The High Court has decided an appeal and cross-appeal arising out of two decisions of the New South Wales Court of Appeal relating to mining royalty liabilities, finding in favour of Wright Prospecting in both matters. In 1970, Mount Bruce Mining (MBM) entered into an agreement with Hanwright (a partnership formed by Wright Prospecting Pty Ltd and Hancock Prospecting Pty Ltd) to purchase the ‘entire rights’ in several temporary reserves and agreed to pay Hanwright royalties on ore won by MBM, or by another person who derived title to it ‘through or under MBM’, within ‘the MBM area’. Hanwright claimed that MBM had not paid royalties in respect of two regions, Eastern Range and Channar, and at issue (inter alia) was the meaning of ‘the MBM area’ and ‘through or under’ in the agreement. The primary judge upheld both of Wright Prospecting’s claims, but the Court of Appeal partly allowed the appeal, holding that MBM was liable to pay royalties on the Eastern Range because that ore was within the MBM area, construed as the physical area of the temporary reserves rather than rights with respect to that land (see McFarlane JA at [40]–[53]), but not on the Channar Range, on the basis that the ore was not won by MBM or a person deriving title to the land ‘through or under’ MBM: there was no unbroken chain of title from the present owners back to MBM (see McFarlane JA at [54]–[63]). Before the High Court, MBM sought to challenge the Eastern Range holding and Wright seeks to challenge the Channar Range holding.

The Court unanimously decided in favour of Wright Prospecting in both matters. The joint judgment (French CJ, Nettle and Gordon JJ), after outlining the applicable legal principles on contract interpretation (at [46]–[53]), held that in the natural and ordinary meaning of the language in the contract consistent with the commercial circumstances and purpose of the agreement the ‘MBM area’ meant the area of land fixed by the boundaries of the temporary reserves (at [58]ff), and not simply the rights within that area. As to the title ‘deriving through or under’, the joint judges held that the contract text indicated that ‘through or under’ was broader than merely formal succession, assignment or conveyance (at [75]): the two agreements extended the royalty obligations (at [76]), the surrender of land was required by the State grant (at [78]), and the wider construction accorded with the commercial reality at the time (see at [79]).

Kiefel and Keane JJ held that the clause relating to MBM’s royalty obligations were words of extension, not definition, aimed at ensuring that references to ‘blocks and reserves’ are meant to include not only areas of land, but also the rights to explore and exploit them, which might have been held by Hanwright or acquired by it in the future (at [91] and see [94]). As to the Channar Range and whether the joint venture title was derived ‘through or under’ MBM, Kiefel and Keane JJ held that the ordinary language of the statutory grant, requiring surrender of the land by MBM to the joint venture, was ‘through or under’ MBM (see [103]–[104]). Requiring a ‘chain of title’ would require placing undue emphasis on ‘deriving title’, and further, in the circumstances and the ambiguities they gave rise to, the meaning should be resolved in favour of the construction at [104] (at [107]). Ambiguity in the meaning of ‘deriving title through or under’, if any, arose from the terms of the clause itself: Kiefel and Keane JJ held that in the context, royalties were to be paid by anyone from the land in the MBM area, so long as that exploitation was carried on under a title derived from the title MBM had obtained from Hanwright (see at [114]). Kiefel and Keane JJ agreed with the orders in the joint judgment.

Bell and Gageler JJ in a separate judgment held that the appeals ‘did not raise an important question on which intermediate courts of appeal are currently divided’, namely, whether ambiguity in a written contract needs to be shown before a court interpreting it can have regard to background circumstances (at [118]). Here, that did not arise because the parties agreed that the terms ‘MBM Area’ and ‘through or under’ were ambiguous, and should therefore be interpreted according to what reasonable businesspersons with all the background knowledge reasonably available at the time would have understood them to mean (see [120]–[121]). Bell and Gageler JJ agreed with the reasons of Kiefel and Keane JJ for preferring Hanwright’s construction of the terms and agreed with the orders proposed by the joint judges (at [123]).