Ardee Pty Ltd v Collex Pty Ltd

[2001] NSWSC 836

CITATION:	Ardee Pty Ltd v. Collex Pty Ltd [2001] NSWSC 836
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 1675/00
HEARING DATE(S):	9 to 11 July, 2001
JUDGMENT DATE:	28 September 2001
PARTIES :	Ardee Holdings Pty Ltd [Plaintiff] Collex Pty Ltd [Defendant]
JUDGMENT OF:	Palmer J

COUNSEL :	R.C. McDougall QC, John E. Robson [Plaintiff] R.T. McKeand [Defendant]
SOLICITORS:	Hallett & Associates [Plaintiff] Holman Webb [Defendant]
CATCHWORDS:	CONTRACTS - FRUSTRATION - SUPERVENING ILLEGALITY - Put and Call Option Deed entitling Defendant to call for contract for sale of land to itself or to nominee and entitling Plaintiff to require Defendant to enter into contract - Deed subject to condition that approval to Defendant's acquisition of land be obtained under Foreign Acquisitions & Takeovers Act, 1975 (Cth) upon conditions acceptable to it - Treasurer approves acquisition upon condition that options not exercised unless Defendant proceeds with development of waste management centre on different land - condition acceptable to Defendant - development consent to waste management centre later refused - Defendant cannot acquire land without committing breach of Foreign Acquisitions & Takeovers Act - Plaintiff exercises Put Option and seeks specific performance - whether Deed frustrated. CONTRACT - FRUSTRATION - DISCHARGE - Whether Option Deed wholly discharged or partially discharged - Defendant cannot acquire interest in land for itself without breach of Foreign Acquisitions & Takeovers Act but can exercise Call Option in favour of nominee third party without breach of Act - other benefits retained by Defendant - whether frustrated part of the Deed severable - whether performance of non-frustrated part of Deed would make as much commercial sense as performance of whole Deed - frustrated part of Deed held severable - Defendant discharged from performance pro tanto. FRUSTRATED CONTRACTS ACT - Payments by Defendant in consideration for grant of Call Option - partial frustration of Deed - Call Option cannot be exercised for benefit of Defendant but can be exercised for benefit of nominee - Defendant seeks order for repayment of option consideration under Frustrated Contracts Act - benefit lost to Defendant by partial frustration not a benefit which it really wanted or needed - other benefits retained by Defendant - prejudice to Plaintiff - adjustment of rights of parties not appropriate under s.12 Frustrated Contracts Act - discretionary considerations under s.15(1) - relief under Frustrated Contracts Act refused.
LEGISLATION CITED:	Environmental Planning & Assessment Act 1979 - s.91, s.97 Foreign Acquisitions and Take-overs Act 1975 (Cth) - s.5(1), s.12A, s.21A, s.25, s.26A Frustrated Contracts Act 1978 (NSW) - s.6, s.12, s.15.
CASES CITED:	- Bank Line Ltd v Arthur Capel & Co [1919] AC 435 - Beaton v McDivitt (1987) 13 NSWLR 162 - BP Exploration (Libya) Co Ltd v Hunt (No 2) [1979] 1 WLR 783; [1983] 2 AC 352 - Codelfa Construction Pty Ltd v. State Rail Authority of NSW (1982) 149 CLR 337 - Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 - Denny Mott & Dickson Ltd v James B. Fraser & Co Ltd [1944] AC 265 - The Eugenia [1964] 2 QB 226 - Hirgi Mulji v Cheong Yue SS Co [1926] AC 497 - Khoury v GIO (NSW) (1984) 58 ALJR 502 - Penrith District Rugby League Football Club Ltd v Fittler (unrep. SCNSW, 8 February 1996) - Sargent v. ASL Developments Ltd (1974) 131 CLR 634 - Secured Income Real Estate (Australia) Ltd v St Martin's Investments Pty Ltd (1979) 144 CLR 596 - Treitel "Frustration & Force Majeure" (1994)
DECISION:	Plaintiff's claim for specfic performance or damages refused; Defendant's claim for relief under Frustrated Contracts Act refused.

Introduction

1    By Summons filed on 8 March 2000 the plaintiff (“Ardee”) seeks specific performance of a Deed of Put and Call Options dated 16 November 1998 between itself and the defendant (“Collex”). Ardee claims that it has duly exercised the put option under that Deed whereby Collex is obliged to enter into and complete a contract to purchase certain land owned by Ardee at Muswellbrook in New South Wales (“the Land”). Alternatively, Ardee seeks specific performance by Collex of the contract for sale of the Land which Ardee says came into existence upon its exercise of the put option. Alternatively, Ardee claims damages for breach of the Deed and of the contract for the sale of the Land. 2    By its Defence and Cross Claim Collex alleges that the Deed was discharged by frustration because performance became illegal under the Foreign Acquisitions and Take-overs Act 1975 (Cth) (“FATA”). Collex claims repayment of amounts paid by it to Ardee under the Deed and relief under Pt III of the Frustrated Contracts Act 1978 (NSW) . Alternatively, Collex claims that it has validly rescinded the Deed for breach by Ardee of a warranty by it contained in the Deed. Alternatively, if the Deed is not rescinded and is to be performed, Collex claims damages for breach of that warranty. The Defence and Cross Claim raised several other defences, none of which was pursued at trial. Facts 3    The material facts are not in dispute and may be shortly stated. At all relevant times Ardee has been the registered proprietor of a substantial parcel of rural land about four kilometres south of Muswellbrook. The Land is adjacent to the main northern railway line and to a road called Muscle Creek Road, which in 1998 was used by coal trucks hauling coal from nearby mines. By June 1998, Ardee had obtained approval for the subdivision of the Land into rural housing allotments of between one and two hectares. Work had commenced on the subdivision and a number of lots had already been sold off the plan. 4    Collex is, ultimately, a subsidiary of a French company, Vivendi SA. By June 1998 Collex had developed a proposal for the construction and operation of a putrescible waste management facility near Muswellbrook, called the Bells Ridge Waste Management Facility. The proposal involved the dumping of putrescible waste collected from Sydney into an abandoned open-cut coal mine located approximately 1.5km north-east of the town of Muswellbrook and the construction of an “inter-modal transfer station”, where the containerised waste carried by rail from Sydney would be transferred to trucks for haulage to the site of the waste management facility. The favoured location for the inter-modal transfer station was adjacent to Ardee’s Land, where the railway line and Muscle Creek Road intersect. 5    In June 1998 Collex lodged with the Muswellbrook Shire Council a development application for the inter-modal transfer station and for the waste management facility. The parties have referred to the subject of the development application as “the Landfill project” and I will, for convenience, adopt the same abbreviation. The development application met with strong and vocal opposition from a large section of the community in and around Muswellbrook. One of the leaders of that opposition was Mr Yore, the controlling director of Ardee. He saw the proposed development of the Landfill project as highly detrimental to the successful sale of Ardee’s subdivision. Through his solicitors he protested to the Shire Council; he arranged for the distribution of ‘flyers’ drawing attention to the adverse impact which the development would have on living standards in the surrounding areas, and organised a petition against the development signed by hundreds of members of the Muswellbrook community. 6    On 11 September 1998 Collex’s solicitors wrote to Ardee’s solicitors suggesting that Collex might “be in a position to make some offer to achieve a commercial settlement” . On 16 November 1998 the parties entered into the Deed of Put and Call Options (“the Option Deed”) and into a collateral Deed providing for nomination by Collex of another party to enter into the Option Deed in certain circumstances (“the Nomination Deed”). 7    Recital B of the Option Deed provides that “Ardee has agreed to sell and Collex has agreed to buy the Land and the parties have agreed that the transaction shall proceed by way of a call option and a put option as set out in this Deed” . The Land is defined as the land comprised in Folio Identifier 31/611506 and 32/611506, subject to deletions therefrom of certain lots in the subdivision which Ardee is entitled to sell until such time as either the put option or the call option is exercised. 8    By clause 2.1 of the Option Deed, Ardee grants to Collex or its Nominee (as defined) the option to acquire the Land upon the terms of the Option Deed, in consideration of an option fee of $100,000 (“the Call Option”). By clause 7.1, Collex grants to Ardee the option to require Collex to acquire the Land upon the terms of the Deed (“the Put Option”). By clause 9 the purchase price of the Land is $1,500,000, subject to adjustments and to deductions of the net proceeds of sale received by Ardee for any lots in the subdivision sold by it prior to exercise of the Put Option or the Call Option. 9    By clause 4.1 of the Option Deed Collex agrees to pay defined Outgoings in respect of the Land every month until the earlier of completion of the contract for sale of the Land to Collex, if the Call Option is exercised, or until that lapse of the Call Option. By clause 2.3, the option fee and the outgoings paid by Collex are to be forfeited to Ardee if neither the Put Option nor the Call Option is exercised. If either Option is exercised, the option fee is to be the deposit under the contract for sale thereupon coming into existence. 10    It is now necessary to set out the provisions of the Option Deed which will require closer consideration. They are as follows:
“3. FIRB CONSENT
3.1 This Deed is subject to the condition within 90 days of the date of this Deed that:
(a) Collex receives notice from the Australian Government to the effect that there is no objection to the acquisition of interests in the Land under the Australian Government’s foreign investment policy, such notice being unconditional or, if conditional, imposing conditions which are acceptable to Collex; or
(b) the period (including any extension of the period under an interim order) under Foreign Acquisitions and Takeovers Act (“FATA”) during which the Treasurer may make an order under section 21A of FATA prohibiting the acquisition elapses without such order being made.
3.2 Collex undertakes to promptly give notice under FATA and the parties each agree to use all reasonable diligence to procure consent to such acquisition.

3.3 If the above condition is not satisfied either party may rescind this agreement by notice in writing effective forthwith.

…

5. EXERCISE OF CALL OPTION

5.1 The Call Option may be exercised at any time after 9.00am on 1 February 1999 but before 5.00pm on 31 December 2000 by Collex giving Ardee:
(a) a duly completed and executed notice in the form of the Notice of Exercise of Call Option attached to this deed;
(b) if Collex wishes to nominate a Nominee to be the purchaser under the Contract a duly completed and executed notice in the form of the Nomination Certificate attached to this deed; and
(c) the Contract duly executed and dated by Collex or the Nominee as applicable.
6. EARLY LAPSE OF THE CALL OPTION
6.1 The Call Option lapses and shall no longer be exercisable immediately on Collex giving written notice to Ardee in which Collex irrevocably undertakes to Ardee that it will not proceed with the Landfill Project.
7. PUT OPTION
7.1 In consideration for the undertakings herein by Ardee, Collex grants to Ardee the option to require Collex to acquire the Land on the terms and conditions contained in the Contract subject to the terms of this Deed ( the Put Option ).
8. EXERCISE OF PUT OPTION
8.1 Subject to clause 8.2, the Put Option will commence at 9.00am on the first to occur of
(a) the date being 14 days after the last to occur of the following:
(i) the date of exchange of the Northern Board Contract; and
(ii) the date on which Collex obtains irrevocable authority from Waste Service to access their Transfer Stations in the Northern Waste Board region; and
(iii) the date on which Collex obtains all Approvals for the Landfill Project; and
(iv) the date on which Collex obtains a right of access to the Muswellbrook Coal Company Limited Land sufficient to operate the Landfill for a period of years and on terms reasonably satisfactory to Collex; and
(v) 28 February; and
(b) 31 January 2000
provided that if Collex gives an undertaking in the terms of clause 6.1 the Put Option shall not be exercisable.
8.2 The Put Option will expire on 14 February 2000 at 5.00pm if not exercised by that date.
8.3 The Put Option can only be exercised by Ardee serving on Collex duly completed and executed by Ardee:
(a) a notice in the form of the Notice of Exercise of Put Option attached to this Deed; and
(b) the Contract.
10. EXCHANGE OF CONTRACTS
10.1 On the exercise of either Option Ardee and Collex will promptly exchange a separate contract for the Land, in the form of the Contract.
10.2 Failure to exchange the Contract in accordance with clause 10.1 will not affect the validity of the agreement created by this Deed which will be deemed to be on the terms, covenants and conditions which would have been set out in the Contract.
11. NOMINEE
11.1 Collex by giving the Nomination Certificate to Ardee at the same time or any time before exercise of the Call Option may nominate one or more Nominees who will replace Collex under this Deed, subject to that Nominee or those Nominees accepting the terms and conditions of this Deed.
11.2 Collex hereby irrevocably and unconditionally guarantees to Ardee the performance of this Deed and the Contract by the Nominee. Collex guarantees to Ardee the payment of all money which Collex would have been obliged to pay if there had been no nomination. Collex will pay that money to Ardee on the due dates if required by Ardee to do so irrespective of whether the contract has been completed or title has been transferred to the Nominee provided that upon payment of all that money Ardee will transfer the Land to the Nominee in accordance with the Contract.
…
14. WARRANTIES
14.1 Ardee warrants that:
(a) it is the registered proprietor and beneficial owner of the Land;
(b) there are no unregistered interests held or claimed in the Land or any part of the Land at the date of this Deed, except for the contracts referred to in Annexure C;
(c) Annexures B and D are respectively true copies of the proposed plan of subdivision and the Council development consent; and
(d) the Sales Prices are realistic appraisals of the value of the Lots.
14.2 Any breach of the above warranties by Ardee, its directors, spouses of the directors or its related body corporates (within the meaning of the Corporations Law) will entitle Collex to rescind this Deed.”
11    The relevant provisions of the Nomination Deed are as follows:
“ 2. AGREEMENT TO NOMINATE
2.1 If the deed of put and call entered into between the parties on the same date as this deed (“the Deed of Put and Call”) is terminated under clause 3 of that deed, then Collex undertakes that by notice in writing to Ardee within 30 days of the date of recision [sic] it shall nominate an Australian resident in which case:
(a) Ardee and the Nominee shall forthwith enter into a Deed in the same terms as the Deed of Put and Call under which the Nominee shall be substituted for Collex;
(b) Ardee shall be entitled to retain the Call Option Fee under the Deed of Put and Call as the Call Option Fee, and
(c) Collex at the time of entering into the Deed pursuant to clause (a) must grant a guarantee to Ardee in such terms as Ardee may reasonably require securing performance by the Nominee of its obligations.”


12 In accordance with its obligation under clause 3.2 of the Option Deed, on 18 December 1998 Collex gave to the Foreign Investment Review Board notice under s.26A FATA of the proposed acquisition by it of the Land pursuant to the Option Deed, and sought confirmation that that acquisition was acceptable under the Act. By letter dated 21 January 1999, received by Collex on 25 January 1999, the Commonwealth Treasury advised as follows:
“I am able to inform you that there are no objections to this proposal in terms of the Government’s foreign investment policy on condition that the Options are only exercised if Collex Waste Management Pty Limited proceeds with the Landfill [project] .
…
Pursuant to s.25(1A) of the Foreign Acquisitions and Takeovers Act 1975, the Government considers that compliance with this condition is necessary to avoid the proposal being in conflict with the national interest. Section 25(1C) provides for substantial penalties for failure to comply with the above condition.”
13    By an instrument dated 27 January 1999 the Minister for Urban Affairs and Planning (“the Minister”) made a determination under s.91 of the Environmental Planning & Assessment Act 1979 in respect of Collex’s development application for the Landfill project. The Minister’s determination was to refuse consent due to the potential for the proposed development to introduce the grape pest, phylloxera, into the Hunter Valley region, to the detriment of the wine growing industry. 14 Collex received notice of the Minister’s refusal of the development consent on or about 1 February 1999. The notice advised that if Collex was dissatisfied with the Minister’s determination, s.97 of the Environmental Planning & Assessment Act gave a right of appeal to the Land & Environment Court exercisable within twelve months. There is no evidence that any such appeal was prosecuted and neither party has made any submission as to the effect of such right of appeal. The parties have conducted the proceedings on the basis that the Minister’s refusal of development consent on 27 January 1999 prevented Collex from proceeding further with the development of the Landfill project. 15    Under clause 5.1 of the Option Deed, 1 February 1999 was the first day upon which Collex was permitted to exercise the Call Option. On 4 February 1999 Collex made a monthly payment of Outgoings pursuant to clause 4.1 of the Option Deed. Thereafter it made another nine monthly payments of Outgoings. 16    On 20 July 1999 Ardee’s solicitor, Mr Hallett, wrote to Collex’s solicitors a letter in the following terms:
“Announcements have been made in various arenas that Collex is not to continue with its proposed development adjacent to Ardee Holdings’ land. If indeed that is the situation, there is a mechanism within the Deed that could be activated to bring the relationship between our clients to an end. That of course would permit Ardee Holdings to continue to pursue its subdivision and relieve Collex from paying funds to Ardee Holdings thereafter. We acknowledge that Ardee Holdings does not now have the right to call upon Collex to act in that manner, nevertheless we ask if you might seek instructions from your client as to its intentions, and if indeed it wishes to bring the relationship to an end.”
17    On 2 August 1999 Mr Hallett had a telephone conversation with Mr Berry, a director of Collex who was also acting as its solicitor. Mr Hallett referred to his letter of 20 July 1999 and wanted to find out what was happening. Mr Berry told him that Collex wished “to keep its options open” for at least two months as to whether to acquire the Land. In cross examination, Mr Berry said that, amongst other matters, Collex was considering advice as to the prospects of success of an appeal to the Land & Environment Court against the Minister’s refusal of development consent. Mr Berry conceded that as at July 1999 and up to February 2000, as far as he was concerned, Collex still regarded the Option Deed as on foot. Doubtless for that reason, Collex continued to pay monthly instalments of Outgoings under the Option Deed up to November 1999. 18    On 14 February 2000 Ardee served on Collex a notice exercising the Put Option and an executed copy of the contract provided for in the Option Deed. That was the last day upon which clause 8.2 of the Option Deed permitted exercise of the Put Option. 19    On 8 March 2000 Ardee filed its Summons for specific performance of the Option Deed. On 1 May 2000 Collex served a notice rescinding the Deed for alleged breach of the warranty contained in clause 14.1(d). Relevant provisions of FATA 20 Collex’s primary submission is that the Option Deed was discharged by frustration because of supervening illegality arising under the provisions of FATA. 21 There is no issue between the parties that Collex is and was at all material times a “foreign person” within the definition of that term in s.5(1) FATA and that an acquisition by Collex of the Land pursuant to exercise of either the Put Option or the Call Option under the Option Deed was an acquisition of “Australian urban land” , as defined, to which s.21A FATA applied. 22 So far as is presently relevant, s.21A FATA provides:

“ (1) …
(2) Where the Treasurer is satisfied that:
(a) a foreign person proposes to acquire an interest in Australian urban land; and
(b) the proposed acquisition would be contrary to the national interest;
the Treasurer may make an order prohibiting the proposed acquisition.
(3) Where the Treasurer makes such an order in relation to an interest in Australian urban land, he or she may also make an order in relation to:
(a) a specified foreign person; or
(b) a specified foreign person and specified associates, or the persons included in a specified class of associates, of that person;
directing that that person shall not, or none of those persons shall, whether alone or together with any other or others of them acquire:
(c) any interest in the land or other thing concerned; or

(d) any such interest except to a specified extent.

(4) Where a foreign person has acquired an interest in Australian urban land and the Treasurer is satisfied that the acquisition is contrary to the national interest, the Treasurer may make an order directing the foreign person to dispose of that interest within a specified period to any person or persons approved in writing by the Treasurer.
…
(7) The Treasurer shall not refuse to approve a person for the purposes of subsection (4) unless the Treasurer is satisfied that the person is a foreign person and that it would be contrary to the national interest for that person to acquire the interest concerned.”
23 So far as is presently relevant, s.12A(1)(a) defines an “interest in Australian urban land” as “a legal or equitable interest in the land” . The section continues:
“(2) For the purposes of this Act, an interest is an interest in Australian urban land even if it is the only interest that exists in the land or other thing concerned.
(3) For the purposes of this Act, a person acquires an interest in Australian urban land even if:
(a) the person acquires the interest jointly with another person or persons;
(b) the person has previously acquired an interest in Australian urban land; or
(c) the interest is an increase in the amount of an existing interest of the person in Australian urban land.
(4) For the purposes of this Act, where a person:
(a) enters into an agreement; or
(b) acquires an option;
to acquire an interest in Australian urban land, the person shall be taken to have acquired that interest in Australian urban land.”


24 Under s.26A(2) FATA, a foreign person is required to give notice to the Treasurer prior to entering into an agreement to acquire an interest in Australian urban land. Failure to give such notice is an offence punishable on conviction by a fine not exceeding $250,000, if the offender is a corporation. 25 Section 26A(3) provides:
“(3) Where:
(a) a person enters into an agreement by virtue of which he or she acquires an interest in Australian urban land; and
(b) the provisions of the agreement that relate to the acquisition of the interest do not become binding until the fulfilment of a condition or conditions set out in the agreement;
the person shall not be taken, for the purposes of subsection (2), to have entered into the agreement until the time when those provisions become binding.”


26    Section 25 applies where the Treasurer receives a notice of proposed acquisition under s.26A. So far as is presently relevant, s.25 provides:
“(1) …
(1A) Where the Treasurer is empowered to make an order under subsection … 21A(2) in relation to the acquisition, agreement, arrangement, issue or alteration specified in the notice, the Treasurer may, instead of making such an order, decide that the Commonwealth Government has no objection to the proposal specified in the notice, provided that the person or corporation complies with conditions that the Treasurer, when making the decision, considers necessary in order that the proposal, if carried out, will not be contrary to the national interest.
(1B) Where the Treasurer makes a decision under subsection (1A), the person or corporation shall be given advice in writing of the decision, being advice that includes a statement of the conditions to be complied with, before the end of 10 days after the day on which the decision is made.
(1C) Where:
(a) the person or corporation is given advice in writing of the decision within the period of 10 days; and
(b) the person or corporation carries out the proposal;
the following provisions have effect:
(c) if the person or corporation does not comply with the conditions – the person or corporation is guilty of an offence punishable, on conviction by:
(i) in the case of a natural person – a fine not exceeding $50,000 or imprisonment for a period not exceeding 2 years, or both; or
(ii) in the case of a corporation – a fine not exceeding $250,000;
(d) the Treasurer may only make an order under subsection 18(4), 19(4), 20(3), 21(3) or 21A(4) in relation to the acquisition, agreement, arrangement, issue or alteration specified in the notice if:
(i) the person or corporation is convicted of an offence against paragraph (c) of this subsection in relation to the conditions; or
(ii) an order is made under section 19B of the Crimes Act 1914 in relation to the person or corporation in respect of an offence against paragraph (c) of this subsection in relation to the conditions.”


27 Section 31 provides:

“ Offences by officers of corporations

(1) Where an offence against a provision of this Act is committed by a corporation, an officer of the corporation who is in default is guilty of an offence against this section and is punishable on conviction by the penalty provided in that provision.

(2) A reference in subsection (1) to an officer who is in default, in relation to an offence committed by a corporation, includes a reference to an officer who authorizes or permits the commission of the offence."


28    Section 38 provides:
“ Validity of acts done in contravention of Act
An act is not invalidated by the fact that it constitutes an offence against this Act."


29 It will be seen that s.26A(3) FATA permits a foreign person, such as Collex, to enter into an agreement to acquire an interest in Australian urban land without prior notification to the Treasurer if the terms of the agreement relating to the acquisition do not take effect until the fulfilment of a condition or conditions. One of those conditions would, obviously, be the obtaining of the Treasurer’s advice either that there is no objection to the proposal or that, in accordance with s.25(1A), there is no objection provided that the foreign person complies with certain conditions. 30 In the present case, the entry by Collex into the Option Deed, whereunder it had an option to acquire the whole of Ardee’s legal and equitable interest in the Land, would have resulted in the immediate acquisition of an interest for the purposes of FATA by virtue of s.12A(4)(b) were it not for s.26A(3) and clauses 3.1 and 3.3 of the Option Deed. However, the “deeming provision” of s.26A(3) has effect only for the purposes of ss.(2); it has no operation on the effect of the agreement inter partes. In the present case, clause 3.1 is a condition subsequent, not a condition precedent, to the taking effect of the Option Deed. Clause 3.3 contemplates that the Deed continues to bind the parties pending fulfilment of the condition in clause 3.1 and if that condition is not fulfilled then either party will be entitled, at its election, to rescind.

Whether an event of frustration occurred

31 Mr McKeand, who appears for Collex, submits that on 27 January 1999, when the Minister for Urban Affairs and Planning refused development consent for the Landfill project, the Option Deed was brought to an end by operation of law, regardless of what the parties themselves may then or thereafter have believed or intended. This is so, he says, because on that day further performance of the Option Deed by either party, whether by exercising the Put Option or the Call Option, must necessarily have resulted in Collex carrying out the “proposal” for acquisition of an interest in the Land referred to in its s.26A Notice when it was impossible for it lawfully to comply with the condition imposed by the Treasurer under s.25(1A) FATA. If Collex acquired any interest in the Land by exercise of either Option when it could not proceed with construction of the Landfill project, Collex would commit an offence under s.25(1C) FATA. Performance by Collex of the Option Deed, or of the contract for sale arising thereunder, resulting in the inevitable commission of an offence under FATA would be a performance radically different from that which it undertook under the Option Deed, so that the Deed is discharged by frustration. Mr McKeand relies upon the principle as stated by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, at 729:

“[F]rustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do."
32    That principle has been adopted in Australia: Codelfa Construction Pty Ltd v. State Rail Authority of NSW (1982) 149 CLR 337, at 357 per Mason J., and 376ff per Aickin J. (with both of whom Stephen and Wilson JJ agreed) and per Brennan J. at 407-409.
33    Mr McDougall QC, who appears with Mr J. Robson for Ardee, accepts that the test for frustration is as stated by Lord Radcliffe in Davis (supra). He says, however, that if the Option Deed on its true construction applies to the fact situation in which the parties now find themselves – as, he submits, the Deed does – then there is no room for the doctrine of frustration because the parties themselves have provided for what is to happen in these circumstances. He relies in this regard on the observations of Lord Reid in Davis (supra) at 720-721 and upon what was said by Lord Denning MR in The Eugenia [1964] 2 QB 226, at 239:
“To see if the doctrine applies, you have first to construe the contract and see whether the parties have themselves provided for the situation that has arisen. If they have provided for it, the contract must govern. There is no frustration. If they have not provided for it, then you have to compare the new situation with the situation for which they did provide. Then you must see how different it is. The fact that it has become more onerous or more expensive for one party than he thought is not sufficient to bring about a frustration. It must be more than merely more onerous or more expensive. It must be positively unjust to hold the parties bound. It is often difficult to draw the line. But it must be done."
34 Mr McDougall submits that the Option Deed expressly provides for the situation which has arisen, in the following way. First, he says, it was obvious to both parties that the acquisition of the Land could not lawfully proceed without the approval of Treasury under the FATA and that such approval might be subject to conditions which were unacceptable to Collex. This is the genesis of the provisions of Clause 3.1 and, more particularly, the right to rescind the Option Deed afforded to both parties by Clause 3.3. On 25 January 1999 Collex received notice of the condition attached by Treasury to the acquisition of the Land; it could immediately have rescinded the Option Deed on the basis that that condition was unacceptable. It did not rescind under Clause 3.3 then or at any time thereafter. Likewise, when Collex received notice that the Minister had refused development consent to the construction of the Landfill project it could have rescinded on the basis that the Treasurer’s condition was now unacceptable. Again, no such right of rescission under Clause 3.3 was ever exercised. Clause 3.3 of the Deed expressly provided an ‘escape route’ for Collex in the events which happened; Collex chose not to take that escape route. It follows, says Mr McDougall, that Collex must now face the contractual consequences of that choice. The Option Deed is not terminated by frustration but Collex cannot perform it without exposing itself to penalties under s.25(1C)(c) FATA. If Collex now chooses not to perform the Option Deed in order not to incur those penalties, it must pay damages to the Plaintiff for breach of contract.
35    Mr McKeand’s answer to this submission is simple. He says that a right of rescission never arose under Clause 3.3 of the Option Deed because the condition imposed by the Treasurer was at all times acceptable to Collex. Collex did not wish to acquire the Land unless development of the Landfill project was to proceed. The real purpose of the Deed, as Mr McDougall himself put it in opening, was that Collex, having perceived in Ardee a potentially dangerous source of opposition to the Landfill project, bought Ardee’s silence by agreeing to acquire the Land if the project went ahead. Because the condition attached to the Treasurer’s approval was acceptable to Collex so that Clause 3.1(a) was satisfied, says Mr McKeand, neither party ever had a right to rescind under Clause 3.3.
36    In my opinion, that submission is correct. It is clear from a letter dated 23 September 1998 from Mr Berry to Mr Hallett, in which Mr Berry on behalf of Collex put the outline of the suggested Option Deed to Mr Hallett, that Collex’s purpose in offering to acquire the Land was to “give your clients some profit from the subdivision if the landfill project goes ahead and otherwise to compensate them in the meantime for any delay” . Mr Berry proposed that the option which Collex would have to acquire the Land would lapse “if the proposed landfill becomes no longer possible or if the Landfill project is cancelled by Collex” .
37    While the terms of the Collex proposal underwent a number of changes before taking their final form in the Option Deed as executed, I am satisfied that Collex’s predominant intention at all times was that it should acquire the Land only if the Landfill project proceeded. Mr Berry gave this evidence in cross examination:

“ Q: As at 16 November 1998 you believed and understood that if Collex succeeded in obtaining approval for its landfill project and carrying out that project, it was likely, through the exercise of one or other of the options, that Collex would also become the owner of Ardee’s land?

A: Yes, unless we on-sold it.

Q: Do you say that you understood they had two positions: one being itself to acquire the land and the other to on-sell?

A: That’s a possibility.

Q: Did you also understand that Collex might, through the exercise of on or other of the options, end up as the owner of Ardee’s land even if the landfill project did not proceed?

A: Could I say that I think I should have appreciated it at that time.

Q: You think you should have?

A: Yes.

Q: Are you saying you didn’t actually appreciate it?

A: I think I did appreciate it at that time.

Q: You were one of the drafters of the deed?

A: Yes, I think I appreciated it.

Q: As at 16 November you were conversant with its provisions?

A: Yes.

Q: If Collex became the owner of the land without the landfill project, presumably it would seek to turn to account for the land in some way, is that correct?

A: I don’t think we really thought about it.

Q: In any event, if the landfill project did proceed, then it was your understanding that the deed or the silence bought by reason of it had done its work?

A: Sorry?

Q: If the landfill project did proceed, then the deed or the silence it bought had helped to do its work?

A: Yes.”


38    There is no evidence that Collex had developed any plan for the utilisation of the Land as a separate and independent commercial venture by the time of Treasury’s notification of conditional approval to the acquisition. I accept that at all relevant times Collex did not wish to acquire the Land unless the Landfill project proceeded and that it did not in fact consider, and could not properly have asserted, that the condition attached by Treasury to the acquisition of the Land was unacceptable for the purposes of Clause 3.1(a) and 3.3 of the Option Deed. Accordingly, it was never entitled to rescind under Clause 3.3.

39    Next, Mr McDougall submits that Clause 6.1, coupled with Clause 8.1, provides Collex with “an escape route” which could have been utilised in the events which happened. Mr McDougall says that upon receiving notice of the Minister’s refusal of development consent for the Landfill project Collex could have given notice to Ardee under Clause 6.1 irrevocably undertaking that it would not proceed with the project, whereupon neither the Call Option nor the Put Option would be exercisable. Collex never gave a notice under Clause 6.1.

40    Mr McDougall’s submission continued:
“On its proper construction the Deed extended to the events upon which Collex now relies as amounting to frustration, and enabled Collex to escape those events or their consequences. Its present position is a result not of the failure of the Option Deed to cover the situation but of its own failure to exercise its rights under the Option Deed and the related contemporaneous Nomination Deed. By analogy with the cases on self induced frustration, it is not entitled to relief." Written submissions, para.19.


41 I cannot accept this submission. It does not address the critical question, namely, did the circumstance brought about by the Treasurer’s conditional approval coupled with the Minister’s refusal of development consent require performance of an obligation on the part of Collex, upon exercise of the Put Option, to acquire the Land in a manner radically different from that undertaken by it under the Option Deed? Put conversely, did Collex, on the true construction of the Deed, undertake to acquire the Land upon exercise of the Put Option if, in so doing, it committed an offence under s.25(1C)(c) FATA and rendered its officers liable to conviction under s.31 FATA?

42 Certainly, there is no express term in the Option Deed which could lead to this result. Clause 6.1 does not expressly direct itself to what is to happen if performance by Collex of an obligation to acquire the Land places it in breach of the provisions of FATA. The reasons for which Clause 6.1 may be invoked by Collex are not defined. An undertaking given by Collex pursuant to that clause not to proceed with the Landfill project might be motivated for any number of reasons, for example, a perception that the project is not commercially viable, financial inability on the part of Collex to complete the development, a better site for the development becoming available, and so on. Performance of its obligations under the Deed in such a manner as to place Collex in breach of the provisions of FATA is but one of the possible reasons which could prompt reliance by Collex on Clause 6.1.

43 On the other hand, Clauses 3.1 and 3.3 evidence a contractual intention that Collex should not be compelled to acquire the Land if in doing so it would commit a breach of FATA. The parties foresaw such a possibility and provided expressly for it in Clause 3.3. But, as matters transpired, Collex was not able to avail itself of a right of rescission under Clause 3.3, for the reasons above discussed.

44    The fact that parties to a contract actually foresee the possibility of a particular event of frustration and make some contractual provision for it does not necessarily mean that the contract cannot be frustrated if the foreseen event occurs: see e.g. The Eugenia (supra) at 239; Beaton v McDivitt (1987) 13 NSWLR 162, at 176-177; Bank Line Ltd v Arthur Capel & Co [1919] AC 435, at 441ff. The question is, has the contract provided for what is to happen in the event which has actually occurred? Clauses 3.1 and 3.3 provide for what would happen if the Treasurer’s approval to Collex’s proposed acquisition of the Land was refused or was granted upon unacceptable conditions. Neither Clause 3 nor any other clause in the Option Deed expressly deals with what is to happen in the event which actually did occur, viz where the Treasurer approves the proposal upon a condition which is acceptable to Collex but which impossible lawfully for Collex to fulfil.

45 Do any other terms of the Option Deed, upon their true construction, evince a contractual intention that Collex acquire the Land upon exercise of the Put Option even though such acquisition will place it in breach of FATA? A contractual intention on the part of Collex to assume the risk of incurring serious penal consequences for itself and its responsible officers should not lightly be found; it would have to emerge with cogent clarity from the Option Deed as a whole. In my opinion, no such intention is to be found in the Deed.

46 Mr McDougall’s next point is that, in any event, acquisition of the Land by Collex pursuant to Ardee’s exercise of the Put Option would involve no breach of FATA and no illegality. That is so, says Mr McDougall, for two reasons: first, because Collex had already acquired an interest in fee simple in the Land for the purposes of FATA at the time when it received advice of the Treasurer’s conditional approval and decided that the condition was acceptable for the purposes of Clause 3.1(a) of the Deed; second, because the exercise by Ardee of the Put Option when Collex was unable to comply lawfully with the Treasurer’s condition was not prohibited either by the terms of Treasurer’s condition or by FATA.

47 For his first submission, Mr McDougall relies on the combined effect of s.12A(4) and s.26A(3) FATA. He says, correctly, that those subsections produce the result in the present case that, for the purposes of FATA, the Option Deed is deemed to be entered into and the Call Option thereunder is deemed to be acquired by Collex when the Option Deed became binding under Clause 3.1, i.e., on 25 January 1999 when Collex received notice of Treasury’s approval upon a condition which was acceptable to it. By virtue of s.12A(4), the acquisition of an option to acquire an interest in land – in the present case, the fee simple in the Land – is itself deemed to be an acquisition of “that interest”, that is, the fee simple in the Land. So, says Mr McDougall, for the purposes of FATA, Collex is deemed to have acquired an estate in fee simple in the Land as at 25 January 1999. For Collex to complete the purchase from Ardee so that it acquires the fee simple in the Land in law as well as for the purposes of FATA involves no breach of FATA either by Collex or by Ardee.

48 While Mr McDougall is correct in his submission as to when Collex is deemed to have acquired an interest in fee simple in the Land for the purposes of the Act, that does not lead to the result that Collex would commit no further breach of FATA by performing its obligation to acquire the fee simple in the Land consequent upon an exercise of the Put Option. Breach of s.25(1C)(c) occurs when Collex “carries out the proposal” – i.e., the proposal to acquire the Land notified in its s.26A notice to the Treasurer – and then does not comply with the Treasurer’s condition that it construct the Landfill project. For Collex to complete the purchase of the Land when it was impossible for it lawfully to comply with the Treasurer’s condition would be immediately to place itself in breach of s.25(1C)(c) FATA, rendering Collex and its responsible officers liable to conviction for serious offences.

49    These considerations substantially answer Mr McDougall’s second submission of “no illegality”. He says that “the [Treasurer’s] condition, on its proper construction, read in conjunction with s.25(1C)(c) does not make it illegal for Collex to complete the transaction where someone who is a stranger to [the Treasurer’s condition] exercises a separate right to bring about a relationship of vendor and purchaser” : T144.20.

50    This submission seems to found upon a construction of the Treasurer’s letter of 21 January 1999 which attaches the condition only to exercise of the Call Option by Collex and not to exercise of the Put Option by Ardee: T144.55-145.5. I cannot accept this construction. The words of the Treasurer’s letter are (see paragraph 12) “on condition that the Options are only exercised …” . Treasury had a copy of the Option Deed; it clearly recognised that Collex could acquire the Land by exercise either of the Call Option or by exercise of the Put Option. The condition attached to both means by which Collex could acquire the Land. The object of the condition was to prevent Collex, as a foreign person, from acquiring an interest in the Land, by whatever mechanism under the Option Deed, without proceeding with the Landfill project.

51 I cannot accept Mr McDougall’s submission that performance by Collex of its obligation to acquire the Land upon exercise by Ardee of the Put Option, in the events which happened, would involve it in no breach of FATA.

52 In my opinion, the manifest purpose of the Option Deed, so far as it concerned an acquisition by Collex itself, was that Collex acquire the fee simple in the Land, whether upon exercise of the Call Option or upon exercise of the Put Option, in such a manner that it and its responsible officers would not be in breach of FATA and thereby liable to the substantial penalties provided by the Act. That purpose could not be effected as from 27 January 1999, when the Minister refused development consent for the Landfill project. From that point in time, performance by Collex of any obligation to acquire the Land, howsoever arising under the Option Deed, became radically different from that contractually undertaken by it.

53    Accordingly, to the extent that Deed might entitle or require Collex itself to acquire the Land, the Deed was frustrated and was discharged “forthwith, without more and automatically” : Hirgi Mulji v Cheong Yue SS Co [1926] AC 497 at 505. Whether the parties themselves believed otherwise or even acted upon the basis that the Deed was still on foot in every respect is irrelevant. Discharge of a contract by frustration does not depend upon the choice or election of either party. It depends upon the effect of what has happened on the possibility of continuing to perform the contract: Denny Mott & Dickson Ltd v James B. Fraser & Co Ltd [1944] AC 265 at 274 per Lord Wright; Treitel “Frustration & Force Majeure” (1994) para.15-002; BP Exploration (Libya) Co Ltd v Hunt (No 2) [1979] 1 WLR 783, at 809; [1983] 2 AC 352; Penrith District Rugby League Football Club Ltd v Fittler (unrep. SCNSW 8 February 1996, p.56, per Santow J). Mr McDougall accepts that this is the position in law: T151.15.

Whether Deed wholly or partially discharged

54 In the foregoing discussion I have been careful to draw a distinction between frustration of the Option Deed as a whole and frustration of those obligations arising under the Deed whereby Collex may be required to purchase the Land. This is because the Option Deed confers rights and obligations on the parties, some of which may be performed without giving rise to any breach of FATA.

55    It is well established that an event preventing or prohibiting performance of some but not all obligations under a contract does not necessarily bring about a frustration of the whole contract. Whether the contract is discharged by frustration wholly or partially depends upon whether what has happened defeats the main purpose of the contract. If performance of that part of the contractual obligations which remains performable makes as much commercial sense as performance of the whole of the obligations then performance of those obligations which are prevented is severable and the parties are only excused pro tanto from performance of their obligations under the contract: see Treitel, op cit, paras 8-022 to 8-024, 8-034. In the present case, has there been a frustration of the whole of the Option Deed or only of a severable part?

56    For the reasons which I have given, as from 27 January 1999 Collex itself could not lawfully exercise the Call Option in its own favour and then proceed to complete the purchase of the Land in its own name. However, under Clause 5.1 of the Option Deed it was entitled at any time up to 5.00pm on 31 December 2000 to exercise the Call Option in favour of a nominee by delivering to Ardee a notice of exercise, a Nomination Certificate executed by the nominee and itself, and a contract for the purchase of the Land executed by the nominee. By Clause 11 of the Option Deed and by the terms of the nomination certificate, the nominee is to replace Collex as a party to the Option Deed and as the purchaser under the contract for sale arising upon exercise of the Call Option. Collex is required to guarantee to Ardee performance by the nominee of its obligations under Option Deed and under the contract for sale of the Land.

57 Because of the requirement that Collex guarantee performance by the nominee, it might be expected that, ordinarily, Collex would exercise its right of nomination under Clause 5 in favour of a related company. It might have been in Collex’s interest that the Land be held, not by itself, but by some other related company for tax or other financial reasons. Such a related company would, doubtless, itself be a “foreign person” subject to FATA, by virtue of the extended definitions in s.5(1), s.6, s.9 and s.10 FATA.

58    But there is no requirement in the Option Deed that Collex’s nominee under Clause 5.1 be a related company; the nominee can be any person or company so long as Collex gives the required guarantee of performance. Collex’s right of nomination under Clause 5.1 was in itself a valuable right. As at the time of execution of the Option Deed it was foreseeable that if the Landfill project were abandoned, for whatever reason, and it became public knowledge that Ardee’s subdivision could no longer be adversely affected thereby, the value of the Land could increase substantially. It was possible that the subdivision could be sold at prices which might exceed the price to be paid to Ardee upon exercise of the Call Option. The right to acquire the Land upon exercise of the Call Option at the price stipulated in the Option Deed was a right which could be on-sold by Collex to an Australian resident developer, at a profit to Collex, by Collex exercising its right of nomination under Clause 5.1 of the Option Deed in favour of the developer. This must have been recognised by Collex at the time it entered into the Option Deed, as emerges from the evidence of Mr Berry which I have set out in paragraph 37.

59    Collex was entitled to exercise its right of nomination under Clause 5.1 until expiry of the Call Option on 31 December 2000. Until that time, Ardee was not able to deal with the Land free of Collex’s nomination rights under Clause 5.1 other than by selling individual lots in the subdivision pursuant to and in accordance with the provisions of Clauses 12 and 13 of the Option Deed. Ardee was also obliged to comply with the restrictions and obligations imposed by Clause 15.1. None of those obligations on the part of Ardee was incapable of performance by reason that Collex became unable lawfully to acquire the Land in its own right.

60    The essential question is whether Collex’s inability to acquire the Land for itself defeated the main purpose of the Option Deed. Put another way, if Collex cannot be obliged to acquire the Land for itself, does holding Ardee to an obligation to sell the Land to Collex’s nominee under Clause 5.1 make as much commercial sense as if the whole of the Option Deed remained performable? That question must be determined by reference to the Deed construed in the matrix of the circumstances which brought it into existence.

61    As far as Collex was concerned, it never wanted or needed the Land for the purpose of constructing on it the Landfill project or for any other purpose associated with its operations. As Mr McDougall put it, the Option Deed was entered into in order to “buy the silence” of one of the most vociferous objectors to the Landfill project, Ardee through its Managing Director, Mr Yore. This is evident not only from the terms of Collex’s letter to Ardee of 23 September 1998 (para. 36) but also from the “covenants for silence” embodied in Clause 15.1(c), (d), (e) and (f) of the Deed.

62    As far as Ardee was concerned, it wanted to be guaranteed a certain profit from the realisation of its subdivision; it wanted to be compensated for the prejudice to its ability to sell the subdivision profitably which had been occasioned by the prospect that the Landfill project would proceed; it wanted to be compensated for the holding costs which it would incur while the fate of the Landfill project was decided and while the Call Option remained open. This is evident from Clause 9 of the Deed, whereunder the purchase price to be paid for the Land by Collex or its nominee is a fixed sum less the proceeds of sale of lots in the subdivision achieved by Ardee in the meantime. It is clear that under the Deed Ardee was to be guaranteed a certain sum from the sale of its subdivision whether the sales were made to third parties or to Collex or its nominee, or by means of a combination of sales to both. That the purpose of the Deed was to compensate Ardee for prejudice and delay while the fate of the Landfill project was decided is evident from the provisions of Clauses 4.1, 2.1 and 2.3 of the Deed, which provide that the option fee of $100,000 and all outgoings in respect of the Land paid by Collex until lapse of the Call Option are to be forfeited to Ardee if neither the Put Option nor the Call Option is exercised. It is evident from Clause 2.1 of the Deed, which grants the Call Option to “Collex or its Nominee”, that it is of no concern to Ardee whether the profits and other compensation secured to it under the Deed are paid by Collex itself or by its nominee, as long as the nominee’s performance is guaranteed.

63    In my opinion, the inability of Collex lawfully to acquire the Land for itself did not defeat the main purpose of the Option Deed so that the whole of the Deed is discharged by frustration. It is highly material that Collex itself did not regard the Deed as at an end from the time it received notice of the Minister’s refusal of consent. It decided to ‘keep its options open’ by continuing to pay the Outgoings until November 1999. One of those “options” was to exercise the Call Option in favour of a nominee under Clause 5.1. From the viewpoint of both parties to the Option Deed it would make just as much commercial sense for Ardee to sell the Land to that nominee, upon the terms and conditions of the Option Deed, as to sell the Land to Collex.

64    I am of the view that the only provisions of the Option Deed which have been frustrated are those whereunder Collex can be obliged to acquire the Land for itself. Those provisions are severable from rest of the Deed. As from 27 January 1999 Collex was excused pro tanto from performance of any obligation to acquire the Land for itself. As events transpired, it was excused from performance of its obligations upon exercise by Ardee of the Put Option. The other rights and obligations of the parties under the Option Deed remained on foot.

Recovery of payments by Collex under the Deed

65    Collex claims repayment under the Frustrated Contracts Act 1978 of the option fee of $100,000 paid to Ardee in consideration of the grant of the Call Option under Clause 2.1 and of the Outgoings (as defined) paid under Clause 4.1 of the Deed. The Outgoings were payable until exercise or lapse of the Call Option.

66 Section 6(3) of the Frustrated Contracts Act provides:

“Where a contract is severable into parts and one or more but not all parts are frustrated, this Act does not apply to the part or parts not frustrated.”


67 As I have held, the Option Deed was not frustrated as to those parts which could be performed without Collex itself acquiring the Land. The effect of s.6(3) is to apply the provisions of the Act to the frustrated part of the Option Deed, that is, those covenants relating to the obligation and entitlement of Collex to acquire the Land for itself. In the events which happened, those obligations are principally those which are concerned with and arise from exercise of the Put Option. While Collex could not exercise the Call Option to acquire the Land for itself, the evidence reveals that it never really intended or wished to do so.

68 Collex relies upon s.12 of the Frustrated Contracts Act . That section provides:
“Where a contract is frustrated and a party to the contract has paid money to another person (whether or not a party to the contract) as, or as part of, an agreed return for performance of the contract by another party (whether or not that other party is the person to whom the payment was made and whether or not there has been any such performance) that other party shall pay the same amount of money to the party who made the payment.”


69 By virtue of s.6(3), for “contract” where appearing in s.12 I must read “frustrated part of the contract”. So read, s.12 does not provide a neat formula for adjusting the parties’ rights in the present case. Collex’s right to acquire the Land for itself upon exercise of the Call Option has been frustrated; so also has exercise of the Put Option by Ardee. It is easy enough to identify what Collex has paid to Ardee for the Call Option: $100,000 for the option fee and Outgoings under Clause 4.1. But Collex has been deprived of only part of the benefit of the Call Option by frustration and that was a benefit which it did not really need or want. Collex was not deprived of the potentially more valuable part of the benefit of the Call Option, namely, the ability under Clause 5.1 to on-sell the Land to a third party nominee at a profit. As I have noted, Collex chose to keep paying the Outgoings and to keep the Deed on foot; it must have seen continuing value in doing so. As far as frustration of the exercise of the Put Option is concerned, it is difficult to determine the value of the consideration, if any, which Collex can be said to have given for that option. That option was really for the benefit of Ardee; Collex had to agree to a Put Option as part of the “price of silence” exacted by the Option Deed as a whole.

70 Mr McKeand recognised the difficulties of applying s.12 in the present case. His alternative submission was that s.15(1) of the Act applied. That section provides:

“Where the Court is satisfied that the terms of a frustrated contract or the events which have occurred are such that, in respect of the contract –

(a) Divisions 1 and 2 are manifestly inadequate or inappropriate;

(b) application of Divisions 1 and 2 would cause manifest injustice; or

(c) application of Divisions 1 and 2 would be excessively difficult or expensive,

the Court may, by order, exclude the contract from the operation of Divisions 1 and 2 and, subject to subsection (8), may, by order, substitute such adjustments in money or otherwise as it considers proper.”


71 For the reasons which I have discussed, I am of the view that s.12 (which is in Division 2 of the Act) is manifestly inadequate or inappropriate to adjust the rights of the parties and that, if any order under the Act is to be made, it should be made under s.15(1).

72 Approaching the matter within the discretion afforded by s.15(1), I do not think that Ardee should be ordered to repay any amount which it has received from Collex under the Option Deed. Collex has received substantial benefits from the Deed. Under the Deed, Collex achieved its purpose in buying the silence of Ardee up until Collex finally abandoned the possibility of appealing against the Minister’s decision and proceeding with the Landfill project. Collex retained the benefit of its nomination rights under Clause 5.1 of the Option Deed despite the Minister’s refusal of development consent. The benefit of acquiring the Land for itself, which Collex had lost by the event of frustration, was a benefit it did not really want or need.

73    On the other hand, Ardee’s endeavours to sell its subdivision have been seriously impeded, first by the much-publicised proposal of Collex for the Landfill project, for which the Deed was designed to provide compensation, and, second, by Collex’s delay after 27 January 1999 in deciding what it would do under the Option Deed. I bear in mind in this regard the provisions of Clause 2.3 to the effect that if neither Option is exercised the option fee and Outgoings paid by Collex are to be forfeited to Ardee. Collex must have been fully aware of these provisions when it continued to pay Outgoings after 27 January 1999.

74    For these reasons, I refuse Collex’s claim for relief under the Frustrated Contracts Act .

Rescission

75    Ardee fails in its claim for specific performance of the Option Deed or of the contract said to arise upon exercise of the Put Option on the ground of frustration. For the same reason, it fails in its claim for damages. Accordingly, it is not necessary for me to determine Collex’s alternative defence, namely that by noticed dated 1 May 2000 it rescinded the Option Deed for breach of the warranty in Clause 14.1(d). However, in case I am wrong in my finding of frustration it is appropriate to set out briefly my findings and conclusions on Collex’s defence of rescission.

76    Both parties approached the construction of the warranty in Clause 14.1(d) of the Option Deed as if it were simply a warranty as to what were in fact the current market values of the lots in the subdivision. Both parties led expert valuation evidence as to the current market values of the lots as at 16 November 1998. Collex sought to assert that the true current market values of the lots were so remote from the Sale Prices that the Sale Prices were not realistic. Ardee sought to assert the contrary.

77    I do not think that whether Ardee has breached the warranty in Clause 14.1(d) necessarily turns upon a comparison between the Sale Prices and the “true” current market values of the lots. Such a construction overlooks the significance of the words “realistic appraisals of the values”. One immediately asks: appraisals by whom? In my view, on the true construction of Clause 14.1(d) what Ardee warrants is that the Sale Prices are realistic appraisals made by it or on its behalf of the values of the lots. “Values” in this clause means “prices at which the lots can be sold”. In other words, Ardee warrants that the stated Sale Prices are the result of appraisals made realistically, that is, made with actual and genuine regard to the known state of the market for the lots.

78    Whether or not Ardee made or obtained realistic appraisals as at the date of the Deed may be ascertained either by direct evidence as to what it did or did not do at that time, or else may be found as a matter of inference by comparing the Sale Prices with reliable valuations of the current market values of the lots as at the date of the Deed. Clearly, if there was a wide discrepancy between the valuations and the Sale Prices it would be open to infer that Ardee had not made or obtained realistic appraisals of the prices of the lots in accordance with its warranty.

79    In the present case, I do not need to draw inferences from a comparison between the alleged current market values of the lots and the Sale Prices; there is direct evidence from Ardee which shows that the Sale Prices did not truly reflect its own realistic appraisals of the prices at which the lots could be sold as at 16 November 1998.

80    The Sale Prices were determined by Mr Yore, the controlling director of Ardee, in consultation with a real estate agent who was responsible for selling the subdivision. That determination was made well before July 1998, prior to the first sales in the subdivision and prior to widespread publicity about the proposed Landfill project. The price list, so determined, became Annexure C to the Option Deed, without modification, in November 1998 when the adverse publicity about the Landfill project was at its height. There had been no sales of lots in the subdivision since July 1998.

81    Clause 13.1(a) of the Option Deed provides that Ardee may sell lots in the subdivision at the Sale Prices provided that, at its discretion, it may agree to pay a refund of not more than $5,000 per lot if the Landfill project is developed. It will be seen that this clause in effect allows Ardee to sell only at the Sale Prices stated in Annexure “C”, subject to a reduction of no more than $5,000 per lot. A “realistic appraisal” by Ardee of the values of the lots for the purposes of Clause 14.1(d) could, therefore, be expected to be the stated Sale Prices less a figure not exceeding $5,000.

82    Mr Yore gave this evidence in cross examination (T31ff):

“Q: You became alive to the possibility that buyers should be given a $5,000 discount in the event that the Landfill project went ahead, didn’t you?

A: Yes.

Q: That was after the Council’s approval in September?

A: Yes.

Q: On your instructions, a proposal to that effect was incorporated in the Deed of Options?

A: I am not entirely sure it was from my instruction. What source it was actually suggested from. I can’t say it was my idea.

…

Q: When you saw that idea and proposal to provide a $5,000 discount to purchasers in the Deed, you thought that as being in furtherance of Ardee’s interest?

A: Yes.

Q: That was the extent to which you thought it might be appropriate to discount the list prices that Ardee was offering the land at?

A: No.

Q: You didn’t think this was an appropriate figure?

A: No.

Q: Just pausing there, you were aware of the fact that it would seem in order to attract the future buyers to offer them a $5,000 discount in the event that the Landfill went ahead?

A: More appropriate than offering them nothing, but not as appropriate as offering them $10,000.

Q: You thought $10,000 was more appropriate?

A: Or 20.

Q: You thought $10,000 was more appropriate than $5,000?

A: Well, certainly in the interests of trying to further the subdivision, yes.

Q: In order to continue to attract sales of the lots of the subdivision, your option was, in November 1998, before entry into the Deed, that it was appropriate for buyers to have approximately $10,000 discount on the listed prices?

A: Well, to say that is not entirely what I was meaning by that previous statement.

…

Q: Your view was that $10,000 was appropriate in order to attract future buyers?

A: Yes.

Q: Mr Yore, the fact that you thought a $10,000 discount would be appropriate in the event that the Landfill project went ahead was, in your view, across the board for all lots, correct?

A: Yes.

Q: That was on the basis that you thought that the Landfill project would have significant adverse effect on the enjoyment of the land?

A: Among other things.

Q: But it included that, didn’t it?

A: It included that.

Q: You thought that the Landfill project would have a significant adverse effect on the value of the land?

A: Only in the short term.

Q: As at 16 November 1998, you though the Landfill project would have a significant adverse effect on the value of the land at that time?

A: Not necessarily on the value of the land, but on the sales of the blocks.

Q: Your view was in order to attract purchasers at that time it was appropriate to offer a $10,000 discount, correct?

A: Yes.

Q: $10,000 represents a significant drop from the listed price, doesn’t it?

A: Yes.”


83    From this evidence it is clear, in my opinion, that as at 16 November 1998 Ardee had actually considered whether the Sale Prices, as stated in Annexure “C” discounted by no more than $5,000 per lot, were realistic and was, in fact, of the view that they were not. Ardee’s true “realistic appraisal” of values of the lots would have reduced the Sale Prices by $10,000, possibly up to $20,000, in Mr Yore’s opinion.

84    In my judgment, Ardee breached the warranty given by it in Clause 14.1(d).

85    There is no evidence that Collex was aware of Ardee’s true “realistic appraisal” of the values of the lots before Mr Yore gave his evidence at the trial. Collex purported to rescind the Option Deed for breach of Clause 14.1(d) by notice dated 1 May 2000, without first having procured any valuations of the lots which could have supported its rescission; Collex relied upon the fact that Ardee had not sold any lots in the subdivision since July 1998, from which it concluded that Ardee was unable to achieve sales at the Sale Prices because those prices were unrealistic.

86    In answer to Interrogatories, Collex admitted that it knew of the absence of sales at the Sale Prices at least from 16 November 1998 onwards. Mr McDougall submits, therefore, that at all times after 16 November 1998 Collex knew that the Sale Prices were unrealistic and that Ardee was in breach of its warranty in Clause 14.1(d), yet it elected to affirm the Option Deed by continuing to pay Outgoings, so that it had lost its right of rescission well before 1 May 2000.

87    In order to be put to an election as to which of two inconsistent contractual rights is to be exercised a party must have, on one view, a full knowledge of the material or decisive facts giving rise to the right of election; on another view, the party must have, at the least, a knowledge of circumstances such as will provide information from which the material or decisive facts are a clear, if not necessary, inference: Sargent v. ASL Developments Ltd (1974) 131 CLR 634, at 642 per Stephen J., cf. at 658 per Mason J.; Khoury v GIO (NSW) (1984) 58 ALJR 502, at 506.

88    In the present case, the material or decisive fact giving rise to Collex’s right of election was that the appraisal of Sale Prices by Ardee had not been made realistically. As I have observed, Collex did not actually know that fact before Mr Yore gave his evidence at the trial. After some hesitation, I conclude that Collex’s knowledge of the absence of sales at the Sale Prices from July 1998 onwards is not sufficient to give rise to a clear inference that the Sale Price appraisals had not been made realistically. Absence of sales at the Sale Prices could have resulted from a number of different causes. For example, Ardee ceased active promotion of the subdivision from July 1998. Mr Yore said:

“Q: Do you know whether the lots shown as lots 6-16 in that schedule there were being advertised for sale or set at the prices under the heading listed price from July ’98 to November ’98?

A: They were certainly for sale at those prices. As far as advertising was concerned, being advertised in general, everything was on hold as far as we were not pouring more money into advertising them. Had someone walked in the real estate agent looking for land of that description, they would have been …

Q: There was no effective marketing of any lots in the subdivision in July 98 onwards, is that right?

A: I couldn’t be sure on that. We only had a limited budget for advertising and not that it was – sort of, it wasn’t we were skimping on it. We didn’t feel it was necessary to advertise widely as much.

Q: Do you know newspaper advertisements or anything drawing attention to lots available for sale?

A: I think originally that was newspaper advertisements. I am not certain at the time they started advertising when the intermodal – preferred intermodal sites became known.

Q: That was in July?

A: That was in July.”


89    After 16 November 1998 it could well have been the case that Ardee ceased to promote the subdivision at all, since under the Option Deed it was guaranteed a satisfactory price for the Land whether or not sales to third parties had been achieved. The Deed certainly did not make it mandatory for Ardee to use its best endeavours to sell the Land at the Sale Prices.

90    In my opinion, the absence of sales at the Sale Prices from July 1998 onwards could not reasonably have given rise to more than a suspicion on the part of Collex as at 1 May 2000 that Ardee had not made realistic appraisals of the Sale Prices as at the date of the Option Deed. Mere suspicion as to the existence of a fact entitling rescission of a contract is not sufficient to put a party to an election whether to rescind or affirm the contract by further performance.

91    Mr McDougall submitted that, in any event, by May 2000 it was too late for Collex to rescind the Option Deed because the Deed was spent: the Put Option had been exercised and had brought into existence a contract for sale of the Land between the parties which supplanted the provisions of the Option Deed. For the purposes of the submission, I shall assume that that is so and that the relationship of the parties was, as at May 2000, governed by a contract for sale of the Land.

92    Even so, I would have held that the contract for sale contained an implied term to the effect that Collex was entitled to rescind if, prior to completion, it ascertained that Ardee had committed a breach of Clause 14.1(d) of the Option Deed. In my view, the requirements for the implication of such a term would have been satisfied: Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596, at 605-6; Codelfa Construction Pty Ltd (supra) at 347, 404.

Orders

93    In the result, Ardee fails in its claim for specific performance of the Option Deed or of the contract for sale of the Land said to have come into existence upon exercise of the Put Option. It fails in its claim for damages for breach of the Option Deed or of that contract for sale. The only relief ultimately sought by Collex in its Cross Claim was a declaration that it had rescinded the Option Deed by notice dated 1 May 2000, a declaration that performance of the Option Deed was discharged by frustration and consequent relief under the Frustrated Contracts Act. I have held that the Option Deed was not wholly discharged by frustration and that Collex is not entitled to relief under the Frustrated Contracts Act. I would have held that the Option Deed and any contract for sale of the Land arising thereunder had been validly rescinded by Collex in May 2000 had it been necessary to decide that issue.

94    The orders which I propose to make are as follows:
(1) Judgment for the Defendant on the Plaintiff’s Statement of Claim.
(2) Judgment for the Plaintiff on the Defendant’s Cross Claim.

95    In the light of the result, I am disposed to order that each party pay its own costs of the proceedings. However, I will stand the matter over for a short time so that the parties may digest these reasons and I will hear any submissions as to costs when the matter is listed for the bringing in of Short Minutes.


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Last Modified: 10/03/2001