Raphael Shin Enterprises Pty Ltd v Waterpoint Shepherds Bay Pty Ltd

[2015] NSWCA 406

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	Raphael Shin Enterprises Pty Ltd v Waterpoint Shepherds Bay Pty Ltd [2015] NSWCA 406
Hearing dates:	28 October 2015
Date of orders:	16 December 2015
Decision date:	16 December 2015
Before:	Beazley P at [1]; Ward JA at [2]; Emmett AJA at [3]
Decision:	1   The appeal be dismissed.  2   The appellants pay the respondent’s costs of the appeal.
Catchwords:	CONTRACT – construction – interrelationship of several agreements for the acquisition of strata titles and the carrying out of works – whether the respondent was entitled to require the first appellant to complete the purchase of the lots before the necessary consents and approvals for the works had been obtained – whether the principles in Flight v Booth (1834) 1 Bing (NC) 370 apply
Cases Cited:	Carpenter v McGrath (1996) 40 NSWLR 39 Fletcher v Manton [1940] HCA 32; 64 CLR 37 Flight v Booth (1834) 1 Bing (NC) 370 Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183; 14 BPR 27,293 Manks v Whiteley [1912] 1 Ch 735 RIL Aviation HL 7740 and HL 7741 Pty Ltd v Alliance & Leicester plc [2011] NSWCA 423
Category:	Principal judgment
Parties:	Raphael Shin Enterprises Pty Ltd (First Appellant) Raphael Shin (Second Appellant) Rebecca Yi Jeong Shin (Third Appellant) Waterpoint Shepherds Bay Pty Ltd (Respondent)
Representation:	Counsel: Mr B Coles QC with Mr A Fernon (Appellants) Mr M Ashhurst SC with Mr S Ahmed (Respondent)   Solicitors: Fidelity Legal (Appellants) Mills Oakley Lawyers (Respondent)
File Number(s):	2014/219790
Publication restriction:	Nil
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2014] NSWSC 743 Date of Decision: 27 June 2014 Before: Sackar J File Number(s): 2011/041570

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the reasons of Emmett AJA. I agree with his Honour’s reasons and the orders he proposes.

2. WARD JA: I agree, for the reasons given by Emmett AJA, that the appeal should be dismissed.

3. EMMETT AJA: This appeal is concerned with the interpretation of several agreements made between the appellants, Raphael Shin Enterprises Pty Ltd (RSE), Mr Raphael Shin and Mrs Rebecca Shin, on the one hand, and the respondent, Waterpoint Shepherds Bay Pty Ltd (Waterpoint), on the other hand. Relevantly for present purposes, the agreements related to the acquisition by RSE from Waterpoint of two lots in a stratum residential and retail/commercial development at Meadowbank (the Meadowbank Development) and the carrying out of certain works creating access between the two lots (the Works). The Works were in fact carried out. The question in the appeal is whether Waterpoint was entitled to require RSE to complete the purchase of the two lots in circumstances where the necessary consents and approvals for the Works were not obtained.

The Contractual Instruments

4. The arrangements entered into between RSE and Waterpoint concern Lot 4 in DP 1092972 (the restaurant lot) and Lot 178 in SP 76502 (the storage lot). The storage lot is located directly below the restaurant lot, and is separated from it by a concrete slab that is common property owned by the owners corporation of SP 76502 (the Owners Corporation). As at February 2008, Waterpoint was the registered proprietor of an estate in fee simple in both the restaurant lot and the storage lot.

5. At relevant times, Mr Shin and Mrs Shin were the directors of RSE. Mr Shin is a licensed builder and has had considerable experience as a builder and developer. He is also an experienced restaurateur. Mr Edward Kim is a real estate agent. Mr Josef Ristway of Waterpoint appointed Mr Kim to sell properties in the Meadowbank Development. While Mr Shin had dealt with Mr Kim on previous occasions, he had not had any previous dealings with Waterpoint or its principals, including Mr Ristway.

6. From about February 2008, Mr Shin and Mr Kim engaged in negotiations concerning the Meadowbank Development. The negotiations were originally limited to the acquisition by RSE of the restaurant lot but subsequently the negotiations were extended to the storage lot. RSE proposed to acquire the restaurant lot and the storage lot for the purposes of conducting a restaurant business. The negotiations led to a bargain in mid-2008 for the sale by Waterpoint to RSE of both lots for a total consideration of $2,750,000.

7. Mr Ben Johnston of the firm of lawyers known as “Fidelity Legal”, who had acted for Mr Shin for some 25 years, represented RSE in connection with the sale and purchase. Ms Phillippa Russell, a sole practitioner lawyer, represented Waterpoint. On 6 June 2008, Mr Johnston wrote to Ms Russell in relation to the restaurant lot and the storage lot. Mr Johnston relevantly said:

I refer to your recent correspondence enclosing draft contracts and licences. My client is ready to exchange subject to clarification and agreement of the following matters:

1. Deposit (5% for restaurant and 10% for storage lot) to be paid as follows:

$10,000.00 on exchange and the balance ($111,000.00 and $23,000.00 respectively) to be paid on or before 31 December 2008.

2. Text box to be added to page 1 of restaurant contract reading: “The price includes GST of $220,000.00”

3. Additional clause 4.13 (restaurant contract) to be deleted. The purchaser is not happy about the risks associated with the glass panelling and balustrade not being finished before completion.

4. Additional clause 11. The role of Kims Realty Pty Limited needs to be recognised in some way. […]

5. The parties to exchange a Side Letter concerning the vendor’s obligation to:

� complete expeditiously the stairs between the restaurant and the storage lot,

� cut a 1m2 access point for a dumb waiter lift between the storage area and the kitchen

� provide the certifier to issue the construction certificate for the purchaser’s works

6. Parties to exchange put and call options in lieu of exchanging contracts. Unless your client requires you to do the drafting, I hold instructions to submit draft deeds.

The reason for put and call options, rather than an exchange of contracts, was not explored. The reason does not appear to be relevant.

8. Ms Russell responded on 10 June 2008 saying, relevantly, as follows:

1. I am instructed it has been agreed between our parties as follows:

(a) $10,000.00 (each contract) on exchange;

(b) on each contract, balance of the 5% deposit by 30 September 2008; and

(c) on each contract, balance of the 10% deposit by 31 December 2008.

2. Agreed.

3. The glass paneling and balustrade will be finished before completion.

4. Kims Realty Pty Limited will be shown as the agent on both contracts.

5. I am instructed my client will cut the hole for the stairs, but will not be constructing the stairs. I am instructed my client will cut the hole for the stairs, and for the dumb waiter lift, expeditiously after the locations are indicated by your client. I am also instructed my client will provide details of the certifier. I am instructed a letter settling [sic] out these arrangements will be provided separately.

6. I am instructed to agree to put and call options, and that this firm will prepare them. I am instructed to proceed with the preparation of the put and call options as soon as I receive from you or your client the initial deposit of $20,000.00, to be held in my trust account pending exchange of the put and call option.

9. On 10 June 2008, Mr Johnston wrote to Mr Kim attaching the exchange of letters of 6 June 2008 and 10 June 2008. Mr Johnston said:

There are 2 matters of concern to Mr Shin -

1. He would like to avoid the payment of 30 September 2008 and pay the balance of the deposit in one payment by 31 December 2008 (as per item 1 of my letter).

2. Mr Shin’s understanding was that the vendor would construct the stairs between the storage area and the restaurant area (first dot point of item 5 of my letter).

Mr Shin has today provided the deposit cheque of $20,000.00 to me and I will send it to Phillippa Russell as suggested by her.

Could you find out whether the vendor will agree to items 1 and 2 above?

10. Against that background, Waterpoint wrote a letter to RSE on 11 July 2008 (the Side Letter). The Side Letter was in the following terms:

Please take this letter as confirmation the following works will be carried out (at no expense to your client) after exchange of Put & Call Options by your client for the purchase of [the restaurant lot and the storage lot]:

1. an additional fire exit – including 3 additional fire rated openings in the car park lobbies on Level 3, Tower A (the division walls will be constructed of 2 hour fire rated hebel);

2. the installation of an additional fire door at the end of the passage facing inwards to the restaurant area; and

3. creation of a penetration and stairs connecting the restaurant with the storage lot (subject to our engineers acceptance of the proposed location and design).

11. It is not disputed that the Side Letter had contractual force between RSE and Waterpoint. That is presumably because the Side Letter should be construed as constituting an implied request by Waterpoint to RSE to enter into the put and call options, something that was in the interest of Waterpoint. Accordingly, the entry by RSE into the put and call options constituted consideration for the promise made by Waterpoint in the Side Letter. [1]

    1. See, eg, R v Clarke (1927) 40 CLR 227.

12. On 25 July 2008, RSE, Mr and Mrs Shin and Waterpoint executed two put and call options (the Options) as follows:

• a put and call option relating to the restaurant lot (the Restaurant Option);

• a put and call option relating to the storage lot (the Storage Option).

They also executed two licences (the Licences) as follows:

• a licence in respect of the restaurant lot (the Restaurant Licence), and

• a licence in respect of the storage lot (the Storage Licence).

13. The final date for exercise of each call option was 31 December 2008 and the final date for exercise of each put option was 30 April 2009. Upon exercise, the purchase price for the restaurant lot was to be $2,420,000, and the purchase price for the storage lot was to be $330,000. There were clauses linking the Restaurant Option to the Storage Option. The settlement date for the sale and purchase was to be 30 June 2009. The cheque for the sum of $20,000 provided to Mr Johnston was applied to a “security sum” of $10,000 payable under each of the put and call options. That sum was to form part of the deposit under the contracts for sale in the event that either the call options or the put options were exercised. By the Licences, RSE was permitted to occupy the restaurant lot and the storage lot for the purpose of fitting out the proposed restaurant premises and operating the restaurant business prior to completion of the sale and purchase following exercise of either of the Options. Mr and Mrs Shin guaranteed the obligations of RSE under both of the Options and both of the Licences.

14. Before addressing the dispute that gave rise to the proceedings, it is desirable to refer in more detail to the terms of the Options and the Licences, together with the terms of the contracts for sale that would come into existence upon the exercise of the call options or the put options.

The Options

15. Each of the Options bore the date 25 July 2008 and was expressed to be a deed. In each of the Options, Waterpoint is described as “Owner”, RSE is described as “Grantee” and Mr and Mrs Shin are together referred to as “Guarantor”. Each of the Options recited that the Owner granted to the Grantee a call option for it to purchase “the Property” on the terms and conditions of the option and that the Grantee, at the request of the Grantor, granted to the Owner a put option to require the Grantee to purchase “the Property” on the terms of the deed. The Property in the case of the Restaurant Option was the restaurant lot and in the case of the Storage Option was the storage lot.

16. Clause 2.1 of each of the Options provided that the Security Sum of $10,000 was to be paid on the date of the deed. In the case of the Restaurant Option, the sum of $232,000 was to be paid on the exercise of the call option and in the case of the Storage Option, the sum of $23,000 was to be paid on the exercise of the call option. All of those figures were exclusive of GST.

17. Clause 3 provided that, in consideration of the “Call Option Fee”, defined as the sum of $1, the Owner granted to the Grantee the option of purchasing the Property for “the Price”. The Price in the case of the Restaurant Option was $2,420,000 and the Price in the case of the Storage Option was $330,000. Clause 4.1 relevantly provided that “the Purchaser” (defined as the person who exercises the call option, being the Grantee) may exercise the call option by giving to the Owner during the “Call Option Exercise Period”:

• a call option exercise notice signed by the Purchaser;

• two counterparts of the form of contract annexed to the deed (the Contract), one properly executed by the Purchaser and the Guarantor;

• a bank cheque for the balance of the security sum.

The “Call Option Exercise Period” was defined as the period commencing on the business day that was the 42nd day after the date of the deed and ending at 3 pm on 31 December 2008.

18. Under cl 4.2, if the Purchaser exercised the call option, an agreement for the sale and purchase of the Property, on the terms and conditions contained in the Contract, was to come into being between the Owner, the Purchaser and the Guarantor. Clause 4.2 further provided that, within five business days after the day on which the Purchaser exercised the call option, the Owner must execute one of the counterparts of the Contract as Vendor and give that counterpart to the Purchaser. Clause 4.3 provided that the Owner, the Purchaser and the Guarantor acknowledged that they were bound by the Contract on and by virtue of the exercise of the call option, even if the Owner or the Guarantor failed to comply with their respective obligations under cl 4.2.

19. Clause 4.4 provided that, notwithstanding anything to the contrary in the deed, the call option would only be regarded as having been validly exercised if it was exercised simultaneously with the call option for the purchase of “the Other Property”. The Other Property in the case of the Restaurant Option was the storage lot and the Other Property in the case of the Storage Option was the restaurant lot. Clause 4.5 provided that, if the call option was not exercised, the Owner could at any time after the expiration of the Call Option Period rescind “the Licence Agreement”. The Licence Agreement was defined as the agreement dated the same date as the deed of option under which the Grantor was to be given access to the Property to carry out its fit out works, that is, the Restaurant Licence or the Storage Licence, as the case may be.

20. Curiously, there was no equivalent to cl 3 in relation to the grant of the put options. Rather, cl 6.1 of the Options simply provided that the Owner could exercise the put option by giving to the Grantee, during the “Put Option Exercise Period”:

• a put option exercise notice; and

• two counterparts of the Contract, one properly executed by the Owner.

The “Put Option Exercise Period” was defined as the period commencing at 3 pm on the day that the Call Option Exercise Period came to an end and ending at 5 pm on 30 April 2009.

21. Under cl 6.2, if the Owner exercised the put option, an agreement for the sale and purchase of the Property on the terms and conditions contained in the Contract was to come into being between the Owner, the Grantee and the Guarantor. Within three business days after the day on which the Owner exercised the put option, the Grantee and the Guarantor were required to execute one of those counterparts of the Contract as Purchaser and Guarantor respectively and to give a copy to the Owner. By cl 6.3, the parties acknowledged that they were bound by the Contract on and by virtue of the exercise of the put option, even if the Grantee failed to comply with its obligations under cl 6.2.

22. Finally, cl 16.3 of the Options provided as follows:

16.3 Entire agreement

(a) This Deed constitutes the entire agreement of the Parties and supersedes all prior discussions, undertakings and agreements.

(b) Each Party has entered into this Deed without relying on any representation by any other Party or any person purporting to represent that Party.

The Contracts

23. In the case of both of the Options, the Contract was in the form of the 2005 edition of the Law Society of New South Wales and the Real Estate Institute of New South Wales approved form of contract for the sale of land. The standard form relevantly provided as its operative provision the following:

The vendor sells and the purchaser buys the property for the price under these provisions instead of Schedule 3 Conveyancing Act 1919, subject to any legislation that cannot be excluded.

The term “property” was defined in the Contract as:

the land, the improvements, all fixtures and the inclusions, but not the exclusions.

On the front page of the Contract, “Land” was defined as:

The property known as “Stage 3 Restaurant” situated at 1 Bay Drive, Meadowbank, NSW, being lot 4 in deposited plan 1092972 being the land in folio identifier 4/1092972

Next to the word “Improvements” was the following:

Commercial stratum lot (with associated car parking)

“Inclusions” was defined as:

Those parts of the Improvements specified in the Contract Plans and Specifications.

24. The Contract contained the following relevant provisions:

6 Error or misdescription

6.1 The purchaser can (but only before completion) claim compensation for an error or misdescription in this contract (as to the property, the title or anything else and whether substantial or not);

6.2 This clause applies even if the purchaser did not take notice of or rely on anything in this contract containing or giving rise to the error or misdescription;

6.3 However, this clause does not apply to the extent the purchaser knows the true position.

7 Claims by purchaser

The purchaser can make a claim (including a claim under clause 6) before completion only by serving it with a statement of the amount claimed, and if the purchaser makes one or more claims before completion -

7.1 the vendor can rescind [in certain circumstances] […];

7.2 if the vendor does not rescind, the parties must complete […]

[…]

10 Restrictions on rights of purchaser

10.1 the purchaser cannot make a claim or requisition or rescind or terminate in respect of -

[…]

10.1.5 a promise, representation or statement about this contract, the property or the title, not set out or referred to in this contract; […]

25. In addition, the Contract attached to the Restaurant Option (the Restaurant Contract) contained ten sections of additional clauses. Section 1 contained vendor disclosures that are not presently relevant.

26. Section 2, consisting of cll 2 and 3, dealt with “Completion”. Clause 2.1 provided that the parties must complete the Restaurant Contract on 30 June 2009. Clause 2.2 provided that, if the parties did not complete on the date for completion provided in cl 2.1, a party could serve a notice to complete if that party was otherwise entitled to do so.

27. Sections 3 and 4, consisting of cl 4, dealt with “Matters Relating to the Property, the Title of the Property and the Fit Out of the Property” and with “Adjustments”. Clause 4.5 relevantly provided that the Purchaser acknowledged that it was aware of the conditions of the “Development Consent”, agreed to comply with the conditions of the “Development Consent”, warranted that it had made all its own enquiries in connection with the Property and acknowledged that the plan of management comprised in an annexure to the Restaurant Contract was a reference to the plan of management referred to in the “Development Consent”. Clause 4.11(a) provided that the Vendor and the Purchaser acknowledged that they had entered into the Licence for the purpose of enabling the Purchaser to carry out works proposed to the Property by the Purchaser to enable it to fit out the Property. By cl 4.11(b), the Purchaser agreed that it would carry out the fit out works in accordance with its obligations in the Licence as though the provisions of the Licence relating to the fit out works were set out at length in the Restaurant Contract. “Development Consent” was defined as consent number 928/2005 issued by the Council of the City of Ryde. By the Development Consent, the City of Ryde consented to the fit out and use of the restaurant lot as a restaurant, subject to 89 conditions specified in the consent.

25. Section 5, consisting of cll 5, 6, 7 and 8, dealt with “Representations and Warranties”. Clause 6.2 was in the following terms:

6.2 Entire agreement

The provisions set out in this contract contain the entire agreement between the parties for the sale of the Property despite any:

(a) negotiations or discussion held; or

(b) Documents signed or brochures produced,

before the date of this contract.

29. Section 6, consisting of cl 9, dealt with the Licence. Clause 9 relevantly provided as follows:

9.1 Interdependency

(a) The Parties acknowledge that on or about the date of this contract the Vendor and the Purchaser entered into the Other Contract.

(b) If this contract is properly terminated for any reason by the Vendor as a result of breach by the Purchaser, then the Purchaser will be regarded as being in breach of an essential term of the Other Contract entitling the Vendor at any time after the termination of this contract to terminate the Other Contract by written notice to the Purchaser.

(c) The parties agree to complete this contract simultaneously with the Other Contract. The Vendor will not be obliged to complete this contract unless the Purchaser completes this contract simultaneously with the Other Contract.

9.2 Renewal of Licence

(a) For the purposes of clarity, the parties acknowledge the Vendor has granted the Licence to the Purchaser to enable it to carry out its Fit Out works.

(b) The Vendor informs the Purchaser it does not propose to offer the Purchaser a renewal or extension of the Licence once it comes to an end.

9.3 Breach of Licence

(a) If the Licence is terminated by the Vendor because of breach by the Purchaser as licensee, then at the option of the Vendor, the Vendor may terminate this contract by notice to the Purchaser.

(b) The Parties acknowledge and agree it is the Vendor’s intention to allow the Purchaser occupation of the Property prior to completion of this contract to enable the Purchaser to fit out the Property. It is not the Vendor’s intention that the Licence be assigned or transferred to any other party. If the Licence is transferred to another party, then at the option of the Vendor the Vendor may terminate this contract by notice to the Purchaser.

30. In section 10 of the additional clauses, the term “Licence” was defined as follows:

The licence between the Vendor and the Purchaser to enable the Purchaser access to the Property to fit out the Property.

The term “Other Contract” was defined as the contract for the sale to the Purchaser of the storage lot.

31. Section 7, consisting of cll 10 to 17, contained general clauses. Clause 17 constituted a guarantee and indemnity by the Guarantor.

32. Section 8 dealt with variations to the printed clauses of the standard form of contract, which are not presently relevant. Section 9 dealt with interpretation generally.

33. Section 10 contained definitions for the purpose of the additional clauses. The term “Property” was defined as follows:

The property the subject of this contract, being the Land and the Improvements.

“Land” was defined as “the land in folio Identifier 4/1092972”.

“Improvements” was defined as follows:

The improvements erected on the Land by the Vendor as at the Date of this Contract (together with the Terrace Works) (including the items and services in the Schedule of Finishes). For the purposes of clarity, the Improvements do not include any item or service forming part of the Fit Out Works.

“Terrace Works” was defined as:

The installation of the Terrace Balustrade in accordance with clause 4.13.

“Fit Out Works” was defined as:

Works proposed to the Property by the Purchaser to enable it to fit out the Property.

By additional cl 4.13(b), the Purchaser acknowledged that it was not entitled to make any “Obligation” (sic; scilicet “objection”) or rescind or terminate or refuse to complete the contract because of the works by the Vendor to that part of the Property comprising the terrace, by installing glass and the balustrade in positions identified by the Vendor.

“Objection” was defined as:

Any objection, requisition or claim for compensation.

The “Schedule of Finishes” was defined as:

The schedule (copy attached) titled “Schedule of Finishes” with or without changes permitted by this contract.

The difference between the definition of “property” in the Contract and the definition of “Property” in section 10 of the additional clauses is of some significance. I shall return to that matter below.

34. There is also a lack of symmetry between the Restaurant Contract and the contract for sale of the storage lot (the Storage Contract). While they contain many similar clauses (such as an equivalent to cl 6.2 of the Restaurant Contract, in cl 5.1 of the Storage Contract), they are by no means identical. In particular, there is a lack of symmetry between the definition of “Property” in the additional clauses of the Restaurant Contract as compared with the additional clauses in the Storage Contract. Thus, in the Storage Contract, “Property” is defined as follows:

The property the subject of this contract including any interest in the Common Property.

“Common Property” is defined as:

The common property in the Strata Scheme.

“Strata Scheme” is defined as:

“The strata scheme constituted on registration of the Strata Plan [defined as the strata plan registered 76502].

35. Another instance of lack of symmetry concerns interdependence. The additional clauses to the Storage Contract contain cl 15 in the following terms:

15. INTERDEPENDENCY

(a) The parties acknowledge that on the date of this contract the Purchaser entered into the Restaurant Contract with the Vendor.

(b) If the Restaurant Contract is properly terminated for any reason by the Vendor as a result of breach by Purchaser, then the Purchaser will be regarded as being in breach of an essential term of this Contract entitling the Vendor at any time after the termination of the Restaurant Contract to terminate this contract by written notice to the Purchaser.

(c) If the Restaurant Contract is properly rescinded for any reason, then at any time after the rescission, either party to this contract may rescind this contract by written notice to the other party.

(d) The parties agree to complete this contract simultaneously with the Restaurant Contract. The Vendor will not be obliged to complete this contract unless the Purchaser completes the Restaurant Contract simultaneously with this contract.

Thus, there is no equivalent of cl 15(c) of the Storage Contract in cl 9.1 of the Restaurant Contract.

The Licences

36. The schemes of the Restaurant Licence and the Storage Licence are substantially the same. Each of the Licences was expressed to be a deed and the parties were Waterpoint, RSE and Mr and Mrs Shin, referred to respectively as the Licensor, the Licensee and the Guarantor. Each of the Licences recited that the Licensor was the registered proprietor of the “Licensed Property”, which was defined as the restaurant lot or the storage lot as the case may be. The Licence then recited that the Licensor and Licensee had entered into the Restaurant Option or the Storage Option (as the case may be) and then recited that the Licensor had agreed to allow the Licensee to use the Property on the conditions of the deed for the purpose of fitting out the Licensed Property prior to completing “the Contract” (defined as the contract to come into existence on the exercise of the call option or the put option pursuant to the Restaurant Option or the Storage Option (that is, the Restaurant Contract or the Storage Contract, as the case may be)).

37. Clause 2.1 provided that, in consideration of the Licensee agreeing to perform its obligations in the Licence, the Licensor granted to the Licensee a non-exclusive licence to use the Licensed Property on the terms and conditions of the deed. The Licence was to commence on the date of the deed and end on the date of completion of the contract to come into existence on the exercise of the call option or the put option. By cl 2.3, the parties acknowledged and agreed that they had entered into the Licence for the purpose of giving the Licensee access to the Licensed Property for the purpose of fitting it out prior to completion of the contract. It was stated to be the intention of the parties that, if the contract did not proceed to completion for any reason, then the Licence was to come to an end.

38. Clause 7.1 provided that the Licensee must use the Licensed Property only for the “Permitted Use”. The “Permitted Use” was defined as:

For the purposes of carrying out the Fit Out Works and the conduct of any business permitted by the Development Consent

“Fit Out Works” was defined as “the works to the Licensed Property by the Licensee to enable it to conduct its business from the Licensed Property”.

39. Clause 12.1 of the Licence provided that the Licensee must have substantially commenced the Fit Out Works no later than the 21st day after the date of the deed. After the commencement of the Fit Out Works, the Licensee was required to “continue to diligently pursue the completion of the Fit Out Works, with a view to completing them as soon as practicable after the date of this deed”.

40. Clause 14 of the Licence provided for the removal by the Licensee of the “Licensee’s Goods” that were not the subject of a notice from the Licensor advising the Licensee of items of the Fit Out Works that the Licensor wished to retain. “Licensee’s Goods” was defined as meaning:

each fixture, fitting, furnishing, plant, equipment, partition and other article which is in the Licensed Property which the Licensor does not own, license or provide the Licensee, whether existing prior to, on or after the Commencing Date.

Clause 15 constituted a guarantee and indemnity by the Guarantor in respect of the performance by the Licensee of its obligations under the Licence.

The Dispute between the Parties

41. In August 2008, RSE retained Space Con Pty Ltd (Space Con) to undertake the fit out in respect of the proposed restaurant premises. Mr Shin is the sole director and shareholder of Space Con. The contract price payable by RSE to Space Con was $1,200,000.

42. Also in August 2008, plans were prepared for that part of the Works consisting of the penetration of the concrete slab between the restaurant lot and the storage lot and construction of the stairs. The plans were provided to Mr Rob Allen of Billbergia Group, which was to be responsible for the carrying out of that work. Billbergia Group is closely connected with Waterpoint.

43. On 12 August 2008, Mr Allen informed Space Con and Mr Kim that the penetration of the concrete slab could not be carried out without permission from the Owners Corporation because the concrete slab was common property owned by the Owners Corporation. Given the experience of both Mr Shin and Mr Ristway and their knowledge as to the relevance of legal requirements for approvals and consents, the fact that the consent of the Owners Corporation would be required ought not to have come as a surprise to either Waterpoint or RSE.

44. On 23 December 2008, RSE and Waterpoint entered into a deed of variation to extend the date for the exercise of the call options to 30 January 2009. However, the call options were not exercised by that date.

45. On 20 April 2009, Waterpoint sent letters to RSE purporting to exercise the put options in respect of the restaurant lot and the storage lot. As a consequence, contracts for sale of the restaurant lot and the storage lot came into existence as provided for in the Options. However, correspondence ensued between the parties as to the validity of the purported exercise of the put options, and settlement did not occur on the nominated date.

46. In October 2009, Billbergia Group carried out the work of penetrating the concrete slab between the restaurant lot and the storage lot and constructed a staircase between the two lots. In addition, Billbergia Group carried out several other penetrations of the concrete slab for a lift shaft, a dumb waiter, two vents and copper piping.

47. On 29 October 2009, Ms Russell wrote to the Owners Corporation seeking consent for the work that had been carried out. There was no evidence as to the identity of persons who exercised authority on behalf of the Owners Corporation. It was common ground that no consent was ever provided on behalf of the Owners Corporation.

48. In January 2010, the fit out of the restaurant lot and the storage lot for the purposes of the proposed restaurant business was completed by Space Con. On 15 January 2010, the restaurant business commenced trading. It traded until August 2011.

49. On 25 November 2010, Waterpoint served on RSE notice to complete the contracts for the sale and purchase of the restaurant lot and the storage lot. Waterpoint required completion by 10 December 2010. RSE did not complete the contracts and, on 17 December 2010, Waterpoint served notices of termination of the contracts. In the letter annexing the notices of termination, Ms Russell said that RSE “does not have the right, and may not, trade from the properties”. However, RSE continued to trade from the restaurant lot and the storage lot until 5 August 2011, when it vacated both, taking its equipment with it.

Proceedings in the Commercial List

50. RSE subsequently commenced proceedings in the Commercial List against Waterpoint claiming damages for breach of an agreement alleged to have been entered into between RSE and Waterpoint in June or July 2008 (the Works Agreement). RSE alleged that the Works Agreement was made at the time of, or shortly prior to, the entry into of the Options and that it was partly oral and partly in writing and partly implied. Insofar as it was in writing, it was alleged to be contained in the Side Letter. In so far as it was oral, it was said to arise from conversations between Mr Kim and Mr Shin. In so far as it was implied, it was alleged to arise as a matter of reasonable and business efficacy and otherwise under the law.

51. RSE alleged that, under the Works Agreement, Waterpoint agreed that, at its own expense, it would create four penetrations through the ceiling of the storage lot and the floor of the restaurant lot for the provision of:

1. a goods lift between the storage lot and the restaurant lot;

2. a dumb waiter between the storage lot and the restaurant lot;

3. ventilation equipment between the storage lot and the restaurant lot;

4. stairs connecting the storage lot to the restaurant lot.

RSE also alleged that Waterpoint agreed to supply and install a staircase through one of the penetrations and to install new fire-related doors to the boundary walls between the restaurant lot and the car park lobbies to satisfy Council requirements.

52. RSE alleged that it was an implied term of the Works Agreement that the Works would be carried out and completed by Waterpoint in a manner that complied with:

1. the Development Consent; and/or

2. the Environmental Planning and Assessment Act1979 (NSW) and regulations made under that Act; and/or

3. the strata by-laws, namely, the requirement to obtain special use privileges over the common property between the storage lot and the restaurant lot and to pass a by-law consenting to the Works; and/or

4. the Strata Schemes Management Act 1996 (NSW).

RSE alleged that the implication arose “as a matter of business efficacy, reasonable [sic] and otherwise at law”, given the nature of the works to be carried out, the nature of the proposed transaction to occur, and as a direct consequence of oral representations alleged to have been made by or on behalf of Waterpoint.

53. RSE also alleged that it was an express or implied term of the Restaurant Option and the Storage Option, or alternatively that it was a term of the Works Agreement, that:

1. the rights under the Restaurant Option and the Storage Option were subject to the Works Agreement;

2. in the event that the Options were exercised, the Works were to be completed before the contracts for sale could be completed;

3. the contracts for sale would not be enforceable until the Works were completed;

4. in the event that the Works had not been completed in accordance with the terms of the Works Agreement before the completion of the contracts for sale, RSE and Waterpoint would agree to vary the Restaurant Option and the Storage Option and the contracts for sale by extending the date for completion of the contracts for sale until after completion of the Works in accordance with the Works Agreement;

5. if the contracts for sale were not completed or could not be completed because the Works had not been completed in accordance with the Works Agreement:

1. any moneys paid under the Options, including any deposit, would be refunded to RSE, and

2. RSE would be entitled to recover damages incurred as a result of the exercise of the Options, the Licences and the operation of the restaurant on the restaurant lot.

54. Waterpoint filed a response putting in issue the question of whether there was an agreement as alleged on behalf of RSE. In addition, Waterpoint filed a cross-claim by which it claimed damages from RSE by reason of alleged breach of the contracts for sale that came into existence as a consequence of the exercise of the put options.

Reasons and Conclusions of the Primary Judge

55. On 27 June 2014, for reasons published on 6 June 2014,[2] a judge of the Equity Division, sitting in the Commercial List, ordered that:

    2. Raphael Shin Enterprises Pty Ltd v Waterpoint Shepherds Bay Pty Ltd [2014] NSWSC 743.

• RSE’s amended Commercial List summons be dismissed;

• judgment be entered for Waterpoint against RSE and Mr and Mrs Shin in the sum of $247,933;

• RSE and Mr and Mrs Shin pay interest to Waterpoint in the sum of $66,991;

• RSE and Mr and Mrs Shin pay Waterpoint’s costs of the proceedings.

56. The primary judge concluded that Waterpoint was in breach of an implied term of the Works Agreement evidenced by the Side Letter to carry out the Works lawfully. However, his Honour concluded that, since RSE had failed to complete the Restaurant Contract and the Storage Contract, it was not entitled to any damages for breach of the Works Agreement. Further, his Honour concluded that RSE was not entitled to recover damages for the cost of its fit out of the restaurant lot because that was damage for which Waterpoint was not, in law, responsible. His Honour held that there was no other basis upon which RSE was entitled to damages. Further, his Honour held that RSE was not entitled to refuse to complete the Restaurant Contract and the Storage Contract. Accordingly, his Honour’s conclusion was that RSE’s summons should be dismissed with costs. [3]

    3. [2014] NSWSC 743 at [478].

57. The primary judge was satisfied that the Side Letter was a source of contractual obligations. [4] The question was whether any implications arose from it, and, if so, what they were. His Honour concluded that, given the experience of both parties and their knowledge as to the relevance of legal requirements for approvals and consents, a term must sensibly arise from the Side Letter, by way of implication, to the effect that Waterpoint would carry out the Works consistent with its legal obligations, if any. [5] His Honour considered that, if any relevant consent or approval was not obtained, that would give rise to a breach of the agreement evidenced by the Side Letter, being a breach that may sound in damages for breach of contract. The measure of those damages would be the cost of obtaining the authorised penetrations of the concrete slab or, alternatively, the difference in value between having the restaurant lot and the storage lot connected by authorised building works and having the two unconnected. [6]

    4. [2014] NSWSC 743 at [338].

    5. [2014] NSWSC 743 at [366].

    6. [2014] NSWSC 743 at [367].

58. In addition, the primary judge found that none of the oral representations allegedly made on behalf of Waterpoint was made out. [7] For that reason, the effect of the entire agreement clauses in the Options (specifically, whether they would prevent RSE from relying on oral representations if conveyed prior to the execution of the Options) did not arise for consideration. [8] Nonetheless, his Honour found that Waterpoint correctly called the entire agreement clauses in aid of its submission that the Options and the Restaurant Contract and the Sale Contract supersede all previous negotiations or signed documents. [9]

    7. [2014] NSWSC 743 at [336].

    8. [2014] NSWSC 743 at [356].

    9. [2014] NSWSC 743 at [345].

56. The primary judge concluded that there were two discrete and standalone sets of contracts. The Options and the Licences constituted one set of contractual arrangements. The Side Letter, and its implied term, constituted the other set of contractual arrangements. His Honour held that Waterpoint did not promise that RSE need not complete any purchase pursuant to the exercise of the Options until the Works were completed. His Honour considered that no such term could be implied from the Side Letter or any other contractual document. Further, his Honour did not consider that there was any room for implication of a term that RSE was not obliged to commence the fit out until the Works were completed. The express terms of the Options and the Licences and the Side Letter were, his Honour considered, incapable of supporting such a contention. [10]

    10. [2014] NSWSC 743 at [368].

57. In the primary judge’s view, the only sensible and businesslike construction of the Side Letter was that it was intended by the parties to give rise to quite separate and distinct contractual obligations from those to be found in the Options and the Licences. That, his Honour considered, was the rationale for the parties’ agreeing to a side letter in the first place, as opposed to varying terms of the Options. His Honour considered that the Side Letter concerned relatively minor construction work that was of modest value, as opposed to what was otherwise a multi-million dollar transaction, involving a substantial purchase price and a substantial expenditure on the fit out. His Honour considered that the parties did not want the Works to be a commercial distraction from the main transaction. [11]

    11. [2014] NSWSC 743 at [340].

58. The primary judge referred to the words of the Side Letter that it was to constitute “confirmation” that the Works would be carried out, at no expense to RSE, after exchange of the Options. His Honour considered that the most sensible construction to be given to the Side Letter was that the parties, particularly Waterpoint, were simply making it clear that the Works would not be “carried out” prior to the exchange of the Options. That is to say, his Honour considered that the only connection that the parties decided to forge between the Options and Licences, on the one hand, and the Side Letter, on the other hand, related to the timing of the Works, which were to be undertaken at Waterpoint’s expense, and in particular that the Works would be undertaken at some unspecified time after the Options had been granted. [12]

    12. [2014] NSWSC 743 at [341]–[344].

59. The primary judge dealt with RSE’s contention that, as purchaser, it could not be forced to accept, even with compensation, a property that was substantially different from that which it had contracted to buy. [13] His Honour held that the relevant principle only had application where the property in question was “substantially different from what the purchaser agreed to, even with compensation”. [14] His Honour observed that RSE wanted a hole or holes in the concrete slab and a staircase constructed at the expense of Waterpoint. His Honour found that RSE achieved that goal and that the position of the holes and the manner in which they were made was acceptable to RSE. [15]

    13. Relying on Flight v Booth (1834) 1 Bing (NC) 370.

    14. [2014] NSWSC 743 at [410].

    15. Ibid.

60. RSE’s complaint was that the fact that the work that was carried out was unauthorised and without consent would impact on a potential resale and exposed it to claims from the local council and the Owners Corporation. [16] Thus, the only point was the failure by Waterpoint to obtain relevant consents and approvals. His Honour considered that each of RSE and Waterpoint could have applied for any relevant consents and approvals and concluded, therefore, that the principle in Flight v Booth did not assist RSE because it could, by completing the contracts for sale, obtain substantially what it contracted to buy. [17]

    16. Ibid.

    17. [2014] NSWSC 743 at [419]–[421].

61. The primary judge observed that the case had been conducted on the basis that the difference in value between the restaurant lot and the storage lot together, when connected by approved works, compared with their value when connected by works that had not been approved, was $120,000. However, his Honour held that RSE did not suffer that loss because it did not complete the Restaurant Contract and the Storage Contract. Therefore, his Honour concluded, RSE’s case failed and it was not entitled to any damages. In particular, its loss of the cost of the fit out was incurred by its decision not to complete the Restaurant Contract and the Storage Contract. His Honour held that Waterpoint did nothing to cause any such loss. [18]

    18. [2014] NSWSC 743 at [439].

62. The primary judge also held that, by reason of RSE’s wrongfully failing to complete the purchase of the restaurant lot and the storage lot, Waterpoint suffered damage to the extent of the deficiency on resale, being the difference in value between the price payable under the contracts and the current value of the restaurant lot and the storage lot together. [19] His Honour held that, on the basis of the available evidence, the combined value of the restaurant lot and the storage lot as at 20 August 2012 was $2,500,000 such that the deficiency on resale would be $250,000 and that Waterpoint was entitled to damages on that basis. [20] His Honour also found that RSE remained in occupation between 17 December 2010, when the contracts were terminated, and 5 August 2011, when RSE vacated the restaurant lot and the storage lot, and that during that period, RSE paid no rent. The rent for that period was accepted to be $137,933. His Honour then held that RSE was entitled to have the damages reduced by the sum of $120,000 referred to above. [21]

    19. [2014] NSWSC 743 at [448].

    20. [2014] NSWSC 743 at [458]–[459].

    21. [2014] NSWSC 743 at [460], [466]–[467], [474].

The Grounds of Appeal

66. RSE and Mr and Mrs Shin now appeal from the orders made by the primary judge. They filed an amended notice of appeal on 2 April 2015. The grounds of appeal now relied upon, as stated in the amended notice of appeal filed, are that the primary judge erred in:

• dismissing RSE’s claim;

• determining that the rule in Flight v Booth should not be applied in favour of RSE;

• finding that Waterpoint was entitled to complete the contracts for sale without offering compensation to RSE in respect of the unauthorised building works;

• failing to find that the Options and the Side Letter were interdependent on each other;

• failing to find that completion of the contracts for sale arising by reason of the exercise of the put options was dependent upon Waterpoint’s completing the penetrations in the concrete slab between the restaurant lot and the storage lot with all necessary consents and approvals;

• finding that the entire agreement clauses in the Restaurant Contract and the Storage Contract superseded prior representations and agreements in relation to the Works consisting of the cutting of penetrations through the concrete slab between the restaurant lot and the storage lot;

• finding that Waterpoint was entitled to require completion of the Restaurant Contract and the Storage Contract; and

• awarding damages to Waterpoint for RSE’s failure to complete the Restaurant Contract and the Storage Contract and in not dismissing Waterpoint’s cross-claim.

While there are eight separate grounds of appeal, RSE and Mr and Mrs Shin accept that they all relate to the same question, namely, whether Waterpoint was entitled to require the Contracts to be completed in circumstances where it had failed to obtain the necessary consents and approvals for the Works that were the subject of the Side Letter.

67. RSE and Mr and Mrs Shin contend that the primary judge erred in failing to find that the contracts for sale on the one hand, and the Side Letter on the other, were not dependent upon each other and in relying on the absence of any reference to the Side Letter in the Options. They say that the restaurant lot and the storage lot were being acquired as a package, subject to their being physically interconnected. Therefore, they say, his Honour erred in concluding[22] that the only relevance to be given to the reference in the Side Letter to the Options was to make it clear that the Works, which were the subject of the Side Letter, would not be carried out prior to the entry into of the Options and that the only connection that the parties decided to forge between the two related to the timing of the Works. They say that that ignored the contemporaneous nature of the Side Letter and the Options and the negotiations that led to their being part of a single transaction. They say that his Honour’s conclusion also ignored that the effect of the Side Letter was to provide access to both the restaurant lot and the storage lot through common property of the Owners Corporation and that that was something with which neither the Options nor the contracts for sale were concerned.

    22. [2014] NSWSC 743 at [344].

68. Where several deeds form part of one transaction and are contemporaneously executed, they have the same effect, for all relevant purposes, as if they were one deed, on the basis that each is executed on the faith of all of the others also being executed and each is intended to speak only as part of the one transaction. In such circumstances, if equities are to be applied to the parties, the equities must be those arising from the transaction as a whole. [23] It is not a matter of what the purchaser thinks, in his own mind, he is buying or what he would like to be buying, but of what the contract, on its proper construction, requires him to take. [24]

    23. RIL Aviation HL 7740 and HL 7741 Pty Ltd v Alliance & Leicester plc [2011] NSWCA 423 at [134]; Manks v Whiteley [1912] 1 Ch 735 at 754.

    24. Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183; 14 BPR 27,293 at [52].

69. RSE says that, on the true construction of the documents, treated as a suite of documents, RSE contracted to purchase the restaurant lot and the storage lot physically connected by penetrations through the concrete slab that were approved by the necessary authorities. RSE argues that, while there was a series of contracts, there was, in essence, but one transaction. Therefore, it says, it was appropriate to read all of the contracts together for the purpose of determining their legal effect. It contends that the primary judge did not apply those principles in assessing the operation together of the Side Letter, the Options and the Contracts. It says that, although the Side Letter was not signed on the same day as the Options and the Licences, they were all part of the one single transaction and required to be interpreted and given effect to as such.

70. RSE contends that the entire agreement clauses in the Options and in the Contracts related to the restaurant lot and to the storage lot as part only of the overall transaction. It says that, notwithstanding that neither the Options nor the Contracts made any provision for the right to use the common property that existed within the concrete slab between the two lots, nevertheless, by reason of the Side Letter, Waterpoint had agreed to provide the right to use the common property.

71. RSE relies on the principle that a purchaser cannot be forced to accept, even with compensation, a property that is substantially or materially different from that which the purchaser contracted to buy. A purchaser is entitled to have that for which he contracted and should not be compelled to take that which he did not mean to have. [25] RSE contends that, on their true construction, the suite of documents in question, including the Side Letter, had the effect that the subject of the transaction was the restaurant lot and the storage lot, interconnected by the Works lawfully carried out.

    25. Fletcher v Manton [1940] HCA 32; 64 CLR 37.

72. RSE contends that the primary judge incorrectly accepted that unapproved works did not give rise to a defect in title. [26] It says that the transaction, as a whole, required Waterpoint to carry out the Works, which involved joining the restaurant lot and the storage lot together. Further, it says, the Works were to be carried out lawfully prior to completion of settlement of the Restaurant Contract and the Sale Contract. The Works involved penetration of the common property, which belonged to the Owners Corporation. RSE said that it did not agree to accept work that had not been carried out lawfully, thereby exposing itself to potential future actions by the Owners Corporation or the local council, which could require unauthorised and unapproved works to be removed and the common property to be restored. RSE contends that the fact that no complaint had been made did not lead to the consequence that RSE and its successors in title were not exposed to such a complaint in the future.

    26. Based on Carpenter v McGrath (1996) 40 NSWLR 39.

73. Waterpoint, on the other hand, submits that it is clear both from the terms of the transaction documents themselves, and from the circumstances surrounding their negotiation, that RSE had not contracted to purchase the restaurant lot and the storage lot physically connected, with approved penetrations. Instead, RSE agreed to purchase the lots in their unconnected form. The terms of the Side Letter were never objectively intended to become incorporated into the Restaurant Contract and the Storage Contract. Waterpoint says that it may have consented to undertaking construction work to the two lots prior to settlement (including the construction of penetrations between them), but it was never a term of the Contracts that their subject matter was two interconnected lots. If that proposition is accepted, Waterpoint submits, then the principles in Flight v Booth are of no application.

Disposition of the Appeal

74. While not abandoning the claim in the Commercial List statement that a term was implied in the Options or in the Works Agreement that the Contracts would not be enforceable until the Works were completed, RSE put the matter slightly differently in oral argument. It contended that, as a matter of construction, in the light of the alleged Works Agreement, the term “property”, as defined in section 10 of the additional clauses in the Restaurant Contract, should be understood as follows (emphasis added):

The property the subject of this contract, being the Land and the Improvements, as completed by the lawful performance of the works the subject of the Side Letter.

75. RSE contended that the emphasised words were said to arise as a matter of construction, so as to indicate that the subject matter of the Restaurant Contract and the Storage Contract consisted of not simply the storage lot and the restaurant lot, but the storage lot and the restaurant lot having access between them that was created lawfully, namely, with the consent of the Owners Corporation and any necessary local council approval. It contended that the restaurant lot and the storage lot, with physical interconnection and access, in circumstances where that connection and access was constructed and created without such consent and approval, was sufficiently different from the restaurant lot and the storage lot interconnected lawfully that the property the purchase of which it was called upon to complete by the notices to complete was substantially different from the property that it was entitled to have conveyed to it under the Contracts, so construed. A similar implication in the definition of “property” for the purposes of the Storage Contract would also be necessary.

76. As I have said above, there is inconsistency in the use of the term “property” within the standard form of the contract for sale and the additional clauses in relation to the Restaurant Contract. In addition, there is a lack of symmetry, as indicated above, between the Restaurant Contract and the Storage Contract. That makes it impossible to construe the definition of “Property” in the manner contended for by RSE.

77. If lawful completion of the Works in accordance with the alleged Works Agreement were essential to the subject matter of the contracts for sale to be entered into as a consequence of the exercise of either of the Options, one might have expected the parties to give careful attention to the description of “property” in the various contracts. In that regard, it is highly significant that there is no mention of the Side Letter in the Options or the Licences, which were executed some two weeks after the Side Letter was written. Drafts of the Options did not exist at the time when the proposal for the Works was raised in the letter of 6 June 2008. Further, the only reference to put and call options in the Side Letter was to the timing of the Works in relation to the put and call options. There is nothing in the language of the Side Letter to suggest that the completion of the Works was to be a condition of the completion of any contract for sale entered into as a consequence of the exercise of the proposed call or put options.

78. I am not persuaded that the primary judge erred in the conclusion that his Honour reached that the Side Letter was intended to give rise to separate and distinct contractual obligations from those to be found in the Restaurant Option and the Storage Option, together with the Licences, and the contracts for sale that were to come into existence upon the exercise of the put options or the call options. Viewed as independent contractual arrangements, the two sets of contractual arrangements can stand together. There would be no inconsistency between the obligations arising as a result of the Side Letter on the one hand, and the obligations and rights arising under the Options and the Contracts, on the other hand.

79. As I have indicated above, the work contemplated by the Side Letter was to be carried out by Billbergia Group. Indeed, while the Side Letter was actually signed by Waterpoint, it was written on the letterhead of the Billbergia Group. The obligations that arose under Side Letter could easily have been undertaken by an entity quite separate from Waterpoint. They were in fact actually performed by a different entity. Had they been undertaken by Billbergia Group, rather than Waterpoint, there could be no basis upon which the terms of the Side Letter could have been incorporated, in any way, into the Options or the Contracts. Nor could there have been any basis upon which the terms of the Side Letter could have had a bearing on the construction of those agreements or the implication of terms into those agreements.

80. It would have been perfectly simple for the obligations intended to be created by the Side Letter to be incorporated into the Options and the Restaurant Contract and the Storage Contract. The obligations under the Side Letter were proposed before the preparation of the Restaurant Option and the Storage Option. Thus, the content of the Side Letter was proposed in the letter of 6 June 2008 from Fidelity Legal to Ms Russell and Ms Russell’s response to Fidelity Legal of 10 June 2008. Specifically, Ms Russell said in her letter of 10 June 2008 that she was instructed that Waterpoint would cut the hole for the stairs and the dumb waiter lift and that she was instructed to prepare the put and call options. It is also significant that certain of the matters raised in the exchange in June 2008 found their way into the final documentation but the penetration of the concrete slab did not. Thus, the final documentation consisted of put and call options and the Restaurant Contract referred expressly to the balustrade.

81. Against that background, cl 16.3 of the Options is particularly significant in providing that the Options were to constitute the entire agreement of the parties and to supersede all prior discussions, undertakings and agreements. Equally significant is cl 10.1.5 of the standard form of contract for sale, in providing that RSE, as Purchaser, was not entitled to make a claim or requisition or rescind or terminate in respect of a promise, representation or statement about the contract, the property or the title, unless set out or referred to in the contract. Further, cl 6.2 of the additional clauses in the Restaurant Contract (and its equivalent in cl 5.1 of the additional clauses of the Storage Contract) is significant in providing that the provisions set out in the Restaurant Contract contain the entire agreement between the parties, despite any negotiations or discussions held or documents signed or brochures produced before the date of the contract.

75. It is impossible to see how the obligations created by the Side Letter could be permitted to be taken into account in construing the critical term of the Restaurant Contract and the Storage Contract, namely, the description of the subject matter of the contracts. Equally impossible would it be to imply into the Contracts a term linking the obligations under the Contracts in some way to the obligations arising under the Side Letter.

76. While there are elements of interdependence between the Restaurant Option and the Storage Option and between the Restaurant Contract and the Storage Contract, there is nothing in those instruments, or in the Licences, to indicate that, on completion of the contracts for sale, RSE would be entitled to a transfer of anything other than a fee simple in the restaurant lot and a fee simple in the storage lot, together with “Improvements” as defined. There is no mention in any of the contractual documents of a physical connection between the two. A fortiori, there is no mention of any lawful construction of such a physical connection.

77. While contractual obligations may have arisen out of the Side Letter, there is nothing to suggest that those obligations constituted anything other than a separate and distinct contract for the carrying out of the Works in order to connect the storage lot and the restaurant lot. It was accepted that the obligation under the Side Letter was to carry out the Works lawfully and with all necessary approvals and consents. Failure to do so would have given rise to a claim in damages, the measure of which would have been the cost of carrying out the Works or obtaining the necessary consents and approvals. On the face of the documentation, however, that had nothing to do with the obligations of the parties under the Options and under the Restaurant Contract and the Storage Contract.

78. The reference to the proposed put and call options in the Side Letter, coupled with the complete absence of any reference to the Side Letter or the obligations arising under it in the Options, the Licences or the Contracts, is a clear indication of the intention of the parties that the Side Letter was not to have any impact on the obligations of the parties under the Options, the Licences or the Contracts. The reference in the Side Letter to the put and call options was to make clear that no obligation on the part of Waterpoint to carry out the Works was to arise unless RSE, as Grantee, and Mr and Mrs Shin, as Guarantors, first entered into the put and call options. The entry into of the put and call options by them was the consideration that rendered enforceable the promise by Waterpoint contained in the Side Letter.

79. Once it is accepted that the obligations arising under the Side Letter were never intended to be part of, and did not affect, the obligations arising under the Options or the Restaurant Contract or Storage Contract, it is clear that the subject matter of those agreements was the restaurant lot and the storage lot, together with the “Improvements”, as defined, and no more. No question therefore arises as to whether RSE was being asked to accept a property that was substantially different from that which it had contracted to buy under each of the contracts for sale.

80. In those circumstances, it is not necessary to deal with the finding made by the primary judge that RSE would have purchased the restaurant lot and the storage lot even if they were not connected. However, the failure to deal with that question should not be taken to be an endorsement of the conclusion reached by his Honour. There would be a real question as to whether the negotiations to which his Honour had regard could be taken into account for the purposes of construing the written contracts that were ultimately entered into. The subject matter of the contracts for sale is to be determined by reference to their terms and not by reference to the negotiations, including unaccepted offers, that led to the making of the contracts.

Conclusion

88. For the reasons indicated above, the appeal should be dismissed. RSE and Mr and Mrs Shin should be ordered to pay Waterpoint’s costs of the appeal.

**********

Endnotes

Decision last updated: 16 December 2015