Australia: Mining royalties are payable for Mount Bruce Mining area, says High Court

Last Updated: 21 October 2015
Article by Douglas Bishop

Mining royalties are payable under a 1970 agreement following a decision by the High Court in a high-profile mining case, Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited [2015] HCA 37 (Clayton Utz acted for the successful respondent, Wright Prospecting).

The agreement about mining royalties in the Mount Bruce Mining case

There had been a series of agreements between the parties in the 1960s and 1970s. Basically, the Western Australian Government had granted rights of occupancy over certain Temporary Reserves under the Mining Act 1904 (WA) over land in the Pilbara in favour of the respondents. These rights of occupancy permitted exploration on the reserved land, but did not permit mining.

The parties made an agreement in 1970 under which:

  • Mount Bruce Mining acquired from the respondents the "entire rights" to the "MBM area", which was defined by reference to the Temporary Reserves;
  • royalties were payable to the respondents on "[o]re won by MBM from the MBM area";
  • those royalties were payable by "all persons or corporations deriving title through or under" MBM to the "MBM area".

The main bone of contention between the parties was the meaning of the term "MBM area". Mount Bruce Mining said this was ambiguous did it mean an area of land, or the rights that were attached to the land (it said it meant the latter)? If Mount Bruce Mining was right, then no royalties were payable, because that land was not held pursuant to rights it originally received under the 1970 agreement (or rights derived from those original rights).

A second question was what was meant by "deriving title through or under" Mount Bruce Mining.

What was the "MBM area"?

The High Court found that this was defined by reference to the physical area of land that had been transferred to Mount Bruce Mining.

As Chief Justice French and Justices Nettle and Gordon explained, the parties' deal was that:

"MBM had the right to occupy and prospect over the whole of the MBM area through the division of the Mount Bruce Temporary Reserves. MBM obtained those rights to the MBM area from Hanwright under the 1970 Agreement. What MBM did with those rights and how it won ore from the MBM area was a matter for it. The commercial arrangement that was struck was that MBM would pay Hanwright a royalty based on the amount of ore won by it and all persons and corporations deriving title through or under it from any part of the MBM area, which had been held by Hanwright but transferred to MBM.

There is nothing in the text of the 1970 Agreement or the purpose or object of the transaction it was intended to secure to suggest that the parties intended that Hanwright's entitlement to a royalty was conditional upon ore being won from the exercise of rights which Hanwright held at the time of the 1970 Agreement."

Of course, it could not logically have been otherwise, since the rights held in 1970 did not permit mining.

"Deriving title through or under" Mount Bruce Mining

One of the areas within the MBM area, Channar, is being mined by a joint venture. Like Mount Bruce Mining, one of the joint venturers is a subsidiary of Hamersley Holdings. The State granted a mining lease to the joint venture on condition that both Hamersley Iron (another subsidiary) and Mount Bruce Mining surrendered certain sections of  mining leases each held, which covered the Channar area.

Does the joint venture have to pay royalties on ore mined from the area of Channar that was formerly held by Hamersley Iron? This depends upon whether the joint venture derived title through or under Mount Bruce Mining.

Does this term require a succession, assignment or conveyance of rights from Mount Bruce Mining to the joint venture? The High Court said no; this phrase is broad enough to cover a close practical or causal connection between the rights exercised by the Channar Joint Venturers and the rights which Mount Bruce Mining obtained from Hanwright under the 1970 Agreement.  The requirement for Mount Bruce Mining's surrender of the relevant sections of its mining lease to enable the Channar Joint Venturers to obtain their mining rights provided that close practical or causal connection.

What is yet to be resolved: ambiguity about ambiguity

The Court took the opportunity to restate the principles relevant to the construction of commercial contracts, making it clear there was no departure from the law as set out in Codelfa Construction. The devil in that observation is the live debate at the intermediate appellate level as to what precisely is the rule in Codelfa. A majority of the justices indicated that, although this case was not the vehicle for it, there is a need for the Court to resolve the debate over whether ambiguity within the body of the written contract must be demonstrated before background circumstances become relevant to construction. In doing so, the High Court reminded us that the reasons for refusing special leave in Western Export Services Inc v Jireh International Pty Ltd "create no precedent and are binding on no-one".  Indeed, the strident and unanimous denunciation of Jireh as having no precedent value perhaps indicates that at least some members of the Court hold the view that Codelfa did not set the bar as high as suggested in Jireh and, as such, ambiguity within the text is not necessary before a court may rely on certain extrinsic material when construing a commercial contract.  Whether this is a valid analysis of the dicta in Mount Bruce Mining will only be established once the right vehicle to address these issues reaches the High Court.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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