Woolworths Group Ltd v Gazcorp Pty Ltd

[2022] NSWCA 19

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Woolworths Group Ltd v Gazcorp Pty Ltd [2022] NSWCA 19

Hearing dates:

18 November 2021

Date of orders:

22 February 2022

Decision date:

22 February 2022

Before:

Bathurst CJ at [1];
Bell P at [2];
Meagher JA at [231]

Decision:

Appeal dismissed with costs

Catchwords:

CONTRACTS – termination – abandonment – agreement for lease executed in 2008 – period of years during which landlord did not perform works under the agreement – performance by landlord not insisted upon during this period – where certain rights under the agreement for lease expired during this period – where development consent allowing for project contemplated by agreement was due to lapse in February 2014 – where parties made no specific reference to agreement after April 2012 – whether agreement was abandoned

CONTRACTS – termination – frustration – agreement for lease – where landlord agreed to carry out works to construct shopping centre and to grant lease of part of shopping centre to tenant – development consent obtained – where parties contemplated incorporation of department store into shopping centre – where development application for incorporation of department store refused – whether agreement for lease was varied to incorporate plans for department store

CONTRACTS – termination – frustration – agreement for lease – landlord to perform works for construction of shopping centre development – where those works were authorised by and subject to a development consent obtained in 2008 – where parties operated under common assumption that landlord would be able to carry out works lawfully in accordance with development consent – neither party responsible under agreement for maintaining that state of affairs – development consent lapsed in 2014 prior to commencement of works – works subsequently unable to be performed lawfully – whether agreement frustrated – whether lapse of development consent resulted in a “radical difference” in circumstances of performance – whether landlord responsible for lapse of development consent

LEASES AND TENANCIES – default and termination – abandonment – agreement for lease executed in 2008 – period of years during which landlord did not perform works under the agreement – where performance not insisted upon – where certain rights under the agreement expired during this period – where development consent allowing for project contemplated by agreement was due to lapse in February 2014 – where parties made no specific reference to agreement after April 2012 – whether agreement was abandoned – whether by conduct and correspondence parties mutually intended that contract was not to be performed

Legislation Cited:

Environmental Planning and Assessment Act 1979 (NSW) s 96

Sydney Local Environmental Plan 2012 cl 7.23

Cases Cited:

Albert D Gaon & Co v Société Interprofessionelle des Oleagineux Fluides Alimentaires [1960] 2 QB 318

Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665; [2011] NSWCA 396

Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61

Chinatex (Australia) Pty Limited v Bindaree Beef Pty Limited [2018] NSWCA 126

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696

Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12

Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The “Sea Angel”) [2007] 2 Lloyd’s Rep 517; [2007] EWCA Civ 547

Fazio v Fazio [2012] WASCA 72

Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 43

GC NSW Pty Ltd v Galati [2020] NSWCA 326

Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497

Humphrey & Edwards v City of Sydney [2009] NSWLEC 1075

J Lauritzen AS v Wijsmuller BV (The “Super Servant Two”) [1990] 1 Lloyd’s Rep 1

Jafari v 23 Developments Pty Ltd [2019] VSCA 201

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154

Marminta Pty Limited v French [2003] QCA 541

Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72

Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52

Moto Projects (No 2) Pty Ltd v North Sydney Council (1999) 106 LGERA 298; [1999] NSWLEC 280

New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1

Ocean Tramp Tankers Corporation v V/O Sovfracht (The “Eugenia”) [1964] 2 QB 226

oOh! Media Roadside Pty Ltd (Formerly Power Panels Pty Ltd) v Diamond Wheels Pty Ltd (2011) 32 VR 255; [2011] VSCA 116

Paal Wilson & Co AS v Blumenthal [1983] 1 AC 854

Pioneer Shipping Ltd v BTP Tioxide Ltd (The “Nema”) [1982] AC 724

Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16; (2015) 230 BPR 35,511

Ryder v Frohlich [2004] NSWCA 472

Técnicas Reunidas SA v Andrew [2018] NSWCA 192

Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; [1968] HCA 8

Wallera Pty Limited v CGM Investments Pty Limited [2003] FCAFC 279

Category:

Principal judgment

Parties:

Woolworths Group Ltd (Appellant)
Gazcorp Pty Ltd (First Respondent)
Nicholas Gazal (Second Respondent)

Representation:

Counsel:

J Stoljar SC, M Cairns and A R Langshaw (Appellant)
S Lawrance SC and C McMeniman (Respondents)

Solicitors:

Clayton Utz (Appellant)
Back Schwartz Vaughan (Respondents)

File Number(s):

2021/95022

Publication restriction:

N/A

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Citation:

[2021] NSWSC 308

Date of Decision:

30 March 2021

Before:

Darke J

File Number(s):

2018/314968

HEADNOTE

[This headnote is not to be read as part of the judgment]

On 20 February 2008, Woolworths Group Limited (Woolworths) and Gazcorp Pty Ltd (Gazcorp) entered into an Agreement for Lease (AFL) in relation to a proposed commercial and retail development in Green Square, Sydney (the Green Square development). The AFL contemplated that Gazcorp would undertake building works on the site, and that the Date for Practical Completion would be 30 April 2010. The development was to include premises for a supermarket on the lower ground level, and it was agreed that Woolworths would subsequently enter into a lease of those premises. Development Consent had already been obtained in relation to the development (the 2008 Development Consent).

In late 2007 and 2008, Woolworths and Gazcorp discussed the prospect of including a Big W store in the Green Square development. A fresh Development Application was lodged on 2 July 2008 which reflected the inclusion of the Big W store in the development (the 2008 Development Application). These discussions resulted in delays to the construction program, and on 23 July 2008, Gazcorp sent a letter to Woolworths requesting that Woolworths agree to an extension of the Date for Practical Completion. On 11 September 2008, Woolworths sent a letter in reply, agreeing to extend the Date for Practical Completion to 1 October 2010, subject to Gazcorp’s agreement to several further variations to the AFL. Relevantly, one of these variations was to alter the definition of the “Landlord’s Works” to be completed by Gazcorp, such that they referred to the revised building plans. In reply, Gazcorp requested that the approval date (the date by which all approvals were to be obtained in relation to the development) be further extended from November 2008 to early 2009. On 12 September 2008, Woolworths sent a letter which was in identical terms as its letter sent the previous day, except that the approval date had been amended as requested by Gazcorp (the 12 September 2008 letter). The proper construction and legal effect of this letter was disputed by the parties.

In the interim, the 2008 Development Application was deemed to have been refused on 11 August 2008. Gazcorp instituted an appeal in the Land and Environment Court of New South Wales, which was dismissed on 20 March 2009. The 2008 Development Consent, however, remained in place. Discussions continued intermittently between representatives of Gazcorp and Woolworths, during which various iterations of the building plans were exchanged. On 6 July 2012, with the support of Woolworths, Gazcorp lodged a further Development Application in relation to the Green Square site, which contemplated a development significantly different from that originally envisaged in the AFL. Notably, the location and configuration of the proposed supermarket was differently situated within the development. This application was approved on 30 November 2012 (the 2012 Development Consent). The parties continued to discuss proposals for the Green Square development, however no reference was made to the AFL in any correspondence between April 2012 and 3 February 2016. The 2008 Development Consent expired on 17 February 2014, without any building works having commenced.

In early 2016, Woolworths and Gazcorp discussed entering into a new agreement for lease in relation to the Green Square site. In the course of these discussions, it became clear that the parties disagreed about whether the AFL remained on foot. Gazcorp asserted that the AFL had been abandoned and that there was no existing agreement between the parties, while Woolworths asserted that the AFL remained in force. Further negotiations proved unsuccessful in reviving the project, and the parties were unable to reach agreement about the terms of a new agreement for lease.

Gazcorp commenced proceedings on 15 October 2018, seeking various declarations including a declaration that the AFL had been terminated or was otherwise no longer in force. Woolworths lodged a cross-claim seeking a declaration to the opposite effect. On 30 March 2021, Darke J (the primary judge) made a declaration that the AFL, whether as varied in September 2008 (as Gazcorp contended) or not, was no longer on foot. His Honour held that the AFL had been varied by the 12 September 2008 letter, and was then discharged by frustration following the refusal of the 2008 Development Application. In the alternative, his Honour considered that the AFL was terminated by mutual abandonment no later than about the beginning of 2014. Further in the alternative, his Honour considered that the AFL was terminated by frustration on 17 February 2014 when the 2008 Development Consent lapsed.

Woolworths appealed from the decision of the primary judge. The principal issues on appeal were:

1. whether the AFL was varied by the 12 September 2008 letter (the variation issue);

2. in the alternative, whether the AFL was abandoned (the abandonment issue); and,

3. in the alternative, whether the performance of the AFL was frustrated (the frustration issue).

The Court held (Bell P, Bathurst CJ and Meagher JA agreeing), dismissing the appeal with costs:

As to the variation issue

1. The primary judge did not err in finding that the AFL had been varied on 12 September 2008, such that that the definition of “Landlord’s Works” was altered. As a result, the works to be completed by Gazcorp under the AFL were those contained within the revised building plans: [79]–[83].

2. The AFL as varied was not void for uncertainty. It was plain that the plans referred to in the varied AFL were those which had been sent to Woolworths by a representative of Gazcorp, and which included a Big W store. That these plans may have been provisional or preliminary was immaterial, as the AFL expressly provided for their negotiated alteration: [84]–[86].

Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; [1968] HCA 8; Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52, applied.

3. In light of the holding that the AFL was validly varied, it was common ground that Gazcorp’s ability to perform that varied agreement was frustrated by the Land and Environment Court’s rejection of its appeal from the deemed refusal of the 2008 Development Application. As such, the AFL was terminated by frustration from 20 March 2009: [87].

As to the abandonment issue

4. On the alternative assumption, contrary to (1)-(3) above, that the AFL was not varied in the manner described above, the primary judge did not err in finding that the AFL was abandoned by no later than about the beginning of 2014: [176], [198].

Ryder v Frohlich [2004] NSWCA 472; DTR Nominees Pty Limited Mona Homes Proprietary Limited (1978) 138 CLR 423; [1978] HCA 12; Paal Wilson & Co v Blumenthal [1983] 1 AC 854; [1983] 1 All ER 34; Técnicas Reunidas SA v Andrew [2018] NSWCA 192; Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 43; Jafari v 23 Developments Pty Ltd [2019] VSCA 201; Fazio v Fazio [2012] WASCA 72, considered.

5. The totality of the parties’ conduct was inconsistent with an intention to perform the AFL. In particular:

1. The AFL was not referred to by the parties in any correspondence between April 2012 and 3 February 2016: [6], [191], [193].

2. The 2012 Development Consent was not consistent with an intention to perform the AFL, as the proposed works differed significantly from the development envisaged by the AFL: [191] – [192].

3. The 2008 Development Consent expired in February 2014 without comment or action from either party. From this point in time, the AFL was incapable of performance: [193].

4. Woolworths’ conduct, viewed in the context of the parties’ dealings over time, was inconsistent with an intention on its part to insist on the performance of the AFL: [196].

As to the frustration issue

6. Given the conclusions as to the variation and abandonment issues, it was not necessary and would be artificial to determine the frustration issue: [225].

Judgment

1. BATHURST CJ: I have had the advantage of reading the judgment of the President in draft. I agree with the order proposed by his Honour and with his Honour’s reasons.

2. BELL P: Green Square is a densely populated inner-urban precinct in the vicinity of Alexandria, Rosebery, Waterloo and Zetland. It has undergone significant development and transformation in the last two decades. At the heart of this case is the status of an Agreement for Lease (AFL) entered into between Woolworths Group Ltd (Woolworths) and Gazcorp Pty Ltd (Gazcorp) on 20 February 2008. In a detailed judgment delivered on 30 March 2021 after a six-day hearing, Darke J (the primary judge) held that the AFL was no longer on foot because it had either been abandoned or had been frustrated: Gazcorp Pty Ltd v Woolworths Group Ltd [2021] NSWSC 309 (primary judgment or PJ). Woolworths appeals from his Honour’s decision.

3. The AFL contemplated that building works on a site in Green Square would be undertaken by Gazcorp; that the Date for Practical Completion would be 30 April 2010; and that Woolworths would enter into a lease in the form provided by Schedule 5 to the AFL as part of a mixed commercial and retail development to be constructed by Gazcorp.

4. The development, including the shopping centre which the AFL contemplated would be erected, has not been built. A Development Application in relation to its construction was submitted on 20 August 2007, with a Development Consent being issued on 4 February 2008 (the 2008 Development Consent). The 2008 Development Consent expired on 17 February 2014 without any substantial (or non-substantial) commencement of the works to which it related.

5. Prior to the expiry of the 2008 Development Consent, Gazcorp submitted a further Development Application for the same land. Development Consent for this application was secured on 30 November 2012 (the 2012 Development Consent). Mr Stoljar SC, for Woolworths, accepted that, had a building been constructed by Gazcorp in accordance with this Development Consent, the location of the supermarket would have been different from that contemplated by the AFL and the 2008 Development Consent. It would, amongst other differences, have been on a different floor of the building that it was contemplated Gazcorp would construct and the overall mall configuration would have been very different, as would have been the number and location of loading docks for the supermarket.

6. Although Woolworths asserted that the AFL remained on foot at all material times, according to the evidence that was led at first instance, it was not mentioned by the parties in any correspondence between April 2012 and 3 February 2016. The primary judge’s conclusion that the AFL had been abandoned by mutual agreement at some time between October 2012 (shortly prior to the securing of the 2012 Development Consent) and the beginning of 2014 turned on a close and careful analysis of the interactions between the parties over the period from September 2008 until February 2017.

7. Gazcorp also contended that even if the AFL had not been abandoned, its performance had been frustrated by the expiry of the 2008 Development Consent on 17 February 2014. In the absence of such consent, Gazcorp was not lawfully able to construct the building in which approximately 3,800m² of space was to be let to Woolworths pursuant to the AFL. The primary judge upheld this argument.

8. His Honour also held that the AFL was varied by a letter of 12 September 2008 sent by a representative of Woolworths to Mr Nicholas Gazal of Gazcorp (Mr Gazal). Woolworths accepted that, if the AFL had relevantly been varied by this letter, then the AFL had been frustrated. It did not, however, accept that there had been any such variation.

9. The primary judge’s alternative conclusions on abandonment and frustration are both challenged in this appeal as is his finding on variation. On the question of frustration, Woolworths contended that it was Gazcorp that was effectively responsible for the act of frustration relied upon and that this precluded reliance on that act for the purposes of its case based on frustration (on the assumption that the AFL had not been varied on 12 September 2008). There was a dispute between the parties as to whether such an argument was open to be run.

10. In my opinion, for the reasons given below, which substantially accord on the variation and abandonment issues with those of the primary judge, the appeal should be dismissed with costs.

11. Before turning to consider his Honour’s reasoning process and the grounds on which his decision is challenged, it is first necessary to consider the factual background relating to the parties’ entry into the AFL, and the terms of the AFL itself.

Background to entry into the AFL

12. Between about late 2004 and early 2008, Gazcorp engaged in negotiations with Woolworths about a lease of space in the proposed development at Green Square from which Woolworths could operate a supermarket.

13. On 20 August 2007, Gazcorp lodged a Development Application with the City of Sydney (the Council) in respect of the proposed development, [1] and as explained above, on 4 February 2008, the Council issued the 2008 Development Consent. [2]

    1. Blue 1: 371.

    2. Blue 2:804ff.

14. Approval was given for “construction of a part 3/part 4 storey mixed use building containing 14,949sqm of retail floor area and 10,733sqm of commercial floor area, with 3 levels of basement parking for 614 spaces”. [3] The approval plans envisaged a Woolworths supermarket on the lower ground level. This was also described as the “Wyndham Street level”.

    3. Ibid.

15. In February 2008, just over three weeks after securing the 2008 Development Consent, Gazcorp and Woolworths entered into the AFL. [4]

    4. Blue 2:850-950.

The AFL

16. The AFL was entered into by Gazcorp as Landlord, and Woolworths as Tenant. [5] It was executed as a deed, and contained recitals as follows:

“A  The Landlord is the registered owner of the Land.

B   The Landlord proposes to construct the Centre on the Land.

C   The Landlord has agreed to grant and the Tenant has agreed to take the Lease of the Premises, subject to the terms and conditions in this Agreement”.

5. Ibid.

17. Clause 1.1 contained numerous definitions. “Centre” was defined to mean “the shopping centre to be constructed on the Land as described in the Plans and Specifications”. The “Premises” was defined to mean “the Woolworths supermarket identified in the Plans and Specifications and on the Site Plan”.

17. Clause 2 concerned the “Landlord’s Works”. Sub-clauses 1–6 were as follows:

“2.1    Completion of Landlord’s Works

The Landlord must at its cost cause the Landlord’s Works to be carried out:

(a)   in accordance with the Plans and Specifications;

(b)   in accordance with all Laws and consents of and complying with the requirements of all Government Authorities;

(c)   as expeditiously as possible;

(d)   in a proper and workmanlike manner;

(e)   under adequate and competent supervision; and

(f)   in accordance with the Construction Program.

2.2    Inconsistencies

In the event of any inconsistency between the Landlord’s Works and the requirements of the Tenant under clause 2.3 that cannot be resolved by agreement between the parties, then it will be referred for Expert Determination.

2.3    Woolworths Supermarket

The Centre must include a Woolworths Supermarket as identified in the Plans and Specifications having the Approximate Lettable Area which must be constructed in a proper and workmanlike manner and in accordance with the Supermarket Plans.

2.4    Time for Completion

The Landlord must use its best endeavours to complete the Landlord’s Works so that:

(a)   the Landlord’s Works so far as they relate to the Premises reach Practical Completion by at least the EIS Period before the Date of Practical Completion; and

(b)   the Centre will reach Practical Completion no later than the Date for Practical Completion.

2.5    Changes to Landlord’s Works

The Landlord may only change the Landlord’s Works:

(a)   to comply with the requirements of a relevant Government Authority provided that where any such change results in the Approximate Lettable Area of the Premises increasing or decreasing by 10% the Tenant may terminate this Agreement by written notice to the Landlord and the Tenant will not be entitled to claim compensation by reason of such change;

(b)   where the changes are minor and do not materially adversely affect:

(i)    the Premises; or

(ii)   access to the Premises; or

(iii)  visibility of the Premises; or

(iv)  the Tenant’s proposed fitout.

(c)    where the changes are minor and relate to parts of the Centre outside of the Woolworths Stage; and

(d)    where the changes relate to the Retail Car Park provided that:

(i)    the change to the Retail Car Park is a condition specified by a Government Authority in assessing a development approval lodged by the Landlord in respect of the Centre or the Land;

(ii)   the change to the Retail Car Park does not result in the number of car spaces from that contained in the Retail Car Park on the date of this Agreement decreasing by a maximum of 5%;

(iii) the Landlord and Tenant act reasonably and in good faith to agree the location of any car spaces that are to be removed from the Retail Car Park as a result of the changes to the Landlord’s Works under this clause; and

(iv)   the Landlord uses its best endeavours to maintain the Commencing Car Park Ratio as contained in the Lease.

2.6    Tenant May Request Changes

The Tenant may request the Landlord to change the Supermarket Plans and the Landlord must make the requested changes if:

(a)   the Landlord’s Architect, acting reasonably, approves the changes; and

(b)   the Tenant pays for:

(i)    the cost of the changes being carried out by the Landlord’s builder; and

(ii)   an amount equal to 10% of the actual costs of the changes (net of any savings obtained as a result of the changes) to cover design and project management fees relating to the changes; and

(iii)   any statutory charges necessary to obtain consent to the changes”.

19. “Landlord’s Works” was defined in cl 1.1 to mean “the works required to complete the construction of the Centre”. As noted above, by cl 2.1 the Landlord’s Works were required to be carried out in accordance with the “Plans and Specifications”. “Plans and Specifications” was defined to mean:

“(a)  the plans and specifications for the construction of the Centre contained or identified in Schedule 2;

(b)   the Site Plan; and

(c)   the Supermarket Plans”.

20. As to (a), the plans and specifications contained in Schedule 2 consisted of three sheets, prepared by Humphreys & Edwards Architects, in respect of a mixed use development of the two blocks of land owned by Gazcorp.

21. The first plan (LE 205) is described as the “Lower Ground Floor Leasing Plan”. It depicted, amongst other things, a Woolworths supermarket outlet and nine other retail spaces. There were a number of notes on the plan, including the following:

“The Woolworths stage is strictly limited to the following floor plates: lower ground floor, basement level 1, and basement level 2.

Tenancy layouts shown are indicative and are to be designed to suit tenant requirements in accordance with the Local Authority’s regulations.

These plans and associated specifications are subject to the relevant consent authority approval”.

As noted by the primary judge at [14], the “approval” referred to in the last note had been granted prior to the execution of the AFL, namely by way of the 2008 Development Consent.

22. The second plan (LE 203) was described as the “Basement Level 1 Leasing Plan”. It depicted, amongst other things, a retail car park. This plan contained notes in the same form as those found on LE 205. In addition, it noted that “Basement Level 1” was to have 204 car spaces, Basement Level 2 was to contain 228 car spaces, and Basement Level 3 was to contain 182 car spaces, forming a total of 614 car spaces.

23. The third plan (LE 202) was described as “Basement Level 2 Leasing Plan”. It depicted a car park for “Retail and Commercial Parking”. The plan contained notes in the same form as those found on LE 205, and it contained the same note as LE 203 about the three levels of parking.

24. As the primary judge noted at [17], it was evident from the references to “Basement Level 3”, and also from the depiction on LE 205 of an “Escalator to/from Ground Level”, that the proposed development contemplated a building that included additional levels both above and below the three levels (or “floor plates”) that were said to constitute the “Woolworths Stage”, which was defined in the AFL as “the area shown as such in the Plans and Specifications”. The Woolworths Stage was referred to in cl 2.5(c) of the AFL, which made it plain that there were to be parts of the Centre “outside of the Woolworths Stage”.

25. As to (b) of the definition of Plans and Specifications (see [19] above), the Site Plan in Schedule 6 to the AFL depicted the location of the development site. The Site Plan also showed that the top of the proposed new building would include some landscaped open space and an atrium. The Site Plan contained notes in the same form as those found on LE 205, which made it clear that the building depicted on the plan was to be subject to an approval from the relevant government authority.

26. As to (c) of the definition of Plans and Specifications, the Supermarket Plans, as defined in the AFL, included the Woolworths Supermarket Design and Specification Briefing Kit document and the Feasibility Plan, both of which were found in Schedule 4 to the AFL.

27. The Construction Program, in Schedule 3, provided for a 95-week construction period from September 2008–June 2010. It referred to various levels, including the “Wyndham Street Level”, Level 1 and the “Podium Level”.

28. The “Approximate Lettable Area”, referred to in cl 2.3, was 3,800m², excluding certain defined areas referred to in item 4 of Schedule 1 to the AFL.

29. Under cl 2.4, Gazcorp was required to use its best endeavours to complete the Landlord’s Works so that: so far as they related to the premises (i.e. the Woolworths supermarket), they reached practical completion by at least the eight-week Environmental Impact Statement (EIS) period before the Date for Practical Completion; and the Centre would reach practical completion no later than the Date for Practical Completion (defined as 30 April 2010, subject to any extension of the date under cl 2.12).

30. Clause 2.12 concerned delay, and provided as follows:

“2.12    Delays to Handover

The Landlord may extend the Date for Practical Completion by the same number of days the Landlord’s Architect and the Project Controller jointly certify that a delay in the Landlord’s Works has occurred by reason of any of the following causes:

(a)   weather sufficiently inclement to result in a delay in the construction work;

(b)   loss or damage by fire, fusion, explosion, smoke, flood, earthquake, lightning, storm, tempest, impact by vehicles or equipment, water damage, damage by aircraft or articles dropped from aircraft, civil commotion or any like cause;

(c)   riots, malicious damage to building work or site, or disputes between employers and employees or strikes;

(d)   any prohibition or embargo imposed by any Law;

(e)   any delay (not exceeding 12 weeks) in the manufacture or delivery to the Landlord of any building materials, plant or equipment required for any proper construction or running of the Landlord’s Works to the extent that such delay arises from circumstances beyond the control of the Landlord;

(f)    any other matter, cause or thing beyond the control of the Landlord provided that the Landlord has used reasonable endeavours to overcome and keep any resulting delay to a minimum; or

(g)   delay as a result of the Landlord acceding to a request of the Tenant under clause 2.6.

Where an extension under this clause occurs, times in the Construction Program affected by the delay will extend by the same period as the extension permitted by this clause. The Tenant is not entitled to compensation by reason of any such delay. A dispute relating to an extension of time under this clause 2.12 must be referred to Expert Determination”.

31. Clause 6.1 provided (subject to cll 6.2–6.5) that Woolworths was to commence trading in the supermarket premises no later than the day after the EIS period had expired.

32. Clause 7 provided for the grant (by Gazcorp) and acceptance (by Woolworths) of the Lease contemplated by the AFL in the form contained in Schedule 5 for the Term commencing on the Commencement Date. The Term, as provided for in Schedule 2 to the AFL, was 12 months, with options to renew for further terms of 19 years and then 10 years. The Commencing Date was defined as the date Woolworths commenced trading in the Premises. The Lease provided for a base rent of $1.7 million per annum plus a sum for turnover rent.

33. Clause 9 granted to Woolworths a right of termination in certain circumstances, and provided that:

“9   Termination

If for any reason the Landlord’s Works (insofar as they relate to the Premises and the Woolworths Stage including the car park and access to the Centre) have not reached Practical Completion by the Termination Date, the Tenant may terminate this Agreement by notice in writing to the Landlord. If the Tenant terminates this Agreement, the Landlord must reimburse the Tenant, on demand, for all costs and expenses incurred by the Tenant in connection with this Agreement and anything done by the Tenant in relation to this Agreement. Any claim under this Agreement or at law by the Tenant against the Landlord relating to termination under this clause 9 must be notified to the Landlord within the period of 1 year from the Termination Date”.

The Termination Date was specified in Schedule 1 to the AFL as “the date which is 12 months after the Date for Practical Completion”.

34. Clause 14 provided as follows, under the heading “Planning Approvals and Access Arrangements”:

“14.1    Landlord to obtain Approvals and Access Arrangements

The Landlord must at its cost promptly after the date of this Agreement make all necessary applications for, and use its best endeavours to obtain:

(a)   the Approvals (excluding the construction certificates); and

(b)   the Access Arrangements,

on or before the Approval Date.

14.2    Termination

(a)   If:

(i)    the Approvals and Access Arrangements have not been obtained; or

(ii)   the Approvals and Access Arrangements have been obtained but subject to conditions which are unacceptable to the Tenant acting reasonably,

by the Approval Date, then the Tenant will within the period of 15 Business Days:

(iii)   terminate this Agreement by giving notice in writing to the Landlord and the Tenant will not be entitled to claim compensation by reason of termination; or

(iv)   give notice in writing to the Landlord of a revised Approval Date and the provisions of this clause 14 will then apply to this revised Approval Date as if it were the previous Approval Date under this Agreement and the Date for Practical Completion will be extended by the same number of days extending the original Approval Date.”

35. The Approval Date was defined to be 31 July 2008. “Approvals” was defined to mean “all necessary approvals, consents, permissions and licences of all relevant Government Authorities which must be obtained to carry out the Landlord’s Works”.

36. “Access Arrangements” was defined to mean “the re-design of the intersections and driveways adjacent to the Centre so as to provide pedestrian access and vehicle access to the Centre in accordance with the Plans and Specifications and any subsequent plans agreed by the parties”.

37. Clause 15.1 of the AFL provided for the resolution of certain disputes by expert determination. The relevant disputes included those under cll 2.2 and 2.12 of the AFL.

Big W discussions

38. Towards the end of 2007, Mr Gazal raised with Ms Tickelpenny (of Woolworths’ Supermarkets division) the prospect of including a Big W store in the development (Big W being a chain of discount department stores forming part of the Woolworths Group). Ms Tickelpenny referred Mr Gazal to Mr Robert MacMahon (Regional Property Manager, Big W) and thereafter Messrs Gazal and MacMahon discussed the possibility of a Big W store being located on Level 1 of the proposed development. [6]

    6. PJ [32].

39. As the primary judge noted at PJ [33], the plans that had been submitted in 2007 in support of the Development Application showed three basement levels for parking, a lower ground floor (to include a Woolworths supermarket), a ground floor (for retail use), Level 1 (for office use), Level 2 (for facilities including a swimming pool, gymnasium and landscaped open space) and a Level 3 (roof level). The primary judge noted that if a Big W store was to form part of Level 1, an amendment to the 2008 Development Consent would be required.

40. Following entry into the AFL in February 2008, discussions continued in relation to the inclusion of a Big W store and, at around the same time, there were discussions about the possibility of Woolworths taking some extra space (near the supermarket) for a liquor store. Mr Hocking of Woolworths suggested to Mr Gazal that the supermarket Lease therefore might need to be varied. There were also discussions about various design aspects of the proposed supermarket. [7]

    7. PJ [34].

41. On 14 April 2008, a letter was sent by Mr MacMahon to Mr Gazal with respect to the “Proposed Big W Discount Department Store Green Square”. [8] The letter summarised the general parameters of the proposal and the “basis that BIG W would be prepared to enter into a lease subject to the approval of Woolworths Limited Board of Directors”. [9]

    8. Blue 3: 976.

    9. Ibid.

42. On 23 April 2008, Mr MacMahon sent a Letter of Offer to Mr Gazal in relation to a lease for the proposed Big W store. [10] The offer was expressed as being subject to, inter alia, receipt of the necessary development approvals “including Section 96 approval” (this being a reference to an “application to modify a development consent” pursuant to s 96 of the Environmental Planning and Assessment Act 1979 (NSW)). It was evidently envisaged at that time that the necessary approval would be obtained via an amendment to the 2008 Development Consent. An application to modify the consent (the Modification Application) was lodged on about 7 May 2008. [11] However, it appears that, following an objection by a third party, the parties decided to proceed by way of a fresh development application.

    10. Blue 3:988-1008.

    11. Blue 3:1013-1015.

43. On 21 May 2008, Mr Justin Madden (Woolworths’ solicitor) emailed Mr Gazal as follows: [12]

    12. Blue 3: 1065-1066.

“I act for Woolworths Limited (WOW) in relation to the above matter.

I am advised that preliminary discussions between the landlord and Big W have agreed commercial terms for the proposed lease of the above premises. These commercial terms are set out in the letter from Big W to your office dated 23 April 2008, with your acknowledgment of those agreed signed and confirmed on 28 April 2008.

I am also advised that the parties have agreed to utilise the signed Agreement for Lease and Lease for the Supermarket tenancy in the Centre as the template documents for the Big W tenancy. Therefore, attached for your review are the following draft documents:

1.   Agreement for Lease (AFL); and

2.   Lease.

You will note there are a number of marked-up changes contained within each document. These changes represent the amendments inserted on behalf of Big W, when compared to the finalised documents for the Supermarket. The changes reflect the commercial terms in the letter of offer and Big W’s business requirements (which can be different to the requirements for the Supermarket business of WOW).

Please review the draft AFL and draft Lease as soon as possible and provide your comments in readiness for the proposed meeting. Given the meeting is to be held on Thurs 29 May 2008, I would greatly appreciate your comments by COB the preceding Tues.

The draft AFL and draft Lease are submitted to you at the same [time] as my client. Therefore, WOW reserves the right to request further amendments and no binding agreement will exist until the final AFL has been approved and signed by WOW”.

44. On about 2 July 2008, an application was lodged for a development that would include a Big W store (the 2008 Development Application). [13] In summary, it was proposed to change the use of Level 1 and part of Level 2 from commercial to retail, and to add an additional basement level for car parking. The Modification Application referred to in [42] above (at least in relation to the Big W changes) was withdrawn on about 8 July 2008.

    13. Blue 3:1397-1408.

45. In the meantime, the solicitors for the respective parties commenced correspondence and negotiations about a draft agreement for lease and a draft lease for the proposed Big W store. The existing AFL for the supermarket was used as a template, as had been contemplated in Mr Madden’s letter of 21 May 2008.

46. The primary judge noted at PJ [38] that it was apparent from letters sent by Mr Stephen Parry (Gazcorp’s solicitor) to Mr Madden on 2 June 2008, and by Mr Gazal to Mr Hocking of Woolworths on 3 June 2008, that it was expected that proceeding with the Big W proposal would have had the effect of requiring certain changes to the existing AFL for the proposed supermarket, including in relation to the Date for Practical Completion (of 30 April 2010).

47. On 3 June 2008, Mr Gazal sent a letter to Mr Hocking, “for the revision of the Date of Practical Completion and Termination Date”. [14] The letter provided as follows:

    14. Blue 3: 1160.

“As you are aware, following Gazcorp Pty Ltd and Woolworths Ltd recently agreeing on draft terms preparation of legal documentation has commenced.

It will come as no surprise that implementation of this exciting development will require considerable changes to basic elements of what will be an enlarged project including amending the overall scale and layout; preparation of revised plans, specifications, engineer and other drawings; applying for and obtaining additional government approvals; and renegotiation with our financiers.

Additionally, due to the increase of the retail floor space, we have had to increase the car parking numbers by 180 car park spaces. This has meant a fourth level of basement car park must now be excavated and built, adding significant build time to the project.

We have also had to re-model all our internal layouts and services in order to best accommodate and meet Big W's requirements.

It has also taken Gazcorp over three months to prepare documents for Section 96 to submit to Council. Although this is now lodged, we do expect it to take at least three months for approvals to be granted.

To accommodate the changes, we have calculated that the Approvals Date to be inserted in Item 7 of Schedule 1 of the Big W Agreement for Lease should be stated as ‘31 November, 2011’ and that the Date for Practical Completion in Item 2 of Schedule 1 be stated as ‘31 November 2010’.

As the Date for Practical Completion refers to completion of the Centre (as distinct from the earlier practical completion date of the Big W sector) the Date for Practical Completion in the Woolworths Agreement for Lease will need to coincide with that in the Big W Agreement.

Gazcorp is not requesting any other revision flowing from the enlarged project and will itself meet additional costs such as interest, and other holding expenses and delay in the WOW lease commencement.

Please do not hesitate to contact me if you would like further information in relation to the above, failing which we ask that you to instruct your Solicitor to prepare the amendments to the Agreements for Lease”. (emphasis added)

48. In a letter from Mr Madden to Mr Parry on 7 July 2008, relating to the “unresolved issues of the draft [AFL] and Lease for the Big W tenancy”, the following was outlined: [15]

    15. Blue 3:1189-1192.

“1.    Agreement for Lease

(a)    Milestone Dates – we noted the letter from your client dated 17 June 2008 (Gazcorp Letter) commenting on the Approval Date and Date for Practical Completion for the Big W AFL. We make the following comments regarding each milestone date:

(i) Approval Date – the Gazcorp Letter indicates an Approval Date of 30 November 2011 is required. As you are aware, this time period and deadline relates to the Approvals to carry out the Landlord’s Works. It is our understanding that there is an existing Approval for the development of the Centre (as contained in the existing Supermarket AFL). It is also our understanding that a s 96 Application has been lodged with Council expanding the Centre to include additional speciality shops and the Big W premises. The Gazcorp Letter states the s 96 Application is expected to take 3 months to be approved. Therefore, we are instructed the Approval Date in the Big W AFL should be 30 September 2008, rather than 30 November 2011.

The Approval Date submitted in the Gazcorp Letter is inconsistent with the proposed Date for Practical Completion specified in that letter, as it results in your client being required to complete the Landlord’s Works before the deadline for Approvals has been reached.

We also note it is necessary for the Supermarket AFL to be varied to note the revised Approval Date. Please confirm an Approval Date of 30 September 2008 is acceptable to your client. Alternatively, please advise when your client expects the s 96 Application to be approved by Council;

(ii)   Date for Practical Completion – the Gazcorp Letter indicates that the landlord requires a revised date of 30 November 2010. We are advised the revised date proposed is not acceptable to our client and that it must remain as 1 October 2010 as originally discussed and agreed in the letter of offer.

We also note it will be necessary for the Supermarket AFL to be varied to note a Date for Practical Completion of 1 October 2010.

…

3.    Additional Matters

(a) Plans, Specifications and Construction Program – we note your client’s s 96 Application relates to the expansion of the Centre so as to include additional specialty shops, the Big W premises and an expanded car park. Please consult your client and provide us with the latest plans, specifications and construction program relating to the Landlord’s Works for review as soon as possible.

We also note it will be necessary for the Supermarket AFL to be varied to note the changes to the construction works, plans, specifications and construction program for the Centre”. (emphasis added)

49. On 21 July 2008, Mr Parry emailed Mr Madden and Mr Gazal, as follows: [16]

“As discussed at our meeting on Friday, could you please arrange for Woolworths Ltd to issue a letter addressed to Gazcorp Ltd confirming that the Company agrees that clause 2.12 of the supermarket Agreement for Lease dated 20 February 2008 applies to extend the Date for Practical Completion so that the date of 30 April 2010 in item 2 of Schedule 1 is deleted and substituted by 1 October 2010, and that in all other respects the Agreement for Lease at this time remains unaltered”.

16. Blue 3: 1282.

50. On 23 July 2008, Mr Gazal sent a letter to Mr Hocking (incorrectly dated 23 August 2008) in the following terms: [17]

“I refer to the Agreement for Lease in the above matter dated 20 February 2008, and in particular to clause 2.12 of that document. I also refer to proposals in discussions and correspondence between representatives of our respective companies to expand the scope of the project to incorporate in the Centre a Big W discount department store, and to the preliminary work undertaken by Gazcorp Pty Ltd in preparing amended Plans and Specifications and applying for Approvals to give effect to those proposals.

Such actions have inevitably delayed the Construction Program so as to necessitate the Date for Practical Completion being extended from 30 April 2010 to 1 October 2010; that is by 154 days. Would you please confirm that Woolworths Ltd agrees to such extension under paragraph (f) of clause 2.12 of the Agreement for Lease, and that such extension of time will be effective without the need for joint certification by the Landlord’s Architect and the Project Controller.

Your early attention to this request will be appreciated”. (emphasis added)

17. Blue 3: 1283-1284.

51. On 11 August 2008, the 2008 Development Application (which had been lodged on 2 July 2008; see [44] above) was “deemed to have been refused” and, shortly thereafter, Gazcorp commenced an appeal in the Land and Environment Court of New South Wales which was dismissed on 20 March 2009: see further at [101] below. As the primary judge noted at PJ [44], “this effectively put paid to the Big W proposal, but of course the 2008 [Development] Consent remained in place”.

52. On 15 August 2008, Mr Gazal sent Mr MacMahon the “[l]atest plans for Big W”. In his email, Mr Gazal outlined that “[s]imilar to when we did the agreement with [Woolworths], the current layout is very close to the final outcome, but engineering advice may require some things to be slightly readjusted”. [18]

    18. Blue 3: 1383.

53. Mr Gazal sent further plans to Mr MacMahon with respect to the proposed Big W store on 18 August 2008. [19]

    19. Blue 3: 1389.

54. On 27 August 2008, Mr Gazal sent an email to Mr Hocking (and also to Mr Ross Finlay of Woolworths) attaching five plans which were referred to as “Latest plans for leasing issue” (the 27 August 2008 email). These plans were dated 1 August 2008 (C105, C107, C108 and C109) and covered the Lower Ground Floor, Ground Floor, Level 1 and Level 2. Almost immediately thereafter, Mr Gazal sent another email to Mr Hocking and Mr Finlay, attaching four plans which were referred to as “Latest plans for leasing issue 2”. These plans were for each of the four levels of basement parking and were dated 4 August 2008 (C101–C104). [20] As explained below, these were the plans referred to in the letter of 12 September 2008 (extracted at [61]). Their significance will become clear.

    20. Blue 3:1410-1420.

55. On 9 September 2008, Mr Gazal sent an email to Mr MacMahon attaching three plans dated September 2008, which were referred to as “Plans for Big W”. [21] Various further plans under the same title were sent by Mr Gazal to Mr MacMahon on the following day. [22]

    21. Blue 3:1451ff.

    22. Blue 3:1459ff.

56. As had been noted in earlier correspondence, although the Big W plans still contemplated that the Woolworths supermarket would be on the lower ground or Wyndham Street level, the configuration of the supermarket was significantly altered from the plans attached to the AFL and approved in the 2008 Development Consent. First, the entrance to the supermarket was moved eastwards so that it was no longer visible from the Bourke Street entry to the building. Secondly, the configuration of the loading docks was changed and they no longer included a separate entry and exit.

57. On 11 September 2008, Mr MacMahon emailed Mr Gazal, requesting further plans with respect to the basement parking levels. [23]

    23. Blue 3: 1473.

58. Also on 11 September 2008, Mr Hocking emailed Mr Gazal with Woolworths’ “response to your letter dated 23 August 2008 [which had been sent on 23 July 2008; see [50] above] requesting an extension to the Date of Practical Completion”. [24] The attached letter, dated 10 September 2008, read as follows: [25]

    24. Blue 4:1478.

    25. Blue 4: 1479-1480.

“We refer to your correspondence dated 23 August 2008 and note your request for an extension to the Date for Practical Completion in accordance with clause 2.12 of the Agreement for Lease dated 20 February 2008 (AFL).

We note the incorporation of a Big W Discount Department Store in the Centre has resulted in the landlord being delayed in obtaining finalised Approvals for the Landlord’s Works thereby requiring an extension to the Date for Practical Completion from 30 April 2010 to 1 October 2010.

We confirm our agreement to the extended Date for Practical Completion subject to the following terms:

(a)   the extension to the Date for Practical Completion requested in your letter dated 23 August 2008 is agreed without the need for joint certification by the Landlord’s Architect and the Project Controller. However, any future request by the landlord in accordance with clause 2.12 of the AFL will require joint certification as specified;

(b)   we reserve our rights under clause 9 of the AFL insofar as the extended Date for Practical Completion relates to the Termination Date;

(c)   the landlord’s agreement to vary the AFL as follows:

(i)    Schedule 1, Item 2 (Date for Practical Completion) – deleting the date of 30 April 2010 and replacing it with the extended date of 1 October 2010;

(ii)   Schedule 1, Item 7 (Approval Date) – deleting the date of 31 July 2008 and replacing it with the extended date of 30 November 2008;

(iii)   Schedule 2 (Plans and Specifications) – deleting the current plans and specifications and replacing them with the updated plans and specifications reflecting the revised Landlord’s Works;

(iv)   Schedule 3 (Construction Program) – deleting the current construction program and replacing it with the new construction program reflecting the revised Landlord’s Works and milestone dates; and

(v)   Schedule 6 – deleting the current site plan and replacing it with an updated site plan reflecting the revised Landlord’s Works and the areas specified in the lease (such as Kiosk Free Zone, Sidewalk Sales Area, Woolworths Sector etc).

We will instruct our solicitors to prepare a draft Deed of Variation of Agreement for Lease for review and signature in the near future”.

59. On 11 September 2008 at 6.37pm, Mr Gazal emailed Mr Hocking, copying Mr MacMahon, as follows: [26]

“Hello Michael / Robert

One point I would like to raise after a quick glance of the document is the approval date of November 2008. We really need to push this out until next year.

I would suggest March/April 2009 due to the prospect of court proceedings.

Could you please provide your comments?”

As the primary judge noted, the reference to “court proceedings” was to the proceedings in the Land and Environment Court following the deemed refusal of the 2008 Development Application: PJ [49]; see [51] above.

26. Blue 4: 1482.

60. Shortly thereafter, on 12 September 2008 at 8.19am, Mr MacMahon replied to Mr Gazal by email, as follows:

“Nick,

Have spoken to Michael [Hocking] and we will accept 30/03/09

Michael will do via a letter for supermarkets

For BigW we will change the date in the AFL”. [27]

27. Ibid.

61. Later on 12 September 2008, at 8.34am, Mr Hocking emailed Mr Gazal, attaching Woolworths’ “amended response to your letter dated 23 August 2008 requesting an extension to the Date of Practical Completion”. [28] The attached letter provided as follows (the 12 September 2008 letter): [29]

    28. Blue 4:1484.

    29. Blue 4: 1485-1486.

“We refer to your correspondence dated 23 August 2008 and note your request for an extension to the Date for Practical Completion in accordance with clause 2.12 of the Agreement for Lease dated 20 February 2008 (AFL).

We note the incorporation of a Big W Discount Department Store in the Centre has resulted in the landlord being delayed in obtaining finalised Approvals for the Landlord’s Works thereby requiring an extension to the Date for Practical Completion from 30 April 2010 to 1 October 2010.

We confirm our agreement to the extended Date for Practical Completion subject to the following terms:

(a)   the extension to the Date for Practical Completion requested in your letter dated 23 August 2008 is agreed without the need for joint certification by the Landlord’s Architect and the Project Controller. However, any future request by the landlord in accordance with clause 2.12 of the AFL will require joint certification as specified;

(b)   we reserve our rights under clause 9 of the AFL insofar as the extended Date for Practical Completion relates to the Termination Date;

(c)   the landlord’s agreement to vary the AFL as follows:

(i)    Schedule 1, Item 2 (Date for Practical Completion) – deleting the date of 30 April 2010 and replacing it with the extended date of 1 October 2010;

(ii)    Schedule 1, Item 7 (Approval Date) – deleting the date of 31 July 2008 and replacing it with the extended date of 30 March 2009;

(iii)   Schedule 2 (Plans and Specifications) – deleting the current plans and specifications and replacing them with the updated plans and specifications reflecting the revised Landlord’s Works;

(iv)   Schedule 3 (Construction Program) – deleting the current construction program and replacing it with the new construction program reflecting the revised Landlord’s Works and milestone dates; and

(v)   Schedule 6 – deleting the current site plan and replacing it with an updated site plan reflecting the revised Landlord’s Works and the areas specified in the lease (such as Kiosk Free Zone, Sidewalk Sales Area, Woolworths Sector etc).

We will instruct our solicitors to prepare a draft Deed of Variation of Agreement for Lease for review and signature in the near future”. (emphasis added)

The only material difference between this letter and that sent on the previous day (see [58] above) was the requested change to the date in [(c)(ii)], from 30 November 2008 to 30 March 2009.

Was the AFL varied in September 2008 and, if so, in what respect?

62. By reference to the items of correspondence set out at [50], [58], [60] and [61] above, Gazcorp pleaded, at [22] of its Amended Statement of Claim, that the terms of the AFL were varied such that, inter alia:

“(a)  the Approval Date is 30 March 2009;

(b)   the Date for Practical Completion is 1 October 2010;

(c)   the Termination Date is 1 October 2011; and

(d)   the Landlord’s Works are the works as envisaged by the Plans and Specifications and Constructions Program referred to in:

(i)   the 12 September 2008 letter; and

(ii)   the 2008 [Development] Application,

(New Landlord’s Works)”.

63. Woolworths admitted [22(a)], [22(b)] and [22(c)] in its Defence but did not admit the matters alleged in [22(d)].

64. By reference to the same items of correspondence and consistent with the admissions contained in its Defence, Woolworths pleaded at [29] of its Statement of Cross-Claim that the terms of the AFL were varied, such that:

“(a)  the Approval Date was 30 March 2009;

(b)   the Date for Practical Completion was 1 October 2010; and

(c)   the Termination Date was 1 October 2011”.

65. As can be seen, both parties in their pleadings accepted that the AFL had been varied by and as a result of the specific items of correspondence as particularised. The difference between the positions of the two parties was that Gazcorp pleaded that there was an extra aspect of the variation to the AFL, namely that pleaded at [22(d)] of its Amended Statement of Claim in relation to New Landlord’s Works. This is significant because if the contract was varied to amend the reference to Landlord’s Works as alleged by Gazcorp, then Woolworths accepted that the AFL had been discharged by frustration on 20 March 2009, when the Land and Environment Court refused the 2008 Development Application that provided for the inclusion of a Big W store: see [8] above.

Primary judge’s findings on variation

66. The primary judge held that the 12 September 2008 letter comprised or effected a variation to the AFL as pleaded by Gazcorp.

67. The primary judge considered that it was not open to Woolworths on the pleadings to assert that the 12 September 2018 letter was not intended to be immediately binding as this would be inconsistent with Woolworths’ acceptance that, by reason of the communications culminating in the 12 September 2008 letter, the AFL had been varied in a number of other respects. The primary judge held that it was not open to argue that the reference in the letter to the “preparation of a draft Deed of Variation” showed that the parties did not intend immediately to be bound by the terms contained in the letter: PJ [59].

68. His Honour considered, however, that the non-admission of a variation to the definition of “Landlord’s Works” left it open to Woolworths to contend that the terms of the letter were not effective to vary the AFL in this respect. His Honour rejected this contention, stating (at PJ [61]–[62]):

“61    The 12 September 2008 letter deals with the Landlord’s Works in paragraph (c)(iii) which provides that Woolworths agreed to vary Schedule 2 to the Agreement by ‘deleting the current plans and specifications and replacing them with the updated plans and specifications reflecting the revised Landlord’s Works’. Further, paragraph (c)(iv) refers to ‘the new construction program reflecting the revised Landlord’s Works and milestone dates’. In my view, the references to ‘revised Landlord’s Works’ should be understood as the works that would be required to complete construction of the shopping centre the subject of the 2008 Development Application. It was clearly recognised by the parties that pursuit of the proposed development the subject of the 2008 Development Application would delay the project and thus require amendments to the Date for Practical Completion (see, for example, Gazcorp’s letter sent on 23 July 2008, and the second paragraph of the 12 September 2008 letter).

62    Paragraph (c)(iii) of the 12 September 2008 letter thus refers to the deletion of the current Plans and Specifications as found in Schedule 2 to the AFL, and the replacement of them with the updated Plans and Specifications that reflect the works that would be required to complete construction of the shopping centre the subject of the 2008 Development Application.”

69. The primary judge held that the reference in the 12 September 2008 letter to “the updated plans and specifications” should be understood as a reference to the plans that had been sent by Mr Gazal to Mr Hocking on 27 August 2008 (see [54] above), accepting Gazcorp’s emphasis, in argument, on the use of the definite article in the phrase “the updated Plans and Specifications”. Accordingly, the primary judge was of the view that the meaning of [(c)(iii)] of the 12 September 2008 letter was sufficiently clear to effect a variation of the AFL, by deleting the existing plans in Schedule 2 and replacing them with the plans sent to Mr Hocking on 27 August 2008. His Honour held that the Landlord’s Works were thus “revised” and the AFL was varied as alleged by Gazcorp: PJ [66].

69. Although it will be necessary to return to the parties’ interactions and correspondence over the following nine years, for the purposes of considering the primary judge’s conclusions on the questions of abandonment and frustration, at this point of the judgment it is convenient to address Woolworths’ challenge to the primary judge’s conclusion that the AFL was varied in the way explained above, as this was fatal to Woolworths’ case given its acceptance of the fact that if the AFL had been so varied, it would be incapable of performance such that it was frustrated: see [8] above.

Ground of appeal and submissions on variation

71. By ground 1 of its Amended Notice of Appeal, Woolworths sought to challenge the primary judge’s finding that the AFL had been varied on 12 September 2008 on the basis that:

“a.   no such claim had been pleaded by the first respondent and consequently no such claim was open to the first respondent; and further or in the alternative

b.   the Court should have instead concluded that the parties had not entered into any legally binding variation of the AFL to replace the plans in Schedule 2 to the AFL on or by 12 September 2008, or at all; and further or in the alternative

c.   the Court should have instead concluded that, if the parties had agreed to enter into a legally binding variation of the AFL to replace the plans in Schedule 2 to the AFL, any such agreement was void for uncertainty.”

72. Woolworths submitted that the letter could not, of itself, comprise or give rise to a binding agreement to vary the AFL and that it was in fact a counter-offer, as Woolworths did not accept Gazcorp’s proposal to extend the Date for Practical Completion and, instead, proposed an alternative extension of that date as part of a suite of proposed further terms. Woolworths asserted that there was no pleading before or finding by the primary judge to the effect that the counter-offer made in the letter was then accepted by Gazcorp.

73. Woolworths further submitted that any proposal communicated by the letter was plainly intended to be subject to formal documentation — “We will instruct our solicitors to prepare a draft Deed of Variation of Agreement for Lease for review and signature in the near future” — and that it was “entirely implausible” that the parties intended that the letter would immediately effect a variation of the AFL so as to replace the plans and specifications identified therein. Woolworths highlighted that those plans and specifications had been negotiated over three years, whilst the revised plans sent under cover of the emails of 27 August 2008 were of a “preliminary nature” (as recognised by the primary judge at PJ [64]). Woolworths submitted that it was clear from the parties’ correspondence between 27 August and 12 September 2008 that these plans were not in final form, but were subject to further negotiation, expert advice and revision, and that it was highly unlikely that the parties intended on 12 September 2008 to enter into a binding contract on the basis of preliminary and provisional plans.

74. Woolworths submitted that the alleged variation to the Landlord’s Works was insufficiently certain to give rise to a legally binding agreement to vary that part of the AFL.

75. In response, Gazcorp pointed to [22(a)] of Woolworths’ Defence and [29] of its Statement of Cross-Claim, by which it was admitted that, by reason of the communications between Gazcorp and Woolworths culminating in the 12 September 2008 letter, the terms of the AFL were varied such that the Approval Date became 30 March 2009, the Date for Practical Completion became 1 October 2010 and the Termination Date became 1 October 2011. Gazcorp submitted that:

“While there was no general admission, as the primary judge held at J[59] it was not open to Woolworths to advance a case which was inconsistent with the express admissions it had made. That meant it was not open to Woolworths to assert that the 12 September 2008 letter was not intended to be immediately binding. It follows that it was also not open to Woolworths to assert that the 12 September 2008 letter was merely a counteroffer or subject to documentation.”

76. In reply, Woolworths submitted that whilst it admitted, for the purposes of the proceedings, that a variation had been made in relation to the dates at [22(a)–(c)] of Gazcorp’s Amended Statement of Claim, it made no broader admission and, in particular, it made no admission as to the asserted legally binding effect of the totality of the 12 September 2008 letter.

77. Gazcorp submitted that the primary judge correctly observed at PJ [67] that the fact that the reference in the 12 September 2008 letter to the preparation of a draft Deed of Variation was not necessarily inconsistent with an intention to be immediately bound by its terms, with those terms to be restated later in a form which was not different in effect. In this regard, the concluding sentence of the 12 September 2008 letter used the words “for review and signature”, not for “further negotiation” or “further discussion”.

78. In response to Woolworths’ submission that the plans sent under cover of the 27 August 2008 email were “of a preliminary nature” and that it was therefore unlikely that the parties intended them to form the basis of a binding contract, Gazcorp submitted that the same could be said of the plans already in Schedule 2 of the AFL, which were also submitted for approval, rather than final plans for the Centre.

Consideration — variation

79. The purported significance and legal effect of the 12 September 2008 letter must, of course, be viewed in context. Questions of contractual variation, as with contractual formation, are not necessarily, or always, to be considered and assessed by reference to a stringent application of the concept of offer and acceptance: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [71]–[75].

80. Woolworths contended that the 12 September 2008 letter was a “counter-offer”. That submission overlooked the fact that, but for an alteration to one date in [(c)(ii)], it was in precisely the same terms as the letter of 10 September 2008, sent under cover of an email on the following day: see [58] above. That earlier letter may fairly have been characterised as a “counter-offer”, but Mr Gazal’s email of 11 September 2008 in response signalled that he only had one issue with it, namely the approval date of November 2008, asserting that it needed to be pushed out to 2009 with his suggestion being March/April of that year. This suggestion was accepted in the 12 September 2008 letter.

81. The character of this interchange is captured in Mr MacMahon’s email to Mr Gazal at 8.19am on 12 September 2008 (see [60] above), in which he communicated that Woolworths would “accept 30/03/09”. The same email indicated that this would be done “via a letter for supermarkets”. That was the 12 September 2008 letter, which was sent shortly thereafter. This second aspect of the email cuts against Woolworths’ reliance on the reference at the conclusion of the 12 September 2008 letter to the preparation of a draft Deed of Variation. That reliance was also undermined by Woolworths’ triple admission that the 12 September 2008 letter effected variations to the Approved Date, the Date for Practical Completion and the Termination Date in the AFL: see [62]–[63] above. The admission of those three matters was entirely inconsistent with the notion that formal execution of a Deed of Variation was a condition precedent to such a variation being legally effective, in the Masters v Cameron sense: see (1954) 91 CLR 353 at 360; [1954] HCA 72.

82. Woolworths’ argument would require the attribution of conflicting practical effects to the proposed draft Deed of Variation, namely that its execution was not necessary to effect variations to the Approval Date, the Date for Practical Completion and the Termination Date, but was necessary to vary the meaning of the Landlord’s Works. That would not be a sensible or satisfactory way to interpret the 12 September 2008 letter, at least in light of the admissions in the pleadings as to its effect in respect of the variation of dates.

83. Woolworths submitted that the “parties consistently through their dealings over some 12 years made clear that the formation or amendment of contractual arrangements needed to be documented in writing.” That is precisely what was achieved by the 12 September 2008 letter, the status of which was identified in Mr MacMahon’s email of 12 September 2008 (set out at [60] above), in particular in the reference to the fact that the acceptance would be formalised “via a letter for supermarkets”, referring to the supermarkets division of Woolworths as opposed to Big W.

84. I also reject Woolworths’ ground of appeal and submission that, in the event that the parties had reached a binding agreement to vary the AFL by replacing the plans and specifications for the Landlord’s Works, such agreement was void for uncertainty. It is trite that a court will strive to avoid finding that an agreement between commercial parties is void for uncertainty: see Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 437; [1968] HCA 8; Meehan v Jones (1982) 149 CLR 571 at 589; [1982] HCA 52.

85. In the present case, it is plain that the plans being referred to were those for the overall development, which provided for the inclusion of the Big W store in addition to the Woolworths supermarket. This necessarily involved an alteration to the plans which had formed part of the AFL, which made no provision for a Big W store. As the parties recognised and accepted, the inclusion of a Big W store in the development was also going to necessitate attention to the configuration of the Woolworths store, including in relation to loading and delivery bays. There was no relevant lack of clarity as to which plans were being referred to; it was Woolworths in its letter of 12 September 2008 (and its almost identical letter of 10 September 2008) that had used the definite article in the expression “the updated plans and specifications”. Mr Gazal did not question what those were a reference to in his email of 11 September 2008 (see [59] above). This was scarcely surprising given that it was he who had sent the plans to Woolworths.

86. That the revised plans may have been provisional or preliminary was not to the point. The AFL expressly provided for their negotiated alteration, in cl 2.6: see [18] above.

87. As varied by the 12 September 2008 letter, the AFL was not void for uncertainty and, as Woolworths accepted, the ability of the parties, Gazcorp in particular, to perform that varied agreement was frustrated by the Land and Environment Court’s rejection of the appeal from the deemed refusal of the 2008 Development Application, which incorporated a Big W store into the shopping centre in addition to a Woolworths supermarket. Although this conclusion alone is sufficient to dispose of the appeal, out of deference to the arguments of the parties, these reasons now turn to deal with the questions of abandonment and frustration on the assumption, contrary to the conclusion of the primary judge which I have also reached, that the AFL was not varied to alter the definition of Landlord’s Works in the way I have found.

Abandonment

88. The primary judge held that the AFL was abandoned at some point during the period from 1 October 2012 to the beginning of 2014. The significance of the first of these dates was that Woolworths had, in its letter of 10 September 2008 (see [58] above), expressly reserved its rights to invoke cl 9 to terminate the AFL and to make a claim for costs and expenses. Any exercise of such rights could occur up to 1 October 2012, which was one year from the Termination Date of 1 October 2011. As the primary judge held at PJ [205], Woolworths “at least evinced an intention to keep the [AFL] alive for that purpose” in the 12 September 2008 letter. The latter date, namely the beginning of 2014 was significant as the primary judge found that by about that time, the parties must have been taken to have realised that the 2008 Development Consent would lapse on 17 February 2014: PJ [220(i)].

89. To consider the grounds of appeal in relation to abandonment and the correctness of the primary judge’s findings on that issue, it is necessary to return to a chronological review of the parties’ correspondence and conduct leading up to October 2012, continuing to February 2014 and indeed thereafter so as fully to understand the complete context of that correspondence and conduct.

90. In undertaking that further chronological review, it should be noted that there was no real dispute between the parties as to the applicable principles concerning the abandonment of contracts.

Relevant principles — abandonment

91. As outlined in Ryder v Frohlich [2004] NSWCA 472 at [135] (Ryder), where it is plain from the conduct of parties to a contract that neither intends that the contract should be further performed, the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434; [1978] HCA 12 (DTR Nominees), Stephen, Mason and Jacobs JJ observed that:

“the contract in the present case was still on foot on and after 25^th July 1974. Neither party had effectively rescinded. But there can be no doubt that by 5^th December 1974, when these proceedings were commenced, neither party, whatever may have been their reasons, regarded the contract as being still on foot. Neither party intended that the contract should be further performed. In these circumstances the parties must be regarded as having so conducted themselves as to abandon or abrogate the contract. The position is similar to that with which Isaacs J. dealt in Summers v The Commonwealth. The plaintiff did not succeed in his action for damages for breach of contract, but on the other hand the defendant had not rescinded. Time passed during which neither party took any steps to perform the contract. It was held that the parties had so conducted themselves as mutually to abandon or abrogate the contract”. (footnote omitted)

92. In Paal Wilson & Co AS v Blumenthal [1983] 1 AC 854 at 914, Lord Brandon described abandonment as follows:

“Where A seeks to prove that he and B have abandoned a contract in this way, there are two ways in which A can put his case. The first way is by showing that the conduct of each party, as evinced to the other party and acted on by him, leads necessarily to the inference of an implied agreement between them to abandon the contract. The second method is by showing that the conduct of B, as evinced towards A, has been such as to lead A reasonably to believe that B has abandoned the contract, even though it has not in fact been B’s intention to do so, and that A has significantly altered his position in reliance on that belief. The first method involves actual abandonment by both A and B. The second method involves the creation by B of a situation in which he is estopped from asserting, as against A, that he, B, has not abandoned the contract”. (citation omitted)

93. As Leeming JA (with whom Bathurst CJ and White JA agreed) pointed out in Técnicas Reunidas SA v Andrew [2018] NSWCA 192 at [51], although it is common to refer to “abandonment” as a distinct doctrine, the preferable view is that the contract has been discharged by inferred agreement. His Honour relied on the following statement by Dixon CJ and Fullagar J in Fitzgerald v Masters at 432:

“There can be no doubt that, where what has been called an ‘inordinate’ length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them, it may be inferred that the contract has been abandoned … What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that (in the words of Rowlatt J) ‘the matter is off altogether’.”

94. As McColl JA stated in Ryder at [137]:

“The underlying premise of the abandonment cases is that a period of time elapses during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned. It is clear that the question whether an ‘inordinate length of time has been allowed to elapse’ is relative. In DTR Nominees Pty Limited v Mona Homes Pty Limited the High Court was prepared to infer abandonment after a period of less than five months had elapsed during which neither party took any steps to perform the contract. In Fitzgerald v Masters it was held that a contract for the sale of land had not been abandoned even though proceedings for its specific performance were not commenced until 26 years after its execution.”

The above passage was cited with approval in GC NSW Pty Ltd v Galati [2020] NSWCA 326 at [112]; and Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665; [2011] NSWCA 396 at [92].

95. Whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from an objective assessment of the conduct of the parties: Ryder at [136]; see also Wallera Pty Limited v CGM Investments Pty Limited [2003] FCAFC 279 at [2], [30]–[32] and [57]; and Marminta Pty Limited v French [2003] QCA 541 at [22]. In Jafari v 23 Developments Pty Ltd [2019] VSCA 201 at [192], the Victorian Court of Appeal held that:

“While commonly inferred by the lapse of an inordinate period of inactivity as between the parties, this is not always necessarily so. The doctrine rests on the objective intention of the parties to abandon or abrogate the contract, ascertained from their conduct and the surrounding circumstances. Accordingly, abandonment can be inferred where parties have either agreed or sought to agree on an entirely new bargain which constitutes a fundamental departure from their original bargain.” (footnote omitted)

96. In Fazio v Fazio [2012] WASCA 72 at [74], Murphy JA noted that the abandonment of a contract, in the sense of the mutual release of future obligations, does not depend upon the subjective intention of the parties. Rather, it depends upon whether their conduct (both acts and omissions), viewed objectively, manifests an intention to discharge the contract. This observation was cited with approval by this Court in Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16; (2015) 230 BPR 35,511 at [98].

Further background facts relevant to the issue of abandonment

97. Against the background of the parties’ interactions between February and September 2008 as set out earlier in these reasons, from September 2008 and into 2009 discussions continued between the parties in relation to the proposed development, including in relation to the Big W store, the potential inclusion of a Dick Smith electronics store, a Thomas Dux grocery store, and the addition of an area for a liquor store in the overall development.

98. On 27 January 2009, Mr Hocking forwarded to Mr Gazal a Letter of Offer in respect of an additional area to be leased by Woolworths for a liquor store. [30]

    30. Blue 4: 1654-1657.

99. On 2 February 2009, Mr Hocking forwarded to Mr Gazal an amended Letter of Offer, which was subsequently signed by Mr Gazal on behalf of Gazcorp on 11 February 2009 and returned to Woolworths. [31]

    31. Blue 4: 1666-1669.

100. On 27 February 2009, Mr Finlay sent an email to Mr Gazal informing him that the property committee of Woolworths had “approved the additional area for liquor” and that solicitors would be instructed shortly to “vary the documents”. [32]

     32. Blue 4: 1681-1682.

101. By 10 March 2009, the parties expected that the Land and Environment Court would soon give its judgment concerning the 2008 Development Application, which incorporated the proposed Big W store. As has been noted above at [65], the judgment was given on 20 March 2009 and was adverse to the 2008 Development Application, and thus the proposed development that included a Big W store. In essence, it was held that the large amount of retail floor space proposed would have an adverse economic impact upon the nearby Green Square Town Centre and was therefore not in the public interest: see Humphrey & Edwards v City of Sydney [2009] NSWLEC 1075. Gazcorp promptly informed Woolworths of the decision, which Mr Gazal described as a “huge shock”. [33]

     33. Blue 4: 1717.

1. a further consequence of the proposed supermarket being elevated to the ground floor in the 2012 Development Consent was that its size and shape was different from the proposed supermarket in the AFL;

2. there was only one level for car parking in the whole centre under the 2012 Development Consent, whereas (even on Woolworths’ view) the AFL required two basement levels with car parks. As such, the space for car parking reduced significantly to 205 spaces under the 2012 Development Consent compared to a total 614 spaces, 385 of which were for retail outlets, in the AFL. In this respect, cl 2.5(c) of the AFL only allowed Gazcorp to reduce the number of retail car park spaces by a maximum of 5% (19 car parks); that is, from 385 to 366 spaces.

193. The effect of the lack of reference by the parties to the AFL and the supermarket it contemplated after April 2012 (see [139] and [167] above) was only reinforced by the fact that the expiry of the 2008 Development Consent occurred in February 2014 without comment or action from either party. The AFL became incapable of performance after that point in time because there was no consent in force thereafter which permitted the AFL to be performed in the manner required by cl 2.1. An application for a s 96 modification of the 2012 Development Consent would have been most unlikely to succeed given the need for the modified development to be “essentially or materially the same” as the approved development: Moto Projects (No 2) Pty Ltd v North Sydney Council (1999) 106 LGERA 298; [1999] NSWLEC 280 at [55]. There were very significant differences between the supermarket as recorded in the plans the subject of the 2012 Development Consent and that referred to in the lapsed 2008 Development Consent.

194. Particular submissions were made in relation to statements by various Woolworths representatives, officers and employees, in particular Mr Carroll, regarding the need to “cut a new deal” for the Green Square site and for a Letter of Offer to issue in relation to the plans designed for the purposes of the 2012 Development Application. Gazcorp called these statements in aid of its abandonment argument, whereas Woolworths submitted that Mr Carroll lacked authority to bind it and that an important legal consequence such as contractual abandonment should not have been derived from informal correspondence.

195. So much may be accepted, but neither my conclusion nor that of the primary judge turned or depended on this correspondence so much as the failure by Woolworths to treat the AFL as being on foot for a period of years and its undertaking of, and acquiescence in, conduct quite inconsistent with it remaining on foot. In any event, the significance of Mr Carroll’s statements lies in the insight they provided into Woolworths’ overall position; he was the officer charged with dealing with Gazcorp and the position which his statements disclosed may reliably be taken to reflect the lack of commitment, on Woolworths’ part, to the deal as originally secured by the AFL.

196. Whilst there was force to Mr Stoljar’s submission that Woolworths should not lightly be taken to have given up its rights, it is difficult to conclude that, at least after October 2012, it ever intended to insist on the construction of a shopping centre containing a sub-ground floor supermarket at Green Square of the kind for which the AFL provided. Woolworths knew how to protect and/or reserve its rights but the only relevant reservations came in its letter of 5 October 2010 (see [123] above) in relation to the recovery of “costs, expenses and damages” and a similar letter of 18 October 2011 (see [133] above). An earlier lodgement of a caveat by Woolworths was withdrawn on 20 May 2011 (see [127] above). The letter of 18 October 2011, moreover, was described as “only a mechanical letter” (see [134] above). Apart from a reference to the AFL on 13 April 2012 (see [139] above), it was to be the last reference by the parties to the AFL until February 2016 (see [167] above). The totality of the parties’ conduct in the interim was inconsistent with either of them treating the AFL as on foot. At no time did Woolworths, moreover, ever act on its asserted reservation of rights.

197. In reaching the same conclusion as the primary judge, like his Honour, I have not taken into account various internal documents of Woolworths which suggested that the AFL had been “surrendered” or that there was no agreement on foot. Mr Lawrance, for Gazcorp, contended that these documents constituted admissions. It is unnecessary to determine that issue, save to say that, had they been taken into account, Woolworths’ position would have been weakened and not strengthened.

198. For all of the above reasons, the primary judge was correct to conclude that the AFL had been abandoned by about the beginning of 2014.

Frustration

199. The primary judge held that, in the event that his Honour’s conclusion as to abandonment was incorrect, and if the AFL had not already been abandoned, it was terminated by frustration on 17 February 2014, when the 2008 Development Consent lapsed. This was because it was no longer possible for Gazcorp lawfully to carry out the Landlord’s Works under the AFL.

Primary judge’s findings on frustration

200. The primary judge outlined that the parties entered into the AFL on the common assumption that Gazcorp would continue to be able lawfully to carry out the Landlord’s Works, and that the terms of the AFL obliged Gazcorp to cause the Landlord’s Works to be carried out: PJ [230]. The primary judge further held that it could not be said that either party assumed responsibility under the AFL for the continuation of “a state of affairs where Gazcorp was able to lawfully carry out the Landlord’s Works”: PJ [232]. His Honour concluded that Gazcorp’s proposition that this common assumption proved to be mistaken was also made out, noting (at [233]) that:

“The carrying out of the Landlord’s Works requires construction of the Centre. As I have said, the Centre is a shopping centre essentially as envisaged by the 2008 Consent. It is clear that once the 2008 Consent lapsed on 17 February 2014, it was no longer lawful to construct the Centre.”

201. The primary judge summarised Woolworths’ submissions in this respect as follows (PJ [235]):

“It therefore seems that Woolworths accepts that it is no longer lawful to construct a shopping centre on the site that accords with the 2008 Consent, but says that it would be lawful to construct a shopping centre on the site that accords with the 2012 Consent (as modified). Woolworths then submitted that constructing the shopping centre the subject of the 2012 Consent (which provides for a full line Woolworths supermarket on the ground level and two levels of basement parking) would allow the commercial purpose of the Agreement to be fulfilled. Accordingly, it was submitted that the lapse of the 2008 Consent did not have the result that the performance called for under the [AFL] was rendered radically different from that which was undertaken under the [AFL].”

202. However, the primary judge rejected this submission at [236], stating that:

“The commercial purpose asserted by Woolworths is in fact contrary to the terms of the [AFL]. The achievement of a full-line supermarket of about 3,800m² in area in a building on the site, and for associated car parking below, may well have been a commercial objective of Woolworths in entering into the [AFL]. However, the [AFL] provided for a particular shopping centre to be constructed, with a particular part of that shopping centre to be the subject of a lease to Woolworths for a supermarket. As I have sought to explain, the terms of the [AFL] provide for the construction of a shopping centre essentially as envisaged by the 2008 Consent. Gazcorp’s obligations in respect of the Landlord’s Works were obligations in respect of the works required to complete construction of such a shopping centre (referred to in the [AFL] as ‘the Centre’). Gazcorp was obliged to construct that Centre, and grant a lease to Woolworths over a particular part of that Centre. Whilst the [AFL] allowed for some changes to be made to the Landlord’s Works, it did not provide for significant differences such as the deletion of levels, or provision for a supermarket on a different level. Changes of that character would need to be the subject of a further agreement (whether a fresh agreement or a variation of the [AFL]).”

203. Accordingly, the primary judge held that if the AFL had not already been abandoned, then it was terminated by frustration on 17 February 2014 (when the 2008 Development Consent lapsed) as it was no longer possible for Gazcorp lawfully to carry out the Landlord’s Works under the AFL. His Honour determined that the lapse of the 2008 Development Consent was “an event that brought to an end a state of affairs the parties had assumed would continue to exist during the life of the contract”: PJ [240]. Gazcorp was required to carry out the works in a lawful manner. The primary judge held that to carry them out in an unlawful manner would be radically different from the terms of the AFL.

Grounds of appeal and submissions on frustration

204. By grounds 5–8 of its Amended Notice of Appeal, Woolworths challenged the primary judge’s findings on frustration, as follows:

“5  The Court below erred in concluding that it was no longer lawful to carry out the Landlord’s Works once the 2008 Consent lapsed on 17 February 2014, and should instead have found that, on the proper construction of the AFL, the 2012 Consent permits the carrying out of the Landlord’s Works.

6   The Court below erred in concluding that neither the appellant nor the first respondent took responsibility for the state of affairs in which the first respondent ceased being able to lawfully carry out the Landlord’s Works, and should instead have held that, on the proper construction of the AFL, the first respondent was responsible for both obtaining and maintaining all necessary approvals to permit the carrying out of the Landlord’s Works.

7   The Court below erred in concluding that at the time of entering into the AFL, on or about 20 February 2008, the appellant and first respondent held the common assumption that the 2008 Consent would not lapse before development of the Centre was completed.

8   The Court below erred in concluding that the AFL was terminated by frustration on 17 February 2014 upon the lapsing of the 2008 Consent, and should instead have held that the lapsing of the 2008 Consent had no bearing on the continued existence of the AFL.”

205. Woolworths submitted that the frustration of the AFL required an express finding that it became incapable of performance on 17 February 2014, because the circumstances in which performance was called for would have rendered it a thing radically different from that which was undertaken, referring to Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 357; [1982] HCA 24 (Codelfa). Woolworths contended that the fact that a “mere difference” in the relevant state of affairs could be identified was not sufficient for frustration and that there must be a “radical difference”, citing Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (Davis Contractors). Woolworths submitted that the fact that one means of performing the AFL had ceased to be available (namely, the provision of a Woolworths supermarket on the lower ground floor per the 2008 Development Consent) did not establish frustration, because other means could be employed consistently with the AFL (namely, the provision of a Woolworths supermarket on the ground floor in accordance with the 2012 Development Consent).

206. Woolworths submitted that the gravamen of the primary judge’s reasoning on the issue of frustration was that the AFL “did not provide for significant differences such as the deletion of levels, or provision for a supermarket on a different level” (PJ [236]). With regard to the first of these matters (the deletion of levels), it was contended that the AFL did not require Gazcorp to construct a mixed use building containing any specific number of levels, and so this issue was irrelevant. In any event, Woolworths submitted that the change of levels in the development as a whole would not have the consequence that performance of the AFL was “radically different”.

207. As to the second matter identified by the primary judge at PJ [236], namely the provision of a supermarket on a different level, Woolworths submitted that it was true that, pursuant to the 2012 Development Consent, the Woolworths supermarket would be on the ground floor (or Botany Road level) and not the lower ground floor (or Wyndham Street level). However, Woolworths submitted that the essential criteria stipulated in the AFL remained, such that this alteration could not be described as a “radical difference” for the purposes of the doctrine of frustration.

208. Woolworths contended that there was an “air of unreality in the conclusion of frustration”, submitting that:

“The parties collaborated closely through to at least the end of 2015. Woolworths never once raised in the years after 2012 – and still does not raise – the slightest concern about the fact that the supermarket was on the ground floor rather than the lower ground floor. Indeed Woolworths suggested that change. Nor did Gazcorp raise any issue with this alteration – in fact, it drew up the plans. Woolworths was still entitled to the grant of a lease over a Woolworths supermarket conformably with cl 2.3 of the AFL, which supermarket contained the requisite approximate lettable area and in all other respects complied with the AFL. The primary judge does not identify a single reason why any reasonable person in the parties’ position would be concerned about a change in the location of the supermarket from the lower ground floor to the ground floor, nor is any such reason apparent. The suggestion that this change frustrated the AFL is a lawyer’s construct, advanced for the first time by Gazcorp years after the event.”

209. In response, Gazcorp submitted that Woolworths did not explicitly take issue in the proceedings below with the proposition that there was a common assumption that Gazcorp would continue to be able lawfully to carry out the Landlord’s Works. Gazcorp submitted that Woolworths sought to qualify this assumption by its own submission that the primary judge fell into error insofar as the common assumption finding was itself based on the assumption that the “2008 [Development] Consent was essential to the performance of the [AFL] and would continue to exist unchanged”. However, Gazcorp submitted that no such assumption underlay the primary judge’s reasons. Gazcorp pointed to PJ [230], which made plain that the common assumption was based on the AFL obliging Gazcorp to cause the Landlord’s Works to be carried out lawfully; the assumption was not that the 2008 Development Consent would continue to subsist, but rather that Gazcorp would be able lawfully to carry out the Landlord’s Work.

210. Gazcorp further submitted that, since 14 December 2012, it had not been possible to obtain a new development consent in accordance with the terms of the AFL, due to the 2012 LEP coming into effect. Clause 7.23(3) of the 2012 LEP prohibited the granting of a development consent for a property identified as a “Restricted Retail Development” on the “Retail Premises Map” for spaces of greater than 1,000m². Gazcorp’s property was identified as a “Restricted Retail Development” on the Map. As such, from 14 December 2012, Gazcorp submitted that it could not obtain a new approval to undertake either: (a) the Landlord’s Works as specified in the AFL (as originally entered into), because those works would require the construction of retail space of approximately 14,949m²; or (b) construction of the Woolworths supermarket, ignoring the rest of the centre, because it alone was to be 3,800m².

Relevant principles — frustration

211. Like the principles relating to the abandonment of contracts, there was no real dispute between the parties as to the applicable principles concerning frustration.

212. In Davis Contractors at 729, Lord Radcliffe stated that frustration occurs:

“whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract … It was not this that I promised to do”. (emphasis added)

His Lordship continued that “[t]here must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for”.

213. The fact that a mere difference can be identified is not sufficient for frustration — there must be a “radical difference”: Davis Contractors at 729. In Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The “Sea Angel”) [2007] 2 Lloyd’s Rep 517; [2007] EWCA Civ 547 at [111], Rix LJ stressed the importance of the “radically different” test, outlining that:

“It tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances”.

214. The above passages from Davis Contractors were cited with approval by the High Court in Codelfa. At 357, Mason J observed that the “critical issue is whether the situation resulting from the [allegedly frustrating event] is fundamentally different from the situation contemplated by the contract”. His Honour outlined that the essential criterion of frustration is thus a:

“common assumption that some particular thing or state of affairs essential to [the contract’s] performance will continue to exist or be available, neither party undertaking responsibility in that regard”. (emphasis added)

See also Chinatex (Australia) Pty Limited v Bindaree Beef Pty Limited [2018] NSWCA 126 at [43].

215. Nettle JA (as he then was), in oOh! Media Roadside Pty Ltd (Formerly Power Panels Pty Ltd) v Diamond Wheels Pty Ltd (2011) 32 VR 255; [2011] VSCA 116 at [70] (oOh! Media), summarised the law to be that a contract is not frustrated unless a supervening event:

“a)   confounds a mistaken common assumption that some particular thing or state of affairs essential to the performance of the contract will continue to exist or be available, neither party undertaking responsibility in that regard; and

b)   in so doing has the effect that, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.”

216. In some cases, it has been sufficient to engage the doctrine of frustration that events have given rise to a “fundamental commercial difference” between contemplated and actual performance (see Albert D Gaon & Co v Société Interprofessionelle des Oleagineux Fluides Alimentaires [1960] 2 QB 318 at 347), or to a “fundamentally different situation”, for which the parties made no provision “so much so that it would not be just in the new situation to hold them bound to its terms”: see Ocean Tramp Tankers Corporation v V/O Sovfracht (The “Eugenia”) [1964] 2 QB 226 at 238.

217. As outlined in Pioneer Shipping Ltd v BTP Tioxide Ltd (The “Nema”) [1982] AC 724 at 752, the doctrine is not to be relied on simply “to relieve contracting parties of the normal consequences of imprudent commercial bargains”.

218. With respect to the role of foreseeability in relation to circumstances said to amount to frustration, in oOh! Media at [74] Nettle JA stated that:

“In the case of foreseeable but unforeseen events, the nature and extent of foreseeability is critical. Since most events are foreseeable in one sense or another, the parties to a contract will not ordinarily be taken to have assumed the risk of an event occurring during the life of the contract unless the degree of foreseeability of that event is very substantial. Hence, as the position is summarised in Chitty on Contracts:

Much turns on the extent to which the event was foreseeable. The issue which the court must consider is whether or not one or other party has assumed the risk of the occurrence of the event. The degree of foreseeability required to exclude the doctrine of frustration is … a high one: ‘foreseeability’ will support the inference of risk-assumption only where the supervening event is one which any person of ordinary intelligence would regard as likely to occur or … ‘one which the parties could reasonably be thought to have foreseen as a real possibility’.” (footnotes omitted)

219. The effect of frustration is to discharge the parties from the obligation to perform, or to be ready and willing to perform, their contractual obligations: see Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154 at 163. The discharge takes place “forthwith, without more and automatically”: see Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 at 505.

220. In Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 at 274–275, Lord Wright said that the “data” for the decision of a frustration issue “are, on the one hand, the terms and construction of the contract, read in the light of the then existing circumstances, and on the other hand the events which have occurred”. In oOh! Media at [69], Nettle JA noted that for the purposes of frustration, it is permissible to have regard to relevant surrounding circumstances to assist in the interpretation of the contract.

221. With respect to fault, frustration must not be the “act or election of the party seeking to rely upon it” and an event cannot give rise to frustration if there were “blame or fault on the side of the party seeking to rely on it”: J Lauritzen AS v Wijsmuller BV (The “Super Servant Two”) [1990] 1 Lloyd’s Rep 1 at 8.

Consideration — frustration

222. On appeal, Mr Stoljar, for Woolworths, argued strongly that the primary judge should not have concluded that the AFL was frustrated. He submitted that there was fault on the part of Gazcorp in not at least substantially commencing work in accordance with the 2008 Development Consent, which would have meant that the Consent did not lapse and it did not become unlawful for the shopping centre the subject of that approval to be developed. In terms of the authorities referred to above, the submission was that Gazcorp had “undertaken responsibility” for a certain state of affairs, namely the non-lapse of the 2008 Development Consent, to be achieved and then maintained by the timely commencement of the Landlord’s Works.

223. Mr Stoljar pointed to the fact that Gazcorp was under clear obligations in the AFL to act as expeditiously as possible in causing the Landlord’s Works to be carried out (cl 2.1) and that cl 2.4 imposed a “best endeavours obligation” as to the time for completion, which should have had both the shopping centre and the supermarket at a state of practical completion well prior to the lapse of the 2008 Development Consent.

224. There was a debate between the parties as to whether the pleading of this issue was required. It is not clear on the authorities whether an absence of fault on the part of the party invoking the doctrine of frustration is a precondition to the party so doing or, rather, whether the existence of fault is a matter to be raised by way of defence.

225. Because of the earlier conclusions reached in relation to variation (with the accepted consequences as to frustration in that different context) and abandonment, it is strictly not necessary to resolve this issue and, for reasons explained below, there is a degree of artificiality in so doing. As a matter of general principle, however, it is plain that, where a party has in some way relevant to the alleged frustrating event been at fault, such a party should not be permitted to contend that its performance of the contract is discharged by frustration. That aspect of the doctrine is an application of the general maxim that a party should not be permitted to take advantage of its own wrong: New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1. In any such consideration, questions of acquiescence or the extent of any acquiescence may also arise.

226. In the present case, whilst Gazcorp did not cause the 2008 Development Consent to expire — that happened by effluxion of time — it could be argued that it was responsible for the consequences of that lapse, namely the fact that performance of the AFL was no longer lawful after the consent had lapsed. In other words, had Gazcorp commenced to construct the shopping centre in accordance with the 2008 Development Consent well prior to 2014, as it was undoubtedly required to do under the AFL, it would not have been unlawful to perform the AFL after 17 February 2014.

227. In this sense, it may have been appropriate to describe Gazcorp as being relevantly “at fault” but that would only be the case if the matter was viewed in isolation and on the assumption that the AFL had not been abandoned by the date it was said to have been frustrated. If, however, as the primary judge correctly in my view held, the AFL had been abandoned by that date, no question of fault could arise because contractual obligations under the AFL would be treated as discharged or of no continuing vitality. That is why I have earlier described this question as artificial in the present case.

228. For completeness, I agree with the primary judge’s conclusion that, for the purposes of the doctrine of frustration, there was a radical difference between performance of the AFL in accordance with the 2008 Development Consent and in accordance with the 2012 Development Consent. The works permitted by the 2012 Development Consent were not “essentially as envisaged” by the 2008 Development Consent.

229. I also agree with his Honour’s conclusion, which was relevant to his findings on frustration, that the term “Centre” (as defined in and for the purposes of the AFL) was the shopping centre as envisaged by the 2008 Development Consent and not simply a shopping centre to be constructed on the site and containing space for a supermarket of a designated size, irrespective of its location and configuration within the centre.

Conclusion

230. For all of the above reasons, the appeal should be dismissed with costs.

231. MEAGHER JA: I agree with Bell P.

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Endnotes

Decision last updated: 22 February 2022