Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd
[2014] WASCA 164
•3 September 14
| JURISDICTION | : | SUPREME COURT OF WESTERN AUSTRALIA |
| TITLE OF COURT : | THE COURT OF APPEAL (WA) | |
| CITATION | : | TECHNOMIN AUSTRALIA PTY LTD -v- XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD [2014] WASCA 164 |
| CORAM | : McLURE P |
NEWNES JA MURPHY JA
| HEARD | : | 7 & 8 APRIL 2014 |
| DELIVERED | : | 3 SEPTEMBER 2014 |
| FILE NO/S | : | CACV 5 of 2013 |
| BETWEEN | : | TECHNOMIN AUSTRALIA PTY LTD Appellant |
| AND | ||
| XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD First Respondent | ||
| XSTRATA NICKEL AUSTRALASIA PTY LTD Second Respondent | ||
| ON APPEAL FROM: | ||
| Jurisdiction | : | SUPREME COURT OF WESTERN AUSTRALIA |
| Coram | : ALLANSON J | ||
| Citation |
| ||
| File No |
| ||
| Catchwords: |
Contract - Principles of contractual construction - Admissibility and scope of surrounding circumstances - Entitlement to royalties from mining - Rectification
Legislation:
Mining Act 1978 (WA), s 8, s 40(2), s 44, s 45, s 48, s 49, s 50, s 73, s 76, s 78,
s 82, s 85, s 95, s 96(2)(b), s 119, s 121
Mining Amendment Act 2004 (WA)
Mining Regulations 1981 (WA), reg 43(2)
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
| Appellant | : | Mr D E J Ryan SC & Mr M R Hall |
| First Respondent | : | Mr C G Colvin SC & Mr P D Quinlan SC |
| Second Respondent | : | Mr C G Colvin SC & Mr P D Quinlan SC |
Solicitors:
| Appellant | : | Tottle Partners |
| First Respondent | : | King & Wood Mallesons |
| Second Respondent | : | King & Wood Mallesons |
[2014] WASCA 164
Case(s) referred to in judgment(s):
Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd
[2008] WASCA 119; (2008) 66 ACSR 594
Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365
Appleby v Pursell [1973] 2 NSWLR 879
Arbuthnott v Fagan [1993] EWCA Civ J0730-2
Australian Broadcasting Commission v Australasian Performing Right
Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Australian Mutual Provident Society v Overseas Telecommunications
Commission (Australia) [1972] 2 NSWLR 806
Bank of Australasia v Palmer [1897] AC 540
Bank of Credit and Commerce International SA v Ali [2001] 1 UKHL 8; [2002]
1 AC 251
Bank of New Zealand v Simpson [1900] AC 182
Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40
NSWLR 622
Bergl (Australia) Ltd v Moxon Lighterage Co Ltd [1920] HCA 41; (1920) 28
CLR 194
Bowtell v Goldsbrough, Mort & Co Ltd [1905] HCA 60; (1905) 3 CLR 444
Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642
Butt v Long [1953] HCA 76; (1953) 88 CLR 476
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103
Charrington & Co Ltd v Wooder [1914] AC 71
Charter Reinsurance Co Ltd v Fagan [1997] AC 313
Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982]
HCA 24; (1982) 149 CLR 337
Colby Corp Pty Ltd v Federal Commissioner of Taxation [2008] FCAFC 10;
(2008) 165 FCR 133
Cooper Brooks (Wollongong) Pty Ltd v Federal Commissioner of Taxation
[1981] HCA 26; (1981) 147 CLR 297
Davies v Apted [2013] SASCFC 92
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138
CLR 423
Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd
[2014] HCA 7; (2014) 88 ALJR 447
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004)
218 CLR 471
[2014] WASCA 164
Esso Australia Ltd v Australian Petroleum Agents & Distributors' Association
[1999] 3 VR 642
F L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230
CLR 89
Fitzwood Pty Ltd v Unique Goal Pty Ltd [2002] FCAFC 285
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76
NSWLR 603
Gordon-Cumming v Houldsworth [1910] AC 537
Great Western Railway & Midland Railway v Bristol Corporation (1918) 87 LJ
Ch 414
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA
216; (2012) 45 WAR 29
Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12; [2004] 1
AC 715
Home Building Society Ltd v Pourzand [2005] WASCA 242
Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435
Hope v RCA Photophone of Australia Pty Ltd [1937] HCA 90; (1937) 59
CLR 348
Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133
Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1
QB 500
International Air Transportation Association v Ansett Australia Holdings Ltd
[2008] HCA 3; (2008) 234 CLR 151
Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1)
[1998] 1 WLR 896
Johnstone v Knight [2006] QCA 322
Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60
Macdonald v Longbottom (1859) 1 E & E 977 [120 ER 1177]
MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24
Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184
Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
McCann v Switzerland Insurance Ltd [2000] HCA 65; (2000) 203 CLR 579
McCourt v Cranston [2012] WASCA 60; [2012] ANZ Conv R 12-006
Melanesian Mission Trust Board v Australian Mutual Provident Society [1997]
1 NZLR 391
Metropolitan Gas Co v Federated Gas Employees' Industrial Union [1925]
HCA 5; (1925) 35 CLR 449
Newmont Power Pty Ltd v Barrick Gold of Australia Ltd [2008] WASCA 74
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Pateman v Daw Koh [2007] WASCA 85
[2014] WASCA 164
Pepe v Platypus Asset Management Pty Ltd [2013] VSCA 38
Prenn v Simmonds [1971] 1 WLR 1381
Purcell v Bacon [1914] HCA 86; (1914) 19 CLR 241
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900
Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd
(No 1) [1993] HCA 40; (1993) 178 CLR 379
Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989
Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434
Rosenhain v Commonwealth Bank of Australia [1922] HCA 41; (1922) 31
CLR 46
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002]
HCA 5; (2002) 240 CLR 45
RW Cameron & Co v L Slutzkin Pty Ltd [1923] HCA 20; (1923) 32 CLR 81
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd
[1979] HCA 51; (1979) 144 CLR 596
South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; (1999) 10
BPR 18, 961
TEC Desert Pty Ltd v Commissioner of State Revenue [2010] HCA 49; (2010)
241 CLR 576
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219
CLR 165
Utica City National Bank v Gunn (1918) 118 NE 607
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45;
(2011) 282 ALR 604; (2011) 86 ALJR 1
White v Australian & New Zealand Theatres Ltd [1943] HCA 6; (1943) 67
CLR 266
Wilden v Green Pty Ltd [2009] WASCA 38; (2009) 38 WAR 429
Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522
Wilson v Anderson [2002] HCA 29; (2002) 213 CLR 401
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218
CLR 530
[2014] WASCA 164
McLURE P
McLURE P: This appeal concerns the proper construction of a gross production royalty deed dated 28 March 1994 between Sir Samuel Mines NL (SSM), now known as Xstrata Nickel Australasia Operations Pty Ltd (Xstrata), Jubilee Gold Mines NL (Jubilee), now known as Xstrata Nickel Australasia Pty Ltd, and Hunter Resources Ltd (Hunter) (the GPR Deed). SSM is a wholly owned subsidiary of Jubilee.
2 The appellant, Technomin Australia Pty Ltd (Technomin), is the
assignee of Hunter's entitlement to the payment of royalties under the
GPR Deed.
The execution of the GPR Deed was part of the consideration for a Deed of Assignment and Assumption, also made on 28 March 1994, between Giralia Resources NL (Giralia), Hunter, SSM and Jubilee (the DAA). The GPR Deed is an annexure to the DAA. Hunter and Giralia had entered into two joint venture agreements (JVAs), the Mount Harris JVA and the Kathleen Valley JVA. Under the DAA, Hunter assigned to SSM all its rights and obligations under the Mount Harris JVA and Kathleen Valley JVA. The DAA effected a novation whereby SSM replaced Hunter as a party to those joint venture agreements.
4 The Mount Harris JVA was made between Giralia and Hunter on
14 December 1990 and related to four mining tenements under the Mining Act 1978 (WA) (Mining Act), two prospecting licences (P36/1052, P36/1070) and two mining leases (M36/162, M36/176).
5 The Kathleen Valley JVA was made between Giralia and Hunter on
27 September 1991 and related to 16 mining tenements under the Mining Act, five mining leases (M36/37, M36/124, M36/126, M36/169, M36/170) and 11 prospecting licences (P36/752 - 756 inclusive, P36/891 - 893 inclusive, P36/895, P36/905 and P36/1100).
6 Both the Mount Harris JVA and the Kathleen Valley JVA were
farm-in agreements under which Hunter could acquire a 70% ownership interest in the nominated mining tenements from the sole funding of expenditure on exploration and development in relation thereto. Hunter was also obliged to maintain the mining tenements in good standing under the Mining Act.
7 On 26 November 1991 Hunter was granted prospecting licence
P36/1142 (the Violet Range tenement) which covered an area of
160 hectares.
[2014] WASCA 164
McLURE P
8 On 19 December 1991 SSM was granted prospecting licences
P36/1158, P36/1159, P36/1160, P36/1161 and P36/1162 (the Xstrata tenements) which covered a total area of around 593 hectares. The Violet Range tenement was situated between and abutted the Mount Harris tenements and the Xstrata tenements.
The Violet Range tenement and the Xstrata tenements were never subject to or part of the Mount Harris JVA or the Kathleen Valley JVA.
10 Under the DAA, SSM succeeded to Hunter's right to earn an
ownership interest in the mining tenements the subject of the Mount Harris JVA and the Kathleen Valley JVA. Hunter also assigned the Violet Range tenement to SSM under the DAA.
11 The GPR Deed recites, as is the case, that Hunter assigned to SSM
its interest under the Mount Harris JVA, the Kathleen Valley JVA and the Violet Range tenement in consideration of SSM entering into the GPR Deed for payment of a 2% gross royalty on production from SSM's proportionate share or interest (as varied from time to time) in the Tenements (as defined), in the form of a bullion royalty applying to gold or silver and a non-bullion royalty applying to all other minerals.
Clause 6.1 applies to the non-bullion royalty. It provides:
With effect from the Effective Date, [SSM] shall pay to [Hunter] a royalty (the 'Non-Bullion Royalty') equal to the Royalty Percentage of Gross Proceeds of Saleable Product without any deduction or allowance of any kind, whether for costs of sales, production, exploration, evaluation, development, restoration, depreciation of plant, amortisation or anything else whatever.
The Effective Date was rectified by consent to mean 26 March 1993, being the date of a 'letter agreement' between Hunter and SSM (the Letter Agreement) which was replaced by the DAA and GPR Deed.
14 We are concerned in this appeal with the meaning of the defined
term Tenements for the purpose of cl 6.1 of the GPR Deed. We get to that defined term through the defined terms 'Saleable Product', 'Product' and 'Project'. The relevant definitions are as follows:
'Saleable Product' means Product which has been treated or processed and rendered into a substance or state for which there is a commercially significant market, either within or outside Australia, of arms length sales or purchases between unrelated parties;
[2014] WASCA 164
McLURE P
'Product' means any Minerals (except gold or silver in the form of dore or bullion) from the Project attributable to [SSM's] proportionate share or interest (as varied from time to time) in any Tenement or in the Project;
'Minerals' has the same meaning as 'minerals' in the Mining Act and
includes all ores and concentrates produced from minerals;
'Project' means exploitation of the Tenements;
'Tenements' means the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range and any extension or variation or addition or replacement or substitution of any of them (whether or not also affecting other tenements or land outside the Area). (emphasis added)
15 The outcome of this appeal turns upon the meaning of the italicised
words in the definition of Tenements. The GPR Deed does not define the term 'Area'. However, the parties accepted that it has the same meaning as the definition of Tenements in the DAA namely 'the area affected by the Tenements'.
16 The defined term 'Mount Harris Tenements' in both the DAA and
GPR Deed means 'P36/1052 (previously P36/522), P36/1070 (previously
M36/40), M36/162 and M36/176'.17 Prior to entry into the DAA and GPR Deed there had been some
changes in the mining tenements specified in the Kathleen Valley JVA. The defined term 'Kathleen Valley Tenements' in both the DAA and the GPR Deed means '(at the Effective Date) M36/37, M36/124, M36/126, M36/169, M36/170, M36/227 (previously P36/752 - 756 inclusive), P36/891 - 893 (inclusive), P36/895, P36/905 and P36/1100, and at the
date of this Deed means M36/264 - 266, P36/1287 - 1290, P36/1292 - 1299 and P36/1100'. That is, between the date of the Kathleen Valley JVA and the Effective Date, five of the 11 prospecting licences had been converted to mining lease M36/227. Further, between the Effective Date and the date of the Deeds, five prospecting licences were converted to three mining leases and six mining leases were converted to 12 prospecting licences. Prospecting Licence P36/1100 was the only remaining original mining tenement.
18 On 22 November 1995, SSM applied for mining lease M36/371 (the
Xstrata Mining Lease). The Xstrata Mining Lease was granted on 4 March 1999 and will expire on 3 March 2020. The Xstrata Mining Lease is 753 hectares and covers the land the subject of the Violet Range tenement as well as the land the subject of the Xstrata tenements. The
[2014] WASCA 164
McLURE P
Violet Range tenement and the Xstrata tenements ceased to exist upon the grant of the Xstrata Mining Lease.
19 In about 1999, SSM established the Cosmos Mine on the Xstrata
Mining Lease from which it has obtained and sold nickel and other minerals. The Cosmos Mine and its operations are confined to the land that was formerly the subject of the Xstrata tenements. No minerals have been mined, treated or processed from the land formerly the subject of the Violet Range tenement.
20 Technomin claims, as the assignee of Hunter, that it is entitled to a
royalty under cl 6.1 of the GPR Deed on all minerals produced from the exploitation of the Cosmos Mine on the Xstrata Mining Lease since 4 March 1999 on the basis that the Xstrata Mining Lease is 'an extension or variation or addition or replacement or substitution of' the Violet Range tenement.
21 The trial judge rejected Technomin's claim that it was entitled to a
royalty from the minerals produced from the Cosmos Mine, accepting Xstrata's submission that the words in parenthesis in the definition of Tenements in the GPR Deed are words of clarification (the defined term extends to the area the subject of the Tenements as at the Effective Date notwithstanding any extension, variation, addition, replacement or substitution thereof) rather than amplification (whereby the defined term would extend to all of the area covered by any extension, variation, addition, replacement or substitution of the Tenements). The trial judge said:
The definition of Tenements first identified the tenements existing at the Effective Date, then provided for successor tenements. It then, by the words in parenthesis, recognised that the successor tenements might affect land outside the area of the tenements, but it did not include that land in the Project. Rather, it provided that the royalty obligation continued on the area covered by the Tenements at the Effective Date, whether or not that other land was also affected by change to the Tenements.
On consideration of all of these factors, I am satisfied that the construction put forward by Xstrata is the proper meaning of the GPR Deed, and the royalty applies only to production from within the area of land covered by the royalty tenements as at 26 March 1993 [163] - [164].
22 Accepting that the 'true rule' of contractual construction in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352 should be applied, the trial judge found that he could
[2014] WASCA 164
McLURE P
have regard to surrounding circumstances, including the Letter
Agreement, in determining the construction issue.
A relevant consideration in the trial judge's reasoning was the commercial unreasonableness of the appellant's construction. He said:
But the relevant fact is not why Xstrata in fact amalgamated its tenancies, but that there is a common practice to do so. The transaction, of which the GPR Deed formed part, was the sale of two joint venture interests together with the Violet Range tenement. Hunter … was ceasing its involvement and was making no ongoing contribution to the development of the tenements. The construction contended for by Technomin would, in effect, increase the consideration to be received as a result of events that had no commercial connection to the original transaction, and for reasons unconnected to the tenements which were assigned [155].
24 Xstrata had counterclaimed for rectification if Technomin's
construction claim succeeded. In particular, it sought an order rectifying
the GPR Deed by:
(a) inserting in cl 1.1 after the words 'In this Deed, unless the context otherwise requires:' the words '"Area" means the area covered by the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range as at the Effective Date'; and (b) adding the words 'to the extent that such tenements cover the Area' in the definition of Tenements in cl 1.1.
Thus the definition of Tenements as rectified would read:
'Tenements' means the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range and any extension or variation or addition or replacement or substitution of any of them (whether or not also affecting other tenements or land outside [the area covered by the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range as at the Effective Date to the extent that such tenements cover the area covered by the Kathleen Valley Tenements and the Mount Harris Tenements and PL36/1142 at Violet Range as at the Effective Date]).
Xstrata relied on correspondence relating to drafts of the deeds, the Letter Agreement and the terms of a deed dated 15 December 1993 between Hunter and Technomin for the assignment of Hunter's rights under the GPR Deed (Assignment Deed). Mr John Thompson, a director of Hunter and Technomin, gave evidence as to Hunter's intention concerning the scope of the royalty.
[2014] WASCA 164
McLURE P
27 The trial judge concluded that Xstrata's rectification claim would
have succeeded if he had upheld the appellant's construction of the term
Tenements in the GPR Deed [179] - [183].
The grounds of appeal, notice of contention and cross-appeal
The appellant claims, in summary, that the trial judge erred:
1. in holding that the meaning of any material part of the GPR Deed was uncertain, or alternatively that any such part was ambiguous or susceptible to more than one meaning;
2. in holding that uncertainty, as opposed to ambiguity or susceptibility to more than one meaning, was a sufficient basis to admit and have regard to extrinsic evidence in the construction of the GPR Deed;
3. in failing to consider the meaning of the words used by the parties in the definition of Tenements in the GPR Deed;
4. in having regard in the construction exercise to:
(a) antecedent joint venture agreements in the construction and interpretation of the GPR Deed; (b) the 'common practice' of amalgamation of mining leases and tenements; (c) the further involvement of Hunter in the development of the tenements after the completion of the DAA; and (d) the capacity of Xstrata by its election to include or exclude additional tenements from the operation of the GPR Deed; 5. in failing to hold the land comprised in the Xstrata Mining Lease fell within the definition of Tenements in the GPR Deed; and
6. in finding (if that is what he did) that:
(a)
as at the date of the Letter Agreement, Hunter and Xstrata had a common intention regarding the scope of the royalty;
(b)
after December 1993 the parties had a common intention, objectively manifested in the Letter Agreement that continued up to the time of the GPR Deed.
[2014] WASCA 164
McLURE P
29 The respondents rely on two contentions and two grounds of
cross-appeal. The first contention is that if the trial judge erred in finding that there was ambiguity in the GPR Deed that justified the consideration of surrounding circumstances, the decision should be upheld on the ground that the definition of Tenements in the GPR Deed is susceptible of only one plain meaning, being that found by the trial judge.
30 The second contention is that the trial judge's findings as to common
intention on the rectification claim can be upheld on other grounds, being
that the trial judge erred:(i) … in not finding that there was sufficient evidence of common intention, based on the correspondence on the draft deed …;
(ii) … in not concluding that Mr Thompson's evidence as to his subjective intention should be rejected on the basis of his conduct from 2004 to 2006.
The grounds of cross-appeal only arise in the event that appeal ground 5 or 6 is upheld.
32 It is necessary to start with the dispute between the parties as to the
legal principles that apply to the construction of the DAA and GPR Deed.
Principles of construction
33 As trial courts around this country have always been, and still are,
required on a regular basis to resolve contractual disputes, it may come as a surprise that there continues to be uncertainty as to the common law in Australia relating to the principles of contractual construction.
34 The story so far. After careful consideration of multiple High Court
decisions on the subject, a number of intermediate appellate courts in this country came to the view that evidence of surrounding circumstances was always admissible to assist in the construction of a contract, whether or not the contractual language was ambiguous or susceptible of more than one meaning.
However, in dismissing the special leave application in Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604, three members of the High Court (Gummow, Heydon & Bell JJ) said that conclusion was inconsistent with binding authority. After referring to what was said by Mason J in Codelfa to be the 'true rule' as to the admission of evidence of surrounding circumstances, Gummow, Heydon and Bell JJ said:
[2014] WASCA 164
McLURE P
The position of Codelfa, as a binding authority, was made clear in the joint reasons of five justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council and it should not have been necessary to reiterate the point here [4].
The passage in Codelfa to which reference is made in Western Export Services is as follows:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning (352).
37 This court has taken the view that the guidance in Western Export Services should be followed until further direction from the High Court: McCourt v Cranston [2012] WASCA 60; MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24; Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29.
38 The controversy has raised its head again. The appellant contends
that the 'true rule' in Codelfa is the law and, as the meaning of the language of the GPR Deed is unambiguously clear, evidence of surrounding circumstances is (subject to limited exceptions) inadmissible for construction purposes.
39 The respondents contend that the recent High Court decision in
Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7 (EGC), has vindicated the pre-Western Export Services position adopted by those intermediate appellate courts that had abandoned the gateway requirement that the language of a contract had to be ambiguous or susceptible of more than one meaning before regard could be had to evidence of surrounding circumstances to assist in the construction of a contract. The construction issue was not raised by the EGC parties in this court.
40 Gummow and Heydon JJ had retired before the hearing of EGC and Bell J did not sit. Western Export Services and the response of intermediate appellate courts thereto were not directly addressed by the High Court in EGC. However, the respondent points to the approach taken in the majority judgment.
41 There can be no doubt that the majority in EGC took into account surrounding circumstances known to both parties in the construction of the gas supply agreement: [35], [48]. However, there is no express consideration by the majority of whether, or finding that, the language of
[2014] WASCA 164
McLURE P
the gas supply agreement was ambiguous or susceptible of more than one
meaning.42 The respondent also drew this court's attention to the reliance by the
majority in EGC on [14] of the English decision in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, 2906 - 2907. That paragraph cites with approval Lord Hoffman's first principle in Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 which is in terms that:
Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (912).
Lord Hoffman's first principle is not consistent with the gateway requirement in Mason J's 'true rule' in Codelfa.
44 However, the appellant contends that the High Court would not
impliedly repudiate the express repudiation in Western Export Services of the abandonment of the gateway requirement by some intermediate appellate courts.
45 The aridity of this debate at the intermediate appellate court level is
manifest. Until the High Court expressly states its position on the subject, I propose to continue to apply the 'true rule' as explained in Hancock Prospecting at [9], [74] - [81]. In that case this court concluded that the true rule permits regard to be had to some surrounding circumstances for construction purposes without having to satisfy the gateway requirement [81]. See also Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117 [154].
46 In my view, the following matters can be taken into account in
construing the GPR Deed without having to satisfy the gateway
requirement:
1. the terms of the DAA; 2. the terms of the Mount Harris JVA; 3. the terms of the Kathleen Valley JVA; and 4. the law governing tenement interests under the Mining Act.
[2014] WASCA 164
McLURE P
47 Notwithstanding ground of appeal 4(a), this was accepted by senior
counsel for the appellant (ts 21, 33, 54). Items 1, 2, 3 and 4 are contextual matters expressly referred to in the GPR Deed. They are parts of an integrated contractual scheme relating to property, the existence, nature and conditions of which are sourced in the Mining Act.
48 Moreover, the gateway requirement can have no application to
background facts forming part of the factual matrix that enlivens the issue of contractual construction for determination. I would put the history and location of the Xstrata tenements in that category.
The Mining Act framework
49 The GPR Deed relates to mining tenements under the Mining Act.
At the time of the execution of the GPR Deed, the Mining Act provided as follows.
The statutory term 'mining tenement' was defined to mean:
[A] prospecting licence, exploration licence, mining lease, general purpose lease … granted or acquired under this Act … and includes the specified piece of land in respect of which the mining tenement is so granted or acquired[.]
51 Thus mining tenement under the Mining Act means the statutory
rights and obligations associated with the nominated tenement as well as the specified piece of land in respect of which it was granted or acquired. Notwithstanding the definition, the High Court has held that the holder of a mining tenement has no proprietary interest in the land the subject thereof: TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576 [27].
The area of land in respect of which any one prospecting licence may have been granted could not exceed 200 hectares (s 40(2)).
53 A prospecting licence could be granted in respect of all or part of the
land to which an application related (s 44) and authorised the holder to, inter alia, prospect for minerals and excavate, extract or remove a prescribed quantity of mineral bearing material (s 48).
A prospecting licence was for a period of two years and could be extended for a further period of two years but no more (s 45).
55 When a prospecting licence was surrendered, forfeited or expired, no
part of the land the subject of that prospecting licence could be marked
[2014] WASCA 164
McLURE P
out or applied for as a prospecting licence or an exploration licence by or on behalf of the holder thereof at the expiry, forfeiture or surrender date within a period of three months from that date (s 45(2)).
56 The holder of a prospecting licence had priority for the grant of a
mining lease. The prospecting licence continued in force in respect of the land the subject of the application for a mining lease until that application was determined (s 49).
57 The holder of a prospecting licence was obliged to comply with
prescribed expenditure conditions relating thereto unless an exemption
was granted (s 50).
The area of land in respect of which any one mining lease may have been granted could not exceed 10 square kilometres (s 73).
A mining lease remained in force for an initial term of 21 years which could be renewed (s 78).
60 Where an application for a mining lease included any portion of land
included in a (then) current mining tenement held by a person other than the applicant, any mining lease was not to include any such portion of land (s 76).
61 Every mining lease contained a condition requiring the lessee to
comply with the prescribed expenditure conditions applicable to the land
in the absence of an exemption (s 82(1)(c)).
A mining lease authorised the holder to, inter alia, work and mine the land for minerals and remove and dispose of the minerals (s 85).
63 The holder of any mining tenement was able to surrender the
tenement in whole or in part (s 95). Any surrender could be conditional upon an application for a new mining tenement, in respect of the whole or any part of the area of the surrendered tenement, being granted to the holder: Mining Regulations 1981, reg 43(2).
The failure to comply with expenditure conditions could result in the forfeiture of the mining tenement (s 82(1)(g), s 96(2)(b)).
65 The holder of a mining tenement could sell, encumber, transmit or
otherwise dispose of a mining tenement or a lesser equitable or legal interest therein (s 119). Any person claiming any interest in a mining tenement was permitted to lodge a caveat forbidding the registration of
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any transfer or other instrument affecting the mining tenement or interest
therein (s 121).
Appeal grounds 1, 2 and 3
66 The trial was conducted by all parties on the basis that the trial judge
could have regard to surrounding circumstances without first finding that the contractual language was ambiguous or susceptible of more than one meaning. After the trial judge reserved his decision, Western Export Services was handed down and drawn to the trial judge's attention by the appellant, with the agreement of the respondents. The trial judge proceeded to determine whether the gateway requirement had been satisfied without the benefit of detailed submissions.
67 The appellant contends that the trial judge impermissibly replaced
the test of 'ambiguous' or 'susceptible of more than one meaning' with a
test of 'uncertainty'.68 The trial judge identified the correct test at [109], [113], [114], and
[115] of his reasons. However, later in his reasons the trial judge refers to
the concept of uncertainty. He said:For the present, I am concerned only with whether the document is ambiguous or uncertain in meaning [127].
and concluded:
There is, at best, uncertainty regarding the meaning of the definition of Tenements. Accordingly, evidence of the surrounding circumstances known to both parties is admissible as an aid to construction [130].
69 The appellant suggests that the trial judge uses the term 'uncertainty'
in its technical contractual sense to mean void for uncertainty. That claim is without merit. The trial judge was using the term as a synonym for ambiguity.
70 The appellant also contends that the trial judge's conclusion in
relation to the gateway requirement was informed by a mistaken view as to how the appellant put its case. At [125] the trial judge stated that the appellant's case required words to be read into the contractual definition of Tenements, a proposition said to have been accepted by senior counsel for the appellant. However, the additional words and the exchange with senior counsel relate to the fact that the word 'Area' in the definition of Tenements in the GPR Deed was capitalised but undefined, whereas the
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definition of Tenements in the DAA ends with the words 'the area affected
by the Tenements'.71 All parties agreed, and the trial judge concluded that the term 'Area'
in the GPR Deed had the same meaning as the expression 'the area affected by the Tenements' in the definition of Tenements in the DAA [121]. However, this was a side issue that had no direct bearing on the factual matter in dispute at trial, which was whether the Xstrata Mining Lease in its entirety is within the definition of Tenements for the purpose of cl 6.1. It should not have been relied on as a basis for establishing the gateway requirement.
72 The appellant also contends that the trial judge gave no, or no
adequate, consideration to the language of the GPR Deed before reaching his finding that the term Tenements was ambiguous or susceptible of more than one meaning and that he relied on surrounding circumstances to inform his finding on the gateway requirement. I am not satisfied that either contention is justified. In any event, none of grounds 1, 2 or 3 can change the outcome below unless the appellant is successful in establishing that surrounding circumstances were in fact inadmissible as an aid to construction. It is to that question I now turn. I will confine my consideration to the terms of the GPR Deed, against the backdrop of the Mining Act, for the identification of its natural and ordinary meaning.
The gateway requirement
73 For the purpose of the gateway requirement, 'ambiguity' means any
situation in which the scope or applicability of a contract is, for whatever reason, doubtful: Bowtell v Goldsbrough, Mort & Co Ltd (1905) 3 CLR 444, 456 - 457. It is not confined to lexical, grammatical or syntactical ambiguity: Hancock Prospecting [77].
74 The fact that adversaries can formulate and advance materially
different constructions of the language of a contract does not itself satisfy the gateway requirement. Having regard to the language of the contract as a whole and what can be gleaned from that source as to the contractual purpose, competing constructions must be reasonably arguable.
75 The question of construction is whether the royalty payable under
cl 6.1 of the GPR Deed is confined to minerals from an area of land the
subject of the specified tenements as at the Effective Date.
Clause 6.1, with the meaning of relevant defined terms (except Tenements) included, relevantly provides:
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[SSM] shall pay to [Hunter] a royalty … equal to 2% of Gross Proceeds of any Minerals (except gold or silver … ) from the exploitation of the Tenements attributable to [SSM's] proportionate share or interest (as varied from time to time) in any Tenement or in the exploitation of the Tenements which has been treated or processed and rendered into a substance or state for which there is a commercially significant market … without any deduction or allowance of any kind, whether for costs of sales, production, exploration, evaluation, development, restoration, depreciation of plant, amortisation or anything else whatever.
The definition of Tenements in the GPR Deed can be separated into three parts as follows:
- first, the specified tenements being the Kathleen Valley Tenements, the Mount Harris Tenements and the Violet Range tenement as at the Effective Date (the Original Tenements); - second, any extension or variation or addition or replacement or
substitution of any of the individual Original Tenements; and- third, and clearly referable to the second part, the words in parenthesis 'whether or not also affecting other tenements or land outside the [area affected by the Original Tenements]'. 78 The purpose of the second part of the definition is to extend the first
part. The changes effected by the transition of the Violet Range tenement (160 hectares) and the Xstrata tenements into a new and entirely different mining tenement, namely the Xstrata Mining Lease (753 hectares), do not in my view constitute an 'extension', 'variation', 'replacement' or 'substitution' of the Violet Range tenement. It can only potentially be an 'addition'.
79 The scope of the extension effected by the second part will in turn
influence the construction of the third part. It is necessary to address the
purpose and effect of the second part.80 The second part of the definition of Tenements, when viewed in
isolation, does not mandate a conclusion that it extends to additional (ie new) areas of land beyond that the subject of the Original Tenements. Without the second part of the definition a change in an Original Tenement, such as a change in type of mining tenement, would result in the loss of the associated royalty right under cl 6.1 of the GPR Deed. As is clear from the definition of Kathleen Valley Tenements in the GPR Deed and the provisions of the Mining Act, future changes to some of the Original Tenements would be almost inevitable. Moreover, changes in
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the type of mining tenement (from prospecting licence(s) to mining lease(s) and mining lease(s) back to prospecting licence(s) in the case of the Kathleen Valley Tenements) could be expected to result in changed boundaries, and thus additional land for individual mining tenements, but without the inclusion of any new land outside that covered by the Original Tenements as a whole.
81 When regard is had to the terms of the Mining Act and the mining
tenement 'churn' evident in the definition of the Kathleen Valley Tenements, the most obvious, objectively determined purpose of the second part of the definition of Tenements is to preserve the area to which the royalty right attaches as at the Effective Date.
82 Against that backdrop, the question is whether the purpose of the
third part of the definition of Tenements is to make it clear that the addition of land (the new area) to land that was the subject of the Original Tenements (the original area) (1) does not have the effect of excluding the original area from the scope of the extension in the second part of the definition of Tenements; or alternatively (2) has the effect of including the entire area (the new area and original area) under the extended definition of Tenements for the purpose of cl 6.1. The word 'also' in the third part of the definition of Tenements suggests that the former is correct (ie, the original area will also fall within the extended definition of Tenements notwithstanding the inclusion of the new area). If it is the former, the royalty is only payable on minerals from the original area. If the latter, the royalty is payable on minerals from any part of the land the subject of the new mining tenement.
83 The appellant contends that the construction upheld by the trial judge
is not reasonably arguable, there being no basis in the language of the GPR Deed to support a finding that the defined term Tenements for the purpose of cl 6.1 applies to 'part of a Tenement'. The appellant also says that the concept of part of a Tenement is inconsistent with the meaning of the term Tenements in other provisions of the GPR Deed, including cl 7.1, cl 7.2, cl 9.1, and cl 9.2. Those clauses relevantly provide:
7.1
[SSM] acknowledges that its interest in the Tenements and any Minerals is subject to [Hunter's] interest under this deed but the interest of [Hunter] under this deed shall not be an encumbrance on the Tenements.
… 7.2
If and when [SSM] becomes the registered holder of any interest in a Tenement, [SSM] will execute and do everything needed for
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registration of a caveat in respect of that Tenement to secure performance of [SSM's] obligations under this deed and agrees [inter alia]:
…
(d)
that any such caveat shall remain in force in respect of any Tenement for the term of the Tenement (or of any extension variation replacement or substitution of it)[.]
…
9.1 (a) [SSM] must not assign the whole or any part of its interest in the Tenements without the prior written consent of [Hunter]. … 9.2 (a) [SSM] must not create or permit to exist any mortgage or charge over the Tenements without the prior consent of [Hunter]. (b) [Hunter] must promptly give its consent … if the holder of the mortgage or charge ('Encumbrancee') enters into a deed with [Hunter] … by which the Encumbrancee agrees to procure that:
(i) if it or any receiver or receiver and manager … enters into possession of the Tenements, it will … be bound by the terms and conditions of this deed; (ii) if it or any receiver or receiver and manager sells, assigns, [etc] … any estate or interest in the Tenements it will procure that the purchaser, assignee, [etc] … ('New Party') enters into a deed with [Hunter] … by which the New Party agrees to be bound by the terms and conditions of this deed.
84 The appellant's description of the trial judge's construction of
Tenements as including 'part of a Tenement' is inaccurate. It would be 'part of the land the subject of a Tenement'. A mining tenement is property that is separate and distinct from, and does not give rise to a proprietary interest in, the land to which it relates. The trial judge's construction of Tenements for the purpose of cl 6.1 is not inconsistent with the purpose and effect of the term in cl 7 and cl 9 of the GPR Deed.
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85 Prima facie, considerations of commercial reasonableness are against
the appellant's construction. However, the appellant relies on the fact that the consequence of its construction is not the automatic consequence of the operation of the GPR Deed according to its terms, but is conditional upon the voluntary, unilateral decision of Xstrata. I will return to the question of commercial reasonableness later.
86 I am persuaded that the definition of Tenements for the purpose of
cl 6.1 of the GPR Deed is ambiguous and susceptible of more than one meaning. Accordingly, the trial judge was correct to rely on surrounding circumstances as an aid to construction. Grounds 1, 2 and 3 are dismissed.
Surrounding circumstances
87 The court requested the parties to identify what were admissible
surrounding circumstances for construction purposes in the event the
gateway requirement was met. As to which, see Codelfa (352).88 The respondents identified the following: (1) the DAA; (2) the terms
of the Mount Harris JVA; (3) the terms of the Kathleen Valley JVA; (4) the terms of the Letter Agreement; (5) the fact that the GPR Deed and the DAA together restate the terms of the Letter Agreement; (6) the extent of the existing adjoining tenement interests of SSM in the area; (7) the nature of tenement interests under the Mining Act; and (8) that the nature of the tenements held by a party may change from time to time, including for reasons of administrative efficiency and the practice of doing so was common in the industry.
89 The appellant challenges the accuracy of item 5 and the factual
foundation of that part of item 8 relating to industry practice and says they
are not surrounding circumstances for construction purposes.90 I have summarised in broad terms the scope of the Mount Harris
JVA and the Kathleen Valley JVA above. There are a number of further relevant matters. Clause 1 of the Mount Harris JVA is headed, 'Joint Venture Area' which is identified as follows:
All of the land covered by [the specified Mount Harris tenements] and successor or substitute titles ('the tenements').
91 Thus the focus is on the land the subject of the specified mining
tenements. Hunter had the right to 'sole expend' $300,000 on exploration and development of the tenements to earn a 51% ownership interest in the tenements (cl 2(b)). Upon earning a 51% ownership interest, Hunter had
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the right to earn a further 19% ownership interest by the sole expenditure of an additional $400,000 on exploration and development of the tenements. The period during which Hunter was the sole funder of expenditure on the tenements is called the 'earning phase', on completion of which, each party is obliged to contribute to further expenditure in accordance with its ownership interests (cl 2(d) - (e)). Hunter was to be the manager of the JVA during the earning phase (cl 5) and was entitled to enter caveats against the tenements to protect its interests under the JVA (cl 9). The Mount Harris JVA contemplated the negotiation and execution of a formal joint venture agreement (cl 10).
The Kathleen Valley JVA is in materially similar terms. Clause 1 is headed 'Joint Venture Area' which is identified as:
All of the land covered by the tenements listed in Schedule 1 and successor or substitute titles ('the Tenements').
93 Sole expenditure of $500,000 on exploration and development of the
tenements would earn Hunter a 51% ownership interest in the tenements and sole expenditure of an additional $800,000 on exploration and development of the tenements would earn a further 19% ownership interest (cl 2). Hunter was the manager during the earning phase, on completion of which each party is obliged to contribute further expenditure in accordance with its ownership interests (cl 2, cl 5). This JVA also contemplated the negotiation and execution of a formal joint venture agreement (cl 10).
94 The trial judge found that on the proper construction of the Mount
Harris JVA and the Kathleen Valley JVA, the reference to tenements in each JVA was to an area or 'footprint' which would not change even if the particular tenements varied [140]. I agree. No party to the Mount Harris JVA or the Kathleen Valley JVA could unilaterally add new land to the Joint Venture Area. Any additional land could potentially increase the prescribed expenditure required to maintain the tenements. The use of the expression 'successor or substitute titles' is consistent with this construction.
95 In the Letter Agreement the 'Project' is defined as 'the Kathleen
Valley - Mt Harris Project'. Clause 1 is headed 'Joint Venture Area' and refers to '[a]ll of the land covered by the tenements listed in Schedule 1 and successor or substitute titles (the 'Tenements')'. This follows the same template as the JVAs, with the same objectively intended result. The reference to 'Tenements' is to the area or footprint regardless of tenement changes.
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96 Schedule 1 is a document headed 'Kathleen Valley Area' and details
the individual Mount Harris Tenements, Kathleen Valley Tenements and the Violet Range tenement. It shows that at the Effective Date two prospecting licences forming part of the Mount Harris Tenements were subject to applications for extension. It also shows that at the Effective Date six mining leases were being converted to 22 prospecting licences and five prospecting licences were being converted to three mining leases. The effect of the proposed conversions on the rent and prescribed expenditure commitments is detailed and discloses that the total rent and total prescribed expenditure for the same total area was significantly higher for mining leases than prospecting licences. The clear inference from Schedule 1 is that none of the historical or proposed tenement changes had effected any alteration to the total land area the subject of the Mount Harris Tenements and the Kathleen Valley Tenements and their predecessors the subject of the JVAs.
Under the Letter Agreement, Hunter agreed to assign to SSM all its rights and obligations under its JVAs with Giralia. Clause 2 states that:
Hunter shall assign to SSM and SSM shall assume Hunter's rights and obligations under the agreements with Giralia for the following consideration:
(1) Reimbursement of all 1993 payments to the Department of Minerals and Energy … [which totalled $33,241.70 under the DAA]. (2) The granting by SSM to Hunter of a 2.0% Gross Production Royalty ('GPR') on SSM's interest from time to time in the Project.
98 I am satisfied that the term 'Project' in the Letter Agreement includes
the Violet Range tenement. If it did not, the royalty would not apply to that tenement and that may in turn have an impact on the construction of cl 6.1 of the GPR Deed (which refers to minerals attributable to SSM's 'proportionate share' in any Tenements).
99 The Letter Agreement ends by stating that Hunter shall arrange the
drafting of a deed of assignment and a separate deed defining the GPR. The respondents claim that the DAA and GPR Deed 'restated the terms of the Letter Agreement'. That is an evaluative assessment at the centre of the construction exercise, not a surrounding circumstance.
100 As noted by the trial judge, under the DAA and GPR Deed the JVAs
remained in place and defined the rights and obligations assumed by SSM and that although the Violet Range tenement was not part of the JVAs, it
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was treated in the GPR Deed as part of the Project which included those
joint ventures. He concluded:A reasonable person in the position of the parties would expect some consistency in the manner in which all tenements were dealt with in the GPR Deed [141].
I agree with that conclusion.
102 The trial judge accepted (correctly) that whether or not the
'amalgamation' of the Violet Range tenement and the Xstrata tenements was done for administrative efficiency or otherwise is irrelevant to the question of construction, as post-contractual conduct and subjective considerations do not bear on the construction of the DAA and GPR Deed as at the date they were entered into [154].
103 Two matters impact on the weight to be given to the Letter
Agreement in the construction of the GPR Deed. First, the Letter Agreement (and the JVAs) are within the 'fourth class' of a Masters v Cameron type case (Masters v Cameron (1954) 91 CLR 353) in which the parties are content to be bound immediately and exclusively by the terms which they had agreed upon while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms: Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622, 628. Second, the DAA and the GPR Deed contain 'entire agreement' clauses (cl 9.7 and cl 14.7 respectively) which have the effect of the DAA and GPR Deed superseding the Letter Agreement.
104 Finally, there is no merit in the appellant's claim that the trial judge
erred in taking into account the fact that the amalgamation of mining tenements was common practice. That practice is evident from the definitions of the Kathleen Valley Tenements and the Mount Harris Tenements in the GPR Deed. A significant contributing cause of the practice was the statutory architecture in the Mining Act as it then stood. As explained in the second reading speech relating to the Mining Amendment Act 2004 (WA) (which extended the maximum periods of exploration and prospecting licences and required a mining proposal or mineralisation report to accompany an application for a mining lease), mining leases were up to that time used as de facto exploration and prospecting licences.
Ground 4(a) and (b) should be dismissed.
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The proper construction (grounds 4(c), (d) and 5)
106 I have concluded that the definition of Tenements for the purpose of
cl 6.1 of the GPR Deed is susceptible of more than one meaning. In choosing between two constructions that are open, the court will prefer that which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109; Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530, [82]; EGC [35].
107 For the reasons set out above (see [23]), the trial judge characterised
the construction advanced by the appellant as commercially unreasonable.
Continuing with that theme, the trial judge added:Further, the right to the royalty was part of the consideration for the assignment of [Hunter's] rights under the joint ventures and in the Violet Range tenement. The right granted to [Hunter] would be an empty one (as regards royalty on any additional area) when it was wholly within Xstrata's power whether to increase the area of the tenements on which royalty was payable. Xstrata submitted: 'it is commercial nonsense to have a right which can be completely defeated by the unilateral action of the party said to be granting [it] and that is a significant aspect of the application of the principles relating to a commercial approach'. I agree [156].
108 The appellant, on the other hand, relies on the fact that the outcome
is conditioned upon the voluntary, unilateral decision of Xstrata as demonstrating the commercial reasonableness of its construction. The appellant's position can be summarised as follows. The respondents have an obligation to pay royalty on the areas the subject of the Original Tenements and any replacement mining tenement and a power or option, but no obligation, to add new land if it suited their purposes to do so; it was for the respondents to determine how they restructured their tenements after acquisition. This submission highlights that the appellant's construction is confined to the Violet Range tenement.
109 I accept the appellant's submission that it is incorrect to say that
Hunter's contractual consideration was increased as a result of the amalgamation of the Violet Range tenement and the Xstrata tenements. Hunter's consideration was fixed at the time of entry into, and by, the GPR Deed. Its royalty entitlement is fixed but the quantum thereof always depended on future events, some potentially involving discretionary decisions by Xstrata.
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110 Further, it is incorrect to characterise the existence (on the appellant's
case) of Xstrata's option or discretionary power to enlarge the royalty area as Hunter having an 'entitlement'. However, these matters do not undermine the trial judge's assessment that the appellant's construction is commercially unreasonable.
111 Under the DAA, Hunter had relinquished its ownership of the Violet
Range tenement and its control and other rights relating to the other Original Tenements in return for a royalty. The purpose of the extended definition of Tenements in cl 6.1 of the GPR Deed is to protect Hunter's position by ensuring that any changes to the Original Tenements (an almost inevitable consequence of the Mining Act) would not diminish its royalty right. Its purpose is not to empower Xstrata, by its voluntary unilateral act for no additional contractual consideration, to enlarge Hunter's royalty right by increasing the royalty area. The appellant's construction results in an uncommercial windfall to Hunter.
112 It is commercially unreasonable to infer an intention that Xstrata's
freedom to deal with the Violet Range tenement, which it fully owned and which was not the subject of any expenditure obligation under the DAA (or JVAs), could have the result of increasing, rather than simply not reducing, the royalty area.
113 In my view, every relevant indicator points to the conclusion that
Tenements for the purpose of cl 6.1 of the GPR Deed means the area of the Original Tenements as at the Effective Date. For the reasons discussed above, that is the preferred construction based on the contractual language and purpose of the GPR Deed as a whole. That construction is also supported by the surrounding circumstances and avoids a commercially unreasonable result.
114 In this way, the Violet Range tenement would, as intended, be in the
same position as the mining tenements the subject of the Mount Harris JVA and Kathleen Valley JVA in which the unilateral addition of new land into the joint ventures is not a possibility.
115 Further, there is no evidence of any practical impediment to the
calculation of the cl 6.1 royalty from a part of the land the subject of a mining tenement. The GPR Deed has provisions relating to the keeping of records necessary for the calculation of the cl 6.1 royalty (cl 8) and accounting practice and verification (cl 7.6, cl 7.7). Hunter also has an access and audit entitlement (cl 8.2).
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116 I am satisfied that the purpose and effect of the second and third
parts of the defined term Tenements in cl 6.1 of the GPR Deed is to ensure that Hunter continues to be entitled to royalty on minerals taken from an area of land that was the subject of the Original Tenements as at the Effective Date notwithstanding any changes to those tenements whether in type, content, term, area or otherwise. I would dismiss grounds 4(c), (d) and 5.
Although it is not strictly necessary to deal with the rectification claims, I will do so for the sake of completeness.
Rectification (ground 6; contentions; cross-appeal)
118 The respondents claim in their cross-appeal an order for rectification
of the GPR Deed in the event that the trial judge's conclusions on construction are incorrect. They claim that findings were made by the trial judge which should lead this court to order rectification. The appellant contends that necessary findings were not made, but if they were, the trial judge erred in so finding.
119 In essence, Xstrata's rectification claim was that it was the common
continuing intention of SSM and Hunter that the GPR Deed should not cover a greater area than that covered by the Original Tenements as at the Effective Date (26 March 1993). In support of its case, Xstrata relied on, inter alia, an exchange of correspondence between Mr Riley (managing director of SSM and Jubilee) and later Mr G Rogers on behalf of SSM and Mr Scott, corporate solicitor for Hunter, in the process of finalising the draft deeds. Mr Rogers was the solicitor dealing with that matter after Mr Riley's departure from Jubilee and SSM.
By letter dated 14 October 1993 from Mr Riley to Mr Scott, Mr Riley commented on a draft GPR Deed as follows:
'Tenements' - it needs to be made clear that the Tenements do not cover a
greater area than that covered as at 26 March 1993.Mr Scott responded in a letter dated 10 February 1994 that:
This can be checked as a factual matter.
Mr Rogers responded to Mr Scott in a letter dated 2 March 1994:
Noted and agreed.
123 The appellant claimed that Mr Scott's reference to a 'factual matter'
does not show Hunter's intention regarding the effect of future tenement
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changes and relied on Mr Thompson's evidence to the effect that he did not believe the area subject to royalties was so confined. The trial judge said that Xstrata did not directly challenge Mr Thompson on that evidence, but did so indirectly [172].
124 Between 2004 and 2006 Mr Thompson made inquiries about
Jubilee's exploration work in the Kathleen Valley, his concern being whether that exploration might reveal an ore body extending into the area covered by the Original Tenements. However, he made no inquiry about changes to the tenements the subject of the GPR Deed. The trial judge concluded:
I accept that Mr Thompson could have ascertained that the Cosmos Mine was within a single tenement including the former Violet Range tenement. But I am not prepared to conclude, from the fact that he did not do so, what his state of belief or assumption was about the extent of the royalty obligation at the time of the execution of the deeds [174].
125 If the rectification case had been confined to the correspondence on
the draft deed, the trial judge said he would not be satisfied that there was sufficient evidence of common intention at the time of the GPR Deed, having regard to the onus on Xstrata to present clear and convincing proof [175].
126 However, relying on the Letter Agreement, the trial judge was
satisfied that each party had a common intention regarding the scope of the royalty as at the Effective Date [176]. On the basis that the correspondence in the course of negotiating the draft deed disclosed no change of intention by either party before execution of the GPR Deed and that the period before execution was quite short, the trial judge was satisfied that Xstrata had proved its intention in entering into the GPR Deed. Turning his attention to Hunter, the trial judge continued:
The evidence regarding [Hunter's] intention leading up to the making of the GPR Deed is more difficult. There is no outward manifestation of intention to Xstrata, other than in the draft deed itself and in the somewhat cryptic comments of Mr Scott in response to Mr Riley. There is, however, the evidence of the assignment by [Hunter] to Technomin of the interest that is held pursuant to the letter agreement, effective from 15 December 1993. This is consistent with [Hunter] regarding the rights being negotiated as a restatement of the rights under the letter agreement.
After the assignment from [Hunter] to Technomin in December 1993, there is no conduct on the part of either party which evidences a change in intention or understanding of the legal effect of the agreement. I would, if it were necessary, have held that the parties had a common intention,
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objectively manifested in the letter agreement, that continued up to the
time of the GPR Deed [178] - [179].
127 By the Assignment Deed Hunter assigned the 2% royalty 'over the
interest of [SSM] … in Kathleen Valley, Mount Harris and Violet Range project tenements … pursuant to letter agreement dated 26 March, 1993 and all the rights of [Hunter] under the said letter agreement'.
The appellant claims that:
1 the trial judge did not make any finding that Hunter had a common continuing intention;
2 the trial judge did not reject Mr Thompson's evidence and could not do so in any event because it was not challenged;
3 the Letter Agreement did not demonstrate, and Hunter did not have, an intention at the Effective Date to confine the royalty to the area of the Original Tenements;
4 any silence by Hunter is an insufficient basis for an inference that an intention that it held at the time it made one agreement must still have been held at the time it made another;
5 in any event, there was no silence, Hunter having drafted and forwarded a definition of Tenements for use in the GPR Deed which was distinct from that used in the Letter Agreement;
6 an inference based on silence cannot constitute 'clear and convincing proof' to the required standard; and
7 there was no room for such an inference of intention when the trial judge had accepted the evidence of Mr Thompson, which was not directly challenged, that when he made the GPR Deed on behalf of Hunter, he did not have such belief or intention.
129 The respondents claim that the trial judge rejected Mr Thompson's
evidence of subjective intention; made the factual findings of common continuing intention necessary to order rectification and, if not, ought to have done so; and the findings as to common intention can be upheld on grounds other than those relied on by the trial judge. In particular, the trial judge erred:
(a)
in not finding that there was sufficient evidence of common intention based on the correspondence on the draft deed;
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(b) in not concluding that Mr Thompson's evidence as to his subjective intention should be rejected on the basis of his conduct from 2004 to 2006. 130 Based on the trial judge's reasons as a whole, I am satisfied that he
did make an ultimate finding of Hunter's common continuing intention. After concluding that Xstrata could obtain rectification of the GPR Deed against Technomin, the trial judge said he could see no basis to deny the remedy. He did not order it because, on his view on construction, it was unnecessary [182] - [183]. The words 'I would, if it were necessary' in the second sentence of [179] reflect the fact that the trial judge was not required to determine the claim for rectification.
131 It is also apparent from the reasons as a whole that the trial judge
recognised that there was a conflict between Mr Thompson's direct evidence of subjective intention and the objective evidence, which conflict he resolved by rejecting Mr Thompson's evidence. It is wrong to take the reasons in [174] out of context. The trial judge was there rejecting Xstrata's claim that, based on Mr Thompson's conduct between 2004 and 2006, his direct evidence of actual intention should be positively disbelieved, being an adverse reflection on his honesty.
132 The appellant says that the objectively determined intention cannot
prevail over Mr Thompson's unchallenged evidence of his (and thus Hunter's) actual intention. It is not the law that intention for rectification purposes can only be established by direct evidence of actual (ie subjective) intention or that a party's objectively determined actual intention cannot prevail over direct evidence of actual intention: Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603.
133 The same applies to proof of the subjective element of causation in
fact in negligence where objective evidence can prevail over subjective
evidence: Rosenberg v Percival (2001) 205 CLR 434 [24] - [25].134 The connection between rectification and contractual construction is
closest when admissible evidence of surrounding circumstances is admissible as an aid to construction. Admissible evidence of surrounding circumstances for construction purposes is also admissible on the question of intention in a rectification claim. However, whilst direct evidence of the actual intention of the contracting parties and evidence of their negotiations are admissible in a rectification claim, they are inadmissible as an aid to construction: Codelfa (352). That is because the test of intention in rectification is subjective (the actual intention of the
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contracting parties) and the test of contractual construction is objective, whether or not surrounding circumstances are admissible. Absent surrounding circumstances, the meaning of a written contract is to be determined by what a reasonable person would understand the contractual language to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165. If extrinsic evidence of surrounding circumstances is admissible as an aid to construction, a written contract means what a reasonable person having all the background knowledge of the surrounding circumstances available to the parties would understand the contractual language to mean: Byrnes v Kendle (2011) 243 CLR 253 [98].
However, there is a more fundamental distinction between rectification and contractual construction. With limited exceptions (such as absurdity) and with or without admissible evidence of surrounding circumstances, the contractual language cannot be construed as having a meaning that it cannot reasonably bear. When that point is reached, the doctrine of rectification comes into play.
It was open to the trial judge to reject Mr Thompson's evidence. His evidence-in-chief was that:
At the time that the Letter Agreement … was signed by Mr Scott on behalf of Hunter and at the time that I signed the Deed of Assignment between Hunter and Technomin I was unaware of any custom or practice in the mining industry which would have operated to confine Hunter's future entitlement to royalties to the area encompassed by [the Violet Range tenement] and I did not believe that it was so confined.
137 That is unhappily crafted. It was never suggested that Hunter's
entitlement to royalty was confined to the area the subject of the Violet Range tenement. In any event, the trial judge accepted that Mr Thompson gave evidence to the effect that Hunter did not at any material time have an intention to confine the royalty area to the area of the Original Tenements as at the date of the Letter Agreement. However, Mr Thompson's evidence on this subject was challenged in cross-examination. Although the focus was largely on what Mr Thompson understood in 2004 to 2006, the obvious purpose was to challenge his evidence as to his actual intention in the relevant period between entry into the Letter Agreement and execution of the GPR Deed (see ts 199, 201, 203 - 207, 209, 213). The cross-examination included the following:
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And this position that you're now advancing that you believed throughout that the area of the royalty could get bigger is just not true, is it?---That's totally incorrect (ts 213).
138 Mr Thompson's evidence conflicted with the objective evidence and
was rejected. It is unnecessary to determine whether it should have been
rejected solely on the basis of his conduct in 2004 to 2006.139 I have already indicated my agreement with the trial judge's
construction of the Letter Agreement, being in effect that the outer limit of the royalty area from time to time is the area the subject of the Original Tenements as at the Effective Date.
140 The exchange of correspondence on the draft deeds, whilst
inadequate on its own to establish the necessary intention, adds weight to the powerful objective evidence relied on by the trial judge, as does the uncommerciality of the outcome. It was open to the trial judge to be satisfied to the requisite standard (clear and convincing proof) of the common continuing intention of the parties to the GPR Deed.
141 If I am wrong on the construction of the GPR Deed, I see no
justification for interfering with the trial judge's findings which would
lead to an order for rectification. I would dismiss ground 6 of the appeal.
Conclusion
The trial judge did not err in his conclusion as to the proper construction of the GPR Deed. Accordingly, I would dismiss the appeal.
NEWNES JA: I agree with McLure P. MURPHY JA:
Introduction
144 I have had the considerable advantage of reading in draft the reasons
of McLure P and I adopt her Honour's statement of the background, the grounds of appeal and the arguments. These reasons are written on the assumption that the reader will have a familiarity with McLure P's reasons. I too would dismiss the appeal.
145 The respondent's submissions involved a proposition to the effect
that in all cases where there is a contest as to the proper construction of a written contract, any evidence from the parties of surrounding circumstances is always admissible on the question of construction,
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without regard to whether the text is ambiguous in the absence of any
such evidence by the parties.146 It was noted that as a result of certain decisions of the High Court of
Australia decided in the early 2000s, intermediate appellate courts have examined the observations of Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, 352, and considered the question of whether evidence of surrounding circumstances is always admissible in aid of construction of a written contract, irrespective of whether the instrument is ambiguous. In some cases the conclusion was reached that ambiguity was not required before evidence of surrounding circumstances could be admitted as an aid to construction: see in particular Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 [14] - [18], [239] - [305]. On the other hand, eg, in Johnstone v Knight [2006] QCA 322, the Queensland Court of Appeal, after referring to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40], said that evidence of surrounding circumstances 'is admissible to assist in the interpretation of the agreement, particularly the written document, if its language is ambiguous or susceptible of more than meaning, as this one is' [18]. In that regard reference was made to Codelfa (352).
147 This court, in a number of cases, has referred to this question without
deciding it: see, eg, Home Building Society Ltd v Pourzand [2005] WASCA 242 [25] - [32]; Pateman v Daw Koh [2007] WASCA 85 [37]; Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117 [154]; Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119; (2008) 66 ACSR 594 [116]; Newmont Power Pty Ltd v Barrick Gold of Australia Ltd [2008] WASCA 74 [29]; Wilden v Green Pty Ltd [2009] WASCA 38; (2009) 38 WAR 429 [74].
148 There have also been a number of cases in this court in which it has
been said that, following the observations of Gummow, Heydon & Bell JJ in a special leave application in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1, it is appropriate for the courts in this State to continue to apply the law as stated by Mason J in Codelfa (352): see, eg, Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 [9]; McCourt v Cranston [2012] WASCA 60; [2012] ANZ Conv R 12-006 [23]. Other intermediate appellate courts have, at least in some cases, taken the same, or a consistent, approach: see, eg, Pepe v Platypus Asset
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Management Pty Ltd [2013] VSCA 38 [25]; Davies v Apted [2013]
SASCFC 92 [27].149 Some reservation was, in effect, expressed by two justices of the
High Court (Heydon and Crennan JJ) in relation to an acceptance of the opinions expressed in Franklins until further consideration by the High Court: Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 (footnote to [99]).
150 The respondent in this case contended that the question has now been
conclusively resolved in favour of the proposition for which it contends by the High Court's decision in Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447 [35].
151 The deed in question is ambiguous in this case and it is unnecessary
to reach a final view as to the proposition advanced by the respondent. Nevertheless, there are a number of grounds upon which it would appear to be difficult to give an unqualified assent to the respondent's proposition for the reasons explained later.
Principles of construction
152 Before turning specifically to Codelfa, it is convenient to outline some of the relevant principles of construction and their operation at the outset, which did not appear to be controversial.
153 A written contract, like other written instruments, is to be construed
as a whole: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109; Metropolitan Gas Co v Federated Gas Employees' Industrial Union [1925] HCA 5; (1925) 35 CLR 449, 455; Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (No 1) [1993] HCA 40; (1993) 178 CLR 379, 386 - 387; Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 [16].
154 The object or purpose of a written contract may be discerned from,
amongst other things, the legal context in which the contract is entered into and in which its terms are expected to be applied: see, eg, Lake v Simmons [1927] AC 487, 499 - 500; McCann [23], [52 - 55], [121], [127], [132 - 135]; Maggbury [11]; CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 [43] - [44].
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155 In some cases, the object of a transaction may be apparent upon a
consideration of the terms of the instrument read as a whole. For example, in relation to the lease under consideration in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, Mason J said that the provisions of the contract itself 'amply' demonstrated the purpose of the parties (606).
156 Insofar as contractual purpose or object may be ascertained from a
legal or statutory context, or having regard to a subject matter with which the court is familiar without evidence, construction may be said to be 'contextual', but not in a way which might concern the operation of the parol evidence rule. Contextual construction in this respect does not involve the reception of extrinsic evidence.
157 In other cases, having regard to subject matter, market, and the terms
of the instrument, the court has 'supplemented' its understanding of the objective aim or purpose of the transaction, by reference to evidence of surrounding circumstances and, in particular, the genesis of the transaction: see, eg, International Air Transportation Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 [8]; Prenn v Simmonds [1971] 1 WLR 1381 (1385 - 1386).
187 Mason J (Stephen and Wilson JJ relevantly agreeing) concluded his
discussion in Codelfa on this issue by returning to the topic with which he had commenced it - whether and to what extent it was correct to regard the parol evidence rule as prohibiting the use of extrinsic evidence for the purpose of 'interpreting' a written contract. In the well known passage, his Honour said:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract (352).
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188 Mason J's reference to language which is 'ambiguous or susceptible
of more than one meaning' would appear, in context, to at least include language which is 'of doubtful or double signification' - borrowing the words of Isaacs, Gavan Duffy and Rich JJ used in Purcell v Bacon [1914] HCA 86; (1914) 19 CLR 241, 265, with reference to Charrington. See also Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 [77]; Colby Corp Pty Ltd v Federal Commissioner of Taxation [2008] FCAFC 10; (2008) 165 FCR 133 [43] - [44]; South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; (1999) 10 BPR 18, 961 [35]. Also, it does not appear to me, with respect, that Mason J, in stating the 'true rule' was rejecting the traditional limitations in and exceptions to the parol evidence rule, but was rather identifying a coherent rule of general application by which many of them, at least, could be explained and accommodated.
Gibbs J in Cooper Brooks (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297, 305, observed that 'language, read in its context, very often proves to be ambiguous' (cf Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853, 75, 343). Nevertheless, merely because two opposing constructions are advanced, that does not in itself establish ambiguity, as numerous decisions attest: see, eg, Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642, 646 (Mahoney JA), (657 - 658) (Priestley JA with whom Glass JA agreed); Esso Australia Ltd v Australian Petroleum Agents & Distributors' Association [1999] 3 VR 642, 645 (Hayne J as his Honour then was); Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365, 380 - 381 (Kennedy J).
Post-Codelfa
190 In McCann v Switzerland Insurance Ltd [2000] HCA 65; (2000) 203 CLR 579, there was a dispute as to the meaning and effect of an exclusion clause in three policies of professional indemnity insurance issued to a firm of solicitors. It appears from the High Court's reasons for judgment that the policy was construed by reference to its text, aided only by an understanding of the relevant legal context. There was no reference to any evidence of surrounding circumstances given by the parties prior to the inception of the policies. Gleeson CJ said:
A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure [22]. (footnotes omitted)
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191 In Maggbury, Gleeson CJ, Gummow and Hayne JJ observed, with respect to a contract the subject matter of which involved certain intellectual property:
Interpretation of a written contract involves, as Lord Hoffmann has put it: 'the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract'. That knowledge may include matters of law, as in this case where the obtaining of intellectual property protection was of central importance to the commercial development of Mr Allen's ironing board [11]. (footnotes omitted)
192 In footnote 11 to this passage their Honours referred to Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912, and said 'See also the remarks of Mason J in [Codelfa] … at 350 - 354'. Reference was also made in footnote 11 to Bank of Credit and Commerce International SA v Ali [2001] 1 UKHL 8; [2002] 1 AC 251, 259. In that case, Lord Bingham said that the general principles summarised by Lord Hoffman in Investors Compensation Scheme applied to the circumstances of that case (259). In Investors Compensation Scheme, Lord Hoffman referred to a number of principles, the first of which was to the effect that interpretation is the 'ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract' (912).
193 In Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45, the High Court considered a dispute involving the meaning and effect of certain provisions concerning rent review in a long term lease. The provision in question conferred on certain trustees the power to make a determination as to rent at and with respect to specified periods and provided that 'in making any such determination the Trustees may have regard to [certain identified matters]'. The term did not expressly state whether the matters to which the Trustees may have regard were exhaustive or inclusive for the purpose of exercising the power conferred on them to determine the rent. Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ, having identified ambiguity in that regard [9], said in connection with the 'true rule' passage of Codelfa:
In Codelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of
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agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract: 'presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating'. Such statements exemplify the point made by Brennan J in his judgment in Codelfa: '[t]he meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used' [10]. (footnotes omitted)
Their Honours returned to Codelfa at [39] of their reasons and said:
Two further matters should be noticed. First, reference was made in argument to several decisions of the House of Lords, delivered since Codelfa but without reference to it. Particular reference was made to passages in the speeches of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society and of Lord Bingham of Cornhill and Lord Hoffmann in Bank of Credit and Commerce International SA v Ali, in which the principles of contractual construction are discussed. It is unnecessary to determine whether their Lordships there took a broader view of the admissible 'background' than was taken in Codelfa or, if so, whether those views should be preferred to those of this Court. Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa. (footnotes omitted)
In footnote 45 to that passage of the judgment, their Honours added:
cf Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 NZLR 391 at 394 - 395; Yoshimoto v Canterbury Golf International Ltd [2001] 1 NZLR 523 at 542.
196 In Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 NZLR 391, the Privy Council (comprising Lord Goff of Chieveley, Lord Mustill, Lord Nicholls of Birkenhead, Lord Hoffman and Lord Hope of Craighead) said with reference to another case concerning the proper construction of a rent review clause in a lease:
The approach which must be taken to the construction of a clause in a formal document of this kind is well settled. The intention of the parties is to be discovered from the words used in the document. Where ordinary words have been used they must be taken to have been used according to the ordinary meaning of these words. If their meaning is clear and unambiguous, effect must be given to them because that is what the parties are taken to have agreed to by their contract. Various rules may be
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invoked to assist interpretation in the event that there is an ambiguity. But it is not the function of the Court, when construing a document, to search for an ambiguity. Nor should the rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context may affect the meaning of the words. But unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail (394 - 395).
In Wilson v Anderson [2002] HCA 29; (2002) 213 CLR 401 [7] - [10], Gleeson CJ made a number of observations, the effect of which has assumed particular importance in subsequent cases. His Honour's observations included:
The law of contract seeks to give effect to the common intention of the parties to a contract. But the test is objective and impersonal. The common intention is to be ascertained by reference to what a reasonable person would understand by the language used by the parties to express their agreement. If the contract is in the form of a document, then it is the meaning that the document would convey to a reasonable person that matters. The reason for this appears most clearly in the case of commercial contracts. Many such contracts pass through a succession of hands in the course of trade, and the rights and liabilities of parties other than the original contracting parties are governed by them. As Lord Devlin observed, writing extra-judicially, it is only the document that can speak to the third person. In the case of a will, or a deed, or other written instrument, the object of a court is to discover, and give effect to, the intention of the testator, or parties; but it is in the meaning of the instrument, discovered according to established principles of construction, that such intention is found.
This is not to say that the exercise is formal and literalistic. On the contrary, common law and statutory principles of construction frequently demand consideration of background, purpose and object, surrounding circumstances, and other matters which may throw light on the meaning of unclear language. And there are presumptions which may be called in aid to resolve uncertainty [8] - [9]. (emphasis added)
198 In Fitzwood Pty Ltd v Unique Goal Pty Ltd [2002] FCAFC 285, the Full Court of the Federal Court adopted the observations of Gleeson CJ in Wilson referred to above [159].
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In Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said [22]:
The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to Pacific. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction. In Codelfa Constructions Pty Ltd v State Rail Authority of NSW, Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen- Tangen:
'In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.'
(footnotes omitted)
200 The first sentence in this passage was footnoted by reference to
Gleeson CJ's observations in Wilson [7] - [10]. The sentence referring to Codelfa was footnoted with the citation of Codelfa (350). The footnote also said 'See further' Royal Botanic [39].
In Toll, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said:
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction [40]. (emphasis added) (footnotes omitted)
Authority for this proposition was Pacific Carriers [22].
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203 In Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530, Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ said:
That reasoning is correct. The Deed Poll had to be executed because under cl 27(a) of the Establishment Agreement, TOC agreed to:
'procure that each person with whom it deals in the course of carrying out its functions in relation to the Club … executes a deed in the form of the [Deed Poll] … in favour of SOCOG under which the person agrees, amongst other things, not to represent, hold out, promote or advertise its connection with SOCOG, the AOC or the Games without SOCOG's prior written permission.'
The Deed Poll was a standard form instrument designed to apply to TOC's dealings with a wide range of persons. The execution of the Deed Poll pursuant to an obligation in, and at the same time as, the Agency Agreement meant that it had to be given a construction conformable with the Agency Agreement. It was necessary to construe the Deed Poll so as to avoid it making commercial nonsense or working commercial inconvenience. Its commercial purpose - the purpose of reasonable persons in the position of TOC and the plaintiff - was relevant. That, in turn, required attention to 'the genesis of the transaction, the background, the context, the market' in which the parties were operating, as known to both parties.
The plaintiff knew nothing of the Licence Agreement. The genesis, background and context of the Agency Agreement and the Deed Poll as known to the plaintiff and TOC suggested the same purpose as that suggested by the express terms of the Agency Agreement [82] - [83]. (footnotes omitted)
204 In International Air Transport Association, the subject matter of the contract in question concerned multilateral aviation carriage and the operation of a 'Clearing House' which had been established in 1946 in that connection. Gleeson CJ said:
In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market. This is a case in which the Court's general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The Agreement has a history; and that history is part of the context in which the contract takes its meaning. Before considering that history, it is necessary to explain, by reference to the text, how the issue of construction arises [8]. (footnotes omitted)
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205 Gummow, Hayne, Heydon, Crennan and Kiefel JJ said that 'the first
task is to consider the relevant terms of the governing documents' [52] and stated that the task of construction was to be approached in the manner described in Toll (referred to above) [53].
206 In Byrnes, Heydon and Crennan JJ also referred to the statement by the court in Toll [98]. Their Honours also expressed [99] the reservation referred to in [149] above.
207 In Electricity Generation, French CJ, Hayne, Crennan and Kiefel JJ said, principally with reference to a number of the authorities referred to above:
Both Verve and the Sellers recognised that this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience' [35]. (footnotes omitted)
208 In this regard, reference was made to the High Court decisions
referred to above, other than Royal Botanic and Wilson. Reference was also made to Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 where Lord Esher MR said that the instrument under consideration was a 'puzzle' but was to be construed 'in a businesslike way, so as to give it a sensible application (504). In order to do so, we must look at the facts which existed at the time that it was made' (504). Reference was also made to Bergl (Australia) Ltd v Moxon Lighterage Co Ltd [1920] HCA 41; (1920) 28 CLR 194 where the court said that the contract should be construed 'as the parties engaged in their respective businesses should be taken to have understood the words used, having regard to the subject matter' (199).
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209 In addition, reference was made to Investors Compensation Scheme (912) and to Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12; [2004] 1 AC 715, where Lord Bingham referred to the need to give the document '[t]he business sense which businessmen, in the course of their ordinary dealings, would give the document' (737) [10].
210 Further, in relation to the fourth sentence in the passage in Electricity Generation [35], reference was also made to Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 326, 350; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, 2906 - 2907, [14]. In Charter Reinsurance, (326) Mance J (as his Lordship then was) referred to two judgments in Arbuthnott v Fagan [1993] EWCA Civ J0730-2, one by Sir Thomas Bingham MR and the other by Steyn LJ (325 - 326). Page 350 of Charter Reinsurance appears to pick up the language of Sir Thomas Bingham MR's judgment in that case rather than the language of Steyn LJ. In the passage cited by Mance J (326), Sir Thomas Bingham MR said:
Courts will never construe words in a vacuum. To a greater or lesser extent, depending on the subject matter, they will wish to be informed of what may variously be described as the context, the background, the factual matrix or the mischief. To seek to construe any instrument in ignorance or disregard of the circumstances which gave rise to it or the situation in which it was expected to take effect is in my view pedantic, sterile and productive of error. But that is not to say that an initial judgment of what an instrument was or should reasonably have been intended to achieve should be permitted to override the clear language of the instrument, since what an author says is usually the surest guide to what he means. To my mind construction is a composite exercise, neither uncompromisingly literal nor unswervingly purposive: the instrument must speak for itself, but it must do so in situ and not be transported to the laboratory for microscopic analysis (9). (emphasis added)
In Rainy Sky, reference was made to Investors Compensation Scheme (912) and it was said that:
[T]he ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant [14].
212 After the hearing of this appeal, the court was referred, by letter, to a
decision of the Court of Appeal of New South Wales in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184. In that case, Leeming JA (Ward & Emmett JJA agreeing) said:
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MURPHY JA
To the extent that what was said in Jireh supports a proposition that 'ambiguity' can be evaluated without regard to surrounding circumstances and commercial purpose or objects, it is clear that it is inconsistent with what was said in Woodside [Electricity Generation] at [35]. The judgment confirms that not only will the language used 'require consideration' but so too will the surrounding circumstances and the commercial purpose or objects. Although the High Court in Woodside did not expressly identify a divergence of approach, Jireh was notoriously controversial in precisely this respect. In Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666 at [107] McLure P referred to the 'heated controversy' created by Jireh; see further Kevin Lindgren's analysis in 'The ambiguity of "ambiguity" in the construction of contracts' (2014) 38 Aust Bar Rev 153 at 161 - 167. It cannot be that the mandatory words 'will require consideration' used by four Justices of the High Court were chosen lightly, or should be 'understood as being some incautious or inaccurate use of language': cf Fejo v Northern Territory [1998] HCA 58; 195 CLR 96 at [45].
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Accordingly, I agree with Mainteck's submission that Woodside endorses and requires a contextual approach to the construction of commercial contracts. [71], [86].
213 Neither party applied to make any submissions in relation to this case
and the court has, accordingly, not had the benefit of any submissions in
that regard.214 As noted earlier, a contextual approach to construction does not
always import the reception of evidence of surrounding circumstances. Also, it might be thought that the 'heated controversy' created by Jireh might cut both ways in this context, in that, at least arguably, the controversy would not be determined without reference to it.
215 Also, the following observations might be made about the law
post-Codelfa. First, the passage in Codelfa (352) does not appear to have been subject of express consideration in the High Court since Royal Botanic [39]. Secondly, it might be thought that the authorities up to the time of Electricity Generation are not necessarily inconsistent with a requirement of ambiguity. Thirdly, a case as significant as Codelfa in the operation of the commercial law in Australia for over 30 years is unlikely to have been impliedly overruled. Fourthly, in Electricity Generation, French CJ, Hayne, Crennan and Kiefel JJ 'reaffirmed' the High Court's earlier decisions. Electricity Generation does not appear to provide a departure from them. Fifthly, the question of whether evidence of surrounding circumstances is inadmissible in the absence of ambiguity
[2014] WASCA 164
MURPHY JA
does not appear to have been canvassed in argument in Electricity
Generation, nor isolated for determination.216 On the basis of these matters, it could be open to conclude that it is
not correct to say that in all cases where there is a contest as to the proper construction of a written contract, any evidence from the parties of surrounding circumstances is always admissible on the question of construction, irrespective of ambiguity in the absence of such evidence. Such a conclusion would not require any precedential effect to be assigned to the observations of the court in the leave application in Jireh.
217 As the deed is ambiguous in this case, it is unnecessary to reach a
final view or to give consideration to the principle referred to by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [135] in connection with Mainteck (as to which, as indicated, we have received no submissions).
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