Richore Pty Ltd v Cougar Metals Nl (Subject to DOCA)

[2023] WASC 2

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   RICHORE PTY LTD  -v- COUGAR METALS NL (SUBJECT TO DOCA) [2023] WASC 2

CORAM:   ARCHER J

HEARD:   26 & 27 MAY 2022

DELIVERED          :   20 JANUARY 2023

FILE NO/S:   GDA 14 of 2021

BETWEEN:   RICHORE PTY LTD

First Appellant

PYKE HILL RESOURCES PTY LTD

Second Appellant

AND

COUGAR METALS NL (SUBJECT TO DOCA)

Respondent

Catchwords:

Proper construction of option agreement - Essential term - Exemption under s 103 of the Mining Act 1978 (WA) - Effect of exemption - Did it retrospectively cure a breach of the agreement - Schrodinger's cat - Raising a new case on appeal

Legislation:

Mining Act 1978 (WA), s 103

Result:

Appeal allowed

Category:    B

Representation:

Counsel:

First Appellant	:	M D Cuerden SC & D R Chandler
Second Appellant	:	M D Cuerden SC & D R Chandler
Respondent	:	N Gentilli

Solicitors:

First Appellant	:	Lawton Macmaster Legal
Second Appellant	:	Lawton Macmaster Legal
Respondent	:	Jackson McDonald

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

Amcor Limited v Construction, Forestry, Mining and Energy Union [2005] HCA 10; (2005) 222 CLR 241

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549

Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219

Commercial Properties v Italo Nominees Pty Ltd (Unreported, WASCA, Library No 7427, 16 December 1988)

Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693

Cougar Metal NL v Richore Pty Ltd and Pyke Hill Resources Pty Ltd [2021] WAWC 1

Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd [2021] NSWCA 284

Electricity Generation and Retail Corporation trading as Synergy v EIT Kwinana Partner Ptd Ltd [2022] WASCA 3

Forrest & Forrest Pty Ltd v Minister for Mines and Petroleum [2017] WASCA 153; (2017) 51 WAR 425

Forrest & Forrest Pty Ltd v The Honourable William Richard Marmion, Minister for Mines and Petroleum [2018] WASCA 32; (2018) 53 WAR 156

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115

Nova Resources NL v French (1995) 12 WAR 50

Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92

Re Boothman SM; Ex parte M J Edmonson (1984) Pty Ltd v W J Flint unreported; SCt of WA; Library No 980361; 24 June 1998

Re Roberts SM; Ex parte Burge [2003] WASCA 2

Richore v Cougar [2020] WAWC 1

Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80; (2019) 55 WAR 89

Strahan v Brennan [2014] WASC 190, 22

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; (2012) 247 CLR 129

Zerjavic v Chevron Australia Pty Ltd [2020] WASCA 40

TABLE OF CONTENTS

Introduction

Issues

Background

The Option Agreement

The warden's Decision

Grounds of appeal

Legal framework

Appeals

Nature of the appeal

Evaluating a magistrate's reasons

Mining leases

Expenditure conditions

Forfeiture of a mining lease for failing to comply with expenditure conditions

Burden of proof – sufficient gravity

Exemption from expenditure conditions

Policy of the Act

Contract construction

General principles

Essential terms

Did the warden find that cl 6(a)(ii) had been breached? (Ground 1 and Issue 1)

Is cl 6(a)(ii) an essential term? (Issue 2)

The appellants' submissions

Cougar's submissions

Clause 11.5

Uncommercial construction

Discussion

Should the warden have found that cl 6(a)(ii) had been breached? (Issue 3)

The First Contention (Issue 3(a))

Inconsistent with the way the case was run in the Wardens Court

Should the new contention be entertained?

Discussion

Did the exemption retrospectively 'cure' the breach? (Issue 3(b))

Cougar's submissions

Appellants' submissions

Conclusion

Conclusion on whether the warden should have found breach

If Cougar did fail to make sufficient expenditure, was this caused by Richore (Second Contention and Issue 4)?

Conclusion

ARCHER J

Introduction

1. The second appellant (now called Pyke Hill) was the registered holder of a mining lease M39/159 (Tenement).  It held 50% of the Tenement on trust for a company which later sold its interest to the first appellant (Richore).

2. Pyke Hill (under its previous name) entered into an option agreement with the respondent (Cougar) in 2004 (Option Agreement).  Under cl 6(a)(ii) of the Option Agreement, Cougar was required to, among other things, 'attend to all proper administration in respect of the Tenement including … payment of rents and rates as they fall due, and otherwise maintain the Tenement in good standing including payment of all statutory minimum annual expenditure commitments in respect of the Tenement'. 

3. Under the Mining Act 1978 (WA), holders of mining leases are required to comply with 'the prescribed expenditure conditions' unless an exemption is obtained.[1]  The Mining Regulations 1981 (WA) prescribe the amount that a lessee must spend on mining in each year of the term of the lease.[2]  I will refer to the prescribed amount as the 'statutory minimum annual expenditure' or, more briefly, the 'statutory minimum'.

   [1] Section 82(1)(c) of the Mining Act 1978 (WA).

   [2] Regulation 31 of the Mining Regulations 1981 (WA).

4. Over the years, the parties have been engaged in a number of proceedings in the Wardens Court.  The most recent plaint was brought by Pyke Hill and Richore.  Pyke Hill had purported to terminate the Option Agreement on the basis that Cougar had breached its terms, which Pyke Hill alleged were essential terms.  In the plaint, Pyke Hill and Richore sought, among other things, a declaration that the Option Agreement had been validly terminated. 

5. In purporting to terminate the Option Agreement, Pyke Hill alleged that Cougar had breached it in three ways.  One of the alleged breaches was that Cougar had, with respect to the tenement year 2019-2020, failed to cause the statutory minimum annual expenditure of $53,800 on mining or in connection with mining to be met, in breach of cl 6(a)(ii).

6. The warden dismissed the plaint (Decision).[3]  It is not entirely clear from the Decision whether his Honour found that Cougar had breached the Option Agreement in each of the three ways alleged.  However, his Honour clearly found that the terms allegedly breached were not essential terms and did not give Pyke Hill the right to terminate the Option Agreement.

   [3] Cougar Metal NL v Richore Pty Ltd and Pyke Hill Resources Pty Ltd [2021] WAWC 1 (Decision).

7. Pyke Hill and Richore have appealed against the Decision.  In the appeal, they rely only on the alleged failure to cause the statutory minimum annual expenditure to be met in breach of cl 6(a)(ii).[4]  They submit that the warden did find that Cougar had failed to do this.  However, if I do not accept that, they submit that the warden should have made that finding.  This is ground 1 of the Appeal.  The appellants further submit that cl 6(a)(ii) was an essential term of the Option Agreement, and that therefore Cougar's breach of the clause entitled Pyke Hill to terminate the Option Agreement.  This is ground 2 of the Appeal.

   [4] ts 22 - 23.

8. Cougar submits that the warden was correct to find that cl 6(a)(ii) was not an essential term. 

9. Cougar submits that, in any event, if the warden found that it breached cl 6(a)(ii), this finding was erroneous.  Cougar contends that the amount of money spent met the statutory minimum (First Contention).  The appellants submit that this contention is inconsistent with how Cougar ran its case in the Wardens Court. 

10. Cougar further submits that, as an exemption was obtained in relation to the statutory expenditure requirement, any breach of cl 6(a)(ii) was retrospectively 'cured' by the exemption.  Under the Mining Act, if an exemption from the expenditure conditions is granted, the lessee is deemed to be relieved from its obligations under the prescribed expenditure conditions, to the extent of the exemption.[5]

    [5] Section 103 of the Mining Act. 

11. Finally, Cougar contends that, if the statutory minimum was not spent, this failure was caused by Richore (Second Contention).  The appellants submit that the evidence adduced in the Wardens Court cannot sustain this contention.

1. Shortly before the hearing of the appeal, the appellants' legal representatives realised that they ought to have sought leave to proceed against Cougar before filing the Lessees' Plaint in the Wardens Court and before filing the notice of appeal in this Court.[6]  Cougar has been subject to a deed of company arrangement (DOCA) at all material times. Section 444E of the Corporations Act 2001 (Cth) relevantly provides that a person bound by a DOCA cannot begin or proceed with proceedings against the company except with the leave of the Court. The day before the appeal hearing, the appellants' filed an originating process seeking leave to proceed, with an affidavit in support.[7]  Cougar consented to leave being granted.[8]  During the appeal hearing, I made orders granting leave, giving brief reasons.[9]

   [6] See ts 18 - 19.

   [7] Originating Process filed 25 May 2022 and the affidavit of Amanda Victoria Macmaster filed 25 May 2002, in COR 83 of 2022.

   [8] See annexure AVM1 to the affidavit of Ms MacMaster.

   [9] See ts 20 - 21 in relation to the appeal and ts 17 - 20 and 87 in relation to the Lessees' Plaint.

Issues

1. The issues that arise are:

   1.Did the warden find that Cougar had breached cl 6(a)(ii) of the Option Agreement by failing to cause the statutory minimum annual expenditure to be met?  (Ground 1)

   2.Is cl 6(a)(ii) an essential term?

   3.Should the warden have found that Cougar breached cl 6(a)(ii) of the Option Agreement by failing to cause the statutory minimum annual expenditure to be met?  This raises the following questions:

   a.In light of the way in which Cougar ran its case in the Wardens Court, is it open to Cougar to now assert that the amount of money spent met the statutory minimum?  If so, was the statutory minimum spent? (First Contention)

   b.If not, did the exemption retrospectively 'cure' the breach of cl 6(a)(ii)?

   4.If there was not sufficient expenditure, was this caused by Richore (Second Contention)?

Background

1. The background facts were not in dispute and the parties helpfully provided an agreed chronology.[10]  What follows is primarily drawn from that chronology.

   [10] Chronology filed 19 May 2022.

2. Pyke Hill was previously called Greater Australian Gold NL (GAG).  GAG became the registered holder of the whole of the Tenement in 1993.  A company called Richfile Pty Ltd acquired a 50% unregistered interest in the Tenement, which GAG held on trust for it. 

3. On 30 April 2004, GAG and Cougar entered into the Option Agreement.

4. By cl 2(a) of the Option Agreement, GAG granted to Cougar an exclusive option to acquire the exclusive rights to explore for and mine lateritic nickel and cobalt on the 'Tenement Area'[11] (the Lateritic Nickel Rights) for the consideration set out in cl 3 and otherwise 'on the terms, covenants and conditions' set out in the Option Agreement.  By cl 2(b), GAG retained, and was entitled to exercise, the right to explore for and mine all other minerals (other than lateritic nickel and cobalt) on the Tenement Area both during and after the 'Option Term'.[12]

   [11] Defined in the Option Agreement as the land the subject of the Tenement.

   [12] Being the date 21 months from and including the Execution Date or such later date as is agreed in writing by the parties: see cl 4.1(a) and the definitions in cl 1.1.

5. The 'Option Fee' was $20,000.[13]  The consideration payable by Cougar upon exercise of the Option was $100,000,[14] with a further payment of $100,000 upon the commencement of mining operations and royalties.[15]

   [13] Clause 3.

   [14] Clause 4.2.

   [15] Clause 5.

6. Clause 6(a)(ii) relevantly required Cougar to attend to all proper administration in respect of the Tenement including to pay rents and rates as they fell due and to otherwise maintain the Tenement in good standing including payment of all 'statutory minimum annual expenditure commitments' in respect of the Tenement.  Clause 7 required Cougar to pay all rents and rates in respect of the Tenement, unless it abandoned the Tenement.

7. By cl 10(a) of the Option Agreement, following the exercise of the Option by Cougar, the Tenement was to remain registered in the name of GAG provided that, if Cougar made a decision to mine a lateritic nickel and/or cobalt deposit on the Tenement Area then, subject to cl 10(b),[16] GAG would be required to promptly transfer the legal title to the Tenement to Cougar.

   [16] Clause 10(b) provides that GAG would be entitled to retain legal title to the Tenement if it had an existing mining operation on the Tenement Area (or a bona fide intention to commence such operations) which was reasonably anticipated to be more profitable than the operation proposed by Cougar.

8. On 26 September 2005, Richfile sold its unregistered half interest in the Tenement to Richore.

9. On 23 November 2005, Cougar exercised the option and paid $100,000 to GAG.  Cougar has not yet made a decision to mine.[17]  The legal title to the Tenement has not been transferred to Cougar.

   [17] ts 73. 

10. On 28 November 2005, Cougar lodged caveat 1022H/056 (Caveat).[18]

    [18] See the affidavit of Randal Lloyd Swick filed 7 May 2021 (Swick Affidavit) RLS2, page 522 of the Appeal Book and ts 75.

11. On 21 June 2006, GAG changed its name to Pyke Hill.

12. In 2008, Richfile's half interest in the Tenement was registered and transferred to Richore.

13. From 2009 (until 2020), Richore paid half the rent and rates for the Tenement, and paid those amounts before the due date.[19]

    [19] And see ts 75.

14. In 2018, Richore lodged plaint 540010 seeking removal of Cougar's Caveat (Caveat Removal Application).  On 30 April 2020, Warden O'Sullivan delivered reasons on the plaint, saying he would not order the Caveat to be removed.[20]  On 27 August 2020, the plaint was formally dismissed.

    [20] Richore v Cougar [2020] WAWC 1.

15. It will be recalled that Pyke Hill alleges that Cougar breached the Option Agreement in the tenement year 2019-2020 (commencing 30 August 2019 and ending on 29 August 2020).  The annual expenditure obligation for the Tenement for that tenement year was $53,800.[21]

    [21] Decision [7].

16. Prior to the commencement of the tenement year 2019-2020, Richore paid half of the Tenement rental and half of the shire rates for that tenement year and Cougar paid the other half of the shire rates.

17. On 17 September 2019, after the commencement of the tenement year 2019-2020, Cougar paid the other half of the Tenement rental due for that tenement year.[22]

    [22] ts 77 - 78.

18. The tenement year 2019-2020 ended on 29 August 2020.

19. On 14 October 2020, Richore asked Cougar to provide details of its exploration expenditure.

20. The next day, Cougar advised Richore that it was in the process of preparing the 'Form 5' expenditure report.  Richore responded the same day to advise that it (Richore) would prepare the expenditure report.  Richore pointed out that it, as the tenement holder, had the obligation to file the Form 5 and that it would be responsible for any failure to do so.

21. Eleven days later, on 26 October 2020, Cougar lodged plaint 589036 (Cougar's Plaint) against Richore and Pyke Hill.  By that plaint, Cougar sought a declaration that it held all Lateritic Nickel Rights for the whole of the Tenement pursuant to the terms of the Option Agreement. 

22. The next day, 27 October 2020, Cougar advised Richore's tenement agent of work it said had been done on the Tenement in the tenement year 2019-2020.

23. The next day, 28 October 2020, Richore's tenement agent lodged exemption application 589144 for the tenement year 2019-2020 (Exemption Application) claiming, among other things, that title to the Tenement was in dispute.  This was 58 days after the end of the tenement year 2019-2020, which was within the time prescribed.[23]

    [23] The prescribed period is 60 days - see s 102 of the Mining Act and reg 54(1a) of the Mining Regulations.

24. In November 2020, Pyke Hill gave a notice of termination to Cougar (although it was later replaced by a notice in July 2021).[24]

    [24] ts 78 - 79.

25. On 2 March 2021, the Exemption Application was granted.

26. On 6 July 2021, Pyke Hill again gave notice of termination to Cougar.  Pyke Hill alleged that Cougar had, with respect to the tenement year 2019-2020, failed to:

    (a)cause the statutory minimum annual expenditure of $53,800 to be met;

    (b)cause the Exemption Application to be lodged in respect of the failure to meet the minimum annual expenditure commitment on the Tenement; and

    (c)pay all rents and rates.

27. Pyke Hill alleged that these failures breached cl 6(a)(ii) and cl 7 of the Option Agreement. 

28. The next day, 7 July 2021, Pyke Hill and Richore issued plaint 627690 (Lessees' Plaint) against Cougar.  They relevantly sought:

    (a)A declaration that the option agreement is terminated effective from 6 July 2021;

    (b)A declaration that the registered holders of the tenement have the sole rights to the Lateritic Nickel contained in or on the  tenement; and

    (c)An order that Cougar is to immediately remove [the Caveat] from the tenement.

29. Pyke Hill and Richore alleged the Option Agreement had been effectively terminated because Cougar had breached cl 6(a)(ii) and cl 7.  They submitted that those clauses were essential terms. 

30. Both Cougar's Plaint and the Lessees' Plaint were heard together on 27 July 2021.  The warden delivered his Decision on 14 September 2021.

The Option Agreement

1. The Option Agreement relevantly provides as follows.

   1.DEFINITIONS AND INTERPRETATION

   1.1Definitions

   In this Agreement unless the context otherwise requires:

   …

   Claim, in relation to a person, means any claim, action, proceeding, damage, loss, cost, expense or liability incurred by or against, or made or recovered by or against, that person however arising and whether present, future or contingent.

   …

   Warranties means each of the warranties and representations referred to in clause 11.1(a).

   1.2Interpretation

   In this Agreement:

   …

   (j)an obligation, covenant, representation or warranty on the part of more than one party shall be deemed to be an obligation, covenant, representation or warranty on the part of those parties jointly and each of them severally.

   2.GRANT OF OPTION

   (a)GAG grants to Cougar the Option for the consideration set out in clause 3 and otherwise on the terms, covenants and conditions set out in this Agreement.

   (b)GAG shall retain, and is entitled to exercise, the right to explore for and mine all other Minerals (other than lateritic nickel and cobalt) on the Tenement Area both during and after the Option Term.

   3.OPTION FEE

   The consideration for the grant of the Option is an aggregate cash payment of up to $20,000 payable to GAG as follows:

   (a)$10,000 within 3 Business Days of the Execution Date; and

   (b)subject to clause 6(b)(ii) and Cougar being satisfied, in its absolute discretion with the results of its due diligence test drilling on the Tenement Area, $10,000 within 21 Business days of the Execution Date.

   4.EXERCISE OF OPTION

   4.1Cougar's Right to Exercise

   (a)Subject to and conditional upon:

   (i)Cougar paying the Option Fee to GAG in accordance with clauses 3(a) and 3(b); and

   (ii)GAG obtaining all necessary governmental consents and approvals (if any) under the Mining Act,

   the Option is exercisable at any time from the Execution Date up to and including the Cut-off Date (Option Term) by Cougar giving notice in writing to GAG to that effect but only if Cougar has identified a nickel resource (or nickel resources) on the Tenement Area and has drilled out, or procured the drilling out of, lateritic nickel/cobalt mineralisation targets identified by Cougar (acting reasonably) to at least a 200 metre x 100 metre drill collar density within 18 months from and including the Execution Date.

   (b)In calculating the resource Cougar must act in good faith and in accordance with good industry practice.

   (c)Prior to exercising the Option, Cougar shall provide to GAG a copy of all data used to calculate the resource including, but not limited to, drill logs, assays and details of the methodology used.

   (d)        If required by GAG (acting reasonably), Cougar shall arrange for the resource assessment to be verified by a third party with relevant experience at GAG's expense.

   4.2Exercise Price

   The consideration payable by Cougar upon exercise of the Option is a cash payment of $100,000 (Exercise Price).

   …

   5.ADDITIONAL PAYMENTS

   In addition to the Option Fee and the Exercise Price, Cougar shall pay to GAG:

   (a)a cash payment of $100,000 upon the commencement of Mining Operations; and

   (b)a royalty equal to $0.40 per dry tonne of nickel bearing ore mined and treated from the Tenement Area by Cougar.  The quantity of ore mined and treated shall be determined by pit and stockpile survey in accordance with accepted mining industry practice and the royalty payments shall be made on a calendar quarterly basis and be payable within 30 days after the end of the relevant quarter.

   6.ACTIVITIES ON THE TENEMENT

   During the Option Term (and if the Option is exercised, then for so long as the Lateritic Nickel Rights exist):

   (a)(Cougar's Covenants): Cougar shall:

   (i)comply with all relevant laws relating to the Tenement and with all conditions attaching to the Tenement as if it were the registered holder of the Tenement;

   (ii)attend to all proper administration in respect of the Tenement including, but not limited to, complying with all relevant reporting requirements under the Mining Act, payment of rents and rates as they fall due, and otherwise maintain the Tenement in good standing including payment of all statutory minimum annual expenditure commitments in respect of the Tenement;

   (iii)maintain all relevant insurances and be present on the Tenement Area at its own risk;

   (iv)permit GAG to inspect its activities on the Tenement Area at all reasonable times if reasonably required by GAG; and

   (v)indemnify, and keep indemnified, GAG against all Claims to the extent that such Claims arise from, or in connection with, the presence of Cougar (or any of its employees, agents, contractors or invitees) on the Tenement Area (except to the extent caused by any negligence of GAG (or any of its employees, agents, contractors or invitees));

   (b)(GAG's Covenants): GAG shall:

   (i)promptly forward to Cougar (and make all necessary arrangements so that Cougar directly receives) all correspondence relating to the Tenement issued by the Department of Industry and Resources or other relevant authority;

   (ii)permit Cougar access to the Tenement Area for the purposes of carrying out due diligence test drilling as contemplated by clause 3(b) and exploration for lateritic nickel and cobalt on the Tenement Area (and, if the Option is exercised, mining for lateritic nickel and cobalt), provided that any such drilling, exploration or mining (as the case may be) shall be carried out in accordance with good mining industry practice; and

   (iii)at all times co-operate with Cougar to enable Cougar to comply with its reporting requirements under the Mining Act;

   (c)(Mutual Covenants): the parties shall:

   (i)each keep the other informed on a quarterly basis of the results of all on-going work on the Tenement Area; and

   (ii)co-operate in planning expenditure on the Tenement with a view to ensuring that the statutory minimum expenditure requirements are satisfied; and

   (d)(Royalties): GAG shall be responsible for all State royalties imposed on Minerals mined from the Tenement Area except any such royalties imposed on lateritic nickel and cobalt mined by Cougar.

   7.LIABILITY FOR RENTS AND RATES

   Following the exercise of the Option, all rents and rates in respect of the Tenement shall be payable by Cougar provided that if Cougar abandons the Lateritic Nickel Rights in accordance with clause 17 then it will cease to be liable for such rents and rates with effect from the date of abandonment.

   …

   11.WARRANTIES

   11.1GAG's Warranties

   (a)GAG warrants and represents to Cougar that, as at the Execution Date, each of the statements set out in the Schedule is true, complete and accurate in all respects.

   (b)Each of the Warranties shall be construed independently of the others and shall not be limited by reference to any other Warranty.

   11.2Cougar's Indemnity

   GAG shall identify, and keep indemnified, Cougar against:

   (a)all Claims to the extent that such Claims arise from, or in connection with, a breach of any of the Warranties or any other term of this Agreement; and

   (b)any Taxes incurred by Cougar as a result of the performance by GAG of its obligations under clause 11.2(a).

   11.3Repetition

   (a)The Warranties shall be repeated on each day for the duration of the Option Term with reference to the facts and circumstances then subsisting, as if they had been made of each such day.

   (b)The Warranties shall not merge upon exercise of the Option.

   11.4Cougar's Warranties

   Cougar warrants and represents to GAG that as at the Execution Date:

   (a)the execution and delivery of this Agreement has been properly authorised by all necessary corporate action of Cougar;

   (b)it has full corporate power and lawful authority to execute and deliver this Agreement and to consummate and perform, or cause to be performed, its obligations under this Agreement; and

   (c)this Agreement constitutes a legal, valid and binding obligation on Cougar and is enforceable in accordance with its terms by appropriate legal remedy.

   11.5GAG's indemnity

   Cougar shall indemnify, and keep indemnified, GAG against all Claims to the extent that such Claims arise from, or in connection with, a breach of any of the warranties or representations referred to in clause 11.4 or any other term of this Agreement.

   …

1. The Option Agreement sets out, in schedule 1, the warranties referred to in cl 11.1(a).  The warranties are broadly to the effect that GAG had the right to make the agreement and there were no relevant claims to the Tenement. 

2. The Option Agreement does not oblige Cougar to carry out work in connection with mining on the Tenement, other than the obligation in cl 6(a)(ii).  By cl 17(b), Cougar can elect to abandon the Lateritic Nickel Rights at any time.  If it does, any financial obligations of Cougar in relation to the Tenement shall cease forthwith (except for its rehabilitation liabilities).

3. There is no provision allowing either party to terminate for breach.

The warden's Decision

1. After setting out the background to the proceedings, the warden discussed some of the evidence in relation to the annual expenditure and the payment of rates and taxes.  His Honour then said, under the heading 'The Law' (original emphasis):[25]

   [25] Decision [21] - [22].

   21There can be no dispute that on its face Cougar Metals:

   (i)Failed to cause statutory minimum annual expenditure of $53,800.00 on mining or in connection with mining to be met;

   (ii)[Failed to] cause [the Exemption Application] to be lodged in respect of the failure to meet the minimum annual expenditure commitment; and

   (iii)[Failed to] pay all rates and taxes for the expenditure year ending [29 August 2020: sic].

   22The question remains what then is the remedy available to Richore Pty Ltd/Pyke Hill Resources Pty Ltd for these breaches.

2. His Honour then set out a lengthy extract from Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd[26] and summarised the parties' submissions.[27]  His Honour then said (original emphasis):

   [26] Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 [47] - [52].

   [27] Decision [23] - [27] and the first sentence of [28].

   28It is submitted that Cougar's obligation to keep the tenement in "good standing" including paying the statutory minimum annual expenditure commitments, required it to annually to do at least enough work to satisfy the minimum expenditure amount for the tenement.  In my respectful view that submission ignores:

   (i)that the tenement has been kept in good standing by reason of the Exemption Application being successful;

   (ii)the Mining Act 1978 contemplates such a procedure being available;

   (iii)it is for the tenement holder in the normal course to apply for exemption and in doing so Richore Pty Ltd and Pyke Hill Resources Pty Ltd were doing nothing more than to preserve their interest in the tenement.

   29The Mining Act places obligations on and provides benefits to tenement holders, such as Richore and Pyke.  Those obligations include:

   (i)To pay the rent and royalties due on the lease at a prescribed time in the prescribed manner - s 82(1)(a) Mining Act 1978;

   (ii)to comply with the prescribed expenditure conditions applicable to such land unless partial or total exemption therefrom is granted in such manner as is specified - s 82(c) of the Mining Act 1978.

   30Furthermore, s102 of the Mining Act 1978 [provides] that either the holder of a mining tenement or his authorised agent prior to the end of the year to which the proposed exemption relates or within the prescribed period and after the end of that year may be granted a Certificate of Exemption in the prescribed form from totally or partially exempting the mining tenement to which the application relates from the prescribed expenditure conditions relating thereto, in the amount not exceeding the amount required to be expended.

   31Pyke Hill's application for exemption was filed on 28 October 2020, 58 days after the end of the reporting year. The Mining Regulations 1981 prescribe that such an application can be filed up to 60 days after the end of the reporting year (unless a further extension of time is granted).  …

   32In my view, both parties to this litigation had obligations to keep the tenements in good standing.  Cougar had an obligation under the Option Agreement to [pay] rates and rents - if paid by the tenement holder the indemnity provision [in] the Option Agreement applied.  There was a failure of expenditure which put the standing of the tenement at risk.  Cougar need only provide such information as required or requested by the tenement holder to assist in the filing of any exemption application.

   33In my view, no breach in the present circumstance was of an "essential promise" such as to warrant termination of the Option Agreement by Pyke Hill Resources Pty Ltd.  It follows, in my view, that the following orders ought be made in relation to each plaint:

   Plaint 589036 [Cougar's Plaint]:

   (i)A declaration that Cougar holds all Lateritic Mineral Nickel rights for the whole of M36/159 pursuant to the terms of the Option Agreement;

   (ii)An order that the Respondents pay the Plaintiff's costs to be taxed if not agreed;

   Plaint 627690 [Lessees' Plaint]:

   (i)The plaint is dismissed;

   (ii)The Plaintiffs are to pay the Respondent's costs to be taxed if not agreed.

3. It is not entirely clear from the Decision whether the warden found that Cougar Metals had breached cl 6(a)(ii) by failing to cause the statutory minimum annual expenditure to be met.  In paragraphs 21 and 22, the warden says this finding cannot be disputed.  However, paragraphs 28-32 could be construed as a contrary finding.

Grounds of appeal

1. Ground 1 is directed to the possibility that the warden might have found Cougar did not breach cl 6(a)(ii).  Ground 1 alleges:

The learned Warden erred in law in finding that the respondent had not breached its obligation under clause 6(a)(ii) of the Option Agreement to maintain the tenement in good standing and in failing to find that the respondent breached its obligation thereunder to maintain the tenement in good standing.

1. Ground 2 (as amended[28]) assumes that the warden did find that Cougar breached cl 6(a)(ii).  It alleges:

   Further, the learned Warden erred in law in finding that the respondent's breach of clause 6(1)(a)(ii) of the Option Agreement was not a breach of an essential term and in failing to find that the respondent's breach was a breach of an essential term such that the appellants were entitled to, and did, validly terminate the Option Agreement on or about 6 July 2021.

   [28] See ts 23 - 24.

Legal framework

Appeals

Nature of the appeal

1. By s 147 of the Mining Act, any party aggrieved by a decision of a warden may appeal to the Supreme Court.  Under s 148(1), where the grounds of appeal include any matter of fact, the court may order, or the parties may agree, that the appeal is to be by way of rehearing.  Otherwise, by s 148(2), the appeal is to be heard and determined upon the proceedings in the warden's court (an appeal in the strict sense[29]).

   [29] Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92 [15].

2. In this appeal, the criteria in s 148(1) were not enlivened, so the appeal is an appeal in the strict sense.  Accordingly, I am required to determine whether or not the Decision was or was not erroneous on the evidence and the law as it stood at the time of the Decision.[30] 

Evaluating a magistrate's reasons

[30] Forrest & Forrest Pty Ltd v The Honourable William Richard Marmion, Minister for Mines and Petroleum [2018] WASCA 32; (2018) 53 WAR 156 [57].

1. When considering a magistrate's reasons, it is necessary to keep in mind the nature of the work of magistrates.  As was pointed out by Martin CJ in Strahan v Brennan,[31] magistrates are required to conduct cases efficiently and with a degree of informality given the large volume of cases they hear each day.  Accordingly:[32]

   [I]t is not appropriate to scrutinise the reasons for decision given by magistrates with a fine‑tooth comb or with an eye keenly attuned to the identification of error.  Nor is it appropriate for the court to infer from infelicity of language that error is thereby demonstrated.  That is because, of necessity, magistrates are required to perform their important functions in a different time frame to that which applies in the superior courts and in that context it is to be expected that some infelicity of language is likely to occur from time to time.

   [31] Strahan v Brennan [2014] WASC 190 [89] ‑ [90].

   [32] Strahan v Brennan [90].

2. In my view, this applies to magistrates when acting as wardens.

3. These observations may have less weight when, as here, a magistrate has reserved his or her decision after a hearing and delivered it at a later date.  Nevertheless, a magistrate in such a case must still manage a large volume of cases daily and is still faced with the requirement to conduct cases efficiently and with a degree of informality.  It remains inappropriate to scrutinise the reasons with a fine‑tooth comb and it is still to be expected that some infelicity of language is likely to occur from time to time, even with reserved decisions.

Mining leases

1. As noted earlier, mining leases are subject to various conditions. Section 82(1) of the Mining Act relevantly provides:

   82.Covenants and conditions of lease

   (1)Every mining lease shall contain and be subject to the prescribed covenants by the lessee and in particular shall be deemed to be granted subject to the conditions that the lessee shall -

   (a)pay the rents and royalties due under the lease at the prescribed time and in the prescribed manner;

   …

   (c)comply with the prescribed expenditure conditions applicable to such land unless partial or total exemption therefrom is granted in such manner as is prescribed;

   …

   (e)lodge, in the prescribed manner, such periodical reports and returns as may be prescribed;

   (ea)furnish to the Minister such geological samples obtained in the course of operations conducted by the lessee under the lease as the Minister may request;

   (f)promptly report in writing to the Minister details of all minerals of economic significance discovered in, on or under the land the subject of the mining lease;

   …

   (g)be liable to have the lease forfeited if he is in breach of any of the covenants or conditions of the lease, if he fails to comply with any requirement under section 84A(2) or 115B(2) in relation to the lease or if a report required under paragraph (e) or section 115A in relation to the land the subject of the lease is not filed in accordance with this Act.

Expenditure conditions

1. The expenditure conditions[33] for a mining lease are prescribed in reg 31 of the Mining Regulations.  Regulation 31 relevantly requires the holder of a mining lease to 'expend or cause to be expended in mining on or in connection with mining on the lease' a specified amount 'during each year of the term of the lease'.  Regulation 96C contains specific provision relating to allowable and non‑allowable expenditure for the purposes of calculating expenditure under a lease.

Forfeiture of a mining lease for failing to comply with expenditure conditions

[33] 'Expenditure conditions' are defined in s 8 of the Mining Act to mean the prescribed conditions applicable to a mining tenement that require the expenditure of money on, or in connection with, the mining tenement or the mining operations carried out thereon or proposed to be so carried out.

1. Section 98 of the MiningAct allows applications to be made for forfeiture of mining leases where expenditure conditions have not been met.  It relevantly provides:

   98.Application for forfeiture on other grounds

   (1)Where the requirements of this Act are not being complied with in respect of the expenditure conditions applicable to an exploration licence or a mining lease, any person may apply for the forfeiture of such licence or lease as provided in this section.

   …

   (3)The application for forfeiture shall be heard by the warden.

   (4A)When the warden finds that the holder of an exploration licence or lessee of the mining lease has failed to comply with such requirements as are mentioned in subsection (1), the warden may recommend the forfeiture of such licence or lease, or impose a penalty not exceeding $10 000 as an alternative to the forfeiture or dismiss the application.

   …

   (5)A recommendation shall not be made under subsection (4A) unless the warden is satisfied that the non‑compliance with such requirements is, in the circumstances of the case, of sufficient gravity to justify the forfeiture.

   (6)As soon as practicable after the hearing of the application the warden shall forward to the Minister the notes of evidence, with a report and the warden's recommendation, if any, on the application and the Minister may, before acting on the recommendation, require the warden to take such further evidence or rehear the application as the Minister directs.

   (7)No exploration licence or mining lease shall be forfeited for non‑compliance by the holder or lessee thereof with the expenditure conditions, if the holder or lessee satisfies the Minister that the non‑compliance therewith has been occasioned by a strike.

2. After receiving the recommendation from the warden, the Minister may declare the mining lease forfeited, impose a penalty or determine not to forfeit the mining lease or impose any penalty.[34]

   [34] Section 99(1) of the Mining Act.

3. If the Minister declares the mining lease forfeited, the applicant for forfeiture has a right in priority to mark out and/or apply for a mining tenement upon the whole or part of the land that was the subject of the forfeited lease.[35]

Burden of proof – sufficient gravity

[35] See s 100(2) of the Mining Act.

1. The appellants point out that the statutory framework is part of the context in which the parties entered into the Option Agreement. The appellants further point out that part of the statutory framework is that, by s 98(5) of the Mining Act, a warden cannot recommend forfeiture unless the warden is satisfied that the non‑compliance is, in the circumstances of the case, of sufficient gravity to justify the forfeiture.

2. The appellants refer to the discussion of this requirement in the 1988 decision of the Full Court of the Supreme Court in Commercial Properties v Italo Nominees Pty Ltd.[36]

   [36] Commercial Properties v Italo Nominees Pty Ltd (Unreported, WASCA, Library No 7427, 16 December 1988).

3. Commercial Properties dealt with applications for writs of certiorari against an order of the mining warden made under s 96 of the Mining Act.

4. In the hearing before the warden, it was alleged that the holder of four prospecting licences had failed to comply with the expenditure conditions.  There was evidence that the Mines Department Registry did not show any expenditure on the tenements, and it was accepted that this was prima facie evidence that there was not any expenditure.  The licensee did not adduce any evidence of expenditure or work.  The warden was prepared to infer that there had been non-compliance, but found that the plaintiff had failed to show that the matter was of sufficient gravity to justify forfeiture.

5. The Full Court held that that decision was wrong.

6. In its reasons, the Court began by noting that there were three possible inferences open to the warden once the prima facie evidence was presented, namely that:[37]

   1.no compliance had in fact occurred with the expenditure conditions on each of the prospecting licences;

   2.the expenditure conditions had been complied with in whole or in part but reports of such expenditure had not been filed pursuant to reg 16;

   3.the expenditure conditions had been complied with, the reports had been filed, but particulars of expenditure had not been recorded in the register after [lodgement] of the reports.

   [37] Commercial Properties page 13 - 14.

7. The Court noted that, where there was alleged to be non-compliance with the expenditure condition, the plaintiff was required to prove a negative.  The Court noted that any expenditure not reported to the Department and recorded on the register constitutes expenditure within the knowledge of the defendant.  The Court then said:[38]

   In the case of failure to comply with expenditure conditions the legislation contemplates forfeiture.  Hence, upon prima facie proof of non-compliance, we consider the plaintiff likewise establishes a prima facie case for forfeiture. Thus, in such circumstances, the evidentiary burden is on the defendant to satisfy the Warden that the case is otherwise not of sufficient gravity to justify forfeiture. This may be done, for example, by showing that the non-compliance with expenditure conditions was occasioned by a strike: see s 96(7).

   [38] Commercial Properties page 15.

8. The Court later discussed the principles that arose from Jones v Dunkel.[39]  The Court concluded that the warden should have inferred that there had been no compliance with the expenditure requirement on any of the prospecting licences.  The Court explained it in this way:[40]

   In our opinion, this is a case where silence or non-production of information on the part of or by the defendant furnished sufficient evidence in the light of the available inferences to warrant a conclusion in favour of the plaintiff.  The reason for this is that such silence or non-production either made the drawing of the second and third inferences listed above impossible, or resulted in a situation where, on the balance of probabilities, a conclusion in terms of the first inference would result.  The evidence of expenditure being within the knowledge of the defendants, very little would have been enough to displace the first inference.

   …

   In this particular case the unexplained failure of the defendant to call evidence left only one inference open, namely that there had been no compliance with the expenditure conditions on each of the prospecting licences.  It was not a matter of there being no evidence of the degree of non-compliance so as to justify the conclusion that the complaints had only been "partially proved".  In this respect the learned Warden erred in law in relation to the evidentiary burden of proof.  The circumstances were such that, in the absence of any evidence by the defendants, the proper conclusion was that the complaints had been fully proved.

   …

   [T]he proper inference … was that there had been no compliance with the expenditure requirement on any of the prospecting licences.

   [39] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 320 - 321 (Windeyer J).

   [40] Commercial Properties pages 18 - 21.

9. The Court then turned to the question of 'sufficient gravity' (emphasis added):[41]

   The element of "sufficient gravity" relates to the discretion vested in the warden under s 96(2) of the Act. This is the subject of grounds (b) and (c) of the order nisi in matter No 2192 of 1988. The view taken of this element by the learned Warden, as set out in para 10 of the extract from her reasons was that the complaints had only been partially proved. This was said to be so because it had not been shown on the balance of probabilities that the failure to comply was of sufficient gravity to order forfeiture. That view is dependent entirely on the learned Warden's failure to draw the inference that there had been a total failure to comply. The learned Warden was only prepared to find that there had been "miscompliance", by which we understood her to mean partial non-compliance. It was in consequence of this error that the discretion under s 96(2) miscarried.

   Because the learned Warden was not prepared to find that there had in fact been no expenditure she exercised the discretion under s 96(2) not to forfeit and instead exercised the further discretion under s 96(3) to impose a penalty in lieu of forfeiture. If the proper conclusion was that there had been no compliance with the expenditure condition because there had been no expenditure, it was a case in which, on the face of it, forfeiture was justified.  Failure to comply with expenditure conditions is contemplated by the statute itself as of sufficient gravity to justify forfeiture. This is apparent from s 96(7) which provides that a prospecting licence shall not be forfeited for non-compliance with the expenditure conditions where that has been occasioned by a strike. In such a case the onus of proof of that is on the holder.

   …

   … the discretion miscarried because the learned Warden exercised her discretion on a wrong principle, namely that the circumstances which had been established did not raise a prima facie case of sufficient gravity to justify forfeiture, so that the evidentiary burden of showing that there was some reason why the remedy of forfeiture should not apply passed to the defendants.

   [41] Commercial Properties pages 21 - 24.

1. The appellants acknowledge that, in Commercial Properties, the tenement holders had, on the evidence, failed to make any expenditure at all in the tenement year.  The appellants acknowledge that the Court's statements were made in this context.  I understand the appellants to submit only that, where a tenement holder has not made any expenditure, it will bear an evidentiary burden to show why forfeiture should not be ordered.[42]  This proposition is established by Commercial Properties.[43]

   [42] ts 131 - 133.

   [43] And see Re Boothman SM; Ex parte M J Edmonson (1984) Pty Ltd v W J Flint unreported; SCt of WA; Library No 980361; 24 June 1998.

2. The appellants do not submit that Commercial Properties establishes a broader principle. That is, they do not submit that it establishes that a tenement holder bears an evidentiary burden to show why forfeiture should not be ordered, regardless of whether there has been any expenditure. Nor would the terms of s 98 support such a construction.[44]

Exemption from expenditure conditions

[44] And see Re Roberts SM; Ex parte Burge [2003] WASCA 2 [28] (Olsson AuJ, Anderson and Parker JJ agreeing).

1. The holder of a mining lease can apply for an exemption from the expenditure conditions under s 102 of the Mining Act. Section 102 relevantly provides:

(1)Subject to this Act, on an application (an application for exemption) made, as prescribed, by the holder of a mining tenement (other than a retention licence) or his authorised agent prior to the end of the year to which the proposed exemption relates, or within the prescribed period after the end of that year,[45] the holder may be granted a certificate of exemption in the prescribed form totally or partially exempting the mining tenement to which the application relates from the prescribed expenditure conditions relating thereto, in an amount not exceeding the amount required to be expended -

[45] The prescribed period is 60 days - see reg 54(1a) of the Mining Regulations.

(a)in respect to any mining tenement other than a mining lease, in any one year; and

(b)in respect to a mining lease, subject to subsection (7), in a period of 5 years.

…

(2)A certificate of exemption may be granted for any of the following reasons -

(a)that the title to the mining tenement is in dispute; or

(b)that time is required to evaluate work done on the mining tenement, to plan future exploration or mining or raise capital therefor; or

(c)that time is required to purchase and erect plant and machinery; or

(d)that the ground the subject of the mining tenement is for any sufficient reason unworkable; or

(e)that the ground the subject of the mining tenement contains a mineral deposit which is uneconomic but which may reasonably be expected to become economic in the future or that at the relevant time economic or marketing problems are such as not to make the mining operations viable; or

(f)that the ground the subject of the mining tenement contains mineral ore which is required to sustain the future operations of an existing or proposed mining operation; or

(g)that political, environmental or other difficulties in obtaining requisite approvals prevent mining or restrict it in a manner that is, or subject to conditions that are, for the time being impracticable; or

(h)that -

(i)the mining tenement is one of 2 or more mining tenements (combined reporting tenements) the subject of arrangements approved under section 115A(4) for the filing of combined mineral exploration reports; and

(ii)the aggregate exploration expenditure for the combined reporting tenements would have been such as to satisfy the expenditure requirements for the mining tenement concerned had that aggregate exploration expenditure been apportioned between the combined reporting tenements.

…

(3)Notwithstanding that the reasons given for the application for exemption are not amongst those set out in subsection (2), a certificate of exemption may also be granted for any other reason which may be prescribed or which in the opinion of the Minister is sufficient to justify such exemption.

(4)When consideration is given to an application for exemption regard shall be had to the current grounds upon which exemptions have been granted and to the work done and the money spent on the mining tenement by the holder thereof.

(4A)A person who wishes to object to the granting of an application for exemption must lodge a notice of objection.

(4B)A notice of objection must be -

(a)lodged within the prescribed time and in the prescribed manner; and

(b)accompanied by the prescribed fee.

(5)An application for exemption -

(a)where an objection to the application is lodged, shall be heard by the warden; but

(b)otherwise, shall be forwarded to the Minister for determination by the Minister.

(6)The warden shall as soon as practicable after the hearing of the application transmit to the Minister for his consideration the notes of evidence and any maps or other documents referred to therein and his report recommending the granting or refusal of the application and setting out his reasons for that recommendation.

(7)Where the warden finds that the reasons given by the holder of the mining lease are sufficient to justify the granting of a certificate of exemption and so recommends, or if the Minister is satisfied whether or not a recommendation is made by the warden, the Minister may grant a certificate of exemption in an amount not exceeding the amount required to be expended in respect of the mining lease in the period of 5 years from the commencement of the year to which the application relates.

1. The Mining Regulations prescribe the form and other requirements of an application for an exemption and a certificate of exemption.[46]

   [46] Regulations 54 and 58 and Forms 18 and 19 of the Mining Regulations.

2. Section 103 of the Mining Act provides:

   103.Effect of exemption

   Upon the granting of a certificate of exemption pursuant to section 102 or section 102A the holder of a mining tenement to whom it is granted shall be deemed to be relieved, to the extent, and subject to the conditions specified in the certificate, from his obligations under the prescribed expenditure conditions relating to the mining tenement.

Policy of the Act

1. In Nova Resources NL v French,[47] the Full Court reviewed a warden's decisions to order the forfeiture of a prospecting licence and to recommend the forfeiture of a mining lease.  In relation to the policy of the Act, the Court said:[48]

   The primary object, so far as it impacts on this case, is to ensure as far as practicable that land which has either known potential for mining or is worthy of exploration will be made available for mining or exploration.  It is made available subject to reasonably stringent conditions and if these, including expenditure conditions, show that the purposes of the grant are not being advanced, then the Act and regulations make provision for others who have an interest in those purposes on that land to apply for forfeiture so they may exploit the area.  There is power for a tenement holder to seek exemption from complying with certain conditions for cause, and one assumes that it is not only for record purposes that a Form 5 must be filed each year.

   [47] Nova Resources NL v French (1995) 12 WAR 50.

   [48] Nova Resources, 57 ‑ 58 (Rowland J, with whom the other judges agreed).

2. In Forrest & Forrest Pty Ltd v The Honourable William Richard Marmion, Minister for Mines and Petroleum,[49] the Court of Appeal noted that the primary object identified in Nova Resources was not the only object of the Act.  The court said that other objects or purposes identified by the courts include (footnotes omitted):[50]

   1.identifying circumstances in which a tenement holder will be allowed to hold a mining tenement without mining or giving it up for others who may wish to actively mine the land.

   2.protecting tenement holders who have defaulted in compliance with the Act in some minor respect, or because of some circumstances beyond the control of the tenement holder, against loss of the tenement.

   3.providing that, in general, the holder of a mining tenement should carry out the relevant mining activity on the tenement.

Contract construction

General principles

[49] Forrest & Forrest Pty Ltd v Minister for Mines and Petroleum [2017] WASCA 153; (2017) 51 WAR 425 (Forrest 2017) [96].

[50] Forrest 2017 [96].

1. In Black Box Control Pty Ltd v Terravision Pty Ltd, the Court of Appeal summarised the relevant principles to be applied to contract construction as follows (citations omitted):[51]

   [51] Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42]. See also Electricity Generation and Retail Corporation trading as Synergy v EIT Kwinana Partner Ptd Ltd [2022] WASCA 3 [230].

   (1)The process of construction is objective.  The meaning of the terms of an instrument is to be determined by what a reasonable person would have understood the terms to mean.

   (2)The construction of a contract involves determination of the meaning of the words of the contract by reference to its text, context and purpose.

   (3)The commercial purpose or objects sought to be secured by the contract will often be apparent from a consideration of the provisions of the contract read as a whole.  Extrinsic evidence may nevertheless assist in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, its background, the context and the market in which the parties are operating.

   (4)Extrinsic evidence may also assist in determining the proper construction where there is a constructional choice, although it is not necessary in this case to determine the question of whether matters external to a contract can be resorted to in order to identify the existence of the constructional choice.

   (5)If an expression in a contract is unambiguous and susceptible of only one meaning, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning.

   (6)To the extent that a contract, document or statutory provision is referred to, expressly or impliedly, in an instrument, that contract, document or statutory provision can be considered in construing the instrument, without any need for ambiguity or uncertainty of meaning.

   (7)There are important limits on the extent to which evidence of surrounding circumstances (when admissible) can influence the proper construction of an instrument.  Reliance on surrounding circumstances must be tempered by loyalty to the text of the instrument.  Reference to background facts is not a licence to ignore or rewrite the text.  The search is for the meaning of what the parties said in the instrument, not what the parties meant to say.

   (8)There are also limits on the kind of evidence which is admissible as background to the construction of a contract, and the purposes for which it is admissible.  Insofar as such evidence establishes objective background facts known to the parties or the genesis, purpose or objective of the relevant transaction, it is admissible.  Insofar as it consists of statements and actions of the parties reflecting their actual intentions and expectations it is inadmissible.  Such statements reveal the terms of the contract which the parties intended or hoped to make, and which are superseded by, or merged into, the contract.

   (9)An instrument should be construed so as to avoid it making commercial nonsense or giving rise to commercial inconvenience.  However, it must be borne in mind that business common sense may be a topic on which minds may differ.

   (10)An instrument should be construed as a whole.  A construction that makes the various parts of an instrument harmonious is preferable.  If possible, each part of an instrument should be construed so as to have some operation.

   (11)Definitions do not have substantive effect.  A definition is not to be construed in isolation from the operative provision(s) in which the defined term is used.  Rather, the operative provision is ordinarily to be read by inserting the definition into it.

2. The context includes any relevant statutory regime in which the contract was made.[52] 

   [52] Amcor Limited v Construction, Forestry, Mining and Energy Union [2005] HCA 10; (2005) 222 CLR 241 [13] (Gleeson CJ and McHugh J), [50] (Gummow, Hayne and Heydon JJ), [64] (Kirby J); Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; (2012) 247 CLR 129 [36] (French CJ, Crennan, Kiefel, as her Honour then was, and Bell JJ).

3. The starting point for the proper construction of a contractual clause is the language used in the clause.[53]

Essential terms

[53] Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80; (2019) 55 WAR 89 [296].

1. A critical question in this case is whether a breach of cl 6(a)(ii) would entitle Pyke Hill to terminate the Option Agreement.  The answer turns on whether cl 6(a)(ii) is an 'essential' term or an 'intermediate' term.[54] 

   [54] Cougar does not contend that cl 6(a)(ii) was merely a 'warranty', a breach of which could never give rise to a right to terminate.

2. The significance of a term of a contract being an essential term is that any breach of it, no matter how 'slight' it might otherwise be thought to be, gives rise to a right to terminate the contract.[55]  If it is an intermediate term, Pyke Hill could only terminate if the particular breach 'went to the root' of the Option Agreement; that is, if it was a breach that deprived Pyke Hill of a substantial part of the benefit to which it was entitled under the Option Agreement.[56]

   [55] See Koompahtoo [47] ‑ [48] (Gleeson CJ, Gummow, Heydon and Crennan JJ), citing Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, 641 - 642.

   [56] See Koompahtoo [49] ‑ [56] (Gleeson CJ, Gummow, Heydon and Crennan JJ).

3. The question whether a term in a contract is an essential term is a question of construction of the contract.  The answer depends upon the intention of the parties as appearing in or from the contract.[57]  In Koompahtoo,[58] Gleeson CJ, Gummow, Heydon and Crennan JJ said:

   It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is "essential", so that any breach will justify termination.

   … the intention that is relevant is the common intention of the parties, at the time of the contract, as to the importance of the relevant terms and as to the consequences of failure to comply with those terms.  This is a question of construction of the contract to be decided in the light of its commercial purpose and the business relationship it established.

   [57] See Koompahtoo [47] (Gleeson CJ, Gummow, Heydon and Crennan JJ), citing Jordan CJ in Tramways Advertising, 641 - 642.

   [58] Koompahtoo [48] and [68].

4. A promise in a contract will be 'essential' if, on a proper construction of the contract, the intention to be imputed to the parties is that the promise was of such importance to the promisee that it would not have entered into the contract unless assured of strict performance of the promise.[59]

   [59] Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd [2021] NSWCA 284 [41] (Meagher JA, Bell P and Payne JA agreeing).

5. If a clause would not be readily enforceable by way of an action for damages, this is a factor in favour of concluding that the term is essential.[60]

Did the warden find that cl 6(a)(ii) had been breached? (Ground 1 and Issue 1)

[60] Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549, 557 (Mason ACJ, as his Honour then was, Wilson, Brennan, as his Honour then was, and Dawson JJ). See also 562.

1. Ground 1 is directed to the possibility that the warden might have found Cougar did not breach cl 6(a)(ii).  In paragraphs 21 and 22, the warden says this finding cannot be disputed.  However, paragraphs 28‑32 could be construed as a contrary finding.

2. I am satisfied that his Honour did find that Cougar had breached cl 6(a)(ii) by failing to cause the statutory minimum annual expenditure to be met.  Paragraphs 21 and 22 could not be clearer.  Bearing in mind the observations of Martin CJ in Strahan v Brennan, paragraphs 28-32 are to be understood as his Honour's reasons for concluding, in paragraph 33, that the clause was not an essential condition. Further, unless those paragraphs are understood in this way, his Honour would have given no reasons for concluding that the clause was not an essential condition. I would not lightly conclude that an experienced magistrate would have overlooked such a fundamental obligation as the requirement to give reasons.

3. Cougar did not contend otherwise.[61]

   [61] See ts 104.

4. Ground 1 therefore falls away. 

Is cl 6(a)(ii) an essential term? (Issue 2)

1. Ground 2 is directed to the central issue in the case, namely the question of whether cl 6(a)(ii) is an essential term, breach of which, without more, entitled Pyke Hill to terminate the Option Agreement.

2. It will be recalled that cl 6(a)(ii) requires Cougar to

   attend to all proper administration in respect of the Tenement including, but not limited to, complying with all relevant reporting requirements under the Mining Act, payment of rents and rates as they fall due, and otherwise maintain the Tenement in good standing including payment of all statutory minimum annual expenditure commitments in respect of the Tenement;

3. The phrase 'good standing' is not used in the Mining Act.  However, the parties accepted it bore its ordinary meaning, as follows:[62]

   A person or organisation in good standing is regarded as having complied with all their explicit obligations, while not being subject to any form of sanction, suspension or disciplinary censure.  A business entity that is in good standing has unabated powers to conduct its activities, which can include business endeavours.

The appellants' submissions

[62] ts 72 - 73 and 98.

1. The appellants submit that their construction is supported by the following factors.

2. First, the matters addressed in cl 6(a)(ii) are directed to guarding against the risk of forfeiture. 

3. The appellants acknowledge that the 'rates' are the council rates and a failure to pay the rates does not expose the Tenement to forfeiture.  However, the appellants say that 'rates' is part of the composite phrase 'rents and rates'.  A failure to pay rent exposes the Tenement to forfeiture.  So too does a failure to comply with the reporting requirements.[63]

   [63] Section 82(1)(a), (e) and (g) of the Mining Act.

4. The appellants submit that reasonable businesspeople in the position of the parties entering into this Option Agreement would have entered into cl 6(a)(ii) to prevent the risk of forfeiture.[64] 

   [64] ts 47.

5. The appellants submit the purpose of cl 6(a)(ii) is to ensure that the Tenement remains in good standing at all times, so that no risk of forfeiture arises.  They submit that its purpose is not only to ensure that the Tenement will not be forfeited, but also to ensure that the Tenement holders will not have to defend applications for forfeiture with all of the associated uncertainty and cost.[65]

   [65] ts 138.

6. Second, the appellants point out that the obligations referred to in cl 6(a)(ii) are binary.  Under the Mining Act, a failure to comply with a condition of the lease puts the lease at risk of forfeiture, regardless of the degree of non-compliance.[66]  Accordingly, the potential consequences of a breach of cl 6(a)(ii) may be significant, regardless of how 'trivial' such breach might be thought to be.  Any breach puts the Tenement at risk of forfeiture.[67]

   [66] ts 48. And see s 82(1)(g) of the Mining Act.

   [67] Appellants' Outline of Submissions filed 25 May 2022 (Appellants' Submissions) [45] - [47].

1. For this reason, the appellants further submit that, unlike cases such as Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd,[68] there is no direct relationship between the severity of a breach and its consequences.  Once there has been a failure to comply by the end of a tenement year, the Tenement is no longer in good standing, and something must be done to cure that.[69]

   [68] Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.

   [69] ts 139.

2. Third, the appellants note that cl 6(a)(ii) requires Cougar to meet the various requirements as part of its obligation to maintain the Tenement in 'good standing'.  The appellants submit that the concept of 'good standing' informs the obligation to pay.[70]

   Because, good standing is about being able to sign off to say 'We are compliant.  We're not one day late; we're not one cent under.  We are compliant'.

   [70] ts 54.

3. The appellants contend that it is the 'good standing' that flows from strict performance that is the substantial benefit of the Option Agreement.[71]

   [71] ts 71.

4. Fourth, the appellants submit that damages would be an inadequate remedy, as it is notoriously difficult to assess damages for loss of a mining opportunity.[72]  The appellants note that a conclusion that loss caused by the breach would not be adequately compensated through damages is a factor supporting the conclusion that the term is essential.[73]

   [72] Appellants' Submissions [48].

   [73] Appellants' Submissions [41], citing Ankar, 557 and 562 (Mason ACJ, as his Honour then was, Wilson, Brennan, as his Honour then was, and Dawson JJ).

5. The appellants also contend that, on the respondent's construction, a breach that was not sufficiently serious to permit termination would be inherently incapable of being compensated for by damages.[74]

   [74] ts 138.

6. Fifth, the appellants note that, if cl 6(a)(ii) is not an essential condition and is merely an intermediate term, Pyke Hill could only terminate if a breach went to the root of the Option Agreement.  The appellants submit that whether a breach went to the root of the agreement would not be known unless or until the Tenement was actually forfeited or at real risk of forfeiture.  The benefit sought to be achieved by cl 6(a)(ii) would be lost – the Tenement would not be in good standing.  The risk sought to be prevented by cl 6(a)(ii) would have already arisen.  The Tenement would be lost or at real risk of being lost.  In this sense, if the term is merely an intermediate term, Pyke Hill's right to terminate would only arise when it was too late.[75]

   [75] Appellants' Submissions [50] and ts 40 - 42, 64 and 70 - 71.

7. The appellants submit that this is an uncommercial result, so Cougar's construction should be rejected.[76]

   [76] Appellants' Submissions [50].

8. The appellants further point out that, with all but the most trivial breaches, there would be a considerable period of time during which it would not be known what the consequences of breach would be.  Applications for exemption take time to process.  The time required may be significantly extended if an objection is lodged.  Further, applications for forfeiture can be lodged up to eight months after the year end.[77]  During the time in which it was not known if an exemption would be granted or a forfeiture application successfully defended, the tenement holder would not want to spend any money on the land.  If the process took over a year to resolve (as would not be surprising[78]), the tenement holder would either have to risk spending the money on land over which it might cease to hold a mining lease or again have to seek an exemption or defend a forfeiture application.  Unless the first option was chosen, the process would delay the further exploration or mining of the land.[79]

   [77] Section 98(2) of the Mining Act.

   [78] Cougar did not dispute that it could take this long - see ts 106 - 107.

   [79] ts 43 - 46.

9. The Option Agreement gave Cougar control of the requirements in cl 6(a)(ii).  The appellants submit that, if Cougar did not comply with the letter of those requirements, the tenement holders had a legitimate interest in being able to take that control out of Cougar's hands without having to wait to see whether the level of breach would result in forfeiture or give rise to a real risk of forfeiture.[80]

   [80] ts 47 - 48.

10. Having regard to these factors, the appellants submit that the intention to be imputed to the parties is that cl 6(a)(ii) was of such importance to Pyke Hill that it would not have entered into the Option Agreement unless assured of its strict performance.[81]  By making the term essential, the risk of uncertainty, the risk of forfeiture, is eliminated.[82]  Senior counsel for the appellants illustrated the strength of the submission in this way:[83]

    If my client had been told by Cougar, "Look, I understand we've got this obligation under 6(a)(ii) to keep it in good standing, but we might not do that some years.  We might not file some reports some years.  We might not lodge our – we might not comply with the expenditure every year, but we'll do it most of the time, and if we don't do it will only be minor and we'll get the appropriate exemptions and so forth." 

    …

    …  So the notional reasonable businessperson in my client's position would not have said, "Well, okay, if they're minor and perhaps it only happened once or twice, then I think the risk of forfeiture is probably negligible and I'm prepared to take that risk."  The notional reasonable businessperson says, "Well, no, that clause is there to keep it in good standing so we're not buying into the sort of trouble that we might be buying into if we have to apply for exemptions and have fights.  Even if they're fights that we are probably going to win, or even if they're fights that we will win, we're buying into having fights with other applicants. 

    We want this kept as clause 6(a)(ii) says in good standing, not just something a little bit short of good standing that no one is going to worry about.   

    [81] Appellants' Submissions [49].

    [82] ts 47.

    [83] ts 69 - 70.

11. With respect, this was a persuasive argument.

Cougar's submissions

1. Cougar submits that cl 6(a)(ii) was not an essential term because breaches of this term and their consequences may vary enormously.[84]  Cougar submits that the parties would not have contemplated that a trivial breach of cl 6(a)(ii) would justify termination.

   [84] Respondent's Written Submissions filed 16 May 2022 (Respondent's Submissions) [27].

2. Cougar points out that a tenement is not automatically forfeited for breach of the expenditure conditions.  Indeed, a warden cannot recommend forfeiture unless the warden is satisfied that the non‑compliance is, in the circumstances of the case, of sufficient gravity to justify the forfeiture.[85]

   [85] Respondent's Submissions [28].

3. Cougar submits that cl 6(a)(ii) is an intermediate term. 

4. Initially, Cougar appeared to submit that the right to terminate for breach would arise only if it resulted in forfeiture of the lease.[86]  During the hearing, however, Cougar appeared to contend that the right to terminate for breach would arise if there was a real risk (or a 'very significant' risk[87]) of forfeiture.[88]

   [86] See Respondent's Submissions [18] - [26] and [28] - [29].

   [87] ts 128.

   [88] See ts 92 - 93, 95 and 113. 

5. Cougar submitted that in many cases it would be clear whether a breach gave rise to a real risk of forfeiture.  Cougar conceded, however, that there would be many cases where it would not be clear.[89]

Clause 11.5

[89] ts 89 - 91 and 95 - 97.

1. Cougar contends that cl 11.5 and the definition of 'Claim' demonstrate that cl 6(a)(ii) is not an essential term. 

2. For convenience, cl 11.5 and the definition of 'Claim' are repeated

   11.5GAG's Indemnity

   Cougar shall indemnify, and keep indemnified, GAG against all Claims to the extent that such Claims arise from, or in connection with, a breach of any of the warranties or representations referred to in clause 11.4 or any other term of this Agreement.

   …

   1.DEFINITIONS AND INTERPRETATION

   1.1Definitions

   In this Agreement unless the context otherwise requires:

   …

   Claim, in relation to a person, means any claim, action, proceeding, damage, loss, cost, expense or liability incurred by or against, or made or recovered by or against, that person however arising and whether present, future or contingent.

3. Cougar notes that cl 11.5 refers to 'any other term', which would, of course, include cl 6(a)(ii).

4. Cougar submits that, having regard to cl 11.5 and the definition of 'Claim':[90]

   So prima facie, there are no fundamental terms that would – the breach of which would entitle a tenement holder to terminate.

   [90] ts 87. See also the Respondent's Submissions [49].

5. Cougar sought to explain this submission as follows:[91]

   Well, if the remedy for a breach is an indemnity, you would look at the term and the breach and see whether it - and you must come to the conclusion that they are indeterminate terms, and maybe breaches of such a fundamental nature that there could be a termination, but they're not terms which - a breach of which as of right gives a right to terminate.  …

   It provides a remedy for a breach of any term, and that is indemnity.  So prima facie any breach of any term gives rise to this indemnity, rather than a right to terminate.  I'm not saying that a breach may be of such a nature that it would not entitle termination, but it doesn't automatically - a breach of any term does not automatically entitle GAG to terminate.

   [91] ts 87 - 88.

6. This exchange then followed:[92]

   ARCHER J:  Well, can I just test the logic of that with you then.  Given that you accept that there are at least intermediate terms in the option agreement, which if they're fundamentally breached allows for termination, how does the presence of a right of indemnity for a breach influence - or lead to the conclusion that none of the terms could be essential terms?

   GENTILLI, MR:   Well, there's no carve out - no term is called an essential term.

   [92] ts 88.

7. I do not accept that the presence of cl 11.5 indicates that none of the terms of the Option Agreement were essential terms.  I do not accept that the remedy available for a breach of a term is limited to the indemnity given by cl 11.5.

8. First, there is nothing in cl 11.5 to suggest it is intended to cover the field.  There is nothing to suggest it was intended to be the only remedy, excluding all other remedies.  There are no 'clear words' to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law.[93]

   [93] See Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693 [23] (Gleeson CJ, Gaudron and Gummow JJ).

9. Second, although Cougar denies that any of the terms were essential, Cougar accepts that some were intermediate terms capable of giving rise to a right of termination if breached.  Once that is accepted, plainly the remedy available for a breach of a term is not limited to the indemnity given by cl 11.5.

Uncommercial construction

1. Cougar submits that the appellants' construction would be uncommercial.

2. It submits that, by cl 4 the Option Agreement, before it was entitled to exercise the option, it had to do a lot of work and spend a lot of money.  It submits that, at that point, its interest in the Tenement may well exceed that of the tenement holders.  It submits that it would not make commercial sense that Cougar could lose its interest for a breach that was not a serious breach.[94]

   [94] ts 113.

3. I do not accept this. 

4. First, in my view, this was simply the bargain Cougar struck.  In my view, Cougar agreed that it could lose the benefit of whatever money it had expended on the Tenement if it failed to meet its obligations under cl 6(a)(ii).

5. Second, I do not accept that the severity of the breach is directly proportionate to the extent of the failure.  Any failure to pay the statutory minimum risks the forfeiture of the Tenement.  In this regard, it should be remembered that the Option Agreement gave Cougar exclusive rights only in relation to nickel and cobalt.  Pyke Hill retained the right to explore for any other minerals on the Tenement.[95]

Discussion

[95] And see cl 10(b) of the Option Agreement.

1. I have explained why I do not accept that the presence of cl 11.5 indicates that none of the terms of the Option Agreement were essential terms.  I have explained why I do not accept that the appellants' construction would be uncommercial. 

2. The critical question remains: whether, on a proper construction of the Option Agreement, the intention to be imputed to the parties is that the promise in cl 6(a)(ii) was of such importance to Pyke Hill that it would not have entered into the agreement unless assured of strict and literal performance of the promise.

3. Having regard to the words of cl 6(a)(ii) in the context of the Option Agreement as a whole and the associated statutory framework, I consider this intention is to be imputed.  In broad terms, I accept the appellants' submissions.  I consider that the following matters are of particular significance.

4. First, the matters addressed in cl 6(a)(ii) are directed to guarding against the risk of forfeiture.

5. Second, any level of failure to meet the statutory minimum exposes the lease to a risk of forfeiture.

6. Third, damages would be an inadequate remedy.

Should the warden have found that cl 6(a)(ii) had been breached? (Issue 3)

1. Cougar contends that the warden erred in finding that it had breached the expenditure obligation in cl 6(a)(ii) on two independent bases. 

2. First, by the First Contention, Cougar contends that the amount that was spent exceeded the statutory minimum.  It will be recalled that the appellants assert that this contention is inconsistent with the way in which Cougar ran its case in the Wardens Court.

3. Second, Cougar submits that, on its proper construction, cl 6(a)(ii), does not require it to pay the minimum expenditure, but simply to maintain the Tenement in good standing.  Cougar submits that the Tenement was maintained in good standing due to the exemption that was obtained.[96]

The First Contention (Issue 3(a))

[96] Respondent's Submissions [26].

1. In its written submissions, Cougar appeared to contend that the expenditure on the Tenement in the tenement year 2019-2020 met the statutory minimum annual expenditure amount of $53,800.[97]  Cougar asserted that there was evidence of expenditure of $27,554.41 and 'potentially claimable expenditure' of $33,600.[98]

Inconsistent with the way the case was run in the Wardens Court

[97] Respondent's Submissions heading D(iii) and [34] - [36].

[98] Respondent's Submissions [34] - [35].

1. The appellants asserted that this contention was inconsistent with the way in which Cougar ran its case in the Wardens Court.  The appellants identified various parts of the record of the proceedings in the Wardens Court in which Cougar had admitted that the expenditure requirement had not been met. 

2. This included direct and express admissions of that fact in its pleading.  In its pleadings on its own Plaint, Cougar admitted that 'it failed to meet the amount of the statutory minimum' for the tenement year 2019-2020, but said that the grant of the certificate of exemption meant that the condition had been satisfied.[99]  In its pleadings on the Lessees' Plaint, Cougar admitted that it 'did not cause the statutory minimum annual expenditure' to be met.[100]

   [99] See the Amended Reply to the Second Respondent's Response and Defence to Counterclaim filed 21 June 2021 in the Wardens Court [8] (page 128 of the Appeal Book), replying to Pyke Hill's Amended Response and Counterclaim filed 9 June 2021 [8] (page 120 of the Appeal Book). 

   [100] See the Response filed 21 July 2021 in the Wardens Court [3] (page 136 of the Appeal Book), replying to the Lessees' Plaint filed 7 July 2021 [9(a)] (page 133 of the Appeal Book). 

3. In its written submissions in the Wardens Court, Cougar expressly admitted that there had been a failure to meet the minimum expenditure requirement.[101]

   [101] See the Plaintiff's Outline of Submissions filed 13 July 2021 in the Wardens Court [17] and [26] (pages 141 and 142 of the Appeal Book).

4. During the hearing of the appeal, I asked counsel for Cougar whether he was contending that the expenditure requirement had been met.  Initially, he said he was not making that contention.[102]  He said that, while the evidence of Mr Swick (a director of Cougar) showed that some work was done, he was not contending that it actually had met the requirement, saying 'it's obviously worth something, but there wasn't any evidence to evaluate it other than Mr Swick's'.[103]  Later, counsel said he could not 'press' that the expenditure definitely met the statutory minimum, but 'pressed' that it may have.[104]  He said that '[i]t may or may not have stood up to a trial, as I say, but it - it could have.  ...  I maintain that the expenditure was such that prima facie it complied, and no right of termination arose'.[105]

   [102] See ts 50 - 51.

   [103] ts 50 - 51.

   [104] ts 119 - 120.

   [105] ts 121.

5. I also asked counsel for Cougar whether he accepted that such a contention would be inconsistent with how he had run the case below.  Initially, counsel said it was inconsistent 'to a degree'.[106]  I asked counsel if he accepted that he had admitted in the Wardens Court that the expenditure requirement had not been met.  Counsel said 'I am not sure that I actually did'.[107]  As the hearing was running into a second day, I invited counsel to reflect overnight on the references that had been provided by the appellants.

   [106] ts 99.

   [107] ts 99.

6. The next day, when asked if he had reflected on those references, counsel for Cougar said he had 'and I'm sort of a bit all of the place in it, but I may well have said that. But certainly we didn't spend or didn't pretend to have spent $53,800'.[108]  Counsel said that, if I was to find that Cougar's case was run on the basis that that money was not spent, he would not seek to depart from that in the appeal.[109] 

   [108] ts 120.

   [109] ts 121.

7. Later, counsel for Cougar accepted that the case had been run below on the basis that the expenditure requirement had not been met.[110]  However, he then said Cougar should be permitted to depart from that position, as it would cause no prejudice to the appellants. 

   [110] ts 122.  See also ts 123.

8. Counsel asserted that there would be no prejudice because, he asserted, the appellants had (mistakenly) believed that Cougar was contending in the Wardens Court that the expenditure requirement had been met.  That is, counsel asserted that, because of this alleged mistaken belief, the appellants cannot now contend that they are prejudiced if Cougar is permitted to actually make that argument now.[111] 

   [111] ts 123 and 125.

9. Counsel asserted that the mistaken belief could be seen in the cross-examination of then counsel for the appellants of Mr Swick.  Counsel referred to then counsel for the appellants (Mr Chandler) stating that he sought to cross-examine Mr Swick as to his claim that money had been spent.[112] 

   [112] ts 123, referring to the Wardens Court transcript at page 66 of the Appeal Book.

10. I do not accept that the appellants had mistakenly believed that Cougar was contending in the Wardens Court that the expenditure requirement had been met. 

11. First, Mr Chandler explained that what he sought to challenge was the claim that money had been spent by Cougar.  Mr Chandler said that he contended it was money spent by Mr Swick in his capacity as a proponent for the DOCA.  Mr Chandler further said that Mr Swick was not entitled to spend Cougar's money as a matter of law because the company was under control of administrators.[113]

    [113] Appeal Book pages 66 - 67.

12. Second, Cougar accepts that Mr Swick's credibility was relevant to some issues in the Wardens Court.[114]  The appellants also note that the extent of non-compliance would have been relevant to the warden's discretion.[115]  There is no reason to conclude that this aspect of the cross-examination reflected a mistaken belief as to the case being run by Cougar, particularly given the express admissions made by Cougar that the expenditure requirement had not been met.

Should the new contention be entertained?

[114] See ts 124 - 125.

[115] ts 147.

1. In Zerjavic v Chevron Australia Pty Ltd,[116] the Court of Appeal noted that there are exceptional circumstances in which a party may advance a new case on appeal.[117] 

   [116] Zerjavic v Chevron Australia Pty Ltd [2020] WASCA 40.

   [117] Zerjavic [66]. Although Zerjavic involved an appeal by way of rehearing, the same principles apply where the appeal is an appeal in the strict sense (see, for example, Pilbara Iron Ore [162]).

2. The Court summarised the general principles that apply as follows (citations omitted):[118]

   [118] Zerjavic [66].

   1.An appellant is bound by the conduct of his or her case at trial.  The opportunity to assert a new case at another trial should only be granted where the interests of justice 'require it' and such a course can be taken without prejudice to the other party.

   2.The circumstance that an appeal is by way of rehearing does not mean that the issues and the evidence are considered at large.  Other than in exceptional circumstances it is contrary to principle to allow a party to raise a new argument which, whether deliberately or by inadvertence, he or she failed to put during the trial when there was an opportunity to do so.  It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at trial.

   3.A point cannot be raised for the first time on appeal when it could possibly have been met by calling evidence at the trial.  (In that respect a statement by counsel that he or she would have led evidence on the point will be given weight unless it is unreasonable or improbable.)

   4.However, an appellate court may allow a new point to be raised on appeal where it is both 'expedient and in the interests of justice' to entertain the new point and '[w]here all the facts have been established beyond controversy or … the point is one of construction or of law'. 

   5.Even if no question of further evidence arises it may not be in the interests of justice to allow a new point to be raised on appeal - particularly if it will require a further trial of the action.

   6.Before any new point is allowed the court should be satisfied that the raising of it could work no injustice to the other party and it is otherwise in the interests of justice to allow the new point to be raised.

   7.In deciding whether a point was raised at trial no narrow or technical view should be taken.  The pleadings may not be decisive where the evidence has been allowed to travel beyond them or fresh issues are raised.  Indeed, a point may be a new point even though it is within the pleading or particulars.  It is necessary to look at the actual conduct of the proceedings to see whether a point was taken at trial, especially where a particular is equivocal.  Usually the reasons of the trial judge are the best indication of what matters were in issue between the parties at trial.

   8.If an appellate court is satisfied that the appellant is seeking to advance a new case on appeal there is no residual discretion under which the court may permit the new case to be run 'in the interests of justice'.  Rather, the interests of justice are encapsulated in the principles previously discussed.

Discussion

1. By the First Contention, Cougar seeks to contend that the statutory minimum may have been met.  This contention is inconsistent with its express admissions in the Wardens Court and the way it ran its case in that Court. 

2. In my view, the First Contention could possibly have been met by calling evidence at the hearing.  For example, the appellants could have called expert evidence as to the value of the work Mr Swick said he had done.  If that is right, the contention cannot now be raised.

3. Further, it cannot be said that all the facts have been established beyond controversy.  The First Contention is not one of construction or of law.

4. I am not satisfied that the interests of justice require that the First Contention be entertained.  On the contrary, I consider that the interests of justice require that it not be entertained.

5. Further, and in any event, the evidence adduced in the Wardens Court was insufficient to support the contention.  At best, there was evidence of 'potentially claimable expenditure', without any supporting documentation or expert evidence.[119]  Even if I was to entertain the First Contention, I would reject it.

Did the exemption retrospectively 'cure' the breach? (Issue 3(b))

Cougar's submissions

[119] See the Respondent's Submissions [35] and the transcript of the Wardens Court proceedings pages 29 - 30 (Appeal Book pages 77 - 78).

1. Cougar submits that, on its proper construction, cl 6(a)(ii), does not require it to pay the minimum expenditure, but simply to maintain the Tenement in good standing.  Cougar submits that the Tenement was maintained in good standing due to the exemption that was obtained.[120]  Cougar submits that the exemption, by relieving the obligation, retrospectively reduced the commitment in cl 6(a)(ii).[121]

   [120] Respondent's Submissions [26].

   [121] ts 88 and 93 - 94.

2. In its written submissions, Cougar said:[122]

   It should be noted that the term used in the Mining Act is "expenditure conditions" (defined in s 8(1)) and not "expenditure commitments" used in clause 6(a)(ii) of the Option Agreement. The wording of ss 82(1)(c), 102 and 103 of the Mining Act operates so that the grant of a certificate of exemption reduces the "statutory minimum expenditure commitments" under the expenditure conditions to the extent of exemption.

   [122] Respondent's Submissions [24].

3. It will be recalled that cl 6(a)(ii) provides that Cougar shall

   attend to all proper administration in respect of the Tenement including, but not limited to, complying with all relevant reporting requirements under the Mining Act, payment of rents and rates as they fall due, and otherwise maintain the Tenement in good standing including payment of all statutory minimum annual expenditure commitments in respect of the Tenement;

4. It will be recalled that ss 82(c), 102 and 103 of the Mining Act relevantly provide:

   82.Covenants and conditions of lease

   (1)Every mining lease shall contain and be subject to the prescribed covenants by the lessee and in particular shall be deemed to be granted subject to the conditions that the lessee shall -

   …

   (c)comply with the prescribed expenditure conditions applicable to such land unless partial or total exemption therefrom is granted in such manner as is prescribed;

   …

   102.Exemption from expenditure conditions

   (1)Subject to this Act, on an application (an application for exemption) made, as prescribed, by the holder of a mining tenement … prior to the end of the year to which the proposed exemption relates, or within the prescribed period after the end of that year, the holder may be granted a certificate of exemption in the prescribed form totally or partially exempting the mining tenement to which the application relates from the prescribed expenditure conditions relating thereto, in an amount not exceeding the amount required to be expended -

   …

   (b)in respect to a mining lease, subject to subsection (7), in a period of 5 years.

   …

   103.Effect of exemption

   Upon the granting of a certificate of exemption pursuant to section 102 … the holder of a mining tenement to whom it is granted shall be deemed to be relieved, to the extent, and subject to the conditions specified in the certificate, from his obligations under the prescribed expenditure conditions relating to the mining tenement.

5. Cougar submitted that its construction fits with the purpose of the obligations contained in clause 6(a)(ii) of the Option Agreement.  It submits the purpose is twofold:[123]

   1.to relieve the tenement holders from expenditure obligations they would otherwise have had; and

   2.to avoid the possibility of a fine being imposed or forfeiture of the mining tenement under ss 97, 98 and/or 99 of the Mining Act.

   [123] Respondent's Submissions [25].

6. In oral submissions, Cougar clarified its contention.  It said that the ordinary meaning of 'commitments' (the word used in cl 6(a)(ii)) is 'obligations'.  It said:[124]

   So we're relieved of the obligation once there's an exemption, therefore the commitment under clause 6(a)(ii) is reduced in accordance with the exemption. 

   [124] ts 93.  See also ts 111.

7. Although not said explicitly, it appears that Cougar assumed that 'relieved' (the word used in s 103) is a synonym of 'reduced'.

8. As noted earlier, Cougar contended that cl 6(a)(ii) was an intermediate term.  It contended that Pyke Hill could only terminate the Option Agreement if a breach gave rise to a real risk of forfeiture.  However, Cougar contended that the right to terminate for that breach would be lost if an exemption was subsequently granted.[125]  Cougar submitted that, once an exemption was granted, what had been a breach would no longer be a breach.  It submitted that the exemption, by relieving the obligation, reduced the commitment in cl 6(a)(ii).[126]  Cougar submitted that the exemption would operate to retrospectively 'cure' the breach.[127]

   [125] ts 92 - 94.

   [126] ts 88 and 93 - 94.

   [127] ts 94.

9. Cougar's contentions can be summarised as follows:

   1.If Cougar failed to cause the statutory minimum to be spent by the end of the tenement year, cl 6(a)(ii) would be breached.

   2.If the extent of the breach gave rise to a real risk of forfeiture, Pyke Hill could lawfully terminate the Option Agreement (or, presumably, seek damages instead).

   3.If Pyke Hill did not act on the breach at that time, and an exemption was subsequently obtained for the amount of the shortfall, there would then not have been a breach.

10. Cougar accepted that the effect of its argument was that the tenement holder could, prior to a decision on any exemption application, issue a valid notice of termination for a breach of cl 6(a)(ii) that gave rise to a real risk of forfeiture, but could not issue a valid notice for the same breach after an exemption had been granted.  Cougar said this would follow because then there would have been no breach.[128]

    [128] ts 94.  See also ts 105.

11. Cougar said that, if the Option Agreement had been validly terminated prior to the exemption being granted, it 'may be able to set aside the notice of termination' but said it had not looked into that issue.[129]

Appellants' submissions

[129] ts 129.

1. The appellants first submit that the express obligation under cl 6(a)(ii) is to pay the statutory minimum, not to assist the appellants to apply for an exemption.  The appellants submit that this is apparent from the plain words of the clause.[130]

   [130] Appellants' Submissions [33] and ts 57.

2. Second, the appellants note that cl 6(a)(ii) requires Cougar to meet the various requirements as part of its obligation to maintain the Tenement in 'good standing'.  The appellants submit that the concept of 'good standing' informs the obligation to pay.[131]

   Because, good standing is about being able to sign off to say "We are compliant.  We're not one day late; we're not one cent under.  We are compliant".

   [131] ts 54.

3. The appellants note that, in its terms, cl 6(a)(ii) specifically prescribes that good standing is to be achieved by the payment of the expenditure commitments, not by an exemption.[132] 

   [132] ts 55.

4. Third, the appellants submit that their construction is supported by the context in which cl 6(a)(ii) is to be assessed.  The appellants first refer to cl 6(1)(c), which 'expressly contemplates that the minimum expenditure requirements must be met'.[133]

   [133] Appellants' Submissions [34].

5. Fourth, as a further contextual point, the appellants refer to the Option Agreement as a whole. 

6. Under the Option Agreement, the consideration for the grant of the option was $20,000.[134]  The consideration for the exercise of the option was $100,000.[135]  Once exercised, Cougar received the exclusive rights to explore for and mine lateritic nickel and cobalt on the Tenement Area, unless and until it abandoned that right.[136]  The tenement holders retained the right to explore for and potentially mine other minerals, but Cougar had the exclusive rights in relation to nickel and cobalt unless and until it abandoned the rights.

   [134] Clause 3(a) - (b).

   [135] Clause 4.2.

   [136] See cl 2, 4 and 17.

7. The appellants point out that, once the option was exercised, Pyke Hill would only receive a benefit under the Option Agreement if Cougar commenced mining operations.  Cougar would then be required to pay Pyke Hill a further $100,000, and royalties.[137]

   [137] Clause 5.

8. The appellants submit:[138]

   So we are not landlords or sublessors sitting there collecting rent or payment on a time basis.  We receive nothing until this is actually brought into commercial production.  And that's obviously the mutually known fact at the time of entry into the agreement because that's the way the agreement works.  So the whole commercial objective to this from everyone's point of view financially is to … get these nickel and cobalt rights into production.  Obviously, from Cougar's point of view, because that's why you exercise the option.

   …  And from our point of view, because that's the only way we get a return.  So when 6(a)(ii) talks about paying the annual minimum expenditure commitments, … it means to pay them because it contemplates that expenditure will be done to get this tenement into production.  It doesn't contemplate that Cougar will simply seek exemptions from the expenditure and not advance the attainment of that mutual commercial goal. 

   [138] ts 60.  See also ts 58.

9. The appellants submit that reasonable businesspeople would not comprehend that Cougar would be able to comply with the expenditure obligation by obtaining exemptions.  They submit that:[139]

   The whole point of this agreement – and, in fact, the only benefit that the tenement holders obtained after the exercise of the option was in Cougar getting this tenement to the point where it commenced actually mining operations, which self-evidently it does not do if it's not spending money to achieve that end.

   [139] ts 58.

10. Fifth, as another contextual point, the appellants refer to the statutory regime against which the Option Agreement was entered into.  The appellants note that reasonable businesspeople would have been aware of the statutory risk of forfeiture, which may be initiated by the Minister or by another miner 'waiting to pounce'.  The appellants note that the risk is not simply the risk of forfeiture, but also the risk of having to defend an application for forfeiture by another potential miner, based on non-compliance.  In requiring the statutory minimum to be paid, rather than permitting it to be paid or an exemption obtained, cl 6(a)(ii) ensures that no risk can arise.[140]  This point overlaps with the next.

    [140] ts 37 - 38.

11. Sixth, the appellants submit that s 103 does not, as Cougar contends, reduce the expenditure obligation or deem a person to have complied. It simply 'relieves' the person from the obligation.[141]

    [141] ts 57 - 58.

12. The appellants note that, by cl 6(a)(ii), Cougar is required to pay 'all statutory minimum annual expenditure commitments in respect of the Tenement'.  It says that, in context, the word 'commitments' simply means 'requirements'.  It says this is further supported by cl 6(c)(ii).  That clause requires the parties to co-operate in planning expenditure on the Tenement with a view to ensuring that the statutory minimum expenditure requirements are satisfied.  The appellants submit that this shows that the word 'commitments' was not intended to bear some subtly different meaning.[142]

    [142] ts 57 - 58.

13. Further, the appellants submit that being deemed to be 'relieved' of an obligation is not the same as being deemed to have complied with it.  Nor does it mean that the obligation ceases to exist.  Further, the obligation in cl 6(a)(ii) is to pay the statutory minimum annual expenditure commitments.[143]  They submit:[144] 

    So, in effect, [s 82(1)(c)] says there is an amount that has to be spent.  Within the Act, there is provision under [s 103] to be relieved from that commitment; that is, that obligation.  But the agreement between the parties is that you will make payment of the amount of that statutory obligation.  You won't – that is, you will not keep a tenement in good standing by obtaining an exemption from it.  You will keep it in good standing by paying the amount that the [statute] … says you must pay.

    …

    … that is the way the contract says you will keep it in good standing by paying it; not paying it or obtaining an exemption, because paying money at a broad level is the way that one advances the work to the point of exploitation, which is in everyone's interest.  And … it's the only way that Pyke Hill stands to benefit under the option agreement. 

    …  That is the way it contemplates compliance or maintaining in good standing being achieved, through making payment.  Not through obtaining five-year exemptions or lesser exemptions.

    [143] ts 149.

    [144] ts 150.

14. Seventh, the appellants submit that Cougar's construction would be uncommercial.  They point out that Cougar's construction appears to depend on a binary choice that can only be resolved in the future.  That is, on Cougar's construction, at the end of a tenement year in which the statutory minimum was not spent, it would not be known whether or not Cougar was in breach of cl 6(a)(ii) until the outcome of any exemption application.  Taking the facts in this case, on Cougar's construction, it was not known whether Cougar's failure to pay the statutory minimum before 29 August 2020 was a breach of the clause until the exemption was granted on 2 March 2021.  The appellants referred to the period between August 2020 and March 2021 as the 'Schrodinger's cat' period - a period in which the conduct could be said to be both a breach and not a breach, and that it would only be known whether it was a breach when the exemption application was determined.

15. The appellants submit that the effect of Cougar's construction is that they could not terminate the Option Agreement until the Tenement was actually forfeited - and by then it would be too late.

Conclusion

1. I do not accept Cougar's submissions. 

2. I do not accept Cougar's contention that, once an exemption is granted, what had been a breach would no longer be a breach. 

3. The expenditure obligation under the Mining Act is to spend a certain amount of money by a certain date.  Clause 6(a)(ii) requires Cougar to 'maintain the Tenement in good standing including payment of all statutory minimum annual expenditure commitments'.  If, by the due date, the money required to be spent has not been spent, there will not have been payment of all statutory minimum annual expenditure commitments.  The Tenement will not be in good standing. 

4. The effect of the exemption is to deem the tenement holder to be relieved of the obligation to spend.  It does not deem the money to have been spent by the due date.  If the money is not spent, cl 6(a)(ii) will be breached and will continue to have been breached.

Conclusion on whether the warden should have found breach

1. Accordingly, the warden was, with respect, correct to find that cl 6(a)(ii) had been breached.

If Cougar did fail to make sufficient expenditure, was this caused by Richore (Second Contention and Issue 4)?

1. By the Second Contention, Cougar submits that, if it did breach cl 6(a)(ii), the breach was caused by Richore.  Cougar submits, in effect, that the reason it failed to meet the expenditure requirement was because the appellants had lodged the Caveat Removal Application.[145]  It submits that the appellants cannot rely on a breach which they have caused.[146]

   [145] See Respondent's Submissions [38] - [42].

   [146] See Respondent's Submissions [50] - [52].

2. The Caveat Removal Application was brought by Richore in 2018.[147]  It will be recalled that, on 30 April 2020, Warden O'Sullivan delivered reasons on the plaint, saying he would not order the caveat to be removed and dismissing the application.  However, it was not until 27 August 2020 that the plaint was formally dismissed.

   [147] Respondent's Submissions [39].

1. Cougar submits:[148]

   Thus, Cougar's interest in the tenement was subject to Richore's application for the whole of the tenement year 30 August 2019 to 29 August 2020 except for the last 2 days.

   Cougar's rights and obligations under the Option Agreement (and therefore its interest in the tenement) were therefore under challenge by Richore for effectively the whole of the tenement year and there was a grave risk of Cougar being a trespasser (and throwing away its expenditure) if it did any work on the tenement prior to the Warden's reasons being delivered and still some risk if it did any work prior to the application being formally dismissed.

   [148] Respondent's Submissions [40] - [41].

2. During the hearing, Cougar conceded that, from the moment Warden O'Sullivan delivered reasons on the plaint (on 30 April 2020), it knew that there was no real risk that its work would be wasted.[149]  Nevertheless, it continued to contend that the reason it failed to meet the expenditure requirement was because the appellants had lodged the Caveat Removal Application.

   [149] ts 128.

3. Cougar initially accepted that it had not contended in the Wardens Court that this was the reason.[150]  Later, counsel contended that he had run that case 'to a degree'.  He said it was implicit in something he had said in his closing address.[151]  As Cougar's closing address came after the appellants had closed their case, this was rather too late.

   [150] ts 100.

   [151] ts 115.

4. In any event, the larger difficulty is that there was no evidence before the warden that this was the reason, or even part of the reason, why money was not spent.[152]  Cougar asserts that it can be inferred that this was the reason from the Exemption Application, which referred to the title being in dispute.[153]  Cougar submits that the warden's Decision also confirmed that the title was in dispute.[154]

   [152] ts 52.

   [153] ts 100 and 177.

   [154] ts 119.

5. Section 102 of the Mining Act was set out earlier. Section 102(2) provides that a certificate of exemption may be granted for any of reasons listed in that sub-section. An application for an exemption is to be made on 'Form 18'. Form 18 requires applicants to, among other things, identify the reasons for the application. The Exemption Application in this case did so as follows:[155]

   [155] Appeal Book page 152.

   In accordance with:

   Section 102(2)(a)

   Section 102(2)(a) - that the title to the mining tenement is in dispute;

   Section 102(2)(b)

   Section 102(2)(b) - that time is required to evaluate work done on the mining tenement, to plan future exploration or mining or raise capital therefor;

   Section 102(2)(e)

   Section 102(2)(e) - that the ground the subject of the mining tenement contains a mineral deposit which is uneconomic but which may reasonably be expected to become economic in the future or that at the relevant time economic or marketing problems are such as not to make the mining operations viable;

   Section 102(3)

   Section 102(3) - Notwithstanding that the reasons given for the application for exemption are not amongst those set out in subsection (2), a certificate of exemption may also be granted for any other reason which may be prescribed or which in the opinion of the Minister is sufficient to justify such exemption.

6. Plainly, the Exemption Application sets out the reasons why it was contended that an exemption should be granted.  It does not set out the reasons why the statutory minimum was not spent.  Further, as required by the legislation, the Exemption Application was filed by Richore's tenement agent, not Cougar.

7. Cougar accepted it had been within its power to adduce direct evidence in the Wardens Court of the reasons.[156]  None of Cougar's witnesses gave evidence that the statutory minimum was not spent due to the dispute over the title. 

   [156] ts 118.

8. To the extent that there was any evidence of the reasons, the evidence does not support that this was the reason.

9. The evidence accepted by the warden was that Cougar had been insolvent since 1 July 2019.[157]

   [157] See Decision [11] - [16].

10. In addition, there was an email in evidence from Mr Swick, in which he wrote '[o]ur work was limited this year because of covid and the fact that we had administrators appointed'.[158]

    [158] Appeal Book page 930.

11. Further, in cross-examination of Mr Swick, the following exchange occurred:[159]

    [T]he administrators were appointed on 30 June 2020?---Correct.

    So prior to their appointment, you did not cause or approve any expenditure in connection with mining on the mining lease for that year?---I didn't, no.

    And that's because prior to the appointment of the administrators, Cougar didn't have the money or resources to do work on the mining lease?---Well, at that time, correct.  We didn't.  We were in COVID as well.

    [159] Appeal Book page 74 - 75.

12. It is unnecessary to consider whether Cougar should be permitted to advance this new argument.  I am not satisfied that the statutory minimum was not spent because the appellants had lodged the Caveat Removal Application.

13. Accordingly, I reject Cougar's Second Contention.

Conclusion

1. For the above reasons, I would allow ground 2 of the appeal.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

KH

Associate to the Honourable Justice Archer

12 JANUARY 2023