Ayers Rock SkyShip Pty Ltd v Voyages Indigenous Tourism Australia Pty Ltd

Background and events leading up to entry into the agreements

1. ARS is a wholly owned subsidiary of Sky Leisure Pty Ltd, which is the trustee of the Sky Leisure Trust. The Chief Executive Officer and managing director of ARS is Mr David Adler. From about August 2006 ARS (under earlier names) was engaged in the development of a business involving helium balloons manufactured by a United Kingdom company Lindstrand Technologies Ltd ("Lindstrand"). These balloons, initially the spherical Hi Flyer and from about late 2009 the blimp shaped Sky Flyer, were designed to be passenger carrying tethered balloons. The Sky Flyer was described by Mr Adler in the following terms: The SkyFlyer comprises a blimp shaped helium filled balloon which is attached by ropes to a stainless steel gondola intended to carry about 16 persons. The balloon is also attached to a large steel cable which passes through the centre of the gondola and is tethered to a winch which is integrated into a rotating steel platform that is bolted onto steel reinforced concrete foundations laid in the ground. The balloon and gondola therefore have no capacity to float about freely and remain tethered to the ground at all times via the main winch cable. When the balloon is released from its mooring platform, the balloon and gondola rise to a height of approximately 150-180 metres above ground level on the tethering cable. Passengers are able to move freely about within the gondola and enjoy an immersive guided tour, taking in unparalleled 360 degree views of the region and are able to see around 100 kilometres in all directions. The balloon is then winched back down to ground level and moored to the platform by a retractable mast that attaches to a nose cone on the balloon and 12 additional mooring winches when not in use. Passengers are accompanied in the SkyFlyer by a trained staff member known as a pilot whilst "flying" in the SkyFlyer.
2. Voyages was incorporated in September 2010. It is wholly owned by the Indigenous Land and Sea Corporation ("IL&SC"), a body established under the Aboriginal and Torres Strait Islander Act 2005 (Cth). IL&SC acquired the Ayers Rock Resort in about October 2010. At about the same time, Mr Adler made contact with IL&SC and expressed interest in developing a tourist attraction at the resort involving a passenger carrying helium balloon that would present an attractive alternative to the climbing of Uluru.
3. About 12 months later, discussions commenced between ARS and Voyages. It seems that by June 2012 an apparently suitable location for the proposed operation had been found, some draft agreements had been provided by Voyages, and Voyages were awaiting ARS' "final proposal".
4. On 25 July 2012, ARS submitted its proposal to operate the Sky Flyer tethered helium balloon at Ayers Rock Resort. The proposal contained the following Executive Summary: Astrosphere [ARS] is very pleased to submit its proposal to operate a truly unique tourist attraction at Uluru. The SkyFlyer is the latest and most advanced generation of manned tethered helium balloons and will offer visitors to Australia's iconic Red Centre an exciting, affordable, safe and reliable ballooning adventure. Our aim is to deliver an inspiring and memorable experience for visitors and to promote respect for local indigenous culture and traditions by offering an attractive alternative to the climbing of Uluru. Key highlights of our proposal are: A unique tourist attraction and experience at Ayers Rock Resort; A venture which promotes cultural sensitivity and delivers benefits to local indigenous people; Strong financial returns to Voyages Indigenous Tourism Australia Pty Ltd ('Voyages'); An environmentally friendly and low impact development; Availability of the service in almost all weather conditions; and Astrosphere's strong team of dedicated professionals. The SkyFlyer presents an opportunity to balance the interests of tourists with those of the Aboriginal traditional owners who prefer visitors to this culturally and spiritually significant area not climb Uluru. By offering visitors a safe alternative experience, this family friendly iconic attraction will provide visitors a breathtaking balloon flight and new perspective of Uluru and the surrounding wilderness, while respecting Aboriginal Law and culture at the same time. The SkyFlyer's ability to operate in almost all weather conditions means we can provide this ballooning adventure all year round with minimal downtime or interference. Experiencing the romance of a balloon flight while witnessing the changing colours of Uluru during sunrise and sunset will offer visitors memories for a lifetime. The SkyFlyer has been designed and manufactured to the highest safety standards and approvals processes. Classified as an aircraft, Astrosphere will be regulated by the Civil Aviation and Safety Authority (CASA) to ensure the strictest safety of passengers at all times. The attraction is environmentally friendly, non-polluting and requires minimal development work to the land. Astrosphere [ARS] regards itself a complementary experience at Ayers Rock Resort, one that will enhance the overall visitor experience. We believe our proposal will be an exciting and welcome addition to Voyages' other experience offerings and will have broad appeal with tourists and families. We look forward to working with Voyages in bringing this unique and memorable experience to the Red Centre.
5. The proposal also included the following: The airship's fins stabilise the balloon during flight and cause it to weathervane so that it is always pointing into the wind. Additionally, the SkyFlyer's design reduces turbulence, improving both passenger safety and comfort. … The SkyFlyer is therefore able to operate in winds of up to 40 knots (i.e. 74 km/hr) with a full payload of passengers. This greatly assists our pilots in flying the aircraft without having to worry about unexpected wind gusts or payload constraints during flight. Consequently, the attraction's operational performance is substantially improved and effectively eliminates downtime caused by non-favourable wind conditions. The SkyFlyer is able to operate at approximately 3.5 times the operating capacity of its predecessor. Astrosphere [ARS] may now operate to a fixed time schedule, allowing passengers to pre-purchase their tickets and plan their visit to Uluru well in advance. … The attraction will be open to the public every day of the year with normal operating hours before Sunrise and after Sunset. Operations are subject only to extreme weather conditions (i.e. winds in excess of 40 knots (74 kms/hr), thunderstorms and very wet conditions which affect passenger comfort).
6. ARS submitted a revised proposal in September 2012 that did not alter any of the parts recited above.
7. In November 2012, ARS commenced what Mr Adler described as the "very lengthy approvals process", by applying for an approval under the Environment Protection and Biodiversity Conservation Act 1999 (Cth). The approval process also involved discussions with and applications to the Civil Aviation Safety Authority ("CASA").
8. From about that time, further discussions occurred in relation to the suitability of the proposed site. Eventually a new site was settled upon in about December 2013.
9. Mr Adler deposed that negotiations continued for many months during 2014 and 2015 in relation to a lease of the new site. The detail of the negotiations for the three agreements ultimately entered into is not covered in the evidence.
10. It appears, however, that on about 3 September 2015 ARS received Site Lease, TIC Lease and Operator Agreement documents for execution, and that those documents were executed by ARS and returned to Voyages within a matter of days. The documents were subsequently executed by Voyages and returned to ARS on about 21 December 2015. Nothing turns upon the dates of execution as the parties have agreed that the three agreements were entered into in September 2015.

(a) The Site Lease

1. The Site Lease, entered into by Voyages as Lessor and ARS as Lessee, concerns an area approximately 2400m2 in total, as shown on a plan annexed to the lease. It was recited that the lease was granted to the Lessee for the purpose of the Lessee installing operating and maintaining the Sky Ship Facility (as defined) on the Premises (as defined). The term of the lease is five and a half years, from 1 April 2016 to 30 September 2021, with a right to extend for a further term of 5 years. The rent was stipulated to be $36,000 plus GST per annum, with a six month rent free period, and subject to reviews.
2. Installation of the Sky Ship Facility was provided for in cl 9.1.
3. Clause 6.1 imposed a number of obligations upon ARS including to conduct the Lessee's Business (as defined) at all times in good faith, in a reputable manner and to the best of the Lessee's ability; and to comply with all laws and statutes in relation to the Premises, the Lessee's Business and the Permitted Use (being the operation of the business of providing ballooning experience and joyrides).
4. Default and termination is dealt with in cl 14. By cl 14.3(b)(ii) the Lessor may terminate the lease by notice to the Lessee in certain circumstances, including if the Lessee is in default of the lease and the breach remains unrectified despite the giving of a notice allowing 14 days to rectify the breach.
5. Reference should also be made to cl 21.1 which provides an acknowledgment by the parties that the Business Tenancies (Fair Dealings) Act 2003 (NT) does not apply to the lease except for Part 13 of that Act. Clause 21.16 provides that the lease is governed by the laws of the Northern Territory.

(b) The TIC Lease

1. This lease, again entered into by Voyages as Lessor and ARS as Lessee, concerns a small part of the Yulara Tour Information Centre. The term of the lease is five years, from 1 October 2016 to 30 September 2021, with a right to a further term of 5 years. The rent was stipulated to be $14,516 plus GST per annum, subject to reviews.
2. Clause 5.1 provides that the Lessee must only use the Premises for the Permitted Use (being Tour sales and information booths for Lessee's Business as defined in the Operator Agreement, photographic sales and display/provision of promotional materials only). By cl 5.4 the Lessee is obliged to comply with and observe at its cost all Laws (as defined) in relation to the Premises.
3. Default and termination is dealt with in cl 14. By cl 14.1 it is an Event of Default if the Lessee fails to perform or observe any obligations under the lease within 10 Business Days (as defined) following a demand to do so. By cl 14.2(b) the Lessor may determine the lease by notice if an Event of Default occurs.
4. Clause 21.3 obliges the Lessee to comply with the terms of the Operator Agreement.
5. Clause 22 provides that the lease terminates immediately on the date that the Operator Agreement is terminated or otherwise comes to an end.
6. Clause 27.7 provides that the lease is governed by the laws of the Northern Territory.

(c) The Operator Agreement

1. The Operator Agreement was made between Voyages and ARS (as Operator). Although not expressed to be a deed, it contains a number of recitals including the following: B. The overriding objectives for the operation of the Resort by Voyages are: to provide the highest possible quality and value for money tourism experiences for visitors to the Resort in the context of sound and sustainable commercial practice; to provide genuine, educational, interactive Indigenous experiences for visitors to the Resort in a culturally sensitive manner; to increase social, economic and environmental benefits to Indigenous people and in particular to actively promote and create training and employment opportunities for Indigenous Australians; and these three objectives together constitute the Resort Purposes. Voyages has an obligation to achieve the Resort Purposes. C. To achieve the Resort Purposes and because of the uniqueness of the Resort conceptually, geographically, climatically and in other ways, it is essential that Voyages has the right to give directions regarding the operations, businesses and services conducted by all parties within or from the Resort. … E. The Operator wishes to conduct the Business (as defined in this Agreement) and Voyages consents to the Operator doing so subject to the terms and conditions contained in this Agreement. F. The Operator must carry on its Business in a manner consistent with the Resort Purposes.
2. The Operator Agreement has a Commencement Date of 1 October 2016 and an Expiry Date of 30 September 2021. These dates mark out the Term as defined, subject to any termination that occurs prior to 30 September 2021. However, cl 2.1 provides: Voyages grants to the Operator the right to conduct the Business subject to the terms of this Agreement, subject to following requirements all of which are conditions precedent to this Agreement taking effect: (a) the Operator ensuring that the Premises have been prepared in accordance with any instructions, conditions or directions given by the Civil Aviation Safety Authority; (b) the Operator obtaining its Air Operator Certificate from the Civil Aviation Safety Authority and providing a copy to Voyages; and (c) Voyages and the Operator entering the Lease Agreement in respect of the Premises.
3. Clause 3.1 provides: (a) The Operator shall be entitled to conduct the Business for the Term, unless this Agreement is terminated earlier pursuant to any of the termination provisions in this Agreement or for any other reason. (b) Voyages grants to the Operator the option to extend this Agreement for the further term specified in item 3A of the Schedule upon the terms and conditions of this Agreement (excepting any further right to extend). The Operator may exercise this option if and only if: (i) the Operator gives to Voyages written notice of its exercise of the option not less than three (3) months and not more than six (6) months prior to the expiration of the current Term; and (ii) the Operator is not, at the time of giving the notice, in breach of any of the terms and conditions of this Agreement, the Lease or the TIC Booth Lease. (c) Voyages makes no representation that this Agreement will be renewed or extended or that it will enter another similar Agreement with the Operator upon Operator not validly exercising its right outlined in clause 3.1(b).
4. Business is defined, by reference to Item 4 of the Schedule, as: Provision by the Operator of rides in the open-air gondola of a tethered balloon (ballooning adventure experience) and transfers to and from the SkyShip Site for the benefit of guests, visitors and residents of the Resort.
5. Clause 4.1 is of central significance. It provides: The Operator must conduct the Business in accordance with the terms of this Agreement during Normal Business Hours throughout the Term.
6. Normal Business Hours is defined, by reference to Item 9A of the Schedule, as: Ayers Rock Resort operates daily every day of the year with a large emphasis on sunrise and sunset viewing and day time tours of both Uluru and Kata Tjuta. It is a requirement under this Agreement that the Operator will also operate on days and at times that provides for these activities.
7. Clause 4 further provides, relevantly: 4.2 Particulars relating to each of the Commissionable Services including, timetables, shall be as agreed between Voyages and the Operator from time to time. 4.3 The Operator must not: (a) conduct any business other than the Business; or (b) provide any services other than the Commissionable Services; within or from the Premises, or the Resort without the prior written consent of Voyages, which may be given or withheld in Voyages' absolute discretion. … 4.5 (a) The Operator shall observe all Laws applicable to the Business and shall obtain and maintain all necessary registrations, licences and permits (including, without limitation all certificates and licences required by the Civil Aviation Safety Authority) necessary or desirable for the conduct of the Business, and conduct the Business in accordance with such Laws, registrations, licences and permits (including those of the Civil Aviation Safety Authority). (b) The Operator must obey all lawful directions given by Voyages (or any person exercising delegated authority from Voyages) or by any authority in relation to the conduct of the Business whether pursuant to any legislation or by-laws relating to the Yulara area or otherwise.
8. Clause 5.1 provides: The Operator shall conduct the Business in a professional, competent and efficient manner having regard to the Resort Purposes.
9. Clause 5.6 provides: (a) If Voyages reasonably believes that the Operator will be unable to provide any of the Commissionable Services, Voyages may book, or transfer the booking of any person who has booked the Commissionable Services via Voyages or its agents, to a service conducted by another operator or may itself provide a substitute service. (b) Voyages may make an appropriate adjustment to the Fees in addition to any other rights which Voyages may have against the Operator as a result of interrupted Commissionable Services.
10. Commissionable Services is defined, by reference to Item 7 of the Schedule, to mean "the services to be provided by the Operator in the conduct of the Business".
11. Clause 7 relevantly provides: 7.1 (a) The Operator must maintain a reservations and booking service for the Business at the Tour & Information Centre in Yulara Town Square. (b) The Operator must consult regularly with Voyages regarding the reservations and bookings service in respect of the Business and will comply with all reasonable directions made by Voyages for the improvement of that service. 7.2 (a) The Operator appoints Voyages to take bookings and reservations for the Commissionable Services and where appropriate sell tickets (as its agent) on behalf of the Operator from each of the tour desks in the Resort and also from such other locations as Voyages determines appropriate. (b) The Operator agrees that all bookings, reservations and sales of tickets for the Commissionable Services made by Voyages during the Term (ie Voyages Bookings) will be subject to a commission as set out in clause 8. …
12. Clause 8 concerns commission fees payable to Voyages. Clause 8.1 provides for the calculation of the commission fees, and cll 8.2 and 8.3 provide for the manner of payment, including the time when the fees become payable.
13. Clause 14.2 imposed a number of obligations upon the Operator including to comply with all Workplace Laws (as defined) at all times, and to ensure that all plant and equipment used by the Operator in connection with the Business is maintained in a safe working order. Clause 14.3 stated that a breach of cl 14 by the Operator will be considered a breach of an essential term of the agreement.
14. Clause 15 restricts the ability of the Operator to assign its rights under the Operator Agreement.
15. Clause 16, which concerns termination, is also of central significance. It provides: 16.1 Voyages may terminate this Agreement immediately by written notice to the Operator if: (a) any of the Fees are overdue by more than fourteen (14) Business Days; (b) the Operator ceases to legally represent and trade under the Business Name or discontinues the provision of any of the Commissionable Services or the Business for greater than 2 consecutive days without the prior written consent of Voyages; (c) the Operator breaches clause 14; (d) the Operator breaches clause 15; (e) the Operator breaches any of the other terms of this Agreement (other than clause 5) which is not remedied within 14 days after being given written notice of the breach by Voyages requiring that the breach be remedied; (f) the Operator is placed into liquidation, has an administrator, receiver and/or manager appointed to the Operator (or any of its assets), a mortgagee takes possession of any of the Operator's assets, any proceedings are issued against the Operator or an event occurs which is intended to lead to any of those consequences or if any other action relating to insolvent debtors occurs in relation to the Operator; (g) any judgment is entered against the Operator for a sum greater than $10,000 and is not satisfied by the Operator within 14 days of being entered; or (h) the Lease is terminated for any reason. 16.2 Termination of this Agreement by Voyages shall not prejudice any other rights or remedies which Voyages has against the Operator.
16. Clause 21 provides: A breach or default under any of this Agreement, the SkyShip Lease or the TIC Booth Lease will be deemed a breach or default under the other(s). To the extent that any such breach or default is remedied, the remedy will also be considered a remedy under the other(s).
17. Reference should also be made to cll 22.7 and 22.10 which provide: 22.7 This Agreement (including any Schedules) together with the Lease and the Sublease contain the entire understanding of the parties with respect to the matters contained in them. There are no promises, covenants or undertakings other than those specified in this Agreement, the Lease and the Sublease. … 22.10 The Operator must comply with the terms of the Lease and Sublease. Lease is defined by reference to Item 6 of the Schedule to include both the Site Lease (referred to as the SkyShip Site Lease) and the TIC Lease (referred to as the TIC Booth Lease). The references to a Sublease in the above mentioned clauses seem to be erroneous.
18. Finally, cl 22.9 provides that the Operator Agreement is governed by the laws of the Northern Territory.

Events following entry into the agreements

1. On 9 September 2015 ARS entered into a contract with Lindstrand for the purchase, delivery and installation of a Sky Ship tethered balloon system. The purchase price was in the order of $2 million. Delivery to Yulara was at that time expected in May/June 2016. In December 2015 the benefit of the Lindstrand contract was novated to another wholly owned subsidiary of Sky Leisure Pty Ltd, namely, Uluru Sky Ship Holdings Pty Ltd ("USH"). USH entered into an agreement with ARS for the leasing of the Sky Ship and associated equipment.
2. The process of manufacture, delivery and installation of the Sky Ship suffered delays due in large part to numerous design changes made by Lindstrand. This led ARS to seek a deferral of rent that would otherwise be payable under the Site Lease and the TIC Lease. Voyages agreed to a deferral. In the meantime, ARS and USH attended to various matters required as part of the preparations for the eventual commencement of the business. These matters included the commissioning of artwork for the Sky Ship, preparing the site and purchasing vehicles.
3. The Sky Ship components reached Australia in September 2017 and were promptly transported to the site. It appears that difficulties soon arose in the construction of the Sky Ship platform. The Sky Ship balloon itself (sometimes referred to as "the envelope") was delivered to the site in late January 2018. It was inflated (with about 6,000,000 litres of helium) on 21 February 2018.
4. The Sky Ship is designed such that when it is in the air, it "weathervanes" so as to always face into the wind. When it is moored on its platform, the Sky Ship is able to rotate. An automated turning system involving electric motors controlled by computerised software and wind direction sensors is intended to ensure that it rotates so as to always face into the wind. Problems were soon encountered in relation to that automatic system. Mr Adler gave evidence that in March 2018 he was informed that there had been some erratic movements in the sensors and that Lindstrand was dealing with the issue. By about late April 2018, Mr Adler became aware that problems with the automatic system meant that it was not in use, so that in order for the Sky Ship to face into the wind it was instead necessary for it to be manually rotated. Mr Adler was aware that unless the Sky Ship was manually turned into the wind there was a risk that it could be destroyed as a result of a cross-wind.
5. Lindstrand stated that after commissioning (due in May 2018) the automatic system should be operating. However, it seems that the problems turned out to be more serious than had been thought. They were not resolved prior to ARS commencing Sky Ship operations (with its first paying passengers) on about 18 August 2018, or indeed by the time the Sky Ship was extensively damaged (and the balloon itself destroyed) by high cross-winds on 8 October 2018.
6. In the meantime, on 30 July 2018 CASA issued to ARS a permission to operate a manned fixed balloon above the site. (On 17 February 2018 CASA had issued such a permission to Astrosphere Pty Ltd, a former name of ARS that had been in use until January 2015.)
7. As noted above, ARS commenced its Sky Ship operations on about 18 August 2018. Mr Adler described the initial operation as a "paid trial" or "soft opening", undertaken before Voyages began promoting the Sky Ship on its website and selling tickets through its own portals.
8. On 30 September 2018, ARS informed Voyages that due to recruitment and staffing difficulties, all sunrise tours would need to be cancelled "as an interim measure". All Sky Ship operations ceased following the sustaining of the damage that occurred on 8 October 2018.
9. On 24 October 2018 Voyages demanded that ARS pay arrears of rent totalling $46,337.12. That amount was paid by 26 October 2018.
10. On 31 October 2018 an email was sent on behalf of the Chief Executive Officer of Voyages, Mr Grant Hunt, to Mr Adler. Reference was made in the email to a right to terminate having arisen under cl 16.1(b) of the Operator Agreement as the Business had been discontinued for greater than two consecutive days without the prior consent of Voyages. Voyages reserved all its rights under the Operator Agreement and the two leases. At about the same time, Voyages sent a without prejudice communication to ARS which contained an offer to surrender the leases and the Operator Agreement on certain terms. Voyages again reserved all of its rights. The offer was not accepted.
11. On 2 November 2018 solicitors for ARS (O'Brien Legal) sent an email to Voyages in which issue was taken with the assertion that a right to terminate the Operator Agreement had arisen under cl 16.1(b). It was stated that it would take approximately 9 months for ARS to resume commercial operations, but the present inability to provide services was an interruption of services (governed by cl 5.6 of the Operator Agreement) rather than a discontinuance of services. It was further stated that the inability to continue services was a consequence of a force majeure event entirely beyond the control of ARS.
12. The parties then engaged in some discussion about ARS proceeding with a different proposal not involving a tethered balloon, namely, a viewing tower referred to as Sky Bar or Dream View Uluru. However, no further agreement was reached. It seems that the board of Voyages was not interested in pursuing that proposal.
13. On 18 December 2018 O'Brien Legal sent a letter to Voyages in which reference was made to ARS' need for certainty as to whether the allegations of breach made by Voyages on 31 October 2018 were to be pressed. It was stated that if notices of termination were not issued in respect of the Operator Agreement or the Site Lease within 7 days, ARS would assume that Voyages had no intention of pressing the allegations, and ARS would proceed to make arrangements for the repair or replacement of the Sky Ship.
14. On 24 December 2018 solicitors for Voyages (Minter Ellison) sent a letter to ARS which enclosed notices of breach of covenant in respect of the Operator Agreement and each of the two leases.
15. The notice in respect of the Operator Agreement referred to cl 4.1 and the right to terminate under cl 16.1(e). It was stated that ARS was in breach of cl 4.1 and was required within 14 days to remedy the breach by recommencing the conduct of the Business in accordance with the terms of the Operator Agreement during Normal Business Hours throughout the Term.
16. The notice in respect of the Site Lease also referred to cl 4.1 of the Operator Agreement, as well as to cl 21 which deems a breach of the Operator Agreement to be a breach of the Site Lease. It was stated that ARS was required within 14 days to remedy the breach of the Site Lease by recommencing the conduct of the Business in accordance with the terms of the Operator Agreement during Normal Business Hours throughout the Term.
17. The notice in respect of the TIC Lease was in substantially the same terms save that the breach was required to be remedied within 10 Business Days.
18. On 31 December 2018 O'Brien Legal sent a letter in which issue was taken with the assertions of breach of the agreements. A demand was made that the notices be withdrawn. Voyages did not agree to do so.
19. On 1 February 2019, Notices of Termination were served in respect of the Operator Agreement and each of the two leases.
20. The termination in respect of the Operator Agreement was stated to be based upon cl 16.1(b), cl 16.1(e) and the general law.
21. The termination in respect of the Site Lease was stated to be based upon deemed defaults under the Site Lease and the failure to remedy the breach as required by the notice of breach, and the general law.
22. The termination in respect of the TIC Lease was similarly based upon deemed defaults under the TIC Lease and the failure to remedy the breach as required by the notice of breach, and the general law. Reference was also made to cl 22 of the TIC Lease which provides that the lease terminates immediately upon the date that the Operator Agreement is terminated.

Determination

1. As noted earlier, the parties filed a Joint List of Issues for Determination. The first four issues primarily concern the Operator Agreement. They are expressed in the following terms: 1 Whether ARS' inability and consequent failure to operate the Skyship in the period 8 October 2018 to 24 December 2018 constituted a failure to conduct the Business in accordance with the terms of the Operator Agreement during Normal Business Hours throughout the Term in breach of clause 4.1 of the Operator Agreement. 2 The force and effect of the Breach Notices having regard to Issue 1. 2A Whether s. 137 of the Law of Property Act (NT) (Property Act) applies to the Operator Agreement or otherwise operates to restrict the circumstances in which the Operator Agreement may be terminated, and the effect of the Termination Notices having regard to this matter. 3 Whether ARS' inability to operate the Skyship in the period 8 October 2018 - 1 February 2019 amounted to an inability to perform its obligations under the Operator Agreement giving rise to a right in Voyages to terminate the Operator Agreement: a. At general law; b. Under cl 16.1(b) of the Operator Agreement; and/or c. Under cl 16.1(e) of the Operator Agreement.
2. These issues raise questions of construction of the Operator Agreement, notably cll 4.1 and 16.1. There was no dispute as to the principles applicable to the construction of written commercial agreements such as the Operator Agreement. These principles have been stated in recent years by the High Court in cases such as Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52], and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]. Accordingly, the meaning of the terms of a contract is to be determined objectively, by what a reasonable business person, placed in the position of the parties, would have understood the terms to mean.
3. As stated in Electricity Generation Corporation v Woodside Energy Ltd (supra) at [35], the Court is required to consider: …the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". (footnotes omitted).
4. It may be added that a commercial contract should be construed as a whole, and if possible so as to render all the terms harmonious (see Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109).
5. ARS submitted that its inability to provide rides in the Sky Ship after 8 October 2018 did not constitute a breach of cl 4.1 because on its true construction the obligation to "conduct the Business…" prescribes a norm of conduct applicable within ordinary circumstances. It was submitted that an interruption to Business occasioned by exceptional circumstances is not within the scope of the provision. It was put that reasonable business persons would not have understood cl 4.1 as operating in exceptional circumstances (such as those that arose in this case) to demand the impossible on pain of forfeiture. ARS submitted that it would be manifestly uncommercial to construe cl 4.1 as imposing an obligation to maintain uninterrupted provision of rides in the Sky Ship regardless of exceptional circumstances that preclude the safe operation of the Sky Ship or render it inoperable.
6. Voyages submitted that cl 4.1 contains a promise on the part of ARS to operate the Business (as defined) on a continuous basis throughout the Term. It was submitted that the language in this respect is clear and unambiguous, and the words should be given their natural and ordinary meaning. Voyages took issue with the suggested qualification upon the promise where exceptional circumstances exist so as to render performance impossible. Voyages contended that this qualification would render an otherwise clear agreement completely uncertain. Voyages submitted that it was not commercially irrational for ARS to take the risk of the Sky Ship becoming inoperable. It was put that a contractual requirement that a supplier provides services on an ongoing and reliable basis is entirely consistent with reasonable commercial practice.
7. Clause 4.1 imposes an obligation upon ARS, expressed in imperative terms, to conduct the Business in accordance with the terms of the agreement during Normal Business Hours throughout the Term. The definition of Normal Business Hours indicates that ARS was to operate every day of the year at sunrise and sunset, and during the day, throughout the Term. The Term is defined as the period from 1 October 2016 to 30 September 2021, subject to earlier termination. The notion of the Term, and indeed the Operator Agreement generally, needs to accommodate cl 2.1, which provides that certain conditions precedent are to be satisfied before the Operator Agreement takes effect. It appears to be the case that those conditions precedent were satisfied by no later than about 30 July 2018. Clause 4.1 should thus be read as requiring the Business to be conducted throughout the remaining balance of the Term.
8. The Business is essentially defined as the provision of rides in the gondola of a tethered balloon, and transfers to and from the site. The obligation under cl 4.1 requires the Business to be operated in accordance with the terms of the agreement. A number of terms are capable of applying to the operation of the Business, and may even require the operation to cease for a period. Provisions which potentially have that effect include, for example, cll 4.5 and 14.2. It is conceivable that Laws or Workplace Laws (as defined) may apply so as to mandate a cessation of the operation of the Business. The obligation under cl 4.1 is thus qualified to the extent that compliance with the terms of the agreement itself is inconsistent with the conduct of the Business.
9. Subject to the qualifications referred to in the preceding two paragraphs, ARS is required by cl 4.1 to conduct the Business (that is, provide the rides and the associated transport) during Normal Business Hours until 30 September 2021 or earlier termination of the Operator Agreement. ARS will be in breach of cl 4.1 if, during the relevant period, it can be seen objectively to be not conducting the Business in accordance with the terms of the agreement during Normal Business Hours.
10. Whether that state of affairs exists depends of course upon the particular circumstances which arise. However, I do not think that the language of the clause, viewed in the context of the whole agreement and in the light of the surrounding circumstances known by both parties when the agreement was made, should be read as including a qualification that it only operates in ordinary, or not exceptional, circumstances. To do so would add a significant gloss upon otherwise clear words, and introduce a deal of uncertainty to the scope of operation of the clause. I note that the parties addressed in cl 5.6 the notion of inability to provide the services (the Commissionable Services) in the conduct of the Business, and recognised that Voyages may have rights against ARS as a result of interrupted Commissionable Services. No qualification of the type suggested by ARS is evident in the words of cl 5.6.
11. The parties have chosen not to deal expressly with events of frustration or force majeure. Provisions of that character are not uncommon. Moreover, in circumstances where the services to be provided in the conduct of the Business were to be rendered by means of a single vehicle, namely, the Sky Ship, the parties should be taken to have contemplated that continued provision of the services was susceptible to events causing the Sky Ship to become inoperable. I agree with the submission made by Voyages that there is nothing commercially absurd or irrational in ARS (or a party in the position of ARS) agreeing to assume the risk of that occurring. ARS was after all the party which, through its dealings with Lindstrand, had some knowledge of the Sky Ship and its attributes.
12. ARS submitted that a relevant surrounding circumstance known to both parties was that the Sky Ship would not be able to operate in bad weather. In this regard I note that the proposals submitted by ARS to Voyages included statements to the effect that: 1. the service was available "in almost all weather conditions"; 2. because the Sky Ship is able to operate fully loaded in winds of up to 40 knots, downtime caused by non-favourable weather conditions is effectively eliminated; and 3. the attraction will be open to the public every day of the year, and operations are subject only to extreme weather conditions, thunderstorms and very wet conditions which affect passenger comfort.
13. The parties can be taken to have been aware that such events might occur from time to time, and that as a result, the provision of the services may not be possible for short periods. However, it is unlikely that interruptions of that character would amount to a breach of cl 4.1. Whilst the Court was not referred to any applicable laws, regulations or licence conditions, it can be expected, for example, that operating the Sky Ship in winds or storms that pose dangers to its passengers would be prohibited. If that is so, the consequential interruption would not itself amount to a failure to conduct the Business in accordance with the terms of the agreement. Indeed, in the face of a legal prohibition, continuing to operate in those conditions would be a breach of the Operator Agreement. I do not think that this surrounding circumstance lends much weight to the construction advanced by ARS.
14. As I have said, a breach of cl 4.1 occurs if, during the relevant period, ARS can be seen objectively to be not conducting the Business in accordance with the terms of the Operator Agreement during Normal Business Hours. In my opinion that state of affairs arose after the damage to the Sky Ship occurred on 8 October 2018. ARS did not thereafter conduct the Business in accordance with the terms of the agreement during Normal Business Hours, or indeed at all. It was unable to do so due to the damage sustained by the Sky Ship. ARS was thus in breach of cl 4.1. That is so even if the circumstances that brought about the inability to continue to operate the Business can be described as extraordinary or exceptional.
15. In reaching my conclusion as to the meaning of cl 4.1 I have had regard to all the terms of the Operator Agreement, including the provisions of cl 16.1 which are discussed later in these reasons.
16. By cl 21 of the Operator Agreement, the breach or default of cl 4.1 was also deemed to be a breach or default under the Site Lease and the TIC Lease (see also cl 21.3 of the TIC Lease). The breach of cl 4.1 thus provided the basis for the three notices of breach of covenant served on 24 December 2018. In essence, the notices called upon ARS to remedy the breach, either within 14 days (in the case of the Operator Agreement and the Site Lease) or 10 Business Days (in the case of the TIC Lease), by recommencing the conduct of the Business in accordance with the terms of the Operator Agreement during Normal Business Hours throughout the Term.
17. ARS submitted that s 137 of the Law of Property Act 2000 (NT) applied to each of the agreements, and the notices failed to specify a reasonable time within which to remedy the alleged breach. Section 137 of the Law of Property Act relevantly provides: (1) A lessor must not exercise a right of re-entry and forfeiture under a lease unless: (a) the lessor is authorised to do so by an order of the Court made under subsection (3); or (b) the lessee has abandoned or voluntarily given up possession of leased premises. (2) If a lessee breaches a covenant, obligation, condition or agreement (whether express or implied) in the lease that gives rise to a right of re-entry or forfeiture on the part of the lessor and the lessor wishes to enforce the right, the lessor must serve on the lessee a notice that: (a) specifies the particular breach complained of; (b) if the breach is capable of remedy - requires the lessee to remedy the breach; and (c) if the lessor claims compensation in money for the breach - requires the lessee to pay the compensation. (3) If notice has been served on a lessee under subsection (2) and the lessee fails within a reasonable time after service of the notice to comply with the notice, the lessor may apply to the Court for an order for possession of the leased premises.
18. It was submitted, correctly, that the evidence was clear that it was not possible for ARS to resume its operation of the SkyShip within the times stipulated in the notices. Nevertheless, the submission that s 137 applies to the agreements faces difficulties which are, in my view, insurmountable.
19. First, s 137 of the Law of Property Act does not apply to leases within the meaning of the Business Tenancies (Fair Dealings) Act 2003 (NT) (see s 114(2)(d) of the Law of Property Act). Both the Site Lease and the TIC Lease are in my view leases within the meaning of the Business Tenancies (Fair Dealings) Act because they fall within either or both of the definitions of "retail shop lease" and "business lease" within that Act.
20. Secondly, s 137 has no application to the Operator Agreement. It is not itself a lease. It does not confer any rights upon ARS to occupy any land. Moreover, I am unable to accept the submission of ARS to the effect that the interrelationship between the three agreements, that were entered into contemporaneously, leads to the conclusion that the Operator Agreement was not a separate agreement but part of a single agreement (or, perhaps, two agreements) that answer the description of a lease for the purposes of s 137. The authorities cited in support of this submission, including Smith v Chadwick (1882) 20 ChD 27 at 62-3 and Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [259] are concerned with the construction of instruments entered into contemporaneously. It may be accepted that where several agreements are made between the same parties at the same time, the terms of any one of them may be relevant to the construction of another of them. At the very least, the terms of the other agreements form part of the context in which each agreement is construed. It does not follow that the several agreements must be treated as constituting a single agreement. In the present case, there are apparently good reasons for the parties to enter into three separate, albeit interrelated, agreements. The Operator Agreement confers upon ARS a right upon certain terms to conduct the Business and it was plainly contemplated that, for that purpose, leases of two separate parcels of land would also be entered into. The parties chose to structure their legal relationship in that way. In these circumstances, I do not think that the parties should be regarded as having instead made only one agreement (or two agreements) that should be characterised as a lease (or two leases). Even if that was the true position, any lease would be a lease within the meaning of the Business Tenancies (Fair Dealings) Act to which s 137 of the Law of Property Act would have no application.
21. Accordingly, s 137 did not apply to any of the Operator Agreement, the Site Lease or the TIC Lease.
22. I turn now to consider whether Voyages had the right to terminate the Operator Agreement on 1 February 2019. This issue directs attention to cl 16.1 of the Operator Agreement.
23. ARS submitted that the eight paragraphs of cl 16.1 contained eight independent, and not overlapping, grounds for termination of the Operator Agreement. It was put that paragraphs (f) - (h) concern events external to the contract, whereas paragraphs (a) - (e) concern breaches of terms of the agreement. ARS submitted that cl 16.1(a) was concerned with breaches of cll 8.2 and 8.3, cl 16.1(b) was concerned with breaches of cl 4.1, cl 16.1(c) and cl 16.1(d) were self-evidently concerned with breaches of cll 14 and 15, and cl 16.1(e) was concerned with breaches "any of the other terms" of the agreement. ARS submitted that as cl 4.1 was engaged by cl 16.1(b), a breach of cl 4.1 did not fall within cl 16.1(e) as a breach of "any of the other terms" of the agreement.
24. ARS then submitted that if there was any breach of cl 4.1 in the present circumstances, it did not fall within cl 16.1(b) as the notion of "discontinues" imports an aspect of "agency and finality", such that cl 16.1(b) is not concerned with events beyond the control of ARS that do not signal a final stepping away from, or discontinuance of, the operations. It was submitted that it would be absurd to interpret cl 16.1(b) as applying merely because the services or the Business cease for more than two consecutive days.
25. Voyages submitted that on 1 February 2019 it had rights of termination under both of cll 16.1(b) and 16.1(e). In relation to the former, Voyages submitted that it was a stand-alone right of termination, independent of the breach of any provision of the agreement. It was put that it was obvious that ARS had discontinued the provision of the Commissionable Services or the Business for greater than two consecutive days without the prior written consent of Voyages. It was submitted that "discontinues" should be read in its ordinary sense of ceases to continue.
26. In relation to cl 16.1(e), Voyages submitted that the expression "any of the other terms" of the agreement included cl 4.1. It was noted that cl 16.1(b) describes circumstances that give rise to a right to terminate, and is not itself a term of the agreement that can be breached by ARS. Voyages submitted that cl 16.1(e) gave it the right to terminate if there was a breach of cl 4.1 that had not been remedied by ARS within 14 days after notice was given requiring the breach to be remedied.
27. The events that fall within cl 16.1(a) are necessarily breaches of either cl 8.2 or cl 8.3. Clause 16.1(a) can thus be seen as being concerned only with breaches of those provisions. It is more difficult to read cl 16.1(b) as being concerned only with breaches of cl 4.1. Clause 16.1(b) has at least two limbs, the first of which is engaged if ARS ceases to legally represent and trade under the Business Name (as defined). That state of affairs alone would not necessarily involve a breach of cl 4.1 - ARS may be able to avoid breaching cl 4.1 by proceeding to conduct the Business under a different name. It might be a breach of cl 4.5. The next limb of cl 16.1(b) does not necessarily involve a breach of cl 4.1 either. For the reasons referred to earlier, if ARS is required by law to discontinue the Business for a period of, say, three days due to extreme winds or a need for a safety audit to be undertaken, that would not be a breach of cl 4.1.
28. Moreover, it is a natural reading of cl 16.1(e) to regard the "other terms" as terms other than those (such as cll 14 and 15) that are specified in the preceding paragraphs. In these circumstances, I am unable to accept the submission of ARS that a breach of cl 4.1 is not a breach of "any of the other terms" of the agreement for the purposes of cl 16.1(e). In my opinion, a breach of cl 4.1 can be the subject of a notice given by Voyages pursuant to cl 16.1(e). That is what in fact occurred on 24 December 2018 in relation to the breach of cl 4.1 that I have found. The failure of ARS to remedy the breach of cl 4.1 within the 14 day period stipulated in cl 16.1(e) and the notice had the consequence that Voyages obtained a right to immediately terminate the Operator Agreement by written notice to ARS.
29. It is not necessary to determine whether Voyages also obtained a right to immediately terminate pursuant to cl 16.1(b), on the ground that ARS had discontinued the provision of the Commissionable Services or the Business for greater than two consecutive days without the prior written consent of Voyages. I should state, however, that in my opinion there is something to be said for the view that "discontinues" within cl 16.1(b) should be read as involving more than cessation simpliciter. That view gains some support from the juxtaposition within the clause of "ceases" and "discontinues", and the evident contemplation that ARS may be able to obtain the prior written consent of Voyages to a discontinuance of greater than two consecutive days. I tend to think that this limb of cl 16.1(b) is directed to a situation, not present here, where ARS unilaterally and without the prior consent of Voyages discontinues the provision of any of the Commissionable Services or the Business for more than two consecutive days. In circumstances where Voyages is appointed as an agent to take bookings and sell tickets (upon which sales commission is payable), it is readily understandable that the parties would have agreed that such a unilateral discontinuance would afford a ground for termination.
30. It is also not necessary to determine whether Voyages had a right to terminate the Operator Agreement at general law. However, I should indicate that had it been necessary to determine the question I would have concluded that a right to terminate at general law did arise. In brief, even if cl 4.1 of the Operator Agreement was not agreed to be an essential term of the contract, the breach of the provision was sufficiently serious to justify termination (see Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [49]). On any view, the obligation upon ARS to conduct the Business during Normal Business Hours throughout the Term (or at least from about 30 July 2018 once the conditions precedent had been satisfied) was a matter of some importance. From the perspective of Voyages, the operation of the Business enhanced the range of services available to visitors to the Ayers Rock Resort, and provided the means for Voyages to earn commission on ticket sales. The breach of cl 4.1, which continued from 8 October 2018 to 1 February 2019, was not one readily able to be rectified. On 2 November 2018, less than two years before the expiry of the Term, ARS' solicitors informed Voyages that it would take approximately 9 months for ARS to resume operations. There was of course no certainty that this could be achieved. In my opinion, the breach of cl 4.1 deprived Voyages of a substantial part of the benefit for which it contracted (see Koompahtoo Local Aboriginal Land Council (supra) at [71]). Finally, I note that it was suggested that ARS' inability to perform also amounted to a repudiation of the contract. As this matter was not the subject of detailed argument, I prefer not to express any view upon it.
31. It follows from the above that the failure of ARS to remedy the breach of cl 4.1, as required by the notice of breach, gave rise to a right in Voyages to terminate the Operator Agreement. It was not suggested that if such a right arose it was lost prior to its exercise on 1 February 2019. In my opinion, the Operator Agreement was validly terminated by Voyages by the notice it gave on that day.
32. The remaining issues in the Joint List of Issues for Determination primarily concern the Site Lease and the TIC Lease. They are expressed in the following terms: 4 Whether a breach of the Operator Agreement was a breach of the TIC Lease and the Site Lease by operation of cl 21 of the Operator Agreement. 5 Whether the TIC Lease has been terminated under cl 22 of the TIC Lease. 6 Whether s 137 of the Property Act applies to the Site Lease and the TIC Lease, and applies, or by virtue of its application to the Site Lease and TIC Lease (or otherwise) operates, to restrict the circumstances in which the Operator Agreement may be terminated. 7 If the answer to Issue 6 above is yes: a. whether the Breach Notices for the Site Lease and the TIC Lease complied with the requirements of s 137(2) and (3) of the Property Act as regards the time specified in the respective notices to cure the breach; and / or alternatively b. whether ARS has failed to remedy the breaches identified in the Breach Notices for the Site Lease and the TIC Lease within time for the purposes of s 137(3) of the Property Act. 8 Whether the Termination Notices for the Site Lease and the TIC Lease determined those leases having regard to Issues 2, 6 and 7. 9 If any or all of the Termination Notices operated to terminate the TIC Lease or the Site Lease, whether in all the circumstances the court would grant ARS relief against forfeiture of those leases under s 138 of the Property Act or, alternatively, in equity and, if so, upon what terms. 10 Whether ARS is entitled to an order for the performance of the Operator Agreement.
33. Clause 22 of the TIC Lease provides that it will terminate immediately on the date the Operator Agreement is terminated or otherwise comes to an end. Aside from restating that the Operator Agreement had not been validly terminated, ARS did not dispute that if the Operator Agreement was terminated, cl 22 would operate to terminate the TIC Lease. Further, ARS did not dispute that by reason of the operation of cl 21 of the Operator Agreement, a breach of that agreement was also a breach of the Site Lease and the TIC Lease. In its terms, cl 21 provides that a breach or default under the Operator Agreement will be deemed a breach or default under the leases (in similar vein, cl 21.3 of the TIC Lease itself obliged ARS to comply with the terms of the Operator Agreement).
34. In my opinion, the breach of cl 4.1 of the Operator Agreement had the consequence that ARS is deemed to be in default under both leases. That being so, cl 14.3 of the Site Lease was engaged thereby giving Voyages a right to terminate in accordance with the clause. In short, Voyages could terminate if, after giving ARS written notice of the breach and allowing a period of 14 days to rectify the breach, ARS failed to rectify the breach in the period allowed. It seems to me that the notice of breach of covenant given in respect of the Site Lease which referred to the breach of cl 4.1 of the Operator Agreement and required the breach to be remedied within 14 days, met the requirements of cl 14.3. Accordingly, upon the failure of ARS to rectify the breach within the 14 day period, it became open to Voyages to terminate the Site Lease by notice to ARS (see cl 14.3(b)(ii)). Voyages gave such notice on 1 February 2019.
35. As for the TIC Lease, a failure by ARS to perform any obligation under the lease within 10 Business Days following a demand to do so constitutes an Event of Default (see cl 14.1(b)). By cl 21.3 of the TIC Lease, ARS is obliged to comply with the terms of the Operator Agreement. The obligation of ARS under cl 4.1 of the Operator Agreement is thus an obligation under the TIC Lease. The notice of breach of covenant given in respect of the TIC Lease required ARS to remedy the breach of cl 4.1 of the Operator Agreement within 10 Business Days. The failure of ARS to comply with that demand was an Event of Default under the TIC Lease. It thereby became open to Voyages to determine the TIC Lease by notice to ARS (see cl 14.2(b)). Voyages gave such notice on 1 February 2019.
36. I have already dealt with the argument raised by ARS that the notices of breach of covenant were deficient because they failed to specify a reasonable time within which to remedy the alleged breach of cl 4.1, as required by s 137 of the Law of Property Act. I have found that s 137 does not apply to either of the leases, or to the Operator Agreement.
37. ARS submitted that even if the Business Tenancies (Fair Dealings) Act applied to the leases (or the Operator Agreement) the notice provisions of that Act were not complied with. I took that submission to mean that the provisions concerning notices to quit found in Division 2 of Part 13 of that Act were not complied with insofar as the period of notice is concerned. It is certainly the case that the notices of termination given in respect of each lease provided for immediate termination rather than termination upon expiry of a period of notice. Accordingly, to the extent that the notices were intended to operate as notices to quit, they would not be effective to terminate the tenancy (see s 129). However, it does not appear that the notices were intended to operate as notices to quit in the sense of a notice requiring the tenant to yield possession. Neither were they intended to effect a re-entry (compare cl 14.3(b)(i) of the Site Lease and cl 14.2(a) of the TIC Lease). Rather, the notices were evidently intended to bring about a termination of the lease in the sense of termination of performance under the contract.
38. It is not necessary to further explore these matters. This is because ARS made it clear that if the Operator Agreement had been validly terminated, and if relief against forfeiture was not available to it in respect of the Operator Agreement, it would not seek to maintain that the leases nonetheless remained on foot or that relief against forfeiture should be ordered in relation to them. I have already held that the Operator Agreement was validly terminated on 1 February 2019 and, for the following reasons, relief against forfeiture should not be ordered in respect of the Operator Agreement.
39. As I have stated, the Operator Agreement is not a lease. It confers no proprietary rights upon ARS, even if it can be regarded as being interrelated with the two leases that do confer proprietary rights. ARS seemed to accept that was so. However, ARS submitted that the principles of relief against forfeiture can apply to non-proprietary rights, such as the contractual rights that would be lost to ARS upon termination of the Operator Agreement. Reference was made to the discussion by Edelman J (when a judge of the Federal Court of Australia) in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825 at [980]-[990] of the question whether the doctrine of relief against forfeiture is or ought to be confined to relief in respect of a proprietary right. In that case, his Honour was prepared to proceed on the basis that, as a matter of principle, relief against forfeiture was not precluded merely because the relief was not sought in relation to forfeiture of a proprietary right. (His Honour's observations were cited by Ward CJ in Eq in Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd (2017) 324 FLR 378; [2017] NSWSC 1230 at [211]-[212]; see also JPA Finance Pty Ltd v Gordon Nominees Pty Ltd [2019] VSCA 159 at [82]).
40. If the same course is taken here, the question to consider is whether it would be unconscientious for Voyages to insist upon its strict legal right to terminate the Operator Agreement. That was the approach taken in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57, albeit in the different context of the termination of a contract for the sale of land for breach of an essential obligation.
41. ARS referred to the speech of Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691 at 722-3 where his Lordship spoke of "the special heads of fraud, accident, mistake or surprise" that can ground the intervention of equity to grant relief against forfeiture. In particular, ARS invoked the notion of "accident" on the basis that the reason for its inability to conduct the Business, and hence its breach of cl 4.1 of the Operator Agreement, was the accidental damage sustained by the Sky Ship as a result of the high cross-winds on 8 October 2018. ARS says that Voyages, which had become dissatisfied with the location of the Sky Ship, took advantage of the situation thus presented by proceeding to terminate the Operator Agreement. ARS further says that having regard to the years of effort and expense involved in establishing the Business, and the prospect of future profits, allowing the termination to stand would operate harshly upon it. ARS submitted that the evidence showed that it intended to re-establish the Business, and there was good reason to think that this could be achieved.
42. Voyages complained that no question of unconscionable conduct had been identified prior to the commencement of the hearing, whether in the Issues for Determination, ARS' written submissions, or otherwise. Voyages submitted that in any event no conduct on its part caused or contributed to a circumstance rendering it unconscientious for it to insist upon its legal right to terminate the Operator Agreement (see Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367; [2003] HCA 58 at [25]). Voyages pointed to the evidence concerning the acquisition, ownership and insurance of the Sky Ship, and the expenses incurred in relation to the Business, and submitted that ARS itself (as opposed to other related entities who are not parties to the proceedings) has suffered losses that are negligible.
43. The boundaries of the notion of "accident" in this context are indistinct and can only be ascertained from an examination of decided cases (see Tanwar Enterprises Pty Ltd v Cauchi (supra) at [65]). Nevertheless, it is clear enough that the notion does not extend to events that can be considered to have been within the contemplation of the parties to the contract. As stated in Tanwar Enterprises Pty Ltd v Cauchi (supra) at [66]: However, the learned writers on the subject emphasise and put to one side those situations where the event which has come to pass is one for which an express exculpatory provision might have been made, but was not sought or was not agreed to, and where to relieve against its consequences after it has occurred would deprive the other party to the contract of an essential right. In particular, equity will not relieve where "the possibility of the accident may fairly be considered to have been within the contemplation of the contracting parties". Story wrote: "And this leads us naturally to the consideration of those cases of accident in which no relief will be granted by Courts of Equity. In the first place, in matters of positive contract and obligation created by the party (for it is different in obligations or duties created by law), it is no ground for the interference of equity that the party has been prevented from fulfilling them by accident, or that he has been in no default, or that he has been prevented by accident from deriving the full benefit of the contract on his own side. ... The reason is, that he might have provided for such contingencies by his contract if he had so chosen; and the law will presume an intentional general liability where he has made no exception." (footnotes omitted)
44. In Tanwar Enterprises Pty Ltd v Cauchi (supra), the event that prevented the appellant from completing the purchase on time was the delay in obtaining the transfer of funds from Singapore. The High Court considered that the possibility that a third party may fail to provide finance was reasonably within the contemplation of the appellant (see at [67]).
45. Here, the possibility that some event may occur to render the Sky Ship inoperable was a matter within the reasonable contemplation of the parties to the Operator Agreement (see also [78] above). An apparatus of that nature, designed to be airborne at times, and to be kept at all times in the open and thus exposed to the elements, can reasonably be expected to be subject to a range of possible perils. Insurance is commonly effected to cater for the risk of such events occurring. Insurance was in fact placed in this case. USH effected insurance in respect of the Sky Ship, and received a payment from the insurer in January 2019 of about $1.98 million. It would have been open to ARS to seek the inclusion of provisions in the Operator Agreement to protect itself against the consequences of events of that nature. I therefore do not think that the event that caused the damage to the Sky Ship on 8 October 2018 was an "accident" in the sense required to constitute a ground for relief against forfeiture.
46. In any event, equity does not intervene to reshape contractual relations in a form the court thinks more reasonable or fair where subsequent events have rendered the situation of one side more favourable than that of the other side (see Stern v McArthur (1988) 165 CLR 489 at 503; Tanwar Enterprises Pty Ltd v Cauchi (supra) at [58]; Romanos v Pentagold Investments Pty Ltd (supra) at [24]).
47. Moreover, even if it is not necessary in a case of "accident" to show that some conduct of the party seeking to terminate caused or contributed to the breach giving rise to the right to terminate, the presence of absence of some such conduct remains relevant. This is because the presence of absence of such conduct is relevant to the question whether the exercise of the legal right to terminate is unconscientious (see Romanos v Pentagold Investments Pty Ltd (supra) at [25]).
48. I have considered the evidence of dissatisfaction within Voyages about the location of the Sky Ship. It is clear that in early October 2018 it was a matter of concern to Voyages because the Sky Ship interfered to an extent with views of Uluru from the Mala dining site. Voyages was as a result contemplating relocating the Mala dining site. Mr Hunt gave evidence that the cost of relocation would be in the order of $700,000.
49. It is likely, in my view, that this issue played a part in the decision of Voyages to terminate the Operator Agreement. However, in my opinion, it was a legitimate matter for Voyages to take into account in considering its own commercial interests. ARS seemed to accept that a party to a commercial contract such as this can take advantage of whatever suits its commercial interests as a basis for termination of the contract. To the extent that ARS suggested that the right of termination was exercised for an improper purpose, I reject the suggestion.
50. I accept that ARS will lose valuable contractual rights as a result of the termination of the Operator Agreement. ARS will lose the ability to re-establish the Business and operate it throughout the balance of the Term, potentially at a profit. ARS will also lose the benefit of the option to extend for a further term, contained in cl 3 of the Operator Agreement.
51. However, even if ARS' inability to conduct the Business (which inability underpins the right of termination exercised by Voyages) was the result of an "accident" in the relevant sense, I am not satisfied in the circumstances that it is unconscientious for Voyages to insist upon its legal right to terminate the Operator Agreement.
52. Voyages played no part in the events that gave rise to the right to terminate. These events have been most unfavourable to ARS, but it is not the function of the Court to reshape the contractual relations of the parties to ameliorate that situation. At the time of the termination ARS had been in breach of cl 4.1 for some months, and was not in a position to resume operations for a considerable time. It was not certain that it would be able to resume operations at all. The obligation upon ARS to conduct the Business during Normal Business Hours throughout the Term was an important part of the Operator Agreement. The breach of cl 4.1 in my view deprived Voyages of a substantial part of the benefit for which it contracted (see [97] above). In my view, it was not against conscience for Voyages to exercise its right to terminate in its perceived commercial interests. The circumstances do not provide a basis to grant relief against forfeiture so as to deprive Voyages of that legal right.

Conclusion

1. The reasons set out above deal with the various Issues for Determination as formulated by the parties. The main conclusions of the Court may be summarised as: 1. From 8 October 2018, ARS was in breach of cl 4.1 of the Operator Agreement; 2. The breach of cl 4.1 had the consequence that ARS was also in breach or default under the Site Lease and the TIC Lease; 3. Section 137 of the Law of Property Act did not apply to any of the Operator Agreement, the Site Lease, or the TIC Lease; 4. The failure of ARS to remedy the breach of cl 4.1 within the 14 day period stipulated in the notice of breach of covenant given in respect of the Operator Agreement gave rise to a right to terminate the Operator Agreement pursuant to cl 16.1(e); 5. Voyages validly terminated the Operator Agreement by notice on 1 February 2019; 6. Relief against forfeiture should not be ordered with respect to the Operator Agreement; 7. The failure of ARS to remedy the breach of cl 4.1 within the 14 day period stipulated in the notice of breach of covenant in respect of the Site Lease gave rise to a right to terminate the Site Lease pursuant to cl 14.3(b)(ii); 8. Voyages exercised that right of termination by notice given on 1 February 2019; 9. The failure of ARS to remedy the breach of cl 4.1 within the 10 Business Days period stipulated in the notice of breach of covenant given in respect of the TIC Lease gave rise to a right to terminate the TIC Lease pursuant to cl 14.2(b); and 10. Voyages exercised that right of termination by notice given on 1 February 2019.
2. The Court will declare that the Operator Agreement was validly terminated by the notice served by Voyages upon ARS on 1 February 2019. In view of the conclusions set out in (e) and (f) above, ARS does not seek to maintain that either the Site Lease or the TIC Lease remains on foot, or that relief against forfeiture should be ordered in relation to those leases. In these circumstances, it seems appropriate for the Court to make further declarations to similar effect in relation to termination of the Site Lease and the TIC Lease, as sought in the Cross-Claim. The Summons will be dismissed. The Court will further order that the injunction issued on 14 March 2019 be discharged. Finally, the Court will order that ARS pay Voyages' costs of the proceedings.

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: 04 July 2019