Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd; Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd

1. [1]

   By a contract dated 3 May 2006 (the “Asset Sale Agreement”), the plaintiff, Thalanga Copper Mines Pty Ltd, sold certain mineral exploration permits and mining leases in Queensland (the “Tenements”) to Kagara Copper Pty Ltd for $2 million.

2. [2]

   Pursuant to the Asset Sale Agreement, Kagara agreed to pay a royalty (the “Royalty”) to Thalanga calculated at 4% of the “Net Sales Realisation” of saleable metals processed from ore mined from the Tenements.

3. [3]

   The Royalty was to be calculated in accordance with cl 13 of the Asset Sale Agreement, to which I will return.

4. [4]

   On 16 December 2013, Kagara was placed into liquidation.

5. [5]

   By a further contract dated 12 September 2014, called “Agreement for the Sale of Assets”, the liquidator of Kagara sold the Tenements to the first defendant, Cromarty Resources Pty Ltd. Cromarty is a wholly owned subsidiary of the second defendant, Red River Resources Ltd, a company listed on the Australian Stock Exchange.

6. [6]

   By a Deed of Covenant, Assignment and Release (the “Deed of Covenant”), dated 24 March 2015, Cromarty agreed to assume the rights and obligations of Kagara under the Asset Sale Agreement and Red River agreed to guarantee Cromarty’s obligations.

7. [7]

   Under the Deed of Covenant, Cromarty also agreed to deliver to Thalanga two unconditional bank guarantees. The first was for $300,000 and was delivered on the date of the Deed. The second (the “Second Bank Guarantee”) was for $700,000 and was to be delivered “prior to the commencement of Production”. Although “Production” commenced, the Second Bank Guarantee was never provided. Thalanga’s entitlement to Royalties was otherwise unsecured.

8. [8]

   Cromarty commenced producing ore from the Tenements in May 2017.

9. [9]

   Cromarty commenced sales of processed ore to Glencore International AG and Trafigura Pte Limited in around October 2017. I will return to the agreements pursuant to which these sales occurred below.

10. [10]

    Thalanga purported to terminate the Asset Sale Agreement on 28 December 2018. The question is whether it was entitled to do so, or whether its purported termination on that day was a repudiation of the Asset Sale Agreement entitling Cromarty itself to terminate on 8 January 2019.

11. [11]

    Either way, it is common ground that the Asset Sale Agreement ceased to be operative on either 28 December 2018 or 8 January 2019.

12. [12]

    It is also common ground that, either way, Thalanga is entitled to Royalties due as at 28 December 2018 (the “Outstanding Royalties”). There is a dispute as to how the Outstanding Royalties should be calculated.

13. [13]

    It is also common ground, that if Thalanga was entitled to terminate the Asset Sale Agreement on 28 December 2018, it is entitled to loss of bargain damages. Thalanga calculates those damages based on the present value of the royalties it would have earned had the Asset Sale Agreement continued (the “Projected Royalties”). There is a dispute about whether any loss of bargain damages to which Thalanga is entitled may be calculated by reference only to the Projected Royalties. There are also disputes about Thalanga’s calculation of Projected Royalties.

14. [14]

    The amounts involved are large. Thalanga claims Outstanding Royalties in the order of $1.7 million and Projected Royalties in the order of $25.5 million.

Decision

1. [15]

   Cromarty repudiated its obligations under the Asset Sale Agreement. Thalanga was entitled to terminate the Asset Sale Agreement on 28 December 2018 and is entitled to the Outstanding Royalties and to loss of bargain damages calculated on the basis of the Projected Royalties.

The Asset Sale Agreement

1. [16]

   Clause 13 of the Asset Sale Agreement provided, relevantly:

2. [17]

   “Royalty” was defined as:

3. [18]

   “NSR” was defined as:

The Glencore and Trafigura Agreements

1. [19]

   On 6 June 2017 and 7 August 2017, Cromarty entered into agreements with Glencore and Trafigura. Pursuant to the 6 June 2017 agreement, Glencore agreed to purchase the “total production” of copper concentrate from the Tenements over a three-year period (the “Glencore Agreement”). Pursuant to the 7 August 2017 agreements, Trafigura agreed to purchase specified amounts of lead and zinc concentrate over a three-year period (the “Trafigura Agreements”).

2. [20]

   The effect of both the Glencore Agreement and the Trafigura Agreements was that, relevantly:

3. [21]

   It is not necessary to set out the details of these provisions. Their effect was that Cromarty was paid 95% of the provisional value of ore sold to Glencore and Trafigura at around the time of the concentrate’s shipment. Cromarty would not know the final price payable by Glencore and Trafigura until the end of the three month quotational period, at which time the final price would be determined in accordance with the relevant price on the London Metal Exchange. The final price was at times higher than the provisional price and at times lower.

The proper construction of cl 13

1. [22]

   The principles to be adopted in construing a commercial contract are settled.

2. [23]

   The leading modern statement is that of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd: [2]

3. [24]

   The debate before me focused on the text of the Asset Sale Agreement. In that context, it has been correctly observed that:

4. [25]

   Prior to closing submissions, Cromarty’s position was that it admitted that there were “outstanding royalties owing” by Cromarty to Thalanga [5] and that Cromarty “owes” Thalanga “outstanding royalties for the period 1 July – 28 December 2018”. [6] Cromarty asserted that the amount “owing” was $1,222,337. [7]

5. [26]

   On 19 April 2021, two weeks before the hearing, Cromarty’s solicitors wrote to Thalanga’s solicitors stating:

6. [27]

   Nonetheless, in closing submissions Mr Kelly SC and Mr Barnett who appeared for Cromarty, argued for a construction of the Asset Sale Agreement that, if correct, would have the consequence that:

7. [28]

   This submission was not mentioned in Mr Kelly’s and Mr Barnett’s opening submissions, nor foreshadowed in Cromarty’s Commercial List Response. Nor, during the critical months leading to Thalanga’s purported termination of the Asset Sale Agreement in 2018, did the parties and Cromarty in particular, conduct themselves on the basis that no Royalty was payable. As will emerge, the communications between the parties in those months proceeded upon the basis that a Royalty was due.

8. [29]

   Mr McGrath SC, who appeared with Ms Jonker for Thalanga, stated that, had this argument been foreshadowed, he and Ms Jonker may have conducted the case differently.

9. [30]

   Mr McGrath said, and I accept:

10. [31]

    The reason why, on Mr Kelly’s construction of the Asset Sale Agreement, no Royalty was payable as at 28 December 2018, is because of the terms of the Glencore and Trafigura Agreements to which I have referred. In effect, Mr Kelly’s submission was that the Royalty could not be struck until the final amount realised by Cromarty from sales to Glencore and Trafigura was ascertained. It followed, according to this submission that, in the events that happened, the Royalties that Thalanga contended were outstanding, and which led it to purport to terminate the Asset Sale Agreement on 28 December 2018, were not due for payment until many months later.

11. [32]

    Mr McGrath submitted that Mr Kelly’s construction of the Asset Sale Agreement was not correct. However, Mr McGrath accepted that, as it had been raised, albeit at the heel of the hunt, it was necessary for me to decide whether it was correct.

12. [33]

    Had I concluded that Mr Kelly’s construction was correct, difficult questions would have arisen as to how the case was to be managed.

13. [34]

    However, for the reasons that follow, my conclusion is that Mr Kelly’s construction is not correct.

14. [35]

    Debate before me focused on the operative words in cl 13.1 of the Asset Sale Agreement and the words in the definitions of “Royalty” and Net Sales Realisation or “NSR”.

15. [36]

    The use of defined terms is simply a drafting technique adopted for convenience and brevity. The full text of cl 13.1 can only be seen by reading the definitions into the operative text and construing the operative text in that light. [9]

16. [37]

    Once the relevant definitions are read into its text, cl 13.1(a) reads as follows: [10]

17. [38]

    The critical question is, which part of the clause determines when the Royalty is to be paid.

18. [39]

    Is it the words “after the end of the month of actual sales” at the end of the clause? Or is it the words “net sales realisation, actually realised” which words are within the definition of Net Sales Realisation, incorporated by reference into cl 13.1(a)?

19. [40]

    When cl 13.1(a) is set out in full in this way, it becomes clear that the time that the Royalty is payable is within 15 Business Days after the end of month of “actual sales”. This is the time when the Royalty must be calculated, at least on a provisional basis (as to which I refer below). That is, the words that govern when the Royalty is to be paid are those closing words.

20. [41]

    That is made clear, in my opinion, when the full text of the clause is set out [11] with the following emphasis:

21. [42]

    Mr Kelly’s submission was, in effect, that the words that govern when the Royalty was to be paid are the words “net sales, actually realised”. As Mr Kelly put it, it is the concept of “actual realisation” rather than the concept of “sale” that is determinative of when the Royalty is payable.

22. [43]

    Mr Kelly’s argument was that the only time when the Royalty was capable of being calculated was when the amount of the “net sales, actually realised” could be finally ascertained, and that the Royalty was not payable until then.

23. [44]

    As I have said, the effect of this submission, in the events that happened, would be that no Royalty was payable on 6 December 2018, when Thalanga demanded payment, nor on 28 December 2018 when Thalanga purported to terminate the Asset Sale Agreement. That is because, by reason of the terms of the contracts between Cromarty and Glencore and Trafigura, the “net sales, actually realised” of the shipments of ore made in the months leading to 2 December 2018 had not been, and could not be ascertained, until the end of the relevant quotational periods; each of which was after December 2018.

24. [45]

    Mr Kelly’s construction would involve construing the words “month of actual sales” as meaning something to the effect of “month when the final sale price can be ascertained” or “month in which the second or final invoice is raised”. It would also give the second sentence of cl 13.3, to which I will return, no work to do at all.

25. [46]

    Mr Kelly’s construction would also have the effect that unless and until Glencore or Trafigura made a final payment at the end of the quotational period, no Royalty would be payable to Thalanga. Thus, for example, if Glencore or Trafigura disputed its liability to make a final payment, perhaps because of some dispute about the quality of the ore in question, or perhaps for some other reason, no Royalty would be payable unless and until the dispute was settled. It would also mean that, were it to be to its advantage to do so, Cromarty could choose not to seek the final payment and thus avoid paying the Royalty. It appears to me that the parties are unlikely to have intended such a result.

26. [47]

    In my opinion, the better view of the clause is that the Royalty is payable 15 Business Days after the end of the month of “actual sales” and an “actual sale” of ore takes place when a contract for sale of the ore is concluded so as to make it binding.

27. [48]

    Clause 13.1(a) is directed to when the “actual sale” of “processed ore” takes place, rather than to when a “net sales realisation, actually realised” might occur.

28. [49]

    In my opinion, this is confirmed by the second sentence of cl 13.3, to which I will return, which refers to adjustments being made for the excess or short “payment of Royalty in the month of sales”; thus confirming that the time for payment of the Royalty is “in the month of sales”. [12]

29. [50]

    It will be recalled that Glencore agreed to buy the “total production” of the Tenements so far as concerns copper concentrate and that Trafigura agreed to purchase a specified amount of lead and zinc concentrate. [13] Under the Glencore and Trafigura Agreements, sales were effected when Cromarty shipped the processed ore and invoiced Glencore or Trafigura for the “provisional price”. Title passed under both contracts when the Provisional Price was paid.

30. [51]

    In those circumstances, in my opinion, the “actual sales” took place, at the latest, when title so passed.

31. [52]

    The first sentence of cl 13.3 reads:

32. [53]

    When the definition of “NSR” is read into that sentence it reads [14] :

33. [54]

    The clause so read is somewhat repetitive but it contemplates that Cromarty will calculate what it “realised” from the sale, in the sense of what represents its “net sales realisation, actually realised” from the sale.

34. [55]

    However, cl 13.1(a) requires that this calculation be done within 15 Business Days of the “month of actual sales”. As “actual sales” take place when title in the ore passes, that calculation must be in relation to the “net sales, actually realised” from the sale at that point. The calculation would necessarily be provisional if, as happened, Cromarty could not at that time calculate what its final “net sales realisation, actually realised” would be.

35. [56]

    The second sentence of cl 13.3 shows that the parties contemplated this possibility. That sentence reads:

36. [57]

    Thus, the parties provided for an adjustment of the Royalty “in the month of sales”, that is the royalty already paid for a “month of sales”, once the final NSR, that is the “net sales realisation, actually made” for that month could be “determined”.

37. [58]

    In the events that happened, the “month of actual sales” was the month in which Glencore or Trafigura made a provisional payment to Cromarty and title in the ore passed from Cromarty to Glencore or Trafigura.

38. [59]

    By the first sentence of cl 13.3, Cromarty was obliged to calculate the royalty. By reason of cl 13.1(a), that calculation had to be done within 15 Business Days of the end of that month. That calculation would necessarily be by reference to the “net sales realisation, actually realised” at that time. The calculation would thus be provisional; and might require an “adjustment” under cl 13.3 to calculate any “excess or short payment” once the final sale price was known at the end of the “quotational period”. The fact that the parties contemplated that the calculation might be provisional is recognised by the reference to the “final NSR” in the second sentence of cl 13.3.

39. [60]

    Nonetheless, the Royalty, as best as it could be calculated, was payable at the end of the month in which Glencore or Trafigura made a provisional payment for the ore shipped that month.

Sales realisation expenses

1. [61]

   A further question arises as to whether Net Sales Realisation must be calculated by deducting the costs of production from the sales proceeds.

2. [62]

   Mr Kelly submitted that Net Sales Realisation must be calculated by deducting from sales proceeds “the cost of doing everything that needs to be done to bring about the sale” and “requires expenses to be taken into account”, including freight costs.

3. [63]

   I do not agree.

4. [64]

   First, Cromarty’s accounting expert, Mr Jaski agreed that the accounting concept of “net sales” was gross revenue less any returns or discounts and that the accounting concept of “realisation” was converting an asset into cash.

5. [65]

   Second, Mr Kelly’s submission involves reading “Net Sales Realisation” as meaning “Net Profit”.

6. [66]

   The only deduction that the definition of Net Sales Realisation permits is for “treatment and refining charges” which, as Mr Kelly submitted, are charges paid to the smelter. Such charges would be included in the “costs of doing everything that needs to be done to bring about the sale” or as part of the “expenses” of producing saleable ore. The fact that the parties have specified that “treatment and refining charges”, but not other expenses, be deducted from Net Sales Realisation shows that they did not intend Net Sales Realisation to be Net Profit.

7. [67]

   Accordingly, sales realisation expenses such as sales, marketing and concentrate logistics expenses, assay costs, trucking and sea freight costs should not be taken into account to determine Net Sales Realisation.

8. [68]

   I think Mr McGrath was correct to submit the reference to “Net” Sales Realisation is to take account of any credits, discounts or allowances that may be involved in the sales in question.

The witnesses – Mr Walker not called

1. [69]

   I heard evidence from three lay witnesses. They were Mr William Leiva who is the Financial Controller of Thalanga’s sister company, Copper Mines of Tasmania Ltd, Mr Melkon Palancian who is the Managing Director of Red River and Mr Rodney Lovelady who is the Chief Financial Officer of Red River.

2. [70]

   I gained the impression that each of these witnesses was doing his best to give an honest account of his recollection of relevant events.

3. [71]

   Thalanga served affidavits from its former director, Mr Peter Walker, but did not call Mr Walker as a witness.

4. [72]

   Mr Walker was a party to many of the relevant written communications, including two in November 2018 which are of critical importance, and to which I will return.

5. [73]

   The other communications from Thalanga were by Mr Leiva, who agreed that Mr Walker determined the content of those communications.

6. [74]

   Mr Walker ceased to be a director of Thalanga and of Copper Mines of Tasmania in October 2019 and ceased employment with Copper Mines of Tasmania in November 2019. In March 2020, Mr Walker commenced proceedings against Copper Mines of Tasmania in the Federal Court of Australia making serious allegations about the circumstances in which his employment was terminated.

7. [75]

   Thus, Thalanga has given an explanation for its failure to call Mr Walker.

8. [76]

   It is true, as Mr Kelly pointed out, that it was open to Thalanga to subpoena Mr Walker, read his affidavits and make him available for cross-examination.

9. [77]

   But assuming that an inference can be drawn against Thalanga in these circumstances, it can only be that his evidence in cross-examination would not have assisted Thalanga.

10. [78]

    As the relevant communications between the parties were for the most part in writing, this could only be of significance in relation to the meeting of 30 October 2018 between Mr Walker, Mr Leiva, Mr Palancian and Mr Lovelady, that I discuss below.

11. [79]

    The fact that Mr Walker was not called means that the evidence by Mr Palancian and Mr Lovelady as to what happened at that meeting is not contested by Mr Walker and, to that extent, should be accepted. I see no other relevant significance arising from Mr Walker’s absence as a witness.

The events leading to termination

1. [80]

   I have mentioned that Cromarty commenced sales of processed ore to Glencore and Trafigura in October 2017. [15] On 9 November 2017, Red River published an ASX Release stating that:

2. [81]

   There is no dispute that Thalanga became aware of this public announcement.

3. [82]

   Nonetheless, so far as the evidence before me reveals, Thalanga did not seek payment of Royalties from Cromarty until June 2018.

4. [83]

   In the meantime, there were negotiations about the possible acquisition by Red River from Cromarty of mining tenements known as the “Highway Reward leases”.

5. [84]

   On 19 June 2018, Mr Walker wrote to Cromarty and Red River:

6. [85]

   On the same day, Mr Walker sent a further letter on behalf of Thalanga to Cromarty and Red River:

7. [86]

   There is no dispute that, because production had commenced at the Tenements, Mr Walker was correct to say that Cromarty was obliged to provide the Second Bank Guarantee.

8. [87]

   On 21 June 2018, Mr Donald Garner from Red River replied:

9. [88]

   Mr Lovelady said that, after he had received a copy of the email Mr Garner sent to Mr Walker on 21 June 2018, he carefully read the Asset Sale Agreement and understood from it that Cromarty was obliged to pay the Royalty to Thalanga within 15 business days from the end of the month of actual sales. He said he also read the Covenant Deed and understood from that document that Cromarty was obliged to provide the Second Bank Guarantee to Thalanga at the time that production begun at the Thalanga mine.

10. [89]

    Mr Walker did not hear from Mr Lovelady and, on 16 July 2018, wrote to him:

11. [90]

    Mr Lovelady replied the following day, 17 July 2018:

12. [91]

    In this email, Mr Lovelady made no mention of the then outstanding Second Bank Guarantee.

13. [92]

    Despite Mr Lovelady’s statement, Cromarty did not pay any Royalty by the end of July.

14. [93]

    Mr Lovelady said that, at around this time, he “first undertook the Royalty calculation” and:

15. [94]

    On 3 August 2018, Mr Lovelady wrote to Mr Walker and to Mr Leiva:

16. [95]

    Mr Leiva replied saying:

17. [96]

    Mr Lovelady did not then disclose that he was performing his calculations on a quarterly, rather than monthly, basis, as was called for by cl 13.1(a) of the Asset Sale Agreement.

18. [97]

    Mr Lovelady gave two reasons for his conclusion that it was administratively inconvenient to calculate the Royalty on a monthly basis. First, Mr Lovelady understood that, in order to calculate Net Sales Realisation, it was necessary for him to deduct the costs of production of the ore. For the reasons I have set out above [16] this was a misapprehension by Mr Lovelady of what was required. Second, Mr Lovelady understood that it was necessary to take into account, at the outset, the “adjustments” contemplated by cl 13.3 of the Asset Sale Agreement. [17] Again, this was a misapprehension of what the Asset Sale Agreement required.

19. [98]

    On 9 August 2018, Mr Lovelady wrote to Mr Walker and Mr Leiva:

20. [99]

    Mr Leiva replied that day:

21. [100]

    Having heard nothing further, on 16 August 2018, Mr Leiva wrote to Mr Lovelady and Mr Walker:

22. [101]

    On 16 August 2018, Mr Lovelady wrote to Mr Leiva and Mr Walker:

23. [102]

    The attached “royalty calculation” showed a total royalty of $1,870,544 for the period up to June 2018, and calculated the royalty quarterly as follows:

24. [103]

    The calculation of Royalties included, as a deduction from net sales receipts, “Realisation Expenses” including “Sales, marketing and concentrate logistics expenses”, “Assay Costs”, “Trucking”, “Sea Freight” and “Stevedoring and Port Charges”.

25. [104]

    I have found that such expenses were not to be taken into account when calculating the Royalty. The Royalty for FY18 was nonetheless calculated, and ultimately paid [18] on this basis. I do not understand Thalanga to seek relief in respect of this miscalculation.

26. [105]

    On 23 August 2018, Mr Leiva caused Thalanga to issue an invoice to Cromarty for $2,057,598, being the $1,870,544 referred to in Mr Lovelady’s “workings” plus GST.

27. [106]

    In Mr Leiva’s covering email he said:

28. [107]

    The invoice itself also contained a statement that:

29. [108]

    There is no evidence that, in fact, Thalanga engaged in any “audit” of these calculations.

30. [109]

    On 6 September 2018, Mr Leiva wrote to Mr Lovelady:

31. [110]

    Mr Lovelady replied on 10 September 2018:

32. [111]

    On 28 September 2018, Red River paid Thalanga $300,000 of the invoiced amount of $2,057,598.

33. [112]

    In cross-examination, Mr Lovelady gave this evidence:

34. [113]

    On 1 October 2018, Mr Leiva wrote to Mr Lovelady:

35. [114]

    On 10 October 2018, Mr Walker wrote to Mr Palancian and Mr Garner:

36. [115]

    On 12 October 2018, Cromarty paid the balance of $1,757,598 owing in relation to Thalanga’s tax invoice of 23 August 2018.

37. [116]

    On 12 October 2018, Mr Lovelady wrote to Mr Leiva:

38. [117]

    On the same day, Mr Leiva wrote to Lovelady:

39. [118]

    Mr Lovelady replied on 15 October 2018:

40. [119]

    On 30 October 2018, Messrs Walker, Leiva, Lovelady and Palancian attended a meeting at Red River’s offices. I heard evidence from Messrs Leiva, Lovelady and Palancian as to what was said at the meeting. As I have mentioned, Thalanga did not call Mr Walker, so his account of what occurred is not before me. The recollections of Messrs Leiva, Lovelady and Palancian differed a little, but my impression was that each was doing his best to give an honest account of what was said.

41. [120]

    The discussion on 30 October 2018 included the following:

42. [121]

    Also, at the meeting:

43. [122]

    Mr Palancian also gave unchallenged evidence that he said:

44. [123]

    One thing that is clear from these accounts of the 30 October 2018 meeting is that no agreement or arrangement was reached to pay the Royalties quarterly.

45. [124]

    Several days after the meeting, on 2 November 2018, Mr Leiva wrote to Mr Lovelady:

46. [125]

    Mr Lovelady gave this evidence in relation to that email:

47. [126]

    Thus, it appears that, on 2 November 2018, over a month from the end of the period for which Thalanga was seeking payment of Royalties, Mr Lovelady had not performed any calculation of what Royalty might be due.

48. [127]

    Mr Lovelady did not reply and, on 9 November 2018 Mr Walker wrote to Mr Palancian and Mr Garner:

49. [128]

    On 15 November 2018, Mr Walker reported to Mr Singla at “head office” in South Africa:

50. [129]

    Also, on 15 November 2018, Mr Lovelady responded to Mr Leiva’s 2 November 2018 email:

51. [130]

    Mr Lovelady was here proposing to pay the Royalty for “the September quarter” after the conclusion of the following quarter, that is the December quarter and to pay the Royalty for the December quarter at the end of the March quarter.

52. [131]

    As I have set out, at the 30 October 2018 meeting there was some discussion of the possibility of Cromarty paying the Royalty “quarterly”. But there was no discussion that the Royalty for one “quarter” would be paid after the conclusion of the following quarter.

53. [132]

    Mr Lovelady gave this evidence:

54. [133]

    Mr Walker responded sharply to Mr Lovelady’s 15 November 2018 email.

55. [134]

    On the following day, 16 November 2018, he replied:

56. [135]

    The statements made in Mr Walker’s email are consistent with the evidence before me as to what occurred on 30 October 2018. Mr Walker agreed to consider calculation of the Royalty on a quarterly basis but that a further delay of the payment of the Royalty, for the September quarter to early January 2019, or of the December quarter until the end of March 2019, was not discussed.

57. [136]

    Mr Walker’s letter did, however, proceed on the basis that payments be made quarterly, as he referred to payment for the “July-Sept quarter”. Mr Walker said such payments were “45 days overdue”. But cl 13.1(a) required payments “within 15 Business Days after the end of the month of actual sales” which, for “sales made in the July-Sept quarter” would be 16 October 2018; making them 28 days, not 45 days, overdue as at 16 November 2018. Neither Mr McGrath nor Mr Kelly suggested anything turned on this.

58. [137]

    Cromarty did not respond to Mr Walker’s email.

59. [138]

    On 3 December 2018, Mr Leiva telephoned Mr Lovelady. Mr Lovelady returned the call.

60. [139]

    Mr Lovelady’s recollection of the conversation was as follows:

61. [140]

    Mr Leiva’s recollection was that he said to Mr Lovelady “you will need to talk to [Mr Walker]. He has run out of patience” and that Mr Lovelady said that he called Mr Walker. Mr Lovelady said that he did not hear further from Mr Leiva or Mr Walker.

62. [141]

    On 6 December 2018, Thalanga, by its solicitor, wrote to Cromarty:

63. [142]

    In this letter Thalanga alleged that the “Outstanding Royalties” included royalties to November 2018. On no construction of cl 13.1(a) of the Asset Sale Agreement were the royalties for November 2018 due. I will return to this below.

64. [143]

    Thalanga’s solicitor sent a corresponding letter to Red River.

65. [144]

    Later, on 6 December 2018, Mr Lovelady wrote to Mr Walker:

66. [145]

    As had been discussed on 30 October 2018, the draft deed proposed that the word “quarter” be substituted for the word “month” in cl 13.1(a).

67. [146]

    The proposed Deed of Variation also proposed that number “30” be substituted for “15” in that clause. That matter had not been discussed on 30 October 2018.

68. [147]

    In any event, Mr Walker replied to Mr Lovelady within minutes:

69. [148]

    Cromarty and Red River made no response to the 6 December 2018 letters of demand.

70. [149]

    On 28 December 2018, Thalanga’s solicitors wrote to Cromarty:

71. [150]

    On 8 January 2019, Cromarty, by its solicitors, replied stating that Cromarty accepted that the Asset Sale Agreement had been terminated and that it had calculated the “final Royalties payable” under the Asset Sale Agreement for the period 1 July 2018 to 28 December 2018 as being $1,222,337, and sought a tax invoice.

72. [151]

    It is common ground that, by this letter, Cromarty purported to accept Thalanga’s alleged repudiation of the agreement as constituted by its letter of 28 December 2018 and to itself terminate the agreement.

Repudiation

1. [152]

   The question is whether, as at 28 December 2018, Cromarty had repudiated its obligations under the Asset Sale Agreement such as to warrant Thalanga terminating the agreement that day; or whether it was Thalanga that repudiated its obligations under the agreement by its purported termination.

2. [153]

   Mr McGrath submitted that I should consider all of the circumstances leading up to 28 December 2018 to determine this question and have regard to the cumulative effect of Cromarty’s failure to comply with its obligations under the Asset Sale Agreement.

3. [154]

   However, the evidence that I have set out shows that although Cromarty had announced publicly in November 2017 that the sale of ore processed from the Tenements had commenced, it was not until June 2018 that Thalanga raised the question of the payment of the Royalty. And it was not until November 2018 that Thalanga demanded payment in terms.

4. [155]

   To summarise:

5. [156]

   Thus, to this point, Thalanga left open for discussion the possibility that Royalties be payable quarterly.

6. [157]

   It was only after Mr Lovelady’s email of 15 November 2018 [51] that Thalanga demanded payment. Faced with Cromarty’s 15 November 2018 proposal that the Royalty for the September 2018 quarter be paid on 7 January 2019 and the Royalty for the December 2018 quarter be paid “prior to the end of March 2019”, Thalanga in effect brought discussion about quarterly payment to an end and demanded strict compliance with the Asset Sale Agreement.

7. [158]

   It is in that context that the question of Cromarty’s alleged repudiation of the Asset Sale Agreement must be considered.

Repudiation – principles

1. [159]

   The term “repudiation” is used in two senses. [52]

2. [160]

   The first is where there has been a “renunciation” [53] by one party of the contract as a whole or of a fundamental obligation under the contract. [54] The question in such a case is whether a party to the contract has evinced an unwillingness [55] to render substantial performance under the contract and either to be no longer bound by the contract at all, or, more relevantly here, to fulfil it “only in a manner substantially inconsistent” with its obligations and “not in any other way”. [56]

3. [161]

   The test is whether the conduct of one party is such as to convey “to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it”. [57]

4. [162]

   In this context it has been held that there is a difference between evincing an intention to carry out the contract “only if and when” it suits the party to do so, and evincing an intention to carry out the contract “as and when” it suits the party to do so. In the former case, “the party intends not to carry out the contract at all in the event that it does not suit him”. In the second case, “the party intends to carry out the contract, but only to carry it out as and when it suits him”. Repudiation may be found in either case, but more easily in the former [58] .

5. [163]

   Repudiation is a “serious matter, not to be lightly found or inferred” [59] and must constitute a breach “so serious that it goes to the root of the contract, and thus deprives the other party of substantially the whole benefit of the contract”. [60]

6. [164]

   The second sense in which the term “repudiation” is used is where there has been a breach of contract which justifies termination by the other party. [61] Repudiation in this sense describes the effect of the breach of a condition or of an intermediate term. [62]

7. [165]

   There may be cases where a party’s conduct amounts to repudiation in both of these senses. [63]

8. [166]

   I shall deal with repudiation is each of these senses in turn.

Repudiation by renunciation

1. [167]

   I see no basis on which I could conclude that Cromarty evinced an intention not to be at all bound by the Asset Sale Agreement. I do not consider this to be a case where Cromarty evinced an intention to perform its obligations of the Asset Sale Agreement only “if and when” it suited it, nor that it intended not to comply with its obligations under the Asset Sale Agreement at all if it did not suit it.

2. [168]

   From August 2018, Cromarty proceeded on the basis that it would perform its obligations to pay the Royalty “as and when” it suited it, that is, by quarterly payments, rather than the monthly payments required by cl 13.1(a) of the Asset Sale Agreement.

3. [169]

   However, as I have described, until and including 9 November 2018, Thalanga left open for discussion the possibility that Royalties be payable quarterly. That question was discussed on 30 October 2018, on which occasion Mr Palancian emphasised that Cromarty’s intention was to pay the Royalty “into the future” and to “ensure that the Royalty payments will be made”. I see no reason to doubt that this was Mr Palancian’s, and thus, Cromarty’s intention.

4. [170]

   However, by Mr Lovelady’s 15 November 2018 email, Cromarty informed Thalanga that it intended to pay the Royalty for the September and December 2018 quarter at the beginning and end of the March quarter, respectively. Cromarty had not previously indicated any such intention. There was no suggestion in the discussions that quarterly, rather than monthly, Royalty payments would otherwise be in accordance with cl 13.1(a); that is, within 15 Business Days after the relevant period, be it the month or quarter of sales.

5. [171]

   That this was no part of the discussions is illustrated by Cromarty’s 6 December 2018 proposal that the number “15” in cl 13.1(a) be changed to “30”. [64] This shows that all discussions about the possibility of quarterly payments had hitherto proceeded on the unstated, but mutually understood, assumption that payments would be made within an agreed number of Business Days after the quarter in question; and not in the following quarter.

6. [172]

   This provoked Mr Walker’s strong response of 16 November 2018, [65] the tone of which was understandable, particularly in the light of his earlier communication of 9 November 2018. [66]

7. [173]

   A striking feature of this case is that, in contrast to the detailed and regular written communications between the parties up to this point, Cromarty did not respond to Mr Walker’s 16 November 2018 email.

8. [174]

   It was only when Mr Leiva rang Mr Lovelady on 3 December 2018 that, on Mr Lovelady’s account of it, and in response to Mr Leiva’s enquiry about “the next Royalty payment”, Mr Lovelady told Mr Leiva that “we intend to pay as set out in my 15 November email”. Mr Lovelady knew that “this was different to the current agreement”. [67] There is no suggestion that Cromarty was unable at this point to calculate what amount was payable by way of Royalty. Almost two months earlier, on 15 October 2018, Mr Lovelady told Mr Leiva that Thalanga could “use” $400,000 to $500,000 as an estimate of the Royalty for the September quarter and that he, Mr Lovelady, expected to “be able to provide a better estimate by the end of this week” [68] .

9. [175]

   That is, Cromarty told Thalanga, through Mr Lovelady, or alternatively by its silence, that it would pay the Royalty “as and when it chose”.

10. [176]

    On 6 December 2018, Thalanga by its solicitor demanded payment of “Outstanding Royalties” [69] by 13 December 2018.

11. [177]

    Cromarty did not respond in any way to this demand. This made even more clear that Cromarty’s position was one of intransigence. It was not going to perform its obligations under cl 13.1(a) of the Asset Sale Agreement in the manner provided for in that clause. Rather, it would perform those obligations “as and when it chose”.

12. [178]

    The timely payment of the Royalty was at the heart of the obligations assumed by Cromarty under the Asset Sale Agreement.

13. [179]

    When Thalanga sold the Tenements to Kagara, the consideration it received was the Purchase Price of $2 million and the promise of the Royalty payment once sales had taken place.

14. [180]

    There was no evidence before me as to what level of Royalty Thalanga and Kagara contemplated at the date of the Asset Sale Agreement.

15. [181]

    However, by 16 August 2018, Cromarty had calculated the Royalty for FY18 at $1,870,544. This was in circumstances where Cromarty had received the first payment from sale of zinc concentrate on 9 November 2017 and thus where the royalty payment of $1,870,544 was, in effect, only in respect of the second, third and fourth quarters of FY18. In October 2017, Thalanga wrote to Cromarty estimating that the value of the Royalties was in the vicinity of $20 million.

16. [182]

    From Thalanga’s point of view, Cromarty’s ongoing payment of Royalties, as a successor in title to Kagara, was the most substantial part of the concluded bargain constituted by the Asset Sale Agreement. This must have been obvious to Cromarty.

17. [183]

    Timely payment of the Royalty was thus of vital interest to Thalanga. This is particularly so in circumstances where, first, the Asset Sale Agreement made no provision for the payment of interest on late Royalty payments and where, second, Thalanga’s position in relation to royalties exceeding $1 million was unsecured [70] . These matters must also have been obvious to Cromarty.

18. [184]

    In these circumstances, in my opinion, a reasonable person in the position of Thalanga would see Cromarty’s expressly [71] or implicitly [72] stated intention to carry out the Contract as and when it suited it to have been “taken to such lengths that it amounts to an intention to fulfil the contract only in a manner substantially inconsistent with [its] obligations and not in any other way”. [73]

19. [185]

    Cromarty thereby repudiated its obligations under the Asset Sale Agreement.

20. [186]

    Thalanga was entitled to terminate the Asset Sale Agreement on that basis.

Repudiation by breach of a condition or intermediate term

1. [187]

   Because of that conclusion, it is not necessary for me to deal with Thalanga’s alternative argument that Cromarty also repudiated its obligations under the Asset Sale Agreement by breach of a term in respect of which time was of the essence.

2. [188]

   However, in deference to the detailed arguments deployed by counsel, I will do so, albeit briefly.

3. [189]

   Breach of an essential term of a contract, that is to say, a condition, may entitle the innocent party to terminate the contract. [74]

4. [190]

   Time stipulations in commercial contracts are ordinarily construed as conditions, although the question of whether a term is essential depends upon the proper construction of the contract. [75]

5. [191]

   The test of essentiality is:

6. [192]

   I think it obvious that, all other things being equal, the promise in cl 13.1(a) to pay the Royalty was essential in this sense. It must have been obvious to Cromarty that this promise was of such importance that Thalanga would not have entered the Asset Sale Agreement unless assured of a strict or substantial compliance with the promise.

7. [193]

   Further, a “sufficiently serious breach of a non-essential term”, that is to say, of an “intermediate” term of a contract, may entitle the innocent party to terminate the contract. [77]

8. [194]

   A breach of the contract will be sufficiently serious for this purpose if it goes “to the root of the contract” such “as to deprive the injured party of a substantial part of the benefit to which [it] is entitled under the contract”. [78]

9. [195]

   For the reasons outlined above in relation to renunciation, in my opinion, cl 13.1(a) was an essential term or condition of the Asset Sale Agreement, breach of which was capable of entitling Thalanga to terminate.

10. [196]

    For the same reasons, in my opinion, time was of the essence of Cromarty’s obligations under cl 13.1(a).

11. [197]

    However, for the reasons I have set out above concerning Thalanga’s leaving open for discussion the possibility that Royalties be payable quarterly, [79] Thalanga did not treat time as being of the essence of Cromarty’s obligations under cl 13.1(a) until November 2018. In effect, by proceeding with the contract, Thalanga waived an entitlement to treat time as being of the essence of Cromarty’s obligations under cl 13.1(a).

12. [198]

    In a case when a contract contains a stipulation as to time that is not of the essence, a party may give a notice fixing a reasonable time for compliance such that time becomes of the essence. [80]

13. [199]

    Likewise, where, as here, a party has not insisted on timely compliance with an essential term, that party can later insist on such timely compliance, but only after having made clear that strict compliance with the contract terms is required within a reasonable time.

14. [200]

    In considering what time is reasonable, all the circumstances of the case must be considered, including:

15. [201]

    By Mr Walker’s 16 November 2018 email [82] , and its solicitors’ letter of 6 December 2018 [83] , Thalanga made clear that it then required strict compliance by Cromarty with its obligations under cl 13.1(a).

16. [202]

    The question is whether the 14-day notice in the 16 November 2018 email and, more importantly, the 7-day notice in the 6 December 2018 notice, was reasonable.

17. [203]

    In Thalanga’s 16 November 2018 email, Mr Walker demanded payment of Royalties for the “July/Sept quarter” by 30 November 2018; that is, within 14 days and 10 business days. The email did not state, in terms, that Thalanga would terminate the Asset Sale Agreement if such a payment was not made but did make clear that Thalanga required strict compliance with the demand.

18. [204]

    The email did not specify an amount to be paid. But that is understandable, as Thalanga could not know what sales Cromarty had achieved in the July/September quarter and thus could not know what Royalty was due.

19. [205]

    As I have said, [84] the email wrongly stated that payments were “more than 45 days overdue”. However, I do not think, anything turns on this. Mr Kelly did not suggest that it did.

20. [206]

    Cromarty did not reply to Mr Walker’s 16 November 2018 email and, in particular, did not assert that the 14-day period referred to in Mr Walker’s email was unreasonable or insufficient.

21. [207]

    Shortly after the expiration of that 14-day period, on 3 December 2018, Mr Lovelady told Mr Leiva that Cromarty “intend[s] to pay as set out in my 15 November email”. [85] That made clear that Cromarty had no intention of making any Royalties payment due to the end of September until early January 2019.

22. [208]

    The 6 December 2018 letter demanded that “Outstanding Royalties” be paid by 13 December 2018; seven days and five business days later.

23. [209]

    The letter defined “Outstanding Royalties” as being Royalties for sales from July to November 2018.

24. [210]

    As I have said, [86] as at 6 December 2018, no Royalties were due for sales in November 2018. Royalties were not payable till 15 Business Days after November 2018; that being 21 December 2018.

25. [211]

    I do not think that this error affected the letter’s ability to fix a time for performance, beyond which Cromarty’s delay would amount to repudiation of its obligations under the Asset Sale Agreement. That is because, although the letter specified as a default an event that was not a default, it also specified events that were a default. [87]

26. [212]

    The letter made clear what Thalanga proposed to do if the Outstanding Royalties were not paid by 13 December 2018; namely, “terminate the Asset Sale Agreement and commence proceedings without further notice”.

27. [213]

    The time specified in Thalanga’s solicitors’ letter for payment of outstanding Royalties was relatively short. But this was in the context that, on 16 November 2018, Thalanga had demanded payment of the Royalties by 30 November 2018.

28. [214]

    I think in all the circumstances, the period specified in the 6 December 2018 letter was reasonable.

29. [215]

    Cromarty made no response, of any kind, to the 6 December 2018 letter.

30. [216]

    Mr Kelly submitted that by not terminating the Asset Sale Agreement on the basis of Mr Walker’s 16 November 2018 email, Thalanga had somehow elected to affirm the Asset Sale Agreement. I do not see how this could be so. I see no act of affirmation between the 16 November 2018 demand and the 6 December 2018 demand. [88]

31. [217]

    Thalanga’s solicitors’ letter of 28 December 2018 purported to terminate the Asset Sale Agreement on the basis of Cromarty’s failure to respond to the 6 December 2018 demand.

32. [218]

    Thalanga was entitled to terminate the Asset Sale Agreement on this basis, as well as on the basis I have earlier set out.

Damage - Royalties payable prior to 2018

1. [219]

   It follows from my conclusions as to the proper construction of cl 13.1(a) that at the end of each month in which Cromarty shipped ore to Glencore or Trafigura and in which Glencore or Trafigura made the 95% provisional payment for that ore, Thalanga was entitled to be paid a Royalty, to be calculated by Cromarty on the Net Sales Realisation referrable to those sales. That payment was to be made within 15 Business Days from the end of the month, notwithstanding the fact that those Provisional Payments might be “adjusted” under cl 13.3 when the “final NSR for that amount” was determined.

2. [220]

   Thalanga unconditionally accrued a right to payment for Royalties from 1 July 2018 to the termination date of 28 December 2018. [89] The same principles apply following determination for repudiation. [90]

3. [221]

   Thalanga’s accounting expert, Mr Stephen Gemell, calculated unpaid Royalties to 28 December 2018 at $1,712,944. Cromarty’s expert, Mr Campbell Jaski, assessed unpaid Royalties as $1,184,047.

4. [222]

   There were two differences for the competing opinions.

5. [223]

   First, Mr Gemell assumed that a “sale” took place when title in the ore changed hands from Cromarty to Glencore or Trafigura; whereas Mr Jaski assumed that “sales” meant “receipts” in the period 1 July to 28 December 2018.

6. [224]

   It follows from my conclusions as to the proper construction of cl 13.1(a), that the “actual sales” of the ore took place when title passed and that, accordingly, Mr Gemell’s calculations are made on the correct basis.

7. [225]

   The second difference between the experts was that Mr Jaski deducted sales realisation expenses to calculate the royalties. For the reasons I have set out above, [91] on the proper construction of the definition of “Net Sales Realisation”, this is not permissible.

8. [226]

   Accordingly, unpaid Royalties to the termination date should be calculated in accordance with Mr Gemell’s reasoning at $1,712,944.

Future Royalties

1. [227]

   As I have concluded that Thalanga was entitled to terminate the Asset Sale Agreement by reason of Cromarty’s repudiation of that agreement, Thalanga is entitled to loss of bargain damages. [92] Such damages are to be calculated on a basis that puts Thalanga “in the same situation…, so far as money can do it, as it would have been had the broken promise been performed”. [93]

2. [228]

   Thalanga calculates the value of what it has lost, by reason of Cromarty’s failure to perform the Asset Sale Agreement, as the net present value of the Projected Royalties.

3. [229]

   Mr Kelly submitted that the Projected Royalties could not be a proxy for Thalanga’s loss of bargain damages because it did not take account of the value of the costs of Thalanga’s “obligations” under the Asset Sale Agreement.

4. [230]

   But Thalanga had no relevant obligations under the Asset Sale Agreement. Its role was as the passive recipient of the Royalties to which it was entitled under cl 13.1(a). It had done everything it needed to do to be entitled to such Royalties by selling the Tenements to Cromarty’s predecessor in title, Kagara.

5. [231]

   Accordingly, I consider that it is appropriate to assess Thalanga’s loss of bargain damages by reference to the appropriate value of the Projected Royalties.

6. [232]

   In that regard, several issues divided the opinions expressed by Mr Gemell for Thalanga and Mr Jaski for Cromarty.

7. [233]

   I shall deal with each of those matters in turn.

8. [234]

   One matter that was not in dispute was the discount rate to be applied to reach a net present value of the Projected Royalties’ stream. It is agreed that the appropriate discount rate is 6.5%.

9. [235]

   The experts disagree as to whether any amount should be included in the Projected Royalties for a mineral deposit within the Tenements known as the “Orient deposit”.

10. [236]

    The Orient deposit has not yet been mined. There has been no “advancement” of the Orient deposit since 2011.

11. [237]

    Mr Palancian gave this evidence about the Orient deposit:

12. [238]

    In its Annual Financial Report for FY20 Red River included a “Mineral Resource and Ore Reserve Statement” in which it stated that the “Mineral Resource” for 2020 for the Orient deposit was 540 kt.

13. [239]

    The Directors’ Report also contained a statement:

14. [240]

    That statement was made in the context that the Joint Ore Reserves Committee (“JORC”) Code requires that:

15. [241]

    There is an important distinction between a “Mineral Resource” and an “Ore Reserve” for the purposes of the JORC Code.

16. [242]

    An “Indicated Mineral Resource” is defined by the JORC Code to be:

17. [243]

    On the other hand, an “Ore Reserve” is refined as:

18. [244]

    Although the Orient deposit is listed as part of Cromarty’s “Indicated Mineral Resource” it is not listed as part of Cromarty’s “Ore Reserve”.

19. [245]

    Nor is it included in Red River’s production schedules.

20. [246]

    The inclusion by Red River of the Orient Reserve as an “Indicated Resource” bespeaks Red River’s (and thus Cromarty’s) position that there are “reasonable prospects for eventual economic extraction” of ore from the Orient deposit.

21. [247]

    However, it says nothing as to when that extraction will “eventually” occur.

22. [248]

    Mr Gemell expressed that his opinion, that prospective income from the Orient deposit should be included in a Discounted Cashflow Analysis, was based upon his assumption that ore would be extracted from the Orient deposit in 2023. However, there is no evidence before me as to whether that would, or indeed could occur. Both Mr Gemell and Mr Jaski agreed that Cromarty’s operation was “marginal” 12 months ago (albeit without reference to any evidence). Mr Gemell on the other hand said that, at the moment, “shareholders are very happy” with Cromarty’s financial performance; again without reference to any evidence.

23. [249]

    Mr Jaski expressed the opinion that the Orient reserve should, for present purposes, be valued in accordance with its market value and not on the basis of the discounted cash flow of the Projected Royalties from the Orient Deposit. This was principally because, as Mr Jaski pointed out, there is no information available as to when ore production from the Orient deposit might commence. Thus, a discounted cash flow analysis could not sensibly be undertaken without some information as to when production was likely to commence.

24. [250]

    In those circumstances, I am persuaded that the value to be attributed to the Orient reserve should be done by using the market basis approach for which Mr Jaski contended.

25. [251]

    Mr Jaski explained:

26. [252]

    Mr Jaski referred to statements in Red River’s financial statements concerning another of the deposits within the Tenements, the “West 45 deposit”.

27. [253]

    Those financial statements state that, as at 13 December 2017, the “Mineral Resource” and “Ore Reserve” for the West 45 deposit were 582 kt and 567 kt respectively, whereas the actual ore mined from the West 45 deposit to 31 December 2018 was recorded as being only 336 kt.

28. [254]

    Accordingly, Mr Jaski opined:

29. [255]

    Mr Jaski then, evidently, applied the “conversion rate” and so calculated the three other mineral deposits within the Tenements: the “Far West”; “Waterloo Primary”; and “Waterloo Transitional” deposits.

30. [256]

    This was surprising bearing in mind his statement in his report that:

31. [257]

    In any event, later financial reports of Red River show that the actual ore mined from West 45 to 31 March 2020 was some 612 kt, a substantial increase from 336 kt as at 31 December 2018. This suggests that the position in relation to the West 45 deposit was not a reliable proxy for the position in relation to other deposits.

32. [258]

    My attention has not been drawn to any other evidence which would suggest that any Orebody Adjustment factor should be made.

33. [259]

    I find that no such adjustment should be made.

34. [260]

    The Waterloo deposit includes “transitional ore”.

35. [261]

    In his affidavit, Mr Palancian explained:

36. [262]

    Mr Palancian then referred to a report prepared by a Mr Shuhua He on 27 October 2019 entitled “Impact of the Transition Ores into the Float Performance of FW ores”.

37. [263]

    In that report, the author concluded:

38. [264]

    Mr Palancian continued:

39. [265]

    In cross-examination, Mr Palancian gave the following evidence about this subject:

40. [266]

    Thus, Mr Palancian’s evidence is that the “transitional ore” in the Waterloo deposit will not be mined by Cromarty.

41. [267]

    Based on this evidence, Mr Jaski opined that the Waterloo Transitional Deposit should be excluded from the calculation of Projected Royalties.

42. [268]

    Mr McGrath submitted that Mr Palancian’s evidence was “false and self-serving” and should be rejected.

43. [269]

    I understood the basis of this submission to be that the evidence was inconsistent with the inclusion in Red River’s financial statements, within its Mineral Resource and Ore Reserve Statement, of an “Indicated” and “Inferred” mineral resource for the Waterloo deposit; coupled with the director’s statement (with which Mr Palancian as a director necessarily joined), that “all elements included in the metal equivalent calculation have a reasonable potential to be recovered and sold”.

44. [270]

    There may be a tension Mr Palancian’s evidence and these statements, but I am not able to conclude from that that Mr Palancian has given false evidence before me.

45. [271]

    These are technical matters about which Mr Palancian clearly has experience and expertise. I am not prepared to reject his evidence.

46. [272]

    Accordingly, the Waterloo transition deposit should not be taken into account in calculating Projected Royalties.

47. [273]

    Mr Jaski opined that a “closure risk discount” ranging from 15% to 35% should be applied to the overall Projected Royalties due to Thalanga mine’s history of entering care and maintenance.

48. [274]

    Thus, in the joint report prepared by Mr Gemell and Mr Jaski it was recorded:

49. [275]

    Thus, Mr Jaski’s rationale for including the disclosure risk discount is based on what a hypothetical purchaser would pay for the royalty stream rather than on a prediction of likely sales of ore from the Tenements.

50. [276]

    Mr Jaski accepted that the effect of adopting his opinion would be to permanently eliminate about one third of the Projected Royalty.

51. [277]

    Mr Jaski also accepted that his assessment was subjective, if not speculative.

52. [278]

    He thus gave this evidence in response to questions from me:

53. [279]

    The Tenements do have a history of entering care and maintenance, and also of reopening.

54. [280]

    The Tenements operated from 1990 to 1998 and were then put into care and maintenance for some 12 years after which Kagara operated the mine. Kagara went into liquidation and the Tenements were sold to Cromarty. Under Cromarty’s stewardship, the Tenements have operated continuously since then.

55. [281]

    Mr Jaski gave this evidence in cross-examination:

56. [282]

    As I suggested to Mr Jaski, to make any assessment about what if any “closure risk discount” should be applied here, would involve engaging in the very wide enquiry as to the present viability of the Tenements. There is simply insufficient evidence before me for me to embark on such an enquiry.

57. [283]

    No doubt there is some risk that the Tenements might close. But for me to make any assessment of how likely that is, and to then make an assessment of what “closure risk discount” should be applied, would involve me doing little more than “plucking a figure out of the air”. [95]

The caveats issue

1. [284]

   Thalanga has lodged caveats on the title of the Tenements. Cromarty seeks to have the caveats removed.

2. [285]

   Thalanga’s entitlement to lodge the caveats depended on the outcome of these proceedings. Thalanga has stated that once the Royalty is paid, it will remove the caveats.

3. [286]

   I will hear submissions as to whether any order is needed in this regard.

Conclusion

1. [287]

   The parties should confer and agree on what, if any, further matters require resolution before final orders can be made and as to what those orders should be.