Macquarie International Health Clinic Pty Ltd v Sydney Local Health District

General information, not legal advice.

Texts Cited: E Peden, D Reede and J Leung, Good Faith in the Performance of Contracts (2nd ed, 2026)

Category: Principal judgment

Parties: Macquarie International Health Clinic Pty Ltd (Plaintiff)
Sydney Local Health District (Defendant)

Representation: Counsel:
A C Harding SC / S J Phillips / A L Oakes (Plaintiff)
D L Williams SC / S Scott / D Emmerig (Defendant)
Solicitors:
Bruce & Stewart Lawyers (Plaintiff)
Clayton Utz (Defendant)

File Number(s): 2023/00170696

Publication restriction: N.A.

JUDGMENT

1. The Royal Prince Alfred Hospital is a major public hospital located in Camperdown, Sydney. It is operated by the Sydney Local Health District (SLHD), the defendant in these proceedings. In 1988, the NSW Government called for expressions of interest from developers and operators to develop a private hospital on vacant land on the Royal Prince Alfred Hospital campus. That invitation led in due course to a transaction between the Central Sydney Area Health Service (relevantly a predecessor of SLHD) and the plaintiff, Macquarie International Health Clinic Pty Ltd (Macquarie). The transaction contemplated that Macquarie would construct a private hospital together with ancillary facilities, including an adjoining car park.

2. For about 30 years now, Macquarie and SLHD (or its predecessors) have been in dispute. No private hospital has been built. There is a car park. There has been a lot of litigation. There is now no dispute that the contractual arrangements between the parties have been terminated, although the relevant contracts include post-termination obligations, including a provision that contemplates compensation for Macquarie. Those are the provisions that are the subject of Macquarie’s claim in these proceedings. In broad terms, Macquarie seeks orders to compel SLHD to perform its post-termination obligations, or otherwise to pay damages amounting to approximately $30m. Meanwhile, SLHD, by way of statement of cross-claim, seeks damages from Macquarie for breach of contract, in an amount of approximately $15m.

3. For the reasons that follow, Macquarie’s claim will be dismissed. SLHD’s statement of cross-claim succeeds in part. It has established loss in the sum of $329,536 (plus interest).

The Background

4. The history of the dealings between Macquarie and SLHD (and its predecessors) is long and complex. Most of that history is of passing relevance to the matters now before the Court and need not be addressed in any detail. A detailed background of the events prior to 2020 can be found in the reasons of Ward CJ in Eq in Macquarie International Health Clinic v Sydney Local Health District [2019] NSWSC 1199 at [10]-[206]. A summary of that background can be found in the reasons of Bathurst CJ on the appeal in Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (2020) 103 NSWLR 443; [2020] NSWCA 161 at [4]-[108]. In the following paragraphs I canvass the history to the extent necessary to expose and address the matters that remain in dispute.

5. In December 1988, Macquarie Hospital Services Pty Ltd, in conjunction with Macquarie Health Corporation Pty Ltd (MHC), which is Macquarie’s parent company, and “The Mirvac Group” responded to the Government’s call for expressions of interest by submitting what came to be known as the “Initial Proposal”. The Initial Proposal contemplated a 200 bed in-patient hospital, a 129 bed high-quality hotel and a medical centre.

6. A legally binding heads of agreement was made on 18 September 1989.

7. Six transaction documents were eventually executed on 2 December 1996 by Central Sydney Area Health Service, Macquarie and some related entities. At that time, Central Sydney Area Health Service was an area health service and body corporate established under the Area Health Services Act 1986 (NSW). After a sequence of steps of no present relevance, SLHD was established in 2011 and, by force of statute, relevantly stands in the shoes of Central Sydney Area Health Service in all of the transaction documents. For convenience, I will generally express my reasons as if SLHD was the counterparty at all times.

8. The transaction documents are:

9. a Construction Deed for the design and construction by Macquarie of a private hospital and car park;

10. a Hospital Lease granted by SLHD to Macquarie for a term of 103 years;

11. a Car Park Lease granted by SLHD to Macquarie and SLHD as tenants in common in equal shares, also for 103 years;

12. a Car Park Sub-Lease granted by SLHD (as co-lessee under the Car Park Lease) to MHC for 28 years expiring on 30 November 2024;

13. a Deed of Co-ownership; and

14. a Car Parking Management Agreement.

15. On 19 June 1997, Macquarie’s development applications for the construction of a private hospital and car park on what was called the “Hospital Site” and “Car Park Site” respectively were approved by the Land and Environment Court (collectively, the 1997 DA). The 1997 DA identified the proposed development at the Hospital Site as involving a 7-9 storey private hospital with 394 ward beds, and the Car Park Site as involving a 5 storey car park with 1225 car spaces. The car park approval included a condition that the ramps between levels 4 and 5 “shall not be constructed until the construction of the second stage of the Hospital, the Medical Centre and the Consulting Rooms has commenced”. As would be expected, the development approved by the 1997 DA was framed with much greater specificity compared with the Initial Proposal. It included detailed plans.

16. Construction of a car park commenced in 1998. By 1999, it was substantially complete. The ramp between levels 4 and 5 was not constructed and remains unconstructed. A certificate of practical completion was issued on 15 June 1999 in respect of a car park for 1026 car parking spaces (which was short of the 1225 parking spaces contemplated by the 1997 DA).

17. There was some preliminary work undertaken for the construction of the private hospital, but no substantive construction of any building was commenced.

18. On 13 September 1999, SLHD served notices of default on Macquarie under the Construction Deed, the Hospital Lease, the Car Park Lease and the Car Park Sub-Lease. On 17 March 2000, SLHD issued notices of termination of each of those agreements and proceeded to evict Macquarie from the sites.

19. Macquarie immediately commenced proceedings in this Court, seeking relief in respect of the purported termination and orders that possession of the sites be returned to Macquarie. The trial was heard over many days in 2006 and 2007 before Nicholas J. Macquarie failed: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738.

20. Macquarie’s appeal succeeded: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268; 383 ALR 577. The Court of Appeal accepted that Macquarie was in breach of its obligations, but concluded that the termination notices relied upon by SLHD were invalid because they did not meet the requirements of section 129 of the Conveyancing Act 1919 (NSW). The Court of Appeal made orders giving possession back to Macquarie.

21. After the decision of the Court of Appeal, Macquarie and SLHD entered into a stand-still agreement. There was a hiatus for some years.

22. Macquarie regained physical possession of the sites on 2 November 2015. Some 10 months later, on 1 September 2016, SLHD issued a revised timetable for the remaining works in respect of the hospital, pursuant to clause 2.5 of the Construction Deed.

23. Throughout 2016, there was a lengthy hearing in this Court of Macquarie’s claim for mesne profits, having been wrongly dispossessed of the Hospital Site and Car Park Site. Macquarie was successful at first instance, recovering an award for in excess of $55m in respect of the Hospital Site and $27m in respect of the Car Park Site, including interest: see Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 10) [2016] NSWSC 1587; Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 11) [2017] NSWSC 1249; and Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 12) [2019] NSWSC 916. SLHD’s appeal was successful, and the judgment in favour of Macquarie was reduced to nil in respect of the Hospital Site and about $17m including interest for the Car Park Site: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd (2020) 105 NSWLR 325; [2020] NSWCA 274; Sydney Local Health District v Macquarie International Health Clinic Pty Ltd (No 2) [2020] NSWCA 316.

24. On 20 February and 7 April 2017, SLHD served notices of default under the Construction Deed, the Hospital Lease, the Car Park Lease and the Car Park Sub-Lease. The asserted default was that Macquarie had failed to lodge a Construction Certificate Application as required by the Construction Deed. On 10 August and 17 October 2017, SLHD served termination notices in respect of the Construction Deed and each of the leases, relying on the failure to remedy the default notices served on 20 February 2017 and 7 April 2017.

25. More litigation ensued. On 12 September 2019, in the judgment to which I have made reference, Ward CJ in Eq declared that each of the notices of default and the notices of termination were valid. Her Honour’s decision was upheld by the Court of Appeal on 3 August 2020. On 7 August 2020, SLHD once again took possession of the Hospital Site and Car Park Site.

26. On 19 April 2022, solicitors for Macquarie wrote to SLHD’s solicitors, drawing attention to clause 17.9 of the Hospital Lease and clause 16.9 of the Car Park Lease. Those clauses, which are similar and are considered in detail below, impose a post-termination obligation on SLHD to use reasonable endeavours to relet the “Premises” and to pay amounts to Macquarie in respect of the reletting. Macquarie’s solicitors enquired about the steps that had been taken by SLHD to relet. SLHD’s solicitors asserted that the clauses did not apply.

27. Macquarie commenced these proceedings on 29 May 2023.

28. SLHD’s statement of cross-claim was filed on 11 August 2023.

Macquarie’s Claim

The compensation clauses

23. A central issue in this case concerns the proper construction and operation of clause 17.9 of the Hospital Lease and clause 16.9 of the Car Park Lease, which can conveniently be called the compensation clauses.

24. Clause 17.9 of the Hospital Lease provides:

Compensation for Termination

17.9 If this lease is terminated under this clause 17, the Landlord must use all reasonable endeavours to relet the Premises to an unrelated party for the balance of the Term on the same or substantially the same terms as this lease (but including reserving a premium for the reletting and in so doing shall observe the same duties a mortgagee would have in disposing of mortgaged property in the event of a default) and if the Premises or any part are relet by the Landlord at any time prior to the Expiry Date, then the Landlord must pay to the Tenant within 30 days of receipt by the Landlord 90% of the net proceeds including a premium of the reletting which relates to the period from termination to the Terminating Date (apportioned, if necessary, by an expert appointed by the President of the Institute of Arbitrators) but less any rent which would have been payable during that period under this lease.

The word “Premises” is defined to mean “the land leased by this lease and described in the coversheet of this lease together with all improvements erected on that land”.

25. As I have said, clause 16.9 of the Car Park Lease is very similar, but there are some differences. Clause 16.9 with the differences marked up is as follows:

16.9 If this lease is terminated under this clause 17 16.3, the Landlord must use all reasonable endeavours to relet the Premises to an unrelated party for the balance of the Term on the same or substantially the same terms as this lease (but including reserving a premium for the reletting and in so doing shall observe the same duties a mortgagee would have in disposing of mortgaged property in the event of a default) excluding as to the payment of rent and if the Premises or any part are relet by the Landlord at any time prior to the Expiry Date, then the Landlord must pay to the Managing Tenant within 30 days of receipt by the Landlord 90% of the net proceeds including a premium of the reletting which relates to the period from termination to the Terminating Date (apportioned, if necessary, by an expert appointed by the President of the Institute of Arbitrators) but less any rent which would have been payable during that period under this lease.

26. Each compensation clause is made up of one long sentence that seeks to do much. The clauses carry room for argument about the meaning of its various elements. The parties are in dispute about the meaning and operation of the clauses in several different ways. Before I come to the critical questions of construction and the operation of the compensation clauses, some other important elements of the agreements should be identified.

27. As a starting point, it is important to appreciate the interconnection between the agreements.

28. Clause 16 of the Car Park Lease concerns “Default”. Clause 16.2 provides:

The obligations under clauses 2.1, 2.4 and 3.7 of the Construction Deed and clauses 6, 8, 11 and 12 of the Hospital Lease are essential terms of this lease.

It was common ground that the effect of this clause was to make those identified clauses of the Hospital Lease and the Construction Deed essential terms of the Car Park Lease.

29. Clause 11.1 of the Hospital Lease (a term of the Car Park Lease by incorporation) provides that:

The Tenant must erect the Hospital and ancillary services in accordance with the Construction Deed.

The word “Hospital” is defined to be “the hospital to be erected” on the relevant lot.

30. Clause 2.1 of the Construction Deed (also a term of the Car Park Lease) provides as follows:

The Tenant must commence, carry out and complete the Works in accordance with the Timetable.

The word “Works” is defined in the Construction Deed as follows:

Works means the works to be carried out in accordance with the Initial Proposal as amended or varied, the Plans and Specifications, the Schedule of Finishes, the relevant development approvals, any relevant building approvals and the requirements of any other regulatory authorities including:

(a) the excavation of the land comprised in Folio Identifiers 11 and 121809663 and removal of materials;

(b) the construction of the Complex; and

(c) the fitting out of the Hospital

including all ancillary works and activities associate therewith.

The word “Complex” is defined in the Construction Deed as follows:

Complex means the Hospital to be erected on Lot 12 in Deposited Plan 809663 and the Car Park to be erected on Lot 11 in Deposited Plan 809663.

The “Timetable” referred to in clause 2.1 of the Construction Deed was outlined in Annexure A to the Deed. It prescribed dates for particular activities to be completed. The Timetable set the completion dates for construction of the Car Park and Hospital as 14 April 1998 and 1 December 1999 respectively.

31. The effect of making clause 11 of the Hospital Lease and clause 2.1 of the Construction Deed terms of the Car Park Lease is that the Car Park Lease imposed an obligation on the Tenant to construct both the Car Park and the Hospital in accordance with the Initial Proposal, as amended or varied.

32. Breach of an essential term of the Car Park Lease by the Tenant gave rise to a process under clauses 16.3-16.7. The process could result in the Landlord exercising a right to terminate the lease. That is what occurred.

33. The Hospital Lease is relevantly the same. By clause 17.2 of the Hospital Lease, clause 10 of the Car Park Lease and clause 2.1 of the Construction Deed are made terms of the Hospital Lease. Thus, it was a requirement of the Hospital Lease that the Tenant must construct both the Hospital and the Car Park.

The dispute about the operation of the compensation clauses

34. The parties are in dispute about how the compensation clauses operate in circumstances where the Hospital has not been constructed and the Car Park is incomplete. A key issue is whether a reletting of the Car Park Lease would be on terms that would require the new Tenant to complete construction of the Car Park and also construct the Hospital; and whether a reletting of the Hospital Lease would be on terms that would require the new Tenant of that lease to construct the Hospital and also to complete construction of the Car Park.

35. Macquarie contends that it was always possible that only the Car Park Lease or only the Hospital Lease was terminated, with the consequence that there might be a reletting of only one of the two leases. It contends that the parties cannot have contemplated that a reletting of the Car Park Lease would carry an obligation to construct the Hospital, including because the new Tenant would acquire no right to occupy the Hospital Site. It contends that any new lease of the Car Park Premises would have no obligations in respect of the Hospital, and any new lease of the Hospital Premises would have no obligations in respect of the Car Park. This outcome can be achieved, it contends, by giving work to the words “substantially the same” in the compensation clauses.

36. Macquarie seeks orders that compel SLHD to perform its obligations under each of the compensation clauses by using all reasonable endeavours to relet each of the Premises. It contends that the reletting of the Car Park Premises will not require the new Tenant to construct any hospital. It accepts that a reletting of the Hospital Premises would include an obligation to construct a hospital, but not a car park.

37. SLHD’s first response is that the compensation clauses are not engaged before both the Hospital and the Car Park (as defined) have been constructed. It contends that this flows from the proper construction of the compensation clauses. It says in the alternative that there is an implied term that achieves the same result. If either is correct, Macquarie’s case fails at the outset, because the Hospital and Car Park have not both been constructed. Macquarie’s whole case depends on the compensation clauses. For reasons I will come to, I have rejected this construction of the compensation clauses.

38. SLHD has an alternative argument. It is that if the compensation clauses are engaged before construction of both the Hospital and the Car Park have been completed, the new Car Park Lease must include an obligation to construct the Hospital, and any new Hospital Lease must include an obligation to construct (which effectively means to complete) the Car Park. For reasons I will come to, this is the correct construction. On this basis, the compensation clauses were engaged when the leases were terminated.

39. Before coming to the detail of the question of construction, I note that SLHD also contends, as an alternative argument, that the compensation clauses are void for uncertainty. A submission that the clauses are void for uncertainty is not off to a promising start when the clauses are part of detailed set of contractual arrangements that were intended to operate for over a century and have governed the relationship between the parties for some 30 years already, and where both parties contend that the clauses can be construed to give them meaning.

Construing the compensation clauses

40. There was no dispute about the correct way to approach the construction of the compensation clauses. The following statement of principle from the reasons of French CJ, Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] is a clear and authoritative articulation of orthodox principle (footnotes omitted):

The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

I will approach the question of construction this way.

41. The transaction documents have to be construed together. That is because they are interconnected by their very terms. In particular, as noted above, terms of the Construction Deed and the Car Park Lease were made terms of the Hospital Lease, and terms of the Construction Deed and the Hospital Lease were made terms of the Car Park Lease. Moreover, the contracts were made at the same time and reflect components of a single transaction, and so must be construed together: Shaw v Jeffery (1816) 13 Moo PC 432; 15 ER 162 at 456-457; Toohey v Gunther (1928) 41 CLR 181 at 196; Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166 at [45].

Text

42. I have set out the text of the compensation clauses above, together with some of the other relevant provisions in the agreements.

43. Although the compensation clauses do not make for easy reading to those accustomed to modern drafting practices, there is nothing particularly hard in the notion that:

If the lease is terminated, then:

(i) the Landlord must use all reasonable endeavours to relet the Premises; (ii) the reletting must be to an unrelated party; (iii) the reletting must be for the balance of the term; and (iv) the reletting must be on the same or substantially the same terms as the lease that was terminated.

44. This would appear to involve the Landlord of the Hospital Lease reletting the Premises on the same or substantially the same terms as the Hospital Lease, for the balance of the Term of that Lease. Likewise if the Car Park Lease was terminated.

Genesis, background and context

45. It is appropriate to start with the parties to the contract.

46. As I have noted, the relevant Landlord at the time the contracts were entered into was the Central Sydney Area Health Service, which was an area health service and a body corporate established by the Area Health Services Act*.* Sections 18 and 19 of that Act specified the objectives and functions of area health services. At the relevant time, section 18 provided:

The primary objectives of an area health service in its area are as follows:

(a) to promote, protect and maintain public health, and for that purpose to provide health services for residents of its area,

(b) to achieve and maintain adequate standards of patient care and services,

(c) to adopt and implement all necessary measures (including systems of planning, management and quality control) as will best ensure the efficient and economic operation and use of its resources in the provision of health services,

(d) to provide for the effective co-ordination of the planning, provision and evaluation of its health services,

(e) to establish and maintain an appropriate balance in the provision and use of resources for health protection, health promotion, health education and treatment services.

Among the statutory functions specified by section 19(1) were:

(a) generally to promote, protect and maintain the health of the residents of its area,

(b) to manage hospitals or other health services under its control,

(c) to consult and co-operate with individuals and organisations (including voluntary agencies, private agencies and public or local authorities) concerned with the promotion, protection and maintenance of health,

(d) to investigate and assess health needs in its area…

At the time, the Royal Prince Alfred Hospital was under the control of the Central Sydney Area Health Service.

47. The Tenant at the time the leases were entered into was Macquarie. Macquarie was (and remains) a subsidiary of MHC. MHC was the parent company of a group of companies that was in the business of providing health services to the community for profit. At the time of entry into the contracts, MHC operated one of the largest pathology businesses in the country.

48. Much of the genesis, background, context and an understanding of the relevant market is reliably discerned from the Initial Proposal, which is itself a document that carries contractual significance within the Construction Deed. The Initial Proposal contains quite a bit of detail.

49. The summary section of the Initial Proposal includes the following:

The proposal is to develop a world class facility on the nominated site adjacent to Royal Prince Alfred Hospital that will meet the long term requirements of the general community, the medical profession and the proponents themselves.

The proposed operational concepts and design plans seek to integrate through functional design and the use of the latest developments in communication technology the following components:

(a) An ambulatory patient care component providing responsive cost effective service through a 24 hour medical central, special purpose clinics, diagnostic facilities and a day care unit. Retail outlets will also be located here.

(b) A 200 bed in-patient component providing true “centre of excellence” care to a comprehensive range of specialties with the flexibility to expand, if necessary, in the longer term.

(c) A 129 bed high quality hotel to serve the main facility in a number of ways, especially for interstate and overseas demands.

A medical centre providing private suites for medical specialists will also be provided as part of the overall plan. Generous car parking facilities will be included.

50. The Initial Proposal addressed the range of services, facilities and standards to be provided in the new hospital. It included a section that dealt with the relationship between the new private hospital with the Royal Prince Alfred Hospital. It emphasised that the two hospitals would develop strong links, to their mutual benefit. A section was dedicated to articulating the benefits to Royal Prince Alfred Hospital from the operation of the private hospital, which included things such as providing complementary services in a number of areas to ease demand. The Initial Proposal addressed construction and project management. At the time of the document, it was proposed that in respect of car parking, “A total of 320 spaces will be provided”.

Purpose

51. At a basal level, the Initial Proposal reveals that SLHD wanted a private hospital with car parking built on a site adjoining the Royal Prince Alfred Hospital to facilitate the provision of health services to the public of NSW by providing additional health services and by enhancing the services already provided by the public hospital. For its part, Macquarie wanted to profit from managing the new hospital and ancillary facilities for a lengthy period.

52. The heads of agreement executed on 18 September 1989 confirms that the underlying intention of the parties was for Macquarie to construct, at its cost, a 200 bed hospital and ancillary facilities, including a car park, at a site that was surplus to the needs of the Royal Prince Alfred Hospital, and that Macquarie would be granted a long lease to operate the hospital and ancillary facilities.

53. The transaction documents themselves disclose an obvious purpose. The Construction Deed compels Macquarie to construct, at its cost, the Hospital and the Car Park (both defined terms). The Hospital Lease gave Macquarie the right to occupy the Hospital Site for over a century. It provided for the payment of annual rent of $400,000 (to be adjusted by CPI and regular market reviews), to commence once the Hospital has been constructed.

54. The contractual arrangements relating to the Car Park had some complexity. By the Car Park Lease, SLHD leased the “Premises” (defined as “the land leased by this lease and described in the coversheet of this lease together with all improvements erected on that land”) to itself and Macquarie for 103 years. The Car Park Lease did not contemplate any regular payment of rent. It provided for a single payment of rent on 14 February 1999, calculated by a formula relating to the number of car parking spaces. By the Car Park Sub-Lease, Macquarie was entitled to possession of the entire car park for 28 years, at a rent of $720,000 per annum. After that period, SLHD and Macquarie would share expenses and profits of the Car Park in accordance with the terms of the Co-ownership Deed. That deed provided that SLHD would be entitled to use 600 spaces and Macquarie would be entitled to use 350 spaces. Any residual car spaces would be apportioned separately.

55. The purpose of the compensation clauses is obvious. The transaction contemplated that Macquarie would spend a significant amount to construct the Hospital and the Car Park (and other facilities) on land owned by SLHD. Macquarie would enjoy the opportunity, if the transaction ran to completion, to operate the Hospital and have benefits from the Car Park, for over 100 years. It is apparent that the rent that Macquarie would be obliged to pay SLHD was contemplated to be significantly below the market rent that could be generated from the improved land. The market rent reviews of the Hospital Site were based on unimproved land value and there was no ongoing rent for the Car Park Site. It would be commercially nonsensical for Macquarie to pay full market rent on the improved sites when it had borne the cost of the improvements.

56. Early termination of either the Car Park Lease or the Hospital Lease would mean that SLHD would come to own the sites with whatever improvements had been made by Macquarie, but free of the leasing arrangements with Macquarie. SLHD may then be in a position to enter into new leases on market terms, which would give SLHD the benefit of the improvements constructed at Macquarie’s expense. The compensation clauses provided a mechanism by which Macquarie would receive a share of the rent that SLHD was able to generate that was in excess of the amount that Macquarie would have paid had the leases continued. This is a sensible commercial outcome.

Commercial sense where the Hospital has not been built and the Car Park is incomplete

57. The application of the compensation clauses has some complexity in this case because the Hospital has not been built and the Car Park is incomplete (although it is a functioning car park). As I have explained, it was an essential term of the Car Park Lease that the Tenant of the Premises was to construct the Hospital, and it was an essential term of the Hospital Lease that the Tenant of those Premises was to construct the Car Park. Both leases incorporate terms of the Construction Deed that concern both the Hospital and the Car Park. On one view, it appears strange that a new Tenant of the Car Park Premises would be required to construct the Hospital on an adjoining lot, and likewise strange that a new Tenant of the Hospital Premises would be required to construct the Car Park on an adjoining lot. Any strangeness disappears once the Hospital and Car Park have been constructed, with the consequence that the Construction Deed is spent. That is a reason why SLHD contends that the compensation clauses are not triggered before both the Hospital and the Car Park have been constructed.

58. However, on closer analysis, the circumstance of a new Tenant of the Car Park Premises being required to construct the Hospital on the adjoining lot, and a new Tenant of the Hospital Premises being required to construct the Car Park on the adjoining lot is not at all perverse.

59. When the parties entered into the Hospital Lease and the Car Park Lease, the connection between the two leases and the Construction Deed was obvious and express. Apart from clauses already mentioned, the connection is apparent from clauses 1.6 and 1.7 of the Hospital Lease, which relevantly provide as follows:

1.6 This lease contains obligations of the Tenant which relate to both the land leased under this lease (on which the Hospital is to be erected) and to lot 11 in Deposited Plan 809663 (on which a car park is to be erected). The inclusion of obligations in this lease which relate to lot 11 is deliberate, because it is intended that a breach of those obligations included in this lease which relate to lot 11 will give the Landlord certain rights under this lease; including in certain circumstances a right to terminate this lease.

Therefore, the Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Tenant and the Guarantor even though the Landlord, the Tenant and the Guarantor have entered into a separate lease of lot 11 in deposited plan 809663 and notwithstanding:

(a) that the car park is not to be erected on the Land and is therefore not leased under this lease;

(b) the assignment, subletting, mortgaging or other dealing with this lease separately to the Car Park Lease or vice a versa; or

(c) the termination of this lease or the Car Park Lease.

1.7 This lease contains obligations of the Tenant which relate to both the land leased under this lease (on which the Hospital is to be erected) and to the Construction Deed (governing construction of the Hospital and Car Park). The inclusion of obligations in this lease which relate to the Construction Deed is deliberate, because it is intended that a breach of those obligations included in this lease which relate to the Construction Deed will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease.

Therefore, the Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Tenant and the Guarantor even though the Landlord, the Tenant and the Guarantor have entered into a separate Construction Deed.

Clauses 1.6 and 1.7 of the Car Park Lease are in the mirror image.

60. It is apparent from the text of both leases that Macquarie’s tenancy of the Hospital Premises carried with it obligations to construct the Car Park, and its tenancy of the Car Park Premises carried with it obligations to construct the Hospital. It is easy to conclude that it was important for SLHD to have both the Hospital and the Car Park constructed as a single project and that they were not independent projects. Macquarie executed the Car Park Lease knowing that it included terms by which it promised to build the Hospital and executed the Hospital Lease knowing that it included terms by which it promised to build the Car Park. From SLHD’s perspective, having the Hospital and the Car Park constructed was a package. That is what Macquarie signed on to.

61. In these circumstances, there is good reason why on a reletting of the Car Park Premises, the new Tenant would have an obligation to construct the Hospital (if not already constructed) on the adjoining lot. That would relevantly put SLHD in the same position it was in before the Car Park Lease was terminated by SLHD based on Macquarie’s event of default.

62. It may be that a requirement in the new Car Park lease that the Tenant must construct the Hospital would make a reletting unattractive to potential tenants. I do not consider that to be a reason to baulk from the natural reading of the compensation clauses. Moreover, at the time of entry into the transaction documents, it would not have been absurd to think that a new Tenant of the Car Park Premises would agree to construct the Hospital. That is because the Tenant under the Hospital Lease would also have an obligation to construct the Hospital (as well as the Car Park). A new Tenant of the Car Park Premises may be able to come to a commercial accommodation with the Tenant under the Hospital Lease (if they were different entities) that would enable the new Tenant of the Car Park Premises feasibly to agree to construct the Hospital. In any event, the mere fact that a reletting may be difficult, or practically impossible, would not have been contemplated by reasonable persons to be a reason why SLHD should be compelled to compromise on what had been promised to it by Macquarie, being the promise in the Car Park Lease to build both the Car Park and the Hospital.

63. The same considerations apply with respect to the Hospital Lease. If a new Tenant of the Hospital Premises is required to construct the Car Park, SLHD would be placed in the same position it was in prior to termination of the old Hospital Lease.

Rejecting constructions advanced by the parties

64. I reject Macquarie’s contention that on a reletting of the Car Park Lease under clause 16.9, the new lease would exclude the terms concerning the construction of the Hospital. Those terms were essential terms of the Car Park Lease. If they remain unfulfilled at the time the Car Park Lease is to be relet, any reletting on “the same or substantially the same terms” could not exclude these essential terms, or something substantially similar to them. A new lease of the Car Park Premises without those essential terms would not be on the “the same or substantially the same terms” as the Car Park Lease. It would be different if at the time of termination of the Car Park Lease, the Hospital had already been constructed. In those circumstances, any term in a new lease of the Car Park that required the Hospital to be constructed would be redundant.

65. I also reject SLHD’s primary contention that the compensation clauses only operate after both the Hospital and the Car Park are constructed. The contention finds no support in the language of the Hospital Lease or Car Park Lease and would require a fundamental qualification to be read into the compensation clauses that is not required in order to make sense of the clauses.

66. The Car Park Lease expressly contemplated that the lease might be terminated because the Hospital had not been constructed as required by the Construction Deed and Hospital Lease. It would be extraordinary, absent clear language, if the compensation clause, which was expressly triggered “If this lease is terminated under clause 16.3”, was also only triggered after the Hospital and Car Park had been constructed.

67. In support of its contention, SLHD emphasised that the compensation clauses imposed an obligation to relet “the Premises”, which in each lease was defined to mean “the land leased by this lease … together with all improvements erected on that land”. However, this definition does not mean that the Premises only come into existence after both the Hospital and Car Park have been erected. Reading the leases as a whole, it is plain that there are “Premises” before the improvements are complete, and that if there are no improvements, then the Premises comprise just the land.

68. There is another feature of the Hospital Lease and the Car Park Lease that is inconsistent with both Macquarie’s construction and SLHD’s primary construction. Clause 12 of the Hospital Lease and clause 11 of the Car Park Lease concern “transfer and other dealings”, including transfer of the Tenant’s leasehold interest “in the Premises”. Under clause 12.4(f) of the Hospital Lease (and equivalently under clause 11.4(f) of the Car Park Lease), before a transfer takes effect, the Tenant must:

ensure that the proposed new tenant enters into a deed with the Landlord in which it agrees to comply with the obligations of the old tenant under the Construction Deed (unless the Landlord determines that the Tenant's obligations under the Construction Deed have been met and the proposed new tenant is not required to enter a deed under this clause 12.4(f)).

Thus, the Hospital Lease contemplates that the lease may be transferred in circumstances where the transferee will have obligations to construct the Car Park. This supports the proposition that there is nothing incongruous about a new Tenant of the Hospital Premises having construction obligations in respect of both the Hospital and the Car Park. Clause 12 of the Hospital Lease is also noteworthy because it is a good example of the lease plainly using the word “Premises” to describe the land even if there are no improvements on the land.

Conclusion on construction – accepting SLHD’s alternative construction

69. The text, context and purpose all point one way. The compensation clauses can be given their plain meaning. Taking clause 16.9 of the Car Park Lease, the clause is engaged once the Car Park Lease is terminated in accordance with clause 16. The Landlord has an obligation to use all reasonable endeavours to relet the Car Park Premises. The reletting is to be on the same terms or substantially the same terms as the Car Park Lease. Those terms include the terms in the Car Park Lease that impose obligations to construct the Hospital. If the Hospital has already been constructed, those terms are redundant and would not have to be included. Where the Hospital has not been constructed in accordance with the Construction Deed, the terms have to be included as essential terms, either in precisely the same terms or substantially so.

No implied term

70. SLHD’s alternative contention was that there is an implied term that clauses 16.9 of the Car Park Lease and 17.9 of the Hospital Lease operate if “the Tenant has otherwise complied with its construction obligations under the Construction Deed”. There is ambiguity in this expression. It is conceivable that at the time of termination, the Tenant will be fully compliant with the construction obligations under the Construction Deed but the construction will be incomplete. It became apparent that the proposed implied term was to be understood as meaning that the Tenant had both complied with and completed its construction obligations under the Construction Deed.

71. The implied term propounded by SLHD does not satisfy the requirements for a term to be implied in fact. In particular, the term is not necessary to give business efficacy to each of the Hospital Lease and the Car Park Lease. Nor is it so obvious that it goes without saying: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283. A reasonable person in the position of the parties would not have intended that either the Hospital Lease or the Car Park Lease included the putative implied term: see E Peden, D Reede and J Leung, Good Faith in the Performance of Contracts (2nd ed, 2026) at [4.18]. I reject the contention that the Hospital Lease and the Car Park Lease included the implied term contended for by SLHD.

The compensation clauses are not void for uncertainty

72. SLHD’s contention that the compensation clauses are void for uncertainty is also rejected. In my view, far from being uncertain, the clauses are relevantly clear. Certainly, they are capable of a meaning: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1988) 118 CLR 429 at 436 (Barwick CJ).

73. SLHD submits that the obligation to use “all reasonable endeavours” may be elusive or illusory in the present case where the Hospital has not been constructed. There is a danger in determining whether a contract term is void for uncertainty using the benefit of hindsight and in light of a remarkable and unexpected turn of events. In this case, when the parties executed the transaction documents they would no doubt have been horrified at the thought that after nearly 30 years the hospital would remain unbuilt and that they would be litigating about what the hospital should look like. The inclusion of the obligation to use all reasonable endeavours did not render the compensation clauses void for uncertainty from the outset.

74. In advancing a case of uncertainty, SLHD also pointed out that Macquarie contended that the obligation to lease “on the same or substantially the same terms” is ambulatory and may contemplate a range of possible outcomes. It may be accepted that the concept of “substantially the same terms” allows for different possible outcomes and some judgment is required. However, the use of this kind of concept in formal contracts is common; see, for example: Queensland Bulk Handling Pty Ltd v Peabody (Wilkie Creek) Pty Limited [2015] QSC 37 and Section 79 Pty Ltd as T**rustee for the 79 Trebla Family v Suburban Land Agency [2017] ACTSC 370. This contractual device does not render the compensation clauses void for uncertainty.

Can Macquarie enforce the compensation clause in the Hospital Lease?

75. The Hospital Lease was terminated under clause 17 by notice dated 17 October 2017 and the Car Park Lease was terminated under clause 16 of that lease on the same day. That is when the compensation clauses were enlivened. That follows from my rejection of SLHD’s primary argument as to the proper construction of the compensation clauses.

76. It is common ground that SLHD did not, on and from 17 October 2017, or ever, take any steps to relet the Premises in either of the two leases. Macquarie contends that the obligation remains unfulfilled and seeks, as its primary remedy, orders compelling performance.

The character of the hospital to be constructed on a reletting

77. The obligation in respect of the Hospital Lease is relevantly to use all reasonable endeavours to relet the Premises on the same or substantially the same terms of the Hospital Lease. Macquarie accepts that the reletting of the Hospital Premises would require the incoming tenant to construct a private hospital on the site. The parties were in dispute about what the hospital that would be required.

78. Macquarie submits that the “relevant baseline” for the hospital under the reletting is to be found in the Initial Proposal, but that it is necessary to take into account changes in regulations and medical practices that have occurred since the Initial Proposal was made in 1988 and since the Hospital Lease and Construction Deed were made in 1996. Macquarie submits that in order for SLHD to give effect to clause 17.9, it would first call for expressions of interest, which would “presumably” be done with reference to the Initial Proposal. It contends that it would be necessary to “see what comes in” and after that there would be a process of negotiation, during which time a developer would have an opportunity to have “input into the shape of a potential private hospital” that would conform with the requirements of the Initial Proposal. For the reasons that follow, I do not accept these submissions.

79. The Construction Deed imposed an obligation on Macquarie to carry out and complete the Works. I have already set out the definition of Works. The definition refers to “the works to be carried out in accordance with the Initial Proposal as amended or varied…” Macquarie accepted that the works to be carried out were amended or varied from the Initial Proposal, and find reflection in the 1997 DA. The works contemplated by the 1997 DA differed from those contemplated in the Initial Proposal in various ways. The 1997 DA contemplated a private hospital made up of 9 storeys which included 4 storeys of in-patient beds (394 such beds in total) and 12 operating theatres, 2 endoscopy procedure rooms, 2 cardiac catheter laboratories and provided for 11 intensive care beds and 10 coronary care beds.

80. Macquarie submits that the amendments to the character of the works from those contemplated by the Initial Proposal that was reflected in the 1997 DA were amendments only as between Macquarie and SLHD and would not be reflected in a reletting with a new Tenant. I reject that submission. By the Construction Deed, Macquarie was obliged to carry out the construction in accordance with the terms of the deed. The Hospital Lease carried the same obligation. The contracts contemplated that the Works to be constructed under the contracts could be amended or varied. The contractual obligation under the Construction Deed and the Hospital Lease was to carry out and complete the Works. The notion of “Works” was ambulatory because the parties contemplated that the works that comprised the Works could be amended or varied. As at 1997 and all the way through to 2017, the Hospital and Car Park that were contractually promised to SLHD were the Hospital and Car Park that were reflected in the 1997 DA. Any reletting on the same or substantially the same terms as the Hospital Lease would reflect the amendments or variations that had been made by Macquarie and SLHD in the fashion contemplated by the Construction Deed and Hospital Lease. At the date the Hospital Lease was terminated in 2017, the Works were those specified in the 1997 DA. On a reletting on the same or substantially the same terms in 2017, the “baseline” (to use Macquarie’s term) was not the works reflected in the Initial Proposal; they were the works reflected in the 1997 DA.

81. Looking at the matter as at the date the Hospital Lease was made (which is the time clause 17.9 took its meaning), any other outcome would not make commercial sense. Clause 17.9 is a compensation clause that would be triggered if and when the Landlord terminates the Hospital Lease. It cannot be thought that SLHD would be indifferent to what was constructed on the Hospital Site. It had important obligations in relation to public health that would be expected to find reflection in the hospital and facilities that were to be constructed. When the Hospital Lease was made, a reasonable person in the position of the parties would expect that on a reletting under clause 17.9, SLHD would get the Hospital that was promised, including by any amendments or variations made after entry into the Hospital Lease. That person would expect that compensation would properly be payable to Macquarie if SLHD secured the Hospital that had been promised and received more in rent from a new Tenant than it would have received from the old Tenant, namely Macquarie.

82. I conclude that when the Hospital Lease was terminated on 17 October 2017, the Works were those specified in the 1997 DA. On a reletting on the same or substantially the same terms from 17 October 2017, the Hospital to be constructed was not a hospital that conformed with the Initial Proposal, rather it was the hospital reflected in the 1997 DA.

The feasibility of reletting the Hospital Premises

83. It is common ground that a private hospital operator would not regard as commercially attractive the opportunity to assume the obligations under the Hospital Lease (picking up obligations under the Construction Deed) on the same or substantially the same terms of that lease if the obligation was to construct a hospital in accordance with the 1997 DA. That is true today and was true as at October 2017, when the Hospital Lease was terminated.

84. Dr Thomas Wenkart founded MHC and developed the overarching vision of the group. He gave evidence that it was his view at the time the Hospital Lease was terminated, and has remained his view, that a hospital was not economically viable if built pursuant to the 1997 DA. SLHD led expert evidence from Mr Richard Royle, who has long experience in the administration of private hospitals and from Mr Michael Musil, an experienced health architect. Their evidence strongly supported the conclusion that a hospital based on the 1997 DA is not economically viable. Mr Royle’s evidence was that the cost to construct a private hospital in accordance with the 1997 DA would be in the order of $750m-$1b.

85. Having regard to the evidence, there can be no doubt that any attempt to relet the Hospital Premises on terms that required the new Tenant to construct a hospital that conformed with the 1997 DA would fail. That is true now and was true at all times from 17 October 2017.

86. The fact that a hospital constructed in accordance with the 1997 DA was unviable did not mean that on a reletting, SLHD was required to compromise on the 1997 DA so that the hospital to be constructed was viable for an incoming tenant. SLHD was obliged to seek to relet on terms that would have the new Tenant construct the Hospital that Macquarie had promised to build. It did not have to compromise on that in order to facilitate a payment of compensation to Macquarie. By October 2017, it was apparent that the bargain Macquarie had made was a bad one for it. It had promised to construct a hospital that would not be viable for a hospital operator. It would be a bizarre outcome if SLHD, having terminated the Hospital Lease following a breach of its terms by Macquarie, was obliged to, in effect, rewrite the bargain in Macquarie’s favour by giving up on the Hospital that had been promised to it.

87. Macquarie pointed to clause 20.13 of the Hospital Lease, which imposed duties of utmost good faith as follows:

Without limiting the generality of any other provision of this lease the parties agree that in the performance of their respective duties and the exercise of their respective powers under this lease and in their respective dealings with each other, they shall act in the utmost good faith.

It is doubtful that this obligation survived termination. Clause 17.9 imposes its own standard of behaviour: SLHD is to use “all reasonable endeavours” and must “observe the same duties a mortgagee would have in disposing of mortgaged property in the event of default”. That would require SLHD, for instance, to achieve the best price on the reletting that may reasonably be obtained in the circumstances: see section 111A of the Conveyancing Act.

88. Even if SLHD had a duty of utmost good faith to Macquarie in fulfilling its obligations under clause 17.9, that would not require SLHD to do something other than to relet the Premises on the same or substantially the same terms as the Hospital Lease. It would not require SLHD to depart from terms that were the same or substantially the same as the Hospital Lease. SLHD would not be required to accept a hospital that was different in any substantive sense from the one that had been promised by Macquarie.

89. An obligation to use “all reasonable endeavours”, or something similar, is commonplace. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Gibbs CJ observed (at 64):

The implied obligation to use best efforts to promote the sale of the goods necessarily imported the obligation not to take any deliberate steps to damage the market for those goods in Australia. The meaning of terms of this kind has been considered in a number of cases but it is trite to say that the meaning of particular words in a contract must be determined in the light of the context provided by the contract as a whole and the circumstances in which it was made and that decisions on the effect of the same words in a different context must be viewed with caution. On the one hand an express promise by an agent to use his best endeavours to obtain orders for another and to influence business on his behalf ‘necessarily includes an obligation not to hinder or prevent the fulfilment of its purpose’: Shepherd v. Felt and Textiles of Australia Ltd. (1931) 45 CLR 359 at 378. On the other hand, an obligation to use ‘best endeavours’ does not require the person who undertakes the obligation to go beyond the bounds of reason; he is required to do all he reasonably can in the circumstances to achieve the contractual object but no more: Sheffield District Railway Co. v. Great Central Railway Co. (1911) 27 T.L.R. 451 at p.452; Terrell v. Mabie Todd and Co. Ltd. (1952) 69 R.P.C. 234 at p.237.

Mason J held (at 91-92) that the extent of the obligation imposed by such a clause is governed by what is reasonable in the circumstances. Dawson J noted (at 143-144) that a best efforts clause or best endeavours clause does not impose a duty upon the distributor to disregard his own interests.

90. It is consistent with these observations to say that where steps to achieve an end would be futile because the efforts have such remote prospects of success that the effort would be wasted, then an obligation to use all reasonable endeavours does not impose an obligation to take any steps. That would be “beyond the bounds of reason”. This is supported by observations in Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135 at 150-152 (Shepherdson J); Altis Propco2 Pty Ltd v Majors Bay Development Pty Ltd [2022] NSWSC 403 at [104] (Ball J) and Re Iceland Cold Storage Australia Pty Ltd [2023] VSC 206 at [180] (Elliott J). The obligation in the Hospital Lease was to use all reasonable endeavours to achieve the reletting. If reasonable endeavours could not achieve that reletting, then no endeavours are required.

91. Given that a hospital that conformed with the 1997 DA was commercially unviable, any efforts to relet the Premises would now be futile, and would have been futile on and from 17 October 2017 when the Hospital Lease was terminated. The evidence in this case decisively indicates that the prospects of reletting the Hospital Premises in accordance with the compensation clause, on and after October 2017, had such remote prospects of success that any effort to relet would almost certainly have been a futile waste of time.

Macquarie’s concept plans

92. There was a lot of evidence in this case about some concept plans that Macquarie had developed for the purpose of the case. The plans (as amended) were put forward in the evidence of Dr Wenkart as a private hospital development on the Hospital Site that would be commercially attractive to a developer and operator of private hospitals. The evidence was advanced to support the contention that undertaking steps to achieve a reletting of the Premises in the Hospital Lease cannot be said to be a futile exercise. Macquarie stressed that it did not say that the concept plans are the only way a commercially viable proposal could be propounded; it submitted that for its purposes it was sufficient that there was a proposal that was, or could be, commercially viable. Macquarie led evidence, particularly from and through Mr Scott Wenkart (son of Dr Wenkart and a director and senior manager at MHC), to seek to establish that the concept plans were viable. That evidence (some of which was admitted for limited purposes) was thin, but ultimately is inconsequential.

93. Macquarie accepted that the concept plans are not a precise replication of the Initial Proposal but submitted that using the Initial Proposal as a baseline, the plans adapt to the contemporary financial and regulatory environment. The adaptations are extensive, to the point that the Initial Proposal is a distant memory. Thus, for instance, the concept plans do not provide for an intensive care unit or the more intensive paediatric facilities or birthing unit contemplated by the Initial Proposal, or for tertiary and quaternary care. Dr Wenkart’s evidence was that in 2026, the private hospital would work in a more complementary fashion with the public hospital if these services were not provided in the private hospital. Dr Wenkart also gave evidence that technological advances since the time of the Initial Proposal meant that the services that would have required a 200 bed hospital (as contemplated in the Initial Proposal) can now be delivered by a hospital with about 30 beds (a view disputed by Mr Royle). The concept plans contemplate a private hospital with 33 beds available for specific acute care. However, Dr Wenkart’s evidence was that the concept plans could properly be seen as delivering a 200 bed hospital because the plans included a medi-hotel and other clinical beds which were capable of being used for in-patients. This was disputed by evidence from SLHD. I conclude that even on Dr Wenkart’s evidence, the concept plans advanced by Macquarie depart in a significant fashion from the hospital and ancillary facilities that were contemplated by the Initial Proposal.

94. The departure in the concept plans from the 1997 DA is even more profound. For instance, the plans do not include anywhere near 394 ward beds, which was what the 1997 DA contemplated. On the other hand, the concept plans include provision for the construction of 252 units for seniors’ living over 12 levels in one tower of 15 levels and 120 units for affordable housing over 12 levels in another tower, also of 15 levels in total. These were not features contemplated in the 1997 DA. That is, compared with the 1997 DA, the concept plans contemplated a completely different private hospital and the addition of extensive residential development.

95. SLHD led evidence from Dr Pamela Garrett, who is the Director of Planning at SLHD. She gave evidence that the concept plans reflected a commercial planning approach, rather than an approach that was focussed on healthcare. Her evidence, which I accept, was that she considered that the plans did not represent an appropriate or clinically sound use of the Hospital Site. I accept that this is an open view and that her opinion is of significance in the assessment of the concept plans.

96. In the end, Macquarie’s evidence about the concept plans does its case more harm than help. It supports the conclusion that the Hospital that it had promised to construct was not viable and that if there was to be a reletting, the concept for the site would have to be very different if it was to be hoped that it would attract private investment. However, SLHD was not obliged to compromise on the Hospital and facilities that had been promised by Macquarie. It was not compelled to go to market with a different hospital and a radically altered development proposal in order to enable Macquarie (the contract-breaker) to seek to secure compensation from SLHD.

Endeavours to relet would be futile

97. The evidence leads to the conclusion that any effort on the part of SLHD to relet the Hospital Premises in accordance with clause 17.9 of the Hospital Lease would have been a waste of time. So long as the reletting carried with it an obligation to construct a hospital substantially in accordance with the 1997 DA, no rational commercial operator would have taken up the new lease. While I accept that clause 17.9 was engaged in that it became operative and imposed obligations on SLHD to use “all reasonable endeavours”, no reasonable endeavours would have resulted in a reletting. It follows that the obligation to use all reasonable endeavours did not require SLHD to take any positive steps.

98. Moreover, the obligation is now long spent. It was an obligation that arose upon termination and does not last forever. If the obligation to use all reasonable endeavours to relet the Hospital Premises was indefinite, it would sterilise the land. Once a reasonable period elapsed upon termination without any apparent endeavours manifesting themselves as having any prospect of success, the obligation under clause 17.9 came to an end. I do not need to identify that precise point. Whenever it was, it was in the past.

The compensation clause in the Hospital Lease is spent

99. It follows that Macquarie is not able to enforce the compensation clause in the Hospital Lease. It is not entitled to orders for specific performance, nor to damages, whether in equity or at common law. Even if a right to damages had accrued, Macquarie accepted that it had not proved that it suffered any loss for the alleged breach of clause 17.9 and that it would be entitled only to nominal damages.

Can Macquarie enforce the compensation clause in the Car Park Lease?

100. Unlike the hospital, Macquarie did construct a car park. It has been operational and has been run profitably. The car park as constructed is functional but it is not the finished car park that Macquarie had contracted to build under the Construction Deed. The 1997 DA contemplated that there would be a car park with spaces for 1225 cars. The car park as constructed has parking for 1026 cars. The ramp between levels 4 and 5 has not been constructed.

101. For reasons I have given, the reletting obligation under clause 16.9 of the Car Park Lease would require the incoming Tenant to agree to construct the Hospital and to finish construction of the Car Park, both in accordance with (or at least substantially in accordance with) the 1997 DA. It was not suggested that a prospective tenant of the car park in its current state would be prepared to take on the burden of constructing a hospital that was clearly unviable as part of the price for securing a lease of the Car Park Premises. It is appropriate to infer that the likely losses on the Hospital would make a lease of the Car Park Premises (with the obligation to complete the construction of the Car Park) a wholly unappealing commercial proposition.

102. As with the Hospital Lease, the obligation to use all reasonable endeavours to relet the Car Park Premises did not require SLHD, in October 2017 or subsequently, to take any steps. That is because it would have been a futile exercise to seek to relet the Car Park Premises in circumstances where the incoming Tenant would be required to agree to construct a hospital, at a likely cost of $750m-$1b, that was commercially unviable.

103. At one level it may be thought that this result means that clause 16.9 has failed, because Macquarie (or, more accurately on the evidence, its related entities) incurred costs in the millions to construct a car park but will receive no compensation on account of that expenditure. Meanwhile, SLHD will have the benefit of the car park, that cost it nothing. However, it is to be remembered that the agreement that was struck between SLHD and Macquarie was that Macquarie would build the “Hospital” and the “Car Park”. There is no reason to suppose that SLHD was interested in the construction of a car park without the hospital that the car park was to service. That is, SLHD did not get what was promised to it and the evidence indicates that there is no person who would be willing to take on and complete what Macquarie promised to do on the terms of the agreements made by Macquarie.

104. Once again, it may be seen, with the benefit of hindsight, that the bargain that Macquarie made in 1996 was a bad one. It stood to lose a lot of money if it stuck to the bargain. Meanwhile, SLHD did not get what it bargained for. If an objective person in the position of the parties was asked at the time the parties entered into the contracts what compensation would be payable under clause 16.9 if events played out in the way we now know that they did play out, that person would be able to say zero without the slightest amount of commercial irrationality or absurdity. True it is that SLHD would get a car park it did not pay for. But it did not get the private hospital that could assist to serve the health needs of the people of the State. It can hardly be said that the arrangements overall have turned out well for SLHD.

105. Macquarie’s claim to enforce clause 16.9 of the Car Park Lease fails for the same ultimate reason that its claim under clause 17.9 of the Hospital Lease fails. The obligation on SLHD to use all reasonable endeavours to relet the Car Park Premises did not require SLHD to take any steps because the steps required to be taken would clearly have been futile, and the obligation is now spent.

106. Macquarie led evidence about the loss that it has suffered on the basis that SLHD breached the Car Park Lease compensation clause and in the event that I declined to make orders requiring specific performance. I do not get to the question of loss because I have rejected Macquarie’s construction of the clause and have concluded that there was no breach of contract. Macquarie’s evidence on loss is also relevant to SLHD’s cross-claim, and is considered below.

Restitution

107. Macquarie contended that in the event that the compensation clauses are void for uncertainty, it is entitled to restitution. The clauses are not void for uncertainty and so the claim for restitution falls away. Nevertheless, it is appropriate to make some remarks about the claim.

108. The claim as ultimately formulated proceeded on the basis that total expenditure by Macquarie at the Hospital Site and Car Park Site was $14,043,931. With prejudgment interest of $19,029,526 for the period to 2 November 2015 (the time when Macquarie retook possession), the total quantum is $33,073,457. Macquarie accepted that it would have to bring to account the net revenues it received from its use of the sites. Those revenues comprise $14,530,510 reflecting mesne profits ($9,486,564) and interest ($5,043,946, calculated to 4 May 2017) as well as net revenue of $7,058,412 for the period from November 2015 to October 2020. These amounts add to $21,588,922. Deducting this figure from the expenditure results in a claim of $11,484,535. It can be observed that Macquarie generated more in revenue than it spent, and the claim is only positive because of the inclusion of interest.

109. There were some difficulties with the claim as it was propounded.

110. The claim in restitution was framed by reference to expenditure incurred by Macquarie rather than by reference to the enrichment of SLHD that can be said, in accordance with principle, to have been unjust. In Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, Deane J pointed out (at 263) that monetary restitution involves the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or enrichment that was accepted. His Honour said that while this will ordinarily correspond to the fair value of the benefit provided, in some cases this will not be so. An instance is where the remuneration for the work, calculated at a reasonable rate, would far exceed the enhanced value of the property. It also follows from his Honour’s observations that where the person claiming restitution is a wrongdoer, it is necessary to have regard to identifiable real detriment to the person who is the subject of the wrong and is also the subject of the claim for restitution.

111. Macquarie’s claim for restitution focussed on its loss rather than on any net unjust enrichment enjoyed by SLHD. It did not take into account that Macquarie was a wrongdoer (having breached essential terms of the Hospital Lease and the Car Park Lease) and as a result, SLHD did not obtain the advantages to it that had been promised. Some of that detriment is financial (lost rent). SLHD was also required to expend substantial sums to render the car park operational. In addition, SLHD had statutory obligations to promote public health and Macquarie’s failure to construct a private hospital as it promised has diminished the health benefits that would otherwise have been achieved if it had fulfilled its contractual obligations.

Anshun estoppel

112. SLHD’s final submission on Macquarie’s claim is that Macquarie is estopped from bringing the claim in these proceedings “for a second time”. The first time was said to be by way of defence to the cross-claim in the 2019 proceedings heard by Ward CJ in Eq, where Macquarie pleaded that if the termination notices were found to be valid, then Macquarie was entitled to compensation pursuant to the compensation clauses. SLHD submitted that Macquarie should have sought to have this claim remitted to be determined once its avenues for appeal were exhausted. SLHD referred to Anshun estoppel, issue estoppel and abuse of process, but did not distinguish between those doctrines in their application in this case.

113. Macquarie submitted that it raised the compensation clauses in the earlier proceedings as giving rise to a set off against any liability it might have to SLHD. It submitted that SLHD did not seek monetary claims against Macquarie, and so the issue of a set off did not arise.

114. I do not consider that it was unreasonable in the circumstances for Macquarie to have pursued SLHD for relief to seek to enforce the compensation clauses only after it had been determined that the Hospital Lease and the Car Park Lease had been validly terminated, that being the precondition to the compensation clauses coming alive. In substance, there is little difference between Macquarie seeking a remittal after the exhaustion of the appellate process (which is what SLHD says Macquarie should have done) and commencing fresh proceedings after the appellate process was exhausted (which is what occurred).

115. I reject any defence from SLHD based on any doctrine of preclusion.

SLHD’s claim

116. SLHD claims relief in the form of money under four heads, as follows:

(a) $486,785 in additional rent (and interest), arising from obligations under clause 3.4 of the Construction Deed to make such payments in the event of delay; (b) $1,626,868 that was to be deposited with SLHD as required by clause 3.5 of the Construction Deed; (c) $6,986,075, being an amount that was to be paid by way of rent under clause 2.1 of the Hospital Lease as a one-off lump sum; and (d) $5,756,697, being a calculation of lost rent and outgoings from the hospital that was not built (based on a claim for 15 years of lost rent) under clauses 2.2 and 4.1 of the Hospital Lease.

The amounts in (a) to (c) include interest up to 31 December 2024. SLHD claims interest for the period since that date.

Anshun estoppel

117. Macquarie contends that all of SLHD’s claims stem from Macquarie’s breach of clause 2.1 of the Construction Deed and should have been advanced in the proceedings heard by Ward CJ in Eq, which concerned the issue of whether SLHD had validly terminated the Hospital Lease and Car Park Lease by reason of Macquarie’s breach of that clause. It contends that SLHD should be precluded from making the claims in fresh proceedings.

118. The earlier proceedings concerned a claim by Macquarie by which it sought declarations that the termination notices were invalid. Macquarie alleged that the wrongful issue of the termination notices caused it to suffer loss. Macquarie claimed damages from SLHD for that alleged breach.

119. Aside from the question of the validity of the termination, the earlier proceedings did not canvass the consequences that would flow from valid termination. That is true of Macquarie’s potential claims under the compensation clauses and SLHD’s claims for monetary relief under the transaction documents, including loss of bargain damages. I am not satisfied that it was unreasonable for SLHD to have failed to make in the earlier proceedings the claims it now makes in these proceedings.

120. Moreover, even if SLHD should have raised these claims earlier, there are special circumstances that would permit SLHD to raise them now: see Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 146 FCR 10; [2004] FCAFC 242 at [38] (Emmett, Conti and Selway JJ). The special circumstances are that SLHD’s claim is made by way of cross-claim in response to a claim by Macquarie that relies on rights that, on its case, first accrued when the Hospital Lease and Car Park Lease were terminated (which was prior to the commencement of the earlier proceedings). It would be extraordinary and exceptional if Macquarie was free to bring its claim against SLHD and at the same time could shut SLHD from its cross-claim, where both claims, in substance, reflect the sequelae of the termination. If Macquarie is not precluded from bringing its claim, nor is SLHD.

Claim under clause 3.4 of the Construction Deed

121. Clause 3.4 of the Construction Deed imposed an obligation on the Tenant to pay additional rent if it was late in the completion of the Works. It provided as follows:

If the Tenant fails to complete the Works and has not admitted its first patient so that the Rent Commencement Date does not occur on or before Scheduled Rent Commencement Date then the Tenant must pay the Landlord on the same day in each successive month until the Rent Commencement Date additional rent of $33,000 per month (and a proportional amount calculated on daily basis for any part of a month) for the period from and including the Scheduled Rent Commencement Date until but excluding the Rent Commencement Date. Such additional rent shall be paid in advance in monthly instalments, the first of which shall be on the Scheduled Rent Commencement Date and each subsequent instalment on the same day in each successive month until the Rent Commencement Date and the Landlord shall refund any proportion overpaid within 14 days of the Rent Commencement Date.

The expression Rent Commencement Date was defined as follows:

Rent Commencement Date means the date when the Works are complete to a stage where the Hospital is substantially fit for occupation and use by the Tenant and the first patient is admitted to receive clinical in-patient or out-patient services delivered from the Hospital.

The expression Scheduled Rent Commencement Date was defined to mean the scheduled date for the Rent Commencement Date to occur, as set out in the Timetable. At the time the Construction Deed was made, the Timetable identified 1 December 1999 as the Scheduled Rent Commencement Date.

122. Clause 2.5 of the Construction Deed gave the Landlord a discretion to extend any date in the Timetable if there was a delay caused by an event beyond the control of the Tenant. On 1 September 2016, SLHD exercised that power to extend the Scheduled Rent Commencement Date to 25 February 2020. The Construction Deed was terminated on 17 October 2017, before the extended Scheduled Rent Commencement Date came to pass.

123. SLHD claims what in effect is a claim for a debt under clause 3.4 in respect of the period from 2 November 2015 (when Macquarie re-took possession) to 1 September 2016 (the date of the extension).

124. The main argument that arises on this claim is whether the extension that was granted on 1 September 2016 operated only prospectively or whether it had retrospective effect.

125. In the period from 2 November 2015 to 1 September 2016, Macquarie had failed to complete the Works, with the consequence that the Rent Commencement Date had not occurred, and the Scheduled Rent Commencement Date had passed. During that period, clause 3.4 imposed an obligation on Macquarie to make a payment of $33,000 each month (in advance). Those payments were not made.

126. Macquarie submitted that in making this claim, SLHD is seeking to take advantage of its own wrong (in trespassing and keeping Macquarie out of possession of the sites for over 15 years). While underpinning this argument one can see the makings of a formal defence to the claim for rent payable under the terms of the Construction Deed, the only pleaded defence that is specific to the clause 3.4 claim is that the effect of the extension of the Scheduled Rent Commencement Date is that no amount was payable under clause 3.4.

127. At the time SLHD granted the extension on 1 September 2016, Macquarie had failed to make the payments that it was required to make under clause 3.4. Those liabilities had accrued. An extension of the Scheduled Rent Commencement Date on 1 September 2016 would not, without more, have the consequence of excusing Macquarie’s liabilities that has already accrued under clause 3.4. If Macquarie had already paid the $33,000 per month that it was obliged to pay, an extension of time would not have the consequence of making those payments refundable. The same must be true of amounts that had fallen due but had not been paid. In short, it is not possible to read clauses 2.5 and 3.4 of the Construction Deed as having the effect that if there is an extension of time, then clause 3.4 of the Construction Deed is to be read as if the extended time had always been the Scheduled Rent Commencement Date and liabilities that had accrued would vanish. Clause 2.5 can only be sensibly read as operating prospectively. It operates to extend time, not to change the time ab initio.

128. SLHD’s claim under clause 3.4 of the Construction Deed is upheld.

129. There were some differences in the calculations of the loss under this head by experts called by SLHD (Mr John McGuiness) and Macquarie (Ms Julie Planinic). The differences were de minimus. Mr McGuiness calculated a slightly lower number, which I will adopt. The loss was $329,536 and interest to 31 December 2024 was $157,249, reflecting a claim of $486,785 with interest calculated to 31 December 2024. I will order that Macquarie pay damages and interest in the amount of $486,785, together with further interest on the sum of $329,536 at Supreme Court rates from 31 December 2024 until the date of judgment.

Claim under clause 3.5 of the Construction Deed

130. Clause 3.5 of the Construction Deed imposed an obligation on the Tenant to make a deposit with the Landlord if it failed to complete a stage of the Works on time. It provided as follows:

If the Tenant fails to complete any stage of the Works identified in the Timetable by the date specified for completion in the Timetable, then the Tenant must deposit with the Landlord a sum equal to rent at the rate referred to in clause 3.4 of this deed for the period measured in days by which the date of completion of the stage of the Works is later than the date for completion in the Timetable. The Landlord may apply such funds against the Tenant’s obligations under clause 3.3 of this deed when they fall due.

131. SLHD’s claim under this clause has two components.

132. The first component arises from the alleged failure by Macquarie to pay $33,000 per month pursuant to this clause in the period from 17 February 2017 (being the date on which Macquarie was to lodge a Construction Certificate Application with SLHD) to the date of termination of the Construction Deed on 17 October 2017. This is a liquidated claim which SLHD says is a debt.

133. The second component is an amount calculated at $33,000 per month for the period from the termination of the Construction Deed on 17 October 2017 to 25 February 2020 (the revised Rent Commencement Date under the Timetable (as amended)). This was said to be a claim for loss of bargain damages.

134. Both components are rejected.

135. The amount to be paid to SLHD under clause 3.5 was expressed to be a deposit. Clause 3.5 contemplated that the amounts paid could be defrayed against “the Tenant’s obligations under clause 3.3 of this deed when they fall due”. The reference to clause 3.3 is an obvious error and should be a reference to clause 3.4: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service at [277] (Hodgson JA; Allsop P and Macfarlan JA agreeing).

136. Clause 3.6 of the Construction Deed concerned the refund of the deposit provided under clause 3.5. It provided:

Any deposit not applied under clause 3.5 of this deed must be refunded once the Rent Commencement Date has occurred, the Tenant has complied with clause 3.4 of this deed and has paid the amount due under clause 2.2 of the Hospital Lease.

Clause 2.2 of the Hospital Lease concerned the annual payment of rent. It is likely that the reference should be to clause 2.1 of the Hospital Lease (which required the one-off payment of $5.5m on or before the Rent Commencement Date) rather than clause 2.2. These two clauses from the Hospital Lease are set out below.

137. SLHD’s claim under clause 3.5 is misconceived. As Hodgson JA observed in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service at [291], clause 3.5 concerns the amount to be paid as a deposit as security, rather than absolutely. The deposit was to secure other obligations and was to be refunded once those obligations were satisfied. In terms of money that Macquarie was required to pay to SLHD which SLHD could keep (i.e. to be paid absolutely and not merely by way of deposit), it was necessary to look to other provisions in the parties’ agreements.

138. SLHD is suing Macquarie for damages for breach of clause 3.4 of the Construction Deed and clauses 2.1 and 2.2 of the Hospital Lease. In suing for those amounts and additionally suing for payment of an amount that was to secure payments under clause 3.4 of the Construction Deed and under clauses 2.1 and 2.2 of the Hospital Lease, SLHD is seeking double recovery.

139. SLHD’s claim under clause 3.5 of the Construction Deed is rejected. In so far as the claim for damages under clause 3.5 is a claim for loss of bargain damages, it also fails for the reasons addressed below.

Claims under clauses 2.1, 2.2 and 4.1 of the Hospital Lease

140. Clause 2.1 of the Hospital Lease required a one-off payment of rent of $5.5m, which could be set off against various costs incurred by the Tenant. It provided as follows:

On or before the Rent Commencement Date the Tenant must pay to the Landlord the sum of $5,500,000 which sum represents all rental payable under this lease (other than that referred to in clause 2.2 of this lease and clause 3.5 of the Construction Deed) paid in one lump sum in advance (being $59,920.00 per annum).

If the Tenant:

(a) constructs car parking for at least 1200 cars on the land comprised in Folio Identifier 11/809663; and

(b) clears the land comprised in Folio Identifier 11/809663 and 12/809663; and

(c) removes the Telecom cable as set out in the Construction Deed,

then the cost to the Tenant of carrying out those works will be off set against the payment of $5,500,000 referred to in this clause and the Tenant will only be liable to the Landlord the balance. The Landlord is not liable to pay any amount to the Tenant if the cost of these works exceeds $5,500,000.

If this lease is terminated for any reason prior to the Terminating Date then the Landlord must refund to the Tenant the rent actually paid under this clause 2.2 which relates to the balance of the Term which is unexpired at the date of termination.

SLHD accepted that the obligation to pay the sum of $5.5m had not accrued by the date of termination. The claim it makes by reference to this clause is a claim for loss of bargain damages.

141. SLHD also claims loss of bargain damages in respect of the loss of the benefit of clauses 2.2 and 4.1 of the Hospital Lease. Clause 2.2 provided for annual rent in the following terms:

In addition to the payment referred to in clause 2.1, the Tenant must pay to the Landlord annually:

(a) commencing on the Rent Commencement Date; and

(b) annually thereafter,

$400,000 per annum as reviewed under clause 3.

Clause 4.1 provided for the payment of outgoings, as follows:

The Tenant agrees to pay all Outgoings in relation to the Premises during the whole of the Term when the Outgoings become due for payment.

SLHD limited the claim made by reference to these clauses to 15 years, as a means to discount for any contingencies.

142. Macquarie accepted that SLHD could claim for loss of bargain damages notwithstanding that the Hospital Lease was terminated by the exercise of a contractual right of termination and not because of a common law right to terminate for breach. That was because the contractual right to terminate was based on Macquarie’s failure to comply with a term that had been made “essential” by the parties: see Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237; [2008] HCA 10 at [58] (Gleeson CJ, Kirby, Heydon, Crennan and Kiefel JJ).

143. For its part, SLHD accepted that that in considering the “bargain” that was lost, the bargain was that afforded by the suite of transaction documents. That means that the Hospital Lease was not to be seen as reflecting a bargain that was separate from the Construction Deed, the Car Park Lease or the other agreements.

144. Loss of bargain damages provide compensation to an injured party for loss of the benefit of the promises that had been made to it but which will not be provided because those obligations were discharged by the termination of the contract. In assessing the value of the lost bargain to the injured party, it is necessary to take into account that the injured party has also been discharged from its obligations. That is because the principle of compensation at play is the ruling principle that damages are to be awarded to seek to place the injured party in the same the position that it would have been in if the contract had been performed: Robinson v Harman (1848) 1 Exch 850 at 855; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13]. The injured party is not, by an award of damages, to be placed in a better position than it would have been in had the contract been performed: Cessnock City Council v 123 259 932 Pty Ltd (2024) 281 CLR 39; [2024] HCA 17 at [6] (Gageler CJ) and [48] (Gordon J). In terminating the Hospital Lease and Car Park Lease and suing for loss of bargain damages, SLHD cannot unjustly advantage itself by seeking to put itself in a position better than it could have been in if it had kept the Hospital Lease and Car Park Lease on foot: Gumland at [55]. The object is to give the injured party the net profit that it could have expected to generate from the contract: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 81 (Mason CJ and Dawson J).

145. The consideration of what was lost by reason of the termination of a contract involves a form of counterfactual analysis. The world with the bargain at an end (the real world) is compared with the world where the bargain has continued (the counterfactual world). In considering the real world, it is appropriate to proceed on the basis that the injured party is entitled to act in its own best interests, but that that it cannot recover losses where, by reasonable mitigation action, it could lessen the loss. That is particularly so where there is an express contractual duty to take reasonable steps to mitigate loss if the contract is terminated. In the context of loss of bargain damages, that may involve contemplation of steps that may be taken in the future to mitigate loss. It will be for the contract-breaker to demonstrate that those opportunities exist: TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 159 (Hope JA).

146. A consequence of the application of these principles in this case is that in assessing SLHD’s loss of bargain damages, it is necessary to take into account that Macquarie has shown that there was a financial benefit that became available to SLHD upon the termination of the contract. In simple terms, had the Construction Deed and Car Park Lease not been terminated, Macquarie would have had the benefit of being able to turn a large number of car parking spaces in the car park that it constructed to its financial advantage and without the obligation to pay on-going rent. The bargain was that Macquarie would build the car park and that Macquarie and SLHD would share the profits from the car park (for a century or more). Upon termination, SLHD in effect was able to take for itself the financial benefits of the car park that would otherwise have been enjoyed by Macquarie for the approximately 75 years that was to run on the Car Park Lease. The Hospital Lease and Car Park Lease included express terms that imposed an obligation on SLHD, in the event the lease was terminated, to take reasonable steps to mitigate its loss. SLHD can mitigate its loss, and is obliged to do so, by securing the financial benefits available from the car park that was constructed. SLHD has already taken benefits by exploiting the car park. It has been generating revenue from car parking spaces that would otherwise have been for the benefit of Macquarie if the Car Park Lease had not been terminated. It can and is obliged to continue to reap those benefits.

147. There was expert evidence about the value of the car parking spaces that would have been available to Macquarie to exploit based on the car park as constructed. Mr James Ruben (called by Macquarie) and Mr Grahame Hollinshead (called by SLHD) reached what they called “an appropriate professional compromise” and agreed that the value of the 388 car parking spaces that would otherwise have been able to be exploited by Macquarie for approximately 75 years, from 18 March 2024, is $31,710,000. This is a measure of the value of a benefit that SLHD obtained following the termination that it would not have had if the bargain was not lost. To mitigate its loss, SLHD is obliged to take that benefit.

148. SLHD did not plead or press a claim for loss of bargain damages that endeavoured to identify the net benefits of the bargain that were lost by reason of the termination. Rather, as I have noted, it focussed on the lost rent from the Hospital Lease and made a broad-brush allowance for contingencies. As I have already noted, Macquarie also framed part of its claim under clause 3.5 of the Construction Deed as loss of bargain damages.

149. The question of how to take into account the benefit of the car park in assessing SLHD’s claim for loss of bargain damages was raised during the trial, and led to some supplementary written submissions. SLHD effectively submitted that when one compares the counterfactual with the factual, SLHD was worse off by an amount in the range of around $780m to $1.03b. This takes into account the $31,710,000 relating the car parking spaces noted above. It did not claim $780m to $1.03b by way of damages, but submitted that on this basis there was no reason not to allow all of the loss of bargain damages that it did claim.

150. There are several problems with SLHD’s analysis.

151. The first is that the bulk of the $780m to $1.03b comes from the estimated cost to construct the Hospital in accordance with the 1997 DA, which was $750m to $1b. However, this does not mean that SLHD lost that amount because the Hospital was not constructed. SLHD would have had the Hospital on its land at the end of the Term, although even then the Hospital Lease included a clause which provided for compensation to the be paid for capital works undertaken by the Tenant: see clause 13.7. Macquarie was planning to construct the Hospital so that it could profit from operating the Hospital. If the contracts had been performed, SLHD would not simply be receiving a hospital worth $750m to $1b. Rather, it would be receiving a rental stream.

152. It may be accepted that SLHD was injured because the Hospital was not built. It was anticipated when the contracts were made that a private hospital next to the Royal Prince Alfred Hospital would provide efficiencies in the running of the public hospital. Those gains would be financial. There was no attempt to quantify those losses, and they would likely have been almost impossible to estimate with any precision. However, the more substantial harm that is likely to have been suffered is of a different kind. As I have explained, when the contracts were made, SLHD (or, more precisely, the Central Sydney Area Health Service) had statutory objectives and functions that in broad terms were focussed on public health. It was apparent that the Central Sydney Area Health Service contemplated that the private hospital would promote those objectives and functions. They would be served by the private hospital itself and also by improvements to public health that would be provided by the public hospital from having a complementary private hospital next door. The most substantial loss from the failure by Macquarie to honour its part of the bargain is likely to be the loss of the gains in public health that would have been secured if the private hospital had been built. Those losses, while potentially profound, are not losses to SLHD that sound in damages in this case.

153. SLHD cannot properly suggest as part of the counterfactual analysis that if the bargain was not lost, it would have received a financial benefit of $750m-$1b in the form of a complete and operational private hospital.

154. The second problem is that on the counterfactual analysis, SLHD claims lost annual rent under the Hospital Lease of $43,057,143. That figure is an estimate drawn from the evidence of Mr McGuiness. It reflected loss of rent for the whole of the term of the Hospital Lease. Macquarie submitted that based on the evidence from Mr McGuiness and their own expert, Ms Planinic, the lost rent in net present value terms was $26,298,185.50. Whether the figure should be $43,057,143 or $26,298,185.50, the proper counterfactual analysis needs to take into account that, once the Hospital Lease was terminated, SLHD was free to turn the Hospital Site to account for some other use. It ceased to be burdened by the Hospital Lease. That is, against the rent lost from Macquarie, SLHD must allow for the fact that the land could be rented to somebody else or turned to account in some fashion. SLHD’s loss could be mitigated by leasing the land to somebody else. That benefit to SLHD is not taken into account in SLHD’s counterfactual analysis. Mr Ruben’s evidence was that taking into account the net present value of the rent that would have been paid under the Hospital Lease with the net present value of the market rent that could be achieved by renting the land on the open market, SLHD was about $200,000 worse off with the Hospital Lease having been terminated.

155. A third problem is that SLHD’s analysis proceeds on the basis that if the Hospital Lease had been performed, it would have received no financial benefit under clause 2.1 of the Hospital Lease. That is because the clause contemplated that the $5.5m would be set off in full by the costs to the Tenant to undertake the works referred to in that clause. This indicates that on a true loss of bargain analysis, no amount of the $5.5m should be part of the damages, because that was money that would not have been retained by SLHD if the bargain had been performed.

156. SLHD’s loss of bargain damages claim was flawed because it picked out some elements of the bargain that it lost and failed to assess the true overall loss occasioned by the lost bargain, allowing in that analysis for benefits that it secured because of the lost bargain. SLHD’s retrofitted loss of bargain assessment does not help because that analysis does not properly bring to account the benefit and burdens of the bargain if performed and the benefits and burdens to SLHD of the failure of the bargain.

157. It was common ground that one of the benefits to SLHD occasioned by the lost bargain is that it came to possess 388 extra car parking spaces that had a value of nearly $32m. There is no doubt that the loss of the bargain meant that SLHD was deprived of various benefits. As I have said, many of the lost benefits are reflected in missing out on the public health benefits that were expected to result from the transaction. In terms of money, however, SLHD has not established that the financial value of the losses it has suffered exceed the financial benefit it secured by taking the whole of the car park that was built by Macquarie at significant expense. SLHD has not established any entitlement to loss of bargain damages.

158. It follows that SLHD’s claim for loss of bargain damages fails.

Conclusion

159. Macquarie’s claim fails in its entirety.

160. SLHD’s cross-claim largely fails, save that it has succeeded in its claim for damages for breach of clause 3.4 of the Construction Deed, in the amount of $329,536 (plus interest).

Costs

161. I will hear from the parties, if necessary, about orders as to costs. Given that Macquarie has failed on its claim and that SLHD has substantially failed on its claim, an appropriate order may be that there is no order as to costs, so that each party will bear its own costs. At the very least, that would avoid a contest about the assessment of anyone’s costs.

Orders

162. I make the following orders:

163. The Amended Statement of Claim is dismissed.

164. The Cross-Defendant is to pay damages and interest to the Cross-Claimant in the sum of $486,785 together with further interest on the sum of $329,536 at Supreme Court rates from 31 December 2024 until today’s date.

165. The Statement of Cross-Claim is otherwise dismissed.

166. The parties are to notify my Associate by 4pm on 30 October 2026 if they cannot agree about an appropriate order for costs and a date will be fixed for a short oral hearing to deal with that issue.

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[2008] HCA 10