CONTRACTS - Remedies - specific performance - meaning of ready, willing and able

CORPORATIONS - knowledge of - means of imputing knowledge

Corporations Act 2001 (Cth)

Court Procedures Rules 2006 (ACT), r 50(2)

Elizabeth Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths, 2003)

A F Mason, "Contract, Good Faith and Equitable Standards in Fair Dealing" (2000) 116 Law Quarterly Review 66

Actall Pty Ltd v Pacific Bay Development Pty Ltd [2006] NSWCA 190

Andoy Pty Ltd v S & M Cannon Pty Ltd (1990) 17 IPR 533

Arcos Ltd v E A Ronaasen & Son [1933] UKHL 1; [1933] AC 470

Arthur Guiness, Sons & Co (Dublin) Ltd v The Freshfield (owners) [1965] P 294

Artifakts Design Group Ltd v N P Rigg Ltd [1993] 1 NZLR 196

Australia Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104

Bank of Credit and Commerce International SA v Ali [2001] UKHL 8; [2002] 1 AC 251

Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) and (No 10) (2001) 39 WAR 1

Bell v Scott [1922] HCA 13; (1922) 30 CLR 387

Bosca Land Pty Ltd v Wruck [1982] Qd R 111

Bowes v Chaleyer [1923] HCA 15; (1923) 32 CLR 159

British and Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48

Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation [2008] FCA 1951; (2008) 173 FCR 359

Carlill v Carbolic Smokeball Co [1892] EWCA Civ 1; [1893] 1 QB 256

Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33

Commonwealth v Davis Samuel Pty Ltd (No 7) [2013] ACTSC 146

Commonwealth v Tasmania [1983] HCA 21; (1983) 158 CLR 1

Egan v Geraghty [1994] QCA 8

Erley Pty Ltd v Gunzberg Nominees Pty Ltd [1998] ANZ Conv R 522

Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420

Foran v Wight [1989] HCA 51; (1989) 168 CLR 385

Fylayne Pty Ltd v Berck (Unreported, Queensland Supreme Court, Full Court, 24 November 1988)

Galaxy Energy International Ltd v Bayoil SA [2000] EWCA Civ 3031

Gold Coast Waterways Authority v Salmead Pty Ltd [1997] 1 Qd R 346

Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594

Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641

Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121

Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135

Hexiva Pty Ltd v Lederer [2006] NSWSC 1129

Heyman v Darwins Ltd [1942] AC 356

H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41

Italo-Australian Club Ltd v National Australia Bank Ltd (1989) NSW Conv R 55-461

Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126

J C Houghton & Co v Nothard, Lowe and Wills Ltd [1928] AC 1

J C Williamson Ltd v Lukey [1931] HCA 15; (1931) 45 CLR 282

Jetcity Pty Ltd v Yenald Nominees Pty Ltd (Unreported, Supreme Court of WA, Owen J, 9 April 1999)

Jolley v Carmel Ltd [2000] 2 EGLR 153

Kayserian Nominees (No 1) Pty Ltd v J R Garner Pty Ltd [2008] NSWSC 803

Kennedy v Vercoe [1960] HCA 64; (1960) 105 CLR 521

Lakatoi Universal Pty Ltd v Walker [2000] NSWSC 113

Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406

Mackay v Dick (1881) 6 App Cas 251

Mactaggart & Mickel Homes Ltd v Hunter [2010] CSOH 130

McCourt v Cranston (2012) ANZ ConvR 12-006

Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571

Nationwide News Pty Ltd v Naidu [2007] NSWCA 377; (2007) 71 NSWLR 471

Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444

Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2003] NSWSC 288

Overseas Buyers Ltd v Granadex SA [1980] 2 Lloyds Rep 608

OzEcom Ltd v Hudson Investment Group [2007] NSWSC 719

Paltara Pty Ltd v Dempster (1991) 6 WAR 85

Parland Pty Ltd v Mariposa Pty Ltd [1995] TASSC 91; (1995) 5 Tas R 121

Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235

Pioneer Plastic Containers Ltd v Commissioner for Customs and Excise (1967) 1 Ch 597

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

Progress and Properties (Strathfield) Pty Ltd v Crumblin (1984) 3 BPR 9496

Rafferty v Madgwicks [2012] FCAFC 37; (2012) 203 FCR 1

Rands Developments Pty Ltd v Davis [1975] HCA 36; (1975) 133 CLR 26

Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466

Re Rossfield Group Operation Pty Ltd [1981] Qd 372

Rhodia International Holdings Ltd v Huntsman International LLC [2007] 1 CLC 59

Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (rec & mgr apptd) [1997] NSWSC 473; (1997) 42 NSWLR 462

Roberts v Smith [1859] EngR 317; (1859) 4 H & N 315; 157 ER 861

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Secure Parking (WA) Pty Ltd v Wilson [2005] WASC 264

Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359

Smith v Butler [1900] 1 QB 694

Stevter Holdings Ltd v Katra Constructions Pty Ltd [1975] 1 NSWLR 459

Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315

Taylor v Brewer (1813) 1 M & S 290; 105 ER 108

Tesco Supermarkets Ltd v Nattrass [1972] AC 153

Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83

UBH (Mechanical Services) Ltd v Standard Life Assurance Co (The Times, 13 November 1986, Queen's Bench Division, Rougier J)

Universal Cargo Carriers Corp v Citati [1957] 2 QB 401

Valentine Films Pty Ltd v Trimex Pty Ltd [1996] FCA 124

Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Westpac Banking Corporation v Bell Group Ltd (in liq)(No 3) (2012) 270 FLR 1

BETWEEN: STEPPING STONES CHILD CARE CENTRE (ACT) PTY LIMITED

1. In Australia historically, the day care for children in the years before school had two European roots: the idea of the crèche from France and the kindergarten movement in Germany.

2. While there had long been "for profit" child care in Australia, subsidies were made available to the private sector and companies were established to enter the market. Funding changes in 1996 provided the opportunity for larger companies to invest in the sector. One way in which this was done was by purchasing child care centres from other operators.

3. Companies of which Ms Fiona O'Donnell was sole director, Stepping Stones Child Care Centre (ACT) Pty Ltd (Stepping Stones), the plaintiff, and Conder Child Care Services Pty Ltd, conducted four child care centres in the ACT, three of them being conducted by Stepping Stones at Symonston, Bonython and Gungahlin. The other, conducted at Conder by Conder Child Care Services Pty Ltd, was called Lavender Lane Child Care Services.

4. On 6 December 2007, the defendant, Early Learning Services Limited (ELS), entered into contracts with Stepping Stones and Conder Child Care Services Pty Ltd to purchase the four child care centres. Incorporated in February 2007, ELS was a public company listed on the Australian Stock Exchange and, by 30 December 2007, owning twenty-nine child care centres and purchasing another forty-four.

5. The sale of each of the four centres was the subject of a separate contract, though most of the terms of each contract were identical.

6. The sales of the Gungahlin centre and of the Lavender Lane centre were duly completed in accordance with the relevant contracts. On 29 February 2008, however, ELS purported to terminate the contracts for the purchase of the Symonston and Bonython centres. Stepping Stones did not accept the purported termination, and continued to prepare for completion of these two contracts.

7. By 4 April 2008, described in the contracts as the "Sunset Date", Stepping Stones purported to be in a position to complete the contracts, but ELS did not complete the contracts.

8. On 19 May 2008, Stepping Stones commenced these proceedings seeking a declaration that both the contract for sale of the Symonston centre and the contract for sale of the Bonython centre were valid and enforceable, and for orders that the contracts be specifically performed.

9. The proceedings were commenced by Originating Claim filed on 19 May 2008, to which was attached a Statement of Claim (r 50(2) of the Court Procedures Rules 2006 (ACT)).

10. ELS filed a defence on 23 June 2008. It was, however, amended a number of times and the final defence, a further amended defence, was filed by leave on 20 April 2009.

11. A reply was filed by Stepping Stones on 26 September 2008, and, by leave on 22 April 2009, an amended reply was filed to the further amended defence.

12. The pleadings showed the following. Both Stepping Stones and ELS were corporations registered under the Corporations Act 2001 (Cth) and ELS was listed as a public company on the Australian Stock Exchange.

13. On 6 December 2007, Stepping Stones and ELS entered into an agreement in writing (the Symonston Contract) for the sale of the child care business conducted by Stepping Stones at Symonston in the Australian Capital Territory. The Symonston Contract included the sale of the lease of the premises on which the child care centre was conducted; the landlord and lessor of the premises on which the child care centre was conducted was BNR Pty Ltd (the Symonston landlord). The price for purchase of the child care centre was $2,250,000.00.

14. The purchase price under the Symonston Contract was to be paid in two payments, one as to $5,000 on receipt by ELS of a properly completed and signed contract, and the balance thereafter on completion, in accordance with the terms of the Symonston Contract.

15. 'Completion' meant the sale of the business assets; the 'completion date' was defined, by the Symonston Contract, in cl 26.1 in the following terms:

(a) the date which is 7 days after the satisfaction or waiver of all of the Conditions (with the exception of clause 2.1(j));

(b) the date which is thirty (30) days after the satisfaction of the Condition contained in clause 2.1(j); and

(c) 1 February 2008,

and in the event that the Completion Date is not a Business Day, then the following Business Day.

16. The Symonston Contract also provided for a "Sunset Date", which was to mean 120 days from the date of the signing. The date of signing was 6 December 2007 and the Sunset Date was 4 April 2008.

17. The Symonston Contract set out certain conditions precedent (the Conditions Precedent) which were contained in cll 2.1 and 9.1, and Stepping Stones and ELS were only obliged to complete the Symonston Contract if these Conditions Precedent were fulfilled. The Conditions Precedent are set out below (at [51]). These conditions included conditions about the Symonston landlord's consent to the transfer of the lease of the premises.

18. Stepping Stones and ELS agreed in the Symonston Contract that they would use their reasonable endeavours to satisfy the Conditions Precedent in the Symonston Contract.

19. The Symonston Contract also provided that ELS may approach the Symonston landlord to attempt to either negotiate amendments to the lease of the premises, or to enter into a new lease on terms and conditions satisfactory to ELS; the contract provided further that failure to achieve either of these would not delay completion. These provisions were set out in cl 9.1(l) which is set out below (at [51]).

20. ELS was entitled to terminate the Symonston Contract under cll 2.2(c) or 9.1(e), the terms of which are also set out below (at [51]).

21. ELS alleged, and Stepping Stones denied, that the Symonston landlord either:

(i) represented that, as a condition of consent to the transfer of the lease of the premises to ELS or entry into the Deed of Right of Entry (as defined by the Symonston Contract), it would impose a condition which was not satisfactory to ELS in its absolute discretion; or

(ii) provided written consent to the transfer of the lease of the premises but on a condition which was not satisfactory to ELS in its absolute discretion.

22. ELS sought, and Stepping Stones agreed, to three extensions of the 30 day period within which ELS was, under the Symonston Contract, to complete its due diligence, and these were granted; the last of these extensions expired on 29 January 2008, though Stepping Stones alleged, and ELS denied, that these were sought in order that ELS might "approach the Symonston landlord to attempt to negotiate amendments to the Symonston Lease".

23. In January 2008, ELS negotiated with the Symonston landlord about amendments to the lease; in January and February 2008, ELS negotiated with the landlord further regarding the terms and conditions of the assignment of the lease and the entry by the Symonston landlord into a Deed of Right of Entry.

24. The parties disagreed about the outcome of these negotiations. In brief, for the details will need to be explored in some detail later, Stepping Stones alleged and ELS denied that the Symonston landlord agreed to execute the Deed of Right of Entry, to transfer the lease of the premises, not to require personal guarantees of the directors of ELS but to require a certain bank guarantee and cash bond. ELS alleged that the negotiations resulted in requirements which the Symonston landlord described as a final position and which were unacceptable to ELS. ELS further alleged that Stepping Stones told ELS that it was unwilling to negotiate further with the Symonston landlord. Stepping Stones denied the allegations made by ELS.

25. Stepping Stones further denied that the terms under which the Symonston landlord would consent to transfer of the lease, would make variations to it and would execute the Deed of Right of Entry were unacceptable to ELS, even though it admitted that these provisions would impose obligations on ELS.

26. ELS alleged that if, which it denied but which Stepping Stones alleged, it accepted the conditions imposed by the Symonston landlord, it was open to it to change its mind and it formed the view, between 13 and 29 February 2008, that the conditions were unacceptable. Stepping Stones said that the decision to change its mind was the result of ELS taking into account unrelated considerations which it says it was not entitled to do.

27. Stepping Stones said that ELS was required to undertake its reasonable endeavours to fulfil and co-operate in fulfilling the Conditions Precedent, and the non-acceptance of the offer of the Symonston landlord it was in breach of that obligation.

28. As a consequence of the failures to satisfy or waive the Conditions Precedent alleged by ELS, it alleged, and Stepping Stones denied, that it was entitled to terminate the Symonston Contract.

29. Stepping Stones claimed, and ELS denied, that the Conditions Precedents were, in fact, satisfied and that Stepping Stones was ready and willing to complete the Symonston Contract.

30. Stepping Stones claimed that ELS wrongfully issued a Termination Notice for the Symonston Contract because it had no entitlement to issue it, including that the Sunset Date had not yet occurred and that the proper construction of the Symonston Contract did not justify it. ELS denied these allegations.

31. On 29 February 2008, Stepping Stones informed ELS that it did not accept the Termination Notice and issued a Notice to Complete nominating 14 March 2008 as the date for completion.

32. On the same day, Stepping Stones alleged, but ELS denied, that Stepping Stones agreed with the Symonston landlord that it would provide the bank guarantee that had been required by the Symonston landlord to effect the transfer of the lease and execution of the Deed of Right of Entry.

33. ELS alleged, and Stepping Stones denied, that the Symonston Contract was terminated on 29 February 2008 but, in any event, on 14 March 2008, the Conditions Precedent had not been fulfilled, particularly the requirement for:

(a) a written consent to the transfer of the lease of the centre at Symonston;

(b) the written consent of the mortgagee of those premises;

(c) a transfer of the lease on terms acceptable to ELS;

(d) the Symonston landlord to enter into a Deed of Right of Entry and return that to ELS; and

(e) all, or alternatively 75%, of the employees of the child care centre enter into contracts with ELS on terms of the invitation made to them.

34. As a result, ELS alleged, and Stepping Stones denied, that Stepping Stones was not ready, willing or able to complete the Symonston Contract on 14 March 2008.

35. Stepping Stones denied that the conditions on which a transfer of the lease would have occurred were not acceptable to ELS and denied that the transfer had not occurred because ELS was in breach of its obligations; in particular, it denied that it failed to use its reasonable endeavours to effect the transfer. Stepping Stones also alleged that the Symonston landlord would have entered into the Deed of Right of Entry, but the failure of ELS to complete caused the Symonston landlord not to enter into the Deed and that ELS failed to use its reasonable endeavours to have that done. Stepping Stones further alleged that 75% or more of its employees had entered into such contracts but, in any event, ELS had not made invitations as required under the Symonston Contract.

36. Stepping Stones alleged, and ELS denied, that on the Sunset Date, 4 April 2008, the Symonston landlord provided a written agreement that accepted the guarantee that Stepping Stones would provide, instead of requiring ELS to provide the guarantee, and delivered a copy of its transfer consent of the lease to ELS, whereupon all Conditions Precedent had been satisfied or waived and Stepping Stones remained ready, willing and able to complete the Symonston Contract.

37. ELS further responded, and Stepping Stones denied, that as at 4 April 2008, first, there was no written consent to the transfer of lease by the Symonston landlord nor was there written consent of the mortgagee of the premises or alternatively no written consent to the transfer had been given on terms acceptable to the ELS and, second, that a transfer of the lease on terms acceptable to ELS had not occurred. Third, ELS submitted that none or less than 75% of employees of the child care centre had entered into contracts of employment with ELS.

38. ELS alleged, and Stepping Stones denied, fourthly, that the Symonston landlord had, on 4 April 2008, changed its position on the provision of a consent to the transfer of the lease and entry to a Deed of Right of Entry, but on terms that were still unacceptable to ELS in ways set out in the pleading.

39. While admitting that the terms would impose an obligation on ELS, Stepping Stones denied that the terms were unacceptable to ELS. It further alleged that ELS had breached its duty to make reasonable endeavours to have the Conditions Precedent satisfied or waived.

40. Stepping Stones further alleged that ELS was estopped from denying that it had accepted the conditions imposed by the Symonston landlord on the giving of its consent to the transfer of the lease further when first imposed and then when subsequently changed.

41. ELS alleged, and Stepping Stones denied, that if ELS had not effectively terminated the Symonston Contract on 29 February 2008 (which it denied, saying it had then effectually terminated the Symonston Contract), then it was entitled to terminate the Symonston Contract by 4 April 2008 and on 9 April it effectively did so.

42. Stepping Stones further alleged that the conditions under which the Symonston landlord had consented to the transfer of the lease were acceptable to ELS, and that ELS had breached its obligation to use reasonable endeavours to have the Conditions Precedent waived or satisfied.

43. Stepping Stones alleged, and ELS denied, that ELS wrongfully issued a second Termination Notice on 9 April 2008, purporting to terminate the Symonston Contract. It further alleged, and ELS denied, that ELS had no entitlement to issue the notice and that the Conditions Precedent having been satisfied or waived, the notice was invalid and of no effect.

44. ELS refused to complete the Symonston Contract. At issue between the parties was whether the Conditions Precedent had been fulfilled and whether Stepping Stones was, at 4 April 2008, ready willing and able to complete the Symonston Contract or whether ELS had effectively terminated it.

45. In summary, the specific issues identified in the pleadings in relation to the Symonston Contract are:

A. Was the purported termination by ELS of the Symonston Contract on 29 February 2008 wrongful, or effective? That is to say, in particular:

(a) were events and negotiations as at 28 February 2008 such that ELS was entitled to terminate the Symonston Contract on that date; and

(b) had these events and negotiations been the result of the failure of ELS to perform its obligation under the Symonston Contract to use its reasonable endeavours to waive or satisfy the Conditions Precedent, such as to disentitle it to terminate the Symonston Contract?

B. Was ELS required to complete the Symonston Contract on 4 April 2008?

(a) did ELS have a duty to perform its obligation to use its reasonable endeavours to satisfy the Conditions Precedent in the Symonston Contract between 29 February 2008 and 4 April 2008, and, if so, did it fail to do so; and

(b) had the Conditions Precedent in the Symonston Contract been fulfilled by 4 April 2008?

(a) that it had accepted the conditions imposed by the Symonston landlord on its consent to transfer the lease of the premises and to enter into the Deed of Right of Entry prior to 28 February 2008; and

(b) that it had accepted the conditions imposed by the Symonston landlord or its consent to transfer the lease of the premises and to enter into the Deed of Right of Entry on or about 4 April 2008?

46. The pleadings then deal with the sale of the Stepping Stones business which it conducted at Bonython. On 6 December 2007 the parties entered into a contract (the Bonython Contract) for the sale of that business on land from Mr John Pfeiffer and Mrs May Pfeiffer, as lessor of the premises on which the child care centre was conducted (the Bonython landlord).

47. The pleading of the claim by Stepping Stones in relation to the Bonython Contract, and the defence by ELS, are in relevantly identical terms to the pleadings in relation to the Symonston Contract, though the detail of the arrangements with the Bonython landlord under which the landlords would consent to a transfer of the premises were slightly different and some non-critical dates differ.

48. I do not need to repeat what is set out above; the relevant facts are dealt with later and the matters raised in the pleadings paralleled the matters I have already identified.

49. The same issues, therefore, arise in connection with the Bonython Contract. They are as follows:

A. Was the purported termination by ELS of the Bonython Contract on 29 February 2008 wrongful, or effective? That is to say, in particular:

(a) were events and negotiations as at 28 February 2008 such that ELS was entitled to terminate the Bonython Contract on that date; and

(b) had these events and negotiations been the result of the failure of ELS to perform its obligation under the Bonython Contract to use its reasonable endeavours to waive or satisfy the Conditions Precedent in the Bonython Contract?

B. Was ELS required to complete the Bonython Contract on 4 April 2008? That is to say, in particular:

(a) did ELS have a duty to perform its obligations to use its reasonable endeavours to satisfy the Conditions Precedent in the Bonython Contract between 29 February 2008 and 4 April 2008 and, if so, did it fail to do so; and

(b) had the Conditions Precedent in the Bonython Contract been fulfilled by 4 April 2008?

(a) that it had accepted the conditions imposed by the landlord of the premises on which the Bonython centre was conducted (the Bonython landlord) or its consent to transfer the lease of the premises and to enter into the Deed of Right of Entry prior to 28 February 2008; and

(b) that it had accepted the conditions imposed by the Bonython landlord on its consent to transfer the lease of the premises and to enter into the Deed of Right of Entry on or about 4 April 2008?

50. The Symonston Contract and the Bonython Contract are identical in the relevant terms. It is, therefore, only necessary to set out the terms once.

51. The central terms are clause 2.1, 2.2, 8.2, 8.3 and 9 of each contract. They are as follows:

2. Conditions precedent to completion -----

2.1 Conditions precedent

ELS and the Seller are only obliged to Complete if the following Conditions are satisfied or waived:

(a) Child care licence: the Department providing written approval for ELS to hold a Child Care Licence to operate the Business in accordance with the Child Care Act and accommodate a minimum of the Child Placements on terms and conditions acceptable to ELS in its absolute discretion.

(b) Child care rebate: the Department providing written approval for ELS to receive all child care benefits government rebates, including for out-of-pocket child care fees in respect of the Business effective from Completion, on terms and conditions acceptable to ELS in its absolute discretion.

(c) Authorisations: all Authorisations necessary for:

• (i) the parties to sign and complete this Agreement; and
• (ii) ELS to own, operate and conduct the Business,

are obtained either without condition or on terms reasonably acceptable to ELS and are fully effective as at Completion or in the case of the Child Care Licence, will be fully effective after Completion.

(d) Consent of Landlord of Premises: the Landlord under the Premises Lease either consenting in writing to the transfer of the Premises Lease to ELS (or other entity nominated by ELS) or entering into the New ELS Lease on conditions acceptable to ELS, as provided for in this Agreement.

(e) Transfer of Premises Lease: if Item 13 of the Items Schedule so indicates, the Seller transferring the Premises Lease to ELS (or other entity nominated by ELS) as provided for in this Agreement.

(f) New ELS Lease: if Item 14 of the Item Schedule is completed, the Landlord providing the New ELS Lease and Undertaking to ELS as required by clause 9.2 of this Agreement.

(g) Deed of Right of Entry: the Landlord under the Premises Lease or the New ELS Lease entering into a Deed of Right of Entry and return it to the ELS prior to Completion, to be held in escrow by ELS pending Completion being effected.

(h) Discharge of Asset Leases: the Seller paying out or otherwise discharging all Security Interests over the Business Assets, including the Plant and Equipment, so that they must be transferred to ELS free of any Security Interests.

(i) Other conditions: as at the Completion Date:

(i) no breach of Agreement: the Seller has not materially breached this Agreement;

(ii) warranties true: none of the Warranties is or has become materially false, misleading or incorrect; and

(iii) no material adverse change: there has been no material adverse change affecting the Business, the Business Assets or the financial or trading position or prospects of the Business since the Accounts Date.

(j) Due diligence:

• (i) ELS completing due diligence investigations to the absolute satisfaction of ELS within thirty (30) days from the Agreement Date in respect to the following:
  • (A) the Accounts;
  • (B) the Business Records;
    • (C) the requirements of any Government Agency in respect to the Business, the Premises or the Business Assets;
    • (D) the Premises Lease and any issues in respect to the Premises;
    • (E) the Authorisations required to operate the Business;
    • (F) the Employees; and
    • (G) any other matter determined by ELS to be relevant to the acquisition of the Business or the Business Assets.

(k) Employees: 75% of Employees enter into employment contracts with ELS on the terms of the invitation made by ELS under clause 8.2.

2.2 Satisfaction of Conditions

(a) Reasonable endeavours: ELS and the Seller must each use their reasonable endeavours to satisfy the Conditions.

(b) Notice: ELS and the Seller must each promptly notify the other in writing if it becomes aware that a Condition is satisfied or becomes incapable of being satisfied.

(c) Termination by ELS: ELS may terminate this Agreement if a Condition is not:

(i) satisfied on the date specified in the Condition;

(ii) satisfied on or before the Sunset Date, where not date is specified; or

(iii) waived by ELS on or before the date specified in the Condition or, if no date is specified, on or before the Sunset Date.

If any Condition is neither satisfied nor waived by ELS on or before the date specified in the Condition or if no date is specified in the Condition, on or before the Sunset Date, then either Party may terminate this Agreement by giving written notice to that effect to the other Party.

(d) No further obligations: On termination of this Agreement in accordance with clause 2.2(c), no party has any further Obligations under this Agreement except under:

(i) clause 16 (Confidentiality);

(ii) clause 17 (Tax);

(iii) Clause 3.2(b) (Return of information); or

(iv) a Right or Claim which arises before termination.

...

8.2 Offer

(a) Conditional Offer

Within a reasonable time after the satisfactory completion of ELS' due diligence enquiries as provided for in this Agreement, but before Completion, ELS may in its absolute discretion invite any Employees (in its discretion) to apply for employment with ELS, conditional on:

(i) the Seller terminating the employment of the Employees with the Seller, with effect from the Date for Completion and the Seller providing ELS with satisfactory evidence that this has occurred at Completion; and

(ii) Completion occurring and effective from the Completion Date.

(b) Acceptance

ELS' invitation to apply for employment must require an Employee to advise ELS or the Seller of the Employee's acceptance of the invitation within 10 Business Days of the date of the invitation, or, if the Employee is on leave, within 5 Business Days of the date the Employee returns from leave.

(c) Advice of acceptance

If an Employee advises the Seller that the Employee accepts ELS' invitation to apply for employment, then the Seller must immediately notify ELS.

(d) Reasonable endeavours

The Seller must use in its reasonable endeavours to encourage the Employees to accept ELS' invitation to apply for employment.

...

8.3 Termination of Employees

On Completion, the Seller must:

(a) Terminate employment: by way of Notice provided to each Employee at least 14 days prior to the Completion Date, in a form approved by ELS, terminate the employment of all the Employees with the Seller, with effect from the Completion Date and provide to ELS satisfactory evidence that this has occurred; and

(b) Release employees: release each Employee from the Obligations of their employment to the Seller with effect from the Completion Date.

...

9. Premises lease -----

9.1 Assignment of Premises Lease

(a) Assignment

If Item 13 of the Item Schedule so indicates, this Agreement is conditional upon the Seller transferring the Premises Lease to ELS at Completion on terms and conditions satisfactory to ELS in its absolute discretion. If the Seller is unable to arrange for the transfer of the Premises Lease to ELS on Completion as required by this Agreement, ELS may terminate this Agreement by providing Notice that effect to the Seller, in which case this Agreement will be at an end and the Deposit, all interest earned on the Deposit and any other monies paid by ELS must be returned to ELS, and neither party shall have any further Claims against the other.

(b) Provide copy of the Premises Lease

The Seller or the Seller's Solicitors must deliver to ELS' solicitor a true copy of the Premises Lease not later than seven (7) business days after the date of this Agreement.

(c) Assignment or novation

The transfer of the Premises Lease may be by assignment or by novation, at ELS' option, but if the method selected by ELS is not possible, the Seller must effect the transfer by the other method.

(d) Consents

The Seller must use its best endeavours to obtain any consent of any third party (including the Landlord and the mortgagee of the Premises (the "Premises Mortgagee")) requires for:

(i) the assignment or novation of the Premises Lease; and

(ii) the registration of the assignment or novation with the relevant government Agency,

at the Seller's Cost in all respects.

(e) Conditional upon consents

This Agreement is conditional upon the Landlord and the Premises Mortgagee of the Premises consenting in writing to the transfer of the Premises Lease from the Seller to ELS. If those consents are not given by the Sunset Date, ELS may by Notice to the Seller terminate this Agreement, in which event the Deposit, all interest earned on the Deposit and any other monies paid by ELS to the Seller or the Stakeholder on account of Purchase Price shall be refunded to ELS by the Seller or the Stakeholder as the case may be.

(f) Seller's application

The Seller must apply for the consents required by clause 9.1(d) promptly after the Agreement Date and ELS must supply such references and such other information as may be reasonably required by the Seller or the Landlord in considering any such application, and both Parties shall use their best endeavours to obtain any such consents as expeditiously as possible, but in any event by no later than the Sunset Date.

(g) Deed of Covenant

If, as a condition to the Landlord providing its consent as required by this Agreement, the Landlord requires a deed of covenant from ELS, then the Cost of that deed of covenant must be paid by the Seller. ELS is only required to enter into a deed of covenant, provided it is on terms that are acceptable to ELS, in its absolute discretion.

(h) Negotiation as to terms

At any time prior to Completion, ELS may approach the Landlord to attempt to negotiate amendments to the Premises Lease or to enter into a new lease of the Premises directly with the Landlord on terms and conditions satisfactory to ELS. If ELS reaches Agreement with the Landlord to enter into a new lease of the Premises (the "New Lease") then the Parties agree:

(i) this Agreement shall be subject to and conditional upon the Landlord and ELS executing the New Lease and the New Lease being delivered to ELS at settlement with consent of the Premises Mortgagee and a stamped surrender of the Premises Lease, effective as at the day after the Date for Completion;

(ii) the Premises Lease will still be assigned to ELS as required by this Agreement;

(iii) ELS shall be responsible for the Landlord's legal Costs of the preparation, negotiation and execution of the New Lease and surrender of the Premises Lease; and

(iv) Any Stamp Duty and registration fees payable on the New Lease shall be the responsibility of ELS.

The failure of the Landlord to agree to amend the Premises Lease or enter into a New Lease shall not prevent or delay Completion.

52. It is helpful to identify with precision at this stage the basis on which ELS claimed that it was entitled to terminate the two contracts on 29 February 2008 and, later, the basis on which it claims it was not required to complete on 4 April 2008.

53. The ground for the termination on 29 February 2008 was that ELS considered that, based on what it knew at 28 February 2008 to be the final position of the Symonston landlord, the obligations of the Symonston landlord unacceptable. That final position required that ELS:

(i) provide to the Symonston landlord a bank guarantee in an amount equal to 21 months rent plus GST;

(ii) provide a cash bond to the Symonston landlord equal to 3 months rent plus GST;

(iii) agree that the Symonston landlord could call on the bank guarantee and/or cash bond if ELS did not comply with any of its obligations under the lease;

(iv) provide a replacement bank guarantee within 7 days, should the Symonston landlord call on the bank guarantee;

(v) if the amount of the bank guarantee ceased to be equal to 21 months rent plus GST at that time, provide an additional bank guarantee so that the amount guaranteed is equal to 21 months rent plus GST at that time;

(vi) supply a replacement cash-bond within 7 days, should the Symonston landlord call on the cash bond;

(vii) if the amount of the cash bond ceased to be equal to 3 months rent plus GST at that time, supply an additional cash bond, so that the amount guaranteed is equal to three months rent plus GST at that time;

(viii) agree that the obligations in (i)-(vii) are essential terms of the lease.

54. The grounds on which ELS submitted it was not required to complete on 4 April 2008 are listed above (at [37]-[38]).

55. The ground for the termination on 29 February 2008 was that ELS considered that, based on what was known on 28 February 2008 to be the final position of the Bonython landlord, the obligations of the Bonython landlord unacceptable. That final position required ELS to:

(i) provide to the Bonython landlord a bank guarantee in an amount equal to 12 months rent plus GST and 12 months outgoings plus GST from time to time;

(ii) provide to the Bonython landlord a bank guarantee in an amount equal to three months rent plus GST and three months outgoings plus GST from time to time;

(iii) if the Bonython landlord assigned its interest in the premises, provide within 14 days of notice from the Bonython landlord a substitute bank guarantee in favour of any such transferee as named by the Bonython landlord;

(iv) agree that, if ELS refused to provide comply with the obligation in subparagraph (iii) above, the Bonython landlord could call up the bank guarantees;

(v) agree that the bank guarantee referred to in subparagraph (ii) above could be called upon by the Bonython landlord without notice to the defendant if the defendant did not comply with any of its obligations under the lease.

56. The grounds on which ELS submitted it was not required to complete on 4 April 2008 were relevantly identical to above (see [37]-[38] and [47]).

57. These, then, are the issues that will need to be addressed in the proceedings.

58. In about September 2007, Ms Fiona O'Donnell negotiated with ELS to sell four child care centres that her companies owned in Canberra.

59. At the time, ELS had a standard "National Business Acquisition Contract", and this formed the basis of the contractual arrangements under which ELS was prepared to purchase the centres.

60. Ms O'Donnell, or interests controlled by her, owned the premises on which the child care centre at Gungahlin was conducted, but other third parties were the landlords for the other centres.

61. As noted above (at [4]), the contracts were finally entered into on 6 December 2007.

62. It is not necessary to outline the various pre-contractual negotiations, as the issues in these proceedings relate to the terms of the contracts themselves and the events that subsequently happened.

63. On 11 December 2007, following the entry into the Symonston Contract by both parties, the lawyers for ELS wrote to the lawyers for Stepping Stones pointing out that Stepping Stones was to apply for the Symonston landlord's consent to the transfer of the premises, asking for that to be done "as quickly as possible" with a submission to them of the Symonston landlord's consent and Deed of Covenant for Assignment. They offered to provide any references or other material required for a proper consideration of the application.

64. The next day, the lawyers for Stepping Stones contacted the lawyers for the Symonston landlord, seeking approval for the assignment.

65. On 17 January 2008, ELS' lawyers wrote to Stepping Stones' lawyers complaining that they had made several attempts to contact the Symonston landlord's lawyers but had not been advised of the latter's instructions about the transfer. They sought an extension of the due diligence condition. The extension, to 22 January 2013, was agreed.

66. Subsequently, however, the lawyers for ELS were able to contact the Symonston landlord's lawyers directly and to be advised of the terms that were required by it for the transfer, including the provision of personal guarantees by the ELS directors. These created a problem for ELS, which stated, in a letter on 14 January 2008:

We advise that our client is a public listed company and accordingly, is unable to provide personal guarantees by its directors ...

Our client is prepared to provide a bank guarantee and to sign your client's standard form of deed of consent. We look forward to receipt of the deed at your earliest convenience.

67. There was some resistance from the Symonston landlord to a variation of the lease required to waive the obligation to provide director's guarantees and, because of the delay caused by consideration of this issue, the lawyers for ELS, on 22 January 2008, requested a further extension of the due diligence condition to 29 January 2008, which was agreed. There was further communication, which I do not need to set out in detail, save to note that the lawyers for ELS offered to the Symonston landlord a bank guarantee equivalent to six months' rent plus GST and repeated the statement that, as a public listed company, ELS was unable to provide personal guarantees by directors.

68. One of the issues which arose in the correspondence was a resistance by the Symonston landlord to enter into the Deed of Right of Entry, which was required by ELS' banker.

69. The Deed of Right of Entry was a document to be entered into between the Symonston landlord, ELS, as the tenant of the landlord, and ELS' banker, the banker being described in it as the mortgagee. It provided for a restraint by the Symonston landlord on varying the lease, accepting a surrender, taking an assignment or directing an assignment of the lease by agreement or otherwise without the mortgagee's consent, which would not be unreasonably withheld, and further that the Symonston landlord would not, without fourteen days notice to the mortgagee:

• discontinue or suspend performance of the Symonston landlord's obligations under the lease,

70. The Deed provided that, as a response to such a notice, the mortgagee might remedy the breach or pay compensation and, if it did so, the breach would be excused. The Deed also provided that, while the mortgagee had security over chattels in the premises, the mortgage and persons authorised by it may enter the premises to take possession of those chattels.

71. ELS, as a result of the expressed resistance by the Symonston landlord to executing the Deed of Right of Entry, approached its banker to see whether that requirement made by it could be waived.

72. One of the options offered by Ms O'Donnell was that she would herself provide a personal guarantee to the Symonston landlord and ELS would then provide her with a personal guarantee to protect her if it could not perform the lease obligations.

73. On 1 February 2008, the Symonston landlord's lawyers wrote to ELS' lawyers advising that:

[O]ur client would only agree to vary the lease by deleting the requirement for it to be personally guaranteed if your client were to offer it both a cash bond equivalent to 3 month's rent in addition to a bank guarantee equivalent to 21 month's.

74. They also indicated that the Symonston landlord would be prepared to enter into the Deed of Right of Entry if it was limited in three ways set out in the correspondence.

75. On 4 February 2008, ELS' lawyers wrote by email to the lawyers for its banker with suggested amendments by the Symonston landlord to the Deed of Entry, and sought advice as to their acceptability. The response was that, while two of three suggested amendments were acceptable, one of them was not, and that would prevent the property being included in the security pool which, of course, would affect the Loan to Valuation Ratio (LVR) (on which one of the relevant finance facilities the banker had made available to ELS depended) and, therefore, the financing of ELS.

76. On 4 February 2008, the Symonston landlord contacted ELS directly by email stating:

After reading the prospectus with my partners the position is quite firm in the response we sent on Friday [being the letter of 1 February 2008].

77. On 6 February 2008, the lawyers for ELS advised the Symonston landlord's lawyers that it had been "involved in lengthy negotiations with its [banker]" but that "[d]espite persistent effort" their banker had "confirmed its position that it is not prepared to agree to any amendment to the form of the Deed", being the Deed of Right of Entry.

78. On the same day, the Symonston landlord's lawyers confirmed its offer which it was "under the impression" that ELS was to offer, namely, that it would vary the lease not to require directors' guarantees and would sign the Deed of Right of Entry if ELS would provide a cash bond equivalent to three months gross rent together with a bank guarantee equivalent to twenty-one months gross rent.

We confirm that our client will not be in a position to reconsider its previously stated position with respect to the right of entry waiver until your client makes the above offer.

80. The evidence of Mr Brett Barton, a director of the Symonston landlord, confirmed that it required an "actual bank guarantee or bond equivalent to 24 months" before the Deed of Right of Entry would be acceptable.

81. Despite advising that ELS had not yet contacted its banker in connection with the bank guarantee, ELS' lawyers wrote to the Symonston landlord's lawyers on 7 February 2008, saying:

[O]ur client offers to your client a cash bond equivalent to three (3) months' rent in addition to a bank guarantee equivalent to twenty one (21) months' rent.

82. As a result, the Symonston landlord's lawyers prepared a Deed of Assignment and a Transfer and sent it to ELS' lawyers, and later sent a Deed of Variation and an Instrument of Variation.

83. About four hours later, ELS' lawyers indicated that they had had an opportunity to consider the Deed of Variation and made some comments on it, including that the Deed provided that the amounts guaranteed might vary over the course of the lease as rental increases took effect. They requested that "the amount of the Bank Guarantee and the Cash Bond remain as the amounts based on the Rent payable at the Effective Date".

84. About an hour later, the Symonston landlord's lawyers indicated that they agreed in part, namely that "the amount bonded and guaranteed can be held static during the initial term, but requires that both be updated if the option is exercised". Amended documents, in accordance with the discussions, were then forwarded to ELS' lawyers.

85. ELS' lawyers responded that "subject to any final instructions from my client ... these documents look OK".

86. In oral evidence, Mr D Lilley, lawyer for ELS, said about this statement:

[I]t's clear from what's [in the email] that you are saying to [the landlord's lawyers] that you are reserving the right to obtain final instructions from your client about the precise form of the documents, are you not, before your final agreement to the documents that are provided? --- Well I'm saying that I'm waiting for final instructions from my client. That's what the document says, yes.

Yes. But on the fundamental issue of whether your client had agreed to make payment of a 21-month bank guarantee - - - ? ---Yes.

- - - and a three-month cash bond - - - ? --- Yes.

- - - I suggest that what's happening ... in your e-mail is not qualifying that at all. It's merely a qualification relating to looking at the form of the documents, isn't it? --- No. I don't think that's what the e-mail ... says at all.

87. Mr Barton said in oral evidence that, in early February, he had a number of conversations with Mr Grant Rumball, then Company Secretary and Chief Financial Officer of ELS. Mr Barton said that, in the first of these conversations, he told Mr Rumball that if ELS would not provide personal guarantees, then the landlord would require a "fairly substantial bank guarantee of up to two years". He said that Mr Rumball told him that ELS wanted to buy the Symonston business and wanted to make every effort to secure it, and that he would need to speak to ELS' bankers about providing such a guarantee.

88. Mr Barton then said that Mr Rumball had telephoned him and his evidence was:

He said 'we don't see any issues putting this guarantee in place subject to our approvals of our financials - finance being approved and I'll let you know' and then within a week it was basically in place.

[T]hey had a facility and the facility came from the bank for the bank guarantee and he had to check whether that was okay and the bank confirmed it was okay. And then he said, '[i]t's all been confirmed. Our solicitor will write to your solicitor to confirm' and we received a letter on 8 February.

90. He added in his oral evidence that the guarantee was "[f]or two years".

91. In cross-examination, Mr Barton said that the final conversation was on 8 February 2008.

92. When challenged on the timing, Mr Barton said that he had an "unbelievable memory".

93. I accept that Mr Barton appeared to have quite a good memory but when scrutinising his evidence carefully, it is clear that some of it was quite confused and he was also prone to making assumptions about the contents of communications.

94. For example, having read the email from ELS' lawyers to his lawyer with comments on the draft Deed of Variation forwarded earlier, he assumed that it confirmed that the ELS banker had approved the bank guarantee facility. In fact, it did nothing of the sort.

95. Again, his evidence in re-examination about the last conversation that he had with Mr Rumball about the issue he described as follows:

Before 8 February, right, and I actually followed him up in a phone call and said 'how did you go?' And he actually said, 'the lawyers have had instructions to write now to our lawyer'.

96. This, of course, did not necessarily mean that the ELS bankers had agreed to anything; it appears to have been an assumption that Mr Barton made.

97. When asked, however, when that conversation had taken place, he said that it "would have been either the 7th or 8 February", not evidence of "an unbelievable memory".

But he didn't use the words, 'I have been to the bank and they have consented'? --- He actually - in one of the actual conversations we had, because it was frustrating for him as well as frustrating for us, and he actually said, you know, 'We're trying every way to get this bloody sale put to bed', right, 'And I'm seeking facility', and he said, you know, 'It shouldn't be an issue and go from there.' And I actually phoned him up and said, 'Have you got it?' Because I actually had Fiona calling me and asking me, 'Is it there?' And I just kept assuring her saying, 'Don't worry, it's in place.' Otherwise she was probably going to provide it.

99. Mr Rumball gave evidence as to the arrangements that ELS had with its bankers. It included three components, each of which had a limit, one arrangement was for commercial bills, one was an overdraft facility and one was an original bank guarantee facility (that is, a facility to permit ELS to provide to landlords of centres it was purchasing bank guarantees). Further facilities were in the course of negotiation, such as for leasing and credit cards.

100. Under the facilities, it was necessary to manage the LVR, which was required to be at 50%. Thus, a complex calculation was required before it could be assessed as to whether the bank guarantee sought by the Symonston landlord could be accommodated.

101. Despite the evidence of Mr Barton, the other evidence strongly suggested that it would not have been possible for Mr Rumball to have obtained clearance from the bankers in the way or time suggested in Mr Barton's evidence.

102. When asked about whether he had told Mr Barton over the phone on or prior to 8 February 2008 that he had approached the ELS banker and heard from it that it had approved the funding, Mr Rumball said:

I don't think that that was correct. I would have known that I could provide a certain limit of guarantee but all of our settlements were still subject to the NAB approval process. We had to have all the documentation, as you've seen under the facility agreement in place. So while I knew I had an unused portion of my facility at that stage, to do one of those settlements, I knew that we had that, but it would be unlikely I would have said that we've had it approved at that stage. I don't believe I would have.

103. Indeed, from the calculations that were in evidence about the state of the facility so far as bank guarantees are concerned, it was clear that, at 8 February 2008, ELS did not have the capacity to provide the bank guarantees that would have enabled the settlement of the Symonston contract and the Bonython contract as well as the other two contracts.

104. In addition, when asked specifically about when he first contacted the bank to see whether additional guarantee facility would be available, Mr Rumball indicated that he spoke to one of its officers by telephone and then emailed another the next day. That email appears to have been sent on 21 February 2008. The terms of the email make it reasonably clear that it was the first occasion on which the banker had been approached for approval. In fact, the discussions and email communications with the banker occupied some days.

105. Mr Rumball was not cross-examined about this evidence, which is supported by documentary and other evidence, and I accept it. I do not accept the contrary evidence of Mr Barton.

106. As noted above, at [82], the lawyers for the Symonston landlord sent, by email on 8 February 2008, a draft of the Deed of Assignment of the Lease, the Transfer of the Lease and Execution pages for the transfer. They stated that the Deed of Variation of the Lease would follow shortly.

107. Later that day, the lawyers for the Symonston landlord sent as an attachment to an email a Deed of Variation of the Lease, an Instrument of Variation and the execution pages of the Instrument of Variation.

108. The Deed of Variation required ELS to provide a cash bond equal to three month's rent from time to time, and a bank guarantee equal to twenty-one month's rent from time to time. Clause 4 of the Deed also required that, if the bank guarantee was called upon or if the rent of the premises was increased, ELS had, within seven days of a notice by the Symonston landlord, to deliver a replacement or additional bank guarantee, so that the amount guaranteed remained equal to twenty-one month's rent plus GST.

109. Mr Barton gave evidence that he had not been contacted by Mr Rumball or Mr John Hutchison, former director and then CEO of ELS, or anyone else from ELS about the obligation in the Deed of Variation of Lease to give a replacement bank guarantee for twenty-one months should the original guarantee be called upon. He said that he only wanted a bank guarantee for twenty-one months and that the extension set out in the letter from his corporation's lawyers was, in his view, "uncommercial". He said "I don't think no-one would ever give it [the replacement guarantee]. So we would actually, with that particular clause, would not be part of it". That was, so far as I can tell, never communicated to anyone until this hearing.

110. Ms O'Donnell, the sole director of Stepping Stones, was aware, at least by early February 2008, that the requirements required by the Symonston landlord were proving difficult for ELS. By 12 February 2008, she knew that ELS had an issue concerning the rental guarantees being sought by the Symonston landlord.

111. Although Ms O'Donnell resisted actually articulating that conclusion in cross-examination, I am satisfied from her evidence that she was aware that ELS considered that the rental guarantee demands by the Symonston landlord (as well as those from the Bonython landlord) were excessive. There is no doubt that her lawyers knew that.

112. On 12 and 13 February 2008, Ms O'Donnell communicated with Mr Rumball and Mr Hutchison about the various conditions. At the same time, the lawyers for the parties were also communicating.

113. ELS proposed, as a compromise, to permit the sales to proceed on the Symonston landlord's terms, that the purchase price of each contract (that is the Symonston Contract and the Bonython Contract) be reduced by $100,000, a total of $200,000. Ms O'Donnell responded that she would "sleep on the offer" and answer it the next day. She wanted an opportunity to seek some advice from her lawyer before responding.

114. The next day on 13 February 2013, her lawyers responded to ELS' lawyers by email as follows:

In consideration of your client satisfying all of the assignment and R/E [Right of Entry] requirements of the landlords at Symonston and Bonython, she will accept a reduction in the contract price on both those centres of $50,000 each ie total $100,000.

I am not to contact her again under any circumstances in relation to anything that may be seen as some sort of 'counter-offer', and I will not do so.

This offer is open for acceptance by 1.00pm Canberra time today, failing which it will be formally withdrawn with notice after that time.

I am further instructed not to provide my client's contact details in Japan.

115. Ms O'Donnell, in her oral evidence, said that these were "not my words", but she confirmed that she had a conversation with her lawyers and that she had told them the substance of what was to be said in reply and this email was the substance of what she wanted them to tell ELS. She did say that she "would have difficulty" accepting her lawyer's comment that "I am not to contact her again under any circumstances in relation to anything that may be seen as some sort of 'counter-offer'" but indicated that it was quite clear that she was then relatively inaccessible, contact was hard and that, in summary, the email was in accord with her instructions.

116. Mr Rumball discussed the offer with Mr Hutchison. They agreed that a total of $100,000 was not adequate to permit ELS to offer the required bank guarantee in the context of the financial arrangements of ELS; the price reduction would have to be $200,000, that is $100,000 for each of the Symonston and Bonython centres.

117. Later in the afternoon, Stepping Stones' lawyers sent a further email to ELS' lawyers as follows:

I have just spoken at length to my client. She does not intend to contact yours. If ELS want to sort something out with the landlords or either of them we suggest they get on a plane and come to Canberra. As you say they have until 4/4/08 to sort it out. Needless to say my client is somewhat disenchanted with the way this matter is resolving at one minute to midnight.

118. There may have been further communications between Ms O'Donnell and officers of ELS, but I did not have specific evidence of that. Nevertheless, on 19 February 2008, her lawyers wrote to ELS' lawyers as follows:

My client has just phoned me from Japan after speaking directly with yours. They told her they had had no communication from 'us' since their last conversation together on 12/2/08. I can only assume from that, that my correspondence to you has not been sent on, and my client made it clear that plenty had in fact been sent. I'm instructed to confirm the offer of a price reduction of $50,000 on each of the Symonston and Bonython contracts, and that that is her final offer - full stop.

119. Although, again, Ms O'Donnell said that "final offer, full stop, would be the kind of words that [her lawyer] would probably use", the communication was generally in accord with her instructions.

120. In his evidence, her lawyer confirmed that the email was written on her instructions and expressly confirmed that the reference to "final offer" was written on her instructions.

121. Apparently on 12 December 2007, the lawyers for Stepping Stones, in accordance with the requirement in the Bonython Contract, contacted the lawyers for the Bonython landlord. The same day, the Bonython landlord's lawyers responded setting out the information they required and the conditions under which consent to transfer of the lease would be forthcoming.

122. On 18 December 2007, it appears that the Stepping Stones lawyers forwarded a copy of that letter to the ELS lawyers inviting them to respond directly and suggesting that they take up directly the matter of the Deed of Right of Entry required by ELS' bankers.

123. On 14 January 2008, ELS' lawyers wrote to the lawyers for the Bonython landlord declining to provide personal guarantees by its directors for the same reason as earlier noted to the lawyers for the Symonston landlord, namely that ELS was a public listed company. They also forwarded a copy of the Deed of Right of Entry required by ELS' banker and, under the Bonython Contract, at completion.

124. On 14 January 2008, ELS' lawyers wrote to Stepping Stones' lawyers advising that they were still in the process of negotiating with the Bonython landlord's lawyers. They sought an extension of the due diligence condition. The extension was agreed.

125. A similar letter was again sent on 17 January 2008 by ELS' lawyers to Stepping Stones' lawyers, requesting a further extension of the due diligence condition to 22 January 2008, which was agreed.

126. On 21 January 2008, however, the lawyers for the Bonython landlord responded to ELS' lawyers and raised questions about access to financial information but, in relation to the other issues, it advised as follows:

• It agreed that, in exchange for a bank guarantee, it would not require personal guarantees.

• The bank guarantee required was to cover three months of rent plus GST and three months of outgoings plus GST from time to time, being an initial amount of $35,700.77.

• It required, unsurprisingly, that the bank guarantee should be unconditional and irrevocable with no sunset date.

127. As to the Deed of Right of Entry, they advised that the Bonython landlord was not prepared to limit, in any way, its existing rights and benefits under the lease and so would not agree to or sign the Deed of Right of Entry in its present form or as it may be amended. They also advised that the Bonython landlord would be amenable to a variation of the lease to extend the term and the option, and make other amendments which are not presently relevant.

128. On 22 January 2008, ELS' lawyers wrote to Stepping Stones' lawyers advising that they were still negotiating terms of the assignment of the lease of the Bonython Contract, and sought an extension of the due diligence period to 29 January 2008, which was agreed.

129. On 24 January 2008, ELS' lawyers wrote to the Bonython landlord's lawyers advising that they were collecting material necessary to respond to their queries and requesting that the Bonython landlord reconsider the terms of its banker's Deed of Right of Entry. This was required, in part, because the banker was taking security over the lease and required the rights in the Deed to ensure protection for its security.

130. On 25 January 2008, ELS' lawyers wrote to the Bonython landlord's lawyers confirming that, in lieu of the provision of personal guarantees, ELS would provide a bank guarantee in the amount of $35,700.77 being three month's rent plus GST and three month's outgoings plus GST.

131. They also advised that, in view of the refusal to sign the Deed of Right of Entry, they were attempting to make alternative arrangements. They also provided the other information sought.

132. They confirmed the agreement to the extension of the term of the Bonython lease and consented to the other variations.

133. On 29 January 2008, ELS' lawyers again wrote to the Bonython landlord's lawyers asking for a further reconsideration of the refusal to enter into the Deed of Right of Entry, inviting them to suggest amendments if appropriate since the banker was adamant that a mortgage could not be granted without the Deed being signed by the Bonython landlord.

134. On 7 February 2008, officers of ELS spoke to Ms O'Donnell, and requested she speak with the Bonython landlord's lawyers to find out what their requirements were to have the Deed of Right of Entry signed unamended. One option that was considered was that Ms O'Donnell would leave her three month bank guarantee in place and that ELS would provide a twenty-one month bank guarantee to be relevantly similar to the arrangements for the Symonston Contract.

135. On 8 February 2008, the lawyers for the Bonython landlord sent a draft of the Deed of Assignment and Memorandum of Variation. That provided that, in consideration of the Bonython landlord executing the Deed of Right of Entry, ELS would provide a bank guarantee in the amount equivalent to twelve month's rent plus GST and twelve month's outgoings plus GST from time to time, initially $143,111.00 in favour of the landlord in addition to the existing bank guarantee for three months rental.

136. On 12 February 2008, the Bonython landlord told ELS' lawyers that it would not agree to vary the requirement for effectively a fifteen month bank guarantee and that this was their final position.

137. Indeed, on 26 February 2008, the Bonython landlord's lawyers forwarded to ELS' lawyers a further draft Assignment for execution, in which the terms remained the same as those forwarded in the documentation sent on 8 February 2008.

138. On 26 February 2008, ELS' lawyers emailed the lawyers for the Bonython landlord as follows:

Please confirm by return that the following bank guarantee details are correct:-

3 month bank guarantee $35,777.70

12 month bank guarantee $143,111.00

To: [Mr] Pfeiffer and [Mrs] Pfeiffer

...

Further to my conversation with [the Bonython landlord's lawyers] this morning, I note that your client will require receipt of the bank guarantees before it will provide its signed consent. Our client's banker is unable to provide the bank guarantees before settlement. Therefore, can we suggest that you arrange for an agent to attend settlement on your client's behalf to collect the bank guarantees in exchange for assignment/consent documentation.

139. The Bonython landlord's lawyers emailed back later that day that the figures and details were correct.

140. The board of directors of ELS met on 31 January 2008 and the issue of the bank guarantees required by the Symonston landlord and the Bonython landlord was discussed. In relation to the discussion at the meeting of the report of Mr Hutchison, the following is recorded:

GK [Greg Kern] highlighted the issues we are having in finance and the centres we manage for external owners.

GR [Grant Rumball] updated the board on the status of the 4 Canberra centres being acquired from Fiona O'Donnell. It was highlighted that the two centres being leased from other than the vendor the landlords are imposing large bank guarantees in order to complete the NAB's deed of right of entry.

JH [John Hutchison] updated the meeting on the progress of the Riverina acquisition and the delays being encountered due to the delay in obtaining copies of the plans.

TH [Tony Hartnell] asked do we have sufficient funds to settle on all 44 centres, is it all in the budget and our approved facilities?

GK responded that the approved facility is based on the prospectus which had all the centres in it.

GR highlighted that under the existing facility the funding is getting tight and that we have very little equity left in the acquisition. All acquisitions now are currently 100% debt funded.

141. In addition, one of the non-executive directors, Mr Tony Hartnell, gave evidence about the discussions. His recollection was as follows:

I believe John Hutchison informed the meeting that the landlords of either all the Canberra centres or some of the Canberra centres proposed to be acquired had imposed conditions that were - were outside of the conditions we expected. And we had a long discussion about those conditions.

Was it discussed - - - ? --- When I said long, I should say for me at board - a discussion of 5 minutes is long, so I'd be surprised if it was - it might have been between 5 and 10 minutes.

Was it identified what the conditions the landlords were imposing were about? --- It certainly was identified with great precision I think by John Hutchison, but for me to recollect that precision is asking too much of my creaking memory. But my general memory is there was something about three months' payment in advance, there was something about a very sizeable - I remember being shocked by the amount of the bank guarantee required. Those are the highlights of my memory about the terms that we were informed of.

Right, and did the directors discuss those terms? --- We did discuss it as I said for a long time, something like five minutes, and - and I think every - my memory is that every director who spoke said those conditions were unacceptable and we relayed that - didn't have to relay it, John Hutchison was in the room, but we expected John - and John Hutchison was of the group that said they were unacceptable.

Was it said as to why they were unacceptable? --- Well, first of all they were financial demands that we didn't have the financial resources to - to meet. ... There was discussion, considerable discussion, about our financial ability to provide for the guarantee. There was discussion about the extent of the financial facility we had with the National Australia Bank, and there was discussion about whether or not we even wanted to approach the National Australia Bank, and I certainly expressed the view, and I believe others did as well, that we shouldn't approach the National Australia Bank because the conditions weren't acceptable.

Thank you. Was there any resolution made about these acquisitions, these contracts? --- I - I don't remember a resolution, a direction, or - I don't - I just remember this basically in the context of discussing issues arising in the CEO's report. I don't remember a resolution

142. In cross-examination, it was put to Mr Hartnell that board members had said that they would never agree to the bank guarantees under any circumstances. He agreed that he said that they would not have the financial ability to provide for such guarantees but was not certain that he said that they would not agree "under any circumstances"; he added "I could theoretically think of circumstances where we would agree to them". He did agree, however, that it would be completely inconsistent that the Chief Executive Officer would authorise acceptance of those conditions shortly after the meeting. He rejected a suggestion that he was mistaken about his recollection of the firmness with which he thought the views were expressed about the bank guarantees but affirmed that he remembered the strength with which the views were put to the meeting. He agreed, however, that it was left to the discretion of the Chief Executive Officer how he was to manage the issue and "honour the board in some way".

143. He said that his concern about the costs was that the quantum of the arrangement with ELS' banker would not support such bank guarantees.

144. He further said that, at the meeting, the detail was not discussed but management broadly advised the position. He agreed, also, that if the Deed of Right of Entry required by the banker was acceptable to the two landlords, then may be that would have satisfied the requirements, but there was also the issue of the bank guarantees and, as he put it, "all issues had to be satisfied". He also said in cross-examination that he did not believe that specific amounts were mentioned but could not categorically say that they were not.

145. He did say that what was put forward by the two landlords struck him as "being absurd", with a suggestion that those making the demands thought they "had us over a barrel". He agreed, however, that the Chief Executive Officer was not being instructed that under no circumstances was he to accept those terms; the Chief Executive Officer had to live within what had been put forward in the prospectus.

146. Mr Greg Kern, also a non-executive director, gave evidence also about the discussions. His evidence was as follows:

Can you give us your best recollection of the discussion of that meeting regarding the acquisition of these centres in Canberra? --- Okay, the best recollection is that management advised the directors that the vendor of the centre, of the centres, was not meeting the obligations in regard to organising the provision of rights of entry that were required by Early Learning Services' bankers. Also there was an issue of substantial and onerous bank guarantees being required. The management were concerned in regard to those issues and were bringing to the attention of the board ...

But what was said? --- What was said to the board was that the rights of entry and there were - the rights of entry required by our financiers was not acceptable to the landlords of the centres. And secondly, substantial bank guarantees were required. The board instruction or board's decision, as I recall, was that that was unacceptable and that management should continue to liaise with the lawyers and keep the board informed but effectively what was put forward by the vendor was unacceptable.

MR O'DONNELL: You said that was the board decision, was there discussion amongst the board members in this issue? --- There was a limited discussion.

Could you give us your best recollection of that discussion, please? --- Well the board discussion was simply that the terms were unacceptable and therefore in light of that that we should consider our position.

147. In cross-examination, Mr Kern agreed that the minutes do not record either a firm view or a board instruction or anything to that effect, but he did not agree that he was mistaken in his recollection, despite the view he orally expressed not being recorded in the minutes.

148. I am satisfied that the directors at the meeting of 31 January 2008 were of the view that the bank guarantees required by both the Symonston landlord and the Bonython landlord were excessive and not in the interests of ELS. The board of directors is, as Owen J pointed out in Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) and (No 10) (2001) 39 WAR 1 at 548; [4457], one of the constitutional organs of a corporation and, as such, the primary organ of control of the corporation, hence the knowledge and opinion of the directors is the knowledge of the corporation: J C Houghton & Co v Nothard, Lowe and Wills Ltd [1928] AC 1 at 18-9.

149. The next meeting of the board was on 27 February 2008.

150. Prior to that meeting, the large publicly listed child care company, ABC Learning Centres Limited, suffered a substantial market reversal which clearly was likely to affect the sector. Its share price had "crashed on fears about the company's debt" and its shares had been suspended from trading.

151. Mr Hutchison emailed to Mr Kern commenting on the consequence of that situation. His email raised eight points as follows:

1. Do we stop acquisitions and let the dust settle, build what we have?
2. Keep the cash in the bank, it may be seen as a responsible market announcement that we are being cautious?
3. I think centre pricing will drop.
4. People/developers will be left holding stock.
5. Terminate or re negotiate the 4 ACT (Fiona McDonald centres) Are they now worth $8m?
6. Kalgoolie and Griffith are 2 centres to settle in April, still experiencing licensing issues.
7. I have terminated the 2 Hedley Silkwood buildings for 2009.
8. All of the deals that you are reviewing have now got issues with their price expectations.

152. The board meeting on 27 February 2008 discussed the implications for ELS of the situation with ABC Learning Centres Limited and the issues identified by Mr Hutchison. It is not clear whether Mr Hutchison's email was tabled at the board meeting or not. It appears it probably was not but at least Mr Kern brought up the eight points and they were openly discussed.

153. That discussion included the question of whether to terminate or re-negotiate the contracts to purchase the four ACT child care centres.

154. Mr Hutchison described the discussion at the meeting as follows:

There was discussion around the bank guarantees again and that they would cost the company an excess amount of money which we hadn't thought was going to be needed and that that was a concern and then also having to use the - overdraft facility, sorry, use the overdraft facility. So we had concerns with the company at that point that some of the settlements had not taken place when they were meant to, we were behind where we were meant to be, and that extra cost to the company had become an issue.

So you said that you had concerns about the overdraft facility, you were behind where you wanted to be, and what else? --- The bank guarantees, we still had to have the facility changed, even with Fiona O'Donnell putting up that she would be the bank guarantor, we still had to have that money in place behind that.

So you were aware that she was by that stage prepared to be a guarantor, is that right? --- Well I believe at one stage she said that she'd put them, Fiona O'Donnell said that she'd put them up, but then in the middle of February I think when it was realised that they would be in place for 10 years that she was not so keen to go forward with that ...

There was the concern to the company of the cost of using the overdraft, the extra interest, the bank guarantees of having to have that in place, that would have been where we were at that point in time. And it just still, it was clear from the board's direction at that point, from my memory, that we weren't comfortable going forward, that those bank guarantees were not acceptable in that market.

155. In cross-examination, Mr Hutchison was asked about discussions of alternative means of meeting the bank guarantees required of ELS by the Symonston landlord and the Bonython landlord, such as by using the banked cash that ELS had, to make up the shortfall. Mr Hutchison did not remember any such discussions and denied that there was a policy decision not to use the overdraft facility on that occasion or at any time in the near future. He did not recall any suggestion to that effect, though he appreciated that there were still ongoing negotiations with ELS' bank and that answers to those negotiations might assist in effecting settlement of the contracts through the use of the bill facility.

156. His view was that the overdraft was too expensive for ELS to use for this purpose and that ELS' position was that it was not comfortable with the conditions required by the two landlords. He explained that, by "expensive", he was referring to the extra interest that would have to be paid by using the overdraft.

157. He agreed that the resolution of the board was to terminate the contracts for purchase of all four centres if possible, even though two did not have problems of landlord-imposed conditions. He explained that, as a result, ELS ultimately settled those latter two contracts. He denied that the reasons for not settling the Symonston Contract and the Bonython Contract were unconnected with the demands of the respective landlords. He agreed that no one said at the meeting "how can we possibly proceed and try and settle these centres?". He agreed that no-one said "what reasonable actions can we take to attempt to proceed with some of these centres?". He agreed that he did not re-visit the matter with the banker after the meeting.

158. When asked whether, on 27 February 2008, there was an immediate need for the company to terminate the contracts, he said that, commercially, there was. He said "the industry had changed".

159. Mr Hutchison also said that, on the evening of 27 February 2008, he did not think that he was aware of the Sunset Date in the contracts, but he did not remember . He did not know how long might be left to see whether the conditions imposed by the two landlords could be satisfied or dealt with in some alternative way. He agreed that ELS was determined to terminate as many of the contracts for purchase of the ACT child care centres as possible if ELS was legally able to do so.

160. He agreed that his attitude was that the contracts for purchase of centres that could not be avoided legally would be completed. He also agreed that he did not, himself, make any efforts to solve the problems with ELS' bank after the board meeting on 27 February 2008, and was not aware of anything done by any of the other officers of ELS.

161. Mr Hutchison said that he did not think a phone call to Ms O'Donnell would have enlisted her support in sorting out the problems with the landlords. He did not think it was worthwhile, in his position, to explore that possibility. He referred to the correspondence that ELS had received from Stepping Stones' lawyers, which seemed clear that the position enunciated was a final position.

162. He also said that he had reached the view, by the time of the board meeting on 27 February 2008, that it was not possible to move the Symonston landlord or the Bonython landlord from the positions that each had taken.

163. Mr Hutchison said that he was never asked by either landlord to meet with them face to face, nor that they considered such a meeting would be important.

164. Mr Hartnell also gave evidence about the meeting of 27 February 2008. His evidence was as follows:

Having had a general discussion about the declining value of child care centres Australia wide, and the minutes I think accurately reflect that Greg Kern was very concerned about the fact that if we had in light of all these declining values if we had the opportunity we shouldn't proceed with presently pending acquisitions, we should allow, allow time to see how the market responded. I can't remember the precise words he used but that was the subject of the board discussion at that time. Having finished that discussion then my memory was that Rob Borbidge actually asked the question, so this is accurate, "RB questioned the ACT centres". And - and that came out of the discussion about the general topic. So that is why - and then we had a, what I'll loosely call a commercial discussion, about how the Fiona O'Donnell centres were performing and it says in the minutes three were performing well and one was performing badly. I - I don't have any dispute with that, I don't remember precisely. I do remember comments to the effect that some of them were performing well and, and at least one was performing badly. But having discussed that we then in the context of the - the board that is, in the context of the discussion about the ACT centres, applied the discussion that had generally raised by Greg Kern that well, it's like, it's an example, we should re-assess our positions in the ACT centres. Now what, what then follows on [the next page of the minutes] and bare in mind I spent some time looking through these earlier this week. What then came out was the gravamen of the - the board decision, and I think every director said words to this effect was that - except John Hutchison, John Hutchison should go to the company's lawyers to, which I think is Halletts, to determine whether or not the company was in a position to terminate any of the contracts and only if the lawyers advised that we were in a position to terminate should that decision be made. But John - John Hutchison I don't recall being instructed in the sort of absolute terms there 'resolved to terminate all four centres if possible'. I just - I know we adopted these minutes in the next meeting but I have no memory of - of that at all. I, I have a very strong memory of myself and Greg Kern saying we want you, Hutchison, to go to our lawyers and - and see whether it is possible to terminate any of these contracts, but we don't - we want to do it lawfully. I don't know if I used the word 'lawfully' but we're not asking you to break the contract in other words. So we are asking you to take advice as to whether we can terminate lawfully, is, is the nub of the conversation. That's my memory of that, that discussion and you can see from my memory this report is a bit of half truth and half mixed up. That was my reaction to it.

MR O'DONNELL: In the meeting was there any discussion about the landlord's rental guarantee requirements that had been discussed in previous meetings? --- I - you know, I can't, I don't think there was. There may have been but it wasn't the central focus. I - because I believed we'd had that discussion in January. That was a given. I don't think - I don't remember any further discussion. It may have been something said but it wasn't the centre of it.

All right. Can I ask you to respond to this proposition. What do you say to the proposition that in the meeting there was discussion that the approach to be taken to the ACT centres was to terminate the contracts and then see if the company could re-acquire them at a lower price? --- Never head that proposition said in that meeting, or since.

165. Mr Hartnell was not challenged in cross-examination about this evidence.

166. Mr Kern also gave evidence about this meeting. His evidence-in-chief was as follows:

The - the substance was that management reported to the board that the landlords would not meet the requirements, pursuant to - to the contracts in regard to the right of entry and the bank guarantees and therefore the board asked management to confirm that the company was entitled to terminate the contracts and requested management to - well, the directors asked management if the company was entitled to terminate the contracts and management said that the lawyers advice was that that was the case. I was very specific at the meeting and was, I suppose, aggressive in terms of making the point to management that in the event that the contracts are terminated, they must ensure that they have legal advice that the contracts are terminated legally and we have that right to - to terminate the contracts. Now - and that point was made a number of times. It was - the point was also made that it would be inappropriate to, if we were not entitled to terminate those contracts legally, to do so, because it has wider ramifications. For - for example, our - and these words would have been said, there is a business model, which has been put forward assuming that we do acquire those centres, which will generate a certain level of profit. If those contracts are terminated, that affects that - that business model, so it is a major decision and we wished to ensure that our business reputation is protected, so we should only do - do so if we have valid and appropriate reason to do so. So the directors then put it back to management that they should confirm that position with their lawyers and it was a matter then for management, if their lawyers - if our lawyers had confirmed that we were legally entitled to terminate those contracts, to - to then proceed with the termination of those contracts.

In that answer, you referred to management? Was there a specific person or persons? --- Well - well that - in - in those terms, that is John Hutchison, who is on the board but as CEO and the financial controller Grant Rumball. They are who I refer to as management.

Right? --- And - and people behind them in the system.

All right. And was that for both meetings, the January meeting also? Or was that different people you were referring to as management? --- I think both meetings.

Right. Was there any discussion as to whether management, Mr Hutchison and Mr Rumball, were to come back to the board before doing anything about terminating the contracts or not? --- Well I can't recall. I think the board handed the responsibility to management, provided they had strict legal advice to that effect, that they were entitled to terminate those contracts, they could. But of course the door was open for management to come back and consult with the board.

167. It was put to Mr Kern in cross-examination that what he said to the meeting about the two landlords not meeting requirements about the Deed of Right of Entry did not appear in the minutes and therefore was not said at the meeting. He thought that that was wrong and that it was reported to the meeting that the two landlords would not budge from their position, and that the terms they put forward were "ridiculous". His recollection was that management reported to the board that all four centres had problems with Deeds of Right of Entry and bank guarantees.

168. He said that management reported to the meeting that they had legal advice that it was possible to terminate the contracts, though he agreed that that also did not appear in the minutes. He was emphatic that he knew of the ramifications because of the market interest and his recollection was that he asked "what is the position of the lawyers?" and he was sure that Mr Hutchison said that the contracts could be terminated.

169. When it was put to him that the legal advice was to be obtained later, he said that he told Mr Hutchison "make sure you confirm that the lawyers ... specifically confirm ... that the contract can be terminated". He suggested that what he was saying was that management should check with the lawyers to see if the contracts had to be performed.

170. Some of this evidence was not consistent with the evidence of other witnesses. I prefer the evidence of Mr Hartnell and Mr Hutchison, but do not reject consistent evidence of Mr Kern.

171. Chris Sacre also gave evidence about the meeting. He was, at the time, Financial Controller: Special Projects of ELS. Subsequently, he became Chief Financial Officer and then in March 2009, Chief Executive Officer.

172. He recalled general discussion at the board meeting around the position of ABC Learning Centres Limited, and said:

The board agreed and resolved that we should look to terminate all four of the ACT centres and John [Hutchison] should talk to the lawyers and, if possible, terminate the contracts within the contract rights.

173. He had no recollection of whether there was a discussion about an entitlement to terminate individual contracts.

174. Mr Sacre knew at the end of February that the shortfall in the bank guarantee facility with the ELS banker was about $100,000, but he was never given instructions to approach the bank to increase the facility.

175. He was asked whether he was surprised at that amount, and said:

Considering the other bank guarantees that we have issued with all our centres I - I was surprised at the amount and value of the bank guarantees being requested.

The question was this, did you explain to Mr Hutchison that if you couldn't increase the bank guarantee sufficiently to accommodate the Canberra settlements and the other settlements, that the company would have to make a choice as to whether it settled the Canberra matters or it kept its facility available to settle the other non-Canberra matters? --- Yes, if the facility wasn't big enough to allow for the acquisitions to go through then we had to consider one or the other.

The obvious objective in those circumstances would be to go to the bank and see if you could negotiate, that is the company, could negotiate a facility which is a bank guarantee facility large enough to accommodate both the Canberra settlements and the other ones, isn't it? --- That is - that is a possible solution, but it would incur the company more fees and costs.

Well I'm going to come to the fees and costs, but leaving them aside for a moment, you agree that's the obvious thing to do in the circumstances isn't it? --- Yes.

And Mr Hutchison didn't give you any instructions to do that, did he? --- No.

177. Mr Sacre was also asked about other alternatives to effect a satisfactory settlement, including an attempt to negotiate with the bank to bring the fees down, to use other money or another part of the facility which has lower fees, use of the overdraft facility which would not affect the loan to valuation ratio, or to use the cash balance that was available to the company. When put to him that use of the cash balance, which would have caused ELS to have use of the overdraft facility subsequent to completion of the contracts, would be pretty easy, he said that it was "definitely not desirable ... using cash was our last option". He said that they did not want to dip into the overdraft facility because it would incur the line fee and an interest cost.

From the company's perspective up until 29 February and onwards, and as I said before, we were running at a loss and the centres weren't performing to the ability that we thought, so to use any of the cash for acquisition was - was a serious consideration that needed to be put.

...

Any draw into the overdraft is undesirable and we had - you know, in the head office account, we had $1m available.

179. In re-examination, Mr Sacre's evidence was as follows:

When the board made the decision to terminate at 27 February in the board meeting it was - it wasn't so much the fact that we had doubted the financial performance of the centres that we were due to buy, but it was more so that there had been a dramatic change in the market, and that obviously formed a strong view with the board on we should re-assess all acquisitions including upcoming ones that had leased centres and all the other ones we were due to settle, in light of the changed market conditions and - and if possible get - obtain legal advice to - to get out of them. The contract - the centres were contracted anywhere between July and October 2007 where the market was at a peak from - from being set largely from ABC. And so that we believed that the contract prices were higher than what the market was at that time.

Well my question was more about your evidence as to the financial implications of the acquisitions, in terms of using up the company's cash ... (indistinct) ... acquisitions, burning of the overdraft, fees and so on. My learned friend raised with you that if you proceeded to make the acquisitions there would be a cash flow generated. Could you not take that into account in deciding on what would be the financial implications for proceeding with the acquisitions? --- I don't from my view - I don't think there was any doubt between John and myself or Grant or the board for that matter, that the centres weren't cash-flow positive. We did believe that they would be cash-flow positive.

HIS HONOUR: Sorry you did or did not? --- I did believe they would be.

You believed that they would be cash-flow - - - ? --- They would be cash-flow positive, so we knew that.

180. Mr Rumball gave evidence about this meeting also. He indicated that there was much discussion about various options. He said:

There was a lot of things we were talking about because we trying to settle - in early February we were trying to do everything possible to settle these, so we were talking about lots of different scenarios that we could build to get the settlements to occur.

181. He later said that there was an issue with future working capital. He said he would have done a rough estimation of the relevant financial information but had no idea where a copy of those calculations would, if they still existed, be found.

182. Mr Rumball was referred to the reference to the ACT centres in the first paragraph of the minutes. It referred to them to be "re accessed".

183. Initially, he accepted that it was possible that it might mean that they could be bought at a cheaper price later and that was the meaning of "re-access" but he later said that the word should probably be "reassess" not "reaccess".

184. Mr Hartnell said, too, that the word "re-access" in the minutes should be "re-assess".

185. Mr Rumball further agreed that if a problem with the price of the acquisition of bank guarantees relating to the transfer of leases had been discussed it would be recorded in the minutes. He agreed it was not recorded in the minutes.

186. Mr Rumball's evidence was somewhat problematic because he was initially taken to what appears to have been an extract from draft minutes, rather than the actual minutes.

187. Mr Rumball agreed that effectively what happened at this board meeting was that Mr Hutchison pressed the view that it would be best, because of the problems with ABC Learning Centres Limited, if ELS were to get out of current acquisitions of centres, "those that we could".

188. On 28 February 2008, Mr Hutchison told ELS' lawyers that the bank guarantees required by the landlord of the Symonston centre and the bank guarantee required by the landlord of the Bonython child care centre were unacceptable to ELS and gave instructions to terminate the contracts.

189. On 29 February 2008, the lawyers for ELS sent to the lawyers for Stepping Stones two letters, one with respect to the Symonston contract and one with respect to the Bonython contract, being Notices of Termination. The letter relating to the Symonston contract was relevantly in the following terms:

Although the Landlord has consented to an assignment of the Lease, the terms and conditions subsequent to that consent, specifically, provision of a 24 month bank guarantee as security under the Lease, are onerous and not acceptable to our client.

Our client wishes to exercise its rights pursuant to condition precedent 2.1(d) of the Contract and accordingly, hereby terminates the Contract.

190. The letter relating to the Bonython Contract was in the same terms except that it referred to a 15 month bank guarantee.

191. After receiving the Notices of Termination, Ms O'Donnell became active and approached both the Symonston landlord and the Bonython landlord, asking them if they would accept to keep the contracts afoot were she to provide the guarantees herself. She said that they were agreeable. No contemporaneous documentation from either landlord was tendered.

192. Mr Pfeiffer also said that he had heard from Ms O'Donnell on or around 29 February 2008 proposing that she would give a six-month rental guarantee and a three-month guarantee, with which he did not agree. He then said "I don't believe I heard any more from her".

193. His evidence about the conversation that he had with Ms O'Donnell on 29 February 2008 was as follows:

You say that you had a call from - is that Fiona O'Donnell? --- Correct.

On 29 February. She tells you that ELS terminated the sale contracts, and she asks if you would accept a bank guarantee for 6 months' rent in addition to the 3 months under the lease. That is, that she would put that up, and asked if you would consent to the lease on that basis. And your reply, leaving out the first sentence, that John Bradley - that's your solicitor isn't it? --- (No audible reply).

HIS HONOUR: Mr Pfeiffer you've got to answer the question? --- Yes, I am. I'm just reading there, I'm very sorry. I am sorry.

No, that's all right, no take your time? --- Could you ask me that question again please?

MR O'DONNELL: Sure, have you finished reading? --- Yes I - I've read that where I replied.

So John Bradley is your solicitor - and if you miss out the first sentence he's advised you there's problem with Fiona O'Donnell providing a bank guarantee? --- Yes.

Because of the problem with selling the property. So you go back to John Bradley and ask the question? --- Yes.

Then ... you say you had a third conversation with Mr Bradley, and you told Mr Bradley that you would consider a 6 month guarantee, but it still needed to be from ELS? --- That's correct.

So you're not then agreeing to a six month guarantee, you're only considering it? --- No, no - no, that's true.

What happened then after 29 February? --- Nothing.

194. At approximately 3:30pm on 29 February 2008, the lawyers for Stepping Stones emailed the ELS lawyers a Notice to Complete in respect of each of the Symonston contract and the Bonython contract, but also the contracts in relation to the other child care centres, the Lavender Lane child care centre and the centre at Gungahlin. The notices required ELS to settle on or before 2:30pm on 14 March 2008.

195. The lawyers for Stepping Stones made an offer to ELS' lawyers that if the Notices to Complete were unconditionally accepted as valid, and all four contracts were completed on or before 7 March 2008, Stepping Stones would agree to a total discount on price of $200,000.

196. They also indicated that if settlement of the Symonston contract and the Bonython contract could occur on 14 March 2008, the consent of the mortgagees, the executed Deeds of Right of Re-entry and the executed Assignments of the Leases would all be ready for delivery of that time.

197. Later, the lawyers for Stepping Stones wrote to ELS' lawyers as follows:

I refer to your letters this morning purporting to terminate the contracts for Symonston and Bonython. Since receiving those, my client has resolved with the landlords of both those properties that ELS will not be required to provide bonds or guarantees for rent and outgoings other than those in the existing respective leases, ie 3 months from time to time. As a result, the grounds on which your client seeks to rely in order to substantiate it's purported terminations of the contracts is no longer an issue. My client's without prejudice offer of this morning is hereby withdrawn. I am in the process of arranging for confirmatory correspondence from the lawyers for both the landlords in question to be sent to you shortly. I can see now no impediment to a prompt completion of all four contracts. Notices to Complete for each contract will issue shortly.

198. On 6 March 2008, ELS' lawyers wrote to the lawyers for Stepping Stones rejecting, with detailed reasons set out, the following contentions by Stepping Stones that:

• it did not consider that ELS has any entitlement to terminate the Symonston contract and the Bonython contract;

• it required all contracts to settle simultaneously; and

• ELS had the opportunity to accept a discount of $200,000 ($100,000 for each of the Symonston and Bonython centres) or proceed with an Assignment of the Lease without any of the conditions for additional bank guarantees imposed by the landlords.

199. In summary, ELS' position was that the two contracts had been terminated and therefore there was no capacity for the sales to be resurrected. ELS' lawyers noted that they had received no confirmation from the two landlords themselves that, in fact, they had resiled from their stated final position, namely that they required the unacceptable bank guarantees, or were prepared for Ms O'Donnell to provide them.

200. Ultimately, the contracts for the two other centres were settled on 14 March 2008.

201. Ms O'Donnell attempted on a number of occasions in the next few days to contact officers of ELS but without success.

202. On 28 March 2008, ELS' lawyers wrote to Stepping Stones lawyers stating:

If the notice of termination is invalid as you have suggested (which is denied) and the contracts remains on foot, Condition 2.1(d) remains unsatisfied as a result of the Sellers failure to provide further terms and conditions of any amended Landlord's consent for ELS' consideration. In short:

(i) the terms and conditions of the transfer of the Premises Lease submitted to ELS remain unacceptable to ELS in its absolute discretion;

(ii) no further terms and conditions of any of the Landlords consent have been submitted by the Seller for ELS' consideration;

203. On 1 April 2008, the lawyers for Stepping Stones emailed the lawyers for both the Symonston landlord and the Bonython landlord confirming a request that had been made earlier by telephone that the landlords "provide formal written consent to an assignment of the above leases to ELS by this coming Friday 4 April 2008". That date, 4 April 2008, was, of course, the "Sunset Date" in each of the Symonston Contract and the Bonython Contract.

204. The request was set out in detail, including the instructions of Stepping Stones that Ms O'Donnell would provide the Symonston landlord with "the requisite 21 month bank guarantee" and would provide the Bonython landlord with "the requisite 15 month bank guarantee" in lieu of bank guarantees to be provided by ELS.

205. They requested that the guarantees be provided "pursuant to a separate instrument to that effecting the transfers to ELS" so that these would "provide practical separation" between the terms of consent of the two landlords to the transfer and the requirement for the bank guarantees.

206. The email requested that the lawyers for the respective landlords provide, by 4 April 2008, "written confirmation of the terms of their consent to an assignment of the respective leases".

207. It also set out proposed terms of the appropriate deed for Ms O'Donnell to sign to give effect to her obligations as now proposed in respect of bank guarantees.

208. On 3 April 2008, the lawyers for the Bonython landlord responded advising that:

Subject to the following, your proposal that your client provide the requisite additional bank guarantee under the terms of the separate deed is generally acceptable to our client.

209. Specific suggestions as to the content of the necessary deed were then made. It was not clear what, if any, was not acceptable in the context of "generally acceptable" which suggests something less than "completely acceptable".

210. Later that day, the Stepping Stones lawyers indicated agreement with the proposed requirements of the Bonython landlord, with one slight amendment which later indicated that they required a written undertaking from Stepping Stones to enter into the deed in exchange for the consent to the Deed of Assignment and Variation of Lease was required.

211. On 2 April 2008, the lawyers for the Symonston landlord advised the Stepping Stones lawyers that they were instructed that their clients "will assist your client", though they required prior payment of their legal fees, which was effected on 3 April 2008.

212. At 12:44 pm on 4 April 2008, the lawyers for Stepping Stones forwarded to the lawyers for the Symonston landlord a draft form of undertaking and draft Deed of Assignment, noting that their client was attending at 2:00 pm to execute the document.

213. At 1:00 pm on the same day, the lawyers for Stepping Stones forwarded to the lawyers for the Bonython landlord a draft copy of the proposed Undertaking and Deed of Agreement. That draft deed revised by the Bonython landlord's lawyers was returned at 4:41 pm that day attached to an email between the respective lawyers.

214. At 4:54 pm on 4 April 2008, the lawyers for the Symonston landlord sent an email to ELS' lawyers as follows:

Having made separate arrangements with the tenant, we confirm that the 21 month guarantee formerly to be provided by your clients is no longer a condition of our client's consent. Hence, we attach documents amended in accordance with your earlier comments for execution by your client.

215. The unexecuted documents included a revised Deed of Variation of Lease which removed the requirement for a bank guarantee from ELS but required one from Ms O'Donnell. It still provided, however, that if the Symonston landlord "calls on" the bank guarantee provided by Ms O'Donnell, ELS was required within, seven days of notice asking for it, to provide an additional or replacement bank guarantee, so that the amount guaranteed was equal to twenty-one month's rent plus GST "at that time".

216. A letter from the Stepping Stones lawyers to the ELS' lawyers, forwarded by facsimile on 4 April 2008, referred to the purported Termination Notices, confirming the view of Stepping Stones that ELS had no right to terminate the two Contracts and stating that Stepping Stones had not accepted the Termination Notices as valid. The letter continued:

Without resiling from that position, we have now obtained formal written consent from BNR Pty Limited, the landlord of the Symonston Premises Lease, and JL and ME Pfeiffer, the landlords of the Bonython Premises Lease, to transfer those leases to your client on terms no longer requiring your clients to provide the additional 21 month and 15 month bank guarantee. A copy of those written consents are enclosed.

We ask that you please confirm, by no later than close of business next Wednesday 9 April 2008, your client's unconditional intention to settle the Symonston and Bonython contracts.

217. Attached to that letter was a Deed of Consent to Assignment by the Bonython landlord. It was not executed. Also attached was a Deed of Assignment of Lease from the Symonston landlord but, again, it was not executed.

218. The effect of that letter is challenged. According to the oral evidence of Mr Pfeiffer, who, with his wife, was the Bonython landlord, neither he nor his wife had seen the Deed of Consent to Assignment or the Deed of Variation sent to ELS on 4 April 2008 or the undertaking and unsigned Deed of Stepping Stones. Their lawyer confirmed this. She had had a brief telephone conversation with Mr Pfeiffer on the morning of 4 April 2008, but that conversation took place before the final version of the documentation had been settled.

219. Indeed, their lawyer's oral evidence certainly gave no confidence that the Bonython landlord understood what was occurring. The evidence was as follows:

And so Mr and Mrs Pfeiffer at the time of giving their consent to the assignment wouldn't have a bank guarantee and they wouldn't have a deed promising or covenanting to provide a bank guarantee. All they would have is the one page signed undertaking? --- That's correct.

But that wasn't explained to Mr Pfeiffer in your conversation with him, was it? The one back at page 16? --- It's hard for me to comment, given that it was 12 months ago, but I did take a fair amount of time in taking Mr Pfeiffer through the complexity of this matter. It was a complex matter, he's an elderly man and there was quite a lot of information and the general practice with Mr Pfeiffer has been to have him come into our office. He's not someone we would routinely email, and we would generally take him through and explain all of what was happening with his transactions. From memory, I believe he was down the coast when I had this conversation with him so - which is why it was done over the phone rather than actually having him come into the office.

All right. But my point is that from your file note and from what you gave us as your elaboration of the file note, it was not explained to him that what was being proposed was that he would be asked to consent to the assignment of the lease and the assignment would take place before he had a bank guarantee physically in his hands and before he even had a deed signed to covenant to give him the bank guarantee? --- No. I think that that was explained to Mr Pfeiffer. Mr Pfeiffer, as I said though, I wouldn't - it'd probably be going - I couldn't say with any confidence that Mr Pfeiffer fully understood what was going on, because of the nature of the fact that it was a telephone conversation, it wasn't the normal conversation where we had where we actually brought him into the office and met with him face to face. So he may have been confused about that, but certainly my recollection is that the details of what was being agreed had been put to him.

220. The lawyers for the Bonython landlord confirmed that neither the documents that had been sent to Stepping Stones' lawyers nor the signed undertaking and unsigned deed had been forwarded to the Bonython landlord on 4 April 2008.

221. On 9 April 2008, ELS' lawyers wrote to the lawyers for Stepping Stones. The letter referred to the earlier letter of 4 April 2008, and continued:

Our client maintains its position that the Contracts have been properly terminated on the basis that the consents to the assignment of the Leases provided by the Landlords were not given on terms and conditions satisfactory to ELS in its absolute discretion.

If our client's view is wrong and the notices of termination that have been provided to the Seller are invalid as you have suggested (which is denied) and the Contracts remain on foot (which is denied) then:

• We note that your calculation of the Sunset Date under the Contracts is 8 April 2008.
• ELS hereby gives the Seller notice in the exercise of its absolute discretion under clause 9.1(a) of the Contracts that the new conditions for the transfer of the Premises Leases imposed by the Landlord for each of the centres are unacceptable to ELS.
• We note that:
  • (a) the Seller has failed to arrange for the transfer of the Leases for the centres to be given on terms and conditions satisfactory to ELS in its absolute discretion; and
  • (b) Conditions 2.1(d), 2.1(e) and 2.1(g) of the Contracts have not been satisfied on or before the Sunset Date,

and on that basis notice is hereby given by ELS to the Seller terminating the Contracts for the centres.

• The Contracts are now terminated, neither party has any further claim against the other.

222. The lawyers for Stepping Stones responded rejecting the purported termination of 9 April 2008, and setting out how they said it was invalid.

223. Mr Pfeiffer confirmed that his instructions to his lawyers were that, before the Bonython landlord would execute the Deed of Consent to Assignment, it required a Certificate of Currency of Insurance and a bank guarantee to be produced, and confirmed that this continued to be his position.

224. He confirmed that, later, on 4 April 2008, he was prepared to consent to the Deed of Assignment and the Variation of Lease, but he did not sign them. He indicated that he would consent to sign the documents required to transfer the lease, but only if he received the bank guarantee for twelve months rental under the varied lease. He had not received such a guarantee.

225. ELS' lawyers confirmed that the letters received from the lawyers for Stepping Stones late on 4 April 2008 had been read, but that did not conclude until nearly 8:00 pm. ELS' lawyers did not speak to anyone at ELS at that time, although he forwarded them on at about 8 o'clock to ELS.

226. Mr Hutchison said that he would not have been able to open the attachments to the email at that time on his mobile phone was the only access he had to email communications and it would not have been possible to access the documents on it.

227. An officer of the mortgagee of the Symonston premises gave evidence that there was no executed consent to the assignment of the lease.

228. Similarly, the mortgagee of the Bonython premises did not provide a written consent to the assignment of the lease although it may be that it would have done so had it been asked.

229. On 25 February 2008, ELS' lawyers had written to each of the lawyers for each landlord requesting that they obtain the written consent of their respective mortgagees.

230. On 17 January 2008, Ms Jessica Battersby and Mr Jae Fraser attended at the Symonston centre, as they were, that day, in Canberra to conduct what was called an "Induction Programme" that evening.

231. During the visit to the centre, they gave to the Centre Director documents identified as Employment Contracts (agreements) with ELS for distribution to the staff. The staff were invited to complete the agreements and return them as offers to be employed by ELS.

232. At the Symonston centre, the Centre Director gave evidence that she had been told by Ms Battersby that when she received the agreements back, she should sign them on behalf of ELS. She did so.

233. The evidence as to the instructions given to the Centre Director given by Ms Battersby orally was, however, somewhat different from the evidence that she gave in her affidavit, where she deposed as follows:

During the meeting ... I said to Ms Battersby:

When do you need me to return the signed employment agreements to you?

She replied:

Keep the signed employment agreements here at Symonston. We'll sign them when we settle and take over.

[S]he informed me that I was able to sign them on ELS' behalf as I would be an employee as of settlement, your Honour.

235. The Director was challenged on this in cross-examination and her evidence was not entirely convincing. She was referred to what she said in her affidavit and confirmed that it was her recollection and her evidence continued:

And your understanding from those words is that ELS would sign the agreements when they settled and took over the Symonston centre? --- No, from that, I refer to, that they would come in, basically and then us once they'd be confirmed, employment.

Yes but the words Ms Battersby said, 'We'll sign them when we settle and take over.' Did you understand those words to mean that ELS would sign the agreement when it settled on its purchase on the Symonston centre? --- No.

Could you explain what you understood the words, we'll sign them when we settle and take to mean? --- Okay, well, previously I'd discussed with her the signing of the documents and she said that I was able to sign them. I have just assumed that they come in and check over them and employment follows on from there.

But you didn't state in this affidavit that her words were, 'We'll check the agreements when we settle and you should sign the agreements now'? --- Okay, well, that affidavit is best to my recollection.

...

MR HOOPER: Is your evidence now, is that, although these words were said, you didn't understand it to be the case that ELS would sign the agreement at a later stage? --- No, no.

Can I suggest to you ... that what was said to you by Ms Battersby at the time was that you should distribute the agreements to each of the employees, when they were returned to you, you should keep a copy or the original on your file and you should send a copy or the original to ELS for ELS to sign? --- No, that was not suggested.

236. This evidence was challenged by ELS. The officers of ELS who attended at the Symonston centre could not recall telling the director to sign the agreements. Indeed, they cannot recall telling her to return the agreements once signed by ELS, though they say that this is their "usual practice".

237. Having received back the agreements and signed them, the Centre Director placed them in the personnel file of each of the staff members concerned. She said that she did this in accordance with the instructions at the bottom of the agreement. At the bottom of a schedule to each agreement, being the last page, the following appeared:

◻ Signed photocopy to be given to employee and Human Resources

238. The Director also completed such an agreement. She asked the Assistant Director of the Centre at the time to sign it on behalf of ELS.

239. The Centre Director also said that in her conversations with Ms Battersby, she:

Did mention that she [Ms Battersby] was a new employee at - at ELS, and she'd only started a couple of weeks prior to that. So all of that was fresh to her as well.

240. The Centre Director indicated that she personally handed the agreements to each staff member. Of the twenty one staff members at the Symonston child care centre, seventeen signed the agreements and returned them; four did not do so. That was 80.9% of the employees at the Symonston Centre.

241. The Centre Director also said in her oral evidence that she asked Ms Battersby:

Where do you need me to return the signed employment agreements to you?

Keep the signed employment agreements here at Symonston, we'll sign them when we settle and take over.

242. In her oral evidence the Centre Director further confirmed that those were the words that Ms Battersby said to the best of her recollection.

243. In cross-examination, she denied that she was told that, when the agreements were returned to her, she should keep a copy or the original on the file and send a copy or the original to ELS for ELS to sign. She rejected that suggestion. She also rejected the suggestion that Ms Battersby did not tell her she, Ms Battersby, was a new employee. She was not relevantly shaken in cross-examination.

244. She was referred to the induction presentation that evening and it was put to her that Ms Battersby or Mr Fraser said that the agreements had been handed out that afternoon and she agreed. She agreed that the persons present were told that each staff member should check the details very carefully and that if there are any errors they should be notified to the Centre Director.

245. It was put to her that the staff members present were told that if they were happy with the agreement handed to them, it should be signed and handed back to the Centre Director to be sent to ELS. She agreed that they had been told to sign them and return them to the centre but denied that there was discussion about forwarding them to ELS.

246. The Centre Director confirmed that she did not return any of the agreements to ELS.

247. The same kind of arrangement applied at Bonython where Ms Battersby and Mr Fraser had also visited the same day, although the Centre Director there did not sign any of the agreements on behalf of ELS and did not say that she had been told to do so.

248. She did say, however, that she was not told by Ms Battersby to return the agreements to ELS once they were signed by the staff.

249. The Bonython Centre Director said that, when she received the agreements from Ms Battersby and Mr Fraser, she distributed them by putting them in the relevant "pigeon hole" for each staff member. She said that there was no suggestion made to her by any of the employees of ELS that she should sign the agreements on behalf of ELS.

250. She also recalled what was said at the induction evening and agreed that either Mr Fraser or Ms Battersby had said that they had visited each of the Centres during the day and during those visits had handed out to the relevant Centre Director the agreements which had been or would be distributed to each member of staff. She said that the staff members were also told that they should review in detail the agreement they had received, particularly their personal details, and notify any errors to the Centre Director. She denied that those members of staff present were told that when the agreements were signed they should be given back to the Centre Directors who would in turn give them to ELS. She said that they were simply told to make sure everything was correct and to notify the Director if there was anything that was not correct. She agreed, however, that as a matter of fact the staff members at the Bonython Centre, when they had signed their agreements, gave them back to her as the Centre Director. She did, however, later in her cross-examination, say that they were told to return them to her as Centre Director.

251. She further said that she was not aware of any formal visits planned by ELS further but she was advised that there would be an employer representative who would come to Canberra to help during the transition to ELS.

252. Ms Battersby gave evidence. She confirmed her attendance in Canberra and the distribution of the agreements. In her affidavit, she said that she could not remember saying to the Centre Director that the agreements should be returned to ELS but said:

However, it is my usual practice to say words to that effect because ELS needs to sign each document once it's signed by an employee. Employment agreements and employment schedules were sent back to me once signed by employees of Stepping Stones @ Gungahlin and Lavender Lane @ Conder.

253. Ms Battersby affirmed in cross-examination that she "would have definitely explained" that the agreements had to be returned to ELS.

254. She explained, however, that she had not followed up the fact that she had not received agreements from the Symonston Centre or the Bonython Centre in February because the settlement date kept getting pushed back. She agreed, however, that it was likely she told the Centre Director at Symonston to keep the original and send her a copy. She said that the agreements would have to be signed by a member of the human resources team at ELS. She denied in cross-examination that she had asked the Centre Director at Symonston to sign the agreements on behalf of ELS. She was quite firm that she had not said that.

255. She also said that, at the induction evening, she did not precisely remember exactly what was said but continued:

I'm assuming I would have said something along the lines that I had given the directors the - a copy of all the employment agreements, which they should have already, if not - or they will distribute to the employees. If there are any errors, they were to return them to the directors. And then once the director had a copy of the employment agreement they would forward them to Early Learning Services.

256. Ms Battersby's evidence was that she visited each of the centres with Mr Fraser. It was the first time she had visited any child care centres with Mr Fraser but she had conducted inductions previously. Mr Fraser had also conducted a number of inductions on his own without Ms Battersby.

257. She could not recall telling any of the Centre Directors that she was a new employee; she had, in fact, started with ELS on 27 September 2007, a little more than three months prior to the Canberra visit.

258. In re-examination, Ms Battersby was asked the reason for needing to see the agreements before settlement and her evidence was:

We would need to know whether or not our offer of employment had been accepted and that they were actually our employees when settlement took place, or they had accepted our offer of employment.

Is there any particular reason that you can give for needing to know that they had accepted the offer? --- When they turned up to work on Monday they would need to be employees of Early Learning Services and we would need to know that.

259. This is somewhat different from the legal characterisation that ELS suggested should be placed on the process. It seems more consistent with the actions actually taken and the nature of the documents.

260. Mr Fraser also gave evidence. He was understandably unable to recall the details of what was said at the induction evening. His evidence was:

But the purpose of having a discussion about employment agreements was to make sure that at the induction evening each of the employees got the message that they had to give them back to the director, isn't that right? --- That's correct.

Then you had separately had a discussion with the directors, hadn't you? --- Yes.

Well, it's unlikely, is it not, that you would say in a public meeting to all these employees that they should - after the agreements were sent back to the centre director, that the centre director would send them back to ELS? --- Yes. Usual practice is that they come back to ELS. But I just can't recall the exact works or whether it was discussed on the night.

261. A number of employees gave evidence. Only one stated that her recollection was that, at the induction evening,

it was said that if and when the employment agreement was signed, it should be given to the centre director who would sent it back to ELS

262. The others had no recollection of being told that the signed agreements would be returned by the relevant Centre Director to ELS. Whether they were told that the agreements were to be returned to ELS by the centre may not be of great moment, for this was not something the employee was to do.

263. After signing agreements, two of the staff members at the Symonston Centre resigned and left the Centre prior to the sunset date of 4 April 2008.

264. The position at the Bonython centre was a little more complicated. There were apparently nineteen members of staff employed in the centre but, for whatever reason, ELS only distributed seventeen agreements to named employees. Of those, fourteen were said to have signed but only eight signed agreements were in evidence. None had been signed by or on behalf of ELS.

265. Five members of staff gave evidence that they had signed agreements but there is no record of them at all. They were not in evidence before me.

266. The agreement of one of the members of staff at the Bonython centre did not have the correct details on it. She said in an affidavit filed and read in the proceedings, however, that, had she been given a correct agreement subsequently, she would have signed it and given it to her Centre Director "to forward to Early Learning Services".

267. Another members of staff, whose agreement had had to be changed, said she would have agreed to be employed by ELS but did not actually sign an agreement. One other member of staff said he thought he may have signed an agreement but could not recall doing so.

268. If all those who had signed agreements in evidence, or who stated they signed agreements, or who agreed to be employed by ELS are taken into consideration, that represents 84.2% of the total staff. If only those whose signed agreements are in evidence, the proportion is well below the required 75%.

269. A good deal of evidence was given about the financial situation of ELS and its financing arrangements with its banker. I do not need to recount it here.

270. The questions to be determined have been set out above (at [45] and [49]). I shall deal with each of these in turn.

271. The expressed reason for the termination of the Symonston Contract and the Bonython Contract on 29 February 2008 was that the conditions under which the relevant landlord of each of the respective premises was prepared to transfer the lease of the respective premises to ELS was unacceptable to ELS.

272. The condition was set out in clause 2.1(d), but is also affected by clause 9.1(g) of each Contract, being part of the Conditions Precedent. That is to say, if the relevant landlord required a condition that was not acceptable to ELS, then the Condition Precedent that is clause 2.1(d) is not satisfied. If one of those conditions is that ELS must enter into a deed of covenant, then ELS is only required to enter into that deed if, in its absolute discretion, the terms of it are acceptable to ELS.

273. There is no doubt that the landlords in each case required ELS to agree to conditions relating to the provision of bank guarantees and that the obligation to do so was contained in deeds of covenant which ELS was required to sign. Without entry into those Deeds by ELS, the consent of each of the Symonston landlord and the Bonython landlord to the transfer of the respective leases would not be given and that would be a legitimate basis for termination.

274. The first issue is whether ELS had used its reasonable endeavours to have the Conditions Precedent met. I note that, unlike some such clauses, the terms used in the Symonston Contract and the Bonython Contract were "reasonable endeavours" not "best endeavours" nor "all reasonable endeavours".

275. In Elizabeth Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths, 2003) at 179-81; [7.15], the author points to some authority suggesting that "reasonable endeavours" and "best endeavours" are relevantly equivalent. I respectfully disagree. The authority cited, Overseas Buyers Ltd v Granadex SA [1980] 2 Lloyds Rep 608 at 613, does not support this. There Mustill J said that he could see no difference between "best endeavours" and "all that could reasonably be expected". Neither of these is the term here; it is "reasonable endeavours" simpliciter.

276. Reliance was also placed on statements such as that of Mason J in Transfield Pty Ltd v Arlo International Ltd [1980] HCA 15; (1980) 144 CLR 83 at 101, that said:

A 'best endeavours' clause thus prescribes a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract.

277. That "best endeavours" imports a level of reasonableness does not, in my view, mean that the two tests are the same, though, based on the approach of Mustill J, "best endeavours" and "all reasonable endeavours" may be the same.

278. The UK seems to accept a difference between such terms, at least more recently. Thus, Julian Flaux QC (sitting as a Deputy High Court Judge) said, in Rhodia International Holdings Ltd v Huntsman International LLC [2007] 1 CLC 59, that there was such a distinction, relying on two earlier decisions which had made the distinction, namely the decision of Rougier J in UBH (Mechanical Services) Ltd v Standard Life Assurance Co (The Times, 13 November 1986, Queen's Bench Division, Rougier J), and of Kim Lewison QC sitting as a Deputy High Court Judge, in Jolley v Carmel Ltd [2000] 2 EGLR 153 at 159, where his Honour said:

Where a contract is conditional upon the grant of some permission, the courts often imply terms about obtaining it. There is a spectrum of possible implications. The implication might be one to use best endeavours to obtain it (see Fischer v Toumazos [1991] 2 EGLR 204), to use all reasonable efforts to obtain it (see Hargreaves Transport v Lynch [1969] 1 WLR 215) or to use reasonable efforts to do so. The term alleged in this case [to use reasonable efforts] is at the lowest end of the spectrum.

279. The decision in UBH (Mechanical Services) Ltd v Standard Life Assurance Co had also been referred to with apparent approval by the Court of Appeal of England and Wales in Galaxy Energy International Ltd v Bayoil SA [2000] EWCA Civ 3031 at [23].

280. The approach has also been followed in Scotland: Mactaggart & Mickel Homes Ltd v Hunter [2010] CSOH 130 at [62]-[63].

281. This approach is perhaps reinforced by the statement seen from time to time, that a party obliged to use his, her or its "best endeavours" must not use "second best endeavours" (Valentine Films Pty Ltd v Trimex Pty Ltd [1996] FCA 124 at 21).

282. This seems to me to accord also with logic, common sense and the plain meaning of the word chosen by the parties.

283. Accordingly, it seems to me that an obligation to use "reasonable endeavours" is not as onerous as one to use "best endeavours" or "all reasonable endeavours" and I shall so proceed.

284. An obligation to use reasonable endeavours, however, is to be assessed by the court using an objective test: Paltara Pty Ltd v Dempster (1991) 6 WAR 85 at 89; Parland Pty Ltd v Mariposa Pty Ltd [1995] TASSC 91; (1995) 5 Tas R 121 at 133. It requires the parties to act to the extent that it is reasonable to do so, but not being required to go beyond the bounds of reason: Rafferty v Madgwicks [2012] FCAFC 37; (2012) 203 FCR 1 at 42; [155]; Artifakts Design Group Ltd v N P Rigg Ltd [1993] 1 NZLR 196 at 228-9 citing Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 64-5 (Gibbs CJ).

285. A party obliged to use reasonable endeavours (or even best endeavours) is not obliged to disregard his, her or its own interests: Hospital Products Ltd v United States Surgical Corporation at 143-4. As Mason J observed in Transfield Pty Ltd v Arlo International Ltd at 101:

A 'best endeavours' clause thus prescribes a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract.

286. That is to say, the court must have regard to the terms and nature of the contract and the surrounding circumstances, as indicated by Brereton J in Hexiva Pty Ltd v Lederer [2006] NSWSC 1129 at [44]. See also Andoy Pty Ltd v S & M Cannon Pty Ltd (1990) 17 IPR 533 at 536.

287. Brereton J in Hexiva Pty Ltd v Lederer continued (at [45]):

While an obligation to use 'best endeavours' does not require the person who undertakes it to go beyond the bounds of reason, he or she is required to do all that can reasonably be done in the circumstances to achieve the contractual object (but no more) [Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451, 452; Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234, 237; Transfield Pty Ltd v Arlo [International] Ltd [1980] HCA 15; (1980) 144 CLR 83, 101 (Mason J), 107 (Wilson J); Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1985) 156 CLR 41, 64 (Gibbs CJ)]. As Mason J (as he then was) said in Transfield (at 101), such an obligation describes a standard of endeavour that is measured by what is reasonable in the circumstances. The content of a 'best endeavours' clause is influenced by its contractual and factual contexts [Hospital Products, 64].

288. This must, of course, be read in the context that his Honour was referring to a clause which imposed a contractual obligation to use "best endeavours" and not "reasonable endeavours".

289. Further, a party obliged to use reasonable endeavours must, in addition to acting honestly, not act capriciously or irrationally: Jetcity Pty Ltd v Yenald Nominees Pty Ltd (Unreported, Supreme Court of WA, Owen J, 9 April 1999) at 12-13. I would add that it would appear that such a party should also not act for an improper purpose.

290. It is clear that the proper purpose is the fulfilment of the contractual purpose, and the party must certainly not hinder or prevent the fulfilment of that purpose: Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 at 378; Hunyor v Tilelli (1997) 8 BPR 15,629 at 15,631.

291. In Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135, Shepherdson J, with whom Thomas and Williams JJ agreed, held (at 152) that the trial judge had not applied a test that was incorrect at law. The learned trial judge had said (quoted at 150) that:

Although there is a continuing obligation it must be one which, in all reason, is finite in its requirements and it could not be construed as requiring effort endlessly to be applied. Whatever the quality of the effort which is called for and even though there is no express reference to duration in the clause, I think it should be construed in this sense: that the developer will apply itself conscientiously to the task of securing approval with the vigour which would be expected if it were prudently attempting to secure its own interests and that it will continue in this task until it should reasonably judge in the circumstances that further efforts would have such remote prospects of success that they are simply likely to be wasted. The circumstances which appear as the attempts proceed, from time to time, will be relevantly included for consideration. Such advice from independent sources should be sought as reasonably appears necessary.

292. I note, too, that the impact upon the party obliged to use reasonable endeavours is a very important issue. Thus, in Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2003] NSWSC 288 at [114]- [115], the court said:

1. Where a contract contained a provision that the parties 'shall use reasonable endeavours to agree' on certain matters, the English Court of Appeal has held that that clause left the parties at liberty to take into account their own financial position, at any rate short of bad faith or in breach of an express term of the agreement: Phillips Petroleum Co United Kingdom Limited v Enron Europe Limited (1997) CCH CLC 329, cf State Bank of New South Wales Limited v Chia [2000] NSWSC 552; (2001) 50 NSWLR 587 at 620-621 (paras 426-428).
2. There is a strong argument in support of the proposition that there can be no breach of a best endeavours clause where, to do the action said to be required by that clause, would expose a party to a proceeding for breach of contract. The proposition is that such a clause must be construed as only permitting a party to do that which is lawful to be done (see, for example, Aerial Taxi Cabs Co-operative Society Limited v Lee [2000] FCA 1628; (2000) 178 ALR 73 at 89 (para 75)).

293. After an analysis of the authorities, McDougall J in OzEcom Ltd v Hudson Investment Group [2007] NSWSC 719 at [231] set out the principles which his Honour distilled from the authorities, as follows:

(1) An obligation to use best endeavours to achieve an outcome is neither an unqualified obligation to achieve that outcome nor a warranty that it will be achieved.

(2) The content of the obligation to use 'best endeavours' must be measured having regard to the contract as a whole and to the factual context in which the best endeavours fall to be exerted.

(3) In ascertaining whether best endeavours have been exerted, the Court should have regard to the qualifications, abilities and responsibilities of the person obliged to exert them.

(4) Stipulation of an obligation to use 'best endeavours' necessarily carries with it an understanding that the outcome, towards the achievement of which the best endeavours are to be directed, may not in fact be achieved.

Again, it must be noted that this is a summary of the principles with respect to a clause that imposes an obligation to use "best endeavours", so it is relevant but not completely determinative.

294. The test to be used by the court in assessing whether reasonable endeavours have been used, which, because the test is objective, the court must do, has been said to be a "but for" test. In Egan v Geraghty [1994] QCA 8, Fitzgerald P referred to the question of how to determine whether best endeavours had been used. His Honour, with whom Williams J agreed, said:

The second proposition for the respondent was that, in any event, it did not appear that it was because of the failure of the respondent to use her 'best endeavours', that probate was not obtained by 1 June 1989. During the course of argument, two approaches to this second issue were debated. On one view, the question to be asked is whether the conduct of the respondent was the sole, or at least the dominant, cause why probate had not been obtained by 1 June 1989. On an alternative view, the question is whether the conduct of the respondent was a significant contributing factor: cf Gange v Sullivan [1966] HCA 55; (1986) 116 CLR 418; Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537, 567.

Some support for the former view may, perhaps, be found in dicta in Nina's Bar Bistro Pty Ltd v M B E Corporation Pty Ltd (1984) 3 NSWLR 613. See also Italo-Australian Club Ltd v National Australia Bank Ltd (1989) NSW Conv R 55-461. However, those cases do not authoritatively establish that it must be shown that the respondent's breach was the sole cause of her failure to obtain probate by the agreed date. Rather, a 'but for' test should be adopted. Would probate probably been obtained by 1 June 1989 'but for' the respondent's omission to use her 'best endeavours' to do so; or, in other words, if she had used her 'best endeavours', is it more probable than not that probate would have been obtained by that date?

295. I am satisfied that the test for "reasonable endeavours" is also an objective one.

296. The alternative view, referred to by his Honour, is that set out in Italo-Australian Club Ltd v National Australia Bank Ltd (1989) NSW Conv R 55-461 at 58,340, where the court asked whether the result would have been achieved if the party subject to the contractual "best endeavours" obligations had done what should have been done when it should have been done. As Einstein J said in Lakatoi Universal Pty Ltd v Walker [2000] NSWSC 113 at [1324], attention needs to be given to "the chances, had best endeavours been used," of the relevant event occurring.

297. That there are competing tests from intermediate Courts of Appeal is problematic for a trial judge. In this case, as in others, it may not matter much which test is used. It seems to me that the "but for" test is preferable. See also Parland Pty Ltd v Mariposa Pty Ltd at 133, where Green CJ said:

In any event quite apart from authority it would seem to me to be an untenable proposition that a party could be held to have failed to satisfy a condition requiring it to use its best endeavours in relation to an application because it failed to take some particular step if in fact the application would have been unsuccessful even had the step been taken.

298. Two further matters need to be emphasised. In the first place, I remind myself that the contractual test is "reasonable endeavours", and not "best endeavours" (though that latter is the obligation is imposed on both parties so far as cl 9.1(f) is concerned).

299. Secondly, it is important to note, as Green CJ explained in Parland Pty Ltd v Mariposa Pty Ltd at 133-4

[t]hat is not to say however that reasonableness of a party's endeavours should be judged with the benefit of hindsight. The reason for a failure to obtain approval would only be relevant insofar as they ought to have been foreseen by that party.

300. This is important, for I had evidence of what happened after termination on 29 February 2008, and this evidence must be approached with considerable caution. What seems obvious in retrospect may reasonably appear impossible or unreasonable in prospect.

301. The question, then, is whether ELS used reasonable endeavours to have the condition, that each of the landlords consent to the transfer of the respective leases, made on conditions acceptable to ELS. The relevant terms of the contract are quoted above (at [51]); I do not need to repeat them.

302. The first point to be noted is that, under cl 9.1(d), it was Stepping Stones that was required to use its best endeavours to have obtained the consents of the landlords to an assignment of the respective leases, and, under cl 9.1(f), make prompt application for that. This is a relevant contractual context for consideration of this issue.

303. That obligation does not relieve ELS of its contractual obligation under cl 2.2(a), but it locates the primary obligation on Stepping Stones.

304. It was further provided in cl 9(d) that those actions were to be at the cost of Stepping Stones.

305. The essential thrust of the claim by Stepping Stones, that ELS had not used reasonable endeavours to achieve the relevant condition, was set out clearly in its submissions as follows:

ELS' decision to terminate the Bonython and Symonston Contracts (reached on 27 February 2008 and executed on 29 February 2008) was made entirely because of changed perceptions of the ELS board that these Contracts were no longer commercially advantageous to the company due to a change in market conditions after the Contracts had been signed. The decision to terminate was not activated by the state of negotiations with, or the conditions as to bank guarantees being sought by the Symonston and Bonython landlords. It was wholly dominated by the desire to avoid these Contracts because they were perceived by the ELS board to have become too expensive and because the company's strategy overall had changed in response to new market conditions. From 27 February ELS essentially adopted a strategy of management of child care centres and abandoned its IPO strategy of expansion by the acquisition of child care centres.

306. Before turning to that submission, it is as well to note the following:

• The ELS board had, at its meeting on 31 January 2008, considered the known requirements of both landlords and board members had expressed the view that those requirements relating to bank guarantees were unreasonable.

• In the circumstances, it was reasonable to impute that view to ELS (see above at [140]-[148]).

• Nevertheless, ELS continued to negotiate with the lawyers for the respective landlords in an endeavour to reach a resolution, keeping the lawyers for Stepping Stones informed. Indeed, the efforts could reasonably be regarded as extensive. I have summarised the evidence of these negotiations earlier.

• The response of ELS included discussion with its banker to see what options were available.

• It also included negotiations with Stepping Stones, both directly with Ms O'Donnell and indirectly through its lawyers, including a reduction of the purchase price to a level that would compensate for the extra bank guarantee requirement, and whether Stepping Stones or Ms O'Donnell would meet the requirements of the Bonython landlord.

307. None of these matters was relevantly challenged by Stepping Stones, nor was it relevantly challenged that they represented a proper response to the requirement imposed on ELS by virtue of each Contract that it uses reasonable endeavours.

308. This was not a case where the buyer had avoided contact with either landlord or where the buyer had not sought the seller's assistance with difficulties with each the landlords.

309. Indeed, while Stepping Stones criticised the conduct of ELS at its two board meetings and after 28 February 2008, it does not suggest any criticism of the conduct of ELS in the negotiations it made with the landlords and with Stepping Stones itself.

310. In my view, ELS did use reasonable endeavours to obtain consent from each landlord to the transfer of the respective leases on conditions that were acceptable to it.

311. Clause 9.1(e) required the consents of the two landlords to be given by the Sunset Date.

312. Termination, however, was purportedly effected by ELS on 29 February 2008. The next issue, then, is whether ELS was entitled to terminate at that early stage, prior to the date each Contract itself set for final compliance.

313. ELS submitted that, where the landlords communicated with an appropriate degree of finality that their consent was subject to conditions that ELS regarded as unacceptable, then ELS could terminate before the Sunset Date.

314. ELS submits that earlier termination is justified where the position of the landlord is "final or definite", where it is apparent that the consent cannot be obtained by a specified date, or where circumstances leave no room for reasonable doubt that there would be a change of position by the landlords.

315. The principle is that, where a party cannot perform a contract, the other party may terminate the contract, even if the time for performance has not yet arrived. As Dixon CJ said in Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466 at 481

it is absurd to treat one party as tied to the performance of an executory contract although the other has neither the means nor intention of performing his [or her] part when his [or her] turn comes

316. See also Honner v Ashton (1979) 1 BPR 9478 at 9494.

317. As Devlin J said in Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 at 437, "[s]ince a man [or woman] must be both ready and willing to perform, a profession by words or conduct of inability is by itself enough to constitute renunciation."

(1) that the other party was "wholly and finally disabled" from performing; and

(2) that the inability existed at the time of termination.

319. The notion of "wholly and finally disabled" comes from what Lord Sumner, with whom Lords Buckmaster, Wrenbury and Carson agreed, said in British and Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48 at 72:

[B]ut I do not see how the fact, that the buyers have wrongly said 'we treat this contract as being at an end, owing to your unreasonable delay in the performance of it' obliges them, when that reason, fails, to pay in full, if, at the very time of this repudiation, the sellers had become wholly and finally disabled from performing essential terms of the contract altogether.

320. In Rawson v Hobbs, a contract for the sale of land was conditional upon the Minister for Lands consenting to the transfer, and it was agreed in the contract that, if the Minister refused to consent, either party could annul the sale.

Since the contract did not fix a time within which the Minister's approval should be obtained, an approval at any time up to the agreed date for completion would suffice. But according to well-recognized principle, the purchasers, if there had been no provision in the contract on the subject of cl 12, would not have been bound to wait until the date for completion and to perform the contract on their part in the meantime, if before that date they could show by sufficient evidence that the Minister's approval would not be obtainable: Smith v Butler [(1900) 1 QB 694, at p 699]; Halsbury, Laws of England, 3rd ed, vol 34, pp 324-326, par 551; Doyle v Heenan [(1946) VLR 77, at p 81]. In order to show this, a refusal given at any time would suffice, provided it were final and definite: Walker v Oldham [(1948) 23 ALJ 382]; Patti v Belfiore [(1958) [1958] HCA 29; 100 CLR 198].

322. His Honour then considered the facts of the case and continued (at 489):

If this be so, there remains only the question of fact, whether the Under-Secretary's letter of 9th March 1959 was a sufficient refusal of the Minister's consent. It seems to me that it clearly was. It left no room for doubt that there was no chance of the approval being given. The letter came from the permanent head of the department, to whom s 168 gave authority to correspond with persons under the direction of the Minister; its terms were unequivocal; in tone it was final, inviting no discussion or further representations; and the reason it gave was the unanswerable reason of a statutory prohibition.

In these circumstances I am of opinion that the plaintiffs' purported annulment of the contract under cl 12 was effectual

323. A similar situation arose in Fileman v Liddle (1974) 2 BPR 9192, where a contract was conditional upon the approval of a plan of subdivision. Mahoney J said (at 9202):

It is important in my opinion to bear in mind that the present condition is not one which provides for the contract to be void or voidable upon such a consent being 'refused' ...

Where, however, a contract is merely conditional upon such an approval being obtained, the effect of the refusal of an application for approval must be assessed by reference to what the agreement provides as to the time for obtaining such approval. In an ordinary contract of sale, where no special stipulation is made in this regard, the approval of the plan of subdivision must be obtained before the time which the contract fixes (expressly or by implication) as the time for completion ...

Therefore, prima facie, the condition will be fulfilled if the approval is obtained before that time or before such time as otherwise the contract fixes as the time within which the approval must be obtained. If it is so obtained, then no right to terminate the contract will arise: see the discussion of this question by Fullagar J in Doyle v Heenan [1946] VicLawRp 17; [1946] VLR 77, and the observations thereon by Dixon J (as he then was) in Walker v Oldham (1948) 23 ALJ 382.

Upon this basis, the fact that approval has been refused prior to that date will not of itself establish the breach or non-fulfilment of such a condition. However, in some cases, where refusal is given before the time by which the condition requires that approval be obtained, a right to refuse to proceed with the contract may arise even though, between the dates of refusal and the date on which the [approval] application is required to be obtained, it would be possible for a further application for approval to be made. What will justify such a refusal to proceed with the contract prior to the date by which, under the contract, the approval must be obtained will depend upon the circumstances.

324. In Fylayne Pty Ltd v Berck (Unreported, Queensland Supreme Court, Full Court, 24 November 1988) a similar situation arose where the respondents contended that they were not bound by a contract they had entered into with the appellant because it was conditional upon an extension of time being granted by the Land Commissioner to fulfil a condition of a lease, which extension of time was refused. The contract stipulated no time within which the condition was to be fulfilled. The respondents rescinded the contract. The appellant contended that, as a reasonable time had not expired, it could not be said that the condition had not been fulfilled.

The condition, it is said, fails only upon the non-granting of the extension within a reasonable time; and until that time has expired it cannot be said that the extension has not been granted, particularly as the only application which has been made related to a proposal which is not the only available proposal. In other words, non approval is not a single event, such as a refusal of a particular application, but a state of affairs. Non-approval is reached only after the expiry of the relevant time, and an intermediate refusal does not defeat this: JAG Investments Pty Ltd v Strati (1973) 2 NSWLR 450 at p460; Patti v Belfiore [1958] HCA 29; (1958) 100 CLR 198.

However, if the respondents have been able to show before the expiration of a reasonable time that the Minister's approval for the extension would not be obtainable then the condition is seen to have failed and the contract may be avoided by either party: cf Smith v Butler (1900) 1 QB 694 at p699; Doyle v Henean [1946] VicLawRp 17; (1946) VLR 77 at p81; Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466 at p487, cf Walker v Oldham (1949) 23 ALJ 382; Milburn v Blomley [1951] HCA 46; (1951) 83 CLR 453.

326. His Honour then considered the Minister's response and how it might be characterised in the context of these principles. His Honour said (at 16-17):

That response has been made in unequivocal and final terms. Not only was the large development proposed by the appellant rejected, but, by necessary implication, so too in anticipation was the application for the extension of time in which to comply with the terms of the lease for a period of eighteen months. An extension to 31st December, 1988 only was allowed, and that in respect of any proposed development alternative to that which had been rejected. The finality of the decision as to the reduced extension of time has been made perfectly clear, and the context indicates that it refers to the advancement of any alternative proposal without qualification. This must include even a proposal to comply with the original condition of the lease. Accordingly, although it may be argued with some force that the original application for the extension of time was qualified by reason of its association by the appellant with the large development proposed it so that the range of applications that was open to the parties was not thereby exhausted, the matter has been taken out of their hands by the Commission which not only rejected the combined application for extension of time and approval of the proposal but also rejected in anticipation any further application for an extension of time for an alternative proposal.

This is partly of the making of the appellant itself which chose to submit a proposal which proved to be unacceptable and which may have attracted such a limitation upon any extension of time for any alternative proposal. The respondents undertook all that was necessary on their part to provide the formal support for the application, and it cannot be said that they have defaulted in any way. Faced with the finality of the response relating to an extension of time which did not meet the relevant condition and their perception of the sterility of any further application, not unreasonably they regarded the deeds as terminated for non-fulfilment of the condition and rescinded.

In this they were justified. The conclusive nature of the refusal established that the condition could not be fulfilled at all, and accordingly, consistently with the above authorities, it was established then that there would be no grant of an extension within a reasonable time.

327. Stepping Stones did not challenge these principles. It submitted that the cases, however, all related to decisions by statutory authorities and were not applicable to a commercial contract of the kind here under consideration. The principles, it was submitted, were not relevant.

328. I reject that contention. The principle has been applied in commercial situations where no statutory authority is involved. It was invoked in Universal Cargo Carriers Corp v Citati, which involved a charter party and delay without any relevant statutory authority.

329. The principle has been applied in, or at least approved in the context of, a wide variety of contractual contexts. These include contracts for the sale of land, where the alleged inability to perform is a defect of title: Bell v Scott [1922] HCA 13; (1922) 30 CLR 387 at 392; Rands Developments Pty Ltd v Davis [1975] HCA 36; (1975) 133 CLR 26 at 30; and Stevter Holdings Ltd v Katra Constructions Pty Ltd [1975] 1 NSWLR 459 at 465. It has been applied in respect of a distribution contract: Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (rec & mgr apptd) [1997] NSWSC 473; (1997) 42 NSWLR 462 at 480-1. It has been applied where the failure to have a subdivision registered was not a problem with a statutory authority but with the "hopelessness" of the plaintiff's position: Bosca Land Pty Ltd v Wruck [1982] Qd R 111 at 117. See also Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 423.

330. Thus, ELS must show that the position of the landlord was such that the position of Stepping Stones was "wholly and finally disabled".

331. The Symonston landlord set out its position through its lawyers on 4 February 2008, describing its position as "quite firm". On 6 February 2008, it was stated that an offer in terms of three months cash rental and a twenty-one months rental bank guarantee was a precondition to the landlord considering a variation of the leasing to omit a requirement for personal guarantees, entry into the Deed of Right of Entry and consent to the assignment. At no stage did the landlord resile from its position, and it was repeated in the oral evidence of its director.

332. ELS submitted that the fact that the terms under which the Symonston landlord would consent have never changed is relevant. The requirements at 4 April 2008, the Sunset Date, remained as in February 2008. The only change was the identity of the person who was to provide the guarantees. I hesitate to rely on that, as it may seem like reliance upon hindsight which is not permissible. On the other hand, it may make the inference that the Symonston landlord's position was final easier to draw.

333. Stepping Stones submitted that the various negotiations with ELS' banker, the Symonston landlord and Stepping Stones were not complete. I do not agree. I accept that there could have been further negotiations - that is always possible. That is not, however, the relevant test.

334. The banker had shown that there was a shortfall in the facility. It was possible for the guarantees to be financed, but that is not the issue. I do not regard any discussion with ELS' banker to be relevant to this issue.

335. In my view, the position of the Symonston landlord was final to the requisite degree.

336. The Bonython landlords made their position equally as clear. On 8 February 2008, they required a bank guarantee for twelve months rental and a separate bank guarantee for three months rental. On 12 February 2008, ELS' lawyers were told that this requirement would not vary and it was a final position. That final position was repeated and, again, maintained it up until the Sunset Date. The only change was the source of the guarantees.

337. In my view, the position of the Bonython landlord was final to the relevant degree.

338. As I have noted, Stepping Stones submitted that negotiations with it were still proceeding between ELS and Stepping Stones.

339. That is not, however, supported by the evidence.

340. The evidence is clear that ELS explored a number of options with Ms O'Donnell and Stepping Stones. For example, Mr Rumball asked Ms O'Donnell to speak to the Bonython landlord but received no satisfactory response.

341. On 8 February 2008, the Stepping Stones' lawyer advised ELS' lawyer that the "final offer" of Stepping Stones was that Ms O'Donnell would provide a six month bank guarantee and that ELS would have to provide a bank guarantee for the balance of nine months. That offer was later withdrawn.

342. It may be that there is a value for the purposes of negotiation in asserting that offers are "final" when, in reality, there may be some further negotiation possible. It may encourage acceptance of that "final offer". I do not think, however, that those who propound such offers can complain when the finality with which they are expressed is taken seriously.

343. Thus, there was, as outlined above (at [118]-[120]), discussions about a reduction in price leading to an offer of a reduction of $100,000 that was the "final offer - full stop" of Stepping Stones. It does seem to me to be at odds with such an expression of finality that Stepping Stones submitted that it was "open to ELS" to pursue further discussions with Ms O'Donnell to see what she could be offered. That seems to me to go well beyond what, on the authorities, "reasonable endeavours" would require of ELS.

344. As to exploring with Ms O'Donnell whether she would assist in ameliorating the unacceptable offer of the Bonython landlord, that had been done on 7 February 2008 and was followed by Ms O'Donnell's "final offer" of a six month bank guarantee in total, with ELS being required to provide a nine month guarantee.

345. Again, it seems to me that this finality is something that ELS was entitled to accept and not be required, in the face of such finality, to continue to negotiate, at least not in order to meet its "reasonable endeavours" obligations.

346. Indeed, though this was neither pleaded nor argued, it may be that there is a basis for holding that such expressions of finality, when subsequent events show that they are somewhat hollow, breach the obligation of Stepping Stones to use reasonable endeavours to have the unrealistic demands of the landlords ameliorated, given that the primary obligation under the contracts to have the landlord's consent to assignments of the lease was imposed by the contracts on Stepping Stones.

(e) Were the final conditions imposed by the landlords properly able to be rejected by ELS under the contracts?

347. There were two relevant contractual obligations that need to be considered in order to determine whether ELS was entitled to regard the conditions that had been imposed by the Symonston landlord and the Bonython landlord as being unacceptable and able to be rejected by ELS under the two contracts. These are in cl 2.1(d), which provided that the transfer of the leases for the premises in each case (or, an option not pursued, a new lease) was to be "on conditions acceptable to ELS, as provided for in this Agreement" and, clearly what was referred to by "as provided for in this Agreement", namely cl 9.1(g), that the conditions in any deed of covenant in connection with the transfer of the lease must be "on terms that are acceptable to ELS, in its absolute discretion".

348. Both landlords did require a deed of covenant in connection with the assignment of the leases, and the terms of the deeds were such that ELS regarded them as unacceptable.

349. Stepping Stones made three arguments that these provisions did not permit ELS to proceed as it did.

350. In the first place, it submitted that to give a "plenary" construction to the provisions, that ELS could rely on them if it subjectively decided that the terms or conditions were unacceptable, would be to render the contracts illusory. Stepping Stones relied on what was said in Placer Development Limited v Commonwealth [1969] HCA 29; (1969) 121 CLR 353.

If customs duty is paid upon the importation into Australia of the plywood, veneers, logs and other products of [a company which was to be formed by the contracting company], and is not remitted, the Commonwealth will pay to the [company] a subsidy upon the exportation of these products from the Territory for entry into Australia of an amount or at a rate determined by the Commonwealth from time to time, but the amount of subsidy paid shall not exceed the amount of customs duty paid and not remitted

352. Clearly, there was an apparently positive obligation, but ultimately one which was entirely at the discretion of the Commonwealth. It is, therefore, no surprise that Taylor and Owen JJ said (at 361):

Obviously there is a complete absence from the clause, and from the Agreement as a whole, of any indentifiable criteria by which it can be said the parties intended the amounts or rates to be determined; this is left solely to the discretion of the Commonwealth. This being so the clause amounts to no more than a promise to pay what, in all the circumstances, the Commonwealth in its discretion thinks fit and, as such, is wholly unenforceable.

353. Their Honours had regard to earlier English decisions where payment was provided for, but in reality were entirely discretionary. Thus, in Taylor v Brewer (1813) 1 M & S 290; 105 ER 108 the relevant clause was

that any service to be rendered by him should be taken into consideration, and such remuneration be made as should be deemed right.

and in Roberts v Smith [1859] EngR 317; (1859) 4 H & N 315; 157 ER 861 the clause was:

It is distinctly agreed and understood that if the Company is not formed and carried out, that part of your letter which alludes to your salary be null and void, and that at the expiration of three months it is entirely left to me [the employer] to give unto you such sum of money as I may deem right as compensation for labour done in the event of the company not being carried out.

354. The characterisation of such obligations as illusory and, therefore, unenforceable has not prevented enforceable contracts from containing a discretionary element. Thus, in Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571, the High Court upheld a contract in which the purchaser was entitled to the protection of a finance clause in which he was to determine whether the available finance was "satisfactory". The court held that the clause was not illusory, for the purchaser was obliged to exercise a bona fide choice and did not have an entirely unfettered discretion. Whether the test was subjective or objective, there was a sufficient degree of certainty. As Gibbs CJ said (at 578-9):

If the words of the condition are understood to import a subjective test ... it is impossible in my opinion to regard the condition as uncertain. The question whether the purchaser does think the finance satisfactory is a simple question of fact ... On the other hand, if the test is an objective one, and the question is whether the finance ought reasonably to be regarded as satisfactory, I should not have thought that the clause is too indefinite for the courts to be able to attribute any particular contractual intention to the parties.

355. In Erley Pty Ltd v Gunzberg Nominees Pty Ltd [1998] ANZ Conv R 522, the Full Court of the Supreme Court of Western Australia had to consider a contract where it was

conditional upon the undermentioned lender(s) or any other lender(s) acceptable to the purchaser, approving ... the grants to the purchaser of a loan(s)

356. A bank offered the purchaser a loan, but on terms different from those previously indicated by a broker who was arranging finance on behalf of the purchaser. The bank was acceptable to the purchaser but the court held that the terms of the loan had to be acceptable.

357. The asserted unacceptable terms were three. The first was that the interest was higher than anticipated in the indicative range provided by the broker. The vendor submitted that the rate was only marginally higher than that and so not unreasonable.

358. The second was that annual reductions of principal were required, whereas the purchaser wanted an interest only loan with the principal repayable at its conclusion. The vendor submitted that such repayments were to be expected and the amounts were small, having regard to the total loan and so not unreasonable.

359. Thirdly, the purchaser was required to provide additional security by increasing a security already held by the bank over other property. The vendor submitted that the additional security was minimal and should not be seen as onerous and so not unreasonable.

360. The Court upheld the purchaser's rejection of the finance as offered. It held that the contractual obligation was not illusory and did not give the purchaser an "absolute or unfettered right to decide what is satisfactory". The Court also held that the purchaser was required to act honestly but that there was no obligation to act reasonably as well, though it held, despite the vendor's submissions, that the purchaser had acted reasonably in rejecting the loan.

361. While there is no clear majority in the High Court in Meehan v Jones as to whether the test of what can be considered acceptable by a party to a contract with such a clause is subjective (that is, honesty) or objective (reasonableness), Courts of Appeal in at least three States have held that the test is one of honestly only: Progress and Properties (Strathfield) Pty Ltd v Crumblin (1984) 3 BPR 9496 at 9497; McCourt v Cranston (2012) ANZ ConvR 12-006 at 81; [41] and Gold Coast Waterways Authority v Salmead Pty Ltd [1997] 1 Qd R 346 at 358-9.

362. I note that in Commonwealth v Tasmania [1983] HCA 21; (1983) 158 CLR 1 at 227, Brennan J in dicta suggested that the obligation was of one honesty and reasonableness.

363. On the state of the authorities, however, it seems to me that all that is required is that ELS held an honest belief as to the unacceptability of the terms of the consent required by the landlord.

364. That applies, in my view, clearly to cl 2.1(d), but I have some difficulty with the reference to "absolute discretion" in cl 9.1(g), which imports at its most literal level a discretion that would not be amenable to review even for honesty. It seems to me that this goes too far, and it cannot add any greater immunity than Meehan v Jones has provided, namely that it must still show a subjective honesty in its application. I imply that in order to give the term of the contract validity; it would need so to be construed to be part of the contract.

365. As Lord Hoffman said, "the parties are unlikely to have intended to agree to something ... legally ineffective": Bank of Credit and Commerce International SA v Ali [2001] UKHL 8; [2002] 1 AC 251 at 269. Thus, where there are two constructions of a term, both equally plausible, and on one the term will be valid and on the other invalid, it is preferable for the court to prefer that construction which validates the term: Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation [2008] FCA 1951; (2008) 173 FCR 359 at 408; [170].

366. In my view, the construction of the term consistently with the approach I have outlined would render the term valid, but ensure that it was able to have some limits placed on it. That is to say, ELS must honestly have formed the view that the terms required by the Symonston landlord and the Bonython landlord were unacceptable.

(f) Did ELS honestly find the conditions imposed by the landlords unacceptable?

367. Stepping Stones submitted that the purpose of the termination of the Symonston Contract and the Bonython Contract was to avoid the contracts in circumstances where ELS could respond to changed market conditions.

368. There is no doubt that, with the changes in the fortunes of ABC Learning Centres Limited, the market had changed and that made the contracts less commercially viable. That, however, is not sufficient. As Pincus JA said in Gold Coast Waterways Authority v Salmead Pty Ltd at 362:

In my opinion, a desire to escape from a conditional obligation does not necessarily make the steps taken to that end dishonest ones. The evidence presented was not in truth satisfactory and the appellant relied upon that circumstance; if it did so mainly or wholly because it did not wish the option to be effectively exercised, that could not prevent it from relying on non-fulfilment of the condition.

369. To the same effect was what Lord Atkin said in Arcos Ltd v E A Ronaasen & Son [1933] UKHL 1; [1933] AC 470 at 480:

If a condition is not performed the buyer has a right to reject. I do not myself think that there is any different between business men [or women] and laywers on this matter. No doubt, in business, men [or women] often find it unnecessary or inexpedient to insist on their strict legal rights. In a normal market if they get something substantially like the specified goods they may take them with or without grumbling and a claim for an allowance. But in a falling market I find that buyers are often as eager to insist on their legal rights as courts of law are ready to maintain them.

370. This approach has been followed in Australia. In Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at 328; [37] the High Court observed:

[T]he court will not readily relieve against loss of a contract for sale validly rescinded by the vendor for breach of an essential condition; and, in particular, equity was not authorised 'to reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side's situation more favourable.'

371. It repeated that in Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367 at 375; [24]:

[T]he decision in Tanwar indicates that equity does not intervene in such a case to reshape contractual relations in a form the court thinks more reasonable or fair where subsequent events have rendered the situation of one side more favour than that of the other side.

372. The fact that the motive for the termination of a contract is irrelevant has also been articulated in decisions of other Australian courts. Thus, in Actall Pty Ltd v Pacific Bay Development Pty Ltd [2006] NSWCA 190 at [56]- [58], Ipp JA, with whom Mason P and Giles JA agreed, said:

1. In my opinion, in the circumstances of this case, where the parties have expressly agreed on the extent of the limitations on the vendors' right to rescind, there is no requirement for equity to intervene. The mere fact that subsequent circumstances have resulted in Pacific Bay [the vendor] benefiting financially from its own rescission is not material. The mere fact that Pacific Bay was motivated by its own financial interest does not constitute the rescission unfair. The parties, by the very terms of their agreement, agreed that this would be Pacific Bay's (conditional) right in the circumstances that in fact prevailed. To paraphrase Callinan J in Romanos [v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367] at 385, there is no reason to suppose that this was not a matter that was factored into all of the terms and conditions of the contract, including in particular the price and the time within which it was to be paid. To paraphrase Kirby J in Romanos at 383, this conclusion is reinforced by the entire circumstances of the relationship between the parties; the commercial character of the transaction and of Actall; the availability to Actall at all times of independent legal advice; the explicit terms of cl 28.2; and the absence of any suggestion that Actall was disadvantaged, vulnerable or otherwise in need of equity's protection from a party in a superior position.
2. Mr Power submitted that the fact that Pacific Bay intended to obtain a higher price from Actall, a purchaser which under the Contract was entitled to acquire the villa at a lower price, led to Pacific Bay's rescission being in bad faith. He accepted that, had Pacific Bay simply rescinded and put the units on the open market, Actall would have had no complaint.
3. In my opinion, the fact that Pacific Bay hoped in the circumstances as they turned out to improve on the price under the Contract by entering into a new contract with Actall (and not some other party) is not unfair or improper or unconscientious. The situation is one that can readily arise under this kind of commercial transaction, which is of a very ordinary and common kind, involving the exercise of a contractual right according to a bargain that the parties - without any element that could possible attract the intervention of equity - have made. The situation would have no different if the market had fallen and if it had been the purchaser that sought to exercise the contractual right of rescission.

373. More recently, Brereton J had to consider in Kayserian Nominees (No 1) Pty Ltd v J R Garner Pty Ltd [2008] NSWSC 803 an issue of whether a purported rescission by the defendant was ineffective by reason of bad faith, arbitrariness, capriciousness or unconscionability. After considering the relevant authorities, including those to which I have already referred, his Honour came to the following conclusion (at [42]):

If I had to decide as a matter of fact what was Garner's true motive, I would accept Kayserian's submission in that behalf, particularly given that, on 30 May, Kayserian indicated that it was content to settle with or without a building certificate, yet Garner persisted in maintaining its rescission. It is difficult to understand Garner's decision to rescind, and to persist in it, unless there were some commercial benefit in doing so. But, as Actall v Pacific Bay Development makes clear, the circumstances that the predominant or sole reason for exercising a right of rescission is the commercial interest of the rescinding party is quite beside the point. Indeed, in almost every case in which a right of rescission is exercise, it is not just, or even primarily, because of the ground which has arisen to trigger the right of the rescission, but also if not predominantly because the rescinding party considers it would be better off if it exercises the right to rescind than if it does not. The passage I have already cited from Actall v Pacific Bay Development [that is, [56]]shows that such considerations do not vitiate the exercise of the right of rescission.

374. See also Landbank Tinana Pty Ltd v McKay [2006] QSC 055.

375. In this case, it may be that the nature of the right to terminate in the Symonston Contract and Bonython Contract leaves room for some element of review of the motive of ELS. That is to say, a court may well scrutinise the circumstances of the exercise of a power to terminate because terms were "unacceptable" to ensure that there was actually some rational basis for such a finding (though less than "reasonable") and that termination followed an honest belief in their unacceptability. It may be that an irrational belief cannot be honestly held in these circumstances.

376. Stepping Stones submitted that the ELS board meeting on 31 January 2008 made no relevant decision about termination. Certainly none is recorded in the minutes.

377. It does not seem to me, however, that this is particularly relevant. It is clear that members of the board expressed concern about the requirements of the two landlords and described them as unacceptable. Mr Hartnell's evidence, and it was not relevantly challenged, was that "every director who spoke said those conditions were unacceptable". That Mr Hutchison attempted to negotiate further does not undermine this position.

378. The expressed view of the board is entirely relevant to the honesty of the view to be held at the date of termination by ELS. That view was communicated to management of ELS as both Mr Hutchison (CEO) and Mr Rumball (CFO) were present. The reason expressed was in terms of the financial demands that this would place on ELS when it did not have the resources to meet them.

379. I have concluded that the board was of the view, at that time, not merely that the landlords were "asking for larger bank guarantees" but that, for financial reasons, they were unacceptable.

380. Despite this, and presumably in compliance with its duty to use reasonable endeavours to have the various conditions precedent of the contract met, ELS continued to negotiate with both of the landlords and with Stepping Stones.

381. Before the board meeting of 27 February 2008, matters had changed, with the changed situation of ABC Learning Centres Limited.

(a) no legal advice presented as to whether the contracts might be terminated or how the conditions precedents may be met;

(b) there was no proposal about how ELS could plan to satisfy the conditions precedent before the Sunset Date;

(c) there was no report on the negotiations with the bankers for ELS;

(d) there was no report from Mr Hutchison about what problems that landlords were creating for the board.

383. While clearly the impetus for considering termination of the initial four and then only two contracts was the market situation that had been identified, that, as noted above, is not conclusive that an honest opinion that the conditions required by both the landlords' were unacceptable was not held at the time.

384. The board made it clear that, while wishing to terminate all four contracts, it instructed Mr Hutchison to do so only if such termination was legally valid. Thus, a pre-condition was that there must be a valid legal reason to terminate. The directors who gave evidence were clear that this was so, and I accept their evidence. The senior staff also gave evidence to the same effect, and I accept that evidence also.

385. It is relevant that, while the board wished, for commercial reasons, to terminate the contracts for purchase of all four centres ELS had contracted to purchase in the ACT, two of the Contracts were in fact completed and only two were terminated. It is also relevant that one of the contracts completed was for the purchase of the least commercially sound of the four centres. The relevant difference can only be whether there were legally valid reasons for termination.

386. Stepping Stones submits that, by the time of this board meeting, ELS was "not making any attempt to fulfil the Conditions [P]recedent". That submission ignores the fact that, as I have found, both landlords and Stepping Stones had communicated what ELS was entitled to accept were final positions as to the terms and conditions under which the landlords were prepared to consent to transfers of the respective leases.

387. While ELS, had it decided not to terminate, could have attempted further negotiation, it is entirely speculative as to whether it would have been successful. In the case of each of the landlords, subsequent events strongly suggest such further negotiations would not have been successful. So far as Stepping Stones is concerned, no action was taken by it until after termination had occurred when its "final offer" was completely jettisoned and entirely different arrangements proposed. That does not inspire confidence that further negotiation would have produced any amelioration of what had forcefully been described as "final offer - full stop".

388. Stepping Stones further submits that, because the four ACT centres were dealt with together, that "made clear that the specific problem with the Symonston and Bonython landlords were irrelevant to ELS' considerations". I reject that as a non-sequitur. It again fails to distinguish between motive and impetus and legal entitlement. There was nothing at the meeting of 27 February 2008 to suggest that the clear view of the board expressed on 31 January 2008 had changed. Indeed, it is a fair inference that the changed financial situation would have exacerbated these concerns.

389. I am prepared to infer that the board, at its meeting of 27 February 2008, did not decide to terminate the Symonston Contract and the Bonython Contract on the grounds that the requirements of the respective landlords were unacceptable. That, however, is irrelevant, unless it cannot be found that ELS did, as a matter of fact, honestly believe that the requirements were unacceptable. I am not prepared to draw that conclusion from the proceedings of the meeting. Indeed, I am satisfied of the contrary.

390. Mr Hutchison, in his affidavit evidence, made it clear that the decision he made as CEO of ELS to instruct ELS' lawyers to terminate the Symonston Contract and the Bonython Contract was made because he held the view, consistent with that of the board expressed on 31 January 2008, that the requirements of the respective landlords were unacceptable. He repeated that in his oral evidence. I accept that evidence. This was corroborated by the evidence of the ELS' lawyers.

391. For the purposes of determining whether ELS honestly believed that the conditions imposed by each of the landlords were unacceptable, the views of the board on 31 January 2008 are relevant, but the principal evidence is that of the views of Mr Hutchison who gave the instructions to terminate the contracts.

392. I have considered in some detail the law as to the knowledge of corporations in Commonwealth v Davis Samuel Pty Ltd (No 7) [2013] ACTSC 146 at [498]- [509]. I do not need to repeat what I there said. In summary, I found the position to be:

(1) knowledge possessed by the board collectively is automatically imputed to a corporation: J C Houghton & Co v Nothard, Lowe and Wills Ltd;

(2) when a person has been appointed to assume control of a corporation or such control has been acquiesced in by the board, the knowledge of that person is knowledge of the corporation: Re Rossfield Group Operation Pty Ltd [1981] Qd 372 at 377; and

(3) knowledge of a number of officers can be aggregated to constitute the knowledge of a corporation: Westpac Banking Corporation v Bell Group Ltd (in liq)(No 3) [2012] WASCA 157; (2012) 270 FLR 1 at 396-7; [2189].

393. In the context of these proceedings, there are some additional comments that can be made:

(4) the state of mind of directors and managers who represent the directing mind and will of the corporation, and control what it does, is the state of mind of the corporation: H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159 at 172;

(5) it is not necessary that such a person be a director: Arthur Guiness, Sons & Co (Dublin) Ltd v The Freshfield (owners) [1965] P 294 of 343-4.

394. One of the leading English cases in Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1; [1972] AC 153 at 170 where Lord Reid said:

I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and [she] has hands to carry out [her] intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. [She] is acting as the company and [her] mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. [She] is not acting as a servant, representative, agent or delegate. [She] is an embodiment of the company or, one could say, [she] hears and speaks through the persona of the company, within [her] appropriate sphere, and [her] mind is the mind of the company. If it is a guilty mind, then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent. In that case any liability of the company can only be a statutory or vicarious liability.

395. This has been followed many times in Australia. In Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121 at 127, the High Court followed that decision and, on the facts of that case, held that the managing director, in placing an advertisement and dealing with responses to it, was "the mind of the company ... The liability was direct and not vicarious".

396. In Nationwide News Pty Ltd v Naidu [2007] NSWCA 377; (2007) 71 NSWLR 471, Beazley JA took the matter even further, holding (at 505; [235]-[236]):

It is necessary at this point, therefore, to consider the position and authority of Mr Chaloner within Nationwide News. As I have said, he was the Fire and Safety Officer. He directly reported to Mr Paine. Whilst Mr Chaloner was not said to be the next most senior manager below him, the fact that he reported to Mr Paine does indicate his high level of seniority in the organisation. More importantly, however, was the nature of his management role. He was in charge of all Nationwide News' security requirements, Australia-wide. His Honour accepted Mr Blinkworth's evidence that Mr Chaloner did not have the power to cancel ISS Security's contract with Nationwide News. Mr Blinkworth said that decisions of that nature were made at director level. However, Mr Chaloner was responsible for negotiating salary levels and the security operations that were provided to Nationwide News and for managing the contracts with ISS Security.

In my opinion, Mr Chaloner's position and his responsibilities were such that he was in fact the 'mind and will' of Nationwide News so far as the management of its security requirements were concerned. That responsibility included supervision of Mr Naidu's work. In this regard, it is irrelevant whether that situation evolved or was a matter of agreement (tacit or otherwise) between Nationwide News and ISS Security. In his 'appropriate sphere', namely, the arrangement and implementation of security arrangements for Nationwide News, Mr Chalenor was an embodiment of the company.

397. It seems to me that, given the authority the board gave Mr Hutchison on 27 February 2008 and more generally, he was relevantly the mind of ELS so far as the decision to terminate the Symonston Contract and the Bonython Contract is concerned. Insofar as it is appropriate, Mr Rumball and Mr Sacre were, as members of senior management of ELS, part of the collective mind of the corporation.

398. Mr Hutchison's evidence, both in his affidavit and orally, was that he believed that it was not in the best interests of ELS to accept the conditions imposed by the Symonston landlord and the Bonython landlord on the assignment to ELS of the leases of those respective premises. He was asked many questions in cross-examination, but was never really challenged as to that opinion or its bona fides. He certainly never resiled from it.

399. The evidence showed that there were genuine bases for such an opinion. These included:

(a) the value of the guarantees was approximately $500,000 or about 13% of the purchase price of the two centres;

(b) the guarantees would need to remain in place for at least seven years;

(c) that sum would not produce income for that period;

(d) the length of the guarantees exceeded the current requirements of the leases and were significantly longer than all but two of the leases for current ELS centres;

(e) there were fees charged by the banker of ELS for these guarantees, totalling approximately $122,000;

(f) the facilities with the banker of ELS would have to be re-arranged in a way that would be disadvantageous to ELS;

(g) it was undesirable for ELS to use its own cash for the guarantees and it would then have to use the overdraft for working capital at an increased cost; and

400. I am satisfied that ELS honestly believed that the requirements of the Symonston landlord and the Bonython landlord for transferring the respective leases were not acceptable to ELS.

(g) Had ELS bound itself to find the requirements of the Symonston landlord and the Bonython landlord acceptable prior to 29 February 2008?

401. Stepping Stones pleaded that, prior to 29 February 2008, ELS agreed to the requirements for consent made by the Symonston landlord and the Bonython landlord, apparently thereby preventing itself from deciding honestly that the terms were unacceptable and so undermining the basis for terminating the contracts.

402. As to the Symonston landlord, the claim is that a letter sent by ELS' lawyers on 7 February 2008, soon after the board meeting of 31 January 2008, and an email sent by ELS' lawyers to the landlords' solicitors on 8 February 2008 (at [81]-[83] above) constituted an agreement to this effect. There was no direct response to the letters though draft documents were then sent as a consequence.

403. The email was, however, part of ongoing communications between the respective lawyers showing that there were continuing negotiations. The author, one of ELS' lawyers, stated in oral evidence that it did not reflect instructions he had received from ELS in an unqualified form. In subsequent communications, he stated that he was waiting for final instructions. That is not entirely consistent with an email from an employee of ELS to ELS' lawyers dated 7 February 2008 which stated:

We (Grant & I) spoke to Fiona O'Donnell this afternoon and confirmed with her that she would speak with the Bonython solicitors to find out what their requirements were to have the Deed of Right of Entry signed unamended. She was also going to arrange for any appropriate incentives to be put into place for Bonython to get the deal across the line as ELS had played its part and had agreed on the 21 month bank guarantee and 3 month cash bond with Symonston solicitors regarding their Deed of Right of Entry.

From your instructions this afternoon advising that Fiona would leave her 3 month bank guarantee in place for Bonython and ELS come up with the remainder 21 months (as same for Symonston), we confirm that we have never offered Bonython solicitors a bank guarantee for the Deed of Right of Entry to be signed. As mentioned earlier and as per our agreement with Fiona O'Donnell it was up to Fiona to secure this arrangement and ensure the Deed would be signed unamended.

404. Stepping Stones, however, submitted that, for the purposes of these proceedings, that email "can be ignored".

405. There were also suggestions, which I have referred to above (at [87]-[105]), that conversations between Mr Barton and Mr Rumball constituted such an agreement. I have rejected that.

406. ELS submitted that the communications between lawyers was at all times equivocal and qualified. To some extent that is correct, for it raised the need for the proposed variation of amount of the guarantee during the currency of the lease to be omitted. Thus, it cannot be said to be unconditional.

407. That variation was, however, agreed in part in the reply of the Symonston landlords' lawyers later that day, but, again, agreed in part, requiring an updating of the amount of the option is exercised.

408. The next response did not directly address that issue, but made some comments on the drafts of relevant documents received. Further amended drafts were then sent and ELS' lawyers responded

subject to any final instructions from my client ... these documents look OK. Could you please put them in final form

409. Again, there is no unconditional or unqualified agreement. The process was still at a negotiation stage. It could not be said that there was an agreement, though on the narrow issue of the bank guarantees, I accept that it had been offered.

410. I do not consider that the offer in relation to the bank guarantee can be separated from the rest of the negotiations, however, and made somehow enforceable on its own.

411. ELS submits that, even were there to have been an agreement, that did not prevent ELS from changing its mind. The issue is whether the requirements were acceptable. That is different from whether any agreement was reached. Given that I do not consider there was an agreement, the latter issue does not arise.

412. The offer is relevant, however, to whether ELS honestly believed that the terms were unacceptable. The board had expressed a strong view a little more than a week earlier that these were not. That view was unequivocal. Mr Hutchison nevertheless made a decision to try and meet the terms of the Symonston landlord. In any event, things changed after it discussed matters with its banker on 20 February 2008, and then as a result of the ABC Learning Centre Limited collapse on 26 February 2008. There was no time by which ELS had to decide whether the conditions were unacceptable, save, of course, that, after completion, it would lose that right.

413. I do not consider that ELS had, in any sense, bound itself to a view that the requirements of the Symonston landlord were acceptable such as to make the termination invalid because it did not honestly believe, when terminating, that the conditions were unacceptable. That it offered those terms at some point in negotiations did not mean it could not honestly change its mind, especially when circumstances changed so that the unacceptability of the terms was strengthened.

414. The alleged agreement with the Bonython landlord was said to have been made in an email sent by ELS' lawyers to the landlord's lawyers on 26 February 2008. That email, however, simply asked for confirmation of the amount of the guarantees. It was in no sense an offer or agreement. There is no evidence of any instruction to provide such an agreement or that the requirements had been accepted. Indeed, the evidence is to the contrary.

415. ELS was not bound by any commitment to the acceptability of the requirements made by the landlords, or either of them.

(h) Acceptability of meeting the requirements of the landlords

416. Stepping Stones provided extensive evidence and argument to the effect that ELS had cash or other resources which would have shown that the requirements of each of the landlords could be met with what was said to be no more than minor prejudice to the financial position of ELS.

417. This is very similar to the arguments put by the vendor in Erley Pty Ltd v Gunzberg Nominees Pty Ltd referred to above (at [355]-[360]). The nub of the point is as stated by Gibbs CJ in Meehan v Jones where his Honour said at 580:

It seems to me that unless a clause of this kind makes a clear indication to the contrary, its natural effect is to leave it to the purchaser to determine whether or not the available finance is suitable to his needs.

418. Thus unless the limited assessment of the considerations of ELS being dishonest or capricious, or perhaps irrational, the determination of ELS is final and enforceable. In my view, the considerations of ELS were rational and not capricious. I have already held that its view that the requirements were not unacceptable and was honestly held.

419. Stepping Stones tried to rely on deficiencies in the planning by ELS to justify this ground. For example, it referred to the evidence of Mr Sacre that ELS had not forecast any of the bank guarantees being requested. It was suggested that he agreed the model was defective; I do not read his evidence that way, but in any event, that cannot justify depriving ELS of its rights under the contract. If it had not forecast this need - which, in any event, it viewed as excessive and which was more onerous than in respect of all but two other lease arrangements - that does not mean that the requirements are any more acceptable. Indeed, it may reinforce the view that they were, in fact, onerous and unacceptable because no provision had, rightly or wrongly, been made for them.

420. The particular failures relied upon by Stepping Stones are:

(a) ELS did not use its available cash or overdraft facility to fund the bank guarantees;

(b) ELS did not do any working capital calculations to see whether or not it could use its cash and ascertain what other demands would be placed on the remaining working capital;

(c) ELS did not follow up enquiries with its banker regarding extending the bank guarantee facility or getting exceptions to the Loan to Valuation Ratio rectified;

(d) ELS did not try and include cash flow from the Symonston and Bonython centres in its cash flow projections when that would have ensured the Loan to Valuation Ratio was improved;

(e) ELS did not seek to solve the problem regarding non-compliant Deeds of Right of Entry for other business.

421. This is part of the allegation that ELS did not use its reasonable endeavours to meet the conditions. In essence, Stepping Stones submits that, had ELS taken those steps, it would have shown that it could fund the bank guarantees and it ought to have done so.

422. ELS submitted that although, in some abstract sense, ELS could afford the guarantees, this did not mean they were acceptable. Its case is that the consequences of doing so would be sufficiently prejudicial that to do so was unacceptable. I have identified the issues above (at [399]).

Unless ELS can demonstrate that for it to use the overdraft facility at the time was unreasonable, Stepping Stone's proof that the overdraft was available shows that there was no financial obstacle to ELS funding the Bank Guarantees sought by both the Symonston and Bonython landlords.

...

ELS cannot now say it was not a reasonable course to utilise the overdraft, because of the fees that would be payable. That might only be a rational consideration against utilising the overdraft if it appeared the company could not afford those fees. The fees were clearly affordable.

424. I have already rejected the need for ELS' decision to be required to be reasonable (though it must not be irrational), but it is up to ELS to consider its own position and the consequences of it.

425. In Meehan v Jones, Mason J pointed out at 588:

Primarily the object of such a clause is to benefit or protect the purchaser ... by ensuring that he [or she] is not under a binding obligation to complete if he [or she] is unable to obtain finance.

427. As pointed out by ELS, it does not disprove its contention that the requirements were not acceptable to show there was "no financial obstacle" to the provision of the bank guarantee. All that ELS had to show is that there is some real and not fanciful prejudice, but that is a long way short of a financial obstacle.

428. Similarly, the question of what is affordable is not to the point. That, contrary to its honestly held wishes, ELS is required to pay fees it had neither expected nor for which it made budget provision is a prejudice. Whether affordable or not, the fees were such a prejudice that ELS could honestly say the requirements were not acceptable.

No credible account can be given by ELS of its decision not to use its cash reserves and, if necessary, the overdraft available to it to complete the Symonston and Bonython Contracts, unless it had done a working capital calculation that showed that after using its available cash, that competing demands on its overdraft facility would be such that the transaction could not proceed without a major financial risk to the company.

430. Again, there is no authority or principle that holds the test to be that ELS could not rely on the clause, including in the context of its obligation to use reasonable endeavours to achieve the conditions precedent, unless ELS showed there is, as a consequence, a "major financial risk" to it.

431. The principal reasons why the requirements were regarded by ELS as unacceptable, which I have summarised above (at [399]), would not be obviated by any of the proposals made by Stepping Stones. These were matters that were, on the evidence, known by Mr Hutchison and Mr Sacre, and relied on by them.

432. Stepping Stones also complained that no working capital calculation was done before the decision was made to terminate. This again focuses on the wrong issue, which is not whether, in a kind of absolute sense, ELS can afford the costs or expenses rather than, when it has a contractual right to decide to terminate when the requirements are unacceptable, it can do so if it honestly holds the view that the requirements are unacceptable. That there will be costs requiring expenditure is a rational basis for holding that the requirements are not acceptable and this supports the evidence that the view was honestly held.

433. Stepping Stones further complained that the ELS banker was not pressed for an answer to the queries of Mr Rumball on 20 February 2008. It may be that the bank would have increased the facilities but, of course, at a cost.

434. Having carefully considered the evidence, I am satisfied that ELS made reasonable endeavours to ensure that the conditions precedent were fulfilled and did not fail to discharge this contractual obligation.

435. I am not satisfied that any of the evidence or argument that ELS could have met the extra expenses and cost of entering into the bank guarantees meant that ELS could not hold that the terms required by each of the landlords were unacceptable. I am also not satisfied that the obligation to use its reasonable endeavours prevented ELS from relying fully on its contractual right to decide what terms were unacceptable to it.

(i) Was ELS estopped from deciding that the requirements of the Symonston landlord and the Bonython landlord were not acceptable?

436. Stepping Stones also pleaded that ELS was estopped from denying that the requirements of the Symonston landlord and the Bonython landlord were acceptable.

437. For an estoppel, Dixon J, in Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641 at 674-5, set out the fundamentals as follows:

The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he [or she] has caused another party to adopt or accept for the purpose of their legal relations ... That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he [or she] would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption ... [T]he real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it ... Before anyone can be estopped, he [or she] must have played such a part in the adoption of the assumption that it would be unfair or unjust if he [or she] were left free to ignore it.

438. In short, there must be some kind of representation or conduct which has induced an assumption on which a party has acted to its detriment, and which assumption the person inducing it could not, with fairness and justice, be free to ignore.

439. Any representation must be clear, unequivocal and certain: Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 435-7. The party relying on it must have acted in reliance on the assumption induced by the representation to his, her or its detriment: Legione v Hateley at 437.

440. In this case, the highest that any representation comes is in the email from the lawyers for ELS to the lawyers for the Symonston landlord on 8 February 2008 in which an offer is made, subject to some qualification. It is not an assertion of acceptability of the requirements there offered; it is simply an offer. It is one that it appears ELS was prepared to make at that time.

441. Given that the email was clearly part of negotiations, it would be difficult to show that it was clear, unequivocal and certain. As Brennan J said in Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 423:

Parties who are negotiating a contract may proceed in the expectation that the terms will be agreed and a contract made but, so long as both parties recognise that either party is at liberty to withdraw from the negotiations at any time before the contract is made, it cannot be unconscionable for one party to do so. Of course, the freedom to withdraw may be fettered or extinguished by agreement but, in the absence of agreement, either party ordinarily retains his [or her] freedom to withdraw. It is only if a party induces the other party to believe that he [or she], the former party, is already bound and his freedom to withdraw has gone that it could be unconscionable for him subsequently to assert that he [or she] is legally free to withdraw.

442. Further, I could not see any reliance by Stepping Stones on any such representation. The highest it came to was the following evidence of Ms O'Donnell:

Ms O'Donnell, you were aware as at the time you had the conversation with Mr Reid that the requirements of the landlord were creating a problem? --- Correct.

That they were objected to by ELS? The requirements were objected to by ELS? --- Well, I was under the impression, your Honour, that they had agreed to the terms of the Symonston landlord at that stage.

I see? --- So my recollection of the conversation with Mr Rumball was only in relation to the Bonython landlord.

443. If "under the impression" is an assumption, then there may be some reliance, but only in respect of the Symonston premises and certainly not for the Bonython premises.

444. That assumption, however, must be quite limited, for at that time, Ms O'Donnell was prepared to reduce the price by $50,000 in respect of each contract - not just the Bonython Contract.

445. Finally, there was no evidence of any detriment resulting from Stepping Stones acting on the assumption.

446. In my view, ELS is not estopped from denying that the requirements of the Symonston landlord and the Bonython landlord were, as at 29 February 2008, not unacceptable to it.

447. As a result, I am satisfied that ELS was entitled to terminate the Symonston contract and the Bonython contract on 29 February 2008, as it did.

448. If I am wrong in finding that ELS was entitled to terminate the Symonston Contract and the Bonython Contract on 29 February 2008, then the contracts were "wrongfully terminated" by ELS, being a clear indication of the absence of its readiness and willingness to perform the contracts: Smith v Butler [1900] 1 QB 694 at 698. This, as Barwick CJ accepted in Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444 at 453, would constitute a repudiation of the contracts and acceptance of that repudiation would end the contracts. On the other hand, as Stepping Stones did not accept the termination as valid or the repudiation of the contracts, it would not, of itself, have terminated the contracts. See Heyman v Darwins Ltd [1942] AC 356 at 361.

449. As Stepping Stones did not accept the repudiation of the contracts (if it were repudiation), it remained bound to perform its obligations under them and ELS was entitled to take advantage of any failure of Stepping Stones to perform its obligations. This is clear from Bowes v Chaleyer [1923] HCA 15; (1923) 32 CLR 159, where Knox CJ said (at 169):

A repudiation, or, more properly, a breach by anticipation, of the contract by one party gives the other party the option of treating the contract as at an end or of waiting till the time for performance has arrived before making any claim for breach of contract. If he [or she] elects to wait - as the respondent did in this case - he [or she] remains liable to perform his [or her] part of the contract and enables the party in default to take advantage of any supervening circumstance which would justify him [or her] in refusing to perform it (Halsbury's Laws of England, vol. Vii., p. 439; Frost v Knight [(1872) LR 7 Ex, 111, at p 112).

It is clear that on and after 19th January, if not before, the defendant gave absolute and unequivocal notice to the plaintiff that he would not accept the goods - would not perform the contract. The plaintiff then had a right of election: he could have concurred with the defendant in rescinding the contract, and bring an action for the breach; or he could have treated the notice as inoperative, and proceed with the contract. The plaintiff chose the latter course; and thereby he remained subject to all his own obligations under the contract, and the defendant remained in a position to take advantage of any failure of the plaintiff to do his part. A door must be either open or shut; a contract must either subsist or be at an end. This contract was not at an end; and the question remains, has the plaintiff failed to fulfil the conditions which would entitle him to payment from the defendant.

451. The other member of the majority, Starke J, said (at 198-9):

What are the facts? Bowes, in effect, said: 'You need not tender any documents for goods shipped according to the contract; it is cancelled.' Chaleyer, in effect, replied: 'It is not cancelled; I will not accept or act upon your statement as a repudiation of the contract; you must perform the contract, and I will perform it on my part.' Chaleyer then endeavoured to perform the contract according to its terms. But he never tendered nor was he ever able to tender documents for goods shipped in accordance with the terms. He did not alter his conduct or position by reason of any act or statement of Bowes. He simply refused to be relieved from performance of the contract - he insisted that it should be performed not only by Bowes but also by himself. A finding that Chaleyer did not perform the contract because he was relieved from doing so by Bowes, or that he was always ready and willing, 'disposed and able to complete' the contract, if it had not been renounced by Bowes, cannot, I think, be made or justified upon these facts (Cort v Ambergate &c. Railway Co. (2); British and Beningtons Ltd. v. North-Western Cachar Tea Co. (3).

...

The misfortune of the case is that Chaleyer would not accept and act upon Bowes' renunciation of the contract, but insisted upon its performance, when he was never in a position to fulfil, on his part, the obligation of the contract relating to shipment. But the Court cannot relieve him of the consequences of his election. It can only apply the law to the facts as they actually exist.

452. See also Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235 at 250; Foran v Wight at 395-6.

453. It seems to me clear that in order to succeed, Stepping Stones must show that the Conditions Precedent had been fulfilled by the Sunset Date, as, were that not to occur, then ELS was entitled to terminate under cl 2.2(c). That was a requirement of the contracts which, were they not repudiated, remained to be satisfied or waived.

454. Stepping Stones submits that it had always been ready, willing and able to perform the contracts. That is what is required for specific performance. Accordingly, in order to consider the claims of Stepping Stones, on the assumption that I am wrong in finding that the two contracts were validly terminated on 29 February 2008, I need to consider further this claim of Stepping Stones.

455. Such a claim requires the claimant for an order for specific performance to prove

the making of each contract and its relevant terms, its performance and its readiness, willingness to perform the terms of the contract then to be performed, and its readiness and willingness to do all matters and things on its part thereafter

as stated by Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ in Tanwar Enterprises Pty Ltd v Cauchi at 320; [4]. See also Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 434; Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594 at 610.

456. Each of the contracts involve an interest in land, which usually makes damages, instead of specific performance, an inadequate remedy: Kennedy v Vercoe [1960] HCA 64; (1960) 105 CLR 521 at 523.

The essence of a suit for specific performance is a claim for equitable relief by way of an order to compel the performance of contractual obligations by a party said to be in default of its contractual obligations, which default renders a contract unable to go into execution. Usually the party claiming the relief is ready, willing but unable to complete the contract due to the default of the opposing party.

458. The court's aid is required, as noted by Dixon J in J C Williamson Ltd v Lukey [1931] HCA 15; (1931) 45 CLR 282 at 297, to order that some further act by the parties be done to put them into the legal relationship that the contracts contemplated.

459. ELS says that, in the events that occurred, if it was not entitled to terminate, then an order for specific performance is justified.

460. Accordingly, it is necessary to consider the events that occurred after 29 February 2008.

461. As a result of its refusal to accept the purported termination by ELS, Stepping Stones continued to prepare for completion. Completion was specified in each of the contracts to be on the Completion Date (cl 4.2), which was defined cl 26.1 of each Contract and which I have set out above (at [15]).

462. Given that, as appears below, the Conditions Precedent were, in fact, never satisfied, the Completion Date never arrived. Thus, ELS was never in default of failing to complete.

463. Given the difficulties with the conditions precedent in cl 2.1, the contracts provided for a Sunset Date, which was 120 days after the date of each contract, and cl 2.2(c) permitted ELS to terminate if a Condition Precedent was not satisfied on or before the Sunset Date. It was agreed that the Sunset Date was 4 April 2008. It appears later (after 4 April 2008) that there was some suggestion that it was in fact 8 April 2008, but the pleadings confirm that it was 4 April 2008. That is the date for the purpose of these proceedings, it having been pleaded and admitted. See Pioneer Plastic Containers Ltd v Commissioner for Customs and Excise (1967) 1 Ch 597 at 601-2.

464. Accordingly, unless Stepping Stones was in a position to comply with all the condition precedent on 4 April 2008, ELS had a further right to terminate each of the Contracts.

465. The issues then that need to be addressed is whether on the events that occurred as already outlined, Stepping Stones could show that all the Conditions Precedent had been satisfied. The Conditions Precedent at issue were whether there had been:

(a) provision of a written consent of the Symonston landlord to the transfer of the lease;

(b) provision of a written consent of the mortgagee of the Symonston landlord;

(c) provision of a signed Deed of Right of Entry by the Symonston landlord

(d) entry into employment contracts of 75% of employees in the Symonston centre;

(e) provision of a written consent of the Bonython landlord;

(f) provision of a written consent of the mortgagee of the Bonython landlord;

(g) provision of a signed Deed of Right of Entry by the Bonython landlord;

(h) entry into employment contracts of 75% of employees in the Bonython centre;

(i) the conditions imposed by the landlords remained unacceptable to ELS.

466. I shall consider each of these below in turn.

467. This requirement was set out in cls 2.1(e) and (g) and cl 9.1(d), (e), (f) and (g).

(1) the Symonston landlord to consent in writing to the transfer of the lease;

(2) that the conditions of such a transfer be acceptable to ELS; and

(3) the Symonston landlord's execution of the Deed of Right of Entry to be sent to ELS to be held as an escrow until completion.

469. Stepping Stones traced the communications between the various parties and submitted that consent had been given to the transfer of the lease. In oral evidence, Mr Barton from the Symonston landlord said he had given his consent to the transfer of the lease.

470. There was, however, no document in those terms. The correspondence showed the basis on which consent would be given. That, of course, is not enough. It showed that consent would be available, necessary for an order for specific performance, but not the fulfilment of the Conditions Precedent. This is a critical difference in the consideration of this issue.

471. In Secure Parking (WA) Pty Ltd v Wilson [2005] WASC 264 at [75], La Miere J made clear the distinction between consent to the assignment of a lease and, alternatively, an agreement to consent in the future to such an assignment on conditions. Although an appeal from his Honour's decision was upheld, it was expressly held that this part of his Honour's decision was not challenged: Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; (2008) 38 WAR 350 at 372; [81].

472. Both the Symonston Contract and the Bonython Contract contemplated that the consent to assignment of the respective leases would be effected by formal deeds of covenant and the lawyers for both landlords had prepared such deeds which it was expected would be executed and delivered as the operative consent. The documents themselves made this plain. Indeed, the consents had to be signed in conjunction with other deeds which varied the terms of the leases to give effect to the relevant arrangements.

473. To suggest that the provision of unsigned deeds is the consent in writing of the landlord is inconsistent with the communications between the lawyers for the Symonston landlord and the lawyers for ELS in which the former submitted unsigned documents for execution by ELS without in any way suggesting that these are the consent of the Symonston landlord already given.

474. The contemplated consent in writing of the Symonston landlord to the transfer of the lease of the premises was not obtained by Stepping Stones prior to the Sunset Date.

(b) Consent of the mortgagee of the Symonston landlord

475. It was accepted by both parties that the National Australia Bank Ltd was the mortgagee of the Symonston premises. Stepping Stones accepted that there was no consent given by the bank to the transfer of the lease of the premises.

476. There was evidence that the bank would likely have consented to the transfer but that is not a fulfilment of that relevant Condition Precedent. It was, however, by no means certain that the consent would be given and the bank officer who gave evidence did not have the final say on whether consent would be given.

477. It was submitted that ELS had breached its obligations to use reasonable endeavours to have the conditions precedent satisfied because it had not requested consent.

478. In fact, on 25 February 2008, the lawyers for ELS wrote to the Symonston landlords' lawyers seeking that they obtain the Bank's consent. As Stepping Stones submitted, "[t]he person who would ask for that consent is the Bank's customer Mr Barton of [the Symonston landlord]". Thus, it was entirely appropriate for ELS to write to that corporation's lawyers, as it did.

479. Perhaps more significantly, it was the duty of Stepping Stones under the Symonston contract to secure the consent of the mortgagee of the premises and at its cost. ELS discharged its obligation.

480. While this consent was not a condition under cl 2, it was a condition to the contract under cl 9.1(e) and failure to provide those consents by the Sunset Date entitled ELS to terminate the contract.

481. There was no consent in writing of the mortgagee of the Symonston premises to a transfer of those premises by the Sunset Date.

(c) Deed of Right of Entry for the Symonston centre

482. Clause 2.1(g) required that the Symonston landlord sign a Deed of Right of Entry and provide it to ELS prior to Completion to be held as an escrow.

483. There was no signed Deed of Right of Entry provided to ELS by the landlord of the Symonston premises.

484. Stepping Stones submits that there is "no additional question" about such a Deed because "the Symonston landlord's consent to assignment which was bargained for by ELS before 29 February 2008 ... was on the basis that if ELS (or Stepping Stones) provided the bank guarantees ... the landlord would agree to enter into a Deed of Right of Entry".

485. That was, of course, relevant to the claim for specific performance, but that claim is only maintainable if the Symonston Contract remains on foot. That requires a consideration of the terminations of the Symonston Contract. So far as the termination on 9 April 2008 is concerned, ELS was, under cl 2.2(c), entitled to terminate if, in particular, cl 2.1(g) had not been satisfied. This required the provision of the signed Deed of Right of Entry to ELS before completion. The evidence was that no such document had been duly signed much less provided to ELS. There was no compliance with this Condition Precedent.

486. The agreements which were distributed to staff members at the child care centres to be purchased provided a mechanism for the transfer of employment to ELS of the staff members of each centre at the time of sale. This is, of course, an important issue because a child care centre is unlikely reasonably and commercially to be sold as a going concern without such a transfer. To have a seamless transition with the same staff, known to the children, is an obvious advantage to the success of the transfer.

487. The process was set out in cl 8.2 of each of the Symonston Contract and the Bonython Contract. That clause made it clear that ELS would invite employees to apply for employment with ELS. The documents by which this invitation was to be accepted were, however, actually employment contracts. They were handed out to staff on 17 January 2008 after they had been provided by staff of ELS to the director of each centre. There was then an induction evening for the staff of all centres who were given instructions about filling in the documents and ensuring their accuracy.

488. A total of twenty-one staff members of the Symonston centre were invited to apply by signing the agreements that had been distributed to them. Of those invited, seventeen signed the agreements. That would satisfy cl 2.1(k) if that amounted to those staff members who signed actually "entering into employment contracts" with ELS. The signed agreements were not returned to ELS' offices, nor signed by an employee of ELS.

489. As I have noted above, the Symonston centre director said that she had been told that she should sign the agreements on behalf of ELS each to be held as an escrow pending completion and retain them at the centre. This was denied by ELS.

490. There was also no evidence that, at the induction evening, the staff members were told that they had to return the agreements within ten business days as required under cl 8.2(b). If that was not told to the staff members, then there has not been strict compliance with cl 8.2(b). It was submitted that this relieved Stepping Stones of compliance with cl 8.2(c). I am not sure that this follows, but it may not make any difference in the case of the employees at the Symonston centre. Clause 8.2(b) merely requires that each staff member return the acceptances within the specified time, it does not render them nugatory if returned after that time.

491. The duty is, of course, imposed on Stepping Stones and the director is an employee of Stepping Stones. Nevertheless, the return of the agreements to ELS was not specified as part of the condition precedent in cl 2.1(k); the entry into contracts with ELS was.

492. Evidence was given about this issue by one of ELS' lawyers. The evidence was:

But if this matter had proceeded to settlement rather than being terminated the following day, given the information that was forwarded to you [by email about the returned employment agreements], presumably what would have happened is that in the settlement process you would have made inquiries of the solicitors for the vendor as to whether or not the employment agreements were available and could be sent so they could be checked off prior to settlement? --- That would have been one avenue. The other would have been to contact ELS and to obtain those directly from the vendor. Like I said, employment agreements was an issue dealt with between the vendor and our client directly.

...

So look, I just - that's certainly one avenue, but I would have gone back to ELS and said look, contact the vendor and - and find out where these employment agreements are. As I've said in the past on previous acquisitions, there's been a case where the vendor has held on to the employment agreements, to be handed over at settlement or there have been other arrangements, so at this point in time also I recall in previous conversations with [Stepping Stones' lawyers] that issues such as these were to be left for the vendor and our client to - to deal with, but - yes.

So it's your understanding of some of the settlements and some of the other child care centres that it was a not uncommon practice to deal with in effect the numbers of employment agreements, that in effect ELS said to the vendors, leave the signed agreements at the centre and we'll pick them up - - - ? --- No - - - .

493. An objection was then made to this question and, after argument, some further evidence was given as follows:

Now one of the things you needed to do was a matter of practice when arranging settlement was seeing whether or not that condition precedent [namely cl 2.1(k)] had been satisfied? --- That's right.

And how did you normally go about doing that? --- Just an email to the client, basically setting out any outstanding matters or matters that needed to be attended to. I also sent out like a draft of my settlement - of my checklist, which was basically - which was basically just saying what needs to be done. So yes, it would have included the question, you know, have you received the - I wouldn't have said 75 percent of employee contracts, I would have said have you received the employment contracts back - - -

Yes? --- from - from the seller - - - .

And - - - ? --- or from the employees.

And may we take it, it wasn't your practice to require them to be handed over on settlement, if I can put it that way, but - - - ? --- Not to me directly.

No? --- There were - - -

Or to your agent settling for you? --- No. The usual practice, there was quite a lot of material to be passed - - -

Yes? --- from the vendor to the buyer. And a lot of that was just left at the centre. At the time ELS of settlement, there would have been representatives of ELS, leading up to settlement and on settlement, that was at the centre so that would have been business records, obviously, and books of account.

Basically what you did was to make sure that ELS was satisfied that condition precedent had been satisfied before settlement? --- They would need to be satisfied by that, yes.

494. While this is by no means exact, it does support the argument of Stepping Stones that the practice in relation to the agreements was not invariable and that there may have been some flexibility exercised from time to time, though one would expect that variations would perhaps be remembered.

495. I have set out the circumstances surrounding the agreements under cl 8 earlier (at [230]-[264]). I take all of that into account.

496. Having carefully considered all the evidence, however, I am not prepared to reject the evidence of the Centre Director that she was told to sign the agreements when returned by staff members. She actually did sign the agreements, all seventeen of them, and there was nothing in her evidence or demeanour that suggested that this was some frolic of her own or a plan by Stepping Stones. To my mind, it is actually reinforced by the fact that this did not happen at the Bonython Centre, where the Centre Director was not told to do so.

497. There was, also, no evidence to suggest other than that the agreements would be accepted as a matter of course. Indeed, the evidence of Ms Battersby above (at [258]) was that giving of the contracts was an "offer" by ELS accepted by the signature of the staff member. There was no evidence to suggest that there was any deliberative process to be carried out by ELS after receiving the signed agreements in which a determination was made as to which staff members were accepted as employees and whether any were not; indeed, such evidence as there was suggested to the contrary.

498. I am satisfied that the Symonston Centre Director was authorised on behalf of ELS to receive and sign the employment contracts and that, as a result, the Condition Precedent contained in cl 2.1(k) was met by the Sunset Date.

499. Many of the same issues arose in respect of the Bonython Contract as in the case of the Symonston contract.

500. So far as the consent of the Bonython landlord is concerned, the evidence is somewhat clearer.

501. On 8 February 2008, the lawyers for the Bonython landlord made the position clear in a letter to ELS' lawyers, stating:

Please note that before my client will execute the documents [namely the Deed of Assignment and the Memorandum of Variation of Lease] we require Certificate of Currency for insurance and a Bank Guarantee in the amount of $35,700.77.

502. On 26 February 2008, ELS' lawyers sent an email to the Bonython landlord's lawyer confirming an earlier conversation as follows:

Further to my conversation with Lorraine this morning, I note that your client will require receipt of the bank guarantees before it will provide its signed consent.

503. Later that day, the Bonython landlord's lawyers confirmed the position as follows:

Please note that it is a condition of assignment that these Bank Guarantees are available for our client before execution of the Deed and Memorandum of Variation.

504. This was later confirmed in the oral evidence of Mr Pfeiffer, one of the Bonython landlords as follows:

You say there you had consented to the deed of assignment and the variation of lease, you didn't in fact sign it, did you? --- No.

You never signed it. We lawyers distinguish between an actual consent and being prepared to consent, do you understand the distinction? --- Yes.

In your previous paragraphs of your affidavit you said you were prepared to consent to the assignment if you received the 12 month rental guarantee from the new lease? --- Yes.

Is that what you're meaning to convey in paragraph 29, that you were prepared to consent by signing those documents if you received the rental guarantee for 12 months on the new lease? --- Correct, yes.

505. While Stepping Stones relied on the various correspondence to submit that there was a written consent, this evidence shows clearly that this was not correct; the Bonython landlord would only sign the consent after receiving the relevant bank guarantees and these were never produced.

506. I am satisfied that, as at the Sunset Date, there was no written consent of the Bonython landlord to the transfer of the lease of the premises.

(f) Consent of the mortgagee of the Bonython landlord

507. Again, there was no contest but that the Australian and New Zealand Banking Group Ltd was the mortgagee and that it had not consented in writing to the transfer of the lease, at least in a formal sense.

508. In this case, the lawyers for the Bonython landlord wrote to the bank on 25 February 2008 and informed ELS' lawyers the next day. There was nothing more for ELS to do in discharge of its contractual obligation to use reasonable endeavours to have that Conditions Precedent satisfied.

509. Stepping Stones, however, relied on the fact that oral evidence from an officer of the bank was that the bank did decide, after proceeding with its usual procedures, including consideration of the matter by the bank's legal department, that it would consent to the transfer of the lease. An email was sent to the landlord's lawyers as follows:

I have discussed this matter with ANZ's legal department (they have reviewed your letter). They have stated that as the lease is being varied we must prepare, and have signed, a consent to lease prior to the title being produced and ANZ consenting to the variation and assignment of the lease.

I have requested a consent to lease be prepared however this is generally a lengthy process and will definitely not be ready to settle by Friday. I will let you know when the consent to lease is ready as the Pfeiffer's as well as the incoming tenet [sic] must sign and return.

510. A form of consent was then sent by email to the Bonython landlord's lawyers. It was clearly one prepared for another property as the names of the lessor and lessee, the description of the property and the number of the mortgage and title details had been "blacked out".

511. It was accepted by Stepping Stones that the bank did not take any steps to make that document appropriate to these circumstances and to sign it.

512. While the evidence of the bank officer was that "if the consent was prepared along these lines, the bank would sign it", she said that the document did not come back to the bank and the bank did not sign it.

513. She also said that the process for obtaining formal written consent is generally a "lengthy" one and that both ELS and the Bonython landlord would have to sign the consent before the Bank did so. There is no evidence that the Bonython landlord's lawyers sought execution of the consent by ELS or that ELS was ever advised that this was necessary.

514. I am satisfied that there was no written consent from the mortgagee of the Bonython landlord to the transfer of the lease from Stepping Stones to ELS.

515. As acknowledged by Stepping Stones, no executed Deed of Right of Entry had been provided by the Bonython landlord to ELS by the Sunset Date.

516. That it would most likely to have been signed if settlement had proceeded cannot repair that omission.

517. There were, relevantly, nineteen employees at the Bonython Centre and so the Condition Precedent required at least fifteen to enter into employment contracts with ELS.

518. Again, ELS relied on "usual practice" to show what the director at the Bonython Centre had been told.

519. While seventeen agreements were distributed, only eight signed contracts are in evidence. None have been signed for and on behalf of ELS as were those returned to the Symonston Centre. Five more staff members gave evidence that they signed such agreements, though apparently they cannot be found.

520. One staff member gave evidence that he could not recall signing an agreement but he "thinks" he would have done so. In respect of two other staff members, there were errors in the agreements and they had to be amended. One of those two said that she would have signed a corrected agreement.

521. On 29 January 2008, the Bonython Centre Director sought from ELS an agreement for a new staff member. She received one and gave it to the person, but there is no evidence that it was signed. No evidence was given by the staff member that she would have signed it.

522. The Centre Director gave evidence that she could not recall the staff of ELS telling her that the signed agreements should be returned to ELS. Indeed, her evidence was that she was told to keep them at the Centre as staff from ELS would "come down to help us during takeover". She repeated that she was told "[d]o not do anything with them".

523. Stepping Stones submits that cl 2.1(k) was satisfied because there were no invitations made under cl 8.2. This is based on complaints about non-compliance with the requirements of cl 8.2. Those were:

i. a temporal requirement. Cl 8.2 requires that the invitation be issued "a reasonable time after the satisfactory completion of ELS' due diligence enquiries". Those inquiries were not completed until 29 January 2008 but the invitations were made on 17 January 2008, before that time.

It seems to me, however, that an earlier submission of Stepping Stones, perhaps somewhat ironically, answers the challenge to this requirement. In its submissions, Stepping Stones said:

Proper attention should be given to the words 'on the terms of the invitation' in clause 2.1(k). They are important. These words describe the content of the employment contracts that must be entered into by 75% of employees in order to satisfy clause 2.1(k). The words 'under clause 8.2' merely qualify the invitation so as to identify the particular invitation to which clause 2.1(k) refers, in order to distinguish it from other possible invitations. However the words 'under clause 8.2' do not import mandatory compliance with the whole of clause 8.2 as a precondition to the application of clause 2.1(k). All they mean is that the invitation must at least purport to be issued in conformity with clause 8.2 but 'the invitation can be made by ELS under clause 8.2' (emphasis added), even if there is not perfect conformity with clause 8.2

It is clear that the point of the temporal requirement, having regard to the other times specified in the Bonython Contract, was to ensure that employees have sufficient time to consider the invitations made to them before completion. That the invitations were issued earlier is, in my view, quite irrelevant to the validity of the invitations.

ii. a content requirement. Clause 8.2 sets out conditions on the invitations to apply for employment in paragraphs (a) and (b). The first is that the invitations are conditional on Stepping Stones terminating the employment of the staff members with effect from the date of completion. The second is that the invitation must require the staff member to accept within ten days from the date of invitation and that, if accepted, Stepping Stones must immediately notify ELS.

Stepping Stones submits that there was no satisfactory evidence to establish that these conditions had been met in respect of the invitations that had actually been issued.

Again, strict compliance with cl 8.2 does not render the invitations that were made invalid. It is not in dispute that, at the induction evening, the staff were told to return the signed agreements to the Centre Director and most did.

To permit the staff a longer time within which to respond cannot be inimical to the validity of the invitation. There seems to me to be no question of what prejudice any of Stepping Stones, ELS or the staff members would suffer in these circumstances. Accordingly, while there was no evidence of strict compliance with cl 8.2(b), I do not regard that as relevant to the validity of the invitation.

As to the condition that the employment with Stepping Stones of each staff member was to be terminated, it seems to me that this is not required to be express in the document or stated at the induction evening as long as it is an integral part of the process.

On 4 January 2008, Ms O'Donnell circulated a letter to all staff about the purchase of the centres by ELS. That letter made it clear that the staff would cease to be employees of Stepping Stones and would become employees of ELS at completion, described as "cessation of business". It seems to me that this met the requirements of cl 8.2(a).

I reject the submission by Stepping Stones that cl 2.1(k) was satisfied because there were no invitations issued under cl 8.2.

524. I do not consider that the receipt by the Centre Director of the agreements amounted to receipt by ELS of the agreements in this case. It was not suggested in any of the evidence, unlike the position with the Symonston Centre, that this was advised by ELS. The evidence was, if accepted, that they should be kept at the Centre.

525. There is, however, an issue as to whether the correct legal position, in respect of the distribution of the agreements, is that they were an invitation to treat (cf, Carlill v Carbolic Smokeball Co [1892] EWCA Civ 1; [1893] 1 QB 256) or rather an offer; my inclination in the circumstances being the latter on the evidence, especially that of Ms Battersby. Thus, if they are an offer, then the signature on the agreement by the named staff members amounts to an acceptance and, once communicated, constitutes a contract.

526. Nevertheless, the offer (if the request to sign the agreement is an invitation to treat) or the acceptance of the offer, either of which were constituted by the staff member signing the document, both require communication to ELS before a concluded contract can occur. In this case, there was no such communication and so no concluded contracts.

527. In my view, Stepping Stones cannot show in relation to the Bonython centre that Condition Precedent 2.1(k) was satisfied by the Sunset Date.

(i) The conditions of transfer by the Symonston landlord remained unacceptable

528. ELS submitted that, even if the Symonston landlord had consented in writing to the transfer of the lease of those premises, the revised conditions remained unacceptable to ELS. This was because the drafting of the Deed of Assignment of Lease and the Variation of the Lease sent to ELS on 4 April 2008 meant that, although Ms O'Donnell would be required to provide a bank guarantee for the amount of twenty-one month's rent, it was still provided that if Ms O'Donnell's guarantee was called upon by virtue of a breach of the lease, then ELS would have to provide a replacement bank guarantee for the twenty-one month's rent within seven days. ELS was also required to provide a cash bond of three months' rent. It also required ELS to provide an additional bank guarantee if that bank guarantee was called upon to ensure at all times the amount secured was twenty-one months' rent. The documents also provided, in respect of the cash bond, that if it was called upon, then ELS was required within fourteen days to restore the full amount of the bond. It further provided that the terms relating to the bank guarantee were essential terms of the Deed.

529. Mr Hutchison, Mr Rumball and Mr Sacre each gave affidavit evidence that these terms were unacceptable because of the obligation to provide a replacement guarantee if the bank guarantee provided by Ms O'Donnell was called upon. This was onerous because it would require ELS to provide a bank guarantee of $280,000 within seven days.

530. It also required ELS to keep the guarantee at that level at all times which would have reduced the funds otherwise available to ELS.

531. The replacement guarantee was required if the Symonston landlord called upon the bank guarantee provided by Ms O'Donnell. That could be for any breach of the law including an unwitting one or, indeed, even where there was a dispute about whether there was a breach in the first place; the requirement for the replacement guarantee being triggered by the calling on of the bank guarantee provided by Ms O'Donnell, not by the resolution of any such dispute.

532. The term was uncommercial. Mr Barton of the landlord agreed with that as I have earlier noted (at [109] above).

533. Further, as that requirement was an essential term of the lease, the failure to provide a replacement guarantee on time would result in forfeiture of the lease.

534. Stepping Stones submitted that the likelihood of the replacement guarantee to be provided by ELS was "theoretical" and "so remote as to be almost fanciful". In a sense that may make the requirement even more unacceptable. A public company would then be required to act with prudence and make appropriate provision for the possibility of the bank guarantee being required on seven day's notice, but for a risk that was unlikely. This, in itself, makes the requirement unacceptable as a matter of logic.

535. Stepping Stones also submitted that the lease for one of the centres that ELS did purchase from Stepping Stones, namely that at Gungahlin, had a similar clause, yet ELS completed that purchase. The difference, however, was that the bank guarantee in that case was for only three months. That in those circumstances ELS did not terminate that contract but proceeded to complete, even though its board wanted to terminate all four purchase contracts, re-inforces that ELS made a genuine appraisal of its interests and honestly considered that the obligations required of the Symonston landlord were unacceptable.

536. Stepping Stones contended that, if condition 2.1(d) was not satisfied, it was because after 29 February 2008, ELS failed to comply with its contractual duty to use its reasonable endeavours to achieve compliance with the Conditions Precedent and also failed in its duty to co-operate, an implied term said to form part of the contracts.

537. To consider this, it is, of course, necessary to assume that the contracts were not validly terminated on 29 February 2008.

538. It was submitted that there was also a duty to co-operate implied in the contracts by law. Thus, Stepping Stones referred to what the High Court said in Kennedy v Vercoe at 526:

No doubt it was the obligation of the vendor, the plaintiff, to obtain the acceptance of the defendant as a tenant, although an implied obligation lay on the purchaser, the defendant, to do on his [or her] part whatever might reasonably be required of him [or her] to enable the vendor to obtain the landlord's consent.

539. In that case, the contract was for the sale of a business including the transfer of the lease of the premises which the business occupied. The contract contained a term that the purchaser be accepted by the landlord as a tenant.

540. This duty was said in Butt v McDonald (1896) 2 QLJ 68 at 70-1 to be implied in every contract. The obligation was recognised by the House of Lords in Mackay v Dick (1881) 6 App Cas 251, where Lord Blackburn said (at 263):

[A]s a general rule, ... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his [or her] part for the carrying out of that thing, though there may be no express words to that effect.

541. There are, however, limits to the obligation. It only appears to be relevant to what cannot be done without the concurrence or co-operation of both parties. As McMurdo J, with whom Jerrard JA agreed, said in Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126 at [51]- [52]:

1. In the same way, the duty to do what is necessary to enable the other party to have the benefit of the contract is limited to acts which are necessary to the performance of obligations under the contract. To assess the scope of the duty in a particular case, it is first necessary to define the relevant obligations, and in particular, to define the circumstances in which the parties have agreed that a certain obligation must be performed. It is not a duty upon one party to act so as to enhance the commercial value to the other party of the contract.
2. As appears from the above passage, in Mackay v Dick, the duty of co-operation is one which applies to a certain type of contract, which is where the parties have agreed that something shall be done which cannot be done unless both concur in doing it.

542. There are other limits. In particular, it is not required that the duty be to preserve the benefit of a party but only the benefit of the contract. As the NSW Court of Appeal put it in Australia Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 124-5:

[T]here cannot be a duty to co-operate in bringing about something which the contract does not require to happen. ... A contract may 'contemplate' many benefits for the respective parties, but each can only call on the other to provide, or co-operate in the providing of, benefits promised by that party.

543. The obligation is also limited to what can reasonably be required in the circumstances, as decided by Mason J, with whom the other members of the High Court agreed, in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 615.

544. Further, the duty will not exist if inconsistent with the express terms of the contract. Thus, in Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33, Steytler J rejected the contention that an implied duty to co-operate required disclosure of certain information and documents, saying at 56; [78]:

[A] requirement of the kind contended for would, in my opinion, be inconsistent with the express provisions of the contract itself. As has been said by Parker J ... the express agreement of the parties to the dispute resolution procedure, which protects the confidentiality of the respondent's documents and information, tells strongly against the implication of an obligation on the respondent to make available to the appellant the documents and information sought.

545. It is also worth quoting a passage, to which his Honour referred at 55; [76], by Sir Anthony Mason, writing extra-curially in A F Mason, "Contract, Good Faith and Equitable Standards in Fair Dealing" (2000) 116 Law Quarterly Review 66 at 75:

Once it is accepted that the common law implies an obligation of the kind just discussed [an obligation to do all things necessary to enable the other party to have the benefit of the contract] and that the obligation extends to the situations described, then the Australian (and the Canadian) law of contract comes very close to recognising that aspect of the good faith doctrine to which I have referred as 'loyalty to the promise itself'. Of course, the implied obligation does not override the express provisions of the contract so every case depends to a significant extent on the intention of the parties as manifested in the particular contract (Secured Income (at 607-608)).

In this context, it may be going too far to say that the implied obligation results in a duty to co-operate to achieve the contractual objects. The implied obligation does no more than spell out what, on the true construction of the contract, is the effect of promises and undertakings entered into by the party. In reaching that construction, it will be relevant to take account of the legitimate or reasonable expectations of the parties when they make the contract.

546. In this case, the parties set out in a very detailed contract in express terms the obligations of each other. They were represented by legal advisers in doing so and must be taken to have agreed to the expression within the contract of their respective duties. In particular, such an implied term cannot override the express term that the conditions of any consent to transfer of the respective leases be acceptable to ELS.

547. In my view, if there is an implied obligation to co-operate then it does not add to the express obligation to use reasonable endeavours to achieve the satisfaction (or waiver) of the Conditions Precedent.

548. In this regard, despite assertions by Stepping Stones, there was no conduct required of ELS which was necessary to achieve compliance with the relevant Conditions Precedent over and above what was actually done.

549. The real failure is, as ELS contends, that Stepping Stones did not, prior to 4 April 2008 present ELS with revised conditions with which the two landlords were prepared to consent. Thus, the evidence demonstrates that it was not until late on the afternoon of the Sunset Date, namely 4 April 2008, that Stepping Stones had finally made arrangements with the landlords for revised conditions of their consent such that they could be presented to ELS. The position of each landlord was not as portrayed by the lawyers for Stepping Stones on 29 February 2008 at all.

550. There was simply no time on the Sunset Date for ELS to consider the terms of the various documents properly and that was caused by a failure of Stepping Stones to use its reasonable endeavours - it, after all, had the direct relationship with the landlords - to have the revised conditions agreed and submitted to ELS well before the Sunset Date. Indeed, the evidence suggests that little was done by Stepping Stones for most of March until a high level of activity in the early days of April.

551. There was no evidence from either of the witnesses called from the landlords that the revised terms of consent were not finalised until 4 April 2008 because of any inaction or lack of co-operation by ELS.

552. ELS was entitled to terminate each of the Symonston Contract and the Bonython Contract on 29 February 2008. Alternatively, ELS was also entitled to terminate these Contracts on 9 April 2008.

553. The terminations of the Symonston Contract and of the Bonython Contract on 29 February 2008 was valid and effective.

554. The termination of the Symonston Contract and the Bonython Contract on 9 April 2008 would have been effective had the Contracts not been earlier terminated.

I certify that the preceding five hundred and fifty-five (555) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Refshauge.

Counsel for the Plaintiff: Mr M J Slattery QC, Mr M J Walsh

Counsel for the Respondent: Mr B O'Donnell QC, Mr S B Hooper

Solicitor for the Respondent: Minter Ellison as agents for Herbert Geer

Date of hearing: 21-24, 28-30 April 2009, 1 May 2009