The unabridged version of this article was first published in Volume 32, Number 3 (December 2013) of the Australian Resources and Energy Law Journal by AMPLA Ltd in association with the Centre for Resources Energy and Environmental Law of The University of Melbourne, the Centre for Mining Energy and Natural Resources Law of the University of Western Australia and the School of Law of the University of Waikato.
In the recent decision of Payne v Dwyer  WASC 271, the Court considered whether privately-owned minerals held by Alexander Leslie Payne and Razor Holdings Pty Ltd (the Plaintiffs) had been extinguished by adverse possession of Jonathon James Dwyer (the Defendant).
Pritchard J upheld the claim of the Plaintiffs that their title to the privately-owned minerals had not been extinguished by adverse possession, and also dismissed the Defendant’s claim of adverse possession.
The titles in question were granted before 1899, which means that all minerals in the land the subject of those titles (the Land) are owned by the owners of the land (except gold, silver and other precious metals, which were reserved to the Crown, and other certain metals and minerals reserved to a prior transferor).
In mid-1970, Mr James Payne and Mrs Adrien Payne (the registered proprietors of the Land, as tenants in common) obtained separate certificates of title for each of their undivided half shares in the Land. Mr Payne then transferred his 50% interest in the Land to Joice Investments Pty Ltd (Joice Investments), a company owned by the Defendant and the Defendant’s family, such that the Land was owned by Mrs Payne and Joice Investments.
Subsequently, Mrs Payne entered into an agreement whereby she agreed to sell her 50% interest in the Land to Joice Investments, except and reserving all minerals on or below the surface of the Land (excepting all of the previously excepted minerals) (the 1970 Agreement).
In late 1970, Mrs Payne transferred her 50% interest in the Land to Joice Investments, and in doing so excepted and reserved the minerals on or below the surface of the Land (excepting all of the previously excepted minerals). Mrs Payne was then issued a new certificate of title in respect of her reserved minerals (the Mineral Interest). Joice Investments accordingly held 50% of the minerals in the Land (excepting all of the previously excepted minerals), and Mrs Payne held the other 50% of the minerals in the Land (also excepting all of the previously excepted minerals) (i.e. the Mineral Interest).
In 2009, the Defendant became the owner of each 50% interest in the Land (excepting all of the previously excepted minerals), and in 2011, the Plaintiffs became the owner of the Mineral Interest.
From around 2002, the Defendant has been extracting and selling gravel from the Land.
Adverse possession claim
The Defendant claimed that the Limitation Act 1935 (WA) operated to give him adverse possession of the Mineral Interest, and that the Plaintiffs’ title had been extinguished.
In the view of Pritchard J, the Defendant’s claim failed for two reasons. 1
Reason 1: The Mineral Interest was not ‘in the actual possession of some person not entitled to such possession’. 2
Pritchard J found that during the relevant period, section 5 of the Limitation Act 1935 (WA) was not satisfied because the Mineral Interest was not ‘in the actual possession of some person not entitled to such possession’ (author’s emphasis added).3 As a result, the Mineral Interest has not ‘first accrued’ pursuant to section 5.4
Relevantly, Pritchard J considered the term ‘actual possession’ and whether Joice Investments was in ‘actual possession’ of the Mineral Interest. Pritchard J highlighted the distinction drawn in section 5 of the Limitation Act 1935 (WA) between ‘possession’ and ‘actual possession’.
Pritchard J expressed the view that the physical and legal possession of the Land did not mean that Joice Investments was in ‘factual possession’ of the minerals the subject of the Mineral Interest.5 Further, Joice Investments did not separate the minerals from the rest of the earth, nor did it take any action by which it exercised ‘some control over the minerals greater than that embodied in its ownership of [the Land] itself’6.
Even if Joice Investments was in ‘actual possession’, Pritchard J found that Joice Investments was not ‘some person not entitled to such possession’.7 That is, Joice Investments was itself entitled to possession of the minerals in the Land by virtue of its ownership of 50% of the minerals in the Land (excepting all of the previously excepted minerals).8 Pritchard J went on to explain that this did not mean Joice Investments held all of the minerals in the Land, as there was no evidence it had purported to exercise exclusive control over all of the minerals for its own benefit.9
Reason 2: Section 5 of the Limitation Act 1935 (WA) does not apply.10
The second reason is that section 5 of the Limitation Act 1935 (WA) does not apply, because the Mineral Interest was not derived from an instrument, but instead it was excepted from the transfer to Joice Investments.11
As Pritchard J explained, for section 5 to apply, the claim must be ‘in respect of an estate or interest in possession granted, appointed, or otherwise assured by any instrument’12. Importantly, Pritchard J found that the 1970 Agreement, which excepted the minerals in favour of Mrs Payne rather than reserving them, did not therefore constitute an instrument by which Mrs Payne was granted an estate or interest in the Private Minerals.13
Pritchard J noted that in the case of a transfer, an exception is where the transferor ‘keeps back some part of that which is transferred so that it remains with the transferor'14. Quite differently, a reservation is ‘the re-grant out of the subject conveyed of something newly created and that did not previously exist’15.
In reaching a decision about whether the transfer from Mrs Payne to Joice Investments was subject to an exception or a reservation, Pritchard J did not take into account the 1970 Agreement.16 This is because the 1970 Agreement was the agreement to pass the title, rather than the transfer itself.17
The transfer stated that the minerals were ‘excepted and reserved (rather than just reserved)’.18 As Pritchard J noted at paragraph 85, citing the authorities of Chirnside v Registrar of Titles19 , Commissioner of State Revenue (Victoria) v Pioneer Concrete (Vic) Pty Limited20 and McDonnell v McKinty21 : ‘The phrase “except and reserving” has been construed as constituting an exception rather than a reservation.’