Eastbound Estate Pty Ltd v DC Consolidated Investments Pty Ltd [2024] VSC 40

(2014) 251 CLR 640Eastbound Estate Pty Ltd v DC Consolidated Investments Pty Ltd [2024] VSC 40 | Case summary | Zoe

[4]

This case concerns a contract for the sale of land between the plaintiff, Eastbound Estate Pty Ltd (variously "Eastbound", "the plaintiff", and "the Purchaser"), and the defendant, D.C. Consolidated Investments Pty Ltd (variously "DCI", "the defendant", and "the Vendor"). The defendant purported to terminate the sale agreement pursuant to a clause granting a conditional power to terminate. The plaintiff rejects the validity of the termination. The central dispute is over the construction of this clause and whether the preconditions to the power conferred by it were satisfied to enable its valid exercise.
The plaintiff is a corporate entity and is the purchaser under the contract. The defendant is the sole corporate trustee for the De Felice Family Trust Number Five and is the vendor under the contract in this capacity.
DCI is the registered proprietor of land situated at 640 Dorset Road, Bayswater North, Victoria ("the land"). Pursuant to unregistered Plan of Subdivision PS 9021390L ("the Plan of Subdivision"), the land is divided into two lots. Lot 2 covers approximately 12.8 hectares of vacant land and is situated directly to the north of Lot 1. Lot 1 comprises around 5.7 hectares and consists predominantly of three industrial warehouses: one larger complex in the northern half and two smaller buildings in the southern half.
Dorset Road runs parallel to the land on the eastern side. The Dorset Road Service Road is a deceleration lane for vehicles travelling north on Dorset Road. The lane diverges from Dorset Road near the northeastern corner of Lot 1 and runs along the inside of the eastern boundary of Lot 2 ("the Dorset Service Road").
There is a single access point for vehicles entering Lot 1 from Dorset Road, situated at the mid-way point of the eastern boundary of Lot 1. The entrance leads into a private road ("Clipsal Drive") running from east to west through the centre of Lot 1 and continuing into neighbouring land to the west. The larger warehouse is to the north of Clipsal Drive ("the northern warehouse") and the other two warehouses are to the south of it. There is a service road surrounding the northern warehouse with various access and egress points from Clipsal Drive ("the warehouse service road"). The warehouse service road runs squarely along the perimeter of the northern warehouse, and the northern segment marks the border between Lot 1 and Lot 2. The following annotated proposed plan of subdivision is included for reference:[1]

[6]

The eastern third of the northern warehouse is leased to Bunnings Group Ltd ("Bunnings" or "the tenant"), pursuant to a lease agreement between the defendant and Bunnings executed on 8 February 2018 ("the Bunnings Lease").[2] The agreement was originally for a five-year term but granted Bunnings options to renew the lease up to three times, each for a further five-year term. The lease conferred on Bunnings an unconditional licence to use Clipsal Drive, the warehouse service road, and an additional strip of land between the northeastern corner of the service road and the entrance to the Dorset Service Road ("the Additional Area").[3] Pursuant to the Bunnings Lease, DCI covenanted not to grant any right to use or occupy the carparking area around the leased premises ("the Carpark Area"), or the Additional Area to any other person without the prior written consent of Bunnings.[4]
In March 2002, the Maroondah City Council ("the Council") approved a development plan in respect of the land and neighbouring land which included plans for what is now Clipsal Drive and the Dorset Service Road ("the 2002 Development Plan"). In July 2002, the Council issued a planning permit allowing subdivision of the land into two lots, partitioned by Clipsal Drive. The permit required the construction of a signalled intersection between Dorset Road and what is now Clipsal Drive, and stipulated that "[a]ll vehicular access to the proposed development must be restricted" to this access point.[5] The permit expired before it was submitted for certification although the road which later became Clipsal Drive was constructed.
In December 2002, the Council issued a planning permit approving the construction of three warehouses to the south of Clipsal Drive. The conditions stipulated that vehicular access to Lot 1 was to be restricted to the Clipsal Drive entrance and expressly prohibited any direct vehicle access from the developments to Dorset Road.[6] In July 2005, the Council issued another planning permit approving the development of the northern warehouse subject to the same conditions.
On 30 April 2021, the plaintiff and the defendant entered into a heads of agreement for the sale of Lot 2 for $55,475,000 plus GST. On or after signing the heads of agreement, the plaintiff paid a non‑refundable fee of $25,000 plus GST ("the Option Fee"). On 28 May 2021, the parties entered into a put and call option deed ("the Option Deed") which, relevantly, conferred on the plaintiff a call option to purchase Lot 2 as identified in the Plan of Subdivision. The exercise of the options was subject to conditions with respect to Bunnings' consent to the proposed plan of subdivision and the plaintiff's due diligence enquiry. The Sale Agreement was annexed to the Option Deed, and clause 5.2 of the Option Deed set out the terms of the valid exercise of the Option, by which the Sale Agreement was deemed to be executed. Upon signing, the plaintiff paid $554,750, being 1% of the sale price,[7] in accordance with the terms of the Option Deed.
On 29 August 2021, the plaintiff contracted to sell Lot 2 to a third party for $68,975,000 ("the On Sale Agreement"). The On Sale Agreement was conditional on settlement of the Sale Agreement and the registration of the Plan of Subdivision. On 17 December 2021, the plaintiff exercised its call option by serving notice on the defendant, together with two executed counterparts of the Sale Agreement, and paid $4,992,750, being the balance of the deposit, pursuant to the Option Deed. The defendant executed the Sale Agreement on 20 December 2021.
Special Condition 10.7 of the Sale Agreement stipulated as follows:

[21]

The plaintiff submits that, on either construction, the defendant had not satisfied the precondition to the exercise of the power conferred by SC 10.7 by forming the requisite opinion. This was said to be the case given the failure of the defendant to call Mr De Felice, the sole director and shareholder of the defendant, to give evidence in this respect. Moreover, the plaintiff submits that the Termination Letter, on which the defendant relied to demonstrate that the opinion was formed, was inadmissible as hearsay evidence and that the business records exception to the hearsay rule did not apply as it was "prepared or obtained for the purpose of conducting, or for or in contemplation or in connection with, an Australian ... proceeding".[12]
The defendant submits that the determination of whether the conditions were "too onerous for the Vendor to perform" was a matter for it, in its unfettered discretion, to determine. Any limitation on this discretion extended only to the extent that the conditions were capable, subjectively, of being assessed as too onerous to perform.
In this respect, the defendant submits that the requirement of Conditions 1 and 2(b) that the Dorset Service Road be within Lot 2 would cause it to be in breach of covenants imposed on it by the Bunnings Lease, and that this, inter alia, constituted a burden sufficient to enliven the power to terminate in SC 10.7. The covenants concerned the Additional Area, which had been earmarked as a potential future exit onto the Dorset Service Road in an area plan annexed to the lease. They required the defendant not to grant any right to use or occupy the area without the prior written consent of the tenant, nor to amend or reduce the licenced area (being Clipsal Drive, the warehouse service road, the Additional Area and the Carpark Area).
Moreover, the defendant submits that the requirement of Condition 2(a), that Clipsal Drive be vested in the Council, constituted a condition that was, in its opinion, "too onerous [for it] to perform". The defendant submits that the vesting of land in a public authority is inherently onerous to perform. Further, and more specifically, the vesting of the land imposed detriments to Lot 1 beyond the extent anticipated by the parties in their dealings. The main detriment identified by the defendant was the loss of "flexibility to develop" Lot 1.
During oral submissions, the defendant conceded that the plaintiffs would likely succeed if their construction of SC 10.7 was correct:

[24]

It is convenient to set out the relevant principles of contractual interpretation which were largely agreed as between the parties. SC 10.7 contains an express power to terminate the Sale Agreement on which the defendant relied in its purported termination. As such, the task of the Court is to construe the preconditions to the exercise of the power contained in SC 10.7 by examining the language of the provision itself in the context of the agreement.
The parties to a written agreement are bound by the language used,[14] through which the court will endeavour to ascertain and give effect to the parties' objective intention.[15] This is done by reference to the words chosen and how they would be understood by a reasonable businessperson,[16] who is imbued with knowledge of the surrounding circumstances of the agreement, and the "commercial purpose or objects to be secured by the contract".[17] In ascertaining the commercial purpose of the contract, the court may be aided by an understanding of the genesis and background to the agreement and the market in which the parties were operating.[18]
Generally, the court should endeavour to give some meaning to all the words used,[19] and to construe clauses such that they are, so far as is possible, harmonious with each other.[20] Unless the contract indicates otherwise, the court is entitled give a businesslike interpretation to the words on the assumption "that the parties ... intended to produce a commercial result".[21] The court should construe the contractual provisions so as to avoid them "making commercial nonsense or working commercial inconvenience".[22]
Whilst the court can have recourse to the background and commercial purpose of the agreement in resolving ambiguities, the plain, ordinary and natural meaning of the words chosen will normally inform the interpretation of the contractual clause.[23] There is no authority for courts, under the guise of construction of an agreement, to create a new contract for parties that is at odds with the agreed contract.[24]
With these principles in mind, the parties contend for different interpretations of SC 10.7 and the nature of the right conferred on the defendant to terminate the Sale Agreement. In particular, the submissions focused on the language of the precondition to the exercise of the power, namely, the requirement that the conditions imposed by the Council were "too onerous for the Vendor to perform", and, particularly, the issue of whether SC 10.7 should be construed to enable consideration of the broader commercial impact of conditions imposed by the Council.
For the purposes of these reasons, references to "the relevant Authority" and "the responsible Authority" are references to the Council.

[26]

In its submissions, the plaintiff observes that SC 10.7 expressly provides that the power to terminate only arises where the responsible Authority either refuses to grant Approval or imposes a Requirement (as these terms are defined in the agreement) as a condition of approval that is, in the Vendor's opinion, "too onerous for the Vendor to perform". It submits that the inclusion of the adverb "too" before the adjective "onerous" recognises that all permit condition are inherently onerous to some extent. This is because such conditions necessarily impose a legal obligation to do something not otherwise permitted. It follows, it is said, that were the conditions merely or inherently onerous, or were the defendant to form this opinion, this would not be sufficient to enliven the termination power. Therefore, the plaintiff submits that the language of SC 10.7 invites a comparison between the burden of performing the particular permit conditions imposed, and the burden expected in performing a permit condition of a kind ordinarily imposed. In this sense, it is said that a condition capable of enlivening the power must be of a kind that is more onerous than conditions usually or ordinarily expected.
The plaintiff submits that the inclusion of the words "to perform" in the same phrase draws a critical distinction between a condition which is merely or inherently onerous, and a condition which is "too onerous to perform". Additionally, it is submitted that the kind of onerousness referred to in SC 10.7 pertains specifically to "performance" of the conditions, as clearly evident from this language. In further limiting the kinds of conditions capable of enlivening the power to terminate, the plaintiff submits the contract recognises that some conditions, once implemented, may result in onerous consequences to the Vendor, but that this must be distinguished from those which present a condition which is too onerous to perform. The power to terminate, it is said, is enlivened only where performance of the condition itself involves a relevant burden, and not where the condition, once performed, causes some other burden or detriment to the Vendor. The plaintiff submits that if this were not the case, the words "to perform" would be otiose.
The plaintiff also draws attention to the words "for the Vendor" in the expression "too onerous for the Vendor to perform". It submits this inclusion further qualifies the conditions capable of enlivening the power as those exercisable exclusively by the Vendor. This, it is said, provides a further constraint on the power in SC 10.7 which is inconsistent with the alternative construction put by the defendant. Hence it is said that if the provision was intended to protect the Vendor from the broader or flow-on consequences of a permit condition, limiting the right to terminate to conditions only exercisable by the Vendor would be antithetical to this purpose. There is no reason, it is said, why conditions performed by the Purchaser could not also have broader commercial implications for the Vendor.
Additionally, the plaintiff submits that the carve-out contained within SC 10.7 casts similar doubt on any construction of the power as being directed towards the broader commercial impacts of the conditions themselves:

[29]

The plaintiff submits that this carve-out, which prohibits termination of the Sale Agreement where the burden of performing the condition falls on the Purchaser (irrespective of the flow-on consequences to the Vendor), tells against the alternative construction in the same way as the inclusion of the words "for the Vendor". This is because, it is said, the broader commercial impacts of the conditions would not be ameliorated merely by the Purchaser's taking responsibility for, or bearing the cost of, the implementation or performance of the conditions. The plaintiff suggests that if the SC 10.7 power was intended to be directed to considerations of the broader commercial undesirability of the conditions, there would be no distinction between who performed the condition and no carve-out for Subdivision Works. On the plaintiff's reasoning, the inclusion of these elements in SC 10.7 is most aptly explained by the plaintiff's construction: that the clause was intended to apply only to the burden of performing the conditions, and not to their broader commercial implications.
Based on this reasoning, the plaintiff submits that the phrase "too onerous for the Vendor to perform" is limited to the burden of performing or carrying out the conditions. In this case, the burden would include the alterations to the Plan of Subdivision, the obtaining of a report pursuant to Condition 5, and the carrying out of necessary rectification of defects. The latter two, the plaintiff submits, fall within the definition of Subdivision Works and are precluded from enlivening the power to terminate.
The defendant submits that, on its natural and ordinary meaning, SC 10.7 granted it a right to terminate if it formed a subjective opinion that the conditions were "too onerous for [it] to perform". It contends that the natural and ordinary meanings of the following words were relevant: "too" is said mean "to an excessive extent or degree; beyond what is desirable, fitting or right",[25] "onerous" means "burdensome, oppressive, or troublesome",[26] and "to perform" means "to carry out; execute; do"[27] or "to carry into effect; fulfil".[28] The defendant's key submission is that the conditions invoked by DCI in its termination were "onerous [for it] to perform" and the question of whether they were "too onerous [for it] to perform" was a matter for it alone to determine.
Regarding the plaintiff's construction, the defendant submits that the interpretation of SC 10.7 as applying to conditions which are "more onerous than would usually or ordinarily be expected" in terms of their "ability or cost" to implement is a narrow and contrived construction.[29]
The defendant draws attention to the express requirement in the text of SC 10.7 for the formation of an "opinion" within the "absolute discretion" of the Vendor. It submits that this language must be given work to do, in accordance with the principle that "the words of a contract should be interpreted in a way which gives them an effect rather than a way which makes them redundant".[30] Therefore, the defendant says SC 10.7 expressly requires the formation of a necessarily subjective opinion.
The defendant submits that it does not contend this subjective element entitled it to determine, in its absolute discretion, whether the relevant Authority had "imposed a Requirement", nor that it had absolute discretion in forming an opinion that a Requirement was onerous for the Vendor to perform. For example, it submits that it could not validly form an opinion that a condition imposing no impost whatsoever on DCI was too onerous for DCI to perform.
It is said that the proper construction is that DCI had an absolute discretion in forming an opinion as to whether a Requirement was "too onerous for it to perform"; the word "too" within SC 10.7 being the appropriate textual aspect of the clause to which the, necessarily subjective, opinion must attach. In forming this opinion, the defendant submits, it had an absolute discretion - entitling it to assess, as it saw fit, whether the burden of performance was "beyond what is desirable, fitting, or right."[31]
The language of "absolute discretion", it is said, excludes any limitation or imposition of a positive obligation by way of any implied duty of cooperation or good faith. In support of this, the defendant cited various authorities, which are addressed below. The defendant submits that, in inviting a comparison between the burden of performing the particular condition imposed and the burden expected in performing a condition usually or ordinarily imposed,[32] the plaintiff's construction proposes an objective test which would render the words "in the opinion of the Vendor (in its absolute discretion)" otiose.
The defendant challenges the plaintiff's analysis of the expression "too onerous", and submits that the word "too" imposes an assessment of excess of onerousness, ("beyond what is desirable, fitting, or right")[33] against which SC 10.7 offered no express objective standard. It is said that the absence of any objective standard should be read as answerable by the express inclusion of "the Vendor", who may form its opinion about that matter in its absolute discretion. In this sense, "too" is the evaluative standard to which the Vendor's opinion is directed. It is said that, if SC 10.7 imposes an implied objective test rather than subjective opinion, the absence of a clear objective standard against which "too" could be measured would render the clause so uncertain as to be unenforceable.
In this regard, the defendant also challenges the plaintiff's construction on the basis that its submissions regarding the term "too onerous"[34] effectively insert an implied objective standard into SC 10.7 which cannot be justified. It submits the comparison required by the word "too" is subjective, and implying an objective test, by reference to "the burden that would be expected in performing a permit condition of a kind that would usually or ordinarily be imposed",[35] would contradict the express language within SC 10.7. Further, the defendant posits that the objective standard of the burden expected in performing a condition "that would usually or ordinarily be imposed"[36] would be uncertain in any event. This is so because the burden imposed by any ordinary condition might vary dependent upon whom it is imposed, and because it is unclear by whom such a burden would be "expected". By contrast, the defendant submits a discretion to terminate based on a subjective assessment of whether a condition is "too onerous for the Vendor to perform" is comparably certain and enforceable.
With respect to the words, "for the Vendor to perform", the defendant submits that the threshold in SC 10.7 is met if any aspect of "carry[ing] into effect [or] fulfil[ling]"[37] a Requirement can be considered onerous by the Vendor, including the legal and "real world consequences"[38] of carrying the condition into effect. It submits the words "to perform" cannot be considered in isolation and their inclusion within SC 10.7 was intended to identify which of the parties must bear the burden of the condition before the power can be enlivened. Moreover, it is said that the Requirements could have had extremely onerous consequences, such as the vesting of land in a public authority or significant boundary adjustments leading to dramatic impairment of land value, but still have been relatively simple and cost-effective to implement. In the defendant's submission, it would be contrary to common sense that these Requirements could not be considered onerous. A narrow construction of which aspects of performance may be considered sufficiently onerous to enliven the right is said by the defendant to be at odds with the "absolute discretion" expressly conferred on the Vendor by SC 10.7.
Further, the defendant draws attention to the use of the word "may" in the phrase "the Vendor may terminate this Contract" within SC 10.7. It is said that the effect of this language is to confer a separate discretion on the Vendor, such that the assessment is a two-step process whereby the defendant must form the requisite opinion and, separately, decide to terminate the contract. It is said that this element of SC 10.7 further indicates that the words, "in the opinion of the Vendor (in its absolute discretion)" would be rendered redundant under the plaintiff's construction. The defendant submits that, under the plaintiff's construction, each of three events must occur before DCI can exercise the power conferred on it under SC 10.7:

[32]

Regarding the carve-out for Subdivision Works, to which reference has been made,[39] the defendant submits that this reinforces its contention that the onerousness referred to in SC 10.7 was intended to apply beyond the act of merely implementing the conditions. This is because, it is said, the definition of "Subdivision Works" in SC 12.1, for which SC 10.7 attributes responsibility to the Purchaser, is so exhaustive as to essentially shrink the range of possible tasks which are able to be completed by the Vendor in procuring registration of the Plan of Subdivision, and of which the act of doing or the cost of carrying out could be considered onerous. The defendant submits that, in light of the right conferred by SC 10.7 being one which benefits only DCI, construing it as applying only to mere performance of conditions would render it almost devoid of content. It is said that the carve-out also reinforces the defendant's contention that the inclusion of the words "to perform" in "for the Vendor to perform" is merely intended to identify the party upon whom the Requirement must impose a burden before the right to terminate arises.
The defendant also draws attention to the language of SC 12.2,[40] which confers on the Vendor a right to carry out the Subdivision Works if in the formation of the "Vendor's reasonable opinion and after providing reasons in writing in support of such opinion the Purchaser is not satisfactorily complying with this special condition ...". The omission to include the language of reasonableness in the description of the exercise of discretion within SC 10.7 is said to strongly suggest that the parties objectively intended that the exercise of this discretion is absolute and not conditioned by reasonableness.
In support of its construction, the defendant highlights that DCI's obtaining of Bunnings' consent to the Plan of Subdivision was a condition precedent to the exercise of the call option. As such, it is said that DCI had satisfied its obligations under the Option Deed with respect to negotiating with Bunnings and that it was under no obligation to revisit negotiations with Bunnings over the terms to which it had consented to the Plan of Subdivision. It is also said that this indicates the parties had turned their minds to the potential imposition of onerous Requirements, and had made provisions for the broad option for DCI to terminate under SC 10.7 in the event Requirements were imposed which would require it to revisit negotiations with Bunnings.
Having regard to the impact of contractual purpose upon the construction of SC 10.7, the defendant submits that to describe the commercial purpose of the Sale Agreement as facilitating the sale of Lot 2 to Eastbound is inaccurate. Rather, it is said that the commercial purpose of the Sale Agreement was to facilitate the potential sale of Lot 2 to Eastbound in one of three possible scenarios. The first is where the Plan of Subdivision was approved without any conditions imposed. The second is where a relevant Authority imposed conditions which the Vendor was required to perform and which it considered, in its absolute discretion, were not "too onerous for it to perform". The third scenario is where Requirements were imposed by a relevant Authority which DCI, in its absolute discretion, considered to be "too onerous for it to perform", but which related to Subdivision Works which Eastbound had agreed to accept. In each of these scenarios, DCI would be bound to complete the sale.
During trial, senior counsel for the defendant submitted that a central feature of the clause, and relevant to its construction, was that it conferred a benefit on the defendant, or afforded it an opportunity it would not otherwise have. In this regard, it is said to be central to the parties' contractual relationship that, upon entering into the contract, it was possible that the Plan of Subdivision would be approved subject to conditions which were unknown to the parties. Thus the defendant submits the Court must bear in mind that the function of SC 10.7 was to confer on DCI the benefit of the right to terminate in the event unanticipated conditions were imposed.[41] As such, it is said that this beneficial function should be considered in determining the proper construction of the clause.
In respect of these issues, the plaintiff submits that there is no authority for the proposition that a contractual provision said to benefit a party should be construed generally in favour of that party, and that there is no reason to depart from the standard interpretive approach. Moreover, it submits that characterising SC 10.7 as "beneficial" to the defendant contributes nothing to its meaning. The task of defining the scope of the benefit afforded by SC 10.7 remains unaffected by labelling it as such. In light of the commercial context, the plaintiff submits any protective or beneficial character of SC 10.7 may detract from the defendant's broader construction: if the Vendor wished to guard against commercially undesirable regulatory conditions, it could be expected to have proposed words more apt to achieve that outcome, rather than limiting it to conditions which are "too onerous... to perform" (emphasis added). Lastly, the plaintiff submits the contra proferentem rule should operate to resolve any residual ambiguity between interpretations after the application of standard principles of interpretation have been applied; though primary reliance was not placed on this rule.

[35]

During closing arguments, senior counsel for the defendant accepted that, in forming the requisite opinion under SC 10.7, the Vendor was obliged to exercise the power having regard to the purpose for which it was conferred. In the defendant's submission, this purpose was that one or more requirements were onerous to perform.[44]
On this issue, the plaintiff submits that a discretion conferred on a contractual party's opinion must be informed by the proper construction of that phrase. In this case, it is said that this equates to an obligation of the Vendor to turn its mind to the correct subject matter, being the performance of the conditions and not to the undesirable flow-on consequences of their performance. The plaintiff submits that to have regard to undesirable flow-on consequences in forming this opinion is to direct itself to an extraneous consideration or question and thus misdirect itself in law.[45]
The plaintiff distinguishes the cases drawn on by the defendant in its contention that the language of SC 10.7 excludes the operation of any implied duty of good faith or reasonableness. It says that each decision relied upon by the defendant turned on a precise consideration of the express terms of the relevant contract and the implied terms contended for, and that the cases each conferred a general discretion to one party to exercise a power for any reason. The plaintiff contrasts this with the preconditioning of the exercise of the power in SC 10.7 on the formation of the requisite opinion by the Vendor, which it says does not confer an "absolute discretion" to terminate the Sale Agreement, but a power to terminate conditioned on the formation of the relevant opinion. It is said that the requirement to form this opinion would be otiose if the Vendor were free to do so unreasonably, in bad faith, or for any purpose.[46]
Further, the plaintiff submits that where the formation of an opinion enlivens a power which adversely affects the interests of another party to a contract, such a clause should readily be construed as requiring the reasonable formation of the opinion. In support of this, the plaintiff relied on the proposition of Gummow J in Service Station Association Ltd v Berg Bennett & Associates Pty Ltd[47] ("Service Station") that such a requirement can arise by construction rather than by implication of a related term:

[37]

Irrespective of any obligation imposed by implication, the plaintiff submits that the threshold formation of the Vendor's opinion required a reasonable as well as honest state of satisfaction. Also, the exercise of such a discretion is said to be constrained in the sense that, "having regard to the provisions of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably."[49] The plaintiff points to cases where it has been held that the parties are presumed to hold a common intention that the exercise of discretion is confined to being "genuine and rational" having regard to the terms and objects of the contract.[50] The plaintiff notes the standard of reasonableness in the context of an ordinary commercial contract equates to a "positive obligation" to exercise a power reasonably and not some other standard.[51] Concluding, it is said the power to terminate in SC 10.7 may not be exercised, irrespective of any implied term or limitation, in circumstances not contemplated by the Sale Agreement or for extraneous reasons, or where the purported opinion was not reasonably open.
Separately, the plaintiff submits that the Vendor's exercise of rights conferred under SC 10.7 is subject to implied duties of good faith and with fair dealing having regard to the provisions, aims and purposes of the contract, objectively ascertained.[52] It is said that if the discretion were so absolute as to permit the Vendor to act unreasonably or in bad faith or for any purpose, the precondition would be largely devoid of content and the Vendor would have an essentially unreviewable power to act in a way that would adversely affect the Purchaser's interests. The plaintiff submits that the applicable duty is one of good faith and reasonableness and can be breached by the unreasonable exercise of a discretion for a purpose, or in circumstances, which the contract does not contemplate.[53]
The plaintiff further submits that the Vendor's right to terminate is subject to an implied duty of cooperation, expressed as a duty not to engage in conduct that would destroy or undermine the efficacy of the contractual benefit bargained for,[54] or to prevent the fulfilment of the purpose of the express contractual promises.[55] This is informed by the terms of the agreement and arises where enjoyment of contractual rights would "be rendered nugatory, worthless, or, perhaps, seriously undermined" by a party's conduct.[56] The plaintiff submits the defendant breached the implied duties constraining the exercise of discretion in SC 10.7.

[39]

The first issue to be addressed is whether the exercise of discretion in forming the requisite opinion under SC 10.7 is subject to any constraint and, if so, what is the nature of this constraint. It is clear from the ways in which the parties framed their submissions that the resolution of this issue is of real significance to the outcome of this case.
The defendant submits, in this regard, that it is a logical inference that the words "in its absolute discretion" must be attached to some element of SC 10.7. It submits this element must be the determination of whether the conditions imposed are "too" onerous to perform, and not the consideration of whether a relevant Authority had "imposed a Requirement", or whether the conditions imposed were "onerous to perform". In my view, this approach proceeds on the basis that the discretion is exercisable without having regard to its context within SC 10.7 and the overall Sale Agreement. In the present context, it is not a proper application of the principle that a court should endeavour to give some meaning to all the words used in a contract to say that an expression or set of words used, in this case the words "in its absolute discretion", must be capable of being attached to some other element of the clause in order to be given meaning. Their operation within the mechanism of SC 10.7 and SC 12.1, and within the context of the overall agreement, can be properly construed without adopting this somewhat contrived approach, particularly where doing so would give a result which is inconsistent with the overall contractual purpose and the language of the contract. The inclusion of the expression "in its absolute discretion" should not be construed so as to permit the defendant to choose the sense in which a particular Requirement was too onerous to perform. This construction does not reflect the parties' agreement, and would serve to rewrite rather than interpret the language of SC 10.7. The power would, in effect, be exercisable at the whim of the defendant irrespective of the kind of condition imposed. In my view, the impact of the overall contract, properly construed, on the permissible exercise of the discretion must be considered. In this regard, I accept and consider relevant the plaintiff's submission that any discretion conferred on a contractual party's opinion must be informed by the proper construction of the contract.
In the present circumstance, I am of the view that the reasoning in decisions such as that of Gummow J in Service Station, in Bartlett v Australia & New Zealand Banking Group Ltd,[57] and in the more general approach to contractual discretions,[58] all of which were presented by the plaintiff in support of its construction, is more forceful and analogous than the reasoning in Questband and the line of authorities submitted in support of the defendant's construction, which propose that the conferral of absolute discretion on a contractual party must be given effect and the words conferring it their full force. The law does not permit the inclusion of a specific phrase in a commercial contract, in this case the words "in its absolute discretion", to exclude the operation of ordinary principles of contractual construction, particularly that a contract must be construed as a whole having regard to the language chosen and the objectively ascertained intention of the parties; nor can such an inclusion be permitted to restrict a court's capacity to construe a contract applying these well-established principles.
With respect to the principle espoused in Questband that "the conferral of an absolute discretion on a party to a contract excludes an obligation to act reasonably in the exercise of the discretion",[59] on which the defendant relies, it is clear to me that this passage was not intended to be read as allowing for the ousting of ordinary established principles of construction. Hence a court is not entitled or permitted to disregard the contractual context and commercial purpose in construing the clause conferring an "absolute discretion" on a party. In this respect, it is noted that the passage referenced by the defendant cites as its sole reference the decision of Vodafone Pacific Ltd v Mobile Innovations Ltd, in which it was held that such words "can not be passed over, and they weigh against the implied obligation of good faith and reasonableness in the exercise of the power".[60] Moreover, in the process of deciding that the obligation of good faith and reasonableness was not present, Sheller, Giles and Ipp JJA engaged in specific textual analysis of the relevant clause, considered in context of the surrounding contract. It is clear that the appropriate question in these cases remains one of the construction of particular terms within the overall setting of the relevant contract, and that the inclusion of particular expressions will not suffice to inhibit a court's capacity to ascertain the contractual intention of the parties in the relevant context according to ordinary, accepted principles of construction.
The plaintiff submits that the limitation on the discretion arises both from ordinary construction principles, and, separately, through the implication of the duty of good faith and cooperation. In my view, it is not necessary to form a conclusive determination as to the avenue by which such a limitation would arise; in this regard, reference is made to the observation of Priestley JA in Renard, cited in OneSteel Manufacturing Pty Ltd v United KG Pty Ltd, that "[q]uestions of construction and different kinds of implication tend to blur together".[61] Following the approach of Gummow J, however, the question is better conceived of as one of construction rather than the implication of a further term.[62] In this respect, attention should be directed to the objective intention of the parties and the impact of this intention on the proper construction of the termination power within SC 10.7. The contractual context, of which both parties were aware upon entering into the contract, is relevant to the ascertaining of this intention. Indeed, in the circumstances of this case, construing SC 10.7 without regard to this context would, in my view, produce a construction which works commercial inconvenience or makes commercial nonsense and, therefore, be contrary to settled principles of construction.[63]
The defendant conceded that it was bound to exercise the discretionary contractual power for the purpose for which it was conferred, that purpose being "that one or more requirements were onerous to perform".[64] In my view, whilst this concession is properly made, the defendant's conception of the purpose for which the discretion was conferred fails to have regard to the context of the Sale Agreement and the commercial background of which both parties were aware. Integral to the defendant's contended construction is the assumption that the precondition to the exercise of the SC 10.7 termination power was satisfied on the mere basis that a condition was imposed which was "capable of being assessed as 'onerous for DCI to perform'" (defendant's emphasis). The contention that the SC 10.7 power is properly construed as exercisable subject only to this broad constraint should be rejected. As indicated previously, such a construction would, in effect, allow the Vendor, upon the imposition of any Requirement, to select an interpretation of "onerous to perform" and terminate the Sale Agreement accordingly. As the plaintiff submits, the text of SC 10.7, particularly the words "too onerous to perform", implicitly recognise that the imposition of permit conditions are, by their nature, inherently onerous, in the sense that they impose a legal burden on a party to do something not otherwise required, or to refrain from doing something otherwise permitted. The parties' objective intention was not that this discretion was exercisable in the manner contended for by DCI, which would, in effect, leave it at liberty to terminate upon the imposition of any condition, in which case the $25,000 Option Fee would be forfeited and the sale would not proceed. Clearly, some further constraint is present.
Further, I do not accept the defendant's submission that the purpose of the Sale Agreement was not to facilitate the sale of Lot 2 to the Purchaser but to facilitate its potential sale in certain scenarios.[65] It is clear that the SC 10.7 power was conferred in the context of the overall agreement between the parties for the sale of Lot 2 absent the imposition of some "Requirement" by a relevant Authority whose performance is unduly onerous on the Vendor.[66] Within this context, the purpose of the SC 10.7 power should be read in conjunction with that of SC 12.1. In my view, their collective function was to enable the facilitation of the sale of Lot 2 by providing for the allocation of the risk that a permit condition may be imposed which would be unduly onerous for the Vendor to perform. In my view, the inclusion of these clauses should properly be considered and construed as furthering, rather than altering or qualifying, the commercial purpose of the Sale Agreement, which was the arms-length sale of property on agreed terms between independent business entities. The rights conferred by SC 10.7 should, therefore, be construed in the context of this contractual purpose and a construction which aligns with it should be preferred.
Having regard to this commercial purpose, I accept that a proper construction of SC 10.7 is one which constrains the exercise of the Vendor's discretion to form the opinion required to enliven the termination power such that it must relate to the appropriate subject matter, and must be exercised within the parameters of the overall contract, properly construed. The effect of this is that the opinion must relate to a condition which was too onerous for the Vendor to perform, according to the Vendor's determination, subject to the constraints described above. For the reasons which follow, I find that the relevant subject matter about which the requisite opinion needed to be formed did not exist, and the purported termination of the Sale Agreement was not valid. In any case, as discussed later in these reasons, there is insufficient evidence to infer that the requisite opinion, or indeed any opinion, was formed. The formation of such an opinion is an essential prerequisite to the exercise of the termination power in SC 10.7.

[41]

As is indicated in the preceding reasons, I consider the function of the termination mechanism in SC 10.7, which should be read together with SC 12.1 and in light of the contractual purpose, properly construed, was to provide for the Purchaser to assume the burden in the event of the imposition of a condition by a relevant Authority which was unduly burdensome to carry out. As counsel for the defendant acknowledged in closing arguments, "a feature of the relationship between the parties was the circumstance that the plan of subdivision could be approved subject to [unknown] conditions".[67] The mechanism provided by SC 10.7 and SC 12.1 recognises that these unknown conditions, if unduly onerous to perform, had the potential to arbitrarily disadvantage the party responsible for such performance, and significantly alter its rights and expectations under the Sale Agreement. The function of SC 10.7 and SC 12.1 was to ensure this burden would be shouldered largely, if not entirely, by the Purchaser, and where this was not possible, provide the Vendor with the option to terminate the contract. It was not to arm the Vendor against the unknown future financial impact of the performed conditions on its commercial relationships.
In my view, the construction contended for by the plaintiff is clearly the appropriate construction once the nature of the discretion conferred on the Vendor by the words "in its absolute discretion" has been addressed; and having reference to the plain, ordinary meanings of the words read in the context of the Sale Agreement and its commercial purpose. The opinion of the Vendor must relate to the correct subject matter, being the performance of any conditions imposed which are unduly onerous for the Vendor to perform. For the reasons which follow, this does not allow for the Vendor, in forming the requisite opinion, to have regard to the flow-on commercial consequences of any conditions imposed, once performed.
As the plaintiff submits, the word "onerous" within SC 10.7 is linked to the performance of the conditions imposed by the Council. I accept that the inclusion of the word "too" recognises that, in this context, permit conditions are inherently onerous in the sense addressed above[68] and that any Requirement imposed would indeed be capable of the description "onerous". It follows that "onerous" relates to performance, in the sense that the inclusion of the words "to perform" can only be explained as a qualification of the term "too onerous". This being so, the defendant's case relies on the Court interpreting the words "to perform" as extending beyond the act of fulfilling or completing the Requirement in question. In my view, the ordinary, natural meaning of the words "to perform" in this context, referring to the imposition of permit conditions, extends only to the act of executing the relevant Requirement and not to the broader commercial consequences of this Requirement. If the parties had intended otherwise, the words "to perform" would not have been included.
In considering the purpose of the clauses SC 10.7 and SC 12.1, and the mechanism to terminate contained therein - as providing for the risk allocation between the parties in the event of the imposition of conditions which are unanticipated and unduly onerous to perform, and not as part of a broader contractual desire to protect DCI's commercial relationships - it is relevant that the option to terminate in SC 10.7 is intertwined with the broad carve-out from this right to terminate for conditions relating to Subdivision Works, as defined in SC 12.1, for which the Purchaser is responsible. This exception to the Vendor's right to terminate does not align with any consideration of SC 10.7 as being included to arm the Vendor against the broader commercial undesirability, from its point of view, of conditions imposed in any Requirement. Were this the intended purpose, it would be contradictory to qualify the termination power by creating this broad carve-out. Therefore, in my view the more appropriate and consistent construction of the termination power within SC 10.7 is that it pertains specifically to the unduly onerous performance, in the sense of the execution or implementation, of conditions imposed, and that the right to terminate was intended more as a fallback option in the event that the Vendor was not protected from the burden of performing such a condition by the provisions casting responsibility on the Purchaser for Subdivision Works. In this sense, the right to terminate the contract was intended to be supplementary to the attribution of responsibility for Subdivision Works to the Purchaser. In the event of a dispute as to whether the performance of a Requirement imposed was truly too onerous to perform, the discretion to decide lay wholly, or absolutely, with the Vendor. However, as indicated in these reasons, in the present circumstances the Vendor's ability or entitlement to exercise this discretion did not arise given the nature of the conditions imposed and the matters which required its performance; as the evidence established.
The defendant's construction of SC 10.7 would, in my view, serve to modify the agreement of the parties rather than properly construe its provisions. Consequently, I accept the plaintiff's submission that the agreement of the parties, and what was contemplated by SC 10.7, was that "if the conditions could be performed, they would be".[69] As the defendant conceded, the result of this being the proper construction is that the Termination Letter failed to validly terminate the contract and relief should flow accordingly. For the purpose of these reasons however, I set out reasons for my view that the defendant would fail in these proceedings even if an alternative construction of SC 10.7, as it advocated, were to be accepted.

[43]

...

We refer to planning permit No. M/2021/554 (Subdivision Permit)[70] issued by Maroondah City Council on 4 April 2022 and our recent discussions about it.

As explained on the phone and as mentioned in previous email correspondence, there are several conditions in the Subdivision Permit that are too onerous for our client to perform.

Conditions 1(a) and 2(b) - our client needs to maintain full control over the Dorset service road entrance. Our client has an agreement to provide future access over this road for tenants of lot 1 on plan of subdivision PS901390: (Lot 1). Passing title over that land to include it in lot 2 on plan of subdivision PS901390L (Lot 2) would also negatively impact on the redevelopment flexibility that our client currently maintains whilst retaining the service road entrance in its ownership. We had highlighted the unacceptability of this condition to you in November last year when it was raised in correspondence from the Department of Transport - which you acknowledged.

Condition 2(a) - the vesting of "Clipsal Drive" forming part of Lot 1 in Maroondah City Council is also unacceptable to our client. Whilst you have pointed out that maintenance and upkeep would pass from our client to Council, the vesting of a road up the middle of Lot 1 would significantly affect the redevelopment potential of Lot 1 and therefore, its value. Due to the age of the existing buildings on Lot 1, it is likely that our client will look to redevelop the entire site (Lot 1) in the future and needs to retain the ability to reclaim "Clipsal Drive" as part of a new scheme that may involve a change in road location or realignment, both of which would [sic] unavailable if the road is vested in Council.

Condition 5 - this condition relates to condition 2(a). "Clipsal Drive" was constructed by our client under old Council standards but never inspected. Our client is concerned that Council will require significant works to occur at our client's expense to bring the road up to Council's current standards. The cost of the potential upgrading works could be very expensive.

Under the terms of the Contract of Sale, it is the opinion of our client that conditions 1(a), 2(a), 2(b) and 5 of the Subdivision Permit represent Requirements (as that term is defined in the Contract of Sale) that are too onerous for it to perform. Whilst it is quite likely that compliance with condition 5 would constitute Subdivision Works (as that term is defined in the Contract of Sale) to be carried out at the cost of your client, those works are unacceptable to our client as they would be part of vesting "Clipsal Drive" in Council. That is unacceptable for the reasons stated above.

The imposition of the above-mentioned permit conditions has an unacceptable and significant detrimental impact on the development potential and value of Lot 1. This was neither contemplated nor factored in when our client agreed to sell Lot 2 to your client.

Accordingly, our client gives the purchaser notice under special condition 10.7 of the Contract of Sale that it is terminating the Contract of Sale with immediate effect.

...

[44]

The plaintiff submits that the Termination Letter is not admissible as a representation to prove that the defendant formed a relevant opinion for the purposes of SC 10.7. More particularly, the plaintiff submits that the Termination Letter is precluded from admission as a business record under the business records exception to the hearsay rule, pursuant to s 69(3)(a) of the Evidence Act 2008, because it is a representation "prepared or obtained for the purpose of conducting or for or in contemplation of or in connection with an Australian ... proceeding". In support of this contention the plaintiff refers to authorities standing for various propositions, namely: that the purpose of this exception is to guard against admission of materials prepared "in an atmosphere or context" which may cause them to be self-serving;[71] that the phrase "in contemplation of" imports "wide meaning"[72] and extends to future hearings, particularly where, in the mind of the person who prepared or obtained the representation, a proceeding was "likely" or "reasonably probable";[73] and that the exception is not limited to a representation prepared or obtained "for the purpose of" a proceeding but extends to situations where the person recognises that the representation has relevance to and will potentially play a part in a proceeding,[74] or where a proceeding plays some part in the decision to prepare or obtain it.[75]
In respect of this issue, the defendant submits that the Termination Letter, once admitted, and with no application being made for a limitation on its use, is admitted absolutely. Therefore, it is said that there is no occasion to have regard to s 69(3) of the Evidence Act. In support of this contention, the defendant refers to the decision of Seltsam Pty Ltd v McGuiness[76] standing for the general proposition that the words "not admissible" within the New South Wales equivalent to the Evidence Act should, in the ordinary course, be taken to mean "not admissible over objection".[77] The defendant acknowledged that courts in this state have cast some doubt on this principle.[78]
The defendant observes that the plaintiff raised no objection to the tender list provided by the defendant during opening arguments, and so says that it is not open to it to raise an objection after this exchange.[79] In response to this, the plaintiff submits that whilst the admissibility of the document is not in question, the relevant determination is the purpose for which it is admissible; and that, if necessary, it would make an objection which it is entitled to do prior to the provision of a list of tendered documents at the conclusion of the trial.[80]
I accept the plaintiff's submission that, no doubt, the immediate purpose of the Termination Letter was to notify the plaintiff of the purported termination. However, the defendant's solicitors must, in my view, have recognised that the "likely" or, indeed, inevitable consequence of terminating the Sale Agreement would be to cause the plaintiff to commence this, or a similar, proceeding and that the Termination Letter would be relevant in any such proceeding. This was reinforced by the correspondence between solicitors for the parties regarding the acceptability of the conditions; all of which indicates an awareness of the provisions of the Sale Agreement, particularly SC 10.7.[81] As the plaintiff contends, it should be observed that it is not necessary to show that the defendant's solicitors intended to make self-serving statements. It is enough that the Termination Letter was prepared "in an atmosphere or context" in which the rationale for the business records exception to the hearsay rule carries less weight, and in which the purpose of s 69(3)(a) is firmly engaged. That being so, it follows, in my view, that the representation that the defendant had formed an opinion that the Requirements "are too onerous for it to perform" was prepared in contemplation of a proceeding and is not admissible to establish that the defendant in fact formed that opinion.

[46]

The defendant submits that the Termination Letter sufficiently comprises the relevant state of mind to enliven the SC 10.7 power, and observes that no contention was raised that it was obliged to do anything more than convey its opinion via the Termination Letter.[82] Further, it claims that it was "probably not a requirement under the contract to set out reasons," but that this is not important because it did set them out, and in doing so acted unwittingly against its interests.[83] Whether or not the defendant was required to give reasons which informed its opinion under SC 10.7, it is clear that in order to enliven the power it purported to exercise it must have formed a subjective opinion in accordance with the proper construction of SC 10.7. Whilst the Sale Agreement did not expressly stipulate a requirement to give reasons, the SC 10.7 power was only exercisable within the confines of the properly construed contract, and was subject to the various constraints addressed in preceding paragraphs. Were the defendant to give notice of its exercise of the SC 10.7 termination power without reference to any reason or reasons, it is likely, in my view, and having regard to the preceding reasons as to the proper construction of these provisions, that these constraints would operate to render the exercise of this power invalid.
The defendant in its submissions relating to this issue sought to support its contention having regard to the manner in which this proceeding was pleaded, submitting that the evidentiary onus rests entirely on the plaintiff given that the plaintiff is the party moving for a finding in this case. This was raised in the context of the plaintiff's submissions regarding the non-calling of Mr De Felice, the sole director and shareholder of the defendant. In submitting this, the defendant categorises the plaintiff's complaint regarding the failure to call a key witness as the "inability to test the reasons that were proffered" in the Termination Letter in its attempt to vitiate the decision conveyed by the letter.[84]
In my view, the defendant's position proceeds on the basis that it was required to do very little in order to enliven the power to terminate the contract under SC 10.7, including that it did not need to give reasons or provide any evidence of the actual formation of an opinion following its purported termination. This understanding of the operation of SC 10.7 would effectively render it a free-standing and unregulated power to terminate the contract. In my view, as indicated earlier in these reasons, this was not the agreement of the parties as evidenced from the natural and ordinary meaning of the words used in SC 10.7, in the context of their contractual purpose.
The plaintiff submits that the failure of the defendant to call Mr De Felice to give evidence allows the Court to infer that doing so would not have assisted its case, according to the rule in Jones v Dunkel.[85] Moreover, the plaintiff says that this inference is strengthened because Mr De Felice is a "person presumably able to put the true complexion on the facts relied on as the ground for the inference... and the evidence provides no sufficient explanation of his absence."[86] The plaintiff draws attention to the fact that the defendant holds the land as sole corporate trustee, and that Mr De Felice is the sole director and shareholder of the trustee. It highlights that Clauses 17(2)(c) and (4) of the trust deed stipulate that the exercise of any discretion or power conferred by the trust deed (including concerning the sale or termination of sale of a trust asset) may be exercised by a resolution of the board. It submits that proper trust administration requires the recording of validly made decisions and the opinions on which they are based, and that no evidence of any such decision or opinion is available. The plaintiff also draws attention to the principles set out by the Court of Appeal in Chong & Neale v CC Containers Pty Ltd,[87] in which their Honours summarised the relevant principles as follows:

[48]

Notwithstanding that the plaintiff is moving for a finding in this case and bears some evidentiary onus, it is an inadequate defence in this context to say that until the plaintiff proves the defendant did not form the requisite opinion, it is to be taken to have formed such an opinion and is not required to adduce evidence as such. Whilst the defendant relies on the Termination Letter as evidence of the formation of its opinion, in my view, the probative value of the Termination Letter as evidence of the formation of this opinion is insufficient, and the defendant's reliance on the evidentiary burden is misplaced. As the plaintiff observes, in the ordinary course, where a contractual party purports to have validly terminated a contract, that party generally bears the onus of proving termination. As Latham CJ and McTiernan J held in J Kitchen & Sons Pty Ltd v Stewart's Cash and Carry Stores, where the "existence of a contract has been established[,] the onus of proof... that it has been determined by one party rests upon the party making the allegation".[95]
In the present case, I consider the non-calling of Mr De Felice relevant to the issue of the actual formation of the defendant's opinion, and that it gives rise to an inference that his evidence would not have assisted the defendant's case in this regard.
The plaintiff also submits that the Termination Letter makes no mention of the Bunnings Lease, despite the defendant's claim that the impact of the imposed conditions on its ability to comply with that lease was central to its formation of the necessary opinion. This, it is said, is further evidence that DCI did not form the necessary opinion prior to the purported termination of the Sale Agreement, and that the reasons proffered for its exercise of the SC 10.7 power during this matter were afterthoughts raised by lawyers. As such, it is said that the Termination Letter, if it can stand as evidence of the formation of any opinion, cannot stand as evidence that the defendant formed an opinion that the conditions relating to the Dorset Service Road entrance would cause it to be in breach of the Bunnings Lease. In response to this, the defendant observes that the Termination Letter incorporates discussions with Bunnings by reference to earlier correspondence, such that reference was made at least to the negotiations between Bunnings and the defendant.[96]
During closing arguments, senior counsel for the plaintiff observed that the reasons given in the Termination Letter were generally unsupported by evidence and had little connection to the reasons developed during the litigation of this matter. Reference was made, inter alia, to the assertion that "[o]ur client has an agreement to provide future access" which was said to be unfounded by evidence, and to the impact of the public vesting of Clipsal Drive on the value of the land,[97] which was also said to be unfounded. Further, the plaintiff observes that the Termination Letter speculates as to the prospect that the Council "will require significant works to occur at our client's expense ... [which] could be very expensive", despite the concession that such costs would constitute Subdivision Works and would be assumed by the Purchaser under the contract.[98] Moreover, it is said that the expert evidence given at trial was that there was no basis for the assumption that Clipsal Drive had been constructed according to standards inconsistent with a public road. The plaintiff also observes that the assertion that "[i]t is likely our client will look to redevelop the entire site of Lot 1 in the future" was inconsistent with the recent renewal of the Bunnings Lease, which could be further renewed up until 2037.[99]
Having regard to these considerations, I do not consider the available evidence sufficient to infer that the defendant formed the requisite opinion, and in this respect I consider that this precondition, a critical precondition to the exercise of the SC 10.7 termination power, was not met. I accept the plaintiff's submission that the Termination Letter is evidence of the instructions given by the defendant to its solicitors, but carries negligible weight as evidence of the formation of any opinion. In this regard, as the plaintiff submits, it is relevant that the reasons proffered within the Termination Letter as informing the defendant's purported opinion were both largely unfounded in available evidence, and, at best, only tenuously related to its submissions during this proceeding. In my view, the discrepancy between these given reasons and the arguments developed during litigation is also demonstrative of the failure to form the requisite opinion prior to the exercise of the power and, therefore, the failure to validly exercise the termination power in accordance with the Sale Agreement. Accordingly, I consider that no opinion sufficient to enliven the power to terminate in SC 10.7 was formed.
Notwithstanding my view that DCI did not form any opinion that the Requirements imposed were "too onerous for [it] to perform", and that the proper construction of the power in SC 10.7 is that it did not allow for DCI to have regard to the broader commercial consequences of the Requirements imposed, for the purposes of these reasons two further questions are considered in turn. First, in the event the finding regarding the actual formation of the defendant's opinion is wrong, the question arises whether it was open to the defendant, in light of the evidence adduced at trial, to form the opinion that the conditions imposed were "too onerous for [it] to perform". Although senior counsel for the defendant conceded that the conditions imposed were of such a nature that the plaintiff's claim would broadly succeed if the Court adopted a construction of "perform" within SC 10.7 which did not allow the Vendor to consider the broader commercial consequences, it is nonetheless convenient to set out the evidence given at trial regarding performance of the conditions. The second issue to be considered is whether it was open for the defendant to form the opinion necessary to terminate if a construction of "too onerous... to perform" were adopted which allowed it to take into account the broader commercial considerations of the conditions imposed.

[50]

As foreshadowed, in answering this question it is convenient to summarise the evidence given at trial regarding the conditions imposed.
The plaintiff relies on the expert reports of Valentine Gnanakone, a senior traffic engineer, and Andrea Pagliaro, a town planner. The defendant relies on the expert report of David Crowder, a town planner, provided in response to the opinions set out in the expert report of Mr Pagliaro, and the expert report of Jason Lee Walsh, a senior traffic engineer, provided in response to the opinions set out in the expert report of Mr Gnanakone. Joint reports by Mr Pagliaro and Mr Crowder, and by Mr Gnanakone and Mr Walsh were also tendered, setting out points of agreement and disagreement between the respective experts. Each expert gave evidence at trial and was subjected to cross-examination.
Mr Crowder's opinion differed from Mr Pagliaro's in a few relevant aspects. Primarily, Mr Crowder maintained that, although the party making the application for the Plan of Subdivision did not disclose any intention to develop an exit from Lot 1 onto the Dorset Service Road, the unusual configuration of the boundary between the two proposed lots should have made clear to the authority considering the application that the applicant intended to create such an exit. As such, he considered the conditions unduly inflexible and prescriptive in that they did not allow for "alternative ways to achieve the desired outcome".[100] Further, Mr Crowder considered that whilst it was unlikely that an application for a planning permit allowing for an exit from Lot 1 directly onto Dorset Road would be accepted, it may have been different if an application were made for an exit from Lot 1 onto a service road.[101] With respect to the conditions relating to Clipsal Drive, Mr Crowder's opinion was that the conditions were "unreasonable and/or inappropriate in their application because they are too prescriptive and inflexible" in light of the potential expense of ensuring Clipsal Drive was compliant with Council standards.[102]
During cross examination, Mr Crowder was questioned at length regarding the impartiality of his evidence, and the plaintiff submits that where his evidence disagrees with that of Mr Pagliaro, it should be rejected as partisan. In support of this, the plaintiff tendered email correspondence between Mr Crowder and his instructors regarding the preparation of his expert report,[103] and it was suggested that Mr Crowder was identifying arguments to the defendant's solicitors in order to advance its case. I am inclined to accept this submission to some extent. It is clear from both this exchange, and from Mr Crowder's evidence itself that Mr Crowder's opinions were partially informed by considerations which were not within his area of expertise. Some of his opinions relied substantially on instructions from the defendant's solicitors which he had sought out in the tendered email correspondence. These considerations included, inter alia, the need to reconstruct Clipsal Drive to ensure compliance with council conditions, Bunnings' requirement for an exit onto the Dorset Service Road, and the landowner's desire to avoid a further subdivision of Lot 1 resulting from the vesting of Clipsal Drive in the Council. In my view, Mr Crowder's ultracrepidarian efforts and his incorporation of broader considerations of the impact of the conditions to the defendant's business into his opinions, diminish the probative value of his evidence overall. Generally, the evidence he gave which was informed by his town planning expertise was consistent with with that of Mr Pagliaro in this respect.
In a similar vein, aspects of Mr Walsh's opinion appear informed by considerations outside the scope of his expertise, including, for example, the opinion that "the Bunnings Lease would need to be renegotiated if Conditions 1a) and 2b) were complied with".[104] In my view, the framing of the defendant's case and its contended construction meant that it was, to some extent, inevitable that its witnesses would be required to opine on areas outside their expertise and rely on assumptions provided in their instructing briefs; all of which detracts from the probative value of their evidence.

[56]

Condition 2(a) of the Subdivision Permit[113] required amended subdivision plans to be submitted to show Clipsal Drive, including the footpaths on either side and with a minimum width of 20 metres, vested in the Council.
Mr Pagliaro gave evidence that this condition was "reasonably expected" and "common for a subdivision of this nature" and that it was in line with previous permit decisions regarding the land.[114] Mr Gnanakone gave evidence to similar effect, and explained that the purpose of such conditions is to ensure road infrastructure falls within Council or Department of Transport land for the purposes of maintenance, ensuring clear liability and that roads are constructed to an appropriate standard. He opined that the current arrangement whereby Clipsal Drive had been constructed to a Council-standard cross section but remained in private ownership is "exceptionally unusual". In his view, performance of the condition would cause no impost to the lots because "access would still be available" to the public and the effect of the condition was "purely ratifying the arrangement which should already [have been] provided."[115]
Mr Crowder's evidence as to Condition 2(a) was that "it is reasonable that the Council would want to realise... a road connection [to] be provided through" Lot 1 where such an intention was evident from previous permit conditions and the 2002 Development Plan approval. In his opinion, however, the conditions pertaining to Clipsal Drive had "the effect of transforming" the application from a two-lot subdivision into a three‑lot subdivision because the vesting of Clipsal Drive in the Council effectively subdivided Lot 1 into two further lots. Further, in light of instructions he received that Clipsal Drive may not have been constructed to Council standards and that the expense involved in reconstructing it to ensure compliance may be substantial and inconvenient to the landowner and its tenants, and that the owner of Lot 1 desired "to explore alternative development scenarios" for Lot 1, he concluded that it would not be reasonably expected that these conditions would be imposed on this application.[116] As previously addressed, it is clear these views were informed by considerations external to Mr Crowder's expertise and I attach limited weight to these conclusions in light of this.
In his expert report, Mr Walsh disagreed with Mr Gnanakone's view that Condition 2(a) "would" reasonably be expected, and opined that the condition "might" reasonably have been expected as the permit could have been issued with or without this condition.[117] This was based on his view that approval of the subdivision without this condition would not alter the use or operation of Clipsal Drive which has remained the same for 17 years. Mr Walsh also gave evidence that the circumstances of the application for subdivision were not common, usual, or ordinary because the application was made for the purpose of enabling the sale of Lot 2 "without any material impact on the operation of existing tenants and Clipsal Drive." Mr Walsh said this was clear from the positioning of the boundary between the lots immediately to the north of the northern warehouse. Further, in his view, the fact that the plan submitted with the application did not define a boundary for Clipsal Drive meant that "it is clear it was intended to remain in Lot 1".[118] He considered that the vesting of Clipsal Drive in the Council would diminish the opportunity for development of Lot 1 because the owner could not propose any application that includes any changes to Clipsal Drive. He also gave evidence that Clipsal Drive has operated as a public road contained within private land since its construction in 2006.[119]
During examination of the witnesses at trial, it was clear that since the 2002 Development Plan, it was inevitable that Clipsal Drive would be vested in the Council and it was widely accepted that its intended use was always as a public road. Notwithstanding the lack of evidence as to any intention of DCI to develop the land in Lot 1, it is highly unlikely that such a development would be approved if it proposed to deal with Clipsal Drive in any manner inconsistent with its function as a public road. Moreover, as was raised during the examination of the expert witnesses, in submitting its application for subdivision, DCI could have included any information as to its intentions with respect to the subdivision, and evidence that the conditions imposed were not ordinary by reference to some implicit intention of the applicant that was evident only by the nature of the application should be rejected. Accordingly, Mr Walsh's opinion that the application was not ordinary because such an intention existed, or that it was clear from the application that Clipsal Drive was intended to remain in Lot 1 carries little weight.
Weighing this evidence, I do not consider that it was open to the defendant to form the opinion that Condition 2(a) was "too onerous to perform".

[57]

Condition 5 of the Subdivision Permit[120] required an asset condition assessment of the Clipsal Drive road, footpath, and drainage assets to be undertaken prior to its vesting in the Council, and any defects rectified to the satisfaction of the responsible authority. It was conceded in the Termination Letter that these costs would constitute Subdivision Works, as defined in the Sale Agreement, and the Purchaser would be responsible for such expense pursuant to the carve-out for Subdivision Works within SC 12.1.[121] Despite this, some evidence was led regarding this condition, particularly in light of the defendant's concern that there may be considerable works in bringing Clipsal Drive up to Council standards.
Mr Pagliaro considered this condition a "reasonable request" and that it is "typical for councils to ensure that their assets are in an appropriate condition and fit for purpose",[122] and Mr Gnanakone concluded that it was a reasonable assumption that compliance with the condition will create no impost. Mr Crowder acknowledged that the questions of whether the conditions were lawful and/or appropriate were beyond his expertise, but having been instructed that DCI was concerned about this issue, he concluded that "it is reasonable that there could potentially be considerable expense in bringing Clipsal Drive up to Council standards" and that due to the potential costs and inconvenience, the conditions (both Condition 2(a) and Condition 5) were unreasonable and/or inappropriate.[123] He proposed an alternative condition requiring the applicant to prepare and approve a further plan which allowed some unspecified time period for the vesting of the public road and undertaking the necessary works to ensure Clipsal Drive is up to constructed to Council standards. Mr Walsh opined that the cost of compliance with Condition 5 was unknown, and could only be known following the assessment of the Clipsal Drive assets.
In my view, it was not open to the defendant to form the opinion that Condition 5 was too onerous to perform, particularly in light of its concession that any costs associated with upgrading Clipsal Drive would be borne by the Purchaser pursuant to the contract. The defendant led insufficient evidence to support its theory that Clipsal Drive would need to be upgraded, at considerable expense, to ensure it was compliant with Council standards. Even if this were true, it is unlikely that this would be sufficiently burdensome to form the basis of the requisite opinion given that it was acknowledged by the defendant that these costs were the responsibility of the Purchaser. In my view, the reference to Condition 5 within the Termination Letter together with the recognition of its irrelevance is further evidence of the lack of any proper basis for the exercise of the termination power and of DCI's misconception as to what was required in order for the power to terminate to be enlivened. Further, I do not accept that Condition 5 was unreasonably imposed by reason of the inflexibility it provided vis-a-vis the defendant's implicit future desire for the land, as it is clear that the public function of Clipsal Drive was well-established and its eventual vesting in a public authority could not have been unanticipated by the landowner.

[60]

The defendant submits that Conditions 1(a) and 2(b) of the Subdivision Permit,[126] which required the Plan of Subdivision to be modified so that all of the Dorset Service Road would be contained within Lot 2, were too onerous for it to perform because their performance would entail a breach of essential fundamental covenants under the Bunnings Lease, thus entitling Bunnings to terminate the lease or sue to restrain. As set out previously,[127] the basis of this submission was that the Additional Area, which had been earmarked as a 'Potential Future Exit', was subject to an unconditional licence and various covenants within the Bunnings Lease; including a requirement for Bunnings' prior written consent to the granting of any rights to use or occupy the area, or to the reduction or amending of the area. The defendant draws attention to other clauses within the Bunnings Lease which permit Bunnings to terminate the lease within 21 days of giving notice of a breach of any of these covenants unless the breach were remedied, and that the covenants were acknowledged by the landlord as essential and fundamental terms of the lease, entitling Bunnings to sue for, inter alia, loss of profits.
The Bunnings Lease made provision for the landlord to make an application for subdivision of the land subject to the tenant's consent, which could not be unreasonably withheld. The tenant could refuse consent if it reasonably formed the opinion that the subdivision would, or would be likely to, inter alia, "alter or change in any way the area, size or location of the Licensed Area", which included the Additional Area (being the area marked "Potential Future Exit").[128] After email correspondence between DCI and Bunnings regarding Bunnings' consent to the Plan of Subdivision, in which DCI's solicitors said that "there will be no practical impact on Bunnings if it consents,"[129] Bunnings' solicitors said that Bunnings wished to "preserve its existing rights in relation to the Licensed Area defined in the lease" and sought the landlord's suggestions for accommodating this.[130] DCI subsequently provided Bunnings with a revised plan in which the "Potential Future Exit" area had been modified to ensure it remained in Lot 1, and Bunnings consented on the basis that this was indeed the case.[131]
The defendant's submission relies on what it says is the right of Bunnings to terminate its lease and apply to the Court to restrain the registration of an amended Plan of Subdivision. It submits that whether there would be any loss or damage suffered by Bunnings is not relevant given that Bunnings would have the right to terminate the lease and to sue DCI for any loss of profits and costs on an indemnity basis.[132]
In answering the question of whether it was open to DCI to form the requisite opinion if entitled to consider the broader commercial effect of the Requirements, it is necessary to consider whether there was some commercial detriment to DCI inherent in its compliance with Condition 1(a) and Condition 2(b). The evidence of the email correspondence between DCI's solicitors and Bunnings' solicitors showing negotiations resulting in Bunnings' provisional consent to the Plan of Subdivision is, on its own, insufficient. Moreover, I do not consider that the question can be answered by reference to whether a particular provision of the Bunnings Lease would be contravened, nor is it appropriate for this Court to adjudicate on the contractual rights of Bunnings when it is not a party to this proceeding. The appropriate determination for the Court in answering this question is the impact of the conditions on the practical commercial interests of the defendant in relation to the Additional Area and the proposed future exit from Lot 1 onto the Dorset Service Road.
Despite the defendant's submission that Bunnings' consent was conditioned on the preservation of existing rights relating to the Additional Area under the lease, it is clear that there were no future plans regarding the construction of an exit from Lot 1 onto the Dorset Service Road, and such an exit was unlikely to have been approved in any event. The evidence as to the history of planning permits relating to the land was unequivocal in its requirement that public access to and egress from the land be confined to the entrance to Clipsal Drive. Any use of the Additional Area by Bunnings would have been subject to the approval of the Council and the relevant authorities, which had repeatedly required that access and egress be restricted to the Clipsal Drive entrance in accordance with the 2002 Development Plan. Further, clause 4.9 of the Bunnings Lease required Bunnings to comply with laws relating to its use of the premises given by any authority, and clause 17.4 provided that the provisions within the lease were to be read down or severed in the event they infringed any laws.[133] Clearly, constructing or using an exit to the Dorset Service Road without the requisite approval would not be lawful.
There was little evidence led by the defendant to support the contention that an application to create an exit onto the Dorset Service Road enjoyed realistic prospects of approval by the relevant authorities. Mr Crowder acknowledged in cross‑examination that the question of whether the construction of an exit onto the Dorset Service Road was appropriate was outside his expertise but added "I don't think that that is necessarily inappropriate".[134] In the joint report of Mr Gnanakone and Mr Walsh, Mr Walsh indicated he disagreed with Mr Gnanakone's opinion that an exit from Lot 1 onto the Dorset Service Road may not be approved and would be functionally difficult to achieve, but said that it didn't matter because the condition "still removes the opportunity to apply for an egress".[135] During cross-examination, he disagreed with the suggestion that it would be expected that VicRoads or the Department of Transport would refuse, or be likely to refuse to agree to Lot 1 having egress through the service road. In re-examination, he gave evidence that he was of the view that "an egress at that point... subject to detailed design... could be approved and could provide for safe egress from the site" because "at the point where egress... would potentially be provided, there is sufficient site distance to see oncoming vehicles... to allow vehicles that might be egressing... to do so safely."[136] In my view, this evidence was generally speculative and outweighed by the evidence of the history of permit conditions relating to the land, reaffirmed by the evidence of Mr Gnanakone that any application to create an exit was "extremely unlikely" to have been approved and that "a functional outcome in that location would not be possible" due to the proximity to the intersection with Dorset Road.[137]
Both the defendants' experts opined that despite the previous planning permits requiring lawful access to and egress from the land being confined to the Clipsal Drive entrance, this did not constitute a "prohibition" on the creation of other exits and that there was nothing stopping an application for such an exit to be lodged. The defendant reiterates this point in its submissions and observes that the plaintiff's experts accepted that it was possible to apply for egress from Lot 1 to the Dorset Service Road.[138] In my view, this point does not assist the defendant's case, given that no evidence was led of any application being made, or being planned for future submission by DCI or Bunnings. Whilst Bunnings may have intended to "preserve its rights" regarding the licenced area, as the defendant observes, the evidence did not show that it had refused to consent unless the Dorset Service Road entrance was included within Lot 1, and it had shown that it was openly willing to negotiate as to how these rights were preserved.[139]
In this regard, the point is made that the plaintiff offered to grant various rights of access to appease the concerns of Bunnings relating to any potential exit onto the Dorset Service Road.[140] DCI did not present these alternatives to Bunnings during correspondence relating to its consent to the Plan of Subdivision. As the plaintiff submits and as the evidence demonstrated, any proposed exit from Lot 1 onto the Dorset Service Road would have required the owner of Lot 2 to grant some consent by way of easement or licence, given that exiting vehicles would have had to travel north up the Dorset Service Road which runs inside the Lot 2 boundary. Bunnings' eventual consent to the subdivision suggests it did not consider that this prospect was unduly onerous, and in my view, the failure to convey the offer or raise the prospect of such a solution weakens the defendant's contention regarding the commercial burden imposed by Bunnings' right to take action against DCI for a breach of the lease.
Further, the approach taken to the negotiations with Bunnings by Mr De Felice, the defendant's controlling mind, indicates a general indifference to any commercial burden posed by the prospect of failing to obtain the consent of Bunnings to the proposed subdivision. In an email to his solicitors and advisers, he instructed that access was "a public road on Clipsal Drive. ... That's all I can offer. End of conversation" and asserted that Bunnings' failure to cooperate would lead him to elect not to renew the lease upon it ending.[141]
In my view, there was no practical commercial burden which would provide any basis for the defendant to form the necessary opinion to terminate the Sale Agreement if it were entitled to consider the commercial impact of Conditions 1(a) and 2(b). I reject the defendant's submission that any alleged breach of the Bunnings Lease was capable, on its own, of constituting such a burden. Likewise, the correspondence between DCI and Bunnings did not demonstrate that the requirement that the Dorset Service Road entrance be contained within Lot 2 posed any real burden on Bunnings or DCI, particularly in light of the impracticality and lack of realistic prospect of the lawful construction of the construction of an exit from Lot 1 onto the Dorset Service Road.

[61]

Conditions 2(a) and 5 of the Subdivision Permit[142] required Clipsal Drive to be vested in the Council. The defendant submits that this Requirement was inherently onerous to perform because it vested land in a public authority. It further submits the Requirement was onerous to perform on the grounds that the Plan of Subdivision envisaged a clear subdivision between the lots, and that it wished to retain flexibility regarding the prospect of future development of Lot 1. For the reasons which follow, I do not consider that the condition imposed any burden on DCI capable of enlivening its power to terminate in SC 10.7.
The known function of Clipsal Drive within the 2002 Development Plan was never that of a private road capable of inclusion in any proposed redevelopment on the land as it was clearly constructed on the basis that it would remain the entrance to the network of roads providing access to and egress from the land, and the neighbouring lots. This was clearly a view shared by the experts. Mr Pagliaro and Mr Gnanakone recognised that the road was integral to the network as a "through-link" and "logical connection" between Dorset Road and Canterbury Road.[143] As established, Mr Gnanakone's view was that it was "exceptionally unusual" that Clipsal Drive had not yet been vested in the Council in light of this.[144] Mr Crowder recognised this in his correspondence with the defendant's solicitors in his assessment that the transfer to the Council would "constitute good planning" and observed the "fixed" nature of the connections points between the two major roads (Dorset Road and Canterbury Road). Mr Crowder's conclusion was that the condition would have no negative impact on the future development potential beyond what would reasonably be expected in light of the approved development plan, but considered that the conditions could be likely to negatively impact the redevelopment options in light of the consideration in his instructions that the owners desired to keep it to "explore alternative redevelopment scenarios for the site."[145]
Arguments were submitted by the defendant and its experts regarding the possibility of applying for a new development plan, a prospect rejected as "extremely unlikely" by Mr Gnanakone. In my view, the evidence that such an application was a practical possibility was not persuasive, particularly in light of the history of permit conditions imposed which accorded with the 2002 Development Plan. In this regard, Mr Walsh also gave evidence that compliance with Condition 2(a) would entail a loss of opportunity to apply for changes to the operation of Clipsal Drive, but acknowledged that a change to the Development Plan would be required if any changes to the location or layout of Clipsal Drive were desired. The defendant's submission ultimately rested on the loss of any "opportunity" to apply for such a change in the 2002 Development Plan, and it submits that the Development Plan had evolved to some degree over time. In my view, the evidence establishes that such an opportunity enjoyed no realistic prospects of approval, and no evidence was led whatsoever of any change to the pattern of permit approvals being granted pursuant to the 2002 Development Plan.
In this context, reference was also made to a series of VCAT proceedings in this matter which took place around ten years after the approval of the 2002 Development Plan, in which the tribunal rejected an application for an amended development plan involving a development of warehouses over Lot 1 on the basis that it would disrupt the internal road network pursuant to the 2002 Development Plan.[146] In my view, this was further evidence of the impracticality of any development of the land in Lot 1 which did not account for the public nature of Clipsal Drive.
The planning history of the site was well known to Mr De Felice and, in my view, it was not reasonably open to him to consider that the private ownership of Clipsal Drive represented a commercial interest in any practical sense, and therefore could not give rise to any burden capable of enlivening the opinion for the purpose of SC 10.7. The evidence adduced of his email to consultants regarding the Bunnings negotiations, in which he said to Bunnings that "access is a public road on Clipsal Drive",[147] shows his recognition of the public use of the road as well as its public function in providing access to the development. It is clear that the defendant was well aware of the reality that any proposed development that dealt with Clipsal Drive in a manner inconsistent with its inevitable vesting in the Council would not be approved by the Council.
In my view, the defendant's submissions that the optionality or opportunity to apply for developments of Lot 1 which required Clipsal Drive to remain in private ownership constituted a commercial interest capable of giving rise to a sufficient burden in this case should be rejected in light of the unequivocal evidence relating to the history of planning permits granted, notwithstanding that there was no evidence that the defendant had actually contemplated any proposed future development beyond the assertions made in the Termination Letter.
As indicated earlier in these reasons, the reference to Condition 5, which required an asset condition report of Clipsal Drive and the rectification of any defects, within the Termination Letter cannot be reconciled with the contention that the defendant held any actual concern regarding the conditions imposed, given the acknowledgement within the letter that such costs were not its responsibility. Nevertheless, the evidence raised regarding the potential costs, if any, of upgrading Clipsal Drive was purely speculative and based entirely on instructions given to the defendant's experts by its solicitors.

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