Supreme Court of WA|2003-08-21|Before: McLure J

Newmarket Corporation Pty Ltd & Ors v Kee-Vee Properties Pty Ltd & Ors [2003] WASC 157 (21 August 2003)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : NEWMARKET CORPORATION PTY LTD & ORS -v- KEE-VEE PROPERTIES PTY LTD & ORS [2003] WASC 157

HEARD : 10-12, 20, 21 & 24 FEBRUARY, 8, 26-28 & 30 MAY 2003

BETWEEN : NEWMARKET CORPORATION PTY LTD (ACN 082 463 474)

Contract - Whether void - Whether losses caused by breach or too remote - Whether failure to mitigate - Whether losses speculative - Turns on own facts

Trade Practices Act - Whether representations made - Whether representation relied on - Whether loss caused by breach or too remote - Whether failed to mitigate - Turns on own facts

Trade Practices Act 1974 (Cth), s 51A, s 52, s 75B, s 87(2)

Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2 NSWLR 26

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) [1989] FCA 246; (1989) 89 ALR 539

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286

Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91

Placer Development Ltd v The Commonwealth [1969] HCA 29; (1969) 121 CLR 353

Scanlan's New Neon Ltd v Tooheys Ltd [1943] HCA 43; (1943) 67 CLR 169

Seddon v North Eastern Salt Company Ltd [1905] 1 Ch 326

Taco Company of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177

Trade Practices Commission v Tubemakers of Australia Ltd [1983] FCA 93; (1983) 47 ALR 719

Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40940

York Air Conditioning & Refrigeration (Australasia) Pty Ltd v The Commonwealth [1949] HCA 23; (1949) 80 CLR 11

1 At all material times the first defendant, Kee-Vee Properties Pty Ltd ("Kee-Vee"), was the registered proprietor of the land on the corner of Rockingham Road and Cockburn Road South Fremantle on which stood premises licensed under the Liquor Licensing Act 1988 (WA) called the Newmarket Inne ("Hotel").

2 Until July 1998 Kee-Vee carried on business at the Hotel pursuant to a tavern licence. The Hotel comprised a heritage building with a "modern" (out of character) extension and a separate bottle shop. The bottle shop consisted of a transportable unit on a steel frame with a lean-to verandah. A lounge bar was conducted from the extension to the heritage building. It was known as the "blood bar" to reflect the propensity of patrons to resort to aggressive or violent behaviour. The Hotel featured "skimpys", "raunchy girls" and the like.

3 The second defendant, Keith Boucher is, and was at all material times, a director of Kee-Vee. In 1997 Kee-Vee retained the third defendant, Cardiff Nominees Pty Ltd trading as White & Associates, as its agent to sell the Hotel business. The fourth defendant, Allan Maller, was a servant or agent of the third defendant and acted for Kee-Vee in relation to the proposed sale. Mr Maller was also a long time friend of the fifth defendant, Charles Clifford. Mr Clifford, a chartered accountant, provided accounting services to the second plaintiffs, Giuseppe and Desley Sansone. The Sansones had money to invest. Mr Clifford recommended the Hotel business to them. The Sansones and Messrs Clifford and Maller formed a syndicate to purchase the Hotel business which was done through the first plaintiff, Newmarket Corporation Pty Ltd ("Newmarket"), a company incorporated in May 1998.

4 Messrs Clifford, Maller and Boucher were primarily involved in the negotiations leading to the sale. The parties intended that the existing Hotel premises would be renovated and upgraded and a new bottle shop constructed. In essence, it was proposed that the heritage building be renovated, the modern extension and existing bottle shop be demolished and a new bottle shop constructed. Kee-Vee was to undertake the structural work and Newmarket was to fit out the renovated and upgraded premises.

5 By an undated agreement in writing between, inter alia, Kee-Vee and Newmarket, Kee-Vee sold the Hotel business to Newmarket ("Sale Agreement"). It was a condition of the Sale Agreement that Newmarket enter into a lease with Kee-Vee for a term to coincide with the redevelopment works to be undertaken by Kee-Vee ("short term lease") and on completion of those works to enter into a long term lease.

6 Newmarket and Kee-Vee entered into the short term lease on 1 July 1998. Newmarket went into possession of the Hotel on 8 July 1998, being the settlement date under the Sale Agreement. By October/November 1998 Kee-Vee had commenced the redevelopment works. On 13 November 1998 Newmarket and Kee-Vee entered into a Deed of Agreement for Lease ("Agreement for Lease") which identified the works to be undertaken by each of Newmarket and Kee-Vee. Annexed to the Agreement for Lease was the long term lease which was to commence on completion of the works to be undertaken by Kee-Vee ("the Lessor's Works").

7 It was accepted that Kee-Vee did not complete the Lessor's Works. Kee-Vee says it was prevented from doing so by Newmarket's conduct.

8 The relevant local government authority, the City of Cockburn, issued Notices dated 23 October 2002 to vacate the Hotel on the ground that it was unfit for human habitation. As a consequence, the Director of Liquor Licensing suspended the Hotel's liquor licence. Newmarket carried on the Hotel business from 8 July 1998 until around 25 October 2002 when it vacated the Hotel. It then ceased paying rent.

9 By Notice of Default under the short term lease Kee-Vee required Newmarket to comply with its obligation to pay rent and thereafter issued a Notice dated 26 November 2002 terminating the short term lease upon Newmarket's failure to remedy the default.

10 It is fair to describe the venture as an unmitigated disaster for all involved.

(a) was in breach of contract in failing to complete the Lessor's Works under the Agreement for Lease;

(b) by its agents Messrs Boucher and Maller engaged in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) ("TPA") on which Newmarket relied in purchasing the Hotel business.

Kee-Vee filed a defence and counterclaim. It claims inter alia that:

(i) the clause of the Agreement for Lease relating to the Lessor's Works (cl 5) is void for uncertainty; alternatively

(ii) in breach of contract Newmarket prevented Kee-Vee from completing the Lessor's Works;

(iii) Newmarket was in breach of the short term lease in failing to comply with Notices from the City of Cockburn resulting in the City declaring the Hotel unfit for human habitation and the Director of Liquor Licensing suspending the liquor licence;

(iv) Newmarket failed to pay rent due on 1 November 2002 and failed to comply with a notice of default in relation thereto as a result of which Kee-Vee terminated the short term lease. Kee-Vee also relies on Newmarket's abandonment of the Hotel.

12 Kee-Vee claims damages for Newmarket's conduct in preventing the redevelopment and damages for breach of the short term lease.

13 Newmarket does not in its reply specifically plead to the matters referred to in (i), (iii) and (iv) above and does not plead that Newmarket terminated the short term lease (or any other agreement) for Kee-Vee's breach.

14 Newmarket's claims against the third, fourth and fifth defendants were settled prior to trial as were claims for contribution and indemnity between defendants.

15 The following factual matters are not in dispute. Newmarket, Kee-Vee and the Sansones and Messrs Clifford and Maller as guarantors entered into three agreements. The first in time was the Sale Agreement.

16 The business purchased by Newmarket was "the goodwill, Business Name, and all licences of the Business and all the plant, equipment, fittings and fixtures of the Business and the Stock-in-Trade" of the licensed tavern business carried on by Kee-Vee at the Hotel.

17 The Sale Agreement contains a number of conditions labelled as conditions precedent to the Sale Agreement. Clauses 2.3 and 2.4 materially provide:

"2.3 Lease

The agreement for sale contained in this Deed is subject to and conditional upon the parties hereto prior to the Settlement Date entering into a Lease in the form annexed hereto and marked with the letter "A".

2.4 Agreement for Lease

The agreement for sale contained in this Deed is subject to and conditional upon the parties hereto prior to the Settlement Date entering into an Agreement for Lease (with Lease annexed) for the Lease of the Premises after the completion of renovation, demolition and re-building of the Premises."

18 Settlement date is defined to mean the date on which settlement is actually effected. It is common cause that settlement occurred on 8 July 1998. The lease referred to in cl 2.3 is the short term lease which was executed by Newmarket, Kee-Vee and the guarantors on 1 July 1998. The Agreement for Lease (with or without Lease annexed) was not executed prior to the settlement date. As previously mentioned, the Agreement for Lease was entered into on 13 November 1998. The failure to satisfy cl 2.4 prior to the settlement date is not an issue in these proceedings. I infer that the clause was waived by the parties.

19 The purchase price of the business was $175,000. A deposit of $5,000 was payable shortly after execution of the Sale Agreement. Half of the balance of the purchase price ($85,000) was payable on settlement and the other half three months after settlement. Newmarket paid the purchase price.

20 The second agreement executed by the parties is the short term lease made on 1 July 1998. The rent clause of the short term lease provides:

"Clause 5.01 - Minimum annual rental

The Lessee shall pay to the Lessor a minimum annual rental for each year at the rate specified in Item 3 of the Second Schedule hereto subject always to the provisions herein for review and variation."

21 The minimum annual rental is specified in the schedule as $85,000. However, the short term lease makes no provision for a review or variation of the rental.

22 The termination date of the short term lease is stated to be:

"The date that the Lessor and the Lessee enter into a new Lease for the Tavern in the form of Lease annexed to the Deed of Agreement for Lease dated the of 1998."

23 As stated earlier, the long term lease was intended to be annexed to the Agreement for Lease which in turn was to be executed before the settlement date under the Sale Agreement. However, it is common cause that the parties had not at that stage signed the Agreement for Lease or the proposed long term lease.

24 The third agreement, the Agreement for Lease was made on 13 November 1998. The Agreement for Lease provides that the long term lease shall commence on the date of issue of the certificate of practical completion of the Lessor's Works. The long term lease is annexed in the Fifth Schedule. It is signed by the parties but the provision for the minimum rental is left blank. However, particulars of the initial annual rental payable under the long term lease are set out in the Fourth Schedule of the Agreement for Lease as follows:

"An amount calculated in accordance with the following formula:

(a) ONE HUNDRED AND TWENTY THOUSAND DOLLARS ($120,000.00) plus

(b) TEN (10%) per cent of the amount certified by the Lessor's authorised representative as the Lessor's costs for the Lessor's Works specified in the Third Schedule."

25 The recitals to the Agreement for Lease acknowledge that Kee-Vee was in the process of renovating the heritage building, demolishing the extension and existing bottle shop and constructing new buildings (being the new bottle shop and an addition to the heritage building). The proposed works are shown on a plan annexed to the Agreement for Lease.

26 Clause 5 of the Agreement for Lease refers to the Lessor's Works. It provides:

"5. COMPLETION OF THE BUILDING AND THE LEASED PREMISES

The Lessor shall cause the Building and the Leased Premises to be completed diligently and within a reasonable time period and in accordance with the particulars set forth in the Third Schedule hereto ('the Lessor's Works') and the Lessor shall not be bound to perform any work other than that shown or specified therein. If the Lessee shall request any variations or additions to the Lessor's Works such variations or additions may be carried out by the Lessor at the Lessor's absolute discretion but at the cost of the Lessee."

27 "Building" is defined as the renovated existing building and the new building. It is necessary to set out the Third Schedule in full. It provides:

"1. The Lessor will complete the Building and the Leased Premises substantially in accordance with the Plans and Specifications prepared by the Lessor's architects annexed hereto (including all work required by the local authority and any statutory or government bodies) with the exception of the Lessee's Works PROVIDED THAT the Lessor shall carry out the works specified in paragraph 2 hereof.

2. It is acknowledged that the Lessor will at the Lessor's expense carry out the following works to the Lease Premises:-

(a) Demolition of existing bottleshop, external structures around hotel including lounge bar and formation of wall openings in the ground floor of the existing hotel building shown on drawing WD2. Lounge bar to remain trading during constructions. Demolish bars, suspended ceiling etc., in existing hotel.

(b) Carry out site excavation, regrading and general preparation for the carpark and driveway and provision of new pavement and drainage works.

(c) Construction of median requirements of Main Roads WA in Cockburn Road including verge parking provisions.

(d) Landscape site to Council requirements.

(a) Construction of the building shell including concrete floor, steel frame brick inner walls, limestone external face with brick features, custom orb roof, roller shutters, security barriers, steel entry feature and automatic doors.

(b) Provision of suspended ceilings using prepainted plasterboard in 'T bar' section to retail areas.

(c) Construction of toilets and entry pavement.

(d) Provision of general lighting.

(e) Provision of wall finishes.

Hotel Reinstatement and building works by the Lessor:

(a) Make good new openings in ground floor walls.

(b) Construct toilets including facility for disables (sic).

(c) Extend building into courtyard and complete with glazed wall and folding timber framed door wall.

(d) Provide entry on south face.

(e) Repair external walls, and repoint as required.

(f) Prepare Conservation Plan for Council.

(g) Replace raised floor in existing kitchen, toilet and lounge with new floor at general floor level (RL 13.19AHD).

(h) Replace super six asbestos cement roof covering with custom orb zincalume.

(i) Refurbish verandah front to resemble original verandah and extend southwards along the Cockburn Road frontage.

(j) Rewire hotel to provide for general lighting and power only (balance by Lessee).

(k) Extend sewer to one main connection point to service all ablution areas and kitchen (to service fitout by Lessee).

(l) Erect courtyard and service area walls and pave courtyard.

(m) Repair and make good external stair and southern verandah balustrade.

(n) Extenral (sic) pipe runs.

(o) Making good and polishing timber floors in marked areas only.

(p) Paint interior with standard paint.

(q) Provision of piping gas heating in bars."

28 It is common ground that the plans and specifications referred to in cl 1 of the Third Schedule were not annexed to the Agreement for Lease. Kee-Vee pleaded that there was an oral agreement made on 7 October and 2 November 1998 to carry out the works in accordance with specified working drawings. However, no evidence to that effect was adduced at trial and the first and second defendants abandoned the claim in closing.

29 The Lessee's Works are dealt with in cl 3 and the Second Schedule of the Agreement for Lease. Clause 3 provides:

"3. WORK TO BE CARRIED OUT BE LESSEE

The Lessee shall carry out and perform at the expense of the Lessee the works described in the Second Schedule ('the Lessee's Works') and shall complete the Lessee's Works within TWELVE (12) months after the granting of the licence and authority referred to in clause 4."

30 The licence referred to in cl 4 is a licence from the Lessor to the Lessee to enter upon the leased premises for the purpose of carrying out the Lessee's Works.

31 The Second Schedule of the Agreement for Lease relevantly provides:

"1. Subject to the provisions of paragraph 2 of the Third Schedule hereto the Lessee shall carry out all works required to complete the Leased Premises to enable the Lessee to carry on the business specified in Item 7 of the Schedule to the Lease and shall include but not be limited to the following works:-

(a) Provision of coolroom with display doors, compressors and other works associated with the coolroom.

(b) Provision of floor coverings, sales counters, display fitments, computer and security installations.

(a) Fitout of kitchen and bars including all fitments, floor treatment and internal pipe runs.

(b) Provision of carpet in Bistro-Lounge.

(c) Fit doors and coolroom to cellar.

(d) Construct reception area in foyer.

(e) Install electrical requirements other than basic lighting and power including any new telephone, television and entertainment systems.

(f) Provide new carpet and all necessary furnishings to bedrooms.

(1) comply in all respects with the requirements of the local authority and any other applicable authority;

(2) utilise first class materials and workmanship and shall possess features in conformity with the general character of the Building;

(3) be subject to approval by the Lessor or the Lessor's architects as hereinafter provided.

3. No work (including, but not limited to, signage) shall be carried out upon the Leased Premises until first approved in writing by the Lessor or by the Lessor's architects or project manager such approval not to be unreasonably withheld and any costs incurred by the Lessor in obtaining approval from its architects for such works shall be paid by the Lessee."

32 Against that background I turn to the issues that arise for determination.

(i) Whether cl 5 of Agreement for Lease Void

33 As I understand the defence it raises both limbs of the classic statement of the law on contractual uncertainty. The first limb is to the effect that there is no concluded contract where an essential or critical term is omitted or expressly left to be settled by future agreement of the parties. The second limb is that there is no binding contract where the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at 436-437 per Barwick CJ; Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101.

34 Thus, a contract is affected by uncertainty only if its essential terms are lacking or alternatively are so vague and obscure as to be incapable of any definite or precise meaning. In relation to the second limb, ambiguity does not mean uncertainty. As long as the language is not so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention, the contract cannot be held to be uncertain or meaningless.

35 In this case it is not pleaded that the parties to the Agreement for Lease lacked contractual intention. Indeed, such intention is readily assumed in most commercial situations. I am satisfied in this case that the evidence clearly supports an inference of contractual intention. In such circumstances, the principle that courts should be the upholders not the destroyers of bargains is applicable: Anaconda Nickel (supra) at 133 per Anderson J.

36 The question of how to identify an essential term was considered by Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. He said (at 548):

"... [in what can] broadly be described as a Masters v Cameron ((1954) [1954] HCA 72; 91 CLR 353) dispute, it will normally be of importance that the court have an understanding of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. In some cases, such as transactions involving the sale and purchase of land, or leases, courts may properly feel well equipped to form a view on such matters without the need for much evidence. In many cases, however, ... there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties."

37 As Ipp J pointed out in Anaconda Nickel (supra), expert evidence is usually required in this regard.

38 There is evidence that Newmarket and Kee-Vee were aware of the failure to annex plans and specifications at or about the time of execution of the Agreement for Lease.

39 Mr Clifford's evidence was that the Agreement for Lease was signed in the offices of Kee-Vee's solicitors, Michael Whyte & Co, in October 1998. Someone on behalf of Newmarket, he thought Mr Sansone, pointed out that there was still no plans or specifications attached to the Agreement for Lease and Mr Harford (the solicitor acting for Kee-Vee) assured them that he would have the plans and specifications attached. In reliance on this Mr Clifford said they signed the Agreement for Lease and left it with Mr Harford to arrange signing by the Lessor and to attach the plans and specifications. Mr Clifford understood the Agreement for Lease was signed by Kee-Vee on 13 November 1998, the date of the document.

40 Mr Sansone's evidence was that his comment to Mr Harford concerning the plans and specifications was not made in November 1998 (which I infer is intended to be a reference to the meeting at which the Agreement for Lease was signed) but in May 1998 at the time of the execution of the Sale Agreement. However, in an earlier statement Mr Sansone put that discussion in November 1998. Mrs Sansone's evidence at trial was that at a meeting at the offices of Michael Whyte & Co in May 1998 just before they took over the business it was raised that the plans and specifications were not attached and Mr Harford said that he would find out and would make sure that they were attached when Mr Boucher signed the contract. Mr Boucher was not present at the meeting. However, in her written statement which was to be tendered in evidence at trial, Mrs Sansone said that this exchange took place later in 1998. As the Sale Agreement does not in terms refer to plans and specifications annexed it is highly unlikely that the exchange occurred in May 1998. It is clear that Mr Clifford's recollection is accurate.

41 The evidence also establishes that by 13 November 1998 Kee-Vee's architect had prepared working drawings of the redevelopment works, which contained some building specifications, and a document headed "Construction Finishes, Fixtures and Equipment Schedule"; that Mr Clifford on behalf of Newmarket had inspected the working drawings and requested variations; that Kee-Vee had entered into two building contracts with Town & Country Constructions Pty Ltd ("TCC") (one contract for the bottle shop and the other for the renovations and additions to the heritage building) in accordance with the working drawings; that a copy of WD2 referred to in cl 2 of the Third Schedule of the Agreement for Lease had been given to Newmarket and that construction work had commenced. It is common cause that the architect at no stage prepared separate or comprehensive specifications of the Lessor's Works. The evidence also establishes that the bottle shop (eventually) reached the stage of practical completion and work on the heritage building continued until February 1999.

42 Notwithstanding the evidence, Newmarket did not in its pleading or at any other time and Kee-Vee did not in closing advance a case to the effect that there were contractual plans, whether identifiable by extrinsic evidence at the time of the Agreement for Lease or as a result of a subsequent agreement (express or implied or otherwise) or purport to identify what those plans were. As I see it, I am asked to resolve the question of contractual uncertainty on the basis that there were no contractual plans or specifications. On that basis, the omission of the plans and specifications has the effect of confining Kee-Vee's obligations to the works identified in cl 2 of the Third Schedule of the Agreement for Lease. In my view the reference in cl 2(a) to WD2 is a reference to working drawing 2 which was current at the time of the execution of the Agreement for Lease.

43 Kee-Vee did not identify any specific problems or difficulties that rendered cl 5 of the Agreement for Lease unworkable in the absence of plans and specifications. Whether the clause is unworkable is determined by reference to usual principles of contractual construction including the implication of terms, both in law and in fact: see Anaconda Nickel (supra) at 121 - 127 per Ipp J.

44 There is no expert evidence that cl 2 of the Third Schedule is unworkable without reference to plans and specifications. In my assessment, although the failure to annex plans and specifications may make the Lessor's Works described in cl 2 of the Third Schedule less clearly defined than one would want or expect with resulting difficulties as well as a greater discretion in the Lessor, the Agreement for Lease is not thereby rendered unworkable. Even if I am in error on that point, in my view Kee-Vee has not discharged its onus of establishing that cl 5 is unworkable as a result of the absence of the plans and specifications.

45 Further, Kee-Vee has not identified any specific aspect of cl 2 of the Third Schedule that it says is so obscure and so incapable of any definite or precise meaning as to satisfy the test of the second limb of legal uncertainty. There is nothing on my (unaided) assessment which falls within that category. I am not satisfied that cl 5 is void on either limb of the test for uncertainty.

46 It is not in dispute that Kee-Vee had failed to complete the Lessor's Works by the time Newmarket vacated the premises in October 2002. In particular, the evidence establishes that in relation to the heritage building, the works specified in subparagraphs (d), (g), (i), (j), (l), (m), (n), (o), (p), (q) of cl 2 of the Third Schedule of the Agreement for Lease had not been done, the works specified in subparagraphs (a), (b), (c) and (e) were incomplete, and Newmarket had not seen a conservation plan for Council. In essence, the renovation and upgrading of the heritage building was far from complete.

47 As to the site works, the paving and earth works had not been completed and the lounge bar had not been demolished by October 2002 (because that was to continue trading during the renovation and upgrading of the heritage building which was at all material times substantially incomplete).

48 As to the new bottle shop, the architect issued a certificate of practical completion under the building contract in July 1999. However, Newmarket could not at that stage occupy the new bottle shop because it was incomplete and the City of Cockburn refused to issue a certificate permitting occupancy. Newmarket took possession of the bottle shop in September 1999 (by changing the locks). After discussions with the City of Cockburn, Newmarket spent its own funds to complete outstanding works to enable it to operate the drive through section only of the bottle shop. By October 2000 certain matters relating to the bottle shop, including matters relating to fire safety, still had to be attended to by Kee-Vee before the City would grant its certificate. In October or November 2000, Kee-Vee paved the car park at the front and in the immediate surrounds of the bottle shop.

(iii) Whether the Failure to Complete Lessor's Works Caused by Newmarket

49 The first and second defendants plead that the redevelopment has not been completed by reason of:

"a. the delays caused by the number and scope of variations requested by the first plaintiff for (sic) time to time and agreed to by the first defendant of the Bottleshop Works and Hotel Works which variations were agreed during the period between and including the execution of the Deed and in or about mid February 1999;

b. delays caused by the agreements as to specifications made from time to time between the first plaintiff and first defendant during the period between and including the execution of the deed and in or about mid February 1999;

c. ... the continued failure of the first plaintiff to allow the first defendant access to the heritage listed part of the building since in or about February 1999 to carry out necessary works which failure prevented the renovation of the heritage listed part of the building and the planned subsequent demolition of the 'blood bar'."

50 In relation to par (c) the first and second defendants further plead that:

"There were implied terms of each of the Earlier Agreements and the Deed to the effect that:

(i) the first plaintiff would allow access to the heritage listed part of the hotel by persons engaged by the first defendant to carry out the Redevelopment work; and

(ii) the first plaintiff would act reasonably so as to facilitate the carrying out and completion of the Redevelopment ('the Implied Term').

Particulars of Implication

The terms are:

(i) reasonable;

(ii) equitable;

(iii) capable of clear expression;

(iv) not contrary to any express term in the Agreement;

(v) necessary to give business efficacy to the Agreement; and

(vi) so obvious that they 'go without saying'."

51 The Earlier Agreements referred to in the pleading are the oral agreements. The Deed is a reference to the Agreement for Lease.

52 Kee-Vee did not provide particulars of the variations and agreements as to specifications on which it relied. There is very little (if any) evidence as to the number and scope of agreements as to specifications and none were brought to my attention by Kee-Vee in closing. It seems they are dealt with as a job lot with the variations and I will treat them accordingly. All future references to variations includes any agreement as to specifications. There is also very little evidence concerning the delay attributable to each variation or indeed to the cumulative effect of all of the variations.

53 However, this is not a case about the extent of the delay per se. Kee-Vee relies on delay to explain or justify the fact that the redevelopment "is currently uncompleted". There is no evidence that any relevant variation made between the date of execution of the Agreement for Lease and February 1999 has any causal connection with Kee-Vee's failure to complete the Lessor's Works by October or November 2002 or thereafter.

54 It seems to me the pleading is intended to operate in a stepped fashion. That is, as a result of variations there were delays in completing the Lessor's Works in the period to February 1999 and that the delay from February 1999 was caused by Newmarket refusing to provide access to the heritage building. I will approach the pleading in that way.

55 The first issue is the identification of the variations requested by Newmarket. In relation to Newmarket's contractual claim, that can only relate to variations requested after the execution of the Agreement for Lease, being the date on which the contractual obligations arose. The logical next question is variations to what - to which neither party ventured a complete answer. The answer is supplied in part in cl 5 of the Agreement for Lease. It is variations or additions to the Lessor's Works. Kee-Vee's pleaded case was that the contractual plans were the working architectural and engineering drawings specified in the building contracts for the bottle shop and the hotel renovations. If that were so, those drawings together with the description of the Lessor's Works in cl 2 of the Third Schedule of the Agreement for Lease would be the yardstick by which variations (or additions) to the scope of works could be identified. However, as noted earlier no evidence was led of an oral agreement incorporating those drawings and Kee-Vee abandoned that aspect of its pleading in closing. It then had no option but to rest its case on the identification of the Lessor's Works in cl 2 of the Third Schedule of the Agreement for Lease. That is, whether or not there was a variation has to be determined by reference to the identification of the Lessor's Works in cl 2 of the Third Schedule. The resolution of this issue is complicated by the fact that the evidence was not presented by reference to that yardstick.

56 There is evidence concerning variations under the building contracts. Newmarket's expert, Mr Chris Courtney, prepared a convenient summary of those variations. However, I am unable to identify from that summary or from the builder's progress claims those variations to the building contracts which were requested by Newmarket quite apart from whether they were variations from the Lessor's Works defined in cl 2 of the Third Schedule.

57 Kee-Vee's architect, Mr Christopher Thompson, gave evidence concerning variations requested by Newmarket. He said that it requested numerous variations to the plans. I take that to be a reference to the plans specified in the building contracts. He identified the changes to the bottle shop as including:

• deletion of gable treatment to western elevation and; replacement with parapet to make building look bigger;

• provision of retractable bollards in lieu of fixed bollards;

• deletion of a ceiling to the bottle shop and exposing insulated underside of roof;

• expansion of the bottle shop to two-thirds of the building in lieu of initial one-third of the building.

58 Mr Thompson does not identify when Newmarket requested the changes. However, it would appear that at least some of the changes were requested by Newmarket before the execution of the Agreement for Lease.

59 As to the heritage building, it seems that the two major changes requested by Newmarket were firstly to reverse the position of the toilets and kitchen on the ground floor and secondly for a lounge or function room to be constructed on the first floor of the building. It appears from Mr Thompson's evidence that the request in relation to these matters preceded the execution of the Agreement for Lease. In relation to the upstairs lounge or function room, Mr Thompson obtained engineering advice concerning floor and verandah loads for public building use. Following receipt of advice from the engineer, Newmarket decided not to proceed with that variation.

60 Mr Thompson said that on commencement of work in the old kitchen wing, extensive termite damage was revealed which required complete removal of the floor and treatment before replacing it at a later date with concrete. Indeed, in the first half of February 1999 a detailed termite inspection was carried out and extensive damage was revealed in the ground floor and first floor entry halls.

61 Mr Thompson's list of what he describes as "tenant generated variations" is as follows:

• demolish chimney (in anticipation of first floor lounge);

• remove termite damaged floor and anti-termite treatment;

• supply and install three soak wells for courtyard.

62 Mr Thompson identifies an item of work as "tenant generated" if it is connected with a change requested by Newmarket for example termite damage or rock discovered in the amended location for the kitchen or toilets.

63 On Mr Thompson's evidence, all of the above variations had been carried out by February 1999. The only variations said to be generated by Newmarket but not implemented by that date were a passage from the courtyard bar to a disabled toilet and amendments to the courtyard design.

64 Mr Ryan of TCC gave evidence concerning the variations to the original scope of works for the heritage building. He said that they were required due to the age of the heritage building, the discovery of many concealed building defects and a substantial amount of limestone rocks below ground being discovered during the execution of the works. Mr Ryan had prepared a document as at 30 January 1999 showing the revised scope of works which specifically identifies the variations, whether by way of addition or omission, to his scope of works. He updated that document on 9 February 1999 to add the cost of further variations (identified as being to remove rocks from the toilets, remove rocks from the stairwell to the cellar, repairs to timber floors on the first floor, repairs to timber floor on ground floor entry and replace new door of door frame with side lights), all of which variations totalled $70,044. Mr Ryan said some of the variations in that list had been done but not all of them and that he was unable to say from the list which variations were requested by Newmarket.

65 Mr Ryan of TCC also prepared construction programmes which were updated from time to time. A construction programme updated as at 2 February 1999 programmed the vacation of the office and kitchen in the week commencing 8 February 1999 and the completion of the works on the heritage building for some time in March 1999. He said that if there had been no variations to the work he would have completed it within the time specified in the building contract for the hotel works.

66 Under the building contracts (which were standard Lump Sum Contracts for Minor Works MWC-2) if the builder is delayed for reasons beyond his control and claims extra time for delay, the architect is required to extend the date for practical completion. The building contract for the bottle shop specified the date for practical completion as 13 weeks from execution, excluding nominated days, being 20 January 1999. The contractually specified date for practical completion under the building contract for the hotel works was 15 weeks, excluding specified days, being the first half of February 1999. My attention was drawn to only one application by the builder for an extension of time and that was under the building contract for the hotel works and was as a result of the suspension of the works in February 1999 to which I refer later.

67 Mr Thompson was asked in cross-examination how long it would have taken to have completed the Lessor's Works in the heritage building if there had been no issue as to access to the premises. He said it would have taken well over four months but that it would not have taken two years. He said the tenant generated variations to the hotel delayed progress but he was unable to be more specific other than to say that it delayed the progress for weeks. However, he noted that there were other issues quite independent from the tenant created variations. Mr Thompson's evidence-in-chief was that the scope of works for the bottle shop (as evidenced in the plans and schedules) would have taken between four and four and a half months to complete. In relation to the hotel the scope of work (as evidenced on the plans and schedules) would in his opinion have taken a minimum of six to seven months. That is with no tenant generated variations. Mr Thompson confirmed that he was involved in arranging the building contracts with TCC. In re-examination he was asked why the construction period for the hotel was nominated as 15 weeks in the building contract in light of his evidence-in-chief that the work would take six to seven months without variations. His answer was in effect that the completion of the hotel work was more problematic because of the unknown factors found in the very old building which included rotten floors, plaster and rubble walls, termite damage, old wiring and lack of connection to the sewer. I infer from his answer that his estimate of a minimum of six to seven months included a hindsight provision for these factors.

68 Even relying solely on Kee-Vee's expert evidence and taking into account all variations to the building contract, whether requested by Newmarket or not, they do not provide an explanation or justification for Kee-Vee's continuing failure to complete the Lessor's Works. The defence stands or falls on the allegation that Newmarket prevented it from completing the Lessor's Works. It is to that question I now turn.

69 The evidence establishes that, apart from minor matters, work on the heritage building effectively ceased from February 1999. At all material times thereafter the heritage building was in effect a dormant building site. Work had commenced on the Lessor's Works but it was incomplete. Work on the bottle shop and aspects of the site works progressed after February 1999, albeit very slowly. There is a conflict of evidence as to the cause of the impasse in relation to the Lessor's Works to be performed on the heritage building.

70 Kee-Vee says that Newmarket denied it and its agents access to the heritage building. Kee-Vee relies on the evidence of its architect Mr Thompson and its builder in support of its defence. Mr Boucher was in Albany during the construction and relied in large measure on reports from his agents. Messrs Sansone and Clifford gave evidence on this subject on behalf of Newmarket.

71 Mr Thompson's evidence-in-chief, in the form of an amended supplementary statement in writing, was as follows:

"1. Some time during early February 1999 I rang Joe Sansone concerning the movement of the office which was situated on the ground floor. He said he was adamant that the office could not be moved to another location under any circumstances.

2. It was necessary to demolish the downstairs walls before any of the work on the outside could proceed and for this reason the denial of access to the office created the difficulty in completing the work. This was the only conversation I had with Sansone.

3. Subsequently in 1999 I had a conversation with one of Mr Sansone's staff when I went to the site. He told me that I was not permitted into the inside of the building where the office was located.

4. I have not returned to site since that date. The purpose of my visit to site on that date was to obtain further quotations for work to be done to complete the hotel works."

72 Mr Thompson's supplementary statement originally referred to the year 2000 in both paragraphs 1 and 3. Following an objection, Mr Thompson said that the correct year was 1999 for both paragraphs 1 and 3. In cross-examination and subsequently in re-examination, Mr Thompson said that on further reflection the original reference to the year 2000 in par 3 was correct.

73 By letter dated 3 February 1999 from Mr Thompson to Mr Clifford on behalf of Newmarket Mr Thompson advised as follows:

"... I remind you that the work in Stage 2 of the hotel works requires the kitchen to be closed down and partly demolished.

As soon as services can be diverted to the new office, office facilities will need to be relocated.

Even if the existing bar remains in use during Stage 2, variations will need to be made to male toilets providing new access. The alternative will be provision of safe access across to the new toilets through the building site."

74 Mr Thompson said that he had been involved in discussions with Newmarket and reached agreement concerning the relocation of the office. It was to be on the first floor at the eastern end and was to be part of a manager's suite of three rooms that were going to be modified.

75 Mr Thompson wrote again to Newmarket by letter dated 16 February 1999 (again addressed to Mr Clifford) in which he states the building work had continued but was fast approaching a serious check in progress. It was suggested that the office be relocated to the room above the then present location and the kitchen be closed down. The letter records that it was necessary to gain access to the area proposed for the new bistro lounge, which included the office, in order to make wall openings and that his main concern was the loss of the team making the openings which he said was a specialised trade and the team was then on site.

76 There is no mention in Mr Thompson's letters of 3 and 16 February 1999 of his conversation with Mr Sansone referred to in par 1 of his supplementary statement. Mr Thompson was asked why he had made no reference to his conversation with Mr Sansone. His response was that Mr Sansone may have been speaking for Mr Sansone and not for Newmarket. He was asked again and the following exchange took place:

"How could you fail, on that basis, to mention it in your letter of 16 February 1999, if it happened?---Because the phrase used by Mr Sansone was clearly an exaggeration; that if he wished the job to proceed, accommodation for his office was going to have to be done, so 'under any circumstances' was a remark that I treated as something where he was exaggerating.

Mr Thompson, is it not the case that Mr Sansone never refused to vacate the office or move the office to another location under any circumstances. He did not say those words or anything like that?---He may not have - he certainly didn't refuse to me in terms of another location but the reference was to the specific location that had previously been agreed upon.

So are the words in your supplementary statement, that he was adamant that the office could not be moved to another location under any circumstances, what he said or not?---I believe that's what he said, but the intention at the time that we were both discussing, was a particular location.

So what did [he] say?---Well, he said he just wasn't going to move his office. That's basically what he was saying. At the time Mr Sansone appeared to be very angry and people say things that they sometimes exaggerate when they're in that condition.

Are you saying he said that but you didn't believe him to be - - -?---Well, I treated it as an exaggeration, sir."

77 Further, Mr Thompson had prepared three statements of his evidence to be given at the trial in addition to the supplementary statement. In none of those statements had he referred to a conversation he had with Mr Sansone to the effect referred to in his supplementary statement.

78 Mr Thompson accepted that before Newmarket moved its office, certain matters required action. He said he was giving Mr Sansone reasonable notice so that an office could be made ready (I infer by the builder) for Newmarket and for Mr Sansone to attend to matters such as security and telephone systems. The alternatives for the proposed office were both on the first floor of the heritage building which at that stage was incomplete. There was termite damage to the joists of the first floor which Mr Thompson described as dangerous and which had been screened off. However, he said access to the proposed office was not affected by the termite damage.

79 Mr Thompson also agreed that there was work the builder could have done at the hotel whether or not Newmarket moved its office. He was asked why then did all the works stop at the hotel in early February 1999. Mr Thompson's answer was as follows:

"Because we were still trying to get access. We were trying to get upstairs to move things and at that stage we started to be denied access. I don't know why we were actually denied access, sir, and I don't believe the denial of access was specific[ally] related to the relocation of the office."

80 Mr Thompson repeated that it was his understanding that Newmarket was refusing to allow the builder to come onto the site. The following exchange took place:

"When you say that, Mr Thompson, upon what basis do you make that statement?---On the basis of the reason why the builder wouldn't - spoke to me and that was his - - -

All right, it's hearsay?---No, that was his reason - - -

It's hearsay?---Sir, that was his reason for not going on the site when I asked him.

It's hearsay. It's what the builder told you, is it?---Yes, sir, and I suggest that you will have to ask the builder what - - -."

"Mr Thompson, the damage to the floor on the first floor level caused by termites, what was the impediment to the owner making good at that location?---Again, the contractor being able to get there to do it. The builder had actually given me a quotation for doing the repair work.

Why didn't the work proceed?---Because he couldn't go in there.

What, because Mr Sansone, as you understand it, was refusing to permit any builder on the site?---That's correct.

Absolutely, totally?---That was my understanding.

Wouldn't even let them go to the first floor to fix the termite damage to the floors, okay. On that basis that's why all work stopped at the Newmarket Hotel in February 1999?---Yes, sir."

81 Mr Thompson was referred to a letter dated 16 February 1999 to him from Mr Ryan of TCC in which he said that they had not been allowed possession of the existing kitchen and office areas since 8 February 1999.

"... He doesn't say he was denied access to the building overall. He says not allowed possession to the kitchen and office areas. Do you retract what you said previously about him being refused entry to the building?---No, sir.

Okay, that's fine?---Because that was - that was my understanding."

83 It is clear from Mr Thompson's evidence that he was relying on what the builder allegedly told him about being denied access to all parts of the heritage building. Mr Thompson also gave evidence concerning an attempt to gain access in 2000. He said he went with a new builder to try and get a quote and he was unable to obtain access.

84 Mr Ryan of TCC did not corroborate Mr Thompson's evidence concerning a general denial of access. Mr Ryan said that on 8 February 1999 he was told by Mr Thompson to suspend all further works on the development because of denial of access to the kitchen and office areas by the tenant. Mr Ryan did not have any discussions with representatives of Newmarket on this topic. Nor did he attempt to get possession of the existing kitchen and office area himself because Mr Thompson, from whom he was receiving instructions, was the architect in charge of the works.

85 Mr Ryan said in cross-examination he accepted that even if he was denied access to the office and kitchen, there was other work he could do if he had the authorisation to proceed but that Mr Thompson had suspended all works.

86 Mr Sansone's evidence-in-chief was as follows. At a meeting he attended in late December 1998 or early January 1999 with Messrs Thompson, Ryan, Clifford and Maller it was agreed that the builder would do all the work on the upstairs area, the sportsmen's bar and the exterior and then Newmarket would relocate its office and trading activities into the renovated area. Subsequently Mr Thompson told him at the hotel that he wanted them out of the office so they could demolish walls in the office and relocate the kitchen and this would involve doing work in the lounge bar. He said:

"When are you going to finish the other side where we can move into."

"We've got demolition crew working and we want to keep them on site otherwise we'll lose them."

Mr Thompson said something to Mr Sansone about putting a temporary partition in the lounge bar and a temporary access to the men's toilets. Mr Sansone denied saying anything along the lines that they would not move from the office. He said he asked Mr Thompson when he was going to finish the floors, the walls, the plastering etc in the old hotel building so they would then be able to move the bar into that part of the hotel and trade from there whilst they built the remaining areas and demolished the existing bar. After this the builder stopped work on the old hotel building. Mr Sansone denied having any telephone conversation with Mr Thompson about the matter saying the discussion occurred in the office. Mr Sansone's evidence was that there was no alternative location for an office that was ready and available for use. They had two staff working and had cash in a safe in the office containing between $10,000 to $20,000. Mr Sansone said that his position was that he wanted Kee-Vee to make provision elsewhere so that they could have somewhere to work from.

87 It is clear from Mr Sansone's evidence both in-chief and in cross-examination that he perceived the proposed work as affecting not only the office but the lounge bar which was the only bar in the Hotel that was in operation and generating income.

88 Mr Clifford's evidence was to the effect that at one stage in early 1999 Mr Thompson and Mr Ryan wanted to knock down walls in the room in the heritage building that they used as an office and in the lounge bar and toilet so that they could start work on the new bistro area. However, he said that would have given them no working space whatsoever and would have stopped them from trading in the lounge bar. He said they advised Mr Thompson of this and Mr Thompson and Mr Boucher agreed that they would complete the front/sportsmen's bar area in the old hotel first. Renovating the sportsmen's bar area first would enable Newmarket to commence trading from the new bar and allow the builder to knock down the other walls and complete the balance of the development. He also said that Newmarket required a toilet and an office to allow the lounge bar to remain trading during construction.

89 In cross-examination Mr Clifford said that the agreement with the builder and the architect was that they would finish the sportsmen's bar area in the old hotel completely and at the same time complete the work upstairs so that they could move an office upstairs before they started to do any work in the lounge bar. The kitchen on which the builder proposed to work intruded into the lounge bar. Mr Clifford described the builder's approach in the heritage building up to that time as haphazard and chaotic. He said, as the photographs attest, the builder had knocked down a few walls, made some holes in the floor, pulled off the false ceiling and exposed the rafters and started on the toilets which were only half completed.

90 Mr Boucher accepted that the Hotel had to keep trading to maintain its liquor licence and for the Hotel to keep trading it was essential that there be co-operation between the builder, architect and Newmarket in order that the works could progress while enabling the Hotel's operations to continue.

91 It is of assistance to see the evidence given by the witnesses in the broader context disclosed by the contemporaneous correspondence and other documentary evidence.

92 During the negotiation stages for the Hotel purchase Mr Clifford on behalf of Newmarket had attempted to secure an option to purchase the freehold of the land on which the Hotel stood. He was unsuccessful in that regard. However, after the execution of the Sale Agreement and other contracts it remained Newmarket's preferred course to purchase the freehold. Kee-Vee and Mr Boucher were aware of that. In a letter dated 9 December 1998 from Newmarket to Kee-Vee, Mr Clifford advised Mr Boucher that Newmarket was progressing with an application for finance to position itself to make an offer to acquire the freehold.

93 Newmarket wrote to Kee-Vee again on 18 December 1998. Mr Clifford advised Mr Boucher of continuing problems with the redevelopment. They were in essence, he said, that Newmarket had only just received the Schedule of Finishes, which he described as the poorest set of specifications he had ever seen, the chimney was taken off the kitchen which prevented cooking, the wrong colour roof was put on the heritage building and the bottle shop, part of the heritage building brickwork was painted and had to be stripped because it was going to be sandblasted and the wrong brick was used in the bottle shop. The letter continues:

"We feel that the current position is unworkable, and having said that, we find there is only one possible solution, and that is that you assign the building contract with the Builder and Architect, to ourselves. Of course, we would repay you for any monies you have expended. We then make an offer to purchase the freehold at the agreed price of $1,200,000, and take over your responsibility of the redevelopment costs.

We have spoken to our bank, and after we have spent an estimated $500,000 on the fit out, we come up short $300,000.

I would formally ask you Keith, to consider selling us the freehold at the agreed $1,200,000 and be prepared to carry $300,000 by way of vendor finance, of course at a commercially acceptable return."

94 Newmarket had retained an architect, Christopher Courtney to advise it on matters associated with the redevelopment. Mr Courtney reported to Newmarket in a letter dated 2 January 1999 in which he expressed concern that Newmarket did not have a full understanding in detail of the hotel and property improvements they were going to lease nor a firm date for handover and that work to date had fallen short of expectations. In a subsequent report dated 7 January 1999 Mr Courtney advised that Newmarket should seek from Kee-Vee an updated and complete set of contract documents including drawings, specifications, notes, schedules of finishes and materials selection.

95 Newmarket also sought and received legal advice from lawyers Richard Payne & Associates ("Paynes") in the middle of January 1999. Paynes then wrote to Kee-Vee. Although the communications from and between the parties' lawyers are marked "without prejudice" they were tendered in evidence without objection. Paynes' letter identifies a number of alleged breaches by Kee-Vee of s 52 of the TPA and proposes that Newmarket purchase the freehold or, alternatively, that Kee-Vee assign its contracts with the builder and architect to Newmarket and make a financial contribution to the redevelopment.

96 Mr Thompson then wrote his letter of 3 February 1999 to Newmarket in which he refers to stage 2 and the new office. There is no reference to any refusal to vacate.

97 Newmarket conducted regular management meetings which were minuted. There was a management meeting on 8 February 1999. The minutes note:

"The builder is pressing for us to move out of the office so they can start the renovation in this area. Chris is not to do anything unless he has the okay from The Chairman. This has come up several times and this is becoming very unnerving to both management and staff."

98 By late January early February 1999, all parties became aware of the nature and extent of termite damage in the heritage building.

99 On 9 February 1999 Mr Courtney met with Mr Thompson for the purpose of ascertaining the estimated cost of completion of the building work for which Kee-Vee was responsible. Mr Thompson and Mr Courtney came to the view that a reasonable order of extra costs was $254,000. Mr Courtney advised Newmarket of these matters in a letter dated 10 February 1999.

100 Next in the sequence is Mr Thompson's letter of 16 February 1999 which also makes no mention of any conversation with Mr Sansone or the denial of access. In that letter Mr Thompson refers to a new temporary access to the men's toilet, a temporary entrance from the existing lounge bar and that, as further work proceeds including the southern expansion of the kitchen, he suggested they partition off a portion of the northern end of the existing lounge so openings could be formed and walls built. Where the bar cannot be intruded upon, he said, the southern expansion of the kitchen will have to wait on relocation of the bar into the sportsmen's bar. This letter from Mr Thompson supports the evidence of Mr Clifford and Mr Sansone that the issue was not confined to the removal of the office but involved construction work directly affecting the lounge bar.

101 By letter also dated 16 February 1999 Mr Ryan of TCC advised Mr Thompson as follows:

"As we have not been allowed possession of the existing kitchen and office areas since 8th February 1999, the commencement of the proposed works in these areas have been delayed.

In view of the above development, we request that reasonable extension of time to the practical completion date shall be granted accordingly for the indefinite suspension of the proposed works in the above areas which is beyond our control."

102 In a letter dated 26 February 1999 Kee-Vee's solicitors, Michael Whyte & Co, responded to Newmarket's solicitors. The letter refers to a number of matters but does not refer to any refusal by Newmarket to vacate the office. The letter materially provides:

"Your clients have not indicated when they will vacate the office and kitchen in the existing building to enable the Builder access to those areas to complete the Lessor's Works in so far as they relate to the existing building."

103 The letter then contains a demand that Newmarket vacate the kitchen and office of the existing building.

104 In a letter dated 4 March 1999 from Paynes to Michael Whyte & Co, Newmarket denies the allegations and puts forward a further settlement offer involving the purchase of the freehold.

105 Mr Boucher's evidence was that in about February or March 1999 Mr Clifford, Mr Sansone and Mr Boucher attended a meeting in Albany to discuss the acquisition of the freehold. At the meeting in Albany it was agreed between Kee-Vee and Newmarket that Kee-Vee would sell the land and building for the sum of $1.2 million plus costs and a draft heads of agreement was prepared. Newmarket arranged for the legal documentation to be prepared to implement the agreement but was unable to secure finance and the agreement did not "succeed". That evidence was not challenged.

106 In a letter dated 2 July 1999 from Kee-Vee's solicitors to Newmarket's solicitors, Kee-Vee advised that it no longer wished to sell the freehold to Newmarket and would proceed on the basis of the already executed documents.

107 Also in evidence was a letter dated 1 March 2000 to Kee-Vee from its solicitors Michael Whyte & Co. It materially states:

"We refer to yesterday's telephone conversation between Keith Boucher and Mal Harford in which you advised us that you wish to now proceed and complete the Lessor's Works to the existing Newmarket Inne premises. As you are aware, the Third Schedule to the Deed of Agreement for Lease sets out the Lessor's Works that are required to be done by you. Clause 1 of the Third Schedule refers to annexed 'Plans and Specifications prepared by the Lessor's architects'. As you are aware, no Plans or Specifications were annexed to the Deed of Agreement of Lease due to them being unavailable at the time of execution of the Deed of Agreement for Lease.

...

Prior to putting the Lessee on notice through its solicitors, Richard Payne & Associates, as to your intention to proceed and complete the Lessor's Works, we need to be provided with a copy of the Plans and Specifications which will be followed in completing the Lessor's Works as we wish to annex a copy of those Plans and Specifications to our letter to Richard Payne & Associates."

108 Then Michael Whyte & Co wrote to Paynes on 7 April 2000 enclosing plans and specifications and continuing:

"Our client intends commencing work as per the Plans and Specifications no later than twenty one days from the date of this letter and that will necessarily involve, amongst other things, your client in vacating the existing bar area which is identified with the letter 'B' on the plan annexed to the Deed. Your client needs to make immediate arrangements for its new bar fitout in order for our client to complete the Lessor's Works."

109 The existing bar area identified with the letter "B" on the plan annexed to the Agreement for Lease is the lounge or blood bar.

110 Paynes responded by letter dated 20 April 2000. They pointed out that the plans and specifications had not been approved by the relevant authorities and that no new building licence had been issued in respect of them in which case it was unlawful to build in accordance with them. They then repeated Newmarket's position concerning the agreed sequence of works.

111 In early May 2000 Mr Thompson lodged amended plans and specifications with the City of Cockburn for its approval. The City of Cockburn did not process the plans because they did not contain sufficient information for its purposes. Mr Thompson did not lodge the additional drawings required to obtain the City's approval. In relation to Mr Thompson's statement that he tried to get access with builders to obtain a quote he accepted that without local government approval of the amended plans and specifications, the proposed work could not proceed.

112 The first and second defendants submitted that Mr Courtney gave evidence to the effect that Mr Clifford was extremely pleased with the delays in the building works and Mr Courtney was provided with instructions to delay matters. The submission is based on Mr Courtney's responses in cross-examination concerning detailed diary notes he made contemporaneously with his involvement on behalf of Newmarket in the redevelopment works.

113 There is a diary entry dated 16 April 1999 which was at a time when Mr Thompson was overseas and subcontractors were approaching him (Courtney) in relation to matters. The entry reads:

"Calls from CIC [Clifford], Jo, and Saacha - all about my role - confirmed to CIC that I was telling anyone who rang that I am not supervising - just trying to keep the project running if possible - told CIC that paperwork and confirmation of payments was proving difficult - many payments seem to have been withheld by Boucher. CIC was pleased with the delay - it suited his activities."

114 Mr Courtney did not accept in cross-examination that Mr Clifford said to him that he was happy with the delay in the redevelopment. However, he was unable to recall the details. In context, the delay is likely to refer to the withholding of payments by Mr Boucher. In another entry on 20 April 1999 Mr Courtney records:

"... called back to CIC at 1215 and went through matters from his end. Seems to be in no hurry for my input - said could deliver within 24 hours notice."

"The last letter I had produced for CIC was copied and handed to the NAB, and after the meeting CIC forwarded this same letter on to Boucher. It was concluded that, and I was instructed by CIC, to complete the assessment of work done to date and the value of work outstanding. CIC was happy if this were to take some little time as the pub is operating at a small profit, and any delay can only hurt Boucher. CIC was happy for me to conclude matters after Chris Thompson's return."

116 All of these notes of events are made at a time when the parties are negotiating a settlement of their dispute and it is clear that Mr Clifford is not pressing Mr Courtney for his input. However, I do not infer from the diary notes or Mr Courtney's answers in cross-examination that the focus or intention was to delay the redevelopment works which had all but ceased but rather to delay to increase the pressure on Mr Boucher to settle the dispute.

117 I now turn to my findings on the issues surrounding the defence of denial of access. I start with whether the implied terms relied on by Kee-Vee formed part of the Agreement for Lease and if so whether there has been a breach thereof.

118 The first implied term for which Kee-Vee contends is that Newmarket would allow access to the heritage building by persons engaged by Kee-Vee to carry out the redevelopment work. An implied term of such scope is potentially inconsistent with the express terms of the Agreement for Lease, in particular, the contractual requirement that the lounge bar remain trading during construction. However, applying the test in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, I accept that it is an implied term that Newmarket allow access to the heritage building by persons engaged by Kee-Vee in order to carry out the redevelopment work in accordance with the express terms of the Agreement for Lease.

119 I also accept that it is an implied term of the Agreement for Lease that Newmarket (and Kee-Vee) would act reasonably so as to facilitate the carrying out and completion of the redevelopment works in accordance with the express terms of the Agreement for Lease.

120 I accept the evidence of Mr Clifford and Mr Sansone of an agreement with Mr Thompson that the sequence of works would be that the new sportsmen's bar and the upper floor of the heritage building would be completed then the office would be moved to the first floor and trading would commence from the sportsmen's bar, following which works would commence on the existing office area and kitchen and the lounge bar would be demolished. An agreement to this effect was not denied by Mr Thompson (or by Mr Boucher).

121 I also accept Mr Clifford's and Mr Sansone's uncontradicted evidence that what was subsequently proposed, to enable the builder to take advantage of specialist trades on site at the time, would result in the closure of the lounge bar. Mr Thompson in his letter of 16 February 1999 put forward a compromise proposal which involved providing temporary access from the lounge bar to the toilets (through the building site) and works being undertaken in part of the lounge bar which would be partitioned off from the rest. Thus, it is not simply a question of whether Newmarket had refused to vacate the office and whether there was suitable alternative accommodation for the office. In that regard the facts are clear. At the time at which discussions were held, there was no accommodation on the first floor which was ready and available for use as office space. Mr Thompson agreed that they needed to take steps to prepare the space which was not done because of the impasse.

122 On the subject of denial of access, I prefer Mr Sansone's evidence to that of Mr Thompson where it is in conflict. It would be expected that if Mr Sansone's response had been as Mr Thompson said, it would have been referred to in Mr Thompson's correspondence to Newmarket and in the letter dated 26 February 1999 from Kee-Vee's solicitors. There is no reference in that correspondence to any denial of access. I have also had regard to Mr Thompson's failure to refer to the exchange with Mr Sansone in his initial statements. Accordingly, I find that Newmarket did not refuse to move the office under any circumstances. The builder wanted to alter the agreed sequence and have access to the hotel to conduct work which would result in the closure of Newmarket's only operating bar, namely the lounge bar. Newmarket was prepared to move when it had been provided by Kee-Vee with a works proposal that was consistent with Kee-Vee's contractual obligation in cl 2 of the Third Schedule of the Agreement for Lease that the lounge bar remain trading during construction.

123 I infer from the parties agreement as to the sequence of works which would protect Newmarket's trade from the lounge bar that the agreed arrangement was reasonable. The impetus to revisit that agreement was the presence on site of a specialist team to make openings in the walls of the heritage hotel. That might be reasonable as between Kee-Vee and the builder but is not in my view reasonable vis-à-vis Newmarket and Kee-Vee's obligations under the Agreement for Lease.

124 Thereafter, Mr Thompson put a compromise proposal in his letter of 16 February 1999 aimed at keeping part of the lounge bar trading. However, against a backdrop of settlement negotiations on broader matters, Kee-Vee simply stopped work on the hotel and did not pursue the matter further until much later. Newmarket did not press for performance either for understandable commercial reasons whilst settlement was a possibility, that is until July 1999. However, there is no plea of any agreement to vary, waiver or estoppel. The defence is confined to a denial of access. Questions of intentions and motives for delay are equivocal on the issue of denial of access. They are equally applicable to achieving an acceptable settlement arrangement.

125 I also find that there were other aspects of the Lessor's Works in the heritage building that could have been attended to by Kee-Vee notwithstanding Newmarket's continued occupation of the office. I do not accept that Newmarket denied the builder general access to the heritage building. Mr Ryan of TCC stopped all work, he said, because of a direction from Mr Thompson. There is no proper evidential foundation for Mr Thompson's "understanding" from the builder that Newmarket had denied access.

Newmarket Corporation Pty Ltd & Ors v Kee-Vee Properties Pty Ltd & Ors [2003] WASC 157

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (511 paragraphs)

Newmarket Corporation Pty Ltd & Ors v Kee-Vee Properties Pty Ltd & Ors [2003] WASC 157 (21 August 2003)

(i) Whether cl 5 of Agreement for Lease Void

(iii) Whether the Failure to Complete Lessor's Works Caused by Newmarket

(iii) Analysis and Findings - Whether Representations Made

(iv) Whether Representations Misleading or Deceptive

Parties

Legislation Cited (3)

Cases Cited (30)