Macquarie International Health Clinic Pty Ltd v Sydney Local Health District

[2020] NSWCA 161

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District [2020] NSWCA 161

Hearing dates:

26–28 February 2020

Date of orders:

3 August 2020

Decision date:

03 August 2020

Before:

Bathurst CJ at [1]; Bell P at [339]; McCallum JA at [340]

Decision:

(1)   Appeal dismissed.

(2)   The appellant pay the respondent’s costs of the appeal.

Catchwords:

CONTRACTS – construction – context – whether party was in default of its obligations under the agreement – whether party had certain powers under the agreement – whether a discretion provided under the agreement was subject to a good faith obligation

CONTRACTS – breach of contract – consequences of breach – right to termination – where Notices of Default and Notices of Termination issued – whether non-compliance with the Notice of Default gave the right to terminate the agreement – notices under s 129 Conveyancing Act 1919 (NSW) – reasonable time under the Notice to remedy default

Legislation Cited:

Conveyancing Act 1919 (NSW)

Environmental Planning and Assessment Act 1979 (NSW)

Property Law Act 1974 (Qld)

Cases Cited:

Addenbrooke Pty Ltd v Woollahra Municipal Council (No 2) [2009] NSWLEC 134

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57

Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140; [1930] HCA 10

Billson v Residential Apartments Ltd [1992] 1 AC 494

Brooke v Clarke (1888) 1 B & Ald 396; 106 ER 146

Burger King Corporation v Hungry Jacks Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187

Dogan v Morton (1935) 35 SR (NSW) 142

Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) [2019] NSWCA 312

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Esso Research and Engineering Co v Commissioner of Patents (1960) 102 CLR 347; [1960] HCA 31

Forbes v Git [1922] 1 AC 256

Fox v Jolly [1916] 1 AC 1

Gerraty v McGavin (1914) 18 CLR 152; [1914] HCA 23

Giacomi v Nashvying Pty Ltd [2007] QCA 454

Glebe Administration Board v Tasker [1964] NSWR 1307

Harris v Thallon (1926) 26 SR (NSW) 456

Horsey Estate Limited v Steiger [1899] 2 QB 79

Hovan’s Hotel Pty Ltd v Cherry (Supreme Court (NSW), Bryson J, 14 March 1994, unrep)

Johnson v Senes and Berger [1961] NSWR 566

Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12

Mackay v Dick (1881) 6 App Cas 251

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd; Macquarie International Health Clinic Pty Ltd v City of Sydney Council (No 9) [2016] NSWSC 155

Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738

Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65

Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Parke Davis Pty Ltd v Sanofi (No 2) (1982) 43 ALR 487

Penton v Barnett [1898] 1 QB 276

Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25

Pollak v Yapp [2019] NSWCA 150

Re Media, Entertainment and Arts Alliance; Ex parte the Hoyts Corporation Pty Ltd (1993) 178 CLR 379; [1993] HCA 40

Sanofi v Parke Davis Pty Ltd (No 2) (1983) 152 CLR 1 at 10; [1983] HCA 32

Simic v NSW Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47

Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd [2011] HCATrans 155

Victoria v Tatts Group Limited (2016) 90 ALJR 392; [2016] HCA 5

Wiggins Island Coal Export Terminal Pty Ltd v New Hope Corporations Ltd [2019] NSWCA 316

Texts Cited:

J D Heydon, Heydon on Contract (2019, Thomson Reuters)

Category:

Principal judgment

Parties:

Macquarie International Health Clinic Pty Limited (Appellant)
Sydney Local Health District (Respondent)

Representation:

Counsel:
N C Hutley SC with S Phillips, E A J Hyde and S Kanagaratnam (Appellant)
I M Jackman SC with J Williams and S Scott (Respondent)

Solicitors:
S Moran & Co (Appellant)
Clayton Utz (Respondent)

File Number(s):

2019/313960

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

[2019] NSWSC 1199

Date of Decision:

12 September 2019

Before:

Ward CJ in Eq

File Number(s):

2017/83181

HEADNOTE

[This headnote is not to be read as part of the judgment]

In 1996 the appellant, Macquarie International Health Clinic Pty Ltd (Macquarie), entered into various Transaction Documents (a Construction Deed and Leases) with the respondent, Sydney Local Heath District (SLHD), whereby Macquarie agreed to construct and lease a private hospital and ancillary facilities on land adjacent to the Royal Prince Alfred Hospital.

An Initial Proposal from 1988 set out that the hospital would have 200 in-patient beds, with the flexibility to expand in the longer term. It also set out that the development would incorporate a 129 bed hotel, and a medical centre. The Construction Deed set out various obligations, including that it was an essential term that Macquarie complete the Works in accordance with the Timetable. It also set out that the hospital was to provide for “at least 200 beds”, and be consistent “in nature and standard” with the Initial Proposal. Further provisions provided SLHD with the power to grant an extension of time in the Timetable if there was delay to the Works. Macquarie was also required to lodge “all necessary applications” to the Council for the carrying out of the Works. Various obligations under the Construction Deed were also essential terms of the Leases. Both the Construction Deed and the Leases contained an obligation for the parties to act in the utmost good faith.

Various plans for the construction of the hospital were lodged alongside Development Applications and Building Applications. The Development Application plans depicted a seven storey hospital with a nine level medical centre attached. Further plans (called “Stage 1” plans) submitted with the Development Application showed only a five storey hospital, with no attached medical centre. There was no hotel included in the plans. Correspondence between the parties before the lodgment of the Building Application raised a number of SLHD’s concerns about unresolved matters with Macquarie. The Building Application plans seemed to incorporate much of what was in the Development Application plans, however also contained spaces where it was stated on the plans, “fitout of this area not in contract”.

In 2000, SLHD purported to terminate the Transaction Documents, which was held to have been invalid by the Court of Appeal in 2010. Macquarie took possession of the site in 2015.

In further correspondence from 2015 between the parties, SLHD proposed a revised Timetable for construction. SLHD also repeatedly warned Macquarie against proceeding on the basis that it had a “blank canvas” by proposing a development different from what it had contracted to build. However, without SLHD’s knowledge, Macquarie developed a proposal for the hospital which included a hotel and “seniors living” apartments. SLHD notified Macquarie of an amended Timetable in the same form as the draft, and advised Macquarie of its obligation to obtain a new Construction Certificate as any previous building approval was not sufficient to enable construction. In 2017, SLHD served Notices of Default and Notices of Termination on Macquarie in respect of the Transaction Documents.

In these proceedings, Macquarie appealed from the decision of the primary judge in the Equity Division that the termination of the Construction Deed was valid, and that various Notices of Default and Notices of Termination in respect of the Transaction Documents were validly issued.

The Court dismissed the appeal.

The first issue – whether Macquarie was in default of its obligations under the Construction Deed and the Leases at the time the Notices of Default were issued

i)   The issue of whether Macquarie had satisfied the requirements of cl 4.1 of the Construction Deed depends on what was required on its proper construction. While the Initial Proposal was a “baseline document”, it had been varied by agreement (subject to the requirements of cl 4.5(j) and (k)), and Macquarie was therefore obliged to prepare a Development Application in accordance with that agreement. Macquarie was also obliged to lodge a Building Application: [228]-[243] (Bathurst CJ); [339] (Bell P); [340] (McCallum JA).

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65, considered.

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37; Simic v NSW Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12; Victoria v Tatts Group Limited (2016) 90 ALJR 392; [2016] HCA 5, referred to.

ii)   Macquarie did not prepare or lodge a Building Application in accordance with cl 4.1. There was no variation of the Works such as to permit Macquarie to fulfil its contractual obligations by constructing a hospital of the nature of that set out in the Building Application: [244]-[254] (Bathurst CJ); [339] (Bell P); [340] (McCallum JA).

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57, referred to.

iii)   SLHD was entitled to vary the Timetable to provide for a new date by which to obtain a Construction Certificate. The question of whether there is a power to grant an extension after the matter or thing sought to be extended has expired is a matter of construction of the provision in the context in which it appears: [255]-[267] (Bathurst CJ); [339] (Bell P); [340] (McCallum JA).

Brooke v Clarke (1888) 1 B & Ald 396; 106 ER 146; Esso Research and Engineering Co v Commissioner of Patents (1960) 102 CLR 347; [1960] HCA 31; Parke Davis Pty Ltd v Sanofi (No 2) (1982) 43 ALR 487; Sanofi v Parke Davis Pty Ltd (No 2) (1983) 152 CLR 1 at 10; [1983] HCA 32, considered.

iv)   The discretion to set a new Timetable should be read as subject to the good faith obligation in the Construction Deed: [268]-[272] (Bathurst CJ); [339] (Bell P); [340] (McCallum JA).

Re Media, Entertainment and Arts Alliance; Ex parte the Hoyts Corporation Pty Ltd (1993) 178 CLR 379; [1993] HCA 40; Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140; [1930] HCA 10; Burger King Corporation v Hungry Jacks Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187, considered.

Forbes v Git [1922] 1 AC 256, referred to.

The second issue – whether non-compliance with the Notice of Default gave SLHD the right to terminate the Agreement

i) The Notice under s 129 of the Conveyancing Act 1919 (NSW) sufficiently specified the breach required to be remedied: [307]-[312] (Bathurst CJ); [339] (Bell P); [340] (McCallum JA).

Gerraty v McGavin (1914) 18 CLR 152; [1914] HCA 23, considered.

Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907; Fox v Jolly [1916] 1 AC 1; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268, referred to.

ii) The Notice provided for a reasonable time within which to remedy the default. A notice must inform the tenant in the form or to the effect of the notice in Sch 6 of the Conveyancing Act that the lessor will be entitled to re-enter or forfeit the lease in the event that the lessee fails to comply with the notice within a reasonable time. Provided that the tenant is informed that he or she has a reasonable time to remedy the default, there is no need to specify a particular time. If the tenant is sufficiently informed that they have a reasonable time to remedy the default, the time said to be reasonable in the notice will be treated as surplusage and can be disregarded if in fact it is not a reasonable time: [313]-[327] (Bathurst CJ); [339] (Bell P); [340] (McCallum JA).

Harris v Thallon (1926) 26 SR (NSW) 456; Dogan v Morton (1935) 35 SR (NSW) 142; Glebe Administration Board v Tasker [1964] NSWR 1307; Hovan’s Hotel Pty Ltd v Cherry (Supreme Court (NSW), Bryson J, 14 March 1994, unrep); Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) [2019] NSWCA 312; Giacomi v Nashvying Pty Ltd [2007] QCA 454; Horsey Estate Limited v Steiger [1899] 2 QB 79, considered.

iii)   The Notice was valid. SLHD validly terminated the Leases, and therefore also validly terminated the Construction Deed: [328]-[329] (Bathurst CJ); [339] (Bell P); [340] (McCallum JA).

The third issue – whether there was a breach of the duty of co-operation

i)   There was no breach of the implied duty to co-operate: [335]-[337] (Bathurst CJ); [339] (Bell P); [340] (McCallum JA).

Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25, considered.

Judgment

1. BATHURST CJ: This is an appeal from orders of a judge sitting in the Equity Division of the Court (the primary judge) dismissing a claim by the appellant Macquarie International Health Clinic Pty Ltd (Macquarie) that the termination of a deed between it and the respondent (Sydney Local Health District) (SLHD) made on 2 December 1996 (the Construction Deed) and of certain leases between it as lessee and SLHD as lessor was invalid. Macquarie also appeals against declarations made by the primary judge that Notices of Default issued under the Construction Deed and the Leases and Notices of Termination of the Construction Deed and the Leases were validly issued.

2. The proceedings arise out of an agreement between Macquarie and SLHD’s predecessor Central Sydney Area Health Service (which for convenience I will also refer to as SLHD), whereby Macquarie agreed to construct and lease a private hospital and ancillary facilities on land adjacent to the Royal Prince Alfred Hospital. It is a matter of note that, notwithstanding the agreements were entered into in 1996, the hospital has yet to be built. It is not inaccurate to state that the agreements have generated more litigation than construction.

3. In a careful and comprehensive judgment the primary judge set out the facts giving rise to the proceedings. Her Honour’s findings of the primary facts (PJ [11]-[207]) generally were not in dispute. What is set out hereunder is taken from that summary except where otherwise indicated.

The Initial Proposal

4. The agreements had their origin in a proposal to develop and operate a private hospital adjacent to the Royal Prince Alfred Hospital Sydney, submitted to SLHD by companies associated with Macquarie and a developer, the Mirvac Group, in December 1988 (the Initial Proposal). Because of the reliance placed upon the Initial Proposal by Macquarie in the appeal it is necessary to set out some of its provisions in detail.

5. The summary of the Initial Proposal contained the following information:

“SUMMARY

This submission by Macquarie Health Corporation and the Mirvac Group is a follow up to a preliminary submission in September 1988. It takes into account detailed discussions that have been undertaken with the Area Health Board, the Royal Prince Alfred Hospital and other relevant parties.

The proposal is to develop a world class facility on the nominated site adjacent to Royal Prince Alfred Hospital, that will meet the long term requirements of the general community, the medical profession and the proponents themselves.

The proposed operational concepts and design plans seek to integrate, through functional design and the use of the latest developments in communication technology, the following components:-

(a)   An ambulatory patient component, providing responsive, cost effective service through a 24 hour medical centre, special purpose clinics, diagnostic facilities and a day care unit. Retail outlets will also be located here.

(b)   A 200 bed in-patient component, providing true ‘centre of excellence’ care to a comprehensive range of specialties, with the flexibility to expand, if necessary, in the longer term.

(c)   A 129 bed high quality hotel to serve the main facility in a number of ways, especially for interstate and overseas demands.

A medical centre, providing private suites for medical specialists, will also be provided as part of the overall plan. Generous car parking facilities will be included.”

6. In the introductory section the following remarks were made:

“Throughout the submission clear evidence is given of the partners’ ability to bring resources to the project, including bed licences, personal skills and experience, and financial stability.

Macquarie currently has 400 licensed beds in the Sydney area, and when required the appropriate number of beds will be made available for the Prince Alfred Private Hospital.

With few exceptions the necessary skills required for the project can be drawn directly from within the organisations themselves - a unique feature for a project of this size. Furthermore a commitment is given that in those areas where ‘in house’ experience is unavailable or is insufficient, outside expertise will be engaged.

Both partners are financially sound. Mirvac is a publicly listed company and, although not a publicly listed company, Macquarie Health Corporation Pty Ltd has a strong financial base and employs approximately 1200 persons. Confidential accompanying documentation supports these statements.”

7. Section 3.1 of the Initial Proposal dealt with services. The section included the following:

“3.1.2   Paramedic Services

It is planned that physiotherapy services be provided - at the bedside and within a more formal physiotherapy department

Dietician Services will be available

A wide range of Paramedic Services are externally available in RPAH, which could readily be used by the private hospital patients. Suitable contract arrangements need to be negotiated, and appointment and transport systems (eg electric carts) developed

3.1.3 Diagnostic Services

Radiology - Imaging

Full Diagnostic Clinic facilities will be provided to both inpatients and ambulatory patients. The location of the department has been planned to reflect this central role – in close proximity to the day care and ambulatory patient care facilities and with ready access to the wards.

Services will include, but not be confined to computerised tomography, X-Ray, digital subtraction angiography and ultrasound.

These Radiology services will be provided by a private radiology service, and tenders will be called for the private radiological facility early in the development stage. The radiologist will not be required to provide a computerised tomographic scanner at the initial stage at the operation as spare capacity is reported to exist on the two scanners at Royal Prince Alfred Hospital and a contracting arrangement with Royal Prince Alfred would therefore be more appropriate. However, space including a gantry room will be preserved for a CAT Scanner. Future technology space requirements are anticipated as well, eg MRI.

As required, other services will be provided including angiography, electrocardiography (ECG), electroencephalography (EEC).”

8. Section 3.2 of the Initial Proposal dealt with facilities. In s 3.2.1 under the heading “Size of the Hospital” the following remarks were made:

“3.2.1   Size of the Hospital

The hospital will initially have 200 beds with the flexibility to expand in the longer term.

The question of the availability of private bed licences is an important element in the development project. In this regard Macquarie Hospital Services currently possesses licenses for 400 beds in Sydney.

The necessary hospital beds will be transferred from these existing Macquarie Hospitals and other hospitals as follows:-

- United Gardens Private Hospital           )

- Netherleigh Private Hospital           )   200 beds

- President Private Hospital             )

- Non Macquarie Hospital Services Private Hospitals   )

Macquarie Health Corporation has commenced negotiation to purchase further private bed licenses, which may provide the extra beds required for the development without including the Netherleigh or President Private Hospital beds.

Macquarie Hospital Services has further licensed beds located at Delmar Private Hospital, Manly Waters Private Hospital and Minchinbury Community Hospital.”

9. Clause 6.1.4 of the Initial Proposal envisaged a Timetable for carrying out the Works. It was in the following terms:

“6.1.4   Timetable

A broad timetable for construction and completion of the hospital is as follows:-

Negotiation of tender and lease allow:      4 Months

and then to:·

Design, obtain approvals and construct

Car Park to opening:              14 Months

Design, obtain approvals and construct

Hospital Complex to opening:         36 Months

Subject to more detailed development of design concepts, the preliminary programme suggests that the private hospital should be opened early 1992.”

10. Under the heading “Physical Facilities” the Initial Proposal made the following remarks:

“6.2.1 The Plans

Preliminary architectural plans illustrating the concepts described in this report will follow. For reasons of engineering design it is proposed to minimise the excavation of the site. This limits the amount of parking on the site to 200 spaces as reasonable overall height limits must also be maintained. It is sought to accommodate the balance of the parking, about 120 spaces (giving 320 in all) at ground level off Church Street. The 350 spaces required by the RPAH on the site adjacent to the nominated site will be accommodated partly ‘on-structure’ and partly on ground level.

The allocated site area of 0.7 ha is marginally too small for the private hospital as designed to date and some northward adjustment of the boundary will be sought when plans are finalised. There are two ‘basement’ levels for parking service access and the accommodation of certain facilities as described in the ‘Hospital’ section. The bulk of the hospital operations, (theatres, day care, ambulatory care etc.) are located on the ground level, along with retail - conference/lecture facilities, coffee shop, restaurant and hotel foyer. There are wards located on three levels above the ground floor – with the hotel being adjacent to the wards, for the first three (3) levels of the hotel and with four levels above the hospital. The hotel is on the north-eastern corner of the site.

6.2.2   Parking

For the proposed development involving a:-

- 200 bed hospital

- 129 room hotel

- 30 specialist suites

- 'outpatients' area of 400 sq.m.

- 160 hospital staff at shift (excluding VMO's)

- 50 hotel staff at shift

A total of 320 spaces will be provided.”

The Heads of Agreement

11. On 18 September 1989 a Heads of Agreement was entered into between associated companies of Macquarie and SLHD. Although the Heads of Agreement was superseded by the Construction Deed and the Leases, it should be noted that Recital B of the Heads of Agreement stated that SLHD and Macquarie had agreed that Macquarie would carry out a development of the site and construct a 200 bed private hospital. It should also be noted that “Development Approvals” was defined as “a Development Approval or approvals which is acceptable to Macquarie in its absolute discretion from the Council authorising the carrying out of the Works”.

12. The “Works” were defined in the following terms:

“‘Works’ means the works to be carried out in accordance with the Initial Proposal as amended or varied, the Plans and Specifications, the Schedule of Finishes, the acceptable Development Approvals any relevant building approvals and the requirements of any other regulatory authorities including:

(a)   the excavation of the Site and removal of materials;

(b)   the construction of the Complex and the Car Park; and

(c)    the fitting out of the Complex,

including all ancillary works and activities associated therewith.”

“Complex” was defined as “the private hospital complex to be constructed in accordance with the Plans and Specifications and Schedules of Finishes on the Site”.

13. It should also be noted that the Heads of Agreement expressly provided that it did not contain the whole agreement between the parties.

The Transaction Documents

14. As I have indicated, the Construction Deed was entered into on 2 December 1996. It recited that SLHD (described as the “Landlord”) and Macquarie (described as the “Tenant”) had entered into the Heads of Agreement.

15. Clause 1.1 of the Construction Deed contained the following definitions:

“Building Application means the building applications to be lodged by the Tenant with the Landlord and the Council as required under clause 4.1.

Complex means the Hospital to be erected on Lot 12 in Deposited Plan 809663 and the Car Park to be erected on Lot 11 in Deposited Plan 809663.

Development Application means the development applications to be lodged by the Tenant with the Landlord and the Council as required under clause 4.1. It is acknowledged that the first development application lodged by Tenant with Council shall comprise the Development Application and any subsequent replacement or modification shall not constitute the Development Application unless the Landlord approves to [sic] same under clause 4.13 and 4.14.

Heads of Agreement means the agreement between the parties to this deed dated 15 [sic] September 1989.

Hospital means the proposed private hospital and other facilities to be erected on Lot 12 in Deposited Plan 809667 and operated by or on behalf of the Tenant in accordance with the Initial Proposal.

Initial Proposal means the proposal by the Tenant dated 21 December 1988 exhibited to the parties at the execution of this deed and initialled by each party for purposes of identification.

Plans and Specifications means the plans and specifications (including a construction time program) to be prepared by the Tenant in accordance with clause 3 of this deed.

Timetable means the timetable set out as annexure ‘A’ to this deed.

Transaction Document means this deed, the Heads of Agreement giving rise to this deed, the Hospital Lease, the Car Park Lease, any guarantee and indemnity given in connection with this deed, any instrument which the Tenant acknowledges to be a Transaction Document and any other instrument contemplated by any of them.

Works means the works to be carried out in accordance with the Initial Proposal as amended or varied, the Plans and Specifications, the Schedule of Finishes, the relevant development approvals, any relevant building approvals and the requirements of any other regulatory authorities including:

(a)   the excavation of the land comprised in Folio Identifiers 11 and 12/809663 and removal of materials;

(b)    the construction of the Complex; and

(c)    the fitting out of the Hospital

including all ancillary works and activities associated therewith.”

16. Clause 1.3 provided as follows:

“1.3   This deed contains obligations of Tenant which relate to both this deed and the Hospital Lease and Car Park Lease. The inclusion of obligations in this deed which relate to the Hospital Lease and Car Park Lease is deliberate because it is intended that a breach of those obligations included in this deed that relate to the Hospital Lease or Car Park Lease will give the Landlord certain rights under this deed, including in certain circumstances a right to terminate this deed.”

17. Clause 2 was in the following terms, under the heading “Timetable”:

2.1    The Tenant must commence, carry out and complete the Works in accordance with the Timetable.

2.2    The following provisions relate to extension of the times in the Timetable:

(a)   If, at any time up until the Rent Commencement Date, by reason of any one or more of the events of circumstances referred to in clause 2.3 compliance with the Timetable is prevented or delayed and provided that the Tenant has used reasonable endeavours to carry out the obligations and agreements and observe the conditions and stipulations contained in this deed and on its part to be carried out or observed, then, in any such case, a fair and reasonable extension of time in respect of those matters will be allowed to the Tenant and the times or periods stipulated in the Timetable, will be extended accordingly.

(b)   Any request by the Tenant for an extension of time will be made in writing and state the circumstances and period of extension required and the Landlord will promptly notify the Tenant of what, if any, period of extension the Landlord considers should be allowed. Any dispute between the Landlord and the Tenant to the Tenant's entitlement to an extension or the period of such extension will be determined by an independent construction programmer selected by the Landlord who will act as an expert and not as an arbitrator.

2.3   The events and circumstances referred to in clause 2.2 is loss or damage to the Works by war, act of God, national emergency, fire, earthquake, explosion, lightning, storm or tempest or other like cause.

2.4    The Tenant must provide to the Landlord evidence of compliance with the Timetable on or before each date of substantial commencement or completion as stated in the Timetable.

2.5   The Landlord may grant an extension to any date in the Timetable in its absolute and unfettered discretion if there is any delay to the Works caused by an event beyond the control of the Tenant.”

18. The primary judge noted that there was no suggestion that cl 2.2 was applicable, although its provisions provided context that may assist in informing the construction of cl 2.5. In contrast, at the hearing of the appeal senior counsel for Macquarie placed some reliance on the provisions of cl 2.2(b).

19. As the primary judge also pointed out, there was no dispute that there was a delay in the Works caused by an event beyond Macquarie’s control, namely, the purported and invalid termination by SLHD of the Transaction Documents in 2000.

20. Clause 3 of the Construction Deed dealt with the carrying out of the Works. Clause 3.1 was in the following terms:

“3.1   The Tenant must at its own cost and expense and as expeditiously as possible carry out and complete or cause to be completed the Works in a proper and workmanlike manner in accordance with the Plans and Specifications approved by the Council and any other relevant authority, the terms of the development and building approval approved under clause 4.2 and the requirements of any other relevant authority. To this end the Tenant may take partners which in its opinion are of a quality, experience and substance sufficient to ensure the Project is completed.”

21. Clause 4 dealt with matters necessary for the obtaining of approval for the construction of the Works. So far as relevant it provided as follows:

“Plan Preparation

4.1   The Tenant must commence to prepare promptly, and when prepared, lodge all necessary applications (including the Plans and Specifications and Schedule of Finishes) to the Council and all other necessary authorities for the carrying out of the Works including the Development Application and Building Application in accordance with the Timetable.

Statutory Approvals

4.2   The applications to be made under clause 4.1 of this deed must be prepared by the Tenant for a development of a standard as required under clause 3.2 of this deed and containing at least the services set out in the Initial Proposal PROVIDED THAT:

(a)   the Landlord must review the application prior to lodgement (including any variations thereto) and if they accord with this deed and the Heads of Agreement must comply with clause 4.4 of this deed in respect of that application;

(b)   if the Landlord fails to exercise its right to refuse to approve any application within 28 days, that right shall lapse and the Tenant shall be entitled to lodge the applications without the approval of the Landlord PROVIDED THAT this clause shall not release the Tenant from its obligations regarding the form of application as set out in clause 4.1 of this deed.

4.3   The Tenant must keep the Landlord informed as to the progress of the approvals referred to in clause 4.1 of this deed for which it is responsible and, if requested, make available copies of all applications, amendments to applications and approvals or refusals for inspection by the Landlord.

4.4   The Landlord must provide all consents authorisations and approvals and take all other steps necessary and reasonably requested by the Tenant to assist in obtaining the approvals referred to in clause 4.1 of this deed.

Criteria for plan preparation

4.5   It is agreed that the Development Application, Building Application, Plans and Specifications and Schedule of Finishes will be prepared having regard to the following considerations and criteria:

(a)   the Complex and Car Park must be considerate and harmonious with the other proximate improvements owned by the Landlord;

(b)   traffic flows of both private and public roads must be optimised and of an acceptable appearance;

(c)   access and egress including underpasses and overpasses for services, visitors; patients and employees must be optimised to facilitate flow between the Hospitals;

(d)   adequate sign posting must be provided by both parties;

(e)   open space must be maximised in area and utilisation;

(f)   noise levels must be minimised;

(g)   mechanical and other services in common with the other proximate improvements owned by the Landlord must be integrated so far as is possible;

(h)   the provision of community facilities and services will be provided for, and

(i)   car parking spaces will be maximised during the construction of the Complex,

in each case so far as is reasonably practical having regard to commercial and technical considerations reasonably necessary to ensure the viability of the Project and must also satisfy the following criteria:

(j)   provide for at least 200 beds;

(k)   be consistent in nature and standard with the Initial Proposal; and

(l)   have facilities and finishes of a similar standard to St George Private Hospital and the Sydney Adventist Hospital.”

22. Clause 4.11 required Macquarie to provide SLHD with written monthly reports reporting on the progress of the Works, whilst cl 4.12 dealt with the position if development approval was not granted by the date required by the Timetable. Clause 4.12 was in the following terms:

“4.12   If the Development Approval is not granted by the date required under the Timetable or the Tenant does not declare all conditions imposed on the approval to the Development Application by the date required for the Development Approval under the Timetable then this deed, the Hospital Lease and the Car Park Lease and all other Transaction Documents shall terminate forthwith and neither party shall have any claim against the other in connection with any matter relating in any way to the transactions the subject of the Heads of Agreement or the other Transaction Documents including for restitution and any amounts paid.”

23. Clauses 4.13 to 4.16 dealt with modification or replacement of the Development Application. Clauses 4.13 to 4.15 were in the following terms:

“4.13   The Tenant may modify or replace the Development Application or the Building Application if it:

(a)   first submits the modification or replacement to the Landlord for approval; and

(b)   the Landlord approves the same.

4.14    The Landlord must approve the modification or replacement if it:

(a)   complies with this deed including without limitation clause 4;

(b)   has been developed in consultation with the Joint Working Party;

(c)   in the opinion of the Landlord provides for a development which, having regard to the date upon which the application will be lodged with the Council and approved by the Council, will enable the Tenant to carry out the Works in accordance with the modified or replaced Development Application and comply with the Timetable.

4.15   The Tenant agrees not to lodge with the Council any modification of or replacement of the Development Application unless the Landlord has approved the same under clause 4.13.”

24. Clause 7 provided that certain terms of the Construction Deed were essential terms and dealt with the question of default. It provided as follows:

“Essential Terms

7.1   Each obligation of the Tenant to pay money and its obligations under clauses 2.1, 2.4 and 3.7 are essential terms of this deed. Other obligations under this deed may also be essential terms.

7.2   The obligations under clauses 6, 8, 11 and 12 of the Hospital Lease and clauses 5, 7, 10 and 11 of the Car Park Lease are essential terms of this deed.

Landlord's right to terminate

7.3    The Landlord may terminate this deed by giving the Tenant notice if an Event of Default occurs.

7.4    An Event of Default occurs if the Tenant:

(a)    repudiates its obligations under this deed;

(b)    does not comply with an essential term of this deed;

(c)   repudiates its obligations under a Transaction Document or does not comply with an essential term of a Transaction Document;

(d)   does not comply with an obligation under this deed or a Transaction Document (which is not an essential term) and, in the Landlord's reasonable opinion:

(i)   the non-compliance can be remedied, but the Tenant does not remedy it within a reasonable time after the Landlord gives the Tenant notice to remedy it;

(ii)   the non-compliance cannot be remedied or reasonably compensated for; or

(iii)   the non-compliance cannot be remedied but the Landlord can be compensated and the Tenant does not pay the Landlord compensation for the breach within a reasonable time after the Landlord gives the Tenant notice to pay it;

(in determining what is a reasonable time to remedy or pay compensation the Landlord must have regard to whether the non-compliance arose due to events outside the control of the Tenant);

(e)   distress is levied or a judgment, order or an Encumbrance is enforced, or becomes enforceable, or can be rendered enforceable by the giving of notice, lapse of time or fulfilment of any condition.

Opportunity to Rectify

7.5   The Landlord must not exercise its powers under clause 7.3 unless it first gives the Tenant notice of the particular Event of Default on which the Landlord relies and the clause under this deed under which the default arises.

7.6   The Landlord waives the Event of Default specified in a notice under clause 7 so that this deed continues in full force and effect as if no such Event of Default has occurred, if the Tenant:

(a)   in respect of a breach remediable by payment of money, pays the Landlord all money necessary to remedy the Event of Default within:

(i)   14 days of service of that notice;

(ii)   28 days of service of that notice in any other case.

(b)   in respect of a breach remediable other than by payment of money:

(i)   gives the Landlord a written undertaking, within 28 days of the service of that notice, to remedy the Event of Default; and

(ii)   remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within 3 months of giving the undertaking);

(c)   in respect of a breach which is not remediable:

(i)   pays compensation (within 28 days of service of that notice) to the reasonable satisfaction of the Landlord having regard to the nature and extent of the breach; or

(ii)   undertakes to pay compensation (within 28 days of service of that notice) and pays it to the Landlord within 3 months of giving the undertaking (or any other period the Landlord decides in its absolute discretion) together with interest (at the rate determined in clause 4.5 of the Hospital Lease) from the date of undertaking until payment calculated under clause 7.6; or

(d)   completes the sale and assignment of the Tenant's interest in this deed, the Car Park Lease and the Hospital Lease in accordance with clause 7.7 within 6 months of the notice of the Event of Default being given to the Tenant.

7.7   If the Tenant wishes to sell and assign its interest in this deed, the Car Park Lease and the Hospital Lease pursuant to clause 7.6 (d) it must do so on the following grounds:

(a)   its interests in this deed, the Car Park Lease and the Hospital League are assigned to the same assignee;

(b)   the assignee is not a Parent of the Tenant or the Guarantor, nor is the Tenant or the Guarantor a Parent of the Assignee, nor do any of the Tenant, the Guarantor or the Assignee have the same Parent.

If a sale and assignment occurs in accordance with this clause 7.7 then the Timetable shall be amended by extending each date not yet fulfilled by the period equal to the period from the date specified in the Timetable for completion of the activity in the Timetable which has most recently been completed to the date of completion of the sale and assignment with the intention that the assignee shall have the benefit of the full duration permitted by the Timetable from completion of the last completed activity to complete the activity then incomplete. If the first activity in the Timetable has not been completed on the date of completion of the sale and assignment then the words ‘from the date specified in the timetable for completion of the activity in the Timetable which has most recently been completed’ shall be replaced, for the purposes only of that assignee, with the words ‘from the date of this deed’.

Indemnity

7.8   If this deed is terminated under this clause 7:

(a)   the Tenant indemnifies the Landlord against any liability or loss arising and any reasonable cost incurred (whether before or after termination of this deed) in connection with the Tenant's breach of this deed and the termination of this deed including the Landlord's loss of the benefit of the Tenant performing its obligations under this deed from the date of that termination until the Terminating Date; and

(b)   the Landlord must take reasonable steps to mitigate its loss.”

25. Clause 10.8 imposed an obligation on the parties to act in good faith. It provided as follows:

“10.8   Without limiting the generality of any other provision of this deed the parties agree that in the performance of their respective duties and the exercise of their respective powers under this deed and in their respective dealings with each other, they shall act in the utmost good faith.”

26. Annexure A to the Construction Deed contained the Timetable. It was in the following terms:

“ANNEXURE ‘A’ TO A DEED BETWEEN CENTRAL SYDNEY AREA HEALTH SERVICE AND MACQUARIE HEALTH CORPORATION LIMITED AND MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LIMITED

Activity	Substantial Commencement Date	Completion Date
Lodge Development Application with Landlord	31 December 1996	1 April 1997
Lodge Development Application with Council	-	1 May 1997
Development Approval obtained	-	1 August 1997
Development Approval declared acceptable	-	14 August 1997
Lodge Building Application with the Landlord	1 May 1997	1 August 1997
Lodge Building Application with Council	-	1 September 1997
Building Approval given	-	1 November 1997
Building Approval declared acceptable	-	14 November 1997
Bulk Excavation of Land	1 September 1997	14 November 1997
Construction of Car Park	14 November 1997	14 April 1998
Construction of Hospital	14 April 1998	1 December 1999
Admission of first patients	-	1 December 1999
Rent Commencement Date	-	1 December 1999”

27. On or about the same day, leases were entered into between SLHD as lessor and Macquarie as lessee (the Leases). There were separate leases in respect of the land where the hospital complex was to be built and land upon which a proposed carpark was to be constructed. It is only necessary to set out the provisions of the lease over the land the subject of the proposed hospital (the Lease).

28. The term of the Lease was 103 years commencing on 1 December 1996.

29. Clause 1.1 of the Lease defined Transaction Documents in the following terms:

“Transaction Document means this lease, the heads of agreement giving rise to this lease, the Construction Deed, the Car Park Lease any guarantee and indemnity given in connection with this lease, any assignment of this lease, any instrument which the Tenant acknowledges to be a Transaction Document and any other instrument contemplated by any of them.”

30. Works are defined as follows:

“Works means the works to be carried out in accordance with the Construction Deed including:

(a)    the excavation of the land comprised in Folio Identifiers 11 and 12/809663 and removal of materials;

(b)    the construction of the Hospital; and

(c)   the fitting out of the Hospital; and

(d)   the construction of the Car Park

including all ancillary works and activities associated therewith.”

31. Clauses 1.6 to 1.7 in effect provided that breaches of obligations under other Transaction Documents would constitute a breach of the terms of the Lease. These provisions were in the following terms:

“1.6   This lease contains obligations of the Tenant which relate to both the land leased under this lease (on which the Hospital is to be erected) and to lot 11 in Deposited Plan 809663 (on which a car park is to be erected). The inclusion of obligations in this lease which relate to lot 11 is deliberate, because it is intended that a breach of those obligations included in this lease which relate to lot 11 will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease.

Therefore, the Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Tenant and the Guarantor even though the Landlord, the Tenant and the Guarantor have entered into a separate lease of lot 11 in deposited plan 809663 and notwithstanding:

(a)   that the car park is not to be erected on the Land and is therefore not leased under this lease;

(b)   the assignment, subletting, mortgaging or other dealing with this lease separately to the Car Park Lease or vice a versa; or

(c)    the termination of this lease or the Car Park Lease.

1.7   This lease contains obligations of the Tenant which relate to both the land leased under this lease (on which the Hospital is to be erected) and to the Construction Deed (governing construction of the Hospital and Car Park). The inclusion of obligations in this lease which relate to the Construction Deed is deliberate, because it is intended that a breach of those obligations included in this lease which relate to the Construction Deed will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease.

Therefore, the Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Tenant and the Guarantor even though the Landlord, the Tenant and the Guarantor have entered into a separate Construction Deed.”

32. Clause 2 dealt with the rent payable under the Lease. Clause 2.1 provided that on or before the Rent Commencement Date (defined in cl 1.1 as “the date when the Works are complete to a stage when the Hospital is substantially fit for occupation … and the first patient is admitted”), Macquarie must pay a sum of $5,500,000, which was said to represent all rental payable, other than that referred to in cl 2.2 of the Lease and cl 3.5 of the Construction Deed. Clause 2.2 of the Lease provided for a further annual rental of $400,000 subject to various review provisions set out in cl 3. Clause 3.5 of the Construction Deed provided for rent to be payable in certain circumstances when there was delay in the work.

33. Clause 11.1 of the Lease provided that Macquarie must erect the hospital and ancillary services in accordance with the Construction Deed.

34. Clause 17 of the Lease dealt with default. So far as relevant it provided as follows:

“Essential terms

17.1    Each obligation of the Tenant to pay money and its obligations under clauses 6, 8, 11, and 12 are essential terms of this lease. Other obligations under this lease may also be essential terms.

17.2    The obligations under clauses 2.1, 2.4 and 3.7 of the Construction Deed and clauses 5, 7, 10 and 11 of the Car Park Lease are essential terms of this lease.

Landlord's right to terminate

17.3    The Landlord may terminate this lease by giving the Tenant notice, by re-entry or by converting this lease by notice to the Tenant into a Tenancy that may be terminated at the will of the Landlord but not of the Tenant if an Event of Default occurs.

17.4    An Event of Default occurs if the Tenant:

(a)   repudiates its obligations under this lease;

(b)   does not comply with an essential term of this lease;

(c)   repudiates its obligations under a Transaction Document or does not comply with an essential term of a Transaction Document;

(d)   does not comply with an obligation under this lease or a Transaction Document (which is not an essential term) and, in the Landlord's reasonable opinion:

(i)   the non-compliance can be remedied, but the Tenant does not remedy it within a reasonable time after the Landlord gives the Tenant notice to remedy it;

(ii)   the non-compliance cannot be remedied or reasonably compensated for; or

(iii)   the non-compliance cannot be remedied but the Landlord can be compensated and the Tenant does not pay the Landlord compensation for the breach within a reasonable time after the Landlord gives the Tenant notice to pay it;

(in determining what is a reasonable time to remedy or pay any compensation the Landlord must have regard to whether the non-compliance arose due to events outside the control of the Tenant)

(e)   distress is levied or a judgment, order or an Encumbrance is enforced, or becomes enforceable, or can be rendered enforceable by the giving of notice, lapse of time or fulfilment of any condition.

Opportunity to Rectify

17.5   The Landlord must not exercise its powers under clause 17. 3 unless it first gives the Tenant notice of the particular Event of Default on which the Landlord·relies and the clause under this lease under which the default arises.

17.6    The Landlord waives the Event of Default specified in a notice under clause 17 so that this lease continues in full force and effect as if no such Event of Default has occurred, if the Tenant:

(a)   in respect of a breach remediable by payment of money, pays the Landlord all money necessary to remedy the Event of Default within:

(i)   14 days of service of that notice in the case of Rent; or

(ii)   28 days of service of that notice in any other case;

(b)   in respect of a breach remediable other than by payment of money:

(i)   gives the Landlord a written undertaking, within 28 days of the service of that notice, to remedy the Event of Default; and

(ii)   remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within 3 months of giving the undertaking); or

(c)   in respect of a breach which is not remediable:

(i)   pays compensation (within 28 days of service of that notice) to the reasonable satisfaction of the Landlord having regard to the nature and extent of the breach; or

(ii)   undertakes to pay compensation (within 28 days of service of that notice) and pays it to the Landlord within 3 months of giving the undertaking (or any other period the Landlord decides in its absolute discretion) together with interest from the date of undertaking until payment calculated under clause 17.6.

(d)   completes the sale and assignment of the Tenant's interest in this lease, the Car Park Lease and the Construction Deed in accordance with clause 17.7 within 6 months of the notice of the Event of Default being given to the Tenant.

17.7   If the Tenant wishes to sell and assign its interest in this lease, the Car Park Lease and the Construction Deed pursuant to clause 17.6 (d) it must do so on the following grounds:

(a)   its interests in this lease, the Car Park Lease and the Construction Deed are assigned to the same assignee;

(b)   the assignee is not a Parent of the Tenant or the Guarantor, nor is the Tenant or the Guarantor a Parent of the Assignee, nor do any of the Tenant, the Guarantor or the Assignee have the same Parent.

If a sale and assignment occurs in accordance with this clause 17.7 then the Timetable shall be amended by extending each date not yet fulfilled by the period equal to the period from the date specified in the Timetable for completion of the activity in the Timetable which has most recently been completed to the date of completion of the sale and assignment with the intention that the assignee shall have the benefit of the full duration permitted by the Timetable from completion of the last completed activity to complete the activity then incomplete. If the first activity in the Timetable has not been completed on the date of completion of the sale and assignment then the words ‘from the date specified in the timetable for completion of the activity in the Timetable which has most recently been completed’ shall be replaced, for the purposes only of that assignee, with the words ‘from the date of this lease”.

35. Clause 20.13 of the Lease contained an obligation upon the parties to act in the utmost good faith in similar terms to cl 10.8 of the Construction Deed.

The Development Application

36. On 25 February 1997, Development Applications were lodged with South Sydney Council (the Council) for construction of a carpark and a private hospital.

37. The Development Applications were not in evidence (presumably not being able to be located due to the lapse of time). However, a Statement of Environmental Effects prepared by Pace Property Management Services Pty Limited (Pace Property), a consulting firm engaged by Macquarie, was in evidence. Clause 1.1 stated that “[t]he report presents a description of the proposed development and a schedule of drawings is included in Appendix B”.

38. Clause 2.1 of the Statement of Environmental Effects described the development in the following terms:

“2.1   THE DEVELOPMENT

The proposed development on the site will include a five level carpark for 1,225 cars (600 of which are for RPA) and 12 spaces adjacent to the hospital entry at ground level. The hospital will comprise seven levels and a nine level medical centre.

The hospital building has been designed to maximise the effective use of floor space and to minimise the bulk of the building. The ward floor plan also maximises the effectiveness of patient nursing. The 'K' shape for the ward floors provides for four wings serviced from a central nursing core. This has set the overall shape of the building with the lower floors spreading out to form a base for the building. At the south east end of the nursing wing there is a nine level medical centre. Most of the medical centre floors connect directly to the wards. This has been planned so doctors and specialists have easy access to patients.

To the rear of the hospital building there will be a five storey carpark. The carpark is partly below the natural ground line with two levels below and three levels above at the eastern end of the carpark. At the western end the carpark is an average of half of a level below natural ground level. However, the carpark is only two and a half levels above ground at the building line and then sets back eight metres for the upper two levels.

Extensive landscaping has been incorporated around the site with a bosk of trees to the entry forecourt to reinforce the forecourt and integrate the space into the streetscape. A detailed description of the hospital and the carpark are separately described in the following sections 2.2 and 2.3.”

39. Clause 2.2.1 was a project description of the hospital:

“2.2.1   Project Description

The hospital comprises a range of medical and ancillary uses. This includes:

-   394 ward beds;

-   16 operating theatres/ procedures rooms and support facilities;

-   retail space/ food court for both staff and visitors comprising less than 1,000 square metres;

-   training and teaching facilities;

-   medical suites;

-   specialist consulting rooms; and

-   24 hour Medical Centre”

40. It is to be noted that the inclusion of 394 ward beds in the project description was different to the Initial Proposal, which provided for 200 beds with a capacity for expansion.

41. Clause 2.2.2 provided more detail of the building design and facilities. It provided as follows:

“2.2.2 Building Design and Facilities

The level 1 plan (ground level) of the hospital is the main entry for hospital and day surgery admissions. Also at this level is the 24 hour medical centre, diagnostics and physical therapies and fitness centre. At the rear of level 1 there will be the support facilities such as loading dock, stores, switch room, substation and the Central Sterilising Stores Department.

Level 2 is the main service floor with operating theatres, day surgery, recovery, ICU and CCU, pharmacy and pathology. Also on this level is the kitchen and food court. These facilities will provide food service to the hospital patients and staff as well as providing a service for the general public. The food court opens onto an outdoor courtyard. This area also includes a small amount of retail space for chemist, florist etc. The area of the retail area, including the food court, on this level is 746.9 square metres.

Level 3 has the support facilities for the theatres. These facilities include change rooms, clinician areas, training facilities, general office and medical records. At the eastern end of the floor are further retail spaces with an area of 252.5 square metres. Also on this level will be oncology and some specialist consulting rooms. This level connects to the carpark via an overhead bridge.

Levels 4 to 7 are ward floors. There are 102 ward beds on each level from level 4 to 6, level 7 has 88 beds. Total number of ward beds is 394.

The medical centre at the end of one of the ward wings will include space for 7 consulting suites on each level above level 2. On level 1 of the medical centre is planned an extension of the 24 hour medical centre. Level 2 has an entry lobby on the east side of the building with 6 medical suites adjacent. The entry on the east side of the building will provide easy access for the public from the carpark access road. There are 55 medical suites in this building.”

42. Appendix B to the report set out the various plans which accompanied it. The drawings identified as DA 97.02 to DA 97.10 were described as “Level 1 Plan” to “Level 9 Plan” respectively, whilst drawings DA 97.18 to DA 97.22 were described as “Stage 1 Level 1 Plan” to “Stage 1 Level 5 Plan” respectively.

43. The Level 1 Plan (DA 97.02) showed, among other things, a day surgery, a diagnostics centre, a medical centre and a space described as a “future medical centre”. The Stage 1 Level 1 Plan (DA 97.18) was similar but omitted the space for the future medical centre.

44. The Level 2 Plan (DA 97.03) showed a medical centre with treatment and consulting rooms (in the same relative position as what was described as the “future medical centre” in the Level 1 Plan), an intensive care unit, a pharmacy and a pathology area. The Stage 1 Level 2 Plan (DA 97.19) did not include the medical centre.

45. The Level 3 Plan (DA 97.04) showed treatment and consulting rooms (in the same relative position as the medical centre in the Level 2 Plan), specialist consulting suits and an oncology area. The Stage 1 Level 3 Plan (DA 97.20) was similar but did not include the space for the treatment and consulting rooms.

46. Both the Level 4 Plan (DA 97.05) and Level 5 Plan (DA 97.06) showed treatment and consulting rooms (in the same relative position as the medical centre in the Level 2 Plan), and four wings (A, B, C and D) of ward beds. The Stage 1 Level 4 Plan (DA 97.21) and Stage 1 Level 5 Plan (DA 97.22) were similar but did not include the space for the treatment and consulting rooms.

47. The Level 6 Plan (DA 97.07) and Level 7 Plan (DA 97.08) were similar to the Level 4 and 5 Plans, whilst the Level 8 and 9 Plans showed the medical centre and identified that there would be a metal roof over the hospital section over level 7. While there were no Stage 1 Plans specifically for levels 6, 7, 8 or 9, there were two additional Stage 1 Plans which showed metal roof sheeting over level 5.

42. The elevation plans showed that what was proposed was, in effect, a seven storey hospital, with an adjoining medical centre and other facilities having nine storeys.

43. The proposed development was considered by the Planning and Development Committee of the Council on 20 May 1997. The minutes of the meeting described the proposed development as the erection of a “7-9 storey private hospital with associated medical centre, retail area and various facilities associated with the hospital” and the erection of “a new 5 storey commercial car park for 1225 cars”. It stated that the Development Application proposed 394 beds. It noted that at the end of the south-eastern wing was a medical centre which was two storeys higher, at nine storeys, than the remainder of the hospital.

44. The minutes noted that “[a]lthough approval for ‘staged’ development has not been sought, information with the application and the plans indicates that the medical centre may be built following the car park and main hospital building”. The minutes stated that “[i]f the whole hospital building does not proceed at the same time it is necessary and reasonable to ensure that the finishes of the ‘ends’ of the building are acceptable” and noted that a condition had been framed accordingly.

45. The minutes noted that Pace Property (as Macquarie’s agent) had lodged a deemed refusal appeal with the Land and Environment Court of NSW upon the expiration of 40 days after the lodgement of the Development Applications, and that the hearing was set for 16-20 June 1997.

46. The Committee recommended that approval be given to the erection of a seven to nine storey private hospital and medical centre, subject to certain conditions including that “the development shall be generally in accordance with plans DA 97.01B-24B dated February 1997”. It contained a proposed condition 33, that “should the entire building not be completed in one stage, the building form and finishes shall be to the satisfaction of the Director of Planning and Building”.

47. Notwithstanding these recommendations, proceedings in the Land and Environment Court continued, the principal focus being on the conditions on which development approval should be granted. In a judgment given ex tempore on 19 June 1997, the assessor summarised the issues raised in the following terms:

“THE ISSUES

Whether the parking provision in the proposed car park should be reduced from 1,225 to 960? (Condition 3 of DA 097-00153)

Whether the parking provision should be linked to the staging of the development? (This does not arise out of a condition of approval: however, it arose as an issue during the hearing.)

Whether the servicing of the hospital should be from Church Street or from a new internal road to the east of the site off Carillon Avenue? (Condition 6 of DA 097-00154).

Whether entry to the car park should be from a new link road to the east of the site connecting Carillon Avenue with Lucas Street? (Conditions 7 and 13 of DA 097-00153)

Whether the development should be conditional on the installation of traffic lights at the intersection of Carillon Avenue and Missenden Road? (Condition 8 of DA 097-00153).”

54. The assessor also noted that the parties had agreed that the provision of parking should be linked to the staging of the development. He noted the applicant’s submission that it was not practicable to build the parking station in stages, but that the applicant had offered to make the top level of parking inoperable until the development was complete. In those circumstances the assessor imposed a condition in the following terms:

“New Condition 62 of DA 097-00153 is as follows:

‘The ramp between levels 4 and 5 of the car park shall not be constructed until the construction of the second stage of the Hospital, the Medical Centre and the Consulting Rooms has commenced.’”

55. The assessor approved the Development Applications for the car park and hospital, subject to the conditions set out in the orders.

Events leading up to the lodgement of the Building Application

56. Having regard to the submissions made by the parties on the appeal, it is necessary to refer to some of the correspondence which took place between development approval and the lodgement of the Building Application.

57. On 14 July 1997 the Chief Executive Officer of SLHD, Dr Dianna Horvath, wrote to Mr Ian MacDougall of Pace Property concerning his request for SLHD to sign a Building Application with respect to demolition, bulk excavation and erection of fencing in relation to the development of the Prince Alfred Private Hospital. She noted that Mr MacDougall had informed her that Council had not been prepared to process the application without the owner’s consent. Dr Horvath stated that there were a number of implications for SLHD that arose from the documentation before consent could be given. These included an acceptable programme for the staging of the car park construction and the hospital itself.

58. On 15 July 1997, Mr McDougall wrote to Dr Horvath, stating that the Building Application for the demolition and excavation would normally have been lodged with the major hospital and car park Building Application, but that due to the extreme tightness of the Timetable it had to be lodged “now” to have it all completed by 14 November 1997. The letter stated that the Building Application for the hospital and car park would be lodged with SLHD on 1 August 1997.

59. On 17 July 1997 Dr Horvath responded. She referred to a meeting the previous Friday with Dr Thomas Wenkart, the Chief Executive of Macquarie, who mentioned several possible options and staged programs for the construction of the car park. She stated that SLHD anticipated “no deviation from the terms of the contract that require the construction of a 1200 space carpark to commence on 14 November, 1997 and to be completed by 14 April 1998”.

60. On 30 July 1997 Mr Michael Wallace, the Deputy Chief Executive Officer of SLHD, wrote to Mr MacDougall. The letter contained the following comments:

“Furthermore I refer you to discussions between myself and your architect following our recent meeting when I was assured that I would be provided with revised drawings which would indicate acceptable road easement design, dimensions and interrelationships with elements of our property. To progress these matters for you I look forward to receiving these drawing as soon as possible.

The Health Administration Corporation has signed the BA for Demolition and Excavation, conditional to the above; so as to assist you in meeting the required timetable.”

61. On 1 August 1997, Macquarie lodged with SLHD plans in respect of the Building Applications for the hospital and car park. A covering letter from Mr MacDougall to Dr Horvath referred to a series of enclosed drawings. These included by reference the plans to which I have referred at [69]-[73] below, although the plans attached to the letter as shown in the Appeal Book do not seem to incorporate all these plans. However, nothing was made of this at the hearing.

62. On 27 August 1997, Mr Wallace wrote a letter to Mr Brett Sloane, a Project Manager with Pace Property, which included the following remarks:

“Thank you for your confirmation that all facilities and finishes will be of a similar or better standard than both the St George Private and Sydney Adventist Hospitals.

As a final matter, you undertook at our meeting of 20 August to provide a letter to the Area Health Service confirming that you will not interpret our consent as Landowner to the Building Application as our approval as the Landlord to the detail and specification for construction that accompany the Building Application. Rather, our consent is limited to one of principle to facilitate your timely submission of the Building Application to Council. We have in our correspondence and our meetings expressed concern at the absence of detail within your documentation and you have, at all times, indicated to us that you believe you are obligated to obtain our approval, post BA, and prior to construction. We seek your confirmation of this undertaking before signing your various Building Application forms.

Similarly, in regard to the layout, functionality and internal design of the Hospital generally, and its various Hospital Planning Units, the Health Administration Corporation's consent to the BAs does not signify our acceptance of these schematic design and design development matters. Rather, we see this as a priority matter for you to resolve, through your Joint Working Party and in conjunction with your health facility planners/architects and clinical representatives. We seek your confirmation in this regard.

We look forward to your response to the above matters which will facilitate our consent to your Building Application.”

63. On 28 August 1997, Pace Property lodged Building Applications for the hospital and the car park with the Council. The covering letter set out that under the terms of the Construction Deed, SLHD had 28 days in which to approve or reject the application and as neither had happened, Macquarie had the right to lodge the applications with Council.

64. On 29 August 1997, Mr Wallace wrote to Mr MacDougall stating that there remained a number of matters unresolved which had been previously raised in correspondence. The most important of these matters were said to be the following:

“•   landscaping of the steep embankment of carpark

•   unacceptable and unsightly hole proposed for corner of carpark

•   lack of finish of the structure of the carpark

•   Link road traffic control/calming

•   letter confirming Pace Property's undertaking re consent to Building Application forms”

65. On 2 September 1997, Mr Wallace wrote to Dr Wenkart, stating that as at 1 September 1997, Macquarie had not submitted Building Applications for the private hospital and car park in a form acceptable to SLHD. The letter stated that Macquarie had 24 hours to show cause why SLHD should not exercise its right to terminate the Leases.

66. On 3 September 1997 Mr Wallace again wrote to Mr MacDougall. Under the heading “Pace Property’s undertaking re consent to Building Application forms” the following remarks were made:

“This is our major concern. Since our meeting on 20 August 1997 and despite our written requests on 27, 28 and 29 August, you have failed to provide a letter confirming that you agree that our consent as Landowner to the Building Application is not our approval as the Landlord to the detail and specification for construction that accompany the Building Applications. Rather, we require your agreement that our consent is limited to one of principle to allow you to facilitate your timely submission of the Building Application to Council and that you will provide more developed design for our [not decipherable] consideration.

We have, in our correspondence and our meetings in the month of August, consistently expressed concern at the absence of detail within your documentation. We also expressed concern that this has hindered us from making a judgment on the design of the carpark and hospital such that our consent to the BAs (as presented) could in fact be our sole and final approval. Therefore, we have promptly responded to each issue that presented a concern to us, as they became apparent through our meetings with you and our review of your BA documentation, so that you could consider and resolve them, and modify your plans to the Area Health Service’s satisfaction, for submission with the BAs on or before 1 September 1997.

At the meeting on 20 August 1997, you advised that although the documentation was incomplete for construction purposes, you believed that it was sufficient for BA purposes and you stated that you are contractually obliged to obtain our approval, post BA, and prior to construction to detailed plans and specifications as they are further developed. We stated that this is not our understanding of our obligations and yours under the Construction Deed. In response you agreed that you would provide a letter, under the signature of Dr Wenkart, in the terms of the first paragraph of item 5 above, confirming this undertaking and thus facilitating the Area Health Service’s consent to your various Building Applications.

In your letter of 22 August you subsequently advised that ‘all other detailed documentation will be presented to CSAHS as it became available as per the provision of clause 10.4 of the Car Park Lease’. This is not in keeping with your undertaking because it relates to substantial alteration or addition to the premises (including amendments during the Works) but not to the initial building approval of the Works themselves. We have previously advised you of our understanding of this clause.

We await your letter so that we may release the signed Building Application forms which, as you have been previously advised, have been signed and are awaiting your collection since 1 September, 1997, subject to resolution of the above matters.

We sincerely hope that your continued failure to address these issues is not an attempt to frustrate the process of our consent to your Building Applications. In your letter of 2 September you request that we meet to resolve these issues and you request that in the meantime we consent to the Building Applications. As always, we remain prepared to meet with you at your earliest convenience, but it is imperative that you come to the meeting with answers and solutions to the above issues.

We must again stress that the onus to meet the agreed timetable in the Construction Deed has rested with you and that the Area Health Service has taken all necessary and reasonable steps to assist you in completing your documentation for submission to Council. Moreover, we have consistently and clearly set out the issues that reasonably prevent us from consenting to your Applications and that require resolution before we are able to release the signed BA forms.”

67. On 12 September 1997, Mr Wallace again wrote to Mr MacDougall. The letter contained the following comments:

“Whilst we have not received the express agreement that we sought in the terms of our letter of 3 September and numerous previous requests, we are prepared to take you at your word so that you might proceed in keeping with the timetable attached to the Construction Deed. We are concerned that your failure to respond to this simple matter could be construed as a tactic to delay our consent to your Building Application. We have requested this letter since 20 August, 1997, well in advance of the Building Application lodgement date.

The Area Health Service will release the signed Building Application forms to facilitate your timeliness under our agreement on the condition that we receive the letter confirming our right to approve of outstanding core issues.”

The Building Application

68. The Building Application for the hospital described the work as the “construction of hospital buildings and associated road drainage and landscape works”. It appears that SLHD ultimately lodged a consent with Council to the application on 17 September 1997. On 17 September 1998 the building service manager of the Council notified Pace Property of the approval of the Building Application. The approval relevantly was in the following terms:

“Pursuant to the provisions of Chapter 7 of the Local Government Act, 1993, you are hereby notified that the plans numbered 96035/AWD 01A, 10A, 11B to 16B, 17A to 24A, 25B, 25A to 38A and 38B received on 25 September, 1998 [sic], submitted with your Building Application to execute the above work have been approved subject to the conditions contained in the attached Schedule and in accordance with the details listed below, as unconditional consent would be contrary to the provisions of the Act, the Regulations and Building Code of Australia (BCA).”

69. Each of the plans submitted to the Council were described as “Prince Alfred Private Hospital Stage 1”.

70. The plan for Level 1 wing A and wing D (AWD11), submitted with the Building Application, seemed to incorporate much of what was in the Level 1 Plan and the Stage 1 Level 1 Plan (see [43] above), submitted with the Development Application (DA 97.02 and DA 97.81). However, in that part of the area which was described on both the Level 1 Plan and the Stage 1 Level 1 Plan submitted with the Development Application as a “medical centre” and “diagnostics”, the plan submitted with the Building Application (AWD12) simply stated, “fitout of this area not in contract”. Further, the area on level 1 shown to be used for a “fitness centre” and “physiotherapy” on both the Level 1 Plan and the Stage 1 Level 1 Plan submitted with the Development Application was also left blank on the plan submitted with the Building Application, with the comment, “fitout of this area not in contract”.

71. So far as level 2 was concerned, the medical centre which appeared on the Level 2 Plan (DA 97.03) (see [44] above) but which was not included on the Stage 1 Level 2 Plan submitted with the Development Application was also not included on the Level 2 wing B and C Plan submitted with the Building Application.

72. So far as level 3 was concerned, each of the Level 3 Plan and the Stage 1 Level 3 Plan submitted with the Development Application contained “specialist consulting suites” (although to a more limited extent on the Stage 1 Level 3 Plan). By contrast, this was omitted from the Level 3 wing B and C Plan submitted with the Building Application with the notation “fitout of this area not in contract”. Further, so far as level 6 was concerned, it was clear from the plans submitted with the Building Application that no work was to be done. Wing D of level 6, which might be described as an area containing a lift shaft and other plant facilities, was designated “for future fitout”. Further, the plan showed nothing to be done on wings A, B and C, save for the construction of a metal roof over those wings. The Level 7 and Level 8 Plans submitted with the Building Application only depicted the same plant and lift facilities as level 6 and was also designated “for future fitout”, whilst level 9 apparently had only cooling towers, a plant room and lift motor rooms.

73. The drawing showing the south elevation of wing A submitted with the Building Application showed metal capping on the top of level 6 and then the plant room abutting out above that level. Similarly, the wing B east elevation showed roofing on the top of level 6 with the lift motor room protruding above that between levels 8 and 9.

The 1999 termination and the subsequent proceedings in this Court

74. Between 1998 and 1999 Macquarie carried out work for the construction of the open deck car park the subject of the Car Park Building Approval. However, SLHD complained that Macquarie had not commenced construction of the hospital. On 13 September 1999, SLHD served Notices of Default on Macquarie in respect of each of the Construction Deed and the Leases. On 17 March 2000, SLHD issued Notices of Termination in respect of each of the Construction Deed and the respective Leases.

75. The validity of the termination notices was challenged in proceedings in this Court. It was upheld at first instance (see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 at [560]) but reversed on appeal: see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [325]-[326]. Special leave to appeal to the High Court was refused on 10 June 2011: see Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd [2011] HCATrans 155.

76. On 23 July 2015, Macquarie sent a notice exercising its right to take possession of the respective sites. Handover took place on 2 November 2015.

The events leading up to the 2017 Notices of Termination

77. On 13 August 2015 SLHD wrote to Macquarie, agreeing that the construction of the hospital must commence as soon as possible and proposing a revised Timetable for construction. SLHD noted in the letter that under the proposed revised Timetable it had “adjusted each of the original dates so that the amount of time now permitted for the completion of each step is no less than that permitted under the original Timetable”.

“Schedule 6

(Section 129(9))

Notice of breach of covenant

To

The lessee of [here describe premises with reasonable certainty, as for instance, ‘No. 369, George-street, Sydney.]

With reference to the lease of the abovementioned premises, dated the       day of       1   , from A.B. to C.D., and the covenant by the lessee therein contained [here state concisely the nature of the covenant or covenants breach of which is complained of, as for instance, ‘to repair,’] and the breach by you of that covenant I hereby give you notice and require you to remedy that breach by [here set out the remedy as, for instance, ‘by putting the said premises in repair by doing and executing the repairs in and upon the said premises which are specified in the Schedule hereto annexed.’ Add if compensation is claimed.] And I further require you to pay to me the sum of   , as compensation for the breach already committed.

Dated this    day of       19.

Lessor.

Note.

The lessor will be entitled to re-enter or forfeit the lease in the event of the lessee failing to comply with this notice within a reasonable time—see section 129 of the Conveyancing Act 1919.”

a   Did the Notice sufficiently specify the breach required to be remedied?

307. The requirement that a notice under s 129 must describe the particular act or omission constituting the alleged breach and indicate the acts or omissions which are necessary to remedy it is well established: see the 2010 decision at [323]. In Gerraty v McGavin, Griffiths CJ cited with approval the following passage of the judgment of Collins LJ in Penton v Barnett [1898] 1 QB 276:

“I think, however, that we ought to construe the words ‘particular breach’ in the section according to the obvious intention of the legislature, which was that the tenant should be informed of the particular condition of the premises which he was required to remedy. The expression ‘breach’ means the neglect to deal with the condition of the premises so pointed out, and not merely failure to comply with the covenants of the lease. The common sense of the matter is, that the tenant is to have full notice of what he is required to do.”

He emphasised (at 159-160) that it was not sufficient merely to quote the covenant alleged to be breached.

308. Isaacs J (at 164) emphasised that the breach does not mean the covenant or promise which was broken but what is alleged to be a breach of that covenant or promise. He stated that the notice must do what the landlord “would have to do if he had brought an action, namely, specify what he says is ‘the particular breach,’ and not merely state that there has been ‘a breach’”, and that “[i]f he does that, he is not bound to go further and instruct the tenant how to repair it”: see (1914) 18 CLR 152 at 164; see also Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907 at 925; Fox v Jolly [1916] 1 AC 1 at 11 per Lord Buckmaster LC. As was stated by Hodgson JA in the 2010 decision at [323], the standard of particulars or the degree of specificity depends upon the circumstances, including the nature of the covenant alleged to have been breached and the tenant’s actual or constructive knowledge.

309. In the present case the notice alleged a breach, namely, a contravention of cl 2.1 of the Construction Deed, and required remedy by lodging a Construction Certificate before 5.00pm on 20 March 2017. That in my opinion made it clear what was required, namely, the lodgement of the Construction Certificate. SLHD was not required to inform Macquarie of what was to be inserted in the Certificate.

310. Further, Macquarie was well aware of what SLHD required. It was set out in the letter of 19 January 2016 from SLHD to Macquarie, to which I have referred at [82] above and the letter which accompanied the amended timetable to which I have referred at [93] above. It is also demonstrated by Mr Robinson’s instruction to Mr Brady of 24 September 2016 (see [94] above) which drew a distinction between the hospital SLHD “want[s] us to build in line with the lease conditions” and the expanded proposal.

311. Senior counsel for Macquarie submitted that the notice was not sufficient, having regard to the alternative cases run by SLHD at the trial and on the appeal. However, at the time the notice was issued there was no question of alternative cases being advanced. The fact there may have been a dispute as to what was required by the Construction Certificate did not mean that any further particularity was required. If Macquarie proposed a certificate on its view of the requirements of the Construction Deed and SLHD disagreed, the question of whether there was compliance with the notice could have subsequently been litigated. Potential disputes as to what was required did not mean that greater particularity was necessary.

312. It follows that the primary judge was correct in her conclusion that the notice in respect to the Leases was sufficiently specific to comply with the requirements of s 129 of the Conveyancing Act.

b   Did the Notice provide for a reasonable time within which to remedy the default?

313. There are two preliminary matters. First, SLHD contended that the primary judge did not make a finding that 28 days was not a reasonable time to remedy the breach. I think that is correct, but it does not follow that her Honour made a finding that 28 days was in fact a reasonable time. Her Honour noted the submission made by SLHD that Macquarie’s contention that the time allowed to remedy the default was unreasonable should be rejected (PJ [385]) and the submissions in support of that proposition (PJ [386]-[391]). However in her conclusion on the question of reasonableness, she stated that the relevant question was the time allowed to remedy the default and concluded that it was adequate (PJ [406]-[407]). It was on that basis that she concluded the notices issued under the Leases complied with s 129 of the Conveyancing Act. However her approach to the notice under the Construction Deed was somewhat different. She made the following remarks (PJ [408]):

“As to the default notices issued under the Construction Deed, to which s 129 of the Conveyancing Act does not apply, I consider again that there was sufficient particularity and a reasonable time specified for the breaches to be remedied. Again, Macquarie was ultimately given a much longer period than 28 days in which to remedy the defaults, something that it chose not to do.”

314. On one view this paragraph, and particularly the comment that a reasonable time was specified, could be viewed as that stating 28 days was a reasonable time for remedying the default. If it was reasonable for the purpose of the Construction Deed, it would seem to follow that it was reasonable for the purpose of the notices in respect of the Leases.

315. However I am of the view that her Honour’s remarks at PJ [408] must be read in the context of her earlier finding that the relevant period was the period between the date of the notices and the date of termination. It thus seems to me that if SLHD sought to contend that the judgment should be affirmed on the basis that 28 days was a reasonable time, it would have been necessary to file a Notice of Contention.

316. The second preliminary matter is that it was not disputed that the time in fact allowed to remedy the default prior to termination was reasonable.

317. Macquarie’s position was essentially that irrespective of the question of whether the period between the giving of the date of the notice and the date of termination was a reasonable time in which to remedy the default, the period of 28 days for remedying the default referred to in the notice was inadequate and the notice was defective for that reason. Reliance was placed in particular on the decision of the Full Court in Harris v Thallon (1926) 26 SR (NSW) 456. The notice in that case was in the following terms:

“I now give you notice in pursuance of Section 129 of the Conveyancing Act 1919 to remedy the breach of covenant under your said lease regarding repairs set out in the schedule hereto carried out within fourteen days from the date of service of this notice upon you. Failing this I now give you definite notice that proceedings for forfeiture of your said lease and recovery of possession of the properties comprised therein will be instituted without further notice and that without prejudice to any rights to compensation or otherwise which I as Lessor may have under and in pursuance of the terms covenants and conditions in the said lease contained.”

318. Street CJ, with whom the other members of the Full Court agreed, stated (at 461) that the notice was insufficient as it did not give the defendant notice that she had a reasonable time to effect the repairs and did not inform her of what her legal position would be if she did not effect them. He rejected the submission that the fact the tenant was given 14 days within which to do the work the subject of the notice, instead of being told she was entitled to a reasonable time, did not prejudice her, as the notice would be a mere empty threat if 14 days was not enough. He stated it was true that the notice directed attention to s 129, but stated that all tenants are not lawyers and should be told in plain terms what the law is and what their legal liability would be if they did not comply with the notice.

319. Harris v Thallon was distinguished in a subsequent decision of the Full Court in Dogan v Morton. The notice in that case drew attention to s 129 and concluded that the lessor might re-enter “in the event of the lessee’s failing to comply with the notice within a reasonable time which is seven days from the date hereof”. The Court held that the notice was valid. After referring to Harris v Thallon, Davidson J, with whom the other members of the Court agreed, made the following remarks (at 149-150):

“In my opinion that passage does not govern the position which arises in this case. The defendant has given notice to the plaintiff as tenant of all the requirements which are specified, and it is stated that in the event of the lessee failing to comply with the notice within a reasonable time that the defendant would be entitled to re-enter. He merely added after the words ‘reasonable time’ these words ‘which is seven days from the date hereof.’ It seems to me under those circumstances having told the tenant that he had reasonable time the addition was surplusage, and might have been proved to be correct or not when the jury came to determine in any action that might occur whether the time allowed was in fact reasonable or whether it was not. If there is any dispute in these matters the question of the reasonableness must always be determined by the jury, if there is one, or by the judge as a question of fact; and secondly, the mere addition to the words ‘reasonable time,’ of some other words which limit what is said to be a reasonable time would have no effect whatever, and would only be dealt with in the ordinary course by the tribunal which was dealing with the question of fact in coming to a conclusion as to whether a reasonable time had been given or whether it had not.

Accordingly, in my opinion, the notice which was issued by the defendant to the plaintiff was not invalid as was held in the District Court proceedings.”

320. In Glebe Administration Board v Tasker [1964] NSWR 1307, Collins J, in noting that Sch 6 of the Conveyancing Act did not require a fixed time for compliance with the notice but only a reasonable time, held that there was no requirement in a s 129 notice to specify a fixed time for compliance.

321. In Hovan’s Hotel Pty Ltd v Cherry (Supreme Court (NSW), Bryson J, 14 March 1994, unrep), the defendant sent a notice under s 129 requiring the plaintiff to carry out repairs and appearing to allow 26 or 27 days for compliance. The evidence did not establish that this was a reasonable time. In that context Bryson J made the following remarks:

“For this reason (and, it may be, for other reasons) the purported notice under s 129 of the Conveyancing Act did not operate to fix a time for compliance with the repair covenant to expire before 12 July. However the claim to exercise the right of re entry was not made until 29 October 1993, and the requirement of s 129(1) is that the lessee fails within a reasonable time after service of the notice to remedy the breach, so that the time for compliance mentioned in the notice is not the test for the existence of a right of re entry. As some of the items of repair are reasonably open to contention, a decision to enforce re entry could not be made without investigating fully whether the lessee is in fact obliged to do all the matters referred to in the architect’s report.

Whatever repairs it was the plaintiff’s obligation to do, there was ample time to do them. I find that a reasonable time for the repairs to be carried out was allowed between the delivery of the notice and the giving of the notice of re entry. Indeed, a reasonable time for doing the work required was greatly exceeded. I reject the excuses offered by Mr Hovan in terms of difficulty of arranging for the attendance of tradesmen and so forth; these were no more than lame and insincere excuses and it is plain that, had Mr Hovan and the plaintiff been minded to fulfil the plaintiff’s obligations, there was ample time to do so.”

322. His Honour also made the following remarks concerning the form of the notice:

“Neither s 129 nor the form in Schedule VI of the Conveyancing Act 1919 requires the time during which a breach must be remedied to be stated in the notice. No particular consequences flow, in my opinion, if a time is in fact specified, or if there is a miscalculation in the time so that something is required to be done within 14 days but less than 14 days are given. What a notice must contain is prescribed by para(a), para(b) and para(c) of subs129(1), and the matters prescribed do not include any statement of the time for compliance. Similarly, the body of the notice in Schedule VI does not include any statement of the time required. The concept of time for compliance is prescribed by the terms of s 129(1) – ‘and the lessee fails within a reasonable time thereafter to remedy the breach …’ and the note at the foot of the form of notice in Schedule VI follows this. In respect of each notice purportedly under s129 which was reflected in a ground in the notice of re entry and relied on in submissions, that is in respect of all of them other than ground 2, far more than a reasonable time for remedying the breach passed before the notice of re entry was given and, in the cases where payments were made, before the breach was remedied. In my opinion s 129 does not impede reliance by the defendant on any of the grounds in the notice of re entry other than ground 2.”

323. The remarks of Bryson J referred to in the immediately preceding paragraph were cited with approval in Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrators Appointed). In that case Meagher JA, with whom Brereton JA and Emmett AJA agreed, stated (at [59]) that a notice under s 129 did not need to fix a time as a reasonable time.

324. In Giacomi v Nashvying Pty Ltd [2007] QCA 454, the Queensland Court of Appeal held that a notice which fixed a time less than a reasonable time to remedy a breach and which failed to contain a notice in the prescribed form under the Property Law Act 1974 (Qld), namely, that “[t]he lessor will be entitled to re-enter or forfeit the lease in the event of the lessee failing to comply with this notice within a reasonable time”, was invalid. It appears that the latter matter was the reason for the Court’s conclusion that the notice was invalid: [2007] QCA 454 at [61]-[63]. A similar conclusion was reached by Wallace J (as his Honour then was) in Johnson v Senes and Berger [1961] NSWR 566 at 567.

325. Macquarie also relied on the decision of the English Court of Appeal in Horsey Estate Limited v Steiger [1899] 2 QB 79. In that case a notice was issued requiring, among other things, substantial repairs within a reasonable time. Two days after the service of the notice a writ for possession was issued. It was held that two days was not reasonable notice as a pre-condition for seeking an order for possession. The decision provides little assistance in the present case.

326. It seems to me that the following matters are established by the authorities.

1. The notice must inform the tenant in the form or to the effect of the notice prescribed by Sch 6 of the Conveyancing Act that the lessor will be entitled to re-enter or forfeit the lease in the event that the lessee fails to comply with the notice within a reasonable time. If it does not do so, the notice is bad: Harris v Thallon at 461; Giacomi v Nashvying Pty Ltd at [61]-[63]; Johnson v Senes and Berger at 567.

2. Providing that the tenant is informed that he or she has reasonable time to remedy the default, there is no need to specify a particular time in the notice: Dogan v Morton at 148-150; Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrators Appointed) at [59]; Hovan’s Hotel Pty Ltd v Cherry (see [320]-[321] above).

3. If the tenant is sufficiently informed that he or she has a reasonable time to remedy the default, the time said to be reasonable in the notice will be treated as surplusage and can be disregarded if in fact it is not a reasonable time: Dogan v Morton; Hovan’s Hotel Pty Ltd v Cherry.

4. Termination or forfeiture can only take place after a reasonable time to remedy the default has elapsed.

327. I have set out one of the February default notices in respect of the Leases at [97] above. The Notices of Default in respect of the other leases and the April notices were in the same form. Although cl 1 of the notice required the breach to be remedied by 20 March 2017, the notice conformably with Sch 6 to the Conveyancing Act stated that SLHD would be entitled to re-enter or forfeit the lease in the event of Macquarie failing to comply within a reasonable time, referring to s 129 of the Conveyancing Act. In these circumstances, consistent with Dogan v Morton and Hovan’s Hotel Pty Ltd v Cherry, the date of 20 March can be disregarded. Further, it does not seem to me that the validity of the notice is affected by the expression of what SLHD considered to be a reasonable time. It sought to make clear, as did the landlord in Dogan v Morton, what it considered to be a reasonable time and adds further emphasis to the fact that what was sought to be given was a reasonable time.

328. It follows that the notice was valid. It not being disputed that a reasonable time had elapsed between the date of the notice and the date of termination, it follows that SLHD validly terminated the Leases.

329. It was accepted that if the Leases were validly terminated, the Construction Deed was also validly terminated.

330. In these circumstances, it is not necessary to deal with the difficult question of whether the Construction Deed could be terminated notwithstanding that the Leases remained on foot.

The third issue – The breach of duty of co-operation

331. It was contended finally that the primary judge erred in her conclusion that SLHD, in purporting to terminate the Transaction Documents, had not breached its implied obligation of co-operation: Mackay v Dick (1881) 6 App Cas 251.

332. Senior counsel for Macquarie submitted that the primary judge erred in her conclusion that there was no breach where the defaulting party was bona fide seeking to exercise its rights under the contract. He submitted that even if the Timetable was ineffective, Macquarie still had the obligation to complete work on the hospital. He submitted that Macquarie was prevented from doing so by SLHD’s purported termination. He pointed to the fact that SLHD’s assistance was necessary in consenting to the lodgement of applications including the modified Development Application. He also pointed to the evidence of Macquarie’s banking expert, Mr Ballantyne, who stated that it would not be possible to obtain finance until the issues surrounding the validity of the Construction Deed and the Leases were resolved. He submitted in that context that SLHD’s denial of the existence of the contract amounted to a breach of the duty to co-operate. He submitted, referring to Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25, that Macquarie was released from submitting a Construction Certificate application to SLHD and seeking its consent to it as SLHD had evinced a clear intention not to co-operate.

331. Senior counsel for SLHD that submitted the primary judge was justified in concluding that providing a party was bona fide exercising its perceived rights then there was no failure to co-operate.

332. He submitted that Macquarie was not dispensed from future performance and that it was a matter for them whether to perform or not. He submitted that Macquarie did not need co-operation from SLHD for the first stage, namely, the lodgement of a modified application with SLHD. He noted that until the first day of the trial Macquarie was asserting that the breach of the obligation was the failure to approve the May modification. He stated that Macquarie did not seek to lodge an amended modification prior to termination.

Consideration

335. It is strictly unnecessary to deal with this issue but I do not think there has been a breach of the implied duty to co-operate. If the termination was invalid it would amount to a repudiation of the Leases and the Construction Deed by SLHD. However, SLHD on this hypothesis has not accepted the repudiation and the parties remained bound by their obligations under the Construction Deed. The next steps were either the submission of the s 96 modification to SLHD for consent (cl 4.13 of the Construction Deed) or the lodgement of a Construction Certificate application with SLHD (cl 4.2 of the Construction Deed). It was accepted that SLHD was entitled to reject the May modification. In these circumstances there was nothing required by SLHD until at least a further draft modification was provided to it. It follows that as at the date of termination there had been no breach of the implied term.

336. I do not think the decision of the High Court in Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd assists Macquarie. The principle which can be derived from that case was summarised by Kitto J in the following terms (at 250):

“The principle, which applies whenever the promise of one party, A, is subject to a condition to be fulfilled by the other party, B, may, I think, be stated as follows. If, although B is ready and willing to perform the contract in all respects on his part, A absolutely refuses to carry out the contract, and persists in the refusal until a time arrives at which performance of his promise would have been due if the condition had been fulfilled by B, A is liable to B in damages for breach of his promise although the condition remains unfulfilled.”

337. In the present case the modification or for that matter the Construction Certificate not having been presented to SLHD for its consent, the time for giving the consent had not arrived. In those circumstances there was no breach of the obligation to co-operate.

Conclusion

338. In the result I would make the following orders:

1. Appeal dismissed.

2. The appellant pay the respondent’s costs of the appeal.

339. BELL P: I agree with the Chief Justice.

340. McCALLUM JA: I agree with the Chief Justice.

**********

Amendments

11 August 2020 - [331] insert "had not" before "breached its implied obligation"