Raphael Shin Enterprises Pty Ltd v Waterpoint Shepherds Bay Pty Ltd

[2014] NSWSC 743

Supreme Court

New South Wales

Medium Neutral Citation:	Raphael Shin Enterprises Pty Limited v Waterpoint Shepherds Bay Pty Limited [2014] NSWSC 743
Hearing dates:	31 March, 1, 2, 3, 8 April 2014; 11, 12 April, 19, 21, 28 May 2014 written submissions
Decision date:	06 June 2014
Jurisdiction:	Equity Division
Before:	Sackar J
Decision:	See paragraph [478]-[480]
Catchwords:	EQUITY - contract - terms said to be partly written, partly oral and partly implied - where parties entered put and call options in relation to adjacent lots separated by common property - where agreement to create penetrations between lots - nature of that agreement and relationship to options - where purchaser alleges oral representations - where penetrations completed without relevant consents and approvals - where purchaser subsequently occupied property pursuant to licences and traded for a significant period - where purchaser failed to complete contract - consideration of principle in Flight v Booth - whether vendor entitled to retain deposit and whether entitled to damages for deficiency on resale and loss of rent
Legislation Cited:	Competition and Consumer Act 2010 (Cth) Conveyancing Act 1919 Environmental Planning and Assessment Act 1979 Strata Schemes Management Act 1996 Strata Schemes (Freehold Development) Act 1973 Trade Practices Act 1974 (Cth)
Cases Cited:	Abigroup Contractors Pty Ltd v Sydney Catchment Authority (2004) 208 ALR 630; [2004] NSWCA 270 ACN 070 037 599 Pty Ltd v Larvik Pty Ltd [2008] QCA 416 Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570 Alexus Pty Ltd v Pont Holdings Pty Ltd (2000) 10 BPR 18,371 Ali v Nationwide News Pty Ltd [2008] NSWCA 183 Australian Guarantee Corp Ltd v Ross [1983] 2 VR 319 Baird v Chambers [2010] NSWSC 272 Bakhos v Fenner [2007] NSWSC 641 Bovino Group Pty Ltd v Casey Group Holdings Pty Ltd [2010] VSC 391 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Branir v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 Budget Stationary Supplies v NAB (1996) 7 BPR 14,891 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Carpenter v McGrath (1996) 40 NSWLR 39 Civoken Pty Ltd & Anor v Madden Grove Developments Pty Ltd & Ors [2006] VSC 283 Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 Coles Supermarkets Australia Pty Ltd v FKP Limited [2008] FCA 1915 Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670 Coppa v Barnett [2012] NSWSC 490 Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd [2004] FCAFC 48 Cubillo v Commonwealth of Australia [2000] FCA 1084; (2000) 174 ALR 97 Donnelly v Weybridge Construction Ltd [2006] EWHC 2678 Dukemaster Pty Ltd v Bluehive Pty Ltd [2002] FCAFC 377 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 Fabcot Pty Ltd v Port Macquarie-Hasting Council [2011] NSWCA 167 Fletcher v Manton (1940) 64 CLR 37 Flight v Booth (1834) 1 Bing (N.C.) 370 Fox v Percy (2003) 214 CLR 118 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 GEC Marconi Systems v BHP Information Technology [2003] FCA 50 Gogard Pty Ltd v Satnaq Pty Ltd [1999] NSWSC 1283 Golding v Vella [2001] NSWSC 567 Hart v McDonald (1910) 10 CLR 417 Havyn Pty Ltd v Webster [2005] NSWCA 182 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83 Higgins v Statewide Developments (2010) 14 BPR 27,293; [2010] NSWSC 183 Hoyt's v Spencer (1919) 27 CLR 133 Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd's Rep 611 James Miller & Partners v Whitworth Street Estates Ltd [1970] AC 583 Jennings v Zilahi-Kiss (1972) 2 SASR 493 JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 Jones v Acfold Investments Pty Ltd (1984) 6 FCR 512 Keen Mar Corporation Pty Ltd v Labrador Shopping Centre Pty Ltd [1989] FCA 46 Kewside Pty Ltd v Warman International Ltd [1990] FCA 7 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 Lane Cove Council v Michael Davies & Associates and Others [2012] NSWSC 727 Lustre Hosiery Ltd v York (1935) 54 CLR 134 Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 Macdonald v Shinko Australia [1999] 2 Qd R 152 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 Maloy v Jelacic [2003] NSWSC 23 Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 McMahon v National Foods Milk Ltd (2009) 259 ALR 20 McWilliam's Wines Pty Ltd v LS Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 Murtagh v Murtagh [2013] NSWSC 926 Nassif v Caminer (2009) 74 NSWLR 276 Netaf Pty Ltd v Bikane Pty Ltd (1990) 26 FCR 305 Otrava Pty Ltd v Mail Boxes Etc (Aust) Pty Ltd [2004] NSWSC 1066 Owners Strata Plan 37762 v Pham and Ors [2005] NSWLEC 500 Owners Strata Plan No 50411 v Cameron North Sydney Investments Pty Ltd [2003] NSWCA 5 Pennimpede v Pennimpede [2009] NSWSC 85 Ping v Pearce Paradise Pty Ltd (1982) 2 BPR 9419 Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367 Rosenberg v Percival (2001) 205 CLR 434 Ross v Allis-Chalmers Australia Pty Ltd (1980) 32 ALR 561 Saleh v Romanous [2010] NSWCA 274 Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225 Sidhu v Van Dyke [2014] HCA 19 Skyrise Consultants Pty Ltd v Metroland Funds Management Ltd [2011] NSWCA 406 Statewide Developments Pty Ltd v Higgins [2011] NSWCA 35 Szanto v Bainton [2011] NSWSC 278 Textralian Enterprises v Perpetual Trustees (Victoria) Ltd [2000] NSWCA 176 Thomas v Hollier (1984) 156 CLR 152 Twist v Randwick Municipal Council (1976) 136 CLR 106 Urban House Pty Ltd v Purnell Bros Pty Ltd [2007] NSWSC 1248 Van Dyke v Sidhu (2013) 301 ALR 769 Watson v Foxman (1995) 49 NSWLR 315 Young v Tibbits (1912) 14 CLR 114
Texts Cited:	Cheshire and Fifoot, Law of Contract (9th Australian edition) Hanbury and Martin, Modern Equity (19th edition, 2012) Lewison and Hughes, The Interpretation of Contracts in Australia (2012) Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (4th edition, 2002) Spry, Equitable Remedies (8th edition, 2010) Young, Croft and Smith, On Equity (2009) McGhee, Snell's Equity (31st edition, 2005)
Category:	Principal judgment
Parties:	Raphael Shin Enterprises Pty Limited - plaintiff Waterpoint Shepherds Bay Pty Limited - defendant
Representation:	Counsel: A Fernon, LA Walsh - plaintiff M Ashhurst SC, S Ahmed - defendant Solicitors: Lander & Rogers - plaintiff Mills Oakley - defendant
File Number(s):	2011/41570

Judgment

Proceedings

1. By its further amended Commercial List Statement filed with leave on 31 March 2014 (FACLS) and amended summons filed 14 February 2012, the plaintiff Raphael Shin Enterprises Pty Ltd (RSE) seeks damages from the defendant Waterpoint Shepherds Bay Pty Ltd (Waterpoint) for breach of various alleged agreements and representations as to certain works (such agreements being partly written, partly oral and partly implied), or pursuant to the Trade Practices Act or alternatively the Australian Consumer Law, or by reason of an alleged estoppel. The plaintiff also seeks an order that the defendant return a deposit and other ancillary orders.

1. By its cross claim summons and Commercial List Cross-Claim Statement filed 2 March 2012, the defendant/cross-claimant seeks damages from the plaintiff, Raphael Shin and Rebecca Yi Jeong Shin (the cross-defendants), the latter two as guarantors. The cross-claimant also seeks a declaration that the second and third cross-defendants are jointly and severally liable for any loss or damage suffered, and an order that they indemnify the cross claimant in certain respects.

1. The claim concerns two properties that formed part of a residential and retail/commercial development at Meadowbank. The two properties are a stratum lot (Lot 4 in DP1092972) which will be referred to as the Restaurant Lot, and a strata lot (Lot 178 in SP76502) which will be referred to as the Storage Lot. The Storage Lot is located directly below the Restaurant Lot, separated by a concrete slab that is partly common property owned by the relevant Owners Corporation of Strata Plan 76502.

Background Facts

1. Mr Raphael Shin is one of two directors of the plaintiff. His wife, Mrs Rebecca Yi Jeong Shin, is the other director. Mr Shin is a licensed builder and property developer. I set out his various business interests, so far as they are relevant to these proceedings, later in this judgment.

1. Mr Edward Kim, a real estate agent, had been appointed by Waterpoint to sell properties in the Meadowbank development. In early 2008, Mr Kim was requested by a Mr Josef Ristway of Waterpoint to find a buyer for the restaurant.

1. Mr Ristway describes himself as having been a finance consultant for Waterpoint, originally, but became a director and secretary of that company from 25 February 2004 until January 2006 and also acted as secretary of the company from June 2010 until March 2012. The plaintiff asserts he was the officer said to be responsible for negotiating sales of the lots and giving instructions to Mr Kim as the agent appointed by the defendant.

1. In or about February 2008, Mr Raphael Shin asserts he was approached by Mr Kim regarding the development at Meadowbank, and Mr Shin indicated his interest in creating an upmarket Korean restaurant. There is no dispute that Mr Shin "was an experienced restaurateur and an experienced builder and developer of properties" (T17/46). Mr Shin had dealt with Mr Kim before but had never had any previous dealings with Waterpoint or its principals.

1. Negotiations between the parties then ensued, in relation to Mr Shin acquiring the Restaurant Lot and in turn the Storage Lot. In particular, it appeared that Mr Shin required a long settlement date so that once the restaurant commenced trading, a period of six months would elapse and the financial results would assist Mr Shin in obtaining finance for the purchase (under what became the exercise of either a Put or Call Option).

1. Mr Kim recorded, in a file note dated 26 February 2008, that Mr Shin made an offer of $2 million for what the defendant alleges was the Restaurant Lot alone. A number of draft sales advices, one of which was dated 1 March 2008 but which appears to be ultimately faxed on 28 May 2008 to RSE's solicitor, were prepared by Mr Kim. In the last version of these and in addition to the words typed into the advice, there was also a handwritten notation "+ storage as at cost agreed". A factual issue of some significance arose at the trial as to whether Mr Shin ever offered to purchase the Restaurant Lot separately from the Storage Lot.

1. A cheque was provided to Mr Kim in the sum of $55,000. It may be observed that this constitutes 2.5% of $2.2 million. On its face, the cheque was dated 10 March 2008 but no payee was provided. Mr Kim gave evidence that when he received the cheque it was post-dated and was given to him by Mr Shin as a sign of his commitment. The cheque was never banked, but it was contended by Waterpoint that this supported the proposition that RSE was prepared to purchase the Restaurant Lot alone.

1. As part of the alleged ongoing negotiations, there were discussions between Mr Shin, Mr Kim and Mr Ristway, many of the terms of which are disputed. There are also disputes as to when such discussions took place. What is not in issue is that Mr Kim and Mr Shin always it seems conversed in the Korean language. A further issue that arose was whether and if so when Mr Ristway was also present when Mr Kim and Mr Shin met.

1. Mr Shin alleges he and Mr Kim had a conversation at a building site at Campsie, which is set out in paragraphs [59]-[60] of Mr Shin's affidavit dated 25 May 2012 (the Shin Affidavit). Mr Shin asserts at some little length the detailed requests he alleges he made of Mr Kim. The requests entailed a good deal of work to be done for example at the vendor's expense and the obtaining of all relevant consents and approvals. Mr Shin asserts Mr Kim subsequently informed Mr Shin all of his detailed requests had been agreed to.

1. Mr Kim denies that permits, approvals or certificates were discussed and denies entirely that Mr Shin's requests had been agreed to.

1. In June and July 2008, there was correspondence between the solicitor for RSE, Mr Ben Johnston of Fidelity Legal (Mr Johnston) who had acted for Mr Shin for some twenty five years, and the solicitor for Waterpoint, Ms Phillippa Russell (Ms Russell).

1. In a letter dated 6 June 2008, Mr Johnston wrote to Ms Russell noting that there would be a side letter in relation to the creation of a set of stairs and a dumb waiter, necessitating penetrations between the two lots, and for the provision of a construction certificate. The relevant terms of the letter were as follows:

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:

[...]

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.

[my emphasis]

1. In a letter dated 10 June 2008, Ms Russell wrote to Mr Johnston, confirming that penetrations for the stairs and dumb waiter would be provided by Waterpoint. The terms of the letter are relevantly as follows:

I am instructed to respond to your 6 June 2008 letter as follows:

[...]

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.

[my emphasis]

1. In an email dated 10 June 2008, Mr Johnston wrote to Mr Kim and attached the correspondence just described. The terms of the letter are relevantly as follows:

There are 2 matters of concern to Mr Shin -

1. He would like to avoid the payment on 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?

[my emphasis]

1. On 11 July 2008, Waterpoint issued a letter to RSE (the Side Letter) stating that after exchange of put and call options for the purchase of the Restaurant Lot and the Storage Lot, Waterpoint would now agree to carry out the creation only of a penetration and stairs connecting the lots, subject to engineering acceptance of the proposed location and design, at their own expense. The letter is on the letterhead of Billbergia, but it was not contested that it was issued by Waterpoint (see the discussion at T20/32) and its contractual force is not in contest in these proceedings. The relevant terms of the letter are as follows:

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 above properties:

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).

[my emphasis]

1. However, at some point between 11 July 2008 and 25 July 2008 and perhaps not for the first time, the plaintiff asserts a conversation took place between Mr Shin, Mr Kim and Mr Ristway. The plaintiff contends that Mr Ristway confirmed, notwithstanding the terms of the letter, that Waterpoint knew they must ("as previously agreed") cut four holes or whatever number of holes Mr Shin wanted as part of the contract for purchase. Mr Ristway accepts that he said Mr Shin could have as many holes as he wanted, provided a structural engineer certified that it was safe to do so.

1. On or about 25 July 2008, the parties executed a number of transactional documents as described below.

1. On that day, a put and call option was executed in relation to the Restaurant Lot and separately in relation to the Storage Lot (collectively the Put and Call Options), with a final date to exercise the call option of 31 December 2008 and a final date to exercise the put option of 30 April 2009. The purchase price was $2.42 million for the Restaurant Lot and $330,000 for the Storage Lot (including GST). The settlement date of both contracts was 30 June 2009, and a total of $20,000 was paid on or about that date as a deposit (which would form part of the deposit in the event the options were exercised). Mr Shin and Mrs Rebecca Shin were guarantors of RSE's obligations under the option agreements.

1. The Put and Call Options include entire agreement clauses and make no reference to the Side Letter. The side letter makes mention of the Put and Call Options. The significance of this issue was a matter of some debate at the trial, and I will return to this in due course.

1. The parties also executed licences to facilitate occupation of the lots so as to permit RSE to carry out a fit out and permit the operation of the restaurant business prior to settlement (the licences).

1. In or about August 2008, RSE retained Space Con Pty Ltd (Space Con) to undertake the fit out work. Space Con is a related company of RSE, with Mr Shin as its sole director and shareholder. The contract price was stated to be $1.2 million (CB10/3988) plus GST.

1. In or about August 2008, cut out plans for the penetrations were prepared and provided to a Mr Rob Allen of Billbergia Group, a related entity of Waterpoint which was to be ultimately responsible for cutting the penetrations.

1. On or about 12 August 2008, Mr Allen emailed Space Con and Mr Kim to advise that the penetrations as required could not be cut as they involved common property and permission from the Owners Corporation was required.

1. Discussions then ensued between Mr Shin, Mr Kim, Mr Ristway and Mr Allen, however in any event the penetrations were not cut at this point.

1. On or about 23 December 2008, it is contended that due to the delay in cutting the penetrations, RSE and Waterpoint executed a Deed of Variation to extend the date for the exercise of the call option by one month to 30 January 2009. However the call option was not exercised by this date.

1. On or about 10 March 2009, RSE obtained a construction certificate in respect of the fit out of the Restaurant Lot.

1. On or about 20 April 2009, RSE was sent two letters by Waterpoint purporting to exercise the put option for both lots and requiring completion by 30 June 2009. Further correspondence ensued between the parties as to the validity of the purported exercise of the put option, and settlement did not occur on the nominated date.

1. Finally, on or about 4 September 2009, there was a meeting between Mr Shin, Mr Kim, Mr Ristway and a Mr Bassam Aflak (of Waterpoint). Waterpoint it seems suggested the parties walk away from the sale and purchase, but Mr Shin did not wish to walk away and advised that he was ready to start his fit out as soon as the penetrations had been cut.

1. In October 2009, the vendor undertook a number of penetrations and constructed the staircase between the Restaurant Lot and Storage Lot. According to the report of Mr John Bottaro, registered surveyor, the penetrations between the two lots were "the stair well, the lift shaft, the dummy kitchen waiter, two vent penetrations and a small penetration with copper piping leading into it" (CB2/673).

1. On or about 29 October 2009, Ms Russell sent a letter to Waterpoint Asset Management Pty Ltd on behalf of the building management committee, seeking the consent of the Owners Corporation in respect of the work that had been carried out. No consent was ever provided.

1. In or about January 2010, the fit out works for the two lots were undertaken by Space Con and completed.

1. On or about 15 January 2010, the restaurant commenced trading.

1. Following the completion of the fit out, Mr Shin sought the provision of an occupation certificate from the private certifier, Mr Geoffrey Pearce of the McKenzie Group. On or about 19 January 2010, Mr Pearce informed Mr Shin that no approval had been obtained for the staircase between the two lots. This was confirmed in writing on 22 January 2010.

1. Between January and July 2010, Mr Shin asserts he and Mr Kim had various conversations to the effect that unless Waterpoint obtained all the necessary approvals and certificates, RSE would not settle on the contracts.

1. On or about 8 November 2010, a building certificate was issued in relation to the Restaurant Lot only in connection with the construction of the stairway. The certificate did not concern the Storage Lot or common property, nor any other penetrations between the two lots.

1. On or about 15 November 2010, an interim occupation certificate was issued in relation to the Restaurant Lot. The certificate did not concern the Storage Lot or common property.

1. By letter dated 25 November 2010, Ms Russell issued a Notice to Complete on behalf of Waterpoint, such completion to be effected by 10 December 2010.

1. On or about 29 November 2010, a final occupation certificate was issued in relation to the Restaurant Lot. Again, the certificate did not concern the Storage Lot or common property.

1. Further correspondence was exchanged between the parties concerning the validity of the Notice to Complete.

1. On or about 13 December 2010, Mr Johnson lodged a caveat over the Restaurant and Storage Lots.

1. By letter dated 17 December 2010, Ms Russell issued documents purporting to be Notices of Termination of the contracts arising from the 20 April 2009 exercise of the Call Option and the licence agreements.

1. RSE continued to trade from the Restaurant Lot and the Storage Lot until 5 August 2011, when it finally vacated the premises taking a good deal of equipment with it.

Legal Principles

1. The parties contend a number of diverse, and in one respect somewhat exotic, legal principles are engaged in the resolution of the dispute between them. It is convenient to set some of those out in advance of a consideration of the factual controversies. Some issues covered for example are well travelled areas: construction of contracts, partly oral contracts, the relevance of post contractual conduct. On the other hand, RSE relied upon the authority of Flight v Booth.

Construction of Contracts

1. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7, French CJ, Hayne, Crennan and Kiefel JJ observed in relation to contracts more generally at [35]:

Both [parties] recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".

[footnotes omitted]

1. In Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at [90], Campbell JA stated the principles in deciding whether an agreement that parties have entered is one that is wholly in writing, or partly written and partly oral, include the following:

(1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties;

(2) It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing. Conversely, it is open to a party to prove that the parties have orally agreed that a document should contain the whole of the terms agreed between them.

(3) The parol evidence rule applies only to contracts that are wholly in writing, and thus has no scope to operate until it has first been ascertained that the contract is wholly in writing.

(4) Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact.

(5) In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are. If it is possible to make a finding about what were the words the parties said to each other, the meaning of those words is ascertained in the light of the surrounding circumstances. If it is not possible to make a finding about the particular words that were used (as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the surrounding circumstances can be looked at to find what in substance the parties agreed.

(6) A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where there is a contract wholly in writing and an oral collateral contract.

[extensive references to case law omitted]

1. Debate took place as to the use that may be made of post-contractual conduct in resolving the question of the existence of a contract or its terms, especially in the context of a contract which is said to be partly in oral form.

1. In Lym International Pty Ltd v Marcolongo [2011] NSWCA 303, Campbell JA additionally observed:

[139] Third, where a contract is oral, post-contractual conduct may be used to ascertain the subject matter of the contract. Such use of subsequent conduct is justified when it is "relevant, on an objective basis, to the identification of the subject matter of the contract or the determination of the necessary terms, as distinct from deciding the meaning of words". Such subsequent conduct is relevant in that way when "what was done later [is] a basis for inferring what was agreed when the contract was made, or as establishing later additions or variations", citing Browne LJ in Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213 at 1229.

[140] I respectfully agree with Spigelman CJ's analysis. Other authority that where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact is collected in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382 at [90].

[141] There is a vast difference between the task that is involved in interpreting a wholly written contract, and the task involved in finding what has been agreed in a contract that is not wholly in writing. The difference between those tasks in itself makes a vast difference between the circumstances in which post-contractual conduct can be relevant for the respective tasks.

[142] Where there is a contract that is wholly in writing, there is no doubt what the contract is - it is the writing. The task of interpretation is ascertaining the meaning that the bystander who knows all the relevant surrounding circumstances would understand from the parties using the words in that writing. The admissibility of evidence for interpreting a wholly written contract is decided by reference to whether it is able to assist in ascertaining the meaning that the bystander who knows all the relevant surrounding circumstances would understand from the parties using those words. Save in the case of post-contractual events providing retrospectant evidence of a surrounding circumstance that was known to the parties at the time of contracting, the view favoured in this court is that post-contractual conduct cannot assist in that task, and thus is not admissible, or if admitted cannot legitimately be used in that task: the cases cited by McColl JA in County at [161] ([118] above).

[143] By contrast, the task in ascertaining what are the terms of a contract that is not wholly in writing is quite different - the task is finding as a fact what the parties have agreed. A range of post-contractual conduct could be relevant to ascertaining what the parties have agreed. For example, their conduct in carrying out the contract could itself be objective evidence of what they had agreed, an admission of one of the parties could assist in ascertaining what they have agreed, and business records created to record or report on the contract rather than carry it out could also assist in that task.

1. The statement in James Miller & Partners v Whitworth Street Estates Ltd [1970] AC 583 at 603 per Lord Reid that "it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made" was reaffirmed in Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570 at [35] per Gummow, Hayne and Kiefel JJ.

1. More recently, in Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 the Court of Appeal considered the issue of post-contractual conduct. Basten JA observed (Gleeson JA agreeing) at [120]-[121]:

[120] There are difficulties attending the use of post-contractual statements to construe the terms of a contract. It is an accepted principle that anything which the parties said or did after a contract was made cannot be used "as an aid in the construction of" the contract: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at [35] (Gummow, Hayne and Kiefel JJ), referring to the statement of Lord Reid in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603. That principle derives from the "objective" theory of contract, which provides that the legal obligations of the parties to the contract do not depend upon their subjective beliefs but upon the view of the reasonable bystander informed as to the surrounding context and circumstances, which in practice means the view of the court based on the evidence before it: Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 775 (Lord Hoffmann); Wilson v Anderson [2002] HCA 29; 213 CLR 401 at [8] (Gleeson CJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at [16] (Lord Hoffmann, PC); and see Lewison and Hughes, The Interpretation of Contracts in Australia (Law Book Co, 2012) at [2.04]-[2.05].

[121] On the other hand, where it provides evidence of facts, the assertion of which is against the interests of one party, it may be admissible as an admission by that party. However, to the extent that the evidence reveals an opinion as to a question of law rather than fact, the admission may be irrelevant or valueless. (The relevant authorities were collected by Campbell JA in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 and in Lym International Pty Ltd v Marcolongo [2011] NSWCA 303.) Alternatively, the evidence may establish contextual facts in existence at the time the contract was executed.

Collateral Contracts and Entire Agreement Clauses

1. The plaintiff alleges the written contractual arrangements were supplemented by an oral agreement. Indeed he says the side agreement of 11 July 2008 operates in conjunction, and collaterally, with the Put and Call Options and was in turn supplemented by an oral arrangement.

1. A further question which arose was one of construction as to whether what may be described as an entire agreement clause sat comfortably or not with the side letter plus the alleged oral agreement. Such clauses appeared in a number of documents the parties executed or on one view promised to execute. I will return to the detail later.

1. However, in Hoyt's v Spencer (1919) 27 CLR 133, the High Court held that a collateral agreement cannot operate inconsistently with the principal contract. Knox CJ observed at 139 that:

...a distinct collateral agreement, whether oral or in writing, and whether prior to or contemporaneous with the main agreement, is valid and enforceable even though the main agreement be in writing, provided the two may consistently stand together so that the provisions of the main agreement remain in full force and effect notwithstanding the collateral agreement.

1. In McMahon v National Foods Milk Ltd (2009) 259 ALR 20, an authority relied upon heavily by RSE, the Victorian Court of Appeal considered a merger provision and the issue of collateral contracts. However in my view it is clear that in each case, whether the clause is described as an entire agreement clause or a merger provision, the resolution of the operation of any collateral contract will turn upon the scope of such a provision.

1. Nettle JA (Neave and Dodds-Streeton JJA agreeing) observed at [38]-[41]:

[38] But, as was observed by Peden and Carter in an article entitled Entire Agreement - and Similar - Clauses, because proof of a collateral contract is an exception to the parol evidence rule, a merger provision should not be permitted to stand in the way of proof of a collateral contract unless the merger provision is clearly expressed to have that effect. I do not consider that clause 33 is sufficiently clearly expressed to have the effect of preventing proof of the collateral contract for which the McMahons contended.

...

[41] It is true, as counsel for the respondent submitted, that allegations of collateral contract have often been dismissed on the basis that, if the parties truly intended the alleged collateral promise to be binding, they would have set it out in their written agreement. But that is not a principle of law. The test is what was said and done and how it would be discerned objectively - and the fact is that business people are not infrequently inclined to trust other business persons who make promises to them to the point that they do not insist upon having those promises reduced to writing. If such situations are to be looked at objectively with an informed knowledge of all of the circumstances, the honest and reasonable business person observer may not hesitate to conclude that a deal had been done.

1. McMahon was referred to by the New South Wales Court of Appeal in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 per Hodgson JA (Allsop P and Macfarlan JA agreeing) at [212]:

Usually, so-called 'merger clauses' are expressed in more expansive terms, stating that all prior agreements and negotiations are merged in a final written contract: see, for example, McMahon v National Foods Milk Ltd [2009] VSCA 153; (2009) 259 ALR 20 at 39-41 [37]- [43]. When expressed in this broad way, merger clauses are thought to achieve the same purpose as 'entire agreement' clauses, so that the final written contract embodies the whole agreement between the parties: see E Peden & J W Carter, 'Entire Agreement-and Similar-Clauses' (2006) 22 Journal of Contract Law 1 at 10.

1. In Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 482-484, a unanimous High Court held:

[33] The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondents' case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified. The respondents attempted neither.

[34] There are reasons why the law adopts this position. First, it accords with the "general test of objectivity [that] is of pervasive influence in the law of contract". The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions.

[35] Secondly, in the nature of things, oral agreements will sometimes be disputable. Resolving such disputation is commonly difficult, time-consuming, expensive and problematic. Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. At least, it will do so unless relief is afforded by the operation of statute or some other legal or equitable principle applicable to the case. Different questions may arise where the execution of the written agreement is contested; but that is not the case here. In a time of growing international trade with parties in legal systems having the same or even stronger deference to the obligations of written agreements (and frequently communicating in different languages and from the standpoint of different cultures) this is not a time to ignore the rules of the common law upholding obligations undertaken in written agreements. It is a time to maintain those rules. They are not unbending. They allow for exceptions. But the exceptions must be proved according to established categories. The obligations of written agreements between parties cannot simply be ignored or brushed aside.

[footnotes omitted]

1. In Skyrise Consultants Pty Ltd v Metroland Funds Management Ltd [2011] NSWCA 406, MacFarlan JA held (Beazley and Meagher JJA agreeing) at [13]-[15]:

[13] If a prior oral agreement is consistent with the terms of a later written agreement, the proper conclusion may be that the agreement is partly oral and partly in writing. One issue to be addressed in that context is whether the written terms were intended to be an exhaustive statement of the parties' rights (see State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191 - 2). If they were, the parol evidence rule will preclude the conclusion that the contract is partly oral and partly in writing.

[14] Moreover where, as here, the terms of the prior oral arrangement contradict the terms of the written arrangement the conclusion that the contract is partly oral and partly in writing will not be available. As was said in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at 484 in relation to the facts there under consideration:

"In another case it may leave open the possibility that the contract is partly oral and partly in writing. But that cannot be so here. The oral limited recourse terms alleged by the respondents contradict the terms of the written loan agreement. If there was an earlier, oral, consensus, it was discharged and the parties' agreement recorded in the writing they executed. It is the written loan agreement which governed the relationship between Rural Finance and each respondent." (citations omitted)

[15] The appellants did not contend that the oral agreement constituted a collateral contract. Such a contention would plainly not have been successful as a collateral contract may not contradict the terms of the main contract (see Hoyt's Pty Ltd v Spencer [1919] HCA 64; 27 CLR 133 and Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; 160 CLR 1).

1. In Lewison and Hughes' The Interpretation of Contracts in Australia at [3.03], the authors observe that a document executed contemporaneously with, or shortly after, the primary document to be construed may be relied upon as an aid to construction, if it forms part of the same transaction as the primary document. The authors cite a number of authorities that have approved this observation. In the present case, however, although the negotiations resulted in both the Side Letter and the option agreements, it is not so much a question of construing the latter in terms of the former but rather whether the terms of the Works Agreement as alleged (including the Side Letter of 11 July 2008) are somehow incorporated as terms into the option agreements executed on 25 July 2008.

1. As a result of the observation of Hodgson JA in Macquarie International Health Clinic, it is necessary to make some additional specific comments about entire agreement clauses.

1. Entire agreement clauses may, in the absence of fraud, be effective to provide that express contractual representations constitute the totality of the obligations.

1. There are entire agreement clauses for the Restaurant Lot (CB13/4648 and CB13/4947) and identical clauses appear for the Storage Lot (CB6/2013 and CB6/2234).

1. Clause 16.3 of the Restaurant Lot Put and Call Option is in the following terms:

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.

1. Clause 6.2 of the Additional Clauses attached to the standard contract for the sale of land in relation to the Restaurant Lot (and clause 5.1 in relation to the Storage Lot) is 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;

(b) Documents signed or brochures produced,

before the date of this contract.

1. Evidence of pre-contractual terms are admissible where a document is only a partial or provisional record. In Hoyt's v Spencer (1919) 27 CLR 133 at 143, Isaacs J observed:

If the parties agree to commit their agreement to writing, what is written is the conclusive record of their agreement, and, unless the document was not intended as the complete record of their bargain, no oral evidence can be admitted to qualify it.

1. Therefore, in Cheshire and Fifoot at [10.7], the authors observe that if a document that appears ostensibly complete must be accepted as such, an entire agreement clause conclusively establishes that the document is a final and complete record of the contract.

1. As was memorably observed by Lightman J in Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd's Rep 611 at 614:

The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long-forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search, and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search.

1. However, an entire agreement clause does not generally prevent the implication of specific terms to give business efficacy to a contract (Hart v McDonald (1910) 10 CLR 417, where a clause 'that there is no agreement or understanding between us not embodied in this tender' held not to preclude implication) or the implication of generic terms implied by law: see GEC Marconi Systems v BHP Information Technology [2003] FCA 50.

1. On the other hand, where it is sought to imply a term into a contract, it is necessary to turn to the requirements set out in the well-known passage from BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283, where Lord Simon of Glaisdale delivered the majority judgment and observed:

...for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

1. An express term such as an 'entire agreement' clause, providing that there is no term other than those stated in a contractual document, may therefore prevent the implication of a term as otherwise the requirement that the implied term not contradict any express term may not be satisfied. See, for example, Australian Guarantee Corp Ltd v Ross [1983] 2 VR 319 at 321-2 per Young CJ (no implied term that owner would have title to goods hired at time of hiring where express provision negatived and excluded all conditions and warranties which might be implied); Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 at 196 per McLelland J (in the absence of fraud, but subject to statute, an 'entire contract' clause will bind the parties and gives rise to an estoppel).

1. However, it is well established that an entire agreement clause may be ineffective to defeat a misleading or deceptive conduct action. In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83, the clause was in the following terms at 87:

The parties hereto further agree that no promise, representations, warranties, undertakings or conditions shall be deemed to be implied herein or to arise between the parties hereto by way of collateral or other agreement or by reason of any promise, representation, warranty or undertaking given or made by any party thereto to the other on or prior to the making of this agreement. The existence of any such implication or collateral or other agreement is hereby expressly negatived.

1. Lockhart J observed at 98-99:

Irrespective of the construction of these two special conditions it does not matter ultimately whether the impugned conduct with which this case is concerned falls literally within them or not. Section 52 is a section in the consumer protection provisions of an Act concerned to protect the public from misleading or deceptive conduct and unfair trade practices which may result in contravention of the Act. It has been held that exclusion clauses, of which special conditions 6 and 7 are examples, cannot operate to defeat claims under s 52. It may be, as the judgment of Sweeney J in P J Berry Estates Pty Ltd v Mangalone Homestead Pty Ltd (1984) 6 ATPR 40-459 at 45,638 suggests, that such exclusion clauses will generally be ineffective because they cannot break the nexus between the conduct in contravention of s 52 and the making of the agreement in issue. Where the conduct of the defendant is alleged to be fraudulent in character, then an exclusion clause will be no more effective to defeat the action than it would be effective if the action were brought in the tort of deceit in relation to conduct antecedent to the contract: Commercial Banking Co of Sydney Ltd v R H Brown & Co (1972) 126 CLR 337, per Menzies J at 344; Petera Pty Ltd v E A J Pty Ltd (1985) ATPR 40-605, per Wilcox J at 46,887: see also Terry: "Disclaimers and Deceptive Conduct" (1986) Australian Business Law Review, p 478 at 486.

There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute, could be ousted by private agreement. Parliament passed the Act to stamp out unfair or improper conduct in trade or in commerce; it would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act. There are various judgments of judges of this court where this approach has been adopted and they are collected in the judgment of the trial judge, so I need not repeat them.

1. In Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371, Sheppard J stated that:

But the remedy conferred by s 52 of the Trade Practices Act will not be lost, whatever the parties may provide in their agreement. If a vendor of goods has engaged in misleading or deceptive conduct, the law makes him accountable for loss and damage suffered as a result of his unlawful conduct. That conduct will usually have been committed, as in this case, prior to the signing of any contract. If, as a result of the conduct, a person is induced to enter into a contract and suffers loss, an action to recover it lies. The terms of the contract are irrelevant.

1. An entire agreement clause is a factor to be considered in determining whether the plaintiff has been misled: Netaf Pty Ltd v Bikane Pty Ltd (1990) 26 FCR 305.

1. Furthermore, in Kewside Pty Ltd v Warman International Ltd [1990] FCA 7, for instance, French J commented at [82] that an exclusion clause or disclaimer may 'deprive conduct of [its misleading or deceptive] quality or [break] the causal connection between conduct and loss'. Perhaps the most striking illustration to date of an exclusion clause having the latter effect is Keen Mar Corporation Pty Ltd v Labrador Shopping Centre Pty Ltd [1989] FCA 89, in which the applicants' written acknowledgment that no pre-contractual statements had been made inducing them to enter the contract in issue led to a finding that the misrepresentations made by the respondent during the contract's negotiation had not been relied on. The combination of this evidence and the failure of the applicants to refer to the alleged contravention of s 52 in complaints made after entry into the contract led Morling and Wilcox JJ to hold that reliance had not been established.

1. However an entire agreement clause does not prevent the admission of evidence of pre-contractual conduct in support of a claim of rectification (Macdonald v Shinko Australia [1999] 2 Qd R 152) or equitable estoppel (Budget Stationary Supplies v NAB (1996) 7 BPR 14,891; Branir v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [446] per Allsop J, Drummond and Mansfield JJ agreeing).

1. In Saleh v Romanous [2010] NSWCA 274, Handley AJA (Giles JA and Sackville AJA agreeing) observed at [57] that "these remedies and defences [such as promissory estoppel] trump the legal rules about parol evidence and entire contracts" and at [63] that "enforcement of a pre-contractual promissory estoppel is not barred" by Hoyt's v Spencer.

What Gives Oral Representations Contractual Force?

1. In Lewison and Hughes' The Interpretation of Contracts in Australia at [3.12], the authors suggest that a representation made by one of the prospective parties in the course of negotiations becomes a term of the contract if the totality of the evidence shows that it was the intention of the parties that the representation be promissory in character: see JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442.

1. The authors suggest that later cases have identified a number of features that assist in reaching a conclusion that a representation was promissory in character. These features include a representation being put into writing, if the statement of fact is within the knowledge of one party but not the other, if the representation was made for the purpose of inducing entry into the contract, if the representation is one of fact rather than a statement of opinion, and finally where the representation was made close in time to the time that the contract was made (conversely, if made some time before it is less likely to be promissory).

1. In Cheshire and Fifoot's Law of Contract (9th Australian edition), the authors note at [10.21] that "no comprehensive account of the nature of promise is to be found in the cases [and that] a miscellany of criteria has been identified as relevant in determining whether a statement has a promissory character". Those criteria are largely similar to those identified by the authors of Lewison and Hughes and set out above. The application of those criteria may depend "on niceties of language in conversations recounted, often years afterwards, by persons who would not have been conscious of the significance of the particular words used": Ross v Allis-Chalmers Australia Pty Ltd (1980) 32 ALR 561 at 569 (per Aickin J).

When do Contractual Terms Give Rise to Express or Implied Representations?

1. Counsel for the defendant directed my attention to McWilliam's Wines Pty Ltd v LS Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 and the consideration of an implied representation said to arise from a contractual relationship between parties. Giles J held that a carrier of wine, pursuant to a contract of consignment, had represented that the carriage of wine and the legal rights and obligations would be regulated by the terms of the contract. As such, conduct in the performance of the contract did not amount to misleading or deceptive conduct. Giles J observed at 730:

The possibility of breach of contract on its part was there, and

the responsibility for the potential loss or damage was what Booth sought to exclude. By presenting the tankers it did not represent that the drivers would always drive carefully, or that a valve would not spring a leak; it did not represent that there had been no carelessness in the servicing of the tankers or prime movers whereby they were not fully roadworthy; and it did not represent that there had not been carelessness in cleaning the tankers.

McWilliams could not have been led to expect any such thing. What it represented was that the carriage of the wine, and the legal rights and obligations of it and McWilliams, would be regulated by the terms of the contract of carriage.

1. There is authority for the proposition that where representations do no more than mirror contractual terms, it may be the case that the appropriate consequences stemming from a breach of those terms is damages for breach of contract rather than a claim under the Trade Practices Act or the Australian Consumer Law.

1. In Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670, Mason P held that not all contractual terms are to be regarded as representations. His Honour observed:

[152]...It is not the law that every contractual promise has a superimposed representation as to ability to perform, either as at the time of contract or some future date.

...

[168] But when one turns to an alleged implicit representation as to capacity to perform things are not so simple, nor should they be. There are policy reasons for restraint. The law arms the parties to a contract with rights to damages and other forms of relief if breach occurs or is threatened. A complex set of common law, equitable and statutory rights are superimposed on the terms of the bargain chosen by the parties. That bargain may have the simplicity as a contract to sell a loaf of bread or the complexity of a building agreement such as the one in question in this case.

[169] Why should the parties be found or presumed to have intended more by what they expressly represented and understood? Of course, s52 goes beyond intentionally misleading or deceptive conduct, but it does not follow that the innocent party understood or relied upon anything more than the express representations and the usually adequate consequences stemming from breach of them stemming from the law touching the mutually chosen regime, ie contract.

[emphasis added]

1. Furthermore, an express contractual promise or representation will only constitute a representation for the purposes of section 52 of the Trade Practices Act if the party making the promise or representation had no intention or capability of carrying it out at the time it was made: Coles Supermarkets Australia Pty Ltd v FKP Limited [2008] FCA 1915 at [68]-[69] per Gordon J, citing Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 at 238-239.

1. In Lane Cove Council v Michael Davies & Associates and Others [2012] NSWSC 727, I considered the relationship between contractual terms and misrepresentations at [25]-[48] in the context of the adoption of a referee's report. I agreed with the view of the referee (The Honourable R.V. Gyles QC), and did not accept the submission of the plaintiff in that case that the Referee's findings were contrary to principle because they imposed a limitation on the application of s 52, were not supported by authority or were contrary to public policy. Instead I observed:

[38] There were no alleged promises additional to the conduct which one would expect in the carrying out of MDA's contractual obligations. That is clearly what prompted the Referee to comment that "to scour what was done in performance of the contract in order to tease out actionable representations is not appropriate".

...

[46] The Referee found that there was little scope for the statutory provisions to apply because of the nature of those representations and the fact that they were not different in kind from the contractual obligations, and were based on the same facts and circumstances. The Referee did not find in my opinion that the contract ousted the statutory norm, but rather as a fact no promises were made additional to the contractual obligations which had been entered into. Hence the promises did not amount to actionable representations, as a matter of fact.

Reliance

1. Mr Shin's case in a number of respects depends upon his asserting he relied and was thereby induced to do certain things because of representations made, for example, by Mr Kim and Mr Ristway. This will always give rise to questions of fact.

1. During the trial I drew counsel's attention to the decision of the Court of Appeal in Van Dyke v Sidhu (2013) 301 ALR 769 and noted that oral argument had occurred in the High Court the previous day (T191/17-T191/35).

1. RSE relied heavily upon the notion of presumed reliance as articulated by the Court of Appeal in their decision. The matter was conducted, appropriately, on the basis that such a decision was binding on me.

1. After I had reserved judgment, the High Court on 16 May 2014 unanimously upheld the result of the Court of Appeal but rejected as erroneous any notion of presumed reliance: Sidhu v Van Dyke [2014] HCA 19. French CJ, Kiefel, Bell and Keane JJ (Gageler J agreeing) observed:

[55] Nothing in the judgments in Gould v Vaggelas suggests that the onus of proof in relation to detrimental reliance shifts to the defendant in any circumstances.

[56] The line of English authority on which Barrett JA relied was founded on the statement by Lord Denning MR in Greasley v Cooke that "[t]here [was] no need for [the promisee] to prove that she acted to her detriment or to her prejudice." In the present case, this statement was treated as involving a shift in the burden of proof on the issue of detrimental reliance.

[57] Lord Denning's view is contrary to observations of high authority in Smith v Chadwick by Lord Blackburn, with whom the Earl of Selborne LC and Lord Watson agreed. Lord Blackburn spoke of the circumstances in which a fair inference of fact might be drawn in terms substantially repeated by Wilson J in the passage from Gould v Vaggelas set out above; but his Lordship expressly rejected the suggestion that a defendant might be obliged to disprove inducement once the making of a material representation had been proved.

[58] In point of principle, to speak of deploying a presumption of reliance in the context of equitable estoppel is to fail to recognise that it is the conduct of the representee induced by the representor which is the very foundation for equitable intervention. Reliance is a fact to be found; it is not to be imputed on the basis of evidence which falls short of proof of the fact. It is actual reliance by the promisee, and the state of affairs so created, which answers the concern that equitable estoppel not be allowed to outflank Jorden v Money by dispensing with the need for consideration if a promise is to be enforceable as a contract. It is not the breach of promise, but the promisor's responsibility for the detrimental reliance by the promisee, which makes it unconscionable for the promisor to resile from his or her promise. In Giumelli v Giumelli, Gleeson CJ, McHugh, Gummow and Callinan JJ approved the statement of McPherson J in Riches v Hogben that:

"It is not the existence of an unperformed promise that invites the intervention of equity but the conduct of the plaintiff in acting upon the expectation to which it gives rise."

[59] It may be that Lord Denning's view will no longer be understood in England in the way it seems to have been understood by the Court of Appeal in this case. In Steria Ltd v Hutchison, Neuberger LJ said:

"I very much doubt whether it could be right to hold that in every case where a representation is established, the onus must always be on the representor to show that it was not acted on. As a matter of normal principle it seems to me that, as a matter of law, the onus must be on the person alleging the estoppel to establish unconscionability or, to put it another way, to establish, in the case of estoppel by representation, the three essential ingredients of representation, reliance and detriment.

In many cases, and I think that the Greasley case was one of them, it can fairly be said that, once it is established that the representation was made, the representation together with all the other facts of the case enables the claimant to say that, unless the defendant can elicit some further evidence to the contrary, the claimant will have discharged the onus. I am inclined to think that the Greasley case went no further than that."

[60] It may also be that the application of Lord Denning's view would not lead to an outcome in the present case different from that which follows from the application of the orthodox approach.

[61] Be that as it may, this aspect of the appellant's submission must be accepted. The approach suggested by Lord Denning should not be applied in Australia. The legal burden of proof borne by a plaintiff did not shift. To speak of a shifting onus of proof is both wrong in principle and contrary to authority. The respondent at all times bore the legal burden of proving that she had been induced to rely upon the appellant's promises.

[footnotes omitted; emphasis added]

1. In a separate judgment, Gageler J also observed at [90]-[93]:

[90] Paraphrasing Dixon J in Thompson v Palmer, the respondent bore the onus of establishing that she believed the appellant's representations and that, on the faith of that belief, she took a course of action or inaction which would turn out to be to her detriment were the appellant to be permitted to depart from those representations. The respondent did not need to establish that the belief to which she was induced by the appellant's representations was the sole or predominant cause of the course of action or inaction she took but, in the language of Rich, Dixon and Evatt JJ in Newbon v City Mutual Life Assurance Society Ltd, she did need to establish that the belief was a "contributing cause".

[91] To establish that the belief to which she was induced by the appellant's representations was a contributing cause to the course of action or inaction which she took, the respondent needed to establish more than that she had the belief and took the belief into account when she acted or refrained from acting. She needed to establish that having the belief and taking the belief into account made a difference to her taking the course of action or inaction: that she would not have so acted or refrained from acting if she did not have the belief.

[92] The need for the respondent to establish such a difference stems from what Dixon J described in Grundt v Great Boulder Pty Gold Mines Ltd as the "indispensable" condition that a party asserting an estoppel "must have so acted or abstained from acting upon the footing of the state of affairs assumed" that the party asserting the estoppel "would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption". That is to say, "the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted". There can be no real detriment if the party asserting the estoppel would have been in the same position in any event.

[93] The question of causation is therefore ordinarily appropriately framed, as it was implicitly framed by the primary judge in the present case, as being: "Despite any other contributing factors, would the party seeking to establish the estoppel have adopted a different course (of either action or refraining from action) to that which [the party] did had the relevant assumption not been induced?"

[footnotes omitted]

1. I invited the parties to make any further or additional submissions they wished to make given the determination of the High Court.

Credit and Failure to Complain

1. As will appear later in my judgment, a number of credit issues arose for determination.

1. Generally speaking a trial judge is in no way restricted in his or her assessment of a witness; he or she is not bound to accept any of that which the witness attests to or indeed may only accept part thereof: Cubillo v Commonwealth of Australia [2000] FCA 1084; (2000) 174 ALR 97 at [118]- [123].

1. The court is not obliged to accept evidence, even in the absence of cross-examination. In Ali v Nationwide News Pty Ltd [2008] NSWCA 183, Tobias and McColl JJA observed at [112]:

There can be no doubt that where factual evidence is not cross-examined upon, prima facie it should be accepted. However, it ought not necessarily be accepted where, as Tobias JA said in Multiplex, there is a credible body of evidence of a substantial character in direct contradiction of the non cross-examined evidence.

1. In Fox v Percy (2003) 214 CLR 118, Gleeson CJ, Gummow and Kirby JJ observed at 129:

[31] Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical.

1. In Ellis v Wallsend District Hospital (1989) 17 NSWLR 553, the NSW Court of Appeal considered, inter alia, the question of causation in the context of a medical negligence claim, and particularly whether a patient would have refused surgery if properly informed of the possible adverse consequences. Meagher JA agreed with Samuels JA entirely, and Kirby P agreed substantially (at 559-562), with what Samuels JA observed on the issues relevant to causation. In particular, Kirby P observed at 560 that:

Although Cole J stated that he would reach the same conclusion whether the "subjective" or "objective" test were applied, his correct specification of the "subjective" test made all the more important the accurate ascertainment of what Mrs Ellis, herself, would have done, had she been properly advised of the risks involved in the operation.

It is true that answering that question involves an exercise in retrospective reasoning. The patient cannot, when the mishap leading to damage and litigation has occurred, determine the answer authoritatively by the response in court to the question of what he or she would have done had only full and proper advice been given. However honest the patient may try to be, self interest and the knowledge of the misfortunes that have followed the treatment will necessarily colour the patient's response to that question. Nonetheless, the answer remains an important ingredient in the decision by the fact finding tribunal as to what it thinks the patient, subjectively and at the time before operation, would have done if properly and fully advised.

[emphasis added]

1. Samuels JA, in a similar vein, observed at 581:

It is, of course, true that a patient's evidence about what he or she would have done if told of certain risks may be coloured by the fact that the risks did in fact eventuate; but it is open to a court to disbelieve evidence found to be tainted by hindsight. Obviously, in endeavouring to ascertain what the plaintiff's response would have been to adequate information had it been conveyed at the appropriate time, a court will be greatly assisted by evidence of the plaintiff's temperament, the course of any prior treatment for the same or a like condition, the nature of the relationship between patient and doctor including pre-eminently, so far as it can be established, the degree of trust reposed in the doctor by the patient. The extent to which the procedure was elective or imposed by circumstantial exigency and the nature and degree of the risk involved will all be matters of considerable importance.

[citations omitted]

1. In Rosenberg v Percival (2001) 205 CLR 434, the issue of causation and the plaintiff's response to advice of risk was discussed at 441-442 per Gleeson CJ, at 443 per McHugh J, at 461-462 per Gummow J, at 485-486 per Kirby J (who referred to Ellis) and at 501-502 per Callinan J. From these passages, it is observed that the natural tendency of a plaintiff to assert that he or she would have taken a different course must be recognised. Furthermore, although the relevant question is subjectively what would the plaintiff have done, matters relevant to an objective assessment such as the remoteness of the risk, the confidence reposed in advice received from an expert, and whether or not there were strong reasons in favour of pursuing the course of action in fact taken need to be taken into account: per Gleeson CJ at [14] and [16], per McHugh J at [89], per Kirby J at [155]-[156].

1. In Fabcot Pty Ltd v Port Macquarie-Hasting Council [2011] NSWCA 167, Sackville AJA (Beazley and Campbell JJA agreeing) at [184]-[185] made reference to Ellis v Wallsend District Hospital and Rosenberg v Percival and observed:

Mr Smith criticised the primary Judge's reliance on these cautionary observations on the ground that they were made in medical negligence cases. But similar warnings have been given in commercial cases about the use of evidence given with the wisdom of hindsight. In Cackett v Keswick [1902] 2 Ch 456, for example, Farwell J noted (at 463-464) that:

"It is easy to be wise after the event, and many men can honestly persuade themselves when a company has failed that they would have been influenced by a circumstance which in all probability would have made no impression whatever on their mind when considering an investment ..."

Writing extra-judicially Heydon J has expressed the view that Farwell J's comments have application to questions of causation arising under the Trade Practices Act 1974 (Cth): J D Heydon, Trade Practices Law (Looseleaf Service), at [18.1290].

1. In any event in any case involving oral representations, it is important always in my view to keep in mind the observations of McLelland CJ in Equity in Watson v Foxman (1995) 49 NSWLR 315 at 318-319:

Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

...

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration.

...

What I have said above as to the cause of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act) is equally applicable, mutatis mutandis, to the causes of action based on contract and on equitable estoppel (with the added requirements, in the case of contract that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding, and in the case of equitable estoppel that any representation alleged was clear and unequivocal and was relied on to the substantial detriment of the representee).

[emphasis added]

1. The difficulties involved in a case constructed on the basis of perception and memory, which are amplified by the passage of time, were alluded to by the then Chief Justice Spigelman, in J J Spigelman, "Truth and the Law" (2011) 85(11) Australian Law Journal 746 (at 756-759). These difficulties associated with reliance upon spoken words as a foundation of a cause of action in the absence of some reliable contemporaneous record or other satisfactory corroboration, have been noted in several other cases (see for example Pennimpede v Pennimpede [2009] NSWSC 85 at [29] per Bryson AJ and Murtagh v Murtagh [2013] NSWSC 926 at [105]-[109] per Hallen J).

1. Another issue related to credit is that the reaction (or lack thereof) of witnesses, and especially principal witnesses, to important events can often be of some significance.

1. It is well established that remaining silent when speech could have been expected, or failing to raise a matter in correspondence where the relationship between the parties is such that a particular reply might be expected, may amount to an admission, and is at least relevant evidence (Young v Tibbits (1912) 14 CLR 114 at 122 per Griffith CJ and 128 per Barton J; Lustre Hosiery Ltd v York (1935) 54 CLR 134 at 143 per Rich, Dixon, Evatt and McTiernan JJ; Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225 at 230 per Gibbs CJ; Thomas v Hollier (1984) 156 CLR 152 at 157 per Gibbs CJ).

1. A failure to complain may constitute evidence suggesting no actual reliance was placed on misleading and deceptive conduct (see, for example, the failure to complain having this effect in Keen Mar above).

1. The plaintiff's failure to complain regarding the breach after becoming aware of the true facts may enable the court to infer that the conduct was not relied on: Jones v Acfold Investments Pty Ltd (1984) 6 FCR 512 at 521-522 per Sheppard, Morling and Spender JJ (Full Fed Ct).

1. See, to the same effect, Dukemaster Pty Ltd v Bluehive Pty Ltd [2002] FCAFC 377 at [79]-[80] per Sundberg and Emmett JJ; Otrava Pty Ltd v Mail Boxes Etc (Aust) Pty Ltd [2004] NSWSC 1066 at [72]-[73]; Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd [2004] FCAFC 48 at [71]- [77]; ACN 070 037 599 Pty Ltd v Larvik Pty Ltd [2008] QCA 416 at [134] per McMeekin J (McMurdo P and White AJA agreeing).

1. A failure to complain may adversely affect the credibility of a witness: see, for example, the decision of the NSW Court of Appeal in Textralian Enterprises v Perpetual Trustees (Victoria) Ltd [2000] NSWCA 176 at [85] (per Heydon JA):

There were other grounds for the trial judge's conclusions about Mr Slattery's credibility. In many places he did appear argumentative, evasive and prone to volunteer material not responsive to the question. Under cross-examination he sometimes gave potentially important evidence which would appropriately have appeared in his affidavits if it proceeded from genuine recollection. Mr Slattery also appeared to lack genuine recollection in other respects and to be defensive about answering without first having access to whatever document might help. In addition, there was a substantial lack of credibility in his assigning to the cinema centre and food court representations, whatever the detail of what was said, a central role in view of his years of failure to complain about non-compliance with them despite the many occasions on which it would have been appropriate to - not only 23 February 1993 (after Mr Slattery noticed disparities between the letter of offer and Mr Levin's representations), not only occasions when LLPM's pre-contractual and contractual documentation ought to have stimulated some statement about the representations, but also the many post-contractual occasions when Mr Slattery was remonstrating with LLPM about what he saw as its role in the losses which the shop was suffering.

[emphasis added]

1. Of course, lack of complaint before such knowledge is obtained is unlikely to be significant: see, for example, Abigroup Contractors Pty Ltd v Sydney Catchment Authority (2004) 208 ALR 630; [2004] NSWCA 270 at [78]; Bovino Group Pty Ltd v Casey Group Holdings Pty Ltd [2010] VSC 391 at [61].

1. A failure to complain may also be relevant for the element of reliance in estoppel, or the adoption of the relevant assumption: see Civoken Pty Ltd & Anor v Madden Grove Developments Pty Ltd & Ors [2006] VSC 283.

1. Finally, in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, the High Court considered, inter alia, the relevance of a failure to complain in relation to contractual breaches (however this was in relation to repudiation). Gleeson CJ, Gummow, Heydon and Crennan JJ observed at [67]:

...The legal significance of the conduct of the Koompahtoo representatives on the Management Committee, in not complaining about Sanpine's failure to adhere to the requirements of the Agreement, and in acquiescing in some aspects of the failure, is said to be, as held by Giles JA, that it is a circumstance which tends against a finding that Sanpine evinced an intention to perform the Agreement only in a manner that suited it and in no other way...

1. As I have already noted Barrett J by reference to the early case of Dykes v Blake thought the property needed to be described as "altogether useless" for the purposes for which it was made. This is simply not so on the facts of this case.

1. However Waterpoint points to a number of additional difficulties in applying Flight v Booth. First it submits, correctly in my view, that RSE had indicated that it would have purchased the restaurant even without penetrations to the storage room. Waterpoint submits and again I agree that it should at the very least have completed the contract of sale of the restaurant and sought compensation.

1. Further Waterpoint submits that the evidence supports the fact that RSE offered $2.2 million for the restaurant without penetrations as at 26 February 2008 and therefore it clearly had not been made to accept a property at that point in a condition that it would never have contracted for.

1. Waterpoint additionally contends that RSE was willing to enter into the side letter knowing that this could mean that it would be unable to enforce the obligations of the letter prior to settlement demonstrating (it is submitted objectively) that RSE was prepared to accept the properties without lawfully constructed penetrations and with only the available remedy of damages. I agree.

1. Waterpoint further submits and again I agree that unauthorised building works for which a demolition order has not been issued does not constitute a defect in title as already noted or any other basis that incapacitates Waterpoint from demanding completion of the contract. It is obvious that until a demolition order as an example had in fact been served it could not conclusively be stated what if any alterations would be required to be undertaken

1. Lastly Waterpoint submits that the plaintiff had been trading from the property since January 2010, the penetrations having been completed in 2009 without any complaint in writing by the local Council or the Owners Corporation. Further it is submitted that there was no evidence that the Owners Corporation could not be persuaded to consent to the works or in the alternative that the purchaser could not have obtained such consent by a statutory appeal. Again I agree.

1. However, there is a degree of unreality I think about RSE's case in any event. RSE clearly wanted the penetrations and was content that they were done and the manner in which they were done. The only point is the failure to obtain relevant consents and approvals. RSE traded for a significant period to the knowledge of all concerned, including the Owners Corporation and the Council. It seems to me that Waterpoint was obliged pursuant to the side letter to obtain consent for the stairs and in so far as necessary the fire doors. The fact that Waterpoint got on and in fact did the penetrations would have left both it and RSE in a position where I consider either could have applied for consent.

1. More to the point as I have made reference more than once before Mr Shin volunteered in the Shin Affidavit at [158] that subject to a price reduction he was quite prepared to complete the contract take the risk of any rectification notice issued by the Owners Corporation. In the circumstances I do not think RSE could be heard credibly to say that the failure to obtain consent or approval, on whatever basis, could amount to such a material or substantial misdescription as to relieve it of the obligation to complete as opposed to make a claim relevantly for damages.

1. For those reasons I do not consider the principle in Flight v Booth assists RSE in the present case.

Miscellaneous

1. There is one miscellaneous matter to which attention should be directed, if for nothing more than out of an abundance of caution and for completeness, namely the challenge to the building certificate.

1. RSE submitted that the building certificate issued on 8 November 2010 related only to the Restaurant Lot, but the work it purports to approve is contained largely within the common property (the certificate appears at CB12/4461).

1. RSE asserts that in the circumstances, the Owners Corporation was a necessary applicant for that building work and therefore the building certificate was issued contrary to sections 149A to 149E of the EPA Act. RSE asserts that it was issued ultra vires and is invalid.

1. In Owners Strata Plan 37762 v Pham and Ors [2005] NSWLEC 500, Cowdroy J found that the excavation into common property (both in the floor and ceiling), although authorised by the relevant local Council, occurred without the consent of the Owners Corporation and in the absence of such consent the Council had no power to grant consent to the development.

1. The plaintiff also cites Owners Strata Plan No 50411 v Cameron North Sydney Investments Pty Ltd [2003] NSWCA 5 and Twist v Randwick Municipal Council (1976) 136 CLR 106, the latter presumably in support of the uncontroversial proposition that an owner is entitled to be heard by the Council before it exercises a power that affects their rights, but without further explanation.

1. However, in light of the agreement by counsel for the defendant that "to the extent that the penetrations are involved they were not consented to by the owners corporation and there was no development approval in respect of those works and there is no evidence that either the owners corporation or the council is taking any action in respect of that" (at T267/34), it is unnecessary to further elucidate these principles, nor to come to a decided view on whether the building certificate was indeed invalid.

Damages

1. Having found against RSE on the oral representations, contractual, consumer law and estoppel cases the question nonetheless arises what if any damages RSE would be entitled to as a result of the breach of the side letter. Clearly it would be entitled to damages for breach of contract had it completed the contract, but it did not.

1. The measure of that damage however in my view would have been the difference between the value of the two properties with a hole or a staircase compared to the combined value of the two individual lots without a hole.

1. Waterpoint relies upon the evidence of Mr David Bird in his report dated 20 August 2012. On Waterpoint's evidence the amount of the difference is $120,000 as at 10 December 2010 and $70,000 as at 20 August 2012. I should observe however that the figure of $120,000 appeared to be predicated on the basis of breach which would involve all of the penetrations ultimately executed by Waterpoint. However on my findings the side letter only gave rise to a contractual obligation to lawfully execute the penetration in relation to the stairs. No separate calculation having been undertaken by Mr Bird or anyone else for that matter on that limited basis.

1. The plaintiff on the other hand alleges loss and damage were in the alternative to statutory rescission pursuant to a number of causes of action. This raises the question of whether the plaintiff's loss, being the loss of the restaurant fitout which has been agreed by the parties to be $1,166,221 less $197,932 for the value of that fit out retained by RSE, was caused by the failure by the plaintiff to complete the sale of land contracts on 10 December 2010 and the subsequent termination of those contracts by Waterpoint on 17 December 2010.

1. In my view, my findings that the defendant was in breach of the terms of the side letter to obtain all necessary consents and approvals for the penetration work outlined in that letter did not entitle the plaintiff to refuse to complete the contracts for the purchase of the restaurant and the storage lot.

1. It seems to me that the plaintiff's loss of the fitout was incurred by its own decision not to complete the sale of land contracts. If that is correct then it seems to me the plaintiff's claim in contract for these damages must fail. Waterpoint did nothing to cause such a loss.

1. I have rejected the plaintiffs contention that it would never have purchased the properties without them being connected by authorised penetrations. There are numerous reasons why I have rejected that contention but in summary the plaintiffs own evidence is that it was prepared to purchase the restaurant without being connected to the storage lot for $2 million being $200,000 less than the contract price. The evidence which I have accepted especially that of Ms Russell supports the view that the plaintiff had increased this offer to $2.2 million for the restaurant independently of the storage lot. It seems to me the only conclusion that can be drawn from this evidence is that the plaintiff would have purchased the restaurant without the authorised penetrations at the same price as the contract price or alternatively at $200,000 less but in either event the plaintiff's contention that it would not have purchased the restaurant without authorised connections must fail.

1. However it is also clear on the unsolicited evidence from Mr Shin that he was prepared to buy the two lots with unauthorised penetrations for $300,000 less in any event.

1. RSE well knew when it commenced and completed the fitout that no consents or approvals had been obtained. The plaintiff was not phased by any of this but was prepared to undertake an expensive fitout and run the restaurant and more to the point run the risk.

1. It does seem to me that the plaintiff has lost the value of the fitout as a direct result of it failing to complete the contracts and that this was not an act which Waterpoint caused. RSE decided to cut its losses. It took all the equipment it could out of the restaurant and refused to complete the purchase partly if not perhaps solely because it could not arrange finance, again something Waterpoint did not cause.

1. Insofar as the plaintiff makes claims for damages and/or equitable compensation on the basis of other causes of action (misleading conduct or estoppel) in my view these should clearly fail because as I have already indicated I do not consider the operative representations were proven or that there was any reliance by the plaintiff on any representation by Waterpoint that caused it to execute the Put and Call Options or licences. The defendant's only obligation in relation to the penetrations arose from the side letter.

1. The parties conducted the case on the basis that the difference in value between the restaurant and storage lot when connected by approved works compared to their value when not connected by approved works is $120,000. However RSE did not of course suffer this loss because it never completed the contract.

1. It follows that RSE's case fails and it is not entitled to any damages.

The Return of the Deposit

1. RSE claims the $20,000 deposit both as damages and pursuant to section 55(2A) of the Conveyancing Act 1919, which provides:

(2A) In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon.

1. In Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367, the High Court observed that the evidence must establish that it would be unjust or inequitable to allow the vendors to retain the deposit: at [27] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ.

1. In Havyn Pty Ltd v Webster [2005] NSWCA 182, Santow JA (Tobias JA and Brownie AJA agreeing) explained the operation of section 55(2A) at [173]:

[173] By way of summation, I would conclude as follows:

(a) Section 55(2A) confers upon the Court a statutory jurisdiction to return forfeited deposits which was not previously available either at common law or in equity. Therefore, it would be wrong to seek to confine the jurisdiction conferred by the words of the statute by analogy with the jurisdiction of common law and equity to relieve against penalties or forfeiture.

(b) Notwithstanding this, it is important for a Court in considering the scope of the discretion conferred by s55(2A) to bear in mind that a deposit is an earnest of performance. That fact forms part of the context in which the discretion falls to be exercised, and means that a Court will not lightly be moved to order the return of a deposit paid as an earnest of performance, and forfeited in accordance with the express terms of the contract when performance does not occur.

(c) That context is significant when considering the justice and equity of the case, and whether the Court "sees fit" to order the deposit to be returned. It does not involve putting a gloss on the words of the statute requiring the applicant to show "special circumstances" (or satisfy any like test) before a deposit will be returned.

(d) In particular, this principle mandates against characterising a forfeited deposit as a windfall to the vendor, merely because it is forfeited.

(e) In considering an application under s55(2A), it will often be material for the Court to consider a number of factors, including (though not exhaustively) the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited.

(f) Considering the circumstances of this case, the factors enumerated above and the relative unreasonableness of the conduct of the vendor compared to the purchaser following the former's misrepresentation, it is appropriate for the deposit to be returned, although for different reasons than those adopted by the trial judge.

1. In Baird v Chambers [2010] NSWSC 272, Ball J considered Havyn Pty Ltd v Webster and Romanos v Pentagold Investments Pty Ltd and refused to order that the deposit be returned, and observed that a higher price on resale of a property does not establish that a profit has been made (particularly where the resale has not yet been completed): see [14]-[17]. Another relevant factor was the conduct of the party seeking the exercise of the discretion under section 55(2A) in their favour: see [18].

1. In Coppa v Barnett [2012] NSWSC 490, Stevenson J refused the return of the deposit under section 55(2A) in circumstances where the purchaser alleged she had become mentally ill, and there was a special condition in the contract dealing with that circumstance. Stevenson J was not satisfied it would be unjust or inequitable for the vendor to retain the deposit, even though this constituted a 'windfall' to the vendor given the later sale of the property: see [84]-[115].

1. In passing I observe that in Carpenter v McGrath (1996) 40 NSWLR 39, the Court also held that the deposit paid under a contract for the sale of land subsequently forfeited on termination for failure to complete is to be set-off against other general claims for damages for breach of contract flowing from the failure to complete: at 45 per Clarke JA, 61-64 per Sheller JA; cf 73-75 per Cole JA.

1. In the circumstances where RSE's predicament was entirely of its own making I do not consider it appropriate to order that the deposit be returned to RSE. However, such a deposit should be taken into account, in accordance with Carpenter v McGrath, against other general claims for damages by Waterpoint.

Cross Claim

1. Waterpoint says by reason of RSE wrongfully failing to complete the purchase it lost the purchase price of the properties, or putting it another way the deficiency on a resale. That is clearly correct as a matter of principle. Waterpoint puts it as being the difference in value between the contract price of the "whole with a hole" and its current value.

1. Waterpoint in its cross claim at paragraph [21] asserts it is entitled to recover $437,933 by way of damages. This amount is calculated by reference to a deficiency on resale of $300,000 and loss of rent between 17 December 2010 and 5 August 2011 of $137,933. Waterpoint does not press its claim for continuing payment on loans nor outgoings.

1. These damages are largely calculated on the basis on a report by Mr David Bird dated 20 August 2012 (CB4/1607). Evidence was adduced from Mr Bird, the defendant's valuer, to provide market values of the Restaurant Lot and the Storage Lot. I note that Mr Bird was not required for cross-examination and the plaintiff did not rely on any evidence in relation to valuation of the lots themselves (as opposed to the dispute over the cost of RSE's fit out which nonetheless was eventually agreed by the parties to be $1,166,221, less $197,932 for the value of that fit out retained by RSE).

1. Mr Bird was retained to provide valuation advice on the two lots in a number of permutations, namely as at 10 December 2010 on the basis they had not been fitted out (both together and separately) and as at the date of the report inclusive of existing fitout (both together and separately). Mr Bird also gave a valuation of monthly market rental for the period between 10 December 2010 and 5 August 2011, the rent being calculated upon the assumption that the tenant would have had the benefit of the fitout that existed as at the date of the report.

1. Mr Bird acknowledges the stairway and a dumb waiter lift at CB4/1619. There does not appear to be consideration of the cost of any possible rectification, and the internal access is listed as a strength of the properties at CB4/1620.

1. The report provided the following market values at CB4/1633. As at 10 December 2010 and on the basis that the property had not been fitted out, Mr Bird regarded the fair market value of the Restaurant Lot as $2.2m, the Storage Lot as $180,000 and a combined value of $2.5m. The difference between the aggregate of the two lots separately ($2.38m) and combined ($2.5m) was therefore $120,000.

1. As at the date of the report (20 August 2012), Mr Bird regarded the fair market value of the Restaurant Lot as $2.25m, the Storage Lot as $180,000 and a combined value of $2.5m.

1. There are four issues which it is necessary for me to deal with in relation to the cross claim, namely the quantum of damages for deficiency on resale of the properties, the quantum of damages for loss of rent between 17 December 2010 and 5 August 2011, and whether those amounts should be reduced given my determination that there was an implied term that the works explicitly set out in the side letter would be done lawfully which had been breached. The final issue relates to the status of Mr and Mrs Shin as guarantors under the Put and Call Options.

1. In the defendant's final submissions at [53(a)] there is a calculation in relation to the deficiency on resale (explained as the contracted value of $2.75m including GST less current value) of $300,000. There is no reference to supporting evidence in the submissions for the current value. In the Cross-Claimant's Schedule of Damages, the evidence in support of paragraph 21(a) refers to a value of the properties as at 14 March 2014 of $2.45 million and gives "Bird 14.3.14" as the reference. I note that the list of agreed affidavits (via an email to my chambers from counsel for the plaintiff dated 16 April 2014 in response to a request made at the hearing) only refers a report of Mr David Bird dated 20 August 2012.

1. I invited further written submissions on this point from the parties.

1. The defendant acknowledged that the report of Mr Bird dated 14 March 2014, although served on the plaintiff, was not ultimately read and was not admitted into evidence. It accepted that as a result, the evidence of the combined value of the property at $2.5m as at 20 August 2012 (CB4/1633) should be utilised so that its damages for deficiency on resale would be $250,000 (rather than the figure of $300,000).

1. I consider that Waterpoint should be entitled to damages on this basis.

1. On the issue of damages for loss of rent, Mr Bird also gave a valuation of monthly market rental for the period between 10 December 2010 and 5 August 2011, the rent being calculated upon the assumption that the tenant would have had the benefit of the fitout that existed as at the date of the report. Mr Bird gave his opinion that $206,900 per annum was an appropriate assessment of market rent (CB4/1634), and therefore the 8 month period from 10 December 2010 to 5 August 2011 would be valued at approximately $137,933.

1. RSE submits that Waterpoint has not established an entitlement to loss of rent arising from the termination of the licence agreements. RSE does not dispute the evidence of rental value provided by Mr Bird, but submits the restaurant has been vacant since August 2011. RSE further submits there is no evidence there was any prospective tenant available to lease it (see Plaintiff's Final Submissions at [148](b)).

1. RSE denies that Waterpoint lawfully terminated the Restaurant licence and Storage Lot licence pursuant to clause 13.2 (CB8/2751 and CB8/2786 respectively). That clause provided that:

If the Contract is rescinded or terminated for any reason then at any time after the rescission or termination the Licensor may terminate the Licence by written notice to the Licensee, in which event the provisions of clauses 13 and 14 apply.

1. Written notices were provided in a letter dated 17 December 2010 from Ms Russell to Mr Johnston (CB12/4487).

1. Given my findings above that Waterpoint was entitled to demand completion, and therefore entitled to terminate the contracts once completion failed to occur, it would seem that Waterpoint was also entitled under the relevant clause to terminate the licence agreements.

1. RSE contends in its response to the cross claim that Waterpoint failed to mitigate its loss in this regard by failing to rent the properties since 17 December 2010, or sell the properties after 8 August 2011 or alternatively after 23 December 2011. The period between 17 December 2010 and 23 December 2011 is a period in which Waterpoint asserts that RSE claimed a proprietary interest in the properties. I note that a relatively poor copy of a caveat appears at CB12/4485.

1. Nevertheless, at the hearing it was uncontroversial that RSE had remained in occupation between 17 December 2010 and 5 August 2011 (T40/9-T40/23). Rent is only claimed for that period, so the failure to sell after that point is irrelevant. Furthermore, it appears uncontroversial that RSE paid no rental during that period and there is no evidence of any agreement that RSE could remain in occupation of the premises rent-free once the licences had been lawfully terminated.

1. In my view the proposition that Waterpoint is not entitled to rent for the relevant period is without substance. To suggest that for some reason RSE should not pay is both illogical and unfair. I therefore agree that Waterpoint is entitled to the amount as determined by Mr Bird.

1. Waterpoint accepts that had I determined that it was responsible for obtaining "all" necessary consents and approvals for the penetration work then the cross claimant's loss caused by the plaintiff's failure to complete the contract would have to be reduced by $120,000.

1. In final submissions at [33], Waterpoint submitted that the difference in value between the two lots when connected by approved works to their value when not connected by approved works is that figure of $120,000.

1. The plaintiff in final submissions at [114]-[115] submitted the relevant assessment of damages is the difference between the value of the two lots with approved penetrations compared to unapproved penetrations.

1. On the fifth day of the trial, the following exchange occurred (T315/31-T316/36):

[ASHHURST]:

But the arguments we are going to put, assume for the moment against us that we were obliged, what, then, was the plaintiff's cause of action? The plaintiff's cause of action was to complete the contract and either have claimed compensation pursuant to standard term 7 of the contract, or alternatively have sued the defendant, if they could establish it for the breach of the implied term in the side agreement, that those works would have been carried out with approval and consents; that is, a claim for damages. We even know how much that would have been. We have agreed on figure, it is $120,000. Where that figure comes from is from Mr Bird who has calculated the different in value between the two units connected by authorised penetrations and the two units unconnected.

HIS HONOUR: Does the $120,000 cover all holes or just the stairs? Because as I would understand you, you say the side letter only dealt, relevantly, with the stairs, and the oral representations either were not made or relied upon, so, therefore, if there is a side letter which has contractual force, it only goes to the stairs? Am I right about that?

ASHHURST: Yes.

HIS HONOUR: That being said, however, your client at the end of the day decided to assume responsibility for drilling all of the holes, presumably all of those which Mr Shin had asked to be drilled. But I wondered whether the $120,000 was just the staircase or each of the holes or the difference between all of the holes being drilled and none of them being drilled.

ASHHURST: Mr Bird describes it, that the two units were effectively functional as a combined unit. That would seem to suggest all of the holes rather than just one of them. But I don't think Mr Bird was really asked to make it that specific.

HIS HONOUR: Well, it may make a difference. Mr Fernon, what does the agreement amount to, in your mind? Does it amount to the difference between no holes and all holes or the staircase or no staircase?

FERNON: One is all holes and the other one is just the staircase.

HIS HONOUR: What's your submission as what Bird has done?

FERNON: It makes no difference between whether it is one hole or six holes. He has simply drawn a valuation of the two operating together versus the two operating separately.

HIS HONOUR: I'm sorry, does that mean to suggest that if they operate separately it is worth X dollars, or if they operate together, whether by 1, 2, 3, 4, 5, 6 holes, the value is Y?

FERNON: Exactly.

HIS HONOUR: Thank you. Therefore, it is immaterial whether it is only the stairs or whether it is something else, if they can be operating together in whatever manner, whether it be via the staircase, plus the lift or just the staircase and, therefore, they are practical conveniences, then the value is one thing opposed to the other. Thank you.

1. I invited further written submissions on this matter.

1. RSE submits that if Waterpoint is entitled to damages on its cross claim for loss of its bargain, the amount of $120,000 (being the accepted difference between the properties with approved and unapproved works) should be deducted from its claim. Waterpoint agrees with this submission.

1. As the plaintiff accepts, the best and only evidence of the difference between the properties with approved works and the properties with unapproved works is $120,000. I am unconvinced that the evidence of Mr Bird supports that proposition, but the parties appear to have accepted it and the trial was conducted accordingly.

1. Finally, RSE's obligations under the Put and Call Options were guaranteed by Mr and Mrs Shin. Pursuant to clause 14, they guaranteed RSE's obligations under the agreements, indemnified Waterpoint against all liability or loss arising from breach of the agreements and the liability was joint and several for any loss or damage caused by RSE.

1. The commercial list response to the cross claim filed on 13 April 2012 did not admit that as I understand it the option agreements had been signed by both parties including Mr and Mrs Shin as guarantors. However the original documents Exhibit D1 and Exhibit D2 (which are the Put and Call Option for Restaurant Lot and Storage Lot respectively) show they were signed by both parties including Mr and Mrs Shin as guarantors.

1. In cross examination Mr Shin accepted that this was his signature and that he recognised the signature of Mrs Shin (T87/20). It seems to me to follow that Mr and Mrs Shin should be made jointly and severally liable to the cross claimant for those damages I have outlined above.

Conclusion

1. Having concluded that Waterpoint was in breach of an implied term to lawfully conduct the works explicitly set out in the side letter, and damages would theoretically have been available for that breach, but as it failed to complete it is not entitled to any damages on that basis. In addition I do not believe that RSE is entitled to recover damages for the cost of its fit out because that is damage for which Waterpoint is not in law responsible. In accordance with my reasons otherwise there is no other basis upon which RSE is entitled to damages.

1. Therefore RSE fails in its claim for damages.

1. I have also concluded that RSE was not entitled to refuse to complete the contracts which came into existence as a result of the exercise of the Put and Call Options. Therefore Waterpoint is entitled to succeed on its cross-claim as outlined above. For the sake of clarity, I should indicate that I have come to the view that $120,000 is the appropriate amount that should be deducted from the damages otherwise obtainable by Waterpoint.

1. I invite the parties to prepare short minutes to give effect to my reasons, and to relist the matter if necessary so that the question of costs may be determined.

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