Silverstream Sezc v Titan Minerals Ltd - [2024] WASC 307

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   SILVERSTREAM SEZC -v- TITAN MINERALS LTD [2024] WASC 307
CORAM:   SOLOMON J
HEARD:   23 AUGUST 2024
DELIVERED          :   23 AUGUST 2024
FILE NO/S:   CIV 1208 of 2024
BETWEEN:   SILVERSTREAM SEZC
Plaintiff
AND
TITAN MINERALS LTD
Defendant

Catchwords:

Application for stay of proceedings - Expert determination clause - Royalty agreement - Breach of contract

Legislation:

Commercial Arbitration Act 2012 (WA)

Result:

Defendant's application for stay of proceedings dismissed

Category: B

Representation:

Counsel:

Plaintiff	:	Mr S Penglis SC
Defendant	:	Mr S Sirett

Solicitors:

Plaintiff	:	Holding Redlich (Melbourne)
Defendant	:	Thomson Geer - Perth

Cases referred to in decision:

Badgin Nominees v Oneida [1998] VSC 188
Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332
Meyertran Pty Ltd & Others v TVS-Asianics Australia Holdings Pty Ltd [2020] VSC 287
Mineral Resources Ltd v Pilbara Minerals Ltd [2016] WASC 338
Northbuild Constructions v Discovery Beach Project [2008] QCA 160
Straits Exploration (Australia) Pty Ltd v Murchison United NL & Anor (2005) 31 WAR 187
The Heart Research Institute v Psiron Limited [2002] NSWSC 646
Zeke Services v Traffic Technologies (2005) 2 Qd R 563

SOLOMON J:

Overview

These proceedings were commenced by writ of summons on 23 February 2024. In the proceedings, the plaintiff, Silverstream SEZC (Silverstream), a company incorporated in the Cayman Islands, sues the defendant, Titan Minerals Ltd (Titan) for alleged breaches of four royalty agreements. In respect of one royalty agreement, Silverstream seeks damages. In respect of the other three agreements, it seeks specific performance and/or damages.
In this application, Titan seeks orders that the proceedings be stayed until the completion of an expert determination said to be mandated by the royalty agreements. The application is supported by an affidavit of Bethany Anne Fielder, a solicitor employed by Titan's lawyers.

Background

Silverstream and Titan were among four companies that entered into agreements in relation to mining interests in South America. The parties fell into dispute. In July 2021, the companies settled their disputes by a Deed of Settlement and Release (Settlement Deed).
Under the Settlement Deed, Silverstream and Titan agreed to enter into four separate royalty agreements pursuant to which Titan agreed to grant Silverstream four new revenue royalties, in exchange for which Silverstream agreed to pay Titan a sum characterised as the 'Royalty Price' of US$1 million. Contemporaneously with the execution of the Settlement Deed, the parties agreed to execute each of the four royalty agreements which were appended to the Settlement Deed, and agreed to be bound by their terms.
The four royalty agreements related to different mining interests. They were referred to as the Phoebe Royalty Agreement, the Cart Royalty Agreement, the Jaw Royalty Agreement and the Colossus Royalty Agreement. The royalty agreements were in identical terms. I turn now to the relevant terms.
Clause 2.1 of each of the royalty agreements provided as follows:
2.Gross Revenue Royalty
2.1Subject to and in accordance with the terms of this Agreement, [Titan] agrees to grant and pay to [Silverstream] a 3% Gross Revenue royalty from all Product recovered from the Mining Properties ("Royalty").
Gross Revenue was defined in the royalty agreements as follows:
Gross Revenue means, in respect of any Quarter, the aggregate of:
(a) the total amounts actually received by the Payer from the sale of Product to the owner or operator of a Refinery, in US dollars, or in US Dollar Equivalent, ("Sales") including the proceeds received from an insurer in the case of loss of, or damage to, the Product (net of any excess paid in respect of that loss), during the relevant Quarter, less any refunds, claims or discount, where Sales are effected on Arm's Length Terms; and
(b) if Sales are effected on any other basis than on Arm's Length Terms, or if Product is disposed of otherwise than by sale (whether immediate or for future delivery) during the expired Quarter (including by way of set off or other transaction terms not involving the receipt of US Dollar Equivalent by the Payer), the fair market value of the Product so sold or otherwise disposed of during the expired Quarter in US dollars, or in US Dollar Equivalent.
Clause 9 of each of the royalty agreements provided as follows:
9.Reference to Independent Expert
9.1 Any dispute, controversy or claim arising out of, relating to or in connection with the calculation of the Gross Revenue or the Royalty ("Dispute"), shall be settled by expert determination administered by the Australian Disputes Centre ("ADC") which shall be legally binding upon the parties.
9.2 Unless otherwise agreed by the Parties, the expert determination shall be conducted in Western Australia in accordance with the ADC Rules for Expert Determination operating at the time the dispute is referred to ADC ("The Rules").
9.3 The terms of the Rules are hereby deemed incorporated into this Agreement.
9.4 This Item shall survive termination of this Agreement.
9.5 For the avoidance of doubt:
9.5.1this Item does not apply to any dispute, controversy or claim which is not a Dispute; and
9.5.2nothing in this Item prevents a party from commencing proceedings in any court where proceedings are required to obtain urgent interlocutory relief.
Clause 11.3 of each of the royalty agreements provided that Titan was required, among other things, at all times during the term of the agreement, to do all things necessary to maintain in good standing the mining properties from which the royalty revenue was derived, including paying all taxes, fees or assessments owing. Titan could not do anything that would make the mining properties or any part liable to forfeiture, other than any compulsory forfeiture required under the law governing the mining properties or the conditions upon which the mining properties were granted.
Clause 12 of each royalty agreement provided, in effect, that if the entitlement to the royalty from the mining properties was relinquished within three years, Titan was obliged to promptly grant Silverstream a replacement royalty having a value of no less than US$250,000.
Clause 14 of each of the royalty agreements provided as follows:
14.Governing Law
14.1 This agreement is governed by, and to be interpreted with, the laws of Western Australia.
14.2 The Parties submit irrevocably and unconditionally to the exclusive jurisdiction of the courts of Western Australia and all courts competent to hear appeals from those courts, and waives any right to object to any proceedings being brought in those courts.
By letter dated 4 December 2023, lawyers for Silverstream advised Titan that Silverstream had identified that various interests associated with the Phoebe, Cart, Jaw and Colossus royalty agreements had been extinguished due to the failure to pay applicable fees. Silverstream alleged that the entitlements to the entire royalty revenue for Cart, Jaw and Colossus had been extinguished within 3 years and only a small proportion of the Phoebe properties remained in good standing. On that basis, Silverstream alleged that Titan had breached cl 11.3 and cl 12 of the royalty agreements. Silverstream demanded that pursuant to cl 12 of the royalty agreements, Titan grant replacement royalties to the requisite value. By letter dated 19 December 2023, Silverstream's lawyers reiterated the allegation that Titan was in breach of cl 11.3.
As noted, Silverstream issued these proceedings on 23 February 2024. Silverstream's amended statement of claim dated 28 March 2024 included the following allegations:
11.In breach of the Phoebe Agreement, Titan failed to do all things necessary to keep the Mining Properties in good standing by reason of its failure to pay applicable annual maintenance fees for two years, and thereby allowed or permitted five of the seven Concessions under that Agreement to become Relinquished Concessions.
12.In breach of the Cart Agreement, Titan failed to do all things necessary to keep the Mining Properties in good standing by reason of its failure to pay applicable annual maintenance fees for two years, and thereby allowed or permitted the Concessions under that Agreement to become Relinquished Concessions.
13.In breach of the Jaw Agreement, Titan failed to do all things necessary to keep the Mining Properties in good standing by reason of its failure to pay applicable annual maintenance fees for two years, and thereby allowed or permitted the Concessions under that Agreement to become Relinquished Concessions.
14.In breach of the Colossus Agreement, Titan failed to do all things necessary to keep the Mining Properties in good standing by reason of its failure to pay applicable annual maintenance fees for two years, and thereby allowed or permitted the Concessions under that Agreement to become Relinquished Concessions.
15.In further breach of the Cart Agreement, Jaw Agreement and Colossus Agreement, Titan has failed to promptly grant to Silverstream a replacement royalty having a value of no less than US$250,000.
16.Silverstream has suffered loss and damage with respect to each of the breaches of the New Royalty Agreements pleaded herein.
17.By letter dated 4 December 2023 to Titan, Silverstream demanded that pursuant to clause 12 of the Cart Agreement, the Jaw Agreement and the Colossus Agreement, Titan promptly grant to Silverstream replacement royalties with an aggregate value no less than $US750,000 (being no less than US$250,000 in respect to each of the three agreements) (the Demand).
18.Titan has not complied with the Demand
In respect of the Phoebe royalty agreement, Silverstream claims damages. In respect of the other three royalty agreements, Silverstream claims specific performance and/or damages.
Following the issuing of the proceedings, by letter dated 13 March 2024, Titan's lawyers wrote to Silverstream's lawyers. By that letter, Titan said that it 'hereby tenders to assign to Silverstream a 2% net smelter royalty interest that it holds in mining interests in Ecuador.' The letter went on to assert that the tender 'will satisfy the requirements under cl 12 of each of the royalty agreements.' The letter then contended that a refusal by Silverstream to accept the tender would amount to a repudiation of each of the royalty agreements.
By its response dated 15 March 2024, Silverstream's lawyers sought, among other things, evidence that the proposed substitute royalties were of the requisite value. By letter dated 21 March 2024, Titan's lawyers stated expressly that it did not admit any breach of the royalty agreements but repeated its contention that by the tender of substituted new royalty streams it had satisfied its obligations under cl 12 of each of the royalty agreements and that any 'potential breaches (which are not admitted)' had been cured and Silverstream had not suffered any damage. The letter went on to contend that Silverstream had disputed the value of the substituted royalties. Titan asserted that, as it had satisfied any obligation it may have under cl 12, Silverstream's claim for damages was unsustainable. Moreover, Titan asserted that the royalties payable under the substituted royalties came within the definition of 'Royalty' under the royalty agreements. It followed that Silverstream's claims 'arise out of, relate to or are in connection with the calculation or valuation of the Royalty'. The dispute was therefore encompassed by cl 9 of the royalty agreements and the matter was required to be submitted to expert determination pursuant to cl 9 and the proceedings ought to be stayed in the interim. By response dated 28 March 2024, Silverstream's lawyers rejected Titan's assertions. In particular, it disagreed that there was a dispute about the value of the substituted royalties. It had requested evidence of their value and had not received it. Silverstream denied the application of cl 9 and denied that a stay was required or appropriate.
On 24 April 2024, Titan issued a formal Notice of Dispute under cl 9.1 of each of the royalty agreements. The Notice of Dispute characterised the dispute in the following terms:
The nature of the dispute is to the calculation and valuation of the "replacement royalties" tendered by Titan to Silverstream under clause 12 of each of the New Royalty Agreements.
The Notice of Dispute stated the area of expertise required as follows:
The areas of expertise Titan deems required to resolve the dispute are mining specific valuation expertise.

Titan's contentions in support of stay application

Titan contended that the 'core dispute' between the parties in the proceedings is whether the tendered replacement royalties are sufficient to satisfy cl 12 of each of the royalty agreements. It is therefore a dispute as to the value of the replacement royalties. It therefore comes within the terms of the expert determination provision in cl 9 of the royalty agreements. Consistently with that position, Titan seeks a stay of the proceedings until an expert determination 'as to the adequacy of replacement royalties' for each of the royalty agreements.
In support of that contention, Titan submits that Silverstream's non-acceptance of the proposed replacement royalties has resulted in a dispute about their value. I do not accept that submission. Silverstream has simply requested substantiation of the asserted value. At this stage, it has expressly said that it does not necessarily dispute the value, but awaits the information it has sought. Counsel for Titan submitted that, under the royalty agreements, there was no obligation to provide substantiation. It would be surprising, in my view, if the expert determination mechanism could be triggered in circumstances where, irrespective of the strict contractual obligation, the parties had not exchanged information about the asserted value of the proposed royalty stream. This is particularly so when one party has stated that it does not necessarily dispute the value, it just seeks substantiating information.

General principles

Expert determination is a process where an independent expert decides an issue or issues between the parties. The disputants agree beforehand whether or not they will be bound by the decisions of the expert. Generally speaking, expert determination provides an informal, speedy and effective way of resolving disputes, particularly disputes which are of a specific technical character or specialised kind: The Heart Research Institute Limited v Psiron Limited [2002] NSWSC 646 at [16] (Heart Research).
The adoption of expert determination is a consensual process by which the parties agree to take defined steps in resolving disputes. Unlike arbitration, expert determination is not governed by legislation: Heart Researchat [17]. Generally speaking, with an agreement to refer a matter to arbitration, the court is required to stay the proceedings and refer the matter to arbitration under the Commercial Arbitration Act 2012 (WA). In contrast, under an agreement for expert determination, as will be explained, the court has a discretion. For a comprehensive explanation of the difference between those two forms of dispute resolution, see Northbuild Constructions Pty Ltd v Discovery Beach Project Pty Ltd [2008] QCA 160.
The jurisdiction of the court to stay proceedings may be invoked where the parties have agreed expressly to refer a dispute to an expert: Badgin Nominees Pty Ltd v Oneida Ltd [1998] VSC 188 [38] - [44] (Badgin). The court has a wide discretionary power to stay legal proceedings where the parties have by contract agreed to have the dispute determined by an expert. Each case is to be considered on its own circumstances: Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 at [53] - [54].
The discretion whether or not to grant the stay is wide. The starting point for a consideration of its exercise is that the parties should be held to their bargain to resolve their dispute in the agreed manner: Zeke Services Pty Ltd v Traffic TechnologiesLtd (2005) 2 Qd R 563 [19] - [22] (Zeke); Mineral Resources Ltd v Pilbara Minerals Ltd [2016] WASC 338 at [54] (Mineral Resources). Where a contract provides for determination of disputes by an expert, the law has recognised that it is desirable that parties who make such a bargain should be kept to it: Straits Exploration (Australia) Pty Ltd v Murchison United NL& Anor (2005) 31 WAR 187 [14].
The mere fact that there is a degree of complexity involved does not mean a chosen procedure should be abandoned. The expert determination process is meant to be expeditious and offer finality. It accords with modern case management principles which support the use of alternate dispute resolution: Mineral Resources [58] - [59].
However, a stay will not be granted if it would be unjust to deprive the plaintiff of the right to have the claim determined judicially or, to put it slightly differently, if the justice of the case is against staying the proceeding: Zeke at [21]; Mineral Resources at [54].
Matters that may be relevant in the exercise of the discretion in the case of an expert determination include:[1]
(i)The weighty consideration against refusal of a stay that parties should be held to their bargain;
(ii)Whether the agreed process would deal with the whole, or only part of the dispute;
(iii)Whether there would be duplication of effort if the agreed process was to be followed in the particular case;
(iv)Whether the refusal of a stay would result in multiplicity of proceedings;
(v)Whether the dispute is apt for determination by the proposed category of expert;
(vi)Whether the agreed procedures are appropriate and adequate for the nature of the dispute; and
(vii)Whether there is a wider public interest in the dispute being dealt with in a court.
[1] Meyertran Pty Ltd & Ors v TVS-Asianics Australia Holdings Pty Ltd [2020] VSC 287 at [103].

Application of principles

The first and central question is whether cl 9 of the royalty agreements, on its proper construction, is applicable in the circumstances. That in turn raises the question of whether the dispute the subject of these proceedings is a dispute arising out of, relating to or in connection with the calculation of the Gross Revenue or the Royalty. The importance of that question is underscored by the express terms of cl 9.5 of the royalty agreements.
The statement of claim pleads breaches of cl 11.3 and cl 12. The breach of cl 11.3 raises the question of whether Titan contravened its contractual obligation, a matter that Titan does not admit. In my view, that is not an issue relating to, or arising out of, the calculation of the Gross Revenue or the Royalty. The breach of cl 12 may or may not raise issues relating to the calculation of the royalty payable under the proposed substitute royalties. Even if it does, it is far from clear that this would amount to a dispute arising out of, relating to or in connection with the calculation of the 'Royalty' as that term is defined in the royalty agreements. That is not an issue I need to determine at this stage. That is because, on the evidence before me, there is not, at least as yet, a dispute about the value of the proposed substitute royalty. On the evidence before me, Silverstream has sought evidence as to its value and is awaiting that evidence. No dispute about value has crystalised.
At this stage, the dispute is a matter of contractual breach and the appropriate remedy. Those matters do not lend themselves to the expert determination contemplated by cl 9 which concern, as Titan's own Notice of Dispute maintains, matters of mining-specific valuation expertise. That expertise will not assist in resolving the matters presently in dispute on the evidence before me.

It follows that I do not accept the characterisation of the dispute as urged by Titan as the 'core dispute'.
For those reasons, in my view, cl 9 does not apply. In any event, even if the dispute included a dispute about the value of the proposed substituted royalties, and such a dispute came within cl 9 on its proper construction, it would still be necessary for these proceedings to continue in relation to matters that fell outside cl 9, such as the breach of cl 11.3. In those circumstances, it would remain to be decided whether it would be appropriate to stay the proceedings. It seems to me that that is a question best addressed if and when a dispute within the compass of cl 9, on its proper construction, has crystallised.
For those reasons, Titan's application for a stay of proceedings should be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
YM
Associate to the Honourable Justice Solomon
23 AUGUST 2024