Waters Lane Pty Ltd v Sweeney - [2006] NSWSC 222

No judgment structure available for this case.

CITATION: Waters Lane Pty Limited v Sweeney [2006] NSWSC 222

HEARING DATE(S): 2-3/03/06, 4/04/06

JUDGMENT DATE :
26 April 2006

JURISDICTION: Equity Division

JUDGMENT OF: Rein AJ

DECISION: Summons dismissed: see [168].

CATCHWORDS: Contract for development of property - declaratory relief - onus - construction - "all reasonable endeavours" - express obligation of "good faith" - material breach - notice provisions - whether validly exercised - whether breaches curable - whether "but for" test applicable - reliance on inability caused by party's own breach - whether notice that Conditions Subsequent could not be satisfied should have been sent - materiality of breaches

LEGISLATION CITED: Conveyancing Act 1919, s 129
US Uniform Commercial Code, para 1-203

CASES CITED: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Australian Casualty Co Limited v Federico (1986) 160 CLR 513
Batson v De Carvalho (1948) 48 SR (NSW) 417
Blanch v British American Tobacco Australia Services Ltd (2005) 62 NSWLR 653; [2005] NSWSC 241
Brand v Digi-Tech (Australia) Ltd [2002] NSWSC 416
Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187
Commonwealth v Verwayen (1990) 170 CLR 394
Concut Pty Ltd v Worrell (2000) 176 ALR 693; [2000] HCA 64
Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476; [2000] FCA 1902
Egan v Geraghty (unreported, CA(Qld), 16/2/1994, Fitzgerald P, Pincus and Williams JJA, BC9404565)
Egerton v Esplanade Hotels London Ltd [1947] 2 All ER 88
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641
Harrison v Teton Valley Trading Co Ltd [2004] 1 WLR 2577; [2004] EWCA Civ 1028
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
Hi-Fert Pty Ltd v United Shipping Adriatic Inc (1998) 89 FCR 166; 165 ALR 265
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
Horsey Estate Ltd v Steiger & Petrifite Company Ltd [1899] 2 QB 79
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
Hungry Jack's Pty Ltd v Burger King Corp [1999] NSWSC 1029
Immer (No 145) Pty Ltd v Uniting Church in Australian Property Trust (NSW) (1993) 182 CLR 26
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Italo-Australian Club Ltd v National Australia Bank Ltd (1989) NSW Conv R 55-461
L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; [1973] 2 All ER 39
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657
Minister for Immigration Local Government & Ethnic Affairs v Dela Cruz (1992) 34 FCR 348
MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39
Moorgate Mercantile Co Ltd v Twitchings [1976] QB 225; [1975] 3 All ER 314
North v Marina (2003) 11 BPR 21,359; [2003] NSWSC 64
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35
Paltara Pty Ltd v Dempster (1991) 6 WAR 85
Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379
Re Strand Music Hall Co Ltd (1865) 35 Beav 153; 55 ER 853
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117
Terrell v Mabie Todd & Co Ltd [1952] 2 TLR 574; (1952) 69 RPC 234
The Glendarroch [1894] P 226
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83
Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689
UBH (Mechanical Services) Ltd v Standard Life Assurance Co (The Times, 13 November 1986, CA)
United States Surgical Corp v Hospital Products International [1983] 2 NSWLR 157
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

PARTIES: Waters Lane Pty Limited (First Plaintiff)
Sean Martin Howard (Second Plaintiff)
David James Sweeney (First Defendant)
Gregory Sweeney (Second Defendant)
Cynthia June Sweeney (Third Defendant)
Rhonda June Sweeney (Fourth Defendant)

FILE NUMBER(S): SC 1321/06

COUNSEL: Mr A Sullivan QC; Mr C Bova (Plaintiffs)
Mr J Simpkins SC; Ms T Wong (First, Third and Fourth Defendants)

SOLICITORS: Gadens Lawyers (Plaintiffs)
David Begg & Associates (First, Third and Fourth Defendants)
Xenos Lawyers (Second Defendant)

- 69 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Rein AJ

26 April 2006

1321/06 Waters Lane Pty Limited and Another v David James Sweeney and 3 Others

JUDGMENT

1 HIS HONOUR: The Defendants own a substantial parcel of land at Campbelltown (“the Property”). The First Plaintiff (“WL”) is a property developer. The Second Plaintiff (“Howard”) is a director of WL. Nothing turns in this case on the distinction between WL and Howard, and I shall refer to WL as including Howard. Mr A Sullivan QC with Mr C Bova of counsel appear for WL; Mr J Simpkins SC with Ms T Wong of counsel appear for Mr David James Sweeney, Ms Cynthia June Sweeney and Ms Rhonda June Sweeney; and Mr Xenos, solicitor, appears for Mr Gregory Sweeney. I shall refer to all Defendants collectively as “Sweeney” in the singular.

2 The Property, as at early 2004, was mortgaged to various entities unconnected with WL, and there were others who maintained claims against Sweeney and the Property. WL, through Howard, believed that the Property could be developed for use as a retirement village.

3 WL, Howard and Sweeney entered into an agreement by Heads of Agreement (“HOA”) dated 9 March 2004 for the development of the Property. Sweeney in December 2005 asserted that WL was in breach of the HOA and gave notice pursuant to clause 8.2(a) of the HOA requiring rectification of the breaches within 20 days. The notice was issued on 15 December 2005, but the date for rectification was, by agreement, extended to 20 January 2006.

4 The matter was said to have assumed considerable urgency because of a “sunset” clause in the HOA, which I shall describe below.

5 The HOA contemplates purchase by WL of the Property and a return to Sweeney not limited to the price to be paid for the land. The development of the Property contemplated was the establishment of a retirement village with 2500 dwellings and amenities to support them, and production thereby of a profit, exclusive of GST, of $150 million, with Sweeney to receive a guaranteed minimum of $50 million.

6 I set out the key provisions of the HOA relevant to the current dispute:

“3.1 Good Faith

(a) The parties agree that they will conduct themselves in good faith with each other so as to:

(i) reach definitive agreements in accordance with the terms outlined in this Heads of Agreement;

(ii) prepare and execute those agreements in written form; and

(iii) achieve the objectives expressed in these Heads of Agreement,

as expeditiously as reasonably possible.

(b) Sweeney will provide to the Developer such co-operation and assistance (including provision of all information in the possession of Sweeney concerning the Land and the proposed Project and immediate and ongoing access to the Land for the Developer and its consultants) as is necessary to achieve the objectives expressed in these Heads of Agreement.

4 Conditions Subsequent

4.1 The Developer must use all reasonable endeavours to satisfy the Conditions Subsequent by the Sunset Date and shall for those purposes at its cost:

(a) engage and retain appropriate experienced and qualified consultants for the preparation of all necessary designs, plans (including plans of subdivision) and specifications for the Project;

(b) obtain written consents to proceed with those design plans and specifications as shall be incorporated in the Development Application. Sweeney must not withhold its consent to such designs, plans and specifications where all of the Sweeney Requirements are satisfied in the Development Application.

4.2 Sweeney must, at the expense of the Developer, use its reasonable endeavours to assist the Developer to satisfy the Conditions Subsequent. In the context of these Heads of Agreement, the expression “reasonable endeavours” where applied to Sweeney shall at no time require Sweeney to ever:

(a) assume liabilities or obligations to be undertaken by the Developer;

(b) perform any work, engage any consultant or contract or provide any service or deliver any information not readily and easily available to Sweeney;

(c) encumber mortgage or otherwise give any security over any of its assets, other than as contemplated by these Heads of Agreement;

(d) perform any obligation, function or role which the Developer under these Heads of Agreement or any further document, is responsible to procure, satisfy, discharge or assume any risk undertaken by the Developer pursuant to these Heads of Agreement.

4.3 The Developer must promptly notify Sweeney in writing if any Condition Subsequent is satisfied or cannot be satisfied.

4.4 The Conditions Subsequent will not be satisfied or taken to be satisfied unless:

(a) the Development Consent contains, subject to the procedures set out in clause 7, the attributes set out in the Minimum Acceptable Development Consent;

(b) the Development Consent substantially satisfies all of the Sweeney Requirements; and

(c) if the Development Consent or Rezoning is granted subject to conditions, those conditions are acceptable to both the Developer and Sweeney in accordance with clause 7.

4.5 Despite any other term of these Heads of Agreement, the Developer may extend the Sunset Date for 2 years by serving a notice in writing on Sweeney whereupon:

(a) the reference to “2 years” in (a) and (b) of the definition of Sunset Date is changed to “4 years”; and

7 Clause 5.1 provided:

“5.1 If the Conditions Subsequent, or any of them, are not satisfied or waived by the Sunset Date (subject to any claimed extension) then provided the party giving such notice has complied with its obligations under these Heads, either Sweeney or the Developer may, by not less than 10 Business Days written notice to the other, terminate these Heads of Agreement and Subsequent Agreements.”

8 The “Sunset Date” was defined in clause 18.1:

9 The “Minimum Acceptable Development Consent” was defined in clause 18.1:

“Minimum Acceptable Development Consent means a Development Consent which when considered in its totality contains the following elements:

10 “Conditions Subsequent” were defined in clause 18.1:

“Conditions Subsequent means:

(a) the Rezoning of the Land; and

11 The “Sweeney Requirements” were defined in clause 18.1 as being the requirements set out in Annexure “B” to the HOA, and related to an area of land to be retained by Sweeney upon which Sweeney could, if it wished, build a reasonable number of houses.

12 Clauses 6.1, 6.2 and 6.3 provided:

“6.1 As soon as possible after these Heads of Agreement are entered into, the Developer must prepare and submit to Sweeney the Development Agreement for approval.

6.2 The Development Agreement must have attached to it the Development Agreement Mortgage. Sweeney must promptly and at its cost provide to the Developer all relevant further details that are in Sweeney’s possession as the Developer shall require for the preparation of the Development Agreement.

13 Clause 7.1 provided:

“7.1 The Developer must use all reasonable endeavours to achieve satisfaction of the Conditions Subsequent and will bear all costs, expenses and risks associated therewith.”

14 Clause 7.2 provided:

“7.2 If as a result of discussions with any Authority it becomes apparent to the Developer that the Authority will not grant a Development Consent which will satisfy the requirement for a Minimum Acceptable Development Consent and the Sweeney Requirements unless the Development Application is changed, then the Developer will, at its expense, do all things reasonably necessary to amend or change the Development Application to ensure that the Authority will issue a Development Consent which complies with both the requirements for a Minimum Acceptable Development Consent and the Sweeney Requirements in all material respects.”

15 Clause 7.4 provided:

“7.4 The Developer must cause to be held regular minuted meetings (not less frequently than every 3 months) and generally keep Sweeney fully informed of the progress made by the Developer towards satisfaction of the Conditions Subsequent and matters required by these Heads of Agreement to be disclosed by the Developer to Sweeney, including provision within 5 Business Days of receipt of copies of the gazettal of the Rezoning and the issue of any Development Consent.”

16 Clause 8.1 provided:

“8.1 In addition to the provisions in clause 5.1, either party is entitled to effect a Termination of these Heads of Agreement, if:

(a) an Insolvency Event occurs in relation to the other party; or

17 Clause 8.2 provided:

“8.2 If at any time either party becomes entitled to effect a Termination of these Heads of Agreement other than for an Insolvency Event, then the following provisions shall apply:

(a) prior to the terminating party exercising such right of Termination, it must serve on the other party a notice of its intention to terminate not earlier than 20 Business Days after giving the notice, stating the reason for its intended Termination, and giving the other party an opportunity to rectify or correct the non-performance within that period of 20 Business Days, which would otherwise give rise to that right of Termination;

18 Clause 9.2 provided:

“9.2 The Developer agrees to absolutely and solely bear and indemnify Sweeney against all risks, liability, obligations and the consequences of any unforseen circumstances as arise or may arise in relation to the carrying out of the Project, and in particular, without limitation:

(b) the risks, costs, delays and expenses as have been or may be incurred by the Developer in satisfying the Conditions Subsequent;

(c) the risks, obligations and liabilities as will be incurred by the Developer in obtaining all other approvals necessary for any relevant authority for the Project;

(e) any condition, requirement, levy or imposition as may be made by any relevant Authority against the Developer in respect of the carrying out of the Project at any time, if any contingency as may arise at any time whether foreseen or unforseen;

19 Clause 9.4 provided:

“9.4 The parties agree that:

(a) their common interest is to maximise the Profit from the Project;

(b) the Developer must prepare and lodge all applications for the Project in accordance with these Heads of Agreement;

(c) during the currency of this agreement:

(ii) the Developer must not lodge or seek to lodge any development application inconsistent with these Heads of Agreement;

20 Clause 17.8 provided:

“ 17.8 Remedies

21 It will be observed that WL, by clause 4.5, has the right to extend the Sunset Date by two years provided a notice is served pursuant to the clause, and whereupon the amount of $2 million is payable. WL has not, to date, exercised that right.

22 WL, by its Amended Summons, seeks declarations:

(1) that it is not in breach of the HOA as alleged by Sweeney or at all;

(2) that the notice purportedly given pursuant to clause 8.2 is invalid and ineffective;

(3) that Sweeney is not entitled to terminate the HOA;

and:

(4) an order restraining Sweeney from terminating the HOA;

(5) an order that the HOA be specifically performed;

23 It was part of the arrangements between WL and Sweeney that Sintan Pty Ltd (“Sintan”), a company that was effectively controlled by Howard, would pay out Sweeney’s debts then secured by the Property, and become mortgagee of the Property. The details of that aspect are the subject of dispute between the parties but no part of that dispute, it was agreed, is relevant to the proceedings before me.

24 At the hearing on 2 and 3 March 2006, affidavits of Howard and Ms Kimberly Everett were read in the Plaintiffs’ case. Both gave short oral evidence in chief and were cross-examined by Mr Simpkins. Affidavits of David Sweeney, David Begg, and Nicole Gibson were read in the case of the First, Third and Fourth Defendants and a report of Mr Ludvik was also relied upon in that case, although it has been marked as Exhibit “K”, in error it would seem. Mr Gregory Sweeney relied on his own affidavit. Significant parts of the Defendants’ affidavits were not read and I disallowed other portions. A large number of exhibits to various affidavits were tendered and became Exhibits “B” to “H”, “3” and “4”. None of the Defendants’ witnesses were cross-examined.

25 It will be apparent that as at the date of the hearing, the 9 March 2006 Sunset Date specified in the HOA was close at hand. By the terms of the HOA, if the conditions are not met by that date and if WL does not avail itself of clause 4.5, then the HOA will terminate. In those circumstances, clause 8.3, giving WL first right of refusal to proceed with development or purchase of the Property, will operate. If, however, Sweeney is entitled to terminate, then WL will not be able to rely on clause 8.3 because the termination must be “other than for default of [WL]”. I mention this as a matter of background to the dispute, which was adverted to by counsel.

26 Because of the Sunset Date, the Plaintiffs were hoping for a decision before 9 March (ie less than six days after completion of the evidence on 3 March 2006), asking even for a decision with reasons to follow. Fortunately, Mr Sullivan and Mr Simpkins were able to agree that the Defendants for whom Mr Simpkins acts would not act to terminate the HOA before judgment, on the undertaking of the Plaintiffs to pay any damages to the Defendants resulting from the Defendants not taking such steps, should they otherwise have been entitled to do so. Mr Xenos did not expressly join in that agreement, but alone his client has no power to terminate the HOA and I understood that his client agreed to this arrangement. A regime for service of written submissions was put in place and I fixed 4 April 2006 for further oral submissions. I received extensive written submissions from Mr Sullivan (and Mr Bova) and Mr Simpkins (and Ms Wong). I heard further oral submissions on 7 April 2006 and granted Mr Sullivan the opportunity to put further submissions in reply, which submissions I received on 12 April 2006. I shall refer to WL’s written submissions as “WLS”, its submissions in reply as “WLSR”, the Sweeney written submissions as “SWS” and Sweeney written submissions in reply as “SWSR”. The submissions, both oral and written, because of their extent and quality, were of considerable assistance. I indicated to the parties that I would endeavour to deliver judgment no later than 28 April 2006.

27 On 3 March 2006 Mr Simpkins indicated that there were a number of items in the notice that were no longer pressed. These were paras 6(ii)(a), (b), (d)-(j), 10 and 11 of the notice of 15 December 2005.

28 The specific issues that need to be considered are:

(a) it did not as expeditiously as possible provide to Sweeney a draft Development Agreement containing the terms outlined in the HOA ( Breach 1 in the terminology of WLS );

(2) Whether WL failed to use all reasonable endeavours to satisfy the Conditions Subsequent by 9 March 2006 ( Breach 3 ).

(3) Whether WL, in breach of clause 4.1(a) of the HOA, failed to engage and retain appropriate, experienced and qualified consultants for the preparation of all necessary designs, plans (including plans of subdivision) and specifications for the project for the purposes of satisfying the Conditions Subsequent by 9 March 2006 ( Breach 4 ).

(4) Whether WL in breach of clause 4.3 of the HOA, failed to notify Sweeney promptly in writing that any Condition Subsequent could not be satisfied by 9 March 2006 ( Breach 5 ).

(5) Whether WL in breach of clauses 3.1(a) and 6.1 of the HOA, did not prepare and submit to Sweeney the Development Agreement as soon as possible after the HOA was entered into. This, as matters have transpired, now focuses on the question of whether the absence of a provision for WL to procure Sintan to waive payment of interest on all amounts secured under the Sintan mortgage, was required by clause 12.2 of HOA ( Breach 6 ).

(6) Whether there was a breach of clause 7.4, by reason of the failure of WL to cause regular minuted meetings to be held “and generally keep Sweeney fully informed of the progress made by WL towards the satisfaction of the Conditions Subsequent” ( Breach 7 ).

(7) Whether in breach of clauses 4.1 and 9.4(b) of the HOA, WL had not lodged any applications for the project at all, or not lodged applications necessary to satisfy the Conditions Subsequent by 9 March 2006 ( Breach 8 ).

(8) Whether WL failed to obtain public liability insurance in breach of clause 6.9 of the HOA ( Breach 9 ).

(9) Whether in relation to Breaches 6 and 7, Sweeney is precluded by reason of the principles of election or estoppel from relying on them.

(a) was the breach a “material breach”;

29 Both sets of submissions are agreed on the test for “material” breach: namely that to be material, a breach must be “of moment or of significance, not merely trivial or inconsequential”: Minister for Immigration Local Government & Ethnic Affairs v Dela Cruz (1992) 34 FCR 348 at 352; Brand v Digi-Tech (Australia) Ltd [2002] NSWSC 416 at [1192].

Onus

30 It has been said that as a general rule the burden of proof lies on the person who affirms a particular thing (expressed in the maxim ei incumbit probatio qui dicit, non que negat Digest, xxii 3, 2) per Lopes LJ in The Glendarroch [1894] P 226 at 234, and see at 231 per Lord Esher MR. The application of that principle in the context of a claim for declaratory relief was considered in detail by McLelland CJ in Eq in Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 at 660 (the relevant part of which is reproduced in Blanch v British American Tobacco Australia Services Ltd (2005) 62 NSWLR 653 at 657; [2005] NSWSC 241) where his Honour set out the principles:

31 Here WL asserts that it was not in breach of the HOA as alleged by Sweeney, or at all, that the notice given was invalid and ineffective, and that Sweeney is not entitled to terminate the HOA. The onus point has two aspects of significance. First, it is therefore WL that bears the onus of persuading the Court of each of the matters in respect of which it seeks a declaration. The second, and it is a corollary of the first, is that Sweeney asserts that WL must establish that Sweeney is not entitled to terminate at common law. The first issue, as an issue of onus, generated no controversy, but the second did, and I shall deal separately with the issue of the common law right to terminate.

The factual background

32 There is no dispute that:

(i) as at 15 December 2005, WL had not lodged any application for rezoning and development approval meeting the Minimum Requirements and Sweeney Requirements as defined (I shall by way of shorthand in the balance of these reasons refer to these matters compendiously as “the approvals” where appropriate);

(ii) as at 20 January 2006, WL had not lodged application for the approvals;

(iii) as at 15 December 2005 and 20 January 2006, WL had not lodged any application for rezoning and development approval (ie even for a use less extensive than the Minimum Requirements and Sweeney Requirements);

33 It is clear from the evidence that there was no prospect whatsoever that as at 3 March 2006 the approvals could be obtained by 9 March 2006, nor indeed any suggestion that the approvals would or could be forthcoming in April 2006.

34 Sweeney, whilst it has no burden of establishing that WL was in breach of its obligations, took the course of tendering in evidence a report dated February 2006 of Mr Andy Ludvik, a town planner, in which he set out what in his view were the appropriate steps that would need to be taken from the date of execution of the HOA (9 March 2004) to achieve approvals on or before 9 March 2006. For example, according to Mr Ludvik, various studies relevant to the rezoning process would need to have been commissioned on 16 March 2004 with a view to making an application for rezoning in June 2004. His conclusion, at p 22, was that the approach of WL, as revealed in the affidavits relied on by WL, whilst it may have been financially prudent, was inconsistent with the objective of obtaining the approvals. Mr Ludvik was not cross-examined, and no report contesting his conclusions was served by WL.

35 If approvals were required to be obtained by 9 March 2006, given that no applications for approvals were even lodged by 15 December 2005, there would seem to be a very strong case of breach of the HOA, whatever is meant by “all reasonable endeavours”.

36 Faced with what seemed to be a very significant hurdle, the case for WL centred upon the following contentions:

(1) the Sunset Date is not be to construed for the “all reasonable endeavours” obligations as 9 March 2006, but rather 9 March 2008, and WL’s efforts should be measured against the latter date, not the former;

(2) the meaning of “all reasonable endeavours” in clauses 4.1 and 7.1 of the HOA;

(3) the report of Mr Ludvik takes no account of the very real obstacles with which WL was faced in obtaining approval for this site;

(4) these obstacles were of such a nature that WL acting prudently took a “softly softly” approach to the obtaining of approvals and was not therefore in breach of the “all reasonable endeavours” obligations;

(5) the specific requirements for a breach of good faith so far as Breach 1 is concerned;

(a) the breaches were of a kind which could not be rectified after they had occurred;

(b) the breaches could not in fact be rectified;

(a) Sweeney eschewed such an argument prior to and at the commencement of the hearing;

(b) Sweeney elected to utilise the notice provisions of clause 8.2.

37 In paras 94-124 SWS, Sweeney presents an analysis of the evidence, as to what was done and not done by WL. WL did not attack any of the points of analysis presented (and see T107). However, in para 48(a)-(i), WL sets out nine points and says that it is clear that “There is no evidence to support any contention that, ‘but for’ failure to use ‘reasonable endeavours’, Waters Lane would have been able to achieve a Rezoning of the Land”, these points being:

“(a) the zoning of the property specifically prohibits most types of development, including development of the property into a retirement village (see affidavit of Kimberly Everett at [9]-[11]); this was an environmental constraint of high priority because all development that is not considered to be complementary to agricultural is prohibited (affidavit of Kimberly Everett at [12]);

(b) the property lies within the Escarpment Preservation Area (affidavit of Kimberly Everett at [12]);

(c) the property was of historical significance to the community (affidavit of Sean Howard sworn 13 February 2006 at [32(a)]);

(d) the father of the NSW Planning Minister was instrumental in the creation of the scenic protection zoning overlay (affidavit of Sean Howard at [32(b)]);

(e) the town planner of Campbelltown Council was of the view that there should be no development of any part on the property (affidavit of Sean Howard at [32(c)]);

(f) the Bringelly land release was situate along the west side of the property (affidavit of Sean Howard at [33]);

(g) there are no appeal rights if Council rejects the rezoning application (see affidavit of Kimberly Everett at [17] and Ludvik at p 5);

(h) the Minister is not obliged to make the LEP (Ludvik at p 16); and

38 WL submits that objectively assessed, and with these matters in mind, WL acted reasonably “to achieve the Conditions Subsequent”: para 56. This is linked to what I have described as the “softly softly” approach. Rather than attacking the conclusions on the evidence that are pressed by Sweeney, WL seeks to put a different complexion on the same evidence, even, as can be seen in the contentions set out in [37] above, in some respects utilising the negative aspects of it in support of its case that WL adopted a prudent approach.

39 This material set out in [37], whatever its significance for the “but for” test, seems only to underscore the need for additional work to be undertaken by WL in order to have obtained the approvals or have a prospect of obtaining the approvals.

40 In the light of the evidence and the submissions in respect of it, it seems to me that WL can only succeed in establishing a lack of breach in respect of Breaches 3, 4 and 8 (ie those relating to the obtaining of approvals other than the good faith breach (Breach 2)):

(a) if WL’s contentions concerning the Sunset Date are upheld; or

41 The first question of the Sunset Date is of considerable importance because, as WL’s submissions pointed out, the Ludvik report is predicated on a requirement for approvals by 9 March 2006.

42 In a context where the HOA required “all reasonable endeavours” to be undertaken by WL to achieve the approvals by the Sunset Date, if that date is indeed 9 March 2006, then there is a question raised as to whether another course can be adopted, whether or not, absent the constraints of the HOA, such a course might be commercially beneficial to WL.

43 It was clear from the submissions, that apart from the Sunset Date and the content of “all reasonable endeavours”, the parties had “locked horns” over the question of what is the effect of clause 8.2, both sets of submissions putting this to the forefront. I propose therefore to deal first with these matters: the Sunset Date, the content of the “all reasonable endeavours” clauses and the operation of clauses 8.1 and 8.2 (“the validity of notice point”), before dealing any further with the evidentiary matters.

The Sunset Date Point

44 So far as Breaches 2, 3, 4, 5, and 8 are concerned, it is agreed that these centre around “the Sunset Date”.

45 WL asserts that the effect of clause 4.5 is to provide for a change in content of the defined term “the Sunset Date”, set out at paras 33 and 34 of the Plaintiffs’ Further Submissions, and that the “Sunset Date” is in effect ambulatory.

46 In my view, the Sunset Date is 9 March 2006. It is true that it can be extended by notice and the payment of $2 million, but until the notice is given (and the obligation for payment incurred), there is no extension. It was open to WL at any time to avail itself of the provisions for extension and it is true that it has a further seven days or so in which to give notice, but its acts and omissions must be viewed as against the existing date, not a potential date that will only be made actual by conditions yet to be fulfilled, and which may never be fulfilled. I do not accept that the Sunset Date was “ambulatory” for as long as WL had the right to exercise its option in the sense of precluding measurement of endeavours against the unamended date, and it is not correct to say that because a notice can be given which would alter the date that “the actual calendar date which represents the Sunset Date has not yet been determined”: WLS para 34. Such a construction does not seem to me to be available and it makes no commercial sense that WL’s endeavours could not be measured until the last day of the HOA if no notice was given pursuant to clause 4.5.

The Content of “All Reasonable Endeavours”

47 There appear to be three forms of “best endeavours” clauses in general use: “best endeavours”, “all reasonable endeavours” and “reasonable endeavours”. In “What do ‘Best Endeavours’, ‘Reasonable Endeavours’ and ‘All Reasonable Endeavours’ Mean?” (2002) 12(2) AustCorpLaw 11, S Doyle and K Mulgrew discuss the cases, noting a divergence between English and Australian law on the question of “best endeavours”, and noting views on differences between these three clauses. I have also been referred to an article by Q Lowcay, “’Best Endeavours’ and ‘Reasonable Endeavours’” [1999] NZLJ 211. As Mr Sullivan pointed out, the HOA uses each of the phrases “all reasonable endeavours”, “best endeavours” and “reasonable endeavours”, (clauses 4.1, 4.2, 7.1, 7.5(b)) and he argued that these represent a gradation of effort with “best endeavours” the highest and “reasonable endeavours” the lowest. He argued that since the contract used the different phrases, they must have been intended to have a different meaning. “All reasonable endeavours” is the phrase used in clauses 4.1 and 7.1, which are the clauses relevant to Breaches 3, 4 and 8.

48 I note that the clause where “best endeavours” was used, (clause 7.5(b)), required Sweeney to use its best endeavours “to assist”, suggesting that Sweeney’s capacity was important. That capacity of a party required to exercise best endeavours is reflected in the statement of what is required for a “best endeavours” obligation found in Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 at 101, where Mason J (as he then was), adopting an approach taken by Sellers J in Terrell v Mabie Todd & Co Ltd [1952] 2 TLR 574; (1952) 69 RPC 234, said:

“A ‘best endeavours’ clause thus prescribes a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract.”

49 Wilson J in Transfield at 107 described the obligation thus:

“It was obliged to do all that could reasonably be expected of it having regard to the circumstances of its business operations: B David Ltd v Tooth & Co Ltd [1937] 4 All ER 118 at 128. In the circumstances of this case, the clause required the appellant to do its best honestly to advance to the Electricity Commission of New South Wales the claims of the Arlo pole as a suitable and desirable product for the Wallerawang project.”

50 Stephen J in Transfield at 92 said that best endeavours obligations:

“call upon the covenantor for that high degree of activity and effort in the design and fabrication of the pole which a best endeavours clause demands.”

51 In UBH (Mechanical Services) Ltd v Standard Life Assurance Co (The Times, 13 November 1986, CA) the clause in question was one that required Standard Life Assurance Company (“Standard”) (the landlord) to use “its reasonable endeavours” to procure its tenants to take all their requirements for heating from UBH. The heating was antiquated, inefficient and expensive and the tenants were keen to adopt other means of heating. The trial judge held that in permitting a new tenant to take a lease without taking heating from UBH, Standard was in breach of the covenant, but there was no damage. When existing tenants refused to accept UBH heating and asserted that Standard was in breach of its lease, Standard’s solicitors wrote to those tenants denying breach, but the tenants disconnected the UBH connection. UBH claimed that Standard’s negotiating stance had been one of sympathy to the tenants but the trial judge held that this did not constitute a breach – Standard had still been maintaining that the tenants ought to take UBH heating. The trial judge held that the failure of Standard to implement expensive improvements was not a failure to use reasonable endeavours to ensure that the tenants used UBH heating. The trial judge then said (I take these quoted passages from the Court of Appeal’s decision at 5):

“It is one thing to say that Standard Life might have done a bit more, whether informally or formally, to persuade their tenants to honour the repairing covenants, but it is quite another thing to hold that such a failure must necessarily imply a failure to use their reasonable endeavours to see that the tenants continued to take the existing heating …

Common to all possible procedures that Standard Life might have adopted was the very strong possibility that they would have been met by corresponding counter-claims on the part of the tenants centred on the inadequate nature of the original apparatus and buildings. Mr Stock of Merritts told me in terms that he would have defended any proceedings on those grounds, and I believe him.

In summary therefore, whilst judging the matter from today’s position, I think it could be said Standard Life were rather feeble in their attitude toward the repairing covenants. I cannot think that such an attitude amounted to a breach of their obligation to use reasonable endeavours to get the tenants to take the heating. The truth of the matter was, as Mr Edwards told me, that the tenants detested these heating covenants and wished to control their own destiny. Furthermore, I remain considerably less than satisfied that any of the steps which it is suggested Standard Life should have taken would have borne fruit, not so much because the tenants might not, under proper compulsion, have effected the repairs, but because they might have had little practical result, and only hardened the tenants’ determination to be rid of an obligation which they regarded with considerable abhorrence.”

52 The trial judge considered that Standard had never put to the tenants a quotation for conversion from oil to gas, but that would also have involved considerable expense to Standard: at 5. Finally, the failure to take tenants to court was asserted, but the trial judge held that “reasonable endeavours” did not require institution of proceedings of doubtful outcome. The Court of Appeal found no fault in the approach of the trial judge, save that it would have awarded nominal damage for the one breach.

53 I do not think that UBH establishes that reasonable endeavours means “an honest try”, but UBH highlights that a requirement upon a party to use “its reasonable endeavours” is not to be judged by ignoring the facts as the promisor finds them (ie at least where those facts are not of its making and not themselves the subject of contractual obligation by the promisor to the promisee).

54 Not only was UBH concerned with a “reasonable endeavours” clause, the contractual context is radically different to that here.

55 In Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, a case in which a distributor of US-made surgical staples had, inter alia, set about marketing his own version of the product, the distribution agreement was subject to an oral term that the distributor would use his “best efforts” to promote the sale of the principal’s products. It was held unanimously by the High Court (as it had been at first instance and on appeal, see United States Surgical Corp v Hospital Products International [1983] 2 NSWLR 157 at 193E and 196C) that the distributor had breached the oral term. Gibbs CJ noted that sale by the distributor of his own products with the deliberate intention of appropriating for himself the market which he had in effect promised to do all he could to secure for the promisee, could not be a fulfilment of the implied term imposed on the distributor. Gibbs CJ said at 64:

“The implied obligation to use best efforts to promote the sale of the goods necessarily imported the obligation not to take any deliberate steps to damage the market for those goods in Australia. The meaning of terms of this kind has been considered in a number of cases, but it is trite to say that the meaning of particular words in a contract must be determined in the light of the context provided by the contract as a whole and the circumstances in which it was made, and that decisions on the effect of the same words in different context must be viewed with caution . On the one hand, an express promise by an agent to use his best endeavours to obtain orders for another and to influence business on his behalf “necessarily includes an obligation not to hinder or prevent the fulfilment of its purpose”: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378. On the other hand, an obligation to use “best endeavours” does not require the person who undertakes the obligation to go beyond the bounds of reason; he is required to do all he reasonably can in the circumstances to achieve the contractual object, but no more : Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 at 452; Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234 at 237.” [emphasis added]

56 Mason J at 94 also emphasises the importance of context and terms.

57 In Paltara Pty Ltd v Dempster (1991) 6 WAR 85, a vendor of land was required to use its best endeavours to obtain approval of a plan of subdivision relating to the land. It was held at first instance that the vendor, having been informed that approval was given subject to obtaining certification from the Water Authority that arrangements had been made with the Authority that would permit adequate sewerage of the land, failed to use best endeavours, because it had not notified the Water Authority that there was any urgency in its application, and so had not done “all things that were reasonable and proper to be done” to comply with the condition including “all reasonable steps to have the matter expedited” (see at 88-89 of the appeal).

58 Malcolm CJ at 89 made reference to the dictum of Gibbs CJ in Hospital Products Ltd, referred to above, and to the passages in Transfield to which I have also referred. He agreed with the trial judge that the failure by Justin Sonia Pty Ltd through its agent to tell the surveyor of the contractual time limit “resulted in the omission of what was a reasonably necessary and proper step that a reasonable and prudent vendor in the position in which Justin Sonia could be expected to take in accordance with condition 14(3)”: at 89. Pidgeon J agreed with Malcolm CJ.

59 There is a degree to which “best endeavours” can be defined in terms that sound very like “all reasonable endeavours” as the judgment of Gibbs CJ in Hospital Products Ltd demonstrates. I am inclined to the view that if there is any difference between “best endeavours” and “all reasonable endeavours”, it is not one which sees “best endeavours” as more onerous than “all reasonable endeavours” – but rather that “best endeavours”, subject to context, takes into account the capacity and ability of the promisee. In my view, a promise to “use all reasonable endeavours to satisfy the Conditions Subsequent by the Sunset Date” means that WL will take all such steps as are objectively required and reasonable to achieve the end specified by the HOA, viz obtaining rezoning and approval to permit development with the specified requirements by 9 March 2006. The nature of the obligations and the critical importance of them to the agreement and its purpose, and the specific requirements of clause 4.1 reinforce the view that “all reasonable endeavours” is not concerned with any personal limitations of WL.

60 In reaching a view as to the content of the obligation of “all reasonable endeavours” it is important to focus on the obligations that are governed by the requirement. I reject the proposition that “all reasonable endeavours” to obtain the approvals by 9 March 2006 could be met by an “honest try”. I also reject the proposition that all reasonable endeavours to obtain the approvals entails some prudent economic approach which might be taken by a person not constrained by agreement to achieve the outcome mandated by the HOA. I note too that the parties have specifically agreed by clause 4.1 that WL will “engage and retain appropriate experienced and qualified consultants for the preparation of all necessary designs, plans (including plans of subdivision) and specifications for the Project” as one feature of that obligation. It was not suggested that it was the only obligation.

Validity of notice point

61 In its approach to clause 8, WL relies on some general principles of construction, namely:

(1) Construction of a written instrument requires the whole of the instrument to be considered: Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379 at 386-387.

(2) Interpretation of a written contract involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40].

(3) “Ascertainment of meaning” means the ordinary and fair meaning or the natural meaning, not necessarily the literal meaning, and the “ordinary” or natural meaning of an expression in a particular context may be different from its literal meaning: Australian Casualty Co Limited v Federico (1986) 160 CLR 513 at 520-21, 525; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-13; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313.

62 Sweeney takes no issue with principles (1), (2) or (3). So far as (4) is concerned, Sweeney contends that there is no general principle that where possible, no part of a contract should be treated as otiose, inoperative or otherwise surplus.

63 Citing with approval Sir John Romilly MR in Re Strand Music Hall Co Ltd (1865) 35 Beav 153; 55 ER 853 at 856, Finkelstein J in Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476; [2000] FCA 1902 said at [152]:

“The proper mode of construing any written instrument is to give effect to every part of it, if this be possible, and not to strike out or nullify one clause in a deed, unless it be impossible to reconcile it with another and more express clause in the same deed.”

64 Sweeney submits that the appropriate principle is that the Court should attempt to give effect to every part of the instrument (Dovuro), and there is not an issue of that nature here. Sweeney also relied on Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 114-5, in which Stephen J placed emphasis on the need for the Court to provide an “uncritical rendering” of the meaning of a formal document when that document has obviously been prepared with legal assistance and intends to cover a complex contractual relationship for a considerable term of years into the future, where that document contains no ambiguity, patent error or omission.

65 The relevant part of Dovuro is at [152] where Finkelstein J (with whom Gyles J agreed on the cross-appeal) noted that the trial judge’s interpretation of “undesirable species” meant seeds that were unable to be imported into Australia, which:

“is to ignore one of the express warranties given by Cropmark namely that the seed sold is ‘to comply [with] Australian import regulations’”.

“Speaking generally, it is not permissible to construe one part of a contract so as to render inoperative or as surplusage another part.”

66 WL submits (see in particular paras 6-8 WLSR) that Sweeney’s proposed construction of the HOA renders clause 17.8 otiose because it provides that remedies provided by the contract are cumulative, and if Sweeney can by clause 8 terminate for “material” breach, that is a breach which is not fundamental and not curable (and whether by notice given under 8.2 or 8.1), then clause 17.8 has no work to do.

67 There are, I think, theoretically four potential variables in the approach to clause 8 taken alone:

(1) fundamental/non-fundamental species of material breach;

(2) mandatory/permissive (ie whether the notice must be used in all cases of material breach) – this is limited to (1);

(3) whether the clause is available for use only where the breach is capable of rectification or correction (“remedy” or “cure” for short), a matter discussed in detail below;

68 WL accepts that clause 17.8 expressly preserves the promisee’s rights to utilise the common law (indeed that is tied to WL’s arguments advanced on the way it is to be construed and to an election point as well). Thus (1) and (2) are not issues here, and WL does not contend that the notice cannot be used for material breach which is also fundamental. WL contends however that:

(1) only curable breach can be the subject of a notice pursuant to clause 8 (for reasons that I shall set out below);

(2) neither clause 8.2 nor 8.1 can be utilised for non-curable material breaches;

69 Accepting for present purposes that material breach is not co-terminous with “fundamental” in the sense used in the tripartite characterisation that has been seen as following from Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 (see [725]-[738] of Carter and Harland, “Contract Law in Australia”, Butterworths, 4th ed, 2002), and accepting for the moment that the only right expressly preserved by clause 17.8 is the common law right to terminate for fundamental breach (and I think that assumption is questionable), it does not follow that clause 17.8 is otiose. Clause 17.8 is a clause that expressly recognises that the rights of the promisee are cumulative and not exclusive and hence are more expansive than the common law rights. It is not that clause 17.8 is rendered otiose by reason of this interpretation of clause 8, rather what flows from it is that one of the common law rights to which the clause refers, in certain circumstances, is not needed. Clause 17.8 itself recognises that this may be so. A further point is that if clause 17.8 were not included, then it might have been argued by WL that the only rights of termination given to Sweeney were those in clause 8, and hence on WL’s approach, no non-curable breaches were able to be the subject of termination at all. WL appears to accept that but for the notice (and failure it says to run an argument based on the common law right of termination), Sweeney could exercise its common law rights if breach of the reasonable endeavours clauses were established, and that concession appears to be a consequence of the inclusion of clause 17.8.

70 WL’s submissions on the validity of notice point have these strands (and these points are not limited to the breaches relevant to the approvals):

(1) That the obvious purpose of clause 8.2(b) is to give a party an opportunity to “cure” a breach, thus the only material breaches which can be the subject of a notice pursuant to clause 8.2(a) are those which can be cured. In support of this approach, WL points to the express reference in the clause to “giving the other party an opportunity to rectify or correct the non-performance” within the 20 day period. It would be meaningless and “absurd”, says WL, to give a party notice to cure something which could not be cured.

(i) use all reasonable endeavours (to do anything) (as in Breach 8);

(ii) do something as expeditiously as possible (Breach 1);

(iii) conduct oneself in good faith (Breach 2);

(iv) do something “promptly” or “as soon as possible”, as in prepare and submit the Development Agreement (Breach 6);

(v) engage and retain appropriate, experienced and qualified consultants for the preparation of all necessary designs, plans and specifications (Breach 4);

(vi) use all reasonable endeavours to satisfy the Conditions Subsequent by the Sunset Date of 9 March 2006 (Breach 3);

(viii) hold regular minuted meetings and generally keep Sweeney fully informed of progress made by WL toward satisfaction of the Conditions Subsequent (Breach 7);

is not capable of “cure” (para 26 WLS), or in the case of (v), not capable of cure within 20 Business Days.

(3) That even if any of these are capable of cure in a theoretical sense, they were not capable of cure in the facts of this case (this does not apply to Breach 6) and Sweeney was not entitled to utilise the notice provision.

(4) WL asserts that in order to determine whether a “reasonable endeavours” clause has been breached, the question that must be asked is whether the Conditions Subsequent would have been met had WL used reasonable endeavours (or alternatively, “but for” WL’s failure to use reasonable endeavours would the Conditions Subsequent have been met by 9 March 2006). WL relies in this context on Egan v Geraghty (unreported, CA(Qld), 16/02/94, Fitzgerald P, Pincus and Williams JJA, BC9404565); Italo-Australian Club Ltd v National Australia Bank Ltd (1989) NSW Conv R 55-461.

(5) Clause 17.8 has work to do and it follows, says WL, that there is nothing unusual or strange about its interpretation which does not permit Sweeney to terminate where there has been a material breach which is not curable.

71 WL submits that L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; [1973] 2 All ER 39 supports this approach, and that the learned author of “Carter on Contract”, looseleaf, Butterworths, Sydney, 2002, at [33-280] does so as well.

72 Sweeney relies on Hungry Jack's Pty Ltd v Burger King Corp [1999] NSWSC 1029, and on appeal Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187, and cases which are referred to with approval in those cases, namely Batson v De Carvalho (1948) 48 SR (NSW) 417 and Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689. WL asserts that Burger King and these other cases are distinguishable.

73 I should note that Mr Sullivan contended that Sweeney, before utilising the notice provision, was required to ensure that the breach could be cured. If this required obtaining expert advice in order to make an assessment then, submitted Mr Sullivan (at T120.5-39), Sweeney should have availed itself of that advice just as it has done in preparation for this case. (See also para 29 of WLSR.)

74 Sweeney submits that it is WL’s arguments that do not reflect a “purposive” approach to the construction of the clause, because if WL’s approach is correct, it would leave clause 8.2 with virtually nothing on which to operate. Sweeney also points out that WL’s assertions involve great impracticability: the party issuing the notice would have to decide whether the other party could cure the defect, and if it would take 21 days and not 20 days, the defect could not be the subject of the notice. Further, says Sweeney, it makes no sense to have clause 8 available for breaches that are curable (clause 8.2) but with clause 8.1 having no work to do for material breaches that are not.

75 In L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; [1973] 2 All ER 39, clause 7(b) of a distribution agreement stated that it was a condition of the agreement that the agent (Wickman) would send its representatives to visit six firms at least once a week for the purpose of soliciting orders for panel presses. Clause 11 provided that Schuler could terminate the agreement if Wickman had “committed a material breach of its obligations hereunder and shall have failed to remedy the same within 60 days of being required in writing so to do”. Wickman did not send agents with the regularity required (eg 125 visits rather than 144 in one six month period), and Schuler purported to terminate without relying on the procedure set out in clause 11. The majority of the House of Lords (Lords Reid, Morris, Simon and Kilbrandon) agreed that clause 11 covered all breaches including the “condition” in clause 7(b). Lord Wilberforce dissented, expressing the view that the requirement for visits being expressed as a condition, Schuler was entitled to terminate for breach without recourse to clause 11.

76 Lord Reid thought that clause 11(a)(i) was intended to apply “to all material breaches of the agreement which are capable of being remedied”. He then went on to consider what is meant in this context by “remedy” and said at 249-250:

“It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. I think that the latter is the more natural meaning. The word is commonly used in connection with diseases or ailments and they would normally be said to be remedied if they were cured although no cure can remove the past effect or result of the disease before the cure took place. And in general it can only be in a rare case that any remedy of something that has gone wrong in the performance of a continuing positive obligation will, in addition to putting it right for the future, remove or nullify damage already incurred before the remedy was applied. To restrict the meaning of remedy to cases where all damage past and future can be put right would leave hardly any scope at all for this clause. On the other hand, there are cases where it would seem a misuse of language to say that a breach can be remedied. For example, a breach of cl 14 by disclosure of confidential information could not be said to be remedied by a promise not to do it again.”

77 There was argument between the parties here as to the principle for which Schuler is to be taken as authority. Lords Reid, Simon, Morris and Kilbrandon were all agreed that clause 11 applied and that Wickman had to be given an opportunity to “put things right for the future” where the nature of the breach made that possible (Lord Kilbrandon at 271G), “cure so that matters are put right for the future” (Lord Reid at 249G, with whom Lord Simon agreed). Lord Morris was of the view that since “condition” could have a meaning beyond its specific technical meaning, and other parts of the contract pointed to it not having the technical meaning ascribed to it by Schuler, as a matter of construction, clause 11 applied.

78 Schuler does not deal with the consequence of including in a notice breaches that are not curable, but it seems tolerably clear that Lords Reid, Simon and Kilbrandon would not think it necessary or appropriate to issue a notice pursuant to clause 11 if the breach was not one which could be cured (and see Lord Morris at 259F dealing with subsequent breaches). I think Schuler, relevantly for the purposes of this case, is authority for the following propositions:

(b) that “remedied” does not require obviating or nullifying the effect of the breach so that the damage already done is made good, but rather requires “cure so that matters are put right for the future”;

79 The passage from “Carter on Contract” at [33-280] on which reliance is placed by WL is in the following terms:

If the promisor has not remedied the breach, whether any further notice of termination is required depends on the terms of the clause.

Occasionally, however, the courts have been prepared to allow a party in breach further time, in order to grant relief against forfeiture, but this is a very unusual occurrence in commercial contracts. There is no rule prohibiting relief against forfeiture being given in that context, but where there is no proprietary interest to be protected there is no scope for relief against forfeiture.

This is in itself a difficult distinction. From the promisee’s point of view, the distinction is best controlled by conferring on the promisee a discretion to determine whether the default is capable of being remedied. Alternatively, there may be an express statement of those defaults which are considered to be capable of being remedied.

Accordingly, some attempt should be made to define the concept.

80 I note that no authorities are specifically cited by the learned author of Carter in support of the last paragraph set out above. I shall consider in addition to Schuler the three other cases to which my attention was drawn by counsel.

81 In Batson v De Carvalho (1948) 48 SR (NSW) 417, Sugerman J was concerned with a lessee who, in breach of covenant of a lease, had parted with possession and suggested to the new occupants that they should conceal or misrepresent the terms of their possession to the landlord. The landlord served upon the tenant a notice purportedly pursuant to s 129 of the Conveyancing Act 1919, and thereafter entered into possession herself and re-let them to the new occupiers. Section 129 of the Conveyancing Act required service of a notice “specifying the particular breach complained of”. Section 129(9) provided that the notice was to be in the form specified in the Sixth Schedule to the Act. That form was, noted Sugerman J at 424 “one primarily designed for the case of a breach capable of remedy”. The notice served did not specify the particular breach and therefore, Sugerman J held, did not “fulfil the object of the section which is, inter alia, ‘that the notice shall be such as to give the tenant precise information of what is alleged against him’” (utilising the words of Lord Russell CJ in Horsey Estate Ltd v Steiger & Petrifite Company Ltd [1899] 2 QB 79 at 91).

82 Sugerman J agreed with the approach of Morris J in Egerton v Esplanade Hotels London Ltd [1947] 2 All ER 88 at 90 that “remedy the breach” did not mean that the breach was to be wiped out, but rather that “it is to set things right for the future, and that may be done even though they have for some period not been right, and even though that may have caused some damage to the lessor”: at 427. Sugerman J also said that it was not desirable to lay down categories of breach that were not capable of remedy. He thought that even a breach of a covenant to assign could be capable of remedy, since procuring a surrender of the sublease and re-delivery of possession may be possible. Sugerman J went on to say at 426-7:

“But that is not necessarily the only mode. A breach may, I think, be ‘capable of remedy’, looking at the matter as at the date of giving notice, even though there is then no certainty that, notwithstanding the efforts of the lessee to remedy it, it will be remedied. What the lessee is entitled to is an ‘opportunity of complying with the requirements of the notice’: Fox v Jolly [1916] 1 AC 1 at 9. He may in the result be unable to do so, eg because he cannot, in the case of a breach of a covenant to repair, obtain the requisite materials. Or the actual remedying of the breach may depend upon securing the concurrence of some person other than the lessee, and in the result it may not be secured. But I think it may none the less be said, looking at the matter as at the date of notice, that the breach is ‘capable of remedy’ within the meaning of the section.”

83 Sugerman J’s comments pick up an approach by Morris LJ that is similar to Lord Reid’s approach in the passage from Schuler I have set out earlier. Sugerman J’s approach is to treat as expansive the curability of breach, and to favour use of the notice (albeit in a statutory context) rather than restrict its operation.

84 In Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689, the Court was concerned with a surety agreement whereby HDFI agreed to pay moneys due when called upon to do so. For Tricontinental to be able to make the demand, Selkis, the debtor, had to be in default that was not capable of being remedied. Waddell AJA, with whom Samuels JA agreed, held that a default in failing to pay bills due on a particular date “was capable of rectification by paying the money due, together with additional interest as provided by the facility agreement, at a future date”: at 722G, and his Honour adopted the reasoning of Sugerman J in Batson v De Carvalho (1948) 48 SR (NSW) 417.

85 In Burger King, HJPL had agreed that it would develop four new Burger King restaurants per annum in a particular region of Australia. It was agreed by clause 15.1 that the occurrence of specified events would constitute good cause for Burger King (“BKC”) at its option to terminate the agreement – which included HJPL’s failure to comply with any of the terms of the Development Agreement (inter alia). Clause 15.2 provided:

“15.2 In the case of any breach which is capable of being cured, BKC shall not terminate this Agreement unless and until HUNGRY JACK’S shall have failed to cure such breach within ten (10) days in the case of default of any obligation to pay money to BKC and within thirty (30) days in the case of any other breach after being notified by BKC of the nature of the default.”

86 BKC claimed that HJPL was in default of clause 2.1 of the Development Agreement. No notice was given by BKC to HJPL under clause 15.2. HJPL conceded that had it been given a notice, it could not have rectified the alleged default within the 30 days specified in clause 15.2, but nevertheless asserted, inter alia, that the failure to give a notice precluded termination. Rolfe J relevantly held that the notices of termination were invalid because HJPL was not in breach of clause 2.1. He also held that the notice of termination was defective because no notice to cure pursuant to clause 15.2 had been given. The Court of Appeal (Sheller, Beazley and Stein JJA) agreed that HJPL was not in breach of clause 2.1 of the Development Agreement and although obiter, agreed with Rolfe J’s construction of clause 15.2, namely that notice was required to be given even though the default was not one capable of cure within the period specified in the notice.

87 In his analysis of the notice clause at [247]-[264], Rolfe J in Burger King [1999] NSWSC 1029 made the following points:

(1) A clause of this type must be given a commercial meaning and the purpose of such clause is to give the party the opportunity of curing the position for the future and is aimed at certainty: at [248]-[249].

(2) The giving of notice is a condition precedent to the right to terminate: at [249].

(3) The reference to a “breach capable of being cured” was not a reference to a breach capable of being cured within a particular period: at [248], [256].

(4) The fact that the restaurants could not be established within 30 days (this was conceded) did not render the breach one that was not capable of being cured: at [262], [264], [266].

(5) The contrary construction removes an element of certainty because it intrudes into consideration the question of by whom it is to be decided that the breach is capable of being cured within the specified time: at [248].

(6) “Capable of remedy” is not concerned with whether the breach will be remedied: at [254].

“Thus, let it be assumed that the breach was the failure to have in a restaurant a particular piece of equipment, which was required to be imported from the United States. Let it nextly be assumed that usually such equipment was transported from the United States to Australia by sea and took, from the time of order to the time of delivery, more than thirty days to arrive in Australia. On that hypothesis it could, if Mr Oslington’s submission be correct, be said that the breach was not capable of being cured. However, bearing in mind that the consequence of not curing the breach is potential termination of the Development Agreement, HJPL may, if given notice of the default, organise for the piece of equipment to be flown to Australia. At the end of the day it may or may not succeed in curing the breach, but it cannot be hypothesised at the date the notice is given in those, and indeed in very many, circumstances that the breach will not be cured”.

(8) Even breaches which as at the date of the notice appear to be incapable of being cured within the 30 days require notice: at [262].

88 It will be observed that the notice clause in the Burger King case specifically drew a distinction between breaches that were capable of cure and breaches that were not. Rolfe J did advert to that point at [262].

89 The Court of Appeal expressed the view that the first question was whether the breach was capable of remedy and not whether it was capable of remedy within the 30 day period: at [118]. The second question was “Is a breach, which is a once and for all breach, for example, failure to comply with a time provision, capable of being cured?”: at [119]. The Court referred to the passage in Lord Reid’s judgment in Schuler which I have set out above, and also referred to the judgment of Sugerman J in Batson v De Carvalho (1948) 48 SR (NSW) 417, and Samuels JA and Waddell A-JA in Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689. These authorities, said the Court of Appeal in Burger King, supported Rolfe J’s construction of clause 15.2 which they considered to be correct: at [124].

90 It is true that the Burger King notice clause specifically referred to breaches that were “capable of being cured”, whereas the clause presently under consideration does not. As I have mentioned inferentially, Lords Reid, Simon (and probably Kilbrandon) seem to accept that the notice is only available for breaches that are curable, so the specific reference to “capable of cure” in clause 15.2 in Burger King should make no difference and in any event, it is WL’s contention that the notice provision here should be read implicitly as only available for breaches that are capable of cure.

91 The second point of distinction concerning Burger King is that in Burger King the clause spoke about curing such breach within 30 days, but did not speak as the clause does here of giving a notice providing an opportunity to remedy (“rectify or correct” it was submitted by WL, and seemed to be accepted by Sweeney, was synonymous with “remedy”). Thirdly it was submitted that the defect in Burger King was capable of rectification in the future even if not capable of rectification within 30 days, but here it is said that the breaches are not capable of rectification in the future.

92 Whilst I accept that the clause in Burger King is not identical with clause 8, in my view, the essence of the two clauses is the same. By concluding that a breach to establish four restaurants within a specific 12 month period was a breach that was capable of cure within the meaning of the clause, notwithstanding that it was specifically conceded that it was not possible for HJPL to establish the restaurant within the 30 day period of the notice, Rolfe J and the Court of Appeal were of the view that “capable of cure” where expressly stated is to be read widely. In my view, no different approach ought be taken to “capable of cure” where it is to be implied, or by reason of the differences in wording between the two clauses. In my view, Burger King not only applies the principle in Schuler that a requirement to do something in the past can be put right for the future, but goes beyond Schuler in treating a breach that cannot be cured within the period given by the notice as nevertheless one which is “capable of cure”. In my view, Burger King is authority for the proposition that specific time limits within which obligations are to be performed does not make the breaches incapable of cure after that time has lapsed. Nor do I think the approach taken in Burger King requires that breaches of an obligation to use all reasonable endeavours and the like are to be treated as not “capable of cure”. In my view, each of the breaches relied upon (apart from Breach 9 upon which I express no view) were “capable of cure” in the wide sense adopted in Burger King.

93 Both sides, it seems, agree that the purpose of clause 8.2 is to provide a party in default with an opportunity to cure the breach – WL says that the breach must in fact be curable. Sweeney says it need not be “capable of cure” or, alternatively, only be “capable of cure” in the wide sense adopted in Burger King. In my view of the operation of clause 8, neither clause 8.2(a) or (b) are “otiose”, “inoperative” or “surplus” (see para 8 of WLSR). Nor do I agree that for Sweeney’s construction to be accepted, clause 8 must expressly provide that it applies in the case of all breaches whether material or fundamental (see para 13 of WLSR). Clause 8 applies to all material breaches (whether characterisable as “fundamental” or not) and nothing in the passage from Concut Pty Ltd v Worrell (2000) 176 ALR 693; [2000] HCA 64 cited in para 13 or the passage in Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117 per Powell J appears to me to affect the position.

114 The letter of 21 May 2004 in my view clearly indicates that Howard was concerned that approval would not be obtained by 9 March 2006, for a variety of reasons and hence that he considered inability to obtain approvals by that date as a real possibility, notwithstanding his denial.

115 Although at T11.35 Howard said that it was obvious to him by December 2005 that there would be no satisfaction of the Conditions Subsequent by 9 March 2006 (but not by November 2005: see T11.50-57), there was the following exchange at T32.5-21:

“Q. You reached the view, didn't you, at some stage anyway that you would not obtain development approval for two and a half thousand retirement dwellings?

A. Yes. In the sense it would not be from the state government. If I may be given the opportunity of explaining; though we ran late in commissioning, in receipt of our plans, and we had some great difficulty with the state government in terms of a proposed [SEPP] there was always open to us in the last few months an opportunity to have the state government consider they were to be rejected, rezone it and provide the development consent all in the space of about a month.

We have a paper with the planning department of state government as we speak and we have had no response. I think it is unlikely we will get a Yes in the next week, but I have not had a No.”

“Q. Was it obvious to you when you became aware of the proposed SEPP that the conditions subsequent contained in the heads of agreement would not be met by March 2006?

A. No, because about October I became aware that the change in the way the New South Wales Government handled local rezoning provided for us to be considered as State significant and that would involve us making a submission to the State Government and they could quickly provide both a rezoning and a development consent. If I might add, that's why I asked Kimberley [Everett] to continue on with the work in November when the [SEPP] had been removed.”

Q. Because in fact you are suggesting to this Court, despite the fact you didn't have consultants' reports you still had a realistic hope of getting approval?
A. Not on the basis of the documents. We submitted the documents in November we had because in October we found it could be regarded as State significant. It was prudent to submit the documents. We also informed them it was necessary to engage consultants to lodge a formal application.

Q. Would you agree that the documents you lodged in November were nowhere near enough to get a development approval by the State Government?
A. That's right.

Q. Do you accept from me it would take many months afterwards, from the time you got a response from the State Government department, it would take many months after for you to prepare documentation that would be considered sufficient?
A. No, because we had already prepared reports that were due to arrive in January. The final one was provided in February.

Q. You have said to this Court you had a realistic expectation in November of an approval in March?
A. I didn't think that was a probability, I thought it was a possibility.

Q. In November of an approval in March?
A. Yes.

116 The evidence that I have set out in the previous paragraph could be taken as evidence that Howard did have a belief from October to March that WL could possibly obtain the approvals by 9 March 2006 through the Department of Planning intervention, even though it was not probable. If that is how his evidence is to be read, and I think it was so intended (see T127.36-48), it is inconsistent with his evidence that he knew by December that the approvals could not be obtained by 9 March 2006. It would also seem to undercut the argument advanced on his behalf that the breaches 3, 4 and 8 were not potentially curable.

117 I think the Sweeney submissions as to Howard’s evidence and credit are well founded and I prefer the evidence of Ms Everett to Howard’s evidence wherever it is in conflict with Howard’s evidence.

118 It is somewhat ironic that in a case in which Howard was not willing to state unequivocally that as at December 2005 he regarded the objectives of the contract as unattainable by 9 March 2006, and where his evidence was that he was still arranging for reports to be delivered by early March, that WL mounts a case that the notice was defective because the breaches were incurable. There was the further inconsistency that if Howard was correct in his view of the Sunset Date, he did not have to establish that he was doing everything necessary to obtain approvals by that date.

119 I think the cross examination at T44.24-57 (and see also Howard’s evidence at T45-46) makes it clear, notwithstanding his evidence at T40.40-50, that Howard could not reasonably have believed at any time after November 2005 that the approvals could be obtained by 9 March 2006, because it is clear that the project for which he was seeking approval was not the development for which the HOA called. The document he provided to the state government was silent on the number of dwellings (and deliberately so it would appear from Howard’s evidence at T46.42-49) and in fact showed only a small portion of the land being used for residences (see p 200 of Exhibit “C”), which Howard described as Stage 1. It is not clear from the copy document at p 200, but it was not suggested that residential development on the Sweeney block in accordance with the Sweeney requirements is outlined on that document, and I am not satisfied it was, which is another departure from the HOA.

120 Further if there was any substance in the State Government route for speedy approval there is no sufficient evidence that explains why the various reports that Howard said had been received in March (at T29.9) were not ready and provided to the State Government before March 2006, given that it was possible for those reports to have been commissioned even in 2004.

121 It appears clear from Ms Everett’s evidence and from Howard’s evidence (T16.20-25, T16.34-35, T61.8-13) and the documents that Howard did not tell her how many dwellings were required to be the subject of approval. The failure to advise her of the precise number of dwellings required by the HOA is remarkable in circumstances where it was a contractual requirement that approval of a minimum of 2500 dwellings was required, as is the failure to inform Ms Everett of the requirement of the Sunset Date (unless it was always Howard’s intention to extend the Sunset Date, of which there is no evidence). Any advice she gave was given outside the context of the requirements of the HOA.

122 I further find on the balance of probabilities that:

(a) WL, through Howard, from May 2004 had serious doubts that approvals could be obtained by 9 March 2006;

(b) that the letter of 21 May 2004 was intended to convey those doubts;

(c) that the letter from Gadens was sent on the instructions of Howard and reflected his instructions to them;

(d) that WL, through Howard, knew by 15 December 2005 that the Conditions Subsequent would not be met by March 2006, and, on the balance of probabilities, he knew it well before that date that given the failure to obtain or lodge any documents seeking rezoning and approval in accordance with the Minimum Requirements and the Sweeney Requirements before that date;

(e) that Howard, contrary to his evidence, did not instruct Ms Everett to prepare a time line or program showing obtaining of approvals by March 2006;

(f) that Howard did not tell Ms Everett that the approvals were required on or before 9 March 2006;

(g) that WL delayed in making at attempt to receive the “change of use” from Council, whilst it also sought to assess the impact of a proposed change in the relevant SEPP (State Environmental Planning Policy): Exhibit “C” pp 216-219, and did not prepare expeditiously all of the reports which it knew were required by Council;

(i) no consultants were engaged to prepare all necessary designs and plans for a project that met the Minimum Requirements and Sweeney Requirements;

(ii) even those that were obtained were obtained at a much later stage than was appropriate using Mr Ludvik’s evidence as a benchmark.

123 I have referred to the “softly softly” approach. I think it might theoretically be open to a party in the position of WL with an obligation to use all reasonable endeavours to establish that the normal process in regard to obtaining approvals needed alteration, even perhaps radical alteration, but to justify that different approach one would expect to see, at the least, evidence:

(i) the date by which the approvals were to be obtained;

(iii) the Sweeney Requirements;

(b) that the project manager had been asked to prepare and had prepared a timeline which showed the time by which the various steps had to be completed in order to achieve approvals by the target date;

124 Many of the steps taken by WL after the execution of the HOA were of a type that it could be expected would have been undertaken prior to execution of the HOA. In May 2004, Howard was organising for a topographical study to ascertain whether there were in fact parts of the land for which Council might be willing to grant approval. The memorandum of 21 May 2004 (set out at [113](3) above), para 28 of Howard’s first affidavit, T19.36-20.26, T30.27-31, T40.1-39 (dealing with a later period), are steps taken which appear to be linked to a need to determine the feasibility of the project. It would of course be desirable from a commercial point of view for WL not to have to expend money on taking all the steps necessary to obtain approval until it could be determined that those steps would be very likely to obtain that result, but I do not think the HOA contemplated that WL could avoid taking all the steps needed to obtain approvals whilst it investigated whether the whole venture was worthwhile. Ms Everett was, as SWS paras 98 and 99 point out, appointed to determine “whether or not a development potential exists” (Exhibit 5 pp 6-8) and appears to have been appointed project manager for tasks associated with rezoning, not development approval.

125 The difficulties of obtaining approval (other than the new proposed SEPP) were appreciated by WL before it entered into the agreement (see Howard’s affidavit of 13 February 2006) paras 27 and 28, and it was not suggested that any of the points set out at [37] above were not known to WL when it entered into the HOA. As Mr Simpkins pointed out, this is not a case in which frustration or mistake is asserted. I do not think the fact that WL has spent almost $400,000 on the project establishes that WL has used all reasonable endeavours – the projected profit was $50 million to Sweeney and presumably a very large amount to WL. Mr Ludvik’s unchallenged report establishes what needed to have been done to achieve the approvals before 9 March 2006. It was not put to Mr Ludvik that his program could not have yielded the desired result if it had been followed.

126 In regard to Howard’s failure to mention the deadline of 9 March 2006 to Ms Everett, the case has some similarity to Paltara Pty Ltd v Dempster (1991) 6 WAR 85, because there the vendor failed to mention the urgency to the Water Authority, and that failure was held to be a breach of the “best endeavours” clause. The failure to mention the precise obligations in respect of the number of units is of a similar nature.

127 It follows that I am not persuaded that:

(1) WL was not in breach of its obligation to use all reasonable endeavours to achieve satisfaction of the Conditions Subsequent by 9 March 2006;

(2) WL was not in breach of its obligations to engage and retain appropriate experts and qualified consultants for the preparation of all necessary designs, plans (including plans of subdivision and specifications for the project as required by clause 4.1(a) of the HOA);

(3) Sweeney was not entitled to utilise the notice provision in clause 8.2;

(4) alternatively that if Sweeney was not entitled to rely on clause 8.2, that it was not permitted to rely on clause 8.1;

(5) WL did conduct itself so as to achieve the objectives expressed in the HOA as expeditiously as possible (I shall deal with the good faith obligation to which this relates below);

128 It follows that I am not persuaded that Sweeney was not entitled to terminate the HOA after 20 January 2006.

129 In the light of this conclusion based on Breaches 3, 4 and 8, I do not need to consider the other breaches, but since they were the subject of argument, I shall deal with them, and even though in the WLSR it was asserted that since SWSR had not responded to paras 97-108 of WLS, it was not necessary to deal with the estoppel arguments.

Breaches 1 and 2 (Good faith)

130 Breach 1 is tied up with Breach 6 and I deal with Breach 6 below, so I shall consider here Breach 2. WL was contractually bound to exercise good faith so as to achieve the objectives in the HOA as “expeditiously as reasonably possible”. WL, says Sweeney, by its conduct, produced a situation where there was no reasonable or realistic prospect that WL would be able to obtain the approvals by 9 March 2006.

131 Sweeney, in its written submissions in chief, said nothing about the breach of this obligation and even in reply, SWSR paras 17 and 18, its submissions were brief, reference being made to Harrison v Teton Valley Trading Co Ltd [2004] 1 WLR 2577; [2004] EWCA Civ 1028 at [26].

132 WL submitted that the Court should not entertain any arguments based on absence of good faith when Howard was not cross-examined to the effect that he did what he did in bad faith. Although Howard’s credit was certainly put in issue (I have dealt with this point elsewhere), it was not put to him that he did what he did for a motive that might be described as dishonest, unfair or improper.

133 In Harrison, the English Court of Appeal (Pill, Arden LJJ and Sir William Aldous) had to consider whether a trade mark had been registered in bad faith. The Court was of the view that the test of bad faith was a combined objective and subjective one, and that the proper standard had to be that of acceptable commercial behaviour observed by reasonable and experienced persons in the particular commercial area being examined.

134 It does not necessarily follow that absence of good faith is equivalent to bad faith. In his article “Good faith in contract performance” (found in Beatson and Friedmann, “Good Faith and Fault in Contract Law”, Clarendon Press, Oxford, Melbourne, 1995), Professor E Allan Farnsworth highlights the debate over the meaning of good faith. He refers to “honesty in fact”, and the observance of reasonable standards of fair dealing in trade as definitions found in the US Uniform Commercial Code para 1-203. In Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15, Giles JA (with whom Sheller and Ipp JJA agreed) referred to good faith meaning “honesty”, good faith meaning “doing what is necessary to enable the party to have the benefit of the contract” and good faith meaning “reasonableness”: at [193].

135 If good faith is taken as meaning “doing what is necessary to enable the party to have the benefit of the contract” and/or “reasonableness”, then the factual basis for my conclusions on the approach taken by WL lead also to the conclusion that there was a breach of the obligation of good faith. If “good faith” is taken to mean “honesty”, then a view of the contract which is found by a Court to be incorrect or unreasonable, in an objective sense, does not amount to “dishonesty” or “lack of honesty”.

136 In this case, Howard asserted that he believed that his endeavours to achieve zoning had to be achieved by 9 March 2008. If contractually he was obliged to obtain approvals by 9 March 2006, it does not follow that there was an absence of good faith, because of his wrong (on my view) interpretation. Not only was he not cross-examined on his evidence that he had thought he had until March 2008 to obtain approval but no motive of a kind that could be described as amounting to a lack of good faith was suggested to him or to the Court. I am not persuaded that WL did not act in good faith in that sense.

137 Given my conclusions on the other breaches, I do not think a conclusion that there has been a breach of good faith (or a conclusion that good faith has not been established) in the first two senses takes the matter any further. I am not prepared to make a finding that Howard did not act honestly or to reject the claimed relief on the basis that honesty was not established.

Breaches 5 and 7 (Notice clause 4.3, minutes and informing)

138 It was not disputed that WL did breach the requirement for minutes of meetings, and did not cure the breaches. It is not disputed by WL that it did not issue a notice pursuant to clause 4.3. That leaves the issues:

(a) whether WL breached the notice requirements of clause 4.3;

(b) whether WL breached the obligation to keep Sweeney informed;

(c) whether WL has established that the breaches in question were material;

(d) whether WL has established that Sweeney elected not to rely on the breaches;

139 Clause 4.3 required WL to “promptly notify Sweeney in writing if any condition subsequent … cannot be satisfied”. It does not specifically say “cannot be satisfied by the Sunset Date” but I think it is implicit that that was what was meant and I have held that the Sunset Date is to be treated as 9 March 2006 unless notice has been given by clause 4.5. The clause does not expressly state that WL must be satisfied that any Condition Subsequent cannot be satisfied (as WL seemed to assert) but I think that if WL genuinely believed on reasonable grounds that it could be satisfied, but it could not in fact be satisfied, a difficult question would arise. In this case, WL’s submissions embrace the notion that as at 15 December 2005 the approvals could not be obtained on or before 9 March 2006 and Ms Everett said as much, but Howard having admitted that he did know in December that the approvals would not be obtained seemed to resile from the admission: see T32.5-21 and [115].

140 In my view, the objective evidence establishes clearly that by 15 December 2005, the approvals could not be obtained by WL by 9 March 2006. Howard did at one point admit that it was known to him and I think that admission was appropriately made, even more so given the limited scope of what had been advanced even in the draft strategy document. Ms Everett’s evidence based on the requirements of the HOA, of which she had not been informed, only reinforces the conclusion that the inability to meet the 9 March 2006 deadline should have been obvious by, and indeed well before, December. Given WL’s onus of proof, I think that WL must satisfy the Court that it did not appreciate through Howard the objective reality, and this has not been established to my satisfaction. In my opinion, WL has not established that as of 15 December it was not in breach of the obligation imposed by clause 4.3. The breach was not rectified because WL did not inform Sweeney in writing that any condition subsequent could not be satisfied.

Election

141 There is no dispute between the parties that Sargent v ASL Developments Ltd (1974) 131 CLR 634 is the modern font for the principles of election, with a more recent affirmation of the principles in Immer (No 145) Pty Ltd v Uniting Church in Australian Property Trust (NSW) (1993) 182 CLR 26, where it was said that the true nature of election is that “the party electing shall be ‘confronted’ with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice.”

142 Mr Sullivan drew my attention to pp 640-642 and 648-9 where Stephen J highlighted the relevant principles. As Stephen J pointed out at 646, an example of election is where a lessor whose tenant is in breach, and who is thereby entitled to terminate the lease, loses that right to terminate by continuing to receive rent.

143 Here WL says that by failing to ask for the draft development agreement (Breach 6), failing to cause regular minuted meetings and generally keep the Defendants informed of progress (Breach 7), and failing to require notice under clause 4.3, Sweeney elected not to rely on the purported breach by WL (para 85).

144 It seems to me that WL’s submission confuses election and estoppel. The giving of notice is not inconsistent with the continued existence of the contract – it relies on the contract. The fact that Sweeney took a long time to issue the notice requiring remedy in relation to minutes could give rise to an estoppel (as to which see below), but the failure to take action is not the exercise of an inconsistent right.

Estoppel

145 WL relies on conventional estoppel, which as WL outlined, requires three elements to be satisfied:

(i) the party claiming the estoppel must have adopted an assumption as the basis of an act or omission (see Moorgate Mercantile Co Ltd v Twitchings [1976] QB 225 at 245; [1975] 3 All ER 314 per Browne LJ);

(ii) the claimant, upon the basis of the assumption, must have so acted or abstained from acting such that a detriment will be suffered if the person against whom the estoppel is asserted is afterwards allowed to set up rights inconsistent with it: Commonwealth v Verwayen (1990) 170 CLR 394 at 413 (Mason CJ) and 444 (Deane J); see also MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 at [72] (Hodgson JA); and

146 WL asserted that the estoppel in relation to the development agreement arose from the following facts:

(a) The parties assumed that a draft Development Agreement was not required to be submitted in accordance with the HOA (para 91 WLS).

(b) If an earlier notice had been given in respect of the failure to so act, it could have been rectified earlier (para 92 WLS).

147 So far as the notice under clause 4.3 was concerned, it was argued (T111) that Sweeney, having known that the approvals could not be met, could not complain if notice was not given telling it what it already knew. Even in the course of these proceedings, Howard was not conceding unequivocally that the approvals could not be obtained by 9 March 2006, and I do not think that Sweeney’s knowledge, even if it were established as at 15 December 2005 to be that the conditions could not be satisfied, is what is relevant or would relieve WL from its obligations to notify. In any event, it was not Howard’s evidence that he did not notify because of something Sweeney had said or done or omitted to do. I do not think that election has any relevance to this point.

148 WL asserted that the estoppel in relation to the failure to provide the minutes arose from Sweeney knowing that none had been prepared and failing to ask for them until a long time after.

149 There was no evidence from Howard that he did or did not take actions because of an assumption induced by Sweeney. I do not think that the necessary foundations for an estoppel have been made out.

150 Returning to the question of the absence of notice pursuant to clause 4.3 and its materiality, Sweeney claimed that it was important for it to know that the Conditions Subsequent could not be met – because if it had been so informed it could have embarked upon negotiations with WL. It also argued that if it knew that the HOA would be terminated it could make plans in relation to the mortgage repayments which had been suspended whilst the HOA were on foot. Mr Sullivan pointed out that since WL always had the right to extend the Sunset Date right up to the last day, Sweeney could never plan for what might occur on 9 March 2006 based on inability to obtain approvals by 9 March 2006. He also emphasised that the right to extend the Sunset Date lay wholly in the hands of WL. Sweeney had no right to extend the agreement. I think there is some force in Mr Sullivan’s argument as to why Sweeney could do little, even if it received a notice under clause 4.3, but I do not think that it follows that the breach of that clause was not material, ie significant.

151 Where the purpose of the HOA was the development of the site with a requirement that approval was to be obtained by 9 March 2006 (in the absence of an extension of time pursuant to clause 4.5) a clause requiring notification that approval by the relevant date could not be obtained seems to me to be of importance and hence not insignificant, even if Sweeney might have to accept that until 9 March 2006 it could not be sure that the HOA would be extended. It would know, at the least, that if there were to be an extension it would receive a further $2 million.

152 In my view, it is reasonable to anticipate that Sweeney would want to know as soon as possible after WL knew, that the Conditions Subsequent could not be met by the due date or at all. Howard’s letter of 21 May 2004 contains an implied recognition by Howard of Sweeney’s interest in knowing the position (although at that stage it was uncertain), as well.

153 In regard to Breach 5, WL has failed to establish that it is not in breach, and in relation to clause 4.3 failed to establish that it is not a material breach or that it has been rectified.

154 In view of the conclusion to which I have come on the notice requirement, I do not think it is necessary to consider the question of whether the failure to minute the meetings was a material breach or whether factually there was otherwise a failure to inform.

Breach 9 (Insurance)

155 Clause 6.9 obliged the First Plaintiff to take out a public liability policy on or before 9 March 2004 to cover WL’s activities on the Property. It took out a policy on 27 October 2005 (Howard para 93) – the policy is not retrospective.

156 The notice asserted a breach of clause 6.9 in that “WL has not provided to Sweeney evidence of public liability insurance”. WL asserts that:

(1) it had no obligation to provide a copy of the policy pursuant to the HOA;

(2) the breach, if it was a material breach, could not be remedied because cover could not be obtained retrospectively (see Howard’s evidence at T95);

157 There are a number of strands to WL’s argument, but I was persuaded by Mr Sullivan’s point, that the failure of WL to obtain insurance from the HOA to 27 October is of very limited significance in the context of this case because:

(a) the only activity on the site was the inspection of it by experts;

(b) there is no evidence that in fact any claim has arisen or been made;

(c) there is by virtue of clause 9.2, a requirement for WL to indemnify Sweeney in the event of any liability, which might arise by reason of the carrying out of the project and by the arrangements entered into for the mortgage, WL is owed many millions of dollars by Sweeney ($8 million was mentioned in submissions (T142.13) and $3 million is referred to in the draft Development Agreement) so that the requirement to indemnify is, in effect, the subject of security;

(d) the amount of the liability policy is not specified so that even a small amount of cover might suffice.

Failure to document (Breach 6)

158 Sweeney relies on the failure to provide a draft Development Agreement until 25 November 2005 but it also asserts that what was provided on 25 November 2005 did not comply with the obligations in clause 6.1 (and clause 3.1(a)(i) good faith) because it does not deal with all matters in the HOA.

159 Clause 6.1 obliged WL to prepare and submit the Development Agreement to Sweeney “as soon as possible after the HOA”. “Development Agreement” was defined to mean an agreement containing the terms set out in Annexure A “and otherwise determined in accordance with clause 6” of the HOA. Clause 6.3 permitted additional terms to be included if they were believed to be appropriate and usual and not materially inconsistent with the HOA.

160 The alleged inadequacy of the draft Development Agreement has, as matters transpired, become centred upon clause 10.8 and in particular 10.8(c), which requires WL to waive the payment of interest under the Development Agreement mortgage, but does not specifically refer to the mortgage as referred to in clauses 12.1 and 12.2 of the HOA.

161 WL, by the WLS, seeks to explain in detail why the point is not substantial, and part of the explanation is said to be the use in the Draft Development Agreement of clause 10.3, which it was submitted, had really been overtaken by events. I think it is clear that there is a drafting deficiency of some sort and Sweeney has not in its submissions responded to WL’s detailed points. WL also relies on an estoppel, based on the indication from Sweeney’s solicitors that they did not propose (as at 13 January 2006) to further discuss the draft until after the question of its Notice was dealt with by the Court. The letter did continue to maintain that clause 10.8 was defective and WL therefore did have time within which to cure the defect.

162 I am not convinced that there is any estoppel arising out of the correspondence but I think there is substance in the argument that the provision of the Draft should not be seen as a breach of the HOA, merely because it was not worded as felicitously as it should have been. That is not to say that the clause was unimportant, but the obligation was to “prepare and submit the Development Agreement for approval” and clause 6.4 expressly required Sweeney and WL to “in good faith negotiate to resolve any disputes between them on the question of whether any requested term in clause 6.3 should be included in the Development Agreement”. The absence of any detailed response to the WL submissions on the construction point suggests that the drafting inadequacy could be readily resolved through negotiation, if and when that were to take place. I would not regard WL’s failure to expressly refer to the Sintan mortgage in the draft as a material breach entitling termination.

Common law right to terminate

163 Sweeney has asserted that if its argument concerning clauses 8.2 and 8.1 are both rejected then it is entitled to terminate the HOA for breach of fundamental term, ie the failure to use reasonable endeavours to obtain the approvals required by clauses 4.1 and 7.1.

164 WL seeks to block this argument on the preliminary basis that no notice of this argument was given by Sweeney in correspondence prior to the hearing or at the commencement of the hearing. Mr Simpkins accepts that at the commencement of the hearing he said nothing about the common law right of termination, but he points out that WL bears the onus of establishing that Sweeney does not have such a right, and that burden was not lifted in the absence of an express indication that Sweeney did not assert a common law right. More importantly, says Mr Simpkins, the discussion at the commencement of the case was not against knowledge of what was contained in WL’s written submissions which were delivered later and the common law termination point arises only in response to WL’s assertions that the notice given was invalid. The relevant correspondence is extracted at para 133 of WL’s written submissions (as amended) (it was agreed by Sweeney that WL did not need to tender the letter) and it is clear that the issues which Sweeney was told were in WL’s contemplation were whether WL was in breach and whether the breaches were material. There was no reference to the notice being invalid because the breaches were incurable. See also Gadens’ letter of 5 January 2006: p 42 Exhibit “C”. I do not think that Sweeney is precluded from arguing that it is entitled to rely on a right to common law termination given the matters raised by WL in its submissions for the first time.

165 The second argument against any common law right of termination is that Sweeney, having elected to use the notice provisions, cannot now set up breach of a fundamental term. I readily accept that if a party gives a notice pursuant to a clause such as 8.2, and the promisor within the time specified remedies the fault, the promisee has lost the right to terminate for common law breach. A more difficult issue however is whether the promisee is precluded from relying on the fundamental breach where the recipient of the notice successfully claims that the notice is invalid but has not remedied the breach. As a matter of theory, interesting and difficult questions arise, and I was not taken to any consideration of the point, if it has arisen.

166 Given my views on other aspects and the urgency of the judgment, I would prefer not to expand on what may already be an overly long judgment, but I am inclined to think that the short answer is that the paries have agreed by clause 17.8 that the remedies provided by the contract are cumulative so that it is agreed that use of the notice does not deprive Sweeney from relying on its common law rights (provided that the fault has not been rectified following receipt of the notice). I think that approach is consistent with the approach of Powell J in a passage also found in Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117 at 135 (the case but not this passage was cited in para 14 of WLSR) where he said:

“The fact that the rights provided by cl 16 are intended to be cumulative upon, rather than in substitution for, the plaintiffs' ordinary rights at common law means, in my view, that except to the extent to which those rights are inconsistent with the rights provided by the common law, and except to the extent that there has been a completed and irrevocable exercise of one or other of those inconsistent rights, there can be no room for the operation of the doctrine of "election" upon which so much stress has been placed, in this case, by the defendant: see Johnson v Agnew [1980] AC 367, at p 394 et seq, per Lord Wilberforce (in whose speech Lord Salmon, Lord Fraser of Tullybelton, Lord Keith of Kinkel and Lord Scarman all concurred); McKenna v Richey [1950] VLR 360; cf and cp Sargent v ASL Developments Ltd (1974) 131 CLR 634, at p 641, per Stephen J, at p 655, per Mason J.”

167 In my view, the failure by WL to use all reasonable endeavours to obtain the approvals is a breach of a fundamental term, which would entitle Sweeney to terminate after 20 January 2006 in the absence of rectification following receipt of the notice.

Conclusion

168 It follows in my view that WL has not established an entitlement to the relief which it seeks and the summons should be dismissed. I will hear the parties on the issue of costs.

**********

Citations

Waters Lane Pty Limited v Sweeney [2006] NSWSC 222

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CITATION:	Waters Lane Pty Limited v Sweeney [2006] NSWSC 222
HEARING DATE(S):	2-3/03/06, 4/04/06
JUDGMENT DATE :	26 April 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Rein AJ
DECISION:	Summons dismissed: see [168].
CATCHWORDS:	Contract for development of property - declaratory relief - onus - construction - "all reasonable endeavours" - express obligation of "good faith" - material breach - notice provisions - whether validly exercised - whether breaches curable - whether "but for" test applicable - reliance on inability caused by party's own breach - whether notice that Conditions Subsequent could not be satisfied should have been sent - materiality of breaches
LEGISLATION CITED:	Conveyancing Act 1919, s 129 US Uniform Commercial Code, para 1-203
CASES CITED:	Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Australian Casualty Co Limited v Federico (1986) 160 CLR 513 Batson v De Carvalho (1948) 48 SR (NSW) 417 Blanch v British American Tobacco Australia Services Ltd (2005) 62 NSWLR 653; [2005] NSWSC 241 Brand v Digi-Tech (Australia) Ltd [2002] NSWSC 416 Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Commonwealth v Verwayen (1990) 170 CLR 394 Concut Pty Ltd v Worrell (2000) 176 ALR 693; [2000] HCA 64 Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476; [2000] FCA 1902 Egan v Geraghty (unreported, CA(Qld), 16/2/1994, Fitzgerald P, Pincus and Williams JJA, BC9404565) Egerton v Esplanade Hotels London Ltd [1947] 2 All ER 88 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Harrison v Teton Valley Trading Co Ltd [2004] 1 WLR 2577; [2004] EWCA Civ 1028 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Hi-Fert Pty Ltd v United Shipping Adriatic Inc (1998) 89 FCR 166; 165 ALR 265 Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Horsey Estate Ltd v Steiger & Petrifite Company Ltd [1899] 2 QB 79 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 Hungry Jack's Pty Ltd v Burger King Corp [1999] NSWSC 1029 Immer (No 145) Pty Ltd v Uniting Church in Australian Property Trust (NSW) (1993) 182 CLR 26 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Italo-Australian Club Ltd v National Australia Bank Ltd (1989) NSW Conv R 55-461 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; [1973] 2 All ER 39 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 Minister for Immigration Local Government & Ethnic Affairs v Dela Cruz (1992) 34 FCR 348 MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 Moorgate Mercantile Co Ltd v Twitchings [1976] QB 225; [1975] 3 All ER 314 North v Marina (2003) 11 BPR 21,359; [2003] NSWSC 64 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 Paltara Pty Ltd v Dempster (1991) 6 WAR 85 Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379 Re Strand Music Hall Co Ltd (1865) 35 Beav 153; 55 ER 853 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117 Terrell v Mabie Todd & Co Ltd [1952] 2 TLR 574; (1952) 69 RPC 234 The Glendarroch [1894] P 226 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 UBH (Mechanical Services) Ltd v Standard Life Assurance Co (The Times, 13 November 1986, CA) United States Surgical Corp v Hospital Products International [1983] 2 NSWLR 157 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
PARTIES:	Waters Lane Pty Limited (First Plaintiff) Sean Martin Howard (Second Plaintiff) David James Sweeney (First Defendant) Gregory Sweeney (Second Defendant) Cynthia June Sweeney (Third Defendant) Rhonda June Sweeney (Fourth Defendant)
FILE NUMBER(S):	SC 1321/06
COUNSEL:	Mr A Sullivan QC; Mr C Bova (Plaintiffs) Mr J Simpkins SC; Ms T Wong (First, Third and Fourth Defendants)
SOLICITORS:	Gadens Lawyers (Plaintiffs) David Begg & Associates (First, Third and Fourth Defendants) Xenos Lawyers (Second Defendant)