New South Wales Court of Appeal CITATION : UPPER HUNTER TIMBERS PTY LTD v FORESTRY COMMISSION OF NSW [1999] NSWCA 125 FILE NUMBER(S) : CA 40671/98 HEARING DATE(S) : 22 April 1999 JUDGMENT DATE : 21 May 1999 PARTIES : Upper Hunter Timbers Pty Limited - A Forestry Commission of NSW - R JUDGMENT OF : Priestley JA at 1; Sheller JA at 2; Stein JA at 59 LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT FILE NUMBER(S) : 3609/97 LOWER COURT JUDICIAL OFFICER : Bryson J COUNSEL : D J Hammerschlag/M Green - A J E Griffiths - R SOLICITORS : Deacons Graham & James - A Crown Solicitor of NSW - R CATCHWORDS : CONTRACT - finality - merely agreement to agree; CONTRACT - assignment - novation; CONTRACT - Government body - whether contract fettered discretion; CONTRACT - frustration by commencement of Act - loss of bargain damages Forestry Act 1916 Forestry Revocation & National Parks Reservation Act 1996 ACTS CITED : Enviromental Planning & Assessment Act 1979 Timber Industry (Interim Protection) Act 1992 Frustrated Contracts Act 1978 Limitations Act 1969 CASES CITED: Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth (1977) 139 CLR 54 at 77 Camberwell City Council v Camberwell Shopping Centre Ltd (1994) 1 VR 163 at 182 DECISION : 1. Appeal allowed in part; 2. Set aside so much of the order of Bryson J of 17 August 1998 as gave judgment for the respondent on the Mount Royal Claim and the order that the appellant pay the respondent's costs of the proceedings; 3. Remit the matter to the Equity Division for a determination of the extent, if any, to which the respondent was in breach of the agreement made on 14 November 1988 during the period on and from 14 August 1991 to 31 December 1996 and the damages, if any, the result of such breach for which the respondent is liable having regard to the provisions of the Frustrated Contracts Act; 4. Order that the costs of the hearing before Bryson J be determined by the Judge hearing the matter remitted taking into account the result of the remitted proceedings; 5. No order as to the costs of the appeal. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40671/98 ED 3609/97 PRIESTLEY JA SHELLER JA STEIN JA UPPER HUNTER TIMBERS PTY LIMITED v FORESTRY COMMISSION OF NEW SOUTH WALES The appellant claimed damages for breach of contract by the respondent in relation to two agreements. The first of these agreements was allegedly made in 1963 between the respondent and Woolooma Timber Co Pty Limited (Woolooma), whereby the respondent agreed to sell Woolooma timber situated on Crown land which was subsequently gazetted as part of the Stewarts Brook State Forest. The appellant alleged that Woolooma's rights were transferred to it in or after July 1985 either when the contract was novated or when it exercised Woolooma's rights under the contract on the basis of a common assumption between it and the respondent that they were the parties to the contract. The second agreement was allegedly made on 14 November 1988 between the appellant and the respondent, under which it was claimed that the respondent agreed to allow the harvesting of timber in two sections of the Mount Royal State Forest. The appellant harvested timber from these sections for some time, after which the respondent refused to permit it to continue to do so. The trial Judge dismissed the claims at first instance. In relation to the first agreement the trial Judge held that the Forestry Act 1916 prevented the respondent from entering into an agreement, whether contractually binding or not, to dispose of timber or to grant licences. The trial Judge also held that there was no contract between the company and the respondent due to the lack of finality and consideration. Further, even if there had been a binding agreement between Woolooma and the respondent, that there was no transfer, novation or assignment of the agreement to the appellant. In relation to the second agreement the trial Judge held that due to amendments to the Forestry Act, the 10 year contract which commenced on 14 November 1988 was able to be entered into by the respondent. However, the trial Judge held that there was no contractually binding entitlement to take timber in the Mount Royal State Forest as there was no licence issued by the respondent from the period from 1 January 1994 onwards. This was due to frustration of the contract by the operation of the Forestry Revocation and National Parks Reservation Act 1996 by which the relevant part of the Mount Royal State Forest became a national park. The trial Judge held that damages could only be awarded for the time between 14 August 1991 and 1 January 1994 due to a six year limitation of action and the lack of licence. The trial Judge further held that the respondent was in breach of an implied obligation under the agreement to carry out an environmental impact statement in relation to the logging in the Mount Royal State Forest, which was required under the Environmental Planning and Assessment Act 1979 and later the Timber Industry (Interim Protection) Act 1992. As a result of this failure, the appellant was restrained by the Land and Environment Court in 1990 from logging in some parts of the Mount Royal State Forest. His Honour held that this did not amount to frustration of the contract as it arose out of the respondent's failure to comply with an implied obligation under the agreement. However, claims arising from this breach were statute barred. On appeal the appellant claimed general damages for breach of contract under the Stewarts Brook agreement and loss of bargain damages under the Mount Royal agreement. Held: By Sheller JA, Priestley and Stein JJA agreeing: With regard to the Stewarts Brook claim: (1) There is no reason why the respondent could not have entered into a binding agreement with the appellant under which the respondent agreed to issue a special license for a particular period which enabled the appellant to take a quota of timber, provided that the contract was on terms making it subject to the Forestry Act and any regulations. (2) The making of such a contract does not amount to an anticipatory restriction of the ambit of the respondent's statutory licensing discretion. A contract containing an undertaking to issue a license or licenses does not fetter the discretion in the sense that compliance with the undertaking can be enforced. Unless the agreement is prohibited by or incompatible with the statute, the undertaking is valid because the discretion may be effectively exercised despite and contrary to the undertaking. In such case the remedy to the disappointed party is in damages; Ansett Transport Industries (Operations) Pty Limited v The Commonwealth (1977) 139 CLR 54 at 77 applied, Camberwell City Council v Camberwell Shopping Centre Limited (1994) 1 VR 163 at 182 considered. (3) The Forestry Act 1916 did not prohibit the respondent from making the contract. When s 11 refers to the respondent disposing of timber that expression included the respondent agreeing to dispose of timber by the issue of a license under Pt 3 of the Act. (4) The correspondence between the respondent and the appellant does not constitute a contract. In the context of existing legislation the parties could not be treated as intending to make a commitment by way of a binding contract. The parties were merely expressing an expectation or hope, which, if all went well, might be fulfilled. With regard to the Mount Royal claim: (5) Loss of bargain damages are only recoverable if the contractual obligation of the injured party has been brought to an end by the wrongful conduct of the defendant, as only then is the bargain lost; Heyman v Darwins Limited [1942] AC 356 at 399 and Sunbird Plaza Pty Limited v Maloney (1988) 166 CLR 245 applied (6) The contract was frustrated on 1 January 1997 by the coming into force of the Forestry Revocation and National Parks Reservation Act. Sections 7 and 8 of the Frustrated Contracts Act 1978 confined the appellant's right to recover damages for breach of promise under the contract before the time of frustration. Since the contract had not been terminated by the respondent's wrongful conduct, the frustration defeated any claim for loss of bargain, and left the appellant to a claim for such damages for breaches of promise before the time of frustration as it might otherwise have. These in turn are defeated by s 14 (1) of Limitations Act 1969 if the cause of action accrued before 14 August 1991. ORDERS 1. Appeal allowed in part; 2. Set aside so much of the order of Bryson J of 17 August 1998 as gave judgment for the respondent on the Mount Royal Claim and the order that the appellant pay the respondent's costs of the proceedings; 3. Remit the matter to the Equity Division for a determination of the extent, if any, to which the respondent was in breach of the agreement made on 14 November 1988 during the period on and from 14 August 1991 to 31 December 1996 and the damages, if any, the result of such breach for which the respondent is liable having regard to the provisions of the Frustrated Contracts Act; 4. Order that the costs of the hearing before Bryson J be determined by the Judge hearing the matter remitted taking into account the result of the remitted proceedings; 5. No order as to the costs of the appeal. ***** THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40671/98 ED 3609/97 PRIESTLEY JA SHELLER JA STEIN JA Friday, 21 May 1999 UPPER HUNTER TIMBERS PTY LIMITED v FORESTRY COMMISSION OF NEW SOUTH WALES JUDGMENT 1 PRIESTLEY JA: I agree with Sheller JA. 2 SHELLER JA: INTRODUCTION: The plaintiff, Upper Hunter Timbers Pty Limited (UHT), brought proceedings against the Forestry Commission of New South Wales (the Commission) alleging breach of two agreements. The first of these agreements which UHT claims to have been breached has been called the "Stewarts Brook" claim. UHT alleged that this agreement was made in 1963 between Woolooma Timber Co Pty Limited (Woolooma) and the Commission, when the Commission agreed to sell to Woolooma timber situated in an area of Crown land known as Block K, which was subsequently gazetted as part of the Stewarts Brook State Forest, and to make available to Woolooma an annual quota of 2 million super feet of timber for harvesting. By a further agreement made on 22 March 1971 between Woolooma and the Commission the annual quota was increased by 1 million super feet of timber. 3 UHT alleged that in or after July 1985 all Woolooma's rights under the contract were transferred to it when the contract was novated by substitution of UHT for Woolooma or UHT exercised Woolooma's rights under the contract to harvest timber and did so on the basis of a common assumption between UHT and the Commission that the parties to the agreement were UHT and the Commission. UHT alleges that the Commission breached this contract when it refused to permit UHT to continue to harvest timber. 4 UHT's claim concerning breach of the second agreement, which was said to have been made on 14 November 1988 between UHT and the Commission, has been called the "Mount Royal Claim". UHT alleged that the Commission agreed to sell to it a parcel of timber in the Mount Royal State Forest and to make the timber available for harvesting by it. The agreement was said to have conferred a profit a prendre on UHT. After UHT had harvested some of the timber which was the subject of the agreement, the Commission refused to permit it to continue to do so. 5 UHT claimed relief against the Commission by way of declarations, specific performance and injunctions. TRIAL 6 Bryson J heard the proceedings and on 17 August 1998 dismissed them. In his reasons for judgment his Honour dealt first with the earlier agreement, the Stewarts Brook claim. His Honour held that the Forestry Act 1916 (the Forestry Act), which created the Commission and conferred powers on it, in its amended form current in 1963, permitted the Commission to dispose of timber, apart from any timber which it took itself, by granting a license under s26 and did not enable the Commission to make a conclusive arrangement, whether contractually binding or not, to dispose of timber or to grant licenses. Bryson J said at 6: "A contractual arrangement which committed the Forestry Commission to issue a license for a future year, or a series of licenses for future years, would be inconsistent with this statutory regime for issuing licenses for fixed periods, periods of one year in the case of general licenses; indeed it would be repugnant to the statutory regime." Accordingly, the arrangement that UHT claimed had been made in 1963 was not legally binding on the Commission. 7 Moreover, Bryson J held that the correspondence UHT relied upon in support of its claim did not express an agreement to sell to Woolooma the timber in Block K. His Honour said that the matter under discussion between the parties in a series of the letters was an annual log quota and not the sale of timber or a right to take timber over a long future period. Further, the letters did not state the period over which the timber might be taken and there was no assurance of exclusivity in the sense that only Woolooma could take timber from Block K. His Honour said at 12: "The improbability that the Forestry Commission intended to commit itself for a long period, decades long or indefinite, during which Woolooma would have a contractual right to all timber on Block K, is very high." 8 Even if one took account of the later behaviour of the parties Bryson J was not satisfied that this showed that there was a contractual relationship. Further, his Honour held that there was no consideration for the alleged agreement as the license fees and royalties payable were payable in any event and did not constitute consideration for an overriding agreement. Bryson J held that the Commission's power of control and management of the timber reserve did not extend to creating or granting interests in that land whether profits a prendre or otherwise. In any event, the letters relied upon did not by their terms create any interest in land. 9 Next, his Honour dealt with the alleged agreement to increase the annual quota and held that the events relied upon by UHT did not constitute a contractual arrangement "for much the same reasons as show that the first alleged agreement was not a contractual arrangement." 10 Finally, Bryson J held that there was no document or other formal act which could constitute a transfer or assignment of the alleged contract to UHT nor was there notice of such an assignment. Various documents relied upon were transfer documents explicitly related to the assignment of identified licenses. Moreover, there was no basis for the view that the alleged varied agreement was novated. There was no evidence that the parties had acted on the common assumption that the parties to the varied agreement were UHT and the Commission. Bryson J said: "The view that there was a contractual arrangement such as is alleged was never expressed by or on behalf of the Commission, and was not raised by [UHT] until many years after 1985, so there is no basis for the contention that there was estoppel by convention on this subject." 11 The Commission raised other defences upon which his Honour did not adjudicate and which have not been raised on this appeal. 12 By November 1988 when the second agreement, the basis for the Mount Royal claim was made, the Forestry Act had been substantially amended. Bryson J found that the expressions used on both sides in an exchange of correspondence between the parties was "entirely appropriate for expressions of intention to enter into binding contractual relations." In his Honour's opinion the Commission's powers as they were in 1988, particularly those in s11 (i) (a), (b), (c) and (m) (i) and (iv) enabled it to enter into an agreement which extended over 10 years. 13 The Mount Royal agreement apparently applied to two locations, one called the Davis Creek Section and the other called the Carrowbrook Sections. The Carrowbrook Sections were divided into compartments which included those numbered 175 to 178 both inclusive and 180, 181, 182, 183 and 187. The Davis Creek Section was divided into compartments which included 201 to 204 both inclusive. 14 Bryson J found at 28: "For several years circumstances occurred which made the agreement effectual. Harvesting plans were settled, timber licenses were issued year by year and operations proceeded. A small part of the timber referred to in the tender was in the Carrowbrook area and this timber was all harvested by or before 1990. Timber licenses were issued which authorised the operations which Upper Hunter Timbers carried out; the first license is not in evidence but a license to take timber in eight named compartments of Mount Royal State Forest from 1 May 1989 to 31 December 1989 appears in Exhibit A page 294 [Appeal Book 548 compartments 201, 202, 203, 204, 180, 184, 185, 187], for the same area for the year 1990 at page 295 [Appeal Book 549] and a license for 1991 at page 296 [Appeal Book 550] relating to one compartment only [compartment 183]. The license for 1992 at page 297 [Appeal Book 551] relates to four compartments only [compartments 180/2, 187], as does that for 1993 at page 298 [Appeal Book 552]. Later licenses in Exhibit K authorise taking timber elsewhere but do not include Mount Royal State Forest in the areas specified. No evidence deals with whether the Upper Hunter Timbers sought or was refused licenses to take timber in the Mount Royal State Forest for periods after 31 December 1993. As s27 prohibits taking timber unless licensed, the effect of General Condition 5 is that there was no contractually effectual entitlement to take timber from 1 January 1994 onwards." An examination of the licenses referred to shows that none covered compartments in the Davis Creek Section for any period after 31 December 1990. 15 Bryson J found that the term of the agreement was 10 years from acceptance on 14 November 1988. On and from 1 January 1997 the agreement was frustrated by the operation of the Forestry Revocation and National Parks Reservation Act 1996 by which the relevant part of Mount Royal State Forest became Mount Royal National Park. The Commission pleaded a statutory limitation period of 6 years before the commencement of the proceedings on 14 August 1997. Accordingly, his Honour said, UHT's remedies had to be limited to damages caused by breaches of contract which had occurred on or since 14 August 1991. As there was a lack of a license after 1 January 1994 there could be no entitlement to take timber and therefore no damages after that date. 16 UHT contended that there was an implied term or obligation under the contract to the effect that each party was to do what was necessary on its part to be done to enable the other to have the benefit of the contract and this operated to require the Commission to issue all necessary licenses under s27A of the Forestry Act and to require the Commission to obtain Ministerial approval of the contract under s11 (1) (m) (ii). Bryson J was of opinion that the contractual obligation did not extend to oblige the Commission to exercise the discretionary statutory power in any particular way. 17 However, his Honour held that the Commission, when it entered into the agreement on 14 November 1988, needed to comply with subs 112 (1) of the Environmental Planning and Assessment Act 1979 (EPA Act) and in particular, as a determining authority carrying out or approving an activity likely to significantly affect the environment, to obtain and consider an environmental impact statement. In failing to do this the Commission was in breach of its implied obligation under the agreement "because conduct by both (UHT) and (the Commission) under the agreement was liable to be restrained by injunction and subject to penalties." 18 Bryson J found that such conduct continued to be liable to be restrained for the whole of the period until 12 March 1992 when the Timber Industry (Interim Protection) Act 1992 (the TIIP Act) came into effect. This Act substituted its own requirements relating to an environmental impact statement. On 16 January and 13 March 1990 the Land and Environment Court noted an undertaking from the Commission not to engage in logging activities in compartments 200 to 204 inclusive without compliance with the provisions of ss111 to 113 of the EPA Act and restrained UHT in the same terms for periods up to 12 June 1990. At that time the Court noted a final undertaking by the Commission and made an order that the Commission and UHT should not engage in any logging or burning activities in compartments 200 to 204 inclusive in the Davis Creek Section without compliance with the provisions of ss111 to 113 of the EPA Act. This order was not opposed. His Honour found that from the time of those injunctions and undertakings timber getting at Davis Creek ceased and never resumed. 19 Bryson J said: "Almost all timber available in the Carrowbrook section had been removed by then, but operations in the Davis Creek section were at an early stage. The Forestry Commission again came under the obligations of subsection 112 (1) and was in breach on each occasion until 12 March 1992 when it granted another timber license, but those breaches did not operate to cause timber getting to be restrained; that was caused by the original breach and the injunction to which it led, which occurred more than 6 years before the commencement of proceedings. Claims for damages caused by the original breach are statute barred. In my opinion the restraints imposed on the Forestry Commission by the proceedings before the Land and Environment Court, the undertaking and the injunction were not frustrating events; they arose out of the defendants not having complied with s112 of the EPA Act which was a breach of an implied contractual obligation." 20 Bryson J said that the TIIP Act altered the way in which timber getting in Mount Royal State Forest was affected by the need for an environmental impact statement under s112 (1) of the EPA Act. Section 6 prohibited the Commission from permitting logging operations on land which included compartments 175 to 178 and 200 to 204 of the Mount Royal State Forest until it had complied with Pt 5 of the EPA Act in respect of those operations in so far as that part was required to be complied with. Section 6 (2) provided: "However, if the Forestry Commission obtains an environmental impact statement after the commencement of this Act in respect of any such logging operations, the Forestry Commission is not to carry out, or approve or permit those logging operations unless the Minister for Planning had determined it may do so in accordance with section 9." 21 Section 8 of the TIIP Act, so far as presently relevant, provided: "(1) During the period of operation of this Act, the application of Pt 5 of the EPA Act in respect of logging operations being carried out or proposed to be carried out on land specified in Schedule 4 is suspended, subject to this section. (2) The Forestry Commission should obtain an environmental impact statement in respect of logging operations being carried out or proposed to be carried out on each area of land specified in Schedule 4 by the date specified in that schedule in relation to the area as if Pt 5 of the EPA Act had not been suspended by this section (and in so far as that part would require an environmental impact statement to be obtained if it were not so suspended). (3) Nothing in this section requires the Forestry Commission to obtain an environmental impact statement in respect of an area if it decides not to carry out logging operations in the area. (4) If the Forestry Commission obtains any such environment impact statement and the Minister for Planning determines in accordance with s9 whether or not it may carry out, or approve or permit, the logging operations to which the statement applies, the suspension of Pt 5 of the EPA Act in relation to those logging operations ceases." 22 The Minister for Planning was required by s9, amongst other things, to examine representations made in response to the public exhibition of the environmental impact statement and consult with the Minister responsible for the Commission. 23 UHT's 1992 license related to other compartments in the Carrowbrook Sections namely 180, 181, 182 and 187 not the subject of s6. The compartments to which the 1993 license related could not be identified. 24 Bryson J said that the Mount Royal management area which appeared to have included parts of the Mount Royal State Forest not otherwise scheduled was included in schedule 4 and dealt with by s8. His Honour thought that the period of operation of the TIIP Act was until 31 December 1994 but in fact its operation was extended twice, the second time until 31 December 1998. 25 Bryson J said: "By sub-section 8 (4) if the Forestry Commission obtained an Environmental Impact Statement and the Minister for Planning made a determination on it, the suspension of Part 5 of the EPA Act ceased. There were procedural provisions relating to the determination to be made by the Minister for Planning and that procedural course could lead to a determination which under the TIIP Act sub-section 9 (8) took the place of a determination under s112 of the EPA Act. In relation to land in Schedule 4 there was no prohibition against logging operations while the TIIP Act was in effect, and the previously existing prohibition in s112 was suspended. For the eight compartments in Sch. 1 to which the prohibition in s6 applied the Forestry Commission came under a new prohibition in sub-section 6 (1) against permitting logging operations when the TIIP Act came into effect on 12 March 1992, and its implied contractual obligation would have obliged it to take reasonable steps to overcome that prohibition by obtaining an Environmental Impact Statement and the Minister of Planning's determination under s9 if there were to be any operations in those eight compartments. The timber license which Upper Hunter Timbers had by then obtained for 1992 did not relate to any of those compartments, so no action in relation to them was contractually required of the Forestry Commission. With respect to other parts of the Mount Royal State Forest, which I take it included compartments 180, 181, 182 and 187 to which the 1992 license applied, the Forestry Commission came under the need to comply with s8 by obtaining an Environmental Impact Statement and a determination from the Minister of Planning. The Forestry Commission did not do so as its Environmental Impact Statement was rejected by the Minister of Planning as inadequate. However this did not have the result that logging operations were forbidden; the TIIP Act did not forbid logging operations on land in Schedule 4, and as the terms of the timber license for 1993 did not identify the relevant land by compartments the plaintiff has not shown by evidence whether the prohibition in s6 had any operation in respect of the land subject to that license, or whether that prohibition was a practical impediment to getting timber in accordance with the license. The operation of s112 of the EPA Act was suspended for compartments which are identified in the 1992 license, so that there was no effective prohibition under the EPA Act on logging operations on them, although the injunction of 12 June 1990 continued in effect and so far as evidence shows was not varied or suspended. With the expiry of the TIIP Act on 31 December 1994 the state of affairs which had led to the injunction again operated. In my opinion the Forestry Commission's not submitting an acceptable Environmental Impact Statement and not obtaining a determination from the Minister of Planning under the TIIP Act was not a breach of the Forestry Commission's implied obligation, and if it had been a breach it has not been shown to have had any effect as a cause of damage because it has not been shown to have had any effect to prevent logging operations on any land which the plaintiff could otherwise have worked. The cause of the plaintiff's inability to work the Mount Royal State Forest throughout the whole six years before commencement of the proceedings and earlier was the injunction, which arose out of the Forestry Commission's failure to comply with s112 (1) in 1988; and claims for damages arising from that breach are statute-barred." [my emphasis] APPEAL 26 UHT has appealed against Bryson J's decision in respect of both the Stewarts Brook claim and the Mount Royal claim. It is convenient to deal with the appeal in that order. That part of his Honour's judgment which I have put in italics is at the heart of the appeal against the dismissal of the Mount Royal claim. STEWARTS BROOK CLAIM 27 UHT submitted that his Honour erred in not finding that there was a binding contract between Woolooma and the Commission under which the Commission was committed to issue a series of licenses for future years, and in finding that any such contract would be repugnant to the statutory regime for issuing licenses under the Forestry Act. UHT also claimed that his Honour erred in finding that the rights of Woolooma had not been assigned to it, or that the agreement between Woolooma and the Commission had not been novated so that UHT became a party to it. 28 The long title to the Forestry Act stated that the Act was an Act to provide for the dedication, reservation, control, and use of State forests, timber reserves and Crown lands for forestry and other purposes and, "to appoint a commission to administer the Act, with power to sell and convert timber and products". Part 1 of the Act was headed "The commission and its powers and duties". In its form as in force in 1963 s5 (1) provided that the Governor should appoint some person as Commissioner, who should constitute the Forestry Commission. Section 9 provided that the Commission should have the administration of the Act and should exercise the powers and discharge the duties conferred and imposed on it by the Act and should have, except where in the Act otherwise expressly provided, the control and management of State forests and timber reserves. The section concluded: "In the exercise and discharge of the powers, authorities, duties and functions conferred or imposed on the commission by or under this Act or any other Act the commission shall be subject in all respects to the control and direction of the Minister." 29 Section 11 provided as follows: "(1) The commission may dispose of timber and products on any State forest or timber reserve, and also (but only in accordance with the provisions of the working plan for the flora reserve or catchment reserve) dispose of timber and products on a flora reserve or catchment reserve, and - (a) take and sell such timber and products; (b) convert any such timber into logs or hewn merchantable article, and sell the same; ….. (d) construct roads, railways, and tramlines and other works for the transport of timber, and purchase, rent, or charter and use vehicles and vessels with the necessary motor power;" 30 Part 2 of the Act was headed "State Forests and Timber Reserves" and provided for the resumption of land for the purpose of a State forest or to provide access thereto and its vesting in the Crown, for the exchange of land and for the dedication of Crown land as a State forest. Section 22 provided for the Governor, on the recommendation of the Minister, and with the concurrence of the Secretary for Lands, temporarily to reserve from sale any Crown land, with an immaterial exception, as a timber reserve and to revoke or alter, in whole or in part any such reservation. Section 24 provided that a lease or license to occupy land within a timber reserve should not be granted by the Crown unless with the approval of the Commission and subject to such conditions as the Commission thought fit to impose. 31 Part 3 of the Act was headed "Licenses". Section 26 provided as follows: "(1) A general or special license under this Act authorises the holder, subject to the regulations and subject to the conditions and limitations of the license, to take timber or products, or any specified description thereof, on land within a State forest to timber reserve, or on Crown land, whether such land is or is not under lease or license from the Crown: Provided that such license shall not, unless with the consent of the lessee or the trustees, as the case may be, apply to land held under conditional lease and not reserved from sale, or under conditional purchase lease, or in respect of which trustees have been appointed for any public purpose. (1A) A special license may, with the approval of the Minister, be issued, authorising the holder, subject to the regulations, to the conditions and limitations of the license, and to the provisions of the working plan, to take timber or products or any specified description thereof on land within a flora reserve or catchment reserve, whether such land is or is not under the lease or license from the Crown. (2) The term of a general license shall not exceed twelve months. The term of a special license shall not exceed ten years. (3) A special license shall confer exclusive rights on the holder, and when applicable to a defined locality may be sold by auction or by tender. (4) General and special licenses shall be issued by the commission, or by any person authorised in that behalf by the commission: Provided that a special license for a term exceeding or which may exceed five years shall not be so issued except by the authority in writing of the Minister." 32 Section 27 provided that if any person, except in pursuance of a license, general or special, under the Act or of a license or exclusive right under the repealed Act or in pursuance of a lease or license from the Crown lawfully in force "on any State forest, timber reserve, ….. or Crown land - (a) cuts, strips, obtains, removes, destroys, or damages any timber or tree …… he shall be liable to a penalty ……" 33 Section 30 of the Act provided that royalties payable to the Crown for timber or products taken in pursuance of licenses issued under the Act should be fixed by the Commission but should not be less than such minimums (if any) as might be prescribed by the regulations. The section further provided that special royalties and special minimums may be fixed with respect to timber and products taken in pursuance of a special license. 34 It is clear and not disputed that the removal of timber within a State forest or timber reserve or on Crown land was regulated by a licensing system. In the present case, Woolooma or UHT or related companies held special licenses in respect of the Crown land over which the Stewarts Brook claim to harvest was made. Only one such special license was in evidence. It was granted to Singleton Sawmills Pty Limited, which may have been a related company, with effect from 28 February 1969 to 27 May 1969. Not unexpectedly, the license provided for a minimum and maximum amount of timber that might be removed during its currency. It also provided for the rates of royalty the licensee was required to pay to the Commission in respect of the timber cut or deemed to have been cut by the licensee under the license. 35 Mr E R Bromley, who had been the managing director of Woolooma and UHT since before 1962, gave evidence, which Bryson J set out, that subject to variation, the maximum amount shown in the license corresponded with the amount notified as the annual quota. This statement has to be reconciled with the fact as appears from the special license in evidence that it was not to have effect for a 12 month period but for a shorter period. 36 Suffice it to say that there seems no reason why the Commission and a sawmiller should not have entered into a binding agreement under which the Commission agreed to issue a special license for a particular period which enabled the sawmiller to take a maximum amount of timber, otherwise described as a quota, provided the contract was on terms making it subject to the Act and any regulations. A special license could be for a period not exceeding ten years provided that a special license for a term exceeding or which might exceed five years could not be issued except by the authority in writing of the Minister; see generally Egan v Ross (1928) 29 SR (NSW) 382. Such a contract would probably have been regarded as essential to justify a sawmiller putting in place the necessary infrastructure to begin harvesting over a ten or five year period. 37 It was submitted on behalf of the Commission, with success before Bryson J, that the making of such a contract amounted to an anticipatory restriction or stultification of the ambit of the Commission's statutory licensing discretion, which was to be exercised at some time in the future in the public interest or for the public good. See Ansett Transport Industries (Operations) Pty Limited v The Commonwealth (1977) 139 CLR 54 at 75. In the words of Lord Birkenhead in Birkdale District Electric Supply Co Limited v Corporation of Southport [1926] AC 355 at 364 persons or public bodies entrusted by the legislature with powers and duties for public purposes cannot divest themselves of those powers and duties. "They cannot enter into any contract or take any action incompatible with the due exercise of their powers or the discharge of their duties." 38 In Ansett at 77 Mason J observed: "It will be perceived from what I have written that in my opinion the doctrine that an agreement of the kind in question may constitute an anticipatory fetter on the exercise of a statutory discretion is closely connected with the question whether the agreement is authorised by statute, or is prohibited by, or incompatible with it. If the agreement is authorised, then it is valid, and any breach of the undertaking it contains will be enforceable by damages but only when the effect of statutory approval is to convert the discretion to a duty will it be enforceable specifically." This observation, though postulated on a contract to which the Commonwealth government was a party but the officer in whom the discretion rested, was not, illustrates that a contract containing such an undertaking does not fetter the discretion in the sense that compliance with the undertaking can be enforced. Unless the agreement is prohibited by or incompatible with the statute, the undertaking is valid because the discretion may be effectively exercised despite and contrary to the undertaking. In such case the remedy to the disappointed party is in damages. See also Camberwell City Council v Camberwell Shopping Centre Pty Limited (1994) 1 VR 163 at 182 and following. 39 The Forestry Act did not prohibit the Commission making a contract of the sort discussed. Argument was directed to the extent of the power conferred by s11 (1) and in particular so as to distinguish between the expression "dispose of timber" found in subs (1) and "take and sell such timber", the expression used in para (a) of subs (1). Inevitably, the grant of a license to take timber under Pt 3 involved the disposal of timber. In my opinion, when s11 spoke of the Commission disposing of timber, that expression included the Commission agreeing to dispose of timber by the issue of a license under Pt 3. There is nothing incompatible between this and the regime for the issue of licenses. 40 In Ansett at 77 Mason J observed: "Where statutory approval for the making of the contract exists and the contract contains an undertaking that the statutory power will be exercised in a particular way, there is no room for the notion that the undertaking is invalid on the ground that it is an anticipatory fetter on the exercise of a statutory discretion. The contract, assuming it to be within constitutional power, is valid and the undertaking is free from attack. There is in such a case the initial question: does the statute which approves the making of the contract expressly or impliedly amend, for the purposes of the contract, the pre-existing law providing for the exercise of the discretion? The statute may impose on the repository of the discretion a duty to exercise it in conformity with the undertaking or it may leave him with a discretion to arrive at some other result. If it be the former, then the contracting party may be able to compel the government and the person in whom the discretion is vested, though it has been relevantly converted into a duty, to comply with the undertaking. If it be the latter, then the undertaking if it is enforceable, will be enforceable by an action for damages only." 41 Thus, if the Commission had contracted to grant to a sawmiller a license to extract timber up to a particular quota each year for a period into the future and the contract was subject to the provisions of the Act and any regulations it would not have involved any divestiture by the Commission of its powers or duties. The statutory discretion to grant or refuse a license would have remained unfettered. If the discretion was exercised otherwise than in accordance with the contract, the other party would have been left to its remedy in damages. In the words of Mason J in Ansett at 76 such an outcome works a reasonable compromise between the desirability of recognising the binding nature of contracts and the need to preserve the free and unfettered exercise of the discretion. 42 In support of its claim that there was a binding contract between Woolooma and the Commission UHT relied upon the following documents: · A letter dated 14 August 1962 from the Commission to Woolooma which referred to the destruction of Woolooma's mill by fire and Woolooma's desire before any reconstruction took place to ascertain if the Commission was prepared to increase the quota to about 3 million super feet per annum to be obtained from Stewarts Brook State Forest. The Commission wrote: "If the volume of timber on the areas referred to so warrants the Commission may decide to bring them under a forest management plan on a sustained yield basis which may mean there would be no increase in the present quota. While the Commission appreciates your desire for an early decision it is regretted that because of the above facts the Commission is unable to say at this stage whether any increase in the existing quota could be granted. If it be your intention to proceed in the near future with the re-erection of the mill, then it could only be on the basis of a quota of 650,000 super feet as at present, although it may be that when all the data is available an increase in quota could be granted." · A letter of 26 November 1962 from the Commission to Woolooma contained the following: "This will confirm advice that interim information indicates the only timber which could be made available to your mill would be that standing on Crown lands on the forest reserves north of Stewarts Brook S.F. Timber on the latter forest would not be available. The present estimate is in the order of 24 million s.ft. gross hoppus but it is anticipated that during the next two months the check timber stand assessment will have been completed and the Commission should be in a position to inform you before the end of January whether or not there is any change in the above estimated volume. The Commission would be prepared to make the timber on the above areas available to your mill but stumpage rate would be assessed on a mill site at Moonan Flat. Although the average quota for the mills which are operating on other parts of the areas covered by the timber stand investigation is in the vicinity of 1 million s.ft. pa the Commission would be prepared to allocate to your mill a quota of up to 2 million s.ft. pa; if a quota of that volume were be sought by you it would be with your knowledge that the mill life would be reduced to about ten (10) years and that no further Crown supply would be available. This would mean that any mills operating on areas such as Mount Royal and Stewarts Brook State Forests at a quota of say 1 million s.ft. pa would have a longer life than your mill and the fact that your mill exhausted its supply earlier would not be accepted as a reason for taking logs from such mills and giving them to your mill. If you desire a quote of more than 1 million then I would like to have your advice to that effect and that you appreciate the above position." · A letter of 4 February 1963 from Woolooma to the Commission referring to the letter of 26 November 1962. In this letter there was discussion about royalty rates and a denial of natural justice in taking Stewarts Brook State Forest from Woolooma and giving it to some other company without compensation. Later in the letter it was said: "The quota of 2 million feet offered to us is regarded as the minimum necessary to justify the installation of modern expensive plant in our new mill, and from this aspect, we have no doubt that you will agree that the full volume of 39 million feet on the Upper Hunter watershed will be required in order to give a fair economic life to the investment." · A letter of 21 February 1963 from the Commission to Woolooma. In this letter reference was made to the letter of 4 February. The letter stated: "The Commission would be prepared to make available to you a quota of up to two million super feet per annum from the above area and even if the volume be somewhat below that indicated above, the likelihood is that your mill would have a life as long or longer than any other mill obtaining supply from the Royal Milli area with Stewarts Brook S.F. included in the zone of supply for other mills. However while the Commission is not prepared to include Stewarts Brook S.F. in the area from which you would obtain your quota, it is prepared to refrain from committing this area to another mill for some years so that a further check could then be made of actual cut against estimated supply to see if any change in distribution should be made. However, the re-erection of your mill should not be based on the assumption that supply would be available from Stewarts Brook S.F." The letter concluded: "It is realised that you may wish to make an inspection of the Block K area before making a decision on the present offer and the Commission therefore will await your further advice but it is expected that acceptance or otherwise will be given in a reasonable period." · A letter of 23 April 1963 from the Commission to Woolooma as follows: "In my letter of 21 February offer of sale was made to you, subject to the conditions set out therein, of the timber on Block K, Royal Milli area. You are advised that a reasonable time would be allowed in which to inspect the area and advise your intentions…….. As two months has elapsed since the offer was made the Commission is of opinion that in allowing a further month for you to reach a decision it is not being unreasonable. Unless definite advice of your intention to accept the offer is received prior to 31 May, the Commission will feel free to arrange sale elsewhere of Block K and no other timber then would be available to you." · A letter of 16 May 1963 from Woolooma to the Commission in which it was stated: "We write formally to advise our acceptance of the proposal to transfer operations to Block K which has been set aside to support an annual log quota of two million feet nett for our mill." 44 Notably absent from this interchange was any agreement about price. The letter of 21 February 1963 from the Commission, which as UHT pointed out, spoke of "offer", talked about a standing volume of 60 million super feet on Block K and an annual quota of 2 million super feet. On the assumption that this meant that this quota would be made available until the 60 million super feet was exhausted exclusively to Woolooma, the commitment was well beyond the period of any license that could be issued to allow this timber to be taken. 45 The letters made no reference to the issue of a license for any period of time. I do not think that in the context of the existing legislation the parties could be treated as intending to make such a commitment by way of a binding contract. The parties were expressing an expectation or hope which if all went well might be fulfilled. It left open to the Commission to issue licenses from time to time and to fix royalties from time to time. The terms of the licenses and the amounts of the royalties would then be negotiated. If they were not satisfactory to one party that party was not bound to proceed further with the informal arrangement. 46 In my opinion, the letters do not reveal a binding contract. To the extent that it could be said that the Commission apparently bound itself for a period of over twenty years to allow timber to be taken at a particular rate regardless of the terms of any license issued, it would have been acting beyond power. I agree with Bryson J that there was no contract and, accordingly, the claim described as the Stewarts Brook claim failed and the appeal against this part of his Honour's decision also fails. MOUNT ROYAL CLAIM 47 The Commission did not challenge Bryson J's decision that a contract was made on 14 November 1988 and that in failing to take steps to obtain an environmental planning statement the Commission was in breach of its contract. The Mount Royal claim failed because statute barred. 48 UHT did not on this appeal pursue any remedy other than damages. It claimed damages for the loss of its bargain. It claimed to be put into the position it would have been in if the contract had not been broken or, in other words, if the contract had been performed; Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365; Wenham v Ella (1972) 127 CLR 454 at 460 and 471. Loss of bargain damages are recoverable only if the contractual obligation of the injured party has been brought to an end by the wrongful conduct of the defendant. Only then is the bargain lost. In Heyman v Darwins Limited [1942] AC 356 at 399 Lord Porter said: "To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect. In such a case the injured party may accept the renunciation as a breach going to the root of the whole of the considerations. By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded." 49 In Sunbird Plaza Pty Limited v Maloney (1988) 166 CLR 245 at 260 Mason CJ with whom Deane, Dawson and Toohey JJ agreed, said: "Loss of bargain damages are recoverable only if the contract is at an end. Once termination due to the defendant's wrongful conduct was established the plaintiff is entitled to damages for loss of bargain: Dominion Coal Company Limited v Dominion Iron & Steel Co Limited [1909] AC 293 at 311." 50 At 273 Gaudron J said: "The damages which the law recognises as flowing to and recoverable by a vendor of land for breach by a purchaser of his obligation to purchase are damages for loss of bargain and consequential loss. But there is no loss of bargain whilst the contract remains on foot. It is for this reason that a vendor must bring his contractual obligation to sell to an end before he can maintain an action for damages for loss of bargain." 51 But the contract of 14 November 1988 did not come to an end due to the Commission's wrongful conduct. It was frustrated on 1 January 1997 by the coming into force of the Forestry Revocation and National Parks Reservation Act, which made further performance of the contract impossible. At that time UHT's cause of action for damages for loss of bargain had not accrued. The Frustrated Contracts Act 1978 applied to the contract. 52 The Frustrated Contracts Act must be understood against its common law background as explained in the 1976 Report of the New South Wales Law Reform Commission (LRC 25) which recommended the legislation. In particular, where frustration followed intervening impossibility, it did not discharge the contract from the beginning; Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [1943] AC 32 at 47-8. Despite intervening impossibility the contract remained in force in respect of a promise due for performance before the time of frustration and damages could be recovered for breach. The common law also provided remedies outside the contract though these were limited and inadequate so that one party, who had paid money for which it had received only partial consideration, could recover no part of the payment. 53 Sections 7 and 8 of the Frustrated Contracts Act provide as follows: "(7) Promise not performed (1) Where a promise under a frustrated contract was due to be, but was not, performed before the time of frustration, the promise is discharged except to the extent necessary to support a claim for damages for breach of the promise before the time of frustration. (2) Subsection (1) does not affect a promise due for performance before frustration which would not have been discharged by the frustration if it had been due for performance after the time of frustration. (8) Damages assessed after frustration Where a contract is frustrated and the liability for damages for breach of the contract has accrued before the time of frustration, regard shall be had, in assessing those damages after that time, to the fact that the contract has been frustrated." These sections confine UHT's right to recover damages to damages for breach of promise under the contract before the time of frustration. Except to the extent necessary to support such a claim, if a promise under the contract was due to be, but was not performed before the time of frustration, the promise was discharged. Since the contract had not been terminated by the Commission's wrongful conduct, the frustration defeated any claim for damages for loss of bargain and left UHT to such claim for damages for breaches of promise before the time of frustration, as it might otherwise have. These in turn would be defeated by s14 (1) of the Limitation Act 1969 if the cause of action had accrued before 14 August 1991. 54 Bryson J found that the cause of UHT's inability to work the Mount Royal State Forest throughout the whole six years before the proceedings began and earlier was the injunction which arose out of the Commission's failure to comply with s112 (1) of the EPA Act in 1988. The injunction applied only to compartments 200 to 204. In addition his Honour made the following findings: · That no evidence dealt with whether UHT sought or was refused licenses to take timber in the Mount Royal State Forest for periods after 31 December 1993. Accordingly, there was no contractually effectual entitlement to take timber from 1 January 1994 due to the effect of General Condition 5 which provided "Supply of timber for the successful tenderer/s will be made under, and subject to, the provisions of the Forestry Act, 1916, the Forestry Regulation 1983 and subject to the conditions of licenses issued under these statutes." · That the contractual obligation did not extend to oblige the Commission to exercise the discretionary statutory power to issue licenses in any particular way. · That the Commission when it entered into the agreement on 14 November 1988 was obliged to comply with s112 (1) of the EPA Act and was in breach of its implied obligation under the contract to do so. · That the Commission was in breach of its obligation to comply with s112 (1) of the EPA Act on each occasion until 12 March 1992, when it granted another timber license. · That, after the commencement of the TIIP Act, the implied contractual obligation would have obliged the Commission to take reasonable steps, in respect of the eight compartments to which schedule 1 of the TIIP Act applied, to overcome the prohibition found in s6 by obtaining an environmental impact statement and the Minister of Planning's determination under s9 if there were to be any operations in the eight compartments. · That the timber license which UHT had by then obtained for 1992 did not relate to any of those compartments, so no action in relation to them was contractually required of the Commission. · That with respect to other parts, which included compartments 180, 181, 182 and 187 to which the 1992 license applied, the Commission needed to comply with s8 by obtaining an environmental impact statement and a determination from the Minister of Planning but, as its environmental impact statement was rejected by the Minister of Planning as inadequate, it failed to do so. · That the Commission, in not submitting an acceptable environmental impact statement and not obtaining a determination from the Minister of Planning under the TIIP Act, was not in breach of the Commission's implied obligation. · That, if it had been a breach, it had not been shown to have had any effect to prevent logging operations on any land which UHT would otherwise have worked and therefore as a cause of damage. The TIIP Act did not forbid logging operations on land in schedule 4, presumably because during the period of operation of the Act the application of Pt 5 of the EPA Act in respect of logging operations being carried out or proposed to be carried out on land specified in schedule 4 was suspended. · That, as the terms of the timber license for 1993, did not identify the relevant land by compartments, UHT had not shown by evidence whether the prohibition in s6 had any operation in respect of the land subject to that license or whether that prohibition was a practical impediment to getting timber in accordance with the license. 55 The result of these findings would be that, although the claim for damages caused by breaches of contract which had occurred before 14 August 1991 was statute barred, UHT was entitled to damages for the Commission's failure to comply with s112 (1) of the EPA Act at the time of granting licenses for the period on and after 14 August 1991 up to the timber license granted for 1992. It is not clear whether any damages in the sense of any loss of timber harvesting was suffered during this period. Thereafter, as I understand it, because of the limited areas covered by the licenses subsequently issued, either there was no breach of contract or, alternatively if there was, no damage suffered. This was particularly so from 1 January 1994. 56 In the course of submissions the Court was told that the extent to which compartments were covered by the various licenses, which his Honour analysed, were not the subject of any argument before him. However, for reasons that I have sought to explain, the Commission may well have been under a contractual obligation to issues licenses, an obligation the performance of which could not be enforced but the breach of which would have entitled UHT to damages. 57 In all the circumstances, in my opinion, the appeal against his Honour's decision to dismiss the Mount Royal claim should be allowed, his Honour's order dismissing this claim set aside and the matter remitted to the Equity Division for a determination of the extent, if any, to which the Commission was in breach of the agreement made on 14 November 1988 during the period on and from 14 August 1991 to 31 December 1996 and the damages, if any, the result of such breach for which the Commission is liable having regard to the provisions of the Frustrated Contacts Act. 58 UHT succeeded in part on this appeal. In part the Commission succeeded. In my opinion, Bryson J's order that the plaintiff pay the defendant's costs of the proceedings before him should be set aside and the costs of those proceedings left to be determined by the Judge hearing the matter remitted and taking into account the result of that matter. There should be no order as to the costs of the appeal. ORDERS 1. Appeal allowed in part; 2. Set aside so much of the order of Bryson J of 17 August 1998 as gave judgment for the respondent on the Mount Royal Claim and the order that the appellant pay the respondent's costs of the proceedings; 3. Remit the matter to the Equity Division for a determination of the extent, if any, to which the respondent was in breach of the agreement made on 14 November 1988 during the period on and from 14 August 1991 to 31 December 1996 and the damages, if any, the result of such breach for which the respondent is liable having regard to the provisions of the Frustrated Contracts Act ; 4. Order that the costs of the hearing before Bryson J be determined by the Judge hearing the matter remitted taking into account the result of the remitted proceedings; 5. No order as to the costs of the appeal. 59 STEIN JA: I agree with Sheller JA. ***** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.