Court of Appeal (WA)|2014-09-23|Before: Mr P, Lure P, Newnes JA, Murphy JA, Allanson J

TECHNOMIN AUSTRALIA PTY LTD -v- XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD [2014] WASCA 164 (23 September 2014)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : TECHNOMIN AUSTRALIA PTY LTD -v- XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD [2014] WASCA 164

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : TECHNOMIN AUSTRALIA PTY LTD -v- XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD [No 3] [2012] WASC 481

Contract - Principles of contractual construction - Admissibility and scope of surrounding circumstances - Entitlement to royalties from mining - Rectification

Mining Regulations 1981 (WA), reg 43(2)

First Respondent : Mr C G Colvin SC & Mr P D Quinlan SC

Second Respondent : Mr C G Colvin SC & Mr P D Quinlan SC

Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119; (2008) 66 ACSR 594

Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365

Appleby v Pursell [1973] 2 NSWLR 879

Arbuthnott v Fagan [1993] EWCA Civ J0730-2

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Australian Mutual Provident Society v Overseas Telecommunications Commission (Australia) [1972] 2 NSWLR 806

Bank of Australasia v Palmer [1897] AC 540

Bank of Credit and Commerce International SA v Ali [2001] 1 UKHL 8; [2002] 1 AC 251

Bank of New Zealand v Simpson [1900] AC 182

Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622

Bergl (Australia) Ltd v Moxon Lighterage Co Ltd [1920] HCA 41; (1920) 28 CLR 194

Bowtell v Goldsbrough, Mort & Co Ltd [1905] HCA 60; (1905) 3 CLR 444

Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642

CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103

Charrington & Co Ltd v Wooder [1914] AC 71

Charter Reinsurance Co Ltd v Fagan [1997] AC 313

Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117

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

Colby Corp Pty Ltd v Federal Commissioner of Taxation [2008] FCAFC 10; (2008) 165 FCR 133

Cooper Brooks (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297

Davies v Apted [2013] SASCFC 92

DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423

Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471

Esso Australia Ltd v Australian Petroleum Agents & Distributors' Association [1999] 3 VR 642

F L Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89

Fitzwood Pty Ltd v Unique Goal Pty Ltd [2002] FCAFC 285

Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603

Gordon-Cumming v Houldsworth [1910] AC 537

Great Western Railway & Midland Railway v Bristol Corporation (1918) 87 LJ Ch 414

Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29

Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12; [2004] 1 AC 715

Home Building Society Ltd v Pourzand [2005] WASCA 242

Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435

Hope v RCA Photophone of Australia Pty Ltd [1937] HCA 90; (1937) 59 CLR 348

Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133

Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500

International Air Transportation Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151

Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1997] UKHL 28; [1998] 1 WLR 896

Johnstone v Knight [2006] QCA 322

Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60

MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24

Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184

Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853

Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353

McCann v Switzerland Insurance Ltd [2000] HCA 65; (2000) 203 CLR 579

Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 NZLR 391

Metropolitan Gas Co v Federated Gas Employees' Industrial Union [1925] HCA 5; (1925) 35 CLR 449

Newmont Power Pty Ltd v Barrick Gold of Australia Ltd [2008] WASCA 74

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

Pateman v Daw Koh [2007] WASCA 85

Pepe v Platypus Asset Management Pty Ltd [2013] VSCA 38

Prenn v Simmonds [1971] 1 WLR 1381

Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900

Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (No 1) [1993] HCA 40; (1993) 178 CLR 379

Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989

Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434

Rosenhain v Commonwealth Bank of Australia [1922] HCA 41; (1922) 31 CLR 46

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45

RW Cameron & Co v L Slutzkin Pty Ltd [1923] HCA 20; (1923) 32 CLR 81

Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; (1999) 10 BPR 18, 961

TEC Desert Pty Ltd v Commissioner of State Revenue [2010] HCA 49; (2010) 241 CLR 576

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Utica City National Bank v Gunn (1918) 118 NE 607

Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604; (2011) 86 ALJR 1

White v Australian & New Zealand Theatres Ltd [1943] HCA 6; (1943) 67 CLR 266

Wilden v Green Pty Ltd [2009] WASCA 38; (2009) 38 WAR 429

Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522

Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530

1 McLURE P: This appeal concerns the proper construction of a gross production royalty deed dated 28 March 1994 between Sir Samuel Mines NL (SSM), now known as Xstrata Nickel Australasia Operations Pty Ltd (Xstrata), Jubilee Gold Mines NL (Jubilee), now known as Xstrata Nickel Australasia Pty Ltd, and Hunter Resources Ltd (Hunter) (the GPR Deed). SSM is a wholly owned subsidiary of Jubilee.

2 The appellant, Technomin Australia Pty Ltd (Technomin), is the assignee of Hunter's entitlement to the payment of royalties under the GPR Deed.

3 The execution of the GPR Deed was part of the consideration for a Deed of Assignment and Assumption, also made on 28 March 1994, between Giralia Resources NL (Giralia), Hunter, SSM and Jubilee (the DAA). The GPR Deed is an annexure to the DAA. Hunter and Giralia had entered into two joint venture agreements (JVAs), the Mount Harris JVA and the Kathleen Valley JVA. Under the DAA, Hunter assigned to SSM all its rights and obligations under the Mount Harris JVA and Kathleen Valley JVA. The DAA effected a novation whereby SSM replaced Hunter as a party to those joint venture agreements.

4 The Mount Harris JVA was made between Giralia and Hunter on 14 December 1990 and related to four mining tenements under the Mining Act 1978 (WA) (Mining Act), two prospecting licences (P36/1052, P36/1070) and two mining leases (M36/162, M36/176).

5 The Kathleen Valley JVA was made between Giralia and Hunter on 27 September 1991 and related to 16 mining tenements under the Mining Act, five mining leases (M36/37, M36/124, M36/126, M36/169, M36/170) and 11 prospecting licences (P36/752 - 756 inclusive, P36/891 - 893 inclusive, P36/895, P36/905 and P36/1100).

6 Both the Mount Harris JVA and the Kathleen Valley JVA were farm-in agreements under which Hunter could acquire a 70% ownership interest in the nominated mining tenements from the sole funding of expenditure on exploration and development in relation thereto. Hunter was also obliged to maintain the mining tenements in good standing under the Mining Act.

7 On 26 November 1991 Hunter was granted prospecting licence P36/1142 (the Violet Range tenement) which covered an area of 160 hectares.

8 On 19 December 1991 SSM was granted prospecting licences P36/1158, P36/1159, P36/1160, P36/1161 and P36/1162 (the Xstrata tenements) which covered a total area of around 593 hectares. The Violet Range tenement was situated between and abutted the Mount Harris tenements and the Xstrata tenements.

9 The Violet Range tenement and the Xstrata tenements were never subject to or part of the Mount Harris JVA or the Kathleen Valley JVA.

10 Under the DAA, SSM succeeded to Hunter's right to earn an ownership interest in the mining tenements the subject of the Mount Harris JVA and the Kathleen Valley JVA. Hunter also assigned the Violet Range tenement to SSM under the DAA.

11 The GPR Deed recites, as is the case, that Hunter assigned to SSM its interest under the Mount Harris JVA, the Kathleen Valley JVA and the Violet Range tenement in consideration of SSM entering into the GPR Deed for payment of a 2% gross royalty on production from SSM's proportionate share or interest (as varied from time to time) in the Tenements (as defined), in the form of a bullion royalty applying to gold or silver and a non-bullion royalty applying to all other minerals.

12 Clause 6.1 applies to the non-bullion royalty. It provides:

With effect from the Effective Date, [SSM] shall pay to [Hunter] a royalty (the 'Non-Bullion Royalty') equal to the Royalty Percentage of Gross Proceeds of Saleable Product without any deduction or allowance of any kind, whether for costs of sales, production, exploration, evaluation, development, restoration, depreciation of plant, amortisation or anything else whatever.

13 The Effective Date was rectified by consent to mean 26 March 1993, being the date of a 'letter agreement' between Hunter and SSM (the Letter Agreement) which was replaced by the DAA and GPR Deed.

14 We are concerned in this appeal with the meaning of the defined term Tenements for the purpose of cl 6.1 of the GPR Deed. We get to that defined term through the defined terms 'Saleable Product', 'Product' and 'Project'. The relevant definitions are as follows:

'Saleable Product' means Product which has been treated or processed and rendered into a substance or state for which there is a commercially significant market, either within or outside Australia, of arms length sales or purchases between unrelated parties;

'Product' means any Minerals (except gold or silver in the form of dore or bullion) from the Project attributable to [SSM's] proportionate share or interest (as varied from time to time) in any Tenement or in the Project;

'Minerals' has the same meaning as 'minerals' in the Mining Act and includes all ores and concentrates produced from minerals;

'Project' means exploitation of the Tenements;

'Tenements' means the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range and any extension or variation or addition or replacement or substitution of any of them (whether or not also affecting other tenements or land outside the Area). (emphasis added)

15 The outcome of this appeal turns upon the meaning of the italicised words in the definition of Tenements. The GPR Deed does not define the term 'Area'. However, the parties accepted that it has the same meaning as the definition of Tenements in the DAA namely 'the area affected by the Tenements'.

16 The defined term 'Mount Harris Tenements' in both the DAA and GPR Deed means 'P36/1052 (previously P36/522), P36/1070 (previously M36/40), M36/162 and M36/176'.

17 Prior to entry into the DAA and GPR Deed there had been some changes in the mining tenements specified in the Kathleen Valley JVA. The defined term 'Kathleen Valley Tenements' in both the DAA and the GPR Deed means '(at the Effective Date) M36/37, M36/124, M36/126, M36/169, M36/170, M36/227 (previously P36/752 - 756 inclusive), P36/891 - 893 (inclusive), P36/895, P36/905 and P36/1100, and at the date of this Deed means M36/264 - 266, P36/1287 - 1290, P36/1292 - 1299 and P36/1100'. That is, between the date of the Kathleen Valley JVA and the Effective Date, five of the 11 prospecting licences had been converted to mining lease M36/227. Further, between the Effective Date and the date of the Deeds, five prospecting licences were converted to three mining leases and six mining leases were converted to 12 prospecting licences. Prospecting Licence P36/1100 was the only remaining original mining tenement.

18 On 22 November 1995, SSM applied for mining lease M36/371 (the Xstrata Mining Lease). The Xstrata Mining Lease was granted on 4 March 1999 and will expire on 3 March 2020. The Xstrata Mining Lease is 753 hectares and covers the land the subject of the Violet Range tenement as well as the land the subject of the Xstrata tenements. The Violet Range tenement and the Xstrata tenements ceased to exist upon the grant of the Xstrata Mining Lease.

19 In about 1999, SSM established the Cosmos Mine on the Xstrata Mining Lease from which it has obtained and sold nickel and other minerals. The Cosmos Mine and its operations are confined to the land that was formerly the subject of the Xstrata tenements. No minerals have been mined, treated or processed from the land formerly the subject of the Violet Range tenement.

20 Technomin claims, as the assignee of Hunter, that it is entitled to a royalty under cl 6.1 of the GPR Deed on all minerals produced from the exploitation of the Cosmos Mine on the Xstrata Mining Lease since 4 March 1999 on the basis that the Xstrata Mining Lease is 'an extension or variation or addition or replacement or substitution of' the Violet Range tenement.

21 The trial judge rejected Technomin's claim that it was entitled to a royalty from the minerals produced from the Cosmos Mine, accepting Xstrata's submission that the words in parenthesis in the definition of Tenements in the GPR Deed are words of clarification (the defined term extends to the area the subject of the Tenements as at the Effective Date notwithstanding any extension, variation, addition, replacement or substitution thereof) rather than amplification (whereby the defined term would extend to all of the area covered by any extension, variation, addition, replacement or substitution of the Tenements). The trial judge said:

The definition of Tenements first identified the tenements existing at the Effective Date, then provided for successor tenements. It then, by the words in parenthesis, recognised that the successor tenements might affect land outside the area of the tenements, but it did not include that land in the Project. Rather, it provided that the royalty obligation continued on the area covered by the Tenements at the Effective Date, whether or not that other land was also affected by change to the Tenements.

On consideration of all of these factors, I am satisfied that the construction put forward by Xstrata is the proper meaning of the GPR Deed, and the royalty applies only to production from within the area of land covered by the royalty tenements as at 26 March 1993 [163] - [164].

22 Accepting that the 'true rule' of contractual construction in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352 should be applied, the trial judge found that he could have regard to surrounding circumstances, including the Letter Agreement, in determining the construction issue.

23 A relevant consideration in the trial judge's reasoning was the commercial unreasonableness of the appellant's construction. He said:

But the relevant fact is not why Xstrata in fact amalgamated its tenancies, but that there is a common practice to do so. The transaction, of which the GPR Deed formed part, was the sale of two joint venture interests together with the Violet Range tenement. Hunter ... was ceasing its involvement and was making no ongoing contribution to the development of the tenements. The construction contended for by Technomin would, in effect, increase the consideration to be received as a result of events that had no commercial connection to the original transaction, and for reasons unconnected to the tenements which were assigned [155].

24 Xstrata had counterclaimed for rectification if Technomin's construction claim succeeded. In particular, it sought an order rectifying the GPR Deed by:

(a) inserting in cl 1.1 after the words 'In this Deed, unless the context otherwise requires:' the words '"Area" means the area covered by the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range as at the Effective Date'; and

(b) adding the words 'to the extent that such tenements cover the Area' in the definition of Tenements in cl 1.1.

25 Thus the definition of Tenements as rectified would read:

'Tenements' means the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range and any extension or variation or addition or replacement or substitution of any of them (whether or not also affecting other tenements or land outside [the area covered by the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range as at the Effective Date to the extent that such tenements cover the area covered by the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range as at the Effective Date]).

26 Xstrata relied on correspondence relating to drafts of the deeds, the Letter Agreement and the terms of a deed dated 15 December 1993 between Hunter and Technomin for the assignment of Hunter's rights under the GPR Deed (Assignment Deed). Mr John Thompson, a director of Hunter and Technomin, gave evidence as to Hunter's intention concerning the scope of the royalty.

27 The trial judge concluded that Xstrata's rectification claim would have succeeded if he had upheld the appellant's construction of the term Tenements in the GPR Deed [179] - [183].

The grounds of appeal, notice of contention and cross-appeal

28 The appellant claims, in summary, that the trial judge erred:

in holding that the meaning of any material part of the GPR Deed was uncertain, or alternatively that any such part was ambiguous or susceptible to more than one meaning;
in holding that uncertainty, as opposed to ambiguity or susceptibility to more than one meaning, was a sufficient basis to admit and have regard to extrinsic evidence in the construction of the GPR Deed;
in failing to consider the meaning of the words used by the parties in the definition of Tenements in the GPR Deed;
in having regard in the construction exercise to:

(a) antecedent joint venture agreements in the construction and interpretation of the GPR Deed;

(b) the 'common practice' of amalgamation of mining leases and tenements;

(d) the capacity of Xstrata by its election to include or exclude additional tenements from the operation of the GPR Deed;

in failing to hold the land comprised in the Xstrata Mining Lease fell within the definition of Tenements in the GPR Deed; and
in finding (if that is what he did) that:

(a) as at the date of the Letter Agreement, Hunter and Xstrata had a common intention regarding the scope of the royalty;

(b) after December 1993 the parties had a common intention, objectively manifested in the Letter Agreement that continued up to the time of the GPR Deed.

29 The respondents rely on two contentions and two grounds of cross-appeal. The first contention is that if the trial judge erred in finding that there was ambiguity in the GPR Deed that justified the consideration of surrounding circumstances, the decision should be upheld on the ground that the definition of Tenements in the GPR Deed is susceptible of only one plain meaning, being that found by the trial judge.

30 The second contention is that the trial judge's findings as to common intention on the rectification claim can be upheld on other grounds, being that the trial judge erred:

(i) ... in not finding that there was sufficient evidence of common intention, based on the correspondence on the draft deed ...;

(ii) ... in not concluding that Mr Thompson's evidence as to his subjective intention should be rejected on the basis of his conduct from 2004 to 2006.

31 The grounds of cross-appeal only arise in the event that appeal ground 5 or 6 is upheld.

32 It is necessary to start with the dispute between the parties as to the legal principles that apply to the construction of the DAA and GPR Deed.

33 As trial courts around this country have always been, and still are, required on a regular basis to resolve contractual disputes, it may come as a surprise that there continues to be uncertainty as to the common law in Australia relating to the principles of contractual construction.

34 The story so far. After careful consideration of multiple High Court decisions on the subject, a number of intermediate appellate courts in this country came to the view that evidence of surrounding circumstances was always admissible to assist in the construction of a contract, whether or not the contractual language was ambiguous or susceptible of more than one meaning.

35 However, in dismissing the special leave application in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604, three members of the High Court (Gummow, Heydon & Bell JJ) said that conclusion was inconsistent with binding authority. After referring to what was said by Mason J in Codelfa to be the 'true rule' as to the admission of evidence of surrounding circumstances, Gummow, Heydon and Bell JJ said:

The position of Codelfa, as a binding authority, was made clear in the joint reasons of five justices in Royal Botanic Gardens and Domain Trust v South Sydney City Councilhttp://www.austlii.edu.au/au/cases/cth/HCA/2011/45.html - fn9 and it should not have been necessary to reiterate the point here [4].

36 The passage in Codelfa to which reference is made in Western Export Services is as follows:

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 (352).

37 This court has taken the view that the guidance in Western Export Services should be followed until further direction from the High Court: McCourt v Cranston [2012] WASCA 60; MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24; Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29.

38 The controversy has raised its head again. The appellant contends that the 'true rule' in Codelfa is the law and, as the meaning of the language of the GPR Deed is unambiguously clear, evidence of surrounding circumstances is (subject to limited exceptions) inadmissible for construction purposes.

39 The respondents contend that the recent High Court decision in Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7 (EGC), has vindicated the pre-Western Export Services position adopted by those intermediate appellate courts that had abandoned the gateway requirement that the language of a contract had to be ambiguous or susceptible of more than one meaning before regard could be had to evidence of surrounding circumstances to assist in the construction of a contract. The construction issue was not raised by the EGC parties in this court.

40 Gummow and Heydon JJ had retired before the hearing of EGC and Bell J did not sit. Western Export Services and the response of intermediate appellate courts thereto were not directly addressed by the High Court in EGC. However, the respondent points to the approach taken in the majority judgment.

41 There can be no doubt that the majority in EGC took into account surrounding circumstances known to both parties in the construction of the gas supply agreement: [35], [48]. However, there is no express consideration by the majority of whether, or finding that, the language of the gas supply agreement was ambiguous or susceptible of more than one meaning.

42 The respondent also drew this court's attention to the reliance by the majority in EGC on [14] of the English decision in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900, 2906 - 2907. That paragraph cites with approval Lord Hoffman's first principle in Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1997] UKHL 28; [1998] 1 WLR 896 which is in terms that:

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (912).

43 Lord Hoffman's first principle is not consistent with the gateway requirement in Mason J's 'true rule' in Codelfa.

44 However, the appellant contends that the High Court would not impliedly repudiate the express repudiation in Western Export Services of the abandonment of the gateway requirement by some intermediate appellate courts.

45 The aridity of this debate at the intermediate appellate court level is manifest. Until the High Court expressly states its position on the subject, I propose to continue to apply the 'true rule' as explained in Hancock Prospecting at [9], [74] - [81]. In that case this court concluded that the true rule permits regard to be had to some surrounding circumstances for construction purposes without having to satisfy the gateway requirement [81]. See also Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117 [154].

46 In my view, the following matters can be taken into account in construing the GPR Deed without having to satisfy the gateway requirement:

the terms of the DAA;
the terms of the Mount Harris JVA;
the terms of the Kathleen Valley JVA; and
the law governing tenement interests under the Mining Act.

47 Notwithstanding ground of appeal 4(a), this was accepted by senior counsel for the appellant (ts 21, 33, 54). Items 1, 2, 3 and 4 are contextual matters expressly referred to in the GPR Deed. They are parts of an integrated contractual scheme relating to property, the existence, nature and conditions of which are sourced in the Mining Act.

48 Moreover, the gateway requirement can have no application to background facts forming part of the factual matrix that enlivens the issue of contractual construction for determination. I would put the history and location of the Xstrata tenements in that category.

The Mining Act framework

49 The GPR Deed relates to mining tenements under the Mining Act. At the time of the execution of the GPR Deed, the Mining Act provided as follows.

50 The statutory term 'mining tenement' was defined to mean:

[A] prospecting licence, exploration licence, mining lease, general purpose lease ... granted or acquired under this Act ... and includes the specified piece of land in respect of which the mining tenement is so granted or acquired[.]

51 Thus mining tenement under the Mining Act means the statutory rights and obligations associated with the nominated tenement as well as the specified piece of land in respect of which it was granted or acquired. Notwithstanding the definition, the High Court has held that the holder of a mining tenement has no proprietary interest in the land the subject thereof: TEC Desert Pty Ltd v Commissioner of State Revenue [2010] HCA 49; (2010) 241 CLR 576 [27].

52 The area of land in respect of which any one prospecting licence may have been granted could not exceed 200 hectares (s 40(2)).

53 A prospecting licence could be granted in respect of all or part of the land to which an application related (s 44) and authorised the holder to, inter alia, prospect for minerals and excavate, extract or remove a prescribed quantity of mineral bearing material (s 48).

54 A prospecting licence was for a period of two years and could be extended for a further period of two years but no more (s 45).

55 When a prospecting licence was surrendered, forfeited or expired, no part of the land the subject of that prospecting licence could be marked out or applied for as a prospecting licence or an exploration licence by or on behalf of the holder thereof at the expiry, forfeiture or surrender date within a period of three months from that date (s 45(2)).

56 The holder of a prospecting licence had priority for the grant of a mining lease. The prospecting licence continued in force in respect of the land the subject of the application for a mining lease until that application was determined (s 49).

57 The holder of a prospecting licence was obliged to comply with prescribed expenditure conditions relating thereto unless an exemption was granted (s 50).

58 The area of land in respect of which any one mining lease may have been granted could not exceed 10 square kilometres (s 73).

59 A mining lease remained in force for an initial term of 21 years which could be renewed (s 78).

60 Where an application for a mining lease included any portion of land included in a (then) current mining tenement held by a person other than the applicant, any mining lease was not to include any such portion of land (s 76).

61 Every mining lease contained a condition requiring the lessee to comply with the prescribed expenditure conditions applicable to the land in the absence of an exemption (s 82(1)(c)).

62 A mining lease authorised the holder to, inter alia, work and mine the land for minerals and remove and dispose of the minerals (s 85).

63 The holder of any mining tenement was able to surrender the tenement in whole or in part (s 95). Any surrender could be conditional upon an application for a new mining tenement, in respect of the whole or any part of the area of the surrendered tenement, being granted to the holder: Mining Regulations 1981, reg 43(2).

64 The failure to comply with expenditure conditions could result in the forfeiture of the mining tenement (s 82(1)(g), s 96(2)(b)).

65 The holder of a mining tenement could sell, encumber, transmit or otherwise dispose of a mining tenement or a lesser equitable or legal interest therein (s 119). Any person claiming any interest in a mining tenement was permitted to lodge a caveat forbidding the registration of any transfer or other instrument affecting the mining tenement or interest therein (s 121).

66 The trial was conducted by all parties on the basis that the trial judge could have regard to surrounding circumstances without first finding that the contractual language was ambiguous or susceptible of more than one meaning. After the trial judge reserved his decision, Western Export Services was handed down and drawn to the trial judge's attention by the appellant, with the agreement of the respondents. The trial judge proceeded to determine whether the gateway requirement had been satisfied without the benefit of detailed submissions.

67 The appellant contends that the trial judge impermissibly replaced the test of 'ambiguous' or 'susceptible of more than one meaning' with a test of 'uncertainty'.

68 The trial judge identified the correct test at [109], [113], [114], and [115] of his reasons. However, later in his reasons the trial judge refers to the concept of uncertainty. He said:

For the present, I am concerned only with whether the document is ambiguous or uncertain in meaning [127].

There is, at best, uncertainty regarding the meaning of the definition of Tenements. Accordingly, evidence of the surrounding circumstances known to both parties is admissible as an aid to construction [130].

69 The appellant suggests that the trial judge uses the term 'uncertainty' in its technical contractual sense to mean void for uncertainty. That claim is without merit. The trial judge was using the term as a synonym for ambiguity.

70 The appellant also contends that the trial judge's conclusion in relation to the gateway requirement was informed by a mistaken view as to how the appellant put its case. At [125] the trial judge stated that the appellant's case required words to be read into the contractual definition of Tenements, a proposition said to have been accepted by senior counsel for the appellant. However, the additional words and the exchange with senior counsel relate to the fact that the word 'Area' in the definition of Tenements in the GPR Deed was capitalised but undefined, whereas the definition of Tenements in the DAA ends with the words 'the area affected by the Tenements'.

71 All parties agreed, and the trial judge concluded that the term 'Area' in the GPR Deed had the same meaning as the expression 'the area affected by the Tenements' in the definition of Tenements in the DAA [121]. However, this was a side issue that had no direct bearing on the factual matter in dispute at trial, which was whether the Xstrata Mining Lease in its entirety is within the definition of Tenements for the purpose of cl 6.1. It should not have been relied on as a basis for establishing the gateway requirement.

72 The appellant also contends that the trial judge gave no, or no adequate, consideration to the language of the GPR Deed before reaching his finding that the term Tenements was ambiguous or susceptible of more than one meaning and that he relied on surrounding circumstances to inform his finding on the gateway requirement. I am not satisfied that either contention is justified. In any event, none of grounds 1, 2 or 3 can change the outcome below unless the appellant is successful in establishing that surrounding circumstances were in fact inadmissible as an aid to construction. It is to that question I now turn. I will confine my consideration to the terms of the GPR Deed, against the backdrop of the Mining Act, for the identification of its natural and ordinary meaning.

73 For the purpose of the gateway requirement, 'ambiguity' means any situation in which the scope or applicability of a contract is, for whatever reason, doubtful: Bowtell v Goldsbrough, Mort & Co Ltd [1905] HCA 60; (1905) 3 CLR 444, 456 - 457. It is not confined to lexical, grammatical or syntactical ambiguity: Hancock Prospecting [77].

74 The fact that adversaries can formulate and advance materially different constructions of the language of a contract does not itself satisfy the gateway requirement. Having regard to the language of the contract as a whole and what can be gleaned from that source as to the contractual purpose, competing constructions must be reasonably arguable.

75 The question of construction is whether the royalty payable under cl 6.1 of the GPR Deed is confined to minerals from an area of land the subject of the specified tenements as at the Effective Date.

76 Clause 6.1, with the meaning of relevant defined terms (except Tenements) included, relevantly provides:

[SSM] shall pay to [Hunter] a royalty ... equal to 2% of Gross Proceeds of any Minerals (except gold or silver ... ) from the exploitation of the Tenements attributable to [SSM's] proportionate share or interest (as varied from time to time) in any Tenement or in the exploitation of the Tenements which has been treated or processed and rendered into a substance or state for which there is a commercially significant market ... without any deduction or allowance of any kind, whether for costs of sales, production, exploration, evaluation, development, restoration, depreciation of plant, amortisation or anything else whatever.

77 The definition of Tenements in the GPR Deed can be separated into three parts as follows:

- first, the specified tenements being the Kathleen Valley Tenements, the Mount Harris Tenements and the Violet Range tenement as at the Effective Date (the Original Tenements);

- second, any extension or variation or addition or replacement or substitution of any of the individual Original Tenements; and

- third, and clearly referable to the second part, the words in parenthesis 'whether or not also affecting other tenements or land outside the [area affected by the Original Tenements]'.

78 The purpose of the second part of the definition is to extend the first part. The changes effected by the transition of the Violet Range tenement (160 hectares) and the Xstrata tenements into a new and entirely different mining tenement, namely the Xstrata Mining Lease (753 hectares), do not in my view constitute an 'extension', 'variation', 'replacement' or 'substitution' of the Violet Range tenement. It can only potentially be an 'addition'.

79 The scope of the extension effected by the second part will in turn influence the construction of the third part. It is necessary to address the purpose and effect of the second part.

80 The second part of the definition of Tenements, when viewed in isolation, does not mandate a conclusion that it extends to additional (ie new) areas of land beyond that the subject of the Original Tenements. Without the second part of the definition a change in an Original Tenement, such as a change in type of mining tenement, would result in the loss of the associated royalty right under cl 6.1 of the GPR Deed. As is clear from the definition of Kathleen Valley Tenements in the GPR Deed and the provisions of the Mining Act, future changes to some of the Original Tenements would be almost inevitable. Moreover, changes in the type of mining tenement (from prospecting licence(s) to mining lease(s) and mining lease(s) back to prospecting licence(s) in the case of the Kathleen Valley Tenements) could be expected to result in changed boundaries, and thus additional land for individual mining tenements, but without the inclusion of any new land outside that covered by the Original Tenements as a whole.

81 When regard is had to the terms of the Mining Act and the mining tenement 'churn' evident in the definition of the Kathleen Valley Tenements, the most obvious, objectively determined purpose of the second part of the definition of Tenements is to preserve the area to which the royalty right attaches as at the Effective Date.

82 Against that backdrop, the question is whether the purpose of the third part of the definition of Tenements is to make it clear that the addition of land (the new area) to land that was the subject of the Original Tenements (the original area) (1) does not have the effect of excluding the original area from the scope of the extension in the second part of the definition of Tenements; or alternatively (2) has the effect of including the entire area (the new area and original area) under the extended definition of Tenements for the purpose of cl 6.1. The word 'also' in the third part of the definition of Tenements suggests that the former is correct (ie, the original area will also fall within the extended definition of Tenements notwithstanding the inclusion of the new area). If it is the former, the royalty is only payable on minerals from the original area. If the latter, the royalty is payable on minerals from any part of the land the subject of the new mining tenement.

83 The appellant contends that the construction upheld by the trial judge is not reasonably arguable, there being no basis in the language of the GPR Deed to support a finding that the defined term Tenements for the purpose of cl 6.1 applies to 'part of a Tenement'. The appellant also says that the concept of part of a Tenement is inconsistent with the meaning of the term Tenements in other provisions of the GPR Deed, including cl 7.1, cl 7.2, cl 9.1, and cl 9.2. Those clauses relevantly provide:

TECHNOMIN AUSTRALIA PTY LTD -v- XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD [2014] WASCA 164 (3 September 2014)

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Judgment (395 paragraphs)

TECHNOMIN AUSTRALIA PTY LTD -v- XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD [2014] WASCA 164 (23 September 2014)

Legislation Cited (2)

Cases Cited (43)