Stoush over Mackay Sugar's refinery supply
MACKAY Sugar is fighting a $3 million compensation order for not meeting its raw sugar supply obligations for the adjacent refinery.
The company has claimed the incredible rain in the 2010-11 season reduced its production from up to 900,000 tonnes to about 600,000.
But Sugar Australia has argued Mackay Sugar's contract was only for 450,000 tonnes and the 50,000-tonne delivery shortfall of raw sugar in 2011 was its own fault.
"Mackay Sugar chanced its arm and its arm got stuck," John McKenna, counsel for Sugar Australia, said in documents tendered for an application in Brisbane Supreme Court last week.
"What occurred is that Mackay Sugar decided to sell raw sugar to a third party, Queensland Sugar Limited, before it knew how much sugar it would produce in the 2010 crushing season."
Mr McKenna said Mackay Sugar knew it would not meet the refinery's needs in November 2010, and could have terminated its agreement at any time. He said they chose not to do so, instead declaring wet weather a "force majeure event" beyond its control.
Mr McKenna said the national company could understand Mackay Sugar taking that path because it had an ongoing interest in the refinery's success and Sugar Australia was its largest customer.
But he said Mackay had an obligation to supply the refinery before putting any raw sugar out to market.
Sugar Australia was forced to buy sugar from Thailand and Bundaberg instead to meet the 50,000-tonne shortfall.
The Daily Mercury reported 5.5 million tonnes of cane was left in fields throughout Queensland that wet season.
Brian O'Donnell, counsel for Mackay Sugar, asked the court to find there was no contract breach which could result in the $3,154,422 damages, plus interest, an arbitrator had awarded Sugar Australia.
He argued there was an error of law in the way the arbitrator used "total annual raw sugar production" to make his findings because the crushing season was short but the refinery production went year-round.
Justice James Douglas has reserved his decision.
- Mackay Sugar's Racecourse Mill operates during the crushing season and is capable of producing up to 900,000 tonnes of raw sugar a season. But weather can disrupt harvests.
- Sugar Australia's Racecourse Sugar Refinery was built adjacent to allow the two facilities to operate symbiotically.
- The refinery was designed to operate all year round but with a maximum annual refined sugar production of about 450,000 tonnes.
- A Joint Venture Agreement was drawn up which included a proviso to create a "reasonable and workable limit" to the supply obligation.