MINERALOGY PTY LTD -v- SINO IRON PTY LTD [2013] WASC 194 (21 May 2013)

3 I received meticulous submissions from all counsel which examined closely the facts and surrounding circumstances of the contracts. Those submissions, and the cooperation of the parties in preparation of evidence, confined the issues in dispute. Although the trial involved numerous documents, expert evidence, and a series of contracts from a period spanning nearly a decade, the focus was ultimately directed to the contextual meaning of a single contractual clause in identical contracts between (i) Mineralogy and Sino Iron and (ii) Mineralogy and Korean Steel. These contracts are described as the 2006 MRSLAs. A heavy focus was upon one word in that clause. The word is 'taken' and the crucial words in the clause are as follows: 'pay to Mineralogy a royalty ... in respect of Magnetite Ore taken by [Sino Iron/Korean Steel] pursuant to the exercise of its Mining Right'.

4 Based upon its interpretation of that clause, including the word 'taken', Mineralogy issued Sino Iron and Korean Steel with notices of default. Mineralogy sought declarations including a declaration that it could exercise a power to terminate the contracts.

5 The amount of the royalty payment to which the notices of default related was said in oral submissions to be around $400,000. But the dispute concerns a sum of far less than that amount because Sino Iron and Korean Steel accept that they will pay the royalty found to be due. They submit that it has not yet fallen due.[3] So, based on a good faith dispute about an ambiguous clause, the practical effect of which is likely to be only the timing of a payment of around $400,000, Mineralogy initially claimed a power to terminate a project upon which Sino Iron and Korean Steel say that they have spent nearly $7 billion.

6 At the hearing, I expressed concern with the scope of the declaration sought. No substantial submissions had been made concerning whether termination in the circumstances would be 'in good faith' within the meaning of that requirement in the MRSLAs. Nor had submissions been made concerning the assertion by the Defendants that the notices of default were invalid. Issues would have arisen concerning the validity of those notices including the identification of which of the Defendants had 'taken' any Magnetite Ore and whether it was necessary to allege in the default notice the amount taken and royalty owing. Finally, there had been no submissions concerning the application of notions of reasonableness in exercising a power of termination.[4] The parties subsequently agreed that they did not seek to have the issue concerning termination determined.

7 The submissions were made in a binary manner, suggesting two competing interpretations of the relevant clause. Those interpretations were as follows.

8 Mineralogy's interpretation: The royalty is payable by Sino Iron and Korean Steel when Magnetite Ore comes into Sino Iron or Korean Steel's possession or control by being moved from its natural place of occurrence and either (a) placed on a run of mine stockpile prior to it being loaded into a primary crusher, or (b) moved directly to the primary crusher.

9 The Defendants' interpretation: The royalty is payable when Magnetite Ore is delivered to Sino Iron and Korean Steel, and taken by them, at their delivery point, being the primary crusher.

10 For the reasons explained below, the better construction is Mineralogy's. But that construction must be clarified. The royalty becomes payable by either Sino Iron or Korean Steel or by both jointly when the relevant person takes possession or control of Magnetite Ore either by stockpiling for the purposes of possible future processing or future use (as opposed to placing it on the waste piles) or by moving it directly to the primary crusher. It is the duty of Sino Iron or Korean Steel to inform Mineralogy which of them has taken the Magnetite Ore.

11 It is necessary to set out in full the terms of the amended originating summons for the declarations sought by Mineralogy. The declarations sought were of rights as follows:

1. To issue, on the basis that the phrase 'Magnetite Ore taken' in cl.8 of the MRSLAs (as defined below) upon its proper construction means Magnetite Ore, including Low Grade Material, when it comes into the possession or control of the First Defendant, the Second Defendant or their agent, by moving it from its natural place of occurrence and directing it either to a stockpile or to the crushing plant,

(a) its written notices of default dated 11 July 2012 requiring each Defendant to pay pursuant to cl.8 of the MRSLAs, the Mineralogy Royalty to the Plaintiff; and

(b) its written notice of intention to terminate dated 2 November 2012,

pursuant to clause 30.4(d) of the MRSLAs, by reason of the following:

(c) The Defendants or agents on their behalf have removed Magnetic Ore from its natural place of occurrence pursuant to the MRSLAs, which has been stockpiled by the Defendants or on their behalf in their respective Site Lease Areas but not delivered to a delivery point asserted by the Defendants;

(d) The Defendants have not paid to the Plaintiff the Mineralogy Royalty pursuant to cl.8 of the MRSLAs despite having so taken the Magnetite Ore; and

(e) The Plaintiff has served written notices of the default dated 11 July 2012 requiring each Defendant to pay pursuant to cl.8 of the MRSLAs the Mineralogy Royalty to the Plaintiff, and the Defendants have acknowledged receipt by letter dated 16 July 2012; and

(f) The Plaintiff has served written notice of its intention to terminate dated 2 November 2012; and

1. To terminate the MRSLAs or suspend all operations carried out by or on behalf of the Defendants upon the Project Areas by notice in writing to each Defendant, pursuant to clause 30.4(d) of the Mining Right and Site Lease Agreements between the Plaintiff and the First Defendant and the Plaintiff and the Second Defendant ("MRSLA's"), by reason of the following:

(a) The Defendants or agents on their behalf have removed Magnetite Ore from its natural place of occurrence pursuant to the MRSLA's, which has been stockpiled by the Defendants or on their behalf in their respective Site Lease Areas but not delivered to a delivery point asserted by the Defendants;

(b) The Defendants have not paid to the Plaintiff the Mineralogy Royalty pursuant to cl.8 of the MRSLAs despite having so taken the Magnetite Ore; and

(c) The Plaintiff has served written notices of the default dated 11 July 2012 requiring each Defendant to pay pursuant to cl.8 of the MRSLA's the Mineralogy Royalty to the Plaintiff, and the Defendants have acknowledged receipt by letter dated 16 July 2012; and

(d) The Plaintiff has served written notice of its intention to terminate dated 2 November 2012.

12 Subsequent to the hearing, Mineralogy provided an Agreed Supplementary Statement of Issues saying that the parties had agreed to follow a particular course of conduct if Mineralogy's construction of the contracts were correct and that 'it is not necessary for [the Court] to determine whether Mineralogy is entitled to suspend or terminate the 2006 MRSLAs, pursuant to the notices of default dated 11 July 2012 or its notice of intention to terminate dated 2 November 2012'.[5]

13 The factual background established at trial was almost entirely uncontentious. Counsel provided a substantial statement of agreed facts.[6] Three affidavits, from two witnesses, were read but none was the subject of crossexamination.

14 The first witness was Mr Paul Robinson, the Chief Executive Officer of Mineralogy. Mr Robinson is a qualified metallurgical engineer and has been employed in the Australian resources industry for more than 25 years.

15 The other witness was Mr Scott de Kruijff, the General Manager Mining for CITIC Pacific Mining Management Pty Ltd (CPMM), a wholly owned subsidiary of CITIC Pacific Ltd (CITIC). Mr de Kruijff has responsibility for the whole of the Project Area (as defined in the MRSLAs).

16 The following is a summary of my findings of fact based on the mostly uncontentious evidence.

17 Approximately 100 km southwest of Karratha, in the Pilbara Region in Western Australia, is a magnetite ore mining and processing operation. Mineralogy holds various mining tenements relevant to this action[7] and a General Purpose Lease[8] in the area of the project. Mineralogy has entered into contracts with the Defendants, Sino Iron and Korean Steel, which include rights for the Defendants to conduct mining operations and construct facilities.

18 The project has been under active planning, development and construction since 2008. The project includes (i) the development of a significant open cut mine, (ii) the development of a gasgenerated electricity plant and desalination plant, and (iii) the construction of significant shallow water 'one court' facilities.

19 The magnetite iron ore deposit in the region is in banded iron formations (extremely old ironrich sedimentary rocks). By drilling holes which are about 100 m apart, data has been obtained about the ore body contained in the ground. A computer resource block model is used to identify the quantities of ore in the ground which are suitable for processing and the quantity of waste.

20 Until recently, most Australian iron ore deposits needed to have an average grade of more than 60% of iron for mining to be commercially viable. Material with more than 60% iron requires relatively little processing (crushing, screening, concentrating, etc) prior to being suitable as either blast furnace feedstock or sinter feedstock.

21 Material below the 60% iron grade can also be considered as ore where circumstances allow for the economical concentration of the material to grades equivalent to, or higher than, the 60% iron which is found in those ores described as direct shipping ore. An example of the lower grade ore is in deposits where the predominant iron ore material is magnetite. However, the additional processing required for magnetite ore is substantial. It generally includes crushing, screening, grinding, magnetic separation, filtering and drying. The end product is a higher grade magnetite concentrate of more than 65% iron with, typically, very low impurities. It can be turned into pellets and, in that form, is extremely efficient in a blast furnace.

22 After the use of a computer resource model to identify the quantities of ore in the ground suitable for processing, conventional drill and blast methods are used to extract the ore from the ground. Once extracted, hydraulic face shovels and excavators place into trucks (i) the ore which is suitable for processing, and (ii) waste.

23 The trucks with ore suitable for processing are sent either to a 'run of mine stockpile', located in the vicinity of the crushers,[9] or directly to the inpit primary crushers. The trucks with waste are sent to the waste dumps.

24 The experts explained that references to ore being 'stockpiled prior to being fed to a processing plant' means that the 'inpit blasted ore stocks' (ore that has been drilled and blasted) have been loaded by a shovel into haul trucks and transported out of the pit to a stockpile. They explained that such a stockpile is typically called a 'run of mine ore stockpile'. It contains large rocks up to 1 m across.[10]

25 During the prestripping process it is not always economically feasible to separate prestripping waste from any ore. Consequently, some ore with more than 17% magnetite iron, as well as some with less than 17% magnetite iron, is removed with the waste and sent to the waste stockpiles.

26 Once productive mining commences there is further 'waste' material which is not suitable for processing. That waste must be removed as the magnetite ore is extracted for processing. This waste material generally comprises rock types which contain no recoverable magnetite.

27 It is possible to have two separate stockpiles of ore in addition to the waste dump, with one stockpile of ore which contains more than 17% magnetite iron and another stockpile of ore containing less than 17% magnetite iron.

28 Once stockpiled, the ore is subsequently transported to, and tipped into, the primary crusher without further sampling or sorting.

29 The ore is then processed, resulting in the desired ore concentrate, and the byproduct of tailings (the nonmagnetic material), which is transported to the tailings storage area. As Mr de Kruijff explained, almost all iron ore is used in blast furnaces to make pig iron, which is the main material for steelmaking.

30 In 2008, Sino Iron and Korean Steel commenced prestripping operations in accordance with a Project Management Plan under the Mining Act 1978 (WA).

31 Weathering processes at the project site have oxidised the upper part of the deposit to a depth of approximately 40 m to form haematite iron ore. The haematite iron ore is considered to be unsuitable for the economic production of magnetite ore.

32 Sino Iron and Korean Steel conducted prestripping operations in the oxidised upper 40 m layer to expose the area below the transition zone between the prestripping waste and the ore body. Material was removed during that prestripping in benches approximately 12 m high using conventional drill and blast, face shovel and truck operations.

33 In the course of prestripping operations, some quantities of magnetite iron which were suitable for processing were encountered and extracted. Quantities containing more than 17% iron ore were found in the transition zone between the oxidised upper 40 m layer and the ore body where there is not a clear delineation between those zones.

34 The magnetite ore extracted in the course of prestripping operations was not extracted specifically for the purpose of processing. It was stockpiled in the mine pit to be used for trial production on the first grinding mill line. Approximately 50 tonnes of the material was also used for metallurgical testing in China.

35 The task of mining operations is to ensure the processing plant does not go without feed. The experts who provided a joint report, which is discussed below, explained that a 'processing plant' for iron ore is made up of two parts:

(i) a 'crushing plant', or inpit 'primary crusher',[11] that reduces the run of mine ore (up to 1 m in size) to less than 200 mm in size. This is a single component, large plant. Its purpose is to reduce the size of the ore so that it can be transported on conveyor belts, which is a far less costly method of transporting the ore than in trucks; and

(ii) a 'grinding and upgrading plant' that reduces the ore further in size so that the iron bearing magnetite mineral can be separated from the waste material which is largely silica. At this stage, the ore is typically reduced to very fine size of approximately 0.05 mm.

36 The project uses heavy mining machinery to transport the magnetite ore that is suitable for processing from the mine pit to the primary crushers. The heavy machinery also transports mine waste to the wasterock landforms.

37 The magnetite ore is taken by haul trucks to one of four inpit primary crushers where it is crushed to a maximum size of approximately 200 mm.

38 As the experts explained, the reason for the first crushing stage is to reduce the ore to a size small enough to be transported on a conveyor belt and for the tonnage to be easily measured and controlled.

39 The crusher tip point forms the interface between mining operations and processing operations.

40 The four existing primary crushers are currently located within the area of the east pit. The use of inpit crushing and conveying of ore is aimed at reducing the number of haul trucks required. It is expected that the crushers will be periodically relocated during the life of the pit.

41 Subsequent to the trial, an apparent dispute emerged concerning the location of the weightometer. On 7 May 2013 and 9 May 2013, the parties made further written submissions concerning the evidence about the location of the weightometer in relation to the primary crusher.

42 Mr de Kruijff's uncontradicted evidence was that trucks dump ore directly into a hopper at the opening of each inpit crusher. The hopper is located on the surface of the crusher.

43 The quantity of magnetite ore is measured when it is fed across calibrated weightometers. Standard industry practice is to have the weightometer installed on the conveyer belt between the crushing plant and the grinding and upgrading plant.[12] The amended agreed statement of facts provided that '[a] calibrated weightometer is located at the discharge point from the existing inpit crusher and will be so located for each further inpit crusher'.[13]

44 The dispute after trial arose from a submission made by Mineralogy that the weightometer is located 'on the discharge conveyer' rather than at 'a point at which material is discharged'.[14] I accept the submission of the Defendants that this is a distinction without a difference.[15] The relevant location is the discharge conveyer which is between the primary crusher and the grinding and upgrading plant. This can be seen in Sch 1 to these reasons which is the sketch contained in the joint expert report.

45 When these proceedings were commenced by Mineralogy in August 2012 no material had passed through the primary crusher and over the weightometer. Trial production commenced in November 2012.

46 After going through the inpit crushers, the ore is fed by conveyer to the concentrator area for further grinding and processing. At the concentrator, the crushed material passes through an Autogenous Grinding Mill and then a Ball Mill to reduce further the material to a nominal liberation sizing of 28 microns ready for the next stage of processing.

47 The next stage of processing involves the liberated material being passed through a series of magnetic separators and cyclones that separate the magnetic concentrate from the nonmagnetic material (tailings). Both the ore concentrate and the tailings are then separately thickened to reduce the moisture content so that the materials are suitable for transport via slurry pipelines to the port area and the tailing storage area respectively.

48 The ore concentrate is pumped 29 km to the port area, via a largely subterranean slurry pipeline, to a dewatering plant which further reduces the moisture content of the concentrate to saleable levels and recycles the water for further use. The concentrate is then conveyed to the port stockyards in preparation for shipment.

The role of Citic Pacific Mining Management Pty Ltd (CPMM)

50 As explained by Mr de Kruijff, the General Manager Mining for CPMM, CPMM is responsible for operating and managing the assets of Sino Iron and Korean Steel in connection with the project.

51 CPMM keeps Mineralogy informed about of relevant developments in the project by providing monthly reports. These monthly reports typically include a section called 'Mining Summary' which sets out, in a table, estimates of the Magnetite Ore and waste mined during the reporting period. For example, in the June 2012 monthly report, the table provides estimates of the Magnetite Ore Moved, Low Grade Ore Moved, Waste Moved, Total Material Moved, Sino Iron Ore Taken and Korean Steel Ore Taken, for the month, year to date and life of the project. These figures are estimates only. They are estimates derived from the computer resource block model. In that report the cells for Magnetite Ore Taken by each of Sino Iron and Korean Steel are blank, although substantial quantities of Magnetite Ore are described as having been 'moved'.

52 Mineralogy pleads, but the Defendants do not admit, that CPMM is an agent of Sino Iron and Korean Steel.[16] It was not suggested that anything turned upon whether CPMM was an agent for Sino Iron or Korean Steel. The unstated assumption of the Defendants appeared to be that CPMM was an agent of Sino Iron and Korean Steel at least, on the Defendants' case, for the purposes of 'taking' the Magnetite Ore which the Defendants submitted would occur at the 'delivery point', which was said to be the primary crusher.

53 On 29 September 2008, Mineralogy invoiced CPMM $99,906.51, which was described as 'Royalty For June 2008'.[17]

54 On 18 December 2008, Sino Iron sent a letter to Mineralogy attaching a cheque for the sum of $99,906.51 in payment of the invoice.[18]

55 Sino Iron and Korean Steel have not paid any royalty for magnetite ore since they paid Mineralogy for the period to June 2008.[19]

56 Sino Iron and Korean Steel have not determined the quantity of magnetite ore removed from its natural place of occurrence.[20]

57 On 11 July 2012, Mineralogy purported to serve notices of default on Sino Iron and Korean Steel.[21] The notices of default complained of breaches of cls 8.1, 8.2 and 8.4 of the 2006 MRSLAs asserting that Sino Iron and Korean Steel had failed to pay to Mineralogy the Mineralogy Royalty. Most of the notices of default also alleged failures to provide statements.

58 The periods for which it was alleged royalties should have been paid by Sino Iron were quarterly periods with due dates from October 2008 until April 2012. Although Sino Iron had delivered statements in accordance with cl 8.4 it had not paid royalties for the first four quarters of that period. The statements delivered by Sino Iron were not in evidence before the Court.

59 The periods for which it was alleged that royalties should have been paid by Korean Steel were quarterly periods with due dates from January 2009 until April 2012.

60 In the notices of default, Mineralogy asserted a right, in the event that either, or both, defaults continued for 21 days, to suspend all operations carried out by, or on behalf of, Sino Iron or Korean Steel (respectively) upon the Project Area. The right was asserted for the period until payment in accordance with the respective 2006 MRSLAs is resumed.

61 The default notices were purportedly issued under cl 30.4(d) of the MRSLAs which provide as follows:

In the event that such default, or a default in [Sino Iron's/Korean Steel's] obligations to pay Mineralogy the Mineralogy Royalty or the State Government Royalties payable pursuant to this Agreement or any, continues for a period of twenty one (21) days after written notice of such default requiring [Sino Iron/Korean Steel] to remedy the same, Mineralogy shall be entitled by notice in writing to [Sino Iron/Korean Steel] to require [Sino Iron/Korean Steel] to suspend all operations carried out by, or on behalf of, [Sino Iron/Korean Steel] upon the Project Area until payment is resumed. If such default has not been remedied after 90 days from the service of any notice pursuant to this clause, Mineralogy has the right on twenty one days' written notice to terminate this Agreement.

62 On 16 July 2012, Sino Iron and Korean Steel wrote to Mineralogy and asserted that the notices of default were invalid and should be withdrawn.

63 On 2 November 2012, Mineralogy served on Sino Iron and Korean Steel a written notice of its intention to terminate the 2006 MRSLAs for failure to pay the Mineralogy Royalty.[22]

The expert evidence about measurement of Magnetite Ore quantities

64 Expert witnesses were engaged by Mineralogy and the Defendants. The joint expert opinion was wholly based on the experts' specialised knowledge of mining engineering. The two experts, Mr Derek Miller and Mr Peter Murray, met in conference to consider three questions. They agreed on all the answers, which they expressed clearly and concisely in a very helpful report. The cogency and clarity of the joint expert report meant that the experts were not required to give any concurrent evidence and no party had any questions to ask in crossexamination.

65 The focus of the expert report was upon the different methods for measurement of Magnetite Ore (as defined in the 2006 MRSLAs). The experts explained that there were four methods:

(i) the mining block method;

(ii) the truck counts and truck factor method;

(iii) the stockpile survey method; and

(iv) the weightometer measurement of crushed ore.

66 The standard practice in estimating ore reserves is for the ore in the pit to be divided into blocks, typically around 50,000 tonnes, with each block assigned a tonnage and grade. This assignment of data is estimated from the drilling work, geological interpretations of the structure of the ore body and complex mathematical calculations to make full use of all the data.

67 By surveying the pit faces every month, estimates can be made of the number of those blocks that have been mined. Hence, even before any processing plant operation starts, this method can be used to estimate accurately the tonnage of an ore stockpile.

68 This method is expected to be slightly less accurate than the other methods below.

(ii) The truck count and truck factor method of measurement

69 The truck count method involves recording the number of truck loads hauled each day and recording the destination of each load as being either: (i) the primary crusher; (ii) the run of mine stockpile; or (iii) the waste dumps.

70 The practice has not changed since May 2005. It can either be done manually or, as has been the practice since about 1995, by global positioning systems recording the position of each truck at all times and computer monitoring of load destinations.

71 The weight of the material on each truck can be quite accurately obtained by monitoring the stress in key members of the truck structure as it is loaded and sending a signal to the shovel operator when the full load point is reached.

72 Additionally, on a regular basis a number of trucks can be weighed, emptied and loaded, and the truck 'load factor' checked. It is also important to know the truck loading accurately in order to maximise tyre life.

73 With the combination of number of truck loads and 'truck factor', the tonnage hauled to the crusher can be calculated.

74 On a monthly basis the accuracy of this calculation will be approximately within 2% of the weight of the Magnetite Ore measured. This is sufficient to calculate a royalty payment.

75 In a situation where a processing plant operation has not yet started, this method can be used to estimate accurately the quantity of Magnetite Ore.

76 By modern survey techniques it is current practice to obtain the volume of ore in a stockpile. The volume is obtained in either the total stockpile or the change in size of the stockpile over a period of one month or three months. Most mines do this as a routine matter as part of the control of the total ore flow processing system.

77 Applying a known density of the stockpile, the tonnage can be calculated. There are procedures set out in Australian standards for determining the inground density, ie the density of ore in its natural place of occurrence, and the lower density of 'inpit blasted ore stocks' when they are placed in a stockpile.

78 The quantity of Magnetite Ore can be measured by applying the density to the surveyed volume. The level of accuracy is within approximately 2%. In the situation before any processing plant operation starts, this method can be used to estimate accurately the quantity of Magnetite Ore.

79 Standard industry practice is to have a weightometer installed on the conveyor belt between the 'crushing plant' and the 'grinding and upgrading plant'. Schedule 1 to these reasons is a diagram prepared by the experts which illustrates the scheme of the mine and locates the weightometer between these two plants.

80 A weightometer, properly and regularly calibrated, which is good and standard industry practice, will measure the tonnage conveyed within an accuracy of 1%.

The experts' answers to three questions about the methods of measurement

Question 1: Measurement from removal until after crushing without stockpiling

81 The first question addressed by the experts was whether it was possible to start developing a mine so that the weight of Magnetite Ore (as defined in the 2006 MRSLAs) could be measured, between removing it from its natural place of occurrence and feeding it into a processing plant, by reasonable measurement procedures which reflected Good Industry Practice (as defined in the 2006 MRSLAs), for the purpose of determining the quantity of Magnetite Ore on which Royalty Component A (as defined in the 2006 MRSLAs) would be payable.

82 The experts were asked to consider their answer at dates within a period from May 2005 to October 2008, and their answer was the same for each of those dates.

83 The experts explained that reference to the 'natural place of occurrence' was a reference to ore before blasting in the open pit mine, which is defined from drilling and assaying of drill cutting into blocks of typically 50,000 tonnes of a defined iron grade. The 'processing plant' includes both the crushing plant as well as the grinding and upgrading plant.

84 On the assumption that there is no run of mine stockpile, so that the ore was directed straight to the primary crusher, the experts explained that the two possible Good Industry Practice methods of measurement were (i) the truck count method, and (ii) the weightometer method.

Question 2: Measurement from removal and stockpiling until before crushing

85 The second question which the experts were asked was whether it was possible to develop and adopt reasonable measurement procedures, which reflected Good Industry Practice (as defined in the MRSLAs), to determine the quantity of Magnetite Ore (as defined) from when it was removed from its natural place of occurrence and stockpiled prior to it being fed into a processing plant.

86 The experts were again asked to consider the question at dates ranging from May 2005 until October 2008 and, again, their answer was the same for each of those times.

87 The experts' answer was that there are three reasonable measurement procedures which reflected Good Industry Practice to determine the quantity of Magnetite Ore from when it was removed from its natural place of occurrence and stockpiled prior to being fed to the processing plant. Those three methods are: (i) the truck count method; (ii) the stockpile survey method; and, (iii) the mining block method. Good Industry Practice would be to use one or more of these methods.

Question 3: Good industry practice in 2006 for calculation of a royalty

88 The third question which the experts were asked was what were Good Industry Practices (as defined in the 2006 MRSLAs) in March 2006 in relation to measurement procedures to be adopted to determine the quantity of Magnetite Ore (as defined in the 2006 MRSLAs) upon which a royalty based on tonnage is payable?

89 The answer given was that it was, and is, Good Industry Practice to use all of the four methods that are available to calculate the quantity of Magnetite Ore prior, and then to compare them to determine an overall 'best mining engineering estimate' of the main tonnage number required.

90 If a crushing plant is not yet operational then Good Industry Practice at all relevant times would have used the mining block method, the truck counts and truck factor method, and the stockpile survey method to determine the quantity of Magnetite Ore.

The documentary background to the 2006 MRSLAs The Mining Leases

91 Mineralogy is the holder of Mining Leases 08/123 to 08/125 and a General Purpose Lease 08/52.[23]

92 From 8 January 2008 (in the case of Sino Iron) and 22 October 2008 (in the case of Korean Steel), the MRSLAs defined the Mine Area as 'all of the area comprised in Mining Leases 08/123 to 08/125 inclusive or as amended from time to time'.

93 On 25 October 2001, Mineralogy and Sino Iron entered into a sublease. At that time, Sino Iron was named Bellswater Pty Ltd.

94 The purpose of the October subleases was recited in each sublease as involving the acquisition by Sino Iron and Korean Steel of 'a Right to Mine in respect of Mineralogy's Interest in the Project Area, which is part of the Mining Leases ... up to the Extraction Limit'. The subleases also recited that each of Sino Iron and Korean Steel intended 'to mine Iron Ore in the Project Area and concentrate the Iron Ore for its own use for the production of [Direct Reduction Iron][24] as an alternative to purchasing Iron Ore on the world market from time to time'.

95 On 5 December 2001, the Iron Ore Processing (Mineralogy Pty Ltd) agreement (the State Agreement) was entered into by parties including Mineralogy, Sino Iron, Korean Steel and the State of Western Australia. The State Agreement provided a framework for Mineralogy, Sino Iron, Korean Steel and other parties to mine and process iron ore in the Pilbara and to establish port facilities at Cape Preston. The State Agreement was ratified and implemented by the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA).

96 A variation to the State Agreement was ratified and implemented on 11 December 2008.

The 2005 Sino Iron Joint Development Agreement (the JDA)[25]

97 On 12 March 2005, Mineralogy entered into the JDA, together with Mineralogy Mine Management Pty Ltd (MMM), Sino Iron and others.[26]

98 Korean Steel was not a party to the JDA. Korean Steel never entered a JDA with Mineralogy.

99 The JDA governed the relationships between the parties to it in circumstances where they were collectively and contemporaneously carrying out mining activities within the area covered in the Mining Leases and Mining Lease 08/126.

100 On 31 March 2006, when CITIC took over Sino Iron from Mineralogy, an agreement was entered between Sino Iron, CITIC, MMM and others which provided that MMM's rights and powers under the JDA would be suspended.[27]

101 The agreement to suspend MMM's rights was contemporaneous with an agreement to assign Mineralogy's rights under the JDA to CITIC.[28] The suspension of MMM's rights under the JDA was to exist until the rights under the JDA were assigned back to Mineralogy.

102 Although the exhibit which recorded the 31 March 2006 suspension agreement is signed by CITIC, but not by Sino Iron or MMM, it was common ground that there was an enforceable agreement between those parties.

103 The JDA was subsequently suspended on 22 October 2008 by the Fortescue Coordination Deed.

104 On 11 May 2005 and 27 May 2005, Sino Iron and Korean Steel respectively entered Mining Right and Site Lease Agreements. The 2005 MRSLAs were dependent upon provisions of the JDA. For instance, cl 1.3 in the 2005 MRSLAs provided that '[a]ny term defined in the JDA, which is used but not separately defined in [the 2005 MRSLA], will have the same meaning in [the 2005 MRSLA] as in the JDA'.

105 The 2005 Korean Steel MRSLA provided in cl 3.4 that '[t]his Agreement is conditional upon Mineralogy and Korean Steel entering into a JDA prior to the implementation of Korean's Project and the exercising of Korean's Mining Right'. No JDA was ever entered between Mineralogy and Korean Steel. It was, therefore, common ground that the 2005 Korean Steel MRSLA never came into force.

106 On 21 March 2006, Mineralogy entered into the two Mining Right and Site Lease Agreements (the 2006 MRSLAs), which are the subject of this litigation. One of them is the Korean Steel 2006 MRSLA, an agreement between Korean Steel and Mineralogy. The other is the Sino Iron 2006 MRSLA, an agreement between Sino Iron and Mineralogy.

107 The 2006 MRSLAs were amended in 2008, including in one respect which is particularly material to this litigation.

The 31 March 2006 takeover agreement for the takeover of Sino Iron

108 On 31 March 2006, a takeover agreement was executed providing for the sale of shares in Sino Iron which were held by Mineralogy subject to various conditions precedent.[29]

109 There is no direct evidence that the 31 March 2006 takeover was the cause of the 'variation and restatement' of the 2005 Sino Iron MRSLA, which occurred 10 days earlier when Sino Iron entered the Sino Iron 2006 MRSLA. But I accept that an inference can be drawn that the takeover was contemplated at the time of the Sino Iron 2006 MRSLA based upon the timing of the agreements and the references made in the takeover agreement to provisions of the revised Sino Iron 2006 MRSLA: cl 7.3(h); the cl 19 definitions of Material Contracts and Project Agreements; and, Sch 1 (Assets and Property).

110 On 6 July 2006, Mineralogy ceased to be the ultimate holding company of Sino Iron. After that date, CITIC became the ultimate holding company of Sino Iron.

The 8 January 2008 amendment to the Sino Iron 2006 MRSLA

111 On 8 January 2008, the Sino Iron and Mineralogy entered a Deed of Amendment which amended the Sino Iron 2006 MRSLA.[30] The Deed of Amendment recited that Mineralogy and Sino Iron were parties to a sublease which had been amended and restated by them on various occasions, the most recent being the Sino Iron 2006 MRSLA dated 21 March 2006. It was recited that, on 31 March 2006, each of Mineralogy, CITIC, Sino Iron Holdings Pty Ltd and Sino Iron entered into an agreement relating to the acquisition (takeover) of Sino Iron, and that the parties wished to vary the terms of the Mining Right and Site Lease Agreement pursuant to the Deed.

112 Some of the amendments to the Sino Iron 2006 MRSLA show that a takeover of Korean Steel was also contemplated. For instance, cl 4.2, as amended, provided that Mineralogy's grant of a sublease over the Site Lease Area to Sino Iron has required Mineralogy to comply with the condition that:

subject to completion of the Korean Steel Takeover Agreement, to allow Korean Steel and any other company acquired, pursuant to the China Project Option Agreement, to occupy the Site Lease Area and to exercise the rights granted to Sino Iron under this Agreement in respect of the Site Lease Area as if it were a party to this Agreement.

The change in the ultimate parent of Korean Steel on 22 October 2008

113 Until 22 October 2008, Mineralogy was the ultimate holding company of Korean Steel. After that date, CITIC became the ultimate holding company of Korean Steel.

The 22 October 2008 amendment to the Korean Steel 2006 MRSLA

114 On the same date that CITIC became the ultimate holding company of Korean Steel, amendments were made to the Korean Steel 2006 MRSLA. These amendments were the same as the 8 January 2008 amendments to the Sino Iron 2006 MRSLA.

115 On 22 October 2008, Mineralogy, Sino Iron, Korean Steel, and CITIC entered the Fortescue Coordination Deed.[31] That Deed provided that '[r]ecognising that CITIC has acquired ownership and control over Sino Iron and Korean [Steel], and further has an option to acquire ownership and control over Third Company pursuant to the China Project Option Agreement, it is agreed that, from the date of this Agreement and until such time as the CITIC Option is either exercised or expires, the Joint Development Agreement will be suspended'.

116 The Fortescue Coordination Deed also contemplated the termination of the JDA:

If CITIC exercises the CITIC Option and completes the acquisition of the Third Company then Mineralogy agrees on its behalf and on behalf of its wholly owned subsidiaries as at the date of this Deed, with effect from the date of completion of the acquisition of such Third Company, that the Joint Development Agreement will terminate ...

Admissibility of evidence of surrounding circumstances

117 A preliminary issue concerning the question of construction is the evidence to which the Court can have regard in engaging in the construction exercise. Mineralogy submitted that evidence of surrounding circumstances was inadmissible for the purposes of construction because the relevant clause of the MRSLAs was unambiguous and not susceptible of more than one interpretation. The Defendants submitted that evidence of surrounding circumstances is admissible irrespective of whether the contract is ambiguous or susceptible of more than one interpretation.[32]

118 A broad approach to construction has been applied in England in a manner which has meant that the need for rectification is greatly reduced. The broad approach to construction does not restrict the use of extrinsic materials. It has permitted English courts to read words contained within brackets in a clause as though they are outside the brackets.[33] It has permitted words such as '12 January' to be construed to mean '13 January'.[34] The unrestricted use of extrinsic materials in the broad approach is not currently Australian law.

119 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,[35] Mason J, with Stephen & Wilson JJ agreeing, said:

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.

120 This passage, read in isolation, suggests that a gateway to admissibility of evidence of surrounding circumstances is that 'the language is ambiguous or susceptible of more than one meaning'.

121 Although the meaning of the words used by Mason J in Codelfa is a matter for posterity, it is noteworthy that Sir Anthony Mason subsequently said that the 'idea I was endeavouring to express in Codelfa, albeit imperfectly' was that 'the extrinsic materials are receivable as an aid to construction, even if, as may well be the case, the extrinsic materials are not enough to displace the clear and strong words of the contract'.[36] Sir Anthony considered that subsequent decisions of the High Court of Australia, including the decision in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,[37] had taken this broad approach.[38] So did some intermediate appellate courts.[39]

122 The broad approach was rejected by Gummow, Heydon & Bell JJ in their Honours' reasons for refusing an application for special leave in Western Export Services Inc v Jireh International Pty Ltd.[40] Their Honours said that they did not 'read anything said' in the High Court authorities[41] as 'operating inconsistently' with what was said by Mason J in the passage in Codelfa quoted above.

123 The Defendants submitted that I should not follow the remarks made in Western Export Services Inc. The Defendants submitted that I should follow the approach taken in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[42] (as interpreted by intermediate appellate courts) in preference to that taken in the reasons for refusing special leave in Western Export Services Inc since, 'until the grant of leave or special leave there are no proceedings inter partes before the Court'.[43] This submission raised the question of whether a pronouncement on a special leave application should be treated as, or as akin to, seriously considered obiter dicta.[44]

124 Whatever the merits of the broad approach to contractual interpretation,[45] and whatever the answer to the question of precedent, the submission that the broad approach currently forms part of Australian law must be rejected. The approach taken by numerous intermediate appellate courts, and trial judges, to the pronouncement in Western Export Services Inc, either explicitly or implicitly, has been to follow it.[46] In Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd,[47] McLure P made this point explicit, saying that the pronouncement 'cannot be ignored'. Her Honour said:

I would apply it until otherwise directed. The consequence is that Australian law on the principles of contractual construction differs in material respects from English law. The primary difference is the Australian law requirement for ambiguity as a precondition to taking into account extrinsic surrounding circumstances.

125 Further, only one of the post-Codelfa decisions was relied upon for the Defendants' submissions in favour of the broad approach: the decision in Toll. In Toll, the joint judgment observed that the consideration of the meaning of words in a contractual document, 'normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction'[48] (emphasis added).

126 Although I consider that the narrower, 'gateway', approach should be followed, I accept the Defendants' submission that cl 8.1 is ambiguous or susceptible of more than one interpretation for three reasons.

127 First, it has been held on a number of occasions that the concept of ambiguity may involve a situation 'whenever the [manifested] intention of the parties is, for whatever reason, doubtful'.[49] This is one reason why, as Beech J has observed, the reasons of Mason J in Codelfa read as a whole may not limit the receipt of evidence of background facts as much as is sometimes suggested.[50]

128 Secondly, the gateway is not merely limited to words which are ambiguous. Evidence of surrounding circumstances is also admissible where the language of the contract is, according to the epexegetical words of Mason J, susceptible of more than one meaning.

129 Although the dictionary definition relied upon by Mineralogy is more natural than that relied upon by the Defendants, it is possible for the word 'taken' to have other meanings which might apply, even if the very particular meaning relied upon by the Defendants is not a conventional use of the word.

130 Mineralogy relied upon a plain meaning of 'taken', making reference to the Macquarie Dictionary and the Oxford English Dictionary. Mineralogy submitted, relying upon the fourth definition of the verb 'take' in the Macquarie Dictionary,[51] that the word 'taken', within the four corners of the MRSLAs, unambiguously means 'to get into one's hold, possession, control etc by one's own action ...'. The online Oxford English Dictionary contains a similar definition, definition 12, as 'the main sense': '[t]o perform the voluntary physical act by which one gets (something) into one's hand or hold; to transfer to oneself by one's own physical act'. This is close to, but not precisely, the construction proposed by Mineralogy.

131 Mineralogy criticised the dictionary definition relied upon by the Defendants, who referred to the third definition in the Concise Oxford Dictionary: 'to occupy, use up, or consume (space, material, time, etc)'.[52] This definition does not correspond with the precise construction proposed by the Defendants which has no corresponding dictionary definition. But, it does illustrate that there are other possible meanings of 'taken' which might be applied to the 2006 MRSLAs cl 8.1.

132 In any event, dictionary definitions are rarely conclusive. As McHugh J said in Manufacturers' Mutual Insurance Ltd v Withers,[53] 'few, if any, English words are unambiguous or not susceptible of more than one meaning or have a plain meaning. Until a word, phrase or sentence is understood in the light of the surrounding circumstances, it is rarely possible to know what it means'. This is undoubtedly true in the case of the transitive verb 'take'. The full (online) updated Oxford English Dictionary definition of the word runs to 137 pages of A4 paper. The online 2012 edition of the Macquarie Dictionary contains 117 other definitions of 'take'.

133 Thirdly, as I explain below, within the four corners of the 2006 MRSLAs, there are some ambiguities about cl 8.1. On any view, the 2006 MRSLAs are not clearly drafted contracts. Clause 8.1(a), within the 2006 MRSLAs, is ambiguous or susceptible of more than one meaning.

The construction of clause 8.1(a) The terms of clause 8.1 and the Mineralogy Royalty

134 The identical cls 8.1 in the Sino Iron 2006 MRSLA and the Korean Steel 2006 MRSLA provide as follows:

8.1 Mineralogy Royalty

(a) [Sino Iron/Korean Steel] will pay to Mineralogy a royalty ("Mineralogy Royalty") in respect of Magnetite Ore taken by [Sino Iron/Korean Steel], pursuant to the exercise of its Mining Right.

(b) The Mineralogy Royalty is an enduring royalty, payable throughout the Term of the Mining Right.

(c) [Sino Iron/Korean Steel] will pay the Mineralogy Royalty quarterly, based on the quantity of Magnetite Ore taken by [Sino Iron/Korean Steel] and Products produced during the previous quarter. The Mineralogy Royalty will be payable not later than the 14th day of each quarter.

135 By cl 8.2 the Mineralogy Royalty is comprised of two components.

136 Component A is concerned with Magnetite Ore which is taken. Component B is an additional amount of royalty which is concerned with Magnetite Ore which is processed into product.

137 Component A is specified in Sch 5 which provides that the rate of Royalty Component A is $0.30 per tonne of Magnetite Ore taken by Sino Iron/Korean Steel during the term of the MRSLA.

138 Component B is the 'amount of the additional royalty' (emphasis added) payable for a period, based upon factors including the tonnage of product derived from iron ore produced by Sino Iron or Korean Steel and the pellet price. It was common ground that none of the additional royalty, Component B, had accrued in this case.

139 Magnetite Ore is defined in cl 1.1 as 'ore mined from the Mine Area and containing a magnetite content of at least 17% magnetite Fe. Magnetite Ore also includes any LowGrade Material used by [Sino Iron/ Korean Steel] to produce Iron Ore Concentrates [Magnetite Ore concentrated to at least 65% Fe]'.

140 LowGrade Material is defined as 'any material mined from the Mine Area and which has a magnetite content of less than 17% magnetite Fe'.

141 Clause 11 of each of the respective 2006 MRSLAs also provides that Sino Iron or Korean Steel, respectively, is not obliged to take any LowGrade Material, but may elect to do so. The clause then continues, in each case, saying that if Sino Iron or Korean Steel 'elects to take a quantity of LowGrade Material, then the quantity of LowGrade Material taken by [Sino Iron/ Korean Steel] will be treated as Magnetite Ore for the purposes of this Agreement and [Sino Iron/ Korean Steel] will pay the Mineralogy Royalty and State Government Royalty accordingly in respect of that material' (emphasis added).

142 The combined effect of these clauses means that, for the purposes of the Mineralogy Royalty, Magnetite Ore is: (i) any material with a magnetite content of at least 17% Fe; (ii) any material with a magnetite content of less than 17% Fe which is used by the respective party to produce Iron Ore Concentrates; (iii) any material with a magnetite content of less than 17% Fe which the respective party elects to take. In these reasons, when Magnetite Ore is capitalised (as it is in the 2006 MRSLAs) it is used to mean magnetite ore in any of these categories.

143 The fundamental question is when Magnetite Ore is 'taken' for the purposes of cl 8.1.

144 Mineralogy says that cl 8.1(a) of the MRSLAs, and in particular the words 'Magnetite Ore taken by [Sino Iron/Korean Steel], pursuant to the exercise of its Mining Right', means that Magnetite Ore is taken 'when the ore comes into Sino Iron or Korean Steel's (or a party acting on their behalf's) possession or control'. It was submitted that this occurred when CPMM, a subsidiary of CITIC, on behalf of Sino Iron and Korean Steel, moved Magnetite Ore from its natural place of occurrence, and placed it on a run of mine stockpile prior to it being loaded into a primary crusher.[54] It was submitted that a taking could also occur if CPMM moved the Magnetite Ore from its natural place of occurrence directly to the primary crusher.

145 Although Mineralogy did not make this explicit, its reference to 'possession' was in a narrower sense than that in which the concept is usually understood. Possession was used by Mineralogy to mean the intention to control the Magnetite Ore and LowGrade Material for the purpose of using it in some manner, most likely for either immediate or eventual processing, but not for the purpose of putting it on a waste stockpile. As the parties agreed in the Agreed Statement of Facts, '[o]nce stockpiled, the ore is transported at a subsequent time to, and tipped into, the primary crusher without further sampling or sorting'.[55]

146 In other words, the Magnetite Ore is taken when it is either stockpiled or directed straight to the primary crusher.[56] But it is not 'taken' when it is moved and possessed for the purposes of putting it on a waste stockpile or waste dump.

147 In contrast with Mineralogy's submission, the Defendants submitted that cl 8.1(a) should be construed to mean that the Mineralogy Royalty is payable when 'Magnetite Ore is delivered to Sino Iron and Korean Steel, and taken by them, at their Delivery Point, being the inpit primary crusher'.[57] Elsewhere in their submissions, the Defendants put a second formulation: that the Magnetite Ore was taken when it 'is put through the [primary crusher]'.[58] Mr Scerri QC submitted that there is no difference between these two formulations.[59]

148 The capitalised 'Delivery Point' was intended to refer to the definition in the JDA between Sino Iron and Mineralogy (but not Korean Steel). As explained below, that separate agreement defined 'Delivery Point' as 'the point or points at which the Mine Participant wishes to take delivery of its entitlement to Magnetic Ore under its Mining Right. Each Delivery Point will be as shown on the Mine Plan'. No Delivery Point was provided by Sino Iron under the JDA. No Delivery Point was specified on a Mine Plan.

149 The two formulations by the Defendants, with or without reference to a Delivery Point, share the common element that the 'taking' of Magnetite Ore is closely identified with the processing of it. But, although the Defendants submitted that the two formulations were not different, on any view the second formulation cannot be correct. The reason for this is because, for reasons explained below, the taking of Magnetite Ore must precede any processing, which would include putting the material through the primary crusher.

150 It was common ground between the parties that on any construction not all Magnetite Ore which is mined must be taken. An example of a circumstance in which Magnetite Ore which is mined, but not taken, is that described above at [25], in which Magnetite Ore is mined as part of the prestripping process (which falls within the definition of Mining Operations in the MRSLAs), but sent to the waste stockpiles because it is not economic to remove any Magnetite Ore.

151 Mineralogy's construction must be modified to remove an ambiguity. The modification is that, in the absence of any further Mine Participant (as defined), a taking must occur by a particular person or by the two persons jointly. In other words, either (i) Sino Iron or (ii) Korean Steel or (iii) both of them jointly must take the Magnetite Ore. It is possible that a taking of Magnetite Ore might occur by Sino Iron and Korean Steel jointly, but for the reasons below it cannot be assumed that this would be the case.

152 During the hearing, it became common ground that magnetite ore is owned by Mineralogy, as the owner of the leases, when the ore is removed from the ground.[60] Clause 7.1 of the separate 2006 MRSLAs provides that title to Magnetite Ore passes to the relevant party to the 2006 MRSLA when it is taken by it. There are six reasons why Sino Iron and Korean Steel cannot simply be assumed to have taken jointly any Magnetite Ore which is removed from the ground and stockpiled by CPMM.

153 First, each of Sino Iron and Korean Steel has a separate maximum for the amount of Magnetite Ore which it can take.

154 In cl 1.1 ('Definitions'), the definition of 'Annual Extraction Limit' is 'the maximum quantity of Magnetite Ore that [Sino Iron/Korean Steel] is entitled to take from the Mine Area in any Operating Year, as specified in the Schedule'. This restriction is not more than the amount which is sufficient to produce a total of 12 million tonnes of 'Products' each year (cl 3.7, Sch 3). Each of Sino Iron and Korean Steel also has separate total extraction limits of one billion tonnes of Magnetite Ore (Sch 2).

155 Secondly, each 2006 MRSLA refers to the processing facilities for each particular company (eg cl 4.2). The agreements do not refer to any shared processing facilities even if, as a matter of fact, there was agreement providing for the sharing of facilities between the two companies. It is enough to observe that the evidence in this case, including the existence of four primary crushers, could not support a conclusion that any of the primary crushers must be used to process Magnetite Ore taken by both companies.

156 Thirdly, the 2006 MRSLAs separately contemplate that Sino Iron and Korean Steel will enter into sale and export contracts for the products produced from the Magnetite Ore. Magnetite Ore is required to be processed into Iron Ore Concentrates, Pellets, or HBI (hot briquetted iron, which, under the 2006 MRSLAs, must be exported). These three products can be sold or exported by Sino Iron or Korean Steel under separate sale or export contracts. Different contracts, at different times, could require different takings of Magnetite Ore by each entity.

157 Fourthly, cl 9.1(a) of each of the 2006 MRSLAs, which is concerned with the payment of State Government Royalty, refers to Magnetite Ore 'allocated to and taken by [Sino Iron/Korean Steel] from the Mine Area' (emphasis added). This clause contemplates that Magnetite Ore which is extracted by a joint agent, such as CPMM, might be allocated to either Sino Iron or Korean Steel.

158 Fifthly, the 2006 MRSLAs provide for the independence of Mine Participants (cl 37). The 2006 MRSLAs also contemplate the potential addition of other participants in the future. This contemplation can be seen, for instance, in the definitions of 'Mine' and 'Mine Participant'. Any additional participants might also take amounts of Magnetite Ore.

159 Sixthly, when the 2006 MRSLAs were first entered into, they contained a provision requiring that a Development Plan include reference to the delivery point at which Sino Iron or Korean Steel would take its share of the Magnetite Ore (cl 5.1(b)(ii)). Although this provision was removed in 2008, it provides further context for the objective intention that Sino Iron and Korean Steel would have separate takings of the Magnetite Ore.

The effect of the clarification of Mineralogy's construction

160 As explained above, the 2006 MRSLAs contemplate that the Magnetite Ore will be taken by: (i) Sino Iron; (ii) Korean Steel; (iii) any additional Mine Participant; or (iv) a combination of the above jointly.

161 In the case of Sino Iron (with the same approach to apply to Korean Steel), the consequence is that Mineralogy's construction must be clarified to be that Magnetite Ore is 'taken' under the Sino Iron 2006 MRSLA when the ore comes into the possession or control of Sino Iron or of Sino Iron and Korean Steel jointly, other than in circumstances in which the Magnetite Ore is possessed in order to be moved to a waste pile. This means that it is necessary for Sino Iron to inform Mineralogy of the Magnetite Ore which has been taken by Sino Iron and for Korean Steel to inform Mineralogy of the Magnetite Ore which has been taken by Korean Steel.

Factors supporting Mineralogy's construction (i) The natural and ordinary meaning of the word 'taken'

162 The first factor supporting Mineralogy's construction is the ordinary and natural meaning of the word 'taken'. In its natural and ordinary meaning, the word is capable of describing the acquisition by a person of possession and control for the possibility of future use, although other meanings are also possible.

163 In contrast, it is a significant strain on the meaning of the words 'taken by [Sino Iron/Korean Steel] pursuant to the exercise of its Mining Right' for them to mean 'delivered to Sino Iron and Korean Steel, and taken by them, at their Delivery Point, being the inpit primary crusher'.[61]

164 There is no textual basis in cl 8.1 for a single delivery point within the Mine Area to be imposed. The definition of Mine Area in the 2006 MRSLAs was 'the area, within the Mining Leases, within which Mining Operations are to be conducted, as described in cl 3.1, and as may be amended from time to time under this Agreement'. Clause 3.1, as amended in 2008, defines Mine Area to be 'all of the area comprised by Mining Leases 08/123 to 08/125 inclusive...'. As explained below, at the time of the alleged breaches there was no clause in the 2006 MRSLAs which created any delivery point.

165 Further, even the dictionary definition relied upon by the Defendants does not support their construction. The dictionary definition upon which they relied was 'to occupy, use up, or consume (space, material, time, etc)'. But, as explained below, the 'taking' must occur at or before the primary crusher, not after the Magnetite Ore had passed through the primary crusher.

(ii) The use of 'taken' in other provisions in the MRSLAs concerning the Mine Area

166 Another factor supporting Mineralogy's construction is the manner in which the word 'take' is used in other provisions in the 2006 MRSLAs. In particular, Mineralogy pointed to the distinction between three terms used in the MRSLAs: 'mined', 'taken', and 'processed'.

167 The 2006 MRSLAs are not so carefully drafted that a clear regime emerges for each of these three concepts. Nevertheless, these three words are consistently used in the 2006 MRSLAs in different senses. It is clear that 'mining' and 'processing' of Magnetite Ore are different from 'taking' it.

168 The objective construction of the MRSLAs also requires that 'taking' precedes 'processing'. This is evident from cl 4.2(b), which refers to the grant of the sublease for the purpose of 'process[ing] Magnetite Ore taken by Sino Iron from the Mine Area'. Another example is cl 4.4, which extends the sublease for a period that includes time for processing of Magnetite Ore that has been taken. A further example is cl 7.2, which creates the obligation to process Magnetite Ore that is taken.

169 The independence of 'taking' from 'processing' militates in favour of Mineralogy's construction, and against the Defendants' construction which requires the taking to be at the point of processing, or after the processing has begun.

(iii) The election in relation to LowGrade Material

170 As explained, the definition of Magnetite Ore in the 2006 MRSLAs includes 'ore mined from the Mine Area and containing a magnetite content of at least 17% magnetite Fe. Magnetite Ore also includes any LowGrade Material used by [Sino Iron/ Korean Steel] to produce Iron Ore Concentrates'.

171 LowGrade Material is defined as 'any material mined from the Mine Area and which has a magnetite content of less than 17% magnetite Fe'.

172 The inclusion of LowGrade Material in Magnetite Ore only when used is a different concept, both literally and contextually, from the concept of taking. Clause 11 of the MRSLAs provide that:

(a) [Sino Iron/Korean Steel] is not obliged to take LowGrade Material, but may elect to do so.

(b) If [Sino Iron/Korean Steel] elects to take a quantity of LowGrade Material, then the quantity of LowGrade Material taken by Sino Iron will be treated as Magnetite Ore for the purposes of this Agreement and Sino Iron will pay the Mineralogy Royalty and State Government Royalty accordingly in respect of that material.

(Emphasis added)

173 Since the definition of Magnetite Ore already includes LowGrade Material which is used, this deeming clause can only have any effect if the taking of LowGrade Material is different from its use. This is a manifestation of an intention that taking is a separate concept from processing and use. Again, it suggests that taking must take place before the Magnetite Ore enters a primary crusher.

174 I explain below why the delivery point regime in the 2005 Sino Iron MRSLA upon which the Defendants rely does not support the Defendants' proposed construction and, in some ways, militates against it. One of the most significant ways in which the terms of the 2005 Sino Iron MRSLA militates against the Defendants' construction is the excision of cl 1.3 in the 2005 Sino Iron MRSLA from the 2006 MRSLAs.

175 In Burger King Corporation v Hungry Jack's Pty Ltd,[62] the New South Wales Court of Appeal explained that the 'accepted principle of construction that deleted words in a standard form contract can be referred to as an aid to the meaning of ambiguous words in a term which remains' also applies to contracts which are not in standard form. In Wachmer v Jaksic,[63] Newnes J (as his Honour was then) explained that 'it is now clearly established that, at least where an ambiguity exists, it is permissible to look at words that have been deleted as an aid to the interpretation of the ambiguous words'.

176 Clause 1.3 of the 2005 Sino Iron MRSLA provided that '[a]ny term defined in the JDA, which is used, but not separately defined, in this Agreement, will have the same meaning in this Agreement as in the JDA'. The JDA defined Mining Operations as including all activities in connection with 'mining of Magnetite Ore from the Mine and delivery of the Magnetite Ore to the Mine Participants at their respective Delivery Points' (cl 5.2(b)).

177 The 2006 MRSLAs deleted cl 1.3 which, in the 2005 Sino Iron MRSLA, had picked up the JDA definitions. The definition of Mining Operations was amended to remove reference to a delivery point and to refer instead to 'mining of Magnetite Ore from the Mine and delivery of the Magnetite Ore to the Processing Facilities'. The 2006 MRSLAs also removed the restriction in cl 5.3 of the JDA that Mining Operations did not include activities beyond the Delivery Point.

178 The combined effect of these deletions was to alter the regime which had existed in the 2005 Sino Iron MRSLA which provided for a Delivery Point, which was (i) chosen by Sino Iron and (ii) existing prior to processing, and (iii) at which the Mining Operations ceased. The concept of 'taking' was, therefore, decoupled from the concept of a Delivery Point. More will be said below about the significance of the changes from the 2005 Sino Iron MRSLA.

179 Prior to the 2008 amendments to the MRSLAs, which preceded the alleged breaches in this case, cl 5.1 of the Sino Iron 2006 MRSLA provided, in part, as follows (with equivalent provisions in the Korean Steel 2006 MRSLA):

5.1 Development Plan

(a) As soon as practicable, Sino Iron will prepare and submit to Mineralogy a Development Plan for the development of Sino Iron's Project ("Sino Iron's Development Plan").

(b) Sino Iron's Development Plan will include:

(i) details of the Processing Facilities to be constructed within the Site Lease Area, including the proposed location, design, capacity of the Processing Facilities;

(ii) the point at which Sino Iron proposes to take delivery of its share of Magnetite Ore from the Mine Area;

(iii) the proposed rate of production of Iron Ore Concentrates, Pellets and HBI;

(iv) any required Access Areas; and

(v) a plan for all construction and development activities in respect of Sino Iron's Project.

180 The same requirement for a Development Plan had been present in cl 6.1(b)(ii) of the JDA which had required Sino Iron to prepare and submit to Mineralogy a 'Development Plan' for the development of the project, including 'the point at which Sino Iron proposes to take delivery of its share of Magnetite Ore from the Mine Area'.

181 In 2008, at a time prior to the alleged breaches of the MRSLAs in this case, the 2006 MRSLAs were amended. As explained above, the amending Deed in the case of Sino Iron recited that on 31 March 2006 each of Mineralogy, CITIC, Sino Iron Holdings Pty Ltd and Sino Iron entered into an agreement relating to the acquisition (takeover) of Sino Iron, and that the parties wished to vary the terms of the Mining Right and Site Lease Agreement (2005 Sino Iron MRSLA) pursuant to the Deed. And some of the amendments to the Sino Iron 2006 MRSLA show that a takeover of Korean Steel was also contemplated.

182 There were various amendments in the 2008 amending Deed, but only one complete deletion. The complete deletion was of cl 5.1(b). This subclause was also the only reference to a 'point' at which delivery was to take place in the MRSLAs. The removal was made although the requirement for a Development Plan was preserved.

183 This amendment is an indication of the manifested intention of the parties that no delivery point needed to be provided by the parties. It marked a complete break from the delivery point regime of the JDA, which required the provision of a delivery point by the Defendants in their respective development plans.

184 Each of the Defendants' arguments put in support of their construction of cl 8.1 is considered below. Foremost amongst their submissions was the relevance of the agreements that preceded and were contemporaneous with the 2006 MRSLAs to the construction of the 2006 MRSLAs.

185 The primary argument of the Defendants in favour of their construction of cl 8.1(a) was that the 2006 MRSLAs should be construed consistently with the clear approach taken in the earlier agreements, including the JDA which was still in force at the time that the 2006 Sino Iron MRSLA entered into force.

186 For the following five reasons, I consider that the previous agreements do not assist the Defendants' construction. Rather, to the extent that they are relevant, they militate against it.

187 First, there is an entire agreement provision in cl 38.7 of the 2006 MRSLAs. That provision explains that the 2006 MRSLA 'constitutes the entire agreement of the parties about its subject matter and supersedes all previous agreements, understandings and negotiations on that subject matter'. Clause 38.7, together with the absence of express reference to any other agreement between the parties in either of the 2006 MRSLAs, provides strong indication of a manifest intention to break with any previous agreement and for the 2006 MRSLA to be construed independently of other agreements.

188 Secondly, the Defendants' construction is not supported by the original form of the 2001 subleases.[64] Even if the 2005 Sino Iron MRSLA reflected the precise construction proposed by the Defendants, it is clear that the 2005 Sino Iron MRSLA had substantively changed the approach to be taken to the Mineralogy Royalty from the approach in the 2001 subleases. Since the 2006 MRSLAs contained further changes to the Sino Iron 2005 MRSLA, there is no reason to suppose that the changes objectively reflected an intention to preserve all aspects of the 2005 Sino Iron MRSLA in relation to a royalty regime which had already been amended once. The series of changes are broadly explained immediately below.

189 The 2001 subleases each contained a provision, cl 4, that the sublessee (Sino Iron or Korean Steel) agreed to pay to Mineralogy the 'Mineralogy Royalty' if the sublessee 'mines Iron Ore throughout the Term of this Agreement...'.

190 The substantive change from the 2001 subleases was to create a new regime where the Sino Iron 2005 MRSLA was interlinked with the definitions in the JDA. That link was then removed in the 2006 Sino Iron MRSLA, which also provided in cl 2.1 that it was a deliberate variation and restatement of the 2005 MRSLA:

Mineralogy and Sino Iron have agreed to vary and restate the terms of the Sublease dated 25 October 2001 between Mineralogy and Sino Iron, as varied and restated by the first Mining Right and Site Lease Agreement dated 11 May 2005. This Agreement sets out the terms of the Sublease, as varied and restated by agreement between Mineralogy and Sino Iron.

191 Thirdly, to reiterate, the assumption that the provisions of the JDA were objectively intended to be reflected in the 2006 MRSLAs is contrary to the express removal in the 2006 MRSLAs of the clause, which was contained in the 2005 Sino Iron MRSLA (cl 1.3), that '[a]ny term defined in the JDA, which is used but not separately defined in this Agreement, will have the same meaning this Agreement as in the JDA'.

192 Importantly, there were nearly 30 references to the JDA in the 2005 Sino Iron MRSLA. All of these references were removed from the 2006 MRSLAs. The 2006 MRSLAs also did not include the clause concerned with the incorporation of the definition of terms from the JDA. In the 2006 MRSLAs, there remained only one reference to Sino Iron or Korean Steel taking 'delivery' (lower case) of the Magnetite Ore. This was in cl 5.1(b). And, as already explained, cl 5.1(b) was deleted in 2008 at a date before that at which the 2006 MRSLAs are to be construed for the purposes of this litigation.

193 A selection of examples of the delivery point regime in the 2005 Sino Iron MRSLA and JDA, which were removed from the 2006 MRSLAs, is as follows:

(a) Mining Operations include all activities in connection with mining of Magnetite Ore from the Mine and delivery of the Magnetite Ore to the Mine Participants at their respective Delivery Points (cl 5.2(b)).

(b) Mining Operations do not include any activities beyond the point at which Magnetite Ore has been delivered to each Mine Participant at its Delivery Point (cl 5.3(a)).

(c) Each Mine Participant will take its share of Magnetite Ore at its Delivery Point (cl 14.1).

(d) All costs of transporting Magnetite Ore from the Mine to a Mine Participant's Delivery Point will be an Individual Cost of each Mine Participant (cl 14.2).

(e) Each Mine Participant's Delivery Point will be located in the vicinity of its crushing and screening plant, as shown in the Mine Plan (cl 14.3).

(f) A Mine Participant may not change the location of its Delivery Point, except with the prior approval of the Manager. Each Mine Participant's Delivery Point must be located within 5 km of the Mine, unless otherwise agreed by the Manager (cl 14.4).

(g) In each month, a Mine Participant will be entitled to take a quantity of Magnetite Ore, at its Delivery Point, equal to its Agreed Monthly Tonnage (cl 15.1(a)).

194 Fourthly, although the JDA remained in force between Sino Iron and Mineralogy at the time of the 2006 MRSLAs, from the time of the takeover on 31 March 2006 the rights of MMM (which had been the manager of the Mine Area under the JDA and responsible for all Mining Operations)[65] were suspended. The suspension of the rights of MMM (a company owned by Mineralogy) as mine manager meant that Sino Iron could not take delivery from MMM at a delivery point as contemplated by the JDA (see eg cl 8.4(a), cl 14.4).

195 The imminent takeover of Sino Iron was known to Sino Iron and Mineralogy at the time of the 21 March 2006 MRSLAs.

196 Fifthly, although the 2005 Sino Iron MRSLA had picked up provisions and definitions of the JDA, there was no 2005 MRSLA that applied to Korean Steel. Mr Scerri QC submitted that the Korean Steel 2006 MRSLA should be construed in the same way to achieve parity with the Sino Iron 2006 MRSLA which, in turn, incorporated the meaning of Delivery Point from the JDA. A fundamental difficulty with this proposition is the number and detail of the provisions in the JDA concerning the delivery point regime (some of which have been described above). It is impossible, without any Korean Steel JDA for that considerable detail and regime to be replicated between Korean Steel and Mineralogy.

197 The absence of any express Korean Steel regime for a delivery point does not cause any difficulty if the 2006 MRSLAs are construed as having changed the approach to be taken to the Mineralogy Royalty and if the word 'taken' is divorced from the Delivery Point regime. The two identical MRSLAs can then operate in an identical manner.

(ii) Picking up a 'Delivery Point' from the JDA without express reference

198 Mr Scerri QC submitted that in the case of the Sino Iron 2006 MRSLA, although not the Korean Steel 2006 MRSLA, the express (capitalised) Delivery Point was picked up from the JDA.

199 Even assuming that this could occur without express reference (and despite the deletion in 2006 of (i) the clause which had linked the 2005 Sino Iron MRSLA to the JDA and (ii) of every reference to the Delivery Point regime), no prescription of a Delivery Point under the JDA was ever made by the Defendants (or, more properly, by Sino Iron since Korean Steel was not a party to the JDA). Mr Robinson's evidence was that, to his knowledge, Sino Iron and Korean Steel have not submitted any development plan under cl 5 of the MRSLAs.[66] In other words, there is no reason why a 'Delivery Point' needed to be the primary crusher as opposed to the stockpiles.

200 Further, in the 2005 Sino Iron MRSLA and the JDA the definition of Mining Operations included 'delivery of the Magnetite Ore to the Mine Participants at their respective Delivery Points' (JDA cl 5.2) (emphasis added). Those delivery points could change with the approval of MMM (cl 14.4). Provided that the delivery point was within 5 km of the Mine, there was no reason that the delivery point necessarily be at the primary crusher. Indeed, the JDA clearly contemplated that it could have been changed if it were.

(iii) The primary crusher as the most logical 'delivery point'

201 Mr Scerri QC submitted that any construction required that some physical point exist at which title to the Magnetite Ore should pass from Mineralogy to one of the Defendants. He submitted that the physical place required a choice between the stockpile and the primary crusher.[67]

202 If this submission were intended to mean that a single, fixed, delivery point for Sino Iron and Korean Steel was necessary then I do not accept this submission for four reasons.

203 First, even if a single delivery point were necessary, there would be no necessity for that physical place to be the same for both Korean Steel and for Sino Iron. The delivery point for either of them could be the stockpiles (wherever located from time to time) or any of the four primary crushers, including any subsequent change in location of the primary crushers (as noted above at par [40]). Or it might be somewhere else.

204 Secondly, the previous agreements which had contemplated a delivery point could easily have specified the delivery point as being the primary crusher. They did not do this. Instead, those agreements provided for a 'delivery point' to be chosen and specified by the Defendants, and possibly changed later. No delivery point was ever specified.

205 Thirdly, as explained above at par [23], a run of mine stockpile is located in the vicinity of the primary crushers. It is depicted in the expert sketch shown at Sch 1 to these reasons. The previous agreements permitted the Defendants to specify a delivery point as the place of the run of mine stockpiles, whether for Magnetic Ore stockpiled or Magnetic Ore moved directly to the primary crusher, possibly via the stockpile location.

206 Fourthly, the Defendants' submission that the 2006 MRSLAs provide that taking occur at the delivery point of the primary crusher so that Magnetite Ore is 'taken by [Sino Iron/Korean Steel] pursuant to the exercise of its Mining Right' may cross the boundary between a submission concerning construction and one concerning implication. But it was not submitted that the test for implication of terms had been met.

207 In England, the decision of the Privy Council in AG of Belize v Belize Telecom Ltd[68] attempted to assimilate the process of implication of terms with the exercise of construction and interpretation. Delivering the advice of the Privy Council, Lord Hoffmann explained that both concepts form part of one assessment as to the meaning that the words bear to the reasonable addressee. In relation to implication, Lord Hoffmann's approach asks whether the provision which it is said ought to be implied in an instrument would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.[69] This approach has, however, subsequently been held to require necessity, not merely reasonableness, for the implication of the proposed term.[70]

208 The step taken by the Privy Council in Belize has not been taken in Australia. In Codelfa Construction Pty Ltd v State Rail Authority of NSW,[71] Mason J (Stephen and Wilson JJ agreeing) said that '[w]hen we say that the implication of a term raises an issue as to the meaning and effect of the contract, we do not intend by that statement to convey that the court is embarking upon an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision'.

209 Until the High Court decides otherwise, the rules governing the approach to be taken to implication of terms in Australia differ from those to be taken to the exercise of construction or interpretation.

210 In contrast with the rules of construction described above, the implication of a term 'in fact' requires satisfaction of all of the five criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.[72] The Privy Council, in setting out those criteria in BP Refinery (Westernport) Pty Ltd, on appeal from the Supreme Court of Victoria, said that these criteria 'must be satisfied'.[73] That passage has been referred to with approval in Australia. The five requirements were described by Mason J (with whom Stephen and Wilson JJ agreed) in Codelfa Construction Pty Ltd v State Rail Authority of NSW[74] as necessary conditions.

211 The necessary conditions before a term can be implied are as follows. The term:

(i) must be reasonable and equitable;

(ii) must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

(iii) must be so obvious that 'it goes without saying';

(iv) must be capable of clear expression; and

(v) must not contradict any express terms of the contract.

212 The Defendants submitted that their construction of cl 8.1 involved an exercise of interpretation, not implication.[75] But a difficulty is that there are no words in cl 8.1 which can require a delivery point (a concept which, itself, had been removed from the MRSLAs) to be the primary crusher.

213 A difficulty for this submission is, therefore, that it may cross the line between construction and implication and may require the Defendants to meet the test above, and matters including obviousness and necessity.

214 Ultimately, since the Defendants' arguments cannot succeed, it is not necessary to decide whether the 'construction' proposed by the Defendants is really an exercise in implication, particularly in circumstances in which neither party made any submissions concerning whether the legal requirements for implication could have been satisfied. It suffices to observe that there can be a very fine line between construction or interpretation of a contractual provision on the one hand, and implication of a term into a contract on the other. For instance, it has been held that, independently of the implication of a term, the exercise of interpretation can involve 'the drawing out of what is implied by the language of the contract itself'.[76] Further, the High Court of Australia has, on a number of occasions, divided over whether the exercise in which it was engaged was one of construction, or one of implication. For instance, in Butt v Long,[77] two judges in the High Court considered the issue to be one of interpretation[78] whilst the Chief Justice considered the issue to be one of implication.[79] In Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland,[80] three judges[81] considered the exercise as one of construction, whilst two judges considered it as a question of implication.[82] Referring to these cases, Dr Seddon and Professor Ellinghaus argue that the 'truth is that, in many cases, the court, in purporting to interpret the words of a contract, in effect adds unstated terms, although it uses the language of exegesis rather than implication'.[83]

215 The Defendants submitted that their construction of cl 8.1 was preferable to that put forward by Mineralogy because it provided for a more accurate measurement by use of the weightometer. The Defendants' pleading, and oral submission, asserted that 'any Magnetite Ore which passes over the weightometers located at the inpit primary crushers is delivered to, and is taken by, Sino Iron and Korean Steel at their Delivery Point'.[84]

216 There are several difficulties with this submission.

217 First, the weightometer measurement, as the experts explained, would occur after the Magnetite Ore had been processed by the crusher. But the assumption underlying cl 5.3 of the suspended JDA, upon which the Defendants relied, was that the delivery point for Magnetite Ore must be prior to the processing by the primary crusher.

218 The reason why the terms of the suspended JDA assumed the delivery point of Magnetite Ore to be before processing by the primary crusher can be seen in two provisions of the JDA:

(i) cl 5.3 of the suspended JDA provided that Mining Operations do not include activities beyond the Delivery Point; and

(ii) cl 5.3 of the suspended JDA provided that 'Mining Operations do not include any processing or beneficiation of Magnetite Ore'.

219 The likely conclusion to be drawn from these provisions is that the Delivery Point was assumed to be before any processing or beneficiation of Magnetite Ore. Therefore, even if the JDA provisions were to be incorporated into the definition of taking in the MRSLAs, the manifest intention appears to be that the point of taking is before the Magnetite Ore enters the primary crusher.

220 Secondly, the difference in accuracy between the weightometer method (an accuracy of within 1%) and each of the truck count and truck factor, or stockpile survey methods (an accuracy of within 2%) was 1%. There is no evidence from which it could be inferred that reasonable persons in the position of the parties would have intended that the degree of accuracy of measurement for calculating the royalty under the 2006 MRSLAs required the weightometer method to be used. Rather, the joint expert report concluded that in 2006 it was, and still is, Good Industry Practice to use all the available methods to calculate the quantity of Magnetite Ore prior and then to compare them to determine an overall 'best mining engineering estimate' of the main tonnage number required. And if a crushing plant were not yet operational, the experts concluded that Good Industry Practice at all relevant times would have been to use methods other than the weightometer method to determine the quantity of Magnetite Ore.

221 One of the methods of measurement, the mining block method, was used in the last monthly report provided to Mineralogy by CPMM. In that report (November 2012), CPMM estimated that using the mining block method, 1,886 tonnes of Magnetite Ore had been moved in the Total Life to Date of the Magnetite Ore Project.[85]

(v) The obligation to keep accounts and pay State royalties

222 The Defendants submitted that a construction of cl 8.1, which recognised a taking of Magnetite Ore at the stockpiles, would make it impossible to comply with cls 9.1 and 9.2 (the obligation to keep accounts and pay State royalties) due to the need to ascertain the sale price of the processed Magnetite Ore.[86]

223 Although I received no submissions in any detail on the effect of cls 9.1 and 9.2, or upon the terms of the State Agreement, or the Mining Act 1978 (WA) or the Mining Regulations 1981 (WA), the relevant provisions do not appear to suggest any impossibility of compliance. In the absence of any submissions about this regime, this conclusion can only be tentative. But the key point is that this factor, at best, provides very limited support for the Defendants' construction of cl 8.1.

224 Clauses 9.1 and 9.2 of the 2006 MRSLAs create the regime for payment of the State Government Royalty which is defined as 'the royalty payable to the State of Western Australia in respect of Magnetite Ore mined from the Mining Leases, in accordance with the State Agreement'.

225 Clause 9.1 requires Sino Iron or Korean Steel to pay all State Government Royalty on behalf of Mineralogy and itself 'in respect of Magnetite Ore allocated to and taken from [Sino Iron/Korean Steel] from the Mine Area'. That payment is to be made to Mineralogy by Sino Iron or Korean Steel in the manner prescribed by cl 9.1(b) below:

[Sino Iron/Korean Steel] will make payments of the State Government Royalty to Mineralogy not later than 14 days after Magnetite Ore is taken by [Sino Iron/Korean Steel] from the Mine Area. [Sino Iron/Korean Steel] must provide to Mineralogy copies of all reports and returns provided by [Sino Iron/Korean Steel] in support of its calculations or required by any Law.

226 Subject to compliance by Sino Iron or Korean Steel with the duty to make this payment to Mineralogy, cl 9.1(c) provides for Mineralogy to 'make the payments of the State Government Royalty'. Sino Iron and Korean Steel are required by cl 9.1(c) to provide Mineralogy with 'all necessary reports and returns' and to remit the funds to Mineralogy 'not later than 30 days prior to each due date for payment' by Mineralogy of the State Government Royalty.

227 Clause 9.2 provides for Sino Iron and Korean Steel to keep books and records of all Magnetite Ore 'won' from the Mine Area by them respectively, as well as all matters which will enable the State Government Royalty to be calculated including: (i) realised sale price achieved; (ii) any costs which are an allowable deduction for the purposes of calculating the State Government Royalty; (iii) the ultimate use of all ore; and, (iv) the matters set out in the State Agreement that relate to the State Government Royalty.

228 Although no reference was made in submissions to any provision of the State Agreement, that agreement is relevant to understand the operation of cls 9.1 and 9.2. Clause 11(1) of the State Agreement provided, in relation to iron ore, that:

[Mineralogy] shall, during the continuance of this Agreement pay to the State royalty on all minerals (other than iron ore, iron ore concentrates, pellets or [Direct Reduced Iron and Hot Briquetted Iron] shipped solely for testing purposes and, in respect of which, no purchase price or other consideration is payable or due) obtained from the Mining Leases as follows -

(a) on iron ore concentrates processed under this Agreement (hereinafter referred to in this Clause as "the input") -royalty assessed on the imputed value of the input calculated in accordance with subclause (2) at the relevant royalty rate minus:

(i) 2% -where the input is processed into steel in Western Australia;

(ii) 1% -where the input is processed into DRI but is not further processed into steel in Western Australia; or

(iii) 0.5% -where the input is processed into pellets but is not further processed under this Agreement into DRI,

(b) on other iron ore concentrates and on all other iron ore - royalty as from time to time prescribed under the Mining Act...

229 Clause 11(3) focuses upon payment of the royalty to the State based upon when the iron ore is 'disposed of'. Provided that the imputed value has been calculated, the timing of the royalty payment is, in broad terms, within one month of the production of a required return. The required return is, itself, to be produced within 28 days following the end of the quarter in which the iron ore is 'disposed of'.

230 The term 'disposed of' is defined in cl 11(6)(b) as follows. For iron ore which is processed under the State Agreement, the definition of 'disposed of' is 'input into the pellet plant in the case of a project of the type of Project 1 or input into the DRI plant in the case of a project of the type of Project 2 or Project 3'.

231 Project 1 is broadly defined, in part, as 'a project or projects for the production of high grade iron ore pellets within Western Australia ...'. Project 2 is broadly defined, in part, as 'a project or projects for the production of DRI within Western Australia'. Project 3 is broadly defined, in part, as 'a project or projects for the production of steel within Western Australia'.

232 Clause 7.2 of the 2006 MRSLAs requires Sino Iron and Korean Steel to 'process all Magnetite Ore taken by [Sino Iron or Korean Steel] from the exercise of [its] Mining Right into either Iron Ore Concentrates, Pellets or HBI [hot briquetted iron]'.

233 The effect of the provisions of the State Agreement discussed above appears to be that Magnetite Ore which is processed into pellets or HBI requires a royalty to be paid in a period of time following the production of a return which itself follows the processing.

234 For Magnetite Ore which is not processed into pellets or HBI, but which is processed into iron ore concentrates, then cl 11(3) of the State Agreement (as clarified by the 2008 amendments) requires a return to be produced following that which the royalty will be payable. The royalty for iron ore concentrates which are not processed into steel, HBI or pellets is 'the royalty as from time to time prescribed under the Mining Act' (see cl 11(1)(b)).

235 Regulations made under the Mining Act 1981 (WA) provide that 'royalties for a mineral shall be paid within 30 days after the end of the quarter during which the relevant amount of the mineral was produced or obtained'.[87] The words 'produced or obtained' are not defined. It would seem that the iron ore concentrates would be produced once the Magnetite Ore had been processed into those concentrates.

236 The overall effect of the State Agreement is, therefore, to require Mineralogy to pay a royalty which will be assessed based upon matters related to processing of Magnetite Ore. Clause 9.1 imposes an obligation of Sino Iron and Korean Steel to make payments of the amount of the State Government Royalty to Mineralogy at a time which is both: (i) not later than 14 days after the Magnetite Ore is taken from the Mine Area; and (ii) not later than 30 days prior to the due date for Mineralogy's payment of the State Government Royalty.

237 On the construction of cl 8.1 which Mineralogy submitted should apply, the Defendants would be required to pay royalties to Mineralogy for Magnetite Ore which has been stockpiled and not processed, even though the calculation of the royalties would depend upon matters relating to processing. This is not necessarily inconsistent with Mineralogy's construction of cl 8.1. Since Sino Iron or Korean Steel is required to process the Magnetite Ore which it takes, there is no necessary inconsistency if they make a payment of that royalty to Mineralogy at a time before processing occurs, based upon known matters and expectations concerning imputed values.

238 The Defendants submitted that it was not commercial sense for them to pay a royalty on stockpiled Magnetite Ore and stockpiled LowGrade Material which they might never use. There are four reasons why this submission is not compelling.

239 First, there is no evidence from which to gauge the amount of material which reasonable persons in the positions of the parties might have expected to be stockpiled compared with the amount sent directly to the crusher. If the amount stockpiled is only a small proportion of the amount which is sent to the crusher, then the commercial effect of requiring a royalty on some unused proportion of this small amount might not be of great significance.

240 Secondly, and more fundamentally, there is no evidence that any of the stockpiled Magnetite Ore which had not been sent to the waste dumps might not be used. The agreed facts assumed the contrary. It was an agreed fact that '[o]nce stockpiled, the ore is transported at a subsequent time to, and tipped into, the primary crusher without further sampling or sorting'.[88]

241 Further, there was no evidence, nor any submission made, concerning why Magnetite Ore which had been stockpiled for potential future use would not be used. Indeed, as Mr Scerri QC cogently explained, the purpose of the stockpiles is to maintain a continuous feed for the processors: in an ideal world, the ore would be blasted, put into a truck once and then tipped into the crusher. But since things may go wrong, such as weather or interruption to production, stockpiles exist to maintain the feed.[89] This is entirely consistent with the effect of Mineralogy's construction that the Defendants are required to process the Magnetite Ore which they stockpile because it has been taken (see cl 7.2 of the 2006 MRSLAs).

242 Thirdly, the construction urged by the Defendants raises concerns about commercial sense. Title to the Magnetite Ore which is mined passes from Mineralogy to Sino Iron or Korean Steel when it is taken (see cl 7.1). So if stockpiles of Magnetite Ore are not 'taken' by Sino Iron or Korean Steel, then Mineralogy will own quantities of valuable Magnetite Ore (i) for an uncertain period of time, (ii) which it cannot process and sell, (iii) which is stockpiled on land to which Sino Iron and Korean Steel have exclusive possession, and (iv) which Sino Iron or Korean Steel are not required to process.

243 Fourthly, even if there were a foundation for the Defendants' submission about commercial sense, the process of construction is one which is, in the description of Lord Grabiner, 'iterative'.[90] In Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc,[91] Macfarlan JA in the Court of Appeal, in a passage endorsed in the comments of the special leave panel,[92] said that '[a] court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted'. As Basten JA has reiterated '[t]he courts have no mandate to rewrite agreements, so as to depart from the language used by the parties, merely to give a provision an operation which, as it appears to the court, might make more commercial sense'[93] (emphasis in original). Although commercial sense might be a factor in the construction process, the reason it cannot rise above the text itself, as Professor McLauchlan and Mr Lees explain, is that:[94]

[T]he contract may have been a bad bargain or become so as a result of unanticipated events. The test is what a reasonable person would understand the relevant terms to mean, not what a reasonable person would consider, gives the relevant terms a 'commercial and businesslike operation.

(Emphasis in original).

244 A matter raised by the Defendants in oral submissions was whether the default notices were invalid. One basis upon which it was submitted that the default notices were invalid was their failure to specify the amount of royalty owing by the Defendants. Mineralogy submitted that it was sufficient for the default notices to provide that Sino Iron and Korean Steel were in default of their obligations to pay.[95]

245 There is also a related difficulty with identifying which of Sino Iron or Korean Steel has taken the Magnetite Ore that has been stockpiled. It is possible that all the stockpiled Magnetite Ore has been taken exclusively by one company or the other, with the result that one of the default notices might have been invalid. And, as explained in the introduction to these reasons, a further difficulty might have arisen in determining whether it was reasonable to exercise any power to terminate based upon any default by Sino Iron or Korean Steel, or both, and in considering the legal operation of notions of reasonableness in relation to termination.

246 As a consequence of the agreed position of the parties after the hearing, which I described above at [12], it is neither necessary nor appropriate to explore these issues.

247 Although the word 'taken' in cl 8.1 is ambiguous, the best interpretation of that word, and the clause, is a construction similar to that proposed by Mineralogy. Clause 8.1 in the 2006 MRSLAs has the effect that a royalty becomes payable by either Sino Iron or Korean Steel or by them jointly when the relevant person takes possession or control of Magnetite Ore, either by stockpiling for the purposes of possible future processing or use (as opposed to placing it on the waste piles) or by moving it directly to the primary crusher.

248 Neither the natural meaning of 'taken', nor its meaning in the 2006 MRSLAs as a whole, nor its meaning in the 2006 MRSLAs in the context of the previous agreements, supports a construction that the royalty is payable only when Magnetite Ore is 'delivered to Sino Iron and Korean Steel, and taken by them, at their delivery point, being the primary crusher'.

249 I will hear from the parties concerning the appropriate wording of any declaration consequent upon these reasons and any consequential orders.

[1] Exhibit B (Affidavit of Scott de Kruijff affirmed 22 March 2013) [17], [19].

[4] Hampton v BHP Billiton Minerals Pty Ltd (No 2) [2012] WASC 285 [241], [261]-[263].

[5] Agreed Supplementary Statement of Issues [3].

[6] Amended Agreed Statement of Facts and Issues.

[7] Mining leases 08/123, 08/124 and 08/125: Further Amended Statement of Claim [1.2]; Defence to the Amended Statement of Claim [1]; Amended Agreed Statement of Facts and Issues [10].

[8] General Purpose Lease 08/52: Further Amended Statement of Claim [1.3]; Defence to the Amended Statement of Claim [1]; Amended Agreed Statement of Facts and Issues [10].

[9] Amended Agreed Statement of Facts and Issues, 23 April 2013, [2D]. See also the expert sketch at schedule 1 to these reasons.

[10] Exhibit 27 (Joint expert report dated 25 February 2013) [4.3].

[12] Exhibit 27 (Joint expert report dated 25 February 2013) [5].

[13] Amended Agreed Statement of facts and Issues [31].

[14] 7 May 2013 Supplementary Submissions of Mineralogy.

[15] 9 May 2013 Supplementary Submissions of the Defendants.

[16] Further Amended Statement of Claim [6.3]; Defence to Amended Statement of Claim [6(b)].

[19] Exhibit A (Affidavit of Mr Robinson sworn 26 March 2013) [28].

[20] Further Amended Statement of Claim [28]; Defence to Amended Statement of Claim [36(a)].

[21] Further Amended Statement of Claim [31]; Defence to Amended Statement of Claim [39(a)]. See Exhibits 22, 23 (documents 43 and 44).

[23] Amended Agreed Statement of Facts and Issues [10].

[24] And, in the case of Korean Steel, also hot briquetted iron (HBI).

[32] Defendants' written submissions [80].

[33]Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896, 904 (Lord Lloyd, dissenting).

[34] Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] 2 WLR 945.

[35] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352.

[36] A Mason 'Opening address' (2009) 25 JCL 1, 3.

[37] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 [40] (Gleeson CJ; Gummow, Hayne, Callinan and Heydon JJ).

[38] A Mason 'Opening address' (2009) 25 JCL 1, 3.

[39] MBF Investments Pty Ltd v Nolan [2011] VSCA 114 [198] - [203]; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 [17] (Allsop P relying upon the following authorities); Lion Nathan Australia Pty Ltd v Cooper Brewery Ltd [2006] FCAFC 144; (2006) 156 FCR 1 at 10-12 [45]- [52] (Weinberg J) 22 [100] (Kenny J) 48 [238] (Lander J); Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at 626 [107]- [109] (Tobias JA, with whom Mason P and Campbell JA agreed); Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140 [22] (Allsop P, with whom Tobias JA and Basten JA agreed); Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 at 384-385 [1]- [3] (Allsop P with whom Basten JA agreed) and [113] (Campbell JA).

[40] Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1, 3 [5].

[41] Citing Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-462 [22] (Gleeson CJ; Gummow, Hayne, Callinan and Heydon JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 [40] (Gleeson CJ; Gummow, Hayne, Callinan and Heydon JJ); Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, 528 [15] (Gleeson CJ, McHugh, Gummow and Kirby JJ); International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151, 160 [8] (Gleeson CJ).

[42] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 176 [40] (Gleeson CJ; Gummow, Hayne, Callinan and Heydon JJ).

[43] Collins v The Queen [1975] HCA 60; (1975) 133 CLR 120, 122 (Barwick CJ, Stephen, Mason and Jacobs JJ). See also North Ganalanja Aboriginal Corporation v The State of Queensland [1996] HCA 2; (1996) 185 CLR 595, 643 (McHugh J); Steggles Limited v Yarrabee Chicken Company Pty Ltd [2012] FCAFC 91 [60] (the Court).

[44] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [134] (the Court). See McCourt v Cranston [2012] WASCA 60 [22] (Pullin JA; Newnes JA agreeing).

[45] D McLauchlan 'The Plain Meaning Rule of Contract Interpretation' (1996) 2 NZBLQ 80; J Steyn, 'The Intractable Problem of the Interpretation of Legal Texts' [2003] SydLawRw 1; (2003) 25 Syd L Rev 5, 6; D McLauchlan 'Plain Meaning and Commercial Construction: Has Australia Adopted the ICS Principles?' (2009) 25 JCL 7.

[46] For some examples in intermediate appellate courts see John Holland Group Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2011] VSCA 396; (2011) 255 FLR 122, 123

[54]-[55] (Neave JA; Nettle JA and Judd AJA agreeing); Chu Underwriting Agencies Pty Ltd v Wise [2012] WASCA 123 [10] (McLure P; Buss and Newnes JJA agreeing); Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) [2012] WASCA 53 [24] (McLure P).

[47] Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66 [107].

[48] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 176 [40] (Gleeson CJ; Gummow, Hayne, Callinan and Heydon JJ).

[49] South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 [35] (Spigelman CJ; Beazley JA agreeing); Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 [138] (the Court); Ginger Development Enterprises Pty Ltd v Crown Developments Australia Pty Ltd [2003] NSWCA 296 [20] (Davies AJA; Mason P and Sheller JA agreeing).

[50] Vincent Nominees Pty Ltd v Western Australian Planning Commission [2012] WASC 28 [54].

[51] Macquarie Dictionary, 5th edn, 2009.

[52] This is similar to definition 35 in the Macquarie Dictionary.

[53] Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cases 60853, 75-343.

[54] Plaintiff's submissions [14]-[15].

[55] Amended Agreed Statement of Facts and Issues [2G].

[58] Defendants' submissions [86], [92], [93].

[62] Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 [137]-[139]. See also 260 Oxford Street Pty Ltd v Premetis [2006] NSWCA 96 (Tobias JA; Basten JA and Young CJ in Eq agreeing).

[63]Wachmer v Jaksic [2007] WASC 313 [187].

[66] Exhibit A (Affidavit of Mr Robinson sworn 26 March 2013) [14] [15].

[68] AG of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 [21] - [27] referred to without disapproval in The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 3] [2012] WASCA 157 [342] (Lee AJA).

[69] AG of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988, 1994 [21].

[70] Mediterranean Salvage & Towage v Seamar Trading & Commerce Inc [2009] EWCA Civ 531; [2009] 2 Lloyd's Rep 639, 643 [15] (Lord Clarke MR).

[71] Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 345.

[72] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283 (Lord Simon, Viscount Dilhorne and Lord Keith).

[73] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283 (Lord Simon, Viscount Dilhorne and Lord Keith).

[74] Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 347. See also Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 605 606 (Mason J).

[76] Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153, 165 [30] (Heydon JA); Boreland v Docker [2007] NSWCA 94 [110]-[111] (Beazley JA; Mason P and Ipp JA agreeing).

[77] Butt v Long [1953] HCA 76; (1953) 88 CLR 476.

[78] Butt v Long [1953] HCA 76; (1953) 88 CLR 476, 489-490 (Webb J), 490-491 (Fullagar J).

[79] Butt v Long [1953] HCA 76; (1953) 88 CLR 476 at 487-489 (Dixon CJ).

[80] Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 50 ALJR 769.

[81] Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 50 ALJR 769, 770-771 (Barwick CJ, dissenting), 773-775 (Gibbs J), 778 (Mason J).

[82] Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 50 ALJR 769, 777 (Stephen and Murphy JJ)

[83] N Seddon and M Ellinghaus Cheshire and Fifoot's Law of Contract (9th Australian ed, 2008) 441 [10.40].

[84] Defence to the Amended Statement of Claim [32(c)(iii)]; ts 140.

[87] Mining Regulations 1981 (WA) r 86A(2).

[88] Amended Agreed Statement of Facts and Issues [2G].

[90] A Grabiner 'The Iterative Process of Contractual Interpretation' (2012) 128 LQR 41. See also Re Sigma Finance Corp [2008] EWCA Civ 1303; [2009] BCC 393, 417 [98] (Lord Neuberger MR).

[91] Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 [55].

[92] Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1, 2 [1].

[93] Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 [18]. See also Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1, 2 [5] (Gummow, Heydon and Bell JJ).

[94] D McLauchlan and M Rees 'More Construction Controversy' (2012) 29 JCL 97, 100.