Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [No 3] - [2009] WASC 352

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: STRZELECKI HOLDINGS PTY LTD -v- CABLE SANDS PTY LTD [No 3] [2009] WASC 352

CORAM: MURRAY J

HEARD: 26-29 OCTOBER 2009

DELIVERED : 1 DECEMBER 2009

FILE NO/S: CIV 1591 of 2006

BETWEEN: STRZELECKI HOLDINGS PTY LTD (ACN 051 222 253)
Plaintiff
AND
CABLE SANDS PTY LTD (ACN 008 678 386)
Defendant

Catchwords:

Contract - Agreement upon some terms of a contract for the sale of land - Agreement to negotiate other terms - Principles of construction - The agreement construed - An enforceable agreement to negotiate a contract for the sale of land - The duty to negotiate in good faith - The duty to act in good faith is not breached - The plaintiff asserts an estoppel

Legislation:

Nil

Result:

Judgment for the defendant

Category: A

Representation:

Counsel:

Plaintiff: Mr P G Clifford
Defendant: Mr K D Dharmananda

Solicitors:

Plaintiff: Lawton Gillon
Defendant: Corrs Chambers Westgarth

Case(s) referred to in judgment(s):

Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996; (1999) 153 FLR 236
Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd [2008] WASCA 119; (2008) 66 ACSR 594
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
Butt v M'Donald [1896] 7 QLJ 68
Central Exchange Ltd v Anaconda Nickel Ltd [2001] WASC 128; (2001) 24 WAR 382
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Expectation Pty Ltd v Pinnacle VRB Ltd [2004] WASCA 261
Masters v Cameron (1954) 91 CLR 353
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486
Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144
Tesco Supermarkets Ltd v Nattrass [1971] 2 WLR 1166
United Group Rail Services Ltd v Rail Corporation NSW [2009] NSWCA 177

MURRAY J:

The claims

This is an action for breach of contract. It is concerned with the proposed purchase by the plaintiff of land owned by the defendant in the south‑west of Western Australia at a place called Minninup, near Capel. The plaintiff is a developer of land. The defendant is a mineral sands mining company. It is the registered proprietor of the land in two parcels, the subject of certificates of title, volume 1946 folio 794, and volume 1946 folio 796. The parcels appear to be adjacent. They are positioned, one to the north and one to the south, and all of the land would appear to have an ocean beach frontage. It had been mined for mineral sands, and was now not required by the defendant for that purpose. There are deposits of mineral tailings at various locations on the land. There is a level of radioactivity inherent in the tailings.
Broadly put, the plaintiff's case is that a contract, described as a memorandum of understanding (MOU) was entered into by the parties in about November 2004. The plaintiff asserts that the MOU provided for the defendant to investigate and report upon how the tailings were to be dealt with. Thereupon the plaintiff was to complete a feasibility study in relation to the purchase, at the conclusion of which, the plaintiff asserts, it was open to it, at its election, to require the defendant to complete the processes for the sale of the land for an agreed price of $3.2 M, plus GST, and subject to such other terms as might be agreed between the parties.
The plaintiff says that the contract included an implied term that the settlement date for the sale was to be within a reasonable time after the execution of a contract formalising the terms of their agreement. It pleads that the contract was subject to other express, or alternatively implied, terms governing how and at whose expense the tailings were to be dealt with. Apart from terms implied as a matter of fact, the plaintiff relies upon a term implied as a matter of law, that the defendant was to do all reasonably required of it to enable the plaintiff to have the benefit of the agreement and to refrain from conduct which would prevent that outcome. The plaintiff also relies upon an express term of the MOU, to the effect that both parties accepted a duty to deal with each other in good faith.
The plaintiff asserts that the agreement was partly performed, but was breached by the defendant, which failed to provide a study about dealing with the tailings required by the MOU and when, contrary to its obligation to act in good faith towards the plaintiff, the defendant sought to impose special conditions upon the contract for the sale of the land which would have required the plaintiff to indemnify the defendant against all liability to third parties which might arise out of the state of the land (secured by a bank guarantee in the sum of $25 M). Ultimately the defendant relied upon the termination of the MOU by reason of the expiry of the time provided for negotiation. But the plaintiff asserts that, being in breach of the MOU and its duty to act in good faith, the defendant was not entitled to regard the agreement as being at an end.
There is an alternative head of claim which was added during the progress of the action. It contends that the defendant is estopped from denying that the MOU granted the plaintiff an option to purchase the land for $3.2 M plus GST. Essentially, this claim is that the making of the MOU, following an earlier expression of agreement to its terms, caused the plaintiff to assume that the MOU created, in its favour, a binding option to purchase the land. In reliance upon that option, to the knowledge of the defendant, the plaintiff says that it acted to its detriment in various ways, including not seeking to enter into a more formal document to evidence the option to purchase. As a result of the defendant's failure to avoid that detriment, the plaintiff asserts, it has lost the opportunity to purchase and develop the land for profit as it intended.
The plaintiff claims that it was, and remains, ready, willing and able to comply with the terms of the MOU and to enter into a contract for the purchase of the land in terms it finally advanced, which it asserts the defendant was obliged to accept. It seeks the specific performance of the MOU in the form of an order that the defendant execute the contract; alternatively, damages for the breach of the contract; alternatively, equitable compensation in relation to its claim of an estoppel.

The defence

As to the plaintiff's contractual claim, the defendant admits that the parties entered into the MOU, but takes issue with the construction placed upon its terms by the plaintiff. The defendant asserts that the agreement was for the parties both to enter into types of 'due diligence' processes, on completion of which the parties agreed to negotiate a contract for the sale and purchase of the land. The MOU, the defendant says, was not, of itself, such a contract. The express or implied terms as to the disposition of the tailings, are denied. The defendant admits that the MOU was subject to an implied term that it was to do what was reasonably necessary on its part to enable the plaintiff to have the benefit of the agreement, but denies that there was an implied term that it should not engage in conduct which would frustrate the plaintiff in obtaining the benefit of the agreement.
The defendant puts in issue the plaintiff's allegations of breach of any terms of the MOU, and of breach of the obligation to act in good faith. The defendant asserts that the breakdown in negotiations lay at the door of the plaintiff, which failed to address the defendant's requirement for a bank guarantee to support an indemnity to be provided by the plaintiff to shield the defendant against any potential liability in respect of the tailings and the contamination of the land. The defendant says that the plaintiff failed to progress the negotiations until the time limited for doing so under the MOU expired, whereupon the defendant advised the plaintiff that, in its view, the MOU was at an end, because the parties had been unable to conclude a contract for the sale and purchase of the land on acceptable terms, contrary to the plaintiff's contention that the defendant's breaches of its obligation to act in good faith would preclude the defendant from asserting that the agreement had expired.
As to the pleaded estoppel, the defendant denies that any estoppel may arise, because the assumption relied upon, that the agreement created a binding option which might be exercised by the plaintiff to purchase the land, is an assumption, 'as to a matter of opinion on a question of law': defence, par 30. The paragraph includes the contention that, in any event, any such assumption was abandoned when the parties continued their negotiations, which might or might not have resulted in the making of a contract for the sale and purchase of the land.
The proceedings before me were a trial of the issues as to liability raised by the pleadings. I was not to assess damages or any equitable compensation to which the plaintiff might be entitled.

Evidentiary matters

Logically, the first issue raised by the pleadings with which I must deal is the meaning and effect of the MOU. This requires me to construe the agreement, by which I mean I must arrive at a conclusion as to the meaning of the relevant terms within the context of the whole agreement. At least in respect of words which do not bear a technical meaning and which do not have any special meaning known to the parties, established by the evidence, I should be careful to avoid any undue technicality in construing the agreement, but I should let the words used bear their ordinary and natural meaning.
In my respectful opinion, no more need be said about that process than was said by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109:
It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust.
Of course, not only must the words used in their context be construed, but the surrounding circumstances known to the parties, so far as they are material, must be regarded. I make that observation, although there is no particular matter in this case illuminated by the way in which the parties dealt with each other up to the point of the execution of the MOU, which assists in its construction.
The aim is to find the meaning of the words used which expresses the intention to be attributed to the parties. By that is meant the intention determined objectively, which may not be the same as the subjective understanding that the parties, or either of them, had, as to what was being achieved by the agreement made. The relevant principle is, with respect, well‑stated by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179 [40]:
This Court, in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
Of course, in establishing the background facts emerging from how the parties dealt with each other, up to and at the point of the execution of the MOU, care must be taken not to allow evidence of antecedent negotiations and communications to be used as aids to the proper construction of the agreement, insofar as they merely tend to establish what the subjective intentions of the parties were: Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 606. It follows that evidence of what the parties respectively thought was the effect of their agreement, can provide no evidence bearing upon the proper construction of the agreement made: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451.
Nor is evidence of the dealings between the parties and their conduct after the contract was made, admissible in the construction of the contract: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 348. That is not to say that such evidence will be inadmissible. It has been held that it may be admitted to prove that a contract was formed, as distinct from its meaning and proper interpretation, and the evidence may be admissible in relation to other matters.
In this case, I admitted such evidence provisionally, not pausing at trial to determine objections to admissibility, but undertaking to the parties that I would deal with them in the course of this judgment. It is sufficient, I think, that I say that, in my view, the evidence was admissible as bearing upon the part‑performance of the contract, and its discharge or termination. The evidence was relevant to the issue of the breach of the contract generally and to the question raised at trial, whether the defendant's conduct was tainted by its default to properly perform the contract, with the result that it was precluded from relying strictly upon the terms of the MOU to regard it as having been discharged by effluxion of time. Further, I think the evidence was admissible in relation to the pleaded estoppel.
In addition, I should say that, without descending to specifics, I think evidence of the statements made by and conduct of Mr Thorp, the general manager of the defendant (exhibit 126), Mr Shirfan, a director of the defendant, and Ms Jones, the company secretary of the defendant, were admissible as being made by persons who represented elements of the directing mind and will of the defendant: Tesco Supermarkets Ltd v Nattrass [1971] 2 WLR 1166. Further, evidence of statements by and the conduct of Mr Poland, the principal of the plaintiff, and by Mr Carman, as an agent representing the plaintiff, evidently conducting himself within the limits of his authority, was admissible. Objections grounded on hearsay were generally misconceived, in my view, because the relevant fact to be proved was what the person said to the witness giving the evidence, rather than the truth of what was said.
I have given attention to the objections, and have taken care to understand the relevance and the ground of admissibility of the evidence. I have referred to those matters in general terms above, but in truth much of this debate, in the end, assumed little significance because there was virtually no material disputation about the relevant facts generally established by contemporary documentation. I propose then to proceed to make my findings of fact.
In relation to that exercise, I should note that on the defendant's side much of the correspondence, and the conduct of Ms Jones, the company secretary, was by or acting on behalf of a company called Bemax Resources NL, of which, at the relevant time, the defendant, the registered proprietor of the land, was a wholly owned subsidiary. The defendant is rightly identified as such. I propose in what follows to ignore Bemax, and to describe events and conduct on the defendant's side of the dealings as being by or on behalf of the defendant.

The facts

On 13 September 2004, Mr Poland, whom I have described as the principal of the plaintiff company, attended what appears to have been a political fundraising dinner. At that function, he met Mr Thorp, the general manager of the defendant. Mr Thorp said that the defendant wished to sell the land which is the subject of these proceedings. He suggested that if Poland was interested, they should meet, and early in October 2004 they did so.
The meeting was also attended by another officer of the defendant, and a Mr Weston, a business associate of Mr Poland, who had also been at the dinner, and had heard the conversation between Mr Thorp and Mr Poland at that event. In addition, Mr Poland had Mr Carman attend. Mr Carman was a director of Benchmark Projects, property managers and development consultants. He had also been at the dinner and had heard the discussion about the potential sale of the land. Finally, Mr Poland had the principals of a consultancy business known as Halden Burns attend. They were Mr Halden and Ms Burns.
The only people whom I have named above who did not give evidence before me were Mr Halden and Mr Thorp. As to Mr Thorp, the plaintiff had proposed to call him, although he was the general manager of the defendant, but in the process of closing the plaintiff's case, Mr Clifford told me that, having had the opportunity to speak to Mr Thorp, his independent memory of events was such that he could not relevantly add to what is in the documents. Mr Thorp was not called by the defendant, whose only witness was the company secretary, Ms Jones. There was no substantial cross‑examination of Mr Carman, and Mr Weston and Ms Burns were not cross‑examined at all.
At the meeting in October 2004, Mr Poland said that the plaintiff was interested in purchasing the land for development purposes. It was proposed to subdivide the land and establish residential lots. It was quite a large piece of land of about 120 hectares, but there was discussion about the fact that about 30 hectares might be taken by the authorities, by way of reservation or otherwise, for public purposes, and to the extent that there was compensation provided for the loss of that land, the defendant thought it ought to share equally in that compensation.
There seems to have been quite a bit of discussion about the remediation of the land, having regard to the mine tailings with some radioactive content which were buried in various locations. That had been a process which complied with governmental requirements when done, but if the use of the land was to change, the understanding was that the tailings would need to be differently dealt with. Mr Thorp said that there were three options which could be considered. The tailings could be relocated and buried in a different location on the land. Alternatively, they could be removed from this land and buried elsewhere. Finally, they might be dealt with by the company reprocessing them, to extract further minerals and thereby reduce their radioactivity.

Mr Thorp said that the cheapest option was to relocate the tailings on the land. He estimated that it might cost between $1 M and $1.5 M. On the other hand, as I understand the evidence, it was thought that the most expensive option would be to dig up the tailings and reprocess them. That, Mr Thorp said, might cost between $4 M and $6 M.
It is clear that Mr Poland made no pretence about the plaintiff's interest in purchasing the land. The two men generally agreed that whatever was to be done with the tailings was within the area of the defendant's expertise, and the work should be carried out by the defendant, but at the plaintiff's cost. The defendant was to undertake a study of the best way to deal with the tailings, and the cost of doing so. When that was done, the plaintiff would undertake a feasibility study in relation to the development of the land. It is clear that there was no discussion at that time about the possibility of the plaintiff providing the defendant with an indemnity, secured by bank guarantee, against the liability which might be incurred to third parties from the state of the land.
There was discussion about price, and it appears that it was agreed that the 90 hectares, which it was anticipated would remain after any resumption or other public reservation, would be purchased by the plaintiff for $3.2 M plus GST, if the plaintiff was satisfied about the feasibility of developing the land profitably once the information was available in relation to the work to be done and the expense involved in dealing with the mineral tailings.
It will be recalled that the plaintiff's case is not that the contract upon which it relies was made at that meeting, but that it was constituted by the MOU, which was subsequently drawn up. Mr Poland travelled overseas immediately after the meeting. He instructed Mr Carman to see to the preparation of the contract, and Mr Carman instructed solicitors accordingly. Mr Carman was to sign the contract for the plaintiff. A draft was prepared. It was forwarded to the defendant. Some changes were incorporated at the defendant's request. Mr Carman executed the document for the plaintiff on 8 November, and Mr Shirfan executed the document for the defendant on 10 November 2004. These arrangements were made by Ms Burns.
The MOU was executed as a deed. As has been seen, the parties are both of the view that it constituted a binding agreement. Their argument is as to the effect of the agreement. The plaintiff's case is that the MOU constituted an agreement for the sale of the land to the plaintiff, at its election, when the parties' studies in relation to the land were completed: statement of claim, par 3. In short, the plaintiff asserts that the MOU contained the essential terms governing the sale, expressly or by necessary implication, which were to be more completely expressed in a contract of sale to be prepared. That contract might contain such terms in addition to those agreed by the MOU as the parties, by mutual agreement, might then add. Alternatively, as I have mentioned, the plaintiff says that if the MOU did not constitute an agreement for the sale of the land at the plaintiff's option, then the defendant is estopped from denying that the plaintiff had such an option: statement of claim, par 14B.
The defendant, on the other hand, in par 3(c) of the defence, pleads that:
(i)the parties entered into the MOU for the purposes of setting out the terms of their dealings with each other during the course of certain due diligence processes;
(ii)on completion of the due diligence processes the parties agreed to negotiate a contract between them for the sale and purchase of the Land;
(iii)the MOU constituted an agreement, subject to its terms, to agree a contract for the sale of the land from the Defendant to the Plaintiff.
As I have said, the defendant denies generally that there were any terms to be incorporated in the MOU by implication. I shall return, in due course, to discuss the particular contentions of the parties as to implied terms, particularly that which might be described as a duty imposed upon each party to act in good faith to secure to the other the benefit of the agreement they had made. Finally, I have noted that the defendant denies the existence of the estoppel pleaded by the plaintiff: defence, par 30.
As the question at the heart of these proceedings is the proper interpretation of the MOU, it is convenient, at this point, to set out its terms in full, as follows:
RECITALS:
A.Cable Sands is the registered proprietor of the Land.
B.Cable Sands and Strzelecki Holdings are engaged in discussions with each other in relation to the sale of the Land by Cable Sands to Strzelecki Holdings.
C.The parties have agreed for certain due diligence processes to be carried out in relation to the Land and wish to enter into this Memorandum of Understanding to set out the terms of their dealings with each other during the course of those due diligence processes and, on completion of those processes, for the negotiation of a contract between the parties for the sale and purchase of the Land.
D.Strzelecki Holdings acknowledges that it is aware that the Land is the subject of the Greater Bunbury Regional Scheme under which it is intended that approximately FIFTY THREE POINT FIVE (53.5) hectares of the Land will be resumed by the State of Western Australia for regional open space.
IT IS AGREED as follows:
1.Cable Sands is to promptly arrange for an environmental engineering study of the Land to be carried out by a suitably qualified person to determine:
(a)which government department approvals would be required to relocate the tailings situated on the Land and the conditions that would apply to such a proposal;
(b)a strategy for relocating and encapsulating all of the tailings situated on the Land to that part of the Land which will have the least impact on any subsequent development of the Land; and
(c)the cost and practicality of implementing that strategy,
2.Cable Sands is to keep Strzelecki Holdings informed in relation to all aspects of the study being carried out in accordance with paragraph 1 ('Tailings Relocation Study') and is to promptly advise Strzelecki Holdings of the estimated cost for relocating and encapsulating the tailings once that cost has been determined. The Tailings Relocation Study and cost details (the Confidential Information) contain information confidential to Cable Sands and will be provided to Strzelecki Holdings on a confidential basis. Strzelecki Holdings agrees not to use the Confidential Information for any purpose other than in connection with the purchase of the Land by it, pursuant to this Agreement. In these circumstances, the Confidential Information shall only be used in a manner that fully protects the Confidentiality of that information. The Confidential Information shall not be disclosed to any third parties without the written consent of Cable Sands. All Confidential Information and any copies, in whatever form, must be returned to Cable Sands upon termination of this Agreement.
3.Strzelecki Holdings is to promptly carry out a due diligence and feasibility study in relation to the subdivision and development of the Land to its highest and best use, including considering all relevant planning processes and approvals which will be required for such a development ('Feasibility Study') and agrees to provide Cable Sands with a copy of the Feasibility Study so prepared.
4.Cable Sands acknowledges that Strzelecki Holdings, in carrying out the Feasibility Study, may contact and make enquiries with the Shire of Capel, South West Planning and the Department for Planning and Infrastructure provided that at the first meeting between Strzelecki Holdings and any of those authorities a representative of Cable Sands is to be present at that meeting and provided further that Strzelecki Holdings is to keep Cable Sands informed in relation to its enquiries with those authorities and provide copies of correspondence between itself and those authorities.
5.Strzelecki Holdings is to complete the Feasibility Study by the date being the later of:
(a)NINETY (90) days after the date of this Memorandum of Understanding; or
(b)SEVEN (7) days after the date Cable Sands provides Strzelecki Holdings with a copy of the Tailings Relocation Study including the estimated cost for relocating and encapsulating the tailings determined by that study.
6.Strzelecki Holdings is within FOURTEEN (14) days of the completion of the Feasibility Study to advise Cable Sands in writing whether or not it wishes to continue with negotiations for the sale and purchase of the Land.
7.If after completion of the Feasibility Study Strzelecki Holdings advises Cable Sands that it does not wish to continue with negotiations, then the parties' dealings with each other in relation to the Land, save for the obligations in clause 2 in respect of the Confidential Information, which will continue in full force and effect for a period of the lesser of three years from the date of this agreement and the time at which a contract for the sale of the Land between the parties is completed, will be at an end and this Memorandum of Understanding will cease to be of any force or effect and no party will have any claim against the other in relation to the Land or their dealings with each other concerning the Land.
8.If after completion of the Feasibility Study Strzelecki Holdings advises Cable Sands that it wishes to continue negotiations, then the parties agree to negotiate a contract for the sale and purchase the Land which is to include the following terms and conditions:
(a)the purchase price is to be THREE MILLION TWO HUNDRED THOUSAND DOLLARS ($3,200,000.00) plus GST;
(b)Strzelecki Holdings is to be responsible for all costs associated with relocating and encapsulating the tailings which costs shall be over and above the purchase price;
(c)any payment received from the State of Western Australia in relation to the resumption of any part of the Land on or before settlement of Strzelecki Holdings purchase of the Land is to be divided equally between the parties; and
(d)the contract is to be in the form of the REIWA Contract for Sale of Land or Strata Title by Offer and Acceptance incorporating the Joint Form of General Conditions 2002 Revision with such variations as may be agreed by the parties.
9.If the parties acting in good faith are unable to conclude a contract for the sale and purchase of the Land between themselves within THIRTY (30) days of Strzelecki Holdings advising Cable Sands of its desire to continue negotiations in accordance with clause 6 above, or such longer period as the parties may agree, then the parties' dealings with each other in relation to the Land will be at an end and this Memorandum of Understanding will cease to be of any force or effect, save for the obligations in clause 2 in respect of the Confidential Information, which will continue in full force and effect for a period of the lesser of three years from the date of this agreement and the time at which a contract for the sale of the Land between the parties is completed.
10.Any contract between the parties for the sale and purchase of the Land will supersede this Memorandum of Understanding which will cease to be of any force or effect from the date of any such contract, save for the obligations in clause 2 in respect of the Confidential Information, which will continue in full force and effect for a period of the lesser of three years from the date of this agreement and the time at which a contract for the sale of the Land between the parties is completed.
11.Cable Sands is not, until this Memorandum of Understanding is terminated:
(a)to sell or agree to sell the whole or any part of the Land to any other person or entity;
(b)to grant or agree to grant any interest in the Land to any other person or entity; or
(c)to enter into any negotiations or have any dealings whatsoever in relation to the sale of the whole or any part of the Land with any other person or entity.
12.The parties are, while this Memorandum of Understanding remains in effect, to at all times deal with each other in good faith.
13.This Memorandum of Understanding is to have legally binding force and legal relations are intended to be created by this Memorandum of Understanding.
14.In this Memorandum of Understanding 'Land' means:
(a)Lot 1 on Plan 18477 being the whole of the land contained in certificate of title volume 1946 folio 794; and
(b)Lot 394 on Deposited Plan 246115 being the whole of the land contained in certificate of title volume 1946 folio 796.
Mr Poland and others went to a meeting at the defendant's office early in 2005. Mr Shirfan was present. The purpose of the meeting seems to have been to show him the plaintiff's proposal for the redevelopment of the land. Mr Shirfan said he would 'take the proposal on board'. It appears that he did say that Mr Thorp was no longer the managing director of the defendant, but that he, Shirfan, was the CEO.
There do not appear then to have been any significant developments in relation to the performance of the MOU until, on 10 August 2005, the defendant by letter under the hand of Ms Jones, wrote to the plaintiff, referring to cl 1 of the MOU. The defendant advised that its investigations revealed that there were no simple solutions available to deal with the tailings. It said that it was not possible, because environmental approvals could not be obtained, to pursue the option under cl 1 of relocating the tailings to another section of the land. It said that it had been considering a number of other options outside the terms of the MOU, all of which carried costs in excess of $7 M. It would produce the report under cl 1 of the MOU, if required, but it could see no benefit in doing so as, 'the environmental authorities' position is absolute'. Perhaps the time had come, the defendant, suggested, for the parties to terminate the MOU. Ms Jones asked that correspondence be directed to her, as Mr Thorp was no longer with the defendant.
The plaintiff consulted its solicitors. On 25 August 2005, they wrote to the defendant, advising that the plaintiff wished the tailings study to be provided. That letter was followed up on 8 September 2005, and, on 13 September 2005, the defendant wrote to advise that it anticipated that the report would be available within the next four weeks. As soon as that period expired, the plaintiff's solicitors wrote to the defendant, asking for a copy of the tailings study. On 12 October 2005, the defendant responded that the final report and an executive summary were in the process of compilation, and it was expected that they would be available by the end of the week. Again in that letter, exhibit 28, there was a reference to the MOU, as follows:
As previously advised, we have been looking at a number of options outside the terms of the Memorandum of Understanding and extending further than our obligations under the Memorandum of Understanding in order to facilitate this sale. Unfortunately, the strategy contemplated by the Memorandum of Understanding, being to relocate the tailings to another section of land, is not possible within the legal requirements of Western Australia.
Ms Jones, writing for the defendant, followed that up by a letter dated 1 November 2005, which advised that two studies, one under the MOU, and the other dealing with 'alternative options', were in Brisbane being reviewed by the managing director. She enclosed 'a simple confidentiality agreement' for the plaintiff's signature in relation to the study which the defendant regarded as being outside the terms of the MOU.
In the event, the defendant did not provide both studies. Under cover of a letter dated 2 December 2005, it provided what it described as the study referred to in cl 1 of the MOU, exhibit 35. Ms Jones' letter said the defendant was looking forward to receive the plaintiff's completed feasibility study, under cl 5 of the MOU. I need not set out the detail of the attached study. It is headed, 'Executive Summary', and, reading between the lines, it would appear that what was sent was just that, the Executive Summary attached to one of the reports referred to in the defendant's letters, dated 12 October and 1 November 2005. As I say, the letter of 2 December 2005 made no reference to the study which the defendant considered it had undertaken to report upon disposition of the tailings by a method which, in its view, fell outside the terms of cl 1 of the MOU. But it should be observed that the plaintiff had apparently done nothing about executing and returning the confidentiality agreement which was sought.
The Executive Summary is a one and a half page document, to which is attached an aerial photograph of the Minninup area, and a plan of the subject land showing ten areas where the tailings, of which there were said to be 230,000 tonnes, were buried between 1987 and 1990 when the mine was active. All that had been done, apparently, as required by the State Mining Engineer, was to bury the tailing materials in prescribed locations at prescribed depths. The report refers to an existing code of practice, and the anticipated requirements of the contaminated sites branch of the Department of the Environment, as well as to the expected requirements of the Contaminated Sites Act 2003 (WA), which the report describes as 'soon to be approved'. In fact, the commencement date for that Act was 1 December 2006, by proclamation in the Gazette of 8 August 2006, p 2899.
The report conceded that the tailings comprised radioactive material, 'naturally occurring levels of thorium and uranium'. As I understand the document, it was expected that the defendant would need to deal with the tailings in accordance with current industry practices, because although it had done what the law required at the time, it would now be necessary to deal differently with the tailings. The defendant would not be permitted to move the tailings to one or more different locations and endeavour to provide the required depth of deposit to achieve between two and five metres of inert soil covering the buried tailings. Industry practice since 2000 had been to dispose of radioactive tailings by diluting them with bulk volumes of tailings which were not radioactive, so as to reduce the level of radioactivity to equate with the radiation levels of the soil in the area before it was mined. The report concludes;
Based upon the Company's extensive investigations that were conducted in connection with the preparation of this report, reburial of all Minninup Tails on the property is not an option available to the Company.
The plaintiff showed the document to Mr Carman, who was to be responsible for the preparation of the plaintiff's feasibility study. He considered the report to be inadequate, because it provided no costings and did not deal with the question whether reprocessing the tailings would result in commercially saleable mineral product, to which a value might be attributed to offset, to some degree, the expense involved. However, Mr Poland told Mr Carman that he should complete the feasibility study as best he was able, and he did so, and provided it to the defendant on 8 December 2005.
The feasibility study (exhibit 39) is a comprehensive document providing a detailed analysis of how the land might be developed into 251 lots. The study provides a summary of development costs and projected revenue. The figures and the nature of the analysis are not relevant for present purposes. Suffice it to say that if the feasibility study was reasonably accurate, there was every prospect that over time the plaintiff might find the project to be profitable, although no allowance appears to have been made for the costs which the plaintiff might be required to bear in respect of remedial work to be done on the land to deal effectively with the tailings deposits.

The plaintiff did not immediately proceed under cl 6 of the MOU to advise whether or not it wished to continue with negotiations for the sale and purchase of the land. Rather, on 12 December 2005, its solicitors wrote complaining that the tailings study provided by the defendant, did not meet the requirements of cl 1 of the MOU (exhibit 41). The letter refers to the feasibility study and the incapacity to complete a cost analysis of the expenditure involved in cleaning up the land. The letter requires the defendant to comply with its obligations under cl 1 of the MOU promptly, 'by arranging for a proper, detailed environmental engineering study to be prepared and forwarded to our client for its consideration.'
By a reply dated 19 December 2005 (exhibit 43), the defendant maintained an assertion that the report provided met the requirements of cl 1 of the MOU because it advised, for reasons there set out, that the course of remediation proposed in cl 1, was not possible. As to the provision of advice about alternative methods of disposing of the tailings, the defendant's letter reminds the plaintiff that the defendant had sought a confidentiality agreement which the plaintiff had not provided. The defendant appears to have concluded that the plaintiff declined to execute that agreement. That being the case, the defendant said that it withdrew the offer to provide the study on alternative options, though it had been 'prepared at a great deal of expense with a view to completing this sale'. However, the defendant undertook to provide an addendum to its tailings study, setting out in more detail the relevant legislative provisions backing its advice.
The plaintiff's solicitors acknowledged this offer, but before the addendum was provided, the solicitors wrote giving notice that the plaintiff wished to continue with negotiations for the sale of the land and seeking a meeting for that purpose (exhibit 45). If that was action taken under cl 6 of the MOU, it would cause the period of 30 days fixed by cl 9 of the MOU for the completion of negotiations, to commence to run.
However, it is noteworthy that the defendant wrote to the plaintiff referring to exhibit 45 by a letter dated 5 January 2006 (exhibit 48). The material part of the letter is as follows:
Whilst we maintain that the environmental engineering study, as delivered, is in accordance with the MOU, to ensure that this matter proceeds in an orderly manner we propose that the time period for negotiations referred to in clause 9 of the MOU commence from the date we deliver the addendum to the study, as previously discussed, rather than the date of your correspondence.
The letter asks that the plaintiff, by signature at the foot of the letter, should confirm that variation of the agreement. That was done and the copy of the letter was returned to the defendant on 9 January 2006.
There is some confusion about the precise date when the addendum was delivered, but the latest date by which that was done is accepted by the defendant, and I think rightly so, to have been 13 February 2006. The addendum does what the defendant said it would do. It lists the various legislative provisions, protocols and codes of practice which might have a bearing upon what might be done with the tailings, summarises their terms, and makes brief observations about how they may affect the manner in which the tailings on the land could be dealt with. Again it is apparent from Mr Poland's evidence, that he was disappointed to find that it did not provide details of the three options which had originally been discussed with Mr Thorp and at what cost they might be carried out.
On the basis that the first day of the 30 day period was 14 February 2006, the last day, if there was no extension under cl 9 of the MOU, for the completion of negotiations, was 15 March 2006.
On 10 February, before the addendum was formally delivered, Ms Jones wrote to Mr Poland, asking him to advise his availability for a meeting the following week, either on Tuesday 14 February or Friday 17 February, 'to discuss the sale'. She said that Mr Shirfan and she would be present for the defendant. That meeting was held on 17 February 2006. Mr Poland attended with his daughter and solicitor and for the defendant, Mr Shirfan and Ms Jones were present.
According to Mr Poland, after some preliminary discussion, the conversation turned to what would need to be done to clean up the tailings and Mr Shirfan said that it would be necessary to excavate and re‑treat the tailings at an estimated cost of $9 M. The evidence about this was given by Mr Poland and Ms Jones. There are differences in their respective recollections. Mr Poland says that when he was told what was to be done and what the defendant estimated it would cost, he said that although it was a lot higher than the original estimate, the plaintiff still wished to proceed. His evidence was that he felt he had no choice but to capitulate and was prepared to do so to finalise the deal. Although he had been advised that the information from the defendant was unsatisfactory, he realised he would have to accept that no more information would be forthcoming if, as the plaintiff wished, the transaction was to be completed to result in the sale of the land.
Mr Poland said that he told those present at the meeting that this was the plaintiff's position. Poland's evidence was that Shirfan said that he was not sure that the defendant would do the work. Poland said that he told those at the meeting that although he would prefer the defendant to do the work at the plaintiff's expense, if it would not, then the plaintiff would get someone else to do it. Ms Jones agreed that Poland said the plaintiff was prepared to arrange for the cleanup to be done. He said he asked for the study as to what was required. Ms Jones said that it would not be provided unless the plaintiff executed the confidentiality agreement. Mr Poland said he agreed. It appears that progress was being made.
There was a discussion about special conditions which Mr Shirfan said the defendant would require in relation to cleaning up the land. Ms Jones undertook to arrange for those special conditions to be prepared and forwarded to the plaintiff's solicitors. There was no discussion, Mr Poland says, about what their content might be.
Ms Jones' evidence was, and I accept, that at least there was discussion about the fact that in general terms the special conditions would be concerned to protect the defendant from liability which might be incurred to third parties who would subsequently acquire the land, if the cleanup process was done by the plaintiff and imperfectly reduced the level of radiation remaining in the land. She agreed, however, that there was at that meeting, no reference to the plaintiff agreeing to indemnify the defendant against any such liability or to the requirement for the plaintiff to support that undertaking by the provision of a bank guarantee (ts 292 ‑ 296).
On the very day of the meeting, 17 February 2006, as Mr Poland instructed, the plaintiff's solicitors wrote to Ms Jones on behalf of the defendant. They confirmed that the plaintiff wished to proceed with the purchase of the land and that the defendant was preparing proposed special conditions for inclusion in the contract in respect of the defendant's requirements for the cleanup of the properties. They asked that these be formulated and provided quickly in view of the short time period for negotiations. The letter also confirmed the request made for a copy of the further study which it said the plaintiff wished to have so that it could better understand the defendant's requirements and the processes involved in relation to the cleanup of the land. Finally, the letter confirmed that the plaintiff agreed to execute the confidentially agreement as a condition for the provision of that study (exhibit 54).
In fact, the study being discussed had been available to the defendant from October 2005 and the evidence reveals that Ms Jones wasted no time in organising the provision to her of views within the defendant as to the special conditions which the defendant considered ought to be included in a contract for the sale of the land and in instructing solicitors to formulate them in terms suitable for inclusion in the REIWA contract which was envisaged. The defendant's particular concern remained its exposure to potential liability if the plaintiff, rather than the defendant, undertook arrangements for the remedial work on the land.
The defendant wrote to the plaintiff's solicitors attaching the proposed special conditions on 24 February 2006, 'to progress the negotiations under the terms of the Memorandum of Understanding' (exhibit 56). The letter was sent by facsimile on the afternoon of 27 February 2006. Ms Jones again concentrates on the radioactive contamination of the soil and the defendant's concern about liability remaining with it after the sale of the land. The view is expressed that the proposed special conditions are those reasonably required to protect the defendant.
In addition, the letter refers to the plaintiff's request for a copy of the further study done by the defendant. The view is expressed that the defendant's requirements are adequately set out in the attached special conditions, but the defendant was prepared to provide the executive summary from the study, subject to the execution of the confidentiality agreement, a copy of which was again provided. I have not paused to consider whether the terms of the confidentiality agreement thus provided, differed to any degree from that provided with the defendant's letter dated 1 November 2005 (exhibit 31).
The document setting out the proposed special conditions, which forms part of exhibit 56, is substantial. It is obviously intended to be an addendum to the REIWA contract for the sale of land and the 2002 revision of the General Conditions forming part of that contract. Some of those General Conditions are expressly excluded from operation and the draft special conditions provide that they are to prevail in case of inconsistency between their provisions and the provisions of the 2002 General Conditions: cl 1.3.
As to the terms of the document, the proposed cl 4 commences with an acknowledgement that the land is contaminated by radioactive mineral tailings. Clause 4 is written upon the basis that the plaintiff would be solely responsible for remediation and compliance with any environmental law, including the Contaminated Sites Act 2003 (WA). Clause 4.4 sets out a comprehensively worded indemnity to be provided by the plaintiff to the defendant, against loss which might be caused to the defendant arising out of the contamination of the land. Clause 6 would require the plaintiff to provide an unconditional and irrevocable bank guarantee for a period of 20 years from the date of settlement, in the sum of $25 M.
In the letter dated 24 February, it is said:
The guarantee figure has been arrived at, taking into consideration the Feasibility Study for the sale of 251 lots prepared by Benchmark Projects. Were the circumstances for a claim involving health or relocation issues to arise, this sum would barely cover a $1 Million claim by 10 % of the lot owners.
Mr Poland's evidence on behalf of the plaintiff was that he was shocked at the proposal for an indemnity and the security by way of a $25 M bank guarantee, which had not previously been mentioned in any discussions with the defendant's representatives and which he thought to be unreasonable. The plaintiff adduced evidence however, to establish that it had a facility available to it with its banker which might lead the plaintiff to believe that it could in fact have provided the guarantee sought by the defendant.
However that may be, the plaintiff did not respond immediately, but on 2 March 2006 it sent the signed confidentiality agreement, executed by Mr Poland on behalf of the plaintiff, to the defendant. The promised executive summary of the defendant's tailings study which it maintained it had conducted outside the terms of the MOU, was provided to the plaintiff on 3 March 2006, a Friday (exhibit 59).
It is a single page document which concentrates on what are said to be 230,000 tonnes of tailings buried at depth in ten individual areas on the land. The costs of the whole process of recovering, re‑treating and disposing of the tailings are given, totalling $10,746,560. The summary says that approximately $1,350,000 might be received from the sale of the mineral sands concentrate produced from the processing of the tailings to reduce the radioactivity content. The net cost after this revenue is allowed for is therefore given as $9,396,560. The costs estimates are said to be based on the work being performed by the defendant, utilising its existing mining and processing equipment, its mine sites for disposal of the reprocessed tailings, and using the defendant's staff. The summary makes the point that if the work is to be performed by 'a third party … without access to mining and processing equipment' the costs would be different, presumably greater. It will be recalled that $9 M was the figure mentioned by Mr Shirfan at the meeting on 17 February 2006 at which time, as I have noted, the defendant had the full report in relation to this method of cleaning up the land.
Seven days later, on Friday 10 March 2006, the plaintiff sent its reply to the defendant by facsimile under a covering letter from its solicitors which Mr Poland said was written upon his instructions (exhibit 60). The attachments were in the form of the REIWA contract for the sale of land by offer and acceptance. The solicitors described the document as embodying the plaintiff's offer to purchase the land. Mr Poland said in evidence that he saw it as the exercise of the plaintiff's option to purchase, but the terminology matters little.
The offer was to purchase both lots for the sum of $3.2 M plus GST, by payment of a deposit of $50,000 within seven days of acceptance of the offer and the balance on settlement of the contract which was to take place 90 days after the date of the contract. The form of contract bore Mr Poland's signature.
The plaintiff's version of the appropriate special conditions to be incorporated into the contract were attached. There had been some amendments made to the version submitted by the defendant. Those which are presently significant were additions to, and subtractions from the original cl 4 and cl 6. A new term was added requiring the defendant within 30 days of the date of the contract or such longer period as might be agreed, to disclose to the plaintiff all the information in its possession relating to the composition of the mineral tailings. The provision for an indemnity was deleted, as was the provision for a bank guarantee, both on the ground that the plaintiff, by its execution of the MOU, agreed to neither provision. The solicitors' letter closed with the observation that cl 13 of the MOU expressed the intention that it was to be a legally enforceable agreement. The solicitors averred:
It is our view that the enclosed offer represents the contract that a court would say it was reasonable for the parties acting in good faith to enter into taking into account the provisions of the Memorandum of Understanding.
All of that was sent by facsimile to the defendant at 11 am on the Friday, 10 March 2006 (exhibit 110). It will be recalled that the last day of the negotiation period under the MOU was the following Wednesday, 15 March 2006. The defendant responded promptly enough by a letter sent to the plaintiff's solicitors by facsimile on 14 March 2006 at 3.35 pm Queensland time and therefore at 1.35 pm Western Australian time (exhibit 61). It is worth setting out the body of the letter, which was signed by Ms Jones:
Whilst we can further negotiate some of the clauses you have raised in your correspondence, indemnity and bank guarantee provisions are key provisions required in order for us to proceed (for, inter alia, the reasons outlined in our meeting). To progress this contract we think that resolution of these key issues must necessarily precede further discussions on the balance of the contractual provisions.
We ask that you please reconsider the position taken in your correspondence and advise as soon as possible of your acceptance, proposed amendments or otherwise of these provisions and this approach.
Nothing happened for the rest of 14 March or 15 March and the time expired without an extension having been sought or obtained. In fact, an extension of time was never sought. The plaintiff took the different course of insisting that the defendant execute the REIWA contract it had sent on 10 March. On 16 March, Ms Jones, as instructed, wrote for the defendant to the plaintiff's solicitors advising that the MOU as varied by the agreement made by the parties on 9 January 2006, had now been discharged by the effluxion of the 30 day period to negotiate a contract of sale of the land. The letter reminded the plaintiff that the confidentiality provisions under cl 2 of the MOU survived its expiry. The facsimile transmission occurred at 2 pm from the defendant's head office in Brisbane. It therefore occurred at noon in Western Australia (exhibit 62).
At just after 1.30 pm on 16 March 2006, the plaintiff's solicitors replied to the defendant's letters of 14 March and 16 March (exhibit 63). They said they had been unable to obtain instructions. Mr Poland was currently overseas (when giving evidence he could not remember whether he was or not). The solicitors said they expected to receive instructions when Mr Poland returned on 20 March 2006 and they would respond then. For completeness I note that they did so (exhibit 66). In essence they said, upon instructions, that the offer they had made on 10 March 2006 was in their view reasonable and was made in good faith pursuant to the MOU. The plaintiff required the defendant to execute the offer and to return the executed contract within 14 days. Needless to say, that did not occur and in due course these proceedings were instituted.

The construction of the MOU

In my opinion, although the context is to be regarded and the whole of the document considered, as I have already indicated, I found little of assistance in the surrounding facts leading up to the making of the MOU to aid in the interpretation of the meaning and effect of the crucial provisions of the deed. It is necessary also in this case to be careful not to have regard to what Mr Poland for the plaintiff and Mr Thorp for the defendant, appear to have intended should be the content and effect of the document.
In this case the recitals are an aid to the proper construction of the operative provisions of the MOU. They record the discussions of which Mr Poland spoke in evidence. To the extent that recital C expresses the point that the parties were of a common mind, it says only that they 'have agreed for certain due diligence processes to be carried out'. It is significant that recital C refers to the function of the MOU as being to set out the due diligence processes and to provide on the completion of those processes, 'for the negotiation of a contract between the parties for the sale and purchase of the Land.' That suggests that the MOU was not to express the contract for the sale and purchase of the land which the parties had made, but to provide for them to negotiate the terms of such a contract.
Recital D does, however, refer to the possibility that some of the land would be resumed for regional open space and cl 8(c) reflects the agreement of the parties that any compensation paid on or before the settlement of a contract for the sale of the land was to be shared equally between the parties. It is a discrete point which reflected the oral discussion which had taken place.
Clause 1 is a crucial provision. Although I am satisfied that discussions had ranged more broadly, I think the clause unambiguously provides merely for the defendant to report on the departmental approvals for the relocation of the tailings, the strategy for carrying that out and encapsulating the tailings once relocated, and the cost and practicality of implementing that strategy. Clause 1(b) makes it clear that the relocation and encapsulation of the tailings envisaged was relocation, 'to that part of the Land which will have the least impact on any subsequent development of the Land'. This was the process which in discussion Mr Thorp supposed would be the cheapest of the three options which were thought to be available and in my opinion it is clear that the MOU focused the defendant's due diligence obligation upon that limited process.

Clause 2 provides the obligation for the defendant to report progress with the study, including estimated costs. The other important aspect of cl 2 is to require the plaintiff to keep that information confidential, when in cl 2 it is provided that the plaintiff agrees not to use the confidential information 'for any purpose other than in connection with the purchase of the Land by it, pursuant to this agreement'. That is not to say that the MOU should be construed as a contract itself providing for the sale of the land, but merely that a sale of the land might be achieved by carrying out the processes provided by the MOU.
There is only one point, I think, where the MOU says what was to be done by the defendant if, as it says proved to be the case, it was found not to be possible to relocate and encapsulate the tailings on a part of the land different from those areas where they now are. Clause 1(c) provides that the defendant was to study the practicality of implementing the relocation strategy for the remediation of the land.
Although, I think, in the end it is not material to the parties' dealings with each other under the MOU, I would interpret cl 1 and cl 2 and the obligation imposed on the defendant to advise the cost of the remedial work, to be limited to the case where it was practicable to implement the strategy of relocating the tailings on the land. The due diligence obligation imposed on the defendant was satisfied, I think, in a case where that was found not to be practicable, by saying so. It would seem to be an odd outcome to require the defendant to provide costings for work in cleaning up the land by the strategy contemplated, when that was not open to be done because such work would not be approved.
However, that may be, the plaintiff's due diligence obligation was to carry out its feasibility study in relation to the subdivision and development of the land under cls 3 ‑ 5. I note that under cl 1, the defendant's obligation was to be 'promptly' performed. The plaintiff's obligation to complete the feasibility study, is not necessarily dependant upon the completion of the defendant's study, but specific periods of time are provided in cl 5. If the study provided under cover of the letter dated 2 December 2005 (exhibit 35) is regarded as the defendant's study, I note that the plaintiff's study was provided on 8 December 2005 (exhibit 39) within the seven day period allowed by cl 5(b). Further, I note that the plaintiff complied with the requirement under cl 6 to provide to the defendant its advice that it wished to continue with negotiations within 14 days of the provision of the feasibility study. It did so by the letter dated 22 December 2005 (exhibit 45).
In relation to such negotiations, the MOU is consistent throughout the operative provisions, which are in their turn consistent with pars B and C of the recitals. Clause 6 talks of continuing 'negotiations for the sale and purchase of the Land.' Clause 7 provides a 'walk away' option to the plaintiff. If it did not wish to continue the negotiations, it could simply do so without any claim arising in relation to the land, or the dealings of the parties with each other concerning the land. Neither party at that point, and in that event, would be bound to perform any contract.
The plaintiff relies substantially on cl 8 in support of the proposition that the MOU, properly interpreted, constituted a contract for the sale of the land because, it argues, the parties had evidently agreed the identity of the vendor and the purchaser, the precise land the subject matter of the contract, and the price to be paid. It adds that by necessary implication, there should be regarded as being agreement that the transaction would be settled within a reasonable time. Further, it is pointed out that the form of contract had been agreed.
In my view this submission may not succeed. Clause 8 describes the process of continuing negotiations between the parties for the sale of the land. Their agreement under the MOU is that they would together negotiate to make a contract which would include the specified terms and conditions. Clause 8(a) describes a purchase price, but the clause leaves to negotiation between the parties the whole question of who was to do the work of remediation and cleaning up the land, relocating and encapsulating the tailings on it, when it was to be done and what the costs would be. I cannot bring myself to interpret cl 8(b) as being an agreement between the parties that whatever was to be done, and by whom ever it was to be done, the plaintiff was committed to an open‑ended liability to pay all the costs. On the basis that the tailings study performed by the defendant showed that the work could be done and what the cost of the work would be, I interpret cl 8 as recognising that suitable contractual provision would need to be made for this potentially significant expenditure. Therefore, it seems to me that it can hardly be said that the price was agreed.
I think also it is significant that under cl 8(d) the contract was to be in the form of the REIWA contract for the sale of land by offer and acceptance, with the general conditions being varied 'as may be agreed by the parties.' It would be by that instrument that the price would ultimately be fixed and provision would be made for payment. A date for settlement would be agreed, as would such matters as whether the plaintiff was to be entitled to possession of part of the land while remediation work continued elsewhere and numerous matters of that kind. Finally, of course, that form of contract is, as it describes itself, by offer and acceptance. It expresses the culmination of the process of negotiation arriving at a settled agreement to contract for the sale of the land.
Clause 9, in my view, is written in terms consistent with the view of the MOU as being an agreement about the process of negotiations, when it commences, 'If the parties acting in good faith are unable to conclude a contract for the sale and purchase of the Land between themselves'. Of course, I have taken the view that in their dealings with each other the parties, at the instigation of the defendant, varied the terms of this clause so as to provide differently for the point at which the 30‑day negotiation period would commence. But that is immaterial for present purposes. The important point to note, is that cl 9 is also a 'walk away' provision. If negotiations should fail to produce a contract for the sale of the land, then that has the effect of terminating the MOU. There is no existing contractual relationship between the parties, which at that point is to be accommodated. The only thing that remains, under the terms of cl 9, is the confidentiality undertaking provided in cl 2.
Again, cl 10 is written consistently with the view I take of the effect of the MOU. There is no contract for the sale of the land generated by the MOU. Under cl 10, if a contract was made at the conclusion of the negotiations, it is to supersede the operation of the MOU which then terminates, subject again to the continuation of the confidentiality provision.
Clause 11 is in that context, a necessary provision to protect the position of the plaintiff during the period of negotiations by preventing the defendant from exercising the power that it otherwise would have to sell or agree to sell the whole, or any part of the land to another, to grant any interest in the land to another, or to enter into any negotiations or have any dealings in relation to the land with another. If the MOU was itself interpreted as incorporating a contract for the sale of the land on agreed terms, or an option to purchase the land on agreed terms, a provision in terms of cl 11 would hardly be required, because in either case the plaintiff would have an equitable interest in the land which would be indefeasible.
On the contrary, cl 11 is a necessary feature of the MOU to preserve the position of the plaintiff against the possibility that before it has the chance to successfully complete negotiations for the sale of the land, the defendant might otherwise deal with the land or any part of it so as to encumber it, or in some way defeat the plaintiff's interest in acquiring it.
There is no doubt, I think, that the MOU created a contractual relationship between the plaintiff and the defendant. Clause 13 makes that clear, if it were not otherwise perfectly apparent. The MOU was an enforceable agreement complete on its face, subject to the matters of law which I shall shortly discuss.
It will be apparent from the views I have expressed about its meaning and effect, that I would not conclude that there was any term to be implied in the MOU that the settlement date in the REIWA contract would be within a reasonable time after the execution of that contract. Nor is this an agreement which might have incorporated in it the implied term as to dealing with the tailings for which par 4(k) of the statement of claim contends. Finally, it would not be appropriate to imply a term requiring the defendant to carry out the cleanup work on the land, the term for which the statement of claim par 4(l) contends.

The nature of the agreement made

In this case, it is worth returning to the decision of the High Court in Masters v Cameron (1954) 91 CLR 353 at 360, where it was pointed out that where an intention to contract is established, the agreement made might be of three different kinds:
1.the parties immediately bind themselves to an agreement but decide to draw up the agreement in a more formal document later,
2.the parties bind themselves to an immediate agreement but defer agreement on a particular subject matter or part until a formal document is later drawn up, and
3.the parties intend to postpone the creation of contractual relations entirely until the formal contract is drawn up and executed.
This case, in my opinion, presents the MOU as falling into what has been described as a fourth category of agreement, a variation of the first type referred to above. In Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622, at 628, McLelland J referred to a case where the parties are taken to intend to be bound immediately in terms which they have presently agreed, but they expect to make a further contract to operate in substitution for the first agreement containing, by consent, additional terms. This, in my opinion, is what the parties have done here.
This is therefore not a case where the parties have deferred their intention to create a binding contractual relationship, and nor is it a case where the parties have agreed the essential terms for the sale of the land, but left additional terms to be worked out later: cf Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144.
Rather, this is a case where the parties have bound themselves by agreement to a process which they describe as due diligence investigation and to negotiation in good faith towards the making of a contract for the sale of the land. These parties are not in the category of persons who have simply made an unenforceable agreement to agree. They have made an enforceable agreement to use their best endeavours to reach a position where they may make a contract for the sale of the land. The position is not unlike that discussed by Ipp J in Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486. See also Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 per Ipp J at 110 ‑ 111 [23] ‑ [26].
In my opinion, the agreement embodied in the MOU is enforceable because it goes beyond a mere agreement to agree, if that is what is intended to be conveyed by the pleading in the defence, par 3(c)(iii). The MOU goes further because, as cl 8 makes clear, there is agreement upon some matters which might, if the process of negotiation concluded successfully, be incorporated in a contract for the sale of the land, although, as I have held, the MOU is by no means enforceable as a contract for the sale of the land, the essential terms of which have been agreed, with the possibility being reserved that other terms may be added later.
I should also deal specifically with the contention which might be regarded as emerging from par 14B of the statement of claim, although that is a pleading of estoppel, that the MOU granted the plaintiff a binding option to purchase the land for $3.2 M plus GST. It will already be apparent, for the reasons I have given, that in my view the MOU has no such effect.
As I understand the plaintiff's contention, it is that the MOU granted an option to purchase the land within the terms of cl 8 and until the plaintiff exercised that option, its position was protected and the defendant was obliged to keep the option open pursuant to cl 11. In my view the argument fails because the MOU makes no sufficient determination of the terms of the contract into which the defendant has undertaken to enter, upon the condition of the plaintiff's exercise of the option. The agreement is no more than an agreement to negotiate the terms of a contract for the sale of the land into which the parties may ultimately enter.
There has of course for some time been controversy about the binding force of agreements to continue negotiations and the traditional view is that mutual promises in those terms will not be enforceable. However, at least since the NSW Court of Appeal decided Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, the courts have been more prepared to accommodate the notion of an enforceable contract to negotiate, although in that case it was held that no such enforceable contract had been made.
Kirby P, with whom Waddell AJA agreed, reviewed academic writings and decided authorities both here and overseas, before concluding that:
I do not share the opinion of the English Court of Appeal that no promise to negotiate in good faith would ever be enforced by a court. I reject the notion that such a contract is unknown to the law, whatever its terms. … [I]n some circumstances a promise to negotiate in good faith will be enforceable, depending upon its precise terms. … [S]o long as the promise is clear and part of an undoubted agreement between the parties, the courts will not adopt a general principle that relief for the breach of such a promise must be withheld.
On the other hand, the third member of the court, Handley JA considered that a promise to negotiate in good faith could never be binding (42). See now, however, United Group Rail Services Ltd v Rail Corporation NSW [2009] NSWCA 177, following Coal Cliff.
The law is not abundantly clear, but it seems to me that I should proceed upon the basis that the promise to negotiate in good faith towards the making of a contract for the sale of the land, having regard to the fact that there was some measure of agreement as to the nature of that contract contained in cl 9 of the MOU, is an enforceable obligation. The difficulty of course, inherent in such a case, is to determine the specific content of the duty to negotiate in good faith which in my view is derived from cl 12 of the MOU as a specific term of that agreement. That being so, such a term may not be implied as a matter of law, in what is sometimes known as the Butt formula after the decision of Griffiths CJ in Butt v M'Donald [1896] 7 QLJ 68, 70 ‑ 71 as adopted in the decision of the High Court in Secured Income Real Estate at 607.
The content of the duty imposed on the parties to deal with each other in good faith in the context of the negotiations towards the making of a contract for the sale of the land for which the MOU provides, can be expressed in general terms. There is a useful and extensive discussion of the concept, in the context of a building contract where dispute resolution clauses required the parties to negotiate in good faith in an endeavour to settle any dispute before resorting to litigation or alternative dispute resolution, by Einstein J in the Supreme Court of NSW in Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996; (1999) 153 FLR 236. His Honour expressed what he regarded as the core content of the obligation to negotiate in good faith at 268 [155] ‑ [156]:
[T]he Court ought be wary in the extreme of hampering itself by defining in any exhaustive way or by laying down as a general proposition, the ambit of what will constitute a compliance with or failure to comply with an obligation to negotiate or mediate in good faith.
These are matters to be determined depending always on the precise circumstances of each individual case. But the 'certainty' issue does require that the court spell out, even in non-exhaustive terms, the perceived essential or core content of an obligation to negotiate or mediate in good faith. To my mind, but without being exhaustive, the essential or core content of an obligation to negotiate or mediate in good faith may be expressed in the following terms:
(1)to undertake to subject oneself to the process of negotiation or mediation (which must be sufficiently precisely defined by the agreement to be certain and hence enforceable);
(2)to undertake in subjecting oneself to that process, to have an open mind in the sense of:
(a)a willingness to consider such options for the resolution of the dispute as may be propounded by the opposing party or by the mediator, as appropriate;
(b)a willingness to give consideration to putting forward options for the resolution of the dispute.
Subject only to these undertakings, the obligations of a party who contracts to negotiate or mediate in good faith, do not oblige nor require the party:
(a)to act for or on behalf of or in the interests of the other party;
(b)to act otherwise than by having regard to self-interest.
It is noteworthy then that a party subject to such a duty will not be in breach of the duty because there has been a failure to agree; nor does such a party have to subjugate its contractual rights to the interests of the other. What is required to establish a breach, having regard to the content of the obligation, is a failure to honestly participate in the process of negotiation which the document, in this case the MOU, requires. It is in that sense that I make the observation that the content of the duty to act or negotiate in good faith will take its colour from the terms of the agreement out of which the duty arises.
In Expectation Pty Ltd v Pinnacle VRB Ltd [2004] WASCA 261, Steytler J, with whom McKechnie and Jenkins JJ agreed, expressed the same notions at [42] and [66], effectively adopting the statement of principle by Parker J in Central Exchange Ltd v Anaconda Nickel Ltd [2001] WASC 128; (2001) 24 WAR 382 at 394 [24] and [25]. There his Honour accepted the submission that the obligation of good faith involved at least three related notions:
•an obligation on the parties to cooperate in achieving the contractual objects (loyalty to the promise itself),
•compliance with honest standards of conduct, and
•compliance with standards of conduct which are reasonable having regard to the interests of the parties.
See also United Group per Allsop P at [70] ‑ [74], Ipp and Macfarlan JJA agreeing.

The parties' obligation to deal with each other in good faith was not breached

The defendant makes an allegation of this kind against the plaintiff, but the material consideration in the context of this litigation is whether the defendant breached its duty to act in good faith to conduct its end of the negotiations in compliance with the good faith obligation understood in the way described above. By that I mean that although the focus will be upon the defendant's conduct, that must be evaluated in the context of the conduct of the plaintiff, the obligation to act in good faith in pursuing the negotiations being one imposed on both parties.

I have summarised the material facts. They lead me to the firm conclusion that the defendant has not been established to have breached its contractual obligation to act in good faith giving that requirement the broad interpretation set out above.
From the time of the meeting in October 2004, it was clear that the plaintiff wished to purchase the land for purposes it made clear. The defendant wished to sell the land which was surplus to its requirements, but it appreciated that the change of use to which the plaintiff proposed to put the land would require a remediation process designed to deal with the radioactive tailings. The MOU focused attention upon that issue. That was the investigation to be done by the defendant, the proposal being to investigate and cost the limited solution to which I have found cl 1 of the MOU refers. The investigation by the defendant was effectively derailed when it received advice, which it conveyed to the plaintiff, that the solution envisaged by cl 1 was not possible.
Meanwhile, the plaintiff's due diligence exercise, effectively designed for its own protection, was expressed in the feasibility study. It regarded the provision of the study reported by exhibit 35 in December 2005 as unhelpful to the completion of the feasibility study. The plaintiff said so, although a study which the defendant regarded as being outside the terms of the MOU had been offered upon the plaintiff signing a confidentiality agreement. Rather than take that course, the plaintiff completed and provided to the defendant, its feasibility study while demanding a completed study from the defendant in relation to the procedures to be adopted for cleaning up the land and the detailed costs.
I think the debate between the parties at this point was generally unhelpful to the process of advancing their negotiations. While they discussed the processes to be employed, it is clear that the defendant did not wish the plaintiff to be prejudiced by its advised wish to continue the negotiations and the letter of 5 January 2006, exhibit 48, was designed to prevent time running against the plaintiff. The addendum report provided soon after, no doubt assisted the plaintiff to understand why the defendant considered that the process it thought cl 1 was directed to, was impracticable.
However that may be, at the meeting on 17 February 2006 it was abundantly clear that whether or not the investigation processes contemplated by the MOU had been properly undertaken, both parties were committed to progressing negotiations and both did so in the knowledge of the 30 day period provided for that to occur, unless an extension was obtained. In my view, there is no evidence to suggest that the discussion at that meeting implicated the defendant in any evasive or dishonest behaviour.
Its expressed concern was the defendant's potential liability, particularly if the cleanup was to be done by the plaintiff, in relation to the contamination of the land by the tailings. It was clear that its concern was to protect itself against that liability, although no specific contractual terms were advised until, as the plaintiff requested, the special conditions were formulated and provided in exhibit 56. The defendant then expressed the hope that negotiations would 'progress'. There is no evidence to suggest that this was dishonest or duplicitous and the ball was then in the court of the plaintiff.
Once the plaintiff found itself unable to agree to accept those special conditions which the defendant had made clear it regarded as central to its capacity to agree to sell the land, the negotiations were significantly set back with very little time remaining.
The plaintiff pursued and received the proposal as to the work of cleaning up the land which must be done and the defendant's estimates of the costs involved. It is clear that when the plaintiff sent its letter of 10 March 2006 attaching its proposed contract, it was expressing something of a final view that it would not accept the requirements of the defendant because it regarded them as unreasonable demands.
It seems to me that the plaintiff then knew the timeframe within which it was operating and when the defendant, by its letter dated 14 March 2006, urged the plaintiff to reconsider its position, the ball was again in the plaintiff's court. It could have sought an extension of time. It did not do so, but insisted that its present position was reasonable and took the position that the defendant was bound to execute the contract it proposed. In my opinion the defendant was not obliged to warn the plaintiff of the consequences and it was at liberty upon the expiry of the time allowed, to regard the MOU as at an end. It did so and the outcome, in my opinion, without fault on the part of either party and without breach of the obligation to act in good faith towards the other, is simply that the contract for the sale of the land which they hoped to negotiate, did not eventuate.
For the defendant it is put that the plaintiff's failure to respond to the letter of 14 March 2006, itself is a failure to negotiate in good faith. The point is irrelevant, but for completeness I observe that it seems to me that the plaintiff honestly took the position it did as a reasonable reflection of its own interest and there is of course no cross claim by the defendant in relation to the failure of the parties to negotiate a contract for the sale of the land.
As to the relevant question of good faith, it seems to me that the nub of the case lies in the defendant's assertion of special conditions in relation to the indemnity and bank guarantee and the plaintiff's view that these were unreasonable, unusual, not within reasonable contemplation as being attendant upon a contract for the sale of land of the type being sought to be negotiated, and unnecessary. None of that, it seems to me, is to the point in relation to the defendant's discharge of its obligation to act in good faith once it is seen, as I have concluded, that the defendant was, by the terms proposed, honestly seeking to protect itself from a liability it feared might arise out of its activities interfering with the radioactive content of the soil and the measures which might be taken to prevent any harmful effects on persons or the value their properties.

Estoppel

I remind myself precisely how the plaintiff's claim in estoppel is pleaded by the statement of claim par 14B. The assumption relied upon to support the assertion that the defendant is estopped from denying that the MOU grants the plaintiff an option to purchase the land for $3.2 M plus GST is really a claim based on what passed between Mr Poland for the plaintiff and Mr Thorp for the defendant at the meeting on 8 October 2004 and the entry by the parties into the MOU.
The plaintiff gave the plea little attention in presenting its submissions, but the proposition appears to be that if, contrary to its assertions about the proper construction of the MOU, that document does not operate as a contract for the sale and purchase of the land, or alternatively does not grant the option to the plaintiff to call upon the defendant to make a contract for the sale of the land (both of which propositions I think to be correct), then, nonetheless, from what was said at the meeting on 8 October 2004 and from the terms of the MOU the plaintiff assumed that it did have the effect for which it contends.
Therefore, the plaintiff contends, it relied upon the MOU having the effect of creating an option to purchase the land for the price mentioned and, in reliance upon that assumption, it did not seek to enter into a more formal agreement providing it with an option to purchase the land, but instead sought to perform the MOU, thereby causing the plaintiff to suffer the detriment that it has lost the chance to acquire the land for the price mentioned by the exercise of an option to purchase. The defendant, it is contended, failed to act to avoid that detriment by its failure to execute a contract for the sale of the land broadly in the form presented to it by the plaintiff.
The plaintiff relies upon what is often described as estoppel by convention, by which is meant simply that an estoppel may arise out of the conduct by, or the inaction of, the parties which leads them to adopt an assumption, or leads one party to adopt an assumption to the knowledge of another, which it would be unjust to permit that other party to depart from because of the detriment that would result. There is a very useful and typically comprehensive discussion of the law in this regard by Buss JA, with whom Steytler P agreed, Pullin JA separately expressing similar views, in Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd [2008] WASCA 119; (2008) 66 ACSR 594 at 627 ‑ 630 [157] ‑ [164]. In that case the doctrine was relied upon by way of defence, but the statement of principle which emerges from the judgment is equally applicable where, as in this case, it is sought to use the doctrine as a cause of action in a claim for relief by way of an order by the court that the defendant execute a contract generally in the form finally submitted by the plaintiff.
It follows that in relation to this case, the plaintiff may rely upon an estoppel if:
(1)both parties proceeded in their dealings with each other on the basis of an underlying assumption of fact, law or both of sufficient certainty to be enforceable (that the MOU provided the plaintiff with an option to purchase the land); or
(2)one party knows that in dealing with it, the other party is proceeding upon the basis of the underlying assumption referred to;
(3)the intention of the parties was that the assumption would govern the outcome of their dealings with each other;
(4)the first party has acted in reliance upon the assumption;
(5)that party would suffer detriment if the other party was now permitted to resile from the assumption; and
(6)in all the circumstances it would be unconscionable to allow that to happen.
Given that it is sufficient that there be a common assumption as to the effect of the MOU, it seems to me that the claimed estoppel is not made good. It will in fact already be apparent why I take that view, but I should summarise my reasons for that conclusion. No more emerged from the meeting before the MOU was executed than that the MOU was to be prepared for execution. The usual process was followed. It was drawn up for the plaintiff and submitted to the defendant, some changes were made and in its final form the MOU was executed.
There is nothing in the evidence, in my view, to show that in fact the parties assumed that the MOU provided of itself, an enforceable option to purchase the land in the terms set out in cl 8 with the possibility that there might be some additional terms added. Certainly the plaintiff has not established to my satisfaction, whatever Mr Poland thought, that it was probably the case that the defendant or those who were its guiding mind and will, relevantly Mr Thorp and Mr Shirfan, evidenced by the statements they made, and Ms Jones, were party to any assumption that the MOU conferred an option to purchase the land on agreed terms, or knew that the plaintiff was operating upon the basis of that misconception of mixed law and fact.
I think that the plaintiff's conduct would support the conclusion that it understood the negotiation process to be just that - an opportunity to build on the extent of the agreement thus far achieved and recorded in the MOU to arrive at the essential terms to be agreed between the parties for the sale of the land. Certainly, it is the case, in my view, that the defendant always proceeded upon that view and thought that was the view of the plaintiff. If that was not the plaintiff's view, the defendant made no contribution to the result that the plaintiff laboured under a misconception as to the legal effect of the MOU.
In those circumstances the plaintiff has not only not established the necessary basic assumption upon which its pleaded case rests, but it has not established that it acted in reliance upon that by being content to perform the MOU rather than seek some other form of agreement. It has not established that it would be in any way unfair or unconscionable to allow the MOU to have effect according to what, in my view, are its terms, and the plaintiff has not established the pleaded detriment.
This plea fails and in the result the plaintiff's claim must be dismissed.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: STRZELECKI HOLDINGS PTY LTD -v- CABLE SANDS PTY LTD [No 3] [2009] WASC 352 (S)

CORAM: MURRAY J

HEARD: ON THE PAPERS

DELIVERED : 1 DECEMBER 2009

SUPPLEMENTARY
DECISION :14 APRIL 2010

FILE NO/S: CIV 1591 of 2006

BETWEEN: STRZELECKI HOLDINGS PTY LTD (ACN 051 222 253)
Plaintiff
AND
CABLE SANDS PTY LTD (ACN 008 678 386)
Defendant

Catchwords:

Costs - Application for indemnity costs - Calderbank offer not accepted - Unreasonableness

Legislation:

Nil

Result:

Application for indemnity costs dismissed
Plaintiff to pay defendant's costs to be taxed
Defendant to pay plaintiff's costs of application for indemnity costs

Category: B

Representation:

Counsel:

Plaintiff: No appearance
Defendant: No appearance

Solicitors:

Plaintiff: Lawton Gillon
Defendant: Corrs Chambers Westgarth

Case(s) referred to in judgment(s):

Calderbank v Calderbank [1976] Fam 93
Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR 1
Dobb v Hacket (1993) 10 WAR 532
Flotilla Nominees Pty Ltd v Western Australian Land Authority (2003) 28 WAR 95
Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115
Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [No 1] [2009] WASC 2
Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [No 2] [2009] WASC 150
Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [No 3] [2009] WASC 352
Whittaker v Paxad Pty Ltd [2009] WASC 47

MURRAY J: This litigation commenced in 2006. Beech J originally had the management of the litigation through its interlocutory stages. His Honour gave two judgments, concerned with an application for further and better discovery, and a claim arising out of the order for discovery that certain documents were the subject of legal professional privilege: Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [No 1] [2009] WASC 2 and Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [No 2] [2009] WASC 150. The action went to trial before me on 26 ‑ 29 October 2009. I gave judgment for the defendant and dismissed the plaintiff's claim: Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [No 3] [2009] WASC 352.
On 1 December 2009, I made some final orders. I dismissed the plaintiff's claim and ordered the plaintiff to pay the defendant's costs of the action, including reserved costs, up to 22 April 2008, to be taxed. The defendant made an application at that time for an order that the plaintiff pay its costs, from and including 22 April 2008, on an indemnity basis. I made orders for the exchange of submissions and affidavit evidence, and I ordered that the application should be determined on the papers so lodged.
The defendant's submissions not only seek to support its application for an award of indemnity costs, but add an alternative application, not envisaged in the orders made on 1 December 2009, for a special costs order that the plaintiff pay costs on a solicitor/client basis from 22 April 2008, or 75% of the costs actually incurred by the defendant after that date. I presume this is intended to be an application for a special costs order under s 215(2) of the Legal Practice Act 2003 (WA), which continues to have application in relation to this case, because the defendant did not first instruct its lawyers on or after 1 March 2009, the day upon which the Legal Profession Act 2008 (WA) was proclaimed to come into operation: Government Gazette, 27 February 2009, 511.
I presume therefore that this alternative application is intended to seek a special costs order upon the ground that the applicable legal costs determination will make inadequate provision for costs because of the unusual difficulty, complexity or importance of the action. However, the defendant does not elaborate upon this application in any way, and provides no material ins support of the application. So far as the defendant's application seeks a special costs orders rather than indemnity costs, the application is dismissed.
By the time the matter came to trial, there were essentially two heads of claim, neither of which succeeded. I will not discuss them in detail. Reference to my judgment will provide the detailed information in relation to the resolution of those claims. It is sufficient, for present purposes, that I summarise what was involved.
The action was primarily for breach of contract. The contract was said to be embodied in a memorandum of understanding entered into by the parties in respect of the process by which they would pursue negotiations with the aim of achieving a sale of the defendant's land to the plaintiff. The plaintiff's case was that the terms upon which that contract of sale would be made were substantially agreed and that the agreement in its final form was not achieved because the defendant sought to impose unreasonable special conditions upon the sale, to which the plaintiff would not agree.
Alternatively, the plaintiff pursued a head of claim in estoppel, which had been added during the progress of the action. On the basis that the court held that there was no contract of a kind for which the plaintiff contended, it asserted that the dealings between the parties were such that the defendant was estopped from denying the plaintiff the benefit of the agreement which the defendant's conduct persuaded the plaintiff it enjoyed. The plaintiff sought an order that the defendant execute the contract which the plaintiff asserted the defendant was bound to accept, alternatively, damages for breach of contract, alternatively, equitable compensation flowing from its claim of an estoppel.
The defence was that the memorandum of understanding did not constitute an enforceable agreement. It was a mere agreement to agree. If there was an enforceable contract, the defendant accepted that both parties were obliged to negotiate in good faith, but it denied it was, in any of the ways asserted by the plaintiff, in breach of its obligations in that regard. On the contrary, the defendant asserted, it was the plaintiff which caused the breakdown of the negotiations and the failure to complete a contract for the sale of the land. The defendant denied that it was estopped from adopting that position, and it asserted that no estoppel could arise as a matter of law.
Although the parties debated evidentiary matters in relation to the question whether a contract had been made, its proper interpretation, and in relation to the question of estoppel, in the end, as I concluded at [19] of the principal reasons, the case did not turn upon disputed matters of fact, but essentially upon the proper interpretation of the memorandum of understanding. As to that, in my opinion, the respective views of the parties were both fairly arguable. In the end, I concluded at [85], contrary to the argument of the defendant, that the memorandum of understanding embodied the terms of an enforceable agreement which, at [88], I characterised as being an agreement to negotiate a contract for the sale of the land on terms partially agreed, and to be added to during the process of negotiation, in which the parties were bound to negotiate in good faith. That was not the way in which the plaintiff wished me to describe the agreement.
My findings about the nature of the agreement and my views as to the content of the duty to negotiate in good faith, lead to my conclusion that, contrary to their respective contentions, neither party was in breach of the obligation to deal with the other in good faith. In my view, all that happened, without fault by the defendant, was that the parties pursued the process of negotiation, but were unsuccessful in achieving a final agreement. The plaintiff's claim in estoppel, in my view, had much less merit and was also to be dismissed. But to run it had not involved the court or the parties in substantial additional work.

The application for indemnity costs

The defendant's application depends upon the plaintiff's failure to accept an offer to compromise the action made by a letter dated 22 April 2008, sent by the defendant's solicitors to the plaintiff's solicitors, 'without prejudice except as to costs'. The defendant proposed that, by consent, the plaintiff's claim should be dismissed with no order as to costs. The plaintiff's caveat over the defendant's land was to be withdrawn. The defendant would then pay the plaintiff the sum of $12,000, a sum which was obviously a sweetener, having nothing to do with the value of the land as held by the defendant, or the result which might be achieved if the plaintiff succeeded in its claim and was able to acquire the land for the purpose of development and resale. The offer was available for seven days, and was not open to negotiation.
The letter discussed, at some length, the matters of fact and law which, in the defendant's view, supported its contention set out in the letter that the plaintiff's claim, 'enjoys no reasonable prospect of success'. The letter observed that the only issue for determination was whether the parties acted in good faith in their negotiations. It referred to the decision of the NSW Court of Appeal in Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR 1, a decision to which I later referred in giving my reasons for the dismissal of the plaintiff's claim.
Although it was open to do so, the defendant did not use the procedure provided by O 24A of the Rules of the Supreme Court1971 (WA). Had that procedure been used, under O 24A r 3, the offeror would be obliged to keep the offer open for not less than 28 days after it was made. Such an offer would ordinarily be taken to have been made without prejudice: O 24A r 6, and it is material to note that, by O 24A r 10(5):
Where an offer is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains judgment on the claim to which the offer relates not more favourable to him than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled to an order against the defendant for his costs in respect of the claim up to and including the day the offer was made, taxed on a party and party basis, and the defendant shall be entitled to an order against the plaintiff for his costs in respect of the claim thereafter, taxed on a party and party basis.
Of course, in this case the plaintiff did not obtain judgment on its claim. But the principle is clear. The making of a reasonable offer places the offeree in jeopardy as to costs to which, in this case the defendant is entitled, in any event, on a party and party basis. Hence the form of the present application.
I considered the more usual situation where an informal offer of compromise is made by a defendant outside the framework of O 24A, and the plaintiff recovers a judgment which is less favourable than the settlement offered by the defendant in Dobb v Hacket (1993) 10 WAR 532. That was a case like this, where the defendant had made a Calderbank offer, after the decision in Calderbank v Calderbank [1976] Fam 93. At 540, I referred to the approach of the court in these terms:
The court should preserve in the minds of litigants, the conscious consideration that their behaviour may place them at risk as to costs if they refuse reasonable offers of settlement. The court should be careful not to foster the proposition that obstinacy and unreasonableness will not be punished by orders as to costs. Such considerations foster the public interest in the desirability, not only from the point of view of the particular litigants in the case in question, but from the point of view of litigants generally, of the court so behaving as to encourage the achievement of reasonable and timely settlements.

The principles as to indemnity costs

This case then adds another dimension, that because the success of the defendant would entitle it, in any event, to its costs on a party and party basis, it seeks an order which would punish the plaintiff for its refusal to accept the offer of compromise, by an award of costs of an indemnity basis. The application is for costs to be awarded on that basis after the date upon which the offer is made. But if such an award was to be made, it would have to be from the date upon which the offer ceased to be open.
In Flotilla Nominees Pty Ltd v Western Australian Land Authority (2003) 28 WAR 95, at 101 [25], Pullin J succinctly summarised the position adopted by the courts in relation to indemnity costs orders. His Honour said that they:
will be appropriate in cases where there has been improper or unreasonable conduct on the part of a party or his legal advisers. An order for indemnity costs is a mark of disapproval on the part of the Court about the improper or unreasonable conduct of litigation, even though there should not be much difference in the costs recovered under such an order compared with recovery under a properly formulated special costs order.
A case where the principles were discussed, when a Calderbank offer had been made by a plaintiff and rejected by the defendant, but the plaintiff succeeded at trial to a greater extent than his offer of compromise, is Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115. In that case, Buss JA, Wheeler JA agreeing, set out the applicable principles, at [16] ‑ [32]. For present purposes, it is sufficient that, without, I hope, doing violence to his Honour's reasons, I attempt to summarise those principles.
A Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable, having regard to all the relevant facts and circumstances, including the stage of the proceedings at which the offer was made, the time allowed for its consideration, the extent of the compromise offered, and the offeree's prospects of success. It is for the applicant for indemnity costs to persuade the court that such an order should be made. The question is whether the refusal of the offer was unreasonable, not 'manifestly', 'plainly' or 'so' unreasonable as to cause the court to come to the view that an ordinary award of costs would not do justice between the parties.
In Whittaker v Paxad Pty Ltd [2009] WASC 47, Blaxell J dealt with a similar question, and usefully referred to the exceptional nature of an award of indemnity costs. He said that when such an application was based upon the suggested unreasonable refusal of a Calderbank offer of compromise, the determination of the court was not to be made with the benefit of the hindsight gained as a result of the outcome of the trial, but upon the basis of the circumstances as they were presented to the offeree at the time when the offer was made.

Unreasonableness

As at 29 April 2008, the date upon which the offer to compromise the action expired, the action had been on foot for some time, and the pleadings were substantially in order, although amendments were later made, on a number of occasions, to the statement of claim and the defence. Further and better particulars were sought, and the process of amending the pleadings did not conclude until September 2009. The question of discovery was, as has been seen, also a matter of controversy between the parties at that time.
I do not, of course, enter into an evaluation of the utility of those processes, but I think it is fair to say that, although there had been an unsuccessful mediation in February 2008, and the plaintiff had earlier sought, in mid 2007, to have the matter listed for trial, the plaintiff may not, at that time, have been fully aware of the available evidentiary material and the facts which might be found in relation to the central issues raised in the litigation.
Given a finding by the court that there was an enforceable contract to negotiate, and that the case would turn upon a conclusion about whether, in all the circumstances, the defendant might be found to have been in breach of its contractual duty to negotiate in good faith, I am not persuaded that it was not open to the plaintiff to suppose that it might achieve a favourable result in the litigation. Whether that might be so, depended upon an objective evaluation of what was reasonably able to be maintained by the defendant as being its entitlement to look after what it perceived to be its own interests in relation to the terms of the proposed contract of sale.
Against that background, the offer proposed to the plaintiff, that it should give up this litigation for the benefit of the receipt of the sum of $12,000 and that each party should bear its own costs. Seven days only was allowed for consideration. The time was short, but apparently sufficient to enable the plaintiff to reject it out of hand, as I assume was the plaintiff's attitude. As the offer was said to be non‑negotiable, there would seem to have been little point in the plaintiff making a formal response to the letter of 22 April 2008. The wisdom of hindsight might suggest that the plaintiff was taking an unduly optimistic view of its prospects of success, at least according to the conclusions to which I came after the trial, but that is not to the point.
I am not persuaded by the defendant that the plaintiff behaved unreasonably in not accepting the offer, and in my opinion, the court should make the following orders additional to the first two orders made on 1 December 2009:
3.The plaintiff do pay the defendant's costs of the action (including all reserved costs) from 22 April 2008, to be taxed if not agreed.
4.The defendant's application for indemnity costs is dismissed.
5.The defendant do pay the plaintiff's costs of that application, to be taxed if not agreed.