Coles Supermarkets Australia Pty Ltd v FKP Limited

Federal Court of Australia|2008-07-01|Before: Gordon J

The parties to confer and jointly file short minutes of proposed orders giving effect to these reasons, including orders as to the further conduct of the proceedings, by 4:00 pm on 23 January 2009; provided that if the parties are unable to agree, they are to submit a joint statement by 4:00 pm on 23 January 2009 identifying: (1) the point(s) of agreement; (2) the point(s) of disagreement; and (3) the respective positions of the parties on the point(s) of disagreement. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

BETWEEN: COLES SUPERMARKETS AUSTRALIA PTY LTD (ABN 45 004 189 708)

FACTS 13 The first document is the Offer Letter. It identified the lessor (purportedly FKP), the lessee (Coles) and that the lease would be for a term of 20 years with 2 options of 10 years each. The permitted use was stipulated to be use as a supermarket including the retail sale of liquor and all ancillary retail or service offerings. The rent and outgoings were stipulated. The "Premises" were defined in cl 1 as: The area hatched on the attached Development Plan number SK001 Revision 7 dated 28/11/06. The premises will comprise a lettable area of approximately 3,200 square metres. 14 The status of the 28 November 2006 plans was further addressed in cl 10: The Preliminary Development Plans for the Premises are attached and are identified as SK001 Revision 7 dated 28/11/06. The parties agree to act in good faith and use their best endeavours to agree as soon as practicable Final Development Plans which shall be based upon the Preliminary Development Plans. The Lessor must not carry out any works not in accordance with the Final Development Plans without the Lessee's prior written consent. (Emphasis added.) 15 "Key Dates" were addressed in cl 14 in the following terms: (a) The Lessor must notify the Lessee, in writing, at least 2 months before commencing construction of the Centre. (b) If: (1) substantial construction of the Premises has not commenced by 1 October 2009; or (2) substantial construction of the Centre has not commenced by 1 October 2009; or (3) the Lessor is not the registered owner of all parcels of land comprising the Centre by 1 March 2008; or (4) the Environmental Audit report has not been obtained by 1 March 2008; or (5) the approvals referred to in paragraph 12(d) have not been obtained by 1 March 2008; the Lessee may terminate the agreement for lease. (c) The date on which the Lessor will hand over the Premises for the Lessee to carry out the Lessee works (substantial completion) is 1 January 2009. If substantial completion does not occur within 12 months of that date, the Lessee may terminate the agreement for lease. (d) The date for completion of the Lessor works for the Centre is 1 February 2010. [If substantial completion does not occur on that date,] the Lessee may terminate the agreement for lease. "Centre" is defined as the "Coles Supermarkets Australia Pty Ltd from FKP Limited, Proposed lease at Cnr Hogans & Tarneit Roads, Tarneit". 16 Finally, cl 26 of the Offer Letter, headed "Documentation," provided that: The full agreement for lease and lease to be entered into between the Lessor and the Lessee will incorporate these terms and otherwise be on the same terms as the standard Coles Group Ltd. agreement for lease and lease. A copy of these standard documents is enclosed. The Lessor reserves the right to negotiate aspects of the Agreement for Lease and lease. (Emphasis added.) 17 There are a number of points to be noted about the Offer Letter. First, the Offer Letter imposed obligations on the Lessor to commence or complete construction of the "Centre" by a particular date or time - 1 March 2008 for development approvals (mainly zoning and planning approvals), 1 October 2009 for commencement, 1 January 2010 for substantial completion, and 1 February 2010 for completion: cl 14. However, the Offer Letter did not provide the Lessor with any right to terminate the Offer Letter or any subsequent agreement on the occurrence or non-occurrence of certain events. On the other hand, if the Lessor failed to achieve a number of milestones by the dates specified, Coles was entitled to terminate the AFL: cl 14. Finally, as cl 26 and the section headed "Legally Binding" make clear, the Offer Letter was a binding contract which would be superseded only when the parties had entered into the "full agreement for lease and lease". 18 There are two main issues with respect to the contract claim. First, Coles contends that, consistent with cl 10 of the Offer Letter, the Development Plans were finalised. The respondents disagree. This issue is primarily relevant to the question of relief - Coles seeks specific performance of the Offer Letter together with later development plans instead of the 28 November 2006 plans. However, the respondents also submit that it is inconsistent for Coles to now seek enforcement of subsequently negotiated and substituted development plans while simultaneously asking the Court to disregard the subsequent conduct of the parties with respect to the AFL and Lease, which the respondents submit involved multiple variations or novations of the Offer Letter. 19 The second issue is causation. The respondents contend that the contractual arrangements between the parties and recorded in the Offer Letter were replaced each time that a term of the AFL and Lease was agreed and that a term of those new contractual arrangements was a version of cl 1A. Coles disagrees. Clause 1A, entitled "Authority Approvals," was initially proposed by Mr McCoy of FKP on 12 September 2007 as an amendment to the AFL in the following terms: 1A.1 Despite anything else in this agreement, this agreement is subject to and conditional on the Lessor obtaining the Development Approval (but not including building permits) on terms to the Lessor's satisfaction (acting reasonably) by before the date specified in item 5.4 of the reference table (Approvals Date). 1A.2 The Lessor will use reasonable endeavours to satisfy the condition in clause 1A.1 by the Approvals Date. 1A.3 The Lessee must, when requested, provide all assistance reasonably required by the Lessor in the Lessor's endeavours to satisfy the condition in clause 1A.1. 1A.4 If the condition in clause 1A.1 is not satisfied by the Approvals Date, either party may, by written notice to that effect given at any time before the condition in clause 1A.1 is satisfied, end this agreement, in which case each party will be forever released from their obligations under this agreement. (Emphasis added.) 20 The principal effect of the proposed cl 1A was twofold. First, it sought to push out the development approval date (development approval was defined to encompass essentially the same approvals that the Lessor was required to obtain by 1 March 2008 under cl 14(b)(5) of the Offer Letter) from 1 March 2008 to 1 October 2008 (the date identified in item 5.4). Secondly, it sought to make the termination right in the event that approval was not obtained bilateral (ie either Coles or the respondents could terminate) rather than unilateral (ie only Coles could terminate) as under the Offer Letter. 21 Whether or not the parties agreed to cl 1A (or a version of it) is critical to the respondents' defence of these proceedings. If cl 1A was agreed, it was common ground that the condition precedent (ie acquisition of the development approvals) referred to in cl 1A had not been and could not reasonably be satisfied by 1 October 2008. Accordingly, the respondents submit that even if they breached a contract with Coles containing this term, they caused no damage because they would have terminated the contract in any event. 22 It is resolution of these issues which lie at the heart of the dispute between the parties. In my view, the answer to both is straightforward. First, consistent with cl 10 of the Offer Letter, the Development Plans were finalised. However, the parties did not enter into any binding agreement which included cl 1A. Notwithstanding the respondents' contentions to the contrary, these conclusions are not inconsistent with each other, both because the further negotiations were in each case undertaken pursuant to separate clauses and separate processes under the Offer Letter and because, when objectively viewed, the parties' conduct with respect to the Development Plans manifested present intent to be bound while the conduct in respect of the AFL and Lease negotiations did not. To understand the reasons for those conclusions, it is necessary to outline what transpired between the parties from 22 December 2006 (the date of the Offer Letter) and 18 March 2008, the date on which the Woolworths' Letter of Offer was executed. It is sufficient to address each of the issues separately.

Clause 10 of the Offer Letter 23 As I have said, on 22 December 2006, Coles sent the Offer Letter and its three attachments (see [2]-[8] above) to FKP. On its face, it was entered into by both Coles and FKP. Consistent with the opening paragraphs of the Offer Letter, the board of Coles approved the Offer Letter by no later than 15 February 2007. 24 Nothing significant transpired in relation to the Final Development Plans until September 2007. Mr Jason Delaney, who at the relevant time was the National Viability Manager of Coles, was not cross-examined. In his witness statement, he set out his involvement in settling the plans. In mid to late September 2007, he was asked by a Retail Leasing Manager in the Property Team at Coles, a Mr Ben Smith, to assess the development plan for the Tarneit site now being proposed by FKP to ensure it was viable from a design perspective. Contrary to the 28 November 2006 plans attached to the Offer Letter, FKP now proposed to put the supermarket within a mall. On 13 November 2007, Mr Delaney received by email from Mr Smith a copy of a 'Concept Plan' that had been provided to him by Mr Terry McCoy, a Commercial Manager at FKP. Mr Delaney was asked to provide any comments or concerns about the plan. On 15 November 2007, Mr Delaney requested Mr McCoy to provide the proposed development plan for the Tarneit site as a CAD file which would provide Mr Delaney with measurements accurate enough for him to undertake the design assessment task asked of him by Mr Smith. Later that day, Ben Hunter, an architect at i2C Design & Management who had been retained by FKP to prepare the proposed development plan, sent the CAD file to Mr Delaney. 25 After reviewing the plan provided by i2C Design & Management, Mr Delaney spoke to Mr McCoy on 19 November 2007 and told him that he had approved the proposed development plan subject to two matters - first, the entry to the mall needed shifting 6 metres to the right to accommodate Coles' stock room and to enable the "correct look through into the fresh food area of the store" and, secondly, the location and size of the trolley storage area required resolution. Later that afternoon, FKP provided a copy of the development plan which had been amended to take account of the changes proposed by Mr Delaney. Upon receipt of the amended development plan, Mr Delaney emailed Mr McCoy of FKP, Mr Hunter of i2C and Mr Smith of Coles stating that he was satisfied with the altered plan. No other correspondence passed between Coles and FKP about the plan for Tarneit. 26 The respondents submitted that no Final Development Plans were agreed. As the respondents submitted, what cl 10 required was that the parties act in good faith and use their best endeavours to agree, as soon as practicable, not another preliminary development plan or different preliminary development plans, but final development plans and that any Final Development Plans be based on the preliminary development plans. I reject the contentions of the respondents that no Final Development Plans were agreed. 27 The conduct of the parties was clear - Mr McCoy and Mr Delaney considered and negotiated over the form of the final plans and there was no submission that either lacked actual or apparent authority to bind their respective employers on this issue. They agreed. Mr Delaney stated at the end of the email chain between him, the architect Ben Hunter and Mr McCoy of FKP that "all look[ed] good" and that, at some point, the architect should send through a CAD file for Coles' internal purposes. This came after an earlier email from Mr McCoy proposing a plan that from Mr Delaney's viewpoint still had the two issues referred to above. Moreover, there were no requests for CAD files in respect of the earlier proposed plans, which suggests that the parties still considered them subject to further revision. Reviewing the exchange in context, it is clear that upon Mr Delaney's "all looks good" email requesting a CAD file there were no remaining or outstanding issues and that, objectively viewed, the parties manifested a present intent to be bound by that plan. 28 Moreover, I find as a matter of fact that the 19 November 2007 i2C plan was "based on" the 28 November 2006 plans annexed to the Offer Letter in that it maintained the same basic concept of a supermarket anchoring a retail complex. The respondents noted a number of differences in the plans, including that the configuration of the specialities is altered, the car park lay-out is changed, a mall is included and the visibility of the supermarket is reduced. However, in both plans, the location and size of the supermarket and the car park, although not the same, is similar. The fact that the plans were prepared by another firm of architects or still described as a 'concept plan' is simply not to the point. In my view, the term "based on" does not, in its ordinary usage, require an overly high degree of correspondence between the plans; I am satisfied that the plans are sufficiently similar. 29 The respondents also made a construction argument to support their contention that the i2C plan did not constitute Final Development Plans. Specifically, the respondents submitted that the Preliminary Development Plans should in effect be understood as a "Site Plan" within the meaning of that term as used in the standard Coles AFL and the Final Development Plans should be understood as Premises and Centre Plans contemplated by Schedule 1 of the standard Coles AFL. I reject that contention as well. 30 There is nothing in the Offer Letter itself which compels or requires such a construction. To the contrary, the Offer Letter is in all other respects a self-contained document. Each of the other capitalised terms is defined either expressly or by context. Moreover, where the parties wished to incorporate or refer to terms or definitions in the standard Coles AFL and lease, they did so. For example, cl 22 of the Offer Letter provides that alterations to the Centre requiring Coles' consent "are set out in part L of the Lessee's standard lease." As such, I consider it more likely, if the parties had wished to make the Offer Letter definitions correspond to the standard AFL definitions, they would have done so expressly. In the absence of such express reference, in my view the terms must be defined based on context. 31 The respondents then submitted that the i2C plan could not, in context, be considered Final Development Plans because it made changes that required Coles' consent pursuant to cl 22 and amendment of cl 18(c) of the Offer Letter. Needless to say, to the extent that consent was required under cl 22, it was clearly given by Mr Ben Smith in his emails to Mr McCoy discussed earlier. As for cl 18(c) of the Offer Letter, it provides that the Centre will open on the first Tuesday after the latest of certain events occurring. One of those events is all major tenancies in excess of 400 square metres and at least 50% of other shops, excluding a particular 267 square metre speciality, being ready to start trading. The 267 square metre store, although included in the 28 November 2006 plans, does not appear on the i2C plans. 32 The respondents therefore contend that adoption of the i2C plans would require an amendment to cl 18(c), and any plan requiring an amendment to the Offer Letter could not be a plan "based on" the Preliminary Development Plans. Even assuming that the latter half of this submission is accepted, I do not consider that the first part is made out. That is, I do not see that the deletion of the 267 square metre speciality from any final development plan would require an amendment to the Offer Letter. There is no provision anywhere in the Offer Letter that requires it to exist. To the contrary, the only provision that mentions it is cl 18(c), which does so in an exclusionary way (ie the 267 square metre store is specifically not one of those that must be leased and ready to trade in order to trigger the opening date). Thus, the fact that that store no longer exists does not impair the functioning of cl 18 and no amendment is required. (On the other hand, had there been an affirmative condition that the 267 square metre store be leased and ready to trade, then in the absence of that store the opening date of the Centre might never be triggered, which would cause the Offer Letter to fail for impossibility in the absence of an amendment. But that is not the case.) 33 In my view, pursuant to cl 10 of the Offer Letter, the parties had agreed (by no later than 19 November 2007) Final Development Plans based upon the Preliminary Development Plans. I have reached that conclusion independently after considering the facts and matters outlined above. I note, however, that prior to trial the fact that the Final Development Plans had been agreed between FKP and Coles was admitted by the respondents to their lawyers on 27 February 2008 and in its amended defence filed with the Court on 6 October 2008. 34 Finally, even if (contrary to what I have found) the i2C plan did not constitute Final Development Plans, that would not alter the analysis for present purposes. The respondents contend that because Coles abandoned reliance on the 28 November 2006 plans the claim must be dismissed in the absence of any identified Final Development Plans. The problem with this submission is that it confuses the availability of certain relief with the viability of the breach of contract claim. True it is that Coles seeks specific performance only of an agreement containing the i2C plan; if such a plan were not found to be part of any binding agreement between the parties, it therefore follows that specific performance could not go because there would be no plan that the Court could order to be performed. It is still possible, however, that the respondents could have breached the parties' agreement in such a way as to be liable for money damages, which damages Coles claims in the alternative. 35 The respondents also ran an alternative argument that even if the i2C plans did constitute Final Development Plans, the fact remains that the plans contended by Coles to be part of the enforceable contract are not such as to enable actual development or construction of the site. That is, the i2C plan is not a final architectural drawing or construction blueprint from which to build. This submission, which I accept, may also have relevance to the issue of whether an order for specific performance can or should go; but again, it does not detract from the analysis of breach or the availability of money damages in respect of a given breach.

Was There a Contract Between the Parties Containing Some Form of Clause 1A? 36 The starting point for consideration of this question is the fact that the Offer Letter was a binding contract and that cl 26 of the Offer Letter (see [16]) provided that the full agreement for lease (AFL) and lease (Lease) to be entered into between the Lessor and the Lessee would incorporate the terms of the Offer Letter and otherwise be on the same terms as the standard Coles Group Ltd AFL and lease. However, cl 26 went on to provide that FKP reserved the right to negotiate aspects of the Agreement for Lease and lease. In other words, the Offer Letter contemplated that the standard-form Coles AFL and Lease would provide the default template, but that FKP could seek to modify that template through a further negotiation process. 37 From 22 December 2006 (the date of the Offer Letter) until 27 March 2008 (when Lifestyle informed Coles that it had "decided to cease negotiations with Coles in this matter"), at least ten (10) further drafts of the AFL and Lease were exchanged. The chronology of the negotiations is lengthy. For present purposes, examples of the lack of agreement between Coles and the respondents is adequately demonstrated by the following extracts: 1. On 30 August 2007, Mr Yongshun Hu, an in-house lawyer for Coles, sent a draft of the Lease and AFL to an in-house lawyer for FKP, Mr Tom Dugdale ("the First Draft"). The drafts were based on Coles' standard-form documents and incorporated the commercial terms agreed between the parties in the Offer Letter. The documents were submitted subject to approval of Coles and Mr Ben Smith. The drafts did not contain clause 1A. 2. Mr McCoy of FKP responded on 12 September 2007. He provided his "initial comments" on the draft AFL and Lease ("the Second Draft"). A form of clause 1A was proposed by FKP for the first time. 3. On 24 September 2007, Mr Hu replied. His responses to the proposed changes were marked with "[ ]" ("the Third Draft"). In response to proposed cl 1A, Mr Hu said, "[Not agreed. The letter of offer agreed by the landlord was not expressed as a deal subject to a condition precedent and giving the landlord a right to terminate.]" The covering email stated that "I believe there are some issues with Ben Smith in relation to the changes to the Centre. No doubt the AFL and the Lease will need to capture the outcome of the discussions between you and Ben [Smith] once there is a position reached". 4. On 15 October 2007, Mr McCoy of FKP sent the fourth draft of the AFL and lease to Mr Hu. The form of the response was to attach amended versions of the Lease and AFL with the amendments marked up in order to list the outstanding issues and FKP's position on each issue. Mr McCoy suggested in the covering email that the parties meet to discuss. Clause 1A was listed as an outstanding issue. FKP's position was that "the agreement must be conditional on all necessary approvals being obtained, for obvious reasons". 5. On 19 October 2007, Mr Hu sent the fifth draft of the AFL and lease to Mr McCoy and Mr Dugdale of FKP. At that point in time, Mr Hu stated, "I believe we are very close to the end of the negotiation given the limited number of issues still outstanding. I have not agreed to some of the changes … requested which relate to some of the commercial terms. I would have thought that those terms are no longer subject to any negotiations as they had already been agreed." Mr Hu's comments on FKP's responses to the fourth draft were highlighted in yellow. Mr Hu asked that FKP's comments simply be added to the fifth draft in a different colour. Coles' position on cl 1A had changed - the marked-up document now read, "I will get instructions on this clause. In the event that Coles is agreeable to a provisions [sic] of this nature, further amendments to this clause should be made". Mr Hu then proceeded to make preliminary comments and to raise a number of issues on each of the sub-clauses. 6. On 26 October 2007, Mr Hu and Mr Ben Smith of Coles met with Mr Tom Dugdale and Mr Terry McCoy of FKP to discuss the outstanding issues in the fifth draft. Coles agreed to cl 1A being inserted into the AFL but the issue of Coles' building permit was still to be discussed. At that time, there were still a number of other items to be resolved as well. 7. On 31 October 2007, Mr Hu sent the sixth draft of the AFL and lease to Mr McCoy and Mr Dugdale of FKP. As the covering email recorded, Mr Hu had accepted certain amendments which he believed Coles had no issues with. However, after further consideration of the matters discussed at the meeting on 26 October 2007, he had not amended the AFL (in five significant respects) and had not amended the Lease (also in five significant respects) as discussed at the meeting. His reasons for not making particular changes were set out at length. Mr Hu proposed an amendment to cl 1A. 8. Mr Dugdale of FKP responded on 5 November 2007. Various pages of the AFL and lease marked up by hand were attached showing the amendments FKP still required to be made (the seventh draft). Eight changes to the AFL were proposed and nine changes to the Lease. No change to cl 1A was proposed. 9. On 9 November 2007, Mr Hu held a telephone discussion with Messrs Dugdale and McCoy of FKP about the seventh draft. A number of the outstanding issues were agreed. Others were still unresolved and were left to be discussed. 10. On 12 November 2007, Mr Dugdale provided the eighth draft of the AFL and Lease to Mr Hu. The amendments to the drafts were marked. At that stage, there were five outstanding issues with the AFL (costs of variations, assignment, the definitions of Practical Completion and Substantial Completion, the terms of the handover letter and a proposed limitation of liability clause) and four outstanding issues with the Lease (content of Coles' repair obligations, one aspect of the clause dealing with alterations to the Centre affecting Coles' ability to trade, the terms of the assignment clause and rent obligations during part years). 11. Mr Hu responded on 13 November 2007. A copy of the AFL and Lease (the ninth draft) marked up with Mr Hu's comments was attached. The proposed changes were primarily concerned with but not limited to the matters identified in para 10. 12. During late November, Mr Hu contacted Mr Dugdale seeking a response to the ninth draft. The response was provided on 7 December 2007 in the form of the tenth draft of the AFL and the Lease. The limitation of liability clause included had been settled by FKP. In addition, what were described as "new changes" were now marked up. The outstanding issues were listed as part of the handover process in the AFL and five outstanding issues with the Lease including the assignment clause, Coles' responsibility for damages caused or contributed to by Coles' failure to comply with its lease obligations, adjustments to outgoings if the gross lettable area of the centre was reduced and if FKP sold the Centre and the timing of a provision of a deed from the purchaser that it would be bound by the terms of the lease. 13. From 14 December 2007 through to early January 2008, Mr Hu suggested that the limitation of liability provision in a proposed lease agreement between Coles and FKP in relation to a different site (Mt Annan) be adopted in relation to Tarneit. That suggestion was rejected by Mr Dugdale and Mr McCoy. 14. On 8 January 2008, Mr Hu provided Mr Dugdale and Mr McCoy with the eleventh draft of the AFL and the Lease. The covering email stated that Mr Hu had further reviewed the whole of the AFL and the Lease and made changes to the documents. The changes were in two categories; some minor, others necessary and required by Coles. There were at least ten changes to both the AFL and the Lease. 15. On 31 January 2008, Mr Dugdale responded identifying that there were now three outstanding issues - the assignment clause, Coles' responsibility for damages caused or contributed to by Coles' failure to comply with its lease obligations and adjustments to outgoings if the gross lettable area of the centre was reduced - for which he proposed a resolution. Mr Dugdale noted that although "matters that ha[d] previously been agreed [were] not to be revisited" he was "prepared to accepted some of the new issues that [Mr Hu] had raised." 16. Mr Hu responded to the three issues on 6 February 2008. Coles did not agree to the changes proposed by FKP. Alternate clauses or explanations for Coles' lack of agreement were provided. Significantly, Mr Hu also stated as follows: Mr McCoy previously asked that once the AFL and Lease for this matter were completed, he would use these 2 documents as a template for future deals between our respective companies. I made it very clear to [Mr McCoy] that if he wants to use these 2 documents as the template for any future deals, we will revisit all amendments you requested and start the negotiation from scratch. [Mr McCoy then agreed not to do so.] 17. On 27 March 2008, Mr Dugdale sent an email to Mr Hu in the following terms: I refer to your email of 6 February 2008, and advise that FKP has decided to cease negotiations with Coles in this matter. 38 In fact, what had happened between 6 February and 27 March 2008 was that FKP had decided to pursue negotiations with Woolworths over the Tarneit site notwithstanding the fact that the Offer Letter was a binding contract. Not only were negotiations pursued by FKP but they were ultimately concluded on 18 March 2008 when Woolworths and FKP signed the Woolworths' Letter of Offer. 39 There is no general rule that parties having knowledge of a prior contract between different parties may not subsequently enter into a contract with fundamentally inconsistent terms. As I explained in Australian Securities and Investment Commission v GDK Financial Solutions Pty Ltd (in liq) (No 4) [2008] FCA 1071 at [98]-[100], the lack of any such rule is the inevitable consequence of the efficient breach theory of contract, which, although it has occasionally been criticised, remains the controlling theory of contract damages under Australian law: Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 at [159]. 40 In short, which of the contractual arrangements FKP decided to complete (if any) was ultimately a matter for it to decide in the future in light of its own enlightened self-interest. And it was its own self-interest that was the cause of it "ceasing negotiations" with Coles and entering into the Woolworths' Letter of Offer. Put simply, the undisputed evidence at trial showed that by the end of 2007 FKP was facing a time of financial hardship. Sales of significant assets had fallen through. It needed a cash injection and it needed it fast. An internal FKP deadline of an injection of $5 million by 31 December 2007 had passed without being met. In response, one proposal to raise funds quickly was to sell land in Cowes and obtain an anchor tenant for a development in Shepparton. The then ongoing stalemate on the lease at Shepparton was preventing FKP from selling the freehold or at least selling it at a higher price. FKP needed an anchor tenant. 41 The proposed deal partner for both of those sites was Woolworths. FKP's enticement to Woolworths to purchase the land at Cowes and become the anchor tenant at Shepparton was to offer Woolworths a package that included not only a lease of Shepparton and the purchase of Cowes but the ability to lease Tarneit. Woolworths accepted the "three-pack deal" and negotiations were complete by no later than 18 March 2008. 42 The respondents submitted that, notwithstanding the express terms of the Offer Letter and the ongoing negotiations between the parties, there was by 8 January 2008 a contract between the parties comprising all of the clauses of the eleventh draft of the AFL and lease together with clause 23 of the Offer Letter. At that time, clause 23 of the Offer Letter was silent about the release on assignment. Critical to the success of the respondents' case was that cl 1A of the AFL formed part of that concluded agreement. 43 I reject those contentions. As the history of the negotiations records, it was just that, negotiations. No concluded AFL or Lease was ever prepared or executed. Moreover, there was also no informal agreement (whether by 8 January 2008 or otherwise) evidenced by the chain of drafts in respect of major points objectively demonstrating a present intent of the parties to be bound so as to fall within the so-called fourth category of Masters v Cameron (1954) 91 CLR 353: see Carminco Gold (2007) 243 ALR 472 and Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248 at [25]-[29]. 44 If the respondents' contention was to be accepted, it would mean that a "new" agreement would have been concluded on each occasion one aspect or term of the AFL and Lease was resolved. That is absurd. It is contrary to the facts, commercial practice and understanding and is unworkable. It is contrary to the facts because as the summary of negotiations demonstrates some issues were "resolved" and then put back in the mix in negotiating other issues. That is human nature in negotiating. Issues come and go at different times depending upon the status of other issues and the importance of them. 45 While it is not to be doubted that an exchange of correspondence or other collection of informal (and even unsigned) writings may together form a contract, that will only be so if those writings objectively manifest a present intent of the parties to be bound: see Schoenhoff v The Commonwealth Bank of Australia [2003] NSWSC 918 at [71]; Tasman Capital at [25]; see also Pryde v Bjorn 141 WashApp 1027 (2007) (considering when and at what point an exchange of drafts by email will be found to give rise to a binding contract prior to the signing and exchange of a formal contract). 46 Here, neither the circumstances of the case, the subject matter of the documents nor the conduct of the parties supports the contention that a legally binding AFL and Lease had been reached by 8 January 2008 or at any prior or subsequent time. None of the documents or correspondence relied upon by the respondents manifest any present intent to be bound by the terms as and when they were negotiated. There were outstanding issues. More importantly, each party in the course of the negotiations repeatedly brought up new issues, made further changes or comments regarding terms that had already been "agreed" and even threatened or attempted to revisit the entire deal. In short, a review of the evidence shows that there was an ongoing process of give-and-take; it cannot objectively be said that parties intended to be bound immediately. 47 Accordingly, it follows that the only binding contract was the Offer Letter with the November 2007 i2C plans; the subsequent drafts reflect only unconcluded negotiations, not variations, modifications, or novations of the Offer Letter. 48 Before proceeding to the issue of breach, it is necessary to say a few words about the contention of the respondents that it is not possible to distinguish between the events and negotiations leading to the Final Development Plans and the negotiations for the AFL and Lease. The first point of distinction is that the facts and circumstances, objectively viewed, disclose an intent of the parties to be bound by the i2C plans while no such intent appears with respect to any of the versions of the AFL and Lease. The second point is that the efficacy of the i2C plan as Final Development Plans affects only the question of relief. 49 The third and final point of distinction is that the negotiations were in each case conducted pursuant to different clauses of the Offer Letter. Clause 10 contemplated a later development plan that would take the place of the 28 November 2006 plans attached to the Offer Letter; it did not contemplate the entry into any agreement that would replace or supersede the Offer Letter itself. That is to say, one could have different development plans without varying or novating the Offer Letter itself. On the other hand, cl 26 contemplated the entry into a "full agreement" (the AFL) which would supersede or replace the Offer Letter. In other words, one could not have a concluded (whether formally or informally) AFL while also having a valid Offer Letter. Because the cl 10 process was for the substitution of a document attached to the Offer Letter while the cl 22 process was for the replacement of the Offer Letter itself, it is not inconsistent for Coles to maintain that the Offer Letter (in the absence of an AFL draft to which the parties objectively manifested a present intent to be bound) was and remained binding while simultaneously maintaining that the Preliminary Development Plans were replaced.

BREACH OR REPUDIATION? 50 Having resolved the terms of the contract, namely the Offer Letter with substituted Final Development Plans, the next issue to be determined is the status of that contract. 51 The respondents admit they breached an implied term of the Offer Letter, namely that the respondents would not seek to prevent performance of the Offer Letter or withhold its benefits: Butt v M'Donald (1896) 7 QLJ 68, 70-71 cited and referred to in Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 596, 607; Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 and CGU Workers Compensation (NSW) Ltd v Garcia (2007) 69 NSWLR 680. The event which the respondents said gave rise to the breach was the execution of the Woolworths' Letter of Offer on 18 March 2008. However, despite the generous admission of the respondents, I cannot accept that execution of the 18 March 2008 letter constituted a breach of the Butt v M'Donald term. 52 As noted earlier, there is no obligation in contract not to enter a later agreement containing terms inconsistent with a prior contract. Butt v M'Donald does not hold otherwise because it states only that a party will be in breach if it withholds benefits or frustrates the performance of another. In other words, the implied term will be breached only when the party does something that: (1) positively impairs or frustrates another party's ability to perform its obligations; or (2) actually deprives (not just possibly will deprive) the other of a contractual benefit. Entering into an inconsistent contract such as the Woolworths' deal here in itself does neither where, as here, the party subjecting itself to the conflicting obligations is still free to choose which it will perform (confer the benefit) and the date for performance has not yet come due. For example, the respondents could have changed their minds on 19 March 2008 and decided that it would be better to give the lease to Coles and instead breach their agreement with Woolworths. Then they could have changed their minds again on 20 March 2008 and so on. Thus, there was no breach on 18 March of which I can be independently satisfied, notwithstanding the respondents' admission. 53 For its part, Coles submitted that the respondents breached the Offer Letter on 27 March 2008 (see [37 (17)] above) when they informed Coles that they had ceased negotiations but that that breach "was the intended culmination and inevitable consequence of earlier breaches of terms of the Offer Letter" - namely: 1. clause 26 which obliged FKP to enter into an AFL; 2. an implied obligation to act in good faith to do all things necessary to grant Coles a lease ("the good faith breach"); 3. the clause of the Offer Letter which obliged FKP to keep the terms of the Offer Letter confidential. 54 The respondents disputed that they had breached cl 26 on the basis that unless and until Coles proffered an AFL that they wanted to execute, there could be no breach and that no such AFL was proffered by Coles until 23 June 2008. The respondents also disputed that they breached the implied obligation to act in good faith on the basis that no such term exists: Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 and CGU Workers Compensation (NSW) Ltd v Garcia (2007) 69 NSWLR 680 at [131]-[143]. 55 Whether an implied obligation of good faith independently exists and to what extent it might differ from the Butt v M'Donald term are complicated and hotly debated issues in contract law. Moreover, it would not be a simple matter to determine the extent of the respondents' obligation under cl 26 to negotiate and accept an AFL and Lease. (Indeed, that is always a problem in Masters v Cameron heads-of-agreement type cases where later negotiations break down.) For example, at what point could Coles throw its hands up and say that the respondents were unreasonably refusing to negotiate or accept an AFL or Lease such that the default terms ought to apply? 56 Fortunately, it is not necessary to resolve the issues between the parties by reference to the admitted Butt v M'Donald breach or the first two breaches alleged by Coles because I am satisfied on the evidence that more straightforward breaches exist. First, the evidence that the respondents did not and could not obtain the necessary development approvals by 1 October 2008 necessarily implies that those approvals were not obtained by the 1 March 2008 date specified in the Offer Letter. Accordingly, I find that the respondents breached cl 14(b)(5) on 1 March 2008. 57 Secondly, the respondents breached the confidentiality clause of the Offer Letter on 26 February 2008. At the end of the Offer Letter, a clause headed "Confidentiality" provided, in part, as follows: The terms and conditions of this offer are strictly confidential (Confidential Information). The Lessor must: (i) not disclose any of the Confidential Information to any person, firm or body corporate; (ii) not directly or indirectly use, reproduce or deal with the Confidential Information for any purpose without the prior written consent of the Lessee, except on a confidential basis to professional consultants of the Lessor; … In any case, where the Lessor must obtain the Lessee's prior written consent, the Lessee is entitled to withhold the giving of its consent for any reason in its discretion, or to give its consent subject to such conditions as the Lessee imposed in its discretion. 58 The respondents admit that they breached this clause when, on 26 February 2008, they disclosed to Woolworths terms of the offer that Coles had agreed (1) to enter into a 20 year lease with an option to take a lease for two further 10 year terms (cll 4 and 5), (2) to pay a percentage at 2% of annual gross sales (excluding GST) in excess of $37,000,000 (cl 7(b)) and (3) to participate in base rent reviews every five years during the term and options to the average of total base and percentage rents payable in the preceding three years (cl 7(d)). That they would admit this is not surprising because during the course of the trial Mr McCoy gave evidence during cross-examination, corroborated by certain of his emails which were tendered as exhibits, that he did in fact disclose this information to a representative of Woolworths on or about 26 February 2008. 59 Finally, I am of the view that when the respondents informed Coles on 27 March 2008 (see [37 (17)] above) that they were ceasing negotiations with it, that conduct constituted anticipatory breach of the Offer Letter which, in the circumstances which followed, was also a repudiation of that contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423. The relevant circumstances include the fact that the respondents refused to sign the eleventh draft of the AFL sent by Coles to FKP on 23 June 2008 which by then included the resolution of the three outstanding issues in the manner proposed by FKP on 31 January 2008 (see [21 (15)] above) which had initially been rejected by Coles. If that were not enough, by the time these proceedings were commenced in July 2008, it was clear from the manner in which the respondents have defended these proceedings that they have not and do not intend to further perform the Offer Letter, however construed: see DTR Nominees 138 CLR at 434. 60 I should note that my review of the Offer Letter in light of the evidence suggests that the respondents probably committed additional breaches of it. For example, cl 21 of the Offer Letter required the respondents to retain ownership of the premises at least until the Lease was executed. The clause also stated that the Lessor would be liable for "loss, expense or damage" caused by disposal of all or part of its interest in the Centre prior to execution of the Lease. If the respondents conveyed a leasehold interest over the Tarneit Property to Woolworths (there was no evidence of an executed or registered Lease between Woolworths and the respondents, only a letter of offer and an admission of an executed AFL), it would appear to be a breach of cl 21. However, as this and other potential additional breaches were neither pleaded nor squarely raised by the evidence or submissions, I will not address them further. 61 The relief to which Coles is entitled as a consequence of these breaches is a matter to be addressed in subsequent proceedings. With respect to the third breach (the anticipatory breach), for example, there is a question as to whether a plaintiff's election to hold the party to the agreement rather than rescind means that it cannot claim damages. It is sufficient for present purposes to note that some authorities suggest that anticipatory breach entitles Coles to damages only if it terminates the Offer Letter: see Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 48 and Foran v Wight (1989) 168 CLR 385, 416-417, 441-442). Of course any issue in that regard may be moot in light of the actual breaches: see Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444, 450; Huppert v Stock Options of Australia Pty Ltd (1965) 112 CLR 414, 422-423, 426 and 431. 62 On the other hand, the issue of causation raised by the respondents does not arise because, as I have found, there was no varied or novated agreement between the parties containing a cl 1A giving the respondents a right to terminate the agreement. 63 The question of the equitable breach of confidentiality alleged by Coles is in a different category. The conduct relied upon by Coles to make out this claim is the same conduct that I have found constitutes a breach of the confidentiality term in the Offer Letter. Coles argues that equitable and legal obligations of confidence can co-exist. I disagree. In my view, no equitable duty of confidence arises where there is a contractual duty: see Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 at [118]. The fundamental rule is that equity will not intervene where there is an adequate remedy at law. This was recognised by Fullagar J in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167, 195, where his Honour considered that equity would withhold further remedies for breach of confidence where adequate remedies were available at law. 64 Moreover, even if the matter were not settled by the authorities, the conclusion that contractual and equitable obligations cannot co-exist would still follow as a matter of logic and basic principles. If a party were allowed to elect whether to bring an action in equity for breach of confidence (which Coles does to get an account of FKP's profits on the Woolworth's deal, in the hopes that those profits are more than its damages), that would effectively eliminate the efficient breach theory of contract because whenever a defendant entered into inconsistent contracts the party whose contract ended up being not performed could then capture any extra profit made by the defendant by suing in equity instead of recovering his own losses at law.

TRADE PRACTICES CLAIMS 65 As noted above, Coles pleaded further claims under the TPA arising out of alleged misrepresentations made to it from 22 September 2006 to 27 March 2008. The misrepresentations were said to comprise: (1) express representations, which were the representations and promises in the Offer Letter that the respondents would grant Coles a lease over the Tarneit Property; (2) implied representations; and (3) representations by silence. The alleged implied misrepresentations were alleged to arise from the fact that: By executing the [Offer Letter] and entering in the contract and in negotiating various drafts of the "full agreement for lease and lease" contemplated by clause 26 between 20 August 2007 and 27 March 2008 Lifestyle impliedly represented to Coles that it intended to negotiate or was negotiating exclusively with Coles and was not intending to negotiate or negotiating with any other party other than Coles in respect of the grant of a lease at the Tarneit site. 66 The representations by silence constitute a variation on the implied representations - that is, a continuation of the exclusivity representation said to arise from the silence of the respondents from 26 February 2008 (the date they started negotiating with Woolworths) and 27 March 2008 (the date they told Coles that they were ceasing negotiations). In my view, none of these claims is made out. 67 The interaction between the TPA and the law of contract is interesting and has been the subject of previous consideration: see by way of example Concrete Constructions Group v Litevale Pty Ltd (2002) 170 FLR 290; Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217; Mander Forklift Pty Ltd v Dairy Farmers Co-operative (1990) ATPR (Digest) 46-061. 68 In Futuretronics at 239, Ormiston J "expressed [his] doubts whether a contractual promise of itself carries with it any representation as to fact or conduct" actionable by reason of s 51A. His Honour explained the issue (at 238-39) in the following terms: It is hard to believe that normally any promisee with ordinary contractual rights would … describe himself as having been deceived or misled [based on the mere acceptance of a promise]. It is only when it becomes apparent that the promise cannot be enforced, because, for example, it is either unenforceable or the promisee's rights are valueless or diminished, that one may return to the original promise to inquire whether that promise was of so little substance that it can be concluded that the promisee was indeed misled or deceived in the first place, at the time of his acceptance of the promise. Thus it may then be seen that the promisor originally had no intention to perform his promise or that he originally had no capacity or ability to perform it. … It would seem on the authorities that, at the least, a contractual promise would amount to an implied representation that the promisor then had an intention to carry out that promise. If it can be shown that he had no such intention, he would be guilty of misleading or deceptive conduct. Likewise it would seem that such a representation connotes a present ability to fulfil that promise which, if shown to be untrue at the time of making, would likewise characterise the implied representation as misleading or deceptive. 69 As this passage reveals, an express contractual promise or representation will constitute an actionable implied representation under s 52 of the TPA only if the party making the promise or representation had no intention or capability of carrying it out at the time it was made (ie the promisor had no reasonable grounds for making the promise). The questions which then arise are (1) what is the contractual promise in this case and (2) did the respondents have the intention and ability to carry it out at the time it was made? 70 In the present case, the specific promise relied on by Coles is the promise to grant a lease. It cannot be doubted that, on the evidence before the Court, the respondents had both the ability and intent to fulfil that promise at the time it was made. More broadly, the respondents admit that they impliedly represented to Coles that they would perform all obligations under the Offer Letter including an obligation to execute an AFL. Despite extensive cross-examination of the respondents' witnesses, Coles failed to establish that the respondents did not have such an intention or capability at the time the representations were made and at all times prior to 26 February 2008 when Lifestyle commenced negotiations with Woolworths to lease part of the Tarneit property to Woolworths. In my view, the evidence establishes that the respondents had reasonable grounds for making representations and promises of the kind contained in the Offer Letter and thus those representations and promises were not misleading or deceptive within the meaning of ss 51A and 52 of the TPA. 71 The question which then arises is whether the respondents' conduct in the period from 27 February 2008 to 27 March 2008, said to constitute representations by silence and implication, was misleading or deceptive or likely to mislead or deceive Coles? The answer to that question is no as well. 72 In Mander Forklift, Cole J stated the rule regarding representations by silence or implication as bearing on the interpretation or performance of a contract: Silence concerning a view of the proper interpretation of a contract, or that a mutually known term of a contract will be enforced can rarely, if ever, constitute conduct within s 4(2) of the Trade Practices Act 197[4] (generally see Rhone-Poulenc Agrochimie SA v IUM Chemical Services Pty Ltd (1986) 12 FCR 477; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83. To construe s 52 as imposing an obligation upon a party to a contract to advise the other party both of its interpretation of clauses in the contract, and that the clauses in the contract will be enforced or adhered to destroys the very basis of objective interpretation of contracts to which Mason J referred in Codelfa [Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337], 352). 73 This view has been consistently followed over the years, most recently in Golden Sands Pty Ltd v Excel Quarries Pty Ltd [2008] VSC 276 at [302] n 41. Again, however, even if it were not a matter of settled authority, I would apply such a rule as a matter of logic and basic principle. As a matter of basic contract law, a term will not be implied except in very limited circumstances (primarily where it is obvious, reasonable and necessary to make the contract work): Golden Sands at [223] and authorities there cited. In this case, Coles' alleged representation by silence and implication effectively amounts to a claim that there was an implied term of exclusivity - that is, that the respondents would negotiate exclusively with Coles - in circumstances where such a term could not be implied under contract law because it is not necessary to make the contract work. Thus not only would the rule that s 52 imposes a duty to advise as to the subjective interpretation of the contract destroy objective contract theory, it would also provide a means around the limitations on the implication of terms under the law of contract. 74 So radical a position cannot be accepted. In my view, the failure of the respondents to disclose their subjective view that the Offer Letter (or a particular clause therein) was not binding, that they would not adhere to a particular interpretation of a clause, or that they considered themselves free to take on or pursue agreements containing obligations inconsistent with those arising under the Offer Letter is not actionable under s 52 of the TPA. 75 Further, I should note that even if, contrary to the view I have formed, the representations alleged by Coles were actionable under s 52, there would be a real question as to whether Coles is entitled to any relief over and above what it might get in contract, given that Coles seeks only damages under s 82 of the TPA. 76 For the foregoing reasons, my view is that the TPA claims fail.

CONCLUSION 77 It may be that in light of these reasons for decision the parties will be able to reach some sort of agreement as to the further conduct or compromise of these proceedings. Accordingly, I will direct the parties to confer and jointly file short minutes of proposed orders giving effect to these reasons, including orders as to the further conduct of the proceedings, by 4:00 pm on 23 January 2009. If the parties are unable to agree, they are to submit a joint statement by 4:00 pm on 23 January 2009 identifying: (1) the point(s) of agreement; (2) the point(s) of disagreement; and (3) the respective positions of the parties on the point(s) of disagreement, in which case I will list the matter for further directions or hearing as necessary. If further directions or hearing are sought, the parties should consult amongst themselves and then contact my chambers with a list of mutually agreeable dates and estimated time required for the proposed directions or hearing. I certify that the preceding seventy-seven (77) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Counsel for the Applicant: Mr PJ Jopling QC and M BF Quinn

Counsel for the Respondents: Mr J Delaney SC and Mr R Peters

Solicitor for the Respondents: Arnold Bloch Leibler

Dates of Hearing: 12, 13 and 14 November 2008

Date of Final Written Submissions: 18 and 21 November 2008

Date of Judgment: 18 December 2008

Trade Practices Act 1974(Cth)ss 51A, 52

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