St Barbara Ltd v Hockley (No 2)
[2013] WASC 358
•27 SEPTEMBER 2013
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: ST BARBARA LTD -v- HOCKLEY [No 2] [2013] WASC 358
CORAM: BEECH J
HEARD: 10 & 11 SEPTEMBER 2013
DELIVERED : 27 SEPTEMBER 2013
FILE NO/S: CIV 1685 of 2013
BETWEEN: ST BARBARA LTD
Plaintiff
AND
DESMOND JAMES HOCKLEY
Defendant
Catchwords:
Contract - Agreement to sell tenement - Seller retains interest in gold in part of tenement - Provision permitting assignment provided other party consents - Consent not to be unreasonably withheld - Whether consent to assignment unreasonably withheld
Legislation:
Nil
Result:
Plaintiff's claim upheld
Declaration that defendant's withholding of consent to assignment was unreasonable
Category: B
Representation:
Counsel:
Plaintiff: Mr S K Dharmananda SC
Defendant: Mr J A Thomson SC
Solicitors:
Plaintiff: Gilbert & Tobin Lawyers
Defendant: Mizen & Mizen
Case(s) referred to in judgment(s):
Australian Zircon NL v Austpac Resources NL (No 2) [2011] WASC 186
Boss v Hamilton Island Enterprises Ltd [2009] QCA 229; [2010] 2 Qd R 115
Cathedral Place Pty Ltd v Hyatt of Australia Ltd [2003] VSC 385
Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd [1986] 1 Qd R 406
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2008] WASC 275
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23
Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296
Harvey v Walker (1945) 46 SR (NSW) 180
JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85
Louis Vuitton New Zealand Ltd v Princes Wharf Property Fund Ltd [2005] ANZ ConvR 245
Noranda Australia v Lachlan Resources NL (1988) 14 NSWLR 1
Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11
Olsson v Dyson (1969) 120 CLR 365
Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; (2006) 149 FCR 395
Re Idoport Pty Ltd [2012] NSWSC 524
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359
St Barbara Ltd v Hockley [2013] WASC 283
St Hilliers (Developments) Pty Ltd v Radmanovich [2002] NSWSC 524
Tolhurst v Associated Portland Cement Manufacturers [1902] 2 KB 660
Yedway Pty Ltd v Owners Corporation of Strata Plan 62871 [2009] NSWSC 8
BEECH J:
Introduction
The issue in this trial is whether the defendant unreasonably withheld his consent to an assignment of a mining tenement by the plaintiff. It arises in the following way.
The plaintiff (St Barbara Ltd) is the registered holder of a mining lease. In 1992, the defendant (Mr Hockley) sold the mining lease. He sold it under an agreement which gave him a continuing interest in gold extracted from a specified part of the mining lease.
The sale agreement provided that the mining lease, and rights under the sale agreement, could be assigned, provided that it was done with the other party's consent, such consent not to be unreasonably withheld.
St Barbara sought Mr Hockley's consent to an assignment of the mining lease and of St Barbara's rights under the agreement. Mr Hockley refused to consent.
In this action, St Barbara claims that Mr Hockley unreasonably withheld his consent. For the reasons that follow, I find that Mr Hockley's withholding of consent was unreasonable.
The remainder of these reasons are organised as follows:
(2)The facts [7] ‑ [107];
(3)The pleaded reasons for the refusal, and Mr Hockley's amendment application [108] ‑ [134];
(4)Unreasonable withholding of consent: legal principles [135] ‑ [182];
(5)The proper construction of the sale agreement and supplemental agreement: What considerations are legitimate and which are extraneous? [183] ‑ [189]
(6)Analysis of Mr Hockley's reasons for withholding consent [190] ‑ [268];
(7)Conclusion [269] ‑ [270].
The facts
The facts are not in dispute. The parties relied on affidavits on which there was no cross‑examination.
2.1 The Tenement
The plaintiff, St Barbara, is the registered holder of mining lease 77/525 located at Marvel Loch (Tenement).
The defendant, Mr Desmond Hockley, became the registered owner of the Tenement on 2 August 1991.
The boundaries of the Tenement are defined by reference to distances along a surveyed boundary from a single datum peg.[1]
[1] Affidavit of Ross James Kennedy sworn 12 July 2013 (First Kennedy affidavit), RK 1 (pages 17 ‑ 18).
A gold resource known as the 'Undaunted Lode' runs into the eastern area of the Tenement. The part of the Undaunted Lode which runs into the Tenement is known as the Clough Lode.[2]
[2] Affidavit of Desmond James Hockley sworn 28 August 2013 (Hockley affidavit), [7].
In 1992, Mr Hockley sold the Tenement to Cambrian Resources NL (Cambrian), under an agreement (the Sale Agreement) dated 5 June 1992.[3] As its proper construction is at the heart of this case, it is necessary to give detailed attention to the provisions of that instrument
2.2 The Sale Agreement
[3] First Kennedy affidavit, RK 2.
By cl 3, Mr Hockley sold and Cambrian purchased the Tenement. As part of the sale process, Mr Hockley became the major shareholder of Cambrian.[4]
[4] Hockley affidavit [5].
Clauses 4 and 5 provided for settlement of the sale and purchase in three stages.
By cl 6 and 7, Cambrian was to have the sole and exclusive right to possession and working of the Tenement from the date of the execution of the Agreement.
The Clough lode was defined to mean any gold comprised in that part of the geological unit known as the Clough Lode as within the area hatched on the plan annexed to the deed. The plan annexed to the Sale Agreement identified an area described as the area of Clough Lode (the Clough Lode Area). That area is within the area of the Tenement.
The plan annexed to the Sale Agreement also identified the neighbouring tenement, then belonging to Reynolds Metals, which was mining lease 77/10.[5]
[5] Hockley affidavit [8].
Clause 9 provided that the Clough lode would belong to Mr Hockley as to 25% and Cambrian as to 75%. Subject to that, all gold from the Tenement would belong to Cambrian.
Cambrian was obliged to deliver to Mr Hockley 25% of any Clough lode mined by Cambrian, subject to Cambrian selling and retaining the proceeds of so much of Hockley's share of the Clough lode as will pay to Cambrian 25% of the mining costs incurred in respect of the Clough lode.[6]
[6] Clause 9.2.
Cambrian agreed to pay all rents, rates and taxes and other outgoings in respect of the lease from 1 July 1992.[7]
[7] Clause 10.
Mr Hockley made various covenants.[8]
[8] Clause 11.
Cambrian covenanted:[9]
(1)to pay all rents, rates and taxes and not to permit any act or expenditures which would render the Tenement liable to forfeiture; and
(2)to indemnify Mr Hockley from all claims, damages, fines and costs arising from any breach of Cambrian's covenants under the Agreement, or from any accident or injury happening under the Tenement.
[9] Clause 12.
Clause 14 is at the heart of these proceedings. It provides:
Either Party may assign his entire interest in the mining lease and his rights under this deed to a third party, PROVIDED THAT such third Party shall agree in a deed with the other Party to be bound by the terms of this deed in all respects and the assigning Party first gets the written consent of the other Party (which shall not be unreasonably withheld).
2.3 Transfer to Sons of Gwalia
Cambrian did not carry out any mining in the Clough Lode Area.[10]
[10] Hockley affidavit [10].
In June 1995, Cambrian transferred the Tenement to Sons of Gwalia Ltd (SOG) as part of SOG acquiring surrounding tenements at the same time.[11] Mr Hockley consented to the assignment by Cambrian to SOG of all of Cambrian's rights in the Sale Agreement and in the Tenement. By the deed of covenant of 13 June 1995, SOG agreed with Mr Hockley to be bound by the provisions of the Sale Agreement and to assume, observe and perform all the obligations of Cambrian.[12]
[11] Hockley affidavit [11].
[12] See first Kennedy affidavit, RK 3 (pages 49 ‑ 52).
On or about 26 June 1995, Mr Hockley lodged a caveat against the Tenement.[13]
[13] See first Kennedy affidavit, RK 3.
When SOG purchased the Tenement, as a result of mining work carried out by the holder of the neighbouring tenement, there was a large open pit in the Clough Lode Area. Subsequently, that was extended by works carried out by SOG.[14] The presence of the open pit means that the original survey pegs showing the boundaries of the Tenement were no longer present.[15] As I have said, the boundaries of the Tenement were defined by reference to distances from a datum peg on the natural surface of the land.
2.4 Sale to St Barbara
[14] Hockley affidavit [14].
[15] Hockley affidavit [15].
SOG went into administration in August 2004.
On or about 28 March 2005, SOG sold its interest in the Tenement to St Barbara as part of St Barbara acquiring the gold division of SOG.[16]
[16] Hockley affidavit [18].
On or about 19 August 2005, after Mr Hockley's written request, the warden made an order under s 122(1)(c) of the Mining Act 1978 (WA) that:
(a)the caveat remain in full force and effect upon expiry of the 14 day notice period relating to the transfer of the Tenement from SOG to St Barbara; and
(b)allowing the registration of the transfer of the Tenement from SOG to St Barbara.[17]
[17] Hockley affidavit, DJH 5 and 6.
Mr Hockley had meetings with representatives of St Barbara, to discuss St Barbara's intentions about how to mine the Undaunted Lode that crossed the boundary into the Clough Lode Area.[18]
[18] See Hockley affidavit [25] ‑ [28].
On 7 November 2006, Mr Klug of St Barbara wrote to Mr Hockley.[19] The letter:
(a)enclosed a deed of assignment and assumption signed by St Barbara and SOG, requesting signature;
(b)enclosed a letter from Commonwealth Bank saying that it would ensure Mr Hockley's rights were preserved if the bank exercised its rights under the mortgage; and
(c)set out a summary of how further development mining and processing of ore from the Clough Lode Area was proposed to be carried out.
[19] Hockley affidavit, DJH 15.
By letter of 15 November 2006, Mr Hockley responded to that letter. In his letter, Mr Hockley requested permission to take samples, at that stage, of the uncrushed ore from the stockpile at the mine site.[20]
[20] Hockley affidavit, DJH 16.
By letter of 20 November 2006 to Mr Klug, Mr Hockley stated that he would not agree to the lodgement of the mortgage, as he said he was not convinced that his rights would be preserved under the mortgage.[21]
[21] Hockley affidavit, DJH 17.
By letter of 21 November 2006 to Mr Hockley, Mr Klug stated that three samples would be taken and one would be provided to Mr Hockley. Further, the letter stated that St Barbara did not believe it was appropriate for Mr Hockley to take samples from the ore on the ROM pad. Rather, St Barbara preferred that Mr Hockley wait for ore samples to be taken at the same time as crushing.[22]
[22] Hockley affidavit, DJH 18.
By letter of 27 November 2006, Mr Hockley repeated his request for permission to take his own samples prior to the crushing process.[23]
[23] Hockley affidavit, DJH 19.
By letter of 28 November 2006, Mr Klug on behalf of St Barbara repeated that St Barbara did not believe it was appropriate for Mr Hockley to take his own samples.[24]
[24] Hockley affidavit, DJH 20.
On 1 December 2006, St Barbara, Mr Hockley and SOG entered into the deed of assignment and assumption.[25] By that deed:
(a)as from 28 March 2005, St Barbara agreed with Mr Hockley to be bound by all of the provisions of the Sale Agreement and to assume, observe and perform all the obligations of SOG;[26]
(b)Mr Hockley consented to the assignment by SOG to St Barbara and accepted St Barbara as party to the Sale Agreement in substitution for SOG;[27] and
(c)St Barbara covenanted and agreed with Mr Hockley that in the event of St Barbara wishing to transfer its interest in the Tenement it would cause the purchaser to be bound in writing by the terms of the Sale Agreement.[28]
[25] First Kennedy affidavit, RK 4.
[26] Clause 1.
[27] Clause 2.
[28] Clause 4.
After signing the deed of assignment and assumption, Mr Hockley telephoned Mr Klug and asked if he could take the samples. Mr Klug said no.[29]
[29] Hockley affidavit [38].
On 6 December 2006, Mr Hockley issued a plaint against St Barbara, seeking an injunction.
On 11 December 2006, the warden ordered that St Barbara be restrained from mixing or crushing any ore from the Undaunted Lode located within the Clough Lode Area with ore from any other location.[30]
[30] Hockley affidavit [39].
Following that, there were discussions between St Barbara and Mr Hockley about how mining of the Undaunted Lode within the Clough Lode Area would take place.[31]
2.5 The Supplemental Agreement
[31] Hockley affidavit [41].
On or about 30 March 2007, Mr Hockley and St Barbara entered into an agreement entitled Supplemental Agreement to Sale Agreement (the Supplemental Agreement).[32] Clause 1.1(a) provided that the agreement was supplemental to the Sale Agreement. The agreement imposed various mining and reporting obligations on St Barbara. St Barbara undertook to adopt the mining practices specified in cl 2 of attachment 2 in relation to mining operations within or directly affecting the Clough Lode Area. St Barbara also undertook to adopt the stockpiling and crushing practices specified in cl 3 of attachment 2 in relation to ore recovered from mining operations within or directly affecting the Clough Lode Area.
[32] See first Kennedy affidavit, RK 5.
By cl 4.2(b), Mr Hockley agreed that the methods of calculation provided for in cl 3 of attachment 2 would determine the quantity of gold recovered from ore mined from the Clough Lode Area for the purposes of cl 9 of the Sale Agreement. By cl 4.3, St Barbara promised to permit Mr Hockley to undertake measures specified in cl 4 of attachment 2, allowing access for the purpose of conducting surveys and collecting samples.
The method of allocating costs associated with mining the Clough Lode Area was specified.[33]
[33] Clause 4.4.
St Barbara promised to provide Mr Hockley with a statement from the mine's monthly report showing tonnes, grade and ounces mined and crushed and the mining costs incurred in respect of the Clough Lode Area that are attributable to Mr Hockley's 25% share.[34]
[34] Clause 5.1(a)(1).
St Barbara promised to provide Snowden Group, Mr Hockley's independent expert advisers, with its monthly report and assistance to understand and interpret the report.[35]
[35] Clause 5.1(a)(2).
Like the Sale Agreement, the Supplemental Agreement does not oblige St Barbara to conduct mining in the Clough Lode Area, but regulates St Barbara's conduct to the extent that it did mine the Clough Lode Area. In summary, the Supplemental Agreement set out agreed procedures for the mining of the Clough Lode Area, the stockpiling and crushing practices to be adopted, for calculating the gold recovered, allocating mining costs for the purpose of cl 9 of the Sale Agreement, and providing information to Mr Hockley.
2.6 2007 ‑ 2008; Mr Hockley's concerns
During 2007, St Barbara mined the Clough Lode Area. No further mining of the Clough Lode Area has occurred since then.[36]
[36] Hockley affidavit [44]; first Kennedy affidavit [60].
In late 2007, Mr Hockley became concerned that St Barbara was blending external material with ore mined from the Clough Lode Area, and not separately stockpiling ore from the Clough Lode Area in accordance with the Supplemental Agreement. As a result, Mr Hockley sought more detailed information from St Barbara about the mining it had carried out but did not receive responses which he regarded as satisfactory.[37]
[37] Hockley affidavit [46] ‑ [47].
In March 2010, Mr Hockley obtained a report from Snowden Mining Industry Consultants Pty Ltd (Snowden).[38] Among other things, the report:
(a)notes that there are several discrepancies apparent in the information provided to it;
(b)states that three different tenement boundary wire frames had been provided between 2009 and 2010;
(c)states that the supplied tenement boundaries are not the same, and vary by up to 2 m in the area of the ore body;
(d)after further reference to the location of the ore body in the area, states that depending on the tenement boundary used, the mined area may intersect the Clough tenement at the relevant level of the mine;
(e)states that below 675 mRL (metres reduced level) there is an area of the mineralised interpretation and resource model that is within the Clough Lode Area, and appears to be unmined, and suggests several options of what has happened to this material; and
(f)states that the results of analysis of mineralisation varied dependent on which tenement boundary is used for reporting.
[38] Hockey affidavit, DJH 21.
Mr Hockley's evidence, expressed in very general terms, is that, before the middle of 2010, he sent letters to St Barbara outlining concerns and requesting information and access to surveys of the Clough Lode Area but was told that the data he had already been given was correct. He says that, before the notice of dispute, St Barbara refused his requests to conduct a full survey.[39] Some letters from Mr Hockley to St Barbara from 2008 to 2010 are annexed to Mr Kennedy's affidavit.[40]
[39] Hockley affidavit [51].
[40] See first Kennedy affidavit, RK 22 ‑ RK 25.
By email of 15 April 2010, Kerry Payne of St Barbara wrote to Mr Hockley.[41] The letter set out conditions under which St Barbara was willing to permit access for a survey by Mr Hockley's surveyor. It stated that, prior to the party being allowed underground, Mr Payne wished to discuss the outstanding royalty issue, referring to the alleged overpayment of royalties to Mr Hockley.
2.7 Notice of Dispute
[41] First Kennedy affidavit, RK 10 (pages 138 ‑ 139).
By letter of 24 June 2010, Mr Hockley gave notice of dispute to St Barbara under cl 7 of the Supplemental Agreement.[42]
[42] First Kennedy affidavit, RK 10.
Mr Hockley said that it took time to deliver the notice of dispute after mining had ceased at the end of 2007 because:
(a)he made many requests for information and waited for responses;
(b)he only received the report from Snowden in March 2010; and
(c)he was for some time distracted from dealing with the issues with St Barbara because of a serious illness of a close family member.[43]
[43] Hockley affidavit [52].
The notice of dispute asserts a dispute about matters including the correct boundary of the Clough Lode Area, the amount of gold St Barbara has recovered from the Clough Lode Area, whether gold from the Clough Lode Area has been mixed with other gold, the amount of the mining costs that St Barbara was able to deduct from the proceeds of sale of Mr Hockley's share of the gold, and the question of access by Mr Hockley and his surveyor to conduct a survey.
In response to the notice of dispute, St Barbara sent an email on 29 June 2010 proposing a meeting on 2 July 2010.[44] The dispute was not resolved at the meeting on 2 July 2010.[45]
[44] First Kennedy affidavit, RK 28.
[45] First Kennedy affidavit [86].
On 19 July 2010, by email from Mr Kennedy, St Barbara provided Mr Hockley with a copy of a report of Quantitative Group. Quantitative Group were engaged by St Barbara to undertake a review of and reconciliation of all mining of the Clough Lode Area from 30 March 2007 to 12 May 2010, and the accounting of Mr Hockley's share of gold.
The executive summary of the report includes the following:[46]
Concern was raised that there may have been uncertainty in the location of the lease boundary that may have impacted on the division of the tonnage treated between [St Barbara] and [gold from the Clough Lode Area]. [Quantitative Group] engaged the services of a chartered surveyor who has checked the rotation of the lease boundary, as specified by the Department of Mines and Petroleum, into local mine coordinates. Minor differences were detected in the order of 2 to 4 cm due to the different rotation methods used. This will not make a material impact on the calculation of gold attributable.
[46] First Kennedy affidavit, RK 29 (page 297).
The executive summary also set out an analysis of ore and gold sourced from the Clough Lode Area and associated costs. It concluded by stating that its analysis suggested that Mr Hockley owed St Barbara $105,000.[47]
[47] Page 298.
Senior counsel for Mr Hockley points to aspects of what is said in section 3 of the report, dealing with Quantitative Group's review of the lease boundary location. There, reference is made to different boundary information that was provided by St Barbara to Quantitative Group.[48]
[48] Page 304.
The report sets out a table showing the results of the mine rotation for critical points of the lease boundary, comparing the results derived by St Barbara's survey manager to that of a chartered surveyor engaged by Quantitative Group. The report stated that the table showed that the differences between the rotation provided by the external surveyor of St Barbara were in the order of 2 to 4 cm. The report stated that St Barbara's expression of the boundary had been used in Quantitative Group's calculations.[49]
[49] Page 305.
Senior counsel for Mr Hockley emphasises this last statement, saying that it reflected an adoption of one of several competing positions, not a resolution of the dispute.[50]
[50] ts 96.
Mr Hockley has not given evidence to explain why he took no steps to pursue the issues raised in his notice of dispute.
Mr Kennedy's email of 19 July 2010 asked Mr Hockley to read the report and contact him to discuss it.[51]
[51] First Kennedy affidavit, RK 29 (page 295).
From September 2010 until December 2012, Mr Hockley did not take any step to advance the issues raised in the notice of dispute.[52]
2.8 Hanking Gold agrees to acquire Southern Cross Operations from St Barbara
[52] First Kennedy affidavit [89].
On 8 January 2013, China Hanking Holdings Ltd (China Hanking) announced that its wholly owned Australian subsidiary, Hanking Gold Mining Pty Ltd (Hanking Gold), had entered into an agreement with St Barbara to acquire the assets of Southern Cross Operations.[53] The announcement also stated that:
(a)Southern Cross Operations had been in operation until December 2012 and is currently on care and maintenance;
(b)by the acquisition, Hanking Gold acquired interests, including approximately 932 km2 of exploration and mining licences, infrastructure, processing plant and other assets;
(c)the consideration for the acquisition is $22.5 million;
(d)Hanking Gold plans to resume and expand the operation of Southern Cross Operations through investments in its development and exploration activities as soon as practical; and
(e)a preliminary study by the company reveals that Southern Cross Operations has a potential annual gold production capacity of 200,000 ounces for ten years.
[53] Affidavit of Thaw Thaw Htin affirmed 9 August 2013 (First Htin affidavit), TTH 8.
China Hanking is a company incorporated in the Cayman Islands, and listed on the Hong Kong Stock Exchange. The announcement was made to the Hong Kong Stock Exchange. There is no evidence that Mr Hockley was aware of the terms of this announcement at any time.
On 9 January 2013, St Barbara announced that it had entered into an agreement with Hanking Gold to sell Southern Cross Operations.[54] The announcement stated that Southern Cross Operations had ceased mining and processing operations during the December quarter and had been placed onto care and maintenance. Consideration for the sale was stated to be $22.5 million cash, and the assumption of rehabilitation and obligations applying to the tenements being sold.
2.9 Mr Hockley refuses consent to the assignment
[54] First Kennedy affidavit, RK 6.
By letter of 10 January 2013, Ms Okely wrote on behalf of St Barbara to Mr Hockley.[55] The letter gave notice pursuant to cl 14 of the Sale Agreement that St Barbara intended to assign its rights under the agreement to Hanking Gold, and sought consent to the proposed assignment. The letter had a place for Mr Hockley to sign and to indicate (by circling the applicable option) that he did or did not consent. The letter did not request reasons for any refusal of consent. The letter concluded with a request that Mr Hockley contact Ms Okely should he have any questions.
[55] First Htin affidavit, TTH 1.
Before this letter, there had been no communications from St Barbara to Mr Hockley about any proposed transfer.
By letter of 20 January 2013, Mr Hockley wrote to Mr Kennedy of St Barbara.[56] Mr Hockley's letter stated that:
[56] First Kennedy affidavit, RK 8.
(a)St Barbara's letter of 10 January 2013 did not provide details of the arrangements being proposed, but Mr Hockley had found details elsewhere and was not prepared to sign the letter of consent;
(b)Mr Hockley did not agree to the proposal for several reasons, 'some of which' he listed;
(c)the reasons listed were:
1.our processing of shared ore is not complete.
2.our notice of dispute over recovered mined ore and sharing is not complete.
3.the third party agreement that you have entered into with 3D Resources is against all logic and I do not agree to 15% of clear profit from my shared ore being given away.
(d)he would definitely not sign to allow his interest and caveat to be removed.
At around the time when Mr Hockley received the request for his consent, he was told by the owner of the local hardware store in Southern Cross about the proposed assignment. The store owner showed him an email containing an article about the transaction.[57] The article recited aspects of St Barbara's announcement. It also referred to the announcement by 3D Resources Ltd (3D) that it had negotiated to acquire a free carry participation in Hanking Gold's acquisition of Southern Cross Operations. The email stated that under the agreement with Hanking Gold, 3D is entitled to a 15% net profit interest from all profits generated by gold production from the tenement package purchased and from any toll treatment from outside tenements using the Marvel Loch gold processing plant.
[57] Hockley affidavit [58], DJH 22.
On 13 January 2013, 3D made an announcement to the Australian Stock Exchange.[58] It announced its participation in the acquisition of the assets of Southern Cross Operations, saying that it had negotiated to acquire a free carry participation in an acquisition by China Hanking. The announcement:
(a)said that under its agreement with China Hanking, 3D is entitled to a 15% net profit interest from all profits generated by gold production from the extensive tenement package purchased from St Barbara, and from any toll treatment from outside tenements using the Marvel Loch gold processing plant;
(b)set out principal terms; and
(c)stated that as part of ensuring the operations return to production, China Hanking is committed to invest a minimum of $50 million on developing Southern Cross Operations.
[58] Hockley affidavit, DJH 23; first Htin affidavit, TTH 14.
In his affidavit, Mr Hockley says that before he received St Barbara's letter, he had never heard of Hanking Gold, and when he wrote his letter, he had no information about the financial status of Hanking Gold, or whether it had the wherewithal to mine the Clough Lode Area in the manner contemplated in the Sale Agreement and the Supplemental Agreement. He says in his affidavit that those matters were also factors in his thinking when he sent his letter of 20 January 2013.[59] Mr Hockley was not cross‑examined, and I accept his evidence.
[59] Hockley affidavit [60].
On 5 February 2013, Mr Hockley wrote again to Mr Kennedy.[60] In this letter, Mr Hockley:
(a)stated that St Barbara's agreement with Hanking Gold and 3D defied logic and attempted to violate Mr Hockley's rights by assigning 15% of any future clear profits from mining to a non‑productive company;
(b)reiterated that he would not sign any transfer or agree to the lifting of the caveat unless and until the issues raised in his notice of dispute had been resolved; and
(c)stated that he intended to contact or meet with Hanking Gold.
[60] First Kennedy affidavit, RK 9.
At the time he wrote this letter, Mr Hockley had not seen any agreement between 3D and Hanking Gold.
2.10 Further correspondence; February 2013
On 8 February 2013, Mr Kennedy sent an email to Mr Hockley.[61] In his email, Mr Kennedy stated that:
(a)he would like to clarify Mr Hockley's description of the arrangement between 3D, Hanking Gold and St Barbara, as Mr Kennedy believed that Mr Hockley had not accurately characterised them;
(b)3D introduced the transaction with Hanking Gold, and acted as a facilitator during the discussions with Hanking Gold. In return, 3D negotiated and obtained directly from Hanking Gold, by way of a facilitation fee, a free carry participation by way of a 15% net profit interest from all profits generated by gold production from the tenement package purchased from St Barbara and from any toll treatment from outside tenements using the Marvel Loch gold processing plant;
(c)the facilitation fee arrangement was negotiated directly between Hanking Gold and 3D and would be paid from Hanking Gold's share of profit;
(d)Mr Hockley's rights and interests in the Clough Lode JV are in no way diminished as a consequence of 3D's relationship with Hanking Gold; and
(e)the arrangements with 3D and the proposed assignment to Hanking Gold in no way affect St Barbara's existing obligations to Mr Hockley, or his right to pursue St Barbara for breach of those obligations if he thought there had been one.
[61] First Kennedy affidavit, RK 11.
The email stated that the Australian Stock Exchange announcement concerning the 3D transaction was attached, but the announcement was not attached.[62]
[62] See the email itself, and also Hockley affidavit [68].
On 15 February 2013, Mr Kennedy sent a further email to Mr Hockley attaching a draft deed of consent and assumption for discussion at a video conference proposed for the following Monday, 18 February.[63] The draft deed included the following terms:
(a)from the effective date, Hanking Gold agreed with Hockley to be bound by all the provisions of the Sale Agreement and the Supplemental Agreement and to assume, observe and perform all the obligations thereunder of St Barbara;
(b)Mr Hockley consented to the assignment of the Tenement by St Barbara to Hanking Gold and accepts Hanking Gold as party to the Sale Agreement and the Supplemental Agreement in substitution for St Barbara;
(c)the parties acknowledged and agreed that nothing in the deed discharged or released St Barbara from liability that it may have to Mr Hockley for any failure to observe any covenant or obligation in the principal agreement or for any amount due under the principal agreement incurred or accrued before the effective date.
[63] First Kennedy affidavit, RK 12.
By letter of 1 March 2013, St Barbara's solicitors wrote to Mr Hockley.[64] The letter recorded instructions that St Barbara had taken various steps to resolve the Gold Dispute in 2010 and steps that St Barbara had taken to resolve the Consent Dispute. The letter asserted that Mr Hockley was aware that time is of the essence in relation to the proposed assignment. The letter stated that St Barbara reserved its rights to commence Supreme Court action if the Consent Dispute was not resolved at the mediation. The letter urged Mr Hockley to seek legal advice in relation to the Consent Dispute.
2.11 Mr Hockley meets with a representative of Hanking Gold
[64] Affidavit of Ross James Kennedy sworn 2 September 2013 (second Kennedy affidavit), RK 3.
With consent from St Barbara, on 8 March 2013, Mr Hockley sent an email to Dr Mark Qiu of Hanking Gold proposing a meeting to listen to suggestions on partnership and future development.[65] Mr Hockley's email pointed out that this meeting was separate from any dispute that he has with St Barbara and does not imply that he was agreeing to St Barbara's claim that he had no legal reason to withhold consent.
[65] Affidavit of Thaw Thaw Htin affirmed 2 September 2013 (second Htin affidavit), TTH 1.
Mr Hockley's evidence is that when he met with Dr Qiu they discussed:
(a)Hanking Gold's plans to do a lot of drilling to prove up their reserves;
(b)Mr Hockley's concern about the fact that the boundary of the Clough Lode Area had not been resolved;
(c)Mr Hockley's knowledge of the Clough Lode Area and other lodes in the Marvel Loch region; and
(d)the existence of the notice of dispute, but not the detail.[66]
[66] Hockley affidavit [72].
That night, Mr Hockley sent an email to Dr Qiu, saying that he felt the meeting had been useful.[67] In his email, he included extracts from his letters of 20 January 2013, and 5 February 2013, to which I have already referred. He also included an extract from a letter he wrote to St Barbara on 5 March 2013 regarding the mediation process, as follows:
On two separate occasions in 2007 and 2008 I wrote to St Barbara and offered that they could buy me out of the Supplemental Agreement and have no caveat to affect their operations or ability to deal. Further I am ready to come to [an] agreement to finish the joint venture, remove the caveat and dissolve the joint venture's Supplemental Agreement as previously stated - for the return of the gold ounces missing from the reporting.
[67] Second Kennedy affidavit, RK2 (page 7).
That email stated that these excerpts show that he was offering solutions to the dispute that St Barbara and he were having.
A little later that night, Dr Qiu sent an email to Mr Hockley.[68] The email stated that Dr Qiu's aim of the meeting was to introduce Hanking Gold, to understand Mr Hockley's concerns for his consent on the assignment of the Tenement, and to listen to Mr Hockley's suggestions on partnership and future development. The email stated that:
(a)the meeting was useful and constructive;
(b)Mr Hockley's disputes, communications and negotiations with St Barbara are matters between him and St Barbara; and
(c)Hanking Gold has no intention to be involved in Mr Hockley's negotiation with St Barbara.
[68] Second Kennedy affidavit, RK2 (page 6).
On 19 March 2013, St Barbara's solicitors wrote to Mr Hockley.[69] The letter stated that St Barbara had been requested by the solicitors for Hanking Gold to provide them with information and details about Mr Hockley's notice of dispute. The letter asked whether Hanking Gold's solicitors could be provided with a copy of the notice of dispute on a confidential basis.
[69] Second Kennedy affidavit, RK2 (page 8).
The next day, Mr Hockley responded by an email, saying, in effect, he would have certain requirements before he would give that consent.[70]
[70] Second Kennedy affidavit, RK2 (page 9).
On 21 March 2013, Mr Kennedy on behalf of St Barbara wrote to Mr Hockley stating that St Barbara consented to a complete and unedited copy of the notice of dispute being provided to Hanking Gold's solicitors on a confidential basis.[71]
2.12 Mediation
[71] Second Kennedy affidavit, RK 1.
During March 2013, the parties engaged in a mediation of the disputes between them relating to consent and to the issues in the notice of dispute.
2.13 Further request for and further refusal of consent
On 11 April 2013, St Barbara and Hanking Gold entered into a licence agreement relating to the Tenement. I will outline relevant aspects of that agreement in section 6.2. That agreement was entirely unknown to Mr Hockley as at 22 April 2013.
By email of 12 April 2013, Mr Kennedy attached a deed of assignment and assumption for Mr Hockley's consideration, signature and return.[72] The deed had been signed by each of St Barbara and Hanking Gold. The email stated that Mr Hockley's entering into the deed in no way changed any existing rights that he might have as against St Barbara in connection with the dispute, referred to as the Gold Dispute. The deed of assignment and assumption included terms to the following effect:
[72] First Kennedy affidavit, RK 13.
(a)the deed and the rights and obligations of the parties under the deed are conditional upon:
(i)either;
(1)Mr Hockley consenting to the transfer of the Tenement to Hanking Gold; or
(2)a court of competent jurisdiction making an order or declaration to the effect that the transfer of the Tenement to Hanking Gold can be made without requiring Mr Hockley's consent; and
(ii)the Tenement being transferred to Hanking Gold pursuant to the Sale Agreement;[73]
(b)from the effective date, St Barbara assigns St Barbara's rights and interest under the Sale Agreement and the Supplemental Agreement to Hanking Gold and Hanking Gold accepts such assignment;[74]
(c)Hanking Gold acknowledges and agrees that, on and from the effective date, it would punctually observe and perform the obligations, covenants and agreements contained in the Sale Agreement and the Supplemental Agreement;[75]
(d)Hanking Gold is not liable and St Barbara remains liable for any failures to observe or breaches of the Sale Agreement or Supplemental Agreement before the effective date;[76]
(e)Hanking Gold and St Barbara acknowledge that their obligations and agreements in cl 4(a) and (b) are given in favour of Mr Hockley and are enforceable by him regardless of whether Mr Hockley has executed the deed;[77] and
(f)Hanking Gold undertook that any amount payable to 3D pursuant to the terms of the net profit interest agreement would be excluded from the calculation of mining costs under cl 9(2)(b) of the Sale Agreement.[78]
[73] Clause 2.
[74] Clause 3.
[75] Clause 4(a).
[76] Clause 4(b).
[77] Clause 4(c), cl 4(d).
[78] Clause 5(a).
By letter of 16 April 2013, St Barbara's solicitors wrote to Mr Hockley.[79] The letter:
(a)stated that the deed had been prepared for the purpose of complying with cl 14 of the Sale Agreement;
(b)drew attention to the clauses of the deed, the effect of which I have summarised above;
(c)requested written consent to the transfer of the Tenement and signed copies of the deed; and
(d)stated that if that was not provided by 18 April 2013, St Barbara would commence proceedings seeking court orders that the transfer of the Tenement could be made without requiring Mr Hockley's consent.
[79] First Kennedy affidavit, RK 14.
On 18 April 2013, Mr Hockley met with his solicitor, Mr Mizen. On 18 April 2013, Mr Mizen sent an email to St Barbara's solicitor stating that he had just received instructions and asking that no precipitous action be taken until the following week after he had had the opportunity to provide advice to Mr Hockley.[80]
[80] First Kennedy affidavit, RK 15.
On 19 April 2013, St Barbara's solicitors spoke to Mr Mizen and said that St Barbara would wait until lunch time on 22 April 2013 before proceedings would be commenced.[81]
[81] Hockley affidavit [82].
On 19 April 2013, St Barbara made an announcement to the Australian Stock Exchange.[82] The announcement:
(a)stated that St Barbara had completed the sale of the Southern Cross Operations to Hanking Gold, a subsidiary of China Hanking;
(b)stated that Southern Cross Operations ceased mining and processing operations during the December 2012 quarter, and had subsequently been placed onto care and maintenance;
(c)stated that final consideration for the sale was $18 million cash as well as the assumption by the purchaser of rehabilitation obligations applying to the tenements sold; and
(d)stated that the final consideration was lower than the sale price of $22.5 million announced on 9 January 2013, due to the renegotiation of certain third party interests, and other matters.
[82] First Kennedy affidavit, RK 17.
On 19 April 2013, Hanking Gold and 3D entered into an agreement termed the Net Profit Interest Agreement.[83] The Net Profit Interest Agreement included terms that:
(a)Hanking Gold must pay net profit interest, being 15% of gross revenue less allowable deductions to 3D in respect of the Southern Cross tenements;[84]
(b)gross revenue was defined to include revenue from Hanking Gold's share of sales of gold and silver;[85] and
(c)allowable deductions were defined to include royalties and similar interests payable to third parties in respect of the assets.[86]
[83] First Htin affidavit, TTH 16.
[84] Clause 5.1, cl 5.2.
[85] Clause 5.4.
[86] Clause 5.5.
Mr Hockley did not see this agreement until well after 22 April 2013. He first saw it in the course of these proceedings.[87]
[87] Hockley affidavit [65].
Mr Hockley says in his affidavit that he considers that the 3D agreement would create a disincentive for mining because Hanking Gold's share of profit would have to accommodate a net profit of 15% of all gold from the Clough Lode Area. St Barbara has no such disincentive.[88]
[88] Hockley affidavit [66].
On 22 April 2013, Mr Mizen wrote to St Barbara's solicitors.[89] The letter:
(a)referred to the limited time available to him; and
(b)stated that he did not consider that Mr Hockley was being unreasonable.
[89] First Kennedy affidavit, RK 16.
In substance, this letter was a refusal of the consent, in response to St Barbara's request by their solicitors' letter of 16 April 2013.
2.14 Evidence as to Mr Hockley's reasons
Mr Hockley says that he spoke with Mr Mizen on 22 April 2013 and discussed the draft of the letter that set out reasons for refusing the consent.[90] Mr Hockley says that, when he and Mr Mizen spoke, he agreed with Mr Mizen that the reasons he had stated in the draft letter were essentially reasons why he did not wish to consent to the proposed assignment.
[90] Hockley affidavit [83], DJH 26.
However, he did not authorise the sending of the letter because he was awaiting further legal advice about the effect of St Barbara suing for damages.[91]
[91] Hockley affidavit [84].
The draft letter made the following observations in support of the statement that Mr Mizen did not consider that Mr Hockley was being unreasonable:
(a)clause 14 of the Sale Agreement does not apply to an assignment of obligations under that agreement;
(b)Mr Hockley is of the view that St Barbara is in breach of the Sale Agreement and Supplemental Agreement, referring to the notice of dispute;
(c)the rights and obligations set out in the Supplemental Agreement are of such a nature that they cannot be assigned without the consent of the other party and that consent is not qualified by requirements of not being unreasonably withheld;
(d)the proposed assignment by St Barbara to Hanking Gold is so linked with St Barbara's obligations under the Sale Agreement and the Supplemental Agreement that it cannot properly be effected without an assignment of the obligations under those agreements, which assignment cannot be effected without Mr Hockley's prior consent;
(e)Mr Hockley is not satisfied that Hanking Gold can perform the obligations of St Barbara under the Sale Agreement and the Supplemental Agreement;
(f)Mr Hockley is not satisfied that once the assignment takes place the resolution of the dispute will be unaffected by that assignment; and
(g)Mr Hockley is concerned that Hanking Gold has encumbered its interest in the Tenement by virtue of its transactions with 3D and that that transaction is likely to be a disincentive to ever conduct mining on the Clough Lode Area.
In his affidavit, Mr Hockley sets out reasons that he says were his reasons, which applied when each of his three letters refusing consent was sent.[92] In circumstances where Mr Hockley was not cross‑examined, I accept that evidence. Mr Hockley says that the following reasons applied:
[92] Hockley affidavit [85].
(a)the identity of the entity with the obligations set out in the Sale Agreement and the Supplemental Agreement was important to me so that I could be satisfied that the entity that has those obligations would be capable of performing them and that I could trust that entity with my gold and trust it to perform the obligations under the Sale Agreement and the Supplemental Agreement. I was not satisfied on the limited information available that I could trust Hanking with my gold and trust it to perform its obligations under the Sale Agreement and the Supplemental Agreement;
(b)I have to be able to trust the entity responsible for mining, crushing, treating and selling the gold to do the following things, and I was not satisfied that I could trust or rely upon Hanking to do these things:
(i)report to me when it is mining the Clough Lode Area;
(ii)separately stockpile ore mined from the Clough Lode Area and not blend it with ore recovered from other areas;
(iii)properly apportion ore if it is not possible to separately mine ore from within the Clough Lode Area;
(iv)properly account for all costs incurred in mining the Clough Lode Area;
(v)deliver 25% of the gold extracted from the Clough Lode Area into my gold account; and
(vi)authorise the sale of so much of my gold as will pay for my share of the mining costs;
(c)it was critical to me that any party who stepped into the shoes of St Barbara should know the boundaries of the Clough Lode Area so that there would be no doubts about the ownership of gold mined from the Clough Lode Area and whether it came from the Clough Lode Area or a neighbouring tenement. It was a requirement of the Supplemental Agreement that the boundaries be identified, but that had not happened;
(d)I had not been provided any evidence or information by St Barbara about the background of Hanking except that it was said to be a Chinese company listed on the Hong Kong Stock Exchange;
(e)neither St Barbara nor Hanking had attempted to inform me how Hanking proposed to mine the Clough Lode Area;
(f)neither St Barbara nor Hanking had attempted to inform me of Hanking's costs of any mining, so that I could compare those costs with the costs that St Barbara claimed to have incurred in mining the Clough Lode Area;
(g)at no stage prior to 22 April 2013 had St Barbara informed me that Hanking would grant the release set out in clause 8.7 of the Supplemental Agreement which was a benefit I am unwilling to give up; and
(h)each of the matters set out in my letter of 20 January 2013.
St Barbara submits that many of these reasons are not pleaded and are, consequently, irrelevant.
Senior counsel for Mr Hockley accepts that Mr Hockley's affidavit does not supplant the pleadings in identifying the reasons for the refusal.[93] I turn to what is pleaded regarding Mr Hockley's reasons for withholding his consent.
[93] ts 109.
The pleaded reasons for withholding of consent, and the application to amend
As I will explain in section 4, it is only to the pleaded reasons for withholding consent that attention must be given in determining whether the withholding of consent was unreasonable.
In the course of the trial, issues emerged between the parties about what reasons had been pleaded by Mr Hockley. Consequently, it is necessary to give close attention to what is said in the pleadings about Mr Hockley's reasons for withholding consent.
St Barbara pleads that Mr Hockley's letters of 20 January 2013 and 5 February 2013 provided the following reasons for the defendant's refusal to consent:
(1)the processing of shared ore is not complete;
(2)the issues giving rise to a notice of dispute, sent by Mr Hockley on 24 June 2010, have not been resolved; and
(3)the third party agreement which Mr Hockley said had been entered into between St Barbara and 3D was against all logic, and Mr Hockley did not agree to 15% of clear profit from his shared ore being given away.[94]
[94] Amended Writ of Summons with Statement of Claim indorsed dated 28 June 2013 (SC) [11].
Mr Hockley accepts that those grounds of refusal were raised in the letters, and also relies on a number of additional reasons.[95] There is a dispute about the proper interpretation of par 5(a) and 5(b) of the defence. I will set out those paragraphs in full when I resolve that pleading dispute. Mr Hockley also pleads the following further reasons:
(4)Mr Hockley is entitled to a release under cl 8.7 of the Supplemental Agreement, and no offer of a release has been made by Hanking Gold;[96]
(5)no evidence of the financial capacity or the ability of Hanking Gold to mine the Clough Lode Area, in accordance with the Sale Agreement and the Supplemental Agreement, has been provided to Mr Hockley;[97]
(6)the net profit interest agreement is such a burden to Hanking Gold that it is a significant commercial disincentive to Hanking Gold to mine the Clough Lode Area, and no such burden applies in relation to St Barbara;[98]
(7)there is a dispute between St Barbara and Mr Hockley concerning the location of the boundaries of the Clough Lode Area, the amount of gold recovered and the amount of mining costs, and until that dispute is resolved the plaintiff should not transfer the Tenement or assign its rights under the agreements;[99] and
(8)there was no attempt to ascertain Hanking Gold's mining costs and compare them to those of St Barbara.[100]
[95] Amended Defence and Counterclaim dated 5 July 2013 D [5].
[96] D [5(c)].
[97] D [5(d)].
[98] D [5(e)].
[99] D [5(f)].
[100] D [5(g)].
In their written submissions filed before the trial, each party set out a summary of the pleaded reasons for Mr Hockley's withholding of consent. In the course of the trial, competing submissions were made about the summaries, and counsel refined them. In the end, two issues remained between the parties about what reasons had been pleaded. Before identifying those, I will set out the reasons which both parties agree have been pleaded:
(a)Hanking Gold's agreement with 3D would give away 15% of profit from Mr Hockley's ore, and in any event, would be a disincentive for further mining of the Clough Lode Area by Hanking Gold (reasons 3 and 6 summarised above);
(b)no evidence of Hanking Gold's financial capacity to mine the Clough Lode Area had been provided to Mr Hockley (5 above);
(c)no comparative assessment has been made of mining costs likely to be incurred and charged by Hanking Gold as against St Barbara (8 above);
(d)there is an unresolved dispute about the boundaries of the Clough Lode Area and whether St Barbara had accounted for the gold mined from the Clough Lode Area (2 and 7 above); and
(e)Hanking Gold had not offered to release Mr Hockley under cl 8.7 of the Supplemental Agreement (4 above).
I turn to the disputed aspects of the pleaded reasons.
The first relates to what is pleaded in particular a(i) of par 11 of the statement of claim and admitted in par 5 of the defence and summarised in (1) above. Mr Hockley's letter of 20 January 2013 stated that 'our processing of shared ore is not complete'. It is common ground that that was a reference to 600 tonnes of ore that had been extracted from the Undaunted Lode and stockpiled on a Southern Cross tenement that was not the Tenement. Mr Hockley considered (and still considers) that that ore had been extracted from the Clough Lode Area, and that St Barbara had charged him for the mining of it, by way of deduction of mining costs, but have never processed it.[101]
[101] Hockley affidavit [61] ‑ [62].
Mr Hockley's submissions suggest that this reason also included that Hanking Gold had not acknowledged that the ore came from the Clough Lode Area, or that it would have to process it.[102] That is a point made in Mr Hockley's affidavit, but, in my view, it is not part of any reason pleaded. I do not accept that on a proper reading of what is pleaded in particulars a(i) of par 11 of the statement of claim, any reason relating to Hanking Gold is to be implied or understood.
[102] Defendant's submissions [55]; ts 120.
The second issue between the parties relates to the proper reading of par 5(a) and (b) of the defence. Those paragraphs are in the following terms:
(a)the Plaintiff's interest in the Tenement and its rights under the Agreement and the Supplemental Agreement as varied by the Variation Agreement has fundamental correlative obligations ('Obligations') owed by the plaintiff to the Defendant both under the Agreement and the Supplemental Agreement concerning:
(i)the mining, crushing and measuring of the Clough Lode;
(ii)the obligation to deposit the Defendant's share of the Clough Lode with the Plaintiff's agent AGR Matthey ('AGR') for refinement and then for delivery of bullion into a specific bullion account from which the Defendant authorised AGR to deduct gold equal in value to the Mining Costs; and
(iii)the obligation to allocate costs of mining in a particular way;
(b)the Obligations are obligations of trust and confidence and there is no requirement on the Defendant to consent to the assignment of any of those Obligations and without that consent it is reasonable for the Defendant to refuse to provide his consent to the transfer of the Tenement from the Plaintiff to Hanking and to that assignment of rights proposed to be assigned as pleaded in paragraphs 10 of the Statement of Claim.
St Barbara submits that the substance of those pleas is that:
(a)St Barbara's interest in the Tenement and its rights under the agreements gave rise to 'fundamental correlative obligations' owed by St Barbara to Mr Hockley under the Sale Agreement and Supplemental Agreement, and that those obligations were of trust and confidence; and
(b)because there is no requirement on the defendant to consent to the assignment of those obligations, and without that consent it was reasonable for Mr Hockley to refuse to provide his consent to the transfer of the Tenement.[103]
[103] ts 51 ‑ 52.
Mr Hockley submits that the substance of what is pleaded in par 5(b) is that Mr Hockley refused consent on the basis that he did not have trust and confidence in Hanking Gold.[104] In effect, Mr Hockley submits that par 5(b) should be read as implicitly saying, after the words 'without that consent' words to the effect 'being provided on the basis of trust and confidence in the proposed assignee, which the defendant did not have'.
[104] ts 110 ‑ 113.
It must be said, with respect, that par 5(b) is not a model of clarity. In my opinion, a reading of par 5(a) and (b) as a whole favours the construction advanced by St Barbara. St Barbara's construction seems to me to involve a natural reading of the words used in par 5(b). By contrast, Mr Hockley's reading involves finding its essential substance not in the words that are used, but in the words that are to be implied.
Further, in my view, the conduct of the case before 5 September 2013, when Mr Hockley's written submissions for trial were filed, suggests an objectively shared understanding of the plea in the way contended by St Barbara.
In July 2013, there was a contested application for a separate trial of the issues in the consent dispute.[105] St Barbara's written submissions included an analysis of the issues arising in the consent dispute. Mr Hockley's written submissions responded to St Barbara's analysis. In its written submissions St Barbara submitted that par 5(a) and 5(b) of the defence gave rise to the following issues:
Does St Barbara's interest in the Tenement and its rights under the Agreement and Supplemental Agreement give rise to 'fundamental correlative obligations' (Obligations) owed by St Barbara to Hockley under the Agreement and Supplemental Agreement.
Do the Obligations enable Hockley not to consent to the assignment of the obligations and allow Hockley to refuse consent to the transfer of the Tenement and to the proposed assignment?[106]
[105] See St Barbara Ltd v Hockley [2013] WASC 283.
[106] Plaintiff's submissions in support of application for separate trial of issues dated 12 July 2013 [21], [23].
Mr Hockley's written submissions stated that those issues were correctly identified by St Barbara.[107] There was no suggestion that these paragraphs gave rise to a question as to whether Mr Hockley had trust and confidence in Hanking Gold.
[107] See Defendant's analysis of consent dispute issues identified by plaintiff dated 22 July 2013, page 5.
In my decision on the application for separate trial of issues, I summarised pars 5(a) and 5(b) of the defence in the following terms:
The plaintiff's interest in the Tenement and its rights under the Agreement and Supplemental Agreement as varied by the Variation Agreement have fundamental correlative obligations regarding the mining of the Clough lode and allocation of the cost of mining. [Mr Hockley] is not required to consent to the assignment of these obligations and, as such, it is reasonable for [Mr Hockley] to refuse to consent to the assignment (emphasis added).[108]
[108] St Barbara Ltd v Hockley [2013] WASC 283 [34(a)].
On 28 August 2013, Mr Hockley's affidavit was filed for the purposes of the trial of preliminary issues. That affidavit annexed Mr Mizen's draft letter of 22 April 2013, to which I have made reference in section 2.13. In my view, the third and fourth points made in that letter substantially reflect the points made by the substance of par 5(a) and 5(b) of the defence on St Barbara's construction of those paragraphs.
Finally, to my mind, St Barbara's reading of those paragraphs was also revealed by the way in which St Barbara's written submissions dealt with those paragraphs.[109]
[109] See pars 63 ‑ 69 of the plaintiff's submissions.
For these reasons, I find that Mr Hockley has not pleaded that he withheld his consent because he did not have trust and confidence in Hanking Gold that it could perform its obligations under the Sale Agreement and Supplemental Agreement.
In the course of Mr Hockley's closing submissions, senior counsel for Mr Hockley made a contingent application to amend par 5(b). In the event that, contrary to Mr Hockley's submissions, par 5(b) was to be read in the way invited by St Barbara, Mr Hockley applied to amend par 5(b) by inserting after the phrase 'without that consent', the words 'being provided on the basis of trust and confidence in the proposed assignee, which the defendant did not have'.[110]
[110] ts 113 ‑ 114.
For the reasons that follow, I would not allow Mr Hockley's amendment application.
First, it should be noted that there is no evidence from Mr Hockley or his solicitor to explain the need for the amendment. Among other things, there is no evidence that Mr Hockley's solicitor, who appears to have had conduct of the action without counsel for a significant period, understood or intended par 5(b) in the way now contended by senior counsel on behalf of Mr Hockley. Senior counsel did not suggest there had been such an understanding. Rather, he submitted that there was 'a perfectly acceptable and alternative way of reading par (b), which is open to us to adopt for the purposes of saying what the pleadings define'.[111]
[111] ts 110.
Moreover, the matters to which I have already referred suggest, at the least, an objective shared common understanding of par 5(a) and (b) in the way reflected by St Barbara's construction of it.
Secondly, St Barbara would be prejudiced by the amendment at such a late stage. That is because St Barbara would have lost the opportunity to make further inquiries with a view to adducing additional evidence in answer to the plea now proposed. Mr Hockley has given evidence of discussions he had with Dr Qiu of Hanking Gold. It would have been open to St Barbara to investigate the dealings between Dr Qiu and Mr Hockley more closely and to lead evidence from Dr Qiu in relation to those dealings.
It may have also been open to St Barbara to lead other additional evidence relating to the reasonableness or otherwise of an absence of trust and confidence in Hanking Gold, but as that was not raised by senior counsel for St Barbara, I say no more about it.
For those reasons, I refuse Mr Hockley's application to amend par 5(b).
The result of all this is that in substance six reasons are pleaded: the five set out at [112] above, and the sixth - that the processing of shared ore was not complete.
Unreasonable withholding of consent: legal principles
4.1 General principles
With one exception, the legal principles were not in dispute.
I start with some principles that provide some of the conceptual framework.
It is well‑established that rights under a contract can be assigned, but obligations cannot be.[112] To effect a transfer of contractual obligations, the consent of the other party to the contract is needed. In practical terms, that requires a novation of the original contract.[113]
[112] Tolhurst v Associated Portland Cement Manufacturers [1902] 2 KB 660, 668; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, 103; Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; (2006) 149 FCR 395 [32].
[113] Pacific Brands [32].
Novation does not involve the assignment of rights and obligations, but rather the creation of new rights and obligations in a new contract.[114] In general conceptual terms, one difference between novation and assignment is that assignment is not a transaction between creditor and debtor, but only between the creditor and the assignee, to which the assent of the debtor is not needed.[115]
[114] Olsson v Dyson (1969) 120 CLR 365, 388; Pacific Brands [32].
[115] Olsson (388).
In a contractual framework such as cl 14, that distinction falls away or is diminished, in that the consent of the other party is required to the assignment of rights. The assignment of rights is effected by a means which involves or may involve a new contract between the assignee and the other party and, possibly, the assignor.
A contract may be construed as revealing an intention that rights under it are not assignable, because they are so intertwined with obligations (and obligations are not assignable).[116] No such intention is revealed by the Sale Agreement. To the contrary, cl 14 expressly provides for assignment of rights and creates a mechanism for the assignee to undertake the assignor's obligations. By cl 14, one of the conditions of any assignment of the Tenement and of rights under the Sale Agreement is a novation by which the assignee agrees with the other party to be bound by the Sale Agreement.
[116] Australian Zircon NL v Austpac Resources NL (No 2) [2011] WASC 186 [112].
Thus, the Tenement holder's obligations under the Sale Agreement do not make its rights under that agreement, and the Tenement itself, unassignable. Mr Hockley did not submit to the contrary, although, as I have said in section 3, pars 5(a) and 5(b) of the defence appeared to assert the contrary. But the Tenement holder's obligations under the Sale Agreement are part of the contractual framework in which the reasonableness of a refusal to consent to assignment falls to be determined.
It is common ground in this case that if I am satisfied that Mr Hockley's withholding of consent was unreasonable, orders should be made in substance that the assignment is effectual, and requiring Mr Hockley to do all things necessary to enable the transfer of the Tenement.[117] That would appear to reflect a construction of cl 14 along the following lines. The proviso requiring consent to an assignment only operates in respect of a withholding that is not unreasonable. It does not operate when the withholding is unreasonable, so the assignment is effectual without the consent.[118] I am content to proceed on that basis.
[117] ts 48.
[118] See, by analogy, Harvey v Walker (1945) 46 SR (NSW) 180, 182; Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd [1986] 1 Qd R 406, 410; compare Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296 [38] ‑ [40].
I turn to the principles relating more specifically to a claim that consent to an assignment has been unreasonably withheld.
The onus of proving that consent has been unreasonably withheld is on St Barbara.[119]
[119] EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 [116]; Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11 [78].
When a refusal of consent is challenged on the ground that it was unreasonable, the role of the court is not to review the decision by deciding, as on appeal, whether correct decisions were made as to the weight to be given, if any, to various factors and whether the decision to withhold was correct. Rather, the court looks at the whole process and the objective facts to determine if the withholding was unreasonable.[120]
[120] Noranda Australia v Lachlan Resources NL (1988) 14 NSWLR 1, 21.
The court must only consider the pleaded reasons for withholding consent in answering the question of whether consent has been unreasonably withheld. St Barbara's onus is confined to the pleaded reasons for refusal.[121]
[121] EDWF [135].
Whether consent has been unreasonably withheld is to be determined as at the date on which consent is refused.[122] Thus, only facts and circumstances existing at the time consent is refused can be used to support or challenge the refusal.
[122] EDWF [116]; Old Papa's Franchise [81]; JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121, 132 ‑ 133.
Both parties' submissions made extensive reference to the recent decision of the Court of Appeal in EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd.[123] Although each case depends on its contract and its circumstances, the approach outlined by Buss JA is of valuable assistance in considering the question in the present case.
[123] EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78.
EDWF concerned cl 11.7 of a joint venture agreement. In summary, that clause provided:
(a)if there is a change in control of a participant, the affected participant shall be deemed to have offered to assign the whole of its JV interest to the other participant unless the other participant has given its prior written consent to the change in control;
(b)if a participant seeks the consent of the other participant to a proposed change in control of the affected participant, the proposed new party in control must have 'the financial and technical resources and experience to adequately support the affected participant'; and
(c)if a participant seeks the consent of the other participant to a proposed change in control of the affected participant, and the proposed new party in control has the financial and technical resources to adequately support the affected participant, the other participant must not unreasonably withhold or delay its written consent to the change in control.
The appellant sought the respondent's consent under cl 11.7. The respondent refused its consent. The appellant sought a declaration that consent had been unreasonably withheld. At trial, the appellant's claim was dismissed. On appeal, the appellant succeeded in its claim.
Buss JA, with whom Owen and Newnes JJA agreed, commenced by construing the relevant clause, cl 11.7, in the light of the joint venture agreement, and associated joint venture instruments, as a whole.[124] He said that the permissible grounds on which the other participant may refuse consent to a change of control depended upon a proper construction of the joint venture agreement and other joint venture instruments.[125] As Buss JA pointed out, this question of construction is not a question that can be answered by reference to a decision in other cases. As Nettle J said in Cathedral Place Pty Ltd v Hyatt of Australia Ltd, 'the terms of the contract are paramount'.[126]
[124] EDWF [111].
[125] EDWF [113].
[126] Cathedral Place Pty Ltd v Hyatt of Australia Ltd [2003] VSC 385 [25]. See also Re Idoport Pty Ltd [2012] NSWSC 524 [49].
Buss JA emphasised that the joint venture transaction in that case was materially different from a grantor to a grantee of a proprietary or contractual right and from a lessor and lessee relationship. Unlike the joint venture, each of those other relationships does not involve the common pursuit of a venture. Further, in those other relationships, fundamental rights and interests to the parties in respect of the subject matter of the transaction are usually opposed. Consequently, it is important to exercise caution in considering authorities decided in different contractual settings.[127]
[127] EDWF [113].
Buss JA made the following observations about the requirement under that agreement that consent not be unreasonably withheld. [128]
[128] EDWF [115].
The following observations may be made about the third component of cl 11.7:
(a)The primary purpose of the requirement that the affected participant obtain the consent of the other participant to the proposed change in control appears to be to enable the other participant to scrutinise the proposed new controller and decide whether, if the proposed change of control proceeds, the affected participant will (continue to) be willing and able:
(i)to perform its obligations under the JVA and the other JV Documents; and
(ii)in association with the other participant, to implement and carry the Project into effect and to pursue the objects of the Joint Venture (subject to and in accordance with the JVA), as contemplated by cl 3.1 of the JVA,
for the balance of the duration of the Joint Venture.
(b)The qualification to the requirement that the affected participant obtain the consent of the other participant, namely, that the other participant must not unreasonably withhold or delay its consent or give its consent subject to unreasonable conditions, reflects the degree of importance that the parties have attached to the right of a participant, with valuable proprietary and contractual rights under the JVA, to assign those rights.
(c)In general, the other participant will not be acting unreasonably in withholding its consent if:
(i)the grounds for withholding consent are held honestly;
(ii)the grounds relate to the objects of the Joint Venture or to rights, benefits or obligations of the affected participant or the other participant under the JVA or the other JV Documents;
(iii)the grounds are permissible under the JVA or the other JV Documents, properly construed, and are not materially inconsistent with their provisions, properly construed; and
(iv)on the basis of the facts and circumstances, objectively ascertained, as at the date on which consent is refused, the grounds for withholding of consent are not unreasonable.
(d)In general, the other participant will be acting unreasonably in withholding its consent if:
(i)the grounds for withholding consent are not held honestly;
(ii)the grounds are extraneous or unrelated to the objects of the Joint Venture or to rights, benefits or obligations of the affected participant or the other participant under the JVA or the other JV Documents;
(iii)the grounds are not permissible under the JVA or the other JV Documents, properly construed, or are materially inconsistent with their provisions, properly construed; or
(iv)on the basis of the facts and circumstances, objectively ascertained, as at the date on which consent is refused, the grounds for withholding of consent are unreasonable.
(e)Although the other participant is entitled to take into account, in determining whether it will consent to the proposed change in control, how the change will affect the pursuit or fulfilment of the objects of the Joint Venture and how the change will affect its rights, benefits or obligations under the JVA or the other JV Documents, it is not entitled to take into account broader commercial factors which are extraneous or unrelated to the objects of the JVA or to rights, benefits or obligations of the affected participant or the other participant under the JVA or the other JV Documents (original emphasis).
In summary, Buss JA said that the non‑assigning participant is entitled to take into account how the proposed change will affect the pursuit or fulfilment of the objects of the contract, and how the change will affect its rights, benefits or obligations under the contract. The party is not entitled to take into account broader commercial factors which are extraneous or unrelated to the objects of the contract or to the rights, benefits or obligations of the affected participant or the other participant.[129]
[129] See, to like effect, Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 610; Idoport [50]; Yedway Pty Ltd v Owners Corporation of Strata Plan 62871 [2009] NSWSC 8 [101] ‑ [103]; Cathedral Place [28] ‑ [29].
Both parties submit, and I accept, that some of these general observations can be applied to the present context, with the result that a party would not be acting unreasonably in withholding its consent if:
(a)the grounds for withholding consent were held honestly;
(b)the grounds relate to, and are not extraneous to, the objects of the contractual relationship, or to rights, benefits or obligations of the affected party under the contract;
(c)the grounds are permissible under the contract and are not materially inconsistent with its provisions; and
(d)on the basis of the facts and circumstances, objectively ascertained, those grounds are not unreasonable.[130]
[130] Plaintiff's submissions [12]; defendant's submissions [65].
These observations underline the central significance of the construction of the relevant contract to identify what considerations relate to the pursuit of the objects of the contract, and those that are extraneous.
If the concern regarding the assignment which the non‑assigning party holds is reasonable in itself, refusal of consent based on that concern may nevertheless be unreasonable, if the concern is one capable of being remedied by the assignor or assignee, and the non‑assigning party does not disclose that concern or permit an opportunity for that concern to be remedied.[131] As I will explain in section 6, to my mind the circumstances of this case engage that consideration.
4.2 The use that can be made of facts not known to the party withholding consent
[131] St Hilliers (Developments) Pty Ltd v Radmanovich [2002] NSWSC 524 [45].
There is a question as to what extent a party from whom consent is sought can rely on reasons or facts which it did not state, or even know about, when it refused consent, and whether such facts can be relied on by the assigning party to demonstrate the unreasonableness of the withholding of consent.
The parties' submissions had a deal of common ground, and only one point of substantial disagreement. Both parties submit that:[132]
(1)only a reason that actually influenced the decision to refuse consent need be considered - if a reason played no part in the decision to refuse consent, it can be ignored; and
(2)a party refusing consent can sustain or bolster the reasonableness of a reason that influenced the decision by reference to material in existence at the time of the decision but not known to the decision‑maker.
[132] ts 76 ‑ 79.
The point of difference is related to the second proposition. St Barbara submits, and Mr Hockley denies, that the principle works both ways: facts existing at the time, but not actually or constructively known by the decision‑maker, may be relied on to establish that a reason for refusal was unreasonable.[133]
[133] ts 80 ‑ 81, 137 ‑ 139, 161 ‑ 164.
I accept the two propositions on which the parties agreed. The first is supported by what was said in JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd.[134] The second is established by Secured Income.[135]
[134] JA McBeath (129 ‑ 130); see also Boss v Hamilton Island Enterprises Ltd [2009] QCA 229; [2010] 2 Qd R 115 [135].
[135] Secured Income (610 ‑ 611).
It appears that an approach differing from the first proposition was taken by Martin CJ in EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd.[136] That approach was mentioned without any apparent criticism in the Court of Appeal.[137] In any case, nothing turns on this point because I accept that all of the pleaded reasons influenced Mr Hockley's decision to withhold consent at the time of refusal.
[136] EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2008] WASC 275 [204].
[137] EDWF [120] ‑ [121].
It seems that the cases provide only limited assistance in relation to the point in dispute between the parties.
In Secured Income, Mason J said that he was inclined to the view that the landlord was entitled to rely on a ground not taken at, or about, the time of refusal. His explanation of why that was so makes it clear that he considered the landlord could take into account a circumstance not known to him at the time.[138] Mason J referred to the general rule in contract that a party can justify his termination of a contract by reference to grounds not taken at the relevant time.[139] His Honour applied that view to matters which had not been known to the decision‑maker at the time of the refusal to the case before him. He held that the trial judge was wrong to exclude from consideration matters relied on at trial by the person refusing consent as sustaining the reasonableness of the refusal.[140]
[138] Secured Income (611).
[139] Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359.
[140] Secured Income (614).
In Re Idoport, Ball J stated that the question whether refusal of consent was unreasonable is to be determined objectively having regard to all the circumstances of the case. He referred to what Mason J had said, in the passage I have summarised.[141]
[141] Idoport [51].
Ball J stated that, in determining the question of whether the refusal of consent was unreasonable, the court can look at what was said and not said at the time to infer the real reasons for the refusal. If the court infers that the operative reason was in order to achieve a collateral advantage then it would follow that consent was unreasonably withheld. That would be true even if there existed reasons that could reasonably have been relied on.[142]
[142] Idoport [52] ‑ [53].
Ball J rejected the analogy with Shepherd v Felt & Textiles. He concluded that the conduct of the party refusing consent must be considered in the course of determining the question of reasonableness. That party's actual reasons, and the reasons that he gave or did not give at the time, are part of the objective facts against which the question of reasonableness must be answered. Nevertheless, his Honour said facts not known to that party are relevant in answering the objective question.[143]
[143] Idoport [54].
St Barbara relies on the generality of this passage of Ball J's reasons.[144] His Honour says that facts not known to the decision‑maker are relevant to reasonableness, without distinguishing whether the facts point to reasonableness or unreasonableness. That is true, although the remarks were not made in the context of a question as to whether facts not known to the decision‑maker could be used to support a conclusion of unreasonableness.
[144] ts 161.
An appeal from the decision in Idoport was dismissed.[145] Basten JA made some observations concerning the question of whether and to what extent considerations not known to the person refusing consent at the relevant time could be relied on by that person as sustaining a reasonable withholding of consent.[146] His Honour suggested that there may be a distinction between using material not known to the party refusing consent to sustain the reasonableness of the reason that existed at the time of refusal, and relying on material not known at the time to justify a ground of refusal not operative at the time. The first, but not the second, is directly supported by Secured Income. However, the circumstances of the case did not require a definitive statement of the position, and his Honour did not attempt such a statement. Nothing said by Basten JA specifically dealt with the question of the use of facts not known by the party refusing consent to sustain a conclusion that the refusal was unreasonable.
[145] Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296.
[146] Fulham Partners [47] ‑ [49].
Consequently, the question of consent fell to be determined in circumstances where there was no basis to expect that, in the future, St Barbara would continue to own and operate its Southern Cross Operations, apart from the Tenement.
The point made in par (j) of [207] above was not the subject of specific submissions at the trial. Consequently, during the week after the trial had been completed, the court invited written or oral submissions:
(1)on whether the view was open that, by 22 April 2013, the question of whether to give consent to the assignment of the Tenement was to be considered in the context that:
(a)given the announcement of the acquisition by Hanking Gold of St Barbara's Southern Cross Operations, there was no basis to expect that, in the future, apart from the Tenement itself, St Barbara would continue to own and operate what had been its Southern Cross Operations; and
(b)consequently, any future mining by St Barbara of the Tenement, including the Clough Lode Area, would occur in the context of stand‑alone mining and processing of the Tenement, not as part of the broader Southern Cross Operations, while any future mining of the Tenement by Hanking Gold would be in the context of a broader mining project; and
(2)as to the significance, if any, that view may have for the question of whether the withholding of consent was unreasonable.
In response to that invitation, the parties filed supplementary written submissions. St Barbara also filed a further affidavit which annexed a licence agreement between St Barbara and Hanking Gold dated 11 April 2013.[164] That further evidence was filed on prior notice to Mr Hockley. Mr Hockley does not object to the further evidence.
[164] See affidavit of Thaw Thaw Htin affirmed 23 September 2013, TTH 3 (pages 8 ‑ 29).
The effect of the licence agreement is as follows:
(a)With effect from the date of completion of Hanking Gold's acquisition of St Barbara's Southern Cross Operations under the Asset Sale Agreement, St Barbara granted to Hanking Gold an irrevocable and exclusive licence under s 118A of the Mining Act 1978 (WA) in respect of the Tenement Area.[165]
(b)The Tenement Area is defined as the area the subject of the Tenement, but excluding the Clough Lode Area.[166]
(c)No fee is payable by Hanking Gold in respect of the licence.[167]
(d)The consideration for the licence is the completion by Hanking Gold of the transactions contemplated by the Asset Sale Agreement.[168]
(e)Among other things, the term of the licence would end if the Tenement is transferred to Hanking Gold.[169]
(f)Hanking Gold was given sole and exclusive possession and use of the Tenement Area, a right to exercise all or any of the rights of the registered holder of the Tenement Area, and to carry out mining on the Tenement Area in such manner and at such times as it thinks fit.[170] St Barbara's only right of entry of the Tenement Area is for the purpose of ensuring Hanking Gold's compliance with the licence agreement.[171]
(g)St Barbara promised not to undertake any mining activities on the Tenement without Hanking Gold's prior written consent.[172]
[165] Clause 4.1(a).
[166] See the definition of Tenement Area in sch 1.
[167] Clause 4.1(b).
[168] Clause 4.1(c).
[169] Clause 5(b).
[170] Clause 6.1.
[171] Clause 6.2.
[172] Clause 7.3(e).
In his supplementary submissions, Mr Hockley submits that the result of the licence agreement is that it remained open for St Barbara to mine the Clough Lode Area, and to enter a commercial arrangement with Hanking Gold for Hanking Gold to carry out the processing of ore from that area at the Southern Cross Operations processing plant.
I accept that under the licence agreement, it would remain open to St Barbara to mine the Clough Lode Area, in that that area is not the subject of the licence granted to Hanking Gold. The question is the likelihood of that occurring (if consent is withheld by Mr Hockley), as against the likelihood of Hanking Gold mining the Clough Lode Area as part of the Southern Cross Operations (if consent is given).
The prospects that St Barbara would, in light of the licence agreement, conduct future mining of the Clough Lode Area must take account of the following:
(1)the circumstances set out in [207] above;
(2)apart from the Clough Lode Area, St Barbara has no right to enter the Tenement; and
(3)by cl 7.3(e) of the licence agreement, St Barbara would need Hanking Gold's prior written consent before undertaking any mining activities anywhere on the Tenement, including in the Clough Lode Area.
In my view, in the circumstances, any view that Hanking Gold was, or even might be, less likely to mine the Clough Lode Area (if consent were given) than St Barbara (if consent were withheld) had no reasonable foundation.
If the terms of the licence agreement are excluded from consideration, because they were not actually or constructively known to Mr Hockley, or because St Barbara had chosen not to disclose the terms of the licence agreement by 22 April 2013, or for any other reason, in my view, for the reasons that follow, the result would be no different.
Mr Hockley's supplementary submissions identify some possible inferences about what might occur (assessed objectively as at 22 April 2013) if St Barbara continued to own the Tenement, having sold the remainder of the Southern Cross Operations to Hanking Gold, in particular as to how St Barbara might mine the Tenement including the Clough Lode Area. The following are the main possibilities:
(1)St Barbara could seek to appoint Hanking Gold as its agent to mine the Tenement, on terms that Hanking Gold would account to St Barbara for the gold won from the Tenement, after deduction of costs;
(2)St Barbara could mine the Tenement itself, or through a different agent, and seek to make an arrangement with Hanking Gold for Hanking Gold to process the gold won from the Tenement at Hanking Gold's Southern Cross processing plant; or
(3)St Barbara could mine and process gold from the Tenement independently itself, as a stand‑alone operation.
On the third scenario, against the background of the facts in [207] above, any view that Hanking Gold might be less likely to mine the Clough Lode Area than St Barbara would be without any reasonable foundation.
An assessment of the likelihood of the first two scenarios would need to take account of the facts in [207] and the uncertainties of whether Hanking Gold would agree to mine the Tenement as St Barbara's agent liable to account to St Barbara for gold won, or to the processing of gold at its plant, and if so, on what terms.
Further, any mining of the Tenement by St Barbara using Hanking Gold as agent to mine and process, or using Hanking Gold's processing plant, would, by definition, entail the incurring by St Barbara of additional costs that, after an assignment, Hanking Gold would not incur. There would be no basis to suppose that Hanking Gold would agree to mine and process, or permit use of its processing plant, without charging a fee for doing so.
In the circumstances, in my opinion, any view that Hanking Gold was less likely to mine the Clough Lode Area (if consent were given) than St Barbara (if consent were withheld) had no reasonable foundation.
For these reasons, I am satisfied that the commercial disincentive point does not provide any reasonable foundation for the view that Hanking Gold was or may be less likely to mine the Clough Lode Area than St Barbara, and does not provide any ground for a reasonable withholding of consent.
6.3 No evidence provided of financial capacity of Hanking Gold
As I explained in section 5, the financial capacity of Hanking Gold to perform its obligations under the Sale Agreement and Supplemental Agreement was a relevant and not extraneous consideration in deciding whether to grant or withhold consent. Whether Hanking Gold had the financial capacity to carry out mining of the Clough Lode Area was also a legitimate consideration that could be taken into account in deciding whether to withhold consent.
The pleaded reason is that no evidence of Hanking Gold's financial capacity to mine the Clough Lode Area had been provided to Mr Hockley.
In my opinion, for the reasons that follow, in all the circumstances, the fact that no evidence of Hanking Gold's financial capacity to mine the Clough Lode Area had been provided to Mr Hockley did not give rise to a reasonable ground for withholding consent to the assignment.
As I said in section 4,[173] whether the non‑assigning party discloses a concern, or gives the assignor or assignee an opportunity to remedy it, may affect whether it is reasonable to withhold consent based on that concern. I think that that applies to this reason for withholding consent, as well as to the next one.
[173] [157].
There is nothing in the Sale Agreement or Supplemental Agreement that casts an obligation on the assigning party to provide information regarding the proposed assignee, or an obligation on the party from whom consent is requested to seek information.
There is no universal rule about whether it is for an assigning party to provide information about the proposed assignee, or for the other party to request it if a concern exists. It will depend upon the contractual scheme, and all of the circumstances at the time of the request for consent.
Hanking Gold was acquiring the Tenement in the context of an acquisition of a package of tenements that had comprised the Southern Cross Operations of St Barbara. The acquisition transaction involved consideration in the order of $20 million.
Mr Hockley knew that Hanking Gold was acquiring a package of tenements from St Barbara.
St Barbara's letter of 10 January 2013 invited Mr Hockley to contact Ms Okely if he had any questions.
Mr Hockley's letters of 20 January 2013 and 5 February 2013 set out some reasons for his refusal to consent. Those letters did not raise any concerns about Hanking Gold's financial capacity, or ask any questions or seek any information in relation to that.
Up to 22 April 2013, Mr Hockley did not make any request to St Barbara regarding Hanking Gold's financial capacity or ability to mine the Clough Lode Area.[174]
[174] See Plaintiff's Notice to Admit Facts dated 27 August 2013; and second Htin affidavit, TTH 2.
Mr Hockley met with Dr Qiu of Hanking Gold in March 2013. Mr Hockley has given evidence of the matters that he discussed with Dr Qiu.[175] There is no evidence that Mr Hockley raised any questions or expressed any concerns about Hanking Gold's financial position or capacity.
[175] See [83].
Mr Hockley submits[176] that the significance of the absence of a request by him for information about Hanking Gold must be seen in the context of the facts that:
(a)St Barbara's initial request for consent in January 2013 provided no information and did not seek reasons; and
(b)St Barbara's request for consent in April 2013 stipulated a very short time frame for a response, under the threat of commencement of legal proceedings.
[176] ts 146.
I accept that St Barbara's letter of 10 January 2013 did not request reasons for any refusal to grant consent. However, it did invite contact if Mr Hockley had any questions. Further, by his letter in response, Mr Hockley did state some reasons for withholding consent. Thereafter, St Barbara attempted to engage with Mr Hockley in relation to those reasons.[177] The lack of any expression of a concern about Hanking Gold's financial capacity must be viewed in that context.
[177] See, for example, St Barbara's letter of 8 February 2013 (first Kennedy affidavit, RK 11).
I accept that St Barbara's letter of 16 April 2013 stipulated a short time for response, under the threat of commencement of legal proceedings. However, the letter did not come out of the blue. The parties had been engaging in relation to the question of consent since February 2013. The issue had been ongoing during that period. At no time did Mr Hockley request any information from St Barbara or express any concern to St Barbara about the financial capacity of Hanking Gold.
In all the circumstances, and taking account of the matters I have set out, I find that the fact that no evidence of Hanking Gold's financial capacity had been provided to Mr Hockley did not constitute a ground for a reasonable withholding of his consent.
I reach that conclusion without regard to my findings in [207] ‑ [222] of section 6.2. Those matters reinforce the conclusion that this was not a reasonable ground to withhold consent. The significance of the absence of the provision by St Barbara to Mr Hockley of evidence of Hanking Gold's financial capacity had to be viewed in the context that any future mining of the Southern Cross Operations (apart from the Tenement) would (regardless of the question of consent regarding the Tenement) be conducted by Hanking Gold and not by St Barbara.
6.4 No comparative assessment of mining costs had been made
I have found, in section 5, that the relative scale of mining costs likely to be incurred by the proposed assignee is a matter that could legitimately be taken into account in deciding whether to consent to an assignment.
Mr Hockley did not express any concern, at any relevant stage, to St Barbara regarding the mining costs likely to be incurred by Hanking Gold, and he did not ask for any information on that topic. That being so, there was, in my view, otherwise nothing in the circumstances to call for the undertaking of a comparative assessment of mining costs as between St Barbara and Hanking Gold.
In the circumstances, I find that the fact that no comparative assessment was made of mining costs likely to be incurred and charged by Hanking Gold as against St Barbara was not a ground for a reasonable withholding of consent.
I reach that conclusion without regard to my findings in [207] ‑ [222] of section 6.2. Again, those matters reinforce the conclusion that this reason does not provide any reasonable ground to withhold consent. The significance of the absence of any comparative assessment of mining costs had to be viewed in the context that any future mining of the Southern Cross Operations would be conducted by Hanking Gold and not by St Barbara. Any future mining of the Clough Lode Area by St Barbara would have to occur either in the framework of the licence agreement or, if regard is not had to that agreement, in one of the ways outlined in [218]. Viewed in that framework, there was nothing in the circumstances to give rise to any reasonable basis for a concern that Hanking Gold's mining costs in relation to the Clough Lode Area (if consent were given) would exceed those of St Barbara (if consent were withheld).
6.5 The boundary dispute and the gold accounting dispute
In his letters of January and February 2013, Mr Hockley pointed to the unresolved dispute, the subject of the notice of dispute, as a central reason for refusing to give consent to the assignment. Mr Hockley's submissions emphasise the dispute about the location of the boundaries of the Tenement, and refer also to the dispute about whether St Barbara had properly accounted to Mr Hockley for the gold it had mined from the Clough Lode Area.
Mr Hockley submits, in summary, as follows:
(a)The existence of the boundary dispute is a legitimate, not extraneous, consideration on the decision whether to grant consent. The boundary dispute relates to the subject matter of what is to be assigned. Further, it was a relevant consideration because it was capable of giving rise to concern as to whether Hanking Gold would give effect to Mr Hockley's entitlement under the agreements.
(b)There were reasonable grounds to say that there was a dispute of substance about the boundary. That could be seen from the several different boundaries provided by St Barbara to Mr Hockley, and analysed by Snowden, and also by what had been provided by St Barbara to the Quantitative Group. Both the Snowden report and the Quantitative Group report refer to the boundary discrepancies and say that the discrepancies, may extend up to a few metres of ground.
(c)It was reasonable for Mr Hockley to insist upon the resolution of the uncertainty about the boundaries, thus identifying the subject matter of what St Barbara proposed to assign, before any assignment took place.
(d)The boundary dispute is about how to apply the metes and bounds describing the Tenement to the physically changed circumstances of the Clough Lode Area when there is no longer any natural surface. St Barbara would be in a better position than Hanking Gold to understand how the boundaries have altered due to the mining which St Barbara carried out in 2007.
(e)In the correspondence, Hanking Gold said, in March 2013, that it wanted nothing to do with the dispute between St Barbara and Mr Hockley, but, in fact, the boundary dispute would concern Hanking Gold as the new owner of the Tenement. Hanking Gold has not made any commitment to be bound by any resolution of the boundary dispute as between St Barbara and Mr Hockley.
(f)If the assignment occurs, the same boundary issues will arise between Mr Hockley and Hanking Gold. It is objectively reasonable for Mr Hockley to be concerned about the potential for having to incur two sets of litigation costs over what is, in substance, the same dispute.
(g)In all the circumstances, the existence of the unresolved boundary dispute provides reasonable grounds for withholding of consent to the assignment.[178]
[178] Defendant's submissions [95] ‑ [104]; ts 149 ‑ 150.
I accept the first two of these propositions.
However, for the reasons that follow, I do not accept that the boundary dispute gave rise to reasonable grounds for withholding consent.
In my view, as at January 2013, the boundary dispute, like the other elements of Mr Hockley's notice of dispute, was not live or active.
I refer to the facts outlined in section 2.7.
The objective facts and circumstances were that:
(a)St Barbara's response to the notice of dispute was to commission the Quantitative Group report, and send it to Mr Hockley;
(b)the upshot of the Quantitative Group report was to suggest that Mr Hockley had been overpaid, and owed St Barbara about $105,000;
(c)after receiving the Quantitative Group report, after a site meeting in September 2010, from then until the end of 2012, Mr Hockley did not take any steps to pursue his claims made in the notice of dispute; and
(d)in the circumstances, as at January 2013, there was nothing to indicate to St Barbara that, from Mr Hockley's perspective, the issues raised in the notice of dispute in 2010 remained live.
As I have said, I accept that what is said in the Snowden report and Quantitative Group report establishes that the boundary dispute is not without substance. However, what is said in those reports about the relative scale of the aspects of the boundary that are disputed, and the significance or otherwise of what is disputed, is also to be borne in mind.
At the relevant times (January to April 2013), no mining was occurring on the Tenement, and, whether the assignment went ahead or not, no mining was imminent.
As between Mr Hockley and St Barbara, the resolution of the boundary dispute and the dispute about accounting for gold would not be prejudiced by the proposed assignment. In my view, that was clear from the terms of the draft deed sent on 15 February 2013, and from the terms of the deed signed by St Barbara and Hanking Gold in April 2013.
Mr Hockley submits that:
(a)the unresolved boundary dispute creates uncertainty and the potential for a dispute between him and Hanking Gold;
(b)Hanking Gold has said that the boundary dispute is a matter between St Barbara and Mr Hockley, but the position is otherwise;
(c)Hanking Gold has not said that it agrees to be bound by any resolution of the boundary dispute between Mr Hockley and St Barbara. In those circumstances, Hanking Gold would not be bound; and
(d)Mr Hockley faces the possibility of two sets of legal costs in resolving his dispute with St Barbara and his possible or likely dispute with Hanking Gold.
The significance of those matters must be viewed in the context that Mr Hockley did not raise any such concerns with St Barbara or with Hanking Gold at any time up to 22 April 2013. Following Mr Hockley's meeting with Dr Qiu of Hanking Gold, and Dr Qiu's email to him, Mr Hockley did not request clarification from Hanking Gold of its position in relation to the boundary dispute. Nor did he seek any such clarification of Hanking Gold's position from St Barbara, or express any concern, in that respect, to St Barbara.
From 2010, it was open to Mr Hockley to commence proceedings, or take other steps, to ensure resolution of any dispute he had with St Barbara respecting the boundaries of the Tenement. Mr Hockley took no such step.
Mr Hockley has brought a counterclaim in this action that seeks, among other things, a declaration of the true and correct boundaries of the Clough Lode Area. He could have, but has not, sought to join Hanking Gold as a defendant to his counterclaim in that respect.
The question of the reasonableness of withholding consent is to be tested at the time consent was refused, here January, February and 22 April 2013. Thus, the steps taken and not taken subsequently, in these proceedings, including in the counterclaim, are not relevant to the assessment of reasonableness. However, the point I have just made may be thought to be indicative of the procedural options available to Mr Hockley when he was deciding whether to grant his consent.
It was open to Mr Hockley to seek to ascertain Hanking Gold's position in respect of his assertions as to the correct boundaries and, depending upon the response, to take appropriate proceedings against Hanking Gold as well as against St Barbara. Any need to join Hanking Gold as an additional defendant would have exposed Mr Hockley to the risk of an adverse costs order against two defendants. However, in the circumstances of this case, there is a limit to the weight that can reasonably be given to that consideration.
For these reasons, I do not accept that, as at 22 April 2013, there was any reasonable contemplation that resolution of any boundary dispute with Hanking Gold and resolution of Mr Hockley's boundary dispute with St Barbara would involve two separate sets of legal proceedings and thus two sets of legal costs to be incurred by Mr Hockley.
In all the circumstances, and taking into account what I have said in [249] ‑ [261], I am satisfied that the fact that Mr Hockley's claims in the notice of dispute, including as to the boundaries and St Barbara's accounting for gold, had not been resolved did not give rise to any grounds for reasonably withholding consent to the assignment.
6.6 St Barbara had not completed processing of shared ore
In my opinion, as against St Barbara, the fact that, as at the time of the requests for consent, Mr Hockley claimed that the processing of shared ore was incomplete did not give rise to any grounds for reasonably withholding consent. Mr Hockley's contractual rights against St Barbara would not be diminished by the assignment under the terms for which St Barbara sought Mr Hockley's consent.
Mr Hockley submits that the incomplete processing of ore issue gave rise to a legitimate basis to refuse consent because, by 22 April 2013, Hanking Gold had not acknowledged his contractual entitlement to the processing of that ore.[179] I have found, in section 3, that Mr Hockley has not pleaded that a reason for refusal was that Hanking Gold had not acknowledged that this ore came from the Clough Lode Area or that it would have to process it.
[179] Defendant's submissions [106] ‑ [108]; ts 151.
In any event, for the following three reasons, I am satisfied that any failure of Hanking Gold to acknowledge that this ore came from the Clough Lode Area, or that Hanking Gold would have to process it, does not sustain a reasonable withholding of consent.
First, Mr Hockley has rights in relation to this claim against St Barbara. Those rights are preserved under the deed of assignment and assumption, and can be pursued by Mr Hockley notwithstanding the assignment.
Secondly, Mr Hockley did not at any relevant time seek any acknowledgement from Hanking Gold about the unprocessed ore, or enquire as to Hanking Gold's position in relation to it.
Thirdly, Mr Hockley relies on the fact that the ore in dispute is not located on the Tenement, but on another tenement, to which he has no right of access. In my view, that consideration does not assist Mr Hockley's case. That is because, as is explained in section 6.2, Hanking Gold's acquisition of the other tenements comprising the Southern Cross Operations was independent of whether Mr Hockley consents to the assignment of the Tenement. Regardless of Mr Hockley's consent, the other tenements would inevitably be owned by Hanking Gold. So any difficulty Mr Hockley might have in accessing the disputed ore while located on another tenement would exist regardless of whether the assignment of the Tenement proceeds.
Conclusion
For the reasons I have given, I am satisfied that none of the pleaded reasons for Mr Hockley's refusal to consent to the assignment, individually or taken together, sustains a reasonable withholding of the consent. I find that Mr Hockley's withholding of consent was unreasonable.
I would make a declaration to that effect, and in accordance with the parties' agreement, consequential orders requiring Mr Hockley to do all things necessary to enable the transfer of the Tenement. I will hear from the parties as to the precise form of orders and as to costs.
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