LMCHB Limited v Buller Coal Limited [2024] NZCA 672 (17 December 2024)

Last Updated: 5 February 2025

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA212/2023 [2024] NZCA 672

	BETWEEN	LMCHB LIMITED Appellant
	AND	BULLER COAL LIMITED First Respondent BATHURST RESOURCES LIMITED Second Respondent

Hearing:	1–‑2 May 2024
Court:	Katz, Mallon and Thomas JJ
Counsel:	J B M Smith KC, M C Smith and H E McQueen for Appellant J E Hodder KC, R J Gordon and S C Howard-Brown for Respondents
Judgment:	17 December 2024 at 12.00 pm

JUDGMENT OF THE COURT

1. The appellant’s application to amend pleadings is declined.
2. The appeal is dismissed.

100. The appellant must pay the respondent costs for a complex appeal on a band B basis, together with usual disbursements. We certify for second counsel.

____________________________________________________________________

REASONS OF THE COURT

(Given by Thomas J)

Table of contents

Introduction

• [1] In 2010, the appellant, LMCHB Ltd, sold its subsidiary, the first respondent, Buller Coal Ltd (Buller), to the second respondent, Bathurst Resources Ltd (Bathurst).^[1] Buller held the coal mining rights over parts of an historic mining area in the South Island of New Zealand. The sale and purchase agreement required Bathurst to make an upfront payment, as well as subsequent performance payments triggered when specified amounts of coal had been shipped (Performance Payments) and royalty payments of a percentage of gross sales revenue. Buller guaranteed Bathurst’s obligations to make the Performance Payments.
• [2] Following delays in the development of the mine, Bathurst and LMCHB amended the sale and purchase agreement by agreeing that Bathurst’s failure to make a Performance Payment was not an actionable breach or default as long as the relevant royalty payments continued to be made. Following a drop in international coking coal prices, Bathurst suspended mining operations, causing LMCHB to take proceedings claiming that the Performance Payment obligations had nevertheless been triggered. Eventually the majority of the Supreme Court ruled in favour of Bathurst, meaning it was entitled to delay payment of the Performance Payments.^[2] LMCHB now seeks to enforce its rights against Buller as guarantor of the Performance Payments but was unsuccessful in its application to the High Court for a declaration that it is entitled to do so.^[3] It now appeals.

Background

• [3] The background is largely undisputed and is taken from the Supreme Court judgment in Bathurst Resources Ltd v L&M Coal Holdings Ltd (the Supreme Court Judgment), an understanding of which is essential context to this decision.^[4]
• [4] Prior to 2010, Buller, at the time LMCHB’s subsidiary, held two coal exploration permits over the Denniston and Stockton plateaus. An area on the Denniston Plateau, known as Escarpment, was considered the most attractive development project because of its significant reserves of high-quality coking coal.
• [5] On 10 June 2010, an agreement for the sale and purchase of the shares in Buller was entered into between LMCHB and Bathurst (the Agreement). The assets included the two exploration permits and rights associated with them, and an outstanding application for a mining permit for Escarpment, which was granted shortly after the Agreement was entered into.
• [6] The consideration included cash, the Performance Payments, performance shares and royalties payable under a royalty deed. Bathurst’s obligations were guaranteed by Buller under a separate deed of guarantee and security (the Guarantee). The Agreement provided for the payment of USD 120 million as follows:

(a) a deposit of USD 5 million;

(b) a further USD 35 million (the Settlement Cash Consideration as defined in the Agreement payable on settlement); and

(c) the Performance Payments — USD 40 million within 30 days of the date on which the first 25,000 tonnes of coal had been shipped from the permit areas and another USD 40 million within 30 days of the date on which the first one million tonnes of coal had been shipped from the permit areas.

• [7] The consideration included the ongoing obligation by Buller to pay royalties on all coal sales at a rate of 10 per cent of the gross sales revenues, dropping to five per cent after the payment of the first Performance Payment and then to 1.75 per cent after the second Performance Payment.
• [8] Bathurst was to issue LMCHB with performance shares amounting to five per cent of the post-issue share capital of Bathurst when the second Performance Payment fell due or if Bathurst received notice of an offer from a third party to acquire more than 50 per cent of its shares, whichever occurred first. Failure to issue the performance shares would result in a two per cent increase in the royalty rate in lieu of the issue of shares.
• [9] The Agreement become unconditional following Bathurst’s receipt of an acceptable feasibility study of the permit areas and settled in November 2010 with the payment of the USD 35 million.
• [10] Bathurst needed to raise substantial amounts of capital to meet its payment obligations under the Agreement. There was some initial success but the project was then subject to substantial delay. In particular, the Escarpment mine took longer to develop than had been projected because of difficulties in obtaining resource consents. During this period of delay, the international price of coking coal collapsed.
• [11] The parties enjoyed a constructive and cooperative relationship as Bathurst worked towards being able to exploit the rights it purchased. LMCHB was flexible in its approach to enforcing its contractual rights in order to help Bathurst get the project up and running. On 21 August 2012, LMCHB as vendor and Bathurst as purchaser entered into a third deed of amendment to the Agreement (the Third Deed), which addressed whether Bathurst would be in breach if it failed to make the Performance Payments when due.^[5]
• [12] Given the significance of the Third Deed, we set it out in full:^[6]

BACKGROUND

1. The Vendor [LMCHB] and the Purchaser [Bathurst] are parties to an Agreement for Sale and Purchase of Shares in [Buller] dated 10 June 2010 (as amended by Deeds dated 17 September and 29 October 2010, the Agreement).
2. This Deed records the parties’ agreement to clarify a matter in relation to the Performance Payments under the Agreement.

OPERATIVE PART

1. DEFINITIONS AND CONSTRUCTION

In this Deed, all capitalised terms have the meanings accorded to them in the Agreement, unless expressly provided for otherwise in this Deed. The notes of construction in the Agreement also apply to this Deed.

2. AMENDMENT TO AGREEMENT

The Agreement is hereby amended, with effect on and from the date of this Deed by adding a new clause 3.[10] as follows:^[7]

3.[10] Failure to make Performance Payments

For the avoidance of doubt, the parties acknowledge and agree that a failure by the Purchaser to make, when and as due, a Performance Payment is not an actionable breach of or default under this Agreement for so long as the relevant royalty payments continue to be made under the Royalty Deed.

3. NO WAIVER

For the avoidance of doubt, nothing in this Deed constitutes a waiver by the Purchaser [sic] of any of its rights as referred to in clause 9.7 of the Agreement, so long as payments are made in accordance with the Royalty Deed.

4. CONFIRMATION OF AGREEMENT

Except to the extent amended by this Deed, the Agreement shall otherwise remain in full force and effect.

...

• [13] We assume reference to “the Purchaser” in cl 3 is an error and should refer to “the Vendor”.^[8] Clause 9.7 of the Agreement provided that, in the event of non‑payment of the Performance Payments, the vendor (LMCHB) could sue the defaulting party for specific performance and/or damages.
• [14] Bathurst did not obtain the necessary resource consents for Escarpment until November 2013, but even then work could not commence because of delays in obtaining the necessary access rights. Coking coal prices continued to drop.
• [15] In September 2014, the first coal was recovered from Escarpment and by September 2015, 25,000 tonnes had been extracted and moved off the permit area. This was the quantity triggering the first Performance Payment obligation but the USD 40 million was not paid. Throughout the rest of 2015 and early-2016, Bathurst continued to mine Escarpment and to pay royalty payments on the coal that was sold.
• [16] In March 2016, Bathurst announced that, from May 2016, it would suspend mining operations at Escarpment as its commercial focus had moved to different coal mining ventures.
• [17] The constructive relationship that had previously existed between the parties broke down and proceedings were brought in the High Court as to whether the first Performance Payment obligation had been triggered. Both the High Court and Court of Appeal found in favour of LMCHB.^[9] Relevantly for this decision, the High Court and Court of Appeal found that cl 3.10 was a conditional right to suspend the first Performance Payment as long as LMCHB received royalties from continuing mining and sales at a level not materially less than that which triggered the USD 40 million payment in the first place.^[10] The case then went to the Supreme Court.

The Supreme Court Judgment

• [18] The Supreme Court noted that the Third Deed was executed prior to completion of the consenting process when Bathurst was seeking to raise the capital needed to enable production from the mine. It described the parties as working productively to enable that to occur.^[11]
• [19] The Supreme Court minority, Winkelmann CJ and Ellen France J, agreed with the Court of Appeal and would have implied a term that Bathurst ceasing to mine at a level of mining consistent with that which had triggered the Performance Payment (while at the same time refusing to pay the USD 40 million payment that had become due) was a breach of contract entitling LMCHB to compensation.^[12] The majority, Glazebrook, O’Regan and Williams JJ, disagreed. They considered that the Performance Payments were not instalments of the purchase price but rather payments which depended on the success of the development of the mine. LMCHB had no right to participate in decision-making regarding mining operations, and its receipt of the Performance Payments depended on Bathurst deciding to develop and operate a mine and achieving certain volumes of coal sales.^[13] While LMCHB might have assumed that Bathurst, having paid USD 40 million for the shares in Buller, would go on to develop a mine and exploit it to the fullest extent to derive a return on its investment, Bathurst was under no legal obligation to do so.^[14]
• [20] The Court unanimously agreed that, prior to the Third Deed, Bathurst did not have any option as to when the Performance Payments had to be made. They all agreed that cl 3.10 was the making of a concession.^[15]
• [21] The majority focused on the background to the Third Deed being that Bathurst predicted a potential “catch-22” situation where development of the mine was proceeding but, at the point where 25,000 tonnes of coal had been shipped, the mine would be unlikely to be operating at its predicted capacity of 1 million tonnes per annum. That would mean the revenues would be relatively small when measured against the obligation to make the first Performance Payment. Although obliged to pay USD 40 million, Bathurst would find it difficult to raise the money to do so. The majority found that the intention of cl 3.10 was to provide a way out of that catch-22.^[16]
• [22] The majority therefore described the essence of the cl 3.10 concession being that LMCHB agreed not to enforce payment of the Performance Payments in circumstances where Bathurst, through Buller, would not have generated enough revenue from the mine to fund the payment and would not be able to raise capital because of its impending default or actual default in making the first Performance Payment. It was not in LMCHB’s interests to hold Bathurst to that position, which is why the concession was made.^[17] The concession was made well before the circumstances actually arose. The parties realised that the Performance Payment regime did not provide the appropriate context for Bathurst to raise capital to fund development of the mine.^[18]
• [23] The majority was of the view that LMCHB must have accepted there was a real possibility it would never receive anything other than the purchase price for the shares, noting that if Bathurst called a halt to development of the mine before the 25,000-tonne milestone which triggered the first Performance Payment was reached, LMCHB would have no basis for complaint.^[19]
• [24] They regarded the Third Deed as not changing the relationship between LMCHB and Bathurst, aside from giving Bathurst flexibility in regard to its Performance Payments obligations. The risk of receiving no Performance Payments that LMCHB assumed in the period before the 25,000-tonne milestone was reached continued after the milestone was reached, and LMCHB accepted that risk.^[20] The risk assumed by LMCHB, that the mine would never be fully developed and exploited, included the risk that Bathurst would see a better use for its capital elsewhere.^[21]
• [25] The majority pointed out that, since there was currently no mining in the permit areas, the royalty payments were either zero, or low amounts reflecting sales from a stockpile. While not a particularly attractive outcome for LMCHB, it was one to which LMCHB, as a major commercial entity carrying on business in the mining industry, agreed.^[22] In the majority’s view, the best judges of what was commercially realistic were the substantial commercial entities who entered into the Third Deed.^[23]
• [26] The majority emphasised the reality facing the parties when the Third Deed was entered into; that Bathurst would be prevented from accessing capital markets to obtain the finance it needed to develop the mine unless some concession in relation to the payment of Performance Payments was made. LMCHB agreed to this because it perceived it to be in its best interests not to frustrate the potential for Bathurst to develop the mine in this way. LMCHB could have required the payment of interest for delay in paying the Performance Payments but chose instead to use the higher royalty amount as a substitute.^[24]
• [27] The majority rejected the Court of Appeal’s analysis that royalty payments were required to render the arrangement commercially realistic, saying if LMCHB wished to ensure the level of compensation was fixed, or at least had a minimum level, it could easily have provided for that in the Third Deed but did not do so. It therefore rejected the proposition that “relevant royalty payments” should be interpreted as royalty payments equal to those arising from a level of mining consistent with that which triggered the Performance Payment.^[25]
• [28] The majority also rejected the argument of an implied term on the basis there was always a real possibility that LMCHB would not receive more than the initial USD 40 million payment and LMCHB must have accepted this. All cl 3.10 did was expand the circumstances in which that possibility arose. It viewed the minority’s decision as overlooking this.^[26] There was still a coherent contract in place between two significant commercial entities.^[27]
• [29] The result was that Bathurst succeeded in its appeal, meaning it was entitled under cl 3.10 to delay payment of the Performance Payment which would otherwise have been an actionable breach of cl 3.4 of the Agreement.^[28]

The Guarantee and the High Court

• [30] LMCHB then turned to the Guarantee. It applied to the High Court for a declaration that it was entitled to exercise its security rights against Buller under the Guarantee.
• [31] We address aspects of the High Court judgment in more detail later in this decision, so at this point provide a brief summary only.
• [32] Isac J first addressed whether the effect of cl 3.10 applied to the Guarantee.^[29]
• [33] The Judge regarded LMCHB’s claim under the Guarantee as creating an inconsistency between the provisions of the Agreement and Guarantee. He did not consider that inconsistency would be ascribed to the relevant contracts by the reasonable person having all the relevant background knowledge.^[30] He considered the Guarantee did not give rise to a separate primary obligation on Buller.^[31] In the Judge’s view, the obligation under cl 3.4 of the Agreement to make the Performance Payments could not be read without cl 3.10, and that was so whether for the purpose of the Guarantee or the Agreement. He regarded it as defying common sense to interpret the two contracts as creating an inconsistency.^[32]
• [34] The Judge rejected Bathurst’s contention that, by the Agreement including the draft form of Guarantee in the definition of the Agreement, the Guarantee formed part of the Agreement. He regarded that as merely providing for the architecture of the Agreement which contemplated a suite of agreements collectively governing the sale and ongoing commercial relationship.^[33] He did not accept that the definition of “Agreement” was so expansive as to collapse the distinction between the various contracts, or the careful way in which amendments to them were subsequently undertaken.^[34]
• [35] The Judge next addressed whether the first Performance Payment was due, thus entitling LMCHB to exercise its rights against Buller under the Guarantee. He considered three issues in this context: the law of guarantees, the terms of the Guarantee and the Agreement, and the effect of the Supreme Court Judgment.^[35]
• [36] The Judge noted the general principle that there is no liability on a guarantor unless and until the principal debtor has failed to perform their obligations.^[36] He concluded that Bathurst was not in default of the Agreement,^[37] and therefore there could not be an event of default under the Guarantee.^[38] The Judge regarded that as the “inevitable effect” of the Supreme Court Judgment.^[39]
• [37] The Judge did not consider that LMCHB’s position was improved by its reliance on the anti-discharge clause in the Guarantee, saying it was simply a common drafter’s technique to avoid the rule in Holme v Brunskill, whereby any material variation of the terms of a guarantee as between a creditor and principal debtor is effective to discharge the guarantor from their liability entirely.^[40]
• [38] The Judge regarded the effect of LMCHB’s argument as to “turn on its head, or at least render pointless” the concession it had granted to Bathurst under the Third Deed.^[41] He said that either a concession was granted or it was not.^[42]
• [39] The Judge rejected Buller’s alternative argument that it was entitled to enforce the benefit of cl 3.10 under s 12 of the Contract and Commercial Law Act 2017. He did not consider that the Third Deed conferred or purported to confer any benefit on a party beyond those named (Bathurst and LMCHB), as is required under s 12.^[43] Further, he did not regard anything in the Third Deed as designating Buller as a beneficiary of the promise.^[44]
• [40] The Judge concluded that, had he been wrong in his conclusion that cl 3.10 informed LMCHB’s rights against Buller under the Guarantee, he would have implied a term into the Third Deed that would have the same effect as meaning cl 3.10 would apply for Buller’s benefit.^[45]
• [41] The final issue addressed by the Judge was whether LMCHB’s claim under the Guarantee in this second set of proceedings was an abuse of process, referring to the principle that litigation should not be undertaken by instalment.^[46] He concluded that LMCHB should have brought the current claim in its earlier proceeding and that to do so later was an abuse of procedure.^[47]
• [42] The Judge said he was left with the distinct impression that, at the time it initiated its first proceeding, LMCHB considered Buller’s liability under the Guarantee was secondary to, and dependent upon, Bathurst’s liability under the Agreement.^[48] He reasoned that it was likely LMCHB had changed its position in order to bring the current claim, the effect of which was trying to undermine the outcome of the Supreme Court Judgment by running an argument that it chose not to run in the first instance.^[49] The Judge concluded that, had he not found in favour of Bathurst in relation to the first and second issue, he would have stayed the proceeding as an abuse.^[50]
• [43] For those reasons, LMCHB’s application for a declaration was dismissed by the High Court.

The appeal

• [44] LMCHB appeals on the grounds the High Court erred in holding that:

(a) the effect of the Third Deed was that Bathurst’s obligation to pay the first Performance Payment had not been triggered such that it was not due, owing or payable, and this was the inevitable effect of the Supreme Court Judgment;^[51]

(b) the purpose of the parties in entering into the Third Deed was to grant an indulgence in relation to the first Performance Payment whether under the Agreement or otherwise;

(c) it would defy commonsense, render pointless the concession granted or be commercially absurd if Buller were liable under the Guarantee while the Third Deed was engaged;

(d) the first Performance Payment was not Guaranteed Money under the Guarantee and therefore there had not been any event of default arising from Buller’s failure to pay LMCHB the Performance Payment following demand;

(e) the anti-discharge clause in the Guarantee did not mean that Buller remained liable notwithstanding the covenant not to sue in the Third Deed and a primary debtor clause would have been required to achieve this result;

(f) alternatively, a term should be implied into the Third Deed that it was for the benefit of Buller; and

(g) also in the alternative, the proceedings should be stayed as an abuse of process.

• [45] LMCHB seeks an order setting aside the High Court’s judgment and a declaration that an event of default under the Guarantee has occurred, as a result of which LMCHB can exercise its security rights under the Guarantee.

The issues

• [46] The issues for us to determine are:

(a) Is the Performance Payment due?

(b) Is the Guarantee part of the Agreement and therefore amended by the Third Deed?

(c) Is Buller liable to make the first Performance Payment to LMCHB under the Guarantee, notwithstanding the concession to Bathurst in the Third Deed? This includes whether the anti-discharge clause changes the analysis.

(d) Should a term be implied into the Third Deed?

(e) Is the concession in the Third Deed enforceable by Buller under the Contract and Commercial Law Act?

(f) Does Henderson v Henderson estoppel apply to prevent LMCHB bringing the claim?^[52]

• [47] Finally, we address an interlocutory issue occasioned by LMCHB’s application to amend its pleading.

The documentation

• [48] Before embarking on our analysis of the issues, we set out the relevant provisions of the documents entered into to effect the overall transaction, noting the Third Deed is set out in full at [12] above.

The Agreement

• [49] The following are relevant defined terms from cl 1.1:

Agreement means this agreement, and includes the Background, the Schedules and the Appendices;

Guarantee and Security Deed means a deed under which [Buller] will guarantee certain obligations of the Purchaser under this Agreement and grant a security interest in favour of the Vendor, in or substantially in the form set out in Schedule 3;

Royalty Deed means the deed of royalty to be entered into between the Parties at Settlement, in or substantially in the form set out in Schedule 2;

Transaction means the transaction provided for in this Agreement, being the sale of the Shares by the Vendor to the Purchaser and the associated royalty, guarantee and security arrangements;

• [50] The Agreement then relevantly provides:

3.4 Performance Payments

The Purchaser shall pay the Vendor or its nominee, to such bank account as the Vendor may direct in writing at least 5 Business Days before payment is due to be made:

(a) US$40,000,000 within 30 days of the date on which the first 25,000 tonnes of coal has been shipped from the Permit Areas; and

(b) US$40,000,000 within 30 days of the date on which the first one million tonnes of coal has been shipped from the Permit Areas,

and the Purchaser shall immediately notify the Vendor of the occurrence of any event which gives rise to an obligation on the Purchaser to make a payment to the Vendor under this clause 3.4.

...

7 SETTLEMENT

...

7.3 Purchaser's Obligations

Upon [the Vendor complying with its obligations on settlement], the Purchaser shall pay the Vendor the Settlement Cash Consideration due under clause 3.3, in accordance with clause 3.7, and deliver to the Vendor the following:

...

(b) Royalty Deed and Guarantee and Security Deed: the Royalty Deed and the Guarantee and Security Deed, duly executed by the Purchaser, together with a copy of a signed valid resolution of the Purchaser Directors irrevocably approving entry into the Royalty Deed and Guarantee and Security Deed by [Buller] and their execution on behalf of [Buller];

...

8 POST SETTLEMENT OBLIGATIONS

Following Settlement:

...

(d) Royalty Deed and Guarantee and Security Deed: The Purchaser shall procure that [Buller] performs all obligations required of it pursuant to the Royalty Deed and the Guarantee and Security Deed. The Vendor shall be entitled to register the security interest created by the Guarantee and Security Deed under the Personal Properties and Securities Act 1999 of New Zealand.

...

Royalty Deed

• [51] The Royalty Deed was entered into between Buller as grantor, LMCHB as grantee and Bathurst as guarantor. Pursuant to cl 4.1, Buller must pay LMCHB royalties at the rate of 10 per cent of gross sales revenues until the first Performance Payment is made, royalties at five per cent from then until the second Performance Payment is made, and thereafter, for the duration of the permits or until final cessation of mining in the permit areas, royalties at 1.75 per cent.
• [52] In cl 12.1, Bathurst guarantees to LMCHB the due and punctual performance by Buller of its obligations under the Royalty Deed. The Deed then provides:

12.2 The guarantee contained in clause 12.1 shall operate as a principal obligation such that the Guarantor is a primary obligor and not a surety only, and shall not be affected by any waiver, granting of time or other indulgence given by the Grantor nor by any act or omission of the Grantor.

The Guarantee

• [53] The Guarantee was entered into by Buller, as guarantor, and Bathurst, as purchaser under the Agreement, in favour of LMCHB as secured creditor. The following are relevant defined terms in cl 1.1:

Event of Default means any of the events or circumstances described in clause 9.1 (Events of Default).

Guaranteed Money means all amounts owing by Bathurst to the Secured Creditor in accordance with clause 3.4 of the Sale and Purchase Agreement.

Sale and Purchase Agreement means the agreement for the sale and purchase of shares in [Buller], entered into on or about the date of this deed between the Secured Creditor as vendor and Bathurst as purchaser.

Secured Money means:

(a) all Guaranteed Money; and

(b) all amounts owing by the Guarantor to the Secured Creditor under clause 4.l(a) and (b) (subject to clauses 4.l(d) and 4.l(e)) of the Royalty Deed.

Secured Property means:

(a) all of the Guarantor's present and future assets (including any personal property in respect of which the Guarantor has an interest as a buyer or lessee, or which the Guarantor receives as a commercial consignment); and

(b) all of the Guarantor's present and future rights, title and interest in any asset, including, without limiting the generality of the foregoing:

(i) the Permits;

(ii) any coal extracted from the Permit Areas in accordance with the Permits;

(iii) any coal revenues arising from the extraction of the coal from the Permit Areas in accordance with the Permits;

(iv) all equipment; and

(v) any interest in land,

and includes any part of it.

Transaction Documents means:

(a) this deed;

(b) the Sale and Purchase Agreement;

(c) the Royalty Deed; and

(d) each other document that the Guarantor, Bathurst and the Secured Creditor agree is a Transaction Document for the purposes of this deed.

• [54] The Guarantee was set out in cls 2.1 and 2.2 as follows:

2.1 Guarantee

The Guarantor absolutely, unconditionally and irrevocably guarantees, to the Secured Creditor, the due and punctual payment by Bathurst of the Guaranteed Money.

2.2 Guaranteed Money

The Guarantor undertakes that if Bathurst does not pay to the Secured Creditor any of the Guaranteed Money when due, the Guarantor will pay that Guaranteed Money to the Secured Creditor immediately on demand.

• [55] Pursuant to cl 2.3, Buller indemnifies LMCHB against all losses incurred by LMCHB as a result of the Guaranteed Money not being paid for any reason and undertakes to pay the amount required on demand.
• [56] What has been referred to as the “anti-discharge clause” appears at cl 3.1. It provides that Buller will not be discharged nor will its obligations be affected by anything which, but for the clause, might operate to discharge or affect its obligations as guarantor or provide a defence, including any accommodation, variation, concession, delay in enforcement or insolvency of any party. This clause is set out in full at [111] below.
• [57] The Guarantee specifically provides in cl 5.3 that LMCHB is entitled to enforce the Guarantee without first taking any steps against Buller, Bathurst or any other person.
• [58] Clause 9 sets out the events or circumstances which would constitute an event of default under the Guarantee and the consequences:

9 ENFORCEMENT OF DEFAULT

9 .1 Event of Default

Each of the following events or circumstances is an Event of Default:

(a) Non-payment: the Guarantor does not pay any of the Secured Money on its due date (unless the failure to pay is caused by administrative or technical error outside the Guarantor's control and payment is made within two Business Days of its due date); or

(b) Other obligations: the Guarantor does not comply with any provision of this deed (other than as referred to in paragraph (a) above) and the failure to comply, if capable of remedy, is not remedied within 10 Business Days of its occurrence.

9.2 Enforcement of default

If an Event of Default occurs then (in addition to any other consequences provided for by this deed or any other Transaction Document):

(a) Security enforceable: the security created under this deed will become immediately enforceable; and

(b) Secured Creditor's rights: the Secured Creditor may (whether or not a Receiver has been appointed) immediately exercise all or any rights which a person would have if appointed as a Receiver under this deed.

• [59] Clause 16.8 provides that no amendment to the Deed will be effective unless in writing and signed by all parties.

Deed of Novation

• [60] A deed of novation and amendment (the Novation), dated 7 June 2013, involved the original Bathurst party, Bathurst Resources Ltd, Bathurst Resources (New Zealand) Ltd, Buller and LMCHB. The purpose of the Novation was to record that the obligations of Bathurst Resources Ltd to make the Performance Payments and issue performance shares under the Agreement were to be transferred to and assumed by Bathurst New Zealand. This was as a result of a reorganisation by way of a scheme of arrangement whereby all of the shares in Bathurst Resources Ltd were transferred to Bathurst New Zealand.^[53] The only relevance of the Novation to this decision is the fact that all three parties were party to the Novation, which recorded the Agreement, as amended by the three Deeds of Amendment (including the Third Deed), and the Guarantee and Royalty Deeds. There is a specific provision addressing the Guarantee, releasing Bathurst Resources Ltd and substituting Bathurst New Zealand. LMCHB agrees that, for the purposes of the Guarantee, neither the execution of the Novation nor the scheme of arrangement constituted an event of default or gave rise to any other right on the part of LMCHB to enforce its security.

Principles of contractual interpretation

• [61] The principles of contractual interpretation that govern our approach can be stated relatively succinctly.
• [62] Contractual interpretation requires an objective approach with the aim being to:^[54]

[60] ... ascertain the “meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.

• [63] Primacy is given to the words, but they are to be read in the context of the contract as a whole.^[55] In the present case, when considering the background knowledge reasonably available to the parties and the context of the contract as a whole, the Transaction and the part the Guarantee plays in it must be taken into account. We therefore interpret the Guarantee by reading it consistently with the other Transaction documents.
• [64] In interpreting commercial contracts, “the courts should have regard to their commercial purpose and to the structure of the parties’ bargain, to the extent that they can be reliably identified”.^[56] If a particular interpretation produces a commercially absurd result, that may be reason to read the contract in a different way than the language might suggest.^[57] However, that does not mean a court should conclude a contract does not mean what it says simply because the interpretation would be unduly favourable to one party, noting that “commercial absurdity tends to lie in the eye of the beholder”.^[58] The conclusion that an ordinary and natural meaning of contractual language produces a commercial absurd result should be reached only in the most obvious and extreme cases.^[59] This was emphasised in the Supreme Court Judgment.^[60]
• [65] And one further relevant interpretation issue — this case involves commercial contracts negotiated between parties of equal bargaining power, meaning the contra proferentem rule has a very limited role.^[61] We note too that the Guarantee specifies that, in construing the Guarantee, the rule does not apply.

Is the Performance Payment due?

Context

• [66] Under cl 2 of the Guarantee, Buller guarantees “the due and punctual payment by Bathurst of the Guaranteed Money” and undertakes that, if Bathurst does not pay any of the Guaranteed Money “when due”, Buller will pay it to LMCHB immediately on demand. Guaranteed Money is defined as all amounts owing by Bathurst to LMCHB. Clause 9.1 of the Guarantee provides that there will be an Event of Default when Buller does not pay any of the Secured Money on “its due date”.
• [67] The issue then is whether Bathurst has failed to make a Performance Payment which is “due”. If it is not due, then Buller cannot be called on to make the Performance Payment pursuant to cl 2.2 of the Guarantee. If it is due, then, pursuant to cl 3.10 of the Agreement, as amended by the Third Deed, failure by Bathurst to make a Performance Payment “when and as due” is not an actionable breach of or default under the Agreement provided royalty payments continue to be made. That then leads to the ultimate issue for us to determine which is whether LMCHB can nevertheless recover the Performance Payment from Buller pursuant to the Guarantee.

High Court judgment

• [68] The Judge interpreted the Supreme Court Judgment as finding that cl 3.10 had a suspensory effect, with the result that there was nothing currently “owing” by Bathurst under cl 3.4 of the Agreement. Therefore, the first Performance Payment was not Guaranteed Money for the purpose of the Guarantee. It was unnecessary for the drafters of the Third Deed to alter expressly the terms of the Guarantee because the Guarantee continued to respond to the obligations in the Agreement as amended from time to time.^[62]
• [69] The Judge described LMCHB’s approach to interpretation as restricting the operation of cl 3.10 to the Agreement but leaving cl 3.4 of the Agreement (which provides when the Performance Payments are due) unaltered for the purposes of the Guarantee. He said that cl 3.4 could not be read without cl 3.10 because of the latter’s suspensory effect and that was so whether for the purpose of the Guarantee or the Agreement. The Judge reasoned that it therefore followed that reference to Guaranteed Money and Bathurst’s liability under the Guarantee was also subject to the suspension of the obligation in cl 3.10. He described it as:^[63]

... simply [defying] common sense to interpret the two contracts as creating an inconsistency when the purpose of the parties, objectively ascertained, was to grant an indulgence in relation to the first Performance Payment, whether under the Agreement or otherwise.

• [70] The Judge reasoned that the Performance Payment was not due because, under cl 3.10, the necessary royalties had been paid to LMCHB and there could be no default enforceable under the Guarantee.^[64] Bathurst was entitled (or allowed) to postpone the Performance Payment. He concluded that a payment that has been deferred is not one that is due and presently payable.^[65]

Submissions

• [71] Mr Hodder KC, for Buller and Bathurst, submitted the High Court’s analysis was correct and that cl 3.10 conditionally suspended the due date for the first Performance Payment. Therefore, as the first Performance Payment was not due and payable by Bathurst as principal debtor, Buller could not be called on as guarantor to pay the same money. In Mr Hodder’s submission, a debt can only properly be said to be “due” when it is actually payable. The Supreme Court ruled that the due date for payment of the Performance Payment had been validly postponed.
• [72] For LMCHB, Mr Justin Smith KC submitted the High Court erred in holding that Bathurst’s primary obligation to pay the first Performance Payment under cl 3.4 of the Agreement had not been triggered as a result of the operation of the Third Deed such that it was not due, owing or payable. He submitted that cl 3.10 operated as a covenant by LMCHB not to sue Bathurst for the Performance Payments but left the primary obligation to pay in place, meaning the Performance Payments were Guaranteed Money under the Guarantee which Buller is liable to pay on demand. The very premise of cl 3.10, said Mr Smith, was that Bathurst has failed to pay one or more Performance Payments “when and as due” and cl 3.10 does not operate until that situation applies. The High Court’s conclusion that cl 3.10 removed Bathurst’s primary obligation to pay the Performance Payments was therefore in error.
• [73] Mr Smith submitted that his interpretation was consistent with both the majority and minority in the Supreme Court, who described cl 3.10 as a “concession”.^[66]

Analysis

• [74] The meaning of the word “due” depends upon the context in which it is used. Prima facie, and if there is nothing in the context to require a different construction, the words “debts due” include all sums certain which a person is legally obliged to pay, whether they have become payable or not.^[67] And, as said by this Court:^[68]

Just as there are circumstances in which it may be appropriate to describe a debt as owing but not yet due, so there are other circumstances in which the two words may mean exactly the same. A debt for which the time for payment has passed is both due and owing.

• [75] We are satisfied that in the context in which the word “due” is used in the Third Deed and Guarantee, it means “immediately payable”.
• [76] We consider the Judge’s description of cl 3.10 as having a “suspensory effect”, meaning there was nothing currently owing by Bathurst under cl 3.4, as an error. The Supreme Court used the word “suspend” or “suspended” only in the context of suspension of mining operations and when describing the Court of Appeal’s finding.^[69]
• [77] The concession in cl 3.10 does not remove the underlying obligation to pay and does not alter the date or circumstances in which the first Performance Payment is to be made. The majority in the Supreme Court Judgment said LMCHB was agreeing “not to enforce payment”.^[70] The minority described cl 3.10 as applying where the Performance Payment is due and not paid.^[71] Both distinguished between the Performance Payments being due under cl 3.4 and the concession in cl 3.10 that failure to make a Performance Payment is not “an actionable breach”.^[72] An “actionable” breach is one that is enforceable by legal action or one which provides grounds for an action at law.^[73]
• [78] Clause 3.10 is a concession whereby LMCHB agrees not to exercise its enforcement rights while royalties at the highest rate continue to be paid, thus enabling Bathurst to postpone making the first Performance Payment. Clause 3.10’s use of the words “failure to pay” and “actionable breach” emphasise that the Performance Payments remain due at the specified time, and the lack of payment is a breach but it will (conditionally) not be enforced.
• [79] We therefore agree with Mr Smith that the High Court erred in holding that the effect of the Supreme Court’s judgment was that cl 3.10 operated to remove Bathurst’s primary obligation to make the first Performance Payment. Whether that means Buller is liable pursuant to the Guarantee to pay LMCHB the first Performance Payment as Guaranteed Money immediately on demand is another issue.

Is the Guarantee part of the Agreement (and therefore amended by the Third Deed)?

• [80] Buller and Bathurst’s next argument is that a textual analysis of the Agreement makes it clear that the parties expressly agreed that the Guarantee was part of, and included in, the Agreement and it therefore follows that the Guarantee is affected by the amendments to the Agreement through the Third Deed. The argument relies on the Agreement’s definition in cl 1.1 of “Agreement” which expressly includes the background, the schedules and the appendices. The Guarantee is defined in the Agreement as being “in or substantially in the form set out in Schedule 3”.
• [81] We consider the High Court was correct to reject that submission.^[74] By specifying that the Agreement includes its schedules and appendices, the parties were simply using a common drafting technique. The Agreement provided for pre‑settlement obligations and set out the arrangements for settlement which included the requirement that Bathurst as purchaser deliver to LMCHB the executed Royalty Deed and Guarantee, they being in the form of the draft in the schedules.
• [82] We do not consider that the overall structure of the Agreement can be interpreted to mean that any change to the Agreement would result in a corresponding change to the draft documents contained in the schedules, including the Royalty Deed and Guarantee.

Is Buller liable to make the Performance Payments to LMCHB under the Guarantee notwithstanding the concession to Bathurst in the Third Deed?

• [83] This brings us to the real issue: can LMCHB enforce the Guarantee and recover the Performance Payments from Buller notwithstanding the concession given to Bathurst by the Third Deed? The answer depends on interpretation of the Guarantee, informed by the law on guarantees.
• [84] This section is structured as follows:

(i) General principles of guarantees law.

(ii) On general principles, is Buller liable to make the Performance Payments to LMCHB under the Guarantee notwithstanding the concession to Bathurst in the Third Deed?

(iii) Does the anti-discharge clause change the analysis?

(iv) Is the interpretation consistent with the contractual arrangements between the parties as a whole?

(v) Is LMCHB’s subsequent conduct relevant to interpretation of the Guarantee and Third Deed?

General principles of guarantees law

• [85] A guarantee is a binding promise of one person to be answerable for a present or future debt or obligation of another if that other defaults.^[75] A guarantor’s obligation is secondary; it is contingent on the continuing liability of the principal debtor and ultimately the principal debtor’s default.^[76] The principal debtor remains primarily liable to the creditor. Subject to a number of established exceptions,^[77] the essential distinguishing feature of a guarantee is that a guarantor’s liability cannot be different in kind or greater in extent than the principal debtor: the liability of a guarantor and the principal debtor is co-extensive.^[78]
• [86] That does not, however, prevent the creditor from proceeding first against the guarantor.^[79] The principal debtor’s primary liability connotes that they will ultimately be liable to indemnify the guarantor in respect of amounts paid by the guarantor in reduction of the debt.^[80]
• [87] The principal obligation must remain unchanged throughout the life of the guarantee. Even slight unauthorised changes in the principal obligation may discharge the guarantor. Moreover, if the principal obligation determines, so does the guarantee.^[81] The parties however may include terms in their contractual arrangements that mitigate against this.
• [88] Since the liability assumed by the guarantor is secondary, the guarantor may be discharged if the creditor does anything that is inconsistent with, or detrimental to, the guarantor’s rights of exoneration, reimbursement, contribution or subrogation.^[82] A guarantor is discharged if the creditor acts in bad faith towards him, is guilty of concealment amounting to misrepresentation, causes or connives at the default by the principal debtor or varies the terms of the contract between him and the principal debtor in a way prejudicial to the interests of the guarantor. However, other conduct by the creditor, even if irregular and prejudicial to the interests of the surety in a general sense, does not discharge the surety.^[83]

Comparison with contracts of indemnity

• [89] A contract which on its true construction gives rise to an independent personal liability on the part of the guarantor to pay a sum of money to the creditor on default by the principal debtor will be an indemnity, not a guarantee.^[84] Broadly, a contract of indemnity is an obligation by one party to make good a loss suffered by another.^[85] The form of indemnity that most closely approaches a guarantee is where the indemnifier promises to indemnify against loss arising due to the failure of a third party to perform in a transaction with the indemnified party.^[86]
• [90] An essential characteristic of a contract for indemnity is that primary liability falls upon the indemnifier, and that liability is wholly independent of any liability between the principal and the creditor.^[87] This is in direct contrast to a contract of guarantee, where the liability is always secondary.
• [91] It is a matter of construction in each case as to whether a contract is one of indemnity or guarantee.^[88] An important factor is whether the liability of the promisor to the creditor is different in extent or nature from that of the principal debtor. If the promisor is liable when the principal debtor is not in default, or is liable for a greater amount than the principal, it will be an indemnity.^[89] Further, if the liability triggering event is anything other than the principal debtor’s default — the underlying obligation being void, for example — it cannot be a guarantee.^[90]

Variations and the rule in Holme v Brunskill

• [92] The rule in Holme v Brunskill is to the effect that any material variation of the terms of the principal contract will discharge the guarantor.^[91] The rationale for the rule is that the creditor must not transact the guarantor’s business without consulting them.^[92] Variations which are agreed to or authorised by the guarantor, or expressly contemplated by the principal contract, will not discharge the guarantor.^[93]

Giving time and other concessions

• [93] Where the creditor agrees to give an extension of time to the principal debtor to perform their obligation, beyond what is contemplated in the contract, the guarantor will be discharged. This is because an extension of time deprives the guarantor of the right at any time to pay the creditor and sue the principal debtor. If the guarantor were able to claim against the principal debtor, this would negate the extension of time. If the guarantor were unable to claim against the principal debtor, but remained liable to the creditor, the principal debtor would be in a better position than the guarantor, offending the co-extensiveness principle.^[94]
• [94] An early case explaining the rationale for this rule is Philpot v Briant.^[95] Best CJ said:^[96]

A creditor by giving further time of payment, undertakes that he will not, during the time given, receive the debt from any surety of the debtor, for the instant that a surety paid the debt he would have a right to recover it against his principal. The creditor, therefore, by receiving his debt from the surety would indirectly deprive the debtor of the advantage that he had stipulated to give him. If the creditor had received from his debtor a consideration for the engagement to give the stipulated delay of payment of the debt, it would be injustice to him to force him to pay it to any one before the day given. If to prevent the surety from suing the principal, the creditor refuses to receive the debt from the surety until the time given to the debtor for payment by the new agreement, the surety must be altogether discharged, otherwise he might be in a situation worse than he was in by his contract of suretyship. If he be allowed to pay the debt at the time when he undertook that it should be paid, the principal debtor might have the means of repaying him. Before the expiration of the extended period of payment the principal debtor might have become insolvent. A creditor, by giving time to the principal debtor, in equity, destroys the obligation of the sureties; and a court of equity will grant an injunction to restrain a creditor, who has given further time to the principal, from bringing an action against the surety. ...

• [95] Oriental Financial Corp v Overend, Gurney and Co discussed the effect on the guarantor of the creditor giving time to the principal.^[97] Although expressing doubt as to the rationale for such a strict rule, Lord Hatherley considered it “long settled” that in such a situation the surety would be released. This is because it would be contrary to the agreement with the principal debtor to sue the guarantor, “because if you sue the surety you immediately turn him upon the principal [debtor], and therefore your act breaks the agreement into which you have entered with the principal [debtor]”.^[98] Lord Hatherley went on to say there is no breaking of the agreement where the ability to give time is preserved in the agreement.^[99]
• [96] Sometimes the creditor will undertake not to sue the principal debtor on default, with no limitation as to time.^[100] There is some authority that a covenant not to sue, absent an express term reserving rights against the guarantor, will discharge the guarantor.^[101] A “fraud on the debtor” situation would also arise if the guarantor could sue the principal debtor, even though the creditor has agreed not to do so.^[102]
• [97] A creditor may grant a release to the principal debtor, without receiving full payment or performance. In this situation, the guarantor is also discharged.^[103] The rationale is the courts’ desire to protect the position of the principal debtor; if the guarantor were not discharged, they could proceed against the principal debtor which would render the release illusory and again amount to a “fraud on the principal debtor”. If the guarantor were denied their rights against the principal debtor in these circumstances, but the creditor could still enforce the guarantee, the guarantor’s right would be extinguished without their knowledge or agreement.^[104]
• [98] This principle is not seen to be infringed where a reservation of rights clause is contained in the agreement of release, because the debtor’s assent to the clause constitutes an implied agreement to the continuation of the guarantor’s right of indemnity against the principal debtor. Re Natal Investment Co (Nevill’s Case) involved a principal debtor and liquidator agreeing to settle a debt for a lesser amount, with a clause in the agreement reserving the liquidator’s rights against anyone else.^[105] Mellish LJ said:^[106]

It is clear that, even where the principal debtor is released by a formal instrument under seal, if the remedy against the surety is reserved the surety can be sued. The reason why a simple release of the principal debtor discharges the surety is, that it would be a fraud on the principal debtor to profess to release him, and then to sue the surety, who in turn would sue him; but where the bargain is that the creditor is to retain his remedy against the surety, there is no fraud on the principal debtor, and the Court will give effect to the intention of the parties by construing the release as a covenant not to sue the principal debtor.

• [99] Another example is the case of Cole v Lynn, where the creditors covenanted not to sue the principal debtor with the proviso that it would not in any way affect the rights or remedies of the creditors against any surety.^[107] It was held that the proviso preserved the creditors’ rights against the guarantor and was also impliedly a consent by the principal debtor that the guarantor could still exercise a right of indemnity against him. Clauson LJ said:^[108]

... a proviso such as that with which we have to deal not only rebuts what would otherwise be implied, namely, the release of the surety as against the creditor, but also prevents the rights of the surety against the debtor, that is, the right to indemnity, being impaired, for ... the consent of the debtor that the creditor shall have recourse against the surety is impliedly a consent that the surety shall have recourse against him, the debtor.

Principal debtor clauses

• [100] A principal debtor clause purports to give the creditor liberty to act as though the guarantor were a principal debtor, by providing that the guarantor is liable as a primary obligator and not merely as guarantor.^[109] The usual purpose of these clauses is to preserve the liability of the guarantor in circumstances where they would otherwise be discharged.^[110] The effect of a principal debtor clause will always depend on its wording and the overall contractual scheme.^[111]
• [101] The leading statement of the relevant law comes from Fisher J in Heald v O’Connor. In the situation where the agreement imposing liability on the principal debtor was found to be void, he said:^[112]

... The only straw for the plaintiff to clutch is the phrase “as a primary obligor and not merely as a surety” but that, in my judgment, is merely part of the common form of provision to avoid the consequences of giving time or indulgence to the principal debtor and cannot convert what is in reality a guarantee into an indemnity.

• [102] Deutsche Bank AG v Unitech Global Ltd (No 3) is an example of a case where a wide-reaching principal debtor clause in a guarantee was held to preclude consideration of whether the guarantor could be discharged, when that would have otherwise been the case.^[113] The clause was headed “Guarantee and indemnity” and provided that:^[114]

... if, for any reason, any amount claimed by a Finance Party under this Clause is not recoverable from the Guarantor on the basis of a guarantee, then the Guarantor will be liable as a principal debtor and primary obligor to indemnify that Finance Party in respect of any loss it incurs ...

• [103] Longmore LJ cited the statement of principle from Heald v O’Connor, but found that the clause at play went much further and amounted to an obligation to indemnify if any amount was not payable, “for any reason”.^[115]

“Indulgence” or “anti-discharge” clauses

• [104] It is common for modern contracts of guarantee to contain a clause that permits variations in the principal contract, giving time to the principal debtor and/or allows the principal debtor to be released, while the guarantor remains bound.^[116] These are sometimes known as “indulgence” or “anti-discharge” clauses.
• [105] The cases of Cowper v Smith and Union Bank of Manchester v Beech provide clear authority that an express clause preserving the creditor’s rights against the guarantor in the event of the release of the principal are effective.^[117] In Perry v National Provincial Bank of England there was a clause authorising the creditor to “compound with[,] give time for payment of and accept compositions from and make any other arrangements with the debtors”.^[118] Cozens-Hardy MR said:^[119]

... it is perfectly possible for a surety to contract with a creditor in the suretyship instrument that notwithstanding any composition, release, or arrangement the surety shall remain liable although the principal does not.

• [106] As recognised by a leading text on the subject, it is difficult to see how the guarantee can contain a clause explicitly permitting the release of the principal and yet remain a guarantee.^[120]

On general principles, is Buller liable to make the Performance Payments to LMCHB under the Guarantee notwithstanding the concession to Bathurst in the Third Deed?

• [107] The first obstacle LMCHB faces is that the interpretation of the Guarantee for which it contends is inconsistent with the law of guarantees.
• [108] To recap, LMCHB, having contracted with Bathurst that the failure to make a Performance Payment will not be treated as an actionable default, now seeks to recover that same amount from Buller under the Guarantee relying on that same default. The effect of LMCHB’s claim is to make Buller in default of the Guarantee if it does not pay the first Performance Payment whereas Bathurst’s default of the Agreement for exactly the same failure will not be actioned. That is wrong as a matter of legal principle. It offends against the basic legal principle of co-liability, as it would place Bathurst as principal debtor in a better position than Buller as guarantor.
• [109] Although the Guarantee contains an indemnity clause, this is expressed to be in respect of any losses LMCHB might suffer if the Guaranteed Money is not paid. This does not convert the Guarantee into an indemnity and LMCHB does not contend it does.

Does the anti-discharge clause change the analysis?

• [110] LMCHB relies on the anti-discharge clause in cl 3.1 of the Guarantee as a complete answer to Buller’s defence that it cannot be independently liable to pay the Performance Payments when LMCHB will not treat the default by the principal debtor, Bathurst, as an actionable breach.
• [111] The anti-discharge clause provides:

3.1 Liability not prejudiced

The Guarantor will not be discharged, nor will any of its obligations be affected (nor will any of the rights of the Secured Creditor be affected), by anything which, but for this clause, might operate to discharge or affect the obligations of, or otherwise provide a defence to, the Guarantor (whether or not known to the Guarantor or the Secured Creditor), including:

(a) any further credit, advance or accommodation made or given by the Secured Creditor to, or at the request of, the Guarantor or Bathurst;

(b) any amendment to or variation of (however fundamental) any other agreement, guarantee or security, or any of the rights of the Secured Creditor against the Guarantor, Bathurst or any other person;

(c) any time, credit, waiver, indulgence or other concession given to, or arrangement made with, the Guarantor, Bathurst or any other person;

(d) the non-existence, avoidance, invalidity or unenforceability of, or any release or discharge (in whole or part) of, the Guarantor, Bathurst or any other person from, or any failure by any person to execute or be bound by, any other agreement, guarantee or security;

(e) any enforcement of, delay in enforcing or failure to enforce:

(i) any rights of the Secured Creditor against the Guarantor, Bathurst or any other person; or

(ii) any other agreement, guarantee or security in respect of any Guaranteed Money;

(f) any moratorium (whether by statute, order of court or order of any authorised agency):

(i) in respect of the payment of the Guaranteed Money; or

(ii) which has the effect of staying or suspending all or any of the rights of the Secured Creditor against the Guarantor, Bathurst or any other person;

(g) the insolvency, receivership, administration or dissolution of Bathurst, the Guarantor or any other person, or the appointment of any liquidator, receiver, administrator, statutory manager or similar person, or the establishment of any compromise or other arrangement, in respect of Bathurst, the Guarantor or any other person;

(h) the amalgamation, change in constitution, status or control, or reconstruction or reorganisation, of the Secured Creditor, the Guarantor, Bathurst or any other person;

(i) anything done, or omitted or neglected to be done, by the Secured Creditor, whether in exercise of the rights of the Secured Creditor under this deed or any other agreement, guarantee or security, or otherwise; or

(j) any other thing whatever, other than a release of the obligations of the Guarantor under this deed executed by the Secured Creditor.

The Secured Creditor will have no liability to the Guarantor in respect of any of these matters, even if the Guarantor's rights are prejudiced as a result.

Submissions

• [112] The High Court found that the anti-discharge clause was directed to the rule in Holme v Brunskill.^[121] The Judge said that the effect of LMCHB’s argument was to read the anti-discharge clause so as to impose a primary obligation on Buller to make the Performance Payments when the principal obligor, Bathurst, had been relieved of that burden.^[122] He regarded this as a “radical change in [Buller’s] legal obligation”.^[123] Alternatively, he said, its effect was to read cl 3.4(a) of the Agreement as imposing an obligation on Buller without regard to cl 3.10. In his view, neither contention was sustainable, given the secondary nature of Buller’s liability as Guarantor.^[124]
• [113] Mr Hodder supported the High Court’s analysis. He emphasised that no principal debtor clause was included in the Guarantee, in contrast to the contemporaneous Royalty Deed. Secondly, in his submission, anti-discharge clauses are for the purpose of allowing a creditor to vary its contract with the principal debtor without the legal consequence of discharging the guarantor fully from any liability. The guarantor was still bound by the altered obligation then owed by the principal debtor to the creditor. Mr Hodder did not dispute that Buller remained “on the hook” as guarantor but submitted the scope of its secondary liability was still tied to the scope of the principal debtor’s liability. Because Bathurst was not liable to make the first Performance Payment, the anti-discharge clause did not make Buller liable for that sum.
• [114] In Mr Smith’s submission, the granting of a concession not to sue the principal debtor while leaving the ability to enforce against the guarantor in place was precisely and expressly the type of indulgence to which the anti-discharge clause was intended to apply. Far from being contrary to commercial purpose, in Mr Smith’s submission the outcome was expressly contracted for by the parties.
• [115] Mr Smith maintained there were numerous examples in case law to support his proposition that the guarantor remained liable when the primary debt was unenforceable or had been released. He noted that statute-barred debts remain due from the principal debtor and can be pursued against a guarantor,^[125] and that debts may remain enforceable against a guarantor despite the principal debtor’s bankruptcy or liquidation.^[126]
• [116] Mr Smith rejected the Judge’s conclusion that the result contended for by LMCHB was commercially absurd. He pointed out that Buller was not a party to the Third Deed, the Third Deed did not refer to the Guarantee, the Third Deed definition of Agreement was limited to the Agreement itself and that Buller was party to the first two deeds which had amended the Agreement. In his submission, the parties consciously decided who would be party to the Third Deed. There was no evidence, he said, of either Buller or Bathurst requesting an amendment to the Guarantee. Mr Smith said these were commercial parties who must be taken to have decided to leave the Guarantee unchanged. If there were any ambiguity, then that was as a result of a deliberate decision of the parties.

Analysis

• [117] We first turn to the cases on which Mr Smith relied.
• [118] In Cowper v Smith, (also referred to at [105]) the defendants had provided a guarantee to the plaintiffs in respect of goods to be supplied to them by Mr[127]Green.¹²⁷ The guarantee provided that the plaintiff should have f[128] liberty:¹²⁸

... to grant to [Green] and the persons liable upon such bills, notes or securities, any indulgence and to compound with him or them respectively, as the plaintiffs might think fit, without the same discharging or in any manner affecting the liability of the defendant ...

• [119] Mr Green entered into a deed of composition with the plaintiffs and other creditors whereby he assigned all his stock in trade to them for their benefit. The plaintiffs then granted Mr Green a general release of all debts. The guarantors claimed that they were discharged by the composition and the release of the principal debtor, arguing that a release of the principal debtor without the guarantor’s assent will discharge the guarantor. They relied on the principle that a release of the debtor amounts to a release of the surety because the surety, if sued, would be entitled to recover against the principal debtor and the release would thereby be inoperative.^[129]
• [120] The composition deed was held to be within the express terms of the guarantee which authorised the plaintiff to “compound with” Mr Green. Because the guarantor had expressly contracted to remain liable, it was held he could not therefore contend that the discharge of the principal debtor was an implied discharge of the guarantee.^[130]
• [121] In Union Bank of Manchester Ltd v Beech (also referred to at [105]), a Mr Taylor was indebted to the plaintiff bank and entered into composition with his creditors which contained an absolute release o[131]is debts.¹³¹ A deed [132]security:¹³²

... provided and declared that no indulgence, time, credits or forbearance given or shewn to or security taken from, or agreement to give or shew indulgence, time or forbearance to or composition with the principal debtor or debtors, whose debt or debts might be for the time being secured by the said deed, should be any discharge of the debts or of any liability under or by virtue of the said deed, or otherwise howsoever, or should release him from observing or performing the conditions and provisions therein contained, notwithstanding that the defendant, either separately or jointly with any other person or persons, might not be privy to, or might refuse consent, or might object to, or protest against the giving or shewing such indulgence, time, credit or forbearance, or the making of such agreement or composition; and the said bank might in all respects deal with the principal debtor or debtors for the time being, his or their executors ... at their discretion, without discharging any such liability as last aforesaid, or releasing the defendant from observing or performing the conditions and provisions therein contained, or any of them.

• [122] The guarantor argued that, by the release, the guaranteed debt was altogether discharged so no balance was due from the principal debtor to the plaintiff bank. The Court did not see any distinction between the case and Cowper. The guarantor had expressly agreed that a composition with the principal debtor would not discharge him from liability.^[133]
• [123] In the case of Perry v National Provincial Bank of England, the creditor agreed to accept a lesser amount than the whole of the debt “in full discharge” of its claim.^[134] The creditor sought payment from the surety for the unrecovered amount. The deed of security contained the following declaration:^[135]

That the bank shall be at liberty without thereby affecting their rights herein at any time to determine or vary any credit to the debtors or any of them to vary exchange or release any other securities held or to be held by the bank for or on account of the moneys hereby secured or any part thereof to renew bills or promissory notes in any manner and to compound with give time for payment of and accept compositions from and make any other arrangements with the debtors or any of them or other obligants on bills notes or other securities held or to be held by the bank for or on behalf of the debtors or any of them. And it is hereby agreed and declared that this is to be a continuing security for the whole amount now due or which may hereafter from time to time become due to the bank by the debtors or any of them and that in case of bankruptcy liquidation by arrangement or composition with creditors any dividends that the bank may receive from the estate or estates of the debtors or any of them or others shall not prejudice the right of the bank to obtain payment by means of this security of any sum which after receipt of such dividends may remain owing to them by the debtors or any of them.

• [124] On appeal, the Court followed Cowper and Union Bank, holding that the surety was not discharged upon release of the debtor.^[136]
• [125] In Bank of Adelaide v Lorden, the respondents provided a guarantee to the Bank to secure lending to their company.^[137] The instrument contained the following clauses:^[138]

... that the Bank may from time to time and without affecting impairing or releasing this guarantee or the guarantor’s liability under it execute or bindingly assent to any deed of assignment or arrangement (and all preliminaries thereto) of the customer's estates and effects to Trustees for the benefit of the customer’s creditors or compound with the customer and also with any party or parties to any Bill of Exchange ... and that any dividend which the Bank may receive from the assets estate or estates whether in liquidation or in bankruptcy or under any statutory deed of assignment or arrangement of the customer or of any such party or parties may be first applied in reducing the indebtedness and other liabilities above the sum beforementioned of the customer to the Bank.

...

... this guarantee shall at all times be valid and enforceable against the guarantor even though the advances (including the principal debt) payment whereof is guaranteed hereby cannot be legally enforced against the customer.

• [126] Barwick CJ in the High Court of Australia considered whether the anti‑discharge clause was effective to continue the guarantor’s liability despite the creditor having effectively discharged the debt owing to it by accepting a lesser sum in satisfaction of that debt. He held that the clause expressly gave the creditor the right to compound with the principal debtor without affecting, impairing or releasing the guarantors’ liability.^[139]
• [127] In Pogoni v R & W H Symington & Co (NZ) Ltd, the principal debtor gave a mortgage to the creditor which was guaranteed by the appellant.^[140] The agreement contained the following clause:^[141]

... and it is hereby agreed and declared and convenanted by the covenantors [ie the two guarantors] with the lender [Symington] that although as between the covenantors and the company the covenantors may be sureties only yet as between the covenantors and the lender the convenantors shall be deemed to be principal debtors and liable on all covenants in the said debenture and the covenantors shall not be released by any act matter or thing the happening of which would release one liable only as a surety and shall continue to remain liable hereunder to the lender notwithstanding that for any particular reason any covenant or obligation contained in the said debenture may for the time being be unenforceable by the lender against the company.

• [128] The principal debtor went into liquidation, and the creditor and the liquidators settled the debt. The creditor then sought to recover the balance of the debt from the guarantor. Casey J in this Court saw the issue as purely one of construction, to determine whether the guarantor’s right to treat the guarantee as discharged had been effectively excluded. He held that the clause deprived the guarantor of all rights he would otherwise have had against the creditor and he was not entitled to complain of the alteration in the securities or to claim that the alteration had discharged him from liability.^[142]
• [129] In Lavin v Toppi the Court held a covenant not to sue between a creditor and a co‑surety did not affect the co‑surety’s continuing liability to a claim for contribution from another co‑surety. It did not operate as a discharge of the liability under the guarantee.^[143]
• [130] In Bateson v Gosling, an 1871 case, a debtor had entered into a deed of arrangement following a bankruptcy which released the debtor while reserving the rights of creditors holding securities.^[144] The sureties argued that the arrangement amounted to payment in satisfaction of the debt so there could be no reservation of the creditors’ rights against the sureties. It was held that the deed operated as a covenant not to sue and not as an extinguishment of the debt so as to bar the remedy against the surety. There being no satisfaction of the debt, it was not an absolute release.^[145]
• [131] We consider all these cases readily distinguishable. Cowper, Union Bank of Manchester, Perry and Bank of Adelaide are cases where the principal debtor had entered into a creditor’s compromise, the creditor having looked to the principal debtors who were in default before calling on the guarantors. Pogoni concerned a settlement reached following litigation over an alleged voidable charge. Importantly, in all but Pogoni, the guarantees expressly allowed the creditor to compound with the principal debtor and specified that the guarantor would continue to be liable. The clause at issue in Pogoni contained a principal debtor provision.
• [132] Lavin involved an issue between co-sureties and Bateson a deed of arrangement following bankruptcy.
• [133] It is the usual outcome that guarantors remain liable if the creditor cannot enforce against the principal debtor, but these cases inevitably involve a default on the part of the principal debtor (or one caused as a result of illegality or by operation of law, such as bankruptcy) and one that is treated as such by the creditor.
• [134] Most importantly, in all these cases, the guarantor claimed the arrangements reached between the creditor and principal debtor had the effect of discharging them completely from their liability, but the anti-discharge clauses were held to prevent that.
• [135] Anti-discharge clauses permit variations in the principal contract while providing the guarantor remains bound. Were Buller relying on the rule in Holme v Brunskill and claiming the variation to the Agreement as effected by the Third Deed discharged it from liability as guarantor, then the anti-discharge clause would come into play. But Buller is not saying that. Buller accepts it remains liable as guarantor on the terms of the Guarantee but says the liability remains co-extensive with that of Bathurst.
• [136] We agree with the Judge that the anti-discharge clause in the Guarantee is directed at the rule in Holme v Brunskill. The anti-discharge clause is expressed in the negative, confirming Buller will not be released from liability. The opening words of the anti-discharge clause are particularly important. They provide that Buller will not be discharged, nor its obligations affected, nor will LMCHB’s rights be affected by anything which but for this clause might operate to discharge or affect the obligations of, or otherwise provide a defence to, the guarantor. On our reading, the purpose of the clause is clear. It is to ensure that, even if any of the events listed in (a)–(j) occur, the Guarantee will not come to an end by operation of law in accordance with the general principles of the law of guarantees, or enable Buller to resist any claim made by LMCHB pursuant to the Guarantee. The effect of the anti-discharge clause is to confirm that Buller remains liable on the Guarantee, despite the concession, but its liability remains co-extensive with that of Bathurst.

Impact of the Third Deed on the Guarantee

• [137] The anti-discharge clause therefore preserves Buller’s liability as guarantor notwithstanding the Third Deed. Although LMCHB at various times referred to the Third Deed as a covenant by LMCHB not to sue, it could also be categorised as the giving of time, and we address both categories.
• [138] Clause 3.10 provides that a failure by Bathurst to make “when and as due” a Performance Payment is not an actionable breach. The Supreme Court held that Bathurst was entitled to “delay” payment of the first Performance Payment which would otherwise have been an actionable breach.^[146] In this way, the Third Deed can be considered as the giving of time to Bathurst.
• [139] The general rule is that a binding agreement by the creditor to extend the time for the performance by the principal debtor of its obligations under the main contract releases the guarantor from liability.^[147] A guarantor may consent to the creditor granting an extension of time to the principal debtor by a clause in the guarantee and the guarantor will not then be released. This is effectively what the anti-discharge clause in the present case is designed to achieve. Importantly, however:^[148]

In this case the guarantor cannot exercise the right to pay off the creditor and then recover an indemnity from the principal until the new time limit has expired and, equally, the guarantor cannot be sued by the creditor until that date.

• [140] And:^[149]

The guarantor can agree to still remain liable on the original due date, but will then become a principal debtor.

• [141] That, in a nutshell, is the answer to LMCHB’s claim. Buller is not released as a result of LMCHB giving time to Bathurst under the Third Deed. It remains liable. LMCHB cannot sue Bathurst provided Bathurst continues to comply with the Third Deed but also it cannot sue Buller until the new time limit has expired — when and if Bathurst fails to comply with the Third Deed. This would be different only had Buller agreed to remain liable on the original due date as a result of which it would be the principal debtor.
• [142] The Guarantee does not purport to make Buller primarily liable in respect of the Guaranteed Money. Nor does the anti-discharge clause convert Buller into a principal debtor or indemnifier in circumstances where the parties to the Guarantee did not include specific provisions to that effect. This is in contrast to the Royalty Deed whereby Bathurst’s guarantee to LMCHB is as a “primary obligor and not a surety only”. That same clause ((cl 12.1) set out in [52] above) goes on to provide that no waiver or any other indulgence affects the guarantee in the Royalty Deed. It is significant in our view that a document drafted at the same time as the Guarantee and involving the same parties should specifically provide for a principal debtor obligation in one but not in the other. That weighs heavily, in our view, against the interpretation for which LMCHB contends.
• [143] The reason why the guarantor cannot exercise the right to pay off the creditor and then recover an indemnity from the principal debtor is because there would then be a fraud on the debtor. An application of this principle is seen in Oriental Finance Corp (see above at [95]) where the Court held that it would be contrary to the creditor’s agreement with the principal debtor to sue the guarantor because that results in the guarantor turning to the principal debtor, breaking the agreement the creditor has entered into with the principal debtor. The Court clarified that the agreement between the principal debtor and creditor would not be broken where the ability for the creditor to do that is preserved in the agreement (the Third Deed in[150]is case).¹⁵⁰
• [144] LMCHB was not able to provide us with a case directly on point. That is, a case which held that a creditor was entitled to recover from a guarantor in respect of a default by a principal debtor in circumstances where the creditor had expressly agreed with the principal debtor not to action that same default.
• [145] A covenant not to sue will also arguably discharge the guarantor but, in any event, it will constitute a fraud on the debtor if the guarantor could still sue the principal debtor even though the creditor has agreed not to do so. The anti-discharge clause (including the fact Bathurst is party to the Guarantee) does not avoid there being a fraud on the debtor unless the document providing for the agreement not to sue (in this case the Third Deed) specifically reserves the creditor’s rights against the guarantor. When this occurs, the principal debtor effectively acknowledges that the guarantor will remain liable (and therefore able to look to the principal debtor for indemnity).
• [146] The cases of Re Natal Investment Co and Cole v Lynn discussed at [98] and [99] above involve the application of these principles.
• [147] Applying those principles to the facts of the present case, LMCHB could succeed only if the Third Deed had specifically reserved LMCHB’s rights against Buller. That would have precluded Bathurst’s ability to resist any liability to indemnify Buller if Buller were called on under the Guarantee, notwithstanding LMCHB’s covenant not to sue Bathurst.
• [148] Whichever way it is viewed, LMCHB’s claim cannot succeed. Buller is not a principal debtor under the Guarantee and the anti-discharge clause does not make it one. LMCHB does not in the Third Deed specifically reserve its rights against Buller as guarantor and again the anti-discharge clause does not change the position.

Is the interpretation consistent with the contractual arrangements between the parties as a whole?

• [149] Our interpretation is supported by a contextual and purposive analysis of the documents. The Agreement includes a definition of the “Transaction”, described as the sale of the shares and associated royalty, guarantee and security arrangements. Similarly, the Guarantee defines the “Transaction Documents” as including the Agreement.^[151] Under the Transaction, Bathurst became the parent company and controller of Buller upon settlement of the Agreement. The Guarantee provided surety for LMCHB, which included it being able to call on Buller if Bathurst breached its payment obligations under cl 3.4 of the Agreement. Reciprocally, Bathurst guaranteed Buller’s obligations to make royalty payments. Although Bathurst and Buller were parent and subsidiary, they were separate legal entities and undertook separate legal obligations. As the Judge in the High Court explained, the parties entered into a single transaction which involved a suite of interconnected contracts and a long-term ongoing relationship.^[152] This was also the approach that was taken in the Supreme Court Judgment in the majority’s analysis of the Third Deed where it took account of the Royalty Deed and the “relevant agreements”.^[153]
• [150] All the Transaction documents were entered into at the same time as part of one overall deal. The Guarantee, Royalty Deed and Third Deed must be interpreted in that context.
• [151] Indeed, the Royalty Deed assists in interpreting the Third Deed and its relationship to the Guarantee. Given Buller is the principal debtor under the Royalty Deed, and the Third Deed makes the concession on condition the higher royalties continue to be paid, it is inconsistent to suggest it could be called upon to make the first Performance Payment under the Guarantee. (Of course LMCHB could not receive both the higher royalty payments and the first Performance Payment.) This emphasises the unlikelihood that LMCHB’s approach was intended by any party.
• [152] It is an inescapable conclusion that the entire purpose of the Third Deed as discussed in the Supreme Court Judgment would be thwarted should LMCHB’s approach succeed. If LMCHB could recover the Performance Payments from Buller under the Guarantee, then the Third Deed had no purpose.
• [153] The majority of the Supreme Court explained that Bathurst would have been prevented from accessing capital markets to finance development of the mine unless the concession had been made. It said LMCHB agreed to it as it perceived it to be in its best interests not to frustrate the development of the mine in this way.^[154] We have some difficulty with Mr Smith’s contention that Bathurst could rely on the Third Deed in its efforts to raise capital without disclosing that demand could be made on its subsidiary, Buller, at any time.
• [154] As Mr Hodder put it, if Buller is liable to make the payment, the result will be that which the parties were trying to avoid. That is, a default on the $40 million first Performance Payment with its impact on raising capital.
• [155] The reality is that LMCHB is not receiving what it had expected as a result of the Transaction but as the Supreme Court said, it is caught by the bargain it entered into. It is seeking to avoid the consequences of that bargain by trying to recover what it thought it could recover from Bathurst, instead from Buller under the Guarantee.
• [156] We conclude that, provided Bathurst complies with the terms of cl 3.10 of the Agreement as amended by the Third Deed, LMCHB cannot enforce the Guarantee against Buller on the grounds that the first Performance Payment has not been made. That interpretation is consistent with the law on guarantees and the Transaction as a whole.

Is LMCHB’s subsequent conduct relevant to interpretation of the Guarantee and Third Deed?

• [157] The Court in the Supreme Court Judgment was unanimous in its guidance on the way in which subsequent conduct can be used in contractual interpretation.
• [158] The court must ask itself whether the subsequent conduct tends to prove anything relevant to the objective approach to interpretation. Subsequent conduct need not necessarily be mutual and, in assessing its relevance, it must be remembered that the court is interpreting the contract as at the time it was made.^[155] Conduct that occurs post-dispute is very unlikely to be admissible but needs to be addressed through the relevance threshold of s 8 of the Evidence Act 2006.^[156]
• [159] Although we attach little weight to it, we consider that the subsequent conduct of LMCHB is of some relevance to the objective approach to interpretation of the Guarantee and the impact on it of the Third Deed. The first Performance Payment was due by September 2015.^[157] LMCHB’s demand on Bathurst for payment of the first Performance Payment was made on 1 December 2016. On 23 August 2021, LMCHB’s demand on Buller pursuant to the Guarantee was made.
• [160] Like the High Court, we have the distinct impression that, at the time it initiated its first proceeding, LMCHB considered Buller’s liability under the Guarantee was secondary to, and dependent on, Bathurst’s liability under the Agreement with the benefit of the concession in cl 3.10.^[158] Indeed, counsel for LMCHB before the Supreme Court, in an exchange with the bench, agreed with the proposition that the Guarantee would only be triggered if cl 3.10 did not apply and Bathurst were required to pay.^[159] While we accept it is somewhat unfair to place weight on that exchange, given that was not the issue before the Supreme Court and LMCHB was represented by different counsel, we do however consider LMCHB’s subsequent conduct to be consistent with our interpretation of the Guarantee.

Should a term be implied into the Third Deed?

• [161] The High Court found as an alternative that it would have implied a term into the Third Deed that it was for the benefit of both Bathurst and Buller.^[160]
• [162] In the Supreme Court Judgment, the Court confirmed the principal points that govern the implication of terms as follows:^[161]

(a) The legal test for the implication of a term is a standard of strict necessity, a high hurdle to overcome.^[162]

(b) The starting point is the words of the contract.^[163] If a contract does not provide for an eventuality, the usual inference is that no contractual provision was made for it.^[164]

(c) While the task of implication only begins when the court finds that the text of the contract does not provide for the eventuality, the implication of a term is nevertheless part of the construction of the written contract as a whole.^[165] An unexpressed term can only be implied if the court finds that the term would spell out what the contract, read against the relevant background, must be understood to mean.^[166]

(d) As with the task of interpreting a contract, the inquiry for the court when considering the implication of a term is an objective inquiry — it is the understanding of the notional reasonable person with all of the background knowledge reasonably available to the parties at the time of contract that is the focus of this assessment. The court is tasked with the role of constructing the understanding of that reasonable person.^[167]

(e) Thus, the implication of a term does not depend upon proof of the parties’ actual intentions, nor does it require the court to speculate on how the actual parties would have wanted the contract to regulate the eventuality if confronted with it prior to contracting.^[168]

(f) The [BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings] conditions are a useful tool to test whether the proposed implied term is strictly necessary to spell out what the contract, read against the relevant background, must be understood to mean.^[169] Whilst conditions (4) and (5) must always be met before a term will be implied, conditions (1)–(3) can be viewed as analytical tools which overlap and are not cumulative. The business efficacy and the “so obvious that ‘it goes without saying’” conditions are both ways, useful in their own right, of testing whether the implication of a term is strictly necessary to give effect to what the contract, objectively interpreted by the court, must be understood to mean.^[170]

• [163] The Supreme Court observed that this approach aligned with the objective theory of contractual interpretation, promoting the primacy of the words of the contract while also seeking to reach a complete understanding of what the contract, read against the relevant background, must be understood to mean.^[171]
• [164] LMCHB’s position is that the proposed implied term would be inconsistent with the anti-discharge clause. Buller’s argument is that it is self-evident the Third Deed benefits both Bathurst and Buller, referring to the commercial imperatives which led to LMCHB and Bathurst entering into the Third Deed. In Mr Hodder’s submission, the parties were not thinking in terms of neat legal distinctions between parent companies and their subsidiaries but rather thinking in the larger terms of the Transaction itself.
• [165] The Judge in the High Court found that a term of the nature for which Buller contended would be considered by a reasonable person to “go without saying”.^[172] He regarded it as commercially absurd to suggest otherwise.^[173]
• [166] We are not persuaded that it is necessary in order to interpret either the Third Deed or the Guarantee to imply a term into the Third Deed that it was for the benefit of Buller as well as Bathurst.
• [167] There is a difference between implying a term into a contract and the conclusions that are reached as to its correct interpretation. The proposed implied term must be strictly necessary to spell out what the contract, read in context, must mean. These submissions emphasise to us that the issue is the proper interpretation of the documents. As discussed, the Guarantee, properly construed in light of the law on guarantees, means that LMCHB cannot call on Buller under the Guarantee in the way it seeks. To that extent, it is not a “strict necessity” to imply a term into the Third Deed that it was for the benefit of Buller as well as Bathurst.^[174]

Is the concession to Bathurst in the Third Deed enforceable by Buller under the Contract and Commercial Law Act?

• [168] In Mr Hodder’s submission, Buller can enforce the concession to Bathurst in the Third Deed pursuant to s 12 of the Contract and Commercial Law Act which provides:
  12. Deed or contract for benefit of person who is not party to deed or contract

(1) This section applies to a promise contained in a deed or contract that confers, or purports to confer, a benefit on a person, designated by name, description, or reference to a class, who is not a party to the deed or contract.

(2) The promisor is under an obligation, enforceable by the beneficiary, to perform the promise.

(3) This section applies whether or not the person referred to in subsection (1) is in existence when the deed or contract is made.

• [169] Buller’s argument was that the benefit of the Third Deed to Bathurst was automatically beneficial to Buller. Mr Hodder referred to the evidence at trial that it was always the common intention that both Bathurst and Buller would enjoy the benefit of LMCHB’s promise contained in the Third Deed. That was because all the discussions leading up to the Third Deed were premised on what was needed to get mining operations underway and the entity which held the exploration permits and would be constructing the export mine was Buller.
• [170] Like the Judge, we cannot accept that the concession granted to Bathurst under the Third Deed can be interpreted as being for the benefit of Buller in the way required under the Contract and Commercial Law Act.^[175] While not a party to the Third Deed, Buller is not designated by name, description or reference to a class. The Third Deed does not confer or purport to confer a benefit on Buller. We also note the provision of s 13 that s 12 does not apply to a promise that, on proper construction of the instrument, is not intended to create an obligation enforceable by the beneficiary. We do not accept that the proper construction of the Third Deed was that it was intended to create an obligation which would be enforceable by Buller.

Does Henderson v Henderson estoppel apply to prevent LMCHB bringing the claim?

• [171] We briefly address the Judge’s finding that he would in any event have found LMCHB’s claim to be an abuse of process and therefore prevented by the rule in Henderson v Henderson.^[176]
• [172] The Judge placed some weight on the fact LMCHB was not an institutional lender and the applicable normal commercial norms which might save a second proceeding did not apply.^[177] He regarded the broad merits-based assessment as telling against LMCHB’s ability to bring a second instalment of litigation, saying the previous proceeding involved all the same parties, the same primary obligation and the same evidence.^[178] He referred to the pleadings in the first proceedings, which included that Buller guaranteed payment of the Performance Payments but in its prayer for relief sought a declaration that the first Performance Payment had become due and owing by Bathurst. He said it was therefore at least implicit in its previous claim that, had LMCHB obtained the declaration it sought, that Buller would also be liable under the Guarantee.^[179] The Judge concluded that in the absence of an adequate explanation for its chosen course, LMCHB should have brought the claim under the Guarantee when it first sued Bathurst and Buller.^[180]
• [173] The rationale for the rule and its scope was discussed by the House of Lords in Johnson v Gore Wood & Co. Lord Bingham explained:^[181]

The rule of law depends upon the existence and availability of courts and tribunals to which citizens may resort for the determination of differences between them which they cannot otherwise resolve. Litigants are not without scrupulous examination of all the circumstances to be denied the right to bring a genuine subject of litigation before the court[.]

• [174] And:^[182]

... Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. ... The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. ... It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. ... While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party’s conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. ...

• [175] The High Court Judge placed significant weight on LMCHB’s lack of explanation as to why it did not raise both issues in the first proceeding. However, the onus is on Bathurst and/or Buller to show that the proceedings were an abuse of process. A broad, merits-based approach judgment is required which takes into account all the interests. We are not convinced that Bathurst/Buller discharged their onus to show the proceedings under the Guarantee amount to an abuse of process. In any event, given our conclusions above, there is no need to delve into the required detail to make a final determination on this issue.

Interlocutory issue

• [176] LMCHB has applied to amend its pleading to cover the outcome of an arbitral declaration that there has been a change of control of a Bathurst subsidiary triggering both Performance Payments under the Agreement. The arbitrator also held (applying the Supreme Court judgment) that cl 3.10 provided a defence to the claim against Bathurst for payment of Performance Payments (and other remedies under the Agreement). LMCHB has applied to amend its pleadings to include a declaration that it is entitled to exercise its security rights under the Guarantee for both Performance Payments. Mr McQueen, who addressed this issue for LMCHB, noted that the parties agreed that this Court’s decision will apply to all Performance Payments, including those triggered by a change in control. He submitted the pleadings and evidence ought to reflect reality. No new issues were raised on appeal and there was no prejudice to Buller or Bathurst by the amendment, in his submission.
• [177] Mr Hodder’s objection began with the fact that the application to amend the pleading was made 11 months after the filing of the appeal. He then said, and we agree, that the effect of the amendment would be to convert this Court into a court of first instance when its task is to deal with the appeal from the High Court. We note that different counsel were involved in the arbitration and that, while it might be desirable from LMCHB’s perspective, it is not necessary for this Court to engage with the arbitral award without the benefit of the High Court’s views about it. Further, while the result of the arbitration might not be confidential, we understand the evidence included commercially sensitive and confidential information.
• [178] We conclude it is not in the interests of justice for the pleadings to be amended at this stage and the application to amend pleadings is declined.

Result

• [179] The appellant’s application to amend pleadings is declined.
• [180] The appeal is dismissed.
• [181] The appellant must pay the respondent costs for a complex appeal on a band B basis, together with usual disbursements. We certify for second counsel.

Solicitors:
Gilbert Walker, Auckland for Appellant
MinterEllisonRuddWatts, Wellington for Respondents

---

^[1] At the time of the sale and purchase agreement LMCHB Ltd was named L&M Coal Holdings Ltd and Buller Coal Ltd was named L&M Coal Ltd. For clarity we refer to the parties by their current names.

^[2] Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 [Bathurst (SC)] at [281] per Glazebrook, O’Regan and Williams JJ.

^[3] LMCHB Ltd (formerly L&M Coal Holdings Ltd) v Buller Coal Ltd [2023] NZHC 633, [2023] 2 NZLR 680 [judgment under appeal].

^[4] See Bathurst (SC), above n 2, at [11]–[31] per Winkelmann CJ and Ellen France J.

^[5] The first two deeds of amendment to the Agreement are not significant for current purposes.

^[6] Save only for the provision allowing the Deed to be executed in counterparts.

^[7] The Third Deed referred to “a new clause 3.9” but there was already a clause 3.9. All parties now refer to the Third Deed adding a new “clause 3.10”.

^[8] Bathurst (SC), above n 2, at [176], n 175 per Winkelmann CJ and Ellen France J.

^[9] L&M Coal Holdings Ltd v Bathurst Resources Ltd [2018] NZHC 2127, [2020] NZCCLR 11 [Bathurst (HC)]; and Bathurst Resources Ltd v L&M Coal Holdings Ltd [2020] NZCA 113, [2021] 3 NZLR 765 [Bathurst (CA)].

^[10] Bathurst (HC), above n 9, at [144]; and Bathurst (CA), above n 9, at [96].

^[11] Bathurst (SC), above n 2, at [159] per Winkelmann CJ and Ellen France J. The majority of the Supreme Court did not comment on the factual background to the proceeding.

^[12] At [188]–[189] and [201] per Winkelmann CJ and Ellen France J.

^[13] At [235] per Glazebrook, O’Regan and Williams JJ.

^[14] At [236] per Glazebrook, O’Regan and Williams JJ.

^[15] At [177]–[182] per Winkelmann CJ and Ellen France J and [238] per Glazebrook, O’Regan and Williams JJ.

^[16] At [240] per Glazebrook, O’Regan and Williams JJ.

^[17] At [241].

^[18] At [242].

^[19] At [243].

^[20] At [244].

^[21] At [247].

^[22] At [249].

^[23] At [250].

^[24] At [251].

^[25] At [256] and [257].

^[26] At [270].

^[27] At [263]–[265].

^[28] At [281].

^[29] Judgment under appeal, above n 3, at [29].

^[30] At [68].

^[31] At [69].

^[32] At [70].

^[33] At [74].

^[34] At [78].

^[35] At [93].

^[36] At [94].

^[37] At [96].

^[38] At [99].

^[39] At [100].

^[40] At [101], citing Holme v Brunskill [1877] UKLawRpKQB 74; (1878) 3 QBD 495 (CA).

^[41] Judgment under appeal, above n 3, at [104].

^[42] At [105].

^[43] At [114].

^[44] At [115].

^[45] At [119]–[120].

^[46] At [126], referring to the rule in Henderson v Henderson [1843] EngR 917; (1843) 3 Hare 100 at 114[1843] EngR 917; , 67 ER 313 (Ch) at 319.

^[47] Judgment under appeal, above n 3, at [135].

^[48] At [148].

^[49] At [149].

^[50] At [150].

^[51] The parties have primarily referred to “the Performance Payment”, which we understand to be a reference to the first of the two Performance Payments provided for in the Agreement. We have adjusted the phrasing accordingly where it is useful for clarity.

^[52] Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434, (2017) 15 NZELR 398 at [49], citing Henderson v Henderson [1843] EngR 917; (1843) 3 Hare 100 at 114[1843] EngR 917; , 67 ER 313 (Ch) at 319.

^[53] References to Bathurst in this judgment make no distinction between the original contracting party and the novated one.

^[54] Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60] per McGrath, Glazebrook and Arnold JJ, quoting Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 (HL) at 912 per Lord Hoffman; and Bathurst (SC), above n 2, at [43] per Winkelmann CJ and Ellen France J and at [232(a)] per Glazebrook, O’Regan and Williams JJ (agreeing).

^[55] See Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 54, at [63], [88] and [89] per McGrath, Glazebrook and Arnold JJ; and Bathurst (SC), above n 2, at [44] per Winkelmann CJ and Ellen France J and at [232(a)] per Glazebrook, O’Regan and Williams JJ (agreeing).

^[56] Firm PI 1 Ltd, above n 54, at [79] per McGrath, Glazebrook and Arnold JJ.

^[57] At [89].

^[58] At [89] and [90].

^[59] At [93].

^[60] Bathurst (SC), above n 2, at [45] per Winkelmann CJ and Ellen France J.

^[61] Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373, 172 ConLR 1 at [52] per Jackson LJ, with whom Beatson and Moylan LJJ agreed: at [63] and [64]. See also Hugh G Beale (ed) Chitty on Contracts (35th ed, Sweet & Maxwell, London, 2023) at [16–113].

^[62] Judgment under appeal, above n 3, at [71].

^[63] At [70]. The Judge said, in reference to cls 3.4 and 3.10, “[t]he former has a suspensory effect on the latter”. It appears that the reference to “the former” and “the latter” is the wrong way around.

^[64] At [99].

^[65] At [110].

^[66] Bathurst (SC), above n 2, at [175]–[176], [182] and [183] per Winkelmann CJ and Ellen France J and [241]–[242], [251] and [270] per Glazebrook, O’Regan and Williams JJ.

^[67] Ex parte Kemp, re Fastnedge [1874] UKLawRpCh 47; (1874) LR 9 Ch App 383 (Court of Appeal in Chancery) at 387.

^[68] Quainoo v New Zealand Breweries Ltd [1991] 1 NZLR 161 (CA) at 171. See also H J Wigmore & Co Ltd v Rundle [1930] HCA 27; (1930) 44 CLR 222 at 228; and Clyne v Deputy Commissioner of Taxation [1981] HCA 40; (1981) 150 CLR 1 at 8 per Mason J, quoting Mack v Commissioner of Stamp Duties (NSW) [1920] HCA 76; (1920) 28 CLR 373 at 382.

^[69] Bathurst (SC), above n 2, at [7], [29], [36] and [159] per Winkelmann CJ and Ellen France J.

^[70] At [241] per Glazebrook, O’Regan and Williams JJ.

^[71] At [175] per Winkelmann CJ and Ellen France J.

^[72] See for example at [175]–[176] per Winkelmann CJ and Ellen France J, and [238] per Glazebrook, O’Regan and Williams JJ.

^[73] Daniel Greenberg (ed) Jowitt’s Dictionary of English Law – Volume1: A–I (6th ed, Sweet & Maxwell, London, 2024) at 50.

^[74] Judgment under appeal, above n 3, at [75].

^[75] Wayne Courtney, John Phillip and James O’Donovan The Modern Contract of Guarantee (4th ed, Sweet & Maxwell, London, 2020) at [1–018]; and Geraldine Andrews and Richard Millett Law of Guarantees (7th ed, Sweet & Maxwell, London, 2015) at [1–004].

^[76] Courtney, Phillip and O’Donovan, above n 75, at [1–024].

^[77] Andrews and Millett, above n 75, at [1–005].

^[78] Courtney, Phillip and O’Donovan, above n 75, at [1–025].

^[79] Andrews and Millett, above n 75, at [7–004] and [7–009].

^[80] Courtney, Phillip and O’Donovan, above n 75, at [1–024].

^[81] At [1–021].

^[82] At [11–003].

^[83] Westpac Securities Ltd v Dickie [1991] 1 NZLR 657 (CA) at 663–664, quoting Bank of India v Trans Continental Commodity Merchants Ltd [1983] 2 Lloyd’s Rep 298 (CA) at 301–302 per Robert Goff LJ. See also Taylor v Bank of New Zealand [2010] NZHC 2256; [2011] 2 NZLR 628 (HC) at [107]–[108]. For the purposes of this decision, we refer to “guarantor” and “surety” interchangeably.

^[84] Andrews and Millett, above n 75, at [1-004].

^[85] At [1–013].

^[86] Courtney, Phillip and O’Donovan, above n 75, at [1–090].

^[87] Andrews and Millett, above n 75, at [1–014].

^[88] Courtney, Phillip and O’Donovan, above n 75, at [1–093].

^[89] At [1–095].

^[90] At [1–096].

^[91] Holme v Brunskill, above n 40, at 505–506 per Cotton LJ, with whom Thesiger LJ agreed, and 508 per Brett LJ.

^[92] Hackney Empire Ltd v Aviva Insurance Ltd [2012] EWCA Civ 1716, [2013] 1 WLR 3400 at [70].

^[93] Andrews and Millett, above n 75, at [9–025].

^[94] At [9–029].

^[95] Philpot v Briant [1828] EngR 613; (1828) 4 Bing 717 at 719–720[1828] EngR 613; , 130 ER 945 (Comm Pleas).

^[96] At 946 (emphasis added).

^[97] Oriental Financial Corp v Overend, Gurney and Co [1871] UKLawRpCh 149; [1871] LR 7 Ch App 142 (Court of Appeal in Chancery).

^[98] At 150.

^[99] At 150 and 151.

^[100] Courtney, Phillip and O’Donovan, above n 75, at [6–058].

^[101] At [6–061].

^[102] At [6–065].

^[103] At [6–054].

^[104] At [6–056].

^[105] Re Natal Investment Company (Nevill’s Case) [1870] UKLawRpCh 103; (1870) LR 6 Ch App 43 (Court of Appeal in Chancery).

^[106] At 47.

^[107] Cole v Lynn [1942] 1 KB 142 (CA).

^[108] At 146.

^[109] Courtney, Phillip and O’Donovan, above n 75, at [1–104], [5.172(1)] and [7–035].

^[110] At [5.172(1)].

^[111] CIMC Raffles Offshore (Singapore) Ltd v Schain Holding SA [2013] EWCA Civ 644, [2013] 2 All ER (Comm) 760 at [56]–[59] per Sir Bernard Rix, with whom Arden and McCombe LJJ agreed.

^[112] Heald v O'Connor [1971] 1 WLR 497 (QB) at 503.

^[113] Deutsche Bank AG v Unitech Global Ltd (No 3) [2016] EWCA Civ 119, [2016] 1 WLR 3598 at [19]–[20].

^[114] At [17].

^[115] At [20].

^[116] Andrews and Millett, above n 75, at [9–034].

^[117] Cowper v Smith [1838] EngR 53; (1838) 4 M & W 519, 150 ER 1534 (Exch); and Union Bank of Manchester Ltd v Beech [1865] EngR 450; (1865) 3 H&C 672, 159 ER 695 (Exch).

^[118] Perry v National Provincial Bank of England [1910] UKLawRpCh 8; [1910] 1 Ch 464 (CA) at 465.

^[119] At 473.

^[120] Andrews and Millett, above n 75, at [9–034].

^[121] Judgment under appeal, above n 3, at [101], referring to Holme v Brunskill, above n 40.

^[122] At [102].

^[123] At [105].

^[124] At [102].

^[125] Referring to Courtney, Phillip and O’Donovan, above n 75, at [5–167]–[5–171]; David Marks and Gabriel Moss Rowlatt on Principal and Surety (6th ed, Sweet & Maxwell, London, 2011) at [8.28]; Carter v White [1883] UKLawRpCh 270; (1883) 25 Ch D 666 (CA) at 670 per Cotton LJ, 672 per Lindley LJ and 673 per Fry LJ; Curwen v Milburn [1889] UKLawRpCh 153; (1889) 42 Ch D 424 (CA) at 434–435 per Cotton LJ, with whom Fry and Lopes LJJ agreed; and Netglory Pty Ltd v Caratti [2013] WASC 364 at [297].

^[126] Referring to Quainoo v NZ Breweries Ltd [1991] 1 NZLR 161 (CA); and Bank of New Zealand v Baker [1926] NZLR 462 (CA) at 490.

^[127] Cowper v Smith, above n 117.

^[128] At [519].

^[129] At [520].

^[130] At [522] per Lord Abinger CB.

^[131] Union Bank of Manchester Ltd v Beech, above n 117.

^[132] At [673]–[674].

^[133] At [676] and [677].

^[134] Perry v National Provincial Bank of England [1910] UKLawRpCh 8; [1910] 1 Ch 464 (CA) at 466.

^[135] At 465 and 466.

^[136] At 473–475 per Cozens-Hardy MR.

^[137] Bank of Adelaide v Lorden [1970] HCA 59; (1970) 127 CLR 185.

^[138] At 188.

^[139] At 192 per Barwick CJ. See also at 201 per Menzies J.

^[140] Pogoni v R & W H Symington & Co (NZ) Ltd [1991] 1 NZLR 82 (CA).

^[141] At 83 and 84 (amendments in original and emphasis removed).

^[142] At 84 and 85.

^[143] Lavin v Toppi [2015] HCA 4, (2015) 254 CLR 459 at [37].

^[144] Bateson v Gosling [1871] UKLawRpCP 57; [1871] LR 7 CP 9 (Comm Pleas).

^[145] At 16 per Keating J.

^[146] Bathurst (SC), above n 2, at [281] per Glazebrook, O’Regan and Williams JJ. We presume, at the time of the Third Deed, the parties considered that at some stage it would become more cost effective for Bathurst to make the first Performance Payment rather than continue to pay royalties at the higher rate.

^[147] Courtney, Phillips and O’Donovan, above n 75, at [7–075].

^[148] At [7–096].

^[149] At [7–096], n 289.

^[150] Oriental Finance Corp, above n 97, at 150 and 151.

^[151] In the Guarantee, Buller and Bathurst warrant that the obligations in the Transaction Documents are legal and binding, and undertake that all information provided to LMCHB in connection with the Transaction Documents is true and accurate in all respects.

^[152] Judgment under appeal, above n 3, at [59].

^[153] See for example Bathurst (SC), above n 2, at [235] and [247]–[249] per Glazebrook, O’Regan and Williams JJ.

^[154] At [251] Glazebrook, O’Regan and Williams JJ.

^[155] At [89] per Winkelmann CJ and Ellen France J and [232(a)] per Glazebrook, O’Regan and Williams JJ (agreeing).

^[156] At [90] per Winkelmann CJ and Ellen France J and [232(a)] per Glazebrook, O’Regan and Williams JJ (agreeing).

^[157] At [27] per Winkelmann CJ and Ellen France J.

^[158] Judgment under appeal, above n 3, at [148].

^[159] See at [128].

^[160] At [119].

^[161] Bathurst (SC), above n 2, at [116] per Winkelmann CJ and Ellen France J (footnotes included), citing BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 (PC) at 283. See also at [232(b)] per Glazebrook, O’Regan and Williams JJ (concurring).

^[162] Equitable Life Assurance Society v Hyman [2002] 1 AC 408 (HL) at 459 per Lord Steyn; and Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 at [23] per Lord Neuberger.

^[163] Equitable Life, above n 162, at 459 per Lord Steyn.

^[164] Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [17].

^[165] Trump International Golf Club Scotland Ltd v Scottish Ministers [2015] UKSC 74, [2016] 1 WLR 85 at [42] and [44] per Lord Mance.

^[166] Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 (HL) at 609 per Lord Pearson; Equitable Life, above n 162, at 459 per Lord Steyn; Attorney General of Belize, above n 164, at [21]; and Marks and Spencer, above n 162, at [69] per Lord Carnwath.

^[167] Marks and Spencer, above n 162, at [23] per Lord Neuberger and [72] per Lord Carnwath.

^[168] Equitable Life, above n 162, at 459 per Lord Steyn; Attorney General of Belize, above n 164, at [25]; and Marks and Spencer, above n 162, at [21] per Lord Neuberger. See Bathurst (SC), above n 2, at [112].

^[169] Attorney General of Belize, above n 164, at [27].

^[170] See at [21]; and Marks and Spencer, above n 162, at [21].

^[171] Bathurst (SC), above n 2, at [117] per Winkelmann CJ and Ellen France J.

^[172] Judgment under appeal, above n 3, at [119].

^[173] At [120].

^[174] Bathurst (SC), above n 2, at [116(a)] per Winkelmann CJ and Ellen France J.

^[175] Judgment under appeal, above n 3, at [114]–[116].

^[176] Henderson v Henderson, above n 46.

^[177] Judgment under appeal, above n 3, at [138].

^[178] At [139] and [140].

^[179] At [143].

^[180] At [147].

^[181] Johnson v Gore Wood & Co [2002] 2 AC 1 (HL) at 22 per Lord Bingham.

^[182] At 31 per Lord Bingham.