The Western Australian Court of Appeal recently delivered its decision in Commissioner of State Revenue v Abbotts Exploration Pty Ltd[2014] WASCA 211, a case which considered whether an exploration licence holder can transfer or otherwise deal with a legal or equitable interest in an exploration licence during the first year of term, and without obtaining Ministerial consent. This case will be relevant to the industry for three reasons. First, it confirms that a tenement holder cannot transfer a legal or equitable interest in the exploration licence during its first year of term without obtaining Ministerial consent. Second, it is instructive as to what will constitute a legal or equitable interest in a mining tenement.  Third, it assists in understanding what interests will support the lodgement of a caveat to protect an interest in a mining tenement.

Purported transfer in the first year of term of the Sacculus Exploration Licence

The dispute arose out of an option deed entered into on 8 March 2010 (Option Deed) that granted an option to Anuman Holdings Pty Ltd (Anuman) to acquire an “Interest” in various mining tenements held by Sacculus Pty Ltd (Sacculus).  “Interest” was defined in the Option Deed as meaning the right and entitlement of Anuman to prospect, explore, mine and develop for all minerals on the “Mining Interests” and the benefit of all receipts and income from those activities.  “Mining Interests” included Sacculus’ application for exploration licence 51/1367 (Sacculus Exploration Licence). It was also a condition precedent of the Option Deed that Sacculus would “provide and sign all documents necessary to ensure that Anuman became the registered holder of the Interest”, and that if, on settlement, “any part of the Interest is not a granted tenement or Ministerial consent is required to transfer any part of the Interest, [Sacculus] will hold that part of the Interest on trust for [Anuman] until such time as the tenement is granted or any necessary Ministerial consent is granted”.

Anuman exercised the option on 9 March 2010 and paid the purchase price of $50,000 for the “Interest”. On 14 July 2010 Sacculus became the registered holder of the Sacculus Exploration Licence.  On 18 May 2011, after the grant of the Sacculus Exploration Licence, Abbotts Exploration Pty Ltd (Abbotts Exploration) acquired shares in Anuman.  The Commissioner of State Revenue alleged that Abbotts Exploration was required to pay duty for the acquisition of the shares in Anuman as, by reason of Anuman’s “Interest” in the Sacculus Exploration Licence, Anuman was a “landholder” for the purposes of the Duties Act 2008 (WA) (Duties Act).

To establish whether Anuman was a “landholder” at the relevant date, it was necessary to determine whether the rights conferred by the Option Deed in respect of the Sacculus Exploration Licence, during the first year of its term, were an estate or interest in a mining tenement within paragraph (ca) of the definition of “land” in the Duties Act.  This also required the Court of Appeal to consider the application of section 64 of the Mining Act 1978 (WA) (Mining Act).

Section 64 of the Mining Act

Section 64 of the Mining Act provides that during the first year of the term of an exploration licence, a legal or equitable interest in the exploration licence cannot be transferred or otherwise be dealt with without first obtaining Ministerial consent.

The Court of Appeal considered, among other things, whether the Option Deed that provided for a transfer of an “Interest” in the Sacculus Exploration Licence to Anuman during its first year of term, which had a condition precedent that Sacculus would provide and sign all documents necessary to ensure that Anuman became the registered holder of the Interest, is capable of transferring the “Interest” in the Sacculus Exploration Licence to Anuman before Ministerial consent is obtained.  The Court of Appeal confirmed the principle applied by the High Court in McWilliams v McWilliams Wines Pty Ltd (1964) 114 CLR 656 and Brown v Heffer (1967) 116 CLR 344, that where Ministerial consent is required as a condition precedent to a contract for the sale of land, even where full consideration has been paid for the land, the land would not be transferred to the purchaser until the Ministerial consent has first been obtained.  Therefore, the Court of Appeal held that even though Anuman had paid the purchase price for the “Interest”, until Ministerial consent had been obtained Sacculus could not validly transfer the “Interest” in the Sacculus Exploration Licence to Anuman.

The transfer of the “Interest” in the Sacculus Exploration Licence to Anuman pursuant to the Option Deed was in breach of section 64 of the Mining Act as it purported to transfer the “Interest” in the Sacculus Exploration Licence during its first year of term without obtaining Ministerial consent.  The Court considered whether the Option Deed was therefore illegal and void as it was in breach of section 64 of the Mining Act.  It was held that section 64 would operate to prevent beneficial ownership immediately vesting in Anuman upon the grant of the Sacculus Exploration Licence but that the prohibition in section 64 would not extend beyond the first year of the Sacculus Exploration Licence or if Ministerial consent was obtained.  The Court therefore did not consider that the Option Deed was illegal or void beyond the first year of term of the Sacculus Exploration Licence (or otherwise after obtaining Ministerial consent).  The Court also confirmed the principle in Anaconda Nickel Ltd v Tarmoola Australia Pty (2000) WAR 101 that section 64 of the Mining Act does not render illegal or unenforceable any personal contractual rights created under any agreement that provides for a transfer or other dealing without obtaining Ministerial consent.

The meaning of “estate” or “interest” in a mining tenement

The Court of Appeal examined the meaning of the terms “estate” and “interest” in relation to mining tenements under the Mining Act.  The Court held that in relation to the term “estate”, the only specific tenements to which the term “estate” would apply under the Mining Act are mining leases and general purpose leases.  The rights granted to Anuman under the Option Deed could not therefore include an “estate” because the concept of “estate” does not extend to exploration licences.

In relation to the term “interest”, the Court considered the meaning of “legal interest” and “equitable interest”.  “Legal interest” was held to refer to the proprietary interest of the holder of a tenement or the holder of a mortgage of a tenement which is evidenced in writing and the particulars of which have been entered on the Department of Mines and Petroleum’s register.  The Court held that an “equitable interest” in a mining tenement is a proprietary interest in a tenement that is not a “legal estate or interest”.  The “proprietary interest” comprises, relevantly, those proprietary rights over, affecting or in connection with the mining tenement that are referable to the particular “estate” or “interest” in question, and are conferred by the Mining Act and (subject to the Act) any instrument or instruments in writing.

The Court found that since the Sacculus Exploration Licence had not been granted at the time that the Option Deed was entered into, when the option was exercised or on payment of the purchase price, Anuman had no existing proprietary rights in relation to the Sacculus Exploration Licence and therefore could not hold a “legal interest” in the Sacculus Exploration Licence.  Further, as Sacculus had not obtained Ministerial consent for the transfer of the Sacculus Exploration Licence to Anuman, the Option Deed was not effective to transfer an “equitable interest” in the Sacculus Exploration Licence to Anuman.

Would Anuman have the right to lodge a caveat to protect its “interest in a mining tenement”?

Although the decision clarifies when a legal or equitable interest in a mining tenement will arise, it also provides the basis for a stricter interpretation of what is an “interest in a mining tenement” for the purpose of lodging a caveat under section 122A of the Mining Act.  In Anuman’s case, for example, on the basis of the Court’s interpretation of “interest in a mining tenement”, it would appear that as Anuman held no “legal interest” or “equitable interest” in the Sacculus Exploration Licence (until the first year of term has expired or Ministerial consent has been obtained), Anuman would have had no valid “interest in a mining tenement” to support the lodgement of a caveat against the Sacculus Exploration Licence under section 122A of the Mining Act.  This may have ramifications for clients who seek to lodge caveats to register an interest in a mining tenement that would not strictly be considered a “legal or equitable interest”, such as (perhaps) royalty interests.  This case suggests that the holder of a royalty interest may not have an instrument that can support the registration of a caveat against the mining tenement to protect that interest as it holds no proprietary interest in the mining tenement, and holds merely a contractual right.

However, pursuant to section 122A(2) of the Mining Act, an interest holder may be able to lodge a caveat to protect its interest in a mining tenement, regardless of whether the interest holder has a valid “interest” in the tenement, if there is an agreement relating to the sale of the holder’s interest in the tenement which provides that either party may lodge a caveat against the tenement forbidding the registration of a dealing or surrender affecting the tenement or interest in question.  Section 122A(2) of the Mining Act therefore provides a significantly broader basis for lodging a caveat to protect an “interest” in a tenement, even in circumstances where the “interest” (such as a royalty interest) would not be considered a “legal or equitable interest” in the tenement.

Lessons learnt from Anuman and Sacculus

This case demonstrates when a relevant interest in a tenement will arise and whether the interest constitutes a “legal or equitable interest”.  The key takeaway from this decision is that even where an interest holder has paid the purchase price to acquire an “interest” in an exploration licence during the first year of it's term, a valid “interest” in the exploration licence will not arise for the purposes of the Mining Act unless the interest has been transferred to the interest holder after the first year of term of the exploration licence or Ministerial consent to the transfer has been obtained.  Further, it is possible that the interest holder will not be able to lodge a caveat against the mining tenement to protect its personal contractual right, as the person will not be considered to hold a valid legal or equitable “interest in the mining tenement” as required by section 122A of the Mining Act.