Pilbara Iron Ore Pty Ltd v Ammon
[2018] WASC 258
•24 AUGUST 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: PILBARA IRON ORE PTY LTD -v- AMMON [2018] WASC 258
CORAM: FIANNACA J
HEARD: 29 & 30 OCTOBER 2015; 30 & 31 MARCH 2016
DELIVERED : 24 AUGUST 2018
FILE NO/S: GDA 12 of 2014
BETWEEN: PILBARA IRON ORE PTY LTD
Appellant
AND
DEREK NOEL AMMON
First Respondent
DIRECTOR GENERAL OF MINES
Second Respondent
ON APPEAL FROM:
Jurisdiction : WARDEN'S COURT
Coram: WARDEN WILSON
File Number : PLAINT KR 1/078
Catchwords:
General Division Appeal - Whether strict appeal or rehearing - Joint Venture Mining Agreement - Proper construction - Implied term pleaded - Whether primary court decision affected by errors of law and fact
Legislation:
Magistrates Court (Civil Proceedings) Act 2004 (WA)
Mining Act 1978 (WA)
Mining Regulations 1981 (WA)
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
| Appellant | : | Mr S Vandongen SC & Mr M J Feutrill |
| First Respondent | : | Mr C P Shanahan SC & Mr A P Hershowitz |
| Second Respondent | : | No appearance |
Solicitors:
| Appellant | : | Allen & Overy |
| First Respondent | : | Dwyer Durack Lawyers |
| Second Respondent | : | State Solicitor's Office |
Case(s) referred to in decision(s):
Ammon v Consolidated Minerals Ltd [No 3] [2007] WASC 232
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18
Ammon v Pilbara Iron Ore P/L [2012] WAMW 14
Ammon v Pilbara Iron Ore P/L [2013] WAMW 4
Antaios Compania Naviera SA v Salen Rederierna AB [1985] 1 AC 191
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Appleby v Pursell [1973] 2 NSWLR 879
Attorney‑General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988; [2009] 2 All ER 1127
Attorney‑General of Botswana v Aussie Diamond Products Pty Ltd [No 2] [2012] WASCA 73
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Australian Telecommunications Commission v Hart (1982) 65 FLR 41
Bahamas International Trust Co Ltd v Threadgold [1974] 1 WLR 1514
Biki v Chessells [2004] VSCA 70; [2004] ANZ Conv R 296
Bowes v Chaleyer (1923) 32 CLR 159
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Bradford House Pty Ltd v Leroy Fashion Group Ltd (1983) 68 FLR 1
Breen v William (1996) 186 CLR 71
Brodie v Cardiff Corporation (1919) AC 337
Byrne v Australian Airlines Pty Ltd (1995) 185 CLR 410
Carlo Nobili S.p.A. Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 347
Colliers Jardine (NSW) Pty Ltd v Balog Investments Pty Ltd [1996] ANZ ConvR 527
Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1
Crampton v The Queen [2000] HCA 60; (2000) 206 CLR 161
Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421
Dodds v Kennedy [2011] WASCA 32
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Forrest & Forrest Pty Ltd v Minister for Mines and Petroleum [2018] WASCA 32
Gardiner v Agricultural & Rural Finance Pty Ltd [2007] NSWCA 235
H v Minister for Immigration and Multicultural Affairs [2000] FCA 1348
Hawkins v Clayton (1988) 164 CLR 539
Heimann v Commonwealth (1938) 38 SR (NSW) 691
Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd [1974] HCA 32; (1974) 132 CLR 1
Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435
House of Peace Pty Ltd v Bankstown City Council [2000] NSWCA 44; (2000) 48 NSWLR 498
House v The King (1936) 55 CLR 499
Jones v Dunkel (1959) 101 CLR 298
Lasermax Engineering Pty Ltd v QBE Insurance (Australia) Ltd [2005] NSWCA 66
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108
Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] 4 All ER 441
Mineralogy Pty Ltd v State of Western Australia [2005] WASCA 69
Moore v Landsdale Pty Ltd [2012] WASC 452
Moore v Stockland South Beach Pty Ltd [2011] WASC 337
Novawest Contracting Pty Ltd v Taras Nominees Pty Ltd [1998] VSC 205
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Payne v Parker [1976] NSWLR 191
Peters American Delicacy Co Ltd v Champion (1928) 41 CLR 316
Pilbara Iron Ore Pty Ltd v Ammon [2008] WASC 108
Pilbara Iron Ore Pty Ltd v Ammon [2008] WASCA 202
Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724; [1981] 2 All ER 1030
Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237
Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541
Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR. 989; [1976] 3 All ER
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45
State of New South Wales v Banabelle Electrical Pty Ltd [2002] NSWSC 178; (2002) 54 NSWLR 503
Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418
Swindale v Babic [No 2] [2007] WASCA 262
The State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
VAAC v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 74; (2003) 129 FCR 168
Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522
Table of Contents
Summary of the appeal
Background
(i) The Agreement
(ii) Summary of salient aspects of the Agreement
(iii) Additional contextual matters
(iv) Application for extension of Exploration Licence ‑ 21 December 2007
(v) The SRK Report
(vi) Appellant's lodgement of documents with the Registrar for Titles for Mining
(vii) The Litigation
Commencement of proceedings in the Warden's Court
Appellant's proceedings in Supreme Court - 2008
Proceedings in the Warden's Court - December 2011
The Preliminary Issues Decision
Application for reconsideration of preliminary issues and for leave to amend response and adduce expert evidence
Trial of the substantive issues
The appeal
Legal principles
General principles of contractual construction
Implication of terms
Other principles
The Preliminary Issues Decision
(i) The parties' submissions
Ammon's submissions
The appellant's submissions
(ii) Legal principles relied on by the Warden
(iv) The Warden's decision
The interlocutory decision
Application to amend the appellant's response in the Warden's Court
Appellant's application to adduce expert evidence in the Warden's Court
The substantive issues decision
The pleadings
(i) The Amended Plaint
(ii) The Appellant's Response
The expert evidence
Michael John Lawrence
Quentin George Amos
The Warden's reasons
(i) General findings
(ii) Accuracy
(iii) Independence
(iv) Reliability
(v) Lack of Reserve Statement
(vi) Warden's conclusions
The nature of this appeal
Powers of the Court on appeal
Ground 1 - Purpose of the feasibility study
The issues
The first contention
The second contention
The proportionality argument
Meaning of 'has completed' and 'completes'
Conclusion on the proportionality argument
Ground 2 - The implied terms
Whether it was necessary to imply a term at all (Ground 2(a))
Appellant's contention in respect of the proper construction (Ground 2(b))
Particular (b)(i)
Particulars (b)(ii) & (iii)
Did the Warden assume there had to be a commercially viable project?
Submission that Ammon changed his argument re 'project finance'
What was meant by 'project finance'?
Conclusion regarding the appellant's alternative construction
Content of the implied term (Ground 2(a))
Ground 3 - Failure to find feasibility study was reasonably reliable and suitable
Ground 4 - Combined effect of Grounds 1 - 3
Grounds 5 to 8 - Preliminary matters
Case confined by the pleadings
Claim that the Warden engaged in additional legal construction of terms
Effect of alleged deficiencies on conclusions of SRK Report
Ground 5 - Finding that feasibility study was not accurate enough to enable Ammon to raise project finance
5(a) Misdirection as to relevant issue
5(b), (c) Issues concerning 'project finance'
5(d) No evidence or finding as to decision to undertake mining operations
5(e) Evidence that mining the tenement was not commercially viable
5(f) Whether accuracy of +/- 10% - 15% necessary to support reasonable and reliable conclusion
5(g) Whether the SRK Report was sufficiently accurate to seek finance
5(h) Ammon unable to raise project finance because mining not commercially viable
5(i) Evidence of Mr Lawrence and Mr Amos irrelevant and of no weight
5(j) No lack of conformity with first element of implied term
Conclusion as to Ground 5
Ground 6 - Finding that feasibility study was not independent
6(a) Misdirection as to relevant issue
6(b) No findings regarding data, information and reports
6(c) Evidence that all due care was exercised
6(d) Evidence that most information derived from independent parties
6(e) Claim that the evidence of Mr Lawrence and Mr Amos was inadmissible or of no weight
6(f) Adverse inferences drawn against the appellant
6(g) No or insufficient evidence of lack of independent verification
6(h) No lack of conformity with second element of implied term
Conclusion as to Ground 6
Ground 7 - Finding that feasibility study was not reliable
7(a) Misdirection as to relevant issue
7(b) No findings as to information or data
7(c) Matters pleaded in [19C] of Amended Plaint
7(d) Evidence of Mr Lawrence and Mr Amos was inadmissible or of no weight
7(e) Opinions of Mr Lawrence and Mr Amos that the SRK Report was unreliable were irrelevant
7(f) No evidence to support finding that SRK Report was unreliable
7(g) No lack of conformity with third element of implied term
Conclusion a to Ground 7
Ground 8 - Finding that feasibility study was not complete because of the absence of a reserve statement
Ground 9 - Consequence of errors in Grounds 5 - 8
Ground 10 - Failure to give leave to amend response
Ground 11 - Failure to grant leave to the appellant to adduce expert evidence
Ground 12 - Alleged miscarriage by reason of Grounds 10 and 11
Conclusion
Orders
ANNEXURE A
Grounds of Appeal
Ground 1
Ground 2
Ground 3
Ground 4
Ground 5
Ground 6
Ground 7
Ground 8
Ground 9
Ground 10
Ground 11
Ground 12
ANNEXURE B
ANNEXURE C
Paragraph 19 of Amended Plaint - Particulars of 'breach'
ANNEXURE D
Particulars to Paragraph 19(D) of the First Defendant's Second Further Amended Response
FIANNACA J:
Summary of the appeal
This is an appeal by Pilbara Iron Ore Pty Ltd (the appellant) against the decision of Warden Wilson (the Warden) sitting as the Warden's Court in Perth on 19 September 2014 in proceedings brought by the first respondent, Derek Noel Ammon (Ammon), for declarations concerning a mining tenement (the tenement), being an Exploration Licence that had been granted to him in 2003 and which was the subject of a joint venture mining agreement (the Agreement) between him and the appellant. The Warden found in Ammon's favour and made declarations (among other orders) that:
(a)the appellant was deemed to have withdrawn from the joint venture; and
(b)a transfer lodged for registration with the Director General of Mines (the second respondent) in which the appellant sought a transfer to itself of 80% of Ammon's interest in the tenement was invalid.[1]
[1] Ammon v Pilbara Iron Ore P/L & DG DMP[2014] WAMW 18.
Under the Agreement, the appellant was deemed to have acquired an 80% joint venture interest from Ammon, which included an 80% interest in the tenement, if it completed a feasibility study on the tenement within the period of five years from the grant of the Exploration Licence. In those circumstances, Ammon was required to elect, in effect, whether he would remain in the joint venture and retain a 20% interest by contributing financially, or withdraw from the joint venture. If the appellant failed to complete a feasibility study within the relevant period, it was deemed to have withdrawn from the Agreement and had no entitlement to any interest in the tenement.
The Warden found that the appellant failed to complete a feasibility study within the relevant period. His decision (the Substantive Decision) was reached on evidence adduced at a substantive hearing of the case, after he had made rulings at an earlier hearing (the Preliminary Issues Hearing) concerning the construction of the Agreement, in particular whether it was necessary to imply terms[2] as to what constituted the completion of a feasibility study, and, if so, what those terms were (the Preliminary Issues Decision). The rulings were made in the Preliminary Issues Decision at the request of the parties. His Honour was asked to determine those 'preliminary issues', being questions of law, having regard only to the contents of the Agreement; no evidence was adduced at the Preliminary Issues Hearing. His Honour determined the issues in Ammon's favour, ruling that it was necessary to imply such terms, and identifying the conditions that any study had to meet in order for the appellant to have completed a feasibility study. The terms of those conditions were as submitted by Ammon.[3] Those rulings informed the factual findings that were subsequently made in the Substantive Decision.
[2] Although the Plaint referred to an 'implied term', the term for which Ammon contended had a number of parts, each of which could be described as a separate implied term. The Warden referred to the 'implication of terms … as pleaded in clause 12 of the Amended Plaint': Ammon v Pilbara Iron Ore P/L [2012] WAMW 14 [97] (Ammon v Pilbara Iron Ore P/L [2012]).
[3] Ammon v Pilbara Iron Ore P/L [2012] [2], [4], [98]; Ammon v Pilbara Iron Ore P/L & DG DMP[11].
The implied terms stemmed from a need for the feasibility study to properly inform Ammon's election whether to contribute to or withdraw from the joint venture, which the Warden found to be a purpose of any such study under the Agreement. They concerned the accuracy, independence and reliability of information or data in the study, and the need for a 'reserve statement' (which is a statement about the quantity and quality of the ore reserve, being the part of the identified mineral resource that was technically feasible and economically viable to mine).[4] The need for accuracy and a reserve statement related to Ammon's ability 'to seek to raise project finance',[5] which he was required to do under the Agreement if he elected to contribute to the joint venture.
[4] Lawrence Report dated 4 July 2011 (Exhibit 3) 14, line 305; Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves - The JORC Code - 2004 Edition (Exhibit 6) [28]. (All references to exhibits are to exhibits received in the substantive hearing.)
[5] Amended Plaint [12(i)].
The evidence at the substantive hearing established that the appellant conducted exploration of the tenement and commissioned a report from SRK Consulting Australasia Pty Ltd (SRK) in respect of the feasibility of a mining project on the tenement. Further, it established that a report prepared by that company (the SRK Report) was provided to Ammon before the expiration of five years from the date Ammon was granted the Exploration Licence. The appellant claimed, on the basis of the SRK Report, that it had completed a feasibility study. The question was whether the SRK Report met the requirements of the implied terms. If it did not, then the appellant had not completed a feasibility study.
Ammon, as the plaintiff, had the burden of establishing that the SRK Report did not meet the requirements of the implied terms. Apart from relying upon what he contended were obvious aspects of the SRK Report that did not meet the requirements of the implied terms, he called two experts, Mr M J Lawrence and Mr Q G Amos, who gave evidence as to what was required of a feasibility study within the mining industry in order for a proponent to be able to seek finance for a project. Both identified deficiencies in the SRK Report which made it an inadequate study for the purpose of applying for project finance. In particular, Mr Lawrence identified what he considered to be deficiencies in the accuracy, independence and reliability of some of the data and conclusions, which he regarded as significant. The Warden accepted the evidence of Mr Lawrence and Mr Amos. Relying on that evidence and on aspects of the SRK Report that suggested the study had only reached the stage of a 'pre-feasibility study' or earlier, he found that the SRK Report did not meet the requirements of the implied terms that had to be satisfied before it could be said that the appellant had completed a feasibility study.
The appeal, brought under s 147(1) of the Mining Act 1978 (WA) (the Mining Act), challenges the rulings of law and the factual findings made by the Warden, applying those rulings. The appeal also challenges the Warden's interlocutory decision which refused leave to the appellant to amend its response to Ammon's amended plaint (the Amended Plaint) and to adduce expert evidence after his Honour had determined the preliminary issues.[6] The appellant seeks, in the first place:
(1)an order that Ammon's claim in the Warden's Court be dismissed;
(2)a declaration that the appellant completed a feasibility study on 25 January 2008 and thereby acquired from Ammon an 80% interest in the joint venture;
(3)an order that Ammon transfer an 80% legal interest in the tenement to the appellant; and
(4)an order for costs.
[6] Ammon v Pilbara Iron Ore P/L [2013] WAMW 4 (Ammon v Pilbara Iron Ore P/L [2013]).
In the alternative, if the appeal were to succeed only on the ground that the Warden erred in refusing leave to the appellant to amend its response to the Amended Plaint, or in refusing to allow the appellant to call expert evidence, or in both instances, and that the error resulted in a miscarriage of justice, then the appellant seeks remittal of the case to the Warden's Court for a retrial.
The second respondent, who would be responsible under the Mining Act for registering the transfer to the appellant of its claimed interest in the tenement, if valid, filed a notice indicating he does not intend to take part in this appeal and will accept any order made by the court, other than as to costs.
There are 12 grounds of appeal, which are set out in Annexure A to these reasons. With respect, the grounds were appropriately described by senior counsel for Ammon as prolix. They are certainly very lengthy. Some of the grounds are formulated so as to allege a number of errors, and it is not always easy to identify with any precision what the alleged error is. The text in places simply recites facts relevant to the argument, or outlines actual argument, rather than particularising the error. The issues raised are many, so that it is not possible to frame the appeal in terms of a few clear issues for determination. However, the alleged errors can be categorised broadly as follows:
(1)Grounds 1 and 2 allege errors of law in the Preliminary Issues Decision, in particular in respect of ‑
(a)the Warden's identification of the purpose or purposes of the requirement that the appellant complete a feasibility study (Ground 1);
(b)the Warden's decision that it was necessary to imply a term or terms into the Agreement (Ground 2); and
(c)the particular terms the Warden implied, being those Ammon had submitted (Ground 2);
(2)Ground 3 alleges an error of fact in the Warden's failure to find that the appellant had completed a feasibility study for the purposes of the Agreement. On a proper analysis, the ground appears to allege a mixed error of law and fact, because it assumes the correctness of the appellant's contention as to the proper construction of the Agreement, which was determined in the Preliminary Issues Hearing;
(3)Grounds 5 to 8 allege errors of law and fact in the Warden's findings that the SRK Report did not meet the requirements of the implied terms he had found, in particular in respect of -
(a)accuracy (Ground 5);
(b)independence (Ground 6);
(c)reliability (in the sense that the study must not be incomplete and/or inaccurate) (Ground 7); and
(d)the need for a reserve statement (Ground 8).
Included in these grounds are particulars alleging error in the Warden's reliance on the expert evidence called by Ammon, in that the evidence is said to have been irrelevant and, therefore, inadmissible. These are allegations of separate specific error.
(4)Grounds 10 and 11 allege procedural errors of law and fact in the Warden's refusal to grant leave to the appellant -
(a)to amend its response to the Amended Plaint (Ground 10); and
(b)to adduce expert evidence from two experts, Messrs Walker and Davies (Ground 11).
Grounds 4, 9 and 12 do not identify separate error, but draw conclusions from the grounds preceding them. Ground 12 contends that, as a result of the errors identified in Grounds 10 and 11, the trial miscarried.
The appeal was heard on 29 and 30 October 2015 and 30 and 31 March 2016. Ammon raised an issue concerning the nature of the appeal, in particular whether it was to be conducted as a strict appeal or as a rehearing. He objected to some of the grounds of appeal on the basis that they raised arguments or issues that were not raised by the appellant in the Warden's Court and should not be permitted on a strict appeal. A significant amount of time was devoted to the procedural issue on the first two days, necessitating further hearing time. At the conclusion of proceedings on 30 October 2015, I made orders for the parties to file written submissions to address the issue of the nature of the appeal.
Further submissions on those issues and on the merits of the grounds were heard at the resumed hearing on 30 and 31 March 2016. At the conclusion of that hearing, I made orders for the filing of a chronology and submissions concerning the exchange of expert evidence and written submissions relevant to the Warden's interlocutory decision refusing the appellant leave to amend its response and to call expert witnesses. The last of those materials were filed on 29 April 2016.
Background
The resolution of the issues in the appeal requires consideration of the factual background, including the terms of the Agreement, the SRK Report and the procedural history of the proceedings in the Warden's Court.
As for the Agreement, the appellant correctly submits that, before dealing with the grounds concerning construction and the implication of terms, it is necessary to consider the Agreement as a whole, because purpose, object and context inform the meaning to be attributed to the relevant clauses and whether it is necessary to imply a term.
The primary facts are largely not in dispute, but the interpretation of some of those facts and the conclusions to be drawn from them are in dispute. Some of the background was set out by the Warden in the Substantive Decision.[7] It will be necessary to outline that background together with additional factual matters referred to in the course of the appeal. Those matters emerge from materials that were before the Warden, but were not all referred to in the Substantive Decision.
The Agreement
[7] Ammon v Pilbara Iron Ore P/L & DG DMP [3] - [4], [17] - [35], [42] - [49].
The appellant is jointly owned in equal shares by Consolidated Minerals Ltd (CML) and Fortescue Metals Group Ltd (FMG).
The appellant and Ammon entered into the Agreement, which was titled 'Mindy Mindy Farmin and Joint Venture Heads of Agreement', on 3 September 2002. They were the only parties to the Agreement. The Agreement commenced on the date on which it was executed (the Commencement Date).[8]
[8] Clause 1.1 of the Agreement (the definitions section).
The history leading to the Agreement was briefly stated in the recitals (references to 'PIO' being to the appellant):
A.Ammon is the applicant for Exploration Licence 47/1140.
B.Ammon has agreed with PIO that, subject to the Retained Interest, PIO may earn an interest in the Exploration Licence and the parties shall enter into a joint venture for the purposes of exploring, and if warranted, mining of Minerals on the Tenements.
'Minerals' was defined in cl 1.1 to mean:
all naturally occurring substances obtained or obtainable by Joint Venture Operations carried out on or under the surface of the land the subject of the Tenements and includes (without limitation) gold and other precious metals but does not include the Retained Interest.
'Tenements' was also defined in cl 1.1. The parties agreed in the appeal that, although the definition referred to 'any other mining tenement' that might be acquired by the 'Joint Venture' and to any mining tenement that might issue in relation to the same ground, the only parts of the definition of relevance are those that defined Tenements to mean:
(a)Exploration Licence 47/1140; and
(b)all rights to mine and other privileges attaching to the Tenements and all ore and Mineral-bearing material of whatsoever nature located on and under the tenements referred to in paragraphs (a), (b) and (c) of this definition.
'Joint Venture' was defined to mean 'the joint venture constituted under clause 2.1 of this Agreement'.
Clause 2.1 appeared under the heading 'Formation' and described the nature and purpose of the Agreement as follows:
The Participants hereby associate in an unincorporated joint venture for the purpose of exploring and, if warranted, developing and mining the Tenements.
'Participants' was not defined, but the only participants identified in the Agreement were the appellant and Ammon.
As Recital 'A' stated, at the Commencement Date, Ammon was the applicant for the grant of Exploration Licence 47/1140 (E47/1140), being the tenement. He had applied for E47/1140 on 8 November 2001.[9] However, it was not granted to him until 30 January 2003 (the Grant Date).
[9] Green appeal book, vol 2 (2GAB), 752A (Report from Pilbara Iron Ore Pty Ltd in support of application for extension of Exploration Licence, attached to letter to Mining Registrar, dated 21 December 2007 ('Licence Extension Report')).
The tenement is located in the Pilbara region, within an area of channel iron ore deposits known as Mindy Mindy. It is situated approximately 65 km north-west of the town of Newman and approximately 400 km south of Port Hedland.[10] The tenement adjoins a number of other tenements that are part of the appellant's 'Mindy Mindy Iron Ore Project'.[11]
[10] SRK Report (Trial Exhibit 18), ii; Lawrence Report, 8.
[11] Lawrence Report, 8. See also Licence Extension Report: 2GAB, 752A - 753.
In accordance with Recital 'B', the definition of 'Tenements' was subject to 'the Retained Interest', which was dealt with in clauses 5.1 to 5.4. By cl 5.1, Ammon retained, at all times, full ownership and interest in the Mindy Mindy 'bedded hematite resource located in the southern portion of the tenement' and covered by five blocks, which were specified in the clause. Clauses 5.2 to 5.4 dealt with Ammon's obligations to the appellant in respect of any 'ground disturbing work' or mining activities he intended to carry out in respect of his Retained Interest. In essence, those obligations were intended to safeguard the appellant's interest in the tenement and avoid undue interference with work undertaken by the appellant on the tenement.
Although the Agreement commenced on the Commencement Date, the unincorporated Joint Venture between Ammon and the appellant did not commence until the Grant Date.[12] The interest that each of the Participants would have in the Joint Venture was referred to as a 'Joint Venture Interest' and was defined as follows:
"Joint Venture Interest" means, subject to the Retained Interest, the following obligations, benefits and rights of a Participant expressed as a percentage and determined in accordance with this Agreement:
(a)the obligation, subject to the terms of this Agreement, to contribute that percentage of all Joint Venture Expenditure;
(b)the ownership of and right and benefit as a tenant in common to receive in kind and to dispose of for its own account that percentage of Minerals produced by the Joint Venture; and
(c)the beneficial ownership as a tenant in common of an undivided share in that percentage of all Joint Venture Property.
[12] Cl 2.2 of the Agreement.
'Joint Venture Expenditure' was defined as follows:
"Joint Venture Expenditure" means all costs, expenses and liabilities incurred in connection with the exploration, development and mining of the Tenements for Minerals, accounted for in accordance with accounting principles accepted in Australia including (without limitation):
(a)Outgoings;
(b)an administrative overhead charge not exceeding 10% of direct expenditure, excluding expenditure on the construction of facilities for a mining operation or in the conduct of a mining operation; and
(c)the cost of negotiations with native title claimants, whether pursuant to the Commonwealth Native Title Act 1993 or otherwise, and the costs associated with obtaining any necessary aboriginal heritage clearances in respect of the Tenements
'Joint Venture Property' was defined as follows:
"Joint Venture Property" means, subject to the-Retained Interest, all property of whatsoever kind held, developed, acquired or created by or on behalf of the Participants for the purpose of the Joint Venture including (without limitation):
(a)the Tenements;
(b)Mining Information; and
(c)Minerals, concentrate and ore prior to their being taken in kind by the Participants.
'Mining Information' was defined to mean:
all technical information including (without limitation) geological, geochemical and geophysical reports, surveys, mosaics, aerial photographs, samples, drill core, drill logs, drill pulp, assay results, maps and plans relating to the Tenements or to Joint Venture Operations, whether in physical, written or electronic form.
Clause 2.2 provided that, on the Grant Date, the Joint Venture Interests of the Participants were such that the appellant had no percentage of the interest and Ammon had a 100% interest. Having regard to the definition of Joint Venture Interest, the effect of cl 2.2, in combination with clauses 4.4 and 4.5 (see below), was that, from the Grant Date until the appellant earned an 80% Joint Venture Interest upon completing a feasibility study, Ammon had 100% ownership of Joint Venture Property. But for the proviso in the definition of Joint Venture Interest, he would also have been liable to make a 100% contribution to Joint Venture Expenditure. However, that obligation was subject to the terms of the Agreement. Those terms disclosed that the appellant undertook in effect to meet expenses in respect of the tenement for a period referred to as the 'Free Carry Period', which was defined to mean:
the period from the Commencement Date up until the date upon which Ammon elects, in accordance with clause 4.6, that he intends to contribute to Joint Venture Expenditure in accordance with his Joint Venture Interest.
As will appear below, that election by Ammon was to occur after the appellant was deemed to have acquired its Joint Venture Interest, having completed a feasibility study.[13]
[13] Cl 4.5 and cl 4.6 of the Agreement.
In particular, the appellant was directly responsible for meeting Joint Venture Expenditure from the Grant Date until it gave Ammon notification that it had earned its 80% Joint Venture Interest. The appellant also agreed to reimburse Ammon for past expenditure and to make payments to him for the period between the Commencement Date and the Grant Date, as follows:
3.1.Payment prior to Grant
Commencing on the Commencement Date, PIO will pay in advance to Ammon the sum of $5,000 for every 30 day period until the Grant Date.
3.2.Payment on Grant
Within 14 days of the Grant Date, PIO shall pay to Ammon $250,000 by way of reimbursement for past expenditure in relation to the Tenements.
It may be readily inferred from the Agreement that the appellant's payments to Ammon and its undertaking in respect of Joint Venture Expenditure was the consideration the appellant was prepared to give, and Ammon was prepared to receive, for the interest the appellant stood to gain in the tenement and the minerals within it.
On the face of it, the Agreement gives the impression of a joint venture entered into by the parties in a spirit of cooperation and common objectives. However, the effect of the submissions of both parties at times was that self-interest should be regarded as the guiding force for both Participants, and it should not be assumed in construing the terms of the Agreement that their commercial interests were aligned. The appellant, in particular, referred to clauses 2.3 to 2.5. Clause 2.3 dealt with the relationship of the parties, as follows:
Nothing in this Agreement shall be construed so at to constitute a Participant a partner, agent or representative of any other Participant or to create any partnerships or trust for any purpose howsoever except to the extent to which the manager is the agent of the Participants. No Participant shall be under any fiduciary or other duty to the other which will prevent it from engaging in or enjoying the benefits of any competing endeavours subject to the express provisions of this Agreement.
The appellant placed particular emphasis on the reference in that clause to an absence of 'any fiduciary or other duty'. That, of course, was subject to the express provisions of the Agreement. One such provision was cl 19.2 which required that:
The Participants shall sign all such further documents, forms and notices and do all such things as may be reasonably necessary to give effect to the terms of this Agreement.
In my opinion, the plain meaning of those words was that each Participant was required to do all such things as may be reasonably necessary to give effect to the terms of the Agreement, irrespective of whether the benefit of any particular term was for Ammon or for the appellant. Of course, it could be for both.
In any event, the disavowal of any fiduciary or other duty in cl 2.3 was in respect of any such duty that would prevent the Participant from 'engaging in or enjoying the benefits of any competing endeavours' (emphasis added). Subject to that limitation, the clause appears to expressly accept that a fiduciary relationship may arise from the role of manager, as agent of the Participants.[14] Nevertheless, the tenor of the clause and the clauses which followed was that the interests of the appellant and Ammon should not be regarded as being in common. Clause 2.4 dealt with the authority of Participants, stating:
No Participant shall have any authority to act on behalf of any other Participant, except as expressly provided in this Agreement. Where a Participant acts on behalf of another without authority, such Participant shall indemnify the other from any losses, claims, damages and liabilities arising out of any such act
[14] This was the view of Martin CJ in Ammon v Consolidated Minerals Ltd [No 3] [2007] WASC 232 [272], with which I respectfully agree.
Clause 2.5 dealt with the liability of the Participants as follows:
During the Free Carry Period Ammon shall not be liable to PIO or to any third parties and shall be indemnified in respect of any such liability by PIO. After the Free Carry Period the liabilities of the Participants to each other and to third parties shall be several in proportion to their respective Joint Venture Interests from time to time and shall not be either joint or joint and several.
It was in that context that the appellant was given the opportunity by Ammon to earn an interest in the tenement and agreed to make the payments and contributions I have referred to.
The manner in which the appellant was to earn and acquire its interest and the consequences for the relationship between the appellant and Ammon under the Agreement were set out in clauses 4.1 to 4.7, which are at the heart of the issues in this appeal. The period which the Agreement provided for the appellant to earn an 80% Joint Venture Interest was referred to as the 'Earning Period'. A number of the appellant's obligations under the Agreement were described by reference to the Earning Period. That term was defined to mean 'the period commencing on the Grant Date and ending as provided in clause 4.2'.
Clause 4.2 provided:
4.2Earning Period
Subject to clause 4.3, the Earning Period will end when PIO has completed a feasibility study on the Tenements or 5 years from the Grant Date, whichever occurs sooner.
The maximum length of the Earning Period coincided with the period for which the exploration licence would remain in force pursuant to s 61(1) of the Mining Act (subject to the grant of an extension under s 61(2)).[15] Clause 4.3 provided for an extension of the Earning Period in the event that the appellant was prevented from accessing the tenement for any period, but it was not engaged and, therefore, is not relevant.
[15] References here and in the paragraphs which follow to sections of the Mining Act are to the provisions current as at 3 September 2002, although in respect of all of the provisions there has not been any material alteration since then.
'Feasibility study' was not defined. It is not in dispute that, in context, 'feasibility study' meant a study of the technical and economic feasibility of developing and mining the tenement, although what was required in terms of detail is in dispute. Importantly, the terms of the Agreement did not expressly provide any criteria by which it could be determined that the appellant had 'completed a feasibility study'. However, the completion of a feasibility study was the event that would mark the end of the Earning Period, if that occurred before the expiration of five years from the Grant Date.
Before turning to clauses 4.4 to 4.7, which dealt with the consequences of either non-completion or completion of a feasibility study by the appellant, it is necessary to consider the obligations the appellant had during the Earning Period.
First, by cl 8.1, the appellant was responsible for maintenance of the tenement. That clause provided:
8.1During Earning Period
During the Earning Period, PIO shall pay all Outgoings and maintain the Tenements in good standing (including ensuring that the minimum expenditure commitments are met, or exemptions obtained, and that all Mining Act reporting requirements are observed).
Secondly, by cl 4.1, the appellant was obliged to contribute a minimum sum of money to Joint Venture Expenditure as follows:
4.1Minimum Earning Expenditure
PIO must contribute not less than $1,000,000 to Joint Venture Expenditure during the first 30 months of the Earning Period. Any costs incurred by PIO in respect of negotiations with native title claimants and/or the carrying out of aboriginal heritage clearances in respect of the Tenements prior to the Grant Date shall be deemed to have been incurred during the Earning Period for the purposes of this clause.
One of the appellant's contentions is that the minimum expenditure required by cl 4.1 informed the level of detail required of any feasibility study conducted by the appellant. I will deal with that argument later, in the context of dealing with Ground 1 of the appeal. However, it can be seen immediately that cl 4.1 stipulated the minimum sum of money the appellant was obliged to contribute in the first 30 months of the Earning Period. By virtue of the appellant's obligations under the Agreement, including maintenance of the tenement, Joint Venture Expenditure included more than the costs involved in completing a feasibility study. Further, the minimum contribution had to be made in a period that constituted the first half of the maximum Earning Period of five years. There was no provision that delimited the sum that could be spent on completing a feasibility study.
The appellant submitted that the $1,000,000 minimum contribution required by cl 4.1 can be understood as reflecting the split in the Joint Venture Interests if the appellant earned its 80% interest. That is because Ammon had contributed $250,000 by way of past expenditure and the two figures as fractions of the combined total of $1,250,000 would equate to 80% and 20%.
There are problems with the appellant's reasoning. First, the appellant was required to reimburse Ammon $250,000 for past expenditure.[16] If that was all he had contributed, then his 20% interest after the appellant had earned its 80% interest would not equate to any monetary value. Secondly, the appellant was required to make payments of $5,000 to Ammon for every 30 day period between the Commencement Date and the Grant Date. While that was not a contribution to Joint Venture Expenditure, it was nevertheless a monetary contribution by the appellant that militates against any assumption that the minimum contribution required by cl 4.1 was intended to reflect what the appellant had to contribute to Joint Venture Expenditure in order to earn an 80% interest. As I have already stated, and will be made clear below, the event that would result in the appellant earning an 80% Joint Venture Interest was the completion of a feasibility study, not the expenditure of a particular sum of money.
[16] Cl 3.2 of the Agreement.
Clause 4.1 needs to be considered in the context that the grant of the Exploration Licence to Ammon entailed obligations under the Mining Act.
By s 62, the holder of the licence (Ammon) was required to comply with the prescribed expenditure conditions relating to the licence. There was indirect evidence before the Warden about the minimum expenditure commitments attaching to the licence, which appear to have been in the region of $100,000.[17] The minimum contribution to Joint Venture Expenditure required by cl 4.1was well in excess of that and reflects an expectation that exploration of the tenement would be undertaken from an early stage. As is to be expected, by s 63 of the Mining Act the Exploration Licence was deemed to be granted subject to the condition that the holder thereof would explore for minerals and would promptly report in writing to the Minister all minerals of economic interest discovered in, on or under the land the subject of the Exploration Licence. By s 58 of the Mining Act, the application for the Exploration Licence was to provide details of the programme of work proposed to be carried out in such area and the estimated amount of money proposed to be expended on the exploration.
[17] Report pursuant to Mining Regulations 1981 (WA) reg 23A(1)(c)(iii) for application under the Mining Act s 61 to extend term of E47/1140-I (filed with application dated 17 December 2007) - part of Exhibit 14: 2GAB, 753. The report referred to $76,667 over four years and $30,000 for the then current year.
The requirement under the Mining Act that exploration would occur in accordance with the licence and that there would be a programme of work and expenditure is reflected in the terms of the Agreement that deal with the role of the Manager of the Joint Venture. 'Manager' was defined to mean:
the Participant appointed to conduct Joint Venture Operations pursuant to clause 6.1 but references to the Manager do not include references to that Participant in any other capacity.
'Joint Venture Operations' was defined to mean:
all activities or (sic) are necessary or desirable, in order to implement and give full effect to the provisions and purposes of this Agreement.
Clause 6.1 provided that the appellant 'shall be the Manager whilst it is the sole contributor to Joint Venture Expenditure and shall be entitled to remain the Manager (subject to cl 6.2) whilst it holds a Joint Venture Interest'.[18]
[18] Clause 6.2 provided for removal or retirement of the Manager and is not relevant for present purposes.
Clause 6.3 provided that whilst the appellant remained the sole contributor to Joint Venture Expenditure, 'it shall (as Manager) have the sole responsibility for determining and carrying out programmes and budgets'. In the event that the appellant ceased to be the sole contributor to Joint Venture Expenditure (because it completed a feasibility study and Ammon elected to contribute to Joint Venture Expenditure), the Manager (the appellant) would then prepare programmes and budgets for consideration by the Operating Committee, which was then to be formed pursuant to cl 7.1.[19]
[19] See [80] below.
Some of the powers and duties of the Manager that were then stipulated in cl 6.5 related only to the situation in which the Manager was reporting to the Operating Committee, but three provisions were not confined in that way, and would therefore have been applicable during the Earning Period. They were that the Manager:
(c)shall be responsible for all day to day operations of the Joint Venture which shall include managing and supervising all approved programmes and budgets;
(d)shall carry out Joint Venture activities in accordance with good mining industry practice, with reasonable care, skill and diligence and in accordance with all applicable laws and regulations;
…
(f)shall maintain complete and accurate books, records and accounts of all transactions relating to the Joint Venture which shall be open for inspection and audit by the Participants.
The applicable laws referred to in (d) included the Mining Act. One of the obligations under the Mining Act was to maintain the tenement in good standing. Clause 6.9 enabled the Manager to act on behalf of each of the Participants in the Joint Venture for that purpose by stipulating that each Participant would appoint the Manager its lawful attorney, in the following terms:
Each Participant appoints the Manager and each of its directors from time to time (severally) its lawful attorney to sign all forms and documents and do everything necessary to maintain the Tenements in good standing and in full force, and to comply with the provisions of the Mining Act.
Returning to the responsibilities of the Manager, under cl 6.6, the Manager (the appellant at all relevant times) was required to:
(a)furnish concise reports to the Participants, on a quarterly basis, which were required to contain technical and financial information concerning the Joint Venture. The cost of providing such reports was to be Joint Venture Expenditure; and
(b)provide to the Participants all statutory reports concerning the tenements released by the Manager or any Participant, and the costs of providing such reports was to be Joint Venture Expenditure.
Further, on receiving reasonable notice from any of the Participants, the Manager was required to provide that Participant with copies of any other relevant project data, provided that any such report or relevant project data was provided at the cost of the Participant requesting it.[20]
[20] Cl 6.7 of the Agreement.
It is convenient at this juncture to refer to the confidentiality clause (cl 12), as some reliance was placed on it by the appellant in dealing with the purpose of any feasibility study under the Agreement. It was in the following terms:
12.1Confidential Information
Unless otherwise agreed by the Participants or required by law or the Listing Rules of the ASX, all information obtained in relation to the Joint Venture and that is not generally known to or generally available to persons who are knowledgeable in the mining industry (or which is generally known or generally available only as a result of a breach of this clause) shall be kept confidential and shall not be disclosed by the Participants.
It can be seen that the obligation not to disclose information was subject to the parties agreeing otherwise and to any requirement of law. Section 68 of the Mining Act required the holder of an exploration licence to 'keep complete and detailed records of the surveys and other operations conducted pursuant to the licence' and to 'produce the records for the inspection of the Minister and the Director, Geological Survey' at the written request of the Minister. It also required such holder to 'file or cause to be filed with the Department at Perth a report of all work done on, and money expended in connection with, exploration in the area the subject of the licence during the period to which the report relates'. Under cl 6.6, as outlined earlier, the responsibility for statutory reports was assumed by the Manager.
It might be thought that the scope for the operation of the confidentiality clause was limited, given the statutory obligations, but nevertheless, while Ammon was entitled to ownership of Mining Information in respect of the tenement (while he held a Joint Venture Interest, and while he was entitled to obtain reports and project data from the Manager), the effect of cl 12.1 would be to prevent him from disclosing all such information unless the terms of the Agreement made it clear, expressly or by necessary implication, that he and the appellant had agreed otherwise. Ammon submits that, on a proper construction of the Agreement, it reveals that he and the appellant did agree otherwise in relation to any information contained in a report purporting to be a feasibility study completed by the appellant. The appellant's submissions on the appeal accepted that the information contained in such a report could be disclosed to a financier, at least in the event that the Participants approved a mining project for which Ammon was required to obtain finance.
Finally, before turning to clauses 4.4 to 4.7, it is appropriate to refer to cl 15, which dealt with withdrawal or deemed withdrawal from the Agreement by a Participant. That is because the consequences referred to in clauses 4.4 and 4.7 included deemed withdrawal.
Clause 15.1, provided that any Participant 'may withdraw from the Joint Venture by giving 30 days' notice in writing to the other Participants'. Clause 15.2 provided that:
Upon a withdrawal or deemed withdrawal from the Joint Venture, then, unless otherwise provided in this Agreement, the withdrawing Participant shall thereupon absolutely forfeit and be deemed to have assigned to the other Participant all its Joint Venture Interest and the withdrawing Participant shall be released from all future obligations relating to the Joint Venture.
Clause 15.3 provided that any withdrawal pursuant to clause 15 'shall be without prejudice to any rights or obligations of the Participants arising prior to the withdrawal'.
The parts of the Agreement I have identified and discussed so far provide the context for understanding the operation of the clauses concerning the manner in which the appellant would earn and acquire a Joint Venture Interest and the consequences for the relationship between the parties if it did so.
As I noted earlier, by virtue of cl 4.2, provided it occurred within five years from the Grant Date, it was the completion of a feasibility study by the appellant that would bring to an end the Earning Period. The Agreement did not in terms impose an obligation on the appellant to complete a feasibility study. Instead, it stipulated the consequences of the appellant either failing to complete or completing a feasibility study, as follows:
4.4Effect of Failure to Complete Feasibility Study
If PIO fails to complete a feasibility study during the Earning Period then it shall be deemed to have withdrawn from the Joint Venture pursuant to clause 15.1.
4.5Assignment of Earned Interest
If PIO completes a feasibility study during the Earning Period, PIO shall be deemed to have acquired from Ammon an 80% Joint Venture Interest, so that at the expiration of the Earning Period the Joint Venture Interests of the Participants shall be as follows:
PIO 80%
Ammon 20%
By virtue of cl 15.2, the effect of cl 4.4 was that a failure to complete a feasibility study during the Earning Period would result in the appellant forfeiting absolutely all its Joint Venture Interest, and it would be deemed to have assigned that interest to Ammon. Of course, despite the significant financial contribution it would have made to the Joint Venture, it would never have acquired an interest, because it started with a 0% interest, by virtue of cl 2.2, and had failed to meet the condition for acquiring an 80% interest.
However, if the appellant completed a feasibility study during the Earning Period, it was deemed to have acquired that 80% interest from Ammon. The next steps were set out in cl 4.6. The clause was lengthy and contained a number of actions that either had to be taken or could be taken, with a number of possible consequences, all within the one paragraph. It is convenient to set out the text in a form that separates each of the matters specified into a number of paragraphs. The clause was headed 'Election by Ammon to Contribute' and provided as follows (paragraph numbering added):
(i)Upon PIO earning its 80% Joint Venture Interest it shall notify Ammon of this in writing and
(ii)Ammon shall have a period of 90 days within which to elect, by notice in writing, whether he wishes to contribute to Joint Venture Expenditure in accordance with his 20% Joint Venture Interest or withdraw from this Agreement and the Joint Venture.
(iii)If Ammon elects to withdraw he shall first offer to transfer his Joint Venture Interest to PIO for the then net present value calculated by reference to the feasibility study and on terms to be agreed between Ammon and PIO at that time.
(iv)PIO and Ammon shall have a period of three months from the date of Ammon's offer to PIO within which to agree the terms, and PIO shall have a further three months from the date upon which such terms are agreed within which to make payment.
(v)If PIO does not elect to accept Ammon's offer, or if terms cannot be agreed within the three month period, Ammon may offer to sell his Joint Venture Interest to a third party.
(vi)If terms are agreed but PIO does not make payment within the further three month period then PIO shall be liable to pay interest on the outstanding amount at the rate prescribed in clause 9.2, unless the parties have agreed to extend the further three month period.
The first step, therefore, was for the appellant to notify Ammon that it had 'earned' its 80% Joint Venture Interest. The description of the appellant's achievement in cl 4.6, which refers to 'earning', is different from that in cl 4.5, which refers to acquisition. It is clear from the context, however, that the two clauses are dealing with the same event, namely the end of the Earning Period brought about by the appellant having completed a feasibility study on the tenement. That is the combined effect of clauses 4.2 and 4.5. Clause 4.6 did not specify a period within which notification of that event was to be given to Ammon, but the stipulation that it was to occur upon the appellant earning its interest connotes, in my opinion, prompt, if not immediate, notification after the event. In any case, the more important timeframe was that given to Ammon to make his election. On a sensible reading of cl 4.6 it was a period of 90 days from the date of notification. That is consistent with the provisions of cl 4.7, and was accepted as the correct construction by both parties.
The election Ammon was required to make is clear from paragraph (ii) above. He was required either to contribute to Joint Venture Expenditure in accordance with his 20% Joint Venture Interest or to withdraw from the Agreement and the Joint Venture. The balance of the clause (paragraphs (iii) to (vi) above) dealt with the consequences and steps the parties were required to take if Ammon elected to withdraw. Of significance was the requirement that he first offer to transfer his Joint Venture Interest to the appellant for the then net present value calculated by reference to the feasibility study and on terms to be agreed between Ammon and the appellant at that time. It is clear that the feasibility study, the completion of which resulted in the appellant acquiring an 80% Joint Venture Interest, was to serve a significant role in the offer to be made by Ammon to the appellant if he chose to withdraw. The net present value, calculated by reference to the feasibility study, was integral to the making of that offer.
Clause 4.7 dealt with what would happen if Ammon elected to contribute to Joint Venture Expenditure. It provided:
4.7Obtaining of Finance by Ammon
(a)If Ammon elects to contribute in accordance with clause 4.6 he shall have a period of 12 months from the date of notification by PIO to Ammon that PIO has earned its 80% Joint Venture Interest within which to raise project finance ("the Finance Raising Period").
(b)During the Finance Raising Period PIO shall fund Ammon's share of Joint Venture Expenditure until such time as Ammon succeeds in obtaining project finance, at which time Ammon shall repay to PIO all such expenses incurred by PIO on Ammon's behalf during the Finance Raising Period without delay.
(c)If Ammon is successful in obtaining project finance he shall immediately advise PIO in writing and, from that time, he shall become responsible for contributing to Joint Venture Expenditure in accordance with his Joint Venture Interest, which shall include liability for cash calls in accordance with clause 9.
(d)If Ammon is unsuccessful in obtaining project finance during the Finance Raising Period or at the election of Ammon at any time during the Finance Raising Period, Ammon's Joint Venture Interest will convert to a 2.5% gross value FOB production royalty in respect of all production of iron ore by PIO from the Tenements, Ammon shall be deemed to have withdrawn from the Joint Venture and Ammon shall transfer his interest in the Tenements to PIO at no cost.
It is apparent from cl 4.7 that the parties expected that Ammon would need to 'raise project finance' in the event that he elected to contribute to Joint Venture Expenditure. There is no reason to assume, having regard to the text and context of the provision, that project finance was to be understood as being confined to a loan or a line of credit. However, the tenor of the clause is consistent with an understanding that Ammon would not be in a position to contribute to Joint Venture Expenditure without raising project finance. Further, it was recognised that a significant period of time may be required for Ammon to raise the finance. Importantly, that period was to run from the date of notification by the appellant that it had earned its 80% interest. Of course, if Ammon utilised all of the 90 days available to him to decide on his election, he would have about nine months in which then to raise finance.
The raising of project finance was a critical factor in Ammon's ability to remain in the Joint Venture. If he was unsuccessful in obtaining project finance during the Finance Raising Period he would be deemed to have withdrawn from the Joint Venture and was required to transfer his interest in the tenement to the appellant. Of course, in those circumstances, his interest would convert into a 2.5% production royalty in respect of all production of iron ore by the appellant from the tenement, and he would be entitled to that without making any contribution to expenditure. However, that situation would only be arrived at because Ammon had elected to contribute financially to the Joint Venture and thereby retain his 20% interest, in the knowledge that he would need to raise project finance and would have 12 months in which to do so from the time of being notified by the appellant that it had completed a feasibility study.
It follows from that analysis that an assessment by Ammon of his prospects of being able to raise finance was likely to be integral to his election whether to remain in the Joint Venture or withdraw. It does not follow, however, that there was any assumption in the terms of the Agreement that a feasibility study completed by the appellant would conclude that there was a mining project that was technically and economically feasible. Nevertheless, the Agreement envisaged that, if Ammon elected to contribute to Joint Venture Expenditure, there would be Joint Venture Operations which would be under the control of an 'Operating Committee'.
Clause 7.1 provided that:
As soon as practicable after the completion of the Earning Period the Participants shall form and then maintain a committee which shall meet not less than once in each calendar quarter.
It is evident from the clauses which followed that the committee referred to in cl 7.1 was to be the Operating Committee, as the committee is thereafter referred to by that description.
It is noteworthy that the Operating Committee was to be formed 'as soon as practicable after the completion of the Earning Period'. That could only apply if the appellant completed a feasibility study within the Earning Period.[21] If the appellant did not complete a feasibility study within that time, it was deemed to have withdrawn from the Joint Venture,[22] with the consequence that there would only be the one Participant, namely Ammon. There would appear to be no scope for the operation of the clauses concerning the Operating Committee in that eventuality. However, in the event that the appellant completed a feasibility study within the Earning Period, Ammon would then have a 20% Joint Venture Interest and would continue to be a Participant in the Joint Venture until such time as circumstances arose under cl 4.6 or cl 4.7 in which he withdrew from the Joint Venture or was deemed to have withdrawn.
[21] Cl 4.2 of the Agreement.
[22] Cl 4.4 of the Agreement.
Given that the Operating Committee was to be formed as soon as practicable after the completion of the Earning Period, there was scope for that committee to be formed and commence its functions before Ammon had made his election under cl 4.6. Further, if he made the election to contribute, the Operating Committee would be required to carry out its functions for the duration of the Finance Raising Period, during which time Ammon's contributions to Joint Venture Expenditure would be met by the appellant.
Each of the Participants was entitled to appoint a representative as a member of the Operating Committee.[23] The functions of the Operating Committee were described in cl 7.3:[24]
The Operating Committee may review and give directions to the Manager as to Joint Venture Operations and shall consider and approve (subject to modification or otherwise) the nature and content of programmes and budgets relating to Joint Venture Operations proposed by the Manager.
[23] Cl 7.2 of the Agreement.
[24] See [55] above for the definition of Joint Venture Operations.
By cl 7.4, the 'voting power' of Participants at meetings was determined according to the percentage of their Joint Venture Interest, each having one vote for each percentage point. Although there was provision in cl 7.5 for resolving a deadlock in voting, where a majority vote was required, it is difficult to see how that would arise, given the disparity in the Joint Venture Interests. Significantly, cl 7.6 provided:
All matters for decision before the Operating Committee will be decided by majority vote but the following major decisions require the unanimous vote of the Participants:
(a)the undertaking of a development and mining operation on any part of the Tenements; and
(b)decisions regarding the scope of any such development and mining operations.
It follows that, irrespective of whether a feasibility study identified a technically and economically feasible mining project, a mining operation could not be undertaken on the tenement unless both Ammon and the appellant agreed, as voting members of the Operating Committee. As the appellant submitted, cl 7.6 contemplated that the assessment of whether developing and mining the tenement was warranted was not to end on completion of a feasibility study. Further, there was obviously the potential for the scope of any mining operation which the Operating Committee decided to undertake to be different from that identified in the feasibility study.
I also agree with the appellant that, on a proper construction of the Agreement, it contemplated that, after completion of a feasibility study, the Operating Committee could approve programmes and budgets that did not involve mining a mineral resource identified on the tenement. That would necessarily be the case if, relying on the feasibility study, the Participants decided that mining was not feasible at that point in time. There would at least be a need to maintain the tenement. It may also be accepted that programmes and budgets could be approved for further exploration or other activities to determine if developing and mining the tenement was warranted, whether or not the feasibility study had concluded that a mining project was feasible.
However, in my opinion, the considerations outlined in the preceding paragraph do not give rise to any conclusion about the requirements that had to be met before it could be said the appellant had completed a feasibility study. They are considerations that Ammon may have taken into account in deciding whether to contribute to Joint Venture Expenditure, but they do not determine what was required of a feasibility study that he was entitled (and expected) to rely on to make his election.
In the event that the appellant did earn its 80% Joint Venture Interest, and Ammon elected to contribute, the Agreement made provision for 'voluntary dilution' by a Participant of their Joint Venture Interest, by electing not to contribute to a particular programme or budget approved by the Operating Committee (other than a programme or budget that was necessary to maintain the tenement).[25] So, having elected to contribute to Joint Venture Expenditure, Ammon might nevertheless opt not to contribute to a particular programme or budget approved by the Operating Committee. If that were to occur, his Joint Venture Interest would be reduced in accordance with a formula provided in cl 10.2. The same applied to the appellant, but in Ammon's case, if his Joint Venture Interest was diluted to 5% or less, he was obliged to offer his Joint Venture Interest for sale to the appellant at the then net present value.[26]
[25] Cl 10.1 of the Agreement.
[26] Cl 10.3 of the Agreement.
Contributions to Joint Venture Expenditure by the Participants were to be made by payment in response to 'cash calls' by the Manager, made within 30 days after the end of each month, for each Participant's share of Joint Venture Expenditure paid or incurred during the preceding month. The Manager was responsible in the first instance for the payment of all outgoings and ensuring that the minimum expenditure commitments under the Mining Act were complied with or exemptions were sought.[27] 'Outgoings' was defined to mean 'all rents, rates, survey fees and other fees and charges under the Mining Act or otherwise in connection with the Tenements'.[28]
[27] Cl 8.2 of the Agreement.
[28] Cl 1.1 of the Agreement.
Cash calls to the Participants were to commence after the Free Carry Period (which was to end with Ammon's election to contribute). It will be recalled that, by cl 2.5, Ammon was not liable to the appellant or to any third party during the Free Carry Period. The effect of these provisions was that Ammon was not required to make any contributions until after he elected to do so, and even then his contributions were to be funded (subject to reimbursement) by the appellant during the Finance Raising Period, pursuant to cl 4.7(b).
Clause 9.1(d) provided that the Participants were liable to contribute to Joint Venture Expenditure in proportion to their Joint Venture Interests from time to time. There was provision for the charging of interest for late payments[29] and for dilution of a Participant's Joint Venture Interest if they were in default for more than 10 days.[30]
[29] Cl 9.2 of the Agreement.
[30] Cl 9.4 of the Agreement.
More generally, there was a 'default' provision concerning a 'Material Breach' (other than in respect of the obligation to pay upon a cash call) which could result in a Participant being deemed to have withdrawn from the Joint Venture. However, having regard to the definition of 'Material Breach', it does not affect the interpretation of the terms relevant to this appeal. The parties did not suggest otherwise.
Finally, clauses 23.1 and 23.2 spoke to the nature of the Agreement and have a bearing on its construction. They were as follows:
23.1Negotiate in Good Faith
If requested by any Participant, a formal joint venture agreement setting out the arrangements and commitments contained in this Agreement together with such provisions as are normally found in joint venture agreements and are not inconsistent with this Agreement will be negotiated in good faith between the Participants
23.2This Agreement Binding
Until a formal agreement as contemplated by clause 23.1 is executed, the Participants shall be bound by the provisions of this Agreement.
There was no evidence in the Warden's Court (and no suggestion on the appeal) that either party requested to negotiate a 'formal joint venture agreement'. It is implicit from cl 23.1 that there may be other provisions 'normally found in joint venture agreements' that were not included in the Agreement. There was no evidence in the Warden's Court or on the appeal as to what such provisions might be. That is understandable, as the Agreement came to be construed in accordance with its terms, and extrinsic material was not admissible for that purpose. What is evident, however, is that the parties chose to be bound by the provisions of the Agreement, without more, and the 'arrangements and commitments set out in [the] Agreement' have to be discerned from the terms of the Agreement.
Summary of salient aspects of the Agreement
The salient aspects of the above analysis of the Agreement may be summarised as follows:
(1)The appellant and Ammon entered into the Agreement on the basis that:
(a)Ammon was the applicant for the tenement;
(b)Ammon would become the legal and beneficial owner of the tenement upon the Exploration Licence being granted to him; and
(c)Ammon agreed with the appellant that it may earn an 80% interest in the tenement.
(2)The appellant and Ammon agreed that the provisions of the Agreement expressed the full extent of the arrangements and commitments by which they would be bound in the Joint Venture.
(3)The means by which the appellant would earn the interest was by:
(a)entering into a joint venture with Ammon for the purposes of exploring and, if warranted, developing and mining the tenement; and
(b)completing a feasibility study within five years of the Grant Date.
(4)The feasibility study contemplated by the Agreement was in respect of developing and mining the tenement. That was the purpose of exploration and the effect of the words 'if warranted' in cl 2.1. Those same words indicated that there was no assumption in the Agreement that a feasibility study completed by the appellant would find that developing and mining the tenement was technically and economically feasible.
(5)At the outset only Ammon would have a Joint Venture Interest, in terms of ownership of Minerals produced by the Joint Venture and the beneficial ownership of Joint Venture Property (which included the tenement), but not the obligation to contribute to Joint Venture Expenditure.
(6)The appellant had all of the financial and managerial responsibilities for the Joint Venture and, therefore, for the tenement until it completed a feasibility study or five years expired after the Grant Date without a feasibility study having been completed by the appellant.
(7)Upon the appellant completing a feasibility study within five years of the Grant Date, it would be deemed to have acquired from Ammon an 80% Joint Venture Interest and Ammon would then have a 20% interest.
(8)There was no obligation on the appellant to complete a feasibility study, but if it failed to do so within the period of five years, it would be deemed to have withdrawn from the Joint Venture and would thereby forfeit any interest in the tenement or other Joint Venture Property.
(9)If the appellant completed the feasibility study within the specified time and thereby acquired the 80% interest, it was required to notify Ammon of that fact and Ammon was then required to elect either to contribute to Joint Venture Expenditure (which was the means by which he would retain his 20% Joint Venture Interest) or to withdraw from the Agreement and the Joint Venture. He was required to make the election within 90 days of receiving notification from the appellant.
(10)The Agreement contemplated that, if Ammon elected to continue in the Joint Venture, future Joint Venture Expenditure would include expenses other than those associated with mining minerals on the tenement. For instance there would be expenses, including administrative costs, associated with maintaining the tenement and complying with obligations under the Mining Act.
(11)Ammon was required to make the election in the knowledge that, if he elected to contribute to Joint Venture Expenditure:
(a)he would then be expected to raise project finance;
(b)he would have 12 months from the date of the appellant's notification in which to raise finance;
(c)if he was unsuccessful in obtaining project finance, his Joint Venture Interest would convert to a royalty entitlement and he would be obliged to transfer his interest in the tenement to the appellant at no cost.
(12)Ammon's election would also be made in the knowledge that, even if the feasibility study found that developing and mining the tenement was technically and economically feasible, it did not mean that a mining operation would necessarily be undertaken, or undertaken to the same extent as identified in the feasibility study. That was because the undertaking of a development and mining operation on any part of the tenement required the unanimous vote of Participants on the Operating Committee, although, in accordance with cl 19.2, the Participants would be expected to do all such things as may be reasonably necessary to give effect to the terms of the Agreement.
(13)Irrespective of whether a feasibility study completed by the appellant disclosed that developing and mining the tenement was technically and economically feasible, Ammon could elect to withdraw from the Joint Venture and sell his interest. He would make his election in the knowledge that he would first have to offer to transfer his interest to the appellant for the then net present value of the interest calculated by reference to the feasibility study, on terms to be agreed with the appellant. The appellant could elect not to accept the offer. In that situation, or if Ammon and the appellant could not agree on terms, Ammon would have the right to sell his interest to a third party.
(14)If Ammon was to endeavour to sell his interest to a third party, it would be expected that the feasibility study would be of significance in determining a price, as it is not readily apparent on what other basis a buyer could assess the value of Ammon's interest.
Additional contextual matters
The appellant submitted that the value for which Ammon would sell his 20% interest to the appellant or a third party would be based on 'the likelihood of and time-frame for developing and mining'.[31] That would appear to be a reasonable assumption as to at least two of the considerations. It begs the question, however, of what information a potential buyer, and indeed Ammon as the seller, could rely on to assess those considerations. The obvious source of information would be the feasibility study, and it would be a reasonable expectation that a potential buyer acting in a commercially rational manner would wish to rely on such a feasibility study and would expect it to contain data that was accurate to a high degree.
[31] Appellant's Outline of Submissions (16 September 2015) [68].
The appellant also submitted that the Agreement should be construed in the light of the following:[32]
At the time the parties entered into the Agreement there was considerable uncertainty as to whether exploration of EL47/1140 would identify an iron-ore deposit that could be economic to mine. Ammon had only spent about $250,000 in expenses associated with applying for EL47/l140. The size and quality of the deposit was largely unknown and it was remote; 290 km from Port Hedland.
By the Agreement, Ammon transferred all the risk of the expense of exploration and investigation of the technical feasibility and economic viability of undertaking a development and mining operation on EL47/1140 onto PIO in exchange for Ammon transferring 80% of his interest in that venture to PIO. Thus, the Agreement was a mechanism by which Ammon obtained the capital (funding) for exploration and a study of the feasibility of progressing, if warranted, to development of and mining the tenement that he either did not have or was not willing to risk.
[32] Appellant's Outline of Submissions (16 September 2015) [54] - [55].
I was not directed to any evidence in support of the first paragraph, other than the fact that Ammon had incurred past expenditure of about $250,000. However, it may be readily inferred from the terms of the Agreement that there was a need for exploration to determine whether there was an iron-ore deposit on the tenement (excluding the Retained Interest) that was economically viable to mine. The second paragraph of the appellant's submission is consistent with the tenor of the Agreement as I have summarised it. There is no doubt that the capital (funding) obtained by Ammon from the appellant was to go in part towards exploration. The requirement that the appellant contribute $1,000,000 in the first 30 months is consistent with an expectation that a considerable amount of exploration would occur in the early part of the Joint Venture. However, as the appellant's submission recognises, the feasibility study contemplated by the Agreement was 'a study of the feasibility of progressing, if warranted, to development of and mining the tenement'. It was not a study of the feasibility of further exploration.
The appellant submitted that the court must have regard to the commercial context in which the Agreement was made, which is informed by the relevant statutory framework affecting the tenement. The Mining Act contemplated the possibility of an extension of an exploration licence at the end of five years.[33] That in fact occurred in respect of the tenement. The appellant noted further that, under the Mining Act, the holder of an exploration licence could apply for a retention licence if a mineral resource was identified and mining of that resource was then uneconomic or subject to marketing problems, but could reasonably be expected to become economic or marketable in the future.[34] The appellant submitted that the court must proceed on the basis that the parties acted in a rational and commercial manner. It submitted that parties acting in that way would have regard to the available statutory framework for extending an exploration licence or applying for a retention licence in the event that a study during the term of the exploration licence found that mining was not feasible at that stage. This, the appellant submitted, informs the level of detail or accuracy that might be reasonably expected of a feasibility study which the appellant was required to complete within the five year term. It submitted as self-evident that:[35]
[I]f after incurring a certain amount of expense it is clear (for whatever reason) that mining is not economic, rational commercial parties will not incur further expense for the sake of demonstrating that mining is uneconomic to a higher degree of accuracy. A technically feasible mine will not attract investors or financiers if it is unlikely to pay an economic return on investment.
[33] Mining Act s 61(2).
[34] Mining Act s 70A - 70D (in particular s 70C(2)(a) and s 70D(7)).
[35] Appellant's Outline of Submissions (16 September 2015) [52].
While that may be so, what was clear to the appellant, from its perspective, may not have been a view shared by the other Participant in the Joint Venture. Moreover, if a purpose of the feasibility study was to inform the other Participant's election whether to withdraw from the Joint Venture or contribute financially to it and seek to obtain project finance for that purpose, then the degree of accuracy required to serve that purpose may have been greater than the degree of accuracy required by the appellant to inform its own decisions.
The appellant could choose not to complete a feasibility study on which it had embarked, if it considered (as a rational commercial party) that it would not be worth incurring further expense to achieve the accuracy required of a feasibility study apt for the purpose of informing Ammon's election. Ammon's decision could depend on consideration of whether the data justified perseverance in the Joint Venture because of the prospect of a mining project becoming economically viable.[36] The appellant's argument ignores the possibility that a higher degree of accuracy could narrow the gap between economic viability and a lack of economic viability. It conflates the completion of a feasibility study capable of informing Ammon's election with the appellant's subjective determination of when the assessment of feasibility should cease.
[36] This, indeed, was an argument put by Ammon at first instance. See Ammon v Pilbara Iron Ore P/L & DG DMP[203].
a)the parties entered into the Joint Venture (as defined in the Agreement) for the purpose of exploring and, if warranted, developing and mining the Tenements (as defined in the Agreement): cl 2.1;
b)the appellant was required to contribute not less than $1,000,000 (Minimum Earning Expenditure) to all costs, expenses and liabilities incurred in connection with the exploration, development and mining of the Tenements (Joint Venture Expenditure): cl 4.1;
c)if the appellant completed a feasibility study during the Earning Period (as defined in the Agreement), the appellant was deemed to have acquired from the respondent an 80% Joint Venture Interest (as defined in the Agreement): cl 4.5;
d)the appellant was to provide the respondent, at the respondent's request, with a copy of any feasibility study: cll 4.5, 4.6;
e)the appellant, at the respondent's request, was to do all things reasonably necessary to make available to the respondent the information and calculations used and undertaken for any feasibility study, or such a term was implied by law: cl 4.6;
f)upon the appellant earning its 80% Joint Venture Interest, the appellant was to notify the respondent of that in writing and the respondent was to have 90 days to elect, by notice in writing, whether he wished to contribute to Joint Venture Expenditure in accordance with his 20% Joint Venture Interest or withdraw from the Agreement and the Joint Venture: cl 4.6;
g)after the appellant ceased to be the sole contributor to Joint Venture Expenditure, the appellant, as Manager (as defined in the Agreement), was to prepare and propose, and the Operating Committee (as defined in the Agreement) was to consider and if it so determined approve programmes and budgets relating to Joint Venture Operations, such approval to be by majority vote with each party having one vote for each whole percentage point of the party's Joint Venture Interest: cll 6.1, 6.4, 7.1, 7.3, 7.4 and 7.6;
h)a decision to undertake development and mining operations on any part of the Tenements required the unanimous approval of the parties: cl 7.6(a);
i)if the respondent elected to contribute to the in accordance with cl 4.6 (and if the parties unanimously approved the undertaking of a development and mining operation on any part of the Tenements and the Operating Committee by majority vote approved a programme and budget for that purpose), he had 12 months from the date the appellant notified him of earning its 80% Joint Venture Interest within which to raise finance for the carrying out of a project for the development and mining of the Tenements (project finance): cll 4.7(a), 6,7;
j)if the respondent was unsuccessful in raising project finance within 12 months or at his election, the respondent's 20% Joint Venture Interest was to convert into a 2.5% gross value FOB production royalty in respect of all production of iron ore by the appellant from the Tenements and the respondent was to be deemed to have withdrawn from the Agreement and to have transferred his interest in the Tenements to the appellant at no cost: cl 4.7(d);
k)the purposes of the feasibility study were:
i.to assist the respondent to make an election under cl 4.6 of the Agreement;
ii.to evaluate for the benefit of both parties, and at a level of detail commensurate with the commitment of funds required by the Minimum Earning Expenditure obligation, whether or not mining the Tenements appeared to be commercially viable; and
iii.to consider and identify, if the feasibility study concluded that mining of the Tenements appeared commercially viable, what further measures were necessary to advance the potential commercial development and mining of the Tenements.
Ground 2
The learned Warden erred in law in finding that there was an implied term of the Agreement that to be a completed feasibility study for the purposes of the Agreement any such feasibility study must be accurate, independent, reliable and include a reserve statement in the manner pleaded in para 12 of the plaint, in that:
a)such a term was not reasonable and equitable, was not necessary to give business efficacy to the Agreement, was not obvious and was not clear and contradicted the express terms of the Agreement as set out in grounds 1 and 2(b); and
b)it is found that, on the proper construction of the Agreement:
i.the feasibility study to be prepared by the appellant was to be reasonably reliable and suitable, having regard to the relevant circumstances, for the purposes for which it was to be prepared as set out in ground 1;
ii.there was no requirement that the feasibility study be a study which concluded that development and mining of the Tenement was or appeared to be commercially viable or which recommended that such development and mining should be undertaken; and
iii.there was no requirement that the feasibility study be a study of the level of accuracy and reliability necessary to raise finance of the carrying out of a project for the development and mining of the Tenements at all and, in particular, if the feasibility study concluded that no such project was commercially viable.
Ground 3
The learned Warden erred in fact in failing to find, and it is to be found, that the appellant completed a feasibility study during the Earning Period that was reasonably reliable and suitable for the purposes of assisting the respondent to make an election under cl 4.6 of the Agreement and evaluating, in this case negatively, the commercial viability of mining the Tenements, in that:
a)the evidence was to the effect that SRK prepared a feasibility study for the appellant which was provided to the respondent on 25 January 2008 (SRK report);
b)the evidence was to the effect that the authors of the SRK report concluded that mining the Tenements was not commercially viable;
c)the evidence was to the effect that the conclusions the authors of the SRK report expressed were based on the assumptions identified in the report, including assumptions and opinions as to the level of accuracy of the information upon which the authors relied in the preparation of the report; and
d)there was no evidence to support a finding to the effect that the conclusion the authors of the SRK report expressed to the effect that mining the Tenements was not commercially viable was not a conclusion that was reasonably reliable and suitable for the purpose of evaluating, for the benefit of the parties, the commercial viability of mining the Tenements, or for the purpose of assisting the respondent to make an election under cl 4.6 of the Agreement.
Ground 4
By reason of the errors set out in grounds 1 to 3 above, the learned Warden erred in law and in fact in failing to find, and it is to be found, that the appellant completed a feasibility study during the Earning Period and thereby was deemed to have acquired from the respondent an 80% Joint Venture Interest.
Ground 5
The learned Warden erred in law and in fact in accepting wholly the respondent's evidence and submissions and in finding that the SRK report was incapable of informing the respondent's election to either withdraw or (sic) act in accordance with cl 4.6 of the Agreement or contribute and act in accordance with cl 4.7 of the Agreement, in that:
a)the learned Warden misdirected himself as to the relevant issue he was to determine, which was whether the SRK report did not conform with the implied term pleaded in para 12(1) of the plaint (it was not accurate enough to enable the respondent to seek to raise project finance pursuant to cl 4.7 of the Agreement) because it was not accurate to, at least, +/- 10% ‑ 15% in respects pleaded in para 19A of the plaint;
b)the learned Warden made no finding as to the proper construction and meaning of the term 'project finance' for the purposes of the implied term and cl 4.7 of the Agreement;
c)there was no evidence and no finding was made as to the nature of the project or the nature of the finance the respondent was unable to seek to raise in respect of such a project for the purposes of cl 4.7 of the Agreement;
d)there was no evidence and no finding was made that a decision to undertake development and mining operations on any part of the Tenements was made with unanimous approval of the parties;
e)the evidence was to the effect that mining the Tenements was not commercially viable (the unchallenged conclusion of the SRK report);
f)there was no finding, and no evidence to support a finding, to the effect that a feasibility study with an accuracy level of +/- 10% - 15 % was necessary to support a reasonable and reliable conclusion that mining the Tenements was not commercially viable;
g)there was no finding, and no evidence to support a finding, to the effect that the SRK report was not sufficiently accurate to enable the respondent to seek to raise such project finance as was necessary for the purposes of the implied term and cl 4.7 of the Agreement;
h)the evidence was to the effect that respondent was unable to raise such project finance as may have been necessary for the purposes of the implied term and cl 4.7 of the Agreement because mining the Tenements was not commercially viable (ie. there was no mining project to finance);
i)by reasons of the matters in grounds 5(a) to (h) above, the evidence of Lawrence and Amos to the effect that a level of accuracy of +/- 10% - 15% was necessary to obtain finance for the development of a mine and associated infrastructure was irrelevant and of no weight; and
j)there was no evidence to support a finding, and no finding was properly made, to the effect that the SRK report did not conform with the element of the implied term pleaded in para 12(1) of the plaint.
Ground 6
The learned Warden erred in law and in fact in accepting the respondent's submissions, wholly accepting the respondent's evidence, and in finding that various data, information and reports received by SRK for the preparation of the SRK report were not independently verified, the information was accepted uncritically, was not verified for accuracy or reliability and as such was not independent, in that:
a)the learned Warden misdirected himself as to the relevant issue he was to determine, which was whether the SRK report did not conform with the requirements of the implied term pleaded in para 12(2) of the plaint (it was not independent in that any information provided by, or on behalf of the appellant for the purposes of producing the feasibility study was not independently verified) because it was not independent in the respects pleaded in para 19B of the plaint;
b)the learned Warden made no findings as to the data, information and reports SRK received or the respects in which such data, information and reports was found to have been not independently verified, accepted uncritically and not verified for accuracy or reliability;
c)the evidence was to the effect that the authors of the SRK report expressly said in their report that all due care was exercised in reviewing the supplied information and there were other respects in which it was clear on the face of the report and its annexures that the authors had exercised independent judgment before accepting information provided to them by the appellant, related companies or third parties;
d)the evidence was to the effect that most information provided to the authors of the SRK report was derived from independent third parties such as Worley Parsons, DRAP, HWE, Coffey and AME and, as such, was independent and verified by those third parties;
e)the evidence of Lawrence and Amos, which the learned Warden accepted, was inadmissible or of no weight to the extent Lawrence and Amos relied on the unproven assumption that the authors of the SRK report did not independently verify the information provided to them as the foundation for their opinions;
f)the learned Warden accepted that adverse inferences should be drawn against the appellant for failing to call an author of the SRK report (Murray), when the authors of the SRK report were not persons the appellant could have been expected to call as witnesses (there was no evidence that he was an employee of the appellant, of any ongoing relationship with the appellant, or otherwise from which it could be inferred that he was in the appellant's camp) and the respondent had subpoenaed Murray and failed to call him without explanation;
g)there was no, or insufficient, evidence to support a finding to the effect that the authors of the SRK report did not independently verify or accepted uncritically the data, information or reports provided to them from the independent sources or from the appellant or related companies; and
h)there was no evidence to support a finding, and no finding was properly made, to the effect that the SRK report did not conform with the element of the implied term pleaded in para 12(2) of the plaint.
Ground 7
The learned Warden erred in fact and in law in accepting the evidence of Lawrence and Amos and finding that the SRK report was not reliable because it was incomplete and/or inaccurate, in that:
a)the learned Warden misdirected himself as to the relevant issue he was to determine, which was whether the SRK report did not conform with the requirements of the implied term pleaded in para 12(3) of the plaint (it was not reliable in that information or data provided by the appellant for the purposes of producing the feasibility study was inaccurate or incomplete) because it was not reliable in the respects pleaded in para 19C of the plaint;
b)the learned Warden made no findings as to the information or data provided by the appellant to SRK or the respects in which such information or data was found to be inaccurate or incomplete;
c)as to the respects pleaded in para 19C of the plaint:
i.contrary to para 19C(i), there was no inaccuracy or incompleteness in the estimated resources of 23.6Mt provided to SRK by the appellant pleaded;
ii.the terms and effect of the SRK report were not as stated in paras 19C(ii) - (v);
iii.no manner in which information provided by the appellant or a related company to SRK was inaccurate or incomplete, was identified in paras 19C(ii) - (v);
iv.contrary to para 19C(vi), the inclusion of an assumption that a royal of 2.5% was to be paid to the respondent in the operation cost estimates the appellant provided to SRK, did not render those operation costs estimates inaccurate or incomplete;
a)the evidence of Lawrence and Amos, which the learned Warden accepted, was inadmissible or of no weight to the extent Lawrence and Amos relied on the unproven inaccuracies pleaded in paras 19C(ii) - (v) of the plaint to support their opinions;
b)for the reasons set out in ground 5 above, the evidence of Lawrence and Amos, which the learned Warden accepted, was irrelevant to the extent Lawrence and Amos expressed opinions to the effect that the SRK report was unreliable because further studies would be required in order for the feasibility study to be sufficiently accurate to obtain finance for the development and mining of the Tenements;
c)there was no evidence to support a finding to the effect that the SRK report was unreliable; and
d)there was no evidence to support a finding, and no finding was properly made, to the effect that the SRK report did not conform with the element of the implied term pleaded in para 12(3) of the plaint.
Ground 8
The learned Warden erred in fact and in law in finding that the SRK report was not complete because it did not contain a reserve statement, in that:
i.the learned Warden misdirected himself as to the relevant issue he was to determine, which was whether the SRK report did not conform with the requirements of the implied term pleaded in para 12(4) of the plaint (it did not include a reserve statement required to enable the respondent to seek to raise project finance pursuant to cl 4.7 of the Agreement) because a reserve statement was not included as pleaded in para 19D of the plaint;
ii.the evidence was to the effect that the SRK report did not support the preparation of a reserve statement because the authors of the report concluded that mining the Tenements was not commercially viable (ie. no JORC complaint reserve statement could be prepared);
iii.for the reasons set out in ground 5 above, a reserve statement was not required to enable the respondent to seek to raise such project finance as may have been required for the purposes of the implied term and cl 4.7 of the Agreement; and
iv.there was no evidence to support a finding, and no finding was properly made, to the effect that the SRK report did not conform with the element of the implied term pleaded in para 12(4) of the plaint.
Ground 9
By reason of the errors set out in grounds 5 to 8 above, the learned Warden failed to find, and it is to be found, that the respondent failed to prove that the SRK report did not conform with the requirements of the implied term and, therefore, upon completion of the SRK report the appellants had earned and were entitled to an 80% Joint Venture Interest pursuant to the terms of the Agreement.
Ground 10
The learned Warden erred in law and in fact in failing to grant the appellant leave to amend its response in terms of its minute of proposed amended response dated 20 November 2012 in that the learned Warden misdirected himself and thereby took into account irrelevant considerations and disregarded relevant considerations in the exercise of his discretion, in that:
a)the effect of the trial of the preliminary issues was to determine if the Agreement should be construed as pleaded in para 11 of the amended plaint and if there was an implied term of the Agreement as pleaded in para 12 of the plaint;
b)the determination of the preliminary issues did not, and could not have, disposed of all questions of construction of the Agreement, as the preliminary issues concerned only paras 11 and 12 of the amended plaint, and the determination of those issues did not preclude the appellant from raising issues of construction of the Agreement not addressed by the determination of those issues at trial;
c)the determination of the preliminary issues did not dispose of any questions of fact and did not preclude the appellant from raising issues of fact relevant to and in response to the terms of the Agreement, as found by the determination of the preliminary issues;
d)the terms of the order of 6 December 2011, by which the learned Warden granted the respondent leave to amend its plaint and ordered the trial of the preliminary issues, and the circumstance in which those orders were made did not have the effect of precluding the appellant from amending its response, after the preliminary issues were determined, to respond to the amended plaint and to raise new issues of fact or construction;
e)the proposed amendments to the appellant's response were responsive to the amended plaint and:
i.to the extent they raised new issues of construction, these were questions of law that resulted in no relevant prejudice to the respondent and dealt with matters that were not addressed or adequately address by the trial of the preliminary issues; and
ii.to the extent they raised new issues of fact, these were of a limited nature and, for the reasons set out in ground (f) below, were not of a kind that required an adjournment of the trial and resulted in no relevant prejudice to the respondent;
a)there was no evidence to the effect that, if leave were granted, the respondent intended to adduce additional evidence to address the new issues raised in the proposed amended response, of any likely difficulty in the preparation of such evidence, or of the likely time required for preparation of such evidence;
b)there was no evidence to support a finding to the effect that, if leave were granted, it required an adjournment of the trial listed for hearing on 18 March 2013; and
c)upon the proper exercise of the learned Warden's discretion, there was no significant prejudice to the respondents and no proper foundation for refusing the appellant leave to amend its response in terms of the minute dated 20 November 2012 and, as such, the interest of justice required that the appellant be granted leave to amend its response and present its amended case at trial.
Ground 11
The learned Warden erred in law and in fact in failing to grant the appellant leave to adduce the expert evidence of Walker and Davies in that the learned Warden misdirected himself and thereby took into account irrelevant considerations and disregarded relevant considerations in the exercise of his discretion in that:
a)the appellant provided the respondent with the reports of Walker and Davies on 15 January 2013 and the trial was not listed for hearing until 18 March 2013;
b)there was no evidence to the effect that, if leave were granted, the respondent intended to adduce additional evidence in reply, of any likely difficulty in the preparation of such evidence or of the likely time required for preparation of such evidence;
c)there was no evidence or foundation to support the findings to the effect that:
i.the respondent would not have a reasonable opportunity to reply if leave were granted; or
ii.the respondent should not be put to the time and expense of preparing a reply to the appellant's expert reports when the use of those reports was not assured;
d)there was no evidence to support the learned Warden's finding that, if leave were granted, the respondent would be asked to prepare for a wholly different case as the proposed evidence of Walker and Davies was largely:
i.responsive to the respondent's pleaded case (as it was amended on 6 December 2011);
ii.responsive to the expert evidence upon which the respondent intended to rely at trial; and
iii.in support of the appellant's pleaded case (as it stood on 6 December 2011);
iv.there was no evidence or foundation to support the learned Warden's finding of prejudice to the respondents if leave were granted;
v.the learned Warden disregarded and took no account of the prejudice and injustice to the appellant, if leave were not granted, of being precluded from adducing relevant evidence in support of the appellant's case;
vi.there was no evidence or foundation to support a finding that the respondent would be prejudice significantly if leave were granted; and
vii.upon the proper exercise of the learned Warden's discretion, there was adequate notice and no significant prejudice to the respondent, and as such the interests of justice required that the appellant be granted leave to adduce the expert evidence of Walker and Davies at the trial.
Ground 12
By reason of the learned Warden's errors set out in grounds 10 and 11, the trial miscarried and the learned Warden's judgment is to be set aside.
ANNEXURE B
ANNEXURE C
Paragraph 19 of Amended Plaint - Particulars of 'breach'
19.In breach of the Implied Term the SRK Report was not accurate independent, reliable or complete as required by the Implied Term.
PARTICULARS OF BREACH OF IMPLIED TERM
A.The SRK Report was not accurate enough to enable the Plaintiff to seek to raise project finance pursuant to clause 4.7 of the Agreement because it was not accurate to, at least, +/- 10 - 15%, in that:
(i)The work completed by SRK, to assess the hydro‑geological, geotechnical and mining issues going to the technical and economic feasibility of development and mining of the Tenement, was classed by SRK "as being at Scoping to Pre-Feasibility levels of accuracy", and the resulting overall level of accuracy for the work completed by SRK was classed by SRK as "Pre·Feasibility" (SRK Scope, Appendix 26, at 1);
(ii)The study completed by Dowding, Reynard & Associates Pacific (Pty) Ltd) ("DRAP") relied on by SRK in estimating the costs of crushing and screening options for mining the Tenement deposit ("DRAP Study"), was described by DRAP as a "Scoping Study", "based on details, information and assumptions provided by others" (the correctness of which could not be guaranteed by DRAP), and was expressed by DRAP to have a +/- 30% level of accuracy; it was intended solely for the confidential usage of CML and was not for distribution to any third party and could not be used for the raising of finance without the written approval of DRAP;
(iii)The study relied on by SRK, to estimate the costs of transporting the Minerals mined at the Tenement, was provided by Worley Parsons ("WP") and was expressed by WP to be a "screening level estimate, normally defined as +/- 25-30% accuracy", with "considerably more engineering required to produce a definitive estimate of +/- 15% accuracy", and
(iv)The financial sensitivity ascribed by SRK for the purpose of calculating the post tax net present value of the Tenement was +/- 40% for the iron ore pricing and +/- 50% for the operating costs (SRK Report, at 129).
B.The SRK Report was not independent in that:
(i)It relied on information and data provided by the First Defendant to SRK (and sourced from CML or FMG whose interests were in common with the First Defendant) and which information was not Independently verified by SRK, which information and data included:
(a)the quantity, extent and nature of the Minerals (SRK Report, at 19);
(b)the financial input paramete1-s used by SRK to optimise the estimated 1-esources of the Tenement deposit (SRK Report, Covering letter, dated 24 January 2008, at 2), and
(c)iron ore price forecasts and marketing, and
(ii)SRK by the First Defendant's Instructions, was not required to provide a reserve statement for the Tenement as part of the SRK report, and despite the fact that such a statement was identified by SRK by reference to the JORC Code 2004, as being the "minimum" standard "to ensure thot investors and their advisers have all the information they would reasonably require for forming a reliable opinion on the results and estimates being reported" (SRK Scope, Appendix 26, at 3) such a statement was not included in the SRK Report; and
(iii)SRK acknowledges (in Appendix 26 of the SRK report at 3) that it did not critically review the WP, DRAP, HWE and Coffey reports.
C.The SRK Report was unreliable, in that information and data supplied to SRK by the First Defendant for the purposes of producing the SRK Report in accordance with the First Defendant's Instructions was inaccurate or incomplete, in that:
(i)SRK's estimate that there is 23.6 Mt (million tonnes) of ore available in the Tenement was based on a 55% Fe cut off, and is predicated on SRK's review of work by Twomey and Chen for a report, dated February 2006, which was provided to SRK by the First Defendant, (SRK Report at 19) and SRK's estimate does not take into account any subsequent work which, according to the First Defendant's application to renew the Tenement licence (made in December 2007) had delineated "a resource of 44.8Mt based on a 55.2% Fe cut off";
(ii)SRK's conclusions concerning hydro-geological conditions in the Tenement are based on data from a study conducted in 2004 for FMG in an area of the east Pilbara that did not include the Tenement, and which data has not been substantiated by any field investigations in the Tenement (SRK Report at 68 and 71); SRK recommends "further feasibility work" (SRK Report at 75) at an additional cost of $287,000, for drilling and labour (SRK Report at 7 ), to address "the issue of collecting field data" for the Tenement (SRK Report at 73);
(iii)SRK's geotechnical analysis is based on old drill records and core photos (SRK Report at 76) from earlier scoping and pre-feasibility work (SRK Scope, in Appendix 26 at 1) and has not been confirmed by additional field work (SRK Report at 76), thus "further feasibility work is recommended" (SRK Report at 83) at an additional cost of "approximately $100,000 for consultants plus [un-estimated] drilling costs for approximately 16 holes", (SRK Report at 76);
(iv)SRK's mining study is based on previous scoping and pre-feasibility work (SRK Scope, Appendix 26, at 1) a 2006 mineral resource review completed by CML which was constrained by a 45% Fe grade shell (SRK report at 86) and did not include the dilution data that was collected (SRK Report at 97);
(v)SFK's mining study excludes two areas of the ore body due to limited drill hole support (SRK Report at 96); and indicates that more detailed feasibility studies are needed in the following areas:
(a)to "refine the ore loss parameters" (SRK Report at 97);
(b)to "better quantify the effects of the foot wall undulation on dilution/ore loss" (SRK Report at 98);
(c)to "define the 'shape' of the contact footwall surface - as this would have a significant impact on dilution and/or ore loss" (SRK Report at 98-99);
(d)to "define the water table and volume of 'wet ore' ... " (SRK Report at 102);
(e)to "determine the schedule for feeding the 'wet' ore through the process plant" (SRK Report at 102);
(f)to "further investigate the in-pit and external dewatering systems" (SRK Report at 103):
(g)to assess the extent to which the ore might be extracted using "free dig or rip, doze and load operations as an alternative to drill and blast" (SRK Report at 104);
(h)to explore the "opportunity to minimise the amount of waste hauled external to the pit - as this will impact positively on mining casts" (SRK Report at 106);
(i)to ensure the pit and operations are adequately protected against cyclones (SRK Report at 106);
(j)to define extent of the ore deposit in the southern portion of the Tenement which was not included in the financial evaluation but could add more than the 1.3 million tonnes of ore that was excluded from this feasibility study (SRK Report at 106); and
(vi)The operational cost estimates, provided to SRK by the First Defendant, included an item that assumed the Plaintiff would elect to contribute to the Joint Venture (pursuant to clause 4.6 of the Agreement) but would be unable to obtain project finance (within the meaning of clause 4.7), and would therefore be entitled to a 2.5% Royalty, notwithstanding that such an entitlement could only arise after the Plaintiff made his election under clause 4.6 of the Agreement and that was yet to happen on 25 January 2008 when the SRK Report was delivered to the Plaintiff (SRK Report at 122, 124 and Appendix 25 p 1).
D.The SRK Report was not complete because it failed to include a reserve statement.
ANNEXURE D
Particulars to Paragraph 19(D) of the First Defendant's Second Further Amended Response
1.The Feasibility Study was sufficiently accurate and did not require a reserve statement in that:
(a)the authors of the Feasibility Study concluded, for reasons that were fully explained, that the undertaking of a development and mining operation on any part of the Tenements as a stand-alone entity indicated marginal economic returns and that economic parameters would need to change significantly in order to return results which would lead to investment;
(b)the authors of the Feasibility Study reached their conclusions based on calculations of various kinds and other non-quantitative evaluations that were considered in an iterative and interdependent manner all of which were assessed as a whole;
(c) further, the authors of the Feasibility Study reached their conclusions based on assessments that included the following:
(i)the Tenement is situated approximately 290 km (direct distance) from the coast of Western Australia;
(ii)the srnall deposit size was not capable of economically supporting the construction and operation of dedicated rail and port facilities;
(iii)there were no third party rail and port facilities of others which were readily available for use by the participants and there was no reliable information as to the likely costs of obtaining access to such facilities if such access did become available;
(iv)the use of road transport from the Tenements to a port was obviously not a commercially viable option;
(v)the resource identified was of a low grade and therefore its marketability would depend on the quantity available;
(vi)the commercial viability of the Tenement was dependant (sic) on obtaining reliable and secure access to port and rail infrastructure and doing so at viable costs;
(vii)the Tenement would have a greater value if combined with adjoining tenements rather than being considered alone;
(d)there was no present or prospective identifiable expenditure for which the plaintiff could seek to raise project finance.
2.As to each of the matters particularized in paragraph 19 of the further amended plaint, the Feasibility Study was sufficiently accurate and reliable having regard to the assessments made by the authors of the principal factors affecting feasibility and viability of developing and mining the Tenement.
3.The Feasibility Study was independent in that information provided to the authors of the Feasibility Study was independently verified by the authors, expressly and implicitly, as they considered and reviewed that information and relied upon it to the extent they considered it sufficiently accurate, reliable and complete to form the basis of their conclusions.
4.In particular, the following were independently verified by the authors of the Feasibility Study:
(a)The mineral resource estimate was considered and reviewed by the authors of the Feasibility Study.
(b)The financial input parameters were considered and reviewed by the authors of the Feasibility Study. These parameters derived from information from independent sources (DRAP and Worley Parsons), sources legally separate from the first defendant (CML and FMG), and the first defendant.
(c)Iron ore price forecasts were derived from an independent source, namely AME Mineral Economics and, otherwise, considered and reviewed by the authors of the Feasibility Study.
(d)Information from Worley Parsons, DRAP, HWE and Coffey was all derived from independent sources.
5.In further answer to the allegations in paragraph 19 of the further amended plaint:
(a)As to particular 19A(iv), the sensitivity analysis within the Feasibility Study does not affect the accuracy of the conclusions expressed by the authors of the study.
(b)As to particular 19C(i), the mineral resource estimate was considered and reviewed by the authors of the Feasibility Study. Further, the estimation of the size of the ore body referred in the application to renew the tenement licence was based on a cut-off grade of 52% Fe, whereas the estimate in the Feasibility Study was based on a cut-off grade of 55.2% Fe.
(c)As to particular 19C(vi), the authors of the Feasibility Study made an NPV calculation on the basis the plaintiff would be paid a royalty of 2.5%. That approach does not affect the reliability, accuracy or completeness of the information and data supplied to the authors of the study. That approach correctly included a potential cost over which the participants jointly had no control, as it depended upon an election solely by the plaintiff, such that its inclusion serves to make apparent the effect of that potential cost.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
XH
RESEARCH ASSOCIATE TO THE HONOURABLE JUSTICE FIANNACA
24 AUGUST 2018