Mineralogy Pty Ltd v The State of Western Australia

[2005] WASCA 69

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT :   THE COURT OF APPEAL (WA)

CITATION:   MINERALOGY PTY LTD & ORS -v- THE STATE OF WESTERN AUSTRALIA & ANOR [2005] WASCA 69

CORAM:   STEYTLER P

ROBERTS-SMITH JA
MCLURE JA

HEARD:   16 MARCH 2005

DELIVERED          :   14 APRIL 2005

FILE NO/S:   FUL 9 of 2005

MATTER                :The Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002

BETWEEN:   MINERALOGY PTY LTD (ACN 010 582 680)

INTERNATIONAL MINERALS PTY LTD (ACN 058 341 638)
AUSTEEL PTY LTD (ACN 058 430 032)
BALMORAL IRON PTY LTD (ACN 058 429 931)
BELLSWATER PTY LTD (ACN 058 429 708)
BRUNEI STEEL PTY LTD (ACN 058 429 977)
KOREAN STEEL PTY LTD (ACN 058 429 600)
Appellants

AND

THE STATE OF WESTERN AUSTRALIA
THE HONOURABLE CLIVE MORRIS BROWN MLA
Respondents

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :PULLIN J

Citation  :MINERALOGY PTY LTD & ORS -v- THE STATE OF WESTERN AUSTRALIA & ANOR [2004] WASC 275

File No  :CIV 2463 of 2004

Catchwords:

Contract - State Agreement - Secondary Processing of Iron Ore - Construction - Scope of clause concerning variation of activities carried on pursuant to the State Agreement

Legislation:

Interpretation Act 1984  (WA)

Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA)

Mining Act 1978 (WA)

Result:

Appeal dismissed

Category:    B

Representation:

Counsel:

Appellants:     Mr C L Zelestis QC & Mr J A Thomson

Respondents                 :     Mr J T W Tannin SC & Mr R M Mitchell

Solicitors:

Appellants:     Blake Dawson Waldron

Respondents                 :     State Solicitor for Western Australia

Case(s) referred to in judgment(s):

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

Hancock Prospecting Pty Ltd v BHP Minerals Pty Ltd [2003] WASCA 259

Pan Foods Co Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd (2000) 170 ALR 579

Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429

Case(s) also cited:

Nicholas v Western Australia [1972] WAR 168

1. STEYTLER P:  I have had the advantage of reading the judgment of McLure JA.  I agree with it.  There is nothing I wish to add.

2. ROBERTS-SMITH JA:  I have had the benefit of reading in draft the reasons for judgment of  McLure JA.

3. The activities as varied pursuant to cl 8(1) of the Agreement must be in relation to a Project.  That is evident from the terms of cl 8(1) itself.  The context supports that conclusion, as does the purpose of the Agreement.

4. The very limited nature of the Minister's power under cl 7 is significant.  Given the very great benefits (including reduced rentals for mining leases, reduced royalties and exemption from aspects of certain statutory regimes) which are enjoyed by the appellants under the Agreement and the importance to the respondent of employment and other advantages to be gained from value‑added production, it is unlikely in the extreme that cl 8(1) reflects an intention by the parties that the Minister might be compelled to consider and deal with under cl 7, a proposed variation that was not related to (that is, to use McLure JA's expression "relevantly connected with") an approved project. 

5. The appellants' argument in reliance upon cl 11(1)(c), in particular, was that the reference there to iron ore would be unnecessary unless the Agreement contemplates that iron ore pellets, DSI or steel may be processed or partly processed under it.  McLure JA adequately explains why that argument must be rejected.

6. I agree with her Honour's reasons and conclusion.

7. MCLURE JA:  This appeal concerns the proper construction of the Iron Ore Processing (Mineralogy Pty Ltd) Agreement dated 5 December 2001 made between the appellants and The State of Western Australia ("Agreement").  The Agreement was ratified and its implementation authorised by the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA).

8. In September 2004 the then Minister for Trade Development ("Minister") approved the appellants' proposals for a project under the Agreement ("Project Proposal").  The Project Proposal is for the mining, processing and eventual production of 7 million metric tonnes per annum of iron ore pellets.  That encompasses, inter alia, the establishment of a

mine, a concentrator, a pellet plant and an export port facility involving estimated expenditure of around A$1,400,000,000.

1. The day after the approval of the Project Proposal, the appellants submitted to the Minister for his approval under cl 8 of the Agreement a further proposal ("Concentrates Proposal").  The Concentrates Proposal was to expand the product mix the subject of the Project Proposal to include "long‑term sales of 3 Mtpa (million tonnes per annum) of iron ore concentrate to overseas pellet producers and users in SE (South‑East) Asia".  The iron ore required for the Project Proposal and the Concentrates Proposal was to come from the same mining leases.

2. Clause 8(1) of the Agreement materially provides:

   "If Project Proponents at any time during the continuance of this Agreement desire to significantly modify expand or otherwise vary their activities carried on pursuant to this Agreement in relation to a Project beyond those activities specified in the approved proposals relating to that Project they shall give notice of such desire to the Minister and within 2 months thereafter shall submit to the Minister detailed proposals in respect of all matters covered by such notice …".

3. The appellant sought a declaration that, inter alia, the Minister is obliged to consider and deal with the Concentrates Proposal in accordance with cls 6, 7 and 8 of the Agreement.  The learned trial Judge, Pullin J, held that the Concentrates Proposal was not of a kind referred to in cl 8(1) and therefore the Minister had no duty to consider it and no power to approve it.  The appellants appeal that decision.

4. The appellants conceded in the appeal that the Concentrates Proposal was not in relation to, or for the purpose, or in furtherance, of the Project Proposal.  The question in issue in the appeal is whether cl 8 applies to such a proposal.

5. There is no quarrel with the trial Judge's statement of the relevant legal principles as follows.  The Agreement is not to be interpreted like a statute.  So, for example, the Interpretation Act 1984 (WA) does not apply:  see Hancock Prospecting Pty Ltd v BHP Minerals Pty Ltd [2003] WASCA 259 at [65] to [67]. As a result the long title to the ratifying Act cannot be relied on to assist in construing the Agreement.

6. The usual principles which govern the proper construction of a written contract apply.  The primary duty of the Court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied.  The whole agreement has to be considered, since the meaning of any one part of it may be revealed by other parts.  If the words used are unambiguous, the Court must give effect to them.  The Court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust.  However, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust:  see Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 per Gibbs J.

7. A contract should be construed practically so as to give effect to its prescribed commercial purpose, because the law seeks to uphold commercial contractual obligations and the expectations that derive from them:  Pan Foods Co Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd (2000) 170 ALR 579 [24] per Kirby J. The Court should not adopt a narrow or pedantic approach to construction, particularly in the case of commercial arrangements: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 437 per Barwick CJ.

8. The appellants say the trial Judge erred in the application of the principles.  It is said he failed to construe cl 8 in the context of the Agreement as a whole, in particular cl 11(1) of the Agreement.  For a proper understanding of the submissions made by the parties and these reasons, it is necessary to set out the terms of a number of clauses of the Agreement.

The Terms of the Agreement

1. Clause 8 refers to Project Proponents.  Mineralogy Pty Ltd is a party to the Agreement.  It is the holder of a number of mining tenements, including the mining leases the subject of the Project Proposal and Concentrates Proposal.  It is defined as "the Company".  The remaining six appellants are parties to the Agreement and are defined as "the Co‑Proponents".

2. The term "Project Proponents" is defined to mean in relation to each Project, the Company or, where the proposals for a Project are submitted by the Company and a Co‑Proponent or Co‑Proponents, the Company and that Co‑Proponent or those Co‑Proponents.

3. "Project" is defined to mean a project of the type of Project 1, Project 2 or Project 3 the subject of approved proposals or a project made up of a combination of projects of the type of Project 1, Project 2 and/or Project 3.  It is necessary to set out in full the definition of Project 1 which is as follows:

   "Project 1 means a project or projects for the production of high grade iron ore pellets within Western Australia with subject to Clause 2(h) an initial minimum production capacity of six million tonnes per annum … from a mine or mines within Area A and a pellet production facility located within Area A … including expansions of projects the subject of approved proposals from time to time and may include inter alia a mine, concentrator, port, desalination plant, pellet plant, power station, pipelines and any other necessary facilities to enable pellets to be produced transported and shipped and provision for the supply of a minor tonnage of iron ore concentrates for use as heavy media in the coal washing industry".

4. Project 2 relates to the production of DRI, which means direct reduced iron and includes hot briquetted iron.  Save for references to DRI instead of iron ore pellets, the definition of Project 2 is in relevantly the same terms as the definition of Project 1.  Project 3 relates to the production of steel.  Save for references to the production of steel instead of iron ore pellets, the definition of Project 3 is in relevantly the same terms as the definition of Project 1.

5. It will be noted that the definition of each Project refers to iron ore concentrates by reference to amount (a minor tonnage) and use (as heavy media in the coal washing industry).  Iron ore concentrates means iron ore mined by Project Proponents pursuant to the Agreement and "concentrated by them to at least 65 % Fe".

6. The Concentrates Proposal does not comply with the quantity or use criteria in the definition of Project 1 (or 2 and 3).  Indeed, the Concentrates Proposal contemplates the export of iron ore concentrates, some of which at least would be further processed by third parties outside Australia to produce iron ore pellets.

7. The definition of Project 1 refers to Area A.  Area A is defined to mean, inter alia:

   "(a)such portions of the areas near Cape Preston shown coloured red on Sheet 1 of Plan 1 as are from time to time held by the Company  under -

   (i)mining leases 08/118 ‑ 08/130 and 08/264 - 08/266".

8. The Project Proposal and Concentrates Proposal both relate to mining leases M08/0123, M08/124 and M08/125 and identify these mining leases as those "which the Project Proponents propose to be dedicated to the project".

9. The term "Mining Leases" is defined to mean "existing mining leases and further mining leases that have been dedicated to a Project and any mining leases granted pursuant to Clause 10 and according to the requirements of the context shall describe the area of land demised as well as the instrument by which it is demised".

10. The Agreement refers to magnetite which is defined in cl 1 of the Agreement to mean iron ore concentrates in the form of magnetite.  There is a helpful explanation in the Project Proposal.  It seems magnetite is a type of iron ore which when upgraded using low‑intensity magnetic separation and reverse flotation produces iron ore concentrate which is the starting material for the production of iron ore pellets.

11. Recitals (c) and (d) to the Agreement refer to the parties' intentions and purposes.  They provide:

    "(c)The Company by itself or in conjunction with one or more of the Co‑Proponents wishes to develop projects incorporating -

    (i)the mining and concentration of iron ore in Area A (as hereinafter defined);

    (ii)the processing of that iron ore predominantly as magnetite in Area A or elsewhere in the Pilbara region principally for the production and sale of high grade pellets, direct reduced iron and/or hot briquetted iron or steel;

    (iii)the transport of magnetite concentrates and processed iron ore within the Pilbara region;

    (iv)the establishment of new port facilities in the Pilbara region; and

    (v)the shipping of processed iron ore through such port facilities;

    (d)The State, for the purpose of promoting employment opportunity and industrial development in Western Australia, has agreed to assist the establishment of the proposed projects upon and subject to the terms of this Agreement."

12. Clause 6 deals with the making and timing of proposals for a project or projects of the type of Project 1, Project 2 or Project 3.  Clause 6 materially provides as follows:

    "Project proposals

    6.(1)       The Company either alone or with a Co‑Proponent shall subject to the EP Act and the provisions of this Agreement submit to the Minister on or before 30 June 2003 to the fullest extent reasonably practicable its detailed proposals … for a project or projects of the type of Project 1, Project 2 or Project 3 or a combination thereof as described in the definition of Project in Clause 1.  Thereafter during the currency of this Agreement the Company either alone or with a Co-Proponent may subject as aforesaid make further such detailed proposals for new projects of the type of Project 1, Project 2 or Project 3 or a combination thereof as aforesaid.  The detailed proposals made pursuant to this Clause in respect of a project are in this Agreement called a 'Project proposal'.

    (2)Each Project proposal shall address the establishment and operation of the project concerned and make provision where appropriate for the Company's workforce required to enable the Project Proponents to mine, recover and process iron ore and shall include the location, area, lay-out, design, quantities, materials and time programme for the commencement and completion of construction or the provision (as the case may be) of each of the following matters, if and as they are applicable to the project namely -

    (a)(i)      the mining and recovery of iron ore and any other minerals necessary for use in the project, including mining crushing screening concentration handling transport and storage of iron ore and plant facilities; and

    (ii)      any portion of Area A that the Project Proponents wish to be included in a mining lease to be issued to the Company pursuant to Clause 10 in respect of the project and any existing mining lease or leases or further mining lease or leases or Ancillary Tenement, or part thereof, the subject of a sublease approved by the Minister under Clause 31 or a sublease or a right to mine under the Subsidiary agreements, which the Project Proponents propose to be dedicated to the project;

    (b)the plant or plants comprising the project the subject of the Project proposal for processing of iron ore and the estimated capital cost of the project;

    …

    (g)transportation of iron ore concentrates and/or products of iron ore concentrates;

    …

    (l)production of final products from iron ore concentrates by pelletising and/or direct reduction and/or steel making and disposal of residues;

    (m)port development works including wharf, jetty and causeway works, dredging and dredge spoil disposal and storage and ship loading of the final products."

13. Thus, under cl 6(1) the Company (or the Company with a Co‑Proponent) must submit detailed proposals for a project and for each new project of the type of Project 1, Project 2 or Project 3 or a combination thereof.

14. Clause 6(2)(a)(i) refers to any other minerals necessary for use in a project.  It appears from the Project Proposal that dolomite or limestone is used in pellet production.  The plan was to use capstone on site or from mining leases 08/118‑130.

15. Each Project proposal may, with the consent of the Minister and other affected parties, instead of providing for the construction of new facilities or equipment or the provision of new services provide for the use by the Project Proponents of any existing facilities, equipment or services (cl 6(4)).

16. When the Project Proponents submit each Project proposal, they must include additional submissions identifying, inter alia, any services, works, materials, plant, equipment or supplies that they propose to obtain outside Australia:  cl 6(6)(a).  In addition, the Project Proponents must demonstrate to the Minister's satisfaction the availability of finance necessary to carry out and complete the Project the subject of the Project proposal and the readiness of the Project Proponents in all other respects to commence, complete and thereafter operate the Project:  cl 6(6)(b).  If the Minister is not satisfied with any details provided pursuant to par (b), he is required to notify the Project Proponents and afford them the opportunity to submit further or different evidence in relation to those matters.  The Project Proponents may submit to arbitration the question of the reasonableness of the Minister's decision on any evidence submitted pursuant to cl 6(6)(b):  cl 6(8).

17. Clause 7 relates to consideration of proposals by the Minister.  It materially provides:

    "Consideration of proposals

    7.(1)       Subject to the EP Act in respect of each proposal submitted pursuant to Clause 6 the Minister shall -

    (a)approve of the proposal without qualification or reservation; or

    (b)defer consideration of or decision upon the same until such time as the Project Proponents submit a further proposal or proposals in respect of some other of the matters mentioned in subclause (2) of Clause 6 not covered by the said proposal; or

    (c)require as a condition precedent to the giving of his approval to the said proposal that the Project Proponents make such alteration thereto or comply with such conditions in respect thereto as he thinks reasonable PROVIDED THAT -

    (i)no such alteration or conditions shall require the Project Proponents to grant access to their mineral resources to any third party; and

    (ii)the Minister shall disclose his reasons for such alteration or conditions,

    PROVIDED ALWAYS that where implementation of any proposals hereunder have been approved pursuant to the EP Act subject to conditions or procedures, any approval or decision of the Minister under this Clause shall, if the case so requires, incorporate a requirement that the Project Proponents make such alterations to the proposals as may be necessary to make them accord with those conditions or procedures.

    ...

    Consultation with Minister

    (3)If the decision of the Minister is as mentioned in either of paragraphs (b) or (c) of subclause (1) the Minister shall afford the Project Proponents full opportunity to consult with him and should they so desire to submit new or revised proposals either generally or in respect to some particular matter.

    Minister's decision subject to arbitration

    (4)If the decision of the Minister is as mentioned in either of paragraphs (b) or (c) of subclause (1) and the Project Proponents  consider that the decision in unreasonable the Project Proponents within two months after receipt of the notice mentioned in subclause (2) may elect to refer to arbitration in the manner hereinafter provided the question of the reasonableness of the decision PROVIDED THAT any requirement of the Minister pursuant to subclause (1) that the Project Proponents shall alter their proposals to accord with conditions or procedures the subject of an approval pursuant to the EP Act shall not be referable to arbitration hereunder.

    Arbitration award

    (5)An award made on an arbitration pursuant to subclause (4) shall have force and effect as follows -

    (a)if by the award the dispute is decided against the Project Proponents then the Project Proponents shall be deemed to have accepted such award unless within 3 months after delivery of the award the Project Proponents give notice to the Minister that they do not accept the award.  If the Project Proponents give such notice this Agreement shall on the expiration of that period of 3 months cease and determine as regards the project the subject of the Project proposal and, in relation to the Project proposal, the person or persons who submitted the Project proposal and neither the State nor that person or those persons shall have any claim against the other of them with respect to the Project proposal or the project the subject thereof or any matter or thing arising out of done performed or omitted to be done or performed under this Agreement in relation thereto; or

    (b)if by the award the dispute is decided in favour of the Project Proponents the decision shall take effect as (and be deemed to be) a notice by the Minister that he is so satisfied with and approves the matter or matters the subject of the arbitration.

    Implementation of proposals

    (6)In respect of each proposal hereunder the Project Proponents in relation thereto shall subject to and in accordance with the EP Act and any approvals and licences required under that Act implement the approval proposals in respect of the Project in accordance with the terms thereof and subject to marketing arrangements and reasonable maintenance and operational shut down requirements the Project Proponents shall ensure continuous operation of the Project.

    Effect of non-approval of proposals

    (7)Notwithstanding any provision of this Agreement or that under this Clause any proposals of Project Proponents are approved by the Minister or deemed to be approved as a consequence of an arbitration award, unless each and every proposal and matter required pursuant to Clause 6 in respect of a project proposal for one project (being a project of the type of Project 1, Project 2 or Project 3 or a combination thereof as described in the definition of Project in Clause 1) is so approved or deemed to be approved by 30 June 2004 then the Minister may give to the Company and the Co‑Proponents 12 months notice of intention to determine this Agreement and unless before the expiration of the said 12 months period detailed proposals in respect of one such project are so approved or deemed to be approved this Agreement shall on the expiration of that period cease and determine subject however to the provisions of Clause 36."

1. The Minister's powers under cl 7 are significantly circumscribed.  In particular, he does not have the power to reject or refuse to approve a proposal outright.  He can approve a proposal.  He can defer consideration until the Project Proponents submit a further proposal or proposals on matters not covered.  Finally, he can give conditional approval.  However, the Minister's decision to defer consideration until the provision of a further proposal or a conditional approval is subject to arbitration if the Project Proponents consider the decision is unreasonable.  The reasonableness of the requirement is then a matter for the Arbitrator.

2. Clause 8 is central to the appellants' claim and it is appropriate to set it out in full.  It provides:

   "Additional proposals

   8.(1)       If Project Proponents at any time during the continuance of this Agreement desire to significantly modify expand or otherwise vary their activities carried on pursuant to this Agreement in relation to a Project beyond those activities specified in the approved proposals relating to that Project they shall give notice of such desire to the Minister and within 2 months thereafter shall submit to the Minister detailed proposals in respect of all matters covered by such notice and such of the other matters mentioned in paragraphs (a) to (q) of subclause (2) of Clause 6 as are applicable to the Project and as the Minister may require.

   (2)The provisions of Clause 6 and Clause 7 (other than subclauses (5)(a), (6) and (7)) shall mutatis mutandis apply to detailed proposals submitted pursuant to this Clause with the proviso that the Project Proponents may withdraw such proposals at any time before approval thereof or, where any decision of the Minister in respect thereof is referred to arbitration, within 3 months after the award by notice to the Minister that they shall not be proceeding with the same.  The Project Proponents shall subject to and in accordance with the EP Act and any approvals and licences required under that Act implement approved proposals pursuant to this Clause in accordance with the terms thereof."

3. Clause 10 concerns mining leases.  Where approved proposals in respect of a Project provide for the issue of a mining lease, the State shall cause to be granted to the Company a "mining lease for all minerals including iron of the land so applied for" (cl 10(1)).

4. Clause 10(2) applies where there are existing mining leases.  Clause 10(2)(b) provides:

   "An existing mining lease or further mining lease or part thereof dedicated to a Project in accordance with approved proposals shall subject to subclause (6) remain dedicated during the term hereof to the Project to which it was dedicated."

5. Under cl 10(7) the Project Proponents may obtain stone, sand, clay and gravel from the Mining Leases for use in the construction of works the subject of an approved proposal without payment of royalty.

6. The appellants place significant reliance on cl 11(1) which provides:

   "11. (1)       The Company shall during the continuance of this Agreement pay to the State royalty on all minerals (other than iron ore, iron ore concentrates, pellets or DRI shipped solely for testing purposes and in respect of which no purchase price or other consideration is payable or due) obtained from the Mining Leases as follows -

   (a)on iron ore concentrates processed under this Agreement (hereinafter referred to in this Clause as 'the input') - royalty assessed on the imputed value of the input calculated in accordance with subclause (2) at the relevant royalty rate minus:

   (i)2% - where the input is processed into steel in Western Australia;

   (ii)1% - where the input is processed into DRI but is not further processed into steel in Western Australia; or

   (iii)0.5% - where the input is processed into pellets but is not further processed under this Agreement into DRI;

   (b)on other iron ore concentrates and on all other iron ore - royalty as from time to time prescribed under the Mining Act; and

   (c)on all other minerals - royalty as from time to time prescribed under the Mining Act."

7. Subclause (3) of cl 11 imposes an obligation on the Company at specified times following the first date on which minerals the subject of a royalty under subcl (1) are disposed of, to furnish to the Minister for Mines a return showing separately "the quantities of input, other iron ore and other minerals the subject of royalty under subclause (1) and disposed of during the quarter immediately preceding the due date of the return and … pay to the Minister for Mines the royalty payable in accordance with that return in respect of the minerals disposed of" in the relevant period.

8. Subclause (4)(a) entitles the Minister for Mines or his nominee to inspect the books of account and records of the Company and the Project Proponents, including "contracts relative to any shipment or sale of minerals and records of minerals in stockpile or transit and to take copies of extracts therefrom and for the purpose of determining the royalty payable in respect of any shipment sale transfer or other disposal or processing of minerals …".

9. Subclause (6) is the definition clause.  "Disposed of" means for iron ore concentrates processed under the Agreement - input into the pellet plant in a case of a project of the type of Project 1.  It then says:

   "(ii)       for all other iron ore and all other minerals - obtained from a Mining Lease and shipped, sold, transferred or otherwise disposed of.

   (c)'minerals' includes minerals processed or partly processed under this Agreement."

10. Clause 32 relates to variations to the Agreement.  Subclause (1) provides that the parties may from time to time by agreement in writing add to, substitute for, cancel or vary all or any of the provisions of the Agreement.  However, the Minister is required to cause any agreement made pursuant to subcl (1) to be laid on the Table of each House of Parliament (s 32(2)) and either House may pass a resolution disallowing the agreement (s 32(3)).

11. Clause 35 relates to the determination of the Agreement.  If the Company or the Co‑Proponents make relevant default and there is more than one Project the subject of the Agreement, if the default is in respect of one Project only, then the Agreement can be determined only to the extent that it relates to the particular Project.

12. Finally, approval of a proposal under the Agreement confers significant benefits on the Company and the Co‑Proponents.  Those benefits include the modification of a number of Acts for the purposes of the Agreement.  In particular:

    (a)Clauses 9(2), 10(2)(a), 10(3) and 11 modify the Mining Act 1978.  Those clauses provide for reduced rental for mining leases 08/118 to 08/130 and exemption from expenditure conditions, automatic extensions of the terms of the mining leases dedicated to a Project and reduced royalties;

    (b)Clause 10(8) modifies the Mining Regulations 1981;

    (c)Clauses 19(6) and 20(6) modify the Land Administration Act 1997 ('LAA') in relation to leases to the Company;

    (d)Clause 20(7) modifies the Aboriginal Heritage Act 1972;

    (e)Clause 23 modifies the Building and Construction Industry Training Levy Act 1990 and the Building and Construction Industry Training Levy Collection Act 1990;

    (f)Clause 27 modifies the LAA and the Public Works Act 1902 to enable the resumption of land required for a Project;

    (g)Clause 41 provides exemptions from stamp duty under the Stamp Act 1921.

Analysis

1. The appellants contend that the words "carried on pursuant to this Agreement in relation to a Project" in cl 8 qualify only the existing activity to be modified, expanded or varied.  Applying that construction to the facts, they contend, firstly, that the Concentrates Proposal is a significant modification, expansion or variation (referred to hereafter as a "variation") of the activities the subject of the Project Proposal.  (As I understand their position, the variation is said to involve a significant expansion of mining and concentration activities to produce an additional 3 million metric tonnes per annum of iron ore concentrate for export and sale to a third party, being a non‑Project purpose); secondly, that the variation is not relevantly related to the Project Proposal; and, thirdly, that clause 8 applies so as to impose on the Minister a duty to consider the Concentrates Proposal.  The respondents challenge the correctness of the final proposition.

2. In support of their contentions, the appellants primarily rely on the words "activities carried on pursuant to this Agreement" in cl 8(1), cl 11(1)(b) and (c) and commercial considerations.  They accept that cl 8 only applies once a Project has been approved and that a combined Project Proposal and Concentrates Proposal could not be approved as a Project or new Project under cls 6 and 7 of the Agreement because it would be outside the definition of Project.  That is, an initial Project and a new Project must fall within the scope of the definition of Project, but a substantial variation to a Project the subject of an existing approval can be for, or in relation to, activities outside the scope of the definition of Project.  The mere statement of the proposition suggests that careful scrutiny of the appellants' construction argument is required.

3. I start with the language of cl 8(1).  The primary focus of the parties is on the words "… desire to significantly … vary their activities carried on pursuant to this Agreement in relation to a Project beyond those activities specified in the approved proposals relating to that Project".

4. The appellants' submissions are to the following effect.  Firstly, the words "carried on" qualify only the existing activities and not the (proposed) additional activities.  Secondly, as the explicit focus is on activities rather than an approved Project, the intention is to have regard to something being done rather than the purpose for which it is being done.  Thirdly, the purpose of the words "carried on pursuant to this Agreement in relation to a Project" is not to confine what may be approved but to confine what requires approval (the submission being that activities such as marketing and capital raising would be excluded).

5. The respondents contend that the words carried on pursuant to this Agreement in relation to a Project ("first limb") qualify the varied activity itself.  That is, the activities to be carried on pursuant to the Agreement as varied must still be activities in relation to a Project.  As I understand the respondents' submissions, the focus is on the activities as varied, not the proposed variation in isolation.  Further, the respondents contend that the words those activities specified in the approved proposals relating to that Project ("second limb") in cl 8(1) identifies the existing activity.

6. The respondents also rely on the reference in cl 8(1) to cl 6(2).  The scheme is that the Project Proponents must give notice of a desire to vary their activities and thereafter submit to the Minister detailed proposals in respect of all matters covered by such notice and "such of the other matters mentioned in paragraphs (a) to (q) of subclause (2) of Clause 6 as are applicable to the Project" and as the Minister may require.  Clause 6(2) requires a project proposal to address "the establishment and operation of the Project concerned" and address specified matters "if and as they are applicable to the project".  I am not persuaded that the reference to cl 6(2) assists in resolving the question in issue without first resolving what is meant by the last quoted words.

7. However, my preliminary view is that on the natural and ordinary meaning of cl 8(1) the activities as varied must be in relation to a Project.  This construction gives meaning to both limbs of the phrase, with the second limb identifying the existing activities.  On the appellants' construction, the sole purpose of the words in the first limb (carried on pursuant to this Agreement in relation to a Project) is to identify which existing activities may be varied.  If that was the parties' intention, it could have been achieved by deleting the first limb and going straight to the words "specified in the approved proposals" in the second limb so as to refer to variations to the activities specified in the approved proposals relating to a Project.  The words in the first limb would be mere surplusage.  Further, it cannot have been intended to confine variations to existing activities.  An entirely new (additional) activity for a Project related purpose could clearly be the subject of a variation.

8. The appellants submit that if the parties' intention was to permit only Project related variations, cl 8 would have simply read "modify, expand or otherwise vary a Project".  It is said the purpose of the parties in focusing on activities was to be able to single out and vary existing activities that relate to a Project to enable those activities to be varied without a requirement that the new activities be relevantly connected with a Project.

9. I am not persuaded that this is the necessary intention or effect of the focus in cl 8(1) on "activities".  Clause 8(1) refers to variations to a "Project", defined as, inter alia, a project of the type of Project 1.  The definition of Project 1 comprises a number of elements.  Firstly, the term is defined by reference to purposes:  a project for the production of high‑grade iron ore pellets and (incidentally) the supply of minor tonnages of iron ore concentrate for use in the coal washing industry.  Secondly, it identifies the area on which the mine and pellet production plant are to be located.  Thirdly, it provides a discretionary but not exhaustive list of facilities and (impliedly activities) to give effect to the purpose.  The activities that comprise a Project of a particular type can vary from project to project.  The purposes of Project 1 (and Projects 2 and 3) correspond with, and gives content to, the contractual purpose identified in recital (c) which states that the processing of iron ore is principally for the production and sale of pellets, DRI or steel.  The power to vary activities is potentially narrower than a power to vary a Project when, as here, the definition of the term involves a combination of purpose and a discretionary, non‑exhaustive list of facilities and thus activities to achieve the purpose.  On one view, the focus on activities in cl 8 is intended to confine variations to activities and to exclude variations to (inter alia) the purposes identified in the definition of Project 1.  If that is correct, the Minister would not have the power to approve (or a duty to consider) the Concentrates Proposal because it is outside the scope of the variation power in cl 8.  This is consistent with, albeit a narrower approach than that contended for by the respondents who say that all activities as varied must be in relation to a Project.  However, before determining these issues it is necessary to broaden the analysis to consider matters beyond the language of cl 8.

10. If the appellants' construction of cl 8 is correct, there is no express limit on the nature or size of non‑Project related variations or their effect on an approved Project.  The appellants say there are two implied limitations, one on the scope of the variation power in s 8(1) and the other a relevant consideration that, according to the appellants, would dictate the outcome of the Minister's consideration of the variation.  Firstly, the appellants accept that the principal purpose of the Agreement is to secure the secondary processing of iron ore (that is, the use of iron ore concentrates for the production of iron ore pellets, DRI or steel).  The appellants say that non‑Project related variations must be subsidiary to the principal purpose.  Thus, although the appellants accept that the primary purpose of secondary processing is immutable, they do not make the same concession for the incidental purpose being sale of a minor amount of iron ore concentrates for a  limited use (the "concentrates limitation").  They say the final sentence of the definition of Project 1 does not reflect the parties' intention beyond what can be approved as a Project.  In substance, that means the concentrates limitation does not expressly or impliedly limit the nature or extent of variations under cl 8 short of altering the characterisation of an approved Project as primarily for secondary processing.  I am not satisfied the differential treatment of the principal and incidental purposes is sustainable.  Firstly, the incidental purpose is described in terms of limitation, both as to amount and use, which language suggest an immutable purpose.  Secondly, the principal and incidental purposes are in tension, the latter concerning the intermediate product used for secondary processing.  The diversion of iron ore concentrates to third parties (and potential competitors) for a non‑authorised use highlights the point.  Thirdly, there is no other justification for treating the incidental purpose differently to the principal purpose.

11. The second implied limitation is that non‑Project related variations cannot be inconsistent with (in the sense of impairing) the approved Project.  There may be non‑project variations that do not have the potential to impair an approved Project and others that do have such potential.  An example relied on by the appellants is the use of the proposed desalination plant or power generation system to supply water or electricity to third parties.

12. The appellants' position is that inconsistency does not limit the scope of cl 8(1) but is a ground on which the Minister could refuse approval and could not be forced on an arbitration to approve its implementation.  On that approach, the appellants say the answer to the construction question is that the Minister is obliged to consider the Concentrates Proposal without the need to address "questions of detail" as to its consistency or otherwise with the Project Proposal.  It is apparent that this submission builds upon the correctness of the earlier propositions, in particular that the Concentrates Proposal is not, on its face, beyond the express or implied limits of the variation power.

13. Further, the appellants' submission misstates the scope of cl 7 and highlights a major difficulty with the appellants' construction.  The Minister's power under cl 7 is limited to approval of the proposals, deferring consideration of them until a further proposal or proposals on matters not covered are provided or conditional approval.  He cannot simply refuse to approve or reject a variation proposal.  In particular, he could not refuse to approve or reject the Concentrates Proposal.  At best he could impose conditions.  In my view, the Minister's limited powers are predicated on the parties having agreed to and detailed the purpose and scope of the Agreement by reference to the definition of Project.  That being the case, it is highly unlikely the parties intended cl 8 to enable non‑project related variations.  To the contrary, cl 7 is a very strong indicator that the parties did not intend to permit variations not relevantly connected with an approved Project.

14. It should also be noted the appellants accept that, regardless of the comparative size of the approved Project and the non‑Project related variation, termination of a Project under cl 35 of the Agreement would ipso facto terminate the non‑Project related variation.  It is difficult to see why, if non‑Project related variations are permissible, the parties would not have made express provision for them in the termination clause.

15. I turn now to cl 11(1).  The appellants submit that subcl (1) is consistent with a conclusion that the Agreement provides for non‑Project related activities.  Clause 11(1) and (6) are set out earlier.  The scheme of cl 11(1) is to place an obligation on the Company during the continuance of the Agreement to pay to the State a royalty on all minerals obtained from the Mining Leases by reference to three categories.  The first category is iron ore concentrates processed under the Agreement, being steel, DRI or pellets.  The second is "other iron ore concentrates and on all other iron ore".  The third is "all other minerals".  In the first category a concessional royalty rate is payable, whereas in the second and third categories, the royalties are as prescribed under the Mining Act.

1. Clause (6) defines minerals as including minerals processed or partly processed under the Agreement.  The minerals to which clause 11(1) refers are those obtained from "the Mining Leases" which means existing mining leases and further mining leases that have been dedicated to a Project, and the words "the Mining Leases" according to the requirements of the context, describe the area of land demised as well as the instrument by which it is demised.

2. It is clear from cls 10(1) and 11(1) that a mining lease dedicated to a Project is a mining lease for all minerals, not just iron ore.  In addition, cls 6(2)(a)(ii) and 10(2)(b) contemplate that part of a mining lease can be dedicated to a Project.

3. The respondents explain the reference to iron ore and other minerals in cl 11(1)(b) and (c) as follows:  a mining lease, part of which is dedicated to a Project, falls within the definition of "Mining Lease" in cl 11(1) because the definition of that term refers to the lease itself and not the parts of a lease area which are dedicated to a project; where part of a Mining Lease is dedicated to a Project, mining for minerals, including iron ore, may take place on the undedicated part of the dedicated Mining Lease for purposes other than the Project consistently with the Agreement; accordingly, provision had to be made for the royalty to be paid for iron ore and other minerals mined from the undedicated parts of a Mining Lease dedicated to a Project.  The appellants do not challenge the correctness of the construction of "Mining Lease" or the respondents' analysis.

4. It is unnecessary to resolve the question whether the term Mining Lease, in context, is intended to be a reference to the lease itself.  Even if all of the land the subject of a Mining Lease is dedicated to a Project, the Agreement does not purport to regulate the recovery of all minerals from that Mining Lease.  In relation to non‑Project related minerals, such as for example gold or nickel, cl 11(1)(c) will apply.  What then of the reference to iron ore in par (b)?  I infer that information about the nature, extent and location of the relevant resource for the Projects as defined in the Agreement was available to the parties at the time of the negotiation of the Agreement, so much being apparent from the terms of the Agreement itself.  That information is also contained in the Project Proposal.  The Project is based on magnetite ore which is processed to produce iron ore concentrates which concentrates are then processed to produce pellets and the other secondary products.  Under the Project Proposal, the annual quantity of magnetite ore to be mined is 22.5 million tonnes per annum ("Mtpa") (AB122).  The annual all material movement will be 45 Mtpa, comprising approximately 22.5 Mtpa of (magnetite) ore and 20 Mtpa of waste, leaving 2.5 Mtpa of unidentified material that is not magnetite ore or waste (AB180).  This is consistent with the information as to the total measured indicated and inferred quantity of magnetite ore (2289 million tonnes) to which the Company has mining rights (AB121), 850 million tonnes of which has been assigned to the Project Proposal (AB120) and the estimate of the mine ore reserves for that Project at greater than 1400 million tonnes of iron ore (AB374).  I infer from the evidence that the Mining Leases contain iron ore that is not magnetite ore; it is only the latter that is relevant for Project purposes.

5. However, the appellants place particular reliance on cl 11(1)(c) and the definition of minerals to conclude that the Agreement provides for minerals other than those referred to in pars (a) and (b) to be processed or partly processed under the Agreement.  Iron ore pellets, DSI and steel are processed under the Agreement and iron ore concentrate is partly processed under the Agreement.  Those items are dealt with in pars (a) and (b) of cl 11(1).  As I understand the argument, the appellants submit that par (c) mandates a conclusion that minerals other than iron ore concentrates pellets, DSI or steel may be processed or partly processed under the Agreement.  I do not accept that submission.  The definition of minerals is inclusive.  It does not follow that all aspects of the definition are intended to apply in all the contexts in which the word appears in cl 11.  For example, when the word is first used in cl 11(1), it is apparent from its context that it is intended to encompass all three categories in pars (a), (b) and (c) which include processed, partly processed and unprocessed minerals.  So too in subcls (3) and (4)(a) of cl 11 which deal with payment of royalties and inspection of records.  However, it does not follow that the same applies to cl 11(1)(c).  The fact that the definition of minerals includes processed or partly processed minerals does not require a conclusion that the Agreement makes provision for the processing of non‑Project related minerals.  Whether or not that is so is a matter to be determined in the context of the Agreement as a whole.  At this stage, the analysis becomes circular.  I am not satisfied that cl 11(1)(c) and (6) provides any, or any persuasive, support for the appellants' construction of cl 8 of the Agreement.  Further, even if the appellants are correct, the construction does not directly answer the question in issue in this appeal which is whether a Project related partly processed mineral (iron ore concentrates) can be generated and used for a non‑Project related purpose.

6. Finally, the appellants point to the general and commercial consequences if their construction is rejected.  It is said it would be inefficient and inconvenient if the Project Proponents could not expand the component activities comprised in the Project Proposal for the benefit of third parties; that expanded activities of the nature proposed may benefit implementation of the Agreement by improving the financial viability of an approved Project; and that the expansion of such activities under cl 8 is always subject to Ministerial approval.  These matters are of little weight in light of the countervailing considerations referred to below.

7. I am satisfied that on a proper construction of cl 8(1) the words "carried on pursuant to this Agreement in relation to a Project" qualify, and are intended to confine, the activities as varied; that is, the activities as varied must be in relation to a Project.  It is unnecessary and inappropriate to attempt a comprehensive statement of the nature and extent of the requisite connection with a Project.  No doubt a variation of activities for the purpose, or in furtherance, of a Project will be sufficient, although I refrain from determining whether it is essential.  Suffice to say that the activities as varied must be within the scope of a Project as defined in the Agreement which requires, inter alia, conformity with the primary purpose of secondary processing and the concentrates limitation.

8. This construction  is consistent with the Agreement as a whole.  The contractual purpose and scope are detailed and reflected in the definition of Project.  As a result, the Minister's approved powers in cl 7 in relation to Project proposals are significantly circumscribed.  Such limitations are consistent with the need for the activities as varied to be relevantly related to a Project.  That is particularly so when the appellants have obtained very significant commercial concessions from the State in relation to Projects.

9. I am satisfied that a significant modification, expansion or other variation to an activity must be in relation to a Project.  In view of the appellants' concession, correctly made, that the Concentrates Proposal is not in relation to a Project, the appeal must fail.