In this case, the High Court has unfortunately not, as perhaps hoped, finally resolved the question of whether ambiguity must first be shown in a contract before a court can refer to evidence of the surrounding circumstances in resolving the interpretation of the contract, or whether surrounding circumstances can effectively be used to both create and resolve an ambiguity (or constructional choice) in a contractual provision.  A High Court decision to resolve this issue is still eagerly awaited. 

The Western Australian Government issued rights of occupancy (which permitted exploration but not mining) over some temporary reserves to Wright Prospecting Pty Limited and Hancock Prospecting Pty Limited (together Hanwright).  In 1970, Mount Bruce Mining Pty Ltd (MBM), Hanwright and Hammersley Iron Pty Limited entered into an agreement (the 1970 Agreement) pursuant to which the temporary reserves were divided between Hanwright and MBM with royalties payable to Hanwright in respect of “ore won by MBM from the MBM area”, where such ore was mined by MBM or “all persons or corporations deriving title through or under” MBM to the MBM area.

The 2 contractual construction questions before the High Court were:

  • the meaning of “the MBM area” (and specifically whether it included the Eastern Range and Channar A areas). The High Court held that:
    • “the MBM area” referred to the area of land fixed by the then existing boundaries of the temporary reserves, as opposed to the rights which MBM acquired from Hanwright;
    • such a construction was held to reflect the natural and ordinary understanding of the language used and was consistent with the commercial circumstances which the 1970 Agreement addressed and the purpose or object of the transaction it was intended to secure; and
    • there was nothing in the text of the 1970 Agreement to suggest that the parties intended that the entitlement of Hanwright to royalties was conditional upon ore being won from the exercise of rights that Hanwright held at the time of the 1970 Agreement (which at the time, did not include the right to mine); and
  • whether the ore mined at Channar A was mined by entities deriving title “through or under” MBM.  The High Court held that “through or under” did not require an “unbroken chain of title” and was broader than succession, assignment or conveyance.  Rather, the Court pointed to the fact that grant of a mining lease to the relevant mining joint venture was conditional on MBM surrendering the relevant sections of its mining lease in concluding that the mining rights exercised by the joint venture were derived “through or under” MBM.

In reaching its decision, the High Court unfortunately did not resolve the question of whether ambiguity must first be shown in a contract before a court can refer to evidence of the surrounding circumstances of the underlying transaction in resolving the interpretation of the contract, or whether surrounding circumstances can effectively be used to both create and resolve an ambiguity (or constructional choice) in a contractual provision.  The Court acknowledged what Bell and Gaegler JJ described as “important question on which intermediate courts of appeal are divided” but did not resolve the question in this case because the parties had agreed that ambiguity existed in the 1970 Agreement.

Interestingly, all members of the High Court emphasised that the reasons for refusing special leave to appeal in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45 (which stated that it is essential to identify ambiguity in the language of a contract before the court may have regard to surrounding circumstances) did not have to be relied upon by lower courts in determining that very question.  Kiefel and Keane JJ (with French CJ and Nettle and Gordon JJ agreeing) observed that “statements made in the course of reasons for refusing an application for special leave create no precedent and are binding on no one.”  Similarly, Bell and Gageler JJ stated that it “should go without saying that reasons for refusing special leave to appeal in a civil proceeding are not themselves binding authority”.