EMS Quarries Pty Limited v Beaumont - [2001] NSWSC 355

No judgment structure available for this case.

CITATION: EMS Quarries Pty Limited v Beaumont [2001] NSWSC 355

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): SC 1517 of 2001

HEARING DATE(S): 30 March 2001 and 2 April 2001

JUDGMENT DATE:
10 May 2001

PARTIES :

EMS Quarries Pty Limited (Plaintiff)
Roy Richard Beaumont (Defendant)

JUDGMENT OF: Windeyer J at 1

COUNSEL : Mr J Glissan QC with him Mr M Condon (Plaintiff)
J Trebeck (Defendant)

SOLICITORS: Hawthorn Cuppaidge & Badgery (Plaintiff)
Kreutzer & Simpson (Defendant)

CATCHWORDS: LANDLORD AND TENANT - purported termination for breach of covenants to pay royalties and to work mine - construction of royalty clause - whether failure to comply with notice demanding excessive sums for royalties amounted to repudiation - whether covenant to work mine required continuous working when uneconomic

LEGISLATION CITED: Conveyancing Act 1919 s120a(3); s129

CASES CITED: Australian Safeway Stores Pty Limited v Toorak Village Development Pty Ltd [1974] VR 268
Bunbury Foods Pty Limited v National Bank of Australasia Limited (1983-84) 153 CLR 491
Campbell v Commercial Banking Co of Sydney Limited (1879) 2 LR (NSW) 375
Fabian v Winston (1590) Cro Eliz 209
Jarvis v Tomlinson [1856] 1 H&N 195
Jegon v Vivian (1871) 6 Ch App 742
Kinsmen v Jackson (1880) 42 LT 80
Mir Brothers Project Pty Limited v 1924 Pty Limited [1980] 2 NSWLR 907
Moteks Pty Limited v Matthews Pastoral Co [1998] NSW ConvR 55-847
Tsangaris v Gaymark Investments Pty Limited (1986) 82 FLR 269
Wheatley v Westminster Brymbo Coal Company (1869) 9 LR Eq 539

DECISION: See paragaphs 29 and 30

1

20

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

TUESDAY 8 MAY 2001

1517/00 EMS QUARRIES PTY LIMITED V ROY RICHARD BEAUMONT

JUDGMENT
Outline

1 The question for decision in this case is whether a notice of termination of lease given by the defendant, Mr Beaumont, to the plaintiff, EMS Quarries Pty Limited (EMS), was a valid termination. This involves the determination of the questions first, whether or not the lessee was required to operate the quarry in circumstances where it was not economical to do so, and second the basis upon which royalties were to be calculated. If the termination were valid then the question whether relief against forfeiture should be granted will arise.

Facts

2 By four leases dated 13 March 1996, Mr Beaumont leased to Barry Wayne Keough and Debbie Rosemary Keough part of a property at Dorrigo being the land called "the Quarry site" being part of the land in Folio Identifier 622/810307. The first lease was for a period of five years commencing on 26 March 1996. By three further leases, each for five years, the same land was leased to Mr & Mrs Keough for successive terms so that the second lease commenced on 26 March 2001, the third on 26 March 2006 and the fourth on 26 March 2011. In addition there were granted options to take two further leases for successive periods of five years each so that the total entitlement of the lessees amounted to thirty years. The purpose of the options was apparently an attempt to overcome problems under s120A(3) of the Conveyancing Act 1919. It is not necessary to consider this aspect of the matter any further. All leases were registered. By deed of assignment dated 25 March 1996, Mr & Mrs Keough assigned the leases to EMS, then called Horizon Sands Pty Limited. It is necessary to set out some of the relevant terms of the leases. These are those in the first lease, the term of which has now expired, but it is this lease which Mr Beaumont purported to terminate by notice. Clause 25 of each lease provided that if a lease for a term prior to the term of the lease was validly terminated then the later lease was also terminated.

1. In this lease unless the context requires otherwise:

"Quarry site" means the land described in clause 2 of this lease and delineated in the plan annexed hereto and marked "B".

2. The lessor hereby demises to the lessees the quarry site being part of lot 622 in deposited plan 810307 and being that part delineated and described as "quarry site" on the plan annexed hereto and marked "B" with the right to enter the said quarry site for the purpose of extracting basalt by means of open cut working and excavations from the surface.

3. The lessees may pursuant to this lease:

(a) enter the quarry site to search for dig work and obtain by excavations open to the daylight basalt and to carry away and dispose of same for the lessees' own benefit.

(b) erect such buildings and erect and place such plant and machinery and to open sink and make such excavations levels watercourses and other works whether upon or below the surface of the quarry site as may be necessary or convenient for the purpose of winning and said basalt by open cut working and for no other purpose whatsoever.

(c) erect upon the quarry site offices conveniences and dwelling houses for workers and other persons employed upon the works according to plans and upon sites to be approved in writing by the lessor.

PROVIDED THAT

(f) generally do all things which shall be necessary or convenient for working getting making merchantable and disposing of the basalt and for obtaining the benefit of the rights liberties and privileges hereby granted but in all cases do noting [sic] which shall prevent the reinstatement of the land for agricultural and grazing purposes.

…

5. The lessee shall pay the following rents and royalties during the term of this lease:

(a) the yearly rent of one hundred dollars ($100.00) to be paid in half-yearly instalments in advance on the 28th day of March and 26th day of September in each year with the first payment due on the date hereof.

(b) in addition a royalty calculated at the rate of one dollar and twenty cents ($1.20) per cubic metre of basalt removed in bank metres to be determined by field survey.

(c) the calculation of royalty shall initially be based on a survey at the lessees' cost to be made available to the lessor at least fourteen (14) days before any operational or exploratory blasting and subsequently adjusted on the basis of field survey to be effected prior to any subsequent blast.

(d) payment of royalty shall be made to the lessor at least once in each month using an estimate of the amount of basalt removed until the next field survey is completed at which time the amount of royalty paid on the basis of such estimates shall be adjusted to balance with the field survey.

PROVIDED THAT

…

8. The lessees for themselves and their assigns and to the intent that the obligations may continue throughout the term hereby created hereby convenant with the lessor as follows:

(a) to pay the reserved rents and royalties at the times and in the manner provided for in this lease;

(b) to work the said quarry in a proper and efficient manner according to the best and most approved method practised in similar undertakings and to observe and comply with the requirements of any statute regulation by-law or ordinance relating to the operations of the lessees and with all lawful notices and instructions of any competent authority or person.

(c) to keep all dwelling houses buildings plant and fixed machinery railways tramways pits roads levels watercourses and other works now standing or which during the term shall be constructed erected built placed or made in good and substantial repair condition and working order except such works as shall be unnecessary for the further working of the said basalt and shall be abandoned with the consent of the lessor;

…

(f) to cause the weight of all basalt got by virtue of this lease to be duly ascertained to the satisfaction of the lessor and not to remove or permit to be removed any of the same from the quarry site without the weight thereof being so ascertained and recorded;

(g) to permit the lessor and his agents with or without surveyors workmen and other persons at all reasonable times to enter upon inspect and examine the quarry site for the purpose of ascertaining whether the same is being worked in a proper manner in accordance with the terms of this lease and in the event of any improper working or defect of repair being found in the opinion of the lessor or his agent found therein then upon notice in writing thereof to amend and repair the same within third (30) days and in default to permit the lessor to enter and at his option to stop the works until such amendment or repair is effected by the lessees and compensation is made for any loss or damage thereby caused or if the lessor thinks fit himself to effect such amendment or repair and to repay to the lessor the expenses of his so doing on demand such expenses to be recoverable as rent in arrear;

(h) to keep or cause to be kept at the quarry site or at some other place approved by the lessor proper books of account in which shall be entered the quantities of basalt got by virtue of this lease with dates of production and all such particulars as may in the opinion of the lessor be necessary or convenient for ascertaining the amount of the royalties to be paid by the lessees and to permit the lessor or his agent at all reasonable times to inspect the said books and to take copies thereof or extracts therefrom;

(i) upon the cessation of quarrying operations and before vacating the quarry site to replace first the subsoil and then to replace over the subsoil the top soil and level off the same so that the quarry site may again be available for agricultural or grazing purposes;

(j) upon the cessation of quarrying operations and before vacating the quarry site to remove all buildings plant and machinery erected or installed during the term and to carry out such further work as may be necessitated by such removal to render the quarry site available for agricultural or grazing purposes.

…

12. This lease shall be subject to termination by the lessor at any time the lessees fail to remedy any of the following matters within thirty (30) days of service on the lessees of written notice notifying the lessees of the matter requiring to be rectified:

(a) failure by the lessees to commence blasting operations within twelve (12) months of the date of commencement of the lease;

(b) failure to pay rent or royalty in accordance with the terms of this lease;

(c) failure to maintain or produce evidence of the insurances required by the lessor in accordance with the terms of this lease.

…

17. If any part of the rents or royalty hereby reserved shall be unpaid for thirty (30) days after becoming payable (whether formally demanded or not) it shall be lawful for the lessor at any time thereafter to enter upon the demised land and premises or any part of them in the name of the whole and thereupon this lease shall absolutely determine but without prejudice to the right of action of the lessor in respect of any breach of the lessees' obligations thereunder.

3 The only significant difference between the leases for the subsequent periods was that a new clause 5(a) was substituted for 5(a), (b) and (c) in the first lease. The new clause is as follows:

The lessee shall pay the following rents and royalties during the term of this lease:

5(a) such rent and royalty as the parties shall agree upon in writing and if the parties fail to so agree upon in writing and if the parties fail to so agree within fourteen (14) days of the commencement date of the term hereby created then such rent and royalty as shall be determined to be the current rent and royalty by a member of the Australian Institute of Valuers and Land Economists or its successor appointed upon the application of the lessor by the President for the time being of the said Institute acting as an expert and not as an arbitrator. The decision of the valuer so appointed shall be final and binding on the parties and the costs of the said determination shall be paid equally by the parties PROVIDED THAT the royalty shall not be less than the royalty which was paid by the lessees to the lessor in the last year of any lease of the quarry site immediately preceding this lease and shall not be more than Four Per Cent (4%) of the average gross sale price per cubic metre of all sales for the twelve (12) months immediately preceding the commencement date of the term hereby created.

4 Mr Beaumont as consenting lessor, Mr & Mrs Keough as assignors and EMS as assignee, were parties to a deed of assignment of 25 March 1996. Clauses 4 and 7 of that deed were as follows:

4. CONSIDERATION

4.1 In consideration by the Assignors of this assignment the Assignee agrees to meet its obligations referred to in subclause 3.2 hereof and further the Assignee agrees:

4.1.1 to carry out the works as required by the Bellingen Council to comply with the conditions as set out in the In Principle Consent (attached as the Second Schedule hereto) in respect of development application No 2955 and in particular clauses 1 (Section 91AA), 6, 7, 8, 10, 11, 13, 14 & 16 thereof;

4.1.2 to prepare suitable pads and benches as required to install the crushing and screening plant;

4.1.3 to supply and install, commission and operate a suitably sized crushing and screening plant able to produce the full approved annual amount of crushed product from the quarry;

4.1.4 to operate all aspects of the quarrying and production of products to suit the market within the economic area of operation.

4.1.5 to employ the Assignors to carry out the works set out in the In Principle Consent (attached as the second schedule hereto) in particular those works required by clauses 6, 7, 8, 10 and 11 for $175,000.00.

…

7. DEFAULT

7.1 It is agreed between the parties that the happening of one or more of the following events shall be treated as default by the Assignee:

7.1.1. the Assignee fails to operate the quarry in accordance to reasonable local market demands;

7.1.2 the Assignee is wound up or a Liquidator or Administrator is appointed to the Assignee;

7.1.3. the Assignee assigns or otherwise disposes of its interest under this agreement without the prior written consent of the Assignors;

7.1.4 the Assignee breaches or otherwise fails to observe the terms of this agreement and or the Leases and Option.

5 Although not stated in the deed the evidence established that the Keoughs became entitled to a royalty on sales of extracted materials during the term of the leases.

6 The date of the "In Principle Consent" referred to is not established but so far as is relevant its terms are much the same as those in Development Consent dated 29 June 1994 to an application by the Keoughs for development of a hard rock quarry and processing plant on the leased site. This required considerable road work to be carried out. The consent also included the following conditions:

…

9 Due to the increased demands on Council's road system created by this development the applicant shall lodge with Council a contribution towards the maintenance of Council's road system. The rate shall be that shown in Column II for the sections of road used as shown in Column I.

COLUMN I COLUMN II
c/Tonne
Old Coramba Road - quarry to
start of bitumen 17.2
Old Coramba Road - start of
bitumen to Main Road 76 1.425

In respect of the said contribution the following conditions will apply.

…

(c) on or before the 14th day of July and January each year for the duration of the consent, the applicant shall deliver or procure delivery to Council of a true certified copy of weighbridge certificates or other returns or records showing the true quantities for extractive material transported from the subject site and destinations of such material during the immediate preceding 6 month period and Council will then, as soon as it can conveniently, do so, issue to the applicant or its consenting assignee, an invoice for the contribution payment payable for that period, which payment the applicant or its consenting assignee, will pay by the relevant date specified in sub-section (a) hereof;

(d) Council has the right to inspect and have the original records relating to any of the extracted material, including the numbers and types of laden trucks and trailers destinations and load quantities, transported from Lot 622 D.P.810307 audited by any person nominated by its internal accountant at any time as and when Council may request to do so in writing;
…

7 EMS incurred considerable expense in making the quarry operational and in satisfying Council requirements. That expense, excluding the amount of a performance bond, on the evidence came to $1,813,677. It is not established when quarrying commenced, but sales of crushed rock from the site commenced some time after 1 July 1997. Payments were made for royalties calculated on the basis of tonnes sold from the leased site on the basis of $0.451 per tonne, which constituted 36,623.13 tonnes sold with payment of $16,517.43 for the period up to September 1998. It is accepted that a royalty of $1.20 per cubic metre equates with $0.451 per tonne. Crushing stopped on 30 September 1998 because no suitable contracts for sales of the gravel could be obtained. When work stopped quantities of crushed gravel plus some uncrushed material were stockpiled on the site. The quarry was operating quite successfully in 1997 because EMS had a contract to supply gravel to Abigroup for road work on the Pacific Highway. However, when that contract finished no other suitable contract could be obtained, despite efforts to do so.

8 There was correspondence between EMS and Mr Beaumont and his solicitors after July 1998 as to calculation of royalties and the necessity for a field survey. Mr Smith, surveyor, carried out a survey on 15 July 1998 and found that about 11,600 cubic metres of material had been removed from the leased site; that 40,661 cubic metres of material had been removed from the bank of which about 29,120 cubic metres remained on the site. This last figure included top soil and overburden.

9 Certain gravel was sold from the site in 1999. Mr Beaumont received payment for some of this direct.

10 On 17 February 1999 the solicitors for Mr Beaumont notified the plaintiff of breach of clause 8(b) of the lease "which requires the lessee to work the quarry in a proper and efficient manner." The notice required resumption of quarrying operations within thirty days, failing which the lessor would terminate the lease and re-enter. This produced a denial of any responsibility to carry on an uneconomic enterprise. The solicitors for Mr Beaumont replied saying that while their client reserved his rights he would not take any action at that time, namely 29 September 1999. There then followed a further period of correspondence about sales of the stockpile, complaints about Mr Beaumont making sales and other matters of little significance but which included a complaint about books and records not being kept at the site in breach of a term of the lease. Then on 10 August 2000 two notices to remedy breach were served. The first alleged breach of clause 8(b) as before for failure to work the quarry and required remedy within thirty days failing which the lessor would treat the lessee's conduct as a repudiation. The second alleged breach of clause 5(b) - the royalty clause - claiming that royalties of $28,571.21 remained unpaid. The commencement point for the calculation was a claim based on removal of 41,320 cubic metres of basalt in bank metres, from the commencement of the lease until the notice, so that the claim as calculated and set out in the notice was follows:

$ 4,297.00

$21,012.79

$28,571.21

11 On 15 September 2000 the solicitors for Mr Beaumont wrote to EMS stating that as the demands of the notices had not been met, the lessor accepted this as a repudiation and regarded the lease as at an end. Mr Beaumont served a lapsing notice in respect of Caveat No. 2528589 lodged by EMS to protect its interest under the option agreement. By interlocutory orders the operation of that caveat has been extended until further order.

Claim under summons

12 By amended summons filed on 13 March 2001 EMS seeks declarations (a) that royalties are payable only on basalt removed from the quarry site; (b) that Clause 8(b) of the lease does not prevent the plaintiff ceasing operations; (c) that there has been no repudiation and no valid termination; (d) that the defendant is bound to give a five year lease commencing on 26 March 2001; (e) that EMS has a caveatable interest in the land, being lot 622 in DP810351.

13 In the alternative, if it is found the lease has been terminated then EMS seeks relief against forfeiture.

Issues

14 The issues which arise for determination are therefore: (a) whether on the true construction of the lease, the lessee is required to work the quarry; (b) whether royalties are payable on basalt removed from the bank or on basalt sold and removed from the quarry site; (c) what is encompassed by the word "basalt"; (d) has the lease been validly terminated; (e) if necessary, whether relief against forfeiture should be granted.

Was there a breach of clause 8(b)?

15 The question is whether this clause imposes a positive obligation on the lessee to work the quarry at all times during the term of the lease. It is clear that the quarry is not being worked. So that proper attention can be given to the introductory words, I set them out again:

8. The lessees for themselves and their assigns and to the intent that the obligations may continue throughout the term hereby created hereby covenant with the lessor as follows:

(b) to work the said quarry in a proper and efficient manner according to the best and most approved method practised in similar undertakings and to observe and comply with the requirements of any statute regulation by-law or ordinance relating to the operations of the lessees and with all lawful notices and instructions of any competent authority or person.

16 Counsel for the defendant relied on a number of matters or signs to support the claim for a positive obligation. These were: the introductory words of continuing obligation; the very low base rent; the fact that the tenant was not liable for rates; the fact that royalties were payable monthly; the continuing right to inspect under clause 8(g); and the requirement to keep books on site or at some other approved place. Counsel also referred to the cases of Australian Safeway Stores Pty Limited v Toorak Village Development Pty Ltd [1974] VR 268 and Tsangaris v Gaymark Investments Pty Limited (1986) 82 FLR 269. The first of these dealt with a covenant "not without the consent in writing of the lessor to use the demised premises for any other purpose than the purpose stated in the First Schedule hereto". That purpose was a supermarket business. It was held that there was no breach if the lessee ceased to carry on a supermarket business in the leased premises. The second case, insofar as it had any relevance, dealt with a lease under which there was a covenant not to use the demised premises for any purposes other than an authorised purpose, namely supermarket and storage, and a further covenant that "the lessee will conduct its business on the demised premises in an orderly and respectable manner …". It was held that this imposed no positive obligation on the lessee. Counsel for the defendant also referred to the case of Moteks Pty Limited v Matthews Pastoral Co [1998] NSW ConvR 55-847. That case concerned a covenant by the lessee "to carry on in and upon the demise [sic] premises the business of a motel and licensed restaurant and to keep open and use the premises for that purpose at all times during the term of this lease …". It was held that the lessee breached the lease in operating the restaurant only on occasions when group bookings had been made. It does not seem to me that these cases assist the defendant or assist in determining the proper construction of the covenant in question.

17 There are a number of quite old English cases, in some respects contradictory, dealing with mining or quarrying leases and problems such as arise here and on similar covenants. In Jarvis v Tomlinson [1856] 1 H&N 195 the Court of Exchequer dealt with a lease of a rock salt mine under which the lessee covenanted that it would "during the continuance of the term, work the mine in a proper and workmanlike manner". In fact it did not work the mine at all, mainly because there was an influx of brine into the mine. To some extent the decision appears to have been founded upon the fact that the actual lease was executed after the influx of brine in which case it seems that the court considered that the covenant having been entered into after that date must be read to require some work to be done by the lessee. I do not consider this decision supports the defendant. The case normally referred to in the textbooks in this connection is Wheatley v Westminster Brymbo Coal Company (1869) 9 LR Eq 539. In that case there was a covenant that the lessees

would at all times, during the continuance of the terms thereby granted, work and carry on the said mines of coal and ironstone thereby demised uninterruptedly efficiently and regularly (except in the event of strikes of workmen or other casualties) according to the usual or most approved practice adopted and used in the working of mines of coal and ironstone.

18 Mallins VC said at p 553:

But the question has been distinctly raised before me, whether in this case, which obliges the lessees to pay a sleeping rent, and to work the colliery "efficiently" - because that is the meaning of it - is there any obligation on the part of the lessees to work at all, or if they do work at all, to work beyond the amount of the sleeping rent? As no authorities have been cited I suppose that none exist. Certainly, I have heard of none myself; and as the point is brought before me, I think I am bound to state my opinion that in all cases of mining leases, if the lessors desire to secure the working of their mines beyond the amount of the sleeping rent, they must in the lease insert covenants which throw that obligation on the lessee.

19 Jegon v Vivian (1871) 6 Ch App 742 concerned a coal mining lease where the lessee covenanted to work the mines in a proper and workmanlike manner, and to deliver up at the end of the term the work seams and veins of coal in good repair and condition so that the coal works might be continued. At p 757 the Lord Chancellor, Lord Hatherley said:

Then as to the continuous working: It must be remembered that the subject-matter is a coal mine, and there are various provisions about working coal. An obvious remark upon that would be that where one person is taking a mine and another person is letting a mine, they both think the mine will be worked; and in numerous leases which have come before the Court, there is a covenant on the part of the lessee to work the mines continuously, and there are other provisions of that kind. But when that is intended it is stated. A lessee entering into such a covenant cannot complain if he is unable to fulfil his engagement, but here there is nothing of the sort. It is said, that because the lessee covenants that he will do the work in a workmanlike manner, he has covenanted to be always working. But there are various approved modes of effecting such a purpose. One is to take so heavy a dead rent as to make the lessee find it to his own benefit to work, because the rent must be paid whether he works the mine or not. Another mode is to have an express covenant that he shall continuously work. Another mode is to say that so much coal shall be raised per annum; but to say that this is to be implied from a covenant to work in a workmanlike manner would be a very great stretch of the terms actually employed. If the parties meant the lessee to work continuously, they ought to have said so.

20 It is true that in Kinsmen v Jackson (1880) 42 LT 80, Jessel MR, said that he did not agree with the decision in Wheatley, but the proceedings before him were for an interlocutory order and were not a final hearing. The covenant there in question was in respect of a clay pit under which the lessees covenanted that they:

would during the said term work the said limits for china clay and china stone in the most proper and effectual manner, and with a reasonable number of able bodied men and assistants kept employed on the said works at all reasonable times and usual working times, and so that the china clay and china stone to be there found may be raised, washed and made merchantable as speedily as practicable.

21 All these decisions depend upon the wording of the covenant being considered. While there can be no doubt that it was the intention of the parties that the quarry would be worked so that royalties would be received, that does not necessarily mean that it was intended to impose an obligation on the lessee to conduct an uneconomic enterprise. In fact, so far as the deed of assignment can be looked at to give some idea as to what was intended, - and it is doubtful whether it can be used for the purpose of construction, - it would appear in clause 4.1.4 to give support to that view and in 4.1.3 to be against it. It is, I think, clear from the evidence of Mr Bennett that it has not been possible since operations ceased to conduct the quarrying operation economically. The evidence was that if it were EMS would do so. One would have thought that was perfectly clear having regard to the capital cost of establishment of the quarry. While all the equipment has been removed, probably in breach of the said clause 4.1.3, but this was not argued - the evidence is that if profitable contracts could be obtained then equipment could quickly be brought back on site and production recommenced.

22 I have come to the conclusion that there was no breach of clause 8(b). The Court is required to find the objective intention of the parties in using the words they used and, of course, looking at the whole of clause 8 when doing so. I do not consider that intention was to require non-economic operation. The opening words of clause 8 do no more than ensue the obligations continue; that is not the same as continuous operation. In this regard it is important to remember the breaches relied upon are breaches of lease, not breaches of the covenant under the assignment.

Claim of failure to pay royalties

23 The first question to be determined is the meaning of "basalt". Although Mr Armstrong, a mining engineer, gave evidence that in quarrying this was a generic term and that the whole of the area the subject of the lease was basalt (being either soil formed as a result of washing of basalt rock, sub-soil or the rock itself), I do not think that any reasonable construction of the lease could lead to the result that all material removed from the bank was basalt within the terms of the royalty clause. I have no doubt that basalt under the lease referred to rock, this being in accordance with one of the definitions in the Shorter Oxford English Dictionary, namely "a greenish or brownish black igneous rock composed of augite or hornblende containing titaniferous magnetic iron and crystals of feldspar" and the definition in the Macquarie Dictionary. The wording of the lease where it refers in clause 2 to "extracting basalt by means of open cut working and excavations from the surface" would not, I think, indicate that everything taken away from the bank was basalt. The expert evidence of Mr Uttley, which I accept, supports this conclusion, as does the requirement to retain top soil for rehabilitation.

24 The next question is whether or not royalties are payable on basalt removed from the quarry - measured in bank metres by a field survey - or are only payable on basalt sold and removed from the leased site. The evidence establishes that a cubic metre is the same as a bank metre. Here the plaintiff has referred to certain clauses in the lease, namely 3(a), 3(e) referring to the word "got", and to 3(f) and 8(h). I do not consider that these clauses assist the plaintiff in its claimed interpretation, and 3(e) is against it. There is no logical reason why royalties should not be payable on basalt removed from the pit and stockpiled on the site. The question really is whether the word removed means removed from the leased site, rather than removed from the area where mining is taking place. I consider that the requirement for field survey, and royalties being based on such field survey with estimated payments being made in the meantime, points to the latter. I so find.

The notice based on breach of the covenant to pay royalties and the claimed repudiation

25 This notice is based upon a claim that royalties are payable on everything removed from the bank. First, the evidence of Mr Bennett is that Mr Beaumont agreed that no royalty would be paid on that part of the material which was used to construct the road. There was no evidence to the contrary. Secondly, the notice of breach demanded payment in respect of everything removed from the bank, whether top soil, sub-soil or what I have determined to be the subject of the royalty payment. The evidence clearly shows that there is basalt stockpiled on the site which I have found to be the subject of royalty. That amount so stockpiled is established to amount to about 6,668 cubic metres which would require a royalty payment of $8,001.60. On any basis it is a long way short of the amount demanded in the notice, namely, $28,571.21.

26 The lease is unusual in some respects as it has no provision giving a right of re-entry and for forfeiture on breach of covenant which would, of course, be subject to the requirements of s129 of the Conveyancing Act. No doubt for that reason the lessor and his solicitors appear to have relied on the general law of contract rather than specific land law relating to leases, in their notice to remedy breach of clause 8(b). As I have found there was no such breach attention must be directed to the action on the claim of royalty breach.

27 In cases where notice is required under s129 of the Conveyancing Act then to be effective the notice should give precise information of what is alleged against the tenant and what is demanded of the tenant so that the tenant can consider whether or not the breach should be admitted or is capable of remedy. Insofar as this particular lease may circumnavigate s129 the position is really no different but the questions remain whether the notice given was good, although for an incorrect sum, and whether there was, as claimed, a repudiation by reason of non-compliance with the notice. This is not a matter which is easy to answer. It has been held that as between mortgagor and mortgagee a notice of demand for repayment of an excessive sum is nevertheless a valid demand so that if the mortgagor fails to pay the proper sum the mortgagee is not precluded from exercising rights under the mortgage available on default. Campbell v Commercial Banking Co of Sydney Limited (1879) 2 LR (NSW) 375; Mir Brothers Project Pty Limited v 1924 Pty Limited [1980] 2 NSWLR 907; Bunbury Foods Pty Limited v National Bank of Australasia Limited (1983-84) 153 CLR 491 at 503-4. On the other hand notices of demand for rent at common law are subject to onerous conditions as to the precise form and accuracy of the notice and the time of service to be effective, if default were relied upon for forfeiture. Fabian v Winston (1590) Cro Eliz 209. The notice in this case may fall between the two but it seems to me that as it was founded upon an incorrect basis for entitlement and calculation rather than an incorrect mathematical calculation, it was not an effective notice so that there was no right to terminate in reliance upon non-compliance with the notice. But if I were wrong in that I am of the view that the claim of termination for repudiation was not made out. No doubt because there were two notices, the lessee's solicitors acted as they did in purporting to accept the claimed repudiation of the lessee for failure to meet the demands of the notices. Acceptance of repudiation is not the same as termination for breach under clause 12(b). I do not consider that failure to comply with the notice evidenced an intention of the lessee not to be bound by the terms of the lease. The sum demanded was excessive and there was, I consider, a genuine uncertainty as to the basis on which royalties were to be payable. The lessee founded his right to treat the lease at an end on repudiation. He should be bound by that action which I consider was not justified by the conduct of the lessee.

Caveat

28 No argument was addressed as to whether the options were valid in light of s120a(3) of the Conveyancing Act. Unless the parties wish to argue this it may be that the appropriate course is to leave the caveat in place on the understanding that the issue is not determined and that no estoppel of any type arises on that question as a result of these proceedings and judgment.

29 The result of all of this is that it follows that the plaintiff is entitled to the benefit of the second lease because clause 25 of the first lease, which requires a valid termination to terminate the second lease, does not take effect. There is however a breach of the covenant in the first lease. To bring an end to these proceedings the parties should attempt to agree on the appropriate amount payable, having regard to these reasons. I can then make an order requiring that amount to be paid.

Proposed orders

30 The plaintiff is entitled to declarations in the general terms claimed in paragraphs 2, 3, 4, 5.2 and 6 of the amended summons. The claim under paragraph 1 should be dismissed. The plaintiff should bring in short minutes to give effect to these reasons.

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Last Modified: 06/06/2001

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EMS Quarries Pty Limited v Beaumont [2001] NSWSC 355

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CITATION:	EMS Quarries Pty Limited v Beaumont [2001] NSWSC 355
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 1517 of 2001
HEARING DATE(S):	30 March 2001 and 2 April 2001
JUDGMENT DATE:	10 May 2001
PARTIES :	EMS Quarries Pty Limited (Plaintiff) Roy Richard Beaumont (Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr J Glissan QC with him Mr M Condon (Plaintiff) J Trebeck (Defendant)
SOLICITORS:	Hawthorn Cuppaidge & Badgery (Plaintiff) Kreutzer & Simpson (Defendant)
CATCHWORDS:	LANDLORD AND TENANT - purported termination for breach of covenants to pay royalties and to work mine - construction of royalty clause - whether failure to comply with notice demanding excessive sums for royalties amounted to repudiation - whether covenant to work mine required continuous working when uneconomic
LEGISLATION CITED:	Conveyancing Act 1919 s120a(3); s129
CASES CITED:	Australian Safeway Stores Pty Limited v Toorak Village Development Pty Ltd [1974] VR 268 Bunbury Foods Pty Limited v National Bank of Australasia Limited (1983-84) 153 CLR 491 Campbell v Commercial Banking Co of Sydney Limited (1879) 2 LR (NSW) 375 Fabian v Winston (1590) Cro Eliz 209 Jarvis v Tomlinson [1856] 1 H&N 195 Jegon v Vivian (1871) 6 Ch App 742 Kinsmen v Jackson (1880) 42 LT 80 Mir Brothers Project Pty Limited v 1924 Pty Limited [1980] 2 NSWLR 907 Moteks Pty Limited v Matthews Pastoral Co [1998] NSW ConvR 55-847 Tsangaris v Gaymark Investments Pty Limited (1986) 82 FLR 269 Wheatley v Westminster Brymbo Coal Company (1869) 9 LR Eq 539
DECISION:	See paragaphs 29 and 30