Sydney Attractions Group Pty Ltd v Frederick Schulman
[2013] NSWSC 858
•28 June 2013
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Sydney Attractions Group Pty Ltd v Frederick Schulman [2013] NSWSC 858 Hearing dates: 19, 20, 21, 22, 26, 27, 28, 29, 30 November, 3, 4, 6, 7 December 2012, and further written submissions on 13 and 17 December 2012 Decision date: 28 June 2013 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraph [321]
Catchwords: EVIDENCE - admissibility of business records - admissibility of books kept by a body corporate - need for precise identification of relevant representation or matter.
CONTRACTS - construction - surrounding circumstances - whether clause is ambiguous or susceptible of more than one meaning - scope of permissible extrinsic material to aid in construction.
CONTRACTS - construction - dependency of rights and obligations - whether plaintiff's entitlement to seek particular rights under a contract are dependent on it having fulfilled particular obligations - whether plaintiff is taking advantage of its own wrongdoing.
CONTRACTS - construction - particular clauses - whether plaintiff has exercised reasonable endeavours - whether plaintiff has acted in good faith.Legislation Cited: City of Sydney Act 1988
Evidence Act 1898
Evidence Act 1995
Corporations Act 2001 (Cth)Cases Cited: Aalders v PA Putney Finance Australia Pty Ltd [2011] NSWSC 756
Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542
Alghussien Establishment v Eaton College [1991] 1 All ER 267
Apollo Shower Screens Pty Limited and Anor v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561
Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) (2005) 147 FCR 235
Australian Competition and Consumer Commission v Air New Zealand Limited (No 1) [2012] FCA 1355
Australian Securities and Investments Commission v Hellicar [2012] HCA 17
Australian Securities and Investments Commission v Rich (2005) 216 ALR 320
Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435
Barker v The Queen (1983) 153 CLR 338
Blatch v Archer (1774) 1 Coup 63
Brett v Barr Smith (1919) 26 CLR 87
Broken Hill Theatres Pty Ltd v FCT (1952) 85 CLR 423
Brothers v Park (2004) 12 BPR 98,114
Burger King Corp v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558
Burke & Anor v LFOT Pty Limited (2002) 209 CLR 282
Centennial Coal Company Ltd v Xstrata Coal Pty Ltd (2009) 76 NSWLR 129
Centennial Coal Company Ltd v Xstrata Coal Pty Ltd [2009] NSWSC 788
Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337
Colonial Mutual Life Assurance Society v FCT (1953) 89 CLR 428
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
Falkiner v Commissioner of Stamp Duties (NSW) [1972] 2 NSWLR 839
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603
Fuji Xerox Finance Limited v CSG Limited [2012] NSWSC 890
Gutheil v The Ballarat Trustees, Executors and Agency Company Limited (1922) 30 CLR 293
Hallstroms Pty Ltd v FCT (1946) 72 CLR 634
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
Jireh International Pty Ltd t/as Gloria Jeans Coffee v Western Exports Services Inc [2011] NSWCA 137
L Schuler AG Wickman Machine Tool Sales Ltd [1974] AC 235
Lithgow City Council v Jackson (2011) 244 CLR 352
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268
Merewether v Scottish Australian Mining Co Ltd (1907) 4 CLR 953
National Australia Bank Limited v Samson (No 2) (unreported) Young J, 9 September 1991
Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249
Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64
Ringrow Pty Ltd v BP Australia Ltd (2003) 130 FCR 569
Ruthol Pty Ltd v Tricon (Australia) Pty Ltd (2005) 12 BPR 98,225
Shomat Pty Ltd v Rubenstein (unreported) Young J, 4 December 1995
Sun Newspapers Ltd v FCT (1939) 61 CLR 337
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83
Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689
Valoutin v Furst (1998) 154 ALR 119
Vetter v Lake Macquarie City Council (2001) 202 CLR 439
Waters Lane & Anor v Sweeny & Ors [2007] NSWCA 200
Webb v McCracken (1906) 3 CLR 1018
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522
Wolseley Investments Pty Ltd v Gillespie (2007) 13 BPR 98,278Texts Cited: Edmund Powell, The Practice of the Law of Evidence, (1856) Law Times Office
J Allsop, "Good Faith and Australian Contract Law: A Practical Issue and a Question of Theory and Principle" (2011) 85 Australian Law Journal 341
J D Heydon, Cross on Evidence, 9th ed (2013) LexisNexis Butterworths
K Lewison and D Hughes, The Interpretation of Contracts in Australia, (2012) Thomson Reuters
Thomas Peake, A Compendium of the Law of Evidence, 3rd ed (1808) Luke Hanfard & SonsCategory: Principal judgment Parties: Sydney Attractions Group Pty Ltd (Plaintiff)
Frederick Schulman (Defendant)Representation: Counsel:
R McKeand SC and A Casselden (Plaintiff)
N Kidd SC and L Jackson (Defendant)
Solicitors:
Herbert Geer (Plaintiff)
Levitt Robinson (Defendant)
File Number(s): 2010/92382
Judgment
Index
Introduction
[1]
Background facts
[7]
Contentions of the parties
[29]
General principles applicable to construing the Deed
[34]
Construction issues
[42]
Dependency of relevant rights and obligations in the Deed
[45]
Plaintiff's claim for excess Skywalk Capital Expenditure
[58]
Proper construction of clause 13.7
[59]
Legal principles relevant to proof of Skywalk Capital Expenditure
[78]
Business records provisions in the Evidence Act
[79]
Corporate books provisions in the Corporations Act
[90]
Relevant general principles of evidence
[99]
Discussion of evidence of Skywalk Capital Expenditure
[105]
Conclusion as to plaintiff's claim for excess Skywalk Capital Expenditure
[171]
What if Skywalk Capital Expenditure had exceeded $5 million?
[172]
Breach of "reasonable endeavours" obligation under clause 13.1(a)?
[174]
Plaintiff taking advantage of own breach?
[187]
Plaintiff's claim for interest on excess Skywalk Capital Expenditure
[195]
Plaintiff's claim for negative Skywalk Final Component
[202]
Proper construction of clause 5.12
[203]
Incorrect calculation of Skywalk Final Component
[222]
Proper construction of clause 5.23
[229]
Relevance of surrounding circumstances to construction of clause 5.23
[259]
Relevance of finding of no breach of clause 13.1(a)
[262]
Defendant's claims of breaches of the Deed by the plaintiff
[263]
Breach of "good faith" obligation under clause 13.9?
[271]
Sponsorship efforts
[281]
Advertising and marketing efforts
[299]
Summary of findings as to defendant's allegations of breach
[316]
Conclusion
[321]
Introduction
The proceedings involve a number of disputes between the parties as to certain terms and conditions of a share sale deed dated 5 July 2004 (the Deed), entered into by Frederick Schulman (the defendant), JGS Dover Corp (a United States corporation), Sydney Skytour Limited, and Sydney Aquarium Limited (now Sydney Attractions Group Pty Limited, the plaintiff).
Pursuant to the Deed, a company associated with the defendant (JGS Dover Corp) sold its shareholding in Sydney Tower Observatory Pty Ltd (the Company) to the plaintiff.
Each party to these proceedings alleges that, on the facts as they contend them to be and on a proper construction of the Deed, each owes the other money pursuant to the Deed.
The plaintiff, in its amended summons filed on 27 September 2012, claims judgment for $4,912,879 (as at 12 April 2010), or alternatively damages, plus interest. It also seeks a declaration of right and an order that the defendant release the plaintiff from the share mortgage arrangement outlined in the Deed.
The plaintiff's claim arises from its assertion that the defendant became liable to pay the plaintiff the following amounts pursuant to the terms of the Deed:
(1) all "Skywalk Capital Expenditure" (as defined in the Deed), being capital expenditure in relation to the construction and completion of "Skywalk", which exceeded $5 million, plus half the cost of uniforms less $350,000; and
(2) the "Skywalk Final Component" (as defined in the Deed) which the plaintiff alleges was payable by the defendant according to a formula based on earnings from Skywalk over 3.5 years and interest of 9% per annum. The formula included a provision that the defendant was liable for 50% of the first $5 million of the Skywalk Capital Expenditure incurred in constructing Skywalk.
The defendant on the other hand contends that he is owed $2,685,884. The defendant asserts that this is so for a number of reasons. First, that the Skywalk Capital Expenditure (as defined) did not exceed $5 million and/or that the plaintiff cannot prove that it did. Second, that the adjustments otherwise made by the plaintiff purportedly in compliance with the Deed are inaccurate. Third, that the plaintiff breached clauses 5 and 13 of the Deed. The defendant further asserts that the plaintiff, by reason of its obligations under the Deed, is not entitled to be released from the share mortgage over the shares in the Company until it has fulfilled its obligations under the Deed.
Background facts
In or about the latter part of 1998, Mr Zalman Silber, who had had extensive experience in the United States with the concept of attractions, including an attraction located in the Empire State Building, incorporated a company called Sydney Skytour Pty Ltd. He developed the concept and set up the business known as Sydney Skytour to be operated from Sydney Tower in the centre of the city.
The original attraction devised by Mr Silber was located on the podium level (level 4 above ground) of the Sydney Tower. It involved a simulated helicopter ride over Australia with special effects. What was called the Skytour attraction took about half an hour in total and amongst other things involved patrons walking through a themed walkway after the simulated ride.
At or about that time, AMP (the then lessors and owners of Sydney Tower), were operating a business known as the observation deck. In about 2001, Mr Silber renegotiated the lease with AMP and took over the ownership of the business of operating the observation deck.
Mr Silber was intimately involved in the marketing of the business and obtained sponsorships from Telstra and Cadbury Schweppes amongst others.
In or about 2002, a Mr Frederick Schulman, a New York attorney and investor, became interested, and in due course invested, in Mr Silber's Sydney Skytour business. Mr Schulman was familiar with Mr Silber's business activities in the United States, especially his activities in relation to attractions.
In or about the beginning of 2003, Mr Silber devised and developed the concept of Skywalk, which involved taking guided walks outside the perimeter of the observation deck of Sydney Tower.
On 4 March 2003, the Company submitted a development application (number D03/00145) to the City of Sydney Council (the Council), seeking approval for the construction of an observation deck, involving a pedestrian walkway, viewing platform and internal alterations, among other things. The Council resolved on 28 July 2003 to allow the development in accordance with the application, subject to certain conditions, and issued a notice of determination accordingly on 15 August 2003.
It was decided to market and sell the business of Skytour and the concept of Skywalk during the latter part of 2003.
On 5 July 2004, the Deed was entered into. At the time of the Deed, the Company's assets included:
(1) a business known as "Skytour" which included operating the observation deck at the top of Centrepoint Tower in Sydney (Skytour); and
(2) a proposed extension to the Skytour business known as "Skywalk", which included external walking paths and platforms on the Centrepoint Tower (Skywalk).
The Deed included an agreement in clause 5 that in consideration for the defendant agreeing to provide a certain release of a charge the plaintiff would pay certain amounts to the defendant. These amounts included a "Deferred Component", which was payable over a three and a half year period described as the "Earn Out Period" following the launch of the Skywalk business on 19 October 2005 (the Skywalk Launch Date).
The Deferred Component relevantly included:
(1) Skywalk Quarterly Components, being $500,000 for each of the September, December and March quarters (other than the final quarter) in the three and a half year Earn Out Period;
(2) a "Skywalk Adjusted Payment" for each June quarter and the final quarter during the Earn Out Period, calculated by reference to the profits earned by the Skywalk business. In substance it comprised 50% of the annual profit or loss of the Skywalk business during the Earn Out Period;
(3) a "Skywalk Final Component" payable following the expiry of the Earn Out Period. In substance this comprised 50% of 6.5 times the average annual profit or loss of the Skywalk business less 50% of the Skywalk Capital Expenditure (capped at $5 million) and interest on that expenditure;
(4) "Skytour Annual Components" calculated by reference to the number of visitors to the Skytour attraction that exceeds 690,000 visitors in each of the financial years 2005 to 2008; and
(5) the "Skytour Final Component" which was calculated by reference to the average annual number of visitors to Skytour.
The Deed recorded a number of promises, including:
(1) a promise by the plaintiff to use reasonable endeavours to procure that the construction work necessary to conduct the Skywalk business was completed as expeditiously as possible and to commence the operation of the Skywalk business as expeditiously as possible (clause 13.1(a));
(2) a promise by the plaintiff to pay all capital expenditure in relation to the construction and completion of Skywalk (i.e. Skywalk Capital Expenditure) up to $5 million and a promise by the defendant to pay or reimburse such capital expenditure which exceeded $5 million (clause 13.7);
(3) a promise by the plaintiff to act in good faith and use its commercial judgment to maximise economic returns from the Skywalk business and the Skytour business until the deferred payments had been made by the plaintiff to the defendant (clause 13.9); and
(4) a promise by the defendant that if the Skywalk Launch Date was delayed beyond 31 March 2005, then for every complete calendar month of delay beyond 31 March 2005, the Skywalk Quarterly Component payable by the plaintiff will be reduced by an amount of $75,000 per month (clause 5.23).
Following entry into the Deed, the Company made three applications to the Council to amend the Council's development consent in respect of Skywalk. The Company first made application on 6 January 2005 to modify the original development consent. It sought to allocate "preparation spaces" and relocate disabled toilets to be closer to existing toilet facilities (this application was approved by the Council on 19 January 2005, subject to certain conditions).
On 4 March 2005, the Company submitted a second application to modify the development consent, involving a relocation of the toilets (the application was approved by the Council on 10 March 2005, subject to certain conditions).
On 16 March 2005, the Company applied for a construction certificate in relation to the construction works the subject of the development application (as modified by the 10 March 2005 development approval).
On 18 March 2005, a registered quantity surveyor, Ms Fiona Doherty of Apex Consulting Group, prepared a detailed cost report estimating development costs for the works the subject of the application for the construction certificate at $3,582,877 (including GST). That estimate was based on an assessment of the quotations received by the Company for the constructions, as well as a budget estimate of the cost of the podium works, and estimated consultants' fees and charges.
On 5 April 2005, an independent quantity surveyor engaged by the Council, Rider Hunt, estimated the total development costs of the works at $3,798,820 (including GST).
On 6 April 2005, the Council notified the Company that the cost of the development for the purpose of calculating the section 61 contribution was $3,798,820 (broadly, a s 61 contribution is a cash contribution required by the City of Sydney Act 1988 amounting to 1% of the total development cost, payable to the Council when carrying out building projects that exceed $200,000 which are within a certain geographical area. The contribution was to assist the Council in the provision of public infrastructure, community projects and facilities, and is payable prior to the release of a Construction Certificate).
On 8 April 2005, a construction certificate was issued, and construction work commenced. All construction work was completed and the plaintiff commenced to operate the Skywalk business on or about 19 October 2005. Concurrently with its construction works in respect of Skywalk, the plaintiff was also undertaking capital works at other attractions it owned, including:
(1) refurbishing Skytour in the podium areas, using the same contractors and consultants as used in the Skywalk works;
(2) constructing a new attraction, Sydney Wildlife World (that development cost more than $50 million, was completed in September 2006, and involved the engagement of about 6 to 12 contractors that were also engaged on the Skywalk development); and
(3) rebuilding the admissions and restaurant area at the Sydney Aquarium (about $2.3 million was spent by the plaintiff on this project in financial year 2005).
On 19 October 2005, Skywalk opened for business.
On 5 October 2007 the Council approved a third application which had previously been made by the Company to modify the development approval. This modification allowed for the construction of two staircases to replace the moving platform between the upper and lower walkways and changing the use of a theatrette and security gates.
On 31 July 2008, the plaintiff made a demand of the monies it alleges were incurred in excess of the $5 million cap and asserts the Skywalk Final Component is likely to be a negative amount. The disputation between the parties begins.
Contentions of the parties
It is common ground that the Skywalk Launch Date did not take place until 19 October 2005. It is also common ground that there were delays in the construction of the external walkways and platforms and other items. The plaintiff contends that as the Skywalk Capital Expenditure exceeded $5 million by $2,009,407, the excess amount is payable by the defendant to the plaintiff pursuant to clause 13.7. The defendant challenges this claim on a number of bases, including the construction of the clause and the adequacy of the evidentiary material tendered in support of the claim.
The plaintiff also claims an amount of $2,657,198, said to be owing by the defendant to the plaintiff as the "Skywalk Final Component". This would appear to be based upon calculations undertaken internally by the plaintiff's officers. Again, the defendant challenges this, and the plaintiff concedes that some errors have crept into the calculation.
The defendant denies he is liable to pay those moneys or indeed any monies to the plaintiff and asserts that the plaintiff is liable to pay money to him. The defendant, in his cross-claim, alleges for a number of reasons that the plaintiff is in breach of clause 13.9 by failing to appropriately and expeditiously commercialise the Skywalk business and hence is liable in damages to the defendant.
The parties are also in dispute about the proper construction of clause 5.23. That clause deals with the effect of delayed completion on the quantum of the plaintiff's liability to pay Skywalk Quarterly Components to the defendant. In addition to the parties' contention about what clause 5.23 actually means, the defendant contends that clause 5.23 has no room to operate because of an alleged breach by the plaintiff of clause 13.1(a). The plaintiff denies any breach of clause 13.1(a).
As is clear from the above, there are four clauses of the Deed which are the subject of special attention by the parties. They are clauses 5.23, 13.1(a), 13.7 and 13.9. As will also become clear, the construction of clauses 5.23 and 13.7 will lead, potentially, to a significant difference in the amount which the plaintiff may owe to the defendant, and vice versa. The construction of clause 13.9 is, as I have said, relevant to the defendant's cross-claim and whether the plaintiff is in breach of that provision such as to be liable to compensate the defendant in damages.
General principles applicable to construing the Deed
The principles to be followed in relation to the proper construction of a written contract have recently been summarised in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 in which Bathurst CJ (with whom Macfarlan and Meagher JJA agreed) said at [52]:
[52] The principles underlying the construction of written contracts are well established and it is not necessary to deal with them at length. A contract is to be construed by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement having regard to the context in which the words appear and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Limited v Alphafarm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [53]. At least in the case of ambiguity, resort can be had to the surrounding circumstances known to the parties in interpreting the particular provision: Codelfa Construction Pty Limited v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; Western Export Services Inc v Jireh International Pty Limited [2011] HCA 45; (2011) 282 ALR 604.
A commercial agreement should be given a businesslike or commercially sensible construction. However, generally speaking, if the language used is unambiguous a court must give effect to that language unless to do so would give the contract an absurd operation. As Macfarlan JA said in Jireh International Pty Ltd t/as Gloria Jeans Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55]:
[55] In my view the primary judge erred in taking this approach. So far as they are able, courts must of course give commercial agreements a commercial and business-like interpretation. However, their ability to do so is constrained by the language used by the parties. If after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the court must give effect to that language unless to do so would give the contract an absurd operation. In the case of absurdity, a court is able to conclude that the parties must have made a mistake in the language that they used and to correct that mistake. A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted.
The court should have regard to all words used in the agreement to ensure the congruent operation of the various components as a whole (Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [16] per Gleeson CJ and McHugh, Gummow and Kirby JJ).
The court can resort to surrounding circumstances where there is an ambiguity or in circumstances where the words are susceptible of more than one meaning (Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 352). However, there are strict limitations on the sort of materials that can be used for the purposes of detecting the objective intention of the parties. In Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 each of the judges expressed their respective views on the type of materials that would fall within the notion of surrounding circumstances. The judges were unanimous in rejecting subsequent conduct as admissible on the question of construction.
On surrounding circumstances however Allsop P expressed the following view at [24]:
[24] The High Court authorities to which I have referred and in particular Pacific Carriers v BNP Paribas and Toll (FGCT) v Alphapharm, and the recognition of the significance of the objective theory assist in appreciating the scope of the evidence that is admissible. The evidence, to be admissible, must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. What is impermissible is evidence, whether of negotiations, drafts or otherwise, which is probative of, or led so as to understand, the actual intentions of the parties. Such evidence might be legitimate, however, if directed to one of the legitimate aspects of surrounding circumstances. The distinction can be subtle in any particular case. As Macfarlan JA and I said in Kimberley Securities Ltd v Esber [2008] NSWCA 301 at [5]; (2008) 14 BPR 26,121:
"[5] The possible subtlety of the distinction can be seen in Lord Wilberforce's reasons in Prenn v Simmonds at 1384-1485, and the recognition that the objective commercial aim may, possibly, be ascertained from some aspect of what has passed between the parties. The distinction can also be seen in what Mason J said in Codelfa at 352 about prior negotiations and their legitimate use 'to establish objective background facts which were known to both parties and the subject matter of the contract', and their inadmissibility 'in so far as they consist of statements and actions of the parties which are reflective of their actual intentions or expectations'."
Giles JA said at [51], [52] and [53]:
[51] Regard can not be had to evidence of "the antecedent oral negotiations and expectations of the parties" in order to construe the contract: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 606, taken up by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (at 352). His Honour there said, in part of a passage cited by Campbell JA:
"...Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract."
[52] This was preceded by his Honour's observation that evidence of surrounding circumstances is not admissible to contradict the language of a contract when it has a plain meaning. Although ambiguity need not be found before going to context and purpose in the construction of the contract, I do not think that what his Honour said in the words extracted above has been displaced.
[53] Consistently with this, if there is an ordinary grammatical meaning of the words used in a written contract, that meaning must be given significant force although read with the admissible evidence of surrounding circumstances. Words are ordinarily used in a conventional and grammatical way, and a formal written contract prepared over a period, with drafts exchanged, referred for instructions and varied as in the present case, has considerable claim to adherence to the ordinary grammatical meaning. It comes down to a determination in each case whether the words are to be understood otherwise in the light of the context and purpose revealed by the admissible evidence, including whether they are intractable and do not admit of departure from the conventional and grammatical use. I take the adjective from the judgment of Mason J and Wilson J in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320, a case of statutory construction in which their Honours described the rules of construction as rules of common sense designed to ascertain the legislative intention by reference to the language of the instrument viewed as a whole but postulated that the language may be "intractable".
Campbell JA said at [337]:
[337] The sort of surrounding circumstances that can be taken into account are ones that enable the meaning of the words used in the document in question to be ascertained as that meaning would appear to a reasonable person who knew the facts concerning those circumstances. Statements by contracting parties about their subjective intentions in entering the agreement do not assist in ascertaining the meaning of the words.
There is another rule of construction that is called in aid in these proceedings and that is that unless a contract expressly permits a party to do so the party will not be permitted to take advantage of its wrong (Alghussien Establishment v Eaton College [1991] 1 All ER 267 at 270). In the absence of clear words, a contractual entitlement arising from the occurrence of a particular event will not be enlivened if the event came about through the breach of the party seeking to rely upon it (Ruthol Pty Ltd v Tricon (Australia) Pty Ltd (2005) 12 BPR 98,225 at [19] to [25] per Giles JA with whom Santow JA and Hunt AJA agreed). As will become apparent, this principle is invoked by the defendant as part of his defence against the plaintiff's claims.
Construction issues
There is a general question of construction that arises in the case, namely what is said to be the dependency of the plaintiff's rights and obligations.
Secondly, there are a number of specific clauses the construction of which the parties dispute and which, as I have already observed, would have a significant impact on the outcome of the litigation. Each in turn will, in order to assess the ultimate impact of the clause, require a consideration of factual issues, again some of which are disputed.
Clauses 5.23, 13.1(a), 13.7 and 13.9 are at the centre of the dispute between the parties. I will first consider the defendant's arguments as to whether certain rights and obligations in the Deed are dependent on each other, and then deal with the construction of each of the contentious clauses in the logical order in which they arise in the parties' claims.
Dependency of relevant rights and obligations in the Deed
The principles relevant to determining whether the relevant rights and obligations in the Deed are dependent on each other are:
(1) the question is one of construction;
(2) the more closely the obligations are linked to the rights, the easier it will be to construe the rights as qualified by due observance of the obligation;
(3) if the obligation constitutes a substantial part of the consideration for the contract or right the court is likely to construe it as a dependent obligation. That is, to construe the right as qualified by due observance of the obligation; and
(4) a practical approach prevails, whereby the presumption is that obligations are dependent in character.
As Dixon J said in Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 463-464:
In certain forms of executory contract where the promise of one party is to pay the other money in consideration of his transferring property, of his doing work, of his serving the former as his master, and, perhaps, of his providing other tangible things or definite services, the money to be paid is regarded as the price of or reward for the property or service when and so often as the transfer of the one or the performance of the other affords an executed consideration. In these contracts the promise to pay the price or reward is not construed as a simple obligation to pay a sum or sums at a future date supported solely by a consideration consisting in the corresponding promise to transfer the property, do the work, serve, or provide the things or services by the other party, so that a mere readiness and willingness on the one side of the latter to perform his part is enough to entitle him to the payments, notwithstanding that, whether owing to the fault of the former, or without fault on either side, the property is not transferred, the work is not done, the relation of master and servant ceases, or the things or services are not provided. The most familiar example is that of the sale of goods. There the common understanding of an agreement to sell is that it is the goods and not the promises to deliver that are to be paid for. The result is that, if the seller tenders goods in accordance with his contract but the buyer rejects them in breach of his contract, the seller cannot sue for the price; his remedy is for unliquidated damages for non-acceptance: Cp. Plaimar Ltd. v. Waters Trading Co. Ltd.
In Aalders v PA Putney Finance Australia Pty Ltd [2011] NSWSC 756 at [57] to [61] Ward J summarised the modern authorities both here and in the UK:
[57] There seems to be no dispute that, as a general principle, the question whether promises in a contract are independent of, or mutually dependent on, each other is one of construction. In Tito v Waddell (No 2) [1977] Ch 106; 3 All ER 129, Megarry VC said:
If an instrument grants rights and also imposes obligations, the court must ascertain whether on the true construction of the instrument it has granted merely qualified or conditional rights, the qualification or condition being the due observance of the obligations, or whether it has granted unqualified rights and imposed independent obligations. In construing the instrument, the more closely the obligations are linked to the rights, the easier it will be to construe the instrument as granting merely qualified rights. The question must always be one of the intention of the parties as gathered from the instrument as a whole. (my emphasis)
[58] In Lewison, The Interpretation of Contracts (4th edn) at [15.15], the author notes that whether a contractual obligation is a dependent or independent obligation is a question of construction but goes on to add that:
...if the obligation constitutes the whole of a substantial part of the consideration for the contract, the court is likely to construe it as a dependent obligation.
noting that the distinction between the two types of obligation is often linked to the order in which contractual obligations are to be performed. It is in that context that Carter, Peden and Tolhurst, Contract Law in Australia, at [28-05]-[28-06] consider the distinction. There, the authors note (at [28-07]) that:
The rationale for construing promises as independent was that, in the absence of clear words to the contrary, the court would presume that each party had bargained for the other's promise, rather than the performance of the promise. This meant that if either party failed to perform the other would have a remedy, in damages, on the promise. But reliance could not be placed on the other party's failure to perform as a ground for not performing. However, towards the end of the 18 th century the courts took a more practical approach and were less willing to apply a presumption of independency. Accordingly, the existence of a relation of independency of obligation was said to depend on the good sense of the case' [citing Campbell v Jones (1796) 6 TR 570 at 572; 101 ER 708 at 709] and not on any 'formal arrangement of the words' [citing Ritchie v Atkinson (1808) 10 East 295 at 306;103 ER 787 at 791]. The more practical approach prevailed, with the result that, today, the presumption is that obligations are dependent in character.
[59] There are, of course, as Lewison notes, areas in which obligations will ordinarily be seen as dependent (such as the vendor's obligation to convey and the purchaser's obligation to pay the purchase price in the context of a sale of land - as considered in Heard v Wadham (1801) 1 East 619) or alternatively as independent (such as the obligation of the tenant to pay rent and that of the landlord for quiet enjoyment or the like - Edge v Boileau (1885) 16 QBD 117).
[60] Carter, Peden & Tolhurst go on to note that where dependency of obligation exists "one party's obligation to perform is dependent on the occurrence of an event termed a 'condition precedent'". To construe clause 1 as dependent on the obligations contained in a raft of other provisions in the Terms of Settlement, as is Paul's position, would thus seemingly require a construction of that particular contract term as one performance of which was to be conditional on the performance of other obligations some at least of which relate to matters that might be expected to arise (if at all) after the date on which payment was required under clause 1 to be made (such as the ongoing indemnity).
[61] In that regard, I note that in Lewison, it is submitted that in the case of a contract which is not wholly executory the court is less willing to hold that obligations are dependent (reference there being made to Carter v Scargill (1875) LR 10 QB 564, where the question for construction arose some four years after the sale of a business). Lewison cites the following dicta of Field J in Carter v Scargill:
Now, whatever might have been the question if it had been raised while the agreement was executory, we are clearly of opinion that, the defendant having received a substantial portion of the consideration, it is no longer competent to him to rely upon the non-performance of that which might have been originally a condition precedent.
In this context I have already noted (at [41] above) a further rule of construction, namely, that a party, unless expressly permitted to do so, will not be permitted to take advantage of its own wrong and that in the absence of clear words a contractual entitlement upon a particular event will not be enlivened if the event came about through breach of the party seeking to rely upon it.
The plaintiff of course has opposing arguments on the question or questions of construction to those contended by the defendant in respect of the disputed provisions of the Deed. However, the plaintiff accepts that the Deed does impose numerous obligations upon it. The plaintiff contends however that those that were intended to be dependent are clearly expressed to be so at least by necessary implication. Hence it is submitted that the obligations of each party on "completion" are set out in sequential clauses within clause 8. On the other hand, those dealing with the conduct of the business after completion set out in clause 13 are a miscellaneous mixture of non-interdependent obligations. In any event there is no direct connection of dependency to be drawn between any one or more of those obligations in clause 13 and the defendant's obligation to pay.
The defendant contends, however, on a proper interpretation of the Deed, the plaintiff's rights to be paid 100% of the excess Skywalk Capital Expenditure under clause 13.7 and to be paid 50% of the first $5 million of the Skywalk Capital Expenditure under clause 5.11(c), were:
(1) dependent on the plaintiff performing its obligations under clause 13.1(a) to use reasonable endeavours to procure that the construction work necessary to conduct the Skywalk business was completed as expeditiously as possible and commenced operation as expeditiously as possible; and/or
(2) not enforceable because the plaintiff's breach of clause 13.1(a) was a cause of increased Skywalk Capital Expenditure and therefore caused the plaintiff's right to be paid that increased Skywalk Capital Expenditure to be enlivened.
It seems to me that the proposition of dependency contended for by the defendant must be correct. The arrangement between the parties involved the existing owner who had established the Skytour business and had taken all necessary steps by way of development application and the like to both conceptualise and identify a further commercial opportunity to be exploited in the Skywalk business. However, both purchaser and vendor were to benefit from the existing and the proposed business. The very nature of the transaction, including the time within which certain things were to occur and the very notion of the Earn Out Period, seems clearly in my mind to point towards the purchaser who was then in possession of the business and its physical location being under an obligation pursuant to clause 13.1(a) to use "reasonable endeavours" to procure that the construction work necessary to conduct the Skywalk business was completed as expeditiously as possible. It is in that context clause 13.7 (capital expenditure) must necessarily be seen, coupled with the obligation in clause 13.9 to act in good faith to use its "commercial judgment to maximise economic returns from the Skywalk Business". It is unsurprising, given the purchaser's exclusive possession, that it agreed to carry out those various promises. As I say, the very nature of this contract fortifies my view that the plaintiff's right to obtain certain payments as herein described must clearly be dependent upon it performing the various obligations referred to efficiently, expeditiously and competently.
The defendant further contends that, on a proper interpretation of the Deed, the plaintiff's right under clause 5.23 to deduct amounts from Skywalk Quarterly Components payable to the defendant by reason of delay to the Skywalk Launch Date beyond 31 March 2005 was also a right that was:
(1) dependent on the plaintiff performing its obligations under clause 13.1(a) to use reasonable endeavours to procure that the construction work necessary was expeditiously completed; and/or
(2) not enforceable because the plaintiff's breach of clause 13.1(a) was a cause of the delay to the Skywalk launch date beyond 31 March 2005 and therefore caused the plaintiff's right to make the claim deduction under clause 5.23 to be enlivened.
Again, it seems difficult to resist such a construction of dependency. It would seem inconceivable that objectively the parties intended that a delay caused by the plaintiff would nonetheless, pursuant to clause 5.23, permit the plaintiff, as it contends, to effect a very substantial reduction in the amount paid to the defendant by reason of its own default.
The defendant also contends that on proper construction of the Deed, the plaintiff's right to be paid any Skywalk Final Component, as adjusted under clause 5.11 pursuant to the last sentence of clause 5.12, was a right that was dependent on the plaintiff performing its various obligations under clause 13.1(b), (c), (d), (e), 13.9 and 5.9. The defendant submits that those clauses regulated the manner in which the plaintiff was required to conduct the Skywalk business during the Earn Out Period and imposed requirements for the auditing of the Company's accounts by an independent auditor and the regular reporting about the performance of the business to the defendant during the whole of the Earn Out Period. The defendant contends that the performance of those obligations was a substantial part of the consideration for the defendant's obligations under clause 5.1 to release the charge and in clause 5.12 to pay a negative Skywalk Final Component (after adjustments under clause 5.11) after the Earn Out Period had ended.
It is also submitted that the plaintiff's right to be paid the Skywalk Final Component as adjusted is not enforceable because of the plaintiff's breaches of those various provisions which it is contended were causes of the Skywalk Final Component being materially reduced, and therefore caused the plaintiff's claim to be paid the negative Skywalk Final Component to be enlivened.
I think these propositions as to dependency are in part correct. In particular, my view is that the plaintiff's entitlement to receive any negative Skywalk Final Component must be dependent on it having fulfilled its own obligation to make the relevant Skywalk Quarterly Payments under clause 5.9. On the other hand however, on the relevant authorities referred to above, I do not think that non-compliance with the provisions which are merely administrative in nature (namely clauses 5.4, administrative aspects of 5.9, 13.1(b)(i), 13.1(b)(ii), 13.1(b)(iii), 13.1(c), 13.1(d) and 13.1(e)) would deprive the plaintiff of any entitlement it may have to be paid a negative Skywalk Final Component.
My conclusions above as to whether the relevant rights and obligations in the Deed are dependent on each other will be relevant when considering some of the defendant's defences to the plaintiff's claims. However, I think it is important that each of the key provisions be considered in some little detail in due course.
Plaintiff's claim for excess Skywalk Capital Expenditure
As already stated, the plaintiff claims it is entitled under clause 13.7 to a reimbursement of any Skywalk Capital Expenditure it has incurred in excess of $5 million. The plaintiff alleges it incurred Skywalk Capital Expenditure in excess of $5 million by $2,009,407 and that this excess amount is therefore payable to it by the defendant pursuant to clause 13.7. To assess the plaintiff's claim, it is necessary to consider the proper construction of clause 13.7, the relevant principles of evidence and the plaintiff's evidence of relevant expenditure.
Proper construction of clause 13.7
Clause 1.1 defines "Skywalk Capital Expenditure" as follows:
"Skywalk Capital Expenditure" has the meaning attributed to that expression in subclause 13.7...
Clause 13.7 provides:
Capital expenditure
13.7 The Purchaser and the Releasor agree that the Purchaser must pay all capital expenditure incurred by the Company and by the Purchaser after Completion up to $5 million in relation to the construction and completion of Skywalk, such capital expenditure to include but not be limited to:
(a) the construction of the works detailed in the Development Approval for the Premises, a copy of which is contained in Annexure C;
(b) all costs directly relating to setting up the Skywalk Business to allow it to be fully operational (including but not limited to costs such as uniforms (up to $350,000), safety equipment, training materials, relevant licences and approvals, electrical and communication equipment and insurance relating to construction of the works); and
(c) all necessary upgrades required by the plans for the Skywalk Business,
being the ("Skywalk Capital Expenditure").
The Releasor must pay (or reimburse the Purchaser where applicable) all Skywalk Capital Expenditure which exceeds $5 million plus half the cost of uniforms less $350,000. If the Releasor does not pay any amount due and payable under this subclause 13.7 within 30 days of written notice providing details of the relevant expenditure with reasonable particularity and requesting payment, the Purchaser may set off the amount due and payable against any other amounts payable by the Purchaser to the Releasor under subclause 5.3, 5.8, 5.5 and 5.10.
The definition of Skywalk Capital Expenditure is important for determining the rights of the parties under clause 13.7 and also for the calculation of the Skywalk Adjusted Payment and the Skywalk Final Component. The items listed in clause 13.7(a) to (c) are not exhaustive of the definition of Skywalk Capital Expenditure.
Other relevant definitions (quoted from clause 1.1) are:
"Development Approval" means the development approval obtained from the City of Sydney Council, a copy of which is contained in Annexure C;
...
"Skywalk" means the proposed attraction to be constructed on the roof of Level 4 of the Premises;
...
"Skywalk Business" means the business proposed to be conducted by the Company of offering the opportunity to walk around the Skywalk and related merchandising, sponsorships, sales of photographs and sales of goods;
There was disagreement between the parties as to the meaning of "capital expenditure" as it appears in the Deed. It is true that the expression "Skywalk Capital Expenditure" has the meaning attributed to it in clause 13.7 (clause 1.1). It is also true, as the plaintiff contends, that clause 13.7 lists certain expenditures intended to be caught by the expression "Skywalk Capital Expenditure". However, those items are, in my opinion, listed merely by way of example, not as expansions to the definition. The defining words within clause 13.7 are "capital expenditure...in relation to the construction and completion". The expression "capital expenditure" is not specifically defined in the Deed. The defendant says that the definition of "capital expenditure" can be taken from the distinction drawn mainly in income tax cases between capital and revenue expenditure.
In K Lewison and D Hughes, The Interpretation of Contracts in Australia, (2012) Thomson Reuters, the authors state (at [5.08]) that "[w]here a document contains a legal term of art the court should give it its technical meaning in law, unless there is something in the context to displace the presumption that it was intended to carry its technical meaning", and they review a number of authorities establishing that proposition. The principle applies generally to legal documents, and applies to the construction of statutes (Brett v Barr Smith (1919) 26 CLR 87 at 93 per Isaacs J; Webb v McCracken (1906) 3 CLR 1018 at 1027-1028 per O'Connor J; Barker v The Queen (1983) 153 CLR 338 at 341 per Mason J and at 355-356 per Brennan and Deane JJ), wills (Falkiner v Commissioner of Stamp Duties (NSW) [1972] 2 NSWLR 839 at 834-834 per Lord Simon of Glaisdale delivering the judgment of the Privy Council; Gutheil v The Ballarat Trustees, Executors and Agency Company Limited (1922) 30 CLR 293 at 299 per Knox J and at 302-305 per Isaacs J) and contracts (Merewether v Scottish Australian Mining Co Ltd (1907) 4 CLR 953 at 965 per Griffith CJ).
The passage quoted above from K Lewison and D Hughes was approved in Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 by Campbell JA (at [169]). His Honour also said (at [167], [168] and [174]):
[167] There has long been a principle of construction concerning words or phrases that have a specialised or technical meaning in the law whereby: "[w]hen technical words or phrases are made use of, the strong presumption is, that the party intended to use them according to their correct technical meaning ...", per Plumer MR Cholmondeley v Clinton (1820) 2 Jac & W 1 at 91 ; (1820) 37 ER 527 at 559. That presumption is rebuttable. To similar effect is Leach v Jay (1878) 9 ChD 42 at 45 per Bramwell LJ; Smith v Butcher (1878) 10 ChD 113 at 114 per Jessell MR, and Re Bostock's Settlement; Norrish v Bostock [1921] 2 Ch 469 at 480 per Lord Sterndale MR.
[168] In Sydall v Castings Ltd [1967] 1 QB 302 at 313-314 Diplock LJ explained the principle:
Documents which are intended to give rise to legally enforceable rights and duties contemplate enforcement by due process of law, which involves their being interpreted by courts composed of judges, each one of whom has his personal idiosyncracies of sentiment and upbringing, not to speak of age. Such documents would fail in their object if the rights and duties which could be enforced depended on the personal idiosyncracies of the individual judge or judges on whom the task of construing them chanced to fall. It is to avoid this that lawyers, whose profession it is to draft and to construe such documents, have been compelled to evolve an English language, of which the constituent words and phrases are more precise in their meaning than they are in the language of Shakespeare or of any of the passengers on the Clapham omnibus this morning. These words and phrases to which a more precise meaning is so ascribed are called by lawyers "terms of art", but are in popular parlance known as "legal jargon". We lawyers must not allow this denigratory description to obscure the social justification for the use of "terms of art" in legal documents. It is essential to the effective operation of the rule of law. The phrase "legal jargon", however, does contain a reminder that non-lawyers are unfamiliar with the meanings which lawyers attach to particular "terms of art", and that where a word or phrase which is a "term of art" is used by an author who is not a lawyer, particularly in a document which he does not anticipate may have to be construed by a lawyer, he may have meant by it something different from its meaning when used by a lawyer as a term of art.
...
[174] If the document in question is drawn by a lawyer, is manifestly intended to effect a legal transaction, and uses an expression that is not an expression in common use but that has a meaning in an area of legal discourse that is relevant to the document in question, that in itself provides a basis for the reasonable reader concluding that that expression is used in its special legal sense, unless there are other factors present that show it is not used in that special legal sense. So understood, the presumption is consistent with the current approach to construction.
I note at this point that clause 13.7 was drafted by solicitors, for commercially experienced parties, to effect a commercial transaction, and the words "capital expenditure" were used to describe a type of expenditure in connection with a business. The presumption that a word or expression which has a technical meaning in law should be given that meaning by a court, is not easily displaced. In Brett v Barr Smith (1919) 26 CLR 87, Isaacs J said (at 93):
It is a cardinal rule of interpretation that technical words must have their legal effect unless the contrary is made perfectly clear.
In L Schuler AG Wickman Machine Tool Sales Ltd [1974] AC 235, Lord Reid said that "some words used by lawyers do have a rigid inflexible meaning" (at 251). Lord Morris said (at 256):
If a word either by reason of general acceptance or by reason of judicial construction has come to have a particular meaning then, if used in a business or technical document, it will often be reasonable to suppose that the parties intended to use the word in its accepted sense. But if a word in a contract may have more than one meaning then, in interpreting the contract, a court will have to decide what was the intention of the parties as revealed by or deduced from the terms and subject matter of their contract.
Again, in Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249 at [96] Kirby J (though in dissent on the result), in commenting on the use of "technical and common words", said (footnotes omitted):
[96] The traditional common law approach to interpreting a basic legal term with an established legal meaning used in a statute was that it should be understood in its legal sense unless the context indicated a contrary intention. Thus, there was commonly a presumption in favour of observing a technical legal meaning. In loan transactions, where technical words are used in documents intended to have legal effect, adherence to technical meanings as between the parties to such transactions may be supported by considerations of business certainty.
The meaning of "capital expenditure" which is now commonly associated with taxation law did not originate from a specific definition in income tax legislation. It is common knowledge that the meaning of that expression was developed by the common law, and has its origins in the law of trusts, where it was common for trust deeds to distinguish between income beneficiaries and capital beneficiaries. The distinction developed in that body of law has however been picked up and further developed by tax cases, including Sun Newspapers Ltd v FCT (1939) 61 CLR 337, Hallstroms Pty Ltd v FCT (1946) 72 CLR 634, Broken Hill Theatres Pty Ltd v FCT (1952) 85 CLR 423 and Colonial Mutual Life Assurance Society v FCT (1953) 89 CLR 428. Indeed, in Hallstroms Pty Ltd v FCT itself, Dixon J said (at 646):
The truth is that, in excluding as deductions losses and outgoings of capital or of a capital nature, the income tax law took for its purposes a very general conception of accountancy, perhaps of economics, and left the particular application to be worked out, a thing which it thus became the business of the courts of law to do. The courts have proceeded with the task without, it is true, any very conspicuous attempt at analysis, but rather in the traditional way of stating what positive factor or factors in each given case led to a decision assigning the expenditure to capital or to income as the case might be.
For the reasons I have mentioned, I do not think there is any reason, in this context, to necessarily restrict the applicability of the definition of "capital expenditure" as developed by the common law, to tax law.
The Macquarie Dictionary defines "capital expenditure" as "an addition to the value of a fixed asset, as by the purchase of a new building". The definition in the Oxford English Dictionary is "expenditure from which benefits may be expected over a relatively long period; expenditure on capital or fixed assets". The concepts picked up by these dictionary definitions are certainly included within the judicial definition of "capital expenditure", but are lacking in detail.
It seems clear to me that the undefined expression "capital expenditure" is broader than that of Skywalk Capital Expenditure. So much is apparent from clause 5.8(c), at integer C. The difference in scope between "capital expenditure" (which is broader) and "Skywalk Capital Expenditure" (which is narrower) arises from the restriction of the latter to a certain type of "capital expenditure", namely, capital expenditure "in relation to the construction and completion" (emphasis added) of the proposed attraction. There is no such restriction on the expression "capital expenditure".
Having regard to all of this, I am inclined to the view that the expression "capital expenditure" bears the broad meaning commonly associated with tax law.
The defendant contends that clause 13.7 imposes a number of parameters on the recoverable capital expenditure, including the following:
(1) The capital expenditure must be incurred "after Completion", which occurred on or about 5 July 2004.
(2) The recoverable capital expenditure is only that "in relation to the construction and completion of Skywalk". "Skywalk" is relevantly defined as "the proposed attraction" (i.e. only what was proposed to be constructed as at 5 July 2004). This therefore excludes any expenditure on an attraction that might be proposed to be constructed at a date after entry into the Deed.
(3) Skywalk Capital Expenditure is expressly stated to include "the construction of the works detailed in the Development Approval". The relevant Development Approval describes the development as "Sky walk on roof top of observation level of tower and 2 X protruding glass".
(4) Skywalk Capital Expenditure is expressly stated to include "all costs directly relating to setting up the Skywalk Business to allow it to be fully operational (including but not limited to costs such as uniforms (up to $350,000), safety equipment, training materials, relevant licences and approvals, electrical and communication equipment and insurance relating to construction of the works)". The term "Skywalk Business" is defined to mean "the business proposed to be conducted...and related merchandising, sponsorships, sales of photographs and sales of goods". Again, the defendant notes that the relevant business is one which, as at the date of the Deed, is proposed to be constructed.
(5) Skywalk Capital Expenditure is expressly stated to include "all necessary upgrades required by the plans for the Skywalk Business". Again, the defendant notes that "the plans" refers to plans existing at the time of entry into the Deed, and that any upgrades required by those plans must be "necessary".
(6) The capital expenditure must be incurred up to but not after the Skywalk Launch Date.
(7) The recoverable capital expenditure amounts exclude any amount of GST forming part of the expense.
The defendant also noted in his submissions that the plaintiff, while carrying out works in respect of Skywalk, concurrently undertook capital works in respect of other attractions it owned, including refurbishing Skytour (using the same contractors and consultants as those used in the Skywalk works), constructing Sydney Wildlife World, a new attraction (engaging several contractors which it had engaged for the Skywalk works), and rebuilding the admissions and restaurant area at Sydney Aquarium.
The defendant's submissions as to the restrictions on recoverability of capital expenditure have, in my view, a sound textual basis in the Deed. There was some debate as to whether the defendant's submission that the recoverable capital expenditure is only that incurred prior to the Skywalk Launch Date is correct. In my view, the defendant's submission is correct. Skywalk Capital Expenditure is "capital expenditure incurred ... in relation to the construction and completion of Skywalk". Therefore any capital expenditure incurred after the construction and completion of Skywalk cannot possibly be Skywalk Capital Expenditure for the purpose of clause 13.7. Practically, the construction and completion of Skywalk must have taken place before Skywalk commenced operation and opened to the public. It would follow that the cut-off date for capital expenditure contemplated by clause 13.7 is indeed the Skywalk Launch Date, at the latest. I give some further consideration to this point of contention later on.
As I previously said, the defendant noted in his submissions that the plaintiff concurrently undertook capital works in relation to Skytour, and the defendant contended that such expenses are not recoverable under clause 13.7. I think this oversimplifies the position. The fact is, and the parties were aware as at the date of the Deed, that the Skywalk business would be conducted in addition to the existing Skytour business. Capital expenses incurred in respect of Skytour (whether to effect structural modifications or otherwise) to enable Skywalk to operate, may, I think, properly be characterised as being "in relation to the construction and completion of Skywalk" within the meaning of clause 13.7, and would therefore (subject to any other requirements under clause 13.7) be recoverable under that clause as "necessary upgrades required by the plans for the Skywalk Business".
Legal principles relevant to Proof of Skywalk Capital Expenditure
The plaintiff contends that either or both of s 69 of the Evidence Act 1995 and s 1305 of the Corporations Act 2001 (Cth) entitle it to rely on certain business records or corporate books it has provided in the Court Book to support its claim for the amount of $2,009,407 (which is the amount it alleges is Skywalk Capital Expenditure incurred in excess of $5 million). Having heard debate on what became material central to the plaintiff's claim for excess Skywalk Capital Expenditure (including CB413 and supporting invoices), I indicated during the hearing (at T74.46 and 76.07) that my ruling would be that these materials go to show monies expended in relation to the items described in those documents but not to show that the expenses were capital expenses within clause 13.7. What follows is intended not to detract from the ruling I gave, but to explain in greater detail the approach I have adopted. For reasons which become apparent, I am not persuaded that the plaintiff, by either or both of CB413 or the invoices, has discharged its onus of proof of Skywalk Capital Expenditure incurred, for the purpose of clause 13.7.
Business records provisions in the Evidence Act
Section 69 of the Evidence Act 1995 provides:
69 Exception: business records
(1) This section applies to a document that:
(a) either:
(i) is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business, or
(ii) at any time was or formed part of such a record, and
(b) contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.
(2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made:
(a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact, or
(b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.
(3) Subsection (2) does not apply if the representation:
(a) was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding, or
(b) was made in connection with an investigation relating or leading to a criminal proceeding.
(4) If:
(a) the occurrence of an event of a particular kind is in question, and
(b) in the course of a business, a system has been followed of making and keeping a record of the occurrence of all events of that kind,
the hearsay rule does not apply to evidence that tends to prove that there is no record kept, in accordance with that system, of the occurrence of the event.
(5) For the purposes of this section, a person is taken to have had personal knowledge of a fact if the person's knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived (other than a previous representation made by a person about the fact).
Notes:
1 Sections 48, 49, 50, 146, 147 and 150 (1) are relevant to the mode of proof, and authentication, of business records.
2 Section 182 of the Commonwealth Act gives section 69 of the Commonwealth Act a wider application in relation to Commonwealth records.
The Dictionary in the Evidence Act defines "previous representation" and "business" as follows:
Part 1: Definitions
...
previous representation means a representation made otherwise than in the course of giving evidence in the proceeding in which evidence of the representation is sought to be adduced.
...
Part 2: Other expressions
1 References to businesses
(1) A reference in this Act to a business includes a reference to the following:
(a) a profession, calling, occupation, trade or undertaking...
...
(2) A reference in this Act to a business also includes a reference to:
(a) a business that is not engaged in or carried on for profit...
The special status accorded by the rules of evidence to business records has long been recognised, albeit in varying and more limited degrees (see for example, Thomas Peake, A Compendium of the Law of Evidence, 3rd ed (1808) Luke Hanfard & Sons at page 92 and Edmund Powell, The Practice of the Law of Evidence, (1856) Law Times Office at page 121 and following). The policy underlying the business records provisions (in what was then Part IIC of the Evidence Act 1898) was explained by Hope JA in Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542 (at [6]-[7]) and is relevant to the present form of the business records provisions:
[6] ... Pt IIC ... has extended the common law rules of evidence in a way which is of great importance in the search for truth. Any significant organization in our society must depend for its efficient carrying on upon proper records made by persons who have no interest other than to record as accurately as possible matters relating to the business with which they are concerned. In the every-day carrying on of the activities of the business, people would look to, and depend upon, those records, and use them on the basis that they are most probably accurate. This position applies to hospitals, as to any other form of business; indeed, hospital records provide an excellent example of the basis, and of the usefulness, of Pt IIC. If a busy honorary such as the second respondent wished to remind himself what the appellant's precise problem or medical condition was, or to learn what had happened since he last saw her, he would undoubtedly refer to the records, and would act upon the basis that they were correct. If, for some reason, a new honorary had to take over the case, it is to the records that he would go to find out what had happened or what he had to do. No doubt mistakes may occur in the making of records, but I would think they occur no more, and probably less often, than in the recollection of persons trying to describe what happened at some time in the past. When what is recorded is the activity of a business in relation to a particular person amongst thousands of persons, the records are likely to be a far more reliable source of truth than memory. They are often the only source of truth.
[7] The purpose of Pt IIC is to bring into the court room a method of establishing the truth which is relied upon by our society outside the court room - to bring into the rules of evidence a reality which they otherwise lacked. A report of the Law Reform Commission which led to the enactment of Pt IIC shows how thorough was the consideration given to reforming the law to this end. Properly understood and applied, Pt IIC makes available to courts, in a way to be found in many other parts of the common law world, a most valuable source of evidentiary material which rules of evidence devised in another age would exclude.
In Valoutin v Furst (1998) 154 ALR 119, Finkelstein J observed (at 128) that:
since the last century the narrow traditional common law view of the admissibility of business records has been the subject of statutory modification to facilitate the admission of those records in almost every common law jurisdiction. This is because the common law rules were recognised as an inhibition to the proper administration of justice in both the civil and criminal courts.
As summarised in J D Heydon, Cross on Evidence, 9th ed (2013) LexisNexis Butterworths (at [35545]), in essence, s 69(1) and (2) render admissible a previous representation made in a document which is or is part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business, provided the representation was made by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact, or the representation was made on the basis of information supplied directly or indirectly by such a person. There are clearly several hurdles to cross before the documents produced by the plaintiff to prove the amount of Skywalk Capital Expenditure can attract the benefit of s 69. In Lithgow City Council v Jackson (2011) 244 CLR 352, French CJ and Heydon and Bell JJ in a joint judgment (at [17]) noted that the onus of demonstrating the conditions of admissibility of evidence under the Evidence Act lies on the tendering party.
For the purpose of determining the question of admissibility under s 69, s 183 permits me to draw reasonable inferences from the documents under challenge, as well as from other matters from which inferences may properly be drawn (Ringrow Pty Ltd v BP Australia Ltd (2003) 130 FCR 569 at [10] per Hely J). The Deed provides in clause 13.7 a mechanism for reimbursement to the plaintiff of Skywalk Capital Expenditure that exceeds a specified amount. The plaintiff must have understood, either before or at the time of entering into the Deed, that if at some future time it wished to assert an entitlement to reimbursement of any Skywalk Capital Expenditure in excess of $5 million, it would need to provide "written notice providing details of the relevant expenditure with reasonable particularity" (clause 13.7). I would therefore be prepared to draw the following inferences:
(1) The documents produced in the Court Book have been "kept" by the plaintiff as a product of its understanding that it would need to provide "written notice providing details of the relevant expenditure with reasonable particularity" (clause 13.7). Despite earlier controversy in the authorities, it is now established that the word "kept" in s 69(1)(a) takes the broader meaning of "retained or held" and not the narrower meaning of "maintained systematically" (see Australian Securities and Investments Commission v Rich (2005) 216 ALR 320 at [190] per Austin J and the authorities there cited).
(2) The documents were kept, and the representations in the documents were made, "in the course of, or for the purposes of, a business". It has been held on a number of occasions that documents received from a third party may be admissible business records if retained in the course of or for the purpose of a business (see Australian Securities and Investments Commission v Rich (2005) 216 ALR 320 at [190] per Austin J and the authorities there cited). As noted in Cross on Evidence, this would include, for example, a statement by a valuer or some other expert who is not actually part of the business, and is not employed by the business, but makes the statement because the business asks him to (at [35550]).
(3) The representations contained in the documents were made on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.
(4) None of the representations in the documents was prepared or obtained for the purpose of conducting, or for or in contemplation of proceedings. I accept that the plaintiff may have entertained the possibility that these records may ultimately be used in proceedings as a basis for seeking reimbursement of its relevant expenditure. However, the question is whether it obtained the representation having in mind that legal proceedings were likely or reasonably probable, not merely one possibility (Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) (2005) 147 FCR 235 at [31]-[43]).
Assuming therefore that the documents attracted the benefit of s 69, they may go to show the amounts actually expended, to whom the expenditures were paid, the date on which they were paid, perhaps the use to which those expenditures were put, and perhaps even the plaintiff's accounting treatment of those expenditures (whether treated as capital expenses or otherwise). However, the plaintiff contends that the business records establish something further than this. In the joint judgment of French CJ and Heydon and Bell JJ (with which Gummow J agreed) in Lithgow City Council v Jackson, their Honours emphasised that it is necessary to identify precisely the "asserted fact" sought to be relied on (at [17]).
The plaintiff says that the business records contain a representation that the expenditures constitute "Skywalk Capital Expenditure" or capital expenses for the purpose of clause 13.7. The "representation" to which the plaintiff says the s 69 exception applies is therefore, strictly speaking, not a factual matter. As noted in Cross on Evidence (at [35555]), the precursors to s 69 admitted "statements" or "representations". "Statement" or "representation" included any representation of fact, and "fact" was defined to include "opinion". However, section 69 admits representations of "asserted facts", and there does not appear to be any extension of the application of "asserted fact" to "asserted opinion" in s 59(1) or elsewhere. Yet business records often contain assertions of opinion, both expert and lay.
It is true that it has been held that "asserted fact" in s 69 includes an opinion in relation to a matter of fact (Ringrow Pty Ltd v BP Australia Ltd at [18]; Australian Securities and Investments Commission v Rich at [206]-[207]), but the correctness of this was seriously doubted by French CJ and Heydon and Bell JJ (with whom Gummow J agreed) in Lithgow City Council v Jackson (at [17]):
[17] ... There is authority that ["asserted fact" in s 69 includes an opinion in relation to a matter of fact (Ringrow Pty Ltd v BP Australia Ltd (2003) 130 FCR 569)]. But the construction of "asserted fact" to include an opinion in relation to a matter of fact, though convenient, is a little strained... However, it was not argued in this Court that the authorities which state that "asserted fact" includes an opinion in relation to a matter of fact are wrong. It is not necessary further to deal with this point, which the parties did not debate at any stage...
Subsequent to this judgment, in Australian Competition and Consumer Commission v Air New Zealand Limited (No 1) [2012] FCA 1355, Perram J regarded the observations of the High Court as dicta and, in any event, did not "accept that the mere fact that an interpretation is 'strained' means inevitably it is wrong" (at [65]). Perram J followed authority that "an opinion as to the existence of a fact falls within the scope of the term 'asserted fact'" (at [62]-[65]).
In any event, the "representation" which the plaintiff seeks to establish from its business records is not even an opinion in relation to a matter of fact. The plaintiff, it seems, is arguing that its business records contain a conclusion of law that the items of expenditure contained in its business records are "Skywalk Capital Expenditure" or at least capital expenditure for the purpose of clause 13.7. This clearly goes beyond what is permitted by s 69. Therefore although I am prepared to find that the documents are admissible under s 69 as business records, and that the documents do contain various representations (as previously noted), it is my view that the s 69 exception does not apply to any representation that the expenditures recorded in those documents are "Skywalk Capital Expenditure" or capital expenditure for the purpose of the Deed. Even if I am wrong about that, and s 69 should apply to a representation as to the characterisation of certain expenses as capital expenses, I would follow the approach taken by Hely J in Ringrow Pty Ltd v BP Australia Ltd and exercise my discretion under s 135 of the Evidence Act to exclude any such representations as to matters of law to be decided by this court.
Corporate books provisions in the Corporations Act
Section 1305 of the Corporations Act 2001 (Cth) provides:
1305 Admissibility of books in evidence
(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.
(2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).
The explanatory memorandum to the Companies Bill 1981 (the legislation containing the predecessor to s 1305) noted (at [1200]) that the section was intended to expedite legal proceedings where books were to be introduced in evidence, and that it obviated the need to call witnesses to prove that books were books of the corporation when that fact was not in question or to prove transactions recorded in books when those matters were not in dispute.
Defendant's claims of breaches of the Deed by the plaintiff
In his cross-claim the defendant alleges that the plaintiff has breached the Deed in various ways. The claims are said to be relevant in two ways. First, the defendant contends that the plaintiff's rights under clauses 5 and 13 were dependent on the plaintiff performing its obligations under those clauses and the plaintiff is not entitled to take advantage of its own wrong. Second, the defendant claims damages for breach by the plaintiff of clauses 5 and 13.
Various arguments are relied upon by the defendant, including an alleged breach of clause 5.9. This in turn depends upon the construction of clause 5.23 which I have already dealt with, and on which I found in the defendant's favour (i.e. clause 5.23 authorises a reduction of $450,000, not $1.8 million, and the defendant's entitlement to that reduction is not taken away because of any alleged breach of its "reasonable endeavours" obligation under clause 13.1(a), as I have found there was no breach of that clause).
Numerous other breaches are relied upon, for example a breach of clause 5.4 (in particular the failure within 30 days of the end of each financial year to procure the Company to calculate the Skytour Annual Component and provide an appropriate certificate). In addition, a breach of clause 5.9, in which it is alleged the plaintiff failed within 5 business days of the end of each March, September and December quarters in the Earn Out Period (or at all), to provide the defendant with details in writing of all visitors to Skywalk who obtain entry during the relevant quarter each day during that quarter. In addition, the defendant alleges a further breach of clause 5.9 by the plaintiff failing within 30 days of the end of each quarter in the Earn Out Period ending 30 June and the final quarter to provide the defendant with details in writing of the number of visitors to Skywalk who obtain entry relating to the relevant quarter each day during that quarter.
The defendant also claims a breach of clause 13.1(a) (however I have already dealt with this issue).
The defendant also claims that there were breaches of clause 13.1(b)(i) and (ii) by the plaintiff failing to cause the Company to hold management meetings in the relevant period and/or give notice of various meetings.
In addition, there is alleged to be a breach of clause 13.1(b)(iii) by a failure on the part of the plaintiff to allow the defendant to appoint a nominee to attend quarterly management meetings.
The defendant also contends the plaintiff breached clauses 13.1(c) and (e) by reason of the plaintiff's failure to cause the Company to prepare and deliver quarterly management accounts to the Skywalk business and/or prepare and deliver to the defendant within three months of the end of each financial year audited annual accounts for the Company in accordance with the clauses.
Insofar as clauses 5.4, administrative aspects of clause 5.9, clauses 13.1(b)(i), 13.1(b)(ii), 13.1(b)(iii), 13.1(c), 13.1(d) and 13.1(e) were in fact breached, those breaches would go nowhere in my view because they are administrative provisions breach of which can hardly lead to any relevant award of damages (nor has any damage been shown). As I said previously, those breaches would not disentitle the plaintiff from seeking any negative Skywalk Final Component to which it might have been entitled. The plaintiff's claim for the negative Skywalk Final Component failed on another basis, namely that its calculation of the alleged negative Skywalk Final Component was fundamentally flawed because of its misconstruction of clause 5.23.
Breach of "good faith" obligation under clause 13.9?
Perhaps significantly, the defendant alleges breach of clause 13.9 in that the plaintiff, it is asserted, failed to act in good faith to use its commercial judgment to maximise economic returns from the Skywalk business and Skytour business until all payments required to be made by the plaintiff to the defendant under clause 5 of the Deed have been made.
Clause 13.9 is in the following terms:
Maximisation of economic returns
13.9 Subject to the terms of this Deed, the Purchaser will, acting in good faith use its commercial judgment to maximise economic returns from the Skywalk Business and the Skytour Business until all payments required to be made by the Purchaser to the Releasor pursuant to clause 5 have been made.
The defendant submits that clause 13.9 required the plaintiff to positively exercise a commercial judgment by considering possible acts or omissions and deciding what acts or omissions would achieve the objective of maximising economic returns from Skytour and Skywalk during the Earn Out Period. The defendant further submits that the notion of maximising economic returns requires alternatives to be considered and compared and the option that would result in the highest return to be selected. The defendant submits that one could not be said to "maximise" returns by considering only one course of action.
The defendant submits that any commercial judgment implemented which took into account economic returns for other businesses owned by the plaintiff would be in breach of clause 13.9 as the clause obliges the purchaser to maximise the economic returns specifically of the Skywalk business and the Skytour business. Further, it obliges the plaintiff to maximise the economic returns until "all" payments required to be made pursuant to clause 5 have been made. This, in turn, the defendant submits, requires maximising of returns during the Earn Out Period and not over a longer period.
The plaintiff submits that the obligation is dominated by subjective elements. Essentially it submits the plaintiff was bound to use its commercial judgment in endeavouring to maximise the returns of both businesses. The plaintiff emphasises the focus on "commercial judgment". The plaintiff submits that that inherently leaves no room for any objective test of acting reasonably. Further, the plaintiff contends that it should be acknowledged that the businesses were to operate in a relatively novel area with no history for Skywalk and little history for Skytour. Therefore opinions about how best to conduct such businesses are matters about which reasonable minds effectively would differ.
The plaintiff also emphasises that it is the purchaser's commercial judgment which is relevant, qualified only by an obligation to act in good faith which means honestly and true to purpose although it may not necessarily be objectively reasonable.
Although the clause is not entirely clear, it does seem to me that the requirement to act in good faith does include an obligation to comply with standards of conduct that are reasonable having regard to the interests of the parties (Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [12] and [146]).
The Court of Appeal in Burger King Corp v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558 at [169] - [171] said:
[169] We have already touched upon this: see especially from 566 [146]ff supra. However, it is worth noting that the Australian cases make no distinction of substance between the implied term of reasonableness and that of good faith. As Priestley JA said in Renard Constructions (at 263): "The kind of reasonableness I have been discussing seems to me to have much in common
with the notions of good faith".
[170] Priestley JA commented further (at 265) that: "... in ordinary English usage there has been constant association between the words fair and reasonable. Similarly, there is a close association of ideas between the terms unreasonableness, lack of good faith and unconscionability".
[171] Rolfe J observed that in Alcatel Australia, Sheller JA (at 369) appeared to equate the notions of "reasonableness" and "good faith". Whilst Sheller JA did not say that in terms, his review of the case law and academic and extra-judicial writings on the topic, clearly support the proposition. In addition to his references to Renard Constructions, Sheller JA (at 367) referred to the statement of Sir Anthony Mason in his 1993 Cambridge Lecture, that it was probable that the concept of good faith "embraced no less than three related notions":
"(1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself);
(2) compliance with honest standards of conduct; and
(3) compliance with standards of contract which are reasonable having regard to the interests of the parties."
The defendant's contentions as to what clause 13.9 amounts to in terms of the actual obligation clearly provides a better view of the law and if I may say so a better view of the clause. In my mind it is inconceivable that merely because somebody acts honestly but unreasonably they could be said to act in good faith. It is perfectly understandable why the two notions must work hand in hand. This is consistent with comments recently made by Allsop P (as his Honour then was) writing extra-curially (J Allsop, "Good Faith and Australian Contract Law: A Practical Issue and a Question of Theory and Principle" (2011) 85 Australian Law Journal 341).
The defendant contends that in two particular areas the plaintiff failed in its obligations pursuant to clause 13.9. First, in relation to sponsorship, and secondly, in relation to advertising and marketing.
Sponsorship efforts
The defendant points to the fact that in the year 2000 Skytour had entered into a sponsorship agreement with Telstra under which Telstra agreed to pay $500,000 per annum for the right to sponsor Skytour. By November 2005, Mr Silber made a request to Mr Fulford and Mr Bush that the plaintiff engage an external advertising agency to assist to procure sponsorships. That request appears in Mr Bush's notes of the conversation and Mr Bush gave evidence that such a request was made at that time. The defendant contends that that request was ignored by the then CEO and the marketing director between November 2005 and January 2008.
The defendant contends that in January 2008, Mr Bush, who had been a director of the plaintiff since February 2006 and CEO since May 2007, turned his mind somewhat belatedly to seeking sponsorship for the group's attractions. Mr Bush engaged an advertising agency, Brand Advantage, for that purpose because he thought it was necessary to do so in order to obtain the best possible sponsorship contract.
Brand Advantage undertook an independent assessment of the value of the sponsorship package and valued the Skytour and Skywalk rights at approximately $385,000 per annum. The plaintiff indicated to Brand Advantage that it wanted to optimise the sponsorship revenue across all attractions and it was decided that the optimal option would be to put the three attractions together. Brand Advantage went to market with a bundled offering with the combined attractions of the plaintiff which had the effect of increasing the price of the offering.
News Limited apparently was interested in the offering but was conflicted because of the inclusion of Sydney Aquarium and Sydney Wildlife World.
In June 2008, Optus stated that whilst many of the properties were a solid fit for an Optus branch, the cost of the bundle offering was beyond their budgets. Branch Advantage then approached a significant number of organisations but not one was interested in the combined package. No sponsorship as such was every procured for Skytour and/or Skywalk. Mr Bush did not seek any advice from an expert in the sponsorship market and the defendant contends that there is simply no evidence that the plaintiff ever took steps to seek to procure a sponsorship contract for Skytour and Skywalk separately from the Sydney Aquarium and Sydney Wildlife World.
The other side of the coin, as often is the case, looks very different. The plaintiff asserts that Mr Fulford did not reject Mr Silber's advice. He simply did not accept it. Approaching Brand Advantage, it is submitted, was an entirely appropriate thing to have done.
The plaintiff contends that when Brand Advantage was retained it checked the target audience identified by the plaintiff.
The plaintiff made contact with a Ms Fiona Williams from Optimum Media Direction Pty Limited. At the relevant time in April 2006 she was Business Director. The role included creating media solutions to clients' briefs to achieve brand awareness by researching target markets.
Her company only became involved in the media strategy planning and buying for the plaintiff from about March 2008 but was not involved in the launch of Skywalk.
Optimum Media Direction is a global media agency with 97 agencies around the world. It has thousands of employees globally and more than 400 employees in Australia. It specialises in media strategy planning and buying and relies upon research of target audience, marketplace, conditions, competitive landscape and the positioning of the brand and/or product. It uses a series of software tools for its research purposes and obtains statistics from Roy Morgan Asteroid. It analyses all aspects of media such as audio, visual and print.
Ms Williams sets out in her statement the analysis undertaken by Optimum both in terms of the print media and radio and television. Although she had little memory of what in fact she did, there are a number of spreadsheets attached to her evidence showing the contacts made with various aspects of the media in relation to the plaintiff. It is clear that she and perhaps those assisting her undertook significant research analysing all media plans for a particular campaign, which was scheduled for Easter in 2008.
She confirmed, for example, in re-examination, that having undertaken the research that she sets out in her statement, she was able to corroborate the appropriateness of the target audience which had previously been identified by the plaintiff prior to her undertaking her work as being correctly targeted. In that regard I accept her evidence as I do generally her evidence otherwise.
There was some criticism brought by the defendant as to the bundling packing of the Skywalk and Skytour businesses. Quite frankly I can readily envisage that this is a matter about which reasonable minds may well differ but I can certainly appreciate the obvious synergies between bundling that package. Mr Barnacle gave evidence to that effect and I accept his evidence in that regard. It is clear that with both businesses integrated both physically and in terms of the type of attraction, I can understand that it made sense to bundle the two.
There is a criticism that effectively there was too little too late in terms of seeking to obtain sponsorship. I do not accept that. What I think the evidence does, on balance, portray, and this I think is the better view, is that at the relevant time people were not spending money on sponsorship. Indeed, 2008, as it turned out both in this country and elsewhere, is seen by many as the start of significant financial hardship across all industries.
However, it is worth observing that many approaches were made to Optus. Approaches appear to have been made in April, June and July of 2008. Presentations were made but were largely unsuccessful.
The evidence discloses that Telstra was not interested in renewing its association, and Optus was not interested in a bundle package even at a very low rate of $200,000. I do not think that this reflects any disagreement as to the attractiveness of a bundle proposition but rather the marketplace simply not having any appetite for the injection of funds to that effect.
The evidence also supports approaches to BankWest, ANZ, Credit Suisse, Ernst and Young, Fairfax and others in March, April and May of 2008. A problem that was encountered, for example, with News Limited was its relationship with Taronga Zoo and therefore the perceived conflict in sponsoring the Sydney Attractions Group.
In all the circumstances therefore and on the evidence I am simply not persuaded that the plaintiff breached clause 13.9 insofar as its activities were directed to sponsorship. I therefore reject the defendant's case in that regard.
Advertising and marketing efforts
The defendant makes the point that the original Skywalk budget did not allow for a major media campaign but instead relied upon a public relations driven launch, regarded as a soft launch involving only modest expenditure. An unbudgeted media spend of $250,000 was agreed in November 2005 to attempt to stimulate bookings and sales of gift certificates pre-Christmas.
By February 2006 the defendant contends that the results of customer opinion surveys indicated that television was the most successful media driver of visitation by the domestic market, delivering one in four bookings according to customer opinion surveys. The television campaign was aired in a 21 day period from 4 December to 24 December 2005 at a cost of $110,000. The defendant further contends that by February 2006 the plaintiff had made an assessment that the Skywalk product needed a highly visual explanation with television being the most effective means for this purpose. On the evidence, or so the defendant contends, as at February 2006 there were insufficient funds within the current budget for the campaign on paid television. The defendant points to a number of board papers indicating that at various meetings comments were made such as budgets being tight, and in particular at a board meeting of 28 August 2007 in relation to Skywalk the observation that marketing expenses were 53.8% on budget due to phasing.
The defendant further contends that throughout the whole period Skywalk was performing poorly. In the period from the Skywalk Launch Date to 31 December 2005, actual visitors were 6,000 against budgeted visitors of 19,000 and EBITDA was negative $920,000 against a budgeted EBITDA of positive $536,000. By financial year 2006, actual visitors were 16,000 against budged 48,000 and EBITDA continued to be negative at $1,035,000 against budgeted EBITDA of positive $1,824,000. The defendant also submits that the number of visitors did not improve in a financial year 2007.
The defendant points to Mr Bush becoming CEO in May 2007 and his expressing the view that Skywalk was not working and further that he thought Skywalk had been under performing continuously since January 2006. In 2008 the defendant contends that Mr Bush introduced a new business model for Skywalk involving a substantially reduced admissions price and shorter visitor experience but points out however that this was more than two years after the launch of Skywalk. It was also pointed out by the defendant that the former CEO had not taken such steps in the 19-month period from the Skywalk Launch Date to May 2007.
The defendant does concede that monies were expended with Optimum which was engaged by the plaintiff in March 2008. He also accepts that during the period March 2008 to 30 June 2009 the plaintiff spent $2,542,950 on advertising of which he alleges however $123,063 was advertising dedicated to Skytour and/or Skywalk. He also makes the point that none of the advertising dedicated to Skytour and/or Skywalk involved television advertising. He also points to a lack of an explanation on the part of the plaintiff as to why only 5% of the advertising spend was dedicated to Skytour and/or Skywalk. The defendant also points to the fact that the Sydney Aquarium and Sydney Wildlife World attractions were part of the plaintiff's advertising account with Clemenger but Skytour and Skywalk were not. Nor was there any explanation as to why Clemenger had not been retained to market or advertise Skywalk or Skytour.
All the while, the defendant says the plaintiff knew from January 2006 that Skywalk was performing significantly below expectations and further he contends that the plaintiff must have known that television was the most effective form of advertising to attract customers. However, no significant television advertising for Skywalk was undertaken after December 2005.
The plaintiff says in response that, perfectly understandably for the opening and following months, the concept of a "soft" launch in terms of media campaign followed by a significant and successful television campaign with related media added for a limited period prior to Christmas or school and related holidays, was the perfectly explicable and acceptable approach.
The parties called expert evidence. The plaintiff relied upon a report of Mr Barnacle, and the defendant upon a report of Mr Boundy. A Ms Bensley was called by the defendant, but I was unimpressed with her evidence and found it of no assistance at all. In submissions, the defendant placed no reliance on Ms Bensley's evidence, and the plaintiff said her evidence "was of no effect". For example, during cross-examination (at T442-T446) it emerged that a number of Ms Bensley's suggestions, such as having sky jumping facilities, hosting celebrities, or lighting up Centrepoint Tower, were either not permitted by Council, not properly investigated, not costed and likely to be unfeasible. Both Mr Barnacle and Mr Boundy had appropriate expertise and experience. In Mr Barnacle's case he had worked since about 1979 for various advertising agencies in Australia and elsewhere, starting his own in 1993. In about 2000, the business which he co-founded was sold to Clemenger Communications. Thereafter he had a career with that organisation in various forms until he partly retired in 2010. On the other hand, Mr Boundy worked in the advertising, marketing and media industry for about 25 years and had a good deal of experience in developing sponsorship contracts, analysis of target audience and strategic media campaigns, and giving advice on various services to major corporations in Australia, such as the Commonwealth Bank of Australia and Qantas Holidays.
Mr Barnacle was supportive of the soft launch and spending money on a campaign later to catch the holiday period. He supported, it seemed to me, a focussed approach at a time when a campaign might be thought to be more effective, or as he put it, "there is no point fishing where there is no fish" (T487.30).
It was put to Mr Barnacle that by reason of the fact that the Skywalk marketing budget did not allow for a major media campaign in the period from the Skywalk Launch Date (in October 2005) to Christmas of that year was not reasonable if the owner wanted to maximise economic returns. He said he could not agree with that proposition because a soft launch implied that you save your money until the peak period. He also said that merely because $123,000 had been allocated to an advertising budget for Skytour and Skywalk it did not follow that the owner was failing to maximise economic return. He observed that his impression was that the Sydney Attractions Group had a very effective public relations approach and his view was that one only bought media when one had to. He also thought that the attractions had obtained a great deal of free publicity which would assist in keeping costs low in that regard. He also explained that in his opinion advertising in public relations was about awareness not sales. His view was that if you have a high awareness you might get the sales, but the two do not always follow hand in glove as he put it. He thought, to have arrived at the assessment to keep the budget low at that relevant point in time, may well have been a reasonable approach to adopt in the circumstances.
Notwithstanding the above, Mr Barnacle did accept that the Skywalk advertising expenditure was modest and that a soft launch was likely to generate modest sales. He accepted that a major advertising launch would be likely to generate significantly greater sales than a soft launch but that all turned upon the effectiveness of a major advertising launch.
Mr Boundy was critical of the absence of a budget for major media campaigns in either 2005 and 2006. He thought this was a serious omission in contemplating the launch of a high profile asset. He also expressed the view that the actual marketing expenditure in the lead up to the launch of Skywalk in October 2005 was modest and below budget. Further, he expressed the view that the results of the December 2005 media campaign indicated that television advertising was the most effective media.
In addition, he intimated that the absence of any budget for any significant new television campaign after February 2006 was, as he described it, a "recipe for failure", because television advertising delivered one in four bookings. He thought a reasonable and proper marketing or advertising campaign would have required at least four campaigns each of two to three weeks in duration, and television activity in the nine months from September 2005 to June 2006. He thought television was an ideal medium because of the very nature of the attraction.
Mr Boundy had to accept, as was obvious, that much of the criticism he levelled at the marketing and advertising strategy/budget was with the benefit of hindsight. Mr Barnacle thought that radio was a cost effective way to extend the reach of television.
I think it may be said quite fairly that Mr Boundy's evidence is simply representative of a person who no doubt felt strongly about the views he expressed but really ought to be seen as one of a number of views reasonably open and expressed very much with the benefit of hindsight and without regard to the specific circumstances of the Skywalk and Skytour businesses. In that regard none of the experts could do any more than express their own personal views, as I see it, as to how they may or may not have spent the available budget.
On balance, I think the proposition advanced effectively by Mr Bush and Mr Barnacle, that the pursuit of the bundled approach that gained the benefit of the existence of the Sydney Aquarium and other attractions to lead customers to Skywalk and Skytour, was one reasonably open. I see nothing wrong with that approach. I should add that in Mr Barnacle's case, whose evidence on balance I prefer over that of Mr Boundy, he had a lot of experience in the years 2000 to 2009 supervising the Village Roadshow account which included involvement with and awareness of Movie World, Sea World, Sydney Aquarium and Sydney Wildlife World. As such, he was directly responsible for the communication strategy of all those entities and supervised the creative and budget management thereof and the delivery of media plans and so on. It is true that he did not have direct experience with Skytour and Skywalk but I think the analogous businesses which he was associated with gives him, in my view, along with his evidence, an edge over that of Mr Boundy.
As I have already observed, Mr Boundy held his views strongly but there is certainly no evidence from which one could accept that to have adopted a different approach would necessarily have led to a different outcome. An element of Mr Boundy's evidence did, it seemed to me at least, proceed somewhat artificially on the basis that there were no constraints on the budget, which as a matter of practical reality may be the ideal for professionals such as him, but is, I would expect, rarely the case and certainly not during difficult times.
Summary of findings as to defendant's allegations of breach by the Plaintiff
In the circumstances, I am unpersuaded that the plaintiff did not use its commercial judgment to maximise economic returns from the Skywalk and Skytour businesses. The failure to budget for a major media campaign around the Skywalk Launch Date, I do not believe, could be regarded as incompetent or lacking in good faith. On one view it was a shrewd and perhaps astute approach given the nature of the attraction. Nor do I think it could be said that in allocating its budget the way it did it effectively sacrificed the Skywalk or Skytour businesses contrary to its obligation pursuant to clause 13.9. In the result, I am by no means persuaded there has been a breach of that provision on the part of the plaintiff, and I therefore reject the defendant's case on that aspect.
It follows from my rejection of the defendant's claim that the plaintiff was in breach of clause 13.9 that there is no need to quantify damages.
I have, for reasons already stated (at [176]-[186] above), rejected the defendant's claim that the plaintiff breached its "reasonable endeavours" obligation under clause 13.1(a).
In relation to various other breaches the defendant alleges against the plaintiff (namely clauses 5.4, administrative aspects of clause 5.9, clauses 13.1(b)(i), 13.1(b)(ii), 13.1(b)(iii), 13.1(c), 13.1(d) and 13.1(e)), I have held that no damage has been shown (mainly because these provisions are merely administrative and can hardly lead to an award of damages).
The defendant is however entitled to be paid Skywalk Quarterly Components, to be assessed in accordance with my findings as to the proper construction of clause 5.23 (with the consequence that a total reduction of $450,000 is authorised). The defendant is entitled to interest on those amounts, to be calculated in accordance with clause 6 of the Deed.
Conclusion
I would invite the parties to prepare short minutes reflecting my reasons and to arrange with my Associate an appropriate time to be heard on costs.
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Amendments
21 August 2013 - word change "effort" to "evidence" in 168 and "on" to "in" and deletion of following part sentence in 78
Amended paragraphs: paragraphs 78 and 168
01 July 2013 - Coversheet amended
Amended paragraphs: Coversheet
Decision last updated: 21 August 2013
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