Quasar Resources Pty Ltd v APG Aus No 3 Pty Ltd
[2023] WASCA 171
•1 DECEMBER 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: QUASAR RESOURCES PTY LTD -v- APG AUS NO 3 PTY LTD [2023] WASCA 171
CORAM: BEECH JA
VAUGHAN JA
LUNDBERG J
HEARD: 10 AUGUST 2023
DELIVERED : 1 DECEMBER 2023
FILE NO/S: CACV 44 of 2022
BETWEEN: QUASAR RESOURCES PTY LTD
Appellant
AND
APG AUS NO 3 PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: TOTTLE J
Citation: APG AUS NO 3 PTY LTD -v- QUASAR RESOURCES PTY LTD [2022] WASC 123
File Number : CIV 1955 of 2019
Catchwords:
Contract - Agreement for the sale and purchase of mining tenements - Where consideration included a net smelter royalty - Proper construction of net smelter royalty - Where calculation of net smelter royalty allowed for deductions of certain costs including the costs of 'refining' - Whether judge erred in having regard to evidence as to the understanding in the Australian mining industry at the time the agreement was entered of 'net smelter royalty' and 'refining' - Whether judge erred in fact in making findings as to such industry understanding - Meaning of the term 'refining'
Legislation:
Nil
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
| Appellant | : | A J Myers KC and V N Ghosh |
| Respondent | : | J P Moore KC and T N Owen |
Solicitors:
| Appellant | : | Allens |
| Respondent | : | Clayton Utz |
Case(s) referred to in decision(s):
Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167
AIG Insurance Australia Ltd v McMurray [2023] WASCA 148
APG Aus No 3 Pty Ltd v Quasar Resources Pty Ltd [2022] WASC 123
Appleby v Pursell [1973] 2 NSWLR 879
Australasian Temperance and General Mutual Life Assurance Society Ltd v Howe (1922) 31 CLR 290
Australian Gas Light Co v Valuer‑General (1940) 40 SR (NSW) 126
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219
Blatch v Archer [1774] 2 EngR 2; (1774) 98 ER 969
CCOM Pty Ltd v Jiejing Pty Ltd (1992) 36 FCR 524
Charter Reinsurance Co Ltd v Fagan [1997] AC 313
Child and Adolescent Health Service v Mabior [2019] WASCA 151; (2019) 55 WAR 208
Chong v CC Containers Pty Ltd [2015] VSCA 137; (2015) 49 VR 402
Christos v Curtin University of Technology [2017] WASCA 110; (2017) 267 IR 209
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389
Con‑Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450
Crowe-Maxwell v Frost [2016] NSWCA 46; (2016) 91 NSWLR 414
Davids Holdings Pty Ltd v Attorney-General (Cth) (1994) 49 FCR 211
Devries v Australian National Railways Commission (1993) 177 CLR 472
DRA Industries Pty Ltd v Kuredale Pty Ltd [2018] WASCA 17
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544
Electricity Generation and Retail Corporation (trading as Synergy) v EIT Kwinana Partner Pty Ltd [2022] WASCA 3
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Enron Australia Finance Pty Ltd (in liq) v Integral Energy Australia [2002] NSWSC 753
Eureka Funds Management Ltd v Freehills Services Pty Ltd [2008] VSCA 156; (2008) 19 VR 676
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287
GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32
Hawksford v Hawksford [2005] NSWSC 463
Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572
Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Jones v Dunkel (1959) 101 CLR 298
Joyce v Anderson [2020] WASCA 48; (2020) 91 MVR 334
Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392
Ledgerton v Ambrosini [2023] WASCA 16
Lee v Lee [2019] HCA 28; (2019) 266 CLR 129
Maunsell v Olins [1975] AC 373
Max Cooper & Sons Pty Ltd v Sydney City Council [1980] UKPC 6; (1980) 29 ALR 77
Max Cooper & Sons v Sydney City Council (1980) 54 ALJR 234
Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64
Prenn v Simmonds [1971] 1 WLR 1381
Robinson Helicopter Co Inc v McDermott [2016] HCA 22; (2016) 90 ALJR 679
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45
Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235
Sino Iron v Mineralogy [2019] WASCA 80; (2019) 55 WAR 89
Southern Resources Ltd v Technomin Australia NL (Unreported, WASCFC, Library No 8329C, 18 June 1990)
Technomin Australia NL v Southern Resources Ltd (Unreported, WASC, Library No 7940, 13 November 1989)
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164; (2014) 48 WAR 261
Western Australia v Watson [1990] WAR 248
X and Y (by her tutor X) v Pal (1991) 23 NSWLR 26
Table of Contents
Beech & Vaughan JJA
Introduction
Relevant provisions of the Agreement
The competing constructions
The appellant's submissions
Ground 1: introductory observations
Grounds 1(a) - (f) and (i): error in fact‑finding?
The challenged findings
Why ground 1(a) fails
Grounds 1(b) and (c): the test for demonstrating appellable error
Why no error is demonstrated by grounds 1(b) and (c)
Why grounds 1(d) - (f) fail
Why ground 1(i) fails
Conclusion
Grounds 1(a) - (c): could regard be had to evidence of industry understanding of terms within the Agreement?
Grounds 1(g), (h) and (j): the proper construction of 'refining'
Grounds 1 and 2: conclusion
Ground 3
Conclusion
Lundberg J
Introduction and summary
First issue
Second issue
Relief granted and appeal grounds
The factual context
The Agreement
The tenements and the processing facilities
Mining and production
Royalty payments
Orders made by the primary judge
The grounds of appeal
Grounds 1 and 2: the construction of the Agreement
Overview
The evidence before the primary judge
The primary judge's reasoning
The parties' submissions on appeal
Grounds 1 and 2: disposition
Overview
The primary judge's factual findings
Proper construction of the term 'refining'
Ground 3: the reasonableness of the charges
Overview
The lay evidence before the primary judge
The expert evidence before the primary judge
Mr Ter-Martirosyan
Professor Gray
The primary judge's reasoning
The parties' submissions on appeal
Ground 3: disposition
Onus of proof
Assessment of the evidence
Conclusion and orders
BEECH & VAUGHAN JJA:
Introduction
The central issue in this appeal is the meaning of the word 'refining' in the context of a royalty clause in an agreement for the sale of mining tenements. Reprising the argument it put unsuccessfully at trial, the appellant (Quasar) contends that refining means the purification and upgrading of a commodity from an impure state and thus encompasses the processes undertaken in producing uranium ore concentrate - commonly known as yellowcake - from uranium mineral product from the appellant's tenements.
Like Lundberg J, we would dismiss the appeal. Our reasons for rejecting grounds 1 and 2, which largely mirror those of the primary judge, are set out below. These grounds having failed, the appeal must fail and it is unnecessary to determine ground 3.
Lundberg J has outlined the factual background, the issues and much of the evidence at trial, the primary judge's reasoning and conclusions, and the grounds of appeal, in terms which we gratefully adopt. For convenience, we set out the critical contractual terms before identifying the competing constructions and outlining the appellant's submissions.
Relevant provisions of the Agreement
In the agreement dated 21 May 2002 (the Agreement), the seller sold tenements to the buyer, the consideration for which included payment by the buyer to the seller of 'the net smelter royalty set out in clause 7 of this Agreement': cl 2.2. Quasar and the respondent (APG) are successor to or assignee of, respectively, the buyer and the seller.
Clause 7.1 of the Agreement provides for the buyer to pay the seller 'a net smelter royalty equal to one percent (1%) of the Net Smelter Returns'.
Net Smelter Returns is defined in cl 1.1. The definition has two limbs, the first of which applies to Refined Precious Metals. The second limb applies to Mineral Products that are not Refined Precious Metals. Refined Precious Metals is defined to mean all gold derived from Mineral Products and refined by or for the account of ACE to a purity of at least .995. Mineral Products is defined to mean all ores, minerals, concentrates, dore bullion, and other products mined and removed from all or any part of the Tenement Area, whether or not subsequently beneficiated, processed or otherwise upgraded, and includes Refined Precious Metals: cl 1.1(g).
Net Smelter Returns is defined to mean:
(i)in the case of Refined Precious Metals, the number of troy ounces of Refined Precious Metals delivered or credited to the account of [the buyer] as evidenced by the metals return statements received from the refiner, subject in each case to final adjustments with the refiner, multiplied by the Deemed Sales Price, and reduced by the Allocable Charges; and
(ii)in the case of Mineral Products that are not Refined Precious Metals and which are sold and delivered by [the buyer] the gross amount actually received by [the buyer] from the purchaser for the Mineral Products so sold, and reduced by the Allocable Charges[.] (emphasis added)
It can be seen that, under each limb of the definition of Net Smelter Returns, the amount derived or deemed to be derived from sales is to be reduced by the Allocable Charges. Broadly summarised, Allocable Charges cover four species of costs incurred, namely (i) taxes; (ii) smelting, refining and marketing costs; (iii) costs of transport to places where smelting, refining or selling occurs; and (iv) royalties and other payments to the government or under native title agreements. Allocable Charges is defined, relevantly, in the following manner:
'Allocable Charges' means the following costs, but only to the extent actually incurred and borne by [the buyer]:
…
(ii)Charges, costs and penalties, if any, for smelting (which does not include crushing), refining and marketing. In the event smelting or refining are carried out in facilities owned or controlled, in whole or in part, by [the buyer] or its Affiliates, charges, costs and penalties with respect to such operations will mean reasonable charges, costs and penalties for such operations but not in excess of the amounts that [the buyer] would have incurred if such operations were carried out at facilities not owned or controlled by them offering comparable custom services;
(iii)Charges and costs, if any, for transportation to places where Ores and Minerals are smelted, refined and sold[.] (emphasis added)
The competing constructions
At the trial, and on appeal, the parties advanced competing constructions of the word 'refining' in the definition of Allocable Charges. The narrow construction, advanced by APG and adopted by the trial judge, is that refining means the final processing of metal bearing products[1] by which impurities are physically separated from the metallic intermediate product, resulting in a pure or nearly pure metal final product. On this construction, purification processes that precede the final stage do not constitute refining. The broader construction, advanced by Quasar, is that refining is the purification and upgrading of a commodity from an impure state. Consequently, on Quasar's construction, refining embraces all processing operations directed to purifying or upgrading the relevant commodity, including those that precede the final purification stage.
[1] It was uncontroversial that uranium is a heavy silver-grey metal that is weakly radioactive: APG Aus No 3 Pty Ltd v Quasar Resources Pty Ltd [2022] WASC 123 [25] (primary reasons).
Quasar contends that, on a proper construction, all of the following processes - which the primary judge declared were not Allocable Charges under the Agreement - amount to refining and so fall within Allocable Charges:
(a)the extraction of uranium ore from the Mineral Lease area using an in‑situ leaching process which involves (inter alia):
(i)the injection of sulphuric acid and oxygen solution (lixiviant) through injection wells into the orebody, by which process the uranium ore forms a uranyl sulphate in solution;
(ii)the extraction of the uranyl sulphate in solution via extractor wells;
(b)the transportation of the uranyl sulphate in solution in pipelines from the wells on the Mineral Lease to an adjacent tenement, the Beverley North Mineral Lease ML 6387 (Beverley North), held by Heathgate, or the Beverley Processing Plant located at Beverley;
(c)the removal or recovery of the uranyl sulphate from the solution at the Beverley Pannakin Plant located at Beverley North, alternatively, at the Beverley Processing Plant located at Beverley, by the use of resin contained within ion exchange columns, which resin attracts the uranium sulphate from the solution;
(d)where necessary, the transportation of the uranyl sulphate‑loaded resin by vehicle from the Pannakin Processing Plant at Beverley North to the Beverley Processing Plant, located at Beverley;
(e)the washing or 'elution' of the uranyl sulphate from the resin at the Beverley Processing Plant, using a strong acid solution, and which forms a uranium pregnant solution;
(f)the precipitation of that pregnant solution, leaving a form of uranium oxide;
(g)the further washing and drying of that uranium oxide, to form yellowcake; and
(h)the packaging of that yellowcake into drums.
The appellant's submissions
The thrust of Quasar's approach on appeal is that the meaning it advances reflects the ordinary meaning of the word 'refining'. Quasar submits that its construction is supported by the meaning of the word refining in many dictionaries and by the 'common sense' meaning of refining.[2]
[2] Appellant's submissions [24], [26]; appeal ts 25, 79.
Quasar asserts that this meaning is consistent with the text, context and purpose of the Agreement, permitting the word to be construed consistently with the contracting parties' objective intention for 'refining' to have a broad operation going beyond the production of gold or common metals.[3] In relation to this, Quasar submits:
(1)At the time of entering into the Agreement, the parties knew that (i) the relevant tenements were prospective for uranium, which might be mined by the in situ method and processed by related techniques; and (ii) there were mining and processing facilities of that kind at the adjacent Beverley mine.[4]
(2)Mineral Products has a wide ambit, encompassing anything that can be classified as a mineral that is mined or removed from the tenement area.[5]
(3)The word 'refining' should not be given an ambit confined to what is appropriate for processes that are applied to base metals or gold bullion, particularly in circumstances where uranium was one of the Mineral Products contemplated by the parties at the time of entering the agreement.[6]
[3] Appellant's submissions [25].
[4] Appeal ts 3.
[5] Appeal ts 5 - 6.
[6] Appellant's submissions [35]; appeal ts 10 - 11, 31 - 32.
Any technical or uniform meaning of 'net smelter royalty' does not bear significantly on the construction of 'refining' because the meaning of 'net smelter royalty' in this case is governed by the definition or prescribed means of calculation of that term in the Agreement, not by the label 'net smelter royalty'.[7]
[7] Appellant's submissions [35]; appeal ts 7 - 9.
Quasar submits that having regard to the terms on which yellowcake is sold, and having regard to what happens after it is sold, yellowcake is a final product and thus a final Mineral Product for the purpose of the Net Smelter Royalty payable under the Agreement.[8]
[8] Appellant's submissions [27]; appeal ts 14 - 15, 20 - 21, 31, 38.
Quasar submits that there is no justification in fact or in law for the judge's reliance on industry meanings of refining or of other terms used in the Agreement. It submits that it was not shown that the parties intended such meanings. The judge's approach 'ignored the ordinary (and … unambiguous) meaning of the word'.[9] Further, Quasar submits that there is no consistent or universal technical meaning of a word such as 'refining'.[10] That is said to be illustrated by the variety of meanings set out in the examples in exhibit F of Professor Trench's report.[11] Moreover, Professor Trench himself recognised exceptions in certain 'value chains', namely alumina and uranium.[12]
[9] Appellant's submissions [30].
[10] Appellant's submissions [48] - [50], [75]; appeal ts 28.
[11] Appeal ts 79.
[12] Appellant's submissions [51].
Quasar submits that the primary judge's reliance on the language in the definition of Mineral Products was erroneous. First, Quasar submits, the words 'processed or otherwise upgraded' in that definition are synonymous with refining.[13] Secondly, in any event, those words have a different purpose, namely to identify the scope of what is a Mineral Product, whereas the word 'refining' is used in the definition of Allocable Charges as an element of the means of calculating the royalty to be paid.[14]
[13] Appeal ts 35.
[14] Appeal ts 35.
Quasar submits that, applying its preferred construction, all of the steps referred to in the primary judge's declaration are properly characterised as refining.[15]
[15] Appellant's submissions [27], [45] - [46]; appeal ts 37.
Ground 1: introductory observations
Ground 1 is unhappily drafted. Within ground 1, with its 10 subgrounds, are the following three conceptually distinct species of error:
(1)Errors of fact in making various intermediate findings of fact, including as to how various terms were understood in the Australian mining industry at the time of entry into the Agreement (grounds 1(a) ‑ (f) and (i)).
(2)Errors of law in giving any weight, or alternatively giving excessive weight, to those findings in the process of construction (grounds 1(a) ‑ (f)).
(3)The error of law in adopting what Quasar asserts is the incorrect construction (grounds 1(g), (h) and (j)).
As can be seen, each of grounds 1(a) ‑ (f) asserts both error of law and error of fact.
Beyond the contentions in [18] above, it is not necessary nor useful to determine the merits of each of the criticisms of the judge's reasoning that are made in the appellant's submissions. That is because, as this court observed in Sino Iron v Mineralogy,[16] there is only one true construction, and the task of this court in an appeal concerning the construction of an instrument is to determine for itself the proper construction of the instrument.
[16] Sino Iron v Mineralogy [2019] WASCA 80; (2019) 55 WAR 89 [172]; see also AIG Insurance Australia Ltd v McMurray [2023] WASCA 148 [145] ‑ [146].
We will deal in turn with the three species of error identified in [18] above. We will begin by explaining why none of Quasar's challenges to the judge's intermediate factual findings succeeds. Next, we will explain why, in our opinion, industry understanding of various terms used in the Agreement was relevant to the constructional task that arose for determination. Finally, we will explain our preferred construction, which is the same as the primary judge's construction.
Grounds 1(a) - (f) and (i): error in fact‑finding?
The challenged findings
The primary judge made a number of intermediate factual findings as to the manner in which various terms were understood in the Australian mining industry in 2002. They may be summarised as follows (with the relevant subground in brackets):
(1)Net smelter return is commonly understood to mean the revenue receipts received by a mining company after the charges for smelting and refining of ex‑mine metal bearing product have been deducted (ground 1(a)).[17]
(2)A net smelter royalty is a royalty based on revenue received for ex‑mine metal bearing product after deducting charges for smelting and refining and it is commonly set at a percentage of between .5% and 5% (ground 1(a)).[18]
(3)A net profit interest royalty commonly allows for a more extensive range of deductions from revenue than a net smelter royalty and is commonly set at a higher percentage of between 5% and 25% (ground 1(a)).[19]
(4)The terms 'beneficiation' and 'upgrading' were used interchangeably to describe operations undertaken at a mill to increase the concentration of a metal in ore (ground 1(b)).[20]
(5)The operations undertaken at mine sites to process ore into intermediate mineral products were referred to as milling, and the plant at which these operations were undertaken was referred to as a mill (ground 1(c)).[21]
(6)Operations of the nature employed at the Beverley plant to produce yellowcake were referred to and described as milling or concentrating (ground 1(c)).[22]
(7)The term refining was understood to be the final processing of metal bearing products, whereby impurities were physically separated from the metallic intermediate product, resulting in a pure or nearly pure metal final product. Refining was not understood to encompass any purification processes that proceeded the final stage (ground 1(c)).[23]
[17] Primary reasons [134](a).
[18] Primary reasons [134](b).
[19] Primary reasons [134](c).
[20] Primary reasons [137].
[21] Primary reasons [138].
[22] Primary reasons [139].
[23] Primary reasons [142].
The judge found that the parties to the Agreement, as participants in the Australian mining industry, were familiar with the terms 'net smelter return', 'net smelter royalty', 'beneficiation', 'upgrading', 'concentration', 'mill', 'milling', and 'refining', and knew that the terms were understood in the industry as having the meanings found by the judge.[24] These findings are challenged by grounds 1(d), 1(e) and 1(f).
Why ground 1(a) fails
[24] Primary reasons [147] - [148], [195].
There was no controversy at trial as to the industry meaning of the terms 'net smelter return', 'net smelter royalty', and 'net profit interest royalty'.[25] The only witness who gave evidence on the topic was Professor Trench, whose evidence on the topic was not substantively challenged in cross‑examination. Insofar as ground 1(a) asserts an error of fact, it fails accordingly.
Grounds 1(b) and (c): the test for demonstrating appellable error
[25] Primary reasons [135].
The meaning of 'refining' in the Australian mining industry was the subject of conflicting testimony of expert witnesses called by the parties. The judge resolved that conflict in favour of the witnesses called by the respondent. In our view, the appellant's challenge to the judge's finding engages the principles of appellate restraint concerning factual findings likely to have been affected by impressions about the reliability of witnesses.
In Child and Adolescent Health Service v Mabior,[26] this court summarised those principles as follows:
The general principles relevant to appellate restraint in this context were summarised most recently by this court in Smart v Power. The principles have also more recently been restated by the High Court in Lee v Lee:[27]
'A court of appeal is bound to conduct a "real review" of the evidence given at first instance and of the judge's reasons for judgment to determine whether the trial judge has erred in fact or law. Appellate restraint with respect to interference with a trial judge's findings unless they are "glaringly improbable" or "contrary to compelling inferences" is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts. Thereafter, "in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge".' (footnotes omitted)
These principles apply equally to the testimony of expert witnesses.[28]
In this context, due regard must be had to the advantages of the learned trial judge. In that regard, it would:
'be wrong to limit "the advantages which the primary decision‑maker has" to demeanour as a guide to credibility assessment and to ignore the "feeling of a case" that usually emerges from running a trial. The primary decision-maker is able to assess testimony against the entirety of the evidence and in a situation in which she or he has an appreciation of the way the trial was run. There may, for example, be subtleties in the way questions were asked (or avoided) that are apparent in the heat of battle but which are not quite as clear in a more clinical examination of a transcript. Similarly, the effect of evidentiary rulings or rulings about the pleadings made at one stage of a trial may have a greater impact at another point in the proceedings than will be apparent from the record. In carrying out its duty to decide for itself on the proper inference to be drawn from facts an appellate court must be alive to the entire context in which findings were made.'
(some footnotes omitted)
[26] Child and Adolescent Health Service v Mabior [2019] WASCA 151; (2019) 55 WAR 208 [93] ‑ [95].
[27] Lee v Lee [2019] HCA 28; (2019) 266 CLR 129 [55].
[28] Abalos v Australian Postal Commission (1990) 171 CLR 167, 178 - 179; Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392 [131]; DRA Industries Pty Ltd v Kuredale Pty Ltd [2018] WASCA 17 [52]; Christos v Curtin University of Technology [2017] WASCA 110; (2017) 267 IR 209 [104]; Western Australia v Watson [1990] WAR 248, 305; X and Y (by her tutor X) v Pal (1991) 23 NSWLR 26, 34, 49; Davids Holdings Pty Ltd v Attorney-General (Cth) (1994) 49 FCR 211, 243 ‑ 244.
The appellant submits that the principles of appellate restraint do not apply to this appeal because the findings which the appellant impugns are not credibility based.[29] It is true that the impugned findings are not based on the judge's assessment of the witnesses' credibility, but, as explained in Joyce v Anderson,[30] these principles are not confined to credibility‑based findings, and apply equally to findings likely to have been influenced by a judge's assessment of the reliability of witnesses. The judge's findings as to the industry understanding of refining are likely to have been so influenced.
Why no error is demonstrated by grounds 1(b) and (c)
[29] Appeal ts 24.
[30] Joyce v Anderson [2020] WASCA 48; (2020) 91 MVR 334 [127] - [132], [205] ‑ [211].
The appellant's submissions were not put in the framework of these principles. Having due regard to these principles, we are not persuaded, on our review of the evidence, that the judge erred in finding that the terms 'refining', 'upgrading', and 'beneficiation' were commonly understood in the mining industry in the manner identified by Professor Trench and Mr Lawson. In any event, even if we were to decide for ourselves where the weight of the evidence lies on the basis of the record and without regard to these principles, we would not be satisfied of error in the primary judge's findings. Our reasons for these conclusions are as follows.
The judge gave detailed reasons for his findings as to the industry understanding of the term refining.[31]
[31] Primary reasons [143].
Far from revealing error, the judge's reasons for preferring the opinion evidence of Professor Trench and Mr Lawson to that of Mr Dunn are cogent and accord with the views we have formed from our review of the record.
Both Professor Trench and Mr Lawson had substantial experience in the Australian mining industry. They supported their opinions by reference to that experience. Their opinions were directed to any commonly accepted meanings of relevant terms within the Australian mining industry.
By contrast, Mr Dunn is an experienced metallurgist who accepted that he does not have experience in the general mining industry.[32] His report identified the question for his opinion as being 'what is the commonly accepted meaning of "refining" within the Australian mining industry and, or alternatively, the field of hydrometallurgy'.[33] Asked if he spoke on behalf of only the metallurgy industry, or the mining industry as well, he said he spoke as a metallurgist.[34] In supporting and explaining his opinion as to the meaning of 'refining', Mr Dunn relied primarily upon his own 'purist' hydrometallurgy conception of the word refining, rather than upon industry experience or industry publications. When publications suggestive of a more confined conception of refining were put to him, Mr Dunn's responses referred to his purist conception as a metallurgist of the ambit of refining, rather than to how others - specifically how those in the mining industry - used or understood the term.[35] For example, Mr Dunn distinguished his hydrometallurgy view from the 'man‑given names' of the operations in question.[36] In another response, Mr Dunn said:[37]
I'm coming at this as a hydrometallurgist. … To allocate names and titles to buildings or process steps … is in the hands of others. But I'm talking about purifying, as a refining process, from a hydrometallurgical perspective - it takes place across multiple building blocks.
[32] ts 198.
[33] GAB 1425.
[34] ts 213.
[35] ts 205, 230 - 231, 235 - 236, 243 - 244.
[36] ts 234.
[37] ts 236.
Bearing in mind that the critical question concerns how the term refining was used and understood in the mining industry, these differences in the approach of Professor Trench and Mr Lawson, on the one hand, and Mr Dunn, on the other, of themselves provide a compelling reason to prefer the evidence of Professor Trench and Mr Lawson to that of Mr Dunn.
Further, as the primary judge observed, in the course of cross‑examination, Mr Dunn qualified his opinion by saying that processing of ore to remove impurities amounts to refining only if it involves 'quantitative' or 'in toto' removal of the impurities.[38] For the reasons in the following paragraph, we share the primary judge's view that this qualification, expressed for the first time in cross‑examination, gave rise to doubt as to the logic and coherence of Mr Dunn's opinion, thereby diminishing its weight.
[38] ts 220 - 224.
As Professor Trench said in his evidence, once mineral ore is removed from the ground, its processing ore involves various chemical and physical processes, all of which are directed to increasing the purity of the 'payable metal' in the ore.[39] The processing of many metals, including some precious metals (such as gold and silver) and base metals (such as copper, lead, nickel, zinc and tin) involves some initial processing to further concentrate the mined ore, then smelting to a significantly higher purity, followed by refining.[40] That being so, unqualified adoption of the definition of refining advanced by Mr Dunn in his report and in the joint expert statement results in what might be thought to be a plainly overinclusive notion of refining. In other words, it would capture some processes that Mr Dunn recognised could not sensibly be seen as refining. One such process is the processing of nickel to a concentrate before smelting, which Mr Dunn accepted no one in the industry would characterise as refining.[41] It might reasonably be inferred that recognition of that reality required Mr Dunn to qualify the definition he had asserted. This qualification was not expressed in his report nor in the joint expert statement. Moreover, the qualification tended to undermine the coherence of, and logic of, the opinion Mr Dunn advanced.
[39] ts 116, 254.
[40] GAB 409 - 411.
[41] ts 220 - 223.
Contrary to the appellant's submissions,[42] the extracts set out in exhibit F of Professor Trench's report do not undermine, but rather support, Professor Trench's opinion as to the understanding of 'refining' in the Australian mining industry. As Professor Trench explained in his report,[43] exhibit F contained (i) examples suggestive or demonstrative of the usage of refining in the mining industry; (ii) examples of the use of the term refining within the oil and sugar industries; and (iii) the two exceptions identified by Professor Trench, namely alumina and the processing of yellowcake. Among the extracts in exhibit F is the definition of refining in the glossary of The Mining Valuation Handbook, published by Dr Victor Rudenno. Exhibit F referred to the 1998 edition of that book, the fourth edition of which was tendered as an exhibit. Both editions include the following definition of refining:
[T]he final stage of metal production in which impurities are removed from the molten metal by introducing air and fluxes. The impurities are removed as gases or slag.
[42] Appeal ts 79.
[43] GAB 402 - 403.
As the judge also noted, The Mining Valuation Handbook distinguished between processing and refining in the following manner:
Processing. Most minerals will require some initial on-site processing. For bulk commodities, such as coal, some upgrade may be needed to meet the quality requirements of the purchaser. For low-grade ores, concentration will be undertaken to reduce the amount of waste material within the ore, which would otherwise be transported to another location for further recovery of the economic element. An increasing number of mines are introducing technology that allows for the recovery of the economic element, such as copper, at the mine site itself.
Refining. Concentrate sent from the mine site may undergo further processing, either by hydrometallurgical (liquid) or pyrometallurgical (heat) processes, or by a combination of both, to recover the saleable commodity. In the case of petroleum the oil will be refined to produce various products, such as diesel or petrol.
Further, beneficiation was defined as the upgrading of a mineral by concentration processes.
Also referred to in exhibit F of Professor Trench's report was the definition in the Industry Commission report of 1991.[44] The Industry Commission report defined refining as 'the final purification process of a metal or mineral' and defined beneficiate as 'to treat ore so that the resulting product is richer or more concentrated with mineral'.[45]
[44] The Industry Commission's Mining and Minerals Processing in Australia, Report No 7, 25 February 1991.
[45] GAB 962, 966.
Having considered the various extracts in exhibit F, we are not persuaded that they reveal a variety of usages or connotations of the term refining such as to undermine Professor Trench's opinion.
Nor, in our view, does the single statement in the IAEA Safeguards Glossary reveal error in the judge's acceptance of Professor Trench's opinion. The relevant part of that publication was in the following terms:
[Uranium mining and processing plants are] installations, respectively, for mining uranium ore and for refining it to produce uranium ore concentrate, most commonly into concentrated crude oxide, U3O8 (often called yellow cake).
A single counterexample does not in itself preclude a finding as to a generally accepted understanding. That reflects Professor Trench's evidence that there was a generally accepted usage of words like refining, concentrating, and purification, but there was no 'word police' that would come and correct a particular choice of terminology that had departed from the usual usage.[46] Moreover, as the primary judge pointed out, several other IAEA publications referred to refining in relation to uranium only by reference to the conversion of yellowcake into uranium hexafluoride, with processing operations that produce yellowcake being referred to as milling or concentrating.[47] The same is true of other publications to which the experts and the parties referred - in the context of uranium, the only references to refining were to the conversion of yellowcake, not to the processes that produce yellowcake.
[46] ts 130, 170.
[47] Primary reasons [65](b), [140] - [141], [143](b)(iii).
As the judge found, in the Australian mining industry in 2002, operations of the nature employed at the Beverley plant to produce yellowcake were referred to and described as milling or concentrating, and thus, by implication, were not referred to as refining. There was abundant evidence to support the finding. Although the appellant challenges this finding by ground 1(c), the appellant does not develop submissions in support of that challenge. No error has been demonstrated and none is apparent.
Why grounds 1(d) - (f) fail
Grounds 1(d) ‑ (f) challenge the primary judge's findings that the parties to the Agreement were familiar with various words and phrases in the Agreement - net smelter return, net smelter royalty, beneficiation, upgrading, concentration, mill, milling, and refining - and knew that those terms were commonly understood to have the meanings found by his Honour. The primary judge evidently inferred that, as participants in the mining industry, the parties to the Agreement were aware of the common industry understanding of those words and phrases. In the absence of evidence pointing the other way, no error has been demonstrated in the inferences drawn by the judge.
Grounds 1(d) - (f) are not established.
Why ground 1(i) fails
Ground 1(i), as advanced at the hearing of the appeal, challenges the judge's finding that yellowcake is not a final product.[48] That finding is amply sustained by the evidence. Mr Lawson referred to yellowcake as an intermediate product,[49] explaining that the final product is nuclear pure uranium hexafluoride.[50] To the same effect, Mr Dunn referred to yellowcake as an interim product.[51]
Conclusion
[48] While the ground is expressed as challenging the judge's finding that yellowcake is not fungible, the appellant's oral submissions focused its challenge on the finding that yellowcake is not a final product. When the appellant's shift in focus was pointed out by the bench, the appellant sought leave to amend the ground to the extent necessary. This shift in focus may reflect the apparent reality that a conclusion as to fungibility will not sustain, or materially advance, the appellant's case on appeal.
[49] GAB 762, 769; ts 180.
[50] GAB 513.
[51] GAB 769; ts 198.
For these reasons, none of the appellant's challenges to the judge's intermediate findings of fact has been made out.
Grounds 1(a) - (c): could regard be had to evidence of industry understanding of terms within the Agreement?
As explained below, in our view the judge did not err in having regard to the evidence of the common understanding in the Australian mining industry of various words and phrases in the Agreement.
At trial, both parties led expert evidence as to the understanding in the Australian (and international) mining industry of the term 'refining'. No party challenged the admissibility of this evidence.
Evidence may be led to prove the custom or usage in a particular locality, trade, market, business or class of persons. If proved, the custom or usage may sustain an implied term or it may inform the interpretation of an expression used in the agreement. In the latter respect, such evidence does not depend on ambiguity. The custom or usage must be so notorious, uniform and certain that any party can be presumed to have known of it and intended that meaning in using the expression in question. In Western Australia, these principles are usually associated with the decision of Ipp J in Homestake Australia Ltd v Metana Minerals NL.[52] The strictness of the requirements of custom and usage to sustain the implication of an implied term has been explained in a number of cases in the High Court.[53]
[52] Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435, 446 ‑ 448.
[53] See, for example, Con‑Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, 236 ‑ 237 and cases there referred to.
Custom and usage is not, however, the only basis for admitting expert evidence of the common understanding in an industry or other sphere to assist in the construction of a particular word or phrase. There are many cases in which evidence of that kind is admitted to assist in the process of construction of a contract, and many statements in text books to the same effect, without reference to the stringent requirements of establishing a meaning by custom and usage. That said, it must be acknowledged that it is not always easy to identify the principles being applied in a particular case by a court in having regard to evidence of this kind. For example, in some cases, it is not clear whether statements made as to evidence of this kind - such as a reference to 'technical meaning' - are references to evidence of custom and usage, with its requirements identified in [49] above, or to evidence admitted on a different and broader basis.
In Max Cooper & Sons Pty Ltd v Sydney City Council,[54] Lord Diplock, delivering the advice of the Privy Council, said of the phrase 'pay loadings' that:[55]
It is not an expression that is used in ordinary speech; without extrinsic evidence from a witness experienced in the building industry and familiar with the technical terms used in it, a judge could only speculate as to the meaning of 'pay loadings'. That the ordinary meaning in which a technical expression is used in a particular industry is not a question of construction but is a question of fact to be decided upon expert evidence, has been undoubted law since it was laid down by Parke B in Shore v Wilson (1842) 9 Cl and Fin 355; 8 ER 450. A question of construction (which is one of law) arises only when it becomes necessary to determine whether the particular context in which the expression is used shows that in that context it was intended to bear its ordinary technical meaning or some more extended or restricted meaning.
[54] Max Cooper & Sons v Sydney City Council (1980) 54 ALJR 234.
[55] Max Cooper & Sons v Sydney City Council (239).
Australian law no longer maintains the distinction drawn in this passage between interpretation - determining the meaning of the words used - and construction - the legal effect to be given to them.[56] However, that does not detract from what is said as to the use of expert evidence.
[56] See, for example, Collector of Customs v Agfa‑Gevaert Ltd (1996) 186 CLR 389, 396 ‑ 397.
This passage from Max Cooper & Sons v Sydney City Council was cited with approval by this court in Sino Iron v Mineralogy. It was also applied by Ipp J in Technomin Australia NL v Southern Resources Ltd,[57] a case with some parallels to the present case and which is discussed in detail in Lundberg J's reasons. Ipp J held, applying this passage, that evidence as to industry understanding of 'treatment costs' was admissible in aid of construing that phrase in a mining agreement. This approach was approved on appeal.[58]
[57] Technomin Australia NL v Southern Resources Ltd (Unreported, WASC, Library No 7940, 13 November 1989).
[58] Southern Resources Ltd v Technomin Australia NL (Unreported, WASCFC, Library No 8329, 18 June 1990).
In Lewison and Hughes, The Interpretation of Contracts in Australia [5.07], the authors observe that the court may hear evidence to assist its understanding of a scientific or technical word, referring to Shore v Wilson and to what was said by Jordan CJ in Australian Gas Light Co v Valuer‑General,[59] albeit in the context of the construction of a statute. The same point was made by Lord Wilberforce in Schuler v Wickman Tool Sales.[60] Similarly, in Heydon on Contract, it is said that if the meaning of technical or scientific terms is disputed, the meaning may be established by expert evidence.[61]
[59] Australian Gas Light Co v Valuer‑General (1940) 40 SR (NSW) 126, 137.
[60] Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235, 261.
[61] J D Heydon, Heydon on Contract (2019) [8.390].
Further, at least where a term is ambiguous or susceptible of more than one meaning, extrinsic evidence is admissible to assist in determining the meaning of a particular descriptive word or term.[62]
[62] DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 429, citing Prenn v Simmonds [1971] 1 WLR 1381, 1384; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 351.
In Technomin, Ipp J also applied this principle, in addition to relying on the principle expounded in Max Cooper & Sons v Sydney City Council, in admitting extrinsic evidence of the industry understanding of the terms 'net smelter return' and 'treatment costs' in aid of determining the proper construction of those terms in a mining agreement.[63] His Honour's approach in this regard was approved on appeal.[64]
[63] Technomin (10 - 12).
[64] Southern Resources (11 - 12) (Nicholson J, Rowland J agreeing).
In Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd,[65] McPherson JA applied this principle to evidence as to what was meant in the relevant market by 'PVC resin', the parties having entered an agreement of sale and purchase of goods by that description. In so holding, McPherson JA distinguished (i) evidence as to what is commonly understood in an industry by descriptive words in the agreement from (ii) evidence of the custom of a trade, which must be notorious, uniform and certain.[66]
[65] Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472.
[66] Metal Roofing [10].
In Sino Iron v Mineralogy,[67] this court observed, by analogy with Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council,[68] that the fact that a word or expression has a technical meaning in an area of discourse relevant to the contract in question, in itself provides a basis for the reasonable reader to conclude that the term or expression is used in its technical sense, unless there are other factors present that show that it is not used in that special sense.
[67] Sino Iron v Mineralogy [289].
[68] Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 [171] ‑ [174].
Professor Carter has observed that evidence of technical or other usages of words within a particular industry (or locality) may be led as contextual evidence, independently of the rules on custom and usage.[69] The same point was made by Einstein J in Enron Australia Finance Pty Ltd (in liq) v Integral Energy Australia,[70] in a passage quoted with evident approval in Sino Iron v Mineralogy.[71] Context may be sufficient to infer an intention to adopt the usage of a word or phrase applicable in the industry in which the contracting parties operate.[72]
[69] J W Carter, The Construction of Commercial Contracts (2nd ed, 2013) [7‑13], [14‑08] ‑ [14‑09], [12‑14].
[70] Enron Australia Finance Pty Ltd (in liq) v Integral Energy Australia [2002] NSWSC 753 [23].
[71] Sino Iron v Mineralogy [290].
[72] Carter [12.36].
In the present Agreement the parties provided for the payment of what they have chosen to describe, both in cl 2.2 and in cl 7.1, as a 'net smelter royalty'. Contrary to the appellant's submissions, some meaning should be given to those words. Specifically, the phrase 'net smelter royalty' should not be read as if it simply provided for a payment of a 'royalty'. It is true, as the appellant emphasises, that, by cl 7.1, the net smelter royalty to be paid by the buyer is to be calculated in accordance with what is there-stipulated, namely as 1% of the Net Smelter Returns. Nonetheless, in choosing between competing constructions of the term refining in the definition of Allocable Charges, which is in turn inserted into the definition of Net Smelter Returns as an element of calculating what is payable, it is relevant to take account of the parties' choice in describing the sum to be paid as a 'net smelter royalty'.
It is not easy to see how any meaning is to be ascribed to the phrase 'net smelter royalty' if regard is not had to expert evidence. To our minds, absent evidence as to how that term is understood in the mining industry, to refer to something as a net smelter royalty has no particular or ascertainable meaning. In that respect, the phrase may be thought to be like the phrase 'pay loadings' in Max Cooper & Sons v Sydney City Council.
Applying the principles in [51] ‑ [54] above, it is appropriate to attribute to the term 'net smelter royalty' the meaning applicable in the Australian mining industry in 2002, as found by the primary judge.[73] That meaning is a royalty based on revenue received for ex‑mine metal bearing product after charges for smelting and refining have been deducted.[74] Consequently, reference to a net smelter royalty itself directs attention to the costs of 'refining'. In this framework, regard should consequently be had to any evidence of the industry understanding of the term refining.
[73] Primary reasons [134], [196].
[74] Primary reasons [134](a).
For these reasons, the judge did not err in law in having regard to the evidence as to how the terms 'net smelter royalty' and 'refining' were understood in the mining industry.
Further, applying the principles summarised in [55] ‑ [59] above, and having regard to the findings referred to in [43], the judge was entitled to (i) have regard to this evidence as part of the background and context in which the Agreement was to be construed, and (ii) infer that the parties intended to use those terms in the sense in which they were commonly used in the industry in which the parties were participants.
The same is true of the evidence of the understanding in the mining industry in Australia of the words beneficiation, upgrading and milling. That evidence was relevant context for the construction of the Agreement.
Insofar as grounds 1(a) ‑ (c) assert errors of law in having regard to evidence of industry knowledge, the grounds are not established. It is unnecessary to consider whether error has been demonstrated in relation to the further basis on which the judge had regard to this evidence, namely that the terms had a meaning established by industry custom and usage.[75]
[75] Primary reasons [199].
Grounds 1(g), (h) and (j): the proper construction of 'refining'
The general principles applicable to the construction of instruments are well established. They have been outlined in many cases - see, for example, Black Box Control Pty Ltd v TerraVision Pty Ltd[76] and AIG Insurance Australia v McMurray.[77] By way of summary:
(1)The construction of a contract involves a determination of the meaning of the words of the contract by reference to its text, context and purpose. The starting point for the proper construction of a clause is the language used in the clause. In particular, one starts by identifying the possible meanings that the words chosen by the parties can bear.
(2)Ascertaining the meaning of terms in an instrument requires a determination of what a reasonable person would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract, and the commercial purpose or objects to be secured by the contract. The instrument must be read as a whole.
(3)The general principle applicable to the construction of commercial contracts is that they should be given a businesslike interpretation. Absent a contrary intention, the court approaches such contracts on the basis that the parties intended to produce a result which makes commercial sense. This requires that the construction placed on the term or terms in question is consistent with the commercial object of the agreement. However, it must also be borne in mind that business common sense may be a topic on which minds may differ.
[76] Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219 [42].
[77] AIG Insurance Australia v McMurray [135] - [140].
The ultimate question is the meaning of the word 'refining', where it appears in the definition of Allocable Charges. Neither individual words, nor definitions, are to be construed in isolation. A definition should be inserted in the substantive provision in which the defined term is found, and the provision then construed accordingly.[78]
[78] George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287 [88] and the cases there cited.
Here, the relevant substantive provision is clause 7.1. By that clause, the seller covenants to pay a net smelter royalty equal to 1% of the Net Smelter Returns. The definition of Net Smelter Returns is thus to be inserted in clause 7.1. That in turn requires the insertion of the definition of Allocable Charges, a term used in the relevant limb, namely par (ii), of the definition of Net Smelter Returns.
The net smelter royalty stipulated by cl 7.1 is part of the consideration for the sale of the mining tenements the subject of the Agreement. The Agreement thus involves mining tenements and contemplates the exploitation of the tenements by or on behalf of the buyer.
In determining the meaning to be attributed to the term 'refining', it is essential that this contractual context be kept in mind.
The appellant's principal contention is that the meaning it seeks to attribute to refining is the ordinary meaning of that term, and there is no basis to depart from the ordinary meaning in construing the word in the definition of Allocable Charges. In our view, that contention fails at the first step because 'refining' cannot be said to have an ordinary meaning without knowing the context in which the word is used. Refining has markedly different connotations in different settings. The appellant accepts that this is so.[79] In addition to the variety of substances that can be refined - many of which involve refining in a context other than mining - an argument can be refined and a person's taste can be refined.
[79] Appeal ts 34.
As the primary judge observed, the numerous dictionary definitions of refining denote a process of purification or enhancement, the attributes of which vary according to the context in which the term is used. Thus, it is meaningless to refer to the ordinary meaning of refining in the abstract - what is in question is the meaning of refining in the context of mining. For these reasons, meaning is not to be attributed to the word 'refining' in the Agreement by inserting a generalised dictionary definition of the word.
Recognition of the significance of the context in which a word is used is not novel or unusual. Albeit in the context of a constitutional case, Isaacs J remarked, more than 100 years ago, that the 'natural sense' of any word must depend on the subject matter in connection with which it is used and on its co‑location.[80]
[80] Australasian Temperance and General Mutual Life Assurance Society Ltd v Howe (1922) 31 CLR 290, 302.
That is why, as Drummond J said in CCOM Pty Ltd v Jiejing Pty Ltd,[81] the context in which words are used and the background circumstances against which the agreement was made, are of paramount significance in identifying the meaning to be attributed to the words used in the agreement. His Honour also observed, consistently with the principles stated in [55] ‑ [59] above, that the context and background to a contract may require a word used in it to be given a technical meaning in order to better reflect the objective intention of the parties.[82] In our view, this is such a case.
[81] CCOM Pty Ltd v Jiejing Pty Ltd (1992) 36 FCR 524, 527. Although his Honour was construing an undertaking, in doing so he stated and applied the rules governing the construction of a contract.
[82] CCOM Pty Ltd v Jiejing Pty Ltd (528).
The findings made by the primary judge as to the common understanding of refining in the mining industry, and as to what was known to the parties to the Agreement in that regard, inform the meaning to be given to the word refining in the Agreement. In our view, a reasonable business person would have understood the parties to have used the term 'refining' in the sense in which it was commonly understood in the Australian mining industry at the relevant time, namely as set out in [21](7) above.
Even if, contrary to our opinion, regard cannot be had to expert evidence, we would not adopt the appellant's construction. Putting aside any expert evidence, we do not accept that, as a matter of 'ordinary meaning' or of 'common sense', refining in the context of mining has the broad connotation advanced by the appellant's construction. Without the aid of expert evidence, our own sense of refining in the mining context does not enable a comprehensive definition, but to our minds the term connotes the final stage of the processing of mineral ore, rather than all steps taken to purify the ore once removed from the ground. In our sense of the term, when used in mining, it is only when the mined product is at a reasonably advanced stage of its processing that it can then be refined. To us, the enhancement of something in its crudest form cannot be said to be refining. Applying our own sense of the word, refining does not encompass the steps taken in processing the uranium ore as set out in the declaration made by the primary judge.
While not a matter that, of itself, carries substantial weight, the construction we prefer, set out in [76] above, is congruent with the parties' express statement that what was to be paid was a 'net smelter royalty', given what the parties knew as to the term net smelter royalty and its contradistinction to a net profit interest royalty. In this regard, we repeat what we have said at [60] above.
Further, the definition of Mineral Products refers to 'beneficiating, processing or otherwise upgrading', but does not use the word refining. On the appellant's construction, these words are synonymous with refining and therefore do not differentiate or narrow the meaning of refining. We do not agree. Rather, to our minds, as explained in [77] as a matter of ordinary language - and without regard for expert evidence - refining has a distinctly more specific and confined connotation than processing and upgrading.
We agree with the primary judge that the contrast in language in the definition of Mineral Products supports the conclusion that when the parties used the word 'refining' elsewhere in the Agreement, they intended it to mean something other than 'beneficiating, processing or otherwise upgrading'. While context or other considerations may suggest otherwise, the natural starting point in construing an instrument is that the use of different words is intended to convey different meanings.[83] Moreover, on the judge's findings, beneficiating and upgrading were understood in the Australian mining industry to have meanings markedly broader than the meaning of refining. Thus, the natural starting point - that different words have different meanings - is reinforced when regard is had to the context of an agreement between participants in the Australian mining industry. For these reasons, the contrast in language in the definition of Mineral Products - 'beneficiating, processing or otherwise upgrading' - with the word 'refining' supports the construction we have adopted, set out in [76] above, in preference to the appellant's construction.
[83] See, for example, Eureka Funds Management Ltd v Freehills Services Pty Ltd [2008] VSCA 156; (2008) 19 VR 676 [52] ‑ [53].
It is common ground, and it is clear, that the Agreement contemplates a variety of minerals that may ultimately be mined. In our view, the breadth of the scope of the Agreement - with its reference to Mineral Products - and the parties' contemplation that uranium might be mined using the in situ method, does not sustain, or even support, the appellant's construction and application of the word 'refining'. The words 'if any' should be noticed in par (ii) of the definition of Allocable Charges. Many of the appellant's arguments appear to be premised on an assumption that there must be costs properly characterised as refining. That assumption is unsound. Just as it cannot be assumed that a given Mineral Product will involve smelting, so too it cannot be assumed that any given Mineral Product will involve some refining. We accept the respondent's submission that the fact that the Agreement is intended to apply to a broad range of minerals and Mineral Products says nothing about the ambit to be given to the phrase 'charges, costs and penalties, if any, for … refining'. In particular, it does not provide a reason to attribute to the word 'refining’ the wider meaning advanced by the appellant.
In short, for the reasons in [72] - [73] and [77] above, the appellant's construction is not supported by the adoption of the 'ordinary meaning' of refining. For the reasons in [81], neither the breadth of minerals encompassed by the Agreement nor the parties' contemplation of uranium being mined provides a reason to prefer the appellant's construction. The appellant does not advance any other reason to prefer the construction for which it contends.
For these reasons, in our opinion the primary judge's construction is the correct construction, to be preferred to the construction advanced by the appellant.
Grounds 1 and 2: conclusion
For the above reasons, ground 1 fails.
Ground 2 depends on acceptance of the appellant's construction as advanced by ground 1. The appellant makes no submissions in support of ground 2 separate from its submissions on ground 1. Ground 2 fails accordingly.
Ground 3
Ground 3 challenges the judge's findings that the certain of the charges imposed by Quasar were not reasonable. As the judge found, and as the appellant recognises, no question of reasonableness arises if, as we have found, the primary judge's construction and application of refining is correct. The judge described the issues the subject of challenge by ground 3 as factually dense, giving rise in a number of respects to complex and detailed sub‑issues. His Honour considered it appropriate to express his reasons on these issues relatively briefly.
Grounds 1 and 2 having failed, it is not necessary to decide ground 3. In the circumstances, having regard to considerations of judicial economy, we do not think it appropriate to embark upon the resolution of ground 3.
Conclusion
The appeal must be dismissed. We would hear from the parties as to the costs of the appeal.
LUNDBERG J:
Introduction and summary
The appellant (Quasar Resources) and the respondent (APG) are the assignees to an agreement for the sale and purchase of mining tenements entitled the 'Sale of South Australian Exploration Licences' dated 21 May 2002 (the Agreement).[84]
[84] GAB 875.
The Agreement includes a provision for the payment by the appellant to the respondent of a 1% royalty on 'Net Smelter Returns'. The royalty is described within the Agreement as a 'net smelter royalty'.
In April 2014, the appellant commenced mining and production of uranium from the tenement the subject of the Agreement, which is situated towards the north-east end of the Flinders Ranges in South Australia (referred to as the Four Mile tenement). All processing of that uranium has occurred at facilities located on neighbouring tenements. The registered holder of the neighbouring tenements, and the owner of the facilities thereon, is an affiliate of the appellant, namely Heathgate Resources Pty Ltd (Heathgate Resources).
In February 2016, the appellant commenced paying the net smelter royalty to the respondent in respect of the sale of uranium which had been extracted from the Four Mile tenement and thereafter processed by Heathgate Resources. The product sold was uranium peroxide concentrate, which is typically referred to as yellowcake.
The royalty which was payable was required to be calculated in accordance with cl 7 of the Agreement, applying several terms defined within the Agreement. The Agreement also allowed the appellant to deduct certain charges, costs and penalties before calculating the royalty. Specifically, the defined term 'Allocable Charges', which is employed within the defined term 'Net Smelter Returns', permitted the appellant to deduct, among other things:
(ii)Charges, costs and penalties, if any, for smelting (which does not include crushing), refining and marketing. In the event smelting or refining are carried out in facilities owned or controlled, in whole or in part, by [the appellant] or its Affiliates, charges, costs and penalties with respect to such operations will mean reasonable charges, costs and penalties for such operations but not in excess of the amounts that [the appellant] would have incurred if such operations were carried out at facilities not owned or controlled by them offering comparable custom services. (underlining added)
The appellant deducted certain charges and costs from the gross amounts it received from the sale of the yellowcake, before calculating the royalty payable to the respondent. The charges and costs were described as 'Uranium extraction and processing' costs. The appellant maintains that these deductions were permissible under the Agreement, falling within paragraph (ii) of the defined term 'Allocable Charges', as set out above.
In the proceedings below, the respondent sought a determination as to whether these charges and costs were permitted to be deducted from the gross amounts the appellant received. On the basis of the respondent's contention that the charges and costs were not authorised by the Agreement, the respondent contended the royalty had been underpaid over a period of approximately three years.
Having regard to the express language of the Agreement, and on the pleadings filed by the parties, whether the deductions were permitted required the learned primary judge (Tottle J) to address two issues. The first issue is fundamentally a construction issue. The second issue was strictly only required to be addressed if the appellant succeeded on the first issue of construction.
First issue
First, it was necessary to consider whether, on a proper construction of the Agreement, the deducted charges and costs were for 'refining', being the process or operation described in the first sentence of the definition of 'Allocable Charges' set out above, and being an activity in respect of which the charges and costs were permissible deductions.
The respondent's pleading included the following contention:[85]
9.1On the proper construction of the [Agreement]:
9.3where the Mineral Product sold is yellowcake, the Allocable Charges identified in cl 1.1(c)(ii) do not include:
9.3.1any charges, costs or penalties for 'smelting' or 'refining', as neither of those processes occur prior to the sale of such Mineral Product by [the appellant] as yellowcake; or
9.3.2any costs for or related to extraction or processing of uranium ore.
[85] Further Amended Statement of Claim [9]; BAB 135.
There are two activities identified in the pleading: 'smelting' and 'refining'.
Smelting typically involves the application of high temperature to melt the ore.[86] It was common ground that no smelting activities were undertaken by the appellant or by its affiliate, Heathgate Resources.[87]
[86] Report of Mr Lawson, exhibit 306; GAB 505, 507; report of Professor Trench, exhibit 305; GAB 406 ‑ 407.
[87] Appeal ts 6, 8.
Whether refining activities were undertaken by the appellant or by Heathgate Resources was a matter of contention between the parties at trial and is a central issue on this appeal. The respondent contended that the concept of 'refining', as that term is used in the Agreement, extended to the final processing stage of the uranium and did not include the extraction or processing of uranium ore. On this approach, no refining activities were undertaken by the appellant or Heathgate Resources in Australia, and no deductions for refining ought to have been made by the appellant. The appellant posited a broader meaning of the term in the proceedings below, and further developed that contention on appeal.
The primary judge was thus required to consider the meaning of the word 'refining' in the Agreement. The primary judge ultimately accepted the respondent's construction of the Agreement and the respondent's meaning of the term 'refining' (having regard to the expert and other evidence which was led), and found that no operations falling within that meaning were or are undertaken at the Australian operations. The respondent's meaning was generally referred to by the parties in the proceedings below as the narrow meaning of the term, in the sense that it allowed for a narrower scope of permissible deductions to be made by the appellant.
Second issue
Second, if the charges and costs satisfied the above requirement, the respondent nonetheless challenged the reasonableness of two components of the 'Uranium extraction and processing' costs deducted by the appellant, being the utilisation fee and the management fee. Both fees were charged to the appellant by its affiliate, Heathgate Resources. The primary judge was required to determine whether these amounts were reasonable and did not exceed the amounts which would have been charged if the relevant operations had been carried out by independent third parties offering comparable services. This limiting language is found in the second sentence of the definition of 'Allocable Charges' set out at [93] above.
The contention as to the reasonableness of the fees was put as follows in the respondent's pleading:[88]
11A.In the alternative to paragraph 11, if any of the activities or operations set out in paragraphs 10.1 to 10.8 above are 'refining' or 'smelting' (which is denied), then since around October 2015, in calculating the amounts of the royalty payments pleaded in paragraph 13 below, [the appellant] has:
11A.1.paid amounts to Heathgate in respect of charges relating to such activities or operations which are not reasonable and which are in excess of the amounts which [the appellant] would have incurred had such operations been carried out at facilities not owned by its Affiliate, but by an entity offering comparable custom services;
11A.2.to that extent, wrongly purported to claim as 'Allocable Charges' all of the charges so paid by [the appellant] to Heathgate;
Particulars
Particulars of the amounts by which the Management Fee and the Utilisation Fee exceed that which is reasonable will be provided following expert evidence and prior to trial.
11A.3.accordingly, wrongly purported to reduce the 'Net Smelter Return', and thereby the royalty payable by [the appellant] to [the respondent], by subtracting the excessive charges, in full, which were not 'Allocable Charges' on the proper construction of the [Agreement].
[88] Further Amended Statement of Claim [11A]; BAB 139 - 140.
The primary judge found in favour of the respondent on the second issue as well,[89] but was unable to make a finding on the limited evidence available as to the charges for the two fees which would have been reasonable.[90]
Relief granted and appeal grounds
[89] Primary reasons [268] - [280], [281].
[90] Primary reasons [282].
The primary judge granted declaratory relief in favour of the respondent consequential upon his determination as to the proper construction of the Agreement.[91] The appellant was also ordered to pay the respondent a sum to reflect those charges and costs which had been wrongly deducted by the appellant.[92]
[91] BAB 1 (order 1).
[92] BAB 2 (order 2).
The appellant now appeals on three grounds, each of which asserts errors in both fact and law.[93] The first two grounds challenge the construction issue considered by the primary judge, as to the meaning of the term 'refining' in the Agreement and whether the processes or operations undertaken constituted 'refining' for the purposes of the Agreement (grounds 1 and 2). The third ground of appeal challenges the primary judge's conclusion as to the unreasonableness of the utilisation fee and the management fee (ground 3). The parties were in agreement that in the event grounds 1 and 2 were upheld but ground 3 failed, the matter should be remitted to the primary judge for further consideration.[94]
[93] Grounds of appeal, WAB 7 - 8.
[94] Appeal ts 39, 75.
For the reasons set out below, I have reached the same conclusion as the primary judge as to the proper construction of the Agreement and the meaning of the term 'refining', and I do not accept the primary judge erred in the manner contended. Accordingly, ground 1 fails, and so must ground 2, which is tied to ground 1. Although ground 3 does not therefore strictly arise in those circumstances, having considered the substance of this ground, I am of the view that no error has been demonstrated and the primary judge was correct in his conclusion that the fees were unreasonable. Accordingly, ground 3 also fails. The appeal should therefore be dismissed.
I will begin these reasons by setting out the relevant provisions of the Agreement, together with a summary of the background facts which are uncontroversial.[95] I will then address grounds 1 and 2, first by summarising the primary judge's conclusions, then the competing constructions of the Agreement, and will then explain my reasons for accepting the construction advanced by the respondent. Ground 3, and the evidence and arguments as to the reasonableness of the two fees, can and will be addressed quite separately. I will summarise the primary judge's conclusions on this aspect of the proceedings below and then explain why I consider no error has been demonstrated in this regard and, indeed, why the primary judge was correct.
[95] These matters are drawn from the background facts identified by the primary judge and from the parties' submissions on appeal insofar as they concern non-contentious matters: appellant's submissions, WAB 9 ‑ 28; respondent's submissions, WAB 56 - 75.
The factual context
The Agreement
The original parties to the Agreement were Goldstream Mining NL (Goldstream), Alliance Energy Ltd (Alliance) and Alliance Craton Explorer Pty Ltd (ACE), with Alliance being the parent company of ACE. The original parties to the Agreement were substituted over time, with the appellant assuming the obligations of ACE to pay the royalty and the respondent assuming the rights of Goldstream to receive the royalty.
By the terms of the Agreement, Goldstream sold three exploration licences located in South Australia to ACE. The consideration was the issue of shares in the capital of the parent company of ACE (being Alliance) and the payment of a net smelter royalty by ACE.[96] Clause 2 of the Agreement provides as follows (with references to ACE replaced by the appellant, reference to Alliance replaced by the appellant's parent company, and references to Goldstream replaced by the respondent):
2 SALE
2.1In consideration of the matters set out in clause 2.2, [the respondent] hereby sells and transfers the Tenements to [the appellant], and [the appellant] hereby agrees to accept and purchase the Tenements upon and subject to the terms and conditions hereinafter set forth.
2.2In consideration of [the respondent] entering into this Agreement, at the request of [the appellant's parent company], [the appellant's parent company] covenants and agrees with [the respondent] to issue and allot the Shares to [the respondent] free of encumbrances pursuant to clause 5, and [the appellant] covenants and agrees with [the respondent] to pay the net smelter royalty set out in clause 7 of this Agreement.
[96] Primary reasons [14].
The royalty payable was required to be calculated in accordance with cl 7 of the Agreement, applying several defined terms in cl 1.1 of the Agreement, namely 'Allocable Charges', 'Mineral Products', 'Net Smelter Returns', 'Refined Precious Metals'. Clause 7 is in the following terms (again, with references to ACE replaced by the appellant and references to Goldstream replaced by the respondent):
7 NET SMELTER ROYALTY
7.1[The appellant] covenants and agrees with [the respondent] to pay [the respondent] a net smelter royalty equal to one percent (1%) of the Net Smelter Returns in the manner and at the times hereinafter set out. The obligation to pay this royalty will endure for:
(a) the life of the Tenements and for the life of any replacement, renewal or substituted tenement or other form of authority that allows the recovery of Mineral Products from the Tenement Area; and
(b) so long as [the appellant] or any Affiliate of [the appellant] has an interest in the Tenements or in any replacement, renewal or substituted tenement or other form of authority that allows the recovery of Mineral Products from the Tenement Area.
7.2All royalty payments to [the respondent] must be paid in cash. Royalties will be paid:
(a)for Refined Precious Metals on or before the 45th day after the last day of the quarter in which the final settlement date for such Refined Precious Metals fall; and
(b)for Mineral Products that are not Refined Precious Metals on or before the 45th day after the last day of the calendar quarter in which [the appellant] actually receives payment for such Mineral Products.
7.3[The appellant] must provide [the respondent] at the time royalties are paid copies of all source documentation that verifies the amount of the royalty. [The respondent] will also be given access to any original documents, data, information and returns that form any part in the calculation of the royalty.
7.4Within 90 days after the end of each financial year during which a royalty payment has been made, [the appellant] will deliver to [the respondent] an unaudited statement of royalties paid to [the respondent] during the year and the calculation thereof. [The respondent] will be entitled at [the respondent's] expense to an annual independent audit of the statement by a certified public or chartered accountant within 12 months after presentation of the unaudited year-end statement.
7.5[The appellant] will have the right to commingle ores and minerals received from the Tenement Area with like resources from other properties. Before commingling, resources will be sampled, assayed, weighed and measured in accordance with sound industry practices. Before co-mingling [the appellant] will give notice to [the respondent] of its intention to co-mingle and [the respondent] shall be provided with the opportunity of attending any co-mingling or any sampling, assaying, weighing or measuring referred to in this clause. [The appellant] will maintain records of such measurements, which will be available for inspection by [the respondent] from time to time on reasonable notice.
7.6[The respondent] may lodge a caveat over each of the Tenements to protect its interest in the Royalty and [the appellant] shall not take any steps to remove it.
7.7[The appellant] and [the respondent] acknowledge that [the appellant] may from time to time undertake forward sale and/or purchase contracts, spot-deferred contracts, and option contracts and/or other price hedging and price protection arrangements and mechanisms and speculative purchases and sales of forward, futures and option contracts, both on and off commodity exchanges (Trading Activities) in connection with some or all of the Refined Precious Metals and other Mineral Products. Such Trading Activities, and any profits and losses generated thereby, will not, in any manner, be taken into account in the calculation of royalties due to [the respondent] whether in connection with the determination of price, the date of sale, or the date any royalty payment is due. [The respondent] acknowledges that [the appellant] engaging in Trading Activities may result in [the appellant] realising from time to time fewer or more dollars for Refined Precious Metals or other Mineral Products than is utilised in the royalty calculation and [the respondent] hereby waives any claim for additional royalty should [the appellant] at any time realise more dollars per troy ounce or other units of sale for Refined Precious Metals or Mineral Products than is utilised in the royalty calculation. Similarly, [the appellant] waives and [the respondent] will not be obligated to share in any losses generated by any such Trading Activities with respect to Refined Precious Metals or other Mineral Products.
The following definitions in cl 1.1 of the Agreement are important to the exercise of construction:
(c)'Allocable Charges' means the following costs, but only to the extent actually incurred and borne by [the appellant]:
(i)Sales, use, gross receipts, severance, ad valorem, GST (but not if subject to an input tax credit, which is actually claimed and received) and other similar taxes, if any, however denominated, payable with respect to existence, severance, production, removal, sale or disposition of Mineral Products, but excluding any taxes on net income;
(ii)Charges, costs and penalties, if any, for smelting (which does not include crushing), refining and marketing. In the event smelting or refining are carried out in facilities owned or controlled, in whole or in part, by [the appellant] or its Affiliates, charges, costs and penalties with respect to such operations will mean reasonable charges, costs and penalties for such operations but not in excess of the amounts that [the appellant] would have incurred if such operations were carried out at facilities not owned or controlled by them offering comparable custom services;
(iii)Charges and costs, if any, for transportation to places where Ores and Minerals are smelted, refined and sold; and
(iv)Royalties, rentals, fees and charges payable to the Government of South Australia and under native title agreements with respect to the Mineral Products for which the royalty is being calculated;
…
(g)'Mineral Products' means all ores, minerals, concentrates, dore bullion, and other products mined and removed from all or any part of the Tenement Area, whether or not subsequently beneficiated, processed or otherwise upgraded and includes Refined Precious Metals;
(h)'Net Smelter Returns' means:
(i)in the case of Refined Precious Metals, the number of troy ounces of Refined Precious Metals delivered or credited to the account of [the appellant] as evidenced by the metals return statements received from the refiner, subject in each case to final adjustments with the refiner, multiplied by the Deemed Sales Price, and reduced by the Allocable Charges; and
(ii)in the case of Mineral Products that are not Refined Precious Metals and which are sold and delivered by [the appellant] the gross amount actually received by [the appellant] from the purchaser for the Mineral Products so sold, and reduced by the Allocable Charges;
…
(j)'Refined Precious Metals' means all gold derived from Mineral Products and refined by or for the account of [the appellant] to a purity of at least .995[.]
Ground 3: disposition
This ground draws attention to two particular aspects of the primary judge's reasoning process in concluding that the utilisation fee and the management fee were unreasonable.
The first issue is essentially one of onus in the context of proof of a negative proposition.
The second issue concerns the persuasiveness of the expert evidence and the primary judge's assessment that, having had the opportunity to consider and assess the manner in which Mr Ter‑Martirosyan and Professor Gray gave their evidence, the primary judge found the views of the former to be more persuasive and identified deficiencies in the application to the present issues of the building block approach favoured by Professor Gray. This aspect of the appellant's challenge brings into focus the approach of the primary judge in weighing the limited (direct) evidence which was adduced at trial.
I will address these matters below and explain why this ground must be dismissed.
Onus of proof
In cases in which there is a dearth of evidence going directly to the primary matter in issue, it is particularly important for the court to undertake the analysis of the evidence which has been adduced, including any available inferences which may be drawn, paying close attention to the onus of proof. This includes the identification of the party bearing the ultimate onus of proof, and whether one party bears an evidential onus.
The proposition to which the primary judge had regard, Lord Mansfield's maxim in Blatch v Archer, bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In general terms, the principle is similar to, but wider than, the principle in Jones v Dunkel.[330] The principle is that:
[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.[331]
[330] Jones v Dunkel (1959) 101 CLR 298; Chong v CC Containers Pty Ltd [2015] VSCA 137; (2015) 49 VR 402 [207] - [208]; AIG Insurance Australia Ltd v McMurray [278].
[331] Blatch v Archer (970).
The continuing currency of the maxim in Blatch v Archer was recently recognised by a plurality of the High Court in GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore.[332] In considering an appeal against an order permanently staying proceedings on the ground that a trial would be unnecessarily unfair or constitute an abuse of process, Kiefel CJ, Gageler and Jagot JJ emphasised the principles which have been developed by the common law in response to 'the fact that, in the adversarial system, cases are always decided within the evidentiary framework the parties have chosen and are often decided on incomplete evidence'.[333] One of these principles is the maxim in Blatch v Archer. The plurality observed that the maxim acknowledges the problem that in deciding issues of fact on the civil standard of proof, the court is concerned not just with the question 'what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision'.[334]
[332] GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32.
[333] GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [58].
[334] GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [58], quoting from Cross on Evidence (13th ed, 2021) [1215], which itself includes a quote from Ho v Powell [14] ‑ [16],
The maxim was the subject of earlier analysis by the High Court in Australian Securities and Investments Commission v Hellicar.[335] In that case, the plurality (French CJ, Gummow, Hayne, Crennan, Kiefel & Bell JJ) noted that there remains a need, notwithstanding the maxim, to faithfully apply the principles governing the onus and standard of proof. The court held:
[165]Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC.
[166]Lord Mansfield's dictum in Blatch v Archer that '[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted' is not to be understood as countenancing any departure from any of these rules. Indeed, in Blatch v Archer itself, Lord Mansfield concluded that the maxim was not engaged for 'it would have been very improper to have called' the person whose account of events was not available to the court. (footnotes omitted)[336]
[335] Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345.
[336] Australian Securities and Investments Commission v Hellicar [165] ‑ [166].
The principles governing the onus of proof recognise a clear distinction between a legal (or ultimate) onus of proof, and the onus of adducing evidence. As a general rule in civil cases, the party who has the legal burden also has the evidential burden, but that is not always the case. As the primary judge recognised, a particular circumstance in which courts have recognised that the general rule does not apply is where the party bearing the legal onus is required to prove a negative proposition and relevant facts are peculiarly in the knowledge of the opposing party who has the greater means to produce evidence relating to those facts. In this respect, the primary judge referred to, and relied upon, the decision of Campbell J in Hawksford v Hawksford, in which his Honour explained the distinction as follows:[337]
The distinction between an onus of proof and an onus of adducing evidence is of particular relevance in the present situation. Where party A has the legal onus of proving a negative proposition, and relevant facts are peculiarly in the knowledge of party B or where party B has the greater means to produce evidence relating to those facts, then provided party A establishes sufficient evidence from which the negative proposition may be inferred, party B then comes under an evidential burden, or an onus of adducing evidence. (citations omitted)
[337] Hawksford v Hawksford [54].
In Hawksford v Hawksford, a challenge was brought to a solicitor's retainer with two corporate entities. Campbell J held that the legal onus of proving the absence of a retainer fell upon the plaintiffs. Once the plaintiffs had raised an inference of the negative proposition, the defendants then carried the evidential burden 'to advance in evidence any particular matters with which (if relevant) the plaintiffs would have to deal in the discharge of their overall burden of proof'.[338] Campbell J's statement was described by the NSW Court of Appeal in Crowe‑Maxwell v Frost as representing an application of the Blatch v Archer principle, in the context of proof of a negative proposition.[339]
[338] Hawksford v Hawksford [55].
[339] Crowe-Maxwell v Frost [91].
The primary judge in the matter under appeal concluded that the ultimate onus rested on the respondent. That onus was to establish a negative proposition, that the charges and costs were unreasonable or exceeded the amounts the appellant would have incurred if such operations had been carried out at facilities not owned or controlled by Heathgate Resources.
Further, the primary judge found that the appellant bore an evidential onus, having regard to the maxim in Blatch v Archer and the observations in Hawksford v Hawksford. The evidential or forensic burden was to adduce evidence as to the reasonableness of the fees (which would likely include evidence as to the basis for the calculation of the two fees and the rationale for those fees). That conclusion was undoubtedly open to his Honour given the relevant facts as to the calculation and rationale of the fees were peculiarly within the knowledge of the appellant, and the appellant plainly had greater means to produce evidence relating to those facts.
The primary judge's invocation of the principle in Blatch v Archer, as the first step in his reasoning and analysis,[340] was entirely consistent with the principles expressed above.
[340] Primary reasons [269] ‑ [270].
That said, the applicability of the principle in Blatch v Archer was not directly challenged by the appellant on appeal. Rather, the appellant criticises the primary judge, and asserts he fell into error, insofar as he concluded that the appellant failed to discharge the evidential onus 'to establish that the fee was reasonable'.[341] The appellant submits the language employed by the primary judge indicates he approached the issue on the basis the appellant was required to establish the positive proposition that the fees were reasonable (that is, that the legal onus was somehow on the appellant).
[341] Appeal ts 41 - 42.
It would undoubtedly be an error to shift the ultimate, legal burden from the respondent to the appellant. However, that is not what occurred on a fair reading of the primary judge's reasons and the submission should be rejected.
His Honour's reference to the appellant's inability to discharge the evidential onus does not reflect a misapplication or misstatement of law. In my view, the particular language employed by the primary judge at [281] of the primary reasons must be seen in the context of the reasons as a whole, including the preceding paragraph of his reasons at [280] and the primary judge's reference to, and analysis of, Hawksford v Hawksford and Crowe-Maxwell v Frost.
The reference at [281] of the reasons reflects his Honour's assessment that the appellant had an evidential onus to adduce some evidence relevant to the reasonableness of the management fee (noting that the comments at [281] do not refer to the utilisation fee). The use of the phrase 'to establish that the fee was reasonable' is a reference to the onus of adducing evidence concerning the quantum of the management fee and the various factors identified at [280], noting that his Honour had referred to the nature of the evidential burden in his reasons at [269]. His Honour's statement at [281] represents a not uncommon phrasing employed by trial judges to explain that the party which carried the evidential burden (that is, the burden to advance in evidence any particular matters with which (if relevant) the other party would have to deal in the discharge of their overall burden of proof),[342] had failed to satisfy that burden. On a fair reading of the primary reasons, it is this sense in which the primary charge spoke of the appellant's failure to discharge the evidential onus.
[342] Hawksford v Hawksford [55].
Although only limited evidence was available, the respondent (as the plaintiff below) was not released from its obligation to discharge the legal onus, which was to establish the negative proposition that the charges and costs were, generally speaking, unreasonable. His Honour's reasons, properly understood, do not reveal any indication that he sought to shift the ultimate onus to the appellant, which his Honour expressly recognised at [269] of his reasons.
In my view, his Honour's approach in this regard represents a correct application of established principle. His Honour held the respondent to its legal onus, but properly took into account the failure by the appellant to adduce evidence which could have been, but was not called, in determining whether the respondent had demonstrated its case to the civil standard. A striking illustration of this was the fact that no evidence as to the quantum of the management fees incurred by Heathgate Resources was adduced (and yet this formed the apparent sole basis for the charging of the fee of 15% to the appellant which was then on-charged to the respondent through the 'Allocable Charges' concept in the Agreement).[343]
Assessment of the evidence
[343] Identified by the primary judge at [280] of the primary reasons.
The respondent sought to discharge its ultimate onus through the opinion of Mr Ter-Martirosyan as to the unreasonableness of the management fee (an issue in respect of which Professor Gray did not express an opinion) and the opinion of Mr Ter-Martirosyan as to the unreasonableness of the utilisation fee.
Additionally, the respondent was able to point to the vague evidence of Mr De Gennaro as to the process of allocating costs, and the direct evidence of Mr Bartels that the utilisation fee was largely for upkeep and maintenance of the plant, which supported a conclusion, having regard to other evidence, there was an element of double recovery in this regard.
The respondent was assisted in discharging its onus of proof by the limited evidence adduced by the appellant on these matters. As counsel for the appellant properly recognised, 'there was not an abundance of evidence about the utilisation fee at trial',[344] although a submission was made that the same could not be said for the available evidence concerning the management fee. I will address this proposition at the conclusion of this section of the reasons.
[344] Appeal ts 47.
At [275], the primary judge concluded that the utilisation and management fees were unreasonable having regard to the opinion of Mr Ter-Martirosyan. The appellant submits that this court is in the same position as the primary judge to assess the evidence and opinions of Mr Ter-Martirosyan and Professor Gray, to undertake the exercise which is apparent from the primary judge's reasons at [275] and [277], and that this court should reach a different conclusion. I am not satisfied the task is wholly capable of re-evaluation by this court by reference to the documents and the transcript. His Honour had the opportunity, which this court does not, to consider and assess all of the evidence of Mr Ter-Martirosyan and Professor Gray, and concluded that he found the views of the former to be more persuasive. In this regard, the principles of appellate restraint to which I have earlier referred must be borne in mind.[345]
[345] See [182] - [186] above.
In any event, a review of the primary judge's reasoning on this issue reveals that a careful scrutiny was undertaken of the detailed evidence adduced from Mr Ter-Martirosyan and Professor Gray, and the competing models or approaches they applied. As part of this analysis, his Honour identified the limitations in the benchmarking process favoured by Mr Ter-Martirosyan, but ultimately concluded the benchmarking approach was a legitimate method to adopt for the purposes of assessing the reasonableness of these fees.
The appellant's submission is in effect that the benchmarking exercise was 'fundamentally flawed'.[346] There were certainly difficulties inherent in the analysis, some of which emerged from the lack of direct evidence, but the submission cannot be sustained in its entirety. Two particular points were highlighted by the appellant in support of its submission.
[346] Appeal ts 43.
The first is the criticism that Mr Ter-Martirosyan did not have access to the Alliance Study, and only had regard to a summary of that study. The issue was recognised by the primary judge at [256(a)] of his reasons. The challenge is far from compelling when it can reasonably be inferred that the appellant had access to the complete copy of the study and failed to adduce it in evidence or otherwise demonstrate how the summary was materially inaccurate. The Blatch v Archer maxim has direct application in this regard.
The second criticism, which is of greater substance, is that the benchmarking by Mr Ter-Martirosyan against the profit margins of Australian mining contractors involves a false comparison.[347] Counsel for the appellant submitted that the respondent's expert was unable to say whether the mining contractors which were the subject of the comparison provided facilities and associated infrastructure as part of their service (which was the case with the Beverley Plant and infrastructure provided by Heathgate Resources). The primary judge recognised the limitations in Mr Ter-Martirosyan's analysis (at [256(c)] and [275] of the primary reasons). The difficulty with the comparability of the margins does somewhat weaken the cogency of Mr Ter-Martirosyan's conclusion in this respect, and his reliance on this benchmark. It may also serve to explain, at least in part, why the fee margin attributed to Heathgate Resources so starkly exceeded the comparable profit margins.[348]
[347] Appeal ts 45 - 46.
[348] Primary reasons [247], noting that the fees charged by Heathgate Resources were approximately 80% to 155% higher than the median EBITDA margin for the comparable entities, and between 85% and 160% higher than the average EBITDA margin.
Nonetheless, the benchmark on which Mr Ter-Martirosyan placed the greatest reliance was the first comparison, that is the benchmarking against the Alliance Study. As explained above, I do not accept the appellant's criticisms in this regard are sufficient to disclose error in the approach of the primary judge in placing reliance on the opinion of Mr Ter-Martirosyan, bearing in mind the opportunity the primary judge had to consider and assess the reliability of his evidence.
Further, it is not appropriate to undertake a review of the evidence before the primary judge in an isolated or piecemeal fashion. The evidence as a whole must be considered. In this respect, there was available evidence before the primary judge to support a finding that the imposition of the utilisation fee by Heathgate Resources, which was largely imposed to address the upkeep and maintenance of the Beverley Plant, involved an element of double recovery.[349] This finding was open given the evidence that repair and maintenance of the Beverley Plant was included under various 'Cost Centres' as 'Allocable Charges'. These matters, in the absence of any evidence to the contrary adduced from the appellant, which it had the ability to call, supported the conclusion that the charges and costs were unreasonable.
[349] Primary reasons [271] ‑ [272].
Additionally, on the appellant's assumption that the rationale for a portion of the utilisation fee was for remediation costs, the available evidence provided the foundation for a conclusion that this component of the fee was passing on almost three times the estimated full cost of remediation associated with the Beverley Mine.[350] On any view, this analysis strongly pointed against the reasonableness of the utilisation fee, particularly as the contention was not contradicted or explained by the appellant.
[350] Appeal ts 76 - 77.
Further, one of the assumptions upon which Professor Gray's analysis was based concerned the replacement value of the Beverley Plant as at 2014. He was instructed to assume a replacement value of $180 million. That is, although the facility was by then some 14 years old, the assumed value was based on the cost to build a new facility. This was one of the matters accepted by Professor Gray in principle during the course of cross-examination, as noted by the primary judge at [278].
This leads me to the third submission developed by the appellant, concerning the primary judge's analysis of the evidence of Professor Gray concerning the reasonableness of the utilisation fee.[351] The appellant submits the assessment of Professor Gray ought to have been given weight, and should not have been discounted, by the primary judge, such that it ought to have been concluded there was an evidentiary foundation for the reasonableness of the utilisation fee. This analysis rather oversimplifies the approach adopted by the primary judge, which was not to wholly disregard the evidence of Professor Gray, but rather was to assess the relative reliability and persuasiveness of the two approaches employed by the experts including by reference to their applicability to the issues before the court and their inherent limitations. The primary judge also accepted that Professor Gray's model had applications in commerce outside the field of regulatory economics.[352]
[351] Appeal ts 47 - 48.
[352] Primary reasons [277].
Further, the primary judge specifically noted that the conclusion as to the utilisation fee reached by Professor Gray fundamentally rested on an assumption that Heathgate Resources had the appellant 'over a barrel' in a negotiating sense, such that it would have been reasonable for Heathgate Resources to impose a charge unless it was cheaper for the appellant to build its own plant. The assumption that the appellant was in a position of desperation in this regard was not only an unreasonable one, but this approach did not assist to address the issue which fell for determination on the pleadings and the terms of the Agreement. That issue required an assessment of the hypothetical bargain that would be reached between the appellant and an owner of the plant which was not an affiliate of the appellant, in order to assess the reasonableness of the fees.[353]
[353] Primary reasons [277].
A further argument was advanced by the appellant on appeal in relation to ground 3, concerning the reasonableness of the management fee.[354] Counsel for the appellant submitted that there was evidence before the primary judge as to the services to which the management fee related.[355] This submission was directed at the primary judge's conclusion that there was an absence of evidence led by the appellant in discharge of its evidential onus concerning the management fee (at [280] and [281]). The appellant directed attention to the second witness statement of Mr De Gennaro in this respect, which outlines the services provided by Heathgate Resources,[356] in the context that the appellant did not have any employees of its own.
[354] Appeal ts 46 - 47.
[355] Appeal ts 47
[356] Exhibit 315; GAB 365 - 373.
The evidence to which the appellant points helps to explain the management services which were provided. The primary judge's finding, however, was that no evidence was led by the appellant as to the quantum of the management fees incurred by Heathgate Resources which it sought to recover by charging this fee (which equated to 15% of the operating costs). The primary judge identified a range of matters which would have been relevant to the reasonableness of this fee, but which were not addressed in the evidence.[357]
[357] Primary reasons [280].
In the absence of such evidence and recognising that Professor Gray did not opine on the reasonableness of these fees, the benchmarking approach adopted by Mr Ter-Martirosyan provided a sound basis to conclude that the fees were unreasonable. The benchmarking of the fees charged by Heathgate Resources, which included the management fees, against the Alliance Study, represented an apparently sound and justifiable method of assessing the reasonableness of the fees. On that benchmark, the HGR Fees were higher, allowing for a conclusion that the fees, including the management fees, exceeded the amount the appellant would have charged had the Beverley Plant been owned by a party that was not an affiliate.
At the very least, the primary judge was entitled to draw the inference, on all of the available evidence, that the management fee was unreasonable and, in determining whether the respondent had discharged its legal onus in this regard, was entitled to have regard to the appellant's failure in the circumstances to call or give evidence of the quantum of the management fees incurred by Heathgate Resources (which could cast light on the reasonableness of the management fee). As I have explained, this is the approach the primary judge adopted at [280] and [281]. In my view, his approach was correct.
The primary judge's approach in relation to the evidential onus concerning the management fee, and the application of the Blatch v Archer principle, accords with the manner in which the maxim has been applied by intermediate appellate courts in Australia. In this respect, I am referring to the primary judge's approach to the weighing of the evidence, rather than the question of onus, which I have already addressed above. I refer to the decisions of the NSW Court of Appeal in Ho v Powell[358] and Crowe-Maxwell v Frost, and to the decision of the Full Federal Court in Coshott v Prentice.[359]
[358] Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 [14] - [15] (Beazley & Hodgson JJA).
[359] Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450 [81] (Siopis, Katzmann & Perry JJ).
It is only necessary to refer to the authority of Crowe-Maxwell v Frost in some detail. That decision is relied upon by the respondent, and was referred to by the primary judge.[360] The case concerned a challenge brought by liquidators to various transactions between the company and its directors. The liquidators contended the transactions were unreasonable director-related transactions and therefore voidable transactions. The funds in question had been used by the directors to pay personal expenses, for repayments of their residential home loan, and for repayment of a loan made by the father of one of the directors.[361]
[360] Primary reasons [270].
[361] Crowe-Maxwell v Frost [7].
An aspect of the argument raised on appeal in Crowe-Maxwell v Frost was that there was no evidential basis for the trial judge's findings that the payments did not constitute unreasonable director-related transactions.[362] Additionally, the appeal raised an issue as to whether the appellants had discharged the onus of proving the relevant transactions were unreasonable director-related transactions, and the extent to which the directors bore an onus to adduce evidence in relation to the transactions under challenge.[363]
[362] Crowe-Maxwell v Frost [17].
[363] Crowe-Maxwell v Frost [17].
Beazley P (with whom Macfarlan & Gleeson JJA agreed) addressed the onus issues at [89] - [92]. Her Honour held as follows:
[89]A common thread in the uncommercial transaction cases is that, where there is limited evidence of the nature or purpose of a transaction, but the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties, absent some commercial explanation, courts may infer the transaction was uncommercial, without requiring the liquidator to prove its precise uncommercial nature. The same may be said with respect to the identification of unreasonable director-related transactions.
[90]In those limited circumstances, for practical purposes, a defendant may be said to bear an 'onus', sometimes referred to as an evidentiary onus, of raising some commercial explanation for the transaction.[364]
[364] Crowe-Maxwell v Frost [89] - [90], referring to Hawksford v Hawksford with approval.
The respondent's submission that the analysis in Crowe-Maxwell v Frost provides analogous support for the approach adopted by the primary judge should be accepted.
Accordingly, the appellant's challenges to the approach and reasoning adopted by the primary judge in concluding that the utilisation fee and the management fee were unreasonable must fail, both in terms of the application of the onus of proof principles and in relation to the assessment of the evidence on the issues.
Conclusion and orders
For these reasons the appeal should be dismissed. I would order that the appeal be dismissed and I would hear from counsel for the parties as to the costs of the appeal.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SAO
Associate to the Honourable Justice Lundberg
1 DECEMBER 2023
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