By Taline Chater, Partner

This Federal Court decision, delivered by Jackson J on 28 November 2025, addresses the interaction between a Royalty Deed, a Deed of Company Arrangement (DOCA), and the rights of a royalty holder (SCL AUS Limited) to maintain a caveat over a mining lease. The case explores whether SCL’s rights under the Royalty Deed were proprietary and capable of protection by way of a caveat or merely contractual, and the implications in an insolvency context.

Key Issues

1. Effect of the DOCA on the Royalty Holder (SCL’s) Rights:
   Does the DOCA extinguish SCL’s rights to future royalties and related claims under the Royalty Deed, substituting those rights with an entitlement to a dividend under the DOCA?
2. Proprietary Interest Pathways:
   Does the Royalty Deed confer a proprietary interest in the mining lease to SCL, sufficient to support the lodgement and maintenance of a caveat under the Mining Act 1978 (WA) and which right survives a DOCA?
3. Court’s Power to Order Caveat Removal:
   Can and should the Court order SCL to withdraw its caveat over the mining lease, and under what statutory powers?

Proprietary Interest Pathways

1. Contractual Rights vs Proprietary Interests
   The judgment distinguishes between contractual rights (e.g., the right to receive royalties) and proprietary interests (rights in or over property). The Royalty Deed in question provided for payment of royalties based on gold production, but critically, did not grant SCL any direct interest in the gold, the mining lease, or the land itself.
2. Potential Pathways to Proprietary Interest
   
   a. Profit à Prendre
   A profit à prendre is a right to take part of the natural produce of land (e.g., minerals, crops). For a royalty agreement to confer a profit à prendre, it must grant the holder the right to physically take minerals from the land. In this case, SCL’s right was to receive money calculated by reference to gold produced, not to take gold itself. Therefore, no profit à prendre arose.

   b. Rentcharge
   A rentcharge is a periodic payment charged on land and payable by the landowner. The judgment notes that the mining lease is personal property, not real property, and the royalty is not charged on the land but is a contractual payment. Therefore, the arrangement does not create a rentcharge.

   c. Equitable Interests: Covenants Running with Land
   The doctrine of covenants running with land (e.g. Tulk v Moxhay) allows certain obligations to bind successors in title. However, two requirements must be met:

   • The covenant must be negative (restrictive).
   • It must benefit the covenantee’s land.

   Here, the obligation to pay royalties was positive (to pay money) and did not benefit any land held by SCL. The mining lease was also personal property, not real property, further limiting the doctrine’s application.

   d. Equitable Notice: De Mattos v Gibson Principle
   This principle holds that a purchaser with notice of a prior contract affecting property may be bound by that contract in equity. However, it typically applies where the contract requires the property to be used in a particular way. In this case, the Royalty Deed does not require the mining lease to be used in a specific manner, and Kirkalocka retains discretion over mining operations

   e. Statutory Rights under the Mining Act 1978 (WA) (Mining Act)
   Section 122A(2) of the Mining Act allows a caveat to be lodged where there is an agreement relating to the sale of the holder’s interest in the mining tenement or any other matter connected with that interest, provided the agreement so provides. While the Royalty Deed allowed for a caveat, the Court found that SCL’s rights to the royalty was a contractual right to the payment of money calculated by reference to the amount of gold produced from the mining lease and was not connected to Kirkalocka’s  interest in the mining lease in any meaningful sense to give rise to a caveatable interest pursuant to the Mining Act.

   f. Other Doctrines (e.g., Option to Acquire Tenement)
   Clause 6.4(b) of the Royalty Deed gave SCL an option to acquire the mining lease in certain circumstances (e.g. a proposed surrender). While this restricted Kirkalocka’s ability to dispose of its interest, it did not confer a proprietary interest unless and until the option was exercised.

Judicial Analysis and Conclusion

Upon careful consideration, the Court determined that none of the avenues explored conferred a proprietary interest in the mining lease to SCL. Rather, SCL’s entitlements under the Royalty Deed were purely contractual in nature, and as such, were not amenable to protection via caveat under the Mining Act or otherwise. This distinction is pivotal in the context of financial distress and insolvency. Proprietary interests, by their very nature, stand outside the pool of unsecured creditors; they afford their holders enhanced leverage and may persist through the implementation of a Deed of Company Arrangement (DOCA). In stark contrast, contractual claims are subject to compromise under a DOCA; they are extinguished and converted a right to participate in any dividend declared under the DOCA. This in turn underscores the strategic importance of structuring interests to secure proprietary rights wherever possible, to maximise leverage in a restructuring or insolvency scenario.