Supreme Court New South Wales Medium Neutral Citation: Wright Prospecting Pty Ltd v Hamersley Iron Pty Limited [2013] NSWSC 536 Hearing dates: 4, 5, 6, 7, 11, 12, 13, 14 & 18 March and 11 April 2013 Decision date: 10 May 2013 Jurisdiction: Equity Division - Commercial List Before: Hammerschlag J Decision: Verdict for plaintiff on its claim and verdict for cross-claimant on its cross-claim against second defendant/second cross-defendant. Plaintiff's claim and cross-claimant's cross-claim against first defendant/first cross-defendant dismissed Catchwords: CONTRACT - construction - whether on the proper construction of a written agreement the defendants are (or either of them is) obliged to pay a royalty in respect of iron ore won from a defined area - whether ore is being won from a certain part of the defined area by a person deriving title through or under that of the first defendant or by the first defendant in association with another person Legislation Cited: Mining Act 1904 (WA) Real Property Act 1900 (NSW) Arbitration (Foreign Awards and Agreements) Act 1974 (Cth) Cases Cited: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 Pacific Carriers v BNP Paribas (2004) 218 CLR 451 Roussel-Uclaf v Searle [1978] 1 Lloyd's Rep 225 Sahab Holdings Pty Ltd v Registrar-General (No 2) [2012] NSWCA 42 Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd [2013] HCA 11 Tanning Research Laboratories v O'Brien (1990) 169 CLR 332 Category: Principal judgment Parties: Wright Prospecting Pty Ltd - Plaintiff Hamersley Iron Pty Limited - First Defendant/First Cross-Defendant Mount Bruce Mining Pty Limited - Second Defendant/Second Cross-Defendant Hancock Prospecting Pty Ltd - Third Defendant/Cross-Claimant Channar Mining Pty Ltd - Third Cross-Defendant Rio Tinto Exploration Pty Ltd - Fourth Cross-Defendant Hamersley Exploration Pty Ltd - Fifth Cross-Defendant Representation: Counsel: A.J. Myers QC with K.A. Stern SC, K.H. Barrett and R. Hardcastle- Plaintiff N.J. Young QC with M.J. Darke and J. Garas - First and Second Defendants, and all Cross-Defendants J.C. Giles - Third Defendant/Cross-Claimant Solicitors: Clayton Utz - Plaintiff Allens Linklaters - First and Second Defendants, and all Cross-Defendants Horton Rhodes Lawyers - Third Defendant/Cross-Claimant File Number(s): 2009/323345 Judgment Introduction 1HIS HONOUR: Iron ore is a name for rock containing concentrations of iron bearing minerals, for example, a rock enriched in the mineral hematite. 2Western Australia is blessed with significant deposits of iron ore capable of being extracted profitably. Deposits referred to as the Hamersley group lie in the loosely defined Hamersley Range area in the North West division of the State called the Pilbara. 3Wright Prospecting Pty Ltd ("WPPL") and Hancock Prospecting Pty Ltd ("HPPL") sue Hamersley Iron Pty Ltd ("Hamersley Iron") and Mount Bruce Mining Pty Ltd ("MBM") for royalties, alleged to be payable under a written agreement made on 5 May 1970 ("the 1970 Agreement"), in respect of iron ore won from two areas of the Hamersley Group designated by the parties as the Eastern Range Disputed Area ("Eastern Range") and the Channar Disputed Area ("Channar"). 4Liability is being tried first. History up to the 1970 Agreement 5Hamersley Iron and MBM are both wholly owned subsidiaries of Hamersley Holdings Pty Ltd ("Hamersley Holdings"), which in turn is a wholly owned subsidiary of Rio Tinto Ltd ("Rio Tinto"), a multinational mining corporation. I will refer to Hamersley Iron and MBM collectively as the Rio defendants. 6Mining activities in Western Australia are regulated principally by the Mining Act 1904 (WA) ("the Mining Act"). Under s 276 of the Mining Act the Minister may temporarily reserve Crown land from occupation and may, with the approval of the Governor, authorise any person to temporarily occupy any reserve on such terms as the Minister may think fit. Under s 48 the Governor may grant to any person a lease of Crown land for mining purposes. 7The State of Western Australia ("the State") regularly confers rights of occupancy to reserved land by entering into "bespoke" agreements with grantees, which agreements are approved by an Act of Parliament. These agreements are often referred to as State Agreements. They are not instruments made under or pursuant to the Mining Act but they have force and effect in their own right as contracts approved by an Act of Parliament. On occasion the State does temporarily reserve and grant rights of occupation under s 276 of the Act. 8Unless the context indicates otherwise, Temporary Reserves (or TRs) are areas of Crown land over which the State has, under a State Agreement, granted rights of exclusive occupation for mineral exploration purposes for a limited time. ML denotes a lease granted by the State for mining purposes. The terms mining lease and mineral lease are used interchangeably. 9Langley George (Lang) Hancock and Ernest Wright prospected for iron ore in the Pilbara. Lang Hancock is credited by some as having originated the discovery of the iron deposits of the Hamersley group. 10HPPL was Lang Hancock's company and WPPL was Ernest Wright's. The two companies carried on business together as joint venturers under the firm name of Hanwright Iron Mines. Where it is not necessary to distinguish between HPPL and WPPL I will refer to them together as Hanwright. 11By 1959 Hanwright had applied for Temporary Reserves in the region which they brought to the attention of Rio Tinto. In 1959 they entered into written agreements with Rio Tinto granting to it the sole and exclusive option to acquire their interests. 12Rio Tinto did extensive work and spent considerable amounts of money prospecting and drilling. It was apparent that the tonnage of ore available far exceeded anything Rio Tinto could plan on using in the initial stages of exploitation. 13In October 1962 Hamersley Holdings and Hamersley Iron were formed with a view to the latter being the operative company for what became known within the Rio Tinto group as the Hamersley project. 14On 12 December 1962 Lang Hancock, Ernest Wright and Hanwright (as Vendors) entered into a written agreement ("the 1962 Agreement") with Hamersley Iron (as Purchaser) under which the Vendors sold to the Purchaser all their right, title and interest in and to Temporary Reserves identified in a schedule, the land comprised therein and all rights to prospect or mine granted or flowing therefrom. 15Pursuant to Iron Ore (Hamersley Range) State Agreement [No 24] approved on 13 November 1963, Hamersley Iron acquired significant Temporary Reserves over the areas covered by the 1962 Agreement. Hamersley Iron undertook to carry out geological investigation, submit detailed proposals for the mining of the area and the transport and shipment of iron ore. It could apply for a mineral lease over an area not exceeding 300 square miles. 16By Iron Ore (Hanwright) State Agreement [No 19] approved on 23 October 1967, Hanwright was to be granted Temporary Reserves over areas which came to be numbered as blocks 4937H to 4967H inclusive, for a period expiring on 31 December 1968, with successive renewals for periods of 12 months, the last of which would expire on the earliest of a number of events, one of which was the date Hanwright applied for a mineral lease. Clause 8.1 made provision for Hanwright to apply for a mineral lease of part or parts of the total area of the Temporary Reserves not exceeding 300 square miles, in the form of a schedule, for a period of 21 years. Eastern Range and Channar lie wholly within blocks 4937H to 4967H. 17On 31 January 1968 Hanwright entered into a written agreement with Hamersley Iron. The agreement had two components. First, and not presently relevant, Hanwright agreed to the outright transfer of its Temporary Reserves in respect of an area referred to by the parties as Paraburdoo. Second, Hamersley Iron would form a new company, Mount Bruce Mining Pty Ltd (to be known as MBM), in which initially Hamersley Iron would hold 75% and Hanwright 25%. The agreement provided that Hanwright could give notice requiring designated Temporary Reserves held by Hanwright (described as the Mount Bruce Reserves) (which included Eastern Range and Channar) to be transferred to MBM. Ore won by MBM from the Mount Bruce Reserves would be subject to the payment by MBM to Hanwright of a royalty of 2½%. 18Consequent upon the 31 January 1968 agreement, Iron Ore (Hanwright) State Agreement [No 19] was amended by Iron Ore (Hanwright) State Agreement [No 49] approved on 12 November 1968, which provided, relevantly, that MBM could give notice at any time before 31 December 1970 that it desired to take the place of Hanwright under the earlier State Agreement. The land area covered by the earlier State Agreement was varied. (At the same time by Iron Ore (Hamersley Range) State Agreement [No 48] approved on 12 November 1968, Hamersley Iron was to be granted Temporary Reserves in respect of Paraburdoo). The 1970 Agreement 19The 1970 Agreement appears as Schedule A to these reasons. 20The critical clauses of it are cls 1.1 to 1.4, 2.1 to 2.3, 3.1 and 10. For ease of reference the text of these clauses is set out immediately below. PREAMBLE 1.1 Hanwright hold Temporary Reserves in respect of areas indicated on the attached map (Appendix A) as the following numbered blocks: 4937H to 4967H inclusive and that these blocks (hereinafter referred to as "Mount Bruce Temporary Reserves") are subject to the exercise of an option by Mount Bruce Mining Pty. Limited. 1.2 There exists an agreement dated 31st January, 1968 between Hanwright and Hamersley whereby Hamersley may exercise an option over the Temporary Reserves. 1.3 By Clause 5 of the Iron Ore Hanwright Agreement Act Amendment Act 1968 M.B.M. may give notice to the State and Hanwright that it wishes to replace the Joint Venturers in respect to that agreement. 1.4 All references to blocks or reserves include all present and future rights of Hanwright in relation to the above blocks and reserves including any extensions of the ore bodies located therein or any adjustments of the present indicated boundaries of the above Temporary Reserves arranged with the Western Australian Government. DIVISION OF MOUNT BRUCE RESERVES 2.1. Hamersley hereby relinquishes its option granted pursuant to the January 1968 agreement. 2.2 In consideration of this relinquishment and in consideration of the payment by M.B.M. to Hanwright of $A5 million payable as hereafter set out, Hanwright hereby agrees that its Mount Bruce Temporary Reserves should be divided between Hanwright and M.B.M. so that in respect of temporary reserves 4947H to 4962H inclusive (hereinafter called "Hanwright area") the entire rights thereto are restored to Hanwright and in respect to temporary reserves 4937H to 4946H inclusive and 4963H to 4967H inclusive (together hereinafter called "M.B.M. area"), M.B.M. acquires the entire rights thereto. 2.3 Notwithstanding the foregoing at such time as the Mount Bruce Temporary Reserves are reduced to a mineral lease or leases pursuant to Clause 8(1)(a) of the Iron Ore (Hanwright) Agreement of 1967 the total area of such lease or leases will be divided between M.B.M. and Hanwright in the proportion 75% M.B.M. 25% Hanwright. Hamersley will use its best endeavours to ensure that Hanwright is granted tenure over certain additional areas indicated by Hanwright in the areas around Mount Bruce. 3. ROYALTIES 3.1 Ore won by M.B.M. from the M.B.M. area will be subject to the payment to Hanwright of a base Royalty of 2½% on the same conditions as apply to the existing Agreement between Hanwright and Hamersley with the exception that L. S. Perron will be eliminated as a beneficiary. M.B.M. will execute such a Royalty Agreement. M.B.M.'s royalty statements to Hanwright will be subject to verification by an independent auditor on the basis set forth in Hamersley's letter dated 23rd December, 1969. 10. GOVERNMENTAL APPROVAL The implementation of these arrangements and the obligations involved by them on the part of Hanwright and on the part of Hamersley and M.B.M. are all subject to and conditional upon the necessary Governmental approvals and implementations being effected. 21The "existing Agreement" referred to in cl 3.1 is the 1962 Agreement. Two provisions of that agreement are pertinent. They are cls 9 and 24(iii). They provide, relevantly, as follows: 9. As further consideration for the foregoing the Purchaser shall pay to the Vendors in respect of all iron ore produced by the Purchaser (whether operating alone or in association with or by licence to others) from the Temporary Reserve land and sold or otherwise disposed of by the Purchaser or by the Purchaser and such associate or by such licensee an amount equivalent to 2½ % of the amount received on sale or other disposal of that iron ore in unrefined and unmanufactured form f.o.b. the first port of shipment thereof... 24. Except where the context otherwise requires: (iii) The expression "the Purchaser" shall... include its successors and assigns and all persons or corporations deriving title through or under the Purchaser to any areas of land in respect of which an obligation to pay any amount has arisen or may arise pursuant to Clause 9... hereof. 22Central features of the 1970 Agreement are that: (a)Hamersley Iron gave up its option under the 31 January 1968 agreement; (b)the parties agreed to divide up between them Mount Bruce Temporary Reserves 4937H to 4967H on the basis that, relevantly, blocks 4963H to 4967H would go to MBM; and (c)ore won by MBM from the MBM area, as defined, would be subject to the payment to Hanwright of a base royalty of 2½% on the same conditions as applied to the then existing Agreement between Hanwright and Hamersley. 23Figure 1 shows TRs 4963H to 4967H as they were at the time of the 1970 Agreement. Temporary Reserve 4968H is shown for completeness only. None of the Figures which appear in these reasons are exact. They are included for illustrative purposes. 24As is more fully explained below, Eastern Range is wholly within what was TR 4967H and Channar is wholly within what was TRs 4965H and 4966H. 25It is necessary to set out the mining title history of Eastern Range and Channar from the time of the 1970 Agreement. Eastern Range From 5 May 1970 to 17 October 1974 26By cl 2(2) of Iron Ore (Wittenoom) State Agreement 1972 [No 38] approved on 16 June 1972, Hanwright was required to surrender all rights of occupancy granted to them under 1967 Iron Ore (Hanwright) State Agreement [No 19] as amended by 1968 Iron Ore (Hanwright) State Agreement [No 49]. This included all rights in respect of TRs 4963H to 4967H. Hanwright surrendered these rights by letter to the Minister dated 30 August 1972. 27By cl 4(1) of Iron Ore (Mount Bruce) State Agreement 1972 [No 37] approved on 16 June 1972, MBM was, upon application, to be granted rights of Temporary Reserve over the areas to be surrendered by Hanwright under Iron Ore (Wittenoom) State Agreement [No 38], which included the areas comprised in TRs 4963H to 4967H. 28By letter to the Minister dated 31 August 1972 MBM made such an application. On 18 April 1973 MBM was granted rights of Temporary Reserve over those areas, retrospective to 30 August 1972, for the period expiring 31 December 1973 and for successive renewals of 12 months, the last of which would expire on the grant of a mineral lease to MBM under cl 4(2), which provided that MBM could at any time apply for a mineral lease of any part or parts of the areas concerned not exceeding 300 square miles. 29On 17 October 1974, consequent upon an application which it had made on 31 May 1974, MBM was granted ML 252SA comprising, relevantly, secs 11 to 19. This is depicted in Figure 2 which shows the leased areas and the areas over which MBM lost rights of occupancy as a consequence of the grant of ML 252SA. From 17 October 1974 to 26 August 1977 30From 17 October 1974 until 26 August 1977 there were no Temporary Reserves or mineral leases over what had been TR 4967H. It was unoccupied land. From 26 August 1977 to 8 December 1982 31On 24 May 1977 MBM applied for rights of occupancy over an area which covered a large part (if not the whole) of the area of erstwhile TR 4967H. On 26 August 1977 MBM was granted TR 6603H, which is depicted in Figure 3. 32By Iron Ore (Hamersley Range) State Agreement 1982 [No 39] dated 26 April 1982 and approved on 27 May 1982, Hamersley Iron could apply to the Minister for a mineral lease over the area covered by TR 6603H subject to MBM surrendering all rights of occupancy to the land within the land applied for. 33By letter dated 19 April 1982 MBM surrendered TR 6603H in full. 34By letter dated 17 May 1982 Hamersley Iron applied for a mineral lease. 8 December 1982 onwards 35On 8 December 1982 Hamersley Iron was granted ML 4SA comprising, relevantly, secs 236 and 237. This is Eastern Range. It is depicted in Figure 4, overlaid on what was TR 6603H. 36On 18 December 1982 TR 6603H (or more accurately what remained of it) was cancelled. 37Although it does not affect the present dispute, on 22 June 2002 Hamersley Iron granted a sublease of an area covering Eastern Range to a joint venture between a subsidiary of Hamersley Holdings and a subsidiary of Shanghai Baosteel Group Corporation of China. The sublease is unregistered. Channar 38Channar is within what was previously TRs 4965H and 4966H. 39On 17 October 1974, consequent upon an application which it had made on 31 May 1974, pursuant to Iron Ore (Mount Bruce) State Agreement 1972 [No 37], MBM was granted ML 252SA which included secs 18 and 19. This is depicted in Figure 3. 40The remaining area previously covered by TRs 4965H and 4966H was surrendered, pursuant cl 4(2) of that agreement, upon grant of the mineral lease. Temporary Reserves 4965H and 4966H (or more accurately what remained of them) were cancelled by the State on 17 October 1974. 41From 17 October 1974 until 26 August 1977 there were no Temporary Reserves or mineral leases over what remained of TRs 4965H and 4966H. It was unoccupied land. 42On 25 February 1977 Dampier Mining Company Pty Ltd, a company within the BHP group of companies and unrelated to any of the present parties, was granted rights of occupancy over areas designated as TRs 6498H and 6499H. These are depicted in Figure 5. They expired on 24 February 1978 and were cancelled by the State on 7 March 1978. 43Although the diagrams are not exact, it may well be that the Dampier Mining Temporary Reserves, for the time that they existed, encroached, to some extent, on what were formerly TRs 4965H, 4966H, 4967H. The parties are at issue on this question. It is not necessary to resolve it. I proceed on the assumption that there was overlap. 44On 21 April 1978 Hamersley Exploration was granted TR 6663H (which was the reduced vacant area remaining of what had been TR 4966H after the grant of secs 15 and 19 of ML 252SA). This is depicted in Figure 6. 45On 2 May 1979 pursuant to s 276 of the Mining Act, Hamersley Exploration was granted TRs 6982H and 6983H (parts of which covered what had been TRs 4965H and 4966H). This is depicted in Figure 7. 46By cl 10F of Iron Ore (Hamersley Range) State Agreement 1982 [No 39], Hamersley Iron could apply to the Minister for a mineral lease over the areas covered by TRs 6663H, 6982H and 6983H subject, relevantly, to Hamersley Exploration surrendering all rights of occupancy over land covered by the lease to be granted. 47By letter dated 19 April 1982, in connection with an application which it made on 17 May 1982 for a mineral lease, Hamersley Exploration surrendered its rights of occupancy over parts of TRs 6663H, 6982H and 6983H. The mineral lease was granted to it on 8 December 1982, being sec 238 of ML 4SA. On 18 December 1982 TRs 6663H, 6982H and 6983H were cancelled. Figure 8 depicts secs 18 and 19 of ML 252SA and sec 238 of ML 4SA. 48On about 18 December 1986 a mining joint venture known as the Channar Mining Joint Venture was formed between subsidiaries of Hamersley Holdings on the one hand and China Metallurgical and Export Corporation (Sinosteel) ("the Channar Joint Venturers") on the other with a view to recovering and marketing to the People's Republic of China iron ore from the land which comprised secs 18 and 19 of ML 252SA and sec 238 of ML 4SA, depicted in Figure 8. 49By cl 15(1) of Iron Ore (Channar Joint Venture) State Agreement 1987 [No 61] approved on 13 November 1987, subject to the surrender by MBM of secs 18 and 19 of ML 252SA and the surrender of sec 238 of ML 4SA, the State agreed to cause to be granted to the Channar Joint Venturers a mining lease over that area. 50On 22 March 1988 Hamersley Iron surrendered sec 238 of ML 4SA and MBM surrendered secs 18 and 19 of ML 252SA. 51On 8 May 1988 the State and the Channar Joint Venturers entered into ML 265SA for a term of 30 years, commencing on 22 February 1988, over the same area. This is depicted in Figure 9. 52On 17 June 1988 the Channar Joint Venturers granted a sublease of ML 265SA for a term ending on 31 December 2012 to Channar Investment Nominee Pty Ltd, a company which had been appointed to act as nominee and agent of a partnership which had been formed to mine the area. The Channar project has since been restructured pursuant to a Master Restructure Deed under which the partners have transferred their interests in the partnership assets to the Channar Joint Venturers who, on 31 December 2010, took over all operations and activities previously undertaken by the partnership. The sublease of ML 265SA formally expired in or around May 2012. 53The Joint Venture is managed by Channar Investment Nominee, a wholly owned subsidiary of Channar Finance Ltd. Channar Finance Ltd is held as to 50% by Sinosteel, with the remaining 50% being held as to 12.5% by Hamersley Holdings, 12.5% by Hamersley Iron, 12.5% by MBM and 12.5% by Channar Mining Pty Ltd, all of which are subsidiaries of Hamersley Holdings and all of which hold the shares beneficially for Hamersley Holdings. For ease of understanding the corporate structure is depicted below. 54Channar is depicted in Figure 10. It is the area covered by ML 265SA excluding that part which was secs 18 and 19 of ML 252SA. The proceedings 55Mr A J Myers QC with Ms K Stern SC, Ms K H Barrett and Mr R J Hardcastle appeared for WPPL, Mr J C Giles appeared for HPPL and Mr N J Young QC with Mr M J Darke and Mr J Garas appeared for the Rio defendants and other cross-defendants. Over 15,000 pages of documents were tendered. The Court was provided with numerous sets of written submissions. Positions were refined in oral argument. I have had regard to all of the arguments but do not propose to restate them. 56The formal structure of the proceedings is that WPPL brings its claim against the Rio defendants and joins HPPL as a defendant. HPPL makes the same claim against the Rio defendants by way of a cross-claim. In substance WPPL and HPPL are plaintiffs suing the Rio defendants. The proceedings were conducted on that basis. 57HPPL joined as parties to its cross-claim Channar Mining Pty Ltd, Rio Tinto Exploration Pty Ltd and Hamersley Exploration but made no money claim against them. The mbm area claim 58Hamersley Iron has held ML 4SA since 8 December 1972. Neither it nor MBM pays any royalties under the 1970 Agreement to Hanwright in respect of ore won from Eastern Range. 59Since 1988 the Channar Joint Venturers have held ML 265SA. For some years they have won, and they continue to win, iron ore from Channar. Neither MBM nor Hamersley Iron pay any royalties under the 1970 Agreement to Hanwright in respect of ore won from Channar. 60Hamersley Iron has paid and it continues to pay royalties to Hanwright under the 1970 Agreement in respect of iron ore won from the area previously covered by secs 18 and 19 of ML 252SA held by MBM. Hanwright's position 61Hanwright contends that the "MBM area", as defined in cl 2.2 of the 1970 Agreement, is the physical area (or any part of it) within what was Temporary Reserve "blocks" 4937H to 4967H. Both Eastern Range and Channar are within this area. 62Hanwright contends that ore being won from both Eastern Range and Channar is from the MBM area defined in cl 3.1 of the 1970 Agreement. 63Hanwright contends that the liability to pay royalties is that of MBM and Hamersley Iron, jointly and severally, because both should be construed to be "the Purchaser" within the meaning of that term in the 1962 Agreement as incorporated into the 1970 Agreement. 64Hanwright contends that by incorporating cl 24(iii) of the 1962 Agreement, which provides that the expression the Purchaser "shall... include its successors and assigns and all persons or corporations deriving title through or under the Purchaser", both MBM and any person who may derive title through MBM are to be construed as the Purchaser. 65Hanwright contends that incorporation of cl 24(iii) of the 1962 Agreement has the consequence that cl 3.1 attracts the royalty on ore won from the MBM area by MBM's successors and assigns and all persons or corporations deriving title through or under MBM to the MBM area. 66Hanwright contends that by incorporation of cl 9 of the 1962 Agreement, cl 3.1 attracts the royalty on ore won from the MBM area by MBM, operating alone or in association with or by license to others. 67As to Eastern Range, Hanwright contends that Hamersley Iron is a corporation which derived its title to Eastern Range through or under MBM because it derived its title to secs 236 and 237 of ML 4SA through the operation of cl 10F of Iron Ore (Hamersley Range) State Agreement 1982 [No 39] which required MBM to surrender its rights of occupancy over TR 6603 (which covered the same land) as a prerequisite to the grant to Hamersley Iron of ML 4SA. Hanwright submits that MBM is therefore liable for the royalty on iron ore won by Hamersley Iron. 68As to Channar, Hanwright contends that the royalty is payable by MBM (and Hamersley Iron) on iron ore won by the Channar Joint Venturers for the reason that the Channar Joint Venturers derived their title to Channar through or under MBM because the surrender by MBM of secs 18 and 19 of ML 252SA MBM was a necessary step in the acquisition by them of ML 265SA and (if anything further is needed) because the Channar Joint Venturers have their present title as a practical consequence of MBM's exploration of the area and the opportunity which companies in the group (including Hamersley Holdings and Hamersley Iron) obtained to exploit the MBM area as a consequence of MBM's efforts from 1968 to 1974, and knowledge obtained from those efforts. 69In the alternative, Hanwright contends that Hamersley Iron is to be construed (together with MBM) as the Purchaser within the meaning of the 1962 Agreement as incorporated into the 1970 Agreement and that the Channar Joint Venturers derive their title to Channar through or under Hamersley Iron. 70As a further alternative, they say that ore won by the Channar Joint Venturers is won in association with MBM (or MBM and Hamersley Iron) because it is won via Channar Investment Nominee in which MBM and Hamersley Iron have a shareholding interest. The Rio defendants' position 71The Rio defendants contend that MBM area has a more restricted meaning. 72They contend that the references to Temporary Reserves, areas and blocks in cls 1.1 and 1.2 are not references to the physical areas covered by the Temporary Reserves but mean Hanwright's rights in respect of the land (including any extensions or adjustments), being rights of occupancy and prospecting, and the right to obtain a mineral lease. 73They contend that where cl 3.1 refers to ore won from the MBM area, this means (and means only) ore recovered from land in the exercise of the rights (or rights flowing from the rights) which MBM acquired from Hanwright under the 1970 Agreement, namely the rights Hanwright held under the 1967 Iron Ore (Hanwright) State Agreement [No 19]. 74They contend that where cl 1.1 refers to Hanwright holding Temporary Reserves and cl 1.4 provides that all references to "blocks" or "reserves" include all present and future rights of Hanwright in relation to those blocks and reserves, this indicates that reserves means not the land itself, but the land to the extent only of the rights held by Hanwright in respect of it. They contend that cl 2.2 first defines the rights being retained and acquired respectively when the agreement becomes unconditional (that is, when the condition in cl 10 is fulfilled) and secondly defines the MBM area by reference to the rights being acquired by MBM in respect of the TRs which are to go to MBM. They contend that the last portion of cl 2.2 should be read as follows: ...in respect to [all present and future rights of Hanwright in relation to temporary reserves 4937H to 4946H inclusive and 4963H to 4967H inclusive including any extensions of the ore bodies located therein or any adjustments of then present indicated boundaries arranged with the Western Australian Government] (together hereinafter called the 'MBM area'), MBM acquires the entire rights thereto. 75As a "slight" alternative they contend that the references to Temporary Reserves in cl 2.2 (and elsewhere in the 1970 Agreement) can be construed as including both the land and all present and future rights of Hanwright in relation to it. They suggest that the choice between these formulations depends on whether the word "include" in cl 1.4 is read as meaning "refer to" (on the basis that Hanwright only had rights in relation to the Temporary Reserves and did not own or have any interest in the underlying land) or is read literally. They suggest that the former supports the first construction, the latter the slight alternative, but say that neither makes a difference to the overall argument. 76They contend that the term "royalty" has an accepted meaning connoting payments made in the exercise of a right granted and calculated on the quantity of something taken or produced on the occasions on which the right is exercised. This they say supports the conclusion that the parties had in mind a "rights based" notion of area. 77They contend that where cl 1.4 refers to "any extensions of the ore bodies located therein", this is a reference to rights of Hanwright with respect to extensions, not a reference to physical extensions of physical ore bodies. 78They submit that it would be "perverse" to construe cl 3.1 as obliging MBM to pay royalties on ore won from anywhere on the land which was once covered by Temporary Reserves held by MBM irrespective of whether that land remained subject to, or the ore in question was won by exercising, the rights that MBM acquired under the 1970 Agreement or rights that flowed therefrom. They submit that, at the time, it was clear that MBM's rights would not enable it to win ore from the entirety of the land concerned in that the ultimate mineral lease would cover no more than 300 square miles. They submit that it is "absurd" to regard the reference to extension of ore bodies as physical extensions of blocks and reserves because this would have the result that extensions would be included in the MBM area even if Hanwright never acquired any rights to them. 79They contend that neither Eastern Range nor Channar falls within the MBM area because upon the grant of ML 252SA, all rights outside the area covered by that lease expired by force of cl 4(1) of Iron Ore (Mount Bruce) State Agreement 1972 [No 37] (see Figure 2), and that both Eastern Range and Channar fall outside that area. They say that at that point in time the areas surrendered ceased to be part of the MBM area because no subsequent mining activity on them is (or was) carried out in exercise of any right conferred under the State Agreements in existence at the time of the 1970 Agreement or acquired by MBM from Hanwright under the 1970 Agreement. 80They submit that any obligation to pay any royalty is solely that of MBM and that MBM alone should be construed to be the Purchaser referred to in the 1962 Agreement. 81As to Eastern Range, in 1972 MBM applied for and obtained TR 6603H which covered expired TR 4967H and more. MBM surrendered this so as to enable Hamersley Iron to obtain ML 4SA. For this reason the Rio defendants accept that if, contrary to their submission, Eastern Range is within the MBM area, ore won and being won from it by Hamersley Iron is subject to the royalty on the footing that Hamersley Iron is a person or corporation deriving title through or under MBM. 82Thus, the only question to be determined with respect to Eastern Range is whether it is within the MBM area. 83The Rio defendants' position with respect to Channar is different. 84Hamersley Exploration (as opposed to MBM) obtained TR 6663H on 21 April 1978 and TRs 6982H and 6983H on 20 February 1979 (see Figure 7). It surrendered portions of those Temporary Reserves to enable them to be incorporated into ML 4SA. Pursuant to Iron Ore (Hamersley Range) State Agreement 1982 [No 39], Hamersley Iron applied for and was granted sec 238 of ML 4SA on 8 December 1982 and on 18 December 1982, TRs 6663H, 6982H and 6983H were cancelled (see Figure 8). 85Subsequently, Hamersley Iron surrendered sec 238 so that the area could be incorporated into ML 265SA. The Rio defendants say that title to the portion of ML 265SA that was formerly sec 238 of ML 4SA (or that part of the Channar sublease) cannot not be characterised as having been derived through or under MBM. 86Hamersley Exploration applied for and obtained TRs 6663H, 6982H and 6983H after a period when the area was unoccupied land and another period where Dampier Mining had rights of occupancy over some of the land. Thereafter, Hamersley Iron (not MBM) applied for and was granted ML 4SA which ultimately led to the acquisition by the Channar Joint Venturers of those parts of ML 265SA which make up Channar. (By contrast, the Rio defendants accept that those parts of ML 265SA which were previously secs 18 and 19 of ML 252SA trace back to MBM). 87The Rio defendants contend that ore being won by the Channar Joint Venturers in the MBM area is not being won by MBM itself, or by any person or corporation deriving title through or under MBM, within the meaning of cl 24(iii) of the 1962 Agreement as incorporated in the 1970 Agreement. 88They also submit that ore won by the Channar Joint Venturers is not being won by MBM in association with the Channar Joint Venturers. They say that, if anything, the ore is being won by the Channar Joint Venturers in association with MBM. Are Eastern Range and Channar within the MBM area? 89The meaning of words used in a commercial contract is to be determined objectively, that is, by what a reasonable person would have understood them to mean. This requires attention to the language used by the parties, the commercial circumstances which the document addresses, the purpose of the transaction and the objects which it was intended to secure. The whole of the instrument has to be considered. Preference is given to a construction supplying a congruent operation to the various components of the whole of an instrument: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at 529; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160. 90If the words used are unambiguous, the Court must give effect to them. A court is not justified in disregarding unambiguous language to guide a contract to a more commercial and businesslike operation: Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1. 91If words used in a contract are ambiguous, the Court can, in determining the objective intention of the parties, have regard to the surrounding circumstances which were known to them at the time of the contract: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352. 92In recent years a number of judicial statements have been made by intermediate appellate courts to the effect that regard may be had to surrounding circumstances even in the absence of ambiguity: see for example Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 at 10 and following, 47 and following; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 616-618, 663-678; Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 at [178]. These statements were based on a reading of what has been said by the High Court, particularly in Pacific Carriers v BNP Paribas (2004) 218 CLR 451, Toll v Alphapharm, Wilkie v Gordian Runoff, and IATA v Ansett. 93However, in Western Export Services v Jireh, the High Court (Gummow, Heydon and Bell JJ) said at [2]-[5]: [2] The primary judge had referred to what he described as "the summary of principles" in Franklins Pty Ltd v Metcash Trading Ltd. The applicant in this court refers to that decision and to MBF Investments Pty Ltd v Nolan as authority rejecting the requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and object of the transaction. The applicant also refers to statements in England said to be to the same effect, including that by Lord Steyn in R (Westminster City Council) v National Asylum Support Service. [3] Acceptance of the applicant's submission, clearly would require reconsideration by this court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW by Mason J, with the concurrence of Stephen J and Wilson J, to be the "true rule" as to the admission of evidence of surrounding circumstances. Until this court embarks upon that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts. [4] The position of Codelfa, as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council and it should not have been necessary to reiterate the point here. [5] We do not read anything said in this court in Pacific Carriers Ltd v BNP Paribas; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd; Wilkie v Gordian Runoff Ltd and International Air Transport Association v Ansett Australia Holdings Ltd as operating inconsistently with what was said by Mason J in the passage in Codelfa to which we have referred. 94Thus, unless the words under consideration are ambiguous, regard may not be had to surrounding circumstances. The meaning of the words is to be derived from an objective assessment of the particular document or documents being construed. 95The 1970 Agreement was preceded by a lengthy history of dealings against a somewhat complex statutory and quasi-statutory background. 96Hanwright sought, in aid of its construction, to rely on what it contended were relevant surrounding circumstances. The Rio defendants disputed the accuracy of the facts relied on by Hanwright. They also took issue with whether the facts were known to both parties so as to be capable of being surrounding circumstances aiding construction. 97It is not necessary to resolve these controversies. Without the assistance of what Hanwright contends are surrounding circumstances, an examination of the 1970 Agreement and the instruments incorporated into it, reveals in my view, with clarity, that the construction contented for by Hanwright is correct in any event. 98In my view the MBM area is the physical area indicated on the map attached to the 1970 Agreement as numbered blocks 4937H to 4946H and 4963H to 4967H. 99The principal underlying commercial purpose of the 1970 Agreement was to effect a division. 100The subject matter of the division was the compendium of rights (which the parties loosely described as title) which Hanwright then held and which in future it might hold (see cl 1.4), so as to bring about conveyance to MBM of such of those rights which pertained to TRs 4937H to 4946H and 4963H to 4967H. 101The division lines were drawn by reference to physical areas shown on a map, not with respect to an intellectual construct based on the continuity (or lack of continuity) of incorporeal rights. 102In the 1970 Agreement there are other references to area or areas which are doubtlessly references to physical areas. For example, cl 1.1 refers to areas as being indicated on the attached map; cl 2.3 refers to the total area of a foreshadowed mineral lease as well as to tenure over certain additional areas indicated by Hanwright in the areas around Mount Bruce; and cl 12 refers to mining of the MBM area. 103So too, where cl 3.1 refers to the MBM area, it has in contemplation physical as opposed to an incorporeal delimitation. 104Both cls 9 and 24(iii) of the 1962 Agreement operate on a basis consistent with this. Clause 9 concerns iron ore produced from the Temporary Reserve land and cl 24(iii) is concerned with title to areas of land. 105Hanwright was conveying nothing but rights with respect to land, but those rights pertained to the entire expanse of land covered by TRs 4937H to 4946H and 4963H to 4967H. Hanwright (and after it MBM) had the right to occupy and prospect over that entire expanse. That an ultimate mineral lease might cover only part of it is beside the point. 106What MBM did with those rights, and how, if at all, it came to win ore from the area was within its own control. 107Far from being perverse, an outcome which requires MBM to pay an amount based on the amount of ore won from any part of the area the entire rights to which were held by Hanwright and conveyed to MBM, is commercially rational and sensible. 108So far as extensions of ore bodies are concerned, the rights being conveyed by Hanwright included any present and future rights with respect to extensions of ore bodies within the area, that is, extensions outside the area to ore bodies within it. The division of rights is by reference to their application to something physical. There is nothing absurd about this. 109The rights and obligations of the parties, and the sense in which the word "royalty" was used by them, is to be garnered from the agreement, not from authority. Their use of the term royalty is apposite (or at least not inapposite) to their arrangement. The right to mine (exercise of which attracts payment of the royalty) was not one which was to be granted by Hanwright. It was always to emanate from the State. The arrangement provides for payments to be made by MBM if and when it comes to exercise mining rights granted by the State over the very land in respect of which Hanwright conveyed all of its rights to MBM. Continuity is required in that ore must be won from that land and it must be won by MBM, its successors, assigns, persons deriving their rights through or under MBM or winning ore in association with MBM. 110It follows that the royalty is payable in respect of ore won from the physical area covered by TRs 4937H to 4946H and 4963H to 4967H, the rights to which Hanwright gave over to MBM. Is Hamersley Iron an obligor under cl 3.1 of the 1970 Agreement? 111Hanwright contends that Hamersley Iron is a co-obligor because it was a party to the 1970 Agreement, gave consideration to Hanwright and undertook other obligations under it and is the named Purchaser in the 1962 Agreement. 112I do not accept this submission. In my view only MBM is liable for the royalty. Nowhere does the agreement impose on Hamersley Iron the obligation to pay the royalty. More than this, under cl 2.2, only MBM acquires the entire rights to the MBM area and, under cl 3.1, only MBM is required to execute a Royalty Agreement. Clause 3.1 refers only to MBM's royalty statements. 113The incorporated conditions of the 1962 Agreement govern, and by way of cls 9 and 24(iii) expand, MBM's obligations. They do not create any obligations on the part of anyone else. In my view MBM alone is to be construed as the Purchaser where that term is used in the relevant parts of the 1962 Agreement. 114It follows that Hamersley Iron is not a co-obligor in respect of MBM's royalty obligations under the 1970 Agreement. 115It also follows, with respect to Channar, that the royalty is not payable by the Channar Joint Venturers on the grounds that they are successors, assigns or persons or corporations deriving title through or under Hamersley Iron. It is only payable if they derive their title through or under MBM or ore is being won by MBM in association with them. Are the Channar Joint Venturers persons or corporations deriving title through or under MBM? 116The parties are divided as to the meaning and ambit of the expression "deriving title through and under" used in the 1962 Agreement and incorporated into the 1970 Agreement, and as to its application to the facts here. 117Hanwright submits that it is not necessary for the court to attribute a fixed meaning to the expression "deriving title through and under", or to determine its outer boundaries. 118Hanwright submits that the true question is whether the title of the Channar Joint Venturers (that is the rights exercised by them) is sufficiently closely connected with the title of MBM (that is the rights acquired by it pursuant to the 1970 Agreement) so as to fall within the purview of what the parties contemplated would be a derivation through or under MBM. 119The Rio defendants argue that the expression requires identification of the nature of the title concerned and a determination of whether that title has been derived by the person exercising the present rights. 120They submit that title is the right to explore for or mine iron ore on the relevant land and that for that title to be derived through or under MBM, the rights presently being exercised must have been obtained via some earlier title of MBM. They submit that title is derived "through" MBM in cases where MBM's title is conveyed directly or indirectly to another and MBM ceases to hold any title itself, and that title is derived "under" MBM where MBM grants, directly or indirectly, a type of title based on its own to another, but MBM retains its own title. 121In Roussel-Uclaf v Searle [1978] 1 Lloyd's Rep 225 at 231 Graham J considered the phrase "any person claiming through or under" in an arbitration clause. Without determining the limits of the expression his Honour concluded that the words were sufficiently wide to include a wholly owned subsidiary company claiming a right to sell patent articles which it had obtained from and had been ordered to sell from its parent. At 231 his Honour said: The two parties and their actions are, in my judgment, so closely related on the facts in this case that it would be right to hold that the subsidiary can establish that it is within the purview of the arbitration clause, on the basis that it is "claiming through or under" the parent to do what it is in fact doing whether ultimately held to be wrongful or not. 122Sahab Holdings Pty Ltd v Registrar-General (No 2) [2012] NSWCA 42 concerned the construction of s 12A(3) of the Real Property Act 1900 (NSW) which provides that, where the Registrar-General has given notice to a person that he proposes to take certain action to alter the Register and that person does not seek to restrain him, no action by the person or "any person claiming through or under that person" should lie against the Registrar-General in respect of the taking of the relevant action. At [28] the Court of Appeal held in reference to this section, that "A claims "through" B if A has acquired title or rights from B, or from someone who has acquired rights from B, and so on through howsoever many intermediary titleholders or holders of rights there might be between A and B." 123Post submissions in this case, the decision of the Court of Appeal in Sahab Holdings Pty Ltd v Registrar-General (No 2) was overturned by the High Court but not on the footing that the above proposition was wrong: see Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd [2013] HCA 11. At [51] Gageler J considered that a successor in title to a person is a person claiming through that person within the meaning of the statutory provision under consideration. 124In Tanning Research Laboratories v O'Brien (1990) 169 CLR 332 the High Court was concerned with the expression "a person claiming through or under a party" in s 7(4) of the Arbitration (Foreign Awards and Agreements) Act 1974 (Cth). At 342 Brennan J and Dawson J said that the meaning of the expression "deriving title through or under" is to be ascertained not by reference to authority but by reference to the text and context in which it is used. This is the approach I propose to take. 125The expression "through or under" in the 1970 Agreement clearly goes beyond formal succession, assignment or conveyance. 126It is not necessary to determine where the dividing line (if there is one) lies between "through" and "under", or to determine the outer reaches of either notion. I consider that derivation of rights "through" another is sufficiently wide to cover the present case where there is a close practical (even causal) connection between the rights exercised by the Channar Joint Venturers and the rights which MBM obtained from Hanwright under the 1970 Agreement (or actions taken by MBM in exercise of those rights). 127Such a connection is sufficiently disclosed by the fact that a prerequisite for the grant on 8 May 1988 by the State to the Channar Joint Venturers of ML 265SA was the surrender by MBM of land including that which was the subject of secs 18 and 19 of ML 252SA. 128Beyond this, however, it may safely be inferred that MBM's surrender of secs 18 and 19 of ML 252SA and Hamersley Iron's surrender of sec 238 of ML 4SA, both of which were necessary for the grant of ML 265SA, were by arrangement between themselves and the Channar Joint Venturers. 129Finally, there is historical continuity between the exploration of the area done by MBM and the opportunities which that exploration created, the subsequent application by Hamersley Exploration for TRs 6663H, 6982H and 6983H, Hamersley Iron's later application for ML 4SA and the ultimate surrenders and application which were a step in the process leading to the grant of ML 265SA. 130It follows that in winning ore from the MBM area the Channar Joint Venturers are persons deriving title through or under MBM. That activity attracts the royalty obligation under cl 3.1 of the 1970 Agreement. Is the ore being won from Channar being won by MBM in association with the Channar Joint Venturers? 131The Rio defendants accept that cl 9 of the 1962 Agreement expands the royalty to ore won by MBM, from the MBM area, operating in association with others. 132Channar Investment Nominee has extracted ore as sublessee and agent for the Channar Joint Venturers, who hold their interests in the joint venture via Channar Finance Limited. MBM holds 12.5%, albeit apparently non-beneficially for Hamersley Holdings. 133The Rio defendants submit that cl 9 has no application to the facts. First, they submit that irrespective of any association between them, ore is not being produced by MBM, but by Channar Investment Nominee, and that the clause requires the ore to be produced by MBM. Secondly, they submit that there is insufficient relationship to amount to ore being produced by them operating in association with each other. 134I do not accept these submissions. First, if ore is being produced by one party in association with another, it is, by virtue of the association being produced by each party in association with the other. Via their shareholdings, beneficial or otherwise, in the joint venture nominee company, ore is being produced by MBM and the Channar Joint Venturers in association with each other. This is sufficient to attract the operation of cl 9. The iron ore body extension claim 135Hamersley Iron (presumably on behalf of MBM) has paid and continues to pay royalties to Hanwright under the 1970 Agreement in respect of iron ore won from the area previously covered by secs 18 and 19 of ML 252SA held by MBM. There is no issue that MBM is obliged to pay. 136Clause 1.4 of the 1970 Agreement provides: All references to blocks or reserves include all present and future rights of Hanwright in relation to the above blocks and reserves including any extensions of the ore bodies located therein or any adjustments of the present indicated boundaries of the above Temporary Reserves arranged with the Western Australian Government. (emphasis added) 137In addition to the MBM area claim, Hanwright contends that iron ore is being won from ore bodies which are extensions of ore bodies lying within what was secs 18 and 19 of ML 252SA and that the royalty is payable in respect of ore being won from the areas of extension. I will refer to this as the ore body extension claim. 138Ore is being mined from deposits designated as 84E and 94E which is illustrated in Figure 11 immediately below. 139Part of deposit 84E (coloured green) is within that part of ML 265SA which was previously sec 19 of ML 252SA. Pit 5 is situated there. Part of deposit 94E (coloured green) is within what was sec 18 of ML 252SA. Pit 2 is situated there. 140The areas of dispute are pits 1, 2 and 3 in deposit 84E (coloured orange) and pits 8,9 and 10 of deposit 94E (coloured orange). It is these areas which Hanwright contends are extensions to which cl 1.4 applies. 141Whilst the alleged areas of extension are outside erstwhile secs 18 and 19 of ML 252SA, they are within what was originally TRs 4965H and 4966H (i.e. Temporary Reserves identified in the 1970 Agreement), that is, within the MBM area, as I have found. 142The ore body extension claim is brought by Hanwright as a fall back position on the hypothesis that the MBM area claim fails with respect to Channar, in which all of the alleged extensions are to be found. 143It is thus not strictly necessary to deal with the ore body extension claim. However, I will do so. 144The Rio defendants' primary response to the ore body extension claim is that cl 1.4 has no application to any ore body, or any extension of it, which is in the MBM area. 145They contend that the extension must be outside the MBM area. That is, cl 1.4 has in mind extensions outside the blocks and reserves making up the MBM area of ore bodies which lie "therein", that is, within the MBM area. 146Perhaps ironically, this response proceeds on the hypothesis that the Rio defendants' primary response is correct (that is, that its contention on the MBM area claim is incorrect). 147The hypothesis having been established, in my view, the Rio defendants' primary response is correct. It accords with what I consider to be the clear meaning of the words used in cl 1.4 read with cl 1.1, that the physical area of the blocks or reserves is taken to include any extension of an ore body where the extension is outside the area of the block or reserve first referred to. 148This works congruently with cl 3.1 under which the royalty is payable in respect of ore won from the MBM area. Before any extensions, this covers the entirety of the area of the blocks and reserves, being numbered blocks TRs 4937H to 4967H inclusive. The extension concept, created by cl 1.4, has no work to do in relation to ore within the MBM area. 149On the footing that the hypothesis had not been established, the questions which would remain are whether pits 1, 2 and 3 are in an extension of the ore body containing pit 5 and whether pits 9 and 10 are in an extension of the ore body containing pit 2. 150Both sides called expert geologists. Hanwright called Mr Paul Blackney. MBM and Hamersley Iron called Dr Ted Eggleston. Mr Blackney provided reports dated 9 November 2012 and 19 February 2013. Dr Eggleston provided a report dated 30 January 2013 (Figure 11 was created by Dr Eggleston). They signed a Joint Report dated 27 February 2013. They gave evidence concurrently. 151The words in the 1970 Agreement are to be given the meaning they had on 5 May 1970. 152The following matters are not in dispute: (a)an ore body is that part of a mineral deposit that can be worked at a profit under existing economic conditions; (b)a formation is an assemblage of rocks which have some character in common whether of origin, age or composition; (c)a formation is a major stratigraphic unit or group of units. A member is a component of a formation and a strand is a component of a member; (d)an ore body extension is that part of an ore body which is linked in some way to another ore body; (e)an ore body is an extension of an existing ore body (as distinct from a separate ore body) if the two bodies exhibit similar geological setting, similar geochemical characteristics, and geographical proximity; and (f)to be characterised as an extension to a known ore body, and ultimately the same overall ore body as opposed to a distinct ore body, the extension must be formed by a similar set of iron enrichment processes and be hosted by the same formation or geological structure. 153The experts agree that: (a)techniques for determining similarities in geological setting and the presence of elements have evolved since 1970. Since the early 1980s advances in laboratory procedures have made it possible to routinely determine a far wider array of elements. Consequently, it is possible today to make a determination with regard to an ore body extension based on an association of elements that were not routinely measured in the 1970s. A narrower array of elements would have been analysed then; (b)in May 1970 whether two ore bodies had the same geological setting would have been resolved with reference to ore genesis and the stratigraphic similarities within the formation rather than by reference to individual strands within the formations which were not identified until the late 1970s or early 1980s; (c)the standard by which economic viability would be measured today is higher than that which would have been applied in 1970; and (d)today, the distance which would be regarded as being proximate from a mining engineering perspective is greater than in 1970 because mining operations and equipment used are larger and mining is at higher production rates. However, the concept of geographical proximity is the same today as it was in 1970. 154The experts agree that the bedded mineralisation of both deposits 84E and 94E is within the same formation, namely the Brockman Iron Formation. The Brockman Iron Formation has, relevantly, two members, the Dales Gorge Member and the Joffre Member. 155The bedded mineralisation of deposit 84E is hosted in the Brockman Iron Formation, partly in the Dales Gorge Member and partly in the Joffre Member. Situated between the pit 5 area and the pits 1, 2 and 3 area is a fault consisting of whaleback shale separating the two members. 156The bedded mineralisation of deposit 94E is within the Joffre Member. 157In Mr Blackney's opinion, pits 1, 2 and 3 are in an extension of the body where pit 5 lies and that pits 9 and 10 are in an extension of the body where pit 2 lies, principally because: (a)both deposit 84E and 94E are hosted within the same formation, the Brockman Iron Formation; (b)a similar iron enrichment process, the supergene process, which is a blanket process that operates on rock units viable for enrichment, operated across deposit 84E and also across deposit 94E, in both cases leading to the same ore type which is described as hematite-goethite. (This is in contrast to what is shown on Figure 11 as the Channar East-part of deposit 64E where the iron enrichment process resulted in an ore type described as martite-microplaty hematite); (c)the areas have reasonable and comparable geochemistry; and (d)pits 1, 2 and 3 are close to pit 5 and pits 8, 9 and 10 are sufficiently close to pit 2. His view is that proximity is to be related to the overall scale of the deposits. 158Dr Eggleston opined to the contrary. 159He disagrees as to the extent to which the supergene process blanketed the area in that whilst he considers while that process acted uniformly across the region, he considers that other processes were involved but explained that he could not tell what they were. 160As to deposit 84E, in his view there are significant differences in the geochemistry between the Dales Gorge and the Joffre Members, which deposit 84E straddles. He drew attention to be significant differences in the geochemical elements between the two members, in particular, with respect to the phosphorous content which in Dales Gorge averaged 0.124% and in Joffre 0.110%, a variation of about 10%. He also identified the differences in other elements, including alumina, manganese and titanium. In his view, these differences warrant the conclusion that the respective parts of deposit 84E in the different members are different ore bodies. He accepted, however, that the proximity test is satisfied. 161As to deposit 94E, his view is that the ore bodies underlying pits 8, 9 and 10 are not extensions of the body containing pit 2 because they are in different strands of the Joffre Member and are separated by at least 400 metres. 162Mr Blackney's response is that the identified geochemical differences, in particular manganese and titanium, are insignificant. Dr Eggleston agrees that in terms of operations, this is so, but considers that in terms of the origin of deposits and perhaps to the geochemistry, they are very significant. 163Mr Blackney's view is that iron ore operations entail blending and strands play a role operationally in that they have been used to subdivide an ore body into aluminous-rich or poor zones which assists in blending. 164Each expert agrees that the opinion of the other could be reasonably held. 165Both experts were impressive witnesses. 166On balance however, I prefer Mr Blackney's opinion, only because I think that the parties had in mind an approach weighted in favour of operational rather than theoretical considerations and that proximity is of pivotal significance for this reason. 167In respect of deposit 84E, Dr Eggleston candidly accepted that the proximity requirement was satisfied and that at least some the geochemistry differences were insignificant for operational purposes. 168In respect of deposit 94E, Dr Eggleston's opinion was based partly on the proposition that the two areas are in different strands of the Joffre Member. However, there was agreement that in 1970, whether two ore bodies had the same geological setting would have been resolved with reference to ore genesis and the stratigraphic similarities within the formation, rather than by reference to individual strands within the formations which were not identified until the late 1970s or early 1980s. In the scheme of things, a 400 meter separation is insignificant. 169Accordingly, had the MBM area claim not succeeded with respect to Channar, the ore body extension claim would have. Conclusion 170WPPL and HPPL are entitled to be paid, and MBM is obliged to pay them, the royalty under the 1970 Agreement in respect of ore mined in Eastern Range and Channar. 171There will be a verdict for the plaintiff on its claim and a verdict for the cross-claimant on its cross-claim against second defendant/second cross-defendant. The plaintiff's claim and the cross-claimant's cross-claim against the first defendant/first cross-defendant is to be dismissed. 172I was informed that quantum is agreed. 173I will stand the matter over for Short Minutes to be brought and to enable the parties to draw to my attention any issues which remain to be dealt with, and, if necessary, to hear the parties on costs. Schedule A AGREEMENT The following constitutes an Agreement between, Hancock Prospecting Pty. Limited and Wright Prospecting Pty. Limited trading as Hancock and Wright and as Hanwright Iron Mines (hereinafter together referred to as "Hanwright") of the first part and Hamersley Iron Pty. Limited (hereinafter referred to as "Hamersley") of the second part and Mount Bruce Mining Pty. Limited (hereinafter called M.B.H.) of the third part. PREAMBLE 1.1 Hanwright hold Temporary Reserves in respect of areas indicated on the attached map (Appendix A) as the following numbered blocks: 4937H to 4967H inclusive and that these blocks (hereinafter referred to as "Mount Bruce Temporary Reserves") are subject to the exercise of an option by Mount Bruce Mining Pty. Limited. 1.2 There exists an agreement dated 31st January, 1968 between Hanwright and Hamersley whereby Hamersley may exercise an option over the Temporary Reserves. 1.3 By Clause 5 of the Iron Ore Hanwright Agreement Act Amendment Act 1968 M.B.M. may give notice to the State and Hanwright that it wishes to replace the Joint Venturers in respect to that agreement. 1.4 All references to blocks or reserves include all present and future rights of Hanwright in relation to the above blocks and reserves including any extensions of the ore bodies located therein or any adjustments of the present indicated boundaries of the above Temporary Reserves arranged with the Western Australian Government. 1.5 Hanwright represent that they hold undisputed title free from all obligations and encumbrances to asbestos mining tenements in the Wittenoom area as follows: Category A: Mineral Claims 248WP to 271WP inclusive - in name of Hancock Prospecting Pty. Limited Category B: Temporary Reserves 2657 2923 2752 3757 3815 Mineral Claims 13-25 inclusive 314 27 315 29-35 inclusive 321 38-47 inclusive 322 49-66 inclusive 335 107-111 inclusive 336 201-225 inclusive 274-288 inclusive DIVISION OF MOUNT BRUCE RESERVES 2.1. Hamersley hereby relinquishes its option granted pursuant to the January 1968 agreement. 2.2 In consideration of this relinquishment and in consideration of the payment by M.B.M. to Hanwright of $A5 million payable as hereafter set out, Hanwright hereby agrees that its Mount Bruce Temporary Reserves should be divided between Hanwright and M.B.M. so that in respect of temporary reserves 4947H to 4962H inclusive (hereinafter called "Hanwright area") the entire rights thereto are restored to Hanwright and in respect to temporary reserves 4937H to 4946H inclusive and 4963H to 4967H inclusive (together hereinafter called "M.B.M. area"), M.B.M. acquires the entire rights thereto. 2.3 Notwithstanding the foregoing at such time as the Mount Bruce Temporary Reserves are reduced to a mineral lease or leases pursuant to Clause 8 (1) (a) of the Iron Ore (Hanwright) Agreement of 1967 the total area of such lease or leases will be divided between M.B.M. and Hanwright in the proportion 75% M.B.M. 25% Hanwright. Hamersley will use its best endeavours to ensure that Hanwright is granted tenure over certain additional areas indicated by Hanwright in the areas around Mount Bruce. 3. ROYALTIES 3.1 Ore won by M.B.M. from the M.B.M. area will be subject to the payment to Hanwright of a base Royalty of 2½% on the same conditions as apply to the existing Agreement between Hanwright and Hamersley with the exception that L. S. Perron will be eliminated as a beneficiary. M.B.M. will execute such a Royalty Agreement. M.B.M.'s royalty statements to Hanwright will be subject to verification by an independent auditor on the basis set forth in Hamersley's letter dated 23rd December, 1969. 3.2 Ore won by M.B.M. from the M.B.M. area will be subject to the payment of a further royalty of 20 cents per ton on ore mined, payable until the total sum of $5 million has been paid and in the same manner as the base royalty. 4. EXISTING SECONDARY PROCESSING OBLIGATIONS Hanwright and M.B.M. will seek the Minister's consent to vary the Iron Ore (Hanwright) Agreement Act Amendment Act 1968 pursuant to Clause 15 thereof so that M.B.M.'s right to give notice under Clause 5(1) of that Agreement to take the place of the Joint Venturers shall be limited to notice in respect of blocks 4937H to 4946H inclusive and 4963H to 4967H inclusive and shall take over all secondary processing obligations under the Iron Ore (Hanwright) Agreement Act 1967 and the Iron Ore (Hanwright) Agreement Act Amendment Act 1968. 5. PURCHASE OF ASBESTOS RIGHTS M.B.M. will purchase from Hanwright for a sum of $10 the entire rights to mine asbestos hereinbefore referred to provided that in respect to mineral claims in Category B such mining shall not interfere with Hanwright's use of or title to, facilities currently existing thereon. 6. HANWRIGHT'S OPTION TO SELL IRON ORE TO HAMERSLEY Hanwright shall have an option exercisable on or before31st December, 1970 to enter into an Agreement with Hamersley for the sale of iron ore from the Hanwright area on the following terms and conditions. 6.01 QUANTITY 45 million tons of ore, lump: fines ratio 2:1 Provided that on or before December 31 1970: i. Hanwright may by notice to Hamersley elect to supply all lump ore ii. If the Japanese Steel Mills will not agree to accept fines Hamersley may by notice to Hanwright require Hanwright to supply all lump ore. 6.02 COMMENCEMENT AND RATE OF DELIVERY Delivery to be made at the rate of 3 million tons a year for a period of 15 years. Delivery is to commence not earlier than 1st July 1972 and not later than 30 June 1973 which period shall be reduced to 6 months at the time of exercise of option. 6.03 PHYSICAL SPECIFICATIONS Lump Fines 30 mm x 6 mm lump ore 100% - 6 mm 100% - 30mm 20% max. minus 100 mesh 2% max. - 6 mm 6.04 CHEMICAL SPECIFICATIONS Lump Fines Lump Fines (base) (base) (guaranteed) (guaranteed) Iron (Fe) 63% 63% 61% min. 61% mm. Phosphorus (p) .07% 0.06% max. 0.12% max. Sulphur (S) 0.05% max. 0.05% max. Copper (Cu) 0.05% max. 0.05% max. Silica (SiO2) 6.3% max. 6.3% max. Alumina (Al2O3) 3.2% max. 3.2% max. Other metals 0.15% max. 0.15% max. Free moisture loss at 105 degrees Centigrade shall not exceed 2.0%. 6.05 BONUSES AND PENALTIES Bonuses and penalties are to be agreed between the parties but the basis of such agreement shall be those existing in the Hamersley Iron Ore Contract No.4 with the Japanese Steel Mills as amended from time to time. With respect to Phosphorus the penalty will be back to back with whatever may be agreed with the Japanese Steel Mills. 6.06 BASE PRICE $US6.80 and $US4.50 per dry long ton for 63% Fe lump and fines respectively f.o.r. 116 mile peg siding at Hamersley railway subject to adjustment at the rate of 0.6 cents per ton per mile greater or less than 116 miles. 6.07 BASE PRICE REVISION Five years after the commencement of delivery of ore (as provided in Clause 6.02) there shall be a revision of base price. This revision shall be in accordance with and pro rata to the result of negotiation between Hamersley and the Japanese Steel Mills relating to Base Price Revision of Iron Ore Contract No.4. 6.08 PLACE OF DELIVERY The ore will be delivered in rail cars built to Hamersley specifications but owned by Hanwright to a siding to be constructed by Hanwright at the 116 mile post or at some other point on the Hamersley railway selected by Hanwright. Hamersley will not be required to accept less than 160 ore cars at any one time. Hamersley will provide the locomotives to haul the ore from the siding at which the ore is delivered to Dampier and to return the empty trucks to that siding. Hamersley will maintain locomotives and cars for Hanwright. 6.09 WEIGHING AND ANALYSIS Weighing and sampling should be done at the point of loading. The samples are to be split into three parts, one for analysis by Hamersley, the second for analysis by Hanwright and the third which shall be sealed and kept by Hamersley for analysis by an umpire in the event of a disagreement in assays. 6.10 PAYMENT On presentation of a Provisional Invoice for each delivery, subject to the minimum delivery specified elsewhere, based on Hanwright's weights and chemical analysis, a provisional amount of 90% of the value of the Provisional Invoice will be paid within seven (7) days of receipt of such Provisional Invoice. Final payment will be made within 30 days of receipt from Hanwright of a Final Invoice, together with a certificate signed by Hamersley and Hanwright certifying weights and chemical analysis. 6.11 PASSING OF TITLE AND RISK Title and all risk of loss, damage or destruction respecting the ore delivered shall pass to Hamersley at the time when at least 160 loaded ore cars are delivered to the elected siding. 6.12 BLENDING OF ORE This option is conditional upon the Japanese Steel Mills agreeing to accept ore from the Hanwright area blended with ore produced by Hamersley from its areas. Hamersley will notify Hanwright by 31 May 1970 of any decision of the Japanese Steel Mills. 7.1 USER RIGHTS Hanwright shall have the right to use Hamersley's railway and port facilities to ship 3 million tons a year of ore for 2 years (deliveries to commence within the period provided under Clause 6.02 above) in lieu of selling 45 million tons under Clause 6. The user charge stipulated by Hamersley is $US1.75 per ton converted to a prepayment of $US3.35 million and a continuing charge of $US 1.06 per ton. However if it is to the advantage of one of the parties and not to the disadvantage of the other, a new method of charging may be devised and adopted. The user charge is made up as follows: Port $1.35 Railway 0.40 (116 miles) Total $1.75 If Hanwright delivers ore elsewhere than at the 116 mile peg an adjustment will be made at the rate of 0.345 cents per ton per mile. The above user charge shall be subject to adjustment in the event of substantial variation in tax deductibility of the relative capital expenditure or in the event of a variation of the Company Taxation rate. Operating costs are to be charged at audited actual costs. 7.2 Hamersley agrees to make available on reasonable terms the use of its rolling stock to haul construction materials for the Hanwright railway from Dampier to the siding referred to in Clause 6.08. Hamersley also agrees to make available on reasonable terms to Hanwright its rail welding plant. 8. HANWRIGHT RAILWAY 8.1 Hamersley and/or M.B.M. shall have an option to transport an unrestricted amount of ore along the proposed Hanwright railway between Wittenoom and the Hamersley railway. 8.2 If and when Hamersley and/or M.B.M. build a rail road to connect into such proposed Hanwright railway, and if Hamersley and/or M.B.M. exercise the option under Clause 8.1 above, Hanwright shall have the reciprocal right to transport unrestricted amounts of ore along such proposed Hamersley and/or M.BM. rail road. 8.3 Parties will pay user charges on each other's rail roads calculated to reflect actual capital costs and in proportion to user rights. 8.4 Users of the above railways shall pay the actual operating costs for transporting their ore per ton/mile. 9. MARUBISHI REPRESENTATION Hamersley agrees to release Marubishi from its undertaking not to represent any other company except Hamersley, so that Marubishi may be permitted to represent Hanwright for sale of ore mined from the Hanwright area. 10. GOVERNMENTAL APPROVAL The implementation of these arrangements and the obligations involved by them on the part of Hanwright and on the part of Hamersley and M.B.M. are all subject to and conditional upon the necessary Governmental approvals and implementations being effected. 11. STAMP DUTY In the event of this document being dutiable by the Western Australian Government, the party who first brings the document into Western Australia shall pay all such duty. 12. ENTIRE AGREEMENT Subject to clause 10 above this agreement is intended to be binding and enforceable as from the date hereof and contains the entire agreement between the parties in relation to the Mount Bruce temporary reserves and supersedes all prior agreements or arrangements whether written or oral relating to these reserves providing however that the granting of approvals by the Minister will be deemed to be notice of intention to proceed as required by clause 2 of the January 1968 agreement but Hamersley agrees to continue the loan of $3.2 million to Hanwright until the commencement of mining of the M.B.M. area, whereupon Hanwright will repay the loan to Hamersley over a period of eight equal quarterly instalments. Dated this 5th day of May, 1970 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: 10 May 2013