New South Wales Court of Appeal CITATION: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 HEARING DATE(S): 7-11; 15-18 June 2010 JUDGMENT DATE: 14 October 2010 JUDGMENT OF: Allsop P at 1; Hodgson JA at 31; Macfarlan JA at 389 Direct that Macquarie within twenty-eight days provide to the Court either agreed short minutes giving effect to the decisions on appeal DECISION: or else its proposed short minutes and submissions in support and if the short minutes are not agreed that within a further fourteen days Area Health provide to the Court its proposed short minutes and submissions in support. CATCHWORDS: CONTRACT – Promise to act in utmost good faith - Meaning and effect of that promise – Whether that promise breached – Whether damages available. - CONTRACT – Damages – Expectation and reliance damages – Whether necessary for plaintiff to prove readiness willingness and ability to afford substantial performance on its part. - LANDLORD AND TENANT – Re-entry and forfeiture – Requirements of s 129 of Conveyancing Act 1919 – Whether they apply in cases of essential breach or repudiation – Meaning of "rent" in s 129(8) – Whether notice under s 129 must specify what lessor requires lessee to do. - PROCEDURE – Parties – Whether promise to two contracting parties is joint or several – Whether both parties must be joined in proceedings. - PROCEDURE – Appeal – Events occurring after first instance decision – Whether material to decision – Whether within possibilities taken into account by primary judge. - RESTITUTION – Expenditure by lessee – Lease terminated – Lease contains compensation clauses – Case conducted on assumption that compensation clauses valid, applicable and efficacious, albeit that their value defended as vagaries of the market – Primary judge refuses restitution – In subsequent proceedings to enforce compensation clauses lessor contends they are invalid, not applicable and inefficacious – Whether refusal of restitution affected. Conveyancing Act 1919 s 7 s 177A s 129 Conveyancing and Law of Property Act 1881 (UK) s 14 Forfeiture of Leases Act 1901 LEGISLATION CITED: Law of Property Act 1925 (UK)) s 146 Marine Insurance Act 1909 (Cth) s 24 UCPR 14.11 6.19 6.20 6.23 and 6.24 CATEGORY: Principal judgment Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57 (2008) 238 CLR 570 Alcatel Australia Limited v Scarcella (1998) 44 NSWLR 349 AMPAT/Midwest v Illinois Tool Works Inc 896 F.2d 1035 (7th Cir 1990) Australian Mercantile Land and Finance Co Limited v Federal Commissioner of Taxation [1929] HCA 8 (1929) 42 CLR 145 Barder v Caluori [1988] AC 20 Blatch v Archer (1774) 1 Cowp 63 (1774) 98 ER 969 Burger King Corporation v Hungry Jack's Pty Limited [2001] NSWCA 187 (2001) 69 NSWLR 558 Churchill v Connolly [2004] NSWCA 212 Clancy v Salienta Pty Limited [2000] NSWCA 248 (2000) 11 BPR 20 425 Clarke v Federal Commissioner of Taxation [1932] HCA 46 (1932) 48 CLR 56 Commissioner of Stamp Duties v Commonwealth Funds Management (1995) 38 NSWLR 173 Commissioner of Stamp Duties v JV (Crows Nest) Pty Limited (1986) 7 NSWLR 529 Commissioner of State Revenue v Price Brent Services Pty Limited [1995] 2 VR 582 Commonwealth of Australia v Amann Aviation Pty Limited [1991] HCA 54 (1991) 174 CLR 64. Cooper v Federal Commissioner of Taxation [1958] HCA 46 (1958) 100 CLR 131 Daitch Crystal Dairies Inc v Neisloss 190 NYS 2d 737 (Appeal Div 1959) Doe d. Edney v Benham (1845) 7 QB 976 Dogan v Morton (1935) 35 SR (NSW) 142 Doherty v Liverpool District Hospital (1991) 22 NSWLR 284 DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12 138 CLR 423 Duke of Marlborough v Osborn (1864) 5 B & S 67 Escalus Properties Limited v Robinson [1996] QB 231 Ex parte Dally-Watkins Re Wilson (1956) 72 WN (NSW) 454 Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33 (1998) 194 CLR 500 Fletcher v Nokes [1897] 1 Ch 271 Foran v Wight [1989] HCA 51 (1989) 168 CLR 385 Fox v Jolly [1916] 1 AC 1 Gerraty v McGavin (1914) 18 CLR 152 Harbor Insurance Co v Continental Bank Corp 922 F.2d 357 (7th Cir 1990) Hensley v Reschke [1914] HCA 88 CASES CITED: (1914) 18 CLR 452 Horsey Estate Ltd v Steiger [1899] 2 QB 79 Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91 Hurst v Bryk [2000] UKHL 19 [2002] 1 AC 185 Industrial Representatives Inc v CP Clare Corp 74 F.3d 128 (7th Cir 1996) Johnson v Senes & Berger (1961) 78 WN (NSW) 861 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61 (2007) 233 CLR 115 Larson v Larson 636 NE 2d 1365 (Mass App Ct 1994) Lombard Australia Limited v NRMA Insurance Limited (1968) 72 SR(NSW) 45 Livesey (formerly Jenkins) v Livesey [1985] AC 424 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2009] NSWSC 629 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 McMahon v National Foods Milk Ltd [2009] VSCA 153 (2009) 259 ALR 20 Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14 447 Mifsud v Campbell (1991) 21 NSWLR 725 Montagu v Browning [1954] 1 WLR 1039 Mulholland v Mitchell [1971] AC 666 Murphy v Stone-Wallwork (Charlton) Limited [1969] 1 WLR 1023 Overlook v Foxtel [2002] NSWSC 17 Penton v Barnett [1898] 1 QB 276 Property Holding Co Limited v Clark [1948] 1 KB 630 Radnedge v Government Insurance Office of New South Wales (1987) 9 NSWLR 235 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Sharjade Pty Limited v The Commonwealth of Australia [2009] NSWCA 373 Smith v Rynne [2005] NSWCA 77 Sunbird Plaza Pty Limited v Maloney [1988] HCA 11 166 CLR 245 Suttor v Gundowda Pty Ltd [1950] HCA 35 (1950) 81 CLR 418 Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57 (2003) 217 CLR 315 Trimis v Mina [1999] NSWCA 140 United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177 (2009) 74 NSWLR 618 Vernon v Bosley (No 2) [1999] QB 18 Visser v Jacobs (1987) NSW ConvR 55-350 Westley Nominees Pty Limited v Coles Supermarkets Australia Pty Limited [2006] FCAFC 115 (2006) 152 FCR 461 World Best Holdings Limited v Sarker [2010] NSWCA 24 J W Carter & G J Tolhurst "Recovery of Contract Debts Following Termination for Breach" (2009) 25 Journal of Contract Law 191 A V Dicey Parties to an Action (1870) Maxwell at 110 – 111 E A Farnsworth Farnsworth on Contracts (Aspen 3rd Ed 2004) Vol 2 at §7.17b p 400 Gummow J R Meagher D Heydon & M Leeming TEXTS CITED: Meagher Gummow & Lehane's Equity: Doctrines & Remedies (4th ed 2002) at [35-005]. A F Mason "Contract Good Faith and Equitable Standards in Fair Dealing" (2000) 116 LQR 66 at 69. E Peden Good Faith in the Performance of Contracts (LexisNexis Butterworths 2003) Ch 7 esp pp 162ff E Peden & J W Carter 'Entire Agreement—and Similar—Clauses' (2006) 22 Journal of Contract Law 1 PARTIES: MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LTD (appellant) SYDNEY SOUTH WEST AREA HEALTH SERVICE (respondent) FILE NUMBER(S): CA 2009/298398 COUNSEL: N HUTLEY SC/ R DUBLER SC/ S PHILIPS (appellant) G K BURTON SC/ P K BRUCKNER (respondent) SOLICITORS: S Moran & Co (appellant) Bolzan & Dimitri (respondent) LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): SC1790/00 LOWER COURT JUDICIAL OFFICER: Nicholas J LOWER COURT DATE OF DECISION: 23 July 2008 7 July 2009 LOWER COURT MEDIUM NEUTRAL CITATION: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738, Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2009] NSWSC 629 - 186 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2009/298398 SC 1790/00 ALLSOP P HODGSON JA MACFARLAN JA 14 OCTOBER 2010 MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LTD v SYDNEY SOUTH WEST AREA HEALTH SERVICE Headnote Facts On 18 September 1989, Heads of Agreement (HOA) were signed by the appellant Macquarie, its ultimate holding company Macquarie Health Corporation Ltd (MHC) and the respondent Area Health, making provision for the development by MHC and/or Macquarie of a 200-bed private hospital and a car park on land included in land of the Royal Prince Alfred Hospital (RPAH) owned by Area Health, and for leases to be granted to Macquarie over the site for the proposed hospital and car park. From early 1995 through to the end of 1996, MHC was seeking Area Health's agreement to proceed with a smaller hospital, and on 2 December 1996 the following six agreements were executed by Macquarie (with MHC as guarantor) and Area Health: 1. A Construction Deed for the design and construction by Macquarie of a car park and private hospital. 2. A Car Park Lease from Area Health to Macquarie and Area Health as tenants in common in equal shares for a term of 103 years. 3. A Car Park Sub-Lease under which Area Health let its interest as co-lessee under the Car Park Lease to Macquarie for 28 years. 4. A Hospital Lease from Area Health to Macquarie for a term of 103 years. 5. A Car Park Management Agreement under which Macquarie agreed to manage and operate the car park. 6. A Co-Ownership Deed which regulated the respective rights and obligations of Area Health and Macquarie between themselves as co-owners of the car park. Under cll 15.4 of the HOA, 10.8 of the Construction Deed, 19.13 of the Car Park Lease and 20.13 of the Hospital Lease, Macquarie and Area Health were obliged to act with the utmost good faith in the performance of their respective duties, in the exercise of their respective powers, and in their respective dealings with one another. Under cl 3.5 of the Construction Deed, if Macquarie failed to comply with the contractual timetable, it obliged to deposit with Area Health a sum equal to the rent for the period of the delay. Under cl 9.1 of the Construction Deed, Macquarie indemnified Area Health against loss arising from Area Health doing anything which Macquarie "must do under this deed but has not done or has not done properly". Under clause 2.2 of the Car Park Lease, on 14 February 1999, Macquarie was obliged to pay to Area Health an amount which varied according to whether the car park had been completed at that date. Clause 1.5 of the Car Park Lease and cl 1.5 of the Hospital Lease stated that the provisions of the HOA "merge in the grant of this lease". Clause 16 of the Car Park Lease and cl 17 of the Hospital Lease stipulated the contractual procedures governing termination, including provision of notices as well as steps open to Macquarie to prevent termination. A crucial aspect of the project was the co-location of RPAH and the proposed private hospital requiring a physical link between RPAH and the private hospital, which required placement of the private hospital to the west of King George V Hospital (which is part of RPAH and located west of a road called Missenden Road). In mid-1994, Area Health appointed consultants to undertake an asset strategic plan for RPAH. A draft plan of 29 November 1994 did not propose any development of RPAH to the west of Missenden Road or any linkages to the proposed private hospital. Redevelopment of RPAH continued to be discussed and pursued by Area Health and the Department of Health in 1995, based on the asset strategic plan. These plans were not disclosed to Macquarie prior to February 1995. From about March 1996, Mayne Nickless Ltd trading as Health Care of Australia (HCoA) began developing a project for a Sydney University private hospital (SUPH), on a site adjoining RPAH. On 15 August 1996, Dr Horvath (CEO of Area Health) was informed of SUPH, and on 16 August 1995, Area Health sought legal advice concerning the scope of cl 3.1(r) of the HOA which prohibited Area Health, within five years of the date of first admission of Macquarie's private hospital, from recommending, supporting or approving another private hospital which Macquarie reasonably believed would materially adversely affect the revenue derived from its hospital. A dispute arose as to Macquarie complying with the contractual timetable, and by 15 September 1999, Area Health served on Macquarie notices of default under the Leases and the Construction Deed. On 17 March 2000, Area Health served notices of termination of the Leases and Construction Deed, and took possession of the land. The notices of default specified the same events of default, the two presently relevant being: 1. Failure to comply with cl 2.2 of the Car Park Lease by not paying Area Health the amount of $1,440,000. 2. Failure to comply with cl 3.5 of the Construction Deed by not depositing a sum equal to rent at a rate of $33,000 per month for a specified period. Section 7 of the Conveyancing Act 1919 (the Act) defines "rent" to include yearly or other rent, toll, duty, royalty, or other reservation by the acre, the ton, or otherwise; and defines "fine" to include a premium or foregift, and any payment, consideration, or benefit in the nature of a fine, premium, or foregift. Under s 129 of the Act, a right of re-entry or forfeiture under any proviso or stipulation in a lease, for breach of any covenant in the lease, shall not be enforceable unless and until the lessor serves a notice specifying the particular breach, requiring remedy (or claiming monetary compensation where the breach is not remediable), and the lessee fails within a reasonable time to remedy the breach (or pay the money). Under sub-s (8), s 129 does not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent. Macquarie sued Area Health for recovery of possession of the land, and in the alternative for relief against forfeiture and/or damages; and Area Health cross-claimed for certain debts and for damages. The primary judge gave judgment for Area Health on Macquarie's claim, and judgment for Area Health on Area Health's cross-claim. Macquarie appealed from the whole of the primary judge's decisions and Area Health cross-appealed from specific parts of both decisions. Issues Issues arising on appeal: (i) Co-location: (a) Content of the duty of utmost good faith. (b) Breach as at February 1995. (c) Damages as at February 1995. (d) Is Macquarie's claim for reliance damages open? (e) Breach and damages as at December 1996. (f) Merger. (g) Breach and damages after December 1996. (ii) SUPH: (a) Breach. (b) Damages. (iii) Section 129: (a) Breaches alleged. (b) Rent. (c) Repudiation. (d) Did the notices comply? (e) Other issues. (iv) Compensation clauses (v) Cross claim: (a) Debts before 17 March 2000. (b) Availability of damages for events after 17 March 2000. (c) Did non-fulfilment of conditions entail non-completion of the car park? (d) Did Area Health agree to perform certain conditions? (e) Retaining wall. HELD (allowing the appeal) In relation to (i)(a)—Co-location: content of the duty of utmost good faith ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (1) The promise of utmost good faith must be construed having regard to the terms of the contract and the circumstances known to the parties in which it was entered into. (2) A contractual obligation of good faith embraces no less than three related notions: (a) An obligation on the parties to co-operate in achieving the contractual objects; (b) Compliance with honest standards of conduct; and (c) Compliance with standards of conduct that are reasonable having regard to the interests of the parties. A F Mason, "Contract, Good Faith and Equitable Standards in Fair Dealing" (2000) 116 Law Quarterly Review 66, referred to. Alcatel Australia Limited v Scarcella (1998) 44 NSWLR 349 and Burger King Corporation v Hungry Jack's Pty Limited [2001] NSWCA 187; (2001) 69 NSWLR 558, referred to. (3) A contractual obligation of good faith does not require a party to act in the interests of the other party or to subordinate its own legitimate interest to the interests of the other party; although it does require it to have due regard to the legitimate interests of both parties. Overlook v Foxtel [2002] NSWSC 17, referred to. (4) When Area Health's planning processes would make a substantial difference to what MHC and/or Macquarie could reasonably expect concerning the flow of persons between the hospitals or the creation of a campus concept, the obligation of utmost good faith would require that MHC and/or Macquarie be informed of this, at least to enable them to take account of it in the design and construction of the works contemplated by the HOA. ( Per Allsop P ) (5) The phrase "utmost good faith" takes its content from the particular contract and context in which it is found. (6) In these contracts, with express clauses of this width that have a necessary place in the working out and performance of the contracts, in some cases over many years, an objective element of reasonableness in fair dealing is appropriate, taking its place with honesty and fidelity to the bargain in the furtherance of the contractual objects and purposes of the parties, objectively ascertained. United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618, Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558, Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, referred to. (7) Further, in contracts such as these in a context such as this, the obligation of utmost good faith necessarily requires for its fulfilment of a degree of co-operation between the parties in a reasonable way in the furtherance of their contractual objectives. (8) This expression of the matter is consistent with the content ascribed to the phrase, "good faith" in persuasive cases in influential jurisdictions in the United States. Daitch Crystal Dairies Inc v Neisloss 190 NYS 2d 737 (Appeal Div 1959), Harbor Insurance Co v Continental Bank Corp 922 F.2d 357 (7th Cir 1990), Industrial Representatives, Inc v CP Clare Corp 74 F.3d 128 (7th Cir 1996), Larson v Larson 636 NE 2d 1365 (Mass App Ct 1994), AMPAT/Midwest v Illinois Tool Works Inc 896 F.2d 1035 (7th Cir 1990), referred to. In relation to (i)(b)—Co-location: breach as at February 1995 ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (9) Area Health did not disclose to MHC and/or Macquarie, prior to 2 February 1995, the planning processes that it commenced in mid-1994. The obligation of utmost good faith required Area Health to disclose that planning processes were under way indicating that Macquarie could no longer reasonably expect that there would be substantial RPAH facilities to the west of the King George V building, or even of Missenden Road. (10) The obligation of utmost good faith required Area Health at least to give MHC and/or Macquarie an opportunity to persuade Area Health to take a different course in developing RPAH, and possibly also an opportunity to consider revising its own plans and/or withdrawing from the project, and seeking Area Health's consent to this. (11) Area Health's breach of its obligation of utmost good faith by 2 February 1995 was not a fundamental breach justifying termination of the HOA by MHC and/or Macquarie. The breach neither deprived MHC and/or Macquarie substantial performance of the contracts nor manifested renunciation of the contracts. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115, referred to. In relation to (i)(c)—Co-location: damages as at February 1995 ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (12) A plaintiff seeking damages for breach of contract referable to its not receiving a benefit under the contract, which was conditional on performance by the plaintiff, must prove that it afforded substantial performance or was ready, willing and able to do so. Hensley v Reschke [1914] HCA 88; (1914) 18 CLR 452 and Foran v Wight [1989] HCA 51; (1989) 168 CLR 385, referred to. (13) UCPR 14.11 dispenses with the requirement to explicitly plead readiness, willingness and ability to perform a contract in order to claim damages; but in the court below, Macquarie sought expectation damages, thereby undertaking an onus to prove that it was ready, willing and able to perform its contractual obligations. (14) If Macquarie did prove that it was ready, willing and able to give substantial performance, then it could recover reliance damages so long as it proved that the incurred expenditure was a lesser amount than that which would have been recovered from performance of the contract. However, if Area Health's breach caused Macquarie to be unable to prove that the contractual benefits would have covered its expenses, then the onus shifts to Area Health to show that Macquarie would not have recovered its expenses. Commonwealth of Australia v Amann Aviation Pty Limited [1991] HCA 54; (1991) 174 CLR 64, referred to. (15) If the obligation of utmost good faith had not been breached, the Court was not satisfied that Macquarie would have sought either to terminate or be released from the HOA, and was not satisfied that disclosure of Area Health's plans would have made a material difference to the approach of MHC and/or Macquarie to the negotiations which did in any event occur during 1995 and 1996. This is sufficient to defeat Macquarie's claim for reliance damages. (16) Macquarie's claim for reliance damages fails for the further reason that it did not prove on the balance of probabilities that MHC and/or Macquarie would have been ready, willing and able to afford substantial performance of the HOA, even if it had been able to negotiate an early agreement by Area Health for a more appropriate development. Blatch v Archer (1774) 1 Cowp 63, referred to. In relation to (i)(d)—Co-location: is Macquarie's claim for reliance damages open? ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (17) A case for reliance damages was sufficiently advanced below and the greater emphasis on that case on appeal would not substantially prejudice Area Health. Suttor v Gundowda [1950] HCA 35; (1950) 81 CLR 418, referred to. (18) If the relevant promises under the HOA were made to MHC and Macquarie jointly, then a claim for damages needed to be made by MHC as well as by Macquarie; and if this did not occur, then the proceedings should be dismissed. However, if the relevant promises were made to MHC and Macquarie severally, then MHC is not a necessary party. Churchill v Connolly [2004] NSWCA 212; Lombard Australia Limited v NRMA Insurance Limited (1968) 72 SR (NSW) 45, referred to. (19) Clause 2.2(f) of the HOA says that an agreement in favour of two or more persons is for the benefit of them jointly and severally, and each promise by Area Health is in truth three promises, one to MHC, one to Macquarie, and one to MHC and Macquarie jointly. The Court cannot say that the non-joinder of MHC would have been fatal to Macquarie's claim. A V Dicey, Parties to an Action (1870) Maxwell, referred to. In relation to (i)(e)—Co-location: breach and damages as at December 1996 ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (20) If there were a breach of the obligation of utmost good faith as at December 1996, then for reasons similar to those given earlier, this would not be a fundamental breach. Also for reasons similar to those given earlier, Macquarie did not prove that a significantly different result would have been achieved if there had not been a breach by Area Health, and did not prove that it was ready, willing and able substantially to perform the HOA. In relation to (i)(f)—Co-location: merger ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (21) It is neither necessary nor appropriate to decide whether the HOA merged into the December 1996 Agreements. (22) A cause of action accruing from breach of the utmost good faith obligation in the HOA survives discharge of the HOA. McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, considered. (23) The merger clauses do not purport to be releases of existing rights to damages under the HOA. Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33; (1998) 194 CLR 500, referred to. In relation to (i)(g)—Co-location: breach and damages after December 1996 ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (24) Having regard to the evidence, a finding of breach by Area Health after early 1997 of its obligation of utmost good faith concerning co-location should not be made. In any event, Macquarie did not prove that further disclosure of Area Health's planning at this stage would have made any material difference, or that it was ready, willing and able to comply with its obligations under the December 1996 Agreements. In relation to (ii)(a)—SUPH: breach ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (25) The primary judge failed to resolve a conflict between, on the one hand, the evidence of Dr Catchlove (CEO of HCoA) and Mr Puplick (Chairman of Area Health) that they discussed SUPH with Dr Horvath prior to 15 August 1996, and, on the other, Dr Horvath's evidence that she learnt of the SUPH proposal in October 1996. This was a significant matter which the primary judge should have resolved, having regard to its impact on the reasons underlying the form of the brief for legal advice and the possible impact of the legal advice on the subsequent conduct of Sydney University. Mifsud v Campbell (1991) 21 NSWLR 725, referred to. (26) It was a breach of the obligation of utmost good faith for Area Health to give any support to the establishment of a private hospital which would make Macquarie's private hospital non-viable. It was common ground that there could not be two viable private hospitals in the immediate vicinity of RPAH. (27) The following conduct amounted to breach: accelerating the SUPH development application, making statements at an SUPH planning meeting of the benefits of having a private hospital physically linked with RPAH and Area Health's unqualified support of SUPH, and granting consent to the lodgement of a second SUPH development application. However, if those particular things were done in the belief that they did not breach the HOA, and not done with the purpose of undermining Macquarie's project, they would not amount to essential or repudiatory breach. In relation to (ii)(b)—SUPH: damages ( Per Hodgson JA, Macfarlan JA agreeing ) (28) Macquarie's claim for damages faces similar difficulties as that in the co-location case: it did not establish that it would have terminated the HOA had it known even of repudiatory breach by Area Health, or what if any different arrangements it would have achieved; it did not prove that prior to 2 December 1996 it was ready, willing and able to give substantial performance of the HOA; and the evidence does not support a finding that, after 2 December 1996, finance would have been available or that the Macquarie Group would have been able to finance the private hospital project itself. (29) For those reasons, error by the primary judge on this group of issues does not justify the ordering of a new trial. ( Per Allsop P ) (30) Notwithstanding the conclusion that the SUPH good faith case has not been fully dealt with at trial, there is no injustice in not remitting that case for a retrial. The relief sought below was predicated upon the lost opportunity of performing the contract with a counterparty exercising good faith, not upon ending the contractual relationship upon learning of the lack of good faith of the counterparty. In relation to (iii)(a)—Section 129: breaches alleged ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (31) The evidence did not establish that the car park had been erected by 14 February 1999, and accordingly there is no error by the primary judge in relation to cl 2.2 of the Car Park Lease. Macquarie was not in breach of cl 2.2 at September 1999. (32) Clause 3.5 of the Construction Deed required the deposit of "a sum" calculated in a specified way and payable upon the expiration of a specified period. Macquarie was not in breach of cl 3.5 at September 1999. In relation to (iii)(b)—Section 129: rent ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (33) The word "rent" in s 129(8) of the Act refers to an amount which a tenant is contractually obliged to pay for possession and use of the land. Commissioner of Stamp Duties v Commonwealth Funds Management (1995) 38 CLR 173, referred to. Escalus Properties Limited v Robinson [1996] QB 231, disapproved. (34) Section 7 of the Act maintains a distinction between rent on the one hand, and a fine premium or foregift on the other hand, the latter being a sum paid for a grant or renewal or assignment of a lease (and going to the lessor independently of any use or occupation of the property under the lease). "Rent" in s 129(8) does not extend to consideration properly characterised as a fine premium or foregift. Australian Mercantile Land and Finance Co Limited v Federal Commissioner of Taxation [1929] HCA 8; (1929) 42 CLR 145, Clarke v Federal Commissioner of Taxation [1932] HCA 46; (1932) 48 CLR 56, Cooper v Federal Commissioner of Taxation [1958] HCA 46; (1958) 100 CLR 131, referred to. (35) Neither amounts payable under cl 2.2 of the Car Park Lease nor amounts payable under cl 3.5 of the Construction Deed constitute rent. As regards cl 2.2, the construction of the car park, or the car park itself when constructed, constitutes consideration for the grant of the leases, rather than for the possession of land under the leases. As regards cl 3.5, amounts are payable by way of deposit for security, and cannot constitute rent. In relation to (iii)(c)—Section 129: repudiation ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (36) Where a landlord terminates for breach of an obligation agreed by the parties to be essential, but where the breach does not amount to repudiation, a re-taking of possession would be the exercise of a "right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition or agreement (express or implied) in the lease" within s 129(1) of the Act. World Best Holdings Limited v Sarker [2010] NSWCA 24, referred to. (37) Even if the conduct of Macquarie in relation to the hospital did amount to repudiation, this would not obviate the need for the contractual default notice to comply with s 129. In relation to (iii)(d)—Section 129: did the notices comply? ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (38) A notice under s 129 must not only allege breach, but must also describe the particular acts or omissions constituting the alleged breach; and the notice must indicate the acts of the tenant which the landlord would consider sufficient for the lease to continue, and upon completion of which the landlord would abandon its claim to forfeit. Section 129 is directed at allowing the tenant to bring about (within a reasonable time) a state of affairs under which the landlord would not pursue forfeiture. Fox v Jolly [1916] 1 AC 1, Fletcher v Nokes [1897] 1 Ch 271, Horsey Estate Ltd v Steiger [1899] 2 QB 79, Penton v Barnett [1898] 1 QB 276, Gerraty v McGavin (1914) 18 CLR 152, Dogan v Morton (1935) 35 SR (NSW) 142, Ex parte Dally-Watkins; Re Wilson (1956) 72 WN (NSW) 454, Johnson v Senes & Berger (1961) 78 WN (NSW) 861, Visser v Jacobs (1987) NSW Conv R 55-350, considered. (39) In particular, the lessee should not be left to speculate as to whether, if it took whatever action it could to remedy the specified breaches, the lessor might nevertheless proceed to terminate the lease. (40) The notices issued by Area Health did not express any requirement to do anything, and failed to specify whether the alleged breaches were remediable. The notices did not convey to Macquarie what Area Health claimed Macquarie needed to do to avoid the failure referred to in s 129(1) which would then permit Area Health to exercise its right of re-entry or forfeiture. (41) Even if the notices are read as requiring what cl 16 of the Car Park Lease and cl 17 of the Hospital Lease require in order to bring about the contractual waiver provided by those clauses, the notices would then convey requirements inconsistent with s 129(1). (42) Section 129 operated to preclude Area Health taking possession on 17 March 2000, and Area Health's action in doing so was a trespass against Macquarie. In relation to (iii)(e)—Section 129: other issues ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (43) There is a very close relationship between the leases and the Construction Deed; and while it may in some circumstances be possible for the Construction Deed to be terminated for breach without at the same time bringing about the termination of the leases, and vice versa, that did not happen in this case. (44) By pursuing relief under s 129 in these proceedings, Macquarie is confirming that it has the obligations provided by the leases, including the Construction Deed. Accordingly, the Construction Deed continues to bind both Area Health and Macquarie. (45) Macquarie is entitled to judgment giving it possession pursuant to the leases, which continue to be in force. In relation to (iv)—Compensation clauses ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (46) The view that the compensation clauses were valid, applicable and efficacious in the circumstances of this case was material to the primary judge's decision. (47) If the compensation clauses are invalid or inapplicable or ineffectual, Macquarie would have an arguable case for some relief on the basis of relief against forfeiture/unjust enrichment/restitution. Accordingly, had Macquarie's s 129 case failed, it would have been appropriate to set aside the primary judge's decision on relief against forfeiture, and to refer all questions of relief against forfeiture/unjust enrichment/restitution to be decided in the fresh proceedings. Clancy v Salienta Pty Limited [2000] NSWCA 248; (2000) 11 BPR 20,425, referred to. In relation to (v)(a)—Cross-claim: debts before 17 March 2000 ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (48) For reasons given earlier, Area Health's claims under cl 2.2 of the Car Park Lease and cl 3.5 of the Construction Deed are rejected. (49) Area Health's claim for a sum of money under cl 3.4 of the Construction Deed fails because no such claim was made below, and Macquarie makes a valid Suttor v Gundowda objection to such a claim being raised on appeal. In relation to (v)(b)—Cross-claim: availability of damages for events after 17 March 2000 ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (50) If there were an item of work required to be done in order to complete construction of the car park, then (subject to any agreement to the contrary) it was something which Macquarie "must" have done by 30 June 1999 and did not do, so that if Area Health incurred expense in doing it, the indemnity of cl 9.1 of the Construction Deed is engaged. In relation to (v)(c)—Cross-claim: did non-fulfilment of conditions entail non-completion of the car park? ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (51) The primary judge was correct to conclude that completion of construction of the car park did not occur until there was a car park which was ready to be used as such; and if there were outstanding construction tasks required by conditions of the council consent, which needed to be performed before the car park could lawfully be used, then the construction of the car park was not completed, even if these construction tasks were not to be carried out on the structure of the car park itself. In relation to (v)(d)—Cross-claim: did Area Health agree to perform certain conditions? ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (52) Letter correspondence between Macquarie and Area Health in May and June 1999 constitutes a legally binding agreement for Area Health to perform certain conditions, and Area Health is not entitled to incur expenditure in respect of those conditions. In relation to (v)(e)—Cross-claim: retaining wall ( Per Hodgson JA, Allsop P and Macfarlan JA agreeing ) (53) It was established that the construction of New Hospital Road brought about the existence of the embankment, and that accordingly the treatment of the embankment in such a way as to make it stable in the long term is properly considered as part of the construction of the road. Since full construction of the road was required by the council conditions, the proper treatment of the embankment was something which Macquarie "must" have done prior to 17 March 2000. On the evidence, this required construction of the retaining wall. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2009/298398 SC 1790/00 ALLSOP P HODGSON JA MACFARLAN JA 14 OCTOBER 2010 MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LTD v SYDNEY SOUTH WEST AREA HEALTH SERVICE Judgment 1 ALLSOP P: I have read the reasons for judgment of Hodgson JA in draft. Subject to the following (much of which is by way of addition rather than qualification), I agree with his Honour's reasons. I also agree with the orders proposed by his Honour. The Conveyancing Act 1919 (NSW), s 129 2 I agree with Hodgson JA that the contractual instruments are to be construed as requiring repudiation or repudiatory conduct to be dealt with under the notice of default regime. That makes it unnecessary to consider the true nature of repudiation and whether acceptance of it can nevertheless be a breach engaging s 129: cf World Best Holdings Limited v Sarker [2010] NSWCA 24. I also agree with his Honour that the Conveyancing Act 1919 (NSW), s 129 was not complied with, having the consequences revealed in Hodgson JA's reasons. 3 I agree with the views expressed by Hodgson JA as to the meaning of rent in the Conveyancing Act, s 7. Whilst for many purposes one is entitled to free one's thinking from the conception of rent as an incident of the reversion and issuing out of the land (in particular in the light of the abolition of distress) and consider it as a contractual obligation underlying the lease, the form of s 7 is important. The words of s 7 make it clear that it is not every payment or act connected with the lease that can be seen as rent. Rather, as Hodgson JA says, it is the amount or consideration that the tenant is obliged to pay for the enjoyment of possession and use of the land, to be distinguished from a "fine", as defined, and from other payments whose purposes, ascertained from the contract or instrument, are not for the enjoyment of possession or use of the land, such as the payments under cl 2.2 of the Car Park Lease and cl 3.5 of the Construction Deed. 4 Given the conclusion as to s 129, an important question of costs will arise. Some time before the argument of the appeal, Macquarie sought to have the question of s 129 isolated as a separate issue on appeal in an expressed attempt to shorten the appeal proceedings. It made an offer (the terms of which I do not seek to set out precisely) to abandon other aspects of its appeal if it were successful on that issue. It has been successful on that issue. Good faith 5 The place of good faith in the law of contract in Australia has been debated in recent years. One significant aspect of that debate has been the place of good faith in the implication of terms in contracts (whether as a matter of fact or law and whether in contracts generally or in those of a commercial character) and in the construction and interpretation of written agreements. 6 It is unnecessary to discuss many of these issues, because the parties have clearly expressed themselves. The "utmost good faith" was agreed in their various legal instruments to be the standard of mutual behaviour expected in how the parties acted towards each other: (a) in the performance of their respective duties; (b) in the exercise of their respective powers; and (c) in their respective dealings with each other. 7 These clauses should not be read narrowly. By the encompassing reference to "in their respective dealings" in contracts preliminary to or concerned with dealings over an anticipated century of a commercial relationship, the parties can be seen to have been laying down a high standard of contractual fair dealing that they expected of each other. 8 The content of the clauses is to be understood and ascertained by construing the language of the parties in the context in which the clauses appear. They are contractual terms to be construed, like any other. Here, the commercial and contractual relationship was envisaged to be (in the transaction documents) for a century. This was also envisaged in the Heads of Agreement, although that contract was preliminary to the formation of others. The performance of the agreements required planning by both parties, consultation among the parties and the expenditure of very large amounts of money upon planning and building work and the operation of a significant hospital in proximity to, and in connection with, a large hospital of the other party. The parties can be seen, by the clauses providing for the utmost good faith, to have required honesty and fair dealing of a high standard to govern their contractual behaviour. 9 The phrase "good faith", or here, "utmost good faith", takes its content from the particular contract and context in which it is found. It is, however, a phrase with ready available content as an English phrase and a legal expression. In a fiduciary or trust context, the phrase takes its content from the necessary trust, vulnerability and reliance central to such relationships and otherwise from the well-known incidents of such relationships. 10 Here, there was no question of a trust, fiduciary duty, partnership or joint venture. Rather, there was a long-term commercial relationship envisaged, during which time the parties had bound themselves to act in a way that exhibited the expressed standard: the utmost good faith. 11 The notion of good faith in the performance of contracts is one established by a number of cases in this Court and is well-known to the law in both common law and civilian systems. It was part of the law merchant. It finds its place in international conventions. I repeat what I said in United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; 74 NSWLR 618 at 634 [58]: " … [G]ood faith is not a concept foreign to the common law, the law merchant or businessmen and women. It has been an underlying concept in the law merchant for centuries: L Trakman, The Law Merchant: The Evolution of Commercial Law (Rothman 1983) at p 1; W Mitchell, An Essay on the Early History of the Law Merchant (CUP 1904) at pp 102 ff. It is recognised as part of the law of performance of contracts in numerous sophisticated commercial jurisdictions: for example Uniform Commercial Code §1-201 and § 1-203 (1977); Wigand v Bachmann-Bechtel Brewing Co 118 NE 618 at 619 (1918); E A Farnsworth, Farnsworth on Contracts (Aspen 3 rd Ed 2004) Vol 1 at pp 391-417 § 3.26b; International Institute for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts 2004, Rome, Art 1.7 ( www.unidroit.org [Ed. 3 May 2010]); R Zimmerman and S Whittaker (Eds) Good Faith in European Contract Law (CUP 2000). It has been recognised by this Court to be part of the law of performance of contracts: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263-270; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91; Burger King Corporation v Hungry Jack's Pty Ltd at 565-574 [141]-[187]; and Alcatel Australia Ltd v Scarcella at 363-369. …" 12 The usual content of the obligation of good faith that can be extracted from Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; 69 NSWLR 558; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and United Group Rail Services Limited v Rail Corporation New South is as follows: (a) obligations to act honestly and with a fidelity to the bargain; (b) obligations not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; (c) an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained. 13 None of these obligations requires the interests of a party to be subordinated to those of the other. It is good faith or fair dealing between arm's length commercial parties by reference to the bargain and its terms that is called for. 14 It is important to recognise that these obligations must be assessed and interpreted in the light of the bargain itself and its contractual terms. Those terms, however, must be assessed and interpreted in the light of the presence of the obligation of good faith, here pursuant to an express clause. 15 Whilst the cases in this Court have tended to equate or incorporate reasonableness with or into fair dealing and good faith, that is not without its controversy: E Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths 2003) Ch 7 esp pp 162ff and see E A Farnsworth, Farnsworth on Contracts (Aspen 3rd Ed 2004) Vol 2 at §7.17b p 400. Nevertheless, in these contracts, with express clauses of this width that have a necessary place in the working out and performance of the contracts, in some cases over many years, an objective element of reasonableness in fair dealing is appropriate, taking its place with honesty and fidelity to the bargain in the furtherance of the contractual objects and purposes of the parties, objectively ascertained. 16 Further, in contracts such as these in a context such as this, the obligation of utmost good faith necessarily requires for its fulfilment a degree of co-operation between the parties in a reasonable way in the furtherance of their contractual objectives. It is both appropriate and necessary to assess such matters with a degree of objectivity as well as considering a party's honesty. Depending on the facts as they arise, the necessary co-operation may require, as here, a party to disclose information to the other, listen to the other and negotiate in good faith about the working out of the contract in its living performance. 17 The standard of fair dealing or reasonableness is to be applied recognising the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty. That a normative standard is introduced is clear. That is what the commercial parties chose by their words. The normative standard of good faith will not call for the same acts from all contracting parties in all cases. The legal norm should not be confused with the factual question of its fulfilment or breach. The contractual and factual context is vital to understand what, in any case, is required to be done or not done to satisfy the normative standard. Here, the standard exists as an express term in a particular contract, which, to be satisfied, called for certain conduct of one party in the circumstances that arose. 18 The law of insurance has had a well-known and well-understood usage of the phrase "utmost good faith" for over two centuries. It is an obligation that binds both insurer and insured. It is an obligation that has assisted in the efficient working of insurance markets in a practical way. In particular, the commercial working of the relationship between insurer and insured requires the (pre-contractual) disclosure of material information in order that the risk can be assessed and priced on a sound footing and with appropriate despatch. Care should be taken not to transpose the meaning of the phrase in that commercial context to other contexts, whether as a matter of law or mere equivalence. Nevertheless, it is an example of positive disclosure of information being the step necessary to satisfy the normative legal standard. Of course, in statutes such as the Marine Insurance Act 1909 (Cth) disclosure is part of the expression and exemplification of the duty of the utmost good faith (see the Marine Insurance Act, s 24), not merely the fact sufficient to discharge the obligation. 19 It is unnecessary to deal with the jurisprudence on the subject in other jurisdictions, beyond saying that the above expression of the matter is consistent with the content ascribed to the phrase, "good faith" in persuasive cases in influential jurisdictions in the United States: for example, refraining from acting with subterfuge and evasion: Daitch Crystal Dairies Inc v Neisloss 190 NYS 2d 737 (Appeal Div 1959); Harbor Insurance Co v Continental Bank Corp 922 F.2d 357 (7th Cir 1990); refraining from opportunistic conduct such as by taking advantage of a disadvantageous position of the other party who has performed first: Industrial Representatives, Inc v CP Clare Corp 74 F.3d 128 (7th Cir 1996); refraining from hindering or preventing the occurrence of conditions of the party's own duty or the performance of the other party's duty: see the discussion in Farnsworth on Contracts at § 7.17 p 362 and § 8.6 and 8.15; co-operating to achieve the contractual goals: Larson v Larson 636 NE 2d 1365 (Mass App Ct 1994); AMPAT/Midwest v Illinois Tool Works Inc 896 F.2d 1035 (7th Cir 1990). See generally, Farnsworth on Contracts at § 7.17-7.17b. The above are but a few examples. It is unnecessary, for present purposes, to go further than recognising that the elements of the phrase that can be drawn from the cases in this Court conform with accepted jurisprudence in common law jurisdictions in the United States where the obligation is recognised. 20 Here, for the reasons given by Hodgson JA, there was a failure to comply with the obligation of the utmost good faith by Area Health in not disclosing the planning processes that were underway and that threw into serious doubt an important known planning foundation for Macquarie, being the site of the RPAH buildings on the western side of Missenden Road. 21 Whilst I agree with Hodgson JA that this breach, taken alone, did not go to the root of the contract or deprive Macquarie of the substance of the benefit of the contract, it was a breach that can be seen to be directly related to the complaints made about the Sydney University Private Hospital ("SUPH"). The utmost good faith obligation should be understood as an intermediate term for this purpose: cf Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115. 22 I agree with Hodgson JA as to the errors of the learned primary judge in relation to the SUPH issue. The arguments put forward by Macquarie reveal a real case to answer as to how Area Health behaved in connection with the SUPH proposal. Resolution of these issues required the resolution of contested issues which were based, in part, on questions of fact depending on credit. This Court cannot make those findings. If it be the case that Area Health's conduct was directed to promoting a competing proposal it would be difficult to conclude other than that a serious breach of contract occurred quite possibly going to the root of the contractual arrangements, before and after December 1996. A conclusion as to the seriousness of such breach may not be avoided by a bona fide view, if held (whether on legal advice or not), that the utmost good faith clause did not prevent the encouragement of a competing proposal. 23 The resolution of that case might throw the non-disclosure as to co-location and the site of the other RPAH buildings into a different perspective. 24 The question therefore arises then whether the good faith cases, or at least that concerning the SUPH claim, should be remitted for a new trial (if Macquarie elected not to pursue the possession claim). 25 The answer to this depends, in part, on how the case was run below and, in part, on the conclusions of Hodgson JA, with which I agree, that Macquarie did not prove, as it was required to in order to recover damages, that it was able to perform the bargain or any modified form of it after any renegotiation. 26 Hodgson JA's conclusions as to Macquarie's failure to prove an ability to perform contractually means that to the extent that Macquarie sought reliance damages predicated on performance, it must fail. That is how the case was propounded below. Not only was possession sought, but also expectation and reliance damages were sought. This way of running the case assumed an entitlement to performance and the denial of the benefit of the contract (expectation damages) and the recouping of costs from the hypothesised performance of the contract (reliance damages). The contract in this context was either the contract as entered or a varied contract being the product of good faith negotiations with Area Health not otherwise behaving in bad faith or with a lack of good faith. 27 Another case which was sought to be run on appeal and which can be seen to be hinted at in the pleadings, evidence and submissions, but never squarely put below, was that if Macquarie had known of the breaches of good faith in relation to co-location and the SUPH and the asserted deliberate undermining of the contract by Area Health it would have terminated all contractual arrangements, whether before or after December 1996. In such circumstances, a case could be propounded for return of the $4.5m and all other wasted (including later) expenditure. On this hypothesis, Macquarie might be seen to be entitled to be put in the position it would have been in had it terminated the contractual arrangements in 1995 or 1996. For this case, the failure of Macquarie to prove its ability to perform the contract or some variation thereof might be seen to be irrelevant, at least as to the assessment of damages. It would, however, throw up the issue whether Macquarie was entitled to terminate for Area Health's fundamental breach, in circumstances where it was proved that it was not in a position to perform (prospectively) its obligations: Sharjade Pty Limited v The Commonwealth [2009] NSWCA 373; DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; 138 CLR 423; Foran v Wight [1989] HCA 51; 168 CLR 385; and Sunbird Plaza Pty Limited v Maloney [1988] HCA 11; 166 CLR 245. 28 Such a case is, however, fundamentally inconsistent with what was run at trial. The asserted bad faith was strongly and comprehensively pressed. What was sought, however, was relief predicated upon the lost opportunity of performing the contract with a counterparty exercising good faith, not relief predicated upon ending the contractual relationship upon learning of the lack of good faith of the counterparty. 29 I therefore consider that notwithstanding the conclusion that the SUPH good faith case has not been fully dealt with at trial, there is no injustice in not remitting that case for a retrial. 30 In these circumstances, it is unnecessary to consider the issue discussed in Sharjade as to Macquarie's entitlement to terminate for a serious breach of the obligation of the utmost good faith if it was not in a position to perform and the question upon whom the onus of proof lay in that regard about the ability or inability of Macquarie to perform. 31 HODGSON JA: This appeal and cross-appeal arise from proceedings in which the appellant (Macquarie) sued the respondent (Area Health) for recovery of possession of sites near Royal Prince Alfred Hospital (RPAH), and in the alternative for relief against forfeiture and/or damages; and in which Area Health cross-claimed for certain debts and for damages. 32 On 23 July 2008, Nicholas J (the primary judge) gave reasons for deciding that Macquarie's claims should be dismissed: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 (first judgment). On 7 July 2009, the primary judge gave reasons for deciding on Area Health's cross-claim that Macquarie was liable to pay Area Health the sum of $33,000 per month from 1 July 1999 to 17 March 2000 plus interest, and damages in the sum of $802,909.74 plus interest: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2009] NSWSC 629 (second judgment). 33 On 15 July 2009, pursuant to those reasons, the primary judge gave judgment for Area Health on Macquarie's claim, and judgment for Area Health on Area Health's cross-claim for the amount of $1,851,473.84. 34 Macquarie has appealed from the whole of the primary judge's decisions. Area Health has cross-appealed from certain specified parts of both decisions. 35 The scheme of this judgment is as follows: The parties [36] Outline of circumstances [37] – [55] Claims made at first instance [56] – [57] Decision of primary judge [58] – [71] Issues on appeal [72] – [81] Heads of Agreement [82] – [84] Construction Deed [85] – [87] Car Park Lease [88] – [89] Car Park Sub-Lease [90] – [91] Hospital Lease [92] – [93] Section 129 [94] – [96] Co-location: common ground [97] – [129] Co-location: decision of primary judge [130] – [133] Co-location: contentions on appeal [134] – [136] Co-location: content of duty of utmost good faith [137] – [150] Co-location: breach as at February 1995 [151] – [188] Co-location: damages as at February 1995 [159] – [188] Co-location: Is Macquarie's claim for reliance damages open? [189] – [203] Co-location: breach and damages as at December 1996 [204] – [208] Co-location: merger [209] – [220] Co-location: breach and damages after December 1996 [221] – [224] SUPH: common ground [225] – [238] SUPH: decision of primary judge [239] – [241] SUPH: contentions on appeal [242] – [250] SUPH: breach [251] – [255] SUPH: damages [256] – [260] Section 129: breaches alleged [261] – [280] Section 129: rent [281] – [291] Section 129: repudiation [292] – [302] Section 129: did the notices comply? [303] – [330] Section 129: other issues [331] – [338] Compensation clauses: relevance to primary judge's decision [339] – [348] Compensation clauses: effect of subsequent events [349] – [355] Cross-claim: debts before 17 March 2000 [356] – [358] Cross-claim: availability of damages for events after 17 March 2000 [359] – [364] Cross-claim: did non-fulfilment of conditions entail non-completion of the car park [365] – [368] Cross-claim: Did Area Health agree to perform certain conditions? [369] – [378] Cross-claim: retaining wall [379] – [385] Conclusion and remedies [386] – [388] Maps Annexures 1 – 10 The parties 36 The primary judge uncontroversially identified the parties as follows (referring to Macquarie Health Corporation Limited as MHC, as I will do in this judgment): [18] Macquarie, at all relevant times, was a member of the Macquarie public group of companies of which the ultimate holding company was MHC which, as guarantor, was a party to the transaction documents. Through its subsidiaries, MHC developed and operated numerous private hospitals and health care facilities on a large scale, which included the provision of a wide range of clinical and related services. The majority shareholder in MHC was Traknew Holdings Pty Ltd as trustee for Traknew Holdings Trust, the family company and trust of Dr Thomas Wenkart and his family. [19] Dr Wenkart, at all relevant times, was the chief executive and a director of Macquarie and related companies which, effectively, were his alter ego. He is a medical practitioner and, over a long time as a businessman, has accumulated extensive commercial experience. [20] The principal witnesses for Macquarie were Dr Wenkart, Mr Raymond Block, a director of Macquarie from 1995 and its chairman from March 1996 until 1998, Mr John Morrison, a chartered accountant and consultant to Macquarie from 1996 until 2001, and Mr Greg Anderson, a chartered accountant and health consultant. [21] Area Health is a body corporate which operated with the name Central Sydney Area Health Service under the Area Health Services Act 1986. This act was in force until 1 July 1998, when it was repealed and replaced by the Health Services Act 1997, under which Area Health continued to operate as before, but with its name changed to Sydney South West Area Health Service, as the latest pleadings show. [22] Under the Area Health Services Act 1986, the affairs of Area Health were controlled by a board subject to the control and direction of the Minister, with a chief executive officer who was responsible for its management (s 12, s 13 and s 17). Its objectives were, inter alia, to promote, protect and maintain public health, and to provide for the effective co-ordination of the planning, provision and evaluation of health services, and to establish and maintain an appropriate balance in the provision and use of resources for health protection, health promotion, health education and treatment services (s 19(a), s 19(d) and s 19(e)). Its functions included those which were generally to promote, protect and maintain the health of the residents of its area, and to consult and co-operate with individuals and organisations (including voluntary agencies, private agencies and public or local authorities) concerned with the promotion, protection and maintenance of health (s 20(1)(a) and s 20(1)(c)). The Royal Prince Alfred Hospital is, and at all material times was, a hospital subject to the control and management of Area Health. [23] The principal witnesses for Area Health were Mr Christopher Puplick, chairman of Area Health from August 1996 until June 2003, Dr Diana Horvath, Area Health's Chief Executive Officer from 24 December 1992 until 2005, and Mr Michael Wallace, Area Health's Deputy Chief Executive Officer from February 1993 until 2005. Outline of circumstances 37 On 18 September 1989, Heads of Agreement (HOA) were signed by MHC, Macquarie (under its former name Tambrook Pty Limited) and Area Health, making provision for the development by MHC and/or Macquarie of a 200-bed private hospital and a car park on land included in RPAH land owned by Area Health, and for leases to be granted to Macquarie over the site for the proposed hospital and to Macquarie and Area Health over the site for the proposed car park. 38 The HOA provided for Area Health to obtain the issue of a single title for each of the hospital site and the car park site, and for MHC and/or Macquarie to pay Area Health $500,000 within seven days of being advised of this (cl 3.1(c)). It provided that MHC and/or Macquarie should promptly prepare and lodge a development application for a development of a standard not less than that in what was called the Initial Proposal (part of MHC's tender documents) (cl 4.2(a) and (b)); and that the agreement was conditional upon and not enforceable until the grant of acceptable development approvals (cl 4.3(a)). It provided that MHC and/or Macquarie must within seven days of the grant of acceptable development approvals (subject to deferral in certain circumstances) pay Area Health $500,000 (cl 3.1(e)); and must (subject to certain conditions) within six months after receipt of such approvals pay Area Health $4.5 million (cl 3.1(g)). 39 The HOA provided that MHC and/or Macquarie must prepare and lodge promptly building applications (cl 4.2(a)) and construct the necessary works (cl 6.1(a)). 40 Other important terms will be referred to later. 41 On 23 May 1991, certificates of title for the two sites were issued (that for the car park being Lot 11 and that for the hospital being Lot 12); and on 4 June 1991, MHC paid Area Health the $500,000 required by cl 3.1(c) of the HOA. 42 On 23 April 1992, MHC lodged a development application for the project with South Sydney Council (the council); and on 3 May 1993, it lodged an amended development application, this time for a hospital in a star shape with a total of 400 beds. 43 On 8 October 1993, formal council consent issued to MHC for its revised development application. 44 On 25 January 1994, MHC lodged a building application for the project; and on 31 January 1994, it confirmed to Area Health acceptance of the development approval and completed payment to Area Health of $500,000 required by cl 3.1(e) of the HOA. 45 On or about 31 January 1995, Dr Wenkart handed Dr Horvath a cheque for $4.5 million; and by letter dated 2 February 1995, Area Health acknowledged this as payment by Macquarie of the $4.5 million required by cl 3.1(g) of the HOA. 46 From early 1995, MHC was seeking Area Health's agreement to its proceeding with a smaller hospital. Negotiations about this proceeded through 1995 and 1996, and on 2 December 1996 the following six documents were executed by Macquarie (with MHC as guarantor) and Area Health: (1) A Construction Deed for the design and construction by Macquarie of a car park and private hospital on Lot 11 and Lot 12. (2) A Car Park Lease from Area Health to Macquarie and Area Health as tenants in common in equal shares of Lot 11 for a term of 103 years. (3) A Car Park Sub-Lease under which Area Health let its interest as co-lessee in Lot 11 to Macquarie for 28 years. (4) A Hospital Lease from Area Health to Macquarie of Lot 12 for a term of 103 years. (5) A Car Park Management Agreement under which Macquarie agreed to manage and operate the car park to be erected on Lot 11. (6) A Co-Ownership Deed which regulated the respective rights and obligations of Area Health and Macquarie between themselves as co-owners concerning the car park. 47 The Construction Deed provided for a Timetable for applications and the carrying out of the works, with which Macquarie was obliged to comply (cl 2.1, cl 4.1) subject to possible extensions (cl 2.2, cl 2.3, cl 2.5): Activity Substantial Commencement Date Completion Date Lodge Development Application with Landlord 31 December 1996 1 Apri1 1997 Lodge Development Application with Council -- 1 May 1997 Development Approval obtained -- 1 August 1997 Development Approval declared acceptable -- 14 August 1997 Lodge Building Application with the Landlord 1 May 1997 1 August 1997 Lodge Building Application with Council -- 1 September 1997 Building Approval given -- 1 November 1997 Building Approval declared acceptable -- 14 November 1997 Bulk Excavation of Land 1 September 1997 14 November 1997 Construction of Car Park 14 November 1997 14 April 1998 Construction of Hospital 14 April 1998 1 December 1999 Admission of first patients 1 December 1999 Rent Commencement Date 1 December 1999 48 I will refer to some important terms of documents (1) to (4) later. 49 On 25 February 1997, Macquarie lodged with the council its new development application for the hospital and car park. The council gave its consent to this application on 20 May 1997. Macquarie appealed against certain conditions of this consent, and on 19 June 1997, the Land and Environment Court upheld this appeal in part. 50 On 28 August 1997, Macquarie lodged with the council its building application for the hospital and car park. 51 On 14 January 1998, Macquarie received approval for demolition and bulk excavation; and by November 1998, excavation of the hospital site was almost complete, and construction of the car park had begun (primary judge's first judgment [175]). 52 On 7 June 1999, the car park project reached practical completion, according to a contractor's certificate issued on 15 June 1999. 53 On 13 September 1999, Area Health served on Macquarie notices of default under the Leases and the Construction Deed; and on 15 September 1999, it served an amended notice under the Car Park Lease. 54 On 17 March 2000, Area Health served notices of termination of the Leases and the Construction Deed on Macquarie, and it took possession of Lot 11 and Lot 12. 55 These proceedings were commenced by statement of claim filed on 10 April 2000. Claims made at first instance 56 The primary remedy sought by Macquarie in its statement of claim was an order for possession of Lots 11 and 12 and associated relief. However, Macquarie also alleged breaches of the HOA and the December 1996 agreements (fifth further amended statement of claim (FFASC) pars 9, 10, 11, 11A, 11B, 11C, 13.4, 13.8, 13.10, 13.14, 14) and consequent damages (FFASC pars 13.16, 13.19, 15); and it sought damages in the event that the court declined to return possession of the land to it. It also sought relief on the basis of relief against forfeiture (FFASC par 17) and unjust enrichment (FFASC pars 18 and 19). There were other claims for relief that are not relevant to this appeal. 57 By its cross-claim, Area Health claimed amounts said to be due under cl 3.5 of the Construction Deed ($33,000 per month from 1 July 1999) and cl 2.2 of the Car Park Lease ($1.44 million), and interest thereon; and also damages arising from Macquarie's failure to comply with conditions of the development approval by South Sydney Council in respect of the car park. Decision of primary judge 58 The basis on which Macquarie sought an order for possession was that the default notices served in September 1999 were invalid, on the grounds that Macquarie was not in default as alleged in the notices, that the notices did not meet the requirements of s 129(1) of the Conveyancing Act 1919 (the Act), and that the notices were issued in breach of the requirements of utmost good faith under the December 1996 agreements. 59 The events of default specified in the notices were: (1) Failure to comply with cl 2.2 of the Car Park Lease by failing to pay $1.44 million to Area Health by 14 February 1999; (2) Failure to comply with cl 2.1 of the Construction Deed by failing to complete the car park by 30 June 1999, and to substantially commence the hospital by 30 June 1999; and (3) Failure to comply with cl 3.5 of the Construction Deed by failing to pay rent equivalent to $33,000 per month for the period by which completion of the car park extended beyond 30 June 1999. 60 The primary judge found that Area Health failed to prove Macquarie's liability to make the payment under cl 2.2 of the Car Park Lease as alleged (first judgment [460]); that the breaches of cl 2.1 of the Construction Deed alleged in the notices had occurred (first judgment [515]); and that Macquarie's failure to pay $33,000 per month from 30 June 1999 was a breach of cl 3.5 of the Construction Deed (first judgment [519]). 61 The primary judge held that failure to make the payment under cl 3.5 of the Construction Deed was a failure to pay rent, and that, by virtue of s 129(8) of the Act, compliance with s 129(1) was not a pre-condition to the exercise by Area Health of its right of re-entry under the Car Park Lease (first judgment [558]); and that the failure to make the payment under cl 2.2 of the Car Park Lease (had it been required to do so) would also have been a failure to pay rent (first judgment [551]). The primary judge also held that the notices did comply with the requirements of s 129(1) (first judgment [532]). 62 The primary judge then considered Macquarie's claim that the default notices and the termination notices were issued in breach of Area Health's obligation to act with utmost good faith (first judgment [561] – [597]), and he rejected that claim. The primary judge concluded that Area Health lawfully terminated the Construction Deed, the Hospital Lease, the Car Park Lease and the Car Park Sub-Lease; and was lawfully entitled to re-enter the sites on 17 March 2000 (first judgment [599]). 63 In rejecting Macquarie's claim that the notices were issued in breach of Area Health's obligation to act with utmost good faith, the primary judge concluded that Macquarie failed to establish that Area Health breached its obligations of utmost good faith under the HOA (first judgment [587]) or the 1996 agreements (first judgment [589]); and he did not further consider Macquarie's claim for damages. 64 After considering another issue that does not arise on appeal, the primary judge considered Macquarie's claim for relief against forfeiture under s 129(2) of the Act and at general law. He expressed a view that the grant of the relief sought by Macquarie would require the re-shaping of the contractual relationship, being a task which a court of equity has no jurisdiction to perform (first judgment [663]), referring to Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at [37], [106]; and he continued: [664] I have not overlooked Macquarie's complaint that Area Health would gain the windfall benefit of the car park. However, I am unpersuaded, having regard to the overall circumstances in which Area Health exercised its right to terminate the 96 agreements, that intervention by the Court would be justified merely because Area Health obtained the car park ( Tanwar , par 62). Under cl 17 [sic cl 16] car park lease (cl 17 hospital lease) Macquarie had agreed to exposure to the risk of the operation of the provisions for termination and/or re-entry in the event of default. Accordingly, any improvements, such as the erection of the car park, were at risk should Macquarie bring about a situation of default which entitled Area Health to exercise its right to terminate. Furthermore, the parties had agreed (cl 16.9 car park lease, cl 17.9 hospital lease) for the payment of compensation to Macquarie upon termination for the balance of the term. In these circumstances, equity does not intervene to prevent the exercise of the right to terminate and re-enter ( Tanwar , par 67). 65 In relation to the cross-claim, the primary judge held that Area Health was entitled to rent under cl 3.5 of the Construction Deed at the rate of $33,000 per month from 1 July 1999, but not entitled to anything under cl 2.2 of the Car Park Lease. 66 As regards Area Health's claim for damages, Area Health claimed damages on the basis that it was completing works required to comply with the development approval of South Sydney Council in respect of the car park, relevantly as follows: (1) Construction and commission of traffic signals at the intersection of New Hospital Road and Carillon Avenue. (2) Construction and commission of traffic signals at the intersection of Carillon Avenue and Missenden Road. (3) Failure to surface and otherwise properly build New Hospital Road. (4) Failure to perform minor road work in Church and Mallet Streets. 67 The primary judge noted submissions by Macquarie that to sustain these claims, evidence was required of Area Health's overall loss consequent on Macquarie's failure to perform, including evidence of the value to Area Health of the car park, for which credit should be given; and the primary judge rejected this submission (second judgment [65] – [67]) on the basis that the contracts (in particular cl 7.8(a) and cl 9.1 of the Construction Deed and cl 16.8(a) of the Car Park Lease) required Macquarie to indemnify Area Health against any loss deriving and any reasonable cost incurred in connection with Macquarie's breach of the respective agreement and the termination thereof. 68 The primary judge found Macquarie liable to Area Health for $21,260 plus interest in respect of item (1), $360,130 plus interest in respect of item (2), $53,573 plus interest and $300,393.18 plus interest in respect of item (3), and $9,645 plus interest in respect of item (4). The primary judge also found Macquarie liable to Area Health for $22,795.60 plus interest for expenditure in negotiating with South Sydney Council and applying to the Land and Environment Court in relation to the car park; and $35,113.56 plus interest for expenditure for quality testing and rectifying defects in respect of the construction and completion of the car park and New Hospital Road. 69 The primary judge considered a claim by Macquarie that Area Health should be denied relief in its cross-claim because it had failed to repay a proportion of the $5.5 million paid to Area Health allegedly as rent in advance for 103 years: [160] Macquarie submitted that in circumstances where it had paid $5,500,000 in costs for carrying out the works, and termination had precluded completion of a car park with at least 1200 spaces, Area Health was obliged under cl 2.1, or on restitutionary grounds, or pursuant to an implied term, to refund the sum claimed. As I understood the submission, it was put that where, as in this case, the parties must be taken to have known that the likely costs of carrying out the works would exceed $5,500,000 they must have envisaged that once these costs had been incurred a right of set off would be engaged thereby relieving Macquarie from the obligation to pay any sum by way of rent in advance. In other words, once the right was engaged, it was correct to say that the rent had actually been paid by the incurring of the costs of construction. [161] Further, it was said (submissions par 116) " … that the costs of construction incurred by Macquarie at that time were being paid in exchange for, or in consideration of, the right of offset and therefore the progressive payment of the advance lump sum rent". The submissions proceeded to the effect that, under this clause, Macquarie's construction costs to the amount of $5,500,000 are to be taken to be the rent actually paid or equivalent to rent actually paid, and Area Health is liable to refund so much of that amount as is calculated to relate to the unexpired term of the lease. Additionally, it was put (submissions par 111) that " … the right to be repaid advance rent after termination for whatever reason would be normally implied into a Lease or would arise upon principles of unjust enrichment, at least where the advance rent is severable to [sic] certain periods of occupation" ie the costs of construction should be treated as a refundable payment of advance rent either made under the lease or under principles of unjust enrichment. 70 The primary judge found that cl 2.1 of the Hospital Lease did not apply; and he continued: [169] As regards the implication of a term, the submission barely went further than an assertion that one should be implied. It must be rejected. No plausible attempt was made to establish satisfaction of the conditions for implication stated, for example, in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, pp 282–283. [170] The hospital lease taken alone, or with the other interrelated 96 agreements, was effective in business terms without the implication of a term having the effect suggested. I have already referred to the requirements of the construction deed and of the car park lease under which Macquarie undertook, at its cost, to carry out the works identified in cl 2.1. This is what it agreed to do in consideration for Area Health leasing the sites to it. It is simply incorrect to contend, as Macquarie did (submissions paras 100, 116), that it had agreed to undertake these works in return for receiving a reduction of liability for advance payment of rent equal to the cost of undertaking them. Furthermore, the agreed scheme for compensation on termination for the car park and the hospital, which is found in cl 16.9 of the car park lease and cl 17.9 of the hospital lease respectively, contradicts the existence of an implied term as claimed. [171] The claim for restitution must also fail. In substance Macquarie's submissions were repetitive of those which I rejected in declining relief against forfeiture (paras 664, 665). In my opinion there is nothing unconscionable in Area Health refusing to pay Macquarie the amount claimed for the works in question. The respective rights and obligations of the parties under the 96 agreements have been fully canvassed. When account is taken of the legal relationship which existed between the parties under which the works were carried out, it cannot be said that termination resulted in some windfall or benefit to Area Health by which it was unjustly enriched. [172] Area Health, in performance of its obligations, provided the land for Macquarie to develop and carry out the works. Each lease regulated the consequences of termination, and any improvements Macquarie made were at risk of the operation of the relevant provisions. The compensation provisions under both leases operated in circumstances, as in this case, where termination was the consequence of Macquarie's defaults, leaving Area Health with the premises being the land leased together with all improvements erected thereon (cl 1.1). There is no provision under which Macquarie could claim a lump sum by way of compensation for the costs of the works if the agreements were terminated. In the circumstances in my opinion, there is nothing unjust in concluding that the carriage of risk between the parties should be left entirely within the limits of the 96 agreements. [173] In the circumstances of this case, no basis was established to justify interference by the court with the contractual relationship of the parties. (See generally Lumbers v W Cook Builders Pty Ltd (In liq) [2008] HCA 27; (2008) 232 CLR 635; Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516; Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315.) 71 The primary judge also expressed the tentative view that Macquarie should pay Area Health's costs of the proceedings (second judgment [180]). Issues on appeal 72 Macquarie's notice of appeal, as finalised during the hearing of the appeal, is a very lengthy document, as are Area Health's notice of cross-appeal and notice of contention. The length and complexity of these documents, and that of the written submissions, were not conducive to efficient identification and resolution of the essential issues in the case. The Court's task was not assisted, particularly in the case of Area Health's submissions, by extensive incorporation by reference of further very extensive written submissions at first instance. 73 It is convenient here to identify the broad issues that are raised for consideration on this appeal, and to provide more detail where relevant in dealing with those issues. 74 Whereas the primary remedy sought at first instance was recovery of possession of Lot 11 and Lot 12, on appeal the emphasis shifted and the primary remedy sought was damages for breaches of Area Health's obligation of utmost good faith. The issues that I will address are as follows. 75 The first group of issues concerns Macquarie's claim for damages for breaches of Area Health's obligations of utmost good faith in relation to what has been called the co-location issue; that is, matters concerning the relationship between the location of the private hospital to be erected by Macquarie and the location of facilities of RPAH. On this, I will address in turn the following: (1) Facts which are common ground. (2) Decision of primary judge. (3) Contentions on appeal. (4) Content of duty of utmost good faith. (5) Breach as at February 1995. (6) Damages as at February 1995. (7) Is Macquarie's claim for reliance damages open? (8) Breach and damages as at December 1996. (9) Effect of merger clauses. (10) Breach and damages after December 1996. 76 The second group of issues concerns Macquarie's claim for breaches of Area Health's obligations of utmost good faith and other terms of its agreements in relation to what has been called the Sydney University Private Hospital (SUPH) issue; that is, matters concerning a proposal by Sydney University to develop a private hospital in the vicinity of RPAH. On this, I will address in turn the following: (11) Facts which are common ground. (12) Decision of primary judge. (13) Contentions on appeal. (14) Breach. (15) Damages. 77 The third group of issues concerns Macquarie's claim that the notices of termination were ineffective to terminate the leases: this group has been called the s 129 issue. On this, I will address in turn the following: (16) Breaches alleged in the notices of default. (17) Whether compliance with s 129 was necessary (concerning rent). (18) Whether compliance with s 129 was necessary (concerning repudiation). (19) Whether the notices did comply with s 129. (20) Other issues. 78 The fourth group of issues concerns the relevance of certain compensation clauses in the leases, and in particular whether the decision of the primary judge concerning relief against forfeiture and related matters should be set aside because of events occurring since the judgments. On this, I will consider: (21) Relevance of the compensation clauses to the primary judge's decision. (22) The effect of subsequent events. 79 The fifth group of issues concerns the cross-claim. On this I will consider: (23) Debts arising before 17 March 2000. (24) Whether Area Health can have an indemnity or damages for events after 17 March 2000. (25) Whether non-fulfilment of conditions of the car park approval entailed non-completion of construction of the car park. (26) Whether Area Health agreed to install certain traffic lights and to surface New Hospital Road. (27) Whether a retaining wall was required as a condition of the car park approval. 80 Finally, I will consider: (28) Conclusion and remedies. 81 Before embarking on these issues, I will set out some important terms of the five relevant agreements, and also will set out s 129 of the Act. Heads of Agreement 82 As stated earlier, MHC, Macquarie and Area Health entered into the HOA on 18 September 1989. In reading its terms, it is to be noted that in the HOA, MHC (at that time, a proprietary company) is called "Macquarie", Macquarie is called "Tambrook", and Area Health is called "CSAHS"; and also that there is a definition of "Macquarie" as meaning (unless the contrary intention appears) "Macquarie Health Corporation Pty Limited, Macquarie Hospital Services Pty Limited, Tambrook Pty Limited or such other legal entity nominated by and associated with these persons". 83 The important terms of the HOA (additional to those outlined earlier) include the following: RECITALS A. CSAHS currently owns Royal Prince Alfred Hospital ("RPAH") including the Designated Block. The Designated Block is surplus to the needs of RPAH. B. CSAHS and Macquarie have agreed that Macquarie will carry out a development of the Site and construct a 200 bed private hospital, ancillary facilities on the Site, at the cost of Macquarie. C. Tambrook will be granted a 99 year Head Lease of the Site to operate, the Hospital, the hotel and ancilliary facilities. D. Tambrook will be granted a 99 year Lease jointly with CSAHS over the balance of the Designated Block. E. The parties wish to finalise their agreement to develop the Complex and Car Park and undertake certain other related transactions in a legally effective Heads of Agreement. AGREEMENT 1. PURPOSE This agreement is entered into to record the matters agreed between the parties regarding the Project and related transactions. The parties acknowledge that this Agreement does not reflect the whole Agreement between them and only contains the principles in so far as they have already been negotiated and agreed. ….. 2.2 Interpretation In this agreement unless the contrary intention appears: ….. (f) an agreement on the part of or in favour of two or more persons binds or is for the benefit of them jointly and severally; ….. 3. OUTLINE OF THE PROJECT 3.1 The parties agree that, subject to the other terms of this agreement, the following transactions must take place: ….. (l) It is a condition to this Agreement that the Complex and Car Park to be erected on the Designated Block in accordance with the Initial Proposal is a Permissible Use in accordance with the zoning of the Designated Block by the Council. ….. (o) The Car Park Agreements must provide as follows:- (i) the Car Park and the part of the Designated Block not being the Site will be jointly leased by Macquarie and CSAHS; (ii) CSAHS will have the right to use, free of charge, 600 car parking spaces for a maximum of 600 cars at any one time; (iii) Macquarie will have the right to use, free of charge, up to a maximum of a number of car parking spaces and access nominated by it prior to completion of the Car Park not exceeding 350; (iv) CSAHS and Macquarie will each bear a proportion of the operating expenses in accordance with the number of spaces they are entitled to under paragraphs (ii) and (iii) bears to the total number of spaces. The balance of the operating expenses will be borne equally by Macquarie and CSAHS; (v) Macquarie and CSAHS will be entitled to income from the car parking spaces not reserved under paragraphs (ii) and (iii) equally; and (vi) if Macquarie is not able to construct at least 1200 self park car parking spaces, it must pay to CSAHS $6,000.00 per car parking space for the number of spaces less than 1200 constructed by it, such payment to be made not later than 18 months after the grant of acceptable Development Approvals. ….. (r) CSAHS will not within a period of five years from the date of the first hospital admission recommend, support or approve a private hospital in the area presently under the control of CSAHS where Macquarie is of the reasonable opinion that such hospital would materially adversely affect the revenue derived from the operation of the Complex. CSAHS must also within that period make any representations reasonably possible to prevent the development of any such private hospital in any other area including in particular the redevelopment of the Camperdown Children's Hospital. ….. 4.2 Approval for Construction of the Works ….. (e) It is agreed that the Plans and Specifications and Schedule of Finishes will be prepared having regard to the following considerations and criteria: (i) the Complex and Car Park must be considerate and harmonious with the other proximate improvements owned by CSAHS; (ii) traffic flows of both private and public roads must be optimised and of an acceptable appearance; (iii) access and egress including underpasses and overpasses for services, visitors, patients and employees must be optimised to facilitate flow between the Hospitals; (iv) adequate sign posting must be provided by both parties; (v) open space must be maximised in area and utilisation; (vi) noise levels must be minimised; (vii) mechanical and other services in common with the other proximate improvements owned by CSAHS, must be integrated so far as is possible; (viii) the provision of community facilities and services will be provided for; and (ix) car parking spaces will be maximised during the construction of the Complex, in each case so far as is reasonably practical having regard to commercial and technical considerations reasonably necessary to ensure the viability of the Project. ….. 5.2 (a) The parties agree that the location of the Site should ensure:- (i) The independence of the Hospital, and (ii) The creation of a campus concept encouraging the movement of people between the Hospital and RPAH. (b) It is agreed that the Site should be located within the southern most portion in the area marked "H" in figure 6 of the RPAH Master Plan of 1984. (c) However, Macquarie considers that the construction of a major through road on the eastern boundary as shown in the Master Plan would not ensure the integration as referred to above and an alternative option is shown in Annexure C hereto. CSAHS will consider such an adjustment if it does not disrupt the current planning of RPAH as reflected in the Master Plan and CSAHS agrees that Macquarie will take part in all meetings where the decision on the area in which the Complex is to be situated is discussed. ….. 6.3 Joint Working Party (a) Macquarie and CSAHS must within six months establish the Joint Working Party to provide advice to Macquarie in relation to the Project until shortly after the date of the first hospital admission. (b) The Purpose of the Joint Working Party shall be to contribute to the design and development of the Complex, including its physical and operational planning. Its function will be to provide an effective channel of liaison between CSAHS's medical and professional staff and Macquarie to ensure the ideas of all parties are put forward in the design and construction of the Complex. ….. 15.4 Good Faith Without limiting the generality of any other provision of this agreement the parties agree that in the performance of their respective duties and the exercise of their respective powers under this agreement and in their respective dealings with each other, they shall act in the utmost good faith. 84 The HOA contemplated that the parties would enter into an Agreement to Lease which would be an agreement to grant a Head Lease of the hospital site and a Car Park Lease of the car park site. Clause 7.4 of the HOA provided: 7.4 In respect of the Agreement to Lease and the Head Lease and the Car Park Lease the following is agreed: (i) Six months prior to the termination of the Head Lease the Lessee shall have the right to negotiate the terms and conditions of the fresh Lease; (ii) The Lessee shall be Tambrook or such other person as Macquarie shall nominate who shall have the right to assign or sublet or otherwise transfer its interest in all or any part of the Designated Block; (iii) The Lessee shall have the right to subdivide by strata; (iv) The Lessee shall have the right of first refusal for sale of the Designated Block or part thereof; (v) The Lessee shall have a right to compensation on early termination of the Lease; (vi) On the expiration of the term of the Lease CSAHS will pay to Macquarie compensation for expenditure incurred on any improvements undertaken to the Complex which Macquarie deems necessary and shows sustains: (a) the quality; and/or (b) the standards (including, without limitation, of technology, service and facilities); and/or (c) the economic viability of the Complex PROVIDED THAT if Macquarie successfully renegotiates a lease of the Site and/or the Car Park with CSAHS then neither party shall be obliged to pay any amount for the improvements on the Site and/or the Car Park. (vii) The Lessee shall have the right to redevelop the Designated Block in accordance with legislation then prevailing. (viii) The Lessee shall have the right to change the permitted use of all or any part of the Site in the following circumstances: (a) if any legislation affecting the use of land prohibits: (A) the existing use from continuing and there is no preservation of existing use rights; or (B) prohibits the development of any undeveloped land for the purposes permitted under the Head Lease but then only to the extent required to comply with any such legislation; or (b) if any change in legislation affecting the business or operations of the Lessee generally prohibits the operation of the Complex or, in the reasonable opinion of the Lessee, causes the Complex to cease to be economically viable if operated in a proper and efficient manner, but then only in a manner which does not cause any significant adverse effect to the amenity of RPAH as compared to the Complex. (ix) The Lessee shall have the right to change the user of the Designated Block should RPAH cease to operate as a hospital; (x) The Lessee shall have the right to charge and/or mortgage or otherwise encumber the Lease as it deems necessary; (xi) In the Agreement to Lease CSAHS will use its best endeavours to ensure that the Site does not become liable for rates and taxes prior to the grant of the Head lease. Should any rates be levied in respect of the Site prior to the granting of the Head Lease the payment of such rates shall be the responsibility of Macquarie; (xii) Any other conditions required in accordance with this Agreement; (xiii) The Lessee Shall have the right to engage operators, consultants, contractors and subcontractors to manage or operate the Complex, the Car Park or any part thereof; (xiv) Macquarie shall guarantee the obligations of Tambrook or such other person who is nominated to be the Lessee; and (xv) The Agreement to Lease shall commence as soon as possible after the execution of this Agreement and the Head Lease for the Site shall commence upon the commencement of operation of the Hospital and the Head Lease for the Car Park shall commence on the date of commencement of the operation of the Car Park. Construction Deed 85 In the Construction Deed dated 2 December 1996, Area Health is called "Landlord", Macquarie is called "Tenant" and MHC is called "Guarantor". I have already referred to Macquarie's obligations under this Deed to make applications and carry out works in accordance with a Timetable, and set out the terms of this Timetable. 86 The Construction Deed contains the following definitions, to apply unless the contrary intention appears: Car Park means the car park to be erected on Lot 11 in Deposited Plan 809663. Car Park Lease means the lease of lot 11 in deposited plan 809663 between the Landlord as landlord and the Tenant and the Landlord as tenants. Complex means the Hospital to be erected on Lot 12 in Deposited Plan 809663 and the Car Park to be erected on Lot 11 in Deposited Plan 809663. ….. Development Application means the development applications to be lodged by the Tenant with the Landlord and the Council as required under clause 4.1. It is acknowledged that the first development application lodged by Tenant with Council shall comprise the Development Application and any subsequent replacement or modification shall not constitute the Development Application unless the Landlord approves to same under clause 4.13 and 4.14. ….. Heads of Agreement means the agreement between the parties to this deed dated 15 September 1989. Hospital means the proposed private hospital and other facilities to be erected on Lot 12 in Deposited Plan 809667 and operated by or on behalf of the Tenant in accordance with the Initial Proposal. Hospital Lease means the lease between the Landlord, Tenant and Guarantor of the land described in Certificate of Title Folio Identifier 12/809663 dated the same day as this deed. Initial Proposal means the proposal by the Tenant dated 21 December 1988 exhibited to the parties at the execution of this deed and initialled by each party for purposes of identification. ….. Rent Commencement Date means the date when the Works are complete to a stage where the Hospital is substantially fit for occupation and use by the Tenant and the first patient is admitted to receive clinical in-patient or out-patient services delivered from the Hospital. ….. Scheduled Rent Commencement Date means the scheduled date for the Rent Commencement Date to occur, as set out in the Timetable. ….. Transaction Document means this deed, the Heads of Agreement giving rise to this deed, the Hospital Lease, the Car Park Lease, any guarantee and indemnity given in connection with this deed, any instrument which the Tenant acknowledges to be a Transaction Document and any other instrument contemplated by any of them. Works means the works to be carried out in accordance with the Initial Proposal as amended or varied, the Plans and Specifications, the Schedule of Finishes, the relevant development approvals, any relevant building approvals and the requirements of any other regulatory authorities including: (a) the excavation of the land comprised in Folio Identifiers 11 and 12/809663 and removal of materials; (b) the construction of the Complex; and (c) the fitting out of the Hospital including all ancillary works and activities associated therewith. Terms defined in the Hospital Lease which are not defined in this deed have the same meaning as defined in the Hospital Lease. 87 Other important terms of the Construction Deed include the following: 1.3 This deed contains obligations of Tenant which relate to both this deed and the Hospital Lease and Car Park Lease. The inclusion of obligations in this deed which relate to the Hospital Lease and Car Park Lease is deliberate because it is intended that a breach of those obligations included in this deed that relate to the Hospital Lease or Car Park Lease will give the Landlord certain rights under this deed, including in certain circumstances a right to terminate this deed. 1.4 The Tenant agrees to observe all of its obligations under the Transaction Documents. ….. 3. Construction Carrying out the Works 3.1 The Tenant must at its own cost and expense and as expeditiously as possible carry out and complete or cause to be completed the Works in a proper and workmanlike manner in accordance with the Plans and Specifications approved by the Council and any other relevant authority, the terms of the development and building approval approved under clause 4.2 and the requirements of any other relevant authority. To this end the Tenant may take partners which in its opinion are of a quality, experience and substance sufficient to ensure the Project is completed. 3.2 The following provisions relate to access and New Hospital Road: (a) The Landlord has warranted in the Car Park Lease and Hospital Lease that the Land will have pedestrian and vehicular access to and egress from land and roadways held by it. (b) The parties agree that if the Tenant wishes to construct a road along the boundary of Lot 2 in DP 805666 where that Lot 2 is contiguous with Lots 11 and 12 in DP 809663 between Carillon Avenue and Grose Street, it may do so to a standard agreed between the parties. (c) The cost of constructing New Hospital Road and, subject to sub-clause (e), the maintenance costs associated with the New Hospital Road, are to be borne by the Tenant. (d) The Landlord agrees to grant a right of way over that part of Lot 2 in DP 805666 upon which the New Hospital Road is constructed in favour of Lots 11 and 12 in DP 809663. The terms of the right of way may include such provisions as the Landlord may reasonably require to maintain the integrity of the campus of the Royal Prince Alfred Hospital and otherwise give effect to the principles relating to the development of the campus of Royal Prince Alfred Hospital set out in clause 3.5 of this deed and in the Landlord's site masterplan as published before the date of this deed. All reasonable costs incurred in relation to the creation of that right of way must be borne by the Tenant. (e) The Tenant agrees, if requested by the Landlord, to allow the Landlord access to and use of the New Hospital Road but only for loads for which it has been designed to carry. The Landlord agrees to contribute towards, in proportion to its usage (including having regard to weight loadings of traffic) of the New Hospital Road (but in any event not exceeding 50% provided the Landlord complies with loading limits), the maintenance costs of the New Hospital Road. If the parties can not agree on the proportion to be paid by the Landlord the dispute will be determined by an independent traffic consultant selected by the Landlord who will act as an expert and not as an arbitrator. Early Completion 3.3 If the Tenant completes the Works and has admitted its first patient so that the Rent Commencement Date occurs before the Scheduled Rent Commencement Date then the Tenant is entitled to an abatement of rent equal to $33,000 per month (and a proportional amount calculated on a daily basis for any part of a month) by which the Rent Commencement Date is earlier than the Scheduled Rent Commencement Date. The abatement of rent shall apply on and from the Rent Commencement Date and the Tenant may reduce successive payments of rent payable under clause 2 of the Hospital Lease by the amount of the abatement calculated in this clause 3.4 of this deed until the amount of the abatement is exhausted. Delays 3.4 If the Tenant fails to complete the Works and has not admitted its first patient so that the Rent Commencement Date does not occur on or before Scheduled Rent Commencement Date then the Tenant must pay to the Landlord on the same day in each successive month until the Rent Commencement Date additional rent of $33,000 per month (and a proportional amount calculated on a daily basis for any part of a month) for the period from and including the Scheduled Rent Commencement Date until but excluding the Rent Commencement Date. Such additional rent shall be paid in advance in monthly instalments, the first of which shall be on the Scheduled Rent Commencement Date and each subsequent instalment on the same day in each successive month until the Rent Commencement Date and the Landlord shall refund any proportion overpaid within 14 days of the Rent Commencement Date. 3.5 If the Tenant fails to complete any stage of the Works identified in the Timetable by the date specified for completion in the Timetable, then the Tenant must deposit with the Landlord a sum equal to rent at the rate referred to in clause 3.4 of this deed for the period measured in days by which the date of completion of the Stage of the Works is later than the date for completion specified in the Timetable. The Landlord may apply such funds against the Tenant's obligations under clause 3.3 of this deed when they fall due. 3.6 Any deposit not applied under clause 3.5 of this deed must be refunded once the Rent Commencement Date has occurred, the Tenant has complied with clause 3.4 of this deed and has paid the amount due under clause 2.2 of the Hospital Lease. ….. Criteria for plan preparation 4.5 It is agreed that the Development Application, Building Application, Plans and Specifications and Schedule of Finishes will be prepared having regard to the following considerations and criteria: (a) the Complex and Car Park must be considerate and harmonious with the other proximate improvements owned by the Landlord; (b) traffic flows of both private and public roads must be optimised and of an acceptable appearance; (c) access and egress including underpasses and overpasses for services, visitors, patients and employees must optimised to facilitate flow between the Hospitals; (d) adequate sign posting must be provided by both parties; (e) open space must be maximised in area and utilisation; (f) noise levels must be minimised; (g) mechanical and other services in common with the other proximate improvements owned by the Landlord must be integrated so far as is possible. (h) the provision of community facilities and services will be provided for; and (i) car parking spaces will be maximised during the construction of the Complex, in each case so far as is reasonably practical having regard to commercial and technical considerations reasonably necessary to ensure the viability of the Project and must also satisfy the following criteria: (j) provide for at least 200 beds; (k) be consistent in nature and standard with the Initial Proposal; and (l) have facilities and finishes of a similar standard to St George Private Hospital and the Sydney Adventist Hospital. ….. Joint Working Party 4.7 The Tenant and the Landlord must establish a joint working party being a project advisory committee comprising representation from both the Tenant and the Landlord and including representatives from medical, administrative, planning and facilities management staff and consultants of the Landlord. 4.8 The Joint Working Party must provide advice to the Tenant from the date of this lease to the Rent Commencement Date regarding the carrying out and completion of the Works. The Joint Working Party must contribute to the design and development of the Complex, including its physical and operational planning. 4.9 The function of the Joint Working Party is to provide an effective channel of liaison between the Landlord's medical and professional staff and the Tenant and its consultants to ensure all ideas of all parties are put forward in the design and construction of the Complex. 4.10 The responsibility of the Tenant pursuant to this deed will not be relieved or reduced nor will the Landlord be made responsible to the Tenant by reason of: (a) the review, vetting or approval of any construction means, methods or proposed methods of working, techniques, equipment or labour levels, sequences, procedures or other matters employed or to be employed by the Tenant in the execution of the Works; (b) the review or vetting of construction programmes supplied by the Tenant with the Tenant's tender or pursuant to this; or (c) any assistance or advice by, or input from, the Joint Working Party. ….. Acceptance of Development Approval 4.12 If the Development Approval is not granted by the date required under the Timetable or the Tenant does not declare all conditions imposed on the approval to the Development Application by the date required for the Development Approval under the Timetable then this deed, the Hospital Lease and the Car Park Lease and all other Transaction Documents shall terminate forthwith and neither party shall have any claim against the other in connection with any matter relating in any way to the transactions the subject of the Heads of Agreement or the other Transaction Documents including for restitution and any amounts paid. ….. 7. Default Essential terms 7.1 Each obligation of the Tenant to pay money and its obligations under clauses 2.1, 2.4 and 3.7 are essential terms of this deed. Other obligations under this deed may also be essential terms. 7.2 The obligations under clauses 6, 8, 11 and 12 of the Hospital Lease and clauses 5, 7, 10 and 11 of the Car Park Lease are essential terms of this deed. Landlord's right to terminate 7.3 The Landlord may terminate this deed by giving the Tenant notice if an Event of Default occurs. 7.4 An Event of Default occurs if the Tenant: (a) repudiates its obligations under this deed; (b) does not comply with an essential term of this deed; (c) repudiates its obligations under a Transaction Document or does not comply with an essential term of a Transaction Document; (d) does not comply with an obligation under this deed or a Transaction Document (which is not an essential term) and, in the Landlord's reasonable opinion: (i) the non-compliance can be remedied, but the Tenant does not remedy it within a reasonable time after the Landlord gives the Tenant notice to remedy it; (ii) the non-compliance cannot be remedied or reasonably compensated for; or (iii) the non-compliance cannot be remedied but the Landlord can be compensated and the Tenant does not pay the Landlord compensation for the breach within a reasonable time after the Landlord gives the Tenant notice to pay it; (in determining what is a reasonable time to remedy or pay compensation the Landlord must have regard to whether the non-compliance arose due to events outside the control of the Tenant); (e) distress is levied or a judgment, order or an Encumbrance is enforced, or becomes enforceable, or can be rendered enforceable by the giving of notice, lapse of time or fulfilment of any condition. Opportunity to rectify 7.5 The Landlord must not exercise its power under clause 7.3 unless it first gives the Tenant notice of the particular Event of Default on which the Landlord relies and the clause under this deed under which the default arises. 7.6 The Landlord waives the Event of Default specified in a notice under clause 7 so that this deed continues in fuIl force and effect as if no such Event of Default has occurred, if the Tenant: (a) in respect of a breach remediable by payment of money, pays the Landlord all money necessary to remedy the Event of Default within: (i) 14 days of service of that notice; (ii) 28 days of service of that notice in any other case. (b) in respect of a breach remediable other than by payment of money: (i) gives the landlord a written undertaking, within 28 days of the service of that notice, to remedy the Event of Default; and (ii) remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within 3 months of giving the undertaking); (c) in respect of a breach which is not remediable: (i) pays compensation (within 28 days of service of that notice) to the reasonable satisfaction of the Landlord having regard to the nature and extent of the breach; or (ii) undertakes to pay compensation (within 28 days of service of that notice) and pays it to the Landlord within 3 months of giving the undertaking (or any other period the Landlord decides in its absolute discretion) together with interest (at the rate determined in clause 4.5 of the Hospital Lease) from the date of undertaking until payment calculated under clause 7.6; or (d) completes the sale and assignment of the Tenant's interest in this deed, the Car Park Lease and the Hospital Lease in accordance with clause 7.7 within 6 months of the notice of the Event of Default being given to the Tenant. 7.7 If the Tenant wishes to sell and assign its interest in this deed, the Car Park Lease and the Hospital Lease pursuant to clause 7.6(d) it must do so on the following grounds: (a) its interests in this deed, the Car Park Lease and the Hospital League [sic] are assigned to the same assignee; (b) the assignee is not a Parent of the Tenant or the Guarantor, nor is the Tenant or the Guarantor a Parent of the Assignee, nor do any of the Tenant, the Guarantor or the Assignee have the same Parent. If a sale and assignment occurs in accordance with this clause 7.7 then the Timetable shall be amended by extending each date not yet fulfilled by the period equal to the period from the date specified in the Timetable for completion of the activity in the Timetable which has most recently been completed to the date of completion of the sale and assignment with the intention that the assignee shall have the benefit of the full duration permitted by the Timetable from completion of the last completed activity to complete the activity then incomplete. If the first activity in the Timetable has not been completed on the date of completion of the sale and assignment then the words "from the date specified in the timetable for completion of the activity in the Timetable which has most recently been completed" shall be replaced, for the purposes only of that assignee, with the words "from the date of this deed". Indemnity 7.8 If this deed is terminated under this clause 7: (a) the Tenant indemnifies the Landlord against any liability or loss arising and any reasonable cost incurred (whether before or after termination of this deed) in connection with the Tenant's breach of this deed and the termination of this deed including the Landlord's loss of the benefit of the Tenant performing its obligations under this deed from the date of that termination until the Terminating Date; and (b) the Landlord must take reasonable steps to mitigate its loss. ….. 9.1 The Tenant is liable for and indemnifies the Landlord against liability or loss arising from, and cost incurred in connection with: (a) damage, loss, injury or death caused or contributed to by the act, negligence or default of the Tenant or of the Tenant's Employees and Agents; and (b) the Landlord doing anything which the Tenant must do under this deed but has not done or has not done properly. ….. Good Faith 10.8 Without limiting the generality of any other provision of this deed the parties agree that in the performance of their respective duties and the exercise of their respective powers under this deed and in their respective dealings with each other, they shall act in the utmost good faith. Car Park Lease 88 In the Car Park Lease, that is the lease of Lot 11, Area Health is called "Landlord" and Macquarie and Area Health as tenants in common in equal shares are called "Tenants". The term of the lease is 103 years, commencing 1 December 1996. This lease contains the following definitions, to apply unless the contrary intention appears: Car Park means the proposed car park to be erected on the Land and operated by or on behalf of the Managing Tenant. Hospital means the hospital to be erected on Lot 12 in Deposited Plan 809966. Managing Tenant means Macquarie International Health Clinic Pty Limited. Rent means the yearly amount to be paid in accordance with clause 2 as varied under this lease. Transaction Document means this lease, the heads of agreement giving rise to this lease, the Construction Deed, the Hospital Lease, any guarantee and indemnity given in connection with this lease, any assignment of this lease, any instrument which the Managing Tenant acknowledges to be a Transaction Document and any other instrument contemplated by any of them. 89 Other important terms of the Car Park Lease include the following: 1.5 This lease is granted pursuant to the Heads of Agreement. The provisions of the Heads of Agreement merge in the grant of this lease. 1.6 This lease contains obligations of the Managing Tenant which relate to both the land leased under this lease (on which the Car Park is to be erected) and to lot 12 in Deposited Plan 809663 (on which a Hospital is to be erected). The inclusion of obligations in this lease which relate to lot 12 is deliberate, because it is intended that a breach of those obligations included in this lease which relate to lot 12 will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease. Therefore, the Managing Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Managing Tenant and the Guarantor even though the Landlord, the Managing Tenant and the Guarantor have entered into a separate lease of lot 12 in deposited plan 809663 and notwithstanding that: (a) the Hospital is not to be erected on the Land and is therefore not leased under this lease; (b) the assignment, subletting, mortgaging or other dealing with this lease separately to the Hospital Lease or vice a versa; or (c) the termination of this lease or the Hospital Lease. 1.7 This lease contains obligations of the Managing Tenant which relate to both the land leased under this lease (on which the Car Park is to be erected) and to the Construction Deed (governing construction of the Hospital and Car Park). The inclusion of obligations in this lease which relate to the Construction Deed is deliberate, because it is intended that a breach of those obligations included in this lease which relate to the Construction Deed will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease. Therefore, the Managing Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Managing Tenant and the Guarantor even though the Landlord, the Managing Tenant and the Guarantor have entered into a separate Construction Deed. 1.8 The parties acknowledge that as at the date of the Heads of Agreement it was a condition of the Landlord's entry into the Heads of Agreement that there be a major through road adjoining the eastern boundary of the premises and Lot 11 in deposited plan 809663. Clause 5.2(c) of the Heads of Agreement contained a statement of the Tenant's position on such a major road, namely the Tenant considered that the construction of a major through road on the eastern boundary would not ensure the independence of the Hospital and the creation of a campus concept encouraging the movement of people between the Hospital and Royal Prince Alfred Hospital. The Landlord agreed to consider an adjustment if it did not disrupt the current planning of Royal Prince Alfred Hospital as reflected in the Master Plan and the Landlord agreed that the Tenant would take part in all meetings where the decision on the area in which the Complex would be situated was discussed. ….. 2 Rent Consideration 2.1 The Landlord acknowledges entering into this lease and receiving valuable consideration and the Managing Tenant acknowledges that it has entered into this Lease, incurred obligations and given rights and consideration, for this Lease. 2.2 The Managing Tenant agrees to pay to the Landlord an amount calculated in accordance with the following formula on 14 February 1999: A = $6,000 x (1200-B) where A = the payment to be made under this clause 1.2 B = the number of car parking spaces in the Car Park If the Car Park has not been erected by the date upon which the payment is to be made under this clause 1.2 the "B" shall be the number of car parking spaces to be erected in the Car Park based on the Plans and Specifications in their then latest form as approved by all relevant authorities. Once the Car Park has been erected the number of car parking spaces in the Car Park shall be determined and an adjusting payment made so that after the adjustment the Managing Tenant has paid the amount calculated in accordance with the above formula. ….. 6 Indemnities and releases 6.1 The Tenant is liable for and indemnifies the Landlord against liability or loss arising from, and cost incurred in connection with: (a) damage, loss, injury or death caused or contributed to by the act, negligence or default of the Tenant or of the Managing Tenant's Employees and Agents; and (b) the Landlord doing anything which the Tenant must do under this lease but has not done or has not done properly. ….. 8 Managing tenant's additional obligations 8.1 The Tenant must: ….. (d) comply with the Construction Deed. ….. 16 Default Essential terms 16.1 Each obligation of the Managing Tenant to pay money and its obligations under clauses 5, 7, 10, and 11 are essential terms of this lease. Other obligations under this lease may also be essential terms. 16.2 The obligations under clauses 2.1, 2.4 and 3.7 of the Construction Deed and clauses 6, 8, 11 and 12 of the Hospital Lease are essential terms of this lease. Landlord's right to terminate 16.3 The Landlord may terminate this lease by giving the Managing Tenant notice, by re-entry or by converting this lease by notice to the Managing Tenant into a Tenancy that may be terminated at the will of the Landlord but not of the Managing Tenant if an Event of Default occurs. 16.4 An Event of Default occurs if the Tenant: (a) repudiates its obligations under this lease; (b) does not comply with an essential term of this lease; (c) repudiates its obligations under a Transaction Document or does not comply with an essential term of a Transaction Document; (d) does not comply with an obligation under this lease or a Transaction Document (which is not an essential term) and, in the Landlord's reasonable opinion: (i) the non-compliance can be remedied, but the Tenant does not remedy it within a reasonable time after the Landlord gives the Tenant notice to remedy it; (ii) the non-compliance cannot be remedied or reasonably compensated for; or (iii) the non-compliance cannot be remedied but the Landlord can be compensated and the Managing Tenant does not pay the Landlord compensation for the breach within a reasonable time after the Landlord gives the Managing Tenant notice to pay it; (in determining what is a reasonable time to remedy or pay any compensation the Landlord must have regard to whether the non-compliance arose due to events outside the control of the Tenant) (e) distress is levied or a judgment, order or an Encumbrance is enforced, or becomes enforceable, or can be rendered enforceable by the giving of notice, lapse of time or fulfilment of any condition, against the Managing Tenant's interest in this lease, the Managing Tenant's Property or any other property used in connection with the Managing Tenant's Business. Opportunity to rectify 16.5 The Landlord must not exercise its powers under clause 16.3 unless it first gives the Managing Tenant notice of the particular Event of Default on which the Landlord relies and the clause under this lease under which the default arises. 16.6 The Landlord waives the Event of Default specified in a notice under clause 16 so that this lease continues in full force and effect as if no such Event of Default has occurred, if the Tenant: (a) in respect of a breach remediable by payment of money, pays the Landlord all money necessary to remedy the Event of Default within: (i) 14 days of service of that notice; or (ii) 28 days of service of that notice in any other case; (b) in respect of a breach remediable other than by payment of money: (i) gives the Landlord a written undertaking, within 28 days of the service of that notice, to remedy the Event of Default; and (ii) remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within 3 months of giving the undertaking); or (c) in respect of a breach which is not remediable: (i) pays compensation (within 28 days of service of that notice) to the reasonable satisfaction of the Landlord having regard to the nature and extent of the breach; or (ii) undertakes to pay compensation (within 28 days of service of that notice) and pays it to the Landlord within 3 months of giving the undertaking (or any other period the Landlord decides in its absolute discretion) together with interest from the date of undertaking until payment calculated under clause 16.6. (d) completes the sale and assignment of the Tenant's interest in this lease, the Construction Deed and the Hospital Lease in accordance with clause 16.7 within 6 months of the notice of the Event of Default being given to the Tenant. 16.7 If the Tenant wishes to sell and assign its interest in this lease, the Construction Deed and the Hospital Lease pursuant to clause 16.6(d) it must do so on the following grounds: (a) its interests in this lease, the Construction Deed and the Hospital Lease are assigned to the same assignee; (b) the assignee is not a Parent of the Tenant or the Guarantor, nor is the Tenant or the Guarantor a Parent of the Assignee, nor do any of the Tenant, the Guarantor or the Assignee have the same Parent. If a sale and assignment occurs in accordance with this clause 16.7 then the Timetable shall be amended by extending each date not yet fulfilled by the period equal to the period from the date specified in the Timetable for completion of the activity in the Timetable which has most recently been completed to the date of completion of the sale and assignment with the intention that the assignee shall have the benefit of the full duration permitted by the Timetable from completion of the last completed activity to complete the activity then incomplete. If the first activity in the Timetable has not been completed on the date of completion of the sale and assignment then the words "from the date specified in the timetable for completion of the activity in the Timetable which has most recently been completed" shall be replaced, for the purposes only of that assignee, with the words "from the date of this lease". Indemnity 16.8 If this lease is terminated under this clause 16: (a) the Managing Tenant indemnifies the Landlord against any liability or loss arising and any reasonable cost incurred (whether before or after termination of this lease) in connection with the Managing Tenant's breach of this lease and the termination of this lease including the Landlord's loss of the benefit of the Managing Tenant performing its obligations under this lease from the date of that termination until the Terminating Date; and (b) the Landlord must lake reasonable steps to mitigate its loss. Compensation for Termination 16.9 If this lease is terminated under clause 16.3, the Landlord must use all reasonable endeavours to relet the Premises to an unrelated party for the balance of the Term on the same or substantially the same terms as this lease (but including reserving a premium for the reletting and in so doing shall observe the same duties a mortgagee would have in disposing of mortgaged property in the event of a default) excluding as to the payment of rent and if the Premises or any part are relet by the Landlord at any time prior to the Expiry Date, then the Landlord must pay to the Managing Tenant within 30 days of receipt by the Landlord 90% of the net proceeds including a premium of the reletting which relates to the period from termination to the Terminating Date (apportioned, if necessary, by an expert appointed by the President of the Institute of Arbitrators) but less any rent which would have been payable during that period under this lease. Attorney of Lessee 16.10 The Tenant appoints the Landlord and its Authorised Officers severally as the Tenant's attorney to act at any time if this lease is terminated under clause 16.3 or after it is converted to a tenancy which may be terminated at the will of the Landlord but not of the Tenant: (a) execute and sign a surrender of the lease; and (b) procure the surrender to be registered, using the name of the Tenant for those purposes, and generally, do execute and perform any act, deed, matter or thing in respect of the Premises as fully and effectually as the lessee could do, execute or perform it. A statutory declaration of the Landlord that the rights of the Landlord under this clause 16.9 are exercisable may be treated as conclusive evidence of its contents in favour of any person who is not a party to this lease. The Tenant must ratify and confirm anything lawfully done or caused to be done in and about the Premises by the Tenant's attorney. Preservation of Other Rights 16.11 If a party breaches or repudiates this lease, nothing in this clause 16 will prejudice the right of the other party to recover damages or exercise any other right. ….. Good Faith 19.13 Without limiting the generality of any other provision of this lease the parties agree that in the performance of their respective duties and the exercise of their respective powers under this lease and in their respective dealings with each other, they shall act in the utmost good faith. Car Park Sub-Lease 90 In the Car Park Sub-Lease, Area Health is called "Landlord" and Macquarie is called "Tenant". The term is 28 years from 1 December 1996. 91 Other important terms of the Car Park Sub-Lease include the following: 1.2 This lease contains obligations of the Tenant which relate to both the land leased under this lease (on which the Car Park is to be erected) and to the Construction Deed (governing construction of the Hospital and Car Park). The inclusion of obligations in this lease which relate to the Construction Deed is deliberate, because it is intended that a breach of those obligations included in this lease which relate to the Construction Deed will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease. Therefore, the Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Tenant and the Guarantor even though the Landlord, the Tenant and the Guarantor have entered into a separate Construction Deed. ….. 3.2 The Landlord and the Tenant expressly agree and declare that all the covenants and conditions contained in the Head Lease insofar as the same shall relate to the Landlord and the Landlord's estate or interest in the Premises and to their occupation and use shall to the full extent to which the same can be made applicable to this Lease and the Premises apply and extend to the same and this Lease shall be read and construed and take effect as though such covenants and conditions were repeated and embodied herein mutatis mutandis except as expressly provided herein AND IN ADDITION the provisions of this annexure are included in this lease. 3.3 The Tenant must duly and punctually perform and observe the covenants in the Head Lease which the Landlord is bound to perform and observe insofar as the same relate to the Premises and their occupation and use. ….. 3.6 The Tenant must comply with the provisions of the Construction Deed relating to the Car Park. 3.7 Each obligation of the Tenant to pay money and its obligations under clause 3.6 are essential terms of this lease. Other obligations under this lease may also be essential terms. 3.8 The provisions of clause 16.1, 16.2 and 16.9 of the Head Lease as imported into this lease by clause 3.2, do not apply to this lease. The remaining provisions of clause 16 of the Head Lease apply to this lease. Hospital Lease 92 In the Hospital Lease, that is the lease of Lot 12, Area Health is called "Landlord" and Macquarie is called "Tenant". The term is 103 years from 1 December 1996. 93 Other important terms of the Hospital Lease include the following: 1.5 This lease is granted pursuant to the Heads of Agreement. The provisions of the Heads of agreement merge in the grant of this lease. 1.6 This lease contains obligations of the Tenant which relate to both the land leased under this lease (on which the Hospital is to be erected) and to lot 11 in Deposited Plan 809663 (on which a car park is to be erected). The inclusion of obligations in this lease which relate to lot 11 is deliberate, because it is intended that a breach of those obligations included in this lease which relate to lot 11 will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease. Therefore, the Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Tenant and the Guarantor even though the Landlord, the Tenant and the Guarantor have entered into a separate lease of lot 11 in deposited plan 809663 and notwithstanding: (a) that the car park is not to be erected on the Land and is therefore not leased under this lease; (b) the assignment, subletting, mortgaging or other dealing with this lease separately to the Car Park Lease or vice a versa; or (c) the termination of this lease or the Car Park Lease. 1.7 This lease contains obligations of the Tenant which relate to both the land leased under this lease (on which the Hospital is to be erected) and to the Construction Deed (governing construction of the Hospital and Car Park). The inclusion of obligations in this lease which relate to the Construction Deed is deliberate, because it is intended that a breach of those obligations included in this lease which relate to the Construction Deed will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease. Therefore, the Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Tenant and the Guarantor even though the Landlord, the Tenant and the Guarantor have entered into a separate Construction Deed. 1.8 The parties acknowledge that as at the date of the Heads of Agreement it was a condition of the Landlord's entry into the Heads of Agreement that there be a major through road adjoining the eastern boundary of the premises and Lot 11 in deposited plan 809663. Clause 5.2(c) of the Heads of Agreement contained a statement of the Tenant's position on such a major road, namely the Tenant considered that the construction of a major through road on the eastern boundary would not ensure the independence of the Hospital and the creation of a campus concept encouraging the movement of people between the Hospital and Royal Prince Alfred Hospital. The Landlord agreed to consider an adjustment if it did not disrupt the current planning of Royal Prince Alfred Hospital as reflected in the Master Plan and the Landlord agreed that the Tenant would take part in all meetings where the decision on the area in which the Complex would be situated was discussed. ….. 2 Rent Consideration 2.1 On or before the Rent Commencement Date the Tenant must pay to the Landlord the sum of $5,500,000 which sum represents all rental payable under this lease (other than that referred to in clause 2.2 of this lease and clause 3.5 of the Construction Deed) paid in one lump sum in advance (being $53,920.00 per annum). If the Tenant: (a) constructs car parking for at least 1200 cars on the land comprised in Folio Identifier 11/809663; and (b) clears the land comprised in Folio Identifiers 11/809663 and 12/809663; and (c) removes the Telecom cable as set out in the Construction Deed. then the cost to the Tenant of carrying out those works will be offset against the payment of $5,500,000 referred to in this clause and the Tenant will only be liable to pay to the Landlord the balance. The Landlord is not liable to pay any amount to the Tenant if the cost of these works exceeds $5,500,000. If this lease is terminated for any reason prior to the Terminating Date then the Landlord must refund to the Tenant the rent actually paid under this clause 2.2 which relates to the balance of the Term which is unexpired at the date of termination. Annual rent 2.2 In addition to the payment referred to in clause 2.1, the Tenant must pay to the Landlord annually: (a) commencing on the Rent Commencement Date; and (b) annually thereafter, $400,000 per annum as reviewed under clause 3. 2.3 The rent payable under clause 2.2 may vary in the circumstances set out in clause 3 and in clause 3 of the Construction Deed. 2.4 If an instalment is for a period of less than one month, then that instalment is that proportion of one twelfth of the Rent which the number of days in the period bears to the number of days in the month in which that period begins. ….. 9 Tenant's additional obligations 9.1 The Tenant must: ….. (d) comply with the Construction Deed. ….. 17 Default Essential terms 17.1 Each obligation of the Tenant to pay money and its obligations under clauses 6, 8, 11, and 12 are essential terms of this lease. Other obligations under this lease may also be essential terms. 17.2 The obligations under clauses 2.1, 2.4 and 3.7 of the Construction Deed and clauses 5, 7, 10 and 11 of the Car Park Lease are essential terms of this lease. Landlord's right to terminate 17.3 The Landlord may terminate this lease by giving the Tenant notice, by re-entry or by converting this lease by notice to the Tenant into a Tenancy that may be terminated at the will of the Landlord but not of the Tenant if an Event of Default occurs, 17.4 An Event of Default occurs if the Tenant: (a) repudiates its obligations under this lease; (b) does not comply with an essential term of this lease; (c) repudiates its obligations under a Transaction Document or does not comply with an essential term of a Transaction Document; (d) does not comply with an obligation under this lease or a Transaction Document (which is not an essential term) and, in the Landlord's reasonable opinion: (i) the non-compliance can be remedied, but the Tenant does not remedy it within a reasonable time after the Landlord gives the Tenant notice to remedy it; (ii) the non-compliance cannot be remedied or reasonably compensated for; or (iii) the non-compliance cannot be remedied but the Landlord can be compensated and the Tenant does not pay the Landlord compensation for the breach within a reasonable time after the Landlord gives the Tenant notice to pay it; (in determining what is a reasonable time to remedy or pay any compensation the Landlord must have regard to whether the non-compliance arose due to events outside the control of the Tenant) (e) distress is levied or a judgment, order or an Encumbrance is enforced, or becomes enforceable, or can be rendered enforceable by the giving of notice, lapse of time or fulfilment of any condition. Opportunity to rectify 17.5 The Landlord must not exercise its powers under clause 17.3 unless it first gives the Tenant notice of the particular Event of Default on which the Landlord relies and the clause under this lease under which the default arises. 17.6 The Landlord waives the Event of Default specified in a notice under clause 17 so that this lease continues in full force and effect as if no such Event of Default has occurred, if the Tenant: (a) in respect of a breach remediable by payment of money, pays the Landlord all money necessary to remedy the Event of Default within: (i) 14 days of service of that notice in the case of Rent; or (ii) 28 days of service of that notice in any other case; (b) in respect of a breach remediable other than by payment of money: (i) gives the Landlord a written undertaking, within 28 days of the service of that notice, to remedy the Event of Default; and (ii) remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within 3 months of giving the undertaking); or (c) in respect of a breach which is not remediable: (i) pays compensation (within 28 days of service of that notice) to the reasonable satisfaction of the Landlord having regard to the nature and extent of the breach; or (ii) undertakes to pay compensation (within 28 days of service of that notice) and pays it to the Landlord within 3 months of giving the undertaking (or any other period the Landlord decides in its absolute discretion) together with interest from the date of undertaking until payment calculated under clause 17.6. (d) completes the sale and assignment of the Tenant's interest in this lease, the Car Park Lease and the Construction Deed in accordance with clause 17.7 within 6 months of the notice of the Event of Default being given to the Tenant. 17.7 If the Tenant wishes to sell and assign its interest in this lease, the Car Park Lease and the Construction Deed pursuant to clause 17.6(d) it must do so on the following grounds: (a) its interests in this lease, the Car Park Lease and the Construction Deed are assigned to the same assignee; (b) the assignee is not a Parent of the Tenant or the Guarantor nor is the Tenant or the Guarantor a Parent of the Assignee, nor do any of the Tenant, the Guarantor or the Assignee have the same Parent. If a sale and assignment occurs in accordance with this clause 17.7 then the Timetable shall be amended by extending each date not yet fulfilled by the period equal to the period from the date specified in the Timetable for completion of the activity in the Timetable which has most recently been completed to the date of completion of the sale and assignment with the intention that the assignee shall have the benefit of the full duration permitted by the Timetable from completion of the last completed activity to complete the activity then incomplete. If the first activity in the Timetable has not been completed on the date of completion of the sale and assignment then the words "from the date specified in the Timetable for completion of the activity in the Timetable which has most recently been completed" shall be replaced, for the purposes only of that assignee, with the words "from the date of this lease". Indemnity 17.8 If this lease is terminated under this clause 17: (a) the Tenant indemnifies the Landlord against any liability or loss arising and any reasonable cost incurred (whether before or after termination of this lease) in connection with the Tenant's breach of this lease and the termination of this lease including the Landlord's loss of the benefit of the Tenant performing its obligations under this lease from the date of that termination until the Terminating Date; and (b) the Landlord must take reasonable steps to mitigate its loss. Compensation for Termination 17.9 If this lease is terminated under this clause 17, the Landlord must use all reasonable endeavours to relet the Premises to an unrelated party for the balance of the Term on the same or substantially the same terms as this lease (but including reserving a premium for the reletting and in so doing shall observe the same duties a mortgagee would have in disposing of mortgaged property in the event of a default) and if the Premises or any part are relet by the Landlord at any time prior to the Expiry Date, then the Landlord must pay to the Tenant within 30 days of receipt by the Landlord 90% of the net proceeds including a premium of the reletting which relates to the period from termination to the Terminating Date (apportioned, if necessary, by an expert appointed by the President of the Institute of Arbitrators) but less any rent which would have been payable during that period under this lease. Attorney of Lessee 17.10 The Tenant appoints the Landlord and its Authorised Officers severally as the Tenant's attorney to act at any time if this lease is terminated under clause 17.3 or after it is converted to a tenancy which may be terminated at the will of the Landlord but not of the Tenant to: (a) execute and sign a surrender of the lease; and (b) procure the surrender to be registered, using the name of the Tenant for those purposes, and generally, do execute and perform any act, deed, matter or thing in respect of the Premises as fully and effectually as the lessee could do, execute or perform it A statutory declaration of the Landlord that the rights of the Landlord under this clause 17.10 are exercisable may be treated as conclusive evidence of its contents in favour of any person who is not a party to this lease. The Tenant must ratify and confirm anything lawfully done or caused to be done in and about the Premises by the Tenant's attorney. Preservation of Other Rights 17.11 If a party breaches or repudiates this lease, nothing in this clause 17 will prejudice the right of the other party to recover damages or exercise any other right. ….. Good Faith 20.13 Without limiting the generality of any other provision of this lease the parties agree that in the performance of their respective duties and the exercise of their respective powers under this lease and in their respective dealings with each other, they shall act in the utmost good faith. ….. Restrictive Covenant 23.5 The Landlord must for a period of five years after the Rent Commencement Date: (a) not recommend, support or approve a private hospital within the area controlled by the Landlord as at 15 September 1989, if the Tenant is of the reasonable opinion that such a hospital would materially adversely affect the revenue derived by the Tenant from the Premises; or (b) make any representation reasonably possible to prevent the development of a private hospital which is likely to materially adversely affect the value of the Premises outside the area controlled by the Landlord as at 15 September 1989 including in particular the area then occupied by the Royal Alexandra Hospital for Children at Camperdown. ….. 23.11 The Landlord acknowledges the development, financial, professional and operational independence of the Premises from both the Landlord and Royal Prince Alfred Hospital and the intention of the parties to create a campus concept encouraging the movement of people between the Hospital and Royal Prince Alfred Hospital. Section 129 94 Section 129 of the Act is relevantly as follows: 129 Restrictions on and relief against forfeiture of lease (1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice: (a) specifying the particular breach complained of, and (b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and (c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach. (2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit. ….. (8) This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent. (9) The notice mentioned in this section shall be in the form set out in the Sixth Schedule or to a similar effect. (10) This section applies to leases made either before or after the commencement of this Act, and shall have effect notwithstanding any stipulation to the contrary. 95 The Sixth Schedule, referred to in s 129(9), is as follows: Schedule 6 Notice of breach of covenant To The lessee of [here describe premises with reasonable certainty, as for instance, "No. 369, George-street, Sydney.] With reference to the lease of the abovementioned premises, dated the day of 1 , from A.B. to C.D., and the covenant by the lessee therein contained [here state concisely the nature of the covenant or covenants breach of which is complained of, as for instance, "to repair,"] and the breach by you of that covenant I hereby give you notice and require you to remedy that breach by [here set out the remedy as, for instance, "by putting the said premises in repair by doing and executing the repairs in and upon the said premises which are specified in the Schedule hereto annexed." Add if compensation is claimed.] And I further require you to pay to me the sum of , as compensation for the breach already committed. Dated this day of 19 . Lessor. Note . The lessor will be entitled to re-enter or forfeit the lease in the event of the lessee failing to comply with this notice within a reasonable time—see section 129 of the Conveyancing Act 1919. 96 Section 7 of the Act contains the following definition of "rent": Rent includes yearly or other rent, toll, duty, royalty, or other reservation by the acre, the ton, or otherwise; and fine includes premium or foregift, and any payment, consideration, or benefit in the nature of a fine, premium, or foregift. Co-location: common ground 97 The first group of issues concerns Macquarie's claim for damages for breaches of Area Health's obligation of utmost good faith (under cl 15.4 of the HOA, cl 10.8 of the Construction Deed, cl 19.3 of the Car Park Lease and cl 20.13 of the Hospital Lease) in relation to the co-location issue. I will commence by setting out facts additional to those given earlier which are not or cannot be disputed. 98 In March 1984, a draft Master Plan for RPAH was prepared for presentation to the Board of RPAH (7 Blue 2255); and it appears that the Hospital Board (the predecessor to Area Health) adopted it (8 Blue 2746). This Master Plan designated sites for proposed future development, and it recommended pursuit of the closure of Missenden Road. It included a plan for proposed future developments, which showed Missenden Road as having been closed where it passes RPAH, with a limited access bus road joining what would have become the end of Missenden Road with an extension to Carillon Avenue. This Proposed Structure Plan is annexure 1 to this judgment. It shows the then current main building of RPAH, called Block E, just above the letter 2; and it shows King George V Hospital, which is part of RPAH and located to the west of Missenden Road, just to the left of the symbol for the information centre. 99 The 1984 Master Plan also included a plan of Proposed Land Use Zones, which is annexure 2 to this judgment. Zone H on that plan is the area referred to as the site for the proposed private hospital and car park in the HOA, entered into in 1989. 100 In 1988, Area Health sought proposals for the development of a private hospital and car park on the RPAH campus. The 1984 Master Plan was made available to MHC and to other interested parties. There was also made available to MHC a plan prepared in November 1988, showing a proposed site for the proposed private hospital: this plan is annexure 3 to this judgment. 101 In December 1988, MHC (together with The Mirvac Group, which later withdrew) submitted its Initial Proposal for tender (8 Blue 2908-43). This Initial Proposal stated that it had taken into account detailed discussions with Area Health; proposed an ambulatory care unit that would take people from the accident and emergency unit at RPAH; proposed a birthing unit, inter alia to capture earlier transfer of patients from the adjacent obstetrics ward at King George V; sought to maximise opportunities for joint appointments, for contracting of services, sharing and contracting of non-clinical services; depicted a proposed first floor level walkway into the RPAH building to be built, called "clinic support building"; and stated that "every effort would be made to encourage the use of the enclosed overhead walkways" and "the private hospital plan has been designed to fit into the Royal Prince Alfred Hospital Campus Master Plan as it has been provided to date. This would ensure that the physical relationships to the campus and the functional flow of patients, medical staff and visitors guests [will] be in keeping with the expectations of the master plan". The Initial Proposal included a plan which is annexure 4 to this judgment. 102 MHC was selected as the successful tenderer. During negotiations for the HOA, in a letter written by Dr Wenkart to Dr Scarf (CEO of Area Health from about mid-1988 to February 1992), Dr Wenkart referred to constraint "by the philosophy underlying the now superseded Masterplan" (8 Blue 3025). 103 The HOA was executed in September 1989. Titles for Lots 11 and 12 did not issue until May 1991. 104 In November 1991, Area Health commenced a process of planning for the future redevelopment of the RPAH campus and facilities, this project being called being called Campus 2010 (first judgment [45]). 105 Relevant events in 1992 and 1993 were set out as follows in the first judgment of the primary judge (referring to the private hospital proposed by the HOA as MPH, and to King George V hospital as KGV): [46] On 23 April Macquarie lodged a development application for MPH. Section 3 contained a description of land adjacent to the site which was owned by RPAH and used for hospital purposes. It said: "To the east of the site and on the Western side of King George V Memorial Hospital is presently a vacant lot, reportedly reserved for a building which will form part of the Royal Prince Alfred Hospital modernisation programme. No details of this proposed building are available since the new Masterplan has not yet been completed." It noted that the design for the proposed MPH and the related traffic management plan had taken into account the proposal for the closure of Missenden Road and its inclusion within the hospital campus. The accompanying drawings did not show any physical links to RPAH buildings. [47] On 9 June Macquarie wrote to Area Health recording agreement that it was essential to have a direct link between the two complexes for patient and staff movement. It said that its planning allowed for a bridge system and connection with the existing tunnel system, but would not commit to expense for the tunnel until assured that it was approved. Macquarie's desire to develop appropriate physical links was noted in Area Health's reply of 12 June, in which it was said that "… such links should be an important element of the development of the private hospital, and would be an important way of reassuring financiers that the commitment to a joint campus is real". It referred to a letter enclosed concerning Campus 2010, and continued: "… You are free to use the letter to support your project, but you should make it clear that Campus 2010 is a conceptual planning exercise and that no final decisions have been taken on the proposal which will come forward from that process, or the funding arrangements which will be required. Nevertheless it is an indication of the thinking of the Board in relation to the development of a more appropriate campus environment." [48] The enclosed letter included the following: "The project is designed to prepare a visionary conceptual model to promote the campus of Royal Prince Alfred Hospital as a leader in the development and provision of cutting edge technology and innovative health services, both now and in the future … … In particular it was considered to be essential that the Private Hospital was seen as an integral part of the campus, and that the division caused by Missenden Road should be removed. Whilst we cannot guarantee that the project will produce a vision which will be accepted, or that we will be able to obtain the funds readily to carry it out, we believe that this initiative should be seen as important evidence that the Board of Central Sydney, and the Royal Prince Alfred Hospital itself, is committed to providing the most attractive environment in which the development of a private hospital can take place. I confirm that we expect Macquarie to be actively involved in this process, and that we have asked our consultant to ensure that your project is fully integrated into their report." [49] During 1992 consultation took place between the parties on planning matters. By September it appeared that council's approval process would not progress until Campus 2010 had been received and considered. [50] In its letter to Macquarie of 26 November Area Health expressed concern that council might reject the application on size issues. It advised of the appointment of a consultant to advise on Macquarie's prospects of success. It stated that it had always been Macquarie's responsibility to assess what development could be successfully put on the site, and it was to proceed on that basis. [51] On 24 December Dr Horvath was appointed Chief Executive Officer of Area Health. 1993 (pars 52–60) [52] A note to Area Health of 13 January from the Director, Capital Works, Department of Health, stated that the closure of Missenden Road was central to the Campus 2010 strategy, and would be difficult to achieve. [53] On 22 February a conceptual development plan for RPAH entitled "Campus 2010" was launched. Its contents made plain the intention to proceed with a detailed master development control plan which, inter alia, would provide a planning model to highlight the essential nature of the closure of Missenden Road. It said that the planning demands of the proposed private hospital would be taken into account. It emphasised that its implementation, and the unification of the campus, depended upon the closure of Missenden Road. A conceptual master plan was included which depicted a unified campus on which Missenden Road was closed, the new private hospital on its designated site, and the location of RPAH buildings behind KGV. It envisaged an accident and emergency centre in a central building west of KGV with links to the private hospital and other buildings. [54] In its letter of 14 April to Pace Property Management Services Pty Ltd (Pace), Macquarie's project manager, Peddle Thorp, Macquarie's architect, expressed concern that Area Health now considered the master plan Campus 2010 to be a politically expedient document and stated its intention to continue to disregard it. The letter stated the need for traffic management to be designed to mesh with the current campus vehicular and pedestrian circulation, and the drawings would no longer show any Campus 2010 proposals. [55] In May, Macquarie lodged a revised development application with council for a 400 bed hospital in a star shape. It had been prepared with regard to concerns expressed by council and local residents, and took into account matters referred to in Campus 2010, and envisaged physical links between MPH and RPAH. The proposed development included a 400 bed private hospital, medical suites, a retail area, and 1287 car parking spaces. In section 4 "Planning Controls", it referred to Campus 2010 as a conceptual plan with no statutory planning status, which would guide RPAH in its preparation of a detailed master development control plan. It proposed a canopy structure to link an existing covered pedestrian way to RPAH. The application included a traffic report which referred to Campus 2010 (par 2.7) as a conceptual master plan "… to be developed over the next 12–18 months into a formal master plan. It will evolve from a full service needs evaluation which will follow the incorporation of Concord Hospital into the Central Sydney Area Health Service …". It referred to strong community and council opposition to the closure of Missenden Road, and observed that any closure would be premature before completion of the RPAH formal master plan. The traffic analysis was on the effects of the proposed private hospital on the existing local road system. [56] In its letter to Pace of 11 May, Area Health agreed to the lodgement of the plans subject to various matters. It stated that there had been no detailed master planning of "… the future of RPA's facilities since the heads of agreement were signed …", but endorsed Campus 2010. [57] On 25 August the development application was approved. Formal approval was given on 8 October. 106 Annexures 5 and 6 to this judgment are the proposed Master Plan included in the Campus 2010 document, and a Landscape Concept Plan included in Macquarie's May 1993 development application. 107 Events in 1994 were set out as follows by the primary judge: [63] On 29 June representatives of Area Health and the Department of Health discussed projects for the closure of Missenden Road and the development of the RPAH campus. The Department approved the appointment of consultants to undertake an asset strategic planning study for RPAH including a feasibility plan to assess future needs and options for the provision of services. By 23 August a steering committee was established, of which Dr Horvath, Mr Mike Wallace, and representatives from the Department were members. On 5 September Atkinson Capital Insight (Atkinson) was selected by Area Health to prepare an asset strategic planning study, a procurement feasibility plan, and a value management study. [64] On 22 July the Department of Health sent Area Health a copy of the brief to consultants for the preparation of "Asset Strategic Planning Studies", which included matters relevant to the rationalisation and redevelopment of the RPAH campus. [65] On 10 October Area Health's solicitors sent to Macquarie's solicitors draft leases for consideration. [66] On 24 October there was a meeting between the parties during which Dr Wenkart declined to commit to a timetable for completion of the works, and Area Health stated its concern about delay. At a meeting on 27 October Macquarie acknowledged that unless the timetable issue was resolved, the leases would not be signed. [67] On 2 November Dr Horvath informed the Area Health board that it was intended that the Asset Strategic Plan would form the basis of planning for the RPAH development. [68] On 3 November a workshop meeting was held at which principles for the preparation of the asset strategic plan were discussed by Dr Horvath, Mr Wallace, and Mr Stephen Haldane from Atkinson. Site planning principles included the encouragement of the visual and functional link with the University, and the facilitation of cohabitation and development by private sector entrepreneurial and research groups. [69] On 29 November the draft Asset Strategic Plan posed, as an option, a new building behind, or in conjunction with, E-block. On 2 December a value management study was held. 108 The draft plan of 29 November 1994 was a set of detailed papers of 166 pages (12 Blue 4690 – 4855). This draft proposed three options: do nothing (Option 1); substantially re-locate new and most existing services to the east of Missenden Road (Options 2A and 2B); and demolish some buildings to the west to achieve further consolidation to the east (Option 3) (12 Blue 4839 – 49). The latter two options are depicted in plans which are annexures 7 and 8 to this judgment. There was no option for any development to the west of Missenden Road or for any linkages to the proposed private hospital. The draft also proposed a reduction in the clinical activities of RPAH. 109 The value management study on 2 December 1994 referred to in par [69] of the first judgment was attended by senior officers of the Health Department, Area Health, RPAH and Atkinson's planning team, including Mr Haldane; and the draft plan was considered. The Health Department instructed that the study should be broadened from RPAH alone to all health facilities administered by Area Health (4 Blue 1296). By a letter to Mr Wallace (Deputy CEO of Area Health) dated 19 January 1995 (12 Blue 4856 – 7), Atkinson reported that following the meeting, there had been prepared a program for Area Health which had been submitted to the Health Department for endorsement and inclusion as new works in the 1995-6 Capital Works Program. On 20 February 1995 the Premier and the Minister for Health announced a plan to fund the redevelopment of RPAH at a cost of $115 million over the next four years (first judgment [71]). 110 On 20 December 1994, Area Health demanded payment from Macquarie of $4.5 million outstanding under the HOA within 28 days, and threatened termination of the HOA in default of payment (11 Blue 4414). By letters dated 12 and 18 January 1995, Macquarie claimed an extension of time, based on alleged breaches of the HOA by Area Health (11 Blue 4415-20). By letter dated 25 January 1995, Area Health declined an extension of time and, in default of payment of $4.5 million on 2 February 1995, it threatened termination (11 Blue 4421). 111 On or about 31 January 1995, Dr Wenkart met Dr Horvath at her office and handed her a cheque for $4.5 million (4 Black 1847); and by letter dated 2 February 1995, Area Health acknowledged this as payment by Macquarie of the $4.5 million required by cl 3.1(g) of the HOA (11 Blue 4429). 112 On 20 February 1995 (the same day as the announcement of the plan to fund the redevelopment of RPAH), Macquarie advised Area Health that it was revising the scope of the project and the building configuration, and indicated that a new development application may be required and that agreed time frames would be affected (first judgment [71]). 113 Prior to the State elections which were to occur in March 1995, the local member and shadow Minister for Health Dr Refshauge told Dr Horvath that if Labor were elected, Missenden Road would not be closed (4 Blue 1121). Labor was successful in the election on 25 March 1995, after which the closure of Missenden Road was extremely unlikely (1 Black 345H). 114 The redevelopment of RPAH continued to be discussed and pursued by Area Health and the Department of Health in 1995 and 1996, based on options identified in late 1994. On 21 June 1996, the Minister for Health publicly announced a $272 million Capital Works Programme for Area Health, including major redevelopment of RPAH (first judgment [89]). 115 Also during 1995 and 1996, Macquarie was seeking consent of Area Health to a new development application for a smaller private hospital. In the course of negotiations, Macquarie in December 1995 submitted to Area Health a proposed revised development application, which included the sketch which is Annexure 9 to this judgment. 116 By a letter dated 24 January 1996, Area Health refused consent to this proposed development application (13 Blue 5672); but on 14 February 1996, following mediation, Area Health made an offer of terms on which it would consent to an application of that kind (13 Blue 5680). Negotiations on this proceeded in 1996, and the dispute was referred to arbitration. Ultimately, the matter was resolved by execution of the December 1996 agreements. 117 Meanwhile, on 12 September 1996, Macquarie produced a draft feasibility study for the private hospital (6 Blue 1934 – 1981), some significant features of which were described as follows by the primary judge: [97] In its feasibility study of 12 September, Macquarie included financial projections for MPH on the assumption it would open in 1998. The hospital was to have 240 beds, to open initially with 108 in-patient beds. Initial capital cost for construction and fit out of the core private hospital was estimated to be $50,000,000. A car park for 1200 car spaces was to be separately financed. The study included a summary of Macquarie's rights and obligations under the HOA. It noted that Macquarie was entitled to "… assistance from CSAHS to prevent further private hospital development within the then boundaries of CSAHS for the period of five years after the commencement of Prince Alfred Private Hospital. It included a review of developments since 1989 which said: "From early 1993, Macquarie sought investors/financiers who would commit funds to the project. Significant interest was aroused in the project from a number of Asia-based overseas and local potential investors. However, the original size of the project of over $150 million, in an industry subject to government intervention and with limited local major corporate investment at that time, proved to be a significant stumbling block. From late 1994, financial advisers recommended downsizing the project to match demand and investor expectations. A series of revised concepts were tested and eventually, in late 1995 a project with a construction and fit out cost of approximately $50 million was specified and conceptual plans prepared. That revised project is the subject of this feasibility study." With reference to the revised proposal, it said that the hospital building and commissioning cost limit imposed by Macquarie of about $50,000,000 was based on its own capacity to undertake the project and took into account the size and cost of recent private hospital developments. Section 5 concerned significant developments in the private hospital sector, including: "… increased power being exercised by health insurance funds, due to legislative changes to health insurance introduced by Dr Carmen Lawrence. This ultimately will lead to health insurance funds having preferred provider arrangements with those hospitals which are attractive to their members." 118 This feasibility study was the subject of a review by Greg Anderson dated 6 October 1996 (6 Blue 1904 – 1932), significant features of which were described as follows by the primary judge: [103] On 3 October Mr Greg Anderson of Coopers & Lybrand sent Macquarie the final report of its review of Macquarie's feasibility study of 12 September. Section 2 of the report was concerned with market demand. It included a summary of information obtained from interviewing Dr Horvath and the general manager of RPH which, relevantly, said: "… They were concerned about the ability of MHC to actually move the project forward given the failure of MHC over a considerable period to build the facility. They made the following points which are relevant under the terms of reference of this review. These include: NSW Health has recently announced $279 million injection for the redevelopment of health facilities for CSAHS. A significant proportion of this will be used to rebuild and modernise the facilities and streamline patient services at RPAH. This indicates Government's [sic] ongoing commitment to maintain RPAH as a major public teaching hospital in the catchment area. CSAHS is anxious to have a collocated facility as soon as possible as further delays may impact on its ability to attract top quality specialists to practice at RPAH. … It is advised that CSAHS has no statutory power to block another private hospital development within its primary catchment area. However, CSAHS is committed under the Heads of Agreement with MHC not to recommend or support development of other private hospital [sic] in the areas under the control of CSAHS within a period of 5 years from the date of first admission. Furthermore, CSAHS would have to question the commercial sense of supporting any other competitive private facility when CSAHS receives a large income linked to the gross revenue of RPAH." Section 4 contained the principal findings and concluded: "In conducting our review negative relationship issues between MHC and the key specialists and senior management of Central Area Health Service were made to us with respect to the long delay in MHC providing the collocated private hospital. It is important to note that these stakeholders will have a significant influence in assisting MHC gain the projected activity levels to maximise the returns from the private hospital. In recognition of this, MHC management are endeavouring to improve relationships with negotiations currently taking place. In our opinion the financial projections can only be achieved by MHC if relationships with key stakeholders can be resolved. It is not possible to quantify the implications of these issues. In our opinion the financial projections are properly prepared on the basis of assumptions which are reasonable under existing industry conditions. Even if the events anticipated under the assumptions used in the financial forecasts occur, actual results may be different from the projections due to the matters referred to in the two paragraphs above. Accordingly, we are unable to express an opinion as to whether the forecasts will be achieved by MHC." 119 On 8 November 1996, Mr Puplick sent a letter to Mr Block (14 Blue 6276 – 7), which included the following: Furthermore, the Area Health Service has in place a capital works programme which includes works for Royal Prince Alfred Hospital, including the resolution of all outstanding car parking problems on this site. I believe that it is the Area's prerogative to make its own decisions on procuring and operating solutions to its car parking requirements including any revenue which might flow from such a solution. Again, I must reinforce the Area Health Service's position, which was adverted to on each occasion that we met to negotiate, being that the arbitration process would proceed despite the negotiations and be stopped only if, and when, the lease documents had been agreed. It would be quite wrong of you to try to use these negotiations as a pretext for interrupting and delaying the arbitration proceedings. 120 On 25 February 1997, Macquarie lodged its new development application with the council. The documents included a landscape plan which is Annexure 10 to this judgment; and the supporting documentation included a report of 19 February 1997 prepared by Pace Property Management Pty Limited (Pace), Macquarie's Project Manager, which included the following: The overall master planning for redevelopment of the Royal Prince Alfred Hospital … is now being reconsidered by the Central Sydney Area Health Service … However, our understanding from discussions with the RPA and CSAHS is that at the time of writing this report, their current intention is for redevelopment of the hospital to occur on the eastern side of Missenden Road. There is no intention at this stage of providing further development between Missenden Road and the proposed development. 121 On 24 April 1997, Dr Horvath wrote to Mr Block (17 Blue 7203 – 5), enclosing notes to assist in giving information to the Council. These notes included the following: In essence, the current concept consolidates more of the clinical activity on the eastern campus. It is anticipated that this will free up some portions of the western campus which the Hospital is considering for central energy, car parking and other clinical and support services. Attached for your information is one of the conceptual plans which arose from the RPAH Asset Strategic Plan undertaken in 1994. You will note that this conceptual plan is significantly different from those developed in the early 1990's as part of the Campus 2010 proposal which envisaged an expanded hospital on the western campus. The 1994 concept is consistent with the latest thinking in respect of the public hospital redevelopment but it is of course being tested by the current and more formal master planning exercise which it is understood will be completed in September 1997. The Area Health Service has no plans for use of New Hospital Road by the patients, visitors or staff of the public hospital. The demand for this road arises from the private hospital development. … Other than the car park, the redevelopment of the public hospital is likely to see refurbishment of existing buildings and some new construction on the eastern campus. The plan said to be attached was not produced by Macquarie, and Mr Block's evidence was that the plan was not in fact attached (2 Black 780 – 2). 122 Macquarie's architects wrote the same day to the Council (17 Blue 7027), advising among other things: 5. To our knowledge there is no current masterplan for the hospital precinct. We would suggest that this question be addressed to Central Sydney Area Health Services for further information on this matter. There is [sic] no plans for a 'New Hospital Road' as shown on the previous DA approval. The road as shown on the current DA documents is a private road to provide access to the proposed carpark. 6. Two separate development applications have been lodged for the private hospital and carpark as each facility is located on separate lots and are separate lease agreements with Central Sydney Health Services. The construction of the private hospital and carpark form part of the contractual agreement between Central Sydney Areal Health Services and Macquarie International Health Clinic Pty Limited which requires both sites to be developed at the same time with a preference for early completion of the carpark. … 8. The DA is for the total site development and there is no additional development proposal. 123 In a further letter to the Council of 13 May 1997 (17 Blue 7286 – 7), the architects quoted at length from Dr Horvath's letter of 24 April 1997. 124 On 24 September 1997 Mr MacDougall of Pace wrote to Mr Wallace (17 Blue 7473), saying that it would help "to understand your Master Plan requirements for the area between the King George building and our site", and that "We, like you, wish to establish the best possible links between the Hospitals"; and requesting advice as a matter of urgency "when we could meet and participate in the Master Plan as required with the Agreements". 125 In January 1998, Area Health lodged a development application for the redevelopment of RPAH (19 Blue 8167 – 8262), following the scheme of Option 3 of the 1994 plan. 126 On 5 May 1998, Mr Block wrote to the Department of Health (20 Blue 8391) stating the following: … In spite of contract obligations upon CSAHS to include Macquarie International Health Clinic (Macquarie) in the process of planning the RPAH Masterplan, Macquarie has only become informed of the proposal by means of the 1st May 1998 Sydney Morning Herald article. Our worst fears have been realised as the current senior executives of CSAHS have since 1994/95 and continued to do everything possible to adversely affect the Prince Alfred Private Hospital Project co-location with RPAH. The Berlin Wall has been rebuilt without guns! The Masterplan creates a huge separation and major traffic hazard by creating major physical impediments and ugly structures directly impacting on our in patient outlooks and links to RPAH. Generally it completely contravenes the tender and contract obligations by CSAHS to ensure that a campus and co-located Private Hospital is optimally located and linked to RPAH. … Our Development Plans have always been designed around those promises and clear understandings. … We are progressing our project in spite of the above … … Your assistance can help avoid any more acrimony as well as assist in overcoming blatant unnecessary impediments, abuse of process, waste of valuable resources (on all sides), huge legal costs and of course the lack of a co-located campus private hospital. 127 Further letters making similar complaints were written on 7 July 1998 to Area Health (20 Blue 8429) and on 31 August 1998 to Dr Horvath (20 Blue 8521). 128 On 23 September 1998, Dr Wenkart wrote the following letter to Dr Horvath (20 Blue 8535): Thank you for the opportunity for us, on Friday 18 September 1998 to view for the first time the CSAHS Masterplan as approved by South Sydney Council. It is noted that we had no input into its planning. This new Masterplan has a major detrimental effect on our Private Hospital and pursuant to the numerous agreements between the parties we should have been involved both from a legal, commercial and Landlord/Tenant point of view. The original tender upon which Macquarie was induced to sign the various agreements clearly envisaged a co-location campus and flow of both visitors, pedestrians, patients and traffic as contained in the Masterplan of 1992/3, Campus, 2010. This has been the basis for our Lease obligations to be implemented. The new Masterplan has isolated the private hospital. Your planned use of the land to the east of the New Hospital Road up to King George is unacceptable. The Masterplan of 1992/3, Campus 2010, has been fundamentally changed to such an extent that we reserve all our legal rights including the renegotiation of rental. 129 Dr Horvath replied by letter dated 3 November 1998 (20 Blue 8538): I write in reply to your letter of 23 September 1998. I was concerned on reading your letter to find there is such disagreement between us over the future planning for the RPAH Campus. It appears to me that the disagreement has arisen from some confusion as to the facts. The Area Health Service would like to clarify what it believes to be the position in the hope that this will reassure you and enable Macquarie and CSAHS to move forward on the Project without any further misunderstanding. Masterplan You consider there has been some fundamental change in the original concept of a collocated private hospital and carpark development at RPAH. In the Area Health Service's view there has been no fundamental change to the Project. The original tender document referred to in your letter was of course prepared many years before the document titled "Campus 2010". Campus 2010 was primarily prepared as a publicity brochure. The Area at that time wished to advertise the benefits to the Campus and the community which could flow from the closure of Missenden Road. The whole Campus 2010 concept was predicated on the closure of Missenden Road. This of course did not take place. Moreover it is now clear that Council will not within any foreseeable time frame, if ever, close Missenden Road. The continued use of Missenden Road as a major thoroughfare and a number of other circumstances which have arisen over the years since Campus 2010 was published required us to redesign some of the elements of earlier proposals for development of the Campus. However, many elements remain unchanged in the new Masterplan. In particular there has been no alteration to the location of Macquarie's carpark or private hospital development, its access to internal and external roads and access to services. One of the Area's foremost requirements for the new Masterplan was that to the extent possible the various facilities on the Campus should be able to be easily accessed by patients, visitors and staff. Many factors were considered in developing the new Masterplan but certainly the need to ensure that traffic, both vehicular and pedestrian, moved easily and safely through and around the Campus precinct was of major importance. In those matters directly concerning Macquarie, provision was made to accommodate its planning requirements as set out in its Development Applications. The Area Health Service accommodated your requirement for Link Road although this was not the preferred option for the Area. Macquarie's plans and development applications placed restrictions on what could be achieved by way of direct pedestrian links. However, CSAHS considers that the Masterplan maintains options for attractive and efficient links between Macquarie's proposed private hospital and other parts of the Campus. Consultation Representatives, including yourself, were present at numerous meetings where the interface and the carparks were discussed together with our plans for the redevelopment of Royal Prince Alfred Hospital. Prior to signing the Hospital Lease there were many discussions in which the topic of the location of Campus facilities. In particular there were discussions with Macquarie in 1996 prior to entering into the lease documents concerning a proposal by Macquarie for a public carpark behind King George V Hospital. There were extensive negotiations on this issue which included International Parking Group. Renegotiation of rent You consider there should be a renegotiation of rent because Campus 2010 has been fundamentally changed. As we have explained in this letter the Area Health Service does not agree that there has been such a fundamental change. The arrangements between Macquarie and the Area Health Service provide for the construction of the private hospital and carpark, the operation of the carpark and long term leases of the hospital and carpark. The amount of rent payable was negotiated at length and was based on a complex arrangements between the parties providing for the construction work and not just the lease of premises. Any renegotiation of rental would need to take place within the context of a review of all the rights and obligations of the parties in the project as a whole. We hope this letter has clarify the reasons behind the Area Health Service's planning in decisions. Please phone me or Mike Wallace if you wish to discuss further any matter raised In this letter. Co-location: decision of primary judge 130 Important conclusions of the primary judge concerning the obligation of good faith in relation to co-location and also SUPH were set out at pars [250] – [261] of the first judgment: [250] For Macquarie, the course of the negotiations was under the control of, and the decision to enter into the 96 agreement was made by, Dr Wenkart and Mr Block. There was no issue that both were persons of wide commercial experience. They impressed me as shrewd and astute businessmen, well aware of the likelihood of risk in any commercial undertaking. At all relevant times before and during the operation of the HOA they had available to them solicitors, and other advisors in respect of all aspects of the project, including finance and planning. There could be no doubt on the evidence, and I find, that neither would become involved in a transaction without first being satisfied that it was in his best commercial interests to do so. [251] The evidence shows that the terms of the 96 agreements were the product of careful scrutiny and consideration which began, at least, during the mediation process in 1995 and continued up until the time of execution. It demonstrates that each party ensured that the documents expressed all the provisions required for the protection of its interests. Taken overall, the evidence supports the finding, which I make, that had one party intended to rely upon a representation made to it by the other, any consequential obligation would have been incorporated in the appropriate agreement. It demonstrates that the 96 agreements were intended by the parties to replace entirely the HOA, and to serve as the source and ambit of their rights and obligations in relation to the construction of MPH and the car park, and the leasing of the sites. This is the effect of the merger provisions in cl 1.5 of each of the hospital lease and the car park lease, and was so expressed in Dr Horvath's letter of 27 November [1996] to Dr Wenkart. It was also recognised by Mr Block in his letter of 30 November [1996] in which he states that the $5,500,000 already paid is foregone. That this should be the result is evidenced by the underlying purpose of the HOA itself. In my opinion the 96 agreements evidence the intention of the parties to expunge the complaints and claims one may have had against the other in respect of conduct or performance under the HOA, and to proceed afresh under the new agreements. [252] The evidence of Macquarie's financial capacity at the time of the 96 agreements to carry out the project is scanty. In his letter to Mr Puplick of 12 November [1996], Mr Block stated Macquarie had the financial capacity and support from financiers to implement the project immediately. The only evidence relevant to financiers was Dresdner's letter of 29 July [1996] in which interest was expressed subject to the provision of information on specified matters. There was no evidence of any reply to Dresdner, and I infer that none was made. I conclude that at this time there was no arrangement between Macquarie and a financier for support, in principle or otherwise, for the project. [253] I also find that, at the time, Macquarie was well aware of the threat to the viability of MPH posed by government health policies, including changes in the health industry which resulted from the Lawrence reforms. These were matters raised by Macquarie in its arbitration claims of 26 June and 19 September, and in its feasibility study of 12 September. I infer that the change of use provisions (cl 8 hospital lease; cl 7 car park lease) were included to assist Macquarie in meeting future changes of legislation. It was also aware of the threat posed by a competing hospital, referred to e.g. in the arbitration claim of 26 June, and the Coopers & Lybrand report of 3 October. [254] There is ample evidence which established that, during the [1996] negotiations, Macquarie knew that Area Health proposed a major redevelopment of the RPAH campus, and a car park on a site behind by KGV. Dr Wenkart and Mr Block accepted as much. It is unnecessary to determine precisely when either first became aware of it, or the extent of the information each had. Nevertheless, its relevance had been drawn to Macquarie's attention early on. The Dresdner letter of 29 July sought details of government plans for RPAH; at the meeting on 30 September Mr Block and others were told of the amount to be spent on capital works on the RPAH campus, and of the need for a car park site behind KGV; in the Coopers & Lybrand report of 3 October Mr Anderson gave details of information from Dr Horvath and Mr Wallace of the proposal to rebuild and modernise facilities. Mr Block recognised the situation in his letter of 12 November to Mr Puplick and, thereafter, it was referred to in the memorandum of understanding of 18 November, and related correspondence, including Dr Horvath's letter to Dr Wenkart of 27 November. In his letter of 20 December to Area Health's solicitors, Dr Wenkart noted that master plan requirements for the car park site and the "PAPH relationship" were still unresolved. [255] I find that Macquarie made no enquiries to ascertain the nature and extent of the proposed redevelopment, or whether it was likely to affect its proposals for the design and future operation of MPH. It expressed no concern about or, indeed, interest in, the proposed redevelopment or the location of buildings and services on the RPAH campus. During the negotiations it was not suggested that Macquarie was proceeding in reliance upon any representation that RPAH's plans had not changed from the master plan or as envisaged by Campus 2010, or that a commitment had been sought from Area Health as to the location on campus of future buildings and services. Agreement to this effect was under cl 7.2 and cl 19.7 car park lease and cl 8.2 and cl 20.7 hospital lease. [256] Nor was it suggested that what Macquarie understood to be the benefits of a campus concept or of co-location should be defined and secured under the agreements, for example, by provisions intended to achieve by physical links the efficient and functional flow of patients and medical staff between the hospitals. The agreements contained no provisions relevant to the definition, realisation or achievement of a campus concept by way of planning, building or otherwise. Had features of co-location been regarded as essential to the viability of MPH it is reasonable to expect that Macquarie would have insisted that Area Health be contractually bound to provide them. In this respect the construction deed went no further than to stipulate the criteria for plan preparation by Macquarie in cl 4.5 construction deed, which made reference (cl 4.5(a), cl 4.5(g)) to "the other proximate improvements owned by the landlord", but such improvements were left undefined. In addition, cl 23.11 of the hospital lease merely contained Area Health's acknowledgement of the independence of the premises and recorded the intention of the parties to create a campus concept encouraging the movement of people between the hospitals. [257] The 96 agreements envisaged the preparation by Macquarie of new designs, and the preparation of new development and building applications for council's approval. During the negotiations Macquarie was informed of the proposal for redevelopment and to build a car park behind KGV. In my opinion, it is highly improbable that Macquarie through its various advisors would not have questioned Area Health about these matters prior to signing the 96 agreements if it regarded the details as material for its design and planning purposes. Yet the evidence shows no enquiry was made, and there was no evidence that during the negotiations Macquarie sought confirmation that previous planning concepts would not be changed. This strongly indicates to me that, in truth, it was not material for Macquarie to know, for example, that it continued to be Area Health's intention to build a clinical services block and a pedestrian bridge linked to the private hospital as depicted in about December 1988 in the plans Exhibit B and Exhibit B1. In my opinion, to now claim that representations made eight years earlier were relied upon in entering the 96 agreements beggars credence. [258] In my opinion, had Macquarie given reasonable consideration to the information which it accepted it had at the time, it would have been left in no doubt of the high probability of significant change to previous planning proposals. That would have been an obvious conclusion to draw from, for example, the non-closure and continuing operation of Missenden Road. The absence of evidence of enquiry, or of negotiation about the redevelopment, supports the finding that, in truth, Macquarie did not regard information about RPAH's plans as material or relevant for its purposes or, if it did, it was willing to proceed to enter into the agreements in ignorance. It was not suggested that any such enquiry would not have been answered. Another explanation is that Macquarie was willing to take the RPAH campus as it found it to be when it came to design the MPH. This would be consistent with Fletcher's submission to council of 5 June that a design objective was to respond to the existing built environment without specification of what this meant. I find that any continued reliance upon earlier master plans or upon Campus 2010, as suggested by Dr Wenkart (affidavit 30 April 2002) after the proposal for the redevelopment of RPAH became known was unlikely and/or unreasonable, in the circumstances. I find that in signing the agreements Dr Wenkart and Mr Block acted on their own appreciation of the situation and the commercial gains to come rather than on the faith of representations (if any) made by Area Health about the campus. [259] With regard to the SUPH proposal, I find that Mr Block and Mr Klinger were told of it by Mr Puplick on 8 November. There is ample evidence that Macquarie perceived it to be a threat to its commercial viability. However, there was no evidence of enquiry made to ascertain details of the proposal from Area Health, the University or anyone else. It was not suggested that any such enquiry would not have been answered. Mr Block's concern to protect Macquarie under the agreements is demonstrated by his letter to Mr Puplick of 30 November, in which he explained the deletion of the word "Rent" from cl 23.5 hospital lease in an attempt to have the restraint operate from 1 December 1996, being the "Commencement Date" as defined. His letter reflects careful consideration and understanding of the terms of the documents, as well as an appreciation that the SUPH proposal posed a risk of competition, and a risk to obtaining finance for the project. [260] Nevertheless, in response to Area Health's ultimatum which required reinstatement of the word, Dr Wenkart and Mr Block signed the agreements, and thereby knowingly accepted the risk that the existence of the SUPH proposal might impede the obtaining of finance. They must also be taken to have understood that there was no other contractual restraint which governed Area Health's conduct with another private hospital or which precluded it from receiving, considering or discussing a proposal from a potential competitor prior to the rent commencement date. Dr Wenkart's view was that Macquarie's interests were protected under the good faith provisions and, in any event, Macquarie would build its hospital first. Indeed, it was Macquarie's submission to the Court that it chose to execute the documents and would try to steal the march on SUPH. [261] Claims made by Macquarie that it was forced into agreements which were not understood, or were made in circumstances which were unconscionable, were negated by the evidence, and must be rejected. There can be no doubt that Dr Wenkart and Mr Block signed the documents relying upon their judgment that it was in Macquarie's best commercial interests that they should do so, and in preference to proceeding with the arbitration. In their evidence earlier referred to each acknowledged that they signed the documents fully aware of, and willing to accept, the risks which might occur including those arising from the redevelopment of the RPAH campus and the SUPH proposal. 131 The primary judge returned to these questions at pars [577] – [587]: [577] The 96 agreements were the product of the negotiation process required under the HOA (eg cl 7). That process began in earnest with the meeting between Mr Block and Mr Puplick on 4 September 1996 and continued until agreement was reached on 2 December 1996. The execution of the 96 agreements marked a watershed in the parties' relationship. The HOA was spent. It is under the separate and distinct 96 agreements that their contractual rights and obligations are to be found. Whether or not Area Health has failed in its utmost good faith obligation is to be determined objectively upon the evidence of the conduct of both parties during the operation of the 96 agreements between 2 December 1996 and 17 March 2000, with regard to the principles to which I have referred. [578] However, before undertaking this exercise I return to the findings earlier made on the evidence of the circumstances in which the 96 agreements were executed. The narrative is at pars 235–249, and the findings at pars 250–261. [579] Of immediate relevance are the findings that Macquarie was made aware of the proposal to redevelop the RPAH campus (par 254), and of the SUPH proposal (par 259), and was in no doubt, to the extent it wanted to know, of the significance to it of that information. [580] In the circumstances the question whether the utmost good faith obligation under cl 15.4 HOA required disclosure of this information is unnecessary to decide. This is because, irrespective of any requirement to do so, the disclosures Area Health in fact made during the course of negotiations prior to making the 96 agreements supports the finding, which I make, that Area Health properly discharged this obligation. Also, I found nothing in the evidence to justify the finding that disclosure of information concerning proposals for redevelopment, or the SUPH, should have been made at any earlier point of time pursuant to cl 15.4. [581] Accordingly, I reject Macquarie's submissions that Area Health was under a duty to disclose information about what was described as "its new planning intentions" as developed and considered between June 1994 and about September 1996. I also reject the submission that it was necessary to make disclosure to prevent Macquarie being misled about Area Health's plans for its hospital and campus. I do so because it is difficult to find an obligation or purpose for disclosure of redevelopment proposals prior to their finalisation and being made certain by government approval and commitment. Until that point had been reached it seems unlikely that a prudent party in the position of Macquarie would reasonably rely upon that information for its design and planning purposes or that Area Health would think Macquarie would. Further, the evidence made it very doubtful that this information was, in fact, material to Macquarie's progress with its project. That it was prudent to look at, and beyond, Campus 2010 had been pointed out to Macquarie early on, e.g. by Peddle Thorp in its letter to Pace of 14 April 1993; by Mr Jackson to Dr Wenkart in his memorandum of 13 December 1993, and as reflected in the statements (par 55 above) in Macquarie's revised development application of May 1993. [582] This view is reinforced by evidence that during negotiations for the 96 agreements Area Health referred to its requirement for a car park behind KGV. Those occasions provided obvious opportunities to secure a commitment from Area Health to locate a clinical services building in the same area adjacent to MPH. The reasonable inference from the absence of evidence that it attempted to do so supports the conclusion that Macquarie did not then regard any such commitment as a matter of importance for its design and planning processes. [583] In similar vein, although aware of the intention to redevelop, Mr Block, in his letter of 30 November 1996, accepted that the payment of $5,500,000 was not to be recovered. No assertion was made that it had been paid on the false assumption that the redevelopment would be to the west, and that the change was disadvantageous to Macquarie. The absence of such protest and the subsequent entry into the 96 agreements negate submissions to the effect that Area Health's silence about its planning intentions left Macquarie in a false position which impeded its performance under those agreements, or at all. [584] Macquarie's case on this issue conveyed what I hold to be the insupportable suggestion that Area Health was obliged to tailor proposals for the redevelopment of RPAH to meet Macquarie's design and planning requirements, or otherwise meet Macquarie's interests. [585] The claim that Area Health was also in breach under the HOA in that it supported and encouraged a proposal for a SUPH adjacent to RPAH must also be rejected. As I understood the submissions, the conduct complained of was that since a time in 1994 there had been discussions between Dr Horvath and interested people including Prof Young, Prof Bokey and Dr Catchlove on the possibility of such a proposal. On my assessment the evidence went no further than that. There was no detail of the content of the discussions. In fact, Area Health disclosed the proposal for the SUPH soon after being informed about it by the Vice Chancellor. I fail to see a sound basis for the contention that it was disadvantageous to Macquarie to be without Dr Horvath's information of discussions with various doctors merely about a concept. The HOA did not restrain Area Health from having them, and did not require their disclosure to Macquarie. Clause 3.1(r) did not preclude them. In my opinion it was entirely consistent with Area Health's statutory functions for Dr Horvath to participate in them. What effect this conduct had on Macquarie's performance under the HOA was not shown. [586] I have earlier held (par 251) that the 96 agreements were intended to expunge the disputes arising during the course of operation of the HOA, and to provide a fresh set of agreements under which the project would proceed. Macquarie became free to develop new designs and plans, and to lodge a new development application, which it did. It undertook to proceed in accordance with them. Therefore, in my opinion, it is not to the point for Macquarie to submit, for example, that but for Area Health's failure to disclose its planning intentions in 1994 and 1995 and/or to consent in February 1996 to the lodgement of a new development application for a 200 bed hospital and car park, Macquarie may have been able to raise finance for, and complete, the construction of the project. Speculation about what an outcome might have been had either party acted differently under the HOA does not assist in deciding the issues raised by Macquarie under the 96 agreements. Accordingly, in my opinion, even if there was a finding that the conduct complained of was in breach of cl 15.4 it would lead nowhere, and would be irrelevant to issues under the 96 agreements. [587] In summary, for the above reasons, my conclusion is that Macquarie has failed to establish that Area Health acted in breach of its utmost good faith obligation under the HOA. I also hold that the conduct of the parties prior to the commencement of the 96 agreements is irrelevant to the issue of exercise of power in giving the notices of default and termination. In other words, in my opinion it is not open to Macquarie to rely upon Area Health's conduct during the operation of the HOA as a ground for the claim that it evidenced bad faith in the performance of its obligations under the 96 agreements. Prof Young, Prof Bokey and Dr Catchlove, referred to in par [585], were respectively: (1) Deputy Chairman of Area Health and Dean of the Faculty of medicine in the period 1993 – 1996, (2) Head of the Department of Surgery at Sydney University, and (3) CEO of Health Care of Australia (HCoA), which entered into a preliminary agreement with Sydney University for a feasibility study into a proposed Sydney University Private Hospital. 132 Both sides had led evidence concerning oral communications occurring at relevant times, but for the most part the primary judge did not make specific findings as to the terms of these communications. However, he did make some findings concerning the credibility of some of the important witnesses. In giving conclusions concerning SUPH in 1997, the primary judge said this: [333] I generally accept the evidence of Prof Leeder, Prof Bokey, Mr Haldane, Mr Sinclair, Dr Catchlove, Mr Puplick, Mr Wallace and Dr Horvath. In doing so, I accept that they were recalling events which took place many years ago. I was satisfied that their evidence was genuinely given to the extent that recollection allowed. Taken overall, what each had to say accorded, in my opinion, with what probably happened. Professor Leeder was Dean of the Faculty of Medicine at Sydney University from 1997 to 2002, and Mr Sinclair was director of capital development with HCoA from about 1990 to September 2000. In relation to attacks on Dr Horvath and Mr Wallace concerning the obligation of utmost good faith, the primary judge said this: [602] However, in response to Macquarie's attack upon these persons, it is fair that I should state my findings about them. My assessment was that both Dr Horvath and Mr Wallace were witnesses of truth who emerged quite unscathed by the cross-examination, and whose evidence I generally accept. I find that each endeavoured to give an honest account to the extent recollection and contemporary documents permitted of the events about which they were questioned. The impression gained of the general effect upon these witnesses of the cross-examination as it limped along was that they adhered to evidence earlier given and sometimes succumbed to exasperation, a sensation not confined to them. The correspondence and other documents concerning the negotiations from September 1996 which preceded the 96 agreements, and thereafter concerning the performance by the parties of them provided ample corroboration for their denials that they were engaged in deceiving Macquarie or in some other improper conduct against Macquarie's interests under the agreements. Macquarie's challenge to them as witnesses of credit is rejected. 133 The primary judge made no specific finding as to the credibility of Dr Wenkart. However, he did say this: [363] Mr Wallace gave evidence of the meeting of 17 September consistent with his notes thereof (par 171). He denied Dr Wenkart's version of the conversation between them to the effect that Dr Wenkart stated that the master plan was unacceptable, was contrary to the basis of the 96 agreements, left MPH isolated and non-viable, and was inconsistent with the earlier master plan and Campus 2010. It is unnecessary to resolve the conflict. It is common ground that Dr Wenkart stated that this was the first occasion on which he had been briefed on the master plan. He stated his position in his letter of 23 September, and proceeded with the project. A probable explanation for him writing in such terms was that this was the first time he actually realised the significance for MPH's operation of the plan to locate the bulk of RPH's redevelopment to the east Co-location: contentions on appeal 134 Broadly, it was contended for Macquarie that: (1) The primary judge ought to have found oral communications prior to entry into the HOA which confirmed the commitment of Area Health to a campus concept, to development of RPAH on the western side of Missenden Road, and to close physical connection between the hospitals; and also reliance of Macquarie on that commitment. (2) The primary judge ought to have found breaches of Area Health's duty of utmost good faith in that: (a) From about mid-1994, Area Health developed plans for RPAH involving no development on the western side of Missenden Road, inconsistent with the campus concept and close physical connection between the hospitals, and involving a reduction in the clinical activities of RPAH, without regard to the interests of Macquarie and without involving Macquarie in the process; and (b) Area Health did not tell Macquarie that it was developing such plans. (3) The primary judge ought to have found that these breaches were fundamental or repudiatory, and that had Macquarie known of them as at February 1995 or later, it would have terminated the HOA and/or the 1996 Agreements. (4) Alternatively, the primary judge ought to have found that, but for these breaches, Macquarie would have negotiated either an exit from the HOA and/or the 1996 Agreements, or different and more satisfactory agreements. (5) In either case, Macquarie was entitled to reliance damages to compensate it for amounts it had spent on the project. 135 Area Health made the following contentions: (1) The primary judge ought to have found oral communications prior entry into the HOA that confirmed that any plans of Area Health were provisional, unfunded and not to be relied on, and were contingent on the closure of Missenden Road. (2) The content of the duty of utmost good faith was bounded by the terms of the relevant agreements, and did not require Area Health, except in limited respects, to have regard to the interests of Macquarie in developing its own plans, or to involve Macquarie in that development, or to tell Macquarie what it was planning (at least prior to the time when the plans were settled). (3) To the extent that Area Health did change its plans from 1994 onwards, it did not do so in such a way as to detract from any possible commitment concerning the campus concept or physical connections between the hospitals. (4) The primary judge ought to have found oral communications from 1994 onwards in which Area Health did tell Macquarie what it was planning. (5) Accordingly, there was no breach by Area Health of its obligation of utmost good faith concerning the co-location of the hospitals. (6) Insofar as Macquarie now sought to rely on breaches of the HOA, it could not do so because the HOA merged into the 1996 Agreements. (7) Even if there had been breaches, Macquarie did not prove causation of loss, because: (a) it did not prove how, if at all, it would have acted differently; and (b) it did not prove it was itself ready, willing and able substantially to perform the contract on its part, in that it did not prove the hospital project was financially viable, or that it had the financial capacity to carry it out. (8) It was not open now for Macquarie to claim on the basis of reliance damages. 136 Resolution of these contentions involves the following issues, which I will consider in turn: (1) What did the duty of utmost good faith require of Area Health under the HOA and/or under the 1996 Agreements? (2) What if any breaches of its duty of utmost good faith under the HOA relating to the co-location of the hospitals had Area Health committed as at February 1995 (about the time of the payment of $4.5 million)? (3) What if any damages have been caused to Macquarie by any such breaches? (4) Is a claim for reliance damages open to Macquarie in any event? (5) What if any additional breaches of that duty had Area Health committed as at December 1996 (about the time of entry into the 1996 Agreements), and what if any damages have been caused to Macquarie by any such breaches? (6) What if any effect did entry into the 1996 Agreements (and merger clauses in those agreements) have on any rights that Macquarie may have had under the HOA? (7) What if any breaches of its duty of utmost good faith under the 1996 Agreements, relating to co-location of the hospitals, has Area Health committed, and what if any damages have been caused to Macquarie by any such breaches? Co-location: content of duty of utmost good faith 137 The promise of utmost good faith must be construed having regard to the terms of the contract and the circumstances known to the parties in which it was entered into. 138 In relation to the HOA, cl 1 says it does not reflect the whole agreement; and while cl 1 might be interpreted as only contemplating further agreements in the future, in my opinion the better view is that it leaves open the possibility of existing agreements not recorded in the HOA. In any event, it is relevant to consider dealings of the parties prior to the signing of the HOA, as bearing on circumstances known to the parties which could be relevant to the construction of the obligation of utmost good faith, as well as possibly giving rise to an agreement not recorded in the HOA. 139 Macquarie relied, inter alia, on concessions by Dr Scarf that Area Health's planning for the site up to when the HOA was signed was as shown in the 1988 plan (3 Black 1158 – 9), that the aspiration of both parties was to see, wherever reasonably possible, that the two developments if they came to fruition would interact in an efficient and functional way (3 Black 1166), and that efficient and functional flows of patients and medical staff meant having easy and quick flows between the two buildings over the shortest distance reasonably possible (3 Black 1107). 140 Area Health relied, inter alia, on evidence that those negotiating for Area Health were well aware that the 1984 Master Plan was only a proposal, and had no government approval or funding, and that the same applied to the 1988 plan, so that it was improbable that they would have said anything to the contrary of those propositions. It was pointed out that although MHC was provided with the 1984 Master Plan, Mr MacDougall (who conducted negotiations on behalf of MHC) was not aware of its existence (2 Black 824 – 5) and that Dr Wenkart said he did not see it (1 Black 498 – 9). 141 The primary judge did not make findings on these questions. In my opinion, the findings that this Court can and should make on the basis of the material relied on by both sides are that, to the extent that the 1984 Master Plan entered into negotiations, it was as a plan indicating the aspirations of the RPAH Board at that time, but not as one having government approval or funding; that the 1988 plan indicated the current thinking of Area Health but likewise did not suggest that it had government approval or funding; but that oral communications did identify the intention of both parties that there be efficient pedestrian access between the proposed private hospital and RPAH and their recognition that it was desirable that the hospitals be in reasonably close proximity, with some indication of the nature and degree of that desired proximity being given by the 1984 Master Plan and the 1988 plan. This did not amount to an agreement between the parties supplementing that recorded in the HOA; but did amount to circumstances known to both parties that could be relevant to construction of the HOA. 142 In my opinion, the evidence and credibility findings of the primary judge do not justify more particular findings. 143 Turning to the construction of the duty of utmost good faith in the HOA, it was submitted by Mr Burton SC for Area Health that cl 15.4 of the HOA required utmost good faith only in the performance of duties and exercise of powers under the agreement, and in dealings between the parties; that the only relevant duties and powers were the requirements of cl 4.2(e) concerning the preparation of plans and specifications of the private hospital, the requirement of cl 5.2(a) concerning the location of the site, and the provisions of cl 6.3 concerning a joint working party (relating to ideas for the design and construction of the hospital and car park); and that accordingly the obligation of utmost good faith did not impose any requirements on Area Health concerning the development and location of facilities of RPAH. 144 In my opinion, this would be far too narrow a construction of the duty of utmost good faith. The HOA was for a relationship which was to last 99 years, involving the expenditure of large sums of money by MHC and/or Macquarie on acquiring the leases and on construction of the car park and hospital, entered into at a time when there was not even certainty as to the sites to be leased. The HOA discloses the intention of both parties that the flow of persons between the hospitals be optimised (cl 4.2(e)(iii)), that there should be created a campus concept encouraging the movement of people between the private hospital and RPAH (cl 5.2(a)(ii)), and that ideas of all parties should contribute (cl 6.3(b)). Although these objectives are in the express terms of the HOA explicitly tied only to the siting, design and construction of the private hospital and car park, in my opinion they do inform the content of the obligation of utmost good faith, which is not confined to the performance of duties and the exercise of powers under the agreement, but extends to the dealings of the parties with each other. This view is confirmed by the pre-contractual dealings, and by the consideration that, other things being equal, the less the physical separation between the private hospital and RPAH (in terms both of distance and of impediments), the better these objectives could be realised to the advantage of both hospitals and in particular of the private hospital. 145 What then did the obligation of utmost good faith in the HOA require of Area Health? 146 Writing extra-curially, Sir Anthony Mason has argued that a contractual obligation of good faith embraces no less than three related notions: (1) An obligation on the parties to co-operate in achieving the contractual objects; (2) Compliance with honest standards of conduct; and (3) Compliance with standards of conduct that are reasonable having regard to the interests of the parties. See A F Mason "Contract, Good Faith and Equitable Standards in Fair Dealing" (2000) 116 LQR 66 at 69. That the obligation has these three elements is consistent with Australian authority: Alcatel Australia Limited v Scarcella (1998) 44 NSWLR 349 at 369 (Sheller JA, with Powell and Beazley JJA agreeing), Burger King Corporation v Hungry Jack's Pty Limited [2001] NSWCA 187; (2001) 69 NSWLR 558 at [171] (Sheller, Beazley and Stein JJA). 147 However, a contractual obligation of good faith does not require a party to act in the interests of the other party or to subordinate its own legitimate interest to the interests of the other party; although it does require it to have due regard to the legitimate interests of both parties: cf Overlook v Foxtel [2002] NSWSC 17 at [65] – [67] (Barrett J). 148 Applying that approach to the HOA, in my opinion the obligation of utmost good faith did not go so far as to require Area Health to defer to the interests of MHC and/or Macquarie in developing its own plans for RPAH, or to include MHC and/or Macquarie in its own planning processes. But in my opinion, when Area Health's planning processes would make a substantial difference to what MHC and/or Macquarie could reasonably expect concerning the flow of persons between the hospitals or the creation of a campus concept, the obligation of utmost good faith would require that MHC and/or Macquarie be informed of this, at least to enable them to take account of it in the design and construction of the works contemplated by the HOA. 149 The question arises whether the obligation of utmost good faith could go further, and oblige Area Health to refrain from insisting on strict performance of the HOA and/or to permit MHC and/or Macquarie to withdraw from the HOA and/or to enter into bona fide negotiations to change the HOA, in the event of a substantial change of circumstances such as a major departure by Area Health from its previous intentions as disclosed in the 1984 Master Plan and/or the 1988 Plan. (I note that it was held in United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618 that an express contractual promise to negotiate in good faith can be sufficiently certain to be contractually binding.) It could perhaps be argued that, having regard to the terms of the HOA and the circumstances in which it was entered into, the "contractual objects" (within Sir Anthony Mason's first notion) include the creation of a viable private hospital with an appropriate relationship to RPAH, and that the legitimate interests of Area Health do not extend to holding Macquarie and/or MHC to a bargain the nature of which has changed because of Area Health's own change of plans. 150 This is not the same question as whether there was a term implied in the contract that, in the event of such a substantial change of circumstances, Area Health would refrain from insisting on strict performance of the HOA and/or permit MHC and/or Macquarie to withdraw from the HOA and/or enter into bona fide negotiations to change the HOA: clearly in my opinion no such term would be implied. Rather, it is whether the obligation to co-operate to achieve the real contractual objects, and to act honestly and reasonably, implicit in the obligation of utmost good faith, would in certain circumstances require these things. In my opinion this possibility cannot altogether be ruled out: it is necessary to consider the particular circumstances which arose. Co-location: breach as at February 1995 151 Mr Dubler SC for Macquarie contended that Area Health's failure to involve Macquarie in the planning process that commenced in mid-1994, and its failure to advise Macquarie of that process at any time prior to the payment of $4.5 million on or about 2 February 1995, was a fundamental breach of the HOA by Area Health, which would have entitled MHC and/or Macquarie to terminate the HOA (and that had MHC and/or Macquarie known of it they would have done so). Alternatively, he contended that this was a breach entitling Macquarie to damages. 152 It was contended by Area Health that the evidence led for Macquarie that it did not know about the east side RPAH development until Mr Block saw a Sydney Morning Herald article on 1 May 1998 was patently untrue; that Dr Wenkart in maintaining that position was giving consciously untrue evidence; and (seemingly) that Macquarie's evidence that it did not know of RPAH's plans as at 2 February 1995 should not be accepted. 153 However, I note that there was no evidence that these plans were communicated to Macquarie prior to 2 February 1995; and I note also that Area Health contended that, if there was any obligation on Area Health to disclose its plans, this obligation did not arise until early 1997 at the earliest. 154 In my opinion, it can be safely concluded that Area Health did not disclose to MHC and/or Macquarie, prior to 2 February 1995, the planning processes that it commenced in mid-1994. This is supported by Macquarie witnesses, by the absence of evidence or circumstances suggesting the contrary, and by the sketch in Macquarie's December 1995 development application proposal (Annexure 9). 155 In circumstances where all the planning proposals previously disclosed to MHC and/or Macquarie had included substantial RPAH facilities to the west of the King George V building and very close to the private hospital site, and where that possibility was entirely absent from the plans that were being taken very seriously by Area Health at least by 2 December 1994, in my opinion the obligation of utmost good faith did require Area Health to disclose that planning processes were under way indicating that Macquarie could no longer reasonably expect that there would be substantial RPAH facilities to the west of the King George V building, or even of Missenden Road. 156 This was particularly so by 25 January 1995, when Area Health repeated its demand for payment of $4.5 million and threatened termination of the HOA. By that time, Area Health had submitted its current planning, excluding development to the west of Missenden Road, to the Health Department, and a plan to fund the redevelopment of RPAH (presumably referrable to that current planning) had been announced. 157 In my opinion, this follows from my earlier discussion of the content of Area Health's obligation of utmost good faith. It is true that since 31 January 1994 MHC and Macquarie were committed to the 400-bed development application approved on 8 October 1993, pursuant to which MHC had lodged a building application on 25 January 1994, so it could be argued that changes in Area Health's plan for RPAH at the end of 1994 were irrelevant to the building to be constructed by MHC and/or Macquarie However, what MHC and/or Macquarie did within the confines of those plans could be affected by Area Health's changed plans; and in my opinion also the obligation of utmost good faith would require Area Health at least to give MHC and/or Macquarie an opportunity to persuade Area Health to take a different course in developing RPAH, and possibly also an opportunity to consider revising its own plans and/or withdrawing from the project, and seeking Area Health's consent to this. 158 Although I do consider that there was by 2 February 1995 a breach of Area Health's obligation of utmost good faith, in my opinion this breach was not a fundamental breach that would justify termination of the HOA by MHC and/or Macquarie. The HOA did not include any commitment by Area Health to develop RPAH to the west of Missenden Road, and I have held that the obligation of utmost good faith did not oblige Area Health to defer to the interests of MHC and/or Macquarie in developing its own plans for RPAH or to involve them in its planning processes. The requirement of utmost good faith, that Area Health inform MHC and/or Macquarie of planning processes making a substantial difference to their reasonable expectations, was primarily so that they could take account of this in the design and construction of their own works, although it would also give them an opportunity to seek to persuade Area Health to take a different course. The evidence did not justify a finding that Area Health's failure to give this information to MHC and/or Macquarie was a deliberate flouting of its obligations. In all the circumstances, in my opinion the breach could not be considered one which deprived MHC and/or Macquarie of substantial performance of the contracts: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115 at [47] – [49]. Nor did this breach manifest renunciation of the contract: Sanpine at [44]. Co-location: damages as at February 1995 159 Area Health's obligation of utmost good faith was not dependent on performance by Macquarie or MHC of its obligations under the HOA; and in my opinion the breach by Area Health of that obligation entitled Macquarie and/or MHC to nominal damages at least: Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at [58]. 160 However, for Macquarie and/or MHC to be entitled to any more than nominal damages, it would be necessary that, but for the breach, some benefit to which they were entitled under the contract, and did not receive, would have been received. This is because otherwise they would have suffered no loss. This in turn means that, if they were entitled to such a benefit only if they for their part afforded substantial performance, they are not entitled to more than nominal damages unless they did provide, or would but for the breach have provided, substantial performance on their part. 161 Subject to rules of court dispensing with any requirement to plead conditions precedent, and of any necessity to prove satisfaction of conditions precedent unless put at issue by a defendant, a plaintiff seeking to obtain damages for breach of contract referable to its not receiving a benefit under the contract must prove that it did or would but for the breach have done what was required of it to become entitled to that benefit. That is, in general terms, if the plaintiff has not afforded substantial performance of the contract, it must prove it was ready, willing and able to do so: Hensley v Reschke [1914] HCA 88; (1914) 18 CLR 452, Foran v Wight [1989] HCA 51; (1989) 168 CLR 385. 162 I note that in Sharjade Pty Limited v The Commonwealth of Australia [2009] NSWCA 373 at [59] – [73], I expressed disagreement with obiter in Foran to the effect that a party in fundamental breach could not terminate a contract for fundamental breach by the other party; but I supported the view, also expressed in that case, that readiness, willingness and ability to substantially perform outstanding obligations is necessary for a claim for damages. 163 It is important to note that Macquarie does not now claim what are called expectation damages, that is, damages referable to what the plaintiff expected from the defendant's performance of the contract, but rather claims reliance damages, that is, damages referable to reasonable expenses wasted on the contract. In those cases where it is not possible for a plaintiff to prove whether or to what extent performance of a contract would have been profitable, it can seek to recover expenses reasonably incurred and wasted on the contract, albeit that it cannot recover more than would have been recovered by performance of the contract. However, in those cases where a contract has been rescinded for breach, making it impossible for the plaintiff to prove that it would have recovered those expenses from performance of the contract, the onus shifts to the defendant to prove that it would not have done so: Commonwealth of Australia v Amann Aviation Pty Limited [1991] HCA 54; (1991) 174 CLR 64. 164 By reason of UCPR 14.11, a plaintiff does not generally have to plead readiness, willingness and ability to perform a contract in order to be entitled damages, and generally a defendant should explicitly deny it if the issue is to be contested. However, in this case Macquarie's pleading alleged only expectation damages: FFASC par 15. In those circumstances, Macquarie undertook an onus to prove it would have performed the contract to the extent necessary for it to be entitled to the expectation damages it claimed, so there was no occasion for Area Health to explicitly deny readiness, willingness and ability. 165 Since Macquarie is seeking only reliance damages on appeal, it has contended to the effect that the onus of proof is on Area Health to prove that it would not have recovered its expenses. However, in my opinion cases such as Hensley v Reschke and Foran v Wight show that, even for reliance damages, the onus of proof is on the plaintiff to prove that it was ready, willing and able to substantially perform the contract on its part to the extent necessary to give it entitlement to benefits which could have covered its expenses. Although this requirement is not explicitly addressed in Amann Aviation, in my opinion that decision proceeds on the assumption that the plaintiff in that case did prove that it would have afforded substantial performance of the contract on its part. In circumstances where Macquarie did not plead reliance damages, in my opinion the fact that Area Health did not in its defence specifically deny readiness, willingness and ability does not relieve Macquarie of the necessity of proving the readiness, willingness and ability, simply because Macquarie has on appeal confined its case to reliance damages. 166 Of course, if Macquarie did prove that it was ready, willing and able to give whatever substantial performance was necessary to give it entitlement to benefits which could have covered its expenses, and if Area Health's breach has in effect caused Macquarie to be unable to prove that those benefits would have covered its expenses, Amann Aviation would indicate that Area Health would then have the onus of showing that Macquarie would not have recovered its expenses. 167 Accordingly, in relation to the breach that I have found to have been committed as at February 1995, it is necessary to consider what would have happened but for the breach; that is, what would have happened if Area Health had disclosed to Macquarie that planning processes were under way such that it could no longer be reasonably expected that there would be substantial RPAH facilities to the west of the King George V building or even of Missenden Road. 168 Macquarie's case is that, in that event, it would have either sought to terminate or be released from the HOA, or sought to carry out a more appropriate development than that accepted by MHC in January 1994; and that in either case, Area Health either would have been bound by its obligation of utmost good faith to accede to this or at least enter into bona fide negotiations to that end, or would in fact have done so. As I have noted, from early 1995 MHC was in any event negotiating with Area Health for its agreement to a smaller hospital; but Macquarie's contention is to the effect that, with knowledge of Area Health's plans, the case for a more appropriate development could have been related to these different plans and accordingly been more focussed and effective; and that when confronted with what it had done, Area Health would have felt obliged by its obligation of good faith to have acceded to this case. 169 A decision as to what would have happened in or about January 1995 if MHC and/or Macquarie had been advised of Area Health's plans for RPAH is affected by what happened later. It is plain that well prior to May 1998, Macquarie did have some notice of Area Health's plans, but made no protest. The primary judge made the finding (first judgment par [363]) that a probable explanation for Dr Wenkart's writing as he did in September 1998 "was that this was the first time he actually realised the significance for [the private hospital's] operation of the plan to locate the bulk of [RPAH's] redevelopment to the east". However, plainly Macquarie's project manager Pace knew of this plan in February 1997, and Mr Block knew in April 1997 that Area Health's then current concept consolidated more of the clinical activity on the eastern campus. 170 It was contended for Area Health that the evidence showed further and earlier notifications to Macquarie of Area Health's plans. Three areas of evidence were relied on in particular. 171 First, there was evidence of communications from Dr Horvath to Dr Wenkart in 1995 to the effect that the Emergency Department of RPAH was to be put "right in front of the hospital"; and also communications to the effect that the plans of RPAH were in accordance with Annexures 7 and 8 to this judgment, large versions of which were displayed in Dr Horvath's office. Dr Wenkart denied at least the latter. 172 Second, there was evidence of communications by Dr Horvath to Mr Anderson in about mid-1996 to the effect that, now that Missenden Road could not be closed, numerous facilities including all in-patient facilities were to be to the east of Missenden Road. Mr Anderson did not recall this (and considered he would have done so, if this had occurred), but he did not deny it; and his October 1996 review referred to the use of a significant portion of funding of $279 million to rebuild and modernise facilities at RPAH. 173 Third, there was evidence of discussions in the second half of 1996 concerning the building by RPAH of a multi-storey car park behind the King George V building (a matter which was referred to in a side letter to the December 1996 Agreements). This was not denied by Macquarie and was found by the primary judge (first judgment par [254]); although Macquarie made the point that the area behind the King George V building was large, and could accommodate a substantial hospital building as well as a multi-storey car park. 174 It was contended for Macquarie that the Court should not find that the disputed disclosures by Dr Horvath were made. It was submitted that the primary judge had not made findings to that effect; and that the primary judge's findings of Dr Horvath's credibility were not in relation to these matters, and that the circumstances (including Macquarie's December 1995 plan and Dr Wenkart's failure to appreciate the significance of what was proposed before May 1998) were to the contrary. 175 In my opinion, having regard to the primary judge's statements concerning the credibility of Dr Horvath, this Court cannot find that the communications specified in the first and second areas of disclosure were not made; and I do not think the primary judge's failure to find or reject such communications could justify a new trial on the basis of a miscarriage of justice. 176 In my opinion this history tends to support the findings of the primary judge in pars [254] – [258] which, although they are directed primarily at events in 1996 leading up to the signing of the 1996 Agreements, do in my opinion bear on the probabilities of what would have happened in 1995 as a result of earlier disclosure of Area Health's plans for RPAH. While I accept that MHC's and/or Macquarie's entry into the HOA was based on understandings derived from the 1984 Master Plan and the 1988 plan, and that the change of direction proposed by the 1994 plan was disadvantageous to it, the events of 1995 to 1997 do not suggest that the content of Area Health's planning for RPAH was of central significance to MHC and/or Macquarie, or that Area Health would have felt bound to make concessions because of it. 177 I am not satisfied that Macquarie would have sought either to terminate or be released from the HOA. I have already held that Area Health's breach was not such as to entitle MHC and/or Macquarie to terminate the HOA, so any purported termination would in any event have been ineffectual. There was no evidence given that, had MHC and/or Macquarie known of Area Health's plans in February 1995, they would have sought to be released from the HOA; and the evidence indicates that Dr Wenkart's commitment to and enthusiasm for the project was strong. The later history that I have recounted, and the primary judge's findings to which I have referred, in my opinion confirm that release from the project would not have been sought. 178 It may be that the payment of $4.5 million would not have been made when it was. However, that would itself have been a breach of the HOA; and in my opinion the failure to commit a breach of the HOA cannot be a basis for awarding damages. 179 As recorded earlier, MHC and/or Macquarie were from early 1995 negotiating for a smaller development, and in fact that negotiation ultimately resulted in the 1996 Agreements, which did provide for a smaller development. Macquarie's contention is that, had Area Health's plans for RPAH been disclosed by February 1995, that negotiation would have resulted in an earlier agreement for a more appropriate development, which Macquarie could and would have carried into effect. Having regard to the considerations to which I have referred, I am not satisfied that disclosure of Area Health's plans would have made a material difference to the approach of MHC and/or Macquarie to the negotiations which did in any event occur during 1995 and 1996, or a material difference to Area Health's willingness to make concessions in these negotiations. There is no evidence of any specificity directed to how the disclosure of Area Health's plans would have affected either topics of negotiation or steps taken in the negotiations. 180 I do not understand Macquarie's case to have been put on the basis of loss of a chance. Even if it had been, the chance of negotiating a better agreement, and the question whether any better agreement would have made any significant difference to Macquarie, are in my opinion too highly speculative to support an award of damages. 181 Although Macquarie seeks reliance damages and not expectation damages, even reliance damages requires proof that the breach made a material difference; and in my opinion Macquarie has not proved that, in relation to Area Health's breach of its obligation of utmost good faith as at February 1995. This would be enough to defeat this aspect of Macquarie's damages claim; but in addition, it must fail because in my opinion Macquarie has not proved on the balance of probabilities that MHC and/or Macquarie would have been ready, willing and able to afford substantial performance of the HOA, even if it had been able to negotiate an early agreement by Area Health for a more appropriate development. 182 Under the HOA, MHC and/or Macquarie were, subject to any effect that the utmost good faith provision may have had, bound to construct a hospital in accordance with the development application that had been approved, as notified on 8 October 1993. It was contended for Macquarie that, by reason of changes of circumstances (including the plans for development of RPAH to the east of Missenden Road and for reduced clinical activity in RPAH, and the substantial reduction of the number of people with private health insurance between 1989 and 1994), it was open to MHC and/or Macquarie to lodge a new development application, or that Area Health was bound to consent to that course. 183 In my opinion, once there was an approval of a development application acceptable to the parties, MHC and/or Macquarie were bound under the HOA to proceed expeditiously with the development permitted by that approval, at least unless some concession by Area Health was given or was required because of the utmost good faith provision. Apart from the possible effect of the utmost good faith provision, there was nothing in the HOA that permitted MHC and/or Macquarie to delay the project by not proceeding with that development, but rather making a further development application, and nothing in the HOA that required Area Health to consent to that course. It is in fact plain that from early 1995, MHC and/or Macquarie did not intend to proceed with that development, and there is no evidence that it was economically viable. 184 Accordingly, Macquarie's case that it and/or MHC was ready, willing and able to perform the HOA on its part must depend on the assertion that Area Health would have (or at least was required by the utmost good faith provision to have) made a concession such that a development application for a more appropriate development could have been lodged in early to mid 1995, rather than in February 1997. I have already held that I am not satisfied that Area Health would have made that concession; but even accepting that it would have, I would not be satisfied on the balance of probabilities that even in those circumstances MHC and/or Macquarie would have been ready, willing and able to afford performance of the HOA. 185 Macquarie's case that it was ready, willing and able to perform the agreement on its part was substantially based on a report by Mr Anderson dated 24 November 2006 (1 Blue 266 – 286), in which Mr Anderson addressed the question of the likelihood of a hypothetical development being able to attract finance or joint venture partners in the period between August 1995 and 1997, and the viability and likely profits of such a development. Mr Anderson's conclusions (1 Blue 286) were as follows (the final paragraph referring to a project for a private hospital by Sydney University, to be considered later in this judgment): Overall Conclusion In this report I have demonstrated the financial analyses undertaken to answer the questions requested as summarised below: 1. The Hypothetical Macquarie development leading up to project commencement in 1997 would almost certainly have attracted external finance support with an equity contribution of between $40m and $36.38m. The model demonstrates strong cashfows with all standard financing hurdles being exceeded. 2. The Hypothetical model at commencement demonstrates an Investor Return in excess of the minimum 12% industry norm. This would make the project viable at that time. Using today's performance levels and original build cost the return to the investor would be 11.9%. When taking the benefits of synergies likely to be experienced by MHC and the fact the cashflows would still satisfy financing hurdles the project would remain viable today. 3. The estimated profits on the project including the car park would be in the range of $38.407m and $40.18m. This is expressed in 1997 terms. 4. The existence of the University/HCOA project would create such uncertainty between 1996 and 1998, to ensure that neither an investor, nor external financier would support the MHC hospital project at this time. There was not sufficient demand for two large private hospitals in this location. 186 Area Health sought to make out a case that the Macquarie Group did not in any event have the financial capacity to undertake such a project or attract finance for it. Area Health relied on claims by the Australian Taxation Office (ATO) against the Macquarie Group, culminating in a judgment against one company of the group, Richard Walter Pty Limited, for $15.8 million on 20 March 1995 (27 Blue 11922); on group consolidated accounts as at 30 June 1995 showing a net asset position of $1.9 million (6 Blue 1677); on s 218 notices dated 26 September 1995 by the ATO for $15.8 million against companies in the group including MHC (32 Blue 14598ff), in circumstances where MHC owed about $15 million to Richard Walter Pty Limited (32 Blue 14602); on the voluntary administration of Richard Walter Pty Limited on 20 November 1996; on Commonwealth Bank of Australia (CBA) issuing a demand on the Macquarie Group for $30 million in consequence of this; on reports to creditors of Richard Walter Pty Limited showing a deficiency of assets in the group (27 Blue 11925ff); on a negotiated settlement with the CBA on 20 December 1996 (27 Blue 11963ff); and on a settlement with the ATO, the CBA and the liquidator of Richard Walter Pty Limited on 27 November 1997 (21 Blue 9355ff). Area Health also relied on breaches of that settlement by the Macquarie Group on 31 December 1997 (21 Blue 9380); on a request for an extension of time under the agreements on 6 February 1998 (27 Blue 12098); further breaches by the Macquarie Group on 20 May 1998 (27 Blue 12101) and on 1 July 1998 (13 Black 6332); and on the sale of the Macquarie Group's most valuable asset (Macquarie Pathology) in August and September 1998 to pay the Group's debts (32 Blue 14885). Even despite this sale, disputes continued between the Macquarie Group, the ATO and the liquidator of Richard Walter Pty Limited until December 2000 (13 Black 6333). 187 The contention of Macquarie was that, even if this history would have affected the capacity of the Macquarie Group to build the hospital and to raise finance from about the end of 1996, the relevant period was earlier: the Macquarie Group would have been seeking to proceed with the development from early 1995. 188 However, even in relation to that contention, I would not be satisfied that MHC and/or Macquarie was ready, willing and able as from early 1995 to afford substantial performance by proceeding with the project within any reasonable time, for these reasons: (1) Mr Anderson's evidence that such a project would have attracted external finance support did not take account of the difficulties the Macquarie Group was experiencing with the ATO and later the CBA, involving, inter alia, a judgment given on 20 March 1995 for $15.8 million against one company of the Group, being a company to which MHC itself was indebted for about $15 million. (2) The only evidence from Macquarie to suggest that the Group's own assets were sufficient to proceed with the project were estimates of value, given in cross-examination by Mr Morris and Dr Wenkart, which were not based on any expertise and were not supported by contemporary documents. Having regard to the circumstance that it was within Macquarie's power to call evidence to establish capacity ( Blatch v Archer (1774) 1 Cowp 63 at 65; (1774) 98 ER 969 at 970), I do not think Macquarie discharged the onus on it to prove its capacity to proceed with the project in 1995. Co-location: Is Macquarie's claim for reliance damages open? 189 Although for reasons I have given Macquarie's claim for reliance damages in respect of Area Health's breach of its obligations of utmost good faith as at February 1995 fails, I should mention two other bases on which it has been suggested that the claim must fail. 190 First, it was submitted for Area Health that Macquarie should not be permitted on appeal to make out a case for reliance damages, on the basis of Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418. In my opinion, a case for reliance damages was sufficiently advanced below; and in my opinion the greater emphasis on that case on appeal would not in any event substantially prejudice Area Health, particularly in circumstances where I have held that even for reliance damages, Macquarie has the onus of proving that it was ready, willing and able substantially to perform the HOA. 191 Second, the Court raised the question whether a claim for damages under the HOA needed to be made by MHC as well as by Macquarie. Relevant to this question are UCPR 6.19, 6.20, 6.23 and 6.24: 6.19 Proceedings involving common questions of law or fact (cf SCR Part 8, rule 2; DCR Part 7, rule 2; LCR Part 6, rule 2) (1) Two or more persons may be joined as plaintiffs or defendants in any originating process if: (a) separate proceedings by or against each of them would give rise to a common question of law or fact, and (b) all rights of relief claimed in the originating process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined. (2) Leave under subrule (1) may be granted before or after the originating process is filed. 6.20 Proceedings affecting persons having joint entitlement (cf SCR Part 8, rules 3 and 4; DCR Part 7, rules 3 and 4; LCR Part 6, rules 3 and 4) (1) Unless the court orders otherwise, all persons jointly entitled to the same relief must be joined as parties in any claim for that relief that is made by any one or more of them. (2) Unless the court orders otherwise, any other such person is to be joined: (a) as a plaintiff, if he or she consents to being a plaintiff, or (b) as a defendant, if he or she does not consent to being a plaintiff. (3) Despite subrule (1), a person may not be joined as a party to proceedings in contravention of any other Act or law. Note . See, for example, section 62 of the Bankruptcy Act 1966 of the Commonwealth. 6.23 Effect of misjoinder or non-joinder of parties (cf SCR Part 8, rule 7 (1); DCR Part 7, rule 7 (1); LCR Part 6, rule 7 (1)) Proceedings are not defeated merely because of the misjoinder or non-joinder of any person as a party to the proceedings. 6.24 Court may join party if joinder proper or necessary (cf SCR Part 8, rule 8 (1); DCR Part 7, rule 8 (1); LCR Part 6, rule 8 (1)) (1) If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party. (2) Without limiting subrule (1), in proceedings for the possession of land, the court may order that a person (not being a party to the proceedings) who is in possession of the whole or any part of the land (whether in person or by a tenant) be added as a defendant. 192 After judgment had been reserved in this case, the Court invited further submissions on the following question: If the Court were otherwise minded to award damages for breach of the Heads of Agreement, would not Macquarie Health Corporation Limited, as one of the promisees, be a necessary party? If so, could this now be cured by amendment, and does Macquarie Health Corporation Limited apply to be joined as a second plaintiff and second appellant? 193 In response, Macquarie submitted that MHC was not a necessary party, because (1) it could not be said that both Macquarie and MHC were jointly entitled to the same relief, so as to enliven UCPR 6.20; (2) the amounts claimed as reliance losses were paid to the use of Macquarie; (3) at most, MHC would be a concurrent claimant to damages, rather than being jointly entitled to the same amount, so that while joinder could be effected under UCPR 6.19 or 6.24, MHC was not a necessary party; (4) UCPR 6.23 prescribes that proceedings are not defeated because of the non-joinder of the party. 194 Macquarie further submitted that if MHC were considered a necessary party, this would be cured by joinder of MHC as a second plaintiff and second appellant. MHC through solicitors acting for it conveyed that, to the extent considered appropriate or necessary by the Court it consented to being so joined. 195 Area Health in response pointed out correctly that this did not amount to an application by MHC to be joined; and although in its further submissions Macquarie reiterated that MHC consented to being joined and submitted that MHC's joinder was not barred by any limitation period, still no application was made by MHC to be joined. 196 In my opinion, if the relevant promises under the HOA were made to MHC and Macquarie jointly, UCPR 6.20 does require that they both be plaintiffs; and despite UCPR 6.23, where neither Macquarie nor MHC have applied to have MHC joined as a party, the better view is that the proceedings should be dismissed. That is the view tentatively favoured by Young CJ in Eq (Beazley JA agreeing) in Churchill v Connolly [2004] NSWCA 212 at [30] – [36]. 197 However, if the relevant promise under the HOA was made to Macquarie severally, then MHC is not a necessary party: Lombard Australia Limited v NRMA Insurance Limited (1968) 72 SR(NSW) 45. However, had the point been taken at an appropriate time, I think it would have been a correct exercise of discretion under UCPR 6.19 or 6.24 to require MHC to be joined. Since the point was not raised at any time until after the hearing of the appeal, I would not now require MHC to be joined on this basis. 198 In considering whether the relevant promise under the HOA is one made to MHC and Macquarie jointly or to Macquarie severally, it is to be recalled that in the HOA, the term "Macquarie" is applied to MHC, while the appellant (which is being referred to as Macquarie in this judgment, as it was in the judgments from the primary judge) is called Tambrook; and there is also a definition of "Macquarie" as meaning MHC, Macquarie Hospital Services Pty Limited, Tambrook "or such other legal entity nominated by and associated with those persons". 199 The recitals of the HOA say that Tambrook will be granted the relevant leases; but cl 7.4(ii) says the lessee is to be "Tambrook or such other person as Macquarie shall nominate". In that provision (as in some others, such as cl 7.4(xiv), "Macquarie" must in my opinion be MHC alone. The most substantive promise by Area Health in the HOA is the promise to grant leases to Tambrook or such other person as MHC shall nominate; and the substantial consideration for this consists in promises that "Macquarie" will do various things. Having regard to the extended definition of "Macquarie", in my opinion these promises should be read as binding those parties to the HOA who are within that definition, that is both MHC and Macquarie. In my opinion the promises by Area Health to grant leases, and also its promise of utmost good faith, are promises to both MHC and Macquarie. 200 It is said that a promise in favour of two promisees cannot be both joint and several: A V Dicey Parties to an Action (1870) Maxwell at 110 – 111; Smith v Rynne [2005] NSWCA 77 at [19]. A test for whether such a promise is joint or several is that it is joint where breach of it to one promisee is necessarily a breach of it to all: Dicey at p 114, Smith v Rynne at [33]. In the present case, a breach of Area Health's promises to Macquarie would necessarily be a breach of its promises to MHC; so on that test, Area Health's promises are joint and not several. 201 However, cl 2.2(f) of the HOA says that an agreement in favour of two or more persons is for the benefit of them jointly and severally. It may be that Dicey's assertion can still be accommodated, by saying that each promise by Area Health is in truth three promises, one to MHC, one to Macquarie, and one to MHC and Macquarie jointly. 202 I am inclined to the view that cl 2.2(f) should be given effect to in this way, so that Macquarie can maintain an action without having MHC as a co-plaintiff. However, this highlights a problem concerning damages. Until leases were actually granted to Macquarie in December 1996, Macquarie had not itself incurred expenses and had no liability to MHC or others in the Macquarie Group that incurred expenses. Once it did become lessee in December 1996, it would in my opinion have come under an obligation to reimburse MHC or others in the Macquarie Group that had incurred expenses with a view to the acquisition of the leases, and also future expenses would have been incurred on Macquarie's account. It is unclear to me whether, in those circumstances, Macquarie could have claimed all these expenses as reliance damages. 203 Having regard to all these considerations, I cannot say that the non-joinder of MHC would have been fatal to Macquarie's claim. Since the claim fails for other reasons I will not pursue this further. Co-location: breach and damages as at December 1996 204 It was contended for Macquarie that Area Health's breach of the obligation of utmost good faith continued up to the time of entry into the December 1996 Agreements. 205 I have already briefly reviewed evidence concerning this matter. The evidence does not justify a finding by this Court that the disclosures in 1995 to Dr Wenkart and to Mr Anderson suggested by Dr Horvath's evidence did not occur; and it is clear that in the second half of 1996 it was disclosed to Macquarie that RPAH was proposing to build a multi-storey car park behind the King George V building. If these were the totality of the disclosures, in my opinion there would be a breach of the obligation of utmost good faith; but for reasons similar to those given earlier, this would not be a fundamental breach. 206 Having regard to the failure of MHC and/or Macquarie to make any enquiries based on the information that it did have, I am not satisfied that Macquarie has proved that a significantly different result would have been achieved if there had not been this breach by Area Health. Again, my reasons are similar to those given earlier. 207 It was also put for Macquarie that Area Health breached its obligation of utmost good faith by not acceding in early to mid-1995 to the smaller development being proposed by MHC and/or Macquarie, particularly having regard to Area Health's changed plans for RPAH. I find it difficult to reach a conclusion as to whether there was such a breach, in circumstances where there has not been clear identification of how the negotiations did in fact proceed in 1995 and 1996. In any event, I am not satisfied that Macquarie has proved that, but for any such breach by Area Health, it would have submitted a development application for a more appropriate development in early to mid-1995 or otherwise would have been in a substantially different position from that which occurred. 208 In my opinion also, Macquarie has failed to prove entitlement to damages, because it has not proved that it was ready, willing and able substantially to perform the HOA. Again, my reasons are similar to those previously given. Co-location: merger 209 It was contended for Area Health that, if Macquarie was otherwise entitled to damages for breach of the HOA, any such rights were lost by reason of the merger clauses in the December 1996 agreements (cl 1.5 of the Car Park Lease and cl 1.5 of the Hospital Lease). 210 Having regard to my decision on breach and damages, it is not necessary to determine this question. However, I would express the view that the merger clauses would not have had the effect contended for by Area Health. 211 The Car Park Lease and the Hospital Lease employ the language of merger. Clause 1.5 in each of those leases provides that the 'provisions of the Heads of Agreement merge in the grant of this lease'. 212 Usually, so-called 'merger clauses' are expressed in more expansive terms, stating that all prior agreements and negotiations are merged in a final written contract: see, for example, McMahon v National Foods Milk Ltd [2009] VSCA 153; (2009) 259 ALR 20 at 39-41 [37]-[43]. When expressed in this broad way, merger clauses are thought to achieve the same purpose as 'entire agreement' clauses, so that the final written contract embodies the whole agreement between the parties: see E Peden & J W Carter, 'Entire Agreement—and Similar—Clauses' (2006) 22 Journal of Contract Law 1 at 10. 213 Applying this usual understanding of merger clauses to the present case, it might be thought that the effect of both clauses 1.5 was to discharge the HOA and supersede it by the December 1996 Agreements. 214 However, there are indications in the December 1996 Agreements that the HOA is to have continuing effect: see the definition of "Transaction Document" in the leases and the Construction Deed, and various clauses requiring compliance with the Transaction Documents. Confronted with this prima facie inconsistency between the merger clauses and the terms requiring compliance with the Transaction Documents, it is clear that the merger clauses alone cannot determine whether the HOA was discharged by the December 1996 Agreements. 215 In my opinion, having regard to my decision on breach and damages, it is neither necessary nor appropriate to resolve the inconsistency and decide whether the HOA was superseded by the December 1996 Agreements. This would raise complex issues of law and fact, including the severability of the merger clauses and the applicability of the parol evidence rule: see H K Lücke, "Contracts in Writing" (1966) 40 Australian Law Journal 265 at 273. 216 But in any event, even if the terms of the HOA were not to continue to bind the parties after 2 December 1996, this would not mean that accrued rights to damages under the HOA would cease to exist. 217 The leading statement on accrued rights following discharge of a contract is that of Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477: When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach. See, for example, Trimis v Mina [1999] NSWCA 140 at [55] per Mason P (with whom Priestley and Handley JJA agreed); Hurst v Bryk [2000] UKHL 19; [2002] 1 AC 185 at 193 per Lord Millett (with whom Lords Browne-Wilkinson, Nicholls, Hope and Clyde agreed); J W Carter & G J Tolhurst, "Recovery of Contract Debts Following Termination for Breach" (2009) 25 Journal of Contract Law 191. 218 Although Area Health argues that the HOA was discharged by virtue of the operation of the merger clauses rather than by virtue of fundamental breach, this does not affect the survival of causes of action for breach of a term of the HOA. Accordingly, a cause of action accruing from breach of the utmost good faith obligation in the HOA survives discharge of the HOA. Ultimately, therefore, Area Health is not assisted by its contention that the HOA merged in the December 1996 Agreements. 219 The question then is, could the deeds operate as a release of existing rights to damages. At common law, a cause of action for damages arising otherwise than under a deed may be released either by deed or by accord and satisfaction: Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33; (1998) 194 CLR 500 at 544 [114] per Gummow J; R Meagher, D Heydon & M Leeming, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (4th ed, 2002) at [35-005]. 220 In my opinion, the deeds could not operate as a release of existing rights to damages. The merger clauses do not purport to be releases of existing rights to damages under the HOA; and they could not in any event possibly operate as such in relation to breaches which were not known by Macquarie at the time. It is clear in my opinion that neither MHC nor Macquarie knew, as at 2 December 1996, of the nature and extent of Area Health's planning activities; and accordingly that they did not know of the substance of the breaches of Area Health's obligation of utmost good faith up to that time. Co-location: breach and damages after December 1996 221 It was contended for Macquarie that Area Health continued to breach its obligation of utmost good faith up to about mid-1998, after which Dr Wenkart realised for the first time the significance of Area Health's plans for RPAH. 222 In my opinion, having regard to the content of Pace's report of 19 February 1997, and of Dr Horvath's letter of 24 April 1997, a finding of breach by Area Health after early 1997 should not be made. 223 In any event, in my opinion Macquarie does not make out a case that further disclosure of Area Health's planning at this stage would have made any difference to its planning or the progress of its project to build the private hospital, or that, but for any such breach, it could and would have been able to comply with its obligations under the December 1996 Agreements. 224 Accordingly, in my opinion, all of Macquarie's claims for damages on the basis of Area Health's breach of its obligation of utmost good faith concerning co-location fail. SUPH: common ground 225 The second group of issues concerns Macquarie's claim for damages for Area Health's breaches of its obligation of utmost good faith (and possibly of cl 3.1(r) of the HOA and cl 23.5 of the Hospital Lease) in relation to the SUPH issue. Again, I will commence by setting out some facts (additional to facts set out earlier) which either are not or cannot be disputed. 226 From about March 1996, Mayne Nickless Limited trading as Health Care of Australia (HCoA) began developing a project for a private hospital at Sydney University, close to RPAH (4 Blue 1387, 15 Black 7070 – 2). Mr Sinclair, director of capital development with HCoA, on instructions from Dr Catchlove, CEO of HCoA, selected a site, and with the assistance of an architect and engineers prepared a concept design. 227 On 15 August 1996 Mr Puplick advised Dr Horvath that Professor Young, Dean of the Faculty of Medicine of Sydney University, had informed him of the possibility of the University's interest in a private hospital venture on a site adjoining RPAH (first judgment [91], 6 Black 2653 – 4). 228 On 16 August 1996, Mr Heydon QC (as he then was) was briefed to advise what was the period within which cl 3.1(r) of the HOA operates (14 Blue 6025); and on 19 September 1996, Mr Heydon advised that the clause did not commence to operate until the private hospital admitted its first patient (first judgment [92], 14 Blue 6049 – 51). 229 By letter dated 27 September 1996, the Vice-Chancellor of the University advised Mr Puplick of a proposal to develop a private hospital on University land, and invited Area Health's comments (first judgment [100], 14 Blue 6140). 230 On 10 October 1996, Area Health was advised by its solicitors that it was not required to inform Macquarie of the approach by the University, or of the existence of a proposed development, or of its intentions or actions (first judgment [104], 14 Blue 6193). 231 On 14 November 1996, a preliminary agreement between the University and Mayne Nickless trading as HCoA for a feasibility study for the proposed SUPH was signed (first judgment [110], 16 Blue 6921). 232 On 6 December 1996, an article in the Sydney Morning Herald under the heading "Uni Plan for $30m Private Hospital" reported that a feasibility study for SUPH had been approved (first judgment [119]). 233 By letter dated 28 January 1997 to Area Health, Dr Wenkart complained about discussions between Area Health and the University about the SUPH (first judgment [300], 16 Blue 7011). 234 By letter dated 31 January 1997, Area Health responded, rejecting allegations of non-co-operation and failure to act in good faith (first judgment [128], 16 Blue 7008). This letter included the following: Regarding the situation concerning the proposed Sydney University sponsored private hospital, Central Sydney is aware of and will comply with its obligations regarding supporting competing hospitals. However, as mentioned to you a number of times, as a teaching hospital, Royal Prince Alfred Hospital has a very close relationship with Sydney University and maintains a continuing dialogue with it regarding health facilities. Central Sydney will continue that dialogue in such a way as to comply with its obligations to Macquarie. Those obligations do not prevent the steps you mention in your letter, namely 'holding discussions'. Your letter does not identify any other steps taken by Central Sydney which would give you any cause for complaint … " 235 On 27 February 1997, the University lodged its development application for the SUPH with the Council, following completion of HCoA's feasibility study (first judgment [132], 16 Blue 7020). 236 Further developments are set out in pars [136], [138], [143], [144] and [148] of the first judgment: [136] On 15 May [1997] a background paper on the SUPH proposal from the Faculty of Medicine was provided to the University's planning committee. It said that SUPH had the enthusiastic support of Dr Horvath. ….. [138] At the meeting of the University planning committee on 23 May, Dr Horvath described the redevelopment programme for RPAH. She referred to the benefits of co-location with SUPH, provided there was a direct physical link. ….. [143] In his letter of 10 September [1997] the Vice-Chancellor sought Area Health's consent to the lodgement of the development application for SUPH because the hospital building described in the plans would partly encroach onto property owned by Area Health. He said that consent was required only to the making of the application and was not to be taken as support for the development proposed or consent for any building work to be undertaken. [144] Consent was provided to council in Mr Puplick's letter of 11 September which included the following: "This consent is without prejudice to the current and continuing negotiations between this Service and the University of Sydney regarding the building by the University of the development partly on land owned by this Service in the event of consent being [given] to the said application. The consent given does not indicate support for the development." This action was endorsed by Area Health's board at its meeting on 5 November. ….. [148] In his letter of 14 October to Dr Horvath, Dr Wenkart complained of disadvantage from Area Health's support for SUPH. He sought immediate opposition to the proposal, including its development application. In response, on 16 October, Mr Wallace said Area Health had not seen the development application and was not involved in its submission. He stated willingness to provide Macquarie with any further assistance required. 237 On 23 January 1998, Mr Block wrote to the Department of Health complaining of Area Health's support for the SUPH, alleging that Professor Young had given evidence in the Land and Environment Court that there had been discussions with Area Health on the proposed competing private hospital prior to the execution of the Leases on 1 December 1996 (first judgment [156], 19 Blue 8039). 238 Further developments are set out as follows in pars [158], [167] and [173] of the first judgment: [158] In his letter of 16 February [1998] to Dr Horvath, Prof Young stated that Mr Block's allegations concerning him were false. He said there was no discussion between Area Health and the University prior to 1 December 1996, and that it was not until completion of the feasibility study that he became involved with the development application. He set out a history of the concept for a private hospital, and pointed out that as yet the development application had not been approved, and no decision in principle had been taken to build SUPH. ….. [167] On 21 July and 1 August [1998] Area Health's solicitors advised that in consenting to the lodgement of the SUPH development application it was not in breach of cl 20.13 and cl 23.5 of the hospital lease. Advice was also given that Area Health must act in good faith and that cooperation with SUPH might be claimed by Macquarie as a breach for which damages for loss of bargain might be claimed. ….. [173] During September the University decided not to proceed with SUPH. SUPH: Decision of primary judge 239 Some initial conclusions of the primary judge are set out in pars [334] – [339] of the first judgment: [334] The evidence demonstrated, and I find, that the design and planning of SUPH and of the RPAH redevelopment proceeded independently of each other. It established that on many occasions during 1997 there were meetings between Dr Horvath, Mr Wallace and other representatives of Area Health with representatives of HCoA and the University, during which the progress of the developments was discussed, and information about them exchanged. I find that the RPAH plans were not drafted in order to accommodate SUPH requirements, and that there was no involvement by Area Health in the preparation of SUPH's plans or development applications. [335] I also find that, at an early stage, Dr Horvath made Dr Catchlove and Mr Sinclair aware that Area Health was precluded under its agreement with Macquarie from assisting with, or participating in any way in, the SUPH project and they proceeded on this understanding. Relevantly, Area Health in letters of 28 January and 21 February reminded Macquarie that it proposed to continue discussions with the University subject to its contractual obligations. [336] As for Mr Puplick's letter to council consenting to the SUPH development application, it is plain from its terms that consent was confined to the making of the application, and was not to be taken as support for the development. It was sent, in draft, to Mr Puplick by the Vice-Chancellor with his letter of 10 September. The documents demonstrate the University's acceptance that consent was not taken as support for the proposed development or building work which, in my opinion, was consistent with its knowledge that Area Health was precluded from providing assistance or support for the project. In any event, Macquarie had been on notice that Area Health would not object to SUPH's development application since Dr Horvath's letter of 29 April to that effect. [337] Dr Horvath's evidence that she afforded both Macquarie and the University opportunity to know of RPAH's plans is supported by statements in the development applications lodged by Macquarie on 25 February (par 265), and the development application lodged by SUPH on 27 February (par 301). Both refer to RPAH's development to the east. It is reasonable to infer that both took advantage of such opportunity. I also infer that Macquarie did so following advice given at the joint working party meetings on 7 January and 28 January to contact Mr Haldane for information. [338] I do not accept that participation in discussions and exchanging information amounted to conduct indicative of support, assistance, or encouragement within the terms of the restraint. On the other hand, the evidence of events during 1997 includes much which demonstrated that Macquarie's submissions that Area Health was intent on undermining the development of MPH and the car park is without support and must be rejected. The following are references to some of the evidence which, in my opinion, supports the finding, which I make, that Area Health provided significant co-operation and assistance to Macquarie to enable its project to progress: Dr Horvath's letter to Mr Block of 24 April enclosing information to support the development application; Minutes of the meeting of Macquarie's project executive team of 23 June which noted Area Health's excellent support in the Land and Environment Court proceedings; Letters of 14 July, 17 July, 11 August and 13 August from Dr Horvath to Pace concerning Area Health's consent to the building application for demolition and excavation, and the letter of support to council of 21 August; Mr Wallace's letter to Pace of 12 September to facilitate compliance with the timetable; The offer of assistance in Mr Wallace's letter of 16 October, and Mr Wallace's letter to Dr Wenkart of 24 October and 24 December as to readiness to participate in negotiations on the Mulpha proposal. [339] As at December, it may be said that Macquarie was well ahead of the SUPH project against which it saw itself competing. It had council approval for its development applications, and building approval for demolition and excavation for the car park site was under consideration with council. On the other hand, the SUPH development application, to which Macquarie had objected, was still under consideration in the Land and Environment Court. The reference to the Mulpha proposal concerned a proposal that a company Mulpha (Australia) Ltd own and operate the car park, which was not pursued after January 1998. 240 As regards events in 1998, the primary judge made the following finding: [386] There was no evidence which showed that during 1998 Area Health provided support, assistance, or encouragement for the SUPH project. I conclude that none was provided, which accords with the mutual understanding of Area Health and the University that Area Health was precluded from doing so. 241 The primary judge's ultimate conclusions on this aspect are set out in pars [600] and [601] of the first judgment (and I have already set out the primary judge's further comments in par [602]): [600] It was a substantial part of Macquarie's case that from about March 1994 Area Health, through Dr Horvath and Mr Wallace, promoted and supported the SUPH in disregard of Macquarie's contractual rights, endeavoured to keep those activities secret from Macquarie, and sought to undermine Macquarie's performance under the agreements. In advancing this case Macquarie attempted to establish that the evidence of Dr Horvath and Mr Wallace that they did not learn of a proposal by the University to build a private hospital before early October 1996 was false, and that they should not be accepted as truthful witnesses. Much time was spent cross-examining each of them with reference to documents including Dr Horvath's diaries and opinions received from Mr Heydon QC as to the scope of Area Health's obligations under the HOA. Subsequently it was put that Dr Horvath gave false evidence in order to hide what was claimed to be her encouragement and support for the SUPH which she knew at the time to be wrongful. [601] With regard to the reasons for which I have held that Macquarie failed to prove that Area Health did not act with utmost good faith under the 96 agreements I consider there is no purpose in recording an analysis of the evidence and submissions on these questions. The extent of the awareness, if any, of either Dr Horvath or Mr Wallace of a possible proposal for a University private hospital prior to October 1996 has been shown to be irrelevant to the outcome of the utmost good faith issue. Accordingly, I consider it inappropriate to pursue this, and the related issues described as the "conspiracy to promote the Sydney University private hospital", and "the concealment of documents" issues. SUPH: contentions on appeal 242 Mr Dubler SC contended that the primary judge erred in holding (first judgment [601]) that Dr Horvath's awareness of a possible proposal for a University private hospital prior to October 1996 was irrelevant to the outcome of the utmost good faith issue, and for that reason not pursuing this question. 243 He submitted that the primary judge should have determined what flowed from a conflict in evidence between Dr Catchlove and Mr Puplick on the one hand and Dr Horvath on the other, in circumstances where he found (at first judgment [333]) that all three witnesses gave evidence genuinely, and what each had to say accorded with what probably happened. 244 Dr Catchlove gave evidence that he discussed SUPH with Dr Horvath before June 1996 (6 Black 2744 – 6), and Mr Puplick gave evidence (accepted by the primary judge) that he told Dr Horvath of the proposal on 15 August 1996 (6 Black 2653 – 4); whereas Dr Horvath's evidence was that she first became aware of the proposal in October 1996 (4 Black 1992 – 3) following the letter from the Vice-Chancellor of 27 September 1996 (14 Blue 6140). It was on that basis that Dr Horvath denied that the brief to Mr Heydon of 16 August 1996, which referred to Area Health's wish to approve the construction of a private hospital in this area, was given with SUPH in mind (4 Black 1992). 245 Mr Dubler submitted that the primary judge should have found to the effect that: (1) Dr Horvath had oral advice in November 1995 from Mr Heydon that cl 3.1(r) of the HOA prevented Area Health from approving of another private hospital within its area prior to the admission date (25 Blue 10,697). (2) Knowing of the proposal for SUPH, and wishing to approve the construction of SUPH, she arranged for a brief to be given to Mr Heydon asking a very limited question, namely "what the period is within which clause 3.1(r) of the Heads of Agreement operates?" (14 Blue 6092) giving rise to the written opinion that the clause did not commence to operate until the private hospital admitted its first patient. (3) That opinion of 19 September 1996 must have been passed on to the University, encouraging the University to formally notify Area Health on 27 September of the launch of a feasibility study and to launch that study in November 1996 (14 Blue 6140, 6267). (4) This was done by Dr Horvath so as to promote SUPH, which would undermine the proposed Macquarie Private Hospital. 246 Mr Dubler submitted that this was supported by later conduct of Area Health: (a) Mr Puplick (or Dr Horvath) told the Appellant in November 1996 that legal advice received meant the HOA was not a barrier to the SUPH: Black 2:587L, Blue 4:132R;. (b) Immediately after execution of the leases, Dr Horvath met twice with Dr Catchlove of HCOA. After which, the proponents of the SUPH became aware of the 'drop dead dates' in the Construction Deed and they decided to accelerate the SUPH DA to undermine the MPH: Blue 16:6990R-6991F; 22:9698P-9697R; Dr Horvath did not deny that she may have told Dr Catchlove of the drop dead dates: Black 4:1929L-Q. The Primary Judge made no findings on the issue, but it was submitted that Dr Horvath passed on that information to Dr Catchlove and encouraged the SUPH to proceed quickly. (c) Dr Horvath told Professor Leeder in May 1997 that the SUPH had her 'enthusiastic and complete support' which was then put in a report tabled at the 23 May 1997 meeting of the Planning Committee of the Sydney University charged with considering the SUPH proposal: Blue 17:7288; (d) Dr Horvath spoke at the meeting about the benefits of having a private hospital co-located with the RPAH which could provide medical and ancillary services 'provided there was a direct physical link': Blue 17:7334; (e) Dr Horvath spoke with the proponents of the SUPH about sharing pathology, radiology and imaging services: Blue 22:9698; Black 4:1746Y; (f) Dr Horvath met with the RPAH architect and discussed how the RPAH could encourage the movement of people between the RPAH and the SUPH: Blue 16:6996; Black 4: 1900E; (g) On 2 April 1997, the Board of the Respondent invited Dr Catchlove to give a presentation on the SUPH: Blue 17:7196; Blue 18:768; (h) On 30 May 1997 the Department of Health recorded that there was no impediment to a licence issuing to the UPH: Blue 24:10,228; (i) On 11 September 1997, the Respondent by letter consented to the SUPH lodging its second DA which was legally required because the proposed SUPH was partially to be constructed on the Respondent's land: Blue 17:7458 – 7459. Mr Puplick said he was informed by Mr Wallace that there was legal advice that such a letter would not be a breach of the leases: Blue 4:1262F. The minutes of the Respondent's board meeting of 5 November 1997 I refer to the restraint clause in the leases which only operate after first admission: Blue 19:7933N. Mr Wallace said he was relying on Mr Heydon's advice when he so advised Mr Puplick: par 31 of his affidavit, Blue 4:1148T; (j) Dr Horvath spoke to the University colleges in support of the SUPH and sought to persuade them that the SUPH would not affect their amenity: Blue 4:1135K. 247 Mr Dubler also submitted that adverse inferences against Area Health were supported by its withholding important documents from Macquarie in the preparation of this case, including Mr Puplick's note evidencing the conversation of 15 August 1996 and Dr Horvath's diaries. 248 Mr Dubler submitted that there were breaches of utmost good faith by Area Health in promoting SUPH in order to undermine Macquarie's proposed private hospital, amounting to repudiation of the HOA; and that this caused loss to Macquarie by undermining its bargaining position in late 1996, and compelling it to sign the December 1996 Agreements even though they were unsatisfactory, in order to avoid delays that would have been to the advantage of the proposed SUPH. 249 For Area Health, it was submitted that there was no real conflict between the evidence of Dr Horvath and that of Dr Catchlove and Mr Puplick, because the evidence of the latter persons could relate to the general idea of a SUPH, which had been in existence since at least 1982, rather than the particular proposal being investigated by HCoA in 1996. 250 It was also submitted for Area Health that the matters relied on were not sufficient to support deliberate conduct by Area Health to undermine the Macquarie project; and that the Court should certainly not infer dishonesty in withholding documents. SUPH: breach 251 In my opinion there is force in Mr Dubler's submissions concerning the primary judge's failure to find facts concerning possible breaches. 252 I have held that the primary judge was in error in holding that the merger clauses in the 1996 Leases could release existing claims for damages under the HOA. In my opinion the conflict between Dr Catchlove and Mr Puplick, on the one hand, and Dr Horvath on the other, was a significant matter which the primary judge should have resolved, having regard to its impact on the reasons underlying the form of the brief to advise to Mr Heydon of August 1996, and the possible impact of Mr Heydon's advice of September 1996 on the conduct of Sydney University in progressing to the feasibility study in September to November 1996. It may also have been open to the primary judge to find that Dr Horvath's explanation of the statement in the brief to Mr Heydon referring to Area Health's wish to approve the construction of a private hospital in its area was not satisfactory. Although the primary judge made findings of credit favourable to Dr Horvath, he did so without considering these matters; and in my opinion they were of sufficient importance to require consideration: cf Mifsud v Campbell (1991) 21 NSWLR 725. 253 Conduct by Area Health directed to supporting SUPH and thereby undermining Macquarie's proposed private hospital could well amount to fundamental breach and/or repudiation of the HOA; and if such a breach could have given rise to a valid claim for damages by Macquarie, the primary judge's failure to deal with the issue could mean that there had been a miscarriage of justice justifying a new trial. However, for reasons I will give, in my opinion even such a fundamental breach or repudiation of the HOA would not have given rise to a valid claim for damages. 254 I would add that in my opinion there were breaches of Area Health's obligation of utmost good faith that were established by the evidence. In my opinion the conduct referred to in pars (b), (c), (d) and (i) in the submissions of Macquarie quoted above did amount to support given by Area Health to the SUPH; and although cl 3.1(r) of the HOA referred to "a period of five years from the date of the first hospital admission", in my opinion it was a breach of the obligation of utmost good faith for Area Health to give any support to the establishment of a private hospital which would make Macquarie's private hospital non-viable (and it is common ground that there could not be two viable private hospitals in the immediate vicinity of RPAH). However, if these particular things were done in the belief that they did not breach the HOA, and not done with the purpose of undermining Macquarie's project, I do not think they would amount to essential or repudiatory breach. 255 I should add that in connection with this issue, there were submissions on appeal concerning the primary judge's rulings as to client privilege concerning briefs to and advice from Mr Heydon. The Court ruled that privilege had been waived in respect of some additional material, because of what had already been disclosed and because of Area Health's reliance on Mr Heydon's advices in support of its contention that it did not breach its obligation of utmost good faith in relation to SUPH. In respect of other material, the Court held that privilege had not been waived, because it concerned matters not sufficiently related to the SUPH question or to the material otherwise disclosed. SUPH: damages 256 Macquarie's claim for damages faces similar difficulties as that in the co-location case, even if one accepts that it was Area Health's covert support of SUPH that caused it to be pursued as it was. 257 In my opinion, Macquarie did not establish that it would have terminated the HOA had it known even of a repudiatory breach by Area Health, or what if any different agreements it would have achieved in that event. 258 More fundamentally, in relation to breaches prior to 2 December 1996, for the same reasons as given earlier, Macquarie did not prove it was for its part ready, willing and able to give substantial performance of the HOA. 259 Insofar as Macquarie's claim for damages related to loss caused after entry into the December 1996 Agreements, I accept that the existence of the SUPH proposal would have been disadvantageous to Macquarie obtaining finance for its project between December 1996 and September 1998, when the SUPH project was abandoned. However, having regard to the disputes of the Macquarie Group with the ATO and the CBA referred to earlier, particularly in 1997 and 1998, and the absence of positive evidence that finance would have been available in this period but for the SUPH proposal, in my opinion the evidence does not support a finding that finance would have been available or that the Macquarie Group would have been able to finance the private hospital project itself in this period. 260 It is for those reasons that, in my opinion, error by the primary judge on this group of issues does not justify the ordering of a new trial. Section 129: breaches alleged 261 The Notice of Default relied on in relation to the Car Park Lease was as follows: NOTICE OF DEFAULT (Car Park Lease) TO: Macquarie International Health Clinic Pty Limited ("MIHC") of 17 Moore Street, Leichhardt NSW 2040 From: Central Sydney Area Health Service ("CSAHS") 1. This notice is given in accordance with clause 16.5 of the Car Park Lease dated 2 December 1996 registered number 3553373 between CSAHS as sub-landlord and MIHC and CSAHS as tenant. It is given to MIHC as Managing Tenant. 2. The following Events of Default have occurred under the Car Park Lease and CSAHS relies upon each of those Events of Default as entitling, subject to Clause 16.6 of the Car Park Lease, it to terminate the Car Park Lease pursuant to clause 16.3. Particulars of Events of Default (a) The failure to comply with clause 2.2 of the Car Park Lease by reason of the failure of MIHC as Managing Tenant to pay to CSAHS as landlord the amount of $1,440,000 [i.e. $6,000x(1,200-960)] on or before 14 February 1999. The obligation under clause 2.2 is an obligation to pay money and is an essential term by clause 16.1. The failure to comply with an essential term is made an Event of Default by clause 16.4(b) of the Car Park Lease. (b) The failure to comply with clause 2.1 of the Construction Deed dated 2 December 1996 between CSAHS, MIHC and Macquarie Health Corporation Limited ("Macquarie") by reason of the failure of MIHC to complete or substantially commence the following works by 30 June 1999 at the latest: (i) not completing construction of the Car Park; (ii) not substantially commencing construction of the Hospital; The obligation under clause 2.1 of the Construction Deed is made an essential term of the Car Park Lease by clause 16.2. The failure to comply with an essential term is made an Event of Default by clause 16.4(b) of the Car Park Lease. (c) The failure to comply with clause 3.5 of the Construction Deed by reason of the failure of MIHC to deposit with CSAHS a sum equal to rent at the rate of $33,000 per month for the period (measured in days) by which the date of completion of construction of the Car Park was and is later than 30 June 1999 which was the latest date for completion of that construction. The obligation under clause 3.5 is an obligation to pay money and is an essential term of the Construction Deed. The Construction Deed is a Transaction Document within the meaning of clause 1 of the Car Park Lease and the failure to comply with an essential term of a Transaction Document is made an Event of Default by clause 16.4(c) of the Car Park Lease. 3. The giving of this notice is not the exercise or purported exercise of any power under clause 16.3 of the Lease. DATED Fifteenth September 1999 262 Notices of default in relation to the Car Park Sub-Lease, the Hospital Lease and the Construction Deed specified the same three events as being events of default, although each of them referred to the particular terms that made the specified events to be events of default under the agreement in respect of which each notice was given. 263 As mentioned earlier, the primary judge found Event of Default (a) (concerning cl 2.2 of the Car Park Lease) was not established, but that Event of Default (b) (concerning cl 2.1 of the Construction Deed) and Event of Default (c) (concerning cl 3.5 of the Construction Deed) were established. 264 The primary judge's finding concerning cl 2.2 of the Car Park Lease is challenged in Area Health's Notice of Contention and Cross-appeal; and his finding concerning cl 3.5 of the Construction Deed is challenged in Macquarie's appeal. 265 Dealing first with cl 2.2 of the Car Park Lease, the primary judge gave the following reasons for rejecting Area Health's contention before him: [448] Macquarie denied liability for payment of any amount under cl 2.2. It submitted that upon the proper construction of the clause, the formula is to be calculated by reference to the number of car spaces to be erected in the car park based on the plans and specifications in their then latest form as approved by the relevant authorities as at 14 February 1999. It put that it was not based on the number of spaces actually constructed at that date, but on the number of spaces approved. It put that the number approved by the Land and Environment Court was 1225, although the access ramp to levels 4 and 5 of the car park could not be constructed until commencement of the second stage of the hospital. It was put that as at the relevant date the car park had not been erected and the proviso applied, with the consequence that the calculation resulted in "A" being negative, with no money payable by Macquarie. Thus it submitted that there was no event of default under cl 2.2 as alleged. [449] Area Health's case on this issue is that on or before 14 February 1999 the car park had been erected, and the number of car parking spaces in it was 960. [450] It submitted that the effect of condition 62 of the approved development application by order of the Land and Environment Court of 24 December 1997 was to forbid completion of more than 960 spaces until stage two of the private hospital had commenced, and the parties proceeded on that basis. It was submitted that it should be inferred from the fact that a certificate of practical completion was certified by the contractor to have been on 7 June 1999 that, as at 14 February 1999, the car park had been erected and contained 960 car parking spaces. [451] The parties' submissions raised the question of the meaning of the term "erected", and of the phrases "to be erected" and "has been erected" in cl 2.2. The interpretation of the provision, on the usual principles, must be ascertained with regard to its context with other relevant provisions. The car park was defined to mean the proposed car park to be erected on the land to be owned and operated by Macquarie (cl 1.1). Macquarie was required to comply with the construction deed (cl 8.1(d)), and to erect the car park and ancillary services in accordance with it (cl 10.1). By cl 2.1 construction deed Macquarie was required to carry out and complete the works in accordance with the timetable, which included the car park to be erected on lot 11. [452] In my opinion, the intended meaning of the word "erected" in the context of cl 2.2 where appearing is its natural and ordinary meaning, namely "built". The purpose of the provision is to impose a payment obligation upon Macquarie which is to be ascertained with reference to the actual number of car parking spaces in the structure as erected or built on 14 February 1999. Under this clause the wider question whether the car park has been brought to completion and was operational does not arise. Application of the formula requires identification of the number of car parking spaces in the car park on the date stated. It is predicated on the basis that the car park had been erected by that date, so that the actual number of car parking spaces in it may be readily determined. [453] The proviso is directed to the situation where the car park has not been completed by the date. In such case the "B" is taken from the approved plans and specifications in their then latest form, and the amount to be paid calculated accordingly. The second sentence is intended to be read with the first. It requires a fresh calculation to be made once the car park has been erected, with reference to the number of car parking spaces then in it. It also allows for the making of a consequential adjusting payment. [454] Area Health's claim that there was an event of default in failing to make the payment under cl 2.2 as specified in the notice requires proof, inter alia, that there were 960 car parking spaces in the car park on or before 14 February 1999. The relevant evidence is as follows. [455] In its car park development application lodged in February 1997 Macquarie sought approval for 1225 spaces. The status report of 16 November 1998 showed that work was progressing on level two of the car park superstructure. In his letter to Dr Wenkart of 24 February 1999, Mr Wallace observed that the car park was approaching practical completion. When rejecting Area Health's claim under cl 2.2 on 1 March 1999, Dr Wenkart informed Dr Horvath that the car park was in the course of construction and had not been completed. On 7 March 1999 Mr Wallace complained of insufficient information to gauge progress on the project. At Macquarie's project management meeting on 29 March 1999 it was estimated that completion of the car park would be in mid-May 1999. The status report of 15 April 1999 said that the car par structure had been completed to roof level, and fit out and other works were in progress, and suggested the time for completion to be mid-May 1999. [456] Macquarie's builder certified that practical completion of the car park was achieved on 7 June 1999. In its letter to Macquarie of 24 August 1999 council acknowledged that the car park had been physically constructed, and could be used physically for car parking purposes. In his letter to council of 21 December 1999 in support of the application for an interim occupancy certificate, Pace stated that the car park's capacity was about 988 car spaces. On 10 November 2005, Mr Adam Ellis, a valuer retained by Macquarie, inspected the car park and counted about 1026 car spaces occupying five split levels. [457] In my assessment, the evidence does not establish a safe basis for the finding, on the balance of probabilities, that on or before 14 February 1999 there were 960 car parking spaces in the car park. Indeed, I accept Macquarie's submission to the effect that the weight of the evidence is against a finding that the car park had been erected within the meaning of cl 2.2 on or before that date. However, in my opinion the evidence supports the inference that the car park had been erected by 7 June 1999 when practical completion was certified. [458] Furthermore, the evidence that, according to Pace, the number as at 21 December 1999 was about 988, and according to Mr Ellis, the number on 10 November [2005] was about 1026, gives me no confidence to assume, as Area Health invited, that by 14 February 1999 the car park actually contained the 960 car parking spaces for which approval had been given before commencement of stage two of the hospital. [459] If it is correct that the car park had not been erected by 14 February 1999, the proviso applies, and "B" was the number to be derived from the latest approved plans and specifications. I accept Macquarie's submission that 1225 had been approved with the result that the calculation left a negative amount. Of course, once the car park had been erected there must be a determination of the actual number of spaces in it, and an adjusting payment made. However these questions may be further explored under the cross-claim which, unlike the notice of default, allows for cases to be put in the alternative. 266 Mr Burton SC for Area Health submitted to the effect that: (1) The car park had been erected by 14 February 1999, because the physical structure had been erected sufficiently to determine the number of car spaces it could accommodate: that is, it was not necessary that all Council conditions had been complied with, or that lines for car park spaces had been painted, or that all other finishing touches had been completed. (2) Alternatively, the number of car parking spaces "to be erected" did not include car parking spaces which were not to be provided unless and until construction of the second stage of the hospital, particularly when the Construction Deed contemplated that the car park would be completed by the time the hospital was substantially commenced, and when Macquarie did not intend to proceed with the hospital and there was no real likelihood that Macquarie would construct the hospital at all. 267 Mr Burton submitted that cl 3.1(o) of the HOA confirmed that what was intended by cl 2.2 was that there should by 14 February 1999 be a car park with 1200 spaces, not dependent on later construction undertaken in connection with the erection of the hospital. He submitted that this was consistent with the plans and specifications as originally approved, according to which a car park structure capable of accommodating over 1200 spaces was to be built, albeit subject to a condition that the ramp to the top level was not to be constructed until the second stage of the hospital was commenced. This condition was amended without Area Health's consent on 24 December 1997, so that according to the amended condition it was a corner of the car park capable of accommodating at least 240 cars that was not to be completed until the second stage of the hospital was commenced. A certificate of practical completion of the car park was issued on 7 June 1999, when the car park could accommodate only 960 cars, showing that at least by then the car park had been erected, so that the number of car parking spaces could be determined as required by cl 2.2, giving just 960. 268 In my opinion the primary judge was correct to hold that the evidence did not establish that the car park had been erected by 14 February 1999. 269 The primary judge did hold that the car park had been erected by 7 June 1999 (first judgment [457]), and he also said (first judgment [459]) that once the car park had been erected there must be a determination of the actual number of spaces in it; and that combination of findings could support Area Health's contention. On the other hand, there is no doubt that the plans and specifications in their latest form as at 14 February 1999 did show a car park with 1225 spaces; and in my opinion the words "Once the Car Park has been erected" in cl 2.2 must be read as referring to the time when the car park as shown in the latest plans and specifications has been erected, and that time had not arrived by 7 June 1999. 270 There is some force in Mr Burton's contention that "to be erected" in cl 2.2 did not extend to include an erection that was not presently intended and was indeed unlikely to occur. However, in my opinion the better view is that the words are closely tied to the plans and specifications in their latest form, so that what is "to be erected" is simply what is shown in those plans and specifications. 271 Accordingly, there is in my opinion no error by the primary judge in relation to cl 2.2. 272 Before the primary judge, Macquarie did not contest that there was a breach of cl 2.1 of the Construction Deed by reason of failure by 30 June 1999 to substantially complete construction of the hospital. Macquarie did contend that it had by 30 June 1999 completed construction of the car park, claiming that the non-fulfilment of certain conditions of council approval did not mean that the construction was not completed. I consider and reject this contention when I consider Area Health's cross-claim; and in any event, in my opinion a contention that the construction of the car park had been completed by 30 June 1999 is probably inconsistent with Macquarie's case on cl 2.2. 273 Turning to cl 3.5 of the Construction Deed, the only contention of Macquarie noted by the primary judge in the first judgment was that the construction of the car park had been completed by 30 June 1999; and the primary judge rejected that contention. 274 However, in the second judgment, the primary judge noted a contention that cl 3.5 required only one payment, to be made at a time when the extent of the relevant delay was known (second judgment [17]). However, the primary judge held that liability to pay accrued on a daily basis until the end of the relevant period of delay (second judgment [23]). 275 That contention is repeated on appeal. Mr Hutley SC for Macquarie submitted that cl 3.5 required the deposit of "a sum" which was determined by calculating an amount of $33,000 per month "for the period measured in days by which the completion of the stage of the Works is later than the date for completion specified in the Timetable": that was just one sum, ascertained and payable at the end of the period. 276 It was contended for Area Health that this argument had not been raised below, and should not be entertained on appeal: however, as I have noted, it was raised for the purposes of the second judgment, and in my opinion Area Health cannot now take a Suttor v Gundowda point on this. 277 It was also contended for Area Health that Macquarie's contentions would not make commercial sense, because it would mean that the longer the delay, the later the obligation to pay would arise; and that in the event that the delay extended beyond 1 December 1999, the obligation to make a deposit would not arise before the obligation to actually make the payment under cl 3.4 (the reference to cl 3.3 in cl 3.5 is plainly a mistake for cl 3.4). Mr Burton submitted that the most reasonable construction was that payments of $33,000 should be made monthly in advance during the period of the delay, similarly to the requirement under cl 3.4. 278 In my opinion, the language of cl 3.5, especially when contrasted with that of cl 3.4, supports Macquarie's contentions. Clause 3.4 specifically requires that the additional rent of $33,000 be paid monthly in advance; whereas cl 3.5 requires the deposit of "a sum" calculated in a specified way. There is force in Mr Burton's contention that this could mean that no deposit was payable prior to the time when the obligation to make payments under cl 3.4 arises; but I do not think the wording of cl 3.5 can support an obligation to pay monthly in advance. 279 The other possible view is that of the primary judge, that liability to pay accrues daily. That would mean that from day one of the delay, Macquarie would be obliged to pay $1,100 each day in 30-day months (and slightly different amounts in other months), and any failure to do this (being an obligation to pay money) would be a breach of an essential term of the Construction Deed (cl 7.1). This interpretation is also in my opinion not consonant with the reference in cl 3.5 to "a sum"; and in my opinion such a daily obligation is not likely to have been intended. 280 In my opinion, the better view is that advanced by Macquarie; and accordingly in my opinion, Macquarie was not in breach of cl 3.5 when the default notices were served in September 1999. Section 129: rent 281 The primary judge held that the default of Macquarie in relation to cl 3.5 of the Construction Deed was a failure to pay rent, and accordingly that s 129(8) of the Act meant that Area Health did not have to comply with s 129 in relation to that breach. The primary judge also held that the obligation in cl 2.2 of the Car Park Lease was an obligation to pay rent. 282 Having regard to my decision concerning cl 2.2 and cl 3.5, it is not necessary to resolve this question in order to reach a decision in this case. However, I think I should express my views on it. 283 The primary judge adopted what he called the modern view as to what constitutes rent, considering that it extended to any payment for the possession of land under a lease, considered as a contract granting such possession; and Area Health contended this extended to any payment that was part of the consideration for possession granted under a lease. 284 On appeal, Macquarie has contended that "rent" in s 129(8) must be construed having regard to the history of this piece of legislation, extending back to a time when there was a narrower view of what constituted rent. According to this view, the liability to pay rent arose from the land as an incident of the landlord's reversion, rather than from a contract between the landlord and the tenant: Commissioner of State Revenue v Price Brent Services Pty Limited [1995] 2 VR 582 at 585. 285 It was suggested in Escalus Properties Limited v Robinson [1996] QB 231 at 243 by Nourse LJ that it was axiomatic that, since current statutory provisions concerning rent derived from legislation enacted in the eighteenth and nineteenth centuries, "rent" refers to "(i) a periodical sum, (ii) paid in return for the occupation of land, (iii) issuing out of the land, (iv) for non-payment of which a distress is leviable". However, in my opinion this approach should not be applied in New South Wales. Distress has been abolished (see s 177A of the Act); and in my opinion the history and context of s 129 is insufficient to prevent it operating according to the current meaning of rent, or at least the meaning of rent in 1919, as referring to an amount which a tenant is contractually obliged to pay for possession and use of the land; see for example Commissioner of Stamp Duties v Commonwealth Funds Management (1995) 38 NSWLR 173 at 181. 286 However, the definition of rent in s 7 suggests that the Act maintains a distinction between rent on the one hand, and a fine premium or foregift on the other hand, the latter being a sum paid for a grant or renewal or assignment of a lease (and going to the lessor independently of any use or occupation of the property under the lease), and the former being consideration for the use and occupation itself: Australian Mercantile Land and Finance Co Limited v Federal Commissioner of Taxation [1929] HCA 8; (1929) 42 CLR 145, Clarke v Federal Commissioner of Taxation [1932] HCA 46; (1932) 48 CLR 56, Cooper v Federal Commissioner of Taxation [1958] HCA 46; (1958) 100 CLR 131 at 145. In my opinion, "rent" in s 129(8) does not extend to consideration properly characterised as a fine premium or foregift. 287 There are statements suggesting that this distinction should not be maintained. In Property Holding Co Limited v Clark [1948] 1 KB 630 at 648 – 649 Evershed LJ said that rent is monetary compensation payable by the tenant in consideration for the grant, however it be described or allocated. That statement was quoted with approval in Commissioner of Stamp Duties v JV (Crows Nest) Pty Limited (1986) 7 NSWLR 529 at 538 – 539 by McHugh JA (Samuels JA agreeing); and this reasoning was in turn quoted with approval in Westley Nominees Pty Limited v Coles Supermarkets Australia Pty Limited [2006] FCAFC 115; (2006) 152 FCR 461 at [60] (Ryan, Heerey and Edmonds JJ). However, those dicta were not directed to the application of legislation in which the distinction drawn in the s 7 definition was being applied. 288 I accept that the provision of consideration other than monetary payment could be rent within s 129(8). This was the case under the historical conception of rent, and in my opinion it is also the case under the modern conception: Doe d. Edney v Benham (1845) 7 QB 976; Duke of Marlborough v Osborn (1864) 5 B & S 67; Montagu v Browning [1954] 1 WLR 1039. 289 In my opinion, on the view I have taken of what constitutes rent, neither amounts payable under cl 2.2 of the Car Park Lease nor amounts payable under cl 3.5 of the Construction Deed would be rent. 290 As regards cl 2.2, it is true that construction of the car park by Macquarie was part of the consideration for the grant by Area Health of possession of Lot 11 and Lot 12 for 103 years. However, I do not think the construction of the car park, or the car park itself when constructed, can properly be called rent: they constitute consideration for the grant of the leases, rather than for the possession of the land under the leases. And on that basis, in my opinion compensation to Area Health for some shortcomings in the car park as constructed would likewise not be rent. The circumstances that cl 2.2 appears under the heading "Rent" does not in my opinion alter this. 291 As regards cl 3.5, I note that under cl 2.3 of the Hospital Lease, the provisions of cl 3 of the Construction Deed are treated as varying the rent payable under cl 2.2 of the Hospital Lease. In my opinion, this does mean that amounts payable under cl 3.4 of the Construction Deed would count as rent under the Hospital Lease. However, I do not think the same applies to amounts payable under cl 3.5 of the Construction Deed: these are payable by way of deposit, to be applied on satisfaction of the obligation under cl 3.4 if and when the occasion to do so arises. In my opinion, an amount paid in that way, as a deposit for security rather than absolutely, could not be rent. Section 129: repudiation 292 Area Health submitted before the primary judge that it had rights to re-enter under the general law, and that, because in exercising those rights it was not acting under any provision of the leases, s 129(1) did not apply. 293 That contention was rejected by the primary judge, who held that the terms of the leases meant that the right to terminate had to be exercised in accordance with those terms; and that in any event, Area Health was by its default notices and termination notices exercising its contractual right to terminate (first judgment [541] – [544]). Accordingly (subject to the s 129(8) point) compliance with s 129 was required. 294 On appeal, Area Health challenges that decision. 295 It was submitted by Mr Burton that the conduct of Macquarie constituted fundamental breaches of the leases and the Construction Deed, and that it also constituted the repudiation of them; and that Area Health did not have to rely on contractual rights to terminate the leases on that basis, but could do so in reliance on its general law rights: Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447 at 14,457. Even on the narrower view taken in World Best Holdings Limited v Sarker [2010] NSWCA 24 at [42] – [44], Area Health was entitled to terminate the leases by accepting Macquarie's repudiation of them, without having to comply with s 129(1). 296 The decision in World Best proceeds on the assumption that there is a distinction between fundamental breaches of contract (which entitle the other party to terminate), and repudiation of a contract (which entitles the other party to terminate by acceptance of the repudiation): see Sanpine at [44], [47] – [49]. In general repudiation is constituted by communications or conduct manifesting unwillingness or inability to render substantial performance of the contract; and while some fundamental breaches would do this and thus amount to repudiation, this is not so in all cases. For example, it is open to parties to agree that a particular obligation under a contract is essential, in which case a breach of that obligation will be treated as a fundamental breach entitling the other side to terminate (Sharjade at [46]); but breach of such an obligation will not necessarily manifest unwillingness or inability to render substantial performance of the contract. In my opinion, as accepted in World Best, where a landlord terminates for breach of an obligation agreed by the parties to be essential, but where the breach does not amount to repudiation in the sense I have explained, a re-taking of possession would be the exercise of a "right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition or agreement (express or implied) in the lease" within s 129(1). 297 It is arguable that Macquarie's conduct in relation to the construction of the hospital was sufficient to amount to repudiation of the Hospital Lease (and thereby, through the linkages of the Hospital Lease to the other leases and the Construction Deed, of those other transactions); so that (although I do not understand the primary judge to have made a specific finding of repudiation) it is pertinent to consider whether such a repudiation would absolve Area Health of the necessity to comply with s 129. 298 One difficulty for Area Health of succeeding on this contention is, as found by the primary judge, that cl 16 of the Car Park Lease and cl 17 of the Hospital Lease clearly manifest an intention of both parties that even repudiation be dealt with by way of exercise of contractual remedies under these clauses, and not by way of termination at general law simply by accepting the repudiation. 299 Looking at cl 16 of the Car Park Lease, it is important to note that under cl 16.4, there is an Event of Default if "the Tenant" (meaning there Macquarie rather than both Macquarie and Area Health) "repudiates its obligations under this lease" or "under a Transaction Document"; and that cl 16.3 gives Area Health a right to terminate "if an event of default occurs". Clause 16.5 then provides that Area Health must not exercise its powers under cl 16.3 unless it first gives Macquarie notice of the particular Event of Default on which Area Health relies; in which case Macquarie has an opportunity within six months to assign its interest in the Car Park Lease and the Construction Deed and the Hospital Lease (cl 16.6(c), cl 16.7). In my opinion, express inclusion of repudiation in cl 16.4 does manifest the intention that Macquarie should have this right to assign the leases even in those cases where it has repudiated the Car Park Lease; and thus that in cases of repudiation, the general law right of Area Health to terminate by acceptance of the repudiation was excluded. 300 It was submitted for Area Health that termination at general law by acceptance of repudiation is preserved by cl 16.11, particularly having regard to the reference in that clause to "any other right". I note that the heading for cl 16.11 is "Preservation of Other Rights", whereas the heading for cl 16.3 is "Landlord's right to terminate". Although headings are not determinative of meaning, in my opinion, these headings strongly suggest that cl 16.11 is directed at rights other than the Landlord's right to terminate, which is comprehensively dealt with in cl 16.3 – cl 16.10; so that what cl 16.11 preserves is the right of a party not in breach to exercise any right other than the Landlord's right to terminate. This could include such remedies as injunction or specific performance. 301 Accordingly, in my opinion, exercise by Area Health of a right to terminate by reason of repudiation does fall within the opening words of s 129(1); and in any event, in my opinion, the primary judge was correct to hold that, by reason of the terms of the relevant default notice and notice of termination, this was just what Area Health was in fact doing. Thus, even if the conduct of Macquarie in relation to the hospital did amount to repudiation, this would not obviate the need for this default notice to comply with s 129. 302 In my opinion, the same argument applies to cl 17 of the Hospital Lease. Section 129: did the notices comply? 303 The primary judge held that the notices of default served by Area Health in September 1999 did satisfy the requirements of s 129 of the Act: [531] The cases make plain there is no fixed form of notice under s 129(1). Essentially, the notice must inform the lessee of the breach complained of "… with such particularity, as fairly to tell him what it is he is required to remedy, if it is capable of remedy, and what it is for which he is required to make compensation in money" ( Fox v Jolly [1916] 1 AC 1 at p22). The manner, form and content by which that information is communicated will vary according to the circumstances of the particular case. Nevertheless, to found a right to re-enter it is necessary that it meet the test. [532] In this case, it is relevant that Macquarie must be taken to have been familiar with the provisions of the car park lease, and with the procedure under cl 16 by which it might be terminated, and for re-entry by Area Health. The notice directed the reader's attention to cl 16. Macquarie rightly accepted that the alleged breaches or events of default were adequately specified as required by s 129(1)(a). In my opinion Macquarie, had it read the notice with reasonable care, would have had no difficulty in identifying by reference to the specified provisions of cl 16, the breach or events of default relied on, and the various options to remedy the defaults, the period within which to act, and the consequences of failure to do so. In the circumstances, compliance would not reasonably require that the terms of the clauses be recited in the notice, or that the agreed procedures for rectification and remediation in cl 16.6 be included. In my opinion, when read as a whole, the terms of the notice would clearly convey to Macquarie information of the kind, and to the extent, envisaged by s 129(1)(b) and s 129(1)(c). Furthermore, the time within which the breaches were to be remedied under cl 16.6 is to be understood as the time which the parties agreed was reasonable. In my opinion that should also be accepted as a reasonable time under s 129(1) (cf: Hovan's Hotels Pty Ltd v Cherry (Supreme Court of New South Wales, Bryson J, 14 March 1994, unreported)). Accordingly, I hold the notice was valid under s 129(1). The submissions of Macquarie on this issue are rejected. [533] The absence of evidence that Macquarie did not understand the purpose, meaning, or effect of the notice supports the finding, which I make, that it did. Mr Klinger's letter of 29 September 1999 to Area Health's solicitor demonstrated complete understanding of the notice; he disputed validity only on the basis that the specified events of default were denied. No doubt he turned his mind to all of the parts of cl 16, after addressing cl 16.4 by which events of default were defined. No mention of the notice was made in the letter of 25 October 1999 from Macquarie's solicitors to Area Health's solicitors in which the change of use issue was raised. In addition, it appears Macquarie raised no question about the notices following the letter of 4 November 1999 from Area Health's solicitors to its solicitors in which answer was made to Mr Klinger's assertions, and negotiations were invited for Macquarie's "… exit from the project". 304 It was submitted for Macquarie that the primary judge erred in that: (1) Contrary to the requirements of s 129(1), the default notices did not require either remedy of any of the breaches specified or payment of compensation; and (2) Even if the notices could be read in combination with cl 16 of the Car Park Lease and cl 17 of the Hospital Lease, and thus as requiring what was identified in those clauses as sufficient to avoid forfeiture, this would still not comply with s 129 because those requirements are different from those specified by s 129. 305 It was submitted for Area Health: (1) The notices, particularly when read with cl 16 of the Car Park Lease and cl 17 of the Hospital Lease, to which the notices referred and of which Macquarie was well aware, sufficiently drew Macquarie's attention to what needed to be done to avoid forfeiture of the leases; and (2) The notices drew attention in substance to what s 129 mandated, by alerting Macquarie to the opportunities to avoid forfeiture provided contractually, while not excluding the compulsory statutory restriction on forfeiture if Macquarie failed on contractual time limits but nevertheless remedied the breaches within an objectively reasonable time. 306 In my opinion, both of Macquarie's contentions are correct. 307 The genesis of s 129 lies in s 14 of the Conveyancing and Law of Property Act 1881 (UK) (which was re-enacted as s 146 of the Law of Property Act 1925 (UK)). In New South Wales, the equivalent of s 129 was first enacted by the Forfeiture of Leases Act 1901. For present purposes, these provisions are substantially identical to s 129; the only relevant difference is that the UK provisions contain no standard form like that which was set out in the schedule to the Forfeiture of Leases Act (now Sch 6 to the Conveyancing Act). This difference should be borne in mind, but it does not follow that the English cases are of no assistance: Johnson v Senes & Berger (1961) 78 WN (NSW) 861 at 862-863. 308 The purpose of s 129 is to give the lessee an opportunity to remedy any alleged breaches before the lessor exercises its legal right of forfeiture: Fletcher v Nokes [1897] 1 Ch 271 at 274; Horsey Estate Ltd v Steiger [1899] 2 QB 79 at 91; Ex parte Dally-Watkins; Re Wilson (1956) 72 WN (NSW) 454 at 456. 309 In my opinion, a proper opportunity is not afforded unless the lessee is alerted to the particular breaches on which the lessor proposes to rely and what the lessor requires in order to bring about a position where termination would not occur. 310 The reported cases are concerned with notices issued pursuant to alleged breaches of covenants to repair. In Fletcher v Nokes, a notice was issued under s 14 of the Conveyancing and Law of Property Act 1881 in which the lessor alleged generally that the lessee had "broken the covenants for repairing the inside and outside" of the demised premises, and required the lessee to repair "in accordance with the said covenants". This notice was held insufficient because the lease was over six houses and the notice did not indicate in which of the houses the default was made. North J said (at 274): I think the notice which is to be given under s 14 ought to be such a notice as will enable the tenant to understand with reasonable certainty what it is which he is required to do. I do not mean that the landlord need go through every room in a house and point out every defect. But the notice ought to be so distinct as to direct the attention of the tenant to the particular things of which the landlord complains, so that the tenant may have an opportunity of remedying them before an action to enforce a forfeiture of the lease is brought against him. In my opinion, the notice which the plaintiff has given to the defendant is not sufficiently specific. Sect. 14 says that it is to be a notice "specifying the particular breach complained of." I do not think that is met by a notice which simply says, "You have broken the covenants for repairing." The plaintiff has not condescended upon any details, and, in my opinion, the notice is not sufficient under s. 14. 311 To similar effect are the statements of Collins LJ in Penton v Barnett [1898] 1 QB 276 and Lord Russell CJ in Horsey Estate Ltd v Steiger [1899] 2 QB 79. Collins LJ said ([1898] 1 QB 276 at 281): I think, however, that we ought to construe the words "particular breach" in the section according to the obvious intention of the Legislature, which was that the tenant should be informed of the particular condition of the premises which he was required to remedy. The expression "breach" means the neglect to deal with the condition of the premises so pointed out, and not merely failure to comply with the covenants of the lease. The common sense of the matter is, that the tenant is to have full notice of what he is required to do. He has had notice, and has failed to act on it; and with regard to that the physical condition of the premises which he was required to make good was the same when the action was brought as when the notice was given. 312 Lord Russell CJ said ([1899] 2 QB 79 at 91): To determine the character of the required notice, what it shall contain and when it ought to be given, it is necessary to consider the scope of s. 14 of the Act of 1881 as a whole. The object seems to be to require in the defined cases (1.) that a notice shall precede any proceeding to enforce a forfeiture, (2.) that the notice shall be such as to give the tenant precise information of what is alleged against him and what is demanded from him, and (3.) that a reasonable time shall after notice be allowed the tenant to act before an action is brought. The reason is clear: he ought to have the opportunity of considering whether he can admit the breach alleged; whether it is capable of remedy; whether he ought to offer any, and, if so, what, compensation; and, finally, if the case is one for relief, whether he ought or ought not promptly to apply for such relief. In short, the notice is intended to give to the person whose interest it is sought to forfeit the opportunity of considering his position before an action is brought against him. 313 The statements in Fletcher v Nokes, Penton v Barnett and Horsey Estate v Steiger were quoted with approval in the leading case of Fox v Jolly [1916] 1 AC 1. Lord Buckmaster LC saw no reason to depart from the statement of North J in Fletcher v Nokes, "except so far as it seeks to establish the standard—often fluctuating and uncertain—of particulars in an action as a test of the sufficiency of the notice" (at 13). His Lordship went on to say that the particulars required for a notice in respect of a covenant to repair "would not necessarily be as detailed and minute" as the particulars required in respect of a claim for damages for breach of covenant (at 14). 314 Lord Atkinson was "quite willing" to accept the statement of North J, but said that it is to be borne in mind that the notice is addressed to a person who knows, or ought to know, the nature and condition of the premises, "so that a statement might be sufficient to draw his attention to the things of which the landlord complains, which might be insufficient so to do in the case of a stranger" (at 18). 315 Lord Parmoor said (at 22): My Lords, in my opinion a notice is sufficient to comply with s. 14 if it specifies to the lessee the breach complained of, with such particularity, as fairly to tell him what it is he is required to remedy, if it is capable of remedy, and what it is for which he is required to make compensation in money. To determine whether a notice complies with this test depends on the information which the notice, as a whole, may be fairly said to give. 316 The impugned notice in Fox v Jolly was served by the lessor of six small houses. Annexed to the notice was a schedule of dilapidations, including, for example, "Make good all cement fillets and all flashings" and "Repair landings and other woodwork". Lord Buckmaster LC held that the notice sufficiently specified the landlord's complaints and gave the tenant adequate notice of what he was required to do. In reaching this conclusion, his Lordship said (at 11): Now the schedule is attacked on several grounds. It is said that it does not tell the tenant what it is he ought to do in order to remedy the breach of which the complaint is made. I am not prepared to accede to that view of the schedule. But even if it did not, I can find nowhere in the section any words which cast upon the landlord the obligation of telling the tenant what it is that he must do. All that the landlord is bound to do is to state particulars of the breaches of covenants of which he complains and call upon the lessee to remedy them. The means by which the breach is to be remedied is a matter for the lessee and not for the lessor. In many cases specification of the breach will of itself suggest the only possible remedy. For example, complaint that a covenant to paint or to paper has been broken can only be met by painting and papering. But it does not follow that this is always so. A particular covenant to keep the roof watertight, if broken, would be sufficiently defined by a reference to the covenant, a statement that the roof had not been kept watertight, and that the tenant was required to remedy the omission; the means by which this could be accomplished would be for the tenant to determine. 317 The Australian position reflects the above authorities. In the second reading speech to the Forfeiture of Leases Bill, the Hon F B Suttor said that the object of the bill was to bring New South Wales law into conformity with the English law, and that: The object of the bill is to give the lessee the right to have notice given to him before his lease is cancelled so as to have time in which to complete the necessary repairs and in which to pay the necessary compensation demanded by the lessor for breach of the covenant of the lease. New South Wales Legislative Council, Parliamentary Debates (Hansard), 4 July 1900 at 619; 11 July 1900 at 816. 318 In Gerraty v McGavin (1914) 18 CLR 152 at 160 (decided before Fox v Jolly), Griffith CJ quoted with approval the statement that Collins LJ made in Penton v Barnett, and held that a notice merely quoting the covenant was insufficient. Isaacs J agreed in the result with Griffith CJ, saying that a lessor (at 164-165): [M]ust then do what he would have to do if he had brought an action, namely, specify what he says is "the particular breach," and not merely state that there has been "a breach." If he does that, he is not bound to go further and instruct the tenant how to repair it. That would not only be an undue burden on the landlord, but, if effectual at all, would tie the tenant down to one particular mode of repairing his fault. 319 In Dogan v Morton (1935) 35 SR (NSW) 142 at 148, Davidson J (with whom Stephen and Street JJ agreed) referred to the English authorities and concluded: The landlord must give the kind of particulars which will draw the attention of the lessee to the particular defect in the premises which he desires to have rectified in accordance with the covenant. The indication need only be such as would enable the lessee to understand with reasonable certainty what it is that he is required to remedy. 320 In Ex parte Dally-Watkins; Re Wilson (1956) 72 WN (NSW) 454 at 456, Street CJ (with the concurrence of Roper CJ in Eq and Sugerman J) said that the object of the notice is to bring to the attention of the lessee the matters which are complained of and to give him the opportunity of rectifying what has taken place in the past, if it be capable of rectification. To do so, the "vital thing" is to alert the tenant to the term of the lease alleged to have been broken and the manner in which it has been broken. Street CJ also held that the form set out in Sch 6 is not "a piece of sacramental ritual". 321 In Johnson v Senes & Berger (1961) 78 WN (NSW) 861 at 864, Wallace J said (referring to Horsey Estate v Steiger): The object of this legislation includes not only the placing of restrictions on and the giving of relief against forfeiture and re-entry, but the placing of the lessee in a completely informed position so as to enable him to elect what shall be his subsequent conduct. 322 Finally, in Visser v Jacobs (1987) NSW ConvR 55-350 at 57,164, Bryson J explained that: The underlying mechanism achieved by the working of sec. 129 is that provisions of leases which create rights of re-entry are not employed to deprive lessees of valuable leasehold interests if other measures are available to bring about the desirable result that covenants of leases are complied with and breaches of them are remedied. Bryson J acknowledged that the "degree of specificity must vary with the circumstances and with the facts already known or manifest to the lessee". One of the bases on which the notice in Visser was held invalid was that it contained no specification of particular breaches (only the general subject of the breaches). 323 In my opinion, the above authorities clearly indicate that a notice under s 129 must not only allege breach, but must also describe the particular acts or omissions constituting the alleged breach; and the notice must indicate the acts of the tenant which the landlord would consider sufficient for the lease to continue, and upon completion of which the landlord would abandon its claim to forfeit. The standard of particulars or degree of specificity depends upon the circumstances, including the nature of the covenant alleged to be breached, the tenant's actual or constructive knowledge, and whether the landlord claims reasonable compensation. To use the example of Lord Buckmaster LC, where there are several options open to a tenant to waterproof a leaking ceiling, then that choice is at the tenant's discretion. Thus s 129 is, in my opinion, directed at allowing the tenant to bring about (within a reasonable time) a state of affairs under which the landlord would not pursue forfeiture. 324 In particular, the lessee should not be left to speculate as to whether, if it took whatever action it could to remedy the specified breaches, the lessor might nevertheless proceed to terminate the lease on the basis that the breaches were not capable of remedy or that, because what the lessee did was insufficient to eliminate loss caused to the lessor by the late performance of the lessee's obligations, the lessee was still in breach. 325 In the present case, the notices did not express any requirement to do anything. Even accepting that they can be read with cl 16 of the Car Park Lease and cl 17 of the Hospital Lease, they did not alert Macquarie as to whether Area Health was asserting that the breaches were remediable by payment of money (and if so, what was "all money necessary to remedy the Event of Default"), or were remediable other than by payment of money (and if so, by what), or were not remediable (and if so, what compensation would be to the reasonable satisfaction of Area Health). Specifically, the notices did not indicate whether Area Health was claiming interest on money that had not been paid at the times required by the agreements, or was claiming that the failure to complete the car park or substantially commence the hospital by 31 June 1999 caused loss entitling Area Health to compensation even if Macquarie proceeded in response to the notice to do these things. 326 Accordingly, the notices did not convey to Macquarie what Area Health claimed Macquarie needed to do to avoid the failure referred to in s 129(1) which would then permit Area Health to exercise its right of re-entry or forfeiture. 327 A s 129 notice is not invalidated if the lessor includes in it specification of breaches that a court later finds were not committed: Fox v Jolly. In my opinion, it would follow from this that an otherwise valid s 129 notice is not invalidated just because the lessor requires the lessee to remedy a breach that has not in fact occurred, or to pay an amount in compensation that is more than what is reasonable. In such cases, if the lessee does not wish to comply with requirements in the notice to the extent that the lessee considers them excessive, the lessee may take the risk of not complying fully with the lessor's requirements; and if the lessor then purports to forfeit the lease and the matter comes to litigation, the lessee may or may not be successful. But in such a case, at least the lessee is given information as to what the lessor requires and can be confident that if these things are done there will be no forfeiture. The notices in this case did not perform that function. 328 As regards Macquarie's second contention, even if the notices are read as requiring what cl 16 of the Car Park Lease and cl 17 of the Hospital Lease require in order to bring about the contractual waiver provided by those clauses, the notices would then convey requirements inconsistent with s 129(1). In particular, the circumstances may be such that the "reasonable time" permitted by s 129(1) is longer than the 14 or 28 days referred to in cl 16.6(a) of the Car Park Lease and cl 17.6(a) of the Hospital Lease; and also, s 129(1) would preclude forfeiture if a remediable breach is remedied within a reasonable time, whether or not a written undertaking is given within 28 days to remedy the breach, as required by cl 16.6(b) of the Car Park Lease and cl 17.6(b) of the Hospital Lease. 329 It was indeed submitted by Mr Hutley SC for Macquarie that, because of the terms of these clauses of the leases and the inconsistency of their requirements with those of s 129, Area Health would have to give successive notices in order to terminate the leases, first one under the contract and then a second notice complying with s 129. In my opinion this is not so: one notice could both comply with s 129 (in effect conveying what was required in order to obtain the statutory protection), while at the same time alerting Macquarie to the different options available under the leases to obtain the contractual waiver provided by the leases. 330 In any event, in my opinion s 129 did operate to preclude Area Health taking possession of Lot 11 and Lot 12 on 17 March 2000, and Area Health's action in doing so was a trespass against Macquarie. Section 129: other issues 331 Two further issues arise: (1) The Construction Deed is not a lease, so there is a question whether s 129 means that the Construction Deed was not effectively terminated. (2) There may be a question as to what if any remedy should be given to Macquarie, in circumstances where its conduct in relation to construction of the hospital may well have been repudiatory, and where there is no indication from Macquarie that it now proposes to proceed with construction of the hospital. 332 On the first issue, a very close relationship of the leases and the Construction Deed is apparent from cl 1.3 and cl 1.4 of the Construction Deed, cl 1.6 and cl 1.7 of the Car Park Lease, cl 1.2 of the Car Park Sub-Lease and cl 1.6 and cl 1.7 of the Hospital Lease; and also, cl 8.1(d) of the Car Park Lease and cl 9.1(d) of the Hospital Lease are covenants by Macquarie to comply with the Construction Deed. 333 In my opinion, while it may in some circumstances be possible for the Construction Deed to be terminated for breach without at the same time bringing about termination of the leases, and vice versa, that did not happen in this case. The termination procedure adopted by Area Health recognised the close interdependence of the Construction Deed and the leases, and the intention manifested by Area Health's conduct was to terminate the whole package, not to terminate any single part of it in the absence of termination of other parts. I understand this to have been accepted by Mr Burton. 334 Further, in my opinion it would not be open to Macquarie to claim the protection of s 129 in order to avoid forfeiture of leases containing a covenant by it to comply with the Construction Deed, and yet to claim that the Construction Deed has been terminated by Area Health by a notice of default and a notice of termination given by Area Health at the same times and on the same grounds as those in respect of the leases, which have turned out to be ineffectual because of s 129. 335 In my opinion, by pursuing relief under s 129 in these proceedings, Macquarie is confirming that it has the obligations provided by the leases, including the obligation to comply with the Construction Deed; and is thereby recognising that the Construction Deed is still binding on it. 336 Accordingly, in my opinion the Construction Deed continues to bind both Area Health and Macquarie. 337 As regards the second issue, the findings of the Court necessarily mean that Macquarie has a full legal entitlement to possession of Lot 11 and Lot 12 pursuant to the leases, which continue to be in force, independently of any order this Court might make. In those circumstances, in my opinion Macquarie is entitled to judgment giving it possession of those lots, as sought in its pleadings. That is a legal remedy, and there is no discretionary basis on which it can or should be withheld. In my opinion also, there is no reason why Macquarie should not have an inquiry as to damages or an account of monies received by Area Health, at Macquarie's election. 338 It may of course then be open to Area Health immediately to seek again to obtain possession on the basis of Macquarie's breaches, particularly in relation to construction of the hospital. A question may then arise as to whether the procedure required by cl 7 of the Construction Deed, cl 16 of the Car Park Lease and cl 17 of the Hospital Lease would need to be gone through again, or whether it would be sufficient for Area Health just to comply with s 129. This question does not arise in this case, and I express no view on it. Compensation clauses: relevance to primary judge's decision 339 Having regard to my decision concerning the s 129 issue, I would set aside the primary judge's judgment for Area Health on Macquarie's claim; and in those circumstances, Macquarie does not seek relief against forfeiture or restitution or any other remedy related to unjust enrichment of Area Health. Accordingly, the issue concerning whether the decision of the primary judge relating to these matters should be set aside does not arise. However, in my opinion it is appropriate to express my views on it. 340 In its pleadings, Macquarie sought relief on the basis of relief against forfeiture and unjust enrichment. 341 In his opening address to the primary judge, Mr Burton SC (1 Black 48) referred to the compensation clauses, and said that if Area Health succeeds and dispossesses Macquarie, Area Health was "still obliged to release 90 per cent of the net return from that, plus 90 per cent of any premium, less the rental we would be able to retain under the lease"; and that this was "relevant to the issue of forfeiture, and also to the issue of reinstatement" (apparently meaning, "restitution"), and "also relevant to damages". 342 At the stage of final addresses, Macquarie abandoned its claim for unjust enrichment or restitution. In final addresses on Macquarie's claim for relief against forfeiture (10 Black 4876), Mr Dubler said that the remedy under the compensation clauses would be inadequate because it depended on the vagaries of the market, and would only give Macquarie 90 per cent (not 100 per cent) of the premium, giving a windfall of 10 per cent to Area Health. 343 Also in final addresses, Mr Burton said this (11 Black 5354 – 5): So, under the sale and compensation process in the contractual provisions, the defendant leases out the premises, or it has to try to do so for the rest of the term. The plaintiff gets 90 per cent of the value, which must be to reflect the fact that the defendant is getting the benefit on the assumption of this clause, from the improvements, if there are any. And the plaintiff is entitled to something for those improvements, and the way that is assessed is whatever the market value is. 344 In written submissions (15 Black 7164 – 7166), Mr Burton considered the effect of the clauses, suggesting that they provide a means by which 90 per cent of the value of improvements to the property, as perceived by the putative new tenant, is passed back to Macquarie. 345 In written submissions on the cross-claim, Mr Burton referred to par [664] of the primary judge's first judgment, and submitted that the presence of the compensation clauses "for whatever they mean and are worth, until exercise mean that most of the benefits [to Area Health] which [Macquarie] alleges are illusory" (16 Black 7547). 346 I have already set out the primary judge's references to the compensation clauses in par [664] of his first judgment and pars [170] – [173] of his second judgment. 347 Mr Burton submitted that the construction and the effect of the compensation clauses was not the subject of the litigation. That is so, but it is also clear that the case was conducted on an assumption that they were valid, applicable and efficacious, albeit that their value to Macquarie depended on the vagaries of the market. In my opinion also, it is a reasonable inference that Macquarie abandoned its unjust enrichment or restitution claim on this same assumption; and also reasonable for this Court to accept Mr Dubler's assertion to the same effect. 348 In my opinion, the view that the compensation clauses were valid, applicable and efficacious in the circumstances of this case, albeit that their value depended on the vagaries of the market, was material to the decision of the primary judge on the basis set out in par [664] of the first judgment and pars [170] – [173] of the second judgment. It may be that the primary judge would have reached the same conclusions, even if he had accepted that the compensation clauses were not valid or not applicable or not efficacious; but the primary judge did express reliance on them, and particularly having regard to the abandonment of the restitution claim it may well be that there would have been a different result before the primary judge if the assumption of validity, applicability and efficacy had not been made. Furthermore, it is likely that the issues reasonably available on appeal concerning relief against forfeiture/ unjust enrichment/ restitution would have been different. Compensation clauses: effect of subsequent events 349 Following delivery of the first judgment in July 2008, Macquarie became aware for the first time that Area Health did not accept and in fact intended to dispute the validity of the compensation clauses (affidavit of P W Moran 22 September 2009 par 15). 350 On 16 September 2009, Macquarie commenced proceedings in the Equity Division (4450/09) seeking a declaration that the compensation clauses are valid, and in the alternative a declaration that Macquarie is entitled to restitution at general law. A document prepared on behalf of Area Health by Mr Burton and his junior Mr Bruckner dated 21 December 2009 for the purposes of those proceedings (Truncated Bundle tab 7) set out contentions of Area Health supporting the invalidity, inapplicability and/or ineffectuality of the compensation clauses in the circumstances of this case. 351 In my opinion, the contention of Area Health, raised for the first time after delivery of the first judgment, that the compensation clauses are invalid, inapplicable and/or inefficacious in the circumstances of this case, is a matter not reasonably foreseeable by Macquarie or the primary judge, which materially affects the question of whether the decision of the primary judge on relief against forfeiture and restitution was correct. 352 In relation to damages for personal injuries, where evidence is sought to be led of events happening after judgment as showing that the award was incorrect, the following approach is supported by the decision of Lord Wilberforce in Mulholland v Mitchell [1971] AC 666. His Lordship stated that the matter was one of discretion and degree, and continued as follows (at 679 – 680): Negatively, fresh evidence ought not to be admitted when it bears upon matters falling within the field or area of uncertainty, in which the trial judge's estimate has previously been made. Positively, it may be admitted if some basic assumptions, common to both sides, have clearly been falsified by subsequent events, particularly if this has happened by the act of the defendant. Positively, too, it may be expected that courts will allow fresh evidence when to refuse it would affront common sense, or a sense of justice. 353 This approach has been followed by this Court in Radnedge v Government Insurance Office of New South Wales (1987) 9 NSWLR 235 and Doherty v Liverpool District Hospital (1991) 22 NSWLR 284. See also Barder v Caluori [1988] AC 20, Murphy v Stone-Wallwork (Charlton) Limited [1969] 1 WLR 1023, Livesey (formerly Jenkins) v Livesey [1985] AC 424, Vernon v Bosley (No 2) [1999] QB 18. 354 In my opinion, if the compensation clauses are invalid or inapplicable or ineffectual, Macquarie would have an arguable case for some relief on the basis of relief against forfeiture/ unjust enrichment/ restitution: cf Clancy v Salienta Pty Limited [2000] NSWCA 248; (2000) 11 BPR 20,425, especially at [202] – [252] per Giles JA, and cases there cited. The invalidity and/or inapplicability and/or ineffectuality of clauses manifestly intended to provide some restitution and to prevent unjust enrichment could itself be a ground for granting this kind of relief. 355 Accordingly, had Macquarie's s 129 case failed, in my opinion it would have been appropriate to set aside the primary judge's decision on relief against forfeiture, and to refer all questions of relief against forfeiture/ unjust enrichment/ restitution to be decided in the fresh proceedings. This course would have had the additional advantage of ensuring that possibly embarrassing questions of issue estoppel did not arise in those proceedings. Cross-claim: debts before 17 March 2000 356 I have already set out briefly the primary judge's findings on the cross-claim: at par [65] above, I have set out his finding concerning debts alleged to have arisen before 17 March 2000, and at pars [67] – [70], I have set out his findings concerning damages or liabilities alleged to have arisen after 17 March 2000. 357 As regards the former, my decision concerning the breaches alleged in Area Health's notices of default are relevant. For the reasons then given, in my opinion the primary judge was correct to reject Area Health's claim under cl 2.2 of the Car Park Lease; but was in error in holding that Area Health was entitled to rent under cl 3.5 of the Construction Deed at the rate of $33,000 per month from 1 July 1999. There is in my opinion an additional reason why the claim under cl 3.5 does not entitle Area Health to judgment for a sum of money: the obligation under cl 3.5 is merely to deposit the sums in question, and Area Health is entitled to those sums beneficially only if and when it becomes entitled to the payment provided for by cl 3.4 of the Construction Deed. 358 I note that, according to cl 3.4 of the Construction Deed and the Timetable, Macquarie did become liable to pay $33,000 per month, monthly in advance, from 1 December 1999; and that could possibly have supported a claim for $33,000 for each of the months from December 1999 to March 2000. However, in my opinion Area Health is not entitled to judgment on that basis on this appeal. No such claim was made below; and it was submitted for Macquarie that, had such a claim been made, Macquarie would have asserted that it was entitled to extensions of the Timetable in accordance with cl 2.2, cl 2.3 and cl 2.5 of the Construction Deed, and led evidence in support of that assertion. In my opinion, this is a valid Suttor v Gundowda objection to such a claim being raised on appeal. Cross-claim: availability of damages for events after 17 March 2000. 359 As regards other amounts claimed under the cross-claim, I have noted that the primary judge rejected Macquarie's contention, in relation to events after termination, that Area Health could not maintain claims for particular expenses, but rather needed to prove its overall loss. 360 The general rule is that, when one party terminates a contract for fundamental breach or repudiation by the other party, the only claim the terminating party has, beyond any amounts already accrued due under the contract, is for damages for loss of the bargain. If the contract provides for some specified amount or amounts to be paid in such a case, then this provision will generally be unenforceable as a penalty unless the amounts in question are either a deposit which is reasonable in the circumstances or genuine pre-estimates of damages likely to be suffered by the terminating party. 361 In my opinion if, contrary to my earlier findings, the leases and the Construction Deed were validly terminated on 17 March 2000, this principle would apply to provisions which permitted Area Health to claim particular expenses from Macquarie without addressing the question whether or not it was entitled to damages for loss of a bargain. As pointed out for Macquarie, this question would require account to be taken of the value to Area Health of the car park erected by Macquarie (apparently at a cost in the order of $12 million, in addition to $5.5 million paid for the leases and other costs which appear to be in the order of $6.5 million), less whatever the detriment to Area Health of the compensation clauses turned out to be. In my opinion, it does not assist Area Health that its entitlement to these sums is expressed in terms of an indemnity against expenses. 362 However, since I have held that the leases and the Construction Deed were not validly terminated on 17 March 2000, Area Health's claim should be assessed on the basis that they are claims for an indemnity or damages under ongoing agreements. I note that cl 7.8(a) of the Construction Deed and cl 16.8(a) of the Car Park Lease apply only in the event of termination; but cl 9.1 of the Construction Deed applies whether or not there has been termination. This clause gives rise to the question whether Area Health's claims fall within the words "liability or loss arising from, and costs incurred in connection with … [Area Health] doing anything which [Macquarie] must do under this deed but has not done or has not done properly". 363 It is common ground that Macquarie was obliged by the Construction Deed to complete the car park by 30 June 1999 at the latest. The four items referred to in par [66] above were claimed by Area Health on the basis that they were works required to complete the car park, because they were required to satisfy conditions imposed by South Sydney Council in its development approval in respect of the car park. In my opinion, if any of these items were work required in order to complete construction of the car park, then (subject to any agreement to the contrary) it was something which Macquarie "must" have done by 30 June 1999 and did not do, so that if Area Health incurred expense in doing it, the indemnity in cl 9.1 of the Construction Deed is engaged. 364 This gives rise to three questions, which I will consider in turn: (1) Was it the case that the construction of the car park was not complete until relevant conditions of the car park approval were satisfied? (2) Did Area Health agree itself to perform certain of these conditions, namely installing certain traffic lights and servicing New Hospital Road? (3) Was one item, the construction of a retaining wall, within the conditions in any event? Cross-claim: did non-fulfilment of conditions entail non-completion of the car park? 365 The primary judge determined this question favourably to Area Health. In the second judgment, pars [55] and [56], he referred to reasons given in the first judgment for holding that, by reason of non-fulfilment of conditions, Macquarie had failed to complete construction of the car park by 30 June 1999. The relevant paragraphs in the first judgment are the following: [471] Condition 3 of the approval to the car park building application required compliance with the conditions of approval to the development application. Condition 2 of the development approval and condition 38 of the building approval each required: That, prior to issuing a Certificate of Classification by Council, and therefore operation of the car park, the building application for the adjoining private hospital shall be approved and works shall have substantially commenced. [472] The conditions referable to the New Hospital Rd/Carillon Ave traffic lights, the Carillon Ave/Missenden Rd traffic lights, the surfacing of New Hospital Rd, the construction of Link Rd, and the roadwork in Mallet St required each to be operational prior to issuing a certificate of classification for the car park, or completed prior to its operation. [473] As I understood it, Macquarie's submission was that under the construction deed there was a distinction between the obligation to complete construction of the car park (i.e to erect the structure) and the obligation to comply with conditions relating to the car park. It was put, for example, that although the commissioning of traffic lights was encompassed in the definition of "Works", the construction of the car park is not to be understood to include the work for the traffic lights. It was argued that the distinction is illustrated by the difference in wording between cl 2.1 which required, under the timetable, completion of "construction of the car park" by the specified date, and cl 3.6 car park sub-lease which required compliance with provisions "relating to the car park". It was put that the conditions were matters "relating to the car park", and distinct from, and were not to be considered as included in, matters relevant to completion of the building. It was put that non-compliance with the conditions may be a breach of cl 3.1, which made it erroneous to claim that such conduct was a breach of cl 2.1 as in the notice. [474] Thus Macquarie argued that non-compliance with the conditions did not prove non-completion of construction of the car park. [475] The proper approach to the construction of the agreements accepts that as it is a commercial document it should be given a business-like interpretation. Its interpretation requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. McCann v Switzerland Insurance Australia Ltd ( Allen's case ) [2000] HCA 65 ; (2000) 203 CLR 579, p589. As with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole. Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, pp 381–382; Wilkie v Gordian Runoff Ltd [2005] HCA 17 ; (2005) 221 CLR 522, pars 15–16. [476] In Taylor v Dexta Corp Ltd & Ors [2006] NSWCA 310 ; (2006) 14 ANZ Ins Cas 61-712, Santow JA pointed out (par 30) that "… A necessary corollary of that requirement for a commercial contract to be given a business-like interpretation is the frequent emphasis upon the need to arrive at an interpretation which is commercially sensible, and in accord with commercial reality". [477] Analysis of the definition of "Works" shows that construction of the car park is to be understood to include, where appropriate, all ancillary works and activities associated therewith. The latter were to be carried out in accordance with the relevant development and building approvals. The carrying out and completion of the works under cl 3.1 were to be in accordance with the terms of such approvals. In this case, the effect of the approvals was such that the legitimate operation of the building as a car park depended upon the substantial commencement of the hospital, and compliance with the conditions. It is clear from the terms of the approvals that contravention of the conditions made it unlawful to use the premises for the purpose of a car park. [478] In my opinion, on a common sense approach to the ordinary and unambiguous language of the relevant provisions of the construction deed, there can be no doubt that the contractual intention underlying cl 2.1 and the timetable was that completion was reached when the work had been finished, and nothing further was to be done for it to be used for the purpose for which it was built, namely as a commercial car park. Accordingly, in my opinion, under the construction deed fulfilment of the obligation to complete construction of the car park necessitated completion of all ancillary works and associated activities in accordance with the approvals whereby the car park became lawfully operational for its intended purpose, being usage for an approved 1225 spaces. This is what was required under cl 10.1 car park lease and cl 3.6 car park sub-lease earlier referred to. [479] Such a meaning is consistent with what the agreement shows to be the intention of the parties for what was required to bring to completion the construction of the hospital. The timetable specified the same dates for completion of construction of the hospital, the admission of the first patient, and the rent commencement date (as defined). When read in context with other relevant provisions it supports the construction that completion of the hospital meant reaching the stage at which it was substantially fit for occupation and use by Macquarie, and the first patient was admitted, ie fit for the agreed purpose. [480] The meaning is also consistent with the requirement under cl 11.1 hospital lease that Macquarie must erect the Hospital and ancillary services in accordance with the Construction Deed. [481] Acceptance of Macquarie's submissions would mean that it would have discharged its obligation to complete construction of the car park upon the erection of the structure, although under the approvals it was not lawful to use it for the purpose of a car park. Such an outcome would be contrary to ordinary, commercial common sense, and would negate the underlying intent of the agreement. Macquarie's submissions must be rejected. [482] Accordingly, I hold that non-compliance with the conditions constituted failure by Macquarie to complete construction of the car park in accordance with the timetable in breach of cl 2.1 and, thus, the event of default as alleged in the notice. It is not to the point that it may have been open to Area Health to give a notice of default under cl 3.1 specifically based on non-compliance with the conditions. 366 On appeal, it was submitted for Macquarie that the primary judge erred: (1) In taking into account the definition of "Works" in the Construction Deed, when the relevant definition was that of "Car Park"; and (2) In holding that construction of the car park was not completed until the stage was reached when it was operational as a car park. 367 In my opinion, it is relevant that cl 2.1 of the Construction Deed required Macquarie to "complete the Works in accordance with the Timetable"; and the Timetable gave dates for completion of construction of the car park and completion of the hospital, but not for completion of any other aspect of the Works. If Macquarie's contentions were correct, there would be no time limited by the Timetable for satisfying council conditions concerning construction work that did not fall within the narrow interpretation of the construction of the car park; and having regard to the clear intention that the Timetable closely constrained Macquarie's performance, in my opinion that was not the intention manifested by the Construction Deed. 368 In my opinion, the primary judge was correct to conclude that completion of construction of the car park, within the meaning of the Timetable, did not occur until there was a car park which was ready to be used as such; and if there were outstanding construction tasks required by the conditions of the council consent, which needed to be performed before the car park could lawfully be used, then the construction of the car park was not completed, even if these construction tasks were not to be carried out on the structure of the car park itself. Cross-claim: did Area Health agree to perform certain conditions? 369 Before the primary judge, Macquarie relied on correspondence between Area Health and Macquarie in support of a contention that Area Health had agreed to install traffic signals at the corner of Missenden Road and Carillon Avenue and to surface New Hospital Road. 370 On 31 May 1999, Area Health wrote to Macquarie as follows (20 Blue 8706 – 7): Prince Alfred Private Hospital and Carpark Following our meeting with Mr John Morrison on Friday 28 May 1999 we wish to formally advise you of our offer of assistance to complete the private hospital carpark. As you are aware, it is of great concern to the Area Health Service and the staff of Royal Prince Alfred Hospital that the carpark is still not operational. This problem must be solved urgently and our offer is made to achieve in an endeavour this end while reserving without prejudice to them the rights of both parties and our respective obligations. In regard to the development conditions imposed upon Macquarie by the Land and Environment Court it is your advice that you satisfy the condition regarding substantial commencement of the hospital. In summary, the other conditions of consent placed upon Macquarie and upon which the opening of the carpark is dependent appear to be: 1. the erection of traffic lights at the intersection of Missenden Road and Carillon Avenue; 2. the construction of "link road"; 3. the completion of the carpark building and the installation of operating equipment, (it is noted that landscaping to the carpark has not commenced); and 4. the surfacing of "new hospital road" and the erection of the containment wall. While all of these are your responsibility we are prepared, in the interests of our staff, to meet the cost of some of the above works (specifically the erection of traffic lights and surfacing of New Hospital road), and to provide project management on an interim basis and subject to the reservations and to their terms in this letter and toward their satisfactory completion. Repayment of the amounts expended on these works will be achieved through the hospital withholding the parking fees paid by staff until such time as the debt is paid in full. It will also be necessary for you to provide an unconditional bank guarantee for an amount approved by the Area Health Service as the amount required to construct "link road". Further that this bank guarantee by a bank approved by the Area Health Service (and in this case CBA, Westpac, NAB and ANZ are approved in advance) will be in favour of Central Sydney Area Health Service and payable on demand for an indefinite period or until Macquarie completes that work or, if Macquarie fails to do so within six months of the acceptance of this letter, until the work is carried out on behalf of Macquarie by the Area Health Service. The Area Health Service will attempt to negotiate with South Sydney Council for the opening of a temporary alternative to "link road", but of course the area Health Service cannot speak on behalf of Council who will be the ultimate authority on this matter. This offer remains available to Macquarie until 4 pm on 1 June 1999 when, if unaccepted it will be withdrawn. This is a once only offer and the Area Health Service will not discuss the matter further. If you accept the offer it is expected that you will provide all drawings at hand, costs and plans relating to the works in question so that the Area Health Service might immediately commence the works, and that you will carry out whatever might be necessary to facilitate novation of any existing contracts that the Area Health Service may require. The offer is not subject to negotiation, nor is the Area Health Service willing to agree to acceptance of part of the offer. Again, you are reminded that this offer reserves, without prejudice, all existing rights of both parties. I look forward to receiving your reply before 4 pm on 1 June, 1999. 371 On 1 June 1999, Macquarie replied as follows (20 Blue 8712): PRINCE ALFRED PRIVATE HOSPITAL AND OUR ASSOCIATED JOINT VENTURE CAR PARK We refer to Mr Wallace's letter of 31 May 1999. It is noted that your proposal is "without prejudice" to all existing rights and obligations of both parties and your proposal was submitted to us solely upon your instigation. These rights and obligations arise from the Heads of Agreement of 18 th September 1989, the Construction Deed – Construction of Hospital and Car Park of 2 nd December 1996, the Hospital Lease of 2 nd December 1996, the Car Park lease of 2 nd December 1996, the Car Park sub lease of 2 nd December 1996; the Car Parking Management Agreement of 2 nd December 1996 and the Co Ownership Agreement – Car Park of 2 nd December 1996. We accept your proposal in respect to the works at the Missenden/ Carillon intersection and for surfacing the New Hospital Road on the basis that: the works are conducted in a cost effective and expeditious manner; the works undertaken and completed are only those required in accordance with CSAHS/ Macquarie planning approvals; the project management fees are competitively reasonable for the works; there is full transparency and audit trail provided to Macquarie in respect to the works and fees; In return for Central Sydney Area Health Service undertaking these works, but limited to the actual cost of such works and excluding any overhead or interest, Macquarie is prepared to forgo/ relinquish it [sic] right to receive parking fees payable by CSAHS staff until such time necessary for CSAHS to recoup the cost of the agreed works. Please advise how the parties progress and implement this agreement. 372 On 10 June 1999, Macquarie received a draft agreement apparently intended to give effect to the proposed arrangement (20 Blue 8708 – 11). On 18 June 1999, Macquarie wrote to Area Health alleging discrepancies between this draft agreement, on the one hand, and Area Health's proposal of 31 May 1999 and Macquarie's acceptance of it on 1 June 1999, on the other hand; and asserting a wish to proceed on the basis of that proposal and acceptance (20 Blue 8724 ff). Area Health responded on 21 June 1999, stating that this communication meant that Macquarie had failed to take up Area Health's offer and that this offer had expired (20 Blue 8729). 373 However, on 29 June 1999, Area Health sent the following letter to Macquarie (20 Blue 8747): Re: CSAHS: MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LIMITED AND ANOR : CONSTRUCTION DEED Property: 35-43 Carillion Avenue and 114 Church Street, Camperdown We note your letter of 18 June 1999 in response to our draft Agreement forwarded to you. Without covering in detail the acceptability or otherwise of your comments, we are prepared to proceed on the basis of what you accepted in your letter of 1 June 1999. We shall commence the works as soon as you provide us with the drawings, plans, approvals, Contracts and any other documents which you have covering the traffic lights at the Missenden/ Carillion intersection and the resurfacing of New Hospital Road. We will render you monthly statements as to the amounts of parking fees withheld by Central Sydney Area Health Service to recoup costs of the agreed works. As with our letter of 31 May 1999 and your reply of 1 June and 18 June 1999, the above is without prejudice to the existing rights of both parties including the completion and rights in respect of Link Road. We look forward to receipt of above documents by 1pm, Monday, 5 July 1999. We trust your completion of the car park pursuant to approvals is imminent. 374 Thereafter, there was further correspondence, including an offer by Area Health in a letter dated 9 August 1999 to proceed with the works on certain terms (20 Blue 8850 – 1), to which there was no reply. 375 In rejecting Macquarie's claim of an agreement, the primary judge said this: [506] Macquarie submitted that by the letter of 31 May 1999, Area Health had made an offer of assistance to Macquarie, to which a counteroffer was made by Dr Wenkart's letter of 1 June 1999. It submitted that by Dr Horvath's letter of 29 June 1999, Area Health accepted the counter-offer, and bound itself to carry out the work for the traffic lights and the surfacing of New Hospital Road. It claimed that thereafter Macquarie proceeded on the basis that an agreement had been struck, and Mr Morrison provided relevant documents to Area Health as required by it. It was put that in circumstances where Area Health had been sent documents under which the contractor would do the work, it was in breach of the agreement and/or of the utmost good faith obligation not to proceed to carry out the work required by the conditions, alternatively, to rely upon Macquarie's non-compliance with those conditions as evidencing breach of cl 2.1. [507] In my opinion the evidence does not establish the existence of an agreement of any binding, contractual, enforceable effect. The correspondence was conducted on a basis which was without prejudice to the parties rights and obligations under the 96 agreements. In my opinion it went no further than showing that by its letter of 29 June 1999 Area Health had volunteered to assist Macquarie in meeting development approval conditions 8 and 12 to enable operation of the car park. The subsequent letters indicate a lack of certainty, and hence no agreement, on what assistance Macquarie was in fact seeking, and as to the terms upon which it was to be provided. The parties were never ad idem. Given that on 26 June 1999 Macquarie had sought an interim occupation certificate pending resolution of outstanding approval conditions, it is difficult to understand Macquarie's unwillingness to clarify matters for Area Health as shown by the tenor of its letter of 6 August 1999, and by its failure to answer the questions raised in Area Health's letter of 9 August 1999. [508] On my assessment, the negotiations were ultimately inconclusive, and no arrangement for carrying out the work was ever finalised. Furthermore, the without prejudice reservation made plain that it was never intended by the parties that Macquarie would be relieved of its obligation under the construction deed to comply with the conditions. 376 In my opinion, as submitted by Macquarie, the letters of 31 May 1999, 1 June 1999 and 29 June 1999 do constitute a legally binding agreement: either the letter of 1 June 1999 accepted the offer, because the conditions stated in the dot-points would have been implied in any event; or if not, it amounted to a counter offer which was accepted by the letter of 29 June 1999. 377 In my opinion, reference in the letter of 31 May 1999 to the offer being made "reserving without prejudice to them the rights of both parties and our respective obligations" should not be read as having the effect that no offer was being made capable of giving rise to a legally binding contract; and in my opinion later disagreement as to what was to occur did not do away with the agreement constituted by those letters. 378 In my opinion, this means that Area Health cannot claim that the erection of traffic lights at the intersection of Missenden Road and Carillon Avenue and the surfacing of New Hospital Road were things that Macquarie "must" do under the Construction Deed; and Area Health was not entitled to judgment for $360,130 plus interest in respect of the former, and $53,573 plus interest in respect of the latter. However, by virtue of the terms of the agreement, these amounts are to be recouped by Area Health through adjustment of car parking fees; and they will probably enter into the calculation of damages for trespass or Area Health's accounting for car parking fees it has received. Cross-claim: retaining wall 379 The other item in dispute concerns a retaining wall built alongside New Hospital Road, in respect of which the primary judge held that Area Health was entitled to $300,393.18 plus interest. 380 As at 17 March 2000, there was an embankment alongside New Hospital Road, which (it was common ground) was satisfactory only as an interim measure. Mr Alan Ring, a person of wide experience in the construction industry (second judgment [88]), inspected the site on 5 February 2003 (second judgment [90]). Mr Ring provided a report (21 Blue 9154), in which he said that a properly designed structural retaining wall was required by Australian Standards (21 Blue 9157). 381 In the second judgment, the primary judge noted and rejected Macquarie's objection to Area Health's claim on this as follows: [95] The other ground of dispute is that it was not demonstrated that the embankment was defective at the time of termination on 17 March 2000. It was put that, at that time, the structure was incomplete, and merely an interim solution, and as it was not necessary for the lawful operation of the car park it was not work required for completion of construction of the car park under the 96 agreements. [96] This ground must also be rejected. It does not survive analysis of the terms of condition 12 and, at least, of cl 3.1 of the construction deed which requires completion in a proper and workmanlike manner of the "Works" which are defined to include all ancillary works and activities associated therewith. In my opinion, and as a matter of common sense, satisfaction of condition 12 that "full construction of the road be completed prior to commencement of construction or excavation of the car park" involved completion in a proper and workmanlike manner of a retaining wall of the kind approved by Mr Ring. The condition allowed for adequate temporary construction traffic arrangements, but there was no evidence that Macquarie sought or obtained the necessary agreement of the Director of Public Works and Services if it was truly intended that the embankment was only an interim measure. 382 Having regard to my decision on termination, it would be necessary for Area Health to establish that construction of this retaining wall was something which Macquarie "must" do prior to 17 March 2000, when Area Health's taking of possession put it out of Macquarie's power to do it. 383 It was contended for Macquarie that construction of the retaining wall was not part of the construction of the road, which was a condition of the car park approval. Macquarie submitted that the council issued an interim occupancy certificate in respect of the car park on 23 June 2000 (21 Blue 8966), and it was apparently not until about two years later that the need for a retaining wall was identified. 384 However, in my opinion it was established that the construction of the road brought about the existence of the embankment, and that accordingly the treatment of the embankment in such a way as to make it stable in the long term is properly considered as part of the construction of the road. Since full construction of the road was required by the council conditions, prior to the construction of the car park, the proper treatment of the embankment was something which Macquarie "must do" prior to 17 March 2000. 385 On the evidence, this required the construction of the retaining wall. It was accepted below by Macquarie that the sum of $300,393.18 was incurred and was reasonable (second judgment [77]). Accordingly, the challenge to the award of this amount fails. Conclusion and remedies 386 It follows that in my opinion Macquarie is entitled to an order for possession of Lots 11 and 12, and also, at its election, to an inquiry as to damages or an account from Area Health of car parking fees; while on its cross-claim, Area Health is entitled to $21,260 plus interest, $300,393.18 plus interest and $9,645 plus interest (being items required to satisfy the conditions of the car park approval), and also $22,795.60 plus interest and $35,113.56 plus interest, to which no separate challenge was made. 387 It will be necessary that there be submissions as to costs, both at first instance and on appeal. I would propose that orders be made giving effect to the decisions as to the result of the appeal, and that there then be a hearing in Court concerning costs. 388 I would direct that Macquarie within twenty-eight days provide to the Court either agreed short minutes giving effect to the decisions on appeal, or else its proposed short minutes and submissions in support; and if the short minutes are not agreed, that within a further fourteen days Area Health provide to the Court its proposed short minutes and submissions in support. When the Court makes those orders, provision will be made for written and oral submissions on costs. 389 MACFARLAN JA: I agree with Hodgson JA. ********** Annexure 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.