Malago Pty Ltd v AW Ellis Engineering Pty Ltd

Judgment 1BATHURST CJ: I agree with the orders proposed by Macfarlan JA and with his reasons. 2MACFARLAN JA: By Management Agreement dated 17 September 2009 Sydney Superyacht Marina Pty Ltd ("SSM") agreed with the Maritime Authority of NSW ("NSWM") to manage the super yacht marina business at Rozelle Bay in Sydney then owned and operated by NSWM. The marina is a large facility where yachts measuring 24 metres or more may be berthed. The applicants (the "James Interests") presently hold 56 per cent of the shares in SSM and a related company, SSM T'ee Pty Ltd ("SSM T'ee"), and hold the same percentage of units in a unit trust, the Sydney Superyacht Marina Unit Trust ("the Unit Trust"). The respondents (the "Ellis Interests") hold the remaining percentage. 3By Business Sale Agreement dated 15 June 2010, SSM agreed to purchase the marina business from NSWM and by the "Access and Works Licence Deed" and the "Development Deed" of the same date, SSM T'ee agreed to undertake a substantial redevelopment of the Marina, receiving access to it from NSWM for that purpose. 4The James and Ellis interests subsequently fell into dispute. Their efforts to resolve the dispute culminated in a mediation before Mr R J Ellicott QC and their entry, at the conclusion of that mediation, into a Heads of Agreement prepared by Mr Ellicott. The Heads of Agreement provided for the James' Interests to purchase the shares and units of the Ellis Interests in SSM, SSM T'ee and the Unit Trust (the units agreed to be purchased were not expressly stated to be units in the Unit Trust but that was plainly so). 5Following the mediation, the parties, through their solicitors, attempted to agree upon the terms of a more formal document to give effect to the Heads of Agreement. However before agreement was reached, the James' Interests withdrew from the negotiations, apparently due to a shortage of funds to effect the purchase for which the Heads of Agreement provided. 6The Ellis' Interests then commenced the present proceedings seeking, inter alia, a declaration that a binding agreement for sale existed, an order for specific performance and damages. 7The proceedings were heard by Sackar J sitting in the Equity Division of the Court. By decision dated 24 February 2012 his Honour found that the Heads of Agreement was binding and that the parties had, subsequent to the mediation, agreed on a large number of clauses to be included in a deed to give effect to the Heads of Agreement. His Honour then ordered, by way of specific performance, that the parties enter into a deed in the form attached to his orders. This decision was interlocutory as the hearing on damages had been deferred. 8An application by the James Interests for leave to appeal was heard by this Court concurrently with the hearing of the appeal that would ensue if leave were granted. At the hearing, the James Interests contended that the Heads of Agreement had not been intended to be legally binding or alternatively were void for uncertainty or incompleteness. They also contended that the primary judge had in any event erred in ordering them to enter into a deed in the form attached to his Honour's orders. 9My conclusions on these issues are: (a) On their proper construction the Heads of Agreement were intended to be legally binding (see [23] to [24] below). (b) The Heads of Agreement were not void for uncertainty or incompleteness (see [25] to [32]). (c) The primary judge erred in ordering the parties to enter into a deed in the form attached to his judgment ([33] - [49]). The form of the document the subject of the specific performance order should be that attached to this judgment ([50] - [54]).

THE HEADS OF AGREEMENT 10The Heads of Agreement were in the following form: "Brian James & ors/Tony Ellis & ors as named in Mediation Agreement dated 22/7/2011 Heads of Agreement

1. Tony Ellis and others agree to sell their shares and units in SSM Pty Ltd and SSM Trustee Pty Ltd to Brian James and others on the following terms: (a) Brian James & others to pay to Tony Ellis & others the sum of $2.125 million plus GST if applicable by an upfront payment of $1.75 million and 6 annual payments of $62,500 each plus GST if applicable commencing on 1 July 2012. (b) Tony Ellis & others to receive 21.6% plus G.S.T of the Gross Marina berth income of the Rozelle Marina. They to be responsible to pay NSWMA 19% thereof (c) Tony Ellis & others to have transferred to them 21.6% of the surface water area of the berths of the Marina this percentage being represented by the appropriate number of berths which would make up that area (d) Mutual releases to cover all outstanding claims to the parties against the others or their associated companies arising out of the management and administration of the Rozelle Marina to date. (e) Tony Ellis and others to be indemnified by Brian James and others in relation to any claims made against them arising in relation to claims against SSM Pty Ltd and SSM Trustee Pty Ltd. (f) The parties will use best endeavour to obtain any necessary consents and leases or other rights for the purpose of implementing their agreement from NSW Maritime Authority. (g) Without affecting the binding nature of these Heads of Agreement the parties within 7 days to execute a formal document or documents as agreed between their respective solicitors to carry out and express in more formal terms and additional terms as these Heads of Agreement. The formal agreement is to contain a provision for monthly payments of 21.6% share of Gross Marina berth income based on a reasonable estimate of that income for that year (h) Mr Brian James to personally guarantee the payment of the annual payments referred to above (i) Settlement of the transaction to take place within 28 days of the execution of a formal agreement as reference to (g) above Signed by Tony Ellis on behalf of Tony Ellis and others On 22/7/2011 Signed by Brian James on behalf of Brian James and others on 22/7/2011."

THE JUDGMENT AT FIRST INSTANCE 11The primary judge found first that the language used in the Heads of Agreement indicated that the parties intended to be bound by the document (Judgment [96] and [114]). He considered that in Clause 1(g) the words "Without affecting the binding nature of these Heads of Agreement" were "the clearest indication the parties intended immediately to be bound. These words do not in my opinion reasonably permit of a different interpretation" (Judgment [137]). 12His Honour also rejected the James Interests' arguments that the Heads of Agreement were void for uncertainty or incompleteness. He dealt with the principal of these arguments as follows. 13He first rejected the James Interests' argument that because the expression in Clause 1(b) "Gross Marina berth income" was not defined in the Heads of Agreement, or used in the agreements with NSWM, it was devoid of meaning, thereby rendering the Heads of Agreement void. 14In rejecting this argument his Honour had regard to evidence of the charges that were levied upon Marina users at the date of the Heads of Agreement. This evidence revealed that separate charges were made for "Berthing" and "Service", although some services were provided without additional charge to users who paid the Berthing levy. His Honour concluded: "[122] Therefore the expression 'Gross Marina Berth Income' must in my opinion be construed against the background of how the parties clearly knew the business operated. That expression is obviously intended to relate only to income derived from renting the berths although that rate does include services for rubbish removal etc. All other revenue from other services was not intended to be included in that expression. Given the surrounding circumstances known to the parties I regard the term as not suffering from any uncertainty". 15Secondly his Honour rejected a submission that Clause 1(c) of the Heads of Agreement, providing for the transfer to the Ellis Interests of 21.6 per cent of the surface water area of the berths of the Marina, was void for uncertainty (Judgment [125]). 16Thirdly, the primary judge rejected the James Interests' submission that the Heads of Agreement were incomplete, and therefore unenforceable by virtue of the absence of SSM, SSM T'ee and NSWM as parties (Judgment [142] - [143]).

Relief 17After concluding that it was appropriate to make an order for specific performance, the primary judge said: "154 The question is should the court grant specific performance of the proffered Deed or simply the promises? The Plaintiffs submit, correctly in my opinion that the Heads of Agreement contain seven operative promises. (See Plaintiff's submissions [93] to [99], 30 January 2012). 155 The fact the parties had delegated the formalising of their agreement to their respective solicitors whose task remains unfulfilled is no bar to a grant of specific performance. The Court can complete the task. In doing so it does not, so to speak fill any gaps, it completes the agreement the defaulting party has failed to implement. Godecke v Kirwan per Walsh J at 643, Gibbs J at 645-646. Turner v Bladin (1951) 82 CLR 463 per Williams, Fullager and Kitto JJ at 473; Axelsen v O'Brien per Latham CJ at 225. ... 158 If I am to order specific performance of the proffered Deed I need to be satisfied in my opinion its terms are both consistent with the Heads of Agreement and not unreasonable in its various requirements: Godecke v Kirwan per Walsh J at 642 - 643. 159 I articulate the issue in this way for a number of reasons. In Godecke, Walsh J construed the clause under consideration as only permitting the court to insert as a term one that would not be inconsistent with the original agreement. That would, it seems to me, follow a matter of course in any situation where the court completes the contractual obligations of the parties. To do otherwise would change the fabric of the agreement. After all what the solicitors in Godecke, as indeed here, were obliged to do was to implement the already existing agreement. That would mean simply using more formal language or adding additional terms. 160 Walsh J also thought the clause under consideration in Godecke limited the additional terms to those that could be described as objectively reasonable. The clause in that case expressly provided that the vendor's solicitor may "reasonably require" an additional term. Walsh J was of the opinion that those words should be construed as requiring a purchaser only to accept those terms which were objectively reasonable. In my mind although in Godecke the relevant term was express, I consider a court generally would not impose upon a party by way of an order for specific performance in circumstances such as these something which was objectively unreasonable." 18His Honour then considered the parties' submissions concerning the form of deed negotiated between them, of which the Ellis Interests sought specific performance. He concluded: "162 The provisions in the proposed Deed which were not the subject of agreement are proposed clauses 1.1.9, 1.1.20, 7.7, 7.8, 8.4.4, 8.4.36, 8.5.22, 8.5.30 and 17.1. The Plaintiffs seek specific performance of the Deed which includes these provisions. The Defendants did not challenge the proposition that these were the clauses in dispute. 163 The solicitors for the Defendants were obliged to co-operate with their counterparts to consummate the Deed so as to implement the agreement reached. Insofar as the Defendants failed to instruct their solicitors to do just that they were in breach of the agreement and they simply are not permitted to assert there is no agreement when they are the reasons the agreement has not been formalised. Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 ... ". 19These conclusions were based upon his Honour's earlier description of what he referred to as "a substantial drafting exercise" undertaken by the solicitors for the parties between 26 July and 24 August 2011. The communications between the solicitors took the conventional form of submission of, and responses to, drafts of a form of deed contemplated to be executed by the parties. The last draft was some 23 pages in length. As the primary judge's conclusion indicates (Judgment [162] quoted in [18] above), there was a large measure of, but not complete, agreement between the solicitors on the terms of the draft before the James Interests declined to participate further in the drafting exercise. 20The primary judge then determined the extent to which the clauses in the draft deed that had not been agreed were consistent with the Heads of Agreement and reasonable in their scope. He considered that those that met these criteria should have been agreed by the James Interests and should therefore be included, along with the agreed clauses, in the draft deed that he proposed to order the parties to execute. 21On 28 February 2012 his Honour made formal orders including the following: (a) A declaration that there was a binding and enforceable contract for the sale of the Ellis Interests' shares in SSM and SSM T'ee and their units in the Unit Trust. (b) An order that that contract be specifically performed. (c) An order that the James and Ellis Interests "execute a document in the form of the deed of settlement and release attached to this Short Minute of Orders" and that settlement occur by 5.00 pm on 9 March 2012. (d) An order that the James Interests specifically perform obligations arising under the deed to pay $62,500 on 1 July in the years 2012 to 2017. 22I turn now to consider the bases upon which the James Interests challenge the primary judge's judgment.

WHETHER THE HEADS OF AGREEMENT WERE INTENDED TO BE LEGALLY BINDING 23As indicated by McHugh JA in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, whether the parties intended to make a binding contract "must be objectively asertained from the terms of the document when read in the light of the surrounding circumstances" (at 634); although note Western Export Services Inc v Jireh International Pty Limited [2011] HCA 45; 282 ALR 604 as to the use that may be made of surrounding circumstances; see also Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at [25]). I agree with the primary judge that the words "Without affecting the binding nature of these Heads of Agreement" in clause 1(g) of the Heads of Agreement are decisive in revealing the parties' intent to be bound by the Heads of Agreement. The present is the type of case referred to by McHugh JA as follows: "Even when a document recording the terms of the parties' agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that 'the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms': Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 (at 317)" (ibid at 634; see also Niesmann v Collingridge [1921] HCA 19; 29 CLR 177; Godecke v Kirwan [1973] HCA 38; 129 CLR 629 at 639-40). 24The present case is stronger than G R Securities as in that case the relevant document referred to "a legally binding agreement in principle ... until such time as formal Contracts were exchanged". McHugh JA noted that if the words "in principle" had not appeared in the relevant document, "it would [have been] impossible to contend that this correspondence did not constitute a binding agreement for the sale of the land, buildings, equipment and business name" (at 635). In the present Heads of Agreement, there are no words such as "in principle" to cast doubt upon the parties' intent to be immediately bound.

WHETHER THE HEADS OF AGREEMENT WERE VOID FOR UNCERTAINTY OR INCOMPLETENESS 25The James Interests first submitted that the Heads of Agreement were void because SSM, SSM T'ee and NSWM were not parties to them. 26I do not agree that it was necessary for SSM or SSM T'ee to be a party to the Heads of Agreement. Shares in their capital were able to be sold without their involvement and clause 1(b)(c) did not require their participation. The James Interests, which were to become the owner of all of the shares in SSM and SSM T'ee, could give effect to clause 1(b) by paying, or causing SSM or SSM T'ee to pay, to the Ellis Interests an amount equivalent to 21.6 per cent plus GST of the Gross Marina berth income. The clause did not require an assignment by SSM or SSM T'ee of any rights to income that they had under their agreements with NSWM. Whilst clause 1(c), requiring the transfer of 21.6 per cent of the surface water area, could not be effected without the consent of NSWM, clause 1(f) required the parties to use their best endeavours to obtain "any necessary consents" from NSWM. The absence of NSWM's consent did not render void the James Interests' agreement to transfer. By reason of clause 1(f) it was implicitly conditional on the obtaining of NSWM's consent. 27Secondly, the James Interests submitted that their agreement in clause 1(c) to transfer 21.6 per cent of the surface water area was void for uncertainty due to the absence of identification of the precise area to be transferred. In my view, however, it is for the James Interests to decide which portion of the total area to transfer. The James Interests are the parties on whom the obligation to take action rests. They may satisfy that obligation by transferring any part of the total surface area that constitutes 21.6 per cent of the whole. The general rule is that where a promise permits performance in a number of ways and does not state which party has the right to elect, the promisor has the right to elect which of the methods of performance he will choose (Timmerman v Nervina Industries (International) Pty Ltd [1983] 2 Qd R 261 at 262 and the authorities there cited). The James Interests thus have an election as to the mode of performance, as in Jolley v Mainka [1933] HCA 43; 49 CLR 242. There are alternative ways in which the relevant obligation may be performed and it is clear, as a matter of construction of the contract, upon which party the right of election falls (at 262; see also K Lewison & D Hughes, The Interpretation of Contracts in Australia (2011) Thomson Reuters [8.06 - 8.07]). 28Even if there is doubt as to which of the parties have the right of election, the Heads of Agreement are not thereby rendered void for uncertainty. As long as it is not completely devoid of meaning, an ambiguous provision is valid and bears such meaning as the court attaches to it after due consideration (see Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; 118 CLR 429 at 436 per Barwick CJ). 29Thirdly, the James Interests submitted that a meaning was incapable of being ascribed to the expression "Gross Marina berth income" in clause 1(b), rendering the agreement void for uncertainty. 30I reject this submission as I agree with the conclusion reached by the primary judge on this point (see [13] - [14] above). I discern no error in his Honour's approach of resolving the ambiguity in this expression by having recourse to surrounding circumstances subsisting at the date of the agreement and known to both parties, particularly the nature of the charges for berth and service income then made in respect of the marina. 31Fourthly, the James Interests submitted that there was a conflict between clause 1(d) relating to mutual releases and clause 1(e) relating to indemnification. Even if there were such a conflict, it could be resolved by the court, after proper consideration and construction of the subclauses, thereby avoiding the conclusion that the clause, and perhaps the whole Heads of Agreement, were void for uncertainty. In any event the clauses are readily reconcilable. Clause 1(d) relates to the release of claims between the parties and clause 1(e) imposes an obligation on the James Interests to indemnify the Ellis Interests in respect of claims made by third parties. Clause 1(d) must clearly be read as qualified by the obligation imposed by clause 1(e). 32For these reasons I find that the agreement embodied in the Heads of Agreement was not void for uncertainty or incompleteness.

THE SPECIFIC PERFORMANCE ORDERS MADE AT FIRST INSTANCE 33As noted above, the primary judge took the view that an order for specific performance should be made requiring the parties to enter into a form of deed containing clauses that were either agreed upon in the post-Heads of Agreement negotiations or were both reasonable and consistent with the Heads of Agreement. I respectfully disagree with this view.

Whether binding agreement as to some clauses 34I do not consider that in the post-Heads of Agreement negotiations the parties reached any binding agreements concerning particular clauses to be included in the deed contemplated to be executed. The expressions of agreement made by the respective solicitors concerning a large number of clauses in the draft deeds under discussion must be understood in the context of the parties' intent to execute a deed once all the clauses had been agreed upon. Parties who reach agreement in these circumstances are not, in the absence of special circumstances, bound by those agreements until the document contemplated is executed (see Allen v Carbone [1975] HCA 14; 132 CLR 528; GR Securities at 634; Peter Warren (Properties) Pty Ltd v Jalvoran [2004] NSWSC 1149 at [30] - [40]; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 547 - 8). There are no special circumstances here indicating that the parties intended to be bound by agreements between solicitors regarding particular clauses of the draft deed prior to execution of the contemplated deed, or at least before agreement had been reached on all its terms. 35The Ellis Interests submitted that the James Interests did not argue at first instance that they did not agree to be bound by any of the terms of the draft deed of 18 August 2011 absent execution of the deed or at least all those terms being agreed upon and that the James Interests should not be permitted to raise the point for the first time on appeal (Supplementary Written Submissions filed on 23 May 2012 [3] and [4]). I reject this submission as for the following reasons I do not regard the James Interests' argument as a new one. 36First, the James Interests' Commercial List Response filed on 28 October 2011 contended that any agreement between the parties was "subject to a formally executed Deed of Settlement and Release" ([A5]) and that because there was "no concluded Deed of Settlement or Release there was no agreement between the parties" ([C23(c)]. Secondly, the James Interests' final submissions contended, inter alia, that "the Court would not force the [James Interests] to execute a draft Deed of Settlement and Release ... that they did not agree to and especially so where the deed was clearly incomplete as to the following paragraphs, and ... where it is accepted that the following items are not agreed ... " (Defendants' Closing Submissions dated 7 February 2012 [42]). Embodied in this contention was the proposition, consistent with that put on appeal, that although various clauses had been agreed, the James Interests should not be required to execute the Deed in the absence of agreement on all the clauses. This proposition reflects the terms of clause 1(g) of the Heads of Agreement which obliges the parties to execute "a formal document or documents as agreed between their respective solicitors" and therefore only when all clauses have been agreed upon.

Clauses that are consistent with the Heads of Agreement and reasonable 37The next issue is whether the Ellis Interests were entitled to an order requiring the James Interests to execute a deed containing clauses which, whilst not agreed upon in a binding fashion, were consistent with the Heads of Agreement and were objectively reasonable. For the reasons that follow I differ from the primary judge's conclusion that satisfaction of these criteria was sufficient to warrant such an order being made. In my view, in the absence of agreement between the parties on the draft of the formal agreement, clause 1(g) of the Heads of Agreement justified no more than an order that the parties enter into a formal agreement containing terms to the same effect as those in the Heads of Agreement and provisions of a mechanical nature implementing that agreement. Reasonableness and consistency with the Heads of Agreement was not a sufficient basis on which to include additional terms. Terms may be consistent with an informal agreement yet travel significantly beyond its provisions. Consistency is not the same as equivalence. 38The primary judge relied primarily upon the decisions in Godecke v Kirwan [1973] HCA 38; 129 CLR 629 and Axelsen v O'Brien [1949] HCA 18; 80 CLR 219 for his conclusion that where parties have delegated the formalisation of their agreement to solicitors who have not completed this task, the Court can "complete the task. In doing so it does not, so to speak fill any gaps, it completes the agreement the defaulting party has failed to implement" (at [155]). His Honour went on to say that any terms that the Court decides should be included to complete that task must be "both consistent with the Heads of Agreement and not unreasonable in its various requirements" ([158]). 39I disagree with these conclusions as I consider that, under the Heads of Agreement in the present case, further agreement of the parties, reached through their solicitors, was required in order to settle the terms of the contemplated formal document. That is a very different situation from that which arose in Axelsen and Godecke where the further terms were to be determined by a solicitor or solicitors for one of the parties without the need for further agreement between the parties (or their solicitors). 40In Axelsen v O'Brien an agreement for the sale of land stated that a mortgage to be given to secure payment of part of the purchase money was to contain, in addition to certain specified basic terms, "such other terms and conditions as shall be required by [the vendor's solicitor] not inconsistent with the above terms" (at 222). Latham CJ (with whom Rich J agreed) cited the following statement of Lord Dunedin in May & Butcher Ltd v The King [1934] 2 KB 17 at 21: "To be a good contract there must be a concluded bargain and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which has still to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties" (at 224 - 5). 41Latham CJ considered that in the case then before the Court the terms of the mortgage did not depend upon the further agreement of the parties. Instead, it was for the solicitor for one of the parties to settle the terms. He then observed: "Should the position arise that the terms of the mortgage cannot be settled by [the solicitor], then the remedy is in the hands of the court and the court would settle the terms" (at 225). 42Dixon J considered that the identification of the terms of the mortgage was not "an essential part of the contract" but was part of "the means to carry the sale into effect" (at 226). His Honour considered that the Court could if necessary settle the terms of the mortgage (ibid) but the context in which both he and Latham CJ spoke, in my view, indicated that they were referring only to the inclusion of provisions of a mechanical nature designed to implement the existing agreement between the parties. 43Axelsen v O'Brien differs from the present case in which clause 1(g) of the Heads of Agreement specifically provides for the terms of the contemplated "formal document" to be agreed upon by the parties' solicitors. This is the type of situation referred to by Lord Dunedin in May & Butcher (see [40] above). 44In Godecke v Kirwan, a signed document concerning the sale of land provided for the execution of a further agreement containing certain specified terms and such other covenants and conditions as the vendor's solicitors might reasonably require. 45Walsh J (with whom Mason J agreed) took the view that subject to the qualifications stated by Bray CJ in Powell & Berry v Jones & Jones [1968] SASR 394, the leaving of a matter to be determined by one of the contracting parties did not detract from the binding nature of a contract. The qualifications stated by Bray CJ were that the agreement must not "have left to the option of one party not only the mode of performance but whether there shall be any performance at all" (at 397) and that "all the terms of the bargain are settled" (at 398). 46Walsh J found that the clause in question imposed an obligation to execute a formal contract limited to reasonable covenants and conditions selected by the vendor's solicitors not inconsistent with those contained in the informal agreement. Gibbs J doubted whether it would be possible for an enforceable contract to leave further terms to be settled by one of the parties because that would be tantamount to conferring on a promisor under a binding contract the discretion or option as to whether to carry out a purported promise (646 - 7). He considered however that the clause before the Court was not of that type as it left further terms to the determination of third parties (namely the vendor's solicitors) who were not privy to the contract (at 647).

Solicitors' role 47I do not accept the Ellis Interests' submission that clause 1(g) in the present case contemplated that the solicitors were to act as third parties independent of their clients. Rather, the opposite view was suggested by the clause providing that the solicitors might agree upon "additional terms" for inclusion in the Heads of Agreement. Without a clear indication otherwise, I would not conclude that the parties intended to bind themselves to an agreement containing terms agreed by the respective solicitors without instructions from the parties. The evidence of the negotiations between the solicitors in the present case indicates, as one would expect, that they were guided by their clients' instructions in the negotiations and were not acting as independent arbiters. 48The present case is distinguishable from Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 in which the preliminary agreement contemplated the execution of an annexed form of agreement containing "any additional terms and conditions recommended by the parties' legal advisers" (at 313). In that case Mahoney JA took the view that the legal advisers "would be acting not, as such, as agents of the parties or either of them: they would respectively be exercising an independent judgment, committed to them by the clause" (at 329). It is understandable that solicitors asked to recommend the inclusion of provisions in a contract might be so acting but I consider that the position is different where, as here, the solicitors are to determine, not suggest, what terms are to be included in the contract. 49In circumstances such as the present, whilst the Court may make an order for specific performance requiring the parties to execute a contemplated formal agreement, it cannot require the inclusion in that document of terms simply upon the basis that, whilst not agreed, they are reasonable and consistent with the parties' informal agreement. It is otherwise with terms that, whilst not agreed, are of a mechanical nature and are designed to implement the informal agreement (see for example Singh (Sudagar) v Nazeer [1979] Ch 474; [1978] 3 Al ER 817 at 480 - 2 per Sir Robert Megarry V-C).

THE APPROPRIATE SPECIFIC PERFORMANCE ORDER 50After the appeal hearing, the parties lodged, at the Court's direction, written submissions concerning the form of order that would be appropriate if the Court reached conclusions to the effect of those that appear in [33] - [49] above. Having considered those submissions, my view is that to give effect to the requirement of Clause 1(g) of the Heads of Agreement that the parties execute a formal agreement, the Court should order by way of specific performance of the Heads of Agreement that the parties execute a document in the form set out in Attachment A to this judgment (the "Formal Contract"). This order would substantially reflect the order sought by the Ellis Interests in their post-hearing submissions. The following observations should be made about the Formal Contract and the parties' submissions. 51I reject the James Interests' submission that the orders sought by the Ellis Interests in their post-hearing submissions, and which I consider should in large measure be made, are materially different from those that they sought at first instance and that the James Interests have been prejudiced by the loss of an opportunity to put arguments against, and raise discretionary defences to, the claim for such orders. In my view the orders now sought, and which I propose that the Court should make, are narrower than those made by the trial judge. They fall within the ambit of, but do not go as far as, the orders sought by the Ellis Interests at first instance and made by the primary judge. In these circumstances I do not consider that the James Interests have been unfairly prejudiced. 52I reject also the James Interests' submission that this Court should not vary the orders for specific performance made at first instance in the manner for which the Ellis Interests contended in their post-hearing submissions as the James Interests should be given the opportunity to contend that such varied orders would impose undue hardship upon them. As I have indicated, I consider that the orders now proposed fall within the ambit of those sought at first instance. As no hardship defence was raised at first instance and such a defence would require consideration of factual issues that have not been addressed, it should not in my view be permitted to be raised on appeal. This is not to say however that hardship to the James' Interests may not be relevant if questions of enforcement of this Court's orders arise (see Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th ed (2002) LexisNexis Butterworths [20 - 270]; I Spry, The Principles of Equitable Remedies, 8th ed (2009) Lawbook Co., pp 372 - 3; P Young, C Croft & M Smith, On Equity (2009) Lawbook Co., [16.1460]). 53I also reject the James Interests' submission that the Ellis Interests' claim for specific performance is not based upon any breach of the Heads of Agreement by the James Interests. The primary judge clearly found that the James Interests breached the Heads of Agreement by ceasing to instruct their solicitors to negotiate the form of formal agreement to be executed by the parties (Judgment [163]). 54Specific comments on the provisions of the Formal Contract set out in Annexure A to this judgment are as follows (using the clause numbers of that document): (1) Contrary to the James Interests' submissions, there is no doubt that the reference in the Heads of Agreement to units to be transferred was to units in the Sydney Superyacht Marina Unit Trust. (5) It is clearly implicit in the Heads of Agreement that the James Interests' obligation to pay 21.6 per cent plus GST of the Gross Marina berth income would only continue so long as that income was derived by SSM or SSM T'ee. The first part of Clause 5 in Attachment A reflects this. The Ellis Interests accepted that this limitation was appropriate. Clause (5) does not state whether the James Interests' obligation would cease when the James Interests no longer owned a controlling interest in SSM and SSM T'ee. As this point was not the subject of argument on appeal, it should be left for determination if and when that circumstance occurs. This point should remain unresolved by the Formal Contract simply repeating the words of the Heads of Agreement. The Ellis Interests' submissions did not suggest that the Formal Contract should contain a provision reflecting the last sentence of Clause 1(g) of the Heads of Agreement. Such a provision would be for the sole benefit of the Ellis Interests as it would entitle them to receive amounts representing 21.6 per cent of estimates of the Gross Marina berth income prior to the income being derived. Their right to require the inclusion of such a provision can therefore be waived (Maynard v Goode [1926] HCA 4; 37 CLR 529) and I regard their non-inclusion of such a provision in their draft Formal Contract as effecting this waiver. It is appropriate, as provided for in Clause (11)(iii) of the Formal Contract that the expression Gross Marina berth income be defined in a manner that conforms with the meaning attributed to it by the primary judge in a finding not successfully challenged on appeal. In their submissions, the Ellis Interests expressly waived their right to have 21.6 per cent of the surface area of the Marina berths transferred to them, as provided for in Clause 1(c) of the Heads of Agreement in the event, as in my view should occur, that the Court finds that no formal agreement was reached between the parties' solicitors for the purposes of clause 1(g). As Clause 1(c) operated for the sole benefit of the Ellis Interests, they are entitled to waive its performance. It is therefore appropriately excluded from the draft Formal Contract. (7) - (10) It is appropriate that the terms of these clauses reflect the corresponding clauses in the Heads of Agreement. Any doubts concerning their operation may require resolution in further proceedings, if disputes arise.

COSTS 55I do not consider that the primary judge's order that the James Interests pay the Ellis Interests' costs of the proceedings should be varied. Although, when the outcome on appeal is taken into account, the Ellis Interests have not obtained the entirety of the relief that they sought, they have succeeded on the issues concerning the Heads of Agreement and have obtained most of the relief that they sought. 56Whilst the James Interests have had some success on appeal in relation to the ambit of the specific performance orders made at first instance, they have been unsuccessful on the issues that they raised concerning the Heads of Agreement and in resisting narrower orders for specific performance of the Heads of Agreement. In these circumstances, I would order the James Interests to pay 75 per cent of the Ellis Interests' costs of the appeal.

PROPOSED ORDERS 57The orders that I propose are as follows: (1) Grant leave to appeal from the orders made at first instance on 28 February 2012. (2) Appeal allowed in part. (3) Set aside Orders 2 to 13 inclusive made on 28 February 2012. (4) Order that the contract referred to in Order 1 made on that date be specifically performed as provided in the orders below. (5) Order that within 14 days of the date of these orders (or within such extended period as may be determined by a judge of the Equity Division) each of the appellants and the respondents executes a document in the form set out in Annexure A to these orders (the "Formal Contract"). (6) Liberty to apply on three days' notice to a judge of the Equity Division in relation to the date and time of settlement of the Formal Contract and generally in relation to the implementation and enforcement of these orders. (7) Order that the Formal Contract be settled in accordance with clause (2) of it and such directions as to the date and time of settlement as may be given by a judge of the Equity Division (8) Order, pursuant to s. 94 of the Civil Procedure Act 2005, that if any of the appellants does not comply with order 5, the Formal Contract be executed on his or its behalf by a Registrar of the Supreme Court. (9) Order that the appellants specifically perform each of the obligations assumed by them under the Formal Contract as and when the time for performance of those obligations arises under the Deed. (10) Order the appellants to pay 75 per cent of the respondents' costs of the proceedings on appeal. 58MEAGHER JA: I agree that for the reasons given by Macfarlan JA, the orders that his Honour proposes should be made.

FORMAL CONTRACT (1) The Vendors (as defined below) shall transfer to the Purchasers (as defined below) all their shares in Sydney Superyacht Marina Pty Ltd ("SSM") and SSM'Tee ("SSM T'ee") and the units in Sydney Superyacht Marina Unit Trust ("the shares and units") upon the terms recorded in paragraphs (2) to (11). (2) Settlement of this Contract ("Settlement") shall occur at the offices of AR Connolly & Company Lawyers, Level 11, 275 George Street, Sydney at [ ] a.m. on [ ], being a date not later than 28 days after the date upon which this Contract is executed by or on behalf of each of the parties to it. (3) On Settlement: (i) The Vendors shall deliver to the Purchasers or their solicitors, all documents necessary to effect transfer of the shares and units. (ii) On delivery of the documents in (i) the Purchasers shall pay the Vendors by bank cheque $1.75M plus GST, if applicable. (4) On each of the dates mentioned in subparagraphs (i) to (vi) inclusive, the Purchasers shall pay the Vendors $62,500 plus GST, if applicable: (i) The date 14 days after the date of Settlement; (ii) 1 July 2013; (iii) 1 July 2014; (iv) 1 July 2015; (v) 1 July 2016; (vi) 1 July 2017. (5) For so long as SSM and SSM T'ee hold licences, leases or other rights granted by NSW Roads and Maritime Services ("NSWRMS") deriving from the Access and Works Licence Deed dated 15 June 2010 and the Development Deed dated 15 June 2010, the Purchasers shall pay the Vendors each month a sum equivalent to 21.6% plus GST of the Gross Marina berth income of the Marina derived by SSM or SSM T'ee. (6) On receipt of the monthly payment the Vendors shall pay 19% of the monthly payment to NSWRMS. (7) The Vendors and the Purchasers release each other from all outstanding claims to the parties against the other or their associated companies arising out of the management and administration of the Rozelle Marina to date. (8) The Purchasers indemnify the Vendors in relation to any claims made against them arising in relation to claims against SSM and SSM T'ee. (9) The parties will use their best endeavours to obtain any consents and leases or other rights from NSWRMS necessary to implement this agreement. (10) Mr Brian James hereby guarantees payment of the amounts provided for in clause (4). (11) For the purposes of this agreement: (i) The Vendors means AW Ellis Engineering Pty Limited, Anthony Winthrop Ellis, Samsar Marina Pty Limited and Sam Alexander Mitchell. (ii) The Purchasers means Malago Pty Limited, Brian Knight James, Turon Australia Pty Limited and Justin William Allen James. (iii) Gross Marina Berth Income means all revenues derived from berthing vessels at the Marina but not including revenue derived from providing services to berthed vessels, provided always that the provision of work by Marina employees, the provision of fresh water, sewerage pump out and rubbish removal shall not constitute services for the purposes of this definition.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 July 2012