HUGHES -v- ST BARBARA MINES LTD [No 4] [2010] WASC 160 (30 June 2010)

HUGHES -v- ST BARBARA MINES LTD [No 4] [2010] WASC 160 (30 June 2010) - WASC 2010 case summary — Zoe

[251]

Whilst I was a tenement manager for Plutonic, it was common that Plutonic would take no action to pursue an application for mining lease through to grant, instead, retaining the area as an application only. The reason for this was that most mining leases were applied for in order to retain title to land for exploration purposes, not because a tenement holder wanted to commence mining. At the end of the term of a prospecting or exploration licence, or when a compulsory partial surrender of an exploration licence was due, if the tenement holder wanted to retain title to the land it would apply for a mining lease in conversion or part conversion of the underlying exploration or prospecting licence. This conversion would serve to extend the term of the underlying title until such time that the application for the mining lease was determined. Both the annual rent payable, the annual expenditure commitment and the annual shire rates payable on an exploration or prospecting licence were significantly less than the rent, expenditure and shire rates payable for a mining lease. Accordingly, holding land for the purposes of exploration was significantly more economic if held as an exploration or prospecting licence. If the applicant for the mining lease did not want to continue to explore the land, but wanted to retain priority to it, the applicant would commonly surrender the underlying exploration or prospecting licence and simply retain priority to the land by way of its application for mining lease. This situation may last for many years.
Upon making an application for a mining lease, the applicant must pay to the Department for the first year's rent on the application. That is, the first year of the term of the mining lease following its grant. Holding the mining lease application imposed no other statutory costs. The first year rent would be refunded should the application be withdrawn or refused.
In my position on the Mining Act and Regulations Committee of the Chamber of Mines, I was aware that the practice of retaining title or priority to land via holding mining lease applications, and not pursuing grant of those licences, as described in paragraph 55 above was very common throughout the resources industry.

[836]

NEWLANDS, MR: Did you or did you not commence negotiations with Mr Tomich in early December 1996?---As I said, there were further - there must have been further conversations. I can't be precise. I've said it before, I can't be precise again on what date or during what period but there would've been more conversations. There had to have been, but I can't recall the dates or a lot of the detail of those conversations. It was a long time ago.

So you are not able to give evidence that you commenced negotiations with Mr Tomich in early December 1996, are you?---Well, I did commence negotiations.

SMITH, MR: I object to that?---I did commence negotiations, clearly. There's a trail of a whole bunch of stuff. I can't recall it all.

[Objection submissions made].

SMITH, MR: My learned friend is putting to him a proposition which appears to be taken from paragraph 7 of his first witness statement, which is not the proposition recorded there.

NEWLANDS, MR: If my learned friend would listen - - -

KENNETH MARTIN J: Would you like the witness to leave the court?

NEWLANDS, MR: No. I'm happy to help my learned friend out. There is a terrible disconformity, your Honour, between the case as pleaded, the evidence in the witness statements and another case that was opened by our learned friend. What I am asking the witness about, as my learned friend well knows, is the pleaded case, nothing to do with his witness statements at all, and paragraph 16(a)(i) has a very clear particular of fact, as does (ii) and (iv).

KENNETH MARTIN J: It seems to me it's legitimate for you to question about the pleaded case.

NEWLANDS, MR: And, you know, forgive me for - - -

KENNETH MARTIN J: Mr Smith's objection, I think - that's not the basis for the objection.

SMITH, MR: I'll withdraw it.

KENNETH MARTIN J: You have withdrawn it. All right.

NEWLANDS, MR: And lest it be suggested anyone has been taken by surprise, forgive us for being old-fashioned, but our learned friend should expect a submission that the pleaded case is not within a bull's roar of being made out.

[913]

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch D 387, 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case (1880) 16 Ch D 681, 686. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; (1932) 147 LT 503, 514, that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, 437.

[1069]

(a) by reason of the agreement made between Zuks and Tomich pleaded in paragraph 16(a)(iv) above the defendants knew that Kingstream was entering into each of the Option Deed and the Supplemental Deed in the belief that if Kingstream exercised the Option conferred by each Deed, the first defendant would then be contractually bound to transfer any Mining Leases which issued in respect of the Applications; in accordance with and subject to the terms of the Option Deed and the Supplemental Deeds.

(b) if the denial pleaded in paragraph 17B(a)(ii) is correct (which is not admitted), before execution of the Option Deed and the Supplemental Deed the first defendant knew that Kingstream's belief in subparagraph (a) was incorrect, and that the first defendant believed that upon their proper construction neither the Option Deed nor the Supplemental Deed imposed the contractual obligation pleaded in subparagraph (a);

(c) by reason of subparagraphs (a) and (b), the defendants knew or suspected that Kingstream mistakenly believed that each of the Option and the Supplemental Deed, upon its proper construction, if Kingstream exercised the Option, imposed a contractual obligation on the first defendant to transfer the Mining Leases;

(d) neither before execution of the Option Deed or the Supplemental Deed did the first defendant inform Kingstream that Kingstream's belief in subparagraph (c) was incorrect, or mistaken;

(e) prior to the execution of the Supplemental Deed, Gardiner made a statement to the effect pleaded in paragraph 16(a)(v) above;

(f) the statement pleaded in subparagraph (e) represented to Kingstream by its agent, Solomon, that the first defendant would treat any areas of E 20/209 which had been surrendered but were applied for by the first defendant by applications for mining lease as subject to the Supplementary Deed if exercised by Kingstream;

(g) when making the statement in subparagraph (e), Gardiner did not inform Solomon either that the Applications:

[1075]

691 The other incident relied upon as a representation sustaining an estoppel is the 17 December 1997 telephone conversation in the period prior to execution of the Supplemental Deed. It is put that during that conversation, Mr Solomon and Mr Gardiner (then the company secretary of St Barbara, having replaced Mr Roberts) discussed statutory 'drop-off' of areas out of the Option Deed's exploration licence tenements, in a context of St Barbara addressing that issue by applying for mining leases over the surrendered areas (see pars 17F (preface), 17E(l) and 16(a)(v) of the Current Statement of Claim (note par 16(a)(v) is par 16(a)(vi) in the Closing Minute)). Mr Gardiner's letter to Mr Solomon of 19 December 1997 followed. But I have also considered this factual issue in the context of my assessment of the contemporaneous documents and of Mr Solomon's evidence. The position I reached was that the Solomon/Gardiner dialogue and communications occurred in the looming context of a s 67 Mining Act anniversary date for St Barbara's tenement EL20/176 at Weld Range. This was addressed by Mr Gardiner pegging out, and St Barbara making, application for the AMLs 20/402 and 20/403, before a looming December 1997 anniversary surrender date, so as to cover the Weld Range exploration licence areas that needed to be surrendered out of exploration licence EL20/176. The Solomon/Gardiner communications took place prior to the execution of the Supplemental Deed. They occurred, I have found, in the absence of information otherwise available to Mr Solomon from a Tengraph map or exploration licence tenement search in respect of EL20/209, but not accessed by Mr Solomon. The Solomon/Gardiner communications were focused at changes by reduction in the areas of the tenements the subject of the Option Deed, which area changes loomed only subsequent to the Option Deed being entered (ie area changes subsequent to 20 March 1997). The focus of the Solomon/Gardiner communications did not extend to any time period before the Option Deed date, so as to carry any degree of relevance towards the Zygot AMLs at Jack Hills (applied for in October 1996).

[1099]

(iii) At all material times EL20/209 was a mining interest in and relating to the site known as 'Jack Hills'.

(iv) On a date unknown between 26 December 1996 and 27 January 1997, in a telephone conversation between Zuks on behalf of Kingstream and Tomich on behalf of the first defendant, it was agreed that in the event that Kingstream exercised the option referred to in particular (ii) above, the first defendant would transfer certain areas of Jack Hills, namely, those areas of EL20/209 to which the Applications related, to Kingstream at a later date when the first defendant was able to do so.

(v) In a telephone conversation between Solomon on behalf of Kingstream and Bryan Gardiner (Gardiner), company secretary of the first defendant, on 17 December 1997, Gardiner told Solomon that the first defendant had secured the portions of the two exploration licences which it had been required to relinquish, and had applied for mining leases over the surrendered portions in substitution for the area of the exploration licences, and that these would become part of the mining tenements the subject of the option.

(vi) By a facsimile dated 19 December 1997, from Solomon on behalf of Kingstream to Gardiner, Solomon confirmed that during a telephone conversation on 17 December 1997 Gardiner told Solomon that the first defendant had secured the portions of the two exploration licences which it had been required to relinquish, and had applied for mining leases over the surrendered portions in substitution for the area of the exploration licences, and that these would become part of the mining tenements the subject of the option.

(vii) At a meeting held on 12 January 1999 between Zuks and Solomon on behalf of Kingstream and Atkins and Dundo on behalf of the first and second defendants, it was orally agreed, relevantly, that if Kingstream exercised the Option the rights and interests the subject of the contract referred to in clause 4 of the Option Deed as amended would include the Applications.

(viii) By a facsimile dated 18 January 1999 from Solomon on behalf of Kingstream to Dundo on behalf of the first and second defendants, Solomon sent to Dundo a copy of a draft deed between Kingstream, the first defendant and the second defendant which provided, relevantly, in recital D that at the time of execution of the Option Deed and the Supplemental Deed the first defendant overlooked the fact that EL20/209 and portions of that exploration licence which had been relinquished and reapplied for as mining leases 20/344, 51/641 and 20/343 were all in the name of the second defendant.

(ix) On 29 January 1999 Dundo on behalf of the first and second defendants informed Solomon on behalf of Kingstream by telephone, relevantly, that there would be 'no problem with' the 'Zygot tenements', by which Dundo intended to convey to Solomon and Solomon understood from Dundo that if Kingstream exercised the Option then the rights and interests the subject of the contract referred to in clause 4 of the Option Deed as amended would include the Applications.

(x) By two facsimiles dated 29 January 1999 from Dundo on behalf of the first and second defendants to Solomon on behalf of Kingstream, Dundo referred to the facsimile dated 18 January 1999 referred to in particular (viii) above and the telephone conversation referred to in particular (ix) above and, relevantly, confirmed his instructions that, in the event Kingstream exercised the Option, the exercise of the Option would be effective in respect of certain specified mining and/or exploration leases, licences, reserves or applications, including, relevantly, the Applications.

(xi) By a written notice dated 8 February 1999 from Kingstream to the first defendant which was signed on that date by Zuks on behalf of Kingstream and Atkins on behalf of the first and second defendants, Kingstream exercised the Option in respect of, relevantly, the Applications.

(xii) By a written notice dated 12 February 1999 from Kingstream to the ASX which was signed on that date by Zuks on behalf of Kingstream, Kingstream announced that it had exercised the Option in respect of, relevantly, the Applications.

(xiii) By letter dated 17 February 1999 from Dundo on behalf of the first and second defendants to Solomon on behalf of Kingstream Dundo referred, relevantly, to the exercise by Kingstream of the Option and enclosed copies of, amongst other things, undated transfers pursuant to the Act executed by the second defendant in respect of the mining leases the subject of the Applications.

(xiv) At a meeting on 22 February 1999 a representative of Clayton Utz on behalf of the first and second defendants delivered to Solomon on behalf of Kingstream amongst other things, the originals of the transfers referred to in particular (xii) above.

(xv) By a facsimile dated 22 April 1999 from Kingstream to the first defendant, Kingstream, relevantly:

[1110]

(a) by reason of the agreement made between Zuks and Tomich pleaded in paragraph 16(a)(iv) above the defendants knew that Kingstream was entering into each of the Option Deed and the Supplemental Deed in the belief that if Kingstream exercised the Option conferred by each Deed, the first defendant would then be contractually bound to transfer any Mining Leases which issued in respect of the Applications; in accordance with and subject to the terms of the Option Deed and the Supplemental Deeds;

(b) if the denial pleaded in paragraph 17B(a)(ii) is correct (which is not admitted), before execution of the Option Deed and the Supplemental Deed the first defendant knew that Kingstream's belief in subparagraph (a) was incorrect, and that the first defendant believed that upon their proper construction neither the Option Deed nor the Supplemental Deed imposed the contractual obligation pleaded in subparagraph (a);

(c) by reason of subparagraphs (a) and (b), the defendants knew or suspected that Kingstream mistakenly believed that each of the Option and the Supplemental Deed, upon its proper construction, if Kingstream exercised the Option, imposed a contractual obligation on the first defendant to transfer the Mining Leases;

(d) neither before execution of the Option Deed or the Supplemental Deed did the first defendant inform Kingstream that Kingstream's belief in subparagraph (c) was incorrect, or mistaken;

(e) prior to the execution of the Supplemental Deed, Gardiner made a statement to the effect pleaded in paragraph 16(a)(v) above;

(f) the statement pleaded in subparagraph (e) represented to Kingstream by its agent, Solomon, that the first defendant would treat any areas of E 20/209 which had been surrendered but were applied for by the first defendant by applications for mining lease as subject to the Supplementary Deed if exercised by Kingstream;

(g) when making the statement in subparagraph (e), Gardiner did not inform Solomon either that the Applications:

[1126]

[F]irst, the common intention which must be established by clear and convincing proof to justify rectification must be the actual or true common intention of the parties. Second, evidence of that intention may be ascertained not only from the external or outward expressions of the parties manifested by their objective words or conduct but also from evidence of their subjective states of mind.

Third, where, for instance, the correspondence between and/or conduct of the parties establishes a positive lack of an 'objective' common intention, then that evidence must be taken in conjunction with the evidence (if any) of their subjective states of mind to determine whether the necessary common intention has been established. In the example posited, that would be highly unlikely.

Fourth, in Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 31 it was held by Tipping J that a party subsequently acting as if the instrument stood in the form into which it is sought to be rectified was strong evidence of that party's intention at the time to execute the instrument in its rectified form. Such conduct is obviously of significance but, depending on other evidence, if any, is not necessarily conclusive although in the absence of any such evidence it may be.

Fifth, it follows that where the correspondence and/or conduct positively establishes the necessary common intention, then assertions by the party opposing rectification of his or her subjective state of mind which is inconsistent with that party's outward manifestation of his or her intention, being unexpressed and uncommunicated, is unlikely to trump his or her expressed intention. But this is because that party is unlikely to be believed.

Sixth, where as in the present case, the outward expression of the parties' common intention is at best inconclusive, then establishing that the subjective states of mind of the parties evinces the relevant common intention becomes critical if the necessary standard of proof to support an order for rectification is to be achieved.

[1252]

It seems clear that there must be some mutually manifest conduct by the parties that is based on a common but mistaken assumption. But what exactly does this mean? As McPherson J remarked in Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd [1989] 2 Qd R 40, 46, the conventional basis for the assumption relied upon must first be identified. The word 'conventional' in this context carries connotations of agreement, not necessarily express but to be inferred. There must be at least a demonstrable acceptance of a particular state of things as the foundation for the dealings of the parties. There has to be a course of dealing between the parties, that is to say, acts or conduct that impinge upon their mutual affairs. McPherson J also noted that acts done privately by one party without them coming to the knowledge of the other are not capable of forming a conventional or accepted basis of their relations. The point that communication is necessary was also made by Lord Steyn in Republic of India v India Steamship Co Ltd (No. 2) [1997] UKHL 40; [1998] AC 878, 913.
It was put in slightly different terms by Lander J in Santos v Delhi Petroleum [2002] SASC 272 at [455]. His Honour spoke of conduct indicating that the parties must have 'agreed the facts upon which the conduct is based or at least assumed those facts'. His Honour went on to say that the conduct of each of the parties must be such that one of the parties can be satisfied that the other party is acting upon an agreed or assumed state of facts. There must be mutuality.
This leads to a related notion. A party sought to be estopped must have played such a part in the adoption of the assumption by the other party that it would be unjust to permit that party to depart from the common assumption. A phrase that has become common in the jurisprudence in this area is that the party against whom the estoppel is directed must have 'crossed the line'. That phrase appears to have come from K Lokumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd (The August Leonhardt) [1985] 2 Lloyd's Rep 28, 34. Kerr LJ said:

[1263]

The third species of estoppel advanced by the banks in this case is equitable estoppel, also known by the term 'promissory estoppel'. There is an interesting discourse on the historical development of equitable estoppel in the banks' written Closing Submissions. There is no need for me to engage in a detailed discussion of the circumstances by which we have arrived at the current state of the relevant jurisprudence. It is sufficient to say five things by way of an introduction to the doctrine of equitable estoppel before covering the one matter on which the parties are in dispute.
First, in Legione v Hately the High Court recognised equitable estoppel as part of the law of Australia. The point in issue in that case was whether promissory estoppel should apply to preclude the enforcement of rights between parties to an existing contract. The species of estoppel that arose in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 was part of this development, although the court did not, on that occasion, extend the doctrine to relationships outside a pre-existing contract. As it has developed, promissory estoppel is now better defined as equitable estoppel (which encompasses the High Trees-type estoppel) and the old species of estoppel by encouragement, or acquiescence, and proprietary estoppel.
Secondly, in Waltons Stores the court took the next step and extended the doctrine to relationships outside a pre-existing contract. Mason CJ and Wilson J, at 404, identified a common thread from previous authority, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment. The basis for intervention was that one party to a transaction had a basic assumption in relation to which the other party to the transaction had 'played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it', citing Dixon J in Grundt at 675. Their Honours explained that equity comes to the relief of such a plaintiff on the grounds that it would be unconscionable conduct on the part of the other party to ignore the assumption.
Mason CJ and Wilson J said, at 406, that the doctrine of promissory estoppel extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable. But mere reliance on an executory promise would not necessarily amount to unconscionable conduct. Something more would be required. That 'something' might be the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party.
The seminal description of the doctrine of promissory estoppel appears in the judgment of Brennan J in Waltons Stores (428). His Honour set out six criteria that are necessary in order to establish an equitable estoppel.
1. The plaintiff has assumed that a particular legal relationship then existed between the plaintiff and the defendant or has expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship.
2. The defendant has induced the plaintiff to adopt that assumption or expectation.
3. The plaintiff has acted or has abstained from acting in reliance on the assumption or expectation.
4. The defendant knew or intended him to do so.
5. The plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled.
6. The defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.
Brennan J provided further detail in relation to the second element. His Honour said that a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so in certain circumstances. Those circumstances occur where the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and the defendant, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.
The third general point I wish to make is that, whatever may be the position in relation to estoppel by representation or conduct and conventional estoppel, with promissory estoppel there is no distinction between representations as to law and fact: Waltons Stores (415 - 416, 432) (Brennan J), (452) (Deane J); Verwayen (413) (Mason CJ), (501) (McHugh J); Caboche v Ramsay (1993) 119 ALR 215, 238 (Gummow J).
Fourthly, unlike the common law estoppels, promissory estoppel applies to representations concerning future conduct: Legione v Hately (432) (Mason and Deane J); Waltons Stores (399) (Mason CJ and Wilson J).
Finally, in Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 , 472, Priestley JA set out a list of principles distilled from Waltons Stores. It is a convenient summary and I will repeat it:

[1287]

796 Sixth, the par 17C(c) alleged common assumption, said to have been adopted by Kingstream and the defendants, was that if Kingstream exercised the option (as it did on 8 February 1999), that 'the defendants would then be contractually bound to transfer to Kingstream any mining leases granted to the defendants in relation to the Applications'. I am unable to accept that this contended for common assumption, the cornerstone of the plaintiff's case for estoppel in favour of Kingstream, has been established. Such a common assumption was not discussed in those terms as between the parties, either orally or by written communication. Its provenance seems essentially to be argument - constructed, after the event, out of a generic use of the term 'Tenements', and the use of the problematic word 'effective' in the Clayton Utz facsimiles, to which I have referred. However, use of that word, 'effective', does not begin to address the prevailing exigencies surrounding the Zygot AMLs at that time, including: what would have to be done to resolve outstanding native title claims pending in respect of the Zygot AMLs; how strategic decisions would be made in that process; who would bear the expense of all that; and how long these obligations upon St Barbara would subsist after settlement? Those pragmatic considerations were not addressed in the overall prevailing circumstances where, through the terms of par 6.5 of the Option Deed, there was also a warranted empowerment of St Barbara to transfer to Kingstream all of what constituted the Sale Interests - something St Barbara actually attempted in respect of the Zygot AMLs at the settlement on 22 February 1999 and which Kingstream accepted at that time. It was only later, at 22 April 1999, that it finally seems to have been appreciated within Kingstream, through Mr Manning, that the Zygot AMLs could not actually be transferred to it, as had been attempted. The settlement was not rescinded. Kingstream kept the five tenements and had them successfully registered as its holdings.

[1564]

K accepts that it has the onus of showing that the loss for which it claims compensation was caused by the breach of contract.
The point has been made that the loss K claims is the loss of the chance or opportunity to obtain a Mining Lease under the Act (see paragraphs 21 and 22). Withdrawal of the Mining Lease Applications in September 2001 was a breach of the contract.
The immediate consequence of withdrawal of the Mining Lease Applications was that K lost the opportunity to obtain a mining lease over the MLA areas. The MLA area became available for the grant of an EL. Zeedam Pty Limited and Mr Ruane made application for an EL on 7 February 2002 (items 184 and 185). The application for an EL had priority over any other dealing; section 103E of the Act. Once an EL issued, Zeedam and Mr Ruane had the exclusive right to apply for a mining lease; s 67(1). The EL gave them the exclusive right to explore the MLA area; s 66 of the Act. ML 20/506 was issued for a 21-year term commencing 20 October 2005 (item 98).
Withdrawal of the Mining Lease Applications was the immediate cause of the loss of the chance to obtain a mining lease.
Because loss of the chance, or opportunity, to acquire the mining lease was the likely result of the breach, it is for the defendants to prove that the breach was not the cause of the loss: Reg Glass Pty Limited v Rivers Locking Systems Pty Limited [1968] HCA 64; (1968) 120 CLR 516 at 523; Chapel v Hart (1999) 195 CLR 232 at 238 - 9 (Gaudron J); 247 (McHugh J) and 271 (Kirby J).
The commonsense cause of loss of the opportunity to acquire a mining lease over the MLA area was withdrawal of the applications: March v E & M H Stramare Pty Limited [1991] HCA 12; (1991) 171 CLR 506 at 509, 515, 522, 524 - 5; Kenny and Good Pty Limited v MGICA (1992) Limited [1999] HCA 25; (1999) 199 CLR 413 at 418, 456-7; McCann v Switzerland Insurance Australia Limited (2000) supra n 7; Henville v Walker [2001] HCA 52; (2001) 182 ALR 37 at 62; Commonwealth v Amann Aviation Pty Limited [1991] HCA 54; (1991) 174 CLR 64 at 174-5 per McHugh ; Smith New Court Securities Limited v Citibank NA [1996] UKHL 3; [1997] AC 254 at 284 - 285.
Carter on Contract (vol 1 and 2) at September 2008 [41-200] states, as a general principle, that it is sufficient proof of causation for the plaintiff to prove that an item of loss for which the plaintiff seeks damages, would not have been suffered but for the defendant's breach. He cites for this general proposition: Daniels v Anderson (1995) 37 NSWLR 438 at 526; Penn v Bristol and West Building Society [1997] EWCA Civ 1416; [1997] 1 WLR 1356.
The 'but for' test has itself been treated as an application of the commonsense principle: See March, supra n 47; Alexander v Cambridge Credit Corporation Limited (1987) 9 NSWLR 310 at 350-1. See also Kenny and Good, supra n 47 at 426 (Gaudron J), 448 (Gummow J) and 457 (Kirby and Callinan JJ).
The criticisms that the 'but for' test is not the exclusive test of causation (see Chapel (Gummow J) at 534) need not be considered here.
Withdrawal of the Mining Lease Applications was the cause of the loss of K's losing a chance or opportunity to acquire a mining lease both on the 'but for', and the commonsense tests.
The point has already been made that when the Mining Lease Applications were withdrawn, each application had been recommended for approval by the Mining Warden. Native Title letters had been issued. All that stood in the way of a mining lease being granted was negotiation of native title arrangements (paragraphs 12 and 27 above).
Whether or not K could have satisfied native title requirements, is relevant not to causation, but to loss. Withdrawal of the Mining Lease Applications caused loss of the chance. Had that chance not been lost, K would have had the opportunity to negotiate with native title holders for a suitable arrangement, and with that arrangement in place, to seek the issue of a mining lease from the Minister. Mr House's evidence is that had arrangements been made with native title holders, then there was no reason why the Minister would not have issued a mining lease (Mr House's statement paragraphs 53 - 56).
The point presently being made is that the ability to satisfy native title requirements and persuade the Minister to issue a mining lease is relevant to assessment of damages, and not to whether the defendants' breach caused the loss of the chance.

[1573]

First, the implicit assumption built into Kingstream's case theory is that the same arrangement with the creditors would have occurred if Kingstream had the (AMLs) at the relevant time.
This is of course wrong. By definition, if an arrangement occurred on this hypothesis it would not be the one that in fact occurred. The one that occurred included giving the creditors the value of this litigation. The obvious inference is that if they were not given that (which they could not have been) they would have to have been given something of similar value. ...
Kingstream has just ignored the above step in its case. It could have deployed evidence rebutting the inference. It did not do so. Accordingly, the Court ought not act on an inference when the party with the onus of proof had the ability to call direct evidence on the topic yet chose not to do so. This means Kingstream has proved no damage at all.
Secondly, the evidence shows that Kingstream could have repurchased after Zygot's surrender the precise assets which it now claims are central to a 'lost chance' case. Kingstream's failure reflects the point made above relating to parties' intention as to the assignment of risk both in 2002, and right back to the date of the Option Deed: it was simply not in the contemplation of the parties that there could be any chance so valuable as Kingstream now asserts. If it were, Kingstream would undoubtedly have repurchased the tenements at the first opportunity. As a matter of law, the parties objectively did not assign such a risk in the Option Deed and the defendants most certainly did not take it on.
Kingstream's failure to repurchase the assets is a key causation point: if any loss was caused by the defendant, such loss ended at the time Kingstream failed to purchase the assets it now claims were so important. The defendant's responsibility would have been the difference between the purchase price Kingstream would have been required to pay had it purchased the applications from the third party, and the price it had contracted to acquire them for from the defendants under the Option Deed. (Of course, if the price had dropped, nominal damages only would have lain.)
Any loss of the kind now claimed by Kingstream was caused by Kingstream's own failure to purchase the assets from those who acquired them after Zygot surrendered the Mining Lease Applications.
Thirdly, allied to the above is Kingstream's lack of action upon discovering the surrender. Reflecting the fact that these were not seen by anyone prior to about late 2004 as possessing any value of realistic exploitation (again relevant to the remoteness point above), Kingstream did not protest the surrender. It did nothing.
Importantly, it did not demand that either of the defendants repurchase the applications and then convey them to Kingstream. (A process that would have left St Barbara bearing the burden of any increase in the purchase price.)

[1587]

The fundamental purpose of the contract which came into existence when K exercised the Option was for the defendants to convey the tenements involved in the contract to K. Those tenements included the Mining Lease Applications. On either limb of the rule in Hadley the defendants realized that if the Mining Lease Applications were withdrawn, K would lose the opportunity to obtain a mining licence over the MLA area; because this was the natural consequence of the breach.
The authors of Cheshire and Fifoot's Law of Contract (9th Aus. Ed) 2008 [23.39] point out that whilst the formulation of the rule in Hadley v Baxendale refers to the contemplation of both parties, the critical issue is whether the defendants should have realized that the loss in question was a probable result of the breach. This appears from Lord Reid's statement of the rule in Koufos supra n 54 .
The rule in Hadley supra n 52 is based on the premise that a contracting party impliedly accepts the risk of loss that, at the time when the contract was made, it knew, or should have known, would probably result from the breach in question: Castle Constructions Pty Limited v Fekala Pty Ltd [2006] NSWCA 133 at [39].
It is well settled that before a defendant is liable, it is not necessary to establish that the defendant need contemplate the degree, or extent of the loss suffered, nor the precise events giving rise to that loss. It is sufficient that the defendant contemplated only the kind, or type of, loss in question Alexander v Cambridge Credit Corporation Limited, supra n 49, at 3656.
As Mason P held in Fekala supra n 60 at [35], whilst it is convenient to identify two separate grounds for the purpose of analysis, in some cases the grounds may overlap.
The first ground is that a reasonable person would have realized that such a loss was likely to occur as a usual consequence of such a breach.
The second ground is that the defendant should have realized that such a loss was likely to occur on the basis of the defendants' actual knowledge of the circumstances.
Loss of the chance of acquiring a mining lease over the MLA area satisfies each limb of the rule in Hadley supra n 52.

[1596]

Kingstream fails to satisfy either limb of Hadley v Baxendale: the loss it seeks is simply too remote. As a basic matter of contract law, a plaintiff is only entitled to the loss reasonably within the contemplation of the parties at the time of contracting. Kingstream properly concedes it must prove that its claimed loss is not too remote (para 172).
In Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48; [2009] 1 AC 61 at 68 [12]- [13], Lord Hoffman said:
1. It seems to me logical to found liability for damages upon the intention of the parties (objectively ascertained) because all contractual liability is voluntarily undertaken. It must be in principle wrong to hold someone liable for risks for which the people entering into such a contract in their particular market, would not reasonably be considered to have undertaken.
2. The view which the parties take of the responsibilities and risks they are undertaking will determine the other terms of the contract and in particular the price paid. Anyone asked to assume a large and unpredictable risk will require some premium in exchange. A rule of law which imposes liability upon a party for a risk which he reasonably thought was excluded gives the other party something for nothing. And as Willes J said in British Columbia and Vancouver's Island Spar, Lumber and Saw-Mill Co Ltd v Nettleship (1868) LR 3 CP 499, 508: 'I am disposed to take the narrow view, that one of two contracting parties ought not to be allowed to obtain an advantage which he has not paid for.'
In the present case, the evidence demonstrates beyond any doubt that the damages alleged to have flowed from the defendants' conduct are too remote.
The value claimed by Kingstream is within the second limb of Hadley v Baxendale. The 'natural'(i.e. first limb) loss from a failure to deliver the 'applications' is not receiving them. To claim any amount reflecting the future use to which Kingstream says it might have put those applications is to claim something within the second limb.
It is worth recalling that Baron Alderson's statement of the second limb was (354, ER 151) losses 'such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it'.
First, the analysis above shows that EL 20/209 (and perhaps EL 20/176) was added to the contract at a very late date. In exchange, the consideration went up from $3 million to $3.2 million, an increase of $200,000.
If (contrary to the defendants' submissions) these interests included the Mining Lease Applications, then the parties certainly did not contemplate or include in their bargain the value of any of the potential earnings now sought by Kingstream. To use Lord Hoffman's words, the defendants did not assume the 'large and unpredictable risk' for which Kingstream now seeks to recover, and to allow Kingstream to succeed would give it 'something for nothing'.
Secondly, Kingstream has not (and indeed could not) lead evidence that, at the time of entering into the Option Deed, it was then intending to work the land in respect of the Mining Lease Applications. It was not a course of conduct the risk of the loss of which could, or would, have been reflected in the contract. It was a loss of the kind described by Alderson B in Hadley v Baxendale itself as one 'which the party in breach was unable to contemplate when considering the terms on which he could agree to enter into the contract', to use the words of Lord Hope of Craighead in Mercator Shipping.
It was the kind of loss that, had Kingstream wished to bring within the risks assigned by the contract, such that the defendants would be liable for them were they to breach the contract, would have to be incorporated specially into the contract.
A reasonable and objective bystander standing in the room at the time the Option Deed was being signed would have answered 'certainly not' had anyone then asked him whether a reasonable person would consider that the contract would place upon the defendants the risk of a possible loss of the kind asserted by Kingstream; or that the words and conduct would have led a reasonable person in the defendant's position to believe that: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179 [40].
Thirdly, the usual understanding of those involved in the market for mining lease applications was to treat them as simple expectancies, with any future value (of precisely the kind Kingstream claims) very heavily discounted. There was a market for 'applications', and they were effectively interchangeable. To the extent that the parties, and the market, considered that there might be any future profits or value from the working of leases, that profit or value was incorporated into the market price. The Applications were the kind of asset held only for these future dealings. Any compensation for their loss allocated by the contract is therefore met by awarding the market price at the time. This would have been both parties expectation at the time.
The evidence of each of Mr Hall and Mr Retter demonstrates that, at the time the contract was made, and indeed through to 2002, it was simply not in the contemplation of the market that factors would arise making it viable to work the land in the area, let alone in the value claimed by Kingstream. As both a subjective and objective fact, the parties to the Option Deed were trading in assets whose speculative value was captured by the market. There is no evidence to suggest that the parties considered or bargained upon any chances, likelihoods or contingencies other than those reflected in the market price. The market price is therefore the extent to which the parties bargained upon any risk in relation to this speculation, and therefore the most that Kingstream is entitled to recover.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (1611 paragraphs)

HUGHES -v- ST BARBARA MINES LTD [No 4] [2010] WASC 160 (30 June 2010)

C) Surrounding statutory environment: the Mining Act explained in the evidence of the plaintiff's mining law expert, Stuart House (exhibits 50(A) - (F))

D) Discussions between St Barbara and Kingstream regarding St Barbara's tenements at Weld Range and Kingstream's interest in acquiring iron ore tenements as feedstock for its mooted secondary processing steel plant at Oakajee

E) 1997 and events leading to the Option Deed of 26 March 1997

G) Events post Option Deed sign off on 26 March 1997

I) Events after the Supplemental Deed of 20 January 1998

J) Mr Solomon's efforts to secure a further Supplemental Deed for Kingstream addressing Zygot as a party and addressing the Zygot AMLs

N) Settlement on sale and purchase document 22 February 1999

O) Mr Manning's request of 22 April 1999 to St Barbara

P) Mr Manning's 3 May 1999 request regarding EL20/209 and AML20/343

R) The withdrawal of the Zygot AMLs by Zygot - 19 September 2001

S) Issues rising from withdrawal of Zygot AMLs in September 2001

T) November 2001: Kingstream insolvent and in voluntary administration

U) 2003: Kingstream advances efforts to emerge from administration

X) Assignment and notice of CIV 1913 of 2002 given to defendants

Y) July 2004: Ruane/Zeedam transfer exploration licence applications (including EL20/535) to Winterfall

A) Plaintiff's witnesses concerning the Option Deed and the Supplemental Deed: Mr Solomon, Mr Zuks, Mr Manning and Mr Roberts

B) The application for leave to further amend the Current Statement of Claim by the plaintiff's Closing Minute

J) Jones v Dunkel: plaintiff's invocation

A) The first contractual basis: construction of the Option Deed and the Supplemental Deed

Principles of construction applicable to commercial contracts

Surrounding circumstances relied on by the plaintiff

Matters bearing upon the interpretation exercise

Date of leave to amend per October 2008 orders of Newnes J

B) Asserted terms of the Option Deed (as varied by the Supplemental Deed of 20 January 1998); assuming the plaintiff can establish that the Zygot AMLs at Jack Hills were included in the Sale Interests to be acquired

Paragraph 17D: common terms said to have been breached

The par 20 Current Statement of Claim implied terms

Paragraph 17F: Equitable estoppel and conventional estoppel as to the terminology 'EL20/209' used in cl 2(e) of the Supplemental Deed - extending to encompass the Zygot AMLs

D) The third and fourth contractual bases: rectification

Mistake (common and unilateral) as a basis for the equitable remedy of rectification

(iii) Refusal of leave to amend under the Closing Minute

(iv) Operative date for October 2008 amendments

E) The fifth basis in contract: par 17B of the Current Statement of Claim (the Letter Agreement of 8 February 1999)

The formulation of the 1999 Letter Agreement

What is the consideration from Kingstream under a Letter Agreement with St Barbara of 8 February 1999?

Further observations: Letter Agreement 1999

F) The sixth contractual basis: par 17C of the Current Statement of Claim (equitable or conventional estoppel arising from events tied to the Clayton Utz facsimile of 29 January 1999 and the Sale and Purchase Contract for the tenements and Sale Interests of 8 February 1999)

The law: relief by way of promissory and/or conventional estoppel

The applicable date for amendments made in October 2008 under par 17C of the Current Statement of Claim

A) Claims in common law negligence against first and second defendants

(v) Other case authorities relied on by the plaintiff

C) Evidence of three expert witnesses concerning damages

(i) Plaintiff's first expert: Mr Philip Retter

(ii) The plaintiff's second damages expert: Mr Neil Cole

(iii) Mr Jeffrey Hall - defendants' damages expert (report of 14 April 2009, exhibit 56A)

(iv) Mr Hall's valuation and his criticisms of Mr Cole's reports

(v) Mr Hall's other criticisms of the first three Cole reports

Legislation Cited (3)

Cases Cited (72)