WA Resources Update | August 2015

Welcome to the latest edition of WA Resources Update, your regular newsletter about key developments for the Western Australian mining sector.

What's FIRB up to: Impact of the new Foreign Acquisitions and Takeovers Bill 

The Government introduced the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 (Bill) to parliament on 20 August 2015, which amends the Foreign Acquisitions and Takeovers Act 1975(Cth) (FATA) and Australia’s Foreign Investment Policy (Policy). There are a number of amendments that will have a substantial impact on transactions commonly undertaken by exploration and mining companies. This article provides a brief overview of the key changes.

Key changes generally

‘Notifiable actions’ and ‘significant actions’

Transactions will be divided into ‘notifiable actions’ (transactions which must be notified, with failure to do so being an offence) and ‘significant actions’ (these technically speaking do not have to be notified, but the Treasurer has the power to block or unwind them unless they are notified and a statement of no objection is received).

In practice, applicants and their advisers have in the past treated these two categories the same, lodging applications in order to ensure the Treasurer does not exercise his or her powers.  It remains to be seen what effect the high fees (discussed below) will have on this behaviour.  Common transactions that are notifiable either as ‘notifiable actions’ or ‘significant actions’ include:

  • acquisitions of 20% or more in Australian entities valued above the current monetary thresholds (currently $252 million for most investors, and $1,094 million for investors investing directly from certain treaty countries in non-sensitive sectors);
  • acquisitions of interests in Australian land above the current monetary thresholds (which differ depending on the type of land and the nature of the acquirer, and can be nil);
  • former ‘policy only’ notifications described below.

As with the current regime, overseas transactions can be notifiable as ‘significant actions’ if there is a sufficient connection to Australia.

Policy-based notifications

All Policy based notifications under the current regime will be both notifiable actions and significant actions under the new regime. These include:

  • acquisitions of ‘direct interests’ by foreign government investors in Australian entities or businesses (the definition of ‘direct interest’ may change, but presently is proposed to capture interests of 10% or more, or each 1% increase in any 12 month period over 5%, among other things);
  • the establishment of a new Australian business by a foreign government investor; and
  • all acquisitions of land by foreign government investors.


As we discussed in our previous alert, applications will now attract substantial fees, generally ranging from $5,000 to $100,000 depending on the nature of the application.  We remain concerned about the level of fees, as these are very high by international standards, and the burden of this will fall particularly severely on a range of high volume applicants, including any person that has 15% or more upstream foreign government investor ownership. 

Relaxation around definitions of ‘substantial interest’ and ‘aggregate substantial interest’

The concepts of ‘substantial interest’ and ‘aggregate substantial interest’ are important ones in FATA, as they are used to determine whether a person is a foreign person and to determine whether an acquisition of an Australian entity is a significant action or a notifiable action. The threshold for a ‘substantial interest’ in securities has increased from 15% to 20%.

While the concept of ‘aggregate substantial interest’ (cumulative 40% interests by foreign persons) has been retained, there is some proposed relief in the draft regulations for listed companies to assist them to control from day to day whether they are ‘foreign’ by disregarding certain small shareholdings.

Key changes relating to common exploration and mining transactions

Definition of Australian Land 

The definitions of Australian land (previously Australian urban land) is proposed to be amended to specifically include “mining or production tenements” which is, in turn, defined to be a right to recover minerals, oil or gas and specifically excludes the right to recover minerals, oil or gas for the purposes of exploration or prospecting. This finally clarifies the often debated issue of whether foreign investments relating to exploration or prospecting licences or companies that only hold exploration and prospecting licences requires the Foreign Investments Review Board’s (FIRB) approval. This will now only be the case if they constitute the assets of any Australian business and satisfy the criteria in respect of the provisions relating to Australian businesses (see further discussion below).

In addition, two new categories have been added to the definition of “interests in Australian land”:

  • “an interest in an agreement giving a right (known as a profit à prendre) to take something off another person’s land, or to take something out of the soil of that land”, if the term of the agreement is reasonably likely to exceed 5 years; and
  • “an interest in an agreement involving the sharing of profits or income from the use of, or dealings in, Australian land”, if the term of the agreement is likely to exceed 5 years.

The majority of transactions that are commonly conducted in the mining industry would be considered to be dealing with “an interest as a lessee or licensee in a lease or licence giving rights to occupy Australian land”, a category of interests that has not been changed under the Bill. However, if a particular transaction cannot be characterised as a lease or licence, it is likely that such a transaction would fall within the two new categories of interests.

Interests in Australian businesses

Under the Bill, amendments have been made to clarify requirements for transactions relating to Australian businesses which result in a change of control of the Australian business, such as:

  • the acquisition of interests in the assets of Australian businesses (where the consideration for the acquisition is over the monetary thresholds, currently $252 million for most investors); and
  • certain “significant agreements” entered into by an Australian business (where the value of the Australian business exceeds the monetary thresholds).

In particular, the definition of Australian business specifically includes persons who have interests in mining or production tenements and it is taken that such a person carries on a business of exploiting that tenement for profit or gain. This means that a company holding a mining or production tenement will be caught by this provision even when it sells its exploration tenure (assuming the sale is over the monetary threshold and amounts to a change of control).

One transaction, multiple significant actions

As with the current FATA and Policy, under the Bill, one transaction may constitute several different “significant actions” or “notifiable actions”. For example, the acquisition of an interest in a Western Australian mining lease could be considered to be a “significant action” under provisions relating to the acquisition of an interest in Australian land as well as under provisions relating to the acquisition of an interest in the assets of an Australian business. This means that a statement of no objection may need to be sought from the Treasurer under two or more separate provisions, with different conditions to be satisfied under each of these provisions.

Can you take the best deal for your shareholders? Preparing for a superior offer

By Sarah Turner, Samer Aljanabi and Kyle Moss

In the last six months resource asset sales have become increasingly prevalent and as most have been competitive the possibility of a superior proposal arising after execution has correspondingly increased.

An asset sale agreement will often contain a number of conditions precedent.  One such condition may be the requirement for the vendor to obtain shareholder approval under ASX Listing Rule 11, if the sale constitutes a significant change in the nature or scale of the vendor’s activities or a disposal of the vendor’s main undertaking.  This might help provide a path forward for directors faced with a superior proposal (see below). However, such agreements are unlikely to contain detailed “lock-up” provisions which expressly address the possibility of a superior proposal for the asset emerging after execution.  Perhaps it’s time they did...

If a vendor enters into an asset sale agreement and then receives a superior proposal for that asset, they have a number of options, including to:

(a)    proceed with the initial transaction and ignore the superior proposal. The directors will have to consider whether proceeding with the initial transaction is consistent with their directors’ duties;

(b)    accept the superior proposal and repudiate the initial asset sale agreement. This will put the vendor at risk of liability for damages.  In this case, the thwarted purchaser’s loss would be measured by the position it would have been in if the initial agreement had been performed; or

(c)    if the asset sale agreement has a shareholder approval condition precedent, take both proposals to shareholders and recommend that shareholders vote in favour of the superior proposal. In this case the purchaser’s claim will usually be based on whether sufficient efforts (that is, often described as “best endeavours”, or “reasonable endeavours”) have been made by the vendor to satisfy that condition precedent.  A breach of that obligation will still give rise to a right to damages, likely to be a lesser measure of damages than that in (b).

Is there a way to achieve a better outcome?

In agreed control transactions (say a takeover bid, for example), provisions that protect or attempt to secure an existing transaction going forward, while allowing target directors to act consistently with their directors’ duties, are referred to by the Takeovers Panel as “lock-up” devices.  Some of the lock up devices which you typically see in control transactions, such as exclusivity, fiduciary carve outs and/or agreed damages, could achieve certainty regarding the ultimate outcome in scenarios where a superior offer is made for an asset, if they are negotiated and included in the initial asset sale agreement.

Lock-up devices in control transactions are heavily regulated; greater freedom of contract in asset sale agreements might mean lock-up provisions could be adapted to asset transactions without some of the restrictions.

If an asset sale agreement addressed in detail what would happen if a superior offer was made… what might that look like?

NO SHOP A clause in an agreement which prohibits the vendor from soliciting competing proposals from potential competing purchasers Helps provide deal certainty and exclusivity Limits opportunities for a superior offer after execution
NO TALK A clause in an agreement which prohibits the vendor from discussing potential competing proposals with a potential competing purchaser Helps provide deal certainty and exclusivity •    Deters potential superior offers

•    Although typically subject to a carve out for an unsolicited offer which directors are duty bound to consider

NO DUE DILIGENCE A clause in an agreement that restricts the vendor from granting due diligence access to potential competing purchasers Helps provide deal certainty and exclusivity •    Deters potential superior offers
•    Typically subject to a carve out for an unsolicited offer which directors are duty bound to consider
MATCHING RIGHT A clause in an agreement that provides the purchaser with the right to match or better a competing proposal made for the asset Promotes integrity of the transaction, but allows some competition •    Deters potential superior offers
•    Limits certainty


(agreed damages)

Consideration payable by a vendor if specified events occur which prevent a transaction from proceeding or cause the transaction to fail •    Vendor directors can easily assess the cost of accepting competing offers
•    Allows vendor directors to take a superior offer, consistent with their duties
•    A quick and certain determination of damages payable
•    Thwarted purchaser is not out of pocket
•    In control transactions, there is a lot of guidance on quantum (1% being considered generally acceptable).  If a transaction involves a significant change to nature or scale and attracts Listing Rule 11, ASX will look to ensure a break fee is not unreasonable (see ASX GN 12).  Otherwise, in an asset sale, to be enforceable, the agreed amount must (to ensure it is notconsidered a “penalty”, which would be unenforceable) not exceed compensation for the greatest loss that could conceivably be proved

•    Not specific performance

•    May be easier to terminate an agreement, limiting certainty of contract.


What can we take away from all of this?

Before you execute your next asset sale agreement, ask yourself how that sale agreement and your Board will respond if a better deal comes along before completion; if you don’t like the answer, consider whether or not negotiating detailed lock-up provisions could lead to a more appropriate outcome.

It's a 'risky business' - navigating indemnities and liability provisions in contracts 

By Phil McKeiver and Emma McLeod 

Unless you are Tom Cruise, no one wants to get caught with their pants down singing and dancing along to Bob Seger.  

We have therefore stripped bare some of the key liability and indemnity provisions which can arise in a contract in case you should find yourself unsupervised and sipping at a glass of Chivas Regal.

Your basic protection

Before we fully clothe you with some key contractual protections, we have briefly set out below the starting position at common law.

Starting position --> A breach of contract can give rise to a right to damages and/or a right to terminate the contract, depending upon the type of term breached.1

Damages are awarded on the basis that they are intended to place the plaintiff in the same situation had the contract been properly performed.

The principles which govern when and to what extent the plaintiff is entitled to recover damages include:

1 Breach: the plaintiff must prove that a breach has occurred.
2 Loss: the plaintiff must prove the extent of the damages suffered if more than nominal damages are sought.
3 Causation: there must be sufficient connection between the breach and the loss suffered.
4 Remoteness: the damages must not be too remote.2
5 Apportionment: unless contracted out of, the statutory proportionate liability regime in Western Australia ensures that a defendant is only liable for that proportion of damage or loss for which it is responsible.3
6 Mitigation: the plaintiff cannot recover damages where it has failed to take the steps that a reasonable person would have taken in the circumstances to mitigate them


Getting yourself some additional protection

Some contractual mechanisms that can be used to alter the starting position are set out below.

Warranties Warranties are a label given to essential promises in a contract e.g. “the supplier warrants that each product complies with its specifications”. 

A breach of warranty can result in a right to damages and/or a right to terminate the contract, depending upon the seriousness of the consequences.  Remedies for the breach of a warranty can be expanded to misrepresentation if the wording of the warranty is expanded from “warrants” to “represents, warrants and undertakes”.

Indemnities Indemnities are a promise to keep the indemnified party harmless against a specified event.

There are 4 types of indemnities: guarantor’s indemnity;  third party claims indemnity;  reverse indemnity;  and a party–party indemnity. 

Indemnities often alter the position at common law and/or statutory rights.10

An indemnity lives and dies by the precise words that the parties choose to use.  For example, an indemnity to “hold harmless” involves a promise to prevent loss from arising.  If loss is incurred, the indemnifying party is in breach of the contract.  Whereas an indemnity to “make good” involves making a party whole.  The right for a party to make a claim under a “make good” indemnity does not arise until that party has suffered loss or damage.  A breach does not occur until such time as a party makes a claim under a “make good” indemnity and the claim is refused.

An indemnity can also be drafted so that it is: “in respect of”; “in connection with”; “arising out of”; “caused by” or “caused solely by” a certain event (listed from the broadest to the narrowest description of loss).  

It is vital that indemnities are checked against a party’s insurance policies to ensure that a party is not left exposed and at risk for loss not covered by a policy.

Consequential Loss It is very common for parties to a contract to attempt to alter their liability by excluding liability for consequential and indirect losses.  As the law in relation to consequential and indirect losses is in a state of flux, the terms indirect and consequential loss should not be used in exclusion clauses unless they are very clearly defined or the specific types of losses which are intended to be excluded are listed.11
Liquidated damages and penalties Another mechanism parties often use to manage liability and risk in contracts is to include a liquidated damages mechanism so that the amount of any damages to be incurred on breach is known upfront.

A recent decision of the High Court of Australia12 suggests that any payment under a contract could potentially be “read down” (interpreted narrowly) if it constitutes an unreasonable penalty (in the sense that the payment exceeds the actual loss or damage suffered by the other party), including termination fees, take or pay clauses, indemnities and liquidated damages. The conventional wisdom prior to this decision was that payments could only be read down for being a penalty if they related to a breach of contract and did not amount to a genuine pre-estimate of loss. 13 But the High Court also confirmed that carefully drafted and appropriate performance options will be valid and enforceable.

Credit risk and ability to pay Your contractual protections may only be as good as the breaching party’s ability to pay, so it is important that you obtain adequate protection from credit risk and the inability to pay.  Requiring appropriate insurance, guarantees, performance bonds or the retention of a portion of the purchase price (in a sale agreement) are mechanisms which can be used to mitigate against this type of risk.
Express termination and rights The right to terminate for breach of contract does not arise in all situations.  For certainty, you may wish to expressly provide for termination in certain situations (e.g. failure to achieve a specific deadline or a requirement).


So a bit of risky business can lead to healthy returns. But if you ever find yourself eating a frozen meal alone and starting to tap along to “Old Time Rock and Roll”, before you sign that contract and head for the door, make sure you have the right protection.

If you have any further queries, please do not hesitate to contact us.


1 i.e. Whether it is a condition, intermediate term or warranty.
2 See Hadley v Baxendale (1854) 9 Ex 341.
3 Civil Liability Act 2002 (WA), Part 1F.
4 Halsbury’s Laws of Australia 110-9115.
5 An indemnity provided by guarantor under a contract of guarantee and indemnity.
6 An indemnity against third party claims.
7 An indemnity by the defendant in respect of the indemnified party’s breach.
8 An indemnity in respect of the promisor’s breach of the contract.
9 For example, damages for breach of contracts (the remoteness, apportionment and mitigation requirements may be altered).
10 For example, the position under proportionate liability legislation may be altered.
11 See Hadley v Baxendale (1854) 9 Ex 341; Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358;and Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2) [2013] WASC 356.
12 Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30.
13 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79.

To seek or not to seek? Injunction under the Railway Access Act: Brockman Iron v The Pilbara Infrastructure [2015] WASC 223

By Tim O'Leary and Lauren Shave 

On 22 June 2015, the Supreme Court of Western Australia delivered its decision in Brockman Iron Pty Ltd v The Pilbara Infrastructure Pty Ltd [2015] WASC 223. The Court considered whether an injunction was available under the Railways (Access) Act 1998 (WA) (Act) to require The Pilbara Infrastructure Pty Ltd (TPI) to amend or replace certain information, which it was required to publish under the Railway (Access) Code 2000 (WA) (Code) concerning the available capacity of its railway line. The Court held that, in the circumstances, injunctive relief was not available. The case illustrates the importance of considering the conduct complained of in light of the regime as a whole when seeking a remedy under the Act or the Code.

TPI’s railway

TPI is a subsidiary of Fortescue Metals Group Limited (FMG), and owns and operates a railway in the Pilbara (TPI Railway). The TPI Railway facilitates the delivery of iron ore product from FMG’s mines to Port Hedland for export.  Brockman Iron Pty Ltd (Brockman), who sought access to part of the TPI Railway under the Code, alleged that TPI had breached the Code by failing to publish up-to-date and accurate information about the available capacity of the TPI Railway. TPI contended that the remedy of injunction was not available to Brockman in the circumstances. The decision concerned the preliminary question of whether the injunction could be granted to Brockman.

Under section 36 of the Act, the obligations imposed by the Code are enforceable either by arbitration under the Code, or under section 37 of the Act, “as the case may require”.

Section 37 of the Act provides:

37. Injunctions

(1) The Supreme Court may grant an injunction in such terms as the Court thinks fit if it is satisfied that a person:

(a) has engaged in conduct that amounts to a breach of the Code; or

(b) is proposing to engage in conduct that woukd amount to such a breach, other than conduct for which a remedy by way of of arbitration is available under the Code. (emphasis added)

Therefore, an injunction under section 37 of the Act can only be granted where arbitration is not available as a remedy under the Code.

Alleged breach of the Code

Section 7A(1) of the Code states that the railway owner (in this case, TPI) must make a publication containing the required information available for purchase.

“Required information” includes1 the information described in Schedule 2 of the Code. Clause 4 of Schedule 2 requires a railway owner to publish the available capacity of the railway. “Capacity” is defined to mean the number of rail operations that can be accommodated on the route during a particular time having regard to the characteristics of the route, the length of the rolling stock comprising a train that can be operated on the route, the speed at which it can be operated, the requirements of the railway owner’s safety standards, the requirements of any written law, and the technical requirements for the relevant rolling stock.2

Section 7C of the Code requires a railway owner to review, and to amend or replace, the information published under section 7A as often as is necessary to ensure that the information remains reasonably up-to-date at all times, and in any case, at not less than 2 yearly intervals.3

Brockman alleged that TPI had breached the Code by failing to comply with section 7C, and sought an injunction under section 37(1) of the Act to compel TPI to amend or replace its information so that the published information as to the available capacity of its railway was accurate and correct.

Brockman supported its allegation with a report by Mr Brock Reynolds of TSG Consulting (Reynolds Report), which concluded that the estimated “choke capacity” of the TPI Railway was between 202 and 221 million tonnes per annum (which was more than the capacity of 175 million tonnes per annum required by Brockman).4 In October 2014, TPI published amended information under the heading “Available Capacity”. That document identified a nameplate capacity of 155 million tonnes per annum, which was fully utilised by TPI. TSG then conducted a supplementary report which concluded that the TPI Railway had an estimated choke capacity of 204 million tonnes per annum.

The Court held that, in substance, what Brockman sought was a determination that the opinion expressed in the Reynolds Report, and the supplementary report, as to the capacity of the TPI Railway should be accepted, and reflected in the information published by TPI under section 7A of the Code.5

The demand by Brockman for TPI to correct its capacity information occurred in the context of Brockman’s proposal for access, following which TPI and Brockman had communicated regarding their differences in opinion about the available capacity. In the course of those communications, TPI had pointed out the requirement for Brockman to satisfy TPI in relation to matters set out under sections 14 and 15 of the Code (discussed below). TPI had also given Brockman notice, under section 18 of the Code, that it was not satisfied that the information in Brockman’s access proposal was sufficient for the purposes of sections 14 and 15.

TPI’s argument: injunction not available

TPI contended that the injunction sought by Brockman was not capable of providing the remedy requested by Brockman for the following reasons:

  • any question of capacity is necessarily a matter of judgment and opinion taking account of the factors identified in the definition of “capacity” in section 3 of the Code;
  • the Code contemplates that opinions may differ, and the information published about the available capacity of the railway is necessarily only the railway owner’s opinion as to available capacity;
  • section 7(1) of the Code enables an entity interested in making a proposal for access to ask a railway owner to provide an “initial indication” of the available capacity of the route;
  • section 15 of the Code provides for the proponent to show that its proposed use can be accommodated on the route “having regard to the capacity of the route and any information provided to the proponent under ss 6 and 7”;
  • section 18 of the Code requires that notice be given to the proponent in the event that the railway owner is not satisfied with “the proponent’s opinion” that the information given under sections 14 and 15 is sufficient. Section 18 then enables the proponent, if it considers that this notice is not justified, to notify the railway owner that there is a dispute; and
  • the existence of that dispute then entitles the proponent to refer the dispute to arbitration.6

TPI relied on these matters to show that questions of capacity are ultimately questions of opinion, and are matters to be determined by arbitration.

Decision: arbitration was available

The Court found that the Act contemplates disputes about capacity, and provides a mechanism whereby the opinions of the railway owner and a proponent for access can be exchanged, and any dispute can be resolved by arbitration.Therefore the jurisdiction to grant the injunction sought by Brockman under section 37 of the Act did not arise.8

The Court accepted, however, that if there had been no information published by TPI under section 7A of the Code, it would have been open to Brockman to seek injunctive relief to require the publication of the required information.9

The case highlights the importance of considering the processes set out in the Code as a whole when assessing whether a party may have breached the Code for the purposes of determining the remedies available under the Code and/or the Act. In particular, if a party’s conduct is part of a chain of related events that will or could ultimately lead to arbitration under the Code, then it is unlikely that an injunction will be available under the Act. 


1 Railways (Access) Code 2000, section 6
2 Railways (Access)  Code 2000, Schedule 2, clause 4(o)
3 Railways (Access) Code 2000, section 7C(2)(a) and (b)
4 Brockman Iron Pty Ltd v The Pilbara Infrastructure Pty Ltd [2015] WASC 223, per Chaney J at [29]
5 Brockman Iron Pty Ltd v The Pilbara Infrastructure Pty Ltd [2015] WASC 223 at [50]
6 Railways (Access) Code 2000, section 26
7 Brockman Iron Pty Ltd v The Pilbara Infrastructure Pty Ltd [2015] WASC 223 at [50]
8 Brockman Iron Pty Ltd v The Pilbara Infrastructure Pty Ltd [2015] WASC 223 at [54]
9 Brockman Iron Pty Ltd v The Pilbara Infrastructure Pty Ltd [2015] WASC 223 at [50]