AUSTRALIAN ZIRCON NL -v- AUSTPAC RESOURCES NL [No 2] [2011] WASC 186 (4 August 2011)

4 Australian Zircon did not consent to the assignments. It seeks declarations substantially to the effect that any assignment of the Farm-in Agreement is ineffective, contending that:

(a) it was an express or implied term of the agreement that the rights and obligations that it created or the benefit of the agreement could only be assigned with the consent of the nonassigning party;

(b) the rights and obligations created by the agreement were personal to the parties and were incapable of being assigned or vicariously performed;

(c) the parties' obligations under the Farm-in Agreement could only be transferred to a third party by novation.

5 The Sale Agreement contained a declaration of trust by Austpac that it would hold the Farm-in Agreement on trust for Astron until an assignment or a novation of the Farm-in Agreement was 'obtained'. Austpac counterclaims for a declaration that if it is found that it was not entitled to assign 'its right, title and interest in and arsing out of' the Farm-in Agreement, it holds that right, title and interest on trust for Astron and/or WIM. It also claims a declaration against Astron and WIM that the Sale Agreement is frustrated and at an end if it is found that the benefit of the Farm-in Agreement cannot be assigned or held on trust. Astron and WIM do not oppose the declaration if the finding on which it is conditioned is made.

6 I have concluded that the assignment of the Farm-in Agreement or the benefit of the agreement and the declaration of trust made in the Sale Agreement were ineffective. I have also found that the court should declare that the Sale Agreement is at an end.

7 EL 4521 was granted to Austpac on 29 November 2000 pursuant to the Mineral Resources (Sustainable Development) Act 1990 (Vic) (Mineral Resources Act). The licence was initially for five years and included as a special condition a requirement that Austpac expend, in connection with exploration of the land, a minimum of $666,400 in the first year of the term of the licence and a minimum of $1,160,000 in each succeeding year (special condition 3; exhibit 1). It appears that the minimum expenditure requirements were subsequently varied: $88,680 in 2004 and $107,100 in 2005 (see exhibit 2, TB 19 and exhibit 3, TB 32; there was no evidence as to the expenditure requirements in later years).

8 The exploration licence was issued pursuant to s 13 of the Mineral Resources Act. Section 33(2) of the Act provides that a licence may be transferred by an instrument approved by the Minister but not otherwise. The Minister must be satisfied that the proposed transferee complied with the requirements specified in s 15(6)(a) to (d).

9 Part 6 of the Mineral Resource Act provides for the establishment and maintenance of a mining register. The Department Head must register, among other documents, instruments for 'creating, assigning or affecting interests in, or conferred by, licences' and for 'the devolution of licences or interests in, or conferred by, licences': s 69(xiv) and (xv).

10 The witnesses in this matter were David Brian Clarke, a former director of Australian Zircon; Michael John Turbott, the sole executive director of Austpac and John Jacques Allen, a corporate advisor to Australian Zircon and Austpac. There was no challenge to the evidence given by any of the witnesses and I accept their evidence. Accordingly, the relevant facts are largely recounted as a narrative.

11 Austpac was incorporated in 1985. Mr Turbott is (and always has been) the sole executive director of Austpac. He is a geologist with many years experience in the mining industry.

12 As a result of being involved in a project over an ilmenite sand deposit in New Zealand, Austpac developed a proprietary roasting process known as 'enhanced roasting and magnetic separation' (ERMS). The process separates ilmenite, a mineral containing titanium dioxide and iron oxide, from other minerals such as garnet and chromite. The process was further developed by incorporating a system of leaching roasted ilmenite in hydrochloric acid to remove iron oxide and turn the product into synthetic rutile. The treated product contains a high concentration of titanium dioxide that can be used commercially to make titanium dioxide pigments or titanium metal. That process is known as the ERMS SR process.

13 Austpac has also developed an associated process known as the 'enhanced acid regeneration system' (EARS). That process turns ferrous chloride produced during leaching by the ERMS SR process into fresh hydrochloric acid that is recycled for use in the ERMS SR process.

14 Since the mid1990s, Austpac's business has focused on its mineral sands technologies rather than on developing and operating mining projects.

15 In about 2000, Mr Turbott learnt that the Victorian government had called for tenders for 14 areas or blocks in the Murray Basin and that the Project Area formed part of one of the blocks (block 1). He was aware that a very large fine grain mineral sands deposit, WIM 150, had been delineated within the Project Area by a drilling program previously undertaken by CRA. Mr Turbott was also aware that Basin Minerals had discovered strandline deposits of coarser grey heavy minerals to the west of block 1.

16 Austpac formed a joint venture with Ticor Ltd for the purpose of making a submission to the Victorian government for block 1. The submission was accepted and on 1 December 2000, EL 4521 was granted to Austpac and Ticor. In 2001 and 2002, the joint venturers explored the western part of EL 4521 without finding commercially viable coarse grain heavy minerals. Nevertheless, preliminary work undertaken at around this time indicated that the fine grained ilmenite from the WIM 150 deposit could be treated using the ERMS SR process to produce synthetic rutile. However, the product was not of an acceptable quality for making pigments or titanium metal.

17 Ticor withdrew from the joint venture in 2002. Austpac formed a new joint venture with Newcrest Ltd to explore for copper and gold in the basement rocks below the mineral sand horizons. Newcrest funded exploration drilling programs in 2002 and 2003 but elected to terminate the joint venture in August 2003.

18 Mr Turbott was then concerned that Austpac could lose EL 4521 as the company did not wish to divert its limited financial resources from developing its technologies to meeting the expenditure requirements for the licence. His principal interest at the time was to ensure that the expenditure requirement was satisfied, although he also stated that (exhibit 16, par 21):

Even though I did not think it likely that Austpac would be able to use the ilmenite in WIM 150, as it was too fine to process into synthetic rutile, WIM 150 was a large ilmenite deposit which I wanted Austpac to retain. I felt there might be some potential in further investigating the agglomeration processes to make a coarser synthetic rutile.

19 He discussed those matters with Mr Allen during 2003.

20 Australian Zircon was registered in 1994. Mr Clarke was a director of the company between March 2001 and October 2009. He has qualifications in geology and has been involved in businesses in the resources industry since 1983 (ts 72).

21 As at the date of the Farm-in Agreement, the other directors of Australian Zircon were Jeremy David Shervington (appointed in February 1998), John Gilbert Branson (appointed in January 1999) and Stephen Brian Hunt (appointed in November 2002). Brian James Rear was the chief executive. He was responsible for negotiations over the Farm-in Agreement (Mr Clarke, ts 65).

22 The directors of Australian Zircon considered tendering for block 1 but decided not to proceed on advice from Mr Clarke that the mineral sands contained within the WIM 150 deposit were too fine to be recovered economically. That advice was based on test work previously undertaken by CRA.

23 Mr Clarke gave evidence of his knowledge of the Project Area at the time of the Farmin Agreement. In particular, he knew that in around 1982 CRA had discovered the WIM 150 deposit and other mineral sand bodies in western Victoria; that the WIM 150 deposit comprised unusually fine grained sands and that CRA had relinquished its various tenements in western Victoria in the late 1990s. I infer that he knew about those matters at the time that Australian Zircon decided not to lodge an application for block 1. I draw that inference from his evidence concerning the advice that he gave to the other directors of Australian Zircon at that time.

24 Mr Clarke subsequently learnt that various technologies had been developed which he believed meant that it was likely that the WIM 150 deposit could be economically mined. He was aware of the technology and processes developed by Austpac by the time that the Farm-in Agreement was negotiated. However, he also knew that Austpac's technology was applied to process ilmenite. Australian Zircon's primary interest in the deposit was as a source of zircon rather than ilmenite.

25 Further evidence of Australian Zircon's knowledge of the Project Area and the WIM 150 deposit at the time that the Farm-in Agreement was made was provided by a document entitled 'WIM 150 Summary Report' (exhibit 5). The document was undated but it was sent by email by Mr Rear to Mr Allen on the day before the Farmin Agreement was signed. It indicated that Australian Zircon believed that:

(a) Austpac had undertaken a limited evaluation of the deposit with an emphasis on producing ilmenite concentrate for analysis using the ERMS technique to produce synthetic rutile;

(b) CRA had experienced problems in recovering heavy minerals from the deposit but a preliminary review of its data suggested that high grades were possible and that this might overcome lower recoveries;

(c) technology had been developed since the time that CRA had assessed the deposit and it appeared that acceptable recoveries could now be achieved;

(d) the WIM deposits in Victoria represented the most concentrated and rich sources of zircon worldwide and there was little doubt that the deposits would become increasingly valuable.

26 The report concluded with the statement that, 'the strategy is to secure access to this deposit for minimal commitment over the next few years and to determine in that time whether the minimum recovery benchmarks are achievable and warrant a feasibility study'.

27 Mr Allen is and has been since 2001 an executive director of Carlisle Partners, a corporate advisory firm. Mr Allen was at one time a partner in Allen Allen & Hemsley. He first met Mr Turbott in about 1978 while working for that firm. They became friends and business colleagues and Mr Allen has acted as an advisor to Austpac from when it was incorporated in 1985.

28 Australian Zircon became a client of Carlisle Partners in March 2003.

29 Mr Allen was aware of the following matters concerning Austpac by late 2003:

(a) Austpac's core business was and had been for some years, the development of its technologies. It was not and never had been in the business of developing or operating mines and it was moving away from exploring for minerals as part of its business.

(b) Austpac had held EL 4521 since 2000 and the Project Area formed part of the land that was the subject of the licence.

(c) Deposit WIM 150 was a known and very significant zircon resource that had not been developed. It also contained ilmenite. Austpac had applied for the exploration licence principally for the ilmenite mineralisation rather than for the zircon resource.

(d) Austpac could not afford to continue to explore or develop the WIM 150 deposit. In any event, it did not need to exploit the deposit as it could obtain access to sufficient ilmenite from other sources for the development of its technologies.

(e) Austpac wished to keep an interest in EL 4521. However, it was commercially sensible for Austpac to spend its limited funds on the development of its technologies and if possible, allow someone else to meet the expenditure requirements for maintaining the exploration licence.

30 Mr Allen was also aware by late 2003 that Australian Zircon was looking to become a heavy minerals 'mining house' with a focus on zircon and that accordingly, it was moving its business away from titanium based heavy minerals, such as ilmenite and rutile, to zircon. Consequently, he surmised that it might be possible to effect a deal between Austpac and Australian Zircon that could facilitate their respective commercial objectives.

31 Nearly every provision of the Farmin Agreement was referred to by the parties in their submissions and it will be necessary to closely consider its terms when analysing the issues to be decided. Consequently, I have annexed a copy of the agreement to these reasons rather than attempt an overview of its provisions.

32 It is admitted that an interest said to be created by the Farmin Agreement was registered against EL 4521 pursuant to the Mineral Resources Act. A letter dated 3 February 2004 from Austpac to the Victorian Department of Primary Industries requesting registration described the Farmin Agreement as a joint venture agreement. It also described the nature and purpose of the agreement in terms that were apparently adapted from an announcement made to the Stock Exchange following its signing. The announcement is referred to in more detail later in these reasons.

33 Some time around October 2003, Mr Allen approached Mr Turbott about the possibility of a farmout of the WIM 150 deposit. By an email sent on 27 October 2003, Mr Allen advised Mr Rear that Mr Turbott was willing to negotiate a farmout (exhibit 21). The email stated:

What we [Mr Allen and Mr Turbott] discussed was a commitment to fund expenditure, in an amount to be discussed, including whether R&D or exploration, but of course at least sufficient to meet work commitments to maintain the title in good standing. There would be a carry thru to FS and then an option for Austpac to elect to contribute at an agreed level or convert to an agreed NPI.

34 Mr Turbott gave evidence that he was interested in farming out the Project to 'any company that had the money to spend on it and who might be able to develop a mining project on EL 4521 so that Austpac might eventually be able to benefit from the deposit at no cost' (exhibit 16, par 22).

35 Mr Allen stated that he disclosed to Mr Turbott and Mr Rear the objectives of each party in undertaking the transaction 'in the interests of being transparent' as he was acting as an advisor to both companies (exhibit 18, par 15). He obtained an authority from Mr Turbott and Mr Rear to exchange information for that purpose (ts 133 134).

36 Mr Allen also stated that he prepared the first draft of a 'term sheet' for the farmin (exhibit 18, par 12(d)). He did not produce the draft in evidence nor did he identify any document discovered by the parties as being a copy of the term sheet that he prepared. However, Mr Turbott gave evidence that was not challenged that he asked Mr Allen to prepare a draft of the farmin agreement and that he recalled that a draft was provided to him for comment following that request (exhibit 16, par 28).

37 The first version of the draft Farmin Agreement produced in evidence was attached to an email sent by Mr Rear to Mr Allen on 18 December 2003 (exhibit 25). The draft was in very similar terms to the agreement as concluded except that:

(a) it referred only to base metals and not to base and precious metals;

(b) the draft did not contain a definition of a bankable feasibility study;

(c) the draft provided that Australian Zircon was entitled to earn a 50% interest in the Project upon expending $200,000 in respect of the Project Area and an 80% interest upon completion of a bankable feasibility study;

(d) the draft provided for Austpac to have one month following completion of the bankable feasibility study to elect whether to maintain a 20% contributing interest or convert to a 10% net profit interest;

(e) Australian Zircon was required to provide 'all necessary' reports to Austpac on the work undertaken in respect of the Project Area (cl 4) the clause was subsequently amended to require the reports to be in the format required by the Victorian Department of Primary Industries;

(f) the parties were to negotiate a more definitive agreement and joint venture arrangement following Australian Zircon earning a 50% interest in the Project; that is, under the draft, after Australian Zircon had spent $200,000 (cl 9).

38 The amendments that were subsequently made to the draft agreement as sent by Mr Rear to Mr Allen on 18 December 2003 appear to have been largely drawn from amendments marked up on a draft that was sent by Mr Turbott to Mr Rear by email on 22 December 2003 (exhibit 2). In particular, Mr Turbott:

(b) highlighted the need for a definition of a bankable feasibility study;

(c) indicated that the point at which the parties should negotiate a more definitive agreement and joint venture arrangement needed to be identified but that the point was not to be on completion of the bankable feasibility study.

39 It should be noted that the draft of the Farm-in Agreement sent by Mr Turbott to Mr Rear incorporated a further amendment that apparently had been agreed some time between the draft sent by Mr Rear to Mr Allen on 18 December and the draft of 22 December 2003. Clause 2 of the draft had been amended to delete the two stages by which Australian Zircon could earn an interest in the Project. The revised clause provided that Australian Zircon would earn an 80% interest in the Project upon completion of the bankable feasibility study.

40 A further version of the draft agreement was sent by Mr Rear to Mr Allen on 8 January 2004 (exhibit 26). That version was substantially in the same form as the draft sent by Mr Turbott to Mr Rear on 22 December 2003 but a definition of 'bankable feasibility study' had been added. The work program to be undertaken by Australian Zircon in the first two years of the agreement was also amended and expanded.

41 Mr Turbott commented on the 8 January 2004 draft in an email sent to Mr Allen on the same day (exhibit 3). He asked that the definition of 'bankable feasibility study' be further amended 'so that it is clear that a significant amount of work will need to be completed before a BFS is finalised'. He also inquired as to when a more definitive agreement should be negotiated 'before, on or after completion of year two? After [Australian Zircon] spends $1M? We only want this expense if the Project is clearly defined and going forward, but certainly before the BFS'.

42 On the evidence, no further drafts of the Farmin Agreement were exchanged before signing. Accordingly, the question of when a more definitive agreement and joint venture arrangement was to be negotiated was resolved by the adoption of the words in cl 9, 'if [Australian Zircon] elects to proceed to bankable feasibility study'. There was no direct evidence as to how those words came to be chosen. Mr Turbott indicated in his email of 8 January 2004 that the board of Austpac would consider the proposed agreement at a meeting to be held on 22 January. He concluded his email by stating, '[t]rust you/Brian can tidy the document so I can send it out with my board papers'. The inference is that the final form of cl 9 was drafted by either Mr Allen or Mr Rear and incorporated into a draft that was circulated and eventually adopted by the parties.

43 At the end of January 2004, Mr Rear circulated to Mr Turbott and Mr Allen a draft announcement to the Stock Exchange of the Farmin Agreement (exhibit 4). Further drafts were exchanged in early February (exhibits 23 and 24), with the announcement being made on 9 February (exhibit 7). The version of the announcement that was tendered in evidence was provided to the Stock Exchange by Austpac (exhibit 7). However, I infer from exhibits 4, 23 and 24 that the announcement was in a form that was agreed between Austpac and Australian Zircon and that the corresponding announcement by Australian Zircon would have been in substantially identical terms.

44 The announcement stated that the 'strategic importance' of the Farmin Agreement arose from several matters, including that:

(a) An 'alliance' would be formed through the agreement that would draw on the significant experience of each party.

(b) Australian Zircon had experience in the testing and design of processes for the recovery of relatively fine grained heavy mineral sands and believed that advances in gravity separation processes and subsequent mineral separation of heavy minerals at fine sizes would lead to the design of a viable project around the WIM 150 resource.

(c) Austpac had already tested the processing of WIM 150 ilmenite, using its proprietary processes. The deposit contained approximately 12.5 million tonnes of ilmenite. The results on ilmenite from the WIM 150 deposit and some other Murray Basin deposits had been encouraging and through Austpac, Australian Zircon planned to undertake larger scale pilot plant work.

(d) Australian Zircon believed that the WIM deposits in Victoria represented the most concentrated and rich sources of zircon worldwide. Given the rapidly declining ratio of zircon to ilmenite in the known but as yet undeveloped deposits, there was little doubt that the deposits would become increasingly valuable. The WIM 150 deposit contained approximately 5 million tonnes of zircon and preliminary analysis suggested production of 140,000 tonnes per annum could be possible. Production at that level would make Australian Zircon a major supplier of zircon.

(e) Australian Zircon considered that the WIM 150 deposit had a number of attributes that would facilitate a low capital expenditure.

45 The announcement concluded by stating that the Farmin Agreement positioned Austpac to receive financial benefits from the deposit without requiring any immediate cash investment. That allowed Austpac to concentrate on opportunities for commercialising its technology.

46 A voluntary administrator (the Administrator) was appointed to Australian Zircon on 9 October 2009. Subsequently, the creditors of Australian Zircon entered into a deed of company arrangement. The company was still under administration at the time that the Sale Agreement was made. It appears that the Administrator was advised that the agreement had been made on 29 March 2010 (that is, two days after the agreement was executed) (exhibit 11).

47 The Sale Agreement provided for the sale and purchase of 'the Business and the Assets' (cl 2.1).

48 The term 'Assets' was defined by cl 21.1 of the agreement to mean 'all interest, right and title of [Austpac]' to, among other things, the 'EL' and the 'Contracts'. The term 'EL' was defined to mean EL 4521. The term 'Contracts' referred to those contracts described in sch 2 to the Agreement. The Farm-in Agreement was the only contract identified in sch 2.

49 The term 'Business' was defined to mean 'the mineral exploration business as related to the EL as carried on by [Austpac] (including with the assistance of [Australian Zircon] under the FarmIn Agreement) immediately before Completion, and for the purposes of clarification, shall not include Technology or any other proprietary technology known as EARS or ERMS'.

50 The Agreement recited that Austpac had entered into a farmin agreement in relation to the 'Project'. The terms 'Project' and 'Project Area' were defined to have the same meaning as that given in the Farmin Agreement (cl 21.1). It was further recited that an interest had been created and registered over El 4521 under s 71 of the Mineral Resources Act in favour of Australian Zircon.

51 The operative provisions of the Sale Agreement included that:

(a) title to the 'property in and risk of [EL 4521] remains with Austpac until Transfer' (defined to mean a transfer in terms of s 33 of the Mineral Resources Act) and passed to Astron 'upon Transfer' (cl 2.3);

(b) title to the 'property in and risk of the Business and the Assets remains with [Austpac] until the Effective Time' (defined to mean the close of business on the date of Completion, which was, in turn, defined to mean completion of the sale and purchase of the Business and the Assets in accordance with the agreement) and passed to Astron from that time (cl 2.4);

(c) Astron was required to lodge the documentation for the transfer of EL 4521 within 10 business days of payment of a deposit into an escrow account (cl 4.3);

(d) the deposit would be at Astron's written election refundable upon demand if EL 4521 had not been transferred from Austpac to Astron within 90 days of the lodgement of the documentation for the transfer (cl 4.4);

(e) Completion under the agreement was conditional on the transfer of EL 4521 from Austpac to Astron free from any security interest other than the Farmin Agreement (cl 6.1.1);

(f) if all of the conditions precedent were not fulfilled, or to the extent that they were capable of waiver, were waived in writing by Astron within 90 days of the execution of the agreement or such later date as was agreed in writing, Astron could by written notice to Austpac terminate the agreement and upon termination each party was relieved of any further obligation under the agreement and all money received by Austpac was to be refunded in full (cl 6.5 and cl 6.6);

(g) from the date of the agreement until Completion, Austpac was required not to do anything in relation to EL 5421 or the Farmin Agreement nor communicate with Australian Zircon without Astron's prior written approval (cl 7.1.3);

(h) Austpac was also obliged to assist Astron by cooperating with it in taking such reasonable action as Astron determined in relation to negotiations with, and any litigation against, Australian Zircon in relation to the Farmin Agreement (cl 7.3);

(i) at Completion and with effect from the Effective Time, Austpac assigned and transferred to Astron the right, title and interest that it held in or arising out of the Contracts and Astron accepted the assignment and transfer and assumed all of the obligations of Austpac 'in and arising out of the Contracts' (cl 10.1);

(j) in relation to each of the Contracts, until an assignment or a novation was obtained or until the Contract ended, Austpac was obliged if the assignment or novation was unable to be obtained (cl 10.4):

(ii) at Astron's expense, to enforce the Contract against the other party to the Contract in the manner that Astron reasonably directed;

(iii) to perform any obligation or exercise any right under the Contract at the request and expense of Astron;

(iv) to pay all benefits arising from the Contract to Astron;

(v) not to agree to any amendment of the Contract or waiver of its rights under the Contract without Astron's written consent.

(k) Astron was obliged to 'duly perform the Contract on behalf of [Australian Zircon] at its own expense' prior to an assignment or a novation of the Contract being obtained (cl 10.4.6).

(l) if any clause or part of a clause was 'illegal, unenforceable or invalid', the clause or part of the clause was to be treated as being removed from the agreement but the rest of the agreement was unaffected by the removal (cl 20.12).

52 There was an issue concerning the effect of the provisions of the Sale Agreement: was the intended subject matter of the assignment and the declaration of trust the bundle of rights, obligations and powers comprising the whole of the Farm-in Agreement (so that the obligations imposed by the agreement, as well as the benefit of performance of those obligations, were to be assigned or held on trust) or did the Sale Agreement only provide for an assignment of or trust over the benefit of the Farm-in Agreement? The latter construction would leave open the possibility that the Sale Agreement only contemplated that Astron would vicariously perform the obligations imposed by the Farm-in Agreement so that a novation was not necessary to give effect to the Sale Agreement.

53 On 30 March 2010, Astron's solicitors wrote to the Administrator stating that Astron considered that the Farmin Agreement had been terminated by the effluxion of time and that in any event, Australian Zircon was 'in material breach of material terms' so that Astron terminated the agreement if it had not already been terminated (exhibit 12). It is not necessary to further identify the grounds upon which it was asserted that Astron was entitled to terminate the Farmin Agreement.

54 By letter dated 1 April 2010, the solicitors for the Administrators denied that the Farmin Agreement had been terminated. They also asserted that the transfer by Austpac of any interest in the Project Area was a breach of the Farmin Agreement (exhibit 13).

55 At the same time, the Administrators' solicitors wrote to the Victorian Minister for Energy and Resources requesting that the Administrator be given an opportunity to make submissions regarding any application made by Austpac and/or Astron for approval of a transfer of EL 4521 (exhibit 14). Shortly afterwards, the chairman of Astron wrote to the Minister confirming that an instrument of transfer relating to EL 4521 had been submitted for his approval and contending that the Administrator should not be provided with an opportunity to make submissions regarding the application (exhibit 19).

56 The alternative grounds on which Australian Zircon alleges that a transfer of Austpac's rights and obligations under the Farm-in Agreement to Astron was or would be ineffective have already been noted. Those grounds concern whether:

(a) The parties' rights and obligations under the Farmin Agreement are properly to be characterised as personal and incapable of being transferred without the consent of the nonassigning party (par 7 of the statement of claim). It was also contended at trial that the rights and obligations created by the agreement were so interdependent as to be incapable of assignment. In addition, the interdependent nature of the obligations was relied on as a significant textual indication that the parties intended to prohibit assignments under the Farmin Agreement.

(b) Clause 7, read with the recitals to the Farm-in Agreement and cl 1, cl 2, cl 4, cl 5 and cl 9, prohibited the transfer of any of the parties' rights and obligations under the agreement without the nonassigning party's consent (par 8(a) of the statement of claim).

(c) A term prohibiting assignment without the nonassigning party's consent was to be implied into the Farm-in Agreement having regard to the subject matter and provisions of the agreement (par 8(b) of the statement of claim).

57 There was a further issue about whether Austpac's obligations under the Farmin Agreement were capable of being transferred without a novation of the agreement. As previously noted, that issue raised a question concerning the construction of the Sale Agreement and whether it provided for an assignment of or a trust over the rights and obligations comprising the whole of the Farmin Agreement or whether it contemplated that only the benefit of the agreement would be assigned or held on trust and that Astron would vicariously perform Austpac's obligations under the agreement.

58 There is a further question bound up in this issue: whether the obligations imposed by the Farmin Agreement were capable of being vicariously performed. The answer to that question turns on whether the obligations were personal to Austpac.

59 Austpac alleges in its defence (par 5) a number of matters that were said to have been known to the parties at the time that the Farm-in Agreement was made and against which the agreement is to be construed; the 'surrounding circumstances known to the parties and the purpose and object of the transaction': Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2003) 219 CLR 165. Whether the evidence established that both parties knew all of the matters that are alleged is considered later in these reasons.

60 Paragraph 14 of the statement of claim pleads that in or about May 2010, Astron purported to assign to WIM all of its alleged right, title and interest in the Sale Agreement, reference being made to a letter dated 20 May 2010 from Astron to Austpac. Austpac admits those matters (except to deny the allegation implicit in the use of the words 'purported' and 'alleged' to describe the assignment and the interest that was to be assigned). Astron and WIM deny par 14 of the statement of claim but it is apparent that their denial went to the allegation that Astron's interest in the Sale Agreement could not be assigned insofar as it provided for a transfer of Austpac's rights and obligations under the Farmin Agreement. It was not in issue that there had been an agreement by which Astron's interest in EL 4521 and the Sale Agreement (whatever that might be) had been assigned or was to be assigned to WIM (neither the letter of 20 May 2010 nor any form of agreement or other instrument made between Astron and WIM was put into evidence).

61 Austpac counterclaims for declarations concerning the effect to the Sale Agreement:

(a) a declaration that it was entitled to assign its 'right, title and interest in and arising out of the Farmin Agreement' to Astron and/or WIM 150;

(b) alternatively, a declaration that if it was not so entitled, it held its right, title and interest in or arising out of the Farmin Agreement on trust for Astron and/or WIM.

62 Austpac initially claimed declarations that referred to the rights and obligations created by the Farmin Agreement. The prayer for relief was amended at trial to refer to Austpac's 'right, title and interest in and arising out of the Farmin Agreement'. Further reference is made to the effect of the amendment when the construction of the Sale Agreement is considered.

63 Australian Zircon alleged by reply that the declaration of trust in cl 10.4 of the Sale Agreement was contrary to the terms of the Farm-in Agreement for the same reasons that any assignment of the agreement or the benefit of the agreement was prohibited.

64 Four issues arise in relation to the declaration of trust made by Austpac in the Sale Agreement:

(a) What is it that constitutes the trust property under the terms of the Sale Agreement?

(b) Can a person declare themselves to be a trustee of a contract that is not assignable at law (because, for example, the rights and obligations created by the contract are personal in character or are so interdependent as to be incapable of assignment)?

(c) Can a contractual obligation constitute property so that it may be held on trust?

(d) Does the Farmin Agreement expressly or impliedly prohibit Austpac from declaring itself to be a trustee of its 'right, title and interest in and arising out of the Farmin Agreement'?

65 The second matter about which Austpac seeks a declaration concerns the effect of a finding that the Farm-in Agreement or the benefit of the agreement could not be assigned or held on trust. As mentioned in the introduction to these reasons, Austpac claims a declaration against Astron and WIM that the Sale Agreement was frustrated and at end on 3 May 2010 if that finding is made. Astron and WIM denied that a declaration should be made by their defences to Austpac's counterclaim. However, they agreed at trial that the Sale Agreement should be declared to have been frustrated and at end if it was found that the benefit of the Farm-in Agreement could not be assigned or held on trust.

66 It is proposed to first consider whether cl 7 prohibited the assignment of the Farmin Agreement and/or a declaration of trust over the agreement. That will involve, among other things, an analysis of the nature of the rights and obligations created by the agreement. The analysis will necessarily overlap with the question of whether the provisions of the agreement are to be characterised as personal in the sense alleged in par 7 of the statement of claim or interdependent as Australian Zircon contended. However, different questions of construction are raised by the allegations made in par 7 and par 8 of the statement of claim.

67 Paragraph 8 is concerned with the meaning and effect of cl 7 of the Farmin Agreement. The nature of the rights and obligations created by the agreement is an important textual consideration in construing the clause but it is not the focus of the process of construction. Paragraph 7 of the statement of claim, on the other hand, is not directly concerned with the meaning and effect of cl 7. The pleading alleges that the rights and obligations created by the Farmin Agreement were by their nature incapable of being assigned or that the agreement, when considered in its entirety, was a personal contract. Obviously, that raises questions of construction about the rights and obligations concerned and the agreement as a whole. Those questions of construction are answered by ascertaining whether the parties intended that the rights and obligations created by the contract were personal and non-delegable and not by determining whether they contemplated an assignment or a trust.

68 The parties identified several matters that they regarded as providing context for the interpretation of cl 7. It is proposed to first deal with those matters and to then return to the question of the construction of the clause (the same matters were also relevant to the allegation of an implied term). Findings will be made about the contextual matters for the purpose of the allegations made in both par 7 and par 8 of the statement of claim where that is appropriate and convenient. It is also necessary to consider at the outset the question of the intended subject of the assignment and declaration of trust contained in the Sale Agreement.

The effect of the assignment and trust provisions of the Sale Agreement

69 It is to be noted that the Sale Agreement defined and treated the Farmin Agreement as an asset something that could be owned, sold, passed, assigned and held on trust. It was Austpac's title to the property in that asset that was said to 'pass' to Astron under cl 2.4. More particularly, cl 10.1 of the Sale Agreement provided for the assignment of Austpac's 'right, title and interest in and arising out of' the Farmin Agreement. That is an expression of wide import. It apparently refers to Austpac's title to (ownership of) the bundle of rights, obligations and powers that together comprised the Farmin Agreement. That is seemingly confirmed by the balance of cl 10.1 that provided that Astron assumed all of the obligations 'in and arising out of' the Farmin Agreement. The expressions used in cl 10.1 suggest that, consistent with cl 2.4 (and the stated effect of the agreement as a contract providing for the sale and purchase of the Business and the Assets), the parties intended that more would be assigned than just the benefit of the agreement.

70 The declaration of trust in cl 10.4 is over 'the Contract'; that is the Farmin Agreement. The parties did not explore in argument why cl 10.4 referred to 'the Contract'. At least, two explanations are possible. First, the reference was an imprecise way of referring to the benefit of the Farmin Agreement. Second, the parties intended that the subject matter of the trust would be the bundle of rights, obligations and powers comprising the whole of the Farmin Agreement but they recognised the differences between an assignment under cl 10.1 and a trust in drafting cl 10.4. The assignment expressly referred to Astron assuming the obligations imposed by the Farmin Agreement; that formed part of what was to occur on the assignment. The trust operated until an assignment or novation could be obtained. The obligations imposed by the Farmin Agreement formed part of the trust but they were not assigned to and assumed by Astron and so it was necessary to expressly provide for their performance in cl 10.4. (I am here only considering what the parties may have intended by the wording of the relevant provisions and not their legal effect.)

71 Paragraph 10 of the statement of claim alleged that 'Austpac purported to agree with Astron to transfer Austpac's rights and obligations under the Farmin Agreement to Astron...'. Austpac admitted the allegation: par 7 of its defence and counterclaim. It also alleged in its defence that the Sale Agreement was premised on 'Austpac being able to assign its rights and obligations, alternatively its rights, under the Farm-in Agreement...': par 13.

72 Astron and WIM denied par 10 of the statement of claim and pleaded other matters in answer to the allegations made in that paragraph that did not clarify the intended effect of the denial: par 6 of their defence. They alleged that Austpac's 'interest' in the Farm-in Agreement was capable of assignment: par 4.2.

73 In oral submissions, senior counsel for Austpac emphasised that cl 10.1 of the Sale Agreement only provided for an assignment of the benefit of the Farm-in Agreement; it did not assign Austpac's obligations under the agreement. That part of the clause that referred to Astron assuming all of the obligations in or arising out of the Farmin Agreement was to be understood as providing for a permitted delegation of the performance of those obligations to Astron (ts 162; and see Austpac's trial submissions, par 43). It was also submitted that, if necessary, the clause was to be read in that way after applying the provisions of cl 20.12.

74 It was in this context that Austpac's amendment to its prayer for declaratory relief was explained. It was said that the amendments brought the relief claimed 'into line' with the submissions concerning the effect of cl 10.1 (ts 162). The amendment to prayer A concerning the entitlement claimed by Austpac to enter into an assignment with Astron and/or WIM was to substitute the phrase 'right, title and interest in and arising out of the Farmin Agreement' for the expression 'rights and obligations, alternatively rights, under the Farmin Agreement'.

75 Significantly, the same amendment was made to prayer B concerning the effect of the declaration of trust contained in the Sale Agreement. That amendment inferentially provided the only explanation by Austpac of the meaning of the expression 'the Contract' when used in cl 10.4; that is, that the trust property was the benefit of the Farm-in Agreement.

76 In my view, the interpretation sought to be placed by Austpac on cl 10.1 and cl 10.4 of the Sale Agreement is inconsistent with the effect of the agreement read as a whole: the definition of the Farm-in Agreement as an asset, the sale and purchase of the agreement as an asset, the 'passing' of the agreement on Completion, the letting of Astron 'into possession' of the agreement under cl 9.3.1 and the width of the expression 'right, title and interest in or arising out of the Farm-in Agreement'. Further, the expression 'assumes all of the obligations of [Austpac] in or arising out of the [Farm-in Agreement]' is not apt to describe a delegation in the performance of those obligations. Moreover, it is to be expected that the parties would have made further provision for the consequences of the delegation had that been intended; for example, by provisions similar to those contained in cl 10.4. I also prefer the second explanation suggested earlier for the use of the term 'the Contract' in cl 10.4 for all of those reasons.

77 In Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, a building contract provided that neither the employer nor the contractor could without the consent of the other 'assign this contract'. Lord BrowneWilkinson observed at (103) that the clause was 'unhappily drafted in that it refers to an assignment of "the contract". It is trite law that it is, in any event, impossible to assign "the contract" as a whole, ie including both burden and benefit'. He continued, '[a]lthough it is true that the phrase "assign this contract" is not strictly accurate, lawyers frequently use those words inaccurately to describe an assignment of the benefit of a contract since every lawyer knows that the burden of a contract cannot be assigned'. In Don King Productions Inc v Warren [2000] Ch 291, Lightman J considered (103) that those observations should be taken as establishing the proposition that '[a] provision for the assignment of a contract is to be construed as the assignment of the benefit of the contract'.

78 With respect, I do not find the proposition that an expression such as 'assign this contract' (or even more so, 'right, title and interest in and arising out of ...') is to be construed according to 'what every lawyer knows' to be overly attractive, especially when the resulting construction is seemingly inconsistent with the overall effect of an apparently carefully and comprehensively drawn document in which the expression appears. Further, I do not consider that cl 20.12 can be invoked to alter the effect of cl 10.1 and cl 10.4 in the manner suggested by Austpac. Applying cl 20.12 in that way would alter in substance what was to be conveyed by the Sale Agreement on the interpretation that I prefer rather than to merely excise from the agreement some unenforceable and severable aspect.

79 However, as the matter is not free from doubt in the light of the observations of Lord BrowneWilkinson and Lightman J, the parties' various arguments will be considered on the basis that it is open to interpret the Sale Agreement as providing for an assignment of or declaration of trust over the rights and obligations in the Farm-in Agreement (as Australian Zircon contends), alternatively as an assignment or trust of the benefit of the agreement coupled with a delegation of performance (as Austpac contends).

80 Aspects of the parties' knowledge of the circumstances in which the Farmin Agreement was negotiated have been noted.

81 Paragraph 5 of Austpac's defence pleaded particular matters that were alleged to have been known by both parties at the time that the Farmin Agreement was made. Mr Clarke was crossexamined without objection about his beliefs concerning those matters and on the knowledge of the board of Australian Zircon:

(a) He had believed that Austpac was principally engaged in the business of developing and commercialising technologies for the production of synthetic rutile from 'off-spec' ilmenite or from all ilmenite (exhibit 15, par 53; and see par 5.1 of Austpac's defence). He was 'comfortable saying' that the board of Australian Zircon 'would have had that understanding of Austpac' (ts 69).

(b) He had believed that Austpac's principal interest in the Project was to encourage a mine operator to bring the WIM 150 resource into production 'in the hope that Austpac would then be able to secure contracts for the use of its ilmenite upgrade technology on the offspec ilmenite which would be produced as a coproduct or byproduct' (exhibit 15, par 54). Mr Clarke stated that he was 'comfortable to say that that is the way that I explained Austpac's position to Australian Zircon's board' (ts 69). Paragraph 5.2 of Austpac's defence alleged that the parties knew that 'Austpac's principal interest in the Project Area was the ilmenite it contained'. Paragraph 5.6.2 of the defence pleaded that the parties knew that Austpac was interested in making an agreement with a party that could possibly develop and operate a mining project on EL 4521 in which eventually Austpac could be, at its option, a nonactive recipient of any income produced.

(c) He had believed that Austpac was not an operator of any mining projects nor 'did it have any intentions or ambitions in this regard' (exhibit 15, par 55; and see par 5.3 of Austpac's defence). Mr Clarke stated that he believed that he explained that matter to Australian Zircon's board (ts 69).

(d) He had believed that EL 4521 was not central to Austpac's business, 'other than in the sense that, if developed, it might give rise to a contract for the use of the Austpac proprietary technology' (exhibit 15, par 56 and see par 5.4 of Austpac's defence). Mr Clarke again stated that he believed that he explained that matter to the board of Australian Zircon (ts 69).

(e) He had believed that the Project was designed to produce a range of mineral products, including zircon, rutile, ilmenite and monazite, rather than just zircon (exhibit 15, par 57). Mr Clarke stated that he was 'completely confident that the board understood that a resource like this needed to produce a range of products' (ts 69).

(f) He had believed that Austpac had the expertise to contribute to the processing of the ilmenite but not in respect of minerals such as zircon, rutile and monazite (exhibit 15, par 58). Mr Clarke stated that he believed that 'the board would have been of the same view as I was in this instance also' (ts 69). He confirmed that to his understanding the technologies developed by Austpac had no relevance to the processing of zircon (ts 71). Paragraph 5.5 of Austpac's defence alleged that the parties knew that Austpac had no special or distinguishing expertise to contribute to the development or operation of a zircon mining project on EL 4521.

82 Parts of Mr Clarke's oral evidence concerning the knowledge of the board of Australian Zircon were to the effect that he had informed the board about particular matters. However, other parts of his evidence were expressed as statements of belief about the board's knowledge. No objection was taken to the crossexamination of Mr Clarke and no submission was made to the effect that Austpac had failed to prove the matters pleaded in par 5 of its defence on the ground that Mr Clarke's evidence merely reflected his beliefs about the board's knowledge rather than that it established the board's actual knowledge. Accordingly, all of Mr Clarke's evidence has been considered in determining what matters were known to each party at the time that the Farmin Agreement was made.

83 Mr Allen's knowledge of the circumstances and objectives of Australian Zircon and Austpac in negotiating the Farmin Agreement was summarised earlier in these reasons. He gave evidence that he informed Mr Rear about matters known to him concerning the circumstances and objectives of Austpac and Mr Turbott about the position of Australian Zircon. Accordingly, his evidence about the knowledge that he possessed of each party prior to the making of the Farmin Agreement also forms part of the material from which findings about the circumstances known to both parties have been drawn.

84 I find in relation to the allegations made in par 5 of Austpac's defence that Austpac and Australian Zircon knew that:

(a) Austpac was principally engaged in the business of developing and commercialising technologies for the production of synthetic rutile from ilmenite;

(b) Austpac was not in the business of developing or operating mines and it was moving away from exploring for minerals as part of its business;

(c) Austpac had applied for EL 4521 principally for the ilmenite mineralisation and not for the zircon resource;

(d) Austpac could not afford to continue to explore or develop the WIM 150 deposit and it was interested in making an agreement with a party that could meet the minimum expenditure requirements to maintain the exploration licence;

(e) Australian Zircon had changed or was in the process of changing its business focus from the development and operation of titanium mining projects to the development and operation of zircon mining projects and it was primarily interested in Project Area as a source of zircon.

85 I also find by reference to the recitals and terms of the Farmin Agreement that the parties knew that:

(a) Australian Zircon was interested in investigating whether the WIM 150 deposit could be economically mined;

(b) Austpac was interested in participating in any exploitation of the WIM 150 deposit by either a minority participating interest in a joint venture or a net profit interest and that it had the opportunity to do so at no cost if it chose;

(c) Australian Zircon was willing to develop the WIM 150 deposit as a mining operation by a joint venture in which it held at least an 80% interest or through which it shared the net profits of the operation.

86 Finally, I find on the evidence of Mr Turbott, Mr Allen and Mr Clarke considered as a whole and from the terms of the Farmin Agreement that:

(a) Australian Zircon knew that Austpac had no particular expertise in the mining or processing of zircon and that Austpac's technology was for processing ilmenite and had no application to processing zircon.

(c) Austpac had some commercial interest in the ilmenite. It is not possible to make a more precise finding about the nature of that interest. It is not clear whether Mr Clarke's evidence that Austpac wished to be able to secure contracts for the use of its technology on offspec ilmenite corresponds with the interest in the WIM deposit expressed by Mr Turbott at par 21 of his witness statement (exhibit 16) that was reproduced earlier in these reasons. The matter was not further clarified in the evidence.

87 The provisions of the Farmin Agreement are spare. The agreement was quickly negotiated with only minor amendments made to the first draft that was produced in evidence. In my view, those matters form an important part of the context within which the agreement is to be construed. The parties' objectives in making the agreement were limited and nascent. That is reflected in the apparent simplicity of the terms of the agreement.

88 Austpac's primary concern was to be relieved of the expenditure requirements attaching to EL 4521. It was to be provided with an opportunity to earn revenue from 'the Project' should it appear that exploitation of the WIM 150 deposit was viable. However, its possible participation in the Project was tentatively expressed in the Farmin Agreement.

89 First, negotiation and agreement over how the Project was to be developed during and following the bankable feasibility study stage was deferred until Australian Zircon elected to proceed to such a study. Although a 'more definitive agreement and joint venture arrangement' was to be negotiated at that time, Australian Zircon remained liable for the cost of the bankable feasibility study (and 'all costs associated with the Project Area').

90 Second, Austpac could elect on completion of the bankable feasibility study to participate through a 'contributing Interest' or to convert to a net profits interest 'net of all operating expenditure, debt service and sustaining capital'. It was only on completion of the bankable feasibility study that Austpac might be exposed to incurring expenditure on the Project Area and the Project and then, only if it chose to accept a participating interest after considering the study (and no doubt its then financial position, the continuing development of its technology and any other matter relevant to its commercial objectives).

91 In short, the Farmin Agreement contained sufficient detail to facilitate Austpac's objectives at the time that the agreement was made given that it was protected from further expenditure on EL 4521 for at least two years and six months following execution of the agreement and conceivably, for some further time. It could ultimately benefit from the exploitation of the WIM 150 deposit without cost if it chose.

92 Australian Zircon's objective at the time that the Farmin Agreement was made was expressed in recital 3 to the agreement: to assess the feasibility of exploiting the WIM 150 deposit. The Farmin Agreement provided a means for Australian Zircon to undertake that assessment at a modest cost a minimum of $200,000 plus the costs associated with the Project Area for at least six months after completion of the initial works program. Its obligation to incur further expenditure was subject to two decisions: first, to not give notice any time after completion of the initial work program and second, to proceed to a bankable feasibility study.

93 The term of the Farm-in Agreement was not specified and there is no evidence that the parties considered the matter in their negotiations other than indirectly by agreeing the trigger point for a more definitive agreement and joint venture arrangement. The effect of Australian Zircon's construction of the agreement is that Austpac remains bound and unable to dispose of EL4521 six years after the agreement was made. That may seem a commercially odd and possibly, unintended result given the parties' limited objectives.

94 However, the agreement must be interpreted as at the time that it was made and not by reference to subsequent events. Further, no issue was raised in the action concerning whether the Farmin Agreement was terminated through the passing of time or that it included any implied term as to time (for example, that Australian Zircon was to make its election on whether to proceed to a bankability feasibility study within a reasonable time).

95 Nevertheless, the parties' understanding of how long the agreement might remain in effect before it was replaced by a more definitive agreement and joint venture arrangement or came to an end is relevant to objectively ascertaining their intentions regarding the possibility of third party 'dealings'.

96 Evidence was elicited from Mr Clarke in crossexamination about the time that might be required to investigate the WIM 150 deposit sufficiently to make an election on whether to proceed to a bankable feasibility study. There was some misunderstanding about precisely what he was being asked that clouded aspects of his evidence (see at ts 71). However, the effect of his evidence was that it was possible that Australian Zircon would have been in a position to decide whether to proceed with a bankable feasibility study on completing the work program specified in the schedule to the Farmin Agreement (ts 72). He indicated, however, that there was a significant amount of work required to be undertaken prior to making that decision. Further, Mr Clarke observed:

We're into the realms of difficulty here because even though the documents talk of going directly to a bankable feasibility study, it's industry standard to have a scoping study and then a prefeasibility study and then the bankable feasibility study. They do tend to meld one with another but what I'm at pains to emphasise is that there's quite a lot of work involved.

97 According to Mr Clarke it was common in Australia for those processes to take much longer than two years and could take 10 years or more (ts 72).

98 Mr Clarke referred to an industry standard in his evidence but as he observed, it was not clear that the parties intended to import that standard and the practices that he described into the Farm-in Agreement. Further, he agreed that his evidence reflected his personal experience in the resource industry 'but no more than that' (ts 72).

99 Mr Clarke has been involved in the resource industry for many years. However, he was not called as an expert witness and there was no evidence detailing the nature of his involvement in the industry. He did not purport to give evidence beyond his personal experience and there is no basis for drawing any inference from his evidence about the parties' expectations concerning the time that Australian Zircon might require to sufficiently investigate the WIM 150 deposit to allow an election on whether to proceed to a bankable feasibility study to be made.

100 Mr Turbott and Mr Allen were not examined about the matter. Consequently, the primary evidence of both parties' understanding of the work necessary to enable Australian Zircon to decide whether to proceed to a bankable feasibility study and the time that might be required to complete that work is to be found in the terms of the Farmin Agreement: the work program to be pursued in the first two years. Clause 1 of the agreement required Australian Zircon to complete that program at its costs and then provided that 'thereafter' it would 'bear all costs associated with the Project Area, through to the completion of a BFS'. The simplicity of that provision accommodated both the possibility that Australian Zircon would be ready to elect whether to proceed to a bankable feasibility study at the end of the work program period and the possibility that it was unable to make an election at that time. It was unnecessary for the parties to be more specific given their limited objectives. The inference is that they were content with the open-ended nature of this aspect of the Farmin Agreement.

101 As previously noted, the 'WIM 150 Summary Report' produced by Australian Zircon immediately prior to the Farmin Agreement stated that its strategy was to secure access to the WIM 150 deposit for 'minimal commitment over the next few years and to determine in that time whether the recovery benchmarks are achievable and warrant a feasibility study'. The report was sent to Mr Allen but there was no evidence on whether it was provided to Mr Turbott or that it accorded with his understanding or expectation.

102 An inference might be drawn from the fact that the agreed work program was only for two years. However, it is also open to infer that it was thought that it was unnecessary to agree a work program for the third year and beyond because the program could be decided by the management committee if required. Australian Zircon controlled the committee and presumably, it would have been expected to know what further work would be required to enable it to complete its investigations before making an election on whether to proceed to a bankable feasibility study.

103 In my view, the only finding that can be made about each party's understanding of how long the Farm-in Agreement might remain on foot is an inference to be drawn from the absence of any specific provision on the term of the agreement or for bringing the agreement to an end other than by Australian Zircon giving six months notice. That matter suggests that the parties did not consider that the Farm-in Agreement would remain on foot for so long that its term would be inconsistent with their limited purpose in making the agreement and their business objectives generally. There was no further evidence by which that inference could be given more precise content.

104 The technology developed by Austpac and the obligation imposed by cl 6 of the Farmin Agreement formed a part of Australian Zircon's case that the rights and obligations created by the agreement were incapable of being assigned or held on trust or that a term prohibiting dealings with the agreement should be implied (cl 6 was not, however, referred to in the particulars to par 8(a) of the statement of claim). The argument was illustrated by reference to the announcement of the Farmin Agreement made to the Stock Exchange (exhibit 7). The announcement was to the effect that the agreement represented an alliance drawing on the significant expertise of both parties Australian Zircon's experience in the testing and design of processes for the recovery of relatively fine grain heavy mineral sands and Austpac's testing for the processing of WIM 150 ilmenite using its technology. It was said that the 'alliance' found its expression in the provisions of the Farmin Agreement:

(a) Australian Zircon was to be the operator in respect of the Project Area and was to undertake and pay for the initial work program and was obliged generally to expend on the Project Area at least the amount required to maintain the title to the Project Area in good standing and otherwise in accordance with the detailed work programs and budgets approved by the management committee (which was to be controlled by Australian Zircon).

(b) Australian Zircon was to ensure that Austpac's ERMS and EARS technologies were investigated for the processing of any titanium minerals from the Project Area as part of any work program and budget and feasibility study (cl 6 of the Farm-in Agreement).

105 However, I have found that both parties knew that the processes developed by Austpac could only be used for treating ilmenite and had no application to the treatment of other heavy mineral sands that might be found within the WIM 150 deposit and in particular, zircon. Although Mr Clarke stated that the viability of mining of the WIM 150 deposit would be assessed by reference to all mineralisation found within the deposit, Australian Zircon's primary interest was in the deposit as a zircon resource.

106 There was little further evidence about the significance of Austpac's ilmenite processing technology and the obligation imposed on Australian Zircon by cl 6 of the Farmin Agreement:

(a) there was no evidence that Australian Zircon possessed any specialist knowledge about the processing of ilmenite or any other particular expertise that would enable it to conduct the investigation required by cl 6;

(b) there was no evidence that the parties discussed what investigations might be undertaken pursuant to cl 6 (the investigation may have been, for instance, geological, financial or technical);

(c) there was also no evidence that the parties discussed the capacity of Australian Zircon to perform the investigations contemplated by cl 6 prior to the Farmin Agreement being concluded;

(d) the evidence also did not establish that Australian Zircon's 'experience in the treating and design of processing for the recovery of relatively fine grained heavy mineral sands' to which the announcement to the Stock Exchange referred gave it a particular advantage in performing the investigations contemplated by cl 6 of the Farmin Agreement (assuming that the investigation was to have a technical aspect).

107 In my view, Australian Zircon has not established on the evidence that the obligation that it assumed under cl 6 was personal in the sense alleged in par 7 of its statement of claim (the test of what constitutes a nonassignable personal obligation is considered later in these reasons). I also consider that the clause does not assist Australian Zircon to establish that the rights and obligations contained in the Farmin Agreement taken together mark the agreement as a personal contract.

108 Australian Zircon contended that cl 1 to cl 6 of the Farmin Agreement contained 'interlinked and interdependent' rights and obligations:

(a) Clause 1 to cl 3 were interlinked and interdependent in that Australian Zircon agreed to undertake work and complete the bankable feasibility study and Austpac agreed that, in return, Australian Zircon would be entitled to at least an 80% interest in the Project and at Austpac's election, a 100% interest.

(b) Clause 4 obliged Austpac to ensure that EL 4521 was maintained in good standing and Australian Zircon was required to provide all necessary reports on the work undertaken to enable Austpac to meet its obligation.

(c) Clause 5 required the parties to form a management committee. Australian Zircon was to report to the committee quarterly as the operator in respect of the Project Area. Further, Australian Zircon was required to spend on the Project Area sufficient amounts to meet the expenditure requirements for EL 4521.

(d) Clause 6 required Australian Zircon to make appropriate investigations of Austpac's technologies.

109 It was submitted that the interdependent nature of the rights and obligations created by those clauses meant that they could not be severed by an assignment without the non-assigning party's consent. That was because inherent in any right purportedly assigned was an obligation. The right did not merely represent the benefit of a corresponding but separate obligation; rather, the right carried with it an inseparable obligation. Consequently, the right could not be assigned without the obligation and the obligation could not be assigned except by consent (that is, by a novation).

110 The principle relied on by Australian Zircon was said to be reflected in the judgment of Rares J at first instance in Goodridge v Macquarie Bank Ltd [2010] FCA 67; (2010) 265 ALR 170. At [199] [200], his Honour stated:

I am of opinion that the Bank cannot have disposed, once for all, of its rights and power to determine, independently of Leveraged Equities or X, whether or not it was obliged to lend Mr Goodridge more money ... such 'rights' or, rather powers and duties, are not capable of assignment because they were inherent and necessary to both the bank's rights and its obligations under the whole loan and security agreement, ie the 'rights' or powers and duties not just in the enforcement of the borrower's debt, but in the creation of further debts.

In my opinion there cannot be a separation of the Bank's existing legal right to a debt and supporting security owed by Mr Goodridge from its continuing obligation to lend to him and to assist his acquisition of further securities on the same terms and conditions. This was not simply an assignment of a debt free standing from an ongoing relationship between the assignor and debtor. The Bank and Leveraged Equities were seeking to assign pieces of the relationship to give effect to a commercial objective. But the mechanism that they chose could not assign what the Bank and Mr Goodridge had agreed would be the criteria and use of powers on which the Bank would be bound to lend him more money. That part of the loan and security agreement was inseverable from the obligation of the Bank to lend on the terms of that agreement.

111 Australian Zircon also emphasised in this context that the Farmin Agreement contemplated that the parties would in the future continue their relationship through a more definitive agreement and joint venture arrangement. That relationship was defined by the subject matter and the terms of their agreement a farmin agreement in respect of a project to investigate and if thought viable, exploit a mineral deposit and the intention expressed in cl 9 that the project would be developed as a 'joint venture arrangement' if it proceeded to a bankable feasibility study.

112 On appeal, the Full Federal Court rejected the conclusion reached by Rares J: Leveraged Equities Ltd v Goodridge [2011] FCAFC 3; (2011) 274 ALR 655. However, I do not read the decision of Jacobson J (with whom Finkelstein and Stone JJ agreed) as denying the possibility that on its proper construction, a contract might contain rights and obligations that are so interdependent that they are incapable of assignment in the same way that rights and obligations may be characterised as being too personal to permit assignment or vicarious performance. Jacobson J referred to the conclusion reached by Rares J as being contrary to principles that ought to have been applied [375]. However, those principles concerned the paramountcy of an express provision of the contract permitting assignment and the possibility that the benefit of some obligations under a contract may be assignable while others under the same contract may not be assigned (see especially at [357], [363] [365] and [372]). Further, his Honour took a different view of the proper construction of the relevant provisions of the contract in issue (see at [367] [369] and [371]). Those differences culminated in him holding that, 'contrary to [Rares J's] views, there seems to me to be a sufficiently clear division between the rights of Leveraged Equities and the continuing obligations of Macquarie in the relevant Transaction Documents' [378].

113 However, in my view, the rights and obligations created by cl 1 to cl 6 of the Farmin Agreement were not interdependent in the sense contended for by Australian Zircon. To adopt what was said by Jacobson J in Leveraged Equities, the clauses exhibited a clear division between the rights of Australian Zircon and the continuing obligations of Austpac and vice versa. The terms relied on by Australian Zircon merely created rights and obligations that were mutual in the sense that the enjoyment of a right by one party was dependent on the performance of a corresponding obligation by the other party. That is the essence of a contract. It does not mean that the benefit of the obligations imposed by cl 1 to cl 6 were of such a character that they were inherently incapable of being assigned; that the rights were so intertwined with the obligations that they could not be severed by assignment so that Austpac would be unable to discharge its obligations under the Farm-in Agreement if the benefit of the agreement was transfered.

114 For example, Australian Zircon's right to earn an interest in the Project was dependent on Austpac maintaining EL 4521 in good standing but I can see no reason why Austpac could not assign its right to have work performed and money expended on the Project Area merely because of that obligation. It could readily perform the obligation following assignment. Similarly, for cl 6 insofar as it impliedly contained an obligation imposed on Austpac (for instance, to provide sufficient information about its technologies to facilitate appropriate investigations). That was also an obligation that Austpac could perform notwithstanding the assignment of its rights under cl 1 to cl 6.

115 The position is less clear with the obligation imposed on Austpac by cl 5 to participate in the management committee. It would be commercially odd for Austpac to continue to participate in the management committee if it had transferred EL4521 as well as the benefit of the Farm-in Agreement; perhaps less so if it still held the licence. However, I do not consider that cl 5 creates an obligation that is interdependent in the relevant sense with the rights conferred by the Farm-in Agreement. The controlling vote of Australian Zircon is also relevant in this context.

116 The benefit derived from cl 3 of the Farm-in Agreement (the right to share in the exploitation of the Project Area through a participating interest or a net profit interest based on a bankable feasibility study completed by Australian Zircon at its expense) was to accrue if Australian Zircon elected to proceed to, and completed, a bankable feasibility study and after the parties had made a more definitive agreement and joint venture arrangement. The benefit was conditional on the performance of the entire agreement but it was not, in my view, interdependent in the sense being considered.

117 The same conclusion applies when the rights of Australian Zircon and the corresponding obligations of Austpac are examined.

118 Australian Zircon contended that cl 9 imposed an enforceable obligation on each party to negotiate a more definitive agreement and joint venture arrangement that was personal in nature. It relied on the judgment of Allsop P (with whom Ipp and MacFarlan JJA agreed) in United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177 to support the first part of that submission.

119 The President's reasoning in United Group Rail Services can best be understood by reference to the decision of the New South Wales Court of Appeal in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1. That case concerned a heads of agreement about a proposed joint venture for a new coalmine. The heads of agreement stated that:

This document will serve to record the terms and conditions subject to and upon which Coal Cliff Collieries Pty Ltd, Sijehama and Bulli Main agree to associate themselves in an unincorporated Joint Venture ... the parties will forthwith proceed in good faith to consult together upon the formulation of a more comprehensive and detailed joint venture agreement (and any associated Agreements) which when approved and executed will take the place of these heads of agreement, but the action of the parties in so consulting and in negotiating on fresh or additional terms shall not in the meantime in any way prejudice the full and binding effect of what is now agreed.

120 Kirby P rejected the notion that a promise to negotiate in good faith could never be enforced by a court, 'in some circumstance a promise to negotiate in good faith will be enforceable, depending upon its precise terms' (26). Each case would depend on the construction of the particular contract, but in many contracts the promise to negotiate would have been intended to be a binding legal obligation to which the parties should be held. The clearest examples of such contracts were those where an identified third party was given power to settle ambiguities or uncertainties. There would also be cases in which the court was able to flesh out the provisions of a contract by reference to a readily ascertainable external standard. However, there would also be cases in which 'the promise to negotiate in good faith will occur in the context of "an arrangement" ... which by its nature, purpose, context, other provisions or otherwise makes it clear that the "promise is too illusory or too vague and uncertain to be enforceable"' (27). Kirby P considered the contract in Coal Cliff Collieries fell into this last category. There was no third party that had been nominated to resolve outstanding differences; no external standards by which the court could supply missing terms and 'how mining executives, attending to the interests of their corporation and its shareholders might act in negotiating such a complex transaction is quite unknowable' (27).

121 Clarke J not only thought that a contract to negotiate in good faith may be enforced but that the contract under consideration was such a contract. Handley JA, on the other hand, considered that a promise to negotiate in good faith was illusory and could not be binding (42).

122 The contract between the parties in United Group Rail Services contained a dispute resolution clause that provided for an expert determination. The clause further provided for an appeal from the determination and specified that if a notice of appeal was given, the dispute was to be referred to a senior representative for each party. The representatives were required to meet and 'undertake genuine and good faith negotiations with a view to resolving the dispute or the difference'. At issue was whether that requirement was enforceable.

(a) The phrase 'negotiate genuinely and in good faith' was a composite expression, 'each limb of it informing the other' [28].

(b) There has been a juristic debate over whether a provision of that kind was intended to be legally binding and if so, whether it possessed a sufficiently certain content to be enforceable [29], [56].

(c) At least three 'essential propositions founded on accepted authority and principle' were relevant to that debate:

(i) an agreement to agree is incomplete, lacking essential terms [56];

(ii) the task of the court was to give effect to business contracts where there was a meaning capable of being ascribed to a word or phrase or term or contract, ambiguity not being vagueness [57];

(iii) good faith was not a concept foreign to common law or commerce [58].

(d) The law in Australia was not settled as to the place of good faith in the law of contracts. However, the New South Wales Court of Appeal had previously recognised that 'good faith, in some degree or to some extent, is part of the law of performance of contracts' [61].

(e) There was a distinction between incompleteness and uncertainty [64]:

An agreement to agree to another agreement may be incomplete if it lacks essential terms of the future bargain. An agreement to negotiate, if viewed as an agreement to behave in a particular way may be uncertain, but is not incomplete.

(f) The statements of principle by Kirby P in Coal Cliff Collieries should be accepted. Further, although it was unnecessary to express any opinion on the facts and the application of principle in that case, there was force in the conclusions of Kirby P 'given the open ended nature of the operation of the obligation in that case' [69]. The difference between the term considered in Coal Cliff Collieries and the term in United Group Rail Services was 'of great importance'. In the former case, the court was required to consider a clause 'providing for good faith negotiations in bringing about a commercial agreement in the first instance'. The court in United Group Rail Services was concerned with 'the express mutual promises of the parties to undertake genuine and good faith negotiations to resolve disputes arising from performance of a fixed body of contractual rights and obligations' [69]. Unlike Coal Cliff Collieries, the clause being considered in United Group Rail Services contemplated negotiations that were not open ended and about a myriad of commercial interests to be bargained for from a selfinterested perspective but the resolution of a defined dispute that arose from 'a finite and fixed legal framework about acts or omissions that would be said to have happened or not happened' [70].

(g) The phrase 'genuine and good faith' had legal content as a composite expression (at [74]):

... a promise to negotiate (that is to treat and discuss) genuinely and in good faith with a view to resolving claims to entitlement by reference to a known body of rights and obligations, in a manner that respects the respective contractual rights of the parties, giving due allowance for honest and genuinely held views about those preexisting rights is not vague, illusory or uncertain.

124 The differences between the dispute resolution provision in United Group Rail Services and cl 9 of the Farm-in Agreement are immediately apparent. Clause 9 is devoid of enforceable content; it was an agreement to agree that lacked the 'essential terms of the future bargain' and was consequently, incomplete. The clause was 'openended', requiring the parties to bring about an agreement and is, in my view, unenforceable for the reasons given by Kirby P in Coal Cliff Colleries.

125 Australian Zircon referred to United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 in which the High Court recognised that a relationship between 'joint venturers' might in some instances be fiduciary, depending on the form of the joint venture and the content of the obligations assumed by the parties (10-11). As I understood the submission, the reference to UDC v Brian was not to give content to cl 9 (for instance, by suggesting that the reference to a 'joint venture' imported an obligation to negotiate in good faith) but to emphasise that the Farmin Agreement and in particular cl 9, manifested an intention 'that the parties were agreeing to work together towards a common end' and that it was 'the parties, as opposed to their permitted assigns, who made that agreement' (Australian Zircon's outline of submissions, par 17).

126 Similarly, the argument that cl 9 created an enforceable right and obligation was put tentatively: 'as a matter of law, content may perhaps be given to the obligation to negotiate (see United Group Rail Services ...)'. The primary submission was that 'whatever content is given to the obligation to negotiate, the agreement between A and B would, in practice, operate quite differently to the agreement between A and C. That indicates that the agreement between A and B necessarily has a personal quality' (Australian Zircon's outline of submissions, par 48).

127 In my view, the fact that cl 9 did not contain an enforceable obligation may have relevance to some of the issues to be determined, including whether the Farmin Agreement can be characterised as a personal contract when its terms are considered as a whole. However, I agree that it is significant in construing the Farmin Agreement and in particular, cl 7 that cl 9 envisaged a future relationship that was to be conducted through a more definitive agreement and a joint venture arrangement. Clause 9 contemplated that Austpac and Australian Zircon would be in a position to negotiate over a continuing relationship for the development of the Project Area and the Project in the future if Australian Zircon elected to proceed to a bankable feasibility study. The purpose of the Farm-in Agreement was to ascertain whether the WIM 150 deposit could be economically mined as a preliminary to that agreement. The agreement would involve a joint venture arrangement in which, Austpac could, if it chose, hold a participating interest. Those considerations indicate that objectively considered, Austpac and Australian Zircon negotiated the Farm-in Agreement in the expectation that they would be the parties to enter into the more definitive agreement and joint venture agreement and that the Farm-in Agreement was intended to reflect that expectation.

128 The particulars to par 7 of the statement of claim alleged that by reason of the rights and obligations contained in the Farm-in Agreement, Austpac and Australian Zircon 'were either or both in a position of personal confidence or in a joint venture relationship with respect to the Project, such that their respective rights and obligations under the Farm-in Agreement are personal rights and obligations'. That is an allegation that the Farm-in Agreement is a personal contract that is incapable of being assigned.

129 Paragraph 8(b) of the statement of claim alleged an implied term that each party's rights and obligations under the Farm-in Agreement could not be transferred without the other party's consent. The particulars to that paragraph repeated the allegation that the parties were in a position of personal confidence or a joint venture relationship by reason of the provisions of the Farm-in Agreement but obviously, did not plead that the rights and obligations were themselves personal. The particulars to par 8(b) focus more broadly on the relationship between the parties as evidenced by the terms of the Farm-in Agreement, although the allegation was still that the rights and obligations comprised in the agreement were such that each party intended that the contract would only be performed by the other party as part of an on-going relationship that was personal to them in that sense. Whether, objectively determined, each party intended by making the Farm-in Agreement to create an on-going relationship that was personal to them in this broad sense will also, in my view, be relevant to the interpretation of cl 7.

130 The question of whether the rights and obligations contained in the Farm-in Agreement were personal and by their very nature incapable of assignment and delegation is considered later in these reasons. The characterisation of the rights and obligations in that way is not relevant to the questions of construction presently being considered. However, it will be apparent from the observations that have already been made that, in my view, cl 9 of the Farmin Agreement embodied an expectation and intention that Austpac and Australian Zircon would be the parties to negotiate and enter into a more definitive agreement and joint venture arrangement if an election was made to proceed to a bankable feasibility study. As I have indicated, that involved Austpac and Australian Zircon maintaining a contractual relationship through the Farm-in Agreement to enable the WIM 150 deposit to be further investigated in anticipation of that possible agreement. In that sense, the Farm-in Agreement was personal to them.

131 The particulars to par 7 and par 8(b) referred to a position of personal confidence or a joint venture relationship between Austpac and Australian Zircon and Austpac described the Farm-in Agreement as a joint venture agreement at the time that it was presented for registration under the Mineral Resources Act. However, it does not appear to me to be necessary to decide whether the agreement was truly a joint venture agreement according to some legal classification for the purpose of fairly disposing of the questions of construction that arise on the pleadings (and there was no substantial argument at trial as to what are the legal indicia of a joint venture relationship).

132 The judgment of Finn and Sundberg JJ in Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; (2006) 149 FCR 395 provides a helpful summary of the legal principles relevant to the assignment of contractual rights. The following statement of the principles that have been considered in this matter is largely drawn from their Honours' reasons, supplemented by other references as indicated:

(a) A contractual right must first be characterised as a chose in action to be assignable: Tolhurst G, The Assignment of Contractual Rights (2006) (Tolhurst) at [6.04]. A right that is a chose in action is a personal proprietary right that can be transferred to a third party at law or in equity according to the formal rules governing the transfer of such rights: Pacific Brands [32].

(b) The relevant (and assignable) chose may be the benefit of the contract as such; that is, the bundle of rights, powers, privileges and immunities created by the contract rather than a particular right conferred by a term of the contract. Some individual rights may be considered separately for the purpose of assignment because they are sufficiently discrete and independent of other provisions of the contract. Consequently, the benefit of some obligations under a contract may be assigned while others, under the same contract, may not be capable of assignment. Assignability is not necessarily all or nothing: Don King Productions (319) (Lightman J); Leveraged Equities Ltd v Goodridge [372] (Jacobson J). Nevertheless, not all rights conferred by a contract can be dealt with distinctly 'not because they are not part of a chose in action but because the contract itself, on its proper construction, does not attribute an independent life and vitality to them': Pacific Brands [40]. Such rights are simply an inseparable part of a composite whole. Individually and separately those rights may, in some instances, not be assignable. However, they may be assigned as part of the chose in action constituted by the bundle of rights, privileges, powers and immunities that together comprised a single chose in action being the benefit of the contract as a whole: Pacific Brands [40].

(c) A contract may expressly or impliedly authorise the assignment of rights that would not otherwise be assignable. Conversely, the contract may expressly or impliedly prohibit the assignment of rights that are otherwise on their face assignable: Pacific Brands [32]; Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225, 235 (Full Court of the Federal Court).

(d) An attempted assignment of contractual rights in breach of a prohibition on assignment is ineffective: Linden Gardens (108) (Lord Brown-Wilkinson) - 'if the law were otherwise, it would defeat the legitimate commercial reason for inserting the contractual prohibition, viz, to ensure that the original parties to the contract are not brought into direct contractual relations with third parties'. However, an assignment in breach of a contractual prohibition may still have an effect as between the assignor and the assignee. In particular, '[i]f the obligor or promisor, after the purported assignment, performs the contract in favour of the assignor, the assignor may hold the fruits of such performance upon trust for the assignee, by analogy to the treatment in equity of contracts to assign after-acquired property': Devefi, (236); Barbados Trust Co v Bank of Zambia [2007] EWCA Civ 148; 1 Ll R 495, [85]-[88] (Rix LJ).

(e) However, a contract may prohibit one or both parties from declaring themselves to be a trustee of the benefit of the contract: Don King Productions (321) (Lightman J); Barbados Trust; Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350 [101] (Buss JA).

(f) While the benefit derived from a contractual performance may be assigned, the right to that performance may, nevertheless, be unassignable because, having regard to the nature of the contract and the subject matter of the contractual right in question, the right is personal in the sense that the identity of the contractual obligee is material to the contractual relationship itself or to the contractual performance to be rendered: Pacific Brands [32].

(g) A contractual right may itself be of such a personal character that it cannot be properly characterised as property: Pacific Brands [32] (although, Finn and Sundberg JJ added, 'but it is not clear whether this proposition has salience only in contexts other than assignment of such a right, eg insolvency, because of the proposition immediately preceding this which relates expressly to assignments of "personal' contractual rights').

(h) A third party may become a 'substituted contracting party' by a novation of the original contract. Novation will ordinarily require the agreement of the original and the substituted party. On a novation, there is no assignment of rights and obligations but rather the creation of new rights and obligations in a new contract: Pacific Brands [32]; Olsson v Dyson (1969) 120 CLR 365.

(i) A contractual obligation cannot be assigned without the consent of the other contracting party; that is, it is not possible to transfer the burden of a contract to a third party other than by novation: Don King Productions (318) (Lightman J). However, the delegation of performance of contractual obligations is permissible where the obligations assumed do not require personal performance but only the production of a result. In such cases, perfect performance by the delegate will discharge the delegating contractor's obligation, although the contractor will remain liable unless and until such performance is rendered: Pacific Brands [32]; British Waggon Co and Parkgate Waggon Co v Lea (1880) 5 QBD 149; Don King Productions, (318) (Lightman J) (a delegation is permissible where 'the obligation is such that the identity of the person who performs it is a matter of indifference to the contracting party for whose benefit the obligation is imposed...eg the payment of a sum of money or the delivery of a fungible').

133 Those principles form the basic framework within which the issues to be decided in this matter have been considered. However, it will be necessary to say something more about the notion of personal rights and obligations when the allegations made in par 7 of the statement of claim are examined.

134 In Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 Allsop P said at [14]:

The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and object of the transaction and by assessing how a reasonable person would have understood the language in that context. There is no place in that structure, so expressed, for a requirement to discern textual, or any other, ambiguity in the words of the document before any resort can be made to such evidence of surrounding circumstances.

135 That statement of law was said to be derived from a number of High Court cases, including Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181; Pacific Carriers v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 and Toll. The second limb of his Honour's statement was said to be consistent with High Court and intermediate appellate authority.

136 In Australian Zircon NL v Austpac Resources NL [2010] WASC 166 I expressed the view that a trial judge in this jurisdiction would be bound to apply Franklins v Metcash Trading and also, the decision of the New South Wales Court of Appeal in The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 unless convinced that those decisions were wrong [68] (and refer to Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 and Farah Constructions Pty Ltd v SayDee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [135]). I indicated that, in my view, there was little possibility of that occurring having regard to the matters identified at [68]. I adhere to the views expressed in my earlier decision and accept and apply the principles of construction identified in Franklins v Metcash Trading and The Movie Network Channels. The latter decision confirms that the surrounding circumstances must be actually known by the parties to be relevant to questions of construction; that is, facts that ought reasonably to have been known are to be disregarded [97] [106].

137 The principles of construction identified by Gibbs J in Australasian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 110 have been cited so often that they now appear to be trite. They are mentioned to make explicit that they have also formed part of the approach that has been taken to interpreting cl 7.

138 Austpac submitted that Australian Zircon's construction of cl 7 was strained; it gave the 'too few words' in the second sentence of the clause 'too much to do'. It contended that (par 29 of its trial submissions):

In circumstances where the Agreement provides for the farming out of a heavy mineral sands project contained with EL 4521, clause 7 appears to be concerned with:

(a) preventing Austpac from dealing with third parties in the Project Area in respect of base and precious metals; and

(b) preventing Austpac from dealing with third parties outside the Project Area in respect of heavy mineral sands so as to allow for the possibility, perhaps, of some further agreement concerning heavy mineral sands between Austpac and Zircon. (original emphasis)

139 In my view, it is significant that Austpac accepted that the intended effect of cl 7 was to circumscribe its dealing with third parties. It submitted that the clause was 'concerned with preventing' certain dealings, including dealings over the Project Area. Consequently, it was common ground that the clause was intended to and did have a two-fold effect: it permitted certain dealings (the 'acknowledged' dealings) but by doing so, it prohibited other dealings (the 'prevented' dealings in Austpac's submissions and all dealings with the Farmin Agreement on Australian Zircon's interpretation). At issue was not whether the clause proscribed certain dealings but rather, what dealings were prohibited.

140 There is little doubt that the clause prevented Austpac from dealing with third parties in respect of heavy mineral sands that might be located outside the Project Area. The commercial rationale for such a limitation is immediately apparent. Australian Zircon had an interest in heavy mineral sands. Both parties had an interest in the viability of an operation for mining heavy mineral sands on EL 4521. Australian Zircon entered into the Farmin Agreement to investigate the significant deposit that had been then delineated within the licence area. However, further deposits of heavy mineral sands within the licence area but outside the Project Area might be identified or if already known, might prove to be economically recoverable if mined in conjunction with the WIM 150 deposit. The limitation on Austpac's ability to deal with third parties over heavy mineral sands located outside the Project Area would, as Austpac submitted, sensibly accommodate 'the possibility, perhaps, of some further agreement concerning heavy mineral sands between Austpac and [Australian] Zircon'.

141 Austpac did not offer any commercial rationale for why, on its interpretation, cl 7 restricted its freedom to deal with third parties in respect of base and precious metals that might be located within the Project Area. However, the limitation appears to be consistent with an intention that dealings over all mineralisation within the Project Area would be between Austpac and Australian Zircon, the inference being that the parties wished to ensure that any development that might be relevant to the investigation and exploitation of the Project Area was to be dealt with as between themselves according to their present and possibly, future agreement.

142 Austpac also did not explain why the parties should have intended that it would be prevented from dealing with third parties over matters that were not the subject of the Farm-in Agreement - heavy mineral sand deposits located outside the Project Area and base and precious metals located within the Project Area but it could deal with third parties over the benefit of the Farm-in Agreement itself. A consequence of Austpac's interpretation that was not identified by the parties appears to be that Austpac could not transfer EL 4521 to a third party as it has sought to do in the Sale Agreement. A transfer of the licence would give the transferee whatever rights Austpac possessed under the licence in relation to exploring for and exploiting deposits of heavy mineral sands located outside the Project Area and base and precious metals within the Project Area. Consequently, the transfer would be a prohibited third party dealing with those rights on Austpac's interpretation of cl 7. Austpac's trial submissions implicitly recognised as much in par 29 of the submissions earlier reproduced - the rationale given for preventing Austpac from dealing with third parties outside the Project Area in relation to heavy mineral sands presupposed that Austpac was the licence holder able to grant access to those mineral sands.

143 A sensible commercial arrangement by which Austpac could assign the benefit of the Farm-in Agreement but was nevertheless limited to dealing with Australian Zircon in the manner contended for might be possible. However, it would involve Austpac being bound by the Farm-in Agreement following the assignment, a third party holding the benefit of the agreement and Austpac being required to deal only with Australian Zircon in respect of heavy mineral sand deposits outside the Project Area and base and precious metals found within the Project Area. Any new agreement over heavy mineral sands or base or precious metals could not involve the third party assignee without infringing cl 7 unless Australian Zircon consented.

144 The possibility of arrangements of that kind being implemented in relation to the Project Area while the Farmin Agreement remained in force appears to be inconsistent with the agreement's simplicity and the parties' limited objectives in making the agreement. The complications introduced by such possibilities are exacerbated not ameliorated when a trust over the benefit of the Farm-in Agreement on terms such as those found in the Sale Agreement is considered.

(a) referred to 'that part' of EL 4521 that was the Project Area and which was known as the WIM 150 Heavy Mineral Sands Project;

(b) defined the area that was known as the WIM Heavy Mineral Sands Project as 'the Project';

(c) referred to the balance of the licensed area as being 'that part' that was excluded from the Project Area and by definition, the Project and which was prospective for base and precious metals.

146 Recital 3 recorded Austpac's agreement to farm-out the Project. Effect was given to that agreement by Australian Zircon agreeing to carry Austpac through to and including the completion of a bankable feasibility study in respect of the Project Area. Australian Zircon would earn an interest in the Project on completion of the study.

147 Clause 3 of the Farm-in Agreement made provision for what was to occur once Australian Zircon had earned an interest in the Project. Clauses 4 to 7 and 10 provided for what was to occur prior to Australian Zircon earning that interest; that is, while Austpac was being carried. Clauses 4 and 5 created rights and imposed obligations 'in respect of the Project Area' and clauses 6 and 10 were to the same effect ('in respect of the processing of any titanium minerals from the Project Area' and 'pertaining to the Project Area').

148 The second sentence of cl 7 contained an acknowledgement that Austpac might deal with third parties in 'that part' of EL 4521 other than the Project Area. Clearly, the clause adopted the language of recital 2. Further, unlike the balance of the agreement, the second sentence was concerned with that part of EL 4521 that was not the Project Area. As Australian Zircon submitted, the clause was concerned with something that was outside the purview of the Farmin Agreement and which Austpac was otherwise entitled to do. That, no doubt, explains in part the use of the word 'acknowledges'. However, it does not explain why it was considered necessary to incorporate the acknowledgment into the agreement.

149 In my view, the inclusion of the acknowledgment and the use of the word 'acknowledges' suggests that Austpac and Australian Zircon intended that neither of them could deal with third parties in respect of that part of EL 4521 that was the Project Area without the other party's consent and that the second sentence in cl 7 embodied an agreement that gave effect to that intention. The acknowledgment was included to clarify that Austpac could deal with third parties in respect of that part of EL4521 that was excluded from the Project Area and which was unaffected by the Project and the Farm-in Agreement as it was understood and intended that the parties would not and could not deal with third parties in relation to the Project Area.

150 Australian Zircon referred to PMT Partners Pty Ltd (in liq) v Australian National Parks & Wildlife Service [1995] HCA 36; (1995) 184 CLR 301 as an illustration of the proper approach to the interpretation of cl 7. As Austpac pointed out, the High Court observed in that case that there are difficulties in construing contracts by the application of the principle expressed in the maxim expressio unius est exclusio alterius (express mention of one is the exclusion of the other): see also Houssein v Under Secretary, Department of Industrial Relations and Technology (NSW) [1982] HCA 2; (1982) 148 CLR 88, 94.

151 I accept that the maxim is not to be applied in this instance to impose a particular construction on cl 7 merely because of the way the clause has been drafted. However, in my view it does express the effect of the proper interpretation of the clause. The maxim does not dictate the outcome of the process of construction but it does express the outcome.

152 As I have explained, both parties accepted that the second sentence of cl 7 served to define dealings by Austpac with third parties that were permissible and impermissible. Accordingly, they accepted that by mentioning one matter the clause operated to exclude other matters.

153 I agree that this approach accorded with the sense of the clause once it is appreciated that the acknowledgment concerned something that otherwise fell outside the reach of the Farm-in Agreement. The clause was drafted on an assumption that reflected the parties' intentions: that there would be no third party dealings with the Project Area or with heavy mineral sand deposits located anywhere within the licence area while the Farm-in Agreement remained in force. The assumption was expressed as part of the agreement through the acknowledgment contained in the second sentence of cl 7.

154 That interpretation of cl 7 is, in my view, consistent with the findings that have been made earlier concerning the parties' commercial objectives in concluding the Farmin Agreement and the expectation reflected in cl 9 that they would be the parties to negotiate and enter into a more definitive agreement and joint venture arrangement if Australian Zircon elected to proceed to a bankable feasibility study. Clause 9 is significant in objectively determining the parties' intentions as expressed in the Farmin Agreement even though it is no more than an agreement to agree. The clause indicated that the agreement was intended to be personal to the parties in a broad sense.

155 The interpretation also accords with the way in which the Farmin Agreement was negotiated and the simplicity with which it was drafted (an absolute prohibition on dealing avoided the need to make further provision for the kind of dealings that might be permitted and how that might impact on the operation of the Farmin Agreement and the anticipated definitive agreement and joint venture arrangement). It gives the agreement a more workable and commercial operation than Austpac's suggested interpretation of cl 7 when the object and scope of the agreement are taken into account and it preserves the relatively uncomplicated arrangements provided for by the agreement.

156 The next issue is whether the assignment of the Farmin Agreement and/or the declaration of trust made in the Sale Agreement were caught by the prohibition contained in cl 7.

157 The approach that has been taken to the interpretation of cl 7 means that the prohibition it contains is expressed in terms of 'dealings' with third parties. The word 'dealing' is often used in a legal context. For example, it is a defined term in the Land Administration Act 1997 (WA) and the Transfer of Land Act 1893 (WA). In Gye v McIntyre [1991] HCA 60; (1991) 171 CLR 609, 625 the High Court said in relation to the term when used in s 86(1) of the Bankruptcy Act 1966 (Cth):

The word 'dealings is used in a nontechnical sense in s 86. It has been construed as referring to matters having a commercial or business flavour ...

The word is ... one of very wide scope which embraces far more than a legally binding contract or 'deal'. Even if it can be correct to construe 'dealings' in s 86 as confined to a commercial or business setting, it covers the communings, the negotiations, verbal and by correspondence, and other relations which occur or exist in that setting. Whatever may be the outer limits of the word 'dealings' in s 86, it encompasses, as a matter of ordinary language commercial transactions and the negotiations leading up to them. (emphasis added)

158 Obviously, an interpretation of a word used in a particular statutory context cannot be automatically applied to the same term when used in a private agreement. However, the High Court's comments were directed to the ordinary meaning of the word 'dealing' and the Farmin Agreement was drafted and negotiated by executives of listed companies that had been in the resource industry for some time and a corporate advisor who had previously been a partner in a major commercial law firm (that is, it was an agreement made in a 'commercial or business setting').

159 In my view, the concept of a dealing when used to express the prohibition in cl 7 should be given a wide effect. That is consistent with the concept itself and also with the way the prohibition emerges from the clause by the mention of one matter to exclude another. Accordingly, I consider that the assignment and declaration of trust contained in the Sale Agreement were caught by the prohibition in cl 7. They constituted dealings (commercial transactions) with the Farmin Agreement and consequently, the Project Area and Project. Plainly, that is so with the assignment but equally, the declaration of trust had the character of being a dealing given the terms and effect of the declaration and the wide meaning that I consider should be given to the word 'dealing'.

160 In reaching that conclusion I have not overlooked what was said by Lightman J in Don King that (319320):

Whether the contract contains a provision prohibiting such a declaration of trust must be determined as a matter of construction of the contract. Such a limitation upon the freedom of the party is not lightly to be inferred and a clause prohibiting assignments is prima facie restricted to assignments of the benefit of the obligation and does not extend to declarations of trust of the benefit.

161 However, the concept of 'dealing' is, as I have stressed, wide and gives effect to the parties' intentions as expressed in cl 7. To hold that the clause did not prohibit a trust over the whole of the Farm-in Agreement, or even only the benefit of the agreement, on the terms specified in cl 10.4 of the Sale Agreement would defeat the parties' intentions by permitting, in effect, an assignment by the back door.

162 That conclusion also answers a further submission made by Austpac that 'in any event, Austpac's "dealing" with Astron is of a different nature from that envisaged by clause 7' (Austpac's trial submissions, par 30). The submission was not further developed in writing or orally but however argued, it is inconsistent with the finding that the assignment and the declaration of trust made in the Sale Agreement were dealings for the propose of the prohibition in cl 7.

The consequences of finding that cl 7 prohibited the assignment of the Farm-in Agreement or the declaration of trust

163 An assignment is ineffective if made contrary to a contractual prohibition. Where the prohibition is only against assignment, a trust over the benefit of the contract may nevertheless be recognised. However, a declaration of trust over a contract or the benefit of a contract will be ineffective if the trust is contrary to the terms of the contract (see generally the principles concerning assignment stated earlier in the reasons). Consequently, the findings that have been made so far are sufficient to determine Australian Zircon's claim for declaratory relief in its favour.

164 The remaining issues contested on the pleadings and at trial involved questions of law rather than additional factual matters. Accordingly, I intend to confine my reasons on those issues to what is strictly necessary to explain the findings that have been made on those issues.

165 The following matters in the order given are considered in the balance of these reasons:

(a) did the Farmin Agreement include an implied term preventing an assignment of or declaration of trust over the agreement or the benefit of the agreement;

(b) were the rights and obligations created by the Farmin Agreement personal and incapable of assignment and delegation;

(d) could the Farmin Agreement only be assigned under the Sale Agreement by a novation;

(e) could the Farmin Agreement or the agreement be held on trust by Austpac;

(f) should a declaration be made declaring that the Sale Agreement is at an end.

166 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, Mason J explained that a term is implied into a contract as a matter of fact to give the contract business efficacy in circumstances that have eventuated but which had not been considered by the parties at the time that they made their agreement (at 346):

The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties' actual intention; the implication of a term is designed to give effect to the parties' presumed intention.

167 Further, courts are slow to imply a term as (346):

In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue.

168 Self-evidently, Australian Zircon and Austpac did turn their minds to whether they should be permitted to deal with third parties, at least in relation to 'that part' of EL 4521 that was outside the Project Area and which was prospective for base and precious metals. Both parties accepted by their arguments concerning the interpretation of cl 7 that they had gone further and considered and agreed, at least, some kind of restriction on dealings with third parties in respect of the Project Area. The point of difference between them was the extent of the restriction, with Australian Zircon contending that it extended to preventing all dealings with the Farmin Agreement except by consent. As the interpretation of cl 7 was argued by the parties, the allegation of an implied term was not truly an alternative to the claim that cl 7, properly construed, prohibited dealings with third parties in respect of the Farm-in Agreement; it was an inconsistent allegation:

(a) The acknowledgement in cl 7 indicated that the parties intended and had agreed to restrict third party dealings with the Project Area.

(b) The allegation of an implied term proceeded on the basis that cl 7 did not prohibit an assignment of or declaration of trust over the rights and obligations contained in the Farm-in Agreement or the benefit of the agreement. That is, properly interpreted, the clause only restricted some other types of dealing - for example, those suggested by Austpac.

(c) The parties had agreed what dealings would be prohibited and the restriction did not extend to dealings with the Farm-in Agreement.

(d) Accordingly, the term sought to be implied by Australian Zircon would cut across and be inconsistent with what had been expressly agreed by the parties in cl 7. There was no scope for giving effect to the parties' presumed intentions as they actually considered and agreed the extent of any limitation on third party dealings.

169 Consequently, on the way the question of the proper interpretation of cl 7 was contested at trial, a term prohibiting an assignment of or trust over the Farm-in Agreement or the benefit of the agreement could not be implied into the Farm-in Agreement if, contrary to the finding that has been made, the agreement did not expressly prohibit those dealings. A term could only be implied if it was found that the parties had not turned their mind to and formed an actual intention about third party dealings with the Farm-in Agreement (because, for example, they had not considered that possibility even though they had intended to prevent some third party dealings about the Project Area or they had only considered third party dealings with that part of EL 4521 that was outside the Project Area).

170 On that unlikely finding, I would have held that the Farmin Agreement did contain an implied term to the effect alleged by Australian Zircon having regard to the matters that were identified earlier in the reasons as to why Australian Zircon's interpretation of cl 7 was consistent with the relationship between the parties established by the Farmin Agreement, the object and terms of the agreement and the circumstances in which it was made. I consider that viewed objectively, the parties would have regarded the term as being obvious had they turned their minds to the possibility of an assignment of or trust over the Farm-in Agreement or the benefit of the agreement during their negotiations. The term would be required to give business efficacy to the agreement even though cl 9 was no more than an agreement to agree as the parties were entitled to have the expectation embodied in the clause protected by a term preventing an assignment of or trust over the agreement or the benefit of the agreement.

171 However, the implied term allegation rested on a finding that was not made and which the court was not expressly asked to make in the light of parties' submissions concerning how cl 7 should be interpreted.

172 It is necessary to say something further about the transfer of personal contractual rights and the vicarious performance of contractual obligations having regard to the parties' submissions concerning the effect of the Farmin Agreement.

It is a rule of assignment that personal contractual rights may not be assigned without the consent of the obligor. This is the 'personal rights' rule. In addition, a contractual obligation may not be vicariously performed if it calls for the personal performance of the obligor.

174 In Devefi Pty Ltd v Matefry Pearl Nagy Pty Ltd (1993) 113 ALR 225, the Full Court of the Federal Court (Northrup, Gummow and Hill JJ) noted that the performance of a contract involving personal skill and confidence cannot be assigned 'any more than such a contract can be made the subject of an order for specific performance' (234). However, the product of performance of such a contract - the 'fruits of the contract' - may be assigned in the absence of a contractual or statutory prohibition.

175 The question of whether the contract is a personal contract or confers particular rights that are personal and incapable of assignment is a question of construction. The right will not be personal if, on construction, 'it can make no difference to the person on whom the obligation lies to which of two persons is to discharge it': Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660, 668 (Collins MR). That is said by Tolhurst to be the essence of the investigation so that the focus is not on whether the parties contemplated assignment but rather, on whether the parties objectively intended that the rights created by their contract were personal [6.69]. He states that:

It appears to be generally accepted that, subject to a statutory provision to the contrary, the parties may inhibit the assignability of a contractual right or the delegation of a contractual duty as a matter of contractual intent. One way this can be done is to make the right or duty personal. That is, in general terms and in the case of a right, the obligor must evince an intention that he or she wishes to perform only for the other party to the contract. In a case of an obligation, the obligee must evince an intention that he or she requires the subject of the contractual obligation to be performed only by the obligor. The presumed intention as to the nature of any particular right or obligation must be derived by construing the entire contract in the light of its surrounding circumstances and its own subject matter.

176 Further, in Pacific Brands, Finn and Sundberg JJ observed at [59] that:

It characteristically is said that it is a question of construction whether a contract itself or particular rights or obligations, involve personal obligations such as to render the contract or those rights unassignable, or the obligations not delegable ... However, given the particular purpose for which the contract and its terms are being construed, implicit in the question of construction are, ordinarily, issues of characterisation and of inference in which the significance to be attributed, variously, to identity, to the qualities or attributes one or both parties are expected to exhibit and to the character of the parties' relationship, can loom large.

177 That is not to suggest that the question incorporates a subjective element but rather, as Emmett J observed in Pacific Brands by reference to Chitty on Contracts (HG Beale and others (ed), 29th ed, 2004) at 19043 to 19054, 'the benefit of a contract may not be assignable in a case where the personality or identity of the parties is significant, that question being determined objectively having regard to the nature of the contract and the subject matter of the rights assigned' [194] (and see Don King Productions at 318 319, 'whether or not the benefit can be assigned depends primarily upon the terms of the contract and secondarily upon the character of the obligations').

178 As has been noted, generally the burden of a contract cannot be assigned. Ordinarily, a party to a contract has a right to have the obligations and benefits for which it bargained performed by the other party. However, the obligation to perform may be delegated or vicariously performed where, on a proper construction of the contract, the promise given is to ensure that a certain performance is tendered. It is not sufficient for a party to have a mere expectation of personal performance; rather, the obligation of personal performance must be found in the terms of the contract: [6.77].

179 Tolhurst suggests that the reason why a personal contractual right cannot be assigned is that the result would be that the assignor would be assigning a right different from the one that it possesses under the contract. That would be at odds with the nemo dat rule since an assignment of a chose in action involves a transfer of property [6.92].

180 Further, it is not possible to vary the obligations of the obligor by assignment. Tolhurst states (at [6.93]:

There is a relationship between this rule and the rule prohibiting the assignment of personal rights. If a right is personal then so too (in an assignment sense and not a vicarious performance sense) is a correlative obligation, and to recognise the assignment of the right would result in a variation of the obligation. It is only when it is, on construction, irrelevant to the obligor whom it performs for that performance for a person other than the express beneficiary of the contract does not amount to a variation of the obligation.

181 In summary, the focus of the enquiry is on whether the parties contemplated personal performance. Viewed objectively, they could not be taken to have contemplated personal performance where the identity of the party performing the obligation could make no difference to the other party having regard to the nature of the obligation and the benefit to be derived from its performance. The substance of the obligation and therefore, the benefit derived by the obligee from its performance are not altered. However, the effect of an assignment of a personal obligation would be to alter the substance of the obligation: and see Don King Productions (319) (Lightman J).

182 The conclusion reached earlier in these reasons was that cl 1 to cl 6 of the Farm-in Agreement did not contain interdependent rights and obligations. In my view, an analysis of the rights and obligations created by those clauses, viewed in isolation from the balance of the agreement, also indicates that they were not personal and incapable of assignment or vicarious performance by their very nature. It would make no difference to the party entitled to the benefit of performance who performed the obligations, as long as they were performed. The obligations were capable of specific performance.

183 What possibly marks the Farm-in Agreement as being personal in the sense referred to in the authorities is cl 9. However, that clause is unenforceable; it is merely an agreement to agree that has no legal effect as such. That did not mean that the clause did not manifest an intention that was relevant to ascertaining the proper interpretation of cl 7 of the Farmin Agreement. However, the question in this context is whether the agreement considered as a whole was a personal contract so that it had a particular legal effect. The concern is with the Farmin Agreement, as it is to be applied to regulate the contractual relations between the parties. That emphasises the unenforceable nature of cl 9 in this context.

184 Nevertheless, in my view, the intention manifested in the clause is relevant to the construction of the Farm-in Agreement as a whole. As has been emphasised, the clause disclosed an intention that Austpac and Australian Zircon would be the parties who were to perform the Farm-in Agreement so as to be in a position to negotiate for and enter into a more definitive agreement and joint venture arrangement should Australian Zircon elect to proceed to a bankable feasibility study. The identity of the parties who performed the obligations was not significant because of some innate quality or expertise that they possessed. Rather, their identity was significant because the very purpose of the agreement was to facilitate the investigation by one party of a mineral deposit located on land controlled by the other party with a view to those parties entering into a more definitive agreement and joint venture arrangement for the purpose of sharing in the benefits of exploiting that deposit. It was the parties' identity as the persons who were to make that agreement and arrangement for that purpose that stamped the Farm-in Agreement, when construed as a whole, as being personal in the required sense. Accordingly, the rights and obligations in the agreement could not be assigned or vicariously performed.

185 In my view, that conclusion accords with the observations of Finn and Sundberg JJ in Pacific Brands quoted earlier. Further, in this instance an assignment of the benefit of the contract - the fruits of performance - would be an assignment of the very thing that was personal to the parties: the opportunity to enter into a more definitive agreement and joint venture arrangement once the WIM 150 deposit had been sufficiently investigated to justify a bankable feasibility study.

186 Finally, the conclusion that the Farm-in Agreement was a personal contract is consistent with what each party knew about the other parties' objectives in entering into the agreement. They knew that they were not competitors and that they shared some familiarity with the mining and processing of heavy mineral sands. They did not consider it necessary to make detailed inquiries about each other even though the agreement contemplated a relationship over some time with the possibility of a further agreement. That also suggests that they intended that performance of the the Farm-in Agreement would be personal to them unless otherwise agreed.

187 I have indicated that, in my view, cl 10.1 of the Sale Agreement contemplated an assignment of the bundle of rights, obligations and powers comprising the whole of the Farm-in Agreement and not merely an assignment of the benefit of the contract coupled with a delegation. The contrary view would be to construe the clause by reference to the observations of Lord Browne-Wilkinson in Linden Gardens. On the construction of the clause that I consider was intended by Austpac and Astron, the contemplated assignment could only be effected by a novation as the obligations imposed by the Farm-in Agreement on Austpac could only be assigned by consent. Assuming that an assignment was permitted by the Farm-in Agreement, the purported assignment would nevertheless be ineffective as no consent had been given. Consent would not be required, of course, if cl 10.1 was interpreted in the manner contended by Austpac.

The premise on which the trust contention rested

188 The declaration of trust contained in cl 10.4 is expressed to be until an assignment or novation of the 'Contract' (the Farm-in Agreement) is obtained or until the 'Contract' ends. The declaratory relief sought by Austpac is perhaps more widely expressed as it is assumed that an assignment or novation cannot be obtained: 'if it is not entitled to assign its right, title or interest in or arising out of the Farm-in Agreement ... a declaration ... that it will hold its right, title or interest in or arising out of the Farm-in Agreement on trust ... on the terms of the Sale Agreement on Completion' ('Completion' being defined to mean 'completion of the sale and purchase of the Business and the Assets').

189 The declaration sought assumes that it has been found that either the Farm-in Agreement contains an express or implied term prohibiting an assignment of the Farm-in Agreement but not a declaration of trust or that the rights and obligations created by the agreement are by their personal nature incapable of assignment and vicarious performance.

190 In Secure Parking Buss JA (with whom Martin CJ agreed) stated at [100] [102]:

Contractual rights and other choses in action may be the subject matter of a trust. See Lloyds v Harper (1880) 16 Ch D 290; Harmer v Armstrong [1934] Ch 65. In Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd [1926] AC 108, Lord Shaw, delivering the advice of the Privy Council said:

'The scope of the trusts recognised in equity is unlimited. There can be a trust of a chattel or of a chose in action, or of a right or obligation under an ordinary legal contract, just as much as a trust of land.' (124)

A trust may be created in respect of a contract which is not assignable at law, unless it is prohibited by the terms of the contract. See Don King Productions Inc v Warren [2000] Ch 291 at 321, 335 336.

A trust may be created in respect of a lease over real property (Keech v Sandford (1726) Sel Cas Ch 61; 25 ER 223) and, more generally, in respect of an equitable interest in real or personal property (Comptroller of Stamps (Vic) v HowardSmith [1936] HCA 12; (1936) 54 CLR 614, 621 622).

191 The proposition that a trust may be created in respect of a contract that is not assignable at law is controversial, at least amongst academic writers: see P G Turner, 'Charges of Unassignable Rights' (2004) 20 JCL 97 at 97 98. My researches suggest that this aspect of the judgment of Lightman J at first instance and the Court of Appeal in Don King has not been considered at appellate level in Australia apart from in Secure Parking.

192 There is, in my view, some force in the academic criticism of the decisions in Don King: see especially A Tettenborn,'Trusts of Unassignable Agreements' [1998] LMCLQ 498 and 'Trusts and Unassignable Agreements - Again' [1999] LMCLQ 353; A Trukhtanov, 'Trusts of a Non-Assignable Contractual Benefit: Barbados Trust Company v Bank of Zambia' (2007) 70(5) MLR 848 and the article by Professor Turner. There is the troubling question of whether obligations can be held on trust notwithstanding their inclusion in the list of items that could constitute trust property according to Lord Shaw in Lord Strathcona. The proposition is rejected in Scott on Trusts (4th ed) at 494: 'a chose in action can be held in trust by the obligee. It is clear, however, that the obligee has no such interest in his obligation as can be held in trust ... a person cannot have a legal claim against himself, whether for his own benefit or for the benefit of another' (see also Professor Turner's article at 108 and following). Further, 'an attempt to create a trust over a contractual benefit in the face of a prohibition on transfer gives rise to a conflict between the law of property and the law of contract: to allow the non-party beneficiary recourse under the Vandepitte route is to throw out the contractual protections agreed by the original parties, to not allow that recourse is to deprive the beneficiary of the property interest he was expected to acquire there and then at the time of the creation of the trust' (Trukhtanov, 856).

193 Professor Turner provides a comprehensive analysis of other conceptual difficulties. Prominent among those difficulties is the principled and practical outworking of the proposition advanced by Lightman J in Don King Productions that 'a beneficiary cannot be allowed to abrogate the fullest protection that the parties to the contract have secured for themselves under the terms of the contract from intrusion into their contractual relations by third parties' (321); see also on appeal, the observations of Morritt LJ at [26]. Professor Tettenborn suggested in his 1999 article that there was an important distinction to be drawn between a trust of a benefit of a promise and a trust over the fruits of the promise. The latter trust does not involve the interests of third parties, whereas the former does as the promise is still to be enforced: and see Barbados Trust [37] (Waller LJ). Professor Turner suggested that rights that are considered personal for assignment should be characterised in the same way for the purpose of a declaration of trust; they should be regarded as 'inalienable' and therefore, incapable of being trust property: Barbados Trust [41] (Waller LJ).

194 However, Buss JA stated the proposition that there can be a trust of a contract that is not assignable at law without qualification and he plainly accepted that the proposition was good law (as have other academic writers and the learned authors of leading texts on equity and contract). Martin CJ expressly agreed with his Honour's reasons. The decision of Lightman J in Don King Productions was affirmed by the Court of Appeal and not doubted in Barbados Trust.

195 There are, however, suggestions that the proposition is confined to a trust over the benefit of the contract concerned; see generally Barbados Trust and Tolhurst states that (at [6.90]):

It has been held that a prohibition against assignment may not prevent the assignor from declaring itself a trustee of the benefit of the contract. Even where the contract involves personal skill and confidence, it has been said that a party may declare itself a trustee of the fruits for the benefit of a third party and arguably the benefit of the contract.

196 As Professor Turner has pointed out, it is not clear whether Lightman J in Don King Productions was referring to a trust over the rights created by the contract (the benefit of the contract or its product) or to a trust of the entire contract (its rights and obligations) when he referred to a trust over 'the agreements'. The Court of Appeal was referred to Professor Turner's article in Barbados Trust and their judgments focus on a possible trust over the benefit of a contract. However, their Lordships did not endeavour to resolve any ambiguity in the judgment in Don King Productions.

197 Those considerations indicate that further analysis and argument might suggest limitations to the broad statement of principle accepted by Buss JA in Secure Parking. However, I consider that I am bound by what his Honour said to hold that the whole of the Farm-in Agreement could have been the subject of the declaration of trust made in cl 10.4 of the Sale Agreement. The citation of the judgment of Lord Shaw in Lord Strathcona immediately before the statement of the proposition that his Honour accepted was established by Don King Productions cannot be overlooked.

198 The result is that I would have been bound to have held that the declaration of trust in cl 10.4 of the Sale Agreement was effective regardless of how that agreement was to be construed but for the finding that cl 7 of the Farmin Agreement prohibited the declaration.

199 I would have been inclined to accept the submissions by counsel for Australian Zircon that there could only be a declaration of trust over the product of the performance of a contract or the benefit of the contract had I not concluded that I was bound by Secure Parking to find that there could be a trust over the entire contract. The effect of the declaration of trust in the Sale Agreement would then depend on the proper construction of cl 7 of the Farmin Agreement (whether it prohibited the declaration of trust) and cl 10.4, read with 10.1, of the Sale Agreement (whether the intended trust property was the entire Farm-in Agreement or only the benefit of the agreement).

200 There is no reason why the court should not exercise its discretion to make a declaration in the terms sought by Austpac that the Sale Agreement is frustrated and at an end.

CITATION : AUSTRALIAN ZIRCON NL -v- AUSTPAC RESOURCES NL [No 2] [2011] WASC 186 (S)

HEARD : 13 & 14 DECEMBER 2010, 4, 15 & 29 AUGUST 2011 AND ON THE PAPERS

Practice and procedure - Costs - Whether right to an indemnity accrued prior to termination of agreement for frustration - Whether costs should follow the event

Frustrated Contracts Act 1978 (NSW), s 7

Second and third defendants ordered to pay costs of counterclaim by first defendants

First Defendant : Mr B Dharmananda & Ms K M McNally

(a) Australian Zircon NL claimed a declaration that an agreement made between Austpac Resources NL and Astron Ltd by which Austpac agreed to sell and transfer an exploration licence and its interest in a farm-in agreement to Astron (the Sale Agreement) was ineffective to transfer the licence and farmin interest. (The exploration licence and interest in the farmin agreement were purportedly further assigned by Astron to its wholly owned subsidiary, WIM 150 Pty Ltd.)

(b) Austpac counterclaimed for a declaration that Australian Zircon held its interest in the farm-in agreement on trust for Astron and/or WIM 150 if it was found that the Sale Agreement was ineffective to transfer the interest.

(c) Austpac also claimed a declaration as against Astron and WIM 150 that the Sale Agreement was discharged by frustration if it was found that the agreement was ineffective to transfer the licence and the farmin interest and Australian Zircon did not hold the interest on trust for Astron and/or WIM 150.

2 A declaration was made that the Sale Agreement was ineffective to transfer or assign or create a trust over Austpac's rights and obligations in the farm-in agreement without the consent of Australian Zircon. It was further declared that any assignment from Astron to WIM 150 was ineffective to the extent that it purported to transfer rights and obligations under the farmin agreement and that the Sale Agreement was frustrated on 3 May 2010 and was terminated on that date. The reasons for those declarations appear in Australian Zircon NL v Austpac Resources NL [No 2] [2011] WASC 186.

3 It was further ordered that Austpac, Astron and WIM 150 pay Australian Zircon's costs of the action and that Austpac pay Australian Zircon's costs of Austpac's counterclaim to the extent that such costs were in addition to costs reasonably incurred by Australian Zircon in its action. No order was made for the costs of Austpac's claim for a declaration that the Sale Agreement had been discharged by frustration nor was any other order made regarding costs as between the defendants. Rather, the defendants were directed to file submissions on the further cost orders that they considered should be made as between them. These reasons concern those submissions.

4 Schedule 1 to the Sale Agreement contained warranties given by Austpac. By cl 4.1 of sch 1, Austpac gave a warranty that it was entitled to sell and transfer the 'full legal and beneficial ownership of the Assets' to Astron on the terms set out in the agreement (the Warranty). The word 'Assets' was defined by cl 21.1 of the agreement to mean all of Austpac's interests, right and title to the 'Contracts'. The term 'Contracts' was defined to mean, in effect, those contracts described in sch 2 to the agreement. The only contract referred to in sch 2 was the farmin agreement.

[Austpac] represents, warrants and undertakes to [Astron] that as at the date of this agreement, and continuously from the date of this agreement to and as at Completion, each of the Warranties is true and accurate.

6 Clause 12.4 of the Sale Agreement further provided that:

Except to the extent that [Austpac's] liabilities expressly limited by this agreement, [Austpac] indemnifies [Astron] against all damages, losses, liabilities and expenses incurred by [Astron] as a consequence of any matter or thing being found to be in breach of any of the Warranties.

7 The Warranty formed one of the various warranties referred to in cl 12.1 and cl 12.4 of the Sale Agreement. Astron and WIM 150 contend that the cost orders made between the defendants should give effect to the warranty and indemnity provisions contained in the Sale Agreement notwithstanding that the agreement was declared to be frustrated and at an end as at 3 May 2010 (that is, a few days after proceedings were commenced by Australian Zircon). They seek an order that Austpac indemnify them for any costs payable to Australian Zircon. They also submit that no order should be made for the costs of Austpac's counterclaim for a declaration that the Sale Agreement was frustrated.

8 Austpac disputes that Astron and WIM 150 are entitled to be indemnified under the Sale Agreement. Alternatively, it contends that the court is not in a position to determine whether Astron and WIM 150 are entitled to be indemnified as that issue and related questions were not litigated in the trial. It submits that the only additional order that should be made is that Astron and WIM 150 should be directed to pay the costs of the counterclaim for a declaration that the Sale Agreement was frustrated and at an end.

9 I have concluded that Astron and WIM 150 are not entitled to be indemnified under the Sale Agreement for the costs of the proceedings; that Astron and WIM 150 should pay the costs of Austpac's counterclaim and that no further order should be made to adjust the costs of the action as between the defendants.

(a) Rights that have accrued under an agreement are not divested on the agreement being discharged for frustration (second and third defendants' submissions on costs, par 5).

(b) Astron and WIM 150 took a limited role in the proceedings, including in the counterclaims made by Austpac. At trial (on the second day) they conceded that Austpac was entitled to a declaration that the Sale Agreement was frustrated if Australian Zircon succeeded in its claims against Austpac (par 9).

(c) Australian Zircon's complaint concerned the conduct of Austpac in purporting to assign the exploration licence and its interest in the farmin agreement without obtaining Australian Zircon's consent. That was a breach of the farmin agreement. Astron and WIM 150 were 'in large part joined as necessary parties to the proceeding given the nature of the relief that [Australian Zircon] sought' (par 10).

(d) Section 37(1) of the Supreme Court Act 1936 (WA) and O 66 of the Rules of the Supreme Court 1971 (WA) (RSC) confer a broad discretion on the court to make orders for the costs of and incidental to proceedings. However, where the parties to an action are also parties to a contract that contains plain and unambiguous provisions allowing for costs to be paid on a certain basis, the court will ordinarily exercise its discretion in a manner that is consistent with the terms of the contract: Rumball v Mortimore [2000] WASC 126 [15] (Owen J) (pars 11 and 12).

(e) Consistent with that principle, where a mortgage provides that a mortgagee is entitled to the costs of proceedings to enforce its rights under the mortgage, the mortgagee is not to be deprived of a contractual or equitable right to add costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee's contractual or equitable rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs: Rayner v Australia and New Zealand Banking Group Ltd [2003] WASCA 264 [23] (Murray & Parker JJ citing with approval, Gomba Holdings UK Ltd v Minories Finance Ltd (No 2) [1992] 4 All ER 588, 607 (Scott LJ)) (second and third defendants' submissions, par 15).

(f) By parity of reasoning, the court ought to 'consider the terms of the bargain between the First and Second Defendants in the Sale Agreement' and exercise its discretion to make the costs orders sought by Astron and WIM 150. Austpac warranted that it was entitled to transfer the Assets but it was found that it was not entitled to do so without Australian Zircon's consent. Consequently, it breached the warranty, as a result of which a loss was suffered for which Austpac agreed it would indemnify Astron (pars 16 and 17).

(a) The observations of Owen J in Rumball did not apply. The Sale Agreement did not contain plain and unambiguous provisions allowing for costs to be paid on a certain basis; it made no reference to legal costs and provided no basis for the payment of such costs (first defendant's submissions on costs, pars 6, 7 and 9).

(b) Cases such as Rumball and Rayner concerned agreements for the payment of costs incurred by a security holder in enforcing its security. That was 'a wholly different context' to the indemnity contained in the Sale Agreement. There was a 'real question' as to whether the principles identified in Rumball and Rayner applied in different (that is, nonsecurity) contexts (par 8).

(c) A number of issues arose concerning the meaning and effect of the warranty and indemnity provisions in the Sale Agreement. The court could not determine whether Astron was entitled to be indemnified for costs pursuant to the Sale Agreement without deciding those issues. However, the issues were not raised for determination in the trial (pars 10 and 11).

(d) There was a further and related question as to whether Astron had a right to be indemnified under the Sale Agreement that had accrued prior to the frustrating event. Any right that Astron might have possessed to be indemnified had not accrued by that time (pars 13 to 17).

(e) The Sale Agreement was governed by the law of New South Wales and accordingly, the Frustrated Contracts Act 1978 (NSW) applied. However, the provisions of that Act did not assist Astron and WIM 150 to establish a right to be indemnified under the Sale Agreement. Further, there were issues relevant to the application of that Act that ought to have been raised for determination at trial. Those issues cannot now be determined.

12 In my view, the principles referred to in the submissions made by Astron and WIM 150 are not confined to agreements for the payment of costs contained in security contracts. The court retains a discretion over costs notwithstanding any prelitigation contract made between the parties to proceedings. That discretion is to be exercised judicially. It is plainly just that the court should have regard to any agreement between the parties that affects an order for costs and indeed, to give effect to that agreement unless other discretionary considerations indicate that this would produce an unjust result. There is no reason why the comments of Owen J in Rumball and the Full Court in Rayner should be confined to provisions concerning costs found in security contracts. Similarly, the principles identified by Owen J and the Full Court are not limited to instances where the relevant instrument expressly refers to the payment of legal costs in 'plain and unambiguous language'.

13 However, there is an obvious difference between a prelitigation contract that provides for which party to the contract should bear the costs of any proceedings between the parties and an indemnity of the kind contained in the Sale Agreement. An indemnity does not bear directly on the question of which party is to be held liable for the costs of any proceedings; it merely provides that party A is to be indemnified by party B for any costs that party A is ordered to pay. The indemnity is a contract that operates independently of the court's costs orders. That, I think, was the point that is sought to be made by Austpac in its submissions. The first order sought by Astron and WIM 150 seeks to enforce a contractual indemnity under the guise of inviting the court to exercise its discretion on costs in a particular way. The court cannot make the order sought, so it is submitted, as the enforceability of the indemnity was never an issue raised in the trial.

14 I accept that the principles identified by Owen J in Rumball and the Full Court in Rayner do not directly apply. The principles concern how the court should exercise its discretion to order costs having regard to the terms of an agreement between the parties relating to that question. The first order sought by Astron and WIM 150 is not an order concerning the court's exercise of a discretion to award costs; it is, in substance, an order to specifically enforce a term of the Sale Agreement. Whether that term could be enforced by Astron was not an issue that was raised for determination in the trial.

15 However, in my view, the fact that the Warranty and indemnity were given by Austpac may still be relevant to the exercise of court's discretion to award costs. The terms of a pre-litigation contract may be relevant to the way in which the court should exercise its discretion on costs even if the contract does not specifically make provision for which party should bear the costs of any proceedings involving the contract. It would, in my view, be fair as between the parties to consider whether Astron and WIM 150 were, as they submit, merely joined as necessary parties to what was otherwise a breach of the farm-in agreement by Austpac in circumstances where Austpac had given the Warranty and promised, in effect, to bear the consequences of any breach of the Warranty.

The effect of termination of the Sale Agreement

16 At common law, a frustrating event terminates the contract. The termination operates from the time of frustration; the contract is not invalid from inception so that rights that had accrued at the time of frustration remain enforceable.

17 Astron and WIM 150 contend that the right to be indemnified under the Sale Agreement for the costs of Austpac's claim had accrued by the time that the agreement was frustrated. They did not identify when and how the right accrued before that time but presumably, it is contended that Austpac breached the warranty that it gave on making the Sale Agreement.

18 The terms of the indemnity contained in the Sale Agreement (cl 12.4) were reproduced earlier in the reasons. The wording of the clause is unusual. The liability to indemnify does not arise directly from a breach of warranty but rather, 'as a consequence of any matter or thing being found to be in breach' of a warranty given by Austpac. Accordingly, Austpac's liability to indemnify was contingent on three conditions being fulfilled:

(b) Astron suffering damage or loss or incurring a liability or expense;

(c) a finding being made that Astron had suffered damage or loss or incurred a liability or expense as a consequence of the breach of warranty.

19 The Sale Agreement does not specify how or by whom the finding referred to in cl 12.4 was to be made. The word 'found' is seemingly ambiguous - does it refer to the parties discovering that there has been a breach of warranty through, for example, the occurrence of a particular event or does it refer to a finding to that effect made by a third party such as a court?

20 In my view, Astron did not have a right to be indemnified under the Sale Agreement for any costs that it might incur or for which it might become liable in these proceedings that had accrued by the time that the Sale Agreement was terminated. That is because, at most, only the first of the three conditions required for Astron to have acquired the right had been satisfied (Austpac denies that even the first condition had been met):

(a) The expense or liability had not been incurred prior to termination of the Sale Agreement for frustration - consequently, a right to be indemnified could not have accrued in respect of those expenses or liabilities.

(b) There was no finding and there could be no finding by the time that the event frustrating the Sale Agreement occurred that costs incurred by Astron in these proceedings or any liability for costs was a consequence of Austpac's breach of the prohibition on assignment contained in the farmin agreement (the 'matter or thing' that was alleged by Astron to be in breach of the warranties given by Austpac). That is because the costs had not been incurred by the time of the frustrating event.

(c) There was no 'finding' about whether a breach of the Warranty had occurred prior to termination of the Sale Agreement. The word 'found' connotes awareness - a conscious appreciation - that the 'matter or thing' was a breach of a warranty on whatever meaning is attributed to the word for the purpose of cl 12.4. The sale and transfer of the Assets under the Sale Agreement had not been found to be contrary to the farmin agreement by anybody, including the defendants, by 3 May 2010. At most, there was at that time an assertion by Australian Zircon that the Sale Agreement had been made in breach of the farmin agreement.

21 That conclusion is not affected by the provisions of the Frustrated Contracts Act. That Act is primarily directed to overcoming the perceived injustice of the common law position prior to the decision of the House of Lords in Fibrosa Spolka Akcynja v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4; [1943] AC 32 and see Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344. Section 7 of the Act provides that where a promise under a frustrated contract was due to be, but was not, performed before the time of frustration, the promise is discharged except to the extent necessary to support a claim for damages for breach of the promise before the time of frustration. That section does not assist Astron and WIM 150 as, in my view, any promise to indemnify made by Austpac in the Sale Agreement was not due to be performed before the time that the agreement was frustrated.

22 Austpac alleged by par 13 of its counterclaim against Astron and WIM 150 that the Sale Agreement was premised on:

(a) Austpac being able to assign its rights and obligations, alternatively its rights under the farmin agreement to Astron and/or any related party; or

(b) Austpac holding and performing the farmin agreement as trustee for Astron.

23 Austpac further alleged that the farmin agreement could only be performed on its terms if one of those matters occurred and accordingly, it claimed a declaration to the effect that the Sale Agreement was frustrated and at an end if both of those events could not occur.

24 In their defence to Austpac's claim, Astron and WIM 150:

(a) repeated allegations to the effect that on a proper construction of the farmin agreement, Austpac's interest in the agreement was capable of being assigned without Australian Zircon's prior consent;

(b) alleged that the farmin agreement did not constitute a bar to the performance of the Sale Agreement.

25 I profess that I do not understand what was meant by that second plea if it was intended to allege some matter other than that the farmin agreement did not prevent an assignment of Austpac's interest in the agreement to Astron and WIM 150. The plea was not the subject of any written submission made by Astron and/or WIM 150 prior to the commencement of the trial indeed, the pretrial submissions of Astron/WIM 150 made no reference to Austpac's claim for declaratory relief. However, the court was advised at the completion of Australian Zircon's case at trial that Astron and WIM 150 accepted that the Sale Agreement was frustrated and at an end if Australian Zircon succeeded in its claims for declarations (ts 136).

26 I have already expressed the view that it would be relevant to the question of costs if Astron and WIM 150 had established that Austpac had breached the Warranty notwithstanding the finding that the agreement was frustrated. It might then be open to conclude on that finding that Austpac and Astron had further agreed that Astron would be protected from any loss suffered or liability incurred as a consequence of the breach. Although in the particular circumstances that had arisen Astron could not enforce the indemnity given by Austpac in the Sale Agreement, the parties' intentions as expressed in the agreement would still be relevant to who should bear the costs of the proceedings. That approach would be, in my view, consistent with the spirit of the principle recognised by Owen J in Rumball.

27 The question of whether Austpac breached the Warranty was not raised for determination in the proceedings. It might be thought that a finding of breach could nevertheless be made having regard to the declarations made on the effect of the Sale Agreement and in particular, the finding that the agreement prohibited a transfer of Austpac's interest in the farmin agreement without Australian Zircon's consent. However, Austpac denies that there was a breach of warranty. Its denial was based on the following propositions:

(a) Clause 12.2 of the Sale Agreement provided that each of the warranties given by Austpac were subject to 'any matter to the extent that it is accurately and fairly disclosed in the Disclosure Documents'.

(b) The expression 'Disclosure Documents' was defined to mean the documents listed in sch 3 to the agreement. The documents referred to in sch 3 included the farmin agreement.

(c) The finding that was made on Australian Zircon's claims was that the farmin agreement prohibited the transfer of Austpac's interest in that agreement without Australian Zircon's consent.

(d) That prohibition was contained within and, therefore, disclosed by the farmin agreement.

28 The issue that immediately arises on those propositions is whether it could be said that the prohibition that was found to be contained in the farmin agreement was 'accurately and fairly' disclosed merely by the provision of the farmin agreement to Astron. That issue was not raised at trial and no finding can now be fairly made about the issue on the evidence adduced at trial.

29 In my view, it is not possible for Astron to now contend that Austpac breached the Warranty and that costs should be assessed on the basis that as between Austpac and Astron it was agreed that Austpac should bear the consequences of that breach. It follows that the ordinary rule that costs follow the event should apply the event being that Austpac succeeded in obtaining declaratory relief in circumstances where its entitlement to that relief was formerly denied on the pleadings by Astron and WIM 150. Austpac was only relieved of the obligation to argue that issue by the concession made by Astron and WIM 150 in the course of the trial.

30 There are no other discretionary reasons which, in my view, would justify an order further adjusting the costs of Australian Zircon's claims as between the defendants. Astron and WIM 150 chose to actively participate in the proceedings. They did not merely indicate that they would abide any finding made by the court; they filed substantive defences denying Australian Zircon's claims. They were separately represented at the trial and made submissions in opposition to Australian Zircon's case. The ordinary rule is that multiple defendants are jointly and severally liable for the plaintiff's costs where the plaintiff succeeds against all of them. I can see no reason for departing from that rule, leaving the position as between the defendants to be governed by their rights of contribution.