Briefing

Royalty relief: WA Supreme Court confirms royalty right not extinguished by DOCA

In Franco-Nevada Australia Pty Ltd v Southern Iron Pty Ltd [2026] WASC 43, the Supreme Court of Western Australia confirmed that a deed of company arrangement (DOCA) can extinguish royalty rights. However, as the DOCA did not clearly provide for the extinguishment of the royalty rights, the Court determined they had not been extinguished.

Background

Following a complex group administration involving 94 companies (Arrium Group), the Supreme Court of Western Australia considered whether deeds of company arrangements (DOCAs) extinguished royalty rights held by Franco-Nevada Australia Pty Ltd under a royalty deed, relating to iron ore mining at Peculiar Knob in South Australia (Royalty Deed).

The Royalty Deed obliged Southern Iron Pty Ltd, a company within the Arrium Group, to pay a royalty to Franco-Nevada, calculated by reference to the quantity and grade of iron ore produced.

In 2015, Peculiar Knob was placed into care and maintenance. On 7 April 2016, Southern Iron and the 93 other Arrium Group companies appointed voluntary administrators. On 4 November 2016, creditors of each Arrium Group company resolved to enter into materially identical DOCAs. A further, separate, ‘Arrium Distribution DOCA‘ was executed by Arrium Creditor Distribution Company Pty Ltd, a special purpose vehicle established to receive and distribute funds to creditors.

In July 2019, Peak Iron Mines Pty Ltd purchased all the shares in Southern Iron. Mining recommenced at Peculiar Knob in 2020 under Peak Iron’s ownership. Franco-Nevada sought to enforce its royalty entitlements pursuant to the Royalty Deed. Southern Iron denied any ongoing obligation to pay the royalty, asserting the DOCAs had extinguished Franco-Nevada’s royalty rights.

Findings

Unlike in the Kirkalocka judgment we wrote about in March (see here), in this case it was common cause that Franco-Nevada was a contingent creditor of Southern Iron, and had a contingent claim for damages against Southern Iron for possible future breaches of the Royalty Deed. It was also common cause that a DOCA had the power to extinguish royalty rights.

In finding that the DOCAs did not extinguish Franco-Nevada’s royalty rights, Justice Hill focused on the proper construction of the DOCAs. The terms of the DOCAs did not automatically release, discharge or extinguish creditors’ claims. Rather, the DOCAs required the Deed Administrators to take an affirmative step to novate, release or extinguish a creditor’s claim. Simply entering into the DOCAs did not have this effect. The Deed Administrators failed to take these steps and, accordingly, the DOCAs did not release or extinguish Franco-Nevada’s royalty rights.

Implications

The Courts’ decisions in Franco-Nevada and Kirkalocka serve as an important reminder to royalty holders to consider whether they can negotiate adequate security arrangements to protect contingent contractual rights, such as royalty rights. Without further protection, these rights are susceptible to extinguishment should the grantor go into administration and the creditors resolve to enter into a DOCA which provides for them to be extinguished.

Royalty holders should consider seeking additional forms of security to protect their rights. Security interests such as a mortgage over the tenement/s¹or a PPSR security interest over the grantor’s assets will provide the royalty holder with a proprietary or security interest, respectively. A DOCA cannot extinguish these interests, unlike a mere contractual right to royalties.

Footnote