Bathurst Resources Ltd v L&m Coal Holdings Ltd [2021] NZSC 85, 14 July 2021
- Court
- Supreme Court
- Judgment
- 14 July 2021
- Neutral
- [2021] NZSC 85
Areas of law
Judgment analysis
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Facts
In June 2010, Bathurst agreed to purchase coal exploration rights from L&M. The price included two performance payments of USD 40 million each, the first triggered when 25,000 tonnes of coal had been 'shipped from the Permit Areas'. A related royalty deed required royalty payments on coal sales. In August 2012, the parties entered into a 'Third Deed' which added clause 3.10, allowing Bathurst to defer the first performance payment so long as it continued to make 'relevant royalty payments'. Bathurst extracted and transported over 25,000 tonnes of thermal coal which it sold domestically, triggering the threshold but did not pay the USD 40 million. It later suspended mining operations at the Escarpment Mine, and consequently royalty payments largely ceased. Bathurst argued the payment was not triggered because 'shipped' meant exported by sea via ship. Alternatively, it argued that even if triggered, it was entitled to defer payment under the Third Deed because it was complying with the royalty deed (i.e., paying no royalties as none were due). L&M argued the payment was triggered because 'shipped' meant transported, and the deferral was only available while meaningful royalties from ongoing mining were being paid.
Held
- The test for admissibility of extrinsic evidence in contractual interpretation is governed by the relevance and exclusion provisions of the Evidence Act 2006. Evidence of prior negotiations and subsequent conduct is admissible if relevant to the objective ascertainment of meaning.
- The test for implication of a term in a contract is one of strict necessity, and the BP Refinery conditions are a useful, non-cumulative tool for this objective assessment.
- The term 'shipped from the Permit Areas' in clause 3.4 of the Agreement means 'transported from the Permit Areas' and is not restricted to export by ship.
- The phrase 'for so long as the relevant royalty payments continue to be made under the Royalty Deed' in clause 3.10 only requires Bathurst to make royalty payments that are payable under the Royalty Deed. If no mining occurs and no royalties are due, this condition is met, and Bathurst is entitled to defer the performance payment.
- No term should be implied into the Agreement requiring a minimum level of mining or royalty payments for Bathurst to be able to rely on the deferral mechanism in clause 3.10.
Winkelmann CJ and Ellen France J dissenting.
The appeal is allowed. The judgments of the High Court and Court of Appeal are set aside and judgment is entered for the appellants.
Key passages4
The approach to contractual interpretation is objective, aiming to ascertain the meaning the document would convey to a reasonable person with all the background knowledge reasonably available to the parties at the time of the contract.
“… the proper approach is an objective one, the aim being to ascertain 'the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract'. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as 'background', it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.”
Evidence of a party's uncommunicated subjective intent or understanding of a contract is not relevant to the objective task of interpretation and is therefore inadmissible.
“An undeclared understanding or intention as to the meaning of a contract is not evidence that would have been available to the notional reasonable person having all of the information reasonably available to the parties at the time. It is not therefore relevant to the task of contractual interpretation.”
Evidence of prior negotiations is admissible if it tends to establish a fact or circumstance capable of demonstrating objectively what meaning both parties intended their words to bear, such as showing a common mutual understanding.
“if evidence shows what a party intended the words to mean, and that this was communicated, it may tend to show a common mutual understanding as to the meaning of the contract. ... Such an understanding is relevant to the objective search for meaning. The evidence will be relevant and, subject to the s 8 assessment, admissible.”
Evidence of subsequent conduct is admissible on the same basis as prior negotiations: it is admissible if it tends to prove anything relevant to the objective approach to interpretation, but care is needed to assess its probative value.
“Applying the provisions of the Evidence Act, the court must ask itself whether the subsequent conduct tends to prove anything relevant to the objective approach to interpretation. Subsequent conduct need not necessarily be mutual, but non-mutual conduct is more likely to be relevant to a claim of estoppel.”
Cases mentioned in judgment
Legislation mentioned
- Evidence Act 2006, s 4(1), s 5(1), s 5(3), s 6, s 7, s 8, s 9(1), s 10, s 25(1)
- Senior Courts Act 2016, s 74(2)(a)
- Contract and Commercial Law Act 2017, Part 3
- Judicature Act 1908, s 87
- Crown Minerals Act 1991
- Overseas Investment Act 2005