NEW SOUTH WALES COURT OF APPEAL
CITATION:
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268
FILE NUMBER(S):
2009/298398
HEARING DATE(S):
7-11
15-18 June 2010
JUDGMENT DATE:
14 October 2010
PARTIES:
MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LTD (appellant)
SYDNEY SOUTH WEST AREA HEALTH SERVICE (respondent)
JUDGMENT OF:
Allsop P Hodgson JA Macfarlan JA
LOWER COURT JURISDICTION:
Supreme Court
LOWER COURT FILE NUMBER(S):
SC1790/00
LOWER COURT JUDICIAL OFFICER:
Nicholas J
LOWER COURT DATE OF DECISION:
23 July 2008
LOWER COURT MEDIUM NEUTRAL CITATION:
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738,
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2009] NSWSC 629
COUNSEL:
N HUTLEY SC/ R DUBLER SC/ S PHILIPS (appellant)
G K BURTON SC/ P K BRUCKNER (respondent)
SOLICITORS:
S Moran & Co (appellant)
Bolzan & Dimitri (respondent)
CATCHWORDS:
CONTRACT – Promise to act in utmost good faith - Meaning and effect of that promise – Whether that promise breached – Whether damages available.
CONTRACT – Damages – Expectation and reliance damages – Whether necessary for plaintiff to prove readiness willingness and ability to afford substantial performance on its part.
LANDLORD AND TENANT – Re-entry and forfeiture – Requirements of s 129 of Conveyancing Act 1919 – Whether they apply in cases of essential breach or repudiation – Meaning of “rent” in s 129(8) – Whether notice under s 129 must specify what lessor requires lessee to do.
PROCEDURE – Parties – Whether promise to two contracting parties is joint or several – Whether both parties must be joined in proceedings.
PROCEDURE – Appeal – Events occurring after first instance decision – Whether material to decision – Whether within possibilities taken into account by primary judge.
RESTITUTION – Expenditure by lessee – Lease terminated – Lease contains compensation clauses – Case conducted on assumption that compensation clauses valid, applicable and efficacious, albeit that their value defended as vagaries of the market – Primary judge refuses restitution – In subsequent proceedings to enforce compensation clauses lessor contends they are invalid, not applicable and inefficacious – Whether refusal of restitution affected.
LEGISLATION CITED:
Conveyancing Act 1919 s 7
s 177A
s 129
Conveyancing and Law of Property Act 1881 (UK) s 14
Forfeiture of Leases Act 1901
Law of Property Act 1925 (UK)) s 146
Marine Insurance Act 1909 (Cth)
s 24
UCPR 14.11
6.19
6.20
6.23 and 6.24
CATEGORY:
Principal judgment
CASES CITED:
Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57
(2008) 238 CLR 570
Alcatel Australia Limited v Scarcella (1998) 44 NSWLR 349
AMPAT/Midwest v Illinois Tool Works Inc 896 F.2d 1035 (7th Cir 1990)
Australian Mercantile Land and Finance Co Limited v Federal Commissioner of Taxation [1929] HCA 8
(1929) 42 CLR 145
Barder v Caluori [1988] AC 20
Blatch v Archer (1774) 1 Cowp 63
(1774) 98 ER 969
Burger King Corporation v Hungry Jack’s Pty Limited [2001] NSWCA 187
(2001) 69 NSWLR 558
Churchill v Connolly [2004] NSWCA 212
Clancy v Salienta Pty Limited [2000] NSWCA 248
(2000) 11 BPR 20
425
Clarke v Federal Commissioner of Taxation [1932] HCA 46
(1932) 48 CLR 56
Commissioner of Stamp Duties v Commonwealth Funds Management (1995) 38 NSWLR 173
Commissioner of Stamp Duties v JV (Crows Nest) Pty Limited (1986) 7 NSWLR 529
Commissioner of State Revenue v Price Brent Services Pty Limited [1995] 2 VR 582
Commonwealth of Australia v Amann Aviation Pty Limited [1991] HCA 54
(1991) 174 CLR 64.
Cooper v Federal Commissioner of Taxation [1958] HCA 46
(1958) 100 CLR 131
Daitch Crystal Dairies Inc v Neisloss 190 NYS 2d 737 (Appeal Div 1959)
Doe d. Edney v Benham (1845) 7 QB 976
Dogan v Morton (1935) 35 SR (NSW) 142
Doherty v Liverpool District Hospital (1991) 22 NSWLR 284
DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12
138 CLR 423
Duke of Marlborough v Osborn (1864) 5 B & S 67
Escalus Properties Limited v Robinson [1996] QB 231
Ex parte Dally-Watkins
Re Wilson (1956) 72 WN (NSW) 454
Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33
(1998) 194 CLR 500
Fletcher v Nokes [1897] 1 Ch 271
Foran v Wight [1989] HCA 51
(1989) 168 CLR 385
Fox v Jolly [1916] 1 AC 1
Gerraty v McGavin (1914) 18 CLR 152
Harbor Insurance Co v Continental Bank Corp 922 F.2d 357 (7th Cir 1990)
Hensley v Reschke [1914] HCA 88
(1914) 18 CLR 452
Horsey Estate Ltd v Steiger [1899] 2 QB 79
Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91
Hurst v Bryk [2000] UKHL 19
[2002] 1 AC 185
Industrial Representatives
Inc v CP Clare Corp 74 F.3d 128 (7th Cir 1996)
Johnson v Senes & Berger (1961) 78 WN (NSW) 861
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61
(2007) 233 CLR 115
Larson v Larson 636 NE 2d 1365 (Mass App Ct 1994)
Lombard Australia Limited v NRMA Insurance Limited (1968) 72 SR(NSW) 45
Livesey (formerly Jenkins) v Livesey [1985] AC 424
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2009] NSWSC 629
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
McMahon v National Foods Milk Ltd [2009] VSCA 153
(2009) 259 ALR 20
Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14
447
Mifsud v Campbell (1991) 21 NSWLR 725
Montagu v Browning [1954] 1 WLR 1039
Mulholland v Mitchell [1971] AC 666
Murphy v Stone-Wallwork (Charlton) Limited [1969] 1 WLR 1023
Overlook v Foxtel [2002] NSWSC 17
Penton v Barnett [1898] 1 QB 276
Property Holding Co Limited v Clark [1948] 1 KB 630
Radnedge v Government Insurance Office of New South Wales (1987) 9 NSWLR 235
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Sharjade Pty Limited v The Commonwealth of Australia [2009] NSWCA 373
Smith v Rynne [2005] NSWCA 77
Sunbird Plaza Pty Limited v Maloney [1988] HCA 11
166 CLR 245
Suttor v Gundowda Pty Ltd [1950] HCA 35
(1950) 81 CLR 418
Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57
(2003) 217 CLR 315
Trimis v Mina [1999] NSWCA 140
United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177
(2009) 74 NSWLR 618
Vernon v Bosley (No 2) [1999] QB 18
Visser v Jacobs (1987) NSW ConvR 55-350
Westley Nominees Pty Limited v Coles Supermarkets Australia Pty Limited [2006] FCAFC 115
(2006) 152 FCR 461
World Best Holdings Limited v Sarker [2010] NSWCA 24
TEXTS CITED:
J W Carter & G J Tolhurst
“Recovery of Contract Debts Following Termination for Breach” (2009) 25 Journal of Contract Law 191
A V Dicey Parties to an Action (1870) Maxwell at 110 – 111
E A Farnsworth
Farnsworth on Contracts (Aspen 3rd Ed 2004) Vol 2 at §7.17b p 400
Gummow J
R Meagher
D Heydon & M Leeming
Meagher
Gummow & Lehane’s Equity: Doctrines & Remedies (4th ed
2002) at [35-005].
A F Mason “Contract
Good Faith and Equitable Standards in Fair Dealing” (2000) 116 LQR 66 at 69.
E Peden
Good Faith in the Performance of Contracts (LexisNexis Butterworths 2003) Ch 7 esp pp 162ff
E Peden & J W Carter
‘Entire Agreement—and Similar—Clauses’ (2006) 22 Journal of Contract Law 1
DECISION:
Direct that Macquarie within twenty-eight days provide to the Court either agreed short minutes giving effect to the decisions on appeal
or else its proposed short minutes and submissions in support
and if the short minutes are not agreed
that within a further fourteen days Area Health provide to the Court its proposed short minutes and submissions in support.
JUDGMENT:
- 186 -
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
2009/298398
SC 1790/00ALLSOP P
HODGSON JA
MACFARLAN JA14 OCTOBER 2010
MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LTD v SYDNEY SOUTH WEST AREA HEALTH SERVICE
Headnote
Facts
On 18 September 1989, Heads of Agreement (HOA) were signed by the appellant Macquarie, its ultimate holding company Macquarie Health Corporation Ltd (MHC) and the respondent Area Health, making provision for the development by MHC and/or Macquarie of a 200-bed private hospital and a car park on land included in land of the Royal Prince Alfred Hospital (RPAH) owned by Area Health, and for leases to be granted to Macquarie over the site for the proposed hospital and car park.
From early 1995 through to the end of 1996, MHC was seeking Area Health’s agreement to proceed with a smaller hospital, and on 2 December 1996 the following six agreements were executed by Macquarie (with MHC as guarantor) and Area Health:
1.A Construction Deed for the design and construction by Macquarie of a car park and private hospital.
2.A Car Park Lease from Area Health to Macquarie and Area Health as tenants in common in equal shares for a term of 103 years.
3.A Car Park Sub-Lease under which Area Health let its interest as co-lessee under the Car Park Lease to Macquarie for 28 years.
4.A Hospital Lease from Area Health to Macquarie for a term of 103 years.
5.A Car Park Management Agreement under which Macquarie agreed to manage and operate the car park.
6.A Co-Ownership Deed which regulated the respective rights and obligations of Area Health and Macquarie between themselves as co-owners of the car park.
Under cll 15.4 of the HOA, 10.8 of the Construction Deed, 19.13 of the Car Park Lease and 20.13 of the Hospital Lease, Macquarie and Area Health were obliged to act with the utmost good faith in the performance of their respective duties, in the exercise of their respective powers, and in their respective dealings with one another. Under cl 3.5 of the Construction Deed, if Macquarie failed to comply with the contractual timetable, it obliged to deposit with Area Health a sum equal to the rent for the period of the delay. Under cl 9.1 of the Construction Deed, Macquarie indemnified Area Health against loss arising from Area Health doing anything which Macquarie “must do under this deed but has not done or has not done properly”.
Under clause 2.2 of the Car Park Lease, on 14 February 1999, Macquarie was obliged to pay to Area Health an amount which varied according to whether the car park had been completed at that date. Clause 1.5 of the Car Park Lease and cl 1.5 of the Hospital Lease stated that the provisions of the HOA “merge in the grant of this lease”. Clause 16 of the Car Park Lease and cl 17 of the Hospital Lease stipulated the contractual procedures governing termination, including provision of notices as well as steps open to Macquarie to prevent termination.
A crucial aspect of the project was the co-location of RPAH and the proposed private hospital requiring a physical link between RPAH and the private hospital, which required placement of the private hospital to the west of King George V Hospital (which is part of RPAH and located west of a road called Missenden Road).
In mid-1994, Area Health appointed consultants to undertake an asset strategic plan for RPAH. A draft plan of 29 November 1994 did not propose any development of RPAH to the west of Missenden Road or any linkages to the proposed private hospital. Redevelopment of RPAH continued to be discussed and pursued by Area Health and the Department of Health in 1995, based on the asset strategic plan. These plans were not disclosed to Macquarie prior to February 1995.
From about March 1996, Mayne Nickless Ltd trading as Health Care of Australia (HCoA) began developing a project for a Sydney University private hospital (SUPH), on a site adjoining RPAH. On 15 August 1996, Dr Horvath (CEO of Area Health) was informed of SUPH, and on 16 August 1995, Area Health sought legal advice concerning the scope of cl 3.1(r) of the HOA which prohibited Area Health, within five years of the date of first admission of Macquarie’s private hospital, from recommending, supporting or approving another private hospital which Macquarie reasonably believed would materially adversely affect the revenue derived from its hospital.
A dispute arose as to Macquarie complying with the contractual timetable, and by 15 September 1999, Area Health served on Macquarie notices of default under the Leases and the Construction Deed. On 17 March 2000, Area Health served notices of termination of the Leases and Construction Deed, and took possession of the land. The notices of default specified the same events of default, the two presently relevant being:
1.Failure to comply with cl 2.2 of the Car Park Lease by not paying Area Health the amount of $1,440,000.
2.Failure to comply with cl 3.5 of the Construction Deed by not depositing a sum equal to rent at a rate of $33,000 per month for a specified period.
Section 7 of the Conveyancing Act 1919 (the Act) defines “rent” to include yearly or other rent, toll, duty, royalty, or other reservation by the acre, the ton, or otherwise; and defines “fine” to include a premium or foregift, and any payment, consideration, or benefit in the nature of a fine, premium, or foregift.
Under s 129 of the Act, a right of re-entry or forfeiture under any proviso or stipulation in a lease, for breach of any covenant in the lease, shall not be enforceable unless and until the lessor serves a notice specifying the particular breach, requiring remedy (or claiming monetary compensation where the breach is not remediable), and the lessee fails within a reasonable time to remedy the breach (or pay the money). Under sub-s (8), s 129 does not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.
Macquarie sued Area Health for recovery of possession of the land, and in the alternative for relief against forfeiture and/or damages; and Area Health cross-claimed for certain debts and for damages. The primary judge gave judgment for Area Health on Macquarie’s claim, and judgment for Area Health on Area Health’s cross-claim.
Macquarie appealed from the whole of the primary judge’s decisions and Area Health cross-appealed from specific parts of both decisions.
Issues
Issues arising on appeal:
(i) Co-location:
(a) Content of the duty of utmost good faith.
(b) Breach as at February 1995.
(c) Damages as at February 1995.
(d) Is Macquarie’s claim for reliance damages open?
(e) Breach and damages as at December 1996.
(f) Merger.
(g) Breach and damages after December 1996.
(ii) SUPH:
(a) Breach.
(b) Damages.
(iii) Section 129:
(a) Breaches alleged.
(b) Rent.
(c) Repudiation.
(d) Did the notices comply?
(e) Other issues.
(iv) Compensation clauses
(v) Cross claim:
(a) Debts before 17 March 2000.
(b) Availability of damages for events after 17 March 2000.
(c) Did non-fulfilment of conditions entail non-completion of the car park?
(d) Did Area Health agree to perform certain conditions?
(e) Retaining wall.
HELD (allowing the appeal)
In relation to (i)(a)—Co-location: content of the duty of utmost good faith
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(1)The promise of utmost good faith must be construed having regard to the terms of the contract and the circumstances known to the parties in which it was entered into.
(2)A contractual obligation of good faith embraces no less than three related notions:
(a)An obligation on the parties to co-operate in achieving the contractual objects;
(b)Compliance with honest standards of conduct; and
(c)Compliance with standards of conduct that are reasonable having regard to the interests of the parties.
A F Mason, “Contract, Good Faith and Equitable Standards in Fair Dealing” (2000) 116 Law Quarterly Review 66, referred to.
Alcatel Australia Limited v Scarcella (1998) 44 NSWLR 349 and Burger King Corporation v Hungry Jack’s Pty Limited [2001] NSWCA 187; (2001) 69 NSWLR 558, referred to.
(3)A contractual obligation of good faith does not require a party to act in the interests of the other party or to subordinate its own legitimate interest to the interests of the other party; although it does require it to have due regard to the legitimate interests of both parties.
Overlook v Foxtel [2002] NSWSC 17, referred to.
(4)When Area Health’s planning processes would make a substantial difference to what MHC and/or Macquarie could reasonably expect concerning the flow of persons between the hospitals or the creation of a campus concept, the obligation of utmost good faith would require that MHC and/or Macquarie be informed of this, at least to enable them to take account of it in the design and construction of the works contemplated by the HOA.
(Per Allsop P)
(5)The phrase “utmost good faith” takes its content from the particular contract and context in which it is found.
(6)In these contracts, with express clauses of this width that have a necessary place in the working out and performance of the contracts, in some cases over many years, an objective element of reasonableness in fair dealing is appropriate, taking its place with honesty and fidelity to the bargain in the furtherance of the contractual objects and purposes of the parties, objectively ascertained.
United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618, Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558, Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, referred to.
(7)Further, in contracts such as these in a context such as this, the obligation of utmost good faith necessarily requires for its fulfilment of a degree of co-operation between the parties in a reasonable way in the furtherance of their contractual objectives.
(8)This expression of the matter is consistent with the content ascribed to the phrase, “good faith” in persuasive cases in influential jurisdictions in the United States.
Daitch Crystal Dairies Inc v Neisloss 190 NYS 2d 737 (Appeal Div 1959), Harbor Insurance Co v Continental Bank Corp 922 F.2d 357 (7th Cir 1990), Industrial Representatives, Inc v CP Clare Corp 74 F.3d 128 (7th Cir 1996), Larson v Larson 636 NE 2d 1365 (Mass App Ct 1994), AMPAT/Midwest v Illinois Tool Works Inc 896 F.2d 1035 (7th Cir 1990), referred to.
In relation to (i)(b)—Co-location: breach as at February 1995
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(9)Area Health did not disclose to MHC and/or Macquarie, prior to 2 February 1995, the planning processes that it commenced in mid-1994. The obligation of utmost good faith required Area Health to disclose that planning processes were under way indicating that Macquarie could no longer reasonably expect that there would be substantial RPAH facilities to the west of the King George V building, or even of Missenden Road.
(10)The obligation of utmost good faith required Area Health at least to give MHC and/or Macquarie an opportunity to persuade Area Health to take a different course in developing RPAH, and possibly also an opportunity to consider revising its own plans and/or withdrawing from the project, and seeking Area Health’s consent to this.
(11)Area Health’s breach of its obligation of utmost good faith by 2 February 1995 was not a fundamental breach justifying termination of the HOA by MHC and/or Macquarie. The breach neither deprived MHC and/or Macquarie substantial performance of the contracts nor manifested renunciation of the contracts.
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115, referred to.
In relation to (i)(c)—Co-location: damages as at February 1995
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(12)A plaintiff seeking damages for breach of contract referable to its not receiving a benefit under the contract, which was conditional on performance by the plaintiff, must prove that it afforded substantial performance or was ready, willing and able to do so.
Hensley v Reschke [1914] HCA 88; (1914) 18 CLR 452 and Foran v Wight [1989] HCA 51; (1989) 168 CLR 385, referred to.
(13)UCPR 14.11 dispenses with the requirement to explicitly plead readiness, willingness and ability to perform a contract in order to claim damages; but in the court below, Macquarie sought expectation damages, thereby undertaking an onus to prove that it was ready, willing and able to perform its contractual obligations.
(14)If Macquarie did prove that it was ready, willing and able to give substantial performance, then it could recover reliance damages so long as it proved that the incurred expenditure was a lesser amount than that which would have been recovered from performance of the contract. However, if Area Health’s breach caused Macquarie to be unable to prove that the contractual benefits would have covered its expenses, then the onus shifts to Area Health to show that Macquarie would not have recovered its expenses.
Commonwealth of Australia v Amann Aviation Pty Limited [1991] HCA 54; (1991) 174 CLR 64, referred to.
(15)If the obligation of utmost good faith had not been breached, the Court was not satisfied that Macquarie would have sought either to terminate or be released from the HOA, and was not satisfied that disclosure of Area Health’s plans would have made a material difference to the approach of MHC and/or Macquarie to the negotiations which did in any event occur during 1995 and 1996. This is sufficient to defeat Macquarie’s claim for reliance damages.
(16)Macquarie’s claim for reliance damages fails for the further reason that it did not prove 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.
Blatch v Archer (1774) 1 Cowp 63, referred to.
In relation to (i)(d)—Co-location: is Macquarie’s claim for reliance damages open?
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(17)A case for reliance damages was sufficiently advanced below and the greater emphasis on that case on appeal would not substantially prejudice Area Health.
Suttor v Gundowda [1950] HCA 35; (1950) 81 CLR 418, referred to.
(18)If the relevant promises under the HOA were made to MHC and Macquarie jointly, then a claim for damages needed to be made by MHC as well as by Macquarie; and if this did not occur, then the proceedings should be dismissed. However, if the relevant promises were made to MHC and Macquarie severally, then MHC is not a necessary party.
Churchill v Connolly [2004] NSWCA 212; Lombard Australia Limited v NRMA Insurance Limited (1968) 72 SR (NSW) 45, referred to.
(19)Clause 2.2(f) of the HOA says that an agreement in favour of two or more persons is for the benefit of them jointly and severally, and each promise by Area Health is in truth three promises, one to MHC, one to Macquarie, and one to MHC and Macquarie jointly. The Court cannot say that the non-joinder of MHC would have been fatal to Macquarie’s claim.
A V Dicey, Parties to an Action (1870) Maxwell, referred to.
In relation to (i)(e)—Co-location: breach and damages as at December 1996
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(20)If there were a breach of the obligation of utmost good faith as at December 1996, then for reasons similar to those given earlier, this would not be a fundamental breach. Also for reasons similar to those given earlier, Macquarie did not prove that a significantly different result would have been achieved if there had not been a breach by Area Health, and did not prove that it was ready, willing and able substantially to perform the HOA.
In relation to (i)(f)—Co-location: merger
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(21)It is neither necessary nor appropriate to decide whether the HOA merged into the December 1996 Agreements.
(22)A cause of action accruing from breach of the utmost good faith obligation in the HOA survives discharge of the HOA.
McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, considered.
(23)The merger clauses do not purport to be releases of existing rights to damages under the HOA.
Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33; (1998) 194 CLR 500, referred to.
In relation to (i)(g)—Co-location: breach and damages after December 1996
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(24)Having regard to the evidence, a finding of breach by Area Health after early 1997 of its obligation of utmost good faith concerning co-location should not be made. In any event, Macquarie did not prove that further disclosure of Area Health’s planning at this stage would have made any material difference, or that it was ready, willing and able to comply with its obligations under the December 1996 Agreements.
In relation to (ii)(a)—SUPH: breach
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(25)The primary judge failed to resolve a conflict between, on the one hand, the evidence of Dr Catchlove (CEO of HCoA) and Mr Puplick (Chairman of Area Health) that they discussed SUPH with Dr Horvath prior to 15 August 1996, and, on the other, Dr Horvath’s evidence that she learnt of the SUPH proposal in October 1996. This was a significant matter which the primary judge should have resolved, having regard to its impact on the reasons underlying the form of the brief for legal advice and the possible impact of the legal advice on the subsequent conduct of Sydney University.
Mifsud v Campbell (1991) 21 NSWLR 725, referred to.
(26)It was a breach of the obligation of utmost good faith for Area Health to give any support to the establishment of a private hospital which would make Macquarie’s private hospital non-viable. It was common ground that there could not be two viable private hospitals in the immediate vicinity of RPAH.
(27)The following conduct amounted to breach: accelerating the SUPH development application, making statements at an SUPH planning meeting of the benefits of having a private hospital physically linked with RPAH and Area Health’s unqualified support of SUPH, and granting consent to the lodgement of a second SUPH development application. However, if those particular things were done in the belief that they did not breach the HOA, and not done with the purpose of undermining Macquarie’s project, they would not amount to essential or repudiatory breach.
In relation to (ii)(b)—SUPH: damages
(Per Hodgson JA, Macfarlan JA agreeing)
(28)Macquarie’s claim for damages faces similar difficulties as that in the co-location case: it did not establish that it would have terminated the HOA had it known even of repudiatory breach by Area Health, or what if any different arrangements it would have achieved; it did not prove that prior to 2 December 1996 it was ready, willing and able to give substantial performance of the HOA; and the evidence does not support a finding that, after 2 December 1996, finance would have been available or that the Macquarie Group would have been able to finance the private hospital project itself.
(29)For those reasons, error by the primary judge on this group of issues does not justify the ordering of a new trial.
(Per Allsop P)
(30)Notwithstanding the conclusion that the SUPH good faith case has not been fully dealt with at trial, there is no injustice in not remitting that case for a retrial. The relief sought below was predicated upon the lost opportunity of performing the contract with a counterparty exercising good faith, not upon ending the contractual relationship upon learning of the lack of good faith of the counterparty.
In relation to (iii)(a)—Section 129: breaches alleged
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(31)The evidence did not establish that the car park had been erected by 14 February 1999, and accordingly there is no error by the primary judge in relation to cl 2.2 of the Car Park Lease. Macquarie was not in breach of cl 2.2 at September 1999.
(32)Clause 3.5 of the Construction Deed required the deposit of “a sum” calculated in a specified way and payable upon the expiration of a specified period. Macquarie was not in breach of cl 3.5 at September 1999.
In relation to (iii)(b)—Section 129: rent
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(33)The word “rent” in s 129(8) of the Act refers to an amount which a tenant is contractually obliged to pay for possession and use of the land.
Commissioner of Stamp Duties v Commonwealth Funds Management (1995) 38 CLR 173, referred to.
Escalus Properties Limited v Robinson [1996] QB 231, disapproved.
(34)Section 7 of the Act maintains a distinction between rent on the one hand, and a fine premium or foregift on the other hand, the latter being a sum paid for a grant or renewal or assignment of a lease (and going to the lessor independently of any use or occupation of the property under the lease). “Rent” in s 129(8) does not extend to consideration properly characterised as a fine premium or foregift.
Australian Mercantile Land and Finance Co Limited v Federal Commissioner of Taxation [1929] HCA 8; (1929) 42 CLR 145, Clarke v Federal Commissioner of Taxation [1932] HCA 46; (1932) 48 CLR 56, Cooper v Federal Commissioner of Taxation [1958] HCA 46; (1958) 100 CLR 131, referred to.
(35)Neither amounts payable under cl 2.2 of the Car Park Lease nor amounts payable under cl 3.5 of the Construction Deed constitute rent. As regards cl 2.2, the construction of the car park, or the car park itself when constructed, constitutes consideration for the grant of the leases, rather than for the possession of land under the leases. As regards cl 3.5, amounts are payable by way of deposit for security, and cannot constitute rent.
In relation to (iii)(c)—Section 129: repudiation
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(36)Where a landlord terminates for breach of an obligation agreed by the parties to be essential, but where the breach does not amount to repudiation, a re-taking of possession would be the exercise of a “right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition or agreement (express or implied) in the lease” within s 129(1) of the Act.
World Best Holdings Limited v Sarker [2010] NSWCA 24, referred to.
(37)Even if the conduct of Macquarie in relation to the hospital did amount to repudiation, this would not obviate the need for the contractual default notice to comply with s 129.
In relation to (iii)(d)—Section 129: did the notices comply?
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(38)A notice under s 129 must not only allege breach, but must also describe the particular acts or omissions constituting the alleged breach; and the notice must indicate the acts of the tenant which the landlord would consider sufficient for the lease to continue, and upon completion of which the landlord would abandon its claim to forfeit. Section 129 is directed at allowing the tenant to bring about (within a reasonable time) a state of affairs under which the landlord would not pursue forfeiture.
Fox v Jolly [1916] 1 AC 1, Fletcher v Nokes [1897] 1 Ch 271, Horsey Estate Ltd v Steiger [1899] 2 QB 79, Penton v Barnett [1898] 1 QB 276, Gerraty v McGavin (1914) 18 CLR 152, Dogan v Morton (1935) 35 SR (NSW) 142, Ex parte Dally-Watkins; Re Wilson (1956) 72 WN (NSW) 454, Johnson v Senes & Berger (1961) 78 WN (NSW) 861, Visser v Jacobs (1987) NSW Conv R 55-350, considered.
(39)In particular, the lessee should not be left to speculate as to whether, if it took whatever action it could to remedy the specified breaches, the lessor might nevertheless proceed to terminate the lease.
(40)The notices issued by Area Health did not express any requirement to do anything, and failed to specify whether the alleged breaches were remediable. The notices did not convey to Macquarie what Area Health claimed Macquarie needed to do to avoid the failure referred to in s 129(1) which would then permit Area Health to exercise its right of re-entry or forfeiture.
(41)Even if the notices are read as requiring what cl 16 of the Car Park Lease and cl 17 of the Hospital Lease require in order to bring about the contractual waiver provided by those clauses, the notices would then convey requirements inconsistent with s 129(1).
(42)Section 129 operated to preclude Area Health taking possession on 17 March 2000, and Area Health’s action in doing so was a trespass against Macquarie.
In relation to (iii)(e)—Section 129: other issues
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(43)There is a very close relationship between the leases and the Construction Deed; and while it may in some circumstances be possible for the Construction Deed to be terminated for breach without at the same time bringing about the termination of the leases, and vice versa, that did not happen in this case.
(44)By pursuing relief under s 129 in these proceedings, Macquarie is confirming that it has the obligations provided by the leases, including the Construction Deed. Accordingly, the Construction Deed continues to bind both Area Health and Macquarie.
(45)Macquarie is entitled to judgment giving it possession pursuant to the leases, which continue to be in force.
In relation to (iv)—Compensation clauses
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(46)The view that the compensation clauses were valid, applicable and efficacious in the circumstances of this case was material to the primary judge’s decision.
(47)If the compensation clauses are invalid or inapplicable or ineffectual, Macquarie would have an arguable case for some relief on the basis of relief against forfeiture/unjust enrichment/restitution. Accordingly, had Macquarie’s s 129 case failed, it would have been appropriate to set aside the primary judge’s decision on relief against forfeiture, and to refer all questions of relief against forfeiture/unjust enrichment/restitution to be decided in the fresh proceedings.
Clancy v Salienta Pty Limited [2000] NSWCA 248; (2000) 11 BPR 20,425, referred to.
In relation to (v)(a)—Cross-claim: debts before 17 March 2000
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(48)For reasons given earlier, Area Health’s claims under cl 2.2 of the Car Park Lease and cl 3.5 of the Construction Deed are rejected.
(49)Area Health’s claim for a sum of money under cl 3.4 of the Construction Deed fails because no such claim was made below, and Macquarie makes a valid Suttor v Gundowda objection to such a claim being raised on appeal.
In relation to (v)(b)—Cross-claim: availability of damages for events after 17 March 2000
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(50)If there were an item of work required to be done in order to complete construction of the car park, then (subject to any agreement to the contrary) it was something which Macquarie “must” have done by 30 June 1999 and did not do, so that if Area Health incurred expense in doing it, the indemnity of cl 9.1 of the Construction Deed is engaged.
In relation to (v)(c)—Cross-claim: did non-fulfilment of conditions entail non-completion of the car park?
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(51)The primary judge was correct to conclude that completion of construction of the car park did not occur until there was a car park which was ready to be used as such; and if there were outstanding construction tasks required by conditions of the council consent, which needed to be performed before the car park could lawfully be used, then the construction of the car park was not completed, even if these construction tasks were not to be carried out on the structure of the car park itself.
In relation to (v)(d)—Cross-claim: did Area Health agree to perform certain conditions?
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(52)Letter correspondence between Macquarie and Area Health in May and June 1999 constitutes a legally binding agreement for Area Health to perform certain conditions, and Area Health is not entitled to incur expenditure in respect of those conditions.
In relation to (v)(e)—Cross-claim: retaining wall
(Per Hodgson JA, Allsop P and Macfarlan JA agreeing)
(53)It was established that the construction of New Hospital Road brought about the existence of the embankment, and that accordingly the treatment of the embankment in such a way as to make it stable in the long term is properly considered as part of the construction of the road. Since full construction of the road was required by the council conditions, the proper treatment of the embankment was something which Macquarie “must” have done prior to 17 March 2000. On the evidence, this required construction of the retaining wall.
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
2009/298398
SC 1790/00ALLSOP P
HODGSON JA
MACFARLAN JA14 OCTOBER 2010
MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LTD v SYDNEY SOUTH WEST AREA HEALTH SERVICE
Judgment
ALLSOP P: I have read the reasons for judgment of Hodgson JA in draft. Subject to the following (much of which is by way of addition rather than qualification), I agree with his Honour’s reasons. I also agree with the orders proposed by his Honour.
The Conveyancing Act 1919 (NSW), s 129
I agree with Hodgson JA that the contractual instruments are to be construed as requiring repudiation or repudiatory conduct to be dealt with under the notice of default regime. That makes it unnecessary to consider the true nature of repudiation and whether acceptance of it can nevertheless be a breach engaging s 129: cf World Best Holdings Limited v Sarker [2010] NSWCA 24. I also agree with his Honour that the Conveyancing Act 1919 (NSW), s 129 was not complied with, having the consequences revealed in Hodgson JA’s reasons.
I agree with the views expressed by Hodgson JA as to the meaning of rent in the Conveyancing Act, s 7. Whilst for many purposes one is entitled to free one’s thinking from the conception of rent as an incident of the reversion and issuing out of the land (in particular in the light of the abolition of distress) and consider it as a contractual obligation underlying the lease, the form of s 7 is important. The words of s 7 make it clear that it is not every payment or act connected with the lease that can be seen as rent. Rather, as Hodgson JA says, it is the amount or consideration that the tenant is obliged to pay for the enjoyment of possession and use of the land, to be distinguished from a “fine”, as defined, and from other payments whose purposes, ascertained from the contract or instrument, are not for the enjoyment of possession or use of the land, such as the payments under cl 2.2 of the Car Park Lease and cl 3.5 of the Construction Deed.
Given the conclusion as to s 129, an important question of costs will arise. Some time before the argument of the appeal, Macquarie sought to have the question of s 129 isolated as a separate issue on appeal in an expressed attempt to shorten the appeal proceedings. It made an offer (the terms of which I do not seek to set out precisely) to abandon other aspects of its appeal if it were successful on that issue. It has been successful on that issue.
Good faith
The place of good faith in the law of contract in Australia has been debated in recent years. One significant aspect of that debate has been the place of good faith in the implication of terms in contracts (whether as a matter of fact or law and whether in contracts generally or in those of a commercial character) and in the construction and interpretation of written agreements.
It is unnecessary to discuss many of these issues, because the parties have clearly expressed themselves. The “utmost good faith” was agreed in their various legal instruments to be the standard of mutual behaviour expected in how the parties acted towards each other:
(a) in the performance of their respective duties;
(b) in the exercise of their respective powers; and
(c) in their respective dealings with each other.
These clauses should not be read narrowly. By the encompassing reference to “in their respective dealings” in contracts preliminary to or concerned with dealings over an anticipated century of a commercial relationship, the parties can be seen to have been laying down a high standard of contractual fair dealing that they expected of each other.
The content of the clauses is to be understood and ascertained by construing the language of the parties in the context in which the clauses appear. They are contractual terms to be construed, like any other. Here, the commercial and contractual relationship was envisaged to be (in the transaction documents) for a century. This was also envisaged in the Heads of Agreement, although that contract was preliminary to the formation of others. The performance of the agreements required planning by both parties, consultation among the parties and the expenditure of very large amounts of money upon planning and building work and the operation of a significant hospital in proximity to, and in connection with, a large hospital of the other party. The parties can be seen, by the clauses providing for the utmost good faith, to have required honesty and fair dealing of a high standard to govern their contractual behaviour.
The phrase “good faith”, or here, “utmost good faith”, takes its content from the particular contract and context in which it is found. It is, however, a phrase with ready available content as an English phrase and a legal expression. In a fiduciary or trust context, the phrase takes its content from the necessary trust, vulnerability and reliance central to such relationships and otherwise from the well-known incidents of such relationships.
Here, there was no question of a trust, fiduciary duty, partnership or joint venture. Rather, there was a long-term commercial relationship envisaged, during which time the parties had bound themselves to act in a way that exhibited the expressed standard: the utmost good faith.
The notion of good faith in the performance of contracts is one established by a number of cases in this Court and is well-known to the law in both common law and civilian systems. It was part of the law merchant. It finds its place in international conventions. I repeat what I said in United GroupRail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; 74 NSWLR 618 at 634 [58]:
“ … [G]ood faith is not a concept foreign to the common law, the law merchant or businessmen and women. It has been an underlying concept in the law merchant for centuries: L Trakman, The Law Merchant: The Evolution of Commercial Law (Rothman 1983) at p 1; W Mitchell, An Essay on the Early History of the Law Merchant (CUP 1904) at pp 102 ff. It is recognised as part of the law of performance of contracts in numerous sophisticated commercial jurisdictions: for example Uniform Commercial Code §1-201 and § 1-203 (1977); Wigand v Bachmann-Bechtel Brewing Co 118 NE 618 at 619 (1918); E A Farnsworth, Farnsworth on Contracts (Aspen 3rd Ed 2004) Vol 1 at pp 391-417 § 3.26b; International Institute for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts 2004, Rome, Art 1.7 ( [Ed. 3 May 2010]); R Zimmerman and
S Whittaker (Eds) Good Faith in European Contract Law (CUP 2000). It has been recognised by this Court to be part of the law of performance of contracts: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263-270; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91; Burger King Corporation v Hungry Jack’s Pty Ltd at 565-574 [141]-[187]; and Alcatel Australia Ltd v Scarcella at 363-369. …”The usual content of the obligation of good faith that can be extracted from Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; 69 NSWLR 558; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and United Group Rail Services Limited v Rail Corporation New South is as follows:
(a)obligations to act honestly and with a fidelity to the bargain;
(b)obligations not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for;
(c)an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained.
None of these obligations requires the interests of a party to be subordinated to those of the other. It is good faith or fair dealing between arm’s length commercial parties by reference to the bargain and its terms that is called for.
It is important to recognise that these obligations must be assessed and interpreted in the light of the bargain itself and its contractual terms. Those terms, however, must be assessed and interpreted in the light of the presence of the obligation of good faith, here pursuant to an express clause.
Whilst the cases in this Court have tended to equate or incorporate reasonableness with or into fair dealing and good faith, that is not without its controversy: E Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths 2003) Ch 7 esp pp 162ff and see E A Farnsworth, Farnsworth on Contracts (Aspen 3rd Ed 2004) Vol 2 at §7.17b p 400. Nevertheless, in these contracts, with express clauses of this width that have a necessary place in the working out and performance of the contracts, in some cases over many years, an objective element of reasonableness in fair dealing is appropriate, taking its place with honesty and fidelity to the bargain in the furtherance of the contractual objects and purposes of the parties, objectively ascertained.
Further, in contracts such as these in a context such as this, the obligation of utmost good faith necessarily requires for its fulfilment a degree of co-operation between the parties in a reasonable way in the furtherance of their contractual objectives. It is both appropriate and necessary to assess such matters with a degree of objectivity as well as considering a party’s honesty. Depending on the facts as they arise, the necessary co-operation may require, as here, a party to disclose information to the other, listen to the other and negotiate in good faith about the working out of the contract in its living performance.
The standard of fair dealing or reasonableness is to be applied recognising the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty. That a normative standard is introduced is clear. That is what the commercial parties chose by their words. The normative standard of good faith will not call for the same acts from all contracting parties in all cases. The legal norm should not be confused with the factual question of its fulfilment or breach. The contractual and factual context is vital to understand what, in any case, is required to be done or not done to satisfy the normative standard. Here, the standard exists as an express term in a particular contract, which, to be satisfied, called for certain conduct of one party in the circumstances that arose.
The law of insurance has had a well-known and well-understood usage of the phrase ”utmost good faith” for over two centuries. It is an obligation that binds both insurer and insured. It is an obligation that has assisted in the efficient working of insurance markets in a practical way. In particular, the commercial working of the relationship between insurer and insured requires the (pre-contractual) disclosure of material information in order that the risk can be assessed and priced on a sound footing and with appropriate despatch. Care should be taken not to transpose the meaning of the phrase in that commercial context to other contexts, whether as a matter of law or mere equivalence. Nevertheless, it is an example of positive disclosure of information being the step necessary to satisfy the normative legal standard. Of course, in statutes such as the Marine Insurance Act 1909 (Cth) disclosure is part of the expression and exemplification of the duty of the utmost good faith (see the Marine Insurance Act, s 24), not merely the fact sufficient to discharge the obligation.
It is unnecessary to deal with the jurisprudence on the subject in other jurisdictions, beyond saying that the above expression of the matter is consistent with the content ascribed to the phrase, “good faith” in persuasive cases in influential jurisdictions in the United States: for example, refraining from acting with subterfuge and evasion: Daitch Crystal Dairies Inc v Neisloss 190 NYS 2d 737 (Appeal Div 1959); Harbor Insurance Co v Continental Bank Corp 922 F.2d 357 (7th Cir 1990); refraining from opportunistic conduct such as by taking advantage of a disadvantageous position of the other party who has performed first: Industrial Representatives, Inc v CP Clare Corp 74 F.3d 128 (7th Cir 1996); refraining from hindering or preventing the occurrence of conditions of the party’s own duty or the performance of the other party’s duty: see the discussion in Farnsworth on Contracts at § 7.17 p 362 and § 8.6 and 8.15; co-operating to achieve the contractual goals: Larson v Larson 636 NE 2d 1365 (Mass App Ct 1994); AMPAT/Midwest v Illinois Tool Works Inc 896 F.2d 1035 (7th Cir 1990). See generally, Farnsworth on Contracts at § 7.17-7.17b. The above are but a few examples. It is unnecessary, for present purposes, to go further than recognising that the elements of the phrase that can be drawn from the cases in this Court conform with accepted jurisprudence in common law jurisdictions in the United States where the obligation is recognised.
Here, for the reasons given by Hodgson JA, there was a failure to comply with the obligation of the utmost good faith by Area Health in not disclosing the planning processes that were underway and that threw into serious doubt an important known planning foundation for Macquarie, being the site of the RPAH buildings on the western side of Missenden Road.
Whilst I agree with Hodgson JA that this breach, taken alone, did not go to the root of the contract or deprive Macquarie of the substance of the benefit of the contract, it was a breach that can be seen to be directly related to the complaints made about the Sydney University Private Hospital (“SUPH”). The utmost good faith obligation should be understood as an intermediate term for this purpose: cf Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115.
I agree with Hodgson JA as to the errors of the learned primary judge in relation to the SUPH issue. The arguments put forward by Macquarie reveal a real case to answer as to how Area Health behaved in connection with the SUPH proposal. Resolution of these issues required the resolution of contested issues which were based, in part, on questions of fact depending on credit. This Court cannot make those findings. If it be the case that Area Health’s conduct was directed to promoting a competing proposal it would be difficult to conclude other than that a serious breach of contract occurred quite possibly going to the root of the contractual arrangements, before and after December 1996. A conclusion as to the seriousness of such breach may not be avoided by a bona fide view, if held (whether on legal advice or not), that the utmost good faith clause did not prevent the encouragement of a competing proposal.
The resolution of that case might throw the non-disclosure as to co-location and the site of the other RPAH buildings into a different perspective.
The question therefore arises then whether the good faith cases, or at least that concerning the SUPH claim, should be remitted for a new trial (if Macquarie elected not to pursue the possession claim).
The answer to this depends, in part, on how the case was run below and, in part, on the conclusions of Hodgson JA, with which I agree, that Macquarie did not prove, as it was required to in order to recover damages, that it was able to perform the bargain or any modified form of it after any renegotiation.
Hodgson JA’s conclusions as to Macquarie’s failure to prove an ability to perform contractually means that to the extent that Macquarie sought reliance damages predicated on performance, it must fail. That is how the case was propounded below. Not only was possession sought, but also expectation and reliance damages were sought. This way of running the case assumed an entitlement to performance and the denial of the benefit of the contract (expectation damages) and the recouping of costs from the hypothesised performance of the contract (reliance damages). The contract in this context was either the contract as entered or a varied contract being the product of good faith negotiations with Area Health not otherwise behaving in bad faith or with a lack of good faith.
Another case which was sought to be run on appeal and which can be seen to be hinted at in the pleadings, evidence and submissions, but never squarely put below, was that if Macquarie had known of the breaches of good faith in relation to co-location and the SUPH and the asserted deliberate undermining of the contract by Area Health it would have terminated all contractual arrangements, whether before or after December 1996. In such circumstances, a case could be propounded for return of the $4.5m and all other wasted (including later) expenditure. On this hypothesis, Macquarie might be seen to be entitled to be put in the position it would have been in had it terminated the contractual arrangements in 1995 or 1996. For this case, the failure of Macquarie to prove its ability to perform the contract or some variation thereof might be seen to be irrelevant, at least as to the assessment of damages. It would, however, throw up the issue whether Macquarie was entitled to terminate for Area Health’s fundamental breach, in circumstances where it was proved that it was not in a position to perform (prospectively) its obligations: Sharjade Pty Limited v The Commonwealth [2009] NSWCA 373; DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; 138 CLR 423; Foran v Wight [1989] HCA 51; 168 CLR 385; and Sunbird Plaza Pty Limited v Maloney [1988] HCA 11; 166 CLR 245.
Such a case is, however, fundamentally inconsistent with what was run at trial. The asserted bad faith was strongly and comprehensively pressed. What was sought, however, was relief predicated upon the lost opportunity of performing the contract with a counterparty exercising good faith, not relief predicated upon ending the contractual relationship upon learning of the lack of good faith of the counterparty.
I therefore consider that notwithstanding the conclusion that the SUPH good faith case has not been fully dealt with at trial, there is no injustice in not remitting that case for a retrial.
In these circumstances, it is unnecessary to consider the issue discussed in Sharjade as to Macquarie’s entitlement to terminate for a serious breach of the obligation of the utmost good faith if it was not in a position to perform and the question upon whom the onus of proof lay in that regard about the ability or inability of Macquarie to perform.
HODGSON JA: This appeal and cross-appeal arise from proceedings in which the appellant (Macquarie) sued the respondent (Area Health) for recovery of possession of sites near Royal Prince Alfred Hospital (RPAH), and in the alternative for relief against forfeiture and/or damages; and in which Area Health cross-claimed for certain debts and for damages.
On 23 July 2008, Nicholas J (the primary judge) gave reasons for deciding that Macquarie’s claims should be dismissed: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 (first judgment). On 7 July 2009, the primary judge gave reasons for deciding on Area Health’s cross-claim that Macquarie was liable to pay Area Health the sum of $33,000 per month from 1 July 1999 to 17 March 2000 plus interest, and damages in the sum of $802,909.74 plus interest: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2009] NSWSC 629 (second judgment).
On 15 July 2009, pursuant to those reasons, the primary judge gave judgment for Area Health on Macquarie’s claim, and judgment for Area Health on Area Health’s cross-claim for the amount of $1,851,473.84.
Macquarie has appealed from the whole of the primary judge’s decisions. Area Health has cross-appealed from certain specified parts of both decisions.
The scheme of this judgment is as follows:
The parties
[36]
Outline of circumstances
[37] – [55]
Claims made at first instance
[56] – [57]
Decision of primary judge
[58] – [71]
Issues on appeal
[72] – [81]
Heads of Agreement
[82] – [84]
Construction Deed
[85] – [87]
Car Park Lease
[88] – [89]
Car Park Sub-Lease
[90] – [91]
Hospital Lease
[92] – [93]
Section 129
[94] – [96]
Co-location: common ground
[97] – [129]
Co-location: decision of primary judge
[130] – [133]
Co-location: contentions on appeal
[134] – [136]
Co-location: content of duty of utmost good faith
[137] – [150]
Co-location: breach as at February 1995
[151] – [188]
Co-location: damages as at February 1995
[159] – [188]
Co-location: Is Macquarie’s claim for reliance damages open?
[189] – [203]
Co-location: breach and damages as at December 1996
[204] – [208]
Co-location: merger
[209] – [220]
Co-location: breach and damages after December 1996
[221] – [224]
SUPH: common ground
[225] – [238]
SUPH: decision of primary judge
[239] – [241]
SUPH: contentions on appeal
[242] – [250]
SUPH: breach
[251] – [255]
SUPH: damages
[256] – [260]
Section 129: breaches alleged
[261] – [280]
Section 129: rent
[281] – [291]
Section 129: repudiation
[292] – [302]
Section 129: did the notices comply?
[303] – [330]
Section 129: other issues
[331] – [338]
Compensation clauses: relevance to primary judge’s decision
[339] – [348]
Compensation clauses: effect of subsequent events
[349] – [355]
Cross-claim: debts before 17 March 2000
[356] – [358]
Cross-claim: availability of damages for events after 17 March 2000
[359] – [364]
Cross-claim: did non-fulfilment of conditions entail non-completion of the car park
[365] – [368]
Cross-claim: Did Area Health agree to perform certain conditions?
[369] – [378]
Cross-claim: retaining wall
[379] – [385]
Conclusion and remedies
[386] – [388]
Maps
Annexures 1 – 10
The parties
The primary judge uncontroversially identified the parties as follows (referring to Macquarie Health Corporation Limited as MHC, as I will do in this judgment):
[18]Macquarie, at all relevant times, was a member of the Macquarie public group of companies of which the ultimate holding company was MHC which, as guarantor, was a party to the transaction documents. Through its subsidiaries, MHC developed and operated numerous private hospitals and health care facilities on a large scale, which included the provision of a wide range of clinical and related services. The majority shareholder in MHC was Traknew Holdings Pty Ltd as trustee for Traknew Holdings Trust, the family company and trust of Dr Thomas Wenkart and his family.
[19]Dr Wenkart, at all relevant times, was the chief executive and a director of Macquarie and related companies which, effectively, were his alter ego. He is a medical practitioner and, over a long time as a businessman, has accumulated extensive commercial experience.
[20]The principal witnesses for Macquarie were Dr Wenkart, Mr Raymond Block, a director of Macquarie from 1995 and its chairman from March 1996 until 1998, Mr John Morrison, a chartered accountant and consultant to Macquarie from 1996 until 2001, and Mr Greg Anderson, a chartered accountant and health consultant.
[21]Area Health is a body corporate which operated with the name Central Sydney Area Health Service under the Area Health Services Act 1986. This act was in force until 1 July 1998, when it was repealed and replaced by the Health Services Act 1997, under which Area Health continued to operate as before, but with its name changed to Sydney South West Area Health Service, as the latest pleadings show.
[22]Under the Area Health Services Act 1986, the affairs of Area Health were controlled by a board subject to the control and direction of the Minister, with a chief executive officer who was responsible for its management (s 12, s 13 and s 17). Its objectives were, inter alia, to promote, protect and maintain public health, and to provide for the effective co-ordination of the planning, provision and evaluation of health services, and to establish and maintain an appropriate balance in the provision and use of resources for health protection, health promotion, health education and treatment services (s 19(a), s 19(d) and s 19(e)). Its functions included those which were generally to promote, protect and maintain the health of the residents of its area, and to consult and co-operate with individuals and organisations (including voluntary agencies, private agencies and public or local authorities) concerned with the promotion, protection and maintenance of health (s 20(1)(a) and s 20(1)(c)). The Royal Prince Alfred Hospital is, and at all material times was, a hospital subject to the control and management of Area Health.
[23]The principal witnesses for Area Health were Mr Christopher Puplick, chairman of Area Health from August 1996 until June 2003, Dr Diana Horvath, Area Health’s Chief Executive Officer from 24 December 1992 until 2005, and Mr Michael Wallace, Area Health’s Deputy Chief Executive Officer from February 1993 until 2005.
Outline of circumstances
On 18 September 1989, Heads of Agreement (HOA) were signed by MHC, Macquarie (under its former name Tambrook Pty Limited) and Area Health, making provision for the development by MHC and/or Macquarie of a 200-bed private hospital and a car park on land included in RPAH land owned by Area Health, and for leases to be granted to Macquarie over the site for the proposed hospital and to Macquarie and Area Health over the site for the proposed car park.
The HOA provided for Area Health to obtain the issue of a single title for each of the hospital site and the car park site, and for MHC and/or Macquarie to pay Area Health $500,000 within seven days of being advised of this (cl 3.1(c)). It provided that MHC and/or Macquarie should promptly prepare and lodge a development application for a development of a standard not less than that in what was called the Initial Proposal (part of MHC’s tender documents) (cl 4.2(a) and (b)); and that the agreement was conditional upon and not enforceable until the grant of acceptable development approvals (cl 4.3(a)). It provided that MHC and/or Macquarie must within seven days of the grant of acceptable development approvals (subject to deferral in certain circumstances) pay Area Health $500,000 (cl 3.1(e)); and must (subject to certain conditions) within six months after receipt of such approvals pay Area Health $4.5 million (cl 3.1(g)).
The HOA provided that MHC and/or Macquarie must prepare and lodge promptly building applications (cl 4.2(a)) and construct the necessary works (cl 6.1(a)).
Other important terms will be referred to later.
On 23 May 1991, certificates of title for the two sites were issued (that for the car park being Lot 11 and that for the hospital being Lot 12); and on 4 June 1991, MHC paid Area Health the $500,000 required by cl 3.1(c) of the HOA.
On 23 April 1992, MHC lodged a development application for the project with South Sydney Council (the council); and on 3 May 1993, it lodged an amended development application, this time for a hospital in a star shape with a total of 400 beds.
On 8 October 1993, formal council consent issued to MHC for its revised development application.
On 25 January 1994, MHC lodged a building application for the project; and on 31 January 1994, it confirmed to Area Health acceptance of the development approval and completed payment to Area Health of $500,000 required by cl 3.1(e) of the HOA.
On or about 31 January 1995, Dr Wenkart handed Dr Horvath a cheque for $4.5 million; and by letter dated 2 February 1995, Area Health acknowledged this as payment by Macquarie of the $4.5 million required by cl 3.1(g) of the HOA.
From early 1995, MHC was seeking Area Health’s agreement to its proceeding with a smaller hospital. Negotiations about this proceeded through 1995 and 1996, and on 2 December 1996 the following six documents were executed by Macquarie (with MHC as guarantor) and Area Health:
(1)A Construction Deed for the design and construction by Macquarie of a car park and private hospital on Lot 11 and Lot 12.
(2)A Car Park Lease from Area Health to Macquarie and Area Health as tenants in common in equal shares of Lot 11 for a term of 103 years.
(3)A Car Park Sub-Lease under which Area Health let its interest as co-lessee in Lot 11 to Macquarie for 28 years.
(4)A Hospital Lease from Area Health to Macquarie of Lot 12 for a term of 103 years.
(5)A Car Park Management Agreement under which Macquarie agreed to manage and operate the car park to be erected on Lot 11.
(6)A Co-Ownership Deed which regulated the respective rights and obligations of Area Health and Macquarie between themselves as co-owners concerning the car park.
The Construction Deed provided for a Timetable for applications and the carrying out of the works, with which Macquarie was obliged to comply (cl 2.1, cl 4.1) subject to possible extensions (cl 2.2, cl 2.3, cl 2.5):
Activity
Substantial Commencement Date
Completion Date
Lodge Development Application with Landlord
31 December 1996
1 Apri1 1997
Lodge Development Application with Council
--
1 May 1997
Development Approval obtained
--
1 August 1997
Development Approval declared acceptable
--
14 August 1997
Lodge Building Application with the Landlord
1 May 1997
1 August 1997
Lodge Building Application with Council
--
1 September 1997
Building Approval given
--
1 November 1997
Building Approval declared acceptable
--
14 November 1997
Bulk Excavation of Land
1 September 1997
14 November 1997
Construction of Car Park
14 November 1997
14 April 1998
Construction of Hospital
14 April 1998
1 December 1999
Admission of first patients
1 December 1999
Rent Commencement Date
1 December 1999
I will refer to some important terms of documents (1) to (4) later.
On 25 February 1997, Macquarie lodged with the council its new development application for the hospital and car park. The council gave its consent to this application on 20 May 1997. Macquarie appealed against certain conditions of this consent, and on 19 June 1997, the Land and Environment Court upheld this appeal in part.
On 28 August 1997, Macquarie lodged with the council its building application for the hospital and car park.
On 14 January 1998, Macquarie received approval for demolition and bulk excavation; and by November 1998, excavation of the hospital site was almost complete, and construction of the car park had begun (primary judge’s first judgment [175]).
On 7 June 1999, the car park project reached practical completion, according to a contractor’s certificate issued on 15 June 1999.
On 13 September 1999, Area Health served on Macquarie notices of default under the Leases and the Construction Deed; and on 15 September 1999, it served an amended notice under the Car Park Lease.
On 17 March 2000, Area Health served notices of termination of the Leases and the Construction Deed on Macquarie, and it took possession of Lot 11 and Lot 12.
These proceedings were commenced by statement of claim filed on 10 April 2000.
Claims made at first instance
The primary remedy sought by Macquarie in its statement of claim was an order for possession of Lots 11 and 12 and associated relief. However, Macquarie also alleged breaches of the HOA and the December 1996 agreements (fifth further amended statement of claim (FFASC) pars 9, 10, 11, 11A, 11B, 11C, 13.4, 13.8, 13.10, 13.14, 14) and consequent damages (FFASC pars 13.16, 13.19, 15); and it sought damages in the event that the court declined to return possession of the land to it. It also sought relief on the basis of relief against forfeiture (FFASC par 17) and unjust enrichment (FFASC pars 18 and 19). There were other claims for relief that are not relevant to this appeal.
By its cross-claim, Area Health claimed amounts said to be due under cl 3.5 of the Construction Deed ($33,000 per month from 1 July 1999) and cl 2.2 of the Car Park Lease ($1.44 million), and interest thereon; and also damages arising from Macquarie’s failure to comply with conditions of the development approval by South Sydney Council in respect of the car park.
Decision of primary judge
The basis on which Macquarie sought an order for possession was that the default notices served in September 1999 were invalid, on the grounds that Macquarie was not in default as alleged in the notices, that the notices did not meet the requirements of s 129(1) of the Conveyancing Act 1919 (the Act), and that the notices were issued in breach of the requirements of utmost good faith under the December 1996 agreements.
The events of default specified in the notices were:
(1)Failure to comply with cl 2.2 of the Car Park Lease by failing to pay $1.44 million to Area Health by 14 February 1999;
(2)Failure to comply with cl 2.1 of the Construction Deed by failing to complete the car park by 30 June 1999, and to substantially commence the hospital by 30 June 1999; and
(3)Failure to comply with cl 3.5 of the Construction Deed by failing to pay rent equivalent to $33,000 per month for the period by which completion of the car park extended beyond 30 June 1999.
The primary judge found that Area Health failed to prove Macquarie’s liability to make the payment under cl 2.2 of the Car Park Lease as alleged (first judgment [460]); that the breaches of cl 2.1 of the Construction Deed alleged in the notices had occurred (first judgment [515]); and that Macquarie’s failure to pay $33,000 per month from 30 June 1999 was a breach of cl 3.5 of the Construction Deed (first judgment [519]).
The primary judge held that failure to make the payment under cl 3.5 of the Construction Deed was a failure to pay rent, and that, by virtue of s 129(8) of the Act, compliance with s 129(1) was not a pre-condition to the exercise by Area Health of its right of re-entry under the Car Park Lease (first judgment [558]); and that the failure to make the payment under cl 2.2 of the Car Park Lease (had it been required to do so) would also have been a failure to pay rent (first judgment [551]). The primary judge also held that the notices did comply with the requirements of s 129(1) (first judgment [532]).
The primary judge then considered Macquarie’s claim that the default notices and the termination notices were issued in breach of Area Health’s obligation to act with utmost good faith (first judgment [561] – [597]), and he rejected that claim. The primary judge concluded that Area Health lawfully terminated the Construction Deed, the Hospital Lease, the Car Park Lease and the Car Park Sub-Lease; and was lawfully entitled to re-enter the sites on 17 March 2000 (first judgment [599]).
In rejecting Macquarie’s claim that the notices were issued in breach of Area Health’s obligation to act with utmost good faith, the primary judge concluded that Macquarie failed to establish that Area Health breached its obligations of utmost good faith under the HOA (first judgment [587]) or the 1996 agreements (first judgment [589]); and he did not further consider Macquarie’s claim for damages.
After considering another issue that does not arise on appeal, the primary judge considered Macquarie’s claim for relief against forfeiture under s 129(2) of the Act and at general law. He expressed a view that the grant of the relief sought by Macquarie would require the re-shaping of the contractual relationship, being a task which a court of equity has no jurisdiction to perform (first judgment [663]), referring to Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at [37], [106]; and he continued:
[664]I have not overlooked Macquarie’s complaint that Area Health would gain the windfall benefit of the car park. However, I am unpersuaded, having regard to the overall circumstances in which Area Health exercised its right to terminate the 96 agreements, that intervention by the Court would be justified merely because Area Health obtained the car park (Tanwar, par 62). Under cl 17 [sic cl 16] car park lease (cl 17 hospital lease) Macquarie had agreed to exposure to the risk of the operation of the provisions for termination and/or re-entry in the event of default. Accordingly, any improvements, such as the erection of the car park, were at risk should Macquarie bring about a situation of default which entitled Area Health to exercise its right to terminate. Furthermore, the parties had agreed (cl 16.9 car park lease, cl 17.9 hospital lease) for the payment of compensation to Macquarie upon termination for the balance of the term. In these circumstances, equity does not intervene to prevent the exercise of the right to terminate and re-enter (Tanwar, par 67).
In relation to the cross-claim, the primary judge held that Area Health was entitled to rent under cl 3.5 of the Construction Deed at the rate of $33,000 per month from 1 July 1999, but not entitled to anything under cl 2.2 of the Car Park Lease.
As regards Area Health’s claim for damages, Area Health claimed damages on the basis that it was completing works required to comply with the development approval of South Sydney Council in respect of the car park, relevantly as follows:
(1)Construction and commission of traffic signals at the intersection of New Hospital Road and Carillon Avenue.
(2)Construction and commission of traffic signals at the intersection of Carillon Avenue and Missenden Road.
(3)Failure to surface and otherwise properly build New Hospital Road.
(4)Failure to perform minor road work in Church and Mallet Streets.
The primary judge noted submissions by Macquarie that to sustain these claims, evidence was required of Area Health’s overall loss consequent on Macquarie’s failure to perform, including evidence of the value to Area Health of the car park, for which credit should be given; and the primary judge rejected this submission (second judgment [65] – [67]) on the basis that the contracts (in particular cl 7.8(a) and cl 9.1 of the Construction Deed and cl 16.8(a) of the Car Park Lease) required Macquarie to indemnify Area Health against any loss deriving and any reasonable cost incurred in connection with Macquarie’s breach of the respective agreement and the termination thereof.
The primary judge found Macquarie liable to Area Health for $21,260 plus interest in respect of item (1), $360,130 plus interest in respect of item (2), $53,573 plus interest and $300,393.18 plus interest in respect of item (3), and $9,645 plus interest in respect of item (4). The primary judge also found Macquarie liable to Area Health for $22,795.60 plus interest for expenditure in negotiating with South Sydney Council and applying to the Land and Environment Court in relation to the car park; and $35,113.56 plus interest for expenditure for quality testing and rectifying defects in respect of the construction and completion of the car park and New Hospital Road.
The primary judge considered a claim by Macquarie that Area Health should be denied relief in its cross-claim because it had failed to repay a proportion of the $5.5 million paid to Area Health allegedly as rent in advance for 103 years:
[160]Macquarie submitted that in circumstances where it had paid $5,500,000 in costs for carrying out the works, and termination had precluded completion of a car park with at least 1200 spaces, Area Health was obliged under cl 2.1, or on restitutionary grounds, or pursuant to an implied term, to refund the sum claimed. As I understood the submission, it was put that where, as in this case, the parties must be taken to have known that the likely costs of carrying out the works would exceed $5,500,000 they must have envisaged that once these costs had been incurred a right of set off would be engaged thereby relieving Macquarie from the obligation to pay any sum by way of rent in advance. In other words, once the right was engaged, it was correct to say that the rent had actually been paid by the incurring of the costs of construction.
[161]Further, it was said (submissions par 116) “ … that the costs of construction incurred by Macquarie at that time were being paid in exchange for, or in consideration of, the right of offset and therefore the progressive payment of the advance lump sum rent”. The submissions proceeded to the effect that, under this clause, Macquarie’s construction costs to the amount of $5,500,000 are to be taken to be the rent actually paid or equivalent to rent actually paid, and Area Health is liable to refund so much of that amount as is calculated to relate to the unexpired term of the lease. Additionally, it was put (submissions par 111) that “ … the right to be repaid advance rent after termination for whatever reason would be normally implied into a Lease or would arise upon principles of unjust enrichment, at least where the advance rent is severable to [sic] certain periods of occupation” ie the costs of construction should be treated as a refundable payment of advance rent either made under the lease or under principles of unjust enrichment.
The primary judge found that cl 2.1 of the Hospital Lease did not apply; and he continued:
[169]As regards the implication of a term, the submission barely went further than an assertion that one should be implied. It must be rejected. No plausible attempt was made to establish satisfaction of the conditions for implication stated, for example, in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, pp 282–283.
[170]The hospital lease taken alone, or with the other interrelated 96 agreements, was effective in business terms without the implication of a term having the effect suggested. I have already referred to the requirements of the construction deed and of the car park lease under which Macquarie undertook, at its cost, to carry out the works identified in cl 2.1. This is what it agreed to do in consideration for Area Health leasing the sites to it. It is simply incorrect to contend, as Macquarie did (submissions paras 100, 116), that it had agreed to undertake these works in return for receiving a reduction of liability for advance payment of rent equal to the cost of undertaking them. Furthermore, the agreed scheme for compensation on termination for the car park and the hospital, which is found in cl 16.9 of the car park lease and cl 17.9 of the hospital lease respectively, contradicts the existence of an implied term as claimed.
[171]The claim for restitution must also fail. In substance Macquarie’s submissions were repetitive of those which I rejected in declining relief against forfeiture (paras 664, 665). In my opinion there is nothing unconscionable in Area Health refusing to pay Macquarie the amount claimed for the works in question. The respective rights and obligations of the parties under the 96 agreements have been fully canvassed. When account is taken of the legal relationship which existed between the parties under which the works were carried out, it cannot be said that termination resulted in some windfall or benefit to Area Health by which it was unjustly enriched.
[172]Area Health, in performance of its obligations, provided the land for Macquarie to develop and carry out the works. Each lease regulated the consequences of termination, and any improvements Macquarie made were at risk of the operation of the relevant provisions. The compensation provisions under both leases operated in circumstances, as in this case, where termination was the consequence of Macquarie’s defaults, leaving Area Health with the premises being the land leased together with all improvements erected thereon (cl 1.1). There is no provision under which Macquarie could claim a lump sum by way of compensation for the costs of the works if the agreements were terminated. In the circumstances in my opinion, there is nothing unjust in concluding that the carriage of risk between the parties should be left entirely within the limits of the 96 agreements.
[173]In the circumstances of this case, no basis was established to justify interference by the court with the contractual relationship of the parties. (See generally Lumbers v W Cook Builders Pty Ltd (In liq) [2008] HCA 27; (2008) 232 CLR 635; Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516; Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315.)
In my opinion, by pursuing relief under s 129 in these proceedings, Macquarie is confirming that it has the obligations provided by the leases, including the obligation to comply with the Construction Deed; and is thereby recognising that the Construction Deed is still binding on it.
Accordingly, in my opinion the Construction Deed continues to bind both Area Health and Macquarie.
As regards the second issue, the findings of the Court necessarily mean that Macquarie has a full legal entitlement to possession of Lot 11 and Lot 12 pursuant to the leases, which continue to be in force, independently of any order this Court might make. In those circumstances, in my opinion Macquarie is entitled to judgment giving it possession of those lots, as sought in its pleadings. That is a legal remedy, and there is no discretionary basis on which it can or should be withheld. In my opinion also, there is no reason why Macquarie should not have an inquiry as to damages or an account of monies received by Area Health, at Macquarie’s election.
It may of course then be open to Area Health immediately to seek again to obtain possession on the basis of Macquarie’s breaches, particularly in relation to construction of the hospital. A question may then arise as to whether the procedure required by cl 7 of the Construction Deed, cl 16 of the Car Park Lease and cl 17 of the Hospital Lease would need to be gone through again, or whether it would be sufficient for Area Health just to comply with s 129. This question does not arise in this case, and I express no view on it.
Compensation clauses: relevance to primary judge’s decision
Having regard to my decision concerning the s 129 issue, I would set aside the primary judge’s judgment for Area Health on Macquarie’s claim; and in those circumstances, Macquarie does not seek relief against forfeiture or restitution or any other remedy related to unjust enrichment of Area Health. Accordingly, the issue concerning whether the decision of the primary judge relating to these matters should be set aside does not arise. However, in my opinion it is appropriate to express my views on it.
In its pleadings, Macquarie sought relief on the basis of relief against forfeiture and unjust enrichment.
In his opening address to the primary judge, Mr Burton SC (1 Black 48) referred to the compensation clauses, and said that if Area Health succeeds and dispossesses Macquarie, Area Health was “still obliged to release 90 per cent of the net return from that, plus 90 per cent of any premium, less the rental we would be able to retain under the lease”; and that this was “relevant to the issue of forfeiture, and also to the issue of reinstatement” (apparently meaning, “restitution”), and “also relevant to damages”.
At the stage of final addresses, Macquarie abandoned its claim for unjust enrichment or restitution. In final addresses on Macquarie’s claim for relief against forfeiture (10 Black 4876), Mr Dubler said that the remedy under the compensation clauses would be inadequate because it depended on the vagaries of the market, and would only give Macquarie 90 per cent (not 100 per cent) of the premium, giving a windfall of 10 per cent to Area Health.
Also in final addresses, Mr Burton said this (11 Black 5354 – 5):
So, under the sale and compensation process in the contractual provisions, the defendant leases out the premises, or it has to try to do so for the rest of the term. The plaintiff gets 90 per cent of the value, which must be to reflect the fact that the defendant is getting the benefit on the assumption of this clause, from the improvements, if there are any. And the plaintiff is entitled to something for those improvements, and the way that is assessed is whatever the market value is.
In written submissions (15 Black 7164 – 7166), Mr Burton considered the effect of the clauses, suggesting that they provide a means by which 90 per cent of the value of improvements to the property, as perceived by the putative new tenant, is passed back to Macquarie.
In written submissions on the cross-claim, Mr Burton referred to par [664] of the primary judge’s first judgment, and submitted that the presence of the compensation clauses “for whatever they mean and are worth, until exercise mean that most of the benefits [to Area Health] which [Macquarie] alleges are illusory” (16 Black 7547).
I have already set out the primary judge’s references to the compensation clauses in par [664] of his first judgment and pars [170] – [173] of his second judgment.
Mr Burton submitted that the construction and the effect of the compensation clauses was not the subject of the litigation. That is so, but it is also clear that the case was conducted on an assumption that they were valid, applicable and efficacious, albeit that their value to Macquarie depended on the vagaries of the market. In my opinion also, it is a reasonable inference that Macquarie abandoned its unjust enrichment or restitution claim on this same assumption; and also reasonable for this Court to accept Mr Dubler’s assertion to the same effect.
In my opinion, the view that the compensation clauses were valid, applicable and efficacious in the circumstances of this case, albeit that their value depended on the vagaries of the market, was material to the decision of the primary judge on the basis set out in par [664] of the first judgment and pars [170] – [173] of the second judgment. It may be that the primary judge would have reached the same conclusions, even if he had accepted that the compensation clauses were not valid or not applicable or not efficacious; but the primary judge did express reliance on them, and particularly having regard to the abandonment of the restitution claim it may well be that there would have been a different result before the primary judge if the assumption of validity, applicability and efficacy had not been made. Furthermore, it is likely that the issues reasonably available on appeal concerning relief against forfeiture/ unjust enrichment/ restitution would have been different.
Compensation clauses: effect of subsequent events
Following delivery of the first judgment in July 2008, Macquarie became aware for the first time that Area Health did not accept and in fact intended to dispute the validity of the compensation clauses (affidavit of P W Moran 22 September 2009 par 15).
On 16 September 2009, Macquarie commenced proceedings in the Equity Division (4450/09) seeking a declaration that the compensation clauses are valid, and in the alternative a declaration that Macquarie is entitled to restitution at general law. A document prepared on behalf of Area Health by Mr Burton and his junior Mr Bruckner dated 21 December 2009 for the purposes of those proceedings (Truncated Bundle tab 7) set out contentions of Area Health supporting the invalidity, inapplicability and/or ineffectuality of the compensation clauses in the circumstances of this case.
In my opinion, the contention of Area Health, raised for the first time after delivery of the first judgment, that the compensation clauses are invalid, inapplicable and/or inefficacious in the circumstances of this case, is a matter not reasonably foreseeable by Macquarie or the primary judge, which materially affects the question of whether the decision of the primary judge on relief against forfeiture and restitution was correct.
In relation to damages for personal injuries, where evidence is sought to be led of events happening after judgment as showing that the award was incorrect, the following approach is supported by the decision of Lord Wilberforce in Mulholland v Mitchell [1971] AC 666. His Lordship stated that the matter was one of discretion and degree, and continued as follows (at 679 – 680):
Negatively, fresh evidence ought not to be admitted when it bears upon matters falling within the field or area of uncertainty, in which the trial judge’s estimate has previously been made. Positively, it may be admitted if some basic assumptions, common to both sides, have clearly been falsified by subsequent events, particularly if this has happened by the act of the defendant. Positively, too, it may be expected that courts will allow fresh evidence when to refuse it would affront common sense, or a sense of justice.
This approach has been followed by this Court in Radnedge v Government Insurance Office of New South Wales (1987) 9 NSWLR 235 and Doherty v Liverpool District Hospital (1991) 22 NSWLR 284. See also Barder v Caluori [1988] AC 20, Murphy v Stone-Wallwork (Charlton) Limited [1969] 1 WLR 1023, Livesey (formerly Jenkins) v Livesey [1985] AC 424, Vernon v Bosley (No 2) [1999] QB 18.
In my opinion, if the compensation clauses are invalid or inapplicable or ineffectual, Macquarie would have an arguable case for some relief on the basis of relief against forfeiture/ unjust enrichment/ restitution: cf Clancy v Salienta Pty Limited [2000] NSWCA 248; (2000) 11 BPR 20,425, especially at [202] – [252] per Giles JA, and cases there cited. The invalidity and/or inapplicability and/or ineffectuality of clauses manifestly intended to provide some restitution and to prevent unjust enrichment could itself be a ground for granting this kind of relief.
Accordingly, had Macquarie’s s 129 case failed, in my opinion it would have been appropriate to set aside the primary judge’s decision on relief against forfeiture, and to refer all questions of relief against forfeiture/ unjust enrichment/ restitution to be decided in the fresh proceedings. This course would have had the additional advantage of ensuring that possibly embarrassing questions of issue estoppel did not arise in those proceedings.
Cross-claim: debts before 17 March 2000
I have already set out briefly the primary judge’s findings on the cross-claim: at par [65] above, I have set out his finding concerning debts alleged to have arisen before 17 March 2000, and at pars [67] – [70], I have set out his findings concerning damages or liabilities alleged to have arisen after 17 March 2000.
As regards the former, my decision concerning the breaches alleged in Area Health’s notices of default are relevant. For the reasons then given, in my opinion the primary judge was correct to reject Area Health’s claim under cl 2.2 of the Car Park Lease; but was in error in holding that Area Health was entitled to rent under cl 3.5 of the Construction Deed at the rate of $33,000 per month from 1 July 1999. There is in my opinion an additional reason why the claim under cl 3.5 does not entitle Area Health to judgment for a sum of money: the obligation under cl 3.5 is merely to deposit the sums in question, and Area Health is entitled to those sums beneficially only if and when it becomes entitled to the payment provided for by cl 3.4 of the Construction Deed.
I note that, according to cl 3.4 of the Construction Deed and the Timetable, Macquarie did become liable to pay $33,000 per month, monthly in advance, from 1 December 1999; and that could possibly have supported a claim for $33,000 for each of the months from December 1999 to March 2000. However, in my opinion Area Health is not entitled to judgment on that basis on this appeal. No such claim was made below; and it was submitted for Macquarie that, had such a claim been made, Macquarie would have asserted that it was entitled to extensions of the Timetable in accordance with cl 2.2, cl 2.3 and cl 2.5 of the Construction Deed, and led evidence in support of that assertion. In my opinion, this is a valid Suttor v Gundowda objection to such a claim being raised on appeal.
Cross-claim: availability of damages for events after 17 March 2000.
As regards other amounts claimed under the cross-claim, I have noted that the primary judge rejected Macquarie’s contention, in relation to events after termination, that Area Health could not maintain claims for particular expenses, but rather needed to prove its overall loss.
The general rule is that, when one party terminates a contract for fundamental breach or repudiation by the other party, the only claim the terminating party has, beyond any amounts already accrued due under the contract, is for damages for loss of the bargain. If the contract provides for some specified amount or amounts to be paid in such a case, then this provision will generally be unenforceable as a penalty unless the amounts in question are either a deposit which is reasonable in the circumstances or genuine pre-estimates of damages likely to be suffered by the terminating party.
In my opinion if, contrary to my earlier findings, the leases and the Construction Deed were validly terminated on 17 March 2000, this principle would apply to provisions which permitted Area Health to claim particular expenses from Macquarie without addressing the question whether or not it was entitled to damages for loss of a bargain. As pointed out for Macquarie, this question would require account to be taken of the value to Area Health of the car park erected by Macquarie (apparently at a cost in the order of $12 million, in addition to $5.5 million paid for the leases and other costs which appear to be in the order of $6.5 million), less whatever the detriment to Area Health of the compensation clauses turned out to be. In my opinion, it does not assist Area Health that its entitlement to these sums is expressed in terms of an indemnity against expenses.
However, since I have held that the leases and the Construction Deed were not validly terminated on 17 March 2000, Area Health’s claim should be assessed on the basis that they are claims for an indemnity or damages under ongoing agreements. I note that cl 7.8(a) of the Construction Deed and cl 16.8(a) of the Car Park Lease apply only in the event of termination; but cl 9.1 of the Construction Deed applies whether or not there has been termination. This clause gives rise to the question whether Area Health’s claims fall within the words “liability or loss arising from, and costs incurred in connection with … [Area Health] doing anything which [Macquarie] must do under this deed but has not done or has not done properly”.
It is common ground that Macquarie was obliged by the Construction Deed to complete the car park by 30 June 1999 at the latest. The four items referred to in par [66] above were claimed by Area Health on the basis that they were works required to complete the car park, because they were required to satisfy conditions imposed by South Sydney Council in its development approval in respect of the car park. In my opinion, if any of these items were work required in order to complete construction of the car park, then (subject to any agreement to the contrary) it was something which Macquarie “must” have done by 30 June 1999 and did not do, so that if Area Health incurred expense in doing it, the indemnity in cl 9.1 of the Construction Deed is engaged.
This gives rise to three questions, which I will consider in turn:
(1)Was it the case that the construction of the car park was not complete until relevant conditions of the car park approval were satisfied?
(2)Did Area Health agree itself to perform certain of these conditions, namely installing certain traffic lights and servicing New Hospital Road?
(3)Was one item, the construction of a retaining wall, within the conditions in any event?
Cross-claim: did non-fulfilment of conditions entail non-completion of the car park?
The primary judge determined this question favourably to Area Health. In the second judgment, pars [55] and [56], he referred to reasons given in the first judgment for holding that, by reason of non-fulfilment of conditions, Macquarie had failed to complete construction of the car park by 30 June 1999. The relevant paragraphs in the first judgment are the following:
[471]Condition 3 of the approval to the car park building application required compliance with the conditions of approval to the development application. Condition 2 of the development approval and condition 38 of the building approval each required:
That, prior to issuing a Certificate of Classification by Council, and therefore operation of the car park, the building application for the adjoining private hospital shall be approved and works shall have substantially commenced.
[472]The conditions referable to the New Hospital Rd/Carillon Ave traffic lights, the Carillon Ave/Missenden Rd traffic lights, the surfacing of New Hospital Rd, the construction of Link Rd, and the roadwork in Mallet St required each to be operational prior to issuing a certificate of classification for the car park, or completed prior to its operation.
[473]As I understood it, Macquarie’s submission was that under the construction deed there was a distinction between the obligation to complete construction of the car park (i.e to erect the structure) and the obligation to comply with conditions relating to the car park. It was put, for example, that although the commissioning of traffic lights was encompassed in the definition of “Works”, the construction of the car park is not to be understood to include the work for the traffic lights. It was argued that the distinction is illustrated by the difference in wording between cl 2.1 which required, under the timetable, completion of “construction of the car park” by the specified date, and cl 3.6 car park sub-lease which required compliance with provisions “relating to the car park”. It was put that the conditions were matters “relating to the car park”, and distinct from, and were not to be considered as included in, matters relevant to completion of the building. It was put that non-compliance with the conditions may be a breach of cl 3.1, which made it erroneous to claim that such conduct was a breach of cl 2.1 as in the notice.
[474]Thus Macquarie argued that non-compliance with the conditions did not prove non-completion of construction of the car park.
[475]The proper approach to the construction of the agreements accepts that as it is a commercial document it should be given a business-like interpretation. Its interpretation requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. McCann v Switzerland Insurance Australia Ltd (Allen’s case) [2000] HCA 65 ; (2000) 203 CLR 579, p589. As with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole. Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, pp 381–382; Wilkie v Gordian Runoff Ltd [2005] HCA 17 ; (2005) 221 CLR 522, pars 15–16.
[476]In Taylor v Dexta Corp Ltd & Ors [2006] NSWCA 310 ; (2006) 14 ANZ Ins Cas 61-712, Santow JA pointed out (par 30) that “… A necessary corollary of that requirement for a commercial contract to be given a business-like interpretation is the frequent emphasis upon the need to arrive at an interpretation which is commercially sensible, and in accord with commercial reality”.
[477]Analysis of the definition of “Works” shows that construction of the car park is to be understood to include, where appropriate, all ancillary works and activities associated therewith. The latter were to be carried out in accordance with the relevant development and building approvals. The carrying out and completion of the works under cl 3.1 were to be in accordance with the terms of such approvals. In this case, the effect of the approvals was such that the legitimate operation of the building as a car park depended upon the substantial commencement of the hospital, and compliance with the conditions. It is clear from the terms of the approvals that contravention of the conditions made it unlawful to use the premises for the purpose of a car park.
[478]In my opinion, on a common sense approach to the ordinary and unambiguous language of the relevant provisions of the construction deed, there can be no doubt that the contractual intention underlying cl 2.1 and the timetable was that completion was reached when the work had been finished, and nothing further was to be done for it to be used for the purpose for which it was built, namely as a commercial car park. Accordingly, in my opinion, under the construction deed fulfilment of the obligation to complete construction of the car park necessitated completion of all ancillary works and associated activities in accordance with the approvals whereby the car park became lawfully operational for its intended purpose, being usage for an approved 1225 spaces. This is what was required under cl 10.1 car park lease and cl 3.6 car park sub-lease earlier referred to.
[479]Such a meaning is consistent with what the agreement shows to be the intention of the parties for what was required to bring to completion the construction of the hospital. The timetable specified the same dates for completion of construction of the hospital, the admission of the first patient, and the rent commencement date (as defined). When read in context with other relevant provisions it supports the construction that completion of the hospital meant reaching the stage at which it was substantially fit for occupation and use by Macquarie, and the first patient was admitted, ie fit for the agreed purpose.
[480]The meaning is also consistent with the requirement under cl 11.1 hospital lease that Macquarie must erect the Hospital and ancillary services in accordance with the Construction Deed.
[481]Acceptance of Macquarie’s submissions would mean that it would have discharged its obligation to complete construction of the car park upon the erection of the structure, although under the approvals it was not lawful to use it for the purpose of a car park. Such an outcome would be contrary to ordinary, commercial common sense, and would negate the underlying intent of the agreement. Macquarie’s submissions must be rejected.
[482]Accordingly, I hold that non-compliance with the conditions constituted failure by Macquarie to complete construction of the car park in accordance with the timetable in breach of cl 2.1 and, thus, the event of default as alleged in the notice. It is not to the point that it may have been open to Area Health to give a notice of default under cl 3.1 specifically based on non-compliance with the conditions.
On appeal, it was submitted for Macquarie that the primary judge erred:
(1)In taking into account the definition of “Works” in the Construction Deed, when the relevant definition was that of “Car Park”; and
(2)In holding that construction of the car park was not completed until the stage was reached when it was operational as a car park.
In my opinion, it is relevant that cl 2.1 of the Construction Deed required Macquarie to “complete the Works in accordance with the Timetable”; and the Timetable gave dates for completion of construction of the car park and completion of the hospital, but not for completion of any other aspect of the Works. If Macquarie’s contentions were correct, there would be no time limited by the Timetable for satisfying council conditions concerning construction work that did not fall within the narrow interpretation of the construction of the car park; and having regard to the clear intention that the Timetable closely constrained Macquarie’s performance, in my opinion that was not the intention manifested by the Construction Deed.
In my opinion, the primary judge was correct to conclude that completion of construction of the car park, within the meaning of the Timetable, did not occur until there was a car park which was ready to be used as such; and if there were outstanding construction tasks required by the conditions of the council consent, which needed to be performed before the car park could lawfully be used, then the construction of the car park was not completed, even if these construction tasks were not to be carried out on the structure of the car park itself.
Cross-claim: did Area Health agree to perform certain conditions?
Before the primary judge, Macquarie relied on correspondence between Area Health and Macquarie in support of a contention that Area Health had agreed to install traffic signals at the corner of Missenden Road and Carillon Avenue and to surface New Hospital Road.
On 31 May 1999, Area Health wrote to Macquarie as follows (20 Blue 8706 – 7):
Prince Alfred Private Hospital and Carpark
Following our meeting with Mr John Morrison on Friday 28 May 1999 we wish to formally advise you of our offer of assistance to complete the private hospital carpark.
As you are aware, it is of great concern to the Area Health Service and the staff of Royal Prince Alfred Hospital that the carpark is still not operational. This problem must be solved urgently and our offer is made to achieve in an endeavour this end while reserving without prejudice to them the rights of both parties and our respective obligations.
In regard to the development conditions imposed upon Macquarie by the Land and Environment Court it is your advice that you satisfy the condition regarding substantial commencement of the hospital.
In summary, the other conditions of consent placed upon Macquarie and upon which the opening of the carpark is dependent appear to be:
1.the erection of traffic lights at the intersection of Missenden Road and Carillon Avenue;
2.the construction of “link road";
3.the completion of the carpark building and the installation of operating equipment, (it is noted that landscaping to the carpark has not commenced); and
4.the surfacing of “new hospital road” and the erection of the containment wall.
While all of these are your responsibility we are prepared, in the interests of our staff, to meet the cost of some of the above works (specifically the erection of traffic lights and surfacing of New Hospital road), and to provide project management on an interim basis and subject to the reservations and to their terms in this letter and toward their satisfactory completion. Repayment of the amounts expended on these works will be achieved through the hospital withholding the parking fees paid by staff until such time as the debt is paid in full.
It will also be necessary for you to provide an unconditional bank guarantee for an amount approved by the Area Health Service as the amount required to construct “link road”. Further that this bank guarantee by a bank approved by the Area Health Service (and in this case CBA, Westpac, NAB and ANZ are approved in advance) will be in favour of Central Sydney Area Health Service and payable on demand for an indefinite period or until Macquarie completes that work or, if Macquarie fails to do so within six months of the acceptance of this letter, until the work is carried out on behalf of Macquarie by the Area Health Service. The Area Health Service will attempt to negotiate with South Sydney Council for the opening of a temporary alternative to “link road”, but of course the area Health Service cannot speak on behalf of Council who will be the ultimate authority on this matter.
This offer remains available to Macquarie until 4 pm on 1 June 1999 when, if unaccepted it will be withdrawn. This is a once only offer and the Area Health Service will not discuss the matter further. If you accept the offer it is expected that you will provide all drawings at hand, costs and plans relating to the works in question so that the Area Health Service might immediately commence the works, and that you will carry out whatever might be necessary to facilitate novation of any existing contracts that the Area Health Service may require. The offer is not subject to negotiation, nor is the Area Health Service willing to agree to acceptance of part of the offer.
Again, you are reminded that this offer reserves, without prejudice, all existing rights of both parties. I look forward to receiving your reply before 4 pm on 1 June, 1999.
On 1 June 1999, Macquarie replied as follows (20 Blue 8712):
PRINCE ALFRED PRIVATE HOSPITAL AND OUR ASSOCIATED JOINT VENTURE CAR PARK
We refer to Mr Wallace's letter of 31 May 1999.
It is noted that your proposal is “without prejudice" to all existing rights and obligations of both parties and your proposal was submitted to us solely upon your instigation.
These rights and obligations arise from the Heads of Agreement of 18th September 1989, the Construction Deed – Construction of Hospital and Car Park of 2nd December 1996, the Hospital Lease of 2nd December 1996, the Car Park lease of 2nd December 1996, the Car Park sub lease of 2nd December 1996; the Car Parking Management Agreement of 2nd December 1996 and the Co Ownership Agreement – Car Park of 2nd December 1996.
We accept your proposal in respect to the works at the Missenden/ Carillon intersection and for surfacing the New Hospital Road on the basis that:
the works are conducted in a cost effective and expeditious manner;
the works undertaken and completed are only those required in accordance with CSAHS/ Macquarie planning approvals;
the project management fees are competitively reasonable for the works;
there is full transparency and audit trail provided to Macquarie in respect to the works and fees;
In return for Central Sydney Area Health Service undertaking these works, but limited to the actual cost of such works and excluding any overhead or interest, Macquarie is prepared to forgo/ relinquish it [sic] right to receive parking fees payable by CSAHS staff until such time necessary for CSAHS to recoup the cost of the agreed works.
Please advise how the parties progress and implement this agreement.
On 10 June 1999, Macquarie received a draft agreement apparently intended to give effect to the proposed arrangement (20 Blue 8708 – 11). On 18 June 1999, Macquarie wrote to Area Health alleging discrepancies between this draft agreement, on the one hand, and Area Health’s proposal of 31 May 1999 and Macquarie’s acceptance of it on 1 June 1999, on the other hand; and asserting a wish to proceed on the basis of that proposal and acceptance (20 Blue 8724 ff). Area Health responded on 21 June 1999, stating that this communication meant that Macquarie had failed to take up Area Health’s offer and that this offer had expired (20 Blue 8729).
However, on 29 June 1999, Area Health sent the following letter to Macquarie (20 Blue 8747):
Re:CSAHS: MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LIMITED AND ANOR : CONSTRUCTION DEED
Property:35-43 Carillion Avenue and 114 Church Street, Camperdown
We note your letter of 18 June 1999 in response to our draft Agreement forwarded to you.
Without covering in detail the acceptability or otherwise of your comments, we are prepared to proceed on the basis of what you accepted in your letter of 1 June 1999.
We shall commence the works as soon as you provide us with the drawings, plans, approvals, Contracts and any other documents which you have covering the traffic lights at the Missenden/ Carillion intersection and the resurfacing of New Hospital Road.
We will render you monthly statements as to the amounts of parking fees withheld by Central Sydney Area Health Service to recoup costs of the agreed works.
As with our letter of 31 May 1999 and your reply of 1 June and 18 June 1999, the above is without prejudice to the existing rights of both parties including the completion and rights in respect of Link Road.
We look forward to receipt of above documents by 1pm, Monday, 5 July 1999.
We trust your completion of the car park pursuant to approvals is imminent.
Thereafter, there was further correspondence, including an offer by Area Health in a letter dated 9 August 1999 to proceed with the works on certain terms (20 Blue 8850 – 1), to which there was no reply.
In rejecting Macquarie’s claim of an agreement, the primary judge said this:
[506]Macquarie submitted that by the letter of 31 May 1999, Area Health had made an offer of assistance to Macquarie, to which a counteroffer was made by Dr Wenkart’s letter of 1 June 1999. It submitted that by Dr Horvath’s letter of 29 June 1999, Area Health accepted the counter-offer, and bound itself to carry out the work for the traffic lights and the surfacing of New Hospital Road. It claimed that thereafter Macquarie proceeded on the basis that an agreement had been struck, and Mr Morrison provided relevant documents to Area Health as required by it. It was put that in circumstances where Area Health had been sent documents under which the contractor would do the work, it was in breach of the agreement and/or of the utmost good faith obligation not to proceed to carry out the work required by the conditions, alternatively, to rely upon Macquarie’s non-compliance with those conditions as evidencing breach of cl 2.1.
[507]In my opinion the evidence does not establish the existence of an agreement of any binding, contractual, enforceable effect. The correspondence was conducted on a basis which was without prejudice to the parties rights and obligations under the 96 agreements. In my opinion it went no further than showing that by its letter of 29 June 1999 Area Health had volunteered to assist Macquarie in meeting development approval conditions 8 and 12 to enable operation of the car park. The subsequent letters indicate a lack of certainty, and hence no agreement, on what assistance Macquarie was in fact seeking, and as to the terms upon which it was to be provided. The parties were never ad idem. Given that on 26 June 1999 Macquarie had sought an interim occupation certificate pending resolution of outstanding approval conditions, it is difficult to understand Macquarie’s unwillingness to clarify matters for Area Health as shown by the tenor of its letter of 6 August 1999, and by its failure to answer the questions raised in Area Health’s letter of 9 August 1999.
[508]On my assessment, the negotiations were ultimately inconclusive, and no arrangement for carrying out the work was ever finalised. Furthermore, the without prejudice reservation made plain that it was never intended by the parties that Macquarie would be relieved of its obligation under the construction deed to comply with the conditions.
In my opinion, as submitted by Macquarie, the letters of 31 May 1999, 1 June 1999 and 29 June 1999 do constitute a legally binding agreement: either the letter of 1 June 1999 accepted the offer, because the conditions stated in the dot-points would have been implied in any event; or if not, it amounted to a counter offer which was accepted by the letter of 29 June 1999.
In my opinion, reference in the letter of 31 May 1999 to the offer being made “reserving without prejudice to them the rights of both parties and our respective obligations” should not be read as having the effect that no offer was being made capable of giving rise to a legally binding contract; and in my opinion later disagreement as to what was to occur did not do away with the agreement constituted by those letters.
In my opinion, this means that Area Health cannot claim that the erection of traffic lights at the intersection of Missenden Road and Carillon Avenue and the surfacing of New Hospital Road were things that Macquarie “must” do under the Construction Deed; and Area Health was not entitled to judgment for $360,130 plus interest in respect of the former, and $53,573 plus interest in respect of the latter. However, by virtue of the terms of the agreement, these amounts are to be recouped by Area Health through adjustment of car parking fees; and they will probably enter into the calculation of damages for trespass or Area Health’s accounting for car parking fees it has received.
Cross-claim: retaining wall
The other item in dispute concerns a retaining wall built alongside New Hospital Road, in respect of which the primary judge held that Area Health was entitled to $300,393.18 plus interest.
As at 17 March 2000, there was an embankment alongside New Hospital Road, which (it was common ground) was satisfactory only as an interim measure. Mr Alan Ring, a person of wide experience in the construction industry (second judgment [88]), inspected the site on 5 February 2003 (second judgment [90]). Mr Ring provided a report (21 Blue 9154), in which he said that a properly designed structural retaining wall was required by Australian Standards (21 Blue 9157).
In the second judgment, the primary judge noted and rejected Macquarie’s objection to Area Health’s claim on this as follows:
[95]The other ground of dispute is that it was not demonstrated that the embankment was defective at the time of termination on 17 March 2000. It was put that, at that time, the structure was incomplete, and merely an interim solution, and as it was not necessary for the lawful operation of the car park it was not work required for completion of construction of the car park under the 96 agreements.
[96]This ground must also be rejected. It does not survive analysis of the terms of condition 12 and, at least, of cl 3.1 of the construction deed which requires completion in a proper and workmanlike manner of the “Works” which are defined to include all ancillary works and activities associated therewith. In my opinion, and as a matter of common sense, satisfaction of condition 12 that “full construction of the road be completed prior to commencement of construction or excavation of the car park” involved completion in a proper and workmanlike manner of a retaining wall of the kind approved by Mr Ring. The condition allowed for adequate temporary construction traffic arrangements, but there was no evidence that Macquarie sought or obtained the necessary agreement of the Director of Public Works and Services if it was truly intended that the embankment was only an interim measure.
Having regard to my decision on termination, it would be necessary for Area Health to establish that construction of this retaining wall was something which Macquarie “must” do prior to 17 March 2000, when Area Health’s taking of possession put it out of Macquarie’s power to do it.
It was contended for Macquarie that construction of the retaining wall was not part of the construction of the road, which was a condition of the car park approval. Macquarie submitted that the council issued an interim occupancy certificate in respect of the car park on 23 June 2000 (21 Blue 8966), and it was apparently not until about two years later that the need for a retaining wall was identified.
However, in my opinion it was established that the construction of the road brought about the existence of the embankment, and that accordingly the treatment of the embankment in such a way as to make it stable in the long term is properly considered as part of the construction of the road. Since full construction of the road was required by the council conditions, prior to the construction of the car park, the proper treatment of the embankment was something which Macquarie “must do” prior to 17 March 2000.
On the evidence, this required the construction of the retaining wall. It was accepted below by Macquarie that the sum of $300,393.18 was incurred and was reasonable (second judgment [77]). Accordingly, the challenge to the award of this amount fails.
Conclusion and remedies
It follows that in my opinion Macquarie is entitled to an order for possession of Lots 11 and 12, and also, at its election, to an inquiry as to damages or an account from Area Health of car parking fees; while on its cross-claim, Area Health is entitled to $21,260 plus interest, $300,393.18 plus interest and $9,645 plus interest (being items required to satisfy the conditions of the car park approval), and also $22,795.60 plus interest and $35,113.56 plus interest, to which no separate challenge was made.
It will be necessary that there be submissions as to costs, both at first instance and on appeal. I would propose that orders be made giving effect to the decisions as to the result of the appeal, and that there then be a hearing in Court concerning costs.
I would direct that Macquarie within twenty-eight days provide to the Court either agreed short minutes giving effect to the decisions on appeal, or else its proposed short minutes and submissions in support; and if the short minutes are not agreed, that within a further fourteen days Area Health provide to the Court its proposed short minutes and submissions in support. When the Court makes those orders, provision will be made for written and oral submissions on costs.
MACFARLAN JA: I agree with Hodgson JA.
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Annexure
LAST UPDATED:
14 October 2010
- AGLC
- Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268
- Case
- [2010] NSWCA 268
- Decision Date
CaseChat Overview and Summary
The court was required to determine several legal issues. These included whether Macquarie had breached specific clauses of the Construction Deed and Car Park Lease, particularly concerning payment obligations and completion deadlines. The court also had to consider the applicability and requirements of section 129 of the Conveyancing Act 1919, specifically whether compliance with its notice provisions was a prerequisite for Area Health's right of re-entry, and the meaning of "rent" in that context. Furthermore, the court had to assess whether Area Health had breached its contractual obligation to act with utmost good faith in issuing the default and termination notices.
The primary judge found that Macquarie had breached clauses relating to the completion of the car park and the payment of monthly rent equivalent. Crucially, the primary judge held that the failure to pay rent meant that compliance with section 129(1) of the Conveyancing Act was not a pre-condition to Area Health's right of re-entry. The primary judge also found that the default notices complied with section 129(1) and rejected Macquarie's claim that Area Health had breached its duty of utmost good faith. Consequently, the primary judge concluded that Area Health had lawfully terminated the agreements and was entitled to re-enter the premises.
The appeal court directed the parties to provide agreed or proposed short minutes to give effect to the decisions on appeal, indicating that further submissions might be required if agreement was not reached.
Orders
Orders of the court
Direct that Macquarie within twenty-eight days provide to the Court either agreed short minutes giving effect to the decisions on appeal
or else its proposed short minutes and submissions in support
and if the short minutes are not agreed
that within a further fourteen days Area Health provide to the Court its proposed short minutes and submissions in support.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
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