Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd - [2010] NSWSC 29

No judgment structure available for this case.

CITATION: Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29

HEARING DATE(S): 16/06/08, 17/06/08, 18/06/08, 19/06/08, 20/06/08, 23/06/08, 24/06/08, 25/06/08, 26/06/08, 27/06/08, 30/06/08, 04/07/08, 28/07/08, 29/07/08, 27/08/08, 28/08/08, 24/11/08, 25/11/08, 26/11/08, 27/11/08, 28/11/08, 10/06/09, 11/06/09, 24/08/09, 25/08/09, 26/08/09, 27/08/09
Written submissions: 1 September 2009

JUDGMENT DATE :
5 February 2010

JURISDICTION: Equity Division

JUDGMENT OF: Barrett J

DECISION: First plaintiff not entitled to specific performance by defendant of any contract for sale and purchase of the Cudgen Paddock.

CATCHWORDS: LANDLORD AND TENANT – leases and tenancy agreements – construction and interpretation – option to purchase included in lease – option exercisable within five year term of lease - whether option survives earlier termination of lease – LANDLORD AND TENANT – lessee’s covenants – as to permitted use of land – as to existence of necessary consents for permitted use – whether covenants breached – whether breach capable of being remedied - MISTAKE – equitable remedies – rectification – whether lessee’s covenant as to permitted use should be rectified for common mistake – ENVIRONMENT AND PLANNING – “existing use” rights – whether establishment of tree plantation permitted on land previously used for cattle grazing and pasture protection - LANDLORD AND TENANT – termination of the tenancy – frustration: application of to leases – whether frustration – re-entry and forfeiture – when right of re-entry becomes enforceable – CONTRACTS – discharge and breach – application of contract principles to leases – where lessee’s covenant agreed to be essential term – breach thereof – whether lease terminated for fundamental breach – separateness of right of re-entry and right to terminate contract – Conveyancing Act 1919 s 129(1) relevant to former but not latter - ESTOPPEL – estoppel by convention – whether available in the face of an “entire agreement” clause by reference to pre-contract consensus – whether such consensus existed in fact – ELECTION – principles discussed – whether lessor elected to affirm lease despite lessee’s breach of covenant – LANDLORD AND TENANT – relief against forfeiture – principles discussed – whether court should grant relief against forfeiture to lessee – whether lessor’s exercise of right to terminate was unconscionable – CONTRACTS – implied terms – term requiring good faith – whether implied – whether any such term can qualify express term making lessee’s covenants essential terms – CONTRACTS – implied terms – term requiring co-operation – scope of such term – EQUITY – fraudulent and innocent misrepresentation – alleged misrepresentation by lessee – whether lessor thereby induced to grant lease – causation and reliance – CONVEYANCING – the contract and conditions of sale – terms of contract arising from exercise of option to purchase included in lease – contractual mechanism for determination of price – construction and interpretation - LANDLORD AND TENANT – option to purchase included in lease – implied terms – whether implied term that lessee not entitled to exercise option if in breach of lease covenant – applicability of Conveyancing Act 1919 s 133E to any such implied term – EQUITY – equitable remedies and equitable defences – specific performance – unclean hands – EQUITY – fiduciary obligations – whether fiduciary duties existed – whether such duties breached – knowing involvement in breach – EQUITY – equitable remedies – constructive trust – effect on third party – whether third party with prior equitable interest will be unfairly prejudiced by recognition of constructive trust – whether such prior interest exists - EVIDENCE – where key participants not called to give evidence – available inferences – whether fear of reactivation of criminal charges sufficient explanation

LEGISLATION CITED: Conveyancing Act 1919, ss 118, 129(1), 129(2), 129(6), 133C, 133E
Corporations Law, Division 1 Part 2D.1
Environmental Planning and Assessment Act 1979, ss 5, 109
Evidence Act 1995, s 128
Grantees of Reversions Act 1540 (Imp)
Land Titles Legislation Amendment Act 2001
National Parks and Wildlife Act 1974, ss 91B, 118D(1)
Native Vegetation Conservation Act 1997, ss 7(4), 33
Real Property Act 1900
Threatened Species Conservation Act 1995, s 91
Trade Practices Act 1974 (Cth), ss 52, 87
Tweed Local Environmental Plan 1987
Tweed Local Environmental Plan 2000

CATEGORY: Principal judgment

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TEXTS CITED: William O Douglas and Jerome Frank, "Landlords' Claims in Reorganizations" (1933) 42 Yale Law Journal 1003
Elizabeth Cooke,"The Modern Law of Estoppel" Oxford (2000)
Matthew N C Harvey, "Estoppel by convention – an old doctrine with new potential" (1995) 23 ABLR 45
F G Myers and B M Hogan, "Evatt and Beckenham’s Conveyancing Precedents and Forms", 3rd edition (1951)
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B H McPherson, "Fiduciaries: Who Are They?" (1998) 72 ALJ 288

PARTIES: Tim Barr Pty Limited - First Plaintiff
Timothy James Barr - Second Plaintiff
Narui Gold Coast Pty Limited - Defendant

FILE NUMBER(S): SC 2002/62056

COUNSEL: Mr R G McHugh SC (to 4/7/08; from 24/11/08 to 18/5/09; from 24/8/09); Mr I M Barker QC (from 28/7/08 to 28/8/08); Mr J E Lazarus (to 4/7/08; from 24/11/08) - Plaintiffs
Mr M L Einfeld QC/Mr R E Dubler SC/Mr A C Harding (to 27/6/08); Mr A C Harding (30/6/08); Mr I M Neil SC/Mr A C Harding (from 28/7/08) - Defendant

SOLICITORS: Corrs Chambers (to 25/2/09); Tzovaras Legal (from 26/2/09 to 24/11/09); J T Law Pty Limited (from 25/11/09) - Plaintiffs
Verekers - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

FRIDAY 5 FEBRUARY 2010

2002/62056 TIM BARR PTY LTD & ANOR v NARUI GOLD COAST PTY LTD

JUDGMENT

Introduction

1 These proceedings concern a parcel of land known as the Cudgen Paddock which forms part of a property of more than 800 hectares called “Kings Forest” situated near Kingscliff on the far north coast of the State.

2 Central to the matters in contention is a lease of the Cudgen Paddock dated 23 June 2000 between Narui Gold Coast Pty Ltd (“NGC”) as lessor and Tim Barr Pty Ltd (“TBPL”) as lessee (after these proceedings were commenced, NGC changed its name to “Project 28 Pty Ltd” but it is convenient to continue to refer to it as “NGC”).

3 TBPL and its principal, Timothy Barr (“Barr”), are the plaintiffs and cross-defendants. NGC is the defendant and cross-claimant. NGC has been, at all material times, the registered proprietor under the Real Property Act 1900 of the fee simple in the whole of Kings Forest. The lease dated 23 June 2000 affecting the Cudgen Paddock section of Kings Forest was duly registered under that Act.

4 The part of the lease dated 23 June 2000 of particular relevance is that by which an option to purchase the Cudgen Paddock was granted by NGC to TBPL. The plaintiffs contend that TBPL exercised the option on 17 April 2003 and that a contract for the sale and purchase of the Cudgen Paddock thereupon came into force between NGC as vendor and TBPL as purchaser. The plaintiffs seek, as principal relief, an order that NGC specifically perform that contract for sale.

5 NGC, for its part, says that there was never any valid exercise of the option to purchase by TBPL. Its principal contentions are:

(a) that the lease was forfeited by re-entry by the lessor or otherwise terminated following the service of a notice dated 3 May 2002, that is, before the purported exercise of the option by TBPL on 17 April 2003; or

(b) alternatively, that the lease was otherwise validly terminated by the lessor before 17 April 2003; or

ab initio

(c) alternatively, that the lease was discharged by frustration

6 The question whether the lease ceased to be operative will turn in part on whether certain provisions of the lease were breached and, if so, whether the breach was such as to found a right to terminate and whether any such right was exercised.

7 There is also a question whether the option to purchase, although granted contemporaneously with the lease and contained in the same document, had an existence independently of the lease so that, if the lease itself no longer subsisted at 17 April 2003, the option nevertheless remained alive and available to be exercised by TBPL at that date.

8 If the option to purchase continued to subsist on 17 April 2003, it will be necessary to consider whether certain factors operated to defeat TBPL’s purported exercise, including:

(a) breach of an implied term to the effect that there should be no exercise of the option if TBPL was in breach of an essential term of the lease;

9 A number of issues arise in relation to any entitlement NGC, as lessor, may have had to put an end to the lease or now has to claim rescission or setting aside of the lease. These include:

(a) the significance of the intervention of rights of a third party to which TBPL itself granted an option to purchase the subject matter of the option held by TBPL from NGC;

(b) whether an implied duty of good faith on the part of NGC precluded its attempted termination of the lease;

(d) whether TBPL is entitled to relief against forfeiture in respect of any termination of the lease for breach;

(e) whether the breaches upon which NGC relied bringing the lease to an end, if established, occurred in such circumstances that they were waived by NGC or NGC is estopped from relying on them.

10 If, after all those matters (and various incidental questions) have been determined, it appears that TBPL has, as against NGC, a prima facie right to specific performance of a contract for the sale of the Cudgen Paddock arising from exercise of the option, it will be necessary to address the discretionary question whether TBPL was guilty of disentitling conduct such that that form of relief should be refused.

11 A central question will be whether TBPL was knowingly concerned in breaches of duties owed by other persons to NGC. The relevant duties are said to have been owed by both Barr and Shigeo Narui (“Shigeo”). The alleged duties, as pleaded, are described as “fiduciary and statutory duties owed to [NGC] to (a) act honestly and in good faith; (b) act in the best interests of [NGC]; (c) prevent putting themselves in a position of conflict between their own interests and [NGC’s] interests; (d) disclose to [NGC] any potential conflict of interest; and (e) act with reasonable care and skill”.

12 A number of incidental matters will also require attention. The several issues will be addressed in turn, although not in the order just stated.

Provisions of the lease

13 By the lease, NGC leased the Cudgen Paddock to TBPL for a term of five years expressed to have a “commencing date” of 26 June 2000 and a “terminating date” of 25 June 2005, “with an option to purchase set out in clause 15”. The lease contained no provision with respect to rent and no covenant by TBPL as lessee to pay rent.

14 Clause 15 was in these terms:

“15. CALL OPTION

15.1. Call Option Fee. The tenant shall pay the Call Option Fee to the Landlord when the tenant executes this lease.

15.2. Grant of Call Option. In consideration of the Call Option Fee paid by the tenant to the landlord the landlord grants to the tenant the Call Option to require the landlord to enter into the Contract.

15.3. Nature of Call Option. The Call Option constitutes an irrevocable offer by the Landlord to enter into the Contract for the sale and purchase of the Premises which may be accepted or terminated by the tenant strictly in accordance with this clause otherwise the Call Option and this offer will lapse,

15.4. Exercise. The Call Option may be exercised by the tenant.

(a) Call Option Exercise Notice signed by the tenant or its Authorised Representative;

(b) two copies of the Contract (which must be prepared by the tenant) executed by the tenant or its Authorised Representative; and

or the tenant may exercise the Call Option during the Call Option Period by serving a Call Option Exercise Notice by facsimile in which case the Contract and bank cheque referred to in paragraphs (b) and (c) of this clause must be delivered personally or by pre-paid security post or certified mail, within two business days of services of the Call Option Exercise Notice.

15.6. Time of Service. Service on the landlord under clause 15.5 of the documents required to exercise the Call Option is deemed to be a notice given to the landlord.

15.7. Binding Contract. On exercise of the Call Option the party bound by the Call Option as landlord at that date and the party exercising the Call Option shall become immediately bound as vendor and as purchaser respectively under the Contract.

15.8. Date of Contract. The Contract shall be dated with the date on which the tenant exercises the Call Option and the tenant authorises the landlord to date, and the landlord must date, the Contract with that date.

15.9. Return of Contract Within two business days after receipt of the Call Option Exercise Notice, the landlord must execute the two copies of the Contract and return one executed copy of the Contract to the tenant's solicitors.

15.10. Call Option Fee. The Call Option Fee paid by the tenant to the landlord shall be and shall remain the property of the landlord whether or not the Call Option is exercised and the Call Option Fee will be and will be deemed to be a part payment of the deposit and purchase price payable under the Contract.

15.11. Voluntary Termination. If the tenant has not exercised the Call Option, then the tenant may at any time before the Call Option Expiry Date give a Notice to the landlord stating that the tenant will not be exercising the Call Option and from the date of service of that notice, the Call Option is terminated.

15 Several definitions in clause 1 are relevant to the interpretation of clause 15 as follows:

Call Option Fee

Call Option

Call Option Commencement Date

Call Option Expiry Date

Call Option Period

Contract

16 It is necessary to set out a number of other provisions of the lease. The first is clause 4.1:

“The tenant must not use the Premises otherwise than for the purpose of the planting and cultivation of Lemon Myrtle Trees.”

17 Clause 4.3 was in these terms:

“Should the use to which the Premises are put by the tenant require the Licence consent or approval of any competent Authority then the tenant warrants to the landlord that it has prior to entering into this Lease obtained such licence, consent or approval and the tenant will at its expense maintain such licence, consent or approval as valid and operative during its occupation of the Premises or do anything else that may be necessary so that the use is lawful and properly complies with all requirements of any statutory or other competent body or authority. The tenant will comply with all conditions attaching to any such licence, consent or approval.”

18 Clause 4.5 provided:

“The tenant acknowledges and agrees that it is the tenant’s responsibility to comply with all statutory or other competent authority requirements with respect to the use to be put to the Premises.”

19 Clause 7.1 was as follows:

“Subject to the following, the tenant will not during the continuance of the Lease assign or transfer this Lease or demise, sub-let, part with, share the possession of, or grant any licence affecting, or mortgage, charge or otherwise deal with, or dispose of the Premises or any part thereof, or by any act or deed procure the Premises or any part thereof to be assigned, transferred, demised, sub-let unto shared or put into possession of any person or persons.”

20 The next relevant provision is clause 8.1:

“In the event that:

(a) any money payable by the tenant to the landlord remains unpaid for a period of 14 days after the date on which the same ought to have been paid (although no formal or legal demand will have been made);

(b) the tenant commits permits or suffers to occur any default in or breach of the due and punctual observance and performance of the provisions of this Lease and such default is continued for 2 weeks after the landlord serves on the tenant a notice specifying the breach and if the breach is capable of remedy requiring the tenant to remedy the breach and if not, then requiring the tenant to make compensation in money for the breach, or in case the repairs required by such notice are not completed within the time therein specified;

(c) if the tenant is a company, an order is made or a resolution is passed for the winding up of the tenant (except for the purpose of reconstruction or amalgamation with the prior written consent of the landlord which will not be unreasonably withheld) or if the tenant goes into liquidation or makes an assignment for the benefit of or enters into an arrangement or composition with its creditors or stops payment of or is unable to pay its debts within the meaning of the Corporations Law or if a manager or receiver of any of its assets be appointed or an inspector be appointed pursuant to the Corporations Law;

(d) if the execution is levied against the tenant,

then in any one or more of such events the landlord will have the right by itself or its authorised agent at any time thereafter and without notice to or demand on the tenant and notwithstanding prior waiver or failure by the landlord to take action in respect of any such matter thing or default whether past or continuing to re-enter into and upon the Premises or any part thereof in the name of the whole and thereby determine the estate of the tenant but without prejudice to any action or other remedy which the landlord has or may have for arrears of rent or breach of any covenant or provision or for damages as a result of any such event and thereupon the landlord will be freed and discharged from any action suit claim or demand by or obligation to the tenant under or by virtue of this Lease.”

21 Clause 9.1 provided:

“It is expressly agreed notwithstanding anything else herein contained that each of the following covenants are essential terms of the Lease:

(a) clause 4 relating to the tenant’s use of the Premises;

(b) clause 5 relating to the maintenance and repair of the Premises; and

(c) clause 7 relating to assignment and sub-letting.”

22 Clause 18, so far as relevant, was as follows:

“The tenant covenants as follows:

Native Vegetation Conservation Act

NGC’s notice of 3 May 2002

23 It is desirable to set out in full the notice dated 3 May 2002 served on TBPL by NGC:

Notice of Re-Entry

To Tim Barr Pty Ltd (ACN 093 360 260) of c/- Essential Consulting and Business, 2A Bellambi Street, Northbridge in the State of New South Wales, the Lessee pursuant to the Lease of property described as 76/DP755701, 272/DO755701 and 326/DP755 701.

^rd

1. The Lessee is in breach of the following covenant contained in the Lease:

‘Should the use to which the Premises are put by the tenant require the licence, consent or approval of any competent Authority then the tenant warrants to the landlord that it has prior to entering into this lease obtained such licence, consent or approval and the tenant will at its expense maintain such licence, consent or approval as valid and operative during its occupation of the Premises or do anything else that may be necessary so that the use is lawful and properly complies with all the requirements of any statutory or other competent body or authority. The tenant will comply with all conditions attaching to any such licence, consent or approval.’

2. The Lessor will re-enter and take possession of the abovementioned property following 14 days from service of this Notice.

^rd

(sgd) Richard Hamilton”

24 This notice of 3 May 2002 was served under cover of a letter of the same date from NGC’s solicitors to TBPL, as follows:

“We act on behalf of Narui Gold Coast Pty Limited.

enclose

The warranty breached by you induced our client to enter into the Lease. Further, as is detailed in the enclosed Notice, it was a warranty contained in the Lease.

The warranty (detailed in the enclosed Notice) is incapable of being remedied given the required licences, consents or approvals of any competent Authority were required to be obtained by you prior to entering into the lease. This was not done.

Without prejudice to our client’s position that this breach cannot be remedied, we are instructed to put you on notice our client will (pursuant to clause 8.1(b) of the lease) re-enter and take possession of the property following 14 days from service of the enclosed Notice.

Pursuant to clause 13 of the Lease the Notice is taken to have been served on the day following the posting of the Notice (being the date of this letter.”

25 While, as will be explained in due course, the notice of 3 May 2003 may be taken to have been given specifically by reference to clause 8.1 of the lease and with a view to producing legal consequences through that clause, it also represents, in a wider sense, an unequivocal indication of NGC’s intention that, after the expiry of the stated period of fourteen days, the lease will be at an end. That is relevant to certain of the contentions regarding termination.

TBPL’s action of 17 April 2003 to exercise the option

26 It is also desirable to describe at this early stage the steps taken by TBPL to exercise the option to purchase created by clause 15 of the lease. A letter dated 17 April 2003 sent by TBPL’’s then solicitor to NGC was in these terms:

“Dear Sir,

Exercise of Option to Purchase in lease number 7312674

Property: Lots 76, 272 and 326 in DP755701, NSW (Property)

I enclose the following documents for the purpose of exercising the option to purchase the above property as contained in clause 15 of the registered lease number 7312674 (Lease:)

Call Option Exercise Notice;

TBPL

Bank cheque for $179,999 being 10% deposit reduced by the Call Option Fee (of $1.00) under the Lease.

We draw your attention to the following issues:

Stakeholder/depositholder

As Hickey Lawyers have at all relevant times acted for Narui in relation to the Property (including in relation to the issue of notices under the Lease) Hickey Lawyers have been nominated as the stakeholder under the contract. Accordingly, the bank cheque is drawn in favour of Hickey Lawyers as the stakeholder.

Should Narui Gold Coast Pty Limited wish to nominate an alternate stakeholder please immediately contact us and we will provide a replacement bank cheque payable to your nominated stakeholder in exchange for the enclosed cheque.

2. Price

For the purpose of the procedures set out in clause 15.12 of the lease, TBPL nominates $1,800,000 as the market value of the Property. It is acknowledged that this price is subject to any determination clause 15.12 of the Lease.

If it is determined under clause 15.12 that the value of the Property is greater than $1,800,000, a further bank cheque to top up the deposit amount under the contract will be provided.

I look forward to receiving a fully executed contract by 23 April 2003.

Completion of the contract is anticipated to take place by 1 June 2003.”

Yours faithfully”

27 The first of the enclosed documents was as follows:

CALL OPTION EXERCISE NOTICE

Chartered Accountants

^rd

The following documents are delivered in accordance with the lease:

(a) A Contract for Sale of Land (in duplicate);

(b) Bank cheque for the deposit less the option fee payable to the Stakeholder.

^th

Tim Barr

Signature of sole director and

28 The second enclosure was a contract for the sale of land executed by TBPL by means of the signature of Barr who was described as its sole director. The contract was in the form of the 2000 edition approved by the Law Society and the Real Estate Institute. NGC was named as vendor and TBPL as purchaser. The price was expressed to be “$1,800,000 (subject to clause 15.12 of the registered Lease no. 7312674)”. The deposit was stated to be $180,000 and the balance $1,620,000. The “depositholder” was stated to be “Vendor’s solicitor”. The item “Tenancies” under the heading “CHOICES” was marked “yes” and there was a reference to the lease of 23 June 2000 in favour of TBPL, a copy of which was included as part of the contract. A number of other documents were also annexed.

29 The third document sent with the letter of 17 April 2003 was a bank cheque issued by the ANZ Bank in favour of “Hickey Lawyers” in the sum of $179,999.

Persons and entities

30 I should next identify a number of persons and entities referred to in the judgment:

“Barr”: Timothy Barr, the second plaintiff; sole director and shareholder of TBPL (the first plaintiff) and BPM.

“BPM” Barr Project Management Pty Ltd, a company of which Barr was the sole director and shareholder; acted as NGC’s project manager at Kings Forest.

“Mr Bolster”: Paul Bolster, a solicitor; partner in the firm of Bolster & Partners based at the Gold Coast.

“Mr Brinsmead”: Paul Brinsmead, a solicitor; partner in the firm Hickey
Lawyers based at Bundall in Queensland.

“Mr Broyd”: Director of Developing Services, Tweed Shire Council.

“the Council”: Tweed Shire Council (Kings Forest is within Tweed Shire).

“Mr Glazebrook”: Jim Glazebrook, a town planner and development
consultant based at Murwillumbah.

”Hickeys”: Hickey Lawyers, a firm of solicitors based at Bundall.

“Hiroyuki”: Hiroyuki Narui, variously described as the “president” and the “chairman” of Narui Norin.

“Mr Hung” Edgar Hung, an officer of Austcorp.

“Mr Hynes”: Robert Hynes, a solicitor; partner in the firm of Hynes Harnett based at Surfers Paradise.

“Leda”: the Leda Group of Companies, a property development group.

“Mr McDermid”: Jeffrey McDermid, a chartered accountant; principal of Walter McDermid & Staff.

“NGC”: Narui Gold Coast Pty Ltd, the defendant and cross-claimant.

“Narui Norin”: Narui Norin Co Ltd, a Japanese company and the ultimate holding company of NGC.

“NPWS”: National Parks and Wildlife Service, a statutory authority.

“Shigeo”: Shigeo Narui, a vice-president of Narui Norin and sometime director and secretary of NGC.

Background facts

31 It will be necessary to traverse a number of factual issues. The basic facts are, however, uncontroversial.

32 At all material times up to September 2003, NGC was a wholly owned subsidiary of Narui Norin and the directors of NGC were Japanese nationals resident in Japan. Hiroyuki, the president of Narui Norin, was not formally a director of NGC until 8 September 2000. It is clear, nevertheless, that, within the Narui Norin group organisation, Hiroyuki was the principal decision maker for and in relation to NGC.

33 Shigeo was a director of NGC from April 1992. He was an executive employee of Narui Norin and had his home in Japan. He reported to Hiroyuki and was the executive with the most significant ongoing role in relation to NGC and its affairs. Shigeo made periodic visits to Australia to attend to the affairs of NGC with particular reference to the Kings Forest property.

34 Hiroyuki did not speak, read or write English. Shigeo had some command of spoken English but does not appear to have been fluent. There are suggestions in the evidence that he was embarrassed to try to speak English and preferred to remain silent when he could. Shigeo appears to have read and written English competently, although his practice was to keep his own written business notes in Japanese. An unsuccessful attempt was made by TBPL to tender what were said to be translations of a quantity of these: see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 645.

35 NGC acquired Kings Forest in 1990 with a view to undertaking a very large residential development. To the extent that it was used at all, the property was, at that time, used for rural activities.

36 In February 1992, BPM, a company wholly owned and controlled by Barr, was retained by NGC as project manager for Kings Forest. Two months later, Shigeo became a director of NGC. Barr’s task (or, more accurately, that of BPM) was, in the first instance, to prepare a development application leading to a grant of development consent by the Council in relation to NGC’s large residential proposal.

37 Barr became, in substance, the coordinator of a team of consultants that was in due course retained by NGC (through Barr himself) to work on this project with a view to the preparation of a development application and the obtaining of development consent. Barr worked with minimal supervision. Shigeo visited Australia and the site periodically. It appears that Shigeo, during his visits, was only rarely involved directly with consultants, the Council and other outsiders; and that he left these matters very substantially to Barr. Barr prepared frequent and regular written reports for Shigeo. Many of these are in evidence. There is, however, a complete absence of written instructions or other communications by Shigeo to Barr.

38 It was obvious from the outset that a key element of the project’s success would be an ability to clear what was, in substance, a mixture of grazing land and bushland. Steps directed towards clearing particular areas were undertaken from time to time but there was an awareness that various legislative constraints stood in the way of clearing activities, including those concerned with the protection of native fauna and flora.

39 The development of the proposal that NGC should grant a lease to Barr or a company controlled by him (ultimately, TBPL) was connected with the ambition to secure the benefits, from the development perspective, of cleared land. The challenge was not only to clear land in the first place but also to preserve cleared land from the effects (adverse to the development plans) of regrowth of native vegetation. The planting of trees was seen as a way of securing the benefits of clearing.

40 At the time the lease was granted by NGC to TBPL on 23 June 2000, another transaction of significance occurred. Barr and Shigeo entered into an agreement that may conveniently be referred to as a joint venture agreement. That agreement is evidenced by a document as follows:

“23 June 2000

Lemon Myrtle Joint Venture

Lemon Myrtle

the tractor

A28,000.00

Slushier for $A6,000

$A5,000

I also confirm that the five year lease capacity lease arrangement with Narui Norin Head Office and TimBarr Pty Ltd will be fifty/fifty beneficial to S. Narui.

I hereby declare my sole man truth to the above conditions and my working relationship with S Narui on a business and contractual partnership basis.

S Narui

Signature of Acceptance

41 Efforts by Barr on behalf of NGC to obtain development consent for the major residential project were ultimately fruitless, although Barr made a false representation to Shigeo that such a consent had been forthcoming. On 20 December 2001, Hickeys, as solicitors for NGC, instructed Barr and BPM to cease undertaking further tasks for NGC. NGC thus effectively dismissed Barr.

42 On that same day, 20 December 2001, TBPL entered into a relationship with an outside party concerning the Cudgen Paddock. TBPL granted to Leda an option to purchase the freehold. That option later lapsed and, on 19 March 2003, TBPL granted a twofold option to another outside party, Austcorp, being an option to purchase the lease and an option to purchase the Cudgen Paddock. Austcorp purported to exercise that option on 16 April 2003, nominating its wholly owned subsidiary Austcorp Project No 3 Pty Ltd as purchaser. On the following day, 17 April 2003, TBPL purported to exercise, as against NGC, the option to purchase created by clause 15 of the lease.

43 Meanwhile Leda, which had been in a commercial relationship with TBPL by virtue of the option granted on 20 December 2001, had entered into negotiations with NGC. In September 2002, Leda made an offer to purchase Kings Forest. Negotiations continued thereafter on other possibilities related to the exploitation of the land by Leda. Eventually, on 10 September 2003, agreements were entered into between Leda, Narui Norin and others pursuant to which, among other things, Leda purchased the whole of the issued share capital of NGC.

44 In May 2009, Austcorp became subject to voluntary administration having first entered into a series of agreements with Mr Chow Chan Lum and interests associated with him by which Austcorp disposed of its interest in the Cudgen Paddock and Mr Chow assumed control of these proceedings for TBPL. As part of those arrangements, Mr Chow came to own all the shares in TBPL.

45 The effectiveness of TBPL’s purported exercise of the clause 15 option to purchase on 17 April 2003 is the central issue in these proceedings. Although NGC and TBPL are, on the surface, the parties to the dispute and the proceedings, the real protagonists, in an economic sense, are now Leda and Mr Chow.

46 It will be necessary to trace several particular strands of the factual circumstances in greater detail. The first concerns actions taken towards obtaining development consent for NGC’s ambitious proposal. The second concerns actions – in large measure parallel – that culminated in the granting of the lease (and the related option to purchase) by NGC to TBPL in relation to the Cudgen Paddock portion of the Kings Forest property. Third, it will be relevant to note the events that led to the development and adoption of a joint venture between Barr and Shigeo with respect to the trees to be planted on Cudgen Paddock when leased to TBPL. Fourth, it will be necessary to say something about official intervention to halt activities on the Cudgen Paddock at certain times. Thereafter, attention will be given to the events that led to the purported termination of the lease by NGC and the purported exercise by TBPL of the option to purchase.

47 Before these factual matters are addressed however, reference should be made to some unusual circumstances in relation to the litigation.

The absent witnesses

48 The persons most closely and intimately involved in relevant events were Barr and Shigeo. A significant part was also played by Hiroyuki. Yet none of these persons gave evidence – and this was so in the case of Barr even though he is one of the two plaintiffs.

49 It is necessary to consider separately the implications of the absence of evidence from each, against the background of the general principle most often associated with Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 and stated as follows in Manly Council v Byrne [2004] NSWCA 123 at [51]:

“[I]f a witness is not called two different types of result might follow. The first is that the tribunal of fact might infer that the evidence of the absent witness, if called, would not have assisted the party who failed to call that witness. The second is that the tribunal of fact might draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn.”

50 Three conditions must be satisfied for this principle to be applied. They are stated in Payne v Parker [1976] 1 NSWLR 191 at 201:

“Whether the principle can or should be applied depends upon whether the conditions for its operation exist. These conditions are three in number: (a) the missing witness would be expected to be called by one party rather than the other, (b) his evidence would elucidate a particular matter, (c) his absence is unexplained.”

The absence of Barr

51 NGC submits that the first of the three conditions is satisfied in relation to Barr. That must be so: his role in contemporary events and his status as a plaintiff provide more than an adequate basis for an expectation that he would give evidence in the plaintiffs’ case. As to the second condition it is, of course, necessary to have regard to particular matters in need of elucidation and to consider the matter separately in relation to each. That said, however, it is clear that there is a myriad of matters in these proceedings that would be elucidated by evidence from Barr.

52 That leaves the third condition and the question whether there is, in the relevant sense, an explanation of Barr’s absence.

53 The reason Barr did not give evidence was referred to in a ruling on evidence on 26 June 2008 (Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 654). In the context of a question whether inability to test Barr by cross examination on certain matters might be productive of a danger of the kind referred to in s 136 of the Evidence Act 1995, there was reference to “influences upon Mr Barr which may be taken to have activated his decision not to give evidence”:

Mr Barr was arraigned in the District Court in October 2005 upon an indictment containing nine counts arising out of events forming part of (or, in one case, occurring after) the series of events with which the present proceedings are concerned. He pleaded guilty to one charge (that involving subsequent events) and was required to enter into a bond to be of good behaviour, apparently without being convicted. In relation to the eight other charges, there was a plea of not guilty and the District Court was later informed that the Deputy Director of Public Prosecutions had directed that there be no further proceedings in relation to the indictment containing the eight counts, whereupon the District Court discharged him. It is suggested that the discharge related to his bail. At all events, Mr Barr has been advised that he is susceptible to future prosecution for the alleged offences which the Crown elected in 2005 not to pursue.

Evidence Act

It was submitted on behalf of Mr Barr in response to this that, even if he had the benefit of a s 128 certificate given in these proceedings, there would be no obstacle to evidence he gave here being used by prosecution authorities to enhance material already held by them so that, for example, they might embark on new lines of inquiry or otherwise pursue courses not previously considered. That of itself might be considered a prejudice or danger to Mr Barr, even if evidence adduced from him under the protection of a s 128 certificate could not be tendered in any reactivated or new criminal proceedings.”

54 Substantially the same submissions were made on TBPL’s behalf in relation to the matter with which I am now concerned – namely that, even if Barr had the protection that s 128 of the Evidence Act may create (so that evidence given in these proceedings could not be used against him in any later criminal proceedings against him), the prosecuting authority would not be prevented by s 128 or in any other way from using evidence given in these proceedings in coming to a decision whether or not to resuscitate criminal charges which, it is said, are still capable of being pursued.

55 It should be said at once that Barr could not obtain, in relation to any evidence he gave voluntarily in the plaintiffs’ case, the kind of protection that can become available through s 128 of the Evidence Act. Section 128, according to its terms, applies “if a witness objects to giving particular evidence, or evidence on a particular matter, on the ground that the evidence may tend to prove” that the witness committed an offence or is liable to a civil penalty. The operation of the section hinges upon the circumstance that the person “objects” to giving evidence.

56 As is shown by the comprehensive and incisive analysis of s 128 by Ward J in the recent case of Ying v Song [2009] NSWSC 1344, a person who agrees to testify and volunteers evidence does not, in the relevant sense, “object” to the giving of that evidence. The “object” concept is based on unwillingness or aversion and is not satisfied by someone who chooses to testify by giving potentially self-incriminating evidence, even if the person feels forced to do so in order to counter or explain criticisms of the person.

57 In the absence of any suggestion of steps to compel Barr to testify, the possibility that s 128 of the Evidence Act would have afforded him any measure of protection in relation to evidence he gave may be put aside.

58 NGC argues that, since the decision not to proceed with the charges was made in 2005, the possibility that the Director of Public Prosecutions would decide to reactivate them is remote in the extreme. I do not see any basis on which I can reach that conclusion. I do not know why the prosecution decided in 2005 not to proceed and I do not know what might or might not prompt a reversal of that decision. In short, I have no evidence at all about Barr’s susceptibility to become the subject of revived or new criminal charges.

59 TBPL says that the situation is not really one in which Barr has decided not to give evidence. Rather, it is said, counsel for the plaintiffs (in substance, TBPL, since Barr is really a party in name only) has made a decision not to seek to adduce evidence from Barr and that is the reason for his absence. I accept that up to a point but it is, I think, of no real relevance. The question is as to inferences, if any, that should be drawn adversely to TBPL by reason of its not calling Barr as a witness, whether because so advised by counsel or because Barr refuses to expose himself to what he perceives, on advice, to be the danger of re-activation of the criminal charges.

60 There are aspects of the facts of this case that may well involve criminal conduct on the part of Barr. Absence of evidence voluntarily given by him on those matters may be explained by his fear that the apparently dormant prosecution may be revived. But that explanation is not sufficient to avoid the adverse inference that flows from that absence. As Young J observed in Rowell v Larter (1986) 6 NSWLR 21 at 24, the so-called right to silence is purely a defensive matter and is a privilege that an accused person has in criminal proceedings. Also, in Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 50, the Court of Appeal took the view that the pendency of a Royal Commission enquiring into events in which a person had been involved was not a sufficient explanation of the absence of evidence from the person in civil proceedings. Giles JA said at [667] with the concurrence of Mason P and Beazley JA:

Jones v Dunkel

61 That is, in essence, the position here. One cannot speculate upon the matter of reactivation of the criminal charges against Barr. There is nothing more than a fear that evidence Barr might give “would in an unelucidated way rebound to [his] disadvantage”. That, as Giles JA said, is not an answer to Jones v Dunkel reasoning. The absence of evidence from Barr may therefore lead, in certain areas, to inferences adverse to TBPL’s case in the way stated at paragraph [49] above.

The absence of Shigeo and Hiroyuki

62 Neither Shigeo nor Hiroyuki gave evidence. Given their positions within and in relation to NGC and the centrality to the proceedings of a number of events in which they were intimately involved, one would certainly have expected each to have been called by NGC to give evidence in its case. There are numerous aspects of the factual circumstances of the case on which each could have shed considerable light. The first two conditions in the extract at paragraph [50] above are clearly satisfied in relation to both Shigeo and Hiroyuki.

63 That leaves the third question, that is, whether the absence of each is unexplained.

64 In the case of Shigeo, the absence is unexplained, in the sense that the court simply does not know why he has not given evidence.

65 In the case of Hiroyuki, the court was made aware of requests made of him by NGC’s solicitors that he attend to give evidence and of his response that he had “no intention of doing so in the future, either in person or by video link”: see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 769; (2009) 258 ALR 598 at [8]. Hiroyuki’s absence is thus, in one sense, explained by the fact that he was asked to give evidence and that he simply refused to do so. But what is needed to avoid the possibility of adverse inferences by reason of absence is a legitimate explanation for absence, in that the explanation represents some objectively reasonable basis for non-attendance. Simple refusal does not represent an objectively reasonable basis.

66 The absence of evidence from Shigeo and Hiroyuki may therefore lead, in certain areas, to inferences adverse to NGC’s case.

67 I return now to the particular factual matters warranting detailed exploration.

NGC’s development application

68 NGC acquired Kings Forest in about 1990. In February 1992, BPM was retained as project manager for Kings Forest. Two months later, Shigeo was appointed a director of NGC. He was based in Japan but visited Australia from time to time to attend to the affairs of NGC. While at the site, he lived in the house occupied by Barr.

69 Heilbronn & Partners Pty Ltd was commissioned by Barr, on behalf of NGC, in August 1997. Their task was to prepare a development application in respect of the Kings Forest land. The project was, of course, a large and ambitious one but, by February 1998, a group of consultants was at work. Those involved included Mr Sippel of Heilbronn (surveyors and town planners), Mr Bolster (solicitor), Mr Sutherland of Gilbert & Sutherland (environmental consultants with particular reference to soil and water) and Mr Warren of James Warren & Associates (ecological consultants, specialising in fauna and flora management).

70 At a meeting with representatives of the Council and various government agencies in March 1998, the consultants, in company with Barr, identified a number of issues relevant to any development proposal, including the presence of threatened species of both flora and fauna, the results of soil mapping and water assessment, possible constraints on effluent disposal and access arrangements for electricity and telecommunications services. The discussion was about a new town of 15,000 inhabitants and some 4,500 dwellings. It was obvious that such a massive project would have major impacts involving numerous complex aspects of planning and preparation.

71 In a September 1998 report to Shigeo, Barr turned his attention to Kings Forest as a whole. He informed Shigeo that he regarded a development application as “very crucial” and expressed confidence that “by working closely with the conservationists and the authorities we can seek an approval that will suit Narui Company in the future”. He went on to explain steps being taken.

72 In a report of 24 September 1998, Barr told Shigeo that he had emphasised to the consultants the urgency of preparing a development application and that they “feel that November is more likely [than October] the submission date for our DA application”. In his October report, Barr said, under the heading “Development Application”, that “[o]ur application documentation is coming together nicely”. Minutes of a meeting of the consultants held on 28 October 1998 show, however, that attention was devoted to a very large number of matters which, of their nature, must have been recognised as necessary preliminaries to lodgment of any development application. The minutes of the meeting record that Shigeo (who was not present) was “expecting an approval in about June 1999 but lodged December 1998”.

73 Any such expectation, if Shigeo held it at all, could only have been given to him by Barr. It was, however, entirely unrealistic. This is because of the clearly stated position of the Council. A letter of January 1998 from the Council makes it clear that the Council had at an earlier point flagged to Barr on several occasions the need for a development control plan to be prepared “for the development of this major landholding”. Correspondence of February 1998 between Barr and NPWS made it clear that a species impact statement would be needed in connection with any development application. In September 1998, when Barr was assuring Shigeo that a development approval could be expected and that an application would likely be lodged in November, the Council was emphasising to Barr the need for a development control plan before the preparation of a development application. On 27 November 1998, Mr Broyd of the Council wrote to Barr to “advise on what I consider to be, in general terms, the most productive planning approach for the Kings Forest development”:

“Firstly, I reaffirm my advice provided on a number of previous occasions – including my letter of 17 September 1998 – that a Development Control Plan must precede the preparation and lodgment of a Development Application.”

74 After referring to other matters, Mr Broyd summarised the position as follows:

“Hence, again I reiterate the crucial importance of the sequential steps in the process of:

1 the completion and understanding of the analyses by expert consultants as to constraints and opportunities for the site;

2 the obtaining of director-general’s specifications for the preparation of a Local Environmental Study, the obtaining of consultants’ quotes, the selection of consultants, and thereby achieving an independent LES for Council;

3 The non-lodgment of a Development Application until the Local Environmental Study, preparation, exhibition and adoption of the resultant draft Local Environmental Plan, and the preparation of a draft Development Control Plan have been completed.”

75 The Council thus made it clear to Barr in November 1998 that the path to a development approval would be long and potentially difficult, with a number of major matters to be attended to before any development application could be lodged. Yet Barr, in his report to Shigeo of 30 November 1998, continued to deliver his message of confidence. He referred to none of the preliminary steps that the Council regarded as essential. He said that it had become more likely that “our submission would be towards the end of December rather than the middle of December”. He put this delay down to the need to modify a road, although he did also make some reference to “fauna investigations”. By the end of his discussion of the matter, his position was that the application would be lodged “early next year”.

76 In a report to Shigeo dated 4 December 1998, Barr said:

“Tweed Shire Council have requested a number of criterias that they wish to discuss and receive to DA submission. I have asked Peter Sippel to respond accordingly to state that this is not as per our previous agreement between Council. We feel that it is very unfair that Council are moving the goal post on us, in requesting such criterias in prior to submitting our EIS report on the fauna and flora. Council have requested non-lodgment of the DA until the local environment studies are completed by Council and preparation and exhibition to the public are completed. I have enclosed Council letter for your perusal and we will negotiate better terms with Tweed Shire Council.”

77 It is not clear which, if any, letter from the Council Barr enclosed. The report of 4 December 1998 continued:

“I am quite satisfied to report that the full documentation is coming together nicely. However, there are a lot of restraints that we have to discuss prior to finalising our Master Plan and our Development Application and the engineers have pointed out a number of criterias that they would like to investigate prior to finalising the traffic flow of Kings Forest.”

78 In the section of the report of 26 February 1999, dealing with the question of the development application for Kings Forest as a whole, Barr began by referring to problems with the consultants’ fee structure. He went on:

“I feel very confident in reporting to you and explaining that all consultants including Neil Sutherland are in an acceptable position in continuing on with their Development Application submission ready to be submitted by Mid April 1999.”

79 In his report to Shigeo dated 31 March 1999, Barr said that there were “issues relating to the correct documentation to be finalised and submitted” in relation to the development application for Kings Forest. He continued:

“However, with the correct documentation we are in a very strong position to seek approval as Council have now informed us that they will support our DA fully if we submit it as per their request. The only hurdle that I foresee is David Broyd requesting a LES prior to approving Narui Company’s DA. This will not be undertaken until October 1999 which is not good enough for us and I am now fighting this issue to bring it forward to complete the LES to get the zonings and all the correct planning approvals within the State Government and Tweed Shire Council for a speedy approval for Narui’s DA application.”

80 On 6 April 1999, Mr Sippel of Heilbronn sent to Barr, at Barr’s request, a summary of the “major elements in progress to date in relation to liaison and submissions with Tweed Shire Council in respect of the development application”. These were:

1 Four “major consultation workshops” (apparently already held) in relation to the master planning of the estate.

2 Preparation and submission to the Council of a farm management plan for the total site, including liaison with NPWS.

3 Preparation and submission to the Council of an acid sulphate management plan prepared by Gilbert & Sutherland.

4 Preparation and submission of a report on local environment plan amendments to site zonings as proposed by the Council as a prerequisite to development application.

5 In depth meetings with the Council’s senior planning and development manager regarding format for local environmental study on site and constraints mapping approach to onsite data capture and development impact.

6 Compilation of a fully integrated geographic information system of site constraints and master plan.

7 Performance of a major design cherret workshop on site master plan developing three master plan options for site.

8 A digital best option master plan for site integrated with the GIS.

81 After referring to particular aspects of these matters, Mr Sippel continued:

“Digital Data from the constraints mapping will be conveyed to Council in early May dependent on the finalisation of the species impact statement for site, to enable Council and client to agree major site constraints thus allowing agreement with Council to be reached on refinement of zone use areas.

Following agreement on the foregoing it is expected that the formal submission of a development application to Council will be made in late August 1999”.

82 Several versions of this letter are in evidence. In some of them, “late August 1999” reads “late April 1999”. The typewriting has obviously been altered. I say this because, in the versions referring to April, there is an unexplained space after “April 1999” of a size to accommodate the longer “August 1999”. Barr faxed a copy of one version or the other to Shigeo on 6 April 1999. Since his covering letter says that “all documentation will be lodged late April”, it may safely be inferred that he sent the version referring to April rather than August. Since Mr Bolster referred in a letter of 8 April 1999 to anticipated lodgement in August 1999, it may be inferred that Mr Sippel’s original also referred to August. Barr also sent to Shigeo a copy of Mr Bolster’s letter – or more precisely, a doctored version in which “August” had again been changed to “April”. The change must have been made by Barr in each case.

83 Whether an estimate of lodgement in August 1999 was, in early April 1999, a realistic estimate is open to serious question. On 27 April 1999, Mr Broyd of the Council wrote to Barr saying:

“It is crucial at this stage that I reiterate the process which should be followed for this most crucial site for the future development in Tweed Shire and hopefully gain a mutual understanding and agreement with yourself and your client regarding this process.”

84 Mr Broyd, after referring to particular matters, continued:

“Below I endeavour to summarise in general terms the process which should be followed:

1. The completion of analysis of major constraints by your clients consultants – notably flora and fauna by Mr Jim Warren and Acid Sulfate Soils/Stormwater Management by Gilbert and Sutherland – anticipated completion by mid May.

2. The preparation of a brief by Council concurrent with the finalisation of the environmental constraints analyses to engage consultants to comprehensively review the environmental constraints analyses to form the relevant component contents of the Local Environmental Study and to comprehensively respond to Council’s resolution of March 1998. There is provision in Council’s 1998/99 budget to undertake these tasks and Council’s brief will be sent to three (3) consultants for submissions and selection;

3. The preparation of a brief for consultants to undertake the remainder of the preparation of the local environmental study and also embodying the environmental analyses outcomes referred to above. This brief preparation, consultants selection and study preparation is programmed for the June/July/August/September period but I strongly emphasise is strongly subject to funding and professional resource capability. There would also be concurrent workshops and discussions involving your client and your clients consultants so that there is a combined and iterative process.

4. The above process of environmental constraints analyses and local environmental study preparation will be integrated with the preparation of the draft Local Environmental Plan that responds to Council’s resolution of March 1998 and Development Control Plan and Section 94 Developer Contributions Plan. The master plan would be embodied in the Development Control Plan and therefore be exhibited as an integral part thereof. It is anticipated that the public exhibition of the draft Local Environmental Plan, draft Development Control Plan and draft Section 94 Developer Contributions Plan would occur concurrently in late 1999.

5. This provides a basis then to submit a comprehensive development application in late 1999/early 2000. Whilst clearly your client has the prerogative to submit a development application for whole or part of the land at any time, my position would be that such a development application should not be approved until the comprehensive process explained above has been completed to a stage where Council adoption of the draft Local Environmental Plan, draft Development Control Plan and draft Section 94 Contributions Plan. Any development application submitted would therefore have to be in accordance with those Plans to enable my position to be one of recommending approval.”

85 Mr Broyd then said:

“There are two further matters which I wish to emphasise very strongly:

1. That the above process completion depends upon decisions by Council and myself on the Council budget for 1999/2000 and the related funding capability of the studies and planning explained and in terms of the Strategic Planning Unit work programming and priorities.

2. The absolutely crucial need for best practice urban design to be applied to the development planning of Kings Forest.”

86 As of April 1999, therefore, the Council foresaw a need to follow a particular sequential process. It informed Barr of that need, referring explicitly to events in the “June/July/August/September period” and to things anticipated to occur concurrently “in late 1999”, so that there would exist “in late 1999/early2000” a basis for submitting a comprehensive development application. All that was, however, subject to items 1 and 2 mentioned at the end of the letter, which involved matters beyond the control of NGC and its advisers.

87 By early May 1999, Barr was warned that the project was over budget. He wrote to Mr Bolster on 4 May 1999 enclosing financial details and a list of tasks ordered by month, culminating in “D/A Submitted” in August 1999 (although at the top of the document appears: “Development Application submitted to Council REVISED DATE 28 April 1999” – a date by then past). Barr said in his letter that he needed to discuss with Mr Bolster “our approach in completing the D/A submission to Council because Narui San [ie, Shigeo] thinks D/A may be lodged early June 1999 but David Broyd’s LES will be used as delay tactics”.

88 The tactic blaming Mr Broyd for delay was implemented in Barr’s report of 7 May 1999 to Shigeo:

“I cannot believe that David Broyd could be such a dictator in trying to make more difficulty in our DA submission to Tweed Shire Council. We have worked very hard in preparing our full Development Application in finalising all the criterias and operations in fine tuning our successful DA application to Tweed Shire Council. The LES and LEP are Tweed Shire Council’s responsibility and he can in no way stop us from submitting our Development Application to Tweed Shire Council.

I have a meeting with Max Boyd and the General Manager to discuss the ridiculous suggestions by David Broyd and I feel that it is totally unfair that we are a victim of this bureaucratical power play with Tweed Shire Council. Please refer to Paul Bolsters letter to Council sent last Thursday.”

89 According to Barr’s letter of 29 May 1999 to Shigeo, however, things were by then much improved. He said:

“David Broyd will accept our D/A submission ASAP.”

90 Barr’s report to Shigeo dated 7 June 1999 began:

“We are in our final stage of completing our Development Application and we have now been peer reviewing all documentation and relevant information accordingly.”

91 Barr went on to give details.

92 In his report of 19 June 1999, Barr stated:

“We have submitted our D/A report to Tweed Shire Council …”

93 After referring to “their letter of acknowledgement”, Barr foreshadowed “lengthy negotiations and questions” and continued:

“… however, I am very confident that David Broyd will complete them by September as he has now seen our A that has been very well prepared and submitted for approval and our D/A will now make sure that he does complete all three items that will complement our DA to be approved with no excuses in the future.”

94 The “three items” were “the LES, the LEP and the DCP [that] have not been completed by Tweed Shire Council” – in other words, the local environmental study, the local environmental plan and the development control plan all of which, according to Mr Broyd’s letter of 27 April 1999, were among the essential prerequisites to the lodgment of a development application by NGC.

95 There is in evidence what purports to be a letter dated 8 June 1999 from Mr Broyd of the Council to Shigeo confirming receipt of “your full Development Application submission”. It goes on to refer to a number of matters that will have to be attended to and concludes:-

“Thank you once again and hopefully we can resolve all problems in allowing Narui Gold Coast full approval this year to commence with Kings Forest development accordingly.”

96 This is no doubt “their letter of acknowledgement” referred to in Barr’s report to Shigeo. The supposed letter is a forgery. It is not established that Barr ever gave or showed it to Shigeo or anyone else.

97 Mr Anderson, a Council officer, recorded a telephone conversation with Barr on 25 June 1999 in which Barr confirmed that NGC was continuing with the preparation of a development application for 3,500 lots, a total of 4,700 dwellings, a golf course and a town centre. Mr Anderson’s file note continues:

“I reiterated previous verbal and written advice to Mr Barr to the effect that Council does not consider that an adequate, valid and conforming development application can be prepared until such time as the necessary forward planning is completed and I again suggested that he should delay completion and lodgement of the development application until the necessary forward planning had been completed. Mr Barr advised that he was likely to be lodging a development application in about mid August and that if Council did not deal with it the matter was likely to end up in the Land and Environment Court.

I explained that this was not Council’s intention and that Council was simply seeking to ensure that having particular regard to the scale of this development and the sensitive nature of the site, appropriate planning outcomes were achieved promptly and that this could only be achieved by following the proper planning process. I therefore suggested that an urgent meeting be arranged between the Director, Development Services, Manager Strategic Planning, myself, Mr Barr and his solicitor, Mr Paul Bolster with a view to discussing the various issues and agreeing on an appropriate approach. Mr Barr agreed to this course of action and I therefore referred him to the Directors’ Secretary with a view to setting up a meeting as soon as possible.”

98 In his report to Shigeo dated 29 June 1999, Barr said:

“Council have requested some changes to our D/A and I will have a meeting with them today again to discuss in detail.

Council does not want to approve our D/A until Council have internally completed there [sic] DCP & LES. I do not accept this reasoning …”

99 Barr’s statement of 19 June 1999 to Shigeo that the development application had been lodged was a false statement. Barr later represented Mr Anderson’s comments as a request for changes to a lodged application when they were in fact concerned with the content of an application yet to be prepared and lodged.

100 In his report of 2 July 1999, Barr said that there had been “lengthy meetings with Council explaining our procedure in detail where we have put forward our case in requesting approval in full from Tweed Shire Council this year”. He went on to say that the Council could not grant an approval without prior completion of a local environmental study, a local environmental plan and a development control plan which are “the complete responsibility of Tweed Shire Council and clearly they did not have the funds nor the manpower to undertake it to date …”. Barr then discussed possible approaches and said that “in November this year Council have assured us that they will have all statutory documents in place for approvals and then they can approve our DA immediately after all the necessary requirements are in place”.

537 There is likewise no evidence that Shigeo discussed with “the Chairman and the President” – that is, Hiroyuki – what Barr referred to as “our intentions”. Hiroyuki’s statements admitted into evidence suggest that he was, at the time, unaware that Barr and Shigeo were contemplating the joint venture that was formed by the letter of 23 June 2000 and that he did not know of the joint venture after its formation. Shigeo, of course, had good reason not to act on any suggestion that he tell Hiroyuki about the joint venture proposal and discuss it with him. Shigeo, as an executive employee of Narui Norin, must have known – or, at least apprehended – that Hiroyuki would not countenance his deriving a private benefit from a transaction to be entered into the wholly owned subsidiary, NGC.

538 Barr’s suggestion that Shigeo discuss “our intentions” with Hiroyuki is thus one that Shigeo would most likely have ignored in case he should get himself into trouble within the Narui Norin hierarchy.

539 I cannot find that Shigeo informed Hiroyuki (and therefore NGC) of the matters disclosure of which to NGC would have been relevant to a conclusion of informed consent by NGC to a breach of fiduciary duty by Shigeo through participation in the joint venture with Barr.

540 TBPL next submits that disclosure of those matters to NGC occurred by means of communication by Barr to Mr Hynes and Mr McDermid. TBPL relies, in this regard, on Barr’s “confidential” letter of 17 June 2000 to Shigeo in which he said that the “lease signed by Narui head office” was too advantageous to the tenant and that he had therefore “agreed with Robert [Hynes] acting for Narui company to draw up a new lease”. Barr also said in that letter that, as a result of matters explained to him by Mr Hynes and Mr McDermit, he intended to have “the new company Tim Barr Pty Ltd” take the lease of the Cudgen Paddock. Barr went on to explain to Shigeo that “Steve and Waynes company” – the supplier of trees – would “sign an agreement with Tim Barr Pty Ltd” and “I will have a contractual arrangement with your self in place because I told Jeff [McDermid] we do not want to expose S. Narui involvement in Narui Gold Coast Pty Ltd financial tax records each year they both agreed”.

541 The “they” who “both agreed” may be taken to be Mr Hynes and Mr McDermid. It is their acknowledgement that Barr was to have a “contractual arrangement” with Shigeo to avoid exposure of Shigeo’s “involvement in Narui Gold Coast Pty Ltd financial tax records each year” that TBPL puts forward as evidence of informed consent by NGC to Shigeo’s breach of fiduciary duty by participation in the joint venture by Barr.

542 There are two problems for TBPL here. First, one cannot know precisely what was said to Mr Hynes and Mr McDermid and what it was that they supposedly “agreed”. Second, it is not possible to conclude that either of them had NGC’s authority sufficient to enable him to receive disclosures intended for NGC.

543 It is clear from the evidence that Mr McDermid’s firm had some form of ongoing retainer to attend to NGC’s taxation affairs. In a report to Shigeo dated 15 March 2000, when the introduction of the new goods and services tax regime was imminent, Barr referred to a meeting with Mr McDermid “where he informed me of a lot of tax incentive savings for Narui Company regarding the GST”. There are other references in the evidence to taxation services provided by Mr McDermid’s firm to NGC.

544 In the case of Mr Hynes, Barr’s report of 15 March 2000 said to Shigeo, also in the context of goods and services tax, that he would “like to use” Mr Hynes in the future, from which it may be inferred that the relationship was quite new as at 17 June 2000.

545 The inference that should be drawn, and which I do draw, is that Barr consulted each of Mr McDermid and Mr Hynes for Barr’s own purposes related to his taking of the lease. His account of the advice they gave about using a new company, instead of BPM (in case some default from the past should come to haunt BPM), is entirely consistent with their being advisers to Barr. The same is true of the advice they reportedly gave about TBPL entering into an agreement with “Steve and Waynes company” and having a “contractual agreement with your self in place”. These were not aspects of concern or importance to NGC. They were the concerns of Barr.

546 It is true that Mr Hynes prepared the lease that was ultimately executed and that Barr purported to instruct him on behalf of NGC; also that Mr Hynes opened his file and sent his bill in such a way as to imply that NGC was his client. But no officer of NGC instructed him. The only contact he had, so far as the evidence shows, was contact with Barr – the person he had advised regarding structuring of his own transactions in which the lease from NGC played a central part. Mr Hynes’ real client was Barr. Barr wanted to present to Hiroyuki a professionally drawn lease. He also had a distinct interest of his own in seeing a valid lease in place. It suited Barr to have a solicitor prepare a lease in circumstances where he had a basis for saying that it had been prepared for NGC.

547 With the evidence as it is, I cannot find that such disclosure (if any) as Barr made to Mr McDermid and Mr Hynes of matters the disclosure of which to NGC might have caused Shigeo’s conduct not to have entailed breach of fiduciary duty was disclosure to NGC.

TBPL’s complicity and its consequences

548 NGC submits that Barr knowingly participated in the breach by Shigeo of the fiduciary duty owed by Shigeo to NGC; and that TBPL also did so. Given that TBPL was wholly owned and controlled by Barr and had no mind or will but his, I accept that, if Barr was relevantly complicit in Shigeo’s breach, then so too was TBPL.

549 Under the so-called second limb of Barnes v Addy (above), a defendant is liable if that defendant assists a trustee or other fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary.

550 The relevant concept of knowledge was explained by Gleeson CJ, Gummow J, Callinan J, Heydon J and Crennan J in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (above) at [177] – [178]. A person will have “knowledge” of a fiduciary’s dereliction, in the relevant sense, if (a) the person has actual knowledge; or (b) the person wilfully shuts his or her eyes to the obvious; or (c) the person wilfully and recklessly fails to make such inquiries as an honest and reasonable man would make; or (d) the person has knowledge of circumstances which would indicate the facts too an honest and reasonable man.

551 The members of the High Court also explained in Farah Constructions the relevant concept of “dishonest and fraudulent design” (what I have called “dereliction”). Their Honours made it clear (at [181]) that not every breach of trust or of fiduciary duty is to be regarded as within the concept. Some breaches are well-intentioned. Others are trivial. Some merit dispensation because the person owing the duty acted honestly and reasonably and ought fairly to be excused. What is necessary is some element of dishonesty or fraud in the equitable sense.

552 NGC submits that Barr (and therefore TBPL) should be taken to have had actual knowledge of all relevant aspects of Shigeo’s conduct – in essence, that he supported the lease proposal and was party to the actions that caused NGC, through Hiroyuki, to grant the lease to TBPL; and that Barr knew that Shigeo was to obtain for himself, through the related and apparently contemporaneous joint venture arrangement, a one-half interest in the lease and the option. NGC submits in the alternative that Barr (and therefore TBPL) had knowledge of circumstances which would indicate the facts to an honest and reasonable man.

553 By his letter of 22 March 2000 to Shigeo, Barr showed that he considered it a “good idea” for Shigeo to have a discussion with Hiroyuki about “our intentions”. As I have said, it is not possible to say precisely what it was that Barr thought Shigeo should discuss. Yet there is no suggestion that Barr took any care to ensure that Shigeo did have relevant discussion with Hiroyuki. That, to my mind, is sufficient to justify in relation to Barr (and therefore TBPL) the second of the findings suggested by NGC, that is, that he had knowledge of circumstances which would indicate to an honest and reasonable person the facts amounting to breach of fiduciary duty by Shigeo. The facts in question are, of course, that Shigeo was to obtain, through his side-deal with Barr and TBPL, an interest in the lease that Barr wished NGC, at the instigation of Hiroyuki, to grant to TBPL; and that NGC, whether through Hiroyuki or otherwise, had not given its informed consent to the obtaining of that personal benefit by Shigeo.

554 Barr and, through him, TBPL had knowledge of circumstances which would indicate to honest and reasonable persons that participation by Shigeo in the way in which he participated transgressed ordinary standards of honest behaviour. Shigeo’s taking of the personal benefit he obtained from a combination of the grant of the lease (including the clause 15 option to purchase) by NGC to TBPL and the contemporaneous making of the joint venture agreement between himself and Barr can on no view be classed as well intentioned or as trivial or as conduct honestly and reasonably engaged in. It was within the relevant concept of “dishonest and fraudulent design”.

555 Shigeo occupies, as against NGC, the position of a defaulting fiduciary and therefore must hold for the benefit of NGC the advantage he derived in breach of duty. That advantage is the one-half interest in the lease granted by NGC to TBPL and the option to purchase included in it. And TBPL, as legal owner of the lease and option, must hold them subject to, at the least, a constructive trust in favour of NGC as to an undivided one-half interest.

556 That, however, is not the end of the matter. The knowing complicity of TBPL in Shigeo’s breach of duty in relation to the grant of the lease and option by NGC means that TBPL should not be allowed to retain any benefit from that transaction. Such retention would be against conscience. TBPL must therefore be regarded as holding the lease and the associated option to purchase, as to the whole, upon a constructive trust for NGC (subject, however, to a possibility to be considered presently).

557 These conclusions tend to overshadow other consequences of Shigeo’s breach of fiduciary duty. I nevertheless return briefly to the question of unclean hands and observe that the first of the “iniquities” alleged by NGC against TBPL (see paragraph [497]) has been established; also that that “iniquity” bore a sufficiently close relationship to the equity asserted by NGC to be relevant to the enforcement of that equity. TBPL’s involvement in Shigeo’s breach of fiduciary duty in connection with the creation of the lease and the clause 15 option operated upon and in relation to TBPL’s subsequent exercise of that option. The connection was of the quality referred to in Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145; (2009) 257 ALR 336 at [28] per Hodgson JA and [2] per Allsop P.

558 That particular finding of “unclean hands” against TBPL would be, of itself, sufficient to warrant the withholding of an order for specific performance against NGC and in favour of TBPL. There is no need to address the other alleged “iniquities”.

Intervention of third party rights

559 I return to the prima facie position stated at paragraph [556] that TBPL should be regarded as having held the lease and the clause 15 option, as to the whole, upon a constructive trust for NGC.

560 TBPL says that a constructive trust should not be imposed in favour of NGC because this would cut impermissibly across established third party rights. The rights said to be relevant are rights of Austcorp which, TBPL says, should be regarded as an “innocent” party for these purposes.

561 It will be recalled that, on 19 March 2003, TBPL granted to Austcorp an option to purchase the lease and an option to purchase the freehold of the Cudgen Paddock; and that Austcorp purported to exercise that option on 16 April 2003, nominating its wholly owned subsidiary Austcorp Project No 3 Pty Ltd as purchaser. That purported exercise occurred on the day immediately before that on which TBPL purported to exercise the clause 15 option.

562 TBPL contends that, from either the grant of the option to Austcorp on 19 March 2003 or the exercise of that option on 16 April 2003, Austcorp (or in the latter case, one assumes, its nominated subsidiary) derived an interest in the freehold of the Cudgen Paddock and that it would be inappropriate to recognise any constructive trust in favour of NGC inconsistent with that interest.

563 One matter canvassed in submissions is whether it was determined at an earlier stage of these proceedings that Austcorp had an interest in the Cudgen Paddock. In Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2004] NSWSC 986; (2004) 51 ACSR 129, Palmer J said (at [49]):

“By means of the option deed [ie, the deed of 19 March 2003], Austcorp advanced its commercial interest in the land by acquiring from TBPL an interest in the nature of a proprietary interest, although that interest is contingent on TBPL successfully enforcing its option against Narui [ie, NGC].”

564 It is accepted by both parties that, by virtue of the clause 15 option, TBPL had an equitable interest in the land. The rationale was explained by Latham CJ in Commissioner of Taxes (Queensland) v Camphin [1937] HCA 30; (1937) 57 CLR 127 at 132:

London and South Western Railway Co. v. Gomm

Central Trust and Safe Deposit Co. v. Snider

565 NGC argues that Austcorp, by contrast, at no stage had an equitable interest in the strict sense and that it was for this reason that Palmer J said merely that it had an interest “in the nature of” a proprietary interest. NGC’s submission is put on the basis that a conditional option to purchase land is really the same as a conditional contract to purchase land and that, unless and until the condition is satisfied, the purchaser does not have an equitable interest by virtue of the contract. NGC relies on the decisions of the High Court in McWilliam v McWilliams Wines Pty Ltd [1964] HCA 6; (1964) 114 CLR 656 and Brown v Heffer (above).

566 For reasons I sought to state in Forder v Cemcorp Pty Ltd [2001] NSWSC 281; (2001) 51 NSWLR 486, I do not think that such an analysis based on those two cases is supportable in the light of later High Court authority. Even though, as the majority pointed out in Tanwar Enterprises Pty Ltd v Cauchi (above) at [53], such thinking is “is bedevilled by circularity”, an equitable interest was traditionally seen to be the concomitant of an entitlement to specific performance. But in the light of later cases such as Legione v Hateley (above), KLDE Pty Ltd v Commissioner of Stamp Duties (Queensland) [1984] HCA 63; (1984) 155 CLR 288, Chan v Cresdon [1989] HCA 63; (1989) 168 CLR 242, Stern v McArthur (above) and Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604, a right to a lesser equitable remedy in respect of land (in particular, injunction) may be regarded as giving rise to an equitable interest. It should therefore be accepted that Austcorp, as from the time it took the option granted to it by NGC, had an equitable interest in TBPL’s own proprietary interest, in that Austcorp was in a position to obtain an injunction restraining TBPL from dealing with that proprietary interest in a way that would preclude its meeting the claims of Austcorp resulting from exercise of Austcorp’s option.

567 To the extent that Austcorp may therefore be said to have had an interest in NGC’s land, the interest was, of its nature, one that did not and could not exist independently of the interest in that land enjoyed by TBPL by virtue of the clause 15 option. Austcorp held through or under TBPL. It had, at best, a right to seek the assistance of equity against TBPL to prevent disposition or dissipation by TBPL of its own interest or against NGC to prevent interference by NGC with TBPL’s interest.

568 Submissions were made on the question whether the existence of an interest of Austcorp of the kind just described should cause the court to withhold recognition of a constructive trust in favour of NGC in respect of TBPL’s interest in the land.

569 As Ward J observed in Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 at [143], the High Court said in both Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566 and Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 that, before a constructive trust is imposed, the court should decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust. In the former case, Gaudron J, McHugh J, Gummow J, Hayne J and Callinan J said, at [42]:

Re Polly Peck International Plc [No 2]

Fortex Group Ltd v MacIntosh

570 Guided by the approaches thus taken by the High Court, Ward J said (at [145]:

“As a general statement of principle, a constructive trust will be treated as coming into existence at the time of the conduct which gives rise to the trust. In such a case, the doctrine of priorities would apply and, where the equities are equal, the beneficiary of the constructive trust would be entitled to priority over the holder of a later equitable interest or an unsecured creditor of the constructive trustee.”

571 After reviewing a number of decided cases, her Honour observed (at [151]):

Muschinski

572 Ward J then referred to two cases acknowledging the High Court’s concerns in the Bathurst City Council case as to the circumstances in which imposition of a constructive trust might accord unfair priority. The first is Distronics Ltd v Edmonds [2002] VSC 454 where Warren J (as she then was) said:

Bathurst City Council

573 Warren J ordered equitable compensation.

574 Subsequently, in Victoria University of Technology v Wilson [2004] VSC 33, Nettle J said (at [216]):

Distronics Ltd v Edmonds

575 Having referred to these two Victorian cases, Ward J then said in Australian Building & Technical Solutions (at [165]):

“There appears to be no authoritative guidance as to what is meant by “unfair priority”, in the context of equally deserving third parties or those having legitimate claims or needing protection.”

576 Although, as her Honour says, there is no authoritative guidance on this matter, the circumstances of this case seem to me to suggest a clear – and negative - answer to the question whether Austcorp is, in the particular context, an “equally deserving” third party.

577 The Austcorp option was created by a deed the parties to which were TBPL (therein called “Tim Barr”), Barr and Austcorp. The deed was dated 19 March 2003. It contained definitions of “Lease” and “Tim Barr Call Option” referring to the lease dated 23 June 2000 the subject of these proceedings and the option to purchase created by clause 15 of the lease. Recital G to the deed read in part as follows:

578 Austcorp can thus be seen to have been on notice that, as TBPL itself knew, TBPL’s entitlement to the lease was in question; also of TBPL’s view (which is curious, in light of the stance taken by TBPL in these proceedings) that, if TBPL were shown not to be entitled to the lease, then it would not be entitled to the option either.

579 Other aspects of the evidence make it clear that Austcorp knew more than the bare fact of the existence of the dispute recited in the deed. The relevant officer of Austcorp was Mr Hung. He was in charge of the negotiations with Barr that led to the deed of 19 March 2003.

580 On 5 March 2003, Barr emailed to Mr Hung a form of agreement, referred to as a “proposal”. The terminology used makes it clear that Barr was not the author, but that is beside the point. The document contained a definition of “Court Proceedings” referring to these present proceedings and separate proceedings in relation to another part of Kings Forest involving Charles Harrison. Each proceeding was identified by its court file number. Clause 4 of the document made certain provisions:

“In the event that Narui [ie, NGC] contests the validity of the exercise of the Land Option [ie, the clause 15 option] on any grounds including on any one or more of grounds [sic] in the Court Proceedings.”

581 It is not suggested that this document was signed by Austcorp. But its receipt by Mr Hung must be taken to have alerted Austcorp (if it was not already aware) to the fact that there were various grounds alleged by NGC in these proceedings as a basis for its contention that there had been no valid exercise of the clause 15 option.

582 In his affidavit of 20 September 2007, Mr Hung deposed that he was not aware, as at the date of exercise of the Austcorp option (16 April 2003), of NGC’s allegation in the then current amended defence to further amended statement of claim of the existence of the joint venture agreement between Barr and Shigeo and various allegations of false representations by Barr. In the course of cross-examination, however, it was established that Mr Hung was in fact aware of a number of relevant matters in April 2003. He knew that one of the issues in the proceedings was whether TBPL had engaged in plantation activities on the land without necessary development consent. When shown a contemporary letter of advice from Austcorp’s solicitors, Mr Hung accepted that he was aware of a like issue concerning a licence from NPWS, as well as an issue regarding alleged misleading and deceptive representations by TBPL. Mr Hung also accepted under cross-examination that he had received a copy of the pleading and was aware of its content, at least in general terms.

583 The equitable interest in the land accruing to Austcorp by virtue of the deed of 19 March 2003 had no existence independently of the equitable interest that accrued to TBPL by reason of the grant of the clause 15 option. Austcorp knew that, on one basis or another, these proceedings might result in a finding that TBPL had no such interest. Austcorp accepted that, in that eventuality, it would have no interest either. Austcorp’s interest was made to depend on the outcome of the attacks mounted by NGC upon TBPL and TBPL’s interest.

584 Because Austcorp chose to occupy that position, I accept the submission of NGC that this is not really a case of contest between competing interests of NGC and Austcorp. Austcorp’s position was, in reality, that if NGC prevailed against TBPL in such a way that NGC’s land was not burdened by TBPL’s interest under the clause 15 option, then NGC would likewise prevail against Austcorp, in the sense that Austcorp’s dependent interest would also be obliterated.

585 But even if Austcorp’s interest conflicted with NGC’s prima facie right to a constructive trust as against TBPL, the conclusion would be that Austcorp was not, as against NGC, an “equally deserving” third party. It was a third party with actual notice of NGC’s claims and, while it may not have known all the details of the claims and of the precise bases on which they were advanced, it could not be said that NGC would attain “unfair priority” if NGC’s claims were vindicated by the imposition of a constructive trust superior to TBPL’s interest as the holder of the clause 15 option and therefore superior also to Austcorp’s interest derived from TBPL’s interest.

586 The existence of Austcorp’s rights would therefore not have deterred the court from imposing the constructive trust referred to at paragraph [556] above.

Conclusions

587 As stated at paragraph [443] above, TBPL’s central claim for an order for specific performance of a contract for sale arising from purported exercise of the clause 15 option on 17 April 2003 fails. This is because of the conclusions stated at paragraphs [440] and [442].

588 The balance of these reasons (from and including paragraph [445]) proceed on the assumed basis that the clause 15 option did not become unavailable by reason of termination of the lease by NGC. On that assumed footing, the result would have been that the steps taken by TBPL on 17 April 2003 were effective to bring into operation a contract for sale as described at paragraph [469] above but a decree of specific performance of that contract would have been refused, as a discretionary matter, because of TBPL’s complicity in Shigeo’s breach of the fiduciary duty owed by him to NGC; added to which that complicity on TBPL’s part would have resulted in recognition of a constructive trust, in favour of NGC, of the whole of TBPL’s interest arising from exercise of the clause 15 option, which constructive trust would have been imposed regardless of the rights of Austcorp.

589 In summary, therefore, TBPL is not entitled to any relief in relation to the Cudgen Paddock and TBPL’s claims must be dismissed.

590 I shall invite submissions in due course on the question whether findings on additional matters are necessary or desirable (particularly as to NGC’s cross claim) and as to the precise orders that should be made to give effect to these reasons and to dispose of the proceedings. It will also be necessary for submissions to be made on the question of costs.

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Citations

Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29

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CITATION:	Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29
HEARING DATE(S):	16/06/08, 17/06/08, 18/06/08, 19/06/08, 20/06/08, 23/06/08, 24/06/08, 25/06/08, 26/06/08, 27/06/08, 30/06/08, 04/07/08, 28/07/08, 29/07/08, 27/08/08, 28/08/08, 24/11/08, 25/11/08, 26/11/08, 27/11/08, 28/11/08, 10/06/09, 11/06/09, 24/08/09, 25/08/09, 26/08/09, 27/08/09 Written submissions: 1 September 2009
JUDGMENT DATE :	5 February 2010
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	First plaintiff not entitled to specific performance by defendant of any contract for sale and purchase of the Cudgen Paddock.
CATCHWORDS:	LANDLORD AND TENANT – leases and tenancy agreements – construction and interpretation – option to purchase included in lease – option exercisable within five year term of lease - whether option survives earlier termination of lease – LANDLORD AND TENANT – lessee’s covenants – as to permitted use of land – as to existence of necessary consents for permitted use – whether covenants breached – whether breach capable of being remedied - MISTAKE – equitable remedies – rectification – whether lessee’s covenant as to permitted use should be rectified for common mistake – ENVIRONMENT AND PLANNING – “existing use” rights – whether establishment of tree plantation permitted on land previously used for cattle grazing and pasture protection - LANDLORD AND TENANT – termination of the tenancy – frustration: application of to leases – whether frustration – re-entry and forfeiture – when right of re-entry becomes enforceable – CONTRACTS – discharge and breach – application of contract principles to leases – where lessee’s covenant agreed to be essential term – breach thereof – whether lease terminated for fundamental breach – separateness of right of re-entry and right to terminate contract – Conveyancing Act 1919 s 129(1) relevant to former but not latter - ESTOPPEL – estoppel by convention – whether available in the face of an “entire agreement” clause by reference to pre-contract consensus – whether such consensus existed in fact – ELECTION – principles discussed – whether lessor elected to affirm lease despite lessee’s breach of covenant – LANDLORD AND TENANT – relief against forfeiture – principles discussed – whether court should grant relief against forfeiture to lessee – whether lessor’s exercise of right to terminate was unconscionable – CONTRACTS – implied terms – term requiring good faith – whether implied – whether any such term can qualify express term making lessee’s covenants essential terms – CONTRACTS – implied terms – term requiring co-operation – scope of such term – EQUITY – fraudulent and innocent misrepresentation – alleged misrepresentation by lessee – whether lessor thereby induced to grant lease – causation and reliance – CONVEYANCING – the contract and conditions of sale – terms of contract arising from exercise of option to purchase included in lease – contractual mechanism for determination of price – construction and interpretation - LANDLORD AND TENANT – option to purchase included in lease – implied terms – whether implied term that lessee not entitled to exercise option if in breach of lease covenant – applicability of Conveyancing Act 1919 s 133E to any such implied term – EQUITY – equitable remedies and equitable defences – specific performance – unclean hands – EQUITY – fiduciary obligations – whether fiduciary duties existed – whether such duties breached – knowing involvement in breach – EQUITY – equitable remedies – constructive trust – effect on third party – whether third party with prior equitable interest will be unfairly prejudiced by recognition of constructive trust – whether such prior interest exists - EVIDENCE – where key participants not called to give evidence – available inferences – whether fear of reactivation of criminal charges sufficient explanation
LEGISLATION CITED:	Conveyancing Act 1919, ss 118, 129(1), 129(2), 129(6), 133C, 133E Corporations Law, Division 1 Part 2D.1 Environmental Planning and Assessment Act 1979, ss 5, 109 Evidence Act 1995, s 128 Grantees of Reversions Act 1540 (Imp) Land Titles Legislation Amendment Act 2001 National Parks and Wildlife Act 1974, ss 91B, 118D(1) Native Vegetation Conservation Act 1997, ss 7(4), 33 Real Property Act 1900 Threatened Species Conservation Act 1995, s 91 Trade Practices Act 1974 (Cth), ss 52, 87 Tweed Local Environmental Plan 1987 Tweed Local Environmental Plan 2000
CATEGORY:	Principal judgment
CASES CITED:	Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 50 Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Amann Aviation Pty Ltd v Commonwealth of Australia (1990) 22 FCR 527 Apriaden Pty Ltd v Seacrest Pty Ltd [2005] VSCA 139; (2005) 12 VR 319 Asia Television Ltd v Yau’s Entertainment Pty Ltd [2000] FCA 254: (2000) 48 IPR 283 Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604 Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566 Batson v De Carvalho (1948) 48 SR (NSW) 417 BBF Toowoomba Pty Ltd v Nebrean Pty Ltd [2001] QSC 313; (2002) Q ConvR 54-560 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 Brown v Heffer [1967] HCA 40; (1967) 116 CLR 344 Budget Stationery Supplies Pty Ltd v National Australia Bank Ltd (1996) 7 BPR 14,891 Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558 Butt v McDonald (1896) 7 QLJ 68 Campbell v Payne and Fitzgerald (1953) 53 SR (NSW) 537 CF & SP Pty Ltd v FAI General Insurance Co Ltd (unreported, NSWSC, Bryson J, 17 December 1998) Chan v Cresdon [1989] HCA 63; (1989) 168 CLR 242 Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 635; (2008) 14 BPR 26,279 City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140; (2001) 24 WAR 146 Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329 Commissioner of Taxes (Queensland) v Camphin [1937] HCA 30; (1937) 57 CLR 127 Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 Dem Compagnie Pty Ltd v Telxon Australia Pty Ltd [2004] NSWCA 66 Distronics Ltd v Edmonds [2002] VSC 454 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 194 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Firth v Halloran [1926] HCA 24; (1926) 38 CLR 261 Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 Forder v Cemcorp Pty Ltd [2001] NSWSC 281; (2001) 51 NSWLR 486 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122 Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10; (2008) 234 CLR 237 Halloran v Firth (1926) 26 SR (NSW) 183 Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd [2003] NSWSC 851; (2003) 59 NSWLR 312 Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409 Hospital Products Ltd v United States Surgical Corporation (1984) HCA 64; [1984] 156 CLR 41 Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91 Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190 Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145; (2009) 257 ALR 336 Kham & Nate’s Shoes No 2 Inc v First Bank of Whiting 908 F 2d 1351 (1990) KLDE Pty Ltd v Commissioner of Stamp Duties (Queensland) [1984] HCA 63; (1984) 155 CLR 288 Krell v Henry [1903] 2 KB 740 Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 Liristis Holdings Pty Ltd v Wallville Pty Ltd [2001] NSWSC 428: (2001) 10 BPR 18,801 Lobb v Vasey Housing Auxiliary (War Widows’ Guild) [1963] VR 239 Longmuir v Kew [1960] 1 WLR 862 Mackay v Dick (1881) 6 App Cas 251 Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 Manly Council v Byrne [2004] NSWCA 123 Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336 Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447 Matthey v Curling [1922] 2 AC 180 McDrury v Luporini [1999] NZCA 309; [2000] 1 NZLR 652 McWilliam v McWilliams Wines Pty Ltd [1964] HCA 6; (1964) 114 CLR 656 Metropolitan Life Insurance Co v RJR Nabisco Inc 716 F Supp 1504 (1989) Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) NSW ConvR 56-172 Murrell v Fulton [1962] VR 118 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 Natwest Markets Australia Pty Ltd v Tenth Vandy Pty Ltd [2008] VSCA 207; (2008) 21 VR 68 North Sydney Municipal Council v Boyts Radio & Electrical Pty Ltd (1989) 16 NSWLR 50 Norwegian American Cruises A/S v Paul Mundy Ltd (The “Vistafjord”) [1988] 2 Lloyd’s Rep 343 Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17; (2002) Aust Contract R 90-143 Owendale Pty Ltd v Anthony [1967] HCA 20; (1967) 117 CLR 539 Payne v Parker [1976] 1 NSWLR 19 Pilmer v The Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165 Raffety v Schofield [1897] 1 Ch 937 Re Equity Trustees Executors and Agency Co Ltd and Considine’s Contract [1932] VLR 137 Re Freehouse Pty Ltd (1997) 26 ACSR 662 Robertson v Wilson (1958) 75 WN (NSW) 503 Rowell v Larter (1986) 6 NSWLR 21 Royal Agricultural Society of New South Wales v Sydney City Council (1987) 61 LGRA 305 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436 R V Ward Ltd v Bignell [1967] 1 QB 534 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 Scanlan’s New Neon Ltd v Toohey’s Ltd [1943] HCA 43; (1943) 67 CLR 169 Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 Service Station Association Ltd v Berg Bennett & Associates (1993) 45 FCR 84 Shearer v Wilding (1915) 15 SR (NSW) 283 Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 Sherwood v Tucker [1924] 2 Ch 440 Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 Shiell v Symons [1951] SASR 82 Shiloh Spinners Ltd v Harding [1973] AC 691 Shire of Perth v O’Keefe [1964] HCA 37; (1964) 110 CLR 529 State Rail Authority v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 Taggett v Council of the Shire of Tweed [1993] NSWCA 260 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 Taylor v Oakes Roncoroni & Co (1922) 127 LT 267 Tennent v Moukhlina [2008] NSWADTAP 83 Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd [2010] VSC 2 Thearle v Keeley (1958) 76 WN (NSW) 48 The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2004] NSWSC 986; (2004) 51 ACSR 129 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 645 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 654 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 49 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 769; (2009) 258 ALR 598 Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41 Trustees Executors and Agency Co Ltd v Peters [1960] HCA 16; (1960) 102 CLR 537 United Australia Ltd v Barclays Bank Ltd [1941] AC 1 United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177 Victoria University of Technology v Wilson [2004] VSC 33 W&R Pty Ltd v Birdseye [2008] SASC 321; (2008) 102 SASR 477 Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 Warlam Pty Ltd v Marrickville Municipal Council [2009] NSWLEC 23; (2009) 165 LGERA 184 Warner v Sampson [1959] 1 QB 297 Waste Recycling & Processing Corporation v Global Renewables (Eastern Creek) Pty Ltd [2009] NSWSC 453 Woodall v Clifton [1905] 2 Ch 257 Ying v Song [2009] NSWSC 1344
TEXTS CITED:	William O Douglas and Jerome Frank, "Landlords' Claims in Reorganizations" (1933) 42 Yale Law Journal 1003 Elizabeth Cooke,"The Modern Law of Estoppel" Oxford (2000) Matthew N C Harvey, "Estoppel by convention – an old doctrine with new potential" (1995) 23 ABLR 45 F G Myers and B M Hogan, "Evatt and Beckenham’s Conveyancing Precedents and Forms", 3rd edition (1951) New South Wales Law Reform Commission, "Report on Options in Leases" (1967) B H McPherson, "Fiduciaries: Who Are They?" (1998) 72 ALJ 288
PARTIES:	Tim Barr Pty Limited - First Plaintiff Timothy James Barr - Second Plaintiff Narui Gold Coast Pty Limited - Defendant
FILE NUMBER(S):	SC 2002/62056
COUNSEL:	Mr R G McHugh SC (to 4/7/08; from 24/11/08 to 18/5/09; from 24/8/09); Mr I M Barker QC (from 28/7/08 to 28/8/08); Mr J E Lazarus (to 4/7/08; from 24/11/08) - Plaintiffs Mr M L Einfeld QC/Mr R E Dubler SC/Mr A C Harding (to 27/6/08); Mr A C Harding (30/6/08); Mr I M Neil SC/Mr A C Harding (from 28/7/08) - Defendant
SOLICITORS:	Corrs Chambers (to 25/2/09); Tzovaras Legal (from 26/2/09 to 24/11/09); J T Law Pty Limited (from 25/11/09) - Plaintiffs Verekers - Defendant