In Metro Environmental Logistics Pty Ltd v Newcastle Port Corporation trading as Port Authority of New South Wales [2026] NSWSC 791, the Supreme Court dismissed a claim for damages brought by the plaintiff (MEL) in relation to an allegation that the defendant (Port Authority) had engaged in unconscionable conduct in connection with the negotiation and terms of an agreement for lease.

MEL contended that unconscionable conduct by Port Authority caused it to lose a valuable opportunity and alleged that but for this conduct it would have made a profit of around $300 million over a putative 20-year lease period. It claimed damages in that sum from Port Authority.

Brereton J found that Port Authority did not act unconscionably – in fact its conduct was found to be ‘reasonable and responsible’ and fell ‘well short of conduct that can properly be denounced as unconscionable’ – and, even if it had acted unconscionably, its conduct did not cause MEL to lose an opportunity of any value. His Honour also found that, in any event, no causal connection could be established between the impugned conduct and any alleged loss.

This article is concerned with the liability portion of the judgment and its relevance to unconscionable conduct claims generally. A further article will be published with regard to the findings regarding MEL’s loss of opportunity claim.

The facts

MEL was a single-purpose company established in 2010 with a view to importing sand to Sydney for use in the manufacture of concrete for construction projects around the city. Port Authority is a statutory state-owned corporation which is responsible for the management of navigation, security and operational safety for commercial shipping in New South Wales and it operates the port at Glebe Island.

The parties had a long history of dealings, with MEL initially proposing to build a sand importation and distribution facility at Glebe Island before the proposal shifted towards Port Authority building a Multi-User Facility (MUF) for the importation of bulk construction materials with MEL as a possible tenant. That history of dealings included the parties entering two non-binding Heads of Agreement and was marked by delays caused by uncertainty in relation to the future use of Glebe Island.

From July 2017, Port Authority and MEL engaged in negotiations regarding the terms of an agreement for lease (AFL) in relation to the MUF.

In April 2018, Port Authority obtained independent probity advice. That advice recommended that Port Authority offer the use of the balance of the MUF to the market by way of an expression of interest (EOI) process. The advice also recommended, amongst other things, that this should occur prior to entering into an AFL with MEL.

Port Authority advised MEL on 19 April 2018 that it intended to seek additional tenants for the MUF and that it would undertake an EOI process for additional users.

Negotiations relating to the AFL between Port Authority and MEL continued from around April 2018 to early December 2018. Both parties were legally represented, and MEL also had the benefit of experienced commercial assistance from one of its directors. However as negotiations continued, personnel within Port Authority became increasingly concerned about MEL’s ability to be able to fulfil its obligations under any prospective lease – particularly because it had no certain sand supply source.

This led to the AFL containing certain conditions precedent (CPs) that primarily required MEL to satisfy Port Authority that it would be able to fulfil its obligations under the lease, including for the minimum throughput of sand. There was evidence of some objections by MEL to those proposed terms and subsequent changes in the drafting of the terms. However, MEL pressed for an agreement for lease to be executed as early as April 2018 – long before negotiations resulted in some favourable amendments to the CPs.

On 7 December 2018, MEL executed the AFL. On 8 December 2018, Port Authority issued the EOI in relation to the MUF.

On 15 February 2019, MEL sent a letter to Port Authority advising that it had satisfied the CPs in accordance with the AFL and provided what it said were supporting materials. MEL proposed, in part, to satisfy the CP relating to its proposal to import sand by providing an exploration licence access agreement with North Scottsdale Resources Pty Limited (NSR) for the supply of sand by NSR from Rushy Lagoon in Tasmania – although NSR only held an exploration licence in relation to Rushy Lagoon and had no operational sand mine.

On 15 March 2019, a Port Authority Assessment Panel determined that none of the CPs had in fact been satisfied. Later that same day, Port Authority issued a letter to MEL advising that it had not satisfied the CPs and, on 18 March 2019, Port Authority terminated the AFL.

MEL subsequently commenced proceedings in the NSW Supreme Court alleging that Port Authority engaged in unconscionable conduct within the meaning of s 21 of the Australian Consumer Law in its dealings with MEL (particularly with respect to some of the CPs). This section, in summary, prohibits unconscionable conduct in trade or commerce.

Unconscionability

Was Port Authority’s conduct unconscionable?

MEL ran its case at the final hearing on the basis that:

• it was unconscionable for Port Authority to negotiate terms into the AFL that it said were not reasonably necessary to protect Port Authority’s legitimate interests, and then to terminate the AFL in reliance on those clauses; and
• it was never possible for MEL to satisfy the CPs and that Port Authority took advantage of MEL’s vulnerability in its commercial dealings with Port Authority by imposing the CPs.

However, there was no suggestion that any officer from Port Authority had acted dishonestly; or that, as a matter of contract, the AFL had not been validly terminated in accordance with its terms; or that MEL had further information available to it, which Port Authority should have requested, which would have satisfied the CPs.

In considering the alleged unconscionable conduct, his Honour found that:

• it was true that MEL was in a vulnerable position (to some extent) but MEL had known from the beginning that the only way it could pursue its business opportunity was by coming to an agreement with Port Authority. Accordingly, MEL was always exposed to (or vulnerable to) the possibility that MEL and Port Authority would be unable to come to an agreement on commercial terms or that no agreement would be reached. It is a natural aspect of any commercial negotiations that either or both parties must choose between executing a contract or otherwise walking away;
• the negotiations took place over many months, with many changes to the AFL made in MEL’s favour; MEL had commercial and legal assistance throughout; and MEL’s pre-contractual investment of $2,700,000 was modest in a case where MEL contended it stood to make hundreds of millions of dollars in profits (meaning that MEL gained no particular rights through making this investment);
• whilst Port Authority had superior bargaining power, MEL was not without bargaining power – particularly since Port Authority was anxious for Glebe Island to be used as a commercial port and the most senior officers within Port Authority were anxious to come to an agreement with MEL. Further, although entry into the AFL caused a shift in the parties’ relationship, it did not (as MEL contended) make MEL’s position weaker: MEL then had clearly defined legal rights and could enforce those rights;
• Port Authority did not take advantage of any superior bargaining position; exploit any vulnerability on MEL’s part; or make use of any unfair tactics. There was no basis to find that any officer of Port Authority had conducted themselves in bad faith or dishonestly; and
• Port Authority clearly had a legitimate interest in pursuing its statutory objectives (including those in the Ports and Maritime Administration Act 1995). It was in the public interest that Port Authority acted in a financially prudent way and advanced the interests of the State of New South Wales, in addition to satisfying itself there was a business case to justify the construction of the MUF (at substantial cost) with MEL as a tenant. His Honour observed that one of Port Authority’s legitimate interests was in the proposed MUF being used to import sand to service the construction industry in Sydney and so Port Authority was legitimately interested in the question of whether MEL would be in a position to import sand efficiently when the facility (if it was built) was completed and was not obliged to focus solely on whether MEL was capable of paying the rent charged for use of the MUF.

His Honour considered the CPs and found that:

• the insertion of a condition precedent would not amount to unconscionable conduct merely because it is possible to conceive of an alternatively drafted condition precedent that would have shown greater leniency to MEL; and
• even if hindsight demonstrated that MEL never could have fulfilled a particular CP, it did not mean that it was unconscionable to include that CP in the AFL if that would properly protect Port Authority’s interests.

His Honour found Port Authority had undertaken a careful analysis of the material provided by MEL against each CP and that MEL had not satisfied any of the CPs. It was not unreasonable in the circumstances for Port Authority not to allow MEL more time to satisfy the CPs or ask for further information. It was also not unconscionable for Port Authority to terminate the AFL relying on the CPs and then cease its dealings with MEL. His Honour held that circumstances would ‘usually need to be quite striking’ before it could be said that an otherwise lawful exercise of rights under the terms of a contract, in an agreement negotiated between sophisticated parties, becomes unlawful because the exercise of those contractual rights is unconscionable.

His Honour did not accept MEL’s submissions that its position deteriorated after the AFL and that the AFL was put in place to give Port Authority an opportunity to bring its dealings with MEL to an end. In reaching that conclusion, his Honour noted that there was no allegation that a process contract existed as result of the dealings between the parties which prevented the AFL from being entered into and found that ‘Port Authority wanted MEL to succeed’ and for the MUF to be built and used.

MEL also complained that the timing of the release of the EOI was unconscionable because the issue of the EOI could undermine negotiations with prospective customers of MEL since they might decide to take up space in the MUF themselves rather than buy sand from MEL. Brereton J found that the timing of the EOI process flowed directly from the probity advice given to Port Authority, and there were sound reasons for the timing of the process and it was reasonable to rely on the probity advice in this regard.

MEL also sought to argue that Port Authority treated MEL differently to entities which responded to the EOI. His Honour held that no other entity could be properly described as a customer ‘like’ MEL, because of MEL’s single-purpose nature, and noted that Port Authority’s dealings with other entities came later in time and arose in a different context.

Key takeaways relating to unconscionable conduct

While every case will turn on its own facts, this decision is authority for the following propositions:

• Where a contract is the product of lengthy negotiations between reasonably sophisticated parties, it would be an intolerable intrusion into the freedom of contract, and the benefit of certainty in commercial dealings, for a court to test agreed conditions precedent by reference to a test of ‘reasonable necessity’. Generally, parties in a negotiation are free to negotiate terms that they perceive to be in their interests and are free to decline to enter into an agreement if they wish. It is up to the parties to look after themselves and to identify and advance their own interests.
• Conduct is not unconscionable merely because it is robust. The fact that Port Authority was a State-owned corporation did not mean that it had to submit to MEL in its negotiations and it was entitled to protect its own interests in a robust way – indeed his Honour found that not doing so would be in dereliction of its statutory duties.
• For the Court to come to a conclusion that conduct is unconscionable it is not sufficient for the Court to be satisfied that another outcome would have been fairer or that it would have been more reasonable for a party to conduct itself differently – a finding of unconscionable conduct in this case would require the court to be satisfied that the (notional) conscience of Port Authority should have been so affected by the conduct as to compel it to have refrained from acting as it did in terminating the AFL.
• The analysis of conduct needs to be undertaken based on what the parties knew at the time of the conduct and is not to be undertaken through the prism of hindsight.
• An allegation of unconscionable conduct is a serious allegation and the judgment required of a court in making a finding of unconscionability is ‘a heavy one’.

HWLE Lawyers acted for Port Authority in the proceedings.

This article was written by Alistair Little, Partner, Nicole Tutton, Senior Associate, Phoebe Cook, Associate, and Grace Cataldo, Solicitor.