Xstrata South Africa (Pty) Ltd and Others v SFF Association

• Jurisdiction: South Africa
• Court: Supreme Court of Appeal
• Judge: Mpati P, Brand JA, Heher JA, Mhlantla JA and Wallis JA
• Judgment Date: 23 March 2012
• Citation: 2012 (5) SA 60 (SCA)
• Hearing Date: 12 March 2012
• Docket Number: 326/2011 [2012] ZASCA 20
• Counsel: GL Grobler SC (with LP Dicker) for the appellants. WHL van der Linde SC (with T Bruinders SC) for the respondent.

Wallis JA (Mpati P, Brand JA, Heher JA and Mhlantla JA concurring): A

[1] 'The old order changeth, yielding place to new.' [1] Those words aptly describe the changes brought about by the Mineral and Petroleum B Resources Development Act 28 of 2002 (the Act), which came into operation on 1 May 2004. It fundamentally altered the legal basis upon which rights to minerals in South Africa are acquired and exercised. Previously such rights vested in the owner of the land on or under which minerals were found. The owner of the land, or a party authorised to do so by the owner, could exploit the minerals, subject to the person C exploiting the minerals possessing a mining authorisation in terms of the Minerals Act 50 of 1991. Once the Act came into operation all mineral resources vested in the state as the custodian of such resources on behalf of all South Africans. The right to exploit such minerals was thereafter to be conferred by the state by way of mining rights granted in terms of s 23 of the Act. In order to avoid disrupting a key sector of the South African D economy, the Act contained transitional provisions in sch II. These provided for existing rights to remain in force for a limited period of five years as what were termed 'old order mining rights'. During that period the holder of old order mining rights could apply for them to be converted into mining rights in terms of the Act. This case concerns the E effect of these statutory changes on rights accruing to the respondent, SFF Association (SFF), [2] by virtue of two agreements.

[2] The first agreement was a notarial exchange agreement between, on the one hand, Tavistock Collieries (Pty) Ltd (Tavistock), the second F appellant, and Duiker Mining (Pty) Ltd (Duiker), the third appellant, [3] and, on the other, SFF. The exchange agreement was concluded in April 2001 to settle a dispute between Tavistock and SFF arising from the storage by SFF of oil in containers in disused mine shafts in Mpumalanga. The presence of the containers and spillages of oil from them had the effect of sterilising Tavistock's right to exploit the coal deposits on G one property, where three of the oil containers were situated, and portions of two other properties in the immediate vicinity of two further storage tanks. Arising from this Tavistock instituted a substantial claim against SFF. The parties agreed to resolve the dispute on the basis that Tavistock's rights in the sterilised deposits, as well as Duiker's rights in

Wallis JA (Mpati P, Brand JA, Heher JA and Mhlantla JA concurring)

a specified mine dump (the Ogies dump), would be exchanged for rights A held by SFF in relation to coal deposits (the SFF deposits) on other pieces of land. In addition the parties would assume certain obligations in regard to the rehabilitation of the exchanged properties.

[3] The second agreement was a notarial mineral lease in respect of the B SFF deposits, concluded on 12 June 2001 between SFF, as lessor, and Tavistock, as lessee, in order to give effect to the exchange agreement so far as Tavistock was concerned. In terms of clause 8 of the lease Tavistock undertook, once it had extracted certain defined quantities of coal from the SFF deposits, to pay SFF royalties on any further coal C extracted from those deposits. The present dispute arose because SFF contended that, notwithstanding the changes wrought by the Act to the system of mineral rights in South Africa, the obligation to pay royalties remained in force. There was initially some ambiguity about Tavistock's stance, but in a letter written prior to the commencement of proceedings it said it would comply with its obligations 'to the extent that such D obligations continue to remain in force . . . post the conversion of Tavistock's old order mining right'. SFF then sought a declaratory order that the obligation to pay the royalty continued after the commencement of the Act and 'notwithstanding any conversion' of Tavistock's rights. Tavistock conceded that it remained obliged to pay royalties after the commencement of the Act, but denied that the obligation would E continue after conversion. At a practical level the concession was probably meaningless in view of the lengthy period that would necessarily elapse before Tavistock could commence mining the coal in respect of which a royalty was payable. SFF obtained the order it sought, including the period after conversion of Tavistock's rights, from Vally AJ sitting in the South Gauteng High Court, Johannesburg. This appeal is with his F leave.

[4] The exchange agreement plays a lesser role in these proceedings, and can be described briefly. It recorded in the recitals that SFF owned the Epsilon, Delta, Gamma and Klippoortje North and South oil containers. G The presence of these had sterilised Tavistock's coal reserves in the manner already described. As a result Tavistock had instituted a substantial claim against SFF. To resolve the dispute SFF agreed to grant to Tavistock the right to search for, dig, mine, win, remove and, for its own benefit and account, to dispose of, coal on three portions of land H and three mineral areas in respect of which SFF enjoyed those rights (the SFF rights). SFF would in turn acquire Tavistock's rights to coal in one of the sterilised areas and, in relation to the other sterilised areas, Tavistock agreed not to mine the affected seams. In addition SFF would acquire Duiker's share of the Ogies dump. SFF did not propose to exploit these rights, but to continue the situation where they were sterilised and I posed no threat to its storage of oil.

[5] As Tavistock intended to exploit the SFF rights, clause 2.2 of the exchange agreement provided that SFF would, contemporaneously with the execution of the cession of mineral rights in favour of SFF, procure the execution of a mineral lease between itself and Tavistock in respect J

Wallis JA (Mpati P, Brand JA, Heher JA and Mhlantla JA concurring)

A of the SFF rights, substantially in a form annexed to the exchange agreement. Clause 2.4 recorded that:

'No additional consideration shall be payable by either Tavistock or SFF to the other or to Duiker or to any third party in respect of the exchanges envisaged in 2.1 and 2.2 since Tavistock and SFF consider B the rights so exchanged to be of equal value.'

Clause 2.5 provided that the exchange agreement would constitute the consents necessary for Tavistock and SFF respectively to acquire mining authorisations under the Minerals Act in respect of the properties in C question. Lastly, in terms of clause 2.6, Tavistock assumed responsibility for the rehabilitation, restoration and anti-pollution obligations of SFF in respect of the areas where it was acquiring rights and SFF assumed corresponding obligations in regard to the Tavistock properties and Duiker's interest in the Ogies dump.

[6] The notarial mineral lease conferred the SFF rights on Tavistock. It D dealt with the manner in which mining was to take place and imposed obligations on Tavistock in regard to the commencement of mining and the rate of mining extraction that had to be achieved after mining commenced. Failure to satisfy these obligations would not, however, constitute a breach of the mining lease, but would result in Tavistock's E right to mine being restricted to certain specified tonnages of coal and it would cease to be entitled to mine these areas to exhaustion. The limits that would then apply were that Tavistock would be entitled to extract the quantity of coal specified in clause 8.1 of the lease and would lose the right to extract the quantities of coal specified in clauses 8.2 and 8.3 of F the lease. These three clauses deal with the obligation to pay royalties and hence are the critical ones insofar as the present dispute is concerned. They read as follows:

'Consideration

As consideration for the rights hereby granted, the Lessee shall pay to the Grantor a royalty calculated and payable as provided hereunder:

8.1

G In respect of the first 29 523 000 of mineable in situ tons of No 4 seam coal reserves mined by the Lessee, in respect of the first 6 046 000 of mineable in situ tons of No 5 seam coal reserves mined by the Lessee and in respect of 200 000 tons of run-of-mine No 4 seam coal mined by the Lessee, there shall be no royalty payable. It being recorded that in exchange for the rights H to mine this tonnage the Lessee has ceded and assigned to the Grantor certain rights more fully specified in the exchange agreement to which a draft of this lease was annexed as annexure D.

8.2

In respect of the balance of the No 4 seam coal reserves on the I property, namely 18 738 000 of mineable in situ tons, the Lessee shall pay to the Grantor a royalty of 4,25% of the selling price of the No 4 seam coal mined from the property and sold by the Lessee.

8.3

In respect of the balance of the No 5 seam coal reserves on the property namely 7 507 000 mineable in situ tons, the Lessee shall pay to the Grantor a royalty of 3,5% of the selling price of the J No 5 seam coal mined from the property and sold by the Lessee.'

Wallis JA (Mpati P, Brand JA, Heher JA and Mhlantla JA concurring)

[7] The issue before us is whether the obligation to pay royalties in terms A of clauses 8.2 and 8.3 survives the introduction of the new regime in respect of mining rights brought about by the Act. In order to address this it is necessary to have regard to certain of the provisions of the Act. Section 2 records that its objects are to give effect to 'the internationally accepted right of the state to exercise sovereignty over all the mineral and B petroleum resources within the Republic' and 'the principle of the state's custodianship of the nation's mineral and petroleum resources'. Section 3 records that mineral and petroleum resources are the common heritage of all the people of South...