The lease was assigned and the assignee company went into liquidation, after which no new clay was dug and all that was done was to make merchantable the stock of china clay or china stone that had already been raised. The Master of the Rolls refused to make an interlocutory order putting the dispossessed lessee back into possession and an appeal to the Court of Appeal against that interlocutory decision was dismissed. The covenant was stronger than the one in the instant case.
21 All these decisions depend upon the wording of the covenant being considered. While there can be no doubt that it was the intention of the parties that the quarry would be worked so that royalties would be received, that does not necessarily mean that it was intended to impose an obligation on the lessee to conduct an uneconomic enterprise. In fact, so far as the deed of assignment can be looked at to give some idea as to what was intended, - and it is doubtful whether it can be used for the purpose of construction, - it would appear in clause 4.1.4 to give support to that view and in 4.1.3 to be against it. It is, I think, clear from the evidence of Mr Bennett that it has not been possible since operations ceased to conduct the quarrying operation economically. The evidence was that if it were EMS would do so. One would have thought that was perfectly clear having regard to the capital cost of establishment of the quarry. While all the equipment has been removed, probably in breach of the said clause 4.1.3, but this was not argued - the evidence is that if profitable contracts could be obtained then equipment could quickly be brought back on site and production recommenced.
22 I have come to the conclusion that there was no breach of clause 8(b). The Court is required to find the objective intention of the parties in using the words they used and, of course, looking at the whole of clause 8 when doing so. I do not consider that intention was to require non-economic operation. The opening words of clause 8 do no more than ensue the obligations continue; that is not the same as continuous operation. In this regard it is important to remember the breaches relied upon are breaches of lease, not breaches of the covenant under the assignment.
Claim of failure to pay royalties
23 The first question to be determined is the meaning of "basalt". Although Mr Armstrong, a mining engineer, gave evidence that in quarrying this was a generic term and that the whole of the area the subject of the lease was basalt (being either soil formed as a result of washing of basalt rock, sub-soil or the rock itself), I do not think that any reasonable construction of the lease could lead to the result that all material removed from the bank was basalt within the terms of the royalty clause. I have no doubt that basalt under the lease referred to rock, this being in accordance with one of the definitions in the Shorter Oxford English Dictionary, namely "a greenish or brownish black igneous rock composed of augite or hornblende containing titaniferous magnetic iron and crystals of feldspar" and the definition in the Macquarie Dictionary. The wording of the lease where it refers in clause 2 to "extracting basalt by means of open cut working and excavations from the surface" would not, I think, indicate that everything taken away from the bank was basalt. The expert evidence of Mr Uttley, which I accept, supports this conclusion, as does the requirement to retain top soil for rehabilitation.
24 The next question is whether or not royalties are payable on basalt removed from the quarry - measured in bank metres by a field survey - or are only payable on basalt sold and removed from the leased site. The evidence establishes that a cubic metre is the same as a bank metre. Here the plaintiff has referred to certain clauses in the lease, namely 3(a), 3(e) referring to the word "got", and to 3(f) and 8(h). I do not consider that these clauses assist the plaintiff in its claimed interpretation, and 3(e) is against it. There is no logical reason why royalties should not be payable on basalt removed from the pit and stockpiled on the site. The question really is whether the word removed means removed from the leased site, rather than removed from the area where mining is taking place. I consider that the requirement for field survey, and royalties being based on such field survey with estimated payments being made in the meantime, points to the latter. I so find.
The notice based on breach of the covenant to pay royalties and the claimed repudiation
25 This notice is based upon a claim that royalties are payable on everything removed from the bank. First, the evidence of Mr Bennett is that Mr Beaumont agreed that no royalty would be paid on that part of the material which was used to construct the road. There was no evidence to the contrary. Secondly, the notice of breach demanded payment in respect of everything removed from the bank, whether top soil, sub-soil or what I have determined to be the subject of the royalty payment. The evidence clearly shows that there is basalt stockpiled on the site which I have found to be the subject of royalty. That amount so stockpiled is established to amount to about 6,668 cubic metres which would require a royalty payment of $8,001.60. On any basis it is a long way short of the amount demanded in the notice, namely, $28,571.21.
26 The lease is unusual in some respects as it has no provision giving a right of re-entry and for forfeiture on breach of covenant which would, of course, be subject to the requirements of s129 of the Conveyancing Act. No doubt for that reason the lessor and his solicitors appear to have relied on the general law of contract rather than specific land law relating to leases, in their notice to remedy breach of clause 8(b). As I have found there was no such breach attention must be directed to the action on the claim of royalty breach.
27 In cases where notice is required under s129 of the Conveyancing Act then to be effective the notice should give precise information of what is alleged against the tenant and what is demanded of the tenant so that the tenant can consider whether or not the breach should be admitted or is capable of remedy. Insofar as this particular lease may circumnavigate s129 the position is really no different but the questions remain whether the notice given was good, although for an incorrect sum, and whether there was, as claimed, a repudiation by reason of non-compliance with the notice. This is not a matter which is easy to answer. It has been held that as between mortgagor and mortgagee a notice of demand for repayment of an excessive sum is nevertheless a valid demand so that if the mortgagor fails to pay the proper sum the mortgagee is not precluded from exercising rights under the mortgage available on default. Campbell v Commercial Banking Co of Sydney Limited (1879) 2 LR (NSW) 375; Mir Brothers Project Pty Limited v 1924 Pty Limited [1980] 2 NSWLR 907; Bunbury Foods Pty Limited v National Bank of Australasia Limited (1983-84) 153 CLR 491 at 503-4. On the other hand notices of demand for rent at common law are subject to onerous conditions as to the precise form and accuracy of the notice and the time of service to be effective, if default were relied upon for forfeiture. Fabian v Winston (1590) Cro Eliz 209. The notice in this case may fall between the two but it seems to me that as it was founded upon an incorrect basis for entitlement and calculation rather than an incorrect mathematical calculation, it was not an effective notice so that there was no right to terminate in reliance upon non-compliance with the notice. But if I were wrong in that I am of the view that the claim of termination for repudiation was not made out. No doubt because there were two notices, the lessee's solicitors acted as they did in purporting to accept the claimed repudiation of the lessee for failure to meet the demands of the notices. Acceptance of repudiation is not the same as termination for breach under clause 12(b). I do not consider that failure to comply with the notice evidenced an intention of the lessee not to be bound by the terms of the lease. The sum demanded was excessive and there was, I consider, a genuine uncertainty as to the basis on which royalties were to be payable. The lessee founded his right to treat the lease at an end on repudiation. He should be bound by that action which I consider was not justified by the conduct of the lessee.
Caveat
28 No argument was addressed as to whether the options were valid in light of s120a(3) of the Conveyancing Act. Unless the parties wish to argue this it may be that the appropriate course is to leave the caveat in place on the understanding that the issue is not determined and that no estoppel of any type arises on that question as a result of these proceedings and judgment.
29 The result of all of this is that it follows that the plaintiff is entitled to the benefit of the second lease because clause 25 of the first lease, which requires a valid termination to terminate the second lease, does not take effect. There is however a breach of the covenant in the first lease. To bring an end to these proceedings the parties should attempt to agree on the appropriate amount payable, having regard to these reasons. I can then make an order requiring that amount to be paid.
Proposed orders
30 The plaintiff is entitled to declarations in the general terms claimed in paragraphs 2, 3, 4, 5.2 and 6 of the amended summons. The claim under paragraph 1 should be dismissed. The plaintiff should bring in short minutes to give effect to these reasons.