Sharjade Pty Ltd v The Commonwealth of Australia; RAAF [2009] NSWCA 373 | Case summary

Sharjade Pty Ltd v The Commonwealth of Australia; RAAF [2009] NSWCA 373 | Case summary | Zoe

[35]

Yes: Darwinia breached its obligation under cl 8(4). Sharjade's obligation under cl 8(1)(c) to raise finance and provide a bank guarantee was not conditional on meeting pre-sales of 80 units; and time for performance of it became of the essence, when time for performance of Darwinia's obligations to provide a bank guarantee and pay interest became of the essence; ( per Sackville AJA, Young JA agreeing ) A party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party: Roadshow Entertainment Pty Limited v (ACN 053 006 269) Pty Limited (1997) 42 NSWLR 462, followed. Darwinia's breach was non-essential, and hence did not disentitle it from terminating for Sharjade's breach of a fundamental term; ( per Hodgson JA ) A party in breach of contract can terminate a contract, despite its own breach, unless the obligations breached are interdependent or the breach by the party wishing to terminate has caused the breach that the party wishes to rely upon: Nina's Bar, State Trading Corporation of India Limited v M Golodetz Limited [1989] 2 Lloyds Reports 277; Roadshow Entertainment Pty Limited v (ACN 053 006 269) Pty Limited (1997) 42 NSWLR 462, approved. A lack of readiness, willingness and ability does not prevent a party from terminating a contract if what is sought is merely to put an end to obligations to perform the contract in the future: DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385, considered. Darwinia was not precluded by its own breach of cl 8(4) from terminating on the basis of Sharjade's breach. The breaches were not interdependent or causally related. This would be so even if Darwinia's breach was fundamental (demonstrating a lack of readiness, willingness and ability); ( per Hodgson JA ) ( obiter ) For Sharjade to have been successful in a claim for damages, it had the onus to prove readiness, willingness and ability to afford substantial performance of the contract on its part. This was not proved at trial.

[43]

Circumstances 5 The background to the two agreements involved in these appellate proceedings and the terms of those agreements are set out as follows in the judgment of the primary judge: [1] The parties to this litigation fell into dispute after trying to take advantage of the burgeoning market in the development of retirement villages. Theirs was a special plan to provide a retirement environment for ex-service personnel including members of the Royal Australian Air Force Assn (RAAFA) in affordable but stylish accommodation. The parcel of land to be developed was 11.87 hectares at 440 Bobbin Head Rd Turramurra, a northern suburb of Sydney (the Land). It was owned by the Repatriation Commission and purchased by the Commonwealth in 1996. It was adjacent to the western boundary of the Lady Davidson Hospital (then operated by the Commonwealth Department of Veterans Affairs) which provided rehabilitation services to war veterans. The Land was also adjacent to the Ku-ring-gai National Park, in which there were some endangered species of both fauna and flora. One of the species in the latter category was a plant known as Darwinia Biflora . [2] The planning of the development commenced in 1992. The sole director and shareholder of the plaintiff, Sharjade Pty Ltd, is Mohsen Akbarian, who at that time utilised Kezarne Pty Ltd (Kezarne) as the vehicle for the development. Another of Mr Akbarian's companies also involved in the early planning stages was Nubra Constructions Pty Ltd (Nubra). The then President of RAAFA was Air Commodore GG Michael AO OBE AFC. RAAFA incorporated a wholly owned subsidiary, Darwinia Estate Pty Ltd (Darwinia) (later to become the first defendant, RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd), to act as the vehicle for the development. [3] In March 1993, Australian Construction Services (ACS) a business unit in the Commonwealth Department of Administrative Services wrote on behalf of RAAFA to Kezarne advising that it was the preferred developer and invited it to further expand its proposal for the development. Kezarne was at this time working with Turnbull & Partners Ltd and the two were described as the "Development Consortium". Between 1993 and October 1995 Kezarne expanded its proposal to the construction of 200 x 2 bedroom units, 100 x 3 bedroom units, a 60-bed hostel, a clubhouse and bowling green. Kezarne was asked to submit proposals on the assumption that RAAFA would have title to the Land at the commencement of the development. At this time Australian Estate Manager (AEM) managed the Land for the Commonwealth. The proposal in relation to the purchase of the Land changed from time to time partially as a result of changes of Ministers and government policies. It was not until 29 August 1995 that AEM made an offer to RAAFA which involved the grant by the Commonwealth to RAAFA of a 99 year lease of the Land "subject to it undertaking to purchase the land and making full payment to the Commonwealth within seven years from the date of exchange of contracts for the land" at a "sale price" of $5.8 million. Heads of Agreement - 18 October 1995 [4] On 18 October 1995 Kezarne entered into "Heads of Agreement" (the Agreement) with Darwinia to develop the land into a retirement village. That Agreement was in the following terms: This Heads of Agreement dated this 18th day of October 1995 has been entered into between the Darwinia Estate Pty Limited a duly incorporated company having its registered office at Suite 1101, 11 th floor, 222 Pitt Street Sydney (hereafter called "Darwinia") and a developer consortium comprising of Kezarne Pty Limited (ACN No 003 417 089) and its financial advisers Turnbull & Partners Limited (ACN No 003 267 427) hereafter referred to as ("the Developer Consortium"). 1. Pursuant to a tender process undertaken by Royal Australian Air Force Association (hereafter called "RAAFA") in 1993, the Developer Consortium was selected as the successful tenderer on 2 March 1993. Since that date RAAFA together with the Developer Consortium and the Department of Veterans' Affairs, Sydney have been negotiating with the Australian Estate Management ("AEM"), part of the Department of Administrative Services of the Commonwealth of Australia ("Commonwealth"), to acquire the land known as the Lady Davidson Hospital site in Bobbin Head Road, North Turramurra for the erection of a Retirement Village to be occupied by members of RAAFA and other ex-service persons. 2. RAAFA has caused to be incorporated a wholly owned subsidiary Company Darwinia Estate Pty Limited to enter into this agreement. 3. Under the terms of a Contract for Sale to be entered into between Darwinia and the Commonwealth, Darwinia has been granted an option for a period of up to 12 months from exchange of contracts, to purchase the site which comprises part of Lot 1 in Deposited Plan 441749, totalling approximately 12 hectares and situated at the rear of the Lady Davidson Hospital in Bobbin Head Road, North Turramurra. In the event that Darwinia elects not to proceed with the development, then the option will expire without any penalty to Darwinia, subject to both sides bearing their own costs up to that date. 4. The terms of the Contract are detailed in the attached letters from the Minister for Administrative Services dated 19 September 1994, the Deputy Secretary, Department of Administrative Services dated 16 June 1995 and the General Manager, Department of Administrative Services dated 29 August 1995. These letters inter-alia provide for RAAFA to occupy the site under a 99 year lease with an irrevocable obligation to purchase the land at any time but in any event within 7 years from the date of the commencement of the Option period. The purchase consideration of $5,800,000 (Five million eight hundred thousand dollars) is to be guaranteed by a Bank acceptable to AEM. 5. The terms of the purchase provide for interest to be paid on the purchase consideration outstanding on an annual basis, but for the calculation and payment of interest to be deferred for a period of 12 months from the date of the Contract. The interest payable thereafter to be calculated at a rate equivalent to approximately 9.5% pa, being equivalent to a margin of one percent above the 5 year Commonwealth Bond rate applicable at the date of the Contract. 6. Subject to Clause 3 hereof Darwinia Estate Pty Limited or its nominee will exercise the option and exchange contracts with the Commonwealth for the purchase of the land and will proceed with the development of the Retirement Village project with the Developer Consortium in accordance with this Heads of Agreement. 7. Pursuant to the selection process completed in 1993, the Developer Consortium was appointed to undertake the development, financing, and on-going management of the Retirement Village on the understanding that Darwinia will own the Village at all times and prevail upon members of the RAAF Association to purchase the residential Self Care and Hostel units to be developed on the site. Darwinia also accepts that it will have no financial recourse to the Developer Consortium if at the expiry of the 12 month option period that the Developer Consortium decides that it cannot proceed with the development of the Retirement Village for the reasons that it will disclose to Darwinia, but primarily expected to be on account of refusal of or inability to obtain Development Application approval from the Local Council on reasonable terms or its inability to obtain finance for the development on acceptable terms. 8. Darwinia hereby formally confirms the appointment of the Developer Consortium to undertake the development of the Retirement Village on the following terms and conditions:

[44]

(1) That the Developer Consortium will be responsible for: a) undertaking the overall development of the Village in accordance with the requirements of the Local Council and other approving authorities requirements, that of the parties hereto and of the financier(s) of the development. b) obtaining the necessary planning and regulatory authorities approvals to the development of a Retirement Village and associated facilities. c) arranging the financing for the development of the Village including the provision of the purchase guarantee to the Commonwealth. d) the overall and detailed planning process for the development including the project and construction management in accordance with the costs and assumptions detailed in pages 1 to 5 inclusive of the Financing Plan annexed hereto. e) the overall and detailed marketing arrangements for the Village in accordance with the sales prices detailed in the annexed Financing Plan. f) the long term management rights to the Village subject only to satisfactory performance and the management fees being acceptable and within industry norms. It is understood however that the manager of the Village will liaise closely with Darwinia from the outset to ensure that Darwinia's role and obligations to its members is clearly preserved at all times. (2) That a Project Management Group ("PMG") be established comprising of representatives from Darwinia, the Developer Consortium and the financier(s) of the development with a representative from the Department of Veterans' Affairs invited to attend. (3) That the PMG will meet at least monthly, and more frequently if so desired by the parties, at which it will review the progress of the development and assign responsibilities as appropriate. Kezarne Pty Ltd will provide the PMG with a monthly progress report which will form the basis of the monthly meeting of the PMG. The Chairman of the PMG will be selected by Darwinia and the Developer Consortium. (4) That Darwinia and RAAFA will actively promote and assist the Developer Consortium in effecting the sale of the Self Care and Hostel units to its members as a key priority and will commit to achieving pre-sales of up to 40 per cent of the Self Care Units (80 Self Care Units) in the proposed development by the end of the 12 month option period and prior to execution of the lease for the land. RAAFA also undertakes to encourage its members to attend sales presentations relating to the development and in distributing promotional and other material to its members. (5) In accordance with the Contract of Sale entered into with the Commonwealth, Darwinia will have the exclusive right to effect the sale of Self Care and Hostel units to its members of RAAFA and members of other ex-service organisations within the first 3 years from date of exchange of contracts. Darwinia will also have the right within the first 2 years from date of exchange of contracts to limit the sale of Self Care and Hostel units to members of the RAAFA only if it so chooses. (6) That at the end of 3 years from commencement of the exchange of contract that the Developer Consortium may sell the remaining Self Care and Hostel units to members of the general public, provided that all efforts to sell the units to members of RAAFA and the other ex service organisations has been carried out. (7) The Developer Consortium will retain an on-going involvement in the further development of the Retirement Village on identical terms to that detailed herein including the on-going management of the Retirement Village. (8) The Developer Consortium undertakes that in the event that it effects a sale of any Self Care or Hostel units to members of the general public at a price exceeding $335,000 (Three hundred and thirty five thousand dollars), indexed from date of exchange of the option and contract arrangements, that it will reimburse to the Commonwealth such surplus. (9) That Darwinia will provide either directly or through others up to $175,000 (One hundred and seventy five thousand dollars) towards the initial costs that the Developer Consortium will incur in completing the detailed planning of the Retirement Village. The monies to be incurred, which will be subject to approval by the PMG, will include the costs incurred in obtaining Development Application approval and in developing promotional material to assist Darwinia in marketing the development to members of the RAAFA and that of other ex-service organisations, if it so chooses, to obtain the required pre-construction sales commitments. (10) That Darwinia, as the owner of the Village, will do all things to assist the Developer Consortium in its efforts to develop the Village and accepts that it will have no claim to any of the finances in the development, until such time as the initial sale of all the Self Care and Hostel Units in the Retirement Village have been completed and the financing obligations incurred by the Developer Consortium have been met in full. Darwinia will then be entitled to receive a share of the profits of the development as detailed in Clause 11 hereunder. (11) That RAAFA has established a special purpose wholly owned subsidiary company known as Darwinia Estate Pty Limited to undertake the development on its behalf. (12) The Developer Consortium agrees that any residual profits from the initial sale of the Self Care and Hostel units, after meeting all costs involved with development and sale of the units, will be shared in the proportions of 85:15 to the Developer Consortium and Darwinia respectively, subject to achievement of a development profit of at least $8,000,000 (Eight million dollars) or greater sum. In the event that a lower than $8,000,000 (Eight million dollars) development profit is realised, the profits will be then be shared as follows: Amount of Profit Developer RAAFA Consortium (% share) (% share) 1m but less than $4m 98.0 2.0 >$4m but less than $5m 97.0 3.0 >$5m but less than $6m 95.0 5.0 >$6m but less than $7m 90.0 10.0 >$7m but less than $8m 87.5 12.5 >$8m 85.0 15.0 (13) It is further agreed between the parties that security arrangements to be entered into by the Developer Consortium with the selected Bank will encompass the following: a) A Loan Agreement covering the advance and repayment of monies to finance the construction of the Village as agreed including the payment of interest to the Commonwealth when due. b) First Registered Mortgage over the land by Darwinia to the selected financier c) A Bank Guarantee from an Australian Bank, in a form acceptable to the Commonwealth for the purchase consideration of $5,700,000 (Five million seven hundred thousand dollars) or such other sum as may be agreed. d) A Village Management Agreement which will detail the scope of the services to be provided, the amount of the payment for such services and the arrangements for payment thereof. (14) It is also agreed between the parties that subject to the project proceeding, as determined in the 12 month option period, that Darwinia will enter into a Form of Loan and Licence Agreement with the incoming residents. The licence will grant security of tenure to the incoming residents and will detail the conditions of lifetime occupancy of their unit in the Village. The detailed agreement will incorporate the following: a) That the full purchase consideration payable by the incoming resident is to be denominated as a loan. b) That the residents' entitlement to occupation under the terms of the Licence to be granted will incorporate lifetime occupancy or earlier exit if desired. c) That a Deferred Management Fee arrangement (ie the amount to be retained from re-sales of units) will apply, which will entitle Darwinia to retain up to 25% of the resale value of an individual unit, or lesser amount as may be agreed from time to time, for on-going capital and maintenance works in the Village. d) That the Agreement will detail the services to be provided by the Manager of the Village which are to be covered by the management fee and those which are to be charged to the residents on an user pay basis. (15) This Agreement is conclusive and supersedes all other Agreements that may have been entered into by the parties prior to this date.

[45]

[5] Air Commodore Michael signed the Agreement for and on behalf of Darwinia and Mr Akbarian signed for and on behalf of Kezarne. The novation of the benefit and burden of the Heads of Agreement from Kezarne to Sharjade occurred on 24 April 1998 from which time Turnbull & Partners ceased to be involved in the Consortium and the development. Option Agreement - 24 [November] 1995 [6] On 24 [November] 1995 the Commonwealth and Darwinia entered into an Option Agreement in the following terms: This Option Agreement dated this 24th day of November 1995 has been entered into between the Commonwealth of Australia ("Commonwealth") and Darwinia Estate Pty Ltd ("Darwinia") a duly incorporated company having its head office at Suite 1101, 11th floor, 222 Pitt Street, Sydney. The parties acknowledge that at the date of execution of this option agreement Darwinia is a wholly owned subsidiary of the Australian Flying Corps and Royal Australian Air Force Association, New South Wales Division Incorporated ("RAAFA") within the meaning of the Corporations Law. Darwinia warrants that during the period of this option agreement, and in the event of the exercise of this option, during the period up to completion of the purchase of the land (described below) Darwinia will remain a wholly owned subsidiary of RAAFA. In the event that Darwinia ceases to be a wholly owned subsidiary of RAAFA the Commonwealth may terminate this option agreement or the Contract of Sale as the case may be without compensation. The Commonwealth has agreed to sell to Darwinia an area of vacant land comprising approximately 11.87 hectares, being part of the land described in a proposed plan of subdivision of Lot 1, in DP 441749, which is situated at the rear of the existing Lady Davidson Hospital, in Bobbin Head Road, North Turramurra in the State of New South Wales, ("the land"). The purchase price of the land is $5,800,000 (five million eight hundred thousand dollars) with Darwinia, in the event it exercises the option, being required to purchase the land any time up to but in any event not later than 7 years from the date hereof. To enable Darwinia to complete a feasibility study into the viability of its proposed retirement village on the vacant land, the Commonwealth hereby agrees to grant Darwinia an option for a period of up to 12 months from the date of execution of this option agreement ("the option period"), to determine whether it wishes to proceed with the purchase of the land. It is understood that the option period will be used by Darwinia to complete and seek approval to a detailed Development Application with the Kuringai Council which has the overall planning responsibility for the proposed development and to satisfy itself that the development will generally accord with the needs of RAAFA members. In the event that Darwinia decides to proceed with the purchase of the land either during the course or at the end of the option period, the Commonwealth and Darwinia will then enter into a Contract of Sale for the sale of the land to Darwinia. The Contract of Sale will provide that Darwinia will have a period of up to but not exceeding six years from the date of execution of the Contract of Sale, within which Darwinia will be required to pay the full purchase price of $5,800,000. To ensure that Darwinia will have the capacity to make such payment it will provide to the Commonwealth an irrevocable and unconditional bank guarantee from a bank approved by the Commonwealth, undertaking to make payment, if Darwinia fails to do so, of the full purchase price or that part that is outstanding 6 years after the date of execution of the Contract of Sale. Concurrent with the execution of the Contract of Sale, the Commonwealth agrees to enter into a lease of the Site to Darwinia for a period of up to 99 years. The lease is intended to give Darwinia security of tenure pending payment of all monies due to the Commonwealth pursuant to the Contract of Sale. In consideration for the Commonwealth entering into this option agreement, the Contract of Sale and the Lease, Darwinia undertakes to pay to the Commonwealth, an amount by way of interest on the purchase price of $5,800,000 or such lesser amount that is outstanding from time to time until payment in full of the purchase price of $5,800,000 has been made to the Commonwealth. The interest rate will be the rate established at the date of execution of this option agreement and will be a rate equivalent to 1% above the 5 year Commonwealth Bond Rate advised by the Reserve Bank of Australia the day prior to the execution of this option agreement. The interest payments will be made annually in advance with the first such payment due to the Commonwealth on the first anniversary of this option agreement. In consideration for the Commonwealth entering into the Lease Darwinia undertakes to pay to the Commonwealth an annual rental of $1 (one dollar) for such period as the lease is in existence. If prior to the expiry of this option agreement, Darwinia advises the Commonwealth that it does not wish to proceed with the execution of the Contract of Sale and Lease, then each party acknowledges that any costs incurred by it in that period will be for its own account and without any recourse to the other. In further consideration for the Commonwealth agreeing to enter into this option agreement, the Contract of Sale and the Lease, Darwinia undertakes to observe and carry out the following: 1. To pay all rates and outgoings including stamp duty relating to the purchase and lease of the land from the date of execution of the Contract of Sale and the Lease. 2. To meet all the costs incurred in undertaking the feasibility study and in obtaining the necessary development approvals in accordance with relevant State building and planning legislation. Darwinia may not rely upon or require the Commonwealth to give Darwinia the benefit of an immunity the Commonwealth has from State law. Nevertheless, the Commonwealth undertakes to provide any documents or records to Darwinia and its advisers which may assist in obtaining any approvals and consents from any Commonwealth, State or Local Government Departments or Authorities. 3. Not to sell any self care villas or hostel units in the development to any purchasers who do not qualify as members of the ex-service community as broadly defined by the Department of Veteran Affairs during the first 3 year period from the date of commencement of this option agreement. In the event that completion of the purchase of the land occurs less than three years from the date of execution of this option agreement this condition shall continue to bind the parties until the expiration of the three year period. In the event that Darwinia disposes of the land it must ensure that any purchaser comply with this restriction until the expiration of the three year period. 4. In the event that any self care or hostel units are, subsequent to the expiry of the period of 3 years from the date of this option agreement, sold to the general public then Darwinia will reimburse to the Commonwealth the amount in excess of the market value of the units. The market value is deemed to be $335,000 per unit and indexed, from the date of the option agreement, by that part of the Consumer Price Index, as published by the Australian Bureau of Statistics, that is applicable to housing costs in New South Wales. 5. To observe all normal lease conditions, such as a prohibition on transfer and sub-letting except by way of sub-lease to purchasers of the self care and hostel units in the development, without the prior approval of the Commonwealth. 6 It is common ground that, having regard to events referred to in the second sentence of par [5] of the primary judge's reasons, references in the Heads of Agreement to the Developer Consortium can be understood as references to Sharjade. 7 The development application for the project was lodged on 15 March 1996; and the Council granted consent to it on 18 March 1998, subject to various conditions including a condition that the project commence by 18 March 2000. 8 Darwinia sought and was granted successive extensions of the option period. The first was granted on 26 September 1996, in the terms "The Commonwealth agrees to extend by six months the Option Period under the Option Agreement dated 24 November 1995" (Blue 1505). Further extensions were granted on 12 June 1997, 18 November 1997, 18 May 1998 and 24 November 1998. The final extension (Blue 1728) noted a letter "seeking an extension of the Option Agreement", and agreed "to an extension until 24 December 1998". None of the extensions adverted to any possible effect on other terms of the Option Agreement. 9 By letter dated 23 December 1998, Darwinia advised the Commonwealth "that we wish to accept the Option Agreement" (Blue 1739). On 14 January 1999, the Department of Finance and Administration of the Commonwealth wrote to Air Commodore Michael acknowledging the exercise of the option, and advising that all files had been sent to its solicitors Blake Dawson Waldron (BDW) "for the preparation of the contract of sale". 10 On 11 March 1999, ING Bank and its associated company Mercantile Mutual Life Insurance Co Limited (MML) made a written offer to Sharjade of finance for the project totalling $30 million. The offers provided for a non-refundable fee of $70,000 on acceptance, $15,000 of which had already been paid by Sharjade. There were a number of conditions precedent specified, including the supply of copies of exchanged loan licence agreements totalling $30 million (this translating to a requirement of pre-sales of 80 retirement units or thereabouts). 11 Between April and August 1999 there were negotiations for restructuring the agreements, which came to nothing. In July and August 1999, steps were taken in preparation for a marketing presentation to prospective purchasers. 12 On 10 September 1999, Ms Banks of BDW sent Gadens Lawyers, the solicitors for Darwinia, a first draft of a Contract for Sale of the subject property. On 21 October 1999, Mr Healy of Gadens responded with a suggested timetable leading to a formal exchange of contracts on 30 April 2000. 13 On 26 October 1999, Sharjade applied to the Council for an extension of the development consent for a further 12 months. 14 During November 1999, questions were raised within the Commonwealth camp as to the possibility of getting out of the Option Agreement or forcing the timing. 15 On 18 November 1999, there was a Project Control Group meeting attended by Mr Akbarian, representatives of Darwinia, representatives of the Department of Veteran Affairs and the architect. Mr Akbarian is noted as reporting that the offer from ING had lapsed, and suggesting "getting pre-sales confirmed before re-opening the finance". 16 On 17 December 1999, a marketing presentation took place, resulting in expressions of interest by about 32 persons and 7 pre-sales. 17 Meanwhile, in December 1999 and January 2000 there were negotiations between Darwinia and another potential joint-venturer, GDK Financial Solutions Pty Limited. On 28 January 2000, there was a meeting attended by Mr Akbarian, representatives of Darwinia and a representative of GDK. The representative of GDK offered Mr Akbarian $300,000 to get out of the project, an offer refused by Mr Akbarian. 18 In January to March 2000, there was the following exchange of correspondence. 19 On 31 January 2000 Mr Healy wrote to Mr Akbarian in the following terms: We refer to our meeting held on Friday, 28 January 2000. Would you please provide us with: 1. A copy of the correspondence with Ku-ring-gai Council in relation to the extension of the DA. 2. Details of your proposed marketing campaign for the property. 3. Your confirmation that you have instructed the architects, Cox Richardson, to prepare plans and specifications and other documentation required to make application for a building consent together with details of the anticipated date for lodgement and the approximate cost. 4. Your suggestions or proposals as to what should occur between yourself and Darwinia if it is not possible to achieve the level of pre-sales upon which your funding offer (now expired) was based upon. As indicated to you, it is important that our client has these suggestions or proposals within 14 days of our meeting (ie: 11 February) to ensure that the development progresses in a manner sufficient to satisfy the Commonwealth. 20 On 4 February 2000, Mr Healy wrote again to Mr Akbarian, as follows: Following our recent meetings and correspondence we write to formalise the position between Darwinia Estate Pty Limited ("Darwinia") and your company.

[60]

a) As you may be aware by now, our involvement in this project including our original proposal as well as the subsequent Heads of Agreement with RAAF Association has been based on pre-sales to RAAF Association members. We have worked with RAAF Association over the years on that assumption and have been further encouraged by the development of the member's waiting list. b) I am very concerned that at this point in time when we are in a position to commence our full sales and marketing program we are given a 14 day time limit by your firm to provide you with alternative proposals which are not based on our previous agreements. My concern is intensified by the fact that this change in our direction away from presales is based on what I understand to be a verbal indication by the company called GDK that they may be prepared to build some units without pre-sales. GDK however has not provided any details as to the conditions and circumstances relating to their involvement, their pricing structures and whether the conditions imposed on our company by the Commonwealth is acceptable to them or not. c) I can understand GDK's interest in the project as they stand to gain massive profits in a short period of time as a result of our work and at our expense over the years including immediate access to approximately $9.8 M in increased land valuation. However, it is not fair to expect our company to provide what is in effect a response to GDK without knowing what their real proposal is. d) As far as the progress of the development and the Commonwealth is concerned, I refer to your own timetable provided to Anne Banks of Blake Dawson Waldron on 21st October 1999. Item 2 of the timetable schedules the meeting of the members for Tuesday 16th November 1999. However, as you are aware, the letters referred to in item 2 were not available until 1st December 1999 due to Geoff's very busy schedule and we could only have the meeting on 17th December 1999. We therefore suffered a one month delay to our program. More importantly, the meeting was held just before the Christmas and millennium breaks when people are either away on holidays or will be away during January. Traditionally, the real estate agencies experience their lowest sales in the month of January. e) I refer to second paragraph of item 4 on the timetable and say that although there has not been sufficient interest (40 to 50 was mentioned by me), we have been prepared to push ahead with the program in order to demonstrate sufficient progress to the Commonwealth in spite of the initial delay to the timetable over which we had no control. In fact we had already advised the architects to proceed with the building approval prior to the meeting with GDK. We were responding to member's numerous inquiries during the holiday break. In fact, the people we spoke to registered their interest and paid their deposit.

[61]

We have invested our time and money over the years in this project based on our highest regard and respect for the members of the Board of RAAF Association and the mutual trust that has existed between us. I am also extremely grateful to RAAF Association for expressing their trust in ourselves and pledging their continuous support for our company's effort. We therefore propose that we should continue our programs like we have in the past as partners with RAAF Association and based on the draft Joint Venture Agreement (to include our requested amendments subject to RAAFA's approval). As mentioned in the meeting, we have held discussions with a number of investors and consulted with RAAF Association and sort their opinion as our partners in this project. My proposed recommendations are therefore as follow: 1. We continue with our programs referred to in item 1-3 above. 2. We seek a full proposal from other companies such as GDK containing the extent of their involvement and any conditions they want to impose on the purchase of the land and RAAF Association including pricing, [and] management structure. 3. Our company will continue to explore the possibility of alternative proposals with other major investors (some discussions have already been held) in order to obtain compatible proposals with those of GDK. At this point, I have asked the potential investors to take into consideration the conditions put forward by the Commonwealth and RAAF Association. However, I confirm my discussions with Air Commodore Geoff Michael that we will be happy to enter into negotiations with GDK with a view to finding a speedy agreement which is commercially fair and acceptable. I further confirm my statement to Mr Healy after the departure of Mr Michael in our meeting of 28th January 2000 that we are prepared to enter into a profit share agreement with GDK based on their level and conditions of investment in the project. I believe that we can achieve a considerable number of sales within the RAAF Association after our marketing campaign and I am looking forward to a successful project. Please find enclosed a cheque for the amount of $5,695.20 in favor of your company being the total amount of $11,661.20 to date which we would like you to deposit in our trust account. It is important to confirm that we only accept responsibility for payment of fees relating to our Joint Venture Agreement with RAAF Association and your dealings with Commonwealth and preparation of Contracts of Sales subject to quotation. 22 On 8 February 2000, Mirvac Group approached Mr Akbarian suggesting it was interested in exploring possible participation in the development; and on 10 February 2000, Mr Akbarian forwarded Mirvac's letter to Mr Healy. 23 On 18 February 2000, Sharjade's solicitors Freehill Hollingdale & Page (Freehills) wrote to Mr Healy in response to the letter of 4 February 2000, as follows: We act for Sharjade Pty Limited and have been requested to respond to a number of the matters raised in your letter dated 4 February 2000 relating to the above Project. At the outset, we are instructed to advise that our client is totally committed to the Project. It has devoted considerable effort to the success of the Project and continues to do so. Mr Akbarian also values highly the relationships he has developed with a number of your client's executives. However, particularly in the above context, our client rejects totally the tenor of your letter, the various demands you make and the suggestion that your client has any entitlement to terminate the Heads of Agreement. So that there is no doubt: our client remains ready, willing and able to perform its obligations under the Heads of Agreement and is continuing to do so; and any attempt to terminate the Heads of Agreement will be defended and will result in a very substantial claim against your client. We have responded in more detail below to certain other matters arising out of your letter. Darwinia's obligations Darwinia's obligations under the Heads of Agreement are not limited to using its best endeavours to promote and assist our client to affect pre-sales of the units in Stage 1 of the Project. Other important aspects of and obligations of your client under the Heads of Agreement include: (a) to proceed with the development of the Project with the Developer Consortium in accordance with the Heads of Agreement (Clause 6); (b) the appointment of the Developer Consortium for the purposes of the Project (eg Clause 7 and Clause 8); (c) to actively promote and assist the Developer Consortium in effecting the sale of the Self Care and Hostel units and to achieve pre-sales of up to 80 Self Care units (Clause 8(4)); (d) to do all things to assist the Developer Consortium in its efforts to develop the project (Clause 8(10)). Marketing and Pre-Sales We are instructed that Darwinla has not used its best endeavours to promote and assist our client to affect pre-sales of the units in Stage 1 of the Project to its members. Further, we are instructed that the sale of 80 units in such a major Project is likely to involve further marketing programs such as those most recently described in paragraph 2 of our client's letter dated 7 February 2000. This will require the assistance of RAAFA and Darwinia Estates as contemplated in the Heads of Agreement. In response to the third paragraph of your letter, our client is encouraged by the number of people who have already reserved units during what we are instructed is the worst marketing period for real estate (being the month of January) and without any follow up on previous correspondence. Our client is also encouraged by the fact that another 15 members of RAAF Association not previously on the waiting list have asked for the documents which have now been forwarded to them. We are also instructed that on Monday, 14 February 2000, Mr Akbarian had a discussion with a RAAFA member, Mr Apte who indicated that he may reserve unit no. 52. Our client is confident that with RAAFA's and Darwinia's assistance, it can achieve the 80 pre-sales upon the completion of the marketing campaign. Financing We are instructed that the ING Bank offer was obtained based on Darwinia and RAAFA's agreement to actively promote and assist our client in achieving pre-sales of up 80 Self Care units. Furthermore, ING Bank's offer was obtained after full consultation with Darwinia and RAAF Association and after a number of meetings at which the senior bank officials and Mr Michael were present. We are instructed that the Bank asked for, and got Mr Michael's approval on the letter of offer and prior to that on the provisional letter of offer. In response to paragraph 6 of your letter, we refer you to paragraph 4(a, b & c) of our client's letter dated 7 February 2000 which was written promptly in response to your letter of 31 January 2000 and well within your unilaterally imposed 14 day period. There was no contractual basis for that request or time limit. Your client's alleged concern that no response was received seems hard to justify since your letter was written on 4 February. According to your earlier letter, your client had requested a response by Friday 11 February and in fact received a response on 7 February. Mr Akbarian denies that at any time he made a statement to Mr Healy that he would not be responding to the previous letter and that he had no obligation to do so. The timetable Your comments in relation to the timetable of events agreed between our client and Darwinia are addressed in our client's letter dated 7 February 2000. Relevant matters include the delay in receiving of the letters from Mr Michael who was unfortunately suffering from illness and resting at home, and was later very busy. Whilst Mr Michael's absence was understandably unavoidable, it is unfair that our client is blamed for the delays to the timetable over which it had no control. Our client and [sic] could not commence the program without Mr Michael's letter to the members and his endorsement of its actions. Darwinia's requirements There is no provision in the Heads of Agreement for our client to deliver a bank guarantee for $5.8million within 7 days of your letter. To our client's knowledge no such request has been made by the Commonwealth of Australia. There is no provision in the Heads of Agreement for our client to provide an unconditional finance approval as requested in your letter. The issue of the extension of the Development Consent was addressed in our client's letter dated 7 February 2000. Again, our client is concerned that whilst a copy of its letter to the Council was forwarded to Mr Michael on 16 October 1999, the existence of such a letter was denied and our client was accused of not having applied to the Council. As indicated in our client's letter dated 7 February 2000 we are instructed that the consultant's meetings have already been held and our client has been promised the breakdown of costs for the Building Application by Mr Philip Graus of Cox Richardson Architects as soon as possible. Your request in relation to your fees is also inappropriate. We are instructed that Mr Akbarian had already advised Mr Healy that he wanted the Draft Joint Venture Agreement finalised prior to payment of further fees by our client. He is concerned that in spite of paying the fees for the preparation of the Joint Venture Agreement, he has not received any response to his letter dated 12 November 1999 regarding his proposed amendments to the Joint Venture Agreement. His letter of 14 November 1999 was in effect a repeat of its letter of 20 August 1999 which we are instructed also remains unanswered. However, our client paid your fees and council fees being a total of approximately $15,000. Unfair treatment of our client Our client is extremely concerned about the unfounded allegations made against it in your letter and the, apparent lack of respect for the Heads of Agreement and your client's obligations under that document. We are instructed that our client remains loyal to Darwinia, the RAAF Association and its honourable members including Mr Geoff Michael, Mr Peter Alexander, Mr Barry Brooke and Mr Frank Barclay who have worked with it throughout the last 7 years in order to make this project a success. It is however extremely disturbed that the allegations against it were made without reference to existing documents available to Darwinia and RAAFA. It is further concerned that the threat to terminate the Heads of Agreement appears to have resulted from the recent dealings with GDK. Our client finds particularly disturbing the fact that your letter was written after repeated statements by Mr Michael in Mr Healy's presence that your client had no intention of abandoning our client in favour of any other company and that he had only spoken to GDK in an attempt to help our client. We are instructed that both Mr Michael and Mr Healy repeated this assurance in the meeting of 31 January 2000. GDK's offer of $300,000 to remove our client from the project is also of great concern to our client as GDK would stand to substantially benefit as a result of our client's work on this project to date. The way forward As we indicated above. if your client pursues its threatened course of action our client will have no alternative but to commence legal proceedings which will involve your client and the Commonwealth of Australia. Such proceedings would not benefit the Project and could not be to the benefit of RAAF Association members. We understand that those members, in the meeting of 17 December 1999, endorsed our clients' joint efforts in this project. Our client suggests that it is in all parties' interests that they honour their commitments under the Heads of Agreement and work co-operatively to ensure the success of the Project. It looks forward to doing so. 24 On 24 February 2000, the Council advised that it had approved the extension of the development consent to 18 March 2001; and Freehills advised Gadens of this by a letter dated 28 February 2000, in the following terms: We refer to our recent correspondence and our meeting with Mr Healy. We are instructed to advise as follows: 1 Council applications Ku-Ring-Gai Municipal Council has extended the period of the Development Consent by 12 months. A copy of the Council letter dated 24 February 2000 is attached. Our client has received a new proposal and timetable from Cox Richardson which was developed after meeting with the consultants and obtaining proposals from those consultants. The Cox Richardson proposal includes a new programme for lodgement of an application for Construction Certificate (copy attached). Subject to your client's approval, our client will instruct Cox Richardson to proceed with the documentation and lodgement of the application. In the meantime, Cox Richardson is arranging to meet with the relevant Council officer to confirm the Council's precise documentation requirements. 2 Marketing Our client currently intends to proceed with the marketing campaign outlined in its letter dated 7 February 2000 upon approval by your client. As contemplated by the Heads of Agreements our client requires your client's cooperation in the campaign. In particular, it requests your client's cooperation in the following areas: provision of relevant information in relation to RAAFA's members as well as supporting letters to allow a mail out of marketing brochures to all relevant members; participation in marketing meetings when required; support in establishment of a sales office in Lady Davidson Hospital (no financial input required) and/or support in obtaining the Commonwealth Government's approval for establishment of a sales office on the site; and general support of the marketing campaign. Our client will require a short establishment period after your client's approval and then anticipates a 2 week sale and marketing campaign. This should allow an exchange of contracts with the Commonwealth by 31 July 2000. 3 Other proposals As contemplated by the Heads of Agreement, our client intends to proceed with financing of the construction of the project upon achieving the required number of pre-sales. In addition, our client is exploring alternative possibilities to finance the project. It is currently discussing with financiers a separate facility to allow the purchase of the land from the Commonwealth prior to 31 July 2000 independently of the achievement of pre-sales. This would allow the land to be secured and, among other things, allow our client to construct sample units on site after obtaining building approval, in order to enhance the marketing campaign. Our client is also continuing negotiations with potential joint venture partners. 4 Other participants Our client is prepared to assist your client in any negotiations with GDK on a fair basis. We, suggest that it is appropriate for GDK to make an offer in writing for its participation in the project so that all relevant stakeholders can consider the details. It is counterproductive for your client to hold its own discussions with GDK when your client has granted development rights to our client. Further, our client is very concerned as a result of a recent discussion with another potential participant in the Project. In that discussion, our client was informed that the potential participant had heard rumours that there were problems between our respective clients in relation to the project. Our client is confident that the basis for this rumour did not emanate from it. This type of rumour has potential to seriously prejudice the project and hinder our client in the performance of its obligations. It is important that our respective clients act together in dealing with external parties. This type of rumour is in neither clients' interests. 5 Timetable Our client's proposed timetable is as follows: Cox Richardson have provided a program to lodge an application for a Construction Certificate within 10 weeks. Our client will try and improve on that timetable but it requires your client' s approval to proceed immediately. Our client will be prepared to proceed with the marketing campaign within 4 weeks of receiving your client's approval and the approval of the Commonwealth - Lady Davidson Hospital to establish a sales office. A 12 week sale and marketing campaign is proposed. The above will hopefully allow an exchange of contracts with the Commonwealth by 31 July 2000. We are instructed that although this represents a delay of 3 months on the originally proposed timetable, the delay was not caused by matters within our client's control. The original timetable given to the Government envisaged a meeting of RAAFA's members on 16 November 1999. This meeting did not happen until 17 December 1999, immediately prior to the new year break. This meant that serious marketing to members could not commence until February 2000. Further, recent events, your recent correspondence and your client's discussions with GDK have further disrupted the timetable. Our client submits that you should advise the Commonwealth of the new proposed timetable, supported by the extension of the Development Consent and documents relating to an application for Construction Certificate. This would be reinforced by evidence of a full marketing campaign in the near future. To allow the project to proceed without unnecessary delay our client requires your client's confirmation that it should proceed as outlined in this letter. As your client would be aware, substantial costs will be incurred in the preparation of the Construction Certificate. In light of recent correspondence our client would like your client's confirmation before incurring those costs. 25 On 15 March 2000 Gadens responded to the letters from Freehills, as follows: We refer in turn to your letters of 18 February 2000 and 29 February 2000 and advise you of the Commonwealth's position. Letter of 18 February 2000 Our client does not deny that your client is committed to the project and has devoted considerable time and effort to the project which has been appreciated. Despite his apparent best endeavours the fact remains that finance to complete the purchase of the land and construction of the project generally is not currently available. Our client has obligations to its members to progress this development and to ensure that the favourable deal offered by the Commonwealth of Australia is not lost. You note in your letter that your client "remains ready, willing and able to perform its obligations under the Heads of Agreement and is continuing to do so". This is clearly wrong because under the Heads of Agreement your client is required to amongst other things: "Arrange the financing for the development of the Village including the provision of the purchase guarantee to the Commonwealth". We cannot understand how your client can allege that it is ready, willing and able to perform its obligations while this matter remains outstanding. It also should be noted that our clients attempt to source alternative finance came about as a result of Mr Akbarian advising various members of Darwinia including Air Commodore Geoff Michael, that he needed assistance in financing the project. Darwinia's Obligations You have set out what your client alleges to be the obligations of Darwinia. Please advise what your client alleges our client has not done or is still required to do to perform its obligations under the Heads of Agreement. Marketing & Pre-sales We are instructed to deny absolutely that Darwinia has not used its best endeavours to promote and assist your client to effect pre-sales of units in Stage 1. For the record, we note that the "pre-sales" are merely expressions of interest supported by refundable holding deposits. Our client as requested has conducted surveys of its members to determine interest in purchasing units, sent out invitations to members to attend a presentation of the Village for interested parties and conducted the presentation in December 1999. At the time of receipt of your letter no proposal for further marketing programs had been submitted by your client nor was any detail provided at that time of what he required. We are pleased that your client feels encouraged by the number of people who have reserved units and by enquiries. Despite all this, it appears that your client is unable to obtain finance on that level of interest. Please advise if this is incorrect. Financing We agree that the ING bank offer obtained by your client was conditional upon pre-sales. We also acknowledge that we have seen the letter of offer but it is absolutely incorrect to assert that "Mr Michael's approval to the letter of offer and prior to that on the provisional letter of offer" has been given. In fact the reverse is true. Mr Healy of this firm had several meetings with the directors of Darwinia and with Mr Akbarian where the terms of loan that required amendment were spelt out in detail and in particular the necessity that the loan be non-recourse to Darwinia Pty Limited. Your client was well aware of this but did not choose to pursue the matter at that time for a number of reasons. In addition, Mr Akbarian indicated to Mr Healy that he wanted to investigate other sources of finance for reasons that were not disclosed. Despite the above, the requirement in the Heads of Agreement on your client to provide finance was not limited to or based upon pre-sales being obtained. The time limit in our letter of 7 February was a reasonable time for your client to perform its obligations given the substantial time that had been allowed prior to that time. Prompt action was required because the timetable set in consultation with your client and provided to the Commonwealth had not been complied with and our client remained concerned that the Commonwealth would lose confidence in the party's ability to bring the project to fruition. Mr Healy stands by his allegation that Mr Akbarian indicated that he would not be responding to the previous letter and that he had no obligation to do so. In addition Mr Akbarian, in response to a question by Mr Healy as to what would happen if finance could not be obtained, indicated that he was not concerned if that occurred as Mr Akbarian intended to approach the Commonwealth to purchase the land and proceed with the development without Darwinia. The Timetable The delay in sending letters to parties who had expressed interest in the project was due to the fact that Air Commodore Michael (quite properly in our view) did not wish to set a date for the presentation to interested parties until detailed plans were available to be shown at the presentation. It clearly was not in the interest of any of the parties to proceed to invite members to a presentation and then have insufficient detail to gauge expressions of interest. Despite several delays eventually Mr Akbarlan authorised some plans to be prepared by the architects and the meeting proceeded in December 1999. The extension of the development consent was referred to on numerous occasions. No action was taken until much later for reasons known to our client. We are pleased this has now been resolved by obtaining an extension. We still await breakdown of costs for the building application and detailed costs of money spent to date by your client. Amounts for outstanding accounts have been unpaid for some time. We will shortly submit to you time sheets indicating none of the charges relate to discussions with GDK. A draft joint venture agreement was prepared and was forwarded to Darwinia for instructions. Subsequent matters have caused delays in progressing this document. Unfair treatment of your client No one has doubted the claimed loyalty of your client or the efforts undertaken by your client in relation to the project. However, your client's understanding of this treatment is incorrect. Since your client's request for assistance to fund the project dispute numerous requests our client has been unable to determine the level of assistance required or your client's intention in relation to his continued involvement in the project other than in the most general way. The letter setting a time limit on performance of your client's obligations was sent only after numerous oral requests had been made for your client to state its position in relation to financing of the project. Your client's recollection of the claimed assurances given in the meeting of 31 January 2000 is also flawed. The context of the assurance was only that our client did not wish to proceed without Mr Akbarian's involvement. However, it was concerned about whether the project could proceed given the lower than expected expressions of interest and the fact that your client's finance was based upon pre-sales being obtained. Your client continually ignores this issue and the response in your letter does not advance the issue at all. It appears that despite all the parties best endeavours the project cannot proceed in the manner contemplated. While the Heads of Agreement did not at any time link finance to pre-sales, it was always our client's understanding that your client was obtaining finance on this basis and had no objection to this given its confidence (unfounded as it turned out), in obtaining a high level of expressions of interest. The failure to obtain the expressions of interest means that for the project to continue, finance must be sourced in a different way. If your client is unable to obtain finance there appears little option other than to terminate the heads of agreement and seek another party to assist with the project. Letter of 29 February 2000 1. Council Applications

[67]

Despite all of the above your letter gives our client little comfort. While part of the outstanding matters, (in particular the extension of the development consent has been attended to) there is no detail or proper addressing of the finance situation and the provision of the bank guarantee to the Commonwealth. It is imperative that your client address these issues and in particular what will happen if he is unable to achieve pre-sales. Clearly the intention of your letter is to obtain assurances or representations from our client to proceed with the various matters on which you would be able to claim reliance in which it has suffered damage. Please assure your client in the clearest possible terms that no assurances of any sort are given upon which your client should rely to proceed with the matters raised in the matter unless all of the matters dealt with in our letter of 4 February to Mr Akbarian can be satisfied immediately. Our client does not wish your client to spend money that it may be unable to recover if it cannot satisfy the critical issue of funding the project and providing the bank guarantee. Position of the Commonwealth On Monday 13 March 2000 we were advised by the solicitor for the Commonwealth that they were instructed by the Commonwealth to serve a notice giving Darwinia 28 days to exchange the contract for sale and lease and provide a bank guarantee together with interest for the first year. We were further advised that the Commonwealth believe the matter is dragging and wish it to be brought to a head. A formal notice is being prepared and will be forwarded to you upon receipt. Accordingly, we are instructed to advise that unless by 5:00pm Thursday 23 March 2000 Darwinia receives from your client: (a) An unconditional bank guarantee in favour of the Commonwealth of Australia for $5,800,000.00; and (b) an unconditional finance approval to fund all costs of development of Stage 1, including interest for 2 years on the balance of settlement monies required under the contract for sale; we are instructed to terminate the Heads of Agreement. If our client does nothing it is clear that the favourable deal offered by the Commonwealth will be lost. If your client takes action which causes the deal to be lost, Darwinia will have no choice but to hold your client liable for any loss suffered. 26 On 16 March 2000, Freehills responded as follows: We refer to your letter dated 15 March.

[92]

I am, of course, aware of the previous requests we have made, however, on this occasion I believe our dealings with the Mirvac Group will be beneficial and conclusive. 30 Darwinia did not prior to 24 May 2000 provide the bank guarantee or pay the interest required by the Commonwealth's Notice; and Sharjade did not make available any finance to enable it to do so. 31 On 24 May 2000, the Commonwealth served a notice on Darwinia purporting to terminate the Option Agreement, in the following terms: 1. By an Option Agreement dated 24 November 1995 ("Option") the Commonwealth of Australia ("Commonwealth") granted to Darwinia Estate Pty Limited ACN 071 088 929 ("Darwinia") an option to purchase an area of vacant land described in a proposed plan of subdivision of lot 1, in DP 441749 at the rear of the existing Lady Davidson Hospital, in Bobbin Head Road, North Turramurra in the State of New South Wales ("Option"). 2. The Option was exercised on 23 December 1998 and as a result an immediately binding contract of sale ("Sale Contract") was brought into existence between the Commonwealth as vendor and Darwinia as purchaser upon and subject to the terms and conditions contained in the Option. 3. By Notice to Perform Contractual Obligations dated 16 March 2000 ("Notice") the Commonwealth required Darwinia, within 28 days after service of the Notice, to perform those obligations of the Sale Contract set out in paragraph 7 of the Notice. 4. Darwinia failed to comply with the Notice. 5. Darwinia by its failure evinced an intention to be no longer bound by the Sale Contract and repudiated that Contract. 6. The Commonwealth now accepts that repudiation and terminates the Sale Contract. 7. The Commonwealth otherwise reserves its rights to seek damages from Darwinia in respect of its wrongful repudiation of the Sale Contract. 32 On the same day, an officer of the Department of Finance and Administration wrote to Air Commodore Michael, referring to his letter of 12 April 2000. This letter included the following: As you are aware the Department cannot agree to your request and the existing contract of sale has now been terminated. However, the Commonwealth is prepared to enter into negotiations for a new agreement with Darwinia on essentially the same favourable terms as in the original contract but with more defined time periods and terms. It is the Commonwealth's intention that any new contract of sale exchanges within a reasonable period. This is consistent with the Commonwealth's concern that any further delays in this matter would be against the best interests of the taxpayer.

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Decision of primary judge 35 The primary judge decided that, under the Option Agreement, Darwinia was not obliged to provide a bank guarantee or to pay interest until the Contract for Sale referred to in the Option Agreement had been entered into; and that accordingly, in the events that happened, the Commonwealth was not entitled to demand provision of the guarantee or payment of interest. 36 As regards the Heads of Agreement, the primary judge held that it was a fundamental term that Sharjade would arrange finance for the development, including finance for the provision of the guarantee to the Commonwealth; but held that this obligation had not been triggered at the time of the purported termination of the Heads of Agreement, because the Commonwealth had not become entitled to demand provision of the guarantee or payment of interest, and because Darwinia's demands for these things were themselves flawed. 37 The primary judge also held that Darwinia had agreed to "actively promote and assist" Sharjade in obtaining pre-sales, and the primary judge was not satisfied Darwinia complied with that obligation, saying that "very little was done to actively promote and assist [Sharjade] in effecting the sale of units". The primary judge also held that the tactics adopted by Darwinia caused delay and distraction such as to make the timetable for a planned exchange of contracts at the end of April 2000 quite unworkable. 38 The primary judge then considered and rejected a submission that Sharjade had demonstrated inability to perform, in particular inability to raise finance for the development, holding among other things that, as late as 18 November 1999, the Project Control Group Committee endorsed delaying applications for finance until pre-sales were secured, and that Darwinia's conduct in January and February 2000 was antithetical to its contractual obligation to assist Sharjade to effect the pre-sales. 39 The primary judge then considered and rejected submissions that the Heads of Agreement were subject to a contingent condition, namely the continued existence of a binding contract for the purchase of the land, and that the Heads of Agreement were frustrated by termination of the Option Agreement, holding that performance of the Heads of Agreement was still possible because the Commonwealth was still willing to sell the land to Darwinia. 40 In relation to Sharjade's claim against the Commonwealth for inducing breach of contract, the primary judge held that there was no basis in the evidence that the Commonwealth terminated the Option Agreement for the purpose of Darwinia terminating its contract with Sharjade, and that the Commonwealth's action did not have the inevitable consequence of terminating the Heads of Agreement. The primary judge referred to an alternative claim of indirect interference, on the basis of an unlawful act by the Commonwealth in terminating the Option Agreement. The primary judge held that, for this, Sharjade would have to establish that (a) the Commonwealth did something that procured the breach by Darwinia, (b) the Commonwealth had sufficient knowledge of the Heads of Agreement, and (c) the Commonwealth had the intention to bring about a breach or to interfere with the performance of the Heads of Agreement; and she held to the effect that (b) and (c) were not established.

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(a) because the respondent was, as at 27 June 2000, in breach of a fundamental term of the Heads of Agreement by failing to have obtained finance for the proposed development, including finance tor the provision of a purchase guarantee to the Commonwealth; or (b) because the respondent had, as at 27 June 2000, repudiated the Heads of Agreement in that it was unable to obtain finance for the proposed development, including finance for the provision of a purchase guarantee to the Commonwealth; or (c) because there had been, as at 27 June 2000, a failure of a contingent condition of the Heads of Agreement, namely, the existence of a valid and binding contract for the sale of the land the subject of the proposed development; or (d) pursuant to a contractual right, contained in and inferred from the Heads of Agreement, to terminate the Heads of Agreement in circumstances where there was no valid and binding contract for the sale of the land the subject of the proposed development; or (e) because the Heads of Agreement was frustrated by the termination of the Option Agreement dated 24 November 1995. 42 In its Amended Notice of Appeal, Sharjade relies on the following grounds: 1 Her Honour erred as a matter of law in that her Honour incorrectly held that it was essential that the respondent ('Commonwealth') know the terms of the Heads of Agreement dated 18 October 1995 between the appellant and RAAF (Landings) Ex-Servicemen Charitable Fund Pty Limited (formerly known as Darwinia Estate Pty Limited) ('Darwinia') ('the Heads of Agreement') to be liable for inducing a breach of contract. 2 Her Honour erred as a matter of fact in finding that the Commonwealth did not know the terms of the Heads of Agreement. 3 Her Honour erred as a matter of law in that her Honour applied the incorrect test when determining whether the Commonwealth had a relevant intention to bring to an end or to interfere with the Heads of Agreement. In particular, her Honour did not address or decide the essential questions of: whether the Commonwealth's conduct was reckless or indifferent, and, whether it was obvious to the Commonwealth that the reasonable or probable consequence of what it did would be to cause Darwinia to terminate the Agreement. 4 Her Honour erred as matter of law in that her Honour incorrectly held that it was essential that the Commonwealth's conduct must lead to the 'inevitable or necessary' consequence of terminating the Heads of Agreement for the Commonwealth to be liable for inducing a breach of the Heads of Agreement. 5 Her Honour should have found that knowledge of the contract is not a separate ingredient of the tort. Rather, it is relevant to ascertaining the Commonwealth's intention. 6 In any event, her Honour should have found that the Commonwealth had sufficient knowledge of the terms of the Heads of Agreement. 7 Her Honour should have found that it was obvious to the Commonwealth that the reasonable or probable consequence of what it did would be to cause Darwinia to terminate the Heads of Agreement, and that the Commonwealth was reckless or indifferent as to whether Darwinia terminated the Heads of Agreement. 8 Her Honour should have found that the Commonwealth's actions caused the appellant to lose the benefit of the Heads of Agreement. 9 Her Honour should have concluded that as a result of the Commonwealth's reckless or indifferent actions in respect of the appellant's contractual rights, which caused the appellant to lose the benefit of the Heads of Agreement, the Commonwealth was liable to the appellant for the appellant's damages for the loss of the Heads of Agreement. 43 The Commonwealth relies on the following grounds in its Amended Notice of Contention: 1. The Court below erred in holding that Darwinia Estate Pty Ltd (Darwinia) was not on 27 June 2000, entitled to terminate the Heads of Agreement dated 18 October 1995 and in failing to hold that Darwinia was entitled to do so, or to treat the Heads of Agreement as terminated, on any of the following bases:

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Principles concerning termination for breach 46 Broadly, a party to a contract can terminate it for breach by the other party where: (1) the contract itself provides that, if the breach in question occurs, the terminating party can terminate the contract; or (2) the breach deprives the terminating party of substantial performance of the contract; or (3) there is "anticipatory breach", that is, the conveying (or in some circumstances, the existence) of an unwillingness or inability to render substantial performance of the contract. 47 It is not necessary to say anything here about the first of those categories, except to note in passing that termination on this basis may not support a claim for damages for loss of the bargain: Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620. 48 The second category has been considered recently in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115. 49 The majority judgment (Gleeson CJ and Gummow, Heydon and Crennan JJ) asserted that a breach of contract by one party may entitle the other party to terminate where the breach is of an obligation agreed by the contracting parties to be essential (par [47]), and also where there has been a sufficiently serious breach of one or more non-essential terms (par [49]). That is, the Court treated the parties' assessment that compliance with a term was essential for substantial performance as sufficient to establish that non-compliance with that term negatived substantial performance; but also asserted that sufficiently serious breaches of other terms could also negative substantial performance. 50 In the same case the majority judgment said this about the third category: termination may be justified if "the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it", where renunciation is "an unwillingness or inability to render substantial performance of the contract" (par [44]). However, it is also the case that uncommunicated but proven permanent incapacity to afford substantial performance is sufficient for anticipatory breach: Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 423 per Brennan J, and cases there cited, and Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 262 per Mason CJ. 51 An associated question concerns the time for performance of the contractual obligation. A contract may specify a time for performance of an obligation or contain an implied term that the obligation is to be performed within a reasonable time; and it may be that, while the obligation itself is essential, the time for its performance is not. It was once the case that "the law" (as opposed to equity) generally treated the time for performance of an essential obligation as itself essential; whereas equity would not do so unless the parties expressly or by implication manifested an intention that this be so. Now, pursuant to s 13 of the Conveyancing Act 1919, the approach of equity applies generally. The result has been to somewhat blur the distinction between essential terms and non-essential terms, in cases where time considerations are important; and perhaps also to blur the distinction between the second and third of the three categories I have identified. 52 I say this because, where the time requirement for the performance of an essential term is not itself made essential, in accordance with the approach of equity to the question, it can under certain conditions be made essential by the giving of a notice. However, it appears also that where there is a time requirement for the performance of a non-essential term, that time may be made essential by notice: Louinder v Leis [1982] HCA 28; (1982) 149 CLR 509 at 526 per Mason J, with whom Stephen J agreed and with whom Gibbs CJ and Wilson J agreed generally. It could be suggested that this only applies where the non-essential term is a step in a process that the contract requires to occur before an essential term can be performed: in Louinder the term in question was the submission by the purchaser of land to the vendor of a transfer of the land. However, I do not think the approach in Louinder can be so limited. In any event, the rationale stated by Mason J for his approach was that the unreasonable delay involved in not complying with the notice amounted to a repudiation, suggesting that what he had in mind was a breach within category (3) rather than category (2). To similar effect is the judgment of Brennan J in Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited [1989] HCA 23; (1989) 166 CLR 623 at 643-649. 53 The requirements for such a notice are broadly that (a) there be no relevant breach by the party giving the notice, (b) there be a relevant breach or unreasonable delay by the other party, (c) the notice must specify a time for performance of the relevant term that is reasonable, (d) the notice must make it clear that failure to comply will be regarded as a breach entitling the giver of the notice to terminate, and (e) the party giving the notice must be itself ready willing and able to proceed to performance of whatever is required on its part to entitle it to performance of the relevant term: Louinder, Laurinda. 54 A further and more difficult question is whether, when one party has committed a breach satisfying one or more of the three categories, but the other party is also in breach of the contract, the latter can terminate despite its own breach. The answer is that generally it can, at least unless the obligations breached are interdependent or the breach by the party wishing to terminate has caused the breach that this party wishes to rely on. 55 As regards the former exception, it seems clear for example that, under a contract for the sale of land, the obligation of the vendor to transfer the land and the obligation of the purchaser to pay the price on completion are mutually dependent and concurrent; and that generally neither party who fails to perform its obligation when the time for performance arrives can terminate for the other party's failure at that time to perform its obligation: Foran, at 396 per Mason CJ, 417 per Brennan J and 433 per Deane J. However, there is a question whether this is a true or merely apparent exception to the general position stated in the previous paragraph, because the correct analysis may be that in such a case there is no breach at all, rather than that there is an inhibition on terminating for breach. Although Mason CJ says (at 396) that in these circumstances a party in breach "cannot terminate for the other party's breach", Deane J (at 433) says "neither … will be guilty of breach of contract … unless the other party tenders performance of his concurrent obligation". Brennan J's discussion (at 417) seems neutral between the two positions, perhaps being closer to that of Deane J. Two of the cases referred to by Mason CJ seem rather to favour Deane J's view: see Michael Realty Pty Limited v Carr [1977] 1 NSWLR 553 at 571C per Mahoney JA, Frankcombe v Foster Investments Pty Limited [1978] 2 NSWLR 41 at 48G per Holland J. 56 As regards the latter exception, it seems clear that a party cannot rely on an event as a ground for terminating a contract if that event has been caused by that party's own breach of contract: see for example Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 440-442, Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Limited [1984] 3 NSWLR 613, Plumor Pty Limited v Handley (1996) 41 NSWLR 30. The latter two cases also decided, correctly in my opinion, that the onus of proof lies on the party resisting termination, that is, the party who wishes to assert that the event that would otherwise justify termination was caused by the party seeking to rely on that event. 57 In the absence of such interdependence or a proved causal link, the circumstance that a party is itself in breach does not generally disentitle it to rely on the other party's breach of contract, if that breach would otherwise entitle the former to terminate: Nina's Bar, State Trading Corporation of India Limited v M Golodetz Limited [1989] 2 Lloyds Reports 277, Roadshow Entertainment Pty Limited v (ACN 053 006 269) Pty Limited (1997) 42 NSWLR 462. This position is assumed in the decision of the High Court of Australia in The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64. Even if the terminating party's breach were itself sufficient to justify termination, in my opinion the better view is that this would not of itself preclude termination by that party, so long as the terms breached were independent and the causal link referred to earlier was not established: see Golodetz at 285-287, Roadshow at 481. (This passage from Roadshow was quoted with approval by Powell JA, with whom Meagher JA agreed, in Kyrwood v Drinkwater [2000] NSWCA 126 at [154]; although opposing views have been expressed by Fitzgerald JA in dissent in that case, and by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 143-144 and White J in Rona v Shimden Pty Ltd [2005] NSWSC 818; (2005) 12 BPR 23,287 at [92].) However, since entitlement to damages for loss of the bargain would generally require proof of readiness, willingness and ability to perform on the part of the party claiming damages, the party terminating in those circumstances may be unable to claim damages for loss of the bargain. 58 I should also refer to House of Lords authority that where both parties to an arbitration agreement are in breach by not taking steps to bring about the hearing of the arbitration, neither can rely on the other's breach to terminate the agreement: Bremer Vulkan Schiffbau und Maschinenfabrik v South Indian Shipping Corporation Limited [1981] AC 909, Paal Wilson and Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854. In my opinion, these decisions can be accommodated in the framework I am supporting, in the following way. Each party to the arbitration has an obligation to take steps to move the arbitration along, even in the case where there is delay by the other party, before that delay becomes so great as to amount to a breach justifying termination; so that if one party's delay does become so great as to justify termination because of the other party's breach in failing to take steps to move the arbitration along, the case falls within the second of my suggested exceptions. 59 A difficulty with my analysis is raised by discussions of anticipatory breach in DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423 and in Foran. 60 In DTR at 433, Stephen, Mason and Jacobs JJ said this: A party in order to be entitled to rescind for anticipatory breach must at the time of the rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach … 61 This was quoted with approval in Foran by Mason CJ at 406-407 and Dawson J at 452, although Dawson J also referred to contrary views. A contrary view was forcefully stated by Deane J in Foran at 437-438 as follows: In these circumstances, it is strictly unnecessary that I express any view on the question whether one party to a contract is precluded from rescinding it by accepting a repudiation of the contract by the other party if he is not in a position to prove that he is, or but for the repudiation would have been, ready, willing and able to perform the contract. However, in view of the discussion of that question in other judgments, it would seem desirable that I indicate that, notwithstanding some statements of authority to the contrary, I do not accept the proposition that a party must incur the expense necessary to put himself in a position where he can positively demonstrate actual or potential readiness and willingness to perform a contract before he can accept the repudiation of the other party and thereby rescind. In my view, that proposition is unjustified by either principle or common sense. Absence of actual or potential readiness or willingness to perform a contract will prima facie preclude a successful action against the other party for specific enforcement of the contract or for the recovery of damages for its breach. It does not, of itself, preclude rescission of the contract by acceptance of the other party's repudiation. Were it otherwise, the law would require the useless and futile expenditure by an innocent party of whatever time, effort or money was necessary to place himself in a position where he could positively demonstrate actual or potential ability to perform a contract in order to be able to bring it to an end on the ground that it had already been repudiated by the other party. Indeed, it is difficult to see why, as a matter of principle or common sense, actual breach or even repudiation by one party to a contract should prevent that party from rescinding the contract by accepting a repudiation of the contract by the other party. Put differently, it is difficult to see why the law should insist that, even though both parties to a contract have repudiated it, the contract must hang like an albatross around their necks unless and until they can reach a new agreement about its termination. The point can be illustrated by the hypothetical example of express repudiation by each party to a contract followed by acceptance of the other's repudiation and unilateral rescission of each of them. How can it be said that, in those circumstances, the law continues to require that each perform the contract? 62 In my opinion all these views are obiter dicta; and in my respectful opinion the view expressed by Deane J is correct. 63 DTR was a case between vendor and purchaser in which the vendor had indicated an intention to perform the contract according to a certain construction of it, which the High Court held to be a wrong construction; the purchaser had purported to terminate the contract on the basis that the vendor would not complete the contract as correctly interpreted; and the vendor had purported to terminate the contract on the basis that the purchaser's purported termination was repudiation. The majority of the High Court (Stephen, Mason and Jacobs JJ, Aickin J agreeing) held that neither purported termination was effective: the purchaser's, because the vendor's conduct did not justify an inference that the vendor intended not to perform the contract according to its terms; and the vendor's, because the purchaser's purported termination "did no more than evince an intention not to proceed with the contract on the basis of the incorrect interpretation then being advanced by the [vendor]" (at 433). That is, on the facts, the majority held that the plaintiff's conduct did not amount to anticipatory breach or repudiation; and accordingly, when the majority went on to state the passage quoted earlier, this was obiter. 64 In my respectful opinion, the support given in Foran by Mason CJ and by Dawson J to the proposition from DTR, and similar views expressed in Foran by Brennan J, are weakened by a failure to carefully keep distinct three questions: (1) the availability of termination to put an end to obligations to perform a contract in the future; (2) availability of termination plus a cause of action for at least nominal damages; and (3) availability of termination plus a cause of action for substantial damages for loss of the bargain. 65 Mason CJ in Foran does advert to this distinction at 406-407, but he notes that Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466, on which he relies, relates to "readiness and willingness as a material element in the existence of a plaintiff's cause of action"; that is, to questions (2) and (3) above. He goes on to extend the requirement to question (1), referring to the statement in DTR quoted earlier; but then on p 406, he says that "Insistence on the plaintiff being ready and willing is a means of ensuring that a plaintiff will not succeed in an action for breach of contract if the contract has gone off through his wrongful default or conduct", a consideration applying only to questions (2) and (3), not to question (1). Then Mason CJ then goes on to comment on the more stringent requirements for readiness and willingness in the case of actual breach which, if extended beyond cases of interdependent obligations, is contrary to authorities referred to in par [57] above. 66 Brennan J's discussion at 424-7 seems to be to similar effect; and at 430-431 Brennan J carefully distinguishes between two aspects of readiness and willingness in the case of a purchaser's termination for anticipatory breach: to be entitled to terminate at all, the purchaser must not be substantially incapable of completing in due course; while to obtain damages, the purchaser must prove on the balance of probabilities that it would have been able to complete. 67 Dawson J at 452-453 expresses similar views, but relates them to a statement that "a party should not be able to sue for breach if he is unable or unwilling to carry out his part of the bargain"; that is, he seems to be considering questions (2) and (3), and not question (1). 68 As a matter of principle, it seems to me that the view of Deane J is preferable. If the only question is whether a purported termination is effective to put an end to the contract so as to discharge both parties from future performance, then anticipatory breach by one will justify termination by the other whether or not the latter is ready and willing to perform. However, if the latter wants to obtain any relief on the basis of the termination, beyond mere discharge of future obligations, then as part of its cause of action it must prove readiness, willingness and ability. It is no longer necessary to explicitly allege this (UCPR 14.10), but if it is put in issue, the onus lies on the plaintiff to prove it in order to establish such a cause of action. 69 In my opinion, the view of Deane J in Foran is strongly supported by the following considerations, based on the decision of the High Court in Amann Aviation. In that case, the plaintiff Amann Aviation was in breach of contract, but the breach was insufficient to justify termination by the Commonwealth. The Commonwealth's purported termination was held to be a repudiation, and Amann Aviation's acceptance of this repudiation was held to be effective to terminate the contract. Amann Aviation's non-essential breach did not preclude it from effectively terminating the contract for the Commonwealth's repudiation; and indeed, its readiness, willingness and ability to perform in the future was sufficient to support its claim for damages. If however Amann Aviation's actual breach had not been non-essential, or if Amann Aviation had been shown to be permanently unable to afford substantial performance, then the Commonwealth's termination would have been effective; and Amann Aviation as well as the Commonwealth could have relied on the Commonwealth's termination to resist any call for further performance. 70 The views of Stephen, Mason and Jacobs JJ in DTR, and of Mason CJ, Brennan and Dawson JJ in Foran, in effect propose an intermediate position, where the breach by the party in the position of Amann Aviation is insufficient to have the effect that repudiation by the party in the position of the Commonwealth is effective to terminate the contract, but yet somehow too much to permit the party in Amann Aviation's position to do what Amann Aviation did, namely treat the Commonwealth's purported termination as a repudiation and itself terminate. In my respectful opinion there is no such intermediate position that can be justified. Suppose that the breach ultimately relied on by the party in the position of the Commonwealth were the permanent inability of the party in Amann Aviation's position to substantially perform the contract, and it was unclear whether or not this was established. Surely the position would then be that the contract was at an end, either because of the termination by the party in the position of the Commonwealth or because of the termination by the party in the position of Amann Aviation; and so far as concerned obligations for performance in the future, it would not be necessary to determine which was the true position. It would of course be necessary to do so if either party was claiming damages, but that is not the question here under consideration. 71 I would add that the actual decision in DTR does not support such an intermediate position, because that decision turned on a finding of fact that, in the circumstances, the purported termination by the purchaser was not a repudiation, because it conveyed only the intention not to perform the contract on the interpretation then being advanced by the vendor. That finding reflects the very reasonable reluctance of the courts to find repudiation when what is really happening is a bona fide and reasonable dispute about the true effect of the contract. 72 The view I have been supporting (that a party in fundamental breach of contract can terminate for fundamental breach by the other party, but generally cannot claim damages for loss of the bargain) has some support from two articles that deal with the question: Andrew Beech "Terminating a contract: dispensing with the requirement of readiness and willingness" (1992) Journal of Contract Law 5 pp 47-59, and Wayne Courtney "Termination of contract by a party in breach" (2008) The Journal of Business Law 3 pp 226-245. 73 The support from the second of those articles is more tentative than that from the first. In this article, Mr Courtney points out that, unless the fundamental breaches by each party happen to occur simultaneously, the problem would arise only where the fundamental breach occurring second cannot take effect as an acceptance of the earlier fundamental breach by the other party: if it can do so, then the contract must be at an end by virtue of the later breach operating as an acceptance of the earlier breach. Where the later breach cannot take effect as acceptance of an earlier fundamental breach by the other party, for example because the party guilty of the later breach had affirmed the contract, Mr Courtney (at 243-245) favours Deane J's approach, but notes three objections. The first two objections seem to me to fail to keep distinct the question of discharge of future obligations from the question of availability of damages; while a third objection, namely that where both parties are repudiating neither can terminate, seems clearly incorrect. Unless the repudiatory acts happen to occur simultaneously, the later of them will as a matter of law terminate the contract, albeit that neither party will be able to claim damages for loss of the bargain.

[109]

Was the Commonwealth entitled to terminate the Option Agreement? 74 In order to answer this question, it is necessary to consider the construction of the Option Agreement, and especially what was the position under that agreement following notification by Darwinia that it would proceed with the purchase of the land. 75 The primary judge did not explicitly determine whether, following Darwinia's letter of 23 December 1998, there existed a contract for the sale and purchase of the land between the Commonwealth and Darwinia. Plainly, as found by the primary judge, the parties intended that there would be a (further) Contract of Sale entered into and executed after Darwinia decided to proceed with the purchase, which would provide (among other things) for a period within which the purchase price was to be paid. However, that does not resolve the question whether, in the meantime, there existed a contract for the sale and purchase of the land arising from the exercise of the option. 76 In my opinion, it is plain that there was such a contract. The Option Agreement identified the land in a way that the parties have accepted as sufficient, identified the purchase price, and also identified a time (not later than seven years from the date of the Option Agreement) when the land was to be "purchased", plainly meaning when the purchase was to be completed by payment of the purchase price. The Option Agreement referred to exercise of the option, and an option period of up to twelve months; and it provided that if Darwinia decided to proceed with the purchase either during or at the end of the option period, the parties would then enter into a Contract of Sale. 77 In my opinion it is clear that notification by Darwinia of a decision to proceed with the purchase, made within or at the end of the option period, amounted to an exercise of option and gave rise to a contract for sale and purchase of land at the agreed price. The parties also expected (and perhaps were contractually bound to proceed in good faith towards) the execution of a formal Contract of Sale; but in the meantime, there was still a contract for sale and purchase of land, which could properly be regarded as a contract within the "fourth class" of case recognised in Sinclair Scott and Co v Naughton [1929] HCA 34; (1929) 43 CLR 310 at 317 and Baulkham Hills Hospital Pty Limited v GR Securities Pty Limited (1986) 40 NSWLR 622 at 628, in addition to the three classes explicitly recognised in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360-362. If notwithstanding negotiation in good faith the parties were unable to agree on more detailed terms, and no contract of sale was ever executed and exchanged, both parties would remain entitled to performance of the contract constituted by exercise of the option. 78 A question then arises as to what the terms of that contract would have been, in the event that the option had been exercised within or at the end of the twelve month period. Although the Contract of Sale may not have been executed within the twelve month period, in my opinion this would not affect the requirement for the purchase to be completed not later than seven years from the date of the option (so that the Contract of Sale, if not executed within the twelve month period, might for consistency with the Option Agreement have to provide for payment of the purchase price in less than six years), nor would it affect the date when the first of the interest payments, to be made annually in advance, was due (namely, one year from the Option Agreement). 79 It was contended for Sharjade that a construction providing for interest to be payable any time before execution of the Contract for Sale would unfairly penalise Sharjade for delays brought about by the Commonwealth and/or Darwinia in the execution of the contract of sale. It was further contended that the agreement to pay interest was expressed to be in consideration for "the Commonwealth entering into this option agreement, the Contract for Sale and the Lease", so that the obligation to pay interest did not arise until the Contract for Sale was executed; and that this was confirmed by the circumstance that other promises by Darwinia were expressed to be in consideration for "the Commonwealth agreeing to enter into this option agreement, the Contract of Sale and the Lease", and thus could arise earlier than execution of the Contract of Sale. 80 As regards the latter contention, it would in my opinion have required a clearer indication of intention to delay the due date for the first payment of interest annually in advance from the date clearly specified in the Option Agreement. The Option Agreement was not drafted with legal expertise or precision; and I would not place significance in the change of wording relied on by Sharjade. This view is confirmed by the circumstance that the later recital of consideration begins "In further consideration for the Commonwealth agreeing to enter" into the agreements, suggesting that the parties did not intend this to identify a consideration different from that expressed earlier as "In consideration for the Commonwealth entering" into the agreements. 81 As regards the former contention, the Option Agreement is to be construed with a view to ascertaining the intention of the Commonwealth and Darwinia manifested by the terms of the agreement in the circumstances (known to both parties) when it was made. It was not shown that those circumstances included the position of Sharjade; and so far as the positions of the Commonwealth and Darwinia are concerned, it would be entirely reasonable that interest on the purchase price of land committed by the Option Agreement should run from a fixed time stated by the Agreement. 82 Turning to the guarantee, it was submitted for Sharjade that the provision in the Option Agreement for the grant of a 99 year lease concurrent with execution of the Contract of Sale was plainly intended to provide Darwinia with a legal title which it could use to provide security for its finance, including the financing of the guarantee; so it was commercially improbable that the obligation to provide the guarantee was intended to arise before the execution of the Contract of Sale and provision of the Lease. 83 However, this linkage of the obligation to provide a guarantee to the granting of the Lease is not expressed in the Option Agreement, and the Option Agreement does not otherwise explicitly link the provision of the guarantee to the execution of the Contract of Sale. If entry into the Contract of Sale were to be substantially delayed (as in fact it was), the Commonwealth was during the period of this delay still bound to sell the land to Darwinia for $5.8 million and Darwinia was still bound to pay that price; and the need for the Commonwealth to have the assurance that Darwinia had the capacity to make the payment was itself not delayed. Since the guarantee has to be by "a bank approved by the Commonwealth", I do not think it could have been a requirement that the guarantee be given simultaneously with exercise of the option; but in my opinion it was required to be given within a reasonable time after that exercise, with the Commonwealth itself acting reasonably as regards the giving of its approval to the proffered bank. 84 A question then arises as to the effect of the extensions of the option period. As noted earlier, these extensions were requested and granted without reference to any possible effect they might have on the other terms of the Option Agreement. 85 In my opinion those extensions did not affect the seven-year time limit (so that, for example, to be consistent with the Option Agreement, a contract entered into three years after the date of the Option Agreement should have provided for completion within four years); and the extensions did not affect the accrual of interest from the first anniversary of the Option Agreement, in the event that the option was exercised. 86 It was submitted for Sharjade that interest could not commence accruing until a Contract of Sale was entered into following exercise of the option. I accept that, following the grant of the extensions and prior to the exercise of the option, Darwinia was not obliged to make payments of interest commencing on the first anniversary of the Option Agreement, because the Option Agreement sufficiently disclosed an intention that interest was to accrue on a purchase price that was outstanding and unpaid; and unless and until the option was exercised, there would be no purchase price outstanding and unpaid. The Option Agreement also disclosed that, if the option was not exercised, "costs" incurred by each party would be "for its own account"; and in my opinion this express provision also points against interest being payable prior to exercise of the option. 87 However, if the option were to be exercised within an extended period, the purchase price would then become outstanding; and in my opinion the Option Agreement sufficiently manifests an intention that in those circumstances interest should be treated as having accrued from the first anniversary of the Option Agreement. In my opinion, as was the case with the unextended option, there is no basis for delaying actual payment of interest until entry into the Contract of Sale; and in my opinion, on exercise of the option, interest became payable annually in advance as from the first anniversary of the Option Agreement and Darwinia immediately became liable to pay any annual instalments that had already accrued. 88 It is true that subsequent to the exercise of the option, and until its letter of 17 March 2000, the Commonwealth did not require payment of interest or provision of the guarantee; and through its solicitors it proceeded on the basis that these things would occur together with the execution of the Contract of Sale. However, in my opinion, that does not affect the true construction of the Option Agreement; and no case of estoppel was advanced. 89 The Notice given by the Commonwealth on 17 March 2000 was about fifteen months after exercise of the option, by which time three years' interest had accrued (one year each on 24 November 1996, 24 November 1997 and 24 November 1998) and had become payable on the exercise of the option on 23 December 1998, and a further year's interest had accrued and become payable on 24 November 1999; and no interest had been paid. No guarantee had been offered to the Commonwealth. 90 There may be a question whether the terms requiring payment of interest and provision of the guarantee were essential terms of the Option Agreement. I am inclined to think that at least the term requiring provision of the guarantee was an essential term. However, in neither case was time for compliance of the essence, in the absence of a notice making it so. In my opinion, the authority of Louinder supports the view that the Commonwealth could, by appropriate notice, make time of the essence for fulfilling these obligations. In my opinion, having regard to the breaches that occurred, the Commonwealth was entitled to give the notice it gave, the time of 28 days was reasonable, and the notice sufficiently indicated that non-compliance would be treated as entitling the Commonwealth to terminate. Further, in my opinion, the failure of Darwinia not merely to comply with the notice, but also to take any steps suggesting willingness or ability to comply with it at any time in the near future, sufficiently conveyed unwillingness and/or inability to render substantial performance of the contract. 91 Accordingly, in my opinion, the Commonwealth was entitled to terminate, as it did, on 24 May 2000.

[110]

Was Darwinia entitled to terminate the Heads of Agreement? 92 This question requires consideration of the effect of the Heads of Agreement. This agreement was entered into before the Option Agreement was signed, but the principal terms of the Option Agreement that was subsequently made are broadly reflected in clauses 3-5 of the Heads of Agreement; although it must be said those clauses are unclear as to whether "the date of the Contract" referred to in cl 5 means the date of the Option Agreement or some later date. However, as indicated above, in the Option Agreement itself, the matters referred to in cl 5 are clearly related to the date of the Option Agreement. 93 The terms of the Heads of Agreement that are crucial for this case are cl 8(1)(c), making Sharjade responsible for "arranging the finance for the development of the Village including the provision of the purchase guarantee to the Commonwealth"; cl 8(4), stating that Darwinia (with RAAFA) will actively assist Sharjade in effecting the sale of units and will commit to achieving pre-sales of up to 80 units by the end of the 12 month option period and prior to the execution of the lease; and cl 8(13), agreeing as to the scope of security arrangements. 94 The following questions arise in relation to these terms: (1) What is the content of Darwinia's obligation under cl 8(4)? (2) What is the content of Sharjade's obligation under cl 8(1)(c), having regard to cl 8(13)? (3) Is Sharjade's obligation under cl 8(1)(c) interdependent with Darwinia's obligation under cl 8(4)? (4) Did Darwinia breach its obligation under cl 8(4)? (5) Did Sharjade breach its obligation under cl 8(1)(c)? (6) Was Darwinia entitled to terminate the Heads of Agreement? 95 As regards (1), the content of cl 8(4), the main problem here is the interpretation of the words commencing "will commit to" and continuing to the end of the first sentence. 96 The commitment relates to "up to" 80 units; and in my opinion it cannot be read as a commitment to achieve pre-sales of 80 units. I do not think it can be read as a commitment to achieve pre-sales of "80 units but not more", as submitted by Sharjade. However, in my opinion, it should not be read in a way that makes it meaningless; and in my opinion it sets a clear goal of pre-sale of 80 units and commits Darwinia to active pursuit of that goal, which is to continue until the goal of pre-sales of 80 units is achieved, and otherwise not to end prior to the time when the lease is executed. 97 Interpreted in that way, it does add further content to the obligation in the first part of the sentence: the active promotion and assistance should be such and continue to be such as is reasonably appropriate for achieving that level of pre-sales within the time limit specified; that is, at least by the time when the lease is executed. This entails that the obligation may intensify if it should come to appear that the goal is not being reached and is unlikely to be reached without more intense activity. 98 As regards (2), the content of cl 8(1)(c), Sharjade's obligation to raise finance clearly extends, in my opinion, to an obligation to arrange finance for payment of interest to the Commonwealth when due (see cl 8(13)(a)) and for the bank guarantee when required (cl 8(13)(c): it may be that a guarantee for $5.7 million would have been sufficient under this clause, but it is not necessary to determine this). I accept however that actual payment of the purchase price would obviate the need for the Bank Guarantee. 99 Subject to any qualification from interdependence with cl 8(4), the time by which the finance was to be available was, in my opinion, when it was needed and Sharjade was on notice that it was needed. In relation to the interest and the guarantee, this would be when Darwinia was obliged, under its agreement with the Commonwealth, to pay the interest and provide the guarantee, and Sharjade was on notice that this was the case. 100 As regards (3), the question of interdependence of cls 8(1)(c) and 8(4), it was submitted for Sharjade that 80 units was the number the parties anticipated would be necessary to obtain finance. However, although that was the effect of the offer for finance actually made by ING and Mercantile Mutual, we were not referred to any evidence or finding that this was the common understanding of the parties when the Heads of Agreement document was signed, except to the extent that that intention might appear from the terms of the agreement itself. 101 In my opinion, there is no basis in the agreement for holding that Sharjade's obligation to provide finance was conditional upon pre-sales of 80 units or was postponed until such time as this occurred. As noted above, in my opinion, Darwinia did not have an obligation to achieve pre-sales of 80 units, and there seems to be nothing else in the Heads of Agreement that would support such a condition or postponement. I have noted a finding by the primary judge that on 18 November 1999 the Project Control Group Committee endorsed delaying applications for finance until pre-sales were secured; but in my opinion that finding was in error, not being justified either by the minutes of the meeting (Blue 761) or by other evidence concerning it (Blue 36-37, 942); and in any event, unless such 'endorsement' amounted to an amendment of the agreement or gave rise to an estoppel (neither of which was alleged), it would not affect the contractual requirements. 102 The question then arises whether breach by Darwinia of its obligation to actively assist in achieving pre-sales, understood as set out above, affects Sharjade's obligation to provide finance; and if so in what way. 103 It is to be noted that Darwinia's obligation under cl 8(4) is an obligation that commences with the entry into the Heads of Agreement and continues until pre-sales of 80 units has been achieved or execution of the lease. In my opinion, it could not be the case that Sharjade's obligation to provide finance is conditional on that obligation not being breached at any time. An alternative view could be that the obligation to provide finance is suspended during whatever time Darwinia is not complying with cl 8(4); but that is not stated in the Heads of Agreement, nor in my opinion is it either implied by the language of the Heads of Agreement or otherwise appropriate to be included as an implied term. 104 However, as indicated in the earlier discussion of principles, there could be a different kind of interdependence, in the sense that if Sharjade proved that its non-compliance with cl 8(1)(c) was caused by Darwinia's non-compliance with cl 8(4), that would be a basis for holding that Darwinia was not entitled to terminate for Sharjade's non-compliance with cl 8(1)(c). 105 It may also be that, if the evidence did not go so far as this, some lesser contribution of Darwinia's breach to Sharjade's breach could possibly be relevant to the question of whether Sharjade's breach was sufficient to justify termination of the Heads of Agreement. 106 As regards (4), the question whether Darwinia breached cl 8(4), the primary judge did not squarely make a finding to that effect, in that she expressed herself in terms that she was not satisfied Darwinia complied with cl 8(4). However, her associated findings set out in par [37] above do, in my opinion, in substance amount to a positive finding of breach. 107 In my opinion, no sufficient ground is made out for appellate intervention concerning that finding. However, it must be noted that the primary judge did not make a finding that Darwinia's breach caused Sharjade's breach of its obligations to provide finance. 108 As regards (5), the question whether Sharjade breached cl 8(1)(c), the primary judge found no breach by Sharjade (and for that reason did not in fact need to decide the previous question that I have just discussed). 109 Consistently with my views on the construction of the Option Agreement, the time for payment of interest to the Commonwealth arrived when the option was exercised (23 December 1998), at which time three years' interest became due and payable; and the time for provision of the guarantee arrived within a reasonable time after that. However, the Commonwealth did not press for payment of interest or provision of the guarantee, and Darwinia did not notify Sharjade of any requirement for these things until the letter dated 4 February 2000 from Mr Healey to Mr Akbarian. 110 The primary judge found (judgment [121]) that the demand in this letter for a guarantee was not a demand under the Heads of Agreement, but rather was "one of a number of pre-conditions of a purported offer … to elect to proceed with the development". I do not read the letter in that way. In my opinion, it does purport to require performance of the Heads of Agreement; and even if some of the requirements went beyond what was then required, it sufficiently conveyed that the bank guarantee and finance for two years' interest were required. 111 There were further demands in the letter of 15 March 2000 to Sharjade's solicitors. The primary judge held (judgment [122]) that this demand was flawed, because the Commonwealth did not make and was not entitled to make the demand referred to in the letter, and because the letter included a demand for "unconditional finance approval" which was not required by the Heads of Agreement. 112 In my opinion, the reference to unconditional finance approval could not reasonably be understood as a requirement of an approval without any conditions (plainly for example there would have to be conditions about security), but would reasonably be understood as an approval without unfulfilled conditions or conditions that would not be fulfilled in the ordinary course of bringing the provision of finance to fruition. Understood in that way, it was not a demand for something outside the Heads of Agreement. 113 In any event, again Sharjade was put on notice of a requirement for a bank guarantee, and for finance for payment of two years' interest which was then due and payable. 114 In my opinion, Sharjade's failure to provide the guarantee and finance for payment of interest did amount to a breach of cl 8(1)(c). 115 Turning finally to (6), the question whether Darwinia was entitled to terminate, I have mentioned that there was no finding by the primary judge that Sharjade's breach was caused by Darwinia's breach. In my opinion there was no basis in any event for such a finding to be made. Such a finding would require a finding of "but for" causation, that is, that but for Darwinia's breach Sharjade would not have breached cl 8(1)(c). In my opinion, the evidence could not support a finding on the balance of probabilities that compliance by Darwinia would have delivered 80 pre-sales, or achieved any other result, in time for Sharjade to have complied with its finance obligation. 116 The question then is, did Sharjade's conduct fall within either the second or third category of breach which I identified earlier in discussing principles concerning termination for breach. 117 The primary judge held that it was a fundamental term of the Heads of Agreement that Sharjade would arrange finance; and there is no doubt that this was so. However, the Heads of Agreement did not specify a time when this was to happen and it did not express an intention that time was to be of the essence. 118 I am inclined to think that, while the letters of 4 February 2000 and 15 March 2000 sufficiently notified Sharjade that finance was required for the guarantee and interest, and thus were sufficient to put Sharjade in breach for not providing that finance, they did not succeed in making time of the essence for this. In particular, each notice required more than Sharjade was then bound to provide (including finance for the whole of Stage 1) and probably did not allow a reasonable time (7 days and 8 days respectively). 119 However, on 17 March 2000 Sharjade was provided with a copy of the Commonwealth's notice of 17 March 2000, which made time of the essence for Darwinia to provide the guarantee and to pay interest; and having regard to the earlier demands and to the circumstance that Darwinia would be in fundamental breach of its contract of sale if it did not comply, in my opinion time did become of the essence for Sharjade then to provide finance to this extent. In my opinion, the Heads of Agreement sufficiently manifested an intention that if Darwinia were to become subject to a "time of the essence" requirement to pay money for which Sharjade was obliged to provide finance, then Sharjade's obligation to provide finance within that time would similarly be of the essence, at least so long as Sharjade had reasonable notice of this requirement. I do not regard this as a term implied for business efficacy, but rather as being answers given to questions necessarily raised by the terms of the agreement (that is, when must finance be provided and when is time of the essence) by considering the intention of the parties disclosed by the express terms. 120 If I were wrong on this, then in any event, in my opinion, a breach by Sharjade justifying termination by Darwinia was established in that Sharjade was shown to have been permanently unable to comply substantially with its essential obligation to provide finance. This obligation to provide finance was not conditional on pre-sale of 80 units, and the history of the matter did show, on the balance of probabilities, that Sharjade was incapable of arranging finance on any other basis. 121 Whether the breach by Sharjade is regarded as an actual breach in failing to provide finance for the guarantee and interest, time being of the essence, or an anticipatory breach in demonstrated inability to provide finance, in either case, in my opinion, Darwinia is not precluded by its own breach of cl 8(4) from terminating on the basis of Sharjade's breach. This follows from my earlier discussion of the applicable principles, and from my holding that Sharjade's breaches were not caused by Darwinia's breach. This would be so, on my preferred view, even if Darwinia's breach was a fundamental breach; but it was not held to be so by the primary judge, and I would not hold it to be so. 122 I would add that there is a further reason why Sharjade's claim should have failed, although the matter does not appear to have been argued in this way. Even though the hearing before the primary judge was as to liability alone, and even though it does not appear to have been specified that Sharjade at that hearing had to show that it suffered some damage justifying a further hearing (as in my opinion should be the practice: see National Engineering Pty Limited v Chilco Enterprises Pty Limited [2001] NSWCA 291), nevertheless, even to establish bare liability there was an onus on Sharjade to prove to readiness, willingness and ability to proceed to substantial performance of the contract on its part. This follows from the cases referred to by Mason CJ, Brennan J and Dawson J in Foran: even though, in my opinion, those cases do not show that readiness, willingness and ability is necessary to support termination of a contract for fundamental breach by the other party, they do clearly show that it is necessary in order to support a claim for damages. Thus, to support even a claim for nominal damages, Sharjade had an onus to prove that, when it purported to terminate for Darwinia's breach, it was ready, willing and able to proceed to substantial performance on its part; and to support a claim for substantial damages, it had to prove on the balance of probabilities that it would have afforded in due course substantial performance on its part. 123 I have held that the contrary to these propositions was proved; but in my opinion, the true position is that Sharjade had an onus to prove them, and therefore should fail unless it affirmatively proved them.

[112]

Inducing breach of contract 128 Having regard to my finding that Darwinia was entitled to terminate the Heads of Agreement, there is no breach of contract that could have been induced by the Commonwealth. Accordingly, the Commonwealth's Notice of Contention succeeds. However, I will briefly deal with Sharjade's grounds of appeal. 129 Sharjade has identified four alleged errors by the primary judge: (1) that the primary judge erred in holding that it was an essential element of the tort that the defendant knew of the terms of the contract that was breached; (2) that the primary judge erred in holding that the Commonwealth did not know of the terms of the Heads of Agreement; (3) that the primary judge erred in holding that it was necessary to show that the Commonwealth had the intention to bring about a breach or interference with the Agreement; and (4) the primary judge erred in holding that it was necessary that the Commonwealth's act had the inevitable or necessary consequence of bringing about a breach of the Agreement. 130 In my opinion the first two alleged errors are not made out. It is an element of the tort of inducing breach of contract that the defendant have sufficient knowledge of the terms of the contract to appreciate that what it is inducing will breach the contract; and in this case, accepting for the purpose of these contentions that the Commonwealth knew its termination of its agreement with Darwinia would course Darwinia to terminate its agreement with Sharjade, it was not proved that the Commonwealth knew that termination in those circumstances would be a breach by Darwinia of its agreement with Sharjade. 131 This also provides an answer to the third alleged error. Even if it were the case that reckless indifference or wilful blindness, rather than actual intention, were sufficient, this was not established in this case. 132 As regards the fourth alleged error, the view on this expressed by the primary judge was merely an additional ground for denying relief. In any event, in relation to those cases where the defendant is not shown to have acted with the purpose of inducing a breach, authority does support the view that the interference must be an inevitable consequence of the defendant's unlawful act.

[117]

(4) Did the Commonwealth commit the tort of inducing breach of contract? 139 As to question (1), his Honour answered it "Yes" [91]: I agree with that answer and with his Honour's reasons. Question (2) I will postpone. Question (3) is unnecessary to answer. Question (4) is answered "No." 140 As to question (2), the answer given by both Hodgson JA and Sackville AJA is "Yes", though their Honours reached that conclusion by separate routes. I would agree with both sets of reasons and accordingly, with the result. 141 I agree with Hodgson JA that one must be careful to distinguish different categories of cases where both parties have committed some breaches of contract. The prime categories are: (i) where a party terminates and sues for damages for loss of bargain; (ii) where a party terminates and sues for particular damage; (iii) where a party terminates but does not seek damages (though may seek recovery of a deposit under restitutionary principles); and (iv) where a person seeks specific performance. 142 Care must be taken with the word "breach". It is a weasel word. When used in the present context it means some action or inaction of a significant nature which is contrary to a party's contractual obligations and which has an effect on the opposing party in performing his or her contractual obligations. Unfortunately the word is used in some authorities in a looser sense. 143 In categories (i) and (ii), the authorities clearly show that the plaintiff must demonstrate that he or she is ready, willing and able to perform. In view of the ancient authority for the proposition, there is no need to look for a rationale, but it would at least appear to be connected with the fact that the damages will be affected by the position of the "innocent" party. 144 In case (iv), for completely different reasons, namely that the equity court will only give relief to a person who himself or herself is shown willing to uphold the contract, a person in breach will have difficulty in succeeding. This case can be put to one side as the present dispute is purely a question of law. 145 In case (iii), I would agree with Hodgson JA that the principle is as Deane J put in Foran v Wight [1989] HCA 51; 168 CLR 385 at 437, that a party who merely wishes to terminate (and recover the deposit), does not have to incur the expense to put himself or herself in a position where he or she can positively demonstrate actual or potential readiness and willingness to perform the contract. 146 The difficulty, however, in accepting that proposition as gospel is, as Hodgson JA points out, that it does run contrary to at least dicta of a number of judges of the High Court of Australia, and in particular, what Mason CJ said in Foran v Wight at 406 which was based on what Dixon CJ said in Rawson v Hobbs [1961] HCA 72; 107 CLR 466 at 481. In his helpful article "Terminating a Contract: Dispensing with the Requirement of Readiness and Willingness", Andrew Beech (now a judge of the Supreme Court of Western Australia) in (1992) 5 Journal of Contract Law 47, favours the Deane J approach, but refers to the view of Mason CJ as "the orthodox approach" and I consider he is justified in doing so: I will adopt the same terminology. 147 Even on the orthodox approach, there are three exceptions to the principle that a party seeking to terminate the contract must itself be ready, willing and able to carry out the contract, namely: (a) where the action of the other party has dispensed the innocent party from that obligation (sometimes called waiver, sometimes called estoppel, I have used the word "dispense" as a neutral word); (b) where the innocent party's "breach" is not of an essential or fundamental term; and (c) (probably) where the innocent party's "breach" is not one which is mutual and interdependent with the breach of the other party. Cases (b) and (c) on my definition do not concern breaches at all. 148 As Sackville AJA points out, Sharjade has not established that the breach of Darwinia was other than a breach in the second and third classes to which I have just referred. 149 The consequence is that whether one follows the approach of Deane J or the orthodox approach, one gets to the same result. 150 On the orthodox approach, as Sackville AJA points out, the decision of this Court in Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 462 at 479, justifies this approach. 151 This approach has been followed subsequently both by the New South Wales Court of Appeal in Kyrwood v Drinkwater [2000] NSWCA 126 at [154] per Powell JA, with whom Meagher JA agreed (Fitzgerald JA vigorously dissenting), and by the Queensland Court of Appeal in Lee v Surfers Paradise Beach Resort Pty Ltd [2008] QCA 29; [2008] 2 Qd R 249. 152 However, the orthodox view has had very strong following, and Roadshow has been doubted for instance by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 143-4; by Fitzgerald JA in Kyrwood at [232] and following, and by White J in Rona v Shimden Pty Ltd [2005] NSWSC 818; (2005) 12 BPR 23,287 at [92]. 153 In the case mentioned, Gummow J said that the statement of McHugh JA in this Court in Wight v Foran (1987) 11 NSWLR 470 at 488-9, should govern the situation and McHugh JA appears to be fairly strong in saying that it is only a person who has not been guilty of breach who may terminate. 154 However Roadshow is a decision of this Court and should be followed. 155 It may well be that the whole debate is about semantics and what breach means in the orthodox formulation is that there is a failure to carry out responsibilities under the contractual regime which has an effect on the opposing party's alleged breach. In this way it would be akin to the so-called prevention principle which prevents a person from relying on conduct of an opponent where he or she has prevented the opponent's compliance; see eg Dodd v Churton [1897] 1 QB 562 at 566, 567 and 568, a principle which I discussed in Drinkwater v Caddyrack Pty Ltd (25 September 1997, unreported, BC9704805) (which was affirmed by the Court of Appeal sub nom Kyrwood v Drinkwater to which I have already referred). 156 Although I consider that Hodgson JA's approach is correct, and whilst it would be intellectually satisfying for me to have the High Court determine the matter, my duty is to terminate this litigation. In my view, the route taken by Sackville AJA is one which complies with orthodoxy and also a previous decision of this Court and I should, for the parties' sake, support the orders made primarily on that basis. 157 SACKVILLE AJA: I have had the privilege of reading the judgment of Hodgson JA. I agree with his Honour that, for the reasons he gives, the Commonwealth was entitled to terminate the Option Agreement. 158 I also agree with Hodgson JA that Darwinia was entitled to terminate the Heads of Agreement. I wish to add some comments of my own on this issue. In doing so, I shall use the same abbreviations as appear in Hodgson JA's judgment. 159 The primary Judge found that it was a fundamental or essential term of the Heads of Agreement that Sharjade would arrange the finance for the development, including finance for the provision of the purchase guarantee to the Commonwealth. However, her Honour held that Sharjade's obligation to obtain finance had not been "triggered" at the time Darwinia purported to terminate the Heads of Agreement on 27 June 2000. Her Honour reached this conclusion because, in her view, Darwinia was not obliged to provide a bank guarantee to the Commonwealth under the Option Agreement until the parties to that Agreement (the Commonwealth and Darwinia) exchanged contracts for the sale of the Land. Until contracts were exchanged, so her Honour held, there was no proper basis for Darwinia to demand that Sharjade provide a guarantee under the Heads of Agreement. 160 The primary Judge also recorded that she was not satisfied that Darwinia had complied with its obligation under cl 8(4) of the Heads of Agreement to "actively promote and assist" Sharjade in effecting sales in the proposed development. Her Honour considered that Darwinia's conduct from January 2000 to mid-March 2000 "deflected [Sharjade] away from the actions it would have taken to have the development move forward" and was "antithetical to its contractual obligations to assist [Sharjade] to effect the pre-sales". 161 In his judgment, Hodgson JA concludes that: (i) the primary Judge was correct in finding that cl 8(1)(c) of the Heads of Agreement constituted an essential term of the Agreement; (ii) contrary to the primary Judge's findings, the obligation imposed on Sharjade by cl 8(1)(c) of the Heads of Agreement could be triggered prior to the Commonwealth and Darwinia executing a contract of sale in consequence of Darwinia's exercise of the option granted by the Option Agreement;

[130]

after the date specified for payment of the moneys due by the distributor, the supplier purported to terminate the distribution agreement on the ground of the distributor's fundamental breach. 169 The Court of Appeal held (at 478-479) that the distributor's failure to make timely payments did not constitute a breach of an essential term of the distribution agreement giving rise to an immediate right of termination. However, the Court also held (at 477) that the conduct of the supplier in transferring its business to a third party amounted to a repudiation of the distribution agreement. 170 Although making the general observations quoted at [9] above, the Court did not consider it necessary to undertake a comprehensive analysis of the effect of a breach on a party's right to terminate. In their Honours' view, this was not a case where the party attempting to terminate was in breach of a condition or had otherwise repudiated the contract (at 479). Timely payment by the distributor was not a condition precedent to be performed before the supplier became bound to perform the obligations that had been repudiated by the receivers' sale and was independent of those obligations. The Court applied the general principle (at 479-480) that: "A party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party". 171 The Court in Roadshow Entertainment accepted that this principle might not apply if there is a causal relationship between the breach of a non-essential term by the terminating party and the fundamental breach relied on by that party. However, in Roadshow Entertainment itself, there was no such relationship between the distributor's non-essential breach and the supplier's essential breach. Thus the distributor was not prevented, by reason of its own conduct, from terminating the distribution agreement. 172 Roadshow Entertainment was followed by the Queensland Court of Appeal in Lee v Surfers Paradise Beach Resort Pty Ltd [2008] QCA 29; [2008] 2 Qd R 249. In Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2007] VSCA 108, at [68] the Victorian Court of Appeal (Warren CJ, with whom Buchanan and Ashley JJA agreed) accepted the proposition stated in Cheshire and Fifoot's Law of Contract (8th ed, 2002), at 943, that: "A party who is in breach may nevertheless have the right to terminate, so long as the breach is not repudiatory or of an essential term such as to deprive the other party of the substantial benefit of the contract".

[131]

See also Idameneo (No 123) Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329, at [97], per Santow JA, with whom Mason P and Hodgson JA agreed. 173 In the present case, Sharjade, once it failed to comply with cl 8(1)(c) of the Heads of Agreement within the requisite 28 day period, breached an essential term of the Agreement. At the time Darwinia terminated the Heads of Agreement by reason of Sharjade's breach, Darwinia itself was in breach of cl 8(4). However, as explained by Hodgson JA, there was no causal relationship between Darwinia's breach and Sharjade's breach of an essential term of the Heads of Agreement. Moreover, the primary Judge did not find that Darwinia's breach was an essential term of the Heads of Agreement, nor that its conduct constituted a sufficiently serious breach of a non-essential term to justify Sharjade in terminating the Heads of Agreement: see Koompathoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115, at 138 [49] per Gleeson CJ, Gummow, Heydon and Crennan JJ. Sharjade did not submit on the appeal that any such findings should be made. Nor did Sharjade suggest that Darwinia's conduct evinced an unwillingness or inability to substantially perform the Heads of Agreement such as would constitute a renunciation of the agreement: Koompathoo, at 135 [44]. In the absence of submissions to this effect on the appeal, it is appropriate to proceed on the basis that Darwinia's breach of cl 8(4) was of a non-essential term of the Heads of Agreement. 174 In these circumstances, in my opinion, the case is governed by the principle applied in Roadshow Entertainment. For the reasons given in that case, Darwinia's breach of a non-essential term of the Heads of Agreement did not disentitle it from terminating the Agreement on the ground of Sharjade's breach of an essential term. 175 The Court in Roadshow Entertainment referred to DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423, although not specifically to the observations quoted by Hodgson JA (at [60]). Nonetheless, it would seem that the Court in Roadshow Entertainment did not consider that anything said in DTR Nominees v Mona Homes was inconsistent with the reasoning in Roadshow Entertainment itself. 176 As Hodgson JA has pointed out, the observations in DTR Nominees v Mona Homes were not essential to the High Court's decision in that case, which ultimately turned on the holding that the parties had conducted themselves so as to abandon or abrogate the contract (at 436). More importantly, the observations were made in the context of a case in which the issue was not whether a party was entitled to terminate for actual breach of an essential term, but whether it was entitled to terminate "for repudiation and renunciation for so-called 'anticipatory breach'" (at 431). The conduct said to amount to renunciation by anticipatory breach arose out of a dispute as to the interpretation of the contract, in which the party purporting to terminate was insisting on an incorrect construction of the contract. 177 As Hodgson JA has also noted, the observations in DTR Nominees v Mona Homes were quoted with approval by Mason CJ (in dissent) and Dawson J in Foran v Wight [1989] HCA 51; 168 CLR 385, at 406-407 (Mason CJ), 452 (Dawson J). Foran v Wight was a case involving "concurrent and mutually dependent obligations" (at 396). When read in context, I do not think that the statements of Mason CJ and Dawson J in Foran v Wight were intended to address a case of termination for an essential breach of contact, where the terminating party is in breach of a non-essential term. I should add that Foran v White was also decided before Roadshow Entertainment and was referred to in the judgment in that case. 178 For these reasons, I agree with the orders proposed by Hodgson JA. **********

Sharjade Pty Ltd v The Commonwealth of Australia; RAAF

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Judgment (132 paragraphs)

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Cases Cited (36)

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