LMI v Baulderstone

67 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50023/00 - LMI AUSTRALASIA PTY LIMITED & ANOR v BAULDERSTONE HORNIBROOK PTY LIMITED & ORS

Parties and background 1 These proceedings concern the management rights to what is now known as the Colonial Stadium, one of Melbourne's major sporting and entertainment venues which opened in March 2000. At all times material to the events the subject of the proceedings, the first defendant, Baulderstone Hornibrook Pty Limited ("Baulderstone") was a wholly owned subsidiary of A.W. Baulderstone Holdings Pty Limited, as was the third defendant, Baulderstone Hornibrook International Pty Limited ("International"). The second defendant, Docklands Stadium Consortium Pty Limited ("DSC") was, in turn, a wholly owned subsidiary of International. Another company relevant but not party to the proceedings, Stadium Operations Limited ("SOL"), was a wholly owned subsidiary of Baulderstone. Baulderstone is a construction company. A.W. Baulderstone Holdings Pty Limited is wholly owned by a German company and is the ultimate holding company of the Baulderstone Group in Australia. 2 It is appropriate, at the outset, to trace the broad chronology of events out of which the present disputes have arisen. 3 During the first half of 1997, Baulderstone was engaged in attempts to form a consortium to bid for the contract to construct and operate the stadium. In the course of doing so and in order to enhance the management (or operation) aspects of its proposed bid, Baulderstone had discussions with the second plaintiff, LMI/HHI Ltd ("LMI"), a Texas limited partnership with which Mr Mike McGee was associated. LMI had established particular expertise in stadium management in the pre-bid, construction and post-opening stages in the United States. LMI had been introduced to Baulderstone by Mr Graeme Watson, the principal of International Sports Facilities Management Pty Limited ("ISFM"), a Sydney based company. 4 In June 1997, the first plaintiff, LMI Australasia Pty Limited ("LMIA") was identified by Baulderstone as the potential manager of the stadium should a Baulderstone bid be successful. LMIA was a joint venture company owned 50/50 by LMI and ISFM. It was formed for the purposes of the project. At the same time, DSC (also a specially formed company) was introduced by Baulderstone as the vehicle through which the proposed bid for the stadium construction and management contract would be progressed. 5 On or about 27 June 1997, written heads of agreement were entered into between DSC and LMIA. Without wishing, at this stage, to express any conclusions as to the legal status and effect of that document, I shall merely describe it as defining the basis on which LMIA (referred to in the document itself as "LMI") would take on the task of managing the stadium if DSC's bid was successful. There are substantial disputes between the parties in relation to the heads of agreement. Of central importance is clause 2.1: "If any of the bids are successful, the Developer agrees that it shall appoint LMI as Manager of the Facility."

Clause 2.2 fixed the start of the appointment as the date 24 months before the scheduled "Operations Start Date". Its initial term was to expire on the twentieth anniversary of the "Operations Start Date". 6 On 30 June 1997, DSC submitted two bids to the Docklands Authority ("the Authority"), a Victorian statutory body charged with responsibility for bringing the stadium project to fruition as part of a more broadly based redevelopment of the Melbourne docklands. One was a conforming bid and the other a non-conforming (or "preferred") bid. DSC submitted the bids on behalf of a consortium consisting of itself, KPMG Corporate Finance (Vic) Pty Ltd, ISFM (Mr Watson's company and a 50% shareholder in LMIA) and Clifton Project Management & Associates Pty Limited. In each bid (that is, the conforming bid and the preferred bid), DSC included a section headed "Consortium Structure". This outlined in brief terms the contractual arrangements in place among the named consortium members. It contained the following paragraph: "In addition, the bid company has entered into a Heads of Agreement with LMI Australasia Pty Ltd regarding its role as operator of the stadium. This agreement and a draft of the Facility Management Agreement for the stadium are contained in Part E of the bid document." 7 On 8 July 1997, DSC made a presentation to the Authority. Mr Simmons of LMI came from the United States for this. Over the following two weeks or so, dialogue continued between the Authority and DSC which, for the purpose, was represented mainly by Baulderstone personnel - principally Mr Steven Wise. No one from LMI or LMIA had direct contact with the Authority after the meeting of 8 July 1997. In the course of that period of two weeks or so, the Authority made it clear that it had reservations about DSC's bid, mainly because of an inadequate equity content which would leave the Victorian government exposed to financial risk. That concern prompted an approach to Seven Network Limited ("Channel 7") which agreed to support the DSC consortium by way of a substantial equity contribution to the project, at the same time negotiating a position for itself in relation to television coverage of events at the stadium. 8 On 27 July 1997, DSC lodged with the Authority a bid addendum for both its conforming and preferred bids, together with a covering letter which read in part as follows: "At our presentation in early July you challenged our Consortium to remove the risk to the Government. We have risen to that challenge. We have delivered a bid that is significantly enhanced which now offers a premium to secure the project." 9 By letter dated 4 August 1997, the Authority informed DSC that the DSC consortium was one of two short listed bidders, the other being the Melbourne Sports Stadium Consortium led by Transfield and Grocon. Also dated 4 August 1997 was a document from the Authority headed "Unsatisfactory Parts of Your Bid as at 4 August 1997". One of the items in that document was the following: "Your management team of LMI/ISFM has no direct Australian Stadium management experience." 10 On or about 5 August 1997, representatives of DSC informed the plaintiffs, through Mr Watson, of the concern raised by the Authority as to the lack of direct Australian stadium management experience. The following day, 6 August 1997, Mr Watson faxed to Mr Wise of Baulderstone a letter which read in part as follows: "In order to satisfy the Dockland Authority's concern regarding the operations of LMI/ISFM (no present operation within Australia) we will enter into discussions with Spotless immediately to consider their potential amalgamation in the overall operation of the facility." 11 Spotless, it should be noted, was and is an established company the activities of which include the provision of catering and related facilities at various locations, including sporting and entertainment venues. Spotless was soon afterwards approached by Mr Watson with a view to gauging its interest in playing an appropriate role in support of the DSC bid. Spotless was, at that stage, unable to commit itself because of a pre-existing involvement in the Transfield/Grocon bid. Spotless nevertheless made it clear that it would be interested in playing a role in relation to the DSC bid should it become free from its commitments to Transfield/Grocon. Mr Watson informed Mr Wise of the Spotless position. 12 As a separate measure, steps were taken to bolster the local experience base of LMIA by recruiting Mr Spangler who was at the time the chief executive of the organisation which operated the Melbourne Tennis Centre, site of the Australian Open, one of the Grand Slam tennis tournaments. 13 On or soon after 22 August 1997, DSC received from the Authority, in preparation for a meeting scheduled for 25 August 1997, a document headed "Outstanding Key Stadium Issues as at 22 August 1997". One item on the list was "Superior management proposal" against which, in an "Action" column, appeared "DSC". 14 On 1 September 1997, the Authority announced that DSC was the successful bidder. Four days previously, on 28 August 1997, SOL was formed. It was, as I have said, a wholly owned subsidiary of Baulderstone. On 3 September 1997, an agreement entitled Stadium Development Agreement was executed, the parties to it being the Authority, a company in the A.W. Baulderstone Group called Stadium Management Limited, National Mutual Trustees Limited and SOL. The second and third were respectively the manager and the trustee of a unit trust established for the purposes of the transaction. They, together with SOL, were designated "Developer". Clause 1.11 provides that the obligations and duties of the Developer may be performed or discharged "by any one or more of the entities comprising the Developer". Clause 15 of the agreement is headed "Project Co-ordination and Stadium Management". Included in that clause is the following clause 15.6: "The Developer must execute a Stadium Management Agreement with the appointed Stadium Manager by no later than 30 days before the date for Practical Completion and must perform and observe all obligations imposed upon it by the Stadium Management Agreement. Before appointing a Stadium Manager and executing a Stadium Management Agreement, the Developer will consult in good faith with the Authority and, so far as the Authority reasonably requires, the AFL, with a view to ensuring that the management arrangements to be contained in the Stadium Management Agreement reflect commercial arm's length arrangements equivalent to the arrangements that it would be reasonable to expect the Developer could have negotiated were the appointment of the Stadium Manager to have been conducted by way of a competitive tender open to Australian and international operators and managers of stadia equivalent to the Stadium." 15 "AFL" is a reference to the Australian Football League. The term "Stadium Manager" is not defined, but the definition of "Stadium Management Agreement" is as follows: "Stadium Management Agreement means an agreement generally in the form contained in Schedule 12."

Schedule 12 contains a form of agreement between SOL and LMIA. More will be said in due course about that form of agreement and the genesis of clause 15.6. 16 On 10 August 1998, the agreement contemplated by clause 15.6 of the Stadium Development Agreement was made. But the appointed manager was not LMIA. It was Nationwide Venue Management Pty Limited, a wholly owned subsidiary of Spotless. LMI Melbourne Pty Limited (a wholly owned subsidiary of LMIA) was appointed a consultant to Nationwide Venue Management and agreed to provide defined services in support of that company's activities as manager of the stadium. When LMI Melbourne accepted this appointment, LMIA expressly reserved its rights under the heads of agreement. The appointment was, in June 2000, terminated in accordance with the agreement when Nationwide Venue Management ceased to be manager of the stadium.

The plaintiffs' claims 17 Arising out of these circumstances, LMI and LMIA have made several claims against the defendants. The first is a claim for breach by DSC of a contract said to be constituted by the heads of agreement of June 1997, the breach consisting of failure by DSC to ensure that LMIA was appointed manager of the stadium in accordance with clause 2. Second, there is a claim against Baulderstone and International for inducing this breach of the contract constituted by the heads of agreement. 18 The third claim is a claim for payment or reimbursement of certain expenses incurred by LMI and LMIA for services and assistance provided during the pre-award stage. This claim is advanced in a threefold way: first, under a contract, second, on the basis of conventional estoppel and, third, on the basis of restitutionary principles. 19 The core issues arising in relation to the first claim are, first, whether the heads of agreement were a contract, second, as to the operation and effect of that contract (including any implied terms) and, third, whether any contract is void for uncertainty. The second claim raises additional issues, including issues as to the knowledge that should be attributed to certain bodies corporate. I shall deal with the various elements of the first and second claims before turning to the claim for reimbursement of expenses.

Contractual effect of the heads of agreement 20 In arguing that the heads of agreement constitute a contract, the plaintiffs point immediately to recital E: "If any of the Bids are successful the parties intend to enter into a formal Facility Management Agreement, but, in the meantime, intend this Heads of Agreement to be legally binding." 21 It is not disputed that both DSC and LMIA subscribed to the document and thus to the apparent statement of mutual intention that it be legally binding. The statement is, as the plaintiffs point out, reinforced by the way in which DSC later described and presented the heads of agreement. In the bids it submitted to the Authority, the following statement appeared: "In addition, the bid company has entered into a Heads of Agreement with LMI Australia Pty Ltd regarding its role as operator of the stadium. This agreement, and a draft of the Facility Management Agreement for the stadium are contained in Part E of the bid document." 22 This description of the heads of agreement as "This agreement" in a sentence also referring to a "draft" of some other agreement may be taken to demonstrate DSC's acceptance of their contractual nature. The subsequent statement is admissible on the question whether a contract was formed: see Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 at [25] per Heydon JA. Furthermore, Mr Wise, the Baulderstone officer principally involved in the affairs of DSC, admitted in cross-examination that, in his mind, the heads of agreement were a legally binding contract. 23 It is to be noted, however, that the document itself is entitled "heads of agreement" and, to that extent, may be taken to indicate that it is of a preliminary nature only. Speaking of the words "in principle" included in the parties' description of their compact in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 5 BPR 9315, McHugh JA said that "they cannot prevail against the conclusion to be drawn from the words 'a legally binding agreement'". Here, the qualifying expression is "heads of agreement" rather than "agreement in principle". That, to my mind, does not detract from the force of the statement in the recital that, pending the making of a formal facility management agreement, the parties intend the document to be legally binding. What it does do, however, is focus attention on the aspect of the recital showing that the heads of agreement do not represent the parties' contractual last word. 24 Recital E makes it clear that the parties contemplated a subsequent binding contract. That raises a question of classification of the heads of agreement according to the four classes identified in Masters v Cameron (1954) 91 CLR 353 as supplemented by McLelland J at first instance in Baulkham Hills Private Hospital by reference to Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310:

Class 1: Where the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.

Class 2: Where the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.

Class 3: Where the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

Class 4: Where the parties are content to be bound immediately and exclusively by the terms which they have agreed upon whilst expecting to make a further contract in substitution for the first contract containing, by consent, additional terms. 25 A decision as to where the heads of agreement fit within this scheme will be assisted by an examination of features in addition to the two obvious ones to which I have already referred (being the description "heads of agreement" and the statement of intention in recital E). Beyond that, there were several aspects which served to emphasise the preliminary and, to an extent, incomplete nature of the arrangement recorded. Mr Campbell QC, senior counsel for the defendants, pointed to a number of such matters. I refer to them not in any order of significance or importance. 26 Clause 3.1 makes it the responsibility of LMIA to "provide the Management Services", that is, "the services to be provided by LMI [that is, LMIA] in managing the Facility" including in particular those listed in schedules 1 and 2. Those schedules do not sit happily with the body of the document. It is clear from the evidence that they were simply lifted from an earlier draft agreement prepared by LMI's lawyers in the United States. They contain one blank space (for a number of days), one section in square brackets which appear to make it provisional or draft in nature, a reference to an undefined "Consortium" and six cross references, by number, to provisions which either do not exist or do not relate to the subject matter at hand. 27 A number of matters are left for subsequent agreement. There is provision for the initial term of 20 years to be extended if LMIA "is satisfactorily achieving agreed performance and operational standards". There is also provision for the parties to agree budgets before the start of each year. Moneys collected by LMIA are to be deposited into an account "in an agreed Bank" out of which certain designated payments are to be made as well as "other payments agreed with" DSC, with the balance being remitted to DSC "at regular intervals as agreed from time to time". There is provision for the payment to LMIA of "a Performance Compensation Fee based on the net profit of the Facility" and the parties "agree to confer and co-operate in good faith to agree upon an appropriate formula for calculation of such a fee". LMIA's right to reimbursement of pre-appointment expenses extends to those "agreed with the Developer". There are provisions under which the parties "shall agree upon" capital improvement budgets, "appropriate insurances" and a standard form of contract for concessions (although the last is qualified by the words "as far as practicable"). In none of these instances is there any machinery to fill the relevant gap if the parties do not agree. 28 Next, there are several core provisions dealing with "Operating Expenses" and "Operating Revenues". Part of LMIA's responsibility is to perform its functions so as to minimise Operating Expenses and maximise Operating Revenues in the best interests of DSC. The provisions concerning budgets contemplate that such budgets will list "all projected Operating Revenues and Operating Expenses". The bank account provisions refer to collection and deposit of Operating Expenses, as do the provisions about reporting by LMIA. Despite the fact that these terms start with capital letters, there are no definitions of "Operating Revenues" and "Operating Expenses". The document makes it clear that definitions were at one stage intended but were deleted. 29 Finally, there is a provision in which LMIA acknowledges its awareness of the terms of three other agreements and agrees that, in providing the management services, it will comply with the terms of each "and the provisions of this agreement shall be read down accordingly". The three agreements mentioned are "the AFL User Agreement" (which is defined as a particular agreement dated 1 April 1997 between the Authority and the Australian Football League), "the Stadium Usage Agreement" (which is defined as the agreement referred to in schedule 4 to the AFL User Agreement and which therefore may be taken to have existed at the time) and "the Lease". The last is defined as the lease "to be entered into" between DSC and the Authority for a term of not less than 40 years but otherwise with no indication as to its terms or content. 30 The capacity for matters of these kinds (particularly lacunae with no specified means of being filled) to deny legal force to a compact otherwise apparently intended to have such force is illustrated by the decision of the Court of Appeal in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1. That case, like this, involved a document termed "heads of agreement". That document was, by its terms, to be superseded by a detailed agreement to be negotiated but so that the negotiation "shall not in the meantime in any way prejudice the full and binding effect of what is now agreed". Kirby P, in whose judgment Waddell AJA concurred, went through the heads of agreement clause by clause, identifying features tending for and against a conclusion of present contractual force despite the clear contemplation of a future and superseding contract. 31 When the same exercise is undertaken here, it seems to me clear that the indications in favour of present contractual force prevail, despite a number of uncertainties and gaps; also that those uncertainties and gaps are not, individually or together, sufficient to deprive the whole of coherent contractual meaning. The schedules 1 and 2, with their one blank space and inappropriate cross-referencing, are easy enough to understand. The period of days which has been left blank should be construed as a reasonable period and the subject matter of the cross-referencing makes it reasonably clear which substantive provision is intended. The provisions dealing with "Operating Expenses" and "Operating Revenues" in the absence of definitions of those terms are quite intelligible, given that the two expressions may be regarded as having readily discernible ordinary meanings in the context of management and operation of something such as a stadium. This is in accord with the approach taken by the High Court to the undefined term "supplier's costs" in a commercial agreement in Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429. The clause by which LMIA acknowledges its awareness of and agrees to comply with nominated agreements are likewise intelligible and meaningful in relation to the two agreements which existed when the heads of agreement were signed. 32 Two aspects require closer analysis. The first is the provision by which LMIA acknowledges its awareness of and agrees to comply with an agreement not in existence, being "the Lease". That provision also causes the heads of agreement to be read down to the extent necessary to allow full and unqualified operation to the provisions of the non-existent "Lease". The provision thus operates not only to require certain conduct on the part of LMIA but also to modify the effect of the heads of agreement. The latter aspect must be seen as operating in the future in relation to "the Lease". The provision ensures that, to the extent of any inconsistency which emerges when the lease comes into existence, the terms of the heads of agreement will then yield. The provision thus has a cogent and meaningful operation despite the non-existence of "the Lease". 33 The other aspect which requires particular attention is the collection of provisions which contemplate future agreement on particular matters. The guiding principle in such cases was stated by Lloyd LJ (with whom the other members of the Court of Appeal agreed) in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601: "But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called 'heads of agreement'." 34 It is thus clear that the presence of elements amounting to "agreement to agree" is not fatal to the existence of a contract. I do not lose sight of the observation of Gibbs CJ, Murphy and Wilson JJ in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600: "It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future. Consequently, if the lease provided for a renewal 'at a rental to be agreed' there would clearly be no enforceable agreement." 35 Such lack of definition and consensus will be fatal to the existence of a contract only if it is pervasive. The matter was put thus by Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 353: "[I]n the ordinary case, as a matter of fact and common sense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention."

There is, in other words, a point beyond which "agreement to agree" elements (of themselves unenforceable) cause the totality to fail. The central question, it seems to me, is whether the elements not affected by that problem of unenforceability are sufficiently cohesive and coherent to stand as a contract in their own right. This is probably another way of addressing the question whether elements so affected may be severed in accordance with principles discussed in cases such as Whitlock v Brew (1968) 118 CLR 445 and David Jones Ltd v Lunn (1969) 91 WN (NSW) 468. 36 The items left for future agreement by the heads of agreement are such that, if no agreement emerges on any of them, there will be no means of implementing any extension beyond the initial 20 years, there will be uncertainty about the bank at which the bank account is to be maintained, there will be no definition of payments to be made out of that account beyond the specifically designated payments and there will be no basis for the calculation of any performance compensation fee. I have passed over here the provisions envisaging agreement as to budgets, insurances and a form of contract for concessions. I have done so because I regard those elements as of a different kind, in that the subject matter is of its nature changeable so that it is not meaningful to think of a single and definitive prescription at the commencement of a 20 year term. The parties are really flagging, in these areas, matters upon which they will need to consult and agree periodically in the light of changing circumstances as the term progresses. 37 Having regard to and allowing for the "agreement to agree" elements not of the periodic nature to which I have just referred, it is clear that the remaining elements of the heads of agreement are sufficiently cohesive and coherent to stand as a contract in their own right. The functions and responsibilities of LMIA as manager are defined, as is the term (at least to the extent of the initial period of 20 years). The other central feature, being the fee payable to LMIA as manager is stated clearly: it is $23,000 per month until the "Operations Start Date" and $500,000 per year thereafter, with the annual fee being adjusted upwards annually in line with any increase in the consumer price index. There are also meaningful and complete provisions on record keeping and reporting. The heads of agreement, unlike those considered in Coal Cliff Collieries (above), do not present a need to supply elements dependent upon guesses or predictions about how "executives, attending to the interests of their corporation and its shareholders might act in negotiating such a transaction ….". The basic transaction in this case was not of great complexity and was, in many ways, conceptually akin to a contract of employment or contract for services where the central terms are often so straightforward as to require little by way of writing. 38 My conclusion, therefore, is that the heads of agreement acquired contractual force when executed and that this was so despite the contrary indications to which I have referred. In terms of the Masters v Cameron classes, the heads of agreement fall into either the first or the fourth. For present purposes, I do not consider it necessary to be more precise than this.

The condition precedent in clause 2.1 39 DSC's obligation under clause 2.1 of the heads of agreement is an obligation to appoint LMI as manager of the stadium. Mr Campbell QC conceded that this includes an obligation on the part of DSC to ensure that any associated company acquiring the power to appoint should exercise that power by appointing LMIA. But DSC's obligation is conditioned by the opening words of clause 2.1: "If any of the Bids are successful". These same words introduce recital E which records the intention of DSC and LMIA to enter into a formal facility management agreement. They are also used in recital C which refers to the parties' agreement that LMIA will be appointed manager of the facility. 40 The meaning to be attributed to "If any of the Bids are successful" must be gathered from the circumstances which existed when the heads of agreement were concluded. The question whether the condition was satisfied requires examination of the facts concerning the bidding process and its outcome. 41 The meaning of "the Bids" is elaborated by the definition in clause 1.1: " 'Bid' or 'Bids' means the conforming bid and the non-conforming bid or bids to be made by the Developer (or by Baulderstone on behalf of the Developer) to the Docklands Authority for the purposes of the Developer being selected to fund, develop, own and operate the Facility." 42 Colour is added by recitals A and B: "A. The Developer is presently developing the Bids (in competition with two other consortia) for the Facility. B. The Bids are to be submitted to the Docklands Authority on or before 30 June 1997." 43 The system under which bids were developed and submitted is detailed in the Authority's document of April 1997 entitled "Melbourne Docklands Stadium Form of the Bid Proposal". This system envisaged both conforming and non-conforming bids. In either case, however, the bid was not seen as an offer capable of acceptance. Rather, it "… will form part of the basis on which preferred developers will be selected by the Authority". 44 The Authority's objective was stated thus: "The Authority may choose to negotiate with a developer any combination of conforming and non-conforming bid options in a Development Agreement." 45 The categories of evaluation of bids were stated as follows: " · Design and amenity; · Integration; · Financial/Risk; · Viability; · Proposed quality of design and construction and programme for the construction and commissioning; · Proposed quality of management, operations, market attractiveness, competitiveness, and maintenance and capital upgrade programmes; and · Other." 46 The Authority's expectations concerning treatment of stadium management in a bid should be quoted in full: "PART E - MANAGEMENT AND OPERATIONS PLAN This section must provide a clear and detailed description of the proposed Stadium Manager/Operator, including its experience, approach and business plan. The scope and quality of the services to be provided should be described in detail. This detailed plan for managing the Stadium and its customers is to demonstrate how the manager will achieve world's best practice in all areas of Stadium management and operations. This section will also detail how the Stadium manager will consider the needs of spectators, media and users. Developers will need to ensure that contractual documentation with their proposed manager reflects the contractual obligations of the successful developer, as reflected in the Stadium Development Agreement Documentation , AFL User Agreement and other user agreements as determined. This will include ensuring pourage rights, sponsorship rights and signage rights are consistent with the user agreements for each of the major sporting bodies. The Stadium Manager will be required to provide a minimum standard of services to users in accordance with the Stadium Development Agreement Documentation and AFL User Agreement and other user agreements as determined. Developers are to provide draft contractual documentation with their proposed manager for approval by the Authority."

47 The part to be played by the contract to be entered into with a manager identified in the bid was the subject of particular comment in the documents made available by the Authority to prospective bidders. One such document (Exhibit 7 to the witness statement of Mr Mitchell) listed several criteria against which bids would be assessed. Under a heading concerned with management and operation of the stadium after construction, four criteria were identified: " · the developer's team; · the relevant experience of the proposed Manager/Operator; · the Management and Operations Plan to be provided as part of a developer's Bid Proposal; and · the Maintenance and Capital Upgrade programme to be provided as part of a developer's Bid Proposal." 48 Further insight into the Authority's thinking on how the management issue would be handled after bids had been received is provided by the executive summary extracted as Exhibit 8 to Mr Mitchell's witness statement. The concluding assumption in that extract is particularly significant. The extract is as follows: "The Development Agreement makes provision for a form of Stadium Management Agreement to be entered into by the selected developer and a suitable manager, but the form of this agreement is not presently prescribed and it is assumed that management arrangements will form an important part of the negotiations with the short-listed bidders." 49 The Authority thus created a framework in which interested parties were invited to submit proposals which the Authority would then examine and evaluate with a view to selecting one or more parties to engage in a process of negotiation. While the Authority no doubt assumed certain legally enforceable duties regarding its conduct of the process (cf Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151), that process was obviously of such a nature that a bid could not be a simple "take it or leave it" matter. A bid could not be "successful" through its simple acceptance. Some more complex meaning of "successful" must have been contemplated by clause 2.1 of the heads of agreement. 50 The evidence makes it clear that the process of post-bid negotiation with short listed candidates envisaged by the Authority's framework was undertaken in relation to the bids submitted by DSC. It was that process which brought about the execution of the Stadium Development Agreement. Whereas DSC had lodged the original bids, it was SOL (together with two other entities) which, as "Developer", entered into the Stadium Development Agreement. That was a by-product of the financial structuring eventually adopted. Recital C to the Stadium Development Agreement says that DSC submitted its bids "on behalf of" the three corporations making up "the Developer". The same is said in its definition of "Bid Proposal". This is a fiction, given that one of the three (SOL) did not exist when DSC's bids were submitted and that the other two did not at that time have a connection with the project. The fiction was designed to suggest continuity between the bids in fact submitted by DSC and the outcome in favour of SOL and the two other corporations making up "the Developer" as eventually constituted. 51 The Stadium Development Agreement also demonstrates a very distinct shift in the area of stadium management. DSC's bids were on the footing that the manager would be LMIA with which DSC had entered into the heads of agreement. A clear cut management arrangement was represented as being in place and was adopted by DSC's bids. The Stadium Management Agreement did not incorporate or embrace that arrangement. Clause 15.6 is set out above. It imposes two substantive obligations on SOL and the two other parties constituting "the Developer". First, there is an obligation to enter into "a Stadium Management Agreement with the appointed Stadium Manager" within a certain time. Second, there is an obligation to consult in good faith with the Authority on certain matters before "appointing a Stadium Manager and executing a Stadium Management Agreement". 52 Both these aspects draw upon the definition of "Stadium Management Agreement" which is also set out above and directs attention to schedule 12 where there appears a form of agreement between SOL and LMIA. The content of that form of agreement (which, as stated, is an integral part of the Stadium Development Agreement) throws further light on the connection between the bids centred on DSC and the outcome centred on SOL and the other two corporations. There is again, in recital A, a reference to the fiction that DSC submitted a bid "on behalf of" someone else, although on this occasion it is only SOL which is mentioned as the principal. It is then recited in bald terms, "The Bid has been successful". A subsequent recital states that "DSC and LMI [ie, LMIA] entered the Heads of Agreement on the # day of June 1997 in relation to the management of the Facility". There then follow recitals H and I: "H. Now that the Bid has been successful the parties wish to enter into a formal Agreement, which supersedes the Heads of Agreement, to record the terms upon which LMI shall manage the Facility for and on behalf of SOL. I. The Docklands Authority has approved the terms of this Agreement as required by Clause 3.1 of the Lease." 53 It is significant that this form of agreement is part of the Stadium Development Agreement and that the whole of the content of the form of agreement - in particular, the recitals to which I have referred - is the subject of promises taken by the Authority from the Developer (SOL and the other two corporations) in clause 15.6 of the Stadium Development Agreement. By causing the form of agreement to which LMIA was party to be part of their Stadium Development Agreement and giving and receiving contractual promises by reference to it, the Authority and SOL (together with the two other constituents of the Developer) re-affirmed, as among themselves, the fiction that the bids in fact lodged by DSC had been lodged by it on behalf of the Developer and subscribed to the simple statement in the recitals to the form of agreement that a bid lodged by DSC had "been successful". 54 In truth, however, there were substantial differences between the basis set out in the DSC bids and the basis eventually reflected in the Stadium Development Agreement. This was particularly so in the area of financing and in relation to the operator or manager. The Authority saw shortcomings in the DSC bids in relation to these matters. Those bids left the Government with a significant financial risk on the funding side. In relation to management, they involved an unequivocal commitment to LMIA (as a joint venture between LMI and ISFM). From the earliest discussions after DSC had become one of the two short listed parties with which negotiations were to proceed, the Authority made it clear that those two aspects of the DSC proposal were not satisfactory to it. The concern about the first caused a restructuring of the consortium and its financial arrangements so that equity and debt providers were introduced. In fact, those parties (particularly Channel 7) then came, not unnaturally perhaps, to play a significant role in negotiations with the Authority at the expense of the influence enjoyed to that point by Baulderstone. 55 The Authority's concern about management centred upon the lack of relevant Australian experience by LMIA (or, more specifically, LMI and ISFM). The commitment to LMIA proposed by DSC was unacceptable to the Authority. Once that concern became known, LMIA or its principals took steps to bolster the Australian experience base of LMIA by recruiting Mr Spangler. Coincidentally, LMI/ISFM won at that time the management rights in respect of the multi-use arena which was in the course of construction as part of the Sydney Olympic Park, venue of the Olympic Games to be held in 2000. But neither of these developments allayed the Authority's concerns. Mr Spangler's experience was regarded as lying in an essentially different field involving a much smaller venue divorced from Australian football which would be the staple of the stadium. The Sydney appointment was seen as neutral or perhaps marginally negative: it presented the potential for the LMIA effort and effectiveness to be dissipated and, in any event, involved a role in which LMIA still had to prove itself. 56 The main effort on attempts at resolving the Authority's twofold concerns (equity and management) was devoted to the equity side. This effort eventually resulted in a major restructuring of the financial arrangements. The management issue kept coming up as an agenda item at meetings through which the negotiation consequent upon the lodgment of the DSC bids was conducted. But it was not until the final days of that process, when time constraints were pressing because it had been announced that the result would be disclosed on 1 September 1997, that a solution based on clause 15.6 of the Stadium Development Agreement was devised. 57 That solution involved a departure from the Authority's original expectation that the issue of management would be resolved in the negotiation arising from a submitted bid, even to the extent of examining and settling the form of draft management agreement a bidder was required to include in the bid. The departure was necessary because of the Authority's continuing and unresolved worry about the LMI/ISFM management proposal and the practical impossibility of working out anything else in the short time still available. Mr Wise's explanation in examination in chief of the way in which clause 15.6 came about was as follows (referring to a meeting with Authority representatives on 25 or 26 August 1997): "CAMPBELL: Q. We are asking for what was said at the meeting? A. Mr Tabart told us that the operating solution remained an unsatisfactory part of our bid and that they required a solution that meant the bid brief of both local capacity and international experience. We talked about - sorry, Mr Tabart suggested that a tender process after the preferred bidder status was a way of dealing with it in a way that was satisfactory to the Docklands Authority. Q. Did he say anything about what was involved in this tender process? A. Mr Tabart required a clause to be agreed that gave him comfort that the operating solution was the best available to the stadium to deliver, the stadium, after the preferred bidder stage." 58 Mr Tabart was at the time and still is the chief executive of the Authority. Mr Tabart gave evidence. He agreed that the clause 15.6 approach was decided "right at the end of the process when a lot of things were being tidied up in all areas". His account of the origins of clause 15.6 was as follows: "Q. Picking up what you have said to his Honour then, what are you able to say on the topic that you mentioned of how to provide a better management solution? A. Because their proposal in this area was unsatisfactory to us, Australian experience, on the ground in operating stadia similar to what this was going to become, we sought for them to improve their proposal in whatever way they could. We sought for them to eventually describe a process within which we would be consulted on how they might appoint a manager or an operator after winning the bid, if they won the bid. That was agreed to, clause work was agreed. It was put into the agreement which they then executed, and subsequently they did win the bid. Q. So far as the discussions that you have referred to about a clause which provided for the appointment of a manager after winning the bid, what are you able to tell his Honour about the substance of that sort of discussion? A. It was a clause that referred to the qualities of the stadium operator that would be appointed, and a process by which it would happen, a process which I think words like "arms length" were there to ensure that it was not just a subsidiary of the winning bid group, and it was truly an arms length agreement. It was negotiated with players in a circumstance that might be similar to that that would come out, would result from a competitive process for calling bids for a stadium manager and operator. It was all designed to give us the comfort that the consortium, with a lot of equity in this project, would be seeking a suitable manager and skilled operator anyway. This was the way in which we felt that put the pressure on them after the event, and we would be consulted." 59 In the course of cross-examination, Mr Tabart said: "Q. You understood that the proposal up to this change was that LMI would be the operator, did you not, the proposal had been put forward? A. Yes. Q. There had been a change, wasn't there, round about late August as far as you were concerned, because your understanding of this clause was that the question of the operator was to be deferred? A. I wouldn't use those words. What I would say is there was an agreement to allow an operator to be selected after the bid, if they won the bid and there was a process by which that would happen, whether LMI were involved in that or not was up to what happened afterwards." 60 Clause 15.6 was drafted by Mr Stewart, a partner of Arthur Robinson & Hedderwicks, the firm which was retained in late July 1997 to act for the bidding group. Mr Stewart gave evidence. He said that the instructions to draft clause 15.6 were given to him by Mr Wise. His account of the origins of the clause was as follows: "Q. Is it fair for his Honour to assume however that whatever the precise nature of the concerns articulated by the Docklands Authority at that meeting, you believed that your drafting of clause 15.6 would meet those concerns? A. I - we approached clause 15.6 and the issue it raised perhaps in a slightly different way to the Docklands Authority's preference, in the sense that it raised issues which we believed could be dealt with at a later stage in the process, insofar as it dealt with substantive issues about the contractual arrangements for the operation and management of the stadium, and therefore -- Q. Did I cut you off? A. I was just going to say and therefore we sought to convince the Docklands Authority that it was appropriate for the finalisation of the operation and management arrangements to be done after the awarding of the bid."

He later said: "CAMPBELL: Q. You said, 'We approached clause 15.6 and the issues it raised in a different way to the Docklands Authority's preference'. What did you mean by that answer, in a different way to the Docklands Authority's preference? A. What I meant was that the Docklands Authority had issued drafts of the stadium development agreement, which contemplated that an operating and management agreement would be finalised at the time the stadium development agreement was executed. We sought to convince them that that was unnecessary on the timetable that the bid was being run to, and that it would - the operation and maintenance arrangements could best be dealt with post the award of the bid." 61 It is thus clear that, in the minds of Mr Wise, Mr Tabart and Mr Stewart, the DSC bids were not satisfactory to the Authority while the LMIA management role remained an integral part of them. It is also clear that, as those three witnesses saw things, the approach based on clause 15.6 was necessary to overcome this and that that approach left not only the terms of a management agreement but also the selection of the manager for future decision. Although clause 15.6, on its face, does not necessarily seem to work that way (based, as it is, on the schedule 12 form in which LMIA is actually named), closer analysis shows that it does. This is despite the fact that clause 15.6 operates by reference to the schedule 12 form and that that form is an agreement between SOL and LMIA containing recitals referring to the relationship between DSC and LMIA created by the heads of agreement and, with the aid of the agency fiction which I have mentioned, seeking to provide a link of continuity between the heads of agreement relationship and the execution of the final agreement in the schedule 12 form. 62 The first obligation imposed by clause 15.6 is an obligation to "execute a Stadium Management Agreement with the appointed Stadium Manager". There is thus an indication that some form of appointment of a stadium manager will have occurred before the agreement is executed. It seems, therefore, that "appointed" really means "selected". That meaning is reinforced by the second paragraph of clause 15.6 which imposes a requirement which must be observed or performed before "a Stadium Manager" is appointed and "a Stadium Management Agreement" is executed. The execution of the agreement is thus not seen as the means by which the appointment is effected. There are clear indications that there is to be a selection process of a kind inconsistent with the notion (emerging from schedule 12) that LMIA will be appointed come what may. 63 To the extent that there is any ambiguity on this in the words themselves, evidence of surrounding circumstances existing at the time of its formation may be taken into account in construing the Stadium Development Agreement: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 and see Heydon JA's first principle in Brambles Holdings v Bathurst City Council (above). There is here ample evidence that the Authority had declined to accept LMIA as manager and that the promoters of the bid had, with its concurrence, set about documenting a way of deferring the choice of manager until after the Stadium Development Agreement had been executed. 64 Another point to be noted is that, whilst clause 15.6 operates by reference to "a Stadium Management Agreement", it does not compel exact adherence to the schedule 12 form. "Stadium Management Agreement" is defined as meaning an agreement "generally in the form contained in Schedule 12". The word "generally" shows that there may be departures and that the schedule 12 form, while more than guidance, is not definitive. This is another basis on which the references to LMIA as a party and to the recitals may be relegated to a non-essential position. 65 A third point indicating that the schedule 12 form is by no means definitive is the substantive effect of clause 15.6 itself. The pre-condition to the obligation to appoint a Stadium Manager and to execute a Stadium Management Agreement is consultation with a view to ensuring that "the arrangements to be contained in" the agreement are of the relevant arm's length description. There is a clear expectation here that, if that consultation produces a consensus that the schedule 12 terms are not of the contemplated arm's length quality, they will be modified. 66 In the end, clause 15.6, coupled with schedule 12, cannot be seen as ensuring or requiring the appointment of LMIA as manager. Its true effect is to require SOL and its two co-parties to select and contract with a suitable party once the consultation required by the clause has been completed. That party need not be LMIA.

The condition precedent was not satisfied 67 I return now to the central question whether, in the events which happened, it can properly be said that either of the bids submitted by DSC "was successful". I have concluded that neither such bid was successful. This is so because of two important departures which caused the arrangements eventually reflected in the Stadium Development Agreement to differ in a material way from the arrangements proposed in the bids. 68 The first such departure is in relation to funding and financial structure. It is summed up in the following statement of Mr Wise in cross-examination: "But the heads of agreement was for a bid placed on 27 or 30 June, which was $150 million short of underwriting and required the Victorian Government to provide that. The bid on 1 September was fully and absolutely underwritten by private equity. The bid had changed."

The change involved the introduction of new parties committed to providing the finance that original consortium members would not or could not provide. The balance of influence within the bidding group shifted to the equity providers. 69 The second departure - of more immediate relevance, in the present context - was in relation to management of the stadium. The bids of June proposed LMIA as manager. The arrangements embodied in the Stadium Development Agreement did not adopt that proposal and left the choice of manager for future decision. The feature of the bids involving appointment of LMIA as manager thus did not find a place in the concluded arrangement arising from those bids. 70 Related companies of DSC were "successful" in becoming two of the three companies which together became "the Developer" under the Stadium Management Agreement. That "successful" outcome would not have been achieved but for DSC's having submitted its two bids to the Authority. But neither of those bids was "successful" because neither was in substance translated from proposal to contract. Intervening events and negotiations brought about substantial differences and departures in relation to parties, in relation to funding and financing and in relation to management and identity of the manager. 71 It follows from this that the condition to be satisfied before DSC was obliged by the heads of agreement to bring about the appointment of LMIA as manager of the stadium on the basis stated in the heads of agreement was never satisfied. It also follows that, according to the correct construction of the heads of agreement, no breach of its express terms occurred through non-appointment of LMIA as such manager. In saying this, I do not resort to any strict or literal approach at the expense of an approach consonant with business reality. Mr Sullivan QC, senior counsel for the plaintiffs, pointed to recent emphasis in the High Court in Pan Foods Company Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd (2000) 74 ALJR 791 and McCann v Switzerland Insurance Australia Ltd (2000) 75 ALJR 325 on the need for a commercial approach to commercial contracts. In the former case, Callinan J said: "In my view, such documents should be construed practically, so as to give effect to their presumed purposes and so as not to defeat the achievement of such purposes by an excessively narrow and artificially constricted construction." 72 I do not consider that the approach I have taken to the pre-condition "If any of the Bids are successful" runs counter to this. On the contrary, once it is recognised that the contractual promise to appoint LMIA was given and, more importantly, received in circumstances where the process about to be embarked upon was a process of negotiation which might see DSC obliged, in its own interests, to depart significantly from its own original desires in order to obtain the ultimate benefit for itself (or, as eventually happened here, for another member of the corporate group to which it belonged), the practical business construction becomes one which must accommodate the possibility that an element of the proposal unacceptable to the Authority will be jettisoned in the course of that negotiation. The negotiation process was one in which it was clear from the outset that the Authority placed great weight on the qualities of the proposed manager and would play an active role in accepting or rejecting the party put forward as intended manager by a bidder. The Authority simply did not accept LMIA.

The plaintiffs' implied terms case 73 The plaintiffs contend that there were two relevant implied terms in the heads of agreement. They are a term that the parties to the heads of agreement would act in good faith in the performance of their contractual rights and obligations pursuant thereto and a term that each party would do all things necessary on its part to enable the other party to have the benefit of its contractual rights. The plaintiffs also say that DSC accordingly had an obligation to do everything reasonably open to it to have LMIA appointed manager of the stadium. 74 As the recent decision of the Court of Appeal in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 shows, there is good reason to think that there are to be found in virtually every commercial contract terms of good faith and reasonableness implied by law. The content of such terms is, in a general sense, that the party bound by them, although free to promote his, her or its own interests, must act fairly and reasonably in all the circumstances. Furthermore and as the High Court has recently reaffirmed in Peters (WA) Ltd v Petersville Ltd [2001] HCA 45 referring to Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 and Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359, the law already implies an obligation by a party contracting to confer a benefit to do all such things as are necessary on its part to enable its counterparty to have that benefit, at the same time desisting from conduct which hinders or prevents the fulfilment of the purpose of the express promise made. 75 It is important to recall, however, that the implied terms mentioned are, of their nature, incapable of rising above express terms. In Burger King, the Court of Appeal quoted the following passage from Metropolitan Life Insurance Co v RJR Nabisco Inc 716 F. Supp. 1504 (1989): "In other words, the implied covenant will only aid and further the explicit terms of the agreement and will never impose an obligation 'which would be inconsistent with other terms of the contractual relationship'. … Viewed another way, the implied covenant of good faith is breached only when one party seeks to prevent the contract's performance or to withhold its benefits. … As a result, it thus ensures that parties to a contract perform the substantive, bargained-for terms of their agreement." 76 The substantive, bargained for terms in the present case were that DSC would cause LMIA to be appointed manager if, as a result of the process of negotiation with the Authority envisaged by the bid parameters, there emerged a contract with the Authority embracing and accepting the management arrangements put forward in DSC's bids. No such contract emerged, with the result that there was no occasion for implied terms of the kind under discussion to come to the aid of the substantive, bargained for terms. Nor, I might say, do I consider that any implied term required DSC to risk its own interests by insisting in negotiations upon retention of the bid feature involving appointment of LMIA as manager. Once it encountered substantial resistance from the Authority, DSC was free to modify its proposal to overcome the problem. 77 This last point is, I think, borne out by clause 15 of the heads of agreement: "Neither party shall have any claim against the other if a Bid is not lodged or if none of the Bids lodged is successful or if one of the Bids lodged rather than any other is selected."

If, as this provision shows, DSC was free to change its mind about lodging a bid at all, it could scarcely be contended that, having lodged its bids, it was compelled to pursue them in unamended form, however hopeless the prospects of achieving a positive outcome in that form might be.

Inducing breach of contract 78 These findings with respect to alleged breach of express and implied terms of the heads of agreement make it unnecessary to pursue the question whether Baulderstone and International induced and procured DSC to commit a breach of contract as against LMIA by failing to appoint LMIA as manager of the stadium. But in light of the possibility that my decision on the breach of contract question may be reviewed on appeal, I shall deal briefly with the inducement issue. I shall do so on the assumption that, contrary to my findings above, DSC was, in the circumstances existing after the execution of the Stadium Development Agreement by the parties thereto, under a contractual duty to ensure that those of them designated "Developer" appointed LMIA as manager of the stadium on the terms in the heads of agreement. I shall also assume that it was within the power of DSC to bring about such a result. 79 The plaintiffs do not seek to hold Baulderstone and International, as employers, vicariously responsible for the actions of employees who, as directors of DSC, caused that company to fail to procure the appointment of LMIA as stadium manager. As the Court of Appeal noted in Australian Development Corporation Pty Ltd v White Constructions Ltd [2001] NSWCA 9, any such attempt would fail on a twofold basis. First, directors of a company do not commit the tort of inducing breach of contract when, acting as directors, they cause their company to commit a breach. So much is established by Said v Butt [1920] 3 KB 497 and, authoritatively for present purposes, by O'Brien v Dawson (1941) 41 SR (NSW) 295 and, on appeal, (1942) 66 CLR 18. Recent examples of the application of the principle in this Division may be found in Tsaprazis v Goldcrest Properties Pty Ltd (2000) 18 ACLC 285 and Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 328. Secondly, a director installed as such on the board of another company by his or her employer is in general presumed not to be subject to the employer's direction when performing functions as a director, so that no vicarious liability attaches to the employer for the employee's conduct in that capacity: Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187; Dairy Containers Ltd v Auditor-General [1995] 2 NZLR 30; New Zealand Guardian Trust Co Ltd v Brooks [1995] 1 WLR 96. On a different front, while the plaintiffs did seek to place some reliance upon the decision of the Court of Appeal in CSR Ltd v Wren (1998) 44 NSWLR 463, it is clear to me that the evidence in this case would not support a finding that the holding company of DSC had assumed direct responsibility to persons having relationships with the subsidiary so as to bring it within the principle involved in that case, even if that principle could somehow be extended beyond responsibility by way of a duty of care in negligence. 80 The plaintiffs' case of inducing breach of contract is founded on the general proposition that, as it was put by Mr Sullivan QC in his written outline of submissions in chief, "at all times relevant to the proceedings, SOL, DSC, Baulderstone Hornibrook, Baulderstone Hornibrook International and A W Baulderstone Holdings Pty Ltd had a common corporate mind". The need for that submission (or for some other means of attributing to Baulderstone and International knowledge possessed by DSC or natural persons making relevant decisions for DSC) arises from the central importance, in a case of inducement to breach contract, of the state of knowledge of the alleged tortfeasor emphasised in the following passage in the judgment of Isaacs J in Short v City Bank of Sydney (1912) 15 CLR 148: "[T]he defendant must have induced or procured the doing of what he knew would be a breach of contract. A bona fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce its breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said to knowingly procure its breach." 81 The position was summarised by the Court of Appeal in Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 in these terms: "In summary, the defendant must know of the contract and sufficient of its terms to know that what the defendant induced or procured the party to the contract to do would be in breach of the contract. If the defendant knew of the existence of the contract but believed reasonably that what the defendant induced or procured the party to do was not a breach, or reasonably believed that the contract had been rescinded or performance waived, the defendant had not knowingly induced or procured the breach." 82 The directors of DSC at the material times were Mr Dempsey, Mr Forde and Mr Pritchard. Those three persons also constituted the total board of SOL and were three of the five directors making up the board of Baulderstone. Two of them - Mr Forde and Mr Pritchard - were the total board of International. All were, with others, directors of A.W. Baulderstone Holdings Pty Limited. It is in this factual context that the submission of "common corporate mind" was advanced. No evidence was given by any of these directors. There was little evidence of their acts. It was shown, however, that Mr Dempsey, as a director of DSC, sent to Mr Tabart a letter dated 30 June 1997 on DSC letterhead which, from its date and terms, may readily be inferred to have accompanied the DSC bids lodged on that date. Mr Pritchard, as chief executive of Baulderstone, sent a similar letter of the same date to Mr Tabart in relation to which I draw the same inference. A letter of 21 August 1997 (prepared on DSC letterhead, signed by Mr Dempsey and addressed to Mr Tabart) accompanied "our revised offer both on a preferred and conforming basis". 83 For the inducement to breach contract case to succeed on the strength of the "common corporate mind" submission, it seems to me that two propositions must be made out: first, that the corporate entities against which the allegation is levelled (being Baulderstone and International) possessed the degree of knowledge about the heads of agreement and their content made necessary by the above extracts from Short v City Bank of Sydney and Fightvision v Onisforou; and, second, that those corporate entities applied direct persuasion or procurement or inducement to DSC with the intention of bringing about breach by it of its contract. I note here that there is no claim that Baulderstone and International indirectly procured breach by DSC by, as it were, causing DSC to be replaced by SOL and the other two companies constituting "the Developer". As pleaded, the claim is that they induced and procured DSC to agree to SOL being permitted to take the benefit of its rights pursuant to the contract to construct and manage the stadium, thereby inducing and procuring DSC to breach the heads of agreement. 84 So far as the knowledge of Baulderstone and International is concerned, it can be said at once that neither company automatically possesses the knowledge of each of its directors. At the same time, however, a director's knowledge may become the subject of positive duties owed by the director to the company. One such duty arises when a director is in possession of knowledge that a course of action the company has in contemplation may, unbeknowns to the other directors and officers, expose the company to the prospect of harm. A director in that position incurs at least a duty to ensure that the danger of which he or she alone is aware is pointed out to relevant corporate decision makers: Permanent Building Society v Wheeler (1994) 11 WAR 187; South Australia v Clark (1996) 66 SASR 199; Fitzsimmons v R (1997) 23 ACSR 355. 85 Another species of duty to which a director may become subject in respect of his knowledge is a duty actually to communicate that knowledge to the company. Such a duty, as well as a qualification upon it, was stated by Young J (as his Honour then was) in Harkness v Commonwealth Bank of Australia (1993) 32 NSWLR 543: "While ordinarily there will be a duty to communicate knowledge received, where the director is functioning within another corporate organisation and information comes to the director in the course of that work with the other organisation, his duty of confidentiality to that other organisation will subsume any duty he might otherwise owe to the company which appointed him to that organisation." 86 An unqualified duty to communicate information to another person will generally be presumed to be duly discharged, with the result that knowledge of the information is regarded as attributed to that other person. Although it involved a duty arising in a somewhat different way, the following passage in the judgment of Buckley LJ in Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 makes this clear: "Their knowledge must, in my opinion, be imputed to the companies of which they were directors and secretary, for an officer of a company must surely be under a duty, if he is aware that a transaction into which his company is about to enter is illegal or tainted with illegality, to inform the board of that company of the fact. Where an officer is under a duty to make such a disclosure to his company, his knowledge is imputed to the company ( Re David Payne & Co Ltd [1904] 2 Ch 608; Re Fenwick, Stobart & Co Ltd [1902] 1 Ch 507)." 87 Reference may also be made to the discussion of these matters by von Doussa J in Beach Petroleum NL v Johnson (1993) 43 FCR 1 and to the following observation of Vaughan Williams J in Re Hampshire Land Company [1896] 2 Ch 743 approved by the House of Lords in J.C. Houghton & Co v Nothard Lowe & Wills Ltd [1928] AC 1: "Knowledge which has been acquired by the officer of one company will not be imputed to the other company, unless the common officer had some duty imposed on him to communicate that knowledge to the other company, and had some duty imposed on him by the company which is alleged to be affected by the notice, to receive the notice." 88 The principle is of more general application in the field of principal and agent, as is shown by the following observation of Mason J in Sargent v ASL Developments Ltd (1974) 131 CLR 634 concerning information received by a solicitor acting for clients on the purchase of land: "Consequently, as the information as to zoning which Mr Sweeting acquired was within the ambit of his authority from the Turnbulls and as he was under a duty to communicate it to the Turnbulls once he had received it, his knowledge is to be imputed to them." 89 How did the duty to communicate described by Young J in Harkness v Commonwealth Bank (above) in relation to what might be termed an "installed" director operate in this case? Context is, of course, critical. The present context is the familiar one of a group of companies in which a holding company is, in a legal or beneficial sense or both, the sole owner of all shares in a number of subsidiaries, some of which are likewise the sole owners of all shares in yet further companies. It must be recognised, of course, that each company in such a group is a separate entity and may have interests distinct from those of other group members or the group as a whole: Walker v Wimborne (1975) 137 CLR 1; Industrial Equity Ltd v Blackburn (1977) 137 CLR 567. Equally, however, there can be no doubt that the ultimate holding company has a clear power to control the conduct of each subsidiary, even to the extent of altering the subsidiary's constitution to allocate to the members in general meeting (effectively, the immediate holding company by which all shares are owned) key decision making powers commonly entrusted to directors and to prohibit the directors doing certain things for the company. This is the effect of the well-known statement of Greer LJ in John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113 concerning the interaction of shareholders with directors. In addition, of course, the ultimate holding company, while not able to require the directors of a wholly owned subsidiary to act in a particular way, may, either directly or by procuring appropriate action by some intermediate holding company, authorise in advance or ratify retrospectively acts of those directors which would otherwise entail breach of duty by them, thus making directors willing to act as the ultimate holding company wishes. This is the principle enunciated in cases such as Hogg v Cramphorn Ltd [1967] Ch 254, Bamford v Bamford [1968] 3 WLR 317, Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 and Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722. The ultimate holding company can also cause the composition of the board of directors of any wholly owned subsidiary to be changed as and when it wishes. In these ways, behaviour of a wholly owned subsidiary may be strongly influenced and even dictated by its holding company acting not as a negotiating or persuading outsider but as a participant in the subsidiary's own internal decision making. 90 These realities are even more pronounced when a company is formed as a wholly owned subsidiary in order to undertake a particular activity. Such a situation was examined by the Full Court of the Supreme Court of South Australia in Pascoe Ltd v Lucas (1999) 75 SASR 737. That case concerned an allegation that a director of a wholly owned subsidiary had breached his duties to the subsidiary by committing it to an improvident transaction at the behest of the holding company. Lander J, with whom Millhouse and Duggan JJ agreed, said: "When a company is incorporated for the sole purpose of entering into a transaction at the behest of its sole shareholder, provided that the company is at the time solvent and provided that the transaction is intra vires and the directors are not acting in bad faith the company cannot later complain about that transaction, provided of course that the directors have made full disclosure of that which is required to obtain the consent of its shareholders. It is not necessary that a formal decision of the shareholders should be made; an informal consent will be sufficient: Re Duomatic Ltd [1969] 2 Ch 365. Again it follows that where the corporation has only one shareholder there is even less need for a formal meeting. Again provided that the company was solvent when it entered into these transactions and when the authority or ratification was given by the directors a liquidator subsequently appointed to the company is in no better position than the shareholders who authorised or ratified the transaction: Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd per Dillon LJ at 290, A-G Canada v Standard Trust Co of New York [1911] AC 498 at 501." 91 This passage emphasises the point that informal action by a sole shareholder can be sufficient to constitute conduct on its part having such constitutional significance within a wholly owned subsidiary as to be a determinant of that subsidiary's own conduct. There is, to my mind, no difference between such action of a holding company, whether formal or informal, in relation to a wholly owned subsidiary and actions of directors of the subsidiary which likewise shape its conduct as a corporation. Just as directors commonly make for a company the decisions which, as a mere legal construct, it has no mind of its own to make, so too may a holding company which is the sole owner of the shares in the subsidiary be, in a realistic sense, the source of such decisions. 92 In the present case, the actions of DSC were dictated by decisions made within the established management structure of the Australian group of companies constituted by A.W. Baulderstone Holdings Pty Limited and its wholly-owned subsidiaries. I have mentioned that the DSC bids submitted to the Authority on 30 June 1997 were accompanied by covering letters from Mr Dempsey as a director of DSC and Mr Pritchard as chief executive of Baulderstone. Also sent to the Authority on that occasion was a similar letter from Mr Greiner, chairman of A.W. Baulderstone Holdings Pty Limited. It may readily be inferred from these letters that DSC acted in accordance with a plan developed and implemented by A.W. Baulderstone Holdings Pty Limited in conjunction with other wholly-owned subsidiaries, including Baulderstone and International. 93 I am satisfied that, having regard to the circumstances in which they occupied their offices, each of the directors of DSC was under a duty of the kind described by Young J in Harkness v Commonwealth Bank and that no obligation of confidentiality owed to DSC itself intervened to preclude the presumption that that duty was duly discharged. All knowledge and information possessed by each DSC director by virtue of his directorship of DSC was therefore attributed to each other company in the wholly-owned A.W. Baulderstone Holdings group of which he was a director. All such knowledge and information possessed by any director of DSC must therefore be regarded as having been within the possession of both Baulderstone and International at the relevant times. On that footing, each of those companies must be taken to have had knowledge of the existence and content of the heads of agreement. Any other conclusion would disregard the realities of the wholly-owned group structure. 94 Once that point is reached and it is accepted that Baulderstone and International, the alleged tortfeasors, possessed the degree of knowledge about the heads of agreement and their content made necessary by the quoted extracts from Short v City Bank of Sydney and Fightvision v Onisforou, it must be decided whether Baulderstone and International applied direct persuasion or procurement or inducement to DSC with the intention of bringing about breach by it of its contract. 95 It may readily be accepted that any failure by DSC to act as required by the heads of agreement was produced, in an immediate sense, by failure of its directors and officers to cause it to do so, coupled with failure of its immediate and ultimate holding companies to exercise their undoubted power to avoid or remedy the deficiency. That dual failure no doubt resulted from a decision made by one or more natural persons. The evidence shows that, in a practical sense, the chief decision-maker was Mr Wise. It is he who had, within the A.W. Baulderstone Holdings group, the main responsibility for progressing the bids and looking after the group's interests in relation to the stadium project. The decision to introduce SOL and to adopt the revised structure in which the developer was to be SOL together with the trustee and manager of a unit trust, thereby displacing DSC, was Mr Wise's decision. But it was a decision he made within a framework of authority which must have been created by or through the board of directors of the ultimate holding company, A.W. Baulderstone Holdings Pty Limited. That framework of authority may be taken to have applied throughout the group of wholly-owned subsidiaries, including DSC, SOL, Baulderstone and International. 96 In such circumstances, there is a distinct air of unreality about the proposition that one wholly-owned subsidiary within and subject to the framework of authority acts intentionally to cause another wholly-owned subsidiary within and subject to the same framework of authority to behave in a certain way when both are actuated by and subject to the common authority. 97 The notion that directors of a company are not guilty of the tort of inducing breach of contract when, duly acting as directors, they commit their company to a course involving such breach was explained by Jordan CJ in O'Brien v Dawson (above) in this way: "The next question is whether, if an ordinary limited liability company is a party to a contract, and its directors acting as such, and in the course of conducting the company's business at a Board meeting, resolve that the company shall refuse to perform a contract to which it is a party, the directors knowing that the refusal cannot be legally justified, and effect is given to this resolution, the directors concerned are guilty of the tort - and presumably also of the crime - of conspiracy. I am of opinion that in such a case it is entirely artificial to speak of the directors as 'procuring' the company to break its contract in the sense in which this word is used in the Lumley v Gye type of case. An incorporated company is a figment of the law. It is incapable of acting except through agents. Its directors are persons who have been authorised by the constituent members of the corporation to cause acts to be done on its behalf. They are its agents who have power to control its acts. It cannot act at all except through them or through some other authorised agents. They are not in the position of outsiders who are influencing the independent volition of a contracting party who is capable of exercising volition for himself. It is their volition and theirs only which determines the making, the performance or the breach of the company's contract. In my opinion on the state of facts assumed, they stand in the same position as regards liability to a charge of conspiracy as do joint contractors. This is not to say that every boardroom constitutes an Alsatia in which persons may conspire to their heart's content and with complete impunity so long as they do so in the character of directors of a company and employ the machinery of their company for carrying their conspiracy into effect. It means only that the mere fact that the directors who determine whether or not a company shall perform the obligations of a contract are several in number makes them no more subject to the law of conspiracy than would be a single managing director if it were he who determined it …… Directors of a company are, however, personally responsible for any torts committed by their company in the procuring of which they are personally implicated … But there is authority for the proposition that the fact that one or more directors of a company acting as such, are the instruments by which the company, without just cause, refuses to perform a contract does not confer on the other party to the contract a right to sue directors in tort on the footing that they have procured a breach of contractual rights ….." 98 Central to this notion is recognition that the directors of a corporate contracting party are not in the position of outsiders influencing the independent volition of a contracting party capable of exercising volition for himself; and that it is the directors' volition which determines the making, the performance or the breach of the company's contract. The directors' volition is thus the company's volition. Within the confines of a group of companies where a holding company such as A.W. Baulderstone Holdings Pty Limited possesses, in relation to each of several wholly-owned subsidiaries, full and sole capacity to control the content of the corporate constitution (even to the extent of allocating to itself powers otherwise exercisable by the directors), to relieve the directors of the consequences of breach of duty by advance authorisation or retrospective ratification and to change at will the composition of the board of directors, it seems to me to be the case that the holding company, like the subsidiary's directors, is not in the position of an outsider influencing the independent volition of the subsidiary. In such a situation, it is the holding company's volition which, sometimes formally by exercise of legal powers but often informally in the way mentioned in Pascoe Ltd v Lucas (above), determines the making, the performance or the breach of the subsidiary's contract. The holding company does not engage in what Herring CJ described in Rutherford v Poole [1953] VLR 130 as "actionable intervention". There is really no "intervention" at all. The subsidiary makes the relevant decision but that decision proceeds from an exercise of the holding company's will within and through the subsidiary, rather than upon it. 99 If breach of the heads of agreement by DSC were established, I would therefore conclude that neither Baulderstone nor International induced or procured the breach in such a way as to be actionable on the basis pleaded.

The claim for reimbursement of expenses 100 The question posed in this part of the plaintiffs' case is whether Baulderstone or DSC or either of them is liable to reimburse LMI and LMIA or either of them for expenses incurred in the pre-award stage of the bid process. Several alternative bases of claim are advanced. As I understood the position the plaintiffs eventually took, there are four such bases: first, the heads of agreement; second, an alleged oral agreement made on 19 March 1997 by Mr McGee on behalf of LMI and Mr Wise on behalf of Baulderstone; third, an estoppel as against Baulderstone; and, fourth, restitutionary principles. I shall deal with these in turn.

Reimbursement under heads of agreement 101 The only potentially relevant provision of the heads of agreement is clause 8: "The Developer shall reimburse to LMI such expenses that have been incurred by LMI prior to the date the appointment takes effect as are agreed with the Developer." 102 "LMI" here is LMIA and "the Developer" is DSC. So much is made clear by the descriptions of the parties at the start of the heads of agreement. 103 Clause 8 assumes that it will be possible to identify "the date of the appointment". The "appointment" referred to is, clearly enough, the appointment of LMIA as stadium manager in fulfilment of the heads of agreement. That, of course, never happened. Mr Campbell QC submitted that clause 8 could therefore not operate at all, but I do not think that can be right. It really means, I think, that all expenses which LMIA incurred in connection with the bid process involving it are within the contemplation of the clause. 104 The "such … as" aspect of the clause means that the reimbursement obligation extends only to those of the expenses described (that is, those incurred by LMIA in connection with the bid process) which "are agreed with" DSC. It follows that, unless and until particular expenses have been shown to have been incurred by LMIA in the particular context and to have been "agreed with" DSC, no reimbursement obligation arises. But DSC does not have an uncontrolled ability to agree or not according to its own selfish wishes or some whim. The law readily implies a requirement in this kind of context that the party whose decision is material to the operation of the provision act honestly and reasonably: see, for example, Meehan v Jones (1982) 147 CLR 571 per Mason J. The real effect of clause 8 is therefore that DSC agreed to reimburse to LMIA those expenses incurred by LMIA in connection with the bid process for which DSC, acting reasonably and honestly, ought to accept responsibility. 105 To my mind, the implied qualification as to honesty and reasonableness has two facets in the particular context. First, a particular item of expense must be seen to have a rational and substantial connection with the bid process in the sense of having been properly incurred for the purposes of the process. Secondly, the quantum must be seen not to be, in the context, unwarranted or extravagant. 106 One obvious point about clause 8 is that it does not extend to expenses incurred by LMI, as distinct from LMIA. This is a significant limiting factor, given that LMIA came into existence as an LMI/ISFM joint venture company several months after the time that its two shareholders had begun to work on the project. The conclusion that clause 8 is the source of a right of reimbursement on the part of LMIA therefore cannot be regarded as disposing of the reimbursement claim in its entirety.

Reimbursement under oral agreement 107 The plaintiffs' summons pleads an oral agreement made on 19 March 1997 between Mr McGee on behalf of LMI and Mr Wise of Baulderstone, the terms of which included: (a) that "in the event that the Baulderstone Hornibrook bid was successful": (i) LMI would be appointed manager of the stadium for the pre-opening period and for 25 years after the stadium opening; and (ii) LMI's expenses in relation to the bid process would be repaid; and (b) if the bid was unsuccessful, LMI's expenses incurred in the bid process would not be paid. 108 The quoted words above ("in the event that the Baulderstone Hornibrook bid was successful") appear in the plaintiff's summons but are not further elaborated there. It is clear, however, that the concepts of a bid and its success said to have been employed in an oral agreement made on 19 March 1997 do not necessarily correspond with similarly phrased concepts used in a document entered into more than three months later between different, although allied, parties. I refer, of course, to the heads of agreement and to the particular aspect of them concerning success of "any of the Bids" already examined in some detail. 109 There is, however, a threshold problem in relation to the case based on the alleged oral agreement - namely, some fairly fundamental discrepancy in the testimony of those said to have been parties to the conversations in which the contract was formed. That being so, it is preferable to pass on to the plaintiffs' alternative formulations of their claim for reimbursement.

Reimbursement based on estoppel 110 The third basis on which the plaintiffs seek reimbursement of expenses is an estoppel against Baulderstone. The basis of the estoppel is, they say, confirmed by the following evidence given by Mr Wise: "Q. From the time the Heads of Agreement were executed onwards, did you work on the basis on behalf of the consortium that the reasonable expenses of LMI, which had been incurred from the time that they came on board in the project in February onwards, would be paid under the heads of Agreement? A. Reasonable expenses agreed, yes. …. Q. From the time the Heads of Agreement were signed you - when I say 'you' I mean through you and DSC - worked upon the basis that the reasonable expenses incurred since the LMI parties became involved in the bid were to be paid in accordance with the terms of that Heads of Agreement? A. Reasonable expenses as agreed, yes." 111 The references here to "the LMI parties" are, in the context of the cross-examination as a whole, references to both LMI and LMIA. Mr Wise's evidence makes it clear that Baulderstone (the party he was seen as representing) had led both LMI and LMIA to expect that, quite apart from the heads of agreement (or, rather, as a supplement to or interpretation of it), reasonable expenses of both LMI and LMIA in connection with the bid orchestrated by Baulderstone would be met by Baulderstone. That Mr Wise himself proceeded on that footing is borne out by his subsequent evidence that he had actually recommended that Baulderstone pay certain LMI expenses. The evidence also shows that Mr McGee and Mr Watson both acted on the same footing as Mr Wise in this respect, having made it clear to Baulderstone that LMI was a fee for service organisation not an entrepreneur (a position also underlined at various stages of the relationship by LMI's continuing and firm refusal to consider adopting the role of an equity investor in the project). There was thus a common assumption which formed the conventional basis of the relationship between the two LMI parties (i.e, LMI and, later, LMIA) and Baulderstone as the co-ordinator of the bid project. That assumption is sufficient to found an estoppel on the basis discussed by the High Court in Con-Stan Industries Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244. 112 I am satisfied that Baulderstone is estopped from denying an obligation on its part to reimburse both LMI and LMIA for expenses actually and reasonably incurred in connection with the bid process. 113 The conclusions with respect to the heads of agreement and estoppel are sufficient to justify the plaintiffs' claims that their reasonable expenses incurred in relation to the bid process should be reimbursed by Baulderstone and there is no need to consider the further claim in restitution based on unjust enrichment - said by Lord Steyn in Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 to rank in England today "next to contract and tort as part of the law of obligations", but probably not enjoying the same status in this country: see Pavey & Matthews Pty Ltd v Paul (1986) 162 CLR 221.

Quantification of the expenses claim 114 Mr McGee wrote to Mr Wise on 20 October 1997 referring to "the Multi-Sports and Events Stadium to be constructed in the Docklands Stadium Precinct" and enclosing "an invoice representing the expenses incurred by Leisure Management through September 30, 1997 regarding this project". In doing so, Mr McGee referred to the heads of agreement. The invoice, which was actually dated 30 September 1997, contained 36 items under ten headings amounting in all to US$81,902.28. It seems clear that all the expenses listed were represented as having been incurred by LMI, with nothing represented as claimed by LMIA. The reference to the heads of agreement was therefore inappropriate, in a strict sense, but my findings on the estoppel issue support LMI's claim for that sum, at least to the extent that the expenses concerned may be said to be reasonable. 115 Mr Campbell QC, in the course of cross-examination, asked a number of questions clearly intended to call in question the appropriateness of some of the items in the 30 September 1997 invoice in the context of any claim for reimbursement of expenses reasonably incurred in connection with the project. The thrust of his questions was such as to suggest that some items may not have had a necessary or close link with efforts expended by LMI on the project and that others may have been extravagant. This led on to a submission that certain items were not reasonably incurred - in particular, certain legal fees and air fares for a visit by Mr McGee to Australia in which he dealt with other business matters as well as those pertaining to the stadium bid. 116 Mr Sullivan's response was twofold: first, that no cogent reason had been expressed as to why the relevant items were not fairly and squarely within the relevant concept, given that they would not have been incurred but for the project; and, second, that there was never any assertion by the Baulderstone Group to this effect in the period of almost four years after the 20 October 1997 claim was submitted until the matter came to court. 117 In my judgment, the plaintiffs have sufficiently made out their quantification case in respect of expenses by reference to the invoice submitted with the letter of 20 October 1997, being expenses incurred by LMI.

Conclusions 118 It follows from the findings I have made that the plaintiffs are entitled to order 1 in the Amended Summons, that is, an order that the first and second defendants pay the plaintiffs the sum of US$81,902.28. The plaintiffs are also entitled to interest on that sum at the rate applicable under Schedule J to the Supreme Court Rules until judgment. I shall entertain submissions as to the date from which interest should be computed but, given that 60 days is a reasonable time for the payment of an invoice, I am disposed to think that it should be computed from the day which is 60 days after 20 October 1997. 119 In other respects, the plaintiffs have not made out an entitlement to the relief they seek. 120 I will also hear the parties on costs. The matter will be listed for mention before me at 9.30 am on a day I shall now fix with counsel. **********

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