Farm in, joint venture or sale agreements usually contain an assignment clause by which the holder of an interest in a mining tenement may assign its interests under an agreement and/or in a mining tenement to a third party (Assignee). The assignment clause is often drafted in terms requiring the assigning party (Assignor) to first obtain the non-assigning party’s written consent to the assignment but that the consent cannot be unreasonably withheld by the non-assigning party. Usually the assignment clause also requires the Assignee to agree to be bound by the terms of the agreement with the non-assigning party.
What happens when the non-assigning party refuses to consent? This note examines circumstances where consent is considered to have been unreasonably withheld and proposes some practical steps for an Assignor to consider when seeking the non-assigning party’s consent to assign interests in a mining tenement to an Assignee.
When consent is unreasonably withheld
The proper interpretation of the contract containing the assignment clause is of critical importance in determining whether consent to an assignment has been unreasonably withheld. This is because a non-assigning party may be acting unreasonably in withholding consent if:
- the reasons for withholding consent are unrelated to the objects of the contract, or to rights, benefits or obligations under the contract;
- the reasons for withholding consent are not permissible under the contract and are inconsistent with its provisions;
- the reasons for withholding consent are not held honestly by the non-assigning party.
All of the facts existing at the time that consent is refused by the non-assigning party are relevant in deciding whether consent has been unreasonably withheld (whether or not known to the party refusing consent), including the party’s own conduct in refusing consent and the reasons given (or not given) for the refusal.
Steps to consider when seeking consent to an assignment
An Assignor seeking consent from the non-assigning party should always prepare for the prospect that a dispute may develop and require intervention by a court. The onus will be on the Assignor to prove to a court that consent has been unreasonably withheld by the non-assigning party.
The Assignor should consider:
- having an initial meeting with the non-assigning party to explain the background to the proposed assignment and to find out what information is required by the non-assigning party to consider the consent request;
- confirming in writing with the non-assigning party the information required to consider the consent request;
- providing any information requested by the non-assigning party;
- seeking consent in writing from the non-assigning party;
- seeking written confirmation of the non-assigning party’s reasons for refusing consent (if consent is withheld).
If negotiation is unsuccessful, an Assignor may have no option but to commence proceedings seeking a declaration that the withholding of consent was unreasonable and an order that the non-assigning party do all things necessary to allow the transfer of the tenement.
In a consent dispute a court will examine the parties’ conduct in deciding whether consent was unreasonably withheld. Therefore, it is critical that the Assignor obtains as much information as possible about the non-assigning party’s reasons for refusing consent and documents all of its dealings with the non-assigning party.