SDN List. The agreement contained requirements for an annual audit and a monthly certification of compliance, and an obligation to inform OFAC of any changes to the ownership and control of En+ and UC Rusal.

50    On 27 January 2019, OFAC publicly announced the removal of En+ and UC Rusal from the SDN List with immediate effect. The removal was subject to and conditional upon the satisfaction of a number of conditions including the fulfilment of the agreement with OFAC. The inclusion of En+ and UC Rusal on the SDN List, and their subsequent removal, were also publicly disclosed by each of those companies in their annual reports and in an announcement by UC Rusal to the Hong Kong Stock Exchange.

51    In the absence of evidence to the contrary adduced by the respondents, the primary judge inferred that QAL and the Rio parties were aware of the above disclosures made by OFAC, En+ and UC Rusal. The Rio Tinto Group engages in international trade where it is necessary to be familiar with sanction regimes imposed by different countries. The primary judge inferred that both QAL and the Rio parties would have been acutely conscious of the effect of the OFAC Sanctions on UC Rusal given its involvement in the Gladstone alumina joint venture.

52    The 2018 annual report for En+ was published in about April 2019 (the report discloses that the Board of Directors approved it on 26 April 2019). The OFAC Sanctions are referred to and described in many parts of that annual report. The first page of the annual report contains the following disclosures:

During 2018, the Company’s business was impacted by the imposition of the OFAC Sanctions (defined below) beginning in April of 2018 and lasting through to the end the year. The OFAC Sanctions were lifted from the Company on 27 January 2019. The Company has since adopted an enhanced compliance program and mechanisms, including at the Board level, to facilitate ongoing compliance with US sanctions and requirements following the removal of sanctions from the Company and its subsidiaries.

…

Shareholders and potential investors should be aware that on 6 April 2018, the Office of Foreign Assets Control of the Department of the Treasury of the United States of America (the “OFAC”) designated certain persons and certain companies which are controlled by some of these persons added to its Specially Designated Nationals List (the “OFAC Sanctions”). The designated persons/entities included Mr Oleg Deripaska, a non-executive director of the Company and its ultimate beneficial owner at the time that OFAC imposed sanctions, as well as the Company, United Company RUSAL Plc (“RUSAL”), JSC EuroSibEnergo, and two of the Company’s direct major shareholders at the time, B-Finance Ltd (a BVI company), and Basic Element Limited (a Jersey company), each controlled by Mr Deripaska.

On 27 January 2019, OFAC removed the Company, UC RUSAL Plc, and JSC EuroSibEnergo from the OFAC Sanctions. In removing the Company from the OFAC Sanctions, OFAC stated:

“Under the terms of their removal from OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”), En+, RUSAL, and ESE have reduced Oleg Deripaska’s direct and indirect shareholding stake in these companies and severed his control. This action ensures that the majority of directors on the En+ and RUSAL boards will be independent directors – including US and European persons – who have no business, professional, or family ties to Deripaska or any other SDN, and that independent US persons vote a significant bloc of the shares of EN+.”

53    The 2018 annual report for UC Rusal was also published in about April 2019 (the Chairman’s Statement was dated 29 April 2019). The OFAC Sanctions are also referred to and described in a number of parts of that annual report. In the notes to the financial statements, the following disclosure appeared:

On 6 April 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designated, amongst others, the Company, as a Specially Designated National (“SDN”) (the “OFAC Sanctions”).

As a result, all property or interests in property of the Company and its subsidiaries located in the United States or in the possession of U.S. Persons were blocked, must have been frozen, and could not be transferred, paid, exported, withdrawn, or otherwise dealt in. Several general licenses were issued at the time of the designation and later on authorizing certain transactions with the Company, its majority shareholder En+ Group Plc (“En+”), and with their respective debt and equity.

On 27 January 2019 OFAC announced removal of the Company and En+ from OFAC’s SDN List with immediate effect. The removal was subject to and conditional upon the satisfaction of a number of conditions including, but not limited to, corporate governance changes, including, inter alia, overhauling the composition of the Board to ensure that independent directors constitute the majority of the Board, stepping down of the Chairman of the Board, and ongoing reporting and certifications by the Company to OFAC concerning compliance with the conditions for removal.

54    The primary judge inferred from the disclosures set out above that, as at the date the Participants Agreement was amended to insert Art 14A, QAL and the Rio parties were aware of the matters so disclosed.

The Participants Agreement (as amended in 2019)

55    The Participants Agreement was most recently amended and restated pursuant to a Deed of Amendment and Restatement entered into on 31 December 2019. Clause 3.1 of that deed provides that the “Parties agree that the Participants Agreement is amended as shown in markup in the document set out in Schedule 2 and the document set out in Schedule 2 reflects all of the historical amendments to the Participants Agreement”. Schedule 2 is headed “Amended and restated Participants Agreement”. That schedule sets out the current form of the Participants Agreement. Article 14A was first introduced into the Participants Agreement by the amendments made on 31 December 2019.

56    Articles 14 and 14A of the Participants Agreement (as set out in that schedule) provide in part:

ARTICLE 14. Reduced Capacity Percentages and Option Tonnage.

(A) A Participant may, subject to the application of Article 14A, at any time or from time to time reduce the rate at which QAL shall toll bauxite into alumina for its account under any Gladstone Tolling Contract by giving QAL notice in writing, at least 30 days prior to the date the reduction is to become effective, of the desired new rate, expressed as a Reduced Capacity Percentage, and the date the reduction is to be effective. That Participant may thereafter at any time or from time to time further reduce, or increase (to not more than its relevant Call Capacity Percentage), the rate at which QAL shall toll bauxite into alumina for its account under that Gladstone Tolling Contract by giving like notice at least 30 days prior to the date the further reduction or increase is to become effective. If commitments of Available Option Capacity under that Gladstone Tolling Contract declared by such Participant pursuant to Paragraph (B) of this Article 14 have been made to other Participants prior to any such increase, such Participant’s Reduced Capacity Percentage as increased shall not exceed its relevant Call Capacity Percentage reduced to the extent required to give effect to those commitments.

(B) A Participant which has given notice of a Reduced Capacity Percentage under any Gladstone Tolling Contract as provided in Paragraph (A) of this Article 14 may at any time or from time to time, by giving QAL notice in writing, declare that the capacity thereby unused or such portion thereof as the Participant may designate in such notice, expressed as Available Option Capacity, is available for other Participants and shall state the period of time during which that capacity is available.

(C) If any declaration of Available Option Capacity is made as provided in Paragraph (B) of this Article 14, QAL shall promptly give notice thereof to all Participants, expressed in terms of Available Option Tonnage under the relevant Gladstone Tolling Contract and stating the period during which that tonnage is available. Any Participant who desires such Available Option Tonnage shall give QAL notice within 15 days after the date of QAL’s notice, stating the amount of such tonnage which it desires to have produced for its account and the period during which it desires to commit for that production.

…

ARTICLE 14A. Step-In

If at any time, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) or corresponding governmental authority of Australia imposes sanctions on United Company Rusal Plc., ABC or any of their affiliates that are likely to prevent QAL from undertaking business activity with ABC and its affiliates (“Sanctions”), then Appendix E shall apply.

57    Appendix E to the Participants Agreement (as set out in Sch 2 to the deed of 31 December 2019) is headed “Step-in Arrangements” and comprises seven pages. The Appendix commences:

In the event that Article 14A applies, the Participants agree that the arrangements set out in this Appendix E shall operate to:

(a)    reallocate ABC’s entitlement to use its capacity at the Gladstone Plant to RTA and Aust Holdco (together, the Rio Tinto Participants), pursuant to Article 14;

(b)    ensure the Gladstone Plant can continue to operate at 100% capacity;

(c)    ensure the continuation of the operation of the Project in a manner in which ABC’s participation is rendered sufficiently passive so as to ensure regulatory compliance by QAL and the Rio Tinto Participants for the purposes of the Sanctions for the duration of the Sanctions or the term of the Participants Agreement, whichever is the earlier (Term);

(d)    to the extent permissible under applicable law, provide for, on a conditional basis (being that QAL and the Rio Tinto Participants would not be exposed to risk of secondary sanctions under U.S. or Australian law), an orderly return to ABCs’ participation in the Gladstone Plant.

Suspension of Gladstone alumina joint venture following the imposition of the Russia Sanctions

58    On 23 March 2022, QAL wrote to ABC stating that it was concerned that it could breach the Designated Persons Sanction if it continued to process bauxite on behalf of ABC and believed it was likely that it would be in breach of the Export Sanction if it continued to deliver alumina to ABC. The letter requested information from ABC with respect to Mr Deripaska’s interests in UC Rusal (and thereby ABC) to enable QAL to determine whether Art 14A of the Participants Agreement had been triggered by the imposition of the Russia Sanctions. Ms Baker, who authored the letter, deposed that at the time of the letter she was not aware of Mr Vekselberg’s interests in UC Rusal.

59    On 24 March 2022, ABC sent a letter QAL (the 24 March Letter). The letter stated in part:

We refer to your letter dated 23 March 2022.

You have sought our advice as to:

(a)    the nature and extent of Mr Oleg Deripaska’s (Deripaska’s) interests in the EN+ Group, Rusal, ABC and each of their affiliated entities;

(b)    whether we accept that QAL:

(i)    will engage in a ‘sanctioned supply’ in contravention of the sanction imposed on 20 March 2022 if it transfers possession of alumina to ABC or Rusal; and

(ii)    will be providing a ‘sanctioned service’ to the extent that it processes bauxite on behalf of ABC, delivers alumina to QAL’s wharf and loads that alumina on vessels for shipment by ABC or Rusal.

Deripaska Interests in EN+ Group, Rusal, ABC and each of their Affiliated Entities

…

Supply Sanctions

5.    Following the Designation to which you refer in your letter, ABC has taken the following measures to ensure that there is no breach of Regulation 12 of the [Autonomous Sanctions Regulations 2011 (Cth)]:

(a)    ABC will not provide any alumina it receives from QAL to Russia or to UC Rusal or any of its subsidiaries;

(b)    all alumina delivered to ABC from QAL will be sold by ABC directly to third parties located outside Russia. Sales will be subject to a provision in the contract that:

(i)    prohibits any alumina supplied, or resultant aluminium derived from the alumina supplied, from being sold or otherwise supplied to Russia; and

(ii)    requires all sales contracts in respect of such alumina or aluminium to contain the same prohibition.

(c)    any current agreements which were inconsistent with these arrangements have been or will be terminated or suspended.

6.    Additionally, … ABC has never distributed dividends and does not propose to do so in the future. ABC is taxable in Australia. ABC is not taxable in Russia directly or indirectly and does not pay tax to the Russian Federation, as:

(a)    ABC is exempt from Russian Controlled Foreign Company Rules (CFC Rules) as an active business (by virtue of Paragraph 3, Article 25-13.1 of the Russian Tax Code); and

(b)    the ultimate parent company of ABC, UC Rusal (which is located in Russia and to which ABC is a wholly owned subsidiary), is exempt from CFC Rules until 2029 (Paragraph 58, Section 1 Article 251 of the Russian Tax Code).

7.    ABC is prepared to give a binding undertaking, which reflects these matters, if this would give comfort to QAL.

8.    In light of these matters, it is clear that any supply of alumina to ABC by QAL will not be a sanctioned supply because:

(a)    the alumina will not directly or indirectly as a result of that supply be transferred to Russia or for use in Russia;

(b)    as a direct or indirect result of that supply, the supply is not for the benefit of Russia.

9.    As there is no sanctioned supply, it follows that:

(a)    QAL will not be providing a sanctioned service in respect of ABC’s continued participation in the QAL operations; and

(b)    the sanctions that are currently imposed do not trigger the Step-in Procedure pursuant to Article 14A of the Participations Agreement.

(Emphasis added.)

60    On 25 March 2022, Ms Baker prepared and sent a memorandum to the QAL Board which referred to legal advice received by the company that QAL would contravene the Russia Sanctions if Mr Deripaska holds an interest in the Rusal Group and QAL continues to process bauxite on behalf of ABC; and QAL is likely to contravene the Russia Sanctions if it processes bauxite on behalf of ABC, delivers alumina to QAL’s wharf and loads the alumina on vessels for shipment by ABC regardless of the intended destination of the alumina. QAL was advised that, in those circumstances, Art 14A of the Participants Agreement was likely to be enlivened.

61    On 29 March 2022, Ms Baker prepared and sent a further memorandum to the QAL Board, which provided an update on the advice the company had received concerning the 24 March Letter and the risk of contravening the Russia Sanctions. In short, the advice received by QAL did not change.

62    On 29 March 2022, ABC wrote to QAL stating that it disagreed with the advice that was summarised in the QAL Board memorandum of 29 March 2022.

63    On 1 April 2022, Ms Baker prepared and sent a further memorandum to QAL’s Board (dated 30 March 2022), which provided an update on the correspondence received from ABC dated 29 March 2022. The memorandum stated that QAL management intended to issue a letter on 4 April 2022 to ABC and Rio Tinto notifying them that the step-in procedure provided for in Art 14A of the Participants Agreement had been triggered.

64    On 2 April 2022, Ms Baker received a letter dated 1 April 2022 from Mr Gordymov requisitioning a meeting of the QAL Board on 7 April 2022 to consider and make a determination on whether to implement the step-in arrangement provided for in Art 14A and Appendix E of the Participants Agreement. Mr Gordymov also requested confirmation that QAL would continue to accept ABC’s bauxite deliveries and introduce its bauxite to the refinery process until such time as QAL’s Board had resolved to implement the step-in arrangement and that, pending the requisitioned Board meeting, QAL management would not take any steps to implement the step-in arrangement provided for in Art 14A of the Participants Agreement.

65    On 4 April 2022, QAL’s General Manager, Mr Pienaar, sent a letter (Step-in Notification) to ABC, RTA Holdco and RTA (which was incorrectly dated 4 April 2021) advising that:

(a)    QAL management remained of the view that, to protect QAL from the risks associated with a breach of the Russia Sanctions, it was necessary to implement the step-in procedure provided for in Art 14A and Appendix E of the Participants Agreement; and

(b)    the step-in procedure had been triggered and, for the purposes of Appendix E of the Participants Agreement, the “Bauxite Cessation Date”, the “Production Cessation Date” and the “Shipping Cessation Date” would be 11.59 pm (AEST) on Monday, 4 April 2022.

66    On 4 April 2022 at 11.59 pm (AEST), QAL gave effect to the step-in procedure provided for in Art 14A and Appendix E of the Participants Agreement, whereby it ceased to accept delivery of ABC’s bauxite, introduce ABC’s bauxite to the refinery process, and load ABC’s alumina shipments.

67    Due to the Step-in Notification, from the Bauxite Cessation Date of 11.59 pm (AEST) on 4 April 2022, QAL would not permit any kind of bauxite owned by ABC to be delivered to QAL’s wharf. The effect of this was that RTA could not unload the bauxite supplied to ABC pursuant to the Monohydrate Bauxite Supply Agreement and the Low Mono Bauxite Supply Agreement and shipped to the port of Gladstone under the Shipping Agreement. Therefore, due to the Step-in Notification and due to QAL not accepting delivery of ABC’s bauxite, RTA could not perform its obligations to supply and deliver bauxite under those agreements.

68    On 8 April 2022, RTA sent notices to the Russian parties of the occurrence of circumstances constituting force majeure events and the suspension of the supply of bauxite pursuant to para 1(c) of Appendix E of the Participants Agreement, Art 21 of the Monohydrate Bauxite Supply Agreement, Art 18.1 of the Low Mono Bauxite Supply Agreement and cl 11.1 of the Shipping Agreement.

ABC’s attempted shipment of alumina between 20 March and 4 April 2022

69    As at 20 March 2022, ABC had two scheduled shipments of QAL alumina to Russia for delivery to UC Rusal’s aluminium smelters. The first was a shipment of ABC alumina scheduled for 4 April 2022 to be loaded on the vessel Majesty Star, and the second was a shipment of Rio Tinto alumina pursuant to a swap agreement to be loaded on the vessel MV Ernest Vinberg. Mr Gordymov gave evidence that the swap agreement was suspended on 21 March 2022.

70    Mr Gordymov gave evidence that, following the announcement of the Export Sanction, he began looking for ways to divert ABC alumina to non-Russian ports for on-sale to third party customers. On 23 March 2022, Mr Gordymov arranged for the MV Ernest Vinberg to be nominated for the shipment of 57,000 tonnes of ABC alumina for discharge at the port of Qingdao in China. Mr Gordymov gave evidence that he intended that the alumina would be unloaded into the port storage and packed in so called “big bags” (flexible bulk containers) that would enable ABC to store alumina at the port of Qingdao until a suitable customer in China was found. Mr Gordymov gave evidence that Chinese ports are the only ports that offer such storage and that it is common practice among alumina sellers, including Alcoa and Rio Tinto, to deliver alumina to Chinese ports for storage. Mr Gordymov also gave evidence that, in parallel, he caused negotiations to begin on behalf of UC Rusal to sell ABC’s share of the alumina produced by QAL to customers in Europe, India and the Middle East.

71    Mr Gordymov gave evidence that negotiations regarding the cargo to be loaded onto the MV Ernest Vinberg fell through due to commercial and logistical reasons, while further negotiations regarding this cargo and negotiations regarding further cargos became redundant when QAL refused to load ABC alumina following the issue of the Step-in Notification.

The legislative framework

72    As the primary judge explained in the Reasons, the Australian Government has power to enact sanctions under two statutory regimes. The first regime is contained in the Charter of the United Nations Act 1945 (Cth), which relevantly empowers (in Pt 3) the Governor-General to make regulations for, and giving effect to, sanctions that the United Nations Security Council (UN Security Council) has resolved to impose and that Australia is required to carry out under the Charter of the United Nations, opened for signature 26 June 1945 (entered into force 24 October 1945). The second regime is contained in the Autonomous Sanctions Act and the Regulations. The sanctions imposed pursuant to this second regime are imposed by Australia autonomously, rather than derivatively following action taken by the UN Security Council. The second regime effectively broadens the power of the Australian Government to impose sanctions in circumstances where the UN Security Council is unwilling or unable to act, for example by reason of powers of veto held by permanent members of the UN Security Council. The Russia Sanctions were made under this second statutory regime.

The Autonomous Sanctions Act

73    The provisions of the Autonomous Sanctions Act set out below are from the compilation dated 8 December 2021, which was provided by the parties in the joint bundle of authorities.

74    The objects of the Autonomous Sanctions Act are stated in s 3 as follows:

3    Objects of this Act

(1)    The main objects of this Act are to:

(a)    provide for autonomous sanctions; and

(b)    provide for enforcement of autonomous sanctions (whether applied under this Act or another law of the Commonwealth); and

(c)    facilitate the collection, flow and use of information relevant to the administration of autonomous sanctions (whether applied under this Act or another law of the Commonwealth).

Country-specific sanctions

(2)    Without limiting subsection (1), the autonomous sanctions may address matters that are of international concern in relation to one or more particular foreign countries.

Thematic sanctions

(3)    Without limiting subsection (1), the autonomous sanctions may address one or more of the following:

(a)    the proliferation of weapons of mass destruction;

(b)    threats to international peace and security;

(c)    malicious cyber activity;

(d)    serious violations or serious abuses of human rights;

(e)    activities undermining good governance or the rule of law, including serious corruption;

(f)    serious violations of international humanitarian law.

75    The expression “autonomous sanction” is defined in s 4 as follows:

autonomous sanction means a sanction that:

(a)    is intended to influence, directly or indirectly, one or more of the following in accordance with Australian Government policy:

(i)    a foreign government entity;

(ii)    a member of a foreign government entity;

(iii)    another person or entity outside Australia; or

(b)    involves the prohibition of conduct in or connected with Australia that facilitates, directly or indirectly, the engagement by a person or entity described in subparagraph (a)(i), (ii) or (iii) in action outside Australia that is contrary to Australia Government policy.

76    The Autonomous Sanctions Act contemplates that the scope and content of autonomous sanctions will be determined through the making of regulations. Part 2 of the Act concerns the making of such regulations. Section 10(1) relevantly provides as follows:

(1)    The regulations may make provision relating to any or all of the following:

(a)    proscription of persons or entities (for specified purposes or more generally);

(b)    restriction or prevention of uses of, dealings with, and making available of, assets;

(c)    restriction or prevention of the supply, sale or transfer of goods or services;

(d)    restriction or prevention of the procurement of goods or services;

(e)    provision for indemnities for acting in compliance or purported compliance with the regulations;

(f)    provision for compensation for owners of assets that are affected by regulations relating to a restriction or prevention described in paragraph (b).

77    Section 14, within Part 2 of the Act, provides that if a person has engaged, is engaging, or proposes to engage, in conduct involving a contravention of the regulations, a superior court (which is defined to include this Court and the Supreme Court of a State or Territory) may by order, on the application of the Attorney-General, grant an injunction restraining the person from engaging in the conduct.

78    Part 3 of the Autonomous Sanctions Act creates offences relating to what are referred to as “sanction laws”. That expression is defined in s 4 to mean a provision that is specified in an instrument under s 6(1), which in turn empowers the Minister by legislative instrument to specify a provision of a law of the Commonwealth as a sanction law. Relevantly, regs 12 and 14 of the Regulations have been designated as sanction laws for the purpose of s 6(1) of the Act by the Autonomous Sanctions (Sanction Law) Declaration 2012 (Cth), Sch 1.

79    Section 16, within Part 3 of the Autonomous Sanctions Act, relevantly provides:

16    Offence—contravening a sanction law

…

Bodies corporate

(5)    A body corporate commits an offence if:

(a)    the body corporate engages in conduct; and

(b)    the conduct contravenes a sanction law.

(6)    A body corporate commits an offence if:

(a)    the body corporate engages in conduct; and

(b)    the conduct contravenes a condition of an authorisation (however described) under a sanction law.

Example: An example of an authorisation is a licence, permission, consent or approval.

(7)    Subsection (5) or (6) does not apply if the body corporate proves that it took reasonable precautions, and exercised due diligence, to avoid contravening that subsection.

Note: The body corporate bears a legal burden in relation to the matter in subsection (7): see section 13.4 of the Criminal Code.

(8)    An offence against subsection (5) or (6) is an offence of strict liability.

Note: For strict liability, see section 6.1 of the Criminal Code.

(9)    An offence against subsection (5) or (6) is punishable on conviction by a fine not exceeding:

(a)    if the contravention involves a transaction or transactions the value of which the court can determine—whichever is the greater of the following:

(i)    3 times the value of the transaction or transactions;

(ii)    10,000 penalty units; or

(b)    otherwise—10,000 penalty units.

Definition

(10)    In this section:

engage in conduct means:

(a)    do an act; or

(b)    omit to perform an act.

The Regulations

80    Part 2 of the of the Regulations is headed “Autonomous sanctions” and contains regulations that define the scope of different sanction measures. Part 3 of the Regulations is headed “Sanctions laws” and contains prohibitions in respect of certain conduct; these prohibitions comprise the sanctions proper. Part 4 of the Regulations is headed “Authorisations” and contains regulations that define the circumstances in which conduct that would otherwise contravene autonomous sanctions may be authorised. The text of the regulations set out below is given as at 22 March 2022 (compilation date 5 March 2022), being the version used by the primary judge in the Reasons.

81    Regulation 3 sets out definitions and includes:

authorised supply means a sanctioned supply authorised by a permit granted under regulation 18.

…

designated person or entity includes a person or entity that has been designated under paragraph 6(a) …

82    Regulation 4 (which is relevant to the Export Sanction) provides in part:

4    Sanctioned supply

(1)    For these Regulations, a person makes a sanctioned supply if:

(a)    the person supplies, sells or transfers goods to another person; and

(b)    the goods are export sanctioned goods in relation to a country or part of a country; and

(c)    as a direct or indirect result of the supply, sale or transfer the goods are transferred:

(i)    to that country or part of a country; or

(ii)    for use in that country or part of a country; or

(iii)    for the benefit of that country or part of a country.

(2)    Goods mentioned in an item of the table are export sanctioned goods for the country or part of a country mentioned in the item.

[Table not reproduced. The Table refers to Russia, but the description of goods in respect of Russia does not include alumina.]

(3)    In addition to subregulation (2), the Minister may, by legislative instrument, designate goods as export sanctioned goods for a country or part of a country mentioned in the designation.

Example: Equipment or technology related to the oil and gas industry.

…

83    Regulation 6 (which is relevant for the Designated Persons Sanction) provides in part:

6    Country-specific designation of persons or entities or declaration of persons

For paragraph 10(1)(a) of the Act, the Minister may, by legislative instrument, do either or both of the following:

(a)    designate a person or entity mentioned in an item of the table as a designated person or entity for the country mentioned in the item;

…

84    Item 6A of the table under reg 6 concerns Russia and mentions the following persons:

(a)    A person or entity that the Minister is satisfied is, or has been, engaging in an activity or performing a function that is of economic or strategic significance to Russia.

(b)    A current or former Minister or senior official of the Russian Government.

(c)    An immediate family member of a person mentioned in paragraph (a) or (b).

85    Regulation 12 (which is relevant to the Export Sanction) relevantly provides:

12    Prohibitions relating to a sanctioned supply

(1)    A person contravenes this regulation if:

(a)    the person makes a sanctioned supply; and

(b)    the sanctioned supply is not an authorised supply.

…

(4)    A body corporate contravenes this regulation if:

(a)    the body corporate has effective control over the actions of another body corporate or entity, wherever incorporated or situated; and

(b)    the other body corporate or entity makes a sanctioned supply; and

(c)    the sanctioned supply is not an authorised supply.

Note: This regulation may be specified as a sanction law by the Minister under section 6 of the Act.

86    Regulation 14 (which is relevant to the Designated Persons Sanction) relevantly provides as follows:

14    Prohibition of dealing with designated persons or entities

(1)    A person contravenes this regulation if:

(a)    the person directly or indirectly makes an asset available to, or for the benefit of, a designated person or entity; and

(b)    the making available of the asset is not authorised by a permit granted under regulation 18.

87    Regulation 18 relates to authorisation and provides in part:

18    Minister may grant permits

(1)    The Minister may grant to a person a permit authorising:

(a)    the making of a sanctioned supply; or

…

(e)    the making available of an asset to a person or entity that would otherwise contravene regulation 14; or

…

(2)    The Minister may grant a permit:

(a)    on the Minister’s initiative; or

(b)    on application by a person.

(3)    The Minister must not grant a permit unless the Minister is satisfied:

(a)    that it would be in the national interest to grant the permit; and

(b)    about any circumstance or matter required by this Part to be considered for a particular kind of permit.

(4)    A permit may be granted subject to conditions specified in the permit.

88    As the primary judge noted, a permit under reg 18 has not been granted in respect of the production of alumina by QAL for ABC or the delivery of alumina to ABC pursuant to the Gladstone alumina joint venture.

The relevant instrument and designation

89    On 17 March 2022, the Minister for Foreign Affairs made the Autonomous Sanctions (Designated Persons and Entities and Declared Persons—Russia and Ukraine) Amendment (No 7) Instrument 2022 (Cth) under reg 6(a). This added Messrs Deripaska and Vekselberg to the list of designated persons for Russia. The instrument commenced on 18 March 2022. In these reasons, consistently with the approach adopted by the primary judge, the expression “Designated Persons Sanction” is used to refer to the sanction law imposed by the combined effect of reg 14 of the Regulations and that instrument.

90    On 19 March 2022, the Autonomous Sanctions (Export Sanctioned Goods—Russia) Designation 2022 (Cth) was made under reg 4(3) and, relevantly, designated aluminium ores and other aluminium oxides as export sanctioned goods for Russia. The designation commenced on 20 March 2022. As the primary judge noted, it was not in dispute that, following this designation, the alumina produced by QAL at the Gladstone Plant was an export sanctioned good for Russia for the purpose of reg 4(3). In these reasons, consistently with the approach adopted by the primary judge, the expression “Export Sanction” is used to refer to the sanction law imposed by the combined effect of reg 12 of the Regulations and that designation.

The hearing at first instance

91    The following matters relating to the hearing at first instance (in particular, regarding witnesses called and whether they were cross-examined) are relevant for some of the issues to be considered on the appeal.

92    The Russian parties called four lay witnesses (Kirill Strunnikov, Aleksey Gordymov, Vladimir Runov and Dzianis Sidarkevich) and one expert witness (Natalia Kuznetsova, a tax expert), and tendered documents. Each of the witnesses was cross-examined. For present purposes, the most relevant witness is Mr Gordymov. He is the Head of Business Support (Head of Supply Chain) in UC Rusal, and is also a director of QAL. Mr Gordymov has never held a direct role or office in ABC, but part of his duties involves managing ABC’s procurement and shipment of alumina. The Russian parties did not call any director or officer of ABC to give evidence.

93    QAL called two lay witnesses and two expert witnesses (one of whom was Alan Clark), and tendered documents. None of those witnesses were required for cross-examination. Mr Clark is the founder and Managing Director of the CM Group, which is an independent research advisory group specialising in the analysis of global base and minor metals industries. Mr Clark holds a Bachelor of Applied Science (Metallurgy) from the University of South Australia and a Master of Business Administration (Management of Technology) from the University of Melbourne. He has over 25 years’ industry experience in base metals, specialising in supply-side analysis, cost assessment, primary production, technology development and process improvement. Mr Clark’s experience covers many of the world’s base, minor metals and minerals industries, including bauxite, alumina, aluminium, nickel, magnesium, scandium, tungsten, tin, mineral sands, molybdenum and manganese. He has particular expertise on the global aluminium value-chain, particularly bauxite and alumina. Through the CM Group, Mr Clark advises the world’s largest aluminium producers, investment banks, fund managers, traders, industry bodies and research houses as well as governments and major industry groups, such as the International Aluminium Institute, the Australian Aluminium Council and the Aluminium Association.

94    The Rio parties called two lay witnesses and tendered documents. Neither of those witnesses was required for cross-examination.

The reasons of the primary judge

95    The key conclusions of the primary judge have been set out at [13] above.

Section C

96    In section C of the Reasons, the primary judge set out the factual background. Substantial parts of that section have been reproduced above.

97    In section C.9 (at [129]ff, headed “Whether ABC alumina is likely to be exported to Russia”), his Honour set out, and made findings in respect of, evidence relating to two contested factual issues. The two issues were:

(a)    the likelihood that, if QAL had delivered alumina to ABC after 20 March 2022, the alumina (that is, the alumina hypothetically delivered by QAL to ABC at Gladstone) would have been ultimately exported to Russia; and

(b)    the likelihood that, if QAL had delivered alumina to ABC after 20 March 2022, the delivery of the alumina would have resulted in other alumina being supplied to Russia.

We will refer to the issue referred to in (a) as the Gladstone Alumina Issue and the issue referred to in (b) as the Other Alumina Issue. The primary judge gave further consideration to these issues in section D.3 of the Reasons (discussed below).

98    Section C.9 of the Reasons included the following at [130]:

Absent a binding and enforceable commitment given by ABC, there can be no doubt that, on and after March 2022, alumina delivered to ABC by QAL would have been, and would in the future be, exported to Russia for use in UC Rusal’s aluminium smelters. Mr Gordymov’s evidence was that ABC had, historically, shipped almost all of the alumina it obtained from QAL to Russia for use in UC Rusal’s aluminium smelters. As stated above, UC Rusal has a large demand for alumina for its Russian aluminium smelters (some 7.9 million tonnes per annum) and, following Russia’s invasion of Ukraine, had lost supply of alumina from the Mykolaiv refinery in Ukraine (which had produced approximately 1.75 million tonnes of alumina per annum) and from all Australian sources (760,000 tonnes per annum from QAL and 750,000 from other Australian producers).

(Emphasis added.)

The first sentence of the above paragraph was the subject of challenge on appeal.

99    In the next four paragraphs of the Reasons ([131]-[134]), the primary judge discussed the 24 March Letter and whether it had any bearing on the two contested factual issues identified at [97] above. The primary judge concluded at [134]:

For those reasons, I consider that the statements made in ABC’s letter of 24 March 2022 have no material bearing upon the assessment of the likelihood that alumina delivered to ABC by QAL would ultimately be exported to Russia or would by supplied in a manner that would result in other alumina being supplied to Russia (for example, pursuant to a swap agreement).

100    At [135], the primary judge referred to the Rusal Group Undertaking and observed that it could not affect the determination of past issues but could only operate prospectively (if accepted by the Court).

101    In the balance of section C.9 (at [136]-[147]), the primary judge set out, and made findings in respect of, the evidence of Mr Clark. As noted above, Mr Clark was called as an expert witness by QAL and was not cross-examined by the Russian parties. Nor did the Russian parties call an answering expert on the topics addressed by Mr Clark. Save for one minor matter (referred to at [147] of the Reasons), the primary judge accepted the evidence given by Mr Clark: see the Reasons at [141], [147]. Given the significance of Mr Clark’s evidence for the issues raised by the appeal, we set out [136]-[147] of the Reasons in full. We note that the following passage of the Reasons substantially reflects Mr Clark’s report dated 28 March 2023 (Mr Clark’s First Report) at pp 31-37. To assist the discussion later in these reasons, in some places, we have inserted in square brackets a reference to the relevant paragraph in Mr Clark’s First Report.

136    Mr Clark was asked to express his opinion concerning the likely effect on the supply of alumina to Russian aluminium smelters if QAL supplied alumina to ABC pursuant to the Gladstone alumina joint venture. In his report, Mr Clark assumed that, as at April 2022, UC Rusal would have had only weeks of alumina stocks on site. Mr Gordymov contradicted that assumption, stating that, at that time, UC Rusal had alumina stocks equivalent to two and a half months supply. Regardless of that difference, it is uncontroversial that UC Rusal’s demand for alumina did not reduce at that time and UC Rusal was forced to source alumina from other suppliers (including from China).

137    Mr Clark reported that China exported a total of 168,000 tonnes of alumina in April 2022 of which 124,000 tonnes was exported to Russia, accounting for 74% of the total [para 2.8(g)]. This resulted in China becoming a net exporter of alumina for the first time since 2018, despite no obvious price arbitrage opening between the Chinese and ROW markets. Mr Clark further reported that, in March and April 2022, China imported a total of 263,000 tonnes of alumina, 94% of which was sourced from Australia [para 2.8(i)]. Further, a report published by Wood Mackenzie in May 2022 titled “Can China keep Russian aluminium smelters afloat” stated that “more than 38% of China’s alumina exports (64kt) in April were identified as shipments from Customs’ warehouses” and concluded “it is likely that a sizeable portion of imported Australian alumina was transhipped to Russia”. Mr Clark considered that conclusion to be reasonable [para 2.8(i)]. Data presented by Mr Clark in his reports showed that alumina exports from China to Russia increased substantially in March 2022 from levels in the preceding years and remained elevated through to the time of Mr Clark’s report [para 2.8(i) and Fig 2-13]. As noted above, according to China Customs data, Russia has imported approximately 1.1 million tonnes of alumina from China over the 14-month period ending February 2023.

138    In question 9, Mr Clark was asked to express his opinion on the following question:

If ABC obtained from QAL the tonnage of alumina referred to in section 2 of this letter [approximately 730,000 to 760,000 tonnes] and sold it to third parties in China or otherwise outside Russia, as referred to in section 2 of this letter [on contractual terms prohibiting the buyers from on-selling that alumina to Russia], what effect, if any, would this have on the availability of alumina to Russian smelters?

139    Mr Clark reported that, heading into 2022, the ROW alumina market was generally balanced, meaning sufficient alumina was available to meet the requirements of ROW smelters and any surplus alumina produced in the ROW was sold into the Chinese market. The Chinese alumina market, however, was not balanced heading into 2022. China’s installed alumina refining capacity totalled 92.9 million tonnes per annum whereas its annualised production was estimated at 76.6 million tonnes per annum, approximately equivalent to its domestic aluminium smelting demand (being around 76 million tonnes per annum of alumina which is equivalent to approximately 38 million tonnes per annum of primary aluminium production). This is a difference in installed alumina refining capacity of 16.3 million tonnes per annum, representing a utilisation rate of only 82%. Thus, China’s domestic alumina industry had sufficient installed alumina refining capacity to produce a significantly larger volume of alumina which, if required and attractively priced, could have produced alumina to supply world markets in the first quarter of 2022. However, despite the structural overcapacity in China at the time, the country was a net importer of alumina, as it mostly is when the price arbitrage between domestic prices and ROW prices is sufficiently large to import alumina at a profit.

140    Mr Clark expressed the opinion that, given the balanced nature of the ROW market at the time, the fungibility of alumina and the structural overcapacity evident in China’s alumina industry at the time, the sale of any surplus alumina from QAL would most likely “free up” an equivalent volume of alumina elsewhere in the world [para 2.9(i)]. The most likely destination for the surplus alumina from QAL would be China, given the size of the market and the typical trading patterns at the time [para 2.9(j)]. However, with China’s market already in oversupply, any additional alumina would need to be “pushed” into China rather than “pulled”, meaning it would need to be offered into the Chinese market on more attractive terms than the current market price [para 2.9(k)]. Furthermore, with China’s market already saturated, pushing more alumina in would increase the likelihood that Chinese companies would seek to find export opportunities, including to Russia [para 2.9(l)]. Therefore, the most likely destination for QAL alumina tonnage supplied to ABC would be China, and supply to China would increase the likelihood that surplus alumina in China would find its way onto world markets, including Russia [para 2.9(m)].

141    I accept those opinions. It was not controverted by any other evidence.

142    In question 10, Mr Clark was asked to express his opinion on the following question:

Question 10: If ABC obtained from QAL the tonnage of alumina referred to in section 2 of this letter [approximately 730,000 to 760,000 tonnes] and sold it to third parties in China or otherwise outside Russia on contractual terms prohibiting the buyers from on-selling that alumina to Russia, as referred to in section 2 of this letter:

(a)    would there remain a possibility that the alumina would end up in Russia, and, if so, how likely would that be and how would it occur?; and

(b)    would there be any way of ensuring or monitoring compliance with the contractual prohibitions referred to?

143    Mr Clark reported that, when alumina is physically delivered under a contract to a customer, it cannot be traced with any degree of confidence [para 2.10(a)]. From a regulatory and compliance perspective, records are kept of alumina exports, including bills of lading, shipping records, insurance records, customs declarations and port records. Publication of this data by each country is usually in aggregate, meaning that, for example, port export data will provide monthly export volumes and countries of destination only [para 2.10(a)]. Once alumina arrives at its original country of destination, the chain can be easily lost and the original seller has no knowledge of, nor any means of checking, what happens to the alumina, whether for example it is processed by the buyer into aluminium or on-sold to a third party [para 2.10(b)].

144    Mr Clark expressed the opinion that, given the state of the global alumina supply/demand balance over the past two years, particularly the structural overcapacity in China, UC Rusal could source Chinese alumina from a wide variety of suppliers without great difficulty and have it shipped to Russia and UC Rusal would not necessarily know the origins of that alumina [para 2.10(d)].

145    Mr Clark also expressed the opinion that, if ABC obtained alumina from QAL, then that alumina could arrive in Russia through several different means, including [para 2.10(f)]:

(a)    a series of subsequent on-selling transactions following the original purchase;

(b)    through a swap arrangement;

(c)    through blending the QAL alumina with alumina from another source; and

(d)    following long-term storage in a bonded warehouse (ie a warehouse located in a jurisdiction that has not cleared any customs).

146    Mr Clark expressed the opinion that monitoring or ensuring compliance with contractual prohibitions on supply to Russia would not be possible [para 2.10(i)].

147    Mr Clark’s opinions were not controverted by any other direct evidence. With one qualification, I generally accept those opinions. I do not accept the absolute nature of Mr Clark’s opinion that it would not be possible to design contractual arrangements, together with monitoring and enforcement mechanisms, that would prevent alumina delivered to ABC being supplied to Russia. I consider that the opinion was expressed with reference to the type of undertakings described in ABC’s letter of 24 March 2022, and I accept the opinion to that extent. Mr Clark cannot be understood as having considered every possible form of contractual restriction on alumina supply, and nor would I regard Mr Clark as necessarily having the expertise to do so.

(Emphasis added.)

Section D

102    In section D of the Reasons, the primary judge considered the Russia Sanctions and whether they would apply to a delivery of alumina by QAL to ABC. The primary judge set out relevant principles of statutory interpretation in section D.2. No issue is raised on appeal about his Honour’s statement of those principles.

103    In section D.3 of the Reasons, the primary judge considered the question: “Does the Export Sanction apply in respect of the delivery of alumina to ABC?” In circumstances where neither the initial supply, sale or transfer (as referred to in reg 4(1)(a)), nor any subsequent transfer (as referred to in reg 4(1)(c)) occurred, the discussion of these issues necessarily involved a hypothetical consideration of whether there would have been a contravention if QAL had continued to deliver alumina to ABC pursuant to the Gladstone alumina joint venture contractual arrangements (see the Reasons at [226]).

104    The primary judge considered questions of construction in relation to the Export Sanction at [220]-[237]. Within this section, the primary judge first considered a temporal issue. His Honour noted that the definition of “sanctioned supply” in reg 4(1) requires two events to occur: the first event is that a person must supply, sell or transfer export sanctioned goods to another person; the second event is that, as a direct or indirect result of the first event, the export sanctioned goods are transferred to the country that is the subject of the sanction, for use in that country or for the benefit of that country. His Honour reasoned:

221    … Conduct does not become a sanctioned supply unless and until the second event occurs. That conclusion is compelled by the use of the present (passive) tense of the verb “transfer” in para 4(1)(c), rather than the future tense. Para 4(1)(c) requires that, as a direct or indirect result of the supply, sale or transfer of the export sanctioned goods, those goods are transferred in one of the three stipulated ways.

222    The two events required by the definition may occur at the same time. For example, the supply, sale or transfer of export sanctioned goods directly to a person located in the country that is the subject of the sanction would usually involve the transfer of the goods to that country. In that example, a single transaction would constitute the sanctioned supply. However, the language and structure of the definition indicates that it can also apply to events that arise from more than one transaction: for example, the supply, sale or transfer of export sanctioned goods directly to a person located outside of the country that is the subject of the sanction but where that person transfers the goods to the country that is the subject of the sanction. This raises the possibility that a person may supply, sell or transfer export sanctioned goods in a manner that, initially, does not constitute a sanctioned supply, but which subsequently becomes a sanctioned supply because, as a direct or indirect result, the goods are subsequently transferred to the country that is the subject of the sanction.

223    The possibility that a person may engage in a transaction that initially is not a sanctioned supply, but which subsequently becomes a sanctioned supply (and thereby an offence), appears to be unjust. That is particularly so in circumstances where a contravention of reg 12(1) is a strict liability offence under s 16 of the Autonomous Sanctions Act. While it would not be correct to describe reg 12(1) as having a retrospective effect, it nevertheless can operate to render a transaction unlawful by reason of events that occur after the transaction has been undertaken.

224    The respondents submitted, and I accept, that the potentially unjust effects of reg 12(1) are mitigated in a number of ways. First, while an offence against s 16(5) is an offence of strict liability, s 6.1 of the Criminal Code stipulates that a defence of mistake of fact under s 9.2 of the Criminal Code is available to offences of strict liability. Second, if the offence is committed by a body corporate, s 16(7) creates a defence if the body corporate proves that it took reasonable precautions, and exercised due diligence, to avoid contravening s 16(5). Third, a person may apply to the Minister under Part 4 of the Autonomous Sanctions Regulations for a permit to engage in conduct that may constitute a sanctioned supply, and the Minister may grant a permit including on the basis of conditions specified in the permit. If a permit is granted, the conduct is an authorised supply and exempted from the prohibition in reg 12(1).

(Bold emphasis added.)

105    In relation to the words “direct or indirect result” in the definition of “sanctioned supply” in reg 4(1)(c), the primary judge stated that “the composite phrase ‘direct or indirect result’ is to be understood as including the immediate consequence or outcome of the supply, sale or transfer of the export sanctioned goods as well as consequences and outcomes caused by the supply, sale or transfer but which involve additional steps or actions in a causal chain” (at [228]).

106    The primary judge also considered the construction of the three alternate results referred to in reg 4(1)(c), namely (relevantly) that the goods are transferred: (i) to that country; (ii) for use in that country; or (iii) for the benefit of that country. The primary judge stated that there was no difficulty with the meaning of the clause “the goods are transferred to that country” in sub-para 4(1)(c)(i); “[t]he phrase conveys the meaning that the export sanctioned goods are physically delivered to the country that is the subject of the sanction” (at [230]). His Honour noted that each of the phrases “for use in that country” in sub-para 4(1)(c)(ii) and “for the benefit of that country” in sub-para 4(1)(c)(iii) commence with the preposition “for”. His Honour stated that the word “for” was not used in a subjective sense (at [233]). His Honour construed the word “for” as follows (at [234]):

Neither textual nor contextual considerations indicate clearly whether the word “for” in para 4(1)(c) is to be construed as meaning the objectively determined “object or purpose”, or the “effect or likely effect”, of the resulting transfer of the export sanctioned goods, or is intended to carry both meanings. The clause “the goods are transferred for use in that country” in subpara 4(1)(c)(ii), and the clause “the goods are transferred for the benefit of that country” in subpara 4(1)(c)(iii), are apt to convey both meanings: that the object or purpose of the resulting transfer of the export sanctioned goods is so that the goods are used in the country that is the subject of the sanction, or to benefit that country; and that the effect or likely effect of the resulting transfer of the export sanctioned goods is that the goods are used in the country that is the subject of the sanction, or benefits that country. There seems to be no reason to interpret the clause as intending one of those meanings to the exclusion of the other. There is no principle of statutory construction which requires a word to be given a single meaning where the word ordinarily conveys a range of meanings. Both meanings are consistent with the purpose of the prohibition against sanctioned supplies in reg 12(1), which is to impose “punitive measures not involving the use of armed force that target the persons, entities or governments most responsible for a situation of grave international concern, with the goals of mitigating the harmful consequences of that situation and achieving positive change” (as per the Explanatory Statement to the Autonomous Sanctions Regulations). Having regard to the foregoing considerations, in my view the word “for” in para 4(1)(c) means “object, effect or likely effect”, where the object of the transfer is determined objectively from the terms of the relevant transaction and any relevant surrounding circumstances.

(Emphasis added.)

107    The primary judge also construed the word “benefit” in reg 4(1)(c)(iii): see Reasons, [235]-[237]. His Honour noted that the word is not defined and stated that it should be given its ordinary meaning, namely “anything that is for the good of a person or thing” or “advantage, profit, good”. His Honour’s discussion of this word included (at [237]):

A question arises, nevertheless, whether the types of benefits contemplated by subpara 4(1)(c)(iii) are as broad as submitted by the respondents, or whether there are implicit limitations that arise from the regulatory context. Any implicit limitation based on the purpose of the prohibition of sanctioned supplies must be treated with some caution. It is significant, however, that in subpara 4(1)(c)(iii) it is the resulting transfer of the export sanctioned goods (here, alumina) that must be for the benefit of the country that is the subject of the sanction (here, Russia). There is an obvious requirement of a causal nexus between the resulting transfer of alumina and the benefit to Russia. It can also be noted that the regulation does not include the phrase “directly or indirectly” in connection with this aspect of the definition. The regulation requires the benefit to be the object, effect or likely effect of the transfer of the export sanctioned goods. Whether a particular alleged benefit satisfies the required causal nexus will involve a fact-specific enquiry.

(Emphasis added.)

108    The primary judge then considered (at [238]ff) the application of the prohibition (in the Export Sanction) to the present case.

109    At [238], the primary judge noted that there was no dispute that, pursuant to the contractual arrangements that governed the Gladstone alumina joint venture, QAL supplied or transferred alumina to ABC within the meaning of reg 4(1)(a).

110    At [239], his Honour stated that there was also no dispute that the alumina delivered by QAL to ABC is an export sanctioned good for Russia and that the second element of the definition of “sanctioned supply” (in reg 4(1)(b)) was satisfied.

111    The primary judge stated, at [240], that the dispute between the parties concerned the third element of the definition of “sanctioned supply” (in reg 4(1)(c)). The issue was whether, as a direct or indirect result of the delivery of alumina by QAL to ABC, the alumina would be transferred to Russia, for use in Russia, or for the benefit of Russia. His Honour’s conclusion was that “at all times on and after 20 March 2022, the delivery of alumina by QAL to ABC would have resulted in a contravention of the Export Sanction, determined on the balance of probabilities” (at [240]).

112    His Honour’s core reasoning for that conclusion was at [241]-[250]. We set out that passage in full below. Before doing so, it may be helpful to note that in that passage his Honour considered four sub-issues:

(a)    First, his Honour considered, at [241]-[246], whether “the alumina” (that is, the alumina hypothetically delivered by QAL to ABC) would have been transferred to Russia.

(b)    Second, his Honour considered, at [247], whether “the alumina” (again, the alumina hypothetically delivered by QAL to ABC) would have been transferred for use in Russia.

(c)    Third, his Honour considered, at [248], whether “the alumina” (again, the alumina hypothetically delivered by QAL to ABC) would have been transferred for the benefit of Russia.

(d)    Fourth, his Honour considered, at [249], whether, even if “the alumina” would not have been transferred to Russia, the transfer of that alumina (to another country) would have been for the benefit of Russia, on the basis that it would have increased the availability and therefore the supply of other alumina to Russia.

113    We now set out his Honour’s core reasoning for the conclusion set out above:

241    First, immediately following the imposition of the Export Sanction, if QAL had delivered alumina from the Gladstone Plant to ABC, a direct or indirect result of the delivery would have been that the alumina would be transferred to Russia. That conclusion follows from the following facts:

(a)    ABC is a wholly owned subsidiary of UC Rusal, which is a company registered and domiciled in Russia. ABC does not have any management independence from UC Rusal.

(b)    UC Rusal owns eleven aluminium smelters, of which nine are in Russia, one is in Sweden, and one is in Nigeria (which is currently idle).

(c)    ABC is a participant in the Gladstone alumina joint venture for the purpose of acquiring alumina for use by the Rusal Group in the production of aluminium. Since 2005, ABC had sold the alumina which it was entitled to receive as a participant in the Gladstone alumina joint venture to another subsidiary of UC Rusal (now RTI), which contract continued until 2025. Under that contract, RTI obtained title to the alumina once it passed the ship’s rail at QAL’s wharf. Thereafter the alumina was outside of ABC’s control.

(d)    Prior to the imposition of the Export Sanction, the vast majority of alumina produced for ABC at the Gladstone Plant was shipped to Russia. The alumina which was used in the Rusal Group’s aluminium smelter in Sweden was generally sourced from the Group’s alumina refinery located in Ireland.

(e)    UC Rusal has a large demand for alumina for its Russian aluminium smelters (some 7.9 million tonnes per annum) and, following Russia’s invasion of Ukraine, had lost supply of alumina from the Mykolaiv refinery in Ukraine (which had produced approximately 1.75 million tonnes of alumina per annum).

(f)    As a result of UC Rusal losing the supply of alumina from the Gladstone alumina joint venture and from the Mykolaiv refinery in Ukraine, the cost of alumina to UC Rusal increased by US$1.106 billion, or by 149.3%, to US$1.847 billion in 2022 as compared to US$741 million in 2021. The increase in the cost of alumina was one of the factors that contributed to a reduction in UC Rusal’s gross profit from US$3.721 billion for the year ended 31 December 2021 to US$3.204 billion for the year ended 31 December 2022.

242    The above facts establish that alumina from the Gladstone alumina joint venture was predominantly supplied into Russia for use in UC Rusal’s aluminium refineries. Following Russia’s invasion of Ukraine, UC Rusal had an ongoing and increased demand for alumina from the Gladstone alumina joint venture by reason of the loss of supply from the Mykolaiv refinery in Ukraine.

243    On 24 March 2022, ABC wrote to QAL and stated that ABC had taken measures to ensure that there would be no breach of the Export Sanction. I have previously found that the statements made in ABC’s letter of 24 March 2022 have no material bearing upon the likelihood that alumina delivered to ABC by QAL would ultimately be exported to Russia. That is because the statements cannot be characterised as binding and enforceable commitments; they are mere representations by ABC as to its intended future conduct. The statements made in the letter were made at a high level of generality and did not contain any verification or enforcement mechanisms. No evidence was adduced showing that the contract of sale between ABC and RTI had been terminated or suspended. Further, management decisions with respect to the sale and shipment of ABC’s alumina were made by UC Rusal and not by ABC. UC Rusal never gave any assurances concerning the sale and shipment of ABC’s alumina, let alone a legally enforceable commitment.

244    From 24 March 2022 to the time of trial, no other action was taken by UC Rusal to change the pre-existing position as described above. The Rusal Group Undertaking was offered to the Court on the last day of the hearing and has no bearing on the determination of issues up until the time that the Undertaking is accepted by the Court.

245    Mr Gordymov gave evidence concerning the efforts he made following the imposition of the Export Sanction to try to find an alternative buyer for the alumina delivered by QAL to ABC. His efforts were unsuccessful. It can be accepted that QAL’s decision to cease delivering alumina to ABC from midnight on 4 April 2022 meant that there was no further need for ABC to find an alternative buyer. However, the applicants did not adduce any persuasive evidence that, if QAL recommenced the delivery of alumina to ABC, ABC would be able to supply the alumina to a buyer and in a country that prevented any breach of the Export Sanction.

246    Having regard to the evidence before the Court, I find on the balance of probabilities that, on and after 20 March 2022, alumina delivered to ABC would have been transferred to Russia to meet the needs of the Rusal Group. That would have been a breach of the Export Sanction.

247    Second, it follows from the above conclusions that, if QAL had delivered alumina from the Gladstone Plant to ABC, a direct or indirect result of the delivery would have been that the alumina would have been transferred for use in Russia. The result of delivering alumina to ABC would have been the transfer of the alumina to the UC Rusal subsidiary, RTI, which transfer would have had the object, effect or likely of the alumina being used in Russia for smelting aluminium.

248    Third, it also follows that a direct or indirect result of the delivery of alumina by QAL to ABC would have been that the alumina would have been transferred for the benefit of Russia. Industrial production within a country produces many benefits for the country, save in possible circumstances in which the industry is State-owned and loss-making. The benefits include direct and indirect employment in Russia generated by the industry as well as the payment of taxation. In the present case, UC Rusal is privately owned and its financial statements show net profit for the year ending 31 December 2022 of approximately US$1.8 billion. UC Rusal’s 2022 Annual Report discloses that, as at 31 December 2022, the Rusal Group had 20,968 employees within its aluminium division. Given the location of UC Rusal’s aluminium smelters, the majority of those employees will be based in Russia. UC Rusal’s financial statements for the year ending 31 December 2022 also disclose that UC Rusal is considered a Russian tax resident with an applicable corporate tax rate of 20%, its subsidiaries domiciled in Russia also have an applicable tax rate of 20%, and its aggregate taxation liability was US$310 million. Although it is not possible from the financial statements to determine what part of that liability is directly attributable to the operation of UC Rusal’s aluminium smelters in Russia, it is open to infer that some part of the liability is attributable. It follows from the foregoing that the transfer of alumina by ABC to RTI for use in UC Rusal’s smelters in Russia for the production of aluminium would be for the benefit of Russia because it would have generated employment and taxation benefits for Russia.

249    Fourth, even if it were to be accepted that, following the imposition of the Export Sanction, UC Rusal and/or ABC would have successfully taken steps to prevent alumina delivered to ABC from the Gladstone Plant being physically transferred to Russia, a direct or indirect result of the delivery to ABC would have been that the alumina would be transferred for the benefit of Russia. The benefit arises from the fact that UC Rusal would be able to direct the transfer of the Gladstone alumina to China which would increase the availability of other alumina in China to be purchased by UC Rusal. Mr Clark’s evidence, which I accept, is that in 2022 China’s market was already in oversupply, and any additional alumina would need to be “pushed” into China rather than “pulled”, meaning it would need to be offered into the Chinese market on more attractive terms than the current market price. This would place downward pressure on alumina prices in China. Pushing more alumina into China would increase the likelihood that Chinese companies would seek to find export opportunities, including to Russia. Accordingly, the supply of alumina to third parties in China would increase the likelihood that surplus alumina in China would be exported to Russia. According to China Customs data, Russia imported approximately 1.1 million tonnes of alumina from China over the 14-month period ending February 2023. Ultimately, those economic factors (of supply and demand) would improve UC Rusal’s security of supply of alumina, its terms of trade in alumina and its profitability. For the reasons stated earlier, those benefits to UC Rusal give rise to benefits for Russia in the form of employment within Russia and increased tax revenue in Russia. In cross-examination, Ms Kuznetsova agreed that if UC Rusal’s costs of alumina decreased, and it made greater profits as a consequence, this would generate higher tax revenue in Russia. Those employment and taxation benefits to Russia would result from the transfer of alumina to China, and would be an indirect result of the delivery of alumina from QAL to ABC.

250    For the foregoing reasons, I find on the balance of probabilities that, at all times on and after 20 March 2022, the delivery of alumina by QAL to ABC would have been contrary to the Export Sanction.

(Emphasis added.)

114    In section D.4 of the Reasons, the primary judge considered the question: “Does the Designated Persons Sanction apply in respect of the delivery of alumina to ABC?”. His Honour considered issues of construction at [255]-[282]. He then considered the application of the prohibition to the present case at [283]-[289]. The primary judge concluded “on the balance of probabilities that, at all times on and after 19 March 2022, the production of alumina by QAL for ABC and the delivery of the alumina to ABC would have been contrary to the Designated Persons Sanction” (at [288]).

Section E

115    In section E of the Reasons, the primary judge considered the respondents’ defences to the Russian parties’ claims of breach of contract. At [302]-[303], the primary judge set out applicable principles regarding contractual interpretation, referring to Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104 at [46]-[51] per French CJ, Nettle and Gordon JJ and Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35] per French CJ, Hayne, Crennan and Kiefel JJ. No issue is raised on appeal about the primary judge’s statement of the applicable principles.

116    In section E.2, the primary judge considered whether Art 14A of the Participants Agreement was engaged. The primary judge discussed the surrounding circumstances relating to the introduction of the article at [311]-[316].

117    His Honour considered whether each of the Export Sanction and the Designated Persons Sanction engaged Art 14A.

118    In relation to the Export Sanction, the primary judge accepted the Russian parties’ construction of the phrase “imposes sanctions on” in Art 14A, namely that it referred to sanctions that were directed at, or targeted, identified persons, namely UC Rusal, ABC or their affiliates (at [320], [323]). The primary judge concluded that the Export Sanction was not such a sanction and that Art 14A was not engaged on the basis of that sanction (at [323], [342]).

119    In relation to the Designated Persons Sanction, the primary judge accepted the Russian parties’ contention that Messrs Deripaska and Vekselberg were not “affiliates” of UC Rusal or ABC within the meaning of Art 14A (at [334], [341]). Accordingly, his Honour concluded that Art 14A was not engaged on the basis of the Designated Persons Sanction (at [342]).

120    The primary judge went on to consider, for completeness, whether the Russia Sanctions were “likely to” prevent QAL from undertaking business activity with ABC within the meaning of Art 14A. The primary judge concluded that both of the Russia Sanctions operated to prevent QAL from delivering alumina to ABC, and therefore satisfied the criterion in Art 14A of being “likely to” prevent QAL from undertaking business activity with ABC (at [355]).

121    In section E.3, the primary judge considered the issues of supervening illegality and force majeure in relation to the Participants Agreement and Tolling Contracts. The primary judge concluded that the defence of supervening illegality was available to QAL (at [359]). His Honour also concluded that the force majeure clause in Art 17 of the Tolling Contracts applied (at [362], [365]).

122    In section E.4, the primary judge considered the force majeure provisions in Art 21 of the Monohydrate Bauxite Supply Agreement, Art 18.1 of the Low Mono Bauxite Supply Agreement and cl 11.1 of the Shipping Agreement. His Honour concluded that those articles applied (at [381]).

123    In section E.5, the primary judge considered the sanctions provisions in Art 26.2 of the Monohydrate Bauxite Supply Agreement, Art 19.3(b) of the Low Mono Bauxite Supply Agreement and cl 12.2 of the Shipping Agreement. His Honour concluded that those articles applied on the basis that Messrs Deripaska and Vekselberg were Restricted Parties who would indirectly benefit from the agreements (at [410]).

Section F

124    The primary judge stated at [411] that it followed from the findings he had made and the conclusions he had reached that, in respect of the period to the date of the judgment, the Russian parties were not entitled to any declaratory or injunctive relief or an award of damages on the grounds of breach of contract. The primary judge then considered whether the Court should accept the Rusal Group Undertaking and give declaratory and/or injunctive relief on the basis of the prospective effect of the Undertaking. The primary judge concluded that the undertaking should not be accepted (at [432]).

The appeal

125    The Russian parties rely on eight grounds of appeal, which have been summarised at [14] above.

126    Grounds 1 and 2 of the notice of appeal both relate to the Export Sanction.

127    Ground 1 is lengthy, occupying over three pages of the notice of appeal. The primary proposition in ground 1 is as follows:

The primary judge erred in concluding that, absent a binding and enforceable commitment given by the first appellant (ABC), there could be no doubt that, on and after March 2022, alumina delivered to ABC by the first respondent (QAL) would have been, and would in the future be, exported to Russia for use in aluminium smelters owned and operated by ABC’s parent entity (UC Rusal) (and for the benefit of Russia), in contravention of the export sanction imposed under regulation 12(1) of the Autonomous Sanctions Regulations 2011 (Cth) (the Export Sanction) (Reasons for Judgment dated 1 February 2024 (Reasons) at [130], [240], [246]-[248] and [290(a)]) …

(Emphasis added.)

128    The balance of ground 1 sets out “circumstances” said to support the above proposition. Those matters are also covered in the Russian parties’ written submissions, which we summarise later in these reasons.

129    Ground 2 is as follows:

The primary judge erred in concluding that on a proper construction of the Export Sanction, a transfer of alumina by ABC and/or UC Rusal otherwise than to Russia would directly or indirectly result in a transfer of alumina for the benefit of Russia in contravention of the Export Sanction (Reasons at [249] and [290(b)]), in circumstances where:

a.    the primary judge’s construction that any and all exports of alumina from Australia to destinations other than Russia, where that export increases the availability of other alumina in other countries (eg China) able to be purchased by persons in Russia, would constitute a contravention of the Export Sanction, is one which is contrary to the text, context and purpose of the Export Sanction, including the objective or purposive inquiry invited by the phrase “for the benefit of” and the targeted nature of the autonomous sanctions regime;

b.    the primary judge’s construction gives rise to the possibility of the imposition of indeterminate liability on persons dealing with export sanctioned goods which, in the context of a penal statute, is a construction neither supported by clear words nor ameliorated by the possibility of statutory defences to any contravention.

(Emphasis added.)

130    Broadly, ground 1 challenges the primary judge’s conclusion in relation to (what we have described as) the Gladstone Alumina Issue, while ground 2 challenges the primary judge’s conclusion in relation to the Other Alumina Issue.

131    QAL has filed a notice of contention, which includes the grounds outlined at [16] above.

132    The Rio parties have filed a notice of contention, which includes the ground outlined at [16(b)] above.

Consideration

Construction issues relevant to both grounds 1 and 2

133    The Russian parties raise some issues of construction in their written submissions on ground 2 that are potentially relevant also to ground 1. We therefore consider it appropriate to consider those issues of construction at this stage, before addressing additional issues raised by grounds 1 and 2. The Russian parties make some general submissions about the primary judge’s construction, as well as some specific submissions in support of the proposition that the Export Sanction applies only to a single transaction.

134    The general submissions made by the Russian parties can be summarised as follows.

135    The Russian parties submit that: while the application of the principles of statutory construction was a matter of controversy between the parties, the principles themselves were not (see the Reasons, [215]-[216]); there was no issue that the elements of reg 4(1)(a) and (b) would be fulfilled if the parties’ activities in the Gladstone alumina joint venture were to continue after the Export Sanction commenced; the controversy revolved around reg 4(1)(c); in general terms, the consequence of the trial judge’s construction of that provision is that an Australian-based entity which trades in export sanctioned goods can contravene the Export Sanction on the basis of events and conduct which are wholly outside its control; such a construction gives rise to irrational and unjust consequences (see further submissions below), and conflicts with both the terms and the express legislative objects of the Export Sanction.

136    In the Russian parties’ submissions, a transfer of export sanctioned goods as referred to in para (c) of reg 4(1) is referred to as the “Transfer”, and the prior supply, sale or transfer within para (a) of reg 4(1) is referred to as the “Prior Supply”.

137    After referring to the primary judge’s findings and conclusion at [249], the Russian parties submit that, on the primary judge’s construction, the Export Sanction can be contravened irrespective of:

(a)    how many dealings with particular export sanctioned goods (or other goods of the same description) occur between the Prior Supply and the Transfer;

(b)    whether the Prior Supplier knew, or had the means of knowing, the identity of persons who may deal with the particular goods (or other goods of the same description) between the Prior Supply and the Transfer;

(c)    the purpose of any dealings subsequent to the Prior Supply;

(d)    how much time has elapsed between the Prior Supply and the Transfer; and

(e)    whether the Prior Supplier was capable of exercising control over the conduct of others involved in any subsequent dealing with the particular goods or over circumstances obtaining at any time subsequent to the Prior Supply.

138    The Russian parties submit that significant consequences follow from the primary judge’s construction:

(a)    First, Australian-based entities dealing in goods that are export sanctioned for a country would face a material risk of contravening the Export Sanction by selling them to buyers in countries allied to Australia in international relations (eg, the USA) or, indeed, to domestic buyers in Australia. The reason is that a foreign (or even domestic) sale of such goods can be followed later by a Transfer of export sanctioned goods, at whatever time, by whomever and for whatever purpose, to the sanctioned country.

(b)    Secondly, it follows that to avoid the risk of prosecution and associated commercial risks, the Australian-based entity would be required to cease supplying, selling or transferring such goods either to foreign buyers or to domestic buyers.

(c)    Thirdly, in turn, that would suppress (or reduce to nil) the total volume of exported goods of the relevant kind to non-sanctioned countries. That is because any such export that increases the global supply of such goods, thus improving the trade terms for the import of such goods from countries other than Australia to the sanctioned country, can contravene the Export Sanction. Such a construction would, for example, appear to apply to QAL’s dealings with the Rio parties.

(d)    Fourthly, the reduced ability to acquire export sanctioned goods from Australian-based suppliers would affect foreign countries other than the sanctioned country in the same way as the sanctioned country.

(e)    Fifthly, an oppressively burdensome compliance obligation would apply to any Australian-based entity hoping to rely (if charged with a contravention) on a defence in the Criminal Code (being the Schedule to the Criminal Code Act 1995 (Cth)) that it took reasonable precautions and exercised due diligence. “Reasonable” precautions must, on the trial judge’s construction, extend well beyond due diligence as to the identity and circumstances of the entity’s counterparty and into, for instance, the economics of global trade.

(f)    Sixthly, it would be unjust (see Reasons, [223]) that an Australian-based entity might engage, on pain of criminal sanction, in a transaction that initially is not a sanctioned supply but which subsequently becomes a sanctioned supply. Such injustice is not mitigated by a defence that depends on discharging an oppressively burdensome compliance obligation (cf Reasons, [224]). Further, a defence of mistake of fact could not as such apply to mispredictions, which the primary judge’s construction in effect requires an Australian-based entity to make as to others’ conduct and the economics of global trade. Nor can it have been intended, on the primary judge’s construction, that every Australian-based entity concerned in the trade of export sanctioned goods would effectively have to obtain a permit under reg 18(1)(a) from the Minister (exercising his or her discretion) so as to guard against the possibility that supplies which are not initially sanctioned might become sanctioned supplies (cf Reasons, [224], [433]).

139    The Russian parties submit that the primary judge’s construction contradicts several of the expressly stated objects of the Export Sanction. They submit that those objects include: that autonomous sanctions may address “matters that are of international concern in relation to one or more particular foreign countries” (Autonomous Sanctions Act, s 3(2)); that the autonomous sanctions apply to conduct in or connected with Australia that facilitates the engagement by (relevantly) a foreign government entity in action outside Australia that is “contrary to Australian Government policy” (Autonomous Sanctions Act, s 4, definition of “autonomous sanction”, para (b)); that export sanctions shall be “highly targeted measures”, enabling Australia to act in concert with “like-minded countries”, and be “applied only to the specific governments … or to the specific goods … that are responsible for, or have a nexus to, the situation of international concern … so as to minimise … the impact on the general populations of the affected countries” (Replacement explanatory memorandum to the Autonomous Sanctions Bill 2010 (Cth), p 1); and that the strict liability of bodies corporate that contravene the sanctions should “promote a culture of corporate compliance” (ibid, p 8). The Russian parties submit that general suppression of global alumina trade far exceeds these objects.

140    Further, the Russian parties submit that: on the primary judge’s construction, the Export Sanction would operate without differentiation between foreign countries that are sanctioned in relation to particular goods, and foreign countries that are not; that construction contradicts the express object “to influence those responsible for giving rise to the situation of international concern to modify their behaviour to remove the concern (by motivating them to adopt different policies)” (ibid., p 1). The Russian parties submit that, in the case of alumina, that construction would defeat the stated objective of “Australia … demonstrating its [necessarily specific] condemnation of Russia’s illegal and unjustified invasion of Ukraine” by prohibiting “the export of goods that are a key component in the manufacture and development of weapons”; being, by hypothesis, those suited to use in conflict between Russia and Ukraine: Explanatory Statement to Autonomous Sanctions (Export Sanctioned Goods – Russia) Designation 2022, p 1.

141    We now summarise the Russian parties’ submissions in support of their contention that the Export Sanction applies only to a single transaction.

142    The issue of construction raised by these submissions may be stated as: whether the definition of “sanctioned supply” in reg 4(1) (set out at [82] above) applies only where the supply, sale or transfer referred to in para (a) and the transfer referred to in para (c) are part of a single transaction, or whether the definition is capable of applying also to a situation where the supply, sale or transfer referred to in para (a) and the transfer referred to in para (c) are separate transactions. The primary judge dealt with this issue at [221]-[224] (see [104] above).

143    The Russian parties’ submissions can be summarised as follows:

(a)    Both the text and objects of the Export Sanction strongly indicate that the Export Sanction applies to only a single transaction – namely, a co-ordinated export arrangement, one part of which is a given Prior Supply by a person in Australia of export sanctioned goods, another part of which is the Transfer of those goods in connection with a sanctioned country. Potentially, several “persons” will engage in acts in performance of such a co-ordinated arrangement. However, as the Export Sanction only proscribes voluntary conduct of the Prior Supplier, it can only apply where the Prior Supply is in furtherance of a Transfer to, for use in or for the benefit of the sanctioned country. That is, the proscription applies only where the Prior Supplier commits particular export sanctioned goods to another for Transfer to, for use in or for the benefit of the relevant sanctioned country.

(b)    That construction is apt to promote a culture of corporate compliance, which is frustrated on the primary judge’s construction, and is also apt to single out the conduct of a particular “foreign government entity” to influence such conduct in connection with a matter of international concern to the Australian Government. It also obviates the “unjust” consequences that the primary judge referred to at Reasons, [223].

(c)    That reg 4 applies to only a single transaction (encapsulating both the Prior Supply and the Transfer) is confirmed – and required – by the Criminal Code, which articulates general principles of criminal responsibility applicable to the sanctions laws in this case: see Criminal Code, s 2.2(2). First, while the physical element of an offence may be conduct, a result of conduct, or a circumstance in which conduct or a result of conduct occurs (s 4.1(1)), and “conduct” in the Criminal Code means “an act, an omission to perform an act or a state of affairs” (s 4.1(2)), nonetheless: (i) “[c]onduct can only be a physical element if it is voluntary” (s 4.2(1)); (ii) “[c]onduct is only voluntary if it is a product of the will of the person whose conduct it is” (s 4.2(2)); and (iii) “[i]f the conduct constituting an offence consists only of a state of affairs, the state of affairs is only voluntary if it is one over which the person is capable of exercising control” (s 4.2(5)). Secondly, s 10.1(1) of the Criminal Code relevantly provides that a person is not criminally responsible for an offence that has a physical element to which strict liability applies if:

(a)    the physical element is brought about by another person over whom the person has no control or by a non-human act or event over which the person has no control; and

(b)    the person could not reasonably be expected to guard against the bringing about of that physical element.

(d)    By reason of those provisions, a Prior Supplier cannot contravene the Export Sanction where, eg, a Transfer of the same export sanctioned goods to, for use in or for the benefit of the sanctioned country is brought about by an arm’s length buyer who, in breach of a contractual prohibition inserted to reasonably guard against the buyer on-transferring to the sanctioned country, on-transfers the particular goods to that country.

(e)    Two drafting features of reg 4 are notable. First, rather than employ technical legal concepts such as “contract”, “agency”, “bailment”, “trust” and so forth, the regulation employs the non-technical language of ordinary affairs. It can be taken that that choice was deliberate to foreclose, inter alia, the selection of legal arrangements that employ technical concepts which are not expressly proscribed, where the dealing otherwise falls within the statutory mischief. Secondly, the structure of reg 4(1)(c) reflects the same purpose of anti-avoidance. Regulation 4(1)(c)(i) most openly and plainly captures the legislative object of preventing a sanctioned country from obtaining the very kind of goods which are apt to be used in an identified situation of international concern to the Australian Government as a matter of foreign policy. Regulation 4(1)(c)(ii) then captures Transfers which are not “to” the export sanctioned country but where, eg, the goods touch down in a third party country en route to the sanctioned country (i.e., for use there). Regulation 4(1)(c)(ii) thus stops a Prior Supplier concerned in such a transaction from arguing that its conduct was not proscribed because the Transfer (which must have a nexus with Australia: Autonomous Sanctions Act, s 4) was not “to” the sanctioned country. In a similar vein, reg 4(1)(c)(iii) then captures a residual category of Transfer, where the goods are transferred to a third party country not for on-transfer to, or for use in, the sanctioned country, but nonetheless for the “benefit” of the sanctioned country as a particular foreign government entity.

144    There is no issue as to the applicable principles of statutory interpretation, which were set out by the primary judge at [215]-[216] of the Reasons.

145    In our view, having regard to the text, context and purpose of the Regulations, reg 4(1) is capable of applying to circumstances involving more than one transaction. That is to say, reg 4(1) is capable of applying in a situation where the supply, sale or transfer referred to in para (a) and the transfer referred to in para (c) are separate transactions.

146    As the primary judge noted, the regulation is expressed in the present tense. The natural way to read the regulation is that the requirements in paras (a) and (c) can be satisfied at different times; there is no express requirement that the supply, sale or transfer in para (a) and the transfer in para (c) occur at the same time or as part of a single transaction or that the transfer referred to in para (c) be planned or pre-ordained at the time of the supply, sale or transfer referred to in para (a). The description of the transfer in para (c) as a “direct or indirect result” of the supply, sale or transfer in para (a) also suggests that the two can be distinct events.

147    We accept that a consequence of that construction is that, at the time of the supply, sale or transfer in para (a), it may not be possible to determine whether or not the supply, sale or transfer is a “sanctioned supply”. In other words, whether or not a supply, sale or transfer constitutes a “sanctioned supply” may depend on a subsequent event linked to the supply, sale or transfer only by the nexus required by the words “direct or indirect result”. While this may seem surprising at first blush, we consider that this position reflects the text of reg 4(1), read in context and having regard to the objects of the Regulations and the legislation (see s 3 of the Autonomous Sanctions Act). We consider that the potential harshness of that position is ameliorated to some extent by the matters referred to by the primary judge at [224] of the Reasons, namely:

(a)    While an offence against s 16(5) is an offence of strict liability, s 6.1 of the Criminal Code stipulates that a defence of mistake of fact under s 9.2 of the Criminal Code is available to offences of strict liability.

(b)    If the offence is committed by a body corporate, s 16(7) of the Autonomous Sanctions Act creates a defence if the body corporate proves that it took reasonable precautions, and exercised due diligence, to avoid contravening s 16(5).

(c)    A person may apply to the Minister under Pt 4 of the Regulations for a permit to engage in conduct that may constitute a sanctioned supply, and the Minister may grant a permit including on the basis of conditions specified in the permit. If a permit is granted, the conduct is an authorised supply and exempted from the prohibition in reg 12(1).

148    The Russian parties’ construction – namely, that the supply, sale or transfer referred to in para (a) and the transfer referred to in para (c) must form part of a single transaction – would give the provisions a narrow operation that would not achieve the objects of the Regulations and the legislation. Further, if the construction put forward by the Russian parties had been intended, it is likely that reg 4(1) would have been drafted in a much simpler way. In particular, it is unclear on the Russian parties’ construction why the prohibition was not simply framed as a prohibition on any supply, sale or transfer of goods to, for use in, or for the benefit of a country (without interposing the concept, in para (c), of a transfer that is the “direct or indirect result” of a para (a) “supply, sale or transfer”).

149    In reaching this conclusion, we have had regard to the general submissions made by the Russian parties as summarised above. It is unnecessary for the purposes of this case to reach a view as to the outer limits of the definition of “sanctioned supply” in reg 4(1). It is sufficient to resolve the issue of construction raised by the Russian parties in relation to reg 4(1) and then to consider whether the regulation applies in the circumstances of this case.

150    We do not consider the provisions of the Criminal Code to which the Russian parties referred to assist in the construction or application of reg 4(1). There can be no question that the physical element of the relevant offence is the “supply, sale or transfer” referred to in reg 4(1)(a), and so long as that conduct is voluntary, the physical element will exist. It is not necessary for the matters in reg 4(1)(c) to also be within the person’s control. Further, as discussed above, defences may be available under s 6.1 of the Criminal Code and s 16(7) of the Autonomous Sanctions Act.

151    In summary, reading the definition of “sanctioned supply” in reg 4(1) in context and having regard to the objects of the Regulations and legislation, we consider that reg 4(1) is capable of covering a situation where the supply, sale or transfer referred to in para (a) and the transfer referred to in para (c) are separate transactions.

Ground 1

152    Ground 1 has been set out (in part) at [127] above.

153    Although ground 1 is expressed in terms of the primary judge’s finding in the first sentence of [130], the primary judge also considered the relevant issue in section D.3 of the Reasons, in particular at [241]-[246]. The key relevant findings in that section are at [241] and [246], where the primary judge found:

241    First, immediately following the imposition of the Export Sanction, if QAL had delivered alumina from the Gladstone Plant to ABC, a direct or indirect result of the delivery would have been that the alumina would be transferred to Russia. …

…

246    Having regard to the evidence before the Court, I find on the balance of probabilities that, on and after 20 March 2022, alumina delivered to ABC would have been transferred to Russia to meet the needs of the Rusal Group. That would have been a breach of the Export Sanction.

(Emphasis added.)

154    Those findings provided the premise for the primary judge’s conclusions at [247] and [248].

155    They also provided the basis for the primary judge’s conclusion that there would have been a breach of the Export Sanction: Reasons, [240], [250], [290(a)].

156    In support of ground 1, the Russian parties submit that in making the finding at [130] of the Reasons, the primary judge accepted the respondents’ invitation to decide the factual issues as to the export of alumina to and for use in Russia by reference not to the evidence as a whole, but solely by reference to an erroneous assessment of the evidentiary weight of the 24 March Letter. The Russian parties submit that: the 24 March Letter was provided by ABC to QAL in response to the imposition of the Russia Sanctions; it set out measures ABC had taken to ensure that the Export Sanction would not be contravened, and identified other pre-existing circumstances that would ensure the same; then it distinctly stated that “ABC is prepared to give a binding undertaking, which reflects these matters, if this would give comfort to QAL”; thereafter, QAL did nothing at all to engage with the letter’s substance (Reasons, [107]-[121]); QAL simply determined that it would contravene the Export Sanction were it to trade with ABC; QAL implemented the Step-in (invalidly – see the Reasons at [355]), ceasing trade with ABC on 4 April 2022.

157    The Russian parties submit that the primary judge’s decision at [132] and [134] to assign the letter “no evidentiary weight”, and to proceed to the conclusion in [130] and [134] solely on that basis, are such that the factual finding at [130] was wrongly made.

158    The Russian parties make the following more detailed submissions in support of ground 1:

(a)    The question was whether QAL would contravene the Export Sanction were it to continue refining and delivering alumina to ABC on and after March 2022. However, the primary judge’s treatment of the evidence shows that he misconceived of that question such that his consideration of the evidence miscarried. The clear implication of Reasons, [130]-[134] (also Reasons, [243]-[244]) is that a binding and enforceable undertaking would (or at least could) have carried considerable probative weight. But the 24 March Letter and matters said to go to its probative weight were not the totality of the evidence relevant to the question. Independently of the 24 March Letter, there was relevant evidence of circumstances and conduct (discussed below) that the primary judge failed to consider in arriving at the conclusion in Reasons, [130] and [134].

(b)    There was uncontested evidence that UC Rusal controls the management and operations of ABC. Accordingly, proper assessment of the evidence as to whether QAL would have contravened the Export Sanction had it continued to trade with ABC after the Export Sanction commenced required the judge to evaluate evidence pertaining both to ABC and UC Rusal. In confining himself to evidence pertaining to ABC alone in arriving at the conclusion in [130] and [134], the primary judge failed to consider all the relevant evidence.

(c)    The relevant evidence that the primary judge failed to consider included the following uncontested evidence. UC Rusal conducts its business operations all over the world. To do so, it must know and comply with sanctions regimes implemented by Australia, the USA and other countries. Aware of its record of global sanctions compliance, customers have confidence that in dealing with UC Rusal they will not be affected by sanctions. UC Rusal holds and administers a sanctions compliance policy. While entities associated with Messrs Deripaska and Vekselberg, including UC Rusal, were entered on the SDN List in April 2018, UC Rusal was subsequently de-listed as a sanctioned entity by OFAC in January 2019 upon UC Rusal’s fulfilment of various conditions. Those conditions are subject to ongoing monitoring. OFAC has not notified UC Rusal of any material non-compliance therewith.

(d)    The primary judge made no findings that responsible persons within UC Rusal had acted or would act contrary to any sanctions imposed by any country or UC Rusal’s sanctions compliance policy. There was no evidence that ABC or UC Rusal or any officer or employee of either had at any time refused to comply, or would in future refuse to comply, with sanctions imposed by any country.

(e)    Significantly, in cross-examination, the respondents did not put to officers of UC Rusal that:

(i)    their evidence of UC Rusal’s compliance policies and history of sanctions compliance was wrong or untruthful;

(ii)    UC Rusal had complied or would in future comply only selectively or not at all with sanctions affecting UC Rusal’s international business;

(iii)    UC Rusal did not intend to cause ABC to comply with relevant Australian sanctions laws;

(iv)    UC Rusal’s policy was or is to comply with OFAC sanctions but not Australian sanctions; or

(v)    the 24 March Letter was unsupported by UC Rusal, or provided in bad faith or would not be given effect.

(f)    It was not open to reject (or overlook) all that unchallenged evidence (Ashby v Slipper [2014] FCAFC 15; 219 FCR 322 at [77]-[78]), particularly where it showed the lengths to which UC Rusal had recently gone (Reasons, [99], [105]) to ensure it complied with OFAC sanctions. Likewise, the cogency, extent and weight of that evidence is not gainsaid by evidence that ABC’s Gladstone alumina had previously been supplied for use in UC Rusal’s aluminium refineries in Russia prior to the imposition of the Russia Sanctions, or indeed that UC Rusal had an ongoing requirement for alumina after the Export Sanction commenced, noting in particular that it conducts a global trade in alumina (see Reasons, [68]-[74], [242]).

(g)    To the extent that the probative weight of the 24 March Letter bore upon whether QAL would have contravened the Export Sanction had it continued to trade with ABC, both its terms and context indicate that it carries significant weight (cf Reasons, [134]). First, it was incorrect to accept at [133] the respondents’ submission that the 24 March Letter conveyed “mere representations by ABC as to its intended future conduct”. A representation in ordinary language is a re-presentation of a past or present fact (Keane, Estoppel by Conduct and Election, 3rd ed, [11-004]). The matters in para 6 of the 24 March Letter were past and present facts. Further, the statements in paras 5-6 of ABC’s intended future conduct were plainly assurances. Behind them was, inter alia, the weight of UC Rusal’s track record of compliance with sanctions globally.

(h)    The scope of those assurances is to be ascertained from their terms and the circumstances in which they were given. They were unqualified – speaking, eg, of “any” and “all” alumina, “any” of UC Rusal’s subsidiaries, “any inconsistent agreements”. And, again, the circumstances included UC Rusal’s recent history of extensive governance changes to comply with OFAC’s de-listing conditions (Reasons, [99], [105]), of which the respondents were “acutely conscious”: Reasons, [102]. The terms of the assurances were thus apt to capture all conduct capable of contravening the Export Sanction (properly construed), had QAL chosen to engage with them.

(i)    Two points follow. One, the suggested absence of evidence that ABC had suspended or terminated the contract by which it had agreed to sell all of its Gladstone alumina supply to another UC Rusal subsidiary, RTI, until December 2025, had no bearing on whether ABC’s Gladstone alumina would be exported to Russia for use in UC Rusal’s aluminium smelters after the Export Sanction commenced. In the 24 March Letter, ABC – acting under UC Rusal’s control – explicitly assured QAL that it would “not provide any alumina it receives from QAL to Russia or to UC Rusal or any of its subsidiaries” and that “any current agreements which were inconsistent with these arrangements have been or will be terminated or suspended”. That plainly encompassed the RTI sale contract – formal suspension of which (if it were necessary, noting it was between related parties and bearing in mind the terms of the 24 March Letter) was made redundant by QAL’s own conduct in invoking and implementing the Step-in: see Reasons, [122]-[125]. Two, the willingness expressed in the 24 March Letter plainly encapsulated swap arrangements involving alumina produced by QAL on behalf of ABC. Indeed, when the Step-in was implemented on 4 April 2022, neither UC Rusal nor ABC had any operative swap and sale arrangements for the supply of alumina produced by QAL on behalf of ABC to other countries in exchange for the supply of alumina to Russia: Reasons, [73].

(j)    Apart from the 24 March Letter, the further matters on which the primary judge relied at Reasons, [241]-[246] in support of his finding – namely, what the Rusal Group had historically done with alumina from Gladstone prior to the imposition of the sanctions, the economic impost arising in part from the loss of alumina from Gladstone following the imposition of the sanctions, and the fact that a third party buyer for the alumina proposed to be stored in Qingdao had yet to be secured when QAL’s conduct rendered those efforts redundant (see Reasons, [124]) – afforded no proper basis to deny the unchallenged evidence outlined above that following the imposition of the Russia Sanctions, alumina sourced by ABC from QAL would not be transferred to Russia for use in UC Rusal’s aluminium smelters.

(k)    The primary judge’s finding at Reasons, [130], [246] and [290(a)] that ABC and UC Rusal would in effect act in direct contravention of the Export Sanction is unsupportable on all the evidence and must be overturned. The primary judge misconceived the question that his factual findings were supposed to answer, thus failing to consider all the relevant evidence. The evidence as a whole overwhelmingly supported contrary findings that ABC and UC Rusal would have ceased exporting alumina in any way that could have contravened the Export Sanction, in particular by ceasing the export of alumina from Gladstone to Russia for use in UC Rusal’s aluminium smelters.

159    In oral submissions, senior counsel for the Russian parties submitted that his clients, who are global commodity producers, found the finding at [130] to be “quite offensive”. He submitted:

And it wasn’t put to our witnesses. We had the most senior people from UC Rusal out here in Australia giving evidence. It wasn’t put to them that they were going to deliberately breach Australian sanctions – a proposition that, in respect of a global alumina company operating on all five continents as the evidence disclosed, just frankly absurd.

160    Senior counsel for the Russian parties submitted that QAL’s case at first instance was “all about” Art 14A of the Participants Agreement. He submitted that the Rio parties “led the charge” in relation to whether there would be a breach of the Russia Sanctions. He submitted:

and that case was about – really was about whether or not the alumina being shipped to China was for the benefit of Russia, and that was the Clark report, and his Honour made findings against us on that. And that’s ground 2 …

161    Senior counsel submitted that the primary judge did not rely on Mr Clark’s First Report in support of the finding challenged by ground 1.

162    In response to a question from this Court as to whether the issue was covered by the pleading, senior counsel for the Russian parties submitted:

This case was never about – true, it was pleaded. It was pleaded that the alumina would be for the benefit of Russia or be exported to Russia. That was pleaded, but this case was never about, “Oh, these people are just going to deliberately breach the export sanctions.”

163    Senior counsel for the Russian parties took the Court to the evidence of Mr Gordymov and Mr Strunnikov, including UC Rusal’s compliance policy. He submitted:

But neither of them – it was not put to either of the witnesses, “Well, you’re going to breach the sanctions. You’re not going to comply with these – with this policy.” And manifestly, an export of alumina from Gladstone by ABC to Russia – to Russia, is in obvious breach of the sanctions.

164    Senior counsel also submitted that:

… everyone got distracted by the 24 March [letter] because we were offering … – the undertaking. We wrote that letter to give comfort to QAL. We didn’t need enforceable undertakings in place in order for ABC not to be in breach of the sanctions if it shipped alumina to China.

165    Insofar as the Russian parties submitted in oral submissions that the primary judge found that, absent a binding and enforceable commitment by ABC, the Russian parties would have deliberately breached the Russia Sanctions, this misstates what the primary judge found. The findings at [130], [241] and [246] do not refer to a deliberate breach of the sanctions. It may be inferred that the primary judge was careful to express his findings in the passive voice (whether the alumina would have been transferred to Russia) to avoid the need to make a finding as to whether any breach would have been deliberate. Further, the primary judge did not make a finding that the alumina would have been directly transferred to Russia; rather, he found that the alumina would have been transferred to Russia, which encompasses the alumina being transferred first to another country (eg, China) and then transferred to Russia. For example, in [129], the primary judge framed the relevant factual dispute in the following terms:

A significant area of factual dispute between the parties concerns the likelihood that alumina delivered to ABC by QAL would ultimately be exported to Russia …

(Emphasis added.)

See also, to similar effect, [134] and [243]. Further, as set out above, the relevant finding was expressed in the following terms at [241]:

First, immediately following the imposition of the Export Sanction, if QAL had delivered alumina from the Gladstone Plant to ABC, a direct or indirect result of the delivery would have been that the alumina would be transferred to Russia.

(Emphasis added.)

In light of these matters, we consider that the Russian parties’ oral submissions misstate the findings actually made by the primary judge.

166    As noted above, the Russian parties submitted that the respondents’ case at trial “really was about whether or not the alumina being shipped to China was for the benefit of Russia, and that was the Clark report, and his Honour made findings against us on that. And that’s ground 2”. If and to the extent that the Russian parties were submitting that the respondents’ case at trial was really about the Other Alumina Issue and not the Gladstone Alumina Issue (see [97] above), we do not accept that submission. The material before this Court includes the parties’ closing written submissions at trial. Those submissions make clear that the respondents did run a case that, if QAL had delivered alumina to ABC, that alumina (that is, the Gladstone alumina) would have ended up in Russia in breach of the sanctions. Moreover, QAL relied on Mr Clark’s First Report in support of that case (and not only in relation to the Other Alumina Issue). We refer to the following parts of the respondents’ closing submissions at trial:

(a)    In QAL’s closing submissions at trial, at para 5, QAL submitted:

… the uncontested evidence of Mr Clark is that, if QAL had continued refining bauxite into alumina for ABC, it is likely that that very alumina would have been transferred to Russia (or, alternatively, other alumina would have been transferred to Russia in substitution).

(Emphasis added.)

(b)    QAL’s closing submissions at trial included a section headed “Alumina produced by QAL will go to Russia”, commencing at para 210. In that paragraph, QAL submitted:

The Court should find, on the strength of Mr Clark’s opinion, that, if QAL had [continued] to refine bauxite into alumina for ABC, that alumina or some of it – that is, the actual alumina produced by QAL – would have been transferred to Russia.

(Emphasis added.)

(c)    QAL set out some background evidentiary matters at paras 212-215. The submissions then discussed the evidence in Mr Clark’s First Report in some detail at paras 216-220. It was then submitted at para 223:

The Court must find, on the strength of Mr Clark’s cogent, uncontradicted evidence that Australian alumina that was transferred to China in March and April 2022 was or was likely to be then transferred to Russia. The Russian parties’ attempts to describe his evidence as ‘theoretical’ have no basis whatsoever.

(Bold emphasis added.)

(d)    In the Rio parties’ closing submissions at trial, they made submissions under the heading “Transfer to Russia on 20 March 2022”, commencing at para 135. In that section, the Rio parties submitted at para 140:

The Court should find that as at 20 March 2022, if QAL was to supply alumina to ABC it would have been transferred to Russia. …

(e)    The next section of those submissions was headed “Transfer to Russia after 23 March 2022 despite plans and assurances”, commencing at para 141. That section included:

141.    After that time [i.e. 23 March 2022] only three things have changed.

a.    First, QAL was notified on 23 March 2022 that the vessel to be loaded on 4 April 2022 was nominated to go to China but an alternative buyer was not found;

b.    Second, ABC provided its letters of comfort on 24 and 29 March 2022;

c.    Third, QAL issued a Cessation Notice with respect to the alumina effective from 4 April 2022.

142.    None of those matters changed the fact that by that time Appendix E already applied. But of course, because of the last of these, any contravention of the Export Sanctions has been prevented from in fact occurring.

143.    The evidence concerning the other two matters does not negate the strong inference that the alumina would be shipped to Russia as had always been done. It does not justify the Court finding that alumina, if thereafter supplied by QAL to ABC, would not (on the balance of probabilities) have been transferred to Russia. …

(Emphasis added.)

In light of the above, if and to the extent that the Russian parties submitted that the respondents’ case at trial did not include the Gladstone Alumina Issue or that the respondents did not rely on Mr Clark’s First Report in relation to that issue, we do not accept that submission.

167    We now address the Russian parties’ other submissions in relation to ground 1. In summary, the Russian parties submit that there was no proper basis for the primary judge to make the relevant findings, that he overlooked evidence in making the relevant findings, and that critical matters were not put to the Russian parties’ witnesses. For the reasons that follow, we do not accept these submissions.

168    We consider that there was a proper basis in the evidence to support the primary judge’s findings at [130], [241] and [246] to the effect that, if alumina had been delivered by QAL to ABC on and after 20 March 2022, that alumina (or at least some of it) would have been transferred to Russia. Although the primary judge did not refer to Mr Clark’s First Report in the passage of his reasons at [241]-[246], this passage should not be read in isolation. It is important to have regard to the judgment as a whole, including the detailed treatment, and general acceptance of, Mr Clark’s evidence in the section of the Reasons at [136]-[147]. The evidence of Mr Clark in his first report provides support for the primary judge’s relevant findings. In particular, we note the following parts of Mr Clark’s First Report:

(a)    In section 2.8 of his report (dealing with Question 8), Mr Clark expressed the following opinions:

[g]    Rusal would have had the option to source the alumina it needed from China, given the structural overcapacity that existed in the Chinese alumina industry at the time. Indeed, export data sourced from China Customs confirms this is what happened. China exported a total of 168kt of alumina in April, (Figure 2-13) of which 124kt was exported to Russia, accounting for 74% of the total.

[h]    This resulted in China swinging to become a net exporter of alumina for the first time since 2018, despite no obvious price arbitrage opening between the Chinese and ROW markets.

[i]    According to Wood Mackenzie, “more than 38% of China’s [April] alumina exports (64kt) were identified as shipments from Customs’ warehouses”. In March and April 2022, China imported a total of 263kt of alumina, 94% of which was sourced from Australia. It seems reasonable therefore, that “a sizeable portion of imported Australian alumina was transhipped to Russia”.

[j]    Figure 2-13 presents Chinese export data on a monthly basis between 2017 and 2022. The chart shows that China exported small volumes of alumina to Russia during the period August 2018 to January 2019, corresponding to the period during which the Alunorte refinery in Brazil was forced to shut 50% of its capacity and the US Treasury imposed sanctions against several Russian oligarchs and Russian officials.

[k]    The chart also shows the significant increase in exports of alumina to [Russia] beginning in March 2022, corresponding to the time when Rusal stopped shipments of alumina from its Nikolaev refinery in Ukraine and when sanctions were placed on shipments of alumina from Australia.

(Footnotes omitted; emphasis added.)

(b)    In section 2.10 of his report (dealing with Question 10), Mr Clark expressed the following opinions:

[d]    Given the state of the global alumina supply/demand balance over the past two years, particularly the structural overcapacity previously described in China, it is my opinion that Rusal could source Chinese alumina from a wide variety of suppliers without great difficulty and have it shipped to Russia. Rusal would not necessarily know the origins of that alumina.

[e]    Indeed, over the 14-month period ending February 2023, according to China Customs data, Russia has reportedly imported approximately 1.1 Mt of alumina from China.

[f]    If ABC obtained alumina from QAL, then that alumina could arrive in Russia through several different means, including

i.    A series of subsequent on-selling transactions following the original purchase

ii.    Through a swap arrangement

iii.    Through blending the QAL alumina with alumina from another source

iv.    Following long-term storage in [a bonded] warehouse i.e. a warehouse located in a jurisdiction that has not cleared any Customs.

[g]    These types of transactional movements of alumina take place regularly.

(Footnotes omitted; emphasis added.)

169    The primary judge largely accepted the evidence set out above at [137] and [142]-[147] of the Reasons. It was open to him to do so in circumstances where Mr Clark was not cross-examined and there was no contradictory expert evidence. We consider that, although not expressly referred to by the primary judge at [241]-[246], that evidence formed part of the basis for the relevant finding at [241] and [246]. We note that the primary judge prefaced the finding in [246] with the words: “Having regard to the evidence before the Court …”.

170    The evidence of Mr Clark set out above (together with contextual matters) supported an inference that, if QAL had delivered alumina to ABC after 20 March 2022, at least some of that alumina would have ended up in Russia. It seems to have been common ground that, if QAL had delivered alumina to ABC after 20 March 2022, the alumina would have been transferred to China (see, eg, the Reasons at [124]). The Wood Mackenzie report referred to in Mr Clark’s First Report at 2.8(i) and the Reasons at [137] stated that “it is likely that a sizeable portion of imported Australian alumina was transhipped to Russia” after being imported into China. Mr Clark considered that conclusion to be reasonable and his evidence was not challenged. The primary judge accepted that evidence at [137] of the Reasons.

171    Further evidentiary support for the relevant findings was provided by the contextual matters referred to by the primary judge at [241]. These matters included that: UC Rusal owns eleven aluminium smelters, of which nine are in Russia; prior to the introduction of the Russia Sanctions, the vast majority of the alumina produced for ABC at the Gladstone Plant was shipped to Russia; UC Rusal has a large demand for alumina for its Russian aluminium smelters (some 7.9 million tonnes per annum); and following Russia’s invasion of Ukraine, UC Rusal had lost supply from the Mykolaiv refinery in Ukraine (which had produced approximately 1.75 million tonnes of alumina per annum). On the basis of these matters (as well as the background facts set out earlier in the Reasons), it was open to the primary judge to find (as he did at [242]) that, following Russia’s invasion of Ukraine, UC Rusal had an ongoing and increased demand for alumina from the Gladstone alumina joint venture by reason of the loss of supply from the Mykolaiv refinery in Ukraine.

172    We do not accept the Russian parties’ submission that the primary judge failed to have regard to other relevant evidence. The Reasons make clear that the primary judge carefully considered the whole of the evidence before him, in what was a substantial trial. We are not satisfied that he overlooked relevant evidence, even if it is not specifically referred to in the Reasons. In particular, some of the evidence the primary judge is said to have disregarded goes to the issue whether ABC would have deliberately flouted sanctions by transferring alumina directly to Russia, but as we have noted, the primary judge’s conclusions do not rest on a finding that ABC would have deliberately flouted sanctions.

173    Insofar as the Russian parties submit that key propositions were not put to their witnesses, we do not accept that submission. First, a key issue was whether ABC would export the Gladstone alumina to Russia, but the Russian parties did not put forward any officer or employee of ABC as a witness. Secondly, while the Russian parties did put forward witnesses (including Mr Gordymov) from UC Rusal, those witnesses did not in terms give affidavit evidence to the effect that, if QAL delivered alumina to ABC on and after 20 March 2022, that alumina would not be transferred to Russia, despite this being an issue in the case. In the absence of such evidence-in-chief, it was not incumbent on the respondents to put the contrary proposition to the Russian parties’ witnesses. We note for completeness that one paragraph (para 70) of Mr Gordymov’s affidavit dated 2 November 2022 dealt with this issue, but the paragraph was the subject of an objection and was not admitted into evidence on the basis that it was not within Mr Gordymov’s apparent authority to give that evidence (as he was not an officer of ABC) (trial transcript, p 136).

174    In light of the Russian parties’ oral submissions, it is unclear whether they continue to rely on the 24 March Letter in support of ground 1. In any event, if and to the extent that they rely on the 24 March Letter, we see no error in the primary judge’s treatment of the letter at [131]-[134] and [243] of the Reasons.

175    For these reasons, no error has been shown in the primary judge’s factual findings at [130], [241] and [246] to the effect that, if alumina had been delivered by QAL to ABC on and after 20 March 2022, that alumina (or at least some of it) would have been transferred to Russia. It should be recalled that the transfer of alumina to Russia may occur by a number of means not involving the direct shipment of alumina from Australia to Russia.

176    We note that ground 1 does not in terms raise any independent point as to whether, if the challenge to the primary judge’s factual findings at [130], [241] and [246] is rejected, the primary judge nevertheless erred in concluding (at [240], [250] and [290(a)]) that there would have been a breach of the Export Sanction. However, if and to the extent that the construction issues discussed at [133]-[151] above are relevant, we have considered and rejected the Russian parties’ submissions. It follows that no error is shown in the primary judge’s conclusion at [240], [250] and [290(a)] that there would have been a breach of the Export Sanction.

177    Accordingly, ground 1 is not made out.

178    It follows that the appeal is to be dismissed (given that, as noted above, the Russian parties need to succeed on all of grounds 1, 2 and 3 to succeed in the appeal).

Ground 2

179    Although it is unnecessary for us to consider ground 2, we consider it appropriate to do so for completeness.

180    The key relevant findings of the primary judge are at [249] of the Reasons (see [113] above). In summary, the primary judge found that, even if UC Rusal and/or ABC would have successfully taken steps to prevent Gladstone alumina being physically transferred to Russia, a direct or indirect result of the delivery of alumina to ABC would have been that the alumina would have been transferred for the benefit of Russia in breach of the Export Sanction.

181    On the basis of that finding, the primary judge concluded that the delivery of alumina by QAL to ABC after 20 March 2022 would have been contrary to the Export Sanction: Reasons, [250], [290(b)].

182    In support of ground 2, the Russian parties raise both factual issues and issues of construction (in addition to the construction issues discussed above). We will deal with each in turn.

Factual issues

183    The Russian parties challenge the primary judge’s factual findings in relation to employment and taxation benefits for Russia. Those findings were made in [249] by reference to the earlier findings at [248]. The Russian parties submit that: the conclusion in [248] was expressly based on the earlier finding (at [246]) that, had QAL continued to deliver Gladstone alumina to ABC on and after 20 March 2022, the alumina would have been transferred to UC Rusal’s subsidiary, RTI, and on-transferred to and for use in UC Rusal’s Russian aluminium smelters; as the earlier finding is unsupportable (for the reasons submitted in relation to ground 1), the finding at [248] has no proper factual basis and cannot stand. (The Russian parties also make submissions in relation to the construction of “benefit”. Those submissions are considered later in these reasons.)

184    We do not accept the submissions summarised in the preceding paragraph. To the extent that those submissions depend on overturning the primary judge’s earlier finding, at [246], we have rejected the challenge to that finding in the course of dealing with ground 1. In any event, and subject to considering the Russian parties’ submissions on the construction of “benefit”, we consider that the primary judge’s finding of a “benefit” for Russia is supportable on the basis set out in ground 1 of QAL’s notice of contention. By that ground, QAL contends that the availability in Russia of alumina that would otherwise not have been available would itself have been a benefit for Russia within the meaning of reg 4(1)(c)(iii). We agree with that contention. Assuming that “benefit” in reg 4(1)(c)(iii) bears its ordinary meaning (a matter we consider further below), the availability of other alumina in Russia would have been a benefit for Russia. Alumina is a valuable resource which may be put to use in various of Russia’s domestic industries, including the manufacture of weapons and matériel. The availability of that resource in Russia is in itself a benefit to Russia, independently of any consequential economic benefit Russia may derive from the availability of alumina. It is therefore unnecessary to consider further the Russian parties’ challenge to the primary judge’s findings in relation to employment and taxation benefits for Russia.

185    The Russian parties challenge the primary judge’s factual findings at [249] relating to the increased availability of other alumina in China. The Russian parties submit that: the conclusion in [249] rested on the primary judge’s acceptance of Mr Clark’s opinions (relevantly summarised at Reasons, [139]-[140] and [249]); as the primary judge identified at [139], Mr Clark identified and opined based on six conditions as to the global and Chinese alumina market “heading into 2022” and in “the first quarter of 2022”; however, the primary judge implicitly inferred that the market conditions described by Mr Clark would subsist “at all times on and after 20 March 2022”; that inference was not available; Mr Clark did not opine that those conditions would continue, or as to the likelihood or duration of any possible continuance of those conditions; indeed, he expressly qualified his opinions, stating that “[t]here are constant changes to, and influences on, the world’s alumina supply demand balance” (see Mr Clark’s First Report, para 2.9(a)-(b)), and necessarily implied that prediction of the world’s alumina supply-demand balance is practically impossible; consistently with that view, Mr Clark confined the relevant opinion to circumstances “at the time”, i.e. “heading into 2022” and in Q1 of 2022 (see Mr Clark’s First Report, para 2.9(c)-(e), (h)-(i); paraphrased at Reasons, [140]); the primary judge erred in ignoring the express limits on Mr Clark’s evidence and the inherent contingency of the six market conditions on which Mr Clark’s opinion was based.

186    In our view, the primary judge’s findings at [249] regarding the increased availability of other alumina in China were amply supported by section 2.9 of Mr Clark’s First Report, as summarised in the Reasons at [138]-[141] (see [101] above). The primary judge accepted the opinions of Mr Clark on these matters (at [141]). In circumstances where Mr Clark was not cross-examined and there was no contradictory evidence, it was open to the primary judge to accept his opinions. While Mr Clark’s First Report was expressed in some places to relate to conditions “heading into 2022” and in “the first quarter of 2022”, we do not consider this to be a basis to disturb the primary judge’ findings. It was open to the primary judge to infer that the relevant opinions continued to apply after the first quarter of 2022 (in the absence of evidence of any relevant change in circumstances). We note that Mr Clark referred to data through to January 2023 (eg, in figure 2-13 and figure 2-15), suggesting that the opinions he expressed applied beyond the first quarter of 2022. In any event, it would have been sufficient for the primary judge to have made a finding in respect of the last part of March 2022 (i.e., the period after the Export Sanction commenced), which falls within the first quarter of 2022.

187    The Russian parties also challenge the primary judge’s factual finding at [249] that the increased availability of other alumina would have improved UC Rusal’s security of supply and terms of trade. The Russian parties submit that: the postulated “benefit” to UC Rusal, of improved security of supply and terms of trade, depended on inherently unpredictable, changeable economic factors; for the same reasons as for the increased availability finding, Mr Clark’s opinions provided no evidence that such “benefit” would subsist at all times after 20 March 2022.

188    In our view, the primary judge’s finding that the increased availability of other alumina would have increased UC Rusal’s security of supply and terms of trade was supported by the evidence generally as referred to in section C of the Reasons (“Factual background”). No error is shown in the primary judge’s finding. To the extent that the Russian parties make submissions about the time periods referred to by Mr Clark in his First Report, we refer to and repeat our earlier reasons.

Construction issues

189    We now turn to the construction issues raised by the Russian parties in support of ground 2 (in addition to the construction issues discussed earlier in these reasons).

190    The Russian parties submit that sub-paras (i) to (iii) of reg 4(1)(c) have a common object, but the primary judge implicitly assigned to sub-para (iii) an object entirely different from that of sub-paras (i) and (ii). The Russian parties submit that: the express object of sanctioning the export of goods in relation to a particular country is to inhibit or prevent that country from procuring supply of those goods so that they can be used and enjoyed for their inherent physical and chemical properties, whether as articles for use in themselves or as ingredients in manufacturing or industrial processes; there can be no other reason why the Australian Government has designated for Russia, on the one hand, “luxury goods” such as pure-bred horses, lobster and pearls and, on the other hand, aluminium hydroxide and oxide (including alumina) (Autonomous Sanctions (Export Sanctioned Goods – Russia) Designation 2022, p 2), identifying the latter as “a key component in the manufacture and development of weapons” and stating that the prohibiting of supply of such goods sees “Australia … demonstrating its condemnation of Russia’s illegal and unjustified invasion of Ukraine” (Explanatory Statement to the Autonomous Sanctions (Export Sanctioned Goods – Russia) Designation 2022, p 1); neither the legislation itself nor the extrinsic materials reveal an object of inhibiting or preventing the inuring of advantages, to a country in relation to which goods are export sanctioned goods, that might (or might not) arise through the economics of supply and demand associated with the trade of such goods in other countries – and which are beyond the control of an Australian-based entity dealing in alumina, lobster, pearls or other export sanctioned goods.

191    The Russian parties submit that: the primary judge implicitly assigned to sub-para (iii) an object entirely different from that of sub-paras (i) and (ii), of proscribing dealings with sanctioned goods by reference purely to whether they cause an economic advantage to inure to the sanctioned country; that was contrary to the object, evident from the text of reg 4 (including the table), the Autonomous Sanctions (Export Sanctioned Goods – Russia) Designation 2022 and the extrinsic materials noted above, of denying the sanctioned country (as a “foreign government entity”) access to such goods and thus of the advantages of having those goods for their inherent qualities, including their industrial and manufacturing potential, in a way that is connected with a matter of international concern to the Australian Government.

192    The Russian parties challenge the primary judge’s construction of the word “benefit” in reg 4(1)(c)(iii). As noted above, the primary judge considered the construction of that word at [235]-[237]. The Russian parties submit that: the primary judge’s construction ignored the unitary object of reg 4(1)(c) as explained in the submissions set out above; the “benefit” for the purposes of reg 4(1)(c)(iii) means the advantage of the use or exploitation of material export sanctioned goods for their inherent physical or chemical qualities in a way that is connected with a matter of international concern to the Australian Government.

193    The Russian parties challenge the primary judge’s construction of the words “direct or indirect result” in reg 4(1)(c). The primary judge construed those words at [228]. The Russian parties submit that: the primary judge erred in concluding that “direct or indirect result” connotes “any number of degrees of remoteness of causation” in the context of the Export Sanction (see Reasons, [228]); that concept – one of pure causation – does not apply; the phrase “direct or indirect” defines the means by which the proscribed “result” of the supply, sale or transfer (i.e., the Prior Supply) may come about; however, the only “result” with which reg 4(1)(c) is concerned is that in which sanctioned goods are “transferred” so as to become available for disposal, use or otherwise for their inherent physical or chemical qualities in or for an export sanctioned country; other consequences and outcomes, such as purely economic consequences, are beyond the legislated prohibition.

194    The Russian parties challenge the primary judge’s construction of the word “for” in reg 4(1)(c)(iii). The primary judge construed this word at [231]-[234]. The Russian parties submit that: the primary judge’s construction is an amalgam of dictionary meanings and ignores the context in which the word appears; the word “for” in the phrase “for the benefit of” the sanctioned country is, in effect, an anti-sham device to capture any means (other than a transfer “to” or “for use in” a sanctioned country) by which the sanctioned country, as a particular “foreign government entity”, might acquire the use or advantage of the exploitation of export sanctioned goods for their inherent physical or chemical properties, in a way that is connected with a matter of international concern to the Australian Government as a matter of foreign policy; “for” cannot mean “effect” or “likely effect” since the Export Sanction does not establish criminal responsibility for conduct or states of affairs unwilled by and beyond the Prior Supplier’s control; “for” in this sense means the “object or purpose” of the Transfer, objectively ascertained; it does not mean, as the primary judge’s preferred construction implies, a Transfer of goods anywhere, the effect or likely effect of which is a benefit (indirect and incidental) to the sanctioned country.

195    We do not accept those submissions.

196    A central aspect of the Russian parties’ submissions is the proposition that “benefits” for the purposes of reg 4(1)(c)(iii) means “the advantage of the use or exploitation of material export sanctioned goods for their inherent physical or chemical qualities in a way that is connected with a matter of international concern to the Australian Government”. This proposed construction of the word “benefit” does not have any textual foothold. The extrinsic materials relied on by the Russian parties are too general in nature to justify construing the word “benefit” in this way. In our opinion, the more natural way to read the word (in context and having regard to the purposes of the provision) is that it has its ordinary meaning, as identified by the primary judge at [235] of the Reasons, namely “anything that is for the good of a person or thing” or “advantage, profit, good”. This construction better gives effect to the purposes of the Regulations and legislation. For the same reasons, we reject the other submissions that seek to confine other parts of reg 4(1)(c) in a similar way.

197    Insofar as the Russian parties submit that sub-paras (i), (ii) and (iii) of reg 4(1)(c) have a “common object”, it may be accepted that reg 4 is to be read a whole, in context and having regard to its purposes. It may therefore be accepted, at a general level, that the sub-paras of reg 4(1)(c) have a common object. However, this does not take one very far in the process of construction. We do not consider that the primary judge adopted a differential approach to the objects of sub-paras (i), (ii) and (iii). Further, we do not consider that his construction implicitly adopted a differential approach. In each case, the primary judge’s construction gives effect to the object of denying to a sanctioned country the benefit (giving that word its ordinary meaning) of export sanctioned goods.

198    Insofar as the Russian parties challenge the primary judge’s construction of the words “direct or indirect result”, the primary judge stated (at [228]) that, in the context of reg 4(1), the composite phrase “direct or indirect result” is to be understood as including the immediate consequences as well as consequences caused by the supply, sale or transfer “but which involve additional steps or actions in a causal chain”. We see no error in that approach. The approach is consistent with the ordinary meaning of “indirect result”, a phrase which is apt to encompass a result produced through a causal chain. Further, it is apparent from [237] of the Reasons that the primary judge considered that some alleged benefits were too remote. We consider that it was open to the primary judge to conclude that the benefit in this instance was not too remote. Again, it is unnecessary to determine the outer limits of the meaning of the provision.

199    Insofar as the Russian parties challenge the construction of “for” adopted by the primary judge, we consider that the primary judge’s construction is available on the text of reg 4(1)(c)(ii) and (iii) and best gives effect to the objects of the provision and the legislation (see Autonomous Sanctions Act, s 3). We do not accept that reg 4(1)(c)(iii) is to be read merely as an “anti-sham” device, as submitted by the Russian parties. It is, rather, a substantive element of the definition of “sanctioned supply” in reg 4(1).

200    For these reasons, no error is shown in the primary judge’s finding at [249] that, even if UC Rusal and/or ABC would have successfully taken steps to prevent Gladstone alumina being physically transferred to Russia, a direct or indirect result of the delivery of alumina to ABC would have been that the alumina would have been transferred for the benefit of Russia in breach of the Export Sanction. It follows that no error is shown in the primary judge’s conclusion at [250] and [290(b)] that the delivery of alumina by QAL to ABC after 20 March 2022 would have been contrary to the Export Sanction.

201    Accordingly, ground 2 is not made out.

Grounds 3 to 8

202    In light of our conclusions in relation to grounds 1 and 2, it is unnecessary to consider ground 3.

203    It follows from our conclusions that grounds 1 and 2 are not made out that grounds 4 to 8 are not made out.

Article 14A issue

204    Although it is not necessary for our decision to consider the Art 14A issue, we consider it appropriate to deal with it in part, as it was fully argued and has practical significance for the parties.

205    The Art 14A issue is raised by ground 2 of QAL’s notice of contention and ground 1 of the Rio parties’ notice of contention. In summary, they contend that the decision of the primary judge should be affirmed on the additional basis that Art 14A of the Participants Agreement was engaged.

206    Art 14A of the Participants Agreement has been set out above. For ease of reference, we set it out again:

ARTICLE 14A. Step-In

If at any time, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) or corresponding governmental authority of Australia imposes sanctions on United Company Rusal Plc., ABC or any of their affiliates that are likely to prevent QAL from undertaking business activity with ABC and its affiliates (“Sanctions”), then Appendix E shall apply.

207    In broad terms, Appendix E sets outs arrangements: to re-allocate ABC’s entitlement to use its capacity at the Gladstone Plant to the Rio Tinto participants in the Gladstone alumina joint venture; to ensure that the Gladstone Plant can continue to operate at 100% capacity; to ensure the continuation of the operation of the project in a manner that ensures regulatory compliance by QAL and the Rio Tinto participants with the sanctions; and to provide for an orderly return to ABC’s participation in the Gladstone Plant when this is permissible (see the first paragraph of Appendix E, set out above). Appendix E, which comprises seven pages, contains detailed provisions as to how the Participants Agreement is to operate in the event that Art 14A is engaged. As the primary judge said at [353], Appendix E provides “a mechanism by which the risk of contravening a sanction is removed and the parties’ rights and obligations are adjusted in a fair manner having regard to the circumstances”.

208    As noted above, the primary judge found that Art 14A was not engaged in the circumstances that pertained on or about 20 March 2022. In summary:

(a)    In relation to the Export Sanction, the primary judge accepted the Russian parties’ construction of the phrase “imposes sanctions on” in Art 14A, namely that it referred to sanctions that were directed at, or targeted, identified persons, namely UC Rusal, ABC or their affiliates (at [320], [323]). The primary judge concluded that the Export Sanction was not such a sanction and that Art 14A was not engaged on the basis of that sanction (at [323], [342]).

(b)    In relation to the Designated Persons Sanction, the primary judge accepted the Russian parties’ contention that Messrs Deripaska and Vekselberg were not “affiliates” of UC Rusal or ABC within the meaning of Art 14A (at [334], [341]). Accordingly, his Honour concluded that Art 14A was not engaged on the basis of the Designated Persons Sanction (at [342]).

209    QAL and the Rio parties challenge both of those conclusions. For QAL and the Rio parties to succeed in relation to the Art 14A issue, it is sufficient for them to succeed in relation to either (a) or (b) above. We propose to consider only the point raised by (a) above.

210    The primary judge’s core reasoning underpinning the conclusion set out in (a) above is at [318]-[323] of the Reasons. At [318], the primary judge set out the Russian parties’ submissions on the meaning of “on” in Art 14A:

The applicants [ie, the Russian parties] submitted that the word “on” expresses a connection the nature of which varies according to the items it connects and, in legal drafting, the context in which the word appears. In Art 14A, the word “on” follows the phrase “imposes sanctions” and is used to identify a person that is made the target of sanctions. The applicants argued that the Export Sanction is not imposed on UC Rusal, ABC or any of their affiliates. The Export Sanction applies to all persons supplying alumina in circumstances that fulfill the criteria specified in the prohibition concerning sanctioned supplies.

211    After setting out the submissions of QAL and the Rio parties at [319], the primary judge reasoned at [320]-[323]:

320    I accept the applicants’ submission. The ordinary meaning of the phrase “imposes sanctions on”, when used with specifically identified persons, is to refer to sanctions that are directed at, or that target, those identified persons. As discussed earlier, and as is apparent from Australia’s own autonomous sanctions regime, not all sanctions are of that kind. Some sanctions target trade with a named country and apply universally to all persons who engage in that trade. Such sanctions are not imposed on specific persons. The Explanatory Statement that accompanied the making of the Autonomous Sanctions Regulations explained that the regulations facilitated the imposition of autonomous sanctions in relation to countries or targeting entities or persons. The prohibition against sanctioned supplies in reg 12 is an example of a sanction that is imposed in relation to a country and does not target specific entities or persons. It might be said that sanctions of that kind are imposed on all persons, but that is not the sense in which the phrase “imposes sanctions on” is used in Art 14A. The phrase is used to identify specific persons and entities: UC Rusal, ABC and their affiliates. Other forms of sanction, such as the prohibition against dealings with designated persons or entities in reg 14, target specifically identified persons and entities and prevent certain types of dealings with those persons or entities.

321    I do not accept the respondents’ argument that the foregoing construction of Art 14A produces an uncommercial result that cannot have been intended by the parties. The construction does not produce any absurdity. It merely produces a narrower operation of the provision than that for which the respondents contend. It cannot be assumed that the parties intended that Art 14A would operate in respect of all sanctions that are likely to have the effect of preventing QAL from undertaking business activity with ABC. If that was the parties’ intention, there was no need to include the phrase “on United Company Rusal Plc, ABC or any of their affiliates” within the provision. Indeed, the effect of the respondents’ construction of Art 14A is to render that phrase otiose such that the Article applies where the identified authorities “impose sanctions that are likely to prevent QAL from undertaking business activity with ABC and its affiliates”. That is not how the parties expressed their agreement.

322    On its terms, Art 14A does not apply to all forms of sanction that are likely to prevent QAL from undertaking business activity with ABC and its affiliates. For example, it does not apply to a sanction imposed on QAL. The respondents’ construction of the word “on” begs the question: why did the parties not extend Art 14A to apply to sanctions imposed on QAL, in the sense of affecting QAL? The only answer to that question is that the parties had in contemplation a particular circumstance, and a particular commercial risk, that they wished to address by Art 14A and the provisions in Appendix E. The parties’ decision to confine Art 14A to sanctions that are imposed on United Company Rusal Plc, ABC or any of their affiliates is explicable by the regulatory circumstances that existed prior to the insertion of Art 14A. OFAC had relatively recently imposed sanctions on Mr Deripaska and the entities in which he had a substantial interest including En+ and UC Rusal. Subsequently, En+ and UC Rusal were relieved from those sanctions but it was not difficult to foresee that sanctions might again be imposed on UC Rusal.

323    The text of Art 14A, when read in light of the surrounding circumstances, compels the conclusion that the Article applies to sanctions that are specifically directed to, or targeted at, UC Rusal, ABC and their affiliates. The Export Sanction is not a sanction of that kind. Accordingly, Art 14A did not apply to the Export Sanction.

(Emphasis added.)

212    Earlier in the Reasons, the primary judge outlined relevant surrounding circumstances: see the Reasons at [311]-[316].

213    There is no issue between the parties as to the applicable principles of contractual interpretation. These were stated by the primary judge at [302]-[303] of the Reasons.

214    In our opinion, the word “on” in the phrase “imposes sanctions on” in Art 14A has a broader meaning than that given to it by the primary judge, such that the Export Sanction was imposed “on” ABC within the meaning of Art 14A.

215    The word “on” is a common preposition that takes its meaning from its context. It can indicate the person to whom an action is directed. The Oxford English Dictionary (online edition, accessed October 2024) includes (as sense II.24.a): “Indicating the person who or thing which is affected or exploited by an action, feeling, situation, etc., or towards whom it is directed”. As a matter of ordinary language, in the context of sanctions, to say that a sanction is imposed “on” a country or person usually means that the sanction is directed towards that country or person. For example, a sanction may be said to be imposed on Person A in circumstances where the sanction prevents Person B from dealing with Person A. In this example, the sanction is imposed on Person A in the sense that it is directed towards them. The example illustrates the point that the normal way to impose a sanction “on” someone is to prohibit others from dealing with the sanctioned person. Up to this point, our analysis is not very different from that of the primary judge. Where we depart from the primary judge is that, in our view, depending on the context, a sanction may be directed towards a country or person in circumstances where the country or person is not named in the sanction. We discuss this further below.

216    As noted above, Art 14A was introduced into the Participants Agreement by an amendment made in December 2019. An important aspect of the surrounding circumstances at that time was the Australian legislative and regulatory regime for the imposition of autonomous sanctions. Given that Art 14A concerned sanctions and referred to the imposition of sanctions by an Australian governmental authority, the parties may be taken to have been familiar with the terms and structure of the Australian autonomous sanctions regime. As at December 2019, that regime was in materially the same form as outlined earlier in these reasons. The Regulations contemplated two distinct types of sanctions: prohibitions relating to a sanctioned supply (reg 12, read with the definition of “sanctioned supply” in reg 4) (an export sanction); and prohibition of dealing with designated persons or entities (reg 14) (a designated persons sanction). In this context, the parties are likely to have (objectively) intended that Art 14A would be capable of being engaged whether a sanction took the form of an export sanction (which does not name persons) or a designated persons sanction. There is no logical or commercial reason why the parties would have (objectively) intended the Appendix E arrangements to apply to one form of sanction but not the other. In light of these matters, we consider that the word “on” in the phrase “imposes sanctions on” in Art 14A should be interpreted as referring to a sanction being directed towards a person whether or not they are named in the sanction.

217    The Export Sanction made alumina an export sanctioned good in relation to Russia. ABC had, historically, obtained alumina from QAL for the purpose of transferring it to Russia for use by UC Rusal in its Russian aluminium smelters. The sanction prohibited the supply, sale or transfer of alumina to, or for the use of, or for the benefit of Russia; the purpose of the sanction therefore extended to preventing all persons bound by the sanction from engaging in certain types of dealings with persons in ABC’s position (ABC being a business that, historically, operated for the purpose of procuring alumina for Russian aluminium smelters). In these circumstances, we consider that the Export Sanction was a sanction directed towards ABC, even though ABC was not named in the sanction.

218    The primary judge considered that construing “on” as meaning “affecting” (being the construction contended for by QAL) rendered the phrase “on United Company Rusal Plc., ABC or any of their affiliates” otiose (see Reasons, [321]). This point does not apply if “on” is construed in the way that we have outlined above.

219    For these reasons, we consider that the Export Sanction was imposed “on” ABC within the meaning of Art 14A.

220    For Art 14A to be engaged it is also necessary that the sanctions be “likely” to prevent QAL from undertaking business activity with ABC and its affiliates. As noted above, the primary judge considered this issue for completeness, and concluded that the Export Sanction was “likely” to prevent QAL from undertaking business activity with ABC (at [355]). In light of our conclusions on grounds 1 and 2, there is no basis to disturb that finding.

221    It follows that, on the basis set out above, Art 14A was engaged in the present circumstances (as at the time when the Export Sanction was introduced).

222    It is unnecessary to consider, and we do not consider, the question whether Messrs Deripaska and Vekselberg were “affiliates” of UC Rusal or ABC within the meaning of Art 14A.

223    Accordingly, to the extent indicated above, ground 2 of QAL’s notice of contention and ground 1 of the Rio parties’ notice of contention are made out.

Conclusion

224    For the reasons set out above, the appeal is to be dismissed. There is no apparent reason why costs should not follow the event. We will therefore make an order that the appellants pay the respondents’ costs of the appeal.

Associate:

Dated:    8 November 2024

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