Merewether v Scottish Australian Mining Co Ltd

[1907] HCA 8

4 C.L.H.] OF AUSTRALIA.

953

[HIGH COURT OF AUSTRALIA.]

MEREWETHER AND OTHERS

A p p e l l a n t s ;

P l a in t if f s ,

THE SCOTTISH AUSTRALIAN MINING -|

R e s p o n d e n t s .

CO. LTD................................................ j

D e f e n d a n t s ,

ON APPEAL FROM THE SUPREME COURT OF

NEW SOUTH WALES.

Mining haw — Covenant to work according to best and most approved method— H. C. OF A

Construction,

1906-1907.

The owners of a piece of coal bearing land demised to lessees for coal mining

S y d n e y ,

purposes “ the mines seams or strata of coal and fireclay opened and not opened

Dec. 13, U ,

lying under the land.” The lessees covenanted,

inter alia, that within five

18, 19, 20 ;

3'ears they would sink to a certain depth toivards a bed of coal known as the

A pril 4.

Borehole seam, unless they should sooner find that or another seam of good

Grilfith C.J., marketable coal, and from the expiration of the five j’ears would “ continuously

Barton and

work and carry on the said coal mine according to the best and most approved

Isaacs JJ.

method of mining,” and would continue the working of the mine uninter­

ruptedly and with full and unabated vigour, certain stoppages excepted.

The lessees sank to the Borehole seam, and found it to be divided by a narrow band of rock called a “ morgan ” into two portions, the upper about six feet in thickness, consisting of good coal easily worked, and the lower not so easilj' worked, averaging about twelve inches in thickness, but containing on the average eight inches of marketable coal. The lessees worked out the seam above the “ morgan” over a considerable area, and left the part below it untouched, the result being that, though the latter portion could have been worked together with the upper portion at a profit, it W'as, in the condition in which it was left, for all practical purposes irrecoverable.

Ill an action by the lessors to recover damages for breach of covenant:

VOL. IV.

62

954 H IG H COURT

[1907.

H. C. OF A. Htld^ that the covenant was to be interpreted with reference to the subject

matter and the local conditions, and did not impose upon the lessees an absolute obligation to take out the whole of the coal in the seam, including M ERE- the portion below the “ morgan,” unless under the circumstances that was WETHER

1907.

V.  essential to the working of the mine according to the best and most approved

T he Scottish method of mining. Whether or not the system of working actually adopted

A ostralian

was in accordance with the covenant was a tpiestion of fact depending on the

Mining Co.

Ltd.

circumstances.

If the lessors intended to compel the lessees to take out the whole of the coal in the seam in any event they should have expressly stipulated for it in the lease.

Charlesworth v. Wation, (1906) A.C., 14, distinguished.

Jef/on V . Vivian, L.R. 6 Ch., 742; Ax/idiu v. Augdii, 5 Q.B., 671; and

Lewis v. Fothergill, L.R. 5 Ch., 10.3, considered and applied.

Measure of damages for a breach of the covenant considered.

Decision of the Supreme Court, Merewether v. The Scottish Australian

Mining Co. L td ., 23 N.S.W . W .N., 106, affirmed.

A p p e a l from a decision of the Supreme Court.

Tlie following statement of the facts is taken from the judg­ ment of GriffUIi C.J.

“ This is an action brought'hy the appellants against the respondents as a.ssignees of two coal mining leases for damages for breaches of covenants contained in the leases. The covenants were set out at length in one of the leases, and incorporated in the other by reference.

“ By the principal lease the appellants demised to the respond­ ents’ assignors for a term of fifty years from the 1st January 1885, ‘all and singular the mines seams or strata of coal and fireclay as well opened as not opened ’ lying in and under a large area of land in the Newcastle district in New South Wales. At the date of the lease only one seam of coal, known as the ‘ Bur- wood ’ seam, had been opened. The rent payable so long as no other .seam had been opened was to be a fixed amount calculated at per acre, which was to be increased as soon as any otlier .seam should be opened. This dead rent was, however, to be regarded as paid on account of a royalty which was to be payable on the coal won from the mine at specified rates. The rate in respect of the period now in question was to be one penny for every shilling

4 C.L.R.] OF A USTRALIA.

955

of the then selling or market price of such coal at Newcastle for R- C. of A.

every ton of round or marketable coal wrought and brought to

bank, with a like royalty on fireclay. The meaning of the term

Meue-

‘ round coal ’ was defined. The lessees covenanted as follows :—

"

V.

‘ that they the said lessees shall immediately after the execution The Scottish

. . . .

Avstralian

hereof and at all times continuously during the said term work M in i.sg Co.

and carry on the mines under the said lands and the mining

operations thereon according to the best and most approved

method of mining and uninterruptetlly and with full and unabated

vigour, su.spenses and stoj^pages as hereinafter mentioned only

excepted.’

“ T’he lease contained a further covenant by the lessees that within the first five j-ears of the term they would sink one or more pits or shafts to a depth of 400 feet towards a bed of coal called the ‘ Borehole’ seam (which was well known in the district and was assumed to extend under the demised land), unless they should sooner cut or find that seam or another seam of good marketable coal, and that from and after the expiration of such five years they would ‘ continuously work and carry on the said coal nnne under the said land according to the best and most approved method of mining ’ and would carry on and continue the working of the said mine and premises uninterruptedly and witli full and unabated vigour during the said term (certain stoppages excepted).

“ The lease contained a proviso that if the mine should fail and be completely and effectually worked out and exhausted and should become incapable of being further worked, and if the le.ssees should be desirous of giving up possession of the land ‘ because of such exhaustion,’ they might upon six months notice, given at prescribed dates, terminate the lease. It also contained a stipulation that, if in working the mine a fault or dislocation should be found, the lessees should at their own expense, if reipiired by the lessors, make reasonable trials through the faults or dislocations ‘ for the purpose of ascertaining rvhether the seam so interrupted is workable and marketable ’ beyond the fault or ilislocation, and ‘ if the mine or seam shall be found workable and marketable shall at their own expense continue the working thereof.’ There was a further provision for the determination of

956 H IG H COURT

[1907

H. C. OF A. <;ii0 lease by the lessees at the expiration of each period of seven

years on giving twelve months’ previous notice to the lessors.

M e r e -

“ Tlie plaintiffs’ declaration, after stating the demise, alleged in

WETHER that the lessees covenanted in the terms of tlie UiE Scottish first covenant above quoted. The breach alleged was that

V.

Mining Co. ‘ during the said term the defendants did not work or carry on

the mines under the said lands or the mining operations thereon according to the best and most approved method of mining, or uninterruptedly, or with full and unabated vigour, suspenses and stoppages as in the said deed aftermentioned only excepted, ami worked and carried on the mines under the .said lands and the mining operations thereon in a bad improper and wasteful manner, and in a manner prejudicial to the interests of theplain- tifts and harmful to and wasteful of the said mines, whereby and by reason of the premises large quantities of coal of great value to the plaintiffs were improperly left in the said mines and there­ by became useless and valueless to the plaintiffs, and other large quantities of coal of great value to the plaintiffs were wmstedand destroyed, and the plaintiffs lost certain royalties which would otherwise have become due and payable under the terms and conditions of the said deed by the defendants to the plaintiffs.’

“ The second count set out the second of the two covenants to work above .stated, and alleged a breach in substantially the same terms as the first count. The third and fourth counts were in similar terms, relating to the subsidiary lease.

“ The defendants denied the breaches.

“ The case was tried before Cohen J. without a jury. It

ajopeared that after the execution of the lease the lessees had

sunk upon and found the ‘ Borehole ’ seam, and the defendants

had continued to work it under the following circumstances. The

total thickness of the seam is about nine feet, which is divided by

a band of rock about six inches in thickness, called a ‘ morgan,’

into two portion.s. The upper portion, about six feet in thickness,

consists of good coal easily worked, with some small bands which

are negligible quantities. The portion below the ‘ morgan ’ is not

so easily worked. Its thickness, which varies in different places,

averaged about t'welve inches, but it was itself divided by a thin

band of earth or rock. The learned Judge was of opinion upo»

4 C.L.ll ] OF A U STRALIA.

957

the ev'ideiice that tlie (juantity of round or marketable coal that R- C. of a .

could be obtained from this portion of the seam was equal on the

average to a thickness of eight inches. The rest would be small

Meke-

coal or dirt.

V.

“ The defendants had worked the seam above and down to the T he Scottish

Australian

‘ morgan,’ and had left tlie portion below it unworked.

The M ining Co.

plaintitfs’ case is that the defendants were bound under their covenant to work that portion, whether such working was profitable or not, and that the plaintiffs are therefore entitled to judgment upon the admitted facts, the only (juestion being one of damages. The defendants, on the other hand, contend that, having regard to the (piality of the portion of the seam below the ‘ morgan,’ they were not bound to work it, because, they say, leaving it unworked was the best and most approved method of mining in that mine. With regard to this contention a great number of witnesses were called on both sides. It was niaiii- tainod by the defendants that six feet—the thickness of the seam above the ‘morgan ’ — was a convenient height for working such a seam, having regard to the necessity for timbering and pro­ viding for the safety of the mine ; that the ‘ morgan ’ itself was hard material difficult to mine in any event; that taking it out involved the destruction of a quantity of round coal that would otherwise be saved ; that as there was no continuity between the seam above and below the ‘ morgan,’ advantage could not be taken of the natural cleavages in the coal if both parts were worked together; that the lower part could not be separately worked except at a loss, by reason, amongst other causes, of the hardness of the ‘ morgan ’ and the quantity of dirt and the band in that part of the seam ; that if the whole seam were worked together the quality, and consequently the selling price, of the whole pro­ duct would be injuriously affiected, and the reputation of the mine would suffer; and that there was great difficulty in getting miners to engage in such work. They alleged that they had made a fair trial of working the whole seam, with the result that the total output as well as the output per man per day was diminished. And they said that the owners of an adjoining mine worked the ‘ Borehole ’ seam in the same way for the same reasons. On these and other grounds they contended that, as no prudent owner

958 H IG H COURT

[1907,

H. C. OK -A. consulting' his own interests would luive worked tlie mine in any

other way than that which they had adopted, they had not been Merk- guilty of any breach of the covenants. To this contention tlie

wETHEi; plaintiffs reply that these matters are all (piestions of expen.se;

T he Scottish that the defendants are bound b}’ their covenant to work the Mining Co. whole seam whether it is profitable to them to do so or not; that

questions of expense are therefore irrelevant; and that they are entitled to claim as damages a sum equal to the royaltj ̂which they would have received in respect of the round coal which might have been won from below the ‘morgan.’

“ The learned Judge accepted the plaintiffs’ contention, and held that the defendants were bound to work the whole seam. He thought that the case was governed by the case of Wafsoii v. Charlesworth (1), and that the covenant to M'ork in the best and most approved method imposed an obligation to take out the whole seam, whether leaving the lower portion of it unworked would or would not be the be,st and most approved method of working that particular seam. He found specially that the whole seam could be worked at a profit, i.e., as I understand him, at some profit, if it were all worked together, but that the lower portion having been once left could not afterwards be independ­ ently worked at a profit. Being of this opinion as to the obliga­ tion of the defendants, he did not apply' his mind to the que.stion whether the leaving of the coal below the ‘ morgan ’ unworked was in fact, if it could be in law, the best and most approved method of working the seam. He assessed the damages at £1,838. This sum, it is admitted, represents one-twelfth (or one penny in the shilling) of the assumed selling price of the round coal which it was physically po.s.sible to have obtained from below the ‘ morgan ’ during the period in question, and which, it i.s assumed, would have been won and sold. It is not in dispute that this coal is now for all practical purposes irrecoverable.”

The Full Court, being of opinion that the learned Judge who tried the case had not determined the issue rai.sed by the plead­ ings, granted a new trial: Merewether v. The Scottish, Australuir Mining Co. Ltd. (2). From this decision the present appeal was

(1) (1905) 1 K.B., 74; (1906) A.C., 14.

(2) 23 N.S.W . W.N., 106.

4 C.L.K.] OF A U STRALIA.

959

brouglit, and tlie respondents gave notice that they would ask for H. C. of A.

judgment to be entered for them on the findings of the Judge.

Mkre- WETIIER

Dr. Sly K.C., and Scholes {H. H. Mpreivether with them), for the appellants. The covenant to work the seam compels t h e T he Scottish

r.

lessees to take out the whole of the coal in the seam above and M i.ni.sg Co.

below the “ morgan.”

The omission of the word “ whole ” does

not cut down the meaning of the word “ seam.”

That was the

ert'ect of the decision in Wat><on v. Clut,rleftivorth (1). The Judge has found that the “ Borehole ” seam includes the part below as well as the part above the “ morgan,” and the general tenor of the lease shows that the whole seam was intended. The exhaus­ tion of the seam is contemplated as the result of the working. The result of the lessees’ system of working is that the whole of the coal below the “ morgan ” is irrevocably lost to the les.sors, though, as the Judge found, it could easily have been worked, and at a profit, while the coal above the “ morgan ” was being taken out. As between landlord and tenant the onus is on the latter to e.stablish that words such as these, which are inserted in the landlord’s interest, are to be restricted in their meaning. The hitter portion of the covenant imposes an independent obligation, namely, to work according to the best and most approved method, it does not limit the obligation to woi’k the whole seam. It is qualitative, not quantitative, indicating method alone.

The lessees take the risk of the seam being workable at a profit: Gowan V. Chrwtie (2). “ Workable” in the lease means physically capable of being worked, and “ marketable ” means of such a quality as will answer the requirements of the market, not what can be put on the market at a profit. The lease pro­ vides for the determination of the term after a certain period if the working should prove unprofitable, thereby implying that profit is not to be considered in relation to the obligation of the

lessees during the term. The object plainly is that all the good

'

marketable coal in the seam shall be won, in order that the lessors may get the full benefit of their property by way of

(1) (1905) 1 K.B., 74 ; s.c. on appeal,

(2) L.R. 2 H.L. Sc., 273.

(1906) A.C., 14.

960 H IGH COURT

[1907.

H. C. OF A. royalty. It is immaterial that the le.ssees have worked the upper

portion of the seam according to the best and mo.st approved Mere- method. What a prudent owner would do as regards working

WETHER

seam is no test, because he i.s under no obligation to work at

T he Scottish all, and would not do SO if it were unprofitable. The lessees iiave

M ining Co. not done what they covenanted to do, and the lessors are entitled

to recover damages for the breach of covenant.

Lamb and Pickburn, for the respondents. The covenant does not impose upon the lessees an absolute obligation to take out all the coal in the seam at all hazards. Granting that the whole seam is to be worked, it is to be worked according to the best and most approved method of mining, and if in the opinion of experts it is in accordance with such a method of mining to leave the coal below the “ morgan,” the lessees are entitled to do .so. All through the ciirrency of the lease the lessees have been “ work­ ing ” the seam, although as a matter of fact oidy part of the coal has been taken out. Working a mine does not necessarily mean doing the utmost amount of work possible in connection with the coal in it. There may be many ways of working it, but the lessees have only covenanted to work it in the best and most approved method, not to take out all the coal. The whole of the

covenant must be read together, as imposing a single obligation

•

to work in a particular manner. Watmn v. Charlesworth, (1) is distinguishable. There the lessees had covenanted to work the whole seam without interruption, and had, notwithstanding that, interrupted the working altogether. In many cases covenants similar to the present have been held not to impose an absolute obligation to take out all the coal: Jervis v. Tomkinson (2); Jegon v. Vivian (S); Taylor v. SJuifto (4); Lord Abinger v. Ashton (5). If the lessors wished to bind the les.sees to that extent they should have expre.ssly stipulated for it in the coven­ ant : Jegon v. Vivian (3); Lewis v. Fothergill (6); Eadon v. Jeffcock (7); R ailway Commissioners of New South Wales v.

(1) (1905) 1 K.B., 74; s.c. on appeal,

(4) 16 L.T.N..S., 205 ; 8 B. & S., 228.

(1906) A.C., 14.

(5) 17 L.R., Eq., .358.

(2) 1 H. & N ., 195, at p. 198 ; 26

(6) L.R., 5 Ch., 10.3.

L.J., Ex., 41.

(7) L.R., 7 Ex., 379.

(3) L.R., 6C h., 742.

4 C.L.R.] OF A U STRALIA.

961

Perpetual Trustee Co. Ltd. (1).

A covenant to take out all the R-1:. of A.

coal under the land demised is well recognized as a conimon

covenant in leases : Encyclopoidia of Forms and Precedents, vol. Mkre-

VIII., jjp. 2.54, 284, 354, 366 ; Davidson on Cortveyancing, 2nd ed.,

"kther

vol. V., “ Leases,” p. 314.

Such an absolute covenant will not be T he Scottish

.Austkai ia^

e.g., economy in working, safety of workmen, expedition, excellence and evenness of the coal produced and the like. The element of profitableness must be considered to a certain extent; Elhvay v. Davis (5); Jones v. Shears (6); Carr v. Benson (7). Not that it is an absolute test, but it cannot be eliminated altogether, for the experts base their opinions upon considerations of jirofit in the long run, and the le.ssees cannot do more than act upon the best expert opinion available. The real question was whether leaving the coal below the “ morgan ” was what a prudent and skilful owner would have done under the circumstances.

implied unless it is necessary in order to give effect to the inlen- Mimnc Co. lessees to show that the words “ work the mine ” are to be read in any other sense. The exhaustion of the mine that is con­ templated is exhaustion by the w'orking according to the best and most approved methods. Tlie question of w'hat is such a method is one of fact depending upon the evidence of experts, and is affected by many considerations,

tion of the parties as expressed by the deed : Aspdin v. Austin

(2); Hamlyn d: Co. v. Wood & Co. (3). There is nothing in

the context of this lease to support .such an implication. The

words must therefore be construed according to their ordinary

and natural meaning : Coddimjton v. Paleologo (4); Bc(de,

The learned Judge found that there was a breach of covenant only because, in his opinion, the covenant bound the lessees to take out the whole of the marketable coal in the seam. His findings show that, if he had not considered himself so bound b}̂ the covenant, he would have found that the system adopted by the lessees wms in accordance wdth the best .and most approved method of mining. The evidence was overwhelming on that

(1) :i C.LR., 27.(5) L.R. 16 Eip, 294.

(2) 5 Q.H., 671, at p. 683.(6) 7 C. & P., 346.

(.3) (1891) 2 Q .B ., 488.(7) L.R. 3 Ch., 524.

(4) L.R. -2 Ex., 193, at p. 200.

962 H IGH COURT

[1907.

H. C. OF A. point in the les.seea’ favour. [Tliere being some uncertainty as

to the meaning of the finding of the learned Judge, the Court

Were-

satisfied themselves on the point by consulting liim.]

WETHER

rpĵ g Icamed Judge calculated the damages on the wrong basis.

The ScoTinH He gave them upon the footing of a royalty upon the whole

M in’ing C o. amount of the coal left below the “ morgan.” But, if the lessees

had worked that as well as the coal above, they would not liave taken out as much as they' now have above the “ morgan,” and owing to greater difficulty' of working that below the “ morgan,” the amount of labour and expense that has produced the additional quantity' of coal from above the “ morgan ” would not have pro­ duced an equal quantity' of coal from below it. The roy'alty would therefore have been diminished. Consequently the le,s.sors have suffered no actual present damage, but only damage to their reversion. Even if this point was not expressly taken, it is open to the respondents, for it is the duty' of the Judge to direct the jury' properly as to the measure of damages without being asked to do so : Miles v. Commercial Banking Co. of Sydney (1), following Knight v. Egerton (2).

The respondents ask for a verdict to be entered for them on

the findings, or for a new trial for re-asse.ssment of damages.

Dr. Sly K.C., in reply'. As to damages, the coal left below the ■‘morgan ” is absolutely destroyed as far as the lessors are con­ cerned, and they' are entitled to have its value.

[Griffith C.J.—They' can only get compensation for the

breach. They are entitled to be put in the same position pecuniarily as if the breach had not been committed. If tliey had the value of tins coal also they would be in a better position.] That cannot be a true test, because on that reasoning the lessors could never get damages for this lo.ss at all. At the end of the lease the lessees could hand over the land with less coal left above the “ morgan ” than there would have been if properly worked, and rvith the coal below the “ morgan ” rendered irre­ coverable.

(On the main point he referred to Walker v. Jeffreys (3).)

Cur. adv. vnlt.

(1) 1 C.L.R., 470. (2) 7 Ex., 407.

(3) 1 Ha., 341 ; 11 L..J. Ch., 209,

4 C.L.ll.] OF AUSTRALIA.

963

G r if f it h C.J. [having stated the facts as set out, continued.]

H- L. of a .

d’lie Full Court directed a new trial, being, as I understand the

judgment of the learned Chief Justice, of opinion that the question Merk-

whether the mode which the defendants adopted of working the

" ether

seam, namely leaving the portion below t h e “ m o r g a n ” .nO t, T he Scottish was in fact the best and most approved method of working that Mining Co.

seam, was open upon the true construction of the covenant.

In

tliat view, as this question had not been determined, a new trial

*rr>i 12th.

was obviously necessary.

The plaintiffs now appeal to this Court,

claiming to be entitled to judgment on the admitted facts. The defendants gave notice that they would ask for judgment to be entered for them. This notice was, however, founded upon a mistaken interpretation of a special finding of the learned Judge to which it is not necessary further to refer.

The first question for consideration is as to the construction of the covenant. Some reliance was placed by the plaintiffs upon the words “ continuouslj^ ” and “ uninterruptedly ” as indicating an intention that the whole of the seam should be taken out. They also relied on the proviso for terminating the lease on the mine being “ completely and effectually worked out and ex­ hausted,” and on the stijjulation contained in the provision for the ca.se of faults or dislocations, in which the obligation of the lessees was made to depend upon the coal when found beyond the fault being workable and marketable. In my opinion, although of course all parts of the deed may and should be considered in construing any part of it, none of these phrases afford any assist­ ance in the construction of the covenants “ to work in the best and most approved method.” Whatever obligation is imposed bj’ those covenants is to be performed “ continuously ” and “ uninter­ ruptedly ” during the term, and until by its performance the mine is “ completely worked out and exhausted,” unless the term comes to an end before that point is reached ; but the nature of the obligation itself is not affected by those words.

In construing the language of the covenants it is important to bear in mind that the subject matter was a seam of coal not yet discovered, although assumed to exist under the laud demised. It was not known whether the seam would prove to be of such a chai’acter that a person entitled to work it would, if he had a

964 H IG H COURT

[1907.

H. C. OF A. pvuJent regard for hi.s own interests, be likely to work the whole thickness. Nor was it known what wonld prove to be tlie be.st

Mkrk-

method of working a seam of such a character as it might prove

WETHKR possess. The obligations imposed by the covenants were there- The Scottish fore nndelined and could only be determined after discovery of

Adstrauan

.

M ining Co. the seam and of its character.

It was contended by tlie plaintifts that the language of the

Griffith

C .J.

covenants creates two distinct obligations:—(1) To work the seam, and (2) to work it in the best and most approved method ; that the former imports an obligation to work the whole thick- ne.ss of the seam ; and that the latter obligation relates to manner only and not to subject matter. On the other hand, it was con­ tended that the covenant is single and not double, and that, even if it is construed as comprising two obligations, still the words must be read so as to give effect to both, and that in this view the obligation to work in the best and most approved method qualifies the obligation to “ work,” whatever that may mean, at least so far as to forbid any working which would not be in accordance with the best and most approved method of working a seam of such a character. I cannot see any answer to this latter contention. If, therefore, the defendants can establish that working in any manner other than that which they in fact adopted would not have been working in the best and most approved method, I think that they would be entitled to judg­ ment. I agree that it would be no answer to a complaint that the defendants did not work the seam at all to .say that leaving it altogether unworked was the best and most approved method of working it. That was the only point decided in the case of Wafnon V. Charlesworth. (1), which is certainly not a direct authority on the question whether leaving a part of a seam un­ worked is a breach of a covenant to “ work ” the seam.

I will, however, assume for a moment that the covenant to work the seam is, so far as regards ijuantity, distinct from, and unqualified by, the words “ in the be.st and mo.st approved manner.” There is no doubt that a le.ssees’ covenant to “ work ” a .seam of coal itself implies an obligation to use such reasonable care and skill in doing so as a prudent owner would use. But I

(I) (1905) I K.B., 74; (1906) A.C., 14.

4 .C.L.U.] OF AUSTKALTA.

965

do not think that, of itself, such a covenant implies any stipula­

H. C. OF A.

1907.

tion as to the (piantity to be extracted.

Words which have no

technical le^al signification are to be construed according to their

M ERE- WKTHER

ordinaiy use. The word “ work ” has no technical legal meaning.

V.

An ordinary person, if asked whether the defendants

were T he Scottish

1 n 1 1 I) 11 1 1 11 IT-

„ Australian

working the “ Borehole seam would undoubtedly ,say “ les.

Mining Co.

A covenant to work the whole of a seam of coal is not uncommon

Ltd.

in a mining lease, <as was shown by the precedents cited to us b\’

Griffith C.J.

Mr. Lamb, in some of which special provision is made for e.stimating the damages in respect of coal left unworked in breach of such a covenant. In the case of Je.fjon v. Vivian (1), in which it was contended that a covenant to work in a proper and workmanlike manner implied an absolute obligation to work continuously, Lord L.C. said;—“ Then as to the con­ tinuous working : It must be remembered that the subject-matter is a coal mine, and there are various provisions about working coal. An obvious remark on that would be that where one person i.s taking a mine and another per.son 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 heavj' 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 veiy great stretch of the terms actually employed. If the parties meant the lessee to work continuously, they ought to have said so. It is true that there is no dead rent reserved of such an amount as to compel him

(1) L.R. 6 Ch., 742, at p. 757.

966 H IG H COURT

[1907.

H.	C. OF A. to work ; but I cannot .say there is anytliing on tlie face of the
1907. lease to justify me in .saying that this mine was intended to be

■Mere- continuously worked, and I cannot strain the words so far as to

wether

V.          say that the lessor has secured it by any covenant or engagement

T he Scottish in the lease.”So in this case, in my opinion, if the plaintifts

A u stralian . i i t

i i

Mining Co. desired to impose an obligation to work tlie whole ot the then uii-

discovered seam, i.e., to take out all the coal, they ought to have

Griffith c .J. said so in plain words, and I do not see my way to “ strain the

words so far as to saĵ that the lessors have secured it by aiw cove­ nant ” in the lease, unless such working should turn out to he the “ best and most approved method.” The defendants relj’ on these same words as excusing them from taking out the whole of the seam.

Assuming, however, that a covenant to work the seam sivi- 'pliciter would prim d facie impose an obligation to work the whole of it, I will proceed to consider how far such an obligation is qualified by the obligation, equally explicit, to work the .seam in the best and most approved method. Although the plaintifiV counsel urged that the words “ best and most improved method ” relate onlj"̂ to the mode of working, and have no application to the subject matter of the work, they were obliged to admit tliat “ working ill the best and mo.st improved method” maj'’ in .some cases, easily suggested, be consistent with leaving a portion of the seam unworked. For instance, it might be practically neces- saiy to leave a small portion of coal for support of the roof. Or a portion—say a foot in thickness—at the top or bottom of what is, strictly speaking, the seam might be so divided into layers of coal and rock or earth that working it would be a mere waste of labour. Or a layer of coal, say six inches in thickness, miglit be separated from the rest of tlie seam at top or bottom by a single layer of veiy hard mineral under sucli circumstances that the coal could not be obtained without great and useless expen.se and perhaps danger, or without injury to the quality or diminution of the quantity of the rest of the coal. I cannot doubt that in any such cases, which may be indefinitely multiplied, the best and most approved method, indeed, the only rational method, of work­ ing the seam would or might be to leave the portion in question unworked, and that to work it would be a breach of the covenant.

4 C.L.K.] OF A U STRALIA.

967

If tliis is tlie true construction, tlie question of what is the

H. C. OF A.

best and most approved method must in each case be a question

1907.

of degree, i.e., a question of fact. It is contended by the appel­

Mkke-

W E T H E K

lants that questions of mere expense of working are irrelevant.

V.

In the case of an absolute and unqualified covenant to work

the T he .Scottish

A.17STB A IjI AN

whole of the seam no doubt that would be so.

But the covenant Mining Co.

now under consideration is, as I have shown, not unqualified, and

Ltd.

I am not prepared to say that when the obligation is to work in

Griffith C.J.

the best and most approved method such questions are neces­ sarily irrelevant. If one method of working would produce a .somewhat larger output than another otherwise unobjectionable, but at an unreasonably disproportionate increase of cost, I think that the less expensive method might be reasonabl}' regarded by experts in coal mining as the be.st, and would therefore be the most approved, method. But I agree that in the case of an ahsolute covenant to work a mine in the best and most approved method the element of cost is only a subordinate consideration.

For these reasons I am of opinion that the defendants were not bound to work the whole of the seam, if leaving part of it unworked was, as a matter of fact, the best and most approved method of working that seam. As this question of fact has not been determined, the plaintifts are not entitled to judgment, and the order for a new trial must stand.

It will, however, I think, be found that, after all, the question of the construction of the covenants is not of so much consequence in the present ca.se as appeared at first sight. The defendants contend that upon any construction the damages have been as.se.ssed on the wrong basi.s, and as the case must go for a new trial it is desirable that the Court should express its opinion upon tliflt point.

The daniiiges recoverable for a breach of covenant (apart from nominal damages) are such a sum as will put the covenantee in the same pecuniary position as if there had been no breach. The mere breach of a covenant to work a mine in a particular manner may or may not cause an actual pecuniaiy lo.ss, present or future. The breach of a covenant to work the whole of a seam of coal may, as in ihe {iresent case, if the covenants impose that obliga­ tion, result in depriving the lessors of the value of the portion left

968 H IG H COURT

[1907,

C. OF A. unworked. But if the output of the mine during the term is not

1907.       diminished by the failure, the ro5’’alty payable is not diminished,

M e r e -

and the lessors do not sustain any immediate loss. The injury in

WETHER

V.          that case is to the reversion, and the damages must be measured

T he Scottish b y the diminution in the value of the reversion.There is not in

Australian . . .

.

M ining Co. the present case any Stipulation as to the minimum quantity of

coal to be worked during the lease, or during any year. The

Griffith C.J. lessors could not, therefore, found tiny complaint on the basis that

too little coal has been won. The learned Judge, as already stated, estimated the damages on the basis of an additional output during the period in question of coal the royalty on which would have amounted to £1,838. On careful consideration it will be apparent that this basis was erroneous.

In the first place it does not appear, nor is there any reason for assuming, that the total annual output of round coal from the mine wmuld have been increased if the seam had been worked as desired by the plaintitfs. On the contrary, there was evidence that it would have been diminished. Again, there was evidence that the quality of the coal would have been injuriously affected by working the whole seam. In either view the royalty payable during the period wmuld have been diminished, so that, if this evidence w'ere to be relied on, the immediate effect to the plain­ tiffs has been to increase, and not to diminish, the royalty pre­ sently payable to them.

If it be assumed that the value of the annual output would have been equal, the only damage to the plaintiffs would be that at the termination of the lease there would have been so much less workable coal left in the mine ; and to the extent of the present value to the lessors of the coal, wdiich would have been, but will not be, left, the value of the reversion has been diminislfed. But no further. If, on the other hand, by wmrking the whole of the seam the total annual output would have been diminished, the quantity left at the end of the lease would be pro tanto increased, and the assumed diminution of the value of the rever­ sion would be pro tanto lessened. Again, if by wmrking the whole seam the value of the total output, and con.sequently the royalty payable in respect of it, would have been diminished by reason either of quantity or quality, the plaintiffs have in effect

4 C.L.R.] OF AU STR A LIA .

9ca

received royalty in excess of tliat which they would have received

H- C- of A.

if the defendants had worked the whole of the seam.

That is to

sa}', they will during the lease have received royalty in respect

Mere­

wether

of part of the coal which they claim should have been left in the

V.

mine at the end of the lease.

It is clear that they cannot receive T he ScottishP ST R \ L I A ̂

this value twice over.

It would, therefore, have to be deducted M ixing Co.

from the assumed value of the coal that ought to have been left

Lto.

in the mine at the end of the lease. Further, if the quantity or

Griffith C.J.

value of the output has been actually increased by the defendants’ error, the actual loss sustained by the plaintiffs cannot be ascer­ tained without their giving credit for the benefit arising from the acceleration of payment of royalty thus accruing.

In short, in order to as.sess the real damages two calculations must be made. On the one hand, it must be ascertained what pecuniary benefit the plaintiffs would have derived from the lease if the covenants had been strictly observed, making allow­ ances for possible diminution in output and in price, and for the possibly increased quantity of coal remaining unworked and workable at the end of the lease. On the other hand, it must be a.scertained what profit the plaintiffs will have derived from the lease under the actual circumstances, making allowance for all the contingencies to which I have called attention. It is not at all certain on which side the ultimate balance would be found. It is, at least, quite po.ssible that the two amounts would be equal or substantially equal, in which event it would be found that it was for the mutual benefit of the lessors and lessees to work the mine in the same way as a prudent owner in fee simple would work it. It is in this view that I said that the construc­ tion of the covenant may turn out to be of comparatively little importance.

The learned Judge has taken only one side of the account, and that, as I have shown, on an erroneous basis. There must, there­ fore, in any event, be a re-assessment of damages, and for the reasons I have given in the first part of this judgment, there must, in my opinion, be a new trial to determine whether the defendants have in fact committed any breaches of covenant.

B.\RT0N j. I am of the .same opinion, and it is not my purpose

VOG. IV .

970 H IG H COURT

[1907.

H. C. OF A.

express myself at any very great length, but merely to address

myself to one or two phases of the case.

Mere-

One principle for the construction of deeds or agreements

WETHKR

V.           containing a number of covenants or promises has been very

Australia^ stated by Lord Denman C.J. in A.^pdin v. Austin (1),

Mining Co. where he said :—“ Where words of recital or reference manifested

a clear intention that the parties should do certain acts, the

Barton J.Courts have from these inferred a covenant to do such acts, and

sustained actions of covenant for the nonperformance, as if the instruments had contained express covenants to perform them. But it is a manifest extension of that principle to hold that, where parties have expressly covenanted to perform certain acts, they must be held to have impliedly covenanted for every act convenient or even necessary for the perfect performance of their express covenants. Where parties have entered into written engagements with expressed stipulations, it is manifestly not desirable to extend them by any implication : the presumption i.s that, having expressed some, they have expressed all the con­ ditions by which they'' intend to be bound under that instrument . . . It is one thing for the Court to effectuate the intention of the parties to the extent to which they may have, even imperfectly, expressed themselves, and another to add to the instrument all such covenants as upon a full construction the Court may deem fitting for completing the intentions of the parties, but which they, either purposely or unintentionally, have omitted. The former is but the application of a rule of con.struc- tion to that which is written ; the latter adds to the obligations by which the parties have bound themselves, and is of course quite unauthorized, as well as liable to great practical inju.stice in the application.” This principle is again exemplified in the ca.se of Hamlyn & Co. v. Wood & Go. (2), where K ay L.J. said:—“The Court ought not to imply a term in a contract unless there arises from the language of the contract itself, and the circumstances under which it is entered into, such an inference that the parties must have intended the stipulation in question that the Court is necessarily driven to the conclusion that it must be implied.”

(1) 5 Q.B., 671, at p. 683.

(2) (1891) 2 Q.B., 488, at p. 494.

4 C.L.R.l OF AU8TRALTA.

971

Ill Charlestvorth v. ^Yatf(on (1 ) the very thing wliich we are liere C.

of a .

asked to imply was expressed, and I am unable to agree that it

applies to this case. We must take this covenant to mean all

Merk.

that it says and no more, according to the ordinary meaning of

"'•'Ther

the words used, Avhich are not technical in the sense that they The Scottish have acquired a new meaning in relation to coal mining. I do Mining Co. not see how we can imply a covenant either to work the whole

seam or to work the mine to exhaustion. Nor can we read the

Barton J.

existing covenant to continuously work and carry on the coal mines, according to the most approved method of mining, unin- terruptedh'', and with full and unabated vigor during the term, as itself meaning a covenant to work the whole seam or to exhaust the coal, whether we read the words as one or as several covenants. But the contention is that it is a covenant to work the whole seam, so that not only that part of it above the “ morgan,” which the defendants have treated as the limit of their workings, must be taken out, but also the jJm’t below the “ morgan,” which has been given a technical name in the discus­ sion, “ the four inch ” or “ little top.s.”

])r. Sly has appealed to several other portions of the deed as furnishing an implication to support this contention. With every endeavour to follow his argument, if I could, because there is much in the reason of the case, apart from its purely legal aspect, that would tend to lead one to that mental position, I have not found any justification for the inference which is .sought to be drawn from the resfof the deed. I think it is to be read accord­ ing to the principle laid down in the two cases to which I have referred. Passing from the application to covenants generally of the principles laid down in those cases and coming to their application to coal mining covenants in particular, the case of Jegon v. Vivian (2) is very much in point. In that case Lord Hatherley L.C., in dealing with a coal mining lease, said (3):— “ It has further been argued, that giving the lessees power to do certain acts implies a covenant on their part to do them ; but that is a complete inversion. The lessee has secured to himself certain advantages, without introducing any corresponding obliga­

ti) (1900) A.C., 14.

(2) L.R. 6 Ch., 742.

L.R. 6 Ch., 742, at p. 755.

97-2 H IG H COURT

[1907

H. C. OF A. tion.” That is one of a class of cases like Eadon v. Jeffcock {\) and Lewis v. Fothergill (2), which exemplify the principle that, Mere- if parties intend to bind one another to obligations which

WETHER outside the ordinary meaning of tlie words irsed in the

T he Scottish covenant, it is their duty to express them in the document that

M i .ving Co. they have together framed. So in the case of Jegon v. Vivian

(3) it was held that, if the lessors intended to compel the le,s.sees

Barton J.to work the coal from the deep, that is, to sink a deep pit, and

not to work by instroke, they should have so provided. So here, if the lessors wanted the lessees to work the entire seam of coal, they should have stipulated for it in the covenant. We hnd no such words in the covenant, though we find expressions from which Dr. Sly endeavoured to draw the implication. But the principle laid down in the case of Hamlyn J Vo. v. Wood & Go. (4) by Kay L.J. is that the intention of the parties is not to be left to infer­ ence, unless from the language and the circumstances there ari.se.s an inference so absolutely necessary to the general intent of the deed that it must be supplied. A covenant to work according to the best and most approved method i.s somewhat similar to a covenant to work in a proper and workmanlike manner, and as to the latter Lord Hatlierley L.C. in Leiois v. Fothergill (5) made some reference to the principle of construction :—“ A proper and workmanlike manner may not mean the best possible mode of working for the lessor, but it means in such a manner as shall not be simplji an attempt to get out of the earth as much mineral as can be got for the particular purpose of the lessee, regardless of any ordinary or workmanlike proceeding. That is the extreme contention on the one side, and the extreme contention on the side of the landlord is to say that these words ‘ proper and work­ manlike manner ’ mean that the lessees are to take means the most expensive possible, and the least likely to produce profit for themselves, for the express purpose of putting the lessor in the best possible position at the time when the lessees give up the mine. Either one or the other of those views is extreme, and we must look to see what the landlord has done with reference to protecting himself by the agreement. The landlord must be

(1) L.R. 7 Ex., 379. (4) (1891) 2 Q.B., 488.

(•2) L.R. 5 Ch., 103. (5) L.R. 3 Ch., 103, at p. 108.

(3) L.R. 6 Ch., 742.

4 C.L.U.J OF A USTRALIA.

973

supposed to have known througli his agents what it was he was H- C. of A.

dealing with, and to have known what was the ordinary course

of protecting Ininself if he wished to be protected. Now as to

M ere-

the two systems in question, the one of working by instroke, and

" ether

the other of working by means of a pit, they occur continually in T he .Scottish

A U S T K A L I AN

mining leases, and provisions are often made expressly upon that Mining Co.

subject.”

As to the meaning of this covenant the two contentions

which His Lordship thought to be extreme ones have been put

Barton J.

with extreme vigour and ability on the respective sides of this case. It seems to me that the true meaning lies between. It is impo.ssible to say that a covenant for working the seam in a proper and workmanlike manner or according to the best and most approved methods, means that the element of profit can be left altogether out of consideration, or on the other hand that that is to be the leading consideration. That would be to say that to work a mine in the best and most approved method would mean that it ought to be worked entirely in the interest of one or the other of the parties according to their extreme contentions. An analogy to a covenant of this kind is to be found in Jones v. Shears (1), in which there was an agreement •to continue to work a colliery rented by the defendant, so long as it was “ fairly workable.” A breach was assigned in terms, and traversed. There was still coal, but such as it would not pay to work. Coleridge J. held that under those words the defend­ ant was not obliged to go on working the mine “ at a dead loss.” That was not .saying, that profit or loss is the entire consideration, but that the covenant must be construed reasonably. So that the work is not to be abandoned simply because it cannot be carried on without some loss. There may be periods during the lea.se when the profits from the working of the mine under a particular system are large, while at other times they are small or perhaps disappear altogether, according to the market value of the coal. But the whole period must be considered together, or else there will have to be a dift’erent reading of the covenant at every variation of the market. In Griffiths v. Rigby (2), there was a proviso for cesser of rent if the coal, so far as it could be “ fairly wrought,” should be worked out and gotten before the

(1) 7 C. & P., 346.

(2) 1 H. & N., -237 ; 25 L. J. E.v., 284.

974 H IGH COURT

[190T.

H. C. OF A. expiration of the term. That is similar to the provision liere witli reference to the exhaustion of the mine and giving notice Mekk- of flio termination of the tenancy in case of tliat occuri'ing. In A\ETHKK Pollock C.B. said (1):—“ Profit is not the test whether

T he Scottish this coal can be fairly wrought, though in one sense it is so,

A cstealian „ . . „ I , , . ,

,

Misixo Co. because the usages of mining are founded on what can be done advantageoush’. ‘ Fairly wrought ’ means, that which can be

Barton J.fairly and properly gotten,” (that is, I suppose, according to a

fair and reasonable sj'stem of working) “ according to mining usage, without extraordinary difficulty or expense.” So that, while on the one hand we find it laid down that the lessee is not bound to work the mine at a dead loss, on the otlier hand he is expected to carry on operations continuously unless what it is endeavoured to drive him to do involves extraordinary difficulty and expense. In Lewis v. Fothergill (2); Lord Hatherley L.C., after stating the extremes of argument, did not, in dealing further with the case in which that covenant existed, define the meaning uf the covenant in absolute terms, nor is it absolutely defined in any case cited to us. It is a matter of very great difficulty to define it. But one would say that a covenant of this kind must necessarily be interpreted with reference to the subject matter and the circumstances of the mine and the place. What would be a proper and workmanlike method in one district,niight not he so in another. What would be proper in the case of a fairly defined and estab­ lished seam may cease to be so where the seam narrows to a point of extreme contraction. And these are questions of fact applic­ able to the circumstances of the place and the conditions of the mine to be worked. In that aspect they are questions for a jury, to be decided on the evidence of those who have knowledge of the circumstances in question, and have experience in the working of mines. In the present case His Honor does not appear in his

findings to have applied his mind to these questions.

Finally, it

may be gathered from what I have said and the authorities 1have cited that this covenant cannot be taken to be an absolute covenant to work the whole seam. But it is a very material question whether, under the circumstances of the place and the mine, it would not be a proper and workmanlike method of

(1) 1 H. & N ., 237, at p. 241.

(2) L.R. 5 Ch., 10.3.

4 C.L.U.J OF AUHTUALIA.

975

mining to take out the coal below the “ morgan.” That depends

H. C. OF A.

wholly on circumstances, and no line can be laid down judicially

1907.

upon it. If it had been intended as a covenant to work the

Mkre- WETHER

whole seam in all events, it would have been so expressed, but

I '.

that has not been expressed.

But as it i.s in terms a covenant to T he Scottish

.A.TJSTRALI A N

work the mine according to the best and most approved methods M ining Co.

of mining, it becomes the most material question in the case

Ltd.

whether to work only the coal above the “ morgan ” and to take

Barton J.

out the pillars as that work goes from stage to stage, instead of taking out the whole seam together, or instead of coming back while the pillars stand to take out the coal below the “ morgan,” is under the circumstances a working according to the best and most approved method. In deciding that question it i.s quite competent to take into consideration that no man can be expected to work a mine at a dead loss, and, on the other hand, to take into consideration the question whether the covenant did not cast on the lessees the burden of working the mine according to the best and most approved method, even though at times that might involve them in some loss. That is a question of evidence to which the Judge did not applj’ his mind as a question of fact.

As to damages I entirely agree with what His Honor the Chief Justice has said. I have endeavoured to arrive at some other method of ascertaining the damages, but I have not been able to arrive at anything that seems as reasonable as that which he has suggested.

I am of opinion, therefore, that the case must go down for a

new trial.

•

I sa a c s J. I am also of opinion that there must be a new trial.

I only wish to say a few words with regard to the defendants’ contention, that, if a prudent owner would not work below the “ morgan ” simply on account of the unprofitableness of the lower coal, they are not obliged to do so.

In my opinion, that contention cannot be sustained. It is not a question of what a prudent owner, free to act as he pleases with his own property, and free to base his judgment upon considera­ tions as to an indefinite future, would do. The real question is,

what have the defendants covenanted to do ?

Shortly put, I think

976 H IG H COURT

[1907.

H. C. OF A. ti^ey have covenanted to work the seam as fully as it is workable

by the best and most approved method of getting out the coal,

Mere­irrespective of whether the operation of mining .so carried on

wether

results in an eventual loss or gain to the lessees. Looking at the

T he Scottish matter only from the prudent owner’s standpoint entirely ig n o re s

A ustralian

^

M inin g Co. the lessors’ claims under their contract. They have, as I read the

lease, parted for a term with the right to raise the mineral them­

Isaacs J.selves, and permitted the defendants to make what they can out

of the coal, provided they work it all .so far as the seam is work­ able by the best and most approved method. If, for instance, by reason of a drop in the price of coal or a rise in the price of labour, the whole operation became unprofitable, the defendants would still be bound to get out the coal and hand the lessors their pro­ portion of the selling price : See Gowan v. Christie (1). They take the risk of whatever expense is entailed by getting it out according to the best and most approved method of working the seam. The test of what i.s the best and most approved method has been stated in the judgment of the learned Chief Justice, with which I entirely agree.

Appeal dismissed ivith costs.

Solicitor, for appellants, W. M. Barker.

Solicitors, for respondents, Westrjarth cfc Nathan.

C. A. W.

(1) L.R. 2 H.L., .Sc., 27.3.