Greencapital Aust Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd

Solicitors: Kennedys Lawyers (Plaintiff/Cross-Defendant) Minter Ellison (Defendant/Cross-Claimant) File Number(s): SC 2018/208684

Judgment

1. From 1897 until 2003 a lead and zinc smelter operated on land near Boolaroo, southwest of Newcastle. From 1913 until sometime prior to 2012 a fertiliser factory operated on an "island site" within that site.
2. The operation of these industries caused significant contamination.
3. All of this land is now owned by Pasminco Cockle Creek Smelter Pty Ltd (subject to Deed of Company Arrangement).
4. On 10 September 2002, the site was declared to be significantly contaminated pursuant to s 11 of the Contaminated Land Management Act 1997 (NSW).
5. On 1 July 2003 a Remediation Order was issued by the Environmental Protection Authority pursuant to s 23 of that Act.
6. On 30 June 2006, Pasminco lodged a project application under Pt 3A of the then Environmental Planning and Assessment Act 1979 (NSW) (the "EPA Act").
7. On 27 February 2007, in response to that project application, the Minister for Planning declared the project to be a "Major Project" for the purposes of s 75B of the EPA Act, and issued a "Major Project Approval" which required the remediation of the site. I shall return to the detail of these requirements below.
8. That approval provided that contaminated material on the site be placed into a "Containment Cell" to be constructed by Pasminco on the site.
9. On 23 December 2015 Pasminco and Greencapital Aust Pty Ltd entered into a contract for the sale by Pasminco to Greencapital for $14 million of part of the site, being the land described as "Lot F" in a proposed subdivision of the site known as the "Phase 2 Subdivision". I will call the proposed lot the "Greencapital Lot" and the contract of sale, the "Contract".
10. Clause 37.1 of the Contract provided that it was conditional on satisfaction of a number of conditions precedent by the Sunset Date, originally 30 June 2017 and extended to 30 June 2018, and that if those conditions were not met either party could rescind the Contract.
11. A number of conditions precedent were not met by 30 June 2018. That relevant to the issues in the proceedings is in cl 37.3: "37.3 Phase 2 Subdivision Plan This contract is conditional on registration of the Phase 2 Subdivision Plan (as it may be modified in accordance with the terms of this contract)."
12. On 6 May 2016 Pasminco lodged a Development Application for the subdivision of the site with Lake Macquarie City Council. The Development Application has been amended a number of times. It has not yet been approved by the Council.
13. Currently, the Development Application seeks approval for the subdivision to proceed in three stages as follows: 1. first, to excise the Containment Cell into a separate lot ("Stage 1"); 2. second, to divide the balance into three lots, including the Greencapital Lot ("Stage 2"); and 3. finally, to further subdivide the remaining lots ("Stage 3").
14. On 21 December 2016, Pasminco and Greencapital entered into a deed which amended the Contract by: 1. changing the Sunset Date from 30 June 2017 to 30 June 2018; and 2. including cl 37.8 which provided that if the conditions precedent were not achieved by 30 June 2018, Greencapital had the right to elect, by notice, to "do all necessary things necessary" to achieve the conditions precedent.
15. The parties referred to Greencapital's right under cl 37.8 as the "step in" right. I shall do the same.
16. The conditions precedent were not met by 30 June 2018.
17. On 1 July 2018, and again on 2 July 2018, Pasminco purported to exercise its right under cl 37.1 to rescind the Contract.
18. Later on 2 July 2018, and again on 3 July 2018, Greencapital purported to exercise its right to step in under cl 37.8 of the Contract.
19. On 31 August 2018, the State Government amended the State Environmental Planning Policy No 55 - Remediation of Land (NSW) (which the parties referred to as the "SEPP 55") to include cl 22. Clause 22 expressly targets the site and prevents the Council from consenting to any significant development on it unless the Planning Secretary certifies that, in her opinion, "adequate arrangements are in place for the perpetual care of", relevantly, the Containment Cell.
20. Pasminco contends that if its purported rescission of the Contract was not effective, the Contract was frustrated, amongst other things, by the 31 August 2018 amendment to SEPP 55.
21. The parties agreed that a number of issues arise out of these circumstances. The fundamental issue is which of the actions of 1, 2 and 3 July 2018 was effective. Has Pasminco effectively rescinded the Contract? Or has Greencapital effectively exercised its right to step in?
22. My conclusion is that Pasminco has effectively rescinded the Contract. It follows that the remaining issues do not arise.

First issue: is the Contract rescinded?

1. The Contract comprised the 2005 Law Society of NSW standard form together with some 55 special conditions.
2. Special condition 37.1 of the Contract gave both Greencapital and Pasminco the right to rescind the Contract if the conditions precedent were not satisfied by the Sunset Date.
3. The effect of the 21 December 2016 amendment to the Contract was to give Greencapital a further, and inconsistent, right if the conditions precedent were not achieved by new Sunset Date: 30 June 2018.
4. That right was the step in right given by new special condition 37.8. Clause 37.8(a) provided that if the conditions precedent were not achieved by 30 June 2018, Greencapital could "elect to do all necessary things to achieve" them.
5. I will return to the full form of cl 37.8.
6. Thus, as amended, the Contract gave Greencapital and Pasminco competing and inconsistent rights, each exercisable if the conditions precedent were not achieved by 30 June 2018.
7. Those rights could not, of course, be exercised until the Sunset Date passed, because it would not be until that occurred that it could be ascertained whether or not the conditions precedent had been achieved.
8. 30 June 2018 was a Saturday.
9. Thus the first day on which Greencapital or Pasminco could exercise rights following the Sunset Date was Sunday 1 July 2018.
10. As I have said, on that Sunday (by email at 8.26 am) and again on Monday 2 July 2018 (by email at 10.02 am) Pasminco purported to exercise its right to rescind the Contract.
11. The critical issue in the case is whether Pasminco was entitled to do this.
12. A number of issues arise.
13. To understand the issues it is necessary to consider cll 21 and 29 of the Contract. Both these clauses are part of the 2005 Law Society standard form.
14. Clause 21 provides, relevantly "21 Time limits in these provisions 21.1 If the time for something to be done or to happen is not stated in these provision, it is a reasonable time… 21.5 If the time for something to be done or to happen is a day that is not a business day, the time is extended to the next business day… 21.6 Normally, the time by which something must be done is fixed but not essential."
15. Clause 29.4 provides that where, as here, completion was conditional "on an event" (achievement of the conditions precedent), then: "If anything is necessary to make the event happen, each party must do whatever is reasonably necessary to cause the event to happen".

Did the parties' rights only arise on the first business day after the Sunset Date?

1. Mr McLure SC, who appeared with Mr Habashy for Greencapital, submitted that Pasminco's right to rescind, and Greencapital's right to step in, did not arise until the first business day after the Sunset Date, namely Monday 2 July 2018. For the reasons that follow, I do not accept that submission.
2. In making this submission, Mr McLure relied on cl 21.5 of the Contract.
3. Clause 21.5 appears in the standard terms of the Contract under the heading "[t]ime limits in these provisions".
4. The Contract does not contain any provision saying that headings should be taken into account when construing the Contract.
5. The general rule is that a heading or marginal note to a clause may be taken into account in construing the clause (although it cannot override the clear words in the clause or create an ambiguity where, but for the heading, none would otherwise exist): see K Lewison & D Hughes, The Interpretation of Contracts in Australia (2012, Lawbook Co) at [5.13] and the authorities referred to therein. The corresponding passage in an earlier edition of Lewison was referred to with approval in Mindshare Communications Ltd v Orleans Investments Pty Ltd [2007] NSWSC 1352; affirmed in Orleans Investments Pty Ltd v MindShare Communications Ltd (2009) 254 ALR 81; [2009] NSWCA 40.
6. The effect of cl 21.5 is that if the time for something "to be done" or "to happen" is not a business day, then the time for the thing "to be done" or "to happen" is extended to the next business day.
7. The clause does not suspend the parties' right to do the thing or to cause the thing to happen on the non-business day; nor does it render ineffective the doing of the thing or the causing of the thing to happen on the non-business day.
8. That conclusion is consistent with cl 21.6 which states that, normally, the time "by which something must be done" is fixed but not essential.
9. The clause can have no application to the rights of either Greencapital or Pasminco to rescind or to Greencapital's right to step in if, as happened, the conditions precedent were not met and the Sunset Date passed. There was no "time limit" attached to that right. The exercise of any of those rights was not "something to be done" or "to happen" by any particular time. Those rights could be exercised at any time after the passing of the Sunset Date. Once those rights arose, there was no cause for the time of their exercise to be extended.
10. In any event, if cl 21.5 did apply to the time by which the parties were to exercise their competing rights, it would not suspend the right until the next business day; it would merely extend the time by which the right could be exercised to the next business day.

Was Greencapital entitled to a "reasonable time" in which to decide whether to step in?

1. Mr McLure submitted that cl 21.1 had the effect that: 1. Greencapital had a reasonable time to exercise its right to step in; and 2. Greencapital's right to step in within a reasonable time could not be extinguished by Pasminco's earlier purported rescission.
2. If the position were otherwise, Mr McLure submitted, Greencapital would be deprived of the benefit that the amendment to the Contract on 21 December 2016 was intended to confer.
3. Mr McLure submitted that such construction avoided the "arbitrary outcome" of the rights and position of the parties being determined by "the fortuitous circumstance of which party manages first to email a notice to the other party after midnight on the Sunset Date".
4. Mr McLure submitted that Pasminco's right to rescind, following non-achievement of the conditions precedent by the Sunset Date, was qualified by the amendment to the Contract effected on 21 December 2016.
5. I do not accept that submission.
6. Like cl 21.5, cl 21.1 appears in the clause headed "[t]ime limits in these provisions". It contemplates a clause in the Contract where a party must cause something "to be done" or "to happen", but where the time for that something "to be done" or "to happen" is not stated.
7. There are numerous such clauses in the Contract (for example cll 4.2, 12.2.1, 12.2.2, 16.5, 16.6, 16.12, 16.13, 19.2.1 and 23.10).
8. The effect of cl 21.5 is to impose a time limit of a "reasonable time" to do the thing or for the thing to happen.
9. The clause does not have the effect of permitting a party a "reasonable time" to do the thing or to cause the thing to happen, such as by exercising a right.
10. Because the conditions precedent were not met, Greencapital was entitled to exercise its right to step in once the Sunset Date passed. However, cl 21.1 did not have the effect of thereafter allowing Greencapital a "reasonable time" to decide whether to step in; or of suspending Pasminco's right to rescind until that "reasonable time" had passed.
11. The clause is one of limitation, not permission. It does not do the work for which Mr McLure contended.

Was the Sunset Date extended to 2 July 2018?

1. In oral submissions, Mr McLure developed a further argument that the effect of the Contract was to extend the Sunset Date to Monday 2 July 2018, with the result, Mr McLure submitted, that as only Greencapital had exercised a right after that date, it was only its Tuesday 3 July 2018 step in notice which was effective.
2. In that regard, Mr McLure relied on cl 29.4 of the Contract, set out at [37] above.
3. That clause imposed on Pasminco (and Greencapital) an obligation to do "whatever is reasonably necessary" to cause to happen an event on which completion of the Contract is conditional.
4. Thus, Mr McLure submitted, the clause imposed on Pasminco an obligation to do "whatever is reasonably necessary" to cause the conditions precedent to happen by the Sunset Date: Saturday 30 June 2018; and as that was not a business day, the effect of cl 21.5 of the Contract was to extend to the next business day (Monday 2 July 2018) the time by which Pasminco could comply with that obligation.
5. Thus, Mr McLure submitted, by necessary implication, the Sunset Date must also have been so extended and must have become Monday 2 July 2018.
6. The parties have nominated a precise date to be the Sunset Date. Originally it was Friday 30 June 2017: the next day being the non-business day Saturday 1 July 2017. As amended, the Sunset Date was Saturday 30 June 2018.
7. The general rule is that where a contract is in a standard form to which the parties have added special conditions, then unless the contract provides otherwise, greater weight must be given to the special conditions; and in the case of conflict between the general conditions and the special conditions, the latter will prevail: The Interpretation of Contracts in Australia at [7.04]; approved in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302 (at [48] (White J). The principle was described in Dodds v Kennedy (No 2) (2011) 42 WAR 16; [2011] WASCA 131 at [25] (Pullin JA; Hall J agreeing) as being "common sense".
8. If standard form cl 21.5 did the work for which Mr McLure contends, there would be a conflict between its operation, and the precise nomination by the parties in the special conditions of a particular date as the Sunset Date.
9. This cannot have been the parties' intention. The parties must be taken to have meant what they said when they nominated 30 June 2018 as the day from which, if the conditions precedent were not established, parties could exercise their respective rights.
10. Mr McLure submitted that this conclusion would lead to the "unbusinesslike" result of there being a "race" by the parties to first exercise their inconsistent rights.
11. But this appears to me to be precisely what the parties agreed. Originally, each party had the right to rescind if the conditions precedent were not met by the Sunset Date. By the amendment Greencapital was given the inconsistent right to step in, exercisable at the same time.
12. The parties' rights are irreconcilable. Rescission by Pasminco would necessarily prevent a step in by Greencapital. A step in by Greencapital would necessarily prevent a rescission by Pasminco.
13. My conclusion is that the parties agreed to a "first past the post" regime.
14. Pasminco got in first. Its notice of rescission on 1 July 2018 was effective.

Should Pasminco be restrained from taking any steps in reliance on its rescission of the Contract?

1. On the second day of the hearing Mr McLure sought leave to amend Greencapital's case to contend that, assuming, as I have found, that Pasminco was contractually entitled to exercise its right to rescind, it should be restrained from doing so on the basis that it would thereby be acting "arbitrarily, or capriciously, or unreasonably".
2. Mr McLure drew my attention to the observations of Bryson J in Munro v Bodrex Pty Ltd [2002] NSWSC 122. In that case, Bryson J (at [56]) referred to the observations by Viscount Radcliffe, speaking for the Judicial Committee in Selkirk v Romar Investments Ltd [1963] 1 WLR 1415; [1963] 3 All ER 994 at 1422-3 that "a vendor, in seeking to rescind, must not act arbitrarily, or capriciously, or unreasonably."
3. Mr McLure accepted that the High Court has now made clear that the relevant question is whether the conduct of Pasminco "caused or contributed to a circumstance rendering it unconscientious for [it] to insist upon [its] legal rights to terminate the contract…": Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367; [2003] HCA 58 (at [25]).
4. Equity would not interfere with Pasminco's exercise of its contractual rights merely because of the fact that some "hardship or unfairness" might result from the manner of its performance of its contractual rights: Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [26]. See generally Actall Pty Ltd v Pacific Bay Development Pty Ltd [2006] NSWCA 190 at [48]-[54] (Ipp JA with whom Mason P and Giles JA agreed).
5. Mr McLure submitted that Pasminco's conduct was "unconscientious" because it "raced to give notice of rescission when it knew [Greencapital] intended to exercise its right to step in".
6. In that regard, Mr McLure pointed to the fact that at 9.50 am on Friday 29 June 2018, the day before the Sunset Date, Greencapital, through its solicitors, requested until 30 July 2018 to exercise its election to step in but stated that if the negotiations then on foot to vary the contract failed: "…our client is prepared to, and will exercise its rights to step in immediately following the due date for achievement of the Conditions Precedent; namely 30 June 2018."
7. Mr McLure submitted that Pasminco's failure, through its solicitors, to respond to that letter, and to then at 8.26 am on Sunday 1 July 2018 rescind the Contract was "unconscientious".
8. Were Greencapital's solicitors' letter of 29 June 2018 the only relevant communication, I would see the weight of Mr McLure's submission.
9. But that communication was the last in a long line of communications about a possible variation of the Contract, which commenced many weeks earlier.
10. Thus, on 7 June 2018 Greencapital's solicitors wrote to Pasminco's solicitors referring to the fact that: "[O]ur respective clients have recently met to discuss outstanding issues and the difficulties faced by [Pasminco] with obtaining achievement of the Conditions Precedent by 30 June 2018."
11. Greencapital's solicitors proposed a variation to the Contract to change the Sunset Date to 30 June 2019.
12. Greencapital's solicitors continued: "However we also request a further variation on this arrangement; to take into consideration the issues noted above which may or may not be able to be taken over by our client if the Conditions Precedent have not been achieved by 30 June 2019. For example if yours is in the midst of litigation or complex negotiations with any consent authority it would be difficult for our client to 'step in'. Thus our client would like the option to extend the date for achievement of the Conditions Precedent by a further year (to 30 June 2020) before it is required to exercise the option in clause 37.8 and a subsequent extension of the Sunset Date to 30 June 2021."
13. The "litigation" referred to was, evidently, litigation that Greencapital's solicitors anticipated Pasminco might be engaging in with the Council, as the Council had not then approved Pasminco's development application lodged on 6 May 2016. In that context what was being proposed was the possibility of extending the Sunset Date to 30 June 2020, or possibly, 30 June 2021.
14. In the same letter, Greencapital's solicitors proposed that Pasminco agree: "[T]o revise its own staging plans and obtain appropriate consents so as to create [the Greencapital Lot] independently of and prior to any other works required by [Pasminco] to effect its first stage."
15. Thus what Greencapital was proposing was that the proposed subdivision be reordered so that "Stage 2" referred to at [13] above, being the creation of the Greencapital Lot, occur prior to the excision into a separate lot of the Containment Cell (the existing "Stage 1").
16. On 13 June 2018 Greencapital's solicitors wrote to Pasminco's solicitors referring to their letter of 7 June 2018, asserting: "[W]hilst aware there has not been a significant delay in you responding, [we] note also that the due date for our client to decide whether or not to exercise its rights under cl 37.8 of the Contract is fast approaching."
17. Thus Greencapital was acutely aware of the looming Sunset Date.
18. Pasminco's solicitors replied on 15 June 2018 saying that Pasminco would be prepared to vary the Contract by extending the Sunset Date to 30 June 2019 if: 1. the purchase price was increased from $14 million to $17 million; 2. the deposit was increased from $700,000 to $1.7 million; and 3. cl 37.8 was deleted.
19. Pasminco's solicitors' letter concluded: "Given that 30 June is fast approaching we have been instructed to request a response by 22 June 2018."
20. Greencapital's solicitors replied on 18 June 2018 submitting that Pasminco's solicitors' letter constituted "only a partial response to ours", and repeating nine further matters in respect of which Pasminco's agreement was sought, including the reordering of the staging of the development.
21. Greencapital's solicitors' letter concluded: "Given that time is very tight we request that you respond as soon as possible and preferably by no later than 9 AM tomorrow Tuesday, 19 June 2018."
22. Pasminco's solicitors replied on 20 June 2018 agreeing to four of Greencapital's nine proposals, but not to the proposal for the reordering of the subdivision.
23. On 20 June 2018 Greencapital's solicitor sent a further letter seeking to agitate a number of the matters referred to in earlier correspondence including the restaging of the subdivision. Thus the letter included: "We note that there has been a revision of your client's staging plans since entry into this contract and it is most likely that those revisions may well have contributed to some of the delays in obtaining registration of the Phase 2 Subdivision Plan and thus to the vendor achieving the Conditions Precedent. It would appear that in order to obtain finalisation of this contract the purchaser's request that that the plans and staging for [the Greencapital Lot] be advanced in priority to any other works planned by the vendor is not unreasonable and we again press for your client's agreement to that request."
24. The letter concluded: "As you have previously noted, time is short and we therefore request a response by no later than Friday, 22 June 2018."
25. Pasminco's solicitors did reply by 22 June 2018 stating, amongst other things, that Pasminco "cannot agree" to the restaging of the subdivision. The letter stated: "The application for rezoning may have adverse commercial implications for [Pasminco]. As previously advised to your client [Pasminco] is concerned about the risk that this application could delay approval of its own subdivision development application."
26. The letter concluded: "When your client has considered the above response we request you to advise whether it intends to exercise its step in rights under clause 37.8 of the contract".
27. Greencapital's solicitors replied on 27 June 2018 stating that: "…our client is considering its options in regard to exercising its right to step in pursuant to clause 37.8 of the Contract."
28. Greencapital's solicitors then made further proposals for "contract variation" including an increase in the purchase price from $14 million to $15 million (rather than the $17 million that Pasminco had suggested) and an extension of the Sunset Date to 30 June 2020.
29. The letter concluded: "In your letter dated 22 June 2018 you requested that we advise whether or not our client intends to exercise its step in rights pursuant to clause 37.8 of the Contract. It is not our client's preference to step in, and there is much to be determined prior to exercising that right. We are therefore instructed to confirm that whilst it does intend to exercise the right to step in in the event that your client refuses our suggested variation set out in Item 1 of this letter, we are instructed to request your client's approval to an extension of the date for exercise of that step in right by another 30 days; i.e. allowing our client until 30 July 2018 to issue the notice of election."
30. The following day, 28 June 2018, Pasminco's solicitors replied stating that Pasminco agreed to extend the Sunset Date to 30 June 2019 provided that the contract price was increased to $16.5 million and cl 37.8 was deleted from the Contract. The letter concluded: "[O]ur client is not agreeable to any other variations."
31. That led to Greencapital's solicitors' letter of 29 June 2018 to which I have referred above (see [78]).
32. As I have said, that letter was emailed at 9.50 am that day.
33. In that letter, Greencapital's solicitors proposed: "Rather than agree to an increase in the Purchase Price our client is prepared to offer an interest-free loan of $3,000,000.00 the repayment of which would be by deduction from the purchase price at completion."
34. The letter stated that Greencapital would not agree to deletion of cl 37.8 and again pressed for Pasminco's agreement to the matters referred to in earlier correspondence, including the reordering of the staging of the development.
35. The letter concluded: "We look forward to a response by close of business today."
36. By now, Pasminco, through its solicitors, had made its position clear. It was not prepared to agree to a variation of the Contract on the terms proposed by Greencapital. In particular it did not agree to vary the staging of the subdivision to give priority to creation of the Greencapital Lot over excision of the Containment Cell.
37. On 29 June 2018 Greencapital, through its solicitor, stated that if agreement could not be reached concerning its proposal to vary the Contract it would exercise its step in rights.
38. It must have been obvious to Greencapital, and its legal advisers, that Pasminco was not prepared to agree to vary the Contract as proposed by Greencapital.
39. It may have been courteous for Pasminco's solicitors to have, as invited, make a "response by close of business today".
40. But I do not see the absence of a response as bespeaking unconscientiousness on the part of Pasminco, or its legal representatives.
41. Greencapital was well aware of the vital significance of the fact that the next day was the Sunset Date. It must have understood, from the absence of a response by Pasminco to the 29 June 2018 letter, that the matters proposed were not agreed and that each party was left to exercise its contractual rights in whatever manner it considered consistent with its interests.
42. What had taken place in June 2018 was a robust commercial negotiation between two sophisticated, well-advised and, in Greencapital's case, evidently well-resourced parties.
43. I see no basis for equity to intervene to restrain Pasminco from exercising its contractual rights.

The result

1. The result is that Pasminco succeeds. It was entitled to rescind the Contract. It accepts that it must return the deposit. The proceedings must be dismissed.
2. The other issues argued by the parties do not arise.
3. However, lest I be wrong in my conclusion on rescission, and in deference to the careful arguments of the parties, I will now deal with those other issues, albeit briefly.

Second issue: assuming the Contract is not rescinded, has it been frustrated?

1. Mr O'Bryan SC, who appeared with Mr Tynan and Mr Lee for Pasminco, submitted that, assuming Pasminco had not effectively rescinded the Contract, it has been frustrated.

The test

1. A contract is frustrated if: "[W]ithout default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract… It was not this that I promised to do". (Per Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729 cited with approval in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24 at 357, 376 and 408.)
2. In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255; [2011] VSCA 116 Nettle JA put it this way (at [70]): "I approach this case on that basis. Consistently with Codelfa, I take the law to be that a contract is not frustrated unless a supervening event: a) confounds a mistaken common assumption that some particular thing or state of affairs essential to the performance of the contract will continue to exist or be available, neither party undertaking responsibility in that regard; and b) in so doing has the effect that, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract."

Amendments to SEPP 55

1. Mr O'Bryan submitted that the first reason the Contract has been frustrated is by the inclusion of cl 22 in SEPP 55. Mr O'Bryan submitted that it was not within the objective contemplation of Greencapital or Pasminco at the time of entry into the Contract that to achieve the conditions precedent, the Planning Secretary would have to be satisfied that there were adequate arrangements in place in perpetuity in relation to the Containment Cell.
2. Mr O'Bryan however accepted that the parties, objectively, would have been aware of the terms of the 27 February 2007 Major Project Approval at the time of entry into the Contract.
3. That Project Approval required "Completion of Remediation Work" including the preparation and implementation of a "Containment Cell Environmental Management Plan". That plan was to include, amongst other things "requirements for the ongoing management of the plan and for funding the implementation of the plan".
4. The Project Approval also required preparation and implementation of a "Containment Cell Integrity Management Plan". That plan was to detail "measures to manage the integrity of the cap and other cell(s) structures during the life of the cell(s)", to include "maintenance requirements for the cap and other containment cell's structures" and "measures to monitor the effectiveness of the cell structure".
5. The Project Approval also required Pasminco to establish a public positive covenant under s 88E of the Conveyancing Act 1919 (NSW) to "require the ongoing maintenance, funding and monitoring of the containment cell(s) after completion of construction", to address "arrangements for the funding by [Pasminco] of the ongoing maintenance and monitoring of the containment cell(s) until the sale of the land" and to include "provisions for managing any long term potential liability of the cell(s)".
6. The provisions in the Project Approval made clear that any development of the site would be subject to the approval of the Environment Protection Authority and the Director-General of the Department of Planning and Infrastructure. For all practical purposes, if not as a matter of law, the consent or approval of these entities would be required before the Council could approve the Phase 2 Subdivision Plan.
7. Clause 22 of SEPP 55 requires the Planning Secretary to be satisfied that there are arrangements for the "perpetual care" of the Containment Cell; whereas the Project Approval called for arrangements for its "ongoing maintenance" or "long term" management.
8. I do not see these as radically different requirements.
9. I think Mr McLure was correct to submit that the change effected by the amendment to SEPP 55 was as to "who has a say in the granting of approval" and "the order of the steps that must be undertaken" in order to achieve approval.
10. I do not see how those changes "radically" alter the nature of the parties' obligations under the Contract.

Greencapital's asserted rights on stepping in

1. Alternatively, Pasminco pleaded that the Contract has been frustrated on the following basis (which assumes that Greencapital has elected to step in): "44A [Greencapital] being able, permitted to or required to bind [Pasminco] to an agreement or to obligations with the Department for land not subject of the Contract, being the Containment Cell, in order to achieve the Conditions Precedent, was not within the contractual contemplation of [Greencapital] and [Pasminco] at the time of entry into the Contract. 44B [Greencapital] being able, permitted to or required to bind [Pasminco] to an agreement or to obligations with the Department for land not subject of the Contract, being the Containment Cell, in order to achieve the Conditions Precedent, was not within the contractual contemplation of [Greencapital] and [Pasminco] at the time of entry into the Amendment Deed. 44C [Greencapital] being able, permitted to or required to register an instrument on title to land no subject of the Contract, being the Containment Cell, was not within the contractual contemplation of [Greencapital] and [Pasminco] at the time of entry into the Amendment Deed."
2. This pleading assumes, as Greencapital contends, that it is an implied term of cl 37.8 of the Contract that it would have the ability to bind Pasminco to take the steps pleaded.
3. I deal below with that contention.
4. If, on the proper construction of cl 37.8, Greencapital would have these powers were it to step in, then the Contract cannot be thereby frustrated.
5. If, on the other hand, and as Pasminco submits, cl 37.8 should not be construed so as to give Greencapital these powers, no frustrating event exists.
6. I return to this question of construction below, when considering the third issue.

The "Funding Requirement"

1. Finally, Mr O'Bryan submitted that the Contract has been frustrated by reason of the imposition of the "Funding Requirement" which, it was submitted, was not within the contractual contemplation of Greencapital and Pasminco at the time that the Contract was entered.
2. The "Funding Requirement" was defined in Pasminco's Commercial List Response to mean the requirement expressed by the Council in its 9 May 2017 draft consent to Pasminco's development application for the establishment of a designated fund to pay for the future maintenance and management of the Containment Cell. Pasminco contends the Funding Requirement will exceed $22 million.
3. But this requirement was not new and reflects the terms of the 27 February 2007 Project Approval.
4. Further, on 4 June 2015, Pasminco caused Bunderra Environmental Fund Ltd to be incorporated for the specific purpose of holding funds required to maintain the Containment Cell. On 13 February 2016, shortly after the Contract was entered, Pasminco's administrators estimated that the sum of approximately $21.5 million would have to be invested to fund the future maintenance and management of the Containment Cell.
5. The Funding Requirement is therefore not a new matter which radically alters the nature of the parties' obligations under the Contract.

Conclusion on frustration

1. For those reasons, my conclusion is that, assuming the Contract was not rescinded by Pasminco, it has not been frustrated.

Third issue: Greencapital's powers and Pasminco's obligations assuming Greencapital was entitled to step in

1. Assuming that the Contract is not rescinded, and that Greencapital has effectively elected to step in under cl 37.8 of the Contract, the parties agree that following issues arise: "…to what extent does the contract: (a) authorise the Plaintiff to act as the Defendant's agent for the purposes of achieving the Conditions Precedent, including: (i) for the purposes of making applications and entering into agreements; (ii) for the purposes of committing the Defendant to arrangements, such as an Environmental Management Plan that may be required; and (iii) for the purpose of applying for and obtaining development consent, whether for the Phase 2 Subdivision Plan as referred to in the Contract and as amended in accordance with the Contract, or by making a different development application in place of the Phase 2 Subdivision Plan or otherwise; (b) entitle the Plaintiff to require the Defendant promptly to sign such documents and give such consents as are reasonably necessary, and do such things as are reasonably required of it, to achieve the Conditions Precedent; and (c) permit the Plaintiff to do such works as are necessary, including over surrounding land which is owned by the Defendant but is not the subject of the Contract, to achieve the Conditions Precedent?"
2. Clause 37.8 provides: "37.8 Conditions Precedent not achieved (a) If the Conditions Precedent herein have not been achieved by 30 June 2018, the purchaser may by notice in writing to the vendor elect to do all necessary things to achieve the Conditions Precedent. (b) If the purchaser serves notice under clause 37.8(a): (1) the purchaser will assume responsibility for the achievement of the Conditions Precedent; (2) the purchaser will pay and be responsible for any cost incurred in connection with the Conditions Precedent; (3) on completion, the vendor will reimburse to the purchaser the proper and reasonable third party costs incurred by the purchaser in relation to the Conditions Precedent provided those costs are substantiated by producing copies of tax invoices issued by consultants or Authorities, incurred solely and exclusively in connection with the Conditions Precedent; (4) the Sunset Date in clause 30 will be extended to 30 June 2019; and (5) the vendor, at no cost to the purchaser, will promptly provide to the purchaser: (A) a list (and contact details) of all consultants and contractors engaged in connection with the unsatisfied conditions precedent; and (B) copies of all contracts, plans, drawings, reports and other similar documents in the vendor's possession or control, necessary for the purchaser to continue the process of satisfying the conditions precedent. And the vendor shall assign to the purchaser, or shall arrange for the appropriate parties to assign to the purchaser all rights, title and interest in the copyright and intellectual property of all plans drawings reports and other similar documents held by the vendor and/or its consultants and contractors in relation to satisfying the Conditions Precedent including but not limited to survey plans, engineering plans, draft subdivision plans, draft stormwater drainage plans and landscape plans. If the relevant right cannot be assigned, the vendor will procure the grant to the purchaser of a royalty-free, irrevocable licence to use."
3. According to the express provisions of cl 37.8, once Greencapital elects "to do all necessary things to achieve the Conditions Precedent": 1. it assumes responsibility for the achievement of the conditions precedent (cl 37.8(b)(1)); 2. it agrees to pay and be responsible for any cost incurred in connection with the conditions precedent (cl 37.8(b)(2)); 3. Pasminco agrees on completion to reimburse Greencapital for proper and reasonable third party costs incurred solely and exclusively in connection with the conditions precedent (subject to the provision of tax invoices: I will return to this) (cl 37.8(b)(3)); 4. Pasminco will at no cost provide Greencapital with a list of all consultants and contractors and copies of all contracts, plans and other like documents (cl 37.8(b)(5)); and 5. Pasminco will assign to Greencapital its intellectual property in plans, drawings and other like documents and, to the extent that such rights cannot be assigned will grant Greencapital a royalty free irrevocable licence (cl 37.8(b)(5)).
4. It is implicit in the parties' agreement that Greencapital could in the circumstances contemplated by cl 37.8 elect "to do all necessary things to achieve the Conditions Precedent" and that Greencapital would, in those circumstances, have Pasminco's authority to do those "necessary things".
5. Those "necessary things" might well, indeed probably would, include things that Greencapital would not itself otherwise have power to do.
6. The parties must have intended that, in those circumstances, Greencapital could effectively do all that was necessary to achieve the conditions precedent, even if that involved it having rights or entitlements beyond those expressed in cl 37.8 itself.
7. Although it is not necessary for me to decide this question, I think the better view is that this question would best be dealt with by reference to the express and implied terms of the Contract, rather than by resort to questions of agency.
8. As I have mentioned, cl 29.4 provides that each party "must do whatever is reasonably necessary" to cause events, on which completion is conditional, to happen.
9. It is also a general rule: "…applicable to every contract that each party agrees, by implication, to do such things as are necessary on his [or her] part to enable the other party to have the benefit of the contract." (Butt v M'Donald (1896) 7 QLJ 68 at 70-71; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [1979] HCA 51 at 607; and see generally N C Seddon and R A Bigwood, Cheshire & Fifoot Law of Contract (11th ed, 2017, LexisNexis Butterworths) at [10.41].)
10. Performance by Pasminco of those obligations in this case may well, depending on the facts, extend to the making of applications, the entering into agreements or the execution of documents.
11. The obligation will however be limited to what can reasonably be required in the circumstances: Secured Income at 610.
12. Accordingly, it would not, as Mr O'Bryan's submissions apprehended, require Pasminco to take steps which would result in "ruinous" consequences to it, or to require Pasminco to enter into funding agreements it "had no capacity to meet" or to compel Pasminco's administrators to act otherwise than in the interests of the Pasminco's creditors or in breach of their duties under the Corporations Act 2001 (Cth).
13. The obligation may however require Pasminco to take steps affecting land other than that to be conveyed, particularly the Containment Cell. That is not surprising. Satisfaction of the conditions precedent was almost always likely, if not certain, to have that consequence.

Fourth issue: payments to the Department

1. Assuming the Contract was not rescinded, and Greencapital had elected to step in, questions arise as to whether: 1. Greencapital would be entitled to make a payment to the Department to achieve satisfaction of condition precedent 37.3 (registration of the Phase 2 Subdivision Plan), otherwise than on an ex gratia basis and on Greencapital's own behalf; and 2. if so, whether Greencapital would be entitled to reimbursement from Pasminco of any such amount and/or entitled to set off any such amount against the purchase price otherwise payable under the Contract.
2. Mr O'Bryan accepted that cl 37.8 of the Contract provides that Greencapital would pay for, and be responsible for, any cost incurred in connection with the conditions precedent and that, on completion, Pasminco would be liable to reimburse Greencapital the proper and reasonable third party costs it incurred in relation to the conditions precedent.
3. However, Mr O'Bryan submitted that any amount either paid, or secured by way of funding, to the Department in order to satisfy the Secretary of the matters required pursuant to cl 22 of SEPP 55 would not be proper and reasonable third party costs so incurred.
4. Clause 37.8(b)(2) provides that, once Greencapital elected to step in, it would be responsible for "any" costs incurred in connection with the conditions precedent.
5. Pasminco's obligation under cl 37.8(b)(3) to reimburse Greencapital "on completion" is expressed to be confined in three ways.
6. First, Pasminco's obligation is to reimburse "proper and reasonable" costs incurred by Greencapital. Second, those costs must be incurred "solely and exclusively" in connection with the conditions precedent. Third, the obligation to reimburse is expressed to be subject to those costs being substantiated by production of "copies of tax invoices issued by consultants or Authorities" (the latter defined broadly to include any person or authority having powers over the property).
7. Greencapital would be entitled to reimbursement from Pasminco for payments it made to the Department if each of these three conditions was satisfied.
8. The mere fact that the payments were to satisfy the Planning Secretary that "adequate arrangements are in place for the perpetual care" of the Containment Cells, as envisaged by cl 22 of SEPP 55, would not itself disentitle Greencapital to reimbursement.
9. For the reasons I have discussed earlier in relation to the issue of frustration, although the parties may not have contemplated an authority requiring the precise state of satisfaction now contemplated by cl 22 of SEPP 55, they were at all times aware of the requirements of the 27 February 2007 Project Approval.
10. An issue arises from the inclusion in cl 37.8(b)(3) of the words: "…provided those costs are substantiated by producing copies of tax invoices issued by consultants or Authorities".
11. The question is whether those words limit Pasminco's reimbursement obligation to costs that are a taxable supply and thus the subject of a tax invoice or whether the provision should be seen as facilitative and merely illustrative of one manner by which costs incurred by Greencapital may be substantiated.
12. I favour the latter construction. If Greencapital stepped in, its obligations under cl 37.8(b)(2) would be to be responsible for "any" cost incurred.
13. Clause 37.8(b)(3) is directed primarily to the propriety and reasonableness of such costs and to the necessity that such costs be incurred "solely and exclusively" in connection with the conditions precedent.
14. On the other hand, the proviso to cl 37.8(b)(3) is directed to the procedural question of how those costs are to be "substantiated".
15. In my opinion, reasonable business people in the position of the parties would understand the reference in that proviso to the production of tax invoices to do no more than provide an example of how the required substantiation may be effected.

Fifth issue: whether an order for specific performance would have been made

1. Specific performance is usually granted in the case of contracts for the sale of land, even in cases where a plaintiff has contracted to purchase the land solely for investment purposes: Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146; [1964] HCA 61 at 151 (Barwick CJ).
2. The learned authors of J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) put the matter this way at [20-035]: "Contracts for the disposition of interests in land are, far more commonly than contracts of any other description, the subject of orders for specific performance. Damages are not an adequate remedy for failure by a vendor to complete a contract for the sale of the land, even if the purchaser is acquiring the land as, in effect, part of his or her stock-in-trade; for instance, for the purpose of subdivision and sale." (Citations omitted.)
3. In this case, on the hypothesis that Pasminco has not rescinded the Contract, and Greencapital has exercised its right to step in under cl 37.8, an order that the Contract be specifically performed would be directed to Greencapital's exercise of that right, and to Pasminco's concomitant obligations.
4. It seems likely that, were specific performance to be ordered in those circumstances, a close degree of supervision of that order by the Court would be required.
5. This is no longer as strong a factor weighing against ordering specific performance as it was previously thought to be.
6. Thus in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1; [1998] HCA 30 Brennan CJ and McHugh, Gummow, Kirby and Hayne JJ said at [79]: "What is significant is the acceptance by the House of Lords [in Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1] that the concept of 'constant supervision by the court' by itself is no longer an effective or useful criterion for refusing a decree of specific performance. Rather, Lord Hoffmann placed stress on other propositions. First, a person who is subject to a mandatory order attended by contempt sanction (which 'must realistically be seen as criminal in nature') ought to know with precision what is required; and, second, the possibility of 'repeated applications for rulings on compliance' with orders requiring a party 'to carry on an activity, such as running a business over a more or less extended period of time' should be discouraged. Reference to constant court applications should not be misunderstood. The courts are well accustomed to the exercise of supervisory jurisdiction upon applications by trustees, receivers, provisional liquidators and others with the responsibility for the conduct of administrations." (Citations omitted.)
7. Greencapital, through its town planning and design consultant, Mr Kerry Nichols, has since September 2018 been in detailed consultation with the Council, and with the Department, concerning the manner in which Greencapital would seek to exercise its step in rights. Indeed Mr Nichols's communications proceed on the assumption that Greencapital "are exercising" those rights to complete the Phase 2 Subdivision.
8. As recently as 14 November 2018 Mr Nichols wrote to the Department saying: "Greencapital's legal advisers are presently engaged to prepare a draft planning agreement for the Department's consideration".
9. Mr Nichols stated that: "…there are a number of options available to ensure that the fund [for the perpetual care of the Containment Cells] is created while allowing Greencapital to proceed with the development of [the Greencapital Lot]".
10. The "option" that Mr Nichols posed for the Department's consideration was the reordering of the stages of the subdivision as Greencapital's solicitors advocated in their letters of 7, 18, 20 and 29 June 2018 (see [82]ff above).
11. The question of whether a specific performance order should be made in these hypothetical circumstances would require very detailed consideration of these matters.
12. As the point does not arise, I will not consider it further.

Sixth issue: if an order for specific performance were to be made, should a further order be made restraining Pasminco from rescinding the Contract for non-fulfilment of the conditions precedent for a period of 12 months from judgment?

1. If, contrary to my conclusion, Pasminco was not entitled to rescind the Contract on 1 July 2018, Greencapital's 2 July 2018 purported election to step in under cl 37.8 would have been effective.
2. In that event, by operation of cl 37.8(b)(4), the Sunset Date would have been extended to 30 July 2019.
3. Greencapital would thus have had a full year (less two days) to satisfy the conditions precedent.
4. Had Greencapital in these proceedings successfully challenged Pasminco's purported rescission of the Contract, and thus vindicated its entitlement to step in, it would only have from the time of this judgment to achieve to the conditions precedent; that is a little over six months.
5. That state of affairs would have arisen as a consequence of what would have been, in that hypothetical circumstance, Pasminco's unjustified purported rescission of the Contract.
6. In those circumstances, I would have been very sympathetic to an application by Greencapital for an injunction to restrain Pasminco from exercising any right to rescind on the basis of non-fulfilment of the conditions precedent for a period from delivery of judgment corresponding to the period that would have been available to Greencapital had Pasminco not purported to rescind.
7. As Mr McLure submitted, such an order would put the parties in the position in which they would have been had Pasminco complied with what Greencapital contends to have been its contractual obligations on 2 July 2018.
8. Contrary to Mr O'Bryan's submissions, I would not have seen this as being a request of the Court to rewrite or rectify the Contract.
9. As the question is moot, I will not consider it further.

Conclusion

1. The proceedings should be dismissed.
2. I will hear the parties as to costs and any further orders to be made.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 December 2018