TECHNOMIN AUSTRALIA PTY LTD -v- XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD [No 3] [2012] WASC 481 (7 December 2012)

Supreme Court of WA|2012-12-07|Before: Allanson J

1 ALLANSON J: Xstrata Nickel Australasia Operations Pty Ltd (Xstrata) and Xstrata Nickel Australasia Pty Ltd (XNA) are parties to two deeds made in 1994: the Deed of Assignment and Assumption and the Deed for Bullion Royalty and NonBullion Royalty (the GPR Deed). Technomin Australia Pty Ltd (Technomin) was not a party to either deed, but claims as the assignee of Hunter Resources Ltd which was. Technomin says that, on a proper construction of the deeds, it is entitled to a 2% royalty on minerals mined on the Cosmos Nickel Mine operated by Xstrata, and has been entitled to that royalty since 4 March 1999.

2 At the time of the execution of the deeds, and indeed through most of the period relevant to these proceedings, Xstrata was known as Sir Samuel Mines NL, and XNA as Jubilee Gold Mines NL (and then as Jubilee Mines NL). Sir Samuel Mines was a wholly owned subsidiary of Jubilee. Because of the reliance on contemporaneous documents, it is frequently more convenient to refer to each company by the name it had at the time.

3 When referring to the Xstrata companies by the names they currently hold, unless it is necessary to distinguish between them, I will refer to them collectively as Xstrata.

4 Xstrata says that, on their proper construction, neither deed confers a royalty on minerals mined at the Cosmos Mine. Alternatively, it seeks rectification of the deeds to have them reflect the common intention of itself and Hunter Resources. Alternatively, it says that Technomin is estopped from asserting its claim.

5 Xstrata's alternative claims, and in particular the claim for rectification of the GPR Deed, required the court to receive evidence of subjective intention. In outlining the evidence I will not confine the narrative to the matters admissible in construction of the deeds. It will, however, be necessary to discriminate more carefully between what is and is not admissible when considering particular issues.

6 The events relevant to this matter date back to 1990. It is not surprising, in the circumstances, that much of the evidence is documentary with limited reliance by either party on the memories of participants. Technomin called one witness: Mr John Thompson, a director of Technomin and also a director of Hunter Resources at the time the deeds were executed. Xstrata called four witnesses: Mr Kim Riley, formerly the managing director and company secretary of Sir Samuel Mines NL and Jubilee Mines NL; Mr William Crossley, a director Sir Samuel Mines and Jubilee between November 1993 and October 1994; Mr Terry Mallinson, general manager of XNA since 2010; and an expert witness, Mr Stuart House.

7 Much of the background to the dispute is evidenced by documents which were admitted by consent.

8 In 1990, Giralia Resources NL held tenements at Mount Harris and Kathleen Valley, both located north of Leonora in Western Australia.

9 On 5 December 1990, Giralia and Hunter Resources signed a letter containing heads of agreement to form a joint venture for the Mt Harris Project. The joint venture area was defined as 'all of the land covered by P36/1052, P36/1070, M36/162, M36/176 and successor or substitute titles (the tenements)'. The parties agreed to negotiate and execute a formal joint venture agreement, although the evidence does not show whether that was done.

10 On 27 September 1991, Giralia and Hunter Resources entered a second agreement to form a joint venture for the Kathleen Valley Project. The joint venture area was stated in cl 1 to be 'all of the land covered by the tenements listed in schedule 1 and successor or substitute titles'. The schedule listed five mining leases (M36/37, M36/124, M36/126, M36/169, and M36/170) and 11 prospecting licences (P36/752 756, P36/891 893, P36/895, P36/905, and P36/1100). Again the parties agreed to negotiate and execute a formal agreement.

11 Both agreements contained farm in arrangements, under which Hunter Resources could, by expenditure of a stipulated sum on exploration and development, earn a 51% ownership interest in the tenements in each agreement, and by additional expenditure could obtain a further 19% interest.

12 On 26 November 1991, Hunter Resources was granted prospecting licence P36/1142 the Violet Range tenement - which was not included in either joint venture with Giralia.

13 Sir Samuel Mines and Jubilee were, around this time, engaged in gold exploration in the Kathleen Valley area. On 19 December 1991, Sir Samuel Mines was granted prospecting licences P36/1158, P36/1159, P36/1160, P36/1161 and P36/1162.

14 On 5 November 1992, Jubilee wrote to Hunter Resources, confirming its interest in acquiring Hunter Resources rights to farm in 'on the tenements the subject of joint venture(s) with Giralia Resources NL at Kathleen Valley'. On 14 December 1992, Jubilee advised Hunter Resources of its interest in acquiring 100% of Hunter Resources' joint venture interest for a cash consideration.

15 Around this time, Hunter Resources sent Jubilee a proposed confidentiality agreement (undated) with regard to the proposed sale of its rights. In the letter, the Mt Harris/Kathleen Valley Project was defined to mean 'the Mt Harris and Kathleen Valley joint ventures and tenements (being the tenements listed in the schedule hereto)'. The schedule was headed:

Confidentiality Agreement Schedule

Mr Harris/Kathleen Valley Project

Mining Tenements as at 22.2.93

16 It listed two prospecting licences and two mining licences at Mount Harris and six mining leases and six prospecting licences in Kathleen Valley. Five of the prospecting licences in Kathleen Valley were to expire on 1 March 1993. The tenements listed correspond with those in the joint venture agreements, except that the prospecting licences P36/752 756 in the Kathleen Valley are not included. The schedule stated that the six Kathleen Valley mining leases were converting to 12 prospecting licences, and the prospecting licences which were due to expire on 1 March 1993 were converting to three mining leases.

17 The schedule also listed prospecting licence P36/1142 at Violet Range, noting it was not part of either joint venture.

18 On 23 February 1993, Hunter Resources proposed to Jubilee that it was prepared to assign its rights and obligations under its joint venture agreements with Giralia on certain terms. The letter defined the joint venture area as 'all of the land covered by the tenements listed in schedule 1 and successor or substitute titles'. The schedule was the same as that included in the confidentiality letter, save that it now was headed:

Kathleen Valley Area

Mining Tenements as at 22.2.93

19 Hunter Resources said that it was prepared to assign to Jubilee all of its rights and obligations under the agreements with Giralia for consideration of:

reimbursement of specified payments made by Hunter Resources to the Department of Minerals and Energy; and
the granting to Hunter Resources of a 2.5% gross production royalty (GPR) on 'the project'. The GPR to be calculated as 2.5% of gross proceeds receivable on the sale of all minerals from the project without any deduction or any allowance of any kind.

20 On 15 March 1993, Hunter Resources forwarded a draft royalty deed. On 18 March, Jubilee responded. In a letter signed by Mr Riley, Jubilee said that it was prepared to enter into the sale agreement by its wholly owned subsidiary, Sir Samuel Mines. It was prepared to grant Hunter Resources a 2% GPR on Sir Samuel Mines' interest in the tenements, but not on the project. I accept that this reflects the position that, as assignee of Hunter Resources, Sir Samuel Mines would hold only the interest acquired under the farm in agreement with Giralia, at most 70%.

21 On 26 March 1993 Jubilee wrote to Hunter Resources, referring to a telephone discussion of that day, and stating:

We understand that Hunter Resources is in agreement with all of the terms of our proposal except the royalty cap of $500,000.

On this understanding we amend our offer and agree to delete the royalty cap provision.

We understand that we now have a binding agreement. Would you please confirm in writing if you are of the same view in order that Giralia can then be approached under the provisions of their first right of refusal.

Under the agreement between Hunter Resources and Giralia, the interest of a party was only freely assignable after giving the other party 30 days to exercise a first right of refusal.

22 Also on 26 March, Mr Williams of Hunter Resources responded by fax, attaching a letter confirming the agreement to be signed and returned. Mr Riley signed the letter, accepting the terms and conditions set out in it, on behalf of Sir Samuel Mines. It appears that Mr Scott signed for Hunter Resources on behalf of Mr Thompson. The agreement thus formed is referred to by the parties as the 'letter agreement'.

RE: Kathleen Valley - Mt Harris Project, Western Australia

This letter confirms the terms agreed today between Sir Samuel Mines NL (SSM) and Hunter Resources Ltd (Hunter Resources) in respect of the Kathleen Valley Mt Harris Project (the Project).

Hunter Resources shall assign its rights and obligations under its joint venture agreements with Giralia Resources NL (Giralia) to SSM on the following terms:

All of the land covered by the tenements listed in Schedule 1 and successor or substitute titles (the tenements).

Consideration for Assignment of Hunter Resources' Rights and Obligations.

Hunter Resources shall assign to SSM and SSM shall assume Hunter Resources' rights and obligations under the agreements with Giralia for the following consideration:

(1) reimbursement of all 1993 payments to the Department of Minerals and Energy in respect of the tenements made by Hunter Resources. Such payments to date total $11,300 and further payments totalling about $21,000 are due during March and April, 1993. Any such further payments made by Hunter Resources shall be reimbursed by SSM to Hunter Resources in addition to the $11,300 payment.

(2) the granting by SSM to Hunter Resources of a 2.0% Gross Production Royalty (GPR) on SSM's interest from time to time in the Project, provided that if SSM bona fide withdraws from the Project (as distinct from its assigning its interest) it shall have no further liability to pay the GPR. Any assignee of SSM's interest in the Project must covenant, as a condition of the assignment, to pay Hunter Resources the GPR. The GPR is to be calculated as 2.0% of gross proceeds on the sale of all minerals from the Project, calculated by reference to the Perth Mint's spot buying price for gold and silver, without any deduction or allowance of any kind and shall be payable to Hunter Resources quarterly in arrears from commencement of production.

This agreement between Hunter Resources and SSM is subject to Giralia's 30 days first right of refusal. A copy of this letter executed by the parties shall be submitted to Giralia for consideration.

If SSM is in agreement with the terms and conditions set out in this letter and, if Giralia does not exercise its first right of refusal, Hunter Resources shall arrange the drafting of a Deed of Assignment for SSM to assume the rights and obligations of Hunter Resources (indemnifying Hunter Resources against further obligations) and a separate deed defining the GPR.

24 The schedule was headed 'Hunter Resources Ltd, Kathleen Valley Area, Mining Tenements as at 22/2/93'. It is the same schedule sent by Hunter Resources in their letter of 23 February 1993, although five of the prospecting licences in the Kathleen Valley joint venture had expired by this time.

25 The letter agreement was later stamped in accordance with the Stamp Act 1921 (WA).

26 On 29 March 1993, Giralia sent written notice that it chose not to exercise its first right of refusal and would accept Sir Samuel Mines as a joint venture partner on the projects.

27 On 8 April 1993, Jubilee forwarded to Hunter Resources a proposed announcement to the Australian Stock Exchange regarding Jubilee's acquisition of Hunter Resources' potential interest in the tenements at Kathleen Valley and Mount Harris.

28 On 30 April 1993, Hunter Resources advised Jubilee that pursuant to the letter agreement dated 26 March 1993 all rent payments referred to in cl 2(1) of that agreement had been made.

29 On 17 June 1993, Hunter Resources forwarded a draft of the deed of assignment and on 16 July a draft royalty deed.

30 On 23 August 1993, the Department of Minerals and Energy wrote to the law firm of Blake Dawson Waldron (then acting for Hunter Resources), regarding registration of the letter agreement against the tenements named in it. The Department advised that the agreement had been registered on 4 August 1993 in respect of eight of the tenements, including prospecting licence P36/1142 (the Violet Range tenement), but that the remaining tenements listed in the agreement were no longer in force and the agreement had been rejected in respect of them. Finally, the Department advised that consent had been given under s 82(1)(d) of the Mining Act 1978 (WA) to the assignment of the four mining leases referred to in the letter agreement.

31 On 26 August 1993, Blake Dawson Waldron forwarded a copy of the letter from the Department of Minerals and Energy to Hunter Resources, and on the same day Hunter Resources' corporate solicitor, Mr Scott, forwarded the letter to Jubilee. Hunter Resources advised Jubilee:

We shall attend to registration of the agreement between us against the further tenements which have now been issued (apparently) and I am confirming the details of this with our titles administrator.

32 On 14 October 1993, Jubilee forwarded its comments on the draft documents submitted by Hunter Resources. This began an exchange of comments between Mr Scott on behalf of Hunter Resources and Mr Riley on behalf of Jubilee, and later between Mr Scott and Jubilee's solicitors. I will deal with that exchange in more detail later in these reasons.

The assignment by Hunter Resources to Technomin

33 Hunter Resources and Technomin executed a deed, with an effective date of 15 December 1993, in these terms:

Deed of Assignment

...

Whereas by letter agreement dated 21 December, 1993, with effect from 15 December 1993 the assignor agreed to sell and assign to the assignee and the assignee agreed to purchase and accept assignment from the assignor of (inter alia) the interest described in Schedule A hereto (the interest).

Now this deed witnesses that in consideration of $20,000 (the receipt of which is hereby acknowledged by the assignor) and with effect from 15 December 1993 the assignor as beneficial owner hereby assigns to the assignee the interest free from all encumbrances and the assignee hereby accepts such assignment and assume all obligations of the assignor in respect of the interest.

Executed as a deed effective the 15th day of December 1993.

Schedule A

2% gross production royalty over the interest of Sir Samuel Mines NL (wholly owned subsidiary of Jubilee Gold Mines NL) in Kathleen Valley, Mount Harris and Violet Range project tenements (Western Australia) pursuant to letter agreement dated 26 March 1993 and all the rights of the assignor under the said letter agreement.

34 The letter agreement dated 21 December 1993 between Hunter Resources and Technomin confirmed an agreement, effective from 15 December, that Hunter Resources would sell to Technomin certain property interests listed in a schedule to the letter. The schedule to the letter included the interest described in the Schedule A to the deed of assignment.

35 Technomin relies on this transaction as an effective assignment of all of Hunter Resources' rights in respect of the deeds later executed on 28 March 1994.

36 Giralia, Hunter Resources, Sir Samuel Mines and Jubilee executed a Deed of Assignment and Assumption on 28 March 1994. It contains an assignment and assumption of Hunter Resources' rights and obligations with regard to the Mt Harris joint venture and the Kathleen Valley joint venture, and an assignment of Hunter Resources' rights with regard to the Violet Range prospecting licence. A copy of the GPR Deed was annexed to the Deed of Assignment and Assumption. The GPR Deed was also executed on the same day.

37 On 12 April 1994, Technomin gave notice to Sir Samuel Mines that Hunter Resources had assigned the royalty to it. On 22 April, solicitors for Sir Samuel Mines advised Hunter Resources that it had received the notice of assignment and, unless Hunter Resources advised otherwise, would pay the royalty to Technomin.

38 On 22 November 1995, Sir Samuel Mines applied for mining lease ML36/371. The lease was eventually granted on 4 March 1999. It will expire on 3 March 2020. The land included in ML36/371 includes the area of the Violet Range tenement as well as the prospecting licences granted to Sir Samuel Mines in December 1991.

39 In about 1999, Sir Samuel Mines established the Cosmos Mine on ML36/371, and since then has obtained and sold nickel and other minerals from the ML36/371. The Cosmos Mine and its operations are confined to that part of ML36/371 that was covered by the Xstrata tenements.

40 On 25 November 2003, Newmont Australia Limited wrote to Mr Kerry Harmanis, in his capacity as chairman and managing director of Sir Samuel Mines and Jubilee. Newmont asserted that Hunter Resources was its subsidiary, and that Sir Samuel Mines and Jubilee were liable to pay royalties over minerals produced on the tenement M36/371 because P36/1142 was covered by that lease. Sir Samuel Mines responded in effect, that Hunter Resources had assigned its royalty rights to a third party and no longer held any such entitlements; and, in any event, royalty was only payable on production from that part of the lease which was previously P36/1142. Newmont, by letter on 4 December 2003, repeated its demand. There is no evidence that it pressed it after then.

41 At some time, a representative of Newmont contacted Mr Thompson with a general query about whether Technomin was interested in selling any of its royalty entitlements. On the evidence I cannot say whether this approach was before or after Newmont's letters to Sir Samuel Mines.

42 On 28 January 2004, Mr Lethridge, financial officer of Jubilee, rang Mr Thompson offering shares in Jubilee in exchange for the Kathleen Valley project royalties. On 4 February 2004, Mr Lethridge wrote to Technomin with that offer. The offer of shares was said to offer Technomin the opportunity of participating in Jubilee's other projects, 'including Cosmos and Cosmos South, in which Technomin has no current interest'. Both in the letter and the phone call, Mr Lethridge said that Sir Samuel Mines did not consider the tenements to be of any great value. The letter described the offer as 'simply looking to tidy up what I believe to be a minor third party interest'.

43 In response to Mr Lethridge's offer, Mr Thompson asked for information about exploration on the area. His concern was whether an ore body may be found 'that extends onto the tenement over which we have a royalty'. On 23 September 2004, Mr Lethridge sent him an information memorandum, dated June 2004, relating to gold exploration in the Giralia Joint Venture (including the Mount Harris and the Kathleen Valley projects and Violet Range).

44 On 12 May 2006, Mr Thompson wrote to Jubilee seeking information about Kathleen Valley. On 19 May, Mr Lethridge responded, advising that gold exploration at Kathleen Valley was not a high priority of Jubilee following the results of its gold exploration program over the previous two years. Mr Lethridge continued that exploration activities that had been undertaken recently were currently incomplete 'as other nickel based work within the Company's other projects has taken priority'.

45 On about 13 November 2008, Mr Peter Brammall wrote to Mr Thompson in these terms:

While employed as a tenement manager for a large mining company operating in Western Australia I discovered Technomin hold a royalty on a tenement that a mining company had not been paying and in excess $8 million was owed to Technomin.

If you wish to obtain further information I can be contacted at my current place of employment [he then gave a Perth law firm, with both work and after hours numbers, together with an email address].

46 Mr Brammall later provided documents to Mr Thompson, including the correspondence between Newmont and Sir Samuel Mines. The later relations between the parties suggest a level of distrust, at least from the time that Mr Thompson became aware that Newmont had written to Sir Samuel Mines before Sir Samuel Mines offered to buy Technomin's interest in the tenements.

47 On 24 November 2008, Mr Thompson wrote to the tenement manager of Xstrata, referring to earlier communications from Mr Lethridge, including the offer to acquire Technomin's royalty interest, and Mr Lethridge's assurance that there were no extensions onto the royalty tenements, and continued:

Since that date [23 September 2004, when Mr Lethridge sent the tenement information], communications with the company became quite difficult and the only information that Technomin was able to obtain was contained in Quarterly Reports to the Australian Stock Exchange.

Technomin now requests that Xstrata confirm that no minerals have been extracted from the Kathleen Valley tenements, the subject of the bullion and non-bullion royalties.

48 Shortly after that letter, these proceedings were commenced.

49 The substance of Technomin's case is that it is the assignee of Hunter Resources' rights under the GPR Deed. On the proper construction of the GPR Deed, Technomin is entitled to royalty on all minerals obtained by the exploitation of M36/371 since 4 March 1999, because M36/371, which was granted on that date, is 'an extension or variation or addition or replacement or substitution of' the Violet Range tenement.

50 Xstrata agrees that M36/371 covered land that had previously been covered by the Violet Range tenement, but pleads that no royalty is payable because no minerals have been produced from the Violet Range tenement. On a proper construction of the GPR Deed, the royalty applies only to production from within the area of land covered by the Kathleen Valley tenements, the Mount Harris tenements and the Violet Range tenement (the royalty tenements) as at March 1993.

51 Xstrata pleads further and alternative defences. First, Technomin's rights are as assignee of Hunter Resources' rights under the letter agreement, and subject to a six year limitation period. Its claim for failure to pay royalty before 16 March 2003 is time barred. Second, Technomin is not an assignee of the right to interest.

52 By counterclaim, Xstrata pleads that if the GPR deed is to be construed as alleged by Technomin, then Xstrata is entitled in equity to an order for rectification of the terms of the GPR deed, insofar as they affect rights that have been assigned to Technomin, so as to provide that the GPR does not cover a greater area than that covered by the royalty tenements as at 26 March 1993.

53 Alternatively, Xstrata pleads that both Hunter Resources, and Technomin as its assignee, are estopped from denying that the tenements the subject of the GPR did not cover an area greater than the area covered by the royalty tenements on 26 March 1993.

54 In reply, Technomin pleads that on execution and delivery of the GPR Deed, it took the benefit of the royalty pursuant to s 11(1) of the Property Law Act 1969 (WA).

55 Further, Technomin says that Xstrata is estopped from asserting that it is not entitled as assignee to any of the rights granted to Hunter Resources under the GPR Deed.

56 Technomin denies that any part of its claim is time barred and says that its claim is an action of debt or covenant upon the deed and accordingly was required to be commenced within a period of 20 years: Limitation Act 1935 (WA) s 38.

57 In defence to the counterclaim, Technomin relies on the facts pleaded in its statement of claim, and denies all of the allegations in the counterclaim.

58 I will outline the pleas in more detail in relation to particular issues. In some respects, the matter was argued on a wider basis than the pleadings.

59 Mr Thompson has been involved in the mining industry since about June 1976. In 1982, he and others established Hunter Resources. Mr Thompson's activity in the mining industry largely ceased when he sold out of Hunter Resources in 1994, although he is currently the sole beneficial owner of Technomin and one of its two directors.

60 Mr Thompson made two witness statements for use in these proceedings. Most of his first statement was directed to the identification of relevant documents and did not add to them. He also gave his account of his dealings with Mr Lethridge, largely in terms of the documents.

61 The second statement was, in part, in response to Xstrata's plea that certain matters were notorious in the mining industry. Although the particular matters pleaded were ultimately admitted, Mr Thompson's evidence went further. He said that at the time of the letter agreement (in March 1993), and the two deeds (in December 1993) he was unaware of any custom or practice in the mining industry which would have operated to confine Hunter Resources' future entitlements to royalties to the area encompassed by the Violet Range tenement, and he did not believe that it was so confined.

62 Xstrata challenged Mr Thompson's credibility on several bases, including the extent of his communication with Mr Brammall. Technomin had discovered some, but not all of the emails Mr Thompson received from Mr Brammall. Mr Thompson made an additional search during the course of the trial and produced emails from Mr Brammall that had not previously been discovered. He produced no emails to Mr Brammall, and on his evidence there were none, or none that were kept. The failure to comply with discovery obligations can go to credibility. But it is very difficult to gauge the effect of such matters on credibility, when questions relating to discovery may be affected by the judgments regarding relevance that may have been made by others. Mr Thompson said, in effect, that all material was disclosed to his former solicitors.

63 More generally, Mr Thompson's credibility is of little moment in this case. It does not affect the construction issue (on which, in my view, the case turns), and is of limited relevance on the matters raised by counterclaim.

64 Mr Riley was the managing director and company secretary of both Sir Samuel Mines and Jubilee from when Jubilee took over Sir Samuel Mines on 17 November 1991. The director and largest shareholder of Jubilee was Mr Harmanis. The other member of the board was Mr Terry Streeter. Although Mr Riley was directly involved in the discussions with Hunter Resources, and signed the letter agreement, he was only one of three directors who ultimately would participate in the decision. The dealings with Hunter Resources were discussed with the other board members and the board was always involved. Specifically, Mr Riley did not have the ability to commit the other directors to the decision not to cap the royalty payable to Hunter Resources, and he would not have written the letter to Hunter Resources on 26 March 1993, asserting that there was a binding agreement, without Mr Harmanis' support.

65 Mr Riley did not ever deal directly with Mr Thompson or any director of Hunter Resources. His initial dealings with Hunter Resources were with Mr Williams (a consultant), and later with the corporate solicitor, Mr Scott.

66 Mr Riley formally left his positions as managing director, director and company secretary on 31 December 1993, and had no ongoing role in the running of either company after then. He remained a shareholder.

67 Mr Riley gave some general evidence about Sir Samuel Mines' and Jubilee's activities in the Kathleen Valley area, before the deal with Hunter Resources. Jubilee's major focus was exploring for gold in the Kathleen Valley project, on tenements it owned in that area. Jubilee wanted to expand its tenement holdings in the immediate vicinity. It knew of the Giralia/Hunter Resources joint ventures and actively pursued the tenements which were the subject of the joint ventures. Those tenements were close to the north western boundary of Jubilee's tenements in the Kathleen Valley area.

68 Mr Riley gave a brief history of the deal with Hunter Resources, including the inclusion of the Violet Range tenement in the deal. Much of his evidence was about his subjective understanding and intention with respect to the agreement which he negotiated with Mr Williams, who was acting on behalf of Hunter Resources. In particular, Mr Riley said in his witness statement:

[79] It was important to me and Jubilee that the royalty deed clearly reflect the position set out in the Letter Agreement, namely that the royalty could only be payable on the geographic area of land covered by the tenements as at 26 March 1993. I was aware from my experience in the mining industry that tenements could change and alter over time, for example by surrender or amalgamation. It was because of this practice or potential that I understood the Letter Agreement to have been expressed in the way it was, by referring to the land covered by the tenements. To reflect this, I said in paragraph 2 of my letter of 14 October 1993 under the heading 'GPR Deed ', that:

'Tenements' it needs to be made clear that the Tenements do not cover a greater area than that covered as at 26 March 1993.'

[80] No response was received by Jubilee to its letter to Hunter of 14 October 1993, during my time at Jubilee.

[81] At the time I left the Jubilee's employment in December 1993, I understood that the formal documentation of the Letter Agreement would reflect, when drafted, the words of the Letter Agreement.

[82] On 14 December 1993, I telephoned Tony Scott and advised him of my pending departure from SSM and Jubilee, and suggested that in my absence he contact Russell Miller ... At no time prior to my resignation from Jubilee and SSM did Tony Scott or anyone else ever suggest to me that SSM and Jubilee might be liable to pay royalties for minerals exploited over an area greater than that covered by the tenements comprising the Kathleen Valley and Mt Harris joint ventures and the Violet Range tenement at the time of the Letter Agreement dated 26 March 1993.

69 The evidence was admitted on a limited basis. Mr Riley was the managing director of Sir Samuel Mines and Jubilee, and the officer directly involved in negotiating with Hunter Resources. His understanding was potentially relevant to the matters raised on the counterclaim.

70 The crossexamination of Mr Riley was directed in some detail to his understanding of the expression 'successor or substitute titles' in the letter agreement. Mr Riley repeated that his understanding was that the words referred to a successor title for the same area of land, and the royalty and the deal was based on a particular geographical area, being the land at the time of the negotiation of the deal. Mr Riley was, on this particular topic, to a degree argumentative asserting that it was his understanding, and also that of Mr Harmanis, Mr Streeter, and Mr Williams, 'because it was so basic'.

71 Mr Riley was also challenged on the extent of his recollection. He said he had a clear memory of the deal, despite the lapse of time. But his memory was shown to be more limited when he was asked to recall matters that were not recorded in either notes or correspondence made at the time. It was not simply the number of occasions when he said he could not remember, but the importance of some of them. He could not recall whether, at the time of the deal, he was aware that the prospecting licences in Kathleen Valley were due to expire (and had expired at the time of the letter agreement); that the Violet Range tenement was contiguous to tenements held by Sir Samuel Mines; or that he had discussed the deal with the solicitors for Sir Samuel Mines in early 1993. In relation to the involvement of Sir Samuel Mines' solicitors, Mr Riley said, 'well, I can't see any reference in my notes' (ts 333). I have no occasion to doubt Mr Riley's honesty. But it is difficult, in the circumstances, to be satisfied that he accurately remembers what happened, including what he then thought or believed, beyond those matters which he recorded at the time.

72 As with Mr Thompson, the extent to which Mr Riley's credibility affects the findings that should be made is very limited. The primary issue is construction. Even on the claims for rectification and estoppel, the best evidence of the parties' intentions and assumptions is found in the documents which record their dealings, and in what they did.

73 Mr Crossley worked for Sir Samuel Mines and Jubilee from August 1993 to late 1995, and was a director of each of them from 1 November 1993 to 27 October 1995. He and Mr Miller signed each of the deeds on behalf of Sir Samuel Mines and Jubilee, witnessing the affixing of the company seal, but had not been directly involved in any of the negotiations leading up to the signing.

74 Mr Mallinson was employed by the Xstrata group from 1986, but until 2010 was employed in Canada. He proved a series of Tengraph Tenement Maps showing the area and the boundaries of M36/371, P36/1142, and P36/1161, as well as a satellite image of the area. It was not in dispute, and I am satisfied on the evidence of Mr Mallinson, that no part of the infrastructure relating to the Cosmos Mine is on the land formerly covered by P36/1142, and none of the mining activities for the extraction of ore have taken place on the land formerly covered by that tenement.

75 The statement of Mr Mallinson was admitted into evidence. Technomin did not require him to attend for crossexamination.

76 The sole expert witness, Mr Stuart House, is a legal practitioner with extensive experience in matters relating to the resources area. Before he was admitted as a legal practitioner, Mr House was employed in the Department of Industry and Resources (formerly the Department of Minerals and Energy). Mr House gave his opinion on a series of questions relating to practice in the mining industry. He said that it was common practice during the period 1993 to 1999 for the holders of multiple prospecting licences to apply to amalgamate them into the one mining lease. It was also common to convert exploration licences, or parts of them, into mining leases.

77 The conversion of multiple licences to a single lease occurred where one or more of the prospecting licences was reaching the end of its term, the holder required the land to be retained, and it was possible to make an application for one mining lease over multiple licences (that is, there were common boundaries and the same registered holder). It was normal in those circumstances for a tenement holder to convert multiple licences into the one mining lease.

78 Mr House gave evidence of the administrative advantages, including reduction in costs, and efficiency in technical compliance. He further expressed his opinion, without objection, that the conversion of prospecting licences P36/1142 and P36/1158 1162 into the one mining lease, M36/371, was consistent with that practice.

79 Mr House was very briefly crossexamined. In particular, he agreed that in his researches he found no document with respect to the reasons why Sir Samuel Mines consolidated the licences into the single mining lease.

80 Finally, there were several persons referred to in the course of the trial who were potential witnesses, but did not give evidence: Technomin did not call either Mr Williams or Mr Scott, who had been directly involved in negotiations with Mr Riley. Xstrata did not call its directors at the relevant time, Mr Harmanis and Mr Streeter, Mr Miller (who took over the completion of the GPR Deed when Mr Riley left), Mr Lethridge, or Mr Rogers (the solicitor engaged by Jubilee in the process of negotiating and checking the deeds). Each side suggests that appropriate inferences may be drawn from the failure of the other to call a particular witness.

81 The principle from Jones v Dunkel is that any inference favourable to a party for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the other party and the evidence provides no sufficient explanation of his absence: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 308. In West v Government Insurance Office (NSW) [1981] HCA 38; (1981) 148 CLR 62, 70, Murphy J said:

[Absence of recollection] is not to be presumed from passage of some years. Trials of such cases are commonly heard years after the event; recollections can be refreshed, and various methods are available for proof of records of past recollection. The question for the court is what conclusions can be drawn from the evidence that is available.

82 Le Miere J applied this passage in Warwick Entertainment Centre Pty Ltd (Receivers and Managers Appointed) atf The Warwick Entertainment Centre Unit Trust v Silkchime Pty Ltd (Receivers and Managers Appointed) atf The Silkchime Unit Trust [No 2] [2012] WASC 275, and said that if absence of recollection is the explanation for failure to call the witness this should be given by evidence.

83 In my opinion, the practical effect of Jones v Dunkel reasoning depends upon the particular issues in question. The trial examined the events leading up to a transaction which occurred 18 years earlier. I cannot presume that other witnesses have no true recollection of the matter, but nor can I assume that they would have been able to put a true complexion on the facts. The question for me is whether the inferences contended for by the parties can be drawn from the limited evidence before the court.

The Deeds The Deed of Assignment and Assumption

84 The Deed of Assignment and Assumption is dated 28 March 1994 and stamped in June of that year. The parties to the deed are Giralia, Hunter Resources, Sir Samuel Mines and Jubilee. Jubilee executed the deed as the parent of Sir Samuel Mines, and covenanted that it would ensure Sir Samuel Mines would perform its obligations under the GPR Deed which become due for performance while Sir Samuel Mines or its successors was a related body corporate of Jubilee Gold.

85 The deed commences with a series of recitals including:

On 14 December 1990 Giralia accepted the terms and conditions of the Mount Harris Joint Venture between Giralia and Hunter Resources.
Subject to the Mount Harris Joint Venture Giralia is or is entitled to be the absolute legal and beneficial owner of the Mount Harris Tenements.

As manager of the Mount Harris Joint Venture Hunter Resources has solely expended (or is deemed to have solely expended) certain monies on exploration and development and has met all Mining Act expenditure commitments on the Mount Harris Tenements up to the Effective Date.

On 27 September 1991 Giralia and the prospectors accepted the terms and conditions for the Kathleen Valley Joint Venture between Hunter Resources and Giralia.
Subject to the Kathleen Valley Joint Venture, Giralia is the absolute legal and beneficial owner of the Kathleen Valley Tenements (except for five one hundredths shares held by each of two prospectors).

The Kathleen Valley Tenements originally included P36/752 756 inclusive which were subsequently relinquished and superseded by M36/227.
As manager of the Kathleen Valley Joint Venture Hunter Resources has solely expended certain monies on exploration and development of the Kathleen Valley Tenements and has kept the Kathleen Valley Tenements in good standing under the Mining Act up to the effective date.
Hunter Resources has agreed to assign the benefit of all of its rights in the Mount Harris Joint Venture and in the Kathleen Valley Joint Venture to SSM and SSM has agreed to assume all of Hunter Resources' rights and obligations under the joint venture agreements under certain terms and conditions.
(Giralia has waived its first right of refusal under each joint venture).
Hunter Resources has also agreed to assign to SSM PL36/1142 at Violet Range upon certain terms and conditions.

SSM is a subsidiary of the parent which joins in this deed to secure to Hunter Resources performance of the GPR Deed.

86 Clause 1 of the operative part of the deed contains interpretations, unless the context requires otherwise, including:

'Effective Date' means 26 March 1993;

'GPR Deed' means a gross production royalty deed in the form of Annexure A providing for the grant by SSM to Hunter Resources of a 2% gross production royalty (being a bullion royalty applying to gold and silver and a non bullion royalty applying to other minerals) on SSM's interest from time to time in the Project;

'Joint Venture Agreements' means the agreements constituting the Mount Harris Joint Venture and the Kathleen Valley Joint Venture;

'Kathleen Valley Joint Venture' means the joint venture between Hunter Resources and Giralia upon terms and conditions accepted by Giralia and the prospectors on 27 September 1991 and set out in a letter 'Heads of Agreement' from Hunter Resources dated 23 September 1991;

'Kathleen Valley Tenements' 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.

'Mount Harris Joint Venture' means the joint venture between Giralia and Hunter Resources upon the terms and conditions accepted by Giralia on 14 December 1990 and set out in a letter 'Heads of Agreement' from Hunter Resources dated 5 December 1990.

'Mount Harris Tenements' means P36/1052 (previously P36/522), P36/1070 (previously M36/40), M36/162 and M36/176;

'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 affected by the Tenements).

87 Clause 1.2 contains interpretive provisions, including that, unless the context requires otherwise, 'the singular includes the plural and vice versa'.

88 By cl 2, the obligations of the parties are conditional upon necessary ministerial or government approval or registration of the deed. No question arises in these proceedings about the fulfilment of conditions precedent.

Hunter Resources now assigns to SSM and SSM now assumes with effect from the effective date all Hunter Resources' rights and obligations under the Joint Venture Agreements.

(a) covenants to reimburse to Hunter Resources upon the signing hereof all payments made by Hunter Resources to the Department of Minerals and Energy in respect of the Tenements since the Effective Date, being a total of $33,241.70;

(b) covenants to execute upon the signing hereof the GPR Deed in order to grant to Hunter Resources a gross production royalty of 2% (being a bullion royalty applying to gold and silver and a non bullion royalty applying to other minerals) upon the interest of SSM from time to time in the Project.

90 Subclause 3.3 sets out the parent company guarantees. In subcl 3.4, Hunter Resources warrants certain matters including:

(d) to the best of Hunter Resources' knowledge and belief, as at the Effective Date the Tenements were not liable to forfeiture and were in every respect in good standing and in full force and effect in accordance with the Mining Act and any other applicable laws and all conditions and obligations specified in or relating to the Tenements had been complied with and performed;

(e) to the best of Hunter Resources' knowledge and belief, as at the Effective Date all rents, rates and other amounts payable in respect of the Tenements had been paid;

(f) to the best of Hunter Resources' knowledge and belief, there was, as at the Effective Date, no proposal by any authority or other person which would adversely affect the Tenements;

(g) to the best of Hunter Resources' knowledge and belief, as at the Effective Date there were no current disputes relating to any of the Tenements;

(h) to the best of Hunter Resources' knowledge and belief, as at the Effective Date there was no actual or contingent obligation to pay money or carry out any work in relation to the Tenements in order to comply with any law relating to the environment, other than standard rehabilitation obligations attached to each tenement;

(i) to the best of the knowledge and belief of Hunter Resources, all details relating to the Tenements and the Joint Venture Agreements which would be material for disclosure to a prudent intending purchaser of an interest in the Tenements have been disclosed to SSM.

91 By subcl 3.5, Sir Samuel Mines and Giralia agree that Sir Samuel Mines replaces Hunter Resources as a party to the joint venture agreements with effect from the 'Effective Date'. Giralia and Hunter Resources acknowledge that each has performed its obligations accruing under each joint venture agreement, and release each other from any further performance and from any claim arising directly or indirectly under or in connection with either joint venture agreement: cl 3.6. Giralia confirms that it has waived its right of preemption in respect of the assignment to Sir Samuel Mines: cl 3.7.

92 Clause 4 deals with the assignment of Violet Range. For the same consideration, Hunter Resources assigns to Sir Samuel Mines and agrees to execute a transfer to Sir Samuel Mines of P36/1142 at Violet Range, and warrants its ownership free from encumbrances and that the tenement is in good standing.

93 Clause 5 deals with security, including in subcl 5.2 that Hunter Resources may lodge a caveat or caveats in accordance with pt VI of the Mining Act in respect of any tenement for the term of the tenement (or any extension, variation, replacement or substitution of it). By subcl 5.3:

SSM covenants with Hunter Resources in consideration of the assignment of the Tenements that as soon as it is entitled to a transfer of a share in any of the Tenements (or in any other mining title relating to the Area or to the Project) it will immediately upon demand procure registration of its share or registration of a caveat in respect of that share.

94 Although the capitalised term 'Area' appears in subcl 5.3 and also in the GPR Deed, it is not a defined term in either instrument.

95 Finally, cl 9 deals with general matters including that the deed may only be amended or supplemented in writing signed by the parties (subcl 9.2). And by subcl 9.7:

This deed and the GPR Deed are the entire agreement of the parties on the subject matter. The only enforceable obligations and liabilities of the parties in relation to the subject matter are those that arise out of the provisions contained in this deed. All representations, communications and prior agreements or deeds in relation to the subject matter are merged in and superseded by this deed.

The GPR Deed is defined in cl 1.1 and is Annexure A to the Deed of Assignment and Assumption.

96 The GPR Deed between Sir Samuel Mines (as Payer), Jubilee (as Parent) and Hunter Resources (the Holder) was executed on 28 March 1994. It commences with three recitals:

The Payer is a subsidiary of the Parent.
The Holder has assigned to the Payer its interest under the Joint Venture Agreements and in PL36/1142 at Violet Range in consideration of the Payer agreeing to enter into this deed for payment of a 2% gross royalty on production from the Payer's proportionate share or interest (as varied from time to time) in the Tenements (in the form of a bullion royalty applying to gold or silver and a non bullion royalty applying to the other minerals).

Giralia is or is entitled to be the registered holder of the Kathleen Valley Tenements and the Mt Harris Tenements.

97 Clause 1 of the operative part of the deed again contains interpretation provisions. The terms Joint Venture Agreements, Kathleen Valley Joint Venture, Kathleen Valley Tenements, Mount Harris Joint Venture, Mount Harris Tenements, and Project, are all defined in the same terms as in the Deed of Assignment and Assumption. 'Effective Date' is defined to mean 26 March 1994, this is subject to a claim for rectification.

98 The GPR Deed contains additional relevant definitions. In particular:

'Product' means any minerals (except gold or silver in the form of ore or bullion) from the Project attributable to the payer's proportion share or interest (as varied from time to time) in any Tenement or in the Project;

...

'Project Ore' means ore mined from the Project;

...

'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 arm's length sales or purchases between unrelated parties.

99 The term 'Tenements' is defined the same terms as in the Deed of Assignment and Assumption, save for the words in brackets. The definition is:

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).

101 Subclause 1.2, the interpretation provisions, also contains additional provisions including, in subparagraph (m), 'a reference to a mining tenement is a reference to any prospecting licence, exploration licence, mining lease or any other tenement or licence granted by any governmental agency which has or may have any connection, whether direct or indirect, to mining'.

102 By cl 2, with effect from the Effective Date, Sir Samuel Mines shall deliver to Hunter Resources 2% of the Payer's Bullion Share, defined as 'the total number of ounces of gold and silver from any Project Bullion attributable ... to the Payer's proportionate share or interest (as varied from time to time) in any Tenement or in the Project'.

103 By cl 6, with effect from the Effective Date, Sir Samuel Mines shall pay to Hunter Resources a royalty equal to 2% of the gross proceeds of any Saleable Product.

104 Clause 7 sets out general royalty provisions for both bullion and non bullion royalties. Subclauses 7.1 and 7.2 provide:

The Payer acknowledges that its interest in the Tenements and any minerals is subject to the Holder's interest under this deed but the interest of the Holder under this deed shall not be an encumbrance on the Tenements.

If and when the Payer becomes the registered holder of any interest in a Tenement, the Payer will execute and do everything needed for registration of a caveat in respect of that Tenement to secure performance of the Payer's obligations under this deed and agrees:

(a) that the Holder may record this deed in any register maintained pursuant to the Mining Act;

(b) ...

(c) that the Holder may lodge a caveat or caveats in accordance with Part VI of the Mining Act together with a copy of this deed;

(d) that any such caveat shall remain in force in respect of any Tenement for the term of the Tenement (or of any extension variation replacement or substitution of it), provided that to facilitate any assignment, mortgage or charge by the Payer which complies with clause 9.1 or 9.2, the Holder shall, upon request, withdraw, but may subsequently relodge, any such caveat.

105 By cl 7.5, Jubilee again provides guarantees and covenants.

106 By cl 9.2, Sir Samuel Mines must not create or permit to exist any mortgage or charge over the Tenements without the prior consent of the holder.

107 Clause 14.7 is an entire agreement clause in similar terms to that in the Deed of Assignment and Assumption.

108 Each party produced a minute of issues. The minutes differ in expression and emphasis, but the following emerged as the matters to be determined at trial.

What is the proper construction of the GPR Deed with regard to the tenements or area over which Xstrata is liable to pay royalty:
1. is royalty payable only on saleable product from within the area covered by the Kathleen Valley tenements, Mt Harris tenements, and Violet Range tenements as at 26 March 1993; or
2. is royalty payable on minerals or saleable product mined from M36/371, on the basis that it is an 'extension or variation or addition of replacement or substitution' of the Violet Range tenements within the meaning of 'Tenements' in cl 1.1 of the GPR Deed.

109 The case was argued by both parties on the basis that I should follow decisions of intermediate courts of appeal in Australia, and that it is not essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and object of the transaction. In the light of the reasons later given by three members of the High Court in refusing special leave in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604 [5], I will first consider the whether there is ambiguity in the language used by the parties. And see McCourt v Cranston [2012] WASCA 60.

Are the defendants entitled to rectification of the GPR Deed by:
1. inserting in cl 1.1 the definition 'Area means the area covered by the Kathleen Valley Tenements, the Mount Harris Tenements and PL36/1142 at Violet Range as at the Effective Date'; and
2. adding the words 'to the extent that such tenements cover the Area' in the definition of Tenements in cl 1.1.
Is Technomin estopped from denying that royalty is only payable on production from the area specified in the letter agreement. Technomin expressed this issue in terms of whether it is estopped in its claim for royalty on product from the Cosmos Mine, that is, the practical effect of the estoppel claimed by Xstrata.
What is the nature of the rights that have been assigned to Technomin under the deed of assignment between Technomin and Hunter Resources.
Is Technomin time-barred from claiming relief in so far as it relates to a failure to pay the royalty prior to 16 March 2003 (that is, more than six years before it brought these proceedings).
If, on a proper construction of the GPR Deed, Technomin is entitled to royalty on product mined from M36/371, is it entitled also to interest under the deed, or otherwise entitled to an order for interest.

110 On the pleadings, the rectification of the GPR Deed to correct the definition of Effective Date in cl 1.1 was also in issue. The parties, however, now agree that the year 1994 was an error and should be corrected to 1993. I am satisfied that should be done.

111 Technomin also said that, as it did not have available to it the information necessary for an assessment of damages, there should be an order for an account as to the royalty payable to it and an inquiry, or alternatively an assessment of damages.

112 The minutes of issues with regard to the claims for rectification and estoppel are each expressed quite generally. On the matters pleaded by Xstrata, and raised by the parties in argument, the following specific issues arise on the rectification claim:

Did Hunter Resources and Sir Samuel Mines have a common intention that the GPR should not cover an area greater than that covered as at 26 March 1993 by the Kathleen Valley tenements, the Mount Harris tenements, and the Violet Range tenement.
Did Hunter Resources know that Sir Samuel Mines had that intention.
Did Technomin know of that intention before Hunter Resources assigned the royalty to it in December 1993.
What is the effect of Mr Riley leaving Sir Samuel Mines/Jubilee, so that the deeds were executed by officers who had no actual knowledge of their contents or the antecedent negotiations.

In entering into the GPR Deed, did Sir Samuel Mines and Hunter Resources assume for the purposes of the deed, and with the intention that it would govern the legal position between them, that the tenements the subject of the GPR did not cover an area greater than that area covered by the royalty tenements as at 26 March 1993.
After entering into the GPR Deed, did Sir Samuel Mines (and later Xstrata) act on the basis of that assumption.
At material times after entering into the GPR Deed, did Hunter Resources intend that Sir Samuel Mines act on the basis of that assumption.
If the GPR Deed is to be construed as alleged by Technomin, would Xstrata suffered detriment in the event that Technomin as the assignee of Hunter Resources was allowed to resile from the assumption in that:

Sir Samuel Mines applied for M36/371 to amalgamate existing tenements; 2. on 4 March 1999, Sir Samuel Mines was granted M36/371 which covered land that had previously been covered by the Violet Range tenements as well as tenements owned by Sir Samuel Mines;

the Cosmos Mine does not use any part of the area of land that had been covered by the Violet Range tenement;

had Sir Samuel Mines not acted on the basis of the assumption, it would not have amalgamated in M36/371 any land that was part of the area covered by the royalty tenements as at 26 March 1993.
Would it be unconscionable to allow Technomin, as assignee and privy of Hunter Resources, to resile from the assumption.

Finally, on Technomin's reply and defence to counterclaim:

Did Technomin, on execution and delivery of the GPR Deed, take the benefit of the royalty pursuant to s 11(1) of the Property Law Act.
Is Xstrata estopped from asserting that Technomin is not entitled as assignee to any of the rights granted to Hunter Resources under the GPR Deed.

113 Where the language of a written contract is ambiguous or susceptible of more than one meaning, evidence of surrounding circumstances is admissible to assist in its interpretation. It is then appropriate to have regard to more than internal linguistic considerations and to consider the surrounding circumstances known to the parties, with reference to which words in question were used and, from those circumstances, to discern the objective which the parties had in view. This is so even where, as here, the agreement is in a deed: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 352. Whether the language of a contract is susceptible of more than one meaning can itself be controversial: see, for example, the division on this question in Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99.

114 The first step is to construe the language of the agreement itself to ascertain whether the language used is ambiguous or susceptible of more than one meaning. 'It is impermissible to refer to the surrounding circumstances in an endeavour to create an ambiguity in the language': Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365, 379 (Kennedy J).

115 There are some matters which are relevant to the task of construction, and which I should consider, whether or not the language is ambiguous.

116 First, the transaction has been implemented by deed. The court should give due weight to the fact that the agreement is embodied in a formal document, obviously prepared with legal assistance. In providing for a royalty, should minerals be produced from the tenements, the agreement is intended to operate into the future. This demonstrates the importance of being able to rely on the text of the agreement to determine its legal effect, perhaps many years after it was executed.

117 Second, the whole of the instrument must be considered 'and the words of every clause must if possible be construed so as to render them all harmonious one with another': Australian Broadcasting Commission v Australasian Performing Right Association Ltd (109) (Gibbs J).

118 Third, the Deed of Assignment and Assumption and the GPR Deed are clearly related, with the GPR Deed included as an annexure to the Deed of Assignment and Assumption. The two instruments must be read together for the purpose of ascertaining their proper construction and legal effect: see EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 [104].

119 Fourth, each agreement contains an entire agreement clause, which must be construed according to its terms.

120 Fifth, the deeds have their legal effect within the particular statutory context of the Mining Act. The provisions of the Mining Act are relevant to understanding the nature of tenements, the limited duration of some of them, the ability of a tenement holder to convert one form of tenement to another, and obligations on the holder of a tenement.

121 When the two deeds are read together, the difference in the definition of Tenements is conspicuous. The term must have been intended to mean the same in both deeds, at least in relation to the clauses providing for the royalty (allowing for the definition to alter where the context requires). The legal effect of the undefined term 'the Area' in the GPR Deed should be the same as 'the area affected by the Tenements'.

122 The words in parenthesis in each definition apparently qualify in some way the preceding words in the definition, although it is not entirely clear which words they are intended to qualify, or how.

123 Technomin put its case on the construction of the GPR Deed as directly as its pleading. The terms of the GPR Deed are unambiguous and the parties' objective intention is clear. Construed objectively, the deed records the parties' intention that the royalty was to extend to saleable product from royalty tenements, including the Violet Range tenement 'and any extension or variation or addition or replacement or substitution [of it]'. If the phrase 'any extension or variation or addition or replacement or substitution' is treated as a composite, '[it] is difficult to conceive of a choice of language that could more broadly include for royalty purposes changes to the title which constitute the 'Tenements' as at the Effective Date'. If the individual words 'addition', 'replacement', and 'substitution' are considered separately, each contemplates a change in tenement area (extension and variation perhaps referring to the term of the tenement, rather than its area). They should be given their full force.

124 On Technomin's case the words in parenthesis, 'whether or not also affecting other tenements or land outside the Area', are not words of limitation, but of amplification. The agreement contemplates royalty from areas outside the footprint of the existing tenements identified in the deed where those areas are properly described as an addition or replacement or substitution of the royalty tenements.

125 Despite the apparent directness of Technomin's case it, in effect, requires words to be read into the definition. In closing submissions, senior counsel for Technomin accepted this, and said (ts 454):

Our suggestion is that one interpolates by implication the word 'area' after the word 'means' so it would read on that meaning something to this sense: 'tenements' means the area of the Kathleen Valley tenements and the Mount Harris tenements and PL36/1142 at Violet Range and any extension et cetera outside the area.

126 That construction has little regard to the words actually used in the phrase in parenthesis, which are not readily construed as words of amplification in relation to the area of the tenement.

127 Technomin offered further arguments in support of its construction. I will not deal with them immediately. For the present, I am concerned only with whether the document is ambiguous or uncertain in meaning.

128 Xstrata submitted that the text of the GPR Deed is susceptible of another meaning: the words in parenthesis are a clarification. They do not expand the area of the royalty tenements from the area covered as at the Effective Date, but manifest an intention to define the operation of the agreement in relation to particular tenements insofar as they relate to a particular area. The words in parenthesis have the effect that any change to the royalty tenements that affects land outside the area originally covered by those tenements (the Area) does not reduce the rights conferred in relation to the Area.

129 This, in substance, also requires words to be read into the definition. But there is a significant difference (apart from the practical consequences of the reading) in that Xstrata's reading gives greater effect to the words in brackets. By including land or tenements outside the Area in a single tenement with the Violet Range tenement, Xstrata may replace or substitute the Violet Range tenement and may also affect land outside the Area, but this does not affect Technomin's entitlement to royalty on the exploitation of the tenements in respect of the Area.

130 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.

131 As a preliminary point, while the dispute between the parties focuses on the definition of Tenements, the construction exercise is not confined to the definition. By analogy to the approach to statutory construction (see, for example, Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216; Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; (2005) 221 CLR 568 [12]) the words of the definition should be read into the operative clauses of the deed, which must then be construed. To construe the definition outside the fabric of the substantive clauses may lead to error.

132 The definition of Tenements in each deed is part of the statement of the extent of Xstrata's obligation to pay royalty. The royalty is payable in consideration of the assignment of Hunter Resources' rights and obligations under the joint venture agreements with Giralia, including its interest in the Tenements. The royalty is 'upon the interest of [Xstrata] from time to time in the Project' (defined as the exploitation of the Tenements): Deed of Assignment and Assumption, cl 3.2 .

133 In par 19 of its defence, Xstrata pleads that the GPR Deed is to be construed in the context of the following facts, known to both parties at the time:

(a) the GPR Deed is a restatement of part of the terms of the letter agreement;

(b) at the same time that Hunter Resources, Sir Samuel Mines and Jubilee entered into the GPR Deed, the same parties and Giralia entered into the Deed of Assignment and Assumption;

(d) Hunter Resources had assigned the 2% GPR to Technomin prior to the restatements and with effect from 15 December 1993;

(e) Xstrata held adjoining tenements to the Violet Range tenement; and

(f) the Violet Range tenement was not part of the Mount Harris Project or of the Kathleen Valley Project.

134 Of the facts pleaded by Xstrata as the context, those in pars (b), (e) and (f) were not in dispute. The assertion that the deeds 'restated' the letter agreement was not subject to a factual dispute, but to consideration of how the earlier agreement affects the construction of the deed. The allegation in par (d) that Hunter Resources had assigned the royalty to Technomin was not in dispute. But, on the evidence, Xstrata did not know of the assignment until April 1994, and I do not take it into account as a fact relevant to construction.

135 Xstrata further pleads that certain matters were at all material times notorious in the mining industry and ought also to be considered as the context in which the GPR Deed is to be construed: first, the status and tenure of mining tenements change over times; second, it was common practice in the industry to convert prospecting licences to mining leases at the time the prospecting licences expired. At trial, this plea was admitted, with both parties making submissions on the construction of the GPR Deed in the light of those facts. These agreed facts combine with the evidence of Mr House regarding the practice of converting and amalgamating tenements.

136 Mining tenements are granted over defined areas of land. The rights conferred by a prospecting licence are limited: Mining Act s 48. Commercial exploitation is only possible under a mining lease. So the tenement in force over a particular area may need to be changed for commercial mining to occur.

137 Also, tenements are for a specified term. Prospecting licences are of much shorter duration than mining leases. Successive tenements may be granted over the same area of land. All but one of the Kathleen Valley prospecting licences were due to expire at 1 March 1993, before the letter agreement was made. The schedule to the letter agreement records this, and also the mining leases that were to be converted to prospecting licences and the prospecting licences that were to be converted to mining leases. In August 1993, while the deeds were being negotiated, Hunter Resources advised Jubilee that the letter agreement had not been registered against all tenements named in it, as some were no longer in force. These facts were known to the parties at the time of execution of the deeds, and the definition of the Kathleen Valley Tenements and the Mount Harris Tenements in each deed expressly recognised earlier changes to those tenements.

138 The nature of the tenements held by a party may change from time to time, including for reasons of administrative efficiency. While there is no evidence about why Xstrata consolidated its prospecting licences into the single mining lease, on the unchallenged evidence of Mr House, the practice of doing so was common in the industry, and is part of the context known to both parties.

139 The joint venture agreements between Hunter Resources and Giralia are referred to in the two deeds, both in recitals and in the definitions, and are part of the factual background.

140 In each of those agreements, the joint venture area for the particular project was defined by reference to the land covered by specified tenements 'and successor or substitute titles'. Hunter Resources had the right, by payment of specified amounts on the exploration and development of tenements, to earn an ownership interest in them. Further provisions in those agreements included that Giralia warranted the tenements were in good standing and, subject to making option payments on the Mount Harris Tenements, would have unencumbered title and 100% beneficial ownership of them. Having regard to the whole of the agreements, the reference to tenements in each of the joint ventures was to an area or 'footprint', as Technomin's described it, which would not change even if the particular tenement under the Mining Act varied.

141 The joint ventures were not simply part of the history. They remained in place, with Giralia a party to the Deed of Assignment and Assumption. And the transaction which was ultimately recorded in the two deeds proceeded on the basis that the joint venture agreements would remain in place and define the rights and obligations assumed by Sir Samuel Mines. The Violet Range tenement was not part of the joint ventures, but it was treated in the GPR Deed as part of the Project including those joint ventures. A reasonable person in the position of the parties would expect some consistency in the manner in which all tenements were dealt with in the GPR Deed.

142 Both parties agreed that the GPR Deed should be construed in the context that there was an existing agreement under which the assignments had already been effected, and the royalty obligation of Xstrata had been specified. Technomin submitted, correctly, that it would be a mistake to conclude that the letter agreement can be relied upon to the exclusion of the words that appear in the GPR Deed. The parties to the letter agreement had agreed that they would enter into a formal deed to define the royalty. When they did so, they included entire agreement clauses in each of the deeds.

143 Technomin further submitted that the definitions of tenements are consistent between the letter agreement and the GPR Deed, as each, in effect, uses the tenements and successor or substitute titles to identify the scope of the royalty.

144 There are significant differences in the structure of the letter agreement compared with the deeds. In the letter agreement, there is no definition of tenements. The tenements listed in the schedule 'and successor or substitute titles' were used to specify the joint venture area. Hunter Resources was assigning its rights and obligations under two joint venture agreements. Consideration for the assignment was in two parts: the reimbursement of payments made by Hunter Resources 'in respect of the tenements'; and a royalty 'on SSM's interest from time to time in the Project'. The Project was not defined but was identified as the Kathleen Valley - Mt Harris Project.

145 The expression 'all of the land covered by the [specified] tenements ... and successor or substitute titles' was particularly apt to describe the area of the project between Giralia and Hunter Resources at the time of the letter agreement: the Kathleen Valley prospecting licences had already expired, the prospecting licence for Violet Range was due to expire on 25 November 1993, and the comments column in the schedule of tenements noted that various mining leases were converting to prospecting licences and prospecting licences converting to leases. There is no basis to read the use of those words as increasing the joint venture area.

146 Despite these differences, the letter agreement is an important part of the context. It would be unusual, at least, for the GPR Deed to be expressed in a way which substantially increased the potential consideration and Xstrata's potential royalty liability from the original agreement.

147 Prior negotiations between Hunter Resources and Jubilee are admissible to the extent that they tend to establish objective background facts which were known to both parties, and the subject matter of the contract: Codelfa (352). Xstrata relied on the exchanges between 16 July 1993 and 2 March 1994, and particularly on the comments made on 14 October, primarily but not exclusively on the issue of rectification. Xstrata submitted that the evidence was also admissible on the question of construction, as evidence of dealings between the parties that show 'a common consensus rejecting the inclusion of a provision that would expand the area to which the GPR Deed applies beyond the original area of the tenements'. It submitted that evidence of mutual concurrence not to include a particular type of provision may be received as part of the surrounding circumstances from which to construe the agreement.

148 The sequence of events disclosed by the evidence is:

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (260 paragraphs)

The assignment by Hunter Resources to Technomin

Legislation Cited (1)

Cases Cited (18)