Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service
[2008] NSWSC 738
•23 July 2008
CITATION: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 HEARING DATE(S): 06.02.06, 07.02.06, 08.02.06, 09.02.06, 10.02.06, 13.02.06, 14.02.06, 15.02.06, 16.02.06, 17.02.06, 20.02.06, 21.02.06, 22.02.06, 23.02.06, 27.02.06, 28.02.06, 01.03.06, 02.03.06, 03.03.06, 06.03.06, 07.03.06, 08.03.06, 09.03.06, 10.03.06, 21.08.06, 22.08.06, 23.08.06, 24.08.06, 25.08.06, 28.08.06, 29.08.06, 30.08.06, 31.08.06, 01.09.06, 04.09.06, 05.09.06, 06.09.06. 07.09.06, 08.09.06, 29.01.07, 30.01.07, 31.01.07, 01.02.07, 02.02.07, 12.02.07, 13.02.07, 14.02.07, 15.02.07, 16.02.07, 19.02.07, 20.02.07, 21.02.07, 22.02.07, 23.02.07, 26.02.07, 28.02.07, 01.03.07, 02.03.07, 05.03.07, 06.03.07, 07.03.07, 08.03.07, 09.03.07, 26.03.07, 27.03.07, 28.03.07, 29.03.07, 30.03.07, 02.04.07, 03.04.07, 04.04.07, 05.04.07, 30.04.07, 01.05.07, 02.05.07, 03.05.07, 04.05.07, 14.05.07, 15.05.07, 16.05.07, 24.05.07, 25.05.07, 31.05.07, 22.06.07, 06.07.07, 28.05.08
JUDGMENT DATE :
23 July 2008JUDGMENT OF: Nicholas J DECISION: Par 667 CATCHWORDS: CONTRACT – agreements to lease real property and construct a private hospital and car park thereon – termination of agreement – whether contractor in default of agreements by reason of failure to complete car park and substantially commence construction of hospital – whether contractor in default by reason of failure to pay rent and other monies – whether agreements excluded common law right to terminate - whether termination notices under agreements valid – whether giving notices of default and termination in breach of express term of utmost good faith - CONVEYANCING – leases – whether termination notices invalid under s 129 Conveyancing Act 1919 – whether amounts payable under agreements were rent within s 129(8) - whether defaults established – whether landlord entitled to terminate and re-enter - EQUITY – relief against forfeiture – whether termination of lease unconscionable – whether grant of relief would attain primary object of agreement – whether claim for relief against forfeiture established LEGISLATION CITED: Area Health Services Act 1986
Civil Procedure Act 2005
Conveyancing Act 1919
Health Insurance Commission Act 1974 (Cth)
Health Legislation (Private Health Insurance Reform) Amendment Act 1995 (Cth)
Health Insurance Act 1973 (Cth)
Health Services Act 1997
National Health Act 1953 (Cth)CATEGORY: Principal judgment CASES CITED: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185; (2005) 146 FCR 447
Baltic Shipping Company, The Mikhail Lermontov v Dillon (Mikhail Lermontov case) (1991) 22 NSWLR 1
Bamco Villa Pty Ltd v Montedeen Pty Ltd [2001] VSC 192
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600
Commissioner of Stamp Duties (NSW) v JV (Crows Nest) Pty Ltd (John Valentine's case) (1986) 7 NSWLR 529
Commissioner of Stamp Duties v Commonwealth Funds Management Ltd & Anor [1995] 38 NSWLR 173
Customs and Excise Commissioners v A [2003] 2 All ER 736
Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58
Ex Parte Dally-Watkins; Re Wilson (1955) 72 WN (NSW) 454
Foran v Wight [1989] HCA 51; (1989) 168 CLR 385
Fox v Jolly [1916] 1 AC 1
Hovan's Hotels Pty Ltd v Cherry (Supreme Court of New South Wales, Bryson J, 14 March 1994, unreported)
Legione v Hateley [1983] HCA 11; 152 CLR 406
Macquarie International Health Clinic Pty Ltd v Central Sydney Area Health Service (unreported, BC200008756)
Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447
McCann v Switzerland Insurance Australia Ltd (Allen's case) [2000] HCA 65; (2000) 203 CLR 579
Mir Brothers Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907
Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17
Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) CLR 355
Shiloh Spinners Ltd v Harding [1973] AC 691
Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489
Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315
Taylor v Dexta Corp Ltd [2006] NSWCA 310; (2006) 14 ANZ Ins Cas 61-712
Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522PARTIES: Macquarie International Health Clinic Pty Ltd – plaintiff
Sydney South West Area Health Service - defendant
FILE NUMBER(S): SC 1790/00 COUNSEL: J A McCarthy QC/R E Dubler SC/S Philips – plaintiff
G K Burton SC/P Bruckner – defendantSOLICITORS: S Moran & Co – plaintiff 05.04.02 – 08.12.06
M J Lawyers – plaintiff 04.01.07 – 02.11.07
Shane Moran solicitor – plaintiff 07.03.08 - current
Bolzan & Dimitri – defendant
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONNicholas J
1790/00 Macquarie International Health Clinic Pty Ltd v Sydney23 July 2008
South West Area Health Service
JUDGMENT
Introduction
1 His Honour: These proceedings concern the claim by the plaintiff, Macquarie International Health Clinic Pty Ltd (Macquarie), against the defendant, Sydney South West Area Health Service, formerly Central Sydney Area Health Service (Area Health), for the recovery of possession of sites at the rear of the Royal Prince Alfred Hospital (RPAH) buildings on the western side of Missenden Road, Camperdown. On 17 March 2000 Area Health purported to terminate agreements under which Macquarie occupied the sites and had undertaken to build thereon a private hospital and a car park.
2 The proceedings include Area Health’s cross-claim against Macquarie for the recovery of loss and damage incurred in completing certain work which it alleged should have been carried out by Macquarie in compliance with conditions of consent to the car park development.
4 On 2 December 1996 the parties, together with Macquarie Health Corporation Ltd (MHC) as guarantor, executed six interrelated documents (collectively referred to as the “96 agreements”), namely:3 These reasons relate only to the determination of Macquarie’s claim against Area Health. The cross-claim has yet to be determined.
(i) a construction deed for the design and construction by Macquarie of a car park and a private hospital on the sites at folio identifiers 11/809663 and 12/809663;(ii) a car park lease under which Area Health as landlord let lot 11 to Macquarie and itself as tenants in common in equal shares for a term of 103 years;
(iii) a car park sub-lease under which Area Health let its interest in lot 11 to Macquarie for a term of 28 years;
(iv) a hospital lease under which Area Health let lot 12 to Macquarie for a term of 103 years;
(vi) 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.(v) a car park management agreement under which Macquarie, as manager, agreed to manage and operate the car park to be erected on lot 11; and
6 On 13 September 1999 Area Health served on Macquarie notices of default under the construction deed, the two leases, and the sub-lease. Because the events of default under each agreement effectively tied one to the other, each notice relied upon the same events, namely:5 Most of the work for the car park was completed by about June 1999 although some of the conditions of the South Sydney City Council (the council) were not met. There was never any substantial commencement of the construction of the private hospital (MPH).
(a) the failure to comply with cl 2.2 of the car park lease by failing to pay the sum of $1,440,000 to Area Health by 14 February 1999;(c) the 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 the completion of the car park extended beyond 30 June 1999.(b) the 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 private hospital by 30 June 1999; and
7 On 17 March 2000 Area Health served on Macquarie notices of termination under each of the construction deed, car park lease, car park sub-lease and hospital lease. It re-entered the sites, and locked Macquarie out of the car park.
8 On 28 March 2000 Windeyer J dismissed Macquarie’s application for an interlocutory order for the return of the car park site to its possession ( Macquarie International Health Clinic Pty Ltd v Central Sydney Area Health Service (unreported, BC 200008756)).
9 By its fifth amended statement of claim, Macquarie seeks an order for possession of lots 11 and 12. It also seeks declarations that the default notices and termination notices were invalid, and should be set aside, on grounds that Macquarie was not in default as alleged; the notices were invalid under s 129 Conveyancing Act 1919 (the Act); and the notices were issued contrary to express terms in the construction deed, hospital lease, and car park lease which required the parties to act in the utmost good faith in the performance of their duties, and in their respective dealings with each other.
10 Macquarie also seeks declaratory relief under the hospital lease that it became entitled to change the permitted use of lot 12 for a hospital. It also seeks orders for possession of lots 11 and 12, and damages for the period in which it was excluded from the car park. Alternatively, if the notices are not set aside, Macquarie seeks relief against forfeiture.
11 A substantial part of the hearing concerned Macquarie’s case that by reason of the conduct of Area Health in breach of the requirement to act in utmost good faith, Area Health impeded and undermined Macquarie in its performance with the consequence that Area Health is precluded from asserting any rights to terminate the leases and the construction deed at the time the notices were issued.
12 In defence, Area Health denied the claim of Macquarie to remain in possession, adhering to the grounds specified in the default notices and the termination notices, and also on the ground that Macquarie had failed to comply with some conditions of consent to the car park development. It denied the allegations that it acted in breach of the utmost good faith requirements and, also, that in the circumstances Macquarie became entitled to change the permitted use of the premises under the hospital lease. The claim for relief against forfeiture was also denied.
Preliminary observations
13 Some statistics: The hearing proceeded, with interruptions, for 86 days from 6 February 2006 until 28 May 2008. Twenty nine witnesses gave evidence. Eighty six affidavits were read. The documentary evidence consisted of 49 exhibits, which included a 12 volume tender bundle containing in excess of 5000 pages. The transcript of evidence and submissions contained 5591 pages. The parties provided extensive written submissions in chief and in reply which covered in detail a wide range of issues and sub-issues. Oral submissions were heard, with interruptions, over 19 days between 26 March 2007 and 25 May 2007.
14 The factual and legal issues were many and complex, and presented the Court with a difficult task. I have kept in mind the principle that the primary function of a first instance judgment is to find facts and identify the crucial legal points and to advance reasons for deciding them in a particular way ( Customs and Excise Commissioners v A [2003] 2 All ER 736, per Schiemann LJ, p 754; approved by the Court of Appeal in Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58, pars 285, 286). Accordingly, I consider it to be neither necessary nor appropriate nor realistic in these reasons to deal with all of the issues and arguments raised by the parties. No utility would be served in repeating evidence and submissions on issues which were peripheral or would not affect the outcome. However, I read the written and oral evidence and submissions in their entirety, some many times. It would be erroneous to assume that matter not referred to was not considered in the course of reaching a conclusion. I have confined these reasons to those issues which were found to be crucial for the determination of Macquarie’s claim. I was guided by the principles expressed in Digi-Tech (pars 282-291).
15 But for these proceedings, the eviction of Macquarie on 17 March 2000 brought to an end a difficult relationship which had endured for about 12 years. Consideration of the issues raised in these proceedings necessitates scrutiny of the details of many matters which took place during that period, in the context in which they occurred.
16 In short, Macquarie’s case was that in the period from 1994 to 2000 Area Health’s conduct was in breach of the condition under the Heads of Agreement (HOA) and the 96 agreements to act in utmost good faith, and caused or contributed to its defaults and difficulties. In essence, it was put that Area Health wrongfully failed to disclose information which would have affected important decisions to be made by Macquarie in performance of the agreements. It was alleged that Area Health failed to disclose the decision it made in December 1994 to locate all clinical services at RPAH on the eastern side of Missenden Road. It is also alleged that Area Health failed to disclose its knowledge from about mid-1994 of discussions as to the possibility of the construction of a private hospital on University land adjacent to RPAH, and its encouragement and support for such proposal.
17 Macquarie also claimed that, over many years, Area Health’s chief executive officer, Dr Diana Horvath deliberately concealed this information for the purpose of undermining Macquarie’s capacity to perform its contractual obligations, and thereby contrived the circumstances in which Area Health exercised its powers to issue the default notices and termination notices.
The parties
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.
Background: March 1984 – June 2000
24 In this section is set out a description of significant events which arose during the development of the relationship between the parties between March 1984 and June 2000. It is taken from the documentary evidence and, necessarily, is selective.
25 In March 1984 the RPAH draft master plan became available. It contained recommendations for the future development and use of the hospital’s services, land and buildings. It proposed a development strategy for the campus based largely on the closure of Missenden and Salisbury Roads to through traffic. It indicated the location of parking areas, outpatients, accident and emergency, and other departments on the western side of Missenden Road behind the King George V building (KGV). Closure of the roads would enable pedestrian circulation in this area with covered access and links to major facilities.
1988 (pars 26 - 29)
26 On 30 June the Minister for Health announced approval for the development of a private hospital and car park on the campus of RPAH. Area Health called for submissions of interest from developers.
27 On 29 July Dr Wenkart wrote to Area Health expressing Macquarie’s interest in developing a private hospital on RPAH grounds. On 2 September a preliminary joint proposal was submitted by Macquarie and Mirvac Group for the development of a 200 bed independent private hospital. It recognised that until a site had been chosen configuration could not be finalised.
29 A more detailed joint proposal was submitted in December by Macquarie and Mirvac Group for a 200 bed hospital. It included designs of the private hospital said to fit in with the current master plan for the development of RPAH (the 1984 draft master plan). The joint proposal said that it had taken into account detailed discussions with Area Health, RPAH, and other relevant parties. Section 4 outlined relationships with RPAH. It stated that strong links would develop between the two hospitals and that it must be the objective of both parties to ensure that they would be mutually beneficial. It stated that an overriding requirement was to maintain the full independence of the private hospital. Concerning construction and project management, it identified the architects retained to do the detailed plans for the hospital. With reference to traffic planning, it accepted the requirement for traffic signals “… if/when Missenden Road is closed …” and included the following:28 In its letter of 4 November Area Health advised Macquarie that it was short-listed for selection. It requested submission of a comprehensive proposal including details of preliminary architectural plans, physical relationships to the campus, and of functional flows for patients and medical staff. On 22 November Area Health informed Macquarie of the preferred site.
“The Private Hospital plan has been designed to fit into the Royal Prince Alfred Hospital Campus Master Plan as it has been provided to date. This will ensure that the physical relationships to the campus and the functional flow of patients, medical staff and visitors/guests we [sic] be in keeping with the expectations of the master plan.”
It included a plan which indicated the proposed hospital, hotel, and medical centre, and future car parks on the site bounded by Church Street, Grose Street, New Hospital Road, and Carillon Avenue. It also indicated a building described as “Future Clinical Support Building” connected by a “Future Pedestrian Bridge” to the proposed complex.
1989 (pars 30 - 39)
30 In March Mirvac Group withdrew from the joint venture. Subsequently, Macquarie was selected as the successful tenderer.
31 On 8 May Macquarie sent Area Health draft heads of agreement for discussion. On 14 June Area Health responded with a further draft said to deal with issues of critical importance to Macquarie.
33 On 18 September the HOA were signed by MHC, Tambrook Pty Ltd (Tambrook), and Area Health for the development of a private hospital and car park. It recorded that MHC, at its cost, would construct a 200 bed private hospital on land to be leased to Tambrook. Its purpose was expressed as follows:32 On 25 July Macquarie informed Area Health that the only major outstanding issue in settling the terms of the heads of agreement was the delineation of a site which would allow it to build and operate the complex with true independence. It described the master plan as superseded.
34 Clause 3(o) specified matters for inclusion in the car park agreements for the provision of 1200 car spaces. Clause 3(r) provided:
“This agreement is entered into to record the matters agreed between the parties regarding the Project and related transactions. The parties acknowledge that this Agreement does not reflect the whole Agreement between them and only contains the principles in so far as they have already been negotiated and agreed.”
35 By cl 4.2 Macquarie undertook to prepare and lodge all necessary applications to the council for the carrying out of the works including plans and specifications, building and development applications. Clause 4.2(e) required Macquarie to prepare the plans and specifications, and schedule of finishes, having regard to considerations and criteria including:
“CSAHS will not within a period of five years from the date of the first hospital admission recommend, support or approve a private hospital in the area presently under the control of CSAHS where Macquarie is of the reasonable opinion that such hospital would materially adversely affect the revenue derived from the operation of the Complex. CSAHS must also within that period make any representations reasonably possible to prevent the development of any such private hospital in any other area including in particular the redevelopment of the Camperdown Children’s Hospital.”
36 Clause 5.2 provided:
“(i) The Complex and Car Park must be considerate and harmonious with the other proximate improvements owned by CSAHS;
(ii) traffic flows of both private and public roads must be optimised and of an acceptable appearance;
(iii) access and egress including underpasses and overpasses for services, visitors, patients and employees must be optimised to facilitate flow between the Hospitals;
…
(vii) mechanical and other services in common with the other proximate improvements owned by CSAHS, must be integrated so far as is possible;
…
in each case so far as is reasonably practical having regard to commercial and technical considerations reasonably necessary to ensure the viability of the Project.”37 Clause 6.1(a) required Macquarie to undertake construction of the works at its own cost after it obtained acceptable development approval. Clause 7 recorded that the leases and car park agreements (the related agreements) were yet to be determined, and the final terms of which were to be negotiated and agreed between the parties’ solicitors. Clause 7.4(viii) provided:
“(a) The parties agree that the location of the Site should ensure:
(b) It is agreed that the Site should be located within the southern most portion in the area marked ‘H’ in figure 6 of the RPAH Master Plan of 1984.
(i) The independence of the Hospital, and
(ii) The creation of a campus concept encouraging the movement of people between the Hospital and RPAH.
(c) However, Macquarie considers that the construction of a major through road on the eastern boundary as shown in the Master Plan would not ensure the integration as referred to above and an alternative option is shown in Annexure C hereto. CSAHS will consider such an adjustment if it does not disrupt the current planning of RPAH as reflected in the Master Plan and CSAHS agrees that Macquarie will take part in all meetings where the decision on the area in which the Complex is to be situated is discussed.”
The site was defined as part of the designated block, which was described in Annexure A to be “… an area bounded by Grose Street in the north, a widened Church Street in the west, Carillon Avenue in the south and a proposed New Hospital Road in the east”.
“The Lessee shall have the right to change the permitted use of all or any part of the Site in the following circumstances:
…
(b) if any change in legislation affecting the business or operations of the Lessee … in the reasonable opinion of the Lessee, causes the complex to cease to be economically viable if operated in a proper and efficient manner, but then only in a manner which does not cause any significant adverse effect to the amenity of RPAH as compared to the complex.”39 Clause 15.4 provided:38 By cl 10 CSAHS acknowledged the developmental, financial, professional and operational independence of the Complex from both CSAHS and the Royal Prince Alfred Hospital. Clause 11 concerned the resolution of disputes. It provided that if a dispute arose under the HOA, or as to the terms and conditions of the related agreements, it was to be resolved by conciliation or mediation failing which it would be referred to arbitration.
“Good faith
Without limiting the generality of any other provision of this agreement the parties agree that in the performance of their respective duties and the exercise of their respective powers under this agreement and in their respective dealings with each other, they shall act in the utmost good faith.”1990 (par 40)
40 On 14 March at a joint working party of representatives of the parties, Dr Wenkart stated his intention to proceed with the preparation of the architect’s brief and detailed plans for the hospital. It was reported to the meeting of this party on 5 June that as the RPAH master plan had not been completed it was not possible for the architects to identify whether adjacent buildings were to remain, or the position of future roads affecting the campus.
1991 (pars 41 - 45)
42 In his letter of 9 May to Area Health, Dr Wenkart said:41 During 1990 and 1991 there were meetings and correspondence between the parties concerning, inter alia, the preparation of plans and the delineation of the site. On 30 April Area Health wrote to Macquarie in which it acknowledged that it had “… made a firm commitment to the creation of a campus concept encouraging the movement of people between the Hospital and RPAH …” and its obligation to provide pedestrian and vehicular access to and egress from roads and land in the RPAH area under the HOA.
“However, I am still concerned about the boundary ‘condition’ along the eastern boundary. While I acknowledge the contents of the Heads of Agreement that places obligations on both parties, I am still concerned that I have no legal basis for the access between the complex, the public hospital, and Carillon Avenue. There is as yet no new master plan so there is even less certainty about what is to happen along the boundary, and the inter connection between the complexes. There is also the need to safeguard against any negative action on the part of a different government.”
43 On 23 May certificates of title for lots 11 and 12 in DP809663 were issued.
44 On 4 June Macquarie paid Area Health $500,000 required under the HOA upon the issue of the titles.
45 In November Area Health commenced the process of planning for the future redevelopment of the RPAH campus and facilities. The project was called Campus 2010.
46 On 23 April Macquarie lodged a development application for MPH. Section 3 contained a description of land adjacent to the site which was owned by RPAH and used for hospital purposes. It said:1992 (pars 46 - 51)
47 On 9 June Macquarie wrote to Area Health recording agreement that it was essential to have a direct link between the two complexes for patient and staff movement. It said that its planning allowed for a bridge system and connection with the existing tunnel system, but would not commit to expense for the tunnel until assured that it was approved. Macquarie’s desire to develop appropriate physical links was noted in Area Health’s reply of 12 June, in which it was said that “… such links should be an important element of the development of the private hospital, and would be an important way of reassuring financiers that the commitment to a joint campus is real”.
“To the east of the site and on the Western side of King George V Memorial Hospital is presently a vacant lot, reportedly reserved for a building which will form part of the Royal Prince Alfred Hospital modernisation programme. No details of this proposed building are available since the new Masterplan has not yet been completed.”
It noted that the design for the proposed MPH and the related traffic management plan had taken into account the proposal for the closure of Missenden Road and its inclusion within the hospital campus.
The accompanying drawings did not show any physical links to RPAH buildings.
48 The enclosed letter included the following:
It referred to a letter enclosed concerning Campus 2010, and continued:
“… You are free to use the letter to support your project, but you should make it clear that Campus 2010 is a conceptual planning exercise and that no final decisions have been taken on the proposal which will come forward from that process, or the funding arrangements which will be required. Nevertheless it is an indication of the thinking of the Board in relation to the development of a more appropriate campus environment.”
… In particular it was considered to be essential that the Private Hospital was seen as an integral part of the campus, and that the division caused by Missenden Road should be removed.“The project is designed to prepare a visionary conceptual model to promote the campus of Royal Prince Alfred Hospital as a leader in the development and provision of cutting edge technology and innovative health services, both now and in the future …
Whilst we cannot guarantee that the project will produce a vision which will be accepted, or that we will be able to obtain the funds readily to carry it out, we believe that this initiative should be seen as important evidence that the Board of Central Sydney, and the Royal Prince Alfred Hospital itself, is committed to providing the most attractive environment in which the development of a private hospital can take place.
I confirm that we expect Macquarie to be actively involved in this process, and that we have asked our consultant to ensure that your project is fully integrated into their report.”
49 During 1992 consultation took place between the parties on planning matters. By September it appeared that council’s approval process would not progress until Campus 2010 had been received and considered.
50 In its letter to Macquarie of 26 November Area Health expressed concern that council might reject the application on size issues. It advised of the appointment of a consultant to advise on Macquarie’s prospects of success. It stated that it had always been Macquarie’s responsibility to assess what development could be successfully put on the site, and it was to proceed on that basis.
51 On 24 December Dr Horvath was appointed Chief Executive Officer of Area Health.
1993 (pars 52 - 60)
52 A note to Area Health of 13 January from the Director, Capital Works, Department of Health, stated that the closure of Missenden Road was central to the Campus 2010 strategy, and would be difficult to achieve.
53 On 22 February a conceptual development plan for RPAH entitled “Campus 2010” was launched. Its contents made plain the intention to proceed with a detailed master development control plan which, inter alia, would provide a planning model to highlight the essential nature of the closure of Missenden Road. It said that the planning demands of the proposed private hospital would be taken into account. It emphasised that its implementation, and the unification of the campus, depended upon the closure of Missenden Road. A conceptual master plan was included which depicted a unified campus on which Missenden Road was closed, the new private hospital on its designated site, and the location of RPAH buildings behind KGV. It envisaged an accident and emergency centre in a central building west of KGV with links to the private hospital and other buildings.
55 In May, Macquarie lodged a revised development application with council for a 400 bed hospital in a star shape. It had been prepared with regard to concerns expressed by council and local residents, and took into account matters referred to in Campus 2010, and envisaged physical links between MPH and RPAH. The proposed development included a 400 bed private hospital, medical suites, a retail area, and 1287 car parking spaces. In section 4 “Planning Controls”, it referred to Campus 2010 as a conceptual plan with no statutory planning status, which would guide RPAH in its preparation of a detailed master development control plan. It proposed a canopy structure to link an existing covered pedestrian way to RPAH.54 In its letter of 14 April to Pace Property Management Services Pty Ltd (Pace), Macquarie’s project manager, Peddle Thorp, Macquarie’s architect, expressed concern that Area Health now considered the master plan Campus 2010 to be a politically expedient document and stated its intention to continue to disregard it. The letter stated the need for traffic management to be designed to mesh with the current campus vehicular and pedestrian circulation, and the drawings would no longer show any Campus 2010 proposals.
The application included a traffic report which referred to Campus 2010 (par 2.7) as a conceptual master plan “… to be developed over the next 12-18 months into a formal master plan. It will evolve from a full service needs evaluation which will follow the incorporation of Concord Hospital into the Central Sydney Area Health Service …”. It referred to strong community and council opposition to the closure of Missenden Road, and observed that any closure would be premature before completion of the RPAH formal master plan. The traffic analysis was on the effects of the proposed private hospital on the existing local road system.
56 In its letter to Pace of 11 May, Area Health agreed to the lodgement of the plans subject to various matters. It stated that there had been no detailed master planning of “… the future of RPA’s facilities since the heads of agreement were signed …”, but endorsed Campus 2010.
57 On 25 August the development application was approved. Formal approval was given on 8 October.
58 In its letter of 13 September, Area Health requested Macquarie to indicate by 31 October whether it accepted the development approval, and proposed a scheme for payment of $300,000 under cl 3.1(e) HOA.
60 In his memorandum of 13 December to Dr Wenkart and Mr Geoff Davison, then Macquarie’s chairman, Mr Robert Jackson provided an account of site work issues raised with RPAH management. It included:59 On 9 November Area Health sought advice from its solicitors about termination of the arrangement with Macquarie. It expressed concern that Macquarie’s financial advisors had sought to extend the time for Macquarie to declare the development application to be acceptable and become responsible for building the hospital, and that Macquarie may be unable to develop a workable project, and obtain necessary funding.
“3. Campus 2010 Master Plan
As Dr Wenkart rightly pointed out last week there are issues from the RPA proposed 2010 Master Plan that may impact upon the planning and design of the private hospital. As the Master Plan document is not definitive in detail it would assist us in our planning to enter into communication with RPA to try and determine some of their plans so that we may make educated decisions. Issues that we can foresee that need addressing now include:
(i) Types, sitting [sic] and scale of proposed RPA buildings adjacent to the private hospital – to determine visual and environmental impacts.
(ii) Pedestrian links required with the proposed RPA buildings, eg. Tunnel [sic], bridge and pathways.
(iii) Vehicular accesses required, eg. Onto [sic] New Hospital Road from Salisbury, Rochester, English and Spruson Streets, and new private/public hospital car park station entry and exit points.
(iv) The closure of Missenden Road and its resultant impacts.
4. Schedule Of Actions
All of the activities listed above will require ongoing liaison, negotiation and coordination to achieve final resolution, however certain aspects will have to be determined soon so that meaningful planning and design can continue.(Obviously resolution prior to these dates will assist us in the planning process.)
Based on the assumption that we will have funds available for the commitment of resources on 1 February ’94 then the following schedule indicates the timing of the resolutions/answers we will require from RPA:
(v) Campus 2010 Master Plan
…
We would like information on this issue as soon as possible and preferably before finalising our Development Brief – by mid February ‘94.”1994 (pars 61 - 70)
61 On 25 January Macquarie lodged its application for building approval.
62 On 31 January Macquarie paid Area Health $200,000, being the balance payable under cl 3.1(e) HOA, and confirmed acceptance of the development approval. A further amount of $4,500,000 was payable within six months under cl 3.1(g).
63 On 29 June representatives of Area Health and the Department of Health discussed projects for the closure of Missenden Road and the development of the RPAH campus. The Department approved the appointment of consultants to undertake an asset strategic planning study for RPAH including a feasibility plan to assess future needs and options for the provision of services. By 23 August a steering committee was established, of which Dr Horvath, Mr Mike Wallace, and representatives from the Department were members. On 5 September Atkinson Capital Insight (Atkinson) was selected by Area Health to prepare an asset strategic planning study, a procurement feasibility plan, and a value management study.
64 On 22 July the Department of Health sent Area Health a copy of the brief to consultants for the preparation of “Asset Strategic Planning Studies”, which included matters relevant to the rationalisation and redevelopment of the RPAH campus.
65 On 10 October Area Health’s solicitors sent to Macquarie’s solicitors draft leases for consideration.
66 On 24 October there was a meeting between the parties during which Dr Wenkart declined to commit to a timetable for completion of the works, and Area Health stated its concern about delay. At a meeting on 27 October Macquarie acknowledged that unless the timetable issue was resolved, the leases would not be signed.
67 On 2 November Dr Horvath informed the Area Health board that it was intended that the Asset Strategic Plan would form the basis of planning for the RPAH development.
68 On 3 November a workshop meeting was held at which principles for the preparation of the asset strategic plan were discussed by Dr Horvath, Mr Wallace, and Mr Stephen Haldane from Atkinson. Site planning principles included the encouragement of the visual and functional link with the University, and the facilitation of cohabitation and development by private sector entrepreneurial and research groups.
69 On 29 November the draft Asset Strategic Plan posed, as an option, a new building behind, or in conjunction with, E-block. On 2 December a value management study was held.
70 On 20 December Area Health demanded payment of the sum of $4,500,000 under cl 3.1(g) HOA within 28 days failing which it claimed to be entitled to terminate the HOA. The amount was paid on 2 February 1995.
1995 (pars 71 - 83)
72 In March the Asset Strategic Plan was completed and delivered to Area Health. Its purpose was stated to be “… to strategically match asset capacity to asset requirements at RPAH and recommend the most cost effective and economically viable option to satisfy service delivery demands at RPAH”. It took into account future traffic and parking requirements with or without MPH. It envisaged a smaller hospital than under Campus 2010, and the location of a new clinical services block to the east which was integrally linked to E-block and Gloucester House. It recorded the understanding that the private hospital development, “… when and if it proceeds, will be operationally independent of the public hospital”. It stated (p 182):71 On 20 February Macquarie advised Area Health that it was revising the scope of the project and the building configuration. It indicated that a new development application may be required, and that agreed timeframes would be affected. On the same day the Premier and Minister for Health announced from RPAH a plan to fund the redevelopment of RPAH at a cost of $115,000,000 over the next four years.
“It must be recognised that these are conceptual block plans only and do not represent a definitive or necessarily fully correct solution. Their purpose is to test the practicality of the options (with respect to scale and location) against the site constraints. Subsequent stages of planning involving detailed user consultation, such as a Project Definition Plan, will review and define the actual physical solution.”
73 On 12 May Area Health’s solicitors informed Macquarie’s solicitors of concern at the slow progress of documentation for the leases.
74 On 29 May the Health Legislation (Private Health Insurance Reform) Amendment Act 1995 (Cth) (the Lawrence reforms) was assented to.
75 On 3 July Area Health served on Macquarie a notice of dispute under cl 11.1(b) HOA as to the terms and conditions of the leases, and of its requirement for a meeting of principals. Although a meeting took place on 10 August, and there was subsequent correspondence between the solicitors, the dispute was not resolved.
77 In its letter of 14 September to Area Health, Macquarie proposed a meeting to consider options to resolve the dispute. It stated that the hospital envisaged by the HOA and the development application was likely not to be economically viable. It said that, if agreement could be reached, Macquarie would agree to a construction timetable with a termination provision for non-performance. It suggested a meeting might avoid the expense and delay inherent in any dispute resolution process.76 On a day in September Macquarie served on Area Health a notice of dispute under cl 11.1 HOA as to whether Area Health was in breach of the HOA and as to other issues, including whether the size and staging of the complex was viable “… having regard to the major changes in or application of policy by New South Wales and Commonwealth of Australia governments relating to the health sector”.
In a table of suggested options it was put that a factor against building the hospital as approved was that it “… may not be economically viable having regard to the major change in New South Wales and Commonwealth of Australia policy relating to the health sector which has had a serious adverse affect on private hospitals”.
It suggested that a modified hospital would be economically viable “… having regard to current government health sector controls and requirements”.
78 At the meeting on 27 September between the parties Dr Wenkart advised that a 400 bed hospital was not viable, and proposed a 120 bed hospital for $50,000,000.
79 In his letter of 26 October to Area Health, Dr Wenkart advised that he was currently engaging new consultants to prepare “a credible, alternative proposal” which would have demonstrable financial support. He stated Macquarie’s commitment to develop the proposal in the shortest possible time. He recognised that Area Health would make its own decision on whether, and to what extent, it would consider any proposal submitted. He stated an intention to demonstrate, “… through the quality of the proposal and the nature of financial support available, that the proposed development will occur within a specific and acceptable timetable”.
80 On 17 November Area Health received advice from Mr J D Heydon QC (as he then was) that, under cl 3.1(r) HOA, it was not permitted to approve another private hospital before the hospital admission date occurred.
81 In its letter of 21 November to Macquarie, Area Health recorded the failure to provide by 27 October the concept for a smaller hospital and a proposal for funding and building it. It asserted entitlement to insist on compliance with the HOA to build in accordance with the development application which Macquarie had declared to be acceptable. It requested Macquarie to confirm that it would proceed under the approval.
83 On 22 December Macquarie requested Area Health’s acceptance of a revised proposal, the purpose of which was to allow a commercially viable and bankable development to occur. Development would be in stages for a 200 bed hospital, with an initial stage of 109 beds. The proposal stated that acceptance of the strategy would enable Macquarie to proceed with further design development which would achieve the support of financiers and lead to lodgement of an amended development application as soon as practicable.82 On 21 November the parties attended a preliminary conference before the mediator, Mr T Morling QC.
In his covering letter, Dr Wenkart advised that the financial feasibility study necessary for discussion with financiers had not been completed. Various steps for the implementation of the proposal were suggested, including finalisation of a feasibility study, and providing Area Health with indicative letters of financial support from financiers.
1996 (pars 84 - 123)
84 In its letter of 24 January Area Health advised Macquarie that it did not accept the revised proposal, and pressed it to proceed to build a 400 bed hospital and 1200 car park spaces as approved. It pointed out that if Macquarie was financially unable to build the hospital it would be in breach of its agreement.
85 Between 14 and 20 February there was correspondence in which the parties put, and responded to, proposals to settle the dispute. Relevantly, Area Health stated agreement to a 200 bed hospital subject to terms including prompt signing of the leases and related documents, and compliance with a timetable for attending to specified matters. Area Health’s proposal was rejected by Macquarie, and Area Health rejected Macquarie’s counter proposal, and the dispute was left for mediation.
86 On 29 March Area Health referred the dispute to arbitration under cl 11.2 HOA for the purpose of settling the terms of the leases, the construction deed, and related agreements. Miss Helen Wright was later appointed arbitrator.
87 On 5 June Area Health’s solicitors advised that, under cl 3.1(r) HOA, it may not support the development of a private hospital at Concord. On the same day Fletcher Construction Australia Ltd (Fletcher), Macquarie’s project consultant, submitted to council documents which described the proposed revised development. The proposal was similar to that put to Area Health for acceptance on 22 December 1995. It said that Missenden Road cut the RPAH site in half.
88 On 26 June Macquarie’s solicitors sent Area Health’s solicitors a statement of issues for arbitration, together with detailed comments on the leases and related agreements. Issues included Macquarie’s entitlement under the HOA to build a 200 bed hospital, and to postpone or delay payments by reason of changes in government policies (including the Lawrence reforms) which adversely affected the economic viability of the project, and whether Area Health was in breach of cl 3.1(r) HOA by giving support to Strathfield Private Hospital.
90 In its letter of 29 July to Fletcher and Macquarie, Dresdner Australia Ltd (Dresdner) said:89 On 21 June the Minister for Health publicly announced a $272,000,000 capital redevelopment programme for Area Health, which included finance for a major redevelopment of RPAH. Area Health distributed a press release containing details of the announcement.
“Dresdner is certainly interested in providing the finance for the construction phase. We are also interested in examining the possibility of providing term debt for the operational phase. The forecast cashflows, if achievable, appear sufficient to support the indicative debt level and construction costs based on our initial cashflow model. The health policy environment and the market for the services of the new hospital are obviously key areas which Dresdner needs to explore in further detail to consider financing the operational phase in addition to the construction finance.
Once you have had an opportunity to review the attached it would be useful to set up a further meeting.”
It enclosed a list of matters about which information relevant to the ability to finance the project was sought. These included lease terms and conditions (e.g. Area Health’s power to prevent another private hospital development); the necessity for a demand analysis of trends in the catchment areas of RPAH; due diligence information on the earlier proposal and responses of any bank’s approach; background to the operations of MHC; details of Government plans for RPAH and evidence of the continuing importance of RPAH as a major public hospital in the catchment area. There was no evidence of a response from Macquarie.
91 On 15 August Mr Puplick advised Dr Horvath that Prof. Young, Deane of the Faculty of Medicine had informed him of the possibility of the University’s interest in a private hospital venture on an adjoining site.
92 On 16 August Mr Heydon QC was instructed to advise whether Area Health could approve a private hospital in the area under its control in the period between the signing of the HOA and the date of the first hospital admission. On 19 September he advised that the period commenced on the date of the first admission to the new hospital and ended five years later.
93 On 20 August Dr Wenkart wrote to Area Health offering to settle the dispute to avoid costs and delays associated with arbitration. The offer included prompt completion of the lease documents, a hospital of not less than 200 beds, the commercial funding of the car park, and a timetable for completion of the hospital and car park. On 23 August Area Health rejected the offer on grounds that it was inconsistent with the HOA and, particularly, that a commercially funded car park was unacceptable. It stated it would continue with the arbitration.
94 On 27 August Area Health’s solicitors wrote to the arbitrator and Macquarie’s solicitors confirming its wish to proceed with the arbitration on the date fixed, namely 16 September not 19 November, as requested by Macquarie. It referred to delays attributed to Macquarie. Subsequently the date for commencement was fixed for 2 December.
95 On 28 August there was a meeting of Macquarie’s board including Dr Wenkart, Mr Block and Mr Morrison, which referred to the NSW Government’s commitment of $275,000,000 for the redevelopment of RPAH.
97 In its feasibility study of 12 September, Macquarie included financial projections for MPH on the assumption it would open in 1998. The hospital was to have 240 beds, to open initially with 108 in-patient beds. Initial capital cost for construction and fit out of the core private hospital was estimated to be $50,000,000. A car park for 1200 car spaces was to be separately financed.96 On 4 September there was a meeting between Mr Puplick and Mr Block. On 5 September Mr Block sent Mr Puplick a list of 10 main issues for resolution. It envisaged providing Area Health with drawings of the proposed hospital, and a revised timetable. It stated that detailed instructions had been given to Macquarie’s solicitors for finalisation of the lease documents.
It included a review of developments since 1989 which said:The study included a summary of Macquarie’s rights and obligations under the HOA. It noted that Macquarie was entitled to “… assistance from CSAHS to prevent further private hospital development within the then boundaries of CSAHS for the period of five years after the commencement of Prince Alfred Private Hospital”.
“From early 1993, Macquarie sought investors/financiers who would commit funds to the project. Significant interest was aroused in the project from a number of Asia-based overseas and local potential investors. However, the original size of the project of over $150 million, in an industry subject to government intervention and with limited local major corporate investment at that time, proved to be a significant stumbling block.
From late 1994, financial advisers recommended downsizing the project to match demand and investor expectations. A series of revised concepts were tested and eventually, in late 1995 a project with a construction and fit out cost of approximately $50 million was specified and conceptual plans prepared. That revised project is the subject of this feasibility study.”
With reference to the revised proposal, it said that the hospital building and commissioning cost limit imposed by Macquarie of about $50,000,000 was based on its own capacity to undertake the project and took into account the size and cost of recent private hospital developments.
Section 5 concerned significant developments in the private hospital sector, including:
“… increased power being exercised by health insurance funds, due to legislative changes to health insurance introduced by Dr Carmen Lawrence. This ultimately will lead to health insurance funds having preferred provider arrangements with those hospitals which are attractive to their members.”
98 On 19 September Macquarie served on Area Health points of further claim in the arbitration in which it claimed various forms of declaratory relief, including as to its entitlement to delay all works by reason of major changes in government policies relating to the health sector and/or threatening the viability of the complex.
99 On 23 September there was a meeting between the parties, including Mr Puplick and Mr Block. Mr Puplick accepted that a 400 bed hospital was not viable, and did not object to a 200 bed hospital. He expressed concern about delay for obtaining approval. Agreement was reached on some issues, and further negotiation about others was proposed.
100 By letter of 25 September Prof. Young informed Mr Puplick that as the University was considering developing a private hospital on its own land he considered he would have a conflict of interest and asked that he be excused on occasions when the board discussed the matter.
101 By letter of 27 September (apparently received 8 October) the Vice-Chancellor of the University informed Mr Puplick of a proposal to develop a private hospital on University land, and invited Area Health’s comments.
103 On 3 October Mr Greg Anderson of Coopers & Lybrand sent Macquarie the final report of its review of Macquarie’s feasibility study of 12 September.102 During September, October and November numerous meetings took place between the parties which involved their senior representatives, including Mr Puplick and Mr Block. The principal 10 issues under negotiation included the size and location of the car park, the details of a timetable which envisaged completion of building designs and the lodgement of development and building applications, and dates for commencement and completion. The records show that the discussions dealt in detail with disputed items. The common aim was to resolve outstanding issues before resumption of the arbitration.
· NSW Health has recently announced $279 million injection for the redevelopment of health facilities for CSAHS. A significant proportion of this will be used to rebuild and modernise the facilities and streamline patient services at RPAH. This indicates Government’s [sic] ongoing commitment to maintain RPAH as a major public teaching hospital in the catchment area.
Section 2 of the report was concerned with market demand. It included a summary of information obtained from interviewing Dr Horvath and the general manager of RPH which, relevantly, said:
“… They were concerned about the ability of MHC to actually move the project forward given the failure of MHC over a considerable period to build the facility. They made the following points which are relevant under the terms of reference of this review. These include:
· CSAHS is anxious to have a collocated facility as soon as possible as further delays may impact on its ability to attract top quality specialists to practice at RPAH.· It is advised that CSAHS has no statutory power to block another private hospital development within its primary catchment area. However, CSAHS is committed under the Heads of Agreement with MHC not to recommend or support development of other private hospital [sic] in the areas under the control of CSAHS within a period of 5 years from the date of first admission. Furthermore, CSAHS would have to question the commercial sense of supporting any other competitive private facility when CSAHS receives a large income linked to the gross revenue of RPAH.”
…
Section 4 contained the principal findings and concluded:
“In conducting our review negative relationship issues between MHC and the key specialists and senior management of Central Area Health Service were made to us with respect to the long delay in MHC providing the collocated private hospital. It is important to note that these stakeholders will have a significant influence in assisting MHC gain the projected activity levels to maximise the returns from the private hospital. In recognition of this, MHC management are endeavouring to improve relationships with negotiations currently taking place. In our opinion the financial projections can only be achieved by MHC if relationships with key stakeholders can be resolved. It is not possible to quantify the implications of these issues.
In our opinion the financial projections are properly prepared on the basis of assumptions which are reasonable under existing industry conditions. Even if the events anticipated under the assumptions used in the financial forecasts occur, actual results may be different from the projections due to the matters referred to in the two paragraphs above. Accordingly, we are unable to express an opinion as to whether the forecasts will be achieved by MHC.”
104 On 10 October Area Health was advised by its solicitors that it was not required to inform Macquarie of the approach by the University, or of the existence of a proposed development, or of its intentions or actions.
105 On 14 October Mr Puplick requested the Vice-Chancellor to provide details of the University’s proposal to enable response and discussion.
106 In his letter of 22 October to Mr Puplick, Mr Block expressed his and Dr Wenkart’s satisfaction at the progress of negotiations. He recorded that, subject to minor adjustments, the remaining issue was the car park. He noted the readiness of Area Health to facilitate the processing of new development and building applications for a 200 bed hospital. The letter envisaged a term of the head lease which required Area Health to provide pedestrian and vehicular access to the RPAH campus. It envisaged consultation with Area Health for preparation of the development application, and for a timetable which required the private hospital to open by 1 December 1999. Area Health’s preferred location of the car park behind KGV was recognised. In his letter of 24 October to Area Health, Mr Block emphasised Macquarie’s commitment to finalising the documentation urgently.
108 On 8 November, at a meeting attended by Mr Puplick, Mr Block, Dr Horvath and Mr Klinger, Macquarie’s solicitor, outstanding issues were discussed. Mr Puplick advised of the existence of the University proposal. After the meeting Mr Puplick sent a letter to Mr Block which included the following:107 At its meeting on 6 November, Dr Horvath informed Area Health’s board that under the “Resource Transition Programme” the redevelopment of RPAH would include construction of a new clinical block behind E-block, and renovation of other major buildings.
109 On 12 November Mr Block wrote to Mr Puplick noting that all significant issues except the car park were agreed. He reiterated that Macquarie had the financial capacity and support from financiers to implement the project immediately, and the necessary project team in place to achieve this objective. No reference was made to the University proposal. The letter included the following:
“Furthermore, the Area Health Service has in place a capital works programme which includes works for Royal Prince Alfred Hospital, including the resolution of all outstanding car parking problems on this site. I believe that it is the Area’s prerogative to make its own decisions on procuring and operating solutions to its car parking requirements including any revenue which might flow from such a solution.
Again, I must reinforce the Area Health Service’s position, which was adverted to on each occasion that we met to negotiate, being that the arbitration process would proceed despite the negotiations and be stopped only if, and when, the lease documents had been agreed. It would be quite wrong of you to try to use these negotiations as a pretext for interrupting and delaying the arbitration proceedings.”
“Macquarie also recognises that CSAHS is currently undertaking a major capital works planning process. Macquarie is willing to review with CSAHS how the Complex and Car Park can best be integrated into the revised site planning for Royal Prince Alfred Hospital as required in the Heads of Agreement.”
111 Following a meeting on 18 November attended by representatives of the parties, including Mr Puplick, Dr Horvath, Mr Wallace, Dr Wenkart, Mr Block and Mr Klinger, a draft memorandum of understanding of agreement on the 10 issues to be incorporated in the documents was sent by Area Health to Macquarie. With respect to New Hospital Road, it noted that the parties accepted that it was difficult to agree to a position on the matter without architectural plans which would identify egress and access points. It also said:110 On 14 November a preliminary agreement between the University and Mayne Nickless Ltd, trading as Health Care of Australia (HCoA) for a feasibility study for the proposed SUPH was signed. It recorded that after completion of the study each party would review it, and decide whether it wished to proceed with the proposal. It acknowledged that the University’s approval to proceed must be given by the Senate of the University.
“The parties agreed that CSAHS has an independent need for a multi storey car park on the Royal Prince Alfred Hospital campus which is to be operational before work commences on the public hospital redevelopment.”
Correspondence of 19, 21 and 22 November contained suggestions for some changes.
113 In her letter of 27 November to Dr Wenkart, Dr Horvath said:112 On 20 November and 26 November the parties attended directions hearings before the arbitrator. On each occasion it was confirmed that the hearing was to commence on 2 December unless the dispute was resolved.
“Stuart Dixon Smith is making the final adjustments to the documents to bring them into line with our recent discussions, and minuted memoranda, including my discussion with Ray Block yesterday morning (which was discussed with you subsequently) concerning a clause to protect the urgent need for development of multi storey car parking arising independently from the redevelopment of the RPA public hospital site. (See s.10 of the minuted memorandum of the meeting of 18 November 1996.)
Provided the Area [sic] is in possession of signed copies of the documents which Stuart Dixon Smith is finalising, before close of business on Thursday, 28 November 1996, it will be possible to call a special meeting of the Board for Saturday, 30 November 1996 to execute documents on behalf of Central Sydney, before Monday when the arbitration is due to proceed.
We will of course be doing this on the basis that the documents will cover all the matters that Macquarie has raised in the arbitration and otherwise, and that everything is then governed by those documents which will replace the Heads of Agreement. The arbitration will then be terminated with each party paying its own costs and half the arbitrator’s costs.
We are delighted that, after so long, it would appear that we finally have a lease agreement and that the private hospital will go ahead without any further delay.”
On the same day, Area Health’s solicitors sent the transaction documents to Dr Wenkart for consideration and execution.
115 At about 2.30am on 30 November Area Health’s solicitors delivered to Dr Wenkart a fresh set of transaction documents, which showed that changes had been made from the previous versions sent to him. Relevantly, the hospital lease included the following:114 On 29 November Macquarie gave an undertaking to Area Health to execute and deliver the transaction documents by 10.00am, 30 November.
116 At about 10.30am on 30 November copies of the transaction documents executed by Macquarie were delivered to Area Health for consideration at its board meeting. Dr Wenkart’s covering letter referred to a number of adjustments made to the hospital lease. Enclosed was a letter from Mr Block to Mr Puplick which included:
“1.1 …
…
Commencement Date means the day the Term begins as shown on the cover sheet to this lease.
…
Rent Commencement Date means the date when the Works are complete to a stage where the Hospital is substantially fit for occupation and use by the Tenant and the first patient is Admitted [sic] to receive clinical in-patient or out-patient services delivered from the Hospital.
23.5 The Landlord must for a period of five years after the Rent Commencement Date …”
“… Macquarie has conceded numerous other rights under the Heads of Agreement to progress matters and negate the need for Arbitration. It is estimated it would have cost over $2 million with further delays to produce lease documents to take the place of those now tabled.
A major concession by Macquarie, not in the Heads of Agreement, is the very strict and deal breaking timetable. Macquarie has accepted this fundamental CSAHS requirement. Macquarie to show its good faith and best efforts has greatly expanded its liabilities to further concede any compensation if this was broken. This means Macquarie foregoes its $5.5 million already paid to CSAHS on default as well as determination of the lease forthwith.
The recent negotiations under your very constructive chairmanship lead Macquarie to believe it had, as noted by you at the final meeting on 18th November 1996, an agreed set of guidelines to conclude outstanding matters …
…
At the Macquarie Board meeting today, during which I reviewed the documents, I noted a one word change which took place AFTER the deadline. I consider this a major fundamental issue with NO ADVERSE affects on CSAHS but an absolutely debilitating burden on Macquarie. I refer to clause 23.5 of the Hospital Lease 12/809663 where rent has been added. This permits overt competition by CSAHS supporting another private hospital initiative. This prevents Macquarie readily concluding funding negotiations with its bankers. Clearly this is a core issue.
I refuse to sign the documents without this being corrected to the position demanded by CSAHS at its deadline. I request your support in accepting this correction for the vital reasons given. It would reflect your and my efforts to establish a genuine expression of cooperation and good faith in helping finalise all matters and put the difficult past behind.”
From cl 23.5 hospital lease the word “Rent” had been crossed out.
118 On 2 December 1996 the transaction documents were signed in the terms required by Area Health. The word “Rent” was reinstated in cl 23.5 of the hospital lease and initialled by the signatories. A side letter was provided to Macquarie in which Area Health agreed to negotiate with a third party concerning the car park, and would grant the consents under the construction deed upon submission of complete documentation.117 After the board meeting, Mr Puplick wrote to Mr Block. He advised of the board’s resolution authorising execution of the documents provided that they be signed under Macquarie’s correct seal, that the word “Rent” be reinstated in cl 23.5 of the hospital lease, and that Macquarie’s proposed cl 20.14 of the hospital lease be deleted. It stated that unless this happened by 10.00am 2 December Area Health would proceed with the arbitration, and would discontinue further discussion.
The arbitration was vacated.
119 On 6 December an article was published in ”The Sydney Morning Herald”, newspaper under the heading “Uni plan for $30m private hospital”. It reported that a feasibility study for SUPH had been approved, and also that the agreements between Macquarie and Area Health had been signed.
120 On 11 December, Mr Heydon QC advised that, inter alia, under cl 3.1(r) HOA, Macquarie had immunity from competition during the five year period commencing on the date of the first hospital admission in the sense that Area Health was debarred from approving or supporting new hospitals.
121 On 12 December an article was published in “The Sydney Morning Herald” under the heading “Health finance company may be wound up”. It reported that Richard Walter Pty Ltd, described as the main finance company within the Macquarie group, had placed itself under external administration following a winding up application by the Deputy Commissioner of Taxation. It also reported on Macquarie’s agreement with Area Health, and on the SUPH proposal.
122 In a letter of 19 December to Macquarie, Fletcher gave notice of its withdrawal from the project and the financial funding structure. It stated that two major issues under consideration namely commissioning expectations from the financier, and lack of involvement in the design development on which the financial viability of the project was based, had not been resolved to its satisfaction.
123 In his letter of 20 December to Area Health’s solicitors concerning car park licensing, Dr Wenkart observed that Area Health was still resolving its master plan requirements for the car park and its relationship with MPH.
124 On 7 January a meeting was held of a joint working party of representatives of Area Health and Macquarie, including Dr Wenkart and Mr Peter Reid, general manager of RPAH. The minutes described the party as a link between RPAH and MHC “… to assist in the planning and construction process of the Private Hospital”.1997 (pars 124 - 151)
As to SUPH, Mr Reid advised that he was unaware of details, but had heard HCoA had been approaching clinicians. It was noted that Mr Brian Dale, a public relations consultant, was to prepare “… strategy for approaches to the various University bodies”.
As to design and planning Mr Ridley Smith, Macquarie’s architect, discussed the possible interfaces with both car park and RPAH, and stressed how important it was to know RPAH’s plans for the adjacent areas. Mr Reid said that the only committed planning was for a radiotherapy area in Salisbury Road. He said Mr Wallace and Mr Haldane were people to talk to.
126 On 28 January the joint working party, including Dr Wenkart and Mr Reid met again. It was agreed that MHC would give a status report to the RPAH medical board. Concern was expressed at the lack of communication about SUPH, and it was noted that Mr Dale would “… prepare strategy for approaches to the various University bodies and other legal/political/local Government actions”.125 On 24 January a meeting took place between representatives of the University, including the Vice-Chancellor and Prof. Young, and HCoA, including Dr Catchlove and Mr C Sinclair. It was noted that MHC had not met the first of 5 “drop dead” dates under the agreement with Area Health. The remaining dates were recorded. It was anticipated that the Vice-Chancellor would approve lodgement of a development application at the end of February.
Mr Reid advised MHC to contact Mr Haldane for information about “… future RPAH plans for the area behind KGV and possible interface between the two”.
128 In a letter of about 31 January to Macquarie, Area Health rejected allegations of non-cooperation, and of a failure to act in good faith. It referred to its participation in the joint working party and planning process. It included:127 In his letter of 28 January to Dr Horvath, Mr Block complained of a lack of cooperation on the part of Area Health. He referred to a media release drafted by Macquarie which outlined the terms of the agreement, the critical dates, and what the project would provide for patients and professionals. He said it was important to have a positive announcement on MPH to settle disquiet and uncertainty resulting from earlier publicity on the project. He expressed concern about the SUPH proposal and discussion about it with Area Health. He expressed the view that assistance given to a potential competitor would be detrimental to MHC and untenable.
“Regarding the situation concerning the proposed Sydney University sponsored private hospital, Central Sydney is aware of and will comply with its obligations regarding supporting competing hospitals. However, as mentioned to you a number of times, as a teaching hospital, Royal Prince Alfred Hospital has a very close relationship with Sydney University and maintains a continuing dialogue with it regarding health facilities. Central Sydney will continue that dialogue in such a way as to comply with its obligations to Macquarie. Those obligations do not prevent the steps you mention in your letter, namely ‘holding discussions’. Your letter does not identify any other steps taken by Central Sydney which would give you any cause for complaint … “
130 On 5 February another meeting of the joint working party took place attended by representatives of the parties including Dr Wenkart and Mr Reid. As to the SUPH it was noted that no further information was available from RPAH, and that a letter had been written to the University Vice-Chancellor seeking further information. Concern was expressed about the implications another private hospital would have for MHC.129 On 3 February MHC representatives, including Dr Wenkart, gave a presentation to the RPAH medical board executive committee and explained the overall concept. The committee was informed that a feasibility and costing study had been examined favourably by Coopers & Lybrand and they had “letters of comfort” from financial institutions for the financing of the project. The chairman briefed the meeting on the latest developments of MPH and SUPH. The minutes included details of the timetable for the MPH, the so-called “drop dead” dates.
131 On 25 February Macquarie lodged the development application for MPH with council for 394 beds and a five level car park for 1225 cars. Supporting documentation included a report of 19 February prepared by Pace which included the following:
Plans for the hospital and the car park, and the development application for the hospital, were tabled.
“The overall master planning for redevelopment of the Royal Prince Alfred Hospital … is now being reconsidered by the Central Sydney Area Health Service … However, our understanding from discussions with the RPA and CSAHS is that at the time of writing this report, their current intention is for redevelopment of the hospital to occur on the eastern side of Missenden Road. There is no intention at this stage of providing further development between Missenden Road and the proposed development.”
132 On 27 February the University lodged its development application for SUPH with council, following completion of HCoA’s feasibility study.
134 On 24 April Dr Horvath replied to Mr Block’s request to provide information concerning the development application to council. Her letter included details of the master planning exercise as follows:133 On 2 April Dr Catchlove outlined the SUPH proposal to Area Health’s board, with construction to begin in September 1997 and admission of first patients on 31 January 1999.
135 In their letter of 24 April to council, Macquarie’s architects provided additional information for the development application. It included:
“In essence, the current concept consolidates more of the clinical activity on the eastern campus. It is anticipated that this will free up some portions of the western campus which the Hospital is considering for central energy, car parking and other clinical and support services. Attached for your information is one of the conceptual plans which arose from the RPAH Asset Strategic Plan undertaken in 1994. You will note that this conceptual plan is significantly different from those developed in the early 1990’s as part of the Campus 2010 proposal which envisaged an expanded hospital on the western campus. The 1994 concept is consistent with the latest thinking in respect of the public hospital redevelopment but it is of course being tested by the current and more formal master planning exercise which it is understood will be completed in September 1997.
The Area Health Service has no plans for use of New Hospital Road by the patients, visitors or staff of the public hospital. The demand for this road arises from the private hospital development.
…
Other than the car park, the redevelopment of the public hospital is likely to see refurbishment of existing buildings and some new construction on the eastern campus.“
“5. To our knowledge there is no current masterplan for the hospital precinct. We would suggest that this question be addressed to Central Sydney Area Health Services for further information on this matter.
There is [sic] no plans for a ‘New Hospital Road’ as shown on the previous DA approval. The road as shown on the current DA documents is a private road to provide access to the proposed carpark.
6. Two separate development applications have been lodged for the private hospital and carpark as each facility is located on separate lots and are separate lease agreements with Central Sydney Health Services.
The construction of the private hospital and carpark form part of the contractual agreement between Central Sydney Areal Health Services and Macquarie International Health Clinic Pty Limited which requires both sites to be developed at the same time with a preference for early completion of the carpark.
…
8. The DA is for the total site development and there is no additional development proposal.”
The information given to Mr Block in Dr Horvath’s letter of 24 April was conveyed to council by Macquarie’s architects in their letter of 13 May.
136 On 15 May a background paper on the SUPH proposal from the Faculty of Medicine was provided to the University’s planning committee. It said that SUPH had the enthusiastic support of Dr Horvath.
137 On 21 May Mr Haldane reported to Area Health’s board on the resource transition programme. He recommended that negotiations continue with the University about the redevelopment of RPAH and the SUPH proposal, and for opportunities to co-locate and develop common facilities.
138 At the meeting of the University planning committee on 23 May, Dr Horvath described the redevelopment programme for RPAH. She referred to the benefits of co-location with SUPH, provided there was a direct physical link.
626 Macquarie submitted that Area Health’s denial was an intimation that the nomination of an alternative use would have been useless and in the circumstances it was not required to take the matter further. Reliance was placed on the principle in Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 stated by Brennan J (p 421), that “… an intimation of non-performance of an essential term of a contract amounts to repudiation and dispenses a party who acts upon it from performance of his dependent obligation though he does not rescind the contract”.
627 In my opinion, the principle has no application in the circumstances of this case, which is not concerned with the effect of an intimation of non-performance on mutually dependant obligations under a contract. Clause 8.7(b) does not provide for mutually dependent obligations. Assuming the clause was validly invoked, Macquarie was entitled to proceed to exercise the right if it chose to do so, irrespective of an intimation of doubt by Area Health that it was not. In my opinion, it is highly improbable that Macquarie would have been deterred by a whiff of grapeshot had it genuinely intended to obtain a change of use. Instead, Macquarie appealed to the Land and Environment Court against the cease use order, and applied to council for an interim certificate for the operation of the car park. Its inaction under the clause supports the finding, which I make, that it abandoned its right to change the permitted use of the premises, assuming fulfilment of the necessary conditions.
628 In any event, had cl 8.7(b) been properly invoked it did not operate of itself to relieve Macquarie of its obligation to substantially commence the hospital by 30 June 1999 as claimed in par 24 of the statement of claim.
629 For these reasons I hold that the Lawrence reforms which came into effect on 1 July 1996 were not changes in legislation to which cl 8.7(b) applies. Alternatively, I hold that Macquarie abandoned its rights, if any, under the clause. Accordingly, Macquarie is not entitled to the declaration which it claimed.
630 The parties put before the Court a large body of documentary and oral evidence on the question whether the opinion that the Lawrence reforms caused Macquarie’s business to cease to be economically viable was reasonable. Area Health vigorously disputed that Macquarie’s opinion was genuinely held, and that there were reasonable grounds to support it. Area Health’s challenge raised further questions whether, and to what extent, the changes in the industry brought about by the Lawrence reforms caused the profitability of private hospitals to decline.
631 For Macquarie, evidence was given by Dr Wenkart, Mr Morrison, Mr Anderson, and experts, Mr Graham Wright, Mr Robert Glynn and Mr Brent Walker. Area Health contested their evidence principally through the experts Mr Keith Cadell and Mr Colin Sinclair. The witnesses raised accounting and factual questions of considerable complexity. The resolution of the conflict with reference to the evidence and the submissions would necessarily be a long and difficult task. However, as I have determined on other grounds that Macquarie has failed on the change of use issue it would serve no purpose to decide these questions, the answers to which would not affect the outcome. Therefore I find it unnecessary to take this aspect of the case any further.
632 In submissions (T p 5188) Macquarie accepted that if it failed on the change of use issue there was no basis for relief against forfeiture under the hospital lease.
Relief against forfeiture
633 Macquarie claimed relief against forfeiture under s 129(2) of the Act, or under the general law.
634 Macquarie accepted (T p 5188) that if I held, as I have, that it failed on the issues of utmost good faith and change of use, there was no ground for relief against forfeiture under the hospital lease. Accordingly, the only issue is whether Macquarie has established its claim for relief under the car park lease.
636 Relevantly, s 129(2) of the Act provides:635 I have held that, with the exception of the default alleged under cl 2.2 car park lease, the events of default occurred and were not shown to be the product of unconscionable conduct or of bad faith by Area Health under the 96 agreements. I also held that the agreements, including the hospital and car park leases, were lawfully terminated, and Area Health was entitled to re-enter the hospital and car park sites.
637 The principles whereby a court of equity might grant relief against the exercise of a right of re-entry under a lease were stated in Shiloh Spinners Ltd v Harding [1973] AC 691 by Lord Wilberforce. His Lordship said (p 723) that, apart from the special heads of fraud, accident, mistake or surprise, there is no general power in courts exercising equitable jurisdiction to relieve against men’s bargains. His Lordship continued (pp 723-724):
“Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit.”
“… we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word “appropriate” involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.”
639 Lord Simon of Glaisdale held the jurisdiction to release against forfeiture was unlimited and unfettered, and the exercise of discretion usually required consideration of the following factors (p 727):638 The issue before his Lordship raised the question whether the party seeking to exercise the power of re-entry should be allowed to do so “… if the essentials of the bargain could be secured and if it was fair and just to prevent him from doing so” (p 725).
“Prominent but not exclusive among such considerations is the desirability that contractual promises should be observed and contractual rights respected, and even more the undesirability of the law appearing to condone flagrant and contemptuous disregard of obligations. Other such considerations are how far it is reasonable to require a party who is prima facie entitled to invoke a forfeiture or penalty clause to accept alternative relief (eg money payment or re-instatement of premises) and how far vindication of contractual rights would be grossly excessive and harsh having regard to the damage done to the promisee and the moral culpability of the promisor.”
640 In Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315, par 37, the High Court of Australia held that the conclusion of Mason CJ in Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489, pp327-328: “… that the court will not readily relieve against loss of a contract for sale validly rescinded by the vendor for breach of an essential condition; and, in particular, equity was not authorised ‘to reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side's situation more favourable …’” should be accepted as an accurate statement of the law.
642 Kirby J (par 86) pointed out that “unconscionability” in this context was not synonymous with a generalised sense of fairness as between the parties or with undefined notions of justice. His Honour stated (par 106) the applicable principles which include:641 With reference to Shiloh , the High Court (pars 58, 60) held that where accident and mistake are not involved, it will be necessary to point to the conduct of the (lessor) as having in some significant respect caused or contributed to the breach, i.e. it was necessary to show that it was against conscience for the (lessor) to set up the termination of the contract. The court also doubted (par 62) whether the reaping of the benefits of the improvements as a consequence of termination of itself would be sufficient to deny insistence by the (lessor) upon rescission. The Court said (par 67) that the failure of the (lessee) to comply with the contracts exposed them to the exercise by the (lessor) of its right to terminate the contract, and held that equity would not intervene to prevent the effective exercise of that right.
2. … The mere fact that the agreement between the parties makes time essential does not exclude equity's jurisdiction to afford relief. However, such jurisdiction is reserved to cases in which ‘exceptional circumstances’ are shown. In judging whether the circumstances are ‘exceptional’, regard must be had to the entire relationship between the parties, the concern of equity being with substance, not form. The entire circumstances must be judged as exceptional. It is not enough to prove exceptional unconscionability on the part of the party insisting on its legal rights.“1. The basic principle is that, subject to statute, a party of full capacity is bound by legal obligations assumed in a valid agreement with another. Equity, it is said, mends no man's bargain This rule is founded not only upon ancient authority of the common law that is normally respected by equity. Legal policy reinforces the rule.
3. Whatever may be the precise content of the ‘equitable interest’ of a purchaser under a contract for the sale of land, it is now accepted that, in a proper case, it is sufficient to sustain equitable jurisdiction to relieve that party against forfeiture of such an interest for time default, even in respect of a time provision agreed to be essential. The equitable interest has developed to relieve from forfeiture a party with a substantial stake in the property in consequence of an exercise of legal rights that is shown to be the result of fraud, mistake, accident or surprise or otherwise unconscionable in all the circumstances.
4. In deciding whether it would be unconscientious conduct for a party to take advantage of the forfeiture consequent on a breach of an essential time stipulation leading to a termination of the contract, various factual considerations, typical of such cases, have often been taken into account. The five mentioned in Legione are not exhaustive. They are merely cited as ‘[t]he more important’ of those that normally have to be considered. Other factual considerations that may be taken into account in judging the existence or absence of unconscionable conduct for this purpose include (a) the character of the contract in which the time stipulation appears (ie whether it is of a commercial, domestic or personal kind); (b) the relevant background facts explaining any special significance of the stipulation as to time; (c) whether the parties have access to appropriate independent legal advice; and (d) any degree to which the party in default may be regarded as disadvantaged, vulnerable or in need of equity's protection from the insistence on its rights of a party in a superior economic or other position. Generally speaking, equity is more solicitous for the plight of the vulnerable. In this regard a parallel development in the law of torts in recent years mimics the traditional concern of equity.
…
6. In deciding whether relief against forfeiture (and associated remedies) should be granted in the particular case, due consideration should be given, in evaluating the exceptional character of the circumstances, to the disadvantages suffered by the contesting party which, earlier and during any ensuing litigation, is typically (as in this case) kept out of the exercise of its legal rights in its property. In some cases, the exceptional circumstances and the assessment of the requirements of good conscience will be seen to warrant the claim for relief and resulting uncertainties. But the deprivation of rights and the delays and costs incurred reinforce the obligation to demonstrate that the circumstances are exceptional and that unconscionable conduct has been proved.”643 The principles explained in Shiloh and Tanwar should be taken to apply to the Court’s task under s 129(2) of the Act. These principles establish that in order to enliven the Court’s equitable jurisdiction to grant relief against forfeiture it must be demonstrated that by the grant of relief the result which is the primary object of the agreement can be effectively attained. Further, where the agreement between the parties makes time essential, the jurisdiction applies only to cases in which the circumstances are shown to be exceptional in the sense referred to by Kirby J in Tanwar (par 106), or appropriate and limited, as explained by Lord Wilberforce in Shiloh (pp 723-724). Thus, in this case, the questions are whether the essentials of the bargain could be secured if Area Health was not permitted to exercise its right to terminate the car park lease and re-enter, and it was fair and just in the circumstances to prevent it from doing so.
644 Before turning to Macquarie’s submissions, relevant aspects of the 96 agreements should be mentioned.
646 Each of the 96 agreements were inextricably interrelated by the inclusion in one agreement of provisions which corresponded with those in the other agreements. For example, the car park lease included:645 Macquarie’s interest as tenant of the car park land derived from the combined effect of the car park lease and the car park sub-lease. Under the car park lease, Area Health, as landlord, leased the land to Area Health and Macquarie as tenants in common in equal shares for a term of 103 years commencing 1 December 1996. Under the car park sub-lease Area Health sub-let its interest as tenant in common under the car park lease to Macquarie for a term of 28 years commencing 1 December 1996.
“1.6 This lease contains obligations of the Managing Tenant which relate to both the land leased under this lease (on which the Car Park is to be erected) and to lot 12 in Deposited Plan 809663 (on which a Hospital is to erected). The inclusion of obligations in this lease which be to lot 12 is deliberate, because it is intended that a breach of those obligations included in this lease which relate to lot 12 will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease.
Therefore, the Managing Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Managing Tenant and the Guarantor even though the Landlord, the Managing Tenant and the Guarantor have entered into a separate lease of lot 12 in deposited plan 809663 and notwithstanding that:
(a) the Hospital is not to be erected on the Land and is therefore not leased under this lease;
(b) the assignment, subletting, mortgaging or other dealing with this lease separately to the Hospital Lease or vice a versa [sic]; or
(c) the termination of this lease or the Hospital Lease.
1.7 This lease contains obligations of the Managing Tenant which relate to both the land leased under this lease (on which the Car Park is to be erected) and to the Construction Deed (governing construction of the Hospital and Car Park). The inclusion of obligations in this lease which relate to the Construction Deed is deliberate, because it is intended that a breach of those obligations included in this lease which relate to the Construction Deed will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease.
Therefore, the Managing Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Managing Tenant and the Guarantor even though the Landlord, the Managing Tenant and the Guarantor have entered into a separate Construction Deed.”
These provisions correspond with cl 1.3 and cl 1.4 construction deed, cl 1.6 and cl 1.7 hospital lease and cl 1.2 and cl 3.2 car park sub-lease.
647 Under cl 8.1(d) car park lease, cl 9.1(d) hospital lease and cl 3.6 car park sub-lease Macquarie was required to comply with the construction deed. Corresponding provisions for termination included cl 7.7 and cl 7.5 construction deed, cl 16.2 and cl 16.4 car park lease and cl 17.2 and cl 17.4 hospital lease.
649 Analysis of the 96 agreements discloses that the bargain recorded in them had as its primary object the construction of a car park and of a private hospital according to the timetable under the construction deed. The underlying contractual intention behind the leases was to provide the land upon which the car park and hospital were to be constructed and, eventually, operated. The object of the provisions by which the agreements were interrelated was to ensure that both developments were completed within the time specified in the timetable, compliance with which was essential. The origin of the overall arrangement is recorded in Recital A construction deed as follows:648 Under cl 10.1 car park lease Macquarie was required to erect the car park and ancillary services in accordance with the construction deed. Under cl 11.1 hospital lease Macquarie was required to erect the hospital and ancillary services in accordance with the construction deed.
“The Landlord and the Tenant entered into a Heads of Agreement on 15 September 1989 under which it was agreed that the Tenant would develop the Hospital and a Car Park and for that purpose the Landlord would grant the Tenant a lease of the Land.”
651 In support of its claim for relief, Macquarie’s submissions were directed to the questions identified in Legione as relevant for determination. The relevant passage stated (p 449):650 It will be remembered that council’s approval conditions for the development application for the car park and the private hospital were predicated on the association of one development with the other. Substantial commencement of the private hospital was required before operation of the car park would be permitted, and fully operational status of the car park was required before operation of the private hospital would be permitted (condition 2 car park approval; condition 2 hospital approval).
“In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser's breach? (2) Was the purchaser's breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser's breach? (4) What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?”
652 Macquarie submitted that Area Health contributed to its breaches in the way adumbrated in its case on utmost good faith and in denial of the events of default. Macquarie has failed on these issues. As no conduct of Area Health caused or contributed to the breaches it cannot be said that it was against conscience for Area Health to terminate the car park lease and the other agreements ( Tanwar, pars 58, 60). As the question does not arise the submission is rejected.
653 Macquarie next submitted that the breaches were trivial or slight, inadvertent and not wilful. The nature and circumstances in which the defaults occurred have been considered earlier. Non-compliance with the car park conditions resulted in the breach of cl 2.1 construction deed which was an essential term of the car park lease. The relevant conduct of Macquarie was its failure to complete construction of the car park in accordance with the timetable. That is the breach which the Court is required to consider. In my opinion it cannot be categorised as trivial or slight. Furthermore, the documentary evidence of Macquarie’s progress in building the car park and attending to the ancillary services required by council’s approval conditions between about mid-1997 until the end of 1999, in particular the correspondence with Area Health and council concerning the conditions, demonstrated that non-compliance was not inadvertent. It is unnecessary to elaborate further. As this question does not arise the submission is rejected.
654 As I understood Macquarie’s case on this issue, its principal submission was that unless relief was ordered it would be unconscionable for Area Health to gain the windfall benefit of the car park, an improvement which had cost Macquarie about $12 million to build. In this context it was put that a significant factor in support of the claim was that, following re-entry, Area Health obtained council’s permission to occupy and use the car park for 600 spaces after taking over the proceedings in the Land and Environment Court, and obtaining a variation of conditions for the traffic lights and Link Road, and deletion of condition 2 which required substantial commencement of the hospital. It was argued that for the purpose of granting relief based on these considerations the Court should order the severance of the car park lease from the hospital lease.
655 In support of an order for severance, Macquarie relied upon the provisions of the car park lease which allowed for transfer of the lease, and required Area Health to approve the transfer (cl 11.2 and cl 11.3), and for the sub-letting of the land (cl 11.7). It was put that these provisions demonstrated that severance of the car park lease and its operation from the hospital lease and its operation was contemplated by the parties, and Area Health was unable to refuse it happening. Reference was made to the correspondence between October 1997 and January 1998 relating to Macquarie’s proposal to transfer its interest in the car park lease to Mulpha (see pars 273-283; 341-343 above) as indicative of the readiness of Area Health to agree to the separation of the car park lease obligations from the hospital lease obligations. It was put that, in such circumstances, it was unconscionable for Area Health to oppose severance and thereby deprive Macquarie of the car park and revenue from its future operation.
656 Consideration of these submissions requires account to be taken of relevant circumstances of which the following is a reminder.
657 By about November 1998 MPH was no longer economically viable. Later attempts to raise funding were unsuccessful. By letter of 25 October 1999 Macquarie’s solicitors informed Area Health’s solicitors that the private hospital was not economically viable, and proposed negotiations for change of use under cl 8.7(b) hospital lease. The change of use proposal was not pursued.
658 On 24 August 1999 council informed Macquarie that it could not grant an interim certificate of occupancy for the car park and prohibited its operation pending fulfilment of outstanding conditions. The default notices were given on 13 September and 15 September 1999. The car park was opened unlawfully by Macquarie on 24 September 1999. The events of default were denied in Mr Klinger’s letter of 29 September 1999, and Macquarie took no action for remediation or rectification under cl 16.6 car park lease and cl 17.6 hospital lease.
659 On 1 November 1999 Macquarie was ordered to cease use of the car park. On 21 December 1999 Macquarie sought council’s permission to operate the car park with 600 spaces, and relief from compliance with some of the approval conditions, including condition 2, in circumstances that there was no “… reasonable assurance a private hospital will be constructed on the site”. It appears that it was with regard to this changed circumstance that the Land and Environment Court ordered the conditions to be varied or deleted, thereby enabling council on 23 June 2000 to permit Area Health to use the car park for 600 spaces. In other words, the situation at this time was brought about by Macquarie’s defaults which resulted in re-entry under the leases.
660 For Macquarie to succeed it must demonstrate that the essentials of the bargain could be secured by the return of possession of the car park and permitting its operation under the car park lease. In my opinion, Macquarie fails at the threshold.
661 Relief against forfeiture of the car park lease would defeat, not attain, the primary object of the 96 agreements in that it would enable Macquarie to obtain the fruits of a commercial car park without undertaking the construction and operation of the hospital. Necessarily, this would involve relieving Macquarie from the consequence of its breaches of the construction deed and of the hospital lease. Effectively it would render worthless Area Health’s rights under the 96 agreements. This consideration is sufficient to justify rejection of the claim.
662 An additional ground for rejection of the claim arises upon recognition that, in truth, Macquarie asked the Court to direct the parties to proceed under an arrangement which is substantially different from that governed by the 96 agreements and for a different purpose. The object of the 96 agreements was to achieve completion of both the car park and the private hospital within essential time limits. The rights and obligations of the parties with respect to the construction of one building were inseverable from those with respect to the construction of the other. The agreements did not intend the completion of one development and not the other. Macquarie’s right to develop a car park was subject to its obligation to develop a private hospital, and vice versa. Contrary to Macquarie’s submission, the provisions of cl 11 car park lease do not support a different conclusion; indeed cl 11.4 reinforces it.
663 In my opinion, the grant of relief sought by Macquarie necessitates the reshaping of the contractual relationship which existed prior to termination. It is a task which a court of equity has no jurisdiction to perform ( Tanwar, pars 37, 106).
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 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).
Conclusion
666 In Baltic Shipping Company, The Mikhail Lermontov v Dillon (Mikhail Lermontov case) (1991) 22 NSWLR 1, Gleeson CJ said (p 9):665 For the above reasons, I hold that Macquarie has failed to establish that it was unconscientious conduct for Area Health to have exercised its contractual right of termination and re-entry under the car park lease. Taking into account the circumstances which founded the default notices and, six months later, the termination notices, there is no basis upon which the Court could interfere with the legal obligations undertaken by Macquarie, and relieve it from the consequence of its defaults.
“The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just.”
As these proceedings have revealed, it is a policy which Macquarie spectacularly ignored.
667 I propose to order that the claims for orders and relief sought in the fifth further amended statement of claim be dismissed.
The further conduct of the proceedings
668 The cross-claim raises numerous issues, some of which are complex. The written and oral submissions were detailed and lengthy. If it becomes necessary to decide all issues it is probable that there will be some months’ delay before judgment is delivered.
669 Having regard to the findings in these reasons, the parties should now review the issues raised under the cross-claim and defence to it. The parties should determine whether some issues may now be resolved by agreement, and whether the dispute as to others may be narrowed. This exercise should identify the real issues in the proceedings which remain, and thereby facilitate the just, quick and cheap(er) resolution of them in accordance with the statutory duty imposed by s 56(2) and s 56(3) Civil Procedure Act 2005 upon the Court and the parties.
671 I propose to stand the proceedings over for directions. The issues under the cross-claim, any issue of compensation and, ultimately, the issue of costs, are commercial in kind. Accordingly, on the next occasion the parties should be given the opportunity to address the question whether these issues should be referred for mediation. In any event the parties should be ready to file schedules which identify issues which are no longer in dispute, and those which remain in dispute. With respect to the last mentioned, the list should include a summary of the respective contentions with reference to the written submissions already provided.670 The parties should also consider whether there arises any issue of compensation for determination under cl 19.9 car park lease and/or cl 17.9 hospital lease.
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