Penola Trading Co Pty Ltd v Sunny Springs Pty Ltd [2009] VSCA 161

Court of Appeal (Vic)|2009-06-26|Before: MAXWELL P, WEINBERG JA AND KYROU AJA

CONTRACT - Terms - Sale of business - Hotel with gaming facilities - Contract conditional on regulatory and gaming approvals being obtained - Conditions not satisfied - Implied obligation on purchaser to take reasonable steps to satisfy conditions - Whether once and for all or continuing obligation.

CONTRACT - Termination - Purchaser took no steps to satisfy conditions - Breach of implied obligation - Whether purchaser's conduct repudiatory - Acceptance of repudiation - Whether vendor affirmed contract after repudiation, or reserved its position - Contractual right of termination if conditions not satisfied - Whether necessary to show that purchaser's default caused non-satisfaction of conditions - Valid termination - Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 distinguished.

1 This appeal arises out of the aborted sale of the leasehold business of the Barwon Heads Hotel ('business'). The County Court gave judgment in favour of the vendor, Sunny Springs Pty Ltd ('Sunny Springs'), against the purchaser, Penola Trading Co Pty Ltd ('Penola').[1] Penola is the appellant in this appeal and Sunny Springs is the respondent.

2 By heads of agreement dated 24 August 2004, Sunny Springs agreed to sell the business to Penola subject to certain conditions being satisfied ('Agreement'). On 11 February 2005, Sunny Springs purported to rescind the Agreement on the basis that Penola had repudiated it by failing to take reasonable steps to satisfy the conditions. Sunny Springs' refusal to return the deposit prompted Penola to sue for its return.

3 Judge Morrow in the County Court found that Penola had repudiated the Agreement and that Sunny Springs had validly accepted the repudiation. He held that Sunny Springs was entitled to retain the deposit. He also upheld Sunny Springs' counterclaim for recovery of legal and advertising expenses it had incurred in the aborted sale.

4 Penola now appeals from the County Court judgment in favour of Sunny Springs in both the claim and counterclaim.

5 For the reasons that follow, we have concluded that the judgment below was correct in relation to the claim. However, by consent, the appeal will be allowed in relation to the counterclaim.

6 By letter dated 20 August 2004, David Yunghanns, on behalf of Penola, registered an interest to purchase the business. The offer of $2,900,000 was expressed to be subject to conditions that included a right by Penola to nominate another entity as purchaser, and the current manager and licence nominee of the business, David Bushell, being able to retain his position. Sunny Springs did not accept these conditions.

7 On 24 August 2004, Sunny Springs and Penola executed the Agreement, under which Sunny Springs agreed to sell the business to Penola for $3,000,000. A deposit of $150,000 was paid. The balance of $2,850,000 was payable on the settlement date, which was described as 'the Monday that is fourteen (14) days after the date that all the conditions ... have been satisfied'.

8 The conditions were set out in cll 1 and 2. Those clauses provided:

This Agreement is subject to satisfaction of the following conditions by the date that is six (6) months from the date of this Agreement:

Approval by Liquor Licensing Victoria to the transfer of the General Licence No. 31900740 in respect of the Premises to the Purchaser; 2. Tattersall's Gaming Pty Ltd granting a Venue Operators Contract to the Purchaser to enable the operation of twenty-nine (29) gaming machines at the Premises (comprising twenty-five (25) core machines and four (4) additional machines) by the Purchaser from the Settlement Date on the same terms as the Vendor's current Agreement with Tattersall's Gaming Pty Ltd;

The Victorian Commission for Gambling Regulation ("the Authority") approving the grant of a Venue Operators Licence Application as well as the grant of an Inclusion Application to the Purchaser to enable the Purchaser to operate gaming machines at the Premises from the Settlement Date;

Tabcorp Manager Pty Ltd granting the Purchaser a Contract to operate a Pubtab Agency at the Premises from the Settlement Date on the same terms as the Vendor's current Pubtab Agreement with Tabcorp Manager Pty Ltd; and 2. The Freehold Owner of the Premises consenting to the assignment from the Vendor to the Purchaser of the Lease (as herein defined). The Lease means the Lease dated 7 January 2003 and made between Taylor Hotel Nominees Pty Ltd (as Lessor) of the one part and the Vendor (as Lessee) of the other part (the Purchaser acknowledges having received a copy of the Lease prior to execution of this Heads of Agreement).

If any condition set out above is not satisfied by the date that is six (6) months from the date of this Agreement then this Agreement shall be at an end and all monies paid hereunder refunded in full to the Purchaser without deduction.

This agreement is further conditional upon the Freehold Owner of the premises not exercising its right of first refusal to purchase the Business of the premises from the Vendor pursuant to the provisions of Clause 34 of the Lease (as defined in Clause 1(e)). In the event that this condition is not satisfied by the date that is one (1) month after the date of this Agreement then this Agreement shall be at an end and all monies paid hereunder refunded in full to the Purchaser without deduction.

For convenience, we will refer to the approvals and grants that are described in the first four conditions as the 'regulatory and gaming approvals'.

9 Clause 6 of the Agreement incorporated the General Conditions of the Law Institute of Victoria Contract of Sale of Business ('LIV Conditions'). Clause 5.3 of the LIV Conditions provided that both the vendor and purchaser 'must take all reasonable steps to obtain' a transfer of the lease to the purchaser. Clause 5.4 provided that, if the freehold of the business premises was subject to a mortgage, the vendor must provide evidence of consent of the mortgagee to the transfer of the lease. Clause 11 of the LIV Conditions relevantly provided:

DEFAULT

11.1 Time is of the essence of this contract.

...

11.4 If either party defaults, the other party may serve notice which -

(a) specifies the default, the expenses attributable to the default and the rate of any interest payable, and

(b) allows not less than 7 days for the remedy of the default and payment, and

(c) states the rights under GC 11.5 and 11.6 which the party serving the notice intends to exercise if the default is not remedied.

...

11.6 The party giving notice may state in it that unless the notice is complied with this contract is ended. If the notice is not complied with this contract is ended and no further notice is necessary.

11.7 If the vendor ends this contract, the vendor may keep the deposit and either -

resell the business by public auction or private contract and sue the purchaser for all expenses and any deficiency in price on resale; or
retain the business and sue the purchaser for damages for breach of contract. ...

10 Clause 7 of the Agreement required Sunny Springs to provide a formal contract to Penola within 28 days. The Agreement provided, however, that it was binding from 24 August 2004 notwithstanding that a formal contract might be entered into subsequently.

11 The landlord of the Barwon Heads Hotel ('hotel') was Taylor Hotel Nominees Pty Ltd ('landlord'). John Taylor was a director of the company. Clause 19 of the lease between the landlord and Sunny Springs prohibited Sunny Springs from assigning the lease 'without the previous consent in writing of the Lessor ... but such consent shall not be unreasonably withheld from any assignment of this Lease ... to a respectable solvent responsible and suitable person'. The clause also provided that where the assignee was a company, Sunny Springs must procure the execution by the directors of the assignee of a deed of guarantee. Clause 34 of the lease gave the landlord a right of first refusal in the event that the business was offered for sale.

12 Mr Yunghanns gave evidence that he obtained legal advice from Penola's solicitor, Dennis Galimberti of Hall & Thompson, before signing the Agreement. He said that he was 'pretty sure' that he obtained advice before signing the expression of interest dated 20 August 2004. The legal advice covered the Agreement, the steps required to satisfy the conditions, the forms to be completed and how long the process would take. Mr Yunghanns realised that the Agreement did not contain a nominee clause and did not refer to Mr Bushell. Before signing the Agreement, he asked the vendor's agent to amend it to include a nominee clause, but the agent refused. The agent said it was a 'standard document'.

13 By letter dated 26 August 2004, Sunny Springs' solicitor, Michael Scully of Williams Winter, informed Mr Galimberti that Williams Winter acted for Sunny Springs and the landlord. On behalf of the landlord, he requested financial information and details of the experience of Penola's directors in the operation of hotels with gaming machines and proposed management arrangements in relation to the hotel.

14 By letter dated 31 August 2004, Mr Galimberti informed Mr Scully that Penola 'will be using the purchasing entity, Milieu Management Company Pty Ltd, ACN 098 903 569 as the vehicle to purchase the Hotel'. He enclosed an application for transfer of licence to be signed by Sunny Springs.

15 On the same day, Mr Galimberti wrote to various organisations seeking copy permits, certificates and other documents. Also on that day, Mr Yunghanns completed a police questionnaire for a liquor licence application, noting Mr Bushell as a person who would have a management role or would exercise control over the business to be licensed.

16 On 2 September 2004, Mr Galimberti forwarded to Mr Scully a letter from Mr Yunghanns, attaching a table of assets and liabilities and proposing that Mr Bushell be retained as manager and licence nominee.

17 By letter dated 3 September 2004, Mr Scully provided Mr Galimberti with a draft formal contract. The letter did not respond to the proposal that Milieu Management Company Pty Ltd ('Milieu') be substituted as the purchaser. The draft contract named Penola as the purchaser. It did not refer to Milieu or Mr Bushell.

18 On 7 September 2004, Mr Yunghanns went overseas. He was away until 5 October 2004. He returned to his office on 19 October 2004.

19 By letter dated 8 September 2004 to Mr Galimberti, Mr Scully sought a certified asset and liability statement of Mr Yunghanns, distinguishing assets in his own name from those owned by his family trust or a third party, and clarification of proposed management arrangements in relation to the premises. Mr Scully stated:

We are instructed that Mr David Bushell is not to remain at the premises as and from the settlement date. Mr Taylor must be satisfied that satisfactory arrangements are in place for the operation of the business so that the same will be properly conducted.

20 By letter dated 16 September 2004, Mr Scully advised Mr Galimberti that the landlord did not wish to exercise its right of first refusal to purchase the business.

21 By letters dated 17 September 2004, Mr Galimberti sought information from Liquor Licensing Victoria and the Health Department of the City of Greater Geelong regarding the hotel premises.

22 By letter dated 21 September 2004, Mr Scully sent Mr Galimberti copies of various certificates, agreements, licences and other documents relating to the business.

23 By letter dated 6 October 2004, Mr Scully provided Mr Galimberti with further copy agreements relating to the business, sought comments in relation to the draft formal contract and sought the financial information requested by Mr Taylor.

24 By letter dated 18 October 2004, Mr Scully sought comments from Mr Galimberti in relation to the draft formal contract, as well as confirmation that Penola's venue operator's licence application and inclusion application had been lodged.

25 By letter dated 26 October 2004, Mr Galimberti again advised Mr Scully that Milieu was to be the purchaser of the business, provided comments on the draft formal contract and provided a completed application for transfer of liquor licence to Milieu for execution by Sunny Springs.

26 On 27 October 2004, Mr Scully telephoned Mr Galimberti and stated that, if a purchaser was substituted for Penola, the business would have to be re-offered to the landlord.

27 On 3 November 2004, Mr Galimberti telephoned Mr Scully and stated that Mr Yunghanns needed to purchase in the name of Milieu because Penola was a trustee of a trust involving persons other than Mr Yunghanns and there was also a director in the United Kingdom. Mr Galimberti also stated that if Sunny Springs needed to re-offer the right of first refusal to the landlord and the landlord matched it, Penola would let the sale go and have the deposit returned to it.[2]

28 By letter dated 4 November 2004, Mr Scully wrote to Mr Galimberti, stating that '[t]here is no right under the Head[s] of Agreement to nominate a Substitute Purchaser' and that the purchaser should remain Penola. He also sought the financial information requested on 8 September 2004 for the purpose of obtaining the landlord's consent and responded to Mr Galimberti's comments on the draft formal contract.

29 Mr Scully wrote a second letter to Mr Galimberti on 4 November 2004, which was headed 'without prejudice'. The letter proposed amendments to the Agreement, including the addition of a nominee clause and an extension of the date for the satisfaction of the conditions to 30 June 2005.

30 Mr Galimberti responded on 5 November 2004. He provided Mr Scully with information regarding Penola and Milieu and stated that Mr Yunghanns intended to retain Mr Bushell as manager of the business. He also informed Mr Scully that John Burston was a shareholder of Penola who resided in the United Kingdom and that he did not wish to submit to any probity checks 'for professional reasons'. As will become apparent, Mr Burston was also a director of Penola.

31 By letter dated 8 November 2004, Mr Scully wrote to Mr Galimberti and stated that Sunny Springs would allow Penola to nominate a substitute purchaser if, among other things, the date for satisfaction of the conditions was extended to 30 June 2005. Penola did not respond to this proposal.

32 On 11 November 2004, Sunny Springs served on Penola a 'Notice of Default and of Intention to Rescind Agreement' ('Default Notice'). The Default Notice relevantly stated as follows:

It was an implied term of the Agreement that the Purchaser would do all reasonable acts, matters and things to obtain approval to the conditions ... as soon as practicable after the date of the Agreement.
The Purchaser has failed to comply with the implied term of the Agreement ... in that the Purchaser has:
1. Failed to lodge the Transfer of Licence Application with Liquor Licensing Victoria.
2. Failed to lodge an Application with Tattersall's Gaming Pty Ltd for the grant of a Venue Operators Contract to the Purchaser to enable the Purchaser to operate twenty-nine (29) gaming machines at the premises.
3. Failed to lodge an Application with the Victorian Commission for Gambling Regulation for the grant of a Venue Operators Licence to the Purchaser as well as the grant of an Inclusion Application to the Purchaser.
4. Failed to make Application to Tabcorp Manager Pty Ltd for a Contract to operate a Pubtab Agency at the premises.
5. Failed to provide to the Vendor and the Freehold Owner of the premises the information referred to in Clause 19 of the Lease ... together with an Assignment of Lease ... so as to enable the Vendor to seek the Freehold Owner's consent to the Assignment of the Lease from the Vendor to the Purchaser.

Each and every of the defaults referred to in Recital E of this Notice are rectified within seven (7) days of service of this Notice upon you; and
The proper legal costs occasioned by your default (which costs are noted at $500.00) are paid within seven (7) days of the service of this Notice upon you

THAT the Vendor will rescind the Agreement pursuant to General Condition 11.6 of the Law Institute Contract of Sale of Business AND the deposit money paid by the Purchaser to the Vendor shall be forfeited and the Vendor at its option may either retain the Business and sue the Purchaser for damages for breach of Agreement OR resell the Business by public auction or private sale and all expenses thereof and any deficiencies in price occasioned by such resale shall forthwith be paid by the Purchaser to the Vendor as liquidated damages PROVIDED ALWAYS that nothing herein contained shall be deemed to deprive the Vendor of its common law rights arising out of any default by the Purchaser.

33 By letter dated 15 November 2004, Mr Galimberti informed Mr Scully that the Default Notice was defective for 'many and varied' reasons, including that Sunny Springs 'cannot purport to terminate the Agreement based on the failure of [Penola] to comply with conditions which have not expired'. Mr Galimberti asserted that Penola had six months to obtain the regulatory and gaming approvals and that it could not lodge applications for the approvals until the landlord's approval was obtained.

34 Mr Scully responded the next day. He asserted that, although the Agreement allowed six months for the satisfaction of the conditions, Penola was obliged to do all reasonable acts to satisfy the conditions as soon as practicable. He rejected Mr Galimberti's suggestion that the applications for the relevant approvals could not be lodged until after the landlord's approval was obtained, and asserted that Penola was in default under the Agreement. He sought further financial information on Mr Yunghanns from Mr Galimberti for consideration by Mr Taylor. He stated that, if Penola complied with the Default Notice and paid the costs of the notice, and a formal contract was exchanged by 24 November 2004, Sunny Springs would agree to include a nomination provision in the formal contract entitling substitution of a purchaser and would agree to extend the date for the satisfaction of the conditions to 30 June 2005. The letter concluded by stating that if Penola did not agree to the proposal, Sunny Springs 'will rely on the ... Agreement and seek to enforce the same against [Penola]'.

35 By letter dated 18 November 2004 to Mr Scully, Mr Galimberti stated that Penola was not in default under the Agreement and would not comply with the Default Notice. He pointed out that Mr Scully had a conflict in acting for the landlord as well as for the vendor. Mr Galimberti said his client was presently overseas. He sought clarification of what further information the landlord required and stated that the directors of the assignee would provide guarantees of the lease.

36 Mr Galimberti sent Mr Scully a further letter dated 25 November 2004. The letter was headed 'without prejudice' and referred to a 'without prejudice' conversation between the two lawyers on 19 November 2004, in which Mr Scully had apparently proposed that a new heads of agreement be executed. Mr Galimberti stated that he was not certain why this proposal was made and that it seemed to him that 'the only relevant purpose would be to revive the right of first refusal available to the [landlord], and thus exclude [Penola] from the sale of the business'. He went on to say that '[a]lthough [Penola] is obviously prepared to proceed with the transaction on the terms which have been agreed', it was prepared to enter into a fresh heads of agreement with an extended settlement date. He added that, in view of 'the apparent circumstances where ... [Sunny Springs] appears to prefer to deal with the [landlord]', execution of a fresh heads of agreement would have to be on the basis that -

(a) the landlord undertook in writing to exercise the right of first refusal under the lease; and

(b) Sunny Springs confirmed in writing that, if the landlord exercised the right of first refusal, Penola's deposit would be returned to it without deduction or delay.

37 Mr Scully responded to Mr Galimberti's letter of 18 November 2004 on 26 November 2004. He sought information under cl 19 of the lease from Mr Galimberti to enable Mr Taylor to consider whether the landlord should consent to the assignment of the lease. He noted that a property which Mr Yunghanns had previously listed as an asset was not registered in his name. Mr Scully also said:

Our client is greatly concerned by your client's failure to take steps to ensure satisfaction of the conditions ... You[r] client must make the relevant applications in sufficient time to allow the issue of permits etc within the six (6) month period.

Your client's lack of action in seeking to satisfy the conditions ... indicate[s] an intention not to be bound by the terms of the Agreement. If the matter reaches a point where satisfying the conditions within the six (6) months allowed by the Heads of Agreement becomes impossible, then the failure to act by your client will be regarded as a repudiation of the Heads of Agreement by your client.

38 By separate letter dated 26 November 2004, Mr Scully responded to Mr Galimberti's letter of 25 November. Mr Scully expressed concern that Penola did not wish to proceed with the purchase and stated that Sunny Springs was not prepared to entertain any further discussion about a fresh heads of agreement. He added that Sunny Springs 'will [rely] on the current Heads of Agreement and enforce the same'. This statement was repeated in a further letter from Mr Scully to Mr Galimberti dated 3 December 2004.

39 By letter dated 10 December 2004, Mr Galimberti sent to Mr Scully statements of assets and liabilities for Mr Yunghanns, Mr Burston and Penola respectively. In a further letter dated 22 December 2004, Mr Galimberti pressed for an answer by 5.00pm that day on whether the landlord approved the assignment of the lease.

40 By letter dated 22 December 2004, Bruce Curl of Williams Winter informed Mr Galimberti that he now acted for the landlord. He sought further information regarding Penola, its directors, and persons who might operate the gaming venue. He wrote again to Mr Galimberti on 10 and 31 January 2005 seeking a response.

41 By letter dated 13 January 2005, Mr Scully asked Mr Galimberti for details of the dates of lodgement of the applications for regulatory and gaming approvals. Mr Galimberti did not respond.

42 Mr Galimberti responded to Mr Curl's letter of 22 December 2004 on 2 February 2005. He informed Mr Curl that Penola intended to employ the existing manager, Mr Bushell, and provided the information Mr Curl had requested.

43 By letter dated 7 February 2005 to Mr Galimberti, Mr Curl relevantly stated:

We advise you that the owner of the premises will consent to the assignment of the lease to Penola Trading Pty Ltd on the basis that the said assignment of lease will be guaranteed by Messrs Burston and Yunghanns and subject to your client receiving the regulatory consents from Liquor Licensing Victoria, the Victorian Commission for Gambling Regulation, Tattersall's Gaming Pty Ltd and Tabcorp.

44 By letter dated 10 February 2005 to Mr Scully, Mr Galimberti stated:

We refer to previous correspondence and advise that we were notified by Bruce Curl of your office on 7 February 2005 that our client had been approved by the Landlord and accordingly we enclose Application for Transfer of Liquor Licence for signing by your client and then for return to this office so that we can lodge the same with Liquor Licensing Victoria.

45 Mr Scully sent a letter dated 11 February 2005 to Mr Galimberti purporting to rescind the Agreement. This letter relevantly stated:

Your client has failed to take the required steps to ensure satisfaction of the conditions ... In particular your client has:

Failed to lodge the Venue Operators Licence with the Victorian Commission for Gambling Regulation ("VCGR"). ...
Failed to lodge the Transfer of Licence Application at Liquor Licensing Victoria.
Failed to make Application to Tattersall's Gaming Pty Ltd for the grant of a new Venue Operators Contract. ...
Failed to lodge the Inclusion Application with the VCGR.

...

The matter has now reached a point where satisfaction of the conditions within the six (6) months deadline referred to in the Agreement, cannot occur.

Your client's lack of action in not lodging the required Applications with the respective Authorities is a clear repudiation of the Agreement by your client. Our client hereby accepts your client's repudiation of the Agreement. As a result of the repudiation the deposit paid under the Agreement is hereby forfeited to our client and our client will hold your client liable for all damages and expenses incurred in relation to the matter including any deficiency in price occasioned by any re-sale of the Business.

46 By letter dated 18 February 2005, Mr Galimberti wrote to Mr Scully denying that Penola had repudiated the Agreement. He asserted that Mr Scully's letter dated 11 February 2005 constituted a repudiation of the Agreement, that Penola accepted that repudiation, thereby bringing the Agreement to an end, and that Penola was entitled to a refund of the deposit. Sunny Springs refused to refund the deposit.

47 In April 2005, Penola commenced proceedings against Sunny Springs in the County Court. It asserted that Sunny Springs had repudiated the Agreement on 11 February 2005, Penola had accepted the repudiation on 18 February 2005, and Penola was entitled to damages or a refund of the deposit of $150,000 plus interest.

48 In its defence and counterclaim, Sunny Springs asserted that there was an implied term in the Agreement that Penola 'would do all reasonable acts, matters and things necessary or required to be done by it to satisfy the pre-conditions within six months from the date of the agreement'. It asserted that Penola breached that term and otherwise evinced an intention not to be bound by - and thereby repudiated - the Agreement. It asserted that it had ended the Agreement by accepting the repudiation and was entitled to retain the deposit. It also claimed reimbursement of fees paid to its estate agents and legal costs relating to the aborted sale.

49 In its amended reply and defence to counterclaim, Penola admitted that there was an implied term of the Agreement that Penola 'would take reasonable steps to satisfy the pre-conditions within six months from the date of the agreement'. It asserted that time was not of the essence with respect to the implied term, since it did not specify a time and did not form part of the LIV Conditions.

50 At the trial, Anthony Joyce and Alan Goldstone, solicitors practising in liquor and gaming licensing law, gave expert evidence on behalf of Sunny Springs and Penola respectively. The experts agreed on the following:

(a) It was possible for Penola to apply for all the regulatory and gaming approvals before receiving the landlord's consent to the assignment of the lease. In particular, it was not necessary for Penola to wait until it had the landlord's consent before applying to the Victorian Commission for Gambling Regulation ('VCGR') for a venue operator's licence.[3]

(b) No one could state with certainty that a venue operator's licence could be obtained within six months. Where an applicant and associated individuals had not been approved previously by the VCGR, and where there had been litigation on foot, it could take in excess of six months to obtain a venue operator's licence.

(c) Where an applicant, or the directors of a corporate applicant, had been involved in litigation, details would have to be provided to the VCGR and this may or may not hold up the application for a venue operator's licence.

(a) Where a contract is conditional upon the obtaining of regulatory and gaming approvals, it is common practice to make all applications (including an application for the landlord's consent to an assignment of lease) as soon as possible and run them concurrently.

(b) Where the sale is subject to the landlord not exercising a right of first refusal, it is understandable for the purchaser not to make the applications until after it is known whether the landlord will exercise this right. However, once that is known, a prudent purchaser would proceed with the applications as quickly as possible.

(d) If a director of an applicant for a venue operator's licence resided in England, a probity check would be required from Scotland Yard, and such a check could take six weeks.

(a) A six month period was not unusual for the satisfaction of conditions of the nature involved in this case.

(b) He would advise a client which had entered a conditional purchase agreement to go out and get all of the information needed as quickly as possible.

(c) It is a common occurrence for all four applications for regulatory and gaming approvals to proceed concurrently within a reasonable time after the signing of heads of agreement, provided all parties and associated individuals (such as the manager) are known. However, the applications cannot proceed until the names of the parties are established.

(d) '[I]t would not be unreasonable for [Penola] to make a decision not to be involved in inordinate time and expense if ultimately the Landlord would not approve the Assignment of Lease'.

53 Mr Galimberti also gave evidence. He said that the legal fees for obtaining the regulatory and gaming approvals would be in the order of $35,000 and obtaining them 'could take from four to eight months'.[4]

54 The County Court judge held that Penola was subject to an implied term to use its best endeavours and make bona fide and timely applications for the regulatory and gaming approvals.[5] He also held that Sunny Springs was subject to an implied term to use its best endeavours to obtain the landlord's approval to the assignment of the lease to Penola.[6]

55 The judge said that the application for a venue operator's licence was the most difficult and demanding application and that such a licence 'could take up to six months to obtain'.[7] His Honour did not make a specific finding that a minimum period was required for such an application. In particular, he did not find that it was impossible to obtain such a licence in less than four months after lodging the application.

56 It was common ground that Penola did not at any time lodge any applications for the regulatory or gaming approvals.

57 After a thorough review of the correspondence and other evidence before him, the judge found that Penola had breached its implied obligation but that Sunny Springs had not breached its implied obligation.[8] He concluded that Penola had repudiated the Agreement and that Sunny Springs had been entitled on 11 February 2005 to accept the repudiation.[9]

58 The judge rejected three submissions made by Penola. The first was that time was not of the essence in the Agreement.[10] The second was that Sunny Springs was not entitled to terminate the Agreement on 11 February 2005 because it had not yet obtained the mortgagee's consent to the transfer of the lease.[11] The third was that Sunny Springs was estopped from terminating the Agreement based on a common assumption that the Agreement was conditional on Mr Bushell retaining his position as manager and Penola having the right to nominate another entity as purchaser.[12] (Before us, senior counsel for Penola abandoned reliance on the second and third of these arguments.)

59 Accordingly, the judge gave judgment for Sunny Springs on Penola's claim against it. On the counterclaim, the judge held that Sunny Springs had made out its claim in relation to advertising and legal expenses incurred in relation to the aborted sale, but not in relation to an alleged agent's commission. The judge gave judgment for Sunny Springs for $20,546.46 on the counterclaim.

60 The following issues arise for determination in this appeal:

(a) What were Penola's obligations in relation to satisfying the conditions?

(b) Did Penola breach its obligations under the Agreement?

(d) Was Sunny Springs entitled to terminate the Agreement on 11 February 2005?

61 In its notice of appeal, Penola sought judgment on the claim in the sum of $150,000 plus interest and costs, and dismissal of the counterclaim in place of the judgment below.

Penola's obligations in relation to the conditions

62 The County Court judge referred to the conditions in cl 1(a) to (d) of the Agreement and said: 'It is not in dispute that there were implied terms in the contract that the purchaser had to use his best endeavours and make bona fide and timely applications for these various licences and permits'.[13] He also referred to the condition in cl 1(e) and said: 'Again, it is not in dispute that it was an implied term of the contract that the vendor had to use its best endeavours to get the landlord to approve the assignment of the lease to the purchaser'.[14]

63 Penola submitted that the judge misconstrued the pleadings and misdirected himself as to the implied term binding upon Penola. As we have already noted, in the pleadings Sunny Springs had alleged that it was an implied term of the Agreement that Penola would do all reasonable acts, matters and things necessary or required to be done by it to satisfy the conditions within six months from the date of the Agreement. Penola had admitted that it was an implied term that it would take reasonable steps to satisfy the conditions within that time.

64 Penola submitted that, had the judge identified and considered the correct implied term and asked himself whether Penola had taken reasonable steps to satisfy the conditions within the six month period, he would have concluded that Penola had not breached the implied term because it had acted reasonably throughout that period.

65 For the purposes of analysis, we adopt Penola's formulation of the implied term binding on it, namely to take reasonable steps to satisfy the conditions within six months. Before us, senior counsel for Penola properly conceded that the implied term operated as soon as the Agreement was signed on 24 August 2004. However, he submitted that an appropriate time for making the applications for the regulatory and gaming approvals never arrived prior to 7 February 2005 (when the landlord consented to the assignment of lease) because there were various factors that made it reasonable for Penola to delay lodging them until then. We now turn to discuss each of the reasons for delay relied on by Penola.

Delay pending confirmation the landlord would not exercise the right of first refusal

66 Penola submitted that it was reasonable to delay making the applications for the regulatory and gaming approvals until after it was known whether the landlord would exercise the right of first refusal. Mr Joyce gave expert evidence that it was understandable for Penola to delay lodging the applications until this was known. Accepting that it may have been understandable or even reasonable for Penola to defer lodging the applications until 16 September 2004 (when it became known that the landlord would not exercise the right of first refusal), it does not follow that it was reasonable for Penola to do nothing at all until then.

67 In our opinion, the implied term required Penola to gather as soon as practicable the information required to be included in the applications for the regulatory and gaming approvals, including probity checks for its directors, and to be in a position by mid-October 2004 to lodge those applications. By that time it had become clear that the landlord would not exercise the right of first refusal. Probity checks involving Mr Burston would also have been completed by then had the applications for those checks been made soon after the Agreement was signed.

Delay pending confirmation of acceptance of a substitute purchaser

68 Penola submitted that it was not unreasonable for it to pursue the nomination of Milieu as the purchaser and for it to defer making the applications for the regulatory and gaming approvals until Sunny Springs decided whether to accept Milieu as the purchaser. Penola advanced several arguments in support of this submission: first, it is usual to allow nomination of a substitute purchaser; secondly, it was not possible to apply for the approvals until the purchaser's identity was known; thirdly, there were additional requirements in obtaining regulatory approval for Penola arising from its trust structure and its previous involvement in litigation; fourthly, legal fees for obtaining the approvals would be in the order of $35,000,[15] which would be wasted if the applications proceeded naming Penola as the applicant; and finally, the inevitable delay involved in obtaining a probity check on Penola's foreign director (Mr Burston) meant that it would be impossible for the conditions to be satisfied unless an alternative purchaser was nominated.

69 Penola contended that, as Milieu was not rejected by Sunny Springs as a substitute purchaser until 4 November 2004, it was not unreasonable that Penola had not proceeded with the applications before then. On the other hand, by 4 November 2004 it was too late to obtain the licences within the six month period. Penola relied on evidence that the regulatory and gaming approvals were difficult to obtain, and referred to the judge's findings that obtaining the approvals could take from four to eight months and that obtaining a venue operator's licence, in particular, could take six months.

70 The judge held that, because the Agreement identified Penola as the applicant for a venue operator's licence -

[Mr Yunghanns'] only legitimate course of action was to then proceed immediately with the application with [that person] as being the subject of the application. Mr Yunghanns cannot seek to introduce another party (Milieu) into this exercise and then complain because [the landlord or Sunny Springs] would not agree to this nominee.[16]

71 Even accepting, for the sake of argument, that it was reasonable for Penola to seek permission for Milieu to be substituted for Penola as purchaser, it was quite unreasonable for Penola to delay applying for the regulatory and gaming approvals until this issue was resolved. Penola had signed a binding agreement identifying it as the purchaser and was obliged to take reasonable steps to obtain the approvals within six months. That obligation bound Penola from the moment the Agreement was signed.

72 The unreasonableness of Penola's action in doing nothing is reinforced by the fact that, even before the Agreement was signed, Sunny Springs had refused to include a nominee clause. Penola was therefore well aware, when it entered into the Agreement, that Sunny Springs was unlikely to agree to substitute another purchaser.

Delay pending confirmation Mr Bushell would remain as manager

73 For similar reasons, we consider that it was not reasonable for Penola to defer lodging the applications for the regulatory and gaming approvals until it was known whether Mr Bushell would remain as manager and licence nominee. As Penola well knew, the condition that Mr Bushell remain as manager, contained in Mr Yunghanns' original expression of interest to purchase the business, was not accepted, and no such condition appeared in the Agreement.

74 The judge found that 'there was nothing to stop [Penola] going ahead with [applying for a venue operator's licence] on the assumption that Mr Bushell would be the manager'.[17] He also found that, as the identity of Penola's directors and the proposed manager were known to Mr Yunghanns at the date Penola entered into the Agreement, his 'only legitimate course of action was to then proceed immediately with the application with these persons as being the subject of the application'.[18]

75 Penola was on notice as early as 8 September 2004 that Mr Bushell might not remain the manager. Penola should have taken urgent steps to find another manager and to include that manager's details in those applications for the regulatory and gaming approvals that required that information. The evidence established that Penola had minimal direct contact with Mr Bushell and at no time made inquiries to find another manager. Instead, Penola unreasonably persisted with the notion that Mr Bushell would remain the manager.

Delay pending confirmation of the landlord's approval of assignment of lease

76 Penola submitted that it was reasonable for it to delay lodging the applications for the regulatory and gaming approvals until after the landlord approved the assignment of lease. The judge found that 'there was nothing to stop Mr Yunghanns getting the necessary approvals regardless of whether, at the time he sought those approvals, he had the landlord's consent to the transfer or not'.[19] This conclusion was supported by the expert evidence.[20]

77 We respectfully agree with the judge's conclusion on this issue.

Was Penola's obligation a 'once and for all' obligation?

78 We reject Penola's submission that its obligation under the implied term was a 'once and for all' obligation to obtain the regulatory and gaming approvals. It was a continuing obligation, operative from the execution of the Agreement, to take reasonable steps to satisfy the conditions throughout the six months allowed for obtaining the approvals.

79 There was evidence at the trial that it was common for agreements for the purchase of hotels with gaming facilities to contain a time limit by which applications for regulatory and gaming approvals must be lodged. The fact that the Agreement did not impose such a time limit, but simply required the approvals to be obtained within six months, reinforces our view that Penola's obligations in relation to the satisfaction of the conditions continued for the entire six month period. Moreover, Mr Galimberti's letter of 15 November 2004[21] is consistent only with the view that Penola had a continuing obligation.

Summary of conclusions in relation to Penola's obligations

80 Our conclusions in relation to Penola's obligations may be summarised as follows:

(a) Penola's obligation under the implied term became operative on the signing of the Agreement on 24 August 2004.

(b) It was a continuing obligation to take reasonable steps to satisfy the conditions within six months.[22]

(c) Pursuant to this obligation, Penola was required, as soon as practicable after 24 August 2004, to collect all information necessary for inclusion in the applications for the regulatory and gaming approvals, including probity checks.

(d) While it was understandable for Penola to defer lodging the applications until the landlord confirmed on 16 September 2004 that it would not exercise its right of first refusal and until the probity checks by Scotland Yard were completed, Penola should have been in a position to lodge the applications by mid-October 2004.

(e) Neither Penola's request for a substituted purchaser nor its expressed wish that Mr Bushell remain the manager, nor the requirement to obtain the landlord's consent to the assignment of the lease, justified deferral of the lodgement of the applications beyond mid-October 2004.

Did the judge err in characterising Penola's obligations?

81 The judge described the implied term binding on Penola in language that differed from the pleadings. In the event, this is a distinction without a difference. The distinction between an implied promise to use best endeavours and an implied promise to take reasonable steps to satisfy the conditions is of no practical significance in the circumstances. For the reasons that follow, on either formulation Penola breached the implied term and the judge was correct to so find.

Did Penola breach or repudiate the Agreement?

82 The judge found that Penola had breached its obligations and that it could not rely on its own tardiness as an excuse for not obtaining the necessary approvals within the six month period.[23] He also found that Penola had repudiated the Agreement and that Sunny Springs had validly accepted the repudiation on 11 February 2005, thereby bringing the Agreement to an end.[24]

83 We agree with these conclusions. Penola's failure to lodge the applications for the regulatory and gaming approvals by mid-October 2004 was a breach of its obligation to take reasonable steps, for the reasons we have given. Furthermore, the judge was right to conclude that the conduct of Penola evinced an intention not to be bound by the Agreement and was therefore a repudiation. Repudiation can include the manifestation of a refusal or inability by a party to perform a condition[25] of the contract or the contract as a whole. Where there is no express refusal or declaration of inability, whether a refusal or inability exists is determined objectively, by reference to the effect that the relevant party's words and conduct would have on a reasonable person.[26]

84 A repudiation by a party to a contract does not end the contract unless and until the other party accepts the repudiation. A party's repudiation can continue to operate in the absence of a retraction by that party.[27] Where that occurs, an initial election by the other party to require performance of the contract notwithstanding the repudiation does not eliminate that party's right to subsequently accept the repudiation.[28]

85 Throughout the six month period commencing 24 August 2004, Penola's lawyers had numerous communications with Sunny Springs' lawyers. The tenor of these communications prior to 11 February 2005 was that Penola considered itself bound by the Agreement and intended to comply with its obligations under the Agreement. There was certainly nothing in the communications prior to that time which suggested that Penola considered itself no longer bound.

86 Following Sunny Springs' Default Notice of 11 November 2004, Penola's lawyers wrote to Sunny Springs' lawyers affirming Penola's intention to comply with the Agreement. They did not say that insufficient time remained for compliance with the conditions. For the balance of 2004 and the beginning of 2005, they corresponded with Williams Winter in their capacity as lawyers for Sunny Springs and the landlord, either providing information to them or seeking information. The correspondence from Penola's lawyers proceeded on the basis that the Agreement was on foot.

87 Notwithstanding the statements in the correspondence that Penola intended to be bound by the Agreement, Penola continued to delay lodging the applications for the necessary approvals. It was inevitable that a time would arrive - and it duly did arrive - when Penola's deliberate failure to lodge the applications revealed an intention not to be bound by the Agreement.

88 During late 2004 and early 2005, Sunny Springs would have been justified in being sceptical about Penola's claims that it intended to honour its obligations under the Agreement. It was, however, entitled to wait and see whether Penola actually honoured its obligations, as Mr Scully's letter of 26 November 2004 said it would do.[29] Because Penola was not keeping Sunny Springs informed of its actions in relation to obtaining the approvals, Sunny Springs on 13 January 2005 requested details of the applications made. Penola did not respond to that request.

89 By February 2005, only a few weeks remained for the conditions to be satisfied. It was patently obvious - and Sunny Springs was entitled to conclude - that Penola had no intention of applying for the approvals and that it intended to disregard its contractual obligations, wait out the time for compliance with the conditions and then seek a refund of the deposit on the basis that the conditions had not been satisfied. It may be that the repudiatory intention had been manifested earlier - for example, when Penola failed to lodge the applications for the regulatory and gaming approvals following the Default Notice of 11 November 2004 and Mr Scully's letter of 26 November 2004. But this is nothing to the point, as repudiatory conduct continued until 11 February 2005.[30]

Was Sunny Springs entitled to accept the repudiation?

90 Penola submitted that, even if it had breached or repudiated the Agreement, Sunny Springs was not entitled to terminate the Agreement, either by exercising its contractual right to terminate for the breach or by accepting the repudiation, for the following reasons:

(a) Penola's breach was not a cause of the failure to satisfy the conditions;

(b) Sunny Springs affirmed the Agreement when it had the opportunity to end it and thereby waived its right to terminate; and

(c) Sunny Springs was in breach of its own obligation to obtain the landlord's consent and was not entitled to end the Agreement based on Penola's breach.

91 For reasons which follow, we reject each of these arguments.

Was Penola's breach a cause of the failure to satisfy the conditions?

92 The submission for Penola was that, in order for Sunny Springs to establish that Penola had repudiated the Agreement as at 11 February 2005 - when Sunny Springs purported to accept the repudiation - Sunny Springs had to prove not only that Penola was in breach of its 'reasonable steps' obligation but that this breach 'directly caused the impossibility of the conditions being satisfied within the six month period'. It was said that Sunny Springs bore the onus of proving, on the balance of probabilities, that if Penola had acted reasonably, it could - and would - have obtained all the necessary approvals within the six months.

93 In our view, this submission confuses two distinct issues. The first is whether Sunny Springs was entitled to treat Penola's conduct as repudiatory. We have already held that it was. The second is whether Penola was disentitled, by its own conduct, from relying on the non-fulfilment of the conditions to treat the Agreement as at an end, in accordance with cl 1 of the Agreement. The first issue concerns termination at law. The second concerns termination pursuant to the Agreement. Because the first issue has been determined in favour of Sunny Springs, the second issue simply does not arise. As at the date - 24 February 2005 - when the six month period for compliance with the conditions would otherwise have expired, the Agreement had already come to an end. No question could therefore arise of termination for non-fulfilment of the conditions.

94 Penola sought to rely on the decision of the NSW Court of Appeal in Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd.[31] That was not, however, a case about repudiation, as the judgments make clear.[32] Instead, it was concerned with termination pursuant to the terms of the contract. The case raised the separate question, which does not fall for decision in the present case, of whether one party to a contract, which was in breach of its 'best endeavours' obligation to secure a particular consent, could nevertheless rely on the provision of the contract allowing for termination if such consent were not obtained. By majority, the Court decided that, on the facts of the case, the defaulting party was not disentitled. The other party had not shown that the condition would probably have been satisfied (by the obtaining of the consent) if the defaulter had complied with its 'best endeavours' obligation. The default was, therefore, causally irrelevant. As we have said, no such question arises in the present case.

95 Had it been necessary for a finding to be made on whether Penola's breach of the Agreement caused or contributed to the non-satisfaction of the conditions, we are of the view, for the reasons set out briefly below, that such a finding would have been appropriate.

96 Mr Goldstone gave evidence that it was not unusual for a contract for the purchase of a hotel with gaming facilities to specify a six month period for the obtaining of the regulatory and gaming approvals. Implicit in this evidence is that experienced lawyers in the field were of the view that it was possible for the approvals to be obtained within six months.

97 Mr Yunghanns obtained legal advice from Mr Galimberti before signing the Agreement as Mr Galimberti was an experienced practitioner in the sale of hotels with gaming facilities. It may be safely assumed that, if Mr Galimberti had been of the view that it was not possible for the regulatory and gaming approvals to be obtained within six months, he would have advised Mr Yunghanns not to sign the Agreement. The evidence was that Mr Galimberti explained the Agreement to Mr Yunghanns, identified the steps that needed to be taken to obtain the approvals, and gave him relevant application forms.

98 Mr Galimberti would have been aware that the landlord had a right of first refusal and that one of Penola's directors lived in the United Kingdom. It can be assumed that, if Mr Galimberti had been of the view that the applications for approvals should not be lodged until after the landlord decided not to exercise that right, and that the delay in lodging the applications resulting from this and from the obtaining of overseas probity checks would make it impossible for the approvals to be obtained within the six month period, he would have advised Mr Yunghanns not to sign the Agreement.

99 The evidence established that there was no guarantee that a venue operator's licence would be obtained from the VCGR within six months. Much depended on the circumstances of each application. Where an applicant had an overseas director and had been involved in litigation, as was the case with Penola,[33] additional delay could result. But there was no evidence that these factors would necessarily preclude a licence being obtained within six months. Indeed, the judge referred to evidence that it was possible for all the regulatory and gaming approvals to be obtained in four months.[34]

100 Had it been necessary to do so, we would have concluded that Penola could have obtained all of the necessary approvals by 24 February 2005 if it had lodged the applications for the approvals by mid-October 2004. The fact that Penola did not lodge any of the applications at any time guaranteed that no approvals would be obtained. In these circumstances, the inevitable conclusion is that Penola's breach of its obligations did cause the non-satisfaction of the conditions. The non-satisfaction of the conditions was self-induced.[35]

101 In relation to whether Penola had repudiated the Agreement, and Sunny Springs had accepted the repudiation on 11 February 2005, the judge said: 'The fact that a previous Notice of Default was given does not, in my view, mean that the principles of repudiation cease to apply. In my view, [Penola's] failure to comply with the Notice of Default is further evidence of repudiation'.[36] The judge also said that the giving of the Default Notice did not exclude the principles of repudiation. Accordingly, he rejected Penola's submission that, by proceeding after the Default Notice given on 11 November 2004, Sunny Springs had waived any breach and affirmed the Agreement.[37]

102 Penola submitted that Sunny Springs did not act upon the Default Notice of 11 November 2004, and then purported to rely on the same defaults on 11 February 2005 as acts of repudiation. It contended that, by not acting on the Default Notice, Sunny Springs elected to affirm the Agreement and waived its right to later rely upon those alleged acts of repudiation.[38] Penola submitted that, from that point, Sunny Springs could only terminate on the basis of a fresh or continuing breach, as distinct from a 'once and for all' breach. If Penola had breached the Agreement at the time of the Default Notice, that was a final, once and for all breach.[39]

103 The principles to be applied in a case such as the present were set out in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW)[40] and in Sibbles v Highfern Pty Ltd.[41] In Immer, Deane, Toohey, Gaudron and McHugh JJ, in a joint judgment, said:

[A]t the heart of election is the idea of confrontation [of two mutually exclusive courses of action] which in turn produces the necessity of making a choice. But in a case such as the present one, the choice is not merely one of affirming the agreement; it involves as well the abandonment of the right to rescind. Abandonment is more readily inferred in some circumstances, for instance where the choice arises once and for all. ... The point is that where the right to rescind is a continuing one, it is not so readily concluded that the party entitled to rescind has abandoned that right completely as opposed to taking no action to exercise the right at the time in question.[42]

An act amounting to an election must be unequivocal. Where a contract can be terminated at the option of a promisee, the right to terminate is not necessarily lost by the promisee doing any act consistent with the continuance of the contract. If the act is also consistent with the reservation of a right to terminate in certain events, the right to terminate is not lost by the doing of the act.[43]

104 In Sibbles, Mason CJ and Dawson, Toohey and Gaudron JJ, in a joint judgment, said that a party's repudiation can continue to operate in the absence of a retraction by that party. Where a party's repudiation continues to operate, an initial election by the other party to require performance of the contract notwithstanding the repudiation does not eliminate that party's right subsequently to terminate for ongoing repudiation.[44]

105 As at 11 November 2004, Penola had breached the Agreement by failing to lodge the applications for the regulatory and gaming approvals. As at that time, Sunny Springs had a right to terminate the Agreement under cl 11 of the LIV Conditions. The Default Notice dated 11 November 2004 was given by Sunny Springs in purported exercise of a right to terminate given by the Agreement. This is clear from the references to cl 11 of the LIV Conditions in the Default Notice. The Default Notice referred to breaches of the Agreement by Penola but did not assert that Penola had repudiated the Agreement.

106 The Default Notice gave Penola notice of its breaches of the Agreement and of Sunny Springs' intention to terminate the Agreement if Penola did not remedy the defaults within seven days. Within the seven day period, Mr Galimberti disputed the validity of the Default Notice and Sunny Springs' right to terminate the Agreement. There then followed correspondence between Mr Galimberti and Mr Scully. This culminated in Mr Scully's letter of 26 November 2004, which requested Penola to apply for the regulatory and gaming approvals and put it on notice that, if its inaction made it impossible to obtain the approvals, Sunny Springs would treat it as having repudiated the Agreement.

107 It is clear, in our view, that Sunny Springs did not terminate the Agreement pursuant to cl 11 of the LIV Conditions. Instead, Sunny Springs kept open the question of Penola's repudiation. Although Sunny Springs' conduct was consistent with the continuation of the Agreement, it did not waive its right to terminate. On the contrary, Sunny Springs made it clear that it was reserving that very right. No prejudice was caused to Penola by the reservation of the right, and none was alleged by Penola. On 11 February 2005, Sunny Springs duly accepted Penola's repudiation.[45]

108 The letter of 11 February 2005 relied on Penola's continuing failure to lodge the regulatory and gaming approvals as repudiatory conduct. Sunny Springs was not relying on the previous breaches referred to in the Default Notice of 11 November 2004, but on Penola's subsequent manifestation of an intention to not lodge them at any time prior to 24 February 2005.[46]

109 Even if it is assumed that Penola's repudiatory conduct was evident from its failure to remedy the breaches of the Agreement set out in the Default Notice of 11 November 2004, that conduct continued until 11 February 2005. Sunny Springs was therefore entitled to accept Penola's ongoing repudiation on the latter date.[47]

110 Clause 19 of the lease made provision for the reasonable withholding of consent by the landlord. According to the judge: 'The seeking of guarantees from the directors of the proposed company that was the purchaser was a reasonable attitude by the landlord. ... [T]he landlord's consent was not unreasonably withheld'.[48] The judge further found that Sunny Springs, through Mr Scully, 'did everything reasonable to obtain Mr Taylor's consent to the transfer of the Lease to the purchaser'.[49]

111 Penola submitted that Sunny Springs' purported acceptance on 11 February 2005 of Penola's alleged repudiation could not be effective because Sunny Springs had failed to obtain the unconditional consent of the landlord to the transfer of the lease. Penola submitted that the consent obtained was conditional because it was inoperative unless and until its conditions were satisfied.

112 We reject this argument. In our opinion, the letter of 7 February 2005 from Mr Curl to Mr Galimberti communicated a consent from the landlord which satisfied the condition in cl 1(e) of the Agreement. The reference to a guarantee by Mr Burston and Mr Yunghanns in that letter reflected the fact that the lease required a guarantee from the assignee's directors. Mr Galimberti had already advised Mr Scully on 18 November 2004 that Mr Burston and Mr Yunghanns agreed to provide such a guarantee. The references to consents from the regulators and gaming companies simply reflected the fact that, without these consents, the sale could not proceed.

113 That is how Mr Galimberti viewed the letter of 7 February 2005. Shortly after receiving the letter, he wrote to Mr Scully on 10 February 2005 stating 'our client [has] been approved by the Landlord'. Penola, through Mr Galimberti, thus accepted the consent set out in Mr Curl's letter of 7 February 2005 as sufficient compliance with the condition in cl 1(e) of the Agreement. It is quite inappropriate for Penola to seek now to place a different construction on that letter.

114 For the above reasons, his Honour was correct to find that, as at 11 February 2005, Penola had repudiated the Agreement and Sunny Springs was entitled to accept the repudiation. Judgment was correctly given for Sunny Springs in relation to Penola's claim for the return of the deposit.

115 Before us, both parties accepted that the judge had erred in giving judgment for Sunny Springs on its counterclaim, as Sunny Springs was obliged to set off the costs of the aborted sale against the deposit it had retained. The parties submitted that, in the event that Penola's appeal in relation to its claim failed, this Court should amend paragraph 1 of the County Court judgment to delete the words referable to the judgment for Sunny Springs on its counterclaim.

116 We will order that the appeal be allowed in part and that the following be substituted for paragraph 1 of the County Court judgment:

[1] Penola Trading Co Pty Ltd v Sunny Springs Pty Ltd [2008] VCC 163 ('Reasons').

[3] A venue operator's licence attaches to the applicant and not to any particular venue. A licence may be granted by the VCGR subject to any conditions. The conditions may subsequently be amended, including by the addition or removal of an approved venue: see ss 3.4.8, 3.4.12 and 3.4.17 of the Gambling Regulation Act 2003 (Vic). See generally pt 4 div 2 of that Act. In applying for a licence, a person can at the same time nominate approved premises to be included on the licence, or alternatively can apply at any later time to have the licence amended to include approved premises. The relevant form is the 'Application to Include or Remove Approved Premises', which is referred to as the 'Inclusion Application' when it is used to add approved premises to a licence.

[8] Reasons, [54], [60], [63]-[65].

[9] Reasons, [52], [59], [63]-[65].

[15] These fees covered the entire approval process and were not up-front fees.

[19] Reasons, [49]. See also [57] of the Reasons.

[20] See [50] of this judgment.

[21] See [33] of this judgment.

[22] As discussed in [65] of this judgment, we have adopted this formulation of the obligation for the purposes of analysis.

[24] Reasons, [52], [59], [63]-[65], [72].

[25] Some of the authorities refer to an 'essential term' or a 'fundamental obligation'.

[26] Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623, 633-4, 647-8,

[27] Sibbles v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214, 227 ('Sibbles').

[29] See [37] of this judgment.

[32] At 615B (Glass JA), 634 A-B (Priestley JA).

[33] The evidence was that all the litigation had settled in 1999.

[35] Plumor Pty Ltd v Handley (1996) 41 NSWLR 30, 35-6.

[36] Reasons, [52]. The reference to a previous Notice of Default is to the Default Notice given on 11 November 2004 by Sunny Springs: see [32] of this judgment.

[38] Foran v Wright [1989] HCA 51; (1989) 168 CLR 385, 457, 459.

[39] Larking v Great Western (Nepean) Gravel Ltd (In Liq) [1940] HCA 37; (1940) 64 CLR 221, 236-8.

At a glance

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Judgment (206 paragraphs)

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Legislation Cited (1)

Cases Cited (8)