Resource Base Limited v Sutton

4 Realestate.com.au Pty Ltd v Hardingham (2022) 277 CLR 115; [2022] HCA 39 Rees v Windsor-Clive [2021] 2 All ER 1013; [2020] EWCA Civ 816 The J & P Marlow (No. 2) Pty Ltd v Hayes and McCabe (2023) 112 NSWLR 29; [2023] NSWCA 117 Wilcox v Richardson (1997) 43 NSWLR 4 XL Insurance Co SE v BNY Trust Company of Australia Ltd [2019] NSWCA 215 Texts Cited: N/A Category: Principal judgment Parties: Resource Base Limited (ACN 113 385 425) (First Plaintiff/First Cross Defendant) Broula King Joint Venture Pty Ltd (Second Plaintiff/Second Cross Defendant) John Barry Sutton (Defendant/Cross Claimant) Representation: Counsel: Ms T Fishburn (Plaintiffs/Cross Defendants) Mr J R Willis with Mr M Bui (Defendant/Cross Claimant)

Solicitors: Colin Biggers & Paisley (Plaintiffs/Cross Defendants) Coetsee Legal (Defendant/Cross Claimant) File Number(s): 2022/206943 Publication restriction: N/A

Introduction

1. The plaintiffs' principal claim in these proceedings is a claim for specific performance of a contract for the sale of land between the first plaintiff and the defendant, and a claim for an order requiring the defendant to transfer to the first plaintiff on completion an exploration licence that was issued to the defendant in respect of minerals contained within a large area of land which includes the land that is the subject of the contract for sale. The exploration licence was issued after the first plaintiff and the defendant entered into the contract for sale of land.
2. At the commencement of the hearing, the defendant consented to orders for specific performance of the contract for sale of land, and abandoned his cross-claim for specific performance of a different contract that he contended had been created by the contract for sale of land being novated from the first plaintiff to the second plaintiff as purchaser. However, the defendant continued to oppose the first plaintiff's claim for an order requiring him to transfer the exploration licence on completion of the contract for sale of land that is to be specifically performed.
3. The first plaintiff's claim in respect of the exploration licence raised questions about the proper construction of the contract for sale of land and whether that contract includes an implied term requiring the defendant to transfer the exploration licence to the first plaintiff. In substance, it also raised an issue about whether the defendant has derogated from the grant of property made to the first plaintiff under the contract for sale of land by applying for the exploration licence after entering into that contract and refusing to transfer it to the first plaintiff together with the transfer of the title to the land on completion. The parties addressed that additional issue at my request in supplementary written and oral submissions after I had reserved judgment.
4. At the conclusion of the parties' supplementary oral submissions on 6 November 2024, I determined that there was a proper legal and factual basis to make orders for specific performance of the contract for sale of land in the terms consented to by the parties, but that the first plaintiff's claim for an order requiring the defendant to transfer the exploration licence to it on completion of the contract for sale of land must be dismissed. I informed the parties of that decision and made orders accordingly on 6 November 2024 on the basis that my reasons would be published as soon as possible. These are those reasons.

Salient facts and relevant procedural history

1. The defendant in these proceedings, Mr John Sutton, is the registered owner of a property known as "The Mines" in Bumbaldry, west of Cowra in New South Wales, comprising the land in [redacted].
2. The proceedings concern a claim for specific performance of a contract for sale of land dated 29 August 2014 pursuant to which Mr Sutton agreed to sell the land comprising "The Mines" to Resource Base Limited (RBL) for a price of $300,000. The contract provided for completion three years from the date of the contract - that is, on 29 August 2017. That completion date was subsequently extended by mutual agreement between Mr Sutton and RBL on four occasions. The last day for completion under the fourth extension expired on 28 February 2021.
3. At the time the contract was entered into on 29 August 2014, RBL was the sole shareholder of Broula King Joint Venture Pty Ltd (BKJV). Since March 2008, BKJV had held a mining licence over Crown land adjacent to "The Mines" to mine and prospect for gold (ML1617). The terms of ML1617 expressly provided that the mining lease was subject to subsisting rights and interests in the land. Those subsisting rights and interests included a grazing licence number LI383499 which had been granted by the Crown to Mr Sutton in February 2006 in respect of an area of land that included a small part of "The Mines" and a large part of the land that was the subject of ML1617. Mr Sutton and BKJV had entered into a Memorandum of Understanding in September 2008 pursuant to which Mr Sutton agreed for BKJV to have access to that land for the purpose of establishing and operating an open cut gold mine and tailings storage facility, in consideration for certain payments to be made by BKJV to Mr Sutton.
4. In March 2013, BKJV had entered into an arrangement with Mr Sutton whereby Mr Sutton permitted BKJV to access part of "The Mines" to extract clay, which BKJV then used for the purposes of its mining operations on the adjacent ML1617 land, free of charge. Mr Alan Fraser, who was then a director of BKJV and the chairman of BKJV's parent company RBL, gave the following evidence about that arrangement in his affidavit sworn on 15 March 2023: "I agree that BKJV had an agreement with Mr Sutton to remove clay from his property for use on ML1617. I negotiated the agreement with Mr Sutton. In or about February 2013, I was on Mr Sutton's property with Mr Sutton. I had a conversation with Mr Sutton and said words to the effect: "I am looking for clay for use on the mine site. It looks like your property has plenty of clay" Mr Sutton accompanied me around the property in his vehicle looking for a suitable clay site. We found a clay site where the clay pit is currently located. I said words to the effect, "Can we take clay from this site for use on the mine site?" John Sutton said words to the effect, "Yes, and I can use the water for my livestock". We did not discuss payment for the clay. On 4 March 2013 I wrote a letter to Mr Sutton confirming the arrangement in writing … Clay was extracted from the clay pit from about March 2013 …"

The nature of the claim in prayer 8 and the issues for determination

1. The plaintiffs' claim for an order requiring Mr Sutton to transfer EL9553 to "the Plaintiff" was pleaded as an independent claim for relief, and did not identify which of the two plaintiffs the claim related to.
2. On 1 October 2024, the plaintiffs re-cast that claim as part of the terms of the orders sought by RBL for specific performance of the contract for sale of land dated 29 August 2014. As discussed in more detail below, the plaintiffs submit that the contract for sale of land, properly construed requires Mr Sutton to transfer EL9553 to the purchaser expressly or by implication. Thus, an order for specific performance of the contract would include a specific order requiring the transfer of EL9553 to RBL. During the hearing on 2 October 2024, the plaintiffs submitted in the alternative that, even if Mr Sutton was not contractually obliged to transfer EL9553 together with the title to "The Mines" on completion of the sale contract, he was creating an "untenable" situation by consenting to an order for specific performance of the sale contract, yet resisting the transfer of EL9553, because EL9553 "goes to the heart of what is being conveyed" by the sale contract, and it would "play a mockery on" the equitable remedy of specific performance if the parties were ordered to perform the sale contract without Mr Sutton also being required to transfer EL9553 to RBL. It was submitted that the Court therefore has power to order the transfer of EL9553 as an "equitable overlay" of its jurisdiction to order specific performance of the sale contract, even if the contract itself does not oblige Mr Sutton to transfer EL9553. However, by the conclusion of the hearing on 2 October 2024, counsel for the plaintiffs accepted that the issue raised by prayer 8, cast as part of the plaintiffs' claim for specific performance was simply whether the contract, properly construed, requires Mr Sutton to transfer EL9553 to RBL on completion of the contract.
3. After the conclusion of the hearing on 2 October 2024, it occurred to me that the substance of the plaintiffs' submissions seeking to invoke an "equitable overlay" of the specific performance jurisdiction to require parties to do things not required by the contract might be akin to reliance on the common law doctrine of non-derogation from grant, although the submissions had not been framed in that way. I therefore called for submissions from the parties in relation to the question whether the common law doctrine of non-derogation from grant has any application to the plaintiffs' claim for relief in prayer 8 of the amended statement of claim. As I have mentioned earlier in these reasons, the parties then provided further written submissions, which they had the opportunity to supplement orally at a short further hearing on 6 November 2024.

Applicable legal principles

1. As the High Court stated in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd, [2] and reaffirmed in Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd: [3] "It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it."
2. The commercial purpose or object of the contract is to be ascertained by reference to the genesis of the transaction, the background, the context and market in which the parties are operating, and the terms of the contract itself. [4]
3. The Court is entitled to approach the task of construing a clause in a commercial contract on the basis that the parties intended to produce a commercial result, meaning one which makes commercial sense. This requires that the clause be construed in a manner that is consistent with the commercial object of the contract, objectively ascertained. [5] At the same time, the commercial object attributed to the contract cannot be used to give the words of the contract a meaning that they cannot reasonably bear, [6] and caution is required when resort is had to assertions of commercial sense (or, conversely, commercial inconvenience) as a reason for construing a commercial contract in a manner that departs from the ordinary meaning of the language that the parties have in fact used. [7] There is "no licence for 'judicial rewriting' of an agreement". [8] The Court is not permitted to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust. [9]
4. As the submissions made on behalf of the plaintiffs acknowledged, post-contractual conduct is not admissible to construe the words of a written contract. [10]
5. The conditions necessary to imply a term in a contract are well-established. The term must be reasonable and equitable, necessary to give business efficacy to the contract (so that no term will be implied if the contract is effective without it), and so obvious that it goes without saying. It must also be capable of clear expression, and it must not contradict any express term of the contract. The term must be assessed against those criteria as at the time the contract was entered into. [11]

Construction of the contract for sale of land

1. Counsel for the plaintiffs submitted that the Court should incorporate in orders for specific performance of the contract for sale of land an order requiring Mr Sutton to take the steps to cause EL9553 to be transferred to RBL because the contract was a contract for the sale of land that was not subject to an exploration licence. It was submitted that RBL had contracted for "the benefit of the land" which, at the time the contract was entered into on 29 August 2014, was not affected by any exploration licence. It was submitted that an order for specific performance should therefore be made in terms which ensured that the land would be transferred to RBL "as it was when [RBL] bargained for it".
2. Counsel for the plaintiffs relied on the circumstances surrounding the entry into the contract for sale of land, referring to the evidence which I have summarised at [7]-[10] above. Counsel for the plaintiffs acknowledged that the relevant surrounding circumstances also included the statutory regime for the prospecting and mining of clay referred to at [21]-[25] above.
3. Counsel for the plaintiffs also relied on clause 16.3 of the contract as supporting the construction of the contract as a contract for sale of the land unaffected by any exploration licence. As referred to at [15] above, clause 16.3 requires Mr Sutton to transfer title to the land to RBL on completion "free of any mortgage or other interest". Counsel for the plaintiffs initially submitted that the words "other interest" were sufficiently wide to include "something as significant as the encroachment which comes with the granting of an exploration licence over the land". Counsel then acknowledged that the words "other interest" in clause 16.3 refer to an interest in the land, and that the land that is the subject of the contract expressly excludes the minerals, as stated in the notifications on the certificates of title annexed to the contract. It was then submitted that the interest in land to be transferred to RBL on completion would be "compromised" or "impacted" by the existence of an exploration licence in respect of the land, because the interest of the incoming purchaser in obtaining a mining lease in respect of the land would be thwarted by the granting of an exploration licence to the vendor or another person, whose consent would be required before a mining lease could be granted to the purchaser.

Derogation from grant?

1. For the reasons explained at [60]-[75] above, the evidence of the circumstances surrounding Mr Sutton and RBL's entry into the contract for sale of land on 29 August 2014 does not support imputing to the parties a common intention that RBL would gain access to, and an entitlement to use, clay deposits on "The Mines" by purchasing the land. I reject the plaintiffs' submissions to the contrary.
2. On the proper construction of the contract for sale of land, Mr Sutton granted RBL an interest in the land excluding the minerals. Mr Sutton has not derogated from that grant by applying for and obtaining EL9553 in respect of a large area of land that includes, but is not limited to, "The Mines". To put it another way, the doctrine of non-derogation from grant does not require the implication in the sale contract of a right for RBL to receive a transfer of Mr Sutton's rights under EL9553. The doctrine would operate as an instrument of extortion in this case if Mr Sutton were obliged to transfer those rights, the geographical scope of which extends far beyond "The Mines", to RBL for no consideration.
3. At the hearing on 6 November 2024, the plaintiffs relied on the terms of the extension agreements that the parties entered into between 2017 and 2020, which granted RBL a right to conduct "exploration drilling" on part of "The Mines" pending completion of the contract for sale of land. [16] Counsel for the plaintiffs submitted that these terms of the extension agreements support imputing to the parties a common intention at the time they entered into the contract for sale of land - between three and six years prior to the extension agreements - that RBL would gain access to, and an entitlement to use, clay deposits on "The Mines" by purchasing the land. I reject that submission. Applying the principles referred to at [54] above, I do not consider that a reasonable businessperson in the position of the parties at the time the extension agreements were made would have understood the words "exploration drilling" to refer to excavation of clay, or exploratory activities preliminary to the excavation of clay from "The Mines". The reasonable businessperson is to be imputed with the knowledge that BKJV and Mr Sutton had identified clay excavation sites in 2013 based on a visual inspection of the surface of the land conducted by Mr Fraser driving around the property with Mr Sutton, followed by excavation to test the clay depth, without any exploratory drilling. [17] The reasonable businessperson is also to be imputed with the knowledge that BKJV held ML1617 over Crown land adjacent to "The Mines" which entitled it to mine and prospect for gold. [18] In my opinion, the reasonable businessperson in the position of the parties, including knowledge of those circumstances, would have most likely understood the reference to "exploration drilling" in the extension agreements as a reference to exploration activities directed to RBL investigating the possibility of BKJV applying for an exploration licence or mining lease to expand its existing gold mining operations to "The Mines".

Conclusion and orders

1. I am satisfied on the basis of the evidence summarised above that there is a proper basis in fact and law for the Court to make the declaration sought by the plaintiffs, which was opposed by Mr Sutton until the first day of the hearing but which he consented to on that day, and that RBL is entitled to specific performance of the sale contract. For all of the foregoing reasons, the orders for specific performance will be made in the terms consented to by the parties and will not include an order in the terms of prayer 8 of the amended statement of claim. The doctrine of non-derogation from grant does not entitle the plaintiffs to an order in terms of prayer 8 of the amended statement of claim. For completeness, the defendant's abandoned cross-claim, and the plaintiffs' alternative claims for relief in the amended statement of claim which were essentially responsive to that cross-claim, will be dismissed.
2. The declaration and orders made on 6 November 2024 were in the following terms: 1. By consent: 1. DECLARE that the First Plaintiff is entitled to the specific performance of a contract for the sale of land being [redacted] (Land) between First Plaintiff as purchaser and the Defendant as vendor dated 29 August 2014 (Contract). 2. ORDER that the Defendant specifically perform the Contract within 28 days of the date of these orders, with the exception of clause 50 which the parties agree can no longer be performed due to the cancellation by the Crown of grazing licence 383499. 3. In default of the Defendant complying with the order referred to in (b) above, ORDER that the Registrar or a Deputy Registrar of this Court be empowered to execute all such instruments and do all such things in the name and on behalf of the Defendant, as may be necessary in order to specifically perform the Contract, and DIRECT that the Registrar and Deputy Registrars are appointed to so act. 4. ORDER that the Defendant deliver up vacant possession of the Land to the First Plaintiff upon completion of the Contract. 5. ORDER that the Defendant do all acts and things and sign all documents to transfer the title to the Land to the First Plaintiff and to enable registration of the First Plaintiff as registered proprietor of the Land. 6. In default of the Defendant doing all acts and things and signing all documents to enable the First Plaintiff to register the Transfer of the Land to the First Plaintiff, ORDER that the Registrar or a Deputy Registrar of this Court be empowered to do all acts and things and sign all documents on the First Plaintiff's behalf. 1. ORDER that the Amended Statement of Claim is otherwise dismissed. 2. ORDER that the Cross-Claim is dismissed. 3. Reserve the question of the costs of the proceedings. 4. Reserve liberty to the First Plaintiff to apply for an order for equitable set off of the amount of any costs that the Defendant may be ordered to pay to the First Plaintiff in these proceedings against the amount of the purchase price payable by the First Plaintiff to the Defendant on completion of the Contract.

Endnotes

1. Mining Act 1992 (NSW), ss 13, 19, 51, 58.
2. (2017) 261 CLR 544; [2017] HCA 12 at [16] (Kiefel, Bell and Gordon JJ).
3. (2023) 276 CLR 500; [2023] HCA 6 at [27] (Kiefel CJ, Gageler , Gordon , Gleeson and Jagot JJ).
4. Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd at [17]-[18] (Kiefel, Bell and Gordon JJ); Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ).
5. Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd at [17]-[18] (Kiefel, Bell and Gordon JJ); Electricity Generation Corporation v Woodside Energy Ltd at [35] (French CJ, Hayne, Crennan and Kiefel JJ).
6. The J & P Marlow (No. 2) Pty Ltd v Hayes and McCabe (2023) 112 NSWLR 29; [2023] NSWCA 117 at [79] (Bell CJ), citing Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520; [1986] HCA 32 (Gibbs CJ) and Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 388 (Mustill LJ).
7. Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd (2019) 101 NSWLR 679; [2019] NSWCA 185 at [58] (Bell P, as the Chief Justice then was); XL Insurance Co SE v BNY Trust Company of Australia Ltd [2019] NSWCA 215 at [78]-[79] (Gleeson JA, Bell P and Emmett AJA agreeing).
8. Newey v Westpac Banking Corporation [2014] NSWCA 319 at [91] (Gleeson JA, Basten and Meagher JJA agreeing); Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [72]-[73] (Leeming JA, Gleeson and White JJA agreeing).
9. McGrath v Sturesteps (2011) 81 NSWLR 690; [2011] NSWCA 315 at [17] (Bathurst CJ, Macfarlan JA and Sackville AJA agreeing), referred to with approval in Cherry v Steele-Park at [74].
10. Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 at [35] (Gummow, Hayne and Kiefel JJ); Metlife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56 at [98] (Leeming JA, McColl JA and Emmett AJA agreeing).
11. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347; [1982] HCA 24 (Mason J); see also Realestate.com.au Pty Ltd v Hardingham (2022) 277 CLR 115; [2022] HCA 39 at [18]-[20] (Kiefel CJ and Gageler J).
12. Bocardo SA v Star Energy UK Onshore Ltd [2011] 1 AC 380; [2010] UKSC 35; Bocardo SA v Star Energy UK Onshore Ltd [2010] Ch 100; [2009] EWCA Civ 579.