Supreme Court of New South Wales Rules on Mineral Sales Royalties Default

Default in paying monthly mineral sales royalties leads to an obligation to pay up front the present value of future royalties.

A decision (Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd [2021] NSWSC 640 (4 June 2021)) from the Supreme Court of New South Wales held that breaching royalty obligations giving rise to agreement termination may end the royalty, but damages for the breach are payable up front in the form of the present value of the future royalties.

Cromarty was obliged to pay to Thalanga a monthly 4% net sales royalty under an Asset Sale Agreement ("Agreement"). The royalty was part of the purchase price payable for mining leases and other tenements. There was production pursuant to the mining leases and sales of copper, lead and zinc concentrate commenced in November 2017.

Cromarty did not pay royalties on a monthly basis from November 2017. It paid royalties when it determined that it had sufficient cash flow to pay. Following correspondence over months, Thalanga issued a demand for payment within 14 days and, in the absence of payment, terminated the Agreement. 

Thalanga commended proceedings in the Supreme Court of New South Wales seeking loss of bargain damages. There were several issues before the Court including whether Thalanga was entitled to terminate the Agreement and the damages payable.

The Court found that Cromarty performed its obligations to pay the royalty "as and when" it suited it and that this amounted to an intention to fulfil the Agreement in a manner substantially inconsistent with its obligations. Cromarty had therefore repudiated its obligations and Thalanga was entitled to terminate the Agreement. In the alternative, the Court also found that the non-payment of royalties gave rise to a right to terminate the Agreement. 

Thalanga was awarded damages based on the present value of projected royalties.

Olivia Taylor, in the Sydney Office, assisted with the preparation of this Alert.

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