Macquarie International Health Clinic Pty Ltd v Sydney Local Health District

[2019] NSWSC 1199

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Macquarie International Health Clinic Pty Ltd v Sydney Local Health District [2019] NSWSC 1199

Hearing dates:

18, 19, 20, 21, 25, 26 March and 2 April 2019

Date of orders:

12 September 2019

Decision date:

12 September 2019

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

(1)   Dismiss the plaintiff’s fourth amended statement of claim.
(2)   Declare that each of the following notices was validly issued by the defendant to the plaintiff:
(a)   notices of default dated 20 February 2017 and 7 April 2017 issued under the Construction Deed dated 2 December 1996;
(b)   notice of termination dated 17 October 2017 issued under the Construction Deed dated 2 December 1996;
(c)   notices of default dated 20 February 2017 and 7 April 2017 issued under registered lease no. 3553375Q dated 2 December 1996 in respect of the real property comprising Folio Identifier 12/809663;
(d)   notice of termination dated 17 October 2017 issued under registered lease no. 3553375Q dated 2 December 1996 in respect of the real property comprising Folio Identifier 12/809663;
(e)   notices of default dated 20 February 2017 and 7 April 2017 issued under registered lease no. 3553373 U in respect of the real property comprising Folio Identifier 11/809663;
(f)   notice of termination dated 17 October 2017 issued under registered lease no. 3553373U in respect of the real property comprising Folio Identifier 11/809663;
(g)   notices of default dated 20 February 2017 and 7 April 2017 issued under registered sub-lease no. 355374S dated 2 December 1996 in respect of the defendant’s estate as tenant in common the tenancy of the registered lease no. 3553373U; and
(h)   notice of termination dated 17 October 2017 issued under registered sub-lease no. 355374S dated 2 December 1996 in respect of the defendant’s estate as tenant in common of the tenancy of the registered lease no. 3553373.
(3)   Judgment for possession of the whole of the land comprising Folio Identifier 11/809663 and Folio Identifier 12/809663 located at the rear of Royal Prince Alfred Hospital in Missenden Road, Sydney, New South Wales.
(4)   Leave to issue a writ of possession forthwith, subject to any application for a stay.
(5)   Reserve the question of costs to be dealt with, on the papers if possible, following brief written submissions to be filed by the parties within 14 days.

Catchwords:

ENVIRONMENT AND PLANNING — Building approval – whether the building approval had lapsed – “substantial physical commencement” test in s 104 of the Local Government Act 1993 (NSW) – whether there has been some positive unequivocal step indicating that construction of the hospital has been commenced and that some substantial part of the works has been physically commenced

 

CONTRACTS — Construction — Principles – construction of commercial contracts – whether a clause of a Construction Deed permitted the inclusion of “new” activities and the extension of dates in a revised project timetable for activities said to have been already completed

 

CONTRACTS — Construction — Contractual obligation of utmost good faith – whether that obligation operated as a constraint on an “absolute and unfettered” discretion to extend dates in project timetable — Implied terms – whether implied contractual obligation to act reasonably in exercise of discretion to extend dates in project timetable —Implied “Mackay v Dick” obligation to co-operate in the performance of the contract and/or not to deny a party the benefit of the contract — whether promulgation of the new project timetable and/or issue of default and termination notices derogated from any such obligations

 

LAND LAW — Conveyancing — Service of notices – whether default notices were invalid or liable to be set aside – whether the default notices issued under leases complied with requirements of s 129 of the Conveyancing Act 1919 (NSW) – whether there was sufficient particularity and a reasonable time allowed for alleged breaches to be remedied – whether termination notices validly issued

  CONTRACTS — Remedies — Damages – whether inquiry as to damages should be ordered – whether causation of more than nominal damage established

Legislation Cited:

Conveyancing Act 1919 (NSW), s 129
Environmental Planning and Assessment (Savings and Transitional) Regulation 1998 (NSW), cll 37, 38
Environmental Planning and Assessment Act 1979 (NSW), ss 91, 91AB, 95, 96, 96AA, 121B(1), Pt 4
Environmental Planning and Assessment Amendment Act 1997 (NSW)
Environmental Planning and Assessment Regulation 2000 (NSW), cl 55
Local Government Act 1993 (NSW), ss 103, 104, 315, Ch 7
Statute Law (Miscellaneous Provisions) Act 1998 (NSW)
Uniform Civil Procedure Rules 2005 (NSW), r 14.11(d)

Cases Cited:

ACT Cross Country Club Inc v Cundy [2010] FCA 782
Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; [1956] HCA 25
Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18
Billson v Residential Apartments Ltd [1992] 1 AC 494
Blacktown City Council v Hocking [2008] NSWCA 144; (2008) Aust Torts Reports 81-956
Blatch v Archer (1774) 98 ER 969
Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187
Casquash Pty Ltd v NSW Squash Limited (No 2) [2012] NSWSC 522
Currey v Sutherland Shire Council [2003] NSWCA 300; (2003) 129 LGERA 223
Day v Pinglen Pty Ltd (1981) 148 CLR 289; [1981] HCA 23
Dogan v Morton (1935) 35 SR (NSW) 142
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
Ex parte Dally-Watkins; Re Wilson (1956) 72 WN (NSW) 454
Fox v Jolly [1916] 1 AC 1
Goode v Angland [2017] NSWCA 311
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903; (1999) ATPR 41–703
Gerraty v McGavin (1914) 18 CLR 152; [1914] HCA 23
Harris v Thallon [1926] 26 SR (NSW) 456
Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307
Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91
ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640
JC Williamson Ltd v Lukey (1931) 45 CLR 282; [1931] HCA 15
Johnson v Senes (1961) 78 WN (NSW) 861
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 (No 9) [2016] NSWSC 155
Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 12) [2019] NSWSC 916
Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 10) [2016] NSWSC 1587
Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 11) [2017] NSWSC 1249
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738
Macquarie International Health Clinic Pty v Sydney South West Area Health Service [2010] NSWCA 268
Macquarie International Health Clinic Pty v Sydney South West Area Health Service [2010] NSWCA 348
Macquarie International Health Clinic Pty v Sydney South West Area Health Service [2015] NSWCA 323
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
North Sydney Municipal Council v Middle Harbour Investments Pty Ltd [1964] NSWR 934
Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444; [1976] HCA 21
OzEcom v Hudson Investment Group [2007] NSWSC 1441
Pace Property Management Services Pty Limited v South Sydney City Council (Land and Environment Court (NSW), Dr J Roseth, 19 June 1997, unrep)
Pace Property Management Services Pty Ltd v South Sydney City Council (Land and Environment Court (NSW), Dr J Roseth, 24 December 1997, unrep)
Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288
Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45
Platinum United II Pty Ltd v Secured Mortgage Management Ltd (in liq) [2011] QCA 162
Primary RE Ltd v Great Southern Property Holdings Ltd [2011] VSC 242
Radray Constructions v Hornsby Shire Council [2006] NSWLEC 155; (2006) 145 LGERA 292
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [1979] HCA 51
Sharjade Pty Ltd v The Commonwealth of Australia [2009] NSWCA 373
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359; [1931] HCA 21
Smith v Wyong Shire Council (No 3) (1984) 53 LGRA 170
Solution 1 Pty Ltd v Optus Networks Pty Ltd [2010] NSWSC 1060
Strike Australia Pty Ltd v Data Base Corporate Pty Ltd [2019] NSWCA 205
Sundararajah v Teachers Federation Health Ltd [2011] FCA 1031; (2011) 283 ALR 720
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Tomlin v Ford Credit Australia Ltd [2005] NSWSC 540
Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165; (2012) 268 FLR 433
Troupakis v Adams [1999] FCA 609
Ultimo Document Storage v Liquid Vision [2003] NSWSC 1175
United Dominions Corporation Limited v Woollahra Municipal Council [1973] 1 NSWLR 616
Visser v Jacobs (1987) NSW ConvR 55-350
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277

Texts Cited:

JD Heydon QC, Heydon on Contract (Thomson Reuters, 2019)
NC Sneddon and RA Bigwood, Cheshire & Fifoot ’s Law of Contract (LexisNexis, 11th edn, 2017)s
New South Wales Legislative Council, Parliamentary Debates (Hansard), 4 and 11 July 1900

Category:

Principal judgment

Parties:

Macquarie International Health Clinic Pty Ltd (Plaintiff)
Sydney Local Health District (Defendant)

Representation:

Counsel:
N Hutley SC, E Hyde, S Kanagaratnam (Plaintiff)
I Jackman SC, J Williams, S Scott (Defendant)

  Solicitors:
S Moran & Co (Plaintiff)
Clayton Utz (Defendant)

File Number(s):

2017/00083181

Publication restriction:

Nil

Judgment

1. HER HONOUR: This is the latest in a long-running litigious saga between the plaintiff, Macquarie International Health Clinic Pty Ltd (Macquarie), and the defendant, now known as the Sydney Local Health District (SLHD), arising out of arrangements entered into over two decades ago in respect of the proposed construction of a private hospital and medical centre on land owned by SLHD in Camperdown, New South Wales, adjoining the Royal Prince Alfred Hospital. For ease of reference, I will refer to the defendant, in its successive iterations, as SLHD (as it is now known).

2. Although at one stage framed far more broadly (and raising issues of improper or collateral purpose), the dispute now before me for determination turns on the construction of a deed entered into between the parties in 1997 (the Construction Deed dated 2 December 1996) and the validity of various default and termination notices issued in 2017 in relation to the transaction documents (the Construction Deed and Leases in respect of the land in question).

3. The notices in question are premised on non-compliance by Macquarie, within the stipulated period, with various activities (to which I will refer as the disputed activities) specified in a revised timetable issued by SLHD in September 2016 (the September Timetable) invoking the power under cl 2.5 of the Construction Deed and which it is alleged was contractually binding on Macquarie.

4. In summary, Macquarie contends that the default notices (and hence the termination notices predicated on non-rectification of the alleged defaults) issued by SLHD in 2017 were invalid as it was not contractually open to SLHD unilaterally to promulgate a binding new timetable which included “new” activities (which is how Macquarie characterises the disputed activities) or to extend dates for activities specified in the original Timetable which have already been completed. Macquarie contends that it has already satisfied the relevant steps in the September Timetable (relating to the application for, and grant of, an acceptable construction certificate) by reference to the building approvals obtained by it in 1998 in relation to the development (which building approvals it is said remain on foot); notwithstanding that Macquarie accepts that it will now be required (as a result of changes to the regulatory regime relating to private hospitals) to obtain further approvals for the Hospital now to be constructed in accordance with the Construction Deed (or otherwise if Macquarie were to obtain consent to a much larger development that has been contemplated by it).

5. SLHD, on the other hand, contends that the disputed activities are not “new activities” (they being simply re-badged by reference to the new regime for building approvals); that it was open to it to include the disputed activities in its revised timetable; and that, even if it were not permissible for it to extend the time for compliance with activities that had already been completed (as Macquarie contends on its “once and for all” construction of the relevant clause in the Construction Deed), Macquarie had not satisfied those particular steps in the original timetable (the Timetable), since the building approval that had been obtained in 1998 was not for the whole of the Hospital complex provided for under the Construction Deed; and hence that the September Timetable was a permissible extension of the time periods originally specified for those activities (and Macquarie is in default of that revised timetable).

6. There is also dispute as to whether, even assuming that there was power under cl 2.5 of the Construction Deed to issue the September Timetable specifying the disputed activities, SLHD acted unreasonably or not in compliance with contractual obligations in good faith in issuing the September Timetable and as to whether the default notices were themselves invalid or liable to be set aside on the basis that they did not comply with s 129 of the Conveyancing Act 1919 (NSW) (Conveyancing Act) (insofar as they related to the Leases) or otherwise, by reason of: the defaults being specified with insufficient specificity as to what action was required to remedy the asserted defaults; or the time provided to remedy the asserted breaches and defaults not being reasonable (see [64] of the fourth further amended statement of claim). It is contended by Macquarie that SLHD was not entitled to issue the termination notices and that those termination notices are null and void and of no legal effect.

7. Macquarie alleges that the purported issue of the September Timetable is a breach of the Construction Deed, as is each subsequent action taken in reliance on the September Timetable (see [51]-[51A] of the fourth further amended statement of claim).

8. Furthermore, it is alleged by Macquarie that the conduct of SLHD (in the wrongful purported imposition of the September Timetable; the wrongful issue of the default notices; the unreasonable period of time allowed to remedy the asserted breaches in the default notices; and the wrongful purported termination of each of the said Transaction Documents) has wrongfully prevented Macquarie from attaining the benefit of the Hospital Lease and the Construction Deed (see [63C] of the fourth further amended statement of claim), by reason of which Macquarie has suffered and will continue to suffer loss and damage. In that regard, it is alleged by Macquarie that SLHD, in promulgating the September Timetable, did not act consistently with its contractual obligation of utmost good faith or its implied obligation to co-operate and to act reasonably, in that each of the dates for the substantial commencement and completion of the activities specified in the September Timetable is not reasonable and that SLHD did not allow Macquarie a reasonable time within which to complete each of the activities specified in the September Timetable (see [54] of the fourth further amended statement of claim). In oral argument, the complaint made was, in essence, that SLHD’s wrongful denial that the Construction Deed remains on foot (by its issue of the termination notices) amounts to breach of SLHD’s implied obligation not to deny Macquarie the benefit of its contractual bargain.

9. An order is sought for damages (prayer 3A); and for an inquiry to be held as to the loss and damage suffered by Macquarie and that SLHD pay to it the amount of such loss and damage (prayer 3B). For the reasons that follow, I am not persuaded that Macquarie has established its various claims and I consider the termination of the Transaction Documents to have been validly effected.

Background

10. Although the background to the present dispute has already been canvassed at length in other decisions of this Court, it is necessary here to set out that background in some detail; not least because both parties have raised issues as to the scope of the development/building approvals obtained by Macquarie now some years ago in relation to the proposed private hospital development.

Initial Proposal

11. In 1988, SLHD (then known as the Central Sydney Area Health Service) conducted a tender process for the selection of the preferred tenderer to build a private hospital and car park on vacant land adjoining the site of the Royal Prince Alfred Hospital in Camperdown.

12. On 21 December 1988, Macquarie Hospital Services Pty Ltd, in conjunction with Macquarie Health Corporation and The Mirvac Group, submitted to SLHD a proposal for the development of the Site (as defined) (the Initial Proposal).

13. The summary section of the Initial Proposal stated that:

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 care 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.

14. Pausing here, Macquarie emphasises the references in the Initial Proposal to the future expansion of the bed capacity of the Hospital (referring by way of example, to the statement that Macquarie currently has 400 licensed beds in the Sydney area and “when required the appropriate number of beds will be made available” for the (proposed) Prince Alfred Private Hospital (PAPH); and the statement that “[t]he hospital will initially have 200 beds with the flexibility to expand in the longer term”) in the context of its submission that the relevant development approval was for a staged development. Raised in the course of submissions in the present hearing (though SLHD argues that it is not ultimately necessary here to determine this) was whether the approvals required to be obtained by Macquarie were for a 200–bed or a 394–bed private hospital (see [264] below).

Heads of Agreement

15. Macquarie was selected as the preferred tenderer for the proposed private hospital development and, on 18 September 1989 (though I note that in subsequent agreements the parties have incorrectly referred to this agreement as being dated 15 September 1989), the parties entered into a Heads of Agreement (the Heads of Agreement), to record the matters then agreed between the parties regarding the Project (as there defined) and related transactions (the parties expressly acknowledging that the Heads of Agreement did not reflect the whole agreement between them and only contained “the principles in so far as they have already been negotiated and agreed”) (see cl 1).

15. The Heads of Agreement recited the parties’ agreement that Macquarie would carry out a development of the Site (as defined) and construct a 200 bed private hospital and ancillary facilities on the Site at its cost (recital B); that a 99 year head lease of the Site would be granted (for the operation of the Hospital, hotel and ancillary facilities) (Recital C); and that a 99 year lease would be granted jointly with SLHD over the balance of the “Designated Block” (Recital D). The Heads of Agreement contemplated the finalisation of an agreement to develop the Complex and Car Park (as defined) and to undertake other related transactions “in a legally effective Heads of Agreement” (Recital E).

16. The Heads of Agreement also contemplated the execution of various transaction documents in the future, including an Agreement to Lease with Head Leases for the Site and Car Park annexed thereto; and Car Parking Agreements (see cl 7). It was further contemplated that various approvals would be required for the carrying out of the Works (see, for example, cl 4.2), the “Works” being defined in cl 2.1 as:

… 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 [and] 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.

Transaction Documents

18. On 2 December 1996, SLHD and Macquarie entered into the following documents: the Construction Deed; the Hospital Lease; the Car Park Lease; the Car Park Sub-Lease (together, the Transaction Documents); and (though nothing here turns on these) a Car Parking Management Agreement and Side Letter.

The Construction Deed

19. The Recitals to the Construction Deed record that SLHD (there defined as the Landlord) and Macquarie (there defined as the Tenant) entered into a Heads of Agreement on 15 September 1989 [sic] under which it was agreed that Macquarie would develop the Hospital and a Car Park and “for that purpose” SLHD would grant Macquarie a lease of the Land (Recital A); and that Macquarie had agreed to erect the Hospital and ancillary services in accordance with the deed (Recital B).

20. Clause 1.1 of the Construction Deed contains, relevantly, 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.

[SLHD emphasises the use of the plural “applications” in the definition]

…

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[s] 4.13 and 4.14.

…

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.

…

New Hospital Road is the road to be constructed, at the election of the Tenant, in accordance with clause 3.2.

…

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.

…

Works [in substance being in accord with the corresponding definition in the Heads of Agreement but not in terms identical] 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.

21. There is no definition in the Construction Deed of the terms “Development Approval” or “Building Approval”.

22. Clause 1.2 sets out various interpretation rules to be applied unless the contrary intention appears in the Construction Deed, including that references to statutes or the like include amendments or replacements of any of them (“at any time before or after the date of this lease [sic]”).

23. Clause 1.3 of the Construction Deed provides that:

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.

24. Part 2 of the Construction Deed (headed ‘Timetable’) commences with cl 2.1 (an essential term of the deed – see cl 7.1; hence the significance of the issue as to whether SLHD was entitled, contractually, to promulgate the revised September Timetable). Clause 2.1 provides that:

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

25. For its part, Macquarie contends that its current legal obligation under the Construction Deed is (simply) to complete the Works within a reasonable period of time (see the declaration sought at prayer 2.3 of the fourth further amended statement of claim) since the requisite steps or activities in the original Timetable prior to “Construction of Hospital” have been completed; and that the correct and necessary first step required to complete the Works is now the lodgement with SLHD of an application pursuant to s 96AA of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act) to modify the conditions of consent for the Hospital Development Approval obtained in 1997 (DA 097-00154) (as to which, see further below) (see the declaration sought at prayer 2.4 of the fourth further amended statement of claim).

26. Clause 2.2 contains provisions (applicable up until the Rent Commencement Date, as defined, that being the last step in the Timetable) relating to “extension of the times in the Timetable” where compliance with the Timetable is “prevented or delayed” by reason of any one or more of the events or circumstances referred to in cl 2.3 (i.e., “loss or damage to the Works by war, act of God, national emergency, fire, earthquake, explosion, lightning, storm or tempest or other like cause”). In those circumstances, provided Macquarie has used reasonable endeavours to carry out the obligations and agreements and to observe the conditions and stipulations contained in the Construction Deed and on its part to be carried out or observed, cl 2.2(a) provides that “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”. (In other words, once the conditions of cl 2.2 are satisfied, there is an entitlement on the part of Macquarie to a “fair and reasonable” extension of time.) If there is dispute as to that entitlement or as to the period of such extension, this is to be determined by an independent construction programmer selected by SLHD, acting as an expert and not as an arbitrator. Clause 2.2(b) provides that any request by Macquarie for an extension of time is to be made in writing and to state the circumstances and period of extension required.

27. There is no suggestion that cl 2.2 was here applicable. However, its provisions provide relevant context that may assist informing the construction of the critical clause here in issue – cl 2.5 (as to which see below.)

28. Clause 2.4, which is also an essential term of the Construction Deed, obliges Macquarie to provide to SLHD evidence of compliance with the Timetable on or before each date of substantial commencement or completion as stated in the Timetable.

29. Importantly, for present purposes, cl 2.5 then provides that:

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.

30. There is no dispute that, in the events which have transpired, there has been delay to the Works caused by an event beyond Macquarie’s control (namely, the purported (and ultimately held to be invalid) termination by SLHD in 2000 of the Transaction Documents and its wrongful taking of possession on the Hospital and Car Park Sites at that time.

31. Part 3 of the Construction Deed (headed ‘Construction’) includes cl 3.1, which provides that:

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. …

32. The reference in cl 3.1 to cl 4.2 appears to be in error (since cl 4.2 deals with the content of applications to be made under cl 4.1 of the Construction Deed) but nothing turns on this.

33. Clause 3.4 of the Construction Deed (headed ‘Delays’) provides that:

If the Tenant fails to complete the Works and has not admitted its first patient so that the Rent Commencement Date does not occur on or before Scheduled Rent Commencement Date then the Tenant must pay to the Landlord on the same day in each successive month until the Rent Commencement Date additional rent of $33,000 per month (and a proportional amount calculated on a daily basis for any part of a month) for the period from and including the Scheduled Rent Commencement Date until but excluding the Rent Commencement Date. Such additional rent shall be paid in advance in monthly instalments, the First of which shall be on the Scheduled Rent Commencement Date and each subsequent instalment on the same day in each successive month until the Rent Commencement Date and the Landlord shall refund any proportion overpaid within 14 days of the Rent Commencement Date.

34. Part 4 of the Construction Deed (headed ‘Approval for construction of the Works’) contains provisions in relation to the preparation and lodgement of all necessary applications for the carrying out of the Works. Relevantly, it includes the following provisions:

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 applications as set out in clause 4.1 of this deed.

…

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 faculties 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.

35. Pursuant to cl 4.11 of the Construction Deed, Macquarie is obliged to provide to SLHD a written monthly report reporting on the progress of the Works including delivering a report in “Gantt Chart” format showing progress (historical and projected) of each major component of the Works as against the Timetable, together with a narrative detailing performance of contractors, reasons for any delays and any steps taken to alleviate delays, such report to be delivered by the 14th of the month succeeding the month to which the report relates.

36. Clauses 4.13-4.16 deal with modification or replacement of the development application or building application in the following terms:

Modification or Replacement of Development Application

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.

4.16   The Landlord agrees to provide such consents and authorisations as may be required of it as owner of the Land to enable the Tenant to lodge the Development Application, the Building Application, any modification or replacement of the Development Application approved under clause 4.13 and any other application for approval of any authority and must provide full co-operation in this regard.

37. Part 7 of the Construction Deed (headed ‘Default’) includes, relevantly, the following:

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);

…

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 the 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 …

(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 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 interest in this deed, the Car Park Lease and the Hospital League [sic] 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 completed” shall be replaced, for the purposes only of that assignee, with the words “from the date of this deed”.

…

38. Clause 10.2 of the Construction Deed (in the section headed ‘Miscellaneous’ and under the sub-heading ‘Approvals and consents’) provides that:

The Landlord may give conditionally or unconditionally or withhold its approval or consent in its absolute discretion unless this agreement expressly provides otherwise.

39. Clause 10.8 of the Construction Deed (in the same section and under the heading ‘Good Faith’) provides that:

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 the respective powers under this deed and in their respective dealings with each other, they shall act in the utmost good faith.

40. The Timetable set out in Annexure “A” to the Construction Deed specified thirteen activities, commencing with lodgement of the development application with SLHD (to be completed 1 April 1997) and concluding with the Rent Commencement Date (1 December 1999) (that also being the specified date of completion of “Construction of Hospital” and of “Admission of first patients”).

41. The four relevant activities (the “extension” of time for which, as re-named or “re-badged” activities, promulgated by SLHD in September 2016 has led to the present dispute), are the fifth to eighth specified activities in the Timetable, as follows:

Activity         Substantial Commencement       Completion Date

Date

…

Lodge Building Application   1 May 1997   1 August 1997

with the Landlord

Lodge Building Application   -   1 September 1997

with Council

Building Approval given    -   1 November 1997

Building Approval declared    -   14 November 1997

acceptable

The Leases

42. The Transaction Documents include three separate lease agreements: the Hospital Lease, the Car Park Lease and the Car Park Sub-Lease (together, the Leases).

• The Hospital Lease

43. The Hospital Lease is a lease for a term of 103 years, commencing on 1 December 1996 and ending on 30 November 2099. SLHD (named in the lease in its former emanation as Central Sydney Area Health Service) is the landlord and Macquarie the tenant. Reference is made in the Hospital Lease to the Heads of Agreement and to various provisions of the Construction Deed, a number of which are expressly incorporated in the Hospital Lease.

44. Clause 1.1 sets out various definitions, including the definitions of “Timetable” (as the timetable set out as Annexure “A” to the Construction Deed) and “Works” (in substance in accordance with the definition of that term contained in the Construction Deed but with slightly different wording). “Works” is here defined as follows:

Works means the works to be carried out in accordance with the Initial 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.

45. Clause 1.5 of the Hospital Lease provides that the lease is granted pursuant to the Heads of Agreement and that the provisions of the Heads of Agreement “merge in the grant of this lease”.

46. Clauses 1.6 and 1.7, with evidently similar intent to cl 1.3 of the Construction Deed, provide that:

1.6   This lease contains obligations of 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 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 Parl Lease or vice a versa; or

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

1.7   This lease contains obligations of 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.

47. Part 2 of the Hospital Lease (headed ‘Rent’) provides as follows:

Consideration

2.1   On or before the Rent Commencement Date the Tenant must pay to the Landlord the sum of $5,500,000 which sum represents all rental payable under this lease (other than that referred to in clause 2.2 of this lease and clause 3.5 of the Construction Deed) paid in one lump sum in advance (being $53,920.00 per annum).

If the Tenant:

(a)   constructs car parking for at least 1200 cars on the land comprised in Folio Identifier 11/809663; and

(b)   clears the land comprised in Folio Identifiers 11/809663 and 12/809663; and

(c)   removes the Telecom cable as set out in the Construction Deed

then the cost to the Tenant of carrying out those works will be off set against the payment of $5,500,000 referred to in this clause and the Tenant will only be liable to pay to the Landlord the balance. The Landlord is not liable to pay any amount to the Tenant if the cost of these works exceeds $5,500,000.

If this lease is terminated for any reason prior to the Terminating Date then the Landlord must refund to the Tenant the rent actually paid under this clause 2.2 which relates to the balance of the Term which is unexpired at the date of termination.

Annual rent

2.2   In addition to the payment referred to in clause 2.1, the Tenant must pay to the Landlord annually:

(a)   commencing on the Rent Commencement Date, and

(b)   annually thereafter,

$400,000 per annum as reviewed under clause 3.

2.3   The rent payable under clause 2.2 may vary in the circumstances set out in clause 3 and in clause 3 [sic] of the Construction Deed.

2.4   If an instalment is for a period of less than one month, then that instalment is that proportion of one twelfth of the Rent which the number of days in the period bears to the number of days in the month in which that period begins.

48. Clause 9.1 (under the heading ‘Tenant’s additional obligations’) provides that:

The Tenant must:

(a)   comply on time with all laws and the requirements of authorities in connection with the Premises, the Tenant’s Business, the Tenant’s Property and the use or occupation of the Premises (including obtaining all permits); and

…

(d)   comply with the Construction Deed.

49. Clause 11.1 (under the heading ‘Repair, Tenant’s works and redevelopment’ and under the sub-heading ‘Erection of the Premises’) obliges Macquarie to “erect the Hospital and ancillary services in accordance with the Construction Deed”.

50. Clause 11.4 (under the sub-heading ‘Redevelopment of and Alterations to the Premises’) provides that:

The Tenant may make any substantial alteration or addition in or to the Premises (including work carried out in connection with the Works or the Subsequent Works) with the Landlord’s consent. In carrying out alterations or additions the Tenant agrees to comply with all requirements and orders of authorities and all laws. Alterations or additions requiring the Landlord’s approval when construction has commenced must be completed within a reasonable time and in accordance with the plans and specifications approved by the Landlord, such approval not to be unreasonably withheld.

51. Clause 11.5 provides that:

The tenant has the right to redevelop the Premises at any time in accordance with legislation then prevailing and in accordance with the terms of the Transaction Documents in relation to development. In carrying out any redevelopment the Tenant must comply with clause 4.5 of the Construction Deed (with any appropriate changes given the nature of the redevelopment).

52. Clause 14.1 (under the heading ‘Expiry or termination’ and sub-heading ‘Tenant to vacate’) provides that:

The Tenant must vacate the Premises on the earlier of the Terminating Date and the date this lease is terminated and, subject to clause 14.2, it must leave on the Land a hospital or such other facilities as are permitted under this lease and associated facilities which are fixtures and buildings in a state of repair which permits them to be operated to a reasonable level of efficiency and quality having regard to the standards applying at the time when the Tenant vacates. The Tenant must undertake any works to the Premises necessary to cause compliance with this clause 14.1.

53. Clause 17 (headed ‘Default’) relevantly provides that:

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 clause 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).

…

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 the notice under clause 17 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 in the case of Rent;

(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 …

(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   [Relevantly, this clause was in the same terms as the corresponding provision of the Construction Deed – see cl 7.7]

…

Compensation for Termination

17.9   If this lease is terminated under this clause 17, the Landlord must use all reasonable endeavours to relet the Premises to an unrelated party for the balance of the Term on the same or substantially the same terms as this lease (but including reserving a premium for the reletting and in so doing shall observe the same duties a mortgagee would have in disposing of mortgaged property in the event of a default) and if the Premises or any part are relet by the Landlord at any time prior to the Expiry Date, then the Landlord must pay to the Tenant

within 30 days of receipt by the Landlord 90% of the net proceeds including a premium of the reletting which relates to the period from termination to the Terminating Date (apportioned, if necessary, by an expert appointed by the President of the Institute of Arbitrators) but less any rent which would have been payable during that period under this lease.

…

54. Clause 20.13 (under the heading ‘Miscellaneous’ and under the sub-heading ‘Good faith’) provides that:

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

• The Car Park Lease

55. The Car Park Lease is a lease from SLHD, as landlord, to itself and Macquarie, as tenants in common in equal shares. It is in substantially the same terms as the Hospital Lease, being for a term of 103 years commencing and ending on the same dates as the Hospital Lease term. The substantive difference between the Hospital Lease and the Car Park Lease is that the Car Park Lease does not contain provisions equivalent to: the review of rent provided for in cl 3 of the Hospital Lease and the provision in cl 24 relating to circumstances where there is either a sale of RPAH, and its conversion to a non-hospital use; or the use of the leased premises for a purpose other than a private hospital complex and any ancillary facility allowable under any current planning instrument applying to the land.

56. Relevantly, the default provisions contained in the Car Park Lease are contained in cl 16, which mirrors the terms of cl 17 of the Hospital Lease. The comparable good faith provision in the Car Park Lease is cl 19.3.

• The Car Park Sub-Lease

57. The third relevant lease is the Car Park Sub-Lease, under which SLHD, as landlord, agreed to sub-lease its interest as co-lessee under the Car Park Lease to Macquarie for 28 years, commencing on 1 December 1996 and terminating on 30 November 2024.

58. Clause 3.2 of the Car Park Sub-Lease (under the heading ‘Head Lease’) in effect incorporates into the Car Park Sub-Lease all the covenants and conditions contained in the Car Park Lease as relate to the Landlord’s estate or interest in the premises and to their occupation and use. However, cl 3.8 of the Car Park Sub-Lease expressly provides that:

The provisions of clause[s] 16.1, 16.2 and 16.9 of the Head Lease [i.e., the Car Park Lease] as imported into this lease by clause 3.2, do not apply to this lease. The remaining provisions of clause 16 of the Head Lease apply to this lease.

59. The terms of the Car Park Lease which are thus not applicable to the Car Park Sub-lease are those which: specify the essential terms of the Car Park Lease (cll 16.1 and 16.2) and the provision for compensation for termination (cl 16.9). Macquarie notes (and SLHD accepts) that cl 2.1 of the Construction Deed (the obligation to commence, carry out and complete the Works in accordance with the Timetable) is therefore not an essential term of the Car Park Sub-Lease. (However, SLHD says that it has issued the relevant notice of termination in respect of the Car Park Sub-Lease in reliance on cl 16.4 of the Car Park Lease which is incorporated in the Car Park Sub-Lease.)

Other documents

60. The parties entered into a Car Parking Management Agreement, under which SLHD and Macquarie together (as owners of the leasehold interest in the Car Park) granted to Macquarie the right to manage control and operate the Car Park from the date of commencement of the Car Park Sub-Lease to the date of termination of the Car Park Lease (see Item 2 of Schedule 1 to the said agreement).

61. SLHD also signed a letter (the Side Letter) under which it agreed with Macquarie (for a period until 20 December 1996) to negotiate in good faith with Macquarie’s “car parking partner” regarding “an alternative car parking solution along the lines of the attached memorandum” (noting that this was on the “expressly agreed basis” that SLHD had no obligation to conclude or resolve those negotiations, nor to reach any binding agreement); and to grant any consent it might be obliged to grant under cll 4.14 or 4.16 of the Construction Deed within 10 business days of complete documentation being submitted under cl 4. 13(a) of that deed.

62. Nothing turns on the above two documents.

Development Applications

63. During February 1997, Macquarie (by its agent, Pace Property Management Services Pty Ltd (Pace)) lodged two development applications with South Sydney City Council (the Council): a development application for the construction of the private hospital (medical centre and associated facilities) (the 1997 Hospital Development Application); and a development application for associated car parking (the 1997 Car Park Development Application) (together, the 1997 Development Applications). The 1997 Development Applications were accompanied by a statement of environmental effects, which presented a description of the proposed development and a schedule of drawings (being the drawings numbered DA97 00 to DA97.40). The report stated (at 1.1) that it addressed the compliance with relevant planning policies, the environmental effects associated with the proposal and the mitigation measures proposed to minimise any impact.

64. The report described the proposed development on the Site as including a five level car park for 1,225 cars (600 of which are for RPA) and 12 spaces adjacent to the Hospital entry at ground level; and stated that the Hospital “will comprise seven levels and a nine level medical centre” (see [2.1]). Under the heading ‘The Hospital’ and sub-heading ‘Project Description’, at [2.2.1], it was said that the Hospital comprises a range of medical and ancillary uses, those uses being stated to include “394 ward beds”. At [2.2.2], it was again said that the total number of ward beds was 394 (102 ward beds on each level from Levels 4-6 and 88 beds on Level 7).

65. The Development Applications were both approved in 1997.

Land and Environment Court proceedings and Development Approvals

66. Macquarie apparently lodged a “deemed refusal” appeal with the Land and Environment Court when approval was not received within the requisite time. However, as I understand it, prior to the Land and Environment Court proceedings being heard the Council had approved both 1997 Development Applications. What was ultimately then heard by the Land and Environment Court was an appeal against the conditions imposed by the Council on the respective consents: namely, the consent for the Car Park (DA 097-00153 – the Car Park Development Approval) (that being an adjoining five level car park with 1,225 spaces, not the separate, underground car park under the proposed private hospital as provided for in the plans the subject of the Hospital Development Approval and in relation to which there seems to have been some desire on the part of Macquarie to avoid nomenclature suggesting or emphasising its proposed use as a car park – see further below at [163], [167]; [172]) and consent for the private hospital, professional consulting rooms and associated facilities (DA 097-00154 – the Hospital Development Approval).

66. In respect of the development approval for the Hospital, the only condition that was in issue was the requirement that all vehicular access to the Hospital be from Carillon Avenue and from a new internal road to the east of the Site (the “New Hospital Road”) (i.e., not via Church Street) (condition 6). (The 1997 Hospital Development Application had provided for loading and servicing to the hospital to be via Church Street; but the Council’s assessing officers had recommended that approval of the application be on conditions that included disallowing any access into the carpark from Church Street and disallowing servicing and loading from the hospital via Church Street – see the Minute Paper dated 20 May 1997 in relation to the proposed development.)

67. The Land and Environment Court approved the grant of development approval for both applications (see Pace Property Management Services Pty Limited v South Sydney City Council (Land and Environment Court (NSW), Dr J Roseth, 19 June 1997, unrep)); in the case of the 1997 Hospital Development Approval without amendment to condition 6 of the approval (but with some amendment to the conditions of the Car Park Development Approval – including the insertion of the new condition 62, to which I refer below at [71]). The orders made on 19 June 1997 by the Land and Environment Court, approving the 1997 Hospital Development Application were in the following terms:

3.   Development Application DA 097-00154 for a hospital at 35-43 Carillon Avenue, Camperdown is approved subject to the conditions in Annexure “B” of which the disputed condition is as shown in Order No 9.

…

9.   Condition 6 of DA 097-00154 is as follows:

“That all vehicular access (ingress and egress) to the loading and servicing area of the new hospital shall be from the new link road with no access to be had from Church Street. The loading and service area, and the new ramp between the new link road and the loading and servicing area are to be designed in accordance with Australian Standard 2890.2, their plans submitted with building application, and be to the satisfaction of the Director of Public Works and Services.”

69. The conditions of consent to the Hospital Development Approval (in Annexure “B”), as referred to in the Land and Environment Court orders made on 19 June 1997, provided in terms that:

… [the] development consent be granted to the application submitted by PACE Property Management Services, with the authority of the Central Sydney Area Health Service, for permission to demolish two buildings and erect a 7-9 storey private hospital and medical centre, including ancillary facilities and a New Hospital Road (in association with an adjoining commercial car park) … , subject to the following conditions, namely:

1.   That the development shall be generally in accordance with DA97.01B-24B, dated February 1997 [the drawings which were submitted with the supporting documentation for the 1997 Development Applications and included drawings for a 7-9 storey private hospital and medical centre, together with the “Stage 1” drawings for the five storey private hospital].

2.   That, prior to issuing a Certificate of Classification by Council, and therefore operation of the hospital, the adjoining commercial car park shall be fully operational (with 960 car spaces).

…

6.   That all vehicular access (ingress and egress) to the loading and servicing area of the new hospital shall be from the new link road with no access to be had from Church Street. The loading and service area, and the new ramp between the new link road and the loading and servicing area are to be designed in accordance with Australian Standard 2890.2, their plans submitted with building application, and be to the satisfaction of the Director of Public Works and Services.

7.   That separate “entry only” access to the port-cochere area shall be deleted with access only from the New Hospital Road, and the entrance in to the port-cochere area, following deletion of that “entry only” access of Carillon Avenue, shall be designed so as to ensure queuing of vehicles does not create traffic congestion.

8.   That attention shall be given to the design of the port-cochere area, following deletion of the “entry only” access of Carillon Avenue, including queuing back to Carillon Avenue and necessary turning circles for vehicles using that area.

…

16.   That the new link road shall be extended from the end of the car park to Lucas Street and two-way travel be re-instated in Lucas Street between Missenden Road and the new Link Road unless an agreed Master Plan cited in alternative Condition 3 of U97-00153 above, determines otherwise, …

70. Pausing here, there was dispute in the course of oral submissions as to who ultimately carried out the work for the construction of the new link road referred to in conditions 6 and 16 of the Hospital Development Approval. Macquarie claims that it carried out that construction work; SLHD says that Macquarie did no work on the road pursuant to the Hospital Development Approval and that SLHD carried out the work contemplated in condition 16 of that approval. (The relevance of this for present purposes goes to the question whether there was substantial commencement of works referable to the subsequent Hospital Building Approval, so as to prevent it from having lapsed in accordance with the relevant provisions of the legislation applicable at the relevant time – see below at [215]ff.)

71. As noted above, at the same time as granting the Hospital Development Approval, the Land and Environment Court also approved Development Application 097-00153 which related to the car park (the Car Park Development Approval). Condition 62 of that approval noted that “[t]he 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” (the wording of which, in my opinion, supports SLHD’s contention that the contemplated “staging” was a matter of construction sequencing, not a “staged” development of the kind for which a staged development application could have, but was not, brought).

Building Applications

72. Macquarie (again through its agent, Pace) then prepared (and lodged with the Council) separate building applications dated 1 August 1997 for the construction of “hospital buildings and associated road drainage and landscape works” and the Car Park (the five level open deck car park) with the Council (together, the Building Applications). It seems from some of the correspondence in evidence (see below) that there was a dispute that led to the delay in the provision by SLHD of its consent to the Building Applications (that consent being provided on about 17 September 1997) but nothing turns on this.

Complaints made in 1997 as to Macquarie’s failure to comply with the Timetable

73. By letter dated 2 September 1997 to the Chief Executive of Macquarie (Dr Thomas Wenkart), SLHD notified Macquarie that it had failed to comply with the Timetable, stating that it had neither substantially commenced excavation nor submitted building applications for the Hospital and Car Park to the Council in a form acceptable to SLHD; and giving Macquarie 24 hours to show cause why SLHD should not exercise its right to terminate the Leases under cll 7.3 and 7.4b of the Construction Deed. It appears that there was a dispute at this stage as to matters such as a staged approach to construction of the car park (see the correspondence in September 1997 between SLHD and Pace). This dispute culminated in a decision of the Land and Environment Court on 24 December 1997 upholding an appeal against the deemed refusal of an application to vary conditions of the Car Park Development Approval in relation, inter alia, to the architectural design of the staging of the new parking station – see Pace Property Management Services Pty Ltd v South Sydney City Council (Land and Environment Court (NSW), Dr J Roseth, 24 December 1997, unrep).

74. Meanwhile, however, by letter dated 20 November 1997 SLHD had issued a notice of events of default pursuant to cl 7 of the Construction Deed for non-compliance with cll 2.1 and 2.4 of that deed, by reference to Macquarie’s: failure to obtain Building Approval by 1 November 1997; failure to have declared the Building Approval acceptable by 14 November 1997; failure to commence bulk excavation of land by 14 November 1997; and failure substantially to commence construction of the car park by that date.

Building Approvals

75. In the period from January to September 1998, the Council granted a number of separate building approvals in relation to the development.

76. On 14 January 1998, the Council granted Macquarie conditional Building Approval Q97-00689, described as “Demolition and Bulk Excavation”. The approval was for bulk earthworks for both Development Approvals (see condition 63 of DA 097-00154) (the Demolition and Bulk Excavation Building Approval).

77. On 12 June 1998, the Council granted Macquarie conditional Building Approval Q97-00771 for the “open deck car park” (the Car Park Building Approval) (this being the five storey open deck car park that has since been built and is operational).

78. On 17 September 1998, the Council granted Macquarie conditional Building Approval Q97-00772 to “Construct Hospital & Associated Works” (the Hospital Building Approval). The letter from the Council granting the Hospital Building Approval stated that:

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, 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).

The letter further noted that, pursuant to s 104 of the Local Government Act 1993 (NSW) (Local Government Act) the approval “shall be void if the activity to which it refers is not substantially commenced within five years after the date from which it operates”.

79. Macquarie notes that the schedule of conditions included conditions requiring compliance with, inter alia, the conditions of the Hospital Development Approval (see Schedule 1, item 3) and determination of the location, and temporary diversion, of services such as sewerage, water, gas and electricity (Schedule 1, items 10 and 23). Macquarie submits that it is apparent from the Hospital Building Application that the “associated works” the subject of this building approval related to the road, drainage and landscape works, referring also to the Site Block Plan AWD 01A.

80. The Hospital Building Approval referred to plans numbered 96035/AWD 01A, 10A, 11B-16B, 17A-24A, 25B, 25A-38A and 38B. Macquarie says that those plans contemplated a building of nine storeys, with five floors fitted out for the provision of hospital services together with floor plates on Levels 6 as well as 7 and 8 for “future fitout” together with a plant room on Level 9; and that the plans also contemplated the construction of the “new access road” together with ingresses and egresses to the Hospital itself. (SLHD cavils with the accuracy of Macquarie’s description of these drawings, as I will explain in due course.)

1999 Notices of Default

81. By September 1998, therefore (and leaving aside the issue which surfaced during the course of oral argument at the hearing as to whether the applications made and approvals obtained in 1997/1998 in fact satisfied the requirements of the original Timetable, having regard to the definition of “building application” using the plural term), development applications in relation to both the Hospital and the Car Park had been lodged and had been approved; and building applications in relation to both the Hospital and the Car Park had been lodged and had been approved. (SLHD, however, says that the Hospital Building Approval did not satisfy the requirement for all necessary building approvals for the construction of the hospital and medical centre as required having regard to the terms of the Hospital Development Approval.)

82. There is no dispute as to the fact that, during 1998 and 1999, Macquarie carried out work for the construction of the open deck car park the subject of the Car Park Building Approval (and, as noted earlier, it has now been operational for some time). The complaint made by SLHD in 1999 was, rather, that Macquarie had not commenced construction of the Hospital. (The original Timetable required construction of the Hospital to have substantially commenced by 14 April 1998 and to have been completed by 1 December 1999 – see [40] above.)

83. On 13 September 1999, SLHD served notices of default on Macquarie under each of the Construction Deed, Hospital Lease, Car Park Lease and Car Park Sub-Lease respectively.

84. The Construction Deed Notice of Default, expressly invoking cl 7.5 of the Construction Deed, identified the following events of default: failure to comply with cl 2.1 of the Construction Deed by reason of the failure to complete or substantially commence specified works by 30 June 1999 at the latest (the notice there specifying non-completion of construction of the Car Park and not substantially commencing construction of the Hospital); failure to comply with cl 3.5 of the Construction Deed (by reason of failure to deposit a sum equal to rent at the stipulated rate for the period by which the construction of the Car Park was and is later than 30 June 1999); and failure to comply with cl 2.2 of the Car Park Lease (by failing to pay a stipulated amount of $1,440,000 by 14 February 1999). The notices of default under the respective Leases relied on the same defaults.

2000 Notices of Termination

85. On 17 March 2000, SLHD issued notices of termination of each of the Construction Deed and the respective Leases. Pursuant to the termination notices, SLHD evicted Macquarie and took possession of both the Hospital and Car Park Sites.

86. Macquarie says that, as at the date of eviction, it had completed the construction of the Car Park and had, pursuant to the Hospital Building Approval, amongst other things: substantially completed the construction of the new access road (New Hospital Road); and diverted services such as sewerage, water, gas and electricity. (Pausing here, I note that Macquarie conceded in the subsequent Court proceedings that it had not by this stage substantially commenced construction of the Hospital – see [88] below, a position seemingly inconsistent with the position it now takes in this regard.)

Supreme Court proceedings in 2000

87. On 10 April 2000, Macquarie commenced proceedings in this Court (2000/34949) against SLHD seeking, inter alia, to be returned to possession of the Hospital and Car Park Sites.

88. Those 2000 proceedings were heard by Nicholas J between February 2006 and May 2008. Nicholas J delivered judgment on 23 July 2008, holding that the termination of the Construction Deed and Leases was valid (Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 (Macquarie v Sydney South West Area Health Service)). As adverted to above, it appears to have been common ground in those proceedings that there was never any substantial commencement of the construction of the Hospital (see the primary judgment at [436]). (Reference is made by SLHD to the concession at trial by Macquarie that it did not proceed with the Hospital because it could not raise finance and it had formed the view that the Hospital was not viable – see the primary judgment at [462]). SLHD says that it was also common ground that Macquarie did not comply with Council’s conditions in relation to the Car Park Development Approval (which Nicholas J found constituted failure to complete construction of the car park in accordance with the Timetable in breach of cl 2.1 of the Construction Deed).

Appeal

89. Macquarie then appealed to the Court of Appeal. The appeal was heard in June 2010. The Court of Appeal (Hodgson JA, with whom Allsop P, as his Honour then was, and Macfarlan JA agreed) handed down judgment on 14 October 2010 (Macquarie International Health Clinic Pty v Sydney South West Area Health Service [2010] NSWCA 268) (the Court of Appeal Decision).

90. The Court of Appeal upheld the finding that the Car Park had not been erected by 14 February 1999 and noted the concession at trial by Macquarie that it was in breach of cl 2.1 of the Construction Deed by failing substantially to commence construction of the Hospital by 30 June 1999; but held that the termination notices that had been served in 2000 were invalid by reason of non-compliance with the requirements of s 129 of the Conveyancing Act 1919 (NSW) (Conveyancing Act) (as to which see further below). The Court of Appeal found that the re-entry and continued possession of the Hospital and Car Park Sites by SLHD was a trespass against Macquarie.

91. On 13 December 2010, the Court of Appeal made orders, inter alia, for possession by Macquarie of the Hospital and Car Park Sites and declarations to the effect that the Car Park Lease, Hospital Lease, Car Park Sub-Lease and Construction Deed continued to operate and bind both SLHD and Macquarie (Macquarie International Health Clinic Pty v Sydney South West Area Health Service [2010] NSWCA 348). However, the Court of Appeal stayed the order for possession pending the filing by SLHD of a foreshadowed application for special leave to appeal to the High Court.

92. The Court of Appeal made a number of further declarations, including that, as at 30 June 1999, Macquarie was in default of each of the Construction Deed and Leases by its failure to commence the Hospital and its failure to complete the Car Park. Orders were also made for an inquiry as to damages payable by SLHD for the trespass against Macquarie (see further as to the inquiry as to damages, which has only recently been concluded, below).SLHD then sought special leave to appeal to the High Court. Shortly prior to the special leave hearing, Macquarie wrote to the Minister for Health on 27 May 2011, stating that, in the event that special leave were refused, Macquarie remained willing and able to move forward with the project and to “map out and determine an appropriate new DA”.

93. SLHD’s application for special leave to appeal was refused by the High Court on 10 June 2011.

2011 Stand-still agreement

94. On 4 November 2011, the parties entered into a “stand-still” agreement, pursuant to which Macquarie was to develop a preliminary business case by no later than 15 February 2012. It was agreed that the parties would maintain the status quo in the intervening period until 15 February 2012 (including not enforcing rights or commencing further legal proceedings).

95. Macquarie did not at that stage take any steps to retake possession of the Site. Nor, says SLHD, did it take steps to progress a new development application. (Whether or not the latter be the case, I was not taken to evidence of any steps taken in consultation with SLHD for the progress of the development for some time from February 2012 up until mid 2015.)

Re-possession of the Sites by Macquarie in 2015

96. On 23 July 2015, Macquarie sent a notice exercising its right to take possession of the respective Sites. There was a meeting to facilitate handover on 29 July 2015.

97. By letter dated 31 July 2015, Macquarie stated that it was “committed to constructing, opening and admitting patients” to the PAPH.

98. On 13 August 2015, SLHD wrote to Macquarie, agreeing that construction of the Hospital must commence as soon as possible and proposing a revised timetable for construction of the Hospital. SLHD noted in its letter that the proposed revised timetable “adjusts each of the original dates so that the amount of time now permitted for the completion of each of the steps is no less than that permitted under the original timetable”.

446. SLHD argues that the deficiencies in Macquarie’s damages case considered by the Court of Appeal in 2010 bear strong similarities with those afflicting its claim to damages in this case, noting that that claim was described by Hodgson JA at [167]-[168] as follows:

Accordingly, in relation to the breach that I have found to have been committed as at February 1995, it is necessary to consider what would have happened but for the breach; that is, what would have happened if Area Health had disclosed to Macquarie that planning processes were under way such that it could no longer be reasonably expected that there would be substantial RPAH facilities to the west of the King George V building or even of Missenden Road.

Macquarie’s case is that, in that event, it would have either sought to terminate or be released from the HOA, or sought to carry out a more appropriate development than that accepted by MHC in January 1994; and that in either case, Area Health either would have been bound by its obligation of utmost good faith to accede to this or at least enter into bona fide negotiations to that end, or would in fact have done so. As I have noted, from early 1995 MHC was in any event negotiating with Area Health for its agreement to a smaller hospital; but Macquarie’s contention is to the effect that, with knowledge of Area Health’s plans, the case for a more appropriate development could have been related to these different plans and accordingly been more focussed and effective; and that when confronted with what it had done, Area Health would have felt obliged by its obligation of good faith to have acceded to this case.

and that his Honour said (at [181]):

Although Macquarie seeks reliance damages and not expectation damages, even reliance damages requires proof that the breach made a material difference; and in my opinion Macquarie has not proved that, in relation to Area Health’s breach of its obligation of utmost good faith as at February 1995. This would be enough to defeat this aspect of Macquarie’s damages claim; but in addition, it must fail because in my opinion Macquarie has not proved on the balance of probabilities that MHC and/or Macquarie would have been ready, willing and able to afford substantial performance of the HOA, even if it had been able to negotiate an early agreement by Area Health for a more appropriate development.

460. SLHD argues that here, as was found to be the case there (see at [188]), Macquarie led no evidence to prove that the project would have attracted external financial support or that its own assets were sufficient to proceed with the project. SLHD points to the evidence of Mr Palassis is that Macquarie had not completed a business case establishing the viability of the project appropriate for provision to potential financiers (see Mr Palassis’ report dated May 2018 at Part 8); and that Macquarie had not secured external financing for the project; and as to Macquarie’s willingness to perform, points to the chronology of events which it asserts demonstrates that Macquarie had no intention of complying with its obligation under the Construction Deed (relevantly, to build the Hospital the subject of the Hospital Development Approval unless and until a modification to that approval was approved by both SLHD and Council). It is submitted that Macquarie never intended to build “the hospital [SLHD] want us to build in line with the lease conditions”; and that there is no evidence that it would have been feasible to construct the Hospital on a standalone basis and then apply to add the additional elements of seniors living apartments, basement car park, hotel and club floor (since it was only feasible to excavate the second basement level of car parking prior to pouring the slab for the ground floor level). It is noted that STH never actually performed an assessment of whether the Hospital Development Approval plans complied with the AHFG (contrary to STH’s response to the RFP which indicated that such an analysis would be required), and that some of areas shown in the 2017 plans do not in fact comply with the AHFG. It is submitted that, without doing the exercise that STH failed to do, it would be difficult to say what needs to be done to bring the Hospital Development Approval plans into conformity with the AHFG.

461. SLHD submits that Mr Crook’s affidavit evidence, that STH commenced working on the modification application in July 2016, should be rejected (it being said to have been falsified by the contemporaneous documentary record) noting that Mr Crook accepted under cross-examination that this was wrong, although he sought to retract that clear concession. It is further submitted that Mr Crook’s evidence in cross-examination that most of STH’s team were working on the May Modification Application should also be rejected, noting that, when confronted by his own email which falsified the claim (“Adam, we will dedicate a small team to do the section 96 proposal as we know it will become academic once the major project is submitted”), Mr Crook sought to explain it away on a basis inconsistent with the terms of the email and the objective facts.

462. SLHD says that the most compelling evidence that the May Modification Application was a device to lead SLHD into believing Macquarie was proposing to build the Hospital it was contracted to build is that, immediately following its submission, Macquarie and its consultants proceeded to work on the main project. It is submitted that Mr Crook’s affidavit evidence sought to convey the misleading impression that STH ceased its work on the 2017 plans with the 21 April 2017 plans which accompanied the May Modification Application; whereas in fact, STH was engaged to design the complete project of 25 storeys and prepared plans for the project as late as July 2017 (noting that Mr Crook accepted that this was all part of STH’s work in redesigning and redrawing the Hospital Development Approval plans, a concession which it is said falsifies [53] of his affidavit (reading that paragraph in light of the definition of “2017 Architectural Plans” in [50] of his affidavit)).

463. Thus, SLHD contends for a finding that Macquarie has failed to prove that it was and remains ready, willing and able to proceed with the project in accordance with its obligations under the Construction Deed, which SLHD says is a further basis for dismissal of Macquarie’s damages claim.

Determination

464. The final iteration of the amended statement of claim pleads (at [19A]) the existence of an implied term (or implied obligation) of each of the Transaction Documents that SLHD do all things necessary for the relevant contract to be performed and to enable the plaintiff to have the benefit of each of the said Transaction Documents. This is defined in the pleading as the Implied Obligation to Cooperate. It is said to arise by operation of law and the construction of the respective documents. It is an obligation of the kind recognised in Mackay v Dick. Macquarie also pleads (at [17.9]) an express obligation on the part of SLHD to act in the utmost good faith (in the performance of its duties and exercise of its powers under the Construction Deed and its dealings with Macquarie) and (at [18]) an implied term of the Construction Deed on the part of SLHD to act reasonably (in the performance of its duties and exercise of its powers under the Construction Deed and its dealings with Macquarie).

465. SLHD admits (at [19A] of its defence) that there existed, by implication, a duty for each of SLHD and Macquarie to do all such things as were necessary to enable the other party to have the benefit of the said documents and otherwise denies [19A] of the third amended statement of claim. It admits the express term of utmost good faith pleaded at [17.9] but denies the implied term alleged at [18].

466. Macquarie pleads (at [63C]) that, by reason of one or more of the conduct there pleaded, SLHD has wrongfully prevented it from being able to perform its obligations under the Transaction Documents; has caused the Works to be delayed; and has prevented it from attaining the benefit of the Hospital Lease and the Construction Deed. The conduct there relied upon is: the wrongful purported imposition of the September Timetable ([63C.1]); the wrongful issue of, relevantly, the February Notices and April Default Notices ([63C.2]); the unreasonable period of time allowed to remedy the asserted breaches in those notices ([63C.3]); and the wrongful purported termination of each of the said Transaction Documents ([63C.5]). Macquarie claims that by reason of the matters alleged at [63C] it has suffered and will continue to suffer, loss and damage. (It no longer presses a claim for relief against forfeiture if SLHD is otherwise entitled to terminate one or more of the Transaction Documents (previously pleaded at [65]); T 62.23) and it no longer seeks any equitable compensation, there being no equitable case now put (see T 14). The allegation that Macquarie was ready, willing and able to perform its obligations was not pressed.)

467. None of the conduct relied upon as constituting a breach of the Transaction Documents (see [63C] read with [51A]) (i.e., as grounding a breach of the obligation of utmost good faith or the alleged implied obligation to act reasonably or the implied obligation to co-operate) has been established.

468. What was in essence contended in the course of oral argument was that the damages claim was founded on there having been a wrongful purported termination of the Transaction Documents (see at T 15.24). The breach of the implied Mackay v Dick obligation was put on the basis that it was fundamental to Macquarie obtaining the benefit of the Construction Deed that SLHD not assert that it was at an end (see T 38.24). It is said, in effect, that the denial of the Construction Deed being on foot prevented Macquarie from taking steps (such as obtaining consent to any proposed modification of the development approval necessary to construct the Hospital under the new regulatory regime) (see T 38).

469. At T 47.11, Senior Counsel for Macquarie clarified that the basis of the damages claim now put is the denial of the existence of the Construction Deed after the issue of the termination notices. Complaint was made (see T 48.18) by Senior Counsel for SLHD that breach of the implied duty to co-operate had not been pleaded. I agree that it is not expressly pleaded as such. As I read the pleading, what is alleged (relevantly) is that: by reason of the matters pleaded at [36] (i.e., as to the correct construction of cl 2.5 of the Construction Deed), the purported issue of the September Timetable is beyond the power contained in cl 2.5 and a breach of the Construction Deed ([51]); each subsequent action taken by SLHD in reliance on the September Timetable (particularised by reference to [63C.1-63C.7]) is a breach of each Transaction Document; by reason of the matters pleaded at [63C.1]-[63C.3] and [63C.5], SLHD has (inter alia) wrongfully prevented Macquarie from attaining the benefit of the Hospital Lease and Construction Deed ([63C.8]); and, Macquarie has thereby suffered loss and damage ([63E]).

470. In that fashion, I consider that the issue as to breach of the implied obligation to co-operate has been (admittedly in a somewhat circuitous route) sufficiently pleaded (which disposes of the pleading complaint made by SLHD). However, I do not consider that even if the termination notices were wrongfully issued it has been established that there was a breach of the implied obligation to co-operate.

471. What occurred was, in my opinion, the bona fide exercise of perceived rights under the Transaction Documents. The fact that it might ultimately have been held that SLHD was not entitled under the contractual arrangements to take the action that it did does not to my mind amount to a breach of the implied obligation to co-operate – rather, it would invalidate the purported action and might have other consequences (such as, for example, precluding SLHD from complaining as to the delay in completion of other activities in the timetable).

472. The duty to co-operate (per Mackay v Dick) has been recognised as including a “negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises” (see Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45 at [36] (Gleeson CJ, Gummow, Kirby and Hayne JJ)). In Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 378; [1931] HCA 21, Dixon J noted that:

… [t]he express promise of the appellant to use his best endeavours to obtain orders for the respondent and to influence business on its behalf necessarily includes an obligation not to hinder or prevent the fulfilment of its purpose… the contract… required a continual co-operation… Such an agreement inevitably imported a tacit condition that the appellant should perform the services faithfully which he contracted to give the respondent and should not endeavour to impede or defeat the respondent in the sale of its manufactures at the prices it might think proper to ask.

473. See also JC Williamson Ltd v Lukey (1931) 45 CLR 282; [1931] HCA 15; Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; [1956] HCA 25; Ultimo Document Storage v Liquid Vision [2003] NSWSC 1175; and ACT Cross Country Club Inc v Cundy [2010] FCA 782.

474. The duty to co-operate has been said to preclude unreasonable termination (see Cheshire & Fifoot Law of Contract (LexisNexis, 11th edn, 2017) which notes that “[t]he duty to co-operate also precludes the arbitrary, capricious or unreasonable exercise of a right to terminate for breach” (at [21.33])). In Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187, the Court of Appeal upheld a finding that Burger King had breached its implied duty of co-operation by, among other things, issuing notices of termination to Hungry Jack’s. The conduct in that case was also held to constitute a breach of the duty to act in good faith (reference being made to Sir Anthony Mason’s 1993 Cambridge Lecture in which he stated that it was probable that the concept of good faith “embraced no less than three related notions: an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself); compliance with honest standards of conduct; and compliance with standards of contract which are reasonable having regard to the interests of the parties”). The Court there held that there is “no distinction of substance between the implied term of reasonableness and that of good faith” (at [169]).

475. As to consideration of the implied term of reasonableness see Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 and Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese ofSydney (1993) 31 NSWLR 91 (cases in which clauses permitting conduct by the principal were found to be tempered by an implied term of reasonableness).

476. In Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903; (1999) ATPR 41–703, which involved termination on a longer period of notice than provided under a standard form dealership agreement, Finkelstein J said (at [35]):

… There is no reason to think, prima facie at least, that the obligation of good faith and fair dealing would not act as a restriction on a power to terminate a contract, especially if that power is in general terms.

477. Similarly, in Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288, Finkelstein J held that the power to terminate a sub-licence was fettered by the duty of good faith.

478. It is recognised that a bona fide but wrongful exercise of a right of termination will not necessarily amount to a repudiation of contract. See, for example, Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444; [1976] HCA 21, where Barwick CJ said at 453 that:

No doubt, in general, an unwarranted termination of a contract in consequence of a purported acceptance of what is wrongly claimed to be [a] repudiation will be regarded as a repudiation by the person giving the notice of termination. But it seems to me not necessarily to be so in all cases and in all circumstances.

479. Heydon on Contract (at [24.380]), while noting that a very common form of repudiation is an invalid termination of the contract, observes that in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12, Stephen, Mason and Jacobs JJ said (at 432):

No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contact could not be attributed to him.

480. Lord Wilberforce in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 at 283 said:

… it would be a regrettable development of the law of contract to hold that a party who bona fide relies upon an express stipulation in a contract in order to rescind or terminate a contract should, by that fact alone, be treated as having repudiated his contractual obligations if he turns out to be mistaken as to his rights. Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations.

481. I appreciate that distinctions may be drawn between repudiation of an agreement and non-compliance with an implied duty to co-operate, nevertheless it seems to me that there is a difficulty in contending for a breach of an implied duty to co-operate and to permit another party to have the benefit of a contract where the party alleged to be in breach is bona fide (albeit, as it may turn out, wrongly) exercising rights under that very contract. In any event, were a breach of the implied obligation to co-operate to have been established, the next issue that would have arisen would have been as to whether an inquiry as to damages ought be ordered.

482. The legal principle with respect to the ordering of an inquiry as to damages was stated in ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 660 per Clarke, Handley and Sheller JJA:

The principles which guide a Court in granting or refusing an inquiry as to damages were explained in Griffith v Mercantile Bank (1890) 11 LR (NSW) Eq 231 at 248, 253 and 258. As Foster J said (at 253) a plaintiff is entitled to an inquiry “if it seems reasonably probable from the nature of the breach that substantial damages would reasonably and naturally result from it, even though it may be difficult to show specifically what the damage was, or to define the particular loss which has been sustained”. The Court should not direct such an inquiry unless it is satisfied that it would serve a useful purpose.

483. This gave rise to the complaint made as to whether Macquarie was required, in the context of the present inquiry, to establish causation – at least to the extent that it adduce evidence sufficient to establish a reasonable probability that at least some damages had been suffered as a result of the breach.

484. The issue arose in circumstances where SLHD’s solicitors had taken issue with the inclusion in the Court Book for the present hearing of the expert quantity surveyor (Mr Harris)’s report which went to the consequences of delay in the construction of the Hospital. SLHD’s solicitor, by email on 25 February 2019, requested that the report be removed on the basis that it was understood that the Mr Harris’ report related to quantum damage and the hearing was on liability only.

483. By letter dated 29 May 2018, SLHD’s solicitors had earlier advised that “[we] understand that the report served by Macquarie is intended to prove the existence of some damage so as to enliven the power to order an inquiry and is not intended to be evidence of the quantification” and it was said that, on the basis of that understanding, SLHD had not served any evidence in relation to the quantification of damages in the proceedings.

484. Macquarie’s solicitors’ response was to confirm agreement that the hearing would be on liability only; and orders were made to that effect by me by consent on 8 June 2018 (see note 7).

485. At the directions hearing on 4 December 2018 it was said (see T 39.7) that the hearing was a liability hearing “in the sense that there’s a claim by the plaintiff for damages for delay and it’s common ground that there won’t be quantification issues about that to be determined”, as a result of which I noted that the question of any damages would be dealt with in a subsequent hearing, if it arises.

486. As I read the correspondence to which I was taken on this issue, the distinction was being drawn between the quantification of damages (to be dealt with at a separate hearing) and whether or not damages had been suffered (to be dealt with at this hearing).  I was of the view that, to establish liability for breach of contract claim, the plaintiff (i.e., Macquarie) would have to show that some damage more than nominal damage had been suffered as a result of the alleged breach. Macquarie did not cavil with that proposition but says that it prepared for the hearing on the basis of an understanding (as set out in the February email) that SLHD’s position was (as there stated “for the avoidance of doubt”) that “in the event that Macquarie is successful at the hearing and the Court finds that Macquarie is entitled to damages [SLHD] will not take the point that Macquarie is not entitled to a damage on the basis it did not lead any evidence at the liability hearing of damage allegedly suffered”.

487. SLHD’s position was that it had been made clear in the correspondence that Macquarie needed to establish at the principal hearing an entitlement to damages so as to justify the inquiry (at which the damages would later be quantified). SLHD said that its position (reinforced by the contents of the Court Book, which included three affidavits ultimately none of which was read of Dr Wenkart) was that the issue whether any damage was caused by the alleged wrongful conduct was to be a part of the present hearing. Macquarie’s response to that was that the paragraphs of Dr Wenkart’s affidavits to which reference was made by SLHD in this context were paragraphs relevant to the claim for relief against forfeiture and for unconscionable conduct cases, all of which claims Macquarie has now abandoned.

488. Ultimately, I was of the view that the communications between the solicitors were consistent with the distinction being drawn between an entitlement to damages being established and the quantification of those damages; but I accepted that it appeared there had been a misapprehension as between the respective parties as to this issue and in that context I indicated that I would permit the expert report from Mr Harris to be tendered. I proceeded on the basis that causation was “in play” at least to the extent of showing that some damage more than nominal damage had been caused.

489. I have considered the complaints raised by SLHD in the causation issue. However, on that issue, had it been necessary to do so I would have concluded that the evidence before me was sufficient to establish that it was reasonably probable from the nature of the breach (on this hypothesis, a breach consisting of the wrongful termination of the Transaction Documents) that more than nominal damages would reasonably and naturally result from it, even though Macquarie’s desire to construct a hospital in accordance with the Hospital Development Approval (as opposed to its apparent desire to construct a much larger complex of the kind that would require an SSD application) might well be said to be in doubt and even though it may be difficult to show specifically what the damage was, or to define the particular loss which has been sustained. In that regard, I would have left the issue of damages (both causation and quantification) to be ultimately determined in the context of the damages inquiry. As it is, this issue does not here arise.

Costs

492. SLHD submitted that costs should be dealt with following the delivery of judgment. I will make directions accordingly.

Conclusion

493. For the above reasons, Macquarie’s claims have been unsuccessful and its statement of claim should be dismissed. In that event SLHD sought declarations as to the validity of the respective notices. I will make those declarations other than in respect of the August 2017 notices of termination. It is not necessary for SLHD to rely on those notices in circumstances where the October 2017 notices were validly issued and hence I have not addressed the issues raised by Macquarie in respect of reliance by SLHD on the earlier August 2017 termination notices. Accordingly, I make the following orders:

1. Dismiss the plaintiff’s fourth amended statement of claim.

2. Declare that each of the following notices was validly issued by the defendant to the plaintiff:

1. notices of default dated 20 February 2017 and 7 April 2017 issued under the Construction Deed dated 2 December 1996;

2. notice of termination dated 17 October 2017 issued under the Construction Deed dated 2 December 1996;

3. notices of default dated 20 February 2017 and 7 April 2017 issued under registered lease no. 3553375Q dated 2 December 1996 in respect of the real property comprising Folio Identifier 12/809663;

4. notice of termination dated 17 October 2017 issued under registered lease no. 3553375Q dated 2 December 1996 in respect of the real property comprising Folio Identifier 12/809663;

5. notices of default dated 20 February 2017 and 7 April 2017 issued under registered lease no. 3553373 U in respect of the real property comprising Folio Identifier 11/809663;

6. notice of termination dated 17 October 2017 issued under registered lease no. 3553373U in respect of the real property comprising Folio Identifier 11/809663;

7. notices of default dated 20 February 2017 and 7 April 2017 issued under registered sub-lease no. 355374S dated 2 December 1996 in respect of the defendant’s estate as tenant in common the tenancy of the registered lease no. 3553373U; and

8. notice of termination dated 17 October 2017 issued under registered sub-lease no. 355374S dated 2 December 1996 in respect of the defendant’s estate as tenant in common of the tenancy of the registered lease no. 3553373.

3. Judgment for possession of the whole of the land comprising Folio Identifier 11/809663 and Folio Identifier 12/809663 located at the rear of Royal Prince Alfred Hospital in Missenden Road, Sydney, New South Wales.

4. Leave to issue a writ of possession forthwith, subject to any application for a stay.

5. Reserve the question of costs to be dealt with, on the papers if possible, following brief written submissions to be filed by the parties within 14 days.

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Amendments

16 September 2019 - [21] 'Building Approval' changed to 'Development Approval'