Cacace v Bayside Operations Pty Ltd

[2006] NSWSC 572

CITATION:	Cacace v Bayside Operations Pty Ltd [2006] NSWSC 572
HEARING DATE(S):	7 June 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	06/07/2006
DECISION:	DECISION: Cross-claim for specific performance of heads of agreement signed at conclusion of mediation dismissed with costs. Directions for further conduct of substantive proceedings.
CATCHWORDS:	CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – Compromise - Intention to enter contractual relations – preliminary agreements – Masters v Cameron – where lawyers for parties sign heads of agreement at conclusion of mediation contemplating exchange of further formal agreement – relevance of context and oral basis of heads of agreement – relevance of subsequent conduct – Discharge and breach – repudiation – election to accept repudiation – election by conduct consistent only with termination – INJUNCTIONS – Interlocutory injunctions - variation.
LEGISLATION CITED:	Retail Leases Act, s 68
CASES CITED:	Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 Branir v Owston Nominees (No2) Pty Limited (2001) 117 FCR 424 Brunninghausen v Glavanics (1999) 26 NSWLR 538 Elders Rural Finance v Westpac (NSWSC, 24 May 1989 unreported) G R Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited (1986) 40 NSWLR 622 G R Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited (1986) 40 NSWLR 631 Glandon Pty Ltd v Strata Consolidated Pty Ltd (1992) 11 ACSR 543 Harrison Partners Constructions Pty Limited v Jevena Pty Limited [2005] NSWSC 1225 Holland v Wiltshire (1954) 90 CLR 409 (Dixon CJ) Masters v Cameron (1954) 91 CLR 353 Sinclair, Scott & Co v Naughton (1929) 43 CLR 310
PARTIES:	Gregory Joseph Cacace (first plaintiff/cross-defendant) Natalie Kathleen Cacace (second plaintiff/cross-defendant) Bayside Operations Pty Ltd (defendant/cross-claimant)
FILE NUMBER(S):	SC 4141/05
COUNSEL:	D A Smallbone (plaintiffs/cross-defendants) G Carolan (defendant / cross-claimant)
SOLICITORS:	Fox & Associates (plaintiffs/cross-defendants) Back Schwartz Vaughan (defendant/cross-claimant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Wednesday 7 June 2006

4141/05 Gregory Joseph Cacace v Bayside Operations Pty Limited

JUDGMENT (ex tempore)

1 HIS HONOUR: The plaintiffs Gregory Joseph Cacace and Natalie Kathleen Cacace operate a cafeteria, called Crema, in a hotel now known as Rydges Port Macquarie which is owned by the defendant Bayside Operations Pty Ltd, under a management agreement entered into between the Cacaces and Bayside in or about July 2003 for a term of five years from 1 July 2003 with an option to renew for a further three years. Following a dispute as to the Cacaces’ entitlement to pass through the hotel's restaurant area, which is adjacent to the cafe premises, for the purposes of having access to the hotel kitchen, and to use other parts of the hotel premises for purposes of or incidental to the business of the cafe, Bayside locked the Cacaces out on 22 July 2005. The Cacaces commenced these proceedings, claiming a declaration that the management agreement was a retail shop lease within the meaning of the Retail Leases Act 1994; a declaration that such lease remained valid and subsisting; an injunction restraining Bayside from preventing them from exercising access to and using, in addition to the designated cafe premises, the hotel restaurant (for the purpose of access to the kitchen), the hotel kitchen (for the purpose of preparing food and accessing the cool room, freezer and dry store facilities), the room service area, the ice machine area, the back lobby and lifts (for accessing hotel floors to deliver room service), the housekeeping area (for the storage of and access to cleaning tools and equipment), and the staff toilets; and also restraining Bayside from preventing them from carrying on the business known as Crema Expresso Bar. In the alternative, they sought relief against forfeiture.

2 On 29 July 2005 interlocutory orders were made by consent, the effect of which was to prohibit Bayside from preventing the Cacaces from exercising the access which they had previously enjoyed through and to those parts of the hotel premises described above. On 9 August 2005, the Cacaces and Bayside participated in a mediation at Port Macquarie. A document entitled "Heads of Agreement" was prepared and executed by counsel for Bayside and the solicitor for the Cacaces. Bayside contends that the Heads of Agreement were a binding and effective compromise of the disputes between the parties.

3 By a cross-claim filed in these proceedings, Bayside claims a declaration that the proceedings were compromised and settled on 9 August 2005 in accordance with the Heads of Agreement of that date, and an order for specific performance of the compromise, with the consequence that the substantive proceedings brought by the plaintiff be dismissed. Alternatively, Bayside seeks an order varying the interlocutory orders made on 29 July 2005 pending the determination of the plaintiffs' claim. The Cacaces deny that the Heads of Agreement were a binding and enforceable agreement. Alternatively, they contend that if there were such an agreement, it has since been abandoned, or an implied condition precedent to it has failed, or its performance would be illegal, or it has been avoided for misrepresentation, or that Bayside is not ready willing and able to perform its obligations under the agreement, or finally, that for any of the foregoing reasons, specific enforcement of the agreement should as a matter of discretion be declined.

4 At the outset of the hearing, by consent of the parties and in accordance with the contemplation which they already had, an order was made for the separate determination of the cross claim before the other issues in the proceedings. Thus the issues which fall for determination presently are:

(1) were the Heads of Agreement a binding agreement for compromise;

(2) if so, does that agreement remain enforceable, or has it been abandoned, or has a condition precedent failed, or would performance of it be illegal, or has it been avoided for misrepresentation;

(3) if the agreement does remain enforceable, should it be specifically performed having regard to the question of Bayside's readiness, willingness and ability to perform its own obligations under the Heads of Agreement, and to the discretion to decline specific performance for any of the reasons already mentioned;

(4) if it were concluded that the Heads of Agreement should for any reason not be specifically enforced, should the interlocutory orders of 29 July 2005 be varied as Bayside proposes.

5 The first issue then is whether the Heads of Agreement were a binding agreement for compromise.

6 The Heads of Agreement, the original of which is exhibit DX04, refer in operative clause 1 to “the exchange of Agreements incorporating these Heads of Agreement”. Operative clause 2 also refers to “the exchange of” such agreement. Operative clause 3 takes effect "as and from the date of” such agreement. In other words, the Heads of Agreement plainly contemplate that there will be a further formal document prepared and formally exchanged between the parties, and that the obligations of the parties will take effect from the date of exchange of that further agreement.

7 Reference in a contract to the circumstance that the parties contemplate that there will be brought into existence and exchanged a further formal contract does not necessarily prevent their oral or preliminary written bargain from being binding in the meantime. In Masters v Cameron (1954) 91 CLR 353, three classes of contract were identified. In the joint judgment of Dixon, McTiernan and Kitto JJ (at 360), their Honours said:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature, and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that to which their agreed terms express or implied, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all.
In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform their agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and excluding the formal document; and in the second case, a contractor binding the parties to join in bringing the formal contract into existence and then to carry it into execution....
Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own.

8 In G R Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited (1986) 40 NSWLR 622, McLelland J, as he then was, identified a fourth class of contract with reference to the decision of the High Court in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310, 317, namely "... one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon, whilst expecting to make a further contract in substitution for the contract containing, by concept, additional terms." His Honour's decision was affirmed by the Court of Appeal: G R Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited (1986) 40 NSWLR 631.

9 To which of those four classes a preliminary agreement belongs depends essentially on the intention of the contracting parties, objectively ascertained from their acts and statements. In ascertaining that intention, where there is a written document recording the preliminary agreement, that document will often be the starting point. However, the court may, and indeed must when it comes to ascertaining whether or not there was an intention to make a binding contract, have regard also to the factual context and any oral basis on which the preliminary agreement was made: see Branir v Owston Nominees (No 2) Pty Limited (2001) 117 FCR 424, [272]-[293]. At [293], Allsop J, with whom Drummond and Mansfield JJ agreed, said:

For my part, I think it unwise to express the principle in terms of presumptions. McHugh JA did not do so in State Rail Authority (NSW) v Heath Outdoor . In a sense, a document apparently contractual on its face may lead to the need for some cogent or persuasive evidence to enable a conclusion to be drawn that it was not intended by the parties to embody their bargain. (Or, it may be simply and easily explained.) However, to introduce the notion of presumptions, in my respectful view, risks a mechanical approach to the analysis. The better expression of the principle is reflected in the words of McHugh JA, as consistently applied by the New South Wales Court of Appeal and supported otherwise by courts of appeal in Queensland and South Australia, that the existence of an apparently complete contract is no more than an evidentiary foundation for a conclusion that the agreement is wholly in writing.

10 That is the approach which I should, and do, adopt.

11 It is also clear that it is permissible, for the purpose of ascertaining whether or not there was a contractual intention at all, to have regard to conduct of the parties after the supposed agreement: see Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153, [25] (Heydon JA), and the cases there cited.

12 Against that background, I turn first to the document itself. The Heads of Agreement are as follows:

Between: Gregory Cacace & Natalie Cacace and Bayside Operations Pty Limited (“the Company”).
By consent and without admission of liability the parties in settlement of Supreme Court proceedings 4141/05 have agreed as follows:
1. The Company will pay to Cacace the sum of $18,750 on exchange of Agreements incorporating these Heads of Agreement which sum is on account of costs of the proceedings, the Cacace claim for contribution to the fitout of the kitchen and any claim for reimbursement of loss of profit associated with the Company’s exclusion of Cacace from the premises from 22 July 2005 until 29 July 2005.
2. As from the date of exchange of the Agreement the injunction consented to on 29 July 2005 shall be dissolved and the proceedings shall be discontinued on the basis that each party shall pay their own costs.
3. As from the date of the Agreement the parties agree as follows:
a. Cacace shall not access the hotel premises outside the “designated area” as defined by the Management Agreement other than:
(i) the loading dock via the staff access for the purpose of gaining access to storage area to be constructed by the Company in the dock area (which storage area will be lockable and of about 6sqm in area and with access to power) and to obtain ice.
(ii) staff toilets.
(iii) via front lobby for access to lifts for room service.
4. Cacace shall attend to the installation of suitable refrigeration in the designated area at their own cost.
5. The Company will use its best endeavours to ensure Crema’s trading details are included in the hotel room compendium.
6. The Company will ensure that Cacace is provided with adequate numbers of room service trays, plate covers and a trolley (which will be stored in the baggage storage area).

13 About this document, a number of observations may be made. First, it was prepared by lawyers - counsel for Bayside, and the solicitor for the Cacaces. I infer that it was written by counsel for Bayside. Secondly, the preamble apparently records an agreement in settlement of these proceedings as having been reached, and does so in formal terms. Thirdly, although operative clause 1 contemplates that further formal agreements will be exchanged, it also contemplates no more than that such further agreement will incorporate the Heads of Agreement. Fourthly, the document is dated and executed by the parties' legal representatives in their capacity as such. Fifthly, save for the contemplation of the exchange of a further formal agreement the terms are not, on their face, otherwise apparently incomplete. In this respect, I do not accept Mr Smallbone's submission that the document left unresolved any dispute as to what was the "designated area" referred to in the management agreement, of which the Cacaces were authorised to have use. To the extent that there was any doubt or dispute on that topic and it is a matter which does not appear to have exercised the minds of the parties up to that point it left it to be resolved by the definition in the management agreement. And that definition in the management agreement clearly identified the designated area as the cafe and adjacent verandah premises, which were hatched in yellow highlighter on the original management agreement. Finally, the Heads of Agreement contemplated that the obligations of the parties under each of clauses 1, 2 and 3 would commence on and from the date of exchange of the proposed formal agreement, and clause 3 specifically provided that the agreement which it contained was from the date of exchange.

14 The circumstance that the parties contemplated the formal exchange of a written agreement, upon which their binding obligations would commence, tends to favour the view that, as where the exchange of contracts for sale of land is contemplated, the parties’ intention was that they would not be bound until formal exchange. But despite that, on the face of the Heads of Agreement, were it the only evidence, I would be inclined to conclude that the Heads of Agreement were intended to record a binding compromise. The indicia of formality, their apparent completeness and the language of the document do not contemplate that the parties envisaged anything more than a more perfectly prepared and perhaps engrossed document, containing only those obligations to which they had already agreed, in settlement of these proceedings.

15 But as I have said, the written document is not the only evidence, and I must have regard to other matters as well, in the context of which the circumstance that the formal exchange of a written agreement upon which binding obligations would commence was contemplated may retain significance in ascertaining whether the parties intended to be immediately bound.

16 The next class of relevant evidentiary material is the context in, and any oral basis on, which the preliminary agreement was reached. The context was a mediation under the auspices of the Retail Leases Act. The mediation agreement referred to the circumstance that parties were encouraged, if they could not settle the whole dispute, at least to attempt to agree some of the issues in it. That therefore leaves open the possibility that an “agreement” reached as the result of the mediation might not be an overall settlement of the dispute, but only a resolution of some limited issue or issues in it. It means that an agreement minuted or documented at the end of the mediation need not necessarily be a final and complete settlement of the dispute.

17 At the mediation, the parties had present, as well as the mediator, their legal representatives: Mr Fox, the solicitor for the Cacaces, and Mr Carolan, counsel for Bayside. According to Mr Cacace, in the course of the mediation, a proposal was advanced that Bayside would construct a separate area in the loading dock, in which the Cacaces could put a fridge, freezer and dry storage area. When Mr Cacace questioned whether that would be acceptable from the perspective of the local council's environmental health policy, Mr Gillespie, on behalf of Bayside, responded that he had years of experience in the area and that there would be no problem. Mr Cacace says that he rejoined that he would check that with the council, if they ended up agreeing. This exchange apaprenty took place some hours before the Heads of Agreement were prepared and, for that reason, it is of slight weight in indicating whether or not there was ultimately an intention to contract. But there is some slight evidence that there were other steps to be taken before the Cacaces were prepared to be bound: namely, checking with the council what Mr Gillespie had represented.

18 It seems that by late afternoon the mediator, one Mr Sainsbury, left, in circumstances where agreement had not been reached. Not long before 5pm, probably at about 4.30pm, after the mediator had left, Mr Carolan said something to the effect, "I'm booked on the 5pm flight back to Sydney". According to Mr Cacace, Mr Fox then said, "Why don't we make a quick note to help us prepare the final agreement later on". According to Mr Fox, either he or Mr Carolan said something to the effect, "Let's prepare a handwritten minute of what has been agreed in principle to form the basis of a formal deed which can be prepared and finalised over the next week". Although no general rule can be stated about the phrase "agreed in principle", I think it can be said that it is a phrase often used by lawyers to indicate that, although consensus on a matter has apparently been reached, there is not yet a final agreement. “Settled in principle” is a state of consensus somewhat short of “settled”. The evidence of Mr Fox and Mr Cacace to which I have referred is uncontradicted and unchallenged, and there is no basis for me other than to accept it. It suggests that the Heads of Agreement were prepared hastily as an interim measure to record pro tem an in principle agreement, falling short of final agreement, to provide the basis for later finalising what it was contemplated would be the final binding agreement.

19 It is next necessary to consider the subsequent conduct of the parties.

20 Following the mediation, much correspondence flowed between the solicitors for the parties. The fact that initially a draft was submitted which more or less precisely reflected the terms of the Heads of Agreement does not I think advance the case one way or the other. It is consistent with any of the four classes referred to in Masters v Cameron. Nor do I think that the fact that subsequently attempts were made to introduce additional terms, not referred to in the Heads of Agreement, advances the matter. It is plainly consistent with an agreement within class four that the parties will negotiate for additional terms or different terms in substitution for the existing terms, while remaining bound in the meantime by the preliminary agreement. One striking instance of this includes Glandon Pty Ltd v Strata Consolidated Pty Ltd (1992) 11 ACSR 543, in which Mahoney JA (with whom Clarke JA agreed on that issue) said (at 546):

I am conscious that, after 24 February 1988, there was considerable discussion and correspondence as to what was to be embodied in the deed of settlement. But in my opinion what was done then was not to vary the agreement made but to embody it, in the form which the parties contemplated or envisaged, in the deed of settlement. An agreement firmly made is, I think, not to be put aside because the parties have contemplated that a formal document will be executed and that, in that document, there will be the provisions which their advisors think are necessary to give effect to the agreement that they have made. I am conscious that, in this case, there was a difference between the advisors as to what form the agreement should take and that terms were proposed and amended. Such a thing may or may not evidence the consensus originally arrived at is not intended to be a binding legal agreement: Jones v Padavatton (1969) 1 WLR 328; or that, whatever be the intention, the consensus was not sufficiently full to constitute such an agreement. In this case, there was, I think, an intention to be bound. Mr Ney and Mr Hancock had that intention. The issue therefore turns on the quasi nature of their consensus.

21 Another instance is Brunninghausen v Glavanics (1999) 26 NSWLR 538, particularly in the judgment of Handley JA (at 545ff).

22 What is significant in the subsequent conduct of the parties in this case falls within three categories. The first is that at no point, even when disagreement became stark, was there any insistence by either that there was already a binding agreement. Although it is true, as Mr Carolan pointed out, that at one point Bayside's solicitor emphasised that Bayside remained ready willing and able to settle in accordance with the Heads of Agreement, an assertion that one remains ready to proceed on a particular basis falls far short of an assertion that the other party is bound to do so.

23 Secondly, and pointing somewhat in the opposite direction, is the circumstance that after the Heads of Agreement were prepared, Bayside undertook work to its premises to install the caged storage area in the loading dock, as the Heads of Agreement contemplated. It might be thought unlikely that Bayside would have done that, if it did not think that there was a binding agreement. But against that, the Heads of Agreement contemplated that such work would be performed before the formal agreement was exchanged - as to which see in particular clause 3(a)(i) of the Heads of Agreement – and, when doubts arose as to whether the proposed storage area would comply with the requirements of the local Council, both parties seem to have accepted in the correspondence that further progress of any resolution of the matter would have to abide the determination of whether or not in fact the proposed storage area was compliant. So, in the result, I do not think that the circumstance that Bayside performed work to construct the proposed storage area tells strongly in favour of the view that the parties had intended to make a binding contract when they signed the Heads of Agreement.

24 The third is the subsequent history of the litigation. When the matter came before the Court on 26 August 2005 in the Expedition List, the Chief Judge was informed by Ms Dwyer, the solicitor for Bayside who appeared on that occasion, that the matter was "settled in principle". I have already commented on what significance may be attributed to these words, which often mean, "We think we have settled, but not quite".

25 Then there was some further correspondence, commencing on 30 September 2005. In a letter bearing that date, but ultimately not sent until 5 October 2005, Fox and Associates for Mr and Mrs Cacace, after agitating a number of matters which remained in dispute, concluded:

Again, unless your client is prepared to discuss realistic alternatives to the current location of the storage facility, we see no point in pursuing the teleconference since we could not see that it would be successful.
Accordingly, therefore, if your client does not choose to engage in any more meaningful dialogue, it appears to us that the only alternative is to consider it on a different basis (for example the basis suggested by us to you in our letter to you of 8 August 2005 in which we nominated a price at which our clients would be required to walk away from their rights).
Alternatively, the matter must continue in the Supreme Court in which case it seems appropriate that we discuss the matter further to agree upon a timetable for the matter to continue on the pleadings.

26 As I have said, that letter was forwarded to Back Schwartz Vaughan, the solicitors for Bayside, under cover of another letter from Fox and Associates dated 5 October 2005, which, after agitating further issues between the parties, concluded as follows:

So far as concerns the prospects of being able to resolve this matter in the manner previously discussed, we think that now to be unlikely and perhaps you would seek instructions from your clients in relation to our clients' without prejudice offer made under cover of our letter to you of 8 August 2005.
Failing that, we confirm that our clients will pursue the matter and we would suggest that we discuss a timetable which we would see as involving the following Orders:

1. That the plaintiff file and serve within 21 days a Statement of Claim;

2. That the defendant file a defence within 21 days thereafter;

3. Orders in relation to discovery etc.

27 On 6 October 2005, Back Schwartz Vaughn responded to Fox and Associates by facsimile, relevantly:

We agree that the litigation will need to be progressed. Our client proposes changes be made to the existing interim orders dated 29 July 2005.

28 The matter came before the Court for further directions on 7 October 2005. The Court made orders in accordance with a document entitled "Equity Short Minutes of Order" of that date, signed by Mr Carolan, counsel for Bayside, which provided as follows:

1. Plaintiff to file and serve a statement of claim herein on or before 4 November 2005;
2. Defendant to file and serve any notice of motion seeking to vary the interim orders of 29 July 2005 on or before 4 November 2005;
3. Defendant to serve any affidavits in support of its motion on or before 4 November 2005;
4. Plaintiff to serve any affidavit evidence in relation to the motion on or before 2 December 2005;
5. Defendant to serve any affidavit evidence in reply on or before 9 December 2005;
6. Motion listed for hearing on 12 December 2005 at 9.30am.

29 The Court file records that Mr Carolan appeared before the Senior Deputy Registrar that day when those orders were made. On 10 October 2005, Back Schwartz Vaughan wrote to Fox and Associates reporting that those orders had been made.

30 If the parties thought that the proceedings were settled by a binding an enforceable agreement when the Heads of Agreement were executed, then there was nothing remaining to be done in the proceedings except to stay them as having been compromised. There was no need for a statement of claim and there was no need for any application to vary the interlocutory orders given that under the compromise the injunction would be discharged. The correspondence to which I have just referred, and particularly the orders made by consent on 7 October, are completely inconsistent with the parties or either of them holding the view that the case had already been settled. I cannot accept that the order of 7 October would have been made by consent if either of the lawyers – both of whom had been present at the mediation and signed the Heads of Agreement – had thought that there was a binding settlement. Contrary to Mr Carolan's submission, I am unable to accept that the directions made on 7 October are consistent with getting the case into order: there was nothing to get into order if the case had been settled. By far the better explanation of this subsequent conduct of the parties is that they did not in fact intend to be bound until, the proposed storage area having been constructed, the formal agreement was prepared and exchanged. In my opinion, the Heads of Agreement were within class three of Masters v Cameron, and there was no binding agreement made at the end of the mediation.

31 Although that conclusion is dispositive, lest I be wrong, I will consider at least one aspect of the second main issue, as to whether, if there were a binding agreement, it remains enforceable.

32 Mr Smallbone, for the Cacaces, submits that if there was a binding agreement, it was abandoned.

33 If there was indeed an agreement, then the correspondence of 30 September and 5 October 2005, to which I have referred, contained assertions by or on behalf of the Cacaces to the effect that unless Bayside agreed to terms which were different to those in the Heads of Agreement, the matter would have to proceed in the Court. Such assertions are quite inconsistent with the Cacaces proposing to adhere to the assumed agreement. I do not doubt that it is permissible for parties to a contract to negotiate for variations to its terms without that conduct being repudiatory, but that depends upon the negotiating party's fall back position. If the fall-back position is merely to the effect, "If you don't accept the proposed amendments, then you will be left to enforce your rights under the existing contract for whatever they may be worth" that is not repudiatory; but if the fall back position is to the effect that, if the proposed amendment is not accepted, then the party seeking the amendment will not perform the original contract, that is repudiatory, because it evinces an intention not to perform the contract according to its terms.

34 In my view, the two letters to which I have referred clearly evinced an intention on the part of the Cacaces not to perform - or expressly declared that they would not perform - their obligations under the Heads of Agreement in the most essential respect, namely that the proceedings were compromised and would not continue. As such, they constituted a renunciation or repudiation of the Heads of Agreement.

35 If, contrary to my principal finding, the Heads of Agreement were a binding contract, that gave Bayside a right to elect to affirm the contract of compromise, or to terminate it for repudiation. An election to accept a repudiation and terminate may be made by an unequivocal overt act which is inconsistent with the substance of the contract, even without any concurrent manifestation of intent direct to the other party: see Holland v Wiltshire (1954) 90 CLR 409 (Dixon CJ).

36 The letter from Back Schwartz Vaughan of 6 October 2005, in which they express agreement that the litigation will need to be progressed, is probably sufficient acceptance of the repudiation or renunciation to which I have referred; but even if it were not, then the consent to the directions made on 7 October plainly was. If a party takes a step consistent only with termination of the contract – particularly if that step is adverse to the other party - then the party will be taken to have elected to terminate for repudiation. In this case, the directions of 7 October imposed additional obligations on the Cacaces - in particular, to file a statement of claim. That they did not ultimately do so is beside the point: it was the act of agreeing to a regime which was consistent only with the proceedings remaining on foot, and not having been compromised, that plainly evinces an acceptance of the hypothetical repudiation.

37 I conclude therefore that, if there were a binding contract made on the Heads of Agreement, that contract has been discharged, if not by abandonment, then by acceptance of its repudiation. The consequence would be that the parties are left to their original rights and positions in the litigation - although, if there were a binding contract and a termination for wrongful repudiation, Bayside might have a claim for damages, depending on how the substantive litigation turns out. But even if that be so, it does not leave in place any specifically enforceable contract.

38 In those circumstances it is unnecessary to consider the other matters which have been advanced on behalf of the Cacaces as to the enforceability of any contract in the Heads of Agreement; nor is it necessary to consider whether Bayside is ready willing and able to perform its obligations, nor whether there are discretionary reasons for declining specific performance.

39 I turn then to the fourth main issue, which is whether the existing interlocutory relief should be varied.

40 The Cacaces filed their summons on 26 July 2005. Pursuant to an abridgement of time for service, it was returnable on 29 July, when, upon their usual undertaking as to damages, the court, by consent, made orders as follows:

By consent, and upon the Plaintiffs by their Counsel giving to the Court the usual undertaking as to damages, the Court Orders:
1. That the Defendant be restrained until further Order from preventing the Plaintiff, by themselves, their servants and agents, from exercising access to and use of:
a. all areas within the Rydges Hotel Premises at Hay Street, Port Macquarie, described by the Management Agreement between the parties dated 2003 as the “designated area”.
b. between 7 am and 6 pm, areas of the Hotel business premises operated by the Defendant, at Ryudges Hotel, Port Macquarie, as follows:
(i) the restaurant (for the purpose of access to the kitchen);
(ii) the kitchen (for the purposes of preparing food and access to cool room, freezer and drystore facilities located therein), provided that access for the purposes of preparing food may be limited by the Defendant to the hours of 11 am to 2 pm and provided further that access at other times may be limited by the Defendant to two persons at any one time;
(iii) room service area;
(iv) ice machine area;
(v) back lobby and lifts (for access to the Hotel floors for the delivery of room service);
(vi) to housekeeping area (for storage of and access to cleaning tools and equipment); and
(vii) to staff toilets
and from preventing the Plaintiffs from carrying on there the business, hitherto known as Crema Espresso Bar, Port Macquarie, referred to in the Management Agreement.

2. That the Defendant do forthwith provide to the Plaintiffs such keys and do such other things as may be necessary for the Plaintiffs by themselves, their servants and agents, to secure access to and use of the aforesaid premises in the manner directed in paragraph 1 of these Orders.

3. Costs be reserved.

4. Any motion for expedition may be returnable 19/8/2005.

5. The Court notes the agreement of the parties that while these Orders continue, the Plaintiffs’ hours of trade at the premises shall not commence before 7.30 am on Monday to Friday and 8 am on weekends, provided that this restrictions does not prevent the Plaintiffs and their servants or agents from having access at earlier times.

41 The effect of the interlocutory orders was to preserve for the Cacaces that level of access which they had enjoyed prior to the lock out. As those orders are expressed to be until further order, they will remain in place until the final hearing and determination of the Cacaces' claim, unless earlier varied. Bayside seeks to vary them by omitting paragraph 1(b)(i), the effect of which would be that Bayside would no longer be prohibited from preventing the Cacaces from exercising access to and use of the restaurant for the purpose of access to the kitchen.

42 The basis upon which interlocutory injunctions are granted means that they are not immutable pending the final hearing. As Bryson J said in Elders Rural Finance v Westpac (NSWSC, 24 May 1989 unreported):

The nature of claims for interlocutory injunctions means that they are usually made on a basis which admits of some debate or reargument. Basically, it is for this reason that the practice ... of requiring the applicant to give an undertaking as to damages is observed... I cannot look with favour on repeated returns to the court for reconsideration of a claim for an interlocutory injunction. But there are circumstances where reconsideration may be appropriate: the examples given, without endeavouring to speak exhaustively, by Gibbs CJ, Murphy, Aickin, Wilson and Brennan JJ in Adam P Brown Male Fashions Pty Limited v Phillip Morris Inc (1981) 148 CLR 170, 178, were when new facts had come into existence which render the enforcement of an interlocutory order unjust. Their honours did not, of course, endeavour to give an exhaustive statement of the circumstances of which reconsideration would be appropriate and it would hardly be possible to do so. However, there ought in my view for this as for other discretionary applications to be some new matter to be raised which could represent a sound and positive ground or otherwise a good reason for embarking upon reconsideration.

43 In considering whether interlocutory relief should be revisited, it will be important to ascertain whether, since that relief was first granted, there has been a change of circumstances, not foreseen or reasonably foreseeable at the time when the relief was first granted, which bears upon either or both of the principal issues on an interlocutory application, namely, the existence of a serious question to be tried, and/or the balance of convenience. While the mere passage of time is not a reason to review an interlocutory order - unless the order has remained in place for a period longer than was reasonably anticipated when the order was first made - the passage of time will remain relevant background against which any other relevant change of circumstance might be considered: see Harrison Partners Construction Pty Limited v Jevena Pty Ltd [2005] NSWSC 1225.

44 In the present case, it is relevant, first, that 10 months or more have passed in a context that it was originally anticipated that there may well be an expedited final hearing; secondly, that there was in the first place no contested interlocutory determination, the matter having been resolved by consent presumably in anticipation of an early final hearing; and, thirdly, that there has subsequently been a change in the operations of Bayside in that it now opens its restaurant for lunch at least three days a week during the off season, and seven days a week commencing from about September, which operations may be impacted on by access being exercised by the Cacaces in accordance with the consent orders. Taken together, those reasons make a sufficient case for embarking on a reconsideration of the interlocutory regime. But in embarking on that reconsideration the starting point is the relief already in place, and the applicant for reconsideration bears at least a forensic onus of showing why it should be displaced.

45 Mr Carolan has, responsibly, not submitted that there is no serious question to be tried sufficient to require the court to consider where the balance of convenience lies. The evidence of Mr Cacace, of his conversations in May and June of 2003 with the then general manager of the hotel, one Craig Smith - if it were accepted at a final hearing, and at this stage it is uncontradicted - would found a submission that the Cacaces entered into the management agreement with the encouragement of Bayside, upon an assumption, of which Bayside's then controlling minds knew, that they would be permitted full and free access to and use of the hotel kitchen, storage and refrigeration areas for food preparation and storage, including access across the restaurant for that purpose, so they did not have to exit the cafe into Hay Street and then return either through the front door or the staff entrance to the hotel to access the kitchen and storage areas. That would found a case that Bayside was estopped from denying the Cacaces access in accordance with their assumption, so long as the management agreement remains on foot. And that is sufficient to conclude that the Cacaces have a sufficiently arguable case for final relief to justify consideration of the balance of convenience, without having to consider the other bases advanced by Mr Smallbone - including that on the proper construction of the management agreement the designated area included the kitchen (an argument which, prima facie, does not seem to me to have much strength), or that the Cacaces may be entitled to relief under the Retail Leases Act, s 68.

46 It is therefore necessary for me to consider where the balance of convenience and prejudice lies, bearing in mind that on this type of application the court's concern is to make that order which risks least injustice to both parties, bearing in mind that the ultimate outcome is unknown.

47 First, the status quo favours declining to vary the interlocutory regime. The existing order preserves the arrangements for access which were in place from 2003 until the lock out in July 2005.

48 Secondly, the change in circumstances which Bayside invoked, namely, that it now opens its restaurant for lunch, is a change which has resulted from Bayside's own decision. The change has, in that sense, been created by Bayside, and must have been undertaken with knowledge that the injunction was in place, and of the risk that it would remain in place.

49 Thirdly, acceding to the application would require the Cacaces, instead of walking 10 or 20 metres across the restaurant to the kitchen in order to obtain food and material from the kitchen and storage areas for the café, having to exit from the cafe into Hay Street, one of the main streets in Port Macquarie, walk around the hotel along Hay Street and past the loading dock, re-enter through the staff entrance, and then proceed to the kitchen and storage areas - a distance of some 110 metres, of which more than half is outdoors; then, they would have to return via the same route, carrying food outdoors back to the café for service to customers. While there is contention as to the number of occasions per day on which this would have to happen, the evidence of Mr Cacace is that typically six to eight visits per day are required, although a case might be made that by very careful planning the number of trips could be reduced. The evidence of Mr Gillespie is that during one conference over a lunchtime in the restaurant, he observed Mr Cacace going backwards and forwards at least five times, which substantially corroborates Mr Cacace’s estimate.

50 Fourthly, so far as any negative impact on Bayside is concerned, the evidence is limited to one occasion on which Mr Gillespie observed Mr Cacace, as I have said, cross the restaurant five times or so during a conference. At present, the restaurant opens for lunch three days per week, although from about September it will open seven days per week. As I propose to continue to manage this case as an expedited matter, I do not anticipate that the issues will remain unresolved long, if at all, after September.

51 Finally, any damage to Bayside is covered by the Cacaces’ undertaking as to damages, which continues. Although I accept that damage of the type complained of may be difficult to quantify, there is no evidence that there is any actual damage at all at this stage, other than a little inconvenience. On the other hand, there is no corresponding protection for the Cacaces' position, were I to vary the injunction as sought but the court was ultimately to conclude that they were entitled to that access.

52 For those reasons, in my opinion the balance of convenience favours maintaining the existing interlocutory regime.

53 Accordingly, I propose to make the following orders:

(1) I order that the cross claim be dismissed with costs.

(2) I extend time for the plaintiffs to file their statement of claim to 23 June 2006.

(3) I direct that the defendants serve their defence by 30 June 2006.

(4) I direct that the plaintiffs serve any further affidavit evidence by 23 June 2006.

(5) I direct that the defendants serve any affidavit evidence by 13 July 2006.

(6) I stand the proceedings over to the expedition list on Friday, 14 July 2006.

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