Tui Trust Mining Ltd v Minister of Energy HC Auckland CIV-2011-485-136
[2011] NZHC 512
•23 May 2011
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-136
IN THE MATTER OF Sections 39(2) and 39(5) of the Crown
Minerals Act 1991
BETWEEN TUI TRUST MINING LIMITED Appellant
ANDMINISTER OF ENERGY Respondent
Hearing: 11 May 2011
Counsel: J V Ormsby with C L Webber for Appellant
D K Lemmon with J A Devlin for Respondent
Judgment: 23 May 2011
JUDGMENT OF THE HON JUSTICE KÓS
Contents
Paragraph Introduction
The Crown minerals regime
[1]
[4]
Mining permits [6] Land access [11] Resource consents [12] Revocation of permits under the Act [13] Appeals against revocation [16] Nature of a s 39(5) appeal [18] The persuasive burden [20] Evidence admissible on appeal [22] Facts
Some history
[26]
The permit land [27] The exploration permit [28] The mining permit [31] Notice to rectify [45] Notice of revocation [50]
TUI TRUST MINING LIMITED v MINISTER OF ENERGY HC WN CIV-2011-485-136 23 May 2011
First ground of appeal: reasonable cause for non-
compliance
[55] Meaning of “reasonable cause” for non-
compliance
[56] Tui’s submissions [63] Crown’s submissions [65] Analysis [66] Second ground of appeal: reasonable efforts to
remedy
[68] Meaning of “reasonable efforts to remedy” [69] Tui’s submissions [71] Crown’s submissions [73] Analysis [74] Disposition [77]
Introduction
[1] A mining permit has been revoked by a Minister. Was the Minister wrong to do so?
[2] The miner, Tui Trust Mining Ltd, admits non-compliance with the permit. But it says it had reasonable cause for its default. It also says it had made reasonable efforts to remedy that default. If so, Tui would be entitled to have the permit continue. If not, the Minister is entitled to revoke it. The Minister revoked. Tui has appealed that decision.
[3] This judgment first considers the Crown minerals regime generally. Next it looks at the facts of this appeal.1 It then considers the two grounds of appeal relied on by Tui.2
The Crown minerals regime
[4] In New Zealand certain minerals are owned by the Crown. They include gold, silver, petroleum, and unprocessed uranium. The management of Crown
1 Starting at [26].
2 Starting at [55].
minerals is governed by the Crown Minerals Act 1991 (the Act). The Act establishes a three-tiered permit structure. Commonly an intending miner will start with a prospecting permit, and then take up an exploration permit.3
[5] Once the intending miner wishes to extract minerals it will require at least three things: a mining permit, land access and resource consents.
(a) Mining permits
[6] Mining permits may be granted if it is shown that there is a mineral deposit capable of being mined. Hence the need for the prior permits. Mining permits have a maximum term of 40 years. The miner pays a relatively modest application fee, and an annual fee currently set at $10.22 per hectare. The real recompense to the mineral owner, the Crown, comes from payment of royalties on extracted minerals. In the case of gold, the relevant mineral in this case, the royalty ratio is a hybrid. The miner pays a one per cent ad valorem royalty on the sale price of the mineral, plus a five per cent accounting profits royalty. The Crown’s return therefore depends
on effective (and efficient) exploitation of the mineral resource.4
[7] Every applicant for a mining permit must submit a proposed work programme. It must include proposed mining methods, and a start date for production. The Minister is required by the Act to produce an overall “minerals programme” to guide the management of Crown minerals.5 The 1996 Minerals Programme for minerals other than coal and petroleum provides:6
The objective of a mining permit work programme should be to recover the reserve or measured resource in accordance with recognised good exploration or mining practice and within technical and economic constraints.
3 In the present case the land had been the subject of earlier exploration and mining activity. Tui started with an exploration permit: see [28].
4 See also the discussion of this aspect of mining permits by MacKenzie J in Bounty Oil & Gas
NL v Attorney General (reprinted in part at [2010] NZAR 120) HC Wellington, CIV-2005-485-
2054, 27 June 2006 at [73].
5 Under ss 12-18 of the Act.
6 Ministry of Commerce “Minerals Programme for Minerals other than Coal and Petroleum”
(23 September 1996) at [8.19].
[8] Officials review the proposed work programme. They may approve or modify it. The programme, as ultimately approved, is annexed to the mining permit. It forms a condition of the permit. Performance of conditions is essential to obtaining, and retaining, the permit. Section 27(1) of the Act provides:
The Minister may grant a permit under this Part only where the Minister is satisfied that the applicant will comply with the conditions of, and give proper effect to, the permit.
[9] The mining permit in this case is reasonably typical. The work programme provides:
The permit holder shall make all reasonable efforts to undertake the activities authorised by the permit in general accordance with the following work programme:
(a) stripping of topsoil and overburden and stockpiling, backfilling or other disposal as appropriate using earthmoving machinery as necessary;
(b) unless otherwise approved in writing by the Chief Executive of the Ministry of Economic Development (the Chief Executive) mining of gold bearing gravels by opencast methods at the minimum rate of
100,000 cubic metres per year using earthmoving machinery as necessary;
(c) the commencement of mining activities within 1 year of the anniversary of the granting of this permit;
(d) exploration and resource appraisal work as appropriate; (e) rehabilitation as appropriate.
The permit holder shall undertake all mining operations in accordance with good exploration or mining practice.
[10] It is conditions (b) and (c) that are in issue in this case. Condition (c) effectively grants a grace period of two years before mining activities must commence. That period provides for operational preparation, and should also be adequate to enable the miner to negotiate land access arrangements, and obtain resource consents.
(b) Land access
[11] The mining permit does not mean the miner has any rights to enter the land lying above the minerals. The miner must reach access arrangements with the landowners and occupiers. That is a matter of ordinary contract. In theory the Act enables the Governor-General to order an arbitrator to direct access over land.7 That power exists only where access would be in the public interest. It has never been used. In general, the miner must negotiate access, chequebook in hand.
(c) Resource consents
[12] The disturbance of land for mining purposes will trigger the provisions of the Resource Management Act 1991. The miner will need a land use consent, and probably water and discharge permits, before undertaking mining work.
Revocation of permits under the Act
[13] Permits may be revoked. There is a statutory process. Section 39(1) and (2)
of the Act provide as follows:
39 Revocation of permit
(1) If the Minister, on receipt of a report from the Secretary, has reason to believe that any permit holder is contravening or not making reasonable efforts to comply with this Part, or regulations in force under this Part, or any of the conditions of the permit, the Minister may cause to be served on the permit holder a notice–
(a) Specifying the alleged contravention or non-compliance;
and
(b) Requiring the permit holder, within 20 working days after the service of the notice or such longer time as the Minister may specify in the notice, to remedy, or make reasonable efforts to remedy, the contravention or non-compliance, or show reasonable cause for its occurrence, or show that it has not in fact occurred; and
(c) Stating that failure to comply with the requirements of the notice may result in revocation of the permit.
7 Section 66.
(2) If the Minister is satisfied that a permit holder has failed to comply with the requirements of a notice served under subsection (1), the Minister may, by written notice served on the permit holder, declare that, 20 working days after the date of service of the notice, the permit shall be revoked or shall become the property of the Minister; and, subject to subsection (6), on the expiry of that period the permit shall be revoked or become the property of the Minister, as the case may be. Every notice under this subsection shall specify the reason for the Minister’s decision.
[14] The revocation of a mining permit is rare. Bounty Oil8 involved revocation of a petroleum exploration permit because of failure to perform a work programme. The consequence of revocation is serious. Clause 17.1 of the Minerals Programme provides:
... Permit revocation is a penalty measure and accordingly is considered a very serious matter. The fact that a person has had a permit revoked may be a consideration against the award of future permits to that person or a related company.
[15] The revocation process is a two-step one:
(a) notice to rectify must first be served under s 39(1);
(b)notice of revocation may then be served under s 39(2) if the Minister is satisfied that the permit holder has not complied with the requirements of the notice to rectify.
Appeals against revocation
[16] Revocation is subject to a general right of appeal to the High Court. Section
39(5) provides:
A permit holder who has been served with notice under subsection (2) may, not later than 20 working days after the date of service, appeal against the Minister's decision to the High Court. Every such appeal shall be heard and determined by the High Court.
[17] This raises a number of procedural issues:
(a) the nature of a s 39(5) appeal;
8 Above n 4.
(b) where the persuasive burden rests; and
(c) what evidence may be adduced on appeal.
(a) Nature of a s 39(5) appeal
[18] Tui has appealed revocation of its mining permit, under s 39(5) of the Act. The appeal is governed by High Court Rule 20.18. It is an “appeal by way of rehearing”. What that means is that the Court should reach its own conclusions on the merits. It need not defer to the original decision maker. If the Court thinks he or she was wrong, it should say so forthrightly.9 Of course it recognises that the original decision maker will, in some cases, have seen witnesses and heard evidence (including cross-examination). In such cases it will take heed of the advantage the original decision maker had in seeing the evidential process play out. That is
especially so where issues of contested evidence and credibility arise. This is not, however, such a case. There was no original “hearing”. The Minister (or at least his delegate) acted on the papers. So shall I. For simplicity I shall continue to refer to the decision maker as the Minister. There was no challenge to the grant of delegation to the relevant senior official.10
[19] I agree, therefore, with the approach taken by MacKenzie J in Bounty Oil, which considered s 39(5) explicitly:11
I approach this appeal on the basis that the role of the Court is to examine the merits of the matter afresh, having regard to the material which was available to the relevant officials within the Ministry at the time, and to the additional evidence which was adduced before me. I consider that the Court must examine the merits of the respective decisions in the light of all that material.
9 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [3] and
[16].
10 Cf Bounty Oil.
11 At [36]. Bounty Oil appears to be the only case that hitherto has considered s 39.
(b) The persuasive burden
[20] The absence of deference does not mean the process restarts as if there had been no initial decision. It is an appeal from that decision. The onus lies on Tui to persuade this Court that the Minister’s decision was wrong:12
... In either case, the appellant bears an onus of satisfying the appeal court that it should differ from the decision under appeal. It is only if the appellate court considers that the appealed decision is wrong that it is justified in interfering with it.
[21] Before me Mr Jared Ormsby, who appeared for Tui, unequivocally accepted that the onus lay on his client. Tui accepts it was non-compliant with the permit conditions. It also accepts that it had not remedied that state within the 20 working day period allowed in the notice to rectify. Therefore, to succeed, Tui must persuade me either:
(a) that it had “reasonable cause” for non-compliance with the permit in the first place; or
(b)that it had made “reasonable efforts to remedy” non-compliance before the notice of revocation was issued.
(c) Evidence admissible on appeal
[22] As is normal in such appeals the Crown (as original decision maker) filed an affidavit producing the material that was before the Minister at the time he made his decision.
[23] Tui’s affidavit, by its director Mr Darryl Lucas, ranged much further. It touched upon matters arguably unknown to the Minister at the time he made his decision. That is not necessarily fatal. The Court has a discretion to receive further evidence on appeal. Leave is required.13 It is granted sparingly. The normal rule is
that evidence that could with reasonable diligence have been put before the original
12 Austin, Nichols & Co Inc at [4].
13 High Court Rules, r 20.16(2).
decision maker will not be admitted on appeal. What will be allowed is material that could not reasonably have been found in time. That includes, obviously, essential updating evidence - i.e. of events post-dating the decision. That is not however an opportunity to bolster the evidence that was before the original decision maker. The question remains whether his decision of 20 October 2010 was wrong. Any additional evidence must be relevant to that. Otherwise the result would be that the Minister’s decision would be rendered a mere “dummy run”. The Court of Appeal
has warned against such an approach.14
[24] Objection to Mr Lucas’ affidavit was taken by the Crown. Its counsel, Mr David Lemmon, tendered a marked-up copy of Mr Lucas’ affidavit. It identified what was said to be inadmissible. I think Mr Lemmon’s surgical knife cut too far. Some of what he suggests be excluded was in fact covered, perhaps less succinctly, in correspondence15 and emails from Tui. I will exclude only that material not broadly before the Minister when the decision was made. I exclude [16], [17], [31], [36] (as to specific costs), [45] to [47], [50] and those parts of [55] to which objection was taken. Nothing turns on that part of my decision, however. Had I
admitted that evidence, my ultimate decision would have been the same. [25] I turn now to the facts of the case.
Facts
Some history
[26] In the hills to the north of the Taramakau River in central Westland lies the Hohonui Range. Falling towards the sea from that range, bound by the Taramakau to the south and Greenstone Creek to the north, are a series of terraces. They have been mined for gold since soon after the day in January 1864 when two members of the local iwi, levering a large block of greenstone out of Greenstone Creek, found coarse
gold in the cavity left beneath the block.16 The greenstone was of more immediate
14 Telecom Corporation of NZ Ltd v Commerce Commission [1991] 2 NZLR 557, 558.
15 Dated 27 August 2008, 8 May 2009, 7 December 2009 and 24 January 2010.
16 Ross The West Coast Gold Rushes (2nd rev ed, Pegasus, Christchurch, 1967) at 93.
interest to them than the gold. But local pakeha prospectors took a different view. The terrace adjacent to the permit area is named for one of those prospectors, William Revell. Two of the peaks in the Hohonui Range are named after two others, Michael French and William Smart. No mountains memorialise the two Māori miners. They are recalled only by history, and imperfectly at that, as “Simon Tuangu
and Samuel”.17 Within weeks the creek was home to 300 men. They drifted away as
the area was claimed and worked out, but evidence before me showed that mining continued at Revell Terrace until well into the 20th century.
The permit land
[27] The mining permit in this case is known as MP41952. It covers some 887 hectares. Some of the permit land is owned Ngāi Tahu. The balance is part of the conservation estate, managed by the Department of Conservation. Most of the land is forested. The Ngāi Tahu land is commercial forest land, known as the Hohonui Forest. It was managed initially by Timberlands West Coast Limited. Later the manager became P F Olsen Limited. Some of the land had previously been the subject of a mining licence issued to L & M Mining Ltd in the 1980s. L & M’s focus had however switched to petroleum exploration.
The exploration permit
[28] Tui was granted an exploration permit over the land in July 2003.
[29] Mr Ormsby urged me to disregard the history of the exploration permit. He submitted that the grant of the mining permit meant that Tui had the benefit of a “fresh start”. I disagree. The obligations of Tui under that exploration permit may not be directly relevant. But the opportunities offered by the permit to gain familiarity with the land, and the relevant practices of the land owners and occupiers, are certainly relevant to the question of whether Tui had “reasonable cause” for non- compliance with subsequent mining permit conditions.
[30] The exploration permit required a suite of works to be done within 24 months, and a further suite within 36 months. The latter included closely-spaced pit sampling or drilling. After nine months Tui had done none of these works. After 22 months it reported it had now undertaken some aerial plotting via a “helicopter flyover”. It noted that revised zoning made access for mining “difficult”. After 35 months – i.e. within one month of the second milestone in the work programme – it reported little further activity. It was plainly non-compliant with the exploration permit work programme. Importantly, a theme running through the reports by Tui, by way of excuse for its relative inactivity, was the presence of forest trees. The reports state that sampling could only occur after logging. Significant logging seems only to have started in 2006 – proximate to the 36 month milestone.
The mining permit
[31] In June 2006 Tui applied for a mining permit. It told the Crown it would need to negotiate with Timberlands to establish a viable mining operation. It also noted the need for resource consents due to the “severe effects” of mining on vegetation and soils. On 7 December 2006, in the course of negotiating the mining permit work programme, Tui wrote to the Crown stating:
... mining operations cannot begin until: (1) Access has been granted to the land by the respective owners, DOC and Timberlands; (2) Resource consent has been granted. These applications will be made promptly and while we can guarantee there will be no delay caused by us, we cannot give assurances as to how long the approvals from Timberlands, DOC and West Coast Regional Council will take. (Emphasis added).
[32] The mining permit was granted on 23 January 2007. The essential parts of its work programme have already been quoted.18
[33] Progress and performance of a work programme has to be reported annually. Progress under the mining permit was as desultory as it had been under the exploration permit. Despite the assurances given in the December 2006 letter, access was not negotiated promptly with either Ngāi Tahu (Timberlands) or the Department of Conservation. Access to the permit land for mining purposes was not secured
from either land owner. Access to the Ngāi Tahu land, for limited exploration purposes and for a period of six months only, was secured in March 2010. The resource consents were applied for only in September 2010.
[34] Sixteen months after grant of the mining permit, in May 2008, Tui could report only that certain appraisal work had been done. Its projected production date was “not sure”. Nor was the proposed mining activity for the following year. Tui said it was trying to locate a drilling programme that the previous permit holder, L & M Mining, had undertaken. It continued:
Timberlands (owner/occupier) have started a planting programme over a large part of the licence, so negotiations/compensation talks will have to take place. We are awaiting the drilling report to see what effect the planting will have on the area with gold.
[35] It is self-evident the tree replanting and mining are substantially incompatible activities, and it is evident that Tui appreciated that fact. The effect of replanting on areas to be mined is two-fold: either mining is postponed for the timber production period (up to 25 years) or the miner must buy preference (and probably the trees). At the very least, however, it must negotiate access if the work programme is to be met. The report made clear that this had not been done.
[36] Three months later in August 2008, Tui wrote to the Crown:
In response to formal request to identify areas within the licence area Timberlands provided the attached map showing that it was intending to replant almost all the area of the licence area, and that access was not available in the immediate future. We wish to mine the area and to retain our priority.
[37] Tui suggested that the Crown might grant it a moratorium on further payment of annual fees “on the area that is not available for mining while still recognising our priority to mine it when access becomes available.” Attached was a map showing areas that were “not available for mining”. Those areas encompassed approximately
80 per cent of the permit area.
[38] The Crown replied on 30 September 2008. It declined the invitation to suspend payment of annual fees. It noted:
As you will be aware, granting of a mining permit only allows the permit holder the right to access the mineral. Land access is a matter that is negotiated between the permit holder and the landowner and/or occupier.
The letter went on, correctly, to suggest that the appropriate option for a miner unable to obtain access was to relinquish part of the permit area.
[39] The next annual activity report was dated 16 April 2009. The two year grace period in the work programme for mining activities to commence had ended in January 2009. No mining activities had been undertaken. An official overscored the report, accurately as to assessment if not as to spelling: “Nill mining to date”. Apart from the helicopter flyover, researching L & M Mining’s records seem to have been the principal activity undertaken after 2003. By 2009 Tui plainly was non-compliant with the mining permit conditions.
[40] On 23 April 2009 the Crown told Tui that it was non-compliant:
Please be aware that under the current permit conditions you are required to mine gold bearing gravel by opencast methods at the minimum rate of
100,000 cubic metres per year, commencing within one year of the anniversary of the grant of the permit. As you have yet to commence mining by the 23rd of January 2009, you are now non-compliant with these conditions.
[41] The letter went on to identify two mechanisms available to Tui to keep the permit in good standing: an application to amend the commencement date of the permit, or an application to amend the conditions of the permit. The letter concluded:
I would suggest you review the conditions of the permit, and take the appropriate steps to remain compliant and avoid the possibility of having the permit revoked.
[42] On 8 May 2009 Tui applied to the Minister to extend the commencement date for mining operations until 23 January 2011 – i.e. by two years. A good deal of information and correspondence followed in relation to that application. Tui produced a letter dated 17 December 2007 from Timberlands referring to a “recent inquiry” by Tui regarding access for gold mining. That was almost a year after the mining permit had been granted. Tui also produced an email from P F Olsen (acting on behalf of Ngai Tahu) dated 13 November 2009 indicating that:
An Access Arrangement will need to be prepared and agreed with the land owner (Ngai Tahu) and occupier (Crown Forestry).
That was long after the two year grace period under the work programme had expired. A further email dated 3 December 2009, direct from Ngai Tahu noted:
There is no existing access arrangement with Ngai Tahu Forest Estates Limited in place in respect of this permit, therefore we will require a copy of the permit and the testing details before we confirm our approval to access this land.
The email also noted that access would be subject to approval from Crown Forestry, which had the leasehold interest in the land in any case.
[43] On 18 March 2010 Tui provided the Crown with a copy of an access permit issued by P F Olsen. As earlier noted, that permit was for the purposes of exploration, not mining, and was valid only for a period of six months, expiring 30
September 2010.
[44] On 14 September 2010 the Crown declined the application to amend the commencement date. No application for review of that decision has been brought.
Notice to rectify
[45] On 17 September 2010, three days after Tui’s application to vary the work programme commencement date was declined, the Minister issued notice to rectify under s 39(1). The identified non-compliance covered conditions (b) and (c) of the work programme. The notice was in proper form. Tui does not deny that it was in breach of those conditions. No application was brought to review the issue of the notice.
[46] Tui’s response to this notice was immediate. First, it wrote a letter to the
Minister. Dated 24 September 2010, it was a “mea culpa” letter. It said:
We offer no excuses for what has happened. We concerned ourselves with our other concessions (which are going well) and left MP 41952 to the segregated owner of that concession whom we had found difficult to accommodate.
...
We have been dragging the [sic] feet on this one, but it has not been all of our making. There have been many challengers [sic] along the way and no doubt more ahead which will be overcome.
We will report again within the next two weeks.
[47] Mr Ormsby urged me not to take too much heed of an unguarded, immediate response. But it is because it is unguarded that I do pay it heed.
[48] Secondly, Tui undertook some immediate actions. In fairness to Tui, some of these may have been in train already when the notice to rectify was issued. Mr Ormsby pointed to four categories of response:
(a) Access arrangements: as the letter from Tui noted, on 22 September
2010 (the day after receipt of the notice to rectify) Tui wrote to the property manager of Ngai Tahu seeking an access arrangement to mine their section of the permit land. A telephone call was also made to the Department of Conservation, to arrange for a map to be sent to Tui. The letter noted, laconically:
An access arrangement with the Department of Conservation would also be required as mining progresses.
(b)Entry into a mining contract: this was referred to obliquely in the letter as “discussions” with Morris Contracting. A form of contract was attached to Mr Lucas’ affidavit. It is dated 1 September 2010, but is not signed by the contractor. It is for an initial period of three months only. Further agreement is required thereafter.
(c) Entry into negotiations with contractors: Tui’s letter states that it had been “in discussions” with its mining contractors, Whyte Gold Limited, Morris Contracting and Shamrock Minerals Limited. On the strength of those discussions Tui asserted that it had a “formidable group of experienced miners” at hand. It had also taken steps to acquire a drilling rig. Details supporting these assertions are not given in the affidavit, however; nor are they to be found in the
material provided to the Minister. No contractual instruments were produced.
(d)Applying for a resource consent: it appears that this step was already in train, as Tui had paid the filing fee for the resource consent eight months earlier, in January 2010. Why it had done so is not entirely clear. Mr Lucas’ evidence is that another Tui director failed to lodge the application. On the other hand, that director had written to the Crown saying the problem lay at the door of the council. I will proceed on the basis of the sworn evidence of Mr Lucas. It is difficult for a council to issue a resource consent which has not been applied for. As part of the resource consent process, Tui had also retained an archaeologist. He prepared a short report in November 2010. I am advised that the resource consent was granted in early 2011.
[49] Tui’s letter of 24 September 2010 promised to report to the Crown again within a further two weeks. Mr Lucas says he attempted to do so, orally, and left a message or messages. He says his calls were not returned. Be that as it may, the notice to rectify made clear that failure to comply might result in revocation of the permit. The onus was on Tui to ensure that the Minister had all the information in front of him before he made a decision under s 39(2). Leaving messages does not meet that onus. In any case, it is not clear on the evidence what further material information could have been communicated at that juncture.
Notice of revocation
[50] The period under the notice to rectify expired on 20 October 2010. It is common ground that Tui remained non-compliant, despite the various steps that had been taken.
[51] A report prepared by officials on 10 December 2010 observed:
Officials note that:
(a) no evidence, or the outcome of communications with the
WCRC, P F Olsen and DOC has been provided, nor the
discussions with mining contractors Whyte Gold Ltd and
Shamroc Minerals Ltd;
(b) no change of conditions has been submitted in respect of non-compliance;
(c) no further communications have been made with officials on this matter; and
(d) it appears that no access arrangement for mining activities with DOC (the other significant land owner in the Permit) has been applied for.
Officials are also conscious of the significant time frame (over 6½ years, according to officials records) that the Permit Holder has held a permit over the Permit area (including EP 40607 which was subsequent to the Permit) without any access arrangement in place.
[52] Mr Ormsby challenged two aspects of that report:
(a) The observation at sub-paragraph (c) that no further communications had been made with officials. I have dealt with that aspect already.19
I find the onus lay on Tui to ensure that whatever material information it held was before the Minister.
(b)The officials’ reliance on the history of non-performance going back to the exploration permit, over six years earlier. I have already held that that history is material from a contextual perspective.20
[53] The report concluded:
The permit remains in a state of non-compliance and the Permit Holder has not satisfied officials that it has made reasonable efforts to remedy the non-compliance. Accordingly, proceeding with the second notice of revocation is considered appropriate.
[54] The notice of revocation was issued by Mr Christopher Kilby, Group
Manager, Crown Minerals, at the Ministry of Energy. It was sent to Tui on 15
December 2010. The notice of revocation advised Tui of its right of appeal. Tui has exercised that right. The permit continues in effect pending determination of the
appeal.
19 At [49].
20 At [29].
First ground of appeal: reasonable cause for non-compliance
[55] Tui’s first ground of appeal is that it had showed reasonable cause for the occurrence of its non-compliance with the permit conditions, for the purposes of s 39(1)(b).
Meaning of “reasonable cause” for non-compliance
[56] It was common ground that to succeed here, Tui would need to show that the causes of its non-compliance were circumstances beyond its own control.21 I agree that that is a prerequisite. But it is not the sole prerequisite. Cause and response are both relevant to “reasonable cause” for non-compliance.
[57] In Bounty Oil, Bounty’s permit required it to have acquired raw seismic data (and to have processed and interpreted that data) by August 2004. A contractor was identified to undertake the seismic survey. Bounty did not contract with the contractor. Instead a third party, Electro Silica, did that. It had entered a farm-in agreement with Bounty. A farm-in involves a new venturer paying for (or undertaking) certain work in exchange for a percentage interest in the venture. In this case Electro Silica was to receive a 25 per cent interest in exchange for paying the contractor to do the seismic survey. Electro Silica failed to pay the contractor. Nor did Bounty pay it. The contractor terminated the contract and sold the data to a third party. The data was therefore no longer available to either Electro Silica or Bounty.
[58] MacKenzie J held that the obligation to acquire (and necessarily therefore to pay for) the seismic data rested on Bounty. It could not relieve itself of that obligation by transferring responsibility to a third party. MacKenzie J went on to say:22
Bounty submits that Electro Silica’s default was a circumstance beyond
Bounty’s control, such as to amount to reasonable cause for non-compliance
21 See for instance the extended definition given to “reasonable cause” in s 135B(2) of the Child Support Act 1991, an explicit element of which is that the cause is beyond the control of the liable person. The other element is the reasonableness of the response.
22 Above n 4 at [52].
with the permit condition. I do not accept that submission. The obligation to acquire the data was on the permit holders. How they met that obligation was for them to determine. ... The obligation to acquire the data, and necessarily to pay for that acquisition, rested on the permit holders. They could not relieve themselves of that obligation by transferring that responsibility to Electro Silica. ... I do not exclude the possibility that a failure of a contracting party to perform the terms of a contract might constitute reasonable cause for non-compliance by the permit holder with its obligations. It would be expected that the permit holders would need to enter into contracts with third parties to perform the work necessary for the acquisition of the data. But the failure here is not a failure of that sort.
[59] As his Honour noted, there was no reason apparent on the evidence why Bounty could not simply have paid the contractor for the data. The contractor would likely have sold the data to Bounty on reasonable terms, had they been offered. The contractual arrangements that Bounty made (or needed to make) to obtain the data were entirely within its control.
[60] A second condition of Bounty’s permit was also breached. It concerned the failure to drill an exploration well by August 2004. Bounty offered a variety of excuses for that breach. One was that weather and seastate conditions had hindered performance. A second was the unavailability of suitable drilling equipment. MacKenzie J disagreed:23
I do not accept Bounty’s submission that it was faced with force majeure circumstances in any of the respects claimed. The weather and seastate conditions in the Great South Basin, and the fact that those would allow only limited windows of opportunity for drilling operations were, or ought to have been, known to Bounty when it formulated its work programme. These conditions ought to have been allowed for in fixing the programme. There is no evidence that weather or seastate conditions were worse than should have been reasonably expected.
[61] Similarly his Honour held that Bounty could not rely on the unavailability of a suitable drilling rig. The drilling location depended on having the seismic data, the absence of which was its own responsibility. It also depended on it having third party financial contributions, which Bounty had been unable to secure.
[62] I respectfully agree with the approach taken by MacKenzie J in Bounty Oil.
The fundamental objective of the Crown’s mineral regime is the efficient
exploitation and extraction of Crown minerals for which mining permits have been
23 At [64].
granted. To succeed on this ground of appeal, a miner would need to point to circumstances beyond its control – and which, despite diligent efforts, it had been unable to resolve. Absent such efforts, a permit holder cannot expect tenure to be extended in the face of non-compliance, either by the Minister or by this Court on appeal. Both independent cause and diligent response must be demonstrated.
Tui’s submissions
[63] Mr Ormsby submitted that the inability of Tui to comply with the timetabling of the work programme was indeed due to circumstances beyond its control. The circumstances he pointed to were these:
(a) That Tui had been unable to undertake the mining activities at the rate set out in the permit, because the permit land was covered with exotic forest. Forests made testing for mining impossible unless the forest was first logged.
(b)Timberlands, Ngāi Tahu’s agent, hindered the ability of Tui to comply with the work programme timetable because of its land management policies. Access to land would require prior identification of the area to be mined, and payment of a non-production fee. If testing confirmed the area unsuitable, Tui would incur the cost of replanting trees. Mining activities could occur only in the short period between logging and replanting.
(c) Timberlands would not permit a floating screen mining operation. A “floating screen mining operation”, as I understand it, involves rotating screens sitting on pontoons floating on water drawn from an excavated pit. As a result Tui would have to switch to land-based equipment.
[64] It was said by Mr Ormsby that the consequence of all these factors was
“intolerable time and expense” imposed on Tui.
Crown submissions
[65] Predictably the Crown disagreed. Mr Lemmon noted the terms of the
24 September 2010 “mea culpa” letter, acknowledging that Tui had been “dragging [its] feet” on this permit. As to the circumstances which Tui pointed to as being beyond its control – the presence of exotic forests and the forestry practices of Timberlands – the Crown said that these were both factors which Tui was aware of, or should have been aware of, at the time it applied for the permit. In particular, the trees were present on the land at the time Tui applied for the permit. Obtaining access was a matter which was the responsibility (and in the control) of Tui as permit holder.
Analysis
[66] I have held that to succeed on this ground Tui would need to demonstrate circumstances beyond its control which, despite diligent efforts, it had been unable to resolve. I find Tui unable to meet this burden:
(a) The presence of forestation on the permit land was a fact known to Tui when it applied for the permit. Even if it had not known, it should have known. A permit applicant has an obligation to familiarise itself with the circumstances of the permit land. If it fails to do so, that is not a circumstance beyond its control. But in this case there is no doubt that Tui was aware of the forestation of the permit land. It had already pointed to difficulties with forestation in explaining its earlier
non-compliance with the exploration permit.24 Yet it then sought and
entered a mining permit containing mining obligations that would mature in just two years. Relatively early in the life of the mining permit it again appreciated the access problem. That was why it
sought deferral of the work programme commencement date.25
24 See [30] of this judgment.
25 See [34]–[44] of this judgment.
(b)The forestation was always likely to compromise Tui’s ability to mine the land. Pastoral farming would have had a similar effect. Either would have meant the landowner had an alternative economic use of the land, apart from releasing it for mining. The permit holder would therefore need to offer the landowner terms for access more attractive than the default option of growing trees unmolested by mining, and harvesting them in due course.
(c) The inability of Tui to agree access terms with the landowner’s agent is not a matter beyond Tui’s control. In the same way, the obligations of Bounty Oil to obtain seismic data and a suitable drilling rig were matters within its control. In each case it was a question of negotiating and paying for it. In very rare cases s 66 may be deployed in the public interest to overcome abject intransigence by a landowner. This is not such a case, for two reasons. First, the public interest does not demand displacement of this landowner’s objectives for the use of its land. Secondly, there is no evidence before me that the landowner was acting intransigently.
(d)In any case, I am not satisfied that Tui acted with diligence to resolve the access issues it confronted. The evidence is as follows. First, it did not negotiate access with the Department of Conservation, despite it holding approximately one third of the permit land. The evidence goes no further than to show that Tui had sought a map from the Department, and accepted the need to go on and negotiate access. There was no evidence before the Minister that it had entered such negotiations. Mr Ormsby could point to none. Secondly, its negotiations with Timberlands and P F Olsen for the other owner, Ngāi Tahu, were hopelessly late. Substantial steps seem only to have gained any sort of traction in late 2009 – long after Tui had become non-compliant. Access rights for exploration, but not mining, were achieved in March 2010, for a six month period. Inadmissible evidence from Mr Lucas suggests arrangements have since been made with both landowners to access the permit land for mining. But even
had it been admissible, there is inadequate detail offered to justify a conclusion that the Minister was wrong to have revoked the permit in December 2010.
[67] I dismiss the first ground of appeal.
Second ground of appeal: reasonable efforts to remedy
[68] Tui’s second ground is that it had shown the Minister that it had made
reasonable efforts to remedy the breach.
Meaning of “reasonable efforts to remedy”
[69] I note two particular points about this aspect of s 39. First, there is the relevant time period. The end of the period specified in the notice to rectify is the longstop for evidence of reasonable efforts. But the Minister, and I, can look back to before the start of the 20 day notice period to assess what efforts had been undertaken. While there is a firm temporal terminus, there is scope to look back beyond the start of the notice period.
[70] Secondly, what is “reasonable” is not resolved merely by asking what is possible within the notice period, and leaving it at that. Non-compliance may be so egregious that nothing done within that period will constitute “reasonable efforts” for the purposes of the s 39(1)(b). Let us imagine a permit holder has done nothing at all under its work programme. It then receives notice to rectify under s 39, and does all it can within the next 20 days to remedy the breach, but without success. A Minister or Court is unlikely to find that will amount to reasonable efforts and excuse the preceding inattention to obligation. A permit holder seeking to rely on this provision must lay a tangible foundation from which the Minister can be confident:
(a) that necessary access and resource consents will be obtained; and
(b)that the permit holder will catch up on the deferred work that should have been undertaken.
Section 39(1)(b) is not a mechanism to buy more time, or to discount the obligations in the work programme. The Minister is entitled to be confident that the full measure of that programme will substantially be fulfilled, even if somewhat belatedly. If he or she cannot be, efforts expended should not be judged “reasonable efforts to remedy” the non-compliance.
Tui’s submissions
[71] In [48] I set out the four categories of response that Tui relies on as constituting reasonable efforts to remedy its non-compliance with the work programme. To summarise, those four categories were: steps taken to obtain access, entry into a mining contract, entry into negotiations with other contractors and application made for a resource consent.
[72] Mr Ormsby noted that Tui had made the Crown aware of the difficulties it was having gaining access to the permit land. There were several years to run, progress had been made, and Tui could not be said to have done “too little, too late”.
Crown submissions
[73] Mr Lemmon focused, correctly in my view, on the information that actually was before the Minister by the time the revocation decision was made. He focused on the lack of supporting evidence before the Minister of the assertions made by Mr Lucas in his affidavit. He said the efforts “were not serious efforts” and were indeed “too little, too late”. He submitted that, as a matter of policy, permit holders should not be allowed to undertake no substantive activity, in breach of the work programme conditions, for a period of years, and then “spring into action only once revocation is threatened.”
Analysis
[74] I do not consider that the actions relied upon by Tui could amount to such reasonable efforts as to justify continuation of the permit term despite prior non- compliance. My reasons for reaching that conclusion are as follows:
(a) The degree of non-compliance in this case was profound. The “mea culpa” letter of 24 September 2010 effectively admitted that. It was not perhaps a case where nothing at all had been done. But little more than that had been.
(b)Little substantive progress was achieved before the Minister made his decision to revoke. Contact with Ngāi Tahu and P F Olsen was generalised and relatively non-specific. No negotiations with the Department of Conservation had been commenced. No evidence of successful progress before 20 October 2010 – the longstop period under the notice to rectify – was presented. No concluded agreements with contractors or of the acquisition of the drilling rig were tendered in evidence or (more importantly) to the Minister. Tui followed up its “mea culpa” letter with a telephone call. No letter advising the Minister of further progress was provided. I have already held that the burden lay on Tui to communicate effectively. The resource consent application remained at large.
(c) It was, therefore, entirely unclear on 20 October 2010 whether necessary access arrangements and resource consents would be secured, and whether Tui would be able effectively to catch up on the unfulfilled work programme.
[75] A permit holder seeking to rely on this part of s 39(1)(b) must show tangible and substantial progress to remedy – i.e. correct – the non-compliance. Evidence of mere attempts to catch up will not suffice, without tangible assurance as to their probable success. By 23 January 2009 the respondent was supposed to have commenced mining activities. By 20 October 2010 it had not. By that same date –
some 18 months into the active work programme – it was supposed to have shifted approximately 300,000 cubic metres of gravel. It had done none of that. The steps it had taken by 20 October 2010, which it had informed the Minister of, were neither sufficiently tangible, nor sufficiently certain, to enable the Minister to form the view that Tui would be likely to remedy its default under the work programme.
[76] I dismiss the second ground of appeal.
Disposition
[77] Despite the skill with which this appeal was argued by Mr Ormsby for Tui, this is a clear case. The Minister was not wrong to revoke the mining permit.
[78] The appeal is dismissed.
[79] Costs are awarded on a category 2 basis in favour of the respondent. The parties have 10 working days to agree costs. Absent agreement, memoranda are to be filed sequentially: the respondent within five working days, followed by the appellant within a further five working days.
Stephen Kós J
Solicitors:
Wynn Williams & Co, Christchurch for Appellant
Crown Law, Wellington for Respondent
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