COUGAR METALS NL (SUBJECT TO DOCA) (ACN 100 684 053) -v- RICHORE PTY LTD (ACN 116 341 363) [2024] WASCA 36 (11 April 2024)

1. The following factual background was uncontentious and is largely taken from the reasons of the learned primary judge.
2. Pyke Hill became the registered holder of the whole of the Tenement in 1993. A company called Richfile Pty Ltd acquired a 50% unregistered interest in the Tenement, which Pyke Hill held on trust for it. The Tenement, mining lease ML 39/159, is 537.45 hectares in area.
3. On 30 April 2004, Pyke Hill and Cougar entered into the Option Agreement.
4. By cl 2(a) of the Option Agreement, Pyke Hill granted to Cougar an exclusive option to acquire the exclusive rights to explore for and mine lateritic nickel and cobalt on the land the subject of the Tenement for the consideration set out in cl 3 and otherwise 'on the terms, covenants and conditions' set out in the Option Agreement. By cl 2(b), Pyke Hill retained, and was entitled to exercise, the right to explore for and mine all other minerals (other than lateritic nickel and cobalt) on the Tenement Area both during and after the option term.
5. The 'Option Fee' was $20,000. The consideration payable by Cougar upon exercise of the Option was $100,000, with a further payment of $100,000 upon the commencement of mining operations, and the payment of royalties.
6. Clause 6(a)(ii) relevantly required Cougar to attend to all proper administration in respect of the Tenement including to pay rents and rates as they fell due and to otherwise maintain the Tenement in good standing including payment of all 'statutory minimum annual expenditure commitments' in respect of the Tenement.
7. By cl 10(a) of the Option Agreement, following the exercise of the Option by Cougar, the Tenement was to remain registered in the name of Pyke Hill provided that, if Cougar made a decision to mine a lateritic nickel and/or cobalt deposit on the Tenement Area then, subject to certain exceptions, Pyke Hill would be required to promptly transfer the legal title to the Tenement to Cougar.
8. On 26 September 2005, Richfile sold its unregistered half interest in the Tenement to Richore. Richfile's half interest in the Tenement was later registered and transferred to Richore.
9. On 23 November 2005, Cougar exercised the option and paid $100,000 to Pyke Hill. Cougar has not yet made a decision to mine. The legal title to the Tenement has not been transferred to Cougar.
10. The annual expenditure obligation for the Tenement for tenement year 2019-2020 (commencing 30 August 2019 and ending on 29 August 2020) was $53,800.
11. On 14 October 2020, after the end of tenement year 2019-2020, Richore requested Cougar to provide details of its exploration expenditure. The following day, Cougar advised Richore that it was in the process of preparing the necessary expenditure report (the Form 5). Richore responded later that day, to the effect that it (Richore) would prepare the Form 5 as, being the tenement holder, it had the obligation to file the Form 5 and that it would be responsible for any failure to do so.
12. On 26 October 2020, Cougar lodged plaint 589036 in the Warden's Court (Plaint 589036) against Richore and Pyke Hill. By that plaint, Cougar sought a declaration that it held all Lateritic Nickel Rights (as that term is defined in the Option Agreement) for the whole of the Tenement pursuant to the terms of the Option Agreement.
13. On 27 October 2020, Cougar advised Richore's tenement agent of work it said had been done on the Tenement in the tenement year 2019-2020. While there was a potential issue agitated before the learned primary judge as to whether Cougar had met the minimum annual expenditure obligation for tenement year 2019-2020 of $53,800, it is not in dispute in this Court that the minimum annual expenditure obligation was not met.
14. On 28 October 2020, Richore's tenement agent lodged the exemption application for the tenement year 2019-2020 (Exemption Application) claiming, among other things, that the title to the Tenement was in dispute. This was 58 days after the end of the tenement year 2019-2020, which was within the time prescribed for such an application to be made.[5]
15. On 2 March 2021, the Exemption Application was granted.
16. On 6 July 2021, Pyke Hill served Cougar with the Notice of Termination. Pyke Hill alleged that Cougar had, with respect to the tenement year 2019-2020, failed, inter alia, to 'cause the statutory minimum annual expenditure of $53,800 ... to be met' in breach of cl 6(a)(ii) of the Option Agreement.[6]
17. On 7 July 2021, Pyke Hill and Richore issued plaint 627690 (Plaint 627690) against Cougar. By Plaint 627690, the respondents sought, inter alia, a declaration that the option agreement was terminated effective 6 July 2021.
18. The Warden heard both Plaint 627690 and Plaint 589036 on 27 July 2021.
19. On 14 September 2021, the Warden dismissed Plaint 627690 and granted the relief claimed by Cougar in Plaint 589036, namely a declaration that Cougar held all Lateritic Nickel Rights (as that term is defined in the Option Agreement) for the whole of the Tenement pursuant to the terms of the Option Agreement. The Warden concluded that the failure of Cougar to cause the minimum annual expenditure for the Tenement to be met was not a breach of an 'essential promise' of the Option Agreement such as to warrant termination of that agreement.
20. As noted above, Archer J allowed an appeal by the respondents from the Warden's decision.
21. As to whether Cougar was in breach of cl 6(a)(ii), the learned primary judge relevantly concluded:

[187] The expenditure obligation under the Mining Act is to spend a certain amount of money by a certain date. Clause 6(a)(ii) requires Cougar to 'maintain the Tenement in good standing including payment of all statutory minimum annual expenditure commitments'. If, by the due date, the money required to be spent has not been spent, there will not have been payment of all statutory minimum annual expenditure commitments. The Tenement will not be in good standing.

[188] The effect of the exemption is to deem the tenement holder to be relieved of the obligation to spend. It does not deem the money to have been spent by the due date. If the money is not spent, cl 6(a)(ii) will be breached and will continue to have been breached.

...

[189] Accordingly, the warden was, with respect, correct to find that cl 6(a)(ii) had been breached.

1. As to whether cl 6(a)(ii) was an 'essential term' of the Option Agreement, her Honour concluded:

[131] The critical question remains: whether, on a proper construction of the Option Agreement, the intention to be imputed to the parties is that the promise in cl 6(a)(ii) was of such importance to Pyke Hill that it would not have entered into the agreement unless assured of strict and literal performance of the promise.

[132] Having regard to the words of cl 6(a)(ii) in the context of the Option Agreement as a whole and the associated statutory framework, I consider this intention is to be imputed. In broad terms, I accept the appellants' submissions. I consider that the following matters are of particular significance.

[133] First, the matters addressed in cl 6(a)(ii) are directed to guarding against the risk of forfeiture.

[134] Second, any level of failure to meet the statutory minimum exposes the lease to a risk of forfeiture.

[135] Third, damages would be an inadequate remedy.

1. The grounds of appeal challenge the conclusions of the learned primary judge set out at [34] and [35] respectively, and provide:
   1. The learned Judge below erred in law in finding that, on its proper construction, the appellant had breached clause 6(a)(ii) of the Option Agreement: Reasons for Decision dated 20 January 2023 (J) [187]-[189].
   2. The learned Judge below erred in law in finding that clause 6(a)(ii) of the Option Agreement is an 'essential' (rather than an 'intermediate') term of the Option Agreement: J [125]-[135], [205].
2. Both grounds of appeal concern the proper construction of the Option Agreement. In relation to each issue there is 'one and only one true meaning to be given' to the words of the Option Agreement, and the task of this Court is to determine for itself the proper construction of the Option Agreement.[7] Accordingly, while Cougar's submissions advanced a number of criticisms of aspects of the learned primary judge's reasons, it is not necessary to address each of those criticisms. To the extent that our construction differs from her Honour's, it will be apparent where our reasoning differs.
3. Before turning to each ground, it is necessary to set out the relevant contractual terms and statutory provisions in more detail.

1. The 'Option' the subject of the Option Agreement is defined in the recitals to the agreement as 'an exclusive option to acquire the Lateritic Nickel Rights'. The Lateritic Nickel Rights are defined to mean 'the exclusive rights to explore for and mine lateritic nickel and cobalt on the Tenement Area', which is, in turn, defined to mean the 'land the subject of the Tenement'.[8]
2. The grant of the Option is contained in cl 2 of the Option Agreement, which provides:

(a) [Pyke Hill] grants to Cougar the Option for the consideration set out in clause 3 and otherwise on the terms, covenants and conditions set out in this Agreement.
>
> (b) [Pyke Hill] shall retain, and is entitled to exercise, the right to explore for and mine all other Minerals (other than lateritic nickel and cobalt) on the Tenement Area both during and after the Option Term.

3. Pursuant to cl 4 of the Option Agreement, and subject to certain conditions, the Option was exercisable 'at any time from the Execution Date up to and including the Cut-off Date (Option Term)'. The Cut-off Date was defined to mean 'the date being 21 months from and including the Execution Date or such later date as is agreed in writing by the parties'.
4. The Exercise Price of the option was $100,000. Pursuant to cl 5, Cougar was required to pay an additional $100,000 upon the commencement of mining on the Tenement and a $0.40 per dry tonne royalty on nickel bearing ore mined and treated from the Tenement by Cougar.
5. It is not in dispute that Cougar exercised the Option within the Option Term.
6. Clause 6 of the Option Agreement is the critical clause in the present case. Clause 6 provides:
   1. ACTIVITIES ON THE TENEMENT

During the Option Term (and if the Option is exercised, then for so long as the Lateritic Nickel Rights exist):

(a) (Cougar's Covenants): Cougar shall:

(i) comply with all relevant laws relating to the Tenement and with all conditions attaching to the Tenement as if it were the registered holder of the Tenement;

(ii) attend to all proper administration in respect of the Tenement including, but not limited to, complying with all relevant reporting requirements under the Mining Act, payment of rents and rates as they fall due, and otherwise maintain the Tenement in good standing including payment of all statutory minimum annual expenditure commitments in respect of the Tenement;

(iii) maintain all relevant insurances and be present on the Tenement Area at its own risk;

(iv) permit [Pyke Hill] to inspect its activities on the Tenement Area at all reasonable times if reasonably required by [Pyke Hill]; and

(v) indemnify, and keep indemnified, [Pyke Hill] against all Claims to the extent that such Claims arise from, or in connection with, the presence of Cougar (or any of its employees, agents, contractors or invitees) on the Tenement Area (except to the extent caused by any negligence of [Pyke Hill] (or any of its employees, agents, contractors or invitees));

(b) ([Pyke Hill]'s Covenants): [Pyke Hill] shall:

(i) promptly forward to Cougar (and make all necessary arrangements so that Cougar directly receives) all correspondence relating to the Tenement issued by the Department of Industry and Resources or other relevant authority;

(ii) permit Cougar access to the Tenement Area for the purposes of carrying out due diligence test drilling as contemplated by clause 3(b) and exploration for lateritic nickel and cobalt on the Tenement Area (and, if the Option is exercised, mining for lateritic nickel and cobalt), provided that any such drilling, exploration or mining (as the case may be) shall be carried out in accordance with good mining industry practice; and

(iii) at all times co-operate with Cougar to enable Cougar to comply with its reporting requirements under the Mining Act;

(c) (Mutual Covenants): the parties shall:

(i) each keep the other informed on a quarterly basis of the results of all on-going work on the Tenement Area; and

(ii) co-operate in planning expenditure on the Tenement with a view to ensuring that the statutory minimum expenditure requirements are satisfied; and

(d) (Royalties): [Pyke Hill] shall be responsible for all State royalties imposed on Minerals mined from the Tenement Area except any such royalties imposed on lateritic nickel and cobalt mined by Cougar.

1. Clause 7 of the Option Agreement made the following provision in relation to rents and rates in respect of the Tenement:
   1. LIABILITY FOR RENTS AND RATES

Following the exercise of the Option, all rents and rates in respect of the Tenement shall be payable by Cougar provided that if Cougar abandons the Lateritic Nickel Rights in accordance with clause 17 then it will cease to be liable for such rents and rates with effect from the date of abandonment.

1. By cl 17(b), Cougar can elect to abandon the Lateritic Nickel Rights at any time after it has exercised the Option. If it does, any financial obligations of Cougar in relation to the Tenement shall cease forthwith (except for its rehabilitation liabilities).
2. The Option Agreement contains no provisions allowing either party to terminate for breach of its terms.
3. The reference in cl 6(a)(ii) of the Option Agreement to 'statutory minimum annual expenditure commitments in respect of the Tenement', directs attention to the relevant provisions of the Mining Act 1978 (WA) (Mining Act) and the Mining Regulations 1981 (WA) (Mining Regulations), to which we now turn.

1. Mining leases, of which the Tenement is an example, may be granted by the Minister under s 71 of the Mining Act.

1. Section 71 provides that the Minister may grant a mining lease 'on such terms and conditions as the Minister considers reasonable'. In light of the primary object of the Mining Act - to encourage and promote the prospecting and exploration for, and mining of, mineral deposits in the State - the Minister's power to impose conditions extends to a broad range of matters, including conditions with respect to expenditure, the reporting of the discovery of minerals of economic interest, and the rehabilitation of land which is disturbed in the course of operations conducted under the tenement in question.[9]
2. Certain conditions are, however, deemed to be imposed on every mining lease. In that regard, s 82 of the Mining Act relevantly provides:[10]

82. Covenants and conditions of lease

(1) Every mining lease shall contain and be subject to the prescribed covenants by the lessee and in particular shall be deemed to be granted subject to the conditions that the lessee shall -

(a) pay the rents and royalties due under the lease at the prescribed time and in the prescribed manner;

(b) use the land in respect of which the lease is granted only for mining purposes in accordance with this Act;

...

(c) comply with the prescribed expenditure conditions applicable to such land unless partial or total exemption therefrom is granted in such manner as is prescribed;

...

(e) lodge with the Department at Perth such periodical reports and returns as may be prescribed;

...

(f) promptly report in writing to the Minister details of all minerals of economic significance discovered in, on or under the land the subject of the mining lease;

...

(g) be liable to have the lease forfeited if he is in breach of any of the covenants or conditions of the lease, if he fails to comply with any requirement under section 84A(2) or s 115B(2) in relation to the lease or if a report required under paragraph (e) or section 115A in relation to the land the subject of the lease is not filed in accordance with this Act.

...

(2) Every mining lease shall contain a provision that after receiving the warden's recommendation for forfeiture of a lease for breach of any covenant or condition of the lease by the lessee, the Minister may, as he thinks fit, impose a penalty not exceeding $50 000 as an alternative to the forfeiture of the lease.

(3) Where any penalty imposed as an alternative to forfeiture of the lease pursuant to subsection (2) is not paid within the time specified by the Minister, or within 30 days of written notice of the penalty being given by the Minister to the lessee if no other time is specified by the Minister, the lease shall thereupon be forfeited.

1. Of particular significance in this case, is the condition on mining leases imposed by s 82(1)(c) of the Mining Act to comply with 'prescribed expenditure conditions', unless an exemption is granted in such manner as is prescribed.

1. 'Expenditure conditions' is defined in s 8 of the Mining Act:

expenditure conditions in relation to a mining tenement means the prescribed conditions applicable to a mining tenement that require the expenditure of money on or in connection with the mining tenement or the mining operations carried out thereon or proposed to be so carried out...

1. The Mining Regulations, in reg 31(1), prescribe that 'the holder of a mining lease shall expend or cause to be expended in mining on or in connection with mining on the lease not less than $100 for each hectare or part thereof of the area of the lease with a minimum of $10 000 during each year of the term of the lease'.
2. The prescribed expenditure of not less than $100 for each hectare or part thereof has remained unchanged since the parties entered into the Option Agreement. As the Tenement is 537.45 hectares in area, the minimum expenditure required with respect to the Tenement has, at all material times, been $53,800 for each year (being the period commencing 30 August and ending on 29 August the following calendar year).
3. As a matter of timing, reg 31(1) provides that the minimum expenditure be expended 'during' the relevant year of the term of the lease.
4. Compliance with that prescribed requirement, however, is affected by reg 31(1a), which provides:

Expenditure incurred under subregulation (1) during the month in which the anniversary date of the commencement of the term of the lease occurs may be treated by the holder as expenditure incurred in either the year immediately preceding that anniversary date or the year starting from such date.

1. The effect of reg 31(1a) in relation to the Tenement, for example, would mean that if certain expenditure was incurred on, say, 30 or 31 August 2023, that expenditure could be included as expenditure incurred either for the lease year from 30 August 2022 to 29 August 2023 or for the lease year from 30 August 2023 to 29 August 2024.
2. Regulation 96C contains specific provision relating to allowable and non‑allowable expenditure for the purposes of calculating expenditure under a lease.

1. As recognised in s 82(1)(c) of the Mining Act, a lessee of a mining lease may be granted a partial or total exemption from prescribed expenditure conditions 'in such manner as is prescribed'.
2. Section 102 of the Mining Act relevantly provides:
   1. Exemption from expenditure conditions

(1) Subject to this Act, on an application (an application for exemption) made, as prescribed, by the holder of a mining tenement (other than a retention licence) or his authorised agent prior to the end of the year to which the proposed exemption relates, or within the prescribed period after the end of that year, the holder may be granted a certificate of exemption in the prescribed form totally or partially exempting the mining tenement to which the application relates from the prescribed expenditure conditions relating thereto, in an amount not exceeding the amount required to be expended -

(a) in respect to any mining tenement other than a mining lease, in any one year; and

(b) in respect to a mining lease, subject to subsection (7), in a period of 5 years.

...

(4A) A person who wishes to object to the granting of an application for exemption must lodge a notice of objection.

(4B) A notice of objection must be -

(a) lodged within the prescribed time and in the prescribed manner; and

(b) accompanied by the prescribed fee.

(a) where an objection to the application is lodged, shall be heard by the warden; but

(b) otherwise, shall be forwarded to the Minister for determination by the Minister.

(6) The warden shall as soon as practicable after the hearing of the application transmit to the Minister for his consideration the notes of evidence and any maps or other documents referred to therein and his report recommending the granting or refusal of the application and setting out his reasons for that recommendation.

(7) Where the warden finds that the reasons given by the holder of the mining lease are sufficient to justify the granting of a certificate of exemption and so recommends, or if the Minister is satisfied whether or not a recommendation is made by the warden, the Minister may grant a certificate of exemption in an amount not exceeding the amount required to be expended in respect of the mining lease in the period of 5 years from the commencement of the year to which the application relates.

62 Regulation 54(1a) of the Mining Regulations provides that, for the purposes of s 102(1) of the Mining Act, the prescribed period in which an application may be made, after the end of the year to which the proposed exemption relates, is 60 days.

1. There has, at all material times, been provision in the legislation for the time for doing any act by a tenement holder to be extended.
2. Prior to 2 February 2013, reg 104 of the Mining Regulations provided that the time required by the regulations for any act to be done by the holder of any mining tenement could be extended by the Minister or a warden, as the case required. Since that date, s 162B of the Mining Act has conferred a power on the Minister or a warden to extend the time to do anything which the Act provides to be done within a prescribed period. Section 162B(2) expressly provides that that power may be exercised whether or not the prescribed period has ended.
3. The effect of a certificate of exemption is set out in s 103 of the Mining Act, which provides:
   1. Effect of exemption

Upon the granting of a certificate of exemption pursuant to section 102 or section 102A the holder of a mining tenement to whom it is granted shall be deemed to be relieved, to the extent, and subject to the conditions specified in the certificate, from his obligations under the prescribed expenditure conditions relating to the mining tenement.

1. As appears in s 82(1)(g) and (2) of the Mining Act, each mining lease is deemed to contain provisions for its forfeiture in relation to breach of its conditions. The Mining Act makes the following further provision in relation to the forfeiture of mining leases. Separate provision is made in relation to forfeiture for breach of expenditure conditions and forfeiture for breach of other conditions.
2. In relation to breaches of conditions and covenants generally, the power of forfeiture rests with the Minister. In that regard, s 97(1) of the Mining Act relevantly provides:[11]

97. Forfeiture of mining lease or general purpose lease

(1) Where a mining lease ... is liable to forfeiture for a breach of the lessee's covenant to pay rent or royalty or for breach of a covenant included in the lease under section 82(1) ... or a condition to which the lease is subject, the Minister may declare, by notice under his hand published in the Government Gazette, such lease forfeited.

...

(5) The Minister, as he thinks fit in the circumstances of the case, as an alternative to declaring the lease forfeited, may -

(a) impose on the lessee a penalty not exceeding $75 000 if the lessee is an individual or $150 000 if the lessee is a body corporate; or

(b) award the whole or any part of the amount of any such penalty to any person, other than an officer of the Department; or

(c) impose no penalty on the lessee.

(6) Where any penalty imposed as an alternative to forfeiture under subsection (5) is not paid within the time specified by the Minister, or within 30 days of written notice of the penalty being given by the Minister to the lessee if no other time is specified by the Minister, the lease is thereby forfeited.

1. Sections 97 and 97A also make provision for appeals against forfeiture. Those provisions provide for an application for the mining tenement to be restored to be made to the warden which is then the subject of a decision of the Minister.
2. In relation to forfeiture for breach of expenditure conditions, the Mining Act provides that any person may apply for forfeiture. Section 98 relevantly provides:

98. Application for forfeiture on other grounds

(1) Where the requirements of this Act are not being complied with in respect of the expenditure conditions applicable to an exploration licence or a mining lease, any person may apply for the forfeiture of such licence or lease as provided in this section.

(2) An application for forfeiture under this section shall be made, during the expenditure year in relation to which the requirement is not complied with or within 8 months thereafter, in such form and manner as may be prescribed and shall be accompanied by the prescribed fee.

(3) The application for forfeiture shall be heard by the warden.

(4A) When the warden finds that the holder of an exploration licence or lessee of the mining lease has failed to comply with such requirements as are mentioned in subsection (1), the warden may recommend the forfeiture of such licence or lease, or impose a penalty not exceeding $10 000 as an alternative to the forfeiture or dismiss the application.

(4B) Where a penalty is imposed under this section the warden may award the whole amount of the penalty or any part thereof to the applicant.

(5) A recommendation shall not be made under subsection (4A) unless the warden is satisfied that the non-compliance with such requirements is, in the circumstances of the case, of sufficient gravity to justify the forfeiture.

(6) As soon as practicable after the hearing of the application the warden shall forward to the Minister the notes of evidence, with a report and the warden's recommendation, if any, on the application and the Minister may, before acting on the recommendation, require the warden to take such further evidence or rehear the application as the Minister directs.

...

(9) Where any penalty imposed by a warden as an alternative to forfeiture under subsection (4A) is not paid within the time specified by the warden, or within 30 days after the penalty is imposed where no other time is specified, the warden shall make a recommendation to the Minister as to whether or not the licence or lease should be forfeited.

1. Section 99 of the Mining Act, in turn, provides:

99. Proceedings by Minister on recommendation

(1) The Minister, after receiving the recommendation of the warden as provided in section 98, may, as the Minister thinks fit -

(a) declare the exploration licence or the lease to which the recommendation relates, forfeited; or

(b) impose a penalty not exceeding $10 000 as an alternative to forfeiture; or

(c) award the whole amount of the penalty or any part thereof to the applicant who applied for forfeiture; or

(d) determine not to forfeit such licence or lease or impose any penalty.

(2) Where the Minister declares an exploration licence or lease forfeited under subsection (1) he shall forthwith give written notice thereof to the applicant and shall publish notice of the declaration in the Government Gazette and on the publication of the notice the licence or lease shall become forfeited.

(3) Where any penalty imposed as an alternative to forfeiture under subsection (1)(b) is not paid within the time specified by the Minister or within 30 days of the Minister imposing the penalty as an alternative to forfeiture if no time is specified by the Minister, the exploration licence or lease shall thereupon be forfeited and notice thereof shall be published in the Government Gazette, and the rights conferred on the applicant for forfeiture under section 100(2) shall apply as if the Minister had declared the licence or lease forfeited.

1. Section 99 replicates, in the form of a statutory power, the effect of the lease provision provided for in s 82(2), which is expressed to apply 'after receiving the warden's recommendation for forfeiture'.[12]
2. We turn to the grounds of appeal.

Ground 1 - did Cougar breach cl 6(a)(ii) of the Option Agreement?

1. Ground 1 challenges the learned primary judge's finding that, on its proper construction, Cougar had breached cl 6(a)(ii) of the Option Agreement. In that context, Cougar accepted that it had not expended $53,800 on or in connection with mining on the Tenement for tenement year 2019-2020, either prior to the end of that year (29 August 2020) or at all.
2. Cougar's contention, rather, was that as a consequence of the exemption granted on 2 March 2021, there was no 'statutory minimum annual expenditure [commitment]' within the meaning of cl 6(a)(ii) of the Option Agreement.[13]

1. The principles applicable to the construction of written contracts established by the High Court are well known. They were outlined by this Court in Sino Iron Pty Ltd v Mineralogy Pty Ltd[14] and Electricity Generation and Retail Corporation trading as Synergy v EIT Kwinana Partner Pty Ltd.[15] It is not necessary to repeat them all.
2. Those principles establish that the construction of a contract involves a determination of the meaning of the words of the contract by reference to its text, context and purpose. The process of construction is objective. Ascertaining the meaning of terms in an instrument requires a determination of what a reasonable businessperson would have understood those terms to mean. That inquiry requires consideration of the language used by the parties in the contract, the circumstances addressed by the contract, and the commercial purpose or objects to be secured by the contract.
3. An important matter of context in the present case is, of course, the Mining Act and Mining Regulations. As with any surrounding circumstances, attention must ultimately be directed to the meaning that a reasonable businessperson, having regard to the Mining Act and Mining Regulations, would attribute to the Option Agreement. In that context, the reasonable businessperson would read the Mining Act and Mining Regulations in light of the way in which that legislation would be expected to generally, or usually, operate (and not by reference to their application in rare or exceptional circumstances).[16]

1. Cougar's submissions in support of ground 1 relied upon what it submitted to be the conditional nature of the statutory condition imposed by s 82(1)(c) of the Mining Act as to compliance with prescribed expenditure conditions. While Cougar accepted that the obligation in cl 6(a)(ii), to '[pay] all statutory minimum annual expenditure commitments in respect of the Tenement', was a reference to the obligation imposed by s 82(1)(c), it submitted that the statutory condition was 'expressly conditioned by the words "unless partial or total exemption therefrom is granted in such manner as is prescribed"'.[17]
2. Cougar submitted that the obligation to make 'payment of all statutory minimum annual expenditure commitments' in cl 6(a)(ii) was not to be construed in isolation, but is to be construed in the context in which it appears, namely as a limb or subset of an obligation to maintain the Tenement 'in good standing' and the over-arching requirement of cl 6(a)(ii) to attend to all 'proper administration in respect of the Tenement'.[18] While 'good standing' is not defined in the Mining Act, Cougar accepted that maintaining the Tenement in good standing included the Tenement not being exposed to forfeiture.[19]
3. In that context, Cougar submitted that the grant of the exemption meant that Cougar did not fail to 'attend to all proper administration in respect of the Tenement' or fail to 'maintain the Tenement in good standing' within the meaning of cl 6(a)(ii).[20]
4. Cougar also submitted that there is no textual basis in cl 6(a)(ii) to read a temporal element into the obligation to pay 'all statutory minimum annual expenditure commitments in respect of the Tenement'. Cougar contrasted this with other provisions in both the Option Agreement and in the Mining Act which expressly refer to the obligation to pay rents and rates as they fall due (in the case of cl 6(a)(i) of the Option Agreement) or rents and royalties 'at the prescribed time' (in the case of s 82(1)(a) of the Mining Act).[21]
5. The respondents, in their submissions, emphasised that the obligation in cl 6(a)(ii) of the Option Agreement was an obligation to keep the Tenement in good standing by the payment (that is, expenditure) of the 'statutory minimum annual expenditure commitment', not by obtaining an exemption from the prescribed expenditure conditions.[22] This was confirmed, the respondents submitted, by cl 6(c)(ii), which imposes obligations on each of the parties to co-operate in planning expenditure on the Mining Lease with a view to 'ensuring that the statutory minimum expenditure requirements are satisfied'. These provisions, the respondents submitted, together reveal an intention (objectively expressed) that the prescribed amount would be expended, not that an exemption would be granted from the expenditure obligation.[23]
6. The respondents submitted that the obligation to expend, being part of the contractual obligation to keep the Tenement in 'good standing', was to be construed in the context that a failure to comply with the prescribed expenditure condition (absent an exemption being granted) rendered the Tenement liable to forfeiture under s 98 of the Mining Act.[24]
7. The respondents emphasised that the question is one of the construction of cl 6(a)(ii), not the Mining Act or Mining Regulations. In that context, the respondents submitted that, while Richore's conduct in making the Exemption Application mitigated the consequences of Cougar's breach for the respondents, it did not have the effect that Cougar was not, or ceased to be, in breach of its obligations under cl 6(a)(ii).[25]
8. The construction for which the respondents contended was not limited to a case, such as the present, where the relevant application for exemption was made after the relevant year of the term of the lease (and at a time that the tenement was relevantly 'not in good standing'), but also where an exemption is granted prospectively. That is, the respondents contended that, even where an exemption is obtained prior to the end of the relevant year, such that there is no breach of the condition in s 82(1)(c) of the Mining Act, Cougar would still be obliged, under the Option Agreement, to expend the prescribed amount. In such a case, the respondents submitted, Cougar would remain bound by the 'commitments' (in cl 6(a)(ii)) and the 'requirements' (in cl 6(c)(ii)).[26]
9. The respondents accepted that this aspect of its construction was not essential to their success on ground 1, as no application for exemption was made prior to the end of the relevant year in this case.[27]

1. For the reasons that follow, ground 1 has not been made out. The learned primary judge was correct to find that, on its proper construction, Cougar had breached cl 6(a)(ii) of the Option Agreement.
2. First, in our view it is clear (notwithstanding the somewhat inelegant use of the word 'payment' to refer to an expenditure obligation) that the reference in cl 6(a)(ii) to 'statutory minimum annual expenditure commitments' is a reference to Pyke Hill's obligations (as tenement holder) imposed as a condition on the Tenement by s 82(1)(c) of the Mining Act and otherwise provided for in the Mining Act and the Mining Regulations, with respect to 'expenditure conditions'.
3. The Mining Act and Mining Regulations will, in turn, determine the nature and extent of those 'commitments', including as to the quantum of expenditure required and the period within which that expenditure is to occur. 'Commitments', in cl 6(a)(ii), in our view has the same meaning as 'requirements' as it appears in cl 6(c)(ii) in the phrase 'statutory minimum expenditure requirements'. Both expressions refer to the obligations imposed by the statute on the tenement holder, as indicated by the word 'statutory' in both phrases.
4. In that regard, while it is correct to say, as Cougar submitted, that cl 6(a)(ii) does not itself refer to a temporal element for the payment obligation, a reasonable businessperson, aware of the legislative context, would understand that the minimum 'commitments' (or 'requirements') would be determined by the Mining Act and Mining Regulations, including as that legislation may be amended from time to time.
5. To establish a breach of cl 6(a)(ii) in any given case, therefore, it is necessary to determine, by reference to the legislative scheme, the nature and extent of the 'commitment' and whether there has been a failure to make 'payment' of that commitment. Again, whether there has been a 'failure' to make such a payment, will be determined by the legislative provisions.
6. Thus in the present case, subject to one possible qualification, the 'statutory minimum annual expenditure commitment' for the year commencing 30 August 2019 and ending on 29 August 2020 was $53,800, which, by operation of reg 31(1) of the Mining Regulations was required to be expended 'during' that year (subject to the tenement holder being permitted, by reg 31(1a) to include any expenditure incurred on 30 or 31 August 2020).
7. Subject again to one possible qualification, by failing to expend (make 'payment') of $53,800 'during' that year, on a proper construction of the Option Agreement, Cougar failed to make payment of that 'commitment' and was therefore in breach of cl 6(a)(ii).
8. That construction is confirmed by the context that the obligation to attend to 'payment of all statutory minimum annual expenditure commitments' in cl 6(a)(ii) is a subset of the obligation to maintain the Tenement 'in good standing'. That is, once Cougar had failed to expend the prescribed amount 'during' the tenement year 2019-2020 (including the period allowed by reg 31(1a)), the Tenement was, at the end of that period, liable to be subject to an application for forfeiture.
9. In that regard, as reflected in the parties' submissions, the expression 'good standing' is to be understood as including 'not liable to forfeiture', in the sense that the statutory conditions for a power of forfeiture were enlivened.
10. The possible qualification referred to in [92] and [93] above, of course, concerns the capacity for a tenement holder to be granted an exemption from expenditure conditions by the Minister under s 102 of the Mining Act. In addressing that issue, it is necessary to distinguish, both in relation to the Mining Act and the Option Agreement, between two separate and distinct circumstances; where an exemption is granted prospectively (namely before or during the relevant year in which the expenditure conditions arise) and where an exemption is granted retrospectively (namely after the relevant year in which the expenditure conditions arise).
11. Turning first to the provisions of the Mining Act, the Mining Act clearly contemplates that an application for exemption may be made, and an exemption granted, either prospectively or retrospectively. Section 102(1) expressly so provides. In either case, however, the grant of an exemption does not deny, or affect, the existence of the 'prescribed expenditure conditions' but, rather, affects the tenement holder's obligations with respect to 'prescribed expenditure conditions'.
12. This can be seen, for example, in the form of the condition imposed by s 82(1)(c) of the Mining Act itself, which requires a lessee to 'comply with the prescribed expenditure conditions applicable to such land unless partial or total exemption therefrom is granted in such manner as is prescribed' (emphasis added). It may be correct, as Cougar submitted, that the obligation 'to comply' with the prescribed expenditure conditions is conditioned by the potential for an exemption to be granted. Nevertheless, the 'prescribed expenditure conditions' are not themselves affected by an exemption, merely the obligation of the tenement holder in such a case to comply with them.
13. Nor indeed, does the qualification ('unless'), as Cougar's submissions tended to suggest, denude the primary obligation in s 82(1)(c) to comply with the prescribed expenditure conditions of its substantive content, as if the obligation remained 'suspended' or 'inchoate' until such time as it was known whether the tenement holder intended to apply for an exemption.[28] The exception does not rob the obligation of substantive content. On the contrary, it is the obligation to make the relevant expenditure that has primacy and remains operative 'during' the relevant year, unless and until, it is affected by an exemption.
14. In this regard, the inclusion of the qualification (the words after 'unless') in s 82(1)(c) itself is best understood as contemplating the grant of a prospective exemption. The qualification is on the verb 'shall comply' (i.e. future tense) such that, in a case of an exemption granted prior to or during the relevant year, the holder is relieved of the obligation 'to comply' to the extent of the exemption. Conversely, absent a prospective exemption, the obligation 'to comply' continues unaffected during the year, and consequently, a failure 'to comply' by the end of that year (including the period allowed by reg 31(1a)) will be a breach of the condition.
15. In the case of an exemption granted after the relevant expenditure year, it strains the language of s 82(1)(c) to speak of an exemption affecting an obligation that the lessee 'shall comply ... with' in circumstances in which the time for performance of that obligation has already passed. At that point there is nothing left 'to comply with' in relation to the year that has passed. In the case of a retrospective exemption, one would expect clear statutory language attaching new legal consequences in relation to the facts or events that have already occurred.[29]
16. Of course, that is precisely what one finds in s 103 of the Mining Act, which provides that the tenement holder who is granted an exemption 'shall be deemed' to be relieved from the obligations under the prescribed expenditure conditions. Again, pursuant to s 103 it is not the 'prescribed expenditure conditions' that are affected by the exemption but the tenement holder's 'obligations' under them. More importantly the use of the word 'deemed' makes clear that the section is attaching new and different legal consequences to events that have already occurred. 'Deeming' provisions are often described, in this way, as creating a 'statutory fiction'.[30] In other words, the effect of s 103 is to provide that, whereas prior to the grant of an exemption a tenement holder may have been subject to, and indeed in breach of, their obligations with respect to prescribed expenditure conditions, the tenement holder is now (upon the grant of the exemption) 'deemed to be relieved' of them. Nevertheless, in such a case, prior to the grant of such an exemption, the tenement holder who has not complied with the prescribed expenditure conditions will, as a matter of law, have been in breach of their obligation under s 82(1)(c).
17. The operation of the Mining Act in the ways described above in turn affects the operation of Cougar's obligations under cl 6(a)(ii) of the Option Agreement. As we have said, the Mining Act and Mining Regulations will, in any given case, determine the nature and extent of the 'statutory minimum annual commitments' within the meaning of cl 6(a)(ii); the 'commitment' being the tenement holder's statutory obligations.
18. In a case in which the tenement holder is granted a prospective exemption, such that the tenement holder is relieved of the obligation to comply with the 'prescribed expenditure conditions', there would, in our view, relevantly be no 'commitment' within the meaning of cl 6(a)(ii) of the Option Agreement. In the same way a partial exemption granted prospectively of, for example 50% of the 'prescribed expenditure conditions' would correspondingly reduce the size of the 'commitment' for the given year.
19. In such a case, namely where the tenement holder is relieved of the commitment (or the commitment is otherwise reduced), Cougar would not be in breach of cl 6(a)(ii) for not expending what would have been the prescribed expenditure in the absence of an exemption. This construction is, again, confirmed by the fact that the payment obligation in cl 6(a)(ii) is a subset of the obligation to maintain the Tenement 'in good standing'. In such a case, there would be no point in time at which the Tenement would be liable to forfeiture under s 98 of the Mining Act, for failure to comply with expenditure conditions. There would never be a point in time at which the Tenement was not 'in good standing'.
20. We therefore reject the respondents' contention that, even where an exemption is obtained prior to the end of the relevant year, such that there is no breach of the condition in s 82(1)(c) of the Mining Act, Cougar would still be obliged, under the Option Agreement to expend the prescribed amount. A reasonable businessperson, aware of the legislative context, would understand Cougar's contractual obligations in respect of the 'statutory minimum annual commitments' to reflect Pyke Hill's actual obligations 'during' the relevant year.
21. The position is, however, different in the case of a retrospective exemption, namely an exemption granted after the relevant year (as occurred in this case). In such a case, as a matter of the proper construction of the Option Agreement, at all times during the relevant year, there was a 'commitment' to expend the prescribed amount, which, if not expended during the tenement year (including the period allowed by reg 31(1a)), rendered the tenement holder, at the end of that period, in breach of the condition imposed by s 82(1)(c) of the Mining Act.
22. Similarly, on the proper construction of the Option Agreement, in such a case Cougar would at the end of that tenement year be in breach of cl 6(a)(ii) for failing to have made payment of the 'statutory minimum annual commitments' for that year. This construction is, again, confirmed by the contractual obligation to maintain the Tenement 'in good standing'. In such a case, at the end of that tenement year the Tenement would be liable to forfeiture under s 98 of the Mining Act, and would not therefore be 'in good standing' within the meaning of cl 6(a)(ii).
23. For the following reasons, the subsequent, retrospective, grant of an exemption under s 102 of the Mining Act would not nullify a breach of cl 6(a)(ii) of the Option Agreement.
24. First, the 'deeming' provision in s 103, operates to retrospectively relieve the tenement holder (i.e. the respondents) from the statutory obligation that it had and which, until the grant of the exemption, they had breached. That provision obviously does not itself relieve Cougar of its contractual obligations.
25. Secondly, there is nothing in the Option Agreement which purports to retrospectively remove a breach of its terms as a result of Pyke Hill exercising its statutory rights to mitigate the effect of such a breach.
26. Thirdly, and relatedly, the need for the respondents to mitigate their loss by applying for an exemption, demonstrates, rather than denies, the existence of the breach by Cougar. The need for the respondents to apply for the exemption (to protect the Tenement) was caused by Cougar's breach. That is, the Tenement was not 'in good standing' because of the non-payment of the prescribed expenditure conditions during the tenement year. Indeed, prima facie, the cost of mitigating such a breach would itself be recoverable as damages for the breach (regardless of any power of termination).
27. In this regard a reasonable businessperson would understand cl 6(a)(ii) of the Option Agreement to mean that any conduct by Cougar that failed to 'maintain the Tenement in good standing', even temporarily, would be a breach of that obligation.
28. Finally, the effect of the construction contended for by Cougar would be such that, if at the end of a tenement year the statutory minimum had not been expended (and no prospective exemption had been granted), it could not be said whether or not Cougar was in breach of cl 6(a)(ii) until the outcome of any exemption application was known. Such an uncertain operation of the Option Agreement would create considerable commercial inconvenience, particularly given the capacity, in light of the provisions referred to at [63] to [64] above, for a tenement holder seeking an extension of time to apply for an exemption at any time. A reasonable businessperson would not so understand the Option Agreement.
29. In the present case, there was no prospective exemption granted with respect to the Tenement. Accordingly, by failing to expend $53,800 'during' tenement year 2019-2020, on a proper construction of the Option Agreement, Cougar failed to make payment of that 'commitment' and was, and remained, in breach of cl 6(a)(ii).
30. Ground 1 must fail.

Ground 2 - is cl 6(a)(ii) an essential term of the Option Agreement?

1. Ground 2 challenges the learned primary judge's finding that cl 6(a)(ii) is an 'essential' term of the Option Agreement. The significance of that finding is, of course, that any breach of an essential term by one party will give rise to a right to terminate by the other party. Having regard to the way in which the respondents ran their case, Pyke Hill's right to terminate the Option Agreement in the present case depended upon a finding that cl 6(a)(ii) was an essential term.

1. Whether a term of a contract is an essential term, or an innominate or intermediate term, is a question of construction. The test of essentiality, as Jordan CJ said in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd,[31] is whether it appears, from the general nature of the contract considered as a whole or from some particular term or terms, that the promise is of such importance to the promisee that the promisee would not have entered into the contract unless it had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.
2. As the plurality of the High Court said in Koompahtoo, Jordan CJ's judgment in Tramways Advertising v Luna Park must now be read in light of later developments in the law. In Koompahtoo, Gleeson CJ, Gummow, Heydon and Crennan JJ said that:[32]

It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is 'essential', so that any breach will justify termination.

1. The plurality in Koompahtoo referred with approval to the statement of Lord Diplock in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd,[33] that:[34]

the question whether a breach by one party relieves the other of further performance of his obligations cannot always be answered by treating a contractual undertaking as either a 'condition' or a 'warranty'. Of some stipulations 'all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise'.

1. The plurality in Koompahtoo continued:[35]

In this way Diplock LJ set the policy of the law favouring certainty of outcome through the classification of terms as conditions against that which encourages contractual performance and favours restriction of the right to terminate to cases where breach occasions serious prejudice. As it is put in the eleventh edition of Treitel:

[T]he policy of leaning in favour of classifying stipulations as intermediate terms can be said to promote the interests of justice by preventing the injured party from rescinding on grounds that are technical or unmeritorious.

Perhaps the adoption of other taxonomies for contractual stipulations might achieve similar outcomes. However, Hongkong Fir was decided in 1961 and has long since passed into the mainstream law of contract as understood and practised in Australia.

It may be true that this Court has yet to accept Hongkong Fir as an essential element in the grounds for decision in any particular case. However, in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd, Mason ACJ, Wilson, Brennan and Dawson JJ referred to Hongkong Fir with evident approval and said that the concept of the intermediate and innominate term brings a greater flexibility to the law of contract. ...

The practical utility of a classification which includes intermediate terms, and the consequent greater flexibility of which the Court spoke in Ankar, appears from several consequences. First, the interests of justice are promoted by limiting rights to rescind to instances of serious and substantial breaches of contract. Secondly, a just outcome is facilitated in cases where the breach is of a term which is inessential.

1. More recently, in Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd,[36] the New South Wales Court of Appeal, in concluding that a royalty payment obligation in an Asset Sale Agreement of certain mining tenements was an innominate term, referred to the 'modern English law approach to the classification of contractual terms' summarised by Hamblen LJ in Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd:[37]

The modern English law approach to the classification of contractual terms is that a term is innominate unless it is clear that it is intended to be a condition or a warranty - see, for example, Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44 at pages 70H to 71B (Roskill LJ); Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109 at page 113 (Lord Wilberforce); Bunge Corporation v Tradax Export SA [1981] UKHL 11; [1981] 1 WLR 711 at pages 715H to 716A (Lord Wilberforce), at page 717G to H (Lord Scarman) and at page 727E (Lord Roskill). As Lord Scarman stated at page 717:

Unless the contract makes it clear, either by express provision or by necessary implication arising from its nature, purpose, and circumstances . . . that a particular stipulation is a condition or only a warranty, it is an innominate term, the remedy for a breach of which depends upon the nature, consequences, and effect of the breach.

In my judgment it cannot be said it is clear that the obligation to pay hire timeously is a condition of the charterparties in this case, or of time charterparties generally. In particular:

...

(viii) Whilst certainty is an important consideration in the construction of commercial contracts, I consider that undue weight should not be given to it in evaluating whether a term is a condition or an innominate term. That is because the operation of a condition is always more certain than that of an innominate term and so over-reliance on certainty would lead to a presumption that terms are conditions. There is no such presumption. On the contrary the modern approach is that a term is innominate unless a contrary intention is made clear.

1. Whether the law in Australia goes so far as to include the notion that there is a 'presumption' that a contractual obligation will be an innominate term, as opposed to an essential term, in the absence of 'express provision or by necessary implication', as suggested in this passage, is in our view open to question. It is unnecessary in this case to decide that point. Nevertheless, the plurality in Koompahtoo recognised, in adopting the approach in Hongkong Fir, 'a policy of leaning in favour of' such a classification as consistent with promoting the interests of justice.[38] That 'policy of the law' is consistent with the approach recognised in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd[39] that 'courts are not too ready to construe a term as a condition and, at least where other considerations are finely balanced, will hold that a term is of such a kind that breach of it does not give rise to an automatic right to rescind'.
2. Of course, as stated at [76] above, ultimately questions of contractual construction, and the identification of the objective intention of the parties, require attention to the particular text, context and purpose of the contract concerned.

1. In its submissions, Cougar again emphasised that the obligation in cl 6(a)(ii) to pay 'all statutory minimum annual expenditure commitments' appeared in the context of the broader obligation to attend to all 'proper administration in respect of the Tenement' and to 'otherwise maintain the Tenement in good standing'. Cougar submitted that, whether cl 6(a)(ii) was properly characterised as creating one, two or more distinct obligations, it was necessary to construe the clause as a whole.[40]
2. In that context, Cougar submitted that the sheer breadth and many facets of clause 6(a)(ii) militated against a finding that the parties intended that any promise (or promises) contained in clause 6(a)(ii) would be essential. If the parties had such an intention, Cougar submitted, one would have expected much clearer language to have been used and for the obligations to have been expressed in definitive terms (e.g., without terms like 'including').[41]
3. The 'proper administration' and 'good standing' of the Tenement, Cougar submitted, included all of the covenants and conditions of the Tenement (imposed by s 82 and s 84 of the Mining Act), including matters such as reporting requirements and quotidian aspects of the Mining Regulations, such as the maintenance of boundary marks.[42]
4. Cougar also relied upon the commercial purpose and business relationship established by the Option Agreement being one of mutuality and cooperation with respect to the maintenance of the Tenement, in which many of Cougar's obligations related to Pyke Hill's statutory responsibilities, and for which it had control. The mutual responsibilities of both parties to the Option Agreement, Cougar submitted, was such that it could not have reasonably been intended that the obligations assumed by Cougar were essential to the parties' bargain, bearing in mind that it was Pyke Hill who bore responsibility for those matters under the statute.[43]
5. Finally, Cougar relied upon the commonly known history of the Tenement, which included applications for exemption from expenditure conditions having been regularly granted. Knowing this, Cougar submitted, it was improbable that Pyke Hill would have been assured of strict and literal performance of the obligations in clause 6(a)(ii).[44]
6. The respondents, for their part, also submitted that regardless of whether cl 6(a)(ii) was properly characterised as creating one, two or more distinct obligations, it was an obligation to keep the Tenement in 'good standing'; that is, not at risk of forfeiture. In addition, they submitted that the obligation is 'directed to avoiding not just forfeiture but the risk of forfeiture, the risk of being vexed by proceedings for forfeiture'.[45]
7. In that context, the respondents submitted, as they had before the learned primary judge, that 'in truth nothing is trivial', because any breach puts the Tenement at risk of forfeiture.[46] The respondents submitted that when applying the forward-looking test as to essentiality (i.e. that the promisee would not have entered into the contract unless it had been assured of a strict or a substantial performance of the promise), reasonable business people would not accept any risk of forfeiture.[47]
8. The respondents submitted, as the learned primary judge accepted, that damages would not be an adequate remedy for breach of cl 6(a)(ii) as it is notoriously difficult to assess damages for the loss of a mining opportunity.[48]
9. Relatedly, the respondents submitted that a matter supporting their construction of cl 6(a)(ii) was the difficulty in assessing (if cl 6(a)(ii) were merely an intermediate term) whether any particular breach of the clause went to the 'root of the contract' sufficient to give a right to terminate. The respondents submitted, on that scenario, that a right to terminate would only arise if the Tenement is in fact forfeited, in which case it would be too late.[49] The preferable construction, the respondents submitted, was one in which Pyke Hill would know it had an entitlement to terminate, without having to wait to see whether the Tenement was forfeited.
10. Underlying this submission lay the proposition that the grant of an exemption, after default in payment of 'all statutory minimum annual expenditure commitments', would (or at least might) prevent Pyke Hill from contending that the breach went to the 'root of the contract'. Counsel submitted that to contend, in those circumstances, that there was a loss of a fundamental benefit of the contract was 'a difficult proposition to sustain when it's known as a matter of fact and history that, in fact, the exemption was granted'.[50]

1. For the reasons that follow, we would uphold ground 2. In our view the learned primary judge erred in finding that, on its proper construction, cl 6(a)(ii) was an essential term of the Option Agreement, any breach of which would entitle Pyke Hill to terminate the agreement. On the contrary, cl 6(a)(ii), and in particular the obligation to make 'payment of all statutory minimum annual expenditure commitments in respect of the Tenement' was an innominate or intermediate term, the remedy for the breach of which would depend upon the nature, consequences and effect of the breach.
2. First, the Option Agreement itself contains no provisions in relation to the consequence of any breach of its terms and no provisions allowing either party to terminate the agreement for breach. Nor does the Option Agreement expressly provide that any of its terms are 'essential' terms. Insofar as the respondents submitted that the Option Agreement revealed an intention that Pyke Hill would not accept any risk of forfeiture, however small or technical, that intention is not made express in the words of the Option Agreement, as it could have been.
3. Secondly, cl 6(a)(ii) as a whole includes, and incorporates, a wide variety of obligations many of which could be readily capable of trivial breaches, including breaches for which it could be said that the prospect of the Tenement being forfeited was remote or far-fetched. As counsel for the respondents accepted, this was the case even if it were open to conclude that some aspects of cl 6(a)(ii) were essential terms and other aspects of cl 6(a)(ii) were not. That is, even focussing solely on the payment obligation with respect to statutory minimum annual expenditure commitments, that obligation could well be the subject of very minor or trivial breach, such as expenditure being $1.00 under the prescribed amount.[51]
4. A reasonable businessperson, aware of the terms of the Mining Act, would understand that forfeiture does not automatically follow from a breach of the conditions of a mining lease, including a breach of expenditure conditions. Indeed, in relation to non-compliance with expenditure conditions, the Minister may only forfeit a mining lease following a recommendation to that effect from the warden and the warden is prohibited ('shall not') from making such a recommendation unless satisfied that the non-compliance is, in the circumstances of the case, 'of sufficient gravity to justify forfeiture'.[52] The legislative context known to the parties, therefore expressly provides for a requirement that prevents forfeiture in circumstances which are minor or trivial.
5. In that regard, as stated above, we accept that the expression 'good standing' in cl 6(a)(ii) of the Option Agreement is to be understood as meaning 'not liable to forfeiture', in the sense that the statutory conditions for a power of forfeiture are enlivened, such that any non-compliance with expenditure obligations (however trivial) will render the Tenement not in 'good standing'. Nevertheless, the Mining Act clearly recognises that there is a difference between a tenement being not 'in good standing' (in the sense that the statutory conditions for a power of forfeiture have been enlivened) and the prospect or likelihood that such a tenement will actually be forfeited (which may be so remote as to be far-fetched).
6. Thirdly, the Option Agreement, as a whole, provides for Cougar to make substantial payments under the agreement for the Lateritic Nickel Rights, including the $100,000 Exercise Price, the annual expenditure commitments and additional payments and royalties on mining. The Option Agreement cannot reasonably be taken to reveal an intention that such an investment was liable to be lost upon any breach of cl 6(a)(ii), however trivial or even inadvertent. It does not appear from the terms of the Option Agreement as a whole, that the payment of commitments in cl 6(a)(ii) was of such importance to Pyke Hill that it would not have entered into the contract unless it had been assured of strict performance. Less still could it be said that this ought to have been apparent to Cougar.
7. To the contrary, a businesslike interpretation of the Option Agreement should recognise that Pyke Hill would only be entitled to terminate the agreement, including the acquired Lateritic Nickel Rights in the case of a serious and substantial breach of the agreement. Such an interpretation is consistent with the policy reflected in the recognition of intermediate terms in Koompahtoo at [50]; namely, to 'promote the interests of justice by preventing the injured party from rescinding on grounds that are technical or unmeritorious'.
8. The respondents' submissions, quite properly, focussed on the importance and virtue of certainty in a construction according to which Pyke Hill would know it had an entitlement to terminate. Certainty of outcome is, of course, a policy of the law to which weight must be given. Indeed, the need for certainty as to whether there is a breach, was an important contextual matter supporting our conclusion in relation to ground 1 (see [114] above).
9. The respondents' appeal to certainty in relation to ground 2 is, however, of a different order. It is an appeal to the need for certainty on the part of Pyke Hill as to whether it can immediately terminate the Option Agreement, with impunity, for any known breach of cl 6(a)(ii). In that context, while a relevant consideration, the 'need for certainty' does not, in our view, justify the conclusion that cl 6(a)(ii) (or any aspect of it) is an essential term.
10. First, as the Court recognised in Koompahtoo, certainty of outcome, while a relevant consideration, is not a controlling policy of the law and must be balanced against the policy of encouraging contractual performance and restricting the right to terminate to cases where breach occasions serious prejudice. While eschewing reliance on presumptions generally, we would respectfully adopt the caution expressed by Hamblen LJ in Spar Shipping v Grand China Logistics in relation to over-reliance on certainty (reproduced at [122] above). In each case it is necessary to find the relevant balance.
11. Secondly, the certainty sought to be achieved by the respondents' construction is a certainty in 'knowing' that the Option Agreement is at an end following notice of termination, compared with the need to make a difficult assessment as to the seriousness and likely consequences of a particular breach (in relation to which there may be a dispute).[53] That is, of course, the case with every innominate term; namely the prospect that there may be a dispute as to the nature and extent of the breach and, therefore, an interval between the date of purported termination and certainty as to its effectiveness (for example by judicial determination).[54] In some cases, the nature of the contract may be such that the consequences of termination would require the innocent party to take immediate and irreversible action (such as the sale of real property in a volatile market). In such a case the nature of the contract might itself reveal the need for immediate certainty as to the effect of any purported termination.
12. The Option Agreement, however, is in our view, not a contract of that nature. The Option Agreement, given that it relates to mining rights and that the provisions of cl 6 operate 'for so long as the Lateritic Nickel Rights exist' (see the chapeau of cl 6), is clearly intended to be a long-term agreement. While any breach of the payment obligation in cl 6(a)(ii) required Pyke Hill to take corrective action (namely an application for an exemption), there is nothing in the nature of the Option Agreement that reveals the need for immediate certainty as to the effect of any purported termination. The foreseeable consequences, for Pyke Hill, of termination, are the restoration to it of the Lateritic Nickel Rights and the need for it to resume responsibility for the proper administration of the Tenement, including payment of rents, rates and expenditure. Those consequences are neither time sensitive, nor are they irreversible. That is, in the event that a purported termination of the Option Agreement by Pyke Hill for breach of cl 6(a)(ii) was later found to be ineffective (for example by judicial determination), it is unlikely that the rights or interests of the parties will have been substantially affected in the meantime.
13. Thirdly, and relatedly, in our view, the respondents, with respect, overstate the position in their submission that if cl 6(a)(ii) were an intermediate term a right to terminate would only arise if the Tenement is in fact forfeited, at which point it would be too late. There are several reasons why that is so.
14. In the first place, as the plurality said in Koompahtoo, a breach going to the root of a contract is one that is such as to deprive the injured party of 'a substantial part of the benefit to which [they are] entitled under the contract'.[55] The benefit to which Pyke Hill is entitled under the Option Agreement is not confined to its continued ownership of the Tenement. It is at least strongly arguable that the satisfaction of the expenditure conditions themselves is a part of the benefit of the Option Agreement, the deprivation of which may be sufficiently serious to justify termination of the contract. Moreover, to the extent that the real potential for forfeiture would deprive Pyke Hill of part of the benefit to which it is entitled, principle would not require that Pyke Hill would need to wait for that potential to be realised in order to justify termination. On the contrary, the justification for an election to terminate for breach of an intermediate term must be assessed at the time that the election was made and will include both actual and foreseeable consequences of the breach.[56] An election to terminate, for breach of cl 6(a)(ii), that is made before the grant of an exemption may well, depending upon the particular circumstances, be justified by reason of the risk of forfeiture created as a consequence of the breach.
15. Fourthly, in relation to the respondents' reliance on certainty, while in one sense the obligation to maintain the Tenement 'in good standing' can be said to be directed to avoiding the risk of being 'vexed by proceedings for forfeiture', that too should not be overstated. The risk of being vexed by unmeritorious applications for forfeiture is, unfortunately, an irreducible one. The nature of the obligation prescribed in reg 31(1) of the Mining Regulations, for example, which is not to pay to a certain person or a certain amount but to 'expend' money for particular purposes ('in connection with mining'), is readily capable of giving rise to fine questions as to the extent of 'compliance'. The filing of a Form 5 setting out the expenditure of prescribed expenditure is by no means a guarantee that the tenement holder will not be 'vexed' by forfeiture proceedings.
16. Finally, we should address the issue of the adequacy of damages for a breach of cl 6(a)(ii). In the present case, the learned primary judge accepted the respondents' contention that damages would not be an adequate remedy for a breach of cl 6(a)(ii) for the reason that it is notoriously difficult to assess damages for loss of a mining opportunity.
17. In that regard, as the learned primary judge observed, Ankar v National Westminster Finance is authority for the proposition that a term that is not readily enforceable by way of an action for damages is a factor in favour of concluding that the term is essential.[57] In Ankar v National Westminster Finance, the contract was a contract of surety guaranteeing the performance of a hirer under a contract for the hire of machinery. The terms in question required the owner of the machinery to notify the surety in the case of default (or other action) by the hirer. The purpose of those terms, which the High Court found were essential, was to enable the surety to take steps to safeguard its interests, the loss of which could not readily be reflected in an award of damages.
18. In the present case, however, damages would be an adequate remedy for many potential breaches of the payment obligation in cl 6(a)(ii). Indeed, damages would likely be an adequate remedy in relation to any breach of that obligation that did not, ultimately, result in forfeiture of the Tenement. In such a case, the likely damages would be readily capable of assessment, such as Pyke Hill's cost in applying for and obtaining an exemption, its cost in defending forfeiture proceedings or the expense of incurring expenditure itself in order to comply with its statutory obligations.
19. The only breaches of the payment of obligation in cl 6(a)(ii) for which the difficulty of assessing damages for loss of a mining opportunity would arise would be those in relation to which the Tenement is actually forfeited. That difficulty, however, would arise in a case of forfeiture whether cl 6(a)(ii) is an essential term or an innominate term. And in addition, the prospect that the Tenement would actually be forfeited in such a case would be the same whether or not the Option Agreement itself is terminated. For that reason, in our view, the adequacy of damages in the extreme case of the loss of the Tenement does not carry significant weight in relation to the classification of cl 6(a)(ii) itself.
20. Finally, on this issue, it should be noted that the adequacy of damages is also a relevant consideration in relation to whether a particular breach of an innominate term is such as to justify termination of the contract. In Koompahtoo, for example, the plurality observed that 'the adequacy of damages as a remedy may be a material factor in deciding whether [a] breach goes to the root of the contract'.[58] That observation is concerned with the legal effect of a particular breach, not the classification of the term as essential or innominate. It is therefore in the very nature of an innominate term that in relation to some breaches of the term damages will be an adequate remedy and in relation to other breaches they will not.[59] That, in our view, is the position in the present case.
21. Clause 6(a)(ii) was not an essential term of the Option Agreement, any breach of which entitled Pyke Hill to terminate the agreement. Ground 2 must be upheld.

1. As stated at the commencement of these reasons, the respondents did not contend that, if cl 6(a)(ii) was an innominate term, Cougar's breach was sufficiently serious to have entitled Pyke Hill to terminate the Option Agreement.
2. Accordingly, the appeal must be allowed, and the orders of the Warden restored.
3. We would hear the parties as to the final orders, including as to the costs of the appeal.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] At the time that it entered into the Option Agreement, the second respondent was named Greater Australian Gold NL. The second respondent changed its name to Pyke Hill on 21 June 2006. For ease of reference, all references to the second respondent in these reasons are to Pyke Hill.

[2] The Tenement is defined in the Option Agreement to mean Mining Lease 39/159, and includes any renewal, extension or substitution thereof.

[3] Cougar Metal NL v Richore Pty Ltd and Pyke Hill Resources Pty Ltd [2021] WAMC 1.

[4] Richore Pty Ltd v Cougar Metals NL (Subject to DOCA) [2023] WASC 2 (Primary decision).

[5] The prescribed period is 60 days - see s 102 of the Mining Act and reg 54(1a) of the Mining Regulations.

[6] Pyke Hill served an earlier notice of termination in November 2020. It did not, however, rely upon that notice of termination, which was replaced by the Notice of Termination dated 6 July 2021. For the purposes of these proceedings, Pyke Hill relied upon the latter notice.

[7] Life Insurance Company of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60, 78 (Isaacs J); Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; (2018) 264 CLR 541 [154] (Edelman J); Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80 (Sino Iron Pty Ltd v Mineralogy Pty Ltd) [172] (Buss P, Murphy & Beech JJA).

[9] Re Minister for Resources; Ex parte Cazaly Iron Pty Ltd [2007] WASCA 175; (2007) 34 WAR 403 [70] - [72] (Buss JA, Wheeler & Pullin JJA agreeing); Blue Ribbon Mines Pty Ltd v Roy Hill Infrastructure Pty Ltd [2022] WASC 362 [75] - [76], [204] - [205] (Quinlan CJ).

[10] Save for presently immaterial differences, or where otherwise indicated, the relevant provisions of the Mining Act referred to in these reasons were to the same substantive effect when the Pyke Hill and Cougar entered into the Option Agreement.

[11] The penalties provided for in s 97(5)(a) have been increased after the date of the Option Agreement.

[12] While not material to the resolution of this appeal, s 82(2) and s 99(1)(b) of the Mining Act appear to make inconsistent provision in relation to the maximum penalty that the Minister may impose as an alternative to forfeiture.

[13] Appellant's Submissions [39] - [40] (WAB 15).

[14] Sino Iron v Mineralogy [295] - [298] (Buss P, Murphy & Beech JJA).

[15] Electricity Generation and Retail Corporation trading as Synergy v EIT Kwinana Partner Pty Ltd [2022] WASCA 3 (Electricity Generation and Retail Corporation v EIT Kwinana) [230] (Quinlan CJ, Mitchell & Vaughan JJA).

[16] Electricity Generation and Retail Corporation v EIT Kwinana [249], [252] (Quinlan CJ, Mitchell & Vaughan JJA).

[17] Appellant's Submissions [31] (WAB 13).

[18] Appellant's Submissions [35] - [36] (WAB 14 - 15).

[20] Appellant's Submissions [37] - [38] (WAB 15).

[21] Appellant's Submissions [43] (WAB 16).

[22] Respondents' Submissions [29] (WAB 33).

[23] Respondents' Submissions [31] (WAB 34).

[24] Respondents' Submissions [32] (WAB 34).

[25] Respondents' Submissions [35] - [36] (WAB 35).

[28] This is particularly so given that, in light of reg 104 of the Mining Regulations (prior to 2 February 2013) and s 162B of the Mining Act (see [63] - [64] above), it would be open to a tenement holder seeking an extension of time to apply for an exemption at any time in the future.

[29] As to which see, in relation to 'retrospectivity', The State of Western Australia v Williams [2022] WASCA 105 [42] - [43] (Quinlan CJ, Mazza & Vaughan JJA).

[30] Federal Commissioner of Taxation v Comber [1986] FCA 92; (1986) 64 ALR 451, 458 (Fisher J); East Finchley Pty Ltd v Federal Commissioner of Taxation [1989] FCA 481; (1989) 90 ALR 457 [478] (Hill J); Commissioner of Taxation v Craddock [2006] VSC 408; (2006) 204 FLR 274 [34] (Cavanough J); Young Investment Group Pty Ltd v QBE insurance (Australia) Ltd [2019] WASC 74 [110] - [112] (Quinlan CJ).

[31] Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 (Tramways Advertising v Luna Park), 641 - 642 (Jordan CJ), cited in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 (Koompahtoo) [47] (Gleeson CJ, Gummow, Heydon & Crennan JJ); Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2022] WASCA 69 [427] (Buss P, Murphy & Vaughan JJA).

[32] Koompahtoo [48] (Gleeson CJ, Gummow, Heydon & Crennan JJ).

[33] Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26 (Hongkong Fir).

[34] Koompahtoo [49] (Gleeson CJ, Gummow, Heydon & Crennan JJ).

[35] Koompahtoo [50] - [52] (Gleeson CJ, Gummow, Heydon & Crennan JJ) (references omitted).

[36] Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd [2021] NSWCA 284 (Cromarty Resources).

[37] Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982; [2016] 2 Lloyd's Rep 447 (Spar Shipping v Grand China Logistics) at [92] - [93], cited in Cromarty Resources [44] (Meagher JA, Bell P & Payne JA agreeing).

[38] Koompahtoo [50] (Gleeson CJ, Gummow, Heydon & Crennan JJ); citing Treitel, The Law of Contract, 11th ed (2003), page 797.

[39] Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 (Ankar v National Westminster Finance), 556 (Mason ACJ, Wilson, Brennan & Dawson JJ).

[41] Appellant's Submissions [59] (WAB 20).

[43] Appellant's Submissions [61] - [64] (WAB 21- 22).

[44] Appellant's Submissions [65] - [66] (WAB 22); Appeal ts 39 - 40.

[45] Appeal ts 45; Respondents' Submissions [47] (WAB 37); Primary decision [98].

[46] Appeal ts 45 - 46; Respondents' Submissions [47] (WAB 37); Primary decision [99].

[47] Appeal ts 46 as the respondents had the reasonable businessperson put it: 'We are de-risking this. There is no limit. There is no amount [short] we are prepared to accept'.

[48] Respondents' Submissions [47] (WAB 37); Primary decision [103].

[49] Appeal ts 51; Respondents' Submissions [47] (WAB 37); Primary decision [105].

[52] See Mining Act, s 98(5).

[54] As it happens, in the present case, at least insofar as the proceedings before the Warden were concerned, that interval could hardly have been shorter, the Notice of Termination being given on 6 July 2021 and the Warden's determination of its effectiveness less than 6 weeks later (on 14 September 2021).

[55] Koompahtoo [55] (Gleeson CJ, Gummow, Heydon & Crennan JJ), citing Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361, 380 (Buckley LJ).

[56] See J W Carter, Carter's Breach of Contract (2nd Ed) (2018) [6-52] - [6-53].

[57] Primary decision [86]; Ankar v National Westminster Finance, 557 (Mason ACJ, Wilson, Brennan & Dawson JJ).

[58] Koompahtoo [54] (Gleeson CJ, Gummow, Heydon & Crennan JJ).

[59] J W Carter, Carter's Breach of Contract (2nd Ed) (2018) [6-83]; Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109, 113 (Lord Wilberforce).