Supreme Court New South Wales Medium Neutral Citation: Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd; Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd [2021] NSWSC 640 Hearing dates: 3, 4, 6 and 10 May 2021 Decision date: 04 June 2021 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: The defendant repudiated its obligations under the Asset Sale Agreement; the plaintiff was entitled to terminate the Asset Sale Agreement and is entitled to the Outstanding Royalties and loss of bargain damages calculated by reference to the Projected Royalties Catchwords: CONTRACTS – construction – mining tenements – royalty payable as percentage of net sales realisation – proper construction of that expression – whether defendant repudiated contract – whether plaintiff entitled to terminate – accrued rights – calculation of loss of bargain damages Cases Cited: Burger King Corp v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 Burke and Riversdale Road Pty Ltd v Gemini Investments Pty Ltd [2003] VSC 33 Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 Heyman v Darwins Ltd [1942] AC 356 Johnson v Agnew [1980] AC 367 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23 Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11 Louinder v Leis (1982) 149 CLR 509; [1982] HCA 28 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14 Safehaven Investments Inc v Springbok Ltd (1995) 71 P & CR 59; [1995] EGCS 96 Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47 Stickney v Keeble [1915] AC 386 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; [1988] HCA 11 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632; (1938) 55 WN (NSW) 228 Troulis v Vamvoukakis [1998] NSWCA 237 Texts Cited: P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) J D Heydon, Heydon on Contract (2019, Thomson Reuters) Category: Principal judgment Parties: Thalanga Copper Mines Pty Ltd (Plaintiff/Cross-Defendant) Cromarty Resources Pty Ltd (First Defendant/Cross-Claimant) Red River Resources Limited (Second Defendant) Representation: Counsel: A McGrath SC with T Jonker (Plaintiff/Cross-Defendant) J C Kelly SC with A J Barnett (First Defendant/Cross-Claimant) Solicitors: McCullough Robertson (Plaintiff/Cross-Defendant) Piper Alderman (First Defendant/Cross-Claimant) File Number(s): SC 2019/53887 Judgment 1. By a contract dated 3 May 2006 (the "Asset Sale Agreement"), the plaintiff, Thalanga Copper Mines Pty Ltd, sold certain mineral exploration permits and mining leases in Queensland (the "Tenements") to Kagara Copper Pty Ltd for $2 million. 2. Pursuant to the Asset Sale Agreement, Kagara agreed to pay a royalty (the "Royalty") to Thalanga calculated at 4% of the "Net Sales Realisation" of saleable metals processed from ore mined from the Tenements. 3. The Royalty was to be calculated in accordance with cl 13 of the Asset Sale Agreement, to which I will return. 4. On 16 December 2013, Kagara was placed into liquidation. 5. By a further contract dated 12 September 2014, called "Agreement for the Sale of Assets", the liquidator of Kagara sold the Tenements to the first defendant, Cromarty Resources Pty Ltd. Cromarty is a wholly owned subsidiary of the second defendant, Red River Resources Ltd, a company listed on the Australian Stock Exchange. 6. By a Deed of Covenant, Assignment and Release (the "Deed of Covenant"), dated 24 March 2015, Cromarty agreed to assume the rights and obligations of Kagara under the Asset Sale Agreement and Red River agreed to guarantee Cromarty's obligations. 7. Under the Deed of Covenant, Cromarty also agreed to deliver to Thalanga two unconditional bank guarantees. The first was for $300,000 and was delivered on the date of the Deed. The second (the "Second Bank Guarantee") was for $700,000 and was to be delivered "prior to the commencement of Production". Although "Production" commenced, the Second Bank Guarantee was never provided. Thalanga's entitlement to Royalties was otherwise unsecured. 8. Cromarty commenced producing ore from the Tenements in May 2017. 9. Cromarty commenced sales of processed ore to Glencore International AG and Trafigura Pte Limited in around October 2017. I will return to the agreements pursuant to which these sales occurred below. 10. Thalanga purported to terminate the Asset Sale Agreement on 28 December 2018. The question is whether it was entitled to do so, or whether its purported termination on that day was a repudiation of the Asset Sale Agreement entitling Cromarty itself to terminate on 8 January 2019. 11. Either way, it is common ground that the Asset Sale Agreement ceased to be operative on either 28 December 2018 or 8 January 2019. 12. It is also common ground that, either way, Thalanga is entitled to Royalties due as at 28 December 2018 (the "Outstanding Royalties"). There is a dispute as to how the Outstanding Royalties should be calculated. 13. It is also common ground, that if Thalanga was entitled to terminate the Asset Sale Agreement on 28 December 2018, it is entitled to loss of bargain damages. Thalanga calculates those damages based on the present value of the royalties it would have earned had the Asset Sale Agreement continued (the "Projected Royalties"). There is a dispute about whether any loss of bargain damages to which Thalanga is entitled may be calculated by reference only to the Projected Royalties. There are also disputes about Thalanga's calculation of Projected Royalties. 14. The amounts involved are large. Thalanga claims Outstanding Royalties in the order of $1.7 million and Projected Royalties in the order of $25.5 million. Decision 1. Cromarty repudiated its obligations under the Asset Sale Agreement. Thalanga was entitled to terminate the Asset Sale Agreement on 28 December 2018 and is entitled to the Outstanding Royalties and to loss of bargain damages calculated on the basis of the Projected Royalties. The Asset Sale Agreement 1. Clause 13 of the Asset Sale Agreement provided, relevantly: "13 ROYALTY 13.1 Payment Subject to clause 13.3, in addition to the payment of the Purchase Price referred to in clause 4, the Purchaser must: (a) pay the Royalty to the Vendor within 15 Business Days after the end of the month of actual sales; (b) with each Royalty payment, provide the Vendor with sufficient details to enable the Vendor to ascertain how the Royalty payment has been calculated; and (c) provide copies of the royalty returns that are lodged with the DNRM in relation to the Tenements, within 14 days of the date of submission. 13.2 Acknowledgment of the Purchaser The Royalty is payable on all metals processed from the Ore mined from the Tenements whether or not the Ore has been processed by the Purchaser or the Ore has been sold to, or processed by, any other party. 13.3 Calculation of Royalty The Royalty will be calculated by the Purchaser on the NSR of the metals realised by the Purchaser. Any adjustment for the excess or short payment of Royalty in the month of sales is to be made when the final NSR for that month is determined. 13.4 Treatment and Processing Charges The parties acknowledge that the treatment charges and refining charges will be calculated as per the international code of practice and must be fair value in accordance with prevailing market conditions." 1. "Royalty" was defined as: "Royalty means the royalty at the rate of 4% on NSR of all saleable metals including precious metals processed from the Ore mined from the Tenements (not being limited to Ore processed at the Plant)." 1. "NSR" was defined as: "NSR means the net sales realisation, actually realised by the Purchaser from the sale of processed Ore (either in concentrate form or in metal form) less the treatment and refining charges." The Glencore and Trafigura Agreements 1. On 6 June 2017 and 7 August 2017, Cromarty entered into agreements with Glencore and Trafigura. Pursuant to the 6 June 2017 agreement, Glencore agreed to purchase the "total production" of copper concentrate from the Tenements over a three-year period (the "Glencore Agreement"). Pursuant to the 7 August 2017 agreements, Trafigura agreed to purchase specified amounts of lead and zinc concentrate over a three-year period (the "Trafigura Agreements"). 2. The effect of both the Glencore Agreement and the Trafigura Agreements was that, relevantly: 1. Glencore and Trafigura would make a "Provisional Payment" for the ore on presentation of particular documents; [1] 2. Glencore and Trafigura would make a "Final Payment", which was established by taking an average cash settlement quotation on the London Metal Exchange over a variable "quotational period"; and 3. title to the material passed to Glencore or Trafigura on the making of the Provisional Payment. 1. It is not necessary to set out the details of these provisions. Their effect was that Cromarty was paid 95% of the provisional value of ore sold to Glencore and Trafigura at around the time of the concentrate's shipment. Cromarty would not know the final price payable by Glencore and Trafigura until the end of the three month quotational period, at which time the final price would be determined in accordance with the relevant price on the London Metal Exchange. The final price was at times higher than the provisional price and at times lower. The proper construction of cl 13 1. The principles to be adopted in construing a commercial contract are settled. 2. The leading modern statement is that of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd: [2] "The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. … Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. However, sometimes, recourse to events, circumstances and things external to the contract is necessary." [3] 1. The debate before me focused on the text of the Asset Sale Agreement. In that context, it has been correctly observed that: "…the only relevant meaning is that which the text conveys. This follows from the need to ascertain the intention expressed in the document. Although,…context and purpose are relevant, ultimately the court must attribute meaning to the words actually used." [4] (Emphasis in original.) 1. Prior to closing submissions, Cromarty's position was that it admitted that there were "outstanding royalties owing" by Cromarty to Thalanga [5] and that Cromarty "owes" Thalanga "outstanding royalties for the period 1 July – 28 December 2018". [6] Cromarty asserted that the amount "owing" was $1,222,337. [7] 2. On 19 April 2021, two weeks before the hearing, Cromarty's solicitors wrote to Thalanga's solicitors stating: "…there is no issue in relation to the $1,222,337 component of Outstanding Royalties…". 1. Nonetheless, in closing submissions Mr Kelly SC and Mr Barnett who appeared for Cromarty, argued for a construction of the Asset Sale Agreement that, if correct, would have the consequence that: 1. no Royalty was owing as at the date when the Asset Sale Agreement came to an end (whether on 28 December 2018 or 8 January 2019); 2. Cromarty was not in default under the Asset Sale Agreement when Thalanga purported to terminate it on 28 December 2018; 3. Thalanga's purported termination of the Asset Sale Agreement in that circumstance was thereby repudiatory; 4. Cromarty was entitled to accept that repudiation and terminate the Asset Sale Agreement on 8 January 2019; and 5. Thalanga was accordingly not entitled to loss of bargain damages (although any Outstanding Royalties would still be payable). 1. This submission was not mentioned in Mr Kelly's and Mr Barnett's opening submissions, nor foreshadowed in Cromarty's Commercial List Response. Nor, during the critical months leading to Thalanga's purported termination of the Asset Sale Agreement in 2018, did the parties and Cromarty in particular, conduct themselves on the basis that no Royalty was payable. As will emerge, the communications between the parties in those months proceeded upon the basis that a Royalty was due. 2. Mr McGrath SC, who appeared with Ms Jonker for Thalanga, stated that, had this argument been foreshadowed, he and Ms Jonker may have conducted the case differently. 3. Mr McGrath said, and I accept: "We may have stated a case of estoppel that they'd made a series of representations to us that there was in fact amounts owing and I would've cross examined the two witnesses [8] in a fundamentally different way if I had been making a case of estoppel against them. " 1. The reason why, on Mr Kelly's construction of the Asset Sale Agreement, no Royalty was payable as at 28 December 2018, is because of the terms of the Glencore and Trafigura Agreements to which I have referred. In effect, Mr Kelly's submission was that the Royalty could not be struck until the final amount realised by Cromarty from sales to Glencore and Trafigura was ascertained. It followed, according to this submission that, in the events that happened, the Royalties that Thalanga contended were outstanding, and which led it to purport to terminate the Asset Sale Agreement on 28 December 2018, were not due for payment until many months later. 2. Mr McGrath submitted that Mr Kelly's construction of the Asset Sale Agreement was not correct. However, Mr McGrath accepted that, as it had been raised, albeit at the heel of the hunt, it was necessary for me to decide whether it was correct. 3. Had I concluded that Mr Kelly's construction was correct, difficult questions would have arisen as to how the case was to be managed. 4. However, for the reasons that follow, my conclusion is that Mr Kelly's construction is not correct. 5. Debate before me focused on the operative words in cl 13.1 of the Asset Sale Agreement and the words in the definitions of "Royalty" and Net Sales Realisation or "NSR". 6. The use of defined terms is simply a drafting technique adopted for convenience and brevity. The full text of cl 13.1 can only be seen by reading the definitions into the operative text and construing the operative text in that light. [9] 7. Once the relevant definitions are read into its text, cl 13.1(a) reads as follows: [10] "…[Cromarty] must…pay [the royalty at the rate of 4% on {the net sales realisation, actually realised by [Cromarty] from the sale of processed Ore…less the treatment and refining charges} of all saleable metals…processed from the Ore mined from the Tenements] to [Thalanga] within 15 Business Days after the end of the month of actual sales". 1. The critical question is, which part of the clause determines when the Royalty is to be paid. 2. Is it the words "after the end of the month of actual sales" at the end of the clause? Or is it the words "net sales realisation, actually realised" which words are within the definition of Net Sales Realisation, incorporated by reference into cl 13.1(a)? 3. When cl 13.1(a) is set out in full in this way, it becomes clear that the time that the Royalty is payable is within 15 Business Days after the end of month of "actual sales". This is the time when the Royalty must be calculated, at least on a provisional basis (as to which I refer below). That is, the words that govern when the Royalty is to be paid are those closing words. 4. That is made clear, in my opinion, when the full text of the clause is set out [11] with the following emphasis: "…Cromarty must…pay the royalty at the rate of 4% on the net sales realisation, actually realised by Cromarty from the sale of processed Ore…less the treatment and refining charges of all saleable metals processed from the ore mined from the tenements to Thalanga within 15 Business Days after the end of the month of actual sales". (Emphasis added.) 1. Mr Kelly's submission was, in effect, that the words that govern when the Royalty was to be paid are the words "net sales, actually realised". As Mr Kelly put it, it is the concept of "actual realisation" rather than the concept of "sale" that is determinative of when the Royalty is payable. 2. Mr Kelly's argument was that the only time when the Royalty was capable of being calculated was when the amount of the "net sales, actually realised" could be finally ascertained, and that the Royalty was not payable until then. 3. As I have said, the effect of this submission, in the events that happened, would be that no Royalty was payable on 6 December 2018, when Thalanga demanded payment, nor on 28 December 2018 when Thalanga purported to terminate the Asset Sale Agreement. That is because, by reason of the terms of the contracts between Cromarty and Glencore and Trafigura, the "net sales, actually realised" of the shipments of ore made in the months leading to 2 December 2018 had not been, and could not be ascertained, until the end of the relevant quotational periods; each of which was after December 2018. 4. Mr Kelly's construction would involve construing the words "month of actual sales" as meaning something to the effect of "month when the final sale price can be ascertained" or "month in which the second or final invoice is raised". It would also give the second sentence of cl 13.3, to which I will return, no work to do at all. 5. Mr Kelly's construction would also have the effect that unless and until Glencore or Trafigura made a final payment at the end of the quotational period, no Royalty would be payable to Thalanga. Thus, for example, if Glencore or Trafigura disputed its liability to make a final payment, perhaps because of some dispute about the quality of the ore in question, or perhaps for some other reason, no Royalty would be payable unless and until the dispute was settled. It would also mean that, were it to be to its advantage to do so, Cromarty could choose not to seek the final payment and thus avoid paying the Royalty. It appears to me that the parties are unlikely to have intended such a result. 6. In my opinion, the better view of the clause is that the Royalty is payable 15 Business Days after the end of the month of "actual sales" and an "actual sale" of ore takes place when a contract for sale of the ore is concluded so as to make it binding. 7. Clause 13.1(a) is directed to when the "actual sale" of "processed ore" takes place, rather than to when a "net sales realisation, actually realised" might occur. 8. In my opinion, this is confirmed by the second sentence of cl 13.3, to which I will return, which refers to adjustments being made for the excess or short "payment of Royalty in the month of sales"; thus confirming that the time for payment of the Royalty is "in the month of sales". [12] 9. It will be recalled that Glencore agreed to buy the "total production" of the Tenements so far as concerns copper concentrate and that Trafigura agreed to purchase a specified amount of lead and zinc concentrate. [13] Under the Glencore and Trafigura Agreements, sales were effected when Cromarty shipped the processed ore and invoiced Glencore or Trafigura for the "provisional price". Title passed under both contracts when the Provisional Price was paid. 10. In those circumstances, in my opinion, the "actual sales" took place, at the latest, when title so passed. 11. The first sentence of cl 13.3 reads: "The Royalty will be calculated by [Cromarty] on the NSR of the metals realised by [Cromarty]". 1. When the definition of "NSR" is read into that sentence it reads [14] : "The Royalty will be calculated by [Cromarty] on {the net sales realisation, actually realised by [Cromarty] from the sale of processed ore…less the treatment and refining charges} of the metals realised by [Cromarty]". 1. The clause so read is somewhat repetitive but it contemplates that Cromarty will calculate what it "realised" from the sale, in the sense of what represents its "net sales realisation, actually realised" from the sale. 2. However, cl 13.1(a) requires that this calculation be done within 15 Business Days of the "month of actual sales". As "actual sales" take place when title in the ore passes, that calculation must be in relation to the "net sales, actually realised" from the sale at that point. The calculation would necessarily be provisional if, as happened, Cromarty could not at that time calculate what its final "net sales realisation, actually realised" would be. 3. The second sentence of cl 13.3 shows that the parties contemplated this possibility. That sentence reads: "Any adjustment for the excess or short payment of Royalty in the month of sales is to be made when the final NSR for that month is determined". 1. Thus, the parties provided for an adjustment of the Royalty "in the month of sales", that is the royalty already paid for a "month of sales", once the final NSR, that is the "net sales realisation, actually made" for that month could be "determined". 2. In the events that happened, the "month of actual sales" was the month in which Glencore or Trafigura made a provisional payment to Cromarty and title in the ore passed from Cromarty to Glencore or Trafigura. 3. By the first sentence of cl 13.3, Cromarty was obliged to calculate the royalty. By reason of cl 13.1(a), that calculation had to be done within 15 Business Days of the end of that month. That calculation would necessarily be by reference to the "net sales realisation, actually realised" at that time. The calculation would thus be provisional; and might require an "adjustment" under cl 13.3 to calculate any "excess or short payment" once the final sale price was known at the end of the "quotational period". The fact that the parties contemplated that the calculation might be provisional is recognised by the reference to the "final NSR" in the second sentence of cl 13.3. 4. Nonetheless, the Royalty, as best as it could be calculated, was payable at the end of the month in which Glencore or Trafigura made a provisional payment for the ore shipped that month. Sales realisation expenses 1. A further question arises as to whether Net Sales Realisation must be calculated by deducting the costs of production from the sales proceeds. 2. Mr Kelly submitted that Net Sales Realisation must be calculated by deducting from sales proceeds "the cost of doing everything that needs to be done to bring about the sale" and "requires expenses to be taken into account", including freight costs. 3. I do not agree. 4. First, Cromarty's accounting expert, Mr Jaski agreed that the accounting concept of "net sales" was gross revenue less any returns or discounts and that the accounting concept of "realisation" was converting an asset into cash. 5. Second, Mr Kelly's submission involves reading "Net Sales Realisation" as meaning "Net Profit". 6. The only deduction that the definition of Net Sales Realisation permits is for "treatment and refining charges" which, as Mr Kelly submitted, are charges paid to the smelter. Such charges would be included in the "costs of doing everything that needs to be done to bring about the sale" or as part of the "expenses" of producing saleable ore. The fact that the parties have specified that "treatment and refining charges", but not other expenses, be deducted from Net Sales Realisation shows that they did not intend Net Sales Realisation to be Net Profit. 7. Accordingly, sales realisation expenses such as sales, marketing and concentrate logistics expenses, assay costs, trucking and sea freight costs should not be taken into account to determine Net Sales Realisation. 8. I think Mr McGrath was correct to submit the reference to "Net" Sales Realisation is to take account of any credits, discounts or allowances that may be involved in the sales in question. The witnesses – Mr Walker not called 1. I heard evidence from three lay witnesses. They were Mr William Leiva who is the Financial Controller of Thalanga's sister company, Copper Mines of Tasmania Ltd, Mr Melkon Palancian who is the Managing Director of Red River and Mr Rodney Lovelady who is the Chief Financial Officer of Red River. 2. I gained the impression that each of these witnesses was doing his best to give an honest account of his recollection of relevant events. 3. Thalanga served affidavits from its former director, Mr Peter Walker, but did not call Mr Walker as a witness. 4. Mr Walker was a party to many of the relevant written communications, including two in November 2018 which are of critical importance, and to which I will return. 5. The other communications from Thalanga were by Mr Leiva, who agreed that Mr Walker determined the content of those communications. 6. Mr Walker ceased to be a director of Thalanga and of Copper Mines of Tasmania in October 2019 and ceased employment with Copper Mines of Tasmania in November 2019. In March 2020, Mr Walker commenced proceedings against Copper Mines of Tasmania in the Federal Court of Australia making serious allegations about the circumstances in which his employment was terminated. 7. Thus, Thalanga has given an explanation for its failure to call Mr Walker. 8. It is true, as Mr Kelly pointed out, that it was open to Thalanga to subpoena Mr Walker, read his affidavits and make him available for cross-examination. 9. But assuming that an inference can be drawn against Thalanga in these circumstances, it can only be that his evidence in cross-examination would not have assisted Thalanga. 10. As the relevant communications between the parties were for the most part in writing, this could only be of significance in relation to the meeting of 30 October 2018 between Mr Walker, Mr Leiva, Mr Palancian and Mr Lovelady, that I discuss below. 11. The fact that Mr Walker was not called means that the evidence by Mr Palancian and Mr Lovelady as to what happened at that meeting is not contested by Mr Walker and, to that extent, should be accepted. I see no other relevant significance arising from Mr Walker's absence as a witness. The events leading to termination 1. I have mentioned that Cromarty commenced sales of processed ore to Glencore and Trafigura in October 2017. [15] On 9 November 2017, Red River published an ASX Release stating that: "● First payment has been received for the sale of zinc concentrate from the Thalanga Mine … Red River…is pleased to announce that first payment has been received for the sale of zinc concentrate from its Thalanga mine…, Australia's newest zinc mine, in Queensland. This follows the commencement of concentrate production at Thalanga on 8 September 2017. Zinc and lead concentrates from Thalanga are sold under an offtake agreement to Trafigura…". 1. There is no dispute that Thalanga became aware of this public announcement. 2. Nonetheless, so far as the evidence before me reveals, Thalanga did not seek payment of Royalties from Cromarty until June 2018. 3. In the meantime, there were negotiations about the possible acquisition by Red River from Cromarty of mining tenements known as the "Highway Reward leases". 4. On 19 June 2018, Mr Walker wrote to Cromarty and Red River: "Should [Red River] proceed with the purchase of the Highway Reward leases, [Thalanga] would be willing to consider arrangements involving the royalties, however until this is finalised, [Thalanga] requires payment of the royalties in accordance with the Deed. Arrangements could also include [Red River] or related entitles purchasing [Thalanga's] 70% portion of the [Mount Windsor Joint Venture]." 1. On the same day, Mr Walker sent a further letter on behalf of Thalanga to Cromarty and Red River: "Pursuant to clause 8.2 of the Deed, [Cromarty] is required to provide [Thalanga] with [the Second Bank Guarantee] prior to the commencement of production. Could you please advise when this bank guarantee will be provided as [Thalanga] understands production has commenced. Further, clause 13.1 of the [Asset Sale Agreement] provides that the Royalty payable to [Thalanga] is due within 15 business days after the end of the month of actual sales. An announcement by [Red River] to the market indicated that concentrate sales were made in September 2017. As such, royalty payments should have commenced at that time, as should provision of the detail as to how the Royalty payment was calculated. I note that clause 8.1 of the Deed entitles [Thalanga] to draw against the existing $300,000 unconditional bank guarantee should payment of the royalty not be made by the due date. I request you address the above as a matter of urgency, and that all future royalties are paid as they fall due." 1. There is no dispute that, because production had commenced at the Tenements, Mr Walker was correct to say that Cromarty was obliged to provide the Second Bank Guarantee. 2. On 21 June 2018, Mr Donald Garner from Red River replied: "Many thanks – I have copied Rod Lovelady into this response. Rod is [Red River's] CFO and as such is the person best placed to deal with your royalty query". 1. Mr Lovelady said that, after he had received a copy of the email Mr Garner sent to Mr Walker on 21 June 2018, he carefully read the Asset Sale Agreement and understood from it that Cromarty was obliged to pay the Royalty to Thalanga within 15 business days from the end of the month of actual sales. He said he also read the Covenant Deed and understood from that document that Cromarty was obliged to provide the Second Bank Guarantee to Thalanga at the time that production begun at the Thalanga mine. 2. Mr Walker did not hear from Mr Lovelady and, on 16 July 2018, wrote to him: "Are you able to provide an update on this?" 1. Mr Lovelady replied the following day, 17 July 2018: "Yes, we will pay the outstanding NSR royalty before the end of this month. We are working through our end of year accounts and reconciliations at the moment. I will forward a schedule detailing the amount payable next week, before making the payment. Let me know if you have any other queries in the meantime." 1. In this email, Mr Lovelady made no mention of the then outstanding Second Bank Guarantee. 2. Despite Mr Lovelady's statement, Cromarty did not pay any Royalty by the end of July. 3. Mr Lovelady said that, at around this time, he "first undertook the Royalty calculation" and: "It was during this process that I became aware of the administrative effort required in preparing the calculation on a monthly basis and therefore proceeded to prepare it on a quarterly basis". 1. On 3 August 2018, Mr Lovelady wrote to Mr Walker and to Mr Leiva: "I was ringing to apologise for not getting the calculation through to Peter to review as per my previous email. The time was consumed with end of year accounts / audit and quarterly reporting. The calculation is well progressed and I will send it as soon as it is available next week." 1. Mr Leiva replied saying: "Understand completely. Just gone through a board meeting and trying to complete month end". 1. Mr Lovelady did not then disclose that he was performing his calculations on a quarterly, rather than monthly, basis, as was called for by cl 13.1(a) of the Asset Sale Agreement. 2. Mr Lovelady gave two reasons for his conclusion that it was administratively inconvenient to calculate the Royalty on a monthly basis. First, Mr Lovelady understood that, in order to calculate Net Sales Realisation, it was necessary for him to deduct the costs of production of the ore. For the reasons I have set out above [16] this was a misapprehension by Mr Lovelady of what was required. Second, Mr Lovelady understood that it was necessary to take into account, at the outset, the "adjustments" contemplated by cl 13.3 of the Asset Sale Agreement. [17] Again, this was a misapprehension of what the Asset Sale Agreement required. 3. On 9 August 2018, Mr Lovelady wrote to Mr Walker and Mr Leiva: "By way of update – the calculation is nearing the end of its internal review prior to sending to yourselves." 1. Mr Leiva replied that day: "No problem at all, we are just getting pressure from head office in South Africa for a resolution." 1. Having heard nothing further, on 16 August 2018, Mr Leiva wrote to Mr Lovelady and Mr Walker: "Any update please." 1. On 16 August 2018, Mr Lovelady wrote to Mr Leiva and Mr Walker: "Attached please find the [Thalanga] NSR royalty calculation up to June 2018. I have attached the workings – happy to take any questions you may have as you work your way through them. Once the appropriate review has taken place, and you are able to confirm agreement with the calculation, could you please issue a tax invoice to [Cromarty] as basis for payment. The invoice can be emailed to myself." 1. The attached "royalty calculation" showed a total royalty of $1,870,544 for the period up to June 2018, and calculated the royalty quarterly as follows: Q2 FY18 Q3 FY18 Q4 FY18 Total FY18 Royalty Payable $652,367 $591,470 $626,707 $1,870,544 1. The calculation of Royalties included, as a deduction from net sales receipts, "Realisation Expenses" including "Sales, marketing and concentrate logistics expenses", "Assay Costs", "Trucking", "Sea Freight" and "Stevedoring and Port Charges". 2. I have found that such expenses were not to be taken into account when calculating the Royalty. The Royalty for FY18 was nonetheless calculated, and ultimately paid [18] on this basis. I do not understand Thalanga to seek relief in respect of this miscalculation. 3. On 23 August 2018, Mr Leiva caused Thalanga to issue an invoice to Cromarty for $2,057,598, being the $1,870,544 referred to in Mr Lovelady's "workings" plus GST. 4. In Mr Leiva's covering email he said: "Please find attached the invoice for the royalty due to TCM for Q2, Q3, Q4 2018. TCM reserves the right to audit the calculations and adjust the invoice if required on a future date. Going forward can we expect the calculations for invoicing to be supplied to us after the end of each quarter. Let us know". 1. The invoice itself also contained a statement that: "[Thalanga] reserves the right to audit the calculation on a later date if required and to make an adjustment to this invoice". 1. There is no evidence that, in fact, Thalanga engaged in any "audit" of these calculations. 2. On 6 September 2018, Mr Leiva wrote to Mr Lovelady: "Do you have any update on when we can expect payment." 1. Mr Lovelady replied on 10 September 2018: "We intend to pay the invoice by mid October. We may make the payment in two lots." 1. On 28 September 2018, Red River paid Thalanga $300,000 of the invoiced amount of $2,057,598. 2. In cross-examination, Mr Lovelady gave this evidence: "Q. Why did it take you until the end of September 2018 to pay an invoice of 23 August 2018? A. Because we, I had to, because $2 million is a lot of money to us, and I know it was a catch up, but we do need, we do need to manage our cashflows, and we scheduled it for when our cashflow is going to enable it. Q. Well this was all about managing your cashflows, was it? A. We need cash in the business to pay. So every, every month I do a, it's now on a look forward basis, we, we have to do our cashflows." 1. On 1 October 2018, Mr Leiva wrote to Mr Lovelady: "Just received the payment of $300,000. Thank you Can we please have a timeline on when we can expect the balance of $1,757,598. Also can we please have the expected royalty payable for Q1 FY2019 urgently. It does not need to [be] 100% accurate, I need a figure that I can accrual for our half yearly reports (March Year End)." 1. On 10 October 2018, Mr Walker wrote to Mr Palancian and Mr Garner: "Would you and your executive team be available to discuss the Thalanga royalties at a meeting in your offices on Tuesday, 30 October 19, at say, 10.00am? I am open to a discussion on how these payments could be structured however this must be in consultation and agreement with [Thalanga]. However I note that there is an outstanding royalty amount of $1.5m. I also note that at the end of July, [Red River] had cash of approximately $20m. I also note a bank guarantee of $700,000 is outstanding. As part of any discussions, I would like to discuss a security interest being taken over these debts. Alternatively, I would be open to a discussion whereby cash royalty payments be used either for an equity position in [Red River] and/or as part of any transaction for the Highway Reward/Magpie leases. Please also note that [Thalanga] has interest from another party for the [Thalanga] leases and should the matter progress, [Thalanga] would give the other party exclusive access for due diligence. I look forward to your earliest response." 1. On 12 October 2018, Cromarty paid the balance of $1,757,598 owing in relation to Thalanga's tax invoice of 23 August 2018. 2. On 12 October 2018, Mr Lovelady wrote to Mr Leiva: "The remainder of the FY18 royalty payment has been processed value dated today. If not already in your bank account, it should be there by Monday 15 October. This is as per our intention previously outlined below. I will be in contact to discuss the release of the $300,000 guarantee, as enabled by the agreement once this payment is received." 1. On the same day, Mr Leiva wrote to Lovelady: "Any chance of getting a rough figure for the quarter September 2018 for royalty. I have a board meeting that I need to report to". 1. Mr Lovelady replied on 15 October 2018: "You could use $400K to $450k as an estimate. Lower metal prices have seen the value of non price fixed component of sales fall and new sales have been at the lower price. I aim to be able to provide a better estimate by the end of this week". 1. On 30 October 2018, Messrs Walker, Leiva, Lovelady and Palancian attended a meeting at Red River's offices. I heard evidence from Messrs Leiva, Lovelady and Palancian as to what was said at the meeting. As I have mentioned, Thalanga did not call Mr Walker, so his account of what occurred is not before me. The recollections of Messrs Leiva, Lovelady and Palancian differed a little, but my impression was that each was doing his best to give an honest account of what was said. 2. The discussion on 30 October 2018 included the following: 1. Mr Lovelady stated that to align with its cash flow, Cromarty would "like to" [19] pay the Royalty quarterly rather than monthly or that "it is better" [20] for Cromarty to pay quarterly as this would "match with our cashflow fluctuation" [21] ; 2. Mr Lovelady was to "prepare a variation" of the Asset Sale Agreement and circulate a proposed deed of variation to the Asset Sale Agreement "setting that out" [22] ; and 3. Mr Walker said that Thalanga was "happy to consider" [23] , or "would need to consider" [24] , or did not "object to moving to" [25] or was "not opposed to" [26] or would "have a think about" [27] quarterly payments. 1. Also, at the meeting: 1. Mr Leiva asked Mr Lovelady and Mr Palancian more than once when Cromarty would make payment of Royalties outstanding for July 2018, August 2018 and September 2018; 2. Mr Leiva said he told Mr Lovelady and Mr Palancian that he was under pressure to report back to his superiors with a firm date for payment; and 3. Neither Mr Palancian nor Mr Lovelady proposed any date for payment of the July, August and September 2018 Royalties. 1. Mr Palancian also gave unchallenged evidence that he said: "I just want to confirm that we have paid the Royalties owing for FY18 and our intention is to ensure that the Royalties are paid into the future". And: "It is entirely our intention to ensure that the Royalty payments will be made". 1. One thing that is clear from these accounts of the 30 October 2018 meeting is that no agreement or arrangement was reached to pay the Royalties quarterly. 2. Several days after the meeting, on 2 November 2018, Mr Leiva wrote to Mr Lovelady: "Thank you for meeting myself and Peter [Walker] on Tuesday [30 October 2018]. Can you please give us a firm date of payment for the July to Sept 2018 royalties. Head office is putting pressure on us to enforce the current agreement. We need to get…back to them with a firm date asap." 1. Mr Lovelady gave this evidence in relation to that email: "Q. Yes, he was seeking payment of all the royalties which were then due under the asset sale agreement, wasn't he? A. Correct. Q. And they had been due in accordance with the terms as you understood them within 15 business days of the end of each month on which the sales had been made. In other words, 15 business days after the end of July, correct? A. Under the agreement, correct. Q. Yes, and also 15 business days after August 2018 as well? A. Under the agreement, correct. Q. Yes, and 15 business days from, after the end of September, correct? A. As per the agreement, yes. Q. He wanted from you, didn't he, a firm date for the payment of those, didn't he? A. Correct. Q. And he told you that he needed to get back to head office ASAP. You understood that as, "As soon as possible," didn't you? A. Correct. Q. You knew he was under pressure from his head office to enforce the current agreement, didn't you? A. He had mentioned that in his emails, yes. Q. He'd asked on several occasions during the 30 October 2018 meeting for a date for payment as well, hadn't he? A. Correct. Q. You didn't respond to Mr Leiva's email, did you? A. I can't recall. I'd have to go through the trail again, to be honest. I will make, we did need to calculate it though before we could pay it, so we weren't able just to pay it, we had to calculate the amount." 1. Thus, it appears that, on 2 November 2018, over a month from the end of the period for which Thalanga was seeking payment of Royalties, Mr Lovelady had not performed any calculation of what Royalty might be due. 2. Mr Lovelady did not reply and, on 9 November 2018 Mr Walker wrote to Mr Palancian and Mr Garner: "Could I have a response to this query please. Payments are currently due within 15 days of the month sales were made. It is now 40 days past the first quarter. The first payments were more than six months overdue. I have been accommodating to date however I am not prepared to accept continuing breaches of the Sale Agreement." 1. On 15 November 2018, Mr Walker reported to Mr Singla at "head office" in South Africa: "The meeting was very disappointing. They did not apologise for the delays in the payments of the royalties and acted like they didn't care. I got a sense they were not interested in the leases unless we paid them a lot of money. I am looking at other options with other companies. They are late with the latest royalties and are not responding. I attach the email that I sent, that includes Williams email. I will leave it until next week and then send a letter of demand threatening to enforce the agreement. I think we need to [pursue] the royalty sale however I would need to get advice as to whether the Agreement and Deed allow us to assign it to another party." 1. Also, on 15 November 2018, Mr Lovelady responded to Mr Leiva's 2 November 2018 email: "Thank you to Peter and yourself for making yourselves available for the meeting. I acknowledge the return of the original bank guarantee of $300,000. As you would appreciate we completed the payment of $1.7 million for the FY18 NSR to Thalanga…this quarter. We will schedule the September quarter NSR to pay on Money 7th January and then follow up with the December quarter NSR prior to the end of March 2019. This is in line with our intent expressed during our meeting to work to bring the payments back in line with a quarterly basis." 1. Mr Lovelady was here proposing to pay the Royalty for "the September quarter" after the conclusion of the following quarter, that is the December quarter and to pay the Royalty for the December quarter at the end of the March quarter. 2. As I have set out, at the 30 October 2018 meeting there was some discussion of the possibility of Cromarty paying the Royalty "quarterly". But there was no discussion that the Royalty for one "quarter" would be paid after the conclusion of the following quarter. 3. Mr Lovelady gave this evidence: "Q. You knew, didn't you, you knew by what you proposed on 15 November 2018, you were not adhering to the asset sale agreement, correct? A. That was more in line with our quarterly discussions, so you are correct in respect to the asset sales agreement. Q. You not only were not adhering to it, you knew that, you also did not intend to adhere to it either, did you? A. We were negotiating a change to it, which we were hoping would come through. Q. But you did not inten[d] to comply with the obligations as you understood them, did you? A. At the time, my thoughts were not around, 'I'm doing this because I don't intend to comply with the current agreement.' Q. But you knew that was the effect of it, didn't you? A. I knew this was different to the current agreement and we were having until the beginning of November when the tone changed, we were having very productive discussions around moving towards a different basis." 1. Mr Walker responded sharply to Mr Lovelady's 15 November 2018 email. 2. On the following day, 16 November 2018, he replied: "This is not acceptable. The Asset Sale Agreement (ASA) requires monthly NSR and payment made within 15 days from the end of the month. I pointed out any change to that requires [Thalanga's] consent. While I agreed to consider calculation on a Quarterly basis, delay of payments for a further 3 months was not discussed or agreed. This in effect changes the payments from monthly to six monthly. I do not agree to this. You were also to prepare a document for my consideration regarding proposed changes. I am not prepared to wait until January for sales made in the July-Sept quarter. As the payments are now more than 45 days overdue, I require payment within the next 14 days – by 30 November 2018." 1. The statements made in Mr Walker's email are consistent with the evidence before me as to what occurred on 30 October 2018. Mr Walker agreed to consider calculation of the Royalty on a quarterly basis but that a further delay of the payment of the Royalty, for the September quarter to early January 2019, or of the December quarter until the end of March 2019, was not discussed. 2. Mr Walker's letter did, however, proceed on the basis that payments be made quarterly, as he referred to payment for the "July-Sept quarter". Mr Walker said such payments were "45 days overdue". But cl 13.1(a) required payments "within 15 Business Days after the end of the month of actual sales" which, for "sales made in the July-Sept quarter" would be 16 October 2018; making them 28 days, not 45 days, overdue as at 16 November 2018. Neither Mr McGrath nor Mr Kelly suggested anything turned on this. 3. Cromarty did not respond to Mr Walker's email. 4. On 3 December 2018, Mr Leiva telephoned Mr Lovelady. Mr Lovelady returned the call. 5. Mr Lovelady's recollection of the conversation was as follows: "[Mr Leiva]: [Mr Lovelady], I want to know about the next Royalty payment. [Mr Lovelady]: We intend to pay as set out in my 15 November email. [Mr Leiva]: Look [Mr Walker] is not happy that you didn't respond to his latest email. He thinks you are not listening to him. [Mr Lovelady]: Why don't you ring me back with [Mr Walker] and we can all discuss. [Mr Leiva]: Okay I'll see when [Mr Walker] is available and ring you back." 1. Mr Leiva's recollection was that he said to Mr Lovelady "you will need to talk to [Mr Walker]. He has run out of patience" and that Mr Lovelady said that he called Mr Walker. Mr Lovelady said that he did not hear further from Mr Leiva or Mr Walker. 2. On 6 December 2018, Thalanga, by its solicitor, wrote to Cromarty: "Outstanding Royalties In breach of clause 13.1(a) of the Asset Sale Agreement, [Cromarty] has not paid any Royalty to Thalanga for the period of sales from July to November 2018 (Outstanding Royalties). Representatives of Thalanga have engaged with representatives of [Cromarty]…and [Red River]…in relation to [Cromarty's] breach of the Asset Sale Agreement and to have the Outstanding Royalties paid without further delay. [Cromarty] … has refused to remedy the breach and to date has not paid the Outstanding Royalties. The failure of [Cromarty]…to pay the Outstanding Royalties is a material breach of clause 13.1(a) of the Asset Sale Agreement which entitles Thalanga to terminate that agreement forthwith and sue for damages. In the circumstances described above [Cromarty]…has also repudiated the Asset Sale Agreement, again entitling Thalanga to terminate the Asset Sale Agreement forthwith and sue for damages. Thalanga's damages include the substantial lost profits that Thalanga would have earned for the life of the Asset Sale Agreement. Demand We are instructed to demand payment of the Outstanding Royalties by no later than 4.00pm on 13 December 2018. If payment in full of all Outstanding Royalties is not received by this date, our client will terminate the Asset Sale Agreement and commence proceedings without further notice. In those proceedings, assuming the Asset Sale Agreement is terminated by Thalanga as a result of [Cromarty's] material breach and repudiation of the agreement, it will crystallise Thalanga's loss. Thalanga's claim will therefore include the lost profit that Thalanga would have earned for the life of the Asset Sale Agreement. Thalanga estimates that its claim for lost profit will be for at least $23,000,000 and potentially considerably more. Finally, Thalanga will not accept future payment of any Royalty other than in accordance with the terms of the Asset Sale Agreement. Thalanga will regard any future failure to make Royalty payments in accordance with the terms of the Asset Sale Agreement as a material breach of and repudiation of the Asset Sale Agreement and will immediately commence proceedings without further notice." (Emphasis in original.) 1. In this letter Thalanga alleged that the "Outstanding Royalties" included royalties to November 2018. On no construction of cl 13.1(a) of the Asset Sale Agreement were the royalties for November 2018 due. I will return to this below. 2. Thalanga's solicitor sent a corresponding letter to Red River. 3. Later, on 6 December 2018, Mr Lovelady wrote to Mr Walker: "Apologies for the delay in coming back to you as our lawyers have been tied up on other matters. Please see attached draft deed of variation reflecting our discussions." 1. As had been discussed on 30 October 2018, the draft deed proposed that the word "quarter" be substituted for the word "month" in cl 13.1(a). 2. The proposed Deed of Variation also proposed that number "30" be substituted for "15" in that clause. That matter had not been discussed on 30 October 2018. 3. In any event, Mr Walker replied to Mr Lovelady within minutes: "This matter has now progressed beyond this. Our solicitors have today emailed a letter of demand. All future correspondence is to be made via our solicitors". 1. Cromarty and Red River made no response to the 6 December 2018 letters of demand. 2. On 28 December 2018, Thalanga's solicitors wrote to Cromarty: "We refer to our letter of demand dated 6 December 2018 (Letter of Demand) to which we have not received any response. We adopt the definitions used in the Letter of Demand. Notwithstanding the Letter of Demand, [Cromarty]…has failed to pay the Outstanding Royalties to Thalanga. [Cromarty]…remains in material breach of and has repudiated the Asset Sale Agreement. Our client hereby gives notice of the termination of the Asset Sale Agreement with immediate effect." (Emphasis in original.) 1. On 8 January 2019, Cromarty, by its solicitors, replied stating that Cromarty accepted that the Asset Sale Agreement had been terminated and that it had calculated the "final Royalties payable" under the Asset Sale Agreement for the period 1 July 2018 to 28 December 2018 as being $1,222,337, and sought a tax invoice. 2. It is common ground that, by this letter, Cromarty purported to accept Thalanga's alleged repudiation of the agreement as constituted by its letter of 28 December 2018 and to itself terminate the agreement. Repudiation 1. The question is whether, as at 28 December 2018, Cromarty had repudiated its obligations under the Asset Sale Agreement such as to warrant Thalanga terminating the agreement that day; or whether it was Thalanga that repudiated its obligations under the agreement by its purported termination. 2. Mr McGrath submitted that I should consider all of the circumstances leading up to 28 December 2018 to determine this question and have regard to the cumulative effect of Cromarty's failure to comply with its obligations under the Asset Sale Agreement. 3. However, the evidence that I have set out shows that although Cromarty had announced publicly in November 2017 that the sale of ore processed from the Tenements had commenced, it was not until June 2018 that Thalanga raised the question of the payment of the Royalty. And it was not until November 2018 that Thalanga demanded payment in terms. 4. To summarise: 1. on 19 June 2018, Thalanga told Cromarty that unless and until discussions concerning the possible acquisition by Red River of the "Highway Reward leases" were finalised, Thalanga would require payment of the royalties in accordance with the Deed; [28] 2. on the same day, Thalanga wrote to Cromarty saying that royalty payments "should have commenced" in September 2017 and that Cromarty should address this as a "matter of urgency, and that all future royalties are paid as they fall due"; [29] 3. on 16 July 2018, Thalanga sought "an update on this"; [30] 4. on 17 July 2018, Cromarty said that it would pay all outstanding royalties "before the end of this month"; [31] 5. on 3 August 2018, Cromarty told Thalanga that the royalty calculation was "well progressed" and would be available "next week"; [32] 6. Thalanga replied the same day, stating "understand completely"; [33] 7. on 9 August 2018, Cromarty told Thalanga that the calculation was "nearing the end of its internal review"; [34] 8. Thalanga replied the same day saying "[n]o problem at all, we are just getting pressure from head office in South Africa for a resolution"; [35] 9. on 16 August 2018, Thalanga asked for an "update"; [36] 10. later that day, Cromarty provided a "royalty calculation" on a quarterly basis, to June 2018, at $1,870,544. [37] 11. Thalanga made no comment about the fact that the Royalty was calculated on a quarterly basis and on 23 August 2018 sent Cromarty an invoice for $2,057,598 [38] and enquired as to whether "[g]oing forward can we expect the calculations for invoicing to be supplied to us after the end of each quarter"; thus seemingly accepting at this stage that Cromarty should do its calculations quarterly rather than monthly; [39] 12. on 6 September 2018, Thalanga enquired of Cromarty about an "update on when we can expect payment"; [40] 13. on 10 September 2018, Cromarty said that it intended to "pay the invoice by mid October" and that "[w]e may make the payment in two lots", propositions about which Thalanga made no protest; [41] 14. on 28 September 2018, Red River paid $300,000 on account of FY18 Royalty; [42] 15. on 1 October 2018, Thalanga acknowledged receipt of the $300,000 payment and asked for "a timeline on when we can expect the balance of $1,757,598" and asked "can we please have the expected royalty payable for Q1 FY2019 urgently" and that "[i]t does not need to [be] 100% accurate"; again seemingly accepting that the Royalty be paid quarterly; [43] 16. on 10 October 2018, Thalanga proposed a meeting "to discuss the Thalanga royalties", and stated that it was "open to a discussion on how these payments could be structured" but that "there is an outstanding royalty amount of $1.5m" and that the Second Bank Guarantee was outstanding; [44] 17. on 12 October 2018, Cromarty paid the balance of the royalty for FY18; [45] 18. on the same day, Thalanga enquired as to whether there was "[a]ny chance of getting a rough figure for the quarter September 2018 for royalty"; again seemingly accepting the Royalty be paid quarterly; [46] 19. on 15 October 2018, Cromarty told Thalanga that its estimate for the Royalty for the September quarter was $400,000 to $450,000 and that it would be able to provide "a better estimate by the end of this week"; [47] 20. at the meeting on 30 October 2018, there was discussion of the possibility of the Royalty being paid on a quarterly basis but no agreement about that matter; [48] 21. on 2 November 2018, Thalanga asked Cromarty for a "firm date" for the "July to Sept 2018 royalties; [49] and 22. on 9 November 2018, Thalanga demanded a response to its 2 November 2018 enquiry saying it was now "40 days past the first quarter". [50] 1. Thus, to this point, Thalanga left open for discussion the possibility that Royalties be payable quarterly. 2. It was only after Mr Lovelady's email of 15 November 2018 [51] that Thalanga demanded payment. Faced with Cromarty's 15 November 2018 proposal that the Royalty for the September 2018 quarter be paid on 7 January 2019 and the Royalty for the December 2018 quarter be paid "prior to the end of March 2019", Thalanga in effect brought discussion about quarterly payment to an end and demanded strict compliance with the Asset Sale Agreement. 3. It is in that context that the question of Cromarty's alleged repudiation of the Asset Sale Agreement must be considered. Repudiation – principles 1. The term "repudiation" is used in two senses. [52] 2. The first is where there has been a "renunciation" [53] by one party of the contract as a whole or of a fundamental obligation under the contract. [54] The question in such a case is whether a party to the contract has evinced an unwillingness [55] to render substantial performance under the contract and either to be no longer bound by the contract at all, or, more relevantly here, to fulfil it "only in a manner substantially inconsistent" with its obligations and "not in any other way". [56] 3. The test is whether the conduct of one party is such as to convey "to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it". [57] 4. In this context it has been held that there is a difference between evincing an intention to carry out the contract "only if and when" it suits the party to do so, and evincing an intention to carry out the contract "as and when" it suits the party to do so. In the former case, "the party intends not to carry out the contract at all in the event that it does not suit him". In the second case, "the party intends to carry out the contract, but only to carry it out as and when it suits him". Repudiation may be found in either case, but more easily in the former [58] . 5. Repudiation is a "serious matter, not to be lightly found or inferred" [59] and must constitute a breach "so serious that it goes to the root of the contract, and thus deprives the other party of substantially the whole benefit of the contract". [60] 6. The second sense in which the term "repudiation" is used is where there has been a breach of contract which justifies termination by the other party. [61] Repudiation in this sense describes the effect of the breach of a condition or of an intermediate term. [62] 7. There may be cases where a party's conduct amounts to repudiation in both of these senses. [63] 8. I shall deal with repudiation is each of these senses in turn. Repudiation by renunciation 1. I see no basis on which I could conclude that Cromarty evinced an intention not to be at all bound by the Asset Sale Agreement. I do not consider this to be a case where Cromarty evinced an intention to perform its obligations of the Asset Sale Agreement only "if and when" it suited it, nor that it intended not to comply with its obligations under the Asset Sale Agreement at all if it did not suit it. 2. From August 2018, Cromarty proceeded on the basis that it would perform its obligations to pay the Royalty "as and when" it suited it, that is, by quarterly payments, rather than the monthly payments required by cl 13.1(a) of the Asset Sale Agreement. 3. However, as I have described, until and including 9 November 2018, Thalanga left open for discussion the possibility that Royalties be payable quarterly. That question was discussed on 30 October 2018, on which occasion Mr Palancian emphasised that Cromarty's intention was to pay the Royalty "into the future" and to "ensure that the Royalty payments will be made". I see no reason to doubt that this was Mr Palancian's, and thus, Cromarty's intention. 4. However, by Mr Lovelady's 15 November 2018 email, Cromarty informed Thalanga that it intended to pay the Royalty for the September and December 2018 quarter at the beginning and end of the March quarter, respectively. Cromarty had not previously indicated any such intention. There was no suggestion in the discussions that quarterly, rather than monthly, Royalty payments would otherwise be in accordance with cl 13.1(a); that is, within 15 Business Days after the relevant period, be it the month or quarter of sales. 5. That this was no part of the discussions is illustrated by Cromarty's 6 December 2018 proposal that the number "15" in cl 13.1(a) be changed to "30". [64] This shows that all discussions about the possibility of quarterly payments had hitherto proceeded on the unstated, but mutually understood, assumption that payments would be made within an agreed number of Business Days after the quarter in question; and not in the following quarter. 6. This provoked Mr Walker's strong response of 16 November 2018, [65] the tone of which was understandable, particularly in the light of his earlier communication of 9 November 2018. [66] 7. A striking feature of this case is that, in contrast to the detailed and regular written communications between the parties up to this point, Cromarty did not respond to Mr Walker's 16 November 2018 email. 8. It was only when Mr Leiva rang Mr Lovelady on 3 December 2018 that, on Mr Lovelady's account of it, and in response to Mr Leiva's enquiry about "the next Royalty payment", Mr Lovelady told Mr Leiva that "we intend to pay as set out in my 15 November email". Mr Lovelady knew that "this was different to the current agreement". [67] There is no suggestion that Cromarty was unable at this point to calculate what amount was payable by way of Royalty. Almost two months earlier, on 15 October 2018, Mr Lovelady told Mr Leiva that Thalanga could "use" $400,000 to $500,000 as an estimate of the Royalty for the September quarter and that he, Mr Lovelady, expected to "be able to provide a better estimate by the end of this week" [68] . 9. That is, Cromarty told Thalanga, through Mr Lovelady, or alternatively by its silence, that it would pay the Royalty "as and when it chose". 10. On 6 December 2018, Thalanga by its solicitor demanded payment of "Outstanding Royalties" [69] by 13 December 2018. 11. Cromarty did not respond in any way to this demand. This made even more clear that Cromarty's position was one of intransigence. It was not going to perform its obligations under cl 13.1(a) of the Asset Sale Agreement in the manner provided for in that clause. Rather, it would perform those obligations "as and when it chose". 12. The timely payment of the Royalty was at the heart of the obligations assumed by Cromarty under the Asset Sale Agreement. 13. When Thalanga sold the Tenements to Kagara, the consideration it received was the Purchase Price of $2 million and the promise of the Royalty payment once sales had taken place. 14. There was no evidence before me as to what level of Royalty Thalanga and Kagara contemplated at the date of the Asset Sale Agreement. 15. However, by 16 August 2018, Cromarty had calculated the Royalty for FY18 at $1,870,544. This was in circumstances where Cromarty had received the first payment from sale of zinc concentrate on 9 November 2017 and thus where the royalty payment of $1,870,544 was, in effect, only in respect of the second, third and fourth quarters of FY18. In October 2017, Thalanga wrote to Cromarty estimating that the value of the Royalties was in the vicinity of $20 million. 16. From Thalanga's point of view, Cromarty's ongoing payment of Royalties, as a successor in title to Kagara, was the most substantial part of the concluded bargain constituted by the Asset Sale Agreement. This must have been obvious to Cromarty. 17. Timely payment of the Royalty was thus of vital interest to Thalanga. This is particularly so in circumstances where, first, the Asset Sale Agreement made no provision for the payment of interest on late Royalty payments and where, second, Thalanga's position in relation to royalties exceeding $1 million was unsecured [70] . These matters must also have been obvious to Cromarty. 18. In these circumstances, in my opinion, a reasonable person in the position of Thalanga would see Cromarty's expressly [71] or implicitly [72] stated intention to carry out the Contract as and when it suited it to have been "taken to such lengths that it amounts to an intention to fulfil the contract only in a manner substantially inconsistent with [its] obligations and not in any other way". [73] 19. Cromarty thereby repudiated its obligations under the Asset Sale Agreement. 20. Thalanga was entitled to terminate the Asset Sale Agreement on that basis. Repudiation by breach of a condition or intermediate term 1. Because of that conclusion, it is not necessary for me to deal with Thalanga's alternative argument that Cromarty also repudiated its obligations under the Asset Sale Agreement by breach of a term in respect of which time was of the essence. 2. However, in deference to the detailed arguments deployed by counsel, I will do so, albeit briefly. Conditions 1. Breach of an essential term of a contract, that is to say, a condition, may entitle the innocent party to terminate the contract. [74] 2. Time stipulations in commercial contracts are ordinarily construed as conditions, although the question of whether a term is essential depends upon the proper construction of the contract. [75] 3. The test of essentiality is: "… whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor." [76] 1. I think it obvious that, all other things being equal, the promise in cl 13.1(a) to pay the Royalty was essential in this sense. It must have been obvious to Cromarty that this promise was of such importance that Thalanga would not have entered the Asset Sale Agreement unless assured of a strict or substantial compliance with the promise. Intermediate terms 1. Further, a "sufficiently serious breach of a non-essential term", that is to say, of an "intermediate" term of a contract, may entitle the innocent party to terminate the contract. [77] 2. A breach of the contract will be sufficiently serious for this purpose if it goes "to the root of the contract" such "as to deprive the injured party of a substantial part of the benefit to which [it] is entitled under the contract". [78] Clause 13.1(a) was a condition and intermediate term 1. For the reasons outlined above in relation to renunciation, in my opinion, cl 13.1(a) was an essential term or condition of the Asset Sale Agreement, breach of which was capable of entitling Thalanga to terminate. Time of the essence - cl 13.1(a) 1. For the same reasons, in my opinion, time was of the essence of Cromarty's obligations under cl 13.1(a). 2. However, for the reasons I have set out above concerning Thalanga's leaving open for discussion the possibility that Royalties be payable quarterly, [79] Thalanga did not treat time as being of the essence of Cromarty's obligations under cl 13.1(a) until November 2018. In effect, by proceeding with the contract, Thalanga waived an entitlement to treat time as being of the essence of Cromarty's obligations under cl 13.1(a). 3. In a case when a contract contains a stipulation as to time that is not of the essence, a party may give a notice fixing a reasonable time for compliance such that time becomes of the essence. [80] 4. Likewise, where, as here, a party has not insisted on timely compliance with an essential term, that party can later insist on such timely compliance, but only after having made clear that strict compliance with the contract terms is required within a reasonable time. 5. In considering what time is reasonable, all the circumstances of the case must be considered, including: 1. what remains to be done at the date of the notice; and 2. whether the party giving the notice has been pressing for compliance with the relevant obligation. [81] 1. By Mr Walker's 16 November 2018 email [82] , and its solicitors' letter of 6 December 2018 [83] , Thalanga made clear that it then required strict compliance by Cromarty with its obligations under cl 13.1(a). 2. The question is whether the 14-day notice in the 16 November 2018 email and, more importantly, the 7-day notice in the 6 December 2018 notice, was reasonable. 3. In Thalanga's 16 November 2018 email, Mr Walker demanded payment of Royalties for the "July/Sept quarter" by 30 November 2018; that is, within 14 days and 10 business days. The email did not state, in terms, that Thalanga would terminate the Asset Sale Agreement if such a payment was not made but did make clear that Thalanga required strict compliance with the demand. 4. The email did not specify an amount to be paid. But that is understandable, as Thalanga could not know what sales Cromarty had achieved in the July/September quarter and thus could not know what Royalty was due. 5. As I have said, [84] the email wrongly stated that payments were "more than 45 days overdue". However, I do not think, anything turns on this. Mr Kelly did not suggest that it did. 6. Cromarty did not reply to Mr Walker's 16 November 2018 email and, in particular, did not assert that the 14-day period referred to in Mr Walker's email was unreasonable or insufficient. 7. Shortly after the expiration of that 14-day period, on 3 December 2018, Mr Lovelady told Mr Leiva that Cromarty "intend[s] to pay as set out in my 15 November email". [85] That made clear that Cromarty had no intention of making any Royalties payment due to the end of September until early January 2019. 8. The 6 December 2018 letter demanded that "Outstanding Royalties" be paid by 13 December 2018; seven days and five business days later. 9. The letter defined "Outstanding Royalties" as being Royalties for sales from July to November 2018. 10. As I have said, [86] as at 6 December 2018, no Royalties were due for sales in November 2018. Royalties were not payable till 15 Business Days after November 2018; that being 21 December 2018. 11. I do not think that this error affected the letter's ability to fix a time for performance, beyond which Cromarty's delay would amount to repudiation of its obligations under the Asset Sale Agreement. That is because, although the letter specified as a default an event that was not a default, it also specified events that were a default. [87] 12. The letter made clear what Thalanga proposed to do if the Outstanding Royalties were not paid by 13 December 2018; namely, "terminate the Asset Sale Agreement and commence proceedings without further notice". 13. The time specified in Thalanga's solicitors' letter for payment of outstanding Royalties was relatively short. But this was in the context that, on 16 November 2018, Thalanga had demanded payment of the Royalties by 30 November 2018. 14. I think in all the circumstances, the period specified in the 6 December 2018 letter was reasonable. 15. Cromarty made no response, of any kind, to the 6 December 2018 letter. 16. Mr Kelly submitted that by not terminating the Asset Sale Agreement on the basis of Mr Walker's 16 November 2018 email, Thalanga had somehow elected to affirm the Asset Sale Agreement. I do not see how this could be so. I see no act of affirmation between the 16 November 2018 demand and the 6 December 2018 demand. [88] 17. Thalanga's solicitors' letter of 28 December 2018 purported to terminate the Asset Sale Agreement on the basis of Cromarty's failure to respond to the 6 December 2018 demand. 18. Thalanga was entitled to terminate the Asset Sale Agreement on this basis, as well as on the basis I have earlier set out. Damage - Royalties payable prior to 2018 1. It follows from my conclusions as to the proper construction of cl 13.1(a) that at the end of each month in which Cromarty shipped ore to Glencore or Trafigura and in which Glencore or Trafigura made the 95% provisional payment for that ore, Thalanga was entitled to be paid a Royalty, to be calculated by Cromarty on the Net Sales Realisation referrable to those sales. That payment was to be made within 15 Business Days from the end of the month, notwithstanding the fact that those Provisional Payments might be "adjusted" under cl 13.3 when the "final NSR for that amount" was determined. 2. Thalanga unconditionally accrued a right to payment for Royalties from 1 July 2018 to the termination date of 28 December 2018. [89] The same principles apply following determination for repudiation. [90] 3. Thalanga's accounting expert, Mr Stephen Gemell, calculated unpaid Royalties to 28 December 2018 at $1,712,944. Cromarty's expert, Mr Campbell Jaski, assessed unpaid Royalties as $1,184,047. 4. There were two differences for the competing opinions. 5. First, Mr Gemell assumed that a "sale" took place when title in the ore changed hands from Cromarty to Glencore or Trafigura; whereas Mr Jaski assumed that "sales" meant "receipts" in the period 1 July to 28 December 2018. 6. It follows from my conclusions as to the proper construction of cl 13.1(a), that the "actual sales" of the ore took place when title passed and that, accordingly, Mr Gemell's calculations are made on the correct basis. 7. The second difference between the experts was that Mr Jaski deducted sales realisation expenses to calculate the royalties. For the reasons I have set out above, [91] on the proper construction of the definition of "Net Sales Realisation", this is not permissible. 8. Accordingly, unpaid Royalties to the termination date should be calculated in accordance with Mr Gemell's reasoning at $1,712,944. Future Royalties Are Future Royalties a proxy for loss of bargain damages? 1. As I have concluded that Thalanga was entitled to terminate the Asset Sale Agreement by reason of Cromarty's repudiation of that agreement, Thalanga is entitled to loss of bargain damages. [92] Such damages are to be calculated on a basis that puts Thalanga "in the same situation…, so far as money can do it, as it would have been had the broken promise been performed". [93] 2. Thalanga calculates the value of what it has lost, by reason of Cromarty's failure to perform the Asset Sale Agreement, as the net present value of the Projected Royalties. 3. Mr Kelly submitted that the Projected Royalties could not be a proxy for Thalanga's loss of bargain damages because it did not take account of the value of the costs of Thalanga's "obligations" under the Asset Sale Agreement. 4. But Thalanga had no relevant obligations under the Asset Sale Agreement. Its role was as the passive recipient of the Royalties to which it was entitled under cl 13.1(a). It had done everything it needed to do to be entitled to such Royalties by selling the Tenements to Cromarty's predecessor in title, Kagara. 5. Accordingly, I consider that it is appropriate to assess Thalanga's loss of bargain damages by reference to the appropriate value of the Projected Royalties. 6. In that regard, several issues divided the opinions expressed by Mr Gemell for Thalanga and Mr Jaski for Cromarty. 7. I shall deal with each of those matters in turn. 8. One matter that was not in dispute was the discount rate to be applied to reach a net present value of the Projected Royalties' stream. It is agreed that the appropriate discount rate is 6.5%. The "Orient deposit" issue 1. The experts disagree as to whether any amount should be included in the Projected Royalties for a mineral deposit within the Tenements known as the "Orient deposit". 2. The Orient deposit has not yet been mined. There has been no "advancement" of the Orient deposit since 2011. 3. Mr Palancian gave this evidence about the Orient deposit: "The deposit known as "Orient" is contained within Mining Lease ML 1531. I have never recommended to the board of [Red River] that Orient be mined. I have no intention of making any such recommendation to the board of [Red River] in the future. The reason for this is that on my assessment the mining of Orient is uneconomical in that the revenue obtained from the mineralisation is significantly less than the capital and operating costs. Further, the geometry of Orient is 'pipe like' which means that the ratio of ore tonnes per vertical metre is low. In addition, the development of Orient would be subject to a feasibility study and investment approval by the [Red River] board. Both of which have not occurred and are not being considered by the [Red River] board. I am not aware of any life of mine plan in relation to Orient." 1. In its Annual Financial Report for FY20 Red River included a "Mineral Resource and Ore Reserve Statement" in which it stated that the "Mineral Resource" for 2020 for the Orient deposit was 540 kt. 2. The Directors' Report also contained a statement: "It is Red River's opinion that all elements included in the metal equivalent calculation have a reasonable potential to be recovered and sold". 1. That statement was made in the context that the Joint Ore Reserves Committee ("JORC") Code requires that: "All reports of Mineral Resources must satisfy the requirement that there are reasonable prospects for eventual economic extraction (i.e. more likely than not), regardless of the classification of the resource". 1. There is an important distinction between a "Mineral Resource" and an "Ore Reserve" for the purposes of the JORC Code. 2. An "Indicated Mineral Resource" is defined by the JORC Code to be: "[T]hat part of a Mineral Resource for which quantity, grade (or quality), densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit". [94] 1. On the other hand, an "Ore Reserve" is refined as: "[T]he economically mineable part of a Measured and/or Indicated Mineral Resource." 1. Although the Orient deposit is listed as part of Cromarty's "Indicated Mineral Resource" it is not listed as part of Cromarty's "Ore Reserve". 2. Nor is it included in Red River's production schedules. 3. The inclusion by Red River of the Orient Reserve as an "Indicated Resource" bespeaks Red River's (and thus Cromarty's) position that there are "reasonable prospects for eventual economic extraction" of ore from the Orient deposit. 4. However, it says nothing as to when that extraction will "eventually" occur. 5. Mr Gemell expressed that his opinion, that prospective income from the Orient deposit should be included in a Discounted Cashflow Analysis, was based upon his assumption that ore would be extracted from the Orient deposit in 2023. However, there is no evidence before me as to whether that would, or indeed could occur. Both Mr Gemell and Mr Jaski agreed that Cromarty's operation was "marginal" 12 months ago (albeit without reference to any evidence). Mr Gemell on the other hand said that, at the moment, "shareholders are very happy" with Cromarty's financial performance; again without reference to any evidence. 6. Mr Jaski expressed the opinion that the Orient reserve should, for present purposes, be valued in accordance with its market value and not on the basis of the discounted cash flow of the Projected Royalties from the Orient Deposit. This was principally because, as Mr Jaski pointed out, there is no information available as to when ore production from the Orient deposit might commence. Thus, a discounted cash flow analysis could not sensibly be undertaken without some information as to when production was likely to commence. 7. In those circumstances, I am persuaded that the value to be attributed to the Orient reserve should be done by using the market basis approach for which Mr Jaski contended. The "orebody adjustment factor" issue 1. Mr Jaski explained: "Mining operations are impacted by a range of asset and project risk factors, such as ore dilution and ore losses, which can affect the actual ore tonnage and grades that are recovered from a Mineral Resource or Ore Reserve. In order to reflect the impacts of these factors, it is usual practice for mining companies to apply conversion or reconciliation factors to assist in better estimating the actual recovery of saleable product from mining and processing activities. In this respect, I have assessed an Orebody Adjustment Factor to the Mineral Resources and Ore Reserves of the Tenements." 1. Mr Jaski referred to statements in Red River's financial statements concerning another of the deposits within the Tenements, the "West 45 deposit". 2. Those financial statements state that, as at 13 December 2017, the "Mineral Resource" and "Ore Reserve" for the West 45 deposit were 582 kt and 567 kt respectively, whereas the actual ore mined from the West 45 deposit to 31 December 2018 was recorded as being only 336 kt. 3. Accordingly, Mr Jaski opined: "Based on the above analysis: a 58% of the Mineral Resource and 59% of the Ore Reserve had been depleted up until 31 December 2018 b the actual grades realised were between 52% and 67% of those defined in the Mineral Resource, and between 67% and 80% of those defined in the Ore Reserve." 1. Mr Jaski then, evidently, applied the "conversion rate" and so calculated the three other mineral deposits within the Tenements: the "Far West"; "Waterloo Primary"; and "Waterloo Transitional" deposits. 2. This was surprising bearing in mind his statement in his report that: "It is generally accepted that every mineral deposit is unique in some aspect, principally because they are formed by natural processes in different temporal, structural and geological environments. Further, the mining methodology, mining equipment and the associated mining technical disciplines engaged in the mining process each contribute to the overall recovery of saleable product in comparison to the original Mineral Resource or Ore Reserve estimate. Accordingly, it is not appropriate to utilise the recovery from one deposit as a proxy for the recovery of another deposit unless the two deposits are sufficiently comparable. For example, it would generally be invalid to consider the recovery of an open cut nickel mine in Western Australia's Yilgam Craton and apply it to an underground gold mind in Victoria's Stawell Zone due to significant differences in deposit type, mining methodology, scale, geology etc." 1. In any event, later financial reports of Red River show that the actual ore mined from West 45 to 31 March 2020 was some 612 kt, a substantial increase from 336 kt as at 31 December 2018. This suggests that the position in relation to the West 45 deposit was not a reliable proxy for the position in relation to other deposits. 2. My attention has not been drawn to any other evidence which would suggest that any Orebody Adjustment factor should be made. 3. I find that no such adjustment should be made. The Waterloo Transitional issue 1. The Waterloo deposit includes "transitional ore". 2. In his affidavit, Mr Palancian explained: "13. I…note Mr Gemell makes predictions based on a transitional resource being mined and processed. By way of explanation, a transitional resource is located in 1 of 3 zones within a deposit. Those 3 zones are: 13.1 the oxide (leached) zone; 13.2 the transition (supergene) zone; and 13.3 the primary (unaltered) sulphide zone. 14. The Waterloo deposit contains substantial near surface sulphides in the transition zone. 15. Processing ore at different zones requires different chemical processes. 16. Thalanga is primarily set up to process ore from the primary sulphide zone. It is not equipped to process ore from the oxide zone and the chemical process used at Thalanga is not designed to process ore from the transition zone." 1. Mr Palancian then referred to a report prepared by a Mr Shuhua He on 27 October 2019 entitled "Impact of the Transition Ores into the Float Performance of FW ores". 2. In that report, the author concluded: "To sum up, ● The transition ore seriously impacts the float performance of FW ores, particularly Cu and Pb circuits. ● To minimise its impact, one control is not to blend the transition ore for processing anymore, and to stockpile the transition ores from W45 976 level and 991 level, and try to process them continuously for a period of time not every now and then, if possible. ● Do not treat the transition ore piled on ROM for years anymore while FW ores are the focus of processing for years to come." 1. Mr Palancian continued: "After I read [Mr He's report] in or around October 2019 it crystallised my views on mining transitional ore. I will not permit the mining and processing of transitional ore and I have no intention of permitting that to occur at Thalanga." 1. In cross-examination, Mr Palancian gave the following evidence about this subject: "I want to say that from my previous knowledge, at point 18 where [Mr Gemell is] saying transitional, this report is one snapshot in time that my people did. We've got 90,000 tonnes, which is three months' processing, of transition ore that was mined from Vomacka by Kagara. And guess what? Kagara went into liquidation because of that. That 90,000 tonnes. They paid to find it, permit it, mine it, it is still sitting on my ROM pad. Transition ores are a nightmare through this plant. How many times does it have to be, like, do people have to go through it? It's a nightmare. It's a recipe to lose money and go down the toilet. If you want to treat transition ore through my plant, be my guest." 1. Thus, Mr Palancian's evidence is that the "transitional ore" in the Waterloo deposit will not be mined by Cromarty. 2. Based on this evidence, Mr Jaski opined that the Waterloo Transitional Deposit should be excluded from the calculation of Projected Royalties. 3. Mr McGrath submitted that Mr Palancian's evidence was "false and self-serving" and should be rejected. 4. I understood the basis of this submission to be that the evidence was inconsistent with the inclusion in Red River's financial statements, within its Mineral Resource and Ore Reserve Statement, of an "Indicated" and "Inferred" mineral resource for the Waterloo deposit; coupled with the director's statement (with which Mr Palancian as a director necessarily joined), that "all elements included in the metal equivalent calculation have a reasonable potential to be recovered and sold". 5. There may be a tension Mr Palancian's evidence and these statements, but I am not able to conclude from that that Mr Palancian has given false evidence before me. 6. These are technical matters about which Mr Palancian clearly has experience and expertise. I am not prepared to reject his evidence. 7. Accordingly, the Waterloo transition deposit should not be taken into account in calculating Projected Royalties. The "closure risk discount" issue 1. Mr Jaski opined that a "closure risk discount" ranging from 15% to 35% should be applied to the overall Projected Royalties due to Thalanga mine's history of entering care and maintenance. 2. Thus, in the joint report prepared by Mr Gemell and Mr Jaski it was recorded: "● Mr Jaski assessed a closure risk discount of between 15.0% and 20.0% [and 35%]…based on Mr Jaski's analysis of the economic viability of the Tenements…Mr Gemell has made no adjustment for closure risk. ● In Mr Jaski's opinion, a hypothetical purchaser of the royalties under the Agreement would identify the risk of closure as a significant risk affecting the value of the royalty stream. ● Given that a hypothetical purchaser is paying upfront for the full royalty stream to deliver payments for each deposit on the Tenements at the dates estimated under the assumed mining schedule then any delay or closure in operations will reduce the value of the future royalty stream. ● Accordingly, in Mr Jaski's opinion, a hypothetical investor would absolutely apply a discount to the value of the royalties stream given the Tenement's history of entering care and maintenance (eg the Tenements have only operated for five of the past 22 years and, since commencement of mining in 1989, the Tenements have been placed into care and maintenance twice, including a period of 12 years from 1998 to 2010)." 1. Thus, Mr Jaski's rationale for including the disclosure risk discount is based on what a hypothetical purchaser would pay for the royalty stream rather than on a prediction of likely sales of ore from the Tenements. 2. Mr Jaski accepted that the effect of adopting his opinion would be to permanently eliminate about one third of the Projected Royalty. 3. Mr Jaski also accepted that his assessment was subjective, if not speculative. 4. He thus gave this evidence in response to questions from me: "HIS HONOUR: Enquiring into if and when this mine is likely to close would be a very wide ranging enquiry, wouldn't it? WITNESS JASKI: Absolutely. It - and, and as I say, it's-- HIS HONOUR: I'd need a lot more evidence, wouldn't I, then the evidence I'm going to get in these proceedings, surely? WITNESS JASKI: Yes, and, and I think it's - it, it, it comes down to, you know, looking at is there a risk or is there not a risk. And I think when we look at this deposit and you, you, you look at the size, and I - and, and I did, I did look at the history, and you kind of have to wonder. I mean mining is a game where people are very entrepreneurial. So, if there's a buck to be made, people will try and exploit a resource. And they often try and exploit resources that aren't economic and fail. Very rarely do you get people try to not bother exploiting a resource that is economic, and if that-- HIS HONOUR: But your discount assumes, doesn't it, that it's likely to fail? Not more likely than not, but likely to fail, likely to close? WITNESS JASKI: Well - what - no, what-- HIS HONOUR: At some time? WITNESS JASKI: What, what I - what I've done is, is I've put myself in the shoes of an investor saying, "Okay well how do I actually factor a risk?" So I don't know if it's going to close, but this thing's marginal. And what if it does close in one or two years? What if it closes for three - for three or five years on that? What does that - what does that mean for my investment? Well, my investment goes down by 5%, 50%, 20%, 50%. And so, as in investor, what am I going to discount? Because I'm not going to pay, pay the full odds today up-front knowing that there's that risk. So, do I price it on 1% risk? Do I price it at 20% risk? Do I price it at 50% risk? It's subjective. I've given it a go just by looking at, okay well if it shut down after one, two, three years. If it shut down for, you know, two, five, 20 years. What does that do to the value of my royalty stream? And then I've said, well based on the - based on the historic, you know, mining and, and the closure, and the fact that if this thing had have been economic I am positive it would've been run. If there was a goldmine sitting there, somebody would've run it and made money." 1. The Tenements do have a history of entering care and maintenance, and also of reopening. 2. The Tenements operated from 1990 to 1998 and were then put into care and maintenance for some 12 years after which Kagara operated the mine. Kagara went into liquidation and the Tenements were sold to Cromarty. Under Cromarty's stewardship, the Tenements have operated continuously since then. 3. Mr Jaski gave this evidence in cross-examination: "MCGRATH: You acknowledged that most of that period has been under Cromarty, correct? WITNESS JASKI: Correct. MCGRATH: If one was to look at the track record of this mine under Cromarty, one would say that it's a productive mine that has been continuously mined for the last four years, that's right, isn't it? WITNESS JASKI: It, it, it just so happens that the right mix of commodity prices and other things are, are making it viable, that's true. And, and, and there, there, there may be incremental discoveries. I, I don't discount that. There may be more discoveries. MCGRATH: You would acknowledge, wouldn't you, that it's possible to mismanage a mining deposit? WITNESS JASKI: Yes. MCGRATH: And it could be the case that Kagara mismanaged the mining deposit when it was under their ownership? WITNESS JASKI: Yes." 1. As I suggested to Mr Jaski, to make any assessment about what if any "closure risk discount" should be applied here, would involve engaging in the very wide enquiry as to the present viability of the Tenements. There is simply insufficient evidence before me for me to embark on such an enquiry. 2. No doubt there is some risk that the Tenements might close. But for me to make any assessment of how likely that is, and to then make an assessment of what "closure risk discount" should be applied, would involve me doing little more than "plucking a figure out of the air". [95] The caveats issue 1. Thalanga has lodged caveats on the title of the Tenements. Cromarty seeks to have the caveats removed. 2. Thalanga's entitlement to lodge the caveats depended on the outcome of these proceedings. Thalanga has stated that once the Royalty is paid, it will remove the caveats. 3. I will hear submissions as to whether any order is needed in this regard. Conclusion 1. The parties should confer and agree on what, if any, further matters require resolution before final orders can be made and as to what those orders should be. ********** Endnotes 1. A Truck Consignment Note and other documents in the case Glencore and a clean on board charter party bills of lading in the case of Trafigura; the details are not important. 2. (2015) 256 CLR 104; [2015] HCA 37. 3. At [46], [48]-[49]. 4. See, P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at par [19.60]. 5. Commercial List Response C39. 6. Commercial List Response C50. 7. Commercial List Response C39 and C50. 8. Mr Melkon Palancian, the Managing Director of Red River and Mr Rodney Lovelady, the Chief Financial Officer of Red River and Director of Cromarty. 9. See Herzfeld and Prince (Supra), at [21.10] and the authorities there cited. 10. Using brackets "[ ]" and "{ }" to signify incorporation of the words of the definitions; and without reading into the text the definition of "Ore", as nothing turns on that definition. 11. Omitting the brackets "[ ]" and "{ }" and substituting "Thalanga" and "Cromarty" where appropriate. 12. Or, in fact, 15 Business Days thereafter. 13. See [19] above. 14. Again using brackets "[ ]" and "{ }" to signify where the definitions are incorporated. 15. See [9] above. 16. At [61] to [68] above. 17. See [59] above. 18. See [111] and [115] below. 19. Mr Lovelady's recollection. 20. Mr Leiva's recollection. 21. Mr Leiva's recollection. 22. Mr Leiva's recollection. 23. Mr Leiva's recollection and Mr Lovelady's recollection. 24. Mr Palancian's recollection. 25. Mr Lovelady's recollection. 26. Mr Lovelady's alternative recollection. 27. Mr Lovelady's further alternative recollection. 28. See [84] above. 29. See [85] above. 30. See [89] above. 31. See [90] above. 32. See [94] above. 33. See [95] above. 34. See [98] above. 35. See [99] above. 36. See [100] above. 37. See [101] - [102] above. 38. Being $1,870,544 plus GST. 39. See [106] above. 40. See [109] above. 41. See [110] above. 42. See [111] above. 43. See [113] above. 44. See [114] above. 45. See [115] above. 46. See [117] above. 47. See [118] above. 48. See [119]-[121] above. 49. See [124] above. 50. See [127] above. 51. See [129] above. 52. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44] (Gleeson CJ, Gummow, Heydon and Crennan JJ). 53. Heyman v Darwins Ltd [1942] AC 356 at 397. 54. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 659; [1989] HCA 23 at [18] (Deane and Dawson JJ). 55. Or inability per Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd at [44]: not relevant here. 56. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 634; [22] (Mason CJ). 57. Supra at 659; [18] (Deane and Dawson JJ). 58. Supra at 634; [22] (Mason CJ). 59. Supra at 657; [16] (Deane and Dawson JJ) and Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47 at 633 (Wilson J). 60. Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 31; [1985] HCA 14 (Mason J). 61. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd at [44]. 62. J D Heydon, Heydon on Contract (2019, Thomson Reuters) at par [24.240]. 63. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd at [44]. 64. See [146] above. 65. See [134] above. 66. See [127] above. 67. See [132] above. 68. See [118] above 69. I return below to the significance, if any, of the fact that in this letter Thalanga incorrectly included in "Outstanding Royalties", Royalties for November 2018: see [209]-[211] below. 70. By reason of the monetary limit of the bank guarantees given under the Deed of Covenant: see [7] above 71. Through Mr Lovelady. 72. By its silence and failure to respond to Mr Walker's 16 November 2018 email and Thalanga's solicitors' letter of 6 December 2018. 73. To adopt the words of Mason CJ in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 634. 74. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd at [47]. 75. Burger King Corp v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 at [125]-[126] (Sheller, Beazley and Stein JJA). 76. Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642; (1938) 55 WN (NSW) 228 (Jordan CJ). 77. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd at [49]. 78. Progressive Mailing House Pty Ltd v Tabali Pty Ltd at 31. 79. See [154] to [156] above. 80. Louinder v Leis (1982) 149 CLR 509; [1982] HCA 28 at [4] (Gibbs CJ) and [34] (Mason J). 81. Mason CJ in Laurinda at 638; [34] citing Lord Parker of Waddington in Stickney v Keeble [1915] AC 386. 82. See [134] above. 83. See [141] above 84. See [136] above. 85. See [139] above. 86. See [44] above. 87. See Burke and Riversdale Road Pty Ltd v Gemini Investments Pty Ltd [2003] VSC 33 at [35] (Nettle J) citing Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11 at [7]. 88. Cf the facts in Burke and Riversdale Road Pty Ltd v Gemini Investments Pty Ltd (supra) and in Safehaven Investments Inc v Springbok Ltd (1995) 71 P & CR 59 at 68; [1995] EGCS 96 (Mr Sumption QC, as his Lordship then was) where acts of affirmation between successive acts of repudiation were found. 89. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477. 90. Heyman v Darwins Ltd at 399; Johnson v Agnew [1980] AC 367 at 396 citing with approval McDonald v Dennys Lascelles Ltd. 91. At [61] to [68]. 92. For example, Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 246; [1988] HCA 11 (Mason CJ). 93. Clark v Macourt (2013) 253 CLR 1 at 26; [2013] HCA 56 at [106] (Keane J). 94. At [22]. 95. To adopt the expression used by Gleeson CJ, in an admittedly different context, in Troulis v Vamvoukakis [1998] NSWCA 237 at 29. Amendments 10 June 2021 - Clerical errors 10 June 2021 - Clerical error 09 August 2021 - Typographical error in paragraph 269 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 August 2021