FEDERAL COURT OF AUSTRALIA

Alumina and Bauxite Company Ltd v Queensland Alumina Ltd [2024] FCA 43

File number(s):

VID 297 of 2022

Judgment of:

OBRYAN J

Date of judgment:

1 February 2024

Catchwords:

CONTRACT – where applicants are subsidiaries of company registered in Russian Federation – where first respondent (QAL) operates alumina refinery in Gladstone under agreements with applicants and second to sixth respondents (Rio parties) – where pursuant to those agreements the Rio parties supply bauxite to the first applicant (ABC) and ship the bauxite to Gladstone on behalf of ABC, and QAL receives the bauxite and refines the bauxite into alumina on a toll basis on behalf of ABC and certain of the Rio parties and delivers the alumina to those parties – where Australian Government imposed sanctions against Russia and certain Russian business-people pursuant to the Autonomous Sanctions Regulations 2011 (Cth) (Russia Sanctions) as a result of Russia’s invasion of Ukraine where QAL invoked provisions of agreements to cease receiving bauxite and producing alumina for ABC and delivering alumina to ABC where the Rio parties invoked provisions of agreements and ceased supplying and shipping bauxite to ABC – whether the actions of QAL and the Rio parties are in breach of contracts with the applicants – whether imposition of Russia Sanctions rendered performance of the contracts by QAL illegal and was therefore a supervening illegality to excuse performance – whether imposition of Russia Sanctions was an event of force majeure for purposes of contractual provision to excuse performance

STATUTORY INTEPRETATIONAutonomous Sanctions Regulations 2011 (Cth) and Autonomous Sanctions Act 2011 (Cth) – whether delivery of alumina by QAL to ABC is a “sanctioned supply” within meaning of regs 4 and 12 of Autonomous Sanctions Regulations 2011 (Cth) – consideration of the definition of “sanctioned supply” in reg 4 of Autonomous Sanctions Regulations 2011 (Cth) consideration of the elements of the definition and the time at which the elements must be satisfied – consideration of phrases “for use in” and “for the benefit of” – whether production of alumina by QAL for ABC and delivery of alumina by QAL to ABC involves indirectly making an asset available to, or for the benefit of, a designated person or entity within meaning of reg 14 of Autonomous Sanctions Regulations 2011 (Cth) – where designated persons have substantial indirect shareholding interests in ABC – consideration of the phrase “indirectly makes an asset available” and “for the benefit”

UNDERTAKING – whether undertaking to the Court proffered by applicants in respect of their future conduct should be accepted – whether declaratory and injunctive relief should be granted on the basis of an undertaking as to future conduct – whether Court has power to accept an undertaking as a foundation for granting declaratory and injunctive relief on a prospective basis – discretionary considerations – whether undertaking is sufficiently certain whether compliance with undertaking removes risk of contravention of Russia Sanctions

Legislation:

Acts Interpretation Act 1901 (Cth) s 15AA

Autonomous Sanctions Act 2011 (Cth) ss 4, 16

Charter of the United Nations Act 1945 (Cth)

Competition and Consumer Act 2010 (Cth) s 50

Corporations Act 2001 (Cth) s 50

Criminal Code Act 1995 (Cth) Sch 1, ss 6.1, 9.2

Evidence Act 1995 (Cth) s 79

Federal Court of Australia Act 1976 (Cth) ss 21, 23

Income Tax Assessment Act 1936 (Cth) s 260

Income Tax Assessment Act 1997 (Cth) s 328-130

Judiciary Act 1903 (Cth) s 39B

Legislation Act 2003 (Cth) s 13

Trade Practices Act 1974 (Cth) s 4D

Autonomous Sanctions (Designated Persons and Entities and Declared Persons—Russia and Ukraine) Amendment (No 7) Instrument 2022 (Cth)

Autonomous Sanctions (Designated Persons and Entities and Declared Persons – Russia and Ukraine) List 2014 (Cth)

Autonomous Sanctions (Export Sanctioned Goods—Russia) Designation 2022 (Cth)

Autonomous Sanctions (Sanctions Law) Declaration 2012 (Cth) Sch 1

Autonomous Sanctions Bill 2010 (Cth)

Autonomous Sanctions Regulations 2011 (Cth) regs 3, 4, 6, 12, 13, 14, 15, 18

Charter of the United Nations (Sanctions — Afghanistan) Regulations 2008 (Cth)

Charter of the United Nations (Sanctions — Iran) Regulation 2016 (Cth) reg 16

Charter of the United Nations (Sanctions — Côte d’Ivoire) Regulations 2008 (Cth)

Charter of the United Nations (Sanctions — Democratic People’s Republic of Korea) Regulations 2008 (Cth)

Charter of the United Nations (Sanctions — Democratic Republic of the Congo) Regulations 2008 (Cth)

Charter of the United Nations (Sanctions — Liberia) Regulations 2008 (Cth)

Federal Court Rules 2011 (Cth) rr 1.32, 1.33

Executive Order 13661 of 16 March 2014 (Blocking Property of Additional Persons Contributing to the Situation in Ukraine)

Executive Order 13662 of 20 March 2014 (Blocking Property of Additional Persons Contributing to the Situation in Ukraine)

UN Security Council Resolution 1267 (1999)

Cheshire & Fifoot, Law of Contract (12th Aust Ed, 2023)

Chitty on Contracts (35th Ed, 2023)

Heydon on Contract (1st Ed, 2019)

JW Carter, Contract Law in Australia (8th Ed, 2023)

Paul B Stephan, ‘Taxation and Expropriation—The Destruction of the Yukos Oil Empire’ (2013) 35(1) Houston Journal of International Law 1

Cases cited:

AB v Western Australia (2011) 244 CLR 390

ADCO Constructions Pty Ltd v Goudappel (2014) 254 CLR 1

Ainsworth v Criminal Justice Commission (1992) 175 CLR 564

Allina Pty Ltd v Federal Commissioner of Taxation (1991) 28 FCR 203

Australia Meat Holdings Pty Ltd v Trade Practices Commission (1989) ATPR 40-932

Australian Competition and Consumer Commission v Pacific National Pty Ltd (2020) 277 FCR 49

Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc [1999] FCA 18; (1999) 161 ALR 79

Australian Consolidated Press Ltd v Morgan (1965) 112 CLR 483

Australian Gas Light Co v Australian Competition and Consumer Commission (No 2) [2003] FCA 1229; (2003) ATPR 41-962

Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317

Australian Securities and Investments Commission v BHF Solutions Pty Ltd (2022) 293 FCR 330

Australian Telecommunications Commission v Krieg Enterprises Pty Ltd (1976) 14 SASR 303

Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334

Beckwith v The Queen (1976) 135 CLR 569

BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145

Boughey v The Queen (1986) 161 CLR 10

Bulstrode v Trimble [1970] VR 840

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384

Coburn v Human Rights Commission [1994] 3 NZLR 323

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Cody v JH Nelson Pty Ltd (1947) 74 CLR 629

Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389

Commissioner of State Revenue (Vic) v Politis [2004] VSC 126; (2004) 55 ATR 491

Commonwealth v Baume (1905) 2 CLR 405

Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297

Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312

Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588

Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

Eureka Funds Management Ltd v Freehills Services Pty Ltd (2008) 19 VR 676

Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503

Federal Commissioner of Taxation v Gulland (1985) 160 CLR 55

Felton v Mulligan (1971) 124 CLR 367

Gerraty v McGavin (1914) 18 CLR 152; Cooper & Sons v Neilson and Maxwell Ltd [1919] VLR 66

Grain Elevators Board (Vic) v Dunmunkle Corporation (1946) 73 CLR 70

Griffiths v TUI (UK) Ltd [2023] UKSC 48

Hall v Bust (1960) 104 CLR 206

Hepples v Federal Commissioner of Taxation (1991) 173 CLR 492

HG v The Queen (1999) 197 CLR 414

Hunter Resources Ltd v Melville (1988) 164 CLR 234

ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248

Independent Commission Against Corruption v Cunneen (2015) 256 CLR 1

International Litigation Partners Pty Ltd v Chameleon Mining NL (Receivers and Managers Appointed) (2012) 246 CLR 455

IW v City of Perth (1997) 191 CLR 1

Jackson v Sterling Industries Ltd (1987) 162 CLR 612

Lacey v Attorney-General (Qld) (2011) 242 CLR 573

Lancaster v The Queen (2014) 44 VR 820

Legal Services Board v Gillespie-Jones (2013) 249 CLR 493

LNC Industries Ltd v BMW (Australia) Ltd (1983) 151 CLR 575

M & E M Hull Pty Ltd v Thompson [2001] NSWCA 359

Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101

Mathews v Foggit Jones Ltd (1925) 37 CLR 455

Mersey Docks and Harbour Board v Henderson Bros (1888) 13 App Cas 595

Minister Administering the Crown Lands Act v Deerubbin Local Aboriginal Land Council (No 2) (2001) 50 NSWLR 665

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

Neilson v Overseas Projects Corporations of Victoria Ltd (2005) 223 CLR 331

New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act (2016) 260 CLR 232

Newcastle City Council v GIO General Ltd (1997) 191 CLR 85

News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355

Public Transport Commission (NSW) v J Murray-More (NSW) Pty Ltd (1975) 132 CLR 336

R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141

Registrar Of Titles (WA) v Franzon (1975) 132 CLR 611

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596

Sheen v Fields Pty Ltd (1984) 58 ALJR 93

Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359

SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362

Taylor v Oakes Roncoroni & Co (1922) 127 LT 267

Tempe Recreation (D500215 and D1000502) Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 449

Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150

Tillmans Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union [1979] FCA 132; (1979) 42 FLR 331

Tjungarrayi v Western Australia (2019) 269 CLR 150

Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305

Trade Practices Commission v Gillette Company (No 1) (1993) 45 FCR 366

Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429

Waters v Public Transport Corporation (1991) 173 CLR 349

Waugh v Kippen (1986) 160 CLR 156

Division:

General Division

Registry:

Victoria

National Practice Area:

Commercial and Corporations

Sub-area:

Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs:

434

Date of hearing:

30-31 May 2023, 1 June 2023, 5-6 June 2023, 13-14 June 2023

Counsel for the Applicants:

P D Crutchfield KC with J J Rudd and P G Turner

Solicitor for the Applicants:

Morris Mennilli

Counsel for the First Respondent:

D J Batt KC with K J D Anderson and M C Roberts

Solicitor for the First Respondent:

Corrs Chambers Westgarth

Counsel for the Second, Third, Fourth, Fifth and Sixth Respondents:

S Doyle KC with S Spottiswood

Solicitor for the Second, Third, Fourth, Fifth and Sixth Respondents:

Allens

ORDERS

VID 297 of 2022

BETWEEN:

ALUMINA AND BAUXITE COMPANY LTD

First Applicant

RUSAL LIMITED

Second Applicant

JSC RUSAL

Third Applicant

AND:

QUEENSLAND ALUMINA LTD

First Respondent

RTA HOLDCO AUSTRALIA 5 PTY LTD (ACN 128 785 599)

Second Respondent

RIO TINTO ALUMINIUM (HOLDINGS) LIMITED (ACN 004 502 694) (and others named in the Schedule)

Third Respondent

order made by:

OBRYAN J

DATE OF ORDER:

1 February 2024

THE COURT ORDERS THAT:

1.    The Amended Originating Application dated 17 August 2022 be dismissed.

2.    The Applicants pay the Respondents costs of the proceeding.

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

REASONS FOR JUDGMENT

A.    INTRODUCTION

[1]

B.    OVERVIEW OF THE EVIDENCE

[28]

B.1    Evidence adduced by the applicants

[28]

Kirill Strunnikov

[29]

Aleksey Gordymov

[32]

Vladimir Runov

[33]

Dzianis Sidarkevich

[34]

Natalia Kuznetsova

[35]

B.2    Evidence adduced by QAL

[43]

Elizabeth Michel Baker

[45]

Gerhard Able Pienaar

[46]

Alan George Clark

[47]

Professor Paul Brooke Stephan

[50]

B.3    Evidence adduced by the Rio Parties

[55]

Alfred Patrick Grigg

[56]

Fraser Brian ODonnell

[57]

C.    FACTUAL BACKGROUND

[58]

C.1    Global trade in alumina

[58]

C.2    Russia’s aluminium industry and UC Rusal’s business operations

[68]

C.3    The Gladstone alumina joint venture

[76]

C.4    Domicile, ownership and governance of the Russian parties and UC Rusal

[86]

C.5    OFAC Sanctions

[98]

C.6    Suspension of Gladstone alumina joint venture following the imposition of the Russia Sanctions

[107]

C.7    ABC’s attempted shipment of alumina between 20 March and 4 April 2022

[122]

C.8    Effect of suspension of Gladstone alumina joint venture on the Rusal Group

[126]

C.9    Whether ABC alumina is likely to be exported to Russia

[129]

C.10    Whether ABC’s business activities would have generated tax revenues in Russia

[148]

Ms Kuznetsova’s first report

[158]

Prof Stephan’s report

[169]

Ms Kuznetsova’s supplementary report and cross-examination

[175]

Findings

[182]

D.    THE RUSSIA SANCTIONS

[188]

D.1    The legislative framework

[188]

Autonomous Sanctions Act

[190]

The Autonomous Sanctions Regulations

[197]

Overview

[197]

Sanctioned supply (reg 12)

[202]

Dealings with designated persons (reg 14)

[207]

Authorisations (reg 18)

[211]

D.2    Relevant principles of statutory interpretation

[214]

D.3     Does the Export Sanction apply in respect of the delivery of alumina to ABC?

[218]

Questions of construction

[220]

The temporal issue

[221]

Supply, sell or transfer

[227]

Direct or indirect result

[228]

The resulting transfer

[229]

Transferred to that country

[230]

Transferred for use in that country or for the benefit of that country

[231]

Benefit

[235]

Application of the prohibition to the present case

[238]

D.4     Does the Designated Persons Sanction apply in respect of the delivery of alumina to ABC?

[254]

Questions of construction

[255]

Textual considerations

[256]

Contextual considerations

[266]

Purposive considerations

[278]

Conclusion on the questions of construction

[281]

Application of the prohibition to the present case

[283]

D.5    Summary of conclusions

[290]

E.    THE RESPONDENTS’ DEFENCES

[292]

E.1    Overview

[292]

E.2    Art 14A of the Participants Agreement

[304]

Overview of Art 14A and Appendix E

[304]

Relevant surrounding circumstances

[311]

Are the Russia Sanctions imposed on UC Rusal, ABC or any of their affiliates?

[317]

Export Sanction

[318]

Designated Persons Sanction

[324]

Conclusion

[342]

Are the Russia Sanctions likely to prevent QAL from undertaking business activity with ABC?

[343]

Conclusion

[355]

E.3    Participants Agreement and the Tolling Contracts – supervening illegality and force majeure

[356]

Supervening illegality

[357]

Art 17 of the Tolling Contracts

[360]

Conclusion

[365]

E.4    Force majeure provisions in the Bauxite Supply Agreements and the Shipping Agreement

[366]

Article 21 of the Monohydrate Bauxite Supply Agreement

[367]

Article 18.1 of the Low Mono Bauxite Supply Agreement

[375]

Clause 11.1 of the Shipping Agreement

[380]

Conclusion

[381]

E.5    The sanctions provisions in the Bauxite Supply Agreements and the Shipping Agreement

[382]

Introductory matters

[382]

Article 26.2 of the Monohydrate Bauxite Supply Agreement

[386]

The contractual provisions

[386]

Are Messrs Deripaska and Vekselberg Restricted Parties?

[394]

Is ABC a Restricted Party?

[401]

Is UC Rusal a Restricted Party?

[402]

Conclusion

[410]

F.    RELIEF AND THE RUSAL GROUP UNDERTAKING

[411]

O’BRYAN J:

A.    INTRODUCTION

1    On 24 February 2022, Russia invaded Ukraine. As at the date of this judgment, the war in Ukraine is continuing. Thousands of lives have been lost to date. The Australian Government has condemned the invasion as illegal and unjustified and as a serious threat to the international rules-based order which underpins global security.

2    In mid-March 2022, and in response to the invasion, the Australian Government imposed sanctions (the Russia Sanctions) against Russia and certain Russian business-people pursuant to the Autonomous Sanctions Regulations 2011 (Cth) made under the Autonomous Sanctions Act 2011 (Cth). In general terms, the Russia Sanctions prohibit:

(a)    supplying, selling or transferring alumina to a person where, as a direct or indirect result, the alumina is transferred to Russia, for use in Russia or for the benefit of Russia; and

(b)    directly or indirectly making an asset available to or for the benefit of two Russian businessmen: Oleg Deripaska and Viktor Vekselberg.

3    The Russia Sanctions have impacted the operations of the alumina refinery conducted by Queensland Alumina Ltd (QAL) in Gladstone, Queensland (the Gladstone Plant). QAL operates the Gladstone Plant under an agreement (the Participants Agreement) with:

(a)    three companies that are subsidiaries of United Company Rusal IPJSC (UC Rusal): Alumina and Bauxite Company Ltd (ABC), Rusal Limited and JSC Rusal (who are the applicants in this proceeding and who, in the context of the commercial arrangements concerning the Gladstone Plant, are referred to collectively as the Russian parties); and

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

4    UC Rusal is registered as an international public joint stock company in the Russian Federation. UC Rusal and its subsidiaries (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. UC Rusal conducts its business activities globally. Relevantly, the Rusal Group is Russias only primary aluminium producer and currently operates nine aluminium smelters in Russia. The parent company of UC Rusal is En+ Group IPJSC (En+), which is also a company registered as an international public joint stock company in the Russian Federation, and which holds approximately 56.88% of the shares in UC Rusal. Each of Messrs Deripaska and Vekselberg indirectly holds significant shareholdings in UC Rusal.

5    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%.

6    It is convenient to refer to the business venture between QAL, the Russian parties and the Rio parties as the Gladstone alumina joint venture. In using that expression, it is not intended to give the phrase joint venture any particular legal significance.

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 Initial Tolling Contract, the First Expansion Tolling Contract, the Second Expansion Tolling Contract, the Third Expansion Tolling Contract and the Fourth Expansion Tolling Contract. 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 (collectively, the Bauxite Supply Agreements) 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    QAL, ABC, RTA Holdco and RTA are also party to the Caustic Soda Supply Agreement dated 31 December 2020 under which each of ABC on the one hand, and RTA Holdco and RTA on the other hand, agree to supply their proportionate (equity) share of caustic soda to QAL for use in the production of alumina at the Gladstone Plant.

10    In late March 2022, following the implementation of the Russia Sanctions by the Australian Government, QAL corresponded with ABC with respect to the effect of the Russia Sanctions on the Gladstone alumina joint venture. On 24 March 2022, ABC responded to QAL and offered to give certain undertakings which, it claimed, would ensure that ABCs continuing participation in the Gladstone alumina joint venture would not contravene the Russia Sanctions. The proposed undertakings included an undertaking that ABC would not provide any alumina received from QAL to Russia or to UC Rusal or any of its subsidiaries, with all alumina to be sold by ABC directly to third parties outside Russia and subject to contractual prohibitions against on-supply to Russia.

11    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. The effect of the step-in arrangements was to reallocate ABCs 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 midnight on 4 April 2022, QAL ceased to accept bauxite and caustic soda deliveries from ABC and ceased to refine and deliver alumina to ABC in accordance with the Participants Agreement and the Tolling Contracts.

12    On 8 April 2022, RTA invoked force majeure provisions in the Bauxite Supply Agreements 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.

13    On 17 August 2022, the applicants commenced this proceeding against QAL and the Rio parties (collectively, the respondents) seeking declaratory and injunctive relief and damages. The applicants allege 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, would not have amounted, and would not now amount, to a contravention by QAL of the Russia Sanctions and that Art 14A of the Participants Agreement was not applicable. The applicants allege that QAL has breached its contractual obligations under the Participants Agreement and the Tolling Contracts by ceasing to deliver alumina to ABC pursuant to those agreements. The applicants further allege that the Rio parties have breached their contractual obligations under the Bauxite Supply Agreements and the Shipping Agreement by ceasing to supply and ship bauxite to ABC at the Gladstone Plant pursuant to those agreements.

14    By their respective defences, the respondents contest the claims made by the applicants. The matters raised by QAL by way of defence are in a narrower compass than the matters raised by the Rio parties.

15    By its defence, QAL alleges that it is relieved of its obligations to deliver alumina to ABC by Art 14A of the Participants Agreement. Article 14A stipulates that the step-in arrangements in Appendix E 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 issues in dispute between the parties concern the meaning and effect of Art 14A in the context of the Russia Sanctions, including the questions whether either of the Russia Sanctions:

(a)    have been imposed on UC Rusal, ABC or any of their affiliates; and

(b)    are likely to prevent QAL from undertaking business activity with ABC and its affiliates.

16    By their defence, the Rio parties allege that QAL is relieved of its obligations to deliver alumina to ABC on three bases:

(a)    first, by Art 14A of the Participants Agreement (in the same manner as alleged by QAL);

(b)    second, because the imposition of the Russia Sanctions was such as to render the performance by QAL of the Participants Agreement and the Tolling Contracts illegal and was accordingly a supervening illegality that excused QAL from compliance with those obligations; and

(c)    third, because the imposition of the Russia Sanctions was an event of force majeure for the purposes of Art 17 of each of the Tolling Contracts, which provides that QAL is not liable for failure to perform the Tolling Contracts if the failure was caused by force majeure.

17    The Rio parties further allege that, in circumstances where QAL is relieved of its obligations to deliver alumina to ABC, RTA is relieved of its obligations to supply and ship bauxite to ABC at the Gladstone Plant by the operation of:

(a)    the consequential contractual rights arising under para 1(c) of Appendix E to the Participants Agreement;

(b)    alternatively (if Art 14A did not apply), 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.

18    The Rio parties also allege that, independently of QALs contractual rights and actions, RTA is relieved of its obligations to supply and ship bauxite to ABC at the Gladstone Plant by the operation of each of 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, which concern the imposition of sanctions.

19    Each of the above defences raise a large number of issues for determination. Most of the issues concern the proper construction of the Russia Sanctions and the contractual provisions relied upon by the respondents. However, one matter should be highlighted at the outset. There is a significant legal difference between the defence based on Art 14A of the Participants Agreement and the other defences advanced by the Rio parties. On its terms, Art 14A applies if the relevant sanctions are likely to prevent QAL from undertaking business activity with ABC and its affiliates. Each of the other defences, including the defence of supervening illegality, apply if the Russia Sanctions prevent QAL or the Rio parties from performing their contractual obligations.

20    Having regard to the range of defences raised by the respondents in the proceeding, it is convenient and efficient to consider the meaning and effect of the Russia Sanctions before considering each of the relevant contractual provisions, including Art 14A. The question that arises for determination is whether the production of alumina by QAL for ABC and the delivery of alumina to ABC pursuant to the contractual arrangements that govern the Gladstone alumina joint venture would be unlawful by reason of the imposition of the Russia Sanctions. Although a contravention of the Russia Sanctions would constitute a criminal offence, the question of illegality in this proceeding is to be determined on the civil standard of proof.

21    The provisions of the Autonomous Sanctions Regulations that are in dispute in this proceeding have not previously been the subject of judicial consideration. The provisions have been framed with an economy of language and raise difficult questions of construction as to the intended scope of the sanctions.

22    The factual background against which the issues in dispute must be determined is largely uncontroversial. There are three principal areas of factual dispute:

(a)    first, there is a relatively narrow dispute with respect to the effective shareholding interest held by Mr Deripaska in UC Rusal;

(b)    second, there is a more substantial dispute concerning the likelihood that alumina produced at the Gladstone Plant for ABC would be transferred to or for the benefit of Russia; and

(c)    third, there is a dispute concerning the expected Russian tax treatment of revenue and profits generated from ABCs business activities in connection with the Gladstone alumina joint venture.

23    In relation to the second area of factual dispute, the likelihood that alumina produced at the Gladstone Plant for ABC would be transferred to or for the benefit of Russia, the applicants proffered undertakings (the Rusal Group Undertaking or Undertaking) to the Court on the last day of the hearing which, they submitted, would remove any risk that ABCs continuing participation in the Gladstone alumina joint venture would contravene the Russia Sanctions. The terms of the Rusal Group Undertaking are as follows:

Each of the Applicants, United Company Rusal IPJSC (UC Rusal), Libertatem Materials Limited, United Company Rusal Alumina Limited and RTI Limited, by their counsel, undertakes to the Court that until further order, whether by themselves, their servants, agents, associates or otherwise:

1.    they will not supply any alumina that is supplied to the first applicant (ABC) by the first respondent (QAL):

a.    to UC Rusal or any of its subsidiaries; or

b.    to, for use in or for the benefit of Russia or part of Russia;

2.    they will not enter into or perform any swap or other arrangement, the effect of which is to provide that upon any alumina supplied to ABC by QAL being supplied by ABC to the counterparty under that arrangement, the counterparty shall supply an equivalent quantity of alumina:

a.    to UC Rusal or any of its subsidiaries; or

b.    to, for use in, or for the benefit of Russia or part of Russia;

3.    all alumina supplied to ABC by QAL will be sold by ABC directly to third parties located outside of Russia, on terms that:

a.    prohibit the buyer of such alumina from transferring such alumina, and/or any resultant aluminium refined from such alumina, to, for use in, or for the benefit of Russia or part of Russia; and

b.    require that the buyer of such alumina, in the event of on-sale by that person of such alumina and/or any resultant aluminium refined from such alumina, sell only on terms of sale containing the prohibition in paragraph 3(a) above;

4.    they will not act on or otherwise seek to enforce or perform the contract of sale, being Contract No. ABC/RT/05 dated 15 September 2005 between ABC and Rual Trade Limited, and novated by deed of novation dated 5 December 2012 by between ABC (as Seller), Rual Trade Limited (as Buyer) and RTI Limited (as New Buyer); and

5.    ABC will not declare and distribute any dividends.

24    Thus, it is also necessary to consider whether and in what manner the Rusal Group Undertaking affects the parties rights and liabilities, and any relief that might be granted by the Court in the proceeding.

25    While the area of factual dispute between the parties is relatively narrow, the parties disagree on the vast majority of issues concerning the interpretation of the Russia Sanctions and the relevant contractual provisions and their application to the facts of this case. Given the scope of the dispute, it has been necessary to make detailed factual findings and then traverse the issues in dispute at some length.

26    Although the causes of action alleged and the form of relief sought in the proceeding by the applicants are primarily based in contract law, I am satisfied that this Court has jurisdiction to hear and determine the claims made in the proceeding. The controversy between the parties arises under laws made by the Commonwealth Parliament within the meaning of s 39B(1A)(c) of the Judiciary Act 1903 (Cth). The dispute does not merely involve the interpretation of federal law (which is insufficient to found federal jurisdiction: Felton v Mulligan (1971) 124 CLR 367 at 374 (Barwick CJ), 382 (Menzies J), 396 (Owen J), 408 (Walsh J) and 416 (Gibbs J)). Rather, the rights in issue owe their existence to federal law: R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 at 154 (Latham CJ). That is because the contractual rights arise from the operation of federal law, being the Russia Sanctions imposed under the Autonomous Sanctions Regulations made under the Autonomous Sanctions Act: see by way of illustration LNC Industries Ltd v BMW (Australia) Ltd (1983) 151 CLR 575 at 581 (Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ). Further, as submitted by QAL, the relief sought by the applicants includes declarations that ABCs participation in the Gladstone alumina joint venture would not amount to a contravention of the Russia Sanctions. Although QAL submitted that declaratory relief in that form is misconceived, the relief sought is not colourable and is sufficient to found jurisdiction. Additionally, the Rio parties place direct reliance on the effect of the Russia Sanctions to plead supervening illegality as a defence to the contractual claims.

27    For the reasons that follow, the proceeding should be dismissed with costs. I find that:

(a)    on the balance of probabilities, at all times since the Russia Sanctions were imposed, the production of alumina by QAL for ABC and the delivery of alumina to ABC pursuant to the Gladstone alumina joint venture would have been contrary to the Russia Sanctions;

(b)    QAL is not relieved of its obligations to produce and deliver alumina to ABC by Art 14A of the Participants Agreement, but it is relieved of its obligations by the force majeure provisions in Art 17 of each of the Tolling Contracts (and would also have been relieved by the common law doctrine of supervening illegality);

(c)    RTA is 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; 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; and

(d)    without deciding the question of the Courts 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.

B.    OVERVIEW OF THE EVIDENCE

B.1    Evidence adduced by the applicants

28    The applicants called four lay witnesses (Kirill Strunnikov, Aleksey Gordymov, Vladimir Runov and Dzianis Sidarkevich) and one expert witness (Natalia Kuznetsova), and tendered documents. Each of the witnesses was cross-examined. There was no serious challenge to the credit of any of the lay witnesses and I consider that each of the lay witnesses gave truthful evidence. As discussed below, the respondents were critical of some aspects of Ms Kuznetsovas evidence. The following is an overview of the evidence given by each of those witnesses.

Kirill Strunnikov

29    Kirill Strunnikov is the Head of International Practice at the Legal Department of UC Rusal, a position he has held since 2018. Mr Strunnikov was educated at the Moscow State Law Academy, the Central European University in Budapest and the University of Connecticut School of Law. He has been employed by UC Rusal since its incorporation in 2007. Until 2018, he held several positions in UC Rusals Moscow headquarters with responsibilities mainly focused on overseas operations and international disputes. In his affidavits affirmed 3 November 2022 and 24 May 2023, Mr Strunnikov gave evidence concerning:

(a)    the shareholding in UC Rusal, with a particular focus on the indirect shareholding interests of Messrs Deripaska and Vekselberg;

(b)    UC Rusals compliance policy which sets out UC Rusals standards for compliance by it, its subsidiaries, and all employees, with (amongst other things) regulatory requirements of the jurisdictions in which it conducts business, including sanctions requirements; and

(c)    the designation by the United States Department of the Treasurys Office of Foreign Assets Control (OFAC) of Mr Deripaska and certain entities associated with Mr Deripaska, including En+ and UC Rusal, on the list of Specially Designated Nationals and Blocked Persons (SDN List), the subsequent restructuring of En+ and UC Rusal to sever Mr Deripaskas ownership and control of UC Rusal and the removal of En+ and UC Rusal from the SDN List.

30    At the trial, I admitted the evidence concerning the OFAC designation (paras 18 to 28 of Mr Strunnikov’s affidavit) on a provisional basis subject to relevance. The respondents submitted that the only possible relevance of the evidence was as background circumstances that assisted in the construction of Art 14A of the Participants Agreement, but argued that it was not established that those circumstances were known to the respondents at the time that Art 14A was inserted into the Participants Agreement.

31    I have concluded that the evidence, other than para 20 of Mr Strunnikov’s affidavit, is relevant on two bases and should be admitted. First, I consider that the evidence is relevant to the construction of Art 14A which was inserted into the Participants Agreement after the events narrated in the evidence occurred. I infer that the insertion of Art 14A was prompted by those events. Further, and as discussed later in this judgment, I infer that the respondents were aware of the matters referred to in the evidence having regard to the public disclosures that were made about those matters and the commercial relationship between the parties by reason of the Gladstone alumina joint venture. I draw that inference more confidently in circumstances where the respondents chose not to give evidence about the extent of their knowledge of those matters. Second, the evidence explains the changes that have occurred in the indirect shareholding interests held by Messrs Deripaska and Vekselberg in UC Rusal, and the reasons for those changes, and is therefore has some general relevance to the question whether either of Mr Deripaska or Mr Vekselberg should be considered an affiliate of UC Rusal within the meaning of Art 14A. The matters referred to in para 20 of Mr Strunnikov’s affidavit are unlikely to have been known to the respondents and have no relevance to the issues to be determined.

Aleksey Gordymov

32    Aleksey Gordymov 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 ABCs procurement and shipment of alumina. Mr Gordymov has held senior management positions in alumina production since 2005. From September 2014 until November 2017, he was employed as Deputy Head of the Alumina Division of UC Rusal. In 2017, Mr Gordymov became the Head of Business Support (Head of Supply Chain) of UC Rusal. In that role, he is responsible for supervising the operations of UC Rusal and its subsidiaries, including the sale, logistics, transportation and delivery of raw materials and consumables. One of Mr Gordymovs responsibilities is to manage UC Rusals alumina book effectively and ensure the uninterrupted supply of alumina to UC Rusals aluminium smelters. In 2021, UC Rusal produced approximately 8.4 million tonnes of its own alumina, purchased approximately 800,000 tonnes of alumina, sold approximately 600,000 tonnes of alumina and obtained approximately 1 million tonnes through swap deals in order to optimise logistics. In his affidavits affirmed 2 November 2022 and 15 March 2023, Mr Gordymov gave evidence concerning:

(a)    the global trade in alumina, including the determination of contract prices;

(b)    the business activities of the Rusal Group;

(c)    the Gladstone alumina joint venture;

(d)    the status of ABCs business operations as at March 2022 and actions taken by Mr Gordymov with respect to shipments of alumina immediately following the imposition of the Russia Sanctions by the Australian Government;

(e)    the correspondence between ABC and QAL in relation to the imposition of the Russia Sanctions; and

(f)    swap agreements entered into by UC Rusal entities, including ABC, in respect of the supply of alumina.

Vladimir Runov

33    Vladimir Runov is the Head of Tax for the international business of UC Rusal and a legal advisor to the Chief Financial Officer of UC Rusal. Mr Runov graduated with honours in 1997 from the Moscow State Finance Academy in International Economics specialising in accounting and audit. He also studied law between 1997 to 2000 at the Institute of State and Law in Moscow. Mr Runov has worked in the field of tax for over 28 years, with a particular focus on international taxation, both in industry and in a professional advisory capacity in accountancy firms (including PwC and Ernst & Young) in Russia and Europe. In 2007, Mr Runov joined the Rusal Group as an overseas tax officer based in Dublin and, in 2010, Mr Runov relocated to Moscow as the Head of Tax Policy for all the Rusal Group and continued in that role for over 12 years. In his affidavit affirmed 12 October 2022, Mr Runov gave evidence concerning:

(a)    UC Rusals corporate structure, shareholding, financial reports and tax returns; and

(b)    ABCs business operations and financial returns.

Dzianis Sidarkevich

34    Dzianis Sidarkevich is the sole director of Libertatem Materials Ltd (Libertatem), a company incorporated in the Republic of Cyprus and a wholly owned subsidiary of UC Rusal. Libertatem was incorporated to consolidate UC Rusals foreign assets (including ABC) which were previously held and managed in Cyprus directly by UC Rusal Plc. The incorporation was part of a restructure of the Rusal Group that took place between 2018 and 2020. The restructure involved the redomiciliation of UC Rusal Plc to the Russian Federation and the transfer of the Cyprus offices of UC Rusal, its employees and UC Rusals international assets to Libertatem, which restructure was finalised in December 2020. From about 2015 or 2016 until 1 May 2020, Mr Sidarkevich was a General Manager of UC Rusal Plc. On 1 May 2020, Mr Sidarkevich became the sole director of Libertatem and assisted in the redomiciliation of UC Rusal to Russia. In his affidavit dated 24 May 2023, Mr Sidarkevich gave evidence concerning Libertatems corporate structure, commercial activities and dividend policy.

Natalia Kuznetsova

35    Natalia Kuznetsova is a partner with the firm BST Consulting based in Moscow. Her curriculum vitae states that she was a partner in the Tax & Legal Department at Deloitte Russia until May 2022 and that her experience in tax exceeds 20 years and includes a tax partner position (Head of International Tax for 10 years) with another Big Four firm in Russia and a tax directorship in a major private equity fund, focusing on investments in Russia and the CIS.

36    Ms Kuznetsova prepared a primary report dated 7 October 2022, a supplementary report dated 3 May 2023 and a further supplementary report dated 3 June 2023. In her primary report, Ms Kuznetsova gave her opinions in respect of the following questions:

(a)    What is the purpose and effect of the Russian Controlled Foreign Company Rules (CFC Rules)?

(b)    What are the applicable exemptions to the CFC Rules?

(c)    Whether ABC is exempt from the CFC Rules as an active business by virtue of Paragraphs 3 and 4, Article 25-13.1 of the Russian Tax Code?

(d)    Whether UC Rusal is exempt from the CFC Rules until 2029 by reason of Paragraph 58, Section 1, Article 251 of the Russian Tax Code?

(e)    Whether UC Rusal and/or ABC are subject to any other exemptions to the CFC Rules in respect of income derived from ABCs business operations with QAL?

(f)    Whether, if ABC pays tax on Australian business operations in Australia (i.e. tax paid to the Australian Taxation Office), any tax is payable in the Russian Federation on those Australian business operations?

(g)    Whether dividends paid by Libertatem to UC Rusal directly or indirectly are taxable in the Russian Federation?

(h)    Whether, if QAL supplied, sold or transferred alumina to ABC, such supply, sale or transfer could or would result in the taxation of ABC or related companies in the Russian Federation?

37    In her supplementary report, Ms Kuznetsova provided a response to the report of Professor Paul Brooke Stephan dated 25 April 2023 filed on behalf of QAL.

38    In her further supplementary report, Ms Kuznetsova considered whether further information concerning Mr Vekselbergs shareholding interest in SUAL Partners ILLC affected any of the opinions previously expressed.

39    Throughout her written reports and during cross-examination, Ms Kuznetsova displayed extensive knowledge about the Russian Tax Code. I generally accept her evidence about the specific provisions of the Russian written law in that respect. However, there are limitations in Ms Kuznetsovas evidence with respect to the application of the Russian tax law to the Rusal Group.

40    First, Ms Kuznetsovas evidence was subject to significant caveats. She stated that, in preparing her report, she had not performed any verification of the information provided to her which included significant factual assumptions including the tax residence of the entities referred to in her report, whether UC Rusal or any other Russian companies mentioned in the report meet the conditions for being recognised as international holding companies under the Russian Tax Code, and the business activities of Libertatem.

41    Second, I accept QALs submission that, during cross-examination, it became clear that Ms Kuznetsovas evidence was not entirely impartial and that she was at pains to downplay any risks attending the application of the written law in the case of UC Rusal. That is not to say that Ms Kuznetsova was an advocate for the applicants case. Rather, as submitted by QAL, Ms Kuznetsova wished to defend the integrity of the Russian tax system, even when that stance was difficult to maintain in the face of statements in UC Rusals own annual reports and other documents. On a number of occasions, rather than simply answer a question asked of her, she went on an excursus about the rules-based predictability of Russian tax law. The following evidence, which was given honestly, was revealing of that motivation:

Do you understand that your role is to independently assist the court, not argue the case for the applicants?---I do understand but, to a certain extent, I feel a little bit upset about what Dr Stephan or Professor Stephan wrote about Russian tax system because, in a way, what he presented in his report, it was like as if there were no 20 years of development and there was. And I am a tax professional and, basically, this environment it is not easy but it has certain rules of the game and there is a person who says that this is all sort of like doesnt matter because somebody can come and throw it away. Well, I do not agree with this. I think there are still certain principles and certain bases that have to be followed in order to put a case against any company. There should be substance and, in most cases, the substance is [missing word] by the authorities. ...

Lets break this down. So what he has said has upset you as a professional in Russian taxation?---Yes.

I take it the manner and the content of your evidence today has, in part, been because you have wanted to defend and stand up for that system?---Because I think there is certain fairness in the system and there are certain rules in the system and there is law and there is tax case and there are developments around that and that basically we have to respect and I, as a tax professional, have to respect it. So thats why I am like, yes – I mean, there are certain things that basically we have to – you just cannot say that this – the law can be applied arbitrary. No, there are certain rules that have to be followed.

42    The principal issue on which Ms Kuznetsova was cross-examined was the risk of the Russian tax authorities applying an interpretation of Russian tax laws that is selective for particular taxpayers and different to previous interpretations and practices. While Ms Kuznetsova was reluctant to agree with that proposition, she ultimately conceded that there is some risk of selective application of Russian tax laws to particular taxpayers.

B.2    Evidence adduced by QAL

43    QAL called two lay witnesses (Elizabeth Baker and Gerhard Pienaar) and two expert witness (Alan Clark and Prof Paul Stephan), and tendered documents. None of those witnesses were required for cross-examination. In respect of Ms Baker and Mr Pienaar, I accept their evidence given by affidavit. In respect of the expert reports of Mr Clark and Prof Stephan, I accept the opinions expressed by them subject to some relatively minor qualifications referred to later in these reasons. In that regard, I observe that, while the rule in Browne v Dunn is applicable to expert evidence, the failure to challenge the opinions of an expert witness (by cross-examination) does not require the Court to accept the experts evidence over other contrary evidence: Bulstrode v Trimble [1970] VR 840 at 848 (Newton J). As stated by the New South Wales Court of Appeal in M & E M Hull Pty Ltd v Thompson [2001] NSWCA 359 at [21] (Rolfe AJA, Sheller JA and Davies AJA agreeing):

Prima facie if there is no cross-examination of an expert, (and indeed most witnesses), there is no basis for a Judge not to accept the unchallenged evidence. I say prima facie because there are circumstances in which evidence in a report may be rejected or subject to criticism or doubt. This may occur where, for example, the report is ex facie illogical or inherently inconsistent; or where it is based on an incorrect or incomplete history; or where the assumptions on which it is founded are not established. However, in the absence of such matters, there is no rational reason to not accept unchallenged evidence.

44    Similarly, in Griffiths v TUI (UK) Ltd [2023] UKSC 48 at [61]-[70] (Lord Hodge, Lords Lloyd-Jones, Briggs, Burrows and Stephens agreeing), the Supreme Court of the United Kingdom reiterated the application of the rule in Browne v Dunn in the context of expert evidence, but explained that there are a number of circumstances in which the rule will not apply, including where an expert opinion is unsupported by reasoning or the factual assumptions on which the expert opinion is based are not established.

Elizabeth Michel Baker

45    Elizabeth Michel Baker is the Company Secretary and Legal Counsel of QAL. She has held the position of Company Secretary since June 2020 and the position of Legal Counsel since July 2000. In her affidavit sworn 20 December 2022, Ms Baker gave evidence concerning:

(a)    the corporate structure of QAL and the agreements governing the Gladstone alumina joint venture;

(b)    the imposition of the Russia Sanctions by the Australian Government;

(c)    correspondence between QAL and ABC concerning the effect of the sanctions with respect to QALs business dealings with ABC; and

(d)    the decision taken by QAL to invoke Art 14A of the Participants Agreement and the step-in arrangements.

Gerhard Able Pienaar

46    Gerhard Able Pienaar has been the General Manager of QAL since 18 September 2019. Prior to that, Mr Pienaar held the position of Manager-Utilities at QAL from 21 November 2017 until 30 May 2019, and the position of Acting General Manager of QAL from 31 May 2019 to 17 September 2019. In his affidavits sworn 19 and 21 December 2022, Mr Pienaar gave evidence concerning:

(a)    QALs business operations, including the delivery of alumina to the joint venture participants;

(b)    ABCs bauxite, alumina and caustic soda balances from March 2022; and

(c)    the status of ABCs scheduled shipments after the imposition of the Russia Sanctions.

Alan George Clark

47    Alan George 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 began his career as a research engineer with Rio Tinto Aluminium (formerly Comalco), followed by several roles in research, process improvement and marketing, before establishing Clark & Marron in 1999 which became the CM Group in 2011. Mr Clarks experience covers many of the worlds 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 worlds 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 Aluminum Association.

48    In his report dated 28 March 2023 and his supplementary report dated 28 April 2023, Mr Clark expressed his opinion on the following questions:

Question 1: Please give a brief overview of how smelter grade alumina is produced and what it is used for.

Question 2: Is smelter grade alumina fungible? To any extent to which it has classes or variations or the like, what are these and what implications do they have for smelting?

Question 3: Can smelter grade alumina be stockpiled indefinitely or does it need to be used within some period, and if so why and what is that period?

Question 4: Please give an overview of the global alumina market as at the start of 2022, including addressing:

(a)     major centres of production and consumption;

(b)     any particular drivers or features of supply and demand;

(c)     how alumina is or can be traded;

(d)     to what if any extent swap arrangements are used, and how they operate;

(e)     how prices are determined and expressed; and (f) the market price of alumina between January 2019 and April 2022.

Question 5: As at the start of 2022, what were the major aluminium smelting companies in Russia, where were their smelters, what was their approximate annual consumption of alumina and what were their major sources of supply of alumina?

Question 6: What are the consequences for an aluminium smelter of a shortage or lack of alumina supply?

Question 7: Approximately how long is required for the construction of an alumina refinery and what is the approximate capital cost of such construction?

Question 8: Having regard to your answers to questions 1-7 above, if and as you consider those answers of relevance, and to any other relevant considerations, please describe the state of the Russian smelters demand for, and ability to obtain, alumina in April 2022.

Question 9: If ABC obtained from QAL the tonnage of alumina referred to in section 2 of this letter and sold it to third parties in China or otherwise outside Russia, as referred to in section 2 of this letter, what effect, if any, would this have on the availability of alumina to Russian smelters? In answering this question, please refer to the following, if and as you consider relevant:

(a)     your answers to questions 1-8 above;

(b)     the tonnage of Chinas annual alumina requirements;

(c)     the use (if any) of swap arrangements; and (d) whether such sale of alumina by ABC would free up other sources of alumina for supply into Russia and, if so, where those sources would come from.

Question 10: If ABC obtained from QAL the tonnage of alumina referred to in section 2 of this letter 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?

49    I accept the opinions expressed by Mr Clark subject to a relatively minor qualification referred to below.

Professor Paul Brooke Stephan

50    Paul Brooke Stephan is a Professor of Law at the University of Virgina in the United States of America. He was awarded the degrees of Bachelor of Arts (History) in 1973 and Master of Arts (Russian Studies) in 1974 from Yale University, and a Juris Doctor in 1977 from the University of Virginia. Prof Stephans areas of specialisation include international law, foreign relations law, post-Soviet law, international business transactions, contract law, federal taxation, and US constitutional law.

51    In his report dated 17 March 2023, Prof Stephan expressed his opinion on the following questions:

Question 1: Please provide a brief overview of whether – and, if so, how – Russian tax is imposed on or in relation to:

(a)    business profits;

(b)    dividends;

(c)    increase in the value of shares; and

(d)    capital gains made by reason of the sale of shares.

In answering this question, please identify the basis on which natural persons and companies are subject to tax (e.g. residence, citizenship, place of incorporation, place of business).

Question 2: What are the sources of tax law in Russia? In answering this question, please explain:

(a)    the extent to which the imposition of tax follows the written law; and

(b)    if the imposition of tax ever departs from the written law:

(i)    how and why that happens; and

(ii)    how often that happens.

Question 3: Please provide an overview of the Russian controlled foreign company (CFC) rules. In answering this question, please identify and explain any exceptions to the CFC rules relevant to the activities and ownership structure of ABC as known to you.

Question 4: Having regard to your answer to Question 3, what is your opinion as to whether it is likely that ABC is exempt from the CFC rules.

Question 5: If ABC were to make a profit by reason of QAL supplying alumina to ABC, what would the likely tax consequences be for the natural and legal persons with direct or indirect interests in ABC (including but not limited to the companies referred to above under the heading Corporate structure)? In answering this question, please address (without limitation) the various scenarios in which dividends are or are not paid up the corporate chain.

Question 6: To the extent not otherwise addressed in your answers to Question 1 to 5 above, please set out whether you agree with the opinions stated in Ms Kuznetsovas report. In answering this question, please:

(a)    identify any areas of disagreement and explain why you disagree; and

(b)    identify any matters not addressed in the report which you consider are of relevance for the issues the subject of the report.

52    As an American law professor, it is not immediately obvious that Prof Stephan would have the expertise to express opinions on those questions. However, in his report, Prof Stephan described his training, study and experience relevant to the questions, which includes the following:

(a)    From the start of his academic career, Prof Stephan has concentrated on Soviet and Russian law, politics and economics, in addition to tax law, international law and the organization and regulation of international business transactions. Prof Stephan has taught a course related to Soviet or Russian law in virtually every one of the 44 years he has worked as a law professor. He reads Russian and has substantial facility with Russian legal terminology. Prof Stephan has taught tax law since the beginning of his career. He has worked on various projects on behalf of the US Tax Court and has practised before it. Prof Stephan has published scholarly articles on both US tax law and comparative tax law, as well as Russian tax law.

(b)    After the dissolution of the Soviet Union, Prof Stephan took part in the law reform process in the former republics of the Soviet Union, with the bulk of his activities involving the Russian Federation. From 1992 to 1993, legal specialists working on behalf of the Russian Government solicited his advice concerning the framing of the Russian Federations new Constitution, which was ratified at the end of 1993. During this period, Prof Stephan also advised members of the State and Law Administration of the Office of the President of the Russian Federation concerning organization of the judicial system and the conditions for promoting judicial independence. Prof Stephan played a central role in establishing the presence of the American Bar Associations Central and East European Law Initiative in Russia.

(c)    From 1993 to 1998, Prof Stephan was employed by a number of government and international bodies in connection with law reform projects in the region, including the International Monetary Fund, the World Bank, the Organization for Economic Cooperation and Development, the US Department of the Treasury, and the US Federal Bureau of Investigation. The lions share of the work performed on behalf of the US Department of Treasury involved the drafting of the Russian Tax Code. Prof Stephan also organised or directed programs to train Russian lawyers and judges, which were funded by the US Agency for International Development.

(d)    For the last 25 years, Prof Stephan has appeared as an expert on Russian law in numerous cases in US and foreign courts as well as various international arbitrations.

(e)    Since the inception of the Russian invasion of Ukraine, Prof Stephan has published articles, advised the general counsels of stakeholders, and conducted workshops for the Office of the Legal Adviser and congressional staff on the legal issues surrounding the imposition of sanctions on Russia.

53    In a number of instances, Prof Stephans report did not reveal or explain the primary facts or source materials on which his opinions were based. As such, it was not possible to be satisfied that those opinions expressed by Prof Stephan were wholly or substantially based on specialised knowledge as the reasoning process leading to the formation of the opinion was not exposed. In those instances, the opinions were ruled inadmissible on the basis that the opinions did not satisfy the requirements of s 79 of the Evidence Act 1995 (Cth) as explained in HG v The Queen (1999) 197 CLR 414 at [39]-[44] (Gleeson CJ) and Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588 at [42] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).

54    There was substantial agreement in the opinions of Ms Kuznetsova and Prof Stephan with respect to the provisions of the Russian Tax Code. The primary area of disagreement concerned the administration and enforcement of the Russian tax law by the relevant authorities, and the likelihood of arbitrary rulings being made. The applicants elected not to cross-examine Prof Stephan and accordingly did not challenge the opinions expressed by him with respect to the likelihood of arbitrary rulings. Despite choosing not to cross-examine Prof Stephan, the applicants submitted that Prof Stephans opinions carry little weight given his reliance on an outdated account of Russian case law (which was focused on the 2005 Yukos decision Presidium of the High Arbitrazh Court of Russia, No. 8665/04, 4 October 2005) and without due regard to contemporary developments in both case law and legislation. As discussed further below, while there is some force in that criticism of Prof Stephans report, the difference in the opinions of Ms Kuznetsova and Prof Stephan proved to be relatively narrow. As noted above, Ms Kuznetsova ultimately conceded a risk of arbitrary rulings during cross-examination.

B.3    Evidence adduced by the Rio Parties

55    The Rio parties called two lay witnesses (Alfred Patrick Grigg and Fraser Brian ODonnell), and tendered documents. Neither of those witnesses were required for cross-examination and I accept their evidence given by affidavit.

Alfred Patrick Grigg

56    Alfred Patrick Grigg is the Chief Counsel, Minerals at Rio Tinto. Mr Grigg graduated with a Bachelor of Laws (Hons) and a Bachelor of Business (Management) from Monash University in 1999 and was admitted to practice as a Solicitor in the Supreme Court of Victoria and the High Court of Australia in 2000. After working as a solicitor in private practice and then as in-house counsel, in 2007 Mr Grigg joined Rio Tinto as a Corporate Counsel and has undertaken several legal roles in support of Rio Tintos aluminium product group. At the time of his first affidavit affirmed 12 December 2022, he was acting General Manager, Energy & Joint Ventures, Pacific Operations, Aluminium at Rio Tinto Services Limited (the Rio Tinto entity which employs corporate personnel), and his substantive role was Chief Counsel, Aluminium and Strategic Partnerships at Rio Tinto. In his affidavits affirmed 12 December 2022 and 23 May 2023, Mr Grigg gave evidence concerning:

(a)    the Gladstone alumina joint venture and the contractual arrangements under which the venture operates;

(b)    the imposition of the Russia Sanctions by the Australian Government; and

(c)    the notices given by RTA to the Russian parties under Appendix E of the Participants Agreement and under the force majeure provisions of the Bauxite Supply Agreements and the Shipping Agreement.

Fraser Brian ODonnell

57    Fraser Brian ODonnell is a solicitor employed by Allens, the solicitors for the Rio parties. In his affidavit affirmed 23 May 2023, Mr ODonnell gave evidence concerning the steps he took to compile a bundle of legislation, regulations and instruments imposing sanctions in respect of a number of countries (including Russia, Syria, Iran, North Korea and the Crimea Region of Ukraine) by the following countries and intergovernmental organisations: Australia, the United Kingdom, Canada, the United States of America, the European Union and the United Nations.

C.    FACTUAL BACKGROUND

C.1    Global trade in alumina

58    The following description of the global trade in alumina is drawn from the expert report prepared by Mr Clark.

59    Alumina is aluminium oxide (chemical formula Al2O3) and is usually produced as a white crystalline powder. Approximately 95% of all alumina produced in the world is used to smelt primary aluminium metal in electrolytic aluminium smelters. The remaining alumina is used in a variety of other applications with significantly smaller markets, including refractories, abrasives, chemicals, batteries, lighting, fillers and cosmetics.

60    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. The operation of each electrolytic cell relies on the steady, uninterrupted supply of alumina and electricity to maintain operational stability. Any interruption to the supply of either into an electrolytic cell, no matter how small, will impact the performance and the stable operation of the cell. Small interruptions to alumina supply can be tolerated, although they would unavoidably impact the stability and integrity of the operation, as well as reducing output and increasing costs. Lengthier interruptions to alumina supply will lead to serious process and operational instability, in particular, the risk that the electrolytic cells will undergo what are referred to in the industry as anode effects. When anode effects occur, the voltage in the electrolytic cell increases dramatically and the electrolysis process becomes unstable and uncontrollable. The cell can then quickly lose its heat balance, leading to a complete loss of control of the process. If this happens to multiple cells in a potline, it would result in the potline being forcibly shut down, which is a catastrophic event for an aluminium smelter. This is because every electrolytic cell not receiving alumina would need to be cooled from a temperature of around 900oC to ambient temperature, resulting in the freezing of its entire contents. This freezing event not only causes irreversible and irreparable damage to the cells, it also results in months of outage. 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.

61    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 worlds 2021 production.

62    Over the past decade, China consolidated its dominant position as the worlds largest alumina producer, by steadily growing its domestic capacity. In 2014, Chinas total refining capacity accounted for over half the worlds 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.

63    Australias 2021 alumina production was 20.4 million tonnes, of which an estimated 89% was exported.

64    Mr Clark expressed the opinion that alumina can be considered as fungible, meaning it is interchangeable or replaceable with identical material, and that this is the basis on which global alumina is traded, contracts are swapped and material interchanged in different parts of the world. Mr Clark explained that, while alumina is considered to be fungible, different alumina refineries do produce alumina of different qualities, different levels (and types) of impurities and alumina of different crystalline structure.

65    Mr Clark also explained that, in theory, alumina has an unlimited shelf life, although it must be stored in conditions which minimise exposure to moisture. In practice, the longer alumina is stored, the higher the likelihood it may come into contact with moisture, typically natural moisture in the atmosphere. It could also be exposed to fluctuations in temperature, which may affect its properties, as well as other potential contaminants, such as carbon, which can affect the performance of the alumina in the smelting process. Storage periods for alumina vary widely depending on the location of the refinery, the means of transport of alumina from the refinery (eg rail vs shipping), the frequency of despatch, transport distances and the storage facilities and inventory management systems in place at the destination smelter. 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.

66    As China began to emerge as the worlds 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 Chinas 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. Mr Clark reported that, heading into 2022, under what he considers as steady-state global alumina market conditions, Chinas 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.

67    Mr Clark reported that 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.

C.2    Russias aluminium industry and UC Rusals business operations

68    Mr Gordymov deposed that 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 (eg aluminium billets, ingots and foil). 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.

69    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 Rusals Russian smelters had a requirement for 7.9 million tonnes of alumina. Mr Clark reported that UC Rusal is Russias only primary aluminium producing company.

70    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 Russias 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 Rusals aluminium smelters in Russia. The Ukrainian city of Mykolaiv is transliterated as Nikolaev in Russian, and the latter name is used alternatively in UC Rusals annual reports when referring to the alumina refinery.

71    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. QAL ceased the delivery of alumina to ABC at midnight on 4 April 2022.

72    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, Rual Trade Limited. Under that contract, the purchaser obtained title to the alumina once it passed the ships rail at QALs wharf. On 5 December 2012, the purchase obligations under the 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.

73    Mr Gordymov gave evidence that, 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 Rusals subsidiaries in Russia. The swap arrangement with Rio Tinto involved the swap of alumina produced at UC Rusals 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.

74    Mr Gordymov agreed in cross-examination that, following Russias 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 Rusals 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.

75    Mr Clark reported that, 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.

C.3    The Gladstone alumina joint venture

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

77    The shares in QAL are owned by ABC (as to 20%) and by RTA Holdco and RTA (as to 80%). From March 2022 until the date of trial, the Board of QAL has comprised:

(a)    Mr Gordymov;

(b)    Mr Geoffrey Ian Blatch (alternate director for Mr Gordymov);

(c)    Mr Daniel John van der Westhuizen (until 26 July 2022);

(d)    Mr Mudiwa Gwisai; and

(e)    Mr Armando Antonio de Oliveira Torres (alternate director for Messrs Westhuizen and Gwisai from 4 April 2022 to 26 July 2022, and director from 26 July 2022).

78    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. QALs 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.

79    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.

80    The Participants Agreement was most recently amended and restated pursuant to a Deed of Amendment and Restatement entered into on 31 December 2019. Relevantly, that Deed introduced Art 14A and the accompanying Appendix E which alters the parties rights and obligations in the event that the Australian Government 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 application of Art 14A and Appendix E are central to the issues in dispute between the parties and are considered in detail below.

81    Bauxite is supplied to QAL on board vessels which are unloaded at the western end of QALs wharf known as South Trees West. The bauxite is obtained from Rio Tintos bauxite mines at Weipa in North Queensland and Gove in the Northern Territory. ABC purchases its bauxite from RTA pursuant to the Bauxite Supply Agreements, and the purchased bauxite is then shipped to Gladstone by RTA pursuant to the Shipping Agreement. When delivered, ABCs bauxite is comingled with Rio Tintos bauxite. During the period from 2005 to 2021, QAL received an average of approximately 8.4 million tonnes of bauxite per year.

82    QAL is also supplied with caustic soda, which it uses in the refinery process, by ABC, RTA Holdco and RTA. The caustic soda is delivered on board vessels at South Trees West. Prior to 31 May 2021, QAL procured caustic soda on behalf of the Participants. However, other than purchases already committed by QAL, from that point onwards the Participants agreed to assume responsibility for the purchase and supply of caustic soda in their own right pursuant to the Caustic Soda Supply Agreement.

83    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. As part of its operations, QAL prepares an Annual Shipping Schedule for shipments of alumina from QALs wharf, based on the expected balances of alumina to the Participants and input from the Participants. The Annual Shipping Schedule contains details of, among things, the country of destination for the alumina.

84    As noted above, Art 2 of the Participants Agreement stipulates that the Participants retain title to the bauxite, the material in process and the alumina into which it is converted. Where materials are commingled in transportation, storage or processing, the Participants have an undivided interest in those materials in proportion to their interests in QAL. QAL charges the Participants for the conversion of bauxite to alumina in the form of a tolling charge, expressed as a cost per tonne of alumina produced. The tolling charge is based on the cost of operations and maintenance of the refinery, inclusive of labour, materials and utilities, determined on a tax basis. The tolling charge also includes a capital recovery component, based on tax depreciation.

85    The evidence shows that, 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.

C.4    Domicile, ownership and governance of the Russian parties and UC Rusal

86    ABC is incorporated in the British Virgin Islands. It is an indirect wholly owned subsidiary of UC Rusal which, as stated above, is registered as an international public joint stock company in the Russian Federation. 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. By way of further elaboration, all of the shares in ABC are held by United Company Rusal Alumina Limited (a company incorporated in Cyprus); all of the shares in United Company Rusal Alumina Limited are held by Rusal Limited; all of the shares in Rusal Limited are held by Libertatem; and all of the shares in Libertatem are held by UC Rusal.

87    The applicants did not contend that ABC has any management independence from UC Rusal. The Independent Auditors Report on the separate financial statements of ABC for the year ended 31 December 2021, which are dated September 2022, stated that:

(a)    ABC is a wholly owned and indirect subsidiary of UC Rusal;

(b)    the directors of ABC consider the immediate parent of UC Rusal to be En+; and

(c)    ABC is economically dependent upon the Rusal Group, its operating and financing decisions and a significant part of its transactions and settlements are controlled by UC Rusal, and UC Rusal has the power to direct the transactions of ABC at its discretion and for the groups benefit.

88    This is also consistent with Mr Gordymovs evidence. Mr Gordymov is a senior manager for UC Rusal but is responsible for managing ABCs procurement and shipment of alumina.

89    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. As noted earlier, as part of the redomiciliation process, Libertatem was incorporated in November 2018 in Cyprus to consolidate UC Rusals foreign assets (including ABC) which were previously held and managed in Cyprus directly by UC Rusal. The incorporation was part of a restructure of the Rusal Group that took place between 2018 and 2020. The restructure involved the transfer of the Cyprus offices of UC Rusal, its employees and UC Rusals international assets to Libertatem. Mr Runov gave evidence that, in and from 2018, Russian authorities were encouraging Russian corporations who were not domiciled in Russia to redomicile in Russia and Russian laws were enacted in 2018 to give redomiciled companies greater certainty about their tax treatment.

90    UC Rusals 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. As noted earlier, 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.

91    It is common ground that Messrs Deripaska and Vekselberg are significant indirect shareholders of UC Rusal and thereby ABC. The parties calculated the overall shareholding interests of Messrs Deripaska and Vekselberg in UC Rusal by way of compounding the percentage shareholding in each intermediate company. For example, the parties calculated that Mr Deripaska had an overall interest of 25.58% in UC Rusal (ignoring En+s indirect shareholding in itself, which is discussed below), and Mr Vekselberg had an overall interest in UC Rusal of approximately 12.58%. While that approach to calculating indirect shareholding interests provides an appropriate estimate of economic interests, it has a tendency to obscure the degree of control or influence that may be able to be exercised at each level of the corporate tree. For that reason, the following paragraphs set out details concerning the relevant chain of shareholdings.

92    In relation to Mr Deripaska, it is common ground that he holds 0.01% of the issued share capital in UC Rusal via a nominee, and 44.95% of the issued shares in En+ (which, as stated above, holds approximately 56.88% of the shares in UC Rusal). As discussed further below, by an agreement between En+, UC Rusal and OFAC made on 18 December 2018 which removed En+ and UC Rusal from OFACs SDN List, En+ agreed to ensure that:

(a)    Mr Deripaska reduced his shareholding in En+ from 70% to 44.95% (including by the transfer of 14.33% to VTB Group, with the voting rights in those shares exercisable by an independent third party); and

(b)    Mr Deripaska is prohibited from voting more than 35% of En+ shares, which was to be achieved by Mr Deripaska assigning voting rights above that level to a voting trust that is obligated to vote in the same manner as the majority of shares held by shareholders other than Mr Deripaska.

93    On 6 February 2020, En+ acquired, through a wholly owned subsidiary, 21.37% of its own shares from VTB Group. The parties disputed the effect of that transaction. QAL and the Rio parties submitted that the acquisition had the effect of increasing Mr Deripaskas indirect shareholding interest in En+, and thereby in UC Rusal and ABC, because Mr Deripaskas shareholding interest in En+ now includes an indirect interest in those further shares in En+. The applicants submitted that the arrangements governing the acquisition ensure that Mr Deripaskas shareholding interest in En+ is not increased, conformably with the agreement reached with OFAC. I accept aspects of both submissions.

94    At the time of the acquisition, En+ publicly stated that:

(a)    the object of the transaction was to simplify the ownership structure of En+;

(b)    at the transaction price, the acquisition would be value accretive to En+ shareholders;

(c)    there was no intention to cancel the shares (in order to preserve the ownership structure under the OFAC agreement) and En+ may choose over the longer term to undertake a secondary offering of all or part of the shares to increase public ownership of En+ (and improve trading liquidity); and

(d)    the pre-existing trustee voting arrangement for the 14.33% shareholding would be retained and the votes attaching to the balance of the 7.04% shareholding would be exercised by the Chair of the Board of En+.

95    I have no reason to doubt that those arrangements conform with the OFAC agreement and ensure that Mr Deripaska is unable to exercise voting rights in excess of 35% of the shares in En+. However, it is also the case that Mr Deripaskas effective financial interest in En+ has been increased by the transaction, albeit that his present rights to receive dividends have been frozen under the OFAC agreement (and are paid into an escrow account), as referred to below. As submitted by QAL and the Rio parties, Mr Deripaskas effective financial interest in En+ has been increased to 54.56% and his effective financial interest in UC Rusal has been increased to 31.03%. It is also relevant to note that Mr Deripaska is by far the largest shareholder in En+. The next largest shareholder is En+s subsidiary that holds 21.37% of the shares in En+, followed by Glencore which holds 10.55%.

96    In relation to Mr Vekselberg, it is common ground that he holds substantial indirect interests in the issued shares in SUAL (which, as stated above, holds approximately 25.52% of the shares in UC Rusal). Through the Renova Group, Mr Vekselberg holds:

(a)    directly and indirectly all of the shares in New Aluminium Investments ILLC, which holds approximately 36.39% of the shares in SUAL; and

(b)    approximately 42.28% of the shares in EMP Group LLC, which holds all of the shares in Aluminvest Holding ILLC, which in turn holds approximately 30.56% of the shares in SUAL.

97    Mr Vekselbergs effective financial interest in UC Rusal is therefore approximately 12.58%.

C.5    OFAC Sanctions

98    On 6 April 2018, 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 its 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 Treasurys 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 governments 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 Renovas offices and arrested two associates of Vekselberg, including the companys 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 worlds 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 Russias economy.

99    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 the following measures and OFAC agreed to remove En+ and UC Rusal from the SDN List:

(a)    Mr Deripaskas shareholding interest in En+ was reduced from approximately 70% to 44.95% and subsequently would not be increased above 44.95%. Certain of the shares (being 14.33%) were required to be transferred to VTB Bank and the voting rights over those shares would be assigned to an independent third party with no ties to Mr Deripaska.

(b)    Mr Deripaska would not be entitled to vote more than 35% of the shares in En+. The voting rights attaching to Mr Deripaska’s remaining shareholding (being 9.95%) were required to be assigned to a voting trust that is obligated to vote those shares in the same manner in which the majority of shares are voted on a matter by En+ shareholders other than Mr Deripaska.

(c)    En+ agreed to create a board of 12 directors, and Mr Deripaska would have the right to nominate no more than 4 directors, with the remaining directors to be independent of Mr Deripaska.

(d)    En+ agreed that future shareholder dividend payments to Mr Deripaska by En+ or UC Rusal will be placed in a blocked account or an escrow account approved by OFAC.

(e)    En+ retained its right to nominate the CEO of UC Rusal.

(f)    En+ and UC Rusal agreed that the board of UC Rusal would consist of 14 directors and that none of the directors will have any business, professional or family ties to Mr Deripaska.

(g)    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.

100    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. Mr Strunnikov deposed that, since that time, OFAC has not re-designated En+ or UC Rusal and has not notified UC Rusal of any material non-compliance with the terms of the agreement.

101    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.

102    In the absence of evidence to the contrary adduced by the respondents, it is open to infer, and I do infer, that the respondents were aware of the above disclosures made by OFAC, En+ and UC Rusal. As the Rio parties submitted, the Rio Tinto Group engages in international trade where it is necessary to be familiar with sanction regimes imposed by different countries. I infer 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.

103    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 Companys 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 Companys 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 OFACs List of Specially Designated Nationals and Blocked Persons (SDN List), En+, RUSAL, and ESE have reduced Oleg Deripaskas 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+.

104    The foregoing matters also featured in the Chairmans Review section of the annual report and elsewhere.

105    The 2018 annual report for UC Rusal was also published in about April 2019 (the Chairmans 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 Treasurys 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 OFACs 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.

106    I infer from those disclosures that, as at the date the Participants Agreement was amended to insert Art 14A, the respondents were aware of the matters so disclosed. Those matters have some relevance to the proper construction of Art 14A.

C.6    Suspension of Gladstone alumina joint venture following the imposition of the Russia Sanctions

107    The Russia Sanctions, and the legislative framework under which they are imposed, are discussed in detail below. For present purposes, it is sufficient to note that:

(a)    on 17 March 2022 (and with effect on 18 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) which had the effect of including Messrs Deripaska and Vekselberg on the Autonomous Sanctions (Designated Persons and Entities and Declared Persons Russia and Ukraine) List 2014 (Cth), being the list of designated persons for the purposes of regs 6(a) and (b) of the Autonomous Sanctions Regulations (the Designated Persons Sanction); and

(b)    on 19 March 2022 (and with effect on 20 March 2022), the Minister for Foreign Affairs made the Autonomous Sanctions (Export Sanctioned Goods—Russia) Designation 2022 (Cth) which had the effect of designating (amongst other things) aluminium ores and concentrates and aluminium oxide as export sanctioned goods for Russia for the purposes of reg 4(3) of the Autonomous Sanctions Regulations (the Export Sanction).

108    On 22 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 Deripaskas 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 Vekselbergs interests in UC Rusal.

109    On 24 March 2022, ABC wrote to QAL providing information concerning Mr Deripaskas interests in UC Rusal (and thereby ABC), including the restrictions imposed on his interests by reason of the OFAC agreement made in December 2018. The letter stated that, by reason of those restrictions (and also by reason of the fact that ABC has never distributed dividends and will not do so in the future), Mr Deripaska does not and cannot receive any benefit (directly or indirectly) from an asset made available to ABC for the purposes of the Autonomous Sanctions Regulations. With respect to the Export Sanction, the letter stated that ABC had taken the following measures to ensure that there is no breach of the Autonomous Sanctions Regulations:

(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 and 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; and

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

110    The letter reiterated that ABC has never distributed dividends and does not propose to do so in the future and further stated that ABC is taxable in Australia, 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 (Paragraph 3, Article 25-13.1 of the Russian Tax Code); and

(b)    the ultimate parent company of ABC, UC Rusal, is exempt from CFC Rules until 2029 (Paragraph 58, Section 1 Article 251 of the Russian Tax Code).

111    The letter stated that ABC was prepared to give a binding undertaking to QAL which reflected the above matters.

112    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 QALs 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.

113    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 ABCs letter of 24 March 2022 and the risk of contravening the Russia Sanctions. In short, the advice received by QAL did not change.

114    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.

115    On 1 April 2022, Ms Baker prepared and sent a further memorandum to QALs 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.

116    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 ABCs bauxite deliveries and introduce its bauxite to the refinery process until such time as QALs 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.

117    On 4 April 2022, QALs 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 11.59pm (AEST) on Monday, 4 April 2022.

118    On 4 April 2022 at 11.59pm (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 ABCs bauxite, introduce ABCs bauxite to the refinery process, and load ABCs alumina shipments.

119    Mr Grigg deposed that he was not involved in the process by which QALs management came to make the decision to issue the Step-in Notification, and nor was he involved in the issuing of the Step-in Notification. Mr Grigg further deposed that he was not aware of any action taken by the Rio parties to cause QAL management to issue the Step-in Notification and that, if such action had been taken by the Rio parties, he would have expected that in the ordinary course of business it would have come to his attention in his role as acting General Manager, Energy and Joint Ventures.

120    Mr Grigg deposed that, due to the Step-in Notification, from the Bauxite Cessation Date of 11.59pm (AEST) on 4 April 2022, QAL would not permit any kind of bauxite owned by ABC to be delivered to QALs wharf. The effect of this was that RTA could not unload the bauxite supplied to ABC pursuant to the Bauxite Supply Agreements and shipped to the port of Gladstone under the Shipping Agreement. Therefore, due to the Step-in Notification and to QAL not accepting delivery of ABCs bauxite, RTA could not perform its obligations to supply and deliver bauxite under the Bauxite Supply Agreements and the Shipping Agreement.

121    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 and cl 11.1 of the Shipping Agreement, Art 21 of the Monohydrate Bauxite Supply Agreement and Art 18.1 of the Low Mono Bauxite Supply Agreement.

C.7    ABCs attempted shipment of alumina between 20 March and 4 April 2022

122    Mr Gordymov deposed that, as a result of the imposition of the Export Sanction, ABC ceased exports from Australia to Russia in March 2022.

123    The evidence discloses that, as at 20 March 2022, ABC had two scheduled shipments of QAL alumina to Russia and delivery to UC Rusals 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 deposed that the swap agreement was suspended on 21 March 2022.

124    Following the announcement of the Export Sanction, Mr Gordymov deposed that 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 deposed that he intended that the alumina would be unloaded into the port storage and packed in so called big bags (flexible bulk containers), which would enable ABC to store alumina at the port of Qingdao until a suitable customer in China was found. Mr Gordymov deposed 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 further deposed that, in parallel, he caused negotiations to begin on behalf of UC Rusal to sell ABCs share of the alumina produced by QAL to customers in Europe, India and the Middle East.

125    Mr Gordymov deposed 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 cargoes became redundant when QAL refused to load ABC alumina following the issue of the Step-in Notification.

C.8    Effect of suspension of Gladstone alumina joint venture on the Rusal Group

126    The suspension of ABCs participation in the Gladstone alumina joint venture contributed to a material increase in the cost of alumina acquired by the Rusal Group in the financial year ending 31 December 2022. UC Rusals 2022 annual report stated that:

The cost of alumina increased by USD1,106 million, or by 149.3%, to USD1,847 million in 2022 as compared to USD741 million in 2021 primarily due to the increase in alumina purchase price by 14.9% as well as the increase in alumina purchase volume by 263.4% between the periods following the ban of Australian government for the export of alumina and bauxite to Russia introduced in March 2022 and temporary suspension of production at Mykolaiv Alumina Refinery Company Ltd due to developments in Ukraine starting from 1 March 2022.

127    The annual report also stated that the increase in the cost of alumina was one of the factors that contributed to a reduction in 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.

128    Later, in the notes to the financial statements which refer to the going concern basis of preparing the statements, the annual report stated:

Ban of Australian government for the export of alumina and bauxite to Russia introduced in March 2022 and temporary suspension of production at Mykolaiv Alumina Refinery Company Ltd due to developments in Ukraine starting from 1 March 2022 influenced the availability of alumina and bauxite or increase the purchase prices for the Group. Difficulties with logistics caused the Group to rebuild the supply and sales chains and lead to additional logistics costs. If the situation in Ukraine and overall geopolitical tension persists or continues to develop significantly, including the loss of significant parts of foreign markets, which cannot be reallocated to new markets, it may affect the Groups business, financial condition, prospects and results of operations.

The facts described above, as well as the volatility of commodity markets, stock, currency markets and interest rates, create material uncertainty in the Groups ability to meet its financial obligations on time and continue as a going concern entity. …

C.9    Whether ABC alumina is likely to be exported to Russia

129    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 or would be supplied in a manner that would result in other alumina being supplied to Russia (for example, pursuant to a swap agreement).

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 Rusals aluminium smelters. Mr Gordymovs evidence was that ABC had, historically, shipped almost all of the alumina it obtained from QAL to Russia for use in UC Rusals 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 Russias 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).

131    As referred to above, on 24 March 2022, ABC wrote to QAL stating that ABC had taken certain measures to ensure that there would be no breach of the Export Sanction. Those measures were: first, that ABC would not provide any alumina it received from QAL to Russia or to UC Rusal or any of its subsidiaries; second, that all alumina delivered to ABC from QAL would be sold by ABC directly to third parties located outside Russia and sales would be subject to a provision in the contract that prohibited any alumina supplied, or resultant aluminium derived from the alumina supplied, from being sold or otherwise supplied to Russia, with all sales contracts in respect of such alumina or aluminium to contain the same prohibition; and third, that any current agreements which were inconsistent with these arrangements have been or will be terminated or suspended. The letter also stated that ABC was prepared to give a binding undertaking to QAL which reflected the above matters.

132    The respondents submitted that the letter carries no evidentiary weight for the following reasons. First, ABC never gave an enforceable undertaking in the terms of the letter, whether by way of deed poll or otherwise. Second, no evidence was adduced in the proceeding showing that the contract of sale, by which ABC had sold to RTI, until December 2025, all of its entitlement to alumina from the Gladstone alumina joint venture, had been terminated or suspended. Third, ABC has no control over where its alumina is shipped because ABC has no management independence from UC Rusal. Decisions concerning the sale and shipment of ABCs alumina are made by UC Rusal. UC Rusal never gave any assurances concerning the sale and shipment of ABCs alumina, let alone a legally enforceable commitment. Fourth, on its terms, the letter would not have prevented ABC entering into swap agreements, whereby ABC might swap alumina produced at the Gladstone Plant for alumina produced elsewhere, and thereby procure the supply into Russia of the swapped alumina.

133    I accept the respondents submissions. The statements made in ABCs letter of 24 March 2022 cannot be characterised as binding and enforceable commitments. The statements are mere representations by ABC as to its intended future conduct. The statements were not given in the form of legally binding covenants. Further, the statements 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. In any event, the evidence showed that management decisions with respect to the sale and shipment of ABCs alumina were made by UC Rusal and not by ABC. Furthermore, the statements made in the letter did not apply to swap arrangements.

134    For those reasons, I consider that the statements made in ABCs 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).

135    On the last day of the hearing, the applicants offered the Rusal Group Undertaking which sought to address the criticisms made by the respondents of ABCs letter of 24 March 2022. It was common ground between the parties that the Undertaking could have no bearing on the determination of issues up until the time that it is accepted by the Court, and therefore cannot affect the determination of issues concerning past events or the grant of relief in respect of past events. That is because a proffered undertaking has no legal force until it is accepted by the Court. The Rusal Group Undertaking can only affect the grant of declaratory relief concerning the future. The question whether the Court has power to accept the Undertaking in the present case as a condition of granting relief, and whether the Court should do so in the circumstances of this case in the exercise of its discretionary powers concerning relief, is considered later in these reasons.

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 Rusals 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. 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. Further, a report published by Wood Mackenzie in May 2022 titled Can China keep Russian aluminium smelters afloat stated that more than 38% of Chinas 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. 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 Clarks report. 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. Chinas 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, Chinas 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 Chinas 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. 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. However, with Chinas 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. Furthermore, with Chinas market already saturated, pushing more alumina in would increase the likelihood that Chinese companies would seek to find export opportunities, including to Russia. 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.

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. 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. 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.

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.

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:

(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.

147    Mr Clarks 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 Clarks 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 ABCs 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.

C.10    Whether ABCs business activities would have generated tax revenues in Russia

148    The second significant area of factual dispute between the parties concerns the question whether ABCs business activities would have generated tax revenues in Russia and thereby constituted a benefit for Russia. Questions about Russian tax law are questions of fact which are to be determined on the basis of expert evidence: Neilson v Overseas Projects Corporations of Victoria Ltd (2005) 223 CLR 331 at [115] (Gummow and Hayne JJ).

149    A necessary factual premise for a conclusion that ABCs business activities would have generated tax revenue in Russia is that, from March 2022, the sale by ABC of alumina produced by QAL to third parties would have been profitable. I do not understand that that factual premise is disputed. As submitted by QAL, the applicants could not deny that premise consistently with their claim in the proceeding for damages for lost profits.

150    Nevertheless, some initial observations should be made about ABCs financial statements and their disclosures concerning ABCs profitability and retained earnings.

151    First, two types of financial statements concerning ABC were adduced in evidence: financial statements titled Management Accounts were adduced in respect of the financial year ended 31 December 2021; and financial statements titled Separate Financial Statements were adduced in respect of the financial years ended 31 December 2019, 2020 and 2021. The latter statements were audited (by KPMG Russia in respect of 2019 and 2020 and by a Russian company identified as “TSATR – Audit Services Limited Liability Company” in respect of 2021). The two sets of accounts in respect of the overlapping financial year ending 31 December 2021 differed in material ways, as set out below.

152    Second, and as noted in the Separate Financial Statements, the revenue earned by ABC is through a sales contract with another wholly owned subsidiary of the Rusal Group (presently, RTI). It follows that the amount of ABCs gross profit from the sale of Gladstone alumina is determined by the terms of that contract, which is able to be varied by the parties from time to time under the control of UC Rusal.

153    Third, and as noted in the Separate Financial Statements, ABC is funded by both equity and loan capital, with the loans being advanced by its immediate parent company, Rusal Limited. It follows that the amount of ABCs net profit from the sale of alumina is affected by the applicable interest rate charged on those borrowings.

154    The Management Accounts and the Separate Financial Accounts in respect of the year ended 31 December 2021 disclosed the following (rounded) figures:

(a)    the Management Accounts record total equity of US$453 million comprising share capital of $231 million, “additional capital” of US$57 million and retained earnings of US$165 million, whereas the Separate Financial Statements record total equity of negative US$2 million comprising share capital of US$231 million and reserves of negative US$251 million;

(b)    both the Management Accounts and the Separate Financial Statements record total borrowings from a related party of approximately US$444 million incurring an annual interest charge of approximately US$16 million; and

(c)    the Management Accounts record operating profit before finance costs and income tax of approximately US$24.5 million, profit before income tax of approximately US$7.9 million and a net loss after income tax of approximately US$4.2 million, whereas the Separate Financial Statements record operating profit before finance costs and income tax of approximately US$23 million and net profit of approximately US$7.9 million (with no income tax expense).

155    Having regard to the discrepancies between the Management Accounts and the Separate Financial Statements, and also having regard to the nature and extent of related party transactions undertaken by ABC (in respect of both the sale of alumina and the use of loan capital), ABCs historic financial statements are not a reliable guide to the profitability to ABC, and the Rusal Group as a whole, of ABCs participation in the Gladstone alumina joint venture as at early 2022.

156    The case advanced by the Russian parties requires an assumption that, following the imposition of the Russia Sanctions, ABC would only supply alumina produced at the Gladstone Plant to third parties and outside Russia. Thus, the assumption required by that case is that ABC would not supply alumina to RTI pursuant to the related party contract first entered into in 2005, but would supply to third parties at market negotiated prices. As submitted by QAL, a comparison of ABCs historical cost of sales of alumina, as disclosed by its financial statements and invoices, and the market price for alumina in Mr Clarks report, shows that the sale of alumina by ABC would have been profitable to it.

157    Finally, a strong inference that the sale of alumina by ABC would have been profitable to it can be drawn from the fact that this proceeding has been brought by ABC in which ABC is seeking orders that would enable it to continue to participate in the Gladstone alumina joint venture. It would be irrational for ABC to seek that relief, including on the basis of the Rusal Group Undertaking that has been offered to the Court (which requires ABC to sell its alumina to third parties outside Russia), unless that participation was expected to be profitable to ABC.

Ms Kuznetsovas first report

158    Ms Kuznetsovas first report addressed the potential direct or indirect taxation under the Russian Tax Code of profits earned by ABC from trading in alumina produced at the Gladstone Plant. Her first report focused on taxes that may be levied on UC Rusal, En+ and SUAL, but did not address taxes that may be levied on other shareholders in UC Rusal with respect to the receipt of dividends or the sale of their shares. Those potential taxes were considered in Prof Stephans report and were the subject of comment in Ms Kuznetsovas supplementary report.

159    Ms Kuznetsova gave evidence that, under the Russian Tax Code, foreign-sourced income may be taxable in Russia in the following cases:

(a)    when a Russian company has a permanent establishment in a foreign jurisdiction that generates income;

(b)    when a Russian tax resident, be it a legal entity or a natural person, is recognised as a controlling person of a Controlled Foreign Company (CFC) which generates income; or

(c)    when a Russian tax resident receives income from a foreign source (eg dividends distributed by a foreign company).

160    Ms Kuznetsova was instructed that none of the Russian entities of the Rusal Group has a permanent establishment in Australia in connection with the activities of ABC in Australia, and therefore category (a) is inapplicable. The respondents did not challenge that assumption.

161    In relation to the CFC Rules (category (b) above), Ms Kuznetsova stated that the purpose of the Rules is to counteract undue profit shifting from Russia. The CFC Rules provide for the taxation of the profit of foreign entities and structures controlled by Russian tax residents in the hands of those residents regardless of whether the profit is distributed or not; that is, Russia may tax the undistributed profits of foreign companies regarded as CFCs. For these purposes, control means having an interest in the foreign entity of more than 25%. This means that each of UC Rusal, En+ and SUAL are subject to the CFC Rules, as each of those entities are tax residents of Russia and hold interests of more than 25% in ABC.

162    However, the Russian Tax Code recognises that there may be cases when Russian tax residents establish profit centres outside Russia for genuine economic purposes. For these cases, the Russian Tax Code provides for exemptions from taxation of CFC profit.

163    Relevantly, the exemptions include active foreign companies, which are foreign companies where passive income does not exceed 20% of total income. Ms Kuznetsova expressed the opinion that, having regard to the 2021 financial statements for ABC, it should benefit from that exemption. Accordingly, in Ms Kuznetsovas opinion, the CFC Rules should not apply to ABCs income.

164    Another exemption, which applies until 1 January 2029, is in respect of companies that have the status of an international holding company (IHC) for Russian tax purposes. Ms Kuznetsova was instructed to assume that UC Rusal has the tax status of an IHC, but she did not undertake any investigation or verification of that assumption. Ms Kuznetsova explained that, assuming UC Rusal is an IHC and benefits from this exemption, companies higher in the corporate chain would not gain the benefit of that exemption unless they were also IHCs. Ms Kuznetsova stated that she understood that En+ and SUAL were redomiciled to Russia similar to UC Rusal and, as a result, they may also have a status of IHCs. The Russian parties did not, however, adduce evidence with respect to the tax status of En+ and SUAL.

165    If a Russian tax resident is liable for tax on the profits of a CFC, the liability will be reduced by the amount of foreign tax paid by the CFC. Ms Kuznetsova observed that the profits earned by ABC would be subject to taxation in Australia at the rate of 30%, whereas the corporate tax rate in Russia is 20%. Accordingly, it is possible that the taxation paid in Australia would eliminate any Russian taxation. Ms Kuznetsova acknowledged, however, that this conclusion is subject to the application of tax credits in Australia to reduce Australian tax.

166    In respect of dividends (category (c) above), Ms Kuznetsova considered the tax treatment of dividends that may be distributed from ABC through the corporate chain to Libertatem and then to UC Rusal. Ms Kuznetsova stated that, under the Russian Tax Code, a 0% tax rate applies to dividends received by Russian organisations from Russian and foreign companies, provided that:

(a)    on the day of decision on dividend distribution, the organisation receiving dividends has continuously held at least 50% interest in the capital of the organisation paying dividends for at least 365 calendar days; and

(b)    the jurisdiction of tax residence of the dividend paying company must not be included in the list of offshore zones of the Ministry of Finance of the Russian Federation.

167    Ms Kuznetsova stated that Cyprus is not currently included in the list of offshore zones. However, Jersey is included in this list. Ms Kuznetsova stated her understanding that UC Rusal has held all of the shares in Libertatem for more than 365 calendar days and that Libertatem is registered in and a tax resident of Cyprus. Therefore, the conditions for application of the 0% tax rate to dividends received by UC Rusal from Libertatem are satisfied. Ms Kuznetsova qualified her opinion by acknowledging a risk, which she assessed as low, that the application of the 0% tax rate to dividends from Libertatem received by UC Rusal could be challenged by the Russian tax authorities. The challenge would be on the basis that:

(a)    Rusal Limited is a tax resident and therefore the 0% tax rate would not have been applicable to dividends paid by Rusal Limited; and

(b)    Libertatem was incorporated prior to the redomiciliation of UC Rusal from Jersey to Russia and interposed between Rusal Limited and UC Rusal.

168    Ms Kuznetsova stated that, on the basis of the information that had been provided to her, Libertatem performed real functions in relation to its foreign subsidiaries and has sufficient economic substance in Cyprus to perform these functions, which should provide sufficient grounds to sustain the position that the exemption should be applicable.

Prof Stephans report

169    With respect to the provisions of the Russian Tax Code, Prof Stephans report was largely consistent with Ms Kuznetsovas report. However, Prof Stephans report also noted that the Russian Tax Code provides for the taxation of dividends received by corporate and individual shareholders, including a withholding tax of 15% in respect of dividends paid to foreign companies and individuals. The Russian Tax Code also provides for the taxation of gains made from the sale of shares in Russia.

170    Prof Stephans report differed from Ms Kuznetsova with respect to the application of unwritten law in the administration and enforcement of the Russian Tax Code. In that regard, Prof Stephan expressed the opinion that:

Russia, like most civil-law countries, does not embrace the concept of judicial precedent as a source of law as understood in common-law countries. At the same time, Russia law embraces the concept of non-discriminatory and non-arbitrary application of the law. As a result, the law enforcement agencies and the judiciary are expected to act consistently with the interpretation of the law espoused by earlier judicial decisions, especially as to courts that are superior in the judiciary hierarchy. Thus the decisions of the two apex courts – the Constitutional Court and the Supreme Court – are considered authoritative statements of law. In the case of the Constitutional Court, Article 106 of the Federal Constitutional Law on the Constitutional Court provides explicitly that the reasoning of the Courts decisions, and not just the outcomes of its cases, constitute authoritative and binding law within the Russian legal system.

171    Prof Stephan stated that Russian tax law recognises several doctrines developed by the tax authorities and endorsed by the Russian courts that give the tax authorities a discretionary right to recharacterise transactions or disqualify otherwise eligible persons from tax benefits based on the concept of bad faith or excessive tax benefit relative to taxpayer cost. Prof Stephan expressed the opinion that there was a significant risk that ABCs profits would be attributed to UC Rusal under the CFC Rules, and that dividends payable by Libertatem may not gain the benefit of the 0% tax rate, on the basis of the foregoing doctrines.

172    Prof Stephans opinions were substantially based on litigation relating to the Yukos Oil Company in the early 2000s which has been the subject of his research (see Paul B Stephan, Taxation and Expropriation—The Destruction of the Yukos Oil Empire (2013) 35(1) Houston Journal of International Law 1). Prof Stephan explained that, with respect to the various cases during the 2003-2006 period brought against Yukos, its principal shareholders, and its affiliated companies, the taxpayers were perceived as presenting a significant challenge to the Russian Governments policy of renationalising natural resources, especially oil and gas, as well as to the political status quo generally.

173    Prof Stephan observed that reliable press reports indicate that Mr Deripaska has consistently criticised the Russian invasion of Ukraine. In an article published in the Irish Times on 8 April 2022, Mr Deripaska was reported as calling for severe punishment of the persons responsible for the murder of civilians in Bucha. In an article published in Forbes magazine on 28 June 2022, Mr Deripaska was reported as describing the war aims as a colossal mistake and questioning whose victory the war represents.

174    Prof Stephan expressed the opinions that the Russian Government had increasingly cracked down on war critics in the months following June 2022. Prof Stephan observed that an article published in the Financial Times on 20 December 2022 reported that a Russian court had ordered the seizure of Mr Deripaskas luxury hotel complex in Sochi, valued at US$1 billion, and that the suit was brought by an organisation closely associated with President Putin and has been widely perceived as retaliation for Mr Deripaskas criticism of the war. Prof Stephan observed that UC Rusal is one of the largest aluminium producers in the world and that aluminium is a critical resource for arming Russia. Prof Stephan expressed the opinion that, in the past, Russia has used the discretion implied in its tax rules to oust other industrial magnates so as to bring strategic industries under direct government control. Prof Stephan said that, in his judgment, the risk is substantial that Russian tax authorities will use their discretion to impose tax penalties on UC Rusal, and exploit these penalties to gain greater control over the company. Increasing UC Rusals tax liabilities by attributing to it ABCs profits would further such a plan.

Ms Kuznetsovas supplementary report and cross-examination

175    In her supplementary report, Ms Kuznetsova agreed with Prof Stephan that Russian tax may be payable by shareholders in UC Rusal (other than the shareholders who have a controlling interest) on dividends received by them or on the sale of their shares.

176    Ms Kuznetsova disagreed, however, with Prof Stephans opinions with respect to the recharacterisation of transactions and the concept of bad faith in Russian tax law. Ms Kuznetsova expressed the view that Prof Stephans opinions were outdated and do not reflect current Russian tax law and practice. In that regard, Ms Kuznetsova observed that Prof Stephans opinions were based solely on Russian court cases prior to 2006. Ms Kuznetsova stated that:

The concept of bad faith did exist in the Russian court practice, but in 2006 it was refined as a result of which the concept of unjustified tax benefit appeared along with a description of the approach to assessment of presence or absence of unjustified tax benefits, including principles and criteria for such an assessment. Since then, the Russian tax authorities and courts were mainly guided by the unjustified tax benefit doctrine which had clearer criteria for assessment compared to the bad faith doctrine. Furthermore, in 2017, the unjustified tax benefit concept developed into special provisions introduced in the Russian tax code (hereinafter – the RTC) as Article 54.1 named Limits on exercising the rights to calculate tax base and (or) amount of tax, levies, social security contributions which, in its essence, is a general anti-avoidance rule in the Russian tax legislation. Article 54.1 of the RTC contains both objective and subjective criteria.

177    In cross-examination, Ms Kuznetsova was taken to sections of UC Rusals annual reports that disclose tax risks faced by the Rusal Group. For example, Ms Kuznetsova was taken to a passage from UC Rusals 2018 annual report, which states:

Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Managements interpretation of such legislation as applied to the transactions and activities of the Group may be challenged by the relevant local, regional and federal authorities. Notably recent developments in the Russian environment suggest that the authorities in this country are becoming more active in seeking to enforce, through the Russian court system, interpretations of tax legislation, in particular in relation to the use of certain commercial trading structures, which may be selective for particular tax payers and different to the authorities previous interpretations or practices. Different and selective interpretations of tax regulations by various government authorities and inconsistent enforcement create further uncertainties in the taxation environment in the Russian Federation.

178    A passage in substantially the same terms appears in each of UC Rusals annual reports for the 2019, 2020, 2021 and 2022 financial years.

179    Although Ms Kuznetsova was initially reluctant to agree with the foregoing statement, ultimately she accepted that to a certain extent the statement was true. Ms Kuznetsova said that even in 2022 (which I take to be a reference to the Russian political and business environment following the invasion of Ukraine), the Russian tax law still applied predominantly consistently, but she accepted that there is some risk of unexpected outcomes and selective treatment of the tax provisions for particular taxpayers and arbitrary outcomes.

180    Ms Kuznetsova also disagreed with Prof Stephans opinion with respect to the likelihood that dividends paid by Libertatem to UC Rusal may not gain the benefit of the 0% tax rate. Ms Kuznetsova expressed the opinion that, for this to occur, the Russian tax authorities would either need to classify Libertatem as a Russian tax resident (which requires proof that Libertatem is managed from Russia), or to prove that Libertatems presence in the Rusal Groups structure lacks business purpose. Based on the instructions given to her, Ms Kuznetsova expressed the opinions that Libertatem is not managed from Russia and has a business purpose of pursuing holding and investment activities and renders strategic management and advisory services to the [Rusal] Groups companies. In cross-examination, Ms Kuznetsova maintained her opinion that the risk of dividends paid by Libertatem to UC Rusal losing the benefit of the 0% tax rate was low; however, Ms Kuznetsova explained that by low, she meant a risk of up to 30% likelihood. Ms Kuznetsova was also challenged about the assumptions she had made about Libertatems incorporation and business operations in assessing the risk as low. In particular, Ms Kuznetsova agreed that she had not taken into account the fact that Libertatem was incorporated as part of the Rusal Group restructure involving the domiciliation of UC Rusal from Cyprus to Russia, and that the preparation for the redomiciliation began before Libertatem was incorporated.

181    In cross-examination, Ms Kuznetsova was steadfast in her disagreement with Prof Stephans opinion with respect to the use of Russias tax law by way of retaliation against Mr Deripaska for his criticism of the war in Ukraine. Ms Kuznetsova agreed that, if Mr Deripaska expressed opposition to the war in Ukraine, he faced the risk of retaliatory measures but, in her opinion, those measures would be unlikely to involve the imposition of taxes on UC Rusal and instead:

Most likely he will just lose the asset. He will be told to sell it and go away, as it happened with many others who were doing this. So thats most likely what would happen.

Findings

182    The most significant difference in the opinions of Ms Kuznetsova and Prof Stephan concerned the degree of risk that Russian tax law may be applied in an arbitrary manner to the Rusal Group, particularly in response to Mr Deripaskas criticisms of the war in Ukraine. The evidence showed that Mr Deripaska was quoted in a number of articles published in the press outside Russia as criticising Russias invasion of Ukraine. In addition to the articles referred to by Prof Stephan, an article published in Forbes magazine on 28 February 2022 quoted a tweet from Mr Deripaska that Peace is very important! Negotiations need to start as soon as possible.

183    The question that arises is the likelihood that, by reason of Mr Deripaskas comments on the war or otherwise, the Russian tax authorities would increase UC Rusals tax liabilities by attributing to it ABCs profits or by denying the 0% tax rate to dividends payable by Libertatem to UC Rusal. Prof Stephan expressed the opinion that the likelihood was high, whereas Ms Kuznetsova expressed the opinion that the likelihood was low.

184    On that question, I am not prepared to place any material weight on the opinion of either Prof Stephan or Ms Kuznetsova. While the question is ostensibly directed to the application of Russian tax law, the question primarily concerns the risk of political interference in the administration of Russian tax law. As such, the question involves a high degree of speculation about the response of the Russian Government to the Rusal Group in light of Mr Deripaskas statements. I am not persuaded that either of the expert witnesses have expertise on that subject matter which qualifies them to express an opinion; nor am I persuaded that there is a sufficiently certain factual basis on which any opinions can be expressed. Ultimately, all that can be said is that there may exist some unquantifiable risk that, at some undefined time in the future, the Russian tax authorities might take steps to increase UC Rusals tax liabilities by attributing to it ABCs profits or by denying the 0% tax rate to dividends payable by Libertatem to UC Rusal.

185    On other issues, the difference in the opinions of Ms Kuznetsova and Prof Stephan was less significant.

186    As submitted by QAL, it is not in dispute that 17.59% of UC Rusals shareholding is owned by general shareholders and that, subject to any exemptions to which individual taxpayers may be entitled, those shareholders will pay tax on any dividends received from UC Rusal and, in the event that they sell their shares, they will be liable to pay capital gains tax. It follows that profits earned by ABC from the supply of alumina produced at the Gladstone Plant would, in the ordinary course, contribute to the value of UC Rusal and thereby increase the amount of taxation imposed on those shareholders and received by Russia.

187    I also find that, in the normal administration of Russian tax law, there is a material risk that the Russian tax authorities would conclude that Libertatems presence in the Rusal Groups structure lacks a business purpose with the result that dividends passed by Libertatem to UC Rusal would be taxable in the hands of UC Rusal (and not subject to 0% tax). I make that finding for two principal reasons. First, Ms Kuznetsova acknowledged that risk, and quantified the risk as low, by which she meant up to 30%. Second, Ms Kuznetsova agreed that in forming her opinion on that question, she had not taken into account the fact that Libertatem was incorporated as part of the Rusal Group restructure involving the domiciliation of UC Rusal from Cyprus to Russia, and she acknowledged that that fact had a bearing on her analysis.

D.    THE RUSSIA SANCTIONS

D.1    The legislative framework

188    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 under the Charter of the United Nations to carry out. The second regime is contained in the Autonomous Sanctions Act and the Autonomous Sanctions Regulations. The sanctions imposed pursuant to this second regime are imposed by Australia autonomously, rather than those which follow derivatively from 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.

189    The Replacement Explanatory Memorandum that accompanied the Autonomous Sanctions Bill 2010 (Cth) gave the following general outline of the Bill:

The Autonomous Sanctions Bill (the Bill) provides a framework for the implementation in Australia of autonomous sanctions.

Autonomous sanctions are punitive measures not involving the use of armed force which a government imposes as a matter of foreign policy - as opposed to an international obligation under a United Nations Security Council decision - in situations of international concern. Such situations include the grave repression of the human rights or democratic freedoms of a population by a government, or the proliferation of weapons of mass destruction (WMD) or their means of delivery, or internal or international armed conflict.

Autonomous sanctions measures are intended to achieve three objectives:

(a)     to limit the adverse consequences of the situation of international concern (for example, by denying access to military or paramilitary goods, or to goods, technologies or funding that are enabling the pursuit of programs of proliferation concern);

(b)     to seek 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); and

(c)     to penalise those responsible (for example, by denying access to international travel or to the international financial system).

They are highly targeted measures, applied only to the specific governments, individuals or entities (in the form of targeted financial sanctions and travel bans), or to the specific goods and services (such as military goods or goods with a WMD dual use), that are responsible for, or have a nexus to, the situation of international concern. They are applied so as to minimise, to the extent possible, the impact on the general populations of the affected countries.

Such measures – either supplementary to, or independent of, United Nations Security Council sanctions – are likely to play an increasing part in responses of like-minded countries to situations of international concern.

Australia has actively applied autonomous sanctions as a foreign policy tool for a number of years, relying on existing instruments, intended for other purposes. To achieve more effectively the objectives underlying imposing autonomous sanctions, including the need to participate in concerted international action involving other, like-minded countries, the types of measures Australia would wish to implement are likely to go beyond the scope of these instruments.

The purpose of the Bill is to strengthen Australias autonomous sanctions regime by allowing greater flexibility in the range of measures Australia can implement, thus ensuring Australias autonomous sanctions match the scope and extent of measures implemented by like-minded countries. The Bill will also assist the administration of, and compliance with, sanctions measures by removing distinctions between the scope and extent of autonomous sanctions and UN sanction enforcement laws.

The Bill is modelled on the legislation with which Australia implements United Nations Security Council sanctions, the Charter of the United Nations Act 1945. It is intended to be a framework under which regulations are made, with each set of regulations containing the specific measures to be imposed in response to a particular situation of international concern.

By providing for autonomous sanctions measures to be applied by regulation, rather than under the Bill itself, the Bill will allow the necessary flexibility for the Government to respond to international developments in a timely way. It will also enable the Government to harmonise the administration of autonomous sanctions and UN sanction enforcement laws, and simplify compliance arrangements for those entities whose business requires a regular and active engagement with the operation of such laws.

Autonomous Sanctions Act

190    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.

191    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.

192    The Autonomous Sanctions Act does not itself specify the scope and content of autonomous sanctions that are to be implemented and enforced. Rather, the Autonomous Sanctions Act contemplates that this will occur through the making of regulations. Part 2 of the Autonomous Sanctions 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).

193    Section 14, within Part 2 of the Autonomous Sanctions Act, stipulates 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.

194    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. The regulations that are at issue in this proceeding, and which are addressed further below, have been designated as sanction laws for the purpose of s 6(1) of the Act by the Autonomous Sanctions (Sanctions Law) Declaration 2012 (Cth), Sch 1.

195    Section 16, within Part 3 of the Autonomous Sanctions Act, relevantly provides as follows:

16    Offencecontravening 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.

196    As can be seen, s 16(8) stipulates that an offence against ss 16(5) or (6) is an offence of strict liability. Section 6.1 of the Criminal Code (being Sch 1 to the Criminal Code Act 1995 (Cth)) stipulates that, if an offence is one of strict liability, there are no fault elements for any of the physical elements of the offence, but the defence of mistake of fact under s 9.2 is available. It can also be seen that s 16(7) creates a defence if the body corporate proves that it took reasonable precautions, and exercised due diligence, to avoid contravening ss 16(5) or (6).

The Autonomous Sanctions Regulations

Overview

197    The Explanatory Statement that accompanied the making of the Autonomous Sanctions Regulations stated that the purpose of the Regulations is to facilitate the conduct of Australias relations with certain countries, and with specific entities or persons outside Australia, through the imposition of autonomous sanctions in relation to those countries, or targeting those entities or persons. The Explanatory Statement further stated that:

Autonomous sanctions are 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. Situations of international concern may include the grave repression of the human rights or democratic freedoms of a population by a government, or the proliferation of weapons of mass destruction (WMD) or their means of delivery, or an internal or international armed conflict.

198    Part 2 of the of the Autonomous Sanctions Regulations is headed Autonomous Sanctions and contains regulations that define the scope of different sanction measures.

199    Part 3 of the Autonomous Sanctions Regulations is headed Sanctions Laws and contains prohibitions in respect of certain conduct, which comprise the sanctions proper. In this proceeding, the respondents rely primarily on reg 12 which concerns sanctioned supplies and reg 14 which concerns dealings with designated persons or entities. The respondents also rely on reg 13 which concerns the provision of a sanctioned service. However, as explained by QAL, in order to establish that it is likely that QAL would provide a sanctioned service (as defined in reg 5) for the purposes of reg 13 by refining bauxite into alumina for ABC, QAL would still need to establish that it is likely that it would provide a sanctioned supply for the purposes of reg 12. That being the case, it is unnecessary to consider separately the requirements of reg 13.

200    Part 4 of the Autonomous Sanctions Regulations is headed Authorisations and contains regulations that define the circumstances in which conduct that would otherwise contravene autonomous sanctions may be authorised.

201    The text of the regulations set out below is given as at 22 March 2022.

Sanctioned supply (reg 12)

202    Regulation 12 relevantly provides as follows:

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.

203    A sanctioned supply is defined in reg 4 as follows:

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 that 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]

(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.

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

204    An authorised supply is defined in reg 3 as a sanctioned supply authorised by a permit granted under reg 18, which is set out below.

205    On 19 March 2022, the Autonomous Sanctions (Export Sanctioned GoodsRussia) 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. It is not in dispute that, following this designation, the alumina produced by QAL at the Gladstone Plant is an export sanctioned good for Russia for the purpose of reg 4(3). The Explanatory Statement that accompanied the designation stated as follows:

The Autonomous Sanctions Regulations 2011 (the Regulations) make provision for, amongst other things, the designation of goods as export sanctioned goods for a country or part of a country. The supply, sale or transfer of export sanctioned goods to Russia, for use in Russia or for the benefit of Russia is prohibited under regulations 4 and 12 of the Regulations.

Russias aggression towards Ukraine presents a serious threat to the international rules-based order which underpins global security. The purpose of the Autonomous Sanctions (Export Sanctioned Goods—Russia) Designation 2022 (the Designation) is to expand, under subregulation 4(3) of the Regulations, what goods are export sanctioned goods for Russia to include aluminium ores (for example, bauxite), aluminium oxide (for example, alumina) and aluminium hydroxide. This means that in addition to the existing prohibition on the export of arms or related matériel to, or for the benefit of, Russia, Australia will now also prohibit the export of goods that are a key component in the manufacture and development of weapons. In prohibiting the export of such goods, Australia is demonstrating its condemnation of Russias illegal and unjustified invasion of Ukraine.

206    In these reasons, the expression Export Sanction is used to refer to the sanction law imposed by the combined effect of reg 12, reg 4 and the Autonomous Sanctions (Export Sanctioned GoodsRussia) Designation 2022 (Cth) made under reg 4(3).

Dealings with designated persons (reg 14)

207    Regulation 14 relevantly provides as follows:

14    Prohibition of dealing with designated persons or entities

(1)    A person contravenes this regulation if:

(a)    the persons 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.

208    The expression designated person or entity is defined in reg 3 to include a person or entity that has been designated under reg 6(a). That regulation empowers the Minister, by legislative instrument, to designate a person or entity mentioned in an item of the table following the regulation as a designated person or entity for the country mentioned in the item. Item 6A of the table 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).

209    On 17 March 2022, the Minister for Foreign Affairs made the Autonomous Sanctions (Designated Persons and Entities and Declared PersonsRussia and Ukraine) Amendment (No 7) Instrument 2022 (Cth) under reg 6(a) which added Messrs Deripaska and Vekselberg to the list of designated persons for Russia. The instrument commenced on 18 March 2022. The Explanatory Statement that accompanied the designation stated:

In accordance with regulation 6, the Autonomous Sanctions (Designated Persons and Entities and Declared Persons—Russia and Ukraine) Amendment (No. 7) Instrument 2022 (the Instrument) lists two persons for targeted financial sanctions and travel bans under the Russia listing criteria. These persons are Russian oligarchs Viktor Vekselberg and Oleg Deripaska. These persons play key roles in Russian entities with interests in the energy sector and support the Russian Government in furtherance of its economic and strategic priorities. The Minister made the designation and declarations being satisfied that, by virtue of their positions and actions, the two persons are, or have been, engaging in an activity or performing a function that is of economic or strategic significance to Russia.

The persons listed in Part 1 of Schedule 2 are designated by the Minister as designated persons for Russia for the purposes of paragraph 6(a) of the Regulations and declared by the Minister for the purposes of paragraph 6(b) of the Regulations. These persons are Russian oligarchs Viktor Vekselberg and Oleg Deripaska. These persons play key roles in Russian entities with particular interests in the energy sector and support the Russian Government in furtherance of its economic and strategic priorities. Viktor Vekselbergs extensive holdings span multiple sectors of the Russian economy and are intertwined with some of the Russian Governments global initiatives, such as the Rusnano Group, which provides a revenue source to the Government of Russia. Oleg Deripaska is or has been involved in obtaining benefit from or supporting the Government of Russia, by carrying on business in, and owning or controlling or working as a director or equivalent in businesses in the Russian extractives and energy sectors, sectors of strategic significance to the Government of Russia.

210    In these reasons, the expression Designated Persons Sanction is used to refer to the sanction law imposed by the combined effect of reg 14 and the Autonomous Sanctions (Designated Persons and Entities and Declared PersonsRussia and Ukraine) Amendment (No 7) Instrument 2022 (Cth) made under reg 6(a).

Authorisations (reg 18)

211    As can be seen above, neither the Export Sanction nor the Designated Persons Sanction will apply if a permit has been obtained under reg 18 authorising the conduct that would otherwise be prohibited. Regulation 18 relevantly provides as follows:

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 Ministers 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.

212    Sections 16(2) and (6)(b) of the Autonomous Sanctions Act makes it an offence for a person or body corporate to contravene a condition of an authorisation granted under (relevantly) reg 18.

213    It is not in dispute that 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.

D.2    Relevant principles of statutory interpretation

214    Before turning to the specific issues that require resolution in this proceeding in respect of, first, the Export Sanction, and second, the Designated Persons Sanction, it is convenient to refer to certain principles of statutory interpretation that guides the discussion that follows.

215    General principles of statutory interpretation apply to the construction of delegated legislation such as the Autonomous Sanctions Regulations: Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 398 (Brennan CJ, Dawson, Toohey, Gaudron and McHugh JJ); Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at [19] (Gummow ACJ, Kirby, Hayne, Crennan and Kiefel JJ); ADCO Constructions Pty Ltd v Goudappel (2014) 254 CLR 1 at [28] (French CJ, Crennan, Kiefel and Keane JJ). Those principles are summarised below. Also, the provisions of the Acts Interpretation Act 1901 (Cth) are generally applicable to the construction of delegated legislation (by either s 46 of that Act or, in respect of the Autonomous Sanctions Regulations, by s 13(1)(a) of the Legislation Act 2003 (Cth)). Section 15AA of the Acts Interpretation Act 1901 (Cth) stipulates that, where multiple interpretations of a provision are available, the interpretation that would best achieve the purpose or object of the Act … is to be preferred to each other interpretation.

216    The following key principles of statutory construction are relevant to the discussion that follows:

(a)    First, the proper approach to statutory construction begins with the text of the provision in question which, as for all writing, is to be understood in its context (including legislative history and extrinsic materials) and with regard to its purpose: SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362 at [14] (Kiefel CJ, Nettle and Gordon JJ); Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 at [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ); CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 (Brennan CJ, Dawson, Toohey and Gummow JJ; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (Project Blue Sky) at [69]-[71] (McHugh, Gummow, Kirby and Hayne JJ). The purpose of the provision may be discerned from an express statement in the enactment or by inference from its terms and by appropriate reference to extrinsic materials: Lacey v Attorney-General (Qld) (2011) 242 CLR 573 at [44] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).

(b)    Second, the construction of the text arrived at should have both internal logical consistency and involve an overall harmonious interpretation: Independent Commission Against Corruption v Cunneen (2015) 256 CLR 1 at 20-21 [31] (French CJ, Hayne, Kiefel and Nettle JJ), citing Project Blue Sky at [69]-[70].

(c)    Third, the Court will also have regard to the consequences of a particular interpretation and will prefer a construction that will avoid consequences which appear irrational or unjust: Legal Services Board v Gillespie-Jones (2013) 249 CLR 493 at [48] (French CJ, Hayne, Crennan and Kiefel JJ); Public Transport Commission (NSW) v J Murray-More (NSW) Pty Ltd (1975) 132 CLR 336 at 350 (Gibbs J).

(d)    Fourth, general words will be given their plain and ordinary meaning unless the context otherwise requires: Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 at 647 (Dixon J).

(e)    Fifth, all words in a statutory provision are ordinarily to be given some meaning and effect: Commonwealth v Baume (1905) 2 CLR 405 at 414 (Griffith CJ), affirmed in Project Blue Sky at [71].

(f)    Sixth, a statutory provision should be read and construed as a whole and not as a series of isolated words (which principle is often referred to by the Latin phrase noscitur a sociis). In Mersey Docks and Harbour Board v Henderson Bros (1888) 13 App Cas 595 at 599-600, Lord Halsbury stated:

It certainly is not a satisfactory mode of arriving at the meaning of a compound phrase to severe it into its several parts and to construe it by the separate meaning of each of such parts when severed.

217    The respondents submitted that, although the sanction laws create criminal offences, the purpose of the laws is to protect and enforce human rights and should, therefore, be given a fair, large and liberal interpretation (referring to Coburn v Human Rights Commission [1994] 3 NZLR 323 at 333 (Thorp J), quoted in IW v City of Perth (1997) 191 CLR 1 at 12 (Brennan CJ and McHugh J), 39 (Gummow J) and cited in AB v Western Australia (2011) 244 CLR 390 at [24] (French CJ, Gummow, Hayne, Kiefel and Bell JJ), and also to Waters v Public Transport Corporation (1991) 173 CLR 349 at 359 (Mason CJ and Gaudron J)). The respondents also referred to the similar principle that legislation, the dominant purpose of which is beneficial, should be construed liberally even if the legislation is also penal in character (referring to Waugh v Kippen (1986) 160 CLR 156 at 164-65 (Gibbs CJ, Mason, Wilson and Dawson JJ), Mathews v Foggit Jones Ltd (1925) 37 CLR 455 at 464 (Isaacs J), Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 109-10 (McHugh J), New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act (2016) 260 CLR 232 at [92] (Gageler J), and Tjungarrayi v Western Australia (2019) 269 CLR 150 at [44] (Gageler J)). I am not persuaded that it is appropriate to characterise the sanction laws in issue in this proceeding as either protective of human rights or beneficial in the relevant sense, such that the associated principles of construction apply. I consider that the surest guide to construction is the statutory text when considered in light of its context and purpose, as per the statement of Gibbs J in Beckwith v The Queen (1976) 135 CLR 569 at 576, approved in Waugh v Kippen at 164.

D.3     Does the Export Sanction apply in respect of the delivery of alumina to ABC?

218    Regulation 12(1) of the Autonomous Sanctions Regulations stipulates that a person contravenes the regulation if the person makes a sanctioned supply and the sanctioned supply is not an authorised supply. The issue in dispute between the parties is whether the delivery of alumina to ABC by QAL pursuant to the contractual arrangements that govern the Gladstone alumina joint venture is a sanctioned supply within reg 12(1). As noted earlier, it is common ground that no permit under reg 18 has been granted in respect of the delivery of alumina to ABC by QAL, and therefore any such delivery is not an authorised supply.

219    The definition of a sanctioned supply in reg 4(1) of the Autonomous Sanctions Regulations contains three elements that must be satisfied:

(a)    first, a person must supply, sell or transfer goods to another person;

(b)    second, the goods must be export sanctioned goods in relation to a country or part of a country; and

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

(i)    to that country or part of that 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.

Questions of construction

220    Although the foregoing definition is written in relatively straightforward language, it gives rise to difficult questions of construction. Before considering the meaning of the individual words used in the definition, it is necessary to address a temporal issue which is inherent in the text of the regulation.

The temporal issue

221    A person contravenes reg 12(1), and thereby commits an offence under s 16 of the Autonomous Sanctions Act, if the person makes a sanctioned supply as defined by reg 4(1). The definition of sanctioned supply 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. 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).

225    None of the parties submitted that the phrase are transferred in para 4(1)(c) should be construed other than in accordance with the ordinary use of the present tense of the verb transfer. In particular, none of the parties submitted that para 4(1)(c) should be construed as implicitly including the future tense (as a direct or indirect result of the supply, sale or transfer the goods will be transferred to that country, for use in that country or for the benefit of that country). It can be observed that the use of the future tense, such as will be transferred or “will be likely to be transferred, would obviate the potentially unjust aspects of the use of the present tense. That is because the elements of the offence would be required to be assessed at the time of the initial supply, sale or transfer of the export sanctioned goods. At that time, the person making the supply would be required to assess whether, as a direct or indirect result of the supply, sale or transfer, the goods will be transferred, or will be likely to be transferred, to the country that is the subject of the sanctions, for use in that country or for the benefit of that country.

226    The following discussion therefore proceeds on the basis that the third element of the definition of sanctioned supply in para 4(1)(c) takes its ordinary meaning, and requires proof that the export sanctioned goods are transferred to the country that is the subject of the sanctions, for use in that country or for the benefit of that country. In the present case, neither the initial supply, sale or transfer, nor any subsequent transfer, occurred. The discussion necessarily proceeds on a hypothetical consideration of a contravention if QAL had continued to deliver alumina to ABC pursuant to the Gladstone alumina joint venture contractual arrangements.

Supply, sell or transfer

227    The use of the composite phrase supply, sell or transfer in para 4(1)(a) indicates that the sanction extends beyond sale transactions, and the formal transfer of title in goods, to the physical delivery of the goods. The ordinary meaning of the word transfer in the context of a transfer of goods includes the passing of title in the goods as well as the passing of possession in the goods (ie the physical delivery of the goods). For example, the Macquarie Dictionary includes as one of the meanings of the word transfer (when used as a verb) to convey from one place to another. That meaning of the word transfer (physical delivery of the goods) is consistent with the use of the same word in para 4(1)(c), which includes the transfer of goods for use in the country that is the subject of the sanctions (in this case, Russia). Similarly, although the word supply, when used in the context of trade or commerce, can refer to a sale transaction, its ordinary meaning is broader and includes to furnish or provide (Macquarie Dictionary).

Direct or indirect result

228    Para 4(1)(c) concerns the direct or indirect result of the supply, sale or transfer. The latter phrase is plainly a reference to the supply, sale or transfer of goods referred to in para 4(1)(a) (in this case, aluminium oxide - alumina). The word result means the consequence or outcome of the supply, sale or transfer. The ordinary meaning of the word directly is in a direct line or immediately (Macquarie Dictionary). The word indirectly has the opposite meaning (Macquarie Dictionary). The phrase direct or indirect is ordinarily taken as having a wide import: see Commissioner of State Revenue (Vic) v Politis [2004] VSC 126; (2004) 55 ATR 491 at 497 [20] (Nettle J) and the cases there cited. The phrase embraces any number of degrees of remoteness of causation: Lancaster v The Queen (2014) 44 VR 820 at [23] (Nettle and Redlich JJA and Almond AJA). In the context of reg 4(1), 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.

The resulting transfer

229    Para 4(1)(c) refers to three alternate results of the supply, sale or transfer of goods referred to in para 4(1)(a): they are that the goods are transferred to that country, are transferred for use in that country, or are transferred for the benefit of that country. The phrase that country is a reference to the country in relation to which the goods are export sanctioned goods, as referred to in para 4(1)(b) (in this case, Russia). It is notable that, in the secondary clauses, the single word transferred is used rather than the composite phrase supply, sell or transfer. The focus of the secondary clauses, and the result that is sought to be prevented by the Export Sanction, is the transfer of the goods to Russia, or for use in Russia, or for the benefit of Russia. As noted above, the ordinary meaning of the word transfer in the context of goods includes the passing of title in the goods as well as the passing of possession in the goods (ie the physical delivery of the goods).

Transferred to that country

230    Taking each of the three alternate results referred to in para 4(1)(c) in turn, there is no difficulty with the meaning of the clause the goods are transferred to that country in subpara 4(1)(c)(i). The phrase conveys the meaning that the export sanctioned goods are physically delivered to the country that is the subject of the sanction.

Transferred for use in that country or for the benefit of that country

231    Each of the phrases for use in that country in subpara 4(1)(c)(ii) and for the benefit of that country in subpara 4(1)(c)(iii) commence with the preposition for. Like all prepositions, the word for expresses a relationship between two things. It is a protean word in that its meaning, being the nature of the relationship expressed, is governed by the nouns or verbs it connects: Australian Securities and Investments Commission v BHF Solutions Pty Ltd (2022) 293 FCR 330 at [156] (OBryan J, Besanko and Lee JJ agreeing).

232    In the present context, the word for may take one of two possible meanings. The first possible meaning is the object or purpose of the transfer, which is reflected in the first definition of the word given by the Macquarie Dictionary. The second possible meaning is the effect or likely effect of the transfer, which is reflected in a number of definitions given by the Macquarie Dictionary (with inclination or tendency towards, conducive to or such as results in). Depending on context, the object or purpose of a commercial transaction may be determined subjectively by reference to the state of mind of the parties to the transaction (see for example News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563 (News Ltd v South Sydney) in the context of s 4D of the Trade Practices Act 1974 (Cth)) or objectively by reference to the terms of the transaction and the manner in which it is carried into effect (see for example Federal Commissioner of Taxation v Gulland (1985) 160 CLR 55 in the context of s 260 of the Income Tax Assessment Act 1936 (Cth)). The difference between the object or purpose of a transaction and the effect or likely effect of a transaction is narrowed where the object or purpose is determined objectively, as both are determined principally from the terms of the transaction, construed and understood by the surrounding circumstances.

233    One meaning of the word for can be excluded on the basis of textual, contextual and purposive considerations. The word is not used in a subjective sense, inviting an enquiry into the subjective purpose of the person who transfers the export sanctioned goods. As to the text, para 4(1)(c) uses the passive tense and does not identify or refer to the person who transfers the goods. The focus is on the transfer, not the person making the transfer. This element of the definition is satisfied if the goods are transferred in a way that fulfills one of the three conditions. As to context, the offence is one of strict liability which excludes any mental element. As to purpose, the autonomous sanctions are punitive measures not involving the use of armed force which are imposed as a matter of foreign policy. Relevantly, they are imposed in response to international armed conflict, and the prohibition on sanctioned supplies has, as one of its objects, denying access to military goods or to goods that are enabling of the armed conflict (here, alumina, which is a key component in the manufacture and development of weapons). The definition of sanctioned supply is directed to the supply, sale or transfer of export sanctioned goods which has, or may have, particular results, not with the subjective intentions of the parties to the transactions. It follows that I reject the contention advanced by the applicants that the word for means the subjective purpose of the person responsible for either the initial supply, sale or transfer within para 4(1)(a) or (if separate) the resulting transfer within para 4(1)(c).

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.

Benefit

235    Finally, the word benefit as used in subpara 4(1)(c)(iii) is not defined and should be given its ordinary meaning: anything that is for the good of a person or thing (Macquarie Dictionary) or advantage, profit, good (Oxford English Dictionary). Within its ordinary meaning, the word benefit can refer to financial and non-financial advantages. The relevant benefit is of the country that is the subject of the sanction (here, Russia).

236    As discussed below, the respondents contend that the delivery of alumina by QAL to ABC pursuant to the contractual arrangements governing the Gladstone alumina joint venture will directly or indirectly result in the transfer of the alumina for the benefit of Russia in a number of ways, including an increase in taxation revenues payable in Russia. The applicants contend that an increase in taxation revenues is not a benefit of any resulting transfer of alumina within the contemplation of subpara 4(1)(c)(iii). That argument is principally based on the applicants contention, which I have rejected, that the phrase for the benefit refers to the subjective purpose of the person responsible for either the initial supply, sale or transfer within para 4(1)(a) or (if separate) the transfer within para 4(1)(c).

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. As discussed below, I consider that certain of the taxation benefits relied upon by the respondents are a step too far. This is particularly the case in respect of increased taxation which arises from the sale of shares by minority shareholders in UC Rusal or the payment of dividends to minority shareholders in Russia. In my view, such benefits are dependent upon other events and are too remote from any transfer of alumina to be within the ambit of the prohibition on sanctioned supplies.

Application of the prohibition to the present case

238    In the present case there is no dispute that, pursuant to the contractual arrangements that govern the Gladstone alumina joint venture, QAL supplies or transfers alumina to ABC within the meaning of para 4(1)(a). The contractual arrangements provide for the Rio parties to supply bauxite to ABC by delivery of the bauxite to QAL at the Gladstone Plant. QAL refines the bauxite into alumina on behalf of ABC pursuant to the Tolling Contracts, and delivers the alumina to ABC on board the vessels used for shipment from the Port of Gladstone pursuant to Art 17 of the Participants Agreement. Under those contractual arrangements, QAL does not sell alumina to ABC. It does, though, supply and transfer the alumina to ABC. The Russian parties did not contend that the first element of the definition in para 4(1)(a) is not satisfied in this case.

239    There is 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 para 4(1)(b) is satisfied.

240    The dispute between the parties concerns the third element of the definition in para 4(1)(c): 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. In my view, it should be concluded 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.

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 ships rail at QALs wharf. Thereafter the alumina was outside of ABCs 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 Groups aluminium smelter in Sweden was generally sourced from the Groups 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 Russias 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 Rusals 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 Rusals aluminium refineries. Following Russias 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 ABCs 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 ABCs alumina were made by UC Rusal and not by ABC. UC Rusal never gave any assurances concerning the sale and shipment of ABCs 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 QALs 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 Rusals 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 Rusals aluminium smelters, the majority of those employees will be based in Russia. UC Rusals 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 Rusals 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 Rusals 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 Clarks evidence, which I accept, is that in 2022 Chinas 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 Rusals 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 Rusals 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.

251    For completeness, I record that I do not accept additional contentions advanced by the respondents concerning taxation benefits to Russia resulting from the delivery of alumina by QAL to ABC. Two particular alleged benefits require brief discussion.

252    The first alleged benefit is said to arise from the prospect that a transfer of alumina by ABC (to anyone in the world) would have been likely to increase the profitability of ABC which, indirectly, would have increased the amount of tax revenue in Russia. An increase in the profitability of ABC would, in the ordinary course, be expected to increase the overall value of UC Rusal. An increase in the overall value of UC Rusal would be expected to increase the price of its shares and, upon the sale of those shares by minority shareholders located in Russia, would increase the capital gains tax payable by those shareholders in Russia. While I accept that an increase in tax revenues is a benefit to Russia within the ordinary meaning of that word, an increase in capital gains tax payable upon the transfer of shares in UC Rusal cannot be characterised as an object, effect or likely effect of a transfer of alumina by ABC. The collection of any such tax revenue is dependent on numerous events and contingencies which may never occur, including the circumstances of individual shareholders and any sale of shares that may occur in the future. In my view, any such increase in tax revenue, even if it eventuated, is only remotely connected with a transfer of alumina by ABC and could not be described as the object, effect or likely effect of the transfer.

253    The second alleged benefit starts from the same premise, that a transfer of alumina by ABC (to anyone in the world) would have been likely to increase the profitability of ABC. The respondents then point to the prospect of ABC paying dividends, those dividends being distributed through each of its holding companies (United Company Rusal Alumina Ltd, Rusal Limited and Libertatem) to UC Rusal, and the Russian tax authorities disallowing the 0% tax rate to Libertatem on the basis that it lacks business substance. In those circumstances, the dividends would be treated as if they were received from Rusal Ltd which is located in Jersey and, as such, does not benefit from the 0% tax rate. This would result in higher tax revenue in Russia. Ultimately, I have not placed any weight on this prospect because I do not consider that it is probable. The evidence shows that ABC has not previously paid dividends and I consider the prospect of ABC paying dividends in the future to be remote. Further, the prospect of the Russian tax authorities concluding that Libertatems presence in the Rusal Groups structure lacks a business purpose with the result that dividends passed by Libertatem to UC Rusal would be taxable in the hands of UC Rusal (and not subject to 0% tax) was rated by Ms Kuznetsova at less than 30%. Even if the probability is higher than that, the overall likelihood of higher tax revenue involves two events (the payment of dividends and the disallowance of the 0% tax rate) neither of which are more likely in the sense of more probable than not.

D.4     Does the Designated Persons Sanction apply in respect of the delivery of alumina to ABC?

254    Regulation 14(1) of the Autonomous Sanctions Regulations stipulates that a person contravenes the regulation if the person directly or indirectly makes an asset available to, or for the benefit of, a designated person or entity, and the making available of the asset is not authorised by a permit granted under reg 18. The issue in dispute between the parties is whether the production of alumina by QAL for ABC and the delivery of the alumina to ABC pursuant to the contractual arrangements that govern the Gladstone alumina joint venture would constitute a dealing with a designated person (Messrs Deripaska or Vekselberg) within reg 14(1). As noted earlier, it is common ground that no permit under reg 18 has been granted in respect of the production and delivery of the Gladstone alumina.

Questions of construction

255    The prohibition of dealing with designated persons in reg 14(1) is also written in relatively straightforward language but gives rise to a difficult question of construction concerning the intended breadth of the clause indirectly makes an asset available for the benefit of a designated person. Specifically, the question is whether the prohibition is intended to apply to circumstances such as the present case in which the relevant asset constitutes a production facility (the Gladstone Plant), or the goods produced at the facility (alumina), which are owned through a chain of companies in which the designated person has an indirect financial interest.

Textual considerations

256    The phrase directly or indirectly has been defined above in the context of the prohibition on sanctioned supplies. To recap, the ordinary meaning of the word directly is in a direct line or immediately and the word indirectly has the opposite meaning. The phrase is ordinarily taken as having a wide import and it embraces any number of degrees of remoteness of causation.

257    The key phrase is makes an asset available. The word asset is not defined in the Autonomous Sanctions Regulations but is defined in s 4 of the Autonomous Sanctions Act to include an asset of any kind or property of any kind, whether tangible or intangible, movable or immovable, however acquired. By s 13(1)(b) of the Legislation Act 2003 (Cth), that definition is applicable to the Autonomous Sanctions Regulations. The ordinary meaning of the adjective available is suitable or ready for use; at hand; of use or service (Macquarie Dictionary) and able to be used, obtained, or selected; at ones disposal (Oxford English Dictionary). The clause make an asset available means to cause or bring about the availability of the asset; that is, rendering it suitable or ready for use or able to be used.

258    The preposition to identifies the person who is the object of the clause makes the asset available. The designated person is the person to whom the asset is made available. In the present case, the respondents do not contend that ABCs participation in the Gladstone alumina joint venture would result in QAL directly or indirectly making any asset available to Messrs Deripaska or Vekselberg.

259    As discussed in connection with the prohibition on sanctioned supplies, the preposition for in the phrase for the benefit of can take the meaning of object or purpose or the effect or likely effect of making the asset available. For largely the same reasons as expressed in connection with the prohibition in relation to sanctioned supplies, I consider that the word for should be given the meaning of object, effect or likely effect where the object of making the asset available is determined objectively from the terms of the relevant commercial arrangements and any relevant surrounding circumstances. In that regard, it is appropriate to apply the principle of construction that, unless the context otherwise demands, the same meaning should be given to the same words appearing in different parts of a statute: Registrar Of Titles (WA) v Franzon (1975) 132 CLR 611 at 618 (Mason J, Barwick CJ and Jacobs J agreeing). It should be acknowledged that the language of reg 14(1) differs in one respect from the language of reg 4(1) which defines a sanctioned supply. Regulation 14(1) is directed to the person who makes the asset available and stipulates that that person must not do so for the benefit of a designated person or entity. While it is possible to construe the word for in that context as referring to the subjective purpose of that person, contextual and purposive considerations indicate a contrary conclusion. Most relevantly, as for the prohibition against a sanctioned supply, the prohibition against dealings with designated persons creates an offence of strict liability which excludes any mental element. I therefore reject the applicants submission that, in reg 14(1), the phrase for the benefit refers to the subjective purpose of the person making the asset available.

260    The word benefit is not defined and should be given its ordinary meaning: viz, anything that is for the good, advantage or profit of a person, including financial and non-financial advantages.

261    While meaning is able to be given to each of the individual words used in the clause makes an asset available to, or for the benefit of, a designated person or entity, overall it is difficult to identify the categories of conduct to which the prohibition in reg 14(1) is intended to be directed, and the intended breadth of the prohibition. The prohibition includes providing (as in transferring) an asset to or for the benefit of the designated person and placing the asset at the disposal of the designated person. It follows that, if the asset is a productive facility, the prohibition would appear to include operating the facility for the benefit of the designated person, as well as providing the product or output of the facility to or for the benefit of the designated person.

262    The adverb indirectly qualifies the phrase makes an asset available. In that context, indirectly can take the meaning that the relevant conduct occurs through an intermediary such as an agent; ie, the asset is made available indirectly to or for the benefit of the designated person by being made available to or for the benefit of another person who acts as agent of the designated person. Indirectly can also take the meaning that the relevant conduct occurs through the interposition of corporate entities that are owned or controlled by the designated person, or in which the designated person has a financial interest; ie, the asset is made available indirectly to or for the benefit of the designated person by being made available to or for the benefit of a body corporate that is owned or controlled by the designated person or in which the designated person has a financial interest.

263    Some limited assistance as to the potential meaning of the word indirectly in a related context may be obtained from the cases that have considered the word in the context of s 50 of the Competition and Consumer Act 2010 (Cth). Section 50 stipulates that a corporation must not directly or indirectly acquire shares or assets if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market. In Australia Meat Holdings Pty Ltd v Trade Practices Commission (1989) ATPR 40-932 (Australia Meat Holdings) at 50,094, Davies J expressed the view, in obiter dicta, that an indirect acquisition encompasses the situation where assets are acquired in an indirect way, as through the interposition of a wholly-owned subsidiary. In Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305 (Australian Iron & Steel) at 318, Lockhart J expressed his disagreement with that view and considered that s 50 did not apply unless the corporation acquired a legal or beneficial interest in the shares or assets (which would not occur through an interposed subsidiary). For that reason, his Honour considered (at 316) that an indirect acquisition involved an acquisition by one party acting through another party as its agent or otherwise for the first party as principal. In so concluding, his Honour acknowledged that that construction produced the result that the words were otiose. Subsequently, in Trade Practices Commission v Gillette Company (No 1) (1993) 45 FCR 366 (Gillette Company (No 1)) at 374-77, Burchett J agreed with the approach taken by Davies J in Australia Meat Holdings, applying the principles of construction that, first, a court will seek to give some effect to all of the words of the statute (citing Beckwith v The Queen at 574 (Gibbs J)) and, second, that remedial legislation should be interpreted broadly and not restrictively even where it is also penal (citing Waugh v Kippen at 164 (Gibbs CJ, Mason, Wilson and Dawson JJ)).

264    It must be acknowledged that the guidance that can be obtained from the foregoing cases is limited. While the legislative context of s 50 bears some similarities to reg 14(1) in that both concern the regulation of dealings in assets, a range of contextual considerations ultimately affected the decisions concerning s 50. Furthermore, the statements of Davies J in Australia Meat Holdings were obiter (and neither Sheppard J nor Pincus J expressed a view on the issue), Australian Iron & Steel was a motion to strike out a statement of claim and Gillette Company (No 1) was a motion to set aside service out of the jurisdiction.

265    To fasten upon the proper construction of reg 14(1), it is necessary to consider matters of regulatory context and purpose.

Contextual considerations

266    Looking to matters of context, the respondents drew attention to the prohibition contained in reg 15(1) of the Autonomous Sanctions Regulations by way of contrast with reg 14(1). Regulation 15(1) is titled Prohibition of dealing with controlled assets and stipulates as follows:

A person contravenes this regulation if:

(a)    the person holds a controlled asset; and

(b)    the person:

(i)    uses or deals with the asset; or

(ii)    allows the asset to be used or dealt with; or

(iii)    facilitates the use of the asset or dealing with the asset; and

(c)    the use or dealing is not authorised by a permit granted under regulation 18.

267    A controlled asset is defined in reg 3 as an asset owned or controlled by a designated person or entity.

268    It can be seen that reg 15(1) is in the nature of a freezing sanction: it prohibits a person who holds an asset that is owned or controlled by a designated person or entity from using or dealing with the asset, allowing the asset to be used or dealt with, or facilitating the use of or dealing with the asset. It is a sanction of a different kind to reg 14(1) which restricts dealings with designated persons. In my view, consideration of reg 15(1) provides little, if any, assistance in construing reg 14(1).

269    The respondents also made reference to, and drew comparisons with, the language used in related sanctions imposed by Australia under the Charter of the United Nations Act 1945, implementing sanctions made by the UN Security Council. In my view, the comparisons do not advance the analysis very far. It can be accepted that the language used in reg 14(1) of the Autonomous Sanctions Regulations is the same as that used in sanctions imposed by Australia under the Charter of the United Nations Act 1945 prior to the making of the Autonomous Sanctions Regulations. That is intentional. The Explanatory Statement accompanying the Autonomous Sanctions Regulations stated:

An objective of the Act is to assist the administration of, and compliance with, autonomous sanctions measures by removing distinctions between the scope and extent of autonomous sanctions and Australias UN sanction enforcement laws applied under the Charter of the United Nations Act 1945. Consequently, the Regulations apply restrictions on trade in goods (currently given effect under the Customs (Prohibited Exports) Regulations 1958) and targeted financial sanctions (currently given effect under the Banking (Foreign Exchange) Regulations 1959) using the same form and structure, and with the same scope and effect, as corresponding measures are applied in regulations made under the Charter of the United Nations Act 1945.

270    By way of illustration, the language of reg 14(1) of the Autonomous Sanctions Regulations follows the language of the same types of sanctions imposed by Australia under the Charter of the United Nations Act 1945 by regulations made in 2008: see Charter of the United Nations (Sanctions Afghanistan) Regulations 2008 (Cth); Charter of the United Nations (Sanctions  Côte dIvoire) Regulations 2008 (Cth); Charter of the United Nations (Sanctions — Democratic Peoples Republic of Korea) Regulations 2008 (Cth); Charter of the United Nations (Sanctions  Democratic Republic of the Congo) Regulations 2008 (Cth); and the Charter of the United Nations (Sanctions  Liberia) Regulations 2008 (Cth).

271    It can be noted that the form of sanctions imposed by Australia in more recent times under the Charter of the United Nations Act 1945, and which prohibit dealings with designated persons or entities, has altered. More recent sanctions (and amended sanctions) contain greater specificity with respect to the scope of the sanction. For example, reg 16 of the Charter of the United Nations (Sanctions Iran) Regulation 2016 (Cth) stipulates as follows:

A person contravenes this regulation if:

(a)    the person directly or indirectly makes an asset available to, or for the benefit of:

(i)    a designated person or entity; or

(ii)    a person or entity acting on behalf of or at the direction of a designated person or entity; or

(iii)    an entity that is owned or controlled, including through illicit means, by a person or entity acting on behalf of or at the direction of a designated person or entity; and

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

272    It can be seen that the prohibition expressly identifies the targets of the sanction in broader terms to be the designated person or entity, a person or entity acting on behalf of or at the direction of the designated person or entity, and an entity that is owned or controlled, including through illicit means, by a person or entity acting on behalf of or at the direction of a designated person or entity. The same form of sanction is also now contained in the amended Charter of the United Nations (Sanctions  Democratic Peoples Republic of Korea) Regulation 2008 (Cth) as at 14 December 2018. Thus, the revised form of the prohibition against dealings with designated persons, imposed under the Charter of the United Nations Act 1945, may more clearly extend to dealings with a body corporate which is controlled by the designated person (where the description of being an entity acting at the direction of the designated person is satisfied) and a subsidiary of such a body corporate (where the description of being an entity that is owned or controlled by such a body corporate is satisfied). Despite the expansion of the scope of the prohibition, it continues to apply where a person makes an asset available directly or indirectly. The broader form of sanction therefore invites its own questions of construction, particularly with respect to the meaning of the phrase directly or indirectly in that context.

273    While it is permissible to take account of legislative amendments as an aid in construing an earlier form of the enactment (see Grain Elevators Board (Vic) v Dunmunkle Corporation (1946) 73 CLR 70 at 86 (Dixon J); Hunter Resources Ltd v Melville (1988) 164 CLR 234 at 254-55 (Dawson J)), considerable caution must be exercised as the amendments may have been made to remove possible doubts as to the interpretation of the earlier form of enactment (see Allina Pty Ltd v Federal Commissioner of Taxation (1991) 28 FCR 203 at 212 (Lockhart, Burchett and Gummow JJ); Hepples v Federal Commissioner of Taxation (1991) 173 CLR 492 at 539-40 (McHugh J)).

274    In the present case, in construing reg 14(1) of the Autonomous Sanctions Regulations, I place no material weight on the revised form of the prohibition on dealings with designated persons that is imposed by the Charter of the United Nations (Sanctions Iran) Regulations 2016 (Cth) and the amended Charter of the United Nations (Sanctions  Democratic Peoples Republic of Korea) Regulation 2008 (Cth) as at 14 December 2018. That is for two reasons. First and foremost, the latter sanctions are imposed under a different legislative framework which serves to implement resolutions made by the UN Security Council. The manner in which the UN Security Council has chosen to frame sanctions since the making of the Autonomous Sanctions Regulations provides no real guidance to the legislative intention of the Australian Government at the time that the Autonomous Sanctions Regulations were made. Secondly, as noted above, the revisions that have been made to the sanctions imposed under the Charter of the United Nations Act 1945 raise their own questions of construction and do not resolve (in any clear way) the meaning to be given to the phrase directly or indirectly.

275    The third matter of context to which the respondents drew attention is the language used in certain UN Security Council Resolutions such as para 4(b) of UN Security Council Resolution 1267 (1999), directed at the Taliban and the use of Afghan territory to shelter and train terrorists, which required that all Member States shall (amongst other things):

Freeze funds and other financial resources, including funds derived or generated from property owned or controlled directly or indirectly by the Taliban, or by any undertaking owned or controlled by the Taliban, as designated by the Committee established by paragraph 6 below, and ensure that neither they nor any other funds or financial resources so designated are made available, by their nationals or by any persons within their territory, to or for the benefit of the Taliban or any undertaking owned or controlled, directly or indirectly, by the Taliban, except as may be authorized by the Committee on a case-by-case basis on the grounds of humanitarian need

276    It can be seen that the above Resolution contains two forms of sanction: the first is a freeze of funds and other financial resources owned or controlled directly or indirectly by the Taliban, or by any undertaking owned or controlled by the Taliban; the second is a prohibition on making any other designated funds or financial resources available to or for the benefit of the Taliban, or any undertaking owned or controlled, directly or indirectly, by the Taliban.

277    Although the above survey of related provisions and sanctions is limited in scope, it highlights one matter. The prohibition in reg 14(1) has been framed with an economy of language. The precise scope of the prohibition is not addressed in express terms. Rather, the scope must be determined by giving meaning to the phrases directly or indirectly and for the benefit of. In reaching a concluded view on the meaning of those phrases, it is necessary to have regard to the purpose of the regulation within the framework of Australias autonomous sanctions regime.

Purposive considerations

278    The purpose of the prohibitions contained in the Autonomous Sanctions Regulations can be discerned from their terms and the relevant extrinsic materials. The Replacement Explanatory Memorandum accompanying the Autonomous Sanctions Bill makes the following relevant points concerning the purpose of the autonomous sanctions regime:

(a)    First, the autonomous sanctions are intended to be punitive measures not involving the use of armed forces which a government imposes as a matter of foreign policy in situations of international concern, including situations of international armed conflict.

(b)    Second, the autonomous sanctions measures are intended to achieve three objectives, one of which is to seek to influence those responsible for the situation of international concern to modify their behaviour.

(c)    Third, the autonomous sanctions are intended to be highly targeted measures, applied only to the specific governments, individuals or entities (in the form of targeted financial sanctions and travel bans), or to the specific goods and services (such as military goods), that are responsible for, or have a nexus to, the situation of international concern. They are applied so as to minimise, to the extent possible, the impact on the general populations of the affected countries.

279    The respondents submitted that there is no reason in the text or context of reg 14(1) to construe the phrase directly or indirectly makes an asset available to, or for the benefit of in any limited way. They submitted that the important foreign policy purpose of the Autonomous Sanctions Act and Autonomous Sanctions Regulations positively suggests that reg 14(1) should not be narrowed. The respondents observed that the Minister may not designate a person with respect to Russia under reg 6(a) unless, relevantly, they are performing a function of economic or strategic significance to Russia (Item 6A in the table below reg 6). Relevantly, the foreign policy purpose of the Autonomous Sanctions Act and Autonomous Sanctions Regulations is to achieve positive change to the circumstances of concern to Australia and the international community. The respondents argued that it would undermine that evident legislative intent if reg 14(1) were construed narrowly so as to exclude benefits obtained by a designated person as an indirect shareholder in a company. Excluding such benefits would allow a designated person to circumvent the regulations by interposing companies between their interests.

280    There is force in the respondents submissions. However, there are countervailing considerations. Construing reg 14(1) to include benefits obtained by a designated person as an indirect shareholder in a company greatly broadens the scope of the regulation. In the case of corporate groups where the shares are publicly traded, that construction has two potential adverse consequences. First, the regulation is likely to affect a wide range of people beyond the designated person, undermining the legislative objective that the sanctions be highly targeted. Second, compliance with the regulation will be rendered more difficult because a person dealing with or operating an asset which is owned publicly would need to undertake investigations to determine whether a designated person has an indirect shareholding interest in the asset.

Conclusion on the questions of construction

281    As can be seen from the foregoing discussion, the prohibition of dealing with designated persons in reg 14(1) gives rise to a difficult question of construction concerning the intended breadth of the clause indirectly makes an asset available for the benefit of a designated person. In the present case, the issue in dispute is whether the regulation applies to make an asset available to an entity in which the designated person has an indirect shareholding interest. As observed by McHugh J in News Ltd v South Sydney (at [42]), questions of construction are notorious for generating opposing answers, none of which can be said to be either clearly right or clearly wrong. Regulation 14(1) falls into that category.

282    Weighing the competing considerations, in my view reg 14(1) should be given the full meaning that is open from the words indirectly makes an asset available for the benefit of a designated person, where indirectly includes doing so through interposed corporate entities, and where the benefit is either the object, effect or likely effect of making the asset available. That construction does not provide a definitive answer to the application of the regulation in every case. Ultimately, the specific facts must be examined to assess whether the regulation applies. As acknowledged by the respondents, there may be a de minimis threshold below which a minority shareholding interest in a downstream company may be insufficient to satisfy the regulatory language. As discussed below, it is unnecessary to explore such questions in the present case.

Application of the prohibition to the present case

283    Applying the foregoing construction of reg 14(1), I consider that the production of alumina by QAL for ABC and the delivery of the alumina to ABC pursuant to the contractual arrangements that govern the Gladstone alumina joint venture would constitute a dealing with the designated persons, Messrs Deripaska and Vekselberg, within the terms of reg 14(1).

284    The Gladstone Plant is an asset that is owned and operated by QAL. Pursuant to the Participants Agreement and the Tolling Contracts, it is operated by QAL on behalf of ABC, RTA Holdco and RTA to produce alumina on a toll basis which is delivered to ABC, RTA Holdco and RTA in proportion to their equity interests in the joint venture. By operating the Gladstone Plant pursuant to those arrangements, QAL directly makes that asset available for the benefit of ABC and indirectly makes the asset available for the benefit of Messrs Deripaska and Vekselberg. The benefit for Messrs Deripaska and Vekselberg is a financial benefit.

285    I have earlier found that, on the balance of probabilities, alumina delivered by QAL to ABC on and after 19 March 2022 would have been transferred to Russia to meet the needs of the Rusal Group. That would have produced financial benefits for ABC or the Rusal Group (depending on the transfer price).

286    Even if 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 financial benefit of UC Rusal. Two financial benefits would arise to UC Rusal. First, for reasons given earlier it can be inferred that the sale of alumina by ABC would have been profitable, thereby increasing the value of UC Rusal. Second, 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. This would also place downward pressure on alumina prices in China. The supply of alumina to third parties in China would increase the likelihood that surplus alumina in China would be exported to Russia. Ultimately, those economic factors (of supply and demand) would improve UC Rusals security of supply of alumina, its terms of trade in alumina and its profitability.

287    The foregoing benefits to UC Rusal are also benefits for its direct and indirect shareholders. Each of Messrs Deripaska and Vekselberg are significant indirect shareholders of ABC and UC Rusal. Mr Deripaska holds his interest in UC Rusal through En+ which holds approximately 56.88% of the shares in UC Rusal and is by far the largest shareholder. Mr Deripaskas effective financial interest in En+ is 54.56% and therefore his effective financial interest in UC Rusal is 31.03%. Mr Vekselberg holds his interest in UC Rusal through SUAL which holds approximately 25.52% of the shares in UC Rusal, being the second largest shareholder. Mr Vekselbergs effective financial interest in UC Rusal is 12.58%.

288    For the foregoing reasons, I find 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.

289    The applicants resist that conclusion principally on the basis that the word for in the phrase for the benefit of a designated person or entity should be construed as meaning the object or purpose of the relevant conduct (making an asset available) construed subjectively. The applicants submitted that the operation of the Gladstone Plant pursuant to the Participants Agreement and Tolling Contracts and the resulting delivery of alumina to ABC is for the purpose of benefiting ABC. The applicants acknowledge that it might be concluded that making the asset available is also indirectly for the purpose of benefitting UC Rusal in its capacity as the parent company of ABC. The applicants submitted that it would distort the language of reg 14(1) to conclude that making the asset available is also indirectly for the benefit of persons who have an indirect shareholding interest in UC Rusal. The applicants argued that any indirect, incidental benefit to the indirect shareholders arises from the fact of indirect ownership of shares in UC Rusal, not from the Gladstone Plant being made available to ABC to produce alumina. For the reasons given earlier, I reject that construction of the phrase for the benefit of the designated person or entity, and therefore reject the applicants submissions premised on that construction.

D.5    Summary of conclusions

290    In conclusion, 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. That is because, on and after 20 March 2022, if QAL had delivered alumina to ABC:

(a)    the alumina would have been transferred to Russia, and for use in Russia to meet the aluminium smelting needs of the Rusal Group, and which would also thereby benefit Russia in the form of employment within Russia and increased tax revenue in Russia; and

(b)    even if UC Rusal and/or ABC would have successfully taken steps to prevent the alumina being physically transferred to Russia, a direct or indirect result of the delivery to ABC would have been that the alumina would be transferred to China which would have improved UC Rusals security of supply of alumina and its terms of trade in alumina and its profitability, which would also benefit Russia in the form of employment within Russia and increased tax revenue in Russia.

291    I also find 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 alumina to ABC would have been contrary to the Designated Persons Sanction. That is because by operating the Gladstone Plant pursuant to the contractual arrangements governing the Gladstone alumina joint venture, QAL makes the Gladstone Plant available for the immediate benefit of ABC and UC Rusal, and thereby indirectly makes the Gladstone Plant available for the financial benefit of UC Rusals direct and indirect shareholders, including Messrs Deripaska and Vekselberg.

E.    THE RESPONDENTS’ DEFENCES

E.1    Overview

292    The respondents collectively raise a number of defences to the applicants claims of breach of contract.

293    By its defence, QAL alleges that it is relieved of its obligations to deliver alumina to ABC because the imposition of the Russia Sanctions was governed by Art 14A of the Participants Agreement, thereby activating Appendix E to that agreement. By its notice to ABC, RTA Holdco and RTA given on 4 April 2022, QAL asserted that Art 14A was triggered by the Russia Sanctions and that QAL would implement the step-in arrangements in Appendix E from midnight that day.

294    By their defence, the Rio parties allege that QAL is relieved of its obligations to deliver alumina to ABC on three bases:

(a)    because the imposition of the Russia Sanctions was governed by Art 14A of the Participants Agreement, thereby activating Appendix E to that agreement;

(b)    because the imposition of the Russia Sanctions was such as to render the performance by QAL of the Participants Agreement and the Tolling Contracts illegal and was accordingly a supervening illegality that excused QAL from compliance with those obligations; and

(c)    because the imposition of the Russia Sanctions was an event of force majeure for the purposes of Art 17 of each of the Tolling Contracts (which provides that QAL is not liable for failure to perform the Tolling Contracts if the failure was caused by force majeure).

295    Although QAL did not plead each of the additional defences relied on by the Rio parties, QAL and the Rio parties have a common interest in the defence of the proceeding. If the Rio parties are successful in raising those defences, they will necessarily operate to relieve QAL from any liability for refusing to deliver alumina to ABC.

296    The Rio parties further allege that, in circumstances where QAL is relieved of its obligations to deliver alumina to ABC, RTA is relieved from its obligations to supply and ship bauxite to ABC at the Gladstone Plant by the operation of:

(a)    the consequential contractual rights arising under clause 1(c) of Appendix E to the Participants Agreement;

(b)    alternatively (if Art 14A did not apply), 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.

297    RTA sent notices to the applicants on 8 April 2022 in reliance on those contractual provisions.

298    The Rio parties also allege that, independently of QALs contractual rights and actions, each of 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, which concern the imposition of sanctions, were applicable to the imposition of the Russia Sanctions and had the effect of relieving RTA of its contractual obligations under those agreements.

299    As highlighted in the introduction to these reasons, there is a significant legal difference between the defence based on Art 14A of the Participants Agreement and the other defences advanced by the Rio parties. Art 14A applies if the Russia Sanctions are imposed on UC Rusal, ABC or any of their affiliates and are likely to prevent QAL from undertaking business activity with ABC and its affiliates. The first criterion, that the Russia Sanctions are imposed on UC Rusal, ABC or any of their affiliates, introduces a condition that is disputed by the applicants. The second criterion, that the Russia Sanctions are likely to prevent QAL from undertaking business activity with ABC and its affiliates, arguably expands the application of the clause to circumstances where there is a probability or even a possibility that the Russia Sanctions prevent QAL from undertaking business activity with ABC and its affiliates.

300    In contrast to Art 14A, the common law defence of supervening illegality and the other contractual provisions relied upon by the Rio parties are applicable if it is determined on the balance of probabilities that performing the contracts would cause a breach of the Russia Sanctions. Thus, those defences do not depend upon showing that the Russia Sanctions can be characterised as being imposed on UC Rusal, ABC or any of their affiliates. However, the defences do require the respondents to establish that performing the contracts would contravene the Russia Sanctions. I have earlier made that finding.

301    The question whether the Court should accept the Rusal Group Undertaking, and its prospective effect if it were to be accepted, is considered later in these reasons in connection with the grant of relief.

302    The parties dispute the interpretation to be given to some of the contractual provisions on which the respondents rely. The principles of contractual interpretation, relevantly in the context of commercial contracts, are well known. The applicable principles were summarised by the plurality (French CJ, Nettle and Gordon JJ) in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]-[51], as follows (citations omitted):

The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, the background, the context [and] the market in which the parties are operating. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties statements and actions reflecting their actual intentions and expectations.

Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption that the parties … intended to produce a commercial result. Put another way, a commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience.

303    The plurality stated that the above summary was not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 and Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640. In the latter case, the majority (French CJ, Hayne, Crennan and Kiefel JJ) stated (at [35], citations omitted):

… this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context [and] the market in which the parties are operating. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties … intended to produce a commercial result. A commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.

E.2    Art 14A of the Participants Agreement

Overview of Art 14A and Appendix E

304    Art 14A of the Participants Agreement provides as follows:

ARTICLE 14A. Step-In

If at any time, the U.S. Department of the Treasurys 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.

305    It is apparent that Art 14A applies to the imposition of sanctions which meet three criteria:

(a)    the sanctions are imposed by OFAC or a corresponding governmental authority of Australia;

(b)    the sanctions are imposed on UC Rusal, ABC or any of their affiliates; and

(c)    the sanctions are likely to prevent QAL from undertaking business activity with ABC and its affiliates.

306    In the present case, there is no dispute that the first criterion is satisfied in that the Russia Sanctions are imposed by the Australian Government. The applicants dispute that either of the Russia Sanctions is imposed on UC Rusal, ABC or any of their affiliates. The applicants also dispute that either of the Russia Sanctions is likely to prevent QAL from undertaking business activity with ABC and its affiliates.

307    Article 14A was inserted into the Participants Agreement on 31 December 2019. The Article is concerned with the risk of sanctions being imposed that would adversely affect the performance of the Participants Agreement. If the criteria stipulated in Art 14A are met, the provisions of Appendix E become applicable. It should be noted that, on its terms, Art 14A operates upon the fulfilment of the three criteria stated in the Article. It does not confer rights that may be exercised upon notification to the other parties; rather, it is self-executing.

308    Appendix E is titled Step-in Arrangements. It commences with a statement that is in the nature of a preamble or objects clause and which states as follows:

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

(a)    reallocate ABCs 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 ABCs 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.

309    Paragraph 1 of Appendix E is titled Management of bauxite supply and alumina production and entitles QAL to cease performing its obligations under the Participants Agreement, entitles ABC to cease delivering bauxite to QAL, and requires RTA to cease supplying bauxite to ABC. The paragraph states as follows:

The Parties acknowledge and agree as follows:

(a)    QAL is authorised to:

(i)     cease acceptance of ABCs bauxite deliveries by no later than the date by which QAL determines, acting reasonably, that such deliveries are required to cease in order that it complies with the effect of the Sanctions (Bauxite Cessation Date);

(ii)     cease introducing ABCs bauxite to the refinery process on the date by which QAL determines, acting reasonably, that such processing is required to cease in order that it complies with the effect of the Sanctions (Production Cessation Date); and

(iii)     cease loading ABCs alumina shipments by the date by which QAL determines, acting reasonably and having regard to the usual and planned shipping schedule, is required to cease in order that it complies with the effect of the Sanctions (Shipping Cessation Date).

(b)    ABC is authorized to cease making any bauxite deliveries by no later than the Bauxite Cessation Date and for the remainder of the Term.

(c)    If ABC is to be supplied bauxite by any of the Rio Tinto Participants or their Related Bodies Corporate, the Parties agree or will procure that the supply of bauxite to ABC shall be suspended for the Term, without such suspension constituting a default or giving rise to any claim by either of the Rio Tinto Participants or their Related Bodies Corporate. No shortfall in tonnes of bauxite which would otherwise have been delivered under such arrangements shall accrue to ABC and ABC will have no entitlement to delivery of any shortfall in bauxite tonnes after the end of the term of the relevant supply agreements.

(h)    For the avoidance of doubt, this paragraph l also applies to the Bauxite Supply Agreements.

310    Paragraph 2 of Appendix E is titled Financial Matters. For the most part, it is not relevant to the issues in dispute between the parties. However, the paragraph does use the word affiliates, the meaning of which is disputed between the parties. Relevantly, the paragraph includes the following subparagraphs:

(d)     ABC and its affiliates shall have no claim of any nature against QAL or the Rio Tinto Participants or their Related Bodies Corporate under the Gladstone Agreements arising out of the suspension or cessation of deliveries of bauxite or shipments of alumina or the cessation of alumina processing at the Gladstone Plant during the Term in accordance with these arrangements or otherwise occurring during the Term by reason of the potential application of the Sanctions to dealings by QAL or the Rio Tinto Participants in respect of the Gladstone Plant or Project.

(e)     Neither QAL nor the Rio Tinto Participants or their Related Bodies Corporate will have any claim of any nature against ABC or their affiliates under the Gladstone Agreements arising out of the suspension or cessation of deliveries of bauxite or shipments of alumina or the cessation of alumina processing at the Gladstone Plant during the Term in accordance with these arrangements or otherwise occurring during the Tenn by reason of the potential application of the Sanctions to dealings by QAL or the Rio Tinto Participants or their Related Bodies Corporate in respect of the Gladstone Plant or Project.

Relevant surrounding circumstances

311    As already noted, the applicants dispute that the Russia Sanctions are imposed on UC Rusal, ABC or any of their affiliates, or that the Russia Sanctions are likely to prevent QAL from undertaking business activity with ABC and its affiliates, for the purposes of Art 14A. Those criteria are capable of more than one meaning. In considering what a reasonable business-person would have understood those terms to mean, it is permissible to have regard to the surrounding circumstances, known to all parties, that assist in identifying the genesis and commercial object of Art 14A as at the date it was inserted into the Participants Agreement on 31 December 2019.

312    It is not in dispute that, as at 31 December 2019, the parties were aware of the OFAC Sanctions. To recap, on 6 April 2018, 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 its SDN List. The effect of the designation was to impose a freeze on all assets subject to US jurisdiction of the designated individuals and entities and US persons were generally prohibited from dealings with them. On 27 January 2019, OFAC announced the removal of En+ and UC Rusal from the SDN List, having reached an agreement with those entities concerning Mr Deripaskas shareholding interest and voting control over En+.

313    It is also not in dispute that the parties were aware of the Australian Autonomous Sanctions Act and Autonomous Sanctions Regulations which necessarily governed their commercial activities in respect of the Gladstone alumina joint venture in Australia. Relevantly, the Autonomous Sanctions Regulations included:

(a)    by regs 4(1) and 12(1), powers to designate goods as export sanctioned goods in respect of a particular country, thereby prohibiting persons from exporting those goods to the country concerned; and

(b)    by regs 6, 14(1) and 15(1), powers to designate a person or entity by reason of their association with or conduct in a specified country, thereby prohibiting persons from making an asset available to or for the benefit of the designated person or entity and prohibiting a person who holds an asset that is owned or controlled by the designated person or entity from dealing with the asset.

314    More broadly, it was not in dispute that the parties to the Participants Agreement conduct international trading businesses in circumstances where it is necessary to be familiar with sanction regimes imposed by different countries, including the United States of America and Australia. Indeed, the Rio parties submitted that the nature of the businesses of both the Rio Tinto Group and the Rusal Group is such that they are involved in dealings in different parts of the world with various counterparties. When sanctions are imposed on a country, a region, or activities, the impact is not limited to their immediate regulatory impact. They can have a ripple effect. Counterparties and their bankers become more cautious about the impact of the sanctions and the consequence to them of dealing with a party (or a product) the possible subject of sanctions. This can affect logistics and costs. There is also an appreciable concern about the possibility of secondary sanctions being imposed on the counterparties (whereby a counterparty becomes the subject of sanctions by reason of dealing with a party that is subject to sanctions). The evidence adduced at the hearing supported those submissions. It is unnecessary to make detailed findings in that regard. It is uncontroversial that the Rio Tinto Group engages in the global alumina and aluminium markets and has counterparties all over the world. That was accepted by Mr Gordymov during cross-examination. Mr Gordymov also confirmed that the imposition of sanctions following Russias invasion of Ukraine affects both how the Rusal Group conducts business and also affects the counterparties with whom the Rusal Group contracts, including banks. An internal UC Rusal document titled Sanctions 2022 summarised the sanctions affecting the Rusal Group as at that date and the effects on its business and identified potential business risks for UC Rusal, including vessels being held in ports, logistical risks because customers would be more cautious in dealing with UC Rusal and counterparty concerns about the risk of secondary sanctions.

315    What is apparent from the evidence concerning sanction regimes around the world, including particularly the United States of America and Australia, is that sanctions may apply broadly to certain types of trade with a country and may apply more narrowly to named persons or entities. I infer that those matters were known to the parties to the Participants Agreement at all relevant times, given their size, sophistication and business activities.

316    The Rio parties further submitted that the parties were also aware of the fundamental aspects of the operation of the Gladstone Plant, namely that alumina refineries must be operated at a stable level for safety and efficiency, and that there was limited alumina storage capacity on site (185,000 tonnes for a plant with an annual production of 3.8 million tonnes, being a little over 2 weeks production). I accept that submission. Mr Gordymov gave evidence to that effect. The significance of those facts is that it can be inferred that one of the purposes of Art 14A was to address the circumstance that, if QAL was unable to deliver alumina to ABC, it would not be able to stockpile the alumina on behalf of ABC for any material period of time. I accept that Art 14A addressed that circumstance by reallocating ABCs entitlement to use its capacity at the Gladstone Plant to RTA and RTA Holdco pursuant to Appendix E.

Are the Russia Sanctions imposed on UC Rusal, ABC or any of their affiliates?

317    The first matter in dispute between the parties is whether the Russia Sanctions satisfy the stipulation in Art 14A of being a sanction that is imposed on UC Rusal, ABC or any of their affiliates. Difficulties arise in respect of each of the Export Sanction and the Designated Persons Sanction. It is necessary to consider each of the sanctions in turn.

Export Sanction

318    The applicants 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.

319    The respondents agreed that the word on is a flexible term which takes its colour from the context in which it is used. However, the respondents submitted that the word is apt to mean no more than affecting. The respondents argued that the Export Sanction is imposed on UC Rusal and/or ABC because it substantially affects them. They submitted that that construction is supported by the purpose of Art 14A, which is to create a safe haven, in the event that there was a risk that sanctions might prevent QAL from undertaking business activities with ABC. They further submitted that that construction is supported by reference to the surrounding circumstances, which included the fact that Australias autonomous sanctions regime contemplated the imposition of export sanctions. The respondents argued that the applicants construction would produce the result that QAL might be prevented from delivering alumina to ABC by an Australian sanction and yet not have the protection of Art 14A. They argued that such a construction would undermine the purpose of Art 14A and would produce an uncommercial outcome.

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 Australias 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.

Designated Persons Sanction

324    In contrast to the Export Sanctions, the Designated Persons Sanction is imposed on specifically identified persons: Messrs Deripaska and Vekselberg. The question that arises with respect to the Designated Persons Sanction is whether either or both of Messrs Deripaska and Vekselberg are affiliates of ABC. The word affiliate is not defined in the Participants Agreement.

325    The applicants submitted that Messrs Deripaska and Vekselberg are not affiliates of UC Rusal and ABC. They argued that the term affiliates lacks general currency in Australian English, both standard and legal, and the use of that term in Art 14A appears to derive from American usage. The applicants observed that Blacks Law Dictionary (11th Ed, 2004) contains these definitions:

affiliate … n. (1930). 1. A corporation that is related to another corporation by shareholdings or other means of control; a subsidiary, parent, or sibling corporation. 2. Securities. Someone who controls, is controlled by, or is under common control with an issuer of a security …

affiliated group. (1924) A chain of corporations that can elect to file a consolidated tax return because at least 80% of each corporation is owned by others in the group.

326    The applicants further observed that, perhaps deriving from American usage, s 328-130 of the Income Tax Assessment Act 1997 (Cth), provides a definition of affiliate for the purpose of aggregating entities as small business entities as follows:

328-130    Meaning of affiliate

(1)    An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the *business of the individual or company.

(2)    However, an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share.

327    The applicants submitted that, when applied to bodies corporate, the word affiliate denotes a relationship of subsidiary to parent. They submitted that it is an inapposite word to describe a relationship with a natural person. In Art 14A, the word is used in a manner akin to the word subsidiaries. The applicants further submitted that contextual support for that conclusion can be obtained from Art 9 of the Participants Agreement, titled Contracts with Affiliated Companies, which concerns (amongst other things) contracts between QAL and a corporation affiliated with one or more of the parties. Also, in paras 2(d) and (e) of Appendix E to the Participants Agreement, reproduced earlier, the expressions ABC and its affiliates is juxtaposed with the expression QAL, the Rio Tinto Participants and their Related Bodies Corporate, suggesting that the word affiliate was intended to have the same meaning as Related Bodies Corporate.

328    The applicants argued that their construction of the word affiliates in Art 14A is also confirmed by the surrounding circumstances known to both parties at the time Art 14A was included in the Participants Agreement. At that time, Messrs Deripaska and Vekselberg remained the subject of OFAC Sanctions, whereas UC Rusal had been removed. The applicants submitted that that context explains the formulation of Art 14A, which applies if OFAC or a corresponding authority of Australia imposes sanctions on UC Rusal, ABC or any of their related companies.

329    The respondents submitted that Messrs Deripaska and Vekselberg are affiliates of UC Rusal and ABC. They argued that the ordinary meanings of the word include a person who is affiliated with a larger body, an associate of another person or organization, and something or someone who has an association or close connection (referring to the definitions given by the Oxford English Dictionary and the Macquarie Dictionary). The respondents accepted that, in some contexts, an affiliate of a corporation refers to a related body corporate, but submitted that the meaning of the word need not be so confined and can include other persons who have an association with the corporation such as officers, directors and shareholders. The respondents submitted that the dictionary definition of the word does not include a corporate limitation and there is no logical reason to differentiate between a shareholder of a corporation that is a body corporate and an individual for this purpose.

330    As to matters of context, the respondents submitted that Art 9 shows that where the parties intended to refer to affiliated corporations, they did so expressly (using the term corporation affiliated with one or more of the parties). The respondents also submitted that, elsewhere in the Participants Agreement, the parties used the term Related Body Corporate (which was defined by reference to the Corporations Act 2001 (Cth)) and yet chose to use the term affiliate in Art 14A. The respondents submitted that the Participants Agreement was agreed between sophisticated commercial parties and is evidently drafted by lawyers. In those circumstances, there is a particularly strong presumption that different words used in a contract have different meanings: Eureka Funds Management Ltd v Freehills Services Pty Ltd (2008) 19 VR 676 at [52]-[53] (Cavanough AJA, Neave and Redlich JJA agreeing); Tempe Recreation (D500215 and D1000502) Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 449 at [63] (Leeming JA, Basten and Emmett JJA agreeing).

331    As to the surrounding circumstances, the respondents observed that, at the time of introducing Art 14A, the parties were aware that the OFAC Sanctions had been imposed on Mr Deripaska and on UC Rusal by reason of its association with Mr Deripaska. While the sanctions had been removed from UC Rusal, Mr Deripaska remained on the SDN List. The respondents submitted that it was likely that the parties believed that at least Mr Deripaska had such an association or affiliation with En+ and UC Rusal as to expose them to possible future sanctions, and that the parties believed that there was a real prospect that Australia might also impose sanctions on Mr Deripaska and that such sanctions might affect the operation of the Gladstone Plant.

332    The respondents submitted that Mr Deripaska is an affiliate of UC Rusal for the following reasons:

(a)    Mr Deripaska was, until 25 May 2018, a director of UC Rusal and held approximately 70% of En+, which in turn held 56.88% of UC Rusal;

(b)    even after Mr Deripaskas ownership of UC Rusal was diluted in response to the OFAC Sanctions, he remains the person with the most significant interest in UC Rusal with an effective interest of approximately 31.03%; and

(c)    there are frequent references to Mr Deripaska in UC Rusals annual reports, which evidence his ongoing significance to the company.

333    The respondents submitted that Mr Vekselberg is also an affiliate of UC Rusal because he is a substantial (indirect) shareholder, with an effective interest of approximately 12.68%, and he is also frequently referred to in UC Rusals annual reports.

334    I have reached the conclusion that neither Mr Deripaska nor Mr Vekselberg is an affiliate of UC Rusal (or ABC) within the meaning of Art 14A for the following reasons.

335    In Art 14A, the word affiliate is used in relation to two foreign corporations, UC Rusal and ABC. That is a relatively common usage for the word. It is not, of course, the only usage. As the definitions given by the Macquarie and Oxford English Dictionaries show, the word can also be used in the context of paternity or other matters of descent or association. In the context of corporations or other organisations, the ordinary usage of the word affiliate conveys a close association with the corporation or organisation. The word is typically used to refer to subsidiaries and branches, but the word is also capable of referring to parent companies or other controlling bodies.

336    There are contextual indications suggesting that the word affiliate in Art 14A is used in a manner that is synonymous with related body corporate as understood in Australian corporate law. First, it can be observed that word affiliate is used twice in Art 14A. The Article applies to sanctions that are likely to prevent QAL from undertaking business activity with ABC and its affiliates. That second usage is suggestive of a meaning equivalent to a related body corporate. Second, subparas 2(d) and (e) of Appendix E to the Participants Agreement use the expressions ABC and its affiliates and QAL, the Rio Tinto Participants and their Related Bodies Corporate in a manner that is suggestive of equivalence between the word affiliates and Related Bodies Corporate. Nevertheless, as submitted by the respondents, the parties would be expected to use the same phrase if they intended to convey the same meaning. Although UC Rusal and ABC are foreign companies, the definition of the expression related body corporate in s 50 of the Corporations Act 2001 (Cth) is applicable to Australian and foreign bodies corporate. Thus, the fact that UC Rusal and ABC are foreign companies does not explain the use of the different terms.

337    Within the context of corporations or other organisations, the ordinary meaning of the word affiliate can include individuals who have a close association with the corporation or organisation. The relevant question is: what type of close association is contemplated by the word? Dictionaries define the noun affiliate by reference to the meaning of the related verb: an affiliate is someone who is affiliated. The dictionary definitions of the verb affiliate, in the context of corporations or organisations, indicate that the word conveys either that the affiliate is a part of the corporation or organisation (such as a subsidiary or branch), or that the affiliate is aligned with, or acts in concert with, the corporation or organisation. The Oxford English Dictionary includes the following definitions:

To be connected with a larger or more established organization, as a branch or subsidiary part; to adhere or belong to an organization or group; to be a member or affiliate of a certain body. Also more generally: to be a part of something.

To join or unite with an organization or group; esp. to connect or align oneself with a larger or more established group of people; to attach oneself to an organization as a branch, subsidiary part, or affiliate.

To connect or align (a group, institution, etc.) with another body, typically one that is larger or more established; to cause to become a branch, subsidiary part, or affiliate of such a body. Also: to cause (an individual) to be a member or part of any group or organization.

338    Applying the ordinary meaning of the word affiliate in the context of corporations or other organisations, an individual will be an affiliate if the individual controls the corporation or other organisation or is otherwise aligned with and acts in concert with the corporation or organisation. The mere fact that an individual is a director of a corporation or organisation, or is a shareholder of the corporation or a member of the organisation, does not make them an affiliate of the corporation or organisation within the ordinary meaning of the word.

339    The relevant surrounding circumstances support a conclusion that the parties used the word affiliate in Art 14A in accordance with that ordinary meaning. At the very least, the surrounding circumstances do not support a contention that the parties intended a different meaning of the word. At the time that Art 14A was inserted into the Participants Agreement, OFAC had included Mr Deripaska on the SDN List. En+ was designated by OFAC for being owned or controlled by, directly or indirectly, Mr Deripaska, and UC Rusal was also designated by OFAC for being owned or controlled by, directly or indirectly, En+. Each of En+ and UC Rusal were subsequently removed from the SDN List because they reached an agreement with OFAC to take steps to ensure that Mr Deripaska did not hold a controlling interest in either En+ or UC Rusal. Thus, at the time that Art 14A was agreed by the parties, Mr Deripaska remained subject to the OFAC Sanctions, but UC Rusal did not because Mr Deripaska no longer had a controlling interest in UC Rusal. Thus, the terms of Art 14A were agreed in a context in which UC Rusal had become subject to the OFAC Sanctions because a person who held a controlling interest in UC Rusal was sanctioned (Mr Deripaska), and UC Rusal was removed from the OFAC Sanctions when that person ceased to hold a controlling interest. In that context, it is understandable that the parties sought to address a circumstance in which any person who held a controlling interest in UC Rusal became the subject of sanctions that were likely to prevent QAL from undertaking business activity with ABC.

340    Mr Deripaskas indirect interest in UC Rusal has been described earlier in these reasons. It can be accepted that he has a substantial indirect financial interest. He holds 0.01% of the issued share capital in UC Rusal via a nominee, and 44.95% of the issued shares in En+ (which holds approximately 56.88% of the shares in UC Rusal). That gives Mr Deripaska an overall interest of 25.58% in UC Rusal. By the agreement reached between En+ and OFAC, Mr Deripaska is prohibited from voting more than 35% of En+ shares. Further, by reason of En+ acquiring 21.37% of its own shares (through a wholly owned subsidiary), Mr Deripaskas effective financial interest in En+ has been increased to 54.56% and his effective financial interest in UC Rusal has been increased to 31.03%.

341    In my view, although Mr Deripaska has a substantial indirect financial interest in UC Rusal, he is not an affiliate of UC Rusal within the meaning of Art 14A. The ordinary meaning of that word does not include individuals who have substantial indirect interests in the company but which fall short of a controlling interest. There is no other basis on which the respondents contended that Mr Deripaska should be characterised as an affiliate of UC Rusal. The same conclusion applies to Mr Vekselberg who has a lesser financial interest than Mr Deripaska.

Conclusion

342    For the foregoing reasons, I have concluded that neither of the Russia Sanctions were imposed on UC Rusal, ABC or any of their affiliates within the meaning of Art 14A. The Export Sanction was imposed on the country of Russia and was not imposed on any specific persons or entities. The Designated Persons Sanction was imposed on Messrs Deripaska and Vekselberg, but neither of them is an affiliates of UC Rusal (or ABC) within the meaning of Art 14A. It follows that neither of the Russia Sanctions were sanctions which engaged Art 14A. Nevertheless, I will consider the second question that arises with respect to Art 14A in case the matter goes further.

Are the Russia Sanctions likely to prevent QAL from undertaking business activity with ABC?

343    The parties disputed the meaning of the word likely in Art 14A. On the basis of my earlier findings concerning the meaning and effect of the Russia Sanctions, the dispute is inconsequential. I have earlier concluded that, on the balance of probabilities, the delivery of alumina by QAL to ABC would have been contrary to the Export Sanction and the Designated Person Sanction. It necessarily follows from that finding that those sanctions prevented QAL from undertaking business activity with ABC.

344    As the matter was fully argued, and in case the matter goes further, I will also briefly state my conclusions with respect to the meaning of the word likely as used in Art 14A.

345    It was common ground that the use of the word likely in Art 14A allows for a circumstance occurring which is yet to occur and is potentially uncertain or contingent. The issue in dispute concerned the degree of probability of the event occurring that is conveyed by the word.

346    Each of the parties acknowledged that the word likely is protean in that it has more than one meaning and takes its meaning from the context in which it is used: Tillmans Butcheries Pty Ltd v Australasian Meat Industry Employees Union [1979] FCA 132; (1979) 42 FLR 331 (Tillmans) at 346 (Deane J), cited with approval in Sheen v Fields Pty Ltd (1984) 58 ALJR 93 at 95 (Gibbs CJ, Mason, Wilson and Dawson JJ agreeing); Boughey v The Queen (1986) 161 CLR 10 at 20 (Mason, Wilson and Deane JJ); Minister Administering the Crown Lands Act v Deerubbin Local Aboriginal Land Council (No 2) (2001) 50 NSWLR 665 at [52] (Spigelman CJ, Powell and Heydon JJA agreeing); Australian Competition and Consumer Commission v Pacific National Pty Ltd (2020) 277 FCR 49 (Pacific National) at [221]-[245] (Middleton and OBryan JJ).

347    The applicants submitted that the ordinary meaning of the word likely is more probable than not, and that is what the parties ought to be taken to have meant in Art 14A. However, the applicants principal submission was that, even if likely is used to connote a lower degree of probability, the Russia Sanctions were not likely to prevent QAL from undertaking business activity with ABC.

348    The respondents submitted that, while the word likely commonly means probable, it need not do so. The respondents submitted that there are contextual factors that suggest the word is used in Art 14A in the sense of a real possibility, equivalent to the words and phrases prone, with a propensity and liable. Nevertheless, the respondents principal submission was the mirror image of the applicants principal submission: that even if likely means more probable than not, the Russia Sanctions were likely to prevent QAL from undertaking business activity with ABC.

349    It is correct, as submitted by the applicants, that the usual meaning of the word likely in everyday language is more probable than not. That meaning accords with dictionary definitions: see Pacific National at [222]; Australian Telecommunications Commission v Krieg Enterprises Pty Ltd (1976) 14 SASR 303 at 309-10 (Bray CJ). Despite that, there are strong contextual reasons indicating that the parties intended the word to include probabilities that are less than 50%.

350    As discussed earlier in these reasons, by reason of the definition of sanctioned supply in reg 4(1) of the Autonomous Sanctions Regulations, it has been possible for a person to contravene reg 12(1) by supplying, selling or transferring export sanctioned goods in respect of a country where there is then another transfer of the goods to, for use in, or for the benefit of, that country. This creates the possibility that the 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.

351    Further, both the prohibition on sanctioned supplies in reg 12(1) and the prohibition on dealing with designated persons or entities in reg 14(1) depend on criteria that may be difficult for the parties to assess. The definition of sanctioned supplies requires an assessment of whether the export sanctioned goods in respect of a country will be transferred to that country, for use in that country, or for the benefit of that country. The prohibition on dealing with designated persons or entities requires an assessment whether particular commercial conduct involves indirectly making an asset available for the designated person or entity.

352    It is apparent that Art 14A is intended to address the commercial risk to the parties arising from the imposition of sanctions of those kinds. If the Article applies, the parties rights and obligations are adjusted in the manner specified in Appendix E. Essentially, both the rights and responsibilities of ABC are suspended, while QAL is able to continue to operate the Gladstone Plant for the benefit of the Rio parties.

353    Within that regulatory, commercial and contractual context, it is understandable that the parties would provide 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. Those considerations strongly suggest that the word likely in Art 14A was intended to include probabilities that are less than 50%, but which nevertheless are a material legal risk. In my view, that is the meaning that is to be given to the word.

354    In reaching that conclusion, it is appropriate to repeat a caution expressed in the plurality judgment in Pacific National at [245] that the use of synonyms, such as real chance in place of the word likely carries the risk that the synonym may convey a different standard to the word used. As Deane J observed in Tillmanns (at 347-48), likelihood ought to be determined by reference to well-established standards of what could reasonably be expected to be the consequence of the relevant conduct in the circumstances.

Conclusion

355    In conclusion, I reject the respondents defence to the applicants claims of breach of contract based on Art 14A of the Participants Agreement. In my view Art 14A did not apply to the Russia Sanctions because neither of the sanctions were imposed on UC Rusal, ABC or any of their affiliates. I record for completeness, and in case the matter goes further, that if I am wrong in that conclusion, then Art 14A would have provided a defence to the applicants claims of breach of contract. Both of the Russia Sanctions operated to prevent QAL from delivering alumina to ABC, and therefore satisfied the applicable criteria in Art 14A of being likely to prevent QAL from undertaking business activity with ABC.

E.3    Participants Agreement and the Tolling Contracts supervening illegality and force majeure

356    This section of the reasons considers the additional defences raised by the Rio parties that QAL is relieved of its obligations to deliver alumina to ABC because the imposition of the Russia Sanctions:

(a)    was such as to render the performance by QAL of the Participants Agreement and the Tolling Contracts illegal and was accordingly a supervening illegality that excused QAL from compliance with those obligations; and

(b)    was an event of force majeure for the purposes of Art 17 of each of the Tolling Contracts.

Supervening illegality

357    At common law, supervening illegality is a change to the law that arises after the formation of a contract and that renders the future performance of a contract unlawful. Supervening illegality is a defence to non-performance of the contract: Gerraty v McGavin (1914) 18 CLR 152; Cooper & Sons v Neilson and Maxwell Ltd [1919] VLR 66 at 76 (Cussen J, Hodges and Hood JJ agreeing). In some circumstances, supervening illegality may have the same terminating effect as frustration: Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265; see also Cheshire & Fifoot, Law of Contract (12th Aust Ed, 2023) at [19.15]; JW Carter, Contract Law in Australia (8th Ed, 2023) at [33-22]; Heydon on Contract (1st Ed, 2019) at [23.120]; Chitty on Contracts (35th Ed, 2023) at [27-096].

358    The applicants did not dispute that if the Russia Sanctions rendered it unlawful for QAL to refine and deliver alumina to ABC, then the defence of supervening illegality would operate to excuse QALs non-compliance with the Participants Agreement and the Tolling Contracts.

359    For the reasons expressed earlier, that is the effect of the Russia Sanctions. Accordingly, the defence of supervening illegality is available to QAL.

Art 17 of the Tolling Contracts

360    Parties to a contract may address the consequences of supervening illegality in their contract. Art 17 of each of the Tolling Contracts stipulated that QAL shall not be liable for failure to perform if such failure is caused by Force Majeure. By Art 1, the expression Force Majeure took its meaning from the definition in the Participants Agreement which was in the following terms (emphasis added):

Force Majeure means acts of God; strikes, lockouts or other industrial disturbances; war, whether declared or undeclared; blockades, insurrections; riots; earthquakes; typhoons; hurricanes; floods; fires; shortage of water; epidemic; explosions; serious breakage or accidents to machinery or equipment; failure of transportation; acts or restraints of governmental authority which directly or indirectly prevent the construction of a Plant, obtaining equipment, machinery or supplies therefor, obtaining bauxite to be converted to alumina therein, or manufacture of alumina therein; or, without being limited by the above, any other occurrence or failure whether foreseen or foreseeable which is not within QALs or a Participants reasonable control and which prevents QAL from manufacturing alumina.

361    The word Plant was defined so as to refer to the Gladstone Plant. Thus, the parties defined Force Majeure to include restraints of governmental authority which directly or indirectly prevented the manufacture of alumina at the Gladstone Plant.

362    I have earlier found that the Russia Sanctions had the effect of preventing the production of alumina by QAL for ABC and the delivery of alumina to ABC pursuant to the Gladstone alumina joint venture contractual arrangements. It follows that the Russia Sanctions were an event of force majeure within the meaning of the Tolling Contracts. QAL was therefore contractually excused from failing to perform the Tolling Contracts on that basis.

363    When giving notice to ABC, RTA and RTA Holdco on 4 April 2022 of its decision to cease delivering alumina to ABC, QAL relied upon Art 14A of the Participants Agreement and did not refer to Art 17 of the Tolling Contracts. Despite that, it is permissible for the respondents to rely upon Art 17 of the Tolling Contracts in defence of the applicants claim for breach of contract. As Dixon J observed in Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 (Shepherd) at 378 (quoting Taylor v Oakes Roncoroni & Co (1922) 127 LT 267 at 269 (Greer J)):

It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not …

364    That principle has been affirmed by the High Court on many occasions: see for example Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 611 (Mason J, Barwick CJ, Gibbs, Stephen and Aickin JJ agreeing); Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 at [27]-[29] (Gleeson CJ, Gaudron and Gummow JJ) and [42] (McHugh J).

Conclusion

365    In conclusion, given my earlier findings concerning the effect of the Russia Sanctions, QAL has a defence to the applicants claims of breach of contract based on the common law principle of supervening illegality and also based on Art 17 of the Tolling Contracts.

E.4    Force majeure provisions in the Bauxite Supply Agreements and the Shipping Agreement

366    This section of the reasons considers the Rio parties defence that, in circumstances where QAL is prevented by the Russia Sanctions from producing alumina for ABC and delivering alumina to ABC, RTA is excused from its obligations to supply and ship bauxite to ABC at the Gladstone Plant by the operation of 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. The Rio parties also submitted that, even if the effect of the Russia Sanctions was not to prevent QAL from producing alumina for ABC and delivering alumina to ABC, the fact that QAL ceased to do so in the belief that that was required by the Russia Sanctions was sufficient to engage the relevant force majeure provisions and relieve RTA from liability.

Article 21 of the Monohydrate Bauxite Supply Agreement

367    Article 21.1 of the Monohydrate Bauxite Supply Agreement stipulates that RTA shall not be liable to ABC for any failure to deliver bauxite if such failure is due to any of the specified events of force majeure, which relevantly include the imposition of Sanctions … which results in third parties refusing to provide services necessarily required by the parties to this agreement to perform their obligations contained herein. The definition of the word Sanctions in Art 1.1 includes any trade embargo or economic or financial sanctions imposed by the Australian Government.

368    I have earlier found that the Russia Sanctions had the effect of preventing the production of alumina by QAL for ABC and the delivery of alumina to ABC pursuant to the Gladstone alumina joint venture contractual arrangements. That necessarily had the result that QAL refused to accept deliveries of bauxite from RTA on behalf of ABC, which in turn prevented RTA from performing its obligations under the Monohydrate Bauxite Supply Agreement. That conclusion follows from the terms of the Monohydrate Bauxite Supply Agreement, including that:

(a)    by Art 4.1, the bauxite supplied under the agreement is to be used solely for the supply to the Gladstone Plant for processing alumina for ABC;

(b)    by Art 11.1, the amount of bauxite required to be delivered during each contract year is 100% of ABCs bauxite requirements for QAL; and

(c)    by Art 13.3, all bauxite delivered by RTA for shipment to the Gladstone Plant was to be consigned to QAL.

369    It follows that, in the language of Art 21.1, RTAs failure to deliver bauxite to ABC is due to the imposition of the Russia Sanctions which has resulted in a third party, QAL, refusing to provide services necessarily required by RTA for it to perform its obligations under the Monohydrate Bauxite Supply Agreement.

370    Art 21.3 imposed additional conditions on the operation of Art 21.1 in respect of a particular event of force majeure, namely that:

(a)    the event is outside the reasonable control of the failing party and is not caused by that partys fault;

(b)    the failing party has taken and continues to take all proper precautions, due care and reasonable alternative measures with the object of avoiding the failure and carrying out its obligations under the Monohydrate Bauxite Supply Agreement;

(c)    the failing party has given prompt notice to the other party of the event; and

(d)    the failing party has upon cessation of the event taken all reasonable steps to resume with the least possible delay its performance under the Monohydrate Bauxite Supply Agreement.

371    Those conditions are satisfied. In circumstances where the effect of the Russia Sanctions was to prevent QAL from producing alumina for ABC and delivering alumina to ABC, the Russia Sanctions and their effects were not events within the control of RTA. On 8 April 2022, RTA sent notice to ABC of the occurrence of circumstances constituting force majeure events for the purposes of Art 21.1. It follows that none of the conditions in Art 21.3 applied so as to deprive RTA of the benefit of the Art 21.1. Accordingly, Art 21 applied to relieve RTA of liability to ABC for failing to perform the Monohydrate Bauxite Supply Agreement by reason of the Russia Sanctions causing QAL to cease producing alumina for ABC and delivering alumina to ABC.

372    As noted above, the Rio parties also submitted that, even if the effect of the Russia Sanctions was not to prevent QAL from producing alumina for ABC and delivering alumina to ABC, the fact that QAL acted on that belief was sufficient to engage Art 21.1 of the Monohydrate Bauxite Supply Agreement. The applicants resisted that submissions and argued that Art 21.1 is only engaged where the legal effect of the sanctions is to prevent production and delivery. On this issue, I accept the submission of the Rio parties. The relevant event of force majeure under Art 21.1 is defined above. It applies where a party is subject to sanctions (here, ABC) which results in third parties refusing to provide services. The definition refers to the result of the sanctions, not the legal effect of the sanctions; the relevant result is a third party refusing to provide services, not being legally prevented from providing services. It follows, in my view, that RTA is entitled to rely on Art 21.1 by reason of QAL refusing to produce alumina for ABC and deliver alumina to ABC even if (contrary to my findings) the Russia Sanctions did not have that legal effect.

373    The applicants advanced the further submission that, in circumstances where the effect of the Russia Sanctions was not to prevent QAL from producing alumina for ABC and delivering alumina to ABC, RTA is not entitled to rely on Art 21.1 because the conditions in Art 21.3 are not satisfied. The applicants submitted that RTA has actively joined in QALs refusal to produce and deliver alumina, and that the Rio parties cannot demonstrate that QALs refusal to produce and deliver alumina was reasonably beyond RTAs control and could not by the exercise of due diligence be prevented or overcome. I reject that submission. The evidence shows that QAL made a decision independently of the Rio parties to cease producing alumina for ABC and delivering alumina to ABC. That decision followed QAL management seeking legal advice about its obligations in light of the Russia Sanctions, which was done independently of the QAL Board. Mr Grigg gave evidence on behalf of the Rio parties that:

(a)    he was not involved in the process by which QALs management came to make the decision to issue the Step-in Notification, and nor was he involved in the issuing of the Step-in Notification;

(b)    he was not aware of any action taken by the Rio parties to cause QAL management to issue the Step-in Notification; and

(c)    if such action had been taken by the Rio parties, he would have expected that in the ordinary course of business it would have come to his attention in his role as acting General Manager, Energy and Joint Ventures

374    I accept that evidence. No evidence has been adduced in the proceeding that would support a finding that it was within the power of the Rio parties to control how QAL responded to the Russia Sanctions. The fact that the Rio parties have actively supported the position of QAL in this proceeding does not alter that conclusion.

Article 18.1 of the Low Mono Bauxite Supply Agreement

375    The same conclusions apply in respect of Art 18.1 of the Low Mono Bauxite Supply Agreement although the contractual language differs in some respects.

376    Article 18.1 of the Low Mono Bauxite Supply Agreement stipulates that neither party shall be liable for failure to observe and/or perform its obligations under the agreement to the extent that failure is caused by a Force Majeure Event. The definition of Force Majeure Event in Art 1.1 includes the following events:

(a)    the imposition of Sanctions, including where Sanctions results in third parties refusing to provide services necessarily required by the parties to this agreement to perform their obligations contained herein; and

(b)    any other cause which is not reasonably within the control of the party claiming force majeure.

377    The word Sanctions is defined in Art 1.1 in the same manner as in the Monohydrate Bauxite Supply Agreement.

378    It follows, for the same reasons as discussed in connection with the Monohydrate Bauxite Supply Agreement, that Art 18.1 applied to relieve RTA of liability to ABC for failing to perform the Low Mono Bauxite Supply Agreement.

379    For completeness, it should be noted that the definition of Force Majeure Events contains a proviso that the listed events are not reasonably within the control of the party claiming force majeure. Again, for the reasons expressed in connection with the Monohydrate Bauxite Supply Agreement, neither the Russia Sanctions nor their effects (including QALs decision to cease producing alumina for ABC and delivering alumina to ABC) were events within the control of RTA. Further, Art 18.1 also stipulated that a party wishing to rely upon the provision must forthwith notify the other Party in writing of the circumstances it claims to justify the failure to observe and/or perform. On 8 April 2022, RTA sent notice to ABC of the occurrence of circumstances constituting force majeure events for the purposes of Art 18.1.

Clause 11.1 of the Shipping Agreement

380    The same conclusions apply in respect of cl 11.1 of the Shipping Agreement which is in materially the same terms as Art 18.1 of the Low Mono Bauxite Supply Agreement.

Conclusion

381    I therefore accept the Rio parties defence to the applicants claim of breach of contract based on the force majeure provisions in the Bauxite Supply Agreements and the Shipping Agreement. Further, I accept those defences even if, contrary to the conclusion I have reached, \ the effect of the Russia Sanctions was not to prevent QAL from producing alumina for ABC and delivering alumina to ABC. The fact that QAL refused to continue producing alumina for ABC and delivering alumina to ABC as a result of the Russia Sanctions is sufficient to engage the force majeure provisions in the Bauxite Supply Agreements and the Shipping Agreement and entitles the Rio parties to cease supplying and shipping bauxite to ABC at the Gladstone Plant.

E.5    The sanctions provisions in the Bauxite Supply Agreements and the Shipping Agreement

Introductory matters

382    This section of the reasons considers the Rio parties defence that, independently of QALs contractual rights and actions, as at the date of the imposition of the Russia Sanctions the Rio parties had the right to cease supplying and shipping bauxite to ABC at the Gladstone Plant pursuant to 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.

383    As stated earlier, on 8 April 2022 RTA sent notices to ABC that it was prevented from continuing to supply and ship bauxite to ABC at the Gladstone Plant by reason of circumstances constituting force majeure events under the Bauxite Supply Agreements and the Shipping Agreement. In those notices, RTA did not refer to the sanctions provisions in the agreements. For reasons explained in connection with the exercise of rights by QAL, it is permissible for RTA to rely upon the sanctions provisions in defence of the applicants claim for breach of contract even though RTA did not refer to them at the time of giving notice to ABC that it would cease supplying and shipping bauxite (see Shepherd at 378 (Dixon J)).

384    The Rio parties submitted, and I accept, that the sanctions provisions are to be construed in light of the surrounding circumstances referred to earlier. Those circumstances included the facts that the nature of the businesses of both the Rio Tinto Group and the Rusal Group is such that they are involved in dealings in different parts of the world with various counterparties, and that the imposition of sanctions can have ripple effects, including the possibility of secondary sanctions being imposed. It can be accepted that international trading companies such as the Rio Tinto Group would be concerned about the possibility of breaching sanctions and may require contractual rights that guard them against the possibility of breach.

385    It was common ground that the terms of 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 are identical. Accordingly, the discussion that follows is confined to Art 26.2 of the Monohydrate Bauxite Supply Agreement.

Article 26.2 of the Monohydrate Bauxite Supply Agreement

The contractual provisions

386    Article 26 of the Monohydrate Bauxite Supply Agreement is titled Sanctions and states as follows:

26.1    Either Party represents and warrants that neither it nor any Related Body Corporate nor any of their directors, nor, to their best knowledge having made reasonable inquiries (and such knowledge qualifier applying only with respect to paragraph (a) below only), any of their employees, agents, or representatives:

(a)    is a Restricted Party;

(b)    will sell, resell or deliver the Bauxite to or from a Restricted Party, directly or indirectly;

(c)    will tranship or transit the Bauxite through a Sanctions Restricted Territory,

(d)    will make payment to or receive payment from, directly or indirectly, any Restricted Party in connection with the Bauxite or transportation thereof which may cause either Party to breach or be exposed to adverse action under any Sanctions (whether under secondary sanctions or otherwise); or

(e)    otherwise will transact with any Restricted Party, directly or indirectly, or in violation of the Sanctions in connection with the purchase or sale of the Bauxite.

26.2    Either Party shall have the right to reject any transaction in which the other Party proposes to or in fact sells, resells, or delivers the Bauxite to or for a Restricted Party, directly or indirectly; or in which any Restricted Party will otherwise provide services in support of, or benefit from, this contract, directly or indirectly.

387    Each of Arts 26.1 and 26.2 commences with the expression either party. In context, it is clear that the intended meaning of that expression is each party.

388    Article 26.2 has two operative parts introduced by the words in which. The first part of Art 26.2 stipulates that each party shall have the right to reject any transaction in which the other party proposes to or in fact sells, resells, or delivers the bauxite to or for a Restricted Party, directly or indirectly. The second part of Art 26.2 stipulates that each party shall have the right to reject any transaction in which any Restricted Party will otherwise provide services in support of, or benefit from, the contract, directly or indirectly.

389    The term Restricted Party is defined in Art 1.1 as follows:

Restricted Party means any person that is the target of Sanctions, including (a) any person or vessel identified in any list of designated Persons maintained by the U.S. Treasury Departments Office of Foreign Assets Control (OFAC) or other Sanction Authority, (b) any person resident or organized in a Sanctions Restricted Territory; or (c) any person 50% or more owned (individually or in the aggregate) or controlled by a Restricted Party or someone acting on behalf of a Restricted Party. This term does not include a party as to which a license or other authorization is available from Sanction Authority permitting the transactions contemplated in this Agreement to proceed without exposure to RTAL or other Party to adverse consequences under Sanctions;

390    It can be seen that the definition of Restricted Party uses the form means and includes. It is an established principle of statutory construction that, in that form of definition, the included matters are listed to avoid any doubt that they come within the definition: BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145 at [32] (Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ); International Litigation Partners Pty Ltd v Chameleon Mining NL (Receivers and Managers Appointed) (2012) 246 CLR 455 at [26] (French CJ, Gummow, Crennan and Bell JJ). This may be for the purposes of clarification, but may also be for the purpose of extending the definition to things that may not be within the ordinary meaning of the term. The contractual definition of Restricted Party should be construed in that manner.

391    The definition of the word Sanctions in Art 1.1 includes any trade embargo or economic or financial sanctions laws or regulation imposed by a Sanction Authority, and any export/import/trade control imposed, administered or enforced by the US government or any applicable Sanction Authority. The expression Sanctions Authority is defined in Art 1.1 to include the governments of the United States of America, the United Nations, the European Union and any of its member states, Australia, Canada and the United Kingdom and the respective governmental institutions and agencies of any of those governments including OFAC. The expression Sanctions Restricted Territory is defined in Art 1.1 as follows:

Sanctions Restricted Territory means any country or territory that is the target of comprehensive Sanctions (currently Cuba, Iran, North Korea, Syria, and the Crimea region and subject to change in the Sanctions).

392    The first part of Art 26.2 is difficult to apply in the context of the transactions contemplated under the Monohydrate Bauxite Supply Agreement. The agreement provides for the supply of bauxite by RTA to ABC, to be delivered to QAL at the Gladstone Plant where it will be refined into alumina. The agreement does not contemplate any further supply or resale of the bauxite. While the first part of Art 26.2 permits either party to reject a supply transaction, it does so only where the other party proposes to supply or in fact supplies or delivers bauxite to a Restricted Party. Conceivably, the first part of Art 26.2 permits RTA to refuse to supply bauxite where QAL is a Restricted Party and ABC proposes to deliver the bauxite to QAL. However, it does not appear to have any operation where ABC is a Restricted Party, as RTA is the party supplying bauxite to ABC.

393    The second part of Art 26.2 is framed more broadly. It applies in respect of any transaction in which any Restricted Party will directly or indirectly benefit from the contract. The Rio parties submitted that the second part of Art 26.2 was engaged.

Are Messrs Deripaska and Vekselberg Restricted Parties?

394    The Rio parties submitted that, as at 8 April 2022, RTA had the right under Art 26.2 to refuse to supply bauxite to ABC because each of Messrs Deripaska and Vekselberg are Restricted Parties and they will indirectly benefit from the supply of bauxite to ABC under the Monohydrate Bauxite Supply Agreement because of their indirect financial interest in ABC.

395    I accept that submission. Each of Messrs Deripaska and Vekselberg is a person who is the target of Sanctions, because each is the subject of the Australian Designated Persons Sanction. Each is also (and has been for a considerable period of time) the subject of the OFAC Sanctions. For the reasons explained earlier, each of Messrs Deripaska and Vekselberg will indirectly benefit from the supply of bauxite to ABC under the Monohydrate Bauxite Supply Agreement because of their indirect financial interest in ABC.

396    The applicants resist that conclusion on the basis that the broad terms of Art 26.2 must be read down. The applicants submitted that the Article should be construed such that it only applies where the sanction or sanctions, by which a person is a Restricted Party, operate to prohibit the transactions referred to in Art 26.2. The applicants argue that neither the OFAC Sanctions nor the Designated Persons Sanction prohibits RTA from supplying bauxite to ABC and therefore Art 26.2 does not apply.

397    I reject that construction of Art 26.2 because it conflicts with the express terms of the Article. The Article does not refer to a breach of any sanction. In that regard, Art 26.2 can be contrasted with Art 26.1 which, in the context of warranties, includes express reference to a breach of sanctions, exposure to adverse actions under sanctions and transaction in violation of sanctions. Art 26.2 is framed in broad terms and provides the parties with the right to reject transactions in a range of circumstances involving a Restricted Party, including where the Restricted Party will indirectly benefit from the supply of bauxite under the agreement. Construing Art 26.2 in accordance with its ordinary meaning does not generate an outcome that is commercially absurd. It is understandable that companies engaging in international trade such as Rio Tinto and the Rusal Group may be cautious about engaging in commercial transactions with counterparties that are the subject of sanctions, even if the specific sanctions may not operate to prevent the transaction proceeding.

398    I therefore accept the Rio parties defence to the applicants claim of breach of contract based on Art 26.2 of the Monohydrate Bauxite Supply Agreement.

399    The Rio parties advanced further submissions that:

(a)    ABC is a Restricted Party for the purposes of the Monohydrate Bauxite Supply Agreement because it is the target of sanctions (being the Export Sanction); and

(b)    UC Rusal is also a Restricted Party for the purposes of the Monohydrate Bauxite Supply Agreement because UC Rusal is resident or organised in a Sanctions Restricted Territory, being Russia, and ABC is a Restricted Party because it is a wholly owned subsidiary of UC Rusal.

400    Given my findings with respect to Messrs Deripaska and Vekselberg, it is strictly unnecessary to consider these further submissions. Nevertheless, in case the matter goes further, I will address the submissions as briefly as possible.

Is ABC a Restricted Party?

401    I reject the submission that ABC is a Restricted Party for the purposes of the Monohydrate Bauxite Supply Agreement. I do not accept the submission of the Rio parties that ABC is the target of sanctions by virtue of the Export Sanction. The ordinary meaning of the word target is a thing aimed at (Macquarie Dictionary). As discussed earlier in these reasons, the target of the prohibition in reg 12(1) of the Autonomous Sanctions Regulations relating to sanctioned supplies is the country (or the government of the country) in respect of which goods are designated as export sanctioned goods. That is clear from the terms of the prohibition in reg 12(1) when read with the definition of sanctioned supply in reg 4(1). The prohibition does not apply to specific persons; it applies to all persons. The conclusion that the target of the Export Sanction is Russia, not the person transferring the alumina, is consistent with the Explanatory Statement accompanying the designation of alumina as an export sanctioned good for Russia which explained that the designation was due to Russias aggression towards Ukraine which presents a serious threat to the international rules-based order which underpins global security, and to demonstrate Australias condemnation of Russias invasion of Ukraine. It is clear from the terms of the prohibition and the extrinsic materials that the target of the Export Sanction is Russia.

Is UC Rusal a Restricted Party?

402    The second submission, that UC Rusal is a Restricted Party because it is resident or organised in a Sanctions Restricted Territory, being Russia, raises a difficult question of construction: viz, whether Russia is a country that is the target of comprehensive Sanctions within the definition of a Sanctions Restricted Territory in Art 1.1. The word comprehensive is not defined in Art 1.1 of the Monohydrate Bauxite Supply Agreement. The evidence did not suggest that it is a term of art or has any fixed or clear meaning in the context of international sanctions. The ordinary meaning of comprehensive is, relevantly, of large scope (Macquarie Dictionary). Although the word comprehensive is not defined in Art 1.1 of the Monohydrate Bauxite Supply Agreement, the definition of Sanctions Restricted Territory provides some guidance to the intended meaning of the word by indicating that certain countries (Cuba, Iran, North Korea, Syria, and the Crimea region) were the subject of comprehensive sanctions as at the date of the agreement (16 February 2022). The definition also makes clear that it is intended to be ambulatory and that other countries may become the subject of comprehensive sanctions at a later point in time.

403    In support of their contention that Russia is a country that is the target of comprehensive sanctions, the Rio parties adduced in evidence copies of sanctions imposed by the governments of Australia, the United States of America, the United Kingdom, Canada and the European Union in respect of the following countries and certain of their citizens: Russia, Cuba, Iran, North Korea, Syria, and the Crimea region. The Rio parties also prepared an aide memoire that purported to summarise and compare the nature and extent of sanctions imposed against each of those countries and certain of their citizens. The material was vast and the exercise in comparison is extremely complex.

404    In considering the material relied upon by the Rio parties in support of their contention, a serious question arises whether the expression comprehensive Sanctions in the definition of Sanctions Restricted Territory is so vague and uncertain in meaning as to render that part of the definition unenforceable: see Hall v Bust (1960) 104 CLR 206 at 217 (Dixon CJ). It can be accepted, however, that courts will strive to give meaning to the words of a contract, and the mere fact that a contractual term may have more than one meaning does not render the term void for uncertainty: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436-37 (Barwick CJ, McTiernan, Kitto and Windeyer JJ agreeing). In that regard, full force should be given to the guidance that the parties have given to the meaning of the word comprehensive by stating that the sanctions imposed against Cuba, Iran, North Korea, Syria, and the Crimea region as at the date of the Monohydrate Bauxite Supply Agreement are comprehensive. It is at least theoretically possible to assess whether the nature and extent of sanctions targeted at Russia as at 8 April 2022 (when RTA ceased supplying bauxite to ABC) is equivalent to the nature and extent of sanctions targeted at Cuba, Iran, North Korea, Syria, and the Crimea region as at the date of the agreement (16 February 2022).

405    Although the material relied upon by the Rio parties in support of their contention was voluminous, it suffers from a number of weaknesses. First, the material did not purport to be an exhaustive compilation of sanctions imposed by relevant countries against Russia on the one hand and against Cuba, Iran, North Korea, Syria, and the Crimea region on the other hand. For example, in respect of Iran and North Korea, the material only included the sanctions imposed by Australia, the United Kingdom and Canada. This deficiency undermines the conclusions that can be drawn from the material. Second, the material did not distinguish between sanctions that targeted a country and sanctions that targeted individual citizens of a country. While it can be accepted that sanctions that target individual citizens of a country may be imposed for the purpose of bringing about changes in the policy of the government of the country concerned (for example, the Designated Persons Sanction against Messrs Deripaska and Vekselberg), that is not always the case. Sanctions may target individuals because of the specific conduct of the individual. Nothing in the material produced to the Court descended to that level of analysis. Third, the summary and comparison undertaken by the Rio parties was not the subject of expert evidence and was only the subject of submission. The submissions were made at a reasonably high level of generality. While the submissions had a superficial appeal, the lack of detail and rigour in the analysis reduces my confidence in the conclusions expressed.

406    Assessing the material that was put before me by the Rio parties as best I can, I am not persuaded that the Rio parties have established, on the balance of probabilities, that Russia is a country that is the target of comprehensive sanctions within the meaning of the definition of Sanctions Restricted Territory in Art 1.1 of the Monohydrate Bauxite Supply Agreement. The burden of establishing that conclusion lay with the Rio parties. The failure of the evidence to examine all relevant sanctions and to subject all relevant sanctions to detailed and rigorous analysis has the result that I am not affirmatively satisfied of the conclusion for which the Rio parties contend.

407    For completeness, I note that the applicants placed reliance on certain documents published by the United Nations, OFAC and the European Union which explained the nature of sanctions imposed by those bodies or governments against countries or individuals. In some instances, particularly in publications of OFAC, the relevant authority described the sanctions imposed by the authority as comprehensive or not comprehensive. By way of illustration, the published documents relied upon by the applicants contained the following statements:

(a)    In a document titled 2023 Fact Sheets – Subsidiary Organs of the United Nations Security Council and published by the UN Security Council on 3 April 2023, the following statements appeared:

Over the past five decades, sanctions regimes have changed in focus and scale. One of the most significant changes has been the shift away from use of comprehensive sanctions. Since 2004, all new sanctions regimes have been targeted, meaning that they are intended to have limited, strategic focus on certain individuals, entities, groups or undertakings. The most common sanctions measures are travel bans, asset freezes and arms embargos.

(b)    In a document titled Basic Information on OFAC and Sanctions and published by OFAC on 21 May 2018, the following statement appeared:

OFAC administers a number of U.S. economic sanctions and embargoes that target geographic regions and governments. Some programs are comprehensive in nature and block the government and include broad-based trade restrictions, while others target specific individuals and entities. … It is important to note that in non-comprehensive programs, there may be broad prohibitions on dealings with countries, and also against specific named individuals and entities.

(c)    In a document concerning Afghanistan first published by OFAC on 22 December 2021 and updated on 25 February 2022, the following statement appeared:

In contrast to sanctions programs administered and enforced by OFAC with regard to North Korea, Cuba, Iran, Syria, and the Crimea and so-called Donetsk Peoples Republic and Luhansk Peoples Republic regions of Ukraine, there are no comprehensive sanctions on Afghanistan.

(d)    In a document concerning Russia published by OFAC on 24 February 2022, the following statement appeared:

While certain Russian financial institutions are subject to sanctions under E.O. 14024, the financial services sector of the Russian Federation economy is not comprehensively sanctioned …

(e)    In a document concerning the Russian oil industry first published by OFAC on 4 March 2022 and updated on 14 June 2022, the following statement appeared:

The energy sector of the Russian Federation economy itself is not subject to comprehensive sanctions. However, prohibitions or restrictions may apply to certain energy-related transactions under several sanctions authorities …

408    As also submitted by the applicants, the autonomous sanctions implemented by the Australian Government in respect of Russia and Russian citizens in response to the invasion of Ukraine are described in the Explanatory Statements as targeted.

409    I accept the submission of the Rio parties that the documents relied upon by the applicants do not assist either the construction of the definition of Sanctions Restricted Territory or the application of the definition to Russia as at 8 April 2022. With respect to construction, the evidence did not establish that the documents relied upon by the applicants were known to the parties prior to the date that the Monohydrate Bauxite Supply Agreement was entered into (16 February 2022). Indeed, most of the above documents post-dated the making of the agreement. It is accordingly impermissible to use the documents as an aid to the construction of the agreement. With respect to the application of the definition, the documents are no more than statements of characterisation, and therefore opinion, expressed by the relevant bodies about the sanctions they have imposed. It cannot be assumed that the relevant bodies used the word comprehensive in the same sense in which it is used in the agreement. It follows that those opinions cannot assist the Court.

Conclusion

410    In conclusion, I accept the Rio parties defence to the applicants claim of breach of contract based on the sanctions provisions in the Bauxite Supply Agreements and the Shipping Agreement on the basis that Messrs Deripaska and Vekselberg are Restricted Parties who will indirectly benefit from the agreements. Further, RTA was entitled to cease supplying and shipping bauxite to ABC in reliance on those provisions regardless of whether the effect of the Russia Sanctions was to prevent QAL from producing alumina for ABC and delivering alumina to ABC.

F.    RELIEF AND THE RUSAL GROUP UNDERTAKING

411    It follows from the findings I have made and the conclusions I have reached that, in respect of the period to the date of this judgment, the applicants are not entitled to any declaratory or injunctive relief or an award of damages on the grounds of breach of contract. Their application in that respect should be dismissed with costs.

412    The only question that remains to be determined is 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. It is convenient to reproduce the terms of the Undertaking:

Each of the Applicants, United Company Rusal IPJSC (UC Rusal), Libertatem Materials Limited, United Company Rusal Alumina Limited and RTI Limited, by their counsel, undertakes to the Court that until further order, whether by themselves, their servants, agents, associates or otherwise:

1.    they will not supply any alumina that is supplied to the first applicant (ABC) by the first respondent (QAL):

a.    to UC Rusal or any of its subsidiaries; or

b.    to, for use in or for the benefit of Russia or part of Russia;

2.    they will not enter into or perform any swap or other arrangement, the effect of which is to provide that upon any alumina supplied to ABC by QAL being supplied by ABC to the counterparty under that arrangement, the counterparty shall supply an equivalent quantity of alumina:

a.    to UC Rusal or any of its subsidiaries; or

b.    to, for use in, or for the benefit of Russia or part of Russia;

3.    all alumina supplied to ABC by QAL will be sold by ABC directly to third parties located outside of Russia, on terms that:

a.    prohibit the buyer of such alumina from transferring such alumina, and/or any resultant aluminium refined from such alumina, to, for use in, or for the benefit of Russia or part of Russia; and

b.    require that the buyer of such alumina, in the event of on-sale by that person of such alumina and/or any resultant aluminium refined from such alumina, sell only on terms of sale containing the prohibition in paragraph 3(a) above;

4.    they will not act on or otherwise seek to enforce or perform the contract of sale, being Contract No. ABC/RT/05 dated 15 September 2005 between ABC and Rual Trade Limited, and novated by deed of novation dated 5 December 2012 by between ABC (as Seller), Rual Trade Limited (as Buyer) and RTI Limited (as New Buyer); and

5.    ABC will not declare and distribute any dividends.

413    In so far as it concerns the Rusal Group Undertaking, I understand that the applicants seek that the Court grant prospective declaratory relief, conditional on the Undertaking having been given, to the following effect: that 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, would not amount to a contravention by QAL of the Russia Sanctions. The applicants also seek injunctions restraining QAL and RTA from relying on the contractual rights previously asserted, which have been considered in these reasons.

414    The parties advanced only brief submissions concerning the power of the Court to grant relief of that kind conditional upon the acceptance of the Rusal Group Undertaking. The focus of the submissions largely concerned the terms of the Undertaking and the exercise of the Courts discretion to accept it. Nevertheless, it is appropriate to give some consideration to the question of power as this aspect of the relief sought by the applicants is unusual. It is a declaration as to future rights the factual basis for which is largely founded on an undertaking being offered to the Court.

415    Sections 21 and 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) confer broad powers on the Court to make orders and grant relief of various kinds. Section 21 empowers the Court to make binding declarations of right. Section 23 empowers the Court, in relation to matters in which it has jurisdiction, to make such orders as the Court thinks appropriate. Although the conferral of power is broad, the Courts power is nevertheless restricted to making the kinds of orders which are capable of being seen as appropriate to be made by the Court in the exercise of its jurisdiction: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 622 (Deane J); Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at [35] (Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ); Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [27] (Gaudron, McHugh, Gummow and Callinan JJ). The broad powers conferred by ss 21 and 23 of the FCA Act are supported by rr 1.32 and 1.33 of the Federal Court Rules 2011 (Cth). Rule 1.32 states that the Court may make any order that the Court considers appropriate in the interests of justice. Rule 1.33 states that the Court may make an order subject to any conditions the Court considers appropriate.

416    In Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-82, the plurality (Mason CJ, Dawson, Toohey and Gaudron JJ) summarised the principles concerning the power to grant declaratory relief in the following terms (references omitted):

It is a discretionary power which [i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise. However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have a real interest and relief will not be granted if the question is purely hypothetical, if relief is claimed in relation to circumstances that [have] not occurred and might never happen or if the Courts declaration will produce no foreseeable consequences for the parties.

417    The distinction between a declaratory judgment and a hypothetical or advisory opinion was explained by the majority (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ) in Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 (Bass) at [45] and [47]-[49] as follows (citations omitted):

45     The purpose of a judicial determination has been described in varying ways. But central to those descriptions is the notion that such a determination includes a conclusive or final decision based on a concrete and established or agreed situation which aims to quell a controversy. In R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd, Kitto J said:

[J]udicial power involves, as a general rule, a decision settling for the future, as between defined persons or classes of persons, a question as to the existence of a right or obligation, so that an exercise of the power creates a new charter by reference to which that question is in future to be decided as between those persons or classes of persons ... [T]he process to be followed must generally be an inquiry concerning the law as it is and the facts as they are, followed by an application of the law as determined to the facts as determined; and the end to be reached must be an act which ... entitles and obliges the persons between whom it intervenes, to observance of the rights and obligations that the application of law to facts has shown to exist.

47    Because the object of the judicial process is the final determination of the rights of the parties to an action, courts have traditionally refused to provide answers to hypothetical questions or to give advisory opinions. The jurisdiction with respect to declaratory relief has developed with an awareness of that traditional attitude. In In re F (Mental Patient: Sterilisation), Lord Goff of Chieveley said that:

a declaration will not be granted where the question under consideration is not a real question, nor where the person seeking the declaration has no real interest in it, nor where the declaration is sought without proper argument, eg in default of defence or on admissions or by consent.

By not a real question, his Lordship was identifying what he called the hypothetical or academic. The jurisdiction includes the power to declare that conduct which has not yet taken place will not be in breach of a contract or a law and such a declaration will not be hypothetical in the relevant sense. Barwick CJ pointed this out in The Commonwealth v Sterling Nicholas Duty Free Pty Ltd. However, that is not the present case.

48    It is true that some have seen the use of the declaratory judgment as little more than the giving of an advisory opinion. However, one crucial difference between an advisory opinion and a declaratory judgment is the fact that an advisory opinion is not based on a concrete situation and does not amount to a binding decision raising a res judicata between parties. Thus, the authors of one recent text on declaratory judgments emphasise that, where the dispute is divorced from the facts, it is considered hypothetical and not suitable for judicial resolution by way of declaration or otherwise. They say:

If ... the dispute is not attached to specific facts, and the question is only whether the plaintiff is generally entitled to act in a certain way, the issue will still be considered theoretical. The main reason for this is that there may be no certainty that such a general declaration will settle the dispute finally. Subsequent to that declaration a person (the defendant himself or someone else) may be adversely affected by a particular act of the plaintiff. It may then be doubtful whether this act is covered by the declaration. In such a case the affected person will probably be entitled to raise the issue again on its special facts. Indeed, such a declaration will in effect be a mere advisory opinion.

49     As the answers given by the Full Court and the declaration it made were not based on facts, found or agreed, they were purely hypothetical. At best, the answers do no more than declare that the law dictates a particular result when certain facts in the material or pleadings are established. What those facts are is not stated, nor can they be identified with any precision. They may be all or some only of the facts. What facts are determinative of the legal issue involved in the question asked is left open. Such a result cannot assist the efficient administration of justice. It does not finally resolve the dispute or quell the controversy. Nor does it constitute a step that will in the course of the proceedings necessarily dictate the result of those proceedings. Since the relevant facts are not identified and the existence of some of them is apparently in dispute, the answers given by the Full Court may be of no use at all to the parties and may even mislead them as to their rights. Courts have traditionally declined to state let alone answer preliminary questions when the answers will neither determine the rights of the parties nor necessarily lead to the final determination of their rights. The efficient administration of the business of courts is incompatible with answering hypothetical questions which frequently require considerable time and cause considerable expense to the parties, expense which may eventually be seen to be unnecessarily incurred.

418    As the majority expressly recognised in Bass (at [47]), the jurisdiction to make a declaratory judgment includes the power to declare that conduct which has not yet taken place will not be in breach of a contract or a law and such a declaration will not be hypothetical in the relevant sense. In Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 (Sterling Nicholas) at 305, Barwick CJ observed:

The jurisdiction to make a declaratory order without consequential relief is a large and most useful jurisdiction. In my opinion, the present was an apt case for its exercise. The respondent undoubtedly desired and intended to do as he asked the Court to declare he lawfully could do. The matter, in my opinion, was in no sense hypothetical, but in any case not hypothetical in a sense relevant to the exercise of this jurisdiction. Of its nature, the jurisdiction includes the power to declare that conduct which has not yet taken place will not be in breach of a contract or a law. Indeed, it is that capacity which contributes enormously to the utility of the jurisdiction.

419    Similarly, in Australian Gas Light Co v Australian Competition and Consumer Commission (No 2) [2003] FCA 1229; (2003) ATPR 41-962 (AGL (No 2)) at [40], French J said:

The making of a declaration as to the lawfulness of future conduct has long been accepted as an exercise of judicial power. The fact that declaratory relief relates to future conduct does not place it outside the bounds of federal jurisdiction. If the claim for the declaration arises out of a contemporary controversy in which a partys freedom of action is challenged in some way, that controversy can constitute a matter for the purposes of the exercise of federal jurisdiction. Whether or not there is a real controversy is a question of judgment. In the present case, in my opinion, there is a real controversy about the right or freedom of AGL to proceed with the proposed acquisition in relation to the Loy Yang A power station and the coal mine. Its freedom to do so has been challenged in a very practical way by the regulator in correspondence and most explicitly in its defence where it denies that the proposed acquisitions would not contravene s 50 of the Trade Practices Act. Reservations about or opposition to a proposed acquisition expressed by the regulator can have very concrete commercial consequences and may in some, if not most, cases effectively prevent an acquisition from proceeding.

420    In many contexts, the Court may decline to give declaratory or injunctive relief sought under ss 21 and 23 of the FCA Act on acceptance of an undertaking by a respondent if the undertaking is appropriate. The present case involves the opposite: the applicant is seeking declaratory (and injunctive) relief with respect to the lawfulness of future conduct on the basis of an undertaking with respect to that future conduct. The factual foundation on which the declaration is sought is the assumed future compliance with the terms of the Rusal Group Undertaking by the applicants and the other bodies corporate referred to in the Undertaking.

421    The grant of declaratory relief on the basis of an undertaking given to the Court by an applicant is not without some precedent. For example, in Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317, French J accepted an undertaking from an applicant as a condition of declaring that a proposed acquisition would not contravene s 50 of the Competition and Consumer Act 2010 (Cth). In that case, however, his Honour concluded that the proposed acquisition would not contravene s 50 and that it was appropriate to make a declaration to that effect. His Honour also found (at [10]) that that conclusion is reinforced by the structural arrangements which are the subject of the undertaking offered by AGL to the ACCC and which AGL has in turn offered to the Court. The declaration which I make is subject to that undertaking … and (at [614]) that the undertaking is … an appropriate condition for the grant of the declarations. Thus, it was apparent from his Honours reasons that the undertaking was accepted as a condition of making the declaration under s 21 of the FCA Act. No argument appears to have been raised that the Court lacked power to accept the undertaking.

422    The respondents did not advance a submission that the Court lacked power to accept the Rusal Group Undertaking. The respondents argued that the Court should refuse to accept the Undertaking as a basis for granting declaratory relief in the exercise of the Courts discretion. For the reasons that follow, I agree with that submission. Accordingly, it is unnecessary to reach a concluded view about the Courts power to grant declaratory relief on the basis of the Undertaking.

423    The foregoing discussion highlights, however, a significant difficulty with this aspect of the relief sought by the applicants. The applicants request the Court to declare that the future delivery of alumina by QAL to ABC would not contravene the Russia Sanctions in circumstances where, in the future, the Rusal Group complies with the Rusal Group Undertaking. In order for the Court to make such a declaration, at the very least the Court must be satisfied that:

(a)    first, that the obligations assumed under the Rusal Group Undertaking are clear and certain; and

(b)    second, that compliance with those obligations removes any risk of a contravention of the Russia Sanctions.

424    For the following reasons, I am not satisfied in respect of either of those matters.

425    As to the first matter, an undertaking to the court is treated as the equivalent of an injunctive order of the court and may be enforced by proceedings for contempt. As such, the principles which govern the grant of an injunction by a court must guide the court in deciding whether it should accept an undertaking: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 165 (Gibbs CJ, Stephen, Mason and Wilson JJ). A finding of contempt will not be made where an injunction is ambiguous or lacks precision: Australian Consolidated Press Ltd v Morgan (1965) 112 CLR 483 at 515-16 (Owen J). An undertaking, as for an injunction, must therefore be drafted in clear and unambiguous terms which leave no room for the persons to whom they are directed to wonder whether or not their future conduct falls within the scope or boundaries of the undertaking: ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 259 (Lockhart J). In Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc [1999] FCA 18; (1999) 161 ALR 79 at [26], French J observed:

Once an undertaking is accepted by the court or a consent order made, their breach is enforceable by proceedings for contempt. The undertakings and orders must therefore be formulated with precision so that they are capable of being readily obeyed. Undertakings or orders which are likely to involve vague evaluative judgments or significant debates on their interpretation are not likely to be given the courts sanction. Similarly, undertakings or orders which are likely to require the court to be concerned with the ongoing supervision of the conduct of the parties to them will also raise serious questions as to their appropriateness.

426    There are a number of aspects of the Rusal Group Undertaking that lack sufficient certainty. Most significantly, each of paras 1, 2 and 3 are framed in the language of the prohibition against sanctioned supplies in regs 4(1) and 12(1) of the Autonomous Sanctions Regulations. Specifically, those paragraphs of the Undertaking prohibit various forms of transaction if and to the extent the transactions result in alumina being supplied to Russia, for use in Russia or for the benefit of Russia. As these reasons demonstrate, the meaning and effect of those prohibitions can give rise to substantial debate. In effect, those paragraphs are little more than an undertaking to comply with the Export Sanction, but they are given in circumstances where the parties are in conflict with respect to the reach of the Export Sanction, particularly the prohibition of the transfer of alumina for the benefit of Russia. In the exercise of discretion, I would not accept an undertaking in that form.

427    As to the second matter, the Rusal Group Undertaking does not address the Designated Person Sanction, save perhaps in para 5 by which ABC promises not to declare and distribute any dividends. I have found that 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 because, by operating the Gladstone Plant pursuant to the contractual arrangements governing the Gladstone alumina joint venture, QAL indirectly makes the Gladstone Plant available for the benefit of Messrs Deripaska and Vekselberg. The benefits are not merely trading benefits to ABC which flow through to the ultimate shareholders of the Rusal Group. The benefits include the improved trading conditions for UC Rusals aluminium smelters in Russia, as explained earlier in these reasons. Even in the case of trading benefits to ABC, the retention of profits by ABC does not remove the financial benefit obtained by UC Rusal and its ultimate shareholders; the retention of profits results in an increase in value in ABC which is a benefit to UC Rusal and its ultimate shareholders. It follows that compliance with the terms of the Rusal Group Undertaking does not remove the risk of a contravention of the Russia Sanctions.

428    There are two further factors that weigh against the acceptance of the Rusal Group Undertaking.

429    The first factor is the difficulty of framing undertakings that successfully remove the risk that the delivery of alumina by QAL to ABC would in the future contravene the Russia Sanctions. The evidence of Mr Clark, which I have largely accepted, is that alumina delivered by QAL to ABC could arrive in Russia through several different means, including:

(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).

430    Mr Clark expressed the opinion that monitoring or ensuring compliance with contractual prohibitions on supply to Russia would not be possible. While monitoring and ensuring compliance with such contractual restrictions (or undertakings) may not be impossible, I accept that it would be very difficult. There is nothing in the Rusal Group Undertaking that seeks to address such problems. In my view, it would be inappropriate for the Court to declare, on the basis of the Rusal Group Undertaking, that the future delivery of alumina by QAL to ABC would not contravene the Russia Sanctions when the Undertaking contains no mechanism for monitoring and ensuring compliance.

431    The second factor, which is related to the first, is that the Rusal Group Undertaking has been offered to the Court by the applicants and the following members of the Rusal Group that are not parties to this proceeding: UC Rusal, Libertatem, United Company Rusal Alumina Limited and RTI. All are foreign companies and, as far as the evidence establishes, only ABC has a business presence in Australia. The respondents did not submit that the Court is unable to accept an undertaking from a foreign company. Nevertheless, the fact that the Rusal Group Undertaking is offered (and is necessarily offered) by foreign companies which have no business presence in Australia increases the Courts concern with respect to monitoring or ensuring compliance with the terms of the Undertaking, and therefore the appropriateness of granting declaratory relief on the basis of the Undertaking.

432    For those reasons, I refuse to accept the Rusal Group Undertaking. It follows that I refuse the prospective declaratory and injunctive relief sought by the applicants.

433    As a final observation, reference has been made earlier in these reasons to reg 18 of the Autonomous Sanctions Regulations which empowers the Minister to grant to a person a permit authorising the making of a sanctioned supply that would otherwise contravene reg 12(1) and the making of an asset available to a designated person or entity that would otherwise contravene reg 14(1). The Minister is expressly empowered by reg 18(4) to grant permits subject to conditions. By s 16(6) of the Autonomous Sanctions Act, it is a criminal offence if a body corporate contravenes a condition of an authorisation. As far as the evidence revealed, the applicants have not applied for a permit in respect of the acquisition of alumina by ABC from QAL pursuant to the Gladstone alumina joint venture. It would be open to the applicants to make such an application on the basis of conditions that satisfied the Minister that it would be in the national interest to grant the permit. The formulation of detailed undertakings to prevent the delivery of alumina by QAL to ABC contravening the Russia Sanctions, including with respect to monitoring and ensuring compliance, is more readily achieved through the exercise of executive power granted by legislation than by the exercise of judicial power in proceedings such as the present.

434    In conclusion, I dismiss the applicants amended originating application with costs.

I certify that the preceding four hundred and thirty-four (434) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.

Associate:    

Dated:    1 February 2024

SCHEDULE OF PARTIES

VID 297 of 2022

Respondents

Fourth Respondent:

RIO TINTO LIMITED (ACN 004 458 404)

Fifth Respondent:

RIO TINTO PLC

Sixth Respondent:

RIO TINTO ALUMINIUM LIMITED