Caves Beachside Cuisine Pty Limited v Boydah Pty Limited

Supreme Court of NSW|2015-04-29|Before: Kunc J

L. Gyles SC & J. Anderson (Plaintiff) M. Ashhurst SC and D. Tynan (Defendants)

Solicitors: McDonald Johnson (Plaintiff) McCabes Lawyers Pty Ltd (Defendants) File Number(s): 2013/331978 Publication restriction: None

The facts

The Court finds the facts to be as follows. Most of the facts were undisputed. In the case of disputed facts there is a cross-reference from the relevant finding of fact to where in this judgment the reasons for that finding can be found. Because the parties did not differentiate between the terms, these reasons refer to "lease" and "licence" interchangeably and without suggesting that any legal difference between the two has any relevance to these proceedings.
Since the late 1970s the Hoppers have been involved in the restaurant and hospitality industry in the Newcastle area. Over the years they have operated a number of restaurants and function centres with considerable success. In 2004 Mr Hopper was inducted into the NSW Catering Hall of Fame.
The first defendant, Boydah Pty Ltd ("Boydah") owns the Hotel and the Hotel's business. The Hotel is located on land owned by the second defendant, Cebac Pty Ltd ("Cebac").
The third defendant, Mr William Saddington and the fourth defendant Mr David Saddington, are brothers and directors of Boydah and Cebac. Without intending any disrespect, I shall refer to them by their given names as Bill and David respectively.
Sometime in 2005 Mr Hopper was contacted by Mr Rob O'Brien. Mr O'Brien was also involved in the development of the Hotel. Mr O'Brien asked Mr Hopper if he was interested in providing catering services for the Hotel. Mr Hopper said he was interested.
Not long after that conversation, Mr O'Brien recommended to Bill that it would be good to get Mr Hopper involved in the Hotel project. Bill agreed.
Within a month or so of Mr O'Brien speaking to Mr Hopper, Bill met with Mr Hopper. During the course of that conversation, after Bill had asked Mr Hopper if the latter would be interested in being the caterer for the Hotel, they had this conversation: Mr Hopper: Bill, this is very exciting. I would love nothing more than getting involved in the project … I'd certainly like to get involved. As far as the details of the lease a lot would need to be nutted out. Bill: I understand, yes, we'd like you to come on board as the caterer.
In later conversations before the Hotel opened Mr Hopper told Bill that he (Mr Hopper) would require a 15 year lease.
One such conversation after Mr Hopper had become involved with the design of the Hotel (see paragraph [19] below) was: Mr Hopper: Bill, you also understand I am putting a lot at risk going into this project. I have already sold one of my businesses. I am moving my staff across ready for this to open next year. I've committed a lot of money and I will definitely need a 15 year lease minimum and obviously we can work out rents and things separately. Bill: I understand that you will need to have that commitment from me and I agree.
On another occasion, just before the Hotel opened in March 2009, they had this exchange, after which they shook hands: Mr Hopper: Bill, we're close to opening. I really need this lease in place and I need the commitment of the 15 years from you because I've committed over $250,000 in fitout and I need to have that in place for me. Bill: I understand.
As to the findings in paragraphs [13] and [16] above, see paragraphs [70] to [76] below.
In one or more of their conversations before the Hotel opened Bill also told Mr Hopper that any lease would have to include a buyout clause. Mr Hopper agreed. The buyout clause became the Buy Back Term (see paragraph [30] below).
From at least May 2006 Mr Hopper became involved in providing advice to the defendants about the design and fitout of the kitchen and other hospitality aspects of the Hotel. He attended a number of meetings in relation to the proposed bar and catering facilities. Bill accepted in cross-examination (T92:8) that Mr Hopper's involvement at this stage was advantageous for the defendants.
Construction of the Hotel commenced in 2007. Bill accepted in cross-examination (T97:30-38) that from at least this point in time he had agreed with Mr Hopper that the latter would be provided with a lease and that he (Bill) knew Mr Hopper was operating on that assumption.
Cuisine was incorporated on 28 July 2008.
On the same day, Mr Hopper sent an email to his then solicitor, Mr Richard Hingston: Just trying to get a draft in place that Bill Saddington and I both agree on then fill in the blanks closer to opening. Details for lease Lessor Boydah Pty Ltd Lessee Caves Beachside Cuisine Pty Ltd Term 5 years Commencement Date TBA (possibly Jan 09) Terminating Date Jan 2014 Option to renew Two periods of Five (5) years Rent $TBA Outgoings Lessee to pay all gas/water and electricity for leased areas Leased Areas (refer highlighted areas on attached Plan) A La Carte Restaurant (indoor and outdoor) Bistro Area (indoor and outdoor) Main Kitchen Function rooms Storage area and coolroom downstairs Public Risk Ten Million Dollars All Fixed Kitchen fitout equipment is provided by the Lessee. Lessor to maintain equipment as per Saltwater Grill Lease to LMYC Lessor will only be providing Crockery/Cutlery/utensils etc as per Saltwater Grill Lease to LMYC
There is no evidence that Bill ever received a draft lease prepared by Mr Hingston (or anyone else on behalf of Mr Hopper) although one may have been prepared. However, shortly after the date of that email Mr Hopper and Bill had a conversation in which they agreed on an interim rent figure of 6% of gross sales plus outgoings. Mr Hopper accepted in cross-examination (T40:13-26; T42:14-16) that he understood this interim arrangement was such that after both parties knew how the catering business was going they were both free to try to negotiate a new rent. Furthermore, Mr Hopper also accepted that if subsequent negotiations as to rent and outgoings were unsuccessful, either party could walk away from the arrangement. After agreeing this interim arrangement Bill and Mr Hopper did not have any further discussions about the proposed arrangement until shortly before the Hotel opened in March 2009, when they had the conversation referred to in paragraph [16] above.
The Hotel opened in March 2009, from which time Cuisine was in occupation and operating the catering at the Hotel. This comprised: 1. Two 250 seat function rooms; 2. A 400 seat bistro; 3. A 100 seat restaurant; and 4. A café.
Mr Hopper knew at the time Cuisine went into occupation of the Hotel that he could have insisted on a signed lease before occupation commenced and that while he may have asked "vehemently" for it (which Bill denied and it is not necessary for the Court to find) he did not insist upon it. Mr Hopper also accepted in cross-examination that he knew the risk in not obtaining a lease at the time of going into occupation (T54:47-55:16). However, by the time of the conversation referred to in paragraph [16] above, Mr Hopper acknowledged that he could not threaten that he would not go into occupation without a signed lease because by then he had gone too far and was past the point of no return (T37:43-44; T39:31-36). He also gave evidence that it was not his understanding that Cuisine could have a 15 year lease even if he and Bill could not agree the other terms of the lease (T54:10-13).
Mr Hopper redeployed key staff to the Hotel from another restaurant which he was running. Furthermore, Cuisine spent in excess of $200,000 in establishing the catering business at the Hotel.
Each month after the opening of the Hotel, Cuisine would provide Boydah with its sales figures and Boydah would invoice it for rent and the agreed proportion of outgoings.
Later in 2009 there were further discussions between Mr Hopper and Bill. So much may be inferred from an email of 20 August 2009 from Mr John Saddington to Bill on 20 August 2009 which includes the statement "A point to consider is that it's only that Greg has brought up the lease/licence that has changed your previous understanding of the arrangement." Mr John Saddington (to whom, without intending any disrespect, I shall refer as John) was a solicitor and brother of Bill and David.
By an email dated 13 October 2009, John sent Bill what was described as the "final draft to submit to Hopper" of a "Catering Services Licence Agreement" (the "Licence") which was then provided to Mr Hopper. The term of the Licence was five years with two five year options, which Bill accepted (T104:8-12) had been proffered in order to make good the agreement he had reached with Mr Hopper to provide a "5 + 5 + 5" lease. Whatever other disagreements may have arisen in relation to the terms of the proposed Licence, there was never any real disagreement about the five year term with two five year options. Although David did suggest the possibility of a different approach later (see paragraph [50] below), the form of Licence under negotiation was always for a 15 year term. At the time of proffering the proposed Licence to Mr Hopper, Bill had obtained David's instructions that the terms of the proposed Licence were acceptable to him (David).
The proposed Licence included the following additional terms: 1. A licence fee of 6% of gross turnover plus GST or a minimum of $180,000 per annum plus GST whichever was the greater, calculated and payable monthly. 2. An entitlement in Cuisine to assign the Licence with Boydah's consent if, among other things (the "Assignment Price Term"): 16.2.2 Licensee proposes to assign or transfer this licence to an assignee who: … (e) pays the Licensor one half of the sale price payable to the Licensee, by or for the Assignee, for the assignment. For the purpose of this clause the price will not include the value of any new plant and equipment, (which must be calculated at its taxable written down value), owned by the Licensee and being sold or assigned along with the Licence. 1. A term (clause 18) that Cuisine would sell the Licence back to Boydah if Boydah asked to buy it (the "Buy Back Term"). The proposed price payable by Boydah was two times the net profit after tax.
Negotiations between the parties to agree the terms of the Licence continued after October 2009. In April 2010 there were negotiations to alter the original interim 6% rent to $100,000 per annum plus GST. This change was proposed in an email from Mr Hopper to Bill on 7 April 2010 which included: The current percentage we pay was a random figure selected with no basis and it does not allow decent profit for our investment, infrastructure and potential risk. The percentage would have worked if we had profit from bar sales. A very open ended arrangement was agreed to more than a year ago and unfortunately it has not worked. … I am sure if we had agreed on $70,000-$100,000 rent with CPI prior to opening both parties would have been satisfied.
Mr Hopper accepted in cross-examination (T48:38-49:4) that the final rent had not yet been agreed even after the 6% figure became $100,000. Just as there was an interim arrangement that either party could walk away from when the rent was 6% of sales, Mr Hopper agreed that they still had an interim arrangement that either party could walk away from after the rent became $100,000 per annum.
In August 2010 Mr Hopper's solicitor was Mr Stephen Rayfield. On 16 August 2010 Mr Rayfield sent an email to John: John, Greg Hopper apparently had a meeting with Bill around mid-June & sorted out the changes they both wanted. I've implemented what Greg understands the deal to be by tweaking your most recent draft of the licence as attached. Can you please have a talk to Bill about it & let me know whether this is now right to be signed.
The version of the Licence attached to Mr Rayfield's email ("Licence Version 2") differed from the proposed Licence prepared in October 2009 (see paragraph [30] above) in the following respects: 1. The licence fee was amended to $106,000 per annum plus GST; 2. The Assignment Price Term had been reduced from 50% to 20% of the sale price payable to Cuisine; 3. The Buy Back Term was amended from 200% to 250% of the net profit after tax; 4. Four of the originally proposed eight types of licensee outgoings were removed and changes were proposed to the four remaining outgoings.
Mr Hopper accepted in cross-examination (T57:48-50) that Licence Version 2 was what he was prepared to offer as at August 2010.
On 17 August 2010 John forwarded Licence Version 2 to Bill for instructions.
On 19 August 2010 Mr Rayfield resubmitted Licence Version 2 to John having "[fixed] up a couple of minor errors in the draft I emailed to you on Monday 16th".
On 23 November 2010 John sent Mr Rayfield a further version of the Licence ("Licence Version 3") and a new document called "Exception to Catering Services licence Agreement" (the "Exception Agreement"). The covering email included: We attach herewith: 1. Catering Services Licence Agreement. Please note that the amendments in Green denotes changes requested by your client and in Blue changes requested by our client. Single strike through denotes deletion requested by your client and double strike through refers to deletions requested by our client (usually a double strike through would indicate your client's requests for changes not accepted by our client). 2. Exceptions to Catering Services Licence Agreement.
Licence Version 3 propounded by the defendants included: 1. The rent was amended to $130,000 per annum and reinstated the additional four licensee outgoings. However, the effect of the Exception Agreement was that Cuisine would only pay $106,000 per annum and only be responsible for the four outgoings as had been proposed by Mr Hopper in Licence Version 2. The intent of the Exception Agreement was that while Cuisine would only pay $106,000 per annum, any assignee of the Licence would have to pay $130,000 per annum. 2. The Assignment Price Term was amended from Cuisine's proposed 20% back to 50% of the sale price. 3. The Buy Back Term was amended from Cuisine's proposed 250% back to 200% of the net profit after tax.
In cross-examination (T59:37-39) Mr Hopper explained his understanding of the process at this time: We were in a state of give and take and I tried to give in on any points, as you do with working on a commercial lease, and I agreed to things of change and he subsequently agreed. So, once again, we actually got to the result.
The effect of Licence Version 3 and the Exception Agreement was to highlight that the two remaining areas of substantive disagreement between the parties were the Assignment Price Term (20% (Cuisine) vs 50% (Boydah) of the sale price) and the Buy Back Term (250% (Cuisine) vs 200% (Boydah) of the net profit after tax).
On 5 December 2010 Mr Hopper emailed Bill: Could we please sign off on the lease this week as I will be away from the following week. Otherwise I am sure that with the holiday period it will drag on till February. The only changes that have to be signed off are 1. 16.2.2 Deleted 2. 18.2 200% or 250% - Let's agree on 225% 3. The Schedule - Item number 3 - delete 4/5/7/8
Mr Hopper accepted in cross-examination (T61:11-12) that his email, in particular in resiling from clause 16.2.2, was just part of robust, commercial negotiation.
Apart from the minor dispute concerning the outgoings, and the proposed splitting of the difference on the Buy Back Term, the fundamental issue raised by Mr Hopper's email was the complete deletion of the whole of clause 16.2.2 which included the Assignment Price Term. Mr Hopper did not suggest at the time or during the hearing that he only intended the deletion of clause 16.2.2(e).
To understand the significance of this it is necessary to set out the whole of proposed clause 16.2.2 as it appeared in Licence Version 3: 16.2 The Licensee shall be entitled to assign, sell or transfer this licence or part thereof with the prior written consent of the Licensor which consent shall not be unreasonably withheld if: 16.2.1 the Licensee is not in default in the observance and performance of the covenants and agreements on the part of the Licensee herein contained or implied; and 16.2.2 the Licensee proposes to assign or transfer this licence to an assignee who: (a) proves to the satisfaction of the Licensor that the assignee is a respectable, responsible and solvent person or company and is capable of adequately complying with the covenants and agreements on the Licensee's part herein contained; (b) enters into a covenant with the Licensor in a form reasonably required by the Licensor that he or it will duly perform and keep the covenants and agreements on the Licensee's part herein contained; (c) furnishes to the Licensor such guarantee or guarantees of the performance of his obligations under this licence as the Licensor shall require; and (d) pays to the Licensor its administrative costs and its legal costs and disbursements (including stamp duty and the costs and disbursements of obtaining any necessary mortgagee's consent) of and incidental to the giving of its consent and the preparation and execution of the covenant referred to above. (e) pays to the Licensor one half 20% one half of the sale price payable to the Licensee, by or for the Assignee, for the assignment. For the purposes of this clause the price will not include the value of any plant and equipment, (which must be calculated at its taxable written down value), owned by the Licensee and being sold or assigned along with the Licence. 16.3 This clause 16 does not apply with relation to a sale of the Licence/business to the Licensor pursuant to clause 18 hereof. 16.4 If the Licensee is a company other than a company whose shares are listed on any Australian Stock Exchange the Licensee shall not without the prior written consent of the Licensor register record or enter in its books any transfer of any share or shares in the capital of the Licensee or deals with any beneficial interest in any such share or shares or issue any new share or shares or take or attempt to take any action having the effect of altering the effective control of the Licensee or having the effect that the shareholders of the Licensee at the date hereof together beneficially hold or control less than 51% of the voting rights of capital in the Licensee. 16.5 Notwithstanding anything contained elsewhere in this clause the Licensor may withhold its consent to any transfer, assignment or sublicense if in the Licensor's absolute discretion it considers the identity of the Transferee, Assignee or Sub Licensee would or could create a security risk to the Site or to the occupiers of the adjoining or neighbouring lands. 16.6 Assignment to any person or entity other than the Licensor must be in conjunction with the transfer of this License. 16.7 The Assignment must be a bona fide transaction valuing the business at fair market value. 16.8 From the date that the assignment takes effect, the Licensee and its guarantors will be released from all prospective liabilities under this Licence but will remain liable for any unsatisfied liabilities accruing prior to the date of the assignment until their earlier liabilities are satisfied.
Quite apart from the Buy Back Term, clause 16.2.2 as a whole was critical to Bill because it gave Boydah the ability, in effect, to approve the party to whom Cuisine proposed to assign the Licence.
After receiving Mr Hopper's email of 5 December 2010, Bill felt that the negotiation "was just getting too hard". In cross-examination (T119:48-120:6) he explained that he "just put [Mr Hopper's email] to one side for a while". However, he also understood that Mr Hopper was desperately trying to obtain security of tenure by bringing the issue of the Licence to a head (T122:4-9).
Within days of sending his email of 5 December 2010, Mr Hopper contacted Bill. Bill said to Mr Hopper "The lease won't be signed, David won't sign it". As to this finding, see paragraph [77] below.
In mid-January 2011 Mr Hopper spoke to David. This was their first conversation in connection with the Licence. By email sent on 17 January 2011 Mr Hopper reported to Bill on the conversation with David: I spoke to David last week and he was too busy to see me but we did have a 10 minute conversation. I feel he has no problem with the issues in the lease. His only concern is our turnover so have got my accountant to send him P&L Year ending June 2010 and quarter ending Sept 10. As mentioned before if we were to sell out on current figures we would not recoup half of our investment. David mentioned EBIT and I have confirmed with my accountant the lease should read that our business is sold for 2.5 x EBITDA Earnings before interest, tax, depreciation and amortization I hope you can now finalise the lease once and for all
At 11.56am on 18 January 2011 Bill forwarded Mr Hopper's email of 17 January 2011 to David, among others. Less than three hours later David emailed Bill: Bill, Greg is slightly incorrect. I told him that I would not sign anything unless I could see what he is making. Any discussion about "times earnings of any description was general conversation. I told him I have not seen any draft lease or any figures. So after seeing his P&L I propose 1/ We offer him a 3 yr lease with NO times earnings factor of any description. The lease will need a clause in it that says; If the hotel is sold then the lease ends. He wants security, but that is all the security that we can afford to offer. Absolutely ZERO times earnings. 2/ Reasoning: Greg has put in "supposedly" $250k in equipment. (No one has shown me an equipment list or costing) So what, we have spent $15 mill. He is taking up depreciation on that equipment AND if he did have to leave then he can take his equipment with him. He paid NO goodwill when he came in so I cant see that paying him goodwill at the end makes sense. His earnings this financial year could be $150k to $200k. He will have his investment back in full after depreciation by the end of this year. Not bad. 3/ Gregs staff are doing a good job at the hotel. We need them & they need us. We have not been in business for 90yrs because we treat people badly. We live on good long term relationships. But at this stage of the game we are in no financial position to be entering into a lease with a 2.5X anything payout. I spoken (sic) to a real estate agent, restaurant owners & a hotel accountant & none of them had heard of a lease with a buy out by the landlord in it. Greg will earn good money with little or not investment. We can only offer him tenancy while we own the place. If it comes to the crunch & Greg wants to leave, then we would be better to spend half the money we would have paid him, on additional wages to manage a new kitchen team. In short, we want him there but we are not in a position to offer more than a lease whilst we are the owners. In the event of the hotel being sold, there is a high probability that whoever bought the place would keep Greg there anyway.
On 20 January 2011 Mr Rayfield emailed John to ask if any progress had been made on the Licence. The next day John emailed Mr Rayfield saying "Not yet Steve - waiting for Bill and Dave to sort out. Best if Greg deals with them direct at this point".
Mr Hopper had arranged for his accountant to send Cuisine's accounts to David. On 31 January 2011 Mr Hopper emailed David with a copy to Bill, John and Mr Rayfield: It has been a few weeks since my accountant supplied figures to you as requested. As I stated the net profit is minimal especially considering the high turnover. We want to be involved in the long term and believe this will increase as more accommodation becomes available. I would like to request that this agreement is finalised as soon as possible as it has been ongoing for 18 months. I dont (sic) think is (sic) is unreasonable that some type of formal agreement is in place based on our financial commitment and input prior to opening and it is now nearly two years since opening. The saleability of the hotel is based on it's (sic) profit and without a professional catering team with consistency the hotel's value would slide. We employ the best staff and also pay the full salary of the function manager. The profit generated from function liquor alone is impressive which would not have occurred without our influence in wine selections and pricing.
On 3 February 2011 Mr Hopper emailed the same recipients attaching his email of 31 January 2011 and saying: Gentlemen Just checking if this was actually received and if I will be getting a response. I realise everybody's busy but if the shoe was on the other foot and the hotel was without a caterer and turnover/profit was down there would be hurried movement on your behalf. With concern Greg
On 3 February 2011 at 10.24am David sent Mr Hopper an email (emphasis added): Below is my initial response to Bill after you sent me you P&L. I have spoke to various people about the concept of us paying 2.5 X earnings & all have said they have not heard of a landlord entering such a contract. As you can see my initial response is for us to pay Zero. I cannot & will not enter into a contract where I don't know the pay out. BUT…. we could enter into a contract with a set pay out figure for your security. I would suggest that $100,000 would be an amount that gives you security. Remember you did not pay any goodwill to go into the Caves Hotel so I am still struggling with the concept of us paying you goodwill on the possible sale of the hotel & the early ending of any lease we enter into with you. And as I said in the email to Bill, there is a high likelihood that if we did sell the hotel that the purchaser would keep you there. So the payout would have to be conditional that any new owners did not continue your employment/ lease. Also, is there any consideration for us should you decide to leave before the end of the lease? So in principle I can agree to a set amount but not an undetermined times earnings factor. So that you can get back to dealing with just Bill, I suggest you & he come up with a fixed amount. Let me know if you need any clarification of the above.
David's email to Mr Hopper of 3 February 2011 attached David's email to Bill of 18 January 2011 (see paragraph [50] above). During the evening of 3 February 2011, Mr Hopper responded to David by email (with copies to Bill and John) expressing his disappointment and enclosing a response which included: Caves Beachside Cuisine … 9. Rent was agreed on an arbitrary figure which ended up being unmanageable with us also paying for a $80k function manager as well as sharing most costs. 10. This rent figure is now fair to all concerned. 11. Bill and John agreed to a 15 year lease and the lease in principle. … 13. The reason the buyout is there is I was asked that the hotel needs a clause that if the hotel is sold and the purchaser wants to take over the catering then the hotel needs to buy us out. By suggesting a fixed figure at any time you could walk in and take over my business for $100k. What stops you doing that and then on selling to a potential buyer for a profit? That certainly seems fair for you but surely it is only fair that I should be rewarded for providing professional staff, input and ideas in to Many unrelated hotel matters, attracting many functions and customers due to our background and contacts. The function business we have generated is incredible. This is due to the best key staff and their professionalism. Between Sarah, Adam, Julie and myself we have 80 years of hospitality contacts. Would TAFE awards for example be at Caves every year? 14. We did not pay any goodwill, as there was none. The existing profit was zero. I was not given any guarantee by anyone that Caves would work and make money. I took the risk and the time now to be told "we would be better to spend half the money on additional wages to manage a kitchen team". Why wasn't David Saddington involved for the past 5 years in negotiations and promises? Quite frankly I wouldn't have wasted my time for the conditions you are now offering. Now it seems that we are successful that these new conditions apply. What would be the conditions if it were not successful? I am sure the hand would be still going out for the rent. … 17. The only time the hotel would pay me out is if a purchaser would only buy the hotel with catering included. This is very unlikely. In all the businesses I have been involved in there are an incentive to increase profit and make the business saleable. The more we promote and increase business the more money the hotel makes and is worth. Under David's scenario there is no incentive for us to do anything but cut costs, make maximum profit, increase prices and rip hell out of the business as it has no saleable worth. The amount of money you pay me to buy me out will be directly proportional to the additional profit you have gained from my turnover will be directly proportional to the additional profit you have gained from my turnover (then multiply it by 8). 18. I have agreed on a 5+5+5 lease so as far as me leaving or walking out I am willing to make a commitment to this partnership as per our original agreement. .. I am not happy about this turn around and find it hard to believe your communication channels over 5 years are so poor. For 5 years I have trusted and enjoyed a deal based on a handshake and have boasted as to the Saddington professionalism and business-like approach. I now find that you feel the catering at Cave Beach Hotel is not that important to the success and salability (sic) of the Hotel otherwise David would not be taking this stand. Please consider the following options: Option One Honour the handshake deal that Bill and I made as outlined in the most recent draft licence as clarified by my emails dated 5th December and 17th January. Option Two * The hotel takes over the catering and pays me out my investment as well as a consulting fee. * My current consulting fee for GPT Charlestown Square is $1800 per day plus GST so I would be happy to provide itemised hours for my time during the three years of leadup work. * All menus/systems/tills etc would be my property and not transferable. * I would give no guarantee of staff retention or that all functions or bookings would be retained. * Caves Beachside Hotel would no longer be part of Waterfront Wedding Venues Newcastle.
The two emails referred to under "Option One" are at paragraphs [42] and [49] above. There is no evidence of any response to Mr Hopper's email of 3 February 2011 by either Bill or David.
On 21 April 2011 Mr Hopper emailed Bill: Could we please try to finalise this lease. NAB met with us today and they are concerned that we do not have a signed lease. Could we get yourself, John, David, my solicitor and myself around a table the week of 9th May. It seems the only contentious issue is the cost to pay us out if a purchaser wants to buy Caves. Surely there is a simple solution to this. Surely it is in your interests that we are locked in also.
As the last line of that email demonstrates, and Mr Hopper acknowledged in cross-examination (T64:26-29), Mr Hopper understood that until there was a signed lease or licence document, Cuisine was not "locked in", which the Court understands as a reference to a legally binding arrangement.
On 10 May 2011 Mr Hopper emailed Bill: As discussed can we finalise Caves lease. NAB requires this for our funding. As per David's email below it seems the only objection in question is the payout figure if we are asked to leave. Can we either remove this clause or make it that an independent arbitrator decides on the figure at the time. As mentioned this is not even likely to happen especially if a new hotel operator sees we are paying $100k plus outgoings, gas, electricity, water, some advertising etc which would equate to over $200k plus he would need to pay another $1m + in wages. We are down $60k in turnover for the first 5 weeks of this quarter compared to last year and have yet to equal any previous figures.
On 19 May 2011 Mr Hopper emailed Bill again saying "The NAB is chasing me re the lease at Caves. Could we meet asap for finalisation".
On 26 July 2011 Mr Rayfield wrote a letter to John which included: We are concerned to note that after all this time the parties appear to be no closer to resolving the terms of the lease/licence. Might we respectfully suggest that the parties agree to mediation to resolve the outstanding issues.
On 18 August 2011 John responded to Mr Rayfield "that mediation would not be suitable and Bill Saddington was going to advise Greg Hopper of that point and discuss the matter further with him".
On 30 September 2011 Mr Rayfield emailed John inquiring whether something had been sent to Mr Hopper because "as you know, we're very keen to wrap this up". John responded that he hadn't sent anything to Mr Hopper and "I don't have any further instructions".
There is no evidence that anything further was done to finalise the Licence for more than 12 months. In the week commencing 12 November 2012 Mr Hopper met with Bill and others. At the meeting Mr Hopper rejected Bill's request for an increase in the rent that Cuisine was paying.
On 19 November 2012 Mr Hopper wrote a letter to Bill which included (emphasis added): I would like to confirm that the agreement we had during the setup of Caves has been met apart from the signing of a licence/lease. You agreed to a 5+5+5 lease/licence with an out clause if our agreement affected the sale of the hotel. I agreed to this. We now pay a fair market rent, all outgoings, cooperative advertising, salary for our functions manager as well as formulating packages for weddings etc that has produced exceptional and additional profit for the hotel. Due to GFC, lack of accommodation being built and general hard economic times we are still not getting a reasonable ROI but I agreed to our commitment and am doing everything possible to make Caves a success. I relied on your word and commitment. I did it on a handshake deal but after nearly 3 years since opening you still have not provided any form of tenure. … I too have NAB as my banker and they would like to see some security for my investment.
In March 2013 an information memorandum was issued in connection with the possible sale of the Hotel and related resort. That memorandum recorded that in 2010 the restaurant at the Hotel had won two awards and that in 2012 it had won regional awards as both a general caterer and a wedding caterer.
In late May 2013, Bill had a discussion with Mr Hopper in which Bill offered to buy Cuisine's business at the Hotel. Mr Hopper rejected this offer.
On 15 July 2013 Boydah wrote a letter to Cuisine which included: Notice is now given that we will not be extending the catering arrangement and consequently the arrangement is terminated, effective as of 10 March 2014. For clarity, your catering services may remain in place up until that date on the same terms as currently exists.
Cuisine vacated the Hotel on 30 March 2014. It sold a range of kitchen equipment to the defendants. Otherwise, Cuisine removed the balance of the equipment which it had purchased to use in the Hotel.

Reasons for findings of fact

[Paragraphs [13] to [16]] The Court required Mr Hopper and Bill to give their evidence of the critical conversations in the witness box. My impression of each of them was that they were doing their best to give their evidence truthfully. Insofar as there were disagreements between them I regard that as the product of the passage of time rather than an intention to mislead. I have sought to resolve any important difference between them by reference to the inherent probabilities of the situation and pre-dispute records to the extent there are any. None of the critical conversations (see paragraphs [13] to [16] above) is the subject of a contemporaneous note.
Mr Hopper gave specific evidence of three conversations with Bill. I will consider each of these in turn.
As to the conversation set out in paragraph [13] above, the Court has accepted Mr Hopper's version with one exception. The Court has accepted Mr Hopper's first attempt at recalling what he said to Bill. A few moments after giving this version Mr Hopper said his words were "Yes, I'd be happy to purchase the project. It's a very large project but I would require a 15 year lease and the balance of the details would need to be nutted out".
Bill denied that the 15 year lease was referred to at their first meeting but accepted that he had agreed the 15 year term at some later time. The Court prefers Bill's version of this first meeting because it seems less probable that Mr Hopper would have been so specific in the first meeting as opposed to later when he had become involved in the design process and would have had a better understanding of the scope of the undertaking.
As to the conversation in paragraph [15] above, the Court accepts Mr Hopper's evidence. Bill accepted in cross-examination that at some time before the Hotel opened he had agreed with Mr Hopper that the lease would have a 5+5+5 year term (T104:8-12). It is also consistent with Bill's evidence that in conversation with Mr Hopper before the Hotel opened, Bill had said to Mr Hopper "I agree that there should be a written lease, with agreed rent and outgoings. These can be discussed and finalised at a later date, after the hotel opens, when we know what the parameters are".
As to the conversation in paragraph [16] above, the Court accepts Mr Hopper's evidence. Bill's own evidence was that he responded to Mr Hopper's references to the need for a lease by saying "I understand you require a lease. But it will have to contain a buyout clause".
[Paragraph [18] above] Bill was not challenged about this. Furthermore, Mr Hopper acknowledged an agreement to this effect in his email to Bill of 3 February 2011 (see paragraph [55] above). He also accepted in cross-examination (T55:49-56:11) that while the need for a buyout provision had been discussed before the Hotel opened, the terms of that clause was one of the things they would have to agree upon.
[Paragraph [48] above] Mr Hopper's evidence was that Bill had said "I am fine to finalise the lease but David won't sign it". Bill denied this and the Court accepts Bill's version. The Court does not accept Mr Hopper's evidence because it is improbable that Bill would have said that he was willing to sign the Licence after Mr Hopper had proposed the deletion of clause 16.2.2.

Contract - Cuisine's submissions

Cuisine pleaded a case in contract in its Second Further Amended Commercial List Statement ("CLS"): 8. In or about March 2009, the plaintiff took occupation of the premises and commenced operations pursuant to an agreement with Cebac and/or Boydah on terms that: (a) Cebac and/or Boydah would exercise good faith and use their best endeavours to enable a lease or licence to be finalised and executed granting the plaintiff security of tenure for up to fifteen years, unless the development was sold; (b) the only reason that the plaintiff would be evicted from, or be required to leave, the premises before a lease or licence could be finalised was if the premises were sold; and (c) if the occupation of the plaintiff was brought to an end for any reason, the plaintiff would be fairly compensated by way of a payment of the goodwill of the business. Particulars The agreement was partly express and partly implied. To the extent it was express it was oral. The terms set out above were implied. 9. In breach of the said agreement, Cebac and Boydah: (a) did not negotiate in good faith or use their best endeavours to enable a lease or licence to be finalised; (b) evicted the Plaintiff in circumstances where the premises were not sold; and (c) failed to pay, or offer to pay, goodwill or any other form of compensation to the Plaintiff. 10. By reason of the said breach/es, the plaintiff has suffered loss and damage. Particulars (a) loss of the opportunity to obtain a lease or licence and, in turn, the opportunity to make profits for the period from May 2014 to March 2024; (b) the value of the goodwill of the business; and (c) wasted time and expenditure on the business.
In setting out Cuisine's submissions on its contract case, it is necessary to begin with several matters arising from Cuisine's final submissions: 1. Cuisine accepted that there was no agreement for a lease or licence because essential terms had not been agreed. 2. Cuisine accepted that there was no evidence that words to the effect of the terms pleaded in paragraphs 8(a), (b) and (c) of the CLS had ever been said. Accordingly, the alleged agreement and those terms had to be implied. 3. The alleged agreement was entered into "as far back as 2005". 4. The alleged agreement did not require that a lease had to be provided on any terms. 5. Cuisine did not need to go so far as the implication of a "best endeavours" obligation. To act in good faith meant, it was submitted, to make reasonable endeavours to achieve the contractual result.
Against that background, Cuisine submitted that the agreement pleaded in paragraph 8 of the CLS had come into existence. Reliance was placed on the decision of McDougall J in WorldAudio v GB Radio [2003] NSWSC 855 ("WorldAudio"). In that case his Honour was considering the consequences of an exchange of correspondence which he had found gave rise to an agreement which included this express, written term: 4. WorldAudio will enter a programming supply agreement with GB Radio for a term expiring on 15 May 2011, under which GB Radio will supply to WorldAudio British lifestyle programming material sourced in the United Kingdom, and our client will arrange for that material to be broadcast as follows: (a) 12 hours of programming content per day under the Melbourne Licence, of which: (i) 3 hours will be broadcast between 6:00am and 9:00am; and (ii) 3 hours will be broadcast between 3:00pm and 6:00pm, unless otherwise agreed, provided that broadcasting will only commence when WorldAudio or one of its subsidiaries commences broadcasting under the Melbourne Licence in the ordinary course of its business; and (b) 3 hours of programming content per day under the Sydney Licence and under each other broadcast apparatus licence under which WorldAudio or one of its subsidiaries commences broadcasting during the term of the programming supply agreement, of which: (i) 1 hour will be broadcast between 6:00pm and 7:00pm; and (i) 2 hours will be broadcast between 10:00pm and midnight, unless otherwise agreed. In return, WorldAudio will, and IMM will procure that WorldAudio does, subject to 5 below, pay GB Radio $650,000 within 8 business days of receipt of the application for IMM Shares contemplated in 5 below.
The critical part of his Honour's analysis on which Cuisine relied was: 93 In the present case, it was open to the parties to negotiate a Programming Supply Agreement that went beyond what was specified in para 4 of the 2 April offer. But if they did not, then the Programming Supply Agreement would simply express, in a separate document and perhaps in more formal language, the rights and obligations described in para 4. It could be supplemented by such terms and obligations as the law might imply, or impose. 94 In the present case, GBRA has not pointed to any essential matter (in the sense explained above) that is not to be found within para 4 of the 2 April agreement. Clearly, in negotiating and settling the terms of the Programming Supply Agreement that par 4 contemplated, the parties might, acting honestly and in good faith, have thought it desirable to make provision for a number of things (including, perhaps, more detailed specification of, or warranties as to, the lifestyle programming material that was to be supplied). Further, and obviously, they would no doubt have included what are commonly referred to as "boilerplate" provisions. However, it does not follow that there are essential provisions that are missing. The weight of authority compels a conclusion that the Court should be slow to substitute its own judgment for what is essential, and what is not, for that of the parties. 95 In essence, the case for GBRA must be that if the Programming Supply Agreement contained only the provisions set out in para 4 of the 2 April offer, then it would be uncertain and unenforceable. That cannot be right where, as I have said in para [91] above, the elements of parties, price, property and obligation have been spelled out. It might have been thought that the description of the subject matter as "British lifestyle programming material sourced in the United Kingdom" was insufficiently certain. However, the parties have explicitly eschewed any such argument and, as I have said, I do not think that the Court should substitute its inexpert view for the considered view of parties, who clearly have substantial experience in the relevant field of commerce. 96 In my opinion, an agreement on the terms of para 4, whether or not supplemented by obligations imposed or implied by law, would be binding. There is no material uncertainty as to any of the fundamental matters that are required so that the parties can perform their respective obligations. Adopting the formulation of Kirby P in Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130, 135-136, I do not think that this approach requires the Court "to spell out ... that to which the parties themselves have failed to agree", or that it holds the parties to "that which is irremediably obscure", or that it involves the Court taking on "a discretion which the parties have, by their agreement, reserved to one or other of them". Nor, adopting his Honour's language from Coalcliff Collieries referred to above, does it involve the Court in "judging where the negotiation on particular points would have taken the parties ...". 97 If, therefore, an agreement framed in terms of para 4 of the 2 April offer is not too uncertain to be enforceable, it must in my opinion follow that an agreement to enter into such an agreement is not too uncertain to be enforceable. If the parties cannot agree on additional material then, as McHugh JA said in GR Securities, they will nonetheless be held to that which they have stipulated. 98 Further, the plaintiffs submitted that the parties were bound to act honestly and in good faith to negotiate the Programming Supply Agreement for which para 4 called. In my opinion, this submission is in principle correct. Such an obligation may arise either on the proper construction of the contract, or upon the basis of implication in fact. The former approach is exemplified by the speech of Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251, 263, where his Lordship said that: "... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on [the] circumstances". 99 Thereafter, it could be said that any distinction between construction and implication became somewhat blurred. Thus, in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, Mason J at 607 referred to "an implied obligation on each party to do all that was necessary to secure performance of the contract": basing himself on what Lord Blackburn had said in Mackay, and on the decision of Griffith CJ in Butt v M'Donald (1896) 7 QLJ 68, 70-71, where his Honour referred to "a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract". 100 Mason J drew from those statements principles of the following: "It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract". 101 In Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215, Dawson and Toohey JJ, at 219, identified what Griffith CJ had said in Butt as a "rule of construction". In the same case, McHugh and Gummow JJ referred to what Mason J had said in Secured Income Real Estate as being "that each party to the contract agreed to do all that was necessary on its part to enable the other party to have the benefit of performance of the contract", as leading to "an implied undertaking". 102 In Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 the Court of Appeal talked of terms of good faith and reasonableness implied by law. A similar approach was reaffirmed by the High Court in Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126. The High Court, building on what was said in Secured Income Real Estate and in Shepherd v Felt & Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359, confirmed the existence of an obligation on a party who contracts to confer a benefit to do those things that are necessary on its part to enable the other party to have that benefit, and at the same time to desist from conduct that hinders or prevents the fulfilment of the purpose of the express promise made. 103 In the end, I do not think it matters whether the theoretical basis for the imposition of a duty to act honestly and in good faith is to be found by a process of construction, by a process of implication, or by some combination of those processes. It is sufficient, in my view, to say that in the present case, where undoubtedly the obligation to enter into a Programming Supply Agreement was of fundamental importance, the parties were bound to act honestly and in good faith to achieve that result. That would involve, at the very least, negotiating honestly and in good faith (and, if it be additional, reasonably) to seek to reach agreement on the terms of a Programming Supply Agreement, and for each party to do such things as were necessary on its part to enable the text of that agreement, conforming in all material respects to para 4 of the 2 April offer, to be settled.
Cuisine submitted that what occurred from about November 2010 demonstrated that the defendants had failed to negotiate in good faith. Particular reliance was placed on the following matters: 1. By November 2010 it was submitted that the negotiations had reached a point where there was very little left in issue between the parties and nothing which could be described as a "deal breaker". It was plainly unreasonable for Bill to put the issue to one side when he knew and understood Cuisine's precarious position. 2. Despite the advanced stage of negotiations, and the length of time that had already been taken with them, it was unreasonable for David in January 2011 to propose a completely different and far less favourable arrangement from Cuisine's point of view, without explanation from him or Bill as to why David had become involved in the negotiations at that late stage. 3. Cuisine reasonably wanted to maintain the status quo as to the point at which the negotiations had reached prior to November 2010, much progress having already been made. 4. After January 2011, despite numerous attempts by Cuisine and its solicitor to finalise the negotiations, the defendants refused to engage in any meaningful attempt to do so.

Contract - The defendants' submissions

The defendants' pleaded response to Cuisine's contract case was to: 1. Deny any agreement. 2. Say that any such agreement was an agreement to agree (i.e. without agreement as to all essential terms) and therefore incomplete and unenforceable: Coalcliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1. 3. Any such agreement was unenforceable for want of writing due to s 23C of the Conveyancing Act 1919 (NSW).
In the course of submissions the defendants also contended that if, contrary to their other arguments, there was an enforceable obligation on Cebac and/or Boydah to negotiate in good faith, then that obligation had been satisfied. The defendants had acted honestly in their negotiations but, by early 2011, those negotiations had reached a stalemate and the parties could not agree on essential terms of the Licence including the rent, the Buy Back Term and the Assignment Price Term.
It was submitted that it was not unreasonable or contrary to an obligation to negotiate in good faith, which nevertheless preserved the defendants' right to act in their commercial self-interest, to give up on the negotiations after Cuisine's volte-face in relation to clause 16.2.2 (see paragraph [42] above). Furthermore, David's email to Mr Hopper of 3 February 2011 (see paragraph [54] above) which attached David's email to Bill of 18 January 2011 (see paragraph [50] above) did not constitute a resiling by the defendants from the concept of a 15 year licence. On a fair reading all that David's email of 3 February 2011 did was to invite Cuisine to propose a fixed dollar amount for the Assignment Price Term.
Finally, it was submitted that, on the facts of this case, an agreement to negotiate, if there was one, did not have sufficient legal content to be enforceable: Baldwin v Icon Energy Ltd [2015] QSC 112 ("Baldwin") per Philip McMurdo J.

Contract - Resolution

While not forgetting that the CLS is not intended to be a formal pleading, a lack of precision in Cuisine's contract case became apparent in final address which led to some of the matters recorded in paragraph [79] above.
Whatever the alleged agreement was, it had to be implied because there was no evidence that words to the effect of the pleaded terms had ever been said or exchanged in writing between the parties. An examination of the affidavits demonstrates that there had never been such evidence.
Paragraph 8 of the CLS asserted that Cuisine had taken occupation of its part of the Hotel "pursuant to an agreement" but did not state when that agreement had been entered into. While the law recognises that particularly in commercial dealings a formal point of offer and acceptance may not be identified but a contract will exist, the question of when Cuisine said the agreement arose was nevertheless important because the answer would inform what facts, matters and circumstances could be taken into account in determining its existence and terms.
The material in the court book included requests for particulars and answers that had passed between the parties. At least in those there had been no exploration of the issue of when Cuisine alleged the agreement had come into existence. Similarly, CLS did not particularise the facts, matters and circumstances relied upon for the alleged implied agreement. There was no pre-trial correspondence in evidence between the parties which shed any light on that question.
In the course of argument I raised these matters with Mr Gyles SC for Cuisine. Because of its importance to these reasons, it is necessary to set out that exchange (T209:4-T210:19): HIS HONOUR: Then assuming, for the sake of the argument, that this is an entirely implied agreement, then I ask you what are the particulars. Namely, what are the facts, matters and circumstances upon which you rely, proven in the evidence, from which you say I should imply an agreement in those terms? GYLES: The circumstances which existed at the time that the plaintiff went into occupation of the premises which were: the discussions and the dealings between the parties between March 2009‑‑ HIS HONOUR: So March 2009 they took occupation. GYLES: March 2009 was when the plaintiff commenced operation. But we say that your Honour can imply from the dealings between the parties prior to that - that is, the conduct previously referred to, which is on the various occasions representations have been made concerning the agreement and willingness of the plaintiff to provide a five-plus-five-plus-five lease, the conduct of the plaintiff thereafter where, to the knowledge of the first defendant, it undertook a great deal of work and expended a great deal of expense in preparation for commencing its operation. HIS HONOUR: So is your client's side of this alleged agreement a promise to enter into occupation and commence operation? GYLES: That's right. HIS HONOUR: But, if we're writing out this contract, cl 1 would be, "I promise to enter into occupation, you promise to give me occupation, and I will commence operations," and then the other parts of this agreement are the ones that you set out in (a), (b) and (c)? GYLES: Yes, yes, and we say that the terms that would be implied into that agreement have regard to the position which existed between the parties up until that date - that is, that at this point the plaintiff, to the knowledge of the defendant - and we say with its encouragement - had expended substantial funds by this point. In the words of Mr Hopper, he was on the hook, he was beyond the point of no return. HIS HONOUR: When do you say that agreement arose? He may have taken occupation in March 2009, but when do you say they'd actually entered into that agreement? GYLES: We say that on the evidence they had entered into an agreement as far back as 2005. But what changed in March 2009 was the commencement of the operation of the premises. HIS HONOUR: I understand that. But you say, "Pursuant to an agreement," in the second line of 8. So, I'm sorry to press you on this, Mr Gyles, but when do you say I should find that agreement arose, because that's an absolutely critical matter in terms of my understanding what circumstances I can look at? GYLES: We say that an agreement arose prior to this whereby this outcome - namely, the plaintiff taking occupation - had been agreed. I accept the agreement we pleaded is premised upon the plaintiff taking occupation of the premises - sorry, not taking - premised upon the plaintiff commencing operations, and that is the consideration in effect that it provided at this point for the agreement - in other words, it agreed to do that - and we say that one needs to have regard to the previous agreement that was in place, and one needs to have regards to the facts that‑‑ HIS HONOUR: What previous agreement was in place? GYLES: An agreement whereby Boydah said that it would provide a five‑plus‑five‑plus lease to the plaintiff on terms that would be agreed at a later date.
With no disrespect, the Court has some difficulty conforming those submissions to the contract alleged in the CLS. The high point of that disconformity is the reference to a "previous agreement", which is not at all how the case was set out in the CLS. However, for the reasons which follow, the Court finds as essentially correct Mr Gyles SC's characterisation of what occurred as "an agreement whereby Boydah said that it would provide a 5+5+5 lease to the plaintiff on terms that would be agreed at a later date".
As has been noted in paragraph [79] above, Cuisine has had to accept that because words to the effect of those terms for which it contends were never said then, any agreement and those terms had to be implied. However, that acceptance risks passing over the importance of the express words that did pass between the parties. What the Court has found was said is set out in paragraph [15] above, but is repeated here for convenience: Mr Hopper: Bill, you also understand I am putting a lot at risk going into this project. I have already sold one of my businesses. I am moving my staff across ready for this to open next year. I've committed a lot of money and I will definitely need a 15 year lease minimum and obviously we can work out rents and things separately. Bill: I understand that you will need to have that commitment from me and I agree.
The Court finds that due to the reference to "next year", the conversation between Mr Hopper and Bill occurred sometime in 2008 while Mr Hopper was assisting with the design of the Hotel (see paragraph [19] above). Furthermore, the Court finds those words evidence an express, oral agreement between the parties. It would be entirely artificial to pass over those words or only include them as part of the facts, matters and circumstances relied on over an unspecified period of time to find that by an unspecified date an implied agreement containing the terms pleaded in the CLS had come into existence.
Pausing at this point to consider the possibility of an implied agreement to negotiate in good faith, there is much to be said for the proposition that while parties might, in particular circumstances, enter into an express agreement to negotiate in good faith, the implication of such an agreement by conduct is very difficult to conceive. This is because, in the absence of express words, all that is left is the parties' conduct of negotiating. It would be a large step to suggest that whenever commercial parties undertake a negotiation they are to be taken to have, by their conduct, impliedly agreed to negotiate in good faith. On the contrary, what is naturally to be implied from the act of negotiation is that the parties are demonstrating they do not intend to be legally bound until their negotiation has given rise to a legally binding agreement. One consequence of the objective theory of contract is that they may be found to have reached that point when subjectively they are unaware or might resist the conclusion that the point of agreement has been reached, but that does not detract from the conceptual difficulty I consider underlies an implied agreement to negotiate in good faith.
Because of the Court's ultimate view of the agreement in this case, it is of no procedural significance that it may have been with Mr Hopper rather than with Cuisine. Accepting Mr Gyles SC's language and recognising the legal roles of the relevant defendants, the Court finds that the relevant conversation evidences an agreement the terms of which were that in consideration of Mr Hopper agreeing to provide catering services to Boydah for the Hotel, Boydah and Cebac would give Mr Hopper a 15 year lease on terms to be agreed at a later date.
Having found those to be the express terms of the contract agreed orally between Mr Harrison and Bill on behalf of the relevant defendants, Cuisine's case in contract must fail. That is because the agreement which the Court has found to have come into existence was not in its express terms an agreement to negotiate a lease in good faith or at all. It was an agreement to grant a lease where all but one of the terms (essential or otherwise) was to be agreed later. This agreement included no agreed mechanism between the parties for all of those terms to be determined and no suggestion that those terms could be imposed unilaterally by one party or a third party such as an arbitrator.
The defendants' submission that the agreement in this case was unenforceable as an agreement to agree is correct.
The agreement in this case is on all fours with the example posed by the majority of the High Court in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 ("Booker Industries") at 604: It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future. Consequently, if the lease provided for a renewal "at a rental to be agreed" there would clearly be no enforceable agreement.
The just quoted principle remains the law in Australia: United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 1007; (2009) 74 NSWLR 618 ("United") at [56] per Allsop P (as his Honour then was and with whom Ipp and Macfarlan JJA agreed). However, while that statement of the law is binding upon me, Cuisine's reliance on an implied term to negotiate in good faith invites the question whether developments in Australian contract law concerning good faith since Booker Industries might now lead to a different result. As opposed to an implied agreement to negotiate in good faith, could a term to that effect be implied into the agreement which the Court has found?
As a case such as United demonstrates, there has undoubtedly been a considerable development in the application of concepts of good faith to Australian contract law. The position is conveniently summarised by Allsop P in United: 61 Whilst this necessarily incomplete review of authorities reveals that the law in Australia is not settled as to the place of good faith in the law of contracts, this Court should work from the position that it has said on at least three occasions (not including Renard) that good faith, in some degree or to some extent, is part of the law of performance of contracts. It is unnecessary to go beyond this proposition to gain assistance in the construction of this particular clause of this contract. Many issues arise in respect of any implication (whether as a matter of fact or by law) of any term requiring performance of a contract, or the exercise of contractual rights, in good faith. Those issues need not be explored here in a case dealing with an express clause as part of a dispute resolution clause.
The last sentence of the passage just quoted also demonstrates why the present case is distinguishable from United. United dealt with an express clause that was part of a dispute resolution provision. The present case invites the implication of a term of wide application as to how the parties should go about agreeing a contract. As Allsop P recognised in United (at [61]), the implication of a term requiring good faith raises many issues that simply do not need to be considered where there is an express term. Furthermore his Honour said (at [69]): It is also unnecessary to consider, in the abstract, a clause providing for good faith negotiations in bringing about a commercial agreement in the first instance. The concern in the present case is the express mutual promises of the parties to undertake genuine and good faith negotiations to resolve disputes arising from performance of a fixed body of contractual rights and obligations. The difference is of great importance.
It would appear that these proceedings raise the following question identified in N Seddon, R Bigwood and M Ellinghaus, Cheshire & Fifoot Law of Contract, ("Seddon et al") 10th Australian edition, Lexisnexis Butterworths, Australia, 2012 (citations omitted; emphasis added): 10.47 Implied duty to negotiate in good faith. English law has found it particularly difficult to accept the idea of an enforceable obligation to negotiate in good faith, even where the contract expressly provides for it. However, the New South Wales Court of Appeal held in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd that an express agreement to negotiate in good faith can be binding, and reaffirmed this view in Australis Media Holdings Pty Ltd v Telstra Corp and United Group Rail Services Ltd v Rail Corporation (NSW) (in the context of a dispute resolution clause). The content of such a duty has since been explored in several cases. The recognition of express promises to negotiate in good faith raises the question of whether such a promise can also be implied in some cases, for example, so as to give binding character to what would otherwise be an 'agreement to agree' devoid of legal effect. But the question has not yet been resolved.
Among the cases to which the learned authors make reference in the footnote to their sentence "But the question has not yet been resolved" is WorldAudio. But that decision is fundamentally distinguishable from the case at bar. As paragraphs [93] to [96] of his Honour's reasons demonstrate (see paragraph [81] above), McDougall J's approach was premised on the rejection of the proposition that paragraph 4 of the agreement under consideration was uncertain and unenforceable. His Honour accepted that clause 4 set out the essential points of the parties' agreement. As Allsop P expressed it in United (at [56]), "An agreement to agree is incomplete, lacking essential terms: Booker Industries (at 604). (That is not a question of uncertainty or vagueness, but the absence of essential terms)". Paragraph 4 of the agreement in WorldAudio did not lack essential terms and therefore was not an agreement to agree. In this case, while the essential provision of the term of the lease was present, all other terms were lacking, including the essential term of rent. For this reason, while I am in respectful and complete agreement with McDougall J's analysis in WorldAudio, it is of no assistance to identify the principles relevant to the agreement which the Court has found in this case.
Neither the efforts of the parties nor my own researches has identified a case where a term to negotiate in good faith has been implied into what would otherwise be an agreement to agree. It is therefore necessary to approach the question from first principles.
To imply an obligation to negotiate in good faith into an agreement to agree has a beguiling simplicity and attractiveness. One swift act of judicial legerdemain could right an apparent injustice by rendering what was previously unenforceable to be enforceable. Can a principle "established by authority, both ancient and modern" (to quote Booker Industries) be so easily overcome?
For the reasons which follow, I have concluded that the answer to this question is "no".
As the judgment of Allsop P quoted in paragraph [104] above makes clear, the reason an agreement to agree is unenforceable is because it is incomplete, i.e. lacking essential terms. The law in relation to the implication of terms into a contract (whether as a matter of fact or by law) presupposes an enforceable agreement, i.e. a contract that contains all its essential terms. If the actual terms of the contract lack essential terms so that there is no enforceable contract, the process of implication cannot begin. As Seddon et al point out (at [10.37]): However, the court implies terms only to the extent to which they are consistent with the actual terms of the contract. This means that the parties can expressly agree to exclude terms that would otherwise be implied. Implied terms therefore function as "default rules" that apply in the absence of actual agreement. It follows that before considering whether a term should be implied, the court must first establish what the actual terms of the contract are.
The question of implying a term into an otherwise unenforceable agreement is answered by the dictum of Lord Roskill in the advice of the Privy Council in Aotearoa International Ltd v Scancarriers A/S [1985] 1 NZLR 513 at 556: But the first question must always be whether any legally binding contract has been made, for until that issue is decided the Court cannot decide what extra terms, if any, must be implied into what is ex-hypothesi a legally binding bargain, as being both necessary and reasonable to make that legally binding bargain work. It is not correct in principle, in order to determine whether there is a legally binding bargain, to add to those terms which alone the parties have expressed, further implied terms upon which they have not expressly agreed and then by adding the express terms and the implied terms together thereby create what would not otherwise be a legally binding bargain.
That statement was applied by the Full Court of the Supreme Court of Victoria in Australia and New Zealand Banking Group v Frost Holdings Pty Ltd [1989] VR 695 (per Kaye J; Marks and Teague JJ agreeing).
There has been some debate about what Lord Roskill and, later, Kaye J actually meant. For example, in Australian & International Pilots Association v Qantas Airways Ltd [2008] FCA 1972; (2008) 179 IR 200, Gray J said: 80 Before considering whether the suggested implied term meets these criteria, it is necessary to deal with one argument. That argument is based on the proposition found in the judgment of Kaye J, with whom Marks and Teague JJ agreed, in Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 at 702, that "the law does not permit a court to imply a term into a bargain between parties for the purposes of making their bargain an enforceable contract." If this proposition is to be taken at face value, it is hard to see how most of the cases in which it has been held that there are implied terms in contracts could have been so decided. There have been numerous cases in which courts have held that implied terms that the performance of agreed obligations take place within a reasonable time, or that a party may bring about the termination of agreed obligations by giving reasonable notice, are available to ensure the binding nature of those agreed obligations. In the words of the Privy Council in the B.P. case, such implied terms are "necessary to give business efficacy" to the contracts of which they are found to be part. The danger of taking the proposition expressed by Kaye J at face value is obvious. Such a proposition could lead to arguments akin to those about whether the chicken came before the egg, or the egg before the chicken. Was there already an agreement, so that it can be supplemented by an implied term to give it efficacy, or was there no binding agreement because there was no express agreement about the subject matter of the implied term? In my view, Kaye J intended to mean no more than that the parties must have agreed to be bound by the obligations they have expressed in their negotiations, before the question whether a term can be implied to give that agreement efficacy can be addressed. It is on that basis that I approach the present case.
Similarly, in B. Coote, "Contract Formation and the Implication of Terms" (1993) 6 JCL 51, the author identifies three possible ways in which Lord Roskill's dictum might be understood. He ultimately suggests (at 56): Perhaps the real truth is that Lord Roskill was saying rather less than he appeared to be. No court wants to be the destroyer of bargains but there has to be a bargain in the first place. On that point, the courts have traditionally insisted they will not make contracts for the parties which the parties have not made for themselves.
In the present case it is unnecessary for the Court to parse Lord Roskill's dictum. Essential terms are those terms which only the parties can agree for themselves. It is abundantly clear that not only had Mr Hopper and Bill not agreed the essential terms of any lease or licence, but that they understood that such an agreement would have to be reached some time in the future. In this case there was no binding agreement into which an implied term, whether to negotiate in good faith or anything else, could be implied. This follows from the application of Lord Roskill's dictum no matter how it is read and the Court respectfully adopts and applies it.
One way of testing the conclusion in the preceding paragraph is to ask how the well-known tests for the implication of terms set out in the advice of the majority of the Privy Council in BP Refinery (Western port) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 ("BP Refinery") at 282-3 could be applied where a contract lacks all of its essential terms. If one assumes for the sake of argument a lease for 99 years, a particular implied term may well be so obvious that "it goes without saying" in certain factual circumstances but would not meet that test if it was a lease for five years. Without the essential term (and therefore an enforceable contract) the test for implication would have nothing to work on.
Another way of reaching the same result is to assume for the sake of argument that the law will imply into what would otherwise be an unenforceable agreement to agree (i.e. an agreement lacking an essential term) a term that the parties should negotiate in good faith. Would such an implied term have sufficient content so as not to be vague, illusory or uncertain?
In considering this hypothesis it is useful to look at examples where the courts have upheld express obligations to negotiate in good faith in the context of dispute resolution clauses. It is sufficient to quote two paragraphs from the reasons of Allsop J in United, where his Honour first finds that the relevant question is whether the clause has certain content and then goes on to explain how the express dispute resolution clause there under consideration did have such content: 64 I turn to the major contrary appellate decisions. In relation to Courtney, the reasoning of Lord Denning MR equated an agreement to negotiate with an agreement to agree. The latter is, of course, not enforceable: Booker at 604 (Gibbs CJ, Murphy J and Wilson J), as Kirby P recognised in Coal Cliff. It does not follow, however, that an agreement to undertake negotiations in good faith fails for the same reason. An agreement to agree to another agreement may be incomplete if it lacks essential terms of the future bargain. An agreement to negotiate, if viewed as an agreement to behave in a particular way may be uncertain, but is not incomplete. The objection that no court could estimate the damages because no one could tell whether the negotiations "would be" successful ignores the availability of damages for the loss of a bargained for valuable commercial opportunity: Chaplin v Hicks [1911] 2 KB 786; Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 at 349 ff. The relevant question is whether the clause has certain content. … 74 With respect to those who assert to the contrary, a promise to negotiate (that is to treat and discuss) genuinely and in good faith with a view to resolving claims to entitlement by reference to a known body of rights and obligations, in a manner that respects the respective contractual rights of the parties, giving due allowance for honest and genuinely held views about those pre-existing rights is not vague, illusory or uncertain. It may be comprised of wide notions difficult to falsify. However, a business person, an arbitrator or a judge may well be able to identify some conduct (if it exists) which departs from the contractual norm that the parties have agreed, even if doubt may attend other conduct. If business people are prepared in the exercise of their commercial judgement to constrain themselves by reference to express words that are broad and general, but which have sensible and ascribable meaning, the task of the Court is to give effect to, and not to impede, such solemn express contractual provisions. It may well be that it will be difficult, in any given case, to conclude that a party has not undertaken an honest and genuine attempt to settle a dispute exhibiting a fidelity to the existing bargain. In other cases, however, such a conclusion might be blindingly obvious. Uncertainty of proof, however, does not mean that this is not a real obligation with real content.
United is an example of a case where the Court concluded that, in the specific context of a dispute resolution clause, the express obligation to undertake "genuine and good faith negotiations" was not vague, illusory or uncertain. The application of Allsop P's approach led to a different result in Baldwin, in which Philip McMurdo J was called upon to consider a clause in an agreement described as a "Memorandum of Understanding" where the parties agreed "to use their reasonable endeavours to negotiate by 30 August 2008 (and in any event no later than 30 October 2008) a Gas Supply Agreement using the principles set out in Schedule 2 and including the following key factors …". One of the principles set out in Schedule 2 was the completion of a "conceptual pipeline study that verifies the commercial viability of the pipeline". Schedule 2 went on to provide "should this study not verify the viability of the pipeline the parties agree to negotiate in good faith to amend the GSA such that the pipeline is viable".
His Honour summarised the problem and submissions: [26] It can be said that the subject matter of the negotiations was clearly enough described: a proposed agreement for the supply of gas by the defendants to B&B from ATP 626P and with the key factors identified in cl 1.3. But the question is whether the agreement to negotiate to that end imposed obligations which had a certain legal content, such that it could be assessed whether a party had failed to negotiate in accordance with the MOU. … [30] The plaintiffs emphasise that this judgment explained that a promise to use reasonable endeavours to achieve a contractual object is not inconsistent with the promisor having some regard for its own self-interest. From this they argued that an agreement to negotiate, by the use of reasonable endeavours to conclude a gas supply agreement, can be seen to have a legal content which is certain. Whether that is so is at the heart of the present case. The defendants argued that neither the agreement for the use of reasonable endeavours nor the express requirement for good faith supplied a necessary legal content to this agreement to negotiate.
His Honour then went on to consider four intermediate appellate decisions which had considered the question of a contract to negotiate, including, in particular, United. In doing so, he recorded the law in England established in Walford v Miles (1992) 2 AC 128 ("Walford") per Lord Ackner (at 138): While accepting that an agreement to agree is not an enforceable contract, the Court of Appeal appears to have proceeded on the basis that an agreement to negotiate in good faith is synonymous with an agreement to use best endeavours and as the latter is enforceable, so is the former. This appears to me, with respect, to be an unsustainable proposition. The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? The answer suggested depends upon whether the negotiations have been determined "in good faith." However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. Mr. Naughton, of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question - how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an 'agreement?' A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a 'proper reason' to withdraw. Accordingly a bare agreement to negotiate has no legal content.
His Honour's critical reasoning is, with respect, both concise and clear: [46] In the present case, the agreement to negotiate has been qualified both by a standard of reasonableness (cl 1.3) and a standard of good faith (cl 2(b)). The reasoning of Allsop P cannot be applied to "good faith" in this case, where what was to be negotiated was not a dispute about an existing set of facts and circumstances relevant to the content of a pre-existing contractual relationship. There could be no element here of "fidelity to the existing bargain". [47] However, the plaintiffs' argument focuses upon the standard of reasonableness and does not seek to give any content, or at least distinct content, to the standard of good faith. The standard of reasonableness, obviously, has many legal applications for which it has an established content. But at least thus far, it does not have an established a content in the present context. [48] In the passage from the speech of Lord Ackner in Walford v Miles which I have set out above, his Lordship referred to a judgment where "the Court of Appeal appear[ed] to have proceeded on the basis that an agreement to negotiate in good faith is synonymous with an agreement to use best endeavours and [where it was reasoned that] as the latter is enforceable, so is the former". That was a reference to the judgment of the United States Court of Appeal, Third Circuit, in Channel Home Centers, Division of Grace Retail Corporation v Grossman. I agree that in that judgment, which cited US authorities to the same effect, "good faith" in this context was equated with "best efforts". That reasoning as to the meaning of "good faith" is not part of the law in this country and, in any case, it would not assist in the application of a standard of reasonableness. [49] In Strzelecki Holdings, as I have noted, an obligation to negotiate in good faith towards a contract for the sale of land was not the subject of any argument or consideration as to its enforceability, although the primary judge (Murray J) commented that the law in that respect was not "abundantly clear". Nevertheless, the judgments considered the content of "good faith" in that contract. Pullin JA (with whom Newnes JA agreed) said that it required honesty but not reasonableness. Pullin JA said that it was difficult to know what reasonableness would require in this context "unless the reference to reasonable standards of 'conduct' is a reference to conduct which permits the negotiations to proceed". He said that the express obligation that the parties "deal" with each other by negotiating did "not suggest that the content of an offer made in negotiations where the parties must deal with each other in good faith must pass some objective test of reasonableness to be assessed by the courts". Murphy JA also discussed the content of "good faith" in that contract, concluding that it could be "characterised as a duty not to negotiate in bad faith". [50] In the MOU, the terms "reasonable endeavours to negotiate" and "work in good faith to progress the gas supply agreement" would have to be, some way, read together. They would each have to be interpreted as prescribing a standard which was certain and thereby enforceable. Perhaps they should be understood as prescribing but one standard, rather than two standards (which would be a less likely intention). And if there was but one standard, what was it? Those ambiguities may be able to be resolved. But the question would remain whether either expression contained a certain content by which the term could be enforced. [51] The essential difficulty identified by Lord Ackner remains: in an agreement of the present kind (as distinct from that in United Group Rail Services), how can a standard of reasonableness or good faith be measured and applied so as to give the promise a sufficiently certain content? Unlike cases such as Electricity Generation Corporation v Woodside Energy Ltd, there is no existing contractual relationship to which that standard of reasonableness could be anchored. A duty to carry on negotiations in good faith or reasonably in a context such as the present is, as Lord Ackner said, "repugnant to the adversarial position of the parties when involved in negotiations". Outside the constraints upon negotiations in cases such as United Group Rail Services, a standard of reasonableness is inconsistent with what Allsop P described as the nature of negotiation, which is that it is "an essentially self-interested commercial activity". In other legal contexts (such as a common law duty of care) the standard of reasonableness defines the way in which a party's duty to act in the interest of another is measured. But in the context of negotiations "about a myriad of commercial interests to be bargained for from a self-interested perspective (as in Coal Cliff Collieries)", the standard is inapt and uncertain. [52] In this case, the parties provided some framework for their negotiations by defining some matters which had to be within the agreement to be negotiated and by specifying the "indicative" terms and conditions of Schedule 2 to the MOU. However, this did not provide the necessary content to their agreement to negotiate. Those indicative terms were no more definitive of an enforceable legal obligation than were the terms of the heads of agreement in Coal Cliff Collieries. [53] In my view, neither the agreement to the reasonable endeavours within cl 1.3 or (if it be different) the agreement to work in good faith within cl 2(b) of the MOU had a sufficiently certain legal content. Therefore, they are unenforceable.
In my respectful opinion, there are two points of principle in United which are binding upon me. First, it is not the law in New South Wales that any agreement to negotiate in good faith is in and of itself void or unenforceable for uncertainty. Second, such an obligation will be enforceable where it has legal content identified by reference to the context and contract in which the obligation arises. The legal content of an agreement to negotiate in good faith in the context of a dispute resolution clause such as that in United is provided by there being an existing contract between the parties and an agreed mechanism for its resolution. As Allsop P said (at [70]), "this requires an honest and genuine attempt to resolve differences by discussion and, if thought to be reasonable and appropriate, by compromise, in the context of showing a faithfulness and fidelity to the existing bargain".
Baldwin appears, with respect, to be a faithful application of the principles which I have identified are established by United to the memorandum of understanding in Baldwin. In these proceedings the agreement which the Court has identified is even more devoid of clues or indications as to what any ultimate agreement might look like than was the case in Baldwin. In this case, whether the term to negotiate the lease in good faith was express or implied, there is nothing which gives it legal content. It is nothing other than a bare promise to negotiate a 15 year lease. To enforce such a promise is attended by all the difficulties identified by Lord Ackner in the passage from Walford quoted in paragraph [119] above. For the reasons which his Lordship there identifies, the Court concludes that in the agreement found by the Court in this case the inclusion of an implied term to negotiate the Lease in good faith would be unenforceable. That is another reason why such a term would not be implied.
The same reasons which I have identified as demonstrating the lack of legal content if an obligation to negotiate in good faith were implied into the agreement in this case also provide an another reason why that implication would not occur. The discussion in the preceding paragraphs demonstrates that there must be real doubt, given the uncertainty of its legal content, that the term could be said to be "capable of clear expression" (the fourth of the conditions in BP Refinery).
Furthermore, if (as I go on to consider below) the legal content amounts to no more than a requirement of honesty, it also must be questioned whether the second of BP Refinery conditions is satisfied, i.e. that an agreement to agree (assuming it to be otherwise enforceable) is effective without it, such that it is not necessary to give business efficacy to the contract. This conclusion can be reached either by saying that the law expects people to be honest in their dealings so the implication of a term to that effect adds nothing or that the requirement for honesty is already brought about by the various common law and statutory provisions that penalise misrepresentation or misleading and deceptive conduct and nothing further needs to be implied.
Finally, even if a term that the parties should negotiate in good faith could be implied into the agreement in this case (and that agreement is thereby rendered enforceable), Cuisine has failed to satisfy the Court that there was any breach of such an obligation by the defendants. Adopting the approach of the Court of Appeal of Western Australia in Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd (2010) 41 WAR 318 (referred to by Philip McMurdo J in [49] of Baldwin (see paragraph [120] above)), the Court concludes that the content of an obligation to negotiate in good faith in these proceedings would require honesty but not reasonableness and a duty not to negotiate in bad faith (giving the appearance of wishing to negotiate a deal when one in fact has no intention of doing so, irrespective of what terms may be offered). Reasonableness would not be part of the obligation of good faith for at least two reasons. First, being unreasonable is a perfectly legitimate tactic in the self-interested environment of commercial negotiation. Second, an agreement reached in good faith does not have to be objectively reasonable.
Measured against the standard identified in the previous paragraph, there is nothing in the conduct of the negotiations by the defendants which could be found to be dishonest or lacking in good faith. Reference should be made to two particular matters.
The Court does not accept Cuisine's submission that David's email to Mr Hopper of 3 February 2011 (see paragraph [54] above) which attached David's email to Bill of 18 January 2011 (see paragraph [50] above) constituted a resiling by the defendants from the concept of a 15 year licence. Fairly read, by sending those two emails David was saying that while his initial reaction may have been to suggest a three year lease with no payout, what he was in fact prepared to agree to was a fixed amount for any payout within the context of the 15 year lease that had always been "on the table".
Second, the Court does not consider it to be a breach of any duty to negotiate in good faith if, after reasonable efforts have been made over a reasonable period of time, an agreement cannot be concluded. Looking at the history of the negotiations, there is nothing contrary to such a duty in the defendants abandoning the negotiations when they did, after David presented his ultimatum set out in paragraph [55] above. It is clear, and no one suggested otherwise, that an obligation to negotiate in good faith does not in and of itself require an agreement to be reached or that parties are required to continue to negotiate indefinitely.
Finally, insofar as the implied terms contended for by Cuisine in paragraphs 8(b) and 8(c) of the CLS, the Court is of the view that an agreement to agree the lease (if otherwise enforceable) would be effective without those terms and they are not so obvious that they "go without saying". For this reason, the orthodox application of the test in BP Refinery gives the result that those two terms would not be implied into the agreement found in this case, assuming it was otherwise enforceable.

Equitable estoppel - Cuisine's submissions

Cuisine pleaded its equitable estoppel case in the CLS as follows: 6. On various occasions between 2006 and March 2009, the third defendant represented to Hopper and, after 28 July 2008, to the Plaintiff, that if they developed a restaurant and associated catering facilities in the hotel redevelopment then being proposed by the first and second defendants they would be granted a lease or licence to operate the restaurant and associated catering facilities in the proposed hotel for an initial term of five years, with two further terms each of five years at their option ("the Representation"). 7. Further, from early 2008, the third defendant, and through him Cebac and Boydah, knew and intended that Hopper and the Plaintiff were acting in the belief and on the assumption that if they agreed to run a restaurant and catering business in the proposed hotel, that they would be granted a lease or licence giving a right of occupation for and initial term of five years with two five year options ("the Assumption"). Particulars In reliance upon the Representation and acting on the Assumption: (a) Hopper and, after July 2008, the Plaintiff, assisted the defendants in relation to the design and development of the "Caves Beachside Resort" ("the Venture"); (b) Hopper disposed of other restaurant businesses owned and operated by him or associated companies, (c) Hopper diverted staff in opening and developing the Venture, (d) Hopper acquired the Plaintiff as the vehicle for the Venture, (e) the Plaintiff expended approximately $240,000 in the purchase of equipment to be used in the Venture, (f) the Plaintiff entered upon the premises and commenced the operation of the Venture, and (g) Hopper and the Plaintiff refrained from pursuing other commercial opportunities.
Cuisine alleged that by requiring it to vacate the Hotel from March 2014 the defendants had acted contrary to the Representation and the Assumption giving rise to an entitlement in Cuisine to equitable damages.
Cuisine submitted that its case fell squarely within the well-known statement of equitable estoppel by Priestley JA (with whom Kirby P agreed) in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 ("Austotel") at 610: For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable.
Cuisine submitted that either by making the Representation, or by encouraging the Assumption, Boydah led Cuisine to assume that a contract would come into existence. Boydah knew and appreciated that Cuisine relied upon the Representation or Assumption in spending substantial time and money in connection with the catering business of the Hotel and commencing operations there to the benefit of Boydah. It submitted that, in the circumstances, it was unconscionable of Boydah not to grant the lease which it had encouraged Cuisine to expect. Whatever else may be said about the submission, the Court accepts that given Mr Hopper was the controlling mind of Cuisine, insofar as his mind was subject to the Representation and entertained the Assumption, upon its incorporation Cuisine was to be assumed to be acting upon the Representation and Assumption.
Cuisine submitted that the fact that the parties had not agreed all of the essential terms of a lease or licence did not represent an impediment to establishing the equitable estoppel. Support for this proposition was, it was said, to be found in the decisions of White J in EK Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 ("EK Nominees") and Construction Technologies Australia Pty Ltd v Doueihi [2014] NSWSC 1717 ("Construction Technologies").
In support of its damages claim Cuisine relied upon the report of Mr Richard Ivey, a forensic accountant.

Equitable estoppel - the defendants' submissions

The defendants submitted that the claim in equitable estoppel must fail because the essential terms of the proposed lease or licence had never been agreed by the parties. They submitted that, from the very beginning of the negotiations, everyone involved understood that it would be necessary for the parties to enter into a legally binding arrangement and that the entry into such an arrangement was subject to agreement about all of its terms. Where the essential terms in the agreement remained to be agreed, an equitable estoppel could not arise: DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; (2011) 83 NSWLR 728 ("DHJPM").
The defendants submitted that Cuisine's reliance on statements by White J in both EK Nominees and Construction Technologies to the effect that Austotel did not prevent a claim for equitable estoppel where the parties had not yet reached consensus on important commercial terms was misconceived. This was because in both cases the relevant assumption which the landlord was estopped from denying was that the landlord had bound itself irrevocably to granting the plaintiff a lease. In this case the parties clearly understood that neither of them was bound unless and until the negotiations for a lease or licence were successfully concluded.
Finally, the defendants submitted that it was apparent that in February 2011, when Mr Hopper emailed his proposal that the defendants either accept his terms or buy him out (see paragraph [55] above), Cuisine could not be said to be relying on any assumption that it had a present entitlement to a lease or licence.
On the question of damages the defendants relied on the report of Dr Rodney Ferrier, a forensic accountant.

Equitable estoppel - resolution

For the following reasons, Cuisine's claim in equitable estoppel fails both as a matter of fact and law.
The evidence does not support either a Representation or an Assumption in the terms pleaded in the CLS. As with Cuisine's case in contract, the Court finds that the critical conversation is that recorded in paragraph [15] above. Neither the Representation nor the Assumption gives any force or effect to Mr Hopper's words, with which Bill agreed, "Obviously we can work out rent and things separately". The representation that was made in this case was not an unqualified promise that a 15 year lease or licence would be granted to Mr Hopper (subsequently assumed by Cuisine).
The Court finds that the representation in this case was, as with the agreement between the parties, to the effect that a 15 year lease would be granted on terms to be agreed at a later date. It was implicit in that representation that the 15 year lease would only be granted if those terms were able to be agreed. That was certainly Bill's understanding. More importantly, by his own admission, that was Mr Hopper's understanding and assumption, reflected in his frank admission (see paragraph [25] above) that it was not his understanding that Cuisine could have a 15 year lease even if he and Bill could not agree the other terms of the lease.
Mr Hopper was an experienced restaurateur who understood that he would not have any legally enforceable rights until he had entered into a binding lease or licence. So much is apparent from the fact that he set about negotiating the lease, recognising that: 1. The parties were "in a state of give and take" (see paragraph [40] above). 2. As late as April 2011 neither side was "locked in" until there was a signed lease or licence document (see paragraph [58] above). 3. Both the 6% and $100,000 per annum rent figures were interim figures and that the parties could walk away if they were ultimately unable to agree to terms such as rent, outgoings and the Assignment Price Term (see paragraphs [23], [32] and [76] above).
While, of course, each case turns on its facts, those in DHJPM bear a real similarity to the case at bar. DHJPM was the lessee of office premises. As a result of a conversation with a representative of the respondent ("Blackthorn"), DHJPM assumed or expected that Blackthorn would take a sub-lease or licence of the leased premises. After DHJPM had signed the head lease and completed the fitout, Blackthorn refused to occupy part of the premises. At the time of that refusal, a number of important terms of an agreement between the parties had not yet been agreed.
There are two judgments in DHJPM: the judgment of Meagher JA (with whom Macfarlan JA agreed) and the judgment of Handley AJA. The reasoning in the two judgments is slightly different but ultimately to the same effect and, with respect, equally persuasive.
In his judgment, Meagher JA recorded the findings of the primary judge as to the critical conversations: 13. The primary judge made the following findings as to the conversations which occurred between March and May 2006: [13] By this time Mr Hannon had a reasonable estimate of the cost of fitting out the offices. He had the following conversation with Mr Flory: Mr Hannon: "I am entering into a long lease of five years, so you will get a five-year one." Mr Flory: "Okay". Mr Hannon: "Marc this is a big commitment for us. We are going to enter into a 5 year lease, and so will you. I will be financing the fit out." Mr Flory: "Yeah, no problem. We'll be there with you." Mr Hannon: "I've worked out the rates and your space is going to be around $10,000 a month plus GST." Mr Flory: "Sure that is fine." [14] With the Chifley Investor Group, Peregrine Corporation, Imperial Mining, and AIM all committed to the project, around 80 per cent of the premises were tenanted. This occupancy level made the venture financially realistic. [15] Relying upon the assurances of Mr Flory and what he understood to be the commitment of AIM to the project, Mr Hannon for DHJPM signed the letter of intent, and on 20 April 2004 committed DHJPM to proceeding with the fit-out at an estimated price of $333,000. [16] On or about 13 May 2006 Mr Hannon met with Mr Flory and Mr Scott Reid, another executive of AIM, for the purpose of confirming that AIM was committed to the project before he signed the lease with the owner of 151 Macquarie St. The following exchange took place: Mr Hannon: "I am going to need to sign the lease soon. It is going to be for five years and your space will be $10,000 per month plus GST. Is everything still Okay?" Mr Flory: "We're going ahead with the leasing arrangements. We are committed." 14. Mr Hannon's evidence was that based on this conversation of 13 May 2006 and his earlier conversations with Mr Flory, he signed the lease of the premises. He said that he would not have done so had he not believed that there was a binding agreement with AIM. At no time did Mr Flory ever say or do anything which suggested that there was no such agreement.
Meagher JA drew attention to the similarities and differences between DHJPM and the leading case of Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 397 ("Waltons Stores"): 42. The present case is like Waltons Stores v Maher in that the equitable estoppel is sought to be enforced by the intended tenant against an intended sub-tenant except that here the dealings giving rise to the assumption or expectation occurred at a time before DHJPM had obtained its leasehold interest in the relevant premises. That estoppel is said to have arisen by reason of an assumption or expectation induced by the conversation of 13 May 2006 and DHJPM's act in reliance being the entry into the lease on 23 May. The present case is unlike Waltons Stores v Maher in that at the time of the relevant act of reliance, the parties had not reached agreement about a number of matters concerning AIM's right of occupation. Those matters included the rent or occupation fee to be paid, the commencement date and duration of the occupation and the extent to which AIM would bear any share of the outgoings or increases in the outgoings which may be charged under the head lease. DHJPM and AIM must be taken, however, to have contemplated and intended that any proprietary or other right of occupation would be created by a binding agreement. This much is implicit in Mr Hannon's position that he relied upon his belief that he had an agreement with AIM following the conversation on 13 May. It is also consistent with the fact that subsequently there were negotiations for a written contract.
His Honour then went on to give particular consideration to the first of the prerequisites for an equitable estoppel identified by Brennan J (as his Honour then was) in Waltons Stores, being that it is necessary for a plaintiff to prove that (emphasis added): The plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship.
Meagher JA said of Brennan J's first proposition: 49. The reference in Brennan J's proposition (1) to an expectation that "a particular legal relationship would exist" and that the party said to be estopped "would not be free to withdraw" from it, draws attention to two essential aspects of the expectation. The first is that it must be as to a legal relationship which is expected to exist between the parties. The second is that the expectation be induced by a promise which is intended by the promisor and understood by the promisee to affect their legal relations with the result that it is treated between them as something which the party estopped is "bound to do or not to do". This appears from Brennan J's analysis at 421, 422. 50. In their joint judgment in Waltons Stores v Maher , Mason CJ and Wilson J also emphasise this second aspect of the expectation necessary to justify a promissory estoppel. After referring to an observation of Robert Goff J (later Lord Goff of Chieveley) in Amalgamated Property Co v Texas Bank [1982] QB 84 at 107, they say (at 403): ... The point is that, generally speaking, a plaintiff cannot enforce a voluntary promise because the promisee may reasonably be expected to appreciate that, to render it binding, it must form part of a binding contract." When considering the Privy Council decision in Attorney-General of Hong Kong v Humphreys Estate (Queen's Gardens) Ltd [1987] 1 AC 114, they note (at 406): As a failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required. Humphreys Estate suggests that this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party. In Waltons Stores v Maher the expectation or assumption which was induced and acted upon and which was understood to affect their legal relations was that completion of the exchange of contracts would occur or had occurred: at 408, 430, 444, 464.
Meagher JA then observed of the reformulated test in Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466: 51. In Silovi v Barbero , Priestley JA (Hope and McHugh JJA agreeing) offered a more succinct formulation of what could be distilled from the different judgments in Waltons Stores v Maher (at 472): (5) For equitable estoppel to operate in circumstances such as those of the present case there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable." (italics added) 52. In Austotel v Franklins , Priestley JA explained an aspect of this proposition and expanded it to take account of the different circumstances of that case. In speaking of "the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed" he made clear that proposition (5) was speaking "of a contract or a promise the content of which was known": at 604. Austotel v Franklins was not such a case. …
Finally, Meagher JA summarised the position by this observation: 56. Whether a representation or promise has created or encouraged an expectation which if relied upon will be sufficient to give rise to an equity obviously depends upon the circumstances including the nature of the relationship between the parties and whether they contemplate that any interest to be granted or promise to be performed is to be created by a binding contract. …
Turning his attention to the facts, in concluding that Blackthorn had not encouraged an expectation that it had "bound" itself irrevocably to enter into a sub-lease, the terms of which remained to be negotiated and agreed, Meagher JA said: 65. The negotiations and discussions between Mr Hannon and Mr Florey were between experienced businessmen. They should be taken to have expected that any right of occupation, whether by way of sub-lease or licence, would have to be the subject of a binding contract and that they could not safely rely upon a promise as legally binding without taking the necessary contractual steps or at least obtaining an assurance that made clear that the promise was to be regarded as binding notwithstanding that those steps had not been taken: Waltons Stores v Maher at 403; Baird Textiles v Marks & Spencer at [92].
Handley AJA's reasons, which I also respectfully adopt, focused more pointedly than those of Meagher JA on the difficulty posed for an equitable estoppel, particularly an equitable estoppel by encouragement, where the expectation that had been generated in the plaintiff was for an executory contract to come into exist on terms to be negotiated: 97. Mr Flory told Mr Hannon that the respondent was "going ahead", and was "committed". However there was no oral contract, let alone one evidenced in writing which satisfied s 54A of the Conveyancing Act. The chief executives "agreed on" a sublease of the area for five years at a rent of $10,000 a month plus GST, and left it at that. 98. The other terms to be expected in such a sublease were not mentioned, let alone agreed. They would have to be settled by negotiation in due course. 99. This "transaction" fell outside the established boundaries of a proprietary estoppel by encouragement. What the respondent did was to create or encourage an expectation that an executory contract would come into existence on terms to be negotiated. The case is unlike Waltons Stores (Interstate) Pty Ltd v Maher [1988] HCA 7, (1988) 164 CLR 387 ( Waltons Stores ) where the terms had been agreed and reduced to writing awaiting exchange.
His Honour then reviewed a number of authorities, including at least one of some antiquity that bears precisely upon these proceedings: 110. The estoppel has been rejected, despite a detrimental change of position, where this occurred during negotiations which proved unsuccessful. In East India Co v Vincent [1740] EngR 215; (1740) 2 Atk 83 [26 ER 451], Lord Hardwicke LC referred to cases on proprietary estoppel by standing by and continued (at 83, [451]): But these cases have never been extended so far as where parties have treated upon an agreement for building, and the owner has not come to an absolute agreement; there, if persons will build notwithstanding, they must take the consequence, and this is not such an acquiescence on the part of the owner, as will prevent him from insisting on his right.
Finally, his Honour concluded (at [124]) after analysis of the recent Australian authorities that "in these circumstances Waltons Stores is not binding authority for the recognition via proprietary estoppel of an executory contract where the content of that contract is not known".
In this case the answer is the same whichever of the two judicial analyses in DHJPM is applied. That this is so may best be demonstrated by returning to the foundational statement of Brennan J in Waltons Stores that the assumption generated in the plaintiff must include that the defendant would not be free to withdraw from the expected legal relationship. When, as in this case, the expectation is of a legal relationship that will depend upon a contract (in this case a lease or licence) the terms of which remain to be negotiated then it becomes obvious, at least in the context of commercial parties dealing at arms' length, that the "not free to withdraw" aspect of the test will rarely, if ever, be satisfied. This is because it is part and parcel of commercial negotiations, conducted in good faith and not otherwise infringing any existing common law or statutory constraints, that they need not necessarily result in an agreement. Mr Hopper accepted that the parties may not come to agreement (see paragraphs [23] and [25] above). Nor would it be suggested of such negotiations that they should continue indefinitely until one side or the other capitulates out of exhaustion, irritation or for some other reason. This is because such negotiations proceed between parties who are entitled to be entirely self-interested, including to conclude that it is not in their interest to accept certain terms or to continue to negotiate. In reaching this conclusion, the Court emphasises that it is confined to commercial dealings at arms' length between unrelated parties. Different considerations have been held to apply in the analysis of equitable estoppel in family contexts where expectations have been generated, for example, of the ultimate receipt of interests in land or deceased estates.
It is, with respect, unnecessary for me to consider in any detail the decisions of White J in EK Nominees and Construction Technologies. EK Nominees predates the decision of the Court of Appeal in DHJPM. In Construction Technologies his Honour considers DHJPM but is able to distinguish, in particular, the reasoning of Handley AJA because Construction Technologies "did not expect to negotiate and settle the terms of the lease and formalise the relationship by entering into a contract" (Construction Technologies at [207]). By contrast, it was of the very essence of the promise made to Mr Hopper and the expectation thereby created in him that he would obtain a 15 year lease on terms that he and Bill would have to negotiate in the future. I note for completeness that Construction Technologies is, at the date of these reasons, subject to an as yet unheard appeal to the Court of Appeal.
Finally, if the preceding analysis is incorrect, it is necessary to consider whether the defendants' cessation of negotiations and ultimate termination of Cuisine's occupation of the Hotel was unconscionsable.
I respectfully adopt and apply Meagher JA's analysis in DHJPM of what must be considered: 72. The time for addressing whether it would be contrary to good conscience for a defendant to depart from an expectation is the time that that party seeks to do so: Evans v Evans at [107]-[109] referring to the earlier approval by this Court in Delaforce v Simpson-Cook [2010] NSWCA 84 at [81] of the following remark of Hoffmann LJ in an unreported judgment of Walton v Walton (Court of Appeal, Civ Div, 14 April 1994, unreported) at [21]. That remark was also approved in Thorner v Major at [56]-[57] and [101]: ... None of this reasoning applies to equitable estoppel, because it does not look forward into the future and guess what might happen. It looks backwards from the moment when the promise falls due to be performed and asks whether, in the circumstances which have actually happened, it would be unconscionable for the promise not to be kept. 73. At that time equity will look at all the relevant circumstances "that touch upon the conscionability (or not) of resiling from the encouragement or representation previously made, including the nature and character of the detriment, how it can be cured, its proportionality to the terms and character of the encouragement or representation and the conformity with good conscience of keeping a party to any relevant representation or promise made": per Allsop P (Giles JA agreeing) in Delaforce v Simpson-Cook at [3], [6]. Those circumstances may result in relief being refused or in relief which does not fulfil the encouraged expectation because to do so would "exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party" or would not take account of the impact of such relief on third parties and any hardship or injustice they would suffer: Giumelli v Giumelli at [42], [50]; Delaforce v Simpson-Cook at [60]-[67].
As the Court has already observed, in this case the essence of both the promise and the expectation was the grant of a 15 year lease on terms to be negotiated. In practical terms that promise and expectation will not be defeated in a way that is contrary to good conscience if the negotiations are conducted in good faith for a reasonable time and otherwise within the parameters of the law. For the reasons set out in paragraphs [126] to [128] above as to why the Court is not satisfied that the defendants failed to negotiate in good faith, the Court concludes that there has been no unconscionable conduct on the part of the defendants that would entitle Cuisine to equitable damages or any other form of equitable relief if the equitable estoppel for which it contended had otherwise been established.

Misleading and deceptive conduct?

Cuisine pleaded this case in misleading and deceptive conduct. 15. Further, the conduct of the defendants set out in paragraphs 6 and 7 [set out in paragraph [130] above] above was in trade and commerce, and: (a) was misleading or deceptive within the meaning of s.52 of the Trade Practice Act and s.18 Australian Consumer Law; and (b) the Representation was as to a future matter and was not made on reasonable grounds. Particulars The Defendants were not prepared to grant a lease or licence to the Plaintiff, and made no commitment to bring that about. 16. Further or alternatively, in making the Representation and in encouraging and or permitting the plaintiff to incur expense and otherwise act to its detriment in reliance upon the said representation, and/or by the conduct identified in paragraph 9 above [see paragraph [78] above], the defendants engaged in unconscionable conduct within the meaning of section 51AA of the Trade Practices Act and/or section 20 of the Australian Consumer Law. 17. Further, in the circumstances where the defendants knew that the plaintiff was acting on the Assumption in taking the steps identified in paragraph 7 above, and where the defendants were under a duty to inform the plaintiff that they would or may not carry through the Assumption, and their failure to do so constituted misleading and deceptive conduct by silence ("the Conduct"). 18. The third defendant and/or the fourth defendant were persons involved in the making of the Representation and the Conduct within the meaning of s.75B of the Trade Practice Act and/or s.236 Australian Consumer Law. 19. The plaintiff acted in reliance on the Representation and, by the Conduct, in taking the steps identified in paragraph 7 above, and has suffered loss and damage in so doing. Particulars The plaintiff repeats the particulars set out in paragraph 14 above.
It is apparent from the pleading that Cuisine's misleading and deceptive conduct case had three parts: 1. The defendants had engaged in misleading and deceptive conduct because at the time of making the Representation Mr Hopper did not intend to grant a lease. 2. The defendants had engaged in unconscionable conduct by taking advantage of unequal bargaining power brought about by Cuisine's precarious position of having committed so much to the Hotel. 3. The defendants had engaged in misleading and deceptive conduct by silence for not having told Mr Hopper that they may not grant a lease or licence.
Because of the conclusions which the Court has already reached in the preceding paragraphs of these reasons, Cuisine's misleading and deceptive conduct case can be dealt with in short compass. In doing so, no disrespect is intended to the careful way in which this part of the case was put on behalf of Cuisine.
As the Court has already decided, neither the Representation or Assumption as pleaded has been made out. The relevant representation was that Cebac and Boydah would grant a 15 year lease on terms to be agreed at a later date. That representation was understood and relied upon by Mr Hopper in the way set out in paragraphs [23] and [25] above. In particular, Mr Hopper neither understood nor relied upon what he had been told by Bill as an unqualified representation that a 15 year lease would be granted on any terms.
This aspect of the case also fails because at the time of the critical conversation (see paragraph [15] above) and up until around January 2011, the Court has no doubt that Bill had every intention of negotiating a 15 year lease with Mr Hopper in good faith. The Court reaches that conclusion on the basis of what in fact occurred, namely that from 2009 Bill proceeded to propound and negotiate the Licence.
In relation to the claim of unconscionable conduct, Mr Gyles SC submitted (T220.30-36) that there was unconscionable conduct because the defendants took advantage of unequal bargaining power which arose in their favour due to the precarious position Mr Hopper was in by having gone past the point of no return (see paragraph [25] above). Mr Gyles SC accepted (T220.39), correctly, that unconscionability in the statutory context invited the same inquiry as had to be undertaken in relation to the alleged good faith obligation in contract and the allegation of unconscionable conduct in the equitable estoppel case.
The Court rejects Cuisine's submissions of statutory unconscionable conduct for the same reasons as it rejected the submissions in relation to breach of the alleged good faith obligation in contract and unconscientious conduct in equity. In doing so, the Court respectfully adopts and applies the observation of the Full Court of the Federal Court in Australian Competition and Consumer Commission v Samptom Holdings Pty Ltd [2002] FCA 62; (2002) 117 FCR 301 at [64] that "at least in the case of an experienced business person it must, in our opinion, be something more than commercial vulnerability (however extreme) to elevate disadvantage into special disadvantage". There is no doubt that Mr Hopper was very experienced in the restaurant and hospitality business.
Finally, there was no misleading or deceptive conduct by silence. The defendants were under no obligation to say to Mr Hopper that the 15 year lease might not eventuate. Mr Hopper well understood that it might not happen if terms could not be agreed. He also understood that he (or Cuisine) was not bound until a binding agreement had been entered into (see paragraphs [23] and [25] above). By the time Bill had in fact abandoned the negotiations, if there was any duty on the defendants to say something then all the relevant conduct of Cuisine had already occurred so no causal connection could be established.
For these reasons Cuisine's misleading and deceptive conduct is rejected.

Unjust enrichment

Paragraph 20 of the CLS pleaded that "... the defendants have been unjustly enriched by retaining the goodwill of the Venture without compensating the plaintiff for its efforts in creating the value thereof". It is no criticism to say that this aspect of Cuisine's case was not at the forefront of its written or oral arguments. Nevertheless, it was ultimately put by reference to the decision of Sheppard J in Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880 ("Sabemo").
It is sufficient to cite its headnote as setting out the principle for which Sabemo is said to stand: Where, as here, two parties proceed upon a project on the joint assumption that a contract will be entered into between them, and the first party does work beneficial for the project, and thus in the interests of both parties, which work the first party would not be expected, in other circumstances, to do gratuitously, the first party will be entitled, by operation of law and notwithstanding that the parties did not intend, expressly or impliedly, that such obligation should arise, to compensation or restitution from the second party if the latter unilaterally abandons the project for reasons pertaining only to himself, and not arising out of a disagreement as to the terms of the proposed contract between the parties.
Whether Sabemo continues to represent an accurate statement of legal principle is not a straightforward question. The concepts of unjust enrichment and restitution in Australian law have undergone considerable exposition and development since 1977. Furthermore, Sheppard J himself (at 897) expressly stated that Sabemo was "not a case of unjust enrichment".
The standing of Sabemo in the light of subsequent legal developments was considered at length by McDougall J in BBB Constructions Pty Ltd v Aldi Foods Ltd (2010) NSWSC 1352 at [331]-[391]. I am indebted to his Honour's analysis and respectfully adopt it.
The Court accepts Mr Ashhurst SC's submissions on behalf of the defendants that there are at least two reasons why Sabemo has no application to the case at bar.
First, McDougall J's ultimate encapsulation of Sabemo was: 366 Where, for whatever reason, there is no effective contract, a party may be entitled to recover restitution for, or on account of the value of, benefits provided by that party to another party, and accepted by that other party. The factors that may give rise to a restitutionary claim will include at least the following: (1) party A confers a benefit on party B; (2) party B accepts that benefit; and (3) neither party expected that the benefit would be provided gratuitous. 367 So much follows, I think, from the decision in Sabemo, reconsidered in the light of Pavey & Matthews and Brenner.
Mr Ashhurst SC submitted that while it was true that neither party in this case expected Cuisine to undertake its activities gratuitously, it had in fact not done so gratuitously. Cuisine had, as Mr Ashhurst SC submitted, five years of use of the premises and earned income. This case was nothing like the situation in Sabemo where the disappointed builder got nothing.
Second, McDougall J identified the decisive factor in Sabemo as being that the defendant council had unilaterally walked away from the project: 374 It is clear that for Sheppard J, the decisive factor in Sabemo was that the council "deliberately decided to drop the proposal" for reasons that "had nothing to do with" Sabemo: see at 900, 901. His Honour contrasted that with a situation where "the transaction had gone off because the parties were unable to agree". His Honour appeared to regard it as an acceptable risk that there might be a failure in good faith to reach agreement on a point of substance in a complex transaction, but not that one party should decide unilaterally "to change its mind about the entirety of the proposal". 375 The other point that is significant is that his Honour concluded that it would have been "unthinkable" that Sabemo would act as it did, had it thought that the council might change its mind.
The precise expression used by Sheppard J (at 901) was to the effect that no liability would be incurred if the transaction has gone off "because of a bona fide failure to reach agreement on some point of substance". Mr Ashhurt SC submitted, and the Court accepts, that these proceedings are a very good example of a bona fide failure to reach agreement rather than the defendants having unilaterally walked away. This submission succeeds for precisely the same reasons that the Court has accepted that there was no breach of the alleged good faith obligation and no unconscientious conduct on the part of the defendants in the way their negotiations with Cuisine ultimately came to an end.
For these reasons Cuisine's claim based on Sabemo also fails.

Wrongful use of confidential information - Cuisine's submissions

Cuisine claims an entitlement to "an account of profits concerning the unlawful conversion and use by the Defendants of software and confidential information owned by the Plaintiffs." It pleaded in the CLS: 21. … during the period of its occupation of the Hotel, the Plaintiffs acquired, for value, licences to operate and use software programs for the running of its business, and engaged consultants to set up, improve and support the computer system for the Business. 22. The said computer system remained, at all relevant times, in the ownership of the Plaintiff, and was not able to be copied or used without the consent of the Plaintiff. 23. Further, the computer system contained information concerning the Business which was confidential to the Plaintiff, and was and remained a trade secret. 24. In or about February or March 2014, the Defendants (or their servants or agents wrongfully and without the consent of the Plaintiff) accessed the computer system and copied or cloned files which were on the system. 25. By reason of that conduct, the Defendant obtained substantial advantaged and benefits in having access to the software and information contained on it, which made its business more profitable that it would otherwise have been"
Cuisine submitted that in February 2014, Boydah instructed an employee, Mr Peter Ward, to back up information contained on a PC and laptop owned by Cuisine that was kept at the Hotel. This was carried out by Mr Ward on 19 March 2014 at about 10:15pm. Cuisine contends that Bill was aware that the information was confidential and that it should not be accessed without Cuisine's authorisation. That authorisation was never sought.
Boydah then employed Mr Adam Loades, previously Cuisine's function manager, to work in the same role for the defendants. He was provided with a computer which was loaded with the information extracted from the back up. By virtue of the backup, the defendants derived benefit from floor plan diagrams and details of forward booked functions such as weddings enabling continuity of operation after Cuisine left the Hotel. There was also beneficial information about the details of five years of previous bookings.
On or about 21 March 2013, Ms Julie Wright, previously a catering manager for Cuisine, provided the defendants with a list of customers who had booked upcoming functions at the Hotel. This further assisted the continuity of operation enjoyed by the defendants.
On 31 March 2013, Cuisine vacated the Hotel as requested by the defendants. The extracted information enabled the defendants to continue operating the hospitality business out of the Hotel as though Cuisine had not left.
Cuisine submitted that by virtue of the information referred to in the preceding paragraphs, Boydah obtained the details of 71 parties who had booked weddings or other functions at the Hotel from April 2014 to October 2015. A list of those bookings was emailed by Bill to Mr Loades on 21 March 2014 and included the names of the bride and groom or, in the case of a commercial function, the company name, as well as their phone number and the date of their event.
Cuisine submitted that the first commercial advantage obtained by Boydah was the saving of Mr Loades' time which would have otherwise been required to be spent locating the information about the hirers and liaising with them about their event requirements. On an hourly basis, Cuisine estimated a time requirement of two hours per function. On Mr Loades' salary, reduced to an hourly rate, this resulted in a saving of $7,369.80 across the 71 functions in issue.
The second commercial advantage alleged was indirect and included the elimination of reputational damage that would have been occasioned by the efforts required to re-arrange each wedding or function with the 71 booked hirers. Further, the possession of five years' of historical information would have streamlined Boydah's business creating an additional commercial advantage. This secondary benefit is valued at $10,000 by Cuisine relying on the "broad brush" approach authorised by the High Court in Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 367.
Cuisine's total damages claim is $17,369.80.

Wrongful use of confidential information - the defendants' submissions

The defendants pleaded as follows: 24. In answer to paragraph 24 of the FACLS, the Defendants: (a) Admit that in or about March 2014 the First Defendant, through its agent Com Partners Pty Ltd, took a "back up" or copy of the hard drive of the Computer; (b) Say that this was done as part of a process whereby in or about March 2014 the First Defendant used Com Partners Pty Ltd to back up, or copy, to a server all computers situated in the office area of the Hotel, including but not limited to the Computer; (c) Say that the process of backing up, or copying of all these computers was carried out for risk management purposes; … 25. In answer to paragraph 25 of the FACLS, the Defendants: (a) Say that following the Plaintiff vacating the premises on or about 31 March 2014, the First Defendants (through its servants or agents) commenced running the catering and functions aspects of the Hotel which the Plaintiff had previously been running during the period of its occupation of the Hotel; (b) Say that for the purpose of running the catering and functions aspects of the Hotel, the Defendants (or an entity associated with the Defendants) acquired, for value, licenses to operate and use software programs (as defined in the particulars to FACLS dated 7 January 2015 at paragraph 11(a)); (c) Admits that following the Plaintiff vacating the premises on or about 31 March 2014, the First Defendant (through its servants or agents) has obtained limited advantages and benefits in having access to the information contained on certain software programs, which information was brought into existence by or at the behest of the Plaintiff (or its servants or agents) during the Plaintiff's period of occupation of the premises; (d) Say that the Defendants have offered to pay: (i) the sum of $1,800.00 to the Plaintiff, to account to the Plaintiff for the limited advantages and benefits which the First Defendant has obtained as referred to in (c) above; and (ii) the Plaintiff's costs in respect of the contentions contained in paragraphs 21 to 25 of the FACLS;
The defendants admit obtaining benefit from floor plan diagrams used to plan functions which they would otherwise have had to develop. They also admit that they did not have to re-enter the details of future functions into their computer system. They dispute the assertion that the re-entry of data would have taken 114 hours of Mr Loades' time and assert instead that Mr Loades would have absorbed that work into his working week without having to employ any additional staff.
Mr Loades said during his re-examination (at T203:28-32): Q. Assume that that meant that there was an extra 114 hours of your work that would have had to have been done. Would you have needed Mr Saddington to employ somebody else to do that work? Or could you have absorbed that into your work? A. I could have absorbed it myself.
The defendants open offer of $1,800 plus costs to compensate Cuisine for any benefit obtained by virtue of using the backed up material was brought to the attention of the Court. This amount was reached by reference to the amount of $1,650 paid by Mr Hopper in November 2011 to a consultant for the development of floor plans and the purchase of a computer licence.

Wrongful use of confidential information - resolution

It is clear that the defendants unlawfully converted Cuisine's software and confidential information during their back up of the computer system. The question for the Court is how Cuisine should be compensated.
In Fink v Fink [1946] HCA 54; (1946) 74 CLR 127 (at 143) Dixon and McTiernan JJ made clear that difficulty in estimating an indirect loss will not preclude recovery: Where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provided for breach of contract, an award of damages.
In Ithaca Ice Works Pty Ltd v Queensland Ice Supplies Pty Ltd & Anor [2002] QSC 222 Philippides J said [at 17]: The loss attributed to a defendant's misuse of a plaintiff's customer list is often extremely difficult to assess. The Court must do the best it can on the evidence available. Thus, where the facts so demand, lost chances will be valued. In appropriate cases, the assessment of compensation will be a "guesstimate".
As Cuisine on the evidence has suffered no loss, for example by reason of diminution in business as a result of the breach of confidence, an account of profits, as pleaded, is the appropriate method of compensation. G E Dal Pont, Law of Confidentiality, LexisNexis Butterworths, Australia, 2015 says [at 16.8]: An account of profits is most apt where the defendant has profited more from the misuse of the information than the confidence-holder would or could have, and the profits in question are evident… It may also prove useful on those occasions where the profit in question is more easily quantifiable than the loss suffered by the confidence-holder.
It is Mr Loades' evidence that he would have been able to reconstruct the converted information during the course of his normal working hours with the defendants. While this may be the case, the Court does not accept that no benefit was derived by virtue of the defendants being in possession of that information. Rather, the list of hirers, floor plans and other data enabled the defendants to carry on the catering business of the Hotel with continuity of operation and avoiding any reputational damage that may have resulted from the duplicated planning of weddings and other functions.
In this case "profits" must be used somewhat loosely, with the focus being on their restitutionary character rather than the compensatory nature of damages. The essential question is how best to measure the value of the information. Such an approach demonstrates why it is no answer to say Mr Loades' time was a fixed cost and he would have absorbed the task of recreating the information into his existing work.
Lawyers readily understand the costing of time as a means to value work product. In the circumstances of this case the Court accepts that 2 hours of Mr Loades' time to recreate the information for each event is a just measure, which the Court rounds to $7,500.
The Court also accepts that there was a benefit of continuity and the avoidance of potential reputational damage to the Hotel's business that was conferred by having the information. There was evidence that the bookings represented potential revenue of in excess of $400,000. The information enabled the defendants both to avoid some loss of goodwill and facilitated the future generation of goodwill. Doing the best I can, I consider this will be adequately compensated by doubling the time-based valuation of the information to $15,000.

Conclusion

There will be judgment for Cuisine against Boydah for $15,000. The Court will hear Cuisine as to whether that judgment should be entered against any other defendants. The balance of Cuisine's claim will be dismissed. I will make provision for argument as to costs if they are not able to be agreed. 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: 03 September 2015

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