REPORTABLE

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case no: 326/2011

In the matter between:

Xstrata South Africa (Pty) Ltd

First Appellant
Tavistock Collieries (Pty) Ltd

Second Appellant
Duiker Mining (Pty) Ltd

Third Appellant
and
SFF Association

Respondent
Neutral citation: Xstrata & others v SFF Association (326/2011) [2012]
20 ZASCA  (23 March 2012)
Coram:
MPATI P, BRAND, HEHER, MHLANTLA and WALLIS
JJA.
Heard:
12 March 2012
Delivered: 23 March 2012
Summary: Mineral and Petroleum Resources Development Act 28 of
2002 – interpretation of a notarial exchange agreement between the

respondent and second and third appellants and a notarial mineral lease
between the respondent and the second appellant concluded prior to the
Act coming into force – effect of the Act on such agreements – whether
obligation to pay a royalty in terms of the notarial mineral lease
extinguished by the new system of mining rights in the Act.

ORDER

On appeal from:  South Gauteng High Court, Johannesburg (Vally AJ
sitting as court of first instance) it is ordered that:
The appeal is upheld with costs, including the costs of two counsel.
The order of the court below is altered to read:
‘The application is dismissed with costs such costs to include the costs of
two counsel.’

JUDGMENT

WALLIS JA (MPATI P, BRAND, HEHER and MHLANTLA JJA
concurring)
[1] ‘The old order changeth, yielding place to new.’1 Those words
aptly describe the changes brought about by the Mineral and Petroleum
Resources Development Act 28 of 2002 (the Act), which came into
operation on 1 May 2004. It fundamentally altered the legal basis upon
which rights to minerals in South Africa are acquired and exercised.
Previously such rights vested in the owner of the land on or under which
minerals were found. The owner of the land, or a party authorised to do
so by the owner, could exploit the minerals, subject to the person
exploiting the minerals possessing a mining authorisation in terms of the
Minerals Act 50 of 1991. Once the Act came into operation all mineral
resources vested in the State as the custodian of such resources on behalf

1 Alfred, Lord Tennyson The Passing of the King from Idylls of the King 1. 407.

of all South Africans. The right to exploit such minerals was thereafter to
be conferred by the State by way of mining rights granted in terms of
s 23 of the Act. In order to avoid disrupting a key sector of the South
African economy, the Act contained transitional provisions in Schedule
II. These provided for existing rights to remain in force for a limited
period of five years as what were termed ‘old order mining rights’.
During that period the holder of old order mining rights could apply for
them to be converted into mining rights in terms of the Act. This case
concerns the effect of these statutory changes on rights accruing to the
respondent, SFF Association (SFF),2 by virtue of two agreements.

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

2 SFF was originally called the Strategic Fuel Fund and had responsibility during the days of apartheid
for the procurement and storage of oil at a time of sanctions against South Africa. The storage of oil
referred to in this judgment commenced at that stage. SFF remains an organ of state and continues to
procure and store strategic oil supplies on behalf of the State.
3 Tavistock is a wholly-owned subsidiary of Duiker, which is in turn a wholly-owned subsidiary of
Xstrata, the first appellant, a major international mining group. For reasons not explained in the
founding affidavit SFF originally sought declaratory relief in the alternative against Tavistock and
Xstrata. The order was made only against Tavistock, but all three appellants were ordered to pay SFF’s
costs.

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

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

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

[5] As Tavistock intended to exploit the SFF rights, clause 2.2 of
the exchange agreement provided that SFF would, contemporaneously
with the execution of the cession of mineral rights in favour of SFF,
procure the execution of a mineral lease between itself and Tavistock in
respect of the SFF rights, substantially in a form annexed to the exchange
agreement. Clause 2.4 recorded that:
‘No additional consideration shall be payable by either Tavistock or SFF to the other
or to Duiker or to any third party in respect of the exchanges envisaged in 2.1 and 2.2
since Tavistock and SFF consider the rights so exchanged to be of equal value.’
Clause 2.5 provided that the exchange agreement would constitute the
consents necessary for Tavistock and SFF respectively to acquire mining
authorisations under the Minerals Act in respect of the properties in
question. Lastly, in terms of clause 2.6, Tavistock assumed responsibility

for the rehabilitation, restoration and anti-pollution obligations of SFF in
respect of the areas where it was acquiring rights and SFF assumed
corresponding obligations in regard to the Tavistock properties and
Duiker’s interest in the Ogies dump.

[6] The notarial mineral lease conferred the SFF rights on Tavistock. It
dealt with the manner in which mining was to take place and imposed
obligations on Tavistock in regard to the commencement of mining and
the rate of mining extraction that had to be achieved after mining
commenced. Failure to satisfy these obligations would not, however,
constitute a breach of the mining lease, but would result in Tavistock’s
right to mine being restricted to certain specified tonnages of coal and it
would cease to be entitled to mine these areas to exhaustion. The limits
that would then apply were that Tavistock would be entitled to extract the
quantity of coal specified in clause 8.1 of the lease and would lose the
right to extract the quantities of coal specified in clauses 8.2 and 8.3 of
the lease. These three clauses deal with the obligation to pay royalties and
hence are the critical ones insofar as the present dispute is concerned.
They read as follows:
‘CONSIDERATION
As consideration for the rights hereby granted, the Lessee shall pay to the Grantor a
royalty calculated and payable as provided hereunder:
8.1
in respect of the first 29 523 000 (TWENTY NINE MILLION FIVE
HUNDRED AND TWENTY THREE THOUSAND) of mineable in situ tons
of No. 4 seam coal reserves mined by the Lessee, in respect of the first
6 046 000 (SIX MILLION AND FORTY SIX THOUSAND) of mineable in
situ tons of No.5 seam coal reserves mined by the Lessee and in respect of
200 000 (TWO HUNDRED THOUSAND) tons of run-of-mine No. 4 seam
coal mined by the Lessee, there shall be no royalty payable. It being recorded
that in exchange for the rights to mine this tonnage the Lessee has ceded and

assigned to the Grantor certain rights more fully specified in the exchange
agreement to which a draft of this lease was annexed as annexure "D”;
8.2
in respect of the balance of the No. 4 seam coal reserves on the property,
namely 18 738 000 (EIGHTEEN MILLION SEVEN HUNDRED AND
THIRTY EIGHT THOUSAND) of mineable in situ tons, the Lessee shall pay
to the Grantor a royalty of 4,25% (FOUR COMMA TWO FIVE PERCENT)
of the selling price of the No.4 seam coal mined from the property and sold by
the Lessee;
8.3
in respect of the balance of the No. 5 seam coal reserves on the property
namely 7 507 000 (SEVEN MILLION FIVE HUNDRED AND SEVEN
THOUSAND) of mineable in situ tons, the Lessee shall pay to the Grantor a
royalty of 3,5% (THREE COMMA FIVE PERCENT) of the selling price of
the No. 5 seam coal mined from the property and sold by the Lessee.’

[7] The issue before us is whether the obligation to pay royalties in
terms of clauses 8.2 and 8.3 survives the introduction of the new regime
in respect of mining rights brought about by the Act. In order to address
this it is necessary to have regard to certain of the provisions of the Act.
Section 2 records that its objects are to give effect to ‘the internationally
accepted right of the State to exercise sovereignty over all the mineral and
petroleum resources within the Republic’ and ‘the principle of the State’s
custodianship of the nation’s mineral and petroleum resources’. Section 3
records that mineral and petroleum resources are the common heritage of
all the people of South Africa and that the State is the custodian of such
resources for the benefit of all South Africans. In that capacity the State,
acting through the Minister of Minerals and Energy henceforth grants all
mining rights in South Africa.

[8] The effect of this is to destroy all rights to minerals existing under
the common law and vest their custodianship in the State.4 Had that taken
place without some transitional measures being in place that would have
created chaos in the South African mining industry, which is a major
sector of the country’s economy. In order to avoid that Schedule II of the
Act contains transitional arrangements intended to ease the transition
from the old to the new order. According to items 2(a) and (b) of the
Schedule its objects, which are in addition to the objects set out in s 2 of
the Act, are to ensure that security of tenure is protected in respect of
prospecting, exploration, mining and production operations that are being
undertaken at the commencement of the Act and to enable holders of
what it terms ‘old order rights’ to comply with the Act. In order to
achieve this it provides for the continuation of various rights previously
existing, of which an existing mining right is relevant for present
purposes.

[9] Old order rights are defined in item 1 of the Schedule as meaning
an old order mining right, an old order prospecting right or an unused old
order right. An old order mining right is defined as meaning, amongst
other things, a mining lease in force immediately before the date on
which the Act took effect and in respect of which mining operations are
being conducted.5 Such old order rights are dealt with in item 7 of the
Schedule, which reads as follows:
7. Continuation of old order mining right.—
(1) Subject to subitems (2) and (8), any old order mining right in force immediately
before this Act took effect continues in force for a period not exceeding five years

4 Holcim South Africa (Pty) Ltd v Prudent Investors (Pty) Ltd [2011] 1 All SA 364 (SCA) paras 20 to
24.
5 In the course of argument we were referred to Table 2 to the Schedule but that does not refer to
mining leases and appears to be relevant only for the purpose of identifying certain mining
authorisations and rights that are included as old order mining rights.

from the date on which this Act took effect subject to the terms and conditions under
which it was granted or issued or was deemed to have been granted or issued.
(2) A holder of an old order mining right must lodge the right for conversion within
the period referred to in subitem (1) at the office of the Regional Manager in whose
region the land in question is situated together with—
(a)
the prescribed particulars of the holder;
(b)
a sketch plan or diagram depicting the mining area for which the conversion is
required, which area may not be larger than the area for which he or she holds the old
order mining right;
(c)
the name of the mineral or group of minerals for which he or she holds the old
order mining right;
(d)
an affidavit verifying that the holder is conducting mining operations on the
area of the land to which the conversion relates and setting out the periods for which
such mining operations conducted;
(e)
a statement setting out the period for which the mining right is required
substantiated by a mining work programme;
(f)
a prescribed social and labour plan;
(g)
…;
(h)
a statement setting out the terms and conditions which apply to the old order
mining right;
(i)
the original title deed in respect of the land to which the old order mining right
relates, or a certified copy thereof;
(j)
the original old order right and the approved environmental management
programme or certified copies thereof; and
(k)
…
(3) The Minister must convert the old order mining right into a mining right if the
holder of the old order mining right—
(a)
complies with the requirements of subitem (2);
(b)
has conducted mining operations in respect of the right in question;
(c)
indicates that he or she will continue to conduct such mining operations upon
the conversion of such right;
(d)
has an approved environmental management programme; and
(e)
has paid the prescribed conversion fee.

(4) No terms and conditions applicable to the old order mining right remain in force if
they are contrary to any provision of the Constitution or this Act.
(5) The holder must lodge the right converted under subitem (3) within 90 days from
the date on which he or she received notice of conversion at the Mining Titles Office
for registration and simultaneously at the Deeds Office or for the Mining Titles Office
for deregistration of the old order mining right as the case may be.
(6) …
(7) Upon the conversion of the old order mining right and the registration of the
mining right into which it was converted the old order mining right ceases to exist.
(8) If the holder fails to lodge the old order mining right for conversion before the
expiry of the period referred to in subitem (1), the old order mining right ceases to
exist.’

[10] As pointed out in the Holcim decision of this court6 these
provisions do not serve to preserve common law rights. Instead, for the
period of five years specified in item 1, or such lesser period as may
elapse until the conversion of the old order right into a mining right under
the Act, they create a new right, statutory in origin, embodying the rights
previously enjoyed under the relevant old order right, together with an
entitlement to convert that right into a mining right under the Act. In this
case the rights that Tavistock enjoyed under the mineral lease are
therefore the rights that it enjoyed as the holder of an old order right
under item 7(1). That was common cause between the parties, as was the
fact that this old order right was subject to the conditions contained in the
mineral lease, including the conditions in clauses 8.1, 8.2 and 8.3
regarding the mining of coal and the obligation to pay royalties. (The
latter two were largely of academic importance as they were unlikely to
arise for some 20 to 25 years, by which stage the old order right would
have been converted into a mining right or have lapsed.)

6 At para 37.

[11] The primary argument on behalf of SFF rested on the following
propositions. First, the settlement of the dispute between the parties by
way of the exchange agreement constituted an indivisible whole so that
the rights conferred on Tavistock under the mineral lease, together with
their corresponding obligations such as the obligation in certain
circumstances to pay royalties, were an integral part of the overall
settlement. When the Act came into operation all of these rights remained
in force as part of the old order mining right created by the Act. Second,
under item 7(4) of the Schedule the conditions attaching to Tavistock’s
right to mine, as set out in the mining lease, would remain in force after
conversion of the old order right into a mining right unless they were
contrary to any provision of the Constitution or the Act. Third, the
obligation to pay royalties was not expressly stated to be contrary to the
provisions of the Act nor had Tavistock demonstrated that it was, by
necessary implication, contrary to those provisions. Accordingly on
conversion of the old order mining right into a mining right under the
Act, the obligation to pay royalties would remain in force. Counsel
accepted that if the court did not accept his contentions concerning item
7(4) then the appeal would succeed.

[12] All three of these propositions were challenged by Tavistock. It
argued that the agreement in relation to the coal in respect of which a
royalty was payable was additional to the settlement agreement and that
the entitlement to mine that coal and the obligation to pay royalties did
not form part of the settlement. In support of that it referred to clause 2.4
of the exchange agreement, (quoted in paragraph 5 above), and to the
statement in clause 8.1 of the mineral lease that ‘in exchange’ for the
right to mine the tonnage of coal there specified Tavistock had ceded and
assigned to SFF certain rights specified in the exchange agreement. SFF

countered by referring to the fact that under the exchange agreement
Tavistock not only ceded certain rights but also undertook not to mine
certain areas and undertook a range of rehabilitation and related
obligations. It relied on clause 2.2 of the exchange agreement, which
provided that:
‘In exchange for the cession, assignment, transfer and making over in 2.1, SFF
undertakes to procure the execution of a mineral lease …’;
for the contention that the exchange agreement was not limited in the
manner for which Tavistock contended, which it said artificially divided
the mineral lease into two separate and distinct arrangements. I assume
for present purposes, without deciding, that SFF is correct in its approach
to the two agreements.

[13] As regards item 7(4) Tavistock contended that it was only relevant
to conditions of the mineral lease maintained in force under item 7(1) and
had no bearing on the conditions attaching to a mining right after
conversion. This is a point of some considerable difficulty. Item 7(4) is
not well phrased, if its purpose is that for which SFF contends. In
particular, the words ‘remain in force’ seem to refer back to the words
‘continued in force’ in item 7(1) and thus refer only to the period prior to
conversion. But there is force in the points that item 7(2)(h) requires an
applicant for the conversion of an old order right to incorporate in its
application a statement setting out the terms and conditions applicable to
the old order right and that, if item 7(4) is confined in the manner for
which Tavistock contends, it is oddly placed in item 7, appearing after the
provisions governing applications for conversion and not, as one would
expect if its purpose was limited to the interregnum period, after item
7(1). This and the parallel provisions in items 4(4), 5(4) and 6(4) have led
commentators on the transitional provisions of the Act to say:

‘It is submitted, given the positioning of subitem (4) after subitems (2) and (3) which
deal with the conversion process, that subitem (4) is intended to apply to the new right
acquired on conversion. The effect is that the terms and conditions of the old right,
except those contrary to the Constitution or the MPRDA, will also apply to the new
right. It is submitted that the requirement in items 4(2)(e), 5(2)(h), 6(2)(g) and 7(2)(h)
to lodge a statement setting out the terms and conditions which apply to the old right,
supports the aforegoing contention.’7

[14] Counsel for Tavistock sought to counter these arguments by
submitting that the Minister has the power under the Act to impose
conditions on the conversion of an old order mining right. He accepted
that there is no express power to do this but contended that it necessarily
flowed from the provisions of s 3 of the Act and the obligations of
consultation with landowners imposed on the holders of mining rights
under s 5(4)(c) of the Act read with s 54 thereof. It is apparent from the
complexity of these contentions that the correct interpretation of item 7(4)
is a difficult issue with potentially far-reaching ramifications in relation to
factual situations that are not before us in this appeal. As, in my view,
SFF’s contentions must fail on the third of its propositions, I refrain from
expressing a view on the proper meaning to attach to item 7(4) and will
proceed on the assumption in favour of SFF that its approach is correct.

[15] One then comes to the issue whether the provisions in the mineral
lease providing for the payment of a royalty are contrary to any provision
of the Act. Counsel approached this question on the footing that, as there
was no express provision nullifying such royalty payments in existing
mining leases, the question is whether by necessary implication such

7 M O Dale and others South African Mineral and Petroleum Law (Loose-leaf issue 10) SchII-86. See
also SchII-76 and 150 where the same point is made. P J Badenhorst and H Mostert Mineral and
Petroleum Law of South Africa  (2011)(Loose-leaf issue 7) at 25-4 is to the same effect.

payments are excluded by the Act. He submitted that courts do not lightly
read words into a statute by way of implication unless the implication is a
necessary one in the sense that without it effect cannot be given to the
statute as it stands.8 He also drew attention to the difficulty of formulating
such an implied provision.9

[16] I do not think that this approach is correct. Accepting, for present
purposes, that the effect of item 7(4) is that the terms and conditions
attaching to the old order mining right are continued in the mining right
obtained on conversion, to the extent that they are not contrary to the
provisions of the Constitution or the Act, the latter qualification dictates a
different enquiry. It requires each term or condition embodied in the old
order mining right to be considered and assessed in the light of and
against the provisions of the Constitution and the Act to determine
whether it is contrary to either of them. Whether a term or condition is
contrary to a provision or the provisions of the Act requires that the term
or condition be considered, both as to its content and as to its effect, and
weighed in the light of the entirely new system of mineral rights
embodied in the Act. If it is inconsistent with that system then it is
contrary to the provisions of the Act. The search is not for an express or
implied prohibition of the provision in question. It is an assessment of its
compatibility with the Act’s provisions. If it is incompatible then it
cannot form part of the terms and conditions attaching to a mining right
obtained by way of conversion of an old order mining right.

[17] Approached on that footing the starting point is the nature of the
term or condition in issue. Here it is the provisions of clauses 8.1, 8.2 and

8 Rennie NO v Gordon & another NNO 1988 (1) SA 1 (A) at 22E-I
9 The Firs Investments (Pty) Ltd v Johannesburg City Council 1967 (3) SA 549 (W) at 557E-G.

8.3 of the mining lease. They are said in the preamble to clause 8 to
embody the consideration for the rights granted to Tavistock by SFF.
Tavistock undertakes to pay a royalty as determined in the three sub-
clauses. In the case of clause 8.1 it is said that ‘there shall be no royalty
payable’. In the case of the other two clauses a royalty is payable
expressed as a percentage of the selling price of coal mined from the
particular seams.

[18] These payments are in all outward respects conventional royalty
payments. They are embodied in a mineral lease executed notarially and
intended to be registered in the Deeds’ Registry and to be used for the
acquisition of a mining authorisation in terms of the Mining Act 50 of
1991. The expression ‘royalty’ has a well understood and relatively
universal meaning in this context. It is:
‘A payment made to the landowner by the lessee of a mine in return for the privilege
of working it. Also, a payment made, or a portion of the production given, by a
producer of minerals, oil or natural gas to the owner of the site or the mineral rights
over it.’10
An Australian legal dictionary – pertinent because that country, like ours,
has substantial mineral deposits and mining is a vital part of its economy
– has the following definition:
‘A payment made in respect of the exercise of a right to take a substance, and
calculated either in respect of the quantity taken or the value of the substance taken, or
the occasions upon which the right is exercised.’11
A similar view of a royalty is taken in the United States of America. A
leading legal dictionary defines ‘royalty’ as:
‘A share of the product or profit from real property, reserved by the grantor of a
mineral lease, in exchange for the lessee’s right to mine or drill on the land.’12

10 The Oxford English Dictionary 2 ed Vol XIV p 187.
11 Butterworths Australian Legal Dictionary (1997) sv ‘royalty’.
12 Black’s Legal Dictionary 9 ed (2009) sv ‘royalty’.

In South African mining practice concerning mineral leases ‘it is more
common for the rental to be calculated on some royalty basis or as a share
of profits related to the actual recovery’.13 The mineral lease in this case
reflects that common situation.

[19] Counsel did address an argument to us to the effect that,
notwithstanding the outward appearance that these clauses provide for
royalty payments, that is an erroneous categorisation. He submitted, in
line with his argument that the notarial lease is the quid pro quo for the
performance by Tavistock of its obligations under the notarial exchange
agreement, that the ‘royalty’ component of the mineral lease is to be
regarded, together with the performance of those obligations, as more
akin to a purchase price for the benefits and advantages conferred on
Tavistock by SFF including the right to mine the coal. In my view this is
a strained and unnatural meaning to be given to the mineral lease. The
exchange agreement created various rights and obligations on the part of
the parties. They chose to embody some of those rights and obligations in
a notarial mineral lease in conventional form and making use of
conventional terminology. They said that in certain circumstances
royalties would be payable. Why should they not be taken at their word?

[20] This is not a case where the agreements were drafted by lay people
and reflect a lack of awareness of legal nuance. They were drafted by
experienced attorneys on behalf of substantial business enterprises and
related to multi-million rand transactions. As Lord Hoffmann said in
Jumbo King Ltd v Faithful Properties Ltd:14

13 B L S Franklin and M Kaplan The Mining and Mineral Laws of South Africa 607.
14 Jumbo King Ltd v Faithful Properties Ltd [1999] 2 HKCFAR 279 at 296.

‘Of course in serious utterances such as legal documents, in which people may be
supposed to have chosen their words with care, one does not readily accept that they
have used the wrong words. If the ordinary meaning of the words makes sense in
relation to the rest of the document and the factual background, then the court will
give effect to that language, even though the consequences may appear hard for one
side or the other.’
On subsequent occasions he has stressed that courts do not easily accept
that people have made linguistic mistakes15 and that it requires a strong
case to persuade a court that something has gone wrong with the language
of a formal contract.16 I accept that in the drafting of complex commercial
contracts ‘there are bound to be ambiguities, infelicities and
inconsistencies’,17 but the suggestion that what are expressed to be
royalties under a mineral lease are to be construed as the purchase price
of a congeries of rights under both the mineral lease and the exchange
agreement, involves such a fundamental alteration of the mineral lease
that it cannot be ascribed to the inevitable drafting problems that manifest
themselves in documents of this type. In my view the parties chose to say
that royalties would be payable and that is what the words they have used
should be taken to mean.

[21] Accepting that the mineral lease provided that Tavistock would pay
a royalty in respect of some of the coal that it became entitled to mine
under the mineral lease and that the undertaking to pay the royalty
secured the right to mine that coal originally, I turn to consider the
relevant provisions of the Act. My starting point is that Tavistock’s
entitlement to mine the coal no longer has its origins in the mineral lease.
Its rights in terms of that agreement were terminated by the Act. In their

15 BCCI v Ali [2001] 1 AC 251; [2001] 1 All ER 961 (HL) para 39.
16 Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] 4 All ER 677 (HL) para 14.
17 Lord Collins SCJ in Re Sigma Finance (in administrative receivership) Re the Insolvency Act 1986
[2010] 1 All ER 571 (SC) para 35.

place it acquired a statutory right, described as an old order mining right,
on the same terms and conditions as it had hitherto enjoyed. When that
old order mining right is converted into a mining right under the Act its
right to mine the coal will derive solely from that mining right and its
source will be the custodianship that the State now exercises over
minerals in South Africa. It makes little sense in those circumstances for
it to continue to be required to pay SFF, the original owner of the
minerals, for the right to mine them, when in truth its right to do so stems
from the Act and the State and not SFF.

[22] That view is reinforced by the fact that in exercising its
custodianship of minerals ‘for the benefit of all South Africans’ one of
the benefits that the State secures is an entitlement itself to be paid
royalties in respect of the rights it grants to mine those minerals. Under
s 25(2)(g) of the Act the holder of a mining right is obliged to pay
royalties to the State. Whatever basis existed for the determination of the
amount of such royalties in 2004 when the Act became operative, there is
now a statutory foundation for such determination in the Mineral and
Petroleum Resources Royalty Act 28 of 2008. It would be inconsistent
and potentially unfair for the Act not just to permit, but to compel, the
continued payment of royalties under contracts concluded pursuant to the
previous minerals regime as well as extracting a royalty from the holders
of mining rights in terms of the Act. Such double payment of royalties
could imperil the financial viability of marginal mining operations and
would be inconsistent with the obligation imposed upon the Minister in
terms of s 3(3) of the Act to promote the sustainable development of
South Africa’s mineral and petroleum resources.

[23] Next there is the fact that the transitional provisions in Schedule II
include a provision dealing with royalties. It is item 11 the relevant
portions of which read as follows:
‘(1)  Notwithstanding the provisions of item 7 (7) and 7 (8), any existing
consideration, contractual royalty or future consideration, including any compensation
contemplated in section 46 (3) of the Minerals Act, which accrued to any community
immediately before this Act took effect, continues to accrue to such community.
(2)  The community contemplated in subitem (1) must annually, and at such other
time as required to do so by the Minister, furnish the Minister with such particulars
regarding the usage and disbursement of the consideration or royalty as the Minister
may require.
(3)  If the consideration or royalties contemplated in subitem (1) accrued to a natural
person, it may continue to accrue to the person subject to such terms and conditions as
the Minister may determine, if—

(a)
the discontinuation of such consideration or royalty will cause undue
hardship to the person; or

(b)
the person uses such consideration or royalty for social upliftment.
(4)  If it is determined that the consideration or royalties referred to in subitem (3)
continues then the provision of subitem (2) apply to such a recipient.
(5)  The recipients contemplated in subitems (1) and (3) must within five years from
the date on which this Act took effect inform the Minister of their need to continue to
receive such consideration or royalties and the reasons therefor, and furnish the
Minister with the prescribed information.’
There are obvious difficulties in understanding the opening words of
item 11(1) and the references to items 7(7) and (8). What they do make
clear is that item 11 is dealing with a situation after an old order mining
right has come to an end. In plain terms it then deals with certain
situations in which royalties that were payable under the former
dispensation and would have remained payable under old order mining
rights will, subject to Ministerial discretion, continue to be paid after the
old order right has been converted into a mining right under the Act.
Significantly item 11 excludes a royalty payment of the type at present

under consideration. It extends the right to continue to receive royalties,
not on the basis of the type of agreement under which the royalty is
payable, but on the basis of the type of person entitled to receive this
benefit.

[24] For SFF’s argument to be upheld it would have to follow that
royalties payable under mineral leases and other forms of agreement
giving rise to old order mining rights under the transitional provisions of
the Act, would not only continue to be payable in terms of those old order
mining rights prior to conversion, but would, on its approach to item 7(4),
continue to be payable after conversion. There is no tenable basis for
suggesting that the present is a special situation or that there would be
categories of agreements providing for royalties that would survive
conversion and others that would fall away at that stage. But that would
render the special provisions of item 11 largely, if not entirely, redundant
and even prejudicial to the identified beneficiaries, whose right to
royalties would become subject to ministerial withdrawal. This stands
item 11 on its head. Its manifest purpose is to protect the interests of
certain bodies or persons in receiving royalties. On SFF’s construction it
would not only, not serve that purpose, it would result in their existing
royalty rights being significantly diminished. That is not a sensible
conclusion.

[25] One other factor that may be relevant, albeit not a major one, is that
item 12 of the transitional provisions makes provision for a person ‘who
can prove that his or her property has been expropriated’ in terms of any
provision of the Act to seek compensation from the State. This was
treated in argument on behalf of Tavistock as a clear indication that SFF
would not be prejudiced by the loss of its royalties, because it could

always recover compensation from the State for its loss. However, I am
not inclined to attach any weight to this factor. My reason is that it may
be debatable whether the Act does in fact expropriate the rights that were
enjoyed under the old minerals regime. The point is raised and the
relevant cases cited in the work by Professor Dale and others referred to
in paragraph 13.18 The learned authors say that item 12 of the transitional
provisions ‘has been drafted evasively’ in order to avoid a constitutional
challenge, but without identifying what property can be expropriated
under the provisions of the Act and what would constitute such an
expropriation.19 In view of that potential difficulty I prefer not to attach
any weight to item 12.

[26] Weighing all of these factors together their cumulative effect is
necessarily that, after conversion of an old order mining right into a
mining right, the preservation of a right to claim royalties under a
contract, such as this mineral lease, concluded prior to the Act coming
into force and maintained during the transitional period in the form of a
condition attaching to an old order mining right, does not serve the
purposes and would be contrary to the provisions of the Act. That
conclusion is dispositive of the appeal and renders it unnecessary to
address the arguments about the effect of item 7(7) of the transitional
provisions.

[27] For those reasons the appeal must succeed. It was suggested on
behalf of Tavistock, at the commencement of the argument, that the
proper order to make in that event was one amending the declaratory
order issued by the court below to include words making it clear that the

18 Dale et al supra MPRDA-24.
19 Dale et al supra Sch II-206 and the discussion that follows up to 206(25).

obligation to pay the royalties would continue after Tavistock obtained an
old order mining right but would lapse on the conversion of that right into
a mining right. However, Tavistock had in both its answering affidavit in
the court below and its heads of argument asked simply for the dismissal
of the application and not counter-applied for a declaratory order in the
terms suggested. It cannot now obtain such an order by way of this
appeal. In any event it does not need such an order. Its rights sufficiently
appear from the terms of this judgment. In the result the following order
is made:
The appeal is upheld with costs, such costs to include those
consequent upon the employment of two counsel.
The order of the court below is set aside and replaced by an order
in the following terms;
‘The application is dismissed with costs, such costs to include those
consequent upon the employment of two counsel.’

M J D WALLIS
JUDGE OF APPEAL

Appearances

For appellant:
G L Grobler SC (with him L P Dicker)
Instructed by:
Norton Rose South Africa, Johannesburg
Webbers, Bloemfontein

For respondent:
W H L van der Linde SC (with him Tim
Bruinders SC)

Instructed by:

Edward Nathan Sonnenbergs, Johannesburg

McIntyre & Van der Post, Bloemfontein.
Supreme Court of Appeal of South Africa

MEDIA SUMMARY– JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL

From:   The Registrar, Supreme Court of Appeal

Date:  23 March 2012

Status:  Immediate

Please note that the media summary is intended for the benefit of the media and does
not form part of the judgment of the Supreme Court of Appeal.

Xstrata &others v SFF Association

The Supreme Court of Appeal upheld an appeal against the
decision of the Gauteng South High Court, Johannesburg declaring that
Tavistock Collieries, a subsidiary of Xstrata, would remain obliged to pay
royalties to SFF Association in terms of a notarial mineral lease executed
in June 2001 after the conversion of its rights under the lease to a mining
right in terms of the Mineral and Petroleum Resources Development Act
28 of 2002. The issue in the case was whether the effect of converting an
existing right to mine coal, under a mineral lease obliging the mining
company to pay a royalty to the landowner, to a mining right under the
Act is to terminate the obligation to pay the royalty.
The Court considered the changes to South Africa’s mineral rights
regime brought about by the Act and concluded that, insofar as the
obligation to pay a royalty was concerned, but not necessarily other rights
and obligations, the conversion of the rights under the lease to a mining
right under the Act terminated the obligation. It held that the continuation
of the obligation to pay a royalty, although not expressly terminated by
the Act, was inconsistent with its provisions and the new minerals regime
that it put in place. Accordingly the appeal was upheld and the
declaratory order in favour of SFF Association was set aside.