Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd [2021] NSWCA 284 Hearing dates: 4 November 2021 Date of orders: 19 November 2021 Decision date: 19 November 2021 Before: Bell P at [1]; Meagher JA at [2]; Payne JA at [88]. Decision: 1. Dismiss the appeal 2. Order that the appellants pay the respondent's costs Catchwords: CONTRACTS — construction — where agreement to pay royalty following "actual sale" of mineral — where royalty a percentage of "net sales realisation" amount — whether "actual sale" occurs when title passes to buyer — whether "net sales realisation" is after deduction of sales realisation expenses CONTRACTS — termination — where breach of time stipulation for making of payment — where demand made after giving further time for payment — whether breach of essential term justifying termination — whether repudiatory conduct evincing an unwillingness to render substantial performance Cases Cited: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15 Federal Commissioner of Taxation v Sherritt Gordon Mines Ltd (1977) 137 CLR 612; [1977] HCA 48 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 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 Louinder v Leis (1982) 149 CLR 509; [1982] HCA 28 Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] 2 Lloyd's Rep 447 Stanton v Federal Commissioner of Taxation (1955) 92 CLR 630; [1955] HCA 56 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 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 Category: Principal judgment Parties: Cromarty Resources Pty Ltd (first appellant) Red River Resources Ltd (second appellant) Thalanga Copper Mines Pty Ltd (respondent) Representation: Counsel: JC Kelly SC with AJ Barnett (appellants) A McGrath SC with T Jonker (respondent) Solicitors: Piper Alderman (appellants) McCullough Robertson (respondent) File Number(s): 2021/187780 Publication restriction: N/A Decision under appeal Court or tribunal: New South Wales Supreme Court Jurisdiction: Equity Citation: [2021] NSWSC 640 Date of Decision: 04 June 2021 Before: Stevenson J File Number(s): 2019/53887 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] The respondent (Thalanga) sold mining exploration permits and mining leases to a third party in May 2006 pursuant to an Asset Sale Agreement. The appellant (Cromarty) acquired those interests in September 2014 on terms that it was entitled to the rights and benefits, and assumed the obligations and liabilities, of that third party as if it was a party to the Asset Sale Agreement in place of the third party. Cromarty's assumed obligations under the Asset Sale Agreement relevantly included to pay a royalty to Thalanga within "15 Business Days after the end of the month of actual sales". The royalty was to be calculated as 4% of "net sales realisation" of all saleable metals. "Net sales realisation" was defined as the amount "actually realised" from the sale of processed ore, "less the treatment and refining charges". Cromarty commenced producing ore and selling concentrates from the tenements in 2017. In October 2018, having paid royalties for sales made before 30 June 2018, Cromarty proposed that going forward the royalty payments be calculated and paid quarterly, rather than monthly. Following that request there was some negotiation on that subject but no agreement. Thalanga also made demands that Cromarty pay the royalties due on sales made between July and September 2018. In early December 2018, Thalanga's solicitors demanded payment from Cromarty of outstanding royalties by 13 December 2018, failing which Thalanga would terminate the Asset Sale Agreement. Cromarty did not reply to that demand or make any payment. On 28 December 2018, Thalanga's solicitors gave a written notice purporting to terminate the agreement. The primary judge (Stevenson J) held that Thalanga had validly terminated the Asset Sale Agreement, and awarded it an amount for royalties unpaid as at the date of termination and loss of bargain damages. Cromarty and its parent company as guarantor appeal from those orders. The issues in the appeal were: When did Cromarty's obligation to pay a royalty arise, and was the amount being "net sales realisation" to which the royalty was applied an amount after deduction of sales realisation expenses. Whether Thalanga was entitled to terminate the Asset Sale Agreement on 28 December 2018. Whether adjustments had to be made to the amounts of unpaid royalties and damages, including for deduction of sales realisation expenses. The Court (Meagher JA, Bell P and Payne JA agreeing) held, dismissing the appeal: As to issue (i) Cromarty's obligation was to pay the royalty within 15 business days after the end of the month of "actual sales". In ordinary language a "sale" occurs when title passes to the buyer. Under the contracts for the purchase of metal concentrates from Cromarty, title passed after delivery and upon the making of an advance or provisional payment (in each case for 95% of value), even though the price would not be finally adjusted for some months. Accordingly an "actual sale" occurred in the month in which such a payment was made, and Cromarty was required to pay a royalty within 15 business days of the end of that month: at [1] (Bell P), [24]-[31] (Meagher JA), [88] (Payne JA). On its proper construction, the "net sales realisation" amount was net of gross sales and not after the deduction of sales realisation expenses such as sea freight and insurance. The royalty was calculated as a percentage of the amount received from the sale of processed ore, which was a measure of the value of that ore. The requirement for treatment and refining charges to be deducted had the consequence that the royalty rate was applied to the value of the recovered mineral before it was processed: at [1] (Bell P), [32]-[38] (Meagher JA), [88] (Payne JA). As to issue (ii) The promise to pay the royalty within the stipulated time was not an essential term. An essential term is one which is of such importance to the promisee that it would not have entered into the contract unless assured of strict performance. Unless the contract makes clear by express provision or by necessary implication, arising from the nature, purpose and circumstances, that a particular stipulation is a condition, it will be characterised as an intermediate term. In other words "a term is innominate unless a contrary intention is made clear". As the royalty payment obligation continued over a significant period of time, it is improbable in the extreme that the parties intended that late payment of one royalty would give rise to an entitlement to terminate the agreement: at [1] (Bell P), [41]-[46] (Meagher JA), [88] (Payne JA). Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15, Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61, Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] 2 Lloyd's Rep 447, considered. The solicitor's letter demanding Cromarty pay the royalty by 13 December 2018 did not, and could not, alter the time fixed by the contract for payment of the royalty, or make that term essential. The failure to comply with the demand did not of itself constitute a breach of an essential term entitling Thalanga to terminate the contract: at [1] (Bell P), [48]-[53] (Meagher JA), [88] (Payne JA). United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, Louinder v Leis (1982) 149 CLR 509; [1982] HCA 28, considered. The primary judge correctly found that Cromarty's conduct leading up to and following the solicitor's letter of demand conveyed to a reasonable person in Thalanga's position that it was only prepared to pay royalties in a manner substantially inconsistent with its obligations under the Asset Sale Agreement. That conclusion followed from Cromarty's position that it would only pay overdue royalties from sales in the quarter ended September 2018 in January 2019, and that it would pay royalties from sales in the following three months before the end of January 2019 at the earliest: at [1] (Bell P), [54]-[77] (Meagher JA), [88] (Payne JA). As to issue (iii) The judgment sum comprised two components. The first was for unpaid royalties in respect of sales which had occurred before 28 December 2018. The second was for loss of bargain damages. There was no error in the calculation of each component. If the first component included amounts where the payment obligation had not accrued at the time of termination, Thalanga was entitled to recover the same amount as loss of bargain damages. As a result there was no need to adjust the overall judgment sum: at [1] (Bell P), [80]-[84] (Meagher JA), [88] (Payne JA). Judgment 1. BELL P: For the reasons given by Meagher JA with which I agree, the appeal should be dismissed with costs. 2. MEAGHER JA: Overview In May 2006, the respondent, Thalanga Copper Mines Pty Ltd (Thalanga) agreed to sell certain mining exploration permits and mining leases in central Queensland (the Tenements) to Kagara Copper Pty Ltd (Kagara Copper) for $2 million and an entitlement to a royalty on minerals recovered from the Tenements (the Asset Sale Agreement). In September 2014, the liquidator of Kagara Copper agreed to sell its interests in the Tenements to the first appellant, Cromarty Resources Pty Ltd (Cromarty), a wholly owned subsidiary of the second appellant, Red River Resources Ltd (Red River). It did so on terms that Cromarty would be entitled to all of the rights and benefits, and assume the obligations and liabilities, of Kagara Copper under the Asset Sale Agreement. At the same time Kagara Copper was to be released by Thalanga from all such ongoing obligations and liabilities. That outcome was achieved by a Deed of Covenant, Assignment and Release dated 24 March 2015 (Deed of Covenant) to which Kagara Copper, Thalanga, Cromarty and Red River were parties. 1. The effect of cll 2 and 3 of the Deed of Covenant was that as between those parties, Cromarty assumed all of Kagara Copper's obligations under the Asset Sale Agreement arising on or after 12 September 2014 "as if it were a party to the [Asset Sale Agreement] in place of" Kagara Copper. Cromarty also covenanted with Thalanga to be bound by the provisions of the Asset Sale Agreement from that date "as if [it] had been expressly named" in that agreement in place of Kagara Copper. Finally Red River guaranteed to Thalanga the performance of Cromarty's (newly assumed) royalty obligations under cl 13 of the Asset Sale Agreement. 2. Cromarty first produced ore from the Tenements in mid-2017, and commenced sales of zinc, lead or copper concentrates to Glencore International AG (Glencore) and Trafigura Pte Ltd (Trafigura) in about October 2017. Glencore agreed to purchase the total production of copper concentrate from the Thalanga mine over a three year period. By two separate contracts, Trafigura agreed to purchase specified quantities of lead or zinc concentrate, in each case over an anticipated period of three years. 3. Clause 13.1 of the Asset Sale Agreement provided that a 4% royalty be paid within "15 Business Days after the end of the month of actual sales". In late October 2018, having paid royalties on sales made before 30 June 2018, Cromarty proposed that going forward the royalty payments be made by reference to "quarterly" rather than "monthly" sales. There followed little direct negotiation on that subject, continuing demands by Thalanga for payment of royalties due on sales for the three months ended 30 September 2018 and, in early December 2018, a demand made by Thalanga's solicitors for payment of outstanding royalties by 13 December 2018 which threatened termination of the agreement absent payment. There was no response by Cromarty or Red River to that letter or any payment of the outstanding royalties. On 28 December 2018 Thalanga's solicitors gave a written notice purporting to terminate the agreement for "material" breach of cl 13.1 and for repudiatory conduct. In their response of 8 January 2019 Cromarty's solicitors accepted that the Asset Sale Agreement had been terminated. In the proceedings which followed it was common ground that they had done so treating Thalanga's purported termination as itself a repudiation which Cromarty had accepted, bringing the agreement to an end. 4. Thalanga brought proceedings in the Commercial List against Cromarty and Red River, the latter as guarantor, for the royalties payable on sales made between 1 July and 28 December 2018 and for damages for loss of the benefit of the ongoing obligation of Cromarty to pay royalties in accordance with the Asset Sale Agreement. 5. Those damages were recoverable only if the relevant contract was at an end by reason of the other party's wrongful conduct: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 260-261 (Mason CJ), 273 (Gaudron J); [1988] HCA 11; Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32 at [10]-[11] (Kiefel CJ, Bell and Keane JJ), [196] (Nettle, Gordon and Edelman JJ). Of course, Cromarty was not a party to the original Asset Sale Agreement. However it was agreed between all of the relevant parties (and relevantly Thalanga, Cromarty and Kagara Copper) that Cromarty was to be treated from 12 September 2014 "as if" it was entitled to all of the rights and benefits, and subject to the same obligations, as Kagara Copper was as the purchasing party in that agreement. 6. The Commercial List pleadings, having correctly described the effect of the Deed of Covenant, thereafter refer to the relevant agreement between Thalanga and Cromarty as the Asset Sale Agreement, rather than the "as if" agreement in the same terms to which they agreed to be bound. The primary judge (Stevenson J), having stated the effect of the Deed of Covenant (Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd [2021] NSWSC 640 at [6], [7]), thereafter also referred to the relevant agreement between Thalanga and Cromarty as being the Asset Sale Agreement. In these reasons I will continue to refer to that agreement as "the Asset Sale Agreement". However in doing so I am referring to a contract between them on the terms of the Asset Sale Agreement, the existence of which would also be the subject of a conventional estoppel binding each of them. The primary judge held this agreement was validly terminated by Thalanga on 28 December 2018, including for repudiatory conduct. Cromarty and Red River appeal from that decision. The interest of the latter remains as a guarantor of the obligations of the former. Issues in the appeal 1. The grounds of appeal and contention address three subjects. 2. The first concerns the interpretation of Cromarty's obligation to pay royalties in accordance with cl 13. There are two questions. The first, raised by appeal grounds 1 and 2, is whether, as Thalanga contends and the primary judge held, the royalty was due for payment 15 business days after the end of the month in which any "actual sale" had occurred; that requirement being satisfied by delivery, the passing of title and the payment of its provisional value. Cromarty contends the royalty was not due for payment until 15 business days after the end of the third month following that month, by which time the final purchase price would be known and have been paid. The second question is raised by appeal grounds 3 and 4, and is whether the "net sales realisation" amount to which the 4% royalty rate is to be applied is after deduction of sales realisation expenses, including insurance and sea freight as contended by Cromarty. The primary judge rejected that contention. 3. The second subject concerns the termination of the agreement. The principal question is whether Thalanga was entitled to terminate the Asset Sale Agreement on 28 December 2018. The primary judge held that by its conduct in November and December 2018, Cromarty manifested an intention only to make royalty payments in a manner substantially inconsistent with the terms of its contract (Judgment [184]-[186]). His Honour also held (a) that the payment provision in cl 13.1(a) was an essential term, compliance with which had been waived before November 2018; (b) that the solicitor's demand for payment had the effect of requiring strict compliance with that payment obligation by 13 December 2018, and (c) that Cromarty's non-compliance with that demand meant that Thalanga was entitled to terminate for breach (Judgment [195], [197], [199], [214]-[218]). These holdings are challenged by appeal grounds 5 to 11. 4. Finally, appeal grounds 12 to 15 are directed to the quantum of the judgment sum ($19,941,929). That sum, which includes pre-judgment interest, has two components. The first is unpaid royalties in respect of actual sales which had occurred before 28 December 2018. The accounting expert retained by Thalanga, Mr Stephen Gemell, calculated the amount of those unpaid royalties to be A$1,712,944. Of that amount, A$13,450 related to sales prior to July 2018 and A$1,699,494 to sales from 1 July 2018. Cromarty's expert, Mr Campbell Jaski, assessed the latter amount at A$1,184,047. The second component is the net present value of royalty payments in respect of sales after the termination date which Thalanga would have received for the balance of the Asset Sale Agreement if it had not been terminated by Cromarty's wrongful conduct. Mr Gemell's estimate of that total value was A$22,227,318 and Mr Jaski's assessment, on two different scenarios, was between A$9.9m and A$10.9m. After his Honour's first judgment was delivered the parties raised a further matter concerning the calculation of this second component. After judgment was given resolving that matter (Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd (No 2) [2021] NSWSC 1017) the parties were able to agree the amount of loss of bargain damages. However that amount is not referred to in his Honour's reasons or final orders, which record the overall judgment sum, including pre-judgment interest, as at 19 August 2021. The challenges to the award made for loss of bargain damages depend on the outcome of the issues going to the calculation of the royalty entitlement. Construction of the royalty payment obligation (appeal grounds 1, 2, 3 and 4) 1. Clause 13 of the Asset Sale Agreement relevantly provided: "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 … 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. 13.5 Inspection and Audit (a) All books, accounts and records used by the Purchaser to calculate the Royalty (including the reference prices used, treatment charges and any refining charges) are to be kept in accordance with Accounting Standards. (b) The Vendor has the right, at its own expense and during normal business hours, to: (i) inspect and take copies of the books, accounts, production and any other records relating to the calculation of the Royalty (including the treatment charges and any refining charges); (ii) inspect the Assets; (iii) require a technical audit of the practices and procedures used by the Purchaser in calculating the Royalty; so as to verify the prices, treatment charges and refining charges are prices and charges which are based on arm's length transactions and which reflect industry standards including LME or other recognised exchanges prices for metals and market charges for TC/RCs; (c) If the Vendor finds any discrepancy or error in relation to the quantity, prices, treatment charges, refining charges or any other item in the calculation of the Royalty, the Vendor is to advise the Purchaser of the discrepancy or error and the Purchaser must pay the difference to the Vendor. In case of any dispute in relation to this issue, the dispute will be resolved in accordance with clause 12. (d) In exercising the rights under this clause 13.5, the Vendor, wherever practicable, must: (i) give the Purchaser reasonable notice of an inspection or technical audit; and (ii) maintain strict confidentiality in respect of the reports, books and records, except that it may disclose details from the reports, books and records to its auditors or professional advisors. 13.6 Protection of the Vendor At any time from the Effective Date, the Vendor is entitled to lodge a caveat in the form set out at Schedule 3, on the Tenements to serve notice of its right to the Royalty and the Purchaser must promptly provide its consent to the lodgement of that caveat. Subject to clause 15.7(c), the caveat is to remain in place for the period during which the Royalty is payable." 1. Although not defined, the references in cl 13.5(b) to LME, TC and RC are respectively to the London Metal Exchange, treatment charges and refining charges. 2. Clause 1.1 provides that the defined terms NSR, Ore and Royalty have the following meanings: "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." "Ore means any rock or mineral which is mined or recovered by or on behalf of the Purchaser from within the Tenements (including any dump or stockpile), for sale or for treatment to produce a saleable metal or metal concentrate." "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. Each of the purchase contracts between Cromarty as seller and Glencore or Trafigura as buyer has the following features. 2. First, the price of the relevant concentrate material (copper, lead or zinc) depends upon the percentage of that metal in the concentrate and the presence of silver or gold above certain levels within the concentrate. The price ultimately paid is based on an "official" LME or LBMA (London Bullion Market Association) reference price, the former in the case of copper and lead content, and the latter in the case of silver and gold content. That price is the specified reference price for each of the metals in the concentrate averaged over a "quotational period" which was the third calendar month following the month of delivery in the case of Glencore, or shipment in the case of Trafigura. 3. Secondly, delivery/shipment was to be made in the case of Glencore at the mine gate, and in the case of Trafigura on a CIF basis at the port of Townsville and for carriage to a Chinese, Japanese or Korean port at Trafigura's option. 4. Thirdly, Cromarty was entitled to a payment of 95% of the provisional value of the concentrate within ten calendar days after the presentation of shipping documents including a seller's provisional invoice and a Truck Consignment Note (in the case of Glencore), or five business days after the presentation of clean bills of lading (in the case of Trafigura). The provisional value of the concentrate was the metal reference price averaged over the last five LME market days prior to the date of the Truck Consignment Note or bill of lading. Under the Trafigura purchase contract, a second provisional payment was to be made 60 calendar days after the bill of lading date for an amount being 100% of the provisional value then calculated by reference to LME quotations at that later time, less the first provisional payment. 5. Fourthly, under the Glencore contract Cromarty had the option, and under the Trafigura contract was entitled, to request an advance payment equal to 95% of the estimated provisional value of the relevant shipment. Such a payment was made against a holding certificate in respect of the concentrate purchased, provisional weight, moisture and assay certificates and an advance payment invoice. Interest was then payable on the amount of that advance payment for the period between the date of the advance and the date on which the first provisional payment was due. 6. Fifthly, title to the concentrate material passed from Cromarty to Glencore or Trafigura upon the making of the advance payment, or the first provisional payment if no advance payment was made. The risk of damage or loss to the concentrate passed to the buyer when it was delivered at the mine gate, in the case of Glencore, and on board the relevant vessel at the port of Townsville, in the case of Trafigura. 7. Lastly, following the end of the quotational period, Cromarty was to issue a final invoice within three or five days of final assays, weights and prices being known. Any difference between the final value of the concentrate material sold and the provisional payment or payments was to be settled by the "owing party" within three to five business or working days of receipt of the final invoice. 8. It was not controversial that the pricing mechanism adopted in the Glencore and Trafigura purchase contracts was commonly used and widely adopted both before and after 2006, when the Asset Sale Agreement was made. In that respect Mr Jaski described the "staged payment structure" adopted in those contracts as follows: "111 Concentrate contracts typically have a staged payment structure representing different points in the delivery and refining cycle. The Quotation Period (QP) is the reference period over which the producer and smelter have agreed that the metal prices will be determined. 112 A producer usually prefers the QP to be as close to the date of production as possible, while the smelter will usually prefer QPs to be closer to the date of smelting and refining. This is to align the sales price with the time that the costs were incurred to minimise any fluctuations in metal prices and exchange rates. 113 Commonly, the QP will involve: a a first provisional payment for a majority of the volume (eg 95%) within a short period of time (eg 5 to 10 days) of the consignment leaving the producer, with pricing based on prevailing LME prices and initial assay results at the time b a second provisional payment for 100% of the volume, based on prevailing LME prices and assay results known at that time, and taking into account the amount already paid as part of the first provisional payment c final payment once the refining process is complete and final assay results are known, based on prevailing LME prices at that time and taking into account the amounts already paid as part of the first and second provisional payments." When the royalty payment obligation arises (appeal grounds 1 and 2) 1. The first question is when were the royalty payments due in respect of "actual sales" to Glencore and Trafigura in circumstances where the final price payable for the metal concentrates would not be known until the end of the third month after the month of delivery or shipment. Cromarty contends that the royalty due could not be calculated until the final purchase price was known for each "month of actual sales". The 4% royalty rate was to be applied to the amount "actually realised" from those sales. It followed that there could be no such sale until the final purchase price was known. 2. As no shipments or deliveries occurred in July, according to Cromarty's argument the only royalties that could have been payable as at 28 December 2018 were those in respect of August shipments or deliveries which resulted in provisional payments to Cromarty in that month. For those sales the relevant "quotational period" was the month of November with the result that final prices would not have been available until early December. Assuming that was the position, Thalanga's purported termination of the Asset Sale Agreement for breach of cl 13.1(a) may not have been justified, and may itself have been repudiatory. 3. The primary judge rejected this argument (Judgment [35]-[60]). In my view he did not err in doing so. 4. In terms, cl 13.1(a) provides that the royalty is to be paid "within 15 Business Days" after the end of the month of "actual sales". That obligation is made subject to cl 13.3. In ordinary language a sale describes an exchange of title to real or personal property for consideration, usually the payment of money. That transaction is usually taken to occur when title passes to the buyer. Under the arrangements between Cromarty and Glencore, title passed to the latter upon the making of its provisional payment, which in turn closely followed delivery. Under the arrangements with Trafigura, title passed on the same basis in the absence of the making of an advance payment. If an advance payment was made, title passed upon the making of that payment and following receipt by Trafigura of the "holding certificate", provisional weight, moisture and assay certificates and the advance payment invoice. The primary judge concluded that "actual sales" occurred in the month when title passed (Judgment [51]) and held that Mr Gemell's royalty calculations were correctly made on that basis (Judgment [224]). 5. Clause 13.3 provides that the royalty is to be calculated by Cromarty by reference to the amount "actually realised" and before the "final NSR" for that month of sales is determined. Under the arrangements with Glencore and Trafigura, that amount, albeit liable to be adjusted and accordingly described as provisional, is the amount required to be paid under the relevant purchase contract as the advance or first provisional payment. That such an amount might be used in the calculation of the NSR is confirmed by the second sentence of cl 13.3, which acknowledges that there may be an "excess or short payment of Royalty" for a relevant month of sales. The existence and extent of any such excess or short payment can only be known when the "final NSR for that month is determined". Although there is a clumsiness in the language of this sentence insofar as it refers to "the excess or short payment of Royalty in the month of sales" (emphasis added), it is tolerably clear that the reference is to an excess or short payment of royalty for a particular month of actual sales with the result that an adjustment of the royalty for that month, calculated by refence to the first amount received, is to be made later and when the "final" NSR for that month is known. 6. Clause 13.3 provides a complete answer to Cromarty's first argument. Acceptance of Cromarty's construction of cl 13.1 would have the consequence that the second sentence of cl 13.3 has no work to do. For the purposes of cl 13.1 the "actual sales" referred to are those where title has passed to the buyer upon the earlier of the making of an advance payment or provisional payment. Mr Gemell's evidence was that in determining the relevant "actual sales" for particular months, he treated the relevant month of sale as that in which an advance payment, or the first provisional payment, was made. 7. There is nothing in the remaining provisions of cl 13 which contradicts this construction of cll 13.1 and 13.3. Clause 13.5, which gives Thalanga a right of inspection and audit of records used by Cromarty to calculate royalty, expressly acknowledges that "reference prices" will or might be used in that exercise, and provides that those reference prices must "reflect industry standards including LME or other recognised exchanges prices for metals". As far as it goes that provision is wholly consistent with cl 13.3, which contemplates that the NSR amount as first calculated may be later adjusted, as occurs where the staged payment structure described above determines the amount to be paid. 8. It follows that appeal grounds 1 and 2 should be dismissed. Are costs of realisation to be deducted in calculating "net sales realisation" (appeal grounds 3 and 4) 1. There remains the question whether the "net sales realisation" in the definition of NSR is the net amount actually realised from the sale of the metals after the deduction of the costs of making those sales, including sea freight costs and insurance. The primary judge held that the defined term "net sales realisation" describes the amount of gross sales less any returns or discounts allowed to the buyer (Judgment [68]). In doing so he rejected Cromarty's submission that "net sales realisation" described a measure of profit or gain which took account of the costs of realisation. He reasoned that if that expression described such a measure it would not have been necessary to have specified separately that "treatment and refining charges" were to be deducted because they would have been taken into account in a measure of profit or gain (Judgment [66]). 2. The starting point in considering this question is the definition of Royalty which "means the royalty at the rate of 4% on NSR of all saleable metals". As Bell and Gageler JJ observed in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [121], the interpretation of defined terms, as with other contractual provisions, is to be resolved "by reference to the overriding criterion of how reasonable businesspersons can be taken to have understood the language" of those terms. Here the parties have chosen the label "Royalty" to describe the amount paid in accordance with cl 13. They have also used the same word to describe the character of the payment. In Stanton v Federal Commissioner of Taxation (1955) 92 CLR 630; [1955] HCA 56 the Court (Dixon CJ, Williams, Webb, Fullagar and Kitto JJ) observed (at 642) that "it is inherent in the conception expressed by the word [royalty] that the payments should be made in respect of the particular exercise of the right to take the substance and therefore should be calculated either in respect of the quantity or value taken or the occasions upon which the right is exercised". In Federal Commissioner of Taxation v Sherritt Gordon Mines Ltd (1977) 137 CLR 612 at 626; [1977] HCA 48, Mason J, having cited that passage, added that "it is of the essence of a royalty that the payments should be made in consideration of the grant of a right, that they should be made in respect of particular exercises of the right and therefore should be calculated in the manner stated". 3. Here the royalty is to be calculated by reference to the "value taken". It is payable on "all saleable metals including precious metals processed from the Ore" and the "net sales realisation" is the amount "actually realised from the sale of processed Ore (either in concentrate form or in metal form)". Thus the NSR describes the net amount realised from the sale of processed ore before deducting treatment and refining charges. The use of the adjective "net" makes clear that the NSR is the amount actually received from the sale of the processed ore. As such it is a measure of the value of that ore, in concentrate or metal form. The deduction of treatment and refining charges from that amount has the consequence that the amount to which the royalty rate is applied is a measure of the value of the mined or recovered rock or mineral before it is processed. 4. The provisions of cl 13.5 again are wholly consistent with treatment and refining charges being the only charges to be deducted from the amount of net sales. That subclause provides for a right of inspection of books, accounts and records to enable Thalanga to "verify [that] … treatment charges and refining charges" are based on an arm's length transaction reflecting industry standards. If the position was that land or sea freight costs or insurance or other selling charges were to be taken into account, it is likely they would equally have been made the subject of the right of inspection and audit. It follows that grounds 3 and 4 also should be dismissed. 5. This conclusion means that there should be no adjustments to Mr Gemell's calculations of the net sales realisation amounts for the months between 1 July and 28 December 2018 in which "actual sales" occurred. Those calculations, as appears below, take account of adjustments made after 28 December 2018 and in or before September 2019. There remains a question as to the amount of the royalty payments which Cromarty was entitled to receive, and accordingly recover in debt, as at 28 December 2018 (see McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477; [1933] HCA 25). 6. Mr Gemell calculated the net sales realisation amounts for each month in which sales occurred by taking account of the moneys received by Cromarty as recorded in advance, provisional and final invoices for that month. In doing so he "adjusted" the final invoice amounts by reversing to Glencore for "freight credits" and credits allowed by Cromarty to Trafigura for "freight savings". The former were allowed in the case of copper concentrate delivered at the Thalanga mine gate to Glencore, and the latter in the case of zinc concentrate delivered by road to the Sun Metals zinc refinery near Townsville. With respect to the copper concentrate sales made to Glencore before 28 December 2018, those credits totalled A$101,440. In the case of the zinc concentrate sales to Trafigura during the same period, the credits totalled US$100,636. 7. The justification for not taking these credits into account lies in the terms of the respective purchase contracts with Glencore and Trafigura and the conclusion that net sales realisation is not to take account of freight costs, whether to be borne by Cromarty or shared with the buyer. In relation to Glencore, the zinc concentrate was delivered at the mine gate and transported to Glencore's Mount Isa operations for processing and treatment. The cost of doing so was shared between Cromarty and Glencore by means of a "freight credit" of A$109 per wet metric ton deducted from the provisional payment due to Cromarty. In relation to Trafigura, the purchase contracts provided that Cromarty was to deliver lead and zinc concentrates on a CIF basis for sea carriage to ports in China, Japan or Korea. The contracts also acknowledged that some shipments might be delivered to Trafigura at the Sun Metals zinc refinery, again at Cromarty's expense. If that occurred the "resulting" freight savings to Cromarty were to be split "one-third in favour of the seller and two-thirds in favour of the buyer". The "freight savings" credits represented those savings as allowed to the buyer. Whether the agreement was validly terminated (appeal grounds 5 to 11 and contention grounds 1 and 2) Was the Asset Sale Agreement terminated by mutual abrogation (appeal ground 7) 1. This ground only arises if Cromarty succeeds on appeal grounds 5 and 6 as well as 10 and 11. Those grounds challenge the two bases on which the primary judge held that this agreement was validly terminated. Appeal ground 7 contends that if Thalanga was not entitled to terminate the Asset Sale Agreement the primary judge should have held that it and the Deed of Covenant came to an end on about 8 January 2019 "by mutual abrogation". As I have concluded below that appeal grounds 5 and 6 should be rejected, this ground should be dismissed. Whether repudiation by breach of condition or intermediate term or when time was of the essence (appeal grounds 8, 9, 10 and 11) 1. Appeal ground 8 challenges the primary judge's holding (Judgment [195]) that the time for payment stipulation in cl 13.1(a) was an essential term, breach of which entitled Thalanga to terminate. In its written submissions, Thalanga contends that the primary judge "correctly held that the obligation under cl 13.1(a) was itself an intermediate term". Notwithstanding the heading to Judgment [195] – "Clause 13.1(a) was a condition and intermediate term" – the language of the paragraph is unambiguous. The primary judge made no finding that cl 13.1(a) was an intermediate term. In the course of argument in this Court Thalanga did not maintain any argument that cl 13.1(a) was an "essential term or condition". In my view that concession was undoubtedly correct. 2. The relevant promise is to pay the royalty due in respect of "actual sales" in each month within 15 business days of the end of that month. Whether that promise is "essential" depends on whether, in construing the contract, the intention to be imputed to the parties is that the promise was of such importance to the promisee that it would not have entered into the contract unless assured of "strict" performance of the promise. It is not sufficient that the promisee required assurance of "strict or substantial" performance. The latter would justify the classification of the promise as an "intermediate term", but not as a condition (cf Judgment [189], [191], [192]). 3. As the plurality (Gleeson CJ, Gummow, Heydon and Crennan JJ) noted in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [48], what Jordan CJ said as to "substantial performance, and substantial breach" in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642, is to be read in the light of the later recognition of "intermediate" or innominate terms. The consequence of holding that a term is essential is that "any" breach of the term will be treated as justifying the innocent party bringing the agreement to an end (cf Judgment [189]): Koompahtoo at [48]; JD Heydon, Heydon on Contract (2019, Lawbook Co) at [7.300]. 4. The intermediate or innominate term was recognised in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. The concept of a term which was capable of operating, according to the gravity of the breach, as either a condition or a warranty brought "a greater flexibility to the law of contract" (Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 562; [1987] HCA 15). The practical utility of a classification which includes intermediate terms and the greater flexibility which it provides has (Koompahtoo at [52]) "several consequences. First, the interests of justice are promoted by limiting rights to rescind to instances of serious and substantial breaches of contract. Secondly, a just outcome is facilitated in cases where the breach is of a term which is inessential." 1. The "modern English law approach to the classification of contractual terms" was summarised by Hamblen LJ in Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] 2 Lloyd's Rep 447 at [92]-[93]: "92. The modern English law approach to the classification of contractual terms is that a term is innominate unless it is clear that it is intended to be a condition or a warranty – see, for example, Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44 at pages 70H to 71B (Roskill LJ); Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109 at page 113 (Lord Wilberforce); Bunge Corporation v Tradax Export SA [1981] 1 WLR 711 at pages 715H to 716A (Lord Wilberforce), at page 717G to H (Lord Scarman) and at page 727E (Lord Roskill). As Lord Scarman stated at page 717: 'Unless the contract makes it clear, either by express provision or by necessary implication arising from its nature, purpose, and circumstances . . . that a particular stipulation is a condition or only a warranty, it is an innominate term, the remedy for a breach of which depends upon the nature, consequences, and effect of the breach.' 93. In my judgment it cannot be said it is clear that the obligation to pay hire timeously is a condition of the charterparties in this case, or of time charterparties generally. In particular: '… (viii) Whilst certainty is an important consideration in the construction of commercial contracts, I consider that undue weight should not be given to it in evaluating whether a term is a condition or an innominate term. That is because the operation of a condition is always more certain than that of an innominate term and so over-reliance on certainty would lead to a presumption that terms are conditions. There is no such presumption. On the contrary the modern approach is that a term is innominate unless a contrary intention is made clear.'" 1. As Cromarty points out the royalty payment obligation was likely to continue for a significant period, making it improbable in the extreme that the parties intended that the non-payment of a royalty due for a particular month would give rise to an entitlement to terminate. That is especially so in circumstances where the royalty due on each sale is to be adjusted over a period of months before the final adjusting payment is to be made and where there are mechanisms for inspection and audit, as well as dispute resolution, which may delay the making of that final payment. There are two remaining provisions of the contract which confirm that the promisee was not assured of strict and literal performance of the royalty payment obligation. Clause 13.6 entitled Thalanga to lodge a caveat protecting its interest in the event of non-payment of royalties and cl 13.7 secured a guarantee by Kagara Copper's parent company of "observance by the Purchaser of cl 13". 2. Accordingly appeal ground 8 is upheld. Clause 13.1(a) was not an essential term. Contention ground 2 assumes a holding to the contrary and contends that the primary judge erred in concluding that Thalanga had waived its entitlement to treat that obligation as a condition (cf Judgment [197]). That contention cannot be made out. 3. Appeal ground 9 does not arise because the primary judge did not find that cl 13.1(a) was an intermediate term. Rather, having found that it was an essential term (Judgment [195]), and that Thalanga had waived reliance upon strict compliance with that term, the primary judge held that by its solicitor's notice Thalanga had made payment by 13 December 2018 of the essence with the result that there was a breach of the payment obligation which of itself entitled it to terminate. 4. Appeal grounds 10 and 11 challenge the primary judge's holding that Thalanga was entitled to terminate for breach of "a term of which time was of the essence" (Judgment [187], [217], [218]). For the reasons which follow these grounds should be upheld. 5. As at 6 December 2018, the date of the solicitor's demand for payment (the relevant obligation being to pay moneys rather than to complete any executory agreement of which equity might decree specific performance), Cromarty was in breach of cl 13.1(a) in respect of royalties due on any "actual sales" which had occurred in July, August, September or October. Any royalty payable on November sales did not become due until 21 December 2018. Accordingly as at 6 December Thalanga was entitled to damages for the breaches of those payment obligations. None of those breaches of itself entitled Thalanga to terminate the Asset Sale Agreement unless it was "a sufficiently serious breach of a non-essential term" (see Koompahtoo at [49]). 6. In this context, the giving of a notice to pay within a reasonable time (accepting for this purpose that the period ending on 13 December 2018 answered that description) did not, and could not, alter the time fixed by the contract for performance of the payment obligation for each royalty month or make performance of those obligations essential. As Brennan J uncontroversially explained in Louinder v Leis (1982) 149 CLR 509 at 533; [1982] HCA 28, a notice to complete "does not alter the time fixed for performance by the contract". Rather it: "affects the exercise of the legal right to rescind and then only if the case is 'appropriate for the granting of equitable remedies by way of relief … . Once the case ceases to be appropriate for the granting of equitable remedies, the parties are left to their remedies and liabilities at law, as Romilly MR said in Parkin v Thorold (1852) 16 Beav 59 at 71 (51 ER 698 at 703): ' … if the party receiving such notice does not complete within the time so specified, equity will not enforce a specific performance of the contract, but leave the parties to their remedies and their liabilities at law'. Apart from any evidentiary effect which a notice to complete may have, its operation affects only the relief, if any, which equity may afford to a party guilty of delay." 1. That evidentiary effect was referred to by Lord Simon in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 at 946: "The notice operates as evidence that the promisee considers that a reasonable time for performance has elapsed by the date of the notice and as evidence of the date by which the promisee now considers it reasonable for the contractual obligation to be performed. The promisor is put upon notice of these matters. It is only in this sense that time is made of the essence of a contract in which it was previously non-essential. The promisee is really saying, 'Unless you perform by such-and-such a date, I shall treat your failure as a repudiation of the contract.'" 1. In Louinder v Leis (at 526) Mason J described the reasoning justifying the exercise of the legal right to rescind in the face of non-compliance with such a notice: "Unreasonable delay in complying with the [contractual time] stipulation in substance amounting to a repudiation is essential to justify rescission. It is to this end that, following breach, the innocent party gives notice fixing a reasonable time for performance of the relevant contractual obligation. The result of non-compliance with the notice is that the party in default is guilty of unreasonable delay in complying with a non-essential time stipulation. The unreasonable delay amounts to a repudiation and this justifies rescission." 1. Accordingly the question arising in the present case was not whether Cromarty's continuing breaches of cl 13.1(a), in the face of the solicitor's notice, constituted a breach of an essential term entitling Thalanga to terminate. Rather it was whether by its continuing conduct, including in not responding to the solicitor's demand to pay by 13 December 2018, Cromarty had repudiated the contract, using that term in the first sense described in Koompahtoo at [44], by evincing an unwillingness or an inability to render substantial performance of the contract. The primary judge upheld Thalanga's termination on that basis and that conclusion is the subject of appeal grounds 5 and 6. However his Honour erred in concluding that Thalanga was also entitled to terminate on an alternative basis, namely for breach of an essential term. Accordingly appeal grounds 10 and 11 should be upheld. Whether repudiatory conduct evincing unwillingness to render substantial performance (appeal grounds 5 and 6 and contention ground 1) 1. The primary judge sets out the events leading to Thalanga's purported termination at Judgment [80]-[150]. In what follows I propose to summarise those events, focusing on the matters which are relevant to an assessment of whether Cromarty's conduct was such as to convey to a reasonable person in Thalanga's position that it proposed to fulfill its royalty payment obligations "only in a manner substantially inconsistent with [those] obligations" and not in any other way: see Koompahtoo at [44] (Gleeson CJ, Gummow, Heydon and Crennan JJ); citing Mason CJ in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634; [1989] HCA 23. 2. The personnel engaged on Thalanga's behalf in communications with Cromarty were Mr Walker, its general manager, and Mr Leiva, who, it would seem, was acting as its de facto financial controller. The personnel principally engaged on behalf of Cromarty were Mr Palancian, the managing director of Red River, Mr Lovelady, the chief financial officer of Red River and a director of Cromarty, and Mr Garner, another director of Cromarty. 3. Although Cromarty commenced sale of processed ore to Glencore and Trafigura in about October 2017, it did not make any royalty payment or submit any royalty calculation to Thalanga until August 2018. The calculation then produced was in respect of sales in the second, third and fourth quarters of the financial year ended 30 June 2018. The royalties calculated as payable for that nine month period totalled $1,870,544. On 23 August 2018 Thalanga invoiced Cromarty for those royalties which, including GST, totalled $2,057,598. $300,000 of that amount was paid on or about 1 October, and the balance of $1,757,598 was paid on 12 October 2018. 4. Under cl 8 of the Deed of Covenant, Cromarty was required to provide an unconditional bank guarantee as security for payment of the first $300,000 in royalties and a second bank guarantee as security for the next $700,000. Thalanga was to return each of those guarantees within 10 business days of receipt of the first $1 million of royalty payments. In his email of 10 October Mr Walker invited Messrs Palancian and Garner to a meeting on 30 October 2018 to discuss "the Thalanga royalties". In that email he drew attention to the "outstanding royalty amount of $1.5m" and to the fact that the second bank guarantee remained "outstanding". Two days later, when that outstanding amount was paid, the issue concerning the provision of the second bank guarantee fell away. Thalanga did, of course, have a guarantee from Red River. On 15 October, and in response to Mr Leiva's request for an estimate of the royalties due on sales for the quarter ended 30 September, Mr Lovelady advised that Thalanga could use $400,000 to $450,000 as an "estimate". 5. At the meeting on 30 October 2018 between Messrs Walker, Leiva, Lovelady and Palancian, Mr Lovelady raised the possibility of Cromarty paying the royalties quarterly rather than monthly. Mr Walker indicated that Thalanga was "happy to consider" or "would need to consider" the receipt of quarterly royalty payments. At some stage Mr Lovelady said he would prepare a proposed deed of variation "setting that out". Mr Leiva pressed for an indication as to when Cromarty would pay the royalties outstanding for the July, August and September sales. Mr Leiva added that he was under pressure to report back to his superiors with a firm date for that payment. In response Mr Palancian emphasised that Cromarty had paid the royalties outstanding for the 2018 financial year and that it was "our intention" to ensure that royalty payments will be made (Judgment [119]-[122]). 6. On 2 November 2018, Mr Leiva wrote to Mr Lovelady requesting a "firm date" for the payment of the July to September royalties. There was no response and on 9 November 2018 Mr Walker wrote to Mr Palancian and Mr Garner, referring to Mr Leiva's query: "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, Mr Lovelady responded to Mr Leiva's email of 2 November 2018 stating that the September quarter royalties would be scheduled for payment on 7 January 2019 and that the royalties for the December quarter would be paid "prior to the end of March 2019", this being in line with "our intent expressed during our meeting to work to bring the payments back in line with a quarterly basis". 2. Mr Walker replied on the following day: "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. Whilst this email emphasised the underlying contractual provision, it called for payment of the royalties due on sales made in the three months ended 30 September within 14 days, which was by 30 November 2018. At that time the royalty on sales for the month of October had not fallen due for payment, and was not the subject of any demand. Cromarty did not respond to Mr Walker's email. 2. On 3 December 2018, Mr Leiva telephoned Mr Lovelady. Returning Mr Leiva's call, Mr Lovelady said that Cromarty's intention remained to pay the September quarter royalty "as set out in my 15 November email", namely by 7 January 2019. On hearing this, Mr Leiva told Mr Lovelady that he would need to talk to Mr Walker who had "run out of patience" and who thought that "you are not listening to him". There was no further conversation between Mr Lovelady and Mr Walker. 3. On 6 December 2018 Thalanga's solicitors sent an email to Cromarty in the following terms: "We act for Thalanga Copper Mines Pty Ltd (Thalanga). Asset Sale Agreement We refer to the Asset Sale Agreement entered into between Thalanga, Kagara Zinc Ltd and Kagara Copper Pty Ltd on 3 May 2006 (Asset Sale Agreement). Clause 13.1(a) of the Asset Sale Agreement provides that Kagara Copper Pty Ltd must pay Thalanga the Royalty (as defined in the Asset Sale Agreement) within 15 Business Days after the end of the month of actual sales. Deed of Covenant, Assignment and Release … Clause 2.2 of the Deed [of Covenant] provides that Cromarty Resources assumes all of the obligations of Kagara Copper Pty Ltd under the Asset Sale Agreement, including the obligation of Kagara Copper Pty Ltd to pay the Royalty to Thalanga. 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. At 5:31pm on 6 December 2018, Mr Lovelady responded to Mr Walker's email of 16 November in the following terms: "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. The draft deed included as Recital A: "The vendor, Cromarty, and the guarantor are parties to an Asset Sale Agreement dated 3 May 2006 (ASA), as a result of the parties having entered into a Deed of Covenant, Assignment and Release dated 1 September 2014." 1. The draft proposed that the word "quarter" in cl 13.1(a) be substituted for the word "month". It also proposed that in the same clause the number "30" be substituted for "15" in the expression "within 15 Business Days". This second amendment had not been the subject of discussion at the meeting on 30 October. 2. Mr Walker's response to Mr Lovelady at 5:34pm on the same day was short and to the point: "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. There were no further communications, either written or oral, between Thalanga and either Cromarty or Red River following that email. On 28 December 2018 Thalanga's solicitors purported to terminate the Asset Sale Agreement with immediate effect. They did so on the basis that "Cromarty Resources remains in material breach of and has repudiated the Asset Sale Agreement". 2. As has already been observed, the relevant question is whether in the circumstances as then existed Cromarty's conduct in not making any response to the solicitor's letter and demand for payment was such as to convey to a reasonable person in Thalanga's position that Cromarty intended to make royalty payments in a manner substantially inconsistent with its obligations under cl 13.1, and not as required by that clause. 3. The circumstances as they existed following the exchange of emails on 6 December 2018 were as follows. No royalties had been paid in respect of the months of July, August, September or October. The royalties for the period July to September were estimated to be between $400,000 and $450,000. By early December the royalty payment for the month of September had been outstanding for 45 days or so, and any royalty payments for the earlier months had been outstanding even longer. 4. As at the end of October, Cromarty was to prepare a variation to the Asset Sale Agreement which set out its proposal for the quarterly payment of royalties. Cromarty was also to respond to Mr Leiva's request for a firm date for the payment of the September quarter royalties. That second matter was followed up by Mr Leiva on 2 November and by Mr Walker, who on 9 November made clear that he was "not prepared to accept continuing breaches" of the agreement. By that time Mr Walker was reasonably justified in concluding, as he had (Judgment [128]), that Cromarty was not treating its failure to make payments in accordance with the Asset Sale Agreement as a serious matter requiring urgent attention. 5. By early December 2018 (and before 6 December) and in the face of Mr Walker's statement that he was not prepared to accept continuing breaches, Cromarty's position was (a) that it remained in breach of cl 13.1(a) with respect to sales to the end of October, (b) that it did not propose to make royalty payments for sales in the months of July to September for a further five weeks, and (c) that thereafter it only proposed to make royalty payments on a quarterly basis and then within three months from the end of each such quarter. 6. The solicitor's letter called for payment of outstanding royalties by 4pm on 13 December 2018. The royalties potentially answering that description were any royalties for actual sales in July, August, September, October and November. However as the primary judge observed, the letter was not effective as a demand for payment of royalties for November sales which did not become due until 21 December 2018 (Judgment [211] fn 87). That did not prevent the letter from operating as an effective demand for the royalties due on sales in the four months ending October. Cromarty's only response to the solicitor's letter was to forward the draft deed of variation. 7. Accordingly the only notified change to Cromarty's position was that, in relation to the proposed variation, the royalty should be paid on quarterly sales and within one month of the end of each quarter. There was no indication that if the parties could not agree on that variation Cromarty would pay royalties in accordance with its existing obligations. In relation to its existing obligations, Cromarty's position was that its existing breach in respect of the months of July, August and September would continue for at least another month and that it did not propose to pay royalties due for the following three months before the end of January 2019 at the earliest. 8. In the result I agree with the primary judge's conclusion that Cromarty's conduct leading up to and following the letter of 6 December 2018 conveyed to the reasonable person in Thalanga's position that Cromarty did not intend to perform its existing contractual obligations with respect to the payment of royalties and that it was only prepared to pay royalties on a basis that was not the subject of any agreement between the parties and which was substantially inconsistent with its existing obligations. 9. Accordingly appeal grounds 5 and 6 should be rejected. This makes it unnecessary to consider contention ground 1 which seeks to support the primary judge's conclusion by reference to "the whole of [Cromarty's] conduct from May 2017 to 28 December 2018". 10. It follows that Cromarty's success on appeal grounds 8, 10 and 11 is not dispositive of its appeal against the primary judge's conclusion that Thalanga validly terminated the agreement on 28 December 2018. 11. One further matter remains. By appeal ground 6, Cromarty contended that the circumstances to be considered in assessing whether there was repudiatory conduct included that its obligation to pay royalties arose under the Deed of Covenant and that there had been no claim by Thalanga that Cromarty had repudiated that agreement. While Cromarty's obligation to pay the royalties "arose" under the Deed of Covenant, it did so by Thalanga and Cromarty agreeing to be bound to a contract on the terms of the Asset Sale Agreement. On that basis the rights and obligations of Thalanga and Cromarty with respect to the ongoing royalty obligation were the subject of an agreement and it was that agreement which was repudiated and terminated. Accordingly the circumstance that the relevant contract resulted from the operation of cl 2 of the Deed of Covenant was not relevant to the characterisation of Cromarty's conduct as repudiatory. The quantum of unpaid royalties and loss of bargain damages (appeal grounds 12 to 15 and contention ground 4A) Quantum of unpaid royalties (appeal grounds 12 and 13 and contention ground 4A) 1. The primary judge held that the amount of unpaid royalties was $1,712,944, as calculated by Mr Gemell. Cromarty challenges that holding on three bases. First, it says that there were no or a much lesser amount of royalties due for payment as at 28 December 2018. That position depends on the acceptance of its argument that royalties did not become due until the final price of the metal concentrate was known. That argument has been rejected. Secondly it says that the calculations of the NSR amounts used by Mr Gemell should, but do not, take account of the costs of realisation, including sea freight and insurance. That argument has also been rejected. Finally it appears to draw a distinction between royalty payments which were due as at 28 December 2018 and those which became due following adjustments made by subsequent provisional and final invoices. This argument is dealt with below and in my view does not result in any need for amendment of the final judgment sum. 2. The amount of $1,712,944 includes $13,450 for unpaid royalties in relation to sales which occurred prior to July 2018. No challenge is made to that calculation and it is not contended that Thalanga's entitlement to receive it had not accrued by 28 December 2018. 3. Mr Gemell's calculation of the royalties payable on "actual sales" in the months of August through to 28 December 2018 is set out in Table 1 of his supplementary report dated 28 April 2021, which is reproduced below: NSR Calculated Royalty Exchange Royalty Month (US$'000) Royalty Payable Rate Payable (US$) (US$) (US$/A$) (A$) July 2018 0 0 0 0 August 2018 2,414 96,569 0 0.73595 0 September 2018 8,714 348,543 96,569 0.72864 132,533 October 2018 1,555 62,216 348,543 0.71161 489,795 November 2018 1,697 67,862 62,216 0.72160 86,220 December 2018 8,309 332,344 67,862 0.71172 95,349 January 2019 -36 -1,451 332,344 0.71586 464,258 February 2019 2,167 86,697 -1,451 0.71682 -2,024 March 2019 4,094 163,773 86,697 0.71320 121,561 April 2019 1,089 43,566 163,773 0.71351 229,531 May 2019 0 0 43,566 0.68835 63,290 June 2019 328 13,103 0 0.69225 0 July 2019 16 656 13,103 0.70674 18,539 August 2019 -9 -358 656 0.67837 967 September 2019 0 0 -358 0.67937 -527 Total 30,338 1,213,520 1,213,520 1,699,494 1. The NSR amounts shown in that table for the months of January to September 2019 are adjustments to sales of zinc, lead or copper concentrates which had occurred before 28 December 2018. Appendix 3 to Mr Gemell's supplementary report shows that there were also "actual sales" after 28 December 2018. However the net realisation amounts from those sales are not included in Table 1. Each of the amounts of NSR in the second column represents the sum of adjustments made to realisations from sales which had occurred in December 2018 or earlier. 2. The amounts in the "Royalty Payable (A$)" column for September, October, November and December total $803,897. The remaining amounts in that column total $895,595. Cromarty contends that the former amount is the amount of unpaid royalties "payable" before or as at 28 December 2018. That may be correct as a statement of the amount which Thalanga was entitled to be paid by that date, the remaining amounts falling due later and as a result of adjustments made subsequently and by reference to later invoices. If that was the position, there would be a question whether the respective entitlements of the parties to payments which adjusted those amounts survived termination. However it is not necessary to consider that question because on the termination of the agreement for breach, Thalanga was entitled to recover any further amounts becoming due after 28 December 2018 as part of its loss of bargain damages. 3. It follows that appeal grounds 12 and 13 should be dismissed and contention ground 4A in part upheld (being that amounts which would have fallen due after 28 December 2018 would be recoverable as loss of bargain damages). Loss of bargain damages (appeal grounds 14 and 15) 1. The only basis on which the calculation of the loss of bargain damages was challenged is that raised by appeal grounds 3 and 4 which have been rejected. Accordingly these grounds must also be rejected. Conclusion 1. In the result the appeal should be dismissed with costs. 2. PAYNE JA: I agree with Meagher JA. ********** Amendments 19 November 2021 - Corrected indenting of paragraphs in headnote. 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: 19 November 2021