Laundy Hotels (Quarry) Pty Limited v Dyco Hotels Pty Limited atf The Parras Family Trust & Ors

[2022] HCATrans 216

[2022] HCATrans 216

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S125 of 2022

B e t w e e n -

LAUNDY HOTELS (QUARRY) PTY LIMITED (ACN 159 364 342)

Appellant

and

DYCO HOTELS PTY LIMITED (ACN 100 275 974) ATF THE PARRAS FAMILY TRUST

First Respondent

QUARRYMAN HOTEL OPERATIONS PTY LIMITED (ACN 634 263 933)

Second Respondent

DAPHNE MARIA PARRAS

Third Respondent

COLIN MICHAEL PARRAS

Fourth Respondent

KIEFEL CJ
GAGELER J
GORDON J
GLEESON J
JAGOT J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 9 DECEMBER 2022, AT 9.45 AM

Copyright in the High Court of Australia

____________________

MR J.T. GLEESON, SC:   May it please the Court, I appear with MR L.G. MORETTI for the appellant.  (instructed by JDK Legal)

MR N.C. HUTLEY, SC:   If your Honours please, I appear with MR C.D. FREEMAN and MS E.C. DUNLOP for the respondents.  (instructed by A.C. Comino & Associates)

KIEFEL CJ:   Yes, Mr Gleeson.

MR GLEESON:   Thank you, your Honours.  There is no objection to the notice of contention being relied upon.

Your Honours, the relevant contracts provided for the sale of a hotel business and the property entered on 31 January 2020, and the relevant completion dates were 30 March, for the business assets, and 31 March, for the property, licence and gaming entitlements.

The reason for two contracts I will come to shortly, which was a GST explanation to ensure that there was a supply of a going concern and therefore no GST – a perfectly proper structuring of the transaction – but somewhat important, given that the Chief Justice has ruled – and Mr Hutley has repeated 43 times in his written submissions – that this business was not a going concern and for that reason the vendor was not ready, willing and able to complete.

GLEESON J:   The primary judge did not make a finding as to that?

MR GLEESON:   No.  It is curious, your Honour, because at trial the case was frustration, not suspension, but the alleged failure of the business to continue to be a going concern was said to be the central particular of frustration.  That case, of course, was rejected as frustration.  In the written submissions and in the argument on appeal

it was somehow resurrected as a central proposition that this business was no longer a going concern and for that reason the vendor was not ready, willing and able to complete.

We would simply say that it was a going concern in both contract language and in GST language, that the relevant going concern obligation is clause 58.2, that the primary judge found 58.2 was not breached, there was no appeal and, therefore, the vendor was ready, willing and able to deliver a going concern and the whole of the Chief Justice’s reasons and the respondents’ submissions which rely upon that theme should be rejected.

GORDON J:   Is that because in a sense the presumption, or the assumption, that there was not a going concern in effect necessitates and leads inevitably to the one answer, whereas you say is a form of question to ask, and that is what was the contract and what was contracted to be sold?

MR GLEESON:   Yes, and in that sense statements about going concern are at too high a level of abstraction, we would have to work out what 50.1 means and what its structure is as a term in the contract.  In our submissions in reply we have sought to identify the issues arising at four levels.  Firstly, construction of 50.1.  Secondly, what is its true nature as a contractual term within the contract?  Then, thirdly, if there is any form of suspension of 50.1 or breach, does that have any consequence for the obligations to complete, and then fourthly, were we ready, willing, and able?  Your Honours, the Public Health Order ‑ ‑ ‑

GORDON J:   Can I just ask about that, though?  I do not seek to take you from that order as well, but if on construction it is said to be a clause which is able to be complied with, then the rest falls away, does it not?

MR GLEESON:   It does.  The simplest way home for the appellant is on that as a construction of the term, it could be said to be an implication and implied terms, but construction is a simpler way of looking at it, and one never gets to the following questions, which will raise issues of lawful excuse and the consequences of that.

Your Honours, the relevant Public Health Order is in volume 2, at page 434, and it descended about seven days before completion.  In clause 5, the direction was that all pubs and clubs be not open to members of the public except, relevantly, for selling food or beverages for takeaway.  Your Honours will see from that order that at that very early stage in COVID when knowledge of the risk was difficult to pin down, the order was comprehensive – it did not, of course, apply to one hotel, it applied to all – but this was one of the orders that also shut down churches, amusement centres, and the like.

It was a widespread order which clearly had a significant impact upon all of the persons covered by the order.  Obviously enough, it was a criminal offence not to comply with the order, that is volume 1, page 25, section 10 of the Public Health Act.  It was a temporary order, it went for 90 days subject to earlier revocation.  It was in fact earlier revoked.  The second version of the order commences at page 438.

GORDON J:   Could you just give us the tab number, Mr Gleeson?  Sorry.

MR GLEESON:   Yes.  So, the first order is at tab 9, the second order is at tab 10 and at clause 7, page 445, one can see from subclause (2) that there was a more relaxed ability to trade and there was some ability to trade on the premises.  So that was the position from May.  Then, by June, the third order, which is tab 11, commencing at page 454 on page 459 at clause 8, relaxed the restrictions yet again so that there was a cap on numbers and the four-square metre rule per person came in, which then applied, of course, for much of COVID.  So, the orders were temporary in that sense.

The next feature of the orders was, of course, they did not prohibit completion of this transaction or any transaction for a contract of sale and purchase.  They did not operate on the primary obligations to offer the assets and to pay the money.  They operated on the ancillary obligation in, for example, clause 50.1  Just finally on the statutory scheme, it would of course have been a serious step to breach these orders and, apart from the criminal offences and the punishments in the Public Health Act, clearly enough, the liquor licence itself may have been threatened.  I will just give the reference to the relevant provisions.  It is section 139 of the Liquor Act and section 141.

Your Honours, just before I come directly to 50.1, could I explain the structure of the contracts and the GST underpinning of them.  This is in the joint book of further materials.  Item 2 is the contract and item 3 is the condition subsequent deed, both signed on 31 January.  In item 2 on page 19 of the book, there is one vendor, which is the appellant.  The price is 11.25 million, deposit $562,500, and on page 20 there are two purchases.  The reason for the two purchases is that in the hotel industry it is common to sell the property and certain associated matters to one purchaser, whereas the hotel licence – sorry, I will be more precise.

If your Honours go to clause 64.1 on page 75, what is common is to sell the property, the liquor licence and the gaming machine entitlements, and certain lessor’s property to one purchaser, whereas the goodwill, plant and equipment and remaining business assets and lessee property is sold to a second purchaser.  So that is for efficient reasons in the hotel industry.  The reason that the GST point becomes important is that is that it is necessary for each of those contracts to involve the supply of a going concern at the date upon which the completion occurs, and that was covered by clause 58.1 and following.

Clause 58.1 is the agreement that the sale of the assets – that is, all assets – is the supply of a going concern, and 58.2 was the promise of the vendor to carry on the enterprise until the supply is made, and then 58.3 and following are subsidiary obligations – if, for some reason, it is not a going concern, then the purchaser will have to pay the difference to gross up the GST.

GORDON J:   Was that also why there was the lease?

MR GLEESON:   The lease, yes.  So, the theory – we have given your Honours separately the GST ruling, which is GSTR 2002/5, which deals directly with hotel‑type sales, particularly between paragraphs 131 to 134, and says that it is all lawful and works.  But the underlying theory is that on day 1, you supply the assets, other than the property and associated assets, but you grant a lease of the property so that on day 1 what the purchaser is receiving are all the assets necessary to carry on the business. Then, on day 2, you supply the property and the assets associated with that.

That is treated as the supply of a separate going concern and, in effect, the vendor, on day 2, the going concern is, I am a lessor of a property with associated assets and entitlements and by that means two going concerns have been supplied – no GST.  So, the whole point of clause 58 was to ensure that there was a going concern – or two going concerns – supplied and that is why that part of the Chief Justice’s reasons, we would submit, are in error.  Your Honours, the particular GST provision which explains that, is in volume 2, at tab 4 – it is section 38‑325 – read together with the definition of an enterprise ‑ ‑ ‑

KIEFEL CJ:   I am sorry, that was section?

MR GLEESON:   Section 38‑325 on page 107.

KIEFEL CJ:   Thank you.

MR GLEESON:   They are the conditions you need to meet, including, under 2(b):

the supplier carries on, or will carry on, the enterprise until the day of the supply –

and they must carry on as a going concern.  Then, “enterprise” is defined in section 9‑20.  So, any suggestion that this was not a going concern or, as Mr Hutley puts it in places, was not operational, is belied by this structure.  The way it can be tested is this.  Had the purchaser agreed to complete and the matter had gone through smoothly, would all the GST steps have been complied and there be no GST payable?  Answer:  yes.

Your Honours, the next aspect of the contract we would draw attention to is exactly what it is that was required to be delivered on completion.  What were the primary executory obligations?  That is found in clause 51.2.  The purchaser’s primary obligation is to pay the balance of the price and the vendor must transfer all of the assets except for certain excluded assets, free of encumbrances and deliver possession.  Those assets are defined on page 40, and they are the:

(a)Licence;

(b)Gaming Machine Entitlements

(c)Plant and Equipment;

(d)Property; and

(e)Business Assets.

Each of those terms, in turn, has its definition, including that the business assets include the goodwill and the goodwill – unsurprisingly, on page 44 – is the goodwill of the business and includes:

the exclusive right for the Purchaser to represent itself as carrying on the Business as the vendor’s successor –

The business, on page 40, being:

the hotel business trading as the “Quarrymans Hotel” which operates pursuant to the Licence –

We would submit that the concept of goodwill being used in the contract is the legal concept which the Court has dealt with in FCT v Murry and, more recently, in Placer Dome – and I will come to that a little later on – but, essentially, what the vendor had to deliver were all of those assets, including the goodwill, and it was in a position to do so on 30 and 31 March and it tendered a transfer of all those assets.

The next part of the contract that is important are the conditions precedent.  They are found via clauses 65 and 66 on page 76 and then item 13 on page 81.  Clause 65.1 makes the two contracts:

conditional . . . and interdependent –

and 65.2 explains which contract will be settled one day before the other.  So, the business assets, which include the goodwill, will be transferred the day before the transfer of the property license and gaming machine entitlements, then 65.3 and 65.4 explain they will be one day apart.  And 65.6 requires the grant of the lease on day 1, so that at the end of day 1, the purchaser will have everything they need to carry on the business.  They will have the property via the lease, and then on day 2, they will get the property via the transfer of the property.  So, 65.6 leads to the first condition precedent on page 81, which is the vendor must grant the lease.  That is a straightforward condition; it is either satisfied or not.  If you cannot grant the lease, you cannot complete – you are not ready, willing and able.

The only other condition precedent is clause 66, which was a specific condition dealing an Ausgrid problem, and it contained in quite some detail exactly how the problem would be dealt with and when it would deemed to be dealt with, and particularly in 66.4 contained an express mechanism for deferral of completion if more time was needed.  That becomes the second condition on page 81.

Justice Basten placed heavy reliance on these clauses.  The majority gave them little attention.  These clauses are an express recognition by the parties that these are the only conditions precedent to completion ‑ ‑ ‑

GORDON J:   There is also a clause 35.1 which is headed “conditions precedent” which identifies with precision that point, does it not?

MR GLEESON:   Yes.  Thank you, your Honour.  It is 35.1 on page 49.

GORDON J:   It is on page 49.

MR GLEESON:   The structure of 35.1 seems to be that the contracts are entered but the obligation to complete does not spring up unless each of those has been satisfied or waived.  But once each of them has been satisfied or waived, each party, on 30 and 31 March have the obligations to complete.  One of the difficulties, we submit, with the majority reasons is, in effect, they have generated an additional condition precedent in clause 50.1.

Your Honours, the next aspect of the contract are the warranties, both what is given and what is excluded.  So, clause 38 is a typical provision protecting the vendor through purchaser acknowledgments that it has satisfied itself of a whole series of matters, including under paragraph (b)(iv):

the present and future financial or income return to be derived from the Property –

At the end of (b) there is a bar on the purchaser making any requisitions or, indeed, delaying completion, rescinding or terminating as a result of any of those matters.

So then as to what is positively given by way of warranty – that is clause 48.  Clause 48.1 through to 48.7 is a detailed mechanism to ensure the liquor licence is transferred, the licence obviously being central to the assets to be delivered.  Then, in 48.8, here we have the positive warranties in the contract, and a number of them indicate the importance of the business being carried on lawfully, for example, paragraphs (a) through to (i).

We would submit it is a fundamental assumption of the contract that the parties will do what they are able to, to carry on their side of the bargain lawfully.  And, as the primary judge correctly said, the notion that the vendor would breach an order which could threaten the licence not only puts the vendor at risk of criminal proceedings but clearly damages the goodwill of the business and any such construction would be strained against.

Your Honours, could I go in particular to warranty (o) which – the numbering is a little strange but it is then a series of warranties about the licence.  They are numbered (p) and so on.  When you get down to (v), the paragraphs that follow – (w), (x) and (y) – really should be subparagraphs of (v), but the important point is this is the comprehensive set of warranties which are given in respect to the liquor licence.

Your Honours will note that whereas 48.8 had started as warranties, the date of contract qualified by knowledge, when one comes to (o) some of the warranties operate both at contract and completion, and that is particularly true for warranty (q), that the licence will subsist and be available.  Warranty (r), will not be subject to certain conditions.  Warranty (s), the poker machine entitlements will be available and so on.

Now, this was the critical part of the contract where the purchaser got the protection that was bargained for in respect to the liquor licence.  It is significant that at no stage in these proceedings has there been any suggestion of a claim for breach of these warranties.

As impressed Justice Basten, if these are the warranties that have been given, and all other warranties are excluded, one should not read a clause like 50.1 as in effect providing another warranty.  Your Honours, the liquor licence is attached to the contract – it is at page 103 and following, and it has, for example, the trading hours at the top of page 105, whether on premises or takeaway; it has the gaming machines on page 106.

This purchaser did not seek or obtain a warranty that there would be no change to the trading hours in the licence.  Yet, that is the effect of the majority’s judgment.

GORDON J:   Sorry, Mr Gleeson, can I just take you back to 48.8(r).  How do you read the last two lines of 48.8(r)?  Is that consistent with it?  In other words, is that, in effect, a warranty that recognises that there might be change?

MR GLEESON:   It appears to recognise there might be change to the conditions attached to the licence through the liquor licencing process, and there is no suggestion that that in any way was breached.

GORDON J:   Thank you.

MR GLEESON:   Pausing there, the Court has a contract where there are two express conditions precedent, neither of them was a problem.  Secondly, there are a series of warranties – neither of them are a problem.  There is a standard mechanism under the contract for sale for rescission – for example, page 29, clauses 7 and 8; none of that is said to be a problem – and what is left is clause 50.1.

I should just complete the two other contractual documents.  The lease which was to be given is attached to both the contract and the conditions subsequent deed, if I could go to it in the version at page 254, what is important is that on day 1, the purchaser – who is now the lessee – would be taking on the obligations to the vendor under the lease, and you see, for example, on page 257 in the schedule that item 10 – the permitted use would be “Hotel, gaming room and restaurant”, and item 14, the operating hours would be:

Any hours of trade permitted by law for the Permitted Use.

That concept is taken up in a number of clauses.  For example, on page 264, clause A2.1.

JAGOT J:   Sorry, clause 8?

MR GLEESON:   Clause A2.1.  On page 264:

that the Lessee will carry on and conduct the Lessee’s business at the Premises and exercise the Liquor Licence in a lawful, proper and efficient manner and strictly in accordance with the provisions of:

(a)the Liquor Act and all other relevant law –

So, the promise by the lessee is – unsurprisingly – we will comply with any legal regulation governing the property during the ‑ ‑ ‑

GORDON J:   Does that explain why that warranty that I just took you to is in that form?

MR GLEESON:   Yes.  So, it is clear that on day 1 the lessee would be complying with the law, including, if there be it, a public health order, and you see that also in clause 7.3 on page 278:

comply with all statutes, ordinances . . . affecting:

. . .

(c)the Premises –

So, it tends to confirm the underlying assumption of the contracts that the law would be complied with.  Then, the final document is that condition precedent deed which commences at page 254.

KIEFEL CJ:   I am sorry, which page?

MR GLEESON:   Sorry, page 245.

KIEFEL CJ:   Page 245, it is the Condition Subsequent?

MR GLEESON:   That is a double show of weariness, your Honour – 245.  Clause 2.1 on page 247 explains how the interdependent completion structure will occur, and clause 2.3 over the page is the obligation on the purchaser in that short interval to:

occupy the Property strictly in accordance with the Property Lease –

and:

run the Hotel Business in a good and business like manner.

Then if the property sale is not complete, the lease will be rescinded.  So, your Honours, I am now dealing with the submissions between paragraphs 5 to 9 of our outline, and clause 50.1 is found on page 62.  We would emphasise these features, that it is a clause which operates:

Subject to 50.2, from the date of this contract until Completion –

and it is a clause whereby the vendor promises to do certain things in that period.  Now, that may seem like a small submission to make, but the reason it is important is that the respondents read the clause rather differently as a clause which goes to identify the things which must be transferred on completion.  They treat it as identifying the thing which has to be conveyed, whereas what it is, is far more simply than that.  It is a promissory term, this is what I will do during a particular period.  The next submission is it has three limbs to it.  The relevant one is the first that I:

must carry on the Business –

in that period:

in the usual and ordinary course as regards its nature, scope and manner –

And that business, as we have seen from page 40, is the business of:

the “Quarrymans Hotel” which operates pursuant to the Licence.

So, in the very promise there is a recognition that the business that is being carried on is a business of a particular character, that is, licensed, and then it is a promise to carry it on in the “usual and ordinary course” and so on.  The second and the third limbs are not directly relevant to the appeal, save that they confirm the nature of the clause is a promise to do things within a defined period, the second being to:

maintain the Assets –

and the third being to keep inventory in “good repair”.  The critical promise, the first one, we would submit, has as its purpose the preservation of the goodwill of the business so far as that is within the vendor’s control.  Goodwill is, of course, an inherently non-static concept.  It has the various sources, whether in site goodwill, connections, various sources, but it inevitably can change over time and it can be valued at a greater or a lower figure over time.

The purpose of the first limb is that the vendor must do everything it can to carry on the business in the normal course, so that what the purchaser will receive will, as far as possible, have the value that the purchaser agreed to pay.  Now, the concept that the clause is to be construed as dealing with matters within the vendor’s lawful control, has this in support of it.

What the clause is really trying to stop, is this sort of behaviour, where the vendor says, I have got a good price, it is $11 million.  I will lay off the staff and I will save $100,000 in wages costs and I will simply claim my $11 million on completion.  Now, that sort of conduct, saving money but degrading the nature of the business in this period, is the sort of thing the clause is designed to stop.

GLEESON J:   If that conduct was bad enough, for example, simply not operating the business at all, would that be a fundamental breach of the contract?

MR GLEESON:   It could be a fundamental breach of the contract, and it could, in the extreme case, either be viewed as repudiatory conduct or perhaps, in the extreme case, and this captures part of the notice of contention, one might say it is a fundamental breach of an intermediate term, which ‑ ‑ ‑

GLEESON J:   So, yes, it does tend to suggest this is an intermediate term.

MR GLEESON:   It could be viewed as an intermediate term.  In part, because the range of activities it is covering are fairly broad.  If you simply sell all the stock and there is nothing there when the purchaser arrives, you could be real trouble.  What that indicates, though, is it is about that which the vendor could lawfully and reasonably be expected to do in this period to preserve, as far as possible, the various assets for the purchaser.

Now, in terms of the authorities which have read clauses which are somewhat similar and ascertained as a matter of construction that they are limited to matters within the lawful control of the promisor, the primary judge identified three authorities at paragraphs 81 to 82, page 34 of the core appeal book – and could I go to those authorities and then to one additional authority.

Can I go first to Gerraty v McGavin (1914) 18 CLR 152, which is volume 3 of the authorities, tab 16, commencing at page 720. At page 724 in the judgment of Chief Justice Griffith, it was a claim against the lessee for possession on the ground of breach of covenant, and the relevant covenant is about point 8 – it is the second covenant.

JAGOT J:   Have you just got the CLR page number?

MR GLEESON:   Yes, it is page 156.

JAGOT J:   Thanks.

MR GLEESON:   At about point 8, the relevant covenant, which was the second one, was the lessee:

will cause the baking business now carried on to be still carried on and kept alive and will allow –

a certain person to use it during the term.  So, it is in the context of landlord and tenant, rather than vendor and purchaser.  But there is a similarity in the sense the promisor is promising to carry on an existing business and keep it alive.  Now, the existing business, which is summarised at the top of 160 of the CLR, was a small bakehouse “with walls six feet high” in a poor condition.

Various things happened, but as can be seen at the foot of the page, the intervening event was the Factories and Shops Acts 1912, which deemed a bakehouse to be a factory and brought in certain legal requirements which ultimately resulted in a regulation at the foot of page 161 that required a bakehouse to have walls 12 feet high, lined roofs, and certain qualities of the floor which this one clearly did not have.  And over on page 162, it was treated as a fairly straightforward case by the Chief Justice that it was “impossible” in the face of this regulation:

for the defendant to resume the business of baking in that building as it stood, and in order to resume that business it would have been necessary to put up what would be practically a new structure.

A little further down, the Chief Justice says:

It was impossible for the defendant to do –

what the covenant literally required:

in accordance with the law.  Performance of the covenant had become impossible by law.  The covenant cannot be construed as one that the defendant in the event of a change of the law would put up an entirely new structure.  On that ground the plaintiffs cannot take advantage of the failure of the defendant to resume the business of baking as a breach of the covenant.

Now, pausing there, there are two ideas in that very briefly expressed passage that reach the same conclusion, but over the century have been discussed a lot in contract law.  The Chief Justice says:

The covenant cannot be construed –

in a particular way, that looks like construction of the covenant, reading it to understand its limits – and that is the primary way that we put this case, it is the primary way the primary judge and Justice Basten found it.  The last sentence is perhaps a slightly different idea but to the same end:

On that ground the plaintiffs cannot take advantage of the failure of the defendant to resume the business of baking as a breach of the covenant.

That looks like, if one was in the old pleading system, the defendant would be pleading a defence of lawful excuse, but to the same ultimate result, the answer is no breach.  It is possible that in the present case one could view our argument on 50.1 through either of those guises.  It is simply construction.  It is reading the term and understanding its true limits – it cannot possibly mean, you are required to breach the law.

GORDON J:   Was the case put on the second basis below in that way?

MR GLEESON:   Mr Hutley is being helpful, as always.

GORDON J:   It is Christmas.

MR GLEESON:   It is Christmas.  I have been kind to him, he is being kind to me.  He is that sort of fellow.  It was put differently in both courts, is the answer to your Honour’s question.

GORDON J:   Thank you.

MR GLEESON:   Before the primary judge, the respondent put its case against us on construction and said this clause requires you to carry on the business in the same way, even if that puts you in breach of the law, and they ran a case that you construe it to include requiring us to breach the law.  You will see that from the primary judge, particularly at 54 – that is paragraph 54 on page 27, in the correspondence the allegation was, we are in breach of 50.1 and 58.2, and even more clearly at paragraph 75 the respondents’ counsel confirmed that their case was that we were:

bound by those provisions to operate the hotel business in a manner that would be contrary to the Public Health Orders.

And we were in breach of contract for not doing so.  So, the case at trial seemed to be either frustration or we were in breach because the contract required us to breach the law.  Because that was the case that was put, the primary judge in his analysis between paragraphs 80 to 85 – which we embrace – approached the matter very much in this way:  could it be a proper construction of the clause that you are required to engage in unlawful activity?

Thus, his Honour went through the cases I am now dealing with, and in paragraph 85 made – we would submit – and almost unanswerable proposition that such a construction would not only put us in breach of the criminal law but would damage the goodwill of the business and be of no use to them.

That is where the case was left at trial, and we defend what the primary judge did on that.  What happened on appeal – perhaps in a recognition that that argument which failed below was too extreme to revive – was that the grounds of appeal on page 61 tried to come at the matter in a softer fashion.  Ground 1 challenged the construction of the primary judge, which read the limit into the clause, but the nub of the case was really grounds 2 and 3, that we were not necessarily in breach of the clause but we were unable to comply with the clause.  So, it started to introduce a distinction between breach and inability to comply with the clause.

GLEESON J:   But the case was based on – at least on the argument – that you were not entitled to issue the notice to complete, so that had to entail either not ready, willing and able or not in default.

MR GLEESON:   Yes, but what emerged really in the Court of Appeal is this idea that you construe the clause without limitations – so it is a promise to carry it on in the normal course even if that be unlawful – but you do not go to the ridiculous extent of saying that I could sue for breach of that clause, I could not get damages, I could not terminate, I could not get specific performance because all that would be a legal monstrosity, but I can nevertheless hold you to be a person who is somehow non‑compliant with the clause.  Then – which is where they really have to go – to say if you are in a state of non‑compliance with the clause, the main obligations have gone into suspended animation.

GLEESON J:   So, are you saying that if you cannot sue for damages, you cannot say that the vendor is in default?

MR GLEESON:   Yes, and the notion that has been reached by the Chief Justice between paragraphs 73 to 74 on page 90 that – in 73:

The contract . . . requires the . . . licence and other assets to be conveyed as a going concern –

Well, that is wrong for the reasons I have said, which:

was prevented by the Public Health Order.  Although the respondent was excused from any liability for damages for non‑compliance with cl 50.1 and the appellants would not have been entitled to terminate . . . it does not follow that . . . the respondent was ready, willing and able –

Then the answer in 74 seems to be 50.1 “was an essential term” of the contract.  So, you can have a term for which you have a lawful excuse for non‑compliance – this is where I come back to your Honour Justice Gordon, this is where the second idea came in, that it is lawful excuse.  So, you have got lawful excuse, you are not liable for damages, the other side cannot terminate, presumably no specific performance, but it is somehow an essential term in the Luna Park sense and therefore you are not ready, willing and able.

The problem with that, of course, is that an essential term is one which, by definition, is regarded as so important that any breach of the term entitles the innocent party not only to damages but to terminate the contract.  That is what the court highlighted in Koompahtoo, which is volume 4, at tab 19, 233 CLR.  The headnote captures it and explains that is what Luna Park stands for.

The detailed reasoning is found between paragraphs 47 to 49.  Paragraph 47 deals with essential terms; 49 deals with serious breaches of intermediate terms.  So, what has been introduced is a concept which, we would say, is unknown to contract law.  You can have a term which, even if it is construed against you, you have a lawful excuse for non‑compliance, you are not liable for damages, not exposed to termination and, yet, it is somehow called an “essential” term of the contract.

So, in those paragraphs, 73 to 74, we would submit – and this comes later in our submissions – we are now dealing not just with the construction of 50.1, we are dealing with some fundamental principles of contract law – can you have – I hesitate to say, the schizophrenic conclusion which those two paragraphs expose.

Your Honours, could I then just complete the cases we wanted to go to on the construction exercise.  The second case is Langley v Foster 4 CLR 167, and it is in volume 3, at tab 18. It was another lease case and it is seen at the end of the headnote, under the agreement to lease – this is on page 755 – the lessee was given:

the right to cut and remove timber, and the right to construct a tramway . . . for the removal of timber.

GLEESON J:   Mr Gleeson, do you have the CLR reference?

MR GLEESON: Yes, it is 4 CLR 167.

GLEESON J:   But you are now at 755?

MR GLEESON:   I am sorry, I am at 167.

GLEESON J:   Thank you.

MR GLEESON:   So, at the foot of page 167 of the CLR is the relevant provision in the lease and the holding, over the page – again with Chief Justice Griffith, in the primary judgment – was that this clause:

was capable of being construed as an agreement by the respondent to give, so far as he lawfully might, consent to –

these matters:

cutting timber and laying a tramway –

and in the absence of any intention to break the law, it should be so construed, and the appellant was, therefore, entitled to have it specifically enforced.  So, it is a case where specific performance was granted once the clause was understood in its true light.  That is dealt with in the judgment of Chief Justice Griffith between pages 180 and 181 of the CLR.  We rely upon the whole of that, including the passage at the top of page 181, citing the proper rule from Sheppard’s Touchstone:

“That if the words may have a double intendment, and the one standeth with the law, and the other is against law, that it be taken in that sense which is agreeable to law.”

So, it illustrates, we would submit, a straightforward and fairly venerable approach that if the clause can be given a construction which sees the parties complying with the law, it shall be given such a construction. 

Of course, all these cases differ slightly in the facts.  In Langley v Foster, the feature of the scheme that you needed a licence to cut timber was in existence at the date of the lease.  But, in the earlier case I took you to, Gerraty, the relevant illegality was a true change in the law when the Shops Act came in, so that does not alter the fundamental principle.  The third of the four cases that we rely upon, it is sufficient for our purpose to refer to the extract of the primary judge at paragraph 82 from President Mason in Global Network Services, which is effectively the same principle. 

The fourth of the cases is Lord Justice Scrutton in Ralli Brothers, which should be found in volume 6, at tab 40, page 1549.  As seen from the head note, this was another case of a supervening change in the law.  The charter party was entered in July 1918, and about the foot of page 1549, it was a decree in July but confirmed by proclamation in September which placed a cap on the maximum freight at the Spanish end.  So, the question was whether the amount payable was the full amount under the contract or that amount adjusted to ensure compliance with Spanish law.  The decision was the latter, and Lord Justice Scrutton, at the foot of page 300 of the report, said:

It is now quite common for exceptions, or exemptions from liability to be grafted by implication on contracts, if the parties by necessary implication must have treated the continued existence of a specified state of things as essential to liability on the express terms of the contract.  If I am asked whether the true intent of the parties is that one has undertaken to do an act though it is illegal by the law of the place in which the act is to be done, and though that law is the law of his own country; or whether their true intent was that the doing of that act is subject to the implied condition that it shall be legal . . . I have no hesitation in choosing the second alternative.  “I will do it provided I can legally do so” seems . . . infinitely preferable to and more likely than “I will do it, though it is illegal.” 

This has been written in 1920 and we see here language of necessary implication.  Again, it may well be this is simply construction that is being carried out rather than identifying a separate implied term that goes through the business efficacy test.  It is part of working out what is the true legal meaning and effect of the words that have been chosen.

So, your Honours, for those reasons, which really amplify the primary judge – or seek to – the appellants should succeed on construction.  Justice Basten, between paragraphs 125 to 127, adopted and expanded upon those reasons, and we would embrace what his Honour says in those paragraphs, including the notorious fact that the business is highly regulated and the requirements may be variable and stringent.

GORDON J:   Can I just ask you about 50.1, just two questions on this construction.  Putting aside your first argument that this is not a clause about delivery, this is a clause about conduct between the two points, “usual and ordinary course” is the composite phrase.  Do I understand your argument to mean that that, in a sense, means lawful?

MR GLEESON:   Yes.  The normal thing to do, the usual thing to do, is to adjust your behaviour to the rules that govern you.  That is the very thing you would expect.  You would be in breach of the clause if you did the opposite, if you went and opened for trade during a public health order.  That is what would be in breach.

GLEESON J:   So, if prohibition was introduced between exchange and completion, the vendor would have no obligation under 50.1?

MR GLEESON:   No obligation under 50.1 to modify – sorry, to disregard that law.  But what you might have is where this case started, which is frustration.  You do not have a breach of 50.1.   You might have frustration.  But what you do not have is this other concept of suspension where the primary obligations go into suspended animation, but I will come to that.  But, yes, your Honours, that is the usual and ordinary course and that is just construction of the term without ‑ ‑ ‑

GLEESON J:   Does not the frustration come from the fact that performance of the clause would be illegal?

MR GLEESON:   So, in your Honour’s example, one then needs to apply the tests as they have developed over time for frustration to see whether that which is now possible is so radically different to that which was contracted that all bets are off.  That exercise is an exercise sensitive to construction and to the factual circumstances of the case and that is what the primary judge did – and it is not challenged – but did, we would submit, exactly as you would expect between ‑ ‑ ‑

KIEFEL CJ:   That is when frustration was actually an issue.

MR GLEESON:   When it was actually an issue.  His Honour – for example, at paragraph 105 – was highly sensitive to whether the particular change in the regime was so traumatic as to make it a different contract.  So, that is where it could come in and that has all gone.  Now, I am sorry, your Honour Justice Gordon, I think you had two questions.  I am not sure I answered the second.

GORDON J:   I think the only thing in question is to ask what “usual and ordinary” – whether the “ordinary” is dealt with by the change.  As I understand it, you say, well, the two are to be read together and then the “lawful”, in effect, modifies the “ordinary”.

MR GLEESON:   Yes.  That is what you are required to do under 50.1 – you are in compliance with that clause – and to do otherwise would breach that clause.  What that leaves is frustration, if it is sufficiently extreme, and it leaves could the purchaser find a breach of warranty case – that did not happen here – that is another possibility – and, if you do not have a warranty that covers the event, then you must complete.

Now, your Honour Justice Gleeson gave an example of prohibition but another one might be if cashless gaming cards came in between contract and completion – a very dramatic effect that might have on goodwill – could be good, could be bad – but, under a clause 50.1, you would simply be bound to comply with it.

Could I just contrast, perhaps briefly, the majority’s reasons just on the construction question and then come to the later stages.  For Chief Justice Bathurst, it is between 39 and 52 of the judgment.  There is no difficulty with paragraphs 40 and 41, and even 42 and 43.  Where the problem comes in is the submissions I have just been addressing, which is whether the “usual and ordinary course” includes compliance with the law.  In 45, his Honour says that:

it is not what the clause says.

Well, it does, through the language of “usual and ordinary course”:

Second, it ignores the fact that cl 50.4 provided the obligation in cl 50.1 could be varied with the written consent –

That is no answer.  50.4 is in a case where there is something you wish to do which is lawful, but which is not in the “usual and ordinary course” – but which you think may be beneficial to both sides – you can then seek consent – that is understandable.  But his Honour seems to have read 50.4 as meaning if the change in law means that you are doing something different to what you did at the date of contract, you are in breach of 50.1 and you have got to go to the purchaser under 50.4 and negotiate a consent for which perhaps you have to pay money to the purchaser.  Now, it seems an extremely odd result that 50.4 is the answer to the problems of illegality.

The third proposition perhaps concerns what your Honour Justice Gleeson raised with me, and my answers to that are the same as before, that, if the variation is so great, you may have rights under frustration, but you do not have rights under 50.1.  So, by the time, his Honour gets to 46, it is completely a factual exercise, does it look sufficiently different, with no account being paid to the fact the vendor is complying with the law.

As to paragraph 47, we would draw the exact opposite conclusion from the warranties.  Yes, the warranties emphasised the importance of the licence permitting the trading activities to be carried on, but the critical thing is no warranty was sought or obtained to cover this event.  As to 48, again, we would put the opposite conclusion that lease has the promises I have shown to comply with the law, consistent with this overall intention.  Now, 49 comes back to frustration, but at the end of 49, this is one of the many places where the going concern concept comes in.  So, here, we are still at construction, but his Honour has said:

the purpose of the transaction was to sell the Business as a going concern not simply as a group of assets which, if the Public Health Order was revoked, gave the owner the capacity to operate the hotel of the nature of that envisaged in cl 50.1.

That, we submit, has numerous errors rolled up in it.  I have dealt with the going concern.  Our construction is not simply we are selling a group of assets, we are selling the defined assets as per the contract.  And finally, at 50, there is a point about risk transfer.  I might come back to that with Justice Brereton, because he was more enthusiastic for the risk argument, which I think it is fair to say has not received a lot of attention in the respondents’ written submissions, and we submit goes nowhere.  So, 51, no separate implied term.  So, where his Honour has got to there, and this is just on construction, is he has read the clause as saying, my promise is to carry it on in substance as I was carrying it on at the date of contract, even if that requires me to do unlawful things.

GORDON J:   The Chief Justice recognises there can be variations due to “economic or regulatory requirements” in 43.

MR GLEESON:   But if at some point, factually, if it is sufficiently different to what you were doing, then to comply with this clause, what you have to do is breach the law – is the logic of this reasoning.  Now, at the state of construction, his Honour has not dealt with suspension.  All the material that comes from paragraphs 73 and 74 he deals with at a later stage of the case, and we would submit one of the errors is, if you are to construe it as his Honours is, you must grapple with lawful excuse.  You must grapple with the types of issues that are at paragraphs 73 and 74 in deciding whether this is the appropriate construction, and that simply was not done.

Now, your Honours, could I just say something about what that would look like if one brought suspension into the construction argument.  The logic at 73 to 74 seems to be that 50.1 is this strange term which is both essential but not leading to damages or termination, but which is construed irrespective of lawful excuse and which you must get back in compliance with before you can ask for completion.  What that seems to mean – and Mr Walker put it on special leave as “suspended animation” – is that the primary obligations under the contract have all gone into suspended animation because of the change in law.

One then starts to ask, what does that suspension look like in terms of any principles of law or any practical sense of a working of a contract?  The respondent says in paragraph 55, in principle it is easy:  either it will remain suspended for a sufficiently long period and then it will tip over into frustration – well, it sounds incredibly uncertain to know when it has gone to suspension from frustration – or, says the respondent, it is easy because if at some point the Public Health Order lifts before you reach frustration, you then just comply with it, you then can go back to normal business.  Now, that also involves incredible uncertainty.

As we have seen on these facts, the Public Health Order went through three iterations.  Is it said that the second iteration was sufficient for the business to be returned to the usual and ordinary course?  Was the third iteration sufficient – the one person per four square metres, is that the normal and ordinary course?  How long is the vendor given to respond to the change in Public Health Order to get the business back in the normal course?  What that seems to contemplate is a lengthy and indeterminate period in which a contract for the sale of land is in suspended animation with the vendor not knowing whether it should be looking for a different purchaser, with the purchaser not knowing whether it still needs to keep its finance ready.

That – and this is one of Justice Basten’s points – raises significant uncertainty in respect to a matter as important as the title to land, and would appear to be a most unsatisfactory doctrine for the law to adopt.  There is just one further aspect of this uncertainty to deal with.  It is not clear from this judgment of the majority or from the respondents’ submissions whether the contract has gone into suspended animation on both sides or only on one side.

What if it be the case that the purchaser was quite content they had got a very good contract, they looked at the Public Health Order, they saw it was disadvantageous but they still wanted to complete the deal?  Could Mr Hutley’s client, on his argument, have insisted on completion against the vendor?  There is simply no consideration of that question in these reasons and there is no answer to it in the submissions.

Whatever the answer is, it illustrates the unsatisfactory nature of suspension.  If the answer is the contract is in suspended animation on both sides, that produces the result where the purchaser, who may wish to complete, cannot achieve its bargain.  If it is only in suspended animation one way, what suspension has done is fundamentally alter the bargain; it has now become an option to the purchaser, and all of that suggests suspension should not be tolerated.  Your Honours, could I move to Justice Brereton’s reasons on construction.

KIEFEL CJ:   That might be a convenient time for us to take the morning break.  The Court will adjourn for 15 minutes.

AT 11.00 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.15 AM:

KIEFEL CJ:   Yes, Mr Gleeson.

MR GLEESON:   Thank you, your Honours.  I am up to point 9 of the outline, which is some observations on Justice Brereton’s approach to construction.  While his Honour commenced at paragraph 143 by saying he agreed with the reasons of the Chief Justice, his essential reasoning which he then stated appeared to move in a different direction.  His Honour does not discuss suspension at all but what he does do at paragraph 147 is say that there are two reasons why:

the Vendors were not entitled to give a Notice to Complete –

and the first was the vendors were in default of clause 50.1, and he elaborates on that at paragraphs 148 to 166.  The second is:

they were not ready, willing, and able to perform their obligation upon completion to convey . . . a hotel business of substantially the same nature, scope and manner as that which existed at the date of the contract.

That is paragraph 167 to 169.  As to the first, his Honour’s language of “default”, which you can see again at the end of paragraph 151 and in the conclusion at 166, appears to be the language of breach.  His Honour appears to be saying – and this is a reversion to the respondents’ argument at trial – the promise is to carry on the business in a particular fashion even if that requires me to break the law.  If that is what his Honour is saying in the first reason, that is inconsistent with where the Chief Justice got to at paragraph 73, which at least allowed for lawful excuse.

Now, as to this first strand, it is heavily based on two matters.  The first is Scanlan’s New Neon v Tooheys, which is referred to at paragraph 154, and his Honour returns to it at 161, he sees a close parallel with that case.  Now, in fact, there is none.  Scanlan’s is in 67 CLR 169, or volume 4 at tab 24. This was the case where there was a hire of a neon advertising sign and then the national security orders descended and prohibited illumination of the signs and it was held the contract was not frustrated and the hirer’s liability to pay rent continued.

Chief Justice Latham dealt first with the construction question at pages 184 to 185 of the CLR in a paragraph numbered 3, and he regarded as a straightforward case where the lessor’s only promise was to construct and install the sign and the lessor made no promise that it would be illuminated, and nor did the lessee obtain any warranty as to illuminability, and therefore the purchaser had to pay the rent unless frustration could intervene.

Now, we would submit that construction argument, applied to our case, works this way.  The purchaser promised to pay the price on completion on tender of the business assets.  The vendor made no promise that there would not be a COVID order, no promise that the trading hours would be identical to those at the date of contract, no warranty, no condition precedent, therefore the purchaser must complete and pay unless frustration intervenes.  The balance of the judgment is about frustration, which his Honour rejected, and it is in that context at page 200 of the CLR, in the middle paragraph, the Chief Justice, in rejecting the proposition of Chief Justice Jordon, which is the top of 199, about frustration, made the statement:

Prima facie a promisor takes the risk of an event happening which prevents him from performing his promise.  If he fails to perform it, he must pay damages and the other party may, if the promise goes to the root of the contract, elect to determine the contract.

However, the next sentence is also important to read on.  It is that sentence which Justice Brereton has quoted at paragraph 154 and relied upon at paragraph 161 as defeating our construction argument.

KIEFEL CJ:   How is Justice Brereton using Scanlan’s at 161 to deny the construction for which you contend?

MR GLEESON:   He appears to be saying that a promise like clause 50.1, you read as absolute.  It is not qualified by any ability to lawfully perform the promise.  It is the same as the hirer in Scanlan’s promise to pay rent, but of course there is no parallel.  They are completely different propositions.  The hirer was trying to say, I did not get everything which I hoped I would have got.  I have got a sign, but I cannot now illuminate it.  And the Chief Justice says, your promise to pay rent was relevantly unqualified.  But Justice Brereton seems to be applying this to say, you can see this in paragraph 161 in the second sentence, that Scanlan’s means you cannot limit our obligation to carry on the business to the extent that it was lawful.

GORDON J:   Sorry, I have misunderstood this, then.  I had understood it was all dealing with risk and the allocation of risk.

MR GLEESON:   That is his second point.

GORDON J:   Okay.

MR GLEESON:   They are related, I will come to that.  But his first point seems to be from Scanlan’s you get back to where the respondent tried to be at trial that this is an absolute promise by us to carry on the business in the normal course, even if it is unlawful.

GORDON J:   Where do I find that set out again, sorry?

MR GLEESON:   So, the quote is at 154, that is deemed to be the starting point, but it is paragraph 161 ‑ ‑ ‑ 

JAGOT J:   You mean of Justice Brereton?

MR GLEESON:   Justice Brereton, yes.  Page 161, second sentence and, indeed, most of the paragraph.  And that is why he says default.  It is not suspended, according to Justice Brereton we are in default because we made an absolute promise to carry it on in the normal course and we were not doing it.  So, in his view, we were required to, in the five days, keep the business open and defy the COVID order.

GORDON J:   I had thought that the whole of 153, 154 and 155 and following was premised on this idea that there was this allocation of risk and that was what underpinned this analysis.  It seemed to be a precondition or essential element of the argument.  Is it separate or part of it?

MR GLEESON:  Well, I read them as separate.

GORDON J:  All right.

MR GLEESON:  But even if they are the same, can I deal with risk, as he spends more words on risks than he does on Scanlan’s, but I do want to say Scanlan’s does not support anything of his analysis.  But having said that, can we go to risk?  Because this is a separate error.

GORDON J:  I think Scanlan’s does deal with risk, because that is what he is talking about in the quote at 154 from Scanlan’s from Chief Justice Latham.

MR GLEESON:   It deals with it correctly, in a sense, that Scanlan’s says if I have not obtained a warranty against a particular event happening, I must simply perform my obligation to, in this case, pay the rent.  If I do not have a warranty and I do not have a promise, the contract simply goes forward, and I perform my obligations.  We embrace that.  But it is the purchaser, in our case, who has got the Scanlan’s problem, not the vendor.

So, as to risk, your Honours may need, again, the joint book of further materials for the contract, at clause 57 on page 70.  This is a fairly simple and conventional set of clauses, which tells us first the title passes on completion, so a beneficial interest may have passed in some or all of the assets prior to completion, but title passes on completion; and risk passes on completion, and the vendor will take out insurance policies; and then there is a particular provision about keeping the plant and equipment in good order.  Our short submission is none of that goes to the question of what are the assets that you are required to tender on completion.

GAGELER J:   Mr Gleeson, does your case turn on the business equalling the sum of the business assets?

MR GLEESON:   Well, it is part of it.  I am not sure it wholly turns on it, but it is part of the case.

GAGELER J:   But if the business is not just the sum of the business assets, does your argument still work?

MR GLEESON:   Yes, yes, because the starting point was what we have to deliver in clause 51.2, and that is the assets – the capital‑A Assets.  So, that is the assets on page 40, including the business assets as defined.  That is what we have to deliver.  We are not delivering – that is what we are delivering.

GORDON J:   Business assets are a subset of asset.

MR GLEESON:   Business assets are a subset of assets, and goodwill is a subset of business assets.  So, every one of the assets in the business assets – all the assets, including the goodwill – we were ready, willing and able to deliver.  Clause 50.1 is about a promise as to what we will do between contract and completion in respect to those assets that we will be delivering.  If there was a true breach of clause 50.1 – as your Honour Justice Gleeson put to me, if it was a fundamental breach, it might be in the world of termination.  If it was a non-fundamental breach, you would be in the world of damages.  Because it is built off a contract for sale of land, there are provisions for notices of claim and rescission and the like.  So, all that is how it sits.

GLEESON J:   On your interpretation, there would never be a fundamental breach as a result of any change in law because the business has to be conducted according to law.

MR GLEESON:   Yes.  But, coming back to title and risk, what his Honour seems to have got from clause 57 is some concept that there is, as it were, a super‑promise in this contract, one that is either reflected in clause 50.1 or it is 50.1 plus other provisions.  It is a super‑promise that what I will convey to you on completion will be in the same condition as it was at the date of contract.

GLEESON J:   Does clause 57.3 include business interruption insurance?

MR GLEESON:   It may well, your Honour.  It may well, given that the assets include the goodwill.  But what a title and risk clause does is not what Justice Brereton says.  What it says is, if, for example, these are physical assets which are damaged between contract and completion, it is the duty of the vendor, if they want to complete, to make good the position of the purchaser.  That is reason you will keep insurance – that, on completion, you will have either reinstated the asset or you will allow for an abatement in the price and you will have insurance there to cover it.

This clause is not about promising the purchaser that the good will, for example, will be an identical form and amount at completion to what it is at the date of contract.  The goodwill may have gone up or down.  It is not a clause promising to deliver a hotel with a certain number of trading hours at the date of completion. 

Your Honours, in volume 7, in the supplementary commentary, we have provided, at tab 54, the latest edition of Treitel’s Frustration and Force Majeure which is now edited by Mr Peel.  There is a useful discussion on pages 1753 and 1754, in paragraph 3‑010 on the various meaning of the passing of risk.  At the foot of the first page, and over, the author says:

The special rules as to the passing of risk deal only with supervening events which affect the physical integrity of the subject‑matter.

Then, in the next paragraph, discusses different meanings of risk.  A broader use of “risk” is really that referred to by Chief Justice Latham in Scanlan’s, which is who has assumed responsibility for the occurrence of a particular event.

What Justice Brereton has done, with respect, is deal with cases which are on the first topic, which is where an event causes damage to the physical integrity of a subject matter, and uses them to reach a conclusion on the second topic that somehow, because of this super‑promise, the vendor has assumed the risk of a COVID order occurring, and in doing so has simply departed from the contractual language, we would submit.

Your Honours, could I come to paragraphs 10 to 12 of the outline, which is:  what is the precise nature of clause 50.1?  I have prefaced some of these submissions that it is to be regarded as an express promissory term, a promise about conduct that will occur within a defined period.  The things which it is not is, it is not a warranty in a sense of a term whereby a party assumes responsibility for the occurrence or non‑occurrence of an event that is not an element of the promisor’s performance.

That concept of warranty and that distinction  is dealt with by Professor Carter in his Breach of Contract, the reference should be volume 7, tab 46, at page 1704, where, at the top of the page, he says:

Generally, a contractual obligation is created by an express promise to do some act by way of performance.

That is what we say 50.1 is:

However, an express undertaking of contractual responsibility for the truth (or otherwise) of a fact also creates a contractual obligation, as does an undertaking of responsibility for an event the occurrence (or non‑occurrence) of which is not an element of the promisor’s performance.

I have taken you to the warranties in clause 48 and shown how some of them apply both at contract and at completion.  They fall within Professor Carter’s concept of a warranty.  There can be a warranty that there will be nine gaming licences at completion.  It is not a promise, it is a warranty that for whatever reason, there must be nine gaming licences.

If the gaming licences were removed by reason of an order, then there would be a breach of the warranty, and then one would get into damages, potentially termination, rescission, and the like.  What, we submit, has happened is that the majority’s construction – particularly Chief Justice Bathurst, who says, you are not in breach, but you cannot require completion – is really to turn the clause into a warranty, which is not the meaning it bears.  That is our paragraph 10.

Paragraph 11 is that it is wrong to construe clause 50.1 as requiring the conveyance of a business in a particular state as a precondition to completion.  That is what Chief Justice Bathurst reached firstly at paragraph 49 in his construction analysis and then at paragraphs 73 to 74 that I have been through.  It is heavily tied up with his Honour’s notion that the essential promise was to convey the business as a going concern.

GAGELER J:   Really, they are tied, are they not?

MR GLEESON:   They are tied.

GAGELER J:   I mean, it is the purpose you attribute to clause 50.1 that really leads to the proper construction, to a large extent.

MR GLEESON:   A number of things are interrelated, your Honour.  Yes, it is proper construction.  Yes, it is purpose and how far the purpose rises above the words to something more general.  But there is this important question:  is 50.1 a promissory term about what I will do or not do in an interval, or is it a clause identifying the subject matter of the contract?

For Chief Justice Bathurst, that clause tells us the essential subject matter is a going concern.  He gets that from 50.1 and he says – as a matter of fact, he says – we dispute this – this was not a going concern at the date of completion, QED.  So, they are all tied together in that way.

GAGELER J:   It is really – I suppose I am suggesting that your question 2 is, at least in Chief Justice Bathurst’s analysis, question 1.

MR GLEESON:   They are linked, yes, your Honour.  One cannot get the correct construction if one has not worked out what its role is in the contract.  That also emerges from paragraph 74 of the Chief Justice, where it is critical to his reasoning that it is an essential term – a term without which the purchaser would not have entered the contract.  I have explained why that cannot be right.  But you can see the same idea is flowing through all four of his Honour’s reasons at this point, because the second reason adverts to the apportionment of the price and his Honour says:

These assets would be of no benefit to the purchaser unless and until the hotel was operational.

There is now a slight shift from “going concern” to “operational” but perhaps in his Honour’s mind they are the same things.  So, his Honour is saying, as a matter of fact, because you did the right thing and complied with the COVID order, you are not operational, you are not a going concern, that is not what you promised via 50.1 to deliver.  That reads 50.1 as a clause about conveyance, about identifying that which is to be delivered as opposed to its role, which is what am I to do in the six weeks period.

Then, at 76, his Honour also refers to the risk point which I have sought to answer.  The same notion comes in Justice Brereton’s alternative view, which is 167 to 169 – where his Honour relies on a series of provisions, which includes 50.1 but includes some others, and from that gets a conclusion at 168 that the essential promise was:

to acquire an operating hotel business of a nature, scale, and manner of that in operation on the date of the contract.

Then the risk point comes back in and then you were not able to deliver that.  That, we submit, has just departed from the construction of 50.1 when one understands the absence of a warranty, the absence of condition precedent and so on.  So, on this topic – this is our paragraph 11 – we would commend the careful reasons of Justice Basten at paragraphs 129 to 139, and we would also rely upon Maynard v Goode.

Now, the one matter I wanted to add at paragraph 12 on this topic of going concern was to ask the Court to go back to Placer Dome 265 CLR 585, which is at volume 3, tab 14, noting the case was in a stamp duty concept, the discussion of goodwill as a legal concept by the plurality we refer to, but leading to the conclusion, particularly at 91, as to the legal nature of goodwill and the contrast with going concern at paragraphs 96 to 98. In the plurality view, goodwill is sourced very much in custom, in patronage, in that which draws the customers back to the business over time and can have many sources, whereas going concern, at paragraph 98, is what distinguishes:

an established business from one just starting –

and it can be:

present even when there is no goodwill.

Your Honour Justice Gageler dealt with the same question in slightly different terms that do not matter for present purposes at paragraph 171.  Now, what that establishes is that as a legal concept, going concern directs us to whether we have an established business as opposed to one just starting.  This business remained a going concern.  The fact that its services were significantly reduced for a limited period could in no way deprive it of the character of an established business, and the Chief Justice’s suggestion that it was non‑operational is wrong in law and fact.

Then as to goodwill, the business still had goodwill.  It still had patronage, as did every hotel at the time.  It is not as if a thirsty customer could go to a different hotel.  Whether its goodwill was diminished is another matter.  But unless one could construe this contract as a promise to deliver a business with the identical goodwill as at the date of contract, irrespective of changes in the law, then the majority judgment should not stand.

Your Honours, then can I move to what we have called question 3, or perhaps it is question 2, which is to look just a fraction more closely at this concept of suspension and where the Chief Justice sourced it.  The authorities that his Honour relied upon fall into, broadly, two categories as we have analysed them in our reply submissions.  The first category are the cases his Honour refers to at paragraph 62 through to 65, and these are essentially the foreign lending cases.  The core one is Arab Bank, which is at volume 5, tab 27, page 1075, and our short submission will be the case is so far removed from the present that it provides no support for the Chief Justice’s conclusions.  As seen from the headnote, it was the war breaking out between Israel and the Arab States which rendered further performance of the contract impossible.  So, the contract was frustrated, unlike the present contract. 

The question then remained whether the appellant bank could get back the money that stood to its credit with the respondent bank.  So, we are in the territory of remedial orders after a contract has been frustrated as to the future, what is to happen as to the past.  What the appellant was trying to do was to sue on money it had not received consequent upon the frustration which would have allowed it to get its money back, whereas the alternative view and the holding was that there was an accrued right to be paid the credit balance which survived frustration, remained in existence, but was suspended in performance, in which event the correct creditor would become the custodian under local law.

What the case stands for is no more than – in a context of frustration – when one is working out the response to the past events prior to the frustration, if you have an accrued right, it may be that there will be a defence that the right is deferred for some period of time.  That, obviously, we would say, bears no resemblance to what his Honour has done here, which is to say that there is no frustration, there is no breach of 50.1, but the whole contract has gone into suspended animation pending certain events.  That is the first line of cases.

The second line, which your Honours will see from paragraphs 67 through to 71 essentially commences with Gerraty v McGavin itself – which I have dealt with – then, Cricklewood, which is another lease case, and John Lewis.  In all those cases, the argument was that one party was in breach of an ancillary obligation, and there was a question whether they could be excused from that obligation by way of construction or lawful excuse, without the main obligations under the contract being in the slightest affected.  That is the critical point about this second line of cases, that, whether the ancillary obligation was read down or subject of lawful excuse, the primary obligations remained wholly unaffected.

If I could just show your Honours that in Cricklewood, which is found in volume 5, tab 32, at page 1350.  At the foot of the page in the convoluted facts, there were a series of promises by the lessee to build various shops on the land, and there was a promise to pay rent in respect to the land.  Over the page, because of wartime restrictions, the building could not occur.  What the lessee was trying to do was to say, because of these events, I should not have to pay the rent; that is I should be relieved from the primary obligation under the contract.  At page 1361, Lord Russell rejected that argument and said:

It seems to me clear that the intention of the parties was that rent would be payable even though the sites were vacant, and that the landlord was not to be driven to sue for damages for breach of the covenant to erect shops.  To such an action the war‑time restrictions might well afford a defence, but that is a consequence very different and far removed from frustration.

Which was being argued.  So, there is a recognition that, on the ancillary obligation, the promisor may have a defence of lawful excuse.  But none of that would affect the primary obligation, which was to pay the rent under the contract, and as his Honour puts it over the page at the top:

It may well be that circumstances may arise during the currency of the term which render it difficult, or even impossible, for one party or the other to carry out some of its obligations as landlord or tenant, circumstances which might afford a defence to a claim for damages for their breach, but the lease would remain.

And the rent remains payable.  So, Lord Goddard, to similar effect – at the foot of 1371 and over the page at the top – where he again, speaks that there may a good defence on a particular obligation, but they do not escape paying the rent.  So, this line of cases does not support the Chief Justice’s view that where you have a defence of lawful excuse to the ancillary obligation, the result is the primary obligations go into suspended animation.

So, your Honours, in our point 13, we submit that even if we are in the territory of lawful excuse, you do not jump from there to say the whole contract is in suspended animation.  If one end is in Justice Brereton’s approach, where it appears, on one view, to say we are in breach, that would be a most unattractive view for the law to reach, that the vendor is required to perform the illegal conduct.

Your Honours, as to the final question, it is really consequential upon where we have reached.  If we are right on construction or we are right on the submission I have just made, then there should be no difficulty for the appellant.  But if we are wrong on construction, and 50.1 is not an essential term or condition for completion, then the vendor was able to deliver the substance of what was contracted and entitled to give the notice to complete.

Your Honours, in respect to the orders, without making any presumption, the orders – if the appeal were successful – are set out at page 150 of the core book.  Orders 4, 5, 6, and the first part of order 7, which is for restitution of the deposit and the interest, could be made by this Court.  The consequential orders, which will involve adjustments to interest and the like, would probably better dealt with by the primary judge and could be remitted.  Alternatively, we could seek to negotiate a document and give your Honours the precise calculation, but perhaps it could be done by remitter.

May it please the Court.

KIEFEL CJ:   Thank you, Mr Gleeson.  Yes, Mr Hutley.

MR HUTLEY:   As your Honours will see from our outline, we have sought to break it down into a number of issues.  Can I deal with issue one, that clause 50.1 is not subject to what is described as an “implication of lawful conduct”?  That has been variously expressed, that implication or construction by Justice Darke, at core appeal book 35, paragraph 84, by Justice Basten at core appeal book 112, paragraph 126 and in our learned friend’s submissions in reply, it is in these terms:

the appellant contends that cl 50.1 contains a promise by the appellant to conduct the hotel business in the usual and ordinary course as regards its nature, cope and manner, insofar as it is within its lawful control to do so.

That may have changed subtly in my learned friend’s submissions as he seemed to say, or submit, that this lawfulness aspect may adhere in the word “usual” and, therefore, it is purely what “usual” means.  I will come to the terms in a moment.

Obviously, a number of arguments were advanced but, we say, each suffers from the fundamental problem that clause 50.1 is not expressed in any terms consistent with the construction advanced.  The clause – if I could take your Honours to it – 50.1, which is in core appeal book at page 62, directs attention to “the character” – that is, as an existing character of the business which is defined in clause 33.1, on core appeal book, page 40, at letter M.  That:

means the hotel business trading as “Quarrymans Hotel” which operates pursuant to the Licence.

So, reading those words in, it says “the vendor must carry on”:

the hotel business trading as the “Quarrymans Hotel” which operates pursuant to the Licence –

“in the usual and ordinary course as regards its nature, scope and manner”.  Now, what we say it is, is that, firstly, exists or an existing business, because it speaks of the business which is trading. 

It then accentuates the significance of that situation by citing it, as one would read in any event, at the time of contract, but emphasising it by reference to its “nature, scope and manner”.  So, in other words, it is a contract which has, with specificity, set out an obligation to continue over, until completion specifically, a process, a complex process, of trading in a – and having a nature, scope and manner as it did at the time of contract.  That is a very precise allegation.

I will come to clause 58.2, which my learned friend spent some time on, in due course.  But the one point I wish to make at the outset, there are two clauses dealing with carrying on the business.  They do not have the same meaning, and the Court would not construe them as having the same meaning – and I will come to 58.2 and why it was considered insignificant in the Court of Appeal, not even relied upon, and some remarks of Justice Darke about it – but that very fact accentuates the centrality from these parties’ point of view of clause 50.1.  It is, as it were, an elevated obligation.

Now, some – and I will come to it again – our learned friends spent some time referring to the fact that it was referred to a going concern, to going concern.  Now, as we will see from our submissions – I am not going to take you through it – we, as the Chief Justice did, used the words “going concern obligation” as, in effect, a means of identifying clause 50.1 rather than saying it was the 50.1‑type obligation.  It was merely definition, it had nothing to do, it had nothing to do with whether there was a failure to comply, to cease to be a going concern in the ordinary meaning of that term.  It was used, and used by his Honour, when his judgment is fairly read, as merely saying 50.1 is a provision dealing with a concept like going concern and there was a departure from it. He was not saying that 50.1 meant no more than the ordinary meaning of the term “going concern” ‑ ‑ ‑

GAGELER J:   Another way of saying it, perhaps, is that the “business” being spoken of is a going concern and not just the collection of business assets.

MR HUTLEY:   Quite.  But, importantly, it was not ‑ ‑ ‑

GORDON J:   It is a pretty overstated label.  I think that perhaps it is not very apt.

MR HUTLEY:   It only becomes not apt in one sense, is if you read behind 58.2 into the legislation, but even more than the legislation, into the GSTR, which we will come to.  In fact, just to tell your Honours where I am going, the GSTR, if you go to paragraph 10 says that the words “going concern” used in the statute should not be considered as necessarily the same meaning as “going concern” in ordinary parlance.  So, in other words ‑ ‑ ‑

GORDON J:   All that means to say is that clause 58 has its own scope and role to play in the contract, but that does not answer the operation of 50.1, does it?

MR HUTLEY:   Of course, I accept that, your Honour.  But it does point out that 50.1 is likely to have a different operation.  They are not repetitive, and the use of the words “nature”, “the business”, and “the nature, scope and manner”, points to what we say, as his Honour the Chief Justice said, it was directed to the form of the business at contract and its maintenance, and an object of that and an object of the contract was that, until completion, the object being – and I will come – that only completion one was in a position to pass over the assets which were being deployed profitably, according to that means.

KIEFEL CJ:   Did his Honour the Chief Justice – his Honour the Chief Justice, you say, used the term “going concern” differently from clause 58.2.

MR HUTLEY:   Well, 58.2 actually does not use the words “going concern”.

KIEFEL CJ:   Clause 58.1.

MR HUTLEY:   Yes.

KIEFEL CJ:   Did his Honour use “going concern” to mean as it is trading at the time of the contract?

MR HUTLEY:   In essence, his Honour was using it, as Justice Gleeson observed, as a label for complying with clause 50.1.

GLEESON J:   Complying with the first part of 50.1.

MR HUTLEY:   I am sorry, yes, your Honour.  When I use 50.l, unless I indicate, take it that I am referring to the first clause of it.

KIEFEL CJ:   But 50.1 is really concerned, as its heading suggests, with dealings pending completion.  It is talking about how to carry on the business through in the respective period.

MR HUTLEY:   Yes, for the whole period.

KIEFEL CJ:   How to carry it on.  It is not focussing so much on how the business is trading at a particular point.  It is saying there are certain obligations to maintain it.

MR HUTLEY:   I accept that.  It is utterly indifferent to how much money the business is making – how much return.  But what is critical, and we say objectively, to the purchaser, objectively, is it has bought a trading business and it has a nature, scope and manner and it seeks a promise that that be maintained until completion, and I will come to what happens in completion and ‑ ‑ ‑

KIEFEL CJ:   Maintained at the same level.

MR HUTLEY:   Yes, exactly.

KIEFEL CJ:   How do you get that out of clause 50.1?

MR HUTLEY:   Sorry:

in the usual and ordinary course as regards its nature, scope and manner –

and that is a reference to its status – as it were, how it has been carried on at the time of contract.

GLEESON J:   Mr Hutley, the ‑ ‑ ‑ 

MR HUTLEY:   Sorry, your Honour, just before I answer your Honour – and when – it says that against the context of the definition of business.

GORDON J:   That is the critical element.

GLEESON J:   The definition of “business” is a business that operates pursuant to the licence.

MR HUTLEY:   Yes, your Honour.

GLEESON J:   We do not have all of the terms of the licence in the book of further materials, but did that licence require that the business be conducted in accordance with all the relevant laws?

MR HUTLEY:   The licence does not but there are provisions in the ‑ ‑ ‑ 

GORDON J:   Liquor Act.

MR HUTLEY:   Which your Honours were taken to – in the Liquor Act – which, if one acts in certain ways, one can be exposed.  I do not think it requires you to comply with every law to have your liquor licence exposed.  It requires you to carry with the laws with respect to your liquor licence, but I will ‑ ‑ ‑ 

GLEESON J:   So, do you accept that the vendor was capable of carrying on the capital‑B Business after the COVID orders came into effect?

MR HUTLEY:   They could not – when you say “the Business”, your Honour – they could not carry on “the Business”:

in the usual and ordinary course as regards its nature, scope and manner –

GLEESON J:   But I am asking, could they carry on the capital‑B Business pursuant to the licence?

MR HUTLEY:   The Business – and that gets to 58.2 – if I can, I think, your Honour is asking me – I think so, I may have been missing your Honour’s point.  Some business was conducted after the COVID order.  That was the business which was, in effect, a takeaway business from the hotel.  Your Honours will recall the findings of fact about it.  In effect, it was some business – it certainly was not “the business trading as the “Quarrymans Hotel”” having regard to its nature, et cetera.

There was a business, which continued and a business which continued consistent with the COVID order, but it was not a business which met the requirements of 50.1.  That is not challenged, except on the question of if it is read – however it was put – within its lawful control.  In other words, if you compare the actual trading after the first COVID order and the business before it, they bore little relation to one another.

That is why it is essential to our learned friend’s construction – the first aspect – to either have it read in, the words “insofar as”, to quote from reply paragraph 7 – as it is within its lawful control to do so, or, as evolved in my learned friend’s submissions, it is somehow built into the word “usual”.

GORDON J:   Let us identify it with precision.  The only thing that seems to me the difference between the two of you is whether or not one reads clause 50.1 as having this inbuilt, on‑its‑face requirement that it be conducted lawfully – because one would not conduct an unlawful business.

MR HUTLEY:   Quite.

GORDON J:   That is it, is it not?

MR HUTLEY:   Can I say ‑ ‑ ‑ 

GORDON J:   Pardon?

MR HUTLEY:   Your Honour, that is the question.  It is interesting, for example, as an alternate way of putting it in the Court of Appeal and at trial is that this was an implied term.  That has been abandoned in the Court, or was not advanced until my learned friend haltingly referred to it.  The difficulty with it is, if one asked the normal questions on implied terms, somebody would say, well, would it go without saying that somebody was told that if the business was, in effect, stopped on an interim basis between contract, or for a substantial part of the interim period, you would settle on the same terms without any change?  The answer would be, of course not.

KIEFEL CJ:   That is looking at the result.  If you are looking at the term, it would be obvious, would it not, that a business would have to be conducted lawfully?

MR HUTLEY:   But it has to be reasonable.  It has to go without saying, also, your Honour.

GLEESON J:   But it is a business, it is not just a business, it is a business that is operating pursuant to a licence ‑ ‑ ‑

MR HUTLEY:   I understand that, your Honour.

GLEESON J:   Does it not go without saying that a business that is operated pursuant to a licence would be operated lawfully?

MR HUTLEY:   But, your Honour, what we say is, would it go without saying that a person would enter into that contract on the same terms other than the implied terms with that provision?  We would say that the question is, would they pay precisely the same amount for the business and the goodwill if the business which they wished to obtain – conducting and having to the nature – were to be in effect, rendered almost neuter.

GORDON J:   I find this a bit difficult for a couple of reasons.  The first is the point made by Mr Gleeson that what is transferred was not just the business, it was the property and the other items.  We are dealing with one aspect of the purchase price ‑ ‑ ‑

MR HUTLEY:   I accept that.

GORDON J:   ‑ ‑ ‑ in this clause, and we are dealing with it for a period between contract and completion.

MR HUTLEY:   I accept that.

GORDON J:   So, in the terms of the purpose of the clause, it is directed at an element of what was being sold and to be delivered on completion, and it was to seek to preserve that element, namely goodwill, for that period.  I am dealing with just the first element of clause 50.1, because the second and third elements were dealing with other aspects of the purchase.

MR HUTLEY:   It is not just dealing with goodwill, your Honour.  It is dealing with – and one has to see the other covenants, for example, the covenants, for example, 50.2(1)(a) prevents one from terminating the contract.  And contracts, your Honour, were defined as at page 41 of the core appeal book, W over to the next page.  So, in effect, it is not just designed to preserve goodwill – and there are other covenants which I will come to – it is to ensure that there is a seamless movement between the operating business the day before – at the time of contract, the day before completion until the day after.

KIEFEL CJ:   Is it to ensure also that certain conduct is not engaged in by the vendor to the detriment of the business?

MR HUTLEY:   Certainly that, your Honour.

GLEESON J:   One element is to preserve the licence.

MR HUTLEY:   I accept that, too, your Honour.  It would be to preserve that.  But what the parties have agreed to, and what 50.1 specifies – and the other matrix of provisions, which I will come to in due course – is that there shall be, carried over across completion, assets which are operating.  Because the assets, such as the license, such as the gaming machines licenses and the like, are of precious little value to a trader unless they are operative.

GLEESON J:   But do you accept that they would be precious little value to a trader if the vendor had breached the COVID rules?

MR HUTLEY:   Quite – but your Honour, what we say is the clause does not need legality provision to be read to avoid that problem.  That is where the suspensory effect of illegality – which we will come to in due course – avoids all those difficulties.  In one sense, you can promise to do that which is illegal, the contract will be unenforceable, but with supervening illegality, the problems become more nuanced.  That is what the cases and the learned texts have confronted:  how does the law deal with when the unforeseen – and, to an extent – unforeseeable occurs on an interim basis?  Now, just in this regard, with respect to reading these words into – and I will come to it in due course ‑ ‑ ‑

GORDON J:   Before we came to the reading of words into, can we just come back to the words.  Do you not accept that on its face, absent the events that occurred, one could not construe that clause other than a requirement that it be conducted lawfully.  To pick up the Chief Justice’s point, it prevents conduct being undertaken – certain conduct.

MR HUTLEY:   Sorry, I am missing – unlawful at the time?

GORDON J:   Yes, on its face, absent these facts, this clause would require the vendor to operate it lawfully.  It prevents them operating unlawfully.

MR HUTLEY:   Quite.  By reference to the legal position of the time of the contract, undoubtedly, and that goes to 48, which makes clear that they are operating at the time of the contract lawfully.  I accept that, your Honour.

GORDON J:   And then that ‑ ‑ ‑

MR HUTLEY:   Because that would – I am sorry, your Honour.

GORDON J:   No, keep going.

MR HUTLEY:   Because it would be, at the time of the contract, the usual and ordinary course as regard to its nature, scope and manner to be trading legally, particularly in the context where the surrounding circumstances are – your Honours will all have seen the memorandum which was published about its business, and various covenants, and acknowledgments in 48, which one was taken to – that, in effect, the business was, at that time, trading normally, trading legally, and trading in consistence with all its licence conditions.

So, I accept what your Honour has put to me in that regard.  That is because it is dealing with the position at that moment.

GORDON J:   May I add in one more factor then.  At the time of contract, absent these facts, that you accept, if I understand your position that under 48.8(o)(r) that there was an understanding, given a regulated environment in which this business was operating, that it was subject to amendment of regulation from time to time.

MR HUTLEY:   It was subject to amendments of licencing laws.  And 48.8, when anyone looks at it, is very particular.  We pray in aid the particularity of 48.8 and just because we have departed to an extent from – when these parties wanted to make reference to acting lawfully in a contract, they did so with precision.

If your Honours go to the lease – and I am using the numbering of the attached lease at core appeal book 170, A2.1, at letter R, your Honour will see the reference to “lawful”.

GORDON J:   Sorry, what page was that?

MR HUTLEY:   Sorry, 170 of the core appeal book, your Honour.  Sorry, the joint book of further materials, I do apologise.  In the contract, they use the word lawfully.  If your Honour goes to clause B2.1 at page 174, at letter E ‑ ‑ ‑

KIEFEL CJ:   Are you reading the lease as part of the head contract?

MR HUTLEY:   Well, the lease is attached to the contract and its entry is obliged to take place under the contract. 

KIEFEL CJ:   It is dealing with a different subject matter, though.

MR HUTLEY:   Your Honour, I accept, but if one is looking to – these parties had an acute – they were the draftspersons.

KIEFEL CJ:   They have a capacity, like any other party, to express themselves specifically or not.

MR HUTLEY:   Precisely, but they had addressed questions of lawfulness in respect of obligations with respect to the conduct of the business and in a clause,  which deals precisely – at B2.1, it says:

The Lessee covenants that the Lessee will carry on and conduct the Lessee’s business at the Premises and exercise . . . in a lawful, proper and efficient manner –

So, in other words, that is not just going to – it is not just to do with the gaming rights, it is about conducting the business.  So, the parties have provided, with respect to the lease, an express provision to conduct the business lawfully.  They have not dealt with that in clause 50.1.

GORDON J:   But what do you do about A2.6, which recognises that there might be correspondence from any person which concerns the exercise of the liquor licences and notices are to be given?  The whole thing is predicated on the fact that there is a possibility of change, given the regulated environment.

MR HUTLEY:   I am sorry, A2.6?  Yes.  Well, that is about the lease.  All I am saying – I am quite happy with that, with respect.  All I am saying is that they have not dealt with it ‑ ‑ ‑

GORDON J:   So, we use it when we need to, we are happy to narrow it.

MR HUTLEY:   No, your Honour, our learned friend says that it goes without saying that you are going to put in lawfulness into these sorts of covenants.  These parties have been acutely aware in provisions dealing with obligations to carry on business to put in reference to lawfulness.  I take it no further than that.

Can I go back.  I will return to clause 50, if I might.  To return to clause 50, the parties have agreed a means of departure from the clause – 50.4 – which suggests that the parties have addressed questions such as meeting these needs.  I have taken your Honours to the lease provisions.  Your Honours will note that those lease provisions which I took you to in A2.1, A2.9, and B2.1 were conditions, and you will see that from clause 9.2, as they are within division 2.  I do not need to go any further than that.

Can I turn to some of the arguments against us.  Our learned friends have relied on clause 38 of the contract, as did Justice Basten.  Clause 38, your Honours will find at page 50 of the further materials.  His Honour Justice Basten adverted to this at paragraph 133, at core appeal book 114, and our learned friends’ reply submissions in writing refer to it.  The relevant provision seems to be clause 38.1(b)(iv), at 51C.  As we understand it, because there has been no warranty as to present or future financial income to be derived, that in some way tells against the construction which we advance.

That, we say, tells in favour of our construction, because we are not – we are entitled to none of the earnings up to settlement, and none of the expenses up to completion.  We can get – we have received no warranty about return.  The price of that can be seen as a promise in the form of 50.1, in its absolute form.  That is, we do not promise you anything about how much you will make out of this business, but we do promise you what you will receive is these assets being conducted in the fashion that they were conducted at the time of contract, subject to possible exceptions with respect to the liquor licence, such as in 48.  That is what we say.  So, these clauses, in a sense, heighten the significance of the clauses we would have.

This takes one to the Chief Justice’s reference to the fact that what was vital to, in effect, the analysis of the centrality of clause 50.1 is that these assets – the assets to be conveyed – are assets which meaningfully need to be deployed in an ongoing business and it was central to the concerns of these parties, objectively, that that be maintained up to settlement.

Our learned friend says goodwill can fluctuate in value.  We say, we accept that goodwill can fluctuate in value.  It can fluctuate in value even if the trading – there is no change in the way a business is conducted.  They can fall out of fashion, particularly hotels and the like, and one’s goodwill could deteriorate.  We accept that.  What clause 50.1 assures is that the goodwill will not fluctuate by reason of a departure from the conduct of this business according to the formula, nature, manner and what have you in clause 50.1 

The next argument that is put against us is your Honours were taken to the various cases which are conveniently summarised by – the relevant statements of principle are set out in the judgment at first instance of Justice Darke at paragraphs 81 and following at core appeal book 34.  The principles are not in doubt, and the cases referred to – particularly a further case our learned friends have referred to – are concerned with the position where a contract at entry is capable of performance in a number of manners, one of which is legal at least, and if there were two one which is illegal, and the cases stand for the proposition that – and it is referred to at paragraph 81 and the reference to Sheppard’s Touchstone – that the contract will be construed as mandating a legal performance, not a performance in an illegal manner.  They do not – those cases – deal with supervening illegality.

We address the detail of the cases in our submissions in the Court of Appeal at transcript 22, lines 10 to 23, and my learned friend has taken your Honours through the cases.  I thought it may be – we are content to rest on those, we would just be taking your Honours back to the passages our learned friend has.  But, in effect, we say that is what all of the cases to which his Honour referred to were dealing with; that is, where there was, in effect, a choice.

GORDON J:   Which has driven them back to the question whether or not, on the question of construction, one reads it as dealing with this question of lawful or not.

MR HUTLEY:   I am sorry, I missed the last words, your Honour.

GORDON J:   That is all right.  If you are right about that, and we are directed back to this question posed in Langley v Foster by reference to Sheppard’s Touchstone – but even if they are dealing with this potential of two avenues – whether or not clause 50.1 is to be construed as requiring lawful compliance or lawful conduct.

MR HUTLEY:   Not complying – it would not necessarily be a breach of that contract to act in an illegal fashion in the conduct of the business.  For example, let it be assumed they in some way did not pay, for example, payroll tax.  That, we would not say, is necessarily a breach of 50.1.  So, it is not – I think that is why they ‑ ‑ ‑

KIEFEL CJ:   Why would it not be?

MR HUTLEY:   Well, it may be, your Honour.  All I am saying is not every breach of a law by the owner would necessarily be a breach of 50.1 because they have to carry it on in the usual thing, having regard to the scope, nature and manner.  There may be collateral breaches of matters which do not go to that promise.  That is why they put it in terms of so far as it is consistent with the law to do so.

So, in other words, they read it in a way that the exception is an exception with trenches on it which prevents the conduct of the business, not one which makes it a breach if one has any breach of the law in conducting the business.  That is how it is expressed in our learned friends’ reply submissions, as insofar as it is within its lawful control to do so.  So, that is a different way of putting it, to say it is a promise that nothing illegal will occur during the course of running this business. 

The case which our learned friends take your Honours to is Ralli Brothers v Compania Naviera Sota y Aznar, which is in the authorities, tab 40.  Tab 40, your Honours will find at volume 6, page 1549.  I will just take you there for a little short – my learned friends explained the facts; namely, the case concerned the making of a contract which provided for payment in Spain of freight under a charter party at a rate of 50 pounds per ton.  The contract was illegal to a limit imposed by the Spanish government on freight rate set at a lesser amount.

Firstly, to be made clear, is that the illegality was an illegality which was absolute with respect to that contract.  The contract was to be formed at a moment upon delivery.  At that moment, it was illegal.  There was nothing relevantly temporary about it in the sense – it was just illegal to perform that contract at that time.  The courts – their Lordship – dealt with it in various ways, not all precisely the same.  Lord Sterndale, Master of the Rolls, turned to the analysis at 1553, page 291 of the report.  Then it referred to Professor Dicey’s Conflict of Laws, it:

is, in general, invalid in so far as the performance of it is unlawful by the law of the country where the contract is to be performed –

On that basis, at 292, about point 5, his Lordship said:

I think on principle and authority that the charterers are not bound to perform that part of the contract, that is, the payment of freight above the maximum allowed by Spanish law, which has become illegal by the law of the place of its performance.

So, in effect, they found the provision was invalid; the contract was, relevantly, made invalid.  Lord Justice Warrington turned to the position – just the argument advanced by the charterers, your Honours will see at 1555, the second full paragraph, 293 in the report.

His Lordship’s analysis goes over 1556, the paragraph starting, “The true effect”, which is the second paragraph, and again returns at 1557, at about point 6; the paragraph commencing with, “Professor Dicey”.  His Lordship really determines it on that point.  Your Honours will see that from 1558 down to the paragraph:

Does this position affect –

et cetera.  It was only Lord Justice Scrutton who – and your Honours will see at 1562, at the top, page 300 of the report – his Lordship relied upon the statement of principle of Dicey and then, in effect, he turned to it at the end and says:

It is now quite common –

at the end of the page:

for exceptions, or exemptions from liability to be grafted by implication on contracts, if the parties by necessary implication must have treated the continued existence of a specified state of things as essential to liability on the express terms of the contract.

Et cetera, et cetera.  This, again, has got to be read in the context of a provision which makes illegal the contract absolutely, not one which may have a temporary effect upon the contract.

GAGELER J:   It makes performance of the contract illegal.

MR HUTLEY:   Quite.  It makes of the contract or the relevant covenant in the contract illegal finally.  Not, for example, a provision which might have a temporary effect upon a contract.

For example, let it be assumed the day after the contract a COVID order was made for seven days.  Now, that would not produce a relevant illegality which we would say would render that covenant invalid.  It would be a temporary effect upon clause 50.1.  The performance of that covenant for that period, we would say, would be – the law has a number of ways of dealing with it.  It could say that the obligation is suspended or it could say relief from failure to comply with the obligation is removed.

GAGELER J:   They use the language of Dicey, but invalid is a very strange word to use in a contractual setting.  What they translate that as is unenforceable, so the supervening illegality led to that provision of the contract being unenforceable.

MR HUTLEY:   Quite.  But it was finally enforceable.

GAGELER J:   But why should it be any different if the supervening illegality is temporary or permanent?

MR HUTLEY:   It may render it during that period unenforceable, but it does not render the – if the unenforceability is removed, that the covenant does not continue to operate thereafter.  One argument put in the Court of Appeal by our learned friends – our predecessors – was the moment this COVID order went into effect, clause 50.1, its performance then became illegal, it was severed under the severance clause, and it had no continuous effect at all.  It ceased to be a covenant in the contract.

As Justice Bathurst observed, that would have the odd consequence that if there had been such a COVID order for the seven days I have posited, and it would have the effect of making the covenant invalid, but yet after the seven days, the vendor for the rest of the six weeks would, by that effect, be free from complying with the obligation.  He said that it cannot be right, and we submit it cannot be right.  There are – because of the nature of temporary illegalities, it does require a more nuanced analysis than the – as it were, with respect – perfectly apposite to the case involved, but not apposite to the problems your Honours confront, the analysis that took place in Ralli.  That is why we say Ralli is of no assistance, either at a construction level, or at a illegality level.

That comes, if I can, to take up a point that your Honour Justice Gleeson raised in relation to the example, your Honour, of:  let it be assumed that the day after the contract, it became illegal to run this hotel.

Now, if that illegality were, as it were, final – that is, it was not expressed by reference to a restraint for a week or a month or a period – that would be a classic frustrating event because you would have bought – how it would operate, because your licence has to be one of the assets so, in effect, it probably would not even be needed to be frustrating because you could not, by definition, have an operative licence and therefore you could not complete.

But non constat, if it is a temporary operation which raises quite different analytical problems, that is what his Honour the Chief Justice in his analysis was, we say, quite correctly grappling with.  So, we say that on the question of construction – that is, the legality implication – Ralli Brothers is really of no particular assistance.

KIEFEL CJ:   I see the time, Mr Hutley. 

MR HUTLEY:   If your Honour pleases.

KIEFEL CJ:   The Court will adjourn until 2.15 pm.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ:   Yes, Mr Hutley.

MR HUTLEY:   Thank you, your Honour.  I would just like to deal with a few matters about the Liquor Act which my learned friend adverted to.  He referred to sections ‑ ‑ ‑

GORDON J:   Would you just mind speaking up a bit?  I am just having difficulty hearing.

MR HUTLEY:   I am sorry, your Honour.  You are the first person who has ever accused me of that.

GORDON J:   No, I know that.

KIEFEL CJ:   It is late in the year, Mr Hutley.

GORDON J:   I might be getting old.

MR HUTLEY:   Or my vocal chords might be getting old.  Anyway, my learned friend adverted to sections 139 and 141 of the Act.  No non‑compliance with the COVID orders would engage either of those sections.

As to the position under liquor licences, the liquor licence is referred to through the definition of “business” insofar as it connects with clause 50.1, and your Honours can see that from the definition of “business” and the definition of “licence”.  “Business” is at page 40 of the further materials and “licence” is at page 44, letter W of the further materials, and it is the actual licence which is the licence which is at schedule 5, which is page 106 in the further materials.

Of course, licence is also dealt with under clause 47.8, letter R at page 59 in the materials and it is to be recalled that the construction adopted by the Chief Justice is the construction which he dealt with at paragraphs 42 and 43 at page 82 of the core appeal book, after his Honour set out his construction at 41 and 42 and then observed at 43:

That does not mean that cl 50.1 required that the Business be carried on . . . in an identical manner to the way it was carried on pre‑contract.  There may be variations in the manner or extent the Business was carried on due, for example, to economic or regulatory requirements.  Provided the Business can still be seen to be carried on in the usual or ordinary course having regard –

et cetera.  In other words, if there are alterations to the licence which are State‑wide by legislation, then 48 letter R deals with that, and there would not be an engagement of 50.1.  If, however, on the other hand, they are bespoke, no issue would arise to the extent of the allowance that his Honour the Chief Justice observed in 43, but if one assumes some profound bespoke condition which completely altered the character of the business such as you can no longer say it met the description in 50.1, then 50.1 would be engaged in the sense that we say you would no longer be able to comply with that provision.

What effect that would have – having regard to principles of illegality – gets tied into the concept of ready, willing, and able.  You would, as the Court – as having regard to the centrality of this provision, fail to be ready, willing, and able to supply that which was provided for under the agreement in the way that his Honour found, and that is why I want to go firstly to his Honour’s – and that is where we will be going.

Can I now deal with issue two in our submissions, which I have really covered in debate with the Court, that is, clause 58.2.  As is clear, 58.2 has a specific purpose and its provisions reflect the text of section 38‑325 of the Act, which your Honours will find in authorities, tab 4, and this is volume 1 at page 107:

A supply of a going concern is a supply under an arrangement under which:

(a)the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and

(b)the supplier carries on, or will carry on, the enterprise until the day of the supply . . . by the supplier).

That is that.  Now, I just want to tell you how this figured in the case.  Firstly, clause 58.2 is quite different in form to 50.1.  Its relevance to the case at all was doubted by Justice Darke, which you find in the core appeal book at page 10 paragraph 5 where he said:

and perhaps also Additional Clause 58.

In the Court of Appeal, no argument was advanced by my learned friend’s predecessors that the non-challenging of his Honour’s construction in relation to that had any significance to the case at all.  And my recollection is that no one ever made a submission about this provision, the way his Honour had dealt with it, as having any significance, because it did not have any.

That is because, as is obvious from its form, terms, 58.2 does not set a standard at the level of clause 50.1.  No one contended that the vendor was not carrying on the enterprise for the purposes of that clause and that was not determined.  Therefore, even if one did not have, as it were, legality implication, the clause simply had no relevance to the outcome of the case other than to emphasise, because it covers a similar topic to 50.1, the importance of the precise language and demands of clause 50.1.

So, 58.2 is, in effect, we say, supportive of our construction.  Now, issue three in our written submissions is the proper construction and, your Honours, our position is that it was an essential term, and our learned friend’s arguments in a sense track those observations of Justice Basten in dissent and we support the reasoning of the Chief Justice.

GORDON J:   Could I just ask you a question about the essential term argument.

MR HUTLEY:   Yes, your Honour.

GORDON J:   Essential term because it imposes an obligation of performance in the interim period?

MR HUTLEY:   No, because it provides – yes, it is essential because it provides it at all times up to completion.

GORDON J:   What is the “it”?

MR HUTLEY:   The conduct of ‑ ‑ ‑

GORDON J:   Sorry, on your construction, what is the essential term?  I mean, it is tied up with the construction question, that is why I am asking it.

MR HUTLEY:   I am sorry, your Honour, I missed the gravamen.  The carrying on – the “it” is carrying on the business as defined in the usual and ordinary course as regards its nature, scope and manner in the way identified by the Chief Justice, which was common ground by reference to the surrounding circumstances, particularly the selling memorandum.

KIEFEL CJ:   Do you say that completion was conditioned upon performance of clause 50.1?

MR HUTLEY:   Conditioned upon – your Honour, it is not a condition precedent, and the analysis which uses condition precedent is, in a sense, apt to ‑ ‑ ‑

KIEFEL CJ:   But you say without performance in accordance with the terms in your construction they are not in a position to complete.

MR HUTLEY:   Quite.

KIEFEL CJ:   Well, what is the difference between saying “condition”?

MR HUTLEY:   Because, for example, if it were an intermediate term – let me make that assumption, which is a different construction – non‑compliance to the point of repudiation, which we would say, i.e., failing to supply the root, would also justify non‑performance, because you would not be ready, willing and able to complete.

Whether one calls that a condition precedent, all that one says is, in circumstances where you have not met this standard of behaviour, you cannot compel – you are not ready, willing and able to complete, and therefore you cannot compel completion.

KIEFEL CJ:   You are speaking of the clause as if it is to do with conduct, which it clearly is.  But your argument really is that it is more than just conduct, it is you have to act in a way in which you maintain the same level of trade as at the date of contract, the date of completion.  You have to perform to an effective standard.

MR HUTLEY:   Yes, we accept that.  That is the promise which we say exist.

GORDON J:   Can I ask a question which is related to that, then. Which part of 51.2 was unable to be delivered up to you on completion – under clause 51.2?

MR HUTLEY:   It was not being carried on having regard to its “nature, scope and manner” as at the time of contract.

GORDON J:   No, I am asking a different question.  Clause 51.2 required at completion transfer and assignment of assets, which include the business assets.  What I am asking is, what was unable to be delivered up at completion?

MR HUTLEY:   You could deliver up the assets, but the goodwill – there would still be goodwill, but the goodwill was trenched upon by the departure from clause 50.1.  You necessarily pass some goodwill over – I mean, it is noteworthy in this contract that the goodwill was valued at $750,000.  The diminution in value of this business – these assets and businesses – was found to be $1 million at the time of completion.

So, in other words, to say that one, in effect, may be able to supply such goodwill as remains, I have to accept there was – I cannot prove that there was not any goodwill – but, we say, that is not determinative of one being ready, willing and able.  As the cases say, it is what you have to do – be in the position ‑ ‑ ‑

GORDON J:   I just find that an unusual submission, because I would ordinarily ask, at completion, what is it you can deliver up or not.  Ordinarily at completion, you would ask yourself, what can be delivered up?  What is required to be delivered up and what am I delivering up in anticipation or answer to obligations like 51.2?

MR HUTLEY:   Quite.

GORDON J:   I think, as I understand your submission, we are delivering up we are obliged to deliver up, we could complete, but that goodwill is worth less.

MR HUTLEY:   But not only that is ‑ it has never been the law that “ready, willing and able” is limited to supplying, as it were, the contract assets.  That is, there can be covenants which apply to the operation of the contract which do not – I know there is no law and, in our respectful submission, and none has been pointed to – that “ready, willing and able” is solely limited to the assets to comply with the contract.

GORDON J:   That is true, because one then looks to see what the contract’s terms are in relation to warranties and the like, and each of those clauses have a – let us use a neutral term – weight, which has a legal consequence which flows.

MR HUTLEY:   Quite.

GORDON J:   At the moment I am having difficulty working out the interaction between 51.2 and 50.1

MR HUTLEY:   Quite.  What we say – and this is completely my fault ‑ ‑ ‑

GORDON J:   No, no, I suspect it is me; it is Friday afternoon.

MR HUTLEY:   Your Honour is too good to me.  As his Honour the Chief Justice observed, this contract is not just about assets, it is about assets under operation.  That is demonstrated by 50.1 and its precise and detailed stipulations in the context of other provisions which speak to it and, for example – 65.1; the interdependence of property, licence, and gaming machines – the property is sold subject to existing tenancy, and 65.6 sets out the obligations.  We are entitled – the vendor is entitled – to the takings and profits of the business up to completion, and thereafter ourselves.  That is 45.1(a) and (b).

We have got an obligation to account of the normal variety in 45.3, and 48.6 requires a licence change to happen – 48.6.  There are warranties about the subsistence of the liquor licence in 48.8(o) and (q).  There are arrangements for, in effect, passing over the float in the business under clause 44.1, and as I said before, clause 50.2(a) provides a restraint on terminating contracts.  If one goes to those contracts, they are the contracts which will be in place of an operating business – cleaning, gardening, et cetera, et cetera.  They are intended to, in effect, be in place.

In other words, the whole structure of this contract speaks to what the Chief Justice found as an essential obligation – namely, that there be a maintenance of the business of a requisite character until completion.

GLEESON J:   Mr Hutley, can I ask two questions.  Firstly, you do not say that the balance of clause 50.1 is an essential term?

MR HUTLEY:   No, your Honour.  They are doing different things there.  They are dealing with a multiplicity – they are not even dealing with, for example, maintain and repair, and things like that, where you might allow something to fall into a little bit of disrepair.  It could not be a condition, I accept that, your Honour.

GLEESON J:   Do you say that compliance with 50.1 was enforceable by your client after the orders were in force?

MR HUTLEY:   Once the order was in place, my client could not complain legally in the sense of sue for breach, terminate the contract, whilst the temporary illegality remained in place. 

GLEESON J:   So, you say it was a lawful excuse?

MR HUTLEY:   It is a lawful excuse for not complying at that time, non constat that the person who has the benefit of that lawful excuse can compel my client to take the assets, because they are not ready, willing and able in the authorities which I am going to take you to, particularly what was said by Justice Mason – and to get the precise terminology, which I am just about to do – as he said, able to perform the substance of the contract.

GAGELER J:   But they are not in default.

MR HUTLEY:   But they are not in default – in default in the sense of in breach such as to give my client a legal remedy for breach.  We could not terminate for breach.  We could not sue for damage.  We certainly could not sue for specific performance. 

But as the Chief Justice said, because of its essential nature, you cannot simultaneously, with a temporary illegality, demand completion and not, as it were, be able to perform the substance of the contract, and a substance of the contract, a substantial part of this contract, was the promise in 50.1 which had the essential aim – one of its essential purposes, you can call it maintain the business and therefore maintain goodwill, not only necessarily goodwill of trade goodwill, but also site goodwill can be affected by, in effect, a cessation of trade.

It may be in the site, but that does not mean it cannot be derogated from.  Just in this regard, just to make this observation, our learned friend’s reliance on Placer Dome, true it is the Court was there distinguishing between going concern and goodwill, but the Court certainly did not say that the fact something is not a going concern does not contribute to its goodwill.  What the case, that was about is someone trying to say there was a value of – a going concern value.

GORDON J:   Separate from goodwill.

MR HUTLEY:   Separate from goodwill.  The Court certainly has not said that goodwill is independent with the company being a going concern.  I mean, it is highly contributory to goodwill, that is, people will return to you because you are still trading.  So, in effect, this is a false dichotomy.

So, that is why his Honour the Chief Justice saw that this integrated contract was about, as it were, more than just the assets, because the assets are, in effect, not, as it were, several and independent.  They are integrated, and they are integrated and mutually supportive through the process of conducting the business, and that is what clause 50.1 assured to my client the continuance of.

GORDON J:   It is a bit difficult, though, because when you say the integrated contract is worth more than the assets, the assets included the business.  They included goodwill, they included all of the things, and so ‑ ‑ ‑

MR HUTLEY:   I understand your Honour.

GORDON J:   ‑ ‑ ‑ I do not think that helps very much.

MR HUTLEY:   But it does help to this sense, it is, as it were, to say goodwill – obviously goodwill can fluctuate.  Trading is integral to goodwill, but customers can only turn if you are trading.  And therefore, it is also, our submission, captious to say, because we could pass over some goodwill, that is the end of it, 50.1 does not matter.  Because otherwise it leads to the absurdity that if they closed the day after the contract, they shut down the hotel, our learned friends, subject to a repudiation argument, which we will come to, says, well you would have to complete.

We just say that his Honour the Chief Justice’s analysis was both nuanced in the sense of sophisticatedly really dealing with the substance of what was a contract to sell assets as part of a business; the business reflected in the goodwill and such other things as the business assets.  Your Honour goes back to the business assets; they are such things as the business records, the contracts, the stock, the business name, the domain name, et cetera.  Your Honours will find that at paragraph 40, and I will not take you through it.  So, that is how we say his Honour the Chief Justice approached it, and we say his Honour was right.

I have dealt with the issue about promises of return in clauses 58 and 55.2, and 55.3, which Justice Basten referred to at 133, and our learned friends rely on, we say that accentuates rather than derogates from our position.  We do not get a promise that companies were going to make any money out of this, and the quid pro quo for taking that risk, centrally, is clause 50.1.  His Honour Justice Basten also referred to the fact that the assets were – this was, in some way, risks were insurable, and that is paragraph 135, and core appeal book at 115.

Now, one, they certainly were not insured under clause 57.  Clause 57‑insured was an obligation upon the vendor – that is page 70 – was an obligation on the vendor to do something until completion, and since the risk only passed at completion of the assets – and any business interruption would be for its benefit, as it was the beneficiary of returns prior to settlement.  So, his Honour appears to have been considering the possibility that my client might have been able to ensure the possibility of not being able to trade after the contract was completed in some way tended against this being a condition – an essential term – in our respectful submission, does not follow at all and, with respect, is misconceived.  That tells you nothing about it.

Another matter which formed a significant his Honour’s reasoning was the fact that schedule 1 to the contract in item 13 identified what was described as “Conditions Precedent”.  Your Honours will see, if your Honours go to that – that is page 81:

The Vendor granting the Lease –

That is a reference back to the obligation under 65.6.  That is a single act which has to take place:

On the day of completion of the Sale of the Business Assets –

that is page 76, letter O.  The Ausgrid notification is really not a promise at all, it is a description of a process whereby a state of affairs will or will not come about, namely the problem – which is a sewerage leakage problem – was satisfied.  They were described as “Conditions Precedent” and the language redolent of traditional conditions precedent appears in item 13 because it is described as the:

(benefit of both parties).

That is, it could not be waived by any party.  His Honour stated at paragraph 102, at core book 100, that that was not of course determinative, and one had to go back and apply the principles of construction to the relevant clause.

Those principles are not principles of construction which Maynard v Goode refer to as the distinction between a condition precedent and a promissory term, but rather the principles which this Court has expounded in Koompahtoo.  They are the principles which the Chief Justice applied and, for all the reasons we have advanced, we submit, it is the better construction of the contract.  I do not think I need to say anything more about that.

I should say, if your Honours were against us, on that point, one then moves to the notice of contention in relation to the issue as to whether the relevant – the first limb of clause 50.1 were an intermediate term.  Now, to be an intermediate term, one assumes that there is not one means of departure – i.e.,  one standard, contrary to what his Honour the Chief Justice found – but, as it were, degrees of departure from the norm in 50.1 could be established, some of which could achieve the standard for, as it were, sufficiently serious default or departure as to go to the root of the contract.

Now, if I could take your Honours shortly in Koompahtoo, which is in volume 4, tab 19, and if your Honours would go to 816, which is page 138 of the Commonwealth Law Reports, your Honours will see the plurality’s consideration of this principle between 49 and 52.  Going to the bottom of paragraph 49 on page 816, 138 of the CLR:

Of some stipulations “all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract –

So, in other words, if it were an intermediate term, departures from 50.1 which met that standard would be repudiatory, and that language is language apposite to 50.1 in the circumstances of this case, because the state of this business due to the temporary illegality at the time of delivery was such that my client was deprived substantially of the whole benefit which it was intended from the contract, not by whole sufficiently large as to be repudiatory.

GORDON J:   This comes back to what I was asking you about before, when you actually look at what is to be delivered on completion and what you actually get.  Even if you applied that test as set out at the bottom of paragraph 49, the argument against you is that you will have got substantially the whole benefit of what was intended to be got, both by reference to clause 51 and also by reference to the other, in effect, elements of what was to be delivered.  That is really Justice Basten’s point about the fact you have got this property aspect too as well and all of those items, and we are dealing with an aspect of a very large issue, say, interconnected contract.

MR HUTLEY:   Your Honour, can I ask – put it this way.  Let it be assumed the vendor returned the gaming licences.  Again, a significant asset amongst a collection of assets.  No one would say that was not a repudiatory act.

GORDON J:  Well, they would not have delivered the asset then.

MR HUTLEY:   But, your Honour sees that if the central asset is the running business which integrates it – which we say it is, because of 50.1 it would be – and my learned friend accepted that, if the example posited by Justice Gleeson – namely, the day after the contract, the vendor shut down the business, he, in effect, accepted that to be a repudiatory breach.

KIEFEL CJ:   But, Mr Hutley, you say that it is more than just a repudiation of not transferring – or being able to transfer – a running business.  On your case, it is a running business having a particular value and that value does not change between contract and completion.  That is what you say has to be achieved.

MR HUTLEY:   Your Honour, it could well change between contract and completion.  Let me assume, for one reason or another, this pub ceased to be popular with a particular crowd, so its trading figures dropped.  That would be no breach.  The goodwill would deteriorate through natural effluxion.

KIEFEL CJ:   Is that because you are then focusing upon clause 50.1 as concerned with particular conduct?

MR HUTLEY:   Quite.  What the promise is – and that is the central point – it is not a promise that you will have goodwill at the same value.  It is that you will get an operating business which has continued, relevantly, up until completion.

KIEFEL CJ:   But that is not really what the Chief Justice is saying.  I mean, you do get an operating business, it is just that it has not been trading at the same rate.  Its trading has gone down.

MR HUTLEY:   No, with respect ‑ ‑ ‑

KIEFEL CJ:   His Honour is talking about it being a going concern.  His Honour is talking about it being the same business at the time of contract as it is at the time of completion.

MR HUTLEY:   Yes, but his Honour, here, has found it was a condition.  But he said – so, it is . . . . . that – but his Honour in 42 says, at page 82 in the core appeal book:

“Nature” refers to the type of business, a hotel business, “scope” refers to the extent that the business is carried on and “manner” refers to how it is carried on.  It can be readily inferred that all these matters were known to the parties having regard to the terms –

et cetera:

Provided the Business can still be seen to be carried on in the usual or ordinary course having regard to its nature, scope and manner, the obligations . . . will be complied with.

If it can not longer be seen to have that characteristic – not that it is not an operating business, there was a business which was operating, there is no doubt about that.  They may well have – and probably was – an enterprise for the purposes of – a continuing enterprise for the purposes of the tax legislation.

What his Honour is saying is this promise lies in the maintenance of the forms of business, which subsisted at time of contract, identified by reference to ‑ ‑ ‑

KIEFEL CJ:   His Honour is talking about the level of trading.  You can see that from paragraph 46.

MR HUTLEY:   I accept that, your Honour.  I accept it, but what if ‑ ‑ ‑

KIEFEL CJ:   You said that it is not trading the same way it did, therefore, it is different.

MR HUTLEY:   It is not the same business.  It is – in a logical sense, it is a continuation of the business which was before.  It is just not a business of the same nature, extent, scope ‑ ‑ ‑

KIEFEL CJ:   It is just not trading as well as it did.  That is it.  Is it not?  It is trading differently because it has got COVID restrictions, and it means that it is not trading as well, but the two go hand‑in‑hand ‑ ‑ ‑

MR HUTLEY:   I accept what your Honour is saying ‑ ‑ ‑

KIEFEL CJ:   If it was trading better, there would not be a problem.

MR HUTLEY:   If it was trading in the same scope, manner, and nature, then there would not be a problem.  Clause 50.1 would be irrelevant.  But clause 50.1 is the thing that one is ‑ ‑ ‑

KIEFEL CJ:   There is a limitation on its trading, therefore, it is not the same business.  That is really what his Honour is saying.

MR HUTLEY:   I think, your Honour, we are in furious agreement.  He is saying that it just does not meet the norm in 50.1 ‑ ‑ ‑

KIEFEL CJ:   It is just not the same business it was at the date of contract.

MR HUTLEY:   Right.  And he says 50.1 assured us – at least in form – of that.

KIEFEL CJ:   Do you say that 50.1 is intended to preserve goodwill?

MR HUTLEY:   Certainly, one of its purposes is to ‑ ‑ ‑

KIEFEL CJ:   Or is that one of its effects?  Because 50.1 is focused on conduct, so is the protection of goodwill just the effect of the conduct that is required ‑ ‑ ‑

MR HUTLEY:   The outcome.

KIEFEL CJ:   Yes.

MR HUTLEY:   In other words, the trading, in effect, encourages the association and the ‑ ‑ ‑

KIEFEL CJ:   The proper conduct of the vendor in relation to the business; not to do anything to detract from the business.

MR HUTLEY:   Quite, and not to do anything, inferentially, talking about goodwill – not to impair – not to do anything which, of itself, would be apt to impair the likelihood of people resorting to it, as they have resorted the nature of customers this Court identified in Placer Dome.

GORDON J:   Another way of putting it:  it is directed at the preservation of the status quo by the vendor to the extent that the vendor can control it.

MR HUTLEY:   I do not think we agree with – if, to the extent that they control it, it means – brings in legality, your Honour.  I do not accept that proposition.

GORDON J:   It is directed at the preservation of the status quo by the vendor.

MR HUTLEY:   Yes.

GORDON J:   That is the way you read it?

MR HUTLEY:   That is it.

Can I now turn to the concept.  Therefore, we have was one – if it was an essential term, or it was an intermediate term, we say, the state – essential term, the state obviously did not comply.  If it was an intermediate term, the state of this business, comparable to the state at the commencement was fundamentally different.  That, in effect, it was a take‑out store of very limited operation unable, for example, to deploy its gaming machines, unable to deploy space and the like.  The same company was carrying on a business, but it was profoundly different.

So, we say in those circumstances, how does one determine – and I will come to the temporary illegality – because of COVID there is not a breach of contract.  Can your Honours bear with me, I know I have to deal with that.  Could we then ask a question about what is meant by ready, willing and able.  Can we take your Honours, firstly, to the judgement of Chief Justice Barwick in Mehmet v Benson which is at authorities tab 21, in volume 4.  The state in principle, by reference to Fullers’ Theatres – the decision of this Court.  Fullers’ Theatres is at 307 of the CLR, 869 of the book.  It is the last full paragraph, if one could drop down to the question.

JAGOT J:   Sorry, which page are you on?

MR HUTLEY:  Page 307 of the CLR, your Honour, 869 in the ‑ ‑ ‑

JAGOT J:  Sorry, I am in the wrong.  It is my fault.

MR HUTLEY:   Volume 4, tab 21.  It says:

The question as to whether or not the plaintiff has been and is ready and willing to perform the contract is one of substance not to be resolved in any technical or narrow sense.  It is important to bear in mind what is the substantial thing for which the parties contract –

and “thing” must include the plural, “things”:

and what on the part of the plaintiff in a suit for specific performance are his essential obligations.  Here the substantial thing for which the defendant bargained was the payment of the price –

et cetera.  We have given you a reference as to where that was cited, for example, in Bahr v Nicolay (No. 2) (1988) 164 CLR 604 at 620 by Sir Anthony Mason and Justice Dawson.

Can we take your Honours to Green v Sommerville.  That is in tab 17 in the same volume, in the judgment of Sir Anthony Mason at page 610.  It speaks of ready and willing:

In my opinion, it does not.

This is at about point 3:

It is well settled that a plaintiff in a suit for specific performance is not required to show that he has strictly complied with all his obligations under the contract; it is enough that he has performed and is ready and willing to perform the substance of the contract.

Now, in that regard “ready and willing” the cases have determined includes “able”, and we have set that out at the cases at footnote 30 to our submissions.  So, the usual formulation “ready, willing and able” is sometimes contracted to “ready and willing”, but the authorities are that it includes that concept.

Those principles have a similar application in the case of a party giving a notice to complete, who must likewise be ready, willing and able.  We have given you a reference to McNally v Waitzer [1981] NSWLR 294. I will not take your Honours to the passage; there is no debate about it. Of course, it is an aspect of the equity that he who seeks equity must do equity, and we have given you reference.

That has been expressed in a number of ways.  We have given your Honours a reference to Barrak.  This is in tab 29.  Tab 29 is in volume 5 and if your Honours go through to paragraphs [34] to [36] at 1229 – it is 35,765 if your Honours are using the BPRs.  Paragraph [34] refers to a decision – this is a decision of the Court of Appeal, a judgment of the President, Justice Beazley and Acting Justices Sackville and Emmett, and it refers to Malouf v Sterling Estates:

“If a vendor wishes to issue a notice to complete, it will only be able to do so, (a) if it is free from any relevant breach . . . and (b) it is able to proceed to completion and deliver to the purchaser all the purchaser is entitled to under the contract no later than the expiry of the notice to complete.”

So, it is not just a question of breach; it is also delivery.  Now, we have referred to other authorities and statements of principle.  A central aspect of this contract – I am repeating, it was 50.1 was to, in effect – on completion, there to be attendant on the assets an operating business.  We submit, even allowing that there is no formal breach because of the temporary illegality, as the Chief Justice held on the circumstances and construction of this contract, an inability to supply that operating business or to bring it about rendered the vendor relevantly not ready, willing and able at completion or at the time of the notice to complete being issued and, more importantly, not at the time that the purported termination took place, which we accepted as a repudiation.

We say that that is the same if the conclusion is it is not a condition in the sense of an essential term – clause 50.1 – but also an intermediate term because, if one goes back to the formulations of Sir Garfield Barwick and Sir Anthony Mason in Mehmet, respectively, and Green v Sommerville.  The departure would have been a departure which goes, as it were, to the root of the contract, that is, what was being supplied was fundamentally not that which was provided for under the contract.

GAGELER J:   You do not say there is a breach and you do not say there was frustration.

MR HUTLEY:   No.

GAGELER J:   You are using a language that is very much like both of those concepts.

MR HUTLEY:   Your Honour, that is why I want to come to the illegality provisions.  The law – a temporary illegality may, depending upon – may or may not – and we accept in this case – did not produce a frustration.  Because there was a time period, it was a limited time – it could be revoked at any time, and one was getting, still, very substantial assets.  So, it was not frustrated, we accept that.  We did not contest it according to the principles.

But the principles with respect of frustration demand a very high, as it were, what you might call standard of departure from what is anticipated under a contract.  As has been observed – as Justice Stephen of this Court has observed in Brisbane City Council v Group Projects Pty – and the relevant passage is quoted at paragraph 111 in Justice Darke’s judgment at page 44.

The formulation for frustration is of itself, as it were, difficult to apply in any given situation.  It requires, in effect, an evaluation and the like.  We accept there was not frustration, so I am not seeking to use the words of frustration.  We also accept that, if there is a supervening illegality, you cannot compel compliance with the contract, because to do that would be to say one is obliged to breach the law.

But there is not a dichotomy in illegality of either the provision is wholly ineffective or wholly effective.  There is in the cases ‑ and I will come to them, and it seems established – a suspensory character to temporary illegality.  So, in effect, the covenant becomes unenforceable at the time, not superseded, unenforceable.

KIEFEL CJ:   At what point would you know that it is of a suspensory nature, since at the outset of the legal prohibition or limitation you do not know whether it is temporary or not?

MR HUTLEY:   Well, the prohibition is temporary in its terms because it can go no more than 90 days, subject ‑ ‑ ‑

KIEFEL CJ:   In a certain period, subject to further orders.

MR HUTLEY:   It can be revoked at any time, and it might be, for example – and this COVID provision was altered three times, and you have been taken to the three, once on 23 March, once on 15 May and once on 1 June or 20 June, I cannot remember – the purported termination by our learned friend’s client took place before the third covenant – before that COVID order came into place that relaxed the constraints.

KIEFEL CJ:   The suspensory effect, it suspends the obligations completely, or just so far as the vendor is able to carry them out?

MR HUTLEY:   It suspends, here, relevantly, the obligation in the first instance, the obligation under 50.1.

KIEFEL CJ:   But to what extent?  Completely?  It does not have to do anything?

MR HUTLEY:   It suspends – you cannot comply with that obligation on its terms in – after ‑ ‑ ‑

KIEFEL CJ:   But you should comply with it as far as you can.

MR HUTLEY:   Well, that is a matter of – on one view, that is what happened, that may be a matter of choice for ‑ ‑ ‑

KIEFEL CJ:   No, as a matter of law, as a matter of construction ‑ ‑ ‑

MR HUTLEY:   I am sorry.

KIEFEL CJ:   ‑ ‑ ‑ the suspensory – it is suspending what, to what extent?

MR HUTLEY:   It is suspending the promise to ‑ the whole of the promise under 50.1.

KIEFEL CJ:   So, you do not have to do anything at all in relation to the business?

MR HUTLEY:   Unless there is some other covenant which is not affected in that regard ‑ ‑ ‑

GORDON J:   Can I just check, it is not the whole of clause 50.1, do you mean?

KIEFEL CJ:   The first of the three limbs.

GORDON J:   You mean the first limb?  That is another problem, you have got to carve the clause in half, or into thirds.

MR HUTLEY:   But, your Honour, it is there with conjunctions, they are dealing with very different subject matters, it is really no different ‑ ‑ ‑

KIEFEL CJ:   We are just focussing on the first of them.

MR HUTLEY:   Yes, it is no different, we would submit, to (a), (b), and (c), but returning to your Honour the Chief Justice’s question.  For example, it is not necessary to decide.  You have an obligation to continue the enterprise under 58.2.  Now, 58 point – they would submit, there were continuing the enterprise, because they were still running a business, they still had the assets, et cetera.  So, 58.2 may still attach; in other words, if they shut their doors, you may well in breach of 58.2.  But – because you can continue to do so, so thus we say that the effect of is to suspend the obligation, but –

KIEFEL CJ:   To the extent of the limitation of the law?

MR HUTLEY:   Clause 50.1 is an absolute – that is, an obligation to carry in accordance with – that is suspended, I accept that is totally suspended, because – whereas 58.2, because you have an obligation to get that enterprise, and that allows one – that does not preclude one from altering it any way, as long as it is continuing enterprise, and therefore, they are difficult in that regard.

But 50.1, we say, is suspended.  But, we say, having regard to the principles concerned with ready, willing and able, and ability, and having regard to the centrality of this clause in the contract as a condition or even an intermediary term in the circumstances of this case, an issue arises is, can the vendor, as a matter of construction, assert that it is ready, willing and able to, in the relevant sense, to compel completion.  And we say, it is not; it is not able to meet the obligation the fundamental character of this contract, namely –

GLEESON J:   Selling the assets.

MR HUTLEY:   Pardon?

GLEESON J:   Selling the assets.

MR HUTLEY:   Selling – that is a fundamental thing, but also, if we are right on this essential term, the fundamental aspect is supplying, as part of those assets, a business which has been conducted to the date of completion.  That is a consequence of meeting the fundamental obligation.  We say that is what the Chief Justice found, and if that is where one gets to at paragraphs 74, 75 and 76.  It is not, in our respectful submission ‑ one has to read it against, 72, 73 and 74 – and then my learned friend – paragraph 75, at page 32:

Whilst the term “breach” is not used in the pleading, the plaintiffs seem to contend that the defendant was bound by those provisions to operate –

confirm – I am sorry, I do apologise, I am looking at the wrong – 75, I do apologise, I went to page 90, which my learned friends took you to.  One starts at 73:

Although the respondent was excused from any liability for damages for non-compliance with cl 50.1 and the appellants would not have been entitled to terminate on this ground, it does not follow that at the time the respondent was ready, willing and able to complete the contract, a necessary pre-condition –

et cetera, and then the reference to McNally.

JAGOT J:   Mr Hutley, if the vendor had not served a notice to complete, if that had not happened, where does it all go after that?  I know they did serve, and you say they were entitled to accept that as a repudiation, but ‑ ‑ ‑

MR HUTLEY:   Had it not, your Honour, firstly, we could have waived compliance with clause 50.1 ‑ ‑ ‑

JAGOT J:   Well, true, but ‑ ‑ ‑

MR HUTLEY:   And then we could have required completion.

JAGOT J:   Yes.

MR HUTLEY:   Because it was clearly a promise for our benefit ‑ ‑ ‑

JAGOT J:   Sure, but leaving aside that possibility, how do you know when the suspension ends?

MR HUTLEY:   The suspension may end because the COVID restriction is removed, then it is no ‑ ‑ ‑

JAGOT J:   But at what – at all?  I am just trying to work out, because we know that it went through various iterations – square metre rules and all these kinds of things, how many people you could have, outside, not inside and all that kind of thing.

MR HUTLEY:   Can I answer it this way:  at a certain point, if the difficulties went on long enough, and of sufficient severity, you would get to frustration – or you could get to frustration.

JAGOT J:   Yes, you could.

MR HUTLEY:   If the difficulty is ameliorated to the extent that one can say that the vendor is in a position to act in accordance with clause 50.1, that obligation – the suspensory effect of that obligation would be removed, and the vendor would become under obligation to, in effect, run the business again; start up the business, or continue the business in accordance with the covenant.

JAGOT J:   But we know that a business might be very damaged by COVID, and therefore, there is the vendor doing everything in the same manner, scope, and nature, but the business just not succeeding anymore because times have changed, but then you would say that – I am just trying to work out how the suspension ends if there is no guarantee about the money; no warranty as to the money you are going to get, so it is not that.  But they are, then, doing everything as per the – but you cannot re‑create the money stream.

MR HUTLEY:   I cannot compel customers to come back.

JAGOT J:   No, that is what I am saying.

MR HUTLEY:   What I have contracted for is that they will be running the business in the same manner.  Nobody may be turning up, even if there had been no COVID, to give the example I was suggested.  The pub may have fallen out of fashion.  But that would not allow them to say, we do not care, we will do it, because my client wants business running in the same way.  My client ‑ ‑ ‑

JAGOT J:   Yes, but I am not following.  Sorry, I am being very slow.

MR HUTLEY:   I do apologise.

JAGOT J:   No, it is me.  It is Friday afternoon, as people say.  Assume, you know, to take an extreme example, all the COVID, everything came off after two weeks or whatever; but for whatever reason – extreme – this business lost all of its patrons, and they were also going somewhere else.  But they are there; ready, willing, and able, you have to complete.  Why would they not have to then – they are still running the business in the same manner, it is just that they have no customers.

MR HUTLEY:   Quite.  Once they are running the business in the same manner, we are on the hook.

JAGOT J:   But it is not the number of customers then, that is the secret.

MR HUTLEY:   No.  We are at risk as to what happens with the customers if they are complying with their obligations.

JAGOT J:   I am trying to work out what the obligation is as in the manner, scope and nature.  You say that it is ‑ ‑ ‑

MR HUTLEY:   Compare it to what it was back at the time of contact, employees, opening hours, facilities, gambling machines available, et cetera, et cetera.  As long as that has been done, same scope and manner, fine.

GORDON J:   Do you say the same manner as at time of contract?

MR HUTLEY:   Subject to the variation which we accept which would occur, as the Chief Justice observed.  That is our point.  That is what they promised us.  We, of course take the risk, for example, that that is unsuccessful in attracting customers.  But that is what we bargained for, because we see it.  Objectively, one sees it.  One would only seek this because one sees it as objectively beneficial to the purchaser.

GORDON J:   You talked about the end date.  How would you know when it started, and does it work both ways?

MR HUTLEY:   I am sorry, what started, with respect?

GORDON J:   The suspension.

MR HUTLEY:   The suspension, because we are told by COVID it is illegal to run this – the order said, on 23 March at noon, you stop.  It was mandated.  There was no doubt ‑ ‑ ‑

GORDON J:   You were modified.  The business was modified.  I mean, modified, you say substantially, but it was modified.  It was still operating.

MR HUTLEY:   That is why I say 58.2 may have a completely different operation to 50.1

KIEFEL CJ:   But when you say that the business was operated in the same manner, do you mean by that – in the same manner, you mean without the COVID restriction.  That is exactly what you mean.

MR HUTLEY:   Yes.  By reference to the manner, scope and nature ‑ ‑ ‑

KIEFEL CJ:   As long as you have the COVID restriction there, you do not have the same business.

MR HUTLEY:   Sorry, your Honour?

KIEFEL CJ:   As long as you have the COVID direction there, you do not have the same business.  That is what it comes down to.

MR HUTLEY:   It certainly cannot be running anything like it was.  That was common ground.

KIEFEL CJ:   So, it is about trading, the effect on trade.

MR HUTLEY:   It can be so characterised, your Honour, but we say – anyway, I would be repeating myself, your Honour would appreciate.

GORDON J:   Does it work both ways?  Does the suspension work both ways?

MR HUTLEY:   We would say it is waivable.  For example, let it be assumed there was a condition, and you would note the conditions at page 80 are expressly said to be for the “benefit of both parties”.  That is obviously going to make sure that no one could waive a clause, for example ‑ ‑ ‑

GORDON J:   Where are you referring, Mr Hutley, sorry?

MR HUTLEY:   I am sorry, page 80 of the core appeal book – page 81 of the core appeal book.

GORDON J:   Thank you.

MR HUTLEY:   Not the core appeal book – the materials.  I get them confused, I do apologise, your Honour.  That is item 13.  So, we say this is a classic condition which we could waive, and that is made clear, of course, by clause 50.4.  It says:

An obligation contained in clause 50.1 or a limitation contained in clause 50.3 does not apply if the Purchaser has given its prior written consent to the Vendor in respect of a failure –

We could, going forward, say we give you consent not to comply.  So, it is actually waivable and it is expressed to be waivable.  So, the difficulty, if there be a difficulty – and we say it is not a difficulty, in the real sense – it is the sort of difficulty which issues such as frustration give rise to. 

I have taken your Honours to the statement by Sir Ninian Stephen.  He says it is hard to work those things out.  That is not a reason not to have a principle of frustration.  We say, similarly, the mere fact that there can be difficulties with supervening temporary illegalities, which are complex things, does not mean is it a reason for saying there are no principles to deal with supervening temporary illegalities.  It is very, as it were, protean characteristic militates in favour of the flexible approach to the response to these things which the authorities have said subsist.  Can I take your Honours to those now. 

My learned friend referred to the Arab Bank v Barclays Bank, that is volume 5, tab 27.  I do not want to take long with it, but my learned friend’s submission, as we understood it, is to the effect that that case is of no assistance because the relevant contract was frustrated.  In our respectful submission, the case was determined on the basis that it was not frustrated.  Your Honours can see the broad facts my learned friends have indicated.  Can I take your Honours to tab 27, the speech of Lord Morton at page 1108 where he adopts the statement of Lord Justice Jenkins, at about point 5:

I am content, without elaborating the matter further in words of my own, to adopt the reasoning of Jenkins L.J. when he said, speaking of the Schering case:  “If, as was recognized in the case just cited, a debt contracted . . . but made payable by instalments . . . occurring after such outbreak, is not abrogated by such outbreak, but merely suspended as regards enforcement, and this notwithstanding –

et cetera.  Then, Lord Reid dealt with it at 1110, page 730 of the report.

GLEESON J:   Was this not because they were suing on the debt for moneys had not received and that was because the contract had become frustrated?

MR HUTLEY:   The reporting said it was frustrated.  The response was it is not frustrated.  It has merely been suspended in operation.  They were asserting these things because you will see that at page 530, 1110 in the speech of Lord Reid:

The general principle is not in dispute.  With certain exceptions the outbreak of war prevents the further performance of contracts between persons in this country . . . It is not merely that an enemy cannot sue during the war . . . Many kinds of contractual rights are totally abrogated by the outbreak of war and do not revive on its termination.  On the other hand, there are other kinds of contractual rights which are not abrogated; they cannot be enforced during the war, but war merely suspends the right –

et cetera.  And so it goes.  Then, if one goes to Lord Tucker at 535, he refers to “frustration”.  Then Lord Asquith agrees with Lord Morton at 1116, and Lord Cohen’s speech commences at 535 ‑ ‑ ‑

JAGOT J:   I am sorry, did you say 535?

GORDON J:   I think you mean 537.

MR HUTLEY:   I am sorry, 1117, 537 in the report.  I am sorry, did I say 535?  Yes, thank you.  His conclusions at 541, in the last paragraph:

In view of the conclusion I have reached that the right of the appellants to the balance to their credit . . . was only suspended and not abrogated, it becomes unnecessary for me to consider at length –

et cetera.

GLEESON J:   But, Mr Hutley, at 537, point 5, it was common ground between the parties that:

The contract of current account . . . was frustrated” –

MR HUTLEY:   Yes, but that is the speech of ‑ ‑ ‑

GLEESON J:   Lord Cohen.

MR HUTLEY:   ‑ ‑ ‑ Lord Cohen.  Yes.  But Lord Cohen then went on to deal with it on the basis that the obligation was merely suspended.  Could I explain – and so it was viewed – to make the point, if your Honours go to the Libyan Arab Foreign Bank v Bankers Trust [1989] 1 QB 728, that is in volume 6, tab 37, the facts of that are set out in the headnote and that had a similar problem association with the problems associated with Libya.

Now, the judgment of Justice Staughton, if you go to 1525 to 1526, the important point is ‑ ‑ ‑

GORDON J:   What pages of the report is it?

MR HUTLEY:   In the report, 771, your Honour.  He turned to the issue of frustration – a similar sort of problem.  There was interference with the contract due to difficulties.  He refers to – there is sought to be reliance on the Frustrated Contracts Act, and your Honours see that from point 5.  He says at B on 772:

So paradoxical an argument requires scrutiny.  The first answer to it is in my judgment that the obligation of Bankers Trust was suspended but not discharged –

And he relies upon the statement of principle from the Arab Bank.  So, in other words, what they are saying is irrespective of whether there is an argument of frustration, obligations which could become subject to what we say are temporary positions of illegality can be suspended.

Now, that has been thought to be ‑ your Honours will see a similar statement in the judgment of Justice Marcus Smith in Canary Wharf (BP4) T1 v European Medicines Agency.  Your Honours will find that at tab 30 of the authorities.

GAGELER J:   Mr Hutley, it might be just slightly loose language that is being used in these cases.  The obligation remains as a contractual obligation.  Its enforcement is not possible to the extent of the illegality that will have a temporal extent and it will also have an extent to which it affects the degree to which the obligation can be performed.  Here, you have both of those dimensions.

MR HUTLEY:   I accept that, your Honour.

GAGELER J:   So, even if you are talking about a temporary suspension of enforcement, it is not to the totality of the obligation.

MR HUTLEY:   No, your Honour, it is a suspension of the obligation under 50.1.

GAGELER J:   No, let us just take the obligation under 50.1.  There is an extent to which that cannot be performed because of the supervening illegality.  It does not mean nothing can be done.

MR HUTLEY:   Your Honour, we would not, with respect, read it that way because that obligation is an obligation to do X.

GAGELER J:   I see.  To achieve a result?

MR HUTLEY:   To achieve a result, and therefore if the result is not achieved, you are not in compliance with the obligation.  So, in that sense, it is suspended.  That is why I say it is different to 58.2, which is an obligation to carry on something which is not dependent upon a particular form, which is different.  That is how we would put it.  But, for my purposes, the distinction does not matter.  The important point is that the law responds to temporary illegality by, in effect, suspensory means and that, as we understand it, our learned friends contest.  So the obligation is not – the contract is not illegal to the extent that the provision ceases to have effect in law.  Once the temporary inhibition is removed, the provision operates.

GAGELER J:   And all of this is only relevant because it feeds into your “ready, willing and able” argument.

MR HUTLEY:   Quite.  Once I accept that one cannot sue for breach – which, I am in that position – one is there dealing with the question of what are the consequences of it.  That is what the Chief Justice found.  He found that we could not sue for breach and he said non constat that you were ready, willing and able, and able to seek specific performance.  Our learned friends, one of their many steps, is they say his Honour is wrong in referring to temporary illegality having a suspensory effect.  We say that is simply wrong.

I will just give your Honours a reference to what was said by Justice Marcus Smith in the Canary Wharf Case.  In the volume – the court book, it is at 1260.  He, from point 2, deals with subsequent legal changes and supervening illegality.  He refers to the statement of Lord Simon.  Then, at (2)(b), he refers to Chitty, and then goes onto say:

In some cases, the supervening illegality has no effect at all on the enforcement of contractual obligations; in others, it renders the contract unenforceable by one party or the other but leaves the rest of the contract standing and enforceable; in yet others, neither party will be able to enforce the contract.  In some cases, supervening illegality will cause the contract to be frustrated, but not in all.

So, in other words, there is a complete range of possible outcomes, and we have given your Honours ‑ ‑ ‑

GAGELER J:   Does he give us any discrimen to say which one follows in which circumstances?

MR HUTLEY:   We have this, here.  We have a promise for the benefit of the purchaser.  We have a supervening temporary illegality which prevents the vendor from meeting the obligation unless it committed a criminal offence.  We then have a situation where, if it is essential, and it is tied up in the way – and I will not go over everything I put – we submit, the law has effect of suspending the rights of my client to complain of non‑compliance, but the law does not say – having regard to the centrality of the provision – as the Chief Justice said – it is core book 90, 73 and following – on the true construction, it does not follow that my client is obliged to complete, because the consequence is my learned friend is not in the position to say that it is ready, willing, and able, because it is not able.  It is not in breach, but it is not able to supply that which the contract mandates.

GAGELER J:   Where are the parties left?  I know that there was said to be the repudiatory conduct here that followed from the giving of the notice, but you have got a contract that is not breached; not frustrated ‑ ‑ ‑

MR HUTLEY:   It may come to be frustrated if things go on.

GAGELER J:   Yes, but it has not been.

MR HUTLEY:   It has not been, yes.

GAGELER J:   We were just talking about a temporary.  So, what, it just cannot ever come to completion but there are these contractual obligations?  Is that what you are ‑ ‑ ‑

MR HUTLEY:   But, your Honour makes the assumption that it cannot ever.  It will come to a completion one way or the other.  Either there will be a removal of the constraint – the legal constraint – in which case the obligation will resuscitate and have to be complied with.  Upon compliance, you will be able to compel completion.

KIEFEL CJ:   And when is the fair thing?  When is a reasonable time you have to wait to know this?

MR HUTLEY:   At a certain point you may say, as often one does with questions of construction, have to wait, because often – as Sir Ninian Stephen has observed, sometime you have to wait – you have to see how long – it does not necessarily mean you can answer it at the first moment of illegality – particularly temporary illegalities.  You often, in effect have to say, I cannot say it is frustrated now, I will sit and wait and, as time goes on, if it develops, it may get to a point where it is frustrated.  Now, that, as it were, unfortunate uncertainty is an aspect of the common law of frustration.

GORDON J:   That is what Chitty says, does it not?  In the extract that is in the materials, Chitty says, listen, supervening illegality is sort of an instance of frustration in very – as I read that passage – very limited circumstances.

MR HUTLEY:   The law is very strict.

GORDON J:   And he identifies war, foreign law and aspects like that.  Are we in that category?

MR HUTLEY:   The frustration here would be ‑ ‑ ‑ 

GORDON J:   No, the category – we are talking about supervening illegality and we are trying to work out what the boundaries of the so‑called principle are.  Chitty confines it in a very narrow way, as I read the Chitty extract, by reference to war, by reference to foreign law.

MR HUTLEY:   With respect, I do not think he limits it to particular circumstances.  I am sorry, Chitty may, but the statement of principle of Justice Marcus Smith is much broader because the moment you limit it to questions of law and the like, there is no principal reason to limit it.  Wars can be very short – sadly, they can be very long.  In our respectful submission, if one tries to read these cases as being war‑specific – or some other specific – that is not how they have been viewed either by authority, in our respectful submission, or by the learned writers – and we have given you reference to them, I will not take you ‑ ‑ ‑ 

GORDON J:   The only reason why I took you to Chitty is because this passage footnotes Chitty.

MR HUTLEY:   Yes.  But, no, it is . . . . . et cetera.  But if one goes to the passage in Chitty – and I will just have that turned up – you have got the materials – tab 44, your Honour – I do not think in terms – he gives examples but, with respect, I do not think he is saying it is limited in that way.

Anyway, it is not – in our respectful submission, one could not limit it in that way because otherwise temporary illegality can arise in a myriad of circumstances, and it cannot be just that there is a one size fits all because that would lead to a completely oppressive result, either it completely renders nugatory a promise, even after the illegality has been removed.

KIEFEL CJ:   Mr Hutley, are you saying anything further about the proposed notice of contention, or have you said what you need to about that?

MR HUTLEY:   The only thing I wish to say – I have said that the legality applies equally to that on the basis that the degree of departure brought about by the COVID was such as to get to a position where, in effect, the root of the contract was not being met, i.e., one was not supplying that which was essential.  So, we say the same applies, so, returning then – what we say is the analysis of the Chief Justice at 73, 74, and 75 is, in our respectful submission, orthodox once one accepts the possibility of temporary suspension.  And it is not – to say that, in effect, there is a period of uncertainty we embrace.

In circumstances as extreme as this, there are apt to be a period of uncertainty, because otherwise you have this – if one accepts that there is an essential promise that they will maintain the business, my client finds itself in a situation where that promise is simply not complied with in a fundamental way and that inability to run it may continue for a substantial period of time, yet, my client is obliged to take the business and the assets at the price, and that is in a circumstance where – and this is where risk is of some significance – risk is said to lie with our learned friends up to the time of completion.

So, in effect, it has the – and this is what his Honour observed upon in paragraph 72 of his reasons on paragraph 89 and 90.  So, in other words, we say that the doctrine of temporary illegality and suspensory effects does not encroach on the doctrine of frustration.  As our learned friends, it does not properly rise to, quote, “irresolvable practical problems”, it gives rise to problems, but problems of the very variety that the Courts have said lie with frustration, it is not a reason to reject it.  And also, if one will see from Koompahtoo, one of the arguments against intermediate terms is that that was said to give rise to, in effect, move from condition and warranties to intermediate terms.

One of the objections to that is that led to issues of uncertainty.  Now, in complex contracts – in complex, unforeseeable events – issues of uncertainty cannot mean a basis to, in effect, freeze the law on what we submit is just an arbitrary division, so we say that that takes one nowhere.  So, I think I have said all that I can, your Honour – those submissions.

May it please your Honour, those are our submissions.

KIEFEL CJ:   Thank you, Mr Hutley.  Do you have anything by way of reply, Mr Gleeson?

MR GLEESON:   I did, your Honour, but I am conscious of the time.  Could I know what time the Court is rising, other than instantaneously?

KIEFEL CJ:   We will proceed.

MR GLEESON:   Thank you.  Your Honours, the debate between the parties might be captured by a very practical question.  Assuming the vendor went to its solicitor on 23 March 2020 and said, what am I meant to do under the law, our answer would be straightforward.  Firstly, you must comply with the law, so you must honour the Public Health Order.  But secondly, in relation to this clause, 50.1, you will not breach it by carrying on the capital‑B Business held under the capital‑L Licence by complying with the law and, indeed, if you were not to comply with the Public Health Order you would be in breach of clause 50.1, and that is the end of the case.  That is our answer. 

Mr Hutley’s solicitor’s answer would have these steps in it.  Firstly, yes, you should comply with the Public Health Order, so you must alter your trading.  We agree on that.  Secondly, but you did promise under clause 50.1 the exact opposite.  It is an obligation to achieve a result, in answer to Justice Gageler’s question and so, even though you will now be complying with the Public Health Order, you will be, on the face of it in breach of 50.1.

But, third proposition, it will not be a breach like any breach the law knows of because you will not be liable for damages, you will not face termination, you will not face specific performance.  So, it is a breach, but a very odd sort of breach.

But then, fourth proposition, as to the first limb of 50.1 but not the other limbs, you are in breach of an essential term.  Normally, a breach of an essential term would lead to a right to damages and termination, but this one does not, so it is a very odd essential term.

Fifthly, performance of the first limb is suspended for an indefinite period, and in answer to your Honour the Chief Justice, the suspension is of the whole of the first limb.  It is not a suspension which says you have a lawful excuse to the extent the Public Health Order requires you to modify your business, the whole of the first limb is suspended until something happens in the future.  That produces the extraordinarily odd result that the balance of the first limb – which is, carry on the business normally to the extent you can – is apparently wholly suspended, on Mr Hutley’s view.  One of the things the purchaser wanted through that first limb has now been wholly eviscerated for a temporary period, because that is apparently what suspension requires.

Then sixthly, not only all of that, but the main obligations are suspended under the contracts, the obligation is to deliver the assets and pay for them.  But in answer to your Honour Justice Jagot’s question, it

becomes a one‑way suspension of the main contract because they can waive, but the vendor cannot waive.  What has actually happened through this use of suspension is that the mutually independent obligations have, in fact, turned into a one‑way option.

It is then wholly in the hands of the purchaser whether to bring the option to an end by exercising it, in which event the vendor is required to complete, or, if the purchaser does not waive, one is then in the wholly uncertain territory as to when, either, one has tipped over into frustration or the COVID orders have been lifted or been varied sufficiently for this to be the same business as it was at the date of contract.  That creates an indefinite and uncertain period in which a contract including a sale of land is left wholly uncertain.

Now, certainty is not the only policy the law favours in answering these contractual questions, but it is one of the policies, and that is referred to in Part 2 at paragraph 50.  It is also expressed by Lord Wright in Denny, Mott & Dickson Ltd in volume 5, tab 33 at page 278 of the report, page 1387 where the Court said, in the context of frustration, that:

If there is a reasonable probability from the nature of the interruption that it will be of indefinite duration, they ought to be free to turn their assets, their plant and equipment and their business operations into activities which are open to them, and to be free from commitments which are struck with sterility for an uncertain future period.

That same policy concern must be in play when one considers the respondents’ answer to the hypothetical question I raised.  Your Honours, as to the authority, none of the authorities which discuss temporary suspension support the application of the doctrine in the present case, which is the point we make about the authorities.

My final submission in reply is the alternative case, we heard this afternoon the word “repudiatory breach”.  That to me sounds like a breach and the alternative case is that there was a breach of clause 50.1 as an intermediate term which was so serious that it deprived the purchaser of the substance of the contract, which would surely mean that the purchaser could have terminated the contract, which was the very proposition Mr Hutley started by saying he disavowed.

May it please the Court.

KIEFEL CJ:   Yes, thank you.  The Court reserves its decision in this matter and adjourns to Tuesday 13 December at 10.00 am.

AT 3.54 PM THE MATTER WAS ADJOURNED