Lord Wilberforce (delivering the judgement of the Board):

These are two appeals from the judgement of the Federal Court of Malaysia (Thomson LP, Barakbah CJ (Malaya) and Tan Ah Tah FJ) which allowed the appeal of AE Schmidt from a judgement of the High Court at Kuala Lumpur (Hashim J). The Federal Court ordered that judgement should be entered in favour of AE Schmidt against the appellant company for a sum equal to one per cent of the selling price of all iron ore sold from certain mines in Johore which sum has been certified to amount to $251,529.50. It was further ordered that the appellant company should be indemnified by the third parties appellants against their liability to AE Schmidt. Since the hearing in the Federal Court, AE Schmidt has died and his widow Marjorie Schmidt has been substituted as respondent. References in this judgement to Schmidt are to AE Schmidt.

The matters arise out of prospecting permits over certain State land in Johore. The first step in relation to this land was taken in 1953 when Tan Chew Seah (hereinafter called "Tan") applied to the Government of the State of Johore for a prospecting permit for iron ore. He was assisted in the negotiations by Schmidt who was a consulting engineer. A prospecting permit (numbered 10/ 53) over 1,000 acres of State land at Bukit Kepong was granted to Tan on 25 November 1953. On 2 December 1953 Tan wrote a letter to Schmidt which contained the following agreement:

I hereby agree to ensure that you are paid one per cent of the selling price of all ore that may be sold from any portion of the said land. This is in payment for the work you have done in assisting to obtain the prospecting permit and any work you may do in assisting to have mining operations started up.

On 11 July 1954 Tan executed a power of attorney in favour of Schmidt which conferred upon him widely expressed powers to contract for the disposal of any of Tan's mining properties for such consideration and subject to such conditions as Schmidt should think proper.

The appellant company, Kepong Prospecting Ltd, was incorporated on 27 July 1954 with a view to taking over the benefit of Tan's prospecting permit. Schmidt and Tan were among the first directors of the company. On 31 July 1954 an agreement (hereinafter referred to as "the 1954 agreement") was made between Tan and the appellant company. This agreement was executed on behalf of Tan by Schmidt acting under the power of attorney. Their Lordships will refer in greater detail to this agreement later. Briefly it provided that the company should prospect and work the land included in the prospecting permit as well as any additional land comprising the same mining project and it was agreed that the appellant company should take over the obligation of Tan to pay Schmidt one per cent of the selling price of all ore that might be sold from such land. On 31 July 1954 the 1954 agreement was adopted on behalf of the appellant company at a meeting of its directors.

On or about 26 September 1955 a further agreement (hereinafter referred to as "the 1955 agreement") was made between the appellant company of the one part and Schmidt of the other part. This agreement, to which their Lordships will refer more fully hereafter, contained a clause by which the appellant company agreed to pay to Schmidt 1 per cent of all ore that might be won from any land comprised in the 1954 agreement. The 1955 agreement was signed by Schmidt and the seal of the appellant company was affixed to it in the presence of Tan and of one DG Ironside. The said Ironside signed the agreement as proxy for NA Marjoribanks (a director of the appellant company) under an appointment as such proxy approved by the directors of the appellant company on 26 September 1955. This appointment was expressed to operate from 1 October 1955 to 31 December 1955.

In December 1955 an additional prospecting permit numbered 3/55 was granted to Tan in respect of 1,200 acres at Bukit Pasol. From