Having accommodated Bathurst Resources difficulties when financing its purchase of Buller Coal, L&M Coal Holdings had to sue when Bathurst turned this accommodation upside down, claiming an open-ended option now existed with nothing to pay. Bathurst was ordered to pay US$40 million.
Bathurst paid $US40 million upfront for its 2010 purchase of Buller Coal with further commitments of ongoing royalty payments and a further $US40 million payable when 25,000 tonnes of coal had been shipped. This further $US40 million was viewed by L&M Coal as part of the purchase price but not payable until mining was operational.
The High Court was told Bathurst faced difficulty raising capital to finance development of its Escarpment mine on Denniston plateau within the Buller Coal permit area. Objections to resource consents held up development for some two years. Volatile coal prices compounded difficulties. Bathurst capital raising was at risk; it would be ‘in default’ with L&M Coal should it fail to pay the further $US40 million at a time when it was seeking capital to help pay that same $US40 million. Talks with L&M Coal proved fruitful. L&M Coal agreed a failure to pay would not be treated as a ‘default’ but in turn Bathurst was required to pay increased royalties. In economic terms, L&M Coal viewed the increased royalty as interest for late payment.
Up to late 2016, Bathurst acknowledged in its financial statements that coal extraction at Escarpment attracted further payments once 25,000 tonnes were mined. In December 2016, a different view emerged; their contract said payment was due once the agreed tonnage was ‘shipped’ and none had been shipped. ‘Shipped’ meant exported, Bathurst said. Bathurst was supplying domestic users only, primarily Holcim cement works then operating on the West Coast. Earlier in 2016, Bathurst had suspended mining at Escarpment subsequently taking a controlling interest in BT Mining, which had purchased mining concessions on the break-up of government-controlled Solid Energy.
L&M Coal management was incensed. Bathurst was refusing to pay the additional $US40 million for coal already mined and was no longer paying royalties for future extraction because mining at Escarpment had ceased. L&M Coal is registered in Belize. Its business is run from Hong Kong.
Justice Dobson ruled ‘shipped’ in the contract meant ‘transported’. Domestic sales counted. Suspension of any obligation to pay the disputed $US40 million operated only ‘so long as’ royalties were still being paid, he ruled.
L.& M. Coal Holdings Ltd v. Bathurst Resources Ltd – High Court (17.08.18)
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