Mineralogy Pty Ltd v Sino Iron Pty Ltd & Ors

[2017] HCATrans 189

[2017] HCATrans 189

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth   No P16 of 2017

B e t w e e n -

MINERALOGY PTY LTD (ACN 010 582 680)

Applicant

and

SINO IRON PTY LTD (ACN 058 429 708)

First Respondent

KOREAN STEEL PTY LTD (ACN 058 429 600)

Second Respondent

CITIC LIMITED 

Third Respondent

CITIC PACIFIC MINING MANAGEMENT PTY LTD (ACN 119 578 371)

Fourth Respondent

ATTORNEY‑GENERAL FOR WESTERN AUSTRALIA

Fifth Respondent

Application for special leave to appeal

GAGELER J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 15 SEPTEMBER 2017, AT 9.30 AM

Copyright in the High Court of Australia

____________________

MR P. ZAPPIA, QC:   May it please the Court, I appear with my learned friend, MS S. GORY, for the applicant in this matter.  (instructed by Mineralogy Pty Ltd)

MR A.C. ARCHIBALD, QC:  May it please the Court, I appear with my learned friend, MR S.J. FREE, for the first to fourth respondents.  (instructed by Allens Arthur Robinson Lawyers)

GAGELER J:   Mr Zappia, it is said against you that there are seven hurdles you need to get over.  You might concentrate your submissions on the first hurdle ‑ ‑ ‑

MR ZAPPIA:   Yes.

GAGELER J:   ‑ ‑ ‑ which is the question of construction.  If it is necessary, you can come to the other six in reply.

MR ZAPPIA:   I am grateful for that indication, your Honour.  This case, your Honours, raises a very important question about the effect of contractual acknowledgements.  The question arose in the context of facilities deeds that were entered into by the applicant and the first and second respondents in 2001.  The relevant clause is found at court book 409.  I do not need to take your Honours to it because the clause in question is very simply stated.  It provides that:

The parties acknowledge that the Facilities, the Facilities operation and maintenance shall vest in Mineralogy.

Mineralogy’s contention, on appeal and at trial was that the effect of this clause was to confer upon it ownership of the facilities and it sought a declaration to that effect.  The Court below, agreeing with the reasons of the primary judge, disagreed.  The primary judge and the court below reasoned that a clause that was expressed as an acknowledgement could not be said to create rights but merely to recognise rights found elsewhere.

GAGELER J:   Is the argument you would wish to put on appeal to this Court precisely the argument that was put to the primary judge and to the Full Court of the Federal Court?

MR ZAPPIA:   I am not sure whether the argument, as I am putting it, was put to the primary judge in the Full Court.  The argument I wish to put is the Court’s reasoning was that an acknowledgement could not create rights but merely recognised a right that needed to be located elsewhere in the contract.  Our argument is that an acknowledgement can create rights.  It creates a right through a form of contractual estoppel.  In that respect, your Honours, the English position has considered the effect of acknowledgements.  Before I go to the English position, perhaps if I can just take your Honours briefly to the manner in which his Honour, the primary judge, reasoned on this issue.

GAGELER J:   Before you do, let us just look at the language.

MR ZAPPIA:   Yes.

GAGELER J:   I understand what you wish to put about acknowledgement and you can certainly do that, but do you say – does your argument apply equally to the vesting of the operation and the maintenance?

MR ZAPPIA:   We are not putting an argument on our – we have not sought to appeal on that issue, on that particular issue.

GAGELER J:   It is one sentence.  I am not sure you can just leave certain words out.

MR ZAPPIA:   I appreciate that, your Honours.  We would say that the court below erred in respect of concluding that it was a linguistic nonsense to assert, or to state in a clause, that you acknowledge that operations and maintenance will vest.  We disagree with that.  We say it is not a linguistic nonsense at all.  Operations and maintenance are functions.  There is nothing unusual about saying that a functional – control over a function can vest.

To take a primary example, the function known as “the exercise of Commonwealth judicial power” is said to vest in this Court and Chapter III courts.  The courts below were distracted by trying to characterise the functions as rights or obligations and concluded, well, it makes no sense to vest an obligation.  That is a distraction.  It is the function.

There is no linguistic nonsense, we would say, in a clause which vests power over a function in a particular party.  Whether it is a right or obligation, is a matter of perspective.  A party who is given power to operate or maintain an asset may see it as a right because it gives them some control over the asset.  So, they were distracted by that.  We disagree with the starting point of the analysis, namely, that it was a linguistic nonsense.  The clause reads simply and, we would say, that it vested the functions of operation and maintenance and ownership of the facilities in Mineralogy.

GAGELER J:   I will just delay you with one further question.  Of course, the clause does not use the word “ownership”.

MR ZAPPIA:   I understand.

GAGELER J:   You get that out of the word “vest” in relation to facility, do you?

MR ZAPPIA:   Yes.  And, we would say, that ordinarily when one uses the word “vest” in conjunction with personal property, one talks about vesting the property in that personal property.

GAGELER J:   Yes.  These are slippery words, of course.

MR ZAPPIA:   Yes.

GAGELER J:   You are talking about ownership in the sale of goods property sense.

MR ZAPPIA:   Yes, absolute title sense, your Honours.  I do not believe that there is any difficulty with the word “vest” at all.  Nobody, as far as I am aware, has contended that you cannot vest ownership in property upon another.  In fact, that is the usual sense in which the word would be used.  Of course, there may be contextual considerations which sometimes mean that something else is being vested, something lesser than ownership, but you have to indicate what those contextual considerations and, we would say, there were none here.

NETTLE J:   And are not the contextual considerations such as to indicate that any vesting is in relation to shared facilities only – shared facilities only – for all the reasons that Justice Edelman and the Full Court gave.

MR ZAPPIA:   No, your Honours.  The primary problem with that – and, in fact, the primary judge did not conclude that because the word used in clause 24(b) was “facilities”.  His Honour thought it was a significant step to actually reduce that word to “shared facilities”.  That is where the two courts differed.  Justice Edelman thought his construction needed to maintain and give integrity to the definition.

NETTLE J:   It is the Full Court you have got to beat.  The Full Court, for a whole lot of reasons which they stated, took the view that the vesting that was provided for related to shared facilities.

MR ZAPPIA:   I accept that, your Honour, but that was because their starting point was wrong.  Their starting point was to say, you cannot – a clause which acknowledges a state of affairs cannot create rights.  What we need to do is look elsewhere in the contract to find what is being recognised.  That is why they came to that conclusion.  That was at the heart of their reason in relation to ownership.  What the Full Court did, which they frankly acknowledged, was to render clause 24(b) as having, virtually, no work to do, as being merely confirmatory of other rights.  They recognised that.  If your Honours go to the Full Court judgement, in particular where they deal with this matter ‑ ‑ ‑

GAGELER J:   Page 424.

MR ZAPPIA:   Yes, your Honours.  If I can take you, in particular, to paragraph 182 at page 427.  Having started with the proposition that they need to look elsewhere to find a right that was vesting, they fastened upon clause 22.1 which deals with an:

obligation to operate and maintain the Shared Facilities –

Then they came to this conclusion:

We agree with the submission that Mineralogy’s obligation to operate and maintain the Shared Facilities carries with it the right to possess such Facilities for those purposes and that the second possible construction results in cl 24(b) being confirmatory of a right inherent in other clauses of the Facilities Deeds.  Nevertheless, such an approach by parties to significant commercial transactions is not unknown and, in our opinion, it is far from axiomatic that the parties would not take the opportunity to make express or, at least confirm –

We would say that that runs contrary to a fundamental canon of contractual construction that clauses should all be given some work to do – that is the starting point.  And, the fundamental point is that they departed from the actual language which talks about facilities.  And, as Justice Edelman said, it is a significant step to depart from a definition of “facilities”.

GAGELER J:   Well, look, your submission treats the word “vest” as meaning “vest in property”.

MR ZAPPIA:   Yes.

GAGELER J:   This construction treats the word “vest” as meaning “vesting possession” for a purpose – for the purposes of the contract.

MR ZAPPIA:   For a particular purpose.

GAGELER J:   What is wrong with that?

MR ZAPPIA:   The first thing is that, we would say, it runs contrary to what, we would say, is the plain meaning of the word “vest” in relation to facilities.  It is the facilities that vest.  There is no suggestion that some limited possessory right of the facilities vests.  The facilities vest.  So, that is the starting point in relation to it.  Secondly, there are no contextual considerations which would require a limitation on the word “vest” here ‑ as it is used here – as the Full Court recognised in relation to the clause dealing with the operation and maintenance of shared facilities.  That already inherently carried its own right of possession.  There is no need to repeat it here and then limit the operation of the clause.

The word “vesting”, itself, is not problematic in that regard.  His Honour Justice Edelman recognised that the word “vesting” could mean possession of something.  What that something is, one looks at the clause.  We accept that there are occasionally situations in which contextual matters may, in fact, require that the word – or, that what is “vesting” – is something of a lesser interest.  But, we cannot see any that were identified here by the Court.

In fact, the Full Court, itself, in this regard, made a note that what was vesting – perhaps there were two considerations that they had regard to.  One was – if your Honours turn to the judgment – that they thought that it would be a singular omission – and this is at paragraph 178 of the judgment – that if Mineralogy were to own the facilities, there would be:

no clause conferring on the Company a right to use the Company Facilities –

If your Honours turn to paragraph 283 of their reasons, which is at court book 456, your Honours will see, particularly in the last sentence that:

Clause 8.7(c) of the Facilities Deed to which Sino Iron is a party expressly confers on Sino Iron the right to use such Facilities.

So, that is contrary to what the Full Court decided earlier – that if, for some reason, the word was to mean that Mineralogy had ownership, there would be no clause conferring upon the Company ‑ that is, Sino Iron – use of the facilities, it is clause 8.7(c) which confers that and the Full Court has recognised that.

The only other matter that both courts seemed to fix upon was that it would be sensible to read the clause down because the cost of the construction of the facilities would be many hundreds of millions of dollars and it was only natural to assume that where there is a cost of construction of that amount, the person expending the money would, in fact, own them.

In this regard, if I can take your Honours to paragraph 456 of the judgment of the primary judge, particularly at court book 204, your Honours will see that at paragraph 456 the primary judge recognises a very important point and that is that at the time Facilities Deed were entered into, Sino and Korean were wholly‑owned subsidiaries of Mineralogy.  We would say there is nothing uncommercial at all in the wholly‑owned subsidiaries undertaking the construction but ownership laying with the parent.

GAGELER J:   Does not that have to be read with some other finding about the intention for these companies to be sold off?

MR ZAPPIA:   Yes, your Honour.  I think your Honour is talking about some reasons that were given by the Full Court on this area.  It seems that there is – it is not clear precisely what surrounding circumstances were established by the evidence.  These agreements were entered into in 2001.  The two parties that were signatories to the facilities deeds, or to persons that were signatories, did not give evidence about the surrounding circumstances in which they entered into them and it is not clear how the Full Court came to its view that there was some intention at the time that they were entered into that the subsidiaries would be sold before there were developments on the site.

Certainly, Justice Edelman’s reasoning is – or, at least, recognises the possibility that the subsidiaries themselves would develop the sites as a possibility and then sold off.  So, it is really not clear.  But, that was the only other matter that the Full Court and the primary judge seemed to recognise as a potential contextual consideration to read the words down. 

Secondly, your Honour, the Court seemed to have no difficulty in recognising that shared facilities – or the ownership of shared facilities – could vest in Mineralogy even though it had not borne any of the cost in respect of their construction.  And, the third matter, your Honour, on what one might call the fairness consideration, one has to look at the entirety of the commercial transaction and weigh the cost of construction against the value of what is being conferred before one can say it is commercially irrational for Mineralogy to own the facilities.

GAGELER J:   Was it put that highly?

MR ZAPPIA:   I am not sure that it was put in that way, your Honours.

NETTLE J:   What do you say about the primary judge’s second reasoning to which the Full Court refers at paragraph 169 at page 423?  In short, all the specific provisions for Mineralogy to conduct the shared facilities and to make calls for their operation, and so forth, and a complete absence of them in relation to company facilities.

MR ZAPPIA:   With shared facilities, one can accept that there would be some provisions in relation to who was to contribute to the cost of operation and maintenance ‑ who was to, in fact, operate and maintain them ‑ and what constitutes shared facilities, because there would be multiple parties and one might need to attract, in a more detailed way, how the rights were to be divided between those parties and how their obligations were to be divided.  But, when it comes to the company facilities, there was no need for some elaborate regime and, certainly, in relation to this particular case, even when one looks at the shared facilities provisions, there is only a simple clause which deals with the issue of ownership in the same way that we say this clause does in relation to facilities generally.

NETTLE J:   It is right, is it not, that the deed does not provide for any cost recovery by Mineralogy in relation to the operation of company ‑ ‑ ‑

MR ZAPPIA:   No, no, we disagree with that – in relation to the company facilities?

NETTLE J:   Yes.

MR ZAPPIA:   No, we disagree with that, your Honour.  Again, we do not need challenge for the purpose of the appeal.  But, one can look at clause 5 of the facilities deed – and the facilities deed itself, your Honour, is located at, in particular, page 5 of the court book.  If your Honours were to turn, in particular, to clause 5 at page 20 of the court book:

Mineralogy may establish an Administrative Fund at any time after the Commencement Date.

So, it may – does not have to ‑ and:

Mineralogy must use the Administrative Fund only to:

(a)pay Administration Costs and the day to day expenses of operating, maintaining and repairing Approved Facilities –

and the company facilities would be an approved facility.

GAGELER J:   That is not capital cost.  That is just operating cost, is it not?

MR ZAPPIA:   Yes, your Honour.  It says to:

pay Administration Costs and the day to day expenses of operating, maintaining and repairing Approved Facilities –

We would say that that would give it, plainly, power in relation to recovering costs for operating and maintaining the company facilities.  There is no reason why that word should be read down.  If one wants to go even further, one looks at administration costs, they can use the administration fund to pay administration costs, and “administration costs” is defined in clause 1.1 of the deed as meaning a whole lot of things, including:

any other costs incurred by Mineralogy which are not costs for Shared Facilities according to clause 17.1 and the Shared Facilities Register.

GAGELER J:   Thank you, Mr Zappia, your time is up.

MR ZAPPIA:   Thank you, your Honours.

GAGELER J:   Mr Archibald, we do not need to hear from you.

MR ARCHIBALD:   If the Court pleases.

GAGELER J:   The principal issue sought to be raised by this application concerns the construction of a clause in a bespoke commercial contract.  Determination of that question would raise no question of general principle.  Nor are we satisfied that there has been shown to be any error in the reasoning of the trial judge or of the Full Court of the Federal Court which led to the rejection of the applicant’s construction.  Special leave is, in those circumstances, refused with costs.

AT 9.51 AM THE MATTER WAS CONCLUDED