Mangrove Mountain Quarries Pty Limited v Barlow - [2007] NSWSC 492

No judgment structure available for this case.

CITATION: Mangrove Mountain Quarries Pty Limited v Barlow [2007] NSWSC 492

HEARING DATE(S): 5, 6 and 7 March 2007

JUDGMENT DATE :
17 May 2007

JURISDICTION: Equity Division

JUDGMENT OF: Windeyer J at 1

DECISION: Defendants’ termination of licence was justified and valid; plaintiff’s summons dismissed.

CATCHWORDS: CONTRACTS – Breach – Material and non-material breaches by plaintiff – Notice of breach served on plaintiff – Plaintiff given period to remedy breaches – Incurable breaches – Material breaches not remedied – Notice of termination served on plaintiff – Whether notice of termination in good faith – Defendant acted reasonably in terminating contract despite his interest in termination

CASES CITED: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Batson v De Carvalho (1948) 48 SR(NSW) 417; Burger King v Hungry Jacks Pty Ltd [2001] NSWCA 187;
L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235;
Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234;
Waters Lane Pty Ltd v Sweeney [2006] NSWSC 222

PARTIES: Mangrove Mountain Quarries Pty Limited (Plaintiff)
Ross Lloyd Barlow (First Defendant)
Heather June Barlow (Second Defendant)

FILE NUMBER(S): SC 4885 of 2006

COUNSEL: Mr G A Sirtes (Plaintiff)
Mr S Coleman (Defendants)

SOLICITORS: Kemp Strang (Plaintiff)
CBD Law (Defendants)

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

THURSDAY 17 MAY 2007

4885/06 MANGROVE MOUNTAIN QUARRIES PTY LIMITED V ROSS LLOYD BARLOW and HEATHER JUNE BARLOW

JUDGMENT

Issue

1 Whether a notice of termination of a licence for the operation of a quarry was valid.

Facts

2 Mangrove Mountain Quarries Pty Limited (Mangrove Mountain) entered into a licence agreement dated 6 October 2005 with Mr and Mrs Barlow as licensors pursuant to which Mangrove Mountain was given a licence to “quarry and extract commodities from the Quarry Site” for a term of five years. Mangrove Mountain was formerly called Berem Quarry Pty Limited.

3 The agreement included the following provisions:

1. Definitions

…

Commodities

7. Quarrying

7.2 Subject to the Licensee’s right to terminate under clause 5.3, the Licensee must:

…

(e) not cause any contamination or environmental hazard.

8. Consideration

The Licensee shall pay to the Licensor a Licence Fee by monthly instalments in arrears on the first day of each month (and without any demands, deduction or right of set off) during the term. All such instalments shall be made at such place as the Licensor may from time to time reasonably direct

8.2 The Licensee must pay a licence fee to the Licensor being the greater of

(b) $10.00 per tonne for cut commodities (including sandstone) and $1.00 per tonne for all other commodities (including sand, dirt, gravel, shale and overburden).

(a) extracted from the land in accordance with Clause 7; and

(a) Before removing any commodities from the land, the Licensee shall procure;

(i) such commodities to be weighed on the weighbridge; and

(b) A delivery docket in triplicate (of a type agreed between the Licensor and Licensee) is to be used by the driver of each truck load of commodities removed from the Land. The dockets are to be sequentially numbered and delivery dockets in each docket book are to be used in order.

(c) There shall be recorded on each delivery docket by the recorder the specifications and relevant details of the commodities contained in each truck load and the date of removal from the Land and the name and signature of the driver. In addition, all items on the docket headings shall be completed.

(e) The Licensee shall procure the delivery of one copy of the docket to the Licensor and the delivery of one copy of the docket to the recipient of the relevant commodities. The remaining copy is to be left in the docket book.

(f) Dockets for each calendar month are to be delivered to the Licensor on the first Business Day occurring after the end of such month.

(g) The Licensee shall permit the Licensor to inspect the docket books on request.

…

9. Licensor’s access

10. Conduct

The licensee must conduct its quarrying operations:

(a) with due diligence and efficiency and in a proper and business like manner;

(b) in accordance with good, safe and proper quarrying practice and procedure used in Australia;

(c) for the purpose for which the rights under this document are granted; and

(d) between the hours of 7am and 6pm Monday to Friday and between the hours of 8am and 1pm Saturdays.

…

18. Other Land Uses

The Licensee must not use the Quarry Site for any purpose except that specified in this document.

…

20. Termination

20.1 If the Licensee is in breach of its obligations under this document the Licensor may serve a notice of breach.

20.2 The Licensee must remedy the breach within thirty (30) days of service.

20.3 If the Licensee does not remedy a breach in accordance with the requirements of the Licensor's breach notice and clause 20.2 the Licensor may, by notice of re-entry, terminate this Licence.

(a) the Licensee goes into liquidation for any purpose other than amalgamation or reconstruction; or

(b) the Licensor has a Receiver or Official Manager appointed in respect of it or its assets or otherwise becomes insolvent; or

4 On 2 August 2006 the solicitors for the defendants sent a letter to the plaintiff enclosing “notice of breach of covenant” and saying:

We enclose Notice of Breach of Covenant

It is our view that the breaches in relation to payment for commodities constitute a breach of essential term of the Licence Agreement entitling immediate termination. Notwithstanding that view, our Clients have instructed us to forward to you the enclosed Notice of Termination giving you 30 days to remedy the various breaches.

5 The notice of breach was as follows:

TO: Berem Quarry Pty Limited
Suite 2, Level 1, 198 St Johns Road
GLEBE NSW 2037

NOTICE OF BREACH OF COVENANT

Licensee pursuant to Quarrying Licence dated 6th October 2004 between Ross Lloyd Barlow and Heather June Barlow as Licensor and Berem Quarry Pty Limited as Licensee.

With reference to the abovementioned Licence Agreement and the Covenant therein contained, you have breached the following covenants:

1. Clause 7.2(e)

The Licensee must not cause any contamination or environmental hazard.

Particulars of Breach

The depositing of contaminated fill upon the site the approximate location of which is marked on Plan attached.

Remedy

Removal of contaminated fill.

2. Clause 8.2(b)

The Licensee must pay licence fee to the Licensor being the greater of $10.00 per tonne for cut commodities (including sand stone) and $1.00 for all other commodities (including sand, dirt, gravel, shale and overburden).

Particulars of Breach

(a) Provision of materials to Mark Duffy without paying the proper Licence Fee
(b) Provision of material to Avoca Landscape Supplies without paying proper Licence Fees thereon.
(c) Extracting various quantities of sand stone sawn rock from the ground and thereafter breaking the sawn rock up and paying a fee to the Licensor of $1.00 per tonne thereon instead of the required $10.00 per tonne.

Remedy

Payment of the proper Licence fee. Please note, the Licensor has requested access to various records pursuant to the Licence Agreement. Prior to such access, (which may or may not disclose additional Licence fees payable) you are invited to make any necessary further adjustments.

3. Clause 8.4(a)

Before removing any commodity from the land, the Licensee shall procure;

Particulars of Breach

Remedy

Note: The Licensor will attend and inspect those dockets in lieu of providing further copies.

4. Clause 8.4(b)

A delivery docket in triplicate (of a type agreed between the Licensor and the Licensee) is to be used by the driver of each truck load of commodities removed from the land. The dockets are to be sequentially numbered and delivery dockets in each docket book are to be used in order.

Particulars of Breach

Delivery dockets not sequentially numbered and delivery dockets in each docket book not used in order.

5. Clause 8.4(c)

It shall be recorded on each delivery docket by the recorder the specifications and relevant details of the commodities contained in each truck load and the date of removal from the land and the name and signature of the driver.

Particulars of Breach

1. Failure to attach weighbridge print out to various delivery dockets (sample copies attached).

2. Failure to include correct information concerning commodities including, inter alia, loads supplied to Mark Duffy.

Remedy

See remedy in paragraph 3 above.

6. Clause 8.4 (e)

The Licensee shall procure the delivery of one copy of the docket to the Licensor and the delivery of one copy of the docket to the recipient of the relevant commodities. The remaining copy is to be left in the docket book.

Particulars of Breach

Failure to leave copies in the docket book.

Remedy

7. Clause 8.4(f)

Dockets for each calendar month are to be delivered to the Licensor on the 1st business day occurring after the end of such month.

Particulars of Breach

Failure to deliver all dockets, sequentially numbered, to the Licensor.

Remedy

Licensee must comply with its obligations and ensure that all dockets sequentially numbered are delivered to the Licensor on the first business day occurring after the end of each month.

8. Clause 10(d)

The Licensee must conduct its quarrying operations between the hours of 7am and 6pm Monday to Friday and between the hours of 8am and 1pm Saturdays.

Particulars of Breach

Conducting operations both before and after the specified hours.

Remedy

Licensee must conduct its quarrying operations between the hours specified in Clause 10, that is, between the hours 7am and 6pm Monday to Friday and between the hours of 8am and 1pm Saturdays.

9. Clause 18

The Licensee must not use the quarry site for any purpose except that specified in the Licence Agreement.

Particulars of Breach

TAKE NOTICE the Lessor hereby gives you notice and requires you to remedy the above breaches no later than 30 days after the date of service of the notice on you.

6 On the same date, the solicitors for the defendants forwarded a list of dockets they claimed were missing. There were approximately 300 of these.

7 The plaintiff responded to the matters of breach by letter of 15 August 2006 as follows:

15 August 2006

Mr Giles Finney
CBD Law
DX 7258
GOSFORD

Dear Sir

MANGROVE MOUNTAIN QUARRIES PTY LIMITED AND BARLOW QUARRYING LICENCE AT 189 WISEMAN'S FERRY ROAD, CENTRAL MANGROVE

We refer to our letter of 9 August 2006 and the Notice of Breach of Covenant served by you. In respect of that Notice, we are instructed to respond as follows, using the same numbering:

1. Approximately one month ago, a truckload of soil, bricks and general builder's rubbish was dumped at the quarry in error as our client understood it contained "clean fill". Our client is unaware as to whether or not it contains any contaminated material but, in any event, intends removing the same no later than Friday, 18 August 2006.

(b) Our client has no records of the provision of materials to Avoca Landscape Supplies. Kindly provide full particulars including details of supplies and the date on which such supplies were made so that our client can properly investigate the alleged breach.

(c) Saw cuts are placed in the poor quality bench (being a level ledge in the quarry) and subsequently hammered into rocks, which are sold as sandstone rocks, not cut sandstone. The correct fee of $1 per tonne in respect of such rocks is being paid to your client.

(b) Our client maintains that all commodities sold to Mr Duffy have been correctly weighed and recorded on the relevant dockets.

4. Weighbridge dockets are prepared in triplicate in accordance with clause 8.4(b). Our client will ensure that, in future, delivery dockets in each docket book are used in sequential order before another docket book is used.

5. We would refer you to the response in paragraph 3 above.

6. Copies of all weighbridge dockets are kept in the weighbridge office and can be inspected by your client upon request.

7. As far as our client is aware, your client's copies of the dockets are delivered on the first business day of each month. In future, our client will ensure that all such dockets are sequentially numbered.

8. Our client maintains that quarrying operations are only carried out between the permitted hours. Despite this, our client's employees are entitled to have access to the quarry outside such hours so that, in the case of mornings, they can prepare for trucks arriving at the start time and, in the case of afternoons, they can complete any necessary paperwork. In this regard, we are instructed that your client has been restricting access to the quarry outside such hours in that they have placed a padlock on the gates to which our client's employees do not have keys and that your client is preventing our client from exercising its rights under clause 6.1.

(b) Some building materials, goods and equipment are on site. These are for the construction of the shed which our client intends using in connection with our client's quarrying operations. Our client is currently awaiting Council's approval to its application to which your client consented.

In respect of your letter of 14 August, our client intends conducting a reconciliation of all relevant dockets.

8 Paragraph 2(b) was not really correct. Paragraph 9(b) was not true. Some building materials had been stored at the site and had nothing to do with construction of the shed. Some soil had been brought to the site and sold from it.

9 On 12 September 2006 the defendants’ solicitors forwarded a notice of termination to the solicitors for the plaintiff. This gave notice of termination and of re-entry. It then said:

10 The question is whether the notice was valid. It is the breaches set out in the letter of termination upon which the defendants rely to argue the termination was valid.

11 A considerable body of affidavit evidence was read in the proceedings and there was quite long cross-examination of the plaintiff’s witnesses, Mr Lord and Mr Berkery, directors of Mangrove Mountain, Mr Buosi, Mr Stephens and Mrs Pappalardo, employees of Mangrove Mountain. Mr Barlow was also cross-examined. Mrs Barlow gave no evidence.

12 As a general statement, it can be said that the chief concern of Mr Barlow is that he is not being paid royalties on all truckloads of commodities removed from the quarry and in some few cases that he has not been paid the proper royalty. Those concerns apparently arose towards the end of the first year of operation. Mr Barlow lives on or beside the quarry site and visits it regularly, up to 20 times a day on some occasions. It was when he became concerned at the truck numbers that he began to take a closer interest in the delivery dockets. The method of payment to the defendants as licensors is as follows: the quarry manager sends, or one of the plaintiff’s directors collects, copies of delivery dockets from the quarry site. These are then taken to the plaintiff’s office in Sydney. A copy of the dockets is also given to Mr and Mrs Barlow. The agreement provides for this to be done each month, but Mr Barlow collected the copies on other occasions. On the basis of the company dockets, Mr and Mrs Barlow prepare an invoice for the royalties due for the month and forward this to Mangrove Mountain. The invoice is then checked by Mrs Pappalardo against the copies she has on the file. Discrepancies were discussed on occasions with Mrs Barlow if a copy docket was not on file or if there was a question about the appropriate royalty. After this payment is made on the invoice. After Mr Barlow became suspicious a number of events occurred. These are discussed in the following paragraphs

Contaminated Fill

13 The first matter of concern arose in June 2006 when the plaintiff brought a number of truckloads of soil to the quarry site. Mr Barlow said that this smelled bad and he considered that it was contaminated. The fill came from a building site at Waterloo which was being cleared by the plaintiff or one of its associated companies. According to Mr Lord the intention was to use it for remedial work at the quarry such as restoration of mined parts of the quarry site. While it has not been established that this soil was contaminated it did contain old bricks and building material unsuitable for restoration. The response of the plaintiff to the breach notice that only one truckload was involved was not true. The plaintiff’s directors and employees must have known of this. Complaint about the contaminated fill went with the complaint about general fill and building materials being stored at the site. The evidence is that some of these materials were sold from the quarry site. The response in paragraph 9(b) to the notice of termination does not, I find, at best tell the whole story, as some items such as pallet loads of bricks were not intended for the shed construction.

Cut commodities and other commodities

14 The next matter of concern to Mr Barlow was a claim that what he described as sawn rock was leaving the quarry, yet it was returned to him on the delivery dockets at the royalty rate of one dollar per tonne instead of the ten dollar per tonne rate for cut rock. When complaint was made about this, Mangrove Mountain accepted the error and paid the ten dollars per tonne rate. Mr Barlow, at least so far as a Mr Martin was concerned, has complained in the notice that some rock was cut, but was then broken up and sold at the lower royalty rate. That was admitted but the plaintiff explained it on the basis that it was inferior stone which could not be sold as cut material and to obtain some return, it was broken up and sold as other material on which a royalty of one dollar was charged. There may have been other occasions when customers required rock not cut stone and this low grade material was provided. The particular breach claimed in respect of material sold to Mr Duffy falls into a separate category. I find that the plaintiff’s response was reasonable: the plaintiff was not cutting the rock but selling it to Mr Duffy as uncut material.

Hours of operation

15 There is little evidence of any actual quarry operations outside the prescribed hours at the date of service of the notice of breach. In fact there is probably no evidence of quarrying operations prior to that date. There is evidence that employees of the plaintiff arrived at the quarry site before starting time so as to be ready to start the quarry operations at 7.00 am or 8.00 am on Sunday. There is evidence of one truck entering the quarry about 5.00 am on 10 August 2006. More significant is evidence of a Mr Curry commencing operations on 21 August 2006 before 7.00 am with his men; and of trucks leaving the quarry at the end of August and early September prior to 7.00 am with building material. To the extent that these events happened after notice of breach was given, it is perfectly apparent that Mangrove Mountain did not take sufficient steps to ensure that the licence conditions relating to times of operation were met.

Unauthorized uses

16 Some of the soil and rubble complained of was not removed within the 30 days. A small amount has never been removed.

The Duffy and Avoca dockets

17 Mangrove Mountain had an arrangement with Mr Duffy under which he would perform work at the quarry for it up to a work value of $20,000 and in return would take rock up to a value of $20,000. According to the evidence the dockets for this were kept on a special clip at the site office. According to the plaintiff’s bookkeeper, the relevant dockets, so far as she can tell, have all been located and the correct royalties paid to the defendants on each, although under the contra arrangement no payment was made to the plaintiff for the rock. There are six such dockets. Mr Duffy was not called; the dockets he produced showed no amounts not properly accounted for in royalty payments. However, Mr Barlow, who saw the dockets on the clip in July 2006 estimated there were more than six and Mr Stevens said there could be 20. The word “contra” written on some was not written at the weighbridge. Mr Stevens said Mr Duffy did $20,000 worth of work. He drove three 25 tonne loads of material for Mr Duffy to Lovedale for which no dockets have been produced (“Lovedale journeys”). I find as a fact that not all the rock taken by Duffy has been accounted for with royalties paid on it.

18 There was another occasion when a loaded truck crossed the weighbridge and a docket was issued; the driver then picked up some material from Mr Duffy which was not re-weighed, but the weight was estimated. This is not really the fault of Mangrove Mountain, but it was a breach. A lot of time was spent on this load and one other, the Avoca complaint, the amount at issue there being about $50. The Avoca complaint was about a loaded truck the driver of which paid Mr Lord $800 but then failed to cross the weighbridge. Mr Lord completed the docket on his estimate. He did not expect the driver to pass the weighbridge instead stopping. Mr Barlow considers the load was more than payment would indicate. The response to the breach notice in paragraph 2(b) was not true: the directors made no enquiries from their employees at the quarry about Avoca. Nevertheless, it is true that no details of the breach were given.

The main complaint - royalties

19 The true complaint of Mr Barlow is that royalties were and are not being paid for all commodities taken from the quarry and that the requirements of clause 8.4 of the licence were not being met. In particular delivery dockets were not used in sequence; some identified loads (such as that for Avoca and of Duffy) were not documented; that a number of dockets did not have the required details put on them; and that about 75 dockets have not been accounted for.

20 As I have said, in August 2006 Mr Barlow sent to the plaintiffs a list of missing dockets. There were about 300 of these. Mr Lord instructed Mrs Pappalardo to endeavour to find these and to see if the royalties had been paid on them. As a result of this search, the number of missing dockets has been reduced to 78, most being found in customers’ files. It is possible to understand why Mr Barlow was suspicious, as he said that some missing dockets ran in sequences so that loads had gone out for which no royalties were paid; however, he accepted in evidence that this argument as to sequence of dockets was not available now that most of them had been located. However, as he had not had the dockets they could not have been included in an invoice for royalties.

21 The evidence does establish that the plaintiff did not operate the weighbridge and docket system as required by the agreement, at least at its commencement. That is because first, old books belonging to the Barlows were used, not necessarily in sequence, and second, because when mistakes were made, particularly as to the identity of the truck or when an incorrect tare was entered, those operating the office would destroy the incorrect docket and prepare a new one, rather than amend it or keep it as was required by the agreement. The stated breach of failure to attach a computer weighout docket on each docket cannot be maintained, as there is no such requirement in the agreement. That was accepted.

Termination for failure to remedy breach

22 There are, of course, some breaches which cannot be cured. This is explained in L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Batson v De Carvalho (1948) 48 SR(NSW) 417; Burger King v Hungry Jacks Pty Ltd [2001] NSWCA 187; Waters Lane Pty Ltd v Sweeney [2006] NSWSC 222 and other cases as meaning that, in such cases, the obligation to “remedy” the breach becomes an obligation to put things right for the future. On that basis breaches such as destruction of dockets cannot be made good, but if it can be shown that there is no loss and if the required system is put into operation after notice is given, that is sufficient to constitute a remedy of the breach. That is the position with the weighbridge and the action taken to stop Mr Duffy cutting up on site rock which had been sold to him as uncut material. That is also the position regarding use of the site for purposes other than quarrying. The breach notice in specifying the remedy recognized this. Unless the one established event of out of hours operation on 2 September was outside the 30 day period after service, which is not proved, it appears that for the future this breach was remedied. Obviously past breaches are incapable of cure.

23 Insofar as the notice related to breaches of clause 8, the breaches of sub-clauses 8.4(b) and (e) could have been made good by provision of the missing dockets and ensuring all future dockets were made out in order. So far as the remaining 78 missing dockets are concerned that has not been done although I accept some have been destroyed.

Is failure to provide missing dockets a material breach?

24 It was put by counsel for the plaintiff that the failure to provide all dockets is not significant, as the missing dockets amount to less than three percent of the 2,600 relevant dockets and, of course, some of these are shown to have been destroyed. The originally unaccounted for dockets of which there were about 300 amounting to over 10% of the total number of dockets, is obviously significant. Had the defendants not provided that list, the simple fact is that they would not have been paid. However, they were found and agreed at a meeting with Mrs Barlow, which it seems took place within the 30 day period. I do not consider the defendants can rely on this as a separate ground for termination in light of the terms of the original letter accompanying the breach notice, but that finding only relates to those dockets which have been found not to those which have not been.

25 I consider failure to provide the 78 missing dockets, failure to provide dockets for all the Duffy contra sales and the lack of documentation for the Lovedale journeys to be material breaches. While these may seem of little significance in the total picture, that is not necessarily so. Strict compliance with record keeping is an essential part of licensing contracts where payment to the licensor is by way of royalty dependent upon loads. Experience shows that suspicion about unpaid royalties is not unusual, but should not arise if records of truck movements are properly and openly kept. There was a sound basis for the concerns of Mr Barlow. Leaving aside the good faith argument I consider these breaches were material and a justification for termination.

Requirement of good faith and reasonableness

26 Mr Barlow was cross-examined as to the amount of evidence given about the $50 Avoca Earthmoving load and the failure to give particulars of this in the notice of breach. The following then appears in the transcript at page 116:

Q. And similarly had you had a genuine concern about the incident that concerned Avoca Landscape Supplies you could have easily enough raised that in correspondence with Mangrove Mountain Quarries to ask for a reconsideration of the invoice?
A. I could have done that.

Q. Now in relation to the particulars of breach that you set forth in the notice of breach of covenant, I gather that at the time you had issued that notice of breach you'd received the docket concerning the incident that you witnessed involving Avoca Landscape?
A. Yes.

Q. And, in accordance with previous practice, this was not an invoice that you saw fit to change and send back with a different weight amount?
A. Well, I had no proof. I could not change that docket because, you know, it was just - how would I put it? I could have said, "Hang on, that truck had more than 10 tonne it on it" and they'd turn around and say, "Prove it." Which is probably the same here today. We still can't prove the weight of the truck. We can only estimate. Everybody can only estimate the weight of that truck. No one can prove the weight of that truck because it wasn't weighed. We can all only estimate.

Q. Kel Lord has given his best estimate?
A. Yes.

Q. And you have given your best estimate?
A. Yes.

Q. And you say to this Court that his best estimate is such that it suggests that he's somehow trying to defraud you. Is that what you say?
A. Yes.

Q. Because his estimate happens to disagree with yours?
A. That's correct. It shouldn't have been estimated. The vehicle should have been weighed. It boils down to the point that it was a vehicle that drove out of the quarry and was not weighed. Why would you accept money for a load before you weigh it? Why would somebody accept $800 for a load when you probably could have got $1,600 off the driver? Why would you say, "Give me $800 and then we'll go and weigh it"? It just doesn't gel. It smells.

Q. And in relation to the particulars of breach where you've got provision of material to Avoca Landscape Supplies without paying proper fees, licence fees, you didn't see fit to give any further details of the particular issue that you wanted remedied or the particular further payment of royalty fees that you wanted?
A. I hadn't asked for more money you mean?

Q. Yes.
A. So every time I - it would have held up the paying system.

Q. Why didn't you see fit, if you genuinely wanted to cure what you thought was a breach in relation to Avoca Landscape Supplies, to provide particulars of the breach by setting forth what you say was the royalty entitlement that you had not received and ask to be paid the 50 or so dollars you say you had been short changed?
A. I don't know, sir. I'd have to think.

Q. It's because you didn't actually want your licensees to cure any of these breaches, did you?
A. It was getting to the situation I was getting sick of them, yeah.

Q. You just wanted them out of there, didn't you?
A. Probably by that time I had probably made up my mind I was getting sick and tired of being ripped off. It was time we got rid of them. You are probably right there.

Q. So you thought you would give them as little information as possible in this notice of breach so you would make their job of trying to rectify some of these issues as difficult as possible?
A. There shouldn't have been breaches there to rectify. If they had done their business and run their business as a proper company there shouldn't be any breaches.

Q. You didn't really want them to cure any of these breaches, did you?
A. If they could have - no. I'll say no. That's all right.

Q. I'd like to know what your answer is to that question. You didn't really want them to cure any of these breaches, did you?
A. No.

Q. And that's the reason why when you set forth these various issues you set forth as many things as you could possibly find against them, didn't you?
A. Well, if you're going to breach somebody you might as well try and do it properly.

Q. Because what you really wanted to do was you wanted to force them out so they'd exercise their option to buy the land from you?
A. No, they told me they weren't going to buy the option. But we did give them the option. I believe my solicitor gave them that option in writing.

Q. You've included in your second affidavit a letter of 13 September 2006 which your solicitors wrote to Kemp Strang?
A. Yep.

Q. And the deal that you put to them there was that you're not prepared to reconsider your decision to terminate, but if they want to exercise the option you would be prepared to tolerate the continued quarrying operations until settlement?
A. That's correct.

Q. And that was your strategy from the very beginning of issuing this notice of breach of covenant, wasn't it?
A. Probably yes, because they agreed to buy the quarry off me and agreed to pay me by October 2005. And when I found out I was going to get a - the only reason I ever let them into that quarry was because they agreed to buy it off me. That was the only reason I ever let them into the quarry. When they told me they didn't want to buy it I put two and two together and said I'm not putting up with this for five years.

Q. But you gave them the option for five years, didn't you?
A. That's correct.

Q. So you gave them the legal right to wait five years from the time the option was granted for them to make a decision?
A. That's right and they still have two and a half years to run, that's correct.

Q. Can I suggest to you this alleged breach, clause 8.4(e), was one of the grounds in which you terminated or sought to terminate the licence agreement on 12 September, didn't you?
A. One of the minor breaches, yes.

Q. Just in terms of your characterisation of the breach as minor, what do you say was the major ones?
A. Incorrect payment of loads, loads going out. If you want me to put it briefly, stealing is my charge.

Q. You were asked some questions about a particular docket Avoca Landscaping Supplies or Earth Moving Suppliers?
A. Yes.

Q. And it was put to you that that complaint was simply about $50. Do you recall that?
A. Yes, the complaint wasn't about $50. It was a complaint about stealing. The complaint is not about $50.

HIS HONOUR

COLEMAN

Q. Was that your concern, the $50?
A. Not really. Well, $50 is $50 but that was not my main concern, no.

27 In this State it is now accepted as the law that even in commercial contracts there is an obligation on each party to act in good faith and reasonably towards the other contracting party both in performing obligations and exercising or enforcing rights: Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349; and Burger King Corporation.

28 Acting in good faith means that a party to a contract should not pretend to rely upon breaches of no importance to him or her to achieve a collateral but desired result of bringing the contractual relationship to an end. In the instant case what Mr Barlow really wanted was the plaintiff to exercise its option to purchase the quarry. He wanted that to happen because he thought he was being underpaid in royalties, however he had little evidence of this. It was put to him that if he had a real concern he could have raised this earlier as many of the missing dockets appear to relate to events in 2005. His answer to that was he had not taken a close interest then as he thought everything was going along reasonably well. It was only when his view about that changed that he went back to look at earlier records.

29 I accept that to a large extent the missing documents matter has been remedied. More dockets may be found. Mr Barlow adduced no direct evidence of actual underpayment. However, I consider he had ground for suspicion.

30 The matter is finely balanced. The plaintiff bears the onus of establishing lack of good faith. Actions based on suspicion for which there is some ground are not themselves proof of lack of good faith, even if enforcement of a contractual right might result in the party in default exercising some other right which in this case would benefit the defendant. Mr Barlow, I think, made it clear that even if the option is not exercised he wants the licence ended. Obvious breaches by the plaintiff such as using the quarry for non-quarry purposes and providing untrue responses to a breach notice, weigh against the plaintiff in argument about reasonableness and good faith. After careful consideration and perhaps too long consideration, I conclude the termination was justified and valid. It follows the summons should be dismissed.

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Citations

Mangrove Mountain Quarries Pty Limited v Barlow [2007] NSWSC 492

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Mangrove Mountain Quarries Pty. Limited v Barlow [2007] NSWCA 132

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Statutory Material Cited

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Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187

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CITATION:	Mangrove Mountain Quarries Pty Limited v Barlow [2007] NSWSC 492
HEARING DATE(S):	5, 6 and 7 March 2007
JUDGMENT DATE :	17 May 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Defendants’ termination of licence was justified and valid; plaintiff’s summons dismissed.
CATCHWORDS:	CONTRACTS – Breach – Material and non-material breaches by plaintiff – Notice of breach served on plaintiff – Plaintiff given period to remedy breaches – Incurable breaches – Material breaches not remedied – Notice of termination served on plaintiff – Whether notice of termination in good faith – Defendant acted reasonably in terminating contract despite his interest in termination
CASES CITED:	Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Batson v De Carvalho (1948) 48 SR(NSW) 417; Burger King v Hungry Jacks Pty Ltd [2001] NSWCA 187; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234; Waters Lane Pty Ltd v Sweeney [2006] NSWSC 222
PARTIES:	Mangrove Mountain Quarries Pty Limited (Plaintiff) Ross Lloyd Barlow (First Defendant) Heather June Barlow (Second Defendant)
FILE NUMBER(S):	SC 4885 of 2006
COUNSEL:	Mr G A Sirtes (Plaintiff) Mr S Coleman (Defendants)
SOLICITORS:	Kemp Strang (Plaintiff) CBD Law (Defendants)