[2012] WAMW 14 - Department of Mines, Industry Regulation ... · BP Refinery (Westernport) Pty Ltd...

[2012] WAMW 14

Ammon v Pilbara Iron Ore P/L & anor [2012] WAMW 14

JURISDICTION : MINING WARDEN

TITLE OF COURT : WARDEN’S COURT

LOCATION : PERTH

CITATION : AMMON v PILBARA IRON ORE P/L & ANOR [2012]

WAMW 14

CORAM : WILSON M

HEARD : 5, 6, 8 & 13 DECEMBER 2011

DELIVERED : 24 JULY 2012

FILE NO/S : PLAINT 1/078

TENEMENT NO/S : AFFECTING EXPLORATION LICENCE 47/1140

BETWEEN : Derek Noel Ammon

(Plaintiff)

&

Pilbara Iron Ore Pty Ltd

(1st Defendant)

&

Director General, Department of Mines and Petroleum

(2nd

Defendant)

Catchwords:

Plaint – Preliminary Issues – Proper Construction of Clauses in Farmin and Joint

Venture Agreement – Implied Terms in Farmin and Joint Venture Agreement

Legislation:

Nil

[2012] WAMW 14


Result:

Preliminary Issue 1

Whether the Agreement should be construed as pleaded by the Plaintiff at

paragraph 11 of the Amended Plaint?

Answer - Yes

Preliminary Issue 2

Whether the implied term pleaded by the Plaintiff at paragraph 12 of the

Amended Plaint can be implied according to law?

Answer - Yes

Representation:

Counsel:

Plaintiff : C P Shanahan QC & Mr A P Hershowitz

1st Defendant : Mr G Donaldson SC & Mr T O’Leary

2nd

Defendant : No appearance

Solicitors:

Plaintiff : Dwyer Durack

1st Defendant : Gilbert & Tobin

2nd

Defendant : Nil

Case(s) referred to in judgment(s):

Codlefa Construction v State Rail Authority (1982) 149 CLR 337

Hill End Gold Ltd v First Tiffany Resource Corporation [2010] NSWSC 375 (29

April 2010)

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Hawkins v Clayton (1988) 164 CLR 539

[2012] WAMW 14


Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Metropolitan Gas Co v Federated Gas Employees Industrial Union (1925) 35 CLR

449

International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234

CLR 151

Breen v Williams (1995) 186 CLR 71

Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988

Case(s) also cited:

Ammon v Pilbara Iron Ore Pty Ltd (No. 2) [2009] WAMW 12

Peters American Delicacy Co Ltd v Champion (1928) 41 CLR 316;

Dallhold Investments Pty Ltd (in liq) v Gold Resources Australia Ltd (prov Liq apptd)

(1991) 31 FCR 587

Brambles Holdings Pty Ltd v Bathurst City Council (2001) 53 NSWLR 153

R v Patents Appeal Tribunal; Ex parte Baldwin & Francis Ltd [1959] 1 QB 105

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 251 ALR 322

Prenn v Simmonds [1971] 1 WLR 1381

Antaios Compania Naviera SA v Saleen Rederierna AB [1985] 1 AC 191

Manren Ltd v Royal & Sun Alliance Insurance Australia Ltd (2003) 12 ANZ

Insurance Cases 61-568

Australian Broadcasting Commission v Australasian Performing Rights Association

Ltd (1937) 129 CLR 99

Vitale v Bednell [2000] WASC 207

Butts v O’Dwyer (1952) 87 CLR 267

Luxor (Eastbourne ) Ltd v Cooper [1941] AC 108

Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989

PRELIMINARY LEGAL ISSUE

1. The hearing of the substantive proceedings between the parties was listed to

commence on 5 December 2011. On 6 December 2011, the Plaintiff sought and

was granted leave to further amend the Plaint (“the Amended Plaint”). The

[2012] WAMW 14


Plaintiff and the 1st Defendant agreed the Amended Plaint raises a number of

preliminary legal issues on the construction of some of the terms of the agreement

between the parties known as the “Mindy Mindy Farmin and Joint Venture Heads

of Agreement” dated 3 September 2002 (“the Agreement”).

2. As a consequence of the Amended Plaint both the Plaintiff and the 1st Defendant

agreed the hearing of the substantive proceedings should be adjourned to allow

the Warden to determine the following agreed preliminary issues:

Whether the Agreement should be construed as pleaded by the

Plaintiff at paragraph 11 of the Amended Plaint, and

Whether the implied term pleaded by the Plaintiff at paragraph

12 of the Amended Plaint can be implied according to law.

THE PLAINT

3. The Plaint has a long history before this court. In other proceedings regarding this

matter, Ammon v Pilbara Iron Ore Pty Ltd (No. 2) [2009] WAMW 12, Warden

Calder summarised the substantive proceedings in the matter in the following

terms, save that I have made changes to reflect the matter now before me, as

follows:

“The Plaintiff claims that he is the legal and beneficial owner of E 47/1140. The Plaintiff

and the 1st Defendant are parties to the Mindy Mindy Farmin Joint Venture Heads of

Agreement dated 3 September 2002 (“The Agreement”) concerning E 47/1140. The Plaintiff

says that pursuant to The Agreement the 1st Defendant was required by 29 January 2008 to

provide the Plaintiff with a completed feasibility study in respect of E 47/1140 in order for

the 1st Defendant to earn an 80% interest in that tenement. The Plaintiff says that the 1

st

Defendant, having failed to provide him with the required feasibility study, is deemed to

have withdrawn from the joint venture and thereby forfeited any rights to any interest in E

47/1140.

The Plaintiff alleges in the Plaint that, in purported reliance upon clause 6.9 of The

Agreement, the 1st Defendant lodged with the Department of Industry and Resources

(“DOIR”) a power of attorney. The Plaintiff says that the 1st Defendant was not authorised

to lodge the power of attorney. He claims that he was not notified by the 1st Defendant of its

intention to lodge the power. The Plaintiff says that on or about 11 March 2008 the 1st

Defendant, in purported reliance upon The Agreement and the power of attorney, lodged

with DOIR a transfer of an 80% interest in E 47/1140 from the Plaintiff to the 1st Defendant.

It is said that the Plaintiff did not authorise any such lodgment or transfer and that, in any

event, the 1st Defendant, by that date, was deemed to have withdrawn from The Agreement.

On 4 April 2008 and injunctive order was made by this court preventing the registration by

the 2nd

Defendant of that transfer.

[2012] WAMW 14


The Plaintiff seeks in the substantive action declarations from the Warden’s Court that the

1st Defendant is deemed to have withdrawn from the joint venture, that the power of attorney

is invalid and that the form of transfer of the 80% interest in the tenement is also invalid. An

injunction is also sought restraining the 1st Defendant from representing that it has any

right or interest in E 47/1140, from representing that he holds a power of attorney to sign

on behalf of the Plaintiff to do anything necessary to maintain E 47/1140 and from

representing that it is the manager of the joint venture operations in respect of E 47/1140.”

THE AMENDED PLAINT

4. As a consequence of the orders of 6 December 2011, paragraphs 11 and 12 of the

Amended Plaint now states as follows:

“11. On a proper construction of the Agreement, the Plaintiff says that the purpose of the

"feasibility study" to be completed by the First Defendant under clause 4.5 of the

Agreement was to inform the Plaintiff's Election, which required that any such

feasibility study be delivered to the Plaintiff, to allow the Plaintiff to decide either to:

(1) Withdraw and first offer to transfer his interest in the First Defendant

pursuant to clause 4.6 of the Agreement, for the then net present value of that

interest calculated by reference to the "feasibility study", or

(2) Contribute to Joint Venture Expenditure and seek to raise project finance

pursuant to clause 4.7 of the Agreement.

12. It was an implied term of the Agreement that to be a "completed feasibility study" for

the purposes of the Agreement, including those at paragraph 11, any such feasibility

study must:

(1) be accurate enough to enable the Plaintiff to seek to raise project finance

pursuant to clause 4.7 of the Agreement;

(2) be independent, in that any information provided by or on behalf of, a

participant in the Joint Venture (‘Participant’) for the purposes of producing

such a feasibility study be independently verified;

(3) be reliable, in that any information or data is provided by a Participant for

the purposes of producing such a feasibility study not be inaccurate or

incomplete, and

(4) include any reserve statement required to enable the Plaintiff to seek to raise

project finance pursuant to clause 4.7 of the Agreement.

(“Implied Term”)”

THE RELEVANT CLAUSES OF THE AGREEMENT

5. The clauses of the Agreement particularly relevant to the preliminary issues to be

answered are clauses 4.5, 4.6 and 4.7 of the Agreement which states as follows:

“4.5 Assignment of Earned Interest

[2012] WAMW 14


If PIO completes a feasibility study during the Earning Period, PIO shall be

deemed to have acquired from Ammon an 80% Joint Venture Interest, so that

at the expiration of the Earning Period the Joint Venture Interests of the

Participants shall be as follows:

PIO 80%

Ammon 20%

4.6 Election by Ammon to contribute

Upon PIO earning its 80% Joint Venture Interest it shall notify Ammon of this

in writing and shall have a period of 90 days within which to elect, by notice

in writing, whether he wishes to contribute to Joint Venture Expenditure in

accordance with his 20% Joint Venture Interest or withdraw from this

Agreement and the Joint Venture. If Ammon elects to withdraw he shall first

offer to transfer his Joint Venture Interest to PIO for the then net present value

calculated by reference to the feasibility study and on terms to be agreed

between Ammon and PIO at that time. PIO and Ammon shall have a period of

three months from the date of Ammon’s offer to PIO within which to agree the

terms, and PIO shall have a further three months from the date upon which

such terms are agreed within which to make payment. If PIO does not elect to

accept Ammon’s offer, or if terms cannot be agreed within the three months

period, Ammon may offer to sell his Joint Venture Interest to a third party. If

terms are agreed but PIO does not make payment within the further three

month period then PIO shall be liable to pay interest on the outstanding

amount at the rate prescribed in clause 9.2, unless the parties have agreed to

extend the further three month period.

4.7 Obtaining of Finance by Ammon

(a) If Ammon elects to contribute in accordance with clause 4.6 he shall have a

period of 12 months from the date of notification by PIO to Ammon that PIO

has earned its 80% Joint Venture Interest within which to raise project finance

(“The Finance Rating Period”).

(b) During the Financial Rating Period PIO shall fund Ammon’s share of Joint

Venture Expenditure until such time as Ammon succeeds in obtaining project

finance, at which time Ammon shall repay to PIO all such expenses incurred

by PIO on Ammon’s behalf during the Financial Raising Period without delay.

(c) If Ammon is successful in obtaining project finance he shall immediately

advise PIO in writing and, from that time, he shall become responsible for

contributing to Joint Venture Expenditure in accordance with this Joint

Venture Interest, which shall include liability for cash calls in accordance with

clause 9.

(d) If Ammon is successful in obtaining project finance during the Finance

Raising Period or at the election of Ammon at any time during the Financial

Raising Period, Ammon’s Joint Venture Interest will convert to a 2.5% gross

[2012] WAMW 14


value FOB production royalty in respect of all production of iron ore by PIO

from the Tenements, Ammon shall be deemed to have withdrawn from the Joint

Venture and Ammon shall transfer his interest in the Tenements to PIO at no

cost.”

PLAINTIFF’S SUBMISSIONS ON PRELIMINARY LEGAL ISSUE

6. The Plaintiff contends the Agreement when properly construed required the 1st

Defendant to complete the feasibility study referred to in clause 4.5 of the

Agreement (“Feasibility Study”) to permit the Plaintiff to exercise his rights

under clauses 4.6 and 4.7 of the Agreement as pleaded in paragraph 11 of the

Amended Plaint. Further, the Plaintiff contends that if the Feasibility Study was

not for the purposes pleaded in clauses 4.6 and 4.7 of the Agreement then what

was the purpose of the Feasibility Study?

7. Until the purpose of the Agreement can be identified and therefore the function of

the Feasibility Study, that results in the Plaintiff agreeing to give up 80% of his

interest in the Agreement, the Plaintiff contends that one is not able to say what

the Feasibility Study should contain in order to be "complete" within the meaning

of the Agreement.

8. The Plaintiff further contends that as a consequence of the silence of the

Agreement as to the nature, content and quality that would amount to the

Feasibility Study being “completed” for the purposes of clause 4.5 of the

Agreement it is necessary to imply such terms into the Agreement. Therefore, the

Plaintiff contends the purpose to which the parties intended a completed

Feasibility Study to be put when they entered into the Agreement is, in the first

instance, a question of the proper construction of that Agreement.

9. The Plaintiff submits it is important to identify the material that can be used in the

construction of a commercial contract before exploring the Plaintiff's contentions.

In that regard, the Plaintiff submits the process of construction is objective and

controlled by the language chosen by the parties in the circumstances of the

transaction. Subjective beliefs of the parties are generally irrelevant and it is for

that reason, submits the Plaintiff, that no witnesses have been called on the

matter. (see; Brambles Holdings Pty Ltd v Bathurst City Council (2001) 53

NSWLR 153 per Heydon JA at [27].). In that regard the Plaintiff referred to the

judgment of His Honour Justice Mason in Codlefa Construction v State Rail

Authority (1982) 149 CLR 337 at page 352 [24] where it was observed:

“24. Consequently where the issue is which of two or more possible meanings is

to be given to a contractual provision we look, not to the actual intentions,

aspirations or expectations of the parties before or at the time of the contract,

[2012] WAMW 14


except in so far as they are expressed in the contract, but to the objective

framework of facts within which the contract came into existence, and to the

parties’ presumed intention in this setting. We do not take into account the

actual intentions of the parties and for the very good reason that an

investigation of those matters would not only be time-consuming but it would

also be unrewarding as it would tend to give too much weight to these factors at

the expense of the actual language of the written contract.”

10. In those circumstances no reference can be made, submits the Plaintiff, to any

submissions made by the parties or to any other documentary material that may

be contained within any material presented to the court with the sole exception of

the Agreement which contains the bargain between the Plaintiff and the 1st

Defendant. The Plaintiff submits there is very little role for further evidence in the

construction of contracts and it is uncontroversial ‘that expert evidence is

admissible for the purpose of illuminating the meaning of specialised terms [R v

Patents Appeal Tribunal; Ex parte Baldwin & Francis Ltd [1959] 1 QB 105],

though not to construe the parties agreement’ Hill End Gold Ltd v First Tiffany

Resource Corporation [2010] NSWSC 375 (29 April 2010) per Brereton J at

[42].’

11. The conduct of the parties prior to the formation of an agreement submits the

Plaintiff ‘..is only admissible on questions of construction if the contract is

ambiguous and if the pre-contractual conduct cast light on the genesis of the

contract, its objective aim or the meaning of any descriptive term’: (see Brambles

Holdings Pty Ltd v Bathurst City Council (supra)). Neither party has adduced

any evidence of such conduct nor does either party rely on such conduct for the

purposes of ascertaining the construction of the Agreement.

12. The Plaintiff further submits, post contractual conduct is not admissible on the

question of what a contract means as distinct from whether it was formed: (see:

Brambles Holdings Pty Ltd v Bathurst City Council (supra) per Heydon JA at

[26], see also Gummow, Heydon and Kiefel JJ in Agricultural and Rural

Finance Pty Ltd v Gardiner (2008) 251 ALR 322, 330 at [35].

13. The Plaintiff notes the comments of His Honour Justice Mason in Codlefa

Construction v State Rail Authority (supra) at page 353 para [22] regarding the

factual context in which an agreement is made:

“Generally speaking facts existing when the contract was made will not be

receivable as part of the surrounding circumstances as an aid to construction,

unless they were known to both parties, although, as we have seen, if facts are

notorious knowledge of them will be presumed.”

[2012] WAMW 14


14. Further, the Plaintiff points to the case of Pacific Carriers Ltd v BNP Paribas

(2004) 218 CLR 451 at [22] in which the Court said:

“The case provides a good example of the reason why the meaning of commercial

documents is determined objectively: it was only the documents that spoke to

Pacific. The construction of the letters of indemnity is to be determined by what a

reasonable person in the position of Pacific would have understood them to mean.

That requires consideration, not only of the text of the documents, but also the

surrounding circumstances known to Pacific and BNP, and the purpose and

object of the transaction. In Codelfa Construction Pty Ltd v State Rail Authority of

NSW [8], Mason J set out with evident approval the statement by Lord

Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen:

‘In a commercial contract it is certainly right that the court should know the

commercial purpose of the contract and this in turn presupposes knowledge of the

genesis of the transaction, the background, the context, the market in which the

parties are operating.”

15. The Plaintiff submits the task of construction is to be completed solely by

reference to the language used in the Agreement. The Agreement itself provides

for the interpretation and construction of the Agreement at clauses 1.2 to 1.4, in

particularly the provisions of clauses 1.3 and 1.4 that specifically limit the

material relevant to interpreting the Agreement and the rules of construction.

Clauses 1.3 and 1.4 of the Agreement provide as follows:

“1.3 Headings

The headings in this agreement shall not affect its interpretation.

1.4 Rules of Construction

In the interpretation of this Agreement no rules of construction shall apply

to the disadvantage of one party on the basis that party put forward this

Agreement or any part of this Agreement.”

16. Accordingly, the Plaintiff says for the purposes of construction nothing flows

from the fact the Agreement was drafted by Blakiston & Crabb, the 1st

Defendants then solicitors.

17. The Plaintiff submits that courts place significant emphasis when construing the

terms of a contract to the knowledge and understanding of the commercial

purpose or object of the contract. That is supported contends the Plaintiff by the

passage cited from Pacific Carriers Ltd (supra) in the High Court approving the

approach taken by Lord Wilberforce in the Reardon Smith Line Ltd v Hansen-

Tangen [1976] 1 WLR 989.

18. To that extent, the Plaintiff submits if the proposed construction of a contract

frustrates the objects of the contract then it will be rejected. (see: Prenn v

[2012] WAMW 14


Simmonds [1971] 1 WLR 1381). Similarly, the Plaintiff contends that if a

proposed construction flouts business common sense then it will be rejected. (see:

Antaios Compania Naviera SA v Saleen Rederierna AB [1985] 1 AC 191).

19. The Plaintiff contends that commercial agreements are part of the process of

carrying on business and should be construed in their commercial context. (see:

Manren Ltd v Royal & Sun Alliance Insurance Australia Ltd (2003) 12 ANZ

Insurance Cases 61-568 and Agricultural and Rural Finance Pty Ltd (supra))

at page 330.

20. In determining the object or commercial purpose of a commercial contract, the

Plaintiff submits that reference to the objective meaning of the words used in the

contract must be had otherwise the process would be circular. The Plaintiff

further submits the purpose of the Agreement is the formation of a Joint Venture.

That cannot be in issue because that purpose is expressly stated in the Agreement

at clause 2.1 and defined in clause 1.1 of the definition of Joint Venture. Clause

2.1 of the Agreement provides as follows:

“2.1 Formation

The Participants hereby associate in an unincorporated joint venture for the

purpose of exploring and, if warranted, developing and mining the tenements.”

21. The terms of clause 2.1 of the Agreement are, according to the Plaintiff, clear and

should be given their natural and ordinary meaning that the Plaintiff and the 1st

Defendant would through the Joint Venture explore and, if warranted, mine and

develop E 47/1140 (“the Tenement”). The Plaintiff contends the mechanism for

determining whether developing and mining the Tenement was warranted was the

purpose and function of the Feasibility Study to be completed by the 1st

Defendant pursuant to clause 4.5 of the Agreement.

22. The completion of the Feasibility Study by the 1st Defendant earned it an 80%

interest in the Joint Venture. The Plaintiff contends the completion of the

Feasibility Study is pivotal because it is that study that will establish whether

developing and mining the Tenement by the Joint Venture is warranted. The

completion of the Feasibility Study separates, according to the Plaintiff, the

Earning Period from the creation and operation of the Operating Committee

provided for in clause 7 of the Agreement.

23. The Plaintiff contends the Operating Committee was created as soon as

practicable after completion of the Feasibility Study as required by clause 4.5 of

the Agreement because that is the end of the Earning Period. The Earning Period

is defined in clause 1.1 and clause 4.2 as follows:

[2012] WAMW 14


“1.1 Definitions

“Earning Period” means the period commencing on the Grant Date and

ending as provided in clause 4.2.”

“4.2 Earning Period

Subject to clause 4.3, the earning period will end when PIO has completed a

feasibility study on the Tenements or five years from the Grant Date,

whichever occurs sooner.”

24. The Plaintiff says the consequence of this requirement is that the Operating

Committee was intended to operate both: (i) during the 90 day period provided

for the Plaintiff’s election under clause 4.6, and also (ii) the "Finance Raising

Period" defined at clause 4.7. It is contended by the Plaintiff that this is so from

the formation of an Operating Committee at clause 7.1 that occurs immediately

after the end of the provides as follows Earning Period. Clause 7.1 of the

Agreement provides as follows:

“7.1 Formation

As soon as practicable after the completion of the Earning Period the

Participants shall form and then maintain a committee which shall not meet

less than once in each calendar quarter.”

25. The Plaintiff’s case is that the delivery of the completed Feasibility Study defines

the end of the Earning Period and that establishes the pivotal nature of the

Feasibility Study. There is no issue in this case that the Feasibility Study was not

delivered to the Plaintiff within the required time provided by the Agreement.

The issue submits the Plaintiff is whether the Feasibility Study is a “completed

feasibility study”.

26. Upon establishment of the Operating Committee it may, the Plaintiff contends, by

virtue of clause 7.3 and 7.6 of the Agreement make a decision to develop and

mine the Tenement. Clauses 7.3 and 7.6 of the Agreement provide as follows:

“7.3 Functions

The Operating Committee may review and give directions to the Manager as to

Joint Venture Operations and shall consider and approve (subject to

modification or otherwise) the nature and content of programs and budgets

relating to Joint Venture Operations proposed by the Manager.”

7.6 Required Voting Majority

[2012] WAMW 14


All matters for decision before the Operating Committee will be decided by

majority vote but the following major decisions require the unanimous vote of

the Participants:

(a) the undertaking of a development and mining operation on any part of the

Tenements, and

(b) decisions regarding the scope of any development and mining

operations.”

27. According to the Plaintiff, the Operating Committee could direct and authorize

the Joint Venture operations in the development and mining of the Tenement in

accordance with the unambiguous language of clauses 7.3 and 7.6 of the

Agreement as that is the purpose of the Joint Venture expressed in clause 2.1 of

the Agreement.

28. The Agreement provides at clause 23.1 that the one of the participants could

request that a formal joint venture agreement be negotiated in good faith between

the participants. The Plaintiff submits, that clause 23.2 of the Agreement

continues to be binding upon the parties in the absence of any further agreement

pursuant to clause 23.1. Therefore if the Feasibility Study established that

developing and mining the Tenement was warranted and no further agreement

was entered into the participants would be able to mine and develop the

Tenement under clause 23.2 and the powers and functions of the Operating

Committee.

29. The Plaintiff maintains the Joint Venture was formed for the purpose of mining

and developing the Tenement, if warranted. That is noted in the title of the

Agreement as a “Farm-in and Joint Venture Agreement”. The Agreement is not

simply a common form of “Farm-in Agreement.” The purpose of the Agreement

is specifically reflected, according to the Plaintiff, in the terms of Recital B which

provides as follows:

“Ammon has agreed with PIO that, subject to the Retained Interest, PIO

may earn an interest in the Exploration Licence and the parties shall enter

into a joint venture for the purposes of exploring, and, if warranted,

mining of minerals on the Tenements.”

30. The reference in Recital B of the Agreement was, according to the Plaintiff,

concluded prior to the parties entering in to the Agreement that established the

Joint Venture.

31. The Plaintiff submits the Agreement referred to in Recital B is a background fact

that aids in the construction of the Agreement because it explains the purpose of

the Joint Venture contemplated by the Agreement to enable the 1st Defendant to

[2012] WAMW 14


earn an interest in the Tenement and is reflected in the use of the expression

"Earning Period". For the 1st Defendant to earn the interest in the Agreement, the

Plaintiff submits it is required to complete a feasibility study pursuant to clause

4.5 of the Agreement.

32. The requirement for the 1st Defendant to earn its 80% interest is expressly

referred to, submits the Plaintiff, in clause 4.7(a) of the Agreement.

33. The Plaintiff submits these matters all identify the purpose of the Agreement and

having done that the issue of the process of construction of the Agreement can be

considered.

34. The approach taken by courts in assessing the construction of commercial

documents is established, according to the submissions of the Plaintiff, in the

decision by His Honour Justice Gibbs in Australian Broadcasting Commission v

Australasian Performing Rights Association Ltd (1937) 129 CLR 99 at pp 109 –

110 and thereafter summarised in Thomson, Warnick and Martin, Commercial

Contract Clauses Principles and Interpretation, Thomson Lawbook Co 2007

at [1330] and states as follows:

“(a) Of course the whole of the instrument has to be considered, since

the meaning of any one part of it may be revealed by other parts, in the

words of every clause must if possible be construed so as to render them

harmonious one with another;

(a) If the words used are unambiguous the court may give effect to

them, notwithstanding that the result may appear capricious or

unreasonable, and notwithstanding that it may be guessed or suspected that

the parties intended something different. The court has no power to remake

or amend a contract for the purpose of avoiding a result which is

considered inconvenient or unjust;

(b) On the other hand, if the language is open to two constructions, that

will be preferred which will avoid consequences which appear to be

capricious, unreasonable or unjust, ‘even though the construction adopted

is not the most obvious, or the most grammatically accurate’;

(c) Further, it will be permissible to depart from the ordinary meaning

of the words of one provision so far as is necessary to avoid an

inconsistency between that provision and the rest of the instrument, and,

(d) Finally, a statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd

[1932] ALL ER Rep 494 … that the court should construe commercial

contracts ‘fairly and broadly without being too astute or subtle in finding

defects’ should not, in my opinion, be understood as limited to documents

drawn by businessmen themselves without legal assistance.”

[2012] WAMW 14


35. The Plaintiff referred to the decision of His Honour Justice Brereton in the case of

Hill End Gold Ltd v First Tiffany Resource Corporation (supra) and noted that

expert evidence as to the meaning of the word “feasibility study” is not

admissible on the question of construction of an agreement.

36. In those circumstances, the Plaintiff submits, the question as to how a court

attributes meaning when, in this case, the Agreement is silent on what is required

to ‘complete’ a ‘feasibility study’ for the purposes of clause 4.5 of the

Agreement? The case, the Plaintiff submits, it is not a case that some terms of the

Agreement can be construed by reference to their legal meaning.

37. The Plaintiff submits the court will imply terms to address the need to give

expression to unexpressed terms in an agreement being terms that can be logically

deduced from express terms. In that regard, the Plaintiff referred to [1490] of

Thomson, Warnick and Martin, Commercial Contract Clauses Principles

and Interpretation, Thomson Lawbook Co. 2007 in which the learned authors

deal with the issue of ‘unexpressed terms’ as follows:

“In some circumstances the existence of an unexpressed term may be logically

deduced from other express terms. An example of this is probably the rule that

every party to a contract is bound to do all things necessary on its part to enable

the other party to have the benefit of the contract: Secured Income Real Estate

(Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607,

MacKay v Dick (1881) 6 App Cas 251 at 263. A promise to confer a benefit must

logically carry with it a promise to do all axillary things necessary to ensure that

their benefit is conferred. This may be equally well described as construction,

inference or implication.”

38. In applying those principles to the Agreement, the Plaintiff submits clause 4.6 of

the Agreement has the benefit of providing a 90 day period within which he was

to make an election which he could not do without the benefit of a ‘completed

feasibility study’ it being the pivotal study upon which it would be established

whether ‘developing and mining the Tenements’ was ‘warranted’. Without the

‘completed feasibility study’ prepared by the 1st Defendant, the Plaintiff submits,

he would have to replicate the Feasibility Study within a period of 90 days at his

own expense without access to any of the information or data the 1st Defendant

used when the 1st Defendant had up to 5 years to complete the same task. The

Plaintiff submits it would be both illogical and non-commercial if that had been

the outcome intended by the Plaintiff and the 1st Defendant.

39. The Plaintiff maintains the 1st Defendant was obliged to provide to the Plaintiff a

‘completed feasibility study’ as the Plaintiff would otherwise be unable to fill his

[2012] WAMW 14


obligation to choose whether to withdraw and first offer to transfer his Joint

Venture interest to the 1st Defendant for the then net present value calculated by

reference to the Feasibility Study. It is impossible, submits the Plaintiff, to make

such a decision as he would be unable to ascertain the net present value by

reference to the Feasibility Study without the 1st Defendant providing to him a

copy of the Feasibility Study. For the 1st Defendant to not be obliged to provide a

copy of the Feasibility Study to the Plaintiff would be both illogical and non-

commercial submits the Plaintiff.

40. Further, the Plaintiff submits, that no person with an interest in a mining

tenement, such as the Tenement, would transfer 80% of its interest in the mining

tenement on the basis that it could simply ask for its calculation of the net present

value without access to the core document, being a feasibility study. Such an

approach submits the Plaintiff is non-commercial and illogical.

41. The Plaintiff further submits the operation of clause 12 of the Agreement, as it

relates to confidential information, was not intended to prevent the exchange of

the ‘completed feasibility study’ by the 1st Defendant to the Plaintiff for the

purpose of the Plaintiff exercising his rights at clause 4.6 of the Agreement. That

is so because otherwise the 1st Defendant’s right of first refusal of the Plaintiff’s

offer to sell his Joint Venture Interest would be empty. Further, the Plaintiff

submits he would be unable to decide whether to seek to raise project finance by

electing to contribute to the Joint Venture under clause 4.6 unless he was

provided with a ‘completed feasibility study’ by the 1st Defendant. The benefit of

the ‘free carry period’ as provided by clause 1.1 of the Agreement until the

Plaintiff makes his election pursuant to clause 4.6 would be lost if the Plaintiff’s

entitlement to choose to contribute to the Joint Venture under clause 4.6 was

rendered nugatory or empty by the failure of the 1st Defendant to provide a copy

of the ‘completed feasibility study.’

42. Simply put, the Plaintiff submits to exercise his right to seek to raise project

finance within the balance of the one year allotted to him by the ‘Finance Raising

Period’ in clause 4.7 of the Agreement requires him to have received a copy of

the ‘completed feasibility study’ otherwise he would be required to replicate the

work by the 1st Defendant in ‘completing a feasibility study’ at his own expense

without access to the information and data the 1st Defendant in less than 1 year

when it had taken the 1st Defendant 5 years to complete that task. It was always

the intention, submits the Plaintiff, that the Plaintiff would have the benefit of the

‘Finance Raising Period’ which was a real and not an illusionary opportunity

which in turn required a copy of the ‘completed feasibility study’ for that

purpose.

[2012] WAMW 14


43. According to the Plaintiff, almost every contract has some understated content

which must necessarily be implied if the effect is to be given to its actual terms.

(see: Vitale v Bednell [2000] WASC 207 per Hasluck J at [63]). In those

circumstances, the Plaintiff refers to the statement of principle by the High Court

in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

at 283 in which it was established there are five requirements for implications of

implied terms in fact, which govern factual implications in formal contracts,

namely:

a) the term must be reasonable and equitable;

b) the term must be necessary to give business efficacy to the contract;

c) the term must be obvious;

d) the term must be capable of clear expression; and

e) the term must not contradict any express term of the contract.

The High Court of Australia has approved these remarks in various cases

including Codlefa Construction v State Rail Authority (supra) at page 347 and

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at pages 66 and 117-118. The courts have recognised a degree of overlap in the

five criteria specified in the case of BP Refinery (Westernport) Pty Ltd v Shire of

Hastings (supra).

44. The Plaintiff maintains if his construction of the Agreement at paragraph 11 of

the Amended Plaint is correct, it is necessary to imply certain term so as to give

business efficacy and to ensure the reasonable and just operation of the

Agreement. The implied terms emerge, submits the Plaintiff, from a properly

construed consideration of the nature, purpose and operation of the Agreement

when there are obvious and clear minimum requirements to complete a

Feasibility Study for the purpose of the Agreement that are necessary to give

commercial efficacy to the terms of the Agreement as construed in paragraph 11

of the Amended Plaint.

45. The Plaintiff submits the implied term intended by paragraph 12 of the Amended

Plaint is a ‘completed feasibility study’ for the purpose of the Agreement and

must:

1) be accurate enough to enable the Plaintiff to seek to raise project finance

pursuant to clause 4.7 of the Agreement;

2) be independent, in that any information provided by, or on behalf of, a

participant in the Joint Venture for the purposes of producing such a

feasibility study be independently verified;

[2012] WAMW 14


3) be reliable, in that any information or data provided by a participant for the

purposes of producing such a feasibility study not be inaccurate or

incomplete, and

4) include any reserve statement required to enable the Plaintiff to seek to

raise project finance pursuant to clause 4.7 of the Agreement.

46. The Plaintiff accepts the Agreement contains no definition of the term ‘Feasibility

Study’ and makes no provision for any minimum requirements for a ‘completed

Feasibility Study’. The Plaintiff therefore submits the minimum requirement for a

Feasibility Study must be implied otherwise the 1st Defendant’s obligation to

complete such a study would be empty rendering the contract a commercial

absurdity.

47. The Plaintiff submits it is not sufficient to justify an implication be reasonable to

imply a term because it is essential that any terms sought to be implied operate

reasonably and equitably between the parties, as an unreasonable or inequitable

term will not be implied in any agreement. (see: Peters American Delicacy Co

Ltd v Champion (1928) 41 CLR 316; Dallhold Investments Pty Ltd (in liq) v

Gold Resources Australia Ltd (prov liq apptd) (1991) 31 FCR 587.)

48. Accordingly, the Plaintiff submits the implied terms at paragraph 12 of the

Amended Plaint are not either unreasonable or inequitable. The Plaintiff further

submits that were any report produced was either unreliable, inaccurate or

partisan (not independent) then it could not meet the terms of the Agreement.

That is so, says the Plaintiff because of the pivotal role played by a ‘completed

Feasibility Study’ as contemplated by the Agreement. The failure to imply such

terms as pleaded in paragraph 12 of the Amended Plaint would be unreasonable,

inequitable and non-commercial submits the Plaintiff.

49. The Plaintiff says if he elects to withdraw he must first offer his Joint Venture

Interest to the 1st Defendant for the net present value calculated by reference to

the Feasibility Study which emphasises the requirement for the Feasibility Study

to be independent, reliable and accurate. This establishes, submits the Plaintiff,

the intention the ‘completed Feasibility Study’ be delivered by the 1st Defendant

to the Plaintiff otherwise the Plaintiff would not be able to satisfy himself as to

the means of calculation of the net present value by reference to the Feasibility

Study. Further, it is illogical and non-commercial to suggest the Plaintiff could

make an offer at a price by reference to the Feasibility Study the Plaintiff had

never seen.

50. The Plaintiff maintains a feasibility study that is not independent because key

data upon which the Feasibility Study relies is supplied by, in this case, the 1st

[2012] WAMW 14


Defendant, but has not been independently verified by the author of the

Feasibility Study could not produce a net present value upon which the Plaintiff

could reasonably or equitably rely for the purposes of exercising his rights under

clause 4.6 of the Agreement. The same could be said of any data relied upon in

the Feasibility Study if such data is inaccurate or unreliable. The Plaintiff

maintains it is reasonable and equitable for a court to recognise the requirement

for a ‘completed feasibility study’ to be independent, accurate and reliable as

pleaded in the Amended Plaint. If that were not so the Plaintiff submits the 1st

Defendant could deliver a Feasibility Study of indeterminate nature that would

not be commercial because the Plaintiff would effectively be surrendering his

interest in 80% of the Tenement at an undisclosed price.

51. For a term to be implied into the Agreement, the Plaintiff submits the term must

be needed in order to make the arrangement work, or conversely, in order to

avoid an unworkable situation. (see: Hawkins v Clayton (1988) 164 CLR 539 at

573). Such a term will only be implied, submits the Plaintiff, if it is necessary to

make the contract effective in a business sense. (see: Butts v O’Dwyer (1952) 87

CLR 267 at 280). It is maintained by the Plaintiff the above argument

demonstrates why an independent, reliable and accurate Feasibility Study was

reasonable and equitable because of its important role in setting the price as

provided by clause 4.6 of the Agreement, and also to facilitate the Plaintiff's

election if he chose to seek to raise project finance pursuant to clause 4.7 of the

Agreement.

52. Upon receipt of the ‘completed Feasibility Study’ the Plaintiff maintains he had

two choices pursuant to clauses of 4.6 and 4.7 of the Agreement that is to elect to

withdraw pursuant to clause 4.6 or to elect to contribute to the Joint Venture and

raise project finance in accordance with clause 4.7. The Plaintiff maintains it was

always anticipated he would need to raise project finance. It was never

contemplated that the Plaintiff having elected to contribute to the finance of the

Joint Venture could produce his own feasibility study within the 12 months that

he had to do so. That is demonstrated, submits the Plaintiff, for three reasons

being firstly, the completed Feasibility Study was the means by which the

Plaintiff could make his election, secondly, the value of the consideration to pass

to the 1st Defendant on production of the completed Feasibility Study being an

80% Joint Venture interest, is inconsistent with the requirement the Plaintiff

would be then required to produce and replicate the same Feasibility Study for the

purposes of raising project finance and, thirdly, the time that would be required to

conduct such an exercise to complete a further Feasibility Study and the need to

access information held by the 1st Defendant and other parties engaged by the 1

st

Defendant would make such a proposition impractical. Further, the Plaintiff

submits there is nothing within the Agreement to indicate the 1st Defendant would

[2012] WAMW 14


make available information for the Plaintiff to conduct a separate Feasibility

Study.

53. The Plaintiff's case is that to give business efficacy to the Agreement a completed

Feasibility Study must be accurate enough for the Plaintiff to seek to raise his

project finance and must therefore include a reserve statement.

54. It would be inequitable and lacking in business efficacy, submits the Plaintiff, if

an agreement that provided a mechanism whereby one party can decide what is in

a Feasibility Study that results in the other party being stripped of its interest

contributed to in a joint venture. Further, the Plaintiff submits, an agreement that

did not provide a definition of what the Feasibility Study required necessarily

requires such terms to be implied to ensure the agreement is not nugatory,

uncertain or unworkable. Thus the Plaintiff contends to make commercial sense

of the Agreement it is necessary to imply the terms at paragraph 12 of the

Amended Plaint.

55. The Plaintiff poses the rhetorical question of what are the minimum requirements

of such a study identified by the 1st Defendant? On the 1

st Defendant's case the

Plaintiff says the 1st Defendant can deliver anything to the Plaintiff and call it a

‘completed Feasibility Study’ and thereby earn an 80% Joint Venture interest.

Such an outcome submits the Plaintiff is clearly not intended and illogical.

56. The Agreement submits the Plaintiff does not define ‘Feasibility Study’ and as

such requires the court to imply terms as to what it is so to give commercial

efficacy to be fundamental express requirement in the Agreement for a Feasibility

Study to be produced by the 1st Defendant.

57. The Plaintiff submits for a term to be implied it must be so obvious that it goes

without saying reflects those terms which are so obviously essential to the

operation of the Agreement that the parties failed to expressly include them. To

deal with this issue the Plaintiff submits the courts use the hypothesis of the

‘officious bystander’ based on the criteria that the term to be implied into the

contract would be regarded as a term too obvious to require express provision.

Accordingly, the Plaintiff submits that to be obvious a term must be linked to the

particular circumstances of the case and, in this case, are directly linked to the

requirement for the 1st Defendant to complete a Feasibility Study for the purposes

of clause 4.6 and 4.7 of the Agreement.

58. In those circumstances, the Plaintiff submits, the need for the implication of the

implied terms is self evident in that it is obvious if the terms were not implied the

Plaintiff would be at the mercy of the 1st Defendant as to the price it paid (if any)

[2012] WAMW 14


for the benefit of the Tenement held by the Plaintiff and the Plaintiff would be

required to replicate the work needed to produce a ‘completed Feasibility Study’

without access to the information held by the 1st Defendant.

59. Further, the Plaintiff submits for the term to be implied it must be capable of clear

expression and be reasonably certain in its operations. That has been achieved

and addressed by the amendments to paragraph 12 of the Amended Plaint which

was allowed by consent of the First Defendant. The implied terms contained

within paragraph 12 of the Amended Plaint does not, according to the Plaintiff,

contradict any express term in the Agreement. As the term ‘Feasibility Study’ in

the Agreement is not defined and there are no terms in the Agreement touching

on what standard or minimum requirements the Feasibility Study is to contain it

cannot be the case, submits the Plaintiff, that the implied terms contradict any

express term in the Agreement and it is only by implying the terms that the

Agreement can be implemented or understood in a commercially sensible way.

1

ST DEFENDANTS SUBMISSIONS ON PRELIMINARY LEGAL ISSUE

60. The 1st Defendant submits the court is now being asked by the Plaintiff to

consider implied contractual terms of the Agreement that are so lacking in

obviousness they were not raised by the Plaintiff until after the hearing of the

Plaint had commenced.

61. The background facts the 1st Defendant says are not in dispute are that by the

Agreement, the 1st Defendant can earn an 80% interest in the Tenement upon

meeting various obligations including completing a ‘Feasibility Study’. To

prepare the Feasibility Study, the 1st Defendant engaged a consultant who it says

completed the Feasibility Study on 24 January 2008. A copy of the Feasibility

Study was provided to the Plaintiff on 25 January 2008. The 1st Defendant

contends the Plaintiff alleges in the Amended Plaint the 1st Defendant has not

completed a Feasibility Study and, therefore, has not earned an 80% interest in

the Tenement and is deemed to have withdrawn from the Joint Venture. The

allegations of the Plaintiff behind the Amended Plaint are according to the 1st

Defendant entirely based upon what was required by the Feasibility Study.

62. The 1st Defendant submits the central purpose of the Agreement is found in

Recital B of the Agreement. Recital B enables the 1st Defendant to earn an

interest in the Tenement subject to the Retained Interest of the Plaintiff. In those

circumstances the 1st Defendant says the essence of the Agreement is for it to

acquire an interest in the Tenement and not for the Plaintiff to obtain confidential

or other information or anything else of value other than what he could obtain

through the commercial exploitation of the Tenement. The 1st Defendant

[2012] WAMW 14


maintains the Plaintiff was not entitled to receive a copy of the Feasibility Study

it had prepared.

63. Further, the 1st Defendant submits that clause 2.1 of the Agreement reflects the

above, as development and mining of the Tenement would only occur if

warranted and, in any event, in accordance with clause 7.6 of the Agreement

development and mining operations would only occur after the Operating

Committee came into existence at the completion of the Earning Period. An

understanding of the above is central, submits the 1st Defendant, to a proper

understanding of clause 4 of the Agreement.

64. Pursuant to clause 2.3 of the Agreement, the 1st Defendant submits it has no

fiduciary duty to the Plaintiff as it was performing its obligation under the

Agreement to advance its own interests. The Feasibility Study submits the 1st

Defendant was for its own benefit to earn its interest and consider the feasibility

of the Tenement. Similarly, clause 2.4 of the Agreement confirms, submits the 1st

Defendant, the preparation of the Feasibility Study was being done for its benefit

and not that of the Plaintiff other than in respect of any benefit expressly arising

from the Agreement.

65. The 1st Defendant says the commercial bargain that was struck between it and the

Plaintiff is found in clause 2.5 of the Agreement. That commercial bargain is that

the Plaintiff as the registered holder of the Tenement was freed of any obligation

as the holder of the Tenement and was in fact indemnified by the 1st Defendant

during that period. This submits the 1st Defendant is a substantial benefit for the

Plaintiff.

66. Clause 4 of the Agreement is the crux of the dispute according to the 1st

Defendant. The 1st Defendant says clauses 4.1 and the definition of Joint Venture

Expenditure in the Agreement includes expenditure on the preparation of the

Feasibility Study. The Earning Period ends in accordance with clause 4.2 of the

Agreement when the 1st Defendant has completed a Feasibility Study on the

Tenement and not when it has handed a copy of the Feasibility Study to the

Plaintiff. According to the 1st Defendant, the entire focus of the Earning Period is

the completion of the Feasibility Study.

67. The effect of the failure to complete a Feasibility Study is outlined in clause 4.4

of the Agreement. The 1st Defendant submits it is the failure to complete a

Feasibility Study within the period specified in clause 4.2 that results in the

deemed withdrawal from the Joint Venture pursuant, correctly, to clause 15.2 of

the Agreement and not the failure to provide a copy of the Feasibility Study to the

Plaintiff.

[2012] WAMW 14


68. The 1st Defendant maintains there is no obligation upon it to provide a copy of the

Feasibility Study to the Plaintiff. The only obligation upon the 1st Defendant it

says is to complete a Feasibility Study which is entirely consistent with clause 4.4

of the Agreement. It is also a misnomer contended by the Plaintiff that clause 4.5

of the Agreement gives rise to a notion of a ‘completed Feasibility Study’ being

prepared by the 1st Defendant. The term ‘completed Feasibility Study’ is,

according to the 1st Defendant meaningless or coterminous.

69. Further, the 1st Defendant submits clauses 4.1, 4.2 and 4.4 of the Agreement do

not in fact impose an express obligation on it to prepare a Feasibility Study. Each

of those clauses of the Agreement provides for consequences if a Feasibility

Study is not completed. This has relevance, submits the 1st Defendant, to an

understanding of clauses 4.6 and 4.7 of the Agreement.

70. What is also of critical importance to the Agreement is that the words ‘Feasibility

Study’ are not defined and, according to the 1st Defendant, this is most unusual in

such an agreement of this type. The failure to define the term ‘Feasibility Study’

is central to this dispute. The 1st Defendant submits where the consequences of

not completing an (undefined) Feasibility Study is the forfeiture of all rights

contracted for it could not be thought a sensible commercial purpose that the

(undefined) Feasibility Study be rigidly prescribed or understood.

71. The 1st Defendant submits clause 4.6 of the Agreement raises a number of issues.

Firstly, this clause is the operative clause upon which the 1st Defendant earns its

80% Joint Venture Interest in the Tenement upon completing a Feasibility Study.

Secondly, this clause only operates when it is accepted the 80% of Joint Venture

Interest has been earned. Thirdly, under the provisions of this clause, the Plaintiff

is not necessarily entitled to receive a copy of the Feasibility Study. Fourthly, the

Plaintiff need not have a copy of the Feasibility Study at the time he is entitled to

make his election. Fifthly, if the Plaintiff elects to withdraw he must offer to the

1st Defendant to transfer his Joint Venture Interest for the then net present value

calculated by reference to the Feasibility Study on terms agreed between the

participants. It should be noted, submits the 1st Defendant, the net present value is

calculated by reference to the Feasibility Study and is the basis upon which

negotiations about the terms of transfer of the interest occurs. Sixthly, the sale by

the Plaintiff to a third party is not determined by any regard being had to the

Feasibility Study. Seventhly, if the Plaintiff was provided with a copy of the

Feasibility Study he is not permitted, pursuant to clause 12 of the Agreement, to

show a copy of the Feasibility Study to a third party other than in accordance with

clause 12 of the Agreement. The 1st Defendant submits the Feasibility Study plays

[2012] WAMW 14


a relatively limited role in the operation of clause 4.6 of the Agreement and is

simply to inform negotiations between the participants.

72. According to the submissions of the 1st Defendant, the express terms of clause 4.7

of the Agreement do not suggest the Feasibility Study plays any role in the ability

of the Plaintiff to raise project finance. In any event, the Plaintiff would be

precluded, submits the 1st Defendant, by clause 12 of the Agreement from using

the information that may be contained within the Feasibility Study for the purpose

of raising finance unless the 1st Defendant agreed for that to occur, and a copy of

the Feasibility Study was given to the Plaintiff by the 1st Defendant for that

purpose. Further, the 1st Defendant says it is difficult ascertain that the Feasibility

Study plays a role in clause 4.7 of the Agreement when there is no reference

made to it in that clause.

73. The 1st Defendant says it is trite and a proposition not needing authority that all

commercial instruments are to be construed in accordance with and having regard

to the evident commercial purpose. To that extent, the 1st Defendant says the

Agreement is a stock standard farmin agreement in which it earns an interest in

the Tenement by spending not less than $1 million on completing a Feasibility

Study to determine whether the Tenement had commercial worth. In return the

Plaintiff who is unable to undertake the Feasibility Study would transfer part of

the interest in the Tenement to the 1st Defendant on the completion of the

Feasibility Study within five years.

74. The 1st Defendant contends the Plaintiff cannot simply and clearly state what he

contends are terms of the Agreement that must be implied then they are simply

not amenable to implication. The balance of the submissions by the 1st Defendant

maintain the Plaintiff’s case as pleaded in paragraphs 11 and 12 of the Amended

Plaint represent amongst other issues, a hopelessly vague construction of the

Agreement, are uncertain, difficult to understand and are profoundly problematic

or absurd.

Conclusion

The Law

75. The 1st Defendant has made no submission contrary to the Plaintiff’s outline of

the principles of law that this court should apply to ascertain the proper

construction of the Agreement as pleaded in clause 11 of the Amended Plaint and

whether the implied terms contained within clause 12 of the Amended Plaint can

be implied according to law. Having reviewed the submissions by the Plaintiff on

the law applicable to the preliminary issues to be determined between the parties,

I accept the Plaintiff’s submissions on the law to be a correct.

[2012] WAMW 14


Ascertaining the Proper Construction of the Agreement

76. The proper interpretation or construction of the Agreement is achieved by

applying a meaning that would be given to it by a reasonable reader or person in

the position of the Plaintiff and the 1st Defendant at the time the Agreement was

made. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at

[40] the High Court said:

“The meaning of the terms of a contractual document is to be determined by what a

reasonable person would have understood them to mean. That, normally, requires

consideration not only of the text, but also of the surrounding circumstances known

to the parties, and the purpose and object of the transaction.”

77. It is also important to understand the context in which the Agreement was made.

A contract must be read as a whole and the words of the contract must be

understood in the context of all the other words that form the contract. It follows,

as a matter of commonsense, that words in a contract attain their meaning more

from the context of the contract in which it appears than the dictionary definition.

Further, in Metropolitan Gas Co v Federated Gas Employees Industrial Union

(1925) 35 CLR 449 at 455, Isaccs and Rich JJ said :

“It is a received canon of interpretation that every passage in a document must be

read, not as if it were entirely divorced from its context, but as part of the whole

instrument.”

78. In determining the proper interpretation or construction of the Agreement, a court

will apply an objective perspective and in a commercial contract, a business like

interpretation. In International Air Transport Association v Ansett Australia

Holdings Ltd (2008) 234 CLR 151 at [8] Gleeson CJ said:

“In giving a commercial contract a businesslike interpretation, it is necessary to

consider the language used by the parties, the circumstances addressed by the

contract, and the objects which it is intended to secure. An appreciation of the

commercial purpose of a contract calls for an understanding of the genesis of the

transaction, the background and the market.”

79. In applying those rationales, the purposes and objects of the Agreement is found

in Recital B and clause 2.1 being the Plaintiff and the 1st Defendant formed an

association by way of an unincorporated Joint Venture for the purposes of

exploring and, if warranted, developing and mining the Tenement.

[2012] WAMW 14


80. To achieve those purposes and objectives the Plaintiff and the 1st Defendant both

agreed to each contribute something towards the agreed outcomes. The 1st

Defendant agreed to contribute money and completing a Feasibility Study on the

Tenement within 5 years towards the purpose and objects of the Agreement. In

return for contributing money and completing a Feasibility Study within the 5

years the 1st Defendant would earn an 80% interest in the Joint Venture. (see:

clauses 4.1, 4.2, & 4.5 of the Agreement). The Plaintiff was not required to do

anything during the period the 1st Defendant was contributing money and

completing a Feasibility Study. However, upon the 1st Defendant completing the

Feasibility Study the Plaintiff agreed to transfer 80% of his Joint Venture Interest

to the 1st Defendant.

81. The completion of a Feasibility Study by the 1st Defendant is multifaceted and

pivotal to the Agreement. The Feasibility Study is not for the benefit of one party

or the other. On a proper construction of the Agreement, the Feasibility Study is

for the benefit of the both the Plaintiff and the 1st Defendant. The information

contained within the completed Feasibility Study is for the purposes of both the

Plaintiff and the 1st Defendant exercising of their respective rights under the terms

of the Agreement and for the Joint Venture participants to utilize for the purposes

of advancing the objects of the Agreement.

82. On completing the Feasibility Study the 1st Defendant, may having considered the

information it has gathered, make a decision to withdraw from the Agreement

pursuant to clause 15 of the Agreement. Alternatively, the 1st Defendant may seek

the transfer of the 80% Joint Venture Interest it has earned pursuant to clause 4.5

of the Agreement.

83. The completion of the Feasibility Study by the 1st Defendant enlivens the options

of the Plaintiff. On that event the Plaintiff may elect to withdraw from the Joint

Venture pursuant to clause 4.6 of the Agreement, or contribute to the Joint

Venture Expenditure by seeking to raise project finance. If the Plaintiff elects to

withdraw from the Joint Venture he is required by clause 4.6 to first offer his

share in the Joint Venture to the 1st Defendant for the then net present value

calculated by reference to the Feasibility Study. If agreement cannot be reached

within 90 days the Plaintiff may, inter alia, offer his share in the Joint Venture to

a 3rd

Party. If the Plaintiff elects to contribute to Joint Venture expenditure and

raise project finance and is successful in doing so he must immediately notify in

writing the 1st Defendant. In the event the Plaintiff is unsuccessful in raising

project finance within the time specified in clause 4.7(a) of the Agreement or if

he elects during the time in which he is to raise project finance, the Joint Venture

Interest of the Plaintiff converts to a royalty payment only and the Plaintiff is

deemed to have withdrawn from the Joint Venture.

[2012] WAMW 14


84. The 1st Defendant maintains it is not obliged to provide the Plaintiff with a copy

of a completed Feasibility Study and all that it was obliged to do under the terms

of the Agreement was inform the Plaintiff of completion of the Feasibility Study.

Further, the 1st Defendant says the Plaintiff was not entitled to provide any other

person with a copy of the completed Feasibility Study as it was a information

which would fall within the confidentiality regime contemplated within clause 12

of the Agreement.

85. The entire purpose of the Agreement, as noted in Recital B and clause 2.1 of the

Agreement, was to determine if it was feasible for the Joint Venture to explore

and, if warranted, mine the Tenement. The tool agreed by the Plaintiff and the 1st

Defendant in the Agreement to determine the feasibility of the very purpose for

the Joint Venture was the Feasibility Study the 1st Defendant agreed to undertake

in return for gaining an 80% interest in the Joint Venture. The Plaintiff and the 1st

Defendant were each entitled under the terms of the Agreement to make their own

independent and informed decision on the basis of the completed Feasibility

Study whether they considered the objects of the Joint Venture were in fact

feasible. Upon making such independent and informed decision from the content

of the completed Feasibility Study both the Plaintiff and the 1st Defendant could

make the election of which of their rights they wished to exercise under the

Agreement.

86. In those circumstances, I am of the opinion, that on a proper interpretation or

construction of the Agreement it is impossible to ascertain how the Plaintiff

would be able to exercise his rights under the Agreement to make an independent

and informed decision, firstly, that the 1st Defendant had in fact completed a

Feasibility Study, secondly, to determine the feasibility of the agreed purpose of

the Joint Venture, thirdly, to elect to withdraw from the Agreement, fourthly, on a

decision to withdraw from the Agreement and negotiate and determine the then

net present value of his Joint Venture interest, fifthly, to elect to seek to

contribute to Joint Venture Expenditure by raising project finance and, sixthly, to

contribute to the advancement of the objects of the Agreement, if he was not

entitled to have been given a copy of the 1st Defendant’s completed Feasibility

Study.

87. I agree with the Plaintiff that such a proposition by the 1st Defendant that the

Plaintiff was not entitled to a copy of the completed Feasibility Study or that the

purpose of the completed Feasibility Study was only for the benefit of the 1st

Defendant is a nonsense, illogical, not commercial and is certainly not a

conclusion that can be reached on an objective and proper interpretation or

construction of the Agreement when it is read as a whole.

[2012] WAMW 14


Is there Implied Terms in the Agreement?

88. In Luxor (Eastbourne ) Ltd v Cooper [1941] AC 108 at 137, Lord Wright

distinguish between two types of implied terms, those which are rules of law and

those which are based on an intention imputed to the parties from the actual

circumstances. The High Court in Breen v Williams (1995) 186 CLR 71 at 102-3

distinguish the difference is between the categories of implied terms. Gaudron

and McHugh JJ said of the distinction the following:

“The common law draws a distinction between terms which are implied in fact

and terms which are implied by law. Leaving aside terms that are presumed to

apply because of the custom of a trade or business, the court will only imply a

term in fact when it is necessary to give efficacy to the contract. A term implied in

fact reports to give effect to the presumed intention of the parties to the contract

in respect of a matter that they have not mentioned but on which presumably they

would have agreed should be part of the contract. A term implied by law on the

other hand arises from the nature, type or class of contract in question. Some

terms are implied by statutes in contracts of a particular class, for example,

money lending and home building contracts. Such terms give effect to social and

economic policies which the legislature thinks necessary to protect or promote the

rights of one party to that class of contract. Other terms are implied by the

common law because, although originally based on the intentions of parties to

specific contracts of particular descriptions, they ‘became so much a part of the

common understanding as to be imported into all transactions of the particular

description’. Many of these terms are implied to prevent ‘the enjoyment of the

rights conferred by the contract is being rendered nugatory, worthless, or,

perhaps seriously undermined’, the notion of necessity being central to the

rationale for such an implication. The distinction between terms implied by law

and terms implied by fact intend in practice to ‘merge imperceptibly into each

other.’”

89. In this case, the Plaintiff seeks to imply terms based on intention imputed to the

parties from their actual circumstances. There is a general presumption against

implying terms into written contracts. The courts are generally slow to imply at

term into a contract (see; Codelfa Construction Pty Ltd v State Rail Authority of

New South Wales (supra), Mason J at page 346). Further, Lord Hoffmann in the

Privy Council in Attorney General of Belize v Belize Telecom Ltd [2009] 1

WLR 1988 at [17] – [18] said the following:

“The question of implication arises when the instrument does not expressly provide

for what is to happen when some event occurs. The most usual inference in such a

case is that nothing is to happen. If the parties had intended something to happen,

the instrument would have said so. Otherwise, the express provisions of the

instrument are to continue to operate undisturbed. If the event has caused loss to

one or other of the parties, the loss lies where it falls.

[2012] WAMW 14


In some cases, however, the reasonable addressee would understand the instrument

to mean something else. He would consider that the only meaning consistent with

the other provisions of the instrument, read against the relevant background, is that

something is to happen. The event in question is to affect the rights of the parties.

The instrument may not have expressly said so, but this is what it must mean. In

such a case, it is said that the court implies a term as to what will happen if the

event in question occurs. But the implication of the term is not an addition to the

instrument. It only spells out what the instrument means."

90. It is well established principle of law that certain requirements must be satisfied

before any terms can be implied into a contract. The requirements that must be

fulfilled were set out by the Privy Council in BP Refinery (Westernport) Pty Ltd

v Shire of Hastings (supra) at page 283:

“The conditions which any proposed implied term must satisfy are:

(1) it must be reasonable and equitable;

(2) it must be necessary to give business efficacy to the contract, so that no

term will be implied if the contract is effective without it;

(3) it must be so obvious that ‘it goes without saying’;

(4) it must be capable of clear expression;

(5) it must not contradict any express term of the contract.”

91. In Codelfa Construction Pty Ltd (supra), the High Court also made it clear that

the express terms of the contract are critical to the implication of a term. The

express terms of the contract are the sole source of the implication of the term.

Extrinsic circumstances cannot be relied upon in order to imply that term and

may only be used as an aid to construction of the expressed terms. This is clear

from the judgment of Brennan J in Codelfa Construction Pty Ltd (supra) at 403:

“Although the necessity for the term to be implied must appear from and in the

express terms of a contract, not from extrinsic circumstances, those circumstances

may aid in ascertaining the meaning of the express terms and in identifying the

matters to which they relate. The meaning and operation of the express terms,

thus established, are the sole foundation for implying a term which the parties

have not expressed. The relationship between the construction of express terms

and implication of a term is stated by Jordan CJ with his accustomed lucidity in

Heimann v Commonwealth (1938) 38 SR (NSW) 691 at 695:

‘in order to justify the importation into a contract of an implied term

which is not to be found in the express language of the contract were

properly construed, and is not annexed by some recognised usage, or

by statute or otherwise, it is essential that the express terms of the

contract should be such that it is clearly necessary to imply that term in

order to make the contract operative according to the intention of the

[2012] WAMW 14


parties as indicated by the express terms. It is not sufficient that it

would be reasonable to imply that term: Bell v Lever Bros Ltd [1932]

AC 161 at 226. It must be clearly necessary. And the test of whether it is

clearly necessary is whether the express terms of the contract are such

that both parties, treating them as reasonable men - and they cannot be

heard to say that they are not - must clearly have intended that term, or,

if they have not diverted to it, would certainly have included it, if the

contingency involving the term had suggested itself to their minds…’

The cases which, in recent times, have countenanced a reference to extrinsic facts

are cases where the reference is made in order to understand the meaning and

operation of the express terms of a contract; no case in this court has approved

an examination of extrinsic facts in order to find in them a promise to be

implied.”

92. The terms of the Agreement does not define nor specifies what the 1st Defendant

must do to be said to have “completed a Feasibility Study on the Tenements”

pursuant to clause 4.2 of the Agreement. On a proper construction of the

Agreement it is clear that implications must be made to enable the terms of the

Agreement to be properly implemented for the benefit of both the Plaintiff and

the 1st Defendant.

93. To enable the Plaintiff to properly inform himself of his election under the

provisions of clause 4.6 of the Agreement or to seek to contribute to Joint

Venture Expenditure and raise project finance pursuant to the provisions of clause

4.7 of the Agreement it goes without saying that the Feasibility Study must

contain information of a standard that commercially validates the findings or

conclusions of the information contained within the Feasibility Study. There is no

common sense for the 1st Defendant to suggest it was not contemplated by the

Plaintiff that the Feasibility Study it was required to complete within 5 years

would not be utilized either by it or the Plaintiff for the advancement of any

obligations or rights they had under the terms of the Agreement or for the

advancement of the very purpose of the Agreement being ‘for exploring and, if

warranted, developing and mining the tenements” as contained within clause 2.1

of the Agreement.

94. If that were not the case the 1st Defendant could, on production of a document of

little commercial worth purported to be a document created in compliance with

clause 4.2 of the Agreement, earn an 80% Joint Venture Interest and leave the

Plaintiff in a position that he was none the wiser as to the feasibility of exploring

and, if warranted, developing and mining the tenements and have no information

or insufficient information to enable him to be able to exercise his rights under

clause 4.6 of the Agreement and therefore destined the Plaintiff to lose his Joint

[2012] WAMW 14


Venture Interest. Such a situation is not contemplated on a proper construction of

the terms of the Agreement.

95. In my opinion, the Confidentially provision contained within clause 12 of the

Agreement does not completely prohibit the use of the information contained

within the competed Feasibility Study from being utilized by the Plaintiff for the

purposes of raising project finance. Clause 12 of the Agreement contemplates that

confidential information gathered as a consequence of the Agreement is Joint

Venture Property and may be disclosed outside of the boundaries of that required

by law or the ASX listings Rules by a participant to the Agreement with the

agreement of the participants. It is illogical and lacking in business efficacy that

the content of the completed Feasibility Study would not be available to one of

the participants to the Agreement to use that information specifically

contemplated by the Agreement, that is, to raise project finance.

96. The 1st Defendant submits the requirement for the Feasibility Study to contain a

‘reserve statement’ could not have been contemplated by the terms of the

Agreement as it believes such a statement is a reference to terms in the JORC

Code 2004, that being something that was not in existence when the Agreement

commenced. In my opinion, it is commercially ridiculous to suggest the Plaintiff

and the 1st Defendant contemplated when the Agreement commenced that the 1

st

Defendant would complete a Feasibility Study within 5 years that would not take

into account any changing obligations either in law or commercial practice when

preparing the Feasibility Study thereby rendering the content of the Feasibility

Study of potentially little worth to the advancement of the very purpose of the

Agreement and for that matter both parties.

97. I accept the Plaintiff’s argument that the five conditions established in BP

Refinery (Westernport) Pty Ltd v Shire of Hastings (supra) at page 283 have all

been met and for the purposes of the implication of the terms into the Agreement

as pleaded in clause 12 of the Amended Plaint.

98. For those reason the two preliminary questions are answered as follows:

Preliminary Issue 1

Whether the Agreement should be construed as pleaded by the Plaintiff

at paragraph 11 of the Amended Plaint?

Answer - Yes

Preliminary Issue 2

[2012] WAMW 14


Whether the implied term pleaded by the Plaintiff at paragraph 12 of

the Amended Plaint can be implied according to law?

Answer - Yes

[2012] WAMW 14 - Department of Mines, Industry Regulation ... · BP Refinery (Westernport) Pty Ltd...

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