Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service

(ii) a car park lease under which Area Health as landlord let lot 11 to Macquarie and itself as tenants in common in equal shares for a term of 103 years;

(iii) a car park sub-lease under which Area Health let its interest in lot 11 to Macquarie for a term of 28 years;

(iv) a hospital lease under which Area Health let lot 12 to Macquarie for a term of 103 years;

(v) a car park management agreement under which Macquarie, as manager, agreed to manage and operate the car park to be erected on lot 11; and

(vi) a co-ownership deed which regulated the respective rights and obligations of Area Health and Macquarie between themselves as co-owners concerning the car park. 5 Most of the work for the car park was completed by about June 1999 although some of the conditions of the South Sydney City Council (the council) were not met. There was never any substantial commencement of the construction of the private hospital (MPH). 6 On 13 September 1999 Area Health served on Macquarie notices of default under the construction deed, the two leases, and the sub-lease. Because the events of default under each agreement effectively tied one to the other, each notice relied upon the same events, namely:

(a) the failure to comply with cl 2.2 of the car park lease by failing to pay the sum of $1,440,000 to Area Health by 14 February 1999;

(b) the failure to comply with cl 2.1 of the construction deed by failing to complete the car park by 30 June 1999, and to substantially commence the private hospital by 30 June 1999; and

(c) the failure to comply with cl 3.5 of the construction deed by failing to pay rent equivalent to $33,000 per month for the period by which the completion of the car park extended beyond 30 June 1999. 7 On 17 March 2000 Area Health served on Macquarie notices of termination under each of the construction deed, car park lease, car park sub-lease and hospital lease. It re-entered the sites, and locked Macquarie out of the car park. 8 On 28 March 2000 Windeyer J dismissed Macquarie's application for an interlocutory order for the return of the car park site to its possession ( Macquarie International Health Clinic Pty Ltd v Central Sydney Area Health Service (unreported, BC 200008756)). 9 By its fifth amended statement of claim, Macquarie seeks an order for possession of lots 11 and 12. It also seeks declarations that the default notices and termination notices were invalid, and should be set aside, on grounds that Macquarie was not in default as alleged; the notices were invalid under s 129 Conveyancing Act 1919 (the Act); and the notices were issued contrary to express terms in the construction deed, hospital lease, and car park lease which required the parties to act in the utmost good faith in the performance of their duties, and in their respective dealings with each other. 10 Macquarie also seeks declaratory relief under the hospital lease that it became entitled to change the permitted use of lot 12 for a hospital. It also seeks orders for possession of lots 11 and 12, and damages for the period in which it was excluded from the car park. Alternatively, if the notices are not set aside, Macquarie seeks relief against forfeiture. 11 A substantial part of the hearing concerned Macquarie's case that by reason of the conduct of Area Health in breach of the requirement to act in utmost good faith, Area Health impeded and undermined Macquarie in its performance with the consequence that Area Health is precluded from asserting any rights to terminate the leases and the construction deed at the time the notices were issued. 12 In defence, Area Health denied the claim of Macquarie to remain in possession, adhering to the grounds specified in the default notices and the termination notices, and also on the ground that Macquarie had failed to comply with some conditions of consent to the car park development. It denied the allegations that it acted in breach of the utmost good faith requirements and, also, that in the circumstances Macquarie became entitled to change the permitted use of the premises under the hospital lease. The claim for relief against forfeiture was also denied. Preliminary observations 13 Some statistics: The hearing proceeded, with interruptions, for 86 days from 6 February 2006 until 28 May 2008. Twenty nine witnesses gave evidence. Eighty six affidavits were read. The documentary evidence consisted of 49 exhibits, which included a 12 volume tender bundle containing in excess of 5000 pages. The transcript of evidence and submissions contained 5591 pages. The parties provided extensive written submissions in chief and in reply which covered in detail a wide range of issues and sub-issues. Oral submissions were heard, with interruptions, over 19 days between 26 March 2007 and 25 May 2007. 14 The factual and legal issues were many and complex, and presented the Court with a difficult task. I have kept in mind the principle that the primary function of a first instance judgment is to find facts and identify the crucial legal points and to advance reasons for deciding them in a particular way ( Customs and Excise Commissioners v A [2003] 2 All ER 736, per Schiemann LJ, p 754; approved by the Court of Appeal in Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58, pars 285, 286). Accordingly, I consider it to be neither necessary nor appropriate nor realistic in these reasons to deal with all of the issues and arguments raised by the parties. No utility would be served in repeating evidence and submissions on issues which were peripheral or would not affect the outcome. However, I read the written and oral evidence and submissions in their entirety, some many times. It would be erroneous to assume that matter not referred to was not considered in the course of reaching a conclusion. I have confined these reasons to those issues which were found to be crucial for the determination of Macquarie's claim. I was guided by the principles expressed in Digi-Tech (pars 282-291). 15 But for these proceedings, the eviction of Macquarie on 17 March 2000 brought to an end a difficult relationship which had endured for about 12 years. Consideration of the issues raised in these proceedings necessitates scrutiny of the details of many matters which took place during that period, in the context in which they occurred. 16 In short, Macquarie's case was that in the period from 1994 to 2000 Area Health's conduct was in breach of the condition under the Heads of Agreement (HOA) and the 96 agreements to act in utmost good faith, and caused or contributed to its defaults and difficulties. In essence, it was put that Area Health wrongfully failed to disclose information which would have affected important decisions to be made by Macquarie in performance of the agreements. It was alleged that Area Health failed to disclose the decision it made in December 1994 to locate all clinical services at RPAH on the eastern side of Missenden Road. It is also alleged that Area Health failed to disclose its knowledge from about mid-1994 of discussions as to the possibility of the construction of a private hospital on University land adjacent to RPAH, and its encouragement and support for such proposal. 17 Macquarie also claimed that, over many years, Area Health's chief executive officer, Dr Diana Horvath deliberately concealed this information for the purpose of undermining Macquarie's capacity to perform its contractual obligations, and thereby contrived the circumstances in which Area Health exercised its powers to issue the default notices and termination notices. The parties 18 Macquarie, at all relevant times, was a member of the Macquarie public group of companies of which the ultimate holding company was MHC which, as guarantor, was a party to the transaction documents. Through its subsidiaries, MHC developed and operated numerous private hospitals and health care facilities on a large scale, which included the provision of a wide range of clinical and related services. The majority shareholder in MHC was Traknew Holdings Pty Ltd as trustee for Traknew Holdings Trust, the family company and trust of Dr Thomas Wenkart and his family. 19 Dr Wenkart, at all relevant times, was the chief executive and a director of Macquarie and related companies which, effectively, were his alter ego. He is a medical practitioner and, over a long time as a businessman, has accumulated extensive commercial experience. 20 The principal witnesses for Macquarie were Dr Wenkart, Mr Raymond Block, a director of Macquarie from 1995 and its chairman from March 1996 until 1998, Mr John Morrison, a chartered accountant and consultant to Macquarie from 1996 until 2001, and Mr Greg Anderson, a chartered accountant and health consultant. 21 Area Health is a body corporate which operated with the name Central Sydney Area Health Service under the Area Health Services Act 1986. This act was in force until 1 July 1998, when it was repealed and replaced by the Health Services Act 1997, under which Area Health continued to operate as before, but with its name changed to Sydney South West Area Health Service, as the latest pleadings show. 22 Under the Area Health Services Act 1986, the affairs of Area Health were controlled by a board subject to the control and direction of the Minister, with a chief executive officer who was responsible for its management (s 12, s 13 and s 17). Its objectives were, inter alia, to promote, protect and maintain public health, and to provide for the effective co-ordination of the planning, provision and evaluation of health services, and to establish and maintain an appropriate balance in the provision and use of resources for health protection, health promotion, health education and treatment services (s 19(a), s 19(d) and s 19(e)). Its functions included those which were generally to promote, protect and maintain the health of the residents of its area, and 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 (s 20(1)(a) and s 20(1)(c)). The Royal Prince Alfred Hospital is, and at all material times was, a hospital subject to the control and management of Area Health. 23 The principal witnesses for Area Health were Mr Christopher Puplick, chairman of Area Health from August 1996 until June 2003, Dr Diana Horvath, Area Health's Chief Executive Officer from 24 December 1992 until 2005, and Mr Michael Wallace, Area Health's Deputy Chief Executive Officer from February 1993 until 2005. Background: March 1984 - June 2000 24 In this section is set out a description of significant events which arose during the development of the relationship between the parties between March 1984 and June 2000. It is taken from the documentary evidence and, necessarily, is selective. 25 In March 1984 the RPAH draft master plan became available. It contained recommendations for the future development and use of the hospital's services, land and buildings. It proposed a development strategy for the campus based largely on the closure of Missenden and Salisbury Roads to through traffic. It indicated the location of parking areas, outpatients, accident and emergency, and other departments on the western side of Missenden Road behind the King George V building (KGV). Closure of the roads would enable pedestrian circulation in this area with covered access and links to major facilities. 1988 (pars 26 - 29) 26 On 30 June the Minister for Health announced approval for the development of a private hospital and car park on the campus of RPAH. Area Health called for submissions of interest from developers. 27 On 29 July Dr Wenkart wrote to Area Health expressing Macquarie's interest in developing a private hospital on RPAH grounds. On 2 September a preliminary joint proposal was submitted by Macquarie and Mirvac Group for the development of a 200 bed independent private hospital. It recognised that until a site had been chosen configuration could not be finalised. 28 In its letter of 4 November Area Health advised Macquarie that it was short-listed for selection. It requested submission of a comprehensive proposal including details of preliminary architectural plans, physical relationships to the campus, and of functional flows for patients and medical staff. On 22 November Area Health informed Macquarie of the preferred site. 29 A more detailed joint proposal was submitted in December by Macquarie and Mirvac Group for a 200 bed hospital. It included designs of the private hospital said to fit in with the current master plan for the development of RPAH (the 1984 draft master plan). The joint proposal said that it had taken into account detailed discussions with Area Health, RPAH, and other relevant parties. Section 4 outlined relationships with RPAH. It stated that strong links would develop between the two hospitals and that it must be the objective of both parties to ensure that they would be mutually beneficial. It stated that an overriding requirement was to maintain the full independence of the private hospital. Concerning construction and project management, it identified the architects retained to do the detailed plans for the hospital. With reference to traffic planning, it accepted the requirement for traffic signals "… if/when Missenden Road is closed …" and included the following: "The Private Hospital plan has been designed to fit into the Royal Prince Alfred Hospital Campus Master Plan as it has been provided to date. This will ensure that the physical relationships to the campus and the functional flow of patients, medical staff and visitors/guests we [sic] be in keeping with the expectations of the master plan."

It included a plan which indicated the proposed hospital, hotel, and medical centre, and future car parks on the site bounded by Church Street, Grose Street, New Hospital Road, and Carillon Avenue. It also indicated a building described as "Future Clinical Support Building" connected by a "Future Pedestrian Bridge" to the proposed complex. 1989 (pars 30 - 39) 30 In March Mirvac Group withdrew from the joint venture. Subsequently, Macquarie was selected as the successful tenderer. 31 On 8 May Macquarie sent Area Health draft heads of agreement for discussion. On 14 June Area Health responded with a further draft said to deal with issues of critical importance to Macquarie. 32 On 25 July Macquarie informed Area Health that the only major outstanding issue in settling the terms of the heads of agreement was the delineation of a site which would allow it to build and operate the complex with true independence. It described the master plan as superseded. 33 On 18 September the HOA were signed by MHC, Tambrook Pty Ltd (Tambrook), and Area Health for the development of a private hospital and car park. It recorded that MHC, at its cost, would construct a 200 bed private hospital on land to be leased to Tambrook. Its purpose was expressed as follows: "This agreement is entered into to record the matters agreed between the parties regarding the Project and related transactions. The parties acknowledge that this Agreement does not reflect the whole Agreement between them and only contains the principles in so far as they have already been negotiated and agreed." 34 Clause 3(o) specified matters for inclusion in the car park agreements for the provision of 1200 car spaces. Clause 3(r) provided: "CSAHS will not within a period of five years from the date of the first hospital admission recommend, support or approve a private hospital in the area presently under the control of CSAHS where Macquarie is of the reasonable opinion that such hospital would materially adversely affect the revenue derived from the operation of the Complex. CSAHS must also within that period make any representations reasonably possible to prevent the development of any such private hospital in any other area including in particular the redevelopment of the Camperdown Children's Hospital." 35 By cl 4.2 Macquarie undertook to prepare and lodge all necessary applications to the council for the carrying out of the works including plans and specifications, building and development applications. Clause 4.2(e) required Macquarie to prepare the plans and specifications, and schedule of finishes, having regard to considerations and criteria including: "(i) The Complex and Car Park must be considerate and harmonious with the other proximate improvements owned by CSAHS; (ii) traffic flows of both private and public roads must be optimised and of an acceptable appearance; (iii) access and egress including underpasses and overpasses for services, visitors, patients and employees must be optimised to facilitate flow between the Hospitals; … (vii) mechanical and other services in common with the other proximate improvements owned by CSAHS, must be integrated so far as is possible; … in each case so far as is reasonably practical having regard to commercial and technical considerations reasonably necessary to ensure the viability of the Project." 36 Clause 5.2 provided: "(a) The parties agree that the location of the Site should ensure: (i) The independence of the Hospital, and (ii) The creation of a campus concept encouraging the movement of people between the Hospital and RPAH. (b) It is agreed that the Site should be located within the southern most portion in the area marked 'H' in figure 6 of the RPAH Master Plan of 1984. (c) However, Macquarie considers that the construction of a major through road on the eastern boundary as shown in the Master Plan would not ensure the integration as referred to above and an alternative option is shown in Annexure C hereto. CSAHS will consider such an adjustment if it does not disrupt the current planning of RPAH as reflected in the Master Plan and CSAHS agrees that Macquarie will take part in all meetings where the decision on the area in which the Complex is to be situated is discussed."

The site was defined as part of the designated block, which was described in Annexure A to be "… an area bounded by Grose Street in the north, a widened Church Street in the west, Carillon Avenue in the south and a proposed New Hospital Road in the east". 37 Clause 6.1(a) required Macquarie to undertake construction of the works at its own cost after it obtained acceptable development approval. Clause 7 recorded that the leases and car park agreements (the related agreements) were yet to be determined, and the final terms of which were to be negotiated and agreed between the parties' solicitors. Clause 7.4(viii) provided: "The Lessee shall have the right to change the permitted use of all or any part of the Site in the following circumstances: … (b) if any change in legislation affecting the business or operations of the Lessee … in the reasonable opinion of the Lessee, causes the complex to cease to be economically viable if operated in a proper and efficient manner, but then only in a manner which does not cause any significant adverse effect to the amenity of RPAH as compared to the complex." 38 By cl 10 CSAHS acknowledged the developmental, financial, professional and operational independence of the Complex from both CSAHS and the Royal Prince Alfred Hospital. Clause 11 concerned the resolution of disputes. It provided that if a dispute arose under the HOA, or as to the terms and conditions of the related agreements, it was to be resolved by conciliation or mediation failing which it would be referred to arbitration. 39 Clause 15.4 provided: "Good faith Without limiting the generality of any other provision of this agreement the parties agree that in the performance of their respective duties and the exercise of their respective powers under this agreement and in their respective dealings with each other, they shall act in the utmost good faith." 1990 (par 40) 40 On 14 March at a joint working party of representatives of the parties, Dr Wenkart stated his intention to proceed with the preparation of the architect's brief and detailed plans for the hospital. It was reported to the meeting of this party on 5 June that as the RPAH master plan had not been completed it was not possible for the architects to identify whether adjacent buildings were to remain, or the position of future roads affecting the campus. 1991 (pars 41 - 45) 41 During 1990 and 1991 there were meetings and correspondence between the parties concerning, inter alia, the preparation of plans and the delineation of the site. On 30 April Area Health wrote to Macquarie in which it acknowledged that it had "… made a firm commitment to the creation of a campus concept encouraging the movement of people between the Hospital and RPAH …" and its obligation to provide pedestrian and vehicular access to and egress from roads and land in the RPAH area under the HOA. 42 In his letter of 9 May to Area Health, Dr Wenkart said: "However, I am still concerned about the boundary 'condition' along the eastern boundary. While I acknowledge the contents of the Heads of Agreement that places obligations on both parties, I am still concerned that I have no legal basis for the access between the complex, the public hospital, and Carillon Avenue. There is as yet no new master plan so there is even less certainty about what is to happen along the boundary, and the inter connection between the complexes. There is also the need to safeguard against any negative action on the part of a different government." 43 On 23 May certificates of title for lots 11 and 12 in DP809663 were issued. 44 On 4 June Macquarie paid Area Health $500,000 required under the HOA upon the issue of the titles. 45 In November Area Health commenced the process of planning for the future redevelopment of the RPAH campus and facilities. The project was called Campus 2010. 1992 (pars 46 - 51) 46 On 23 April Macquarie lodged a development application for MPH. Section 3 contained a description of land adjacent to the site which was owned by RPAH and used for hospital purposes. It said: "To the east of the site and on the Western side of King George V Memorial Hospital is presently a vacant lot, reportedly reserved for a building which will form part of the Royal Prince Alfred Hospital modernisation programme. No details of this proposed building are available since the new Masterplan has not yet been completed."

It noted that the design for the proposed MPH and the related traffic management plan had taken into account the proposal for the closure of Missenden Road and its inclusion within the hospital campus. The accompanying drawings did not show any physical links to RPAH buildings. 47 On 9 June Macquarie wrote to Area Health recording agreement that it was essential to have a direct link between the two complexes for patient and staff movement. It said that its planning allowed for a bridge system and connection with the existing tunnel system, but would not commit to expense for the tunnel until assured that it was approved. Macquarie's desire to develop appropriate physical links was noted in Area Health's reply of 12 June, in which it was said that "… such links should be an important element of the development of the private hospital, and would be an important way of reassuring financiers that the commitment to a joint campus is real".

It referred to a letter enclosed concerning Campus 2010, and continued: "… You are free to use the letter to support your project, but you should make it clear that Campus 2010 is a conceptual planning exercise and that no final decisions have been taken on the proposal which will come forward from that process, or the funding arrangements which will be required. Nevertheless it is an indication of the thinking of the Board in relation to the development of a more appropriate campus environment." 48 The enclosed letter included the following: "The project is designed to prepare a visionary conceptual model to promote the campus of Royal Prince Alfred Hospital as a leader in the development and provision of cutting edge technology and innovative health services, both now and in the future …

… In particular it was considered to be essential that the Private Hospital was seen as an integral part of the campus, and that the division caused by Missenden Road should be removed. Whilst we cannot guarantee that the project will produce a vision which will be accepted, or that we will be able to obtain the funds readily to carry it out, we believe that this initiative should be seen as important evidence that the Board of Central Sydney, and the Royal Prince Alfred Hospital itself, is committed to providing the most attractive environment in which the development of a private hospital can take place. I confirm that we expect Macquarie to be actively involved in this process, and that we have asked our consultant to ensure that your project is fully integrated into their report." 49 During 1992 consultation took place between the parties on planning matters. By September it appeared that council's approval process would not progress until Campus 2010 had been received and considered. 50 In its letter to Macquarie of 26 November Area Health expressed concern that council might reject the application on size issues. It advised of the appointment of a consultant to advise on Macquarie's prospects of success. It stated that it had always been Macquarie's responsibility to assess what development could be successfully put on the site, and it was to proceed on that basis. 51 On 24 December Dr Horvath was appointed Chief Executive Officer of Area Health. 1993 (pars 52 - 60) 52 A note to Area Health of 13 January from the Director, Capital Works, Department of Health, stated that the closure of Missenden Road was central to the Campus 2010 strategy, and would be difficult to achieve. 53 On 22 February a conceptual development plan for RPAH entitled "Campus 2010" was launched. Its contents made plain the intention to proceed with a detailed master development control plan which, inter alia, would provide a planning model to highlight the essential nature of the closure of Missenden Road. It said that the planning demands of the proposed private hospital would be taken into account. It emphasised that its implementation, and the unification of the campus, depended upon the closure of Missenden Road. A conceptual master plan was included which depicted a unified campus on which Missenden Road was closed, the new private hospital on its designated site, and the location of RPAH buildings behind KGV. It envisaged an accident and emergency centre in a central building west of KGV with links to the private hospital and other buildings. 54 In its letter of 14 April to Pace Property Management Services Pty Ltd (Pace), Macquarie's project manager, Peddle Thorp, Macquarie's architect, expressed concern that Area Health now considered the master plan Campus 2010 to be a politically expedient document and stated its intention to continue to disregard it. The letter stated the need for traffic management to be designed to mesh with the current campus vehicular and pedestrian circulation, and the drawings would no longer show any Campus 2010 proposals. 55 In May, Macquarie lodged a revised development application with council for a 400 bed hospital in a star shape. It had been prepared with regard to concerns expressed by council and local residents, and took into account matters referred to in Campus 2010, and envisaged physical links between MPH and RPAH. The proposed development included a 400 bed private hospital, medical suites, a retail area, and 1287 car parking spaces. In section 4 "Planning Controls", it referred to Campus 2010 as a conceptual plan with no statutory planning status, which would guide RPAH in its preparation of a detailed master development control plan. It proposed a canopy structure to link an existing covered pedestrian way to RPAH. The application included a traffic report which referred to Campus 2010 (par 2.7) as a conceptual master plan "… to be developed over the next 12-18 months into a formal master plan. It will evolve from a full service needs evaluation which will follow the incorporation of Concord Hospital into the Central Sydney Area Health Service …". It referred to strong community and council opposition to the closure of Missenden Road, and observed that any closure would be premature before completion of the RPAH formal master plan. The traffic analysis was on the effects of the proposed private hospital on the existing local road system. 56 In its letter to Pace of 11 May, Area Health agreed to the lodgement of the plans subject to various matters. It stated that there had been no detailed master planning of "… the future of RPA's facilities since the heads of agreement were signed …", but endorsed Campus 2010. 57 On 25 August the development application was approved. Formal approval was given on 8 October. 58 In its letter of 13 September, Area Health requested Macquarie to indicate by 31 October whether it accepted the development approval, and proposed a scheme for payment of $300,000 under cl 3.1(e) HOA. 59 On 9 November Area Health sought advice from its solicitors about termination of the arrangement with Macquarie. It expressed concern that Macquarie's financial advisors had sought to extend the time for Macquarie to declare the development application to be acceptable and become responsible for building the hospital, and that Macquarie may be unable to develop a workable project, and obtain necessary funding. 60 In his memorandum of 13 December to Dr Wenkart and Mr Geoff Davison, then Macquarie's chairman, Mr Robert Jackson provided an account of site work issues raised with RPAH management. It included: "3. Campus 2010 Master Plan As Dr Wenkart rightly pointed out last week there are issues from the RPA proposed 2010 Master Plan that may impact upon the planning and design of the private hospital. As the Master Plan document is not definitive in detail it would assist us in our planning to enter into communication with RPA to try and determine some of their plans so that we may make educated decisions. Issues that we can foresee that need addressing now include: (i) Types, sitting [sic] and scale of proposed RPA buildings adjacent to the private hospital - to determine visual and environmental impacts. (ii) Pedestrian links required with the proposed RPA buildings, eg. Tunnel [sic], bridge and pathways. (iii) Vehicular accesses required, eg. Onto [sic] New Hospital Road from Salisbury, Rochester, English and Spruson Streets, and new private/public hospital car park station entry and exit points. (iv) The closure of Missenden Road and its resultant impacts. 4. Schedule Of Actions All of the activities listed above will require ongoing liaison, negotiation and coordination to achieve final resolution, however certain aspects will have to be determined soon so that meaningful planning and design can continue. Based on the assumption that we will have funds available for the commitment of resources on 1 February '94 then the following schedule indicates the timing of the resolutions/answers we will require from RPA: (Obviously resolution prior to these dates will assist us in the planning process.) … (v) Campus 2010 Master Plan We would like information on this issue as soon as possible and preferably before finalising our Development Brief - by mid February '94." 1994 (pars 61 - 70) 61 On 25 January Macquarie lodged its application for building approval. 62 On 31 January Macquarie paid Area Health $200,000, being the balance payable under cl 3.1(e) HOA, and confirmed acceptance of the development approval. A further amount of $4,500,000 was payable within six months under cl 3.1(g). 63 On 29 June representatives of Area Health and the Department of Health discussed projects for the closure of Missenden Road and the development of the RPAH campus. The Department approved the appointment of consultants to undertake an asset strategic planning study for RPAH including a feasibility plan to assess future needs and options for the provision of services. By 23 August a steering committee was established, of which Dr Horvath, Mr Mike Wallace, and representatives from the Department were members. On 5 September Atkinson Capital Insight (Atkinson) was selected by Area Health to prepare an asset strategic planning study, a procurement feasibility plan, and a value management study. 64 On 22 July the Department of Health sent Area Health a copy of the brief to consultants for the preparation of "Asset Strategic Planning Studies", which included matters relevant to the rationalisation and redevelopment of the RPAH campus. 65 On 10 October Area Health's solicitors sent to Macquarie's solicitors draft leases for consideration. 66 On 24 October there was a meeting between the parties during which Dr Wenkart declined to commit to a timetable for completion of the works, and Area Health stated its concern about delay. At a meeting on 27 October Macquarie acknowledged that unless the timetable issue was resolved, the leases would not be signed. 67 On 2 November Dr Horvath informed the Area Health board that it was intended that the Asset Strategic Plan would form the basis of planning for the RPAH development. 68 On 3 November a workshop meeting was held at which principles for the preparation of the asset strategic plan were discussed by Dr Horvath, Mr Wallace, and Mr Stephen Haldane from Atkinson. Site planning principles included the encouragement of the visual and functional link with the University, and the facilitation of cohabitation and development by private sector entrepreneurial and research groups. 69 On 29 November the draft Asset Strategic Plan posed, as an option, a new building behind, or in conjunction with, E-block. On 2 December a value management study was held. 70 On 20 December Area Health demanded payment of the sum of $4,500,000 under cl 3.1(g) HOA within 28 days failing which it claimed to be entitled to terminate the HOA. The amount was paid on 2 February 1995. 1995 (pars 71 - 83) 71 On 20 February Macquarie advised Area Health that it was revising the scope of the project and the building configuration. It indicated that a new development application may be required, and that agreed timeframes would be affected. On the same day the Premier and Minister for Health announced from RPAH a plan to fund the redevelopment of RPAH at a cost of $115,000,000 over the next four years. 72 In March the Asset Strategic Plan was completed and delivered to Area Health. Its purpose was stated to be "… to strategically match asset capacity to asset requirements at RPAH and recommend the most cost effective and economically viable option to satisfy service delivery demands at RPAH". It took into account future traffic and parking requirements with or without MPH. It envisaged a smaller hospital than under Campus 2010, and the location of a new clinical services block to the east which was integrally linked to E-block and Gloucester House. It recorded the understanding that the private hospital development, "… when and if it proceeds, will be operationally independent of the public hospital". It stated (p 182): "It must be recognised that these are conceptual block plans only and do not represent a definitive or necessarily fully correct solution. Their purpose is to test the practicality of the options (with respect to scale and location) against the site constraints. Subsequent stages of planning involving detailed user consultation, such as a Project Definition Plan, will review and define the actual physical solution." 73 On 12 May Area Health's solicitors informed Macquarie's solicitors of concern at the slow progress of documentation for the leases. 74 On 29 May the Health Legislation (Private Health Insurance Reform) Amendment Act 1995 (Cth) (the Lawrence reforms) was assented to. 75 On 3 July Area Health served on Macquarie a notice of dispute under cl 11.1(b) HOA as to the terms and conditions of the leases, and of its requirement for a meeting of principals. Although a meeting took place on 10 August, and there was subsequent correspondence between the solicitors, the dispute was not resolved. 76 On a day in September Macquarie served on Area Health a notice of dispute under cl 11.1 HOA as to whether Area Health was in breach of the HOA and as to other issues, including whether the size and staging of the complex was viable "… having regard to the major changes in or application of policy by New South Wales and Commonwealth of Australia governments relating to the health sector". 77 In its letter of 14 September to Area Health, Macquarie proposed a meeting to consider options to resolve the dispute. It stated that the hospital envisaged by the HOA and the development application was likely not to be economically viable. It said that, if agreement could be reached, Macquarie would agree to a construction timetable with a termination provision for non-performance. It suggested a meeting might avoid the expense and delay inherent in any dispute resolution process. In a table of suggested options it was put that a factor against building the hospital as approved was that it "… may not be economically viable having regard to the major change in New South Wales and Commonwealth of Australia policy relating to the health sector which has had a serious adverse affect on private hospitals". It suggested that a modified hospital would be economically viable "… having regard to current government health sector controls and requirements". 78 At the meeting on 27 September between the parties Dr Wenkart advised that a 400 bed hospital was not viable, and proposed a 120 bed hospital for $50,000,000. 79 In his letter of 26 October to Area Health, Dr Wenkart advised that he was currently engaging new consultants to prepare "a credible, alternative proposal" which would have demonstrable financial support. He stated Macquarie's commitment to develop the proposal in the shortest possible time. He recognised that Area Health would make its own decision on whether, and to what extent, it would consider any proposal submitted. He stated an intention to demonstrate, "… through the quality of the proposal and the nature of financial support available, that the proposed development will occur within a specific and acceptable timetable". 80 On 17 November Area Health received advice from Mr J D Heydon QC (as he then was) that, under cl 3.1(r) HOA, it was not permitted to approve another private hospital before the hospital admission date occurred. 81 In its letter of 21 November to Macquarie, Area Health recorded the failure to provide by 27 October the concept for a smaller hospital and a proposal for funding and building it. It asserted entitlement to insist on compliance with the HOA to build in accordance with the development application which Macquarie had declared to be acceptable. It requested Macquarie to confirm that it would proceed under the approval. 82 On 21 November the parties attended a preliminary conference before the mediator, Mr T Morling QC. 83 On 22 December Macquarie requested Area Health's acceptance of a revised proposal, the purpose of which was to allow a commercially viable and bankable development to occur. Development would be in stages for a 200 bed hospital, with an initial stage of 109 beds. The proposal stated that acceptance of the strategy would enable Macquarie to proceed with further design development which would achieve the support of financiers and lead to lodgement of an amended development application as soon as practicable. In his covering letter, Dr Wenkart advised that the financial feasibility study necessary for discussion with financiers had not been completed. Various steps for the implementation of the proposal were suggested, including finalisation of a feasibility study, and providing Area Health with indicative letters of financial support from financiers. 1996 (pars 84 - 123) 84 In its letter of 24 January Area Health advised Macquarie that it did not accept the revised proposal, and pressed it to proceed to build a 400 bed hospital and 1200 car park spaces as approved. It pointed out that if Macquarie was financially unable to build the hospital it would be in breach of its agreement. 85 Between 14 and 20 February there was correspondence in which the parties put, and responded to, proposals to settle the dispute. Relevantly, Area Health stated agreement to a 200 bed hospital subject to terms including prompt signing of the leases and related documents, and compliance with a timetable for attending to specified matters. Area Health's proposal was rejected by Macquarie, and Area Health rejected Macquarie's counter proposal, and the dispute was left for mediation. 86 On 29 March Area Health referred the dispute to arbitration under cl 11.2 HOA for the purpose of settling the terms of the leases, the construction deed, and related agreements. Miss Helen Wright was later appointed arbitrator. 87 On 5 June Area Health's solicitors advised that, under cl 3.1(r) HOA, it may not support the development of a private hospital at Concord. On the same day Fletcher Construction Australia Ltd (Fletcher), Macquarie's project consultant, submitted to council documents which described the proposed revised development. The proposal was similar to that put to Area Health for acceptance on 22 December 1995. It said that Missenden Road cut the RPAH site in half. 88 On 26 June Macquarie's solicitors sent Area Health's solicitors a statement of issues for arbitration, together with detailed comments on the leases and related agreements. Issues included Macquarie's entitlement under the HOA to build a 200 bed hospital, and to postpone or delay payments by reason of changes in government policies (including the Lawrence reforms) which adversely affected the economic viability of the project, and whether Area Health was in breach of cl 3.1(r) HOA by giving support to Strathfield Private Hospital. 89 On 21 June the Minister for Health publicly announced a $272,000,000 capital redevelopment programme for Area Health, which included finance for a major redevelopment of RPAH. Area Health distributed a press release containing details of the announcement. 90 In its letter of 29 July to Fletcher and Macquarie, Dresdner Australia Ltd (Dresdner) said: "Dresdner is certainly interested in providing the finance for the construction phase. We are also interested in examining the possibility of providing term debt for the operational phase. The forecast cashflows, if achievable, appear sufficient to support the indicative debt level and construction costs based on our initial cashflow model. The health policy environment and the market for the services of the new hospital are obviously key areas which Dresdner needs to explore in further detail to consider financing the operational phase in addition to the construction finance. Once you have had an opportunity to review the attached it would be useful to set up a further meeting."

It enclosed a list of matters about which information relevant to the ability to finance the project was sought. These included lease terms and conditions (e.g. Area Health's power to prevent another private hospital development); the necessity for a demand analysis of trends in the catchment areas of RPAH; due diligence information on the earlier proposal and responses of any bank's approach; background to the operations of MHC; details of Government plans for RPAH and evidence of the continuing importance of RPAH as a major public hospital in the catchment area. There was no evidence of a response from Macquarie. 91 On 15 August Mr Puplick advised Dr Horvath that Prof. Young, Deane of the Faculty of Medicine had informed him of the possibility of the University's interest in a private hospital venture on an adjoining site. 92 On 16 August Mr Heydon QC was instructed to advise whether Area Health could approve a private hospital in the area under its control in the period between the signing of the HOA and the date of the first hospital admission. On 19 September he advised that the period commenced on the date of the first admission to the new hospital and ended five years later. 93 On 20 August Dr Wenkart wrote to Area Health offering to settle the dispute to avoid costs and delays associated with arbitration. The offer included prompt completion of the lease documents, a hospital of not less than 200 beds, the commercial funding of the car park, and a timetable for completion of the hospital and car park. On 23 August Area Health rejected the offer on grounds that it was inconsistent with the HOA and, particularly, that a commercially funded car park was unacceptable. It stated it would continue with the arbitration. 94 On 27 August Area Health's solicitors wrote to the arbitrator and Macquarie's solicitors confirming its wish to proceed with the arbitration on the date fixed, namely 16 September not 19 November, as requested by Macquarie. It referred to delays attributed to Macquarie. Subsequently the date for commencement was fixed for 2 December. 95 On 28 August there was a meeting of Macquarie's board including Dr Wenkart, Mr Block and Mr Morrison, which referred to the NSW Government's commitment of $275,000,000 for the redevelopment of RPAH. 96 On 4 September there was a meeting between Mr Puplick and Mr Block. On 5 September Mr Block sent Mr Puplick a list of 10 main issues for resolution. It envisaged providing Area Health with drawings of the proposed hospital, and a revised timetable. It stated that detailed instructions had been given to Macquarie's solicitors for finalisation of the lease documents. 97 In its feasibility study of 12 September, Macquarie included financial projections for MPH on the assumption it would open in 1998. The hospital was to have 240 beds, to open initially with 108 in-patient beds. Initial capital cost for construction and fit out of the core private hospital was estimated to be $50,000,000. A car park for 1200 car spaces was to be separately financed. The study included a summary of Macquarie's rights and obligations under the HOA. It noted that Macquarie was entitled to "… assistance from CSAHS to prevent further private hospital development within the then boundaries of CSAHS for the period of five years after the commencement of Prince Alfred Private Hospital".

It included a review of developments since 1989 which said: "From early 1993, Macquarie sought investors/financiers who would commit funds to the project. Significant interest was aroused in the project from a number of Asia-based overseas and local potential investors. However, the original size of the project of over $150 million, in an industry subject to government intervention and with limited local major corporate investment at that time, proved to be a significant stumbling block. From late 1994, financial advisers recommended downsizing the project to match demand and investor expectations. A series of revised concepts were tested and eventually, in late 1995 a project with a construction and fit out cost of approximately $50 million was specified and conceptual plans prepared. That revised project is the subject of this feasibility study."

With reference to the revised proposal, it said that the hospital building and commissioning cost limit imposed by Macquarie of about $50,000,000 was based on its own capacity to undertake the project and took into account the size and cost of recent private hospital developments. Section 5 concerned significant developments in the private hospital sector, including: "… increased power being exercised by health insurance funds, due to legislative changes to health insurance introduced by Dr Carmen Lawrence. This ultimately will lead to health insurance funds having preferred provider arrangements with those hospitals which are attractive to their members." 98 On 19 September Macquarie served on Area Health points of further claim in the arbitration in which it claimed various forms of declaratory relief, including as to its entitlement to delay all works by reason of major changes in government policies relating to the health sector and/or threatening the viability of the complex. 99 On 23 September there was a meeting between the parties, including Mr Puplick and Mr Block. Mr Puplick accepted that a 400 bed hospital was not viable, and did not object to a 200 bed hospital. He expressed concern about delay for obtaining approval. Agreement was reached on some issues, and further negotiation about others was proposed. 100 By letter of 25 September Prof. Young informed Mr Puplick that as the University was considering developing a private hospital on its own land he considered he would have a conflict of interest and asked that he be excused on occasions when the board discussed the matter. 101 By letter of 27 September (apparently received 8 October) the Vice-Chancellor of the University informed Mr Puplick of a proposal to develop a private hospital on University land, and invited Area Health's comments. 102 During September, October and November numerous meetings took place between the parties which involved their senior representatives, including Mr Puplick and Mr Block. The principal 10 issues under negotiation included the size and location of the car park, the details of a timetable which envisaged completion of building designs and the lodgement of development and building applications, and dates for commencement and completion. The records show that the discussions dealt in detail with disputed items. The common aim was to resolve outstanding issues before resumption of the arbitration. 103 On 3 October Mr Greg Anderson of Coopers & Lybrand sent Macquarie the final report of its review of Macquarie's feasibility study of 12 September. Section 2 of the report was concerned with market demand. It included a summary of information obtained from interviewing Dr Horvath and the general manager of RPH which, relevantly, said: "… They were concerned about the ability of MHC to actually move the project forward given the failure of MHC over a considerable period to build the facility. They made the following points which are relevant under the terms of reference of this review. These include: · NSW Health has recently announced $279 million injection for the redevelopment of health facilities for CSAHS. A significant proportion of this will be used to rebuild and modernise the facilities and streamline patient services at RPAH. This indicates Government's [sic] ongoing commitment to maintain RPAH as a major public teaching hospital in the catchment area. · CSAHS is anxious to have a collocated facility as soon as possible as further delays may impact on its ability to attract top quality specialists to practice at RPAH. … · It is advised that CSAHS has no statutory power to block another private hospital development within its primary catchment area. However, CSAHS is committed under the Heads of Agreement with MHC not to recommend or support development of other private hospital [sic] in the areas under the control of CSAHS within a period of 5 years from the date of first admission. Furthermore, CSAHS would have to question the commercial sense of supporting any other competitive private facility when CSAHS receives a large income linked to the gross revenue of RPAH."

Section 4 contained the principal findings and concluded: "In conducting our review negative relationship issues between MHC and the key specialists and senior management of Central Area Health Service were made to us with respect to the long delay in MHC providing the collocated private hospital. It is important to note that these stakeholders will have a significant influence in assisting MHC gain the projected activity levels to maximise the returns from the private hospital. In recognition of this, MHC management are endeavouring to improve relationships with negotiations currently taking place. In our opinion the financial projections can only be achieved by MHC if relationships with key stakeholders can be resolved. It is not possible to quantify the implications of these issues. In our opinion the financial projections are properly prepared on the basis of assumptions which are reasonable under existing industry conditions. Even if the events anticipated under the assumptions used in the financial forecasts occur, actual results may be different from the projections due to the matters referred to in the two paragraphs above. Accordingly, we are unable to express an opinion as to whether the forecasts will be achieved by MHC." 104 On 10 October Area Health was advised by its solicitors that it was not required to inform Macquarie of the approach by the University, or of the existence of a proposed development, or of its intentions or actions. 105 On 14 October Mr Puplick requested the Vice-Chancellor to provide details of the University's proposal to enable response and discussion. 106 In his letter of 22 October to Mr Puplick, Mr Block expressed his and Dr Wenkart's satisfaction at the progress of negotiations. He recorded that, subject to minor adjustments, the remaining issue was the car park. He noted the readiness of Area Health to facilitate the processing of new development and building applications for a 200 bed hospital. The letter envisaged a term of the head lease which required Area Health to provide pedestrian and vehicular access to the RPAH campus. It envisaged consultation with Area Health for preparation of the development application, and for a timetable which required the private hospital to open by 1 December 1999. Area Health's preferred location of the car park behind KGV was recognised. In his letter of 24 October to Area Health, Mr Block emphasised Macquarie's commitment to finalising the documentation urgently. 107 At its meeting on 6 November, Dr Horvath informed Area Health's board that under the "Resource Transition Programme" the redevelopment of RPAH would include construction of a new clinical block behind E-block, and renovation of other major buildings. 108 On 8 November, at a meeting attended by Mr Puplick, Mr Block, Dr Horvath and Mr Klinger, Macquarie's solicitor, outstanding issues were discussed. Mr Puplick advised of the existence of the University proposal. After the meeting Mr Puplick sent a letter to Mr Block which included the following: "Furthermore, the Area Health Service has in place a capital works programme which includes works for Royal Prince Alfred Hospital, including the resolution of all outstanding car parking problems on this site. I believe that it is the Area's prerogative to make its own decisions on procuring and operating solutions to its car parking requirements including any revenue which might flow from such a solution. Again, I must reinforce the Area Health Service's position, which was adverted to on each occasion that we met to negotiate, being that the arbitration process would proceed despite the negotiations and be stopped only if, and when, the lease documents had been agreed. It would be quite wrong of you to try to use these negotiations as a pretext for interrupting and delaying the arbitration proceedings." 109 On 12 November Mr Block wrote to Mr Puplick noting that all significant issues except the car park were agreed. He reiterated that Macquarie had the financial capacity and support from financiers to implement the project immediately, and the necessary project team in place to achieve this objective. No reference was made to the University proposal. The letter included the following: "Macquarie also recognises that CSAHS is currently undertaking a major capital works planning process. Macquarie is willing to review with CSAHS how the Complex and Car Park can best be integrated into the revised site planning for Royal Prince Alfred Hospital as required in the Heads of Agreement." 110 On 14 November a preliminary agreement between the University and Mayne Nickless Ltd, trading as Health Care of Australia (HCoA) for a feasibility study for the proposed SUPH was signed. It recorded that after completion of the study each party would review it, and decide whether it wished to proceed with the proposal. It acknowledged that the University's approval to proceed must be given by the Senate of the University. 111 Following a meeting on 18 November attended by representatives of the parties, including Mr Puplick, Dr Horvath, Mr Wallace, Dr Wenkart, Mr Block and Mr Klinger, a draft memorandum of understanding of agreement on the 10 issues to be incorporated in the documents was sent by Area Health to Macquarie. With respect to New Hospital Road, it noted that the parties accepted that it was difficult to agree to a position on the matter without architectural plans which would identify egress and access points. It also said: "The parties agreed that CSAHS has an independent need for a multi storey car park on the Royal Prince Alfred Hospital campus which is to be operational before work commences on the public hospital redevelopment."

Correspondence of 19, 21 and 22 November contained suggestions for some changes. 112 On 20 November and 26 November the parties attended directions hearings before the arbitrator. On each occasion it was confirmed that the hearing was to commence on 2 December unless the dispute was resolved. 113 In her letter of 27 November to Dr Wenkart, Dr Horvath said: "Stuart Dixon Smith is making the final adjustments to the documents to bring them into line with our recent discussions, and minuted memoranda, including my discussion with Ray Block yesterday morning (which was discussed with you subsequently) concerning a clause to protect the urgent need for development of multi storey car parking arising independently from the redevelopment of the RPA public hospital site. (See s.10 of the minuted memorandum of the meeting of 18 November 1996.) Provided the Area [sic] is in possession of signed copies of the documents which Stuart Dixon Smith is finalising, before close of business on Thursday, 28 November 1996, it will be possible to call a special meeting of the Board for Saturday, 30 November 1996 to execute documents on behalf of Central Sydney, before Monday when the arbitration is due to proceed. We will of course be doing this on the basis that the documents will cover all the matters that Macquarie has raised in the arbitration and otherwise, and that everything is then governed by those documents which will replace the Heads of Agreement. The arbitration will then be terminated with each party paying its own costs and half the arbitrator's costs. We are delighted that, after so long, it would appear that we finally have a lease agreement and that the private hospital will go ahead without any further delay."

On the same day, Area Health's solicitors sent the transaction documents to Dr Wenkart for consideration and execution. 114 On 29 November Macquarie gave an undertaking to Area Health to execute and deliver the transaction documents by 10.00am, 30 November. 115 At about 2.30am on 30 November Area Health's solicitors delivered to Dr Wenkart a fresh set of transaction documents, which showed that changes had been made from the previous versions sent to him. Relevantly, the hospital lease included the following: "1.1 … Commencement Date means the day the Term begins as shown on the cover sheet to this lease. … 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 [sic] to receive clinical in-patient or out-patient services delivered from the Hospital. … 23.5 The Landlord must for a period of five years after the Rent Commencement Date …" 116 At about 10.30am on 30 November copies of the transaction documents executed by Macquarie were delivered to Area Health for consideration at its board meeting. Dr Wenkart's covering letter referred to a number of adjustments made to the hospital lease. Enclosed was a letter from Mr Block to Mr Puplick which included: "… Macquarie has conceded numerous other rights under the Heads of Agreement to progress matters and negate the need for Arbitration. It is estimated it would have cost over $2 million with further delays to produce lease documents to take the place of those now tabled. A major concession by Macquarie, not in the Heads of Agreement, is the very strict and deal breaking timetable. Macquarie has accepted this fundamental CSAHS requirement. Macquarie to show its good faith and best efforts has greatly expanded its liabilities to further concede any compensation if this was broken. This means Macquarie foregoes its $5.5 million already paid to CSAHS on default as well as determination of the lease forthwith. The recent negotiations under your very constructive chairmanship lead Macquarie to believe it had, as noted by you at the final meeting on 18th November 1996, an agreed set of guidelines to conclude outstanding matters … … At the Macquarie Board meeting today, during which I reviewed the documents, I noted a one word change which took place AFTER the deadline. I consider this a major fundamental issue with NO ADVERSE affects on CSAHS but an absolutely debilitating burden on Macquarie. I refer to clause 23.5 of the Hospital Lease 12/809663 where rent has been added. This permits overt competition by CSAHS supporting another private hospital initiative. This prevents Macquarie readily concluding funding negotiations with its bankers. Clearly this is a core issue. I refuse to sign the documents without this being corrected to the position demanded by CSAHS at its deadline. I request your support in accepting this correction for the vital reasons given. It would reflect your and my efforts to establish a genuine expression of cooperation and good faith in helping finalise all matters and put the difficult past behind."

From cl 23.5 hospital lease the word "Rent" had been crossed out. 117 After the board meeting, Mr Puplick wrote to Mr Block. He advised of the board's resolution authorising execution of the documents provided that they be signed under Macquarie's correct seal, that the word "Rent" be reinstated in cl 23.5 of the hospital lease, and that Macquarie's proposed cl 20.14 of the hospital lease be deleted. It stated that unless this happened by 10.00am 2 December Area Health would proceed with the arbitration, and would discontinue further discussion. 118 On 2 December 1996 the transaction documents were signed in the terms required by Area Health. The word "Rent" was reinstated in cl 23.5 of the hospital lease and initialled by the signatories. A side letter was provided to Macquarie in which Area Health agreed to negotiate with a third party concerning the car park, and would grant the consents under the construction deed upon submission of complete documentation. The arbitration was vacated. 119 On 6 December an article was published in "The Sydney Morning Herald", newspaper under the heading "Uni plan for $30m private hospital". It reported that a feasibility study for SUPH had been approved, and also that the agreements between Macquarie and Area Health had been signed. 120 On 11 December, Mr Heydon QC advised that, inter alia, under cl 3.1(r) HOA, Macquarie had immunity from competition during the five year period commencing on the date of the first hospital admission in the sense that Area Health was debarred from approving or supporting new hospitals. 121 On 12 December an article was published in "The Sydney Morning Herald" under the heading "Health finance company may be wound up". It reported that Richard Walter Pty Ltd, described as the main finance company within the Macquarie group, had placed itself under external administration following a winding up application by the Deputy Commissioner of Taxation. It also reported on Macquarie's agreement with Area Health, and on the SUPH proposal. 122 In a letter of 19 December to Macquarie, Fletcher gave notice of its withdrawal from the project and the financial funding structure. It stated that two major issues under consideration namely commissioning expectations from the financier, and lack of involvement in the design development on which the financial viability of the project was based, had not been resolved to its satisfaction. 123 In his letter of 20 December to Area Health's solicitors concerning car park licensing, Dr Wenkart observed that Area Health was still resolving its master plan requirements for the car park and its relationship with MPH. 1997 (pars 124 - 151) 124 On 7 January a meeting was held of a joint working party of representatives of Area Health and Macquarie, including Dr Wenkart and Mr Peter Reid, general manager of RPAH. The minutes described the party as a link between RPAH and MHC "… to assist in the planning and construction process of the Private Hospital". As to SUPH, Mr Reid advised that he was unaware of details, but had heard HCoA had been approaching clinicians. It was noted that Mr Brian Dale, a public relations consultant, was to prepare "… strategy for approaches to the various University bodies". As to design and planning Mr Ridley Smith, Macquarie's architect, discussed the possible interfaces with both car park and RPAH, and stressed how important it was to know RPAH's plans for the adjacent areas. Mr Reid said that the only committed planning was for a radiotherapy area in Salisbury Road. He said Mr Wallace and Mr Haldane were people to talk to. 125 On 24 January a meeting took place between representatives of the University, including the Vice-Chancellor and Prof. Young, and HCoA, including Dr Catchlove and Mr C Sinclair. It was noted that MHC had not met the first of 5 "drop dead" dates under the agreement with Area Health. The remaining dates were recorded. It was anticipated that the Vice-Chancellor would approve lodgement of a development application at the end of February. 126 On 28 January the joint working party, including Dr Wenkart and Mr Reid met again. It was agreed that MHC would give a status report to the RPAH medical board. Concern was expressed at the lack of communication about SUPH, and it was noted that Mr Dale would "… prepare strategy for approaches to the various University bodies and other legal/political/local Government actions". Mr Reid advised MHC to contact Mr Haldane for information about "… future RPAH plans for the area behind KGV and possible interface between the two". 127 In his letter of 28 January to Dr Horvath, Mr Block complained of a lack of cooperation on the part of Area Health. He referred to a media release drafted by Macquarie which outlined the terms of the agreement, the critical dates, and what the project would provide for patients and professionals. He said it was important to have a positive announcement on MPH to settle disquiet and uncertainty resulting from earlier publicity on the project. He expressed concern about the SUPH proposal and discussion about it with Area Health. He expressed the view that assistance given to a potential competitor would be detrimental to MHC and untenable. 128 In a letter of about 31 January to Macquarie, Area Health rejected allegations of non-cooperation, and of a failure to act in good faith. It referred to its participation in the joint working party and planning process. It included: "Regarding the situation concerning the proposed Sydney University sponsored private hospital, Central Sydney is aware of and will comply with its obligations regarding supporting competing hospitals. However, as mentioned to you a number of times, as a teaching hospital, Royal Prince Alfred Hospital has a very close relationship with Sydney University and maintains a continuing dialogue with it regarding health facilities. Central Sydney will continue that dialogue in such a way as to comply with its obligations to Macquarie. Those obligations do not prevent the steps you mention in your letter, namely 'holding discussions'. Your letter does not identify any other steps taken by Central Sydney which would give you any cause for complaint … " 129 On 3 February MHC representatives, including Dr Wenkart, gave a presentation to the RPAH medical board executive committee and explained the overall concept. The committee was informed that a feasibility and costing study had been examined favourably by Coopers & Lybrand and they had "letters of comfort" from financial institutions for the financing of the project. The chairman briefed the meeting on the latest developments of MPH and SUPH. The minutes included details of the timetable for the MPH, the so-called "drop dead" dates. 130 On 5 February another meeting of the joint working party took place attended by representatives of the parties including Dr Wenkart and Mr Reid. As to the SUPH it was noted that no further information was available from RPAH, and that a letter had been written to the University Vice-Chancellor seeking further information. Concern was expressed about the implications another private hospital would have for MHC. Plans for the hospital and the car park, and the development application for the hospital, were tabled. 131 On 25 February Macquarie lodged the development application for MPH with council for 394 beds and a five level car park for 1225 cars. Supporting documentation included a report of 19 February prepared by Pace which included the following: "The overall master planning for redevelopment of the Royal Prince Alfred Hospital … is now being reconsidered by the Central Sydney Area Health Service … However, our understanding from discussions with the RPA and CSAHS is that at the time of writing this report, their current intention is for redevelopment of the hospital to occur on the eastern side of Missenden Road. There is no intention at this stage of providing further development between Missenden Road and the proposed development." 132 On 27 February the University lodged its development application for SUPH with council, following completion of HCoA's feasibility study. 133 On 2 April Dr Catchlove outlined the SUPH proposal to Area Health's board, with construction to begin in September 1997 and admission of first patients on 31 January 1999. 134 On 24 April Dr Horvath replied to Mr Block's request to provide information concerning the development application to council. Her letter included details of the master planning exercise as follows: "In essence, the current concept consolidates more of the clinical activity on the eastern campus. It is anticipated that this will free up some portions of the western campus which the Hospital is considering for central energy, car parking and other clinical and support services. Attached for your information is one of the conceptual plans which arose from the RPAH Asset Strategic Plan undertaken in 1994. You will note that this conceptual plan is significantly different from those developed in the early 1990's as part of the Campus 2010 proposal which envisaged an expanded hospital on the western campus. The 1994 concept is consistent with the latest thinking in respect of the public hospital redevelopment but it is of course being tested by the current and more formal master planning exercise which it is understood will be completed in September 1997. The Area Health Service has no plans for use of New Hospital Road by the patients, visitors or staff of the public hospital. The demand for this road arises from the private hospital development. … Other than the car park, the redevelopment of the public hospital is likely to see refurbishment of existing buildings and some new construction on the eastern campus." 135 In their letter of 24 April to council, Macquarie's architects provided additional information for the development application. It included: "5. To our knowledge there is no current masterplan for the hospital precinct. We would suggest that this question be addressed to Central Sydney Area Health Services for further information on this matter. There is [sic] no plans for a 'New Hospital Road' as shown on the previous DA approval. The road as shown on the current DA documents is a private road to provide access to the proposed carpark. 6. Two separate development applications have been lodged for the private hospital and carpark as each facility is located on separate lots and are separate lease agreements with Central Sydney Health Services. The construction of the private hospital and carpark form part of the contractual agreement between Central Sydney Areal Health Services and Macquarie International Health Clinic Pty Limited which requires both sites to be developed at the same time with a preference for early completion of the carpark. … 8. The DA is for the total site development and there is no additional development proposal."

The information given to Mr Block in Dr Horvath's letter of 24 April was conveyed to council by Macquarie's architects in their letter of 13 May. 136 On 15 May a background paper on the SUPH proposal from the Faculty of Medicine was provided to the University's planning committee. It said that SUPH had the enthusiastic support of Dr Horvath. 137 On 21 May Mr Haldane reported to Area Health's board on the resource transition programme. He recommended that negotiations continue with the University about the redevelopment of RPAH and the SUPH proposal, and for opportunities to co-locate and develop common facilities. 138 At the meeting of the University planning committee on 23 May, Dr Horvath described the redevelopment programme for RPAH. She referred to the benefits of co-location with SUPH, provided there was a direct physical link. 139 On 19 June the Land and Environment Court of New South Wales upheld in part Macquarie's appeal against conditions of council's consent to the development applications for the car park and hospital given on 20 May. The relevant conditions are referred to in detail later in these reasons. 140 On 23 June there was a meeting of Macquarie's project executive team which Dr Wenkart, Mr Block, and Mr Klinger attended. A strategy in opposition to SUPH was proposed including objecting to its development application, involving the colleges, and making a presentation to the University.

It noted that Area Health had provided excellent support in the Land and Environment Court in relation to the development application, and that negotiations with Hambros about finance were continuing. 141 In a letter of 17 July to Prof. Leeder, Dean of the Faculty of Medicine, Dr Wenkart advised that Macquarie would commence building work in the next few weeks, and observed that the SUPH proposal was significantly behind. He referred to widespread opposition to SUPH, and to physical links developing between MPH and RPAH. As an alternative to SUPH, he invited an association between the Faculty and Macquarie. 142 By letter of 21 August to council, Area Health advised its support for Macquarie's building application for demolition and excavation. 143 In his letter of 10 September the Vice-Chancellor sought Area Health's consent to the lodgement of the development application for SUPH because the hospital building described in the plans would partly encroach onto property owned by Area Health. He said that consent was required only to the making of the application and was not to be taken as support for the development proposed or consent for any building work to be undertaken. 144 Consent was provided to council in Mr Puplick's letter of 11 September which included the following: "This consent is without prejudice to the current and continuing negotiations between this Service and the University of Sydney regarding the building by the University of the development partly on land owned by this Service in the event of consent being [given] to the said application. The consent given does not indicate support for the development."

This action was endorsed by Area Health's board at its meeting on 5 November. 145 In its letter of 24 September Macquarie sought a meeting with Area Health to participate in the RPAH master plan, and to understand its requirements for the area between KGV and its site. It stated the wish to establish the best possible links between the hospitals not only from the point of view of aesthetics but for practical issues of moving people between the campuses. 146 On 30 September and 17 October Macquarie advised Area Health of its agreement with Enacon for Mulpha (Australia) Ltd (Mulpha) to own and operate the car park, and that its obligations to build the hospital would not change. 147 On 2 October Coopers & Lybrand reported to Dr Wenkart on its review of Macquarie's revised feasibility study for MPH before presentation to potential investors. The scope of the review included assessment of the likely competitive position of MPH, including the strengths and weaknesses of other private hospitals in the catchment area. The capital cost and financing structure for the project had not been finalised and were not included. It noted there was uncertainty whether SUPH would proceed, and the assumption was made that it would not. It found that Macquarie's financial projections were reasonably based. 148 In his letter of 14 October to Dr Horvath, Dr Wenkart complained of disadvantage from Area Health's support for SUPH. He sought immediate opposition to the proposal, including its development application. In response, on 16 October, Mr Wallace said Area Health had not seen the development application and was not involved in its submission. He stated willingness to provide Macquarie with any further assistance required. 149 On 24 October Macquarie Bank Ltd submitted to Dr Wenkart a proposal whereby it would act as financial advisor to structure a transaction acceptable to the market, and to source finance from other parties. It stated details of its fees, which included a non-refundable commitment fee of $125,000 payable on acceptance. Discussion as to a letter of appointment continued until at least 3 December. 150 On 5 November there was a meeting of Macquarie's project executive team, including Dr Wenkart and Mr Block. It proposed action to be taken in opposition to SUPH, including proceedings in the Land and Environment Court. Financial resolution of the company structure and financial arrangements were pending. The meeting noted that Macquarie Bank Ltd had issued a letter of engagement. In his letter of the same day to Dr Horvath, Dr Wenkart advised of arrangements with Mulpha for the car park. He also said that Macquarie had "... before us a very favourable financial arrangement, for our consideration, from a major bank for the hospital project which is being negotiated". 151 On 20 November Area Health gave notice to Macquarie of defaults under the construction deed in failing to comply with the timetable requirement for building approval by 1 November, and completion of excavation of the land, and commencement of construction of the car park, by 14 November. 1998 (pars 152 - 176) 152 In its letter of 6 January to Macquarie, Mulpha offered to buy its total interest in the car park lease for the sum of $3,000,000 payable in stages tied to completion of MPH according to its timetable with Area Health. Macquarie's counter offer of 9 January was rejected by Mulpha in a letter of 12 January, in which Mulpha also advised of its withdrawal from the matter. 153 By letter of 7 January Dr Horvath reminded Dr Wenkart that the notices of default were still on foot, and adherence to the timetable was required. She said that Area Health had no objection in principle to the transfer of Macquarie's interest in the car park lease to Mulpha, and invited submission of a comprehensive proposal for consideration. 154 In January the development application for redevelopment of RPAH was lodged. It showed proposed buildings east of Missenden Road, which was open to traffic, and a proposed multi storey car park on the site behind KGV opposite MPH. 155 On 14 January Macquarie's building application for demolition and bulk excavation was approved with requirement for compliance with the conditions of approval ordered on 19 June 1997 by the Land and Environment Court for the development applications for the car park and hospital. 156 On 23 January Mr Block wrote to the Director General, Department of Health. He asserted that Macquarie's inability to meet the deadline dates for work on the car park was due to circumstances beyond its control, and attributed to Area Health the reasons for its inability to finalise a joint venture arrangement with Mulpha for the car park. He expressed concern about Area Health's assistance for SUPH, and the adverse impact it had on the MPH project. He said that in proceedings in the Land and Environment Court it had been revealed that Area Health had consented to the SUPH development application, and that Prof. Young had given evidence that there had been discussions on the proposed competing private hospital which involved Area Health prior to the execution of the leases on 1 December 1996. His view was that Area Health had been actively facilitating a competitor in breach of the agreement with Macquarie. He asked that any negotiations between Area Health and the parties involved with SUPH be terminated. 157 On 6 February Area Health's solicitors responded to its request for advice as to whether it was entitled to seek expressions of interest for the development of a private hospital as part of the redevelopment of RPAH. Inter alia, it was advised that arrangements with Macquarie should be resolved as soon as possible, so as to avoid the consequences of premature termination. 158 In his letter of 16 February to Dr Horvath, Prof. Young stated that Mr Block's allegations concerning him were false. He said there was no discussion between Area Health and the University prior to 1 December 1996, and that it was not until completion of the feasibility study that he became involved with the development application. He set out a history of the concept for a private hospital, and pointed out that as yet the development application had not been approved, and no decision in principle had been taken to build SUPH. 159 By letter of 18 February to Macquarie, Dr Horvath rejected its earlier claims in explanation of delay. She said that, notwithstanding failure to commence construction and to adhere to the timetable, the primary objective remained the establishment of a private hospital, and the successful completion of its development. A fresh timetable was proposed which required, inter alia, commencement of car park construction on 7 May, with completion on 5 October, and commencement of hospital construction on 15 June with completion on 1 February 2000. With the letter was served a letter of default in respect of fixed and floating charges granted by Macquarie over its assets being encumbrances of its interests under the hospital and car park leases in breach of the provisions of those leases and of the construction deed. 160 On 12 March Dr Wenkart proposed an amended timetable which extended the time for stages, including commencement of car park construction to 14 June with completion on 14 December, and commencement of hospital construction to 14 December, with completion on 14 August 2000. 161 On 16 March Area Health served on Macquarie a notice of default for its failure to have substantially commenced bulk excavation work by 5 and 13 March, the revised deadlines. 162 On 23 March Macquarie held a strategy meeting attended by Mr Block, Dr Wenkart, Mr Klinger and others. The appeal to the Land and Environment Court against the grant of consent to the SUPH application was noted. Progress of work for the hospital and car park was discussed. The withdrawal of Macquarie Bank Ltd's offer was noted. 163 In his letter of 5 May to the Director General, Department of Health Mr Block stated the following: "… In spite of contract obligations upon CSAHS to include Macquarie International Health Clinic (Macquarie) in the process of planning the RPAH Masterplan, Macquarie has only become informed of the proposal by means of the 1st May 1998 Sydney Morning Herald article. Our worst fears have been realised as the current senior executives of CSAHS have since 1994/95 and continued to do everything possible to adversely affect the Prince Alfred Private Hospital Project co-location with RPAH. The Berlin Wall has been rebuilt without guns! The Masterplan creates a huge separation and major traffic hazard by creating major physical impediments and ugly structures directly impacting on our in patient outlooks and links to RPAH. Generally it completely contravenes the tender and contract obligations by CSAHS to ensure that a campus and co-located Private Hospital is optimally located and linked to RPAH. … Our Development Plans have always been designed around those promises and clear understandings. … We are progressing our project in spite of the above ... … Your assistance can help avoid any more acrimony as well as assist in overcoming blatant unnecessary impediments, abuse of process, waste of valuable resources (on all sides), huge legal costs and of course the lack of a co-located campus private hospital." 164 On 13 May council consented to RPAH's development application. 165 On 28 May Mr Block wrote to Dr Horvath asserting that Area Health's consent to the lodgement of the SUPH development application was in breach of cl 23.5 of the hospital lease and of an implied term not to deprive Macquarie of its benefits under the lease. Area Health was asked to undertake, up to the period ending five years after the rent commencement date under the lease, not to permit the University to enter land owned by Area Health for the purpose of constructing and operating a private hospital. A letter to the University in similar terms was sent by Mr Klinger, on 26 June, in which he demanded that the University should not induce Area Health to permit entry upon Area Health's land, failing which legal proceedings were threatened. 166 In its letter of 7 July to Area Health, Pace referred to discussions to ensure that the public hospital had "… the appropriate environmental and street scope interface and access with the Private Hospital". Reference was made to the agreements which were said to have been based on the principle of a co-located campus between the two hospitals in support of the request for acceptance of a proposal for ramp access for disabled patients which would encroach upon Area Health's land. 167 On 21 July and 1 August Area Health's solicitors advised that in consenting to the lodgement of the SUPH development application it was not in breach of cl 20.13 and cl 23.5 of the hospital lease. Advice was also given that Area Health must act in good faith and that cooperation with SUPH might be claimed by Macquarie as a breach for which damages for loss of bargain might be claimed. 168 On 7 August Area Health invited Macquarie to a briefing on the proposed development of its areas adjacent to the MPH site. 169 At Macquarie's strategy meeting on 17 August the decision was taken not to proceed with the appeal against the SUPH approval. It was noted that a letter had been sent to Area Health expressing interest in the acquisition of the land on which part of the SUPH was to be built. It was also noted that Macquarie Bank Ltd had rejected Mr Block's approach for car park funding, and that Mr Morrison was liaising with the Commonwealth Bank of Australia Ltd (CBA) and Westpac Banking Corp Ltd (Westpac). 170 On 9 September Area Health replied to the Vice-Chancellor's request to discuss the future of SUPH. It advised that under the hospital lease it was unable to participate in any such discussions, and was required to withhold assistance and ensure that no part of SUPH was located on RPAH land. 171 On 17 September Dr Wenkart attended a meeting with Mr Wallace and Mr Haldane, and was briefed on the RPAH redevelopment. He agreed that development on the eastern campus was the only economic option available to RPAH to make best use of existing buildings. He was advised that Area Health had no contact with the University about the planning of SUPH. He acknowledged that although New Hospital Road divided the campus, it was taken into account in Macquarie's development application. Dr Wenkart expressed his congratulations on the plan. 172 In his letter of 23 September to Dr Horvath, Dr Wenkart asserted that the new master plan had isolated MPH, and that the planned use of the land between New Hospital Road and KGV was unacceptable. He said that Campus 2010 had been fundamentally changed, and legal rights including renegotiation of rent were reserved. In her reply of 3 November, Dr Horvath denied any change, and explained the purpose and status of Campus 2010. She referred to meetings prior to the execution of the leases at which the location of car parks and the redevelopment of RPAH were discussed with Macquarie's representatives. 173 During September the University decided not to proceed with SUPH. 174 In its letter to Macquarie of 17 November, HCoA said that the design of the MPH was expensive and excessive, and unacceptable. It said that a total redesign was essential to enable HCoA to attempt to achieve a viable proposition. It said that the lack of links between the campuses had a considerable impact on the project's viability and effectiveness. 175 By November, excavation of the hospital site was almost complete. Excavation of the car park site had been completed and construction of the car park had begun.

176 On 15 December Mr Morrison sent Dr Wenkart the draft of a letter to be sent to Area Health requesting approval for the borrowing of up to $4,000,000 on the security of the car park lease. He expressed doubt as to Macquarie's ability to provide information to Area Health as to its arrangements and resources for the delivery of a private hospital. He requested authorisation to send the proposed letter. There was no evidence that the letter was authorised or sent. 1999 (pars 177 - 190) 177 Between February and August there was much correspondence between Macquarie and Area Health concerning the car park, and the need for compliance with some conditions of council's approval for it to become operational. Particular issues were the installation of traffic signals at the intersection of Missenden Road and Carillon Avenue, and the construction of a link road extending New Hospital Road to Lucas Road to allow access to the car park. The parties negotiated in an attempt to reach an agreement whereby Area Health would undertake the necessary work, and the conditions for doing so. The chain of correspondence ended with the letter to Macquarie of 9 August in which Area Health asserted that arrangements were not in place for it to complete the works on behalf of Macquarie. It invited Macquarie to put a request for its conditions for doing the work. 178 By letters of 7 March and 4 May Area Health asked Macquarie for further information as to current progress of the private hospital project, noting that its only information was a report that development was continuing with final design and contractual arrangements. 179 On 7 June the car park project had reached practical completion under the building agreement, according to the contractor's certificate issued on 15 June. 180 On 26 June Macquarie asked council to grant an interim certificate of occupancy for the car park pending resolution of outstanding conditions of the development approval. 181 In his letter of 15 July to Dr Horvath, Dr Wenkart sought approval to encumber the leaseholds as security for debt funding in order to progress further development. He said it was unreasonable for Area Health to expect that a development of such magnitude could be undertaken or completed on the basis of a 100 per cent equity contribution. 182 By letter of 24 August council informed Macquarie that it did not have the authority to grant an interim certificate of occupancy. It advised that although the car park had been physically constructed and could be used for car parking purposes, operation as a car park was prohibited until all outstanding conditions of consent had been met. 183 On 13 September Area Health served on Macquarie notices of default under the leases and construction deed and, on 15 September, an amended notice under the car park lease. 184 On 24 September the car park was opened by Macquarie. 185 On 13 October council notified Macquarie of its intention to issue a cease use order on grounds that the car park was being operated without an occupancy certificate, and in breach of the development consent. 186 On 19 October Macquarie's solicitors advised it that the introduction of hospital purchase provider agreements under the National Health Act 1953 (Cth) had made the profitable operation of private hospitals more difficult. 187 In their letter of 25 October Macquarie's solicitors informed Area Health's solicitors that Macquarie had the right to change the permitted use of the premises under cl 8.7(b) hospital lease and cl 7.6(b) car park lease. Reference was made specifically to the changes to the National Health Act , which permitted the making of hospital purchaser provider agreements. The letter included: "… The practical consequence of these agreements has been to virtually eliminate the profitability of private hospitals. We are aware of instances of private hospitals achieving high occupancy levels without generating a profit. On the basis of these changes to the NHA we submit that it is reasonable for our client to conclude that the operation of the tenant's business is no longer economically viable even if operated in a proper and efficient manner. Our client has instructed us that unless it receives your confirmation that in the circumstances it is entitled to invoke [the clauses] it will seek declarations from the Supreme Court of New South Wales to that effect. Our client has asked us to advise you that it will be prepared to enter into meaningful negotiations with you concerning the proposed change of use so that proposals can be submitted to Council which will have the support of CSAHS and be generally complimentary to the master plan for the site." 188 On 1 November the council ordered Macquarie to cease operation of the car park on grounds that it was being operated unlawfully without an occupation certificate, and in breach of various conditions of consent. 189 In their letter of 4 November, Area Health's solicitors advised Macquarie's solicitors of its position on various matters. They disputed the entitlement to invoke the change of use provisions on the basis that there was no relevant business to be affected. They expressed readiness to negotiate the terms upon which Macquarie would leave the project, but insisted on performance of the agreements meanwhile. 190 On 21 December Macquarie requested council for an interim certificate for the operation of the car park to accommodate up to 600 RPAH staff cars. With reference to consent conditions referable to substantial commencement of the hospital it said: "Since that time the question of the viability of a private hospital due to legislative changes has crystalised [sic] and there is currently no reasonable assurance a private hospital will be constructed on the site." 2000 (pars 191 - 194) 191 On 10 February council informed its solicitors that before occupancy would be permitted to Macquarie compliance with all conditions referred to in its letter of 1 November 1999 was required. 192 On 17 March Area Health served the notices of termination on Macquarie, and took possession of the car park. 193 On 16 June the Land and Environment Court, by consent, ordered variations to the conditions of consent for the car park to defer the requirement for building the traffic lights, and the need for Area Health to grant an easement for the link road. The proceedings had been commenced by Pace on 19 November 1999 as an appeal against the cease use order, and were taken over by Area Health. 194 On 23 June council issued to Area Health an occupation certificate for the car park for 600 spaces. The issues The 96 agreements 195 Area Health claimed that the defaults arose under the 96 agreements. The issues raised by Macquarie's challenges to the validity of the notices of default and the notices of determination necessitate analysis of the circumstances in which these agreements were made. For this purpose, it is sufficient that the analysis commence with the situation as in January 1996. Much of what follows is taken from the documents and was not disputed. In any event, it is supported by the evidence. 196 The HOA provided the context in which the 96 agreements were negotiated. What became these agreements were referred to in the HOA as the "Related Agreements", a term defined (cl 2.1) to mean the agreement to lease with the head lease and car park lease annexed; the car park agreement; and any document or agreement entered into pursuant to those agreements or contemplated by them. 197 Under cl 7.2 HOA Area Health's solicitors were to produce the first drafts of the related agreements. The parties were required to cause their respective solicitors to meet to negotiate and agree to the final terms of these agreements. Clause 11 stipulated the means for resolving disputes or differences between the parties as to any matter arising under the HOA, and as to the terms and conditions of any un-finalised related agreement. Clause 11.2 envisaged resolution of the dispute or difference by conciliation or mediation, failing which, by arbitration. Clause 11.3 provided that the arbitrator's award would be final and binding on both parties. Clause 7.4 recorded the parties' agreement to a number of matters with respect to the agreement to lease, the head lease, and the car park lease. Clause 3.1(o) recorded agreement to matters for inclusion in the car park agreement. 198 In January the parties were in dispute. The principal issue arose from the rejection by Area Health on 24 January of Macquarie's revised proposal for a 200 bed hospital, and its insistence that Macquarie comply with its obligations to build a 400 bed hospital and 1200 car park spaces, as approved. As at the end of February, mediation had failed, and the differences between the parties remained unresolved. 199 On 29 March Area Health referred the dispute to arbitration under cl 11.2 HOA for the purpose of settling the terms of the leases, the construction deed, and related agreements. 200 On 26 June Macquarie's solicitors sent Area Health's solicitors a statement of issues for arbitration, together with their detailed comments on the draft leases and related agreements. The issues included Macquarie's entitlement under the HOA to build a 200 bed hospital, and to postpone or delay payments by reason of changes in government policies (including the Lawrence reforms) which adversely affected the economic viability of the project, and whether Area Health was in breach of cl 3.1(r) HOA by giving support to Strathfield Private Hospital. 201 On 20 August Dr Wenkart wrote to Area Health offering to settle the dispute to avoid the costs and delays associated with arbitration. The offer included prompt completion of the lease documents, a proposal for a hospital of not less than 200 beds, the commercial funding of the car park, and a timetable for completion of the hospital and car park. On 23 August Area Health rejected the offer on grounds that it was inconsistent with the HOA and, particularly, that a commercially funded car park was unacceptable. It stated it would continue with the arbitration. 202 On 6 September the arbitration hearing was fixed for 2 December. At directions hearings on 20 and 26 November the hearing date was confirmed unless the dispute was resolved. 203 From September until the 96 agreements were signed on 2 December, the principal participants in the negotiations were Mr Puplick, Dr Horvath and Mr Wallace for Area Health, and Dr Wenkart and Mr Block for Macquarie. The following is a summary of the relevant evidence. 204 Mr Block was the chairman of MHC from March 1996 until late 1998. Between 1986 and 1994 he was an investment banker, including as a director of SBC Australia. He had also practised as a financial consultant in the health industry with involvement with private and public hospitals. Between 1993 and 1996 he organised seminars on the crisis in health care policy at Federal and State levels for the Committee of Economic Development, and had held discussions on health policy issues with Federal and State Departments of Health. He had the carriage of negotiations for Macquarie whilst Dr Wenkart was overseas during September and October. 205 Mr Block said that his communications with Mr Puplick were for the purpose of resolving all outstanding issues at the level of chairman to chairman. He understood the arbitration would proceed on 2 December if there was no resolution. Their first meeting was on 4 September, following which he wrote the letter of 5 September which described the 10 outstanding matters. The car park and the timetable for construction were identified as key issues for negotiation. He advised that detailed instructions regarding the lease documents had been provided to Macquarie's solicitors, who were in a position to meet with Area Health's solicitors to resolve remaining lease issues. 206 He referred to meetings between himself and Mr Puplick and other representatives of the parties, on 23 September, 8 October, 11 October, and 22 October when outstanding issues for the leases were discussed in detail, and differences were narrowed. 207 Mr Block said that his letter to Mr Puplick of 22 October summarised the outstanding issues as at that time, the car park being the major one. His letter contained detailed proposals for the finalisation of each issue, including the car park. It suggested that the proposals were fair solutions, acceptance of which would avoid arbitration "… costing up to 1 million dollars each". He wrote again to Mr Puplick on 24 October, emphasising Macquarie's commitment to finalising the documentation urgently, and suggesting 6 November as a deadline. 208 Mr Block received the letter of 31 October from Mr Wallace on behalf of Mr Puplick, with which were enclosed revised drafts of the construction deed, the hospital lease, and the car park lease, responses to the proposal, and rejection of the car park proposal with a counter offer. He replied by letter of 1 November, in which he stated his disappointment, and confirmed his wish to resume productive discussions. 209 He referred to a meeting with Mr Puplick attended by Dr Horvath and Mr Klinger during which Mr Puplick told of the SUPH proposal. He recalled a very heated conversation between Dr Horvath and Mr Klinger, during which Mr Klinger said in effect that Macquarie would not accept any proposal involving a competing hospital. He also referred to a meeting on 18 November attended by himself, Dr Wenkart, Mr Davison, Mr Klinger, Mr Puplick, Dr Horvath and Mr Wallace at which agreement was reached on the 10 matters discussed, and to the memorandum of understanding which resulted from it. With respect to the redevelopment of RPAH he said that he was aware by about mid-1996 that Area Health was reconsidering its master plan for the RPAH site but that Macquarie had not been provided with any details and did not know whether it was likely to have any effect on plans for the campus. He said that it was his understanding that Campus 2010 represented Area Health's planning intentions, and he was unaware of the development of master plan options until after execution of the documents on 2 December. 210 Mr Block said that late on 27 November Macquarie received the transaction documents from Area Health's solicitors, and that early in the morning of 30 November there was a board meeting of Macquarie at which the documents were approved and signed. He said that he sent copies to Mr Puplick with his letter of 30 November, which recorded the chronology of the receipt of the documents, and final discussions with Area Health's solicitors. The letter included the following: "… Macquarie has conceded numerous other rights under the Heads of Agreement to progress matters and negate the need for Arbitration. It is estimated it would have cost over $2 million with further delays to produce lease documents to take the place of those now tabled. A major concession by Macquarie, not in the Heads of Agreement, is the very strict and deal breaking timetable. Macquarie has accepted this fundamental CSAHS requirement. Macquarie to show its good faith and best efforts has greatly expanded its liabilities to further concede any compensation if this was broken. This means Macquarie foregoes its $5.5 million already paid to CSAHS on default as well as determination of the lease forthwith. The recent negotiations under your very constructive chairmanship lead Macquarie to believe it had, as noted by you at the final meeting on 18th November 1996, an agreed set of guidelines to conclude outstanding matters … … At the Macquarie Board meeting today, during which I reviewed the documents, I noted a one word change which took place AFTER the deadline. I consider this a major fundamental issue with NO ADVERSE affects on CSAHS but an absolutely debilitating burden on Macquarie. I refer to clause 23.5 of the Hospital Lease 12/809663 where rent has been added. This permits overt competition by CSAHS supporting another private hospital initiative. This prevents Macquarie readily concluding funding negotiations with its bankers. Clearly this is a core issue. I refuse to sign the documents without this being corrected to the position demanded by CSAHS at its deadline. I request your support in accepting this correction for the vital reasons given. It would reflect your and my efforts to establish a genuine expression of cooperation and good faith in helping finalise all matters and put the difficult past behind." 211 Under cross-examination, Mr Block asserted that he was forced to sign the 96 agreements without adequate time to read and understand them. He described the circumstances as amounting to "virtual blackmail", "a gun to my head", and that Macquarie had been "hoodwinked". 212 He said that at the time of signing the agreements it was his belief that, although he was aware Missenden Road would not be closed, Macquarie believed in the Campus 2010 concept. He made no enquiries of Area Health or the Department of Health as to its status, and saw no need to do so. Although aware the master plan was being reconsidered, no enquiries were made to ascertain what was involved. He said that Macquarie's approach was not to enquire, but to wait for official information from Area Health. He agreed that it was possible to have co-location benefits if the admissions facility was east of Missenden Road, and that physical links between the hospitals were desirable, but not essential, for co-location. In his mind it was still a practical possibility to have a "… very operational western side of the campus allied with the eastern side … the private hospital was to be on the western side. We thought it was still feasible" (T p 750). 213 His evidence was (T p 749): "Block: … So when it came to 1 December 2006, I realised there was no way out. It was a sinking ship. There was nothing I could do. Burton: There was a way out, Mr Block, you could have considered [sic] with the arbitration and let the arbitrator decide? Block: That was a possibility, but we at Macquarie wanted to get on it [sic] with it. We were tired of all these fruitless negotiations and so on. We wanted to at least get on with it. We wanted to build a car park. We wanted to get some cash flow going. Burton: So can the Court take it from that answer that you so much wanted to build the private hospital, that is Macquarie wanted to build the private hospital and the car park, that it was prepared to take the risks of proceeding no matter what they were? Block: That was - it was an extremely unpalatable proposition, but in a sense that is true." 214 Mr Block agreed (T pp 793, 808) that he decided to sign the documents although he had been aware, since 8 November, of the risk of a competing private hospital being built on a site near the RPAH campus. 215 Dr Wenkart's involvement in the negotiations is mainly evidenced by his letters to Area Health. 216 He said (affidavit 30 April 2002) he first became aware of the SUPH proposal when informed by either Mr Klinger or Mr Teulan of what Mr Puplick told them about it. He said that on 28 and 29 November, when he protested to Area Health's solicitors at the lack of opportunity to consider the documents, he was told that there would be no further discussion and if it was not accepted, the deal was off. He said on 2 December he attended the offices of Area Health's solicitors with Mr Block, Mr Klinger, and others from Macquarie, including senior counsel, and signed the documents prior to 10.00am, the time set for commencement of the arbitration hearing. He said he was then unaware of Area Health's plans for redevelopment of RPAH east of Missenden Road, or of changes to Campus 2010, or of changes to the master plans. 217 In cross-examination he denied that in July 1996 Dr Horvath told him that the redevelopment of RPAH had been funded as part of the Resource Transition Programme. When referred to her letter to him of 27 November (par 113) he accepted that Macquarie knew that the site would be redeveloped. He made no enquiries about the proposal to build a public hospital car park behind KGV. 218 Further, in cross-examination, he said that knowledge of the SUPH proposal did not change Macquarie's negotiating stance or decision to enter into the agreement. He said he understood the effect of cl 23.5 hospital lease. His view at the time was that the SUPH would be unviable, and that Macquarie would build its hospital before the University could build its hospital. He said that he finally accepted Area Health's wording of cl 23.5 of the hospital lease because his understanding was that the good faith provision in the lease, and the landlord and tenant relationship, would operate to preclude Area Health from supporting a competing hospital before MPH was opened. 219 Mr Puplick was chairman of the board of Area Health from August 1996 until June 2003. It was his practice to take diary notes of the substance of what was said at meetings with Macquarie representatives. His evidence was based on these notes, and the correspondence. 220 On 23 September, after receiving a copy of Macquarie's points of claim, there was a discussion with Mr Block and representatives of Macquarie about the potential affect of changes in government policy on the project. He said that on 30 September he attended a meeting with Mr Block, Mr Teulan, Mr Klinger, Mr Joyce and Mr Wallace at which Mr Wallace said that Area Health needed a car park of its own, and that the most likely site was behind KGV. He also said that the amount of $300 million was to be spent on capital works on the RPAH campus. There was no complaint in response. 221 He said that at the time of the meeting on 8 November the main sticking point was in relation to the car park, and Macquarie emphasised the importance of agreement on that issue. He said that on 30 November he informed Dr Wenkart of the rejection of Macquarie's proposed amendments. Dr Wenkart then said to him that Mr Block would not agree unless the word "Rent" was deleted from cl 23.5 of the hospital lease. On occasions he asked Mr Block for information on Macquarie's proposal for financing the project, but was not given any. 222 Mr Greg Anderson is a chartered accountant with experience in health sector financing. In 1996 he was a director of Health Care Business Assurance Services, of Coopers & Lybrand. He had responsibility for managing and conducting the assignments undertaken to review the feasibility study of the proposed MPH prepared by MHC. His report was sent to Macquarie on 3 October. 223 In cross-examination he said that for the purposes of preparing the report he had discussions with Dr Horvath and Mr Wallace who informed him of significant government funding, and of the nature of the proposed redevelopment of the RPAH site. He did not dispute that he was told by them that the bulking up concept was to take place on the eastern side of Missenden Road. He had no recollection of a plan being shown to him in mid-1996 by Dr Horvath. He said that he discussed his report with Dr Wenkart at a Macquarie board meeting. 224 At this point it is convenient to refer to some of the provisions of the 96 agreements. 225 Under the construction deed, cl 2, Macquarie undertook to commence, carry out, and complete the construction of a 200 bed hospital and the car park, and the fitting out of the hospital, in accordance with the timetable. The timetable prescribed dates for the lodgement of development and building applications with Area Health and the council, and for obtaining approval. The construction of the car park was to commence on 14 November 1997 with completion on 14 April 1998. The construction of the hospital was to commence on 14 April 1998 with completion, admission of first patients, and rent commencement, on 1 December 1999. 226 Clause 4.5 stipulated the criteria for the preparation by Macquarie of the necessary plans and applications. These included harmony with proximate improvements owned by Area Health, and the integration, so far as was possible, of mechanical and other services in common with such proximate improvements. 227 Clause 7 stipulated essential terms and Area Health's rights to terminate. Under cl 8, MHC guaranteed Macquarie's due and punctual performance of its obligations under the deed and in connection with the construction of the hospital. Clause 10.8 required the parties to act in the utmost good faith towards each other. 228 Under the car park lease Macquarie and Area Health leased the car park land for a term of 103 years from 1 December 1996 to 30 November 2099. (Area Health let its interest to Macquarie for a term of 28 years under the car park sub-lease.) 229 Clause 1.5 provided that the provisions of the HOA merged in the grant of the lease. Clause 16 stipulated essential terms and Area Health's right to terminate. Under cl 19.7 Macquarie warranted that it relied only on its own enquiries and not on any representation or warranty by Area Health. Clause 19.13 required the parties to act in the utmost good faith towards each other. 230 Under the hospital lease, Area Health let the hospital land to Macquarie for a period of 103 years from 1 December 1996 to 30 November 2099. 231 In cl 1.1 "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." 232 Clause 1.5 provided that the provisions of the HOA merged in the grant of the lease. Clause 11.1 required Macquarie to erect the hospital and ancillary services in accordance with the construction deed. Clause 17 stipulated essential terms and Area Health's right to terminate. By cl 20.7 Macquarie warranted that it had relied only on its own enquiries and not on any representation or warranty by Area Health. Clause 20.13 required the parties to act in the utmost good faith towards each other. 233 Clause 23.5(a) provided: "23.5 The Landlord must for a period of five years after the Rent Commencement Date: (a) not recommend, support or approve a private hospital within the area controlled by the Landlord as at 15 September 1989, if the Tenant is of the reasonable opinion that such a hospital would materially adversely affect the revenue derived by the Tenant from the Premises; …" 234 Clause 23.11 provided: "The Landlord acknowledges the developmental, financial, professional and operational independence of the Premises from both the Landlord and Royal Prince Alfred Hospital and the intention of the parties to create a campus concept encouraging the movement of people between the Hospital and Royal Prince Alfred Hospital." Consideration 235 Consideration of the documentary, affidavit, and oral evidence of the circumstances in which the 96 agreements were made enables a description to be given of Macquarie's position for financing the project, and of the extent and significance of Macquarie's knowledge of plans for the redevelopment of RPAH, and of the SUPH project as at 2 December 1996. 236 In its statement of issues for arbitration of 26 June Macquarie pleaded the necessity to determine whether it should be required to construct a 400 bed hospital or a 200 bed hospital. It also raised as an issue changes in health policy which had occurred since the HOA was made, and which could affect the viability of the project, including changes to health insurance arrangements made by Federal legislation in 1995, the Lawrence reforms. It alleged that the cumulative effect of the changes was to reduce market opportunities for MPH, and to adversely affect its capacity to generate the earnings required to support its initial proposal. It also alleged that, in breach of cl 3.1(r) HOA, Area Health had given support to Strathfield Private Hospital, a likely competitor, thereby threatening the commercial viability of the initial proposal. 237 The development for which Macquarie was contending was the subject of submissions lodged by Fletcher with the council on 5 June. The accompanying concept plans made no reference to the existence, present or future, of a public hospital building behind KGV. A design objective in respect of the buildings and facilities was "… to respond to the existing built environment". It noted Missenden Road had cut the RPAH site in half. 238 On 29 July Dresdner advised Macquarie of its interest in providing finance for the construction phase. It sought information on a number of matters relevant to its ability to finance the project. These included details relating to the 400 bed proposal; the responses of banks which were approached; background to the operation of MHC, and "… details of Government plans for RPAH and evidence of the continuing importance of RPAH as a major public hospital in the catchment area". 239 On 5 September Mr Block advised Mr Puplick of the 10 issues said to be the main outstanding matters. Finalisation of documents, including remaining lease issues, was to be left to the parties' solicitors based upon the level of agreement achieved during the mediation. Car park issues required resolution. He saw the timetable as the key provision for negotiation of the construction deed. It was proposed that current drawings of the proposed 200 bed hospital would be provided to Area Health. No reference was made to any need for physical links between MPH and RPAH, or to the location of public hospital buildings. 240 On 19 September Macquarie served on Area Health further points of claim for arbitration. Various claims for relief were made, including a declaration that it was entitled to modify the existing development approval and/or to obtain a new one, and that it was entitled to delay construction by reason of major changes in State or Commonwealth health policy which adversely affected private hospitals, and threatened the viability of the complex. Particulars of such changes included the requirement for agreements between health insurance funds and private hospitals, and other factors, which operated to the detriment of private hospitals. 241 In Coopers & Lybrand's report to Macquarie of 3 October the government proposal to rebuild and modernise the facilities, and to streamline patient services at RPAH, and Area Health's wish to have a co-located facility as soon as possible were referred to. It also advised that Area Health was committed under the HOA not to recommend or support development of other private hospitals in the areas under the control of Area Health within a period of five years from the date of first admission. 242 According to Mr Block's letter of 22 October to Mr Puplick, the major issue then outstanding was the car park, noting that Area Health's preferred site was behind KGV rather than the previously designated site. It envisaged the lodgement of new development and building applications with the consent of Area Health. 243 At the meeting on 8 November, Mr Puplick advised Mr Block and Mr Klinger of the SUPH proposal. By letter of the same date, Mr Puplick reminded Mr Block that Area Health had in place a capital works programme for RPAH including the resolution of outstanding car parking problems on the site. 244 Mr Block wrote to Mr Puplick on 12 November. He stated that Macquarie had the financial capacity and support from financiers to implement the project immediately. Various matters relating to the car park were proposed. He stated Macquarie's recognition of the "major capital works planning process", and its willingness to review how the complex and car park could "… best be integrated into the revised site planning for Royal Prince Alfred Hospital as required in the Heads of Agreement". He indicated that previous agreement on other outstanding issues provided the basis for concluding all necessary agreements between the parties. 245 The memorandum of understanding of 18 November recorded agreement in relation to the 10 matters for incorporation in the relevant document. It was agreed that Macquarie would lodge new development and building applications for a 200 bed hospital in accordance with the timetable. It also recognised Area Health's independent need for a car park on the RPAH campus which was to be operational before work commenced on the public hospital redevelopment. 246 In her letter of 27 November to Dr Wenkart, Dr Horvath advised that the documents would be sent to him on the basis that "… (they) will cover all the matters that Macquarie has raised in the arbitration and otherwise, and that everything is then governed by those documents which will replace the Heads of Agreement". 247 Dr Wenkart's letter to Dr Horvath of 29 November noted that further negotiations had taken place on 28 and 29 November. In consideration of an extension of time to 10.00am 30 November to submit the signed agreements to Area Health he recorded Macquarie's acceptance of the extent of the amendments drafted by Area Health's solicitor, and his agreement not to request any further amendments. 248 In their letters of 30 November to Dr Horvath and to Mr Puplick respectively, Dr Wenkart and Mr Block referred to adjustments made to a number of provisions of the hospital lease. Mr Block explained his objection to the inclusion of the word "Rent" in cl 23.5 of the hospital lease. He said: "At the Macquarie Board meeting today, during which I reviewed the documents, I noted a one word change which took place AFTER the deadline. I consider this a major fundamental issue with NO ADVERSE affects on CSAHS but an absolutely debilitating burden on Macquarie. I refer to clause 23.5 of the Hospital Lease 12/809663 where rent has been added. This permits overt competition by CSAHS supporting another private hospital initiative. This prevents Macquarie readily concluding funding negotiations with its bankers. Clearly this is a core issue. I refuse to sign the documents without this being corrected to the position demanded by CSAHS at its deadline. I request your support in accepting this correction for the vital reasons given. It would reflect your and my efforts to establish a genuine expression of cooperation and good faith in helping finalise all matters and put the difficult past behind."

The document was returned to Area Health with the word "Rent" crossed out. 249 In his reply of 30 November Mr Puplick informed Mr Block of Area Health's requirements for completion by 10.00am 2 December 1996, including reinstatement of the word "Rent" in cl 23.5 hospital lease, failing which the arbitration would proceed as scheduled and further discussions would be discontinued. Conclusions on the circumstances and making of the 96 agreements 250 For Macquarie, the course of the negotiations was under the control of, and the decision to enter into the 96 agreement was made by, Dr Wenkart and Mr Block. There was no issue that both were persons of wide commercial experience. They impressed me as shrewd and astute businessmen, well aware of the likelihood of risk in any commercial undertaking. At all relevant times before and during the operation of the HOA they had available to them solicitors, and other advisors in respect of all aspects of the project, including finance and planning. There could be no doubt on the evidence, and I find, that neither would become involved in a transaction without first being satisfied that it was in his best commercial interests to do so. 251 The evidence shows that the terms of the 96 agreements were the product of careful scrutiny and consideration which began, at least, during the mediation process in 1995 and continued up until the time of execution. It demonstrates that each party ensured that the documents expressed all the provisions required for the protection of its interests. Taken overall, the evidence supports the finding, which I make, that had one party intended to rely upon a representation made to it by the other, any consequential obligation would have been incorporated in the appropriate agreement. It demonstrates that the 96 agreements were intended by the parties to replace entirely the HOA, and to serve as the source and ambit of their rights and obligations in relation to the construction of MPH and the car park, and the leasing of the sites. This is the effect of the merger provisions in cl 1.5 of each of the hospital lease and the car park lease, and was so expressed in Dr Horvath's letter of 27 November to Dr Wenkart. It was also recognised by Mr Block in his letter of 30 November in which he states that the $5,500,000 already paid is foregone. That this should be the result is evidenced by the underlying purpose of the HOA itself. In my opinion the 96 agreements evidence the intention of the parties to expunge the complaints and claims one may have had against the other in respect of conduct or performance under the HOA, and to proceed afresh under the new agreements. 252 The evidence of Macquarie's financial capacity at the time of the 96 agreements to carry out the project is scanty. In his letter to Mr Puplick of 12 November, Mr Block stated Macquarie had the financial capacity and support from financiers to implement the project immediately. The only evidence relevant to financiers was Dresdner's letter of 29 July in which interest was expressed subject to the provision of information on specified matters. There was no evidence of any reply to Dresdner, and I infer that none was made. I conclude that at this time there was no arrangement between Macquarie and a financier for support, in principle or otherwise, for the project. 253 I also find that, at the time, Macquarie was well aware of the threat to the viability of MPH posed by government health policies, including changes in the health industry which resulted from the Lawrence reforms. These were matters raised by Macquarie in its arbitration claims of 26 June and 19 September, and in its feasibility study of 12 September. I infer that the change of use provisions (cl 8 hospital lease; cl 7 car park lease) were included to assist Macquarie in meeting future changes of legislation. It was also aware of the threat posed by a competing hospital, referred to e.g. in the arbitration claim of 26 June, and the Coopers & Lybrand report of 3 October. 254 There is ample evidence which established that, during the negotiations, Macquarie knew that Area Health proposed a major redevelopment of the RPAH campus, and a car park on a site behind by KGV. Dr Wenkart and Mr Block accepted as much. It is unnecessary to determine precisely when either first became aware of it, or the extent of the information each had. Nevertheless, its relevance had been drawn to Macquarie's attention early on. The Dresdner letter of 29 July sought details of government plans for RPAH; at the meeting on 30 September Mr Block and others were told of the amount to be spent on capital works on the RPAH campus, and of the need for a car park site behind KGV; in the Coopers & Lybrand report of 3 October Mr Anderson gave details of information from Dr Horvath and Mr Wallace of the proposal to rebuild and modernise facilities. Mr Block recognised the situation in his letter of 12 November to Mr Puplick and, thereafter, it was referred to in the memorandum of understanding of 18 November, and related correspondence, including Dr Horvath's letter to Dr Wenkart of 27 November. In his letter of 20 December to Area Health's solicitors, Dr Wenkart noted that master plan requirements for the car park site and the "PAPH relationship" were still unresolved. 255 I find that Macquarie made no enquiries to ascertain the nature and extent of the proposed redevelopment, or whether it was likely to affect its proposals for the design and future operation of MPH. It expressed no concern about or, indeed, interest in, the proposed redevelopment or the location of buildings and services on the RPAH campus. During the negotiations it was not suggested that Macquarie was proceeding in reliance upon any representation that RPAH's plans had not changed from the master plan or as envisaged by Campus 2010, or that a commitment had been sought from Area Health as to the location on campus of future buildings and services. Agreement to this effect was under cl 7.2 and cl 19.7 car park lease and cl 8.2 and cl 20.7 hospital lease. 256 Nor was it suggested that what Macquarie understood to be the benefits of a campus concept or of co-location should be defined and secured under the agreements, for example, by provisions intended to achieve by physical links the efficient and functional flow of patients and medical staff between the hospitals. The agreements contained no provisions relevant to the definition, realisation or achievement of a campus concept by way of planning, building or otherwise. Had features of co-location been regarded as essential to the viability of MPH it is reasonable to expect that Macquarie would have insisted that Area Health be contractually bound to provide them. In this respect the construction deed went no further than to stipulate the criteria for plan preparation by Macquarie in cl 4.5 construction deed, which made reference (cl 4.5(a), cl 4.5(g)) to "the other proximate improvements owned by the landlord", but such improvements were left undefined. In addition, cl 23.11 of the hospital lease merely contained Area Health's acknowledgement of the independence of the premises and recorded the intention of the parties to create a campus concept encouraging the movement of people between the hospitals. 257 The 96 agreements envisaged the preparation by Macquarie of new designs, and the preparation of new development and building applications for council's approval. During the negotiations Macquarie was informed of the proposal for redevelopment and to build a car park behind KGV. In my opinion, it is highly improbable that Macquarie through its various advisors would not have questioned Area Health about these matters prior to signing the 96 agreements if it regarded the details as material for its design and planning purposes. Yet the evidence shows no enquiry was made, and there was no evidence that during the negotiations Macquarie sought confirmation that previous planning concepts would not be changed. This strongly indicates to me that, in truth, it was not material for Macquarie to know, for example, that it continued to be Area Health's intention to build a clinical services block and a pedestrian bridge linked to the private hospital as depicted in about December 1988 in the plans Exhibit B and Exhibit B1. In my opinion, to now claim that representations made eight years earlier were relied upon in entering the 96 agreements beggars credence. 258 In my opinion, had Macquarie given reasonable consideration to the information which it accepted it had at the time, it would have been left in no doubt of the high probability of significant change to previous planning proposals. That would have been an obvious conclusion to draw from, for example, the non-closure and continuing operation of Missenden Road. The absence of evidence of enquiry, or of negotiation about the redevelopment, supports the finding that, in truth, Macquarie did not regard information about RPAH's plans as material or relevant for its purposes or, if it did, it was willing to proceed to enter into the agreements in ignorance. It was not suggested that any such enquiry would not have been answered. Another explanation is that Macquarie was willing to take the RPAH campus as it found it to be when it came to design the MPH. This would be consistent with Fletcher's submission to council of 5 June that a design objective was to respond to the existing built environment without specification of what this meant. I find that any continued reliance upon earlier master plans or upon Campus 2010, as suggested by Dr Wenkart (affidavit 30 April 2002) after the proposal for the redevelopment of RPAH became known was unlikely and/or unreasonable, in the circumstances. I find that in signing the agreements Dr Wenkart and Mr Block acted on their own appreciation of the situation and the commercial gains to come rather than on the faith of representations (if any) made by Area Health about the campus. 259 With regard to the SUPH proposal, I find that Mr Block and Mr Klinger were told of it by Mr Puplick on 8 November. There is ample evidence that Macquarie perceived it to be a threat to its commercial viability. However, there was no evidence of enquiry made to ascertain details of the proposal from Area Health, the University or anyone else. It was not suggested that any such enquiry would not have been answered. Mr Block's concern to protect Macquarie under the agreements is demonstrated by his letter to Mr Puplick of 30 November, in which he explained the deletion of the word "Rent" from cl 23.5 hospital lease in an attempt to have the restraint operate from 1 December 1996, being the "Commencement Date" as defined. His letter reflects careful consideration and understanding of the terms of the documents, as well as an appreciation that the SUPH proposal posed a risk of competition, and a risk to obtaining finance for the project. 260 Nevertheless, in response to Area Health's ultimatum which required reinstatement of the word, Dr Wenkart and Mr Block signed the agreements, and thereby knowingly accepted the risk that the existence of the SUPH proposal might impede the obtaining of finance. They must also be taken to have understood that there was no other contractual restraint which governed Area Health's conduct with another private hospital or which precluded it from receiving, considering or discussing a proposal from a potential competitor prior to the rent commencement date. Dr Wenkart's view was that Macquarie's interests were protected under the good faith provisions and, in any event, Macquarie would build its hospital first. Indeed, it was Macquarie's submission to the Court that it chose to execute the documents and would try to steal the march on SUPH. 261 Claims made by Macquarie that it was forced into agreements which were not understood, or were made in circumstances which were unconscionable, were negated by the evidence, and must be rejected. There can be no doubt that Dr Wenkart and Mr Block signed the documents relying upon their judgment that it was in Macquarie's best commercial interests that they should do so, and in preference to proceeding with the arbitration. In their evidence earlier referred to each acknowledged that they signed the documents fully aware of, and willing to accept, the risks which might occur including those arising from the redevelopment of the RPAH campus and the SUPH proposal. Progress of the car park and hospital in 1997 262 Unless otherwise indicated the evidence relied upon is the documentary evidence. 263 The 96 agreements bound Macquarie to construct a 200 bed hospital and a car park with 1200 spaces. The timetable required lodgement of the development applications with Area Health by 31 December 1996, and with council by 1 May 1997, and approval by 1 August 1997. The building applications were to be lodged with Area Health by 1 May 1997, and with council by 1 September 1997. 264 On 7 January a meeting was held of a joint working party of representatives of Area Health and Macquarie including Dr Wenkart and Mr Peter Reid, general manager of RPAH. The minutes record that for the purposes of design and planning, Mr Ridley Smith, Macquarie's architect, raised the importance of knowing RPAH's plans for adjacent areas. At this meeting, and the meeting of the group on 28 January, Macquarie was advised to contact Mr Haldane for information about future RPAH plans for the area behind KGV and possible interface between the hospitals. 265 On 25 February Macquarie lodged the development applications with council. The supporting documentation prepared by Pace referred to Area Health's current intention for redevelopment of RPAH to the east of Missenden Road, with no further development proposed between Missenden Road and MPH. It referred to an open deck car park with 1225 spaces available in five levels including the ground floor. It was to be located on the strip of land bounded by Church and Grose Streets on two sides, and MPH and the new Link Road on the other two sides. 266 On 21 March Macquarie was issued with an approval in principle for a private hospital, a condition of which was that it provide the 200 bed licenses for the project. 267 On 20 May council consented to the development application subject to many conditions. On 19 June Macquarie's appeal against some of the conditions was upheld by the Land and Environment Court. Relevant conditions of the car park approval included: "(2) That prior to issuing a Certificate of Classification by Council and therefore operation of the car park, the building application for the adjoining private hospital shall be approved and works shall have substantially commenced. … (5) That the developer shall meet all the costs of traffic improvement works related to this consent unless otherwise stated. … (8) That the construction of the traffic signals at Missenden Road and Carillon Avenue shall be operational prior to issuing a Certificate of Classification for the car park with the cost to be negotiated between the applicant and the Roads and Traffic Authority (RTA). … (12) That the New Hospital Road shall be completed at the applicant's expense through to Grose Street including the installation of traffic lights and pedestrian facilities at the intersection with Carillon Avenue prior to commencement of construction of the car park to the satisfaction of the Director of Public Works and Services and the Director of Planning and Building with plans and details of the extended road being submitted with, or prior to, the building application for the new car park. … (13) That the New Hospital Road shall be completed through to Lucas Street, to the satisfaction of the Director of Public Works and Services prior to issuing a Certificate of Classification for the car park, with detailed plans of the extended road link being lodged with the Council prior to the issuing of building approval. … (62) The ramp between levels 4 and 5 of the car park shall not be constructed until the construction of the second stage of the Hospital, the Medical Centre and the Consulting Rooms has commenced."

Relevant conditions of the hospital approval were cl 2, cl 4, cl 11, cl 15 and cl 16 which corresponded with cl 2, cl 5, cl 8, cl 12 and cl 13 respectively of the car park approval. 268 During July and August there was correspondence between the parties in relation to issues arising under Macquarie's building application for demolition and excavation work. Area Health required adherence to the timetable. In its letter to Pace of 17 July, it stated that the land linking the northern end of "New Hospital Road" and Lucas Street referred to as "Link Road" was not part of the leased site nor mentioned in the lease. It advised that Area Health did not wish to separate the Queen Mary building, the RPAH child care centre and the endocrinology centre from the rest of the campus. In its letter to Pace of 30 July Area Health observed that matters concerning the access road, its dimensions, service allocation, landscaping, retaining walls and the proposed Link Road were not agreed and were under negotiation. 269 On 1 August the building applications for the hospital and car park were lodged with Area Health. On 21 August Area Health advised council of its support for the demolition and excavation application, noting that details for landscaping, and for the construction of the retaining wall and Link Road were yet to be agreed. 270 In its letter to Pace of 27 August, Area Health said that Link Road was outside the construction deed, and had not been discussed before council imposed the condition about it. It said that compensation for loss of land to provide the road would be sought and negotiated. 271 On 28 August Macquarie lodged with council the building applications for the hospital and car park. On about 12 September, Area Health consented, subject to its approval of issues concerning landscaping, car park finishes, and Link Road traffic control. 272 On 2 September Area health demanded Macquarie to show cause why the leases should not be terminated by reason of failure to comply with the timetable in that by 1 September it had not substantially commenced excavation, and had not submitted the building applications to council. 273 On 25 September Dr Wenkart proposed to Mulpha an arrangement for a joint venture with its subsidiary, Enacon, to own and operate the car park. It involved the assignment of Macquarie's interests in the car park lease and sub-lease to the joint venture. It proposed that the joint venture would finance and develop the car park, and related road works and interfaces to the MPH and RPAH campus. 274 On 30 September Dr Wenkart informed Area Health that Mulpha had agreed with Enacon to transfer, subject to Area Health's approval, "… Macquarie's rights to a new tenant in which Macquarie is no longer included". He said that the new tenant should be separated from any links to the hospital, but its obligations to build the hospital would not change. On 17 October he sought Area Health's agreement to transfer Macquarie's interest in the car park lease to Mulpha and for the severance of links between the car park and hospital leases. 275 On 24 October Area Health expressed concern to Dr Wenkart about adverse impact of the proposal on the hospital development. It stated its need for assurance that Mulpha would accept the obligations under the car park lease and the construction deed. 276 On about 29 October Macquarie applied to the council to vary conditions 21 and 62 of the car park approval. Relevantly, on 24 December, the Land and Environment Court deleted condition 62 and replaced it with a condition that part of the car park was not to be completed until the construction of the second stage of the hospital had commenced. Its effect was that 1200 spaces would not be constructed until stage two of the construction of the hospital was commenced. 277 In his letter of 5 November to Area Health Dr Wenkart summarised the joint venture proposal. It was to be an entity controlled by Mulpha and personal interests associated with himself and would not include Macquarie. Obligations concerning the operation and construction of the car park were to be deleted from the hospital lease, and those concerning the hospital were to be deleted from the other agreements. The existing construction deed was to be limited to the hospital. He said that if it was necessary for Area Health's approval that he and Macquarie should forego their interest in the car park he would consider it. The proposal was rejected by Area Health's board the same day. 278 By his letter of 7 November to Area Health Dr Wenkart said he was prepared to relinquish all interest in the car park lease if the car park and hospital obligations were separated. Area Health then sought his consent to discuss the matter with Mulpha. Subsequent correspondence indicates that, by 24 December, no agreement had been reached on the proposed arrangements for Mulpha's involvement in the car park, either between Macquarie and Mulpha or between Macquarie and Area Health. It appears that Area Health and Macquarie were each pressing the other for details of its requirements for further consideration. 279 On 12 November there was a meeting between Dr Horvath, Mr Wallace and Mr Glen Morris, of Mulpha, when Mr Wallace was informed that Dr Wenkart intended to retain the right to buy into the operation of the car park at a later stage. Mr Wallace informed Mr Morris that this was unacceptable to Area Health. 280 On 13 November Mulpha wrote to Macquarie in the following terms: "I refer to our recent telephone conversation and confirm that I met with representatives of Central Sydney Area Health Service 'CSAHS' yesterday morning. In attendance for CSAHS were Dr. D. Horvath & Messrs M. Wallace & S. Haldane. At the meeting we discussed whether CSAHS were willing to support a splitting of the lease in respect to the hospital and car park on the basis that Macquarie Health would sell its interest in the car park to Mulpha Australia Limited. Unfortunately, it soon became obvious during the course of the meeting CSAHS were unaware of our agreement to allow your interests to buy back in at a later stage. It is clear that from the letter you read to me yesterday, which was forwarded to CSAHS prior to my meeting, no mention of the option to buy back was included therein and hence their reaction to this new proposal was obvious. They advised me that the splitting of the lease which also included an option to buy back was unacceptable to CSAHS. Under the circumstances, and gauging from their reaction to the new proposal, I believe the only way to obtain CSAHS agreement is that which you proposed in your latest letter to them i.e. a total sell out. If Macquarie Health are [sic] interested in a total sell out I would be happy to discuss this matter with you further. Please let me know your thoughts." 281 On 20 November Area Health gave notice to Macquarie of events of default under the construction deed by reason of Macquarie's failure to comply with the timetable. It alleged failures to obtain building approval by 1 November, and to declare the building approval acceptable by 14 November, and to have substantially commenced construction of the car park by 14 November 1997. Conclusion on progress in 1997 282 The evidence establishes, and I find, that by the end of December 1997 some demolition work for the car park had commenced and the Mulpha proposals were still under negotiation. 283 As to finance, on 24 October Macquarie Bank Ltd made an offer to Macquarie to provide services which included the structure of a transaction acceptable to the market, and the sourcing of finance from other parties, on various terms and conditions. It expressly stated it was not an offer of finance to Macquarie. Macquarie replied on 27 November and 3 December. It appears that the terms of any letter of appointment remained under negotiation at the end of the year. Ultimately, no agreement was reached. 284 I have earlier held (par 258) that at the time the 96 agreements were made Macquarie did not regard information about RPAH's plans as material or relevant for its purposes, alternatively, was willing to take the RPAH campus as it found it to be when it came to design the MPH. There was no issue that Dr Wenkart and Mr Block maintained close supervision of the project. I have no doubt that, if Macquarie thought that information about RPAH's proposed redevelopment, or about the current status of previous master plans and Campus 2010, was crucial for design and planning purposes, the requirement for such information would have been forcefully made known to Area Health whenever opportunity arose. As the non-exhaustive evidence to which I now refer shows, no complaint or protest was made on this issue although there was opportunity at any time to do so. It provides additional support for my earlier finding. 285 The joint working party meetings on 7 January, 28 January and 5 February were attended by Dr Wenkart, Macquarie's architects Mr Smith and Mr Thorburn, and representatives of Area Health including Mr Reid and Mr Wallace. Design and planning for MPH were discussed. It was accepted without comment that it would be important to know of RPAH's plans, and that information should be sought from Mr Wallace and Mr Haldane. Pace's documentation in support of the development application's lodged on 25 February puts beyond argument that those involved in planning details for MPH knew that the redevelopment would be to the east of Missenden Road, and proceeded accordingly. 286 By letter of 24 April Dr Horvath informed Mr Block that the present plan was significantly different under Campus 2010, and that clinical activity was to be on the eastern campus. It may be inferred that Mr Block passed this information on to Mr Thorburn who, in turn, on 13 May passed it on to the council to assist in the processing of the application. There was no evidence of complaint, or that the information was considered by Macquarie to be relevant for design and planning purposes. The documents are referred to in pars 134 and 135. In my opinion they alone are sufficient to render implausible the evidence from Dr Wenkart and Mr Block to the effect that Macquarie proceeded under the 96 agreements based on a misapprehension about the location of RPAH's redevelopment, and that such misapprehension was attributable to Area Health's non-disclosure of information about the master plan and Campus 2010. This evidence justifies rejection of Macquarie's case which was built upon the proposition that it did so proceed. 287 In cross-examination Mr Block said that he understood from the letter that Campus 2010 was "dead", and facilities would be concentrated on the eastern side. He said it was important information for the MPH project. He did not protest about change to the master plan until 1998. After some prevarication, Dr Wenkart gave evidence to like effect. He accepted that the information was significant but, although he had every opportunity to ask Area Health to keep him informed, he did not do so. His suggestion that he believed that MPH could proceed on the basis that Area Health's planning remained as before was given in the teeth of the letter and, in my opinion, should be rejected as implausible. 288 In the judgment of 19 June in Macquarie's appeal to the Land and Environment Court, a key issue considered was the absence of a master plan for the RPAH precinct. In Area Health's letter to Pace of 27 August, reference is made to a recent meeting between Macquarie's architect and the government architect at which the drawings and proposed façade for MPH were discussed. As envisaged at the joint working party meeting on 7 January, Pace wrote to Area Health on 24 September seeking an understanding of the master plan requirements for the area between KGV and Macquarie's site. Of relevance to the co-location issue in these proceedings it said: "… We, like you, wish to establish the best possible links between the Hospitals not only from the point of view of aesthetics but practical issues of moving people between the campuses". 289 On 23 October Dr Wenkart sent the Minister for Health a letter complaining of Area Health's actions which were said to have caused serious delays to the project. He enclosed a letter and list of delays which had been sent by Mr Block to Area Health board members the same day. The letters made no reference to issues concerning co-location, the SUPH proposal, or difficulties in raising finance. 290 In my opinion, a survey of this evidence demonstrates that it was not a matter of importance for the design and planning of MPH that Macquarie should have information of details of RPAH's proposed redevelopment to enable it to proceed, or that it was handicapped without it. Apart from the lack of any assertion or protest to the contrary, Macquarie simply proceeded with its planning irrespective of the future location of buildings and services on the RPAH campus. This was made clear by Mr Ian Macdougall, of Pace, who said the priority was to build a building which would stand alone and be viable without dependence on links to the RPAH campus or buildings described in Campus 2010 (T pp 856, 857). SUPH in 1997 291 The context in which consideration is given to the evidence of matters relevant to the conduct of the parties in connection with the progress of the SUPH proposal includes the following. 292 The operation of Area Health was governed by the provisions of the Area Health Services Act . These included the objectives under s 19, and functions under s 20(1) including s 20(1)(c): "to consult and co-operate with individuals and organisations concerned with the promotion, protection, and maintenance of health" and s 20(1)(e): "to plan future development of health services in its area". 293 On 10 October 1996 Area Health was advised by its solicitors that it was not required to inform Macquarie of the approach by the University or of the existence of a proposed development, or of its intentions or actions. Nevertheless, Mr Puplick decided to disclose that information to Mr Block, and did so at the meeting on 8 November. 294 On 11 December 1996 Mr Heydon QC advised Area Health of the restraint under cl 3.1(r) HOA (substantially similar to cl 23.5 hospital lease) applied only after the first hospital admission to MPH, and that there was probably no implied term which gave it wider application. 295 I turn first to a summary of the documentary evidence. 296 At the meeting of the joint working party on 7 January, Mr Reid advised that he was not aware of details of the SUPH proposal, but had heard HCoA was approaching clinicians. 297 On 21 January Dr Horvath and Mr Wallace met Dr Catchlove and others during which issues concerning the provision of radiology services were discussed if the SUPH proceeded. 298 At a meeting in the Vice-Chancellor's office on 24 January, Dr Catchlove and Mr Sinclair advised University representatives about the feasibility study to be undertaken by HCoA. It was noted that Macquarie had not met the first of what was described as "drop dead dates" under its agreements with Area Health. The remaining dates, being those for lodgement for development and building applications, for commencement of land excavation, and admission of first patients, were also noted. Mr Sinclair expressed the view that Macquarie would appeal against a development application for approval of a private hospital on University grounds, and that such approval would reduce the likelihood of Macquarie finding investors for its project. He said it would be advantageous to lodge a development application while the feasibility study was being considered. 299 At the joint working party meetings on 28 January and 5 February Macquarie expressed concern at the lack of communication with Area Health about SUPH. 300 In its letter of 28 January to Area Health, Dr Wenkart complained of discussions between the University about the SUPH proposal. He said it would be inappropriate, and detrimental to Macquarie for Area Health to assist a competitor. In reply, Area Health rejected allegations of want of good faith. Area Health said it was aware of, and would comply with, its obligations regarding a competing hospital, and would continue discussions with the University in accordance with its obligations to Macquarie. Letters between the parties of 10 February and 21 February were to the same effect. 301 On 27 February the University lodged the development application for SUPH with council. It was prepared by Dr Keith Lapthorne, of Woods Bagot Pty Ltd. It described the project as a joint venture between the University and HCoA to establish a new private teaching hospital building. Part 2.4 "Site Description" included the following statement: "The Royal Prince Alfred Hospital is immediately behind the Pharmacology Building. We have established in consultation with the Royal Prince Alfred Hospital that future growth of the Main Hospital Block E will be towards the east reinforcing the future functional relationship and physical proximity of the Hospital activities and being a further important influence on site selection."

It referred, as a planning option, to the possibility and advantages of physical links between RPAH and SUPH. 302 On 2 April Dr Catchlove outlined details of the SUPH proposal to Area Health's board, advising that construction would begin in September 1997, and admission of first patients would take place on 31 January 1999. 303 On 14 April Mr Block requested Mr Puplick to have Area Health write urgently to Council objecting to the proposed SUPH. In her letter to Pace of 29 April, Dr Horvath stated that an objection would not be lodged, and that Area Health was not required to do so either under the general landlord and tenant relationship or under any specific provision of the leases. 304 On 15 May the Faculty of Medicine provided the University's planning committee with a background paper in which it reported that SUPH had the enthusiastic support of Dr Horvath. 305 On 21 May Mr Haldane, in his report to Area Health on the resource transition programme, recommended that negotiations continue with the University about the redevelopment of RPAH and the SUPH proposal, and for opportunities to co-locate and develop common facilities. 306 At the meeting of the University planning committee on 23 May, Dr Horvath described the redevelopment programme for RPAH. She referred to the benefits of co-location with SUPH, provided there was a direct physical link. 307 On 30 May SUPH lodged a replacement development application with council. It referred to physical links between the hospitals by bridges at appropriate levels. On 29 August it lodged another development application which included some variation to the links described in the earlier application. 308 On 17 July Dr Wenkart wrote to Prof. Leeder, Dean of the Faculty of Medicine, and advised that Macquarie would commence building work in the next few weeks. He noted that the SUPH proposal was significantly behind, and referred to widespread opposition to it. He cast doubts on the viability of the SUPH proposal, and described the physical links developing between MPH and RPAH. He invited consideration of an association between the Faculty and Macquarie as an alternative to SUPH. 309 On 10 September the Vice-Chancellor sought Area Health's consent to the lodgement of the development application for SUPH because the hospital building as described in the plans would partly encroach onto property owned by Area Health. He said that consent was required only to the making of the application, and was not to be taken as support for the development proposed or consent for any building work to be undertaken. 310 In his letter of 11 September to council Mr Puplick provided consent in the following terms: "The Central Sydney Area Health Service, as owner of the site of Royal Prince Alfred Hospital being Lot 101 in Deposited Plan 819559, gives its consent to the making of the above application. This consent is without prejudice to the current and continuing negotiations between this Service and the University of Sydney regarding the building by the University of the development partly on land owned by this Service in the event of consent being given to the said application. The consent given does not indicate support for the development."

311 On 14 October Dr Wenkart complained to Dr Horvath of disadvantage from Area Health's support for SUPH. He expressed concern that SUPH's development application allowed for access and egress of service vehicles by way of RPAH, and for pedestrian links between the hospitals. He asserted that any encouragement to develop a competing private hospital was unreasonable. He requested her assistance to ensure Area Health's opposition to the development application. In response, on 16 November, Mr Wallace said that HCoA had sought little advice or assistance from Area Health. He said that it had not seen the development application and had not been involved in its submission. He assured Dr Wenkart of a readiness to provide any further assistance to him. 312 The minutes of the meeting of the Faculty of Medicine on 16 October recorded that Area Health was contractually bound not to do anything that might hinder MPH, or assist another. 313 On 5 November there was a meeting of Macquarie's project executive team including Dr Wenkart and Mr Block. A strategy in opposition to the SUPH development application was devised. It involved intervention in the University's proceedings in the Land and Environment Court, and the encouragement of objection by the colleges. 314 At its meeting on 5 November, Area Health's board endorsed Mr Puplick's action in consenting to the development application. It discussed the implications of the proposal on its relationship with Macquarie, and noted that it could not negotiate with other private hospitals for up to five years after the first patient was admitted to MPH. 315 In his letter to Mr Puplick of 8 December Mr Block referred to the revelation in proceedings in the Land and Environment Court concerning the University's development application that Area Health had given consent to it. He asserted that by doing so Area Health had acted "… at variance to our pre-existing relationship", and asked for an explanation. 316 The following is a summary of the relevant evidence of witnesses. 317 Mr Morrison's evidence was that Macquarie acted to oppose the SUPH proposal by protesting to the University Senate, the University community, and against its development application, to bring about its destruction as a competing private hospital. 318 Professor Stephen Leeder was Dean of the Faculty of Medicine between 1997 and 2002. He was a member of the Senate of the University. As Dean he was responsible for developing the academic case for SUPH, and for guiding the proposal through public consultations following lodgement of the development application. It was his practice to regularly meet Dr Horvath to discuss various matters of common interest, including the SUPH proposal. He said that Area Health did not amend the resource transition programme to accommodate SUPH's plans. 319 Professor Bokey was a professor of surgery at the University. He said that he had a number of meetings with Dr Horvath and Mr Wallace between 1992 and 1995. He firmly denied that at those meetings any reference was made to a SUPH. 320 Dr Wenkart said in cross-examination, that, on reading the letter of 11 September 1997 in which consent was given to the development application, he felt (T p 595) "… there was a secret arrangement in place to assist and support but in a subtle way pretend they had nothing to do with the application of the University HCoA hospital". 321 Mr Stephen Haldane is a project director, and was involved in the asset strategic planning process for RPAH. He said that he did not take into account the University's plans for a private hospital when formulating RPAH's redevelopment plans. He said that in 1997 he presented various plans for RPAH to Prof. Leeder at a meeting with Dr Horvath, but did not recall any discussion about plans for the SUPH. The primary purpose of the meeting was to inform Prof. Leeder about plans for an education centre and amenities for students. 322 Mr Colin Sinclair was director of capital development with HCoA from about 1990 to September 2000. He supervised the development of new facilities, and directed the design of works, and the undertaking of feasibility studies. In 1996 he was asked to identify an appropriate site for a private hospital on the University campus in proximity to RPAH. He said that his selection of the site was not influenced by any known proposal to redevelop RPAH, but was because of the potential for links with RPAH. He said that, in early 1997, he was informed by a senior executive of Area Health, probably Mr Wallace, that Area Health would not negotiate with, or assist, him as it was contractually bound to Dr Wenkart's proposal. 323 In cross-examination Mr Sinclair said he had received no briefing from Area Health about the proposed redevelopment, and, in any event, would not have relied on its master plans for his purposes. Even had he been given access to them, he said the master plans would have meant nothing to him. He was unable to recall who told the meeting on 24 January 1997 of Macquarie's "drop dead" dates. He denied that the information was communicated to Dr Catchlove by Area Health. He did not recall any discussion with Area Health about proposed links with RPAH. He said he obtained no assistance from Mr Wallace or any other person from Area Health for the SUPH. 324 Dr Catchlove was engaged by Mayne Nickless Ltd to develop private hospitals. During the 1990s he met Dr Horvath on occasions when matters of common interest were discussed, including the relationship between RPAH and other public hospitals and Strathfield Private Hospital, which was operated by HCoA. At this time Strathfield functionally was co-located with RPAH. He said he had meetings with Prof. Bokey when an SUPH project was discussed. During the course of his work on the project he advised Dr Horvath of what was happening. She said that she repeatedly told him, and other University representatives, that Area Health could not participate in any way as it was constrained by arrangements with Dr Wenkart. He said that information about RPAH redevelopment plans were of little relevance to the SUPH, and he had no recollection of receiving information about them from Dr Horvath. He said that HCoA's decision to become involved was because it was believed that Macquarie's proposal would not eventuate. He could not recall who informed him of Macquarie's "drop dead" dates referred to at the meeting on 24 January 1997. 325 Mr Puplick's evidence was that he signed the letter of 11 September 1997 consenting to lodgement of the development application on legal advice, communicated by either Dr Horvath or Mr Wallace, and in the belief that it was not in breach of the 96 agreements to do so. His view was that a grant or refusal of consent in respect of a small part of RPAH land made no difference to the viability of SUPH because a small adjustment to the footprint or the boundary would have put it outside RPAH land. He could not recall what, if any, documentation was received with the letters of 10 September and 11 September from the Vice-Chancellor and Mr Coffey respectively. 326 Mr Wallace's evidence in cross-examination was that he had no recollection of matters discussed at meetings during 1997 other than one during which the provision of radiology services was discussed. He accepted that on 21 January 1997 he participated at a meeting with Dr Horvath, Dr Catchlove, and others when matters relating to SUPH were discussed. He said that he did not take seriously the SUPH proposal, and thought it was a waste of time, and gave it very little thought. He recalled attending a meeting on 2 June at the Women's College with Dr Horvath when the path of the roadway for SUPH was discussed. 327 Dr Horvath (affidavit 15 April 2005) said that she discussed with the University colleges questions of noise and road configuration if the SUPH eventuated. She denied that Area Health accommodated SUPH's planning by amending its plans for the redevelopment of RPAH, but suggested that, to avoid duplication of facilities, the SUPH development should complement Area Health's plans. She denied that she sought information about, or was involved in, the SUPH proposal and the preparation of its development application. She said she was unaware of the request for, and the giving of, consent to the development application until afterwards. 328 The following is a summary of her evidence in cross-examination as to the extent of her involvement and support for SUPH. 329 She denied the suggestion that she encouraged the notion that SUPH and the RPAH developments should be viewed as a joint development, and that she concealed her active support for SUPH. She understood, on advice, that until the private hospital opened she was free to discuss the SUPH proposal. She acknowledged that there had been discussions about the use of the Blackburn Building, and the future of facilities which had been shared with the University for many years, such as the library and the animal holding facility. She said that on 2 April Dr Catchlove attended the Area Health's board meeting in order to tell it what was happening with SUPH. She referred to occasions when the topic of links between the hospitals were discussed and questions about them clarified. 330 With reference to her attendance at the meeting of the University planning committee on 23 May, she said that she spoke about the substantial redevelopment for RPAH, and responded to questions about co-location. She told the meeting that RPAH would benefit from the opportunity to provide costed services such as radiology and pathology provided there was a direct physical link between the hospitals. She explained that the link envisaged was pedestrian access by footpath or roadway. She said that the links depicted in the development application were not discussed with her, and she was unaware of a proposal for a structure involving ramps and covered walkways. She made no enquiries about such structures after seeing proposals for them on the plans. 331 She was questioned about meetings with Prof. Leeder. She said that on these occasions a range of topics, including planning for SUPH, were discussed. She said that his remarks were not taken into account in planning for RPAH. 332 She was questioned about many entries in her diary of meetings with representatives of the University and/or HCoA between January and December. Although she had no recollection of details, she accepted the possibility that on these occasions the SUPH project was discussed. She said she was enthusiastic about the SUPH proposal. She said that through her staff and Mr Haldane opportunity was given to Macquarie and to the University to know of RPAH's plans. Conclusions on SUPH in 1997 333 I generally accept the evidence of Prof. Leeder, Prof. Bokey, Mr Haldane, Mr Sinclair, Dr Catchlove, Mr Puplick, Mr Wallace and Dr Horvath. In doing so, I accept that they were recalling events which took place many years ago. I was satisfied that their evidence was genuinely given to the extent that recollection allowed. Taken overall, what each had to say accorded, in my opinion, with what probably happened. 334 The evidence demonstrated, and I find, that the design and planning of SUPH and of the RPAH redevelopment proceeded independently of each other. It established that on many occasions during 1997 there were meetings between Dr Horvath, Mr Wallace and other representatives of Area Health with representatives of HCoA and the University, during which the progress of the developments was discussed, and information about them exchanged. I find that the RPAH plans were not drafted in order to accommodate SUPH requirements, and that there was no involvement by Area Health in the preparation of SUPH's plans or development applications. 335 I also find that, at an early stage, Dr Horvath made Dr Catchlove and Mr Sinclair aware that Area Health was precluded under its agreement with Macquarie from assisting with, or participating in any way in, the SUPH project and they proceeded on this understanding. Relevantly, Area Health in letters of 28 January and 21 February reminded Macquarie that it proposed to continue discussions with the University subject to its contractual obligations. 336 As for Mr Puplick's letter to council consenting to the SUPH development application, it is plain from its terms that consent was confined to the making of the application, and was not to be taken as support for the development. It was sent, in draft, to Mr Puplick by the Vice-Chancellor with his letter of 10 September. The documents demonstrate the University's acceptance that consent was not taken as support for the proposed development or building work which, in my opinion, was consistent with its knowledge that Area Health was precluded from providing assistance or support for the project. In any event, Macquarie had been on notice that Area Health would not object to SUPH's development application since Dr Horvath's letter of 29 April to that effect. 337 Dr Horvath's evidence that she afforded both Macquarie and the University opportunity to know of RPAH's plans is supported by statements in the development applications lodged by Macquarie on 25 February (par 265), and the development application lodged by SUPH on 27 February (par 301). Both refer to RPAH's development to the east. It is reasonable to infer that both took advantage of such opportunity. I also infer that Macquarie did so following advice given at the joint working party meetings on 7 January and 28 January to contact Mr Haldane for information. 338 I do not accept that participation in discussions and exchanging information amounted to conduct indicative of support, assistance, or encouragement within the terms of the restraint. On the other hand, the evidence of events during 1997 includes much which demonstrated that Macquarie's submissions that Area Health was intent on undermining the development of MPH and the car park is without support and must be rejected. The following are references to some of the evidence which, in my opinion, supports the finding, which I make, that Area Health provided significant co-operation and assistance to Macquarie to enable its project to progress: Dr Horvath's letter to Mr Block of 24 April enclosing information to support the development application; Minutes of the meeting of Macquarie's project executive team of 23 June which noted Area Health's excellent support in the Land and Environment Court proceedings; Letters of 14 July, 17 July, 11 August and 13 August from Dr Horvath to Pace concerning Area Health's consent to the building application for demolition and excavation, and the letter of support to council of 21 August; Mr Wallace's letter to Pace of 12 September to facilitate compliance with the timetable; The offer of assistance in Mr Wallace's letter of 16 October, and Mr Wallace's letter to Dr Wenkart of 24 October and 24 December as to readiness to participate in negotiations on the Mulpha proposal. 339 As at December, it may be said that Macquarie was well ahead of the SUPH project against which it saw itself competing. It had council approval for its development applications, and building approval for demolition and excavation for the car park site was under consideration with council. On the other hand, the SUPH development application, to which Macquarie had objected, was still under consideration in the Land and Environment Court. Progress of the car park and hospital in 1998 340 Unless otherwise indicated the evidence relied upon is the documentary evidence. 341 In its letter of 6 January to Macquarie, Mulpha said: "We refer to your facsimile dated 24 December 1997, and more specifically, to our telephone conversation yesterday. As you are aware we have been negotiating for some time with both Macquarie Health and CSAHS regarding our involvement in the abovementioned [sic] and the separation of the Car Park Lease and Sub-Lease from the obligations of Macquarie Health in respect to the construction of the Private Hospital. The involvement initially contemplated by Macquarie Health and ourselves was that of a joint venture arrangement with interests associated with yourself, however, as we now understand from both Macquarie Health and CSAHS such a course of action was unacceptable to them. Accordingly, after further discussion with your Macquarie Health representatives, John Morrison and Brett Sloane, we have considered our position and make the following offer to Macquarie Health subject to agreement with CSAHS."

The offer was to buy its total interest in the car park lease for the sum of $3,000,000 payable in stages tied to completion of MPH according to its timetable with Area Health. 342 By letter of 7 January Dr Horvath reminded Dr Wenkart that the notices of default were still on foot, and adherence to the timetable was required. She said that Area Health had no objection in principle to the transfer of Macquarie's interest in the car park lease to Mulpha, and invited submissions of a comprehensive proposal for consideration. 343 On 9 January Dr Wenkart put a counter-proposal to Mulpha. On 12 January Mulpha rejected the counter-proposal, and withdrew its offer to acquire Macquarie's interest in the car park lease and sub-lease. 344 On 14 January Macquarie's building application for demolition and bulk excavation was approved. Its conditions required compliance with the conditions of approval ordered on 19 June 1997 by the Land and Environment Court for the development applications for the car park and hospital. 345 On 23 January Mr Block wrote to the Director General, Department of Health. He asserted that Macquarie's inability to comply with the timetable for work on the car park was due to circumstances beyond its control, and attributed to Area Health reasons for Macquarie's inability to finalise a joint venture arrangement with Mulpha. He advised that Macquarie was continuing negotiations with other parties for a car park joint venture. He said that Macquarie was ready to begin work on the car park site. 346 By letter of 18 February to Macquarie, Dr Horvath rejected its claims in explanation of delay, and its claim that Area Health caused the Mulpha negotiations to break down. She expressed concern at the failure to commence construction and comply with the timetable, and proposed a revised timetable which extended time for completion of construction of the car park to 5 October 1998 and for substantial commencement of construction of the hospital to 15 June 1998 and for completion of the hospital, admission of first patient, and rent commencement date to 1 February 2000. With the letter was served a letter of default in respect of fixed and floating charges granted by Macquarie over its assets including encumbrances of its interests under the hospital and car park leases in breach of the provisions of the leases and of the construction deed. 347 On 12 March Dr Wenkart proposed to Area Health an amended timetable which, inter alia, extended time for commencement of car park construction to 14 June with completion on 14 December, and commencement of hospital construction to 14 December, with completion on 14 August 2000. The proposal was not accepted. 348 On 16 March Area Health served Macquarie with a notice of default for its failure to substantially commence bulk excavation work by 5 March and 13 March, the revised deadlines. In cross-examination Dr Wenkart accepted that Macquarie was in default. 349 On 23 March Macquarie held a strategy meeting attended by Mr Block, Dr Wenkart, Mr Klinger and others. Progress of work for the hospital and car park was discussed, and the withdrawal of Macquarie Bank Ltd's offer was noted. 350 In his letter of 5 May to the Director General, Department of Health, Mr Block complained of the master plan and its adverse affect upon the co-location of MPH with RPAH. He said Macquarie had only become aware of it from an article published in "The Sydney Morning Herald" on 1 May. Nevertheless, he said Macquarie was progressing with the project and sought his intervention to ensure Area Health's future cooperation. 351 On 1 June Mulpha advised Macquarie of its interest in acquiring from Macquarie the total interest in the car park lease and sub-lease, and invited discussion. 352 On 12 June Macquarie's building applications for MPH and the car park were approved by council subject to conditions. 353 On 17 June and 7 July Area Health and Pace corresponded concerning Macquarie's proposal for an access ramp for the disabled which would encroach on RPAH's site. 354 On 7 August Area Health asked Pace for information on progress, and of the future programme. On the same day it invited Dr Wenkart and Macquarie representatives to a briefing on the proposed development of the western campus adjacent to the MPH site. 355 At Macquarie's strategy meeting on 4 September it was noted that Macquarie Bank Ltd had rejected Mr Block's approach for car park funding, and that Mr Morrison was liaising with the CBA and Westpac. 356 On 17 September council approved additional plans in the building application for MPH. On the same day Dr Wenkart attended a meeting with Mr Wallace and Mr Haldane, and was briefed on the RPAH redevelopment. According to Mr Wallace's notes he agreed that development on the eastern campus was the only economic option available to RPAH to make best use of existing buildings. He was advised that Area Health had no contact with the University about the planning of SUPH. He acknowledged that although New Hospital Road divided the campus, it was taken into account in Macquarie's development application. He congratulated Area Health on the plan. 357 In about September, it was decided not to proceed with the SUPH proposal. 358 In his letter of 23 September to Dr Horvath, Dr Wenkart asserted that the new master plan had isolated MPH, and that the planned use of the land between New Hospital Road and KGV was unacceptable. He said that Campus 2010 had been fundamentally changed, and legal rights including renegotiation of rental were reserved. In her reply of 3 November, Dr Horvath denied any change, and explained the purpose and status of Campus 2010. She referred to meetings prior to the execution of the leases at which the location of car parks and the redevelopment of RPAH were discussed with Macquarie's representatives. She said that the change from Campus 2010 was not so fundamental as to justify a renegotiation of rent or a review of the overall rights and obligations of the parties. 359 According to Macquarie's status report of 16 November, most of the demolition and excavation work had been completed. For the car park, form work and concreting at lower levels had been completed. For the hospital, a bill of quantities for the tendering of the construction contract was being prepared. 360 In its letter to Macquarie of 17 November HCoA advised: "… HCoA is of the definite opinion that the physical size, internal design and functional relationships between key service departments would not be acceptable to HCoA. In simple terms, the design is both expensive and excessive. It would be necessary to significantly reduce the footprint of the building to achieve better integrated access to the car park and, importantly, address the issues of the major deficiency of the lack of a tunnel or footbridge link between the existing core buildings of the RPA Public and the proposed new private hospital. The lack of such a link to facilitate the free and easy movement of patients, services, practitioners and staff between the two campuses considerably impacts the viability and effectiveness of the proposal. A total redesign of the proposed private hospital is essential to enable HCoA to attempt to achieve a viable proposition. The issues of DA approval, liaison with the local council, traffic studies etc. will also need to be revisited in light of the above." 361 There was evidence that by 1 December Macquarie was in negotiations with Calan Health Care Group of New Zealand. 362 There was little relevant affidavit and oral evidence beyond the documents which describe progress in 1998. The following is a summary. 363 Mr Wallace gave evidence of the meeting of 17 September consistent with his notes thereof (par 171). He denied Dr Wenkart's version of the conversation between them to the effect that Dr Wenkart stated that the master plan was unacceptable, was contrary to the basis of the 96 agreements, left MPH isolated and non-viable, and was inconsistent with the earlier master plan and Campus 2010. It is unnecessary to resolve the conflict. It is common ground that Dr Wenkart stated that this was the first occasion on which he had been briefed on the master plan. He stated his position in his letter of 23 September, and proceeded with the project. A probable explanation for him writing in such terms was that this was the first time he actually realised the significance for MPH's operation of the plan to locate the bulk of RPH's redevelopment to the east 364 Mr Morrison and Mr Sinclair told of meetings between them after the SUPH project ended. At a meeting on about 16 November Mr Sinclair was asked by Mr Morrison to comment on the MPH and advise whether HCoA would want to build and operate it. Mr Sinclair's response was given in his letter of 17 November to Macquarie in which he said that the size and design of MPH was unacceptable to HCoA. He expressed the view that the lack of links between the campuses and the excessive design of MPH rendered the project unviable. Conclusion on progress in 1998 365 The evidence shows that by the end of December 1998 the construction of the car park was under way. Although Dr Wenkart and Mr Block had expressed concern about the adverse affect of the RPAH master plan, Macquarie continued with the project. I have earlier referred to documents which show that since early 1997 Macquarie had information which put it on notice of the high likelihood that the redevelopment of RPAH would be located to the east, e.g. Macquarie's development application of February 1997, and the use made of the information provided with Dr Horvath's letter of 24 April 1997. The protestations conveyed by Mr Block's letter of 5 May and Dr Wenkart's letter of 23 September suggesting that Macquarie's predicament was attributable to blameworthy conduct by Area Health, particularly when considered in light of events under the 96 agreements, were empty of substance. On this issue, I observe that there was no evidence of a response to Mr Sinclair's letter in defence of the project or to demonstrate that physical links were, in fact, proposed and were (as Dr Wenkart said) central to it. 366 As for finance, it appears that by this time, Macquarie was in negotiation with Westpac, CBA and Calan Health Care Group, but no arrangements had been concluded. 367 With reference to Mulpha, Macquarie submitted that, in breach of its utmost good faith obligation, Area Health undermined its attempts to bring in partners for the car park in furtherance of a motive to ensure the failure of Macquarie and the success of the SUPH proposal. In rejecting this submission it is sufficient to refer to Mulpha's letters to Macquarie of 13 November 1997 and the correspondence during January 1998 which explain the true circumstances of Mulpha's loss of interest. The letters of January 1998 show that Mulpha rejected a counter-offer from Dr Wenkart. There was no evidence about the negotiations with other parties referred to in Mr Block's letter of 23 January 1998. The submission was without support. 368 In its submissions (reply ch 7) Macquarie contended that from at least November 1998 changes in the industry meant that MPH was no longer economically viable, with the consequence that obtaining external finance or partners was virtually impossible. Macquarie accepted that the evidence supported the conclusion that declining operating margins from 1998 caused the MPH project to cease to be economically viable. It was put that, on Mr Sinclair's evidence, from 17 November MPH, with its current development application for a 200 bed hospital, was not a viable proposition which made it virtually impossible for Macquarie to obtain external finance or partners. Macquarie asked the court to find (reply ch 7, pars 68, 73) that from November 1998 MPH as a 200 bed hospital on the site with its current design was no longer economically viable or bankable. The view was held that the industry crisis with declining operating margins in 1998 rendered unviable the building of a 200 bed hospital in accordance with the project documents. 369 I accept these submissions. The weight of evidence supports the finding that the hospital did not proceed because Macquarie decided it would not have been viable.

SUPH in 1998 370 The following is a summary of relevant documentary evidence. 371 In his letter of 6 January to Mr Puplick, Mr Block asserted that the consent to the making of the SUPH development application was contrary to their commercial arrangements, and requested withdrawal of the consent. 372 In his letter of 23 January to the Director General, Department of Health, Mr Block expressed concern about Area Health's assistance for SUPH, and the adverse impact it had on the MPH project. He referred to the revelation in the Land and Environment Court proceedings of Area Health's consent to the SUPH development application. He claimed that Prof. Young had given evidence of discussions prior to the execution of the 96 agreements on the proposed competing private hospital which involved Area Health. He claimed that Area Health had been actively facilitating a competitor in breach of the agreements, and asked that any negotiations between Area Health and the parties involved with SUPH be terminated. 373 In his letter of 16 February to Dr Horvath, Prof. Young stated that Mr Block's allegations concerning him were false. He denied any discussion between Area Health and the University prior to 1 December 1996, and stated that it was not until completion of the feasibility study that he became involved with the development application. He pointed out that as the development application had not yet been approved, no decision in principle had been taken to build SUPH. His denial of giving evidence as claimed by Mr Block was supported by the transcript of the proceedings enclosed with the letter. 374 At Macquarie's strategy meeting on 23 March it was noted that Macquarie's appeal against the grant of consent to the SUPH development application had been lodged in the Court of Appeal. 375 On 28 May Mr Block wrote to Dr Horvath asserting that Area Health's consent to the lodgement of the SUPH development application was in breach of cl 23.5 of the hospital lease, and of an implied term not to deprive Macquarie of its benefits under the lease. He asked Area Health to undertake not to permit the University to enter land owned by Area Health for the purpose of constructing and operating a private hospital for the period ending five years after the rent commencement date under the lease. On 26 June Mr Klinger wrote to the University's solicitors and demanded the University's undertaking that it would not induce Area Health to grant permission to it to enter upon land of Area Health for the purpose of constructing and operating a private hospital, failing which legal proceedings were threatened. 376 On 23 June council consented to the SUPH development application which had been lodged on 1 September 1997. Condition 2 stated the consent did not include the proposed elevated pedestrian walkway and link to RPAH. 377 On 21 July and 1 August Area Health's solicitors provided advice on the question whether there was any potential breach by Area Health of its obligations to Macquarie, particularly with regard to SUPH. In particular, the advice was given with regard to Macquarie's allegations that Area Health was in breach of either the restraint in cl 23.5 hospital lease and/or an implied term not to deprive Macquarie of its benefit under the lease. Area Health was advised that it was not in breach as alleged, and, arguably, there would be no breach of the good faith provision if no further steps were taken to allow SUPH to be built on Area Health's land. Advice was also given to the effect that co-operation with SUPH might be claimed by Macquarie as a breach for which damages for loss of bargain might be claimed. 378 On 5 August Dr Horvath informed Mr Block that the allegations of breach of cl 23.5 were denied, and declined to provide the undertaking sought. 379 At Macquarie's strategy meeting on 17 August the decision was taken not to pursue the appeal against SUPH. Mr Klinger was directed to write to Area Health expressing Macquarie's interest in acquiring the part of its land upon which it was proposed to construct the SUPH. This he did in his letter of 20 August to Area Health. 380 On 8 September the Vice-Chancellor sought a meeting with Dr Horvath to discuss the future of SUPH and the relationship with Area Health. Mr Wallace replied on 9 September. With reference to cl 23.5 hospital lease he said that Area Health was unable to have such a discussion, and was required to withhold its assistance and ensure that no part of the SUPH development be located on Area Health land. This information was noted by the Senate on 7 October. 381 It is common ground that, at the meeting on 17 September, Mr Wallace informed Dr Wenkart that Area Health had no contact with the University over the planning of its private hospital. 382 By letter of 1 November Mr Wallace informed Dr Wenkart that Area Health had not provided land by lease or otherwise, to the University, for the purpose of constructing a private hospital. 383 Of the little relevant affidavit and oral evidence, the following is a summary. 384 Dr Wenkart said that during 1998 Macquarie proceeded with its project, whilst at the same time opposing approval for the SUPH development application. He said that from September 1998 the SUPH proposal was no longer a competitor. 385 Professor Leeder's evidence was that in September the Senate decided not to proceed with the SUPH, having regard to opposition from within the University and the colleges. Dr Catchlove's evidence was to like effect. Conclusion on SUPH in 1998 386 There was no evidence which showed that during 1998 Area Health provided support, assistance, or encouragement for the SUPH project. I conclude that none was provided, which accords with the mutual understanding of Area Health and the University that Area Health was precluded from doing so. 387 Macquarie's opposition in the courts to approval of SUPH's development application effectively halted the project during 1998 until the appeal was withdrawn on about 17 August. Shortly thereafter, on 9 September, Area Health informed the University that it would provide no assistance and would not permit development on its land. 388 I find that in September the University decided not to proceed with SUPH having taken into account the nature and extent of opposition to the proposal. The assumption made in the Coopers & Lybrand feasibility study of 2 October 1997 that it would not proceed had come to pass. As Dr Wenkart said, it was no longer a competitor. In effect, Macquarie had won the race which it agreed to enter on 2 December 1996. 389 The relevance of the evidence of the legal advice sought and obtained by Area Health is only that it indicates the continuing concern of Area Health to adhere to its contractual obligations with Macquarie. In my opinion, it is self-evident that the allegations of breaches made in Mr Block's letter of 28 May prompted Area Health to seek advice which was provided by the solicitors in their letters of 21 July and 1 August. Unremarkably, Area Health acted on this advice in its response to Macquarie in its letter of 5 August, and to the Vice-Chancellor in its letter of 8 September. Macquarie's financial arrangements and SUPH 390 It was Macquarie's submission that whilst the SUPH proposal remained alive, Macquarie was impeded in obtaining finance for its project. This, of course, was the very risk identified by Mr Block in his letter to Mr Puplick of 30 November 1996, and which Macquarie accepted when the 96 agreements were signed. 391 The relevant evidence is the following. 392 In his letter of 23 January to the Director General, Department of Health, Mr Block claimed that the "spectre" of the SUPH development had had a major and adverse impact on the commercial viability of MPH. He said that the issue was raised in discussions with prospective financiers and increased Macquarie's and their concerns. He said the commercial ramifications of a competing hospital were borne out by a feasibility study undertaken by Coopers & Lybrand. 393 The feasibility study, which was submitted to Macquarie on 2 October 1997, included the following: "(12) We are also aware that HCoA are proposing to build a private hospital to be located on the campus of the university. Ultimately, there is only sufficient demand for one large private hospital in the area. We understand that there is uncertainty as to whether this project will proceed. Accordingly, under the terms of our engagement, we have assumed that the university project will not proceed."

The principal findings of the study included the statement that its forecasts were based on assumptions, one of which was that "…a university project proposed by Health Care of Australia (HCoA) will not proceed". 394 Mr Block, in cross-examination, said that during 1998 he approached Macquarie Bank without success. He gave no reason for this result, although he indicated that it may have been due to the reputation of MHC in the financial markets. He gave no evidence that funding had been refused by reason of the SUPH project. I was unable to find any evidentiary support for the claims in his letter of 23 January. They appear to be inconsistent with the views expressed in the feasibility study about the project. 395 Mr Morrison was a consultant retained by MHC between August 1996 and September 2001 to provide financial and corporate advice and strategy. He said that prior to August 1998 he was primarily concerned to obtain a viable restructure solution for the whole Macquarie Health Group, and the resolution of issues with the Australian Tax Office. From August 1998 he was involved in seeking funding to enable completion of the MPH project. He said that between 4 August and mid-September 1998 he approached CBA and Westpac seeking expressions of interest in a proposal for a debt funding package for the construction of the MPH project. On 31 August he met representatives of Westpac, and on 1 September sent them a copy of the Coopers & Lybrand feasibility study. 396 Mr Morrison, in cross-examination, explained that Macquarie Bank's proposal did not proceed because its terms and conditions, including the requirement of a $1,000,000 success fee, were unacceptable to Macquarie. With reference to the meeting with Westpac, he said he sought $80 million for the 100 per cent debt financing of the hospital. He said that at that time the car park had been partially built without any debt funding. He referred to discussions during 1997 and 1998 with a number of parties about involvement as a partner or joint venturer in the MPH project, none of which resulted in an agreement. It was not suggested that the existence of the SUPH was a factor. In evidence was a schedule of meetings of Mr Morrison with bankers, potential joint venture partners and operators, for the period 4 February 1997 to 21 September 1999. It provided a record of dates, names and description of the meeting in each case, but does not contain information from which an inference could be drawn that the outcome in any case was affected by the existence of SUPH. 397 Dr Wenkart's evidence in cross-examination was that, until about August 1998 when settlement with the Australian Tax Office was achieved, funding was neither needed nor sought, and no financier would have dealt with Macquarie in order to fund the project. Mr Morrison gave similar evidence. 398 Dr Horvath's evidence was that at no time did Macquarie complain to her that a financier withdrew from negotiations because of the SUPH proposal. 399 Macquarie called no evidence from anyone who declined to provide, or to arrange for the provision of, funds for the MPH project. 400 Analysis of the evidence, in my opinion, provides no support for a finding that the existence of the SUPH proposal impeded Macquarie in its search for, and obtaining, finance for its project at any time. Progress of car park and hospital in 1999 401 At the beginning of 1999 the SUPH proposal had ended; the construction of the car park was proceeding; the construction of the hospital had not commenced, and Macquarie had no arrangement in place for the funding of the project. According to the extensions to the timetable granted by Area Health on 18 February 1998, completion of the car park was required by 5 October 1998, and substantial commencement of construction of the hospital by 15 June 1998. 402 Unless otherwise indicated, the parties relied upon the documentary evidence. The following is a summary. 403 By letter of 28 January Dr Wenkart advised Dr Horvath that as the car park was nearing completion, it was proposed to establish a debt facility for its future operation. He sought consent to encumber the car park as security. No response was made to this letter or to its follow up of 18 March. The request was not pursued until Dr Wenkart's letter of 15 July, when consent was sought to encumber both the car park and hospital leases as security for the funding of the project. 404 By letter of 1 February to Mr Wallace, Dr Wenkart asked Area Health to grant an easement to enable the extension of New Hospital Road from the car park northward to Lucas Street. He said this was necessary for compliance with the approval conditions, and to enable council to permit the car park to become operational. 405 By letter of 10 February Arup Transportation Planning advised Mr John Barton, for Macquarie, that council would not support the opening of the car park without the installation of traffic signals at Missenden Road/Carillon Avenue, and the extension of New Hospital Road to Lucas Street. 406 In his letter of 24 February to Dr Wenkart, Mr Wallace noted that the car park was approaching practical completion. He invited consideration of a proposal whereby Area Health granted Macquarie a non-exclusive licence for a fee of $39,000 for the purpose of Link Road between Lucas Street and New Hospital Road. He reminded him of the need to comply with the development conditions. Dr Wenkart rejected the proposal on 3 March, and disputed Area Health's entitlement to claim a fee for grant of access. 407 On 30 March, Macquarie instructed its contractor, Lawson & Meyer Electrical Ltd, to proceed with the installation of traffic lights at the intersection of Missenden Road and Carillon Avenue. 408 By letter of 30 March to Dr Wenkart, Mr Wallace noted that New Hospital Road had not been sealed, and the construction of the related retaining wall had not begun. He requested a prompt response to the proposal for Link Road, and adherence to the approval conditions. 409 According to Macquarie's status report of 15 April, the car park structure had been completed to roof level, and fit out, electrical, and other services were in hand. By reason of wet weather delay the completion date was extended to mid-May 1999. Outstanding work included the surfacing of New Hospital Road, traffic lights at Missenden Road/Carillon Avenue, and resolution of the Link Road issue. 410 By letter of 4 May to Dr Wenkart, Mr Wallace responded to the status report. He disputed the extension of time and requested information to support it. He complained that Macquarie had failed to resolve the Link Road issue earlier, and said that Area Health proposed to licence the land in question. 411 By letter of 31 May to Dr Wenkart, Mr Wallace put the following offer: "Following our meeting with Mr John Morrison on Friday 28 May 1999 we wish to formally advise you of our offer of assistance to complete the private hospital car park. … In regard to the development conditions imposed upon Macquarie by the Land and Environment Court it is your advice that you satisfy the condition regarding substantial commencement of the hospital. In summary, the other conditions of consent placed upon Macquarie and upon which the opening of the carpark is dependent appear to be: 1. the erection of traffic lights at the intersection of Missenden Road and Carillon Avenue; 2. the construction of 'link road'; 3. the completion of the carpark building and the installation of operating equipment, (it is noted that landscaping to the carpark has not commenced); and 4. the surfacing of 'new hospital road' and the erection of the containment wall. While all of these are your responsibility we are prepared, in the interests of our staff, to meet the cost of some of the above works (specifically the erection of traffic lights and surfacing of New Hospital Road) and to provide project management on an interim basis and subject to the reservations and to their [sic] terms in this letter and toward their satisfactory completion. Repayment of the amounts expended on these works will be achieved through the hospital withholding the parking fees paid by staff until such time as the debt is paid in full. It will also be necessary for you to provide an unconditional bank guarantee for an amount approved by the Area Health Service as the amount required to construct 'link road'. Further that this bank guarantee by a bank approved by the Area Health Service (and in this case CBA, Westpac, NAB and ANZ are approved in advance) will be in favour of Central Sydney Area Health Service and payable on demand for an indefinite period or until Macquarie completes that work or, if Macquarie fails to do so within six months of the acceptance of this letter until the work is carried out on behalf of Macquarie by the Area Health Service. The Area Health Service will attempt to negotiate with South Sydney Council for the opening of a temporary alternative to 'link road', but of course the Area Health Service cannot speak on behalf of Council who will be the ultimate authority on this matter. This offer remains available to Macquarie until 4 pm on 1 June, 1999 when, if unaccepted, it will be withdrawn. This is a once only offer and the Area Health Service will not discuss the matter further. If you accept the offer it is expected that you will provide all drawings at hand, costs and plans relating to the works in question so that the Area Health Service might immediately commence the works, and that you will carry out whatever might be necessary to facilitate novation of any existing contracts that the Area Health Service may require. The offer is not object [sic] to negotiation, nor is the Area Health Service willing to agree to acceptance of part of the offer. Again, you are reminded that this offer reserves, without prejudice, all existing rights of both parties. I look forward to receiving your reply before 4 pm on 1 June, 1999." 412 In his letter of 1 June to Dr Horvath, Dr Wenkart replied as follows: "We refer to Mr Wallace's letter of 31 May 1999.

It is noted that your proposal is 'without prejudice' to all existing rights and obligations of both parties and your proposal was submitted to us solely upon your instigation. These rights and obligations arise from the Heads of Agreement of 18th September 1989, the Construction Deed - Construction of Hospital and Car Park of 2nd December 1996, the Hospital Lease of 2nd December 1996, the Car Park lease of 2nd December 1996, the Car Park sub lease of 2nd December 1996, the Car Parking Management Agreement of 2nd December 1996 and the Co Ownership Agreement Car Park of 2nd December 1996. We accept your proposal in respect to the works at the Missenden/Carillon intersection and for surfacing the New Hospital Road on the basis that * the works are conducted in a cost effective and expeditious manner, * the works undertaken and completed are only those required in accordance with CSAHS/Macquarie planning approvals; * the project management fees are competitively reasonable for the works; * there is full transparency and audit trail provided to Macquarie in respect to the works and fees In return for Central Sydney Area Health Service undertaking these works, but limited to the actual cost of such works and excluding any overhead or interest, Macquarie is prepared to forgo/relinquish its right to receive parking fees payable by CSAHS staff until such time necessary for CSAHS to recoup the cost of the agreed works. Please advise how the parties progress and implement this agreement." 413 On 9 June, Macquarie requested council to confirm that, by reason of its approval of Area Health's development application, its obligation under condition 13 with respect to Link Road was extinguished. It also sought relief from compliance with the requirement to install traffic lights at Missenden Road/Carillon Avenue. 414 On 15 June a certificate of practical completion of the car park, as at 7 June, was issued under the agreement between Macquarie and the builder. 415 On 21 June, following correspondence arising from the proposals of 31 May and 1 June, Dr Horvath informed Dr Wenkart that Area Health's offer had expired. 416 On 26 June Macquarie asked council to grant an interim certificate of occupancy for the car park pending resolution of outstanding conditions of the development approval. 417 By letter of 29 June to Dr Wenkart, Dr Horvath said: "We note your letter of 18 June 1999 in response to our draft Agreement forwarded to you. Without covering in detail the acceptability or otherwise of your comments, we are prepared to proceed on the basis of what you accepted in your letter of 1 June 1999. We shall commence the works as soon as you provide us with the drawings, plans, approvals, Contracts and any other documents which you have covering the traffic lights at the Missenden/Carillion [sic] intersection and the resurfacing of New Hospital Road. We will render you monthly statements as to the amounts of parking fees withheld by Central Sydney Area Health Service to recoup costs of the agreed works. As with our letter of 31 May 1999 and your reply of 1 June and 18 June 1999, the above is without prejudice to the existing rights of both parties including the completion and rights in respect of Link Road. We look forward to receipt of above documents by 1pm, Monday, 5 July 1999. We trust your completion of the car park pursuant to approvals is imminent." 418 In his letter of 6 July to Mr Wallace, Mr Morrison advised of the request to council to provide an interim certificate of occupancy. He identified for resolution the Link Road issue, and completion of the traffic lights at Missenden Road/Carillon Avenue. The letter included: "The quotes previously received for the completion of the new hospital road also included works in respect to the 'link road'. These quotes cannot be accepted at this time because of the matters noted above and the lack of appropriate access for the link road works. Accordingly the works needed to be re-tendered and quoted with an amended scope and specifications. This tender closed last week and we are in the process of concluding arrangements with a preferred contractor for the completion of the new hospital road works. Once these arrangements have been finalised, we will forward you all details to ensure that the works are capable of being completed in accordance with our arrangement. Other works should not be undertaken on 'our account' without our consent or while Council matters are being considered. This letter is without prejudice to the existing rights of the parties." 419 On 9 July Mr Morrison sent Mr Wallace a copy of the agreement proposed to be made between Macquarie and the contractor for the construction and sealing of New Hospital Road. In his reply of the same day, Mr Wallace, relevantly, said: "While you have not taken up our offer to assist with the completion of the outstanding works associated with the opening for operation of the private hospital carpark, we are concerned with your strategy to achieve a certificate of occupancy which is required by you to open the carpark. Your facsimile of today indicates that work will commence on sealing new hospital road on Monday [sic] however, we are worried that there remains a number of conditions of your development consent to be satisfied before the carpark is operational. … As to the second matter, there is nothing about our development which impacts upon your arrangements with Council regarding the need for traffic signals at the intersection of Missenden Road and Carillon Avenue. There would appear to us to be no basis from which you might have drawn this conclusion. Therefore, there is no uncertainty or ambiguity in respect to your carpark. We are concerned that the way you are approaching the achievement of an interim certificate of occupancy will only further delay your project, which is already significantly late in completion, and thus further inconvenience our patients, staff and visitors." 420 With his letter of 15 July to Mr Wallace, Mr Morrison enclosed documents relating to the agreement between Macquarie and the contractor for New Hospital Road. He said that "… in accordance with our agreement this contract is now to be novated to …." Area Health. He requested that Area Health execute the documents, to be sent to the contractor, and noted that work had already commenced. 421 By letter of 15 July to Dr Horvath, Dr Wenkart said that Area Health's failure to respond to his letters of 28 January and 18 March had caused all development to date on the sites to be equity funded, which highlighted Macquarie's financial resources and commitment to the project. He requested consent to encumber the car park and hospital leases as security for debt funding. 422 The letter of 30 July from Mr Morrison to Mr Wallace included the following: "We refer to earlier correspondence and our arrangement confirmed to you on 1st June 1999, in response to your offer to undertake works on our behalf. Please find attached details of the arrangements previously established with the proposed contractor for the works at the intersection of Carillon Avenue and Missenden Road but placed 'on hold' on 4 May 1999. Further to our arrangement as confirmed to you on 1st June 1999, all existing rights of both parties are reserved. Accordingly, Macquarie International Health Clinic Pty Limited and Macquarie Health Corporation Limited reserve all their rights and any decisions or actions undertaken by CSAHS are without prejudice or compromise to those rights. Please note that we have not received any correspondence from South Sydney Council in respect to our letters of 8th June 1999, 26th June 1999 and the meeting of 26th July 1999." 423 In his reply of 2 August, Mr Wallace said he was confused about the purpose of the letter of 30 July, and was not prepared to approach completion of the work for the opening of the car park on an ad hoc basis. He said Area Health would fund and carry out these works on Macquarie's behalf, but not on an unplanned, un-programmed basis. 424 In his letter of 6 August to Mr Wallace, Mr Morrison asserted the existence of an arrangement for the completion of works by Area Health for Macquarie, and Macquarie's reliance upon it. He asserted that matters in respect of Link Road remained in abeyance by reason of Area Health's breach of its contractual obligations, and that all matters were now within the control of Area Health with the exception of the condition relating to the substantial commencement of the private hospital. 425 By letter of 9 August to Mr Morrison, Mr Wallace denied that arrangements were in place for the completion of the works by Area Health for Macquarie. He said: "Do you wish us to undertake the funding and management of the erection of traffic lights at the intersection of Missenden and Carillon [sic] and the completion of New Hospital Road? Your correspondence is ambiguous and unclear in this regard. If you do wish us to undertake these works, you are aware of the conditions under which we are prepared to commence them. We await a clear request from you that also addresses the conditions outlined in our previous correspondence. … Our masterplan is not in conflict with the requirements and conditions imposed on your development by the Land and Environment Court. This has been made clear to you by both ourselves and Council's representatives. Far from CSAHS' masterplan complicating matters, it has clarified your position for you. It is you that is concocting these arguments to complicate matters in your attempt to infer uncertainty where it does not exist. In fact, our approved masterplan includes link road [sic] and as you were informed by Council at our recent meeting, the roundabout at the intersection of Carillon Avenue and Missenden Road is a matter between Macquarie and the Land and Environment Court. Our development has no bearing upon your responsibilities in relation to the signalisation work."

There was no response to this letter. 426 By letter of 24 August council informed Macquarie that it did not have the authority to grant an interim certificate of occupancy. It advised that although the car park had been physically constructed and could be used for car parking purposes, operation as a car park was prohibited until all outstanding conditions of consent had been met. 427 After receiving a copy of council's advice, on 6 September Mr Wallace informed Mr Morrison as follows: "As you are aware, staff of the hospital are anxious to be able to park on the hospital campus and likewise the Area Health Service is anxious that you open the carpark as soon as possible to facilitate their return to the site. However, this must be carried out in a way that does not breach your responsibilities to the relevant statutory authorities. It is not the Area Health Service's responsibility to instruct you in regard to your conditions of consent from the Land and Environment Court. Rather, it is your responsibility to meet the conditions of your lease. In anticipation of you achieving agreed entry we are prepared to meet with you at any mutually convenient time." 428 On 13 September Area Health served on Macquarie notices of default under the leases and construction deed and, on 15 September an amended notice under the car park lease. Matters specified included failure to comply with cl 2.1 construction deed by not completing construction of the car park, and failing to substantially commence construction of the hospital, by 30 June 1999, and failure to make the payments required under cl 2.2 car park lease and cl 3.5 construction deed. 429 On about 24 September the car park was opened by Macquarie. 430 In their letter of 29 September to Area Health's solicitors, Macquarie's solicitors disputed entitlement to issue the notices. 431 On 13 October council notified Macquarie of its intention to issue a cease use order on grounds that the car park was being operated without an occupancy certificate, and in breach of the development consent. 432 By letter of 25 October Macquarie's solicitors informed Area Health's solicitors that Macquarie had the right to change the permitted use of the premises under cl 8.7(b) hospital lease and cl 7.6(b) car park lease. Reference was made specifically to the changes to the National Health Act which permitted the making of hospital purchaser provider agreements. It included: "… The practical consequence of these agreements has been to virtually eliminate the profitability of private hospitals. We are aware of instances of private hospitals achieving high occupancy levels without generating a profit. On the basis of these changes to the NHA we submit that it is reasonable for our client to conclude that the operation of the tenant's business is no longer economically viable even if operated in a proper and efficient manner." 433 On 1 November, 6 December, and 14 December council ordered Macquarie to cease use of the car park on grounds that it was being operated in contravention of numerous specified conditions of consent. In its application to the Land and Environment Court of 19 November, Macquarie appealed against the order made on 1 November. 434 On 21 December Pace requested council to issue an interim certificate for the operation of the car park to accommodate up to 600 RPAH staff cars. It submitted that for such a number, completion of Link Road and the installation of the Missenden Road/Carillon Avenue traffic lights were not necessary. It responded separately in respect of each condition claimed by council to have been contravened. In particular, with reference to condition 2 car park development approval (which required substantial commencement of the private hospital) it submitted that: "… the question of the viability of a private hospital due to legislative changes has crystallised and there is currently no reasonable assurance a private hospital will be constructed on the site. In the circumstances an Interim Certification [sic] for a lessor [sic] number of cars of up to 600 is appropriate and is sought." Conclusion on progress in 1999 435 Consideration of the events of 1999 and consequential findings are included in the section of these reasons which deals with the default issues. However, it is convenient to record the following observations at this point. 436 It was common ground that there was never any substantial commencement of the construction of the hospital, and that some development approval conditions relevant to the operation of the car park had not been complied with. 437 In its submissions (reply ch 7) Macquarie contended that, for at least April/May 1999, the construction of any 200 bed hospital under the 96 agreements had become economically unviable, and thereafter matters in the industry worsened. Reference was made to Mr Sinclair's evidence that, at a meeting on 22 March 1999, he told Dr Wenkart and Mr Morrison that MPH needed major redesign to make the project economically viable, and that Macquarie simply could not afford to build a hospital according to its concept. 438 Mr Morrison's evidence (affidavit 2 September 2005, par 10(d)) was that he recommended to Dr Wenkart and Mr Geoff Holden that Macquarie should invoke cl 8.7(b) hospital lease on his view that MPH would not be financially viable due to declining revenues for private hospitals arising from changes to private health insurance arrangements. Progress of the car park and hospital in 2000 439 On 10 February council informed its solicitors that before occupancy would be permitted, Macquarie was required to comply with all conditions referred to in its letter of 1 November 1999. 440 On 17 March the notices of termination were served on Macquarie, and Area Health took possession of the car park. This happened upon the expiry of the six month period within which Macquarie was allowed to sell and assign its interests in the leases (cl 16.6(d) car park lease and cl 17.6(d) hospital lease). 441 On 16 June the Land and Environment Court, in proceedings initiated by Pace and taken over by Area Health ordered, by consent, variations to the development consent conditions for the car park which deferred the requirement for building traffic lights, and the need for Area Health to grant an easement for Link Road. The Court also ordered deletion of condition 2 which required substantial commencement of the adjoining private hospital prior to issuing a certificate of classification by council to allow the operation of the car park. 442 On 23 June council issued an interim certificate of occupancy for the car park for 600 spaces. The notices of default and the notices of termination Introduction 443 Macquarie challenged the validity of the default notices issued under the car park lease, the car park sub-lease, the hospital lease, and the construction deed, on grounds that:

(b) they did not meet the requirements of s 129(1) of the Act;

(c) they were issued in breach of the requirements of utmost good faith. 444 The events of default specified in the default notices were:

(a) the failure to comply with cl 2.2 of the car park lease by failing to pay the sum of $1,440,000 to Area Health by 14 February 1999;

(b) the failure to comply with cl 2.1 of the construction deed by failing to complete the car park by 30 June 1999, and to substantially commence the hospital by 30 June 1999; and

(c) the failure to comply with cl 3.5 of the construction deed by failing to pay rent equivalent to $33,000 per month for the period by which the completion of the car park extended beyond 30 June 1999. 445 In support of the claim as to non-completion of the car park, Area Health relied upon Macquarie's failure to comply with council's conditions of consent to the development application for the car park which required Macquarie:

(i) to construct and commission traffic signals at the intersection of New Hospital Road and Carillon Avenue;

(ii) to construct and commission traffic signals at the intersection of Carillon Avenue and Missenden Road;

(iii) to surface and otherwise properly build New Hospital Road;

(v) to perform roadwork in Church and Mallet Streets. 446 Macquarie disputed Area Health's entitlement to rely on any of the claimed defaults on the ground that they were denied and, in some cases, on the ground that if there was non-compliance, Area Health was not entitled to rely upon it. It is necessary to determine each issue separately. The cl 2.2 car park lease claim 447 This clause provides: "2.2 The Managing Tenant agrees to pay to the Landlord an amount calculated in accordance with the following formula on 14 February 1999: A = $6,000 x (1200-B) Where A = the payment to be made under this clause 1.2 B = the number of car parking spaces in the Car Park If the Car Park has not been erected by the date upon which the payment is required to be made under this clause 1.2 the 'B' shall be the number of car parking spaces to be erected in the Car Park based on the Plans and Specifications in their then latest form as approved by all relevant authorities. Once the Car Park has been erected the number of car parking spaces in the Car Park shall be determined and an adjusting payment made so that after the adjustment the Managing Tenant has paid the amount calculated in accordance with the above formula." 448 Macquarie denied liability for payment of any amount under cl 2.2. It submitted that upon the proper construction of the clause, the formula is to be calculated by reference to the number of car spaces to be erected in the car park based on the plans and specifications in their then latest form as approved by the relevant authorities as at 14 February 1999. It put that it was not based on the number of spaces actually constructed at that date, but on the number of spaces approved. It put that the number approved by the Land and Environment Court was 1225, although the access ramp to levels 4 and 5 of the car park could not be constructed until commencement of the second stage of the hospital. It was put that as at the relevant date the car park had not been erected and the proviso applied, with the consequence that the calculation resulted in "A" being negative, with no money payable by Macquarie. Thus it submitted that there was no event of default under cl 2.2 as alleged. 449 Area Health's case on this issue is that on or before 14 February 1999 the car park had been erected, and the number of car parking spaces in it was 960. 450 It submitted that the effect of condition 62 of the approved development application by order of the Land and Environment Court of 24 December 1997 was to forbid completion of more than 960 spaces until stage two of the private hospital had commenced, and the parties proceeded on that basis. It was submitted that it should be inferred from the fact that a certificate of practical completion was certified by the contractor to have been on 7 June 1999 that, as at 14 February 1999, the car park had been erected and contained 960 car parking spaces. 451 The parties' submissions raised the question of the meaning of the term "erected", and of the phrases "to be erected" and "has been erected" in cl 2.2. The interpretation of the provision, on the usual principles, must be ascertained with regard to its context with other relevant provisions. The car park was defined to mean the proposed car park to be erected on the land to be owned and operated by Macquarie (cl 1.1). Macquarie was required to comply with the construction deed (cl 8.1(d)), and to erect the car park and ancillary services in accordance with it (cl 10.1). By cl 2.1 construction deed Macquarie was required to carry out and complete the works in accordance with the timetable, which included the car park to be erected on lot 11. 452 In my opinion, the intended meaning of the word "erected" in the context of cl 2.2 where appearing is its natural and ordinary meaning, namely "built". The purpose of the provision is to impose a payment obligation upon Macquarie which is to be ascertained with reference to the actual number of car parking spaces in the structure as erected or built on 14 February 1999. Under this clause the wider question whether the car park has been brought to completion and was operational does not arise. Application of the formula requires identification of the number of car parking spaces in the car park on the date stated. It is predicated on the basis that the car park had been erected by that date, so that the actual number of car parking spaces in it may be readily determined. 453 The proviso is directed to the situation where the car park has not been completed by the date. In such case the "B" is taken from the approved plans and specifications in their then latest form, and the amount to be paid calculated accordingly. The second sentence is intended to be read with the first. It requires a fresh calculation to be made once the car park has been erected, with reference to the number of car parking spaces then in it. It also allows for the making of a consequential adjusting payment. 454 Area Health's claim that there was an event of default in failing to make the payment under cl 2.2 as specified in the notice requires proof, inter alia, that there were 960 car parking spaces in the car park on or before 14 February 1999. The relevant evidence is as follows. 455 In its car park development application lodged in February 1997 Macquarie sought approval for 1225 spaces. The status report of 16 November 1998 showed that work was progressing on level two of the car park superstructure. In his letter to Dr Wenkart of 24 February 1999, Mr Wallace observed that the car park was approaching practical completion. When rejecting Area Health's claim under cl 2.2 on 1 March 1999, Dr Wenkart informed Dr Horvath that the car park was in the course of construction and had not been completed. On 7 March 1999 Mr Wallace complained of insufficient information to gauge progress on the project. At Macquarie's project management meeting on 29 March 1999 it was estimated that completion of the car park would be in mid-May 1999. The status report of 15 April 1999 said that the car par structure had been completed to roof level, and fit out and other works were in progress, and suggested the time for completion to be mid-May 1999. 456 Macquarie's builder certified that practical completion of the car park was achieved on 7 June 1999. In its letter to Macquarie of 24 August 1999 council acknowledged that the car park had been physically constructed, and could be used physically for car parking purposes. In his letter to council of 21 December 1999 in support of the application for an interim occupancy certificate, Pace stated that the car park's capacity was about 988 car spaces. On 10 November 2005, Mr Adam Ellis, a valuer retained by Macquarie, inspected the car park and counted about 1026 car spaces occupying five split levels. 457 In my assessment, the evidence does not establish a safe basis for the finding, on the balance of probabilities, that on or before 14 February 1999 there were 960 car parking spaces in the car park. Indeed, I accept Macquarie's submission to the effect that the weight of the evidence is against a finding that the car park had been erected within the meaning of cl 2.2 on or before that date. However, in my opinion the evidence supports the inference that the car park had been erected by 7 June 1999 when practical completion was certified. 458 Furthermore, the evidence that, according to Pace, the number as at 21 December 1999 was about 988, and according to Mr Ellis, the number on 10 November 1995 was about 1026, gives me no confidence to assume, as Area Health invited, that by 14 February 1999 the car park actually contained the 960 car parking spaces for which approval had been given before commencement of stage two of the hospital. 459 If it is correct that the car park had not been erected by 14 February 1999, the proviso applies, and "B" was the number to be derived from the latest approved plans and specifications. I accept Macquarie's submission that 1225 had been approved with the result that the calculation left a negative amount. Of course, once the car park had been erected there must be a determination of the actual number of spaces in it, and an adjusting payment made. However these questions may be further explored under the cross-claim which, unlike the notice of default, allows for cases to be put in the alternative. Conclusion on cl 2.2 car park lease 460 Accordingly, I find that Area Health has failed to prove Macquarie's liability to make the payment under cl 2.2 as alleged in the notice of default, and that the alleged event of default had occurred. The cl 2.1 construction deed claim 461 Under this head Area Health claimed that Macquarie failed to comply with cl 2.1 construction deed in failing, by 30 June 1999, to complete the construction of the car park, and to substantially commence construction of the hospital. 462 Macquarie accepted that it did not substantially commence construction of the hospital. In submissions, its Senior Counsel said (T p 4535): "… If we don't succeed on the change of use, we don't have, as it were, a strict legal argument impugning the notices of default under the carpark lease because it is admitted that the plaintiff, because it couldn't raise finance and the view that it was not viable, didn't proceed with the hospital, so that can ground, on a strict reading of the leases, a valid notice of default under the carpark. " 463 Macquarie accepted that it did not comply with council's conditions of consent to the car park development application (the conditions) in that it failed:

(i) to construct and commission traffic signals at the intersection of New Hospital Road and Carillon Avenue (conditions 5 and 12);

(ii) to construct and commission traffic signals at the intersection of Carillon Avenue and Missenden Road (condition 8);

(iii) to surface and otherwise properly build New Hospital Road (condition 12);

(iv) to construct Link Road from end of New Hospital Road to Lucas Street (condition 13); and

(v) to perform roadwork in Church and Mallet Streets (conditions 10, 11, 14, 15).

(Corresponding conditions to the hospital development application are conditions 11, 15 and 16.) 464 Macquarie disputed Area Health's claim to rely upon non-completion of the car park as an event of default on the following grounds:

(i) completion of construction did not require compliance with the conditions;

(ii) condition 21(b) allowed the car park to open for use by up to 600 (alternatively 350) cars without compliance with the conditions;

(iii) non-compliance was due to: (a) Area Health's failure to provide an easement for Link Road, and to perform an agreement reached on 1 June 1999 concerning traffic lights at Missenden Road/Carillon Avenue, and surfacing of New Hospital Road; (b) Area Health's course of conduct in breach of the HOA and 96 agreements over a number of years;

(iv) Area Health's reliance upon the conditions was unconscionable and/or in breach of the duty of utmost good faith because, as at termination, Macquarie was operating the car park and, as Area Health was aware, such occupation was about to be regularised by variation of the conditions of which Area Health complained. 465 I turn first to the ground that completion of construction of the car park did not require compliance with the conditions. Macquarie's case was that completion of the car park building fulfilled the requirement of cl 2.1 and compliance with the conditions to render the car park operational was not necessary for this purpose. 466 The question turns on the proper construction of cl 2.1 to ascertain the meaning of the phrase "… complete the works in accordance with the Timetable". 467 Clause 2.1 construction deed required Macquarie to commence, carry out and complete the "Works" in accordance with the timetable. This was an essential term of the deed (cl 7.1), and of the car park lease (cl 16.2). Failure to comply was an event of default under the deed (cl 7.4(b)), the car park lease (cl 16.4(b)), and the hospital lease (cl 17.4(c)). 468 The timetable stated the date for substantial commencement of construction of the car park to be 14 November 1997, and the date for completion to be 14 April 1998. The substantial commencement date for construction of the hospital was 14 April 1998, and the date for completion was 1 December 1999. The date for admission of first patients, and the rent commencement date, were also 1 December 1999. 469 Other relevant provisions of the construction deed are:

Clause 1.1 defined "Works" to mean, relevantly: "… 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: … (b) the construction of [the hospital and car park] … including all ancillary works and activities associated therewith. … Plans and Specifications means the plans and specifications (including a construction time program) to be prepared by the Tenant in accordance with clause of this deed." Clause 3.1 provided: "Carrying out the Works 3.1 The Tenant must at its own cost and expense and as expeditiously as possible carry out and complete or cause to be completed the Works in a proper and workmanlike manner in accordance with the Plans and Specifications approved by the Council and any other relevant authority, the terms of the development and building approval approved under clause 4.2 and the requirements of any other relevant authority. To this end the Tenant may take partners which in its opinion are of a quality, experience and substance sufficient to ensure the Project is completed." 470 Clause 10.1 car park lease required Macquarie to erect the car park and ancillary services in accordance with the construction deed. Clause 3.6 car park sub-lease was to like effect. 471 Condition 3 of the approval to the car park building application required compliance with the conditions of approval to the development application. Condition 2 of the development approval and condition 38 of the building approval each required: "That, prior to issuing a Certificate of Classification by Council, and therefore operation of the car park, the building application for the adjoining private hospital shall be approved and works shall have substantially commenced." 472 The conditions referable to the New Hospital Road/Carillon Avenue traffic lights, the Carillon Avenue/Missenden Road traffic lights, the surfacing of New Hospital Road, the construction of Link Road, and the roadwork in Mallet Street required each to be operational prior to issuing a certificate of classification for the car park, or completed prior to its operation. 473 As I understood it, Macquarie's submission was that under the construction deed there was a distinction between the obligation to complete construction of the car park (i.e to erect the structure) and the obligation to comply with conditions relating to the car park. It was put, for example, that although the commissioning of traffic lights was encompassed in the definition of "Works", the construction of the car park is not to be understood to include the work for the traffic lights. It was argued that the distinction is illustrated by the difference in wording between cl 2.1 which required, under the timetable, completion of "construction of the car park" by the specified date, and cl 3.6 car park sub-lease which required compliance with provisions "relating to the car park". It was put that the conditions were matters "relating to the car park", and distinct from, and were not to be considered as included in, matters relevant to completion of the building. It was put that non-compliance with the conditions may be a breach of cl 3.1, which made it erroneous to claim that such conduct was a breach of cl 2.1 as in the notice. 474 Thus Macquarie argued that non-compliance with the conditions did not prove non-completion of construction of the car park. 475 The proper approach to the construction of the agreements accepts that as it is a commercial document it should be given a business-like interpretation. Its interpretation requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. McCann v Switzerland Insurance Australia Ltd (Allen's case) [2000] HCA 65; (2000) 203 CLR 579, p 589. As with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole. Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, pp 381-382; Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, pars 15-16. 476 In Taylor v Dexta Corp Ltd & Ors [2006] NSWCA 310; (2006) 14 ANZ Ins Cas 61-712, Santow JA pointed out (par 30) that "… A necessary corollary of that requirement for a commercial contract to be given a business-like interpretation is the frequent emphasis upon the need to arrive at an interpretation which is commercially sensible, and in accord with commercial reality". 477 Analysis of the definition of "Works" shows that construction of the car park is to be understood to include, where appropriate, all ancillary works and activities associated therewith. The latter were to be carried out in accordance with the relevant development and building approvals. The carrying out and completion of the works under cl 3.1 were to be in accordance with the terms of such approvals. In this case, the effect of the approvals was such that the legitimate operation of the building as a car park depended upon the substantial commencement of the hospital, and compliance with the conditions. It is clear from the terms of the approvals that contravention of the conditions made it unlawful to use the premises for the purpose of a car park. 478 In my opinion, on a common sense approach to the ordinary and unambiguous language of the relevant provisions of the construction deed, there can be no doubt that the contractual intention underlying cl 2.1 and the timetable was that completion was reached when the work had been finished, and nothing further was to be done for it to be used for the purpose for which it was built, namely as a commercial car park. Accordingly, in my opinion, under the construction deed fulfilment of the obligation to complete construction of the car park necessitated completion of all ancillary works and associated activities in accordance with the approvals whereby the car park became lawfully operational for its intended purpose, being usage for an approved 1225 spaces. This is what was required under cl 10.1 car park lease and cl 3.6 car park sub-lease earlier referred to. 479 Such a meaning is consistent with what the agreement shows to be the intention of the parties for what was required to bring to completion the construction of the hospital. The timetable specified the same dates for completion of construction of the hospital, the admission of the first patient, and the rent commencement date (as defined). When read in context with other relevant provisions it supports the construction that completion of the hospital meant reaching the stage at which it was substantially fit for occupation and use by Macquarie, and the first patient was admitted, i.e. fit for the agreed purpose. 480 The meaning is also consistent with the requirement under cl 11.1 hospital lease that Macquarie must erect the Hospital and ancillary services in accordance with the Construction Deed. 481 Acceptance of Macquarie's submissions would mean that it would have discharged its obligation to complete construction of the car park upon the erection of the structure, although under the approvals it was not lawful to use it for the purpose of a car park. Such an outcome would be contrary to ordinary, commercial common sense, and would negate the underlying intent of the agreement. Macquarie's submissions must be rejected. 482 Accordingly, I hold that non-compliance with the conditions constituted failure by Macquarie to complete construction of the car park in accordance with the timetable in breach of cl 2.1 and, thus, the event of default as alleged in the notice. It is not to the point that it may have been open to Area Health to give a notice of default under cl 3.1 specifically based on non-compliance with the conditions. 483 Macquarie sought further support from condition 21(b) of the development approval which was ordered on 24 December 1997. It provides: "As soon as parking can be used on the development site within the new parking station, it shall be provided for displaced staff on a progressive basis." 484 Macquarie submitted that this condition authorised operation of the car park limited to 350, alternatively 600, car spaces. It was put that it could be lawfully used for this purpose without compliance with the other conditions, and Macquarie could progressively open the new car park for displaced staff to a limit of 350, or to 600, to accommodate the total spaces displaced when Macquarie took possession of the site in late 1997. My understanding of the argument was that if completion required the car park to be operational this condition permitted operation, and the question of compliance with the other conditions did not arise. It followed, so it was put, that non-compliance with the other conditions did not establish contravention of cl 2.1. 485 Consistently with my finding as to what is meant by "completion of construction of the car park", this submission must also be rejected. Assuming, without deciding, that condition 21(b) allowed 350 (or 600) spaces to be used prior to completion, in terms it is directed to the use of the building, the construction of which was incomplete. On this assumption, limited use was permitted of a partially built structure, somewhat remote from the requirement of cl 2.1 for completion of construction of the car park as agreed in accordance with the approvals. In any event, as a matter of interpretation, there is nothing in the language of condition 21(b) in context of the other conditions, which supports the conclusion that it overrode, or displaced, the need for compliance with the other conditions, or operated irrespective of them. I utterly fail to see how reliance upon the operation of condition 21(b) supports the denial of the event of default under cl 2.1 at 30 June 1999. 486 In so concluding, I have not overlooked the other submissions on the effect of condition 21(b), but they do not persuade me to a different view. As I have held, in the end, completion under the construction deed included completion of all ancillary works and associated activities which, relevantly, were those required by the conditions. Condition 21(b) did not relieve Macquarie of the obligation to complete these works and, arguably, it allowed no more than limited usage pending completion. 487 The next ground of denial was that non-compliance was due to Area Health's failure to provide an easement for Link Road. Macquarie claimed that, in breach of cl 12.6 car park lease, Area Health refused to grant, without payment, an easement over the land required for the extension of New Hospital Road to Lucas Street. It argued that this refusal prevented completion of the extension so that Area Health was precluded from relying upon non-compliance with condition 13 of the car park development approval as a ground for the default notice. 488 Condition 13 car park development approval (condition 16 hospital development approval) provided: "That the new link road shall be extended from the end of the car park to Lucas Street and two-way travel be reinstated in Lucas Street between Missenden Road and the new Link Road, unless a Master Plan agreed to by the council determines otherwise … All work shall be completed prior to the operation of the new car park is are [sic] to be at the applicant's full expense." 489 Relevantly the agreements provided:

Clause 1.9 car park lease, and hospital lease: "It is a condition of this lease that the Premises has access to the total Designated Block for the purposes of the creation of easements and covenants and for council requirements such as site coverage, floor space ratio, car parking ratios and height restrictions. Such rights would be no less than would apply than if the Tenant were the leaseholder of the total Designated Block."

The designated block was defined as the land the subject of DP809663 (Exhibit 26). It depicted lot 11 for the car park, and lot 12 for the hospital, bounded by Church Street, Carillon Avenue, and Grose Street. To the east it was bounded by the RPAH campus which extended north past Grose Street to Lucas Street.

Clause 12.6 car park lease (cl 13.6 hospital lease) provided: "The Landlord will grant to the Tenant such easements or other rights over any adjoining land owned or controlled by the Landlord as are necessary to enable the Tenant to occupy and use the Premises for the Permitted Use." 490 The construction deed included: "3.2 The following provisions relate to access and New Hospital Road: (a) The Landlord has warranted in the Car Park Lease and Hospital Lease that the Land will have pedestrian and vehicular access to and egress from land and roadways held by it. (b) The parties agree that if the Tenant wishes to construct a road along the boundary of Lot 2 in DP 805666 where that Lot 2 is contiguous with Lots 11 and 12 in DP 809663 between Carillon Avenue and Grose Street, it may do so to a standard agreed between the parties. … (d) The Landlord agrees to grant a right of way over that part of Lot 2 in DP 805666 upon which the New Hospital Road is construct [sic] in favour of Lots 11 and 12 in DP 809663. The terms of the right of way may include such provisions as the Landlord may reasonably require to maintain the integrity of the campus of the Royal Prince Alfred Hospital and otherwise give effect to the principles relating to the development of the campus of the Royal Prince Alfred Hospital set out in clause 3.5 of this deed and in the Landlord's site masterplan as published before the date of this deed. All reasonable costs incurred in relation to the creation of that right of way must be borne by the Tenant." 491 A summary of the correspondence relevant to this issue is as follows. On 1 February 1999 Dr Wenkart requested Area Health's consent to the grant of an easement for the extension of New Hospital Road from the car park "… northward through to Lucas Street" to enable compliance with the development and building approvals. On 24 February 1999 Mr Wallace proposed a non-exclusive licence for access to Lucas Street for a fee of $39,000. On 3 March 1999 Dr Wenkart rejected this proposal, and disputed the making of any payment for requisite access. On 9 March 1999 Mr Wallace advised that access to Link Road would be provided only on commercial terms. On 24 March 1999 Dr Wenkart put a fresh proposal to enable Link Road to be built. It was rejected by Mr Wallace on 30 March 1999, and request was made for a prompt response to the arrangements earlier proposed. The correspondence continued into August, 1999, but no agreement for access was reached. 492 On this issue, Macquarie's case was to the effect that Area Health wrongfully insisted on payment for the grant of access to Lucas Street. Essentially, it was put that the combined effect of cl 12.6 car park lease and cl 3.2(a) construction deed required Area Health to provide access to the car park and hospital sites by easement or otherwise for no payment. The dispute evidenced by the correspondence resulted in the failure to build Link Road in accordance with condition 13, a situation, so it was put, for which Macquarie should not be held responsible, and upon which Area Health should not be permitted to rely. 493 I reject Macquarie's submissions for reasons which are briefly stated. Clause 12.6 car park lease obliged Area Health to grant access over its adjoining land to enable Macquarie to occupy and use the premises, a proposition which it accepted. The provision is silent as to the terms, if any, upon which access was to be granted. 494 As is plain from its language, cl 3.2 construction deed is concerned exclusively with New Hospital Road. By cl 3.2(b) it was to be constructed over the land along the boundary of the car park and hospital sites between Carillon Avenue and Grose Street. By cl 3.2(b) Area Health agreed to grant a right of way over that part of its land over which it was constructed. It also stipulated the terms of the right of way, and that costs for its creation were to be borne by Macquarie. 495 As Exhibit 26 shows, the extension of New Hospital Road to Lucas Street by Link Road under condition 13 was to be over land which was not adjacent to or contiguous with the car park and hospital sites. Clause 12.6 car park lease obliged Area Health to grant an easement or other right over this land necessary for Macquarie's occupation and use of these sites. However, nothing under this provision obliged Area Health to provide the access free of payment and/or without terms. In my opinion, it would be in accordance with the commercial expectation of the parties that reasonable terms for the provision of access would be negotiated and agreed and, if it were otherwise, they would have used clear words to say so, for example as in cl 3.2 construction deed. 496 Accordingly, I conclude that Area Health was not in breach of the car park and hospital leases in declining to grant an easement for Link Road without payment, and Macquarie was not entitled to insist that it should. In the circumstances, the failure to grant an easement provides no excuse for non-compliance with the conditions. 497 A further ground of denial was that it was not open to Area Health to rely upon non-compliance with the conditions concerning the traffic lights at the intersection of Carillon Avenue and Missenden Road (condition 8), and the surfacing of New Hospital Road (condition 12). It was put that by its letter of 29 June 1999 Area Health had accepted Macquarie's proposal of 1 June 1999 and, in so doing, agreed to carry out on Macquarie's behalf the work required under these conditions. Area Health denied any such agreement, and claimed that by the date of the default notice the work had not been performed. Macquarie's submission was that it was unconscionable for Area Health to rely upon the failure to undertake works which Area Health itself had agreed to perform. 498 The relevant evidence is in the correspondence between the parties between 31 May and 9 August 1999, the details of which are in pars 411 - 425 above. It is necessary to refer briefly only to some of it. 499 By letter of 31 May 1999 to Dr Wenkart, Mr Wallace proposed an "… offer of assistance to complete the private hospital car park". Reference was made to conditions upon which the opening of the car park was said to depend, including those for the Carillon Avenue/Missenden Road traffic lights, and the surfacing of New Hospital Road. He said: "While all of these are your responsibility we are prepared, in the interests of our staff, to meet the cost of some of the above works (specifically the erection of traffic lights and surfacing of New Hospital Road) and to provide project management on an interim basis and subject to the reservations and to their [sic] terms in this letter and toward their satisfactory completion. Repayment of the amounts expended on these works will be achieved through the hospital withholding the parking fees paid by staff until such time as the debt is paid in full. … This offer remains available to Macquarie until 4 pm on 1 June, 1999 when, if unaccepted, it will be withdrawn. This is a once only offer and the Area Health Service will not discuss the matter further. If you accept the offer it is expected that you will provide all drawings at hand, costs and plans relating to the works in question so that the Area Health Service might immediately commence the works, and that you will carry out whatever might be necessary to facilitate novation of any existing contracts that the Area Health Service may require. The offer is not object [sic] to negotiation, nor is the Area Health Service willing to agree to acceptance of part of the offer. Again, you are reminded that his offer reserves, without prejudice, all existing rights of both parties. I look forward to receiving your reply before 4 pm on 1 June, 1999." 500 Dr Wenkart replied by letter of 1 June to Dr Horvath. He noted that the proposal was without prejudice to all existing rights of both parties. He accepted the proposal in respect of the Carillon Avenue/Missenden Road traffic lights, and the surfacing of New Hospital Road. He requested advice as to how the parties would implement "this agreement". 501 On 21 June 1999 Dr Horvath informed Dr Wenkart that Area Health's offer had expired. 502 By letter of 29 June 1999 to Dr Wenkart, Dr Horvath advised that Area Health was prepared to proceed "… on the basis of what you accepted in your letter of 1 June 1999". She advised that work would commence as soon as plans, contracts, and other documents concerning the traffic lights and New Hospital Road were provided. She said that the proposal was without prejudice "… to the existing rights of both parties including the completion and rights in respect of Link Road". 503 With letters of 9 July, 15 July, and 30 July 1999 Mr Morrison sent Mr Wallace contracts and other documents for the work. 504 In his letter of 2 August 1999 to Mr Morrison, Mr Wallace expressed confusion and unwillingness to accept the approach apparently adopted by Macquarie. In reply, on 6 August 1999, Mr Morrison asserted the existence of an arrangement for the completion of the works by Area Health for Macquarie, and Macquarie's reliance upon it. He asserted that all matters were now within the control of Area Health excepting the condition relating to substantial commencement of the private hospital. 505 In his letter of 9 August 1999 to Mr Morrison, Mr Wallace denied that arrangements were in place for completion of the works by Area Health. He said: "Our purpose in making this offer was to expedite the completion of the carpark and have our staff park on the campus. Twice we have written to you advising that we were not prepared to enter into ad hoc arrangements that were not part of a broader strategy in which the Area Health Service would be confident of achieving that aim. Do you wish us to undertake the funding and management of the erection of traffic lights at the intersection of Missenden and Carillon and the completion of New Hospital Road? Your correspondence is ambiguous and unclear in this regard. If you do wish us to undertake these works, you are aware of the conditions under which we are prepared to commence them. We await a clear request from you that also addresses the conditions outlined in our previous correspondence. … We have repeatedly told you, both verbally and in writing, that the Area Health Service is not in a position to give you land for the purpose of link road. We satisfied our obligations with the generous allocation of land provided for New Hospital Road. We have offered you a licence over link road and we have provided you with its valuation, it is now up to you to inform us how you wish to address this matter. This advice from you has remained outstanding for a considerable period of time. Furthermore, the construction of link road remains a condition of your DA and any arrangement for an interim link road to allow an interim certificate of occupancy is, we understand, dependent on a long-term solution. It is our opinion that the matters before South Sydney City Council are not out of your control. You have been advised of Council's view and, when considered with the period of time that you have had to resolve these issues, you have hardly presented a convincing argument. We refute the second last paragraph of your letter of 6 August. It is neither logical nor accurate. Please advise what other practical matters related to the approval of the carpark, as referred to in your letter, are in the process. It would seem to us, that all outstanding matters remain clearly your responsibility to clarify and act upon. Any uncertainty or ambiguity that exists in regard to this project is of your own making and continues to delay the opening of the carpark and to disadvantage our staff."

There was no response to this letter. 506 Macquarie submitted that by the letter of 31 May 1999, Area Health had made an offer of assistance to Macquarie, to which a counteroffer was made by Dr Wenkart's letter of 1 June 1999. It submitted that by Dr Horvath's letter of 29 June 1999, Area Health accepted the counter-offer, and bound itself to carry out the work for the traffic lights and the surfacing of New Hospital Road. It claimed that thereafter Macquarie proceeded on the basis that an agreement had been struck, and Mr Morrison provided relevant documents to Area Health as required by it. It was put that in circumstances where Area Health had been sent documents under which the contractor would do the work, it was in breach of the agreement and/or of the utmost good faith obligation not to proceed to carry out the work required by the conditions, alternatively, to rely upon Macquarie's non-compliance with those conditions as evidencing breach of cl 2.1. 507 In my opinion the evidence does not establish the existence of an agreement of any binding, contractual, enforceable effect. The correspondence was conducted on a basis which was without prejudice to the parties rights and obligations under the 96 agreements. In my opinion it went no further than showing that by its letter of 29 June 1999 Area Health had volunteered to assist Macquarie in meeting development approval conditions 8 and 12 to enable operation of the car park. The subsequent letters indicate a lack of certainty, and hence no agreement, on what assistance Macquarie was in fact seeking, and as to the terms upon which it was to be provided. The parties were never ad idem . Given that on 26 June 1999 Macquarie had sought an interim occupation certificate pending resolution of outstanding approval conditions, it is difficult to understand Macquarie's unwillingness to clarify matters for Area Health as shown by the tenor of its letter of 6 August 1999, and by its failure to answer the questions raised in Area Health's letter of 9 August 1999. 508 On my assessment, the negotiations were ultimately inconclusive, and no arrangement for carrying out the work was ever finalised. Furthermore, the without prejudice reservation made plain that it was never intended by the parties that Macquarie would be relieved of its obligation under the construction deed to comply with the conditions. 509 Accordingly, in my opinion, there was no agreement which precluded Area Health from relying upon Macquarie's non-compliance with the conditions in contravention of cl 2.1. Furthermore, I find Area Health's readiness to assist was consistent with its utmost good faith obligation to co-operate in achieving one of the underlying purposes of the 96 agreements, namely the completion of the car park for the benefit of both parties. I reject Macquarie's submissions on this issue. 510 Macquarie's next ground was that non-compliance was due to Area Health's conduct in breach of the HOA and 96 agreements. I have taken this to encompass the utmost good faith issue, which is dealt with later in these reasons. As will be seen I have found Macquarie failed to prove that non-compliance was attributable to Area Health's conduct. It follows that the challenge on this ground fails. 511 Finally, Macquarie submitted that reliance upon the conditions was unconscionable and/or in breach of the utmost good faith obligation because "… as at termination, Macquarie was operating the car park and, as Area Health was aware, that occupation was about to be regularized [sic] by variation of the conditions" of which Area Health complained. In written submissions (Ch 14, par 74) Macquarie put that "… it was unconscionable for Area Health not to permit Macquarie to regularize [sic] in its court proceedings, to the extent necessary, its currently operating car park before evicting Macquarie from the premises". 512 As I understood it, Macquarie was referring to the proceedings begun on 19 November 1999 in the Land and Environment Court as an appeal against the council's cease use order for the car park. Macquarie proposed that when the matter was next before the Court on 4 May 2000, it would seek variation of the development application conditions to permit at least 600 cars to use the car park. In fact, on 16 June 2000, after Area Health had taken over the proceedings, the Court varied the conditions for traffic lights and Link Road, and deleted condition 2, which required substantial commencement of the hospital. As a result, on 23 June 2000, council permitted Area Health to occupy and use the car park for 600 spaces. 513 The submission, in effect, was that termination and re-entry by Area Health on 17 March 2000 was bad in that it deprived Macquarie of the opportunity to obtain the relief from the court which ultimately was obtained by Area Health. Accordingly, in the circumstances, it was put that Area Health's conduct in evicting Macquarie was premature and unfair. 514 In my opinion the submissions do not raise any relevant objection to the existence of the events of default specified in the default notices, or to the validity of the termination notices. It will be appropriate to consider the issue raised by them in relation to Macquarie's case for relief against forfeiture, the course suggested by Macquarie's Senior Counsel in oral submissions (T p 4847). Conclusion on cl 2.1 construction deed 515 I have found that, by 30 June 1999, Macquarie had failed to complete construction of the car park. It was accepted that Macquarie had also failed to substantially commence construction of the hospital by that date. Accordingly, I find that there were breaches of cl 2.1 construction deed by Macquarie which were events of default under cl 16(4)(b) car park lease. The cl 3.5 construction deed claim 516 This clause provides: "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 specified 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." 517 The relevant sum was an amount equal to rent of $33,000 per month. Macquarie admitted that it had made no payment under this clause. 518 Macquarie submitted that there was no obligation to make any payment as construction of the car park had been completed by 30 June 1999. It put that there was no breach of cl 3.5, hence no event of default as specified in the notice. In support, it relied upon the same submissions put on the completion issue under cl 2.1 construction deed. For the same reasons, I reject Macquarie's denial of liability to make the payment required by cl 3.5. Conclusion on cl 3.5 construction deed 519 Accordingly, I hold that by reason of Macquarie's failure to pay Area Health the sum of $33,000 per month from 30 June 1999, there was a breach of cl 3.5 construction deed, which was an event of default under cl 16.4(c) car park lease, as specified. The s 129 issue 520 Each notice was in substantially similar terms, and identified three events of default:

(a) failure to comply with cl 2.2 car park lease by failing to pay Area Health the sum of $1,440,000 on or before 14 February 1999;

(b) failure to comply with cl 2.1 construction deed by not completing construction of the car park, and by not substantially commencing construction of the hospital;

(c) failure to comply with cl 3.5 construction deed by failing to pay Area Health a payment of $33,000 per month from 30 June 1999 to the date of completion of construction of the car park. 521 The structure of each notice was also similar, exemplified by the notice under the car park lease, which included the following: "1. This notice is given in accordance with clause 16.5 of the Car Park Lease dated 2 December 1996 registered number 3553373 between CSAHS as sub-landlord and MIHC and CSAHS as tenant. It is given to MIHC as Managing Tenant. 2. The following Events of Default have occurred under the Car Park Lease and CSAHS relies upon each of those Events of Default as entitling, subject to Clause 16.6 of the Car Park lease, it to terminate the Car Park Lease pursuant to clause 16.3. Particulars of Events of Default [Thereunder particulars of each event of default were set out] 3. The giving of this notice is not the exercise or purported exercise of any power under clause 16.3 of the Lease." 522 Macquarie contended that the notices did not comply with s 129(1) of the Act in that they did not require remedy of the breaches, or the payment of compensation, within a reasonable time, and did not include a note in accordance with Schedule 6 to the effect that Area Health would be entitled to re-enter or forfeit the lease in the event of Macquarie failing to comply with the notice within a reasonable time, with reference to s 129. It accepted that the breaches were specified to the extent required by s 129(1)(a). 523 Relevantly, s 129 provides: "Restrictions on and relief against forfeiture of lease (1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice: (a) specifying the particular breach complained of, and (b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and (c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach. … (8) This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent. (9) The notice mentioned in this section shall be in the form set out in the Sixth Schedule or to a similar effect." 524 It is convenient to determine the challenge with reference to the car park lease. Clause 16 (which corresponds with cl 17 hospital lease and cl 7 construction deed) includes the following provisions (which were incorporated in the car park sub-lease under cl 3.8 thereof): "Landlord's right to terminate 16.3 The Landlord may terminate this lease by giving the Managing Tenant notice, by re-entry or by converting this lease by notice to the Managing Tenant into a Tenancy that may be terminated at the will of the Landlord but not of the Managing Tenant if an Event of Default occurs. 16.4 An Event of Default occurs if the Tenant: … (b) does not comply with an essential term of this lease; (c) repudiates its obligations under a Transaction Document or does not comply with an essential term of a Transaction Document; … Opportunity to rectify 16.5 The Landlord must not exercise its powers under clause 16.3 unless it first gives the Managing Tenant notice of the particular Event of Default on which the Landlord relies and the clause under this lease under which the default arises. 16.6 The Landlord waives the Event of Default specified in a notice under clause 16 so that this lease continues in full force and effect as if no such Event of Default has occurred, if the Tenant: (a) in respect of a breach remediable by payment of money, pays the Landlord all money necessary to remedy the Event of Default within: (i) 14 days of service of that notice; or (ii) 28 days of service of that notice in any other case; (b) in respect of a breach remediable other than by payment of money: (i) gives the Landlord a written undertaking, within 28 days of the service of that notice, to remedy the Event of Default; and (ii) remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within 3 months of giving the undertaking); or (c) in respect of a breach which is not remediable: (i) pays compensation (within 28 days of service of that notice) to the reasonable satisfaction of the Landlord having regard to the nature and extent of the breach; or (ii) undertakes to pay compensation (within 28 days of service of that notice) and pays it to the Landlord within 3 months of giving the undertaking (or any other period of the Landlord [sic] decided in its absolute discretion) together with interest from the date of undertaking until payment calculated under clause 16.6. … Preservation of other rights 16.11 If a party breaches or repudiates this lease, nothing in this clause 16 will prejudice the right of the other party to recover damages or exercise any other right." 525 The question under this issue is whether the notice contained information sufficient to bring to the attention of Macquarie the matters complained of, and to give it the opportunity of rectifying what had taken place, if it was capable of rectification. 526 In Ex Parte Dally-Watkins; Re Wilson (1955) 72 WN (NSW) 454, Street CJ observed (p 456, footnotes omitted): "The notice is not required to be regarded as a piece of sacramental ritual. It is a real notice, the object of which is to bring to the attention of the lessee the matters which are complained of and to give him the opportunity of rectifying what has taken place in the past, if it be capable of rectification. No special form of words has to be used. Schedule 6 provides a form, but it is not the only form, and the vital thing is to bring to the attention of the tenant the term of the lease alleged to have been broken and the manner in which is has been broken. In Fox v. Jolly , Lord Atkinson in the course of his speech said: 'I am quite willing to accept for the purposes of this case the description of a sufficient notice given by North J., in Fletcher v. Noke , namely, that 'it ought to be so distinct as to direct the attention of the tenant to the particular things of which the landlord complains so that the tenant may have an opportunity of remedying them before an action to enforce a forfeiture is brought against him,' but in applying that statement of the law in any given case it should be borne in mind that the notice is addressed to a person who knows, or ought to know, the nature and condition of the premises of which he is the tenant, so that a statement might be sufficient to draw his attention to the things of which the landlord complains, which might be insufficient so to do in the case of a stranger who had never seen or who knew nothing of the premises.' It is true that that particular case was concerned with failure to repair, but those words, it seems to me, are apt in considering the nature of the notice which must be given to the tenant, and here it is undoubted that so far as the parties of these proceedings were concerned they were both well aware of the subject matter of the disputes which had taken place between them over a considerable period of time, and were well aware of the term and condition of the lease which the respondent was alleging had been broken. Lord Parmoor said: 'My Lords, in my opinion a notice is sufficient to comply with s.14 if it specified to the lessee the breach complained of, with such particularity, as fairly to tell him what it is he is required to remedy, if it is capable of remedy, and what it is for which he is required to make compensation in money. To determine whether a notice complains with this test depends upon the information which the notice, as a whole, may be fairly said to give. A notice does not become insufficient because it may contain wider requirements than can be substantiated in the action, or because it is open to criticism on a meticulous examination of some of the phrases employed.'" 527 In Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907, Powell J said (par 58, footnotes omitted): "There is a consistent body of authority, in relation to notices under s 129 of the Conveyancing Act , 1919 and other equivalent provisions that the object of such legislation is, not only to place restrictions on, and to permit the giving of relief against, forfeiture and re-entry, but also to place the tenant in a position of knowing what is alleged against him and what is demanded of him so as to enable him to elect what shall be his subsequent conduct: Fletcher v Nokes ; Horsey Estate Ltd v Steiger ; Johnson v Senes . The authorities are, however, also consistently to the effect that, notwithstanding the objects of such legislation, a notice is not invalidated because it specifies, as a breach, a "breach" which has not occurred, or because it requires to be done something which the lessor cannot then lawfully require of his lessee: see, for example, Lock v Pearce ; Pannell v City of London Brewery Co ; Fox v Jolly ." 528 In summary, Macquarie submitted that it is a precondition to the exercise of a right of re-entry or forfeiture under a lease for breach of any condition that a notice under s 129 be served on the lessee. It put that, in this case, the notice failed to give Macquarie sufficiently precise information of what was alleged against it and what was demanded from it, and to allow a reasonable time to allow it to act before action was taken. In particular, it contended that the notice failed to provide the information specified by s 129(1)(b) and s 129(1)(c), and was, therefore, invalid. Macquarie argued that the mere reference in the notice to the specified provisions in the car park lease failed to provide sufficient explanation of what was required of it under the lease, and of the consequences of non-compliance. In particular, it put that the notice did not indicate reliance upon the events of default as giving rise to a right to terminate pursuant to cl 16.3 and that reference to cl 16.6 was insufficient for this purpose. Macquarie submitted that compliance required that the necessary information be contained in the notice itself, and it was not sufficient to incorporate it merely by reference to other matter e.g. the clauses of the lease, in which that information might be found. 529 In support of its claim to entitlement to termination and re-entry pursuant to the default notice, Area Health submitted that the notice set out the substance of what is required under s 129(1), alternatively that the failure to pay the amount calculated according to the formula under cl 2.2 of the car park lease, and to make the deposit under cl 3.5 construction deed, were breaches relating to the non-payment of rent in respect of which, by s 129(8), a notice under s 129(1) was not required. In other words, it was put that, if the money defaults are found to be non-payments of rent, the question of compliance with s 129(1) did not arise. 530 Further, and in the alternative, Area Health submitted that, in any event, as Macquarie was in fundamental breach under the leases and construction deed, it was entitled to re-enter on 17 March 2000 in exercise of its rights under the general law, and under the procedure provided in the leases, so that the question of compliance with s 129(1) was an irrelevance. It was put that there was no exclusion of common law rights under the car park lease, and that the effect of cl 16.11 was to preserve them. Consideration of the s 129 issue 531 The cases make plain there is no fixed form of notice under s 129(1). Essentially, the notice must inform the lessee of the breach complained of "… with such particularity, as fairly to tell him what it is he is required to remedy, if it is capable of remedy, and what it is for which he is required to make compensation in money" ( Fox v Jolly [1916] 1 AC 1 at p 22). The manner, form and content by which that information is communicated will vary according to the circumstances of the particular case. Nevertheless, to found a right to re-enter it is necessary that it meet the test. 532 In this case, it is relevant that Macquarie must be taken to have been familiar with the provisions of the car park lease, and with the procedure under cl 16 by which it might be terminated, and for re-entry by Area Health. The notice directed the reader's attention to cl 16. Macquarie rightly accepted that the alleged breaches or events of default were adequately specified as required by s 129(1)(a). In my opinion Macquarie, had it read the notice with reasonable care, would have had no difficulty in identifying by reference to the specified provisions of cl 16, the breach or events of default relied on, and the various options to remedy the defaults, the period within which to act, and the consequences of failure to do so. In the circumstances, compliance would not reasonably require that the terms of the clauses be recited in the notice, or that the agreed procedures for rectification and remediation in cl 16.6 be included. In my opinion, when read as a whole, the terms of the notice would clearly convey to Macquarie information of the kind, and to the extent, envisaged by s 129(1)(b) and s 129(1)(c). Furthermore, the time within which the breaches were to be remedied under cl 16.6 is to be understood as the time which the parties agreed was reasonable. In my opinion that should also be accepted as a reasonable time under s 129(1) (cf: Hovan's Hotels Pty Ltd v Cherry (Supreme Court of New South Wales, Bryson J, 14 March 1994, unreported)). Accordingly, I hold the notice was valid under s 129(1). The submissions of Macquarie on this issue are rejected. 533 The absence of evidence that Macquarie did not understand the purpose, meaning, or effect of the notice supports the finding, which I make, that it did. Mr Klinger's letter of 29 September 1999 to Area Health's solicitor demonstrated complete understanding of the notice; he disputed validity only on the basis that the specified events of default were denied. No doubt he turned his mind to all of the parts of cl 16, after addressing cl 16.4 by which events of default were defined. No mention of the notice was made in the letter of 25 October 1999 from Macquarie's solicitors to Area Health's solicitors in which the change of use issue was raised. In addition, it appears Macquarie raised no question about the notices following the letter of 4 November 1999 from Area Health's solicitors to its solicitors in which answer was made to Mr Klinger's assertions, and negotiations were invited for Macquarie's "… exit from the project". 534 The finding that the notice was valid makes it unnecessary to decide the questions raised by Area Health in its submissions in the alternative that the money defaults were non-payments of rent under s 129(8), and that it was entitled to re-enter in the exercise of its common law rights. However, in deference to the parties' submissions, it is appropriate that I rule on these questions with brief reasons. 535 Area Health submitted that, in circumstances where Macquarie was in breach of essential terms of the car park lease, or had repudiated its obligations under the lease, it was entitled to exercise its right to re-enter under the general law. It was put that as the right of re-entry was not under any provision of the lease, s 129(1) of the Act did not apply. It submitted that although cl 16 made specific provision for termination and re-entry, it did not exclude Area Health's common law right to re-enter for repudiation or fundamental breach. Indeed, it was put, the right was preserved under cl 16.11 which provides: "Preservation of Other Rights 16.11 If a party breaches or repudiates this lease, nothing in this clause 16 will prejudice the right of the other party to recover damages or exercise any other right." 536 It was put that the words "other right", understood in context, includes the right to re-enter under the common law with the result that under cl 16, when read as a whole, Area Health's right to terminate and re-enter arises both under the lease and at common law. 537 On the other hand, Macquarie submitted that cl 16 operated to provide a contractual right for termination and re-entry, and excluded the common law right to do so. Essentially, it argued that cl 16 contains the parties' agreed code as to the circumstances in which the right arises, and the procedure for its exercise. It was put that it is erroneous to interpret cl 16.11 as affording Area Health, by inclusion of the common law right within the "other rights" referred to, a right of termination on re-entry additional to that provided for by the preceding parts of cl 16. 538 The question turns on the proper construction of cl 16. It is to be given a business-like interpretation with a congruent operation to the various components of the whole ( Project Blue Sky ; Dexta, par 30).

539 In Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 Mason J said (p 30): "If it be accepted that the principles of contract law apply to leases, it is not easy to see why the mere presence of an express power to terminate should be regarded as excluding the exercise of such common law rights as may otherwise be appropriate. It is, of course, open to the parties by their contract to regulate the exercise of the common law right to determine for repudiation or fundamental breach." and Deane J said (p 55): "If [sic] follows from the foregoing that, in the circumstances which had arisen, the landlord had both a contractual right to terminate the lease by re-entry under cl 10.1 for breach of covenant and, on the application of the ordinary principles of contract law, a common law right to terminate for fundamental breach. The landlord was not obliged to elect between the two grounds for terminating the lease: it was entitled to rely upon them both. A party entitled to terminate a contract for repudiation or fundamental breach may rely upon both a specific contractual right to terminate the contract and the common law right to terminate unless, as a matter of construction, the former excludes the latter ..." 540 In Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447 Meagher JA said (p 14,457): "An examination of the decision of the High Court of Australia in The Progressive Mailing House Pty Ltd v Tabali (1985) 157 CLR 17, particularly per Deane J at 55, demonstrates that, a lease being a contract, when one party to it repudiates it or commits a fundamental breach or a breach of one of its essential terms, the other party may 'accept' the repudiation or breach and terminate the lease. In such a case the lessor, presuming him (as in the present case) to be the innocent party, will have two rights: first, a contractual right to terminate the lease by re-entry for breach of covenant (in this case contained in cl4 of the lease), and secondly on the application of the ordinary principles of contract law to terminate for breach. If he relies on the former right, he must comply with s129 of the Conveyancing Act before re-entering; if, as here, he relies on the latter right, s129 becomes an irrelevance. " 541 The question, therefore, is whether, upon its proper construction, cl 16 excluded the common law right to terminate. 542 In my opinion the language of the clause, read as a whole, evidences the parties' intention that it should regulate Area Health's right of termination and re-entry. The clause provides comprehensively for the rights of each party where Area Health claims an event of default has occurred. Area Health's power to terminate under cl 16.3 is subject to the notice requirement of cl 16.5. In my opinion, cl 16.11, appearing under the heading "Preservation of Other Rights", was intended to preserve the rights of either party where there has been breach or repudiation by the other, such rights being other than, and distinct from, the termination rights specifically provided for. To so construe cl 16.11 is to supply a congruent operation to the other components of cl 16 read as a whole. 543 To accept Area Health's submissions would be to give cl 16.11 an operation independent from, and inconsistent with, the preceding components of cl 16, and would defeat the underlying intention and purpose of the parties reflected in them. In my opinion, such an interpretation would be contrary to principle, and must be rejected. In this case the rights of the parties in respect of termination and re-entry are governed by the contract and, accordingly, attract the application of s 129 of the Act. I generally accept Macquarie's submissions on this issue. 544 In any event, the short answer is found in the very terms of the default notice which represented that it was given in accordance with cl 16.5 of the car park lease, and of the termination notice which represented Area Health was exercising its contractual right to terminate under cl 16.3. In the circumstances, compliance with s 129 of the Act before re-entry was required ( Marshall ). 545 With regard to Area Health's submissions that the money defaults were non-payments of rent, I turn first to Macquarie's failure, to make the payment of $1,440,000 by 14 February 1999 under cl 2.2 car park lease. 546 Relevant provisions of the car park lease are: "1 Interpretation 1.1 … Permitted Use means the use of the Premises for a multi-storey carpark. … Premises means the land leased by this lease and described in the coversheet of this lease together with all improvements erected on that land. Project means the developments envisaged by this lease including the establishment of the Hospital and Car Park and carrying out of the Works. … Rent means the yearly amount to be paid in accordance with clause 2 as varied under this lease. … 2. Rent Consideration 2.1 The Landlord acknowledges entering into this Lease and receiving valuable consideration and the Managing Tenant acknowledges that it has entered into this Lease, incurred obligations and given rights and consideration, for this Lease. 2.2 The Managing Tenant agrees to pay to the Landlord an amount calculated in accordance with the following formula on 14 February 1999: A = $6,000 x (1200-B) Where A = the payment to be made under this clause 1.2 B = the number of car parking spaces in the Car Park If the Car Park has not been erected by the date upon which the payment is required to be made under this clause 1.2 the "B" shall be the number of car parking spaces to be erected in the Car Park based on the Plans and Specifications in their then latest form as approved by all relevant authorities. Once the Car Park has been erected the number of car parking spaces in the Car Park shall be determined and an adjusting payment made so that after the adjustment the Managing Tenant has paid the amount calculated in accordance with the above formula. … 7. Trading and use 7.1 The Tenant must use the Premises only for the Permitted Use. … 10. Repair, Managing Tenant's Works and redevelopment Erection of the Premises 10.1 The Managing Tenant must erect the Car Park and ancillary services in accordance with the Construction Deed." 547 In Commissioner of Stamp Duties (NSW) v JV (Crows Nest) Pty Ltd (John Valentine's case) (1986) 7 NSWLR 529 McHugh JA (Samuels JA agreeing) held that whether a payment to a landlord is rent depends upon whether the payment, whatever its purpose, is part of the consideration for the right to use the premises. In Commissioner of Stamp Duties v Commonwealth Funds Management Ltd & Anor [1995] 38 NSWLR 173, it was acknowledged by Kirby P (p 176) and Brownie AJA (p 180), that the word "rent" when used in a lease is to be given a wide meaning which is that it is simply part of the consideration for the right to use the property, being a contractual obligation to pay for the use of the land. 548 Area Health submitted that under the car park lease, which was for a term of 103 years to Macquarie and Area Health as tenants in common in equal shares, Macquarie as managing tenant agreed to pay Area Health as landlord a sum of money for the use of the property for that term. Accordingly, it was an amount which was within the category of rent within the meaning of s 7 and s 129(8) of the Act. 549 Macquarie submitted that the amount described in cl 2.2 is not a yearly amount within the meaning of "Rent" as defined, with the consequence that there is no obligation to pay an amount by way of rent under the lease. Also, it was put that cl 2.2 is not a requirement for the payment of rent consistent with the concept of a periodic payment for the use of land. Rather, its purpose was to provide for payment in the event of failure to erect 1200 spaces by 14 February 1999. So understood, the obligation had nothing to do with the use of the land. 550 The relevant provisions of the car park lease show agreement that the land is to be used for a multi-storey car park which Macquarie, as managing tenant, must erect in accordance with the construction deed. The developments envisaged by the lease include the establishment of the hospital and the car park. In my opinion, cl 2.2 in context of the whole of the car park lease, evidences the parties' intention that the rental be the amount which is ascertainable and payable in accordance with the agreed formula (cf: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600 at pp 610-612). As a matter of substance, in my opinion, the payment required of Macquarie was part of the consideration for the right to use the defined premises. It does not lose the character of rent merely because it is not expressed to be an amount payable yearly or otherwise, as envisaged by the definition of "Rent" in cl 1.1. 551 Accordingly, I hold that the failure to make the payment under cl 2.2, if established, was a failure to pay rent so as to attract the application of s 129(8). It follows that compliance with s 129(1) was not a precondition to the exercise by Area Health of its rights of termination and re-entry under the car park lease on this ground. I accept Area Health's submissions on this issue. 552 I turn now to Macquarie's failure, if established, to make the payment of $33,000 per month under cl 3.5 construction deed. The clause is in the following terms: "3. Construction … Delays … 3.4 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 to 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 a 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. 3.5 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 specified 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." 553 In cl 1.1 construction deed the Rent Commencement Date was defined as the date when the hospital works are completed to a stage where the hospital is substantially fit for occupation and use by Macquarie, and the first patient is admitted. The Scheduled Rent Commencement Date was defined as meaning the scheduled date for the Rent Commencement Date as set out in the timetable. 554 Macquarie submitted that the critical flaw in Area Health's case on this issue was that, under cl 3.4 and cl 3.5 construction deed, the payments, although required to be made to Area Health as the landlord, did not vest in it at the time of payment. It was put that the payment was to be made as a deposit, which may be refunded or applied against Macquarie's obligations depending upon when completion of the works, or a stage thereof, took place. On this understanding of the terms of the construction deed, it was put that the failure to make the payment under cl 3.4 and cl 3.5 should not be categorised as a failure to pay rent within s 129(8). 555 As is stated in the notice, the obligation under cl 3.5 construction deed is an obligation to pay money and an essential term of the deed (cl 7.1), and failure to comply is an event of default under cl 16.4(c) car park lease. The car park lease also includes the following: "1. Interpretation … 1.7 This lease contains obligations of the Managing Tenant which relate to both the land leased under this lease (on which the Car Park 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." (Clause 1.3, construction deed, is a corresponding provision.) 556 By cl 8.1(d) car park lease, Macquarie must comply with the construction deed. 557 The authorities to which I have referred indicate that the modern concept of rent is a contractual obligation to pay for the use of land. Macquarie's obligations under the car park lease for the use of the land upon which it was required to build the car park included the obligation to comply with the terms of the construction deed which, in turn, included the requirement to make the payment under cl 3.5. By cl 16.4(c) car park lease the failure to make such payment is an event of default which, unremedied, may entitle Area Health to terminate the lease and re-enter. It is accepted that the terms of each of the 96 agreements are inter-related with the others. In my opinion, the payment of the amount required under cl 3.5 construction deed was intended by the parties to be part of the consideration for the right to use the defined premises under the car park lease. 558 I accept Area Health's submissions on this issue. Accordingly, I hold that the failure to make the payment under cl 3.5, if established, was a failure to pay rent so as to attract the application of s 129(8). It follows that compliance with s 129(1) was not a precondition to the exercise by Area Health of its right of determination and re-entry under the car park lease on this ground. Summary of findings under the s 129 issue 559 For these reasons, I hold that the notice of default under the car park lease complied with the requirements of s 129(1) of the Act. Further, I hold that, as the failure to pay the amount of money under cl 2.2 car park lease, and to make the deposit under cl 3.5 construction deed in each case was a failure to pay rent within s 129(8), a notice under s 129(1) was not required in respect of these grounds. I also hold that the operation of cl 16 car park lease precluded Area Health from exercising its common law right of termination and re-entry for fundamental breach or repudiation of that lease. 560 For the same reasons I have reached the same conclusions with respect to each of the other default notices. Accordingly, Macquarie's submissions that the notices of default were invalid for non-compliance with s 129(1), and that the notices of termination which were based on them were also invalid, must be rejected. The utmost good faith issue 561 Macquarie also claimed that the default notices and termination notices were invalid, and should be set aside on the ground that they were issued in breach of Area Health's contractual obligation to act with the utmost good faith. It is unrealistic and of no purpose to recite in detail the voluminous, and often prolix, oral and written submissions of the parties on this issue. What follows is a summary of what I consider to be the essential points. 562 Macquarie claimed that Area Health's exercise of contractual power to issue the notices for non-compliance with the timetable in the construction deed, and to terminate the leases based upon such notices was contrary to the express term requiring Area Health to act in utmost good faith under the relevant provisions of the 96 agreements. It was put that, in the circumstances, the power could not be relied upon at that time. 563 Macquarie's case on this issue was summarised in written submissions as follows (Reply Ch 6, par 24): "… Macquarie contends that Area Health, in issuing the Notices, offended against the requisite standard of conscientiousness, probity, fairness or reasonableness required by the utmost good faith clauses in one or more of the following three ways: (a) Area Health's alleged conduct in the period from 1994 to 2000 caused or contributed to Macquarie's performance under the Project Instruments being delayed or hindered, such that it would be unconscionable for Area Health to insist upon its strict legal rights with regard to Macquarie's delay under the Project Instruments (the unconscionability ground); (b) Area Health's conduct was never fully disclosed to Macquarie prior to the exercise of the power to terminate - or even today - when it should have been. Absent a full disclosure, Macquarie was prevented from engaging in open and fair dealings with appropriate representatives of Area Health over Macquarie's delay at the time of the alleged breach (the non-disclosure ground); and (c) The totality of the conduct alleged means that the principal decision maker at Area Health, Dr Horvath, engaged in a deliberate, but undisclosed, course of conduct to undermine Macquarie's performance for many years. Macquarie contends that in such a case it is axiomatic that she was incapable of exercising the power to terminate on behalf of Area Health in utmost good faith (the bad faith ground). The Court is reminded of Area Health's submission in paras 2-22 in Chapter 12 in Chief in this regard."

and (par 25): "… All that needs to be shown is that the conduct of Area Health contributed to circumstances which makes it unconscionable for Area Health to rely upon its strict legal rights at the time the Notices were issued." 564 The submissions included: "72. The planning process embarked upon by Area Health between June 1994 and December 1994 was an 'utmost good faith occasion' which cried out for disclosure to prevent Macquarie being misled about Area Health's plans for its hospital and campus. In conclusion, Area Health by virtue of the utmost good faith clauses was under an [sic] duty to disclose: (a) from June to December 1994 that Area Health was setting up a steering committee to plan RPAH's future and that Mr Haldane was consulting widely with persons at RPAH with a view to presenting his findings to the steering committee to make its conclusions on 2 December 1994; (b) immediately after 2 December 1994 that the steering committee had reached a common understanding that Campus 2010 was to be abandoned and replaced by a smaller development on the east based upon the latest trends in health delivery and that funding for the new smaller development was to be sought; (c) in the period from December 1994 to 2 February 1995 when demanding and accepting $4.5 million from Macquarie that the previously assumed development of the RPA was no longer applicable; (d) in mid January 1995 that the above proposal had been presented to the government for funding; (e) in mid February 1995 that the Liberal Government had announced a funding package for RPAH and an understanding had been reached with the Labor opposition that it would also support some form of funding for RPAH's proposed development if it won the elections; (f) in February 1995 when told that Macquarie was considering a revised design and downsizing, that it had decided to downsize its own development for the same reasons ; (g) throughout 1995-1996 the progress of Area Health's application for funding. 73. It is alleged, but denied by Area Health, that Area Health was under an obligation to disclose its intention to support the UPH and all manifestations of that actual support. Given that the UPH threatened the PAPH with annihilation and made raising finance impossible whilst the UPH was on foot, it is obvious that any support for the UPH was a material matter to the performance of Macquarie's contracts. A prudent contractor in the position of Macquarie would be influenced by such information to consider its legal rights and avenues to prevent any intention to support becoming a reality and to take what steps it could to prevent any support taking place. The matter is to be adjudged objectively, based upon what may influence a prudent contractor. " 565 Further, the document entitled "Summary of Macquarie's Contentions" (6 July 2007) included the following: "Area Health Changes the RPA Redevelopment Plans 18. Macquarie submits that in the period from 1988 to 1993 Area Health's disclosed planning intentions for the redevelopment of RPA involved building a Clinical Support Building to house Admissions, Radiotherapy, Accident/Emergency and Clinical Services to the west of Missenden Road and King George V, adjacent to the site for the PAPH. It was within the mutual contemplation of the parties that this would be desirable because it permitted the two hospital buildings to be physically linked (by both aerial bridges and tunnels) to encourage the movement of people, particularly patients, between the two hospitals. Macquarie submits that in reliance upon Area Health's planning intentions (as Area Health well knew) it applied for and received development approval by South Sydney Council for a 400 bed hospital in October 1993. 19. Macquarie contends that by a process which began in June 1994, Area Health abandoned its previous plans. It says that Area Health on 2 December 1994 decided to locate all clinical services at RPA in a smaller development on the eastern campus across Missenden Road. This made physical linkages between the two hospitals impossible. Macquarie accepts that Area Health's decision was due to changing health delivery trends, leading to a reduction in bed numbers and the length of stay of patients in hospitals generally, which was a trend equally applicable to the PAPH and required a downsizing of Macquarie's proposed development in order to be viable. Funding for Area Health's revised development was sought in January 1995 and was announced by the then Minister for Health in February 1995. Area Health did not disclose these changes to Macquarie or seek any response from Macquarie to its revised plans. 20. Area Health, it is contended, should have made such disclosures particularly in the context where the HoA [sic] required payment of $4,500,000 by Macquarie to Area Health which Macquarie paid in February 1995 under threat by Area Health to terminate the project pursuant to the HoA [sic]. At that time, Macquarie's plans for a 400 bed hospital had, to Area Health's knowledge, stalled, as Macquarie found that financiers and potential partners were not prepared to fund a 400 hundred [sic] bed hospital because it was too large and too expensive to build. Without being aware of Area Health's revised RPA plans as from December 1994, Macquarie was in any event moving to revise its plans under the HoA [sic] and propose a smaller 200 bed hospital which required a new Development Application for which Area Health's consent was required under the HoA [sic]. This was first canvassed in February 1995. 21. Macquarie contends that Area Health in 1994 was in breach of the duty to act towards Macquarie with the utmost good faith, in failing to disclose its new planning intentions. Macquarie contends it is an overwhelming inference that if such disclosure had been made in 1994 Macquarie would have immediately requested Area Health's approval to lodge a new Development Application for a smaller hospital and that such request could not have been reasonably refused. As a consequence, Macquarie contends that a smaller (200 bed) hospital and car park would almost certainly have found finance in 1995 to 1997 and would have been commissioned and completed by around the end of 1998 at the latest. 22 Instead, Macquarie argues that Area Health, in further breach of its obligations of utmost good faith, when more formally approached by Macquarie with a request for permission to lodge a new Development Application for a smaller hospital and car park to be constructed in stages, unreasonably refused such request (in August 1995 and thereafter) and forced arbitration proceedings in 1996. These proceedings were not settled until October 1996 when Macquarie's request was finally conceded by Area Health and the Project Instruments entered into in December 1996. University Private Hospital ('UPH') 23. Macquarie submits the Court ought to find that Dr Horvath had become aware by at least the second half of 1994 that Professor Young (Vice Chairman of the Board of Area Health, Dean of the Faculty of Medicine and Pro-Vice Chancellor of the University of Sydney) was in discussions with persons such as Professor Bokey (Head of the Department of Surgery at the University of Sydney) and Dr Catchlove (CEO of Health Care of Australia) about the possibility of constructing a university private hospital on university land adjacent to RPAH. Macquarie asks that the Court find that Area Health, in breach of the requirement to show utmost good faith, did not disclose Area Health's changed planning intentions and declined to permit Macquarie to lodge a new DA because Area Health wanted Macquarie's project to collapse and the UPH to take its place. Macquarie says such conduct delayed Macquarie in performing its contract in accordance with its terms. 24. Area Health received a written opinion of Mr Heydon QC (as he then was) dated 19 September 1996 wherein Mr Heydon stated that clause 3.1(r) of the HoA [sic] - which prohibited Area Health from supporting, approving or recommending another hospital in its area (including to the Secretary of the Department of Health Healon an application for a hospital licence) - only operated after Macquarie's hospital opened. Mr Heydon's advice did not cover the contractual requirement to act in utmost good faith. Thereafter, the Vice-Chancellor on 27 September 1996 wrote to Area Health advising that Sydney University had decided to investigate the feasibility of building a hospital on its campus and inviting discussions over its plans. 25. Macquarie contends that Area Health's submission that the launch of the UPH immediately after Area Health's brief to Mr Heydon [QC] and receipt of his advice was a 'coincidence' should be rejected. Macquarie submits that the Court should find that from some time prior to September 1996 Dr Horvath was in discussion with Professor Young over a university private hospital and that Area Health, through her actions, in breach of contract, encouraged Sydney University to proceed with a feasibility study for such a project. Sydney University certainly would have not proceeded at that time (Macquarie contends) without a clear and definite indication of support from Area Health, including advice that such support was not in conflict with Area Health's contract with Macquarie. 26. Macquarie contends Area Health continued to support and encourage the UPH from September 1996 to August 1998, but did not disclose such support to Macquarie and that, if Area Health had indicated (correctly) that it could not support the UPH whilst Macquarie's contract was on foot, the UPH would not have proceeded at that time. In actual fact, whilst the UPH received development approval in June 1998, by October 1998 the proposal was put on hold, shortly after Area Health had communicated to Sydney University that it could no longer support or discuss the UPH proposal for 'legal reasons'. UPH Proposal - Adverse Consequences for Macquarie 27. After December 1996 Macquarie could not attract any third party support to fund the PAPH. Macquarie asks the Court to accept the expert evidence that: (a) two private hospitals near RPA would not be viable; (b) the existence of the UPH proposal made it virtually impossible for Macquarie to attract external finance; but (c) without the threat of the UPH in the period 1995 to 1997 Macquarie's 200 bed hospital was both viable and likely to be project funded by a lender on the security of the leases alone. 28. Macquarie contends that Area Health's "undisclosed" support for the UPH was an egregious breach of its obligation to act in utmost good faith and hindered and delayed Macquarie's contractual performance, and submits that the evidence permits the Court to find that, but for Area Health's conduct, Macquarie would have successfully built the PAPH and the car park." 566 Macquarie submitted that, consistent with the statements in Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 (p 449) and with the approach taken in Bamco Villa Pty Ltd v Montedeen Pty Ltd [2001] VSC 192 (pars 163-173), equity would intervene if the conduct of Area Health caused or contributed to circumstances, including breaches by Macquarie, which made termination unconscionable. 567 Senior Counsel for Macquarie identified matters central to its case thus (T pp 5561-5562): "The two matters that we would put to you as are central to the case, that is the first one which is that this is a power issue and not a causation issue. The second is this: In the period from 1995 to 1997 we would submit that your Honour would find that if the plaintiff had been given the opportunity to construct a 200 bed hospital in that period it would almost as a certainty have been completed. The earlier that it commenced, that the plaintiff had both the capital and cash flow resources, it had connections in relation to financiers and it had connections in relation to building firms and it had a prevailing favourable market for the building of a hospital of that size at that time. And that your Honour would find that in respect of the overall effect of the evidence of experts such as Mr Anderson who prepared reports at the time, prepared reports subsequently and gave evidence in these proceedings and was not substantially contradicted. I think it is, if I could be bold enough to say your Honour, that that proposition is central to the success of the plaintiff's claim in this matter. Central to our success. If that was not something that found favour with your Honour then there would be difficulties across the whole front." 568 Macquarie's case was based upon Area Health's conduct, principally through Dr Horvath and Mr Wallace, during the period of operation of the HOA until 2 December 1996, and thereafter during the period of operation of the 96 agreements under which the notices were issued. Its submissions must be considered against the background of events which occurred during those periods as outlined earlier in these reasons and, in part, repeated below. 569 The HOA and 96 agreements were concerned with Macquarie's right to occupy part of the RPAH campus and to construct and operate thereon a car park and a private hospital. The instruments are silent about the use and development of the remaining part of the RPAH campus by Area Health. No term required the existing campus to remain unchanged, or prevented Area Health from changing it. The parties were not fiduciaries, joint-venturers, or in partnership. 570 The utmost good faith obligation was expressed in HOA (cl 15.4) and the 96 agreements (cl 10.8 construction deed; cl 19.13 car park lease, and cl 20.13 hospital lease) in similar terms, namely: "Without limiting the generality of any other provisions of this deed the parties agree that in the performance of their respective duties and the exercise of their respective powers under this deed and in their respective dealings with each other, they shall act in the utmost good faith." 571 Relevant also are the restrictive covenants in relation to another private hospital.

Clause 3.1(r) HOA provided: "CSAHS will not within a period of five years from the date of the first hospital admission recommend, support or approve a private hospital in the area presently under the control of CSAHS where Macquarie is of the reasonable opinion that such hospital would materially adversely affect the revenue derived from the operation of the Complex. CSAHS must also within that period make any representations reasonably possible to prevent the development of any such private hospital in any other area including in particular the redevelopment of the Camperdown Children's Hospital." Clause 23.5(a) hospital lease provided: "23.5 The Landlord must for a period of five years after the Rent Commencement Date: (a) not recommend, support or approve a private hospital within the area controlled by the Landlord as at 15 September 1989, if the Tenant is of the reasonable opinion that such a hospital would materially adversely affect the revenue derived by the Tenant from the Premises …" 572 The right and power to terminate the car park lease was to be exercised by notice, re-entry, or otherwise under cl 16.3 (cl 17.3 hospital lease). It was not in general terms. It was restricted by cl 16.5 (cl 17.5 hospital lease) which provided: "The Landlord must not exercise its powers under clause 16.3 unless it first gives the Managing Tenant notice of the particular Event of Default on which the Landlord relies and the clause under this lease under which the default arises."

As other provisions of cl 16 show, the power to terminate could be exercised only upon the occurrence of an event of default as defined, and the failure of Macquarie to rectify or remedy it. 573 Some provisions of the HOA are referred to in pars 33 - 39 above. Clause 7 required the negotiation of, and agreement to, the leases, and related agreements such as the construction deed. Clause 11 provided a mechanism for the resolution of disputes arising under the HOA or as to the terms and conditions of un-finalised documents by conciliation, mediation, or arbitration. By cl 10 Area Health acknowledged the developmental, financial, professional and operational independence of the private hospital complex from both itself and RPAH. The HOA came to an end on 2 December 1996 upon the execution of the 96 agreements. 574 The notices of default of 13 and 15 September 1999, and of termination of 17 March 2000, were given in the exercise of power under the car park and hospital leases, which was required to be in the utmost good faith. The issues raised by Macquarie involve ascertainment of the scope of the utmost good faith term in the 96 agreements, and whether Area Health was guilty of conduct in breach of it so as be precluded from relying on the notices. 575 It is self-evident that the purpose of the term is to regulate both parties in the performance of their contractual duties and in the exercise of powers by the imposition of a duty to act in utmost good faith. It is expressed to operate "… without limiting the generality of any other provision of this lease (deed)". Therefore, in my opinion, the obligation cannot override the other terms of the leases or deed, or alter the operation which each was intended to have according to its true construction ( Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, p 368). The precise content of the concept of utmost good faith will depend upon the legal context in which it is used ( AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185, par 89; (2005) 146 FCR 447). 576 In Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17, Barrett J provided an analysis of the relevant authorities which, with respect and gratitude, I adopt. It includes the following: "65 If adherence to such standards of conduct is the predominant component of a separate obligation of good faith in performance of a contract, it becomes necessary to enquire about the extent to which selflessness is required. It must be accepted that the party subject to the obligation is not required to subordinate the party's own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes (or could become), in words used by McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 'nugatory, worthless or, perhaps, seriously undermined'. This seems to me to be the principle emerging from para 172 to para 177 of the joint judgment in Burger King where the various authorities are collected and discussed. 66 Dr Elisabeth Peden of the University of Sydney has characterised the effect of the good faith requirement in contractual performance as follows ('Incorporation of Terms of Good Faith in Contract Law in Australia', (2001) 23 Syd L Rev 222): 'Most basically, by using the obligation to perform in good faith as a principle of construction the courts are merely required to ensure that the parties have genuinely adhered to the bargain which they entered into. This will require an examination of the whole contract and the underlying intentions. Strict rights may not be adhered to, if in the context of the contract as a whole, this would subvert the character of the contract. Most cases that discuss the concept do so in terms of negatives, that is, what is not in breach of good faith. This makes sense, since it is the context of the contract read as a whole that will indicate what is appropriate and what is not.' 67 Viewed in this way, the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para 187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms. 68 In many ways, the implied obligation of good faith is best regarded as an obligation to eschew bad faith. This is borne out by the following succinct statement by Lord Scott of Foscote in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170, a case concerning the duty of good faith in the insurance context: 'Unless the assured has acted in bad faith, he cannot, in my opinion, be in breach of a duty of good faith, utmost or otherwise.'" 577 The 96 agreements were the product of the negotiation process required under the HOA (e.g. cl 7). That process began in earnest with the meeting between Mr Block and Mr Puplick on 4 September 1996 and continued until agreement was reached on 2 December 1996. The execution of the 96 agreements marked a watershed in the parties' relationship. The HOA was spent. It is under the separate and distinct 96 agreements that their contractual rights and obligations are to be found. Whether or not Area Health has failed in its utmost good faith obligation is to be determined objectively upon the evidence of the conduct of both parties during the operation of the 96 agreements between 2 December 1996 and 17 March 2000, with regard to the principles to which I have referred. 578 However, before undertaking this exercise I return to the findings earlier made on the evidence of the circumstances in which the 96 agreements were executed. The narrative is at pars 235-249, and the findings at pars 250-261. 579 Of immediate relevance are the findings that Macquarie was made aware of the proposal to redevelop the RPAH campus (par 254), and of the SUPH proposal (par 259), and was in no doubt, to the extent it wanted to know, of the significance to it of that information. 580 In the circumstances the question whether the utmost good faith obligation under cl 15.4 HOA required disclosure of this information is unnecessary to decide. This is because, irrespective of any requirement to do so, the disclosures Area Health in fact made during the course of negotiations prior to making the 96 agreements supports the finding, which I make, that Area Health properly discharged this obligation. Also, I found nothing in the evidence to justify the finding that disclosure of information concerning proposals for redevelopment, or the SUPH, should have been made at any earlier point of time pursuant to cl 15.4. 581 Accordingly, I reject Macquarie's submissions that Area Health was under a duty to disclose information about what was described as "its new planning intentions" as developed and considered between June 1994 and about September 1996. I also reject the submission that it was necessary to make disclosure to prevent Macquarie being misled about Area Health's plans for its hospital and campus. I do so because it is difficult to find an obligation or purpose for disclosure of redevelopment proposals prior to their finalisation and being made certain by government approval and commitment. Until that point had been reached it seems unlikely that a prudent party in the position of Macquarie would reasonably rely upon that information for its design and planning purposes or that Area Health would think Macquarie would. Further, the evidence made it very doubtful that this information was, in fact, material to Macquarie's progress with its project. That it was prudent to look at, and beyond, Campus 2010 had been pointed out to Macquarie early on, e.g. by Peddle Thorp in its letter to Pace of 14 April 1993; by Mr Jackson to Dr Wenkart in his memorandum of 13 December 1993, and as reflected in the statements (par 55 above) in Macquarie's revised development application of May 1993. 582 This view is reinforced by evidence that during negotiations for the 96 agreements Area Health referred to its requirement for a car park behind KGV. Those occasions provided obvious opportunities to secure a commitment from Area Health to locate a clinical services building in the same area adjacent to MPH. The reasonable inference from the absence of evidence that it attempted to do so supports the conclusion that Macquarie did not then regard any such commitment as a matter of importance for its design and planning processes. 583 In similar vein, although aware of the intention to redevelop, Mr Block, in his letter of 30 November 1996, accepted that the payment of $5,500,000 was not to be recovered. No assertion was made that it had been paid on the false assumption that the redevelopment would be to the west, and that the change was disadvantageous to Macquarie. The absence of such protest and the subsequent entry into the 96 agreements negate submissions to the effect that Area Health's silence about its planning intentions left Macquarie in a false position which impeded its performance under those agreements, or at all. 584 Macquarie's case on this issue conveyed what I hold to be the insupportable suggestion that Area Health was obliged to tailor proposals for the redevelopment of RPAH to meet Macquarie's design and planning requirements, or otherwise meet Macquarie's interests. 585 The claim that Area Health was also in breach under the HOA in that it supported and encouraged a proposal for a SUPH adjacent to RPAH must also be rejected. As I understood the submissions, the conduct complained of was that since a time in 1994 there had been discussions between Dr Horvath and interested people including Prof. Young, Prof. Bokey and Dr Catchlove on the possibility of such a proposal. On my assessment the evidence went no further than that. There was no detail of the content of the discussions. In fact, Area Health disclosed the proposal for the SUPH soon after being informed about it by the Vice Chancellor. I fail to see a sound basis for the contention that it was disadvantageous to Macquarie to be without Dr Horvath's information of discussions with various doctors merely about a concept. The HOA did not restrain Area Health from having them, and did not require their disclosure to Macquarie. Clause 3.1(r) did not preclude them. In my opinion it was entirely consistent with Area Health's statutory functions for Dr Horvath to participate in them. What effect this conduct had on Macquarie's performance under the HOA was not shown. 586 I have earlier held (par 251) that the 96 agreements were intended to expunge the disputes arising during the course of operation of the HOA, and to provide a fresh set of agreements under which the project would proceed. Macquarie became free to develop new designs and plans, and to lodge a new development application, which it did. It undertook to proceed in accordance with them. Therefore, in my opinion, it is not to the point for Macquarie to submit, for example, that but for Area Health's failure to disclose its planning intentions in 1994 and 1995 and/or to consent in February 1996 to the lodgement of a new development application for a 200 bed hospital and car park, Macquarie may have been able to raise finance for, and complete, the construction of the project. Speculation about what an outcome might have been had either party acted differently under the HOA does not assist in deciding the issues raised by Macquarie under the 96 agreements. Accordingly, in my opinion, even if there was a finding that the conduct complained of was in breach of cl 15.4 it would lead nowhere, and would be irrelevant to issues under the 96 agreements. 587 In summary, for the above reasons, my conclusion is that Macquarie has failed to establish that Area Health acted in breach of its utmost good faith obligation under the HOA. I also hold that the conduct of the parties prior to the commencement of the 96 agreements is irrelevant to the issue of exercise of power in giving the notices of default and termination. In other words, in my opinion it is not open to Macquarie to rely upon Area Health's conduct during the operation of the HOA as a ground for the claim that it evidenced bad faith in the performance of its obligations under the 96 agreements. 588 Macquarie contended that the default notices were given in breach of the utmost good faith obligation. The notices were given on 13 September 1999 under cl 16.5 car park lease. The events of default referable to failure to complete construction of the car park and to substantially commence construction of the hospital were said to have occurred by 30 June 1999 at latest. Thus the relevant enquiry is whether the evidence shows that between 2 December 1996 and 30 June 1999 Macquarie's failures were attributable to Area Health's conduct under the 96 agreements. 589 Earlier in these reasons I have set out the relevant evidence of performance by the parties each year under the agreements, and findings based upon it. In my opinion, as I have endeavoured to indicate, it provides no support for the proposition that Area Health contributed to the situation in which Macquarie found itself on 30 June 1999, or otherwise acted in breach of its utmost good faith obligation. (See pars 290; 333-339; 365-368; 386-389 and 400). 590 The exercise of power under challenge was based on non-compliance with the conditions. It is relevant to note some history. 591 The development applications were approved with conditions on 19 June 1997, some of which were varied on 14 December 1997. The building applications were approved with corresponding conditions on 14 December 1997. Under the construction deed completion was dependant upon compliance with the conditions, an obligation not without risk having been undertaken, obviously, before approval for the development and building applications had been sought and granted, and the requirements of the conditions made known. 592 In her letter of 14 July 1997 Dr Horvath advised Pace of the need to agree on a number of matters before consenting to the building application, including appropriate documentation for Link Road and New Hospital Road. Thereafter there was considerable correspondence between the parties as to what was required to enable these works to proceed. It continued during 1997 and 1998. It is sufficient to observe that the road issues were the subject of agitation and negotiation throughout this time, and Macquarie was kept aware of Area Health's concern that the project proceed without delay. The correspondence continued during 1999, some of which has been detailed under the issues of Area Health's failure to provide an easement for Link Road (par 491), and to carry out the work for the Carillon Avenue/Missenden Road traffic lights and the surfacing of New Hospital Road (pars 499-504). 593 This correspondence ended with Mr Wallace's letter of 9 August 1999 (par 425) to which Macquarie did not reply. 594 I have already found that Area Health's readiness to assist in carrying out some of the work on Macquarie's behalf was consistent with its utmost good faith obligation. In any event, the history shows that about two years elapsed between the time the conditions were imposed and the giving of the default notices. In my opinion it shows that despite Area Health's expressions of concern and offers of assistance Macquarie failed to comply with the conditions and to complete construction of the car park. Nothing was shown to substantiate the claim that Macquarie's failure was in any way attributable to Area Health's conduct under the 96 agreements. 595 I reach the same conclusion in respect of the failure to substantially commence construction of the hospital. I have found, at Macquarie's invitation, that the view was taken in November 1998 that the MPH would not be viable, although I note that the change of use letter based on this view was not written until 25 October 1999, some weeks after the default notices were given. 596 The grounds upon which the default notices were given were the specified events of default. The giving of the termination notices was based on Macquarie's failure to rectify or remedy the defaults under the contractual regime. The events of default were not shown to be the product of unconscionable conduct or of bad faith by Area Health under the 96 agreements so as to disentitle it from exercising its powers to give the notices. 597 In my opinion the only rational finding open on the evidence is that the default notice was given under cl 16.5 car park lease in proper exercise of the power to do so. Accordingly, Macquarie's claim that it and the other default notices were issued in breach of the utmost good faith obligation is rejected. 598 With the exception of the default alleged under cl 2.2 car park lease I have found that Macquarie was in default as alleged in the default notices. I have also found that the default notices met the requirements of s 129(1) of the Act, and that the exercise of the power to give them was not in breach of the requirements of utmost good faith. Macquarie's challenges to the validity of the default notices has failed. 599 No action was taken by Macquarie under cl 7.6 construction deed, cl 16.6 car park lease, or cl 17.6 hospital lease after the default notices had been given. Accordingly, as there had been no waiver of the specified events of default, the termination notices were valid. It follows that Area Health lawfully terminated the construction deed, hospital lease, car park lease, and car park sub-lease. Thereupon it was lawfully entitled to re-enter the car park and hospital sites on 17 March 2000. 600 It was a substantial part of Macquarie's case that from about March 1994 Area Health, through Dr Horvath and Mr Wallace, promoted and supported the SUPH in disregard of Macquarie's contractual rights, endeavoured to keep those activities secret from Macquarie, and sought to undermine Macquarie's performance under the agreements. In advancing this case Macquarie attempted to establish that the evidence of Dr Horvath and Mr Wallace that they did not learn of a proposal by the University to build a private hospital before early October 1996 was false, and that they should not be accepted as truthful witnesses. Much time was spent cross-examining each of them with reference to documents including Dr Horvath's diaries and opinions received from Mr Heydon QC as to the scope of Area Health's obligations under the HOA. Subsequently it was put that Dr Horvath gave false evidence in order to hide what was claimed to be her encouragement and support for the SUPH which she knew at the time to be wrongful. 601 With regard to the reasons for which I have held that Macquarie failed to prove that Area Health did not act with utmost good faith under the 96 agreements I consider there is no purpose in recording an analysis of the evidence and submissions on these questions. The extent of the awareness, if any, of either Dr Horvath or Mr Wallace of a possible proposal for a University private hospital prior to October 1996 has been shown to be irrelevant to the outcome of the utmost good faith issue. Accordingly, I consider it inappropriate to pursue this, and the related issues described as the "conspiracy to promote the Sydney University private hospital", and "the concealment of documents" issues. 602 However, in response to Macquarie's attack upon these persons, it is fair that I should state my findings about them. My assessment was that both Dr Horvath and Mr Wallace were witnesses of truth who emerged quite unscathed by the cross-examination, and whose evidence I generally accept. I find that each endeavoured to give an honest account to the extent recollection and contemporary documents permitted of the events about which they were questioned. The impression gained of the general effect upon these witnesses of the cross-examination as it limped along was that they adhered to evidence earlier given and sometimes succumbed to exasperation, a sensation not confined to them. The correspondence and other documents concerning the negotiations from September 1996 which preceded the 96 agreements, and thereafter concerning the performance by the parties of them provided ample corroboration for their denials that they were engaged in deceiving Macquarie or in some other improper conduct against Macquarie's interests under the agreements. Macquarie's challenge to them as witnesses of credit is rejected.

Change of use 603 Macquarie sought a declaration that under cl 8.7(b) hospital lease it was entitled to change the permitted use of the premises as defined. Whether its claim is established turns on the proper construction of the provision as well as consideration of the circumstances in which it was invoked. 604 Clause 8 hospital lease and cl 7 car park lease are in similar terms. Relevantly, cl 8 provides: "8.1 The Tenant must use the Premises only for the Permitted Use. 8.2 The Tenant acknowledges that: … (c) it is aware of all prohibitions or restrictions applying to the Premises under requirements and orders of authorities and all laws. 8.3 The Tenant, during the term of this lease, must, subject to clause 8.7, operate and maintain the Premises in accordance with the Private Hospitals Act, the Private Hospitals Regulations, all Australian standards relevant to the operation of Private Hospitals. … 8.7 The Tenant has the right to change the Permitted Use of all or any part of the Premises in the following circumstances: (a) if any legislation affecting the use of the Premises prohibits: (i) the Permitted Use from continuing and there is no preservation of existing use rights; or (ii) prohibits the development of any undeveloped land for the Permitted Use; but then only to the extent required to comply with any legislation; or (b) if any change in legislation affecting the business or operations of the Tenant generally prohibits the operation of the Tenant's Business or, in the reasonable opinion of the Tenant, causes the Tenant's Business to cease to be economically viable if operated in a proper and efficient manner, but then only in a manner which does not cause any significant adverse effect to the amenity of the Royal Prince Alfred Hospital as compared to the Tenant's Business. 8.8 The Tenant may change the use of the Premises to any use permitted under all applicable legislation if the Royal Prince Alfred Hospital ceases to operate as a hospital." 605 By cl 1.1 hospital lease, "Permitted Use" means the use of the premises for a private hospital complex, "Premises" means lot 12, being the land the subject of the lease, and "Tenant's Business" means the business carried on from the premises. 606 In their letter of 25 October 1999 to Area Health's solicitors, Macquarie's solicitors claimed the right to change the permitted use of the premises under cl 8.7(b) hospital lease and cl 7.6(b) car park lease. It was claimed that changes to the National Health Act, whereby hospital purchaser provider agreements might be made between health insurance funds and private hospitals founded the opinion which attracted the application of the provision. The letter included the following: "As CSAHS would be aware, health insurers (registered organisations for the purposes of the NHA) have used these hospital purchaser provider agreements to limit the amount of any payment from a health insurer to a hospital. The practical consequence of these agreements has been to virtually eliminate the profitability of private hospitals. We are aware of instances of private hospitals achieving high occupancy levels without generating a profit. On the basis of these changes to the NHA we submit that it is reasonable for our client to conclude that the operation of the tenant's business is no longer economically viable even if operated in a proper and efficient manner. Our client has instructed us that unless it receives your confirmation that in the circumstances it is entitled to invoke clause 8.7(b) and clause 7.6(b) of the Hospital and Car Park Leases it will seek declarations from the Supreme Court of New South Wales to that effect. Our client has asked us to advise you that it will be prepared to enter into meaningful negotiations with you concerning the proposed change of use so that proposals can be submitted to Council which will have the support of CSAHS and be generally complementary to the master plan for the site." 607 The claim was disputed by Area Health's solicitors in their letter of 4 November 1999. Relevantly it said: "7. Your comments concerning paragraph 8.7(b) of the Hospital Lease and paragraph 7.6(b) of the Car Park Lease appear to lack merit since there appears to be no relevant business to be affected by the matters you raised. Those matters appear to relate to the private hospital which after nearly three (3) years remains a hole in the ground. … We advise that we are authorised to accept service of any proceedings which your client wishes to issue in relation to the project. We further advise that such proceedings will be vigorously defended. Notwithstanding that, our clients are prepared to yet again enter into negotiations with your client, via their respective Solicitors, with a view to discussing your client's exit from the project which appears, from the correspondence, to be the real objective desired by your client." 608 It was pleaded that the relevant opinion was held by Dr Wenkart and Mr Holden. 609 It was common ground that the legislation relied upon was the Health Legislation (Private Health Insurance Reform) Amendment Act 1995 (Cth), referred to in these proceedings as the Lawrence reforms. Assent was given to this Act on 29 May 1995. It amended the National Health Act 1953 (Cth), the Health Insurance Act 1973 (Cth) and the Health Insurance Commission Act 1973 (Cth). Its provisions, which enabled the making of hospital purchaser provider agreements between health insurance funds and private hospitals, commenced on 1 July 1996. From the viewpoint of operators of private hospitals such agreements enabled health insurance funds to reduce the level of benefit payouts and thereby squeeze the margins of private hospitals. 610 Macquarie's claim was based on the following part of cl 8.7(b): "8.7 The Tenant has the right to change the Permitted Use of all or any part of the Premises in the following circumstances: … (b) if any change in legislation affecting the business or operations of the Tenant … in the reasonable opinion of the Tenant, causes the Tenant's Business to cease to be economically viable if operated in a proper and efficient manner, but then only in a manner which does not cause any significant adverse effect to the amenity of the Royal Prince Alfred Hospital as compared to the Tenant's Business." 611 Macquarie submitted that, upon its proper construction, to attract the application of the clause it was not necessary that the relevant change in legislation happened after the execution of the lease, namely 2 December 1996. It was put that, absent any temporal limits in its wording, the clause could be validly invoked where the change predated the lease, and that the only relevant enquiry was whether, during the period of the lease, the change had caused the business to cease to be economically viable. It was put that if that occurred, or only became ascertainable, after execution of the leases, it was irrelevant that the change occurred prior to execution. 612 It was further submitted that the clause must be construed in the context of the HOA which contained cl 7.4(viii) in similar terms. As I understood it, the argument was that as the change of use clause in the HOA was intended to apply to changes in legislation made after 18 September 1989, the date that the agreement was signed, and as the hospital lease expressly provided in cl 1.5 that the provisions of the HOA merged in the grant of the lease, it followed that the similar change of use clause in the hospital lease should be understood to have the same effect as cl 7.4(viii) and was, therefore, applicable to changes made since the signing of the HOA. Thus, it was put that the temporal effect of cl 8.7(b) remained the same as that of cl 7.4(viii). 613 Finally, Macquarie submitted that, upon its proper construction, the change in legislation to which cl 8.7(b) refers included that made by the Lawrence reforms which came into effect on 1 July 1996. 614 Area Health submitted that as the Lawrence reforms predated the hospital lease they were outside the scope of cl 8.7(b), with the consequence that Macquarie had no right to change the use of the premises under it. 615 The task of construction of the clause is with regard to the principles earlier referred to (pars 475-476). 616 The opening phrase in cl 8.7 is: "… the Tenant has the right to change the Permitted Use …". In my opinion the usage of the verb "to change" is unambiguous. Its context shows that it was intended by the parties to have its natural and ordinary meaning, namely "to make different; to alter in condition" (Macquarie Dictionary 4th ed). The same must be said of the use of the verb in cl 8.8 in the phrase: "the Tenant may change the use of the Premises …". 617 In the opening phrase of cl 8.7(b) the word "change" is used as a noun. In my opinion its usage, too, is unambiguous, and was intended to be understood in its natural and ordinary meaning, namely "variation; alteration; modification" (Macquarie). There is no indication in cl 8.7 read either alone, or with the whole of cl 8, or with other provisions of the hospital lease, that its words should not be given their natural and ordinary meaning. 618 Clause 8 provides for rights and obligations of the parties referable to the use by Macquarie of the premises for a private hospital complex. Clause 8.7 affords Macquarie the right to change the permitted use in the circumstances prescribed in cl 8.7(a) and cl 8.7(b). 619 Clause 8.7(a) addresses the situation whereby any legislation affecting the use of the premises prohibits the continuation of the permitted use or the development of any undeveloped land for the permitted use. The use of the words "any legislation" indicates the intention to include the operation of legislation existing at the date of the lease, and future legislation. 620 Clause 8.7(b) addresses a different set of circumstances, namely that brought about by any change in legislation affecting the business or operations of the tenant. In my opinion, the use of the words "any change in legislation" indicates the intention to limit the circumstances to those brought about by a change made after the date of the lease to legislation. 621 Such a construction recognises and gives effect to the distinction from cl 8.7(a) made by the deliberate inclusion of the words "change in" cl 8.7(b) which acceptance of Macquarie's submissions would ignore. It also accords with a commercially sensible and business-like interpretation of the provision. 622 My conclusion is reinforced by the evidence that, during the time the terms of the 96 agreements were being negotiated and drafted, the parties were aware of the possible risks to the operator of a private hospital under government policies and legislation, including the Lawrence reforms. For example, Macquarie's letter of 14 September 1995 to Area Health referred to risks to economic viability from changes to policy. Macquarie's statements of issues for arbitration of 26 June and 19 September 1996 raised as issues changes in government policies including the Lawrence reforms. The Lawrence reforms were also referred to as significant in Macquarie's feasibility study of 12 September 1996. It is reasonable to expect that if the parties intended that Macquarie should be provided with a right to change the use of the premises in circumstances where loss of economic viability resulted from any, or existing legislation, the opening phrase of cl 8.7(b) would have been drafted in terms similar to the corresponding phrase of cl 8.7(a), and without the words "change in". That this did not happen strongly indicates that there was no such intention. 623 It follows that Macquarie's submissions on this issue are rejected. 624 Furthermore, the submission that cl 8.7(b) should be construed as having the same effect as cl 7.4(viii) of the HOA is, in my opinion, misconceived and should also be rejected. The HOA and the hospital lease are separate and distinct agreements. Ordinary principles require that the terms and conditions of each instrument be construed separately with regard to their language and relevant context. Absent clear language in cl 8.7(b) to the effect that it was to apply to any legislative changes made since 18 September 1989 there is no support for the proposition that it has that meaning. 625 In any event, on the assumption that Macquarie validly invoked cl 8.7(b), it is difficult to see the basis upon which the relief claimed by Macquarie could be granted. As far as the evidence shows, Macquarie took no action to exercise the right claimed in the letter of 25 October 1999. No negotiations with Area Health were begun for the submission of a proposal to council as suggested in the letter, and apparently no step was taken to refute the assertion conveyed in the letter of 4 November 1999 by Area Health's solicitors that the claim lacked merit. 626 Macquarie submitted that Area Health's denial was an intimation that the nomination of an alternative use would have been useless and in the circumstances it was not required to take the matter further. Reliance was placed on the principle in Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 stated by Brennan J (p 421), that "… an intimation of non-performance of an essential term of a contract amounts to repudiation and dispenses a party who acts upon it from performance of his dependent obligation though he does not rescind the contract". 627 In my opinion, the principle has no application in the circumstances of this case, which is not concerned with the effect of an intimation of non-performance on mutually dependant obligations under a contract. Clause 8.7(b) does not provide for mutually dependent obligations. Assuming the clause was validly invoked, Macquarie was entitled to proceed to exercise the right if it chose to do so, irrespective of an intimation of doubt by Area Health that it was not. In my opinion, it is highly improbable that Macquarie would have been deterred by a whiff of grapeshot had it genuinely intended to obtain a change of use. Instead, Macquarie appealed to the Land and Environment Court against the cease use order, and applied to council for an interim certificate for the operation of the car park. Its inaction under the clause supports the finding, which I make, that it abandoned its right to change the permitted use of the premises, assuming fulfilment of the necessary conditions. 628 In any event, had cl 8.7(b) been properly invoked it did not operate of itself to relieve Macquarie of its obligation to substantially commence the hospital by 30 June 1999 as claimed in par 24 of the statement of claim. 629 For these reasons I hold that the Lawrence reforms which came into effect on 1 July 1996 were not changes in legislation to which cl 8.7(b) applies. Alternatively, I hold that Macquarie abandoned its rights, if any, under the clause. Accordingly, Macquarie is not entitled to the declaration which it claimed. 630 The parties put before the Court a large body of documentary and oral evidence on the question whether the opinion that the Lawrence reforms caused Macquarie's business to cease to be economically viable was reasonable. Area Health vigorously disputed that Macquarie's opinion was genuinely held, and that there were reasonable grounds to support it. Area Health's challenge raised further questions whether, and to what extent, the changes in the industry brought about by the Lawrence reforms caused the profitability of private hospitals to decline. 631 For Macquarie, evidence was given by Dr Wenkart, Mr Morrison, Mr Anderson, and experts, Mr Graham Wright, Mr Robert Glynn and Mr Brent Walker. Area Health contested their evidence principally through the experts Mr Keith Cadell and Mr Colin Sinclair. The witnesses raised accounting and factual questions of considerable complexity. The resolution of the conflict with reference to the evidence and the submissions would necessarily be a long and difficult task. However, as I have determined on other grounds that Macquarie has failed on the change of use issue it would serve no purpose to decide these questions, the answers to which would not affect the outcome. Therefore I find it unnecessary to take this aspect of the case any further. 632 In submissions (T p 5188) Macquarie accepted that if it failed on the change of use issue there was no basis for relief against forfeiture under the hospital lease. Relief against forfeiture 633 Macquarie claimed relief against forfeiture under s 129(2) of the Act, or under the general law. 634 Macquarie accepted (T p 5188) that if I held, as I have, that it failed on the issues of utmost good faith and change of use, there was no ground for relief against forfeiture under the hospital lease. Accordingly, the only issue is whether Macquarie has established its claim for relief under the car park lease. 635 I have held that, with the exception of the default alleged under cl 2.2 car park lease, the events of default occurred and were not shown to be the product of unconscionable conduct or of bad faith by Area Health under the 96 agreements. I also held that the agreements, including the hospital and car park leases, were lawfully terminated, and Area Health was entitled to re-enter the hospital and car park sites. 636 Relevantly, s 129(2) of the Act provides: "Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit." 637 The principles whereby a court of equity might grant relief against the exercise of a right of re-entry under a lease were stated in Shiloh Spinners Ltd v Harding [1973] AC 691 by Lord Wilberforce. His Lordship said (p 723) that, apart from the special heads of fraud, accident, mistake or surprise, there is no general power in courts exercising equitable jurisdiction to relieve against men's bargains. His Lordship continued (pp 723-724): "… we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word "appropriate" involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach." 638 The issue before his Lordship raised the question whether the party seeking to exercise the power of re-entry should be allowed to do so "… if the essentials of the bargain could be secured and if it was fair and just to prevent him from doing so" (p 725). 639 Lord Simon of Glaisdale held the jurisdiction to release against forfeiture was unlimited and unfettered, and the exercise of discretion usually required consideration of the following factors (p 727): "Prominent but not exclusive among such considerations is the desirability that contractual promises should be observed and contractual rights respected, and even more the undesirability of the law appearing to condone flagrant and contemptuous disregard of obligations. Other such considerations are how far it is reasonable to require a party who is prima facie entitled to invoke a forfeiture or penalty clause to accept alternative relief (eg money payment or re-instatement of premises) and how far vindication of contractual rights would be grossly excessive and harsh having regard to the damage done to the promisee and the moral culpability of the promisor." 640 In Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315, par 37, the High Court of Australia held that the conclusion of Mason CJ in Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489, pp327-328: "… that the court will not readily relieve against loss of a contract for sale validly rescinded by the vendor for breach of an essential condition; and, in particular, equity was not authorised 'to reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side's situation more favourable …'" should be accepted as an accurate statement of the law. 641 With reference to Shiloh , the High Court (pars 58, 60) held that where accident and mistake are not involved, it will be necessary to point to the conduct of the (lessor) as having in some significant respect caused or contributed to the breach, i.e. it was necessary to show that it was against conscience for the (lessor) to set up the termination of the contract. The court also doubted (par 62) whether the reaping of the benefits of the improvements as a consequence of termination of itself would be sufficient to deny insistence by the (lessor) upon rescission. The Court said (par 67) that the failure of the (lessee) to comply with the contracts exposed them to the exercise by the (lessor) of its right to terminate the contract, and held that equity would not intervene to prevent the effective exercise of that right. 642 Kirby J (par 86) pointed out that "unconscionability" in this context was not synonymous with a generalised sense of fairness as between the parties or with undefined notions of justice. His Honour stated (par 106) the applicable principles which include: "1. The basic principle is that, subject to statute, a party of full capacity is bound by legal obligations assumed in a valid agreement with another. Equity, it is said, mends no man's bargain This rule is founded not only upon ancient authority of the common law that is normally respected by equity. Legal policy reinforces the rule.

2. … The mere fact that the agreement between the parties makes time essential does not exclude equity's jurisdiction to afford relief. However, such jurisdiction is reserved to cases in which 'exceptional circumstances' are shown. In judging whether the circumstances are 'exceptional', regard must be had to the entire relationship between the parties, the concern of equity being with substance, not form. The entire circumstances must be judged as exceptional. It is not enough to prove exceptional unconscionability on the part of the party insisting on its legal rights. 3. Whatever may be the precise content of the 'equitable interest' of a purchaser under a contract for the sale of land, it is now accepted that, in a proper case, it is sufficient to sustain equitable jurisdiction to relieve that party against forfeiture of such an interest for time default, even in respect of a time provision agreed to be essential. The equitable interest has developed to relieve from forfeiture a party with a substantial stake in the property in consequence of an exercise of legal rights that is shown to be the result of fraud, mistake, accident or surprise or otherwise unconscionable in all the circumstances. 4. In deciding whether it would be unconscientious conduct for a party to take advantage of the forfeiture consequent on a breach of an essential time stipulation leading to a termination of the contract, various factual considerations, typical of such cases, have often been taken into account. The five mentioned in Legione are not exhaustive. They are merely cited as '[t]he more important' of those that normally have to be considered. Other factual considerations that may be taken into account in judging the existence or absence of unconscionable conduct for this purpose include (a) the character of the contract in which the time stipulation appears (ie whether it is of a commercial, domestic or personal kind); (b) the relevant background facts explaining any special significance of the stipulation as to time; (c) whether the parties have access to appropriate independent legal advice; and (d) any degree to which the party in default may be regarded as disadvantaged, vulnerable or in need of equity's protection from the insistence on its rights of a party in a superior economic or other position. Generally speaking, equity is more solicitous for the plight of the vulnerable. In this regard a parallel development in the law of torts in recent years mimics the traditional concern of equity. … 6. In deciding whether relief against forfeiture (and associated remedies) should be granted in the particular case, due consideration should be given, in evaluating the exceptional character of the circumstances, to the disadvantages suffered by the contesting party which, earlier and during any ensuing litigation, is typically (as in this case) kept out of the exercise of its legal rights in its property. In some cases, the exceptional circumstances and the assessment of the requirements of good conscience will be seen to warrant the claim for relief and resulting uncertainties. But the deprivation of rights and the delays and costs incurred reinforce the obligation to demonstrate that the circumstances are exceptional and that unconscionable conduct has been proved." 643 The principles explained in Shiloh and Tanwar should be taken to apply to the Court's task under s 129(2) of the Act. These principles establish that in order to enliven the Court's equitable jurisdiction to grant relief against forfeiture it must be demonstrated that by the grant of relief the result which is the primary object of the agreement can be effectively attained. Further, where the agreement between the parties makes time essential, the jurisdiction applies only to cases in which the circumstances are shown to be exceptional in the sense referred to by Kirby J in Tanwar (par 106), or appropriate and limited, as explained by Lord Wilberforce in Shiloh (pp 723-724). Thus, in this case, the questions are whether the essentials of the bargain could be secured if Area Health was not permitted to exercise its right to terminate the car park lease and re-enter, and it was fair and just in the circumstances to prevent it from doing so. 644 Before turning to Macquarie's submissions, relevant aspects of the 96 agreements should be mentioned. 645 Macquarie's interest as tenant of the car park land derived from the combined effect of the car park lease and the car park sub-lease. Under the car park lease, Area Health, as landlord, leased the land to Area Health and Macquarie as tenants in common in equal shares for a term of 103 years commencing 1 December 1996. Under the car park sub-lease Area Health sub-let its interest as tenant in common under the car park lease to Macquarie for a term of 28 years commencing 1 December 1996. 646 Each of the 96 agreements were inextricably interrelated by the inclusion in one agreement of provisions which corresponded with those in the other agreements. For example, the car park lease included: "1.6 This lease contains obligations of the Managing Tenant which relate to both the land leased under this lease (on which the Car Park is to be erected) and to lot 12 in Deposited Plan 809663 (on which a Hospital is to erected). The inclusion of obligations in this lease which be to lot 12 is deliberate, because it is intended that a breach of those obligations included in this lease which relate to lot 12 will give the Landlord certain rights under this lease, including in certain circumstances a right to terminate this lease. Therefore, the Managing Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Managing Tenant and the Guarantor even though the Landlord, the Managing Tenant and the Guarantor have entered into a separate lease of lot 12 in deposited plan 809663 and notwithstanding that: (a) the Hospital 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 Hospital Lease or vice a versa [sic]; or (c) the termination of this lease or the Hospital Lease. 1.7 This lease contains obligations of the Managing Tenant which relate to both the land leased under this lease (on which the Car Park 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 Managing Tenant and Guarantor acknowledge and agree that those obligations as contained in this lease bind the Managing Tenant and the Guarantor even though the Landlord, the Managing Tenant and the Guarantor have entered into a separate Construction Deed."

These provisions correspond with cl 1.3 and cl 1.4 construction deed, cl 1.6 and cl 1.7 hospital lease and cl 1.2 and cl 3.2 car park sub-lease. 647 Under cl 8.1(d) car park lease, cl 9.1(d) hospital lease and cl 3.6 car park sub-lease Macquarie was required to comply with the construction deed. Corresponding provisions for termination included cl 7.7 and cl 7.5 construction deed, cl 16.2 and cl 16.4 car park lease and cl 17.2 and cl 17.4 hospital lease. 648 Under cl 10.1 car park lease Macquarie was required to erect the car park and ancillary services in accordance with the construction deed. Under cl 11.1 hospital lease Macquarie was required to erect the hospital and ancillary services in accordance with the construction deed. 649 Analysis of the 96 agreements discloses that the bargain recorded in them had as its primary object the construction of a car park and of a private hospital according to the timetable under the construction deed. The underlying contractual intention behind the leases was to provide the land upon which the car park and hospital were to be constructed and, eventually, operated. The object of the provisions by which the agreements were interrelated was to ensure that both developments were completed within the time specified in the timetable, compliance with which was essential. The origin of the overall arrangement is recorded in Recital A construction deed as follows: "The Landlord and the Tenant entered into a Heads of Agreement on 15 September 1989 under which it was agreed that the Tenant would develop the Hospital and a Car Park and for that purpose the Landlord would grant the Tenant a lease of the Land." 650 It will be remembered that council's approval conditions for the development application for the car park and the private hospital were predicated on the association of one development with the other. Substantial commencement of the private hospital was required before operation of the car park would be permitted, and fully operational status of the car park was required before operation of the private hospital would be permitted (condition 2 car park approval; condition 2 hospital approval).

651 In support of its claim for relief, Macquarie's submissions were directed to the questions identified in Legione as relevant for determination. The relevant passage stated (p 449): "In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser's breach? (2) Was the purchaser's breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser's breach? (4) What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?" 652 Macquarie submitted that Area Health contributed to its breaches in the way adumbrated in its case on utmost good faith and in denial of the events of default. Macquarie has failed on these issues. As no conduct of Area Health caused or contributed to the breaches it cannot be said that it was against conscience for Area Health to terminate the car park lease and the other agreements ( Tanwar, pars 58, 60). As the question does not arise the submission is rejected. 653 Macquarie next submitted that the breaches were trivial or slight, inadvertent and not wilful. The nature and circumstances in which the defaults occurred have been considered earlier. Non-compliance with the car park conditions resulted in the breach of cl 2.1 construction deed which was an essential term of the car park lease. The relevant conduct of Macquarie was its failure to complete construction of the car park in accordance with the timetable. That is the breach which the Court is required to consider. In my opinion it cannot be categorised as trivial or slight. Furthermore, the documentary evidence of Macquarie's progress in building the car park and attending to the ancillary services required by council's approval conditions between about mid-1997 until the end of 1999, in particular the correspondence with Area Health and council concerning the conditions, demonstrated that non-compliance was not inadvertent. It is unnecessary to elaborate further. As this question does not arise the submission is rejected. 654 As I understood Macquarie's case on this issue, its principal submission was that unless relief was ordered it would be unconscionable for Area Health to gain the windfall benefit of the car park, an improvement which had cost Macquarie about $12 million to build. In this context it was put that a significant factor in support of the claim was that, following re-entry, Area Health obtained council's permission to occupy and use the car park for 600 spaces after taking over the proceedings in the Land and Environment Court, and obtaining a variation of conditions for the traffic lights and Link Road, and deletion of condition 2 which required substantial commencement of the hospital. It was argued that for the purpose of granting relief based on these considerations the Court should order the severance of the car park lease from the hospital lease. 655 In support of an order for severance, Macquarie relied upon the provisions of the car park lease which allowed for transfer of the lease, and required Area Health to approve the transfer (cl 11.2 and cl 11.3), and for the sub-letting of the land (cl 11.7). It was put that these provisions demonstrated that severance of the car park lease and its operation from the hospital lease and its operation was contemplated by the parties, and Area Health was unable to refuse it happening. Reference was made to the correspondence between October 1997 and January 1998 relating to Macquarie's proposal to transfer its interest in the car park lease to Mulpha (see pars 273-283; 341-343 above) as indicative of the readiness of Area Health to agree to the separation of the car park lease obligations from the hospital lease obligations. It was put that, in such circumstances, it was unconscionable for Area Health to oppose severance and thereby deprive Macquarie of the car park and revenue from its future operation. 656 Consideration of these submissions requires account to be taken of relevant circumstances of which the following is a reminder. 657 By about November 1998 MPH was no longer economically viable. Later attempts to raise funding were unsuccessful. By letter of 25 October 1999 Macquarie's solicitors informed Area Health's solicitors that the private hospital was not economically viable, and proposed negotiations for change of use under cl 8.7(b) hospital lease. The change of use proposal was not pursued. 658 On 24 August 1999 council informed Macquarie that it could not grant an interim certificate of occupancy for the car park and prohibited its operation pending fulfilment of outstanding conditions. The default notices were given on 13 September and 15 September 1999. The car park was opened unlawfully by Macquarie on 24 September 1999. The events of default were denied in Mr Klinger's letter of 29 September 1999, and Macquarie took no action for remediation or rectification under cl 16.6 car park lease and cl 17.6 hospital lease. 659 On 1 November 1999 Macquarie was ordered to cease use of the car park. On 21 December 1999 Macquarie sought council's permission to operate the car park with 600 spaces, and relief from compliance with some of the approval conditions, including condition 2, in circumstances that there was no "… reasonable assurance a private hospital will be constructed on the site". It appears that it was with regard to this changed circumstance that the Land and Environment Court ordered the conditions to be varied or deleted, thereby enabling council on 23 June 2000 to permit Area Health to use the car park for 600 spaces. In other words, the situation at this time was brought about by Macquarie's defaults which resulted in re-entry under the leases. 660 For Macquarie to succeed it must demonstrate that the essentials of the bargain could be secured by the return of possession of the car park and permitting its operation under the car park lease. In my opinion, Macquarie fails at the threshold. 661 Relief against forfeiture of the car park lease would defeat, not attain, the primary object of the 96 agreements in that it would enable Macquarie to obtain the fruits of a commercial car park without undertaking the construction and operation of the hospital. Necessarily, this would involve relieving Macquarie from the consequence of its breaches of the construction deed and of the hospital lease. Effectively it would render worthless Area Health's rights under the 96 agreements. This consideration is sufficient to justify rejection of the claim. 662 An additional ground for rejection of the claim arises upon recognition that, in truth, Macquarie asked the Court to direct the parties to proceed under an arrangement which is substantially different from that governed by the 96 agreements and for a different purpose. The object of the 96 agreements was to achieve completion of both the car park and the private hospital within essential time limits. The rights and obligations of the parties with respect to the construction of one building were inseverable from those with respect to the construction of the other. The agreements did not intend the completion of one development and not the other. Macquarie's right to develop a car park was subject to its obligation to develop a private hospital, and vice versa. Contrary to Macquarie's submission, the provisions of cl 11 car park lease do not support a different conclusion; indeed cl 11.4 reinforces it. 663 In my opinion, the grant of relief sought by Macquarie necessitates the reshaping of the contractual relationship which existed prior to termination. It is a task which a court of equity has no jurisdiction to perform ( Tanwar, pars 37, 106). 664 I have not overlooked Macquarie's complaint that Area Health would gain the windfall benefit of the car park. However, I am unpersuaded, having regard to the overall circumstances in which Area Health exercised its right to terminate the 96 agreements, that intervention by the Court would be justified merely because Area Health obtained the car park ( Tanwar, par 62). Under cl 17 car park lease (cl 17 hospital lease) Macquarie had agreed to exposure to the risk of the operation of the provisions for termination and/or re-entry in the event of default. Accordingly, any improvements, such as the erection of the car park, were at risk should Macquarie bring about a situation of default which entitled Area Health to exercise its right to terminate. Furthermore, the parties had agreed (cl 16.9 car park lease, cl 17.9 hospital lease) for the payment of compensation to Macquarie upon termination for the balance of the term. In these circumstances, equity does not intervene to prevent the exercise of the right to terminate and re-enter ( Tanwar, par 67). Conclusion 665 For the above reasons, I hold that Macquarie has failed to establish that it was unconscientious conduct for Area Health to have exercised its contractual right of termination and re-entry under the car park lease. Taking into account the circumstances which founded the default notices and, six months later, the termination notices, there is no basis upon which the Court could interfere with the legal obligations undertaken by Macquarie, and relieve it from the consequence of its defaults. 666 In Baltic Shipping Company, The Mikhail Lermontov v Dillon (Mikhail Lermontov case) (1991) 22 NSWLR 1, Gleeson CJ said (p 9): "The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just."

As these proceedings have revealed, it is a policy which Macquarie spectacularly ignored. 667 I propose to order that the claims for orders and relief sought in the fifth further amended statement of claim be dismissed. The further conduct of the proceedings 668 The cross-claim raises numerous issues, some of which are complex. The written and oral submissions were detailed and lengthy. If it becomes necessary to decide all issues it is probable that there will be some months' delay before judgment is delivered. 669 Having regard to the findings in these reasons, the parties should now review the issues raised under the cross-claim and defence to it. The parties should determine whether some issues may now be resolved by agreement, and whether the dispute as to others may be narrowed. This exercise should identify the real issues in the proceedings which remain, and thereby facilitate the just, quick and cheap(er) resolution of them in accordance with the statutory duty imposed by s 56(2) and s 56(3) Civil Procedure Act 2005 upon the Court and the parties. 670 The parties should also consider whether there arises any issue of compensation for determination under cl 19.9 car park lease and/or cl 17.9 hospital lease. 671 I propose to stand the proceedings over for directions. The issues under the cross-claim, any issue of compensation and, ultimately, the issue of costs, are commercial in kind. Accordingly, on the next occasion the parties should be given the opportunity to address the question whether these issues should be referred for mediation. In any event the parties should be ready to file schedules which identify issues which are no longer in dispute, and those which remain in dispute. With respect to the last mentioned, the list should include a summary of the respective contentions with reference to the written submissions already provided. **********

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