Supreme Court New South Wales Medium Neutral Citation: Cessnock City Council -v- Aviation and Leisure Corporation Pty Ltd [2012] NSWSC 221 Hearing dates: 5 March 2012 Decision date: 14 March 2012 Jurisdiction: Equity Division - Commercial List Before: Hammerschlag J Decision: Proceedings number 2011/408060 be permanently stayed Catchwords: CONTRACT - alternative dispute resolution clause - construction - PRACTICE AND PROCEDURE - application for permanent stay of proceedings on basis they have been instituted in breach of binding alternative dispute resolution provision - stay ordered Legislation Cited: Conveyancing Act 1919 (NSW) Cases Cited: Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 Fiona Trust & Holding Corporation v Privalov [2008] 1 WLR 643 Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1993) 43 FCR 439 Premium Nafta Products Ltd & Ors v Fili Shipping Company Ltd [2007] UKHL 40 Category: Principal judgment Parties: Cessnock City Council - Plaintiff Representation: T.J. Breakspear - Plaintiff M. Walton SC with B.D. Kaplan - Defendants King & Wood Mallesons - Plaintiff ETD Law - Defendants File Number(s): 2011/408060 Judgment INTRODUCTION AND PARTIES 1HIS HONOUR: The defendants move for an order that these proceedings, which were commenced by the plaintiff on 20 December 2011, be stayed on the grounds that the plaintiff instituted them in breach of a binding alternative dispute resolution provision. 2The plaintiff (or the Council or the Lessor) is the local government authority for the area constituted by the city of Cessnock in the Hunter Valley of New South Wales. It owns land in that area on which is situated an aerodrome. 3The first defendant (or the Manager or the Lessee) provides management and operational services for aerodromes. 4The second defendant is the managing director of the first defendant. FACTUAL BACKGROUND Entry into of the agreements 5On 31 August 2007 the plaintiff and the first defendant entered into a written agreement styled Aerodrome Management Agreement (the Management Agreement) under which the plaintiff engaged the first defendant to manage and operate the aerodrome. 6Contemporaneously with the entry into of the Management Agreement, the plaintiff and the first defendant entered into an Agreement for Lease under which, at the request of the second defendant, the plaintiff agreed to grant, and the first defendant agreed to take, a lease of the aerodrome, and in the meantime granted the first defendant a licence (the Licence) on terms more fully referred to below. 7By cl 2.3(a) and (b) of the Management Agreement, the Management Agreement, the Agreement for Lease and the Licence (as the case may be) are interdependent, a breach of one is a breach of the other and if the Management Agreement is terminated, the Licence automatically terminates and vice versa. Salient provisions of the Agreement for Lease 8By cl 3.1(a) of the Agreement for Lease, the Agreement for Lease and the Management Agreement are interdependent, a breach of one is a breach of the other and if the Agreement for Lease is terminated, the Management Agreement automatically terminates, and vice versa. 9Clause 4.1 of the Agreement for Lease provides: The Lessor agrees to grant, and the Lessee agrees to accept, the grant of the Lease from and including the Commencing Date. 10Lease is defined in cl 1.1 of the Agreement for Lease to mean the Lease forming Annexure A to the Agreement for Lease (the Lease). 11Clause 1.1 of the Agreement for Lease defines the Commencing Date to mean the Business day after the registration of a proposed plan of subdivision and a proposed instrument setting out the terms of easements and/or restrictions on the use of the land intended to be created under s 88B of the Conveyancing Act 1919 (NSW). It is common cause that the Commencing Date was never reached. Thus, a lease was never granted. 12However, under cl 6.1 of the Agreement for Lease, the plaintiff granted the first defendant a Licence in the following terms: In consideration of the Lessee paying to the Lessor the Licence Fee, the Lessor grants and the Lessee takes a Licence to enter the aerodrome for the Licence Period for the Permitted Use on the terms of this Licence. 13Clause 1.1 of the Agreement for Lease defines Licence Period to mean the period from the Handover Date to the Commencing Date. Handover Date is defined to mean the date the last party executes the Agreement for Lease. This may be taken to be 31 August 2007. 14Clause 6.2 of the Agreement for Lease provides: Terms of the Licence (a) The Licence granted under clause 6.1 is: (1) on the same terms and conditions set out in the Lease as if the word " lease " was replaced with the word " licence " where it appears in the Lease and the Lease provisions (with the necessary changes being made) were set out in full in this Licence as agreed to between the Lessor and the Lessee; and (2) on the same terms and conditions set out in the Aerodrome Management Agreement. (b) The terms of this Licence will prevail in the event there is an inconsistency between the Licence provisions and the Lease provisions. (c) Despite any other clause in the Lease, the Lease will commence on the Commencing Date, as provided in clause 5.1. 15Clause 10 of the Agreement for Lease provides: 10 Disputes 10.1 Legal proceedings conditional A party may not begin legal proceeding [sic] in connection with a dispute under this Agreement for Lease unless that dispute has first been decided by a person appointed under this clause. 10.2 Notice of dispute If there is a dispute under this Agreement for Lease, either party may give the other a notice requiring the dispute to be settled under this clause. 10.3 Referral of dispute (a) The dispute must be referred to a person agreed on by the parties but if the parties do not agree within 7 days after a notice under clause 10.2 is given, then to a person appropriately qualified to deal with the dispute appointed at the request of either party by the president of the Law Society of New South Wales. (b) The person acts as an expert and not as an arbitrator and must give a written decision including reasons. Unless there is manifest error, that person's decision is final and binding. 10.4 Enquiries (a) The person may enquire into the dispute as that person thinks fit including hearing representations and taking advice from people that person considers appropriate. (b) The parties may make submissions to and must give the person every assistance that person requires, including providing copies of relevant documents. 10.5 Costs Each party may pay its own costs in connection with the dispute. The costs of referring the dispute to the person and that person's costs and the cost of the enquiries must be shared equally. 16By cl 14.1 of the Agreement for Lease, the second defendant guaranteed the punctual performance and observance by the Lessee of its obligations to the Lessor. Salient provisions of the Lease 17By cl 2.1(a) of the Lease, the Lease and the Management Agreement are interdependent and a breach of one is a breach of the other. If the Lease is terminated, the Management Agreement automatically terminates, and vice versa. 18Under cl 3.1 of the Lease the Lessor leases the aerodrome to the Lessee for the "Term". 19The Lease incorporates a Reference Schedule. Clause 1.1, read with cl 1.2, of the Lease defines "Term" to mean the Term of the Lease in Item 5(a) of the Reference Schedule. Terminating Date is defined to mean the date in Item 5(c) and Commencing Date is defined to mean the date in Item 5(b). Item 5 of the Reference Schedule is in the following form: Term (a) 10 years (b) Commencing Date (c) Terminating Date 20Neither "Commencing Date" nor "Terminating Date" is defined in the Lease. Commencing Date is defined (as is set out above) in the Agreement for Lease. It seems clear that the intention is that the Commencing Date in the Lease is the same date as the Commencing Date in the Agreement for Lease. It is not necessary to ascribe a meaning to "Terminating Date". The term of the Lease was to be 10 years and it would therefore have terminated on a date 10 years after the Commencing Date. 21Clause 15 of the Lease provides: Damage to Aerodrome or Aerodrome 15.1 Abatement of Rent and Lessee's Outgoings Subject to clause 15.2, if the Aerodrome is damaged and the Aerodrome: (a) cannot be used or are inaccessible, the Lessee is not liable to pay Rent or the Lessee's Outgoings for the period that the Aerodrome cannot be used or are inaccessible; or (b) are still useable but the useability is diminished due to the damage, the Lessee's liability to pay Rent and the Lessee's Outgoings is reduced in proportion to the reduction in useability. 15.2 Request to repair damage Subject to clause 15.3, if the Aerodrome is damaged and within 14 days of the damage occurring, the Lessor requests the Lessee to repair the damage and: (a) the Lessee does not notify the Lessor within 21 days of receiving the Lessor's request that it intends to repair the damage; or (b) the Lessee notifies the Lessor that it intends to repair the damage but does not do so within a reasonable time, the Lessor may terminate this Lease by giving at least 30 day's notice to the Lessee. 15.3 Damage caused by Lessee If the damage is caused by the Lessee or the Lessee's Employees, clauses 15.1 and 15.2 do not apply. 15.4 Lessor's rights not affected Nothing in this clause 15 affects any rights the Lessor may have if: (a) the damage is caused or contributed to by; or (b) rights under an insurance policy in connection with the Aerodrome are prejudiced or a policy is validly cancelled or a claim is refused by the insurer because of, the act, negligence or default of the Lessee or of the Lessee's Employees. 15.5 No obligation to restore Nothing in this clause 15 obliges the Lessor to restore or reinstate the Aerodrome regardless of the cause of any damage or destruction. 15.6 Dispute (a) If any dispute arises under clause 15 the Lessor or the Lessee (or both) may request the President of the Australian Property Institute Inc - NSW Division to appoint a Valuer to determine the dispute and the proportion of the Valuer's costs that each party must pay. (b) The Valuer acts as an expert and not as an arbitrator and the Valuer's decision is final and binding. 22Clause 18 of the Lease provides: Default 18.1 Events of default Each of the following is a default by the Lessee under this Lease: (a) (non-payment of Rent) if the Lessee does not pay the Rent within 14 days of the due date for payment, whether or not demanded by the Lessor; (b) (non-payment of other amounts) if the Lessee does not pay the Lessee's Outgoings or any amount that is due and payable by it under this Lease within 14 days of its due date whether or not demanded by the Lessor; (c) (essential terms) if the Lessee does not comply with any other essential term of this Lease; (d) (other obligation) if the Lessee does not comply with any other obligation under this Lease; (e) (licences) if the Lessee fails, or is unable to obtain, any licences from any Authority required for the use, operation and management of the Aerodrome; (f) (repudiation) if the Lessee repudiates its obligations under this Lease. 18.2 Lessor's termination after default If the Lessee defaults under clause 18.1, and after the Lessor serves notice of breach of covenant (if required by law), the Lessor may terminate this Lease by: (a) re-entering and taking possession of the Aerodrome, using reasonable force to secure possession; (b) serving notice of termination on the Lessee; (c) instituting proceedings for possession of the Aerodrome against the Lessee; or (d) taking action under paragraphs (a) and (b) or paragraphs (b) and (c). 18.3 Essential terms Each of the following obligations of the Lessee is an essential term of this Lease: (a) to pay Rent under clause 4; (b) to pay the Lessee's Outgoings under clause 5; (c) to pay interest and GST under clauses 6.2 and 6.3; (d) to maintain the insurances under clause 8.1; (e) regarding the use of the Aerodrome under clause 10.1(a); (f) to maintain any licences or permits required by any Authority for the use, operation and management of the Aerodrome under clause 10.1(c); (g) regarding repair, redecoration and Lessee's works under clause 12; (h) regarding assignment and other dealings under clause 13; (i) to give an environmental bank guarantee under clause 16.4; and (j) unless clause 3.1(d) applies, restricting or preventing direct physical access to the Aerodrome by the Adjoining Owners where the Adjoining Owner has a current Licence with the Manager of the Aerodrome or, the Lessor where the Manager of the Aerodrome has refused or is unwilling to enter into the Licence. Any other obligation of the Lessee may also be an essential term. 18.4 Breach of essential term (a) Subject to paragraph (b), the Lessor may treat the Lessee's breach of an essential term as a repudiation of this Lease and may terminate this Lease for breach of the essential term and for repudiation. The Lessor is then entitled to immediate possession of the Aerodrome. (b) The Lessor may only treat the Lessee's breach of an essential term referred to in clauses 18.3(a) and 18.3(b) and as a repudiation of this Lease, and may only terminate this Lease for such a breach, if the breach has continued for at least 28 days. 18.5 Lessor's entitlement to damages (a) If the Lessee: (1) repudiates this Lease; (2) breaches an essential term of this Lease; or (3) defaults under this Lease in any other way, the Lessee must compensate the Lessor for the loss or damage suffered by the Lessor as a consequence of the repudiation, breach or other default. (b) The compensation payable by the Lessee under paragraph (a) extends to the loss or damage suffered by the Lessor during the Term, including the periods before and after any termination of this Lease. (c) The Lessee's obligation to compensate the Lessor for loss or damage is not affected if: (1) the Lessee abandons or vacates the Aerodrome; (2) the Lessor elects to re-enter or to terminate this Lease; (3) the Lessor accepts the Lessee's repudiation; or (4) the parties' conduct constitutes a surrender by operation of law. (d) The Lessor's entitlement to damages is in addition to any other remedy or entitlement, including termination of this Lease. 23Clause 23.3 of the Lease provides: Indemnity The Guarantor unconditionally and irrevocably indemnifies the Lessor against all liability or loss arising from, any costs, charges or expenses incurred in connection with, a breach by the Lessee of this Lease, including a breach of the obligations to pay money. 24By cl 9.1 of the Lease the first defendant indemnifies the plaintiff against all liability or loss, costs or claims arising from, and costs which the plaintiff incurs or is liable for, in connection with any loss caused by the first defendant or its employees, any default by the first defendant under the Lease and the first defendant doing anything which it was obliged to do under the Lease, but has not done, or which the plaintiff considers it has not done properly. By cl 23.3 the second defendant indemnifies the plaintiff against all liability or loss arising from, and any costs, charges or expenses incurred in connection with, a breach by the first defendant of the Lease, including a breach of the obligations to pay money. THE PROCEEDINGS 25On 1 December 2011 the plaintiff gave written notice to the first defendant that, pursuant to cl 18.4 of the Licence (meaning cl 18.4 as incorporated into the Licence by operation of cl 6.2 of the Agreement for Lease), the Licence was terminated on the ground that the first defendant had breached the terms of the Licence by, amongst others, failing to pay rent and outgoings, failing to repair and maintain, failing to obtain insurances and failing to obtain annual fire safety statements. 26On 2 December 2011 the plaintiff's solicitors served a letter of demand on the first defendant requiring payment of $1,684,670.54 within seven days. The breakdown of the amount claimed was given in a schedule to the letter. 27By letter dated 6 December 2011 the first defendant, through its solicitors, denied the claim. 28Without first invoking the dispute procedure in cl 10.1 of the Agreement for lease, on 20 December 2011 the plaintiff sued out of the Court a Summons and accompanying Commercial List Statement. The prayers for relief in the Summons are reproduced in Schedule 1 to this judgment. The plaintiff's contentions in its Commercial List Statement are reproduced in this judgment as Schedule 2. 29By its motion dated 23 December 2011 (amended orally without objection at the hearing) the defendants seek an order that the proceedings be stayed permanently on the grounds that they are a legal proceeding in connection with a dispute under the Agreement for Lease and have been begun by the plaintiff in breach of cl 10.1. LEGAL PRINCIPLES 30It will suffice to set out only briefly the applicable principles, which are now well settled. 31The court has a wide discretionary power to stay legal proceedings where the parties have, by contract, agreed to have their disputes determined by an expert. Where parties to a commercial contract agree at the time of the making of the contract, before any disputes have yet arisen, to refer disputes arising under their contract to an expert for binding determination, the construction of the dispute resolution clause should be approached liberally and not narrowly. The starting point is that the parties should be held to their bargain. It is for the party opposing the stay to show good reason why the action should proceed and the onus is a heavy one. See Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163; Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 ; Fiona Trust & Holding Corporation v Privalov [2008] 1 WLR 643 ; Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 ; Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332. CONSIDERATION 32Clause 10.1 inhibits a party from beginning legal proceedings "in connection with a dispute under this Agreement for Lease". Accordingly, two requirements must be satisfied for the inhibition to apply. First, there must be a dispute under the Agreement for Lease. Secondly, the legal proceedings must be in connection with that dispute. 33Both of these requirements are satisfied. Counsel for the plaintiff did not strenuously contend to the contrary. 34Phrases such as "arising under", "arising out of", "arising in connection with" and "arising in relation to" in arbitration clauses or other alternative dispute resolution clauses in contracts have been the subject of judicial consideration over many years. Over time the approach to construing such terms has become increasingly liberal, that is, in favour of the notion that parties intend, as rational business people, to have any dispute arising out of the relationship into which they have entered, or have purported to enter, to be decided by the same tribunal. In Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1993) 43 FCR 439 at 448, French J (as His Honour then was), perhaps reflecting the earlier more restrictive approach, considered that the phrase "arising under the contract" was restricted to matters arising ex contractu and did not extend to matters antecedent to the agreement, even ones which involved questions which also went to its performance. More recently, in Premium Nafta Products Ltd & Ors v Fili Shipping Company Ltd [2007] UKHL 40, Lord Hoffman, at [11]-[13], took the view that expressions such as "arising under" and "arising out of" were mutually interchangeable. Lord Hope, at [27], referred to the reader not needing to trouble with "fussy distinctions as to what the words 'arising under' and 'arising out of' may mean". His Lordship's view was that, taken overall, such wording indicated that arbitration may be chosen as a one-stop method of adjudication for the determination of all disputes. See too, for example, Lipman v Emergency Services Superannuation Board ; Francis Travel Marketing v Virgin Atlantic Airways . 35Whatever the ambit of the phrase, "under this Agreement for Lease", a claim, ex contractu , that its terms have been breached undoubtedly satisfies the description. 36The plaintiff's claim is such a claim. It pleads breaches of express terms of the Licence granted under the Agreement for Lease. It avers that the first defendant repudiated the Licence and the Agreement for Lease. It seeks orders for indemnity under cl 9.1 of the Licence as against the first defendant and under cl 23.3 of the Licence as against the second defendant. It seeks declarations that the plaintiff has validly terminated the Licence and the Agreement for Lease. 37On the plain language of cl 10.1 the plaintiff was bound not to begin the proceedings unless the dispute had first been decided by the expert. 38The plaintiff also pleads that terminating each of the Management Agreement, the Agreement for Lease and the Licence had the effect that each of the other of them was also terminated. A dispute as to whether termination of the Management Agreement terminated the Agreement for Lease is, in my view, a dispute under the Agreement for Lease. The phrase is sufficiently wide also to include a dispute as to whether termination of the Agreement for Lease brought about termination of the Management Agreement. However, so as to avoid any controversy as to whether this is the case, and to avoid any issue of fragmentation of proceedings which the contrary view might entail, the defendants, through their counsel, have undertaken to the Court not to argue that any issue which arises on the pleadings as currently framed is not within the power of the expert, under cl 10.1, to decide. 39The plaintiff's answer is that cl 10 does not apply to the proceedings. It puts that cl 18.6 of the Lease confers upon it an express entitlement to institute legal proceedings claiming damages against the Lessee in respect of the Term and that the proceedings meet that description. 40It puts that cl 10.1 is to be read as being qualified by the exclusion from its ambit of claims for damages to which cl 18.6 applies, and that so read the two provisions (which might otherwise be thought to be in conflict) operate congruently. 41The plaintiff's submission is unsustainable for two reasons. 42First, in my view cl 18.6 does not apply. On its plain wording the clause contemplates legal proceedings claiming damages "in respect of the Term". The "Term" is defined to be the period from the Commencing Date to the Terminating Date, that is the period of the Lease. That period has never begun so that the proceedings are not "...proceedings in respect of the Term". 43For cl 18.6 to apply to the present proceedings, the word "Term" used therein would have to be modified so as to read "Licence Period". Such modification is not necessary. The plaintiff has its remedy under cl 10.1 of the Agreement for Lease. Clause 18.6 applies only on and from the Commencing Date, that is, only once there is a lease. 44This is consistent with the overall scheme of the documents. It is to be observed that apart from cl 15.6 of the Lease, which provides an alternative dispute resolution mechanism limited to disputes under cl 15, the Lease incorporates no alternative dispute resolution provisions. By contrast, the Agreement for Lease and the Licence, both of which would be effectively exhausted on the grant of the Lease, have such a provision in the widest terms. 45Secondly, even if cl 18.6 applied, the plaintiff's claims in the proceedings go well beyond claims for damages. They include claims under indemnities and for declarations as to the validity of the termination of agreements which clearly are covered by cl 10.1. In these circumstances the entirety of the proceedings, which satisfies the description of being a legal proceeding in connection with a dispute under the Agreement for Lease falls foul of cl 10.1. 46It follows that the plaintiff has begun the proceedings in breach of cl 10.1 and they must be stayed. It was not put that if a stay is appropriate, it should not be permanent. 47The plaintiff has shown no good reason why the action should proceed. 48I order that proceedings number 2011/408060 be permanently stayed. I will hear the parties on costs. 49The exhibits are to be returned. SCHEDULE 1 The Plaintiff claims: 1an order that, under clause 9.1 of the Licence, the First Defendant indemnify the Plaintiff against all liability or loss, Costs or Claims arising from, and costs which the Plaintiff incurs or is liable for, in connection with any loss caused by the First Defendant or its employees, any default by the First Defendant under the Licence and the First Defendant doing anything which it was obliged to do under the Licence, but has not done, or which the Plaintiff considers it has not done properly. 2an order that, under clause 23.3 of the Licence, the Second Defendant indemnify the Plaintiff against all liability or loss arising from, and any costs, charges or expenses incurred in connection with, a breach by the First Defendant of the Licence, including a breach of the obligations to pay money. 3a declaration that the Plaintiff has validly terminated the Licence, the Management Agreement and the Agreement for Lease. 4damages for breach of contract. 5interest under section 100 of the Civil Procedure Act 2005 (NSW). 6costs under section 98 of the Civil Procedure Act 2005 (NSW). 7interest on costs under section 101(4) of the Civil Procedure Act 2005 (NSW). 8such further or other order as the Court sees fit. SCHEDULE 2 PLAINTIFF'S CONTENTIONS Background 1The Council is and was at all material times: (a)a local council and a body politic in the State of New South Wales under section 222 of the Local Government Act 1993 (NSW), and in such capacity is entitled to bring these proceedings; and (b)the responsible local government authority in and for the local government area constituted by the City of Cessnock in New South Wales. 2ALC is and was at all material times: (a)a company incorporated in Australia with the ABN 22 075 007 420; and (b)able to sue and be sued in its corporate name. 3On or about 31 August 2007, the Council, ALC and Roberts entered into a written agreement for lease (" Agreement for Lease ") under which the Council agreed to grant to ALC a lease of the aerodrome which is located approximately 7 kilometres north of Cessnock (" Aerodrome "), New South Wales, upon the terms and conditions of that agreement. 4On or about 31 August 2007, the Council and ALC entered into an agreement under which ALC agreed to manage and operate the Aerodrome (" Management Agreement "). Relevant terms of the Agreement for Lease 5The express terms of the Agreement for Lease included that: (a)by clause 4.1(a) the Council agreed to grant, and ALC agreed to accept the grant, of the lease of the Aerodrome from and including the Business Day after the date on which the Plan and the Instrument (as those terms are defined in clause 1.1) were registered; (b)by clause 5.1, the Council's obligations to enter into a lease were conditional on the registration of the Plan as a plan of subdivision and the Instrument. (c)by clause 6.1, the Council granted to ALC a licence to enter the Aerodrome during the Licence Period for the Permitted Use on the terms of the Licence (the " Licence "). (d)by clause 6.2(a), the Licence granted under clause 6.1 was on the same terms and conditions as set out in the document entitled " Lease " (" Lease ") which was annexed at "A" to the Agreement for Lease, as if the word " lease " was replaced with the word " licence " where it appears in the Lease, and the lease provisions (with necessary changes), were set out in full in the Licence. 6The Plan and the Instrument were not registered. 7No instrument of lease was executed. 8In the premises of paragraphs 6 and 7 above, no lease was entered into by the Council, ALC and Roberts. Relevant terms of the Licence ALC's obligations 9The express terms of the Licence included that: (a)by clause 4.1, clause 1.1 and Item 6 of the Reference Schedule, ALC was obliged to pay the Rent of $100 per annum, as varied under the Licence, by one annual instalment in advance on each Rent Day; (b)by clause 5, ALC was obliged to pay the Council the amount of each Outgoing within 14 days of the Council's service of a notice under clause 5.2(a); (c)by clauses 8.1 and 8.4(a)(1), ALC was obliged to maintain a public liability insurance policy for in respect of the Aerodrome in the amount of $20 million for any one claim; (d)by clause 8.2 and 8.4(a)(1), ALC was obliged to maintain a worker's compensation insurance policy in respect of its business and its employees for the full amount of its liability under any applicable workers' compensation legislation and potential legal liability independent of that legislation; (e)by clause 8.3 and 8.4(a)(1), ALC was obliged to maintain a building and contents insurance policy in respect of any building forming part of the Aerodrome and its contents for their full replacement value, or on a reinstatement basis, as required by the Council; (f)by clause 8.4(a)(2), ALC was obliged to provide to the Council certificates of currency for the workers compensation, and the building and contents, insurance policy if requested by the Council; (g)by clause 9.1, ALC was liable to indemnify the Council (" ALC's Indemnities ") against all liability or loss, Costs or Claims arising from (relevantly): (i)damage, loss, injury or death caused or contributed to by the act, negligence, omission or default of ALC or its employees; (ii)the use, management or occupation of the Aerodrome by ALC or its employees; (iii)default by ALC under the Licence; and (iv)ALC doing anything which it must do under the Licence but has not done or which the Council considers it has not done properly; (h)by clause 9.2, each of ALC's Indemnities is a continuing obligation of ALC, and remains in effect after the Licence has been terminated; (i)by clause 10.1(e), ALC was obliged to procure an Annual Fire Safety Statement in accordance with Division 5 of the Environmental Planning and Assessment Regulations 2000 (NSW), and otherwise comply with those regulations; (j)by clause 10.1(o), ALC was obliged, if the Council gave it any opening device to access the Aerodrome, to give the opening device to current employees only, to keep a list of those employees, to give the list to the Council on request, and return all opening devices to the Council when the Licence expired or was terminated; (k)by clause 10.2(c), ALF was prohibited from storing any rubbish outside of the Aerodrome which is visible to the public; (l)by clause 11.2, ALF was obliged to prepare and provide to the Council a project occupational health and safety management plan (" Project OH&S Plan "); (m)by clause 12.1(a)(1), ALC was obliged to keep the Aerodrome, the Aerodrome Infrastructure Facilities, the Movement Area and any improvements in good and substantial repair and working condition, including performing repairs and maintenance of a capital or structural nature, resealing all sealed surfaces, line marking on the Movement Areas and other areas, maintaining and repairing all fencing, and inspecting for, and removing, obstacles; (n)by clause 12.1(a)(7), ALC was obliged to carry out repairs and maintenance promptly, using high quality materials and workmanship, and in keeping with the standard, quality and appearance of the Aerodrome; (o)by clause 12.2, ALC was obliged, in carrying out and determining its repair and maintenance obligations to comply with all Laws, to repair and maintain the Aerodrome and Aerodrome Infrastructure Facilities so that they were preserved in good condition and repair in accordance with the Schedule of Maintenance and Repair, and the Benkleman Beam testing results in the Base Line Pavement Report; (p)by clause 13.1, ALC was prohibited from assigning the Licence or granting sub-leases or licences of the Aerodrome unless it complied with clause 13.3; (q)by clause 14.14, the Council was permitted to name (and change the name of) the Aerodrome and may give naming rights over the Aerodrome to any person; (r)by clause 22 and Item 11, ALC was obliged to give a bank guarantee to the Council. The Council's right to terminate the Licence 10By clause 18.1, the following conduct was an event of default by ALC under the Licence ("Event of Default"): (a)non-payment of Rent within 14 days of the due date for payment, whether or not demanded by the Council (clause 18.1(a)), relevantly; (b)non-payment of ALC's Outgoings or any amount that is due and payable by it under the Licence, within 14 days of its due date, whether or not demanded by the Council (clause 18.1(b)); (c)non-compliance with any other "essential term" of the Licence (clause 18.1(c)); (d)non-compliance with any other "essential term" of the Licence (clause 18.1(d)); (e)if ALC repudiates its obligations under the Licence (clause 18.1(f)). 11By clause 18.2, if ALC commits an Event of Default under clause 18.1, and after the Council serves notice of breach of covenant (if required by law), the Council may terminate the Licence by: (a)re-entering and taking possession of the Aerodrome, using reasonable force to secure possession; (b)serving notice of termination on ALC; (c)instituting proceedings for possession of the Aerodrome against ALC; or (d)taking action under paragraph 18.2(a) and (b), or 18.2(b) and (c). 12By clause 18.3, the following obligations of ALC are "essential terms" of the Licence: (a)to pay Rent under clause 4 (clause 18.3(a)); (b)to pay ALC's Outgoings under clause 5 (clause 18.3(b)); (c)to maintain the public liability insurances under clause 8.1 (clause 18.3(d)); (d)to repair, redecorate and perform works in accordance with clause 12 (clause 18.3(g)); (e)to ensure any assignment and other dealings are in accordance with clause 13 (clause 18.3(h)). 13By clause 18.4(a), subject to clause 18.4(b), the Council may treat ALC's breach of these essential terms as a repudiation of the Licence, and may terminate the Licence for breach of the essential term and for repudiation. The Council is then entitled to immediate possession of the Aerodrome. 14By clause 18.5(a), if ALC repudiates the Licence, breaches an essential term of the Licence, or defaults under the Licence in any way, then it must compensate the Council for the loss or damage which the Council suffers as a result of the repudiation, breach or other default. 15By clause 18.6, the Council is entitled to institute legal proceedings claiming damages against ALC is respect of the Term. 16By clause 22 and Item 11, ALC must give a bank guarantee to the Council on or before the Commencing Date. The guarantee and indemnity Roberts gave to the Council 17By clause 23.2, Roberts guaranteed to the Council the punctual performance of ALC of its obligations under the Licence, and its obligations in connection with its occupation of the Aerodrome ("Guarantee"). 18By clause 23.3, Roberts agreed to indemnify the Council against all liability or loss arising from, and any costs, charges or expenses incurred in connection with, a breach by ALC of the Licence ("Personal Indemnity"). 19By clause 23.4, Roberts waived any right he has of first requiring the Council to commence proceedings or enforce any other right against the Council, or any other person before claiming under the Guarantee or the Personal Indemnity. 20By clause 23.9, Roberts agreed to pay or reimburse the Council on demand for its costs, charges and expenses in making, enforcing and doing anything in connection with the Guarantee, including legal costs and expenses on a full indemnity basis. Relationship between the Licence, the Agreement for Lease and the Management Agreement 21By clause 2.1(a) of the Licence, the Licence and the Management Agreement are interdependent, and a breach of one is a breach of the other; 22By clause 2.1(b) of the Licence, if the Licence is terminated, the Management Agreement automatically terminates, and vice versa . 23By clause 3.1(a) of the Agreement for Lease, the Agreement for Lease and the Management Agreement are interdependent, and a breach of one is a breach of the other; 24By clause 3.1(a) of the Agreement for Lease, if the Agreement for Lease is terminated, the Management Agreement automatically terminates, and vice versa . 25By clause 2.3(a) of the Management Agreement, the Management Agreement, and the Agreement for Lease and the Licence (as the case may be): (a)are interdependent, and a breach of one is a breach of the other; (b)an assignment or transfer of one requires a contemporaneous assignment or transfer of the other. 26By clause 2.3(b) of the Management Agreement, if the Management Agreement is terminated, the Licence automatically terminates and vice versa . ALC's breaches of the terms of the Licence 27ALC has breached its obligations under the provisions set out in paragraph 9 above, in that it failed: (a)to pay Rent (clause 4); Particulars Rent for 2008-09 ($103.40), rent for 2009-10 ($106.61), rent for 2010-11 ($109.06) (b)to pay Outgoings to the Council (clause 5); Particulars (i)Council Invoice dated 14.4.2009 for $7,804.10. (ii)Council Invoice dated 4.8.2009 for $586.30. (c)to take out and maintain a public liability insurance policy for 2007-8, 2008-9, 2009-10 (clauses 8.1 and 8.4(a)(1)); (d)to take out and maintain a workers compensation insurance policy for 2007-8, 2008-9, 2009-10, 2010-11, 2011-12 (clause 8.2 and 8.4(a)(1)); (e)to take out and maintain building and contents insurance for 2007-8, 2008-9, 2009-10, 2010-11, 2011-12 (clause 8.3 and 8.4(a)(1)); (f)to provide certificates of currency for the workers compensation insurance policy and the building and contents insurance policy (after the Council requested the certificates on 11 August 2011, 29 September 2011 and 20 October 2011 (clause 8.4(a)(2)); (g)to procure on behalf of the Council an Annual Fire Safety Statement in accordance with Division 5 of the Environmental Planning and Assessment Regulations 2000 (clause 10.1(e)); (h)to provide the list of those employees with an opening device to the Council after the Council's request for such list on 11 August 2011, 29 September 2011 and in its letter dated 20 October 2011 (clause 10.1(o)); (i)to comply with clause 10.2(c), in that it is allowing rubbish to be stored on airport grounds which is visible to the public; (j)to prepare and provide the Project OH&S Plan to the Council (clause 11.2); (k)to maintain and repair the Aerodrome (clauses 12.1(a)(1) and 12.1(a)(7)), in that, inter alia : (iii)the runway shows stripping and cracking and requires immediate poisoning of weeds, crack sealing and heavy patching; (iv)the Runway Movement Area contains defects in the form of surface depressions; (v)segments 2 and 4, 1, 3, 5, 7 and 8 of the taxiways show cracking, stripping, surface and pavement edges, and segment 6 shows some stripping; (vi)the aprons have cracking, surface and pavement defects, with the Eastern apron showing moderate levels of stripping and flushing. They require immediate crack sealing; (vii)the fences and gates to the Aerodrome have defects; (viii)the maintenance hangar drain, the western taxiway culvert, main runway drainage and the eastern apron surface drainage are unserviceable and require immediate cleaning and/or rebuilding. Particulars Inventory and condition assessment report dated February 2011 (" Condition Report "). (l)to repair and maintain the Aerodrome and Aerodrome Infrastructure Facilities so that they are preserved in good condition and repair, as set out above (clause 12.2). (m)comply with clause 13.1, in that ALC has, without complying with clause 13.3, granted subleases: (i)of the Aerodrome to Bassair, Hunter wine Helicopters, Jetride Australia and Slattery Helicopter Charters & Tours; (ii)land behind the terminal building for a demountable classroom. (n)refer to the Aerodrome by its proper name, and instead, without the Council's permission, refers to Cessnock Aerodrome as " Hunter Valley Airport ", on the sign at the tourist information centre, on its letterhead, in email signatures (clause 14.14). (o)to provide a bank guarantee to the Council for each year since 31 August 2007 (clause 22, Item 1). 28By reason of the matters set out in paragraph 27 above, ALC: (a)manifested an intention not to be bound by the Licence, the Agreement for Lease and the Management Agreement, or alternatively manifested an intention to perform the terms of those agreements, only as and when it suited it to do so; and (b)repudiated its obligations under the Licence, the Agreement for Lease and the Management Agreement. The Council's termination of the Licence, the Agreement for Lease and the Management Agreement 29By failing to comply with its obligations under clauses 4.1 and 5, ALC has breached the terms which are designated " essential terms " of the Licence under clause 18.3(a) and 18.3(b). 30Each of ALC's breaches of the " essential terms " referred to in clause 18.3(a) and 18.3(b) of the Licence continued for at least 28 days. 31In the premises, the Council was, under clause 18.4, entitled to treat ALC's breach of clause 18.3(a) and 18.3(b) as a repudiation of the Licence, and to terminate the Licence for breach of these essential terms, and for repudiation. 32By failing to comply with its obligations under clauses 4.1, 5, 8.1, 8.2, 8.3, 8.4, 10.1(e), 10.1(o), 10.2(c), 11.2, 12.1, 12.2, 13.1, 14.14 and 22 of the Licence: (a)ALC committed Events of Default under clause 18.1; (b)the Council was, under clause 18.2, entitled to terminate the Licence. 33By failing to comply with its obligations under clauses 4.1, 5, 8.1, 12 and 13, ALC had breached the terms which are designated " essential terms " of the Licence under clause 18.3(a), (b), (d), (g) and (h). 34On or about 30 November 2011, the Council gave ALC and Roberts notice that it was terminating each of the Licence, the Agreement for Lease and the Management Agreement, with such termination to be effective immediately (" Termination Notice "). Particulars (a)Letter from the Council to ALC dated 30 November 2011. (b)Letter from the Council to Roberts dated 30 November 2011. 35Further or in the alternative to the matters pleaded in paragraphs 29 - 33 above, by the Termination Notice, the Council accepted ALC's repudiation of its obligations under the Licence , Agreement for Lease and Management Agreement. 36The Termination Notice, clause 2.1(b) of the Licence, and clause 3.1(a) of the Agreement for Lease together had the effect that: (a)the Licence was terminated; (b)upon termination of the Licence, the Management Agreement automatically terminated (c)upon termination of Management Agreement, the Agreement for Lease automatically terminated. 37On or about 1 December 2011, the Council took possession of the Aerodrome. Loss suffered by the Council 38By reason of the matters pleaded in paragraphs 27 and 28 above, the Council has suffered, and continues to suffer, loss and damage. Particulars At the date of filing, the Council calculates its loss as follows: (a)ALC's failure to pay rent under clause 4 of the Licence: $319. (b)ALC's failure to pay Outgoings under clause 5 of the Licence: $28,129 (being $7,804 and $586 for invoices dated 14.4.2009 and 4.8.2009, and $19,739 for rents less expenses as at 24.11.11). (c)ALC's failure to obtain annual fire safety statement under clause 10.1(e) of the Licence: $666. (d)ALC's failure to remove rubbish under clause 10.2(c) of the Licence: $1,488. (e)Cost to the Council of repairing and performing maintenance on the Aerodrome under clauses 12.1 and 12.2 of the Licence: $1,485,315. (f)ALC's unauthorised sub-leasing of the Council's property under clause 13 of the Licence: $18,000. (g)ALC's failure to obtain insurances under clause 8: $36,521, being the cost of buying policies. (h)cost of the Council dealing with complaints due to ALC failing to comply with clauses 4.4 and 5.1 of the Management Agreement: $2,520. (i)cost of the Council dealing with ALC's breaches and defaults, to be recovered under ALC's Indemnities or the Personal Indemnity: $111,713. Total: $1,684,671 The Defendants' failure to pay under the Indemnities and the Personal Indemnity 39On 2 December 2011, the Council made a demand of ALC that it pay $1,684,671 to the Council by 9 December 2011. Particulars Letter from Mallesons to ALC dated 2 December 2011. 40On 2 December 2011, the Council gave Roberts notice that if ALC did not pay the $1,684,671 by 9 December 2011, it would demand that Roberts pay that sum in accordance with the Personal Indemnity. Particulars Letter from Mallesons to Roberts dated 2 December 2011. 41On 12 December 2011, the Council demanded that in accordance with the Personal Indemnity, Roberts pay $1,684,671 to the Council by Monday 19 December 2011. Particulars Letter from Mallesons to Roberts dated 12 December 2011. 42As at the date of filing: (a)in breach of its obligations under the Indemnities, ALC has failed to pay the amount demanded to the Council; and (b)in breach of his obligations under the Personal Indemnity, Roberts has failed to pay the amount demanded to the Council. Relief The Council claims: (c)a declaration that the Council has validly terminated the Licence, the Management Agreement and the Agreement for Lease. (d)an order that, under clause 9.1 of the Licence, ALC indemnify the Council against all liability or loss, Costs or Claims arising from, and costs which the Council incurs or is liable for, in connection with any loss caused by ALC or its employees, any default by ALC under the Licence and ALC doing anything which it was obliged to do under the Licence, but has not done, or which the Council considers it has not done properly. (e)an order that, under clause 9.1 of the Licence, ALC indemnify the Council against all liability or loss, Costs or Claims arising from, and costs which the Council incurs or is liable for, in connection with any loss caused by ALC or its employees, any default by ALC under the Licence and ALC doing anything which it was obliged to do under the Licence, but has not done, or which the Council considers it has not done properly. (f)damages for breach of contract. (g)interest under section 100 Civil Procedure Act 2005 (NSW). (h)costs under section 98 Civil Procedure Act 2005 (NSW). (i)interest on costs under section 101(4) Civil Procedure Act 2005 (NSW). (j)such further or other orders as the Court sees fit. ********** Amendments 16 March 2012 - Error in last sentence of clause Amended paragraphs: Clause 32 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. Decision last updated: 16 March 2012