Fabcot Pty Ltd v Port Macquarie-Hastings Council - [2011] NSWCA 167

Court of Appeal

New South Wales

Case Title: Fabcot Pty Ltd & Anor v Port Macquarie-Hastings Council

Medium Neutral Citation: [2011] NSWCA 167

Hearing Date(s): 22, 23 March 2011

Decision Date: 30 June 2011

Jurisdiction:

Before:
Beazley JA at 1, Campbell JA at 2, Sackville AJA at 3.

Decision:
1. Appeal dismissed.
2. The Appellants pay the Respondent's costs of the appeal.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:
TRADE PRACTICES - causation - Council invites expressions of interest ("EOIs") to acquire land owned by it - Party A submits successful EOI - after protracted inconclusive negotiations with Party A Council begins negotiations with Party B without informing Party A - Council sells to Party B - Party A claims that Council engaged in misleading or deceptive conduct causing Party A loss and damage - primary Judge found that even if Party A had known of Council's dealings with Party B, Party A would still not have agreed to Council's terms - whether the finding was erroneous

TRADE PRACTICES - whether Council had engaged in misleading or deceptive conduct - whether Council had represented that Council would negotiate exclusively with Party A unless and until it notified Party A that the period of exclusivity had ended - whether primary Judge correctly found that Party A had a reasonable expectation that it would have a prolonged period of exclusivity

Legislation Cited:
Trade Practices Act 1974 (Cth)

Fair Trading Act 1987 (NSW)
Local Government Act 1919 (NSW)
Local Government Act 1993 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592
Cackett v Keswick [1902] 2 Ch 456
Chappel v Hart [1998] HCA 55; 195 CLR 232
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
Fox v Percy [2003] HCA 22; 214 CLR 118
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2000] FCA 1572; 104 FCR 564
Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357
Rosenberg v Percival [2001] HCA 18, 205 CLR 434
Warren v Coombes [1979] HCA 9; 142 CLR 531

Texts Cited:
J D Heydon, Trade Practices Law (Looseleaf Service)

Category: Principal judgment

Parties:
Fabcot Pty Ltd (ACN 002 960 983) (First Appellant)

Woolworths Limited (ACN 000 014 675) (Second Appellant)

Port Macquarie-Hastings Council (ABN 11 236 901 601) (Respondent)

Representation

- Counsel:
Counsel:

Mr R Smith SC with Mr N Owens (Appellants)

Dr A Bell SC with Mr R Potter (Respondent)

- Solicitors:
Solicitors:

Corrs Chambers Westgarth (Appellants)

Marsdens Law Group (Respondent)

File number(s): CA 2009/298679/004

Decision Under Appeal

- Court / Tribunal: Supreme Court

- Before: Hammerschlag J

- Date of Decision: 02 July 2010

- Citation: Fabcot Pty Ltd v Port Macquarie-Hastings Council [2010] NSWSC 726

- Court File Number(s) SC 2009/298679

Publication Restriction:

Judgment

BEAZLEY JA: I agree with Sackville AJA.

CAMPBELL JA: I agree with Sackville AJA. I particularly wish to associate myself with his Honour's remarks at [11] and [12].

SACKVILLE AJA: The appellants (together " Woolworths ") appeal against a decision of a Judge of the Supreme Court (Hammerschlag J) dismissing their claim for damages against the respondent (" Council "): Fabcot Pty Ltd v Port Macquarie-Hastings Council [2010] NSWSC 726.

The primary Judge concluded that the Council engaged in misleading or deceptive conduct, in contravention of s 42(1) of the Fair Trading Act 1987 (NSW) (" FT Act "), while negotiating with Woolworths to sell it certain land owned by the Council. The land, known as Lot 2 in DP 850217, was located in Short Street in the central business district of Port Macquarie (" the Land "). His Honour found that the Council's conduct had created a reasonable expectation in Woolworths that the Council would not negotiate with a third party for the sale of the Land unless it first notified Woolworths. On his Honour's findings, the Council's misleading or deceptive conduct consisted of its failure to inform Woolworths that it was simultaneously negotiating with a third party, Coles Group Property Developments Ltd (" Coles "), for the sale of the Land. Ultimately the Council sold the Land to Coles.

Despite these findings, the primary Judge rejected Woolworths' claim for damages under s 68(1) of the FT Act . Woolworths had asserted that it had lost a valuable opportunity to acquire the Land by reason of the Council's misleading conduct. However, his Honour was not satisfied that Woolworths would have acted any differently even if it had been aware that the Council was negotiating with Coles. Specifically, Woolworths would have continued to " dig its heels in " over contentious issues that were preventing it reaching a final agreement with the Council on the terms of sale. Woolworths would therefore not have bought the Land even if it knew of Coles' involvement. It followed that Woolworths had not demonstrated that it had suffered any loss or damage " by " the Council's conduct for the purposes of s 68(1) and its claim for damages had to be dismissed.

The Council has filed a notice of contention which seeks to uphold the primary Judge's decision on two alternative bases, as follows:

·his Honour should have found that the failure by the Council to reveal its dealings with Coles did not constitute misleading or deceptive conduct and thus did not contravene s 42(1) of the FT Act ; and
·his Honour should also have found that any loss suffered by Woolworths was caused by its own conduct in failing to accept the Council's final offer to sell the land, an offer that was made before the Council accepted Coles' offer to purchase the land.

The primary Judge dismissed a claim by Woolworths against Coles that Coles had been knowingly involved in the Council's contravention of the FT Act . Woolworths has not appealed against this decision and Coles is not a party to the appeal.

The Council brought a cross-claim against Woolworths founded on what was said to be Woolworths' misleading or deceptive conduct in the course of negotiations. The primary Judge dismissed the cross-claim. Since the Council has not filed any cross-appeal, no further consideration need be given to the cross-claim.

Woolworths' case, as originally pleaded, included an allegation that no later than 24 April 2009 the Council and Fabcot had entered into an enforceable contract for the sale of the Land to Fabcot. Woolworths pleaded that by discontinuing its dealings with Woolworths, the Council repudiated the contract. While Woolworths did not pursue its contractual case at the trial, the fact that it pleaded such a case played a part in the primary Judge rejecting Woolworths' claim that it would have changed its negotiating position with the Council had it known of the Council's dealings with Coles.

The primary Judge very sensibly assessed the damages he would have awarded to Woolworths had he found that Woolworths had suffered loss or damage by reason of the Council's misleading or deceptive conduct. The parties filed written submissions on issues arising from the assessment of damages. However, because of time constraints, oral argument on these issues was deferred pending judgment on the appeal and the notice of contention. Since the appeal is to be dismissed, it will not be necessary to give further consideration to the question of damages.

This judgment is long and has taken considerable time to prepare. One reason is that although the appellant provided a chronology as required by the Rules ( Uniform Civil Procedure Rules (" UCPR "), r 51.35), it lacked the detail appropriate to a case involving a great deal of documentary evidence (eleven blue volumes of documents were filed). In the course of argument, it became clear that the parties themselves were unsure as to the precise sequence and content of negotiations leading to the Council abandoning its negotiations with Woolworths and entering a contract with Coles.

At the request of the Court, the parties prepared after the hearing a " schedule outlining contractual negotiations ". This document, although not entirely agreed, proved to be useful. It would have been even more useful had it been prepared earlier and had there been a complete schedule covering events referred to in oral argument but not in the written submissions. This appeal demonstrates the importance of the parties to an appeal preparing careful chronologies that cover the matters to which attention will be directed in argument.

BACKGROUND

Parties

The Council is the municipal council and development consent authority for the Port Macquarie-Hastings Shire, which is about 420 kilometres north of Sydney. The Council acquired the Land, before 1988 and used it as a car park.

At the relevant times, Mr Roach was the Council's General Manager, while Mr Leahy was the Council's Director of Corporate and Business Services. Mr Owens was a Council officer who reported to Mr Leahy. Mr Walton was the Corporate Support Co-Ordinator of the Council. Of these officers only Mr Leahy gave evidence.

On about 27 February 2008, following an investigation into certain financial dealings of the Council, mostly relating to a development known as the Glasshouse, the Minister for Local Government dismissed the Council and appointed an Administrator. While this event is not directly relevant to the present appeal, some of the documents in evidence refer to the Council's Administrator. The Minister appointed Mr Persson as the first Administrator of the Council, but he was later succeeded in that position by Mr Payne.

The second appellant (" Woolworths Ltd ") is a publicly listed company. The first appellant (" Fabcot ") is a wholly owned subsidiary of Woolworths Ltd and its development arm. Woolworths has about 800 supermarkets and about 2000 other stores in Australia. At the material times, Woolworths operated a " Food for Less " supermarket at the Plaza Centre in the central business district of Port Macquarie. Woolworths also owned sites adjacent to the Land and had a supermarket at Settlement City on the fringe of the central business district, about 1.5 kilometres from the Land.

Mr Kemmler was Woolworths' Director of Property responsible for its property portfolio. Mr Oates, the National Manager, Property Development reported to Mr Kemmler, while Mr Garmston, the Senior Development Manager, reported to Mr Oates. All three officers of Woolworths gave evidence.

Coles is a member of the Coles Group which operates supermarkets and other brand stores nationally. The Coles Group is Woolworths' major competitor. At the relevant times, Mr Kullen was Coles' Development Manager and Mr Boyce was its General Manager of Property. Ms McLaughlin was a Development Manager who dealt with the Council in relation to the Land. At some stage, the Coles Group was acquired by Wesfarmers Ltd, which thereupon became the parent company. Nothing turns on this acquisition.

Early Expressions of Interest

In 2002, the Council wished to sell the Land for development and to that end, commenced negotiations with Woolworths. The proposal under discussion was that Woolworths transfer the Plaza Centre to the Council and make a cash payment in return for the Land. As part of this development plan, Woolworths acquired the sites adjoining the Land. However, the negotiations with the Council stalled in late 2005.

In late 2005, the Council publicly invited expressions of interest for the purchase and development of the Land. Woolworths and Coles submitted expressions of interest and the Council short-listed each for consideration. Woolworths' revised expression of interest, dated 7 March 2006, offered $5,890,000 in cash for the Land, including 154 car parking spaces and the bus shelter to be retained on site. The offer was conditional on the issue of a development consent to Fabcot on acceptable terms within 12 months.

On 27 March 2006, the Council resolved to accept Woolworths' proposal. Clause 1 of the resolution provided as follows:

"1. The Council accept the proposal for Lot 2 DP 850217 [the Land] from Fabcot Pty Ltd on the following basis:

i. Noting that Council does not endorse the concept design presented, that the contract for sale not be entered into before Council consideration and the General Manager has attached 'Owner's Consent' to the Development Application. If agreement cannot be reached on the urban design aspects of the proposal within 3 months, Council shall re-enter negotiations with the other short listed party ." (Emphasis added.)

The Council's decision was conveyed to Woolworths by Mr Owens in a letter of 28 March 2006 to Mr Garmston. The letter stated that:

"At its meeting held on Monday, 27 th March 2006 Council considered the proposals from a selected group of the Expression of Interest submissions.

As a result Council has agreed to work with Woolworths on its proposal to achieve a result, which meets the needs and expectations of both parties."

In a Council file note of a conversation on the same day, apparently prepared by Mr Owens, he was recorded as having advised Mr Garmston that Woolworths was:

"the preferred group subject to agreement on aspects of the scheme proposed been [sic] agreed within the next three months."

The file note also recorded the following:

"SG [Mr Garmston] asked 'what are the issues' and 'do they have an exclusivity period of three months'. As I had not seen the resolution I could not say but suggested I will contact him again soon to set up a meeting to cover the issues and we have three months to work it out."

On 28 March 2006, the Council also wrote to Coles advising that the Council had agreed to work with one of the group selected from those who had submitted expressions of interest " in an effort to achieve a result ". The letter stated that:

"A three (3) month timeframe has been set to conclude the discussions and agree to a solution."

The primary Judge found that for at least three months after 28 March 2006 the Council negotiated with only Woolworths. Woolworths presented a design to the Council which, amongst other things, contemplated acquisition of an adjoining property called Finnian's Tavern. The proposal also involved 154 car parking spaces being made available for public use and the building of a bus terminal for the Council. In the result, Woolworths was unable to acquire the tavern and it decided not to proceed with the acquisition and development of the Land.

On 31 October 2006, Mr Owens of the Council wrote to Mr Garmston of Woolworths as follows:

"As discussed the current design proposal submitted by Fabcot and adopted by Council subject to DA assumed the acquisition of the Finnian's Tavern site. However following a marketing program by the Tavern's owners we understand a contract has now been exchanged with another party for the purchase and management of the Tavern. As a consequence you advised that Fabcot Pty Ltd has withdrawn its offer to acquire and develop Council's site.

Clearly this is a disappointing result after extensive and productive discussions. However Council will now open discussions with the other short listed parties to the Expression of Interest ." (Emphasis added.)

Mr Leahy subsequently sent an email to Mr Garmston informing him that, having regard to Woolworths withdrawal, the Council would be entering into negotiations with other short-listed parties.

In late 2006, Woolworths was giving consideration to opening a Dan Murphy's liquor store near the Land. One proposal under discussion was to build a freestanding Dan Murphy's store on the adjoining property, which Woolworths had acquired as a result of its earlier unsuccessful negotiations with the Council. On 12 December 2006, Woolworths' Property Committee approved the proposal.

A confidential Council meeting of 18 December 2006 recommended that the Council enter into exclusive negotiations with Coles in relation to the sale of the Land. The minutes recorded the recommendation and the discussion at the meeting as follows:

" RECOMMENDATION

That it be a recommendation to Council that Council enter into exclusive negotiations with Coles Myer Limited in respect of Lot 2 DP 850217 for a period ending 9 March 2007.

Discussion

Council, at its Meeting held on 6 November 2006, resolved to reopen negotiations with previously short-listed parties in respect of Lot 2 DP 850217 following the withdrawal by Woolworths Ltd of its offer for Council's land-holding. A copy of this report is linked below for the information of Councillors ...

Discussions were opened with Coles Myer Limited following a request of the two other short-listed parties to indicate any continuing interest. The other short-listed group has not responded to Council's request.

..." (Emphasis in original.)

The Council adopted this recommendation on 18 December 2006. The following day Mr Owens advised Ms McLaughlin of Coles by email of the Council's resolution.

On 8 January 2007, Woolworths submitted a development application to the Council for construction of the Dan Murphy's outlet. The Council granted development consent on 23 July 2007. In the meantime, on 16 July 2007, Woolworths submitted a development application to the Council for the refurbishment of its existing Food for Less store. This application was ultimately approved on 4 March 2009, after Woolworths had taken proceedings in the Land and Environment Court.

On 22 February 2007, Coles submitted an offer for the Land. The total benefit to the Council was said to be $10,066,000 comprising:

$2,541,000 as the value of reinstated public parking;
$525,000 for a new relocated bus terminal; and

$7,000,000 in cash.

The letter noted that Coles' " exclusive due diligence period " expired on 15 April 2007 and it requested an extension of this period in the event that Council did not approve the offer within the " exclusive dealing period ". It is not clear why the letter referred to the period of exclusivity as terminating on 15 April 2007, rather than 9 March 2007 (as stated in the Council's resolution).

On 29 March 2007, Mr Owens sent an email to Ms McLaughlin referring to ongoing negotiations. The letter recorded an agreement that:

"we will continue to work with Coles in an attempt to resolve these outstanding issues and will not enter into discussion with other parties whilst these discussions continue."

In April 2007, in the course of a meeting concerning the proposal to construct the Dan Murphy's outlet, the Council's officers informed Mr Garmston that the Council was in the final stages of negotiations with Coles concerning the Land, but that if the negotiations " fell over " there might be an opportunity for Woolworths to re-open negotiations with the Council.

On 3 May 2007, Ms McLaughlin confirmed Coles' offer to the Council, subject to certain conditions. Her letter concluded as follows:

"The timing of settlement and conditions of the agreement can be determined by the parties during the exclusive due diligence period."

Discussions continued between the Council and Coles thereafter. On 3 July 2007, Mr Owens recorded that he advised Ms McLaughlin that the Council was not prepared to grant Coles an option over the Land. He also recorded a number of unresolved issues between the parties.

The 2007 Expression of Interest

A Council memorandum of 11 October 2007, apparently prepared by Mr Owens, noted that a number of unresolved issues had been discussed with Coles. The memorandum recorded the following:

"I indicated firstly that Coles exclusivity period is over upon which they sought an indication if another offer is on the table. I declined to comment."

Mr Owens and Mr Leahy met with Mr Garmston of Woolworths on 31 October 2007. Mr Garmston was invited to discuss Woolworths' current position concerning the Land "[b]ecause of the changing position of Coles ". Mr Garmston indicated that Woolworths continued to be interested, although it had progressed the development of the Dan Murphy's outlet. He said that Woolworths would adhere to the offer of $5,890,000 made in March 2006. Mr Leahy replied that an offer of $7,000,000 was required.

On 6 November 2007, Mr Owens had another conversation with Mr Garmston. Mr Owens' note of the conversation included the following:

"Steven [Garmston] stated that Woolworths is still keenly interested in development of the Short St site. ... He suggested Woolworths be offered an option for a fee to allow for conclusion of an agreed development scheme which can then proceed to DA stage with settlement on DA approval.

I indicated that it is likely Council will agree to a new EOI process rather than any exclusive arrangements . I noted that in view of the planning initiatives developed over the period since close of the last EOI [Expression of Interest] the results of a new EOI should be resolved fairly quickly. Steven disagreed and stated that Woolworths would not be interested in responding to a new EOI primarily because of timing for Dan Murphys." (Emphasis added.)

On 19 November 2007, a further meeting took place between the Council and Woolworths. The Woolworths file note of that meeting was as follows:

"1. SG [Mr Garmston] advised WOW [Woolworths] very disappointed with process of previous EOI which took 2 years and ended in shambles.

2. SG advised that BO [Mr Owens] ... had contacted him 2 weeks ago to confirm negotiation with Coles has not been conclusive and its exclusivity period had ended . Did WOW wish to discuss its interest?

3. WOW undertook more concept designs and met with Council (BO and Tony Leahy). Issues regarding repositioning of Dan Murphy with offices [and other alterations] were tabled by WOW and discussed.

4. This meeting concluded when SG advised price of $9M (being $6M for the land and $3M for the 154 public car spaces). TL [Mr Leahy] said Council would not consider unless WOW confirmed its previous bid of $7M. SG advised offer at $6M was given to BS [Mr Sharpham, Deputy Mayor] in writing in April 2007 (copy tabled). WOW prepared to negotiate commercial/planning outcome if Council serious.

5. Next week BO advised SG Council was going back out for EOI. SG confirmed WOW unlikely to participate.

6. RD [Mr Drew, Mayor] advised Council would like to negotiate with WOW but had to observe 'due process'. This involved an EOI on 17 November closing on 13 December. Decision expected by Council mid/late January 2008.

7. SG advised WOW was unlikely to participate given the previous experience.

8. BS advised Council had sought legal advice and on balance had been advised too much time and too many discussions had voided previous EOI.

9. RD said Council was absolutely committed to achieving a quick outcome . External issues (Glasshouse) [a separate issue creating a need for Council to obtain funds] made it impossible for Council to negotiate directly with WOW." (Emphasis added.)

The Council advertised for expressions of interest on 20 November 2007. The Council's published invitation included the following :

"Port Macquarie-Hastings Council (Council) is seeking expressions of interest for the development of a commercial site located in the Port Macquarie Central Business District. This is an exceptional opportunity to purchase, lease or joint venture the whole or part of this land for commercial development.

This Expression of Interest (EOI) is provided as a guide only. It will NOT form part of any contract for sale, lease or joint venture in relation to [the Land]. Applicants deemed to comply with the selection criteria would be short-listed and then proceed to an interview process. Applicants short-listed may be invited to further tender for either purchase, lease or joint venture as determined by Council.

...

ASSESSMENT OF EXPRESSIONS OF INTEREST

Only expressions addressing all of the criteria and supporting information outlined will be evaluated. Council shall assess all EOI's in an open and consistent manner. An expression will not be deemed acceptable unless it is received in writing. All applications received will be treated in the strictest of confidence." (Emphasis in original.)

The closing date for submission of EOIs was 13 December 2007.

Woolworths submitted its EOI to the Council on 5 December 2007, in the following terms:

"We are pleased to submit the following offer for the purchase of the whole of the Subject Land on the following basis:

Commercial Offer : $10,000,000 comprising:

1. $7,000,000 cash

2. 154 public car spaces and a
bus station having a total value of $3,000,000.

Purchaser: Fabcot Pty Ltd ...

...

Special Conditions

1. Settlement of the contract to be conditional upon issue of development consent by the Council on terms acceptable to Fabcot Pty Limited within twenty-four (24) months from exchange of contracts.

2. If development consent is not issued within twenty-four (24) months or issued on terms unacceptable to Fabcot Pty Limited, the contract will be void and the deposit will be refunded to Fabcot Pty Limited ...

...

4. The terms of this EOI are confidential, and both parties agree not to disclose these terms to any other parties without the prior, written consent of the other.

This offer is subject to Woolworths Limited's Board approval. Should Council accept Fabcot's offer, no binding contract for sale of the Property is intended or shall exist until such approval has been given and contracts agreed and exchanged."

Coles expressed its interest in a letter dated 13 December 2007. Its offer was said to be worth $10,557,000, including a cash contribution of $6,680,000.

A confidential Council meeting of 21 January 2008 resolved to make the following recommendation to the Council meeting to be held later on the same day:

"... the Council accept the offer for Lot 2 DP 850217 from Fabcot Pty Ltd on the following basis:

i. That a covenant be placed on the land protecting the current 154 public carparking spaces in perpetuity.'

ii. That the bus station situated on Lot 2 DP 850217 be retained in Council ownership.

iii. That the design negotiations be undertaken in accordance with the proposal outlined in the report.

iv. That the contract for sale not be entered into before the General Manager has attached 'Owner's Consent' to the Development Application.

v. That the contract for sale document be conditional upon

a) entering into the contract does not infer any approvals under the EP&A Act [ Environmental Planning and Assessment Act 1979]

b) Council will assess any development application under the requirements of the EP&A Act

c) completion of the sale by 30 th June 2008.

vi. That Council establish and fund an Independent Hearing and Assessment Panel to consider this specific application and make a recommendation to Council."

The minutes of this meeting, which were apparently not seen by Woolworths, refer by way of background to the Council's resolution of 18 December 2006 by which it resolved to enter into exclusive negotiations with Coles. However, the Committee's recommendation did not include an exclusivity arrangement.

The Council meeting of 21 January 2008 resolved to accept the recommendation made in the confidential meeting. The resolution, including the terms of the recommendation, formed part of the Council's public record.

On 22 January 2008, Mr Owen informed Mr Kullen of Coles that it had been unsuccessful in its bid for the Land. Mr Owen told Mr Kullen that Woolworths had improved its bid and had also proposed a revised plan that addressed Council's objections to the proposed development of the Dan Murphy's site.

The Council conveyed its decision to Woolworths in a letter dated 7 February 2008:

"I refer to recent discussions and confirm Council at its meeting on the 21 January 2008 resolved to accept the offer of $7.0m cash for Lot 2 DP 850217 from Fabcot Pty Ltd subject to the following conditions:

The design negotiations will be undertaken generally in accordance with the proposal submitted by Fabcot Pty Ltd with the condition that the sale be completed by 30 th June 2008 .

As discussed at our recent meeting a covenant will be placed on the land protecting the 154 car parking spaces in perpetuity and the bus terminal will be retained in Council ownership.

The Contract of Sale document is currently being prepared by Donovan Oates Hannaford. This document does not infer [sic] any approvals under the Environmental Planning and Assessment Act under which Act Council will assess any DA. An Independent Hearing and Assessment Panel will be appointed to consider the specific application and make a recommendation to Council.

As stated at our meeting Council is anxious to finalise this matter by 30 June 2008 and we look forward to you working with our Planners so that a DA can be submitted for consideration over the coming weeks." (Emphasis added.)

Dealings Between the Council and Woolworths

On 7 April 2008, Woolworths lodged a development application in respect of the Land and the adjoining land. On the same day, Mr Garmston asked Mr Leahy whether preparation of the contract of sale had been delayed by the appointment of the Administrator. Mr Leahy replied that there was no delay from the Administrator's point of view.

On 8 April 2008, the Council's then solicitors forwarded a draft contract to Mr Garmston. The covering letter stated that there would be no binding agreement prior to exchange.

As the primary Judge found (at [35]), extensive dealings took place between the Council and Woolworths concerning the proposed sale and development of the Land. In particular the Council had a number of difficulties with Woolworths' development application, to which Coles had objected. As early as 23 April 2008, Mr Owens pointed out to Mr Leahy that if the contract of sale was subject to development approval, settlement would " almost certainly move beyond 30 th June 2008 ".

On 19 November 2008, the Council sent Woolworths a document estimating that the levies and other charges relating to the proposed development of the Land would total $470,194. This document provoked a protest from Mr Garmston to Mr Leahy in the following terms:

"The basis of [our] negotiations has always been underpinned by the premise that in addition to selling its land, Council also required significant contribution by Woolworths towards public amenities and services by way of providing at no cost to Council, 154 public car parking spaces and title to a new bus terminal. Woolworths for its part has accepted this requirement in good faith, but on the understanding that no developer contributions would be required by Council.

With the cost of the Council land negotiated at the height of the real estate boom and the additional cost of public amenities estimated to be in excess of $3 million, Woolworths simply cannot afford to absorb a further $470,000 in developer contributions on the project .

At no stage during the recent negotiations from October 2007 or through the DA process was this issue raised (as expected by Woolworths) and we are now surprised to receive a notice of developer charges dated 19 November 2008 in the amount of $470,194.80.

In the circumstances Woolworths requests that Council waive these developer charges or acknowledge that they are decreased to be satisfied by the provision of alternative public amenities provided by Woolworths being the public car parking and bus terminus.

Alternatively, Woolworths will have to amend its offer to purchase the council land to $6,530,000 which I may remind you is still well above our offer of $5,890,000 dated 27 April 2007 and Councils [sic] own valuation of $5,570.000." (Emphasis added.)

On 19 December 2008, the Council advised Woolworths that the Council had granted a deferred commencement consent to Woolworths' development application for the Land and the adjoining property. The consent required arrangements for specified works to be carried out within three months. It also required Woolworths to pay levies and other charges amounting to $450,299. The apparent delay in granting the development approval was due to the necessity for an independent review by a panel.

On 15 January 2009, Woolworths' solicitors (Henry Davis York) advised the Council's solicitors that " the development levies imposed under the development consent are unacceptable to our client ". The letter stated that as the result of the contributions payable, the cost of the proposed development exceeded Woolworths' estimate by $400,000. Accordingly, if the Council was unable to reduce the contributions, Woolworths would be compelled to reduce the price it was prepared to pay for the Land by the amount of the excess. The letter then requested the inclusion in the contract of an indemnity by the Council " in relation to contamination that may be present on the [L]and ".

On 4 February 2009, the Council's solicitors (Marsdens) pointed out that the Contribution Plan governing the development had commenced before Woolworths submitted its expression of interest. The Council therefore rejected Woolworths claimed understanding that there would be no levies payable by it and refused to contemplate any reduction in the price.

Marsdens' letter also conveyed the Council's refusal to provide the requested indemnity. The letter continued as follows:

"Council is aware that either all of the site or part of the site is re-claimed land. The particulars regarding the nature of the fill are unknown. ...

The adjoining land to 28 Hayward Street, Port Macquarie is owned by your client. That site was a former petrol station which contained underground fuel tanks. Council has previously raised that there may have been fuel leakage from these underground tanks with the risk of potentially contaminating the subject land.

If your client requires any tests to be undertaken, they should arrange for these tests to be undertaken on their own behalf."

Mr Leahy and Mr Roach of the Council met with Mr Oates and Mr Garmston at Sydney Airport on 20 February 2009. According to Mr Garmston's evidence, Mr Roach said that he would recommend that the contract include a clause requiring the Council to accept liability for contaminants up to a limit of $500,000, with Woolworths having a right to terminate should the cost of remediation exceed that figure. The primary Judge did not make a specific finding as to whether he accepted Mr Garmston's account of the conversation.

On 25 February 2009, the Property Committee of the Management of Woolworths approved a recommendation made by Messrs Garmston, Oates, Kemmler and Shambly (National Manager, Property Finance) that Woolworths purchase the Land for $7 million plus $500,000 acquisition costs. The proposal contemplated the development of an integrated Dan Murphy's and supermarket project for $30.85 million. The total project costs were estimated at $43,455 million, a very substantial increase from an earlier estimate of $30.85 million.

The justification for the project was explained as follows:

" Â· Development of an integrated supermarket and Dan Murphy's offer on the combined Council and Woolworths land in Hayward Street results in the best retail offer. (Strategy 2)

Â· A satisfactory development consent has now been achieved for Strategy 2 (subject to negotiation of developer charges exceeding $400,000) and a liquor licence for the Dan Murphy has also been obtained.

Â· An advantage of Strategy 2 for the Hayward St development, is that the down time for the supermarket can be managed to minimise loss of trade.

Â· The DA lodged as a 'fall back' position (Strategy 1) to reconfigure and expand the existing FFL supermarket does not have council support and the matter has been referred to the Land & Environment Court for determination. Should the Property Committee resolve to proceed with the current recommendation, the current court action would be discontinued and the property sold after relocation of the supermarket into the new development. This is to remain on foot until the integrated development commences.

Â· The financial feasibility for the integrated development (Strategy 2) is an improvement over the 2 separate developments (Strategy 1)."

The costs associated with the project included the following:

" Â· Construction Risk (High) : The site is filled and has a high water table, being essentially reclaimed land. The natural sub-soil has low bearing capacity and as a consequence attention will need to be paid to the excavation and structural design. An additional $2.0m for site and basement structure costs has been allowed by the QS in the current feasibility, together with a further $2.4m in additional building costs. DA conditions of consent and general cost escalation.

Â· Contract for sale (Medium) : The contract for sale with Council is yet to be finalised in detail, including the ability for WOW not to complete the development should the financials not be satisfactory."

A Council meeting of 25 February 2009 considered a recommendation in the following terms:

"1. That the Council reaffirm its acceptance of the offer for Lot 2 DP 850217 from Fabcot Pty Ltd.

2. That due to the significant public benefit being provided the council waive the Developer Contributions attributable to the site.

3. Council provide clauses, as outlined, to provide indemnity on Council's land in case of contamination."

The " clauses " referred to in the recommendation were to be to the following effect:

" Â· A process to work collaboratively to resolve any contamination issues on Council owned land;
Â· Council to provide an amount up to $300,000 for any works associated with contamination; and
Â· If works exceeded this amount parties are able to reopen the negotiation process."

At the meeting, the Council resolved to adopt the recommendation.

On 4 March 2009, Mr Leahy wrote to Mr Garmston informing him of the Council's resolution and of the clauses referred to in the resolution.

On 17 March 2009, Woolworths' solicitors wrote to the Council's solicitors as follows:

"Our client's understanding was that the parties had agreed that your client would reimburse our client up to $500,000 in respect of the remediation costs. My client subsequently received the attached letter [of 4 March 2009] from your client, which refers to $300,000 with a right to negotiate for a further $200,000.

When my client raised this with your client, your client responded that it did not wish to resile from its agreement to reimburse up to $500,000, but that the Administrator of the client took the view that an amount of $300,000 would appear to be more palatable to the ratepayers. My client is not comfortable with the arrangement outlined in your client's letter, as it does not see how such an arrangement can give it an enforceable right to payment of any amount in excess of $300,000. Can you please let us know the details of what your client is proposing in this regard, such that our client has, by some means, an enforceable right to reimbursement of the full $500,000?"

The Council's solicitors replied on 31 March 2009:

"I am instructed that Council has agreed to a maximum contribution in respect of remediation of $300,000.00.

This was confirmed by Council to Mr Garmston at its meeting held at Sydney Airport.

In the event however that the remediation exceeds $300,000.00, Council would at the time consider its position in relation to contributing in excess of $300,000.00 however the final decision would rest with Council if a contribution was to be made in excess of that amount."

The following day, Woolworths' solicitors stated Woolworths' position:

" Â· Woolworths originally required Council to indemnify Woolworths against any costs as a result of contamination of the Council's land. This was not agreed, but as a compromise, the parties agreed to cap Council's liability for remediation costs at $500,000;

Â· without discussion with Woolworths, your client indicated that it had changed its offer to $300,000, but the Council may consider paying up to $500,000 at its discretion;

Â· when my client queried the change to $300,000 with the General Manager, he advised that it was the Administrator who had amended the cap to $300,000;

Â· the General Manager advised Woolworths that Council would not 'walk away' from its agreement to pay up to $500,000 but that the additional $200,000, if incurred, would need to be managed in some other way; and

Â· the current proposal outlined in your email below does not offer Woolworths any comfort and is not acceptable to Woolworths."

On 2 April 2009, Mr Leahy commented in an internal memorandum on the email from Woolworths' solicitors:

" Â· In the meeting it was stated on numerous times that any discussions were subject to the 'Council's' approval.

Â· We also stated that we would not be signing up to $500k without some level of transparency on what, if any contamination was found.

Â· It was also clearly discussed by both parties that there should be the ability to walk away if it reached a 'threshold' or at least the ability to come back and discuss what the next steps might be and at what cost.

As usual Garmston is very liberal with the facts and has twisted them to suit himself."

The Council Deals with Coles

On 16 April 2009, Ms Cross of the Council emailed Mr Walton to say that she had spoken to Mr Leahy, also of the Council, about Coles and that he would consider a " back up plan ". She asked if Mr Walton would be able to meet with Coles on the Council's behalf if Mr Roach approved the approach.

On 20 April 2009, Mr Garmston and Mr Oates met Mr Payne (the Administrator) and Mr Roach. According to Mr Garmston's evidence, Mr Payne asked whether Woolworths could meet a deadline of 30 June 2009, to which Mr Oates said that there would be no problem. Mr Garmston said that Woolworths was committed to the project and wanted to make sure that it got on top of the contamination issue. According to Mr Garmston, Mr Payne said that the contamination issue could be sorted out shortly.

On 22 April 2009, the Council approved a recommendation that it increase its " monetary contamination cap " relating to the development to $500,000. The discussion noted that clauses would be inserted into the contract to allow the Council to inspect the site to determine what action would be taken.

On 23 April 2009, the Council's solicitors wrote to Woolworths' solicitors as follows:

"I am instructed that our respective clients met on 20 April 2009. Arising out of that meeting the following was agreed:

1. That Council would contribute up to a maximum amount of $500,000.00 in respect of remediation of the site.

2. That the area to be used as a permanent bus terminal would be excised from Lot 2 in DP 850217.

I am awaiting instructions from my client in relation to the bus terminal and once those instructions have been received our respective clients have agreed that completion will take place no later than 30 June 2009. " (Emphasis in original.)

Mr Walton wrote a letter on 24 April 2009 to Mr Garmston in similar terms concerning the Council's remediation contribution. He said that the Council's solicitors had been requested to expedite the necessary amendments to the contract " to enable an exchange to occur without any further delay ".

Mr Garmston, in an affidavit sworn shortly before the trial, said that because Woolworths thought it was the only party dealing with the Council and because the Council had agreed to Woolworths' terms on 20 April 2009, he took a " hard approach " to negotiations from that time forward. He explained that he wished to hold the Council to the terms of its resolution and to the letter of 23 April 2009. Mr Garmston also said this:

"Taking this 'hard' approach included, on more than one occasion when I spoke with Council representatives, using the expression 'deal-breaker'. Based on what I had been told by Council officers on a number of occasions, I knew that Council was very keen to get the deal done by 30 June 2009. By threatening to walk away from the deal, I was trying to position myself to have Council stand by its resolution of 22 April 2009 or else run the risk of losing the deal."

There was a good deal of inconclusive cross-examination of Mr Leahy as to when he had first heard the expression " deal breaker " used. Mr Garmston's evidence, however, is consistent with him having used that expression prior to the Council commencing negotiations with Coles on 19 May 2009.

On 27 April 2009, the Council's solicitors sent draft special conditions of contract to Woolworths' solicitors. The draft conditions departed substantially from the terms agreed by the Council on 22 April 2009. The special conditions capped the Council's indemnity at $300,000 (in cash or in kind at the Council's discretion) and provided that the indemnity was payable only in respect of asbestos contamination. If asbestos was detected between exchange and completion of the contract, the Council had to contribute $300,000 towards remediation, but if the cost of remediation was likely to exceed that amount the Council could rescind the contract.

In an email from Mr Garmston to Woolworths' solicitors of 1 May 2009, Mr Garmston responded to an inquiry from the solicitors (which he set out in his email) concerning contamination:

"Have the parties agreed that the only contamination which the vendor will remediate is asbestos contamination?

No. Fabcot require the Council to bear the additional cost to the project caused by any contamination (not just asbestos) of the Council's land, up to a cap of $500,000 but excluding any contamination caused by the adjoining properties owned by Fabcot."

On 8 May 2009, Woolworths' solicitors sent to Mr Garmston a draft provision that provided for the Council to make a " Remediation Contribution " of $500,000, not limited to asbestos.

On 8 May 2009, the Council's solicitors responded to an inquiry from Woolworths' solicitors concerning the bus terminal. The response concluded as follows:

"It is a condition of our clients [sic] commitment to sell the property to your client that completion take place by 30 th June 2009 and your urgent attention to this matter would be appreciated."

On 11 May 2009, an internal Council email recorded that the Council's solicitors had been " chasing " Woolworths' solicitors in relation to the sale for two weeks but they had " gone cold ". The Council's solicitor suggested that someone from the Council telephone Woolworths to put on some pressure.

On 13 May 2009, Woolworths forwarded an amended version of the draft contract to the Council's solicitors. The amendments incorporated Mr Garmston's instructions as to contamination. Accordingly, the amendments provided for an indemnity from the Council for all contamination, capped at $500,000. If contamination was identified between exchange and completion, Woolworths could either require the Council to contribute up to $500,000 for remediation or elect to rescind the contract. The Council was no longer to have a right to rescind if contamination was discovered.

On 15 May 2009, Mr Crittenden of the Council's solicitors emailed Mr Walton as follows:

"I note that I am to advise Fabcot's solicitors that if Contracts are not exchanged by 4 pm on 18 th May 2009, you will consider entering into discussions with Coles in relation to the development of the site."

Mr Leahy accepted in evidence that at the time the email was sent he, Mr Roach and Mr Walton agreed that the Council should inform Woolworths that it might deal with Coles.

Later that day, Mr Walton emailed Mr Crittenden and said that Mr Leahy of the Council had asked that the " deadline " be extended to 4 pm on 20 May 2009. Mr Walton also passed on Mr Leahy's request that he refer to " other parties " rather than identify Coles " should we discuss the sale of the site after this date ". Mr Crittenden did not in fact pass on the advice to Woolworths because his instructions were later changed.

On 18 May 2009, Mr Leahy and Mr Walton met Mr Kullen of Coles. The following day, Mr Leahy wrote to Mr Kullen, as follows:

"Council would be willing to consider a sale of this site on the following basis:

Purchase price $7 million.

Exchange of contracts before the 31 st May 2009 along with settlement by 30 th June 2009 or shortly thereafter.

Provision of 154 public car parking spaces on site in perpetuity.

Provision of a bus terminal and facilities transferred back to Council as a stratum lot.

Provision of a temporary bus terminal and facilities during construction of the permanent facilities.

Details regarding the existing Development Approval issued for the site are being prepared and will be forwarded to you shortly.

In addition draft Contracts for the sale of this land will also be sent to you as arranged.

Thank you for your continued interest in this property and I would be grateful for your early response to this proposal."

On 19 May 2009, Mr Kullen reported to Coles' officers by email on his discussions with Mr Leahy. The report included the following paragraphs:

"Following up on rumours that had come to us, it appears Woolworths has dragged out its position and Council has reached an untenable situation with them in respect to a satisfactory and/or acceptable settlement.

As a result, yesterday's discussions revolved around Council acknowledging Coles' continued interest albeit subject to subsequent management and Board review/approval and they have agreed to issue copies of contract documentation to us for consideration."

The Next Stage

On 21 May 2009, the Council's solicitors forwarded a draft contract, including special conditions, to Coles. The special conditions provided for the Council to provide an indemnity of up to $500,000 in respect of all contamination. If contamination was identified between exchange and completion, Coles had the option of requiring the Council to contribute $500,000 or of rescinding the contract. The Council also provided Coles with a copy of the development consent that had been granted to Woolworths on 19 December 2008.

On the same day, Mr Roach of the Council spoke with Mr Garmston, who asked for access to the Land to dig large trenches for soil testing. Mr Roach pointed out the impractical nature of the request, given that the site was a car park. According to Mr Roach's note of the conversation, he told Mr Garmston:

"to stop stalling and creating issues and sign the Contracts. I said I would consider his request for access to the site, if Contracts were exchanged, but until they showed some "good faith" towards resolving the issue, then no access would occur.

Stephen Garmston then brought up several other issues including the bus terminal, stating they were deal breakers for Woolworths."

Also on 21 May 2009, Mr Garmston sent an email to the Council pointing out that Woolworths had never agreed to limit the indemnity for contamination to asbestos. He said that the correspondence showed that all remediation work was to be covered. Mr Garmston also said that " other than this issue " it appeared that Woolworths was ready to exchange.

On 22 May 2009, the Council's solicitors sent revised draft special conditions to Coles. The draft made no provision for an indemnity by the Council in respect of contamination.

On 26 May 2009, the Council's solicitors responded to amendments to the draft contract that had been proposed by Woolworths' solicitors on 13 May 2009. The responses included the following:

"4. Condition 42 (contamination) has been reinstated to reflect the original condition restricting the rights and issues to Asbestos contamination. The intention is that the Property is purchased by Fabcot with or without contamination but subject to my client's remediation contribution payable in accordance with the Condition." (Emphasis in original.)

However, the revised draft special conditions provided for the Council to give an indemnity in respect of asbestos contamination up to $500,000, payable in cash or kind. If asbestos was identified between exchange and completion, the Council had the option of contributing up to $500,000 or rescinding.

The draft sent by the Council's solicitors prompted a protest from Mr Garmston to the Council, as follows:

"3) Contamination only relates to asbestos. Still no agreement on this issue.

4) Right of recission [sic] due to contamination now applies to Council not Fabcot. This does not make sense. My understanding of our agreement with respect to contamination was Council's liability was capped at $500k and Fabcot would have the opportunity of conducting some further due diligence between exchange & settlement to satisfy itself as far as reasonably practible that there was no gross contamination which would give rise to Fabcot recinding [sic] the contract. After settlement our right of recission [sic] fell away. We are now running out of time to do any worthwhile due diligence.

...

We have today gone out to tender for the construction and are very keen to 'wrap up' the contract documentation but I am concerned that the lawyers have taken over the process. We may need to sit down together with our respective lawyers and finalise the documentation."

On 3 June 2009, Mr Parkinson of Coles wrote to Mr Roach confirming Coles' offer to purchase the Land for $7,000,000 plus GST. The offer was subject to entry into a contract, but completion was estimated to be on or before 31 August 2009. The contract itself was to be subject to the granting of a satisfactory development consent in favour of Coles from the existing deferred consent. The development consent would incorporate 154 public car parking spaces for the benefit of the Council and a bus terminal of up to 150 square metres.

The terms and conditions of Coles' offer were stated to be strictly confidential and the Council was not to disclose the confidential information to any other person. Coles undertook, upon acceptance of the offer, to achieve board approval within 30 days.

On 3 June 2009, Mr Garmston sent an email to Mr Roach, as follows:

"Further to our telephone conversation this morning I attach the following correspondence which corroborates our interpretation of the contamination issue as it relates to the Council land.

1) Council letter dated 24 April 2009 confirming Council's resolution to increase the monetary indemnity for any contamination to $500,000.

2) Report to Council Meeting 25 February 2009 addressing Woolworths request for an indemnity in relation to any contamination and recommendation to work collaboratively to resolve any contamination and provide an amount of up to $300,000 for any works associated with contamination.

3) File notes of our meeting at Sydney Airport on 20 February 2009 where Paul Oates introduced the concept of a capped liability up to $500,000 for the cost of removal/containment of contamination.

Andrew, it is my recollection that our meeting with Gary Payne in our offices on 20 April 2009 was to discuss and agree the amount of capped Council liability, not the definition of contamination, as this had never been raised before. This is also Paul Oates [sic] recollection."

Mr Roach replied the same day suggesting a meeting to sort out the problems urgently.

Mr Garmston emailed Mr Roach on 4 June 2009 making Woolworths' position on contamination clear:

" Unfortunately, our position in relation to the contamination issue is non-negotiable, and this would appear to be the major sticking point (i.e. Council to be responsible for any contamination on its land up to a maximum amount of $500,000 but excluding any contamination which may have leached from the adjoining Fabcot land).

I am sure all the other issues can be resolved and I would suggest the best and quickest way is to have a round table conference with both sets of lawyers in attendance to document what is agreed." (Emphasis added.)

On the same day, Woolworths' solicitors said in an email to the Council's solicitors that " [o]ur respective clients are considerably apart on a number of issues ".

On about 5 June 2009, a telephone conference took place between Ms Ginifer (Coles' in-house lawyer), Mr Kullen, and Mr Parkinson of Coles, and Mr Leahy and Mr Walton of the Council. The following exchange occurred:

"GINIFER: Are you free to deal with us in relation to the property?

COUNCIL Yes. There is no binding position with Woolworths."
OFFICER:

On 5 June 2009, Mr Roach wrote to Mr Parkinson of Coles stating that he was prepared to recommend to the Council's Administrator that the Land be sold to Coles on terms set out in the letter. The price was to be $7,000,000 plus GST and the other terms were to be consistent with those previously put forward by Coles. The contract was subject to approval by Coles' Board and the Council, but approval timeframes were to be clearly agreed in an exchange of letters. Mr Roach also said this:

"... I am also prepared to consider the waiving of Section 94A contributions in light of other streetscape infrastructure being provided over and above normal DA conditions. Council will also provide an 'in kind' contribution amounting to a maximum of $300,000 towards any remedial works required, following the identification of any contamination in the form of asbestos that may be located on site during the construction period. This 'in kind contribution' will be by way of use of Council facilities such as Council's landfill site.

Would you kindly as a matter of urgency advise your acceptance of this proposal to enable the preparation of reports to be submitted to the Administrator for consideration at a Council Meeting." (Emphasis added.)

On 9 June 2009, Woolworths' solicitors prepared a summary of the outstanding contractual issues. These included the Council's insistence that the indemnity be in respect of asbestos contamination only and its entitlement to rescind the contract if asked to pay for remediation.

On 10 June 2009, Mr Roach emailed Mr Garmston as follows:

"I have asked [Mr Leahy's] assistant to coordinate a meeting for us all including the lawyers. As your last correspondence was fairly definate [sic] regarding the contamination issue, it would be helpful to know your results from the eight bore holes already taken in the interests of transparency prior to this meeting."

As his Honour explained, the reference to the bore holes was to an environmental report that had been obtained by Woolworths in 2005. Woolworths sent the report to Mr Roach on 11 June 2009.

On 12 June 2009, the Council received written advice from its solicitors that it was under no obligation to proceed with Fabcot in relation to the sale of the Land as there was no binding contract in place. The advice also stated that there was nothing in the Local Government Act 1993 (NSW) that prohibited the Council from " disengaging with Fabcott [sic] and/or engaging with Coles ".

On or about 13 June 2009, Mr Walton read out to Mr Kullen of Coles the summary conclusions in the environmental report.

In a conversation between Mr Leahy and Mr Parkinson on 16 June 2009, the following exchange took place:

"PARKINSON: Has Council sought any legal advice to confirm that it is free to deal with us?

LEAHY: Yes and we have been advised that we are free to deal with Coles."

On 17 June 2009, the Council wrote to Woolworths enclosing the development consent for the development consisting of a new retail and commercial centre, including the supermarket, and a new bus terminal. The covering letter noted that:

"Under the terms of the original determination on 17 December 2008 conditions C(10) and C(39) require the payment of development contributions in accordance with the attached Notice of Payment Developer Contributions.

Subsequent to the determination Council resolved on 25 February 2009 that due to the significant public benefit being provided, the Council resolved to waive the Developer Contributions attributable to the site. Accordingly the requirements of conditions C(10) and C(39) are satisfied and payment not required in this regard."

On 17 June 2009, Mr Boyce wrote to the Council confirming that Coles was prepared to proceed with the purchase of the Land on the conditions set out in the letter. These included the Council's indemnity for contamination being limited to $300,000, but exclusive of GST.

On 18 June 2009, Mr Leahy wrote to Mr Boyce of Coles expressing his concern that the proposed sale of the Land had not substantially progressed since 5 June 2009. Mr Leahy continued as follows:

"As you are aware Council is in the final stages of negotiations with another party regarding the sale of this land.

Council is prepared to proceed with the sale of this land to Coles however we require greater certainty than the proposed 'letters of intent' currently under discussion.

I have previously indicated that there is a planned meeting with the other party scheduled for tomorrow, Friday, 19 th June 2009.

You are given the opportunity to expedite Coles' immediate intention to proceed with this sale by signing the attached Contract of Sale ..."

The letter set out the terms and conditions of the contract. These included the waiver by the Council of what were described as " Section 94A Contributions " and agreement by the Council to provide an " in kind " contribution of up to $300,000 towards any remedial work required because of asbestos contamination located on the site during the construction period.

On the same day, Mr Pepperell of Coles emailed a number of his colleagues, as follows:

"If there is any doubt or debate about the appropriateness of our strategy to acquire the Council site, for a replacement store and the significant positive incremental outcome this provides Coles v's Do Nothing, the attached CAR's [Capital Application Request] should put this debate to rest.

...

I have no doubt that unless we move swiftly to secure the acquisition and manage the risks strategicly [sic] to achieve this that [Woolworths] will become aware of the game and the window of opportunity will close very quickly."

Mr Boyce gave his approval to Coles proceeding with the purchase of the Land.

Council Rejects Woolworths and Agrees with Coles

On 19 June 2009, Mr Garmston and Mr Leahy had a telephone conversation about the outstanding issues. Mr Leahy's note of the conversation stated that Mr Garmston had said that the issue of the indemnity being confined to asbestos was a " deal breaker " for Woolworths. Mr Leahy replied that the Council was unlikely to move on this issue.

On 19 June 2009, Mr Boyce of Coles wrote to the Council confirming that Coles was prepared to proceed on the terms referred to in the Council's letter of 5 June 2009, subject to certain matters set out in Mr Boyce's letter. These included the following:

" Purchaser

1. The purchaser will be Coles Group Property Developments Limited (Coles) or a nominee of Coles.

Approvals

2. The contract will be subject to approval by Wesfarmers Board (the Board) and approval by Council. We confirm that the contract will be submitted to the Board for approval on 29 June 2009, and that the Board's decision will be communicated to Council within 24 hours. We require that Council seeks approval to enter into a contract on the terms of this offer by 25 June 2009 and communicates the decision to Coles within 24 hours.

Parties bound

3. Once Coles and the Council exchange this correspondence, the parties will be bound to negotiate in good faith to agree on and, once agreement is reached, enter into the legal documents needed to effect the transaction. ...

Development application

4. Subject to Council providing the necessary details of its required works, Coles will prepare the development application, to which Council (as landowner) will not unreasonably withhold or delay its consent, and Coles will use its best endeavours to submit the development application on or before 30 June 2009. ...

...

Remediation
7. From the date of receipt of acceptance of the terms of this letter by Council, Council will provide Coles with access to the Property to carry out a legal and physical due diligence. Completion of the contract will need to be conditional on Coles' environmental investigations confirming that the property is not contaminated (except to the extent indicated in paragraph 8).
8. The in-kind contribution to remediation of contamination of $300,000 must be GST-exclusive. Council will need to reimburse Coles for any resulting GST liability (and Coles will provide a tax invoice).
9. Coles agreement to proceed in accordance with this letter is on the understanding that Council has disclosed or will immediately after the date of this letter disclose to Coles all material documents and other information which Council has or is aware of concerning contamination of the Property.
This offer and all communications prior to and subsequent to this offer concerning the sale of the property are confidential to the parties and their professional advisers, and must not be disclosed to any other person unless required by law.
On receipt of this letter signed by or behalf [sic] of the Council, it is the intent of the parties to be bound by this letter so that we can proceed to due diligence, progress finalisation of the development application and prepare Board papers for submission to our Board for approval.
We hope that you appreciate the commercial reasons for our desire to proceed in this manner. We are committed to transacting with Council as soon as possible, however, you would appreciate the need for a period of time to complete a reasonable due diligence given that the other party that you have been dealing with has had 12 months or more to do such work."

On 22 June 2009, Mr Boyce asked Mr Pepperell if Mr Parkinson had heard anything about Woolworths signing " any acquisition contract ". Mr Pepperell responded to Mr Boyce's inquiry by email:

"No, nothing as yet.

As you probably guessed, the reason for asking in my email, what the next steps should be and if Ben [Parkinson] intends arranging a meeting with Council, is to get some feedback and action.

Walter [Kullen] called his council contacts today, that feed back suggests we are still in the game. ... Council has asked who in Coles should their Administrator (Gary Payne) talk to in order to provide sufficient comfort to Coles that Council wish to continue to pursue, with urgency, Coles acquisition of the site.

...

Bottom line, it looks like a good time to pounce."

On 22 June 2009, Mr Leahy wrote to Mr Boyce proposing that if negotiations for the sale of the Land were successful in the terms of the letter, the parties should exchange contracts within 48 hours of a Council resolution to sell to Coles. The letter addressed the issue of remediation, as follows:

"... Council will address only matters relating to contamination as a result of asbestos in the terms of the Special Conditions of the contracts previously issued to Coles with a limit of an in kind contribution to a maximum of $300,000.

In the event that any remediation works exceed this figure Council propose that there be a condition to allow both parties to re-negotiate the terms of the Contract."

On 23 June 2009, Mr Garmston emailed Mr Roach, as follows:

"In speaking to Tony Leahy on Friday I confirmed the outstanding issues for Woolworths were mainly commercial with the main issue still being contamination. My review of the contract special conditions last week highlighted the following points:

1) The issues of deferred commencement of the DA and possible Land & Environment Court appeal of the Council's consent has now been superseded and the contract is no longer conditional on theses [sic] issues.

...

3) The contract is now only conditional on on [sic] the parties entering into an Agreement for Lease(s) relating to the bus terminal - depending on whether this issue is considered to be adequately covered by the development consent the contract could be unconditional.

4) Completion by 30 June is looking difficult at this stage.

5) Woolworths will not accept contamination be limited to asbestos.

6) Council is not liable to contribute to any contamination emanating from the adjoining property(s) owned by Woolworths.

7) I do not understand why Council require a right of rescission if it elects not to contribute to remediation - it has already agreed to contribute up to a maximum of $500,000 and anything above this would be bourn [sic] by Woolworths .

8) Woolworths has provided to Council a copy of preliminary environmental investigations undertaken in February 2005 - Woolworths requires consent to undertake further environmental investigations prior to settlement and a right to rescind the contract should those investigations indicate that the property is contaminated to such a degree that remediation is uneconomic. This due diligence is expected to take 2-3 weeks.

9) Woolworths requires a first & last right of refusal to acquire the Council's bus terminal stratum in the event that Council should ever decide to dispose of this property....

I look forward to meeting with you on Thursday to finalise the contract...". (Emphasis added.)

On 24 June 2009, the Council delegated to the General Manager the authority " to execute the most advantageous Contracts for the Sale of [the Land]".

On 25 June 2009, the Council met separately with Woolworths and Coles representatives at Sydney Airport. The primary Judge found that at the meeting between the Council and Woolworths, a conversation to the following effect took place:

"DAVIS [of Woolworths' Solicitors]:
Next issue to deal with is the contamination issue. The issue, as I understand it, is whether or not Council's $500,000 contribution to remediate the site will be limited to asbestos only, or whether it will apply to any contaminant, other than something emanating from the adjourning Woolworths land.

GARMSTON: This one is a deal-breaker for Woolworths. We have never agreed to limit Council's liability to just asbestos, and it is not something that we will agree to.

LEAHY: Council's current position is that the indemnity will only apply to asbestos and nothing more. I will take back what you say to Council to see if it is willing to pay for general contamination.

GARMSTON: In order to resolve this contamination issue, we want the contract set up to be able to undertake testing between exchange and completion, so that we can rescind the contract if there is contamination and the costs of remediating that contamination will exceed the indemnity. Or, alternatively, we would be willing to enter into a conditional contract and then undertake a site audit statement.

LEAHY: The other aspect of this that we would like Woolworths to consider is the mechanism for paying the indemnity amount. Council would like to be able to pay 'in kind' by providing access to Council's services to undertake the remediate works. Those services would be provided at cost, with no profit margin.

GARMSTON: In principle, I have no difficulty with that.

LEAHY: OK. I will go away and get some instructions on the contamination issue. (Emphasis added.)

On 26 June 2009, Coles' solicitors sent revised special conditions to the Council's solicitors. These provided for an indemnity capped at $300,000 and limited to asbestos. If Coles estimated that the cost of remediating any contamination on the Land (not merely asbestos) would exceed $300,000, provision was made for renegotiation of the agreement. If agreement could not be reached, Coles could rescind.

On 26 June 2009, Mr Leahy of the Council telephoned Mr Garmston. In that conversation, Mr Leahy told Mr Garmston that the Council was not prepared to engage in any further discussions regarding the Council's position. According to Mr Garmston, the following exchange also took place:

"TL: Steve, Council is prepared to move forward with Woolworths on the following terms. First, the contamination indemnity will not be limited to asbestos. Secondly, Council's liability on that indemnity will be capped at $300,000 (rather than $500,00). Thirdly, Woolworths will be required to pay section 62 [sic: s 64] contributions of $262,679.30.

SG: Tony, this is unacceptable. We really need to have a meeting with Gary Payne and Andrew Roach to sort this out.

TL: Steve, I intend to put this offer to you in writing so you can make your decision."

Mr Leahy subsequently sent a letter to Mr Garmston on the same day. The covering note advised that:

"... after discussing your request for a meeting with Council's General Manager and Administrator it is advised that they are no longer prepared to enter into further discussion regarding Council's position.

Based on the above please consider the attached letter from Council and provide your response by Monday, 29 th June 2009 at 4.00pm."

The attached letter was as follows:

"I wish to confirm Council's position in relation to the sale of this land and matters that have reached an impasse in negotiations. Council has considered your concern regarding the matter of contamination and in this regard I wish to confirm that Council is prepared to contribute an "in kind contribution" to a maximum of $300,000.00 towards the remediation of the site if contamination is found during the course of your development of the site.
In addition to this clause Council has considered the previous commitment to the waiving of developer contributions and in this regard is only prepared to waive [Section 94A] Contributions and therefore will require the payment of Section 64 Contributions.
You indicated during our recent telephone conversation that you would not accept the above conditions and in this regard would be unlikely to proceed with the purchase of this land.
Council is prepared to allow you to consider this matter and require your formal advice by 4.00pm on Monday, 29th June 2009.
Council looks forward to working with you to achieve a positive outcome in these negotiations."

The reference to the s 94A contributions was to a sum of $187,000 required under the Levy Contributions Plan, while the reference to s 64 contributions was to the standard developer charges (water/sewerage) under s 64 of the Local Government Act 1919 (NSW).

On Friday 26 June 2009, the Council gave Coles permission to carry out investigations on the Land the following Sunday, 28 June 2009. Mr Kullen instructed the investigator to avoid discussions with any interested member of the public who might observe him on the site.

On 29 June 2009, Mr Leahy sent a copy of his letter to Mr Payne, the Administrator. The email set out the important points for each of the " deals ":

"Coles:

Â· Agreed to asbestos only, capped at $300k of in kind contribution which was defined today as use of Council's tip site, with the $300k accounted for via the published per tonne rate.

Â· They have until the 27 July to come back to Council on the above issue with the right to rescind. The data at present shows that no major contamination has been found. All comments from Coles at present leads us to the point that this will not create any issues, and the work they did on site on the weekend showed no problems.

Â· Happy to pay Section 64, in excess of $200k, and agreed to Council waiving the Section 94A approximately $180k.

Â· Contract subject to DA.

Woolworths:

Â· Want Council to broaden from asbestos to contamination in general, we had $500k on the table which was undefined as to whether it was cash or in kind. We now have $300k broaden to all contamination but only in kind, no cash.

Â· We were to waive both S94A and S64 totalling in excess of $400k. We have now reduced that to only S94A at approximately $180k.

Â· They also had the right to rescind based on contamination work yet to be done, similar to Coles.

We have in both contracts put a process around contamination that allows both parties to reopen talks prior to them withdrawing if contamination is in the extreme. Extreme is defined at present of the equivalent to our contribution, for example with Coles they have to put in $300k along with ours prior to the talks recommencing, ie a total expenditure of $600k."

At about this time, Woolworths' solicitors prepare a minute relating to the contamination issue. It included the following:

" Asbestos

Key Issue is whether the $500,000 contribution by Council applies to any contamination found on the property (except contamination emanating from adjoining Woolworths owned land), or only to asbestos.

Â· SG [Mr Garmston] advised that this is a deal-breaker - Woolworths has never agreed to limit Council's liability to asbestos, and will not agree to this.

Â· TL [Mr Leahy] advised that Council's position is that the $500,000 must be limited to asbestos.

Â· TL will go back to Council to get instructions on whether Council will agree to pay the $500,000 for general contamination found on the property."

At 5.26 pm on 29 June 2009, after expiration of the deadline referred to in Mr Leahy's letter of 26 June 2009, Mr Garmston sent an email to Mr Roach of the Council, as follows:

"It is ... disappointing to receive Tony Leahy's email late on Friday afternoon including new conditions proposed by Council and advising that yourself and the Administrator, Gary Payne, are not prepared to discuss these new conditions or Council's position regarding current negotiations.

I have discussed the current impasse with Paul Oates (National Development Manager) who has offered to meet you in Port Macquarie, and Gary Payne if required, to resolve this matter.

A suggestion Council may wish to consider, which is not far removed from our original agreement, follows.

Put simply, Woolworths originally required an indemnity from Council in respect to any contamination encountered on the Council land (excluding any contamination emanating from the adjoining land owned by Woolworths).

Council was unwilling to provide this indemnity but agreed to cap its liability to a maximum of $500,000. Woolworths agreed to this position provided it was able to undertake further due diligence in respect to any contamination during the period between exchange and settlement, and had a right to rescind the contract should the cost to removal/remediation be excessive (after Council's contribution).

It is not equitable to expect Woolworths to accept unlimited liability for the cost to remove/remediate contamination on Council's land which was filled and used by Council, without allowing Woolworths to validate its potential exposure.

Therefore as suggested at our meeting on Thursday 25 June 2009, a compromise would be to allow Woolworths to undertake sampling (at its cost) to determine the extent and cost to remove/remediate contamination (if any), and for Council to contribute an "in kind contribution" (being a new concept in the negotiation) up to a maximum of $500,000. In turn, Woolworths would be responsible for any cost in excess of $500,000 up to a maximum of $500,000. This process should only take about 3-4 weeks. Should the assessment of the excess cost exceed $500,000 Woolworths will have the right to rescind the contract.

It is assumed from discussions with Tony Leahy that "in kind contributions" means use of Council waste disposal sites and transport to those sites using Council trucks. This appears to be workable in principle.

Please feel free to respond directly to Paul Oates as this is a much too important matter for both Council and Woolworths to allow personalities to get in the way."

Later that evening, Mr Roach emailed Mr Payne (the Administrator) as follows:

"Below is an email from Steve Garmston that arrived about an hour ago, well after the 4pm cutoff.

The overall profitability of the proposed project required the income stream from the retail project on the Land and the neighbouring site to be taken into account. While the inclusion of this revenue stream (including the revenue from the Dan Murphy's outlet) was positive, none of the Woolworths' witnesses gave evidence that the project as a whole was seen as particularly profitable by Woolworths' accepted internal standards. Moreover, as Mr Garmston conceded in his evidence, the returns from the project would have been adversely affected by any overrun in the expected costs of the development.

Other Factors

Mr Smith contended that the primary Judge had given insufficient weight to other objective factors, such as the alacrity with which Coles had seized the opportunity to acquire the Land in mid 2009 and Woolworths' interest in denying its major competitor a strategic site.

Coles undoubtedly acted with alacrity in mid 2009, once it knew that the Council was free to negotiate with it. However, Coles' decision was based on its own analysis of the costs and benefits of the purchase. This necessarily involved different considerations to those influencing Woolworths. Woolworths own assessment of the project, to which I have already referred, is of more direct relevance to the counterfactual his Honour was required to determine.

For the reasons I have given, Woolworths' assessment did not indicate that it would acquire the Land even if the Council insisted on departing from terms previously agreed and even if the costs and risks of acquisition exceeded Woolworths' expectations. His Honour found (at [160]) that the Council's intransigence (unprincipled from Woolworths' point of view) required Woolworths, if it was to proceed with the purchase, to pay more for the Land than it had expected.

It is also no doubt true that Woolworths had an interest in denying Coles a strategic site in Port Macquarie. But it had had that interest for a long time, including when its EOI was unsuccessful in 2006. It continued to have that interest after it became apparent in mid-2009 that the Council would wish to deal with third parties. Yet Woolworths did not seize the opportunity available to it. On the contrary a day after the Council's deadline had expired, Mr Oates was insisting that Woolworths could not agree to a position worse for Woolworths than that previously agreed by the Council. In my opinion, his Honour was fully entitled to weigh Woolworths' failure in the balance in determining whether Woolworths had satisfied him that it would have yielded to the Council's demands had it known that the Council was dealing with Coles.

The primary Judge took into account that Woolworths' primary position in the litigation was initially that it had an enforceable agreement with the Council for the sale of the Land. The evidence established that this was not merely a stance adopted by Woolworths' legal representatives. Mr Kemmler, for example, accepted that Mr Oates had told him in late June 2009 that he (Mr Oates) was of the opinion that Woolworths had an enforceable agreement.

Woolworths' invocation of contractual principles in the litigation is not determinative of whether Woolworths would have yielded to the Council's demands if it had known that the Council was dealing with Coles. Nor did his Honour treat it as such. He regarded Woolworths' reliance on an enforceable agreement as providing support for his finding that Woolworths' negotiators saw themselves as taking a stand on a matter of principle. This reasoning seems to me to be unexceptionable.

No Error

The primary Judge made a number of findings that were based in part on his assessment of the evidence given by the executives of Woolworths. In making these findings, his Honour had the advantage of seeing the witnesses and evaluating the manner in which they gave evidence. There is no basis for overturning these findings: Fox v Percy [2003] HCA 22; 214 CLR 118, at [28]-[29], per Gleeson CJ, Gummow and Kirby JJ.

The primary Judge, in the light of these findings and the objective evidence, ultimately found that Woolworths would not have accepted the Council's terms even if Woolworths had been aware that the Council was dealing with Coles. In assessing whether his Honour's finding was correct, I am prepared to assume that the approach is that laid down in Warren v Coombes [1979] HCA 9; 142 CLR 531, at 551, per Gibbs ACJ, Jacobs and Murphy JJ.

On that assumption, there is no basis for interfering with his Honour's finding. Once his Honour regarded the evidence of Woolworths' witnesses as coloured by hindsight and once he found that Mr Garmston had been genuine in telling the Council that the disputed issues were deal breakers, the objective evidence supports his Honour's finding. Woolworths had the opportunity to accept the Council's conditions when it knew that the Council would wish to deal with third parties, but Woolworths never changed its hard line. Woolworths own assessment of the project did not indicate that it would bow to demands that it thought unreasonable or unprincipled, or that substantially reduced the financial attractiveness of the project. Mr Garmston's refusal to accept the Council's terms, encouraged by Mr Oates, was properly characterised by his Honour as a stand on principle, motivated by Mr Garmston's sense of outrage that the Council was resiling from an agreed position. That stand, maintained even after expiration of the Council's deadline, made it unlikely that Woolworths would change position even if it knew Coles was in the picture.

Woolworths' challenge to his Honour's finding on the counterfactual must be rejected. It follows that the appeal must be dismissed.

Notice of Contention

In view of the conclusion I have reached on the appeal, it is not necessary to decide whether the Council's challenge to the primary Judge's finding of misleading conduct should succeed. Nonetheless, as the issue was argued I should address it.

I shall not repeat what has been said about the deficiencies of the pleading or the uncertainty surrounding aspects of Woolworths' case. However, it may be that the deficiencies on the pleading and the uncertainties surrounding Woolworths' case diverted the primary Judge's attention from what seems to me to be the critical issue. This is whether, assuming that Woolworths ever had a reasonable expectation that the Council would inform it if the Council intended to negotiate with a third party, it could have held that expectation on or about 19 May 2009, when the Council decided to negotiate with Coles for the sale of the Land.

Principles

There was no significant disagreement between the parties to the principles to apply in relation to the notice of contention. Nor was it submitted that the primary Judge had mis-stated the relevant principles. They may be stated briefly:

(i) For conduct to be misleading or deceptive it is not necessary that it convey an express or implied representation: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592, at [32 n 35], per Gleeson CJ, Hayne and Heydon JJ; Miller v BMW , at [15], per French CJ and Kiefel J. It is sufficient that the conduct leads or is likely to lead another party into error: Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; 104 FCR 564, at [63], per French J (with whom Beaumont and Finkelstein JJ agreed); Miller v BMW , at [15].

(ii) In a case of alleged misleading or deceptive conduct as a result of non-disclosure, it is not necessary to show that the alleged contravenor knew of the facts not disclosed: Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, at 467, per curiam ; Johnson Tiles , at [66]. However, knowledge may be relevant, for example, where disclosure of a fact would reasonably be expected if the fact were known to the alleged contravenor: Johnson Tiles , at [66].

(iii) The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether in the light of all relevant circumstances, there has been conduct which is misleading or deceptive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, at 41, per Gummow J (with whom Black CJ and Cooper J agreed). While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist: Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054, at 53,195, per French J, approved in Demagogue v Ramensky , at 41; Miller v BMW , at [18].

(iv) In commercial dealings between individual entities, the characterisation of conduct must be undertaken by reference to circumstances and context; Miller v BMW , at [20]. The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged: Miller v BMW , at [20].

(v) The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The judgment as to whether there is such a reasonable expectation is objective: Miller v BMW , at [19]-[20].

(vi) The invocation of a reasonable expectation that if a fact exists it will be disclosed, directs attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs, or high moral expectations that exceed the requirements of the general law or of the prohibition imposed by s 42 of the FT Act : Miller v BMW , at [21].

(vi) In general, s 42 of the FT Act does not require a party to commercial negotiations to volunteer information which will assist the decision-making of the other party. A fortiori , s 42 does not require a party to volunteer information in order to avoid the careless disregard of its own interests of a party of equal bargaining power and competence: Miller v BMW , at [22].

The primary Judge made no finding that there was an industry practice that negotiations with the successful bidder in an EOI process would continue on an exclusive basis until the vendor (in the case of a sale of land) notified the bidder that the period of exclusivity was to end. Mr Smith nonetheless submitted that the evidence established that there was such a practice and that it supported the reasonable expectation found by the primary Judge. It is convenient to consider this argument first since it requires reference to evidence of more general significance.

Mr Smith relied particularly on the evidence of the Coles' executives. However, their evidence must be understood in the context of the terms of the Council's resolution of 18 December 2006 which accepted Coles' EOI. Unlike the Council's resolution of 21 January 2008 accepting Woolworths' EOI, the 2006 resolution expressly required the Council to enter into exclusive negotiations with Coles for the sale of the Land.

Industry Practice

Mr Kullen, not surprisingly, accepted that if there was an exclusive arrangement between the Council and Coles, he would expect to be told that the Council was negotiating with a third party. That did not carry matters very far and his evidence elsewhere was not particularly helpful to Woolworths:

"Q. During May and June 2009 you knew, didn't you, that it would be relevant to Woolworths to know whether or not Coles was interested in the negotiations for this land?

A. If they hadn't seen relevance after 16 months it's in anyone's speculation as to what Woolworths would have thought.

...

HIS HONOUR: That was a non-answer. Ask the question again

...

Q Didn't you in May and June 2009 think that it would be relevant to Woolworths to know that Coles was negotiating with council in relation to this land?

A. No, I didn't think that, nor, I disregarded that."

Mr Boyce said in his evidence that had he learned in 2007, when Coles had an exclusive dealing arrangement with the Council, that the Council was negotiating with other parties, he would have been very concerned. However, as he explained, he would have been concerned because Coles and the Council had agreed to " the commercial terms of the exclusivity ". This lends no support to the industry practice relied on by Mr Smith.

Mr Boyce also said that he assumed that Woolworths, on the basis of its success with the EOI in early 2008, would have engaged in exclusive negotiations with the Council. His evidence, however, was consistent with Mr Boyce having assumed that Woolworths had negotiated a similar arrangement with the Council as Coles had negotiated a year earlier. Indeed, this is the more likely interpretation of Mr Boyce's evidence, given the following exchanges:

"Q. And as you understood the position, council's practice was to inform a party who had the benefit of an exclusive negotiation arrangement that that arrangement was at an end when council sought to deal with other parties in relation to the land?

A. That would have been the experience that Coles had in its previous exclusivity with council but I can't speak to the way that council would otherwise have dealt with other parties .

Q. Did you make an assumption as to whether council had informed Woolworths that council had proposed to terminate the exclusive negotiation arrangement and negotiate with Coles?

A. I assumed that council had informed Woolworths that, in effect, the property was open for negotiation again by both parties and I assumed other parties as well.

...

Q. ... when this matter was brought to your attention by Mr Kullen in June of 2007, your understanding was that Woolworths had an exclusive negotiation arrangement with the council, do you agree?

A. My understanding was that Woolworths may well have had an exclusive negotiating period with council, but that that must have come to an end.

Q. And that is an assumption you made?

A. Yes, it is.

...

Q. ... At the time Mr Kullen brought the matter to your attention you had assumed that Woolworths had an exclusive negotiation arrangement with council, correct?

A. Yes.

Q. You didn't know whether that exclusive negotiation arrangement had been brought to an end by council, correct?

A. No, I didn't know whether it had been brought to an end by council or whether it had been brought to an end by virtue of the actions that Woolworths might have taken or not taken.

Q. So so far as you knew, the exclusive negotiation arrangement may continue in existence?

A. So far as I - so far as I know they may, but my assumption from the actions that had been taken was that they were no longer in existence.

Q. And the assumption was based upon, is this right, your belief that council would not for so long as the exclusive negotiation arrangement was in existence deal with another party?

A. That would be correct, yes.

...

Q. Did you say to Mr Kullen, 'Well look, as I understand it, Woolworths had been in an exclusive negotiation arrangement with Coles - sorry, with Woolworths, has that arrangement been brought to an end?'?

A. No. The only thing I can recall asking is whether council was free to deal with Coles.

Q. And you were intending to ask by that, 'Is there a contract in place which would prevent Coles dealing with council ?'?

A. In effect, yes ." (Emphasis added.)

Mr Leahy of the Council gave this evidence:

"Q. It never crossed your mind, did it, in early 2008, that if council accepted one entity's EOI, you might go off and negotiate with another party?

A. No, because we would have expected conclusion of this process swiftly and the deal to be completed.

Q. In other words, until negotiations broke down with Woolworths you would expect to negotiate exclusively with them?

A. Yes."

This passage suggests that in early 2008 Mr Leahy did not expect the Council to negotiate with a party other than Woolworths because he expected the process to be concluded rapidly . At no stage in his evidence did Mr Leahy accept that he would expect the period of exclusivity to continue indefinitely or until the Council notified Woolworths that the period of exclusivity would end.

Mr Leahy explained the position that he adopted in mid-May 2009 in this passage:

"Q. Now you say, don't you, that Mr Garmston's use of the term 'deal breaker' was influential in you recommending that council deal with Coles?

A. Yes, and us not being able to agree on the contamination issue.

Q. And you say, don't you, that you recommended dealing with Coles for the first time in about mid May 2009?

A. Yes, I can't be certain of the date, but it would have been around that time.

Q And it was because it was in mid May that you had a fear that negotiations were falling over with Woolworths?

A. Yes.

Q. And you hadn't before May, had you, had the feeling that negotiations were falling over?

A. No, and that was based on a conversation both with the administrator and Mr Roach, after their meeting with Woolworths on, approximately, the 20 th of April in which we had a feeling, Jeff and I, that it was a deal completed."

Later in his evidence Mr Leahy acknowledged that his affidavit did not explain why he had changed his mind in May 2009 about telling Woolworths concerning the discussion with Coles. However, he was cross-examined on this issue and denied that he had considered it necessary or consistent with " Council's value and code of conduct " to tell Woolworths. He said that there was a perceived advantage to the Council in telling Woolworths about Coles, in that the information might put pressure on Woolworths to finalise the deal. However, he also said that there were disadvantages and that the decision not to tell Woolworths was based on an assessment of commercial risks. These included the risk that Woolworths would walk from the negotiations if it knew the Council was dealing with Coles. When pressed as to whether he thought that was a real risk, Mr Leahy said that in " the context of the language and the behaviour of Woolworths " he thought it was.

Mr Kemmler's evidence was equivocal on the question of whether there was an industry practice of the kind propounded by Mr Smith. Mr Kemmler said that he had assumed, on the basis of Woolworths' success with its EOI and the prolonged period of exclusive negotiations with the Council, that the Council was dealing exclusively with Woolworths. However, he agreed in cross-examination that he did not know whether there had been any separately negotiated option or exclusivity agreement in place between the Council and Woolworths. Mr Kemmler's evidence is consistent with his having made this assumption because he thought that an express exclusivity arrangement had been put in place between the Council and Woolworths. In any event, he never stated in his evidence that there was a practice that the successful party in an EOI process would enjoy an indefinite period of exclusivity until the other party notified it that the exclusivity period was to end.

Mr Garmston's evidence was even less helpful to Woolworths. Mr Garmston, it will be recalled, had enquired of the Council in late March 2006 whether Woolworths, which had been told that it was the preferred bidder at that time, was to have an exclusivity period of three months. Mr Garmston was cross-examined about this enquiry:

"Q. You asked 'do we have an exclusivity period?', didn't you, of Mr Owens?

A. There was a discussion about an exclusivity period. I don't recall whether I asked for it or whether Mr Owens or the Council granted it.

Q. Can I suggest to you that you did ask for an exclusivity period?

A. Possibly.

Q. And can I suggest to you that the reason you asked for an exclusivity period was because you appreciated that the mere fact of having had an expression of interest accepted did not give you by reason of that fact alone any certainty that you would be the only party with whom the Council would deal?

A. No, that's not correct.

Q. Why would you have asked for an exclusivity period otherwise?

A. Because I was aware that the expression of interest was to short list Woolworths and then, two, a period of three months would be given to Woolworths to negotiate an acceptable, accepted commercial terms, and if they weren't accepted then the Council advised they had the right to go back to the under bidder.

Q. So whether or not you suggested it or not, you regarded it as essential from Woolworths point of view that you had locked in an exclusivity agreement or understanding which would govern your dealings with the Council for a specific time period?

A. Correct .

Q. And that course of action is entirely consistent with your evidence in relation to an earlier question I asked that negotiating and securing such an agreement or understanding is in fact the only way in commercial property transactions to protect yourself against being gazumped?

A. Correct.

Q. And is it correct that in the market such agreements are sometimes described as option agreements?

A. Yes." (Emphasis added.)

Mr Garmston accepted that it was a frequent practice of Woolworths to enter into option agreements or exclusivity deeds to eliminate the risk of " gazumping ".

Mr Garmston was asked in his cross-examination about the basis of his assumption from early 2008 that the Council would deal only with Woolworths. His evidence was as follows:

"Q. You made an assumption from the beginning of 2008 didn't you, that Council was only dealing with Woolworths?

A. Yes.

Q. And you made that assumption because you assumed that as a matter of your understanding of Council's legal obligations because of the EOI process Council you assumed had first to advise Woolworths that it would deal with another party and pass a resolution to that effect before it could do so?

A. In the second EOI you are talking?

Q. Yes?

A Correct.

Q. That was the basis of your assumption?

A. Or part of the basis.

Q. What do you say was the rest of the basis?

A. The actions of the Council over that period in going through an expression, the first expression of interest with both Woolworths and Coles and having no result and then the Council telephoning me asking if Woolworths was still interested in acquiring the land. When I said yes and wanted to open negotiations at a meeting with the Mayor and the Deputy Mayor and general manager they advised me that due to probity issues that they felt they needed to go through an expression of interest and couldn't deal directly with Woolworths.

Q. Right, and that together with your understanding of Council's legal obligations were the basis on which you made an assumption that the Council was only dealing -

A. Over the course of 2008, 2007 and 2008, yes.

Q. And 2009?

A. And 2009.

Q. Now you agree with this, don't you, that nothing in the Council's call for expressions of interest indicated that Council would or could only deal with one party?

A. That is correct.

Q. And nothing in the call for an expression of interest said that any party whose expression of interest was accepted was the only party with whom Council was at liberty to deal?

A. That's correct.

Q. And nothing subsequently received from Council said that Council was only dealing with Woolworths?

A. Correct.

Q. And nothing subsequently said by any Council officer to you was to the effect that Council was only dealing with Woolworths?

A. Correct.

Q. And you never asked any Council officer whether Council was dealing with anyone else?

A. Correct.

Q. You simply assumed it to be the position ?

A. That's correct .

Q. You also assumed that Coles was no longer interested in the property ?

A. Yes ." (Emphasis added.)

In the light of this evidence, it is impossible to conclude that there was an industry practice that, in the absence of an expressly negotiated period of exclusivity, a potential purchaser whose EOI was accepted by the vendor was entitled to be informed if the vendor intended to negotiate with a third party. No doubt there might be circumstances in which an expectation of that kind, at least for a period, might be created even without an express exclusivity agreement. But the evidence does not establish an industry practice of the kind relied on by Woolworths.

A Reasonable Expectation?

It is by no means clear that from the outset Woolworths could have had reasonable expectation, objectively assessed, that the Council would inform it of any proposed dealings with third parties. The most significant factors that militate against this conclusion are the following:

·There was no industry practice that a party successfully submitting an EOI in relation to the purchase of land would enjoy a period of exclusivity in negotiations without an express arrangement to that effect.
·The Woolworths' executives, including Mr Garmston, knew that if Woolworths wished to be guaranteed a period of exclusivity, it would be necessary to negotiate such an arrangement, as Coles had done in 2006.
·Mr Garmston specifically sought an exclusivity arrangement with the Council in November 2007, but the Council opted for " a new EOI process rather than any exclusive arrangements ".
·Neither the Council's advertisement seeking EOIs nor its decision accepting Woolworths EOI stated that Woolworths would be entitled to a period of exclusivity.
·Mr Garmston accepted in his cross-examination that he had assumed from the outset that the Council was dealing only with Woolworths, but that he had made this assumption because of his understanding was that the Council was legally obliged by the EOI process to notify Woolworths of any dealings with third parties. Woolworths did not suggest that there was any legal obligation on the Council of the kind assumed by Mr Garmston.

Nonetheless, I am prepared to accept that a reasonable expectation of some sort was created in Woolworths by the EOI process. As Woolworths submitted, the proposal accepted by the Council required a collaborative endeavour including design negotiations, the submission of a development application and consideration by the Council of that application (albeit in its capacity as a consent authority). The Council's advertisement contemplated that there might be a short list of applicants who would be invited to tender for purchase of the Land. However, the Council's acceptance of Woolworths' EOI indicated an intention to deal only with Woolworths and with no other tenderer.

However, two things should be said about any expectation that might have been generated by the EOI process. The first is that any reasonable expectation generated by the EOI process might not have been that propounded by Woolworths in these proceedings. The expectation might have been, for example, that the Council would not sell the Land to a third party without first making a formal offer to Woolworths to sell the Land on terms no less favourable to Woolworths than those offered to the third party.

Secondly and more importantly, the EOI process could not have created an expectation that Woolworths would be entitled for an indefinite period to receive notification before the Council commenced negotiations with a third party. The Council's resolution of 21 January 2008 contemplated completion of the sale by 30 June 2008. The Council's letter of 7 February 2008 to Woolworths expressly imposed a condition to the same effect. The letter also recorded the Council's strong desire to finalise the sale by 30 June 2008. Any expectation that Woolworths was entitled to a period of exclusivity by reason of the EOI process could not have reasonably continued beyond 30 June 2008.

It is true that the Council continued to deal and negotiate with Woolworths after 30 June 2008. It is also true that the Council dealt only with Woolworths until May 2009. But if any reasonable expectation of exclusivity was generated by the further dealings, it could not have been an expectation that could reasonably continue indefinitely. There would have to come a time when Woolworths was no longer entitled to expect that the Council would not deal with a third party unless Woolworths was first notified.

In my view, that time came before 18 May 2009. If it were necessary to identify a specific time, I would place it at no later than 1 April 2009. By that date, following letters between the parties' solicitors, it was quite clear that there were very substantial impediments to finalisation of an agreement. The parties had not reached agreement on issues of major significance.

The fact that the negotiations continued, with the Council agreeing on 22 April 2009 to a $500,000 indemnity for all contamination, does not seem to me to detract from the conclusion I have expressed. By 1 April 2009, negotiations had continued for 9 months after the initial deadline that had been imposed by the Council in February 2008. Serious issues remained to be resolved. It was uncertain as to whether agreement could be reached. Any assumptions by Woolworths that it was entitled to exclusivity beyond that point rested on high expectations that were not objectively reasonable.

In any event, Woolworths could not reasonably have expected at 18 May 2009 that it was entitled to continued exclusivity in its dealings with the Council. By then, the fundamental disagreement between the parties as to the contamination indemnity had re-emerged. The differing versions of the draft contracts exchanged in early May 2009 represented very much more than mere drafting issues. The parties were at loggerheads. The Council was clearly becoming frustrated at Woolworths having " gone cold ". A reasonable observer would have concluded at that point that in view of the urgency of completing a sale of the Land, the Council might well seek another negotiating partner and that Woolworths could no longer have an expectation that it would receive prior notice of the Council's intention to do so.

For these reasons I do not think that Woolworths established that, as at 18 May 2009, it had a reasonable expectation that the Council would notify it before entering to negotiations with a third party. It follows that, had it been necessary to do so, the primary Judge's finding that the Council had engaged in misleading and deceptive conduct would have been set aside. This would have been a separate basis for dismissing Woolworths' appeal.

CONCLUSION

Woolworths' appeal should be dismissed. Woolworths should pay the Council's costs of the appeal.

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Case Title:	Fabcot Pty Ltd & Anor v Port Macquarie-Hastings Council
Medium Neutral Citation:	[2011] NSWCA 167
Hearing Date(s):	22, 23 March 2011
Decision Date:	30 June 2011
Jurisdiction:
Before:	Beazley JA at 1, Campbell JA at 2, Sackville AJA at 3.
Decision:	1. Appeal dismissed. 2. The Appellants pay the Respondent's costs of the appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	TRADE PRACTICES - causation - Council invites expressions of interest ("EOIs") to acquire land owned by it - Party A submits successful EOI - after protracted inconclusive negotiations with Party A Council begins negotiations with Party B without informing Party A - Council sells to Party B - Party A claims that Council engaged in misleading or deceptive conduct causing Party A loss and damage - primary Judge found that even if Party A had known of Council's dealings with Party B, Party A would still not have agreed to Council's terms - whether the finding was erroneous TRADE PRACTICES - whether Council had engaged in misleading or deceptive conduct - whether Council had represented that Council would negotiate exclusively with Party A unless and until it notified Party A that the period of exclusivity had ended - whether primary Judge correctly found that Party A had a reasonable expectation that it would have a prolonged period of exclusivity
Legislation Cited:	Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (NSW) Local Government Act 1919 (NSW) Local Government Act 1993 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 Cackett v Keswick [1902] 2 Ch 456 Chappel v Hart [1998] HCA 55; 195 CLR 232 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Fox v Percy [2003] HCA 22; 214 CLR 118 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2000] FCA 1572; 104 FCR 564 Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 Rosenberg v Percival [2001] HCA 18, 205 CLR 434 Warren v Coombes [1979] HCA 9; 142 CLR 531
Texts Cited:	J D Heydon, Trade Practices Law (Looseleaf Service)
Category:	Principal judgment
Parties:	Fabcot Pty Ltd (ACN 002 960 983) (First Appellant) Woolworths Limited (ACN 000 014 675) (Second Appellant) Port Macquarie-Hastings Council (ABN 11 236 901 601) (Respondent)
Representation
- Counsel:	Counsel: Mr R Smith SC with Mr N Owens (Appellants) Dr A Bell SC with Mr R Potter (Respondent)
- Solicitors:	Solicitors: Corrs Chambers Westgarth (Appellants) Marsdens Law Group (Respondent)
File number(s):	CA 2009/298679/004
Decision Under Appeal
- Court / Tribunal:	Supreme Court
- Before:	Hammerschlag J
- Date of Decision:	02 July 2010
- Citation:	Fabcot Pty Ltd v Port Macquarie-Hastings Council [2010] NSWSC 726
- Court File Number(s)	SC 2009/298679
Publication Restriction: