Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd; Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd

[2021] NSWSC 640

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd; Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd [2021] NSWSC 640

Hearing dates:

3, 4, 6 and 10 May 2021

Decision date:

04 June 2021

Jurisdiction:

Equity - Commercial List

Before:

Stevenson J

Decision:

The defendant repudiated its obligations under the Asset Sale Agreement; the plaintiff was entitled to terminate the Asset Sale Agreement and is entitled to the Outstanding Royalties and loss of bargain damages calculated by reference to the Projected Royalties

Catchwords:

CONTRACTS – construction – mining tenements – royalty payable as percentage of net sales realisation – proper construction of that expression – whether defendant repudiated contract – whether plaintiff entitled to terminate – accrued rights – calculation of loss of bargain damages

Cases Cited:

Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187

Burke and Riversdale Road Pty Ltd v Gemini Investments Pty Ltd [2003] VSC 33

Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56

Heyman v Darwins Ltd [1942] AC 356

Johnson v Agnew [1980] AC 367

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

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23

Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11

Louinder v Leis (1982) 149 CLR 509; [1982] HCA 28

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14

Safehaven Investments Inc v Springbok Ltd (1995) 71 P & CR 59; [1995] EGCS 96

Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47

Stickney v Keeble [1915] AC 386

Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; [1988] HCA 11

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632; (1938) 55 WN (NSW) 228

Troulis v Vamvoukakis [1998] NSWCA 237

Texts Cited:

P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters)

J D Heydon, Heydon on Contract (2019, Thomson Reuters)

Category:

Principal judgment

Parties:

Thalanga Copper Mines Pty Ltd (Plaintiff/Cross-Defendant)
Cromarty Resources Pty Ltd (First Defendant/Cross-Claimant)
Red River Resources Limited (Second Defendant)

Representation:

Counsel:
A McGrath SC with T Jonker (Plaintiff/Cross-Defendant)
J C Kelly SC with A J Barnett (First Defendant/Cross-Claimant)

Solicitors:
McCullough Robertson (Plaintiff/Cross-Defendant)
Piper Alderman (First Defendant/Cross-Claimant)

File Number(s):

SC 2019/53887

Judgment

1. By a contract dated 3 May 2006 (the “Asset Sale Agreement”), the plaintiff, Thalanga Copper Mines Pty Ltd, sold certain mineral exploration permits and mining leases in Queensland (the “Tenements”) to Kagara Copper Pty Ltd for $2 million.

2. Pursuant to the Asset Sale Agreement, Kagara agreed to pay a royalty (the “Royalty”) to Thalanga calculated at 4% of the “Net Sales Realisation” of saleable metals processed from ore mined from the Tenements.

3. The Royalty was to be calculated in accordance with cl 13 of the Asset Sale Agreement, to which I will return.

4. On 16 December 2013, Kagara was placed into liquidation.

5. By a further contract dated 12 September 2014, called “Agreement for the Sale of Assets”, the liquidator of Kagara sold the Tenements to the first defendant, Cromarty Resources Pty Ltd. Cromarty is a wholly owned subsidiary of the second defendant, Red River Resources Ltd, a company listed on the Australian Stock Exchange.

6. By a Deed of Covenant, Assignment and Release (the “Deed of Covenant”), dated 24 March 2015, Cromarty agreed to assume the rights and obligations of Kagara under the Asset Sale Agreement and Red River agreed to guarantee Cromarty’s obligations.

7. Under the Deed of Covenant, Cromarty also agreed to deliver to Thalanga two unconditional bank guarantees. The first was for $300,000 and was delivered on the date of the Deed. The second (the “Second Bank Guarantee”) was for $700,000 and was to be delivered “prior to the commencement of Production”. Although “Production” commenced, the Second Bank Guarantee was never provided. Thalanga’s entitlement to Royalties was otherwise unsecured.

8. Cromarty commenced producing ore from the Tenements in May 2017.

9. Cromarty commenced sales of processed ore to Glencore International AG and Trafigura Pte Limited in around October 2017. I will return to the agreements pursuant to which these sales occurred below.

10. Thalanga purported to terminate the Asset Sale Agreement on 28 December 2018. The question is whether it was entitled to do so, or whether its purported termination on that day was a repudiation of the Asset Sale Agreement entitling Cromarty itself to terminate on 8 January 2019.

11. Either way, it is common ground that the Asset Sale Agreement ceased to be operative on either 28 December 2018 or 8 January 2019.

12. It is also common ground that, either way, Thalanga is entitled to Royalties due as at 28 December 2018 (the “Outstanding Royalties”). There is a dispute as to how the Outstanding Royalties should be calculated.

13. It is also common ground, that if Thalanga was entitled to terminate the Asset Sale Agreement on 28 December 2018, it is entitled to loss of bargain damages. Thalanga calculates those damages based on the present value of the royalties it would have earned had the Asset Sale Agreement continued (the “Projected Royalties”). There is a dispute about whether any loss of bargain damages to which Thalanga is entitled may be calculated by reference only to the Projected Royalties. There are also disputes about Thalanga’s calculation of Projected Royalties.

14. The amounts involved are large. Thalanga claims Outstanding Royalties in the order of $1.7 million and Projected Royalties in the order of $25.5 million.

Decision

15. Cromarty repudiated its obligations under the Asset Sale Agreement. Thalanga was entitled to terminate the Asset Sale Agreement on 28 December 2018 and is entitled to the Outstanding Royalties and to loss of bargain damages calculated on the basis of the Projected Royalties.

The Asset Sale Agreement

16. Clause 13 of the Asset Sale Agreement provided, relevantly:

“13   ROYALTY

13.1   Payment

Subject to clause 13.3, in addition to the payment of the Purchase Price referred to in clause 4, the Purchaser must:

(a)   pay the Royalty to the Vendor within 15 Business Days after the end of the month of actual sales;

(b)   with each Royalty payment, provide the Vendor with sufficient details to enable the Vendor to ascertain how the Royalty payment has been calculated; and

(c)   provide copies of the royalty returns that are lodged with the DNRM in relation to the Tenements, within 14 days of the date of submission.

13.2   Acknowledgment of the Purchaser

The Royalty is payable on all metals processed from the Ore mined from the Tenements whether or not the Ore has been processed by the Purchaser or the Ore has been sold to, or processed by, any other party.

13.3   Calculation of Royalty

The Royalty will be calculated by the Purchaser on the NSR of the metals realised by the Purchaser. Any adjustment for the excess or short payment of Royalty in the month of sales is to be made when the final NSR for that month is determined.

13.4   Treatment and Processing Charges

The parties acknowledge that the treatment charges and refining charges will be calculated as per the international code of practice and must be fair value in accordance with prevailing market conditions.”

17. “Royalty” was defined as:

“Royalty means the royalty at the rate of 4% on NSR of all saleable metals including precious metals processed from the Ore mined from the Tenements (not being limited to Ore processed at the Plant).”

18. “NSR” was defined as:

“NSR means the net sales realisation, actually realised by the Purchaser from the sale of processed Ore (either in concentrate form or in metal form) less the treatment and refining charges.”

The Glencore and Trafigura Agreements

19. On 6 June 2017 and 7 August 2017, Cromarty entered into agreements with Glencore and Trafigura. Pursuant to the 6 June 2017 agreement, Glencore agreed to purchase the “total production” of copper concentrate from the Tenements over a three-year period (the “Glencore Agreement”). Pursuant to the 7 August 2017 agreements, Trafigura agreed to purchase specified amounts of lead and zinc concentrate over a three-year period (the “Trafigura Agreements”).

20. The effect of both the Glencore Agreement and the Trafigura Agreements was that, relevantly:

1. Glencore and Trafigura would make a “Provisional Payment” for the ore on presentation of particular documents; [1]

2. Glencore and Trafigura would make a “Final Payment”, which was established by taking an average cash settlement quotation on the London Metal Exchange over a variable “quotational period”; and

3. title to the material passed to Glencore or Trafigura on the making of the Provisional Payment.

   1. A Truck Consignment Note and other documents in the case Glencore and a clean on board charter party bills of lading in the case of Trafigura; the details are not important.

21. It is not necessary to set out the details of these provisions. Their effect was that Cromarty was paid 95% of the provisional value of ore sold to Glencore and Trafigura at around the time of the concentrate’s shipment. Cromarty would not know the final price payable by Glencore and Trafigura until the end of the three month quotational period, at which time the final price would be determined in accordance with the relevant price on the London Metal Exchange. The final price was at times higher than the provisional price and at times lower.

The proper construction of cl 13

22. The principles to be adopted in construing a commercial contract are settled.

23. The leading modern statement is that of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd vWright Prospecting Pty Ltd: [2]

“The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

…

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary.” [3]

2. (2015) 256 CLR 104; [2015] HCA 37.

3. At [46], [48]-[49].

24. The debate before me focused on the text of the Asset Sale Agreement. In that context, it has been correctly observed that:

“…the only relevant meaning is that which the text conveys. This follows from the need to ascertain the intention expressed in the document. Although,…context and purpose are relevant, ultimately the court must attribute meaning to the words actually used.” [4] (Emphasis in original.)

4. See, P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at par [19.60].

25. Prior to closing submissions, Cromarty’s position was that it admitted that there were “outstanding royalties owing” by Cromarty to Thalanga [5] and that Cromarty “owes” Thalanga “outstanding royalties for the period 1 July – 28 December 2018”. [6] Cromarty asserted that the amount “owing” was $1,222,337. [7]

    5. Commercial List Response C39.

    6. Commercial List Response C50.

    7. Commercial List Response C39 and C50.

26. On 19 April 2021, two weeks before the hearing, Cromarty’s solicitors wrote to Thalanga’s solicitors stating:

“…there is no issue in relation to the $1,222,337 component of Outstanding Royalties…”.

27. Nonetheless, in closing submissions Mr Kelly SC and Mr Barnett who appeared for Cromarty, argued for a construction of the Asset Sale Agreement that, if correct, would have the consequence that:

1. no Royalty was owing as at the date when the Asset Sale Agreement came to an end (whether on 28 December 2018 or 8 January 2019);

2. Cromarty was not in default under the Asset Sale Agreement when Thalanga purported to terminate it on 28 December 2018;

3. Thalanga’s purported termination of the Asset Sale Agreement in that circumstance was thereby repudiatory;

4. Cromarty was entitled to accept that repudiation and terminate the Asset Sale Agreement on 8 January 2019; and

5. Thalanga was accordingly not entitled to loss of bargain damages (although any Outstanding Royalties would still be payable).

28. This submission was not mentioned in Mr Kelly’s and Mr Barnett’s opening submissions, nor foreshadowed in Cromarty’s Commercial List Response. Nor, during the critical months leading to Thalanga’s purported termination of the Asset Sale Agreement in 2018, did the parties and Cromarty in particular, conduct themselves on the basis that no Royalty was payable. As will emerge, the communications between the parties in those months proceeded upon the basis that a Royalty was due.

29. Mr McGrath SC, who appeared with Ms Jonker for Thalanga, stated that, had this argument been foreshadowed, he and Ms Jonker may have conducted the case differently.

30. Mr McGrath said, and I accept:

“We may have stated a case of estoppel that they'd made a series of representations to us that there was in fact amounts owing and I would've cross examined the two witnesses [8] in a fundamentally different way if I had been making a case of estoppel against them. ”

8. Mr Melkon Palancian, the Managing Director of Red River and Mr Rodney Lovelady, the Chief Financial Officer of Red River and Director of Cromarty.

31. The reason why, on Mr Kelly’s construction of the Asset Sale Agreement, no Royalty was payable as at 28 December 2018, is because of the terms of the Glencore and Trafigura Agreements to which I have referred. In effect, Mr Kelly’s submission was that the Royalty could not be struck until the final amount realised by Cromarty from sales to Glencore and Trafigura was ascertained. It followed, according to this submission that, in the events that happened, the Royalties that Thalanga contended were outstanding, and which led it to purport to terminate the Asset Sale Agreement on 28 December 2018, were not due for payment until many months later.

32. Mr McGrath submitted that Mr Kelly’s construction of the Asset Sale Agreement was not correct. However, Mr McGrath accepted that, as it had been raised, albeit at the heel of the hunt, it was necessary for me to decide whether it was correct.

33. Had I concluded that Mr Kelly’s construction was correct, difficult questions would have arisen as to how the case was to be managed.

34. However, for the reasons that follow, my conclusion is that Mr Kelly’s construction is not correct.

35. Debate before me focused on the operative words in cl 13.1 of the Asset Sale Agreement and the words in the definitions of “Royalty” and Net Sales Realisation or “NSR”.

36. The use of defined terms is simply a drafting technique adopted for convenience and brevity. The full text of cl 13.1 can only be seen by reading the definitions into the operative text and construing the operative text in that light. [9]

    9. See Herzfeld and Prince (Supra), at [21.10] and the authorities there cited.

37. Once the relevant definitions are read into its text, cl 13.1(a) reads as follows: [10]

“…[Cromarty] must…pay [the royalty at the rate of 4% on {the net sales realisation, actually realised by [Cromarty] from the sale of processed Ore…less the treatment and refining charges} of all saleable metals…processed from the Ore mined from the Tenements] to [Thalanga] within 15 Business Days after the end of the month of actual sales”.

10. Using brackets “[ ]” and “{ }” to signify incorporation of the words of the definitions; and without reading into the text the definition of “Ore”, as nothing turns on that definition.

38. The critical question is, which part of the clause determines when the Royalty is to be paid.

39. Is it the words “after the end of the month of actual sales” at the end of the clause? Or is it the words “net sales realisation, actually realised” which words are within the definition of Net Sales Realisation, incorporated by reference into cl 13.1(a)?

40. When cl 13.1(a) is set out in full in this way, it becomes clear that the time that the Royalty is payable is within 15 Business Days after the end of month of “actual sales”. This is the time when the Royalty must be calculated, at least on a provisional basis (as to which I refer below). That is, the words that govern when the Royalty is to be paid are those closing words.

41. That is made clear, in my opinion, when the full text of the clause is set out [11] with the following emphasis:

“…Cromarty must…pay the royalty at the rate of 4% on the net sales realisation, actually realised by Cromarty from the sale of processed Ore…less the treatment and refining charges of all saleable metals processed from the ore mined from the tenements to Thalanga within 15 Business Days after the end of the month of actual sales”. (Emphasis added.)

11. Omitting the brackets “[ ]” and “{ }” and substituting “Thalanga” and “Cromarty” where appropriate.

42. Mr Kelly’s submission was, in effect, that the words that govern when the Royalty was to be paid are the words “net sales, actually realised”. As Mr Kelly put it, it is the concept of “actual realisation” rather than the concept of “sale” that is determinative of when the Royalty is payable.

43. Mr Kelly’s argument was that the only time when the Royalty was capable of being calculated was when the amount of the “net sales, actually realised” could be finally ascertained, and that the Royalty was not payable until then.

44. As I have said, the effect of this submission, in the events that happened, would be that no Royalty was payable on 6 December 2018, when Thalanga demanded payment, nor on 28 December 2018 when Thalanga purported to terminate the Asset Sale Agreement. That is because, by reason of the terms of the contracts between Cromarty and Glencore and Trafigura, the “net sales, actually realised” of the shipments of ore made in the months leading to 2 December 2018 had not been, and could not be ascertained, until the end of the relevant quotational periods; each of which was after December 2018.

45. Mr Kelly’s construction would involve construing the words “month of actual sales” as meaning something to the effect of “month when the final sale price can be ascertained” or “month in which the second or final invoice is raised”. It would also give the second sentence of cl 13.3, to which I will return, no work to do at all.

46. Mr Kelly’s construction would also have the effect that unless and until Glencore or Trafigura made a final payment at the end of the quotational period, no Royalty would be payable to Thalanga. Thus, for example, if Glencore or Trafigura disputed its liability to make a final payment, perhaps because of some dispute about the quality of the ore in question, or perhaps for some other reason, no Royalty would be payable unless and until the dispute was settled. It would also mean that, were it to be to its advantage to do so, Cromarty could choose not to seek the final payment and thus avoid paying the Royalty. It appears to me that the parties are unlikely to have intended such a result.

47. In my opinion, the better view of the clause is that the Royalty is payable 15 Business Days after the end of the month of “actual sales” and an “actual sale” of ore takes place when a contract for sale of the ore is concluded so as to make it binding.

48. Clause 13.1(a) is directed to when the “actual sale” of “processed ore” takes place, rather than to when a “net sales realisation, actually realised” might occur.

42. In my opinion, this is confirmed by the second sentence of cl 13.3, to which I will return, which refers to adjustments being made for the excess or short “payment of Royalty in the month of sales”; thus confirming that the time for payment of the Royalty is “in the month of sales”. [12]

    12. Or, in fact, 15 Business Days thereafter.

43. It will be recalled that Glencore agreed to buy the “total production” of the Tenements so far as concerns copper concentrate and that Trafigura agreed to purchase a specified amount of lead and zinc concentrate. [13] Under the Glencore and Trafigura Agreements, sales were effected when Cromarty shipped the processed ore and invoiced Glencore or Trafigura for the “provisional price”. Title passed under both contracts when the Provisional Price was paid.

    13. See [19] above.

44. In those circumstances, in my opinion, the “actual sales” took place, at the latest, when title so passed.

45. The first sentence of cl 13.3 reads:

“The Royalty will be calculated by [Cromarty] on the NSR of the metals realised by [Cromarty]”.

53. When the definition of “NSR” is read into that sentence it reads [14] :

“The Royalty will be calculated by [Cromarty] on {the net sales realisation, actually realised by [Cromarty] from the sale of processed ore…less the treatment and refining charges} of the metals realised by [Cromarty]”.

14. Again using brackets “[ ]” and “{ }” to signify where the definitions are incorporated.

54. The clause so read is somewhat repetitive but it contemplates that Cromarty will calculate what it “realised” from the sale, in the sense of what represents its “net sales realisation, actually realised” from the sale.

55. However, cl 13.1(a) requires that this calculation be done within 15 Business Days of the “month of actual sales”. As “actual sales” take place when title in the ore passes, that calculation must be in relation to the “net sales, actually realised” from the sale at that point. The calculation would necessarily be provisional if, as happened, Cromarty could not at that time calculate what its final “net sales realisation, actually realised” would be.

56. The second sentence of cl 13.3 shows that the parties contemplated this possibility. That sentence reads:

“Any adjustment for the excess or short payment of Royalty in the month of sales is to be made when the final NSR for that month is determined”.

57. Thus, the parties provided for an adjustment of the Royalty “in the month of sales”, that is the royalty already paid for a “month of sales”, once the final NSR, that is the “net sales realisation, actually made” for that month could be “determined”.

58. In the events that happened, the “month of actual sales” was the month in which Glencore or Trafigura made a provisional payment to Cromarty and title in the ore passed from Cromarty to Glencore or Trafigura.

59. By the first sentence of cl 13.3, Cromarty was obliged to calculate the royalty. By reason of cl 13.1(a), that calculation had to be done within 15 Business Days of the end of that month. That calculation would necessarily be by reference to the “net sales realisation, actually realised” at that time. The calculation would thus be provisional; and might require an “adjustment” under cl 13.3 to calculate any “excess or short payment” once the final sale price was known at the end of the “quotational period”. The fact that the parties contemplated that the calculation might be provisional is recognised by the reference to the “final NSR” in the second sentence of cl 13.3.

60. Nonetheless, the Royalty, as best as it could be calculated, was payable at the end of the month in which Glencore or Trafigura made a provisional payment for the ore shipped that month.

Sales realisation expenses

61. A further question arises as to whether Net Sales Realisation must be calculated by deducting the costs of production from the sales proceeds.

62. Mr Kelly submitted that Net Sales Realisation must be calculated by deducting from sales proceeds “the cost of doing everything that needs to be done to bring about the sale” and “requires expenses to be taken into account”, including freight costs.

63. I do not agree.

64. First, Cromarty’s accounting expert, Mr Jaski agreed that the accounting concept of “net sales” was gross revenue less any returns or discounts and that the accounting concept of “realisation” was converting an asset into cash.

65. Second, Mr Kelly’s submission involves reading “Net Sales Realisation” as meaning “Net Profit”.

66. The only deduction that the definition of Net Sales Realisation permits is for “treatment and refining charges” which, as Mr Kelly submitted, are charges paid to the smelter. Such charges would be included in the “costs of doing everything that needs to be done to bring about the sale” or as part of the “expenses” of producing saleable ore. The fact that the parties have specified that “treatment and refining charges”, but not other expenses, be deducted from Net Sales Realisation shows that they did not intend Net Sales Realisation to be Net Profit.

67. Accordingly, sales realisation expenses such as sales, marketing and concentrate logistics expenses, assay costs, trucking and sea freight costs should not be taken into account to determine Net Sales Realisation.

68. I think Mr McGrath was correct to submit the reference to “Net” Sales Realisation is to take account of any credits, discounts or allowances that may be involved in the sales in question.

The witnesses – Mr Walker not called

69. I heard evidence from three lay witnesses. They were Mr William Leiva who is the Financial Controller of Thalanga’s sister company, Copper Mines of Tasmania Ltd, Mr Melkon Palancian who is the Managing Director of Red River and Mr Rodney Lovelady who is the Chief Financial Officer of Red River.

70. I gained the impression that each of these witnesses was doing his best to give an honest account of his recollection of relevant events.

71. Thalanga served affidavits from its former director, Mr Peter Walker, but did not call Mr Walker as a witness.

72. Mr Walker was a party to many of the relevant written communications, including two in November 2018 which are of critical importance, and to which I will return.

73. The other communications from Thalanga were by Mr Leiva, who agreed that Mr Walker determined the content of those communications.

74. Mr Walker ceased to be a director of Thalanga and of Copper Mines of Tasmania in October 2019 and ceased employment with Copper Mines of Tasmania in November 2019. In March 2020, Mr Walker commenced proceedings against Copper Mines of Tasmania in the Federal Court of Australia making serious allegations about the circumstances in which his employment was terminated.

75. Thus, Thalanga has given an explanation for its failure to call Mr Walker.

76. It is true, as Mr Kelly pointed out, that it was open to Thalanga to subpoena Mr Walker, read his affidavits and make him available for cross-examination.

77. But assuming that an inference can be drawn against Thalanga in these circumstances, it can only be that his evidence in cross-examination would not have assisted Thalanga.

78. As the relevant communications between the parties were for the most part in writing, this could only be of significance in relation to the meeting of 30 October 2018 between Mr Walker, Mr Leiva, Mr Palancian and Mr Lovelady, that I discuss below.

79. The fact that Mr Walker was not called means that the evidence by Mr Palancian and Mr Lovelady as to what happened at that meeting is not contested by Mr Walker and, to that extent, should be accepted. I see no other relevant significance arising from Mr Walker’s absence as a witness.

The events leading to termination

80. I have mentioned that Cromarty commenced sales of processed ore to Glencore and Trafigura in October 2017. [15] On 9 November 2017, Red River published an ASX Release stating that:

“● First payment has been received for the sale of zinc concentrate from the Thalanga Mine

…

Red River…is pleased to announce that first payment has been received for the sale of zinc concentrate from its Thalanga mine…, Australia’s newest zinc mine, in Queensland. This follows the commencement of concentrate production at Thalanga on 8 September 2017.

Zinc and lead concentrates from Thalanga are sold under an offtake agreement to Trafigura…”.

15. See [9] above.

81. There is no dispute that Thalanga became aware of this public announcement.

82. Nonetheless, so far as the evidence before me reveals, Thalanga did not seek payment of Royalties from Cromarty until June 2018.

83. In the meantime, there were negotiations about the possible acquisition by Red River from Cromarty of mining tenements known as the “Highway Reward leases”.

84. On 19 June 2018, Mr Walker wrote to Cromarty and Red River:

“Should [Red River] proceed with the purchase of the Highway Reward leases, [Thalanga] would be willing to consider arrangements involving the royalties, however until this is finalised, [Thalanga] requires payment of the royalties in accordance with the Deed. Arrangements could also include [Red River] or related entitles purchasing [Thalanga’s] 70% portion of the [Mount Windsor Joint Venture].”

85. On the same day, Mr Walker sent a further letter on behalf of Thalanga to Cromarty and Red River:

“Pursuant to clause 8.2 of the Deed, [Cromarty] is required to provide [Thalanga] with [the Second Bank Guarantee] prior to the commencement of production. Could you please advise when this bank guarantee will be provided as [Thalanga] understands production has commenced.

Further, clause 13.1 of the [Asset Sale Agreement] provides that the Royalty payable to [Thalanga] is due within 15 business days after the end of the month of actual sales. An announcement by [Red River] to the market indicated that concentrate sales were made in September 2017. As such, royalty payments should have commenced at that time, as should provision of the detail as to how the Royalty payment was calculated.

I note that clause 8.1 of the Deed entitles [Thalanga] to draw against the existing $300,000 unconditional bank guarantee should payment of the royalty not be made by the due date.

I request you address the above as a matter of urgency, and that all future royalties are paid as they fall due.”

86. There is no dispute that, because production had commenced at the Tenements, Mr Walker was correct to say that Cromarty was obliged to provide the Second Bank Guarantee.

87. On 21 June 2018, Mr Donald Garner from Red River replied:

“Many thanks – I have copied Rod Lovelady into this response. Rod is [Red River’s] CFO and as such is the person best placed to deal with your royalty query”.

88. Mr Lovelady said that, after he had received a copy of the email Mr Garner sent to Mr Walker on 21 June 2018, he carefully read the Asset Sale Agreement and understood from it that Cromarty was obliged to pay the Royalty to Thalanga within 15 business days from the end of the month of actual sales. He said he also read the Covenant Deed and understood from that document that Cromarty was obliged to provide the Second Bank Guarantee to Thalanga at the time that production begun at the Thalanga mine.

89. Mr Walker did not hear from Mr Lovelady and, on 16 July 2018, wrote to him:

“Are you able to provide an update on this?”

90. Mr Lovelady replied the following day, 17 July 2018:

“Yes, we will pay the outstanding NSR royalty before the end of this month.

We are working through our end of year accounts and reconciliations at the moment.

I will forward a schedule detailing the amount payable next week, before making the payment.

Let me know if you have any other queries in the meantime.”

91. In this email, Mr Lovelady made no mention of the then outstanding Second Bank Guarantee.

92. Despite Mr Lovelady’s statement, Cromarty did not pay any Royalty by the end of July.

93. Mr Lovelady said that, at around this time, he “first undertook the Royalty calculation” and:

“It was during this process that I became aware of the administrative effort required in preparing the calculation on a monthly basis and therefore proceeded to prepare it on a quarterly basis”.

94. On 3 August 2018, Mr Lovelady wrote to Mr Walker and to Mr Leiva:

“I was ringing to apologise for not getting the calculation through to Peter to review as per my previous email. The time was consumed with end of year accounts / audit and quarterly reporting.

The calculation is well progressed and I will send it as soon as it is available next week.”

95. Mr Leiva replied saying:

“Understand completely. Just gone through a board meeting and trying to complete month end”.

96. Mr Lovelady did not then disclose that he was performing his calculations on a quarterly, rather than monthly, basis, as was called for by cl 13.1(a) of the Asset Sale Agreement.

97. Mr Lovelady gave two reasons for his conclusion that it was administratively inconvenient to calculate the Royalty on a monthly basis. First, Mr Lovelady understood that, in order to calculate Net Sales Realisation, it was necessary for him to deduct the costs of production of the ore. For the reasons I have set out above [16] this was a misapprehension by Mr Lovelady of what was required. Second, Mr Lovelady understood that it was necessary to take into account, at the outset, the “adjustments” contemplated by cl 13.3 of the Asset Sale Agreement. [17] Again, this was a misapprehension of what the Asset Sale Agreement required.

    16. At [61] to [68] above.

    17. See [59] above.

98. On 9 August 2018, Mr Lovelady wrote to Mr Walker and Mr Leiva:

“By way of update – the calculation is nearing the end of its internal review prior to sending to yourselves.”

99. Mr Leiva replied that day:

“No problem at all, we are just getting pressure from head office in South Africa for a resolution.”

100. Having heard nothing further, on 16 August 2018, Mr Leiva wrote to Mr Lovelady and Mr Walker:

“Any update please.”

101. On 16 August 2018, Mr Lovelady wrote to Mr Leiva and Mr Walker:

“Attached please find the [Thalanga] NSR royalty calculation up to June 2018.

I have attached the workings – happy to take any questions you may have as you work your way through them.

Once the appropriate review has taken place, and you are able to confirm agreement with the calculation, could you please issue a tax invoice to [Cromarty] as basis for payment. The invoice can be emailed to myself.”

102. The attached “royalty calculation” showed a total royalty of $1,870,544 for the period up to June 2018, and calculated the royalty quarterly as follows:

Q2 FY18	Q3 FY18	Q4 FY18	Total FY18
Royalty Payable	$652,367	$591,470	$626,707	$1,870,544

103. The calculation of Royalties included, as a deduction from net sales receipts, “Realisation Expenses” including “Sales, marketing and concentrate logistics expenses”, “Assay Costs”, “Trucking”, “Sea Freight” and “Stevedoring and Port Charges”.

104. I have found that such expenses were not to be taken into account when calculating the Royalty. The Royalty for FY18 was nonetheless calculated, and ultimately paid [18] on this basis. I do not understand Thalanga to seek relief in respect of this miscalculation.

     18. See [111] and [115] below.

105. On 23 August 2018, Mr Leiva caused Thalanga to issue an invoice to Cromarty for $2,057,598, being the $1,870,544 referred to in Mr Lovelady’s “workings” plus GST.

106. In Mr Leiva’s covering email he said:

“Please find attached the invoice for the royalty due to TCM for Q2, Q3, Q4 2018.

TCM reserves the right to audit the calculations and adjust the invoice if required on a future date.

Going forward can we expect the calculations for invoicing to be supplied to us after the end of each quarter. Let us know”.

107. The invoice itself also contained a statement that:

“[Thalanga] reserves the right to audit the calculation on a later date if required and to make an adjustment to this invoice”.

108. There is no evidence that, in fact, Thalanga engaged in any “audit” of these calculations.

109. On 6 September 2018, Mr Leiva wrote to Mr Lovelady:

“Do you have any update on when we can expect payment.”

110. Mr Lovelady replied on 10 September 2018:

“We intend to pay the invoice by mid October. We may make the payment in two lots.”

111. On 28 September 2018, Red River paid Thalanga $300,000 of the invoiced amount of $2,057,598.

112. In cross-examination, Mr Lovelady gave this evidence:

“Q. Why did it take you until the end of September 2018 to pay an invoice of 23 August 2018?

A. Because we, I had to, because $2 million is a lot of money to us, and I know it was a catch up, but we do need, we do need to manage our cashflows, and we scheduled it for when our cashflow is going to enable it.

Q. Well this was all about managing your cashflows, was it?

A. We need cash in the business to pay. So every, every month I do a, it’s now on a look forward basis, we, we have to do our cashflows.”

113. On 1 October 2018, Mr Leiva wrote to Mr Lovelady:

“Just received the payment of $300,000. Thank you

Can we please have a timeline on when we can expect the balance of $1,757,598.

Also can we please have the expected royalty payable for Q1 FY2019 urgently. It does not need to [be] 100% accurate, I need a figure that I can accrual for our half yearly reports (March Year End).”

114. On 10 October 2018, Mr Walker wrote to Mr Palancian and Mr Garner:

“Would you and your executive team be available to discuss the Thalanga royalties at a meeting in your offices on Tuesday, 30 October 19, at say, 10.00am?

I am open to a discussion on how these payments could be structured however this must be in consultation and agreement with [Thalanga].

However I note that there is an outstanding royalty amount of $1.5m. I also note that at the end of July, [Red River] had cash of approximately $20m. I also note a bank guarantee of $700,000 is outstanding. As part of any discussions, I would like to discuss a security interest being taken over these debts. Alternatively, I would be open to a discussion whereby cash royalty payments be used either for an equity position in [Red River] and/or as part of any transaction for the Highway Reward/Magpie leases. Please also note that [Thalanga] has interest from another party for the [Thalanga] leases and should the matter progress, [Thalanga] would give the other party exclusive access for due diligence.

I look forward to your earliest response.”

115. On 12 October 2018, Cromarty paid the balance of $1,757,598 owing in relation to Thalanga’s tax invoice of 23 August 2018.

116. On 12 October 2018, Mr Lovelady wrote to Mr Leiva:

“The remainder of the FY18 royalty payment has been processed value dated today. If not already in your bank account, it should be there by Monday 15 October. This is as per our intention previously outlined below.

I will be in contact to discuss the release of the $300,000 guarantee, as enabled by the agreement once this payment is received.”

117. On the same day, Mr Leiva wrote to Lovelady:

“Any chance of getting a rough figure for the quarter September 2018 for royalty. I have a board meeting that I need to report to”.

118. Mr Lovelady replied on 15 October 2018:

“You could use $400K to $450k as an estimate. Lower metal prices have seen the value of non price fixed component of sales fall and new sales have been at the lower price.

I aim to be able to provide a better estimate by the end of this week”.

119. On 30 October 2018, Messrs Walker, Leiva, Lovelady and Palancian attended a meeting at Red River’s offices. I heard evidence from Messrs Leiva, Lovelady and Palancian as to what was said at the meeting. As I have mentioned, Thalanga did not call Mr Walker, so his account of what occurred is not before me. The recollections of Messrs Leiva, Lovelady and Palancian differed a little, but my impression was that each was doing his best to give an honest account of what was said.

120. The discussion on 30 October 2018 included the following:

1. Mr Lovelady stated that to align with its cash flow, Cromarty would “like to” [19] pay the Royalty quarterly rather than monthly or that “it is better” [20] for Cromarty to pay quarterly as this would “match with our cashflow fluctuation” [21] ;

1. Mr Lovelady was to “prepare a variation” of the Asset Sale Agreement and circulate a proposed deed of variation to the Asset Sale Agreement “setting that out” [22] ; and

2. Mr Walker said that Thalanga was “happy to consider” [23] , or “would need to consider” [24] , or did not “object to moving to” [25] or was “not opposed to” [26] or would “have a think about” [27] quarterly payments.

   19. Mr Lovelady’s recollection.

   20. Mr Leiva’s recollection.

   21. Mr Leiva’s recollection.

   22. Mr Leiva’s recollection.

   23. Mr Leiva’s recollection and Mr Lovelady’s recollection.

   24. Mr Palancian’s recollection.

   25. Mr Lovelady’s recollection.

   26. Mr Lovelady’s alternative recollection.

   27. Mr Lovelady’s further alternative recollection.

121. Also, at the meeting:

1. Mr Leiva asked Mr Lovelady and Mr Palancian more than once when Cromarty would make payment of Royalties outstanding for July 2018, August 2018 and September 2018;

2. Mr Leiva said he told Mr Lovelady and Mr Palancian that he was under pressure to report back to his superiors with a firm date for payment; and

3. Neither Mr Palancian nor Mr Lovelady proposed any date for payment of the July, August and September 2018 Royalties.

122. Mr Palancian also gave unchallenged evidence that he said:

“I just want to confirm that we have paid the Royalties owing for FY18 and our intention is to ensure that the Royalties are paid into the future”.

And:

“It is entirely our intention to ensure that the Royalty payments will be made”.

123. One thing that is clear from these accounts of the 30 October 2018 meeting is that no agreement or arrangement was reached to pay the Royalties quarterly.

124. Several days after the meeting, on 2 November 2018, Mr Leiva wrote to Mr Lovelady:

“Thank you for meeting myself and Peter [Walker] on Tuesday [30 October 2018].

Can you please give us a firm date of payment for the July to Sept 2018 royalties. Head office is putting pressure on us to enforce the current agreement.

We need to get…back to them with a firm date asap.”

125. Mr Lovelady gave this evidence in relation to that email:

“Q. Yes, he was seeking payment of all the royalties which were then due under the asset sale agreement, wasn’t he?

A. Correct.

Q. And they had been due in accordance with the terms as you understood them within 15 business days of the end of each month on which the sales had been made. In other words, 15 business days after the end of July, correct?

A. Under the agreement, correct.

Q. Yes, and also 15 business days after August 2018 as well?

A. Under the agreement, correct.

Q. Yes, and 15 business days from, after the end of September, correct?

A. As per the agreement, yes.

Q. He wanted from you, didn’t he, a firm date for the payment of those, didn’t he?

A. Correct.

Q. And he told you that he needed to get back to head office ASAP. You understood that as, “As soon as possible,” didn’t you?

A. Correct.

Q. You knew he was under pressure from his head office to enforce the current agreement, didn’t you?

A. He had mentioned that in his emails, yes.

Q. He’d asked on several occasions during the 30 October 2018 meeting for a date for payment as well, hadn’t he?

A. Correct.

Q. You didn’t respond to Mr Leiva’s email, did you?

A. I can’t recall. I’d have to go through the trail again, to be honest. I will make, we did need to calculate it though before we could pay it, so we weren’t able just to pay it, we had to calculate the amount.”

126. Thus, it appears that, on 2 November 2018, over a month from the end of the period for which Thalanga was seeking payment of Royalties, Mr Lovelady had not performed any calculation of what Royalty might be due.

127. Mr Lovelady did not reply and, on 9 November 2018 Mr Walker wrote to Mr Palancian and Mr Garner:

“Could I have a response to this query please. Payments are currently due within 15 days of the month sales were made. It is now 40 days past the first quarter. The first payments were more than six months overdue. I have been accommodating to date however I am not prepared to accept continuing breaches of the Sale Agreement.”

128. On 15 November 2018, Mr Walker reported to Mr Singla at “head office” in South Africa:

“The meeting was very disappointing. They did not apologise for the delays in the payments of the royalties and acted like they didn’t care.

I got a sense they were not interested in the leases unless we paid them a lot of money. I am looking at other options with other companies.

They are late with the latest royalties and are not responding. I attach the email that I sent, that includes Williams email. I will leave it until next week and then send a letter of demand threatening to enforce the agreement. I think we need to [pursue] the royalty sale however I would need to get advice as to whether the Agreement and Deed allow us to assign it to another party.”

129. Also, on 15 November 2018, Mr Lovelady responded to Mr Leiva’s 2 November 2018 email:

“Thank you to Peter and yourself for making yourselves available for the meeting.

I acknowledge the return of the original bank guarantee of $300,000.

As you would appreciate we completed the payment of $1.7 million for the FY18 NSR to Thalanga…this quarter. We will schedule the September quarter NSR to pay on Money 7^th January and then follow up with the December quarter NSR prior to the end of March 2019. This is in line with our intent expressed during our meeting to work to bring the payments back in line with a quarterly basis.”

130. Mr Lovelady was here proposing to pay the Royalty for “the September quarter” after the conclusion of the following quarter, that is the December quarter and to pay the Royalty for the December quarter at the end of the March quarter.

131. As I have set out, at the 30 October 2018 meeting there was some discussion of the possibility of Cromarty paying the Royalty “quarterly”. But there was no discussion that the Royalty for one “quarter” would be paid after the conclusion of the following quarter.

132. Mr Lovelady gave this evidence:

“Q. You knew, didn’t you, you knew by what you proposed on 15 November 2018, you were not adhering to the asset sale agreement, correct?

A. That was more in line with our quarterly discussions, so you are correct in respect to the asset sales agreement.

Q. You not only were not adhering to it, you knew that, you also did not intend to adhere to it either, did you?

A. We were negotiating a change to it, which we were hoping would come through.

Q. But you did not inten[d] to comply with the obligations as you understood them, did you?

A. At the time, my thoughts were not around, ‘I’m doing this because I don’t intend to comply with the current agreement.’

Q. But you knew that was the effect of it, didn’t you?

A. I knew this was different to the current agreement and we were having until the beginning of November when the tone changed, we were having very productive discussions around moving towards a different basis.”

133. Mr Walker responded sharply to Mr Lovelady’s 15 November 2018 email.

134. On the following day, 16 November 2018, he replied:

“This is not acceptable.

The Asset Sale Agreement (ASA) requires monthly NSR and payment made within 15 days from the end of the month. I pointed out any change to that requires [Thalanga’s] consent. While I agreed to consider calculation on a Quarterly basis, delay of payments for a further 3 months was not discussed or agreed. This in effect changes the payments from monthly to six monthly. I do not agree to this. You were also to prepare a document for my consideration regarding proposed changes.

I am not prepared to wait until January for sales made in the July-Sept quarter. As the payments are now more than 45 days overdue, I require payment within the next 14 days – by 30 November 2018.”

135. The statements made in Mr Walker’s email are consistent with the evidence before me as to what occurred on 30 October 2018. Mr Walker agreed to consider calculation of the Royalty on a quarterly basis but that a further delay of the payment of the Royalty, for the September quarter to early January 2019, or of the December quarter until the end of March 2019, was not discussed.

136. Mr Walker’s letter did, however, proceed on the basis that payments be made quarterly, as he referred to payment for the “July-Sept quarter”. Mr Walker said such payments were “45 days overdue”. But cl 13.1(a) required payments “within 15 Business Days after the end of the month of actual sales” which, for “sales made in the July-Sept quarter” would be 16 October 2018; making them 28 days, not 45 days, overdue as at 16 November 2018. Neither Mr McGrath nor Mr Kelly suggested anything turned on this.

137. Cromarty did not respond to Mr Walker’s email.

138. On 3 December 2018, Mr Leiva telephoned Mr Lovelady. Mr Lovelady returned the call.

139. Mr Lovelady’s recollection of the conversation was as follows:

“[Mr Leiva]:   [Mr Lovelady], I want to know about the next Royalty payment.

[Mr Lovelady]:   We intend to pay as set out in my 15 November email.

[Mr Leiva]:   Look [Mr Walker] is not happy that you didn’t respond to his latest email. He thinks you are not listening to him.

[Mr Lovelady]:   Why don’t you ring me back with [Mr Walker] and we can all discuss.

[Mr Leiva]:   Okay I’ll see when [Mr Walker] is available and ring you back.”

140. Mr Leiva’s recollection was that he said to Mr Lovelady “you will need to talk to [Mr Walker]. He has run out of patience” and that Mr Lovelady said that he called Mr Walker. Mr Lovelady said that he did not hear further from Mr Leiva or Mr Walker.

141. On 6 December 2018, Thalanga, by its solicitor, wrote to Cromarty:

“Outstanding Royalties

In breach of clause 13.1(a) of the Asset Sale Agreement, [Cromarty] has not paid any Royalty to Thalanga for the period of sales from July to November 2018 (Outstanding Royalties).

Representatives of Thalanga have engaged with representatives of [Cromarty]…and [Red River]…in relation to [Cromarty’s] breach of the Asset Sale Agreement and to have the Outstanding Royalties paid without further delay. [Cromarty] … has refused to remedy the breach and to date has not paid the Outstanding Royalties.

The failure of [Cromarty]…to pay the Outstanding Royalties is a material breach of clause 13.1(a) of the Asset Sale Agreement which entitles Thalanga to terminate that agreement forthwith and sue for damages. In the circumstances described above [Cromarty]…has also repudiated the Asset Sale Agreement, again entitling Thalanga to terminate the Asset Sale Agreement forthwith and sue for damages. Thalanga’s damages include the substantial lost profits that Thalanga would have earned for the life of the Asset Sale Agreement.

Demand

We are instructed to demand payment of the Outstanding Royalties by no later than 4.00pm on 13 December 2018.

If payment in full of all Outstanding Royalties is not received by this date, our client will terminate the Asset Sale Agreement and commence proceedings without further notice. In those proceedings, assuming the Asset Sale Agreement is terminated by Thalanga as a result of [Cromarty’s] material breach and repudiation of the agreement, it will crystallise Thalanga’s loss. Thalanga’s claim will therefore include the lost profit that Thalanga would have earned for the life of the Asset Sale Agreement. Thalanga estimates that its claim for lost profit will be for at least $23,000,000 and potentially considerably more.

Finally, Thalanga will not accept future payment of any Royalty other than in accordance with the terms of the Asset Sale Agreement. Thalanga will regard any future failure to make Royalty payments in accordance with the terms of the Asset Sale Agreement as a material breach of and repudiation of the Asset Sale Agreement and will immediately commence proceedings without further notice.” (Emphasis in original.)

142. In this letter Thalanga alleged that the “Outstanding Royalties” included royalties to November 2018. On no construction of cl 13.1(a) of the Asset Sale Agreement were the royalties for November 2018 due. I will return to this below.

143. Thalanga’s solicitor sent a corresponding letter to Red River.

144. Later, on 6 December 2018, Mr Lovelady wrote to Mr Walker:

“Apologies for the delay in coming back to you as our lawyers have been tied up on other matters.

Please see attached draft deed of variation reflecting our discussions.”

145. As had been discussed on 30 October 2018, the draft deed proposed that the word “quarter” be substituted for the word “month” in cl 13.1(a).

146. The proposed Deed of Variation also proposed that number “30” be substituted for “15” in that clause. That matter had not been discussed on 30 October 2018.

147. In any event, Mr Walker replied to Mr Lovelady within minutes:

“This matter has now progressed beyond this. Our solicitors have today emailed a letter of demand. All future correspondence is to be made via our solicitors”.

148. Cromarty and Red River made no response to the 6 December 2018 letters of demand.

149. On 28 December 2018, Thalanga’s solicitors wrote to Cromarty:

“We refer to our letter of demand dated 6 December 2018 (Letter of Demand) to which we have not received any response. We adopt the definitions used in the Letter of Demand.

Notwithstanding the Letter of Demand, [Cromarty]…has failed to pay the Outstanding Royalties to Thalanga. [Cromarty]…remains in material breach of and has repudiated the Asset Sale Agreement.

Our client hereby gives notice of the termination of the Asset Sale Agreement with immediate effect.” (Emphasis in original.)

150. On 8 January 2019, Cromarty, by its solicitors, replied stating that Cromarty accepted that the Asset Sale Agreement had been terminated and that it had calculated the “final Royalties payable” under the Asset Sale Agreement for the period 1 July 2018 to 28 December 2018 as being $1,222,337, and sought a tax invoice.

151. It is common ground that, by this letter, Cromarty purported to accept Thalanga’s alleged repudiation of the agreement as constituted by its letter of 28 December 2018 and to itself terminate the agreement.

Repudiation

152. The question is whether, as at 28 December 2018, Cromarty had repudiated its obligations under the Asset Sale Agreement such as to warrant Thalanga terminating the agreement that day; or whether it was Thalanga that repudiated its obligations under the agreement by its purported termination.

153. Mr McGrath submitted that I should consider all of the circumstances leading up to 28 December 2018 to determine this question and have regard to the cumulative effect of Cromarty’s failure to comply with its obligations under the Asset Sale Agreement.

154. However, the evidence that I have set out shows that although Cromarty had announced publicly in November 2017 that the sale of ore processed from the Tenements had commenced, it was not until June 2018 that Thalanga raised the question of the payment of the Royalty. And it was not until November 2018 that Thalanga demanded payment in terms.

155. To summarise:

1. on 19 June 2018, Thalanga told Cromarty that unless and until discussions concerning the possible acquisition by Red River of the “Highway Reward leases” were finalised, Thalanga would require payment of the royalties in accordance with the Deed; [28]

   28. See [84] above.

2. on the same day, Thalanga wrote to Cromarty saying that royalty payments “should have commenced” in September 2017 and that Cromarty should address this as a “matter of urgency, and that all future royalties are paid as they fall due”; [29]

   29. See [85] above.

3. on 16 July 2018, Thalanga sought “an update on this”; [30]

   30. See [89] above.

4. on 17 July 2018, Cromarty said that it would pay all outstanding royalties “before the end of this month”; [31]

   31. See [90] above.

5. on 3 August 2018, Cromarty told Thalanga that the royalty calculation was “well progressed” and would be available “next week”; [32]

   32. See [94] above.

6. Thalanga replied the same day, stating “understand completely”; [33]

   33. See [95] above.

7. on 9 August 2018, Cromarty told Thalanga that the calculation was “nearing the end of its internal review”; [34]

   34. See [98] above.

8. Thalanga replied the same day saying “[n]o problem at all, we are just getting pressure from head office in South Africa for a resolution”; [35]

   35. See [99] above.

9. on 16 August 2018, Thalanga asked for an “update”; [36]

   36. See [100] above.

10. later that day, Cromarty provided a “royalty calculation” on a quarterly basis, to June 2018, at $1,870,544. [37]

    37. See [101] - [102] above.

11. Thalanga made no comment about the fact that the Royalty was calculated on a quarterly basis and on 23 August 2018 sent Cromarty an invoice for $2,057,598 [38] and enquired as to whether “[g]oing forward can we expect the calculations for invoicing to be supplied to us after the end of each quarter”; thus seemingly accepting at this stage that Cromarty should do its calculations quarterly rather than monthly; [39]

    38. Being $1,870,544 plus GST.

    39. See [106] above.

12. on 6 September 2018, Thalanga enquired of Cromarty about an “update on when we can expect payment”; [40]

    40. See [109] above.

13. on 10 September 2018, Cromarty said that it intended to “pay the invoice by mid October” and that “[w]e may make the payment in two lots”, propositions about which Thalanga made no protest; [41]

    41. See [110] above.

14. on 28 September 2018, Red River paid $300,000 on account of FY18 Royalty; [42]

    42. See [111] above.

15. on 1 October 2018, Thalanga acknowledged receipt of the $300,000 payment and asked for “a timeline on when we can expect the balance of $1,757,598” and asked “can we please have the expected royalty payable for Q1 FY2019 urgently” and that “[i]t does not need to [be] 100% accurate”; again seemingly accepting that the Royalty be paid quarterly; [43]

    43. See [113] above.

16. on 10 October 2018, Thalanga proposed a meeting “to discuss the Thalanga royalties”, and stated that it was “open to a discussion on how these payments could be structured” but that “there is an outstanding royalty amount of $1.5m” and that the Second Bank Guarantee was outstanding; [44]

    44. See [114] above.

17. on 12 October 2018, Cromarty paid the balance of the royalty for FY18; [45]

    45. See [115] above.

18. on the same day, Thalanga enquired as to whether there was “[a]ny chance of getting a rough figure for the quarter September 2018 for royalty”; again seemingly accepting the Royalty be paid quarterly; [46]

19. on 15 October 2018, Cromarty told Thalanga that its estimate for the Royalty for the September quarter was $400,000 to $450,000 and that it would be able to provide “a better estimate by the end of this week”; [47]

20. at the meeting on 30 October 2018, there was discussion of the possibility of the Royalty being paid on a quarterly basis but no agreement about that matter; [48]

21. on 2 November 2018, Thalanga asked Cromarty for a “firm date” for the “July to Sept 2018 royalties; [49] and

22. on 9 November 2018, Thalanga demanded a response to its 2 November 2018 enquiry saying it was now “40 days past the first quarter”. [50]

    46. See [117] above.

    47. See [118] above.

    48. See [119]-[121] above.

    49. See [124] above.

    50. See [127] above.

156. Thus, to this point, Thalanga left open for discussion the possibility that Royalties be payable quarterly.

157. It was only after Mr Lovelady’s email of 15 November 2018 [51] that Thalanga demanded payment. Faced with Cromarty’s 15 November 2018 proposal that the Royalty for the September 2018 quarter be paid on 7 January 2019 and the Royalty for the December 2018 quarter be paid “prior to the end of March 2019”, Thalanga in effect brought discussion about quarterly payment to an end and demanded strict compliance with the Asset Sale Agreement.

     51. See [129] above.

158. It is in that context that the question of Cromarty’s alleged repudiation of the Asset Sale Agreement must be considered.

Repudiation – principles

159. The term “repudiation” is used in two senses. [52]

     52. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44] (Gleeson CJ, Gummow, Heydon and Crennan JJ).

**********

Endnotes

Amendments

10 June 2021 - Clerical errors

10 June 2021 - Clerical error

09 August 2021 - Typographical error in paragraph 269