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[2012] ZASCA 210
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Xstrata South Africa (Pty) Ltd and Others v SFF Association (2012 (5) SA 60 (SCA); 2012] 2 All SA 617 (SCA)) [2012] ZASCA 210; [2012] ZASCA 20 (23 March 2012)
REPORTABLE
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 326/2011
In the matter between:
Xstrata South Africa (Pty) Ltd
......................................................
First
Appellant
Tavistock Collieries (Pty) Ltd
…..............................................
Second
Appellant
Duiker Mining (Pty) Ltd
…..........................................................
Third
Appellant
and
SFF Association
….............................................................................
Respondent
Neutral citation:
Xstrata & others v SFF
Association
(326/2011) [2012] 20 ZASCA (23 March 2012)
Coram:
MPATI P, BRAND, HEHER, MHLANTLA and WALLIS
JJA.
Heard
: 12 March 2012
Delivered
: 23 March 2012
Summary:
Mineral
and Petroleum Resources Development Act 28 of 2002
–
interpretation of a notarial exchange agreement between the
respondent and second and third appellants and a notarial mineral
lease between the respondent and the second appellant concluded prior
to the Act coming into force – effect of the Act on
such
agreements – whether obligation to pay a royalty in terms of
the notarial mineral lease extinguished by the new system
of mining
rights in the Act
.
ORDER
On appeal from:
South Gauteng High Court,
Johannesburg (Vally AJ sitting as court of first instance) it is
ordered that:
1 The appeal is upheld with costs, including the costs
of two counsel. 2 The order of the court below is altered to read:
‘
The application is dismissed
with costs such costs to include the costs of two counsel.’
JUDGMENT
WALLIS JA (MPATI P, BRAND, HEHER and MHLANTLA JJA
concurring)
[1] ‘The old order changeth,
yielding place to new.’
1
Those words aptly describe the
changes brought about by the Mineral and Petroleum Resources
Development Act 28 of 2002 (the Act),
which came into operation on 1
May 2004. It fundamentally altered the legal basis upon which rights
to minerals in South Africa
are acquired and exercised. Previously
such rights vested in the owner of the land on or under which
minerals were found. The owner
of the land, or a party authorised to
do so by the owner, could exploit the minerals, subject to the person
exploiting the minerals
possessing a mining authorisation in terms of
the Minerals Act 50 of 1991. Once the Act came into operation all
mineral resources
vested in the State as the custodian of such
resources on behalf of all South Africans. The right to exploit such
minerals was
thereafter to be conferred by the State by way of mining
rights granted in terms of s 23 of the Act. In order to
avoid
disrupting a key sector of the South African economy, the Act
contained transitional provisions in Schedule II. These provided for
existing rights to remain in force for a limited period of five years
as what were termed ‘old order mining rights’.
During
that period the holder of old order mining rights could apply for
them to be converted into mining rights in terms of the
Act. This
case concerns the effect of these statutory changes on rights
accruing to the respondent, SFF Association (SFF),
2
by virtue of two agreements.
[2] The first agreement was a
notarial exchange agreement between, on the one hand, Tavistock
Collieries (Pty) Ltd (Tavistock),
the second appellant, and Duiker
Mining (Pty) Ltd (Duiker), the third appellant,
3
and, on the other, SFF. The exchange
agreement was concluded in April 2001 to settle a dispute between
Tavistock and SFF arising
from the storage by SFF of oil in
containers in disused mine shafts in Mpumalanga. The presence of the
containers and spillages
of oil from them had the effect of
sterilising Tavistock’s right to exploit the coal deposits on
one property, where three
of the oil containers were situated, and
portions of two other properties in the immediate vicinity of two
further storage tanks.
Arising from this Tavistock instituted a
substantial claim against SFF. The parties agreed to resolve the
dispute on the basis
that Tavistock’s rights in the sterilised
deposits, as well as Duiker’s rights in a specified mine dump
(the Ogies
dump), would be exchanged for rights held by SFF in
relation to coal deposits (the SFF deposits) on other pieces of land.
In addition
the parties would assume certain obligations in regard to
the rehabilitation of the exchanged properties.
[3] The second agreement was a notarial mineral lease in
respect of the SFF deposits, concluded on 12 June 2001 between SFF,
as
lessor, and Tavistock, as lessee, in order to give effect to the
exchange agreement so far as Tavistock was concerned. In terms
of
clause 8 of the lease Tavistock undertook, once it had extracted
certain defined quantities of coal from the SFF deposits,
to pay SFF
royalties on any further coal extracted from those deposits. The
present dispute arose because SFF contended that, notwithstanding
the
changes wrought by the Act to the system of mineral rights in South
Africa, the obligation to pay royalties remained in force.
There was
initially some ambiguity about Tavistock’s stance, but in a
letter written prior to the commencement of proceedings
it said it
would comply with its obligations ‘to the extent that such
obligations continue to remain in force … post
the conversion
of Tavistock’s old order mining right’. SFF then sought a
declaratory order that the obligation to pay
the royalty continued
after the commencement of the Act and ‘notwithstanding any
conversion’ of Tavistock’s rights.
Tavistock conceded
that it remained obliged to pay royalties after the commencement of
the Act, but denied that the obligation
would continue after
conversion. At a practical level the concession was probably
meaningless in view of the lengthy period that
would necessarily
elapse before Tavistock could commence mining the coal in respect of
which a royalty was payable. SFF obtained
the order it sought,
including the period after conversion of Tavistock’s rights,
from Vally AJ sitting in the South
Gauteng High Court,
Johannesburg. This appeal is with his leave.
[4] The exchange agreement, plays a lesser role in these
proceedings, and can be described briefly. It recorded in the
recitals
that SFF owned the Epsilon, Delta, Gamma and Klippoortje
North and South oil containers. The presence of these had sterilised
Tavistock’s
coal reserves in the manner already described. As a
result Tavistock had instituted a substantial claim against SFF. To
resolve
the dispute SFF agreed to grant to Tavistock the right to
search for, dig, mine, win, remove and, for its own benefit and
account,
to dispose of, coal on three portions of land and three
mineral areas in respect of which SFF enjoyed those rights (the SFF
rights).
SFF would in turn acquire Tavistock’s rights to coal
in one of the sterilised areas and, in relation to the other
sterilised
areas, Tavistock agreed not to mine the affected seams. In
addition SFF would acquire Duiker’s share of the Ogies dump.
SFF
did not propose to exploit these rights, but to continue the
situation where they were sterilised and posed no threat to its
storage
of oil.
[5] As Tavistock intended to exploit the SFF rights,
clause 2.2 of the exchange agreement provided that SFF would,
contemporaneously
with the execution of the cession of mineral rights
in favour of SFF, procure the execution of a mineral lease between
itself and
Tavistock in respect of the SFF rights, substantially in a
form annexed to the exchange agreement. Clause 2.4 recorded that:
‘
No additional consideration shall be
payable by either Tavistock or SFF to the other or to Duiker or to
any third party in respect
of the exchanges envisaged in 2.1 and 2.2
since Tavistock and SFF consider the rights so exchanged to be of
equal value.’
Clause 2.5 provided that the exchange agreement would
constitute the consents necessary for Tavistock and SFF respectively
to acquire
mining authorisations under the Minerals Act in respect of
the properties in question. Lastly, in terms of clause 2.6, Tavistock
assumed responsibility for the rehabilitation, restoration and
anti-pollution obligations of SFF in respect of the areas where
it
was acquiring rights and SFF assumed corresponding obligations in
regard to the Tavistock properties and Duiker’s interest
in the
Ogies dump.
[6] The notarial mineral lease conferred the SFF rights
on Tavistock. It dealt with the manner in which mining was to take
place
and imposed obligations on Tavistock in regard to the
commencement of mining and the rate of mining extraction that had to
be achieved
after mining commenced. Failure to satisfy these
obligations would not, however, constitute a breach of the mining
lease, but would
result in Tavistock’s right to mine being
restricted to certain specified tonnages of coal and it would cease
to be entitled
to mine these areas to exhaustion. The limits that
would then apply were that Tavistock would be entitled to extract the
quantity
of coal specified in clause 8.1 of the lease and would lose
the right to extract the quantities of coal specified in clauses 8.2
and 8.3 of the lease. These three clauses deal with the obligation to
pay royalties and hence are the critical ones insofar as
the present
dispute is concerned. They read as follows:
‘
CONSIDERATION
As consideration for the rights hereby granted, the Lessee shall pay
to the Grantor a royalty calculated and payable as provided
hereunder:
in respect of the first 29 523 000 (TWENTY NINE MILLION
FIVE HUNDRED AND TWENTY THREE THOUSAND) of mineable
in situ
tons
of No. 4 seam coal reserves mined by the Lessee, in respect of the
first 6 046 000 (SIX MILLION AND FORTY SIX
THOUSAND) of
mineable in situ tons of No.5 seam coal reserves mined by the
Lessee and in respect of 200 000 (TWO HUNDRED
THOUSAND) tons
of run-of-mine No. 4 seam coal mined by the Lessee, there shall be
no royalty payable. It being recorded that
in exchange for the
rights to mine this tonnage the Lessee has ceded and assigned to
the Grantor certain rights more fully
specified in the exchange
agreement to which a draft of this lease was annexed as annexure
"D”;
in respect of the balance of the No. 4 seam coal reserves on the
property, namely 18 738 000 (EIGHTEEN MILLION SEVEN
HUNDRED AND THIRTY EIGHT THOUSAND) of mineable
in situ
tons,
the Lessee shall pay to the Grantor a royalty of 4,25% (FOUR COMMA
TWO FIVE PERCENT) of the selling price of the No.4
seam coal mined
from the property and sold by the Lessee;
in respect of the balance of the No. 5 seam coal reserves on the
property namely 7 507 000 (SEVEN MILLION FIVE HUNDRED
AND
SEVEN THOUSAND) of mineable
in situ
tons, the Lessee shall
pay to the Grantor a royalty of 3,5% (THREE COMMA FIVE PERCENT) of
the selling price of the No. 5 seam
coal mined from the property
and sold by the Lessee.’
[7] The issue before us is whether the obligation to pay
royalties in terms of clauses 8.2 and 8.3 survives the introduction
of
the new regime in respect of mining rights brought about by the
Act. In order to address this it is necessary to have regard to
certain of the provisions of the Act. Section 2 records that its
objects are to give effect to ‘the internationally accepted
right of the State to exercise sovereignty over all the mineral and
petroleum resources within the Republic’ and ‘the
principle of the State’s custodianship of the nation’s
mineral and petroleum resources’. Section 3 records that
mineral and petroleum resources are the common heritage of all the
people of South Africa and that the State is the custodian of
such
resources for the benefit of all South Africans. In that capacity the
State, acting through the Minister of Minerals and Energy
henceforth
grants all mining rights in South Africa.
[8] The effect of this is to destroy
all rights to minerals existing under the common law and vest their
custodianship in the State.
4
Had that taken place without some
transitional measures being in place that would have created chaos in
the South African mining
industry, which is a major sector of the
country’s economy. In order to avoid that Schedule II of the
Act contains transitional
arrangements intended to ease the
transition from the old to the new order. According to items 2(
a
)
and (
b
)
of the Schedule its objects, which are in addition to the objects set
out in s 2 of the Act, are to ensure that security
of tenure is
protected in respect of prospecting, exploration, mining and
production operations that are being undertaken at the
commencement
of the Act and to enable holders of what it terms ‘old order
rights’ to comply with the Act. In order
to achieve this it
provides for the continuation of various rights previously existing,
of which an existing mining right is relevant
for present purposes.
[9] Old order rights are defined in
item 1 of the Schedule as meaning an old order mining right, an old
order prospecting right
or an unused old order right. An old order
mining right is defined as meaning, amongst other things, a mining
lease in force immediately
before the date on which the Act took
effect and in respect of which mining operations are being
conducted.
5
Such old order rights are dealt with
in item 7 of the Schedule, which reads as follows:
7.
Continuation
of old order mining right
.—
(1) Subject to subitems (2) and (8), any old order mining right
in force immediately before this Act took effect continues
in force
for a period not exceeding five years from the date on which this Act
took effect subject to the terms and conditions
under which it was
granted or issued or was deemed to have been granted or issued.
(2) A holder of an old order mining right must lodge the right
for conversion within the period referred to in subitem (1)
at the
office of the Regional Manager in whose region the land in question
is situated together with—
(
a
)
the prescribed particulars of the holder;
(
b
)
a sketch plan or diagram depicting the mining area for which the
conversion is required, which area may not be larger than the
area
for which he or she holds the old order mining right;
(
c
)
the name of the mineral or group of minerals for which he or she
holds the old order mining right;
(
d
)
an affidavit verifying that the holder is conducting mining
operations on the area of the land to which the conversion relates
and setting out the periods for which such mining operations
conducted;
(
e
)
a statement setting out the period for which the mining right is
required substantiated by a mining work programme;
(
f
)
a prescribed social and labour plan;
(
g
)
…;
(
h
)
a statement setting out the terms and conditions which apply to the
old order mining right;
(
i
) the original title deed in respect of the land to which
the old order mining right relates, or a certified copy thereof;
(
j
) the original old order right and the approved
environmental management programme or certified copies thereof; and
(
k
) …
(3) The Minister must convert the old order mining right into a
mining right if the holder of the old order mining right—
(
a
) complies with the requirements of subitem (2);
(
b
) has conducted mining operations in respect of the right in
question;
(
c
) indicates that he or she will continue to conduct such
mining operations upon the conversion of such right;
(
d
) has an approved environmental management programme; and
(
e
) has paid the prescribed conversion fee.
(4) No terms and conditions applicable to the old order mining
right remain in force if they are contrary to any provision
of the
Constitution or this Act.
(5) The holder must lodge the right converted under subitem (3)
within 90 days from the date on which he or she received notice
of
conversion at the Mining Titles Office for registration and
simultaneously at the Deeds Office or for the Mining Titles Office
for deregistration of the old order mining right as the case may be.
(6) …
(7) Upon the conversion of the old order mining right and the
registration of the mining right into which it was converted
the old
order mining right ceases to exist.
(8) If the holder fails to lodge the old order mining right for
conversion before the expiry of the period referred to in
subitem
(1), the old order mining right ceases to exist.’
[10] As pointed out in the
Holcim
decision of this
court
6
these provisions do not serve to
preserve common law rights. Instead, for the period of five years
specified in item 1, or such
lesser period as may elapse until the
conversion of the old order right into a mining right under the Act,
they create a new right,
statutory in origin, embodying the rights
previously enjoyed under the relevant old order right, together with
an entitlement to
convert that right into a mining right under the
Act. In this case the rights that Tavistock enjoyed under the mineral
lease are
therefore the rights that it enjoyed as the holder of an
old order right under item 7(1). That was common cause between the
parties,
as was the fact that this old order right was subject to the
conditions contained in the mineral lease, including the conditions
in clauses 8.1, 8.2 and 8.3 regarding the mining of coal and the
obligation to pay royalties. (The latter two were largely of academic
importance as they were unlikely to arise for some 20 to 25 years, by
which stage the old order right would have been converted
into a
mining right or have lapsed.)
[11] The primary argument on behalf of SFF rested on the
following propositions. First, the settlement of the dispute between
the
parties by way of the exchange agreement constituted an
indivisible whole so that the rights conferred on Tavistock under the
mineral
lease, together with their corresponding obligations such as
the obligation in certain circumstances to pay royalties, were an
integral part of the overall settlement. When the Act came into
operation all of these rights remained in force as part of the old
order mining right created by the Act. Second, under item 7(4) of the
Schedule the conditions attaching to Tavistock’s right
to mine,
as set out in the mining lease, would remain in force after
conversion of the old order right into a mining right unless
they
were contrary to any provision of the Constitution or the Act. Third,
the obligation to pay royalties was not expressly stated
to be
contrary to the provisions of the Act nor had Tavistock demonstrated
that it was, by necessary implication, contrary to those
provisions.
Accordingly on conversion of the old order mining right into a mining
right under the Act, the obligation to pay royalties
would remain in
force. Counsel accepted that if the court did not accept his
contentions concerning item 7(4) then the appeal would
succeed.
[12] All three of these propositions were challenged by
Tavistock. It argued that the agreement in relation to the coal in
respect
of which a royalty was payable was additional to the
settlement agreement and that the entitlement to mine that coal and
the obligation
to pay royalties did not form part of the settlement.
In support of that it referred to clause 2.4 of the exchange
agreement, (quoted
in paragraph 5 above), and to the statement in
clause 8.1 of the mineral lease that ‘in exchange’ for
the right to
mine the tonnage of coal there specified Tavistock had
ceded and assigned to SFF certain rights specified in the exchange
agreement.
SFF countered by referring to the fact that under the
exchange agreement Tavistock not only ceded certain rights but also
undertook
not to mine certain areas and undertook a range of
rehabilitation and related obligations. It relied on clause 2.2 of
the exchange
agreement, which provided that:
‘
In exchange for the cession, assignment,
transfer and making over in 2.1, SFF undertakes to procure the
execution of a mineral lease
…’;
for the contention that the exchange agreement was not
limited in the manner for which Tavistock contended, which it said
artificially
divided the mineral lease into two separate and distinct
arrangements. I assume for present purposes, without deciding, that
SFF
is correct in its approach to the two agreements.
[13] As regards item 7(4) Tavistock contended that it
was only relevant to conditions of the mineral lease maintained in
force under
item 7(1) and had no bearing on the conditions attaching
to a mining right after conversion. This is a point of some
considerable
difficulty. Item 7(4) is not well phrased, if its
purpose is that for which SFF contends. In particular, the words
‘remain
in force’ seem to refer back to the words
‘continued in force’ in item 7(1) and thus refer only to
the period
prior to conversion. But there is force in the points that
item 7(2)(h) requires an applicant for the conversion of an old order
right to incorporate in its application a statement setting out the
terms and conditions applicable to the old order right and
that, if
item 7(4) is confined in the manner for which Tavistock contends, it
is oddly placed in item 7, appearing after the provisions
governing
applications for conversion and not, as one would expect if its
purpose was limited to the interregnum period, after
item 7(1). This
and the parallel provisions in items 4(4), 5(4) and 6(4) have led
commentators on the transitional provisions of
the Act to say:
‘
It is submitted, given the
positioning of subitem (4) after subitems (2) and (3) which deal with
the conversion process, that subitem
(4) is intended to apply to the
new right acquired on conversion. The effect is that the terms and
conditions of the old right,
except those contrary to the
Constitution or the MPRDA, will also apply to the new right. It is
submitted that the requirement
in items 4(2)(e), 5(2)(h), 6(2)(g) and
7(2)(h) to lodge a statement setting out the terms and conditions
which apply to the old
right, supports the aforegoing contention.’
7
[14] Counsel for Tavistock sought to counter these
arguments by submitting that the Minister has the power under the Act
to impose
conditions on the conversion of an old order mining right.
He accepted that there is no express power to do this but contended
that it necessarily flowed from the provisions of s 3 of the Act
and the obligations of consultation with landowners imposed
on the
holders of mining rights under s 5(4)(
c
) of the Act read
with s 54 thereof. It is apparent from the complexity of these
contentions that the correct interpretation
of item 7(4) is a
difficult issue with potentially far-reaching ramifications in
relation to factual situations that are not before
us in this appeal.
As, in my view, SFF’s contentions must fail on the third of its
propositions, I refrain from expressing
a view on the proper meaning
to attach to item 7(4) and will proceed on the assumption in favour
of SFF that its approach is correct.
[15] One then comes to the issue whether the provisions
in the mineral lease providing for the payment of a royalty are
contrary
to any provision of the Act. Counsel approached this
question on the footing that, as there was no express provision
nullifying
such royalty payments in existing mining leases, the
question is whether by necessary implication such payments are
excluded by
the Act. He submitted that courts do not lightly read
words into a statute by way of implication unless the implication is
a necessary
one in the sense that without it effect cannot be given
to the statute as it stands.
8
He also drew attention to the difficulty of formulating such an
implied provision.
9
[16] I do not think that this approach is correct.
Accepting, for present purposes, that the effect of item 7(4) is that
the terms
and conditions attaching to the old order mining right are
continued in the mining right obtained on conversion, to the extent
that they are not contrary to the provisions of the Constitution or
the Act, the latter qualification dictates a different enquiry.
It
requires each term or condition embodied in the old order mining
right to be considered and assessed in the light of and against
the
provisions of the Constitution and the Act to determine whether it is
contrary to either of them. Whether a term or condition
is contrary
to a provision or the provisions of the Act requires that the term or
condition be considered, both as to its content
and as to its effect,
and weighed in the light of the entirely new system of mineral rights
embodied in the Act. If it is inconsistent
with that system then it
is contrary to the provisions of the Act. The search is not for an
express or implied prohibition of the
provision in question. It is an
assessment of its compatibility with the Act’s provisions. If
it is incompatible then it
cannot form part of the terms and
conditions attaching to a mining right obtained by way of conversion
of an old order mining right.
[17] Approached on that footing the starting point is
the nature of the term or condition in issue. Here it is the
provisions of
clauses 8.1, 8.2 and 8.3 of the mining lease. They are
said in the preamble to clause 8 to embody the consideration for
the
rights granted to Tavistock by SFF. Tavistock undertakes to pay a
royalty as determined in the three sub-clauses. In the case of
clause
8.1 it is said that ‘there shall be no royalty payable’.
In the case of the other two clauses a royalty is payable
expressed
as a percentage of the selling price of coal mined from the
particular seams.
[18] These payments are in all outward respects
conventional royalty payments. They are embodied in a mineral lease
executed notarially
and intended to be registered in the Deeds’
Registry and to be used for the acquisition of a mining authorisation
in terms
of the Mining Act 50 of 1991. The expression ‘royalty’
has a well understood and relatively universal meaning in this
context. It is:
‘
A payment made to the
landowner by the lessee of a mine in return for the privilege of
working it. Also, a payment made, or a portion
of the production
given, by a producer of minerals, oil or natural gas to the owner of
the site or the mineral rights over it.’
10
An Australian legal dictionary – pertinent because
that country, like ours, has substantial mineral deposits and mining
is
a vital part of its economy – has the following definition:
‘
A payment made in respect of the exercise
of a right to take a substance, and calculated either in respect of
the quantity taken
or the value of the substance taken, or the
occasions upon which the right is exercised.’
11
A similar view of a royalty is taken in the United
States of America. A leading legal dictionary defines ‘royalty’
as:
‘
A share of the product or profit from real
property, reserved by the grantor of a mineral lease, in exchange for
the lessee’s
right to mine or drill on the land.’
12
In South African mining practice
concerning mineral leases ‘it is more common for the rental to
be calculated on some royalty
basis or as a share of profits related
to the actual recovery’.
13
The mineral lease in this case
reflects that common situation.
[19] Counsel did address an argument
to us to the effect that, notwithstanding the outward appearance that
these clauses provide
for royalty payments, that is an erroneous
categorisation. He submitted, in line with his argument that the
notarial lease is the
quid
pro quo
for the
performance by Tavistock of its obligations under the notarial
exchange agreement, that the ‘royalty’ component
of the
mineral lease is to be regarded, together with the performance of
those obligations, as more akin to a purchase price for
the benefits
and advantages conferred on Tavistock by SFF including the right to
mine the coal. In my view this is a strained and
unnatural meaning to
be given to the mineral lease. The exchange agreement created various
rights and obligations on the part of
the parties. They chose to
embody some of those rights and obligations in a notarial mineral
lease in conventional form and making
use of conventional
terminology. They said that in certain circumstances royalties would
be payable. Why should they not be taken
at their word?
[20] This is not a case where the
agreements were drafted by lay people and reflect a lack of awareness
of legal nuance. They were
drafted by experienced attorneys on behalf
of substantial business enterprises and related to multi-million rand
transactions.
As Lord Hoffmann said in
Jumbo
King Ltd v Faithful Properties Ltd
:
14
‘
Of course in serious utterances such as
legal documents, in which people may be supposed to have chosen their
words with care, one
does not readily accept that they have used the
wrong words. If the ordinary meaning of the words makes sense in
relation to the
rest of the document and the factual background, then
the court will give effect to that language, even though the
consequences
may appear hard for one side or the other.’
On subsequent occasions he has
stressed that courts do not easily accept that people have made
linguistic mistakes
15
and that it requires a strong case to
persuade a court that something has gone wrong with the language of a
formal contract.
16
I accept that in the drafting of
complex commercial contracts ‘there are bound to be
ambiguities, infelicities and inconsistencies’,
17
but the suggestion that what are
expressed to be royalties under a mineral lease are to be construed
as the purchase price of a
congeries of rights under both the mineral
lease and the exchange agreement, involves such a fundamental
alteration of the mineral
lease that it cannot be ascribed to the
inevitable drafting problems that manifest themselves in documents of
this type. In my
view the parties chose to say that royalties would
be payable and that is what the words they have used should be taken
to mean.
[21] Accepting that the mineral lease provided that
Tavistock would pay a royalty in respect of some of the coal that it
became
entitled to mine under the mineral lease and that the
undertaking to pay the royalty secured the right to mine that coal
originally,
I turn to consider the relevant provisions of the Act. My
starting point is that Tavistock’s entitlement to mine the coal
no longer has its origins in the mineral lease. Its rights in terms
of that agreement were terminated by the Act. In their place
it
acquired a statutory right, described as an old order mining right,
on the same terms and conditions as it had hitherto enjoyed.
When
that old order mining right is converted into a mining right under
the Act its right to mine the coal will derive solely from
that
mining right and its source will be the custodianship that the State
now exercises over minerals in South Africa. It makes
little sense in
those circumstances for it to continue to be required to pay SFF, the
original owner of the minerals, for the right
to mine them, when in
truth its right to do so stems from the Act and the State and not
SFF.
[22] That view is reinforced by the
fact that in exercising its custodianship of minerals ‘for the
benefit of all South Africans’
one of the benefits that the
State secures is an entitlement itself to be paid royalties in
respect of the rights it grants to
mine those minerals. Under
s 25(2)(
g
)
of the Act the holder of a mining right is obliged to pay royalties
to the State. Whatever basis existed for the determination
of the
amount of such royalties in 2004 when the Act became operative, there
is now a statutory foundation for such determination
in the
Mineral
and Petroleum Resources Royalty Act 28 of 2008
. It would be
inconsistent and potentially unfair for the Act not just to permit,
but to compel, the continued payment of royalties
under contracts
concluded pursuant to the previous minerals regime as well as
extracting a royalty from the holders of mining rights
in terms of
the Act. Such double payment of royalties could imperil the financial
viability of marginal mining operations and would
be inconsistent
with the obligation imposed upon the Minister in terms of s 3(3)
of the Act to promote the sustainable development
of South Africa’s
mineral and petroleum resources.
[23] Next there is the fact that the transitional
provisions in Schedule II include a provision dealing with royalties.
It is item
11 the relevant portions of which read as follows:
‘
(1) Notwithstanding the
provisions of item 7 (7) and 7 (8), any existing
consideration, contractual royalty
or future consideration, including
any compensation contemplated in section 46 (3) of the Minerals
Act, which accrued to any
community immediately before this Act took
effect, continues to accrue to such community.
(2) The community contemplated in subitem (1) must
annually, and at such other time as required to do so by the
Minister,
furnish the Minister with such particulars regarding the
usage and disbursement of the consideration or royalty as the
Minister
may require.
(3) If the consideration or royalties contemplated in
subitem (1) accrued to a natural person, it may continue to accrue
to
the person subject to such terms and conditions as the Minister may
determine, if—
(
a
) the discontinuation of such consideration or royalty will
cause undue hardship to the person; or
(
b
) the person uses such consideration or royalty for social
upliftment.
(4) If it is determined that the consideration or
royalties referred to in subitem (3) continues then the provision
of
subitem (2) apply to such a recipient.
(5) The recipients contemplated in subitems (1) and (3)
must within five years from the date on which this Act took
effect
inform the Minister of their need to continue to receive such
consideration or royalties and the reasons therefor, and furnish
the
Minister with the prescribed information.’
There are obvious difficulties in understanding the
opening words of item 11(1) and the references to items 7(7) and
(8). What
they do make clear is that item 11 is dealing with a
situation after an old order mining right has come to an end. In
plain terms
it then deals with certain situations in which royalties
that were payable under the former dispensation and would have
remained
payable under old order mining rights will, subject to
Ministerial discretion, continue to be paid after the old order right
has
been converted into a mining right under the Act. Significantly
item 11 excludes a royalty payment of the type at present under
consideration. It extends the right to continue to receive royalties,
not on the basis of the type of agreement under which the
royalty is
payable, but on the basis of the type of person entitled to receive
this benefit.
[24] For SFF’s argument to be upheld it would have
to follow that royalties payable under mineral leases and other forms
of
agreement giving rise to old order mining rights under the
transitional provisions of the Act, would not only continue to be
payable
in terms of those old order mining rights prior to
conversion, but would, on its approach to item 7(4), continue to be
payable
after conversion. There is no tenable basis for suggesting
that the present is a special situation or that there would be
categories
of agreements providing for royalties that would survive
conversion and others that would fall away at that stage. But that
would
render the special provisions of item 11 largely, if not
entirely, redundant and even prejudicial to the identified
beneficiaries,
whose right to royalties would become subject to
ministerial withdrawal. This stands item 11 on its head. Its manifest
purpose
is to protect the interests of certain bodies or persons in
receiving royalties. On SFF’s construction it would not only,
not serve that purpose, it would result in their existing royalty
rights being significantly diminished. That is not a sensible
conclusion.
[25] One other factor that may be relevant, albeit not a
major one, is that item 12 of the transitional provisions makes
provision
for a person ‘who can prove that his or her property
has been expropriated’ in terms of any provision of the Act to
seek compensation from the State. This was treated in argument on
behalf of Tavistock as a clear indication that SFF would not
be
prejudiced by the loss of its royalties, because it could always
recover compensation from the State for its loss. However,
I am not
inclined to attach any weight to this factor. My reason is that it
may be debatable whether the Act does in fact expropriate
the rights
that were enjoyed under the old minerals regime. The point is raised
and the relevant cases cited in the work by Professor
Dale and others
referred to in paragraph 13.
18
The learned authors say that item 12 of the transitional
provisions ‘has been drafted evasively’ in order to avoid
a
constitutional challenge, but without identifying what property can
be expropriated under the provisions of the Act and what would
constitute such an expropriation.
19
In view of that potential difficulty I prefer not to
attach any weight to item 12.
[26] Weighing all of these factors together their
cumulative effect is necessarily that, after conversion of an old
order mining
right into a mining right, the preservation of a right
to claim royalties under a contract, such as this mineral lease,
concluded
prior to the Act coming into force and maintained during
the transitional period in the form of a condition attaching to an
old
order mining right, does not serve the purposes and would be
contrary to the provisions of the Act. That conclusion is dispositive
of the appeal and renders it unnecessary to address the arguments
about the effect of item 7(7) of the transitional provisions.
[27] For those reasons the appeal must succeed. It was
suggested on behalf of Tavistock, at the commencement of the
argument, that
the proper order to make in that event was one
amending the declaratory order issued by the court below to include
words making
it clear that the obligation to pay the royalties would
continue after Tavistock obtained an old order mining right but would
lapse
on the conversion of that right into a mining right. However,
Tavistock had in both its answering affidavit in the court below and
its heads of argument asked simply for the dismissal of the
application and not counter-applied for a declaratory order in the
terms suggested. It cannot now obtain such an order by way of this
appeal. In any event it does not need such an order. Its rights
sufficiently appear from the terms of this judgment. In the result
the following order is made:
1 The appeal is upheld with costs, such costs to include
those consequent upon the employment of two counsel.
2 The order of the court below is set aside and replaced
by an order in the following terms;
‘
The application is dismissed
with costs, such costs to include those consequent upon the
employment of two counsel.’
M
J D WALLIS
JUDGE OF APPEAL
Appearances
For appellant: G L Grobler SC (with him L P Dicker)
Instructed by:
Norton Rose South Africa, Johannesburg
Webbers, Bloemfontein
For respondent: W H L van der Linde SC (with him Tim
Bruinders SC)
Instructed by:
Edward Nathan Sonnenbergs, Johannesburg
McIntyre & Van der Post, Bloemfontein.
1
Alfred,
Lord Tennyson
The Passing of the King
from
Idylls of the
King
1. 407.
2
SFF
was originally called the Strategic Fuel Fund and had responsibility
during the days of apartheid for the procurement and
storage of oil
at a time of sanctions against South Africa. The storage of oil
referred to in this judgment commenced at that
stage. SFF remains an
organ of state and continues to procure and store strategic oil
supplies on behalf of the State.
3
Tavistock
is a wholly-owned subsidiary of Duiker, which is
in turn a wholly-owned subsidiary of Xstrata, the first appellant, a
major international
mining group. For reasons not explained in the
founding affidavit SFF originally sought declaratory relief in the
alternative
against Tavistock and Xstrata. The order was made only
against Tavistock, but all three appellants were ordered to pay
SFF’s
costs.
4
Holcim
South Africa (Pty) Ltd v Prudent Investors (Pty) Ltd
[2011] 1
All SA 364
(SCA) paras 20 to 24.
5
In
the course of argument we were referred to Table 2 to the Schedule
but that does not refer to mining leases and appears to
be relevant
only for the purpose of identifying certain mining authorisations
and rights that are included as old order mining
rights.
6
At
para 37.
7
M
O Dale and others
South African Mineral and Petroleum Law
(Loose-leaf issue 10) SchII-86. See also SchII-76 and 150 where
the same point is made. P J Badenhorst and H Mostert
Mineral and
Petroleum Law of South Africa
(2011)(Loose-leaf issue 7) at 25-4
is to the same effect.
8
Rennie
NO v Gordon & another NNO
1988 (1)
SA 1
(A) at 22E-I
9
The
Firs Investments (Pty) Ltd v Johannesburg City Council
1967
(3) SA 549
(W) at 557E-G.
10
The
Oxford English Dictionary
2 ed Vol XIV p 187.
11
Butterworths
Australian Legal Dictionary
(1997) sv
‘royalty’.
12
Black’s
Legal Dictionary
9 ed (2009) sv
‘royalty’.
13
B
L S Franklin and M Kaplan
The Mining
and Mineral Laws of South Africa
607.
14
Jumbo
King Ltd v Faithful Properties Ltd
[1999] HKCFA 80
;
[1999]
2 HKCFAR 279
at 296.
15
BCCI
v Ali
[2001] UKHL 8
;
[2001] 1 AC 251
;
[2001] 1 All ER
961
(HL) para 39.
16
Chartbrook
Ltd v Persimmon Homes Ltd
[2009] AC
1101
;
[2009] 4 All ER 677
(HL) para 14.
17
Lord
Collins SCJ in
Re Sigma Finance (in
administrative receivership) Re the Insolvency Act 1986
[2010]
1 All ER 571
(SC) para 35.
18
Dale
et al supra MPRDA-24.
19
Dale
et al supra Sch II-206 and the discussion that follows up to
206(25).