Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd - [2010] WASC 266

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: PROCESS MINERALS INTERNATIONAL PTY LTD -v- CONSOLIDATED MINERALS PTY LTD [2010] WASC 266

CORAM: KENNETH MARTIN J

HEARD: 16-20 NOVEMBER 2009, 8-16 APRIL 2010 & 1920 MAY 2010

DELIVERED : 30 SEPTEMBER 2010

FILE NO/S: CIV 2272 of 2009

BETWEEN: PROCESS MINERALS INTERNATIONAL PTY LTD (ACN 063 988 894)
Plaintiff
AND
CONSOLIDATED MINERALS PTY LTD (ACN 000 727 926)
First Defendant
PILBARA MANGANESE PTY LTD (ACN 074 106 577)
Second Defendant

Catchwords:

Contract - Contractual construction - Secondary processing of manganese fines - Tailings storage facilities - Best endeavours obligation - Direct tailing plant to plant - Declaration

Legislation:

Environmental Protection Act 1986 (WA)
Mines Safety and Inspection Act 1994 (WA)

Result:

Plaintiff's application dismissed in part, allowed in part

Category: B

Representation:

Counsel:

Plaintiff:     Mr M L Bennett & Mr M L MacLennan
First Defendant             :     Mr R E Birmingham QC & Mr S Penglis
Second Defendant         :     Mr R E Birmingham QC & Mr S Penglis

Solicitors:

Plaintiff:     Lavan Legal
First Defendant             :     Freehills
Second Defendant         :     Freehills

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

BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
GMA Garnet Pty Ltd v Barton International Inc [2010] FCAFC 38
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Mackay v Dick (1881) 6 App Cas 251
Reardon Smith Line Ltd v Hansen‑Tangen [1976] 1 WLR 989
Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350
Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Transfield Pty Ltd v Arlo International Ltd [1980] HCA 15; (1980) 144 CLR 83, 101

TABLE OF CONTENTS

Introduction and overview
Major issues
Nature of evidence adduced at trial
Principles of contractual construction and some other matters of law
Events leading up to the SFA
The SFA of 10 September 1996
Events subsequent to the SFA leading up to August 2004
The Woodie Woodie Super Fines Project - Deed of Acknowledgment of 25 August 2004
Woodie Woodie Super Fines Project - Heads of Agreement 25 August 2004
Findings as to events subsequent to PMI's commencement of secondary processing operations at Woodie Woodie in 2004 using its trial plant
The June 2007 Agreement (exhibit 107)
The Camp East Agreement (CEA) of 28 March 2008
Events subsequent to the CEA
Trial during November 2009 and April and May 2010
Resolution of main issues

Discussion

(a) are coarse rejects Super Fines for the purposes of the 1996 SFA?

(b) coarse rejects - conclusions as to construction of SFA

Resolution: provision of a TSF to PMI

(a) provision of an approved TSF for use by PMI

(b) direct tailing from defendants' plant at Woodie Woodie into PMI's plant

(c) cl 4.1(b) of the SFA and the best endeavours obligation upon the defendants under the SFA to tail direct from the defendants' processing plant into PMI's secondary plant

CEA of March 2008

Do its express direct tailing provisions continue to have application?

Summary of conclusions

Schedule

Exhibit 1:

KENNETH MARTIN J:

Introduction and overview

The plaintiff, Process Minerals International Pty Ltd (PMI) advances claims against the defendants, related corporations Consolidated Minerals Pty Ltd (CML) and Pilbara Manganese Pty Ltd (PMPL) grounded exclusively in contract. The basis for the relief sought by PMI begins with a written agreement entered into between these parties on 10 September 1996 known as the Super Fines Agreement (the SFA). On PMI's case, there was an oral component associated with the SFA, but this is strongly challenged by the defendants.
In 1996, these corporate parties were operating under different names. PMI was known as Port Services (WA) Pty Ltd and is referred to in the SFA as 'Port'. CML was then known as Valiant Consolidated Limited and PMPL (its wholly owned subsidiary both then and now) was known as Valiant Manganese Pty Ltd. The defendants are respectively referred to as 'Valiant' and 'Manganese' in the written SFA.
The SFA essentially dealt with a scenario of anticipated future developments arising out of PMI's secondary manganese ore future processing plans. PMI planned to process and sell for profit, material known as 'Super Fines'.
Up to September 1996, CML and PMPL were engaged in the business of extracting manganese lump or manganese fines for export out of ore bodies in tenements in the north‑west of Western Australia at a location approximately 400 km south‑east of Port Hedland, known as Mike Mine. But in 1996 the manganese ore deposits at Mike Mine were almost exhausted. As a result, the defendants looked to acquire further manganese tenements. Some 20 km to the north of Mike Mine lay a long‑standing (since 1949) manganese ore processing plant and tenements operated by Portman Mining Ltd (Portman). This location was known as Woodie Woodie.
The defendants' acquisition of the Portman processing operation and tenements at Woodie Woodie was completed in the period leading up to September 1996 and the entry of the SFA. In this period, two men by the name of Farrell, but who were not related, namely Dr Bradford Farrell (Dr Farrell) and Mr Simon Farrell (Simon Farrell), were directors of both defendants.
Over the course of operating the defendants' manganese ore extraction business at Mike Mine, the Farrells developed a close business working relationship with a Mr Christopher Ellison who was a director of the corporation, Crushing Services International Pty Ltd (CSI). Another director of CSI was Mr Michael Kiernan, but Mr Kiernan had less interaction with the Farrells than his fellow director, Mr Ellison.
CSI provided crushing services by way of assistance to the defendants at Mike Mine. In the process, Mr Ellison developed considerable insight into the defendants' manganese ore extraction operations at Mike Mine. Prior to the SFA, Mr Ellison conceived an idea of a separation plant which would extract from what would otherwise have been a liquid waste slurry produced by the defendants' operations, some smaller solids containing manganese which were not processable. These waste solids which were in the dimension of less than 1.2 mm, were designated as Super Fines and they were extracted from the defendants' liquid waste slurry by a prototype machine Mr Ellison designed and eventually constructed at Mike Mine, known as a 'dinosaur'. From reports, the dinosaur worked successfully in terms of separating the smaller manganese solids from the slurry. However, the extracted solids were not processed further notwithstanding their manganese content. They were simply stored, on site, at Mike Mine.
The benefit to the defendants of the work of the dinosaur at Mike Mine was to reduce the amount of overall storage capacity for waste generated by the defendants' ore processing operations. There is no empirical data as to the quantitative reduction storage volume as a benefit arising out of the separation process associated with deployment of the dinosaur at Mike Mine. But the uniform evidence of Mr Ellison and of the Farrells at trial, essentially was to the effect that the utilisation of the dinosaur at Mike Mine had been positive in terms of reducing the area needed by the defendants for waste (tailing) storage, and thereby reducing one of the significant expenses associated with running a mining operation.
The separated manganese Super Fines material became the focus of a negotiation between Mr Ellison and the Farrells regarding its potential future processing by Mr Ellison, to generate a saleable manganese product from these extracted solids. A new corporation PMI, was specifically obtained and utilised by Mr Ellison for the purpose of entering the SFA with the defendants, with a view to achieving the objective of processing the Super Fines at a future time to produce a saleable, but smaller manganese product. Mr Ellison wished this new venture to be kept separate from the crushing business still carried on by CSI. Accordingly, a new corporation, PMI (then known as Port) was used as the vehicle by which Mr Ellison would enter into a long‑term agreement with the defendants arising out of the negotiations with the Farrells concerning the processing of this Super Fines material.
A written SFA was eventually consummated in September 1996. But for various reasons, it was not until eight years later, in 2004, that PMI was actually able to build a trial processing plant on the defendants' Woodie Woodie tenements, then commence the processing of Super Fines material at Woodie Woodie. By 2004, the defendants had emerged from a scenario of insolvency administration which had befallen them, shortly after the SFA had been entered into in 1996.
By 2004, the Farrells had long ceased to be directors of the defendants. They had been replaced by a new board which included Mr Kiernan from early April 1998. Mr Kiernan was a director of both PMI and the defendants, up until mid‑April 2001, at which time he ceased all association with PMI. Mr Kiernan then remained a director of the defendants until the end of June 2006.
With the departure of Mr Kiernan as a director of PMI in April 2001, Mr Ellison was left as the controlling personality associated with the operations of PMI.
Subsequent to the parties entering the SFA in September 1996, they entered over time, a series of further written agreements. They are referred to in par 13 of PMI's further re‑amended statement of claim. These written agreements in certain respects vary terms of the SFA. I will explain their content, to the extent that it is relevant, later in these reasons.
Various disputes have arisen between the parties over time associated with the parties' respective manganese ore processing businesses - which largely arise out of two manganese processing plants which are situated and have been operating proximate to each other on the defendants' Woodie Woodie tenements, since 2004. A convenient orientation in terms of the respective plant locations at Woodie Woodie and some other locations which feature in these reasons, is found in exhibit 1, which is also an attachment to the further re‑amended statement of claim. I append exhibit 1 as a schedule at the end of these reasons, for ease of reference.
A level of interdependency is necessarily associated with two distinct manganese processing businesses operating from the same mining tenements. Essentially, the parties have now become competitors in the same world market for the sale of manganese fines. Some disputes appear to have their genesis in the long‑term business nexus that was established in 1996 between the parties, as a result of the potential long duration of the SFA (see cl 10 thereof). Furthermore, the SFA was entered in 1996, at a time when PMI's proposed secondary manganese processing operation based upon Super Fines was a wholly conceptual notion. By the time PMI's trial processing plant actually began operating at Woodie Woodie in 2004, the parties had encountered and dealt with many day‑to‑day logistical practicalities associated with adjacently operating manganese ore processing businesses. The SFA contemplates a relationship both of proximity and interdependency as between the two manganese processing operations, in circumstances where only the primary operation (the defendants' operation at Mike Mine and their operation at the Portman plant at Woodie Woodie) existed at the time the SFA was entered in September 1996. A PMI secondary Super Fines processing operation would not actually commence at Woodie Woodie for another eight years.
In 2005, PMI replaced its trial processing plant at Woodie Woodie with a new permanent plant. PMI then processed stored Super Fines materials which it extracted out of a purpose built storage area, known as Tailings Storage Facility 2 (TSF 2) which can be seen (numbered 9 on exhibit 1). PMI's trial plant had initially processed Super Fines material extracted from another tailings storage facility (TSF) location, namely TSF 1, an area better known as Rhodes Pit (numbered 10 on exhibit 1).

Major issues

As I have said, PMI's causes of action are grounded solely in contract. In the main, they arise out of the terms of the SFA. A discrete contractual issue however, arises out of a subsequent written agreement entered into between PMI and CML on 28 March 2008, and known in these proceedings as the Camp East Agreement (the CEA).
The CEA provides expressly for CML to send its tailings (in the form of a water‑based slurry) directly to (pumped via a pipeline connecting) PMI's processing plant, which is constructed several hundred metres to the west of the defendants' plant (see exhibit 1 and areas numbered 1 and 2 in the rectangle areas).
The issue of contractual interpretation arising out of the CEA is whether the direct tailing arrangements expressly provided for in the CEA, (cl 2) continue beyond the life of Camp East as a useable TSF. It is uncontroversial on the trial evidence that Camp East reached its capacity as a TSF at the end of November 2009. That of course was after this trial first commenced and had run for five days between 16 ‑ 20 November 2009.
From December 2009, the next TSF established by the defendants and used for deposition of waste material, was a replacement TSF located to the west of Camp East and referred to in this action as Area One (see exhibit 1 and the area numbered 4). The question is whether express arrangements under the CEA stipulating for direct tailing (in effect, plant‑to‑plant by pipeline), are to continue in their application past November 2009, upon the storage capacity of Camp East as a TSF being exhausted. In other words, are the defendants required to continue to direct their waste slurry out of their primary processing plant at Woodie Woodie via pipeline directly into the PMI plant?
That issue of construction of the CEA is distinct from the three other central issues which arise in the context of the construction of the 1996 SFA. These, in summary, can be identified as:
(a)Whether another by‑product of the defendants' manganese ore processing operations, referred to in this litigation as 'coarse rejects', falls as a matter of the proper construction of the SFA, within the breadth of the SFA's definition of Super Fines. In other words, do the coarse reject materials which are found on site at Woodie Woodie, also constitute materials in respect of which ownership rights passed by assignment to PMI, under the SFA?;
(b)Whether expressly or as a matter of implication, the terms of the SFA oblige the defendants to provide PMI with access to, and use of a TSF on the defendants' mining leases at Woodie Woodie? If so, a correlative issue then arises as to the precise terms upon which the defendants are obliged to provide the benefit of such a facility to PMI? In other words, does PMI have a right to the free use of a TSF, a facility that is established by the defendants? Or is PMI entitled to use the defendants' TSF at cost, or on some other reasonable commercial basis?; and
(c)As a matter of the proper construction of the SFA, are the defendants obliged to continue with a practice which they have followed (as provided for expressly under the terms of the CEA) since September 2008, of pumping their wet tailings slurry by pipeline directly to PMI's geographically adjacent secondary processing plant?
As is apparent, direct tailing did not actually commence into the PMI plant at Woodie Woodie until 2008, some 12 years after the SFA was first entered. When direct tailing did commence, the terms of the CEA expressly provided for it to occur. However, if the CEA has now run its duration in terms of applicability (as the defendants contend has occurred - upon the exhaustion of Camp East as a TSF, at the end of November 2009), then PMI nevertheless seeks to establish a distinct contractual obligation that requires direct tailing to continue by the defendants. PMI's case in this respect reverts back to the terms of the 1996 SFA. If there is no blanket express or implied obligation that can be ascertained requiring the defendants by the SFA to pump their wet slurry tailings directly to PMI's plant, then nevertheless, is that result delivered by a defendant's 'best endeavours' covenant found in the SFA, requiring the defendants to 'make available' to PMI, all Super Fines capable of being processed and treated (that obligation, of course, being construed in the context of the SFA, as a whole)? Does the SFA in 2010 impose in a pragmatic sense an obligation on the defendants to continue the current practice of direct tailing? (That exercise would, of course, proceed on the basis that the CEA ceased at the end of November 2009, to impose further direct tailing obligations on the defendants.)
An assessment of the working content of the SFA's 'best endeavours' to 'make available' obligation, in a pragmatic sense, can only be made by reference to the existing state of the mining and processing operations of each of the parties for their plants and operations, as they currently subsist. The best endeavours obligation that is imposed by cl 4.1(b) of the SFA on the defendants, must also to be assessed in the context of the terms of the SFA as a whole, including particularly against an earlier covenant (cl 2.4 in the SFA) which expressly acknowledges that in the exercise of its rights under the SFA, that PMI shall not 'unduly interfere' with the' current operations' of the defendants.
That completes a truncated summary of what are essentially, four main contractual construction issues that arise, three by reference to the SFA and one by reference to the terms of the CEA. In addition, there is an allied controversy about whether or not there was a collateral oral component to the written SFA.

Nature of evidence adduced at trial

PMI adduced evidence at the trial from Mr Ellison (whose witness statements became exhibits E, F and G), Dr Farrell (witness statement exhibit K), Mr Peter Wade (exhibit L), Simon Farrell (exhibit O) and PMI's current technical director, Mr David Geraghty (exhibits Q, R and S). The defendants adduced evidence from their current group metallurgist, Mr Roy Stephen Francis (whose witness statements became exhibits YY and ZZ) and a former general manager, director of operations and technical director in the period between December 1998 and July 2006, Mr Allan Quadrio (exhibits DDD and EEE). Additionally, evidence was led on behalf of the defendants from Mr James Lane (exhibit Y), who prepared an expert report dealing mainly with the issue of TSFs, their establishment, regulation and properties. Mr Lane is a principal of Coffey Mining, which has provided mining consultancy services to the defendants for some time, and particularly towards the establishment of Camp East and its successor facility, Area One, as TSFs used by the defendants over time.
The main issues in the trial, as I have said, relate to matters concerning contractual construction. In my assessment, this is not a case where much, if anything, turns upon an assessment of the credibility of the various witnesses called at trial by the respective parties. Nevertheless, cross‑examination at trial, in particular of Mr Ellison, Mr Geraghty, Mr Francis and Mr Lane at trial, was lengthy. In my assessment, each of those witnesses at the trial did their best to provide accurate and reliable evidence. Their evidence was primarily elicited towards showing relevant mutually known surrounding facts or circumstances concerning the SFA in operation and the subsequent written variation agreements to the SFA, including the CEA of March 2008.

Overall, I assessed the trial evidence of Mr Ellison, Mr Geraghty and Mr Francis as reliable, although both sides, in my view, may be seen to have constructed the respective written witness statements in a fashion which reveals them to be heavily 'spun' at places towards constructing a version of events perceived to be most advantageous to each side's case. Because of that, caution I think needs to be applied in some limited areas of the controversy, which I will mention later in these reasons.
Both Mr Geraghty and Mr Francis provided long witness statements, then longish responsive witness statements. Again, I think there was a considerable degree of advocacy (rather than fact) found at various points in the content of these documents, which in some contentious areas, cannot be accepted at face value, by reason of the spin factor. I thought Mr Francis provided some frank and revealing answers to questions, particularly during a searching cross‑examination. Some of those frank answers, as we shall see, were not always helpful to the case of the defendants.
Mr Lane's expert opinion evidence concerning tailings storage facilities (TSF's) was elaborative, concerning numerous complexities associated with the establishment and maintenance of an approved TSF. Mr Lane's evidence clearly established that much work and planning goes into the establishment of a TSF and obtaining the various regulatory and statutory approvals required from different quarters in that process. The issue of the ultimate rehabilitation of areas once mined, is obviously taken seriously, as it should be. The extensive work involved in establishing, maintaining and then rehabilitating a TSF area inherently carries with it a significant element of associated expense, which is a cost of the mining operation. None of Mr Lane's evidence seemed particularly controversial.
From a documentary perspective, a trial bundle of materials adduced as exhibits during the trial (apart from witness statements) comprised seven volumes. This began with an initial three volumes, soon augmented on day one of the trial with a further four supplementary trial bundle volumes. These materials comprised of approximately 200 trial bundle documents, spread across seven trial bundle volumes. A further tranche of loose documents was tendered during the running of the trial (inclusive of witness statements), and which range between exhibit A to exhibit III).
Of the 167 indexed documents within the initial (three) lever arch trial bundle volumes, only a handful of documents were ultimately not tendered. Of 41 further documents within the four supplementary trial bundle volumes, only the documents at tabs STB 4, 5 and 6 were not tendered.
The analysis of all this evidence carries, of course, different degrees of relevance or admissibility, depending upon which contractual agreement is being construed at any particular point in time.
The written component of the SFA was entered on 10 September 1996. Accordingly, I will begin with an analysis of the evidence leading up to that time. I will then examine relevant evidence in the period leading up to two further written agreements entered by way of variation to the SFA, a Heads of Agreement (exhibit 79) and a Deed of Acknowledgement which both carry the date, 25 August 2004 (exhibit 80).
The next time period in the factual assessment is the lead up to 15 June 2007, before the parties entered what is known as the June 2007 Agreement. There are two versions of this agreement, first, a longhand version (exhibit 107), then a typed version (exhibit 108). The typed version carries some acknowledged inaccuracies. Where there is inconsistency the longhand document is accepted by the parties to be the more accurate repository of the written terms.
Next, I will assess the relevant evidence in the period leading up to the CEA of 28 March 2008. Finally, I will examine some limited evidence which bears upon breach issues and relief, in the period since the CEA, up to the trial.
I should mention that the written contractual instruments entered subsequent to the SFA, which either vary the SFA expressly or by implication, were only entered as between the two parties, PMI and CML. However, no party at the trial raised any privity issue concerning the absence of PMPL (CML's wholly owed subsidiary) as a party to these variations of the SFA. So no issues in that respect arise.
Before assessing facts in each time sequence, it is first necessary for me to briefly say something as to the law concerning applicable principles of contractual construction and about the content of a contractually imposed 'best endeavours' obligation.

Principles of contractual construction and some other matters of law

There was minimal contention between the parties over the applicable legal principles relevant to the process of construing a commercial contract. It is not necessary to then expand the ambit of these reasons by undue reference to well‑known principles. In EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78, Buss JA, with the concurrence of Owen and Newnes JJA, explained these principles by reference to observations of the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40]; see reasons of Buss JA at [103] ‑ [104]. I would respectfully acknowledge and apply his Honour's comprehensive recitation of the contractual construction principles. I would also adopt and apply his Honour's following observations regarding the implied duty as between contracting parties (as a matter of law) to cooperate in the performance of contractual obligations. This is the so‑called the Mackay v Dick principle (see Mackay v Dick (1881) 6 App Cas 251, 263 (Lord Blackburn), also explained in the reasons of Buss JA at [106] and [109]).
In a context of assessing the potential ramifications of cl 4.1(b) of the SFA, it is necessary to observe that 'best endeavours' clause and to contrast its terminology of 'best', against a distinct clause which merely makes reference to the standard of 'reasonable endeavours'. The High Court of Australia, in Transfield Pty Ltd v Arlo International Ltd [1980] HCA 15; (1980) 144 CLR 83, 101, referred to a best endeavours clause, considered by Sellars J in Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234. Mason J observed (101):
A 'best endeavours' clause thus prescribes a standard of behaviour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract.
So the evaluation required as to the operative effect of a particular best endeavours clause is essentially fact specific in every case. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 64, Gibbs CJ identified the contrast in Transfield as between the views of Stephen J, as against narrower views of Mason J, and of Wilson J at (101). In Transfield the licensee was obliged to do 'all that could reasonably be expected of it having regard to the circumstances of its business operations'. The fact specific nature of the evaluation required in each case, renders it difficult for generalisations to be applied. Likewise, particular surrounding clauses found in any contract that is under scrutiny, will bear upon the ultimate assessment of the contextual ambit of best endeavours obligations.
Here, cl 2.4 is first seen to stipulate expressly that PMI's exercise of its rights under the SFA, is not to 'unduly interfere with the current operations' of the defendants. Later in the SFA, cl 4.1(b) is seen to carry its own internal qualification, by a phrase which immediately follows the 'best endeavours' commitment, in the words, 'consistent with the operations of', the defendants.
Theoretical distinctions as between possibly differing standards of behaviour carried by a 'reasonable endeavours' clause, as opposed to a 'best endeavours' clause, raise , in my view, something of an arid terminology distinction. It is of more assistance, I think, to first assess the words of cl 4.1(b) of the SFA as to its (best endeavours) obligations within the parameters of the surrounding clauses in the SFA, and then, by reference to any relevant surrounding facts and circumstances mutually known to the parties as at September 1996, which may bear upon its construction.
The construction exercise is also to be conducted having regard to the commercial purpose and object of the SFA; see again Buss JA in Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350 [145], and Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 350, applying longstanding observations by Lord Wilberforce from Reardon Smith Line Ltd v Hansen‑Tangen [1976] 1 WLR 989, 995 ‑ 996, that:
In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22] and DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429).
I also mention a helpful recent recitation principles of contractual construction, found in the observations of Buchanan J in GMA Garnet Pty Ltd v Barton International Inc [2010] FCAFC 38 [179] ‑ [194].
I now proceed to render the following factual determinations from the trial evidence.

Events leading up to the SFA

Simon Farrell was managing director of the first defendant from 1991. He was appointed a director of the second defendant on 17 June 1996. So also was his co‑director, Dr Farrell. The corporation that is the first defendant became known as Consolidated Minerals Ltd, just prior to its entry into administration and its delisting from the Australian Stock Exchange (ASX) at the end of 1996. It subsequently became Consolidated Minerals Pty Ltd (CML).
The second defendant, a wholly owned subsidiary of the first defendant at all times, became known as Pilbara Manganese Pty Ltd, after it also emerged from administration.
Simon Farrell's background was in commerce. He held his position as director until late 1997 or early 1998 (see the agreed chronology between the parties of 13 November 2009).
Dr Farrell, a geologist by background, had worked in the mining industry in Western Australia and elsewhere since 1969. He was an executive director of CML and PMPL, responsible for technical aspects of the defendants' operations. Simon Farrell was more concerned with the administrative side of the businesses of both corporations. Dr Farrell ceased to be a director of CML in February 1997.
Dr Farrell said at the trial that in 1992, CML commenced exploration upon tenements which had surrounded Portman's Woodie Woodie manganese processing tenements. In February 1993, CML made a discovery of manganese ore at the location which became known as Mike Mine. The discovery was approximately 5 km south‑east of Portman's southern most operation at Woodie Woodie. The precise mining locations are found within exhibit WW, a roll‑out map, showing the respective manganese ore bodies and pits.
CML completed a positive feasibility study of the Mike Mine discovery. It secured a mining lease, then the necessary environmental approvals. An initial contract for a trial shipment of manganese to Japan at the end of 1994 followed. Camp and treatment plant construction at Mike Mine was then established.
The defendants' ore treatment plant at Mike Mine consisted of a heavy media drum beneficiation plant, to extract lump manganese product. A cyclone plant was also used for the extraction of manganese fines, in conjunction with a front‑end crusher and wash plant. The front‑end crusher and wash plant were owned and operated by CSI.
Dr Farrell said that Mr Ellison had been involved in the initial contracting at Mike Mine. This was how the defendants' corporations initially became involved in a commercial relationship with Mr Ellison and CSI. He then dealt with the Farrells on a regular basis. Mr Ellison attended site at Mike Mine on numerous occasions. Mr Ellison also had occasion to visit Portman's nearby manganese processing operation to the north, on the Woodie Woodie tenements.
Mr Ellison explained that the Mike Mine operation involved the extraction of manganese ore by blasting - to generate run of mine (ROM) ore. Blasted ore was then hauled to a pad for crushing and processing. The ROM ore would consist of rocks of up to 600 mm in diameter, for processing. That ore would then be subjected to primary and secondary crushing processes, to ultimately derive ore less than 75 mm in size. The crushed ore was then fed into a wash plant, where it was screened and separated into categories of manganese ore of three distinct sizes, namely:
(a)ore in the range of 75 mm down to 8 mm;
(b)ore in the range of 8 mm down to a size of 1.2 mm; and
(c)ore of a dimension less than 1.2 mm.
The larger ore (between 75 mm and 8 mm) was loaded into the lump drum beneficiation plant. The produced lump manganese ore product was later transported (by road) to Port Hedland, for export by ship. At the plant the manganese lump ore had been treated, using what was, in effect, a separation process using flotation in water, by which lower manganese content ore was separated off. Mr Ellison explained that the separated away larger material had a lesser specific gravity (and therefore less manganese content) was waste or tailings material, that he referred to as 'coarse rejects'. Whether this larger separated off material is properly to be characterised as tailings (and if so, then as Super Fines under the SFA), is highly contentious in this trial. Coarse rejects having been separated, were then dry stacked around the Mike Mine mine site.
The second category of (smaller) processed manganese ore material (in the size range of 8 mm to 1.2 mm), was fed into the defendants' fines beneficiation plant at Mike Mine. The beneficiation plant utilised a cyclone process to separate out saleable manganese fines. Low manganese‑bearing solids that were separated out by this process, were also stored by dry stacking, at the same dry stack coarse reject locations, with the larger separated off material I described above.
The final category of ore, of a dimension less than 1.2 mm, was discharged after passing through the defendants' wet screens, suspended in a water‑based liquid slurry emitting those solids. This slurry (unlike the coarse rejects) is uncontroversially accepted to be tailings. Water comprising the slurry was subsequently either removed by pumping off for use in subsequent reprocessing, or the water evaporated, leaving the residual small solid tailings as waste in situ - lying in whatever TSF the slurry had been directed into. A TSF location is sometimes referred to as a tailings dam or tailings pond. A TSF might be an old disused mining pit. Alternatively, a purpose built TSF may have been constructed involving earthworks.
A TSF must be approved by the Department of Mines. Safety and environmental considerations were always relevant factors in the process associated with obtaining permission to use a proposed area as a TSF. Rehabilitation considerations were significant.
As Mr Ellison explained (exhibit E, par 22 and following) the residual solid fines material that is suspended within a water‑based slurry, eventually settles downward, allowing process water, at the top, to be recycled. This will involve the use of a dam, known as a process water dam. Water conservation and water recycling is particularly important at remote inland northern locations, where access to water is scarce, making processed water a precious commodity. Over time the settled waste solids (fines) will compact in situ. They become more dense. This process is known as consolidation. As a TSF approaches its storage capacity limit, it will need further time for final settlement and consolidation before it can finally be rehabilitated, from an environmental perspective. Self evidently, once the capacity limit of a TSF has been reached, the viable continuance of further mining operations will necessitate the establishment of a replacement TSF, carrying the inevitable cost of all work associated with establishing the next TSF.
Dr Farrell said that the emphasis of the defendants' beneficiation operation at Mike Mine had been the production of high grade lump product (exhibit K, par 21). However, the fine tailings disposal facility at Mike Mine was inadequate, as the lump to fines ratio was less than anticipated. The problem was addressed by a tailings/water management scheme directed towards removal of approximately 80% of the solids from the fine tailings using the prototype plant referred to as a 'dinosaur'. Mr Ellison had been the person primarily involved in the design, construction and implementation of a prototype dinosaur plant at Mike Mine. He was assisted by a consultant, Dr Wolf Martinick. Another term used to describe a dinosaur plant operation is a 'Harris Box' (another trial witness referred to such a plant as an 'elephant shower').
The dinosaur commenced operating at Mike Mine in the September quarter of 1995. The solids that were extracted as a consequence of the operation of the dinosaur were high grade fine manganese ore (of a dimension less than 1.2 mm).
The Mike Mine operation also experienced problems in terms of the low volume of ore produced. The end product at times did not measure up to specification in terms of the required manganese content. Meetings between Mr Ellison and the Farrells from time to time addressed the issue. Mr Ellison said that CSI had funded an upgrade to the processing plants at Mike Mine, on the basis that CSI would operate the processing plants, under contract for the defendants. According to Mr Ellison, volume and quality problems experienced in the production of lump and fines at Mike Mine, were eventually addressed. At that point, CSI was essentially running the defendants' operations at Mike Mine, under something akin to a joint venture agreement with the defendants.
Mr Ellison had conceived the idea of the trial dinosaur plant to separate away the less than 1.2 mm solids out of the wet fine tailings waste stream generated in the operation of the wet screens at the Mike Mine plant. The dinosaur's operation had reduced the volume of wet fine tailings that had then needed to be deposited into an approved TSF. This saved money in relation to the amount of TSF capacity being used up, But the extent of the saving was not quantified.
The prototype dinosaur at Mike Mine employed cyclone technology. This was not particularly new, but it had not, to Mr Ellison's knowledge, ever been used before in the way the dinosaur operated at Mike Mine. Mr Ellison said, and it appears to be uncontroversial, that at this time there was no market for (dinosaur extracted) manganese fines - they being of such a small dimension (ie of the size 1.2 mm and smaller).
Mr Ellison explained that the dinosaur at Mike Mine worked by the defendants' wet fine tailings slurry being emitted directly from the defendants' beneficiation plant into the dinosaur plant. Extracted small manganese fines were then dry stacked. Emitted waste water which still contained other solids, was then filtered, purified and discharged into streams.
Mr Ellison said that the dinosaur trialled at Mike Mine was 'successful', and that its use was continued for the remaining duration of the Mike Mine operation (which according to the statement of agreed facts was only until October/November 1996). There is no empirical data as to the effects of the dinosaur at Mike Mine in terms of a TSF volume storage saving, or in a dollar cost saving.

In 1995, Portman closed its Woodie Woodie operations in order to concentrate on its Koolyanobbing iron ore operation (exhibit K, par 14). In late 1995, the defendants' managing director, Simon Farrell, held discussions with Mr Jones of Portman about a possible acquisition of Portman's Woodie Woodie operation. Negotiations were successfully concluded in July 1996.
Simon Farrell said (exhibit O, par 11) that CML then commenced open pit mining operations from Woodie Woodie. The defendants did so by continuing to use CSI as the crushing services contractor at the newly acquired Woodie Woodie operation.
Mr Ellison assisted the Farrells in the Portman negotiations leading up to the successful acquisition of the Portman tenements at Woodie Woodie. Mr Ellison was involved in the due diligence exercise undertaken by the defendants. Accordingly, Mr Ellison and the Farrells both knew of the Woodie Woodie operation of Portman prior to September 1996, before the SFA was entered.
The trial dinosaur plant used at Mike Mine worked satisfactorily from the perspective of both the Farrells and Mr Ellison. However, the extracted manganese fines material generated, was not further processed. It was merely separated and dry stored. The Farrells discussed with Mr Ellison, arrangements by which a new corporation (PMI) would be formed by Mr Ellison, specifically for a purpose of acquiring ownership of the manganese Super Fines, either in stockpile or in situ, at both Mike Mine and Woodie Woodie. Simon Farrell principally dealt with Mr Ellison in the negotiations, although to a lesser extent he had some dealings with Mr Kiernan. Mr Ellison remembered these discussions as spanning a period of about 9 months across 1995 and 1996 and being held particularly with Simon Farrell. Mr Ellison was the more enthusiastic party over a prospect of potentially reprocessing the extracted manganese solids generated from the work of the dinosaur plant at Mike Mine as well as, prospectivity, at Woodie Woodie. His recollection was that Simon Farrell had expressed some scepticism about the commerciality of Mr Ellison's plans (exhibit E, par 36). Concerns over technical and marketing issues also underpinned the expressed scepticism.
During the nine months of negotiations, Mr Ellison became acquainted with the defendants' negotiations to purchase Portman's operations and tenements at Woodie Woodie. It was at Simon Farrell's request that Mr Ellison had assisted in CML's due diligence enquiries with Portman.
Mr Ellison and some other CSI staff had inspected the Woodie Woodie mining site including the mining and processing plants. During one of these inspections of the Woodie Woodie mine site, Mr Ellison noticed a stockpile of the material which he referred to as 'coarse rejects'. He estimated the amount of this material to be in the vicinity of three to four million tonnes, stockpiled in what he referred to as a 'coarse rejects stockpile'.
Mr Ellison even conducted some testing on coarse rejects materials from Woodie Woodie. The tests revealed a manganese content of about 20% ‑ 25%, according to Mr Ellison. Mr Ellison also noticed a substantial quantity of what he called fine tailings lying in one of the TSFs at Woodie Woodie, designated as TSF 1. This is the TSF more commonly called Rhodes Pit.
Mr Ellison's negotiations with the Farrells extended in ambit to embrace Woodie Woodie (see exhibit E, par 49). Discussions with the Farrells raised the prospect of a more sophisticated version of the dinosaur plant (beyond that trialled at Mike Mine). The more sophisticated plant that Mr Ellison planned would now be built to process the small manganese solids that were extracted from the stream of fine tailings slurry. One consequence of the new plan would be to reduce even further the extent of wet fine tailings storage area needed. But from this new plan of Mr Ellison's also arose the prospect of the allied potential for refining the extracted smaller manganese fine material, that would potentially generate a saleable, albeit smaller refined manganese product.
Mr Ellison recalled some further general discussion with the Farrells over the prospect of processing coarse reject material which was to be found at both Mike Mine and Woodie Woodie. He said that at the time a difference of views emerged. Dr Farrell expressed to him a view that there was no prospect of coarse rejects ever being commercially reprocessed. This was on the basis of technical difficulties and the low manganese price which prevailed at the time. Mr Ellison says that he expressed greater optimism about coarse rejects. He told the Farrells that he thought there was a prospect that coarse reject material might in future be economically reprocessed and that there might be some dry stacking benefits associated with all that. In my view, this generalised coarse reject negotiation discussion evidence was of such a loose nature as to be wholly unhelpful towards establishing any mutually known surrounding fact or circumstance for a purpose of reliably bearing upon the construction of written terms in the SFA. Paragraph 54 (exhibit E) in Mr Ellison's statement appears to have been constructed to carry with it an intended consequence that the term 'tailings', if used in these discussions would extend to include both the wet fine tailings slurry, as well as the coarse rejects, on a basis that 'coarse rejects' would thereby fall within the umbrella of the general terminology, 'tailings'. But my assessment is that there is too significant an element of spin and self interest at this point in Mr Ellison's witness statement, as regards the said to be remembered content of these long past general negotiations with the Farrells on this topic. I am driven to assess this evidence, both in Mr Ellison's witness statement, as well as in the Farrells' witness statements about coarse reject discussion - with considerable scepticism. In any event, the admissibility of general negotiations, from a contractual construction perspective, as regarding a written instrument (the SFA), is, at this point, highly questionable.
I do accept, as Mr Ellison relates at par 55, that Dr Farrell was against any proposal for PMI to deal with coarse reject material in stockpile at Mike Mine - on the basis that this might interfere with rehabilitation obligations at Mike Mine which was then rapidly reaching its exhaustion as a mine. Once the Mike Mine ore body was exhausted in or around October/November 1996, the defendants' operations ceased at that location. The focus of the defendants' operations from that point, turned to Woodie Woodie and to its 'Big Mac' mine, acquired as part of the Portman tenements.
Mr Ellison recalls (par 57) that in the pre‑SFA discussions with the Farrells during 1996 concerning what would occur with PMI's potential secondary processing plant at Woodie Woodie, that the Farrells both said words to him to the effect that they were anxious that once PMI's plant was up and running, that the PMI plant receive wet fine tailings directly from the defendants' plant, since this would minimise the extent of tailings storage needed by the defendants at Woodie Woodie. However, I find no support for the contention that it was the Farrells who were expressing interest in initiating direct tailing at Woodie Woodie. Rather, it is my assessment that it would have been Mr Ellison who was highlighting to the Farrells any desirability in direct tailing. I find that the conceptual prospect of future direct tailing to a plant to be established by PMI at Woodie Woodie, was not discussed in anything more than general conceptual terms, at the time. I can accept Mr Ellison's evidence to the effect that it was mentioned by him to the Farrells, that it was likely PMI's processing costs, once PMI was directly receiving the defendants' wet fine tailings discharge slurry via a direct feed, would likely be less than the cost for PMI itself to extract its required super fines material itself from a stockpile or tailings dam, using an excavator or excavation processor. As a result, PMI could afford to pay the defendants more for super fine material which was directly received. More money received from PMI for feedstock would be an economic incentive for the defendants to directly tail their waste materials to PMI's plant, once it was established. But there obviously is a very significant distinction between providing an economic incentive to do something and laying down an absolute commitment. I do not assess in all the evidence the latter concept to have been raised, particularly bearing in mind the merely conceptualised discussions and therefore what was uncertain as to what might or might not eventuate, under Mr Ellison's future plans.
Mr Ellison could not recall any specific discussion with the Farrells about deposition of the defendants' tailings, once the PMI plant at Woodie Woodie had begun to process that material. I accept that to be so.
The SFA of 10 September 1996 carries the signatures of both Farrells, as directors on behalf of the defendants - with the signatures of Mr Ellison and Mr Kiernan as directors of PMI (affixed adjacent to the common seal).
To the extent that it is PMI's case (see the further re‑amended statement of claim par 7), that there was also an oral component that accompanied the written SFA of 10 September 1996 and which dealt with an issue of direct tailing, I would reject that contention. It lacks any evidentiary support. Furthermore, in the terms as formulated, it is problematic. The oral term contended for is:
7.Further the [SFA] contained an express oral term that when the plaintiff's Plant had been properly commissioned, and had demonstrated an ability to reliably accept a stream of wet tailings feed, the first and second defendants would commence tailing directly into the plaintiff's Plant when requested to do so by the Plaintiff.
Such a term would in my view be inherently uncertain, particularly by reference to the dual qualifications, first as to proper commissioning; second, as to demonstrating the ability to reliably accept a stream of wet tailings feed.
In my analysis, it is solely the written content of the SFA document which embodies the full content of the parties' agreement and bargain, consummated in September 1996.
It is now appropriate to assess the content of the SFA itself, a somewhat complicated long‑term contractual arrangement. On the basis of the submissions of each of the parties, almost all of its written terms are of constructional importance in terms of carrying vital insight as to the parties' respective positions as regards the present issues of construction. Accordingly, it is necessary to set out a considerable amount of its content, before resuming my ascertainment of the relevant facts in the case.

The SFA of 10 September 1996

It is convenient at this point to set out a number of the provisions of the SFA. Reference to 'Port' in the SFA, is to PMI:
1.1In this Agreement the following words have the following meanings:
'Agreement' and 'this Agreement' means the Agreement between the Parties constituted by this document;
'Future Tenements' means any other mining tenement under the Mining Act owned (in whole or in part whether through a joint venture or otherwise) managed or controlled by Valiant or Manganese at a future date and on which is located Super Fines and as otherwise referred to in Clause 4.1(e);
'Mining Act' means the Mining Act 1978 (as amended) of Western Australia;
'Minister' means the Minister of Mines or any other Minister of the Crown in the right of Western Australia charged with the responsibility of administering the Mining Act from time to time;
'Net Profit' means the net profit amount calculated in accordance with Clause 5;
'Operations' means:
(a) all of the activities to be carried out by Port to build, operate and manage the Plant on the Tenements;
(b) the required treatment and processing of the Super Fines undertaken by Port through the Plant or Plants; and
(c)the sale of the Product as provided for under this Agreement;
'Party' means a party to this Agreement and 'Parties' has a corresponding meaning;
'Plant' means the processing plant or plants to be constructed by Port on the Tenements for the treatment and processing of Super Fines;
'Royalty' means a royalty of:
(a)$8.40 per tonne for all minus 1.2mm manganese concentrate product which has been derived from feed directly entering Port's processing plant from Valiant's or Manganese's beneficiation plant;
(b)$5.00 per tonne for all minus 1.2mm manganese concentrate product derived from feed from stockpiles and tailings ponds;
'Special Product' means the end product greater than 52% manganese following further treatment and processing in excess of that undertaken for the Standard Product;
'Standard Product' means the end product following treatment and processing of the Super Fines through the Plant by Port and less than 52% manganese.
'Super Fines' means:
(a)        in respect of Mining Lease 46/150, all minus 1.2mm tailings that has left Valiant's manganese beneficiation plant in stockpile or in tailings ponds on the Tenements and Future Tenements; or
(b) in respect of the mining tenements set out in paragraph (b) of the definition of Tenement, all tailings that have left the wash plant or the beneficiation plant;
'Tenements' means:
(a)Mining Lease 46/150 registered in the name of Valiant;
(b)the mining tenements comprised in the Woodie Woodie Mine, run of the mine stockpiles and all associated tenements purchased by Manganese from Portman Mining Limited or any of its related companies;
(c)any other mining tenement or mining tenements which may be granted in lieu of; or relate to the same ground as Mining Lease 46/150 or the tenements set out in paragraph (b) of this definition;
(d)subject to the rights of Valiant or Manganese as the holder of the Tenements includes the right to mine as set out in this Agreement and other privileges appurtenant to the Tenements; and
(e)to the extent that any of the Future Tenements are the subject of this Agreement, includes these Future Tenements; and
'Term' means the period set out in Clause 10.
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1.5A reference to Valiant includes Manganese and any other related corporation of Valiant or Manganese.
2.GRANT OF RIGHTS TO THE SUPER FINES
2.1Valiant (and to the extent the ownership rights in the Tenements are held by Manganese, Manganese):
(a)assigns to Port the ownership rights to the Super Fines in consideration Of the payment of the Royalty;
(b)grants to Port the exclusive right during the Term to remove, treat and exploit the Super Fines in accordance with its rights under this Agreement; and
(c)authorises Port to sell the Standard Product and the Special Product in accordance with Clause 6 of this Agreement.
2.2During the Term, Port, its agents, licensees, contractors, employees, servants and invitees shall have the following rights in respect of the Tenements insofar as Valiant and Manganese respectively have the power to grant these rights:
(a)to have non-exclusive possession and use of the Tenements to carry out the Operations, in accordance with site rules and statutory regulations.
(b)to pass and repass over all parts of the Tenements upon the natural surface of the ground with or without vehicles or mechanical contrivances;
(c)to install, bring, erect and use on the Tenements the Plant including without limiting the generality of this clause all buildings, plant, equipment, machinery and appliances as it thinks fit in order to carry out the Operations and in a location mutually agreed;
(d)to remove the Plant and any buildings, plant, equipment, machinery and plants as referred to in Clause 2.2(c) (which rights shall also continue for a period of six months after the expiration or sooner determination of this Agreement) with the right in these assets to remain in the sole ownership of Port;
(e)to establish, maintain and operate facilities of all kinds as may be necessary for the benefit of its personnel; and
(f)to determine in its discretion the nature, extent and timing of the Operations subject to any matter set out in this Agreement.
2.3Property in the Super Fines shall pass to Port on the signing of this Agreement.
2.4In exercising its rights set out in this Agreement, Port shall not unduly interfere with the current operations of Valiant or Manganese and shall comply with all reasonable requests of Valiant or Manganese in respect of the location and conduct of the Operations.
2.5Valiant covenants in favour of Port that it will procure the performance of any obligation of Manganese-under the terms of this Agreement.
3.PROCESSING PLANT
3.1In order to treat and process the Super Fines Valiant and Manganese acknowledge that Port intends to design, construction, operate and manage at its sole cost the Plant to process high quality manganese fines suitable for sale as product in industries including but not limited to chemical, battery manufacture, brick colouring and water purification industries and also as feed stock for the Chemix manganese sulphate project owned by Valiant or Manganese, as the case may be.
3.2Port shall during the term of this Agreement continuously operate the Plant in a proper and efficient manner and according to the best and most approved methods practised in similar undertakings.
4.GENERAL COVENANTS OF VALIANT AND MANGANESE
4.1 Valiant and Manganese covenant in favour of Port as follows:
(a)they are respectively entitled to grant the rights under this Agreement and as at the date of signing it is the legal and beneficial owners of the relevant Super Fines free of any encumbrance, charge or third party rights whatever and full title and right in the Super Fines shall vest in Port;
(b)Valiant and Manganese shall use their best endeavours consistent with the operations of Valiant and Manganese to make available to Port all Super Fines capable of being processed and treated;
(c)the Tenements are in good standing and all expenditure commitments under the Mining Act have been satisfied or necessary exemptions obtained;
(d)they will not reduce the screening cover on the heavy media plant or other processing plants to under 1 .2mm it being acknowledged by Valiant and Manganese that Port shall design the Plant to process Super Fines specific to this size and that Port shall suffer loss and damage if this covenant is breached;
(e)Port shall have the exclusive right to process and treat Super Fines located on the Tenements. In addition, Port shall have the first right to be granted the same rights under this Agreement in respect of the Future Tenements. These rights shall be first offered by Valiant or Manganese to Port by notice in writing setting out the terms of the offer and specifying it is open for acceptance within 30 days of receipt of the notice. On acceptance of this offer, a contract shall be deemed to arise between Valiant or Manganese and Port; and
(f)they will not assign their rights in the Tenements or their rights under this Agreement without the prior written consent of Port (which consent shall not be unreasonably withheld) and the third party signing a deed in favour of Port (prepared by Port) covenanting that it will be bound by the terms of this Agreement insofar as it applies to Valiant and Manganese (as the case may be).
4.2Valiant covenants that it has obtained the consent of the chargees under Australian Securities Commission registered charge numbers 451248, 451249 and 476055 to this Agreement and the release of the Super Fines as security under the respective charges. Manganese covenants that there are no encumbrances affecting the Superfines insofar as the same are its property.
5.CONSIDERATION
5.1In consideration of the assignment of the Super Fines to Port under this Agreement and the grant by Valiant or Manganese to Port of the access and other rights under this Agreement, Port:
(a)agrees to pay to Valiant or Manganese (as the case may be) the Royalty; and
(b)agrees to pay to Valiant or Manganese (as the case may be) an amount of 50% of the Net Profit as determined in Clause 5.2.
5.2The Net Profit shall be determined in accordance with the following formulae:
(a)in respect of the Standard Product, the following formula applies:
NP = SP - C
where:
NP=        net profit per tonne
SP=        actual sale price of the Standard Product received by Port per tonne
C= total FOB costs of exporting the Standard Product and for the purposes of this formula fixed at $90 per tonne (subject to increase/decrease under Clause 5.3) except that marketing costs and all taxes, duties, Western Australian government royalties under the Mining Act and assessments shall be added to this fixed price
(b)in respect of the Special Product, the following formula applies:
NP=SP - C
where:
NP=        net profit per tonne
SP=        actual sale price of the Special Product received by Port per tonne
C=        total FOB costs of exporting the Product and for the purposes of this formula this amount shall be negotiated in good faith between Port and Valiant but at all times is not less than the costs substantiated by Port.
5.3…
5.4…
5.5…
5.6…
5.7…
6.SALE OF PRODUCT
Port shall determine the times and places of sales and/or delivery of Standard Product and Special Product processed under this Agreement without any restriction whatever except that Port shall not sell Standard Product or Special Product to any party who as at the date of this Agreement has purchased manganese from Valiant or Manganese without Valiant's or Manganese's prior written consent.
7.       POWER AND WATER
Valiant and Manganese (as the case may be) shall supply all power and water to Port at no charge to enable Port to conduct the Operations.
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10.TERM
This Agreement shall continue for the life of the mine conducted by Valiant and Manganese (as the case may be) on the Tenements and for the avoidance of doubt, the life of any mine on the Future Tenements.
11.MAINTENANCE OF TENEMENTS
11.1During the Term, Valiant and Manganese (as the case may be) shall meet all statutory obligations in respect of the maintenance for the Tenements and shall observe and perform all covenants, stipulation's and other matters relating to the Tenements including keeping the Tenements in good standing.
11.2Port shall supply Valiant and Manganese (as the case may be) with plans and details of all work done on the Tenements in accordance with this Agreement to assist Valiant and Manganese (as the case may be) in complying with any obligations under the Mining Act.
12.INSPECTION
Valiant and Manganese (as the case may be) shall have the right at all reasonable times to examine and inspect the Operations but shall not interfere with the conduct of the Operations by Port under this Agreement.
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14.CONSENT AND REGISTRATION
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16.GOVERNING LAW
This Agreement is subject to the law of Western Australia and the jurisdiction of that State.
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19.HOUSEKEEPING
At the expiration of this Agreement or if the Plant is moved to another location within the Tenements, Port will remove the Plant and all buildings, plant, machinery and vehicles belonging to or brought upon the Tenement by Port and shall make good to the satisfaction of Valiant all damaged caused or occasioned by that removal and shall leave the Tenement in the condition and state required by any Act, the Department of Minerals & Energy, the Environmental Protection Authority, the Department of Urban Planning and Development and the local Authority.

In the context of the three core issues concerning construction of the SFA (identified at the commencement of these reasons), it is now convenient to make some broad observations upon the content of the SFA, or perhaps more accurately, its non‑content.
On the issue of coarse reject material as a potential subject matter under the SFA, it may be observed that the terms 'coarse reject' or 'rejects', are not at all mentioned in the SFA. The material in respect of which ownership rights are assigned to PMI (cl 2.1(a) and cl 2.3), is addressed only as Super Fines.
Second, I notice that the definition of Super Fines under cl 1.1(a) as regards the mentioning of mining lease 46/150, is an express reference to the Mike Mine tenement as a location. This is not controversial. Component (a) of the definition of Super Fines, by its reference to Mike Mine, addresses 'all minus 1.2 mm tailings' that have left a manganese beneficiation plant. But component (b) in the definition of Super Fines does not display the same reference to minus 1.2 mm tailings. Component (b) simply picks up the 'mining tenements' under par (b) of the definition of 'Tenement' in the SFA. It thereby draws attention to the significance of a widely defined SFA term, 'Tenement' in reference to 'all tailings' that left not only a beneficiation plant, but also a 'wash plant'. Reference in the SFA to 'Tenements', with its five (a) ‑ (e) subcomponents, sees that term in its first subcomponent (a) refer by number to the Mike Mine mining lease. But the term 'Tenements' is drawn far broader than Mike Mine, in order to also embrace another four subcomponents, including 'Future Tenements'. Injection of the defined terms 'Tenements' and 'Future Tenements' back into the latter part of subcomponent (a) of the definition of Super Fines, also creates some element of uncertainty about whether subcomponent (a) of the definition of 'Super Fine' in the SFA, as to subject matter, goes well beyond just Mike Mine.
Third, cl 10 designates the 'Term' of the SFA, as the life of mine as conducted by the defendants on the 'Tenements or Future Tenements'. As this matter came to trial in November 2009 and in May 2010, there was no suggestion that the Woodie Woodie operation conducted by the defendants was anywhere near approaching the end of its mine life. In other words, in 2010, some 14 years after the SFA was entered in September 1996, the duration of the SFA, at least as regards its 'Term", is seen to continue unabated.
Fourth, as regards the constructional issue of direct tailing, it may now be seen in the SFA that a 'royalty' as defined in the SFA, is payable by PMI in return for the assignment of ownership rights over Super Fines, and as constructed, is a two‑tiered royalty. The higher level royalty of $8.40 per tonne, is payable for all minus 1.2 mm manganese concentrate product derived from feed 'directly entering [PMI's] processing plant from [the defendants] beneficiation plant'. This is in contrast to the lesser level of royalty at $5 per tonne, payable for all minus 1.2 mm manganese concentrate product derived 'from feed from stockpiles and tailing ponds'. Accordingly, there is an apparent economic incentive afforded under the SFA to the defendants from a higher level of per tonne royalty remuneration to the extent of $3.40 per tonne, for feed material which directly enters PMI's processing plant.
Fifth, the only materials in respect of which a 'royalty' is payable under the SFA is by reference to the two components in the definition 'royalty', and which in each instance is expressed to be for minus 1.2 mm manganese concentrate product. But the payment criterion is not imposed by reference to what PMI takes as feedstock from the defendants. Rather, the royalty payment is assessed by reference to PMI's 'end product', which under the SFA may be either 'Special Product' or 'Standard Product', and dependent upon the percentage of manganese in the 'end product'.
Sixth, cl 2.1(a) refers to an assignment of ownership rights in the Super Fines, in 'consideration' of the payment of the 'Royalty'. This may be contrasted to cl 5.1, a further provision dealing with consideration payable under the SFA to the defendants, which refers not only to the 'Royalty', but also to 50% of 'Net Profit'. 'Net Profit' is then defined by reference to either 'Standard Product' or 'Special Product', by cl 5.2. It will be observed that under the SFA, PMI and the defendants were to split net profit, equally: see cl 5.1(b). Accordingly, the SFA may be seen to carry something of the hallmarks of a joint venture arrangement when entered in September 1996, in terms of the envisaged success towards shared profits in a further market not then established for the smaller, refined Super Fines manganese product.
Seventh, the definition of 'Operations' can be seen to extend in broad ambit to all activities by PMI to build, operate and manage the 'Plant on the Tenements'. This broadly defined word, 'Operations', is then used frequently throughout the SFA, in particular see cl 3, in terms of an acknowledgement by the defendants that PMI intended to design construct, operate and manage its plant at its 'sole cost'. The expressed objective (cl 3.1) was to process high quality manganese fines suitable for sale as product in industries that are identified.
Eighth, cl 2.4 of the SFA is to be noticed concerning the covenant of PMI not to 'unduly interfere' with the 'current operations' of the defendants and to comply with all reasonable requests in respect of the location and conduct of the 'Operations'. The concept of proscribing not all, but rather only 'undue' interference with the defendants' 'current operations', is an important qualification, in the overall scheme of the SFA.
Ninth, the 'best endeavours' Super Fines promise by the defendants finds expression in cl 4.1(b) as a covenant by the defendants in favour of PMI, in the qualified terms there seen. There is an immediately following internal qualification applicable within cl 4.1(b) upon the defendants' best endeavours covenant, on a basis that the endeavours of the defendants are to be 'consistent with the operations of the defendants'. Also important within cl 4.1(b) is the phrase 'make available', as is the following word 'all', in reference to the subject matter of Super Fines, that are 'capable of being processed and treated'.
Tenth, cl 4.1(d) sees the promise of the defendants not to reduce the 'screening cover' on the heavy media plant or other processing plants to under 1.2 mm, which is of significance. So also is the accompanying component to that clause by way of an acknowledgement from the defendants that PMI will be designing its plant to process Super Fines, 'specific to this size'.
Eleventh, the promise of the defendants to supply all power and water to PMI at no charge under cl 7 to facilitate PMI conducting its 'Operations', is of structural significance. It is evident that power and water are the only items which are expressly specified in the SFA as being provided by the defendants to PMI, at 'no charge'. The following cl 8 identifies a charge to PMI of $50 per man per day, in respect of accommodation at the defendants' camp for the personnel of PMI.
Twelfth, as regards the constructional issue of TSFs being provided to PMI on an ongoing basis and their use by the parties, once again there is no express stipulation to be found in the SFA about that subject.
Thirteenth, in terms of the ultimate sale of a manganese fine end product by PMI and the net profit hopefully produced out of sales of PMI's 'Standard Product' or 'Special Product', it is to be observed that there are no restrictions in the SFA upon PMI's sales, save for the covenant that PMI is 'not to sell to any party who as at September 1996, has purchased manganese from the defendants', subject to the defendants' consent. The parties (objectively assessed by reference to the written content of the SFA) therefore appear to have had some eye, at the time the SFA was entered, to PMI's future potential to become a competitor of the defendants in the supply of processed manganese, albeit that PMI was only obtaining rights to Super Fines material under the SFA.
I will now proceed to consider the evidence and render further findings on relevant factual developments subsequent to the SFA following September 1996.

Events subsequent to the SFA leading up to August 2004

Mr Ellison said (exhibit E, par 64), and I accept, that the defendants took over the Woodie Woodie mine site in late 1996, and that for the first six or nine months they did not do much, as they were experiencing financial problems. Mr Ellison observed that in about October 1997, both the defendant corporations entered administration. Dr Farrell's evidence was to the same effect (exhibit K, par 52).
Mr Ellison was in liaison with the administrators to recapitalise the defendants. Eventually, the defendants emerged from administration in March 1998. Funds that were advanced by Mr Ellison to facilitate that objective, were repaid. Post administration, the defendants contracted with CSI to install a crusher circuit, as well as a wet screen to upgrade the Woodie Woodie beneficiation plant. Some of CSI's plant was utilised to commission and operate an upgraded plant at Woodie Woodie for a period of approximately 15 months to produce saleable lump and fines product. Over that period CSI carried out work which included the modification and reinstallation of the conical cyclone chamber in the Woodie Woodie fines beneficiation plant. CSI operated the plant at Woodie Woodie for some 15 months, until CML exercised its right to buy CSI out. The defendants then began re‑operating the Woodie Woodie manganese extraction plants in their own right.
In the period after the SFA was entered, the personalities directing the respective parties altered. The defendants' directors now included Mr Michael Kiernan of PMI/CSI background. Mr Allan Quadrio became general manager of the defendants' operations. PMI, after losing Mr Kiernan as a director, engaged the services of Mr David Geraghty as a technical director, and Mr Peter Wade became PMI's managing director in 1999. Mr Geraghty became PMI's general manager on 4 August 2003. In 2007, his title changed to technical director.
But very little in terms of a realisation of PMI Super Fines processing plans at Woodie Woodie seems to have progressed between 2000 and 2004. Mr Ellison said that in 2003/2004 (exhibit E, par 68), PMI was preparing to commence a processing operation at Woodie Woodie pursuant to the SFA, using a pilot plant.
Mr Quadrio, a metallurgist, jointed CML in December 1998. He filled a number of roles, including acting as general manager of operations, director of operations and as technical director. His responsibilities involved the start‑up and management of the Woodie Woodie manganese mine for the defendants. This included taking a leadership role in negotiations undertaken on behalf of CML with PMI, in the period between December 1998 to 1 July 2006. After that, Mr Quadrio left to take another position as managing director of Monarch Gold Mining Company Ltd (a corporation associated with Mr Kiernan). Mr Quadrio had been involved in successfully recommissioning the Woodie Woodie mining operations in June 1999, following suspension of those operations in 1997. This work included the development of a mine plan, the awarding of contracts and on-site management until January 2000.
Upon being appointed operations director in 2000, Mr Quadrio's role included overseeing the Woodie Woodie mining operations through the expansion of ore reserves and consolidating the mining and processing operations. He developed an operating plan for the Coobina chromite operation and managed the design and construction of a 250,000 tonnes per annum heavy media plant for chromite ore by upgrade in 2002. He developed a financial justification and technical parameters for the addition of a second heavy media drum plant for the Woodie Woodie operations, with potential to enable a doubling of drum plant capacity, managing design construction and commissioning of that plant in January 2005.
As technical director of CML during 2005, Mr Quadrio developed financial and technical parameters for the replacement of the Woodie Woodie crushing plant with a 2M tonnes per annum plant, and managed the design, construction and commissioning of that plant in December 2005.
After commencing employment as general manager of operations in December 1998, Mr Quadrio became familiar with the defendants' mining tenements at Mike Mine. Mike Mine only had a single ore source, whereas the Woodie Woodie mine had numerous pit ore sources (see exhibit WW) with the feed having widely varying characteristics in relation to manganese contaminants. A significant amount of low grade manganese ore, known as 'blue' grade ore, had been processed at Woodie Woodie. This led to variability in the range of contaminants increasing, compared to the levels of contaminants present in the feed obtained from the Mike Mine pit.
Mr Quadrio observed the (disused) Mike Mine processing facility and prototype dinosaur, earlier mentioned. He noticed what he called an 'appendage to the processing facility' at Mike Mine, which consisted of a simple cycloning operation attached to the tailings discharge of CML's Heavy Media Separation (HMS) plant. There was no processing plant as such, with the infrastructure comprising an 'Elephant Shower', a simplistic form of cyclone, utilised in conjunction with a tank, pipes and a tails pump. Mr Quadrio described the former Mike Mine operation as 'extremely basic' (see exhibit DDD, par 14).
Mr Quadrio said that, for an 11‑month period during 1999 to about April 2000, the defendants had contracted with CSI to manage and operate the defendants' crushing and beneficiation plants. Exhibits 12 to 24A, contain some of Mr Quadrio's memorandums relating to safety, maintenance and operational concerns arising with CSI in the period leading up to the termination of CSI's contract and what Mr Quadrio described as the inadequate state of the plant at the time of CSI's departure. Because all this material relates to CSI and not to PMI, I have placed no reliance upon its irrelevant content, in the overall scheme of these reasons.
Mr Quadrio became acquainted with the SFA. Its content concerned him. It was the subject of Mr Quadrio's incomplete memorandum (exhibit 25) to his director, Mr Kiernan, on 18 February 2002. A face‑to‑face meeting was then convened between Mr Quadrio (with Mr Mike Cook, on behalf of the defendants), and Mr Peter Wade (and Mr Terry Stark) (on behalf of PMI). Mr Quadrio's memorandum of 5 April 2002, recording events at a meeting on Wednesday 27 March 2002, relates that 'a preliminary meeting was requested by [PMI], in order to commence the process regarding the production of Super Fines as per the contract'. Exhibit 26 is Mr Quadrio's report of the preliminary meeting, taking the form of a memorandum to Mr Kiernan.
From about March of 2003, Mr Kiernan and Mr Ellison, with the aid of respective solicitors, embarked upon a process of attempting to conclude a deed of variation, altering the original SFA's terms. Numerous drafts and communications were exchanged from March 2003 (exhibit 27A) to July 2003. As negotiations continued into August 2003, Mr Ellison engaged Mr Geraghty, with an eye to utilising him in the practicalities of PMI's commencing to process Super Fines, in accord with the 1996 SFA (see exhibit 29). Mr Geraghty's first visit to Woodie Woodie (accompanied by Mr Ellison) occurred at the end of August 2003 (exhibit 31 and exhibit 33).
Numerous discussions and meetings then followed in a lead‑up to the eventual commencement of PMI's operations at Woodie Woodie in 2004. There is minor controversy over what was, or was not, said at these meetings, which generally comprised either Mr Quadrio, or Mr Kiernan on behalf of the defendants, and Mr Geraghty, Mr Wade or Mr Ellison, on behalf of PMI. An early meeting is noted in the minutes for 14 May 2004 as between Mr Ellison, Mr Geraghty, Mr Kiernan and other representatives of the defendants. Multiple issues needed to be addressed, including where PMI would commence processing, transporting and loading, environment compliance, power and fuel requirements and statutory approvals. The breadth and duration of these discussions shows that, in a practical sense, commencement of PMI's secondary processing operation (at Woodie Woodie) involved a very substantial amount of operative 'flesh' being added to the bare skeleton of a conceptual proposal expressed under the SFA of 1996.
Two issues, which in 2004 required early resolution, in a practical sense, concerned where PMI would obtain its Super Fines feedstock for its secondary processing operation, and then, where PMI would deposit its process waste. On 28 May 2004 (exhibit 58), Mr Kiernan, on behalf of CML, advised the Department of Industry and Resources (DOIR) of contractual arrangements between PMI and PMPL (ie, by the SFA). Mr Kiernan advised that 'PMI have the rights to the contents of the tailings dam and any future tailings generated at Woodie Woodie'. He continued, 'PMPL will retain the control over deposition of waste material into the tailings dam and PMPL will also retain the rehabilitation responsibility associated with the tailings dams at Woodie Woodie'. Liaison with DOIR continued in relation to various issues, including demarcation for responsibility for rehabilitation of areas affected by the PMI operation (exhibit 59).
The parties discussed PMI commencing operations by processing fine tailings materials previously deposited into Rhodes Pit (TSF 1), and with a view to emptying that disused mine area of Super Fines material. Mr Ellison was advised by Mr Quadrio and Mr Kiernan that the defendants would carry out a series of three wall 'lifts' at the adjacent purpose‑built TSF 2, to progressively increase TSF 2's tailings storage capacity. Once PMI had extracted all fine tailings previously deposited into Rhodes Pit, the defendants would then divert their tailings back into Rhodes Pit, until it was full. There was a further plan by the defendants to ultimately build a wall around both Rhodes Pit and TSF 2, to create a 'super pit' for tailings storage. (The locations of these places, including Rhodes Pit, TSF 2, Camp East and Area One, may all be found on the attached exhibit 1, which also shows the location of the parties' respective processing plants.)
On 25 August 2004, two further agreements were entered as between PMI and CML, a Heads of Agreement and a Deed of Acknowledgment. An 'Area of Responsibility' allocated to PMI's anticipated operations, was settled upon.

The Woodie Woodie Super Fines Project - Deed of Acknowledgment of 25 August 2004

The Deed of Acknowledgment between PMI and CML identifies an area of responsibility of PMI, by reference to an annexure A. The deed is exhibit 80, and its annexure A is the second page. The deed appears to be crafted with a firm eye to having PMI accept responsibility as a 'principal employer', under the Mines Safety and Inspection Act 1994 (WA), reflecting (when objectively assessed) the understandable objective on the part of the defendants - not to be held responsible for safety issues associated with PMI's looming commencement of its discrete secondary processing operation located upon the defendants' tenements.
By recital B, the deed refers to a Heads of Agreement between the same parties of the same date, that I will now address.

Woodie Woodie Super Fines Project - Heads of Agreement 25 August 2004

Again, this Heads of Agreement is entered only as between the two parties: CML and PMI. The respective corporate seals of CML and PMI, applied to each instrument, carry the adjacent signatures of Mr Kiernan and Mr Ellison, as the respective directors for each corporation. The Heads of Agreement carries recital (B) in these terms, after acknowledging the SFA:
The parties have now agreed to vary the terms of the Super Fines Agreement and to enter into a new Super Fines agreement (on similar terms save for the agreed amendments) and Deed of Acknowledgment which will supersede and replace in its entirety the existing Super Fines Agreement, but the parties are entering into this Heads of Agreement in the interim to record their agreement on the variations which are to be made and on the additional Deed of Acknowledgment which the parties have agreed to enter into.

Accepting that the SFA must be read and construed as a whole in accordance with well established constructional principles which I have already addressed, I can only observe that I find very little in cl 2.1(a) and cl 2.1(b) of the SFA that, either read alone or in conjunction, supports a SFA direct tailing obligation construction argument by PMI. The assignment of ownership rights over Super Fines as materials to PMI, in consideration of payment of the royalty, does not advance matters (see also cl 2.3, as regards property in the Super Fines passing to Port (PMI) on the signing of the SFA).
Neither to my mind does cl 2.1(b) of the SFA assist PMI on this issue by it granting to PMI the exclusive right during the term to remove, treat and exploit the Super Fines, in accordance with PMI's rights under the SFA. Clause 2.1(b) simply frames a problematic question as to what precisely are PMI's rights under the SFA. Accordingly, I find no basis established for PMI's inferred constructional contention that the defendants fall under an absolute obligation under the SFA to tail direct to PMI's plant. There is a royalty payment differential found in the SFA that does economically encourage the defendants to tail directly, but no more than economic encouragement is found, in my view.
PMI's stronger argument, in a constructional sense, emerges factually out of cl 4.1(b) of the SFA, which given its importance I will repeat, but in truncated fashion, allowing for the alterations in the parties' corporate designations over time:
4.1[The defendants] covenant in favour of [PMI] as follows:
…
(b)[the defendants] shall use their best endeavours consistent with the operations of [the defendants] to make available to [PMI] all Super Fines capable of being processed and treated;
As the arguments unfolded during the trial, this 'best endeavours' clause seemed to embody PMI's strongest case to establish that, if the SFA is a wholly written instrument (as I have concluded), and that the CEA of March 2008 ceased to have effect upon the event of the Camp East TSF reaching its capacity limit at the end of November 2009 (as I have also concluded), that the defendants still remain obliged to continue the direct tailing practice which has now been followed since September 2008, and even though the applicable TSF now being used by the parties, is Area One, not Camp East.
Obviously, a 'best endeavours' clause needs to be construed in the context of the SFA as a whole, alongside its surrounding clauses, applying the orthodox principles of contractual construction. Once a meaning is correctly ascertained, the clause then has to be applied to the prevailing relevant facts that present, from time to time, as between the parties.
As it closed its case, PMI through counsel indicated that any declaratory relief (not damages for breach) would be sought upon the direct tailing issue. The draft declaration sought is framed by PMI insofar as it concerns direct tailing and the asserted obligation of the defendants to continue that practice, in these terms:
2.For so long as:
2.1the Plaintiff continues to operate its manganese fines treatment plant (subject to breakdown or planned shutdown for maintenance or short term purposes) in is current position at the Woodie Woodie mine site (marked on the attached aerial photograph (EX1));
2.2the Defendants continue to operate their manganese ore plant (subject to breakdown or planned shutdown for maintenance or short term purposes) in is current position at the Woodie Woodie mine site (marked on the attached aerial photograph (EX1));
the Defendants will be in breach of their obligations under the Super Fines agreement dated 16 September 1996 (as amended) if:
2.3they cease (otherwise than as a result of breakdown or planned shutdown for maintenance or short term purposes) tailing directly into the Plaintiff's plant at Woodie Woodie; or
2.4in the event that tailing directly into the Plaintiff's plant is not possible (due to breakdown or other malfunction or plant shutdown for maintenance purposes) they cease tailing to a screw classifier at Area 1 Tailings Storage Facility;
2.5they refuse to allow the Plaintiff to pump tailings discharged from the Plaintiff's Manganese Fines Treatment Plant to Area 1 Tailings Storage Facility or provide another tailings storage facility to receive the said tailings.
In concluding written submissions PMI effectively accepts that the declaratory relief sought on the basis of the best endeavours obligation to make available the Super Fines material, could only be granted in respect of the factual situation prevailing as between these parties as pertains on the evidence presently before the court. PMI submits (par 210 of its written closing submissions) that:
If for bona fide commercial or technical reasons the defendants seek to relocate their plant or otherwise alter their plant or process such that the existing direct feed arrangements become problematic, or more expensive ‑ for instance because it is necessary to build a longer pipeline ‑ then the parties will at that time have to consider how the defendants are to comply with their obligations under clause 4.1(b) to use their best endeavours to make the Super Fines available consistent with their own operations.
This court is in no position to resolve future hypothetical eventualities surrounding the processing operations at the respective plants of the parties at Woodie Woodie. It can only deal with the facts presented at the trial, as regards the defendants' direct tailing obligations (if any) arising out of the best endeavours clause in the SFA. Manifestly, the prevailing relevant facts may alter over time.
I repeat that I have already concluded that there is no oral component to the SFA containing an oral term as to direct tailing which PMI seeks to establish under par 7 of its further re‑amended statement of claim. The evidence simply does not rise to that standard, particularly viewed against the parties' decision in September 1996 to reduce their bargain to writing. The prospect of an allied oral component, collateral to the written SFA is more than remote, in my view. See generally Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 [35] ‑ [36].
I will proceed then to a consideration of cl 4.1(b) of the SFA, construed in the context of the provisions of the SFA as a whole, by reference to the contractual principles I have already discussed.

(c) cl 4.1(b) of the SFA and the best endeavours obligation upon the defendants under the SFA to tail direct from the defendants' processing plant into PMI's secondary plant

The present configuration of the respective processing plants of PMI and the defendants may be identified in exhibit 1. Direct tailing, of course, did not commence until September 2008 and then, under the CEA, following the construction of various pipeline arrangements, both plant‑to‑plant and to Camp East.
The direct tailing arrangements under the CEA also manifest two fallback positions, which I have referred to as Plans B and C - by reference first to screw classifiers located at PMI's plant (Plan B ‑ assuming the slurry tailings of the defendants reach PMI's plant, but encounter a processing problem at PMI's plant). The major fallback position (Plan C) was another screw classifier scenario, this time situate at Camp East, in the event that the slurry tailings of the defendants were not capable of being received at the PMI plant and so, needed to be pumped by the defendants south to the Camp East TSF, via the bypass pipeline, on the basis that PMI's screw classifiers at Camp East could there extract the Super Fines from the defendants' tailings slurry.
The Camp East TSF reached its capacity limit at the end of November 2009. The bypass pipeline arrangements, utilising PMI's screw classifiers (ie, under Plan C) have now been relocated to Area One, upon Area One being used as the next TSF by the parties (on the without prejudice interim basis by PMI pending a resolution in this litigation as to PMI's continuing right to discharge waste into Area One).
Clause 4.1(b) in the SFA is seen to use the expression 'best endeavours', not 'reasonable endeavours'. PMI makes something of that distinction, contending that 'best' carries with it the higher level of obligation. However, not much turns here on that nomenclature distinction in a pragmatic 'on the ground' assessment , in my view.
Clause 4.1(b), read in the context of the SFA as a whole, is hardly absolute in character, in terms of the 'endeavours' obligation imposed upon the defendants to 'make available' the Super Fines material which is assigned to PMI under the SFA. In the first place cl 4.1(b) manifests its own express qualification, on a basis that the obligation to use best endeavours is limited to being, 'consistent with the operations' of the defendants. I assess that qualifying phrase in the SFA to mean that the defendants making available obligation to PMI of 'all Super Fines', must not significantly prejudice the defendants' primary manganese ore processing operations. Second, an overall qualified character in the defendants' best endeavours commitment to 'make available', is strengthened, I think, under cl 2.4 of the SFA which provides:
In exercising its rights set out in this Agreement, [PMI] shall not unduly interfere with the current operations of [the defendants] and shall comply with all reasonable requests of [the defendants] in respect of the location and conduct of the Operations. (emphasis added)
From cl 2.4, I infer that the parties did, before September 1996, (objectively assessed), envisage some limited degree of inevitable interference to the operations of the defendants - arising out of PMI's secondary operation with its plant, once it commenced. The acceptable degree of interference to the defendants, however, was not to be 'undue', assessed in all the circumstances.
An assessment of undue interference regarding 'current' operations and the manifestation of 'best endeavours' which are 'consistent' with the operations of the defendants, raise reasonableness considerations about 'on the ground', day‑to‑day facts - which can only be assessed by reference to relevant circumstances as they subsist from time to time.
I proceed on the basis that the defendants, by the terms of the SFA, agreed to accept some degree of interference to their operations that is not undue, arising out of the conduct by PMI of its 'operations'.
I have also not overlooked the consideration that the obligation of the defendants is to make available 'all Super Fines' capable of being processed and treated, or that the defendants' obligation to 'make available' once again, seems to raise fact specific considerations - which may alter across time, depending upon an assessment of all the materials being considered. For instance, PMI's accessing of Super Fines material already deposited into Rhodes Pit, or in TSF 2, as a result of the prior mining operations by Portman or by the defendants, in the period prior to September 2008, will carry its own fact specific considerations. The assessment of the defendants' obligation to 'make available' Super Fines contained within the defendants' water‑based slurry, which is emitted as a result of the defendants' processing operations from time to time, must carry its own unique evaluation considerations.
The defendants submitted, in effect, that PMI was inhibited by cl 4.1(b) from pressing for the continuation of direct tailing to the PMI plant because PMI was also going about extracting and processing other Super Fines, that PMI was taking from stockpiles and tailings ponds. The operational 'split' as between PMI's feed source of Super Fines presently appears to be about 40% from direct tailing, and with 60% from the other (dry) sources. But I see nothing in the SFA to support the defendants' contention as to PMI being constrained as regards it processing of Super Fines material on an either or basis, by reference to the feed source. I find nothing in the SFA to diminish the force of the best endeavours commitment pertaining to the defendants obligation to continue plant‑to‑plant direct tailing, simply because PMI's operations also happen to generate waste from the contemporaneous processing by PMI's plant of Super Fines derived from (dry) sources.
There is not, I conclude, any undue interference to the defendants' 'current operations', arising out of PMI's processing of feed material from stockpiles and tailing ponds concurrently with its receipt of direct feed material. And on the trial evidence, PMI has now processed all the stockpiles of dry Super Fines out of Rhodes Pit. PMI is now in the second of two stages in terms of removing the deposited dry Super Fine material found in TSF 2. This TSF 2 material is estimated by Mr Geraghty as likely to be fully processed, with TSF 2 at that being wholly cleared of Super Fine material within six to nine months of April 2010. After that, it is said by Mr Geraghty, and I accept, that PMI's only other source of Super Fines feed material at Woodie Woodie (coarse rejects aside) will be what is contained within the wet slurry emitted directly out of the defendants' plant to PMI's plant.
My assessment of the obligation of the defendants under cl 4.1(d) of the SFA to continue direct tailing is wholly grounded upon the facts as they currently subsist. I am also concerned with assessing at this time only, the defendants' stance in terms of asserted undue operational prejudice that is contended for, if the defendants are obliged to continue with the practice of direct tailing to PMI's plant. The defendants say that they would like, for the future, to implement as the norm, the (Plan C) scenario of despatching their waste slurry south via the bypass pipeline to Area One, at which place PMI would there operate their own screw classifiers, in order to extract Super Fines material - which could then be stored at Area One, before being eventually transported back 2 km back north to PMI's processing plant.
Three pieces of evidence emerging during the cross‑examination of Mr Francis bear significantly, in my view, upon the veracity of the operational prejudice which the defendants contend for as driving the position that their 'best endeavours' under the SFA, do not oblige them to continue directly tailing into PMI's adjacent plant.
First, there is an issue of the defendants' overall attitude to the PMI operation on their tenements, in the defendants not philosophically wanting to be 'beholden' to PMI. This attitude is encapsulated from a passage in the cross‑examination of Mr Francis in these terms (ts 1086):
Your real concern about the direct tailings doesn't lie in anything impinging on CML's operations. It's on what you call interdependency, or interdependence?‑‑‑That's correct.
The independence is the freedom to decide to pick up your plant and take it elsewhere?‑‑‑No, not really.
Not only that?‑‑‑Not only, no.
What else does it encompass?‑‑‑Well, we are tailing to another party to which we have no control over, we are tailing to a party whom we are having difficulties in a relationship with, and the whole company is basically beholden to that line going to PMI.
The whole company?‑‑‑Absolutely.
It wasn't in March of 2010, was it?‑‑‑But whatever happens in PMI's plant we are beholden to.
Whatever happens in PMI's plant you're beholden to. Do I understand that to mean that whatever happens in the plant will have an effect on you?‑‑‑Absolutely.
The effect will be if the PMI plant can't receive, it goes on the bypass line?‑‑‑That's right.
That's an acceptable solution for the operation of your client, isn't it?‑‑‑At the moment it is yes.
And it has been for the three months of downtime that you have produced and shown to me today?‑‑‑That's right.
Mr Francis for the defendants provided frank responses during this line of questioning. The word 'beholden' as used by Mr Francis is, I think, insightful. But his response does not assist the defendants. A philosophical objection by the defendants against the relationship with PMI, in terms of PMI's proximately located secondary processing obligation - simply cannot stand against the inconsistent framework of the bargain struck under the SFA in September 1996. It was at that time that a potentially long‑term relationship of proximity in both parties' processing operations, was accepted (see cl 10) by the defendants. In 1996, the commitment was made on the basis of a conceptual idea. Much time has elapsed and PMI's 1996 concept has now become a successful reality. The parties are now in effect competitors for sales in the world manganese market. The warmth in the business relationship between the parties has cooled since 1996. Nevertheless, it is of no moment that the defendants presently perceive the operations of PMI to be too close, or too troublesome. Such objections are simply insufficient to sustain the contention that PMI's operations 'unduly interfere' with the defendants 'current operations'. Nor does the fact that Mr Quadrio, in his equally frank evidence, characterised the 1996 SFA deal as 'atrocious' for the defendants, bear against my evaluation (ts 1207). No operational prejudice to the defendants can be demonstrated out of philosophical grievances over the merits or demerits of the 1996 bargain struck under the SFA or the allied tenement proximity that the SFA carries for the parties' respective operations at Woodie Woodie.
Second, it was very well established during the cross‑examination of Mr Francis that, in reality, there had been only minimal interruption to the defendants' processing operations (due to breakdowns, or the like) over the ensuing period after direct tailing commenced between the plants, from September 2008. This was convincingly demonstrated in two documents of the defendants, both produced during Mr Francis' cross‑examination. Exhibit XX, a crusher downtime log sheet record for the months of January to March 2010, shows negligible downtime due to tailings line changes - in fact 0% in March 2010. Exhibit BBB is a table which covers all months between September 2008 and December 2009. It is equally revealing in terms of recording very minimal disruption to the defendants' plant, as a consequence of the proximate operation of PMI's plant, on the basis of direct tailing. Indeed, Mr Francis, under cross‑examination (ts 1049), actually said this of direct tailing, 'provided everything is running fine, it works just fine'. He explained:
'Just fine' means CML has optimal conditions pertaining in its plant. There is no interference whatsoever to CML's plant. Is that right? That's what you mean by 'just fine'?‑‑‑It runs better than expected, yes (1049).
Mr Francis also said that direct tailing had now essentially become his preferred option in terms of (the defendants) processing, based upon a (favourable) experience (to date) with how the plant‑to‑plant tailing arrangements had worked out, since September 2008 (ts 1062). This most candid evidence from Mr Francis once again supports my conclusion that, for the parties' respective plants, as they are currently configured and operating, there is no operational prejudice suffered by the defendants, arising out of direct tailing.
Third, in another frank exchange during Mr Francis' cross‑examination, this emerged:
The decision to refuse to allow tailing into Area One was not brought about by a concern to try and prolong the life of a tailing storage facility?‑‑‑In area one?
Yes?‑‑‑No.
It was purely the animosity between the two companies?‑‑‑Yes.
That admission followed a series of questions about the defendants' motivations in mid‑2009, in informing PMI that at the exhaustion of Camp East as a TSF, PMI would not be allowed to tail into the replacement TSF, Area One, and that the defendants would no longer consider themselves obliged to continue the practice of direct tailing.

Whilst it is clear that the defendants genuinely thought, or were advised at the time, that their contractual position under the SFA was so strong that they were entitled to take that stance, the motivation for doing so, as admitted by Mr Frances above, is most revealing. Mr Francis also said (ts 1119):
There'd been a history of poor relationships between the two companies and we seemed to be always getting the raw end of the pineapple and this is the first opportunity we could to ‑ ‑ ‑
Reverse the pineapple?‑‑‑Reverse the pineapple, yes.
The pineapple questioning continued:
Let me understand. The stance adopted by CML wasn't brought about by any dissatisfaction with the method of direct tailings that pertained during the life of Camp East?‑‑‑No, because we had an agreement so we worked with that.
And the agreement had proved to be better than fine, in a technical sense?‑‑‑Technically yes.
This evidence by Mr Francis is wholly against any finding as to operational prejudice in the defendants arising out of direct tailing to date, assessed on the basis of the current operations of PMI and the defendants.
Another consideration arises. The defendants submit that because PMI's operation currently processes both the direct tailings as well as dry stockpiled Super Fines, that the dual processing of distinctly sourced Super Fines material is exhausting TSF capacity too rapidly, thereby causing additional expense and to incur extra levels of capital expense associated with establishing of replacement TSF facilities, including obtaining necessary environmental and regulatory approvals, as a part of the expensive TSF establishment process. Be all that as it may, it does not qualify, in my view, as operational prejudice against the defendants - for the purposes of cl 4.1(b) of the SFA, or as 'undue interference', under cl 2.4 of the SFA. My earlier conclusion that PMI does not receive the use of a TSF on a free carried basis, overlaps with and supports that conclusion.
Whilst considering this direct tailing issue, it is opportune to deal with one of the defendants' many arguments about cl 3.2 of the SFA. This clause provides:
[PMI] shall during the term of this Agreement continuously operate the Plant in a proper and efficient manner and according to the best and most approved methods practised in similar undertakings.
The defendants' submission was that the clause imposed an obligation upon PMI to continuously operate its plant, irrespective of whether that course was viable for PMI or not (ts 1279). However, that, curiously uncommercial submission is not how I would construe cl 3.2 in the SFA. The phrase 'continuously operate', in my view, bears upon the following words in cl 3.2, going towards mandating efficiencies and best practice methods to be used by PMI in relation to the operation of its plant. Efficiencies and best practice methods must be implemented on a continuous basis as regards the PMI plant. But I would reject the defendants' broader and uncommercial construction as to a required blanket continuous operation of the PMI plant.
In summary, therefore, based upon the parties' present configurations for the respective plants at Woodie Woodie and bearing in mind the state of the current operations of each party, I am persuaded that cl 4.1(b), by the best endeavours obligation within it, in a practical sense, presently obliges the defendants to continue the practice of direct tailing into the PMI's adjacently located processing plant.
I will hear the parties as to the appropriate terms of any declaration to that end. I am not persuaded that it is appropriate to declare in terms of any prior breach conduct by the defendants, as was sought by PMI, especially since declaratory relief (not damages), in the end was all that PMI sought at this trial.
I will now proceed to briefly consider PMI's alternative argument to the effect that the defendants' obligation to continue direct tailing arises independently of the SFA, by reason of the terms of the CEA, and which PMI contends continue to have force and application, notwithstanding that the capacity limit of Camp East was reached capacity at the end of November 2009, and the subsequent utilisation of the next TSF since then, namely Area One.

CEA of March 2008

Do its express direct tailing provisions continue to have application?

The CEA (exhibit 132) of 28 March 2008 is replete with language in both its recitals and in its substantive provisions, to the effect that the CEA is an agreement (in effect, by way of variation to the SFA and subsequent agreements which varied the SFA) setting down tailing arrangements applicable to Camp East as a TSF, to be used by both the defendants and PMI: see recitals A and B. Of the nine active clauses of the CEA, only cl 3, cl 7 and cl 8 do not make a direct reference to Camp East.
In my assessment, the temporal and finite link, as between the applicability of the provisions of the written CEA with the life of Camp East as a functioning TSF, is overwhelming. For instance, see cl 2:
CML will, during the period when it wishes to use Camp East as the facility into which tailings are to be sent for storage, tail direct into PMI's plant at its location current as at the date of this agreement.
An attached schedule to the CEA, makes reference to the operational responsibilities of each party and to operating and capital costs (cl 6). It identifies three categories of pipeline arrangements - all by reference to Camp East, as option 2A. The first category, CML to PMI, is represented by a black line seen on exhibit 1 linking the two plants. The following two categories of pipeline, namely CML (Plant) to Camp East and PMI (Plant) to Camp East, reinforce the strong location specific parameters of the CEA.
PMI's arguments to the contrary are based around the asserted high capital cost considerations associated with obtaining a return on this investment over time, in the wake of significant money outlaid establishing a Camp East TSF. These arguments of financial analysis are complex and clever, but ultimately, not persuasive. The explicit words of the written CEA cannot be circumvented by an economic analysis of the capital costs associated with the CEA infrastructure over time. Nor does Mr Ellison's evidence, providing personal views about his reasons for the March 2008 CEA (exhibit E, pars 117 ‑ 122), override the clear words in what was subsequently written out and mutually agreed as the CEA.
I therefore reject the PMI contention found in par 17 of its further re‑amended statement of claim, that the CEA contained an implied term to the effect that direct tailing would continue beyond the life of Camp East as a TSF. Camp East reached its capacity limit as a TSF (apart from minor topping up which will occur in the ordinary course, after the settling process in respect of deposited waste has taken place and before final rehabilitation) at the end of November 2009. From that time then PMI may only invoke the SFA to establish a subsisting obligation in the defendants to continue direct tailing.
For reasons which I have now explained, the best endeavours to 'make available' commitment of the defendants under the SFA, is a viable basis for presently holding the defendants to continue direct tailing. But, I repeat, that the best endeavours obligations of the defendants are inherently and temporally, fact specific. The assessment may require possible re‑evaluation from time to time, depending upon the state of, or the exigencies surrounding each party's respective operations. I have only resolved the matter on that limited temporal fact basis.
Before leaving the CEA, I need to observe upon cl 8, which, in 2008, altered the two‑tiered royalty arrangement originally set under the SFA for the higher level of a royalty per tonne, to the extent of a differential of $3.40 per tonne in respect of end product (if the source of PMI's ultimate end product was Super Fines fed directly from CML to PMI). The term 'royalty' was replaced by the term 'Purchase Price' under the Heads of Agreement of 25 August 2004 (exhibit 79, cl 1(a)). But the dual price payable scenario, depending on the source of PMI's feed, otherwise remained in place. Direct tailing into PMI's plant from the defendants' plant did not, of course, actually eventuate until 12 years after the SFA, in September 2008. At that time, the modified one‑level payment regime carrying the uniform remuneration of $5 per tonne (irrespective of feed source) was agreed as a variation under the CEA, as from 28 March 2008.
However, following the expiry of the CEA at the end of November 2009, the $5 per tonne arrangement applicable under cl 8 of the CEA is also at an end. As a result, dual levels of 'purchase price' remuneration, once again to be ascertained by PMI's original source of Super Fines feed, have become re‑applicable ie, either at $8.40 per tonne for direct tailed material, or at $5 per tonne, otherwise. One of the defendants' arguments raised in resisting the obligation to continue direct tailing under the SFA (by reference to the best endeavours commitment upon them, under cl 4.1(b)), was on a basis that PMI at present is effectively unable at its Plant, to differentiate and then quantify the distinct sources of Super Fines feed, as between that which PMI receives directly through the slurry from the defendants' plant by pipeline and the dry feed material which PMI extracts from stockpile (in TSF 2) at Woodie Woodie. The evidence at trial I accept is that the split in terms of PMI's sources of Super Fines feed, is 40% direct tailings from the defendants' plant, with 60% obtained from stockpiles. However, once PMI completes its processing of the (dry) Super Fines under stage 2 in TSF 2 (within six to nine months of April 2010), PMI will then have exhausted its (dry) stockpiled Super Fines material. PMI will then be wholly dependent upon the defendants' direct tailed slurry, as the sole source of its Super Fines feedstock at Woodie Woodie.
The defendants submit that the inability of the defendants to effectively differentiate at present as between the source of PMI's feed product, must carry a conclusion that there can be no obligation on the defendants to continue direct tailing. I do not agree. There are at least, I think, two related answers to this point of costing detail. First, PMI may be obliged, if it cannot differentiate (and this is a matter for proof beyond mere assertion), to pay the defendants at the higher rate of $8.40 per tonne, in terms of end product. Or, with arrangements under the CEA at an end (and so under cl 8 thereof), PMI may be obliged to take steps to install a recording mechanism into its processing arrangements, so that PMI can, in a practical sense, differentiate the source for its Super Fines feed material.
However, this issue of costing detail, in the end, cannot deflect my conclusion in respect of the obligation of the defendants, in the factual circumstances as they presently prevail, to continue with direct tailing by reason of the impact of the best endeavours obligation under the SFA, which subsists, and which requires direct tailing to continue for the present, on the basis I have explained.

Summary of conclusions

In summary, each party has enjoyed a measure of success and failure in respect of their contentions in this litigation. I would summarise the position as follows:
(a)On the issue of the coarse rejects, PMI's arguments of construction based on the SFA, have not been accepted as regards the term 'Super Fines', construed within the context of the SFA as a whole, Thus, PMI's application for a declaration that the coarse rejects stockpile falls within the definition of Super Fines in cl 1 of the SFA, should be dismissed.
(b)On the issue of PMI having use of an approved TSF, PMI has succeeded in establishing an entitlement to the use of Area One as a TSF. But since November 2009, the essential question has been a usage cost issue as to the terms upon which PMI should be entitled to its use of an approved TSF at Woodie Woodie. I have concluded that PMI should be allowed to use an approved TSF to be established by the defendants, but essentially at PMI's cost, which should be assessed on a reasonable commercial basis by a third party, if not agreed. Neither party has been completely successful in persuading me as to their respective positions on this issue. I will hear the parties as to the precise terms of any declaratory relief in relation to this issue.
(c)As regards the issue of the defendants' obligations to continue direct tailing into PMI's plant, PMI has been presently successful, by reference to its SFA 'best endeavours' to 'make available', clause argument. However, PMI has not been successful upon three other arguments which I identify as: first, its abandoned claim grounded upon existence of an implied term in the SFA as to direct tailing; second, an oral term under a collateral oral agreement argued to exist alongside the SFA; and third, PMI's distinct arguments based upon the asserted continuing application of obligations as to direct tailing under CEA, after the exhaustion of the capacity limit of Camp East as a TSF in November 2009.
In all these circumstances, I am minded, prima facie, to conclude that there should be no order as to the costs of the trial. But I will hear the parties in that respect and as to the precise terms of declaratory relief flowing out of PMI's limited success in respect of its position concerning a continuance of the defendants' direct tailing obligation - based upon the current underlying operational circumstances of each of the parties' respective plant and operations at Woodie Woodie.

Schedule

Exhibit 1: