Macquarie International Health Clinic Pty Ltd v Sydney Local Health District

1. [1]

   BATHURST CJ: This is an appeal from orders of a judge sitting in the Equity Division of the Court (the primary judge) dismissing a claim by the appellant Macquarie International Health Clinic Pty Ltd (Macquarie) that the termination of a deed between it and the respondent (Sydney Local Health District) (SLHD) made on 2 December 1996 (the Construction Deed) and of certain leases between it as lessee and SLHD as lessor was invalid. Macquarie also appeals against declarations made by the primary judge that Notices of Default issued under the Construction Deed and the Leases and Notices of Termination of the Construction Deed and the Leases were validly issued.

2. [2]

   The proceedings arise out of an agreement between Macquarie and SLHD’s predecessor Central Sydney Area Health Service (which for convenience I will also refer to as SLHD), whereby Macquarie agreed to construct and lease a private hospital and ancillary facilities on land adjacent to the Royal Prince Alfred Hospital. It is a matter of note that, notwithstanding the agreements were entered into in 1996, the hospital has yet to be built. It is not inaccurate to state that the agreements have generated more litigation than construction.

3. [3]

   In a careful and comprehensive judgment the primary judge set out the facts giving rise to the proceedings. Her Honour’s findings of the primary facts (PJ [11]-[207]) generally were not in dispute. What is set out hereunder is taken from that summary except where otherwise indicated.

The Initial Proposal

1. [4]

   The agreements had their origin in a proposal to develop and operate a private hospital adjacent to the Royal Prince Alfred Hospital Sydney, submitted to SLHD by companies associated with Macquarie and a developer, the Mirvac Group, in December 1988 (the Initial Proposal). Because of the reliance placed upon the Initial Proposal by Macquarie in the appeal it is necessary to set out some of its provisions in detail.

2. [5]

   The summary of the Initial Proposal contained the following information:

3. [6]

   In the introductory section the following remarks were made:

4. [7]

   Section 3.1 of the Initial Proposal dealt with services. The section included the following:

5. [8]

   Section 3.2 of the Initial Proposal dealt with facilities. In s 3.2.1 under the heading “Size of the Hospital” the following remarks were made:

6. [9]

   Clause 6.1.4 of the Initial Proposal envisaged a Timetable for carrying out the Works. It was in the following terms:

7. [10]

   Under the heading “Physical Facilities” the Initial Proposal made the following remarks:

The Heads of Agreement

1. [11]

   On 18 September 1989 a Heads of Agreement was entered into between associated companies of Macquarie and SLHD. Although the Heads of Agreement was superseded by the Construction Deed and the Leases, it should be noted that Recital B of the Heads of Agreement stated that SLHD and Macquarie had agreed that Macquarie would carry out a development of the site and construct a 200 bed private hospital. It should also be noted that “Development Approvals” was defined as “a Development Approval or approvals which is acceptable to Macquarie in its absolute discretion from the Council authorising the carrying out of the Works”.

2. [12]

   The “Works” were defined in the following terms:

3. [13]

   It should also be noted that the Heads of Agreement expressly provided that it did not contain the whole agreement between the parties.

The Transaction Documents

1. [14]

   As I have indicated, the Construction Deed was entered into on 2 December 1996. It recited that SLHD (described as the “Landlord”) and Macquarie (described as the “Tenant”) had entered into the Heads of Agreement.

2. [15]

   Clause 1.1 of the Construction Deed contained the following definitions:

3. [16]

   Clause 1.3 provided as follows:

4. [17]

   Clause 2 was in the following terms, under the heading “Timetable”:

5. [18]

   The primary judge noted that there was no suggestion that cl 2.2 was applicable, although its provisions provided context that may assist in informing the construction of cl 2.5. In contrast, at the hearing of the appeal senior counsel for Macquarie placed some reliance on the provisions of cl 2.2(b).

6. [19]

   As the primary judge also pointed out, there was no dispute that there was a delay in the Works caused by an event beyond Macquarie’s control, namely, the purported and invalid termination by SLHD of the Transaction Documents in 2000.

7. [20]

   Clause 3 of the Construction Deed dealt with the carrying out of the Works. Clause 3.1 was in the following terms:

8. [21]

   Clause 4 dealt with matters necessary for the obtaining of approval for the construction of the Works. So far as relevant it provided as follows:

9. [22]

   Clause 4.11 required Macquarie to provide SLHD with written monthly reports reporting on the progress of the Works, whilst cl 4.12 dealt with the position if development approval was not granted by the date required by the Timetable. Clause 4.12 was in the following terms:

10. [23]

    Clauses 4.13 to 4.16 dealt with modification or replacement of the Development Application. Clauses 4.13 to 4.15 were in the following terms:

11. [24]

    Clause 7 provided that certain terms of the Construction Deed were essential terms and dealt with the question of default. It provided as follows:

12. [25]

    Clause 10.8 imposed an obligation on the parties to act in good faith. It provided as follows:

13. [26]

    Annexure A to the Construction Deed contained the Timetable. It was in the following terms:

14. [27]

    On or about the same day, leases were entered into between SLHD as lessor and Macquarie as lessee (the Leases). There were separate leases in respect of the land where the hospital complex was to be built and land upon which a proposed carpark was to be constructed. It is only necessary to set out the provisions of the lease over the land the subject of the proposed hospital (the Lease).

15. [28]

    The term of the Lease was 103 years commencing on 1 December 1996.

16. [29]

    Clause 1.1 of the Lease defined Transaction Documents in the following terms:

17. [30]

    Works are defined as follows:

18. [31]

    Clauses 1.6 to 1.7 in effect provided that breaches of obligations under other Transaction Documents would constitute a breach of the terms of the Lease. These provisions were in the following terms:

19. [32]

    Clause 2 dealt with the rent payable under the Lease. Clause 2.1 provided that on or before the Rent Commencement Date (defined in cl 1.1 as “the date when the Works are complete to a stage when the Hospital is substantially fit for occupation … and the first patient is admitted”), Macquarie must pay a sum of $5,500,000, which was said to represent all rental payable, other than that referred to in cl 2.2 of the Lease and cl 3.5 of the Construction Deed. Clause 2.2 of the Lease provided for a further annual rental of $400,000 subject to various review provisions set out in cl 3. Clause 3.5 of the Construction Deed provided for rent to be payable in certain circumstances when there was delay in the work.

20. [33]

    Clause 11.1 of the Lease provided that Macquarie must erect the hospital and ancillary services in accordance with the Construction Deed.

21. [34]

    Clause 17 of the Lease dealt with default. So far as relevant it provided as follows:

22. [35]

    Clause 20.13 of the Lease contained an obligation upon the parties to act in the utmost good faith in similar terms to cl 10.8 of the Construction Deed.

The Development Application

1. [36]

   On 25 February 1997, Development Applications were lodged with South Sydney Council (the Council) for construction of a carpark and a private hospital.

2. [37]

   The Development Applications were not in evidence (presumably not being able to be located due to the lapse of time). However, a Statement of Environmental Effects prepared by Pace Property Management Services Pty Limited (Pace Property), a consulting firm engaged by Macquarie, was in evidence. Clause 1.1 stated that “[t]he report presents a description of the proposed development and a schedule of drawings is included in Appendix B”.

3. [38]

   Clause 2.1 of the Statement of Environmental Effects described the development in the following terms:

4. [39]

   Clause 2.2.1 was a project description of the hospital:

5. [40]

   It is to be noted that the inclusion of 394 ward beds in the project description was different to the Initial Proposal, which provided for 200 beds with a capacity for expansion.

6. [41]

   Clause 2.2.2 provided more detail of the building design and facilities. It provided as follows:

7. [42]

   Appendix B to the report set out the various plans which accompanied it. The drawings identified as DA 97.02 to DA 97.10 were described as “Level 1 Plan” to “Level 9 Plan” respectively, whilst drawings DA 97.18 to DA 97.22 were described as “Stage 1 Level 1 Plan” to “Stage 1 Level 5 Plan” respectively.

8. [43]

   The Level 1 Plan (DA 97.02) showed, among other things, a day surgery, a diagnostics centre, a medical centre and a space described as a “future medical centre”. The Stage 1 Level 1 Plan (DA 97.18) was similar but omitted the space for the future medical centre.

9. [44]

   The Level 2 Plan (DA 97.03) showed a medical centre with treatment and consulting rooms (in the same relative position as what was described as the “future medical centre” in the Level 1 Plan), an intensive care unit, a pharmacy and a pathology area. The Stage 1 Level 2 Plan (DA 97.19) did not include the medical centre.

10. [45]

    The Level 3 Plan (DA 97.04) showed treatment and consulting rooms (in the same relative position as the medical centre in the Level 2 Plan), specialist consulting suits and an oncology area. The Stage 1 Level 3 Plan (DA 97.20) was similar but did not include the space for the treatment and consulting rooms.

11. [46]

    Both the Level 4 Plan (DA 97.05) and Level 5 Plan (DA 97.06) showed treatment and consulting rooms (in the same relative position as the medical centre in the Level 2 Plan), and four wings (A, B, C and D) of ward beds. The Stage 1 Level 4 Plan (DA 97.21) and Stage 1 Level 5 Plan (DA 97.22) were similar but did not include the space for the treatment and consulting rooms.

12. [47]

    The Level 6 Plan (DA 97.07) and Level 7 Plan (DA 97.08) were similar to the Level 4 and 5 Plans, whilst the Level 8 and 9 Plans showed the medical centre and identified that there would be a metal roof over the hospital section over level 7. While there were no Stage 1 Plans specifically for levels 6, 7, 8 or 9, there were two additional Stage 1 Plans which showed metal roof sheeting over level 5.

13. [48]

    The elevation plans showed that what was proposed was, in effect, a seven storey hospital, with an adjoining medical centre and other facilities having nine storeys.

14. [49]

    The proposed development was considered by the Planning and Development Committee of the Council on 20 May 1997. The minutes of the meeting described the proposed development as the erection of a “7-9 storey private hospital with associated medical centre, retail area and various facilities associated with the hospital” and the erection of “a new 5 storey commercial car park for 1225 cars”. It stated that the Development Application proposed 394 beds. It noted that at the end of the south-eastern wing was a medical centre which was two storeys higher, at nine storeys, than the remainder of the hospital.

15. [50]

    The minutes noted that “[a]lthough approval for ‘staged’ development has not been sought, information with the application and the plans indicates that the medical centre may be built following the car park and main hospital building”. The minutes stated that “[i]f the whole hospital building does not proceed at the same time it is necessary and reasonable to ensure that the finishes of the ‘ends’ of the building are acceptable” and noted that a condition had been framed accordingly.

16. [51]

    The minutes noted that Pace Property (as Macquarie’s agent) had lodged a deemed refusal appeal with the Land and Environment Court of NSW upon the expiration of 40 days after the lodgement of the Development Applications, and that the hearing was set for 16-20 June 1997.

17. [52]

    The Committee recommended that approval be given to the erection of a seven to nine storey private hospital and medical centre, subject to certain conditions including that “the development shall be generally in accordance with plans DA 97.01B-24B dated February 1997”. It contained a proposed condition 33, that “should the entire building not be completed in one stage, the building form and finishes shall be to the satisfaction of the Director of Planning and Building”.

18. [53]

    Notwithstanding these recommendations, proceedings in the Land and Environment Court continued, the principal focus being on the conditions on which development approval should be granted. In a judgment given ex tempore on 19 June 1997, the assessor summarised the issues raised in the following terms:

19. [54]

    The assessor also noted that the parties had agreed that the provision of parking should be linked to the staging of the development. He noted the applicant’s submission that it was not practicable to build the parking station in stages, but that the applicant had offered to make the top level of parking inoperable until the development was complete. In those circumstances the assessor imposed a condition in the following terms:

20. [55]

    The assessor approved the Development Applications for the car park and hospital, subject to the conditions set out in the orders.

Events leading up to the lodgement of the Building Application

1. [56]

   Having regard to the submissions made by the parties on the appeal, it is necessary to refer to some of the correspondence which took place between development approval and the lodgement of the Building Application.

2. [57]

   On 14 July 1997 the Chief Executive Officer of SLHD, Dr Dianna Horvath, wrote to Mr Ian MacDougall of Pace Property concerning his request for SLHD to sign a Building Application with respect to demolition, bulk excavation and erection of fencing in relation to the development of the Prince Alfred Private Hospital. She noted that Mr MacDougall had informed her that Council had not been prepared to process the application without the owner’s consent. Dr Horvath stated that there were a number of implications for SLHD that arose from the documentation before consent could be given. These included an acceptable programme for the staging of the car park construction and the hospital itself.

3. [58]

   On 15 July 1997, Mr McDougall wrote to Dr Horvath, stating that the Building Application for the demolition and excavation would normally have been lodged with the major hospital and car park Building Application, but that due to the extreme tightness of the Timetable it had to be lodged “now” to have it all completed by 14 November 1997. The letter stated that the Building Application for the hospital and car park would be lodged with SLHD on 1 August 1997.

4. [59]

   On 17 July 1997 Dr Horvath responded. She referred to a meeting the previous Friday with Dr Thomas Wenkart, the Chief Executive of Macquarie, who mentioned several possible options and staged programs for the construction of the car park. She stated that SLHD anticipated “no deviation from the terms of the contract that require the construction of a 1200 space carpark to commence on 14 November, 1997 and to be completed by 14 April 1998”.

5. [60]

   On 30 July 1997 Mr Michael Wallace, the Deputy Chief Executive Officer of SLHD, wrote to Mr MacDougall. The letter contained the following comments:

6. [61]

   On 1 August 1997, Macquarie lodged with SLHD plans in respect of the Building Applications for the hospital and car park. A covering letter from Mr MacDougall to Dr Horvath referred to a series of enclosed drawings. These included by reference the plans to which I have referred at [69]-[73] below, although the plans attached to the letter as shown in the Appeal Book do not seem to incorporate all these plans. However, nothing was made of this at the hearing.

7. [62]

   On 27 August 1997, Mr Wallace wrote a letter to Mr Brett Sloane, a Project Manager with Pace Property, which included the following remarks:

8. [63]

   On 28 August 1997, Pace Property lodged Building Applications for the hospital and the car park with the Council. The covering letter set out that under the terms of the Construction Deed, SLHD had 28 days in which to approve or reject the application and as neither had happened, Macquarie had the right to lodge the applications with Council.

9. [64]

   On 29 August 1997, Mr Wallace wrote to Mr MacDougall stating that there remained a number of matters unresolved which had been previously raised in correspondence. The most important of these matters were said to be the following:

10. [65]

    On 2 September 1997, Mr Wallace wrote to Dr Wenkart, stating that as at 1 September 1997, Macquarie had not submitted Building Applications for the private hospital and car park in a form acceptable to SLHD. The letter stated that Macquarie had 24 hours to show cause why SLHD should not exercise its right to terminate the Leases.

11. [66]

    On 3 September 1997 Mr Wallace again wrote to Mr MacDougall. Under the heading “Pace Property’s undertaking re consent to Building Application forms” the following remarks were made:

12. [67]

    On 12 September 1997, Mr Wallace again wrote to Mr MacDougall. The letter contained the following comments:

The Building Application

1. [68]

   The Building Application for the hospital described the work as the “construction of hospital buildings and associated road drainage and landscape works”. It appears that SLHD ultimately lodged a consent with Council to the application on 17 September 1997. On 17 September 1998 the building service manager of the Council notified Pace Property of the approval of the Building Application. The approval relevantly was in the following terms:

2. [69]

   Each of the plans submitted to the Council were described as “Prince Alfred Private Hospital Stage 1”.

3. [70]

   The plan for Level 1 wing A and wing D (AWD11), submitted with the Building Application, seemed to incorporate much of what was in the Level 1 Plan and the Stage 1 Level 1 Plan (see [43] above), submitted with the Development Application (DA 97.02 and DA 97.81). However, in that part of the area which was described on both the Level 1 Plan and the Stage 1 Level 1 Plan submitted with the Development Application as a “medical centre” and “diagnostics”, the plan submitted with the Building Application (AWD12) simply stated, “fitout of this area not in contract”. Further, the area on level 1 shown to be used for a “fitness centre” and “physiotherapy” on both the Level 1 Plan and the Stage 1 Level 1 Plan submitted with the Development Application was also left blank on the plan submitted with the Building Application, with the comment, “fitout of this area not in contract”.

4. [71]

   So far as level 2 was concerned, the medical centre which appeared on the Level 2 Plan (DA 97.03) (see [44] above) but which was not included on the Stage 1 Level 2 Plan submitted with the Development Application was also not included on the Level 2 wing B and C Plan submitted with the Building Application.

5. [72]

   So far as level 3 was concerned, each of the Level 3 Plan and the Stage 1 Level 3 Plan submitted with the Development Application contained “specialist consulting suites” (although to a more limited extent on the Stage 1 Level 3 Plan). By contrast, this was omitted from the Level 3 wing B and C Plan submitted with the Building Application with the notation “fitout of this area not in contract”. Further, so far as level 6 was concerned, it was clear from the plans submitted with the Building Application that no work was to be done. Wing D of level 6, which might be described as an area containing a lift shaft and other plant facilities, was designated “for future fitout”. Further, the plan showed nothing to be done on wings A, B and C, save for the construction of a metal roof over those wings. The Level 7 and Level 8 Plans submitted with the Building Application only depicted the same plant and lift facilities as level 6 and was also designated “for future fitout”, whilst level 9 apparently had only cooling towers, a plant room and lift motor rooms.

6. [73]

   The drawing showing the south elevation of wing A submitted with the Building Application showed metal capping on the top of level 6 and then the plant room abutting out above that level. Similarly, the wing B east elevation showed roofing on the top of level 6 with the lift motor room protruding above that between levels 8 and 9.

The 1999 termination and the subsequent proceedings in this Court

1. [74]

   Between 1998 and 1999 Macquarie carried out work for the construction of the open deck car park the subject of the Car Park Building Approval. However, SLHD complained that Macquarie had not commenced construction of the hospital. On 13 September 1999, SLHD served Notices of Default on Macquarie in respect of each of the Construction Deed and the Leases. On 17 March 2000, SLHD issued Notices of Termination in respect of each of the Construction Deed and the respective Leases.

2. [75]

   The validity of the termination notices was challenged in proceedings in this Court. It was upheld at first instance (see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2008] NSWSC 738 at [560]) but reversed on appeal: see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [325]-[326]. Special leave to appeal to the High Court was refused on 10 June 2011: see Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd [2011] HCATrans 155.

3. [76]

   On 23 July 2015, Macquarie sent a notice exercising its right to take possession of the respective sites. Handover took place on 2 November 2015.

The events leading up to the 2017 Notices of Termination

1. [77]

   On 13 August 2015 SLHD wrote to Macquarie, agreeing that the construction of the hospital must commence as soon as possible and proposing a revised Timetable for construction. SLHD noted in the letter that under the proposed revised Timetable it had “adjusted each of the original dates so that the amount of time now permitted for the completion of each step is no less than that permitted under the original Timetable”.

2. [78]

   On 21 August 2015, Macquarie sought information from the Council as to whether the Development Application remained on foot.

3. [79]

   On 8 September 2015 SLHD again wrote to Macquarie, inquiring about the revised Timetable and asking Macquarie to advise that, if the Hospital Development Approval was no longer on foot, what steps needed to be taken to lodge a further Development Application and what was a reasonable time to lodge such an application. On 17 September 2015, the Council advised that it appeared that the Hospital Development Approval had not lapsed but that a definitive answer could only be provided by the Land and Environment Court. Macquarie informed SLHD of the Council’s position on 22 September 2015. On 25 September 2015 Dr Teresa Anderson, who had become the Chief Executive of SLHD, wrote to Dr Wenkart making the following comments:

4. [80]

   On 16 October 2015 Dr Anderson again wrote to Dr Wenkart in connection with the Timetable for the construction of the hospital. She stated that the parties had an obligation to seek to reinstate an operative Timetable in circumstances where the Timetable annexed to the Construction Deed was clearly outdated. She said that the obligation to seek to reinstate a Timetable was a matter of good faith. In the letter she again cautioned Macquarie against proceeding as though it has a “blank canvas” by proposing or pursuing something different from what it had contracted to build. She stated that SLHD would not provide consent to the construction of any hospital which was not strictly in compliance with the contractual regime that was already in place.

5. [81]

   On 9 November 2015 SLHD again wrote to Macquarie, noting that it had not received a response to its earlier correspondence and making the following assertions:

6. [82]

   On 19 January 2016 SLHD wrote to Macquarie, again warning it against proceeding on the basis that it had a blank canvas. The letter made the following comments:

7. [83]

   A similar warning was given in the letter from SLHD to Macquarie on 11 February 2016 that “SLHD will not approve any design other than what Macquarie is contracted to build in the contractual agreements between the parties”.

8. [84]

   In those circumstances, the primary judge found that it was apparent that Macquarie “had been put squarely on notice of SLHD’s position that there was a contracted agreed design for the Hospital that Macquarie was obliged to construct; and that Macquarie should not assume that it had a ‘blank canvas’”. Her Honour stated that “whatever else might be said about the steps taken by Macquarie over this period in to develop proposals for a much different hospital complex than that contemplated by the original Hospital Development Application”, Macquarie must have been aware that there was a risk that no such expanded development would ultimately be approved (PJ [120]).

9. [85]

   Her Honour’s reference to a different development refers to a proposal in a draft Request for Proposal (RFP) for architectural services prepared by Macquarie in February 2016, the final version of which was dated 3 March 2016. As her Honour stated, the RFP at that stage “involved a complex that included a ‘hospital hotel’ on levels 7 and 8; a pool, spa and recreational facilities on level 9, seniors’ living apartments and an apartment living complex on levels 10-25; and a basement car park for a minimum of 400 car spaces” (PJ [121]). This proposal was developed without the knowledge and consent of SLHD, Dr Wenkart apparently being of the view that once the modification to the building approval for the hospital and car park had been achieved, it would provide a stronger footing from which to contest the legitimacy of Seniors Living which would be challenged by SLHD (see PJ [139]-[140]). Whatever might be said of the commercial propriety of the approach taken by Macquarie and whether it was consistent with its obligation to act in the utmost good faith, it did not form any part of the complaint made by SLHD and it is thus unnecessary to deal with it further, except to state that, as her Honour found, in the period leading up to the issue of the default notices Macquarie was devoting most of its attention to this proposal rather than seeking to comply with its contractual obligations.

10. [86]

    Macquarie applied to this Court for a declaration as to the status of the Hospital Development Approval. On 1 March 2016, Kunc J held that the Hospital Development Approval had not lapsed and remained on foot: see Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd; Macquarie International Health Clinic Pty Ltd v City of Sydney Council (No 9) [2016] NSWSC 155 at [106].

11. [87]

    On 12 April 2016 Macquarie wrote to SLHD, noting that since the Court had ruled that the Hospital Development Approval had not lapsed, it would need to be modified “to allow the private hospital to comply with current health guidelines and to align with changes in casemix since the plan was first developed”.

12. [88]

    On 14 April 2016 SLHD wrote to Macquarie, setting out certain actions it stated should be advanced by Macquarie consistent with its obligations to construct the hospital. As the primary judge pointed out (PJ [137]) those steps included the following:

13. [89]

    On 15 April, Macquarie gave what might be considered a vague response, stating it intended to “act expeditiously” to construct the hospital. As her Honour pointed out (PJ [139]-[140]), Macquarie’s focus appeared to be on the alternative development. That this was so can be seen from an internal memorandum from Mr David Wenkart, Dr Wenkart’s son, containing the following remarks which Dr Wenkart approved:

14. [90]

    On 13 May 2016, SLHD again complained about the lack of meaningful progress on the project.

15. [91]

    On 9 August 2016 SLHD wrote to Macquarie, indicating its intention to promulgate a revised Timetable pursuant to cl 2.5 of the Construction Deed and attaching a draft extended Timetable, inviting Macquarie’s comments within 28 days. On 22 August 2016 Macquarie responded, asserting that it did not accept that SLHD’s attempt to use cl 2.5 of the Construction Deed to extend the Timetable was valid as the timetable in the Construction Deed had by the effluxion of time and circumstances either been satisfied, frustrated or abandoned.

16. [92]

    The draft extended Timetable contained the following amended steps:

17. [93]

    On 1 September 2016 SLHD wrote to Macquarie, formally notifying it of an amended Timetable in the same form as the draft. In relation to the requirement to lodge a Construction Certificate Application, it made the following comments:

18. [94]

    Notwithstanding, Macquarie continued to focus on its expanded development. As the primary judge pointed out (PJ [155]) at a Macquarie Design Meeting on 19 September the design of all elements of the proposed complex were discussed, including the residential levels and necessary car parking. On 5 October 2016 Mr Robinson, the Project Development Manager for Macquarie, instructed Mr Brady, a construction programmer engaged by it, to prepare two draft programmes. The instruction was in the following terms:

19. [95]

    Further, on 12 February 2017 Mr Crook, the director of the firm of architects engaged by Macquarie, wrote to Mr Coburn, a member of the town planning firm engaged by Macquarie, in the following terms:

20. [96]

    On 20 February 2017, SLHD served the February default notices. The notice in respect of the Construction Deed was in the following terms:

21. [97]

    The notice in respect of the Hospital Lease issued under s 129 of the Conveyancing Act 1919 (NSW) was in the following terms:

22. [98]

    A similar notice was issued in respect of the Car Park Lease.

23. [99]

    On 10 March 2017 Dr Wenkart wrote to SLHD, expressing his disappointment at the issue of the default notices and making the following comments:

24. [100]

    On 15 March 2017 Macquarie’s solicitors wrote to Clayton Utz, the solicitors for SLHD, threatening court proceedings and making the following remarks:

25. [101]

    It may be noted that there was an acknowledgment that although the development consent had not lapsed, a modification under s 96 of the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act) was required to enable the construction of the hospital to proceed. It follows from that concession that the building approval issued on 17 September 1998 was not sufficient to enable construction of the hospital in 2017. So much was not disputed in the present proceedings.

26. [102]

    Macquarie provided SLHD with a draft modification application of the Hospital Development Approval on 20 March 2017. As the primary judge pointed out (PJ [184]), the Statement of Environmental Effects which accompanied the modification application asserted that the vast majority of the amendments related to hospital code and operational requirements that necessitated a change to the building plans for the proposed hospital. The statement also said that the intended use remained as originally approved, and would retain the approved height of seven to nine storeys. There was no suggestion that a staged development was contemplated.

27. [103]

    On 28 March 2017, Macquarie provided SLHD with additional documents to accompany the draft modification application.

28. [104]

    On 7 April 2017, SLHD served further default notices (the April default notices). The April default notices were in the same terms as the February default notices with the exception of the different particularisation of default, namely, a failure to lodge a Construction Certificate Application with a private certifier by 4 April 2017, and the fact that the time specified was to run from 7 April 2017 rather than the date of the February notices.

29. [105]

    A further modification application was submitted by Macquarie to SLHD on 3 May 2017 with a request that SLHD consent to it. The covering letter stated that it included what it described as “the complete documentation” for the modification application. The modification application was for a seven storey hospital and a nine storey medical centre. There was no suggestion of a staged development.

30. [106]

    On 15 May 2017 SLHD informed Macquarie that it declined to provide its consent. The basis was said to be that the modification did much more than update the Hospital Development Approval plans to ensure compliance with regulatory requirements, pointing to the inclusion of a new basement level with vehicle egress for service vehicles via Church Street contrary to an express condition in the approval, and to the increase in the building footprint which reduced the setbacks to Carillon Avenue. However, SLHD informed Macquarie that it would consider an alternative application which did not have the particular problems it identified. No alternative proposal was submitted.

31. [107]

    The primary judge noted that there was no longer a complaint made by Macquarie in relation to the refusal to consent to the May modification application (PJ [192]).

32. [108]

    On 10 August 2017, SLHD served Notices of Termination in respect of each of the Transaction Documents, relying on the failure to remedy the breaches notified in the February and April default notices. Further Notices of Termination were served on 17 October 2017.

The primary judge’s reasons and conclusions

1. [109]

   The primary judge identified six matters which required determination. They were as follows (PJ [208]):

2. [110]

   Her Honour stated that the issues in relation to the validity of the respective notices could be distilled to the following: the proper construction of cl 2.5 of the Construction Deed; the adequacy for the purposes of s 129 of the Conveyancing Act of the Notices of Default and Termination; the adequacy for the purposes of the Construction Deed of the Notices of Default and Termination and whether SLHD, in promulgating the September Timetable and issuing the respective Notices of Default and Termination, breached its obligations under one or more of the Transaction Documents and, if so, whether an inquiry into damages should be held (PJ [211]).

3. [111]

   Her Honour noted that the proper construction of cl 2.5 raises the question whether the clause permitted SLHD to extend a date in the Timetable annexed to the Construction Deed if the activity in question had already been completed. She stated that that raised the question whether the Notices of Default and Termination were invalid because the September Timetable included “new required ‘activities’” not contained in the Timetable and/or extended dates for “activities” specified in the Timetable which Macquarie had already completed (PJ [212]).

4. [112]

   The primary judge noted the argument by Macquarie that the Hospital Development Approval, when read together with the Car Park Development Approval, envisaged that the hospital might be developed and constructed in stages rather than all at once, and imposed a condition of consent which was subject to such staged development taking place. She noted it was submitted that the Hospital Development Approval expressly envisaged that the hospital would be constructed in at least two stages, referring in particular to Condition 33 to the Hospital Development Approval (PJ [224]-[225]) (see [52] above).

5. [113]

   Her Honour noted that Macquarie argued that neither the Hospital Development Approval nor the Hospital Building Approval imposed any contractual or statutory obligation on it to undertake the construction of any works, and that the concept of staging was fundamental to the construction of the hospital, pointing to the Initial Proposal which contemplated a hospital with initially 200 beds but flexibility to expand to 400 beds in the longer term. She noted that Macquarie argued that the “Works” it was contracted to undertake were works which provided for at least 200 beds and which were to be consistent in nature and standard with the Initial Proposal. She noted that Macquarie submitted that the requirement for 200 beds was satisfied and that SLHD’s argument that 394 beds were required was misconceived.

6. [114]

   In that context, she noted Macquarie’s submissions that the proper construction of cl 2.5 of the Construction Deed did not permit the inclusion of activities which it had already completed and thus the termination notices were invalid and of no effect. She noted Macquarie’s submission that it did not lodge a Construction Certificate Application with SLHD or a private certifier in 2017 because Macquarie already had a Construction Certificate referrable to the Hospital Development Approval which had not otherwise lapsed.

7. [115]

   Her Honour dealt with SLHD’s submissions in response (PJ [246]-[270]). It is unnecessary to set out those submissions.

8. [116]

   Her Honour stated that, having regard to the determination by Kunc J in March 2017 in Macquarie v SLHD (No 9), the Hospital Development Approval remained on foot. She stated, however, that the status of the Hospital Building Approval was not the subject of determination by Kunc J.

9. [117]

   Her Honour stated that the relevance of the question whether the Hospital Building Approval remained on foot went to the submission that “even if cl 2.5 of the Construction Deed permitted SLHD to promulgate a revised timetable that included the ‘construction certificate’ disputed activities, there should nevertheless be a finding that Macquarie did have a construction certificate which obviated the need for it to lodge a construction certificate application with SLHD” (PJ [272]).

10. [118]

    Her Honour stated that the relevant test was whether there had been “substantial physical commencement of the Works the subject of the Hospital Building Approval” (PJ [273]). Her Honour stated (PJ [281]) that were it necessary to reach a conclusion she would have concluded that the Hospital Building Approval did lapse and that it no longer remained on foot. However, she stated that in considering the proper construction of cl 2.5 of the Construction Deed, the question of whether or not it remained on foot was “not determinative of the issue as to whether it was permissible for SLHD to include the disputed (or so-called ‘new’) activities in the September Timetable relating to the now equivalent of a building application”. She noted it was accepted that it was necessary for there to be a fresh building approval in respect of the hospital in any event, and that thus it could not be said that even if the Hospital Building Approval remained on foot, it obviated the need for a new Construction Certificate Application.

11. [119]

    Her Honour stated that the Hospital Development Approval related to the construction of a seven storey hospital (with 394 beds) and a nine storey medical centre. She said that there was no application for a “staged development consent” pursuant to s 91AB of the EPA Act. She stated that in those circumstances, the reference to “Stage 1” on a number of the plans must be understood as relating to the sequence of construction not a staged development (PJ [283]).

12. [120]

    In those circumstances, her Honour reached the following conclusion:

13. [121]

    Her Honour accepted the submission by SLHD that the suggestion that it was optional for Macquarie to choose to build only part of the seven storey hospital and nine storey medical centre was not a commercially sensible or defensible proposition. She also accepted that, unless and until Macquarie had obtained an amendment to the Hospital Development Approval, its contractual obligation was “to build the Hospital the subject of the Hospital Development Approval” and, for that, it required “a further building approval (not just because of the changed regulatory regime but also because the Hospital Building Approval did not extend that far)”. She stated that therefore, whether the existing Hospital Building Approval remained on foot was not to the point, nor was it to the point “that SLHD did not previously take issue with the now perceived lack of compliance by the existing Hospital Building Approval with the original Timetable” if it was the case that a further Building Application was now required (PJ [286]). As will be seen, that conclusion is the subject of Ground 3 of the Grounds of Appeal.

14. [122]

    In dealing with what her Honour described as the first issue (“Proper construction of cl 2.5 of the Construction Deed”), her Honour stated that she considered that there was force in Macquarie’s submissions “that the concept of an ‘extension’ of a time period or date by which a specified activity is to occur logically presupposes that the particular event has not occurred or is not yet complete (since otherwise no ‘extension’ would be necessary)” (PJ [315]).

15. [123]

    However, her Honour stated (PJ [316]) that cl 2.5 is to be construed “in the context that it appears after cll 2.2-2.4, which deal with ‘extensions of the times in the Timetable’”. She noted that cl 2.5 deals with “a delay to the Works” rather than prevention or delay in compliance with the Timetable.

16. [124]

    Her Honour noted that both extensions (the ones in cl 2.2 and cl 2.5 of the Construction Deed) were predicated on some form of delay. She stated that it was “possible for there to be a delay caused to the Works by an event beyond the control of Macquarie … even if there has been no delay in compliance with the relevant event in the Timetable”. She stated that therefore, “the fact that cl 2.5 operates in circumstances of delay does not compel the conclusion that it cannot permit the extension of a date in the Timetable where the particular activity in question has already been completed” (PJ [318]).

17. [125]

    Her Honour noted the force of Macquarie’s submission as to the “once and for all” construction, namely, “that no extension to any particular date would be necessary if the event to be completed by that date has already been completed”. She stated that once an event had occurred and there was no objective commercial need for it to be redone, it “would be logical to conclude that the power to extend the date referrable to that task has been spent and that there is no power to amend the Timetable to reinsert that activity afresh or to reactivate that task”. However, she stated that the more difficult questions were whether an activity could be treated as having been completed (finally or for all purposes) if, by reason of subsequent events, it had to be re-done, and how the regime under cl 2.5 was to deal “if at all” with the possibility of more than one such activity being encompassed by the item included in the Timetable (PJ [320]).

18. [126]

    Her Honour stated that ultimately, it was not necessary to resolve those questions, because “building application” was defined in the Construction Deed in the plural; that is, encompassing more than one building application. She stated that the definition of “Works” meant that Macquarie was required to lodge all necessary building approval(s) for the construction of the hospital in accordance with the Hospital Development Approval. She stated that the specification of that activity in the Timetable logically comprised all such activities by the specified end date (PJ [322]).

19. [127]

    Her Honour accepted that it might “seem surprising to suggest that there might be an obligation to undertake all over again an activity earlier complied with”, but stated that it did not seem to her to produce a commercially absurd result when it is appreciated that without a further building approval, construction of the hospital as required under the Construction Deed now could not occur. She said that the issue was “simply whether Macquarie should be held to a set time by which that step should occur (breach of which would amount to breach of an essential term of the Construction Deed and expose it to risk of termination of the Transaction Documents)”. She said that to be held to a Timetable of this kind was not commercially absurd in a context where the contract itself provided for that very regime (PJ [323]).

20. [128]

    Her Honour also concluded that this construction did not “expose Macquarie to the risk of being said retrospectively to be in breach of an essential term for having failed at an earlier time … to obtain the building approval that is now required”. She stated that she did not consider that it could be said “that cl 2.5 imports a retrospective obligation” but rather that it was facultative, permitting an extension to be granted “if there is a delay to the Works caused by an event beyond Macquarie’s control” (PJ [324]).

21. [129]

    Her Honour concluded in those circumstances that if there had been a delay to the Works beyond Macquarie’s control such that a further building approval was required, cl 2.5 permitted SLHD to extend the date for that activity in the Timetable. She stated that what “a reasonable businessperson would understand by the use of the term ‘building approval’ where specified in the Timetable … is that the date there fixed is the date by which all necessary building applications are required to be obtained in order to permit the carrying out of the Works in accordance with the Construction Deed”. She stated that the fact that the Construction Deed also contemplated there might be amendment or modification of existing building approvals was not inconsistent with this. She therefore concluded that if it transpired that fresh or further building approval was required, then it was open to SLHD in its absolute and unfettered discretion to extend the time for that to occur (PJ [325]-[327]). She concluded that it was thus within SLHD’s power to extend the Timetable even though at an earlier time the activity might have been regarded as complete (PJ [328]).

22. [130]

    Her Honour stated that it was “therefore not necessary to consider SLHD’s argument that the requirement to obtain building approval was never satisfied for the reason that the Hospital Building Approval was not one that extended to the whole of the construction of the Hospital as provided for under the Hospital Development Approval” (PJ [329]).

23. [131]

    So far as the second issue identified by her Honour was concerned (“Reasonableness of the September Timetable”), she stated that the question raised was “whether the exercise of [the] power in the present case was inconsistent with SLHD’s obligations of utmost good faith and to act reasonably” (PJ [330]).

24. [132]

    Her Honour stated that it was not self-evident that the requirement for SLHD to act in its contractual dealings with Macquarie in the utmost good faith was necessarily inconsistent with there being an absolute and unfettered discretion as to the extension of the Timetable. She accepted SLHD’s submission “that cl 10.8 cannot require it to subordinate its own legitimate interests to those of Macquarie”. However, her Honour stated (PJ [365]) that irrespective of whether the obligation under cl 10.8 applied to the exercise of discretion under cl 2.5, she was not persuaded that the promulgation of the September Timetable derogated from that standard.

25. [133]

    Her Honour noted in that context that SLHD had been pressing for input from Macquarie for quite some time as to the time it contended it would reasonably require for the tasks at hand and had received no meaningful or co-operative response. She said that Macquarie had been on notice of SLHD’s concern as to the timetabling issue for some time and had largely ignored SLHD’s request for comment in respect of the proposed revised Timetable. She also noted that SLHD’s expert evidence supported the conclusion that the proposed timeframes in the September Timetable were not unreasonable.

26. [134]

    In the circumstances her Honour concluded (PJ [367]) that the proposed revised Timetable for the substantial commencement and completion of the first of the disputed activities, namely, the lodgement of a Construction Certificate Application with SLHD, was reasonable in all the circumstances when it was set in September 2017, as was the time allowed for the second of those disputed activities.

27. [135]

    Her Honour described the third issue raised by her as being whether the relevant notices were invalid pursuant to s 129 of the Conveyancing Act, having regard to the requirement for specificity. She noted that this issue only affected the notices issued in relation to the Leases, not the Construction Deed.

28. [136]

    In dealing with this matter her Honour noted (PJ [376]) that Macquarie argued that it would require approximately six months to remedy the asserted default in the February Notices and two further months to remedy the asserted default in the April Notices. She noted that in those circumstances Macquarie submitted that the 28 days stipulated in the February and April Notices was not a reasonable time to remedy the defaults and that the Notices were invalid on that basis also.

29. [137]

    In dealing with the question of specificity, her Honour concluded (PJ [402]) that “the default notices issued in 2017 very clearly described the omissions constituting the alleged breaches and indicated with sufficient particularity what SLHD considered would be sufficient for the Leases to continue”. She stated (PJ [403]) that it was not a case where it could be said that Macquarie was left to speculate as to whether, if it took action to remedy the specified breaches, SLHD might nevertheless proceed to terminate the Leases.

30. [138]

    Her Honour said that the internal communications in relation to the project made it clear that Macquarie was “well aware of what was necessary in this regard and what had to be done to achieve it”. She stated that the suggestion that there was some ambiguity as to what the private hospital the subject of the requisite applications was to comprise was “belied by those communications”. She said that “the position of Macquarie and its consultants was clearly that Macquarie was seeking to put in place some type of stop-gap measure(s) in order to preserve its ability later to obtain approval for a very different kind of development and to prepare the documentation leading up to that stage in such a way as to minimise the ability of SLHD or the Council to refuse consent (or in the words of Mr Wenkart, ‘to make it much harder again for SLHD to kick us out of the site’, [and] ‘much harder for SLHD to argue against the Senior Living apartments’…)”. Her Honour stated that to suggest that Macquarie did not well understand what it was required to build in order to comply with the contractually agreed design was simply not plausible.

31. [139]

    Her Honour stated (PJ [405]) that she accepted the submission by SLHD that Macquarie was obliged under the Construction Deed to build a hospital as approved by the Hospital Development Approval. She said that the manner in which Macquarie chose to prepare and lodge the requisite Construction Certificate Application (consistent with its obligations under the Construction Deed) was ultimately a matter for it. She also stated that it was a matter for Macquarie if it wished to seek a modification to the Development Approval, but that the Construction Deed did not provide it with alternatives for the hospital to be built; rather, the obligation was to build a hospital as currently approved (PJ [381]).

32. [140]

    In dealing with the question of reasonableness of time, her Honour stated that the relevant question was the time in fact allowed to remedy the defaults, not the time specified in the Notices. She stated that SLHD ultimately allowed some six to eight months before issuing the October 2017 termination notices. She stated that she considered that to have been a reasonable time in the circumstances, having regard to the expert evidence as to the timeframe within which it would have been possible to prepare a modification application dealing only with the necessary amendments required by the changed regulatory regime and progressing the applications expeditiously (PJ [406]).

33. [141]

    Her Honour noted that Macquarie’s own submissions appeared to accept that a timeframe of approximately six months to remedy the defaults specified in the February default notice would have been reasonable, with another three weeks to remedy the breach specified in the April default notice, with an estimate of four to five weeks for approval once the Construction Certificate Application was submitted to the private certifier. She stated that on the expert evidence adduced by SLHD, which she accepted, it was apparent that a reasonable time was afforded to Macquarie in which to remedy the respective defaults (PJ [407]).

34. [142]

    So far as the default notices issued in respect of the Construction Deed were concerned, her Honour stated again that she concluded that there was sufficient particularity and a reasonable time specified for the breaches to be remedied (PJ [408]).

35. [143]

    Her Honour dealt with the question of damages for breach on the assumption that she was incorrect in her conclusion as to the validity of the Notices of Default and the Notices of Termination. She stated (PJ [470]) that the issue as to breach of the implied obligation to co-operate was sufficiently pleaded, but stated that she did not consider that even if the termination notices were wrongfully issued it had been established that there was a breach of the implied obligation to co-operate.

36. [144]

    Her Honour stated that what occurred was a bona fide exercise of perceived rights under the Transaction Documents. She said that the fact that it ultimately might have been held that SLHD was not entitled under the contractual arrangements to take the action that it did, did not amount to a breach of the implied obligation; rather, it would invalidate the purported action and might have other consequences such as precluding SLHD from complaining of the delay in completion of any other activities in the Timetable (PJ [471]).

37. [145]

    Her Honour stated that she appreciated “that distinctions may be drawn between repudiation of an agreement and non-compliance with an implied duty to co-operate”. She stated that nevertheless there was “a difficulty in contending for a breach of an implied duty to co-operate and to permit another party to have the benefit of a contract where the party alleged to be in breach is bona fide … exercising rights under that very contract”. In those circumstances, she rejected the proposition that the termination, if invalid, would have amounted to a breach of the implied obligation.

38. [146]

    The primary judge stated that if she was incorrect in that view, she would have ordered an inquiry into damages.

Grounds of appeal and Notice of Contention

1. [147]

   Macquarie relied on the following grounds of appeal:

2. [148]

   SLHD also relied on the following ground in a Notice of Contention filed with leave during the course of the appeal:

3. [149]

   The issues raised by the parties on the appeal and the Notice of Contention can be dealt with conveniently under three headings. The first is whether Macquarie was in default of its obligations under the Construction Deed and the Leases at the time the default notices were issued, and the second is whether non-compliance with the Notice of Default gave SLHD the right to terminate the Agreement. The third issue only arises if Macquarie is successful in respect of either the first or the second issue. In that event, it was contended that SLHD breached its duty of co-operation.

The first issue – whether Macquarie was in default of its obligations under the Construction Deed and the Leases at the time the default notices were issued

1. [150]

   What I have described as the first issue essentially gives rise to two questions. First, whether the building approval obtained by Macquarie from the Council on 17 September 1998 constituted compliance by Macquarie with its obligation under the Timetable in the Construction Deed to obtain building approval by 1 November 1997. It should be noted that in dealing with this issue, both at first instance and on the appeal, neither party placed any reliance on the fact that the building approval obtained in 1998 was obtained after the date of 1 November 1997 provided for in the Timetable. This question is the subject of grounds 1 and 2 of the Notice of Appeal and the subject of the Notice of Contention.

2. [151]

   The second question which arises irrespective of the answer to the first question is whether in the events which occurred, SLHD was entitled to issue an amended Timetable providing for Macquarie to lodge a Construction Certificate Application with it by 17 February 2017.

3. [152]

   Senior counsel for Macquarie pointed to the fact that SLHD in 1997 had consented to both the development and the Building Applications, something he described as “compelling evidence” that Macquarie had obtained development approval and building approval in respect of the Works in accordance with the agreed timetable as required by cl 2.1 of the Construction Deed. He stated that, whilst he was not relying on estoppel, the approval by SLHD was wholly consistent with what he said was required by the Agreement, namely, a building which made provision for further expansion in the future.

4. [153]

   At the outset of his submissions, senior counsel for Macquarie emphasised the critical importance of what he described as the “unvaried, unamended Initial Proposal”. He stated that a “central element” of the Initial Proposal was the 200 bed inpatient component with the flexibility to expand in the longer term. He said it remained what he described as an “obligatory element of the contract”, although he accepted that neither the Development Application nor the Building Application took up the hotel component of the Initial Proposal.

5. [154]

   Senior counsel for Macquarie submitted that the development proposal which was approved provided for stages, the first stage being for around 200 beds, with the potential or flexibility to expand in the longer term to 394 beds.

6. [155]

   Senior counsel for Macquarie referred to the Timetable in the Initial Proposal (see [9] above) which provided for an opening time of 36 months. He pointed out that that was the precise time that found reflection in the Timetable attached to the Construction Deed.

7. [156]

   Senior counsel for Macquarie referred to the statement in the summary in the Initial Proposal that the hospital was to be a 200 bed hospital with potential to expand (see [5] above) and the statement that Macquarie had licences for 400 beds (see [6] and [8] above), and submitted that what was required to be built in the 36 month period was the “first stage of the complex”. He submitted that anything else would be absurd. In that context, however, it must be remembered that the Initial Proposal in addition to a 200 bed hospital envisaged the inclusion of a 129 bed hotel.

8. [157]

   In dealing with the definitions in the Construction Deed, senior counsel for Macquarie referred to the fact that the Initial Proposal was defined in that document, emphasising that it demonstrated that the parties considered it to be an important document.

9. [158]

   Senior counsel referred to the fact that the definition of Development Application and Building Application envisaged the possibility of more than one Building Application being required. He submitted that in fact a number of Building Applications were made, one for the bulk excavation work, one for the hospital and one for the car park. He submitted that objectively on the face of the Timetable, there would be a multiplicity of Development Applications and Building Applications within the relevant timeframe, as in fact there were.

10. [159]

    Referring to the definition of Works in the Construction Deed (see [15] above), he submitted that there was never any variation or amendment to the Initial Proposal. He submitted that the Development Application, which was merely permissive, was not inconsistent with the Initial Proposal.

11. [160]

    In that context, senior counsel for Macquarie submitted that the lodgement of a Development Application proposing 394 beds (see [39] above) was not inconsistent with the Initial Proposal because the development plans and the approval contemplated a staged construction. He said that to achieve a hospital of 200 beds with flexibility for an increase in the future, it was appropriate to obtain a Development Application which contemplated staging and a Building Application which provided for a first stage containing 200 beds. He submitted that this was entirely in accordance with the Initial Proposal. He submitted that to “carry out work” in accordance with the development approval did not mean exhausting it. He submitted that what was needed was the construction of a nine storey building, fitting it out for 200 beds. He submitted that it was clear that SLHD approved the structure. He referred in that context to cl 4.5(j) of the Construction Deed which required the hospital to provide for at least 200 beds.

12. [161]

    Senior counsel for Macquarie noted that cl 2.1 of the Construction Deed, requiring completion of the steps within the Timetable, was an essential term by virtue of cl 7. He submitted that one of the consequences of the primary judge’s construction of cl 2.5 was that, contrary to what he described as “the usual meaning of extension”, a step in the timetable could be extended where there had been prior satisfaction of the timetable, thus freeing Macquarie from the consequences of a breach of an essential term to allow that essential term to be reinstated.

13. [162]

    Senior counsel for Macquarie submitted that where an extension under cl 2.5 was granted prior to the completion of a step in the Timetable and Macquarie regarded it as inadequate it could exercise its rights to have an assessment made under cl 2.2(b). He submitted that in that way the Construction Deed would ensure that dates in the Timetable were reasonable dates.

14. [163]

    Senior counsel for Macquarie pointed to what he described as the “absurd” results which flowed from the construction preferred by the primary judge. He submitted that prior to termination Macquarie had spent money excavating the basement. He said that 20 years later a new Development Application was needed because the law had changed. He said that if SLHD was entitled to set a new date for compliance with the obligation to lodge a Development Application and that date was missed, SLHD could terminate the Agreement, and the effect of cl 4.12 was that Macquarie would not be entitled to any compensation for work it had carried out. He submitted that that was why the expression “extension” should be given its usual meaning and could not apply to something which had been completed. He accepted that the default provisions in cl 7.5 applied in the case of a breach of cl 2.1, stated in cl 7.1 to be an essential term, but emphasised that it did not apply to the termination provision in cl 4.12.

15. [164]

    Senior counsel for Macquarie submitted that this construction of cl 2.5 was consistent with the provisions of cl 2.2(a), which he said in terms would not allow for an ex post facto variation. He accepted that cl 2.2(a) was qualified by cl 2.3, although he submitted that cl 2.2(b) was freestanding. In that context, he referred to the chapeau of cl 2.2. He submitted that a contrary construction would mean that SLHD would have an entirely unfettered discretion under cl 2.5. He submitted that once that was understood it could be seen that extension has the same meaning in each of cl 2.2 and cl 2.5, namely, an extension in respect of an item in the Timetable which is unsatisfied.

16. [165]

    Senior counsel for Macquarie also submitted that cl 2.4 was of importance in this context. He noted that cl 2.4 was also an essential term and submitted that it spoke to the critical matter of satisfaction of the Timetable.

17. [166]

    Senior counsel referred to cl 3 of the Construction Deed which imposed the obligation to carry out the Works (see [20] above). He noted that the clause used the defined term “Works” and submitted that consistent with the principles in cases such as Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12 and Wiggins Island Coal Export Terminal Pty Ltd v New Hope Corporations Ltd [2019] NSWCA 316, it was necessary to read the full definition of “Works” into cl 4.1, which linked back to the Initial Proposal which envisioned 200 beds. He stated that as far as cl 4.2 was concerned, there was no allegation that the applications did not contain at least the services set out in the Initial Proposal. That in fact is incorrect, having regard to the issues raised by the Notice of Contention.

18. [167]

    Senior counsel for Macquarie also referred to the obligation imposed on Macquarie in cl 4.3 to keep SLHD fully informed. He submitted that Macquarie did that and that SLHD consented to every step.

19. [168]

    He also referred to the requirement in cl 4.5 that the Development Application, Building Application, plans and specifications and schedule of finishes be consistent in nature and standard with the Initial Proposal. He submitted that that provided a further demonstration that the Initial Proposal was at the heart of the arrangement.

20. [169]

    Senior counsel for Macquarie stated that the first step in the Timetable was to lodge the Development Application. He stated that the Statement of Environmental Effects lodged by Pace Property (see [37]ff above) accompanied two Development Applications, one for the construction of the hospital and the other for the construction of the car park. He stated that the need for two or more such applications was the reason that the definition of “Development Application” in the Construction Deed referred to development applications in the plural.

21. [170]

    Senior counsel referred to the description of the hospital in cl 2.2.1 of the Statement of Environmental Effects (see [39] above) and the statement that it would include 394 beds. He stated that this was not a significant change as it was intended that there would be staging, the second stage being the internal fitout of a hospital ward.

22. [171]

    Senior counsel for Macquarie stated that in the legislative context, the whole concept of staged development was “in a sense a furphy” because “true staged development did not exist as a matter of law” at the time of the Development Application.

23. [172]

    He referred to the schedule of drawings and plans submitted with the Development Application to which I have referred at [42]-[47] above. He noted there were no Stage 1 Level 6, 7, 8 or 9 Plans. He submitted that in those circumstances the Development Application itself made clear the possibility of staging. He stated that Macquarie was seeking an application for 394 beds but was “making it clear” that there would be staging in respect of the Stage 1 Plans. He stated that that was how the Council understood it and how the Land and Environment Court understood it.

24. [173]

    Senior counsel for Macquarie submitted that the “type of staging” contemplated in the documents was not that which was contemplated under the title Staged Development in s 91AB of the EPA Act in force at the time of the Development Application. He submitted that the primary judge was incorrect in her conclusion that there was not a staged development because there was no application for a staged development consent pursuant to s 91AB of the EPA Act. He referred to the decision of the Land and Environment Court in Addenbrooke Pty Ltd v Woollahra Municipal Council (No 2) [2009] NSWLEC 134 where Biscoe J stated at [99] that the heading “Staged Development” to s 91AB should be ignored since the provision in its terms was not confined by the concept of staged development.

25. [174]

    In that context, senior counsel for Macquarie stated that the development was not staged in a formal way but was in effect a recognition that the approval granted would be proceeded with in stages.

26. [175]

    In that context, he also referred to the minutes of the Planning and Development Committee meeting of the Council to which I have referred at [47]-[50], noting that staging was envisaged. He stated that the staged development was consistent with the Initial Proposal and, had a 394 bed hospital been built at the outset, Macquarie would have been in breach because there was no facility for expansion. He emphasised that at the time there was no suggestion that Macquarie was in breach in adopting this course. He referred to proposed condition 33 of the approval (see [52] above), stating that the condition was to ensure that if the option to develop was exercised in stages, that there were no fittings which were discordant from those at the outset. He also submitted that special condition 62 imposed by the Land and Environment Court (see [54] above) was consistent with a development in stages.

27. [176]

    Senior counsel for Macquarie also submitted that the development proposal was consistent with the design concept specified in the Initial Proposal, because the Statement of Environmental Effects envisaged a hospital with 204 beds and flexibility to expand being maintained by the structure of the stages. Referring to the decision of this Court in Pollak v Yapp [2019] NSWCA 150 at [30], he stated that that case established that a development consent is permissive, and that to say a development has taken place in accordance with a development consent would not, in its ordinary meaning, convey with it the conclusion that one had exhausted the permission. He submitted that it was within the contemplation of the Initial Proposal “to build the fabric for the 394 [bed hospital], in effect the bones, and get a building approval to construct within that fabric a hospital of 200 beds”. He submitted that there was no evidence to suggest approval could not have been obtained to provide a 208 bed hospital. He submitted that the contractual obligation was to build a 200 bed hospital, referring to the requirements in cl 4.5(j) of the Construction Deed, but that that did not prevent Macquarie “from seeking approval for something greater”.

28. [177]

    Senior counsel for Macquarie noted that Macquarie lodged a Building Application for the construction of the hospital on 28 August 1997. He submitted that SLHD consented to the Building Application and that at the time SLHD had all the relevant plans before it.

29. [178]

    Senior counsel for Macquarie noted that the Building Application plans contemplated a building of nine storeys, with five fitted out for the provision of hospital services. He referred to those areas in the Level 1 wing A and wing B Plan with the notation “fitout of this area not in contract” (see [70] above) and similar notations on part of the Level 3 wing B and wing C Plan (see [72] above). Referring to the expression “fitout not in contract”, he submitted that “it ill behoves” one of the parties to the contract to say that it was in the contract. He referred to the notation on the Level 6 Plan “for future fitout” (see [72] above), noting that another building approval for the fitout of level 6 would be required. He accepted that because of the delay of 15 years, the building approval had to be supplemented but stated that the question remained whether SLHD could “reinstitute a date into the Timetable which would justify them terminating the contract”.

30. [179]

    Senior counsel for Macquarie repeated his submission that the only steps which could be extended were steps which had not previously been completed. He submitted that that would allow a person in his client’s position more flexibility “without facing breaches of essential terms along potentially every one of [the] steps” in the Timetable. He accepted that SLHD could vary the Timetable to incorporate a fresh date for construction, but stated that reasonable time would have to be given and that Macquarie would be exposed only to “one risk of essential breach”. He described this construction as a “perfectly commercial construction” of the contract, giving “extension” its ordinary meaning.

31. [180]

    In dealing with cl 4.1, senior counsel for Macquarie submitted that the expression “all necessary applications” meant all necessary applications at the time of the Construction Deed, not applications which became necessary after the time the original Building Application had been approved. Referring to the use of the expression “carrying out the Works”, he submitted again that that incorporated carrying out the Works in accordance with the Initial Proposal. He submitted that the primary judge erred in finding that the Initial Proposal was clearly superseded by the Construction Deed (PJ [284]; see [120] above). By contrast, he submitted that the Initial Proposal was “integral” to a proper understanding of the operation of the Construction Deed. He pointed to the definition of “hospital”, being a hospital to be built in accordance with the Initial Proposal, as demonstrating this fact. He submitted that the primary judge “in discarding the Initial Proposal … was diverted from a proper analysis” of the question before her. He submitted that the construction for which he contended was sensible, a further reason being that from Macquarie’s point of view it would not have to “overcapitalise the business before it develop[ed] a reputation” and from SLHD’s position, it would not “have a white elephant sitting in the middle of its infrastructure”.

32. [181]

    Senior counsel for Macquarie also submitted that the expression “to be carried out” in cl 4.1 emphasised that the Works were to be carried out in accordance with Macquarie’s contractual obligations, rather than pursuant to a permissive application which, if carried out immediately, would be contrary to the Initial Proposal.

33. [182]

    Senior counsel for Macquarie properly acknowledged that to the extent its submissions would be taken to imply that the fabric of all possible buildings was going to be built at the outset, that submission was incorrect. He stated correctly that the plans were contemplated to give rise to a structure which operated “at least on an interim basis”, referring to the provision in the building approvals for a metal roof over the entire structure.

34. [183]

    In that context, he referred to the primary judge’s reference to the fact that if only Stage 1 was completed there would be a partially constructed building with a central lift and services tower protruding two levels above the rest of the building, and her statement that there was force in the contention that it could not have been the intention of the parties that Macquarie could elect not to complete the balance of the hospital mid-construction (PJ [261]). He stated that her Honour did not finally determine this issue and did not have regard to the fact that the building approvals “had provision for a roof over it”. He emphasised that SLHD consented to the plan.

35. [184]

    Senior counsel for Macquarie referred to the submission by SLHD that cl 4.5 does no more than provide certain parameters for future development plans and applications. He submitted that that was not correct and nor was it the language of the clause which set out “mandatory requirements” providing for at least 200 beds.

36. [185]

    Senior counsel referred to the obligation on Macquarie in cl 4.1 of the Construction Deed to prepare all necessary applications, and to the fact that under cl 4.3 Macquarie was required to keep SLHD informed of the progress of all applications for which it was responsible. He stated that in that context, there was “no magic in subsequent Building Applications or subsequent Development Applications”. He stated that “[t]he only magic they acquire is if one is allowed to reopen the timetable. Then they’d become of a completely different character”.

37. [186]

    In relation to ground 2 of the grounds of appeal, it was submitted that the conclusion by the primary judge to which I referred at [129]-[130] above was also erroneous. Senior counsel for Macquarie submitted the error was exposed by a consideration of cl 4.1. He submitted that cl 4.1 requiring Macquarie to lodge all necessary applications referred back to the definition of Works. He submitted that the correct question was whether the Building Application was for the carrying out of the Works as defined and whether those Works would satisfy the Timetable as being the construction of the hospital as contemplated by the Construction Deed.

38. [187]

    Senior counsel for Macquarie contested the finding made by the primary judge to which I have referred at [129] above. He submitted that her Honour’s conclusion was driven by her view that the Initial Proposal was irrelevant and in those circumstances “all necessary applications” referred to in cl 4.1 became unrelated to that proposal. He stated that her Honour’s conclusion that “all necessary” meant all necessary at any time was then related “in substance to the concept of the Building Application and development in accordance with the Timetable” and that that informed her Honour’s attitude to the capacity to amend the Timetable. He acknowledged, however, that the first two applications in the September 2017 Timetable had to be made to construct the building, but submitted that they did not meet the description of applications required to be lodged in accordance with the timetable. He submitted that the real question was whether a new obligation could be created and brought within the “umbrella” of cl 2.1 and cl 2.4, and thus be made an essential term.

39. [188]

    He also submitted that his construction did not have the effect that, although there remained an obligation to build a hospital expeditiously, there was no remedy available to SLHD. He submitted that if Macquarie did not do the Works in accordance with the contract, SLHD would be entitled to terminate for wrongful repudiation.

40. [189]

    Senior counsel for Macquarie submitted that the construction of the word “extension” for which he contended was supported by what was said concerning the meaning of the word in Brooke v Clarke (1888) 1 B & Ald 396; 106 ER 146 at 148, Esso Research and Engineering Co v Commissioner of Patents (1960) 102 CLR 347 at 351; [1960] HCA 31 and Parke Davis Pty Ltd v Sanofi (No 2) (1982) 43 ALR 487 at 502-503 and on appeal (1983) 152 CLR 1 at 10; [1983] HCA 32.

41. [190]

    Senior counsel for SLHD referred to the statement by the primary judge that cl 2.5 had to be considered in the context of cll 2.2 to 2.4, and her reference to the shift in language from “extension of times in the Timetable” in the context of “events that have prevented or delayed compliance with the Timetable” in cl 2.2 to “delay to the Works” in cl 2.5. He described the shift in language as “significant”, referring to her Honour’s conclusion (at PJ [318]; see [124] above) that “the fact that cl 2.5 operates in circumstances of delay does not compel the conclusion that it cannot permit the extension of a date in the Timetable where the particular activity in question has already been completed”.

42. [191]

    Senior counsel for SLHD noted that it remained common ground that there needed to be a fresh building approval (a Construction Certificate). He referred to the reasoning of the primary judge to which I have referred at [125]-[128] above. He stated that the primary judge was correct in concluding that it was not commercially absurd that Macquarie was put at risk of termination by adjustment to the timetable (see [127] above) being what he described as a matter of risk allocation. He stated that the primary judge was correct in her conclusion that the construction for which he contended did not operate to impose a retrospective obligation.

43. [192]

    Senior counsel for SLHD submitted that it was clear that cl 2.5 was not subject to the operation of cl 2.2(b), submitting that the whole of cl 2.2 was qualified by the force majeure type of events in cl 2.3. He also pointed out the difficulties of having an expert determine a matter which was within the “absolute and unfettered discretion” of a party. He made no submission as to whether cl 2.5 was qualified by the obligation to act in good faith in cl 10.8, although he accepted that the power in cl 2.5 must be exercised for a proper purpose.

44. [193]

    In dealing with a proposition from the bench that the language of cl 2.5 suggested indulgence rather than imposition, senior counsel for SLHD submitted that there was a great deal of consultation in respect of the new timetable, which he stated was not strictly necessary. However, he submitted that granting an extension must always be an imposed solution.

45. [194]

    Senior counsel for SLHD stated that it was the intention of the parties that there be “milestones” in the performance obligations set hard so that meeting those milestones was essential. He submitted that the commercial purpose was satisfied by extending dates for tasks which had to be done in order to carry out and complete the Works.

46. [195]

    He submitted that the cases referred to by Macquarie demonstrate that the question of whether an extension of time can be granted after the time for completion has expired depends on the terms and context of the provision in question. He stated that in the present case the language that was chosen, being “delay to the Works” rather than delay in compliance with the timetable, and having regard to the overall purpose and context of the provision, which was not simply to have an end date and leave it to Macquarie as to how it would meet its various obligations, would lead to the conclusion that in the particular circumstances of the present case an extension could be granted. He stated that part of the context was that the land was “tied up”, stating that there was an obligation to use the resources for the public good in providing the hospital.

47. [196]

    In those circumstances, he submitted that the ordinary meaning of extension can embrace a construction where an activity has been completed but must be done again in order to complete the task at hand. He described it as a “lengthening”, “enlargement” or “prolongation” of the time to carry out or complete the task. He submitted that the force of his argument was not affected by the fact that the cases to which reference was made did not involve an extension after the activity had been completed. Referring to Parke Davis Pty Ltd v Sanofi (No 2), he stated that the extension came after the patent expired and compared this to the present case where he submitted that there was a delay in the Works and so the overall obligation to carry out and complete the Works had not been satisfied.

48. [197]

    In dealing with the issue of whether SLHD consented to the plans for the building approval in the form in which they were lodged with Council, senior counsel for SLHD submitted that first, it was immaterial because no estoppel had been pleaded and second, that in considering the question it was necessary to have regard to the circumstances leading up to the lodgement of the Building Application plans with Council.

49. [198]

    He referred in that context to the correspondence to which I have referred at [62], [66] and [67] above. He submitted that whilst it may show that SLHD was “too trusting”, it did not amount to unequivocal consent to the drawings which accompanied the Building Application. He pointed out that the actual consent was lodged with Council on 17 September 1997.

50. [199]

    Senior counsel for SLHD referred to the entries on the plans accompanying the Development Applications which stated “fitout of this area not in contract” (see [70]-[72] above). He submitted that the reference to “not in contract” could not have been a reference to the Construction Deed because SLHD was insisting on its full contractual entitlement to all the details of the Works which were the subject of the contract. He submitted that it should be inferred that the reference to “fitout not in contract” was a reference to the contract with the builder who appeared on the plan, Baulderstone Hornibrook Pty Ltd.

51. [200]

    He submitted that the obligation to build the 394 bed hospital the subject of the Development Application was derived from cll 2.1 and 4.1 of the Construction Deed in conjunction with the definition of Works. He submitted that Macquarie was required to obtain building approval or approvals for the whole of the work, defined as Works to be constructed in accordance with various documents and approvals including the development approval. He submitted that Macquarie’s obligation was not limited to the concept outlined in the Initial Proposal whether or not that was amended or varied but that rather, its obligation extended to building something in accordance with the relevant development approvals. He submitted that the expression Works would change its meaning over time. Referring to cl 4.5(j), he submitted that the development approval satisfied the requirements for at least 200 beds because it provided for 394. He stated that Macquarie accepted that if there was an inconsistency between the Initial Proposal and the later development approval, then the Initial Proposal would be amended or varied. He submitted that the development approval was not a staged development consent but provided for a staged construction, requiring a 394 bed hospital and, more importantly, “seven storeys of hospital and nine storeys of medical centre”, something inconsistent with the construction of a hospital with 200 beds and a hotel. He submitted that the primary judge was correct in her conclusions (at PJ [284]; see [1208] above).

52. [201]

    Senior counsel for SLHD accepted that the development approval was permissive in the sense that having received it, it was not necessary to do anything at all. However, he said that the position was more complicated when work had started. In that context he referred to s 99(5) of the EPA Act as it stood at the time of the development approval. Sections 99(1) and (5) were in the following terms:

53. [202]

    Senior counsel for SLHD referred to Condition 1 of the development consent to the effect that consent was given to erect a seven/nine storey private hospital and medical centre generally in accordance with plans DA 97.01-24 dated February 1997. He submitted that meant the whole hospital had to be built and if the Building Application obtained did not cover the whole of the work, the developer could be ordered to obtain a Building Application for the balance of the work.

54. [203]

    Senior counsel for SLHD referred to the Development Application plans. He referred to the Level 2 and Levels 6, 7 and 8 Plans which showed a fitted out hospital and medical centre (see [45]-[47] above). He accepted that Macquarie, as a matter of construction sequencing, was entitled to build the Stage 1 aspects first but that was not to say they did not have to complete the whole of the development within the five year window.

55. [204]

    He submitted that, by contrast to the Development Application plans, the Building Application only covered five storeys of hospital and a lift shaft that protruded above that but no medical centre and no levels 6 and 7 of the hospital. He referred in that context to the plans which I have described at [71]-[72] above and the elevations described at [73] above, submitting that the effect was that the services core would “stick up” from these levels above the hospital. He stated that the second stage, if it was ever to be built, would involve “two more storeys of hospital, the nine level medical centre and a ninth level, presumably on the services core”. He submitted that the building consent did not measure up to the development approval.

56. [205]

    In that context he referred to the Expert Planning Report of Mr James Harrison, who was the Director of Planning for South Sydney Council for nine years. He referred in particular to pars (60) and (61) of the report which were in the following terms:

57. [206]

    Senior counsel for SLHD also submitted that, contrary to Macquarie’s argument, diagnostics and pathology were not interchangeable. He referred in that context to the Stage 1 Level 1 Development Application Plan which had a diagnostic facility, and the Stage 1 Level 2 Plan which separately provided for pathology facilities.

58. [207]

    Senior counsel for SLHD acknowledged that SLHD had given its consent to enable Macquarie to meet the milestone to lodge the Building Application. He emphasised that there was no estoppel case. He accepted that consent could have been refused, in which case the position would have been governed by cll 4.2(a) and 4.4. He submitted that the granting of consent did not constitute an acknowledgement that the Building Application complied with the requirements of cl 4.1.

59. [208]

    He submitted that it was wrong to say that the 1997 Hospital Development Application provided for the hospital to be constructed in stages in the sense that Macquarie was permitted to construct Stage 1 without completing the balance of the hospital. He submitted that the primary judge was correct in reaching a contrary conclusion (PJ [283]; see [119] above). In that context, he referred to Addenbrooke Pty Ltd v Woollahra Municipal Council (No 2), submitting that Biscoe J was correct when he stated at [99] that the heading to the section “Staged development” could be ignored. He submitted that it may have been open to Macquarie to seek consent for a specified part of the development such as Stage 1 which, if approval was given, would have given Macquarie “the option of stopping work at the end of Stage 1 and leaving the hospital as a five storey hospital with a … three [storey] elevator shaft heading up into the air”. He submitted that in the then legislative context, “stages” simply referred to the sequence of construction within the five year window allowed by s 99(5) of the EPA Act. He referred to the minutes of meeting of the Planning and Development Committee of the Council dated 20 May 1997 where the following matter was noted:

60. [209]

    Senior counsel for SLHD submitted that the reference to ensuring “that the finishes of the ‘ends’ of the building are acceptable” was to make sure that the premises were not an “eyesore” during the interim period until the whole hospital was finished. He submitted, however, that Macquarie had no entitlement to stop constructing the hospital when they reached level 5 and to leave the protruding lift shaft. He submitted that Condition 62 imposed by the Land and Environment Court reflected this approach.

61. [210]

    In reply, senior counsel for Macquarie criticised certain other aspects of the reasoning of the primary judge. He submitted that her Honour misconceived the operation of cl 2.2 (PJ [318]; see [114] above). He submitted that cl 2.2(a) was only engaged when there was loss or damage to the Works. He submitted that it was common ground that cl 2.2(a) could not operate to amend a timetable milestone which had been satisfied. He submitted that cl 2.2(a) could only attach to the construction stage because it assumed damage to the Works and that as a consequence the Timetable could be amended to set a different date for completion of construction of the hospital. He submitted that having regard to these matters, the construction of cl 2.5 preferred by the primary judge led to “complete incoherence” between that clause and cl 2.2(a) in the event that damage to the building led to the necessity for further development and Building Applications.

62. [211]

    He also criticised her Honour’s reasoning at PJ [322] which I have summarised at [126] above. He reiterated his submission that it was “obvious on the face of it" that there was likely to be more than one Development Application and more than one Building Application. He accepted that building approvals required to carry out the Works had to be obtained by the date set out in the timetable, but pointed to the fact that there would be separate applications for the bulk excavation, the car park and the hospital. He submitted that the use of the plural in the definition of Development Application and Building Application said nothing about extensions for completed tasks. He submitted that the primary judge did not deal with the problem that arose by virtue of the operation of cl 4.12 to which he referred in chief (see [163] above).

63. [212]

    Senior counsel for Macquarie submitted that by consenting to the Building Application plans SLHD agreed to vary the Initial Proposal. He submitted that the Initial Proposal contemplated flexibility. He submitted that s 99 of the EPA Act did not impose an obligation to complete the work the subject of the Development Application. He stated that even if SLHD’s construction of s 99 of the EPA Act was correct, Macquarie would not be required to fully build the work the subject of the Development Application for five years after the date of the development consent. He submitted that those who lodged the Development Application (Macquarie with the consent of SLHD) did so with knowledge that only the first stage had to be done, although if Council elected, it may have had to be completed. He stated that that would be a discretionary judgment by the Council which would be open to challenge.

64. [213]

    He submitted that the effect of SLHD’s argument was that the Initial Proposal “disappeared” the moment a development approval was obtained. He said that that was incorrect, because there would be no purpose to it being referred to in the definition of Works and other parts of the Construction Deed. He accepted that the Initial Proposal allowed for flexibility, but said it would not be varied by the Development Application unless the Development Application was inconsistent with it and submitted that it was not.

65. [214]

    He stated that it was clearly agreed that the Building Application and associated plans were to be lodged and submitted in compliance with the required Timetable provisions. He stated that it was necessary to refer back to the definition of Works, being works to be carried out in accordance with the Initial Proposal as amended or varied. He submitted it was clearly agreed that the Building Application and its associated plans were to be lodged for the purpose of satisfying the timetable and specifying work to be done consistent with the definition of Works – the Initial Proposal as varied. He said it was not a case of estoppel, but rather, it was a case of whether the Building Application was a building application for the purpose of the Timetable. He submitted that Macquarie’s contractual obligation would have been satisfied had construction stopped at the conclusion of Stage 1. He submitted that Council must have been happy with that extent of construction for at least five years. He submitted that it was unreal to conclude that the intention was to build the whole structure within 18 months from the time of building approval.

66. [215]

    In that context, he referred to Condition 2 of the Development Application, which he submitted clearly contemplated that a Certificate of Occupancy would be granted in respect of less than the entire scope of the Development Application. He accepted that he still had to deal with the argument raised in the Notice of Contention that the Building Application was not in accordance with the Construction Deed in that it did not encompass everything included in the Stage 1 Development Application plans. He submitted that for SLHD to succeed on that issue it would have to show that the Initial Proposal had been varied to require the whole of Stage 1 to be completed, and that it was unable to do so because the Development Application was permissive.

67. [216]

    In that context, he finally submitted that for s 99(5) of the EPA Act to operate, a period of five years had to elapse from the grant of the development consent. He submitted that that did not impose an obligation on Macquarie to “exhaust the development consent”. He accepted that there was a power in the Council to send a notice under s 99 requiring completion of some or all of the remaining work, but emphasised that it was subject to challenge, referring to the requirement in s 99(7) to inform interested parties of the notice and the right of appeal against it and the power of the court in s 99(9) to make orders including varying or cancelling the notice.

68. [217]

    He submitted that the bringing forward of a Development Application, which was a Development Application (subject to the Stage 1 point) consistent with the Initial Proposal with staging explicit within the application, was rationally consistent with the Timetable under the Construction Deed which required a Development Application and a Building Application to be obtained by the Timetable date. He submitted that if SLHD’s case was correct, the parties were acting “irrationally” by not seeking a Building Application for the totality of the Works, as there would be “no rational reason” for staging if it all had to be done by December 1999.

69. [218]

    Senior counsel for Macquarie submitted that there was “no great surprise” at the structure which emerged. He submitted, adopting the words used in the SLHD’s submissions, that SLHD was “happy to put forward the monstrosity for the purposes of achieving the Timetable”.

70. [219]

    He submitted that whilst SLHD made many complaints about the Building Application in the period leading up to its lodgement, nowhere was it alleged that Macquarie failed to comply with the alleged obligations in the Construction Deed in the obtaining of development consent. He also submitted that it was not asserted that everything provided for in the Development Application was required to be built.

71. [220]

    In that context, he referred to the letter from SLHD of 14 July 1997 concerning the Building Application with respect to demolition and bulk excavation, stating that it demonstrated that by July 1997 SLHD was “fully cognisant and agreeable to the hospital being constructed in stages”. He stated that the letters from SLHD of 17 July and 30 July to which I have referred at [59]-[60] above did not raise any issue as to the size or scope of the hospital package.

72. [221]

    Senior counsel for Macquarie referred to the lodgement of the plans with SLHD on 1 August 1999. He noted that the elevation enclosed with the letter showed the hospital “topping out” at level 6 with a lift core rising to level 9.

73. [222]

    He also referred to the letter from SLHD to Pace Property to which I have referred at [62] above. He referred to the second last paragraph set out above and submitted “that’s the only reference to anything, we say it’s general, we don’t know what they’re referring to”. He also submitted that the comment in the letter, “our consent is limited to one of principle to facilitate your timely submission of the Building Application to Council”, constituted agreement that the Building Application would meet the requirements of the Construction Deed. He submitted that the letter of 3 September 1997 from SLHD (see [66] above) made this even more explicit. He noted that the letter referred to landscaping, the car park and the link road. He referred to the fifth last paragraph of the letter and submitted that nothing in it complained of Stage 1 Building Application plans having gaps compared to Stage 1 of the Development Application.

74. [223]

    He also referred to SLHD’s letter of 12 September 1997 and in particular the paragraph which I have set out at [67] above. He submitted that there was no complaint that the Building Application was deficient in the manner contended for. He submitted that by giving its consent, SLHD must be taken as having accepted that the Building Application satisfied Macquarie’s obligation and complied with cl 4.1. He submitted that SLHD had provided its consent under cl 4.4.

75. [224]

    In dealing with the specific matters raised by the Notice of Contention, senior counsel for Macquarie identified the differences in the Stage 1 Development Application plans and the Stage 1 Building Application plans as the ones which I have set out at [70]-[72] above. He submitted that so far as the medical centre was concerned, it was described in the Statement of Environmental Effects submitted with the Development Application as part of the overall proposal, not as part of a first stage. He referred to the description of the medical centre in the Statement of Environmental Effects (see [41] above) and to the Level 1 Plan which showed a medical centre adjacent to a diagnostic area and a further adjacent area being identified as a “future medical centre”, and the plans for the other levels showing an area on top of the “future medical centre”.

76. [225]

    He submitted in those circumstances that the Stage 1 Development Application plans only showed a medical centre adjacent to the diagnostic areas. He identified that as the area said to be “not in contract”, but said that that was what was agreed to by SLHD.

77. [226]

    He repeated that there was no obligation to build the whole of Stage 1 of the Development Application as the application was wholly permissive and what was proposed was consistent with the Initial Proposal. He stated in the alternative that SLHD had agreed to the Development Application which amounted to a variation of the Initial Proposal. He reiterated his submission that the complaints in the letters leading up to the lodgement of the Building Application with Council did not relate to this issue, submitting that the letters were simply seeking more detail. He submitted that SLHD’s agreement to the Building Application was for the purpose of meeting the Timetable.

78. [227]

    Senior counsel for Macquarie accepted that whilst the Building Application had the number of beds envisaged by the Initial Proposal there were some features envisaged which were not included in the Building Application. He submitted that the Initial Proposal always contemplated the capacity for variation. He noted finally that the primary judge did not consider the issue raised by the Notice of Contention.

Consideration

1. [228]

   The question whether the Building Applications lodged in September 1997 and approved by the Council in September 1998 satisfied the requirements of cl 4.1 of the Construction Deed to obtain an approval necessary for the carrying out of the Works depends essentially on what was required in that regard by the Construction Deed properly construed.

2. [229]

   The principles surrounding the construction of commercial contracts are well established. In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] the plurality (French CJ, Hayne, Crennan and Kiefel JJ) stated, “The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean”. The Court stated that “it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract”: see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[49]; Simic v NSW Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [78]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]; Victoria v Tatts Group Limited (2016) 90 ALJR 392; [2016] HCA 5 at [51]. As was pointed out by Gleeson CJ in McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22], commercial contracts should be given a businesslike interpretation and that requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure.

3. [230]

   As is apparent from what I have written above, senior counsel for Macquarie placed heavy reliance on the Initial Proposal in contending that the Building Application complied with the requirements of the Construction Deed. He was justified in doing so. The Construction Deed itself did not refer to any particular plans or specifications; rather, the obligation imposed was to carry out the Works in accordance with the Initial Proposal as amended or varied. This can be seen from the definition of Works, the incorporation of the definition of Works in cl 4.1 and in particular, the requirement in cl 4.5(j) to provide for at least 200 beds and in cl 4.5(k) to be consistent in nature and standard with the Initial Proposal.

4. [231]

   The Initial Proposal had three principal components, being a 200 bed inpatient component, a 129 bed high quality hotel and a medical centre providing private suites for medical specialists. As will be seen from what I have summarised above, it was anticipated that the hospital would contain four levels with three levels of bed wards and that there would be what was essentially a seven level hotel adjacent to the hospital (see cl 6.2.1 of the Initial Proposal set out at [10] above).

5. [232]

   The Initial Proposal did not deal with the medical centre in any detail. However, the architectural drawings attached to it showed the medical centre as separate from the hospital and the hotel.

6. [233]

   The Construction Deed and the other Transaction Documents were executed in December 1996, some eight years after the Initial Proposal. As pursuant to the original Timetable the Development Application was required to be lodged with SLHD by 31 December 1996 and was in fact lodged with the Council by 25 February 1997, it can reasonably be inferred that the parties were aware at the time of entry into the Transaction Documents that the Development Application which was to be lodged contained significant variations from the Initial Proposal. It can readily be inferred that the parties had already agreed that the hotel proposal was to be abandoned and that the structure of the hospital and medical centre was to be different to that envisaged in the Initial Proposal. It is in that context that the expression in the definition of Works “in accordance with the Initial Proposal as amended or varied” falls to be considered. Although the Initial Proposal may be described as a baseline document the parties recognised that it could be varied in concept by agreement between them, subject to the requirement that it provide for at least 200 beds and be consistent in nature and standard with the Initial Proposal as per cl 4.5(j) and cl 4.5(k).

7. [234]

   Senior counsel for Macquarie was thus correct in my view in submitting that the Initial Proposal was the central element, at least so far as it obliged the construction of a hospital of at least 200 beds and which complied with the provisions of cl 4.5(j) and cl 4.5(k) of the Construction Deed. However within those parameters the parties could lodge a Development Application as they saw fit.

8. [235]

   It is in this context that cl 4.1 to cl 4.4 operated. Clause 4.1 obliged Macquarie to prepare the necessary Development Application for carrying out the Works as defined, that is, works to be carried out in accordance with the Initial Proposal as amended or varied. If there was an agreement to vary the Initial Proposal, Macquarie would be required to prepare a Development Application in accordance with that amendment and SLHD would be obliged in accordance with cl 4.4 of the Construction Deed to provide consent.

9. [236]

   There is one other matter that should be noted. Clause 4.2 required the application to be of a standard required by cl 3.2 (which related to access facilities) and to contain “at least the services set out in the Initial Proposal”.

10. [237]

    It should also be noted that the Initial Proposal did not deal in any way with the method of construction of the development, although it was envisaged that the hospital would be completed within 36 months. It was not suggested in the Initial Proposal that this would be done in stages. As I have indicated, senior counsel for Macquarie submitted that it would be absurd to suggest that the overall proposal envisaged by the Development Application could be completed within 36 months. There was no evidentiary foundation for this submission.

11. [238]

    Notwithstanding, I agree with Macquarie that the Development Application was in accordance with the Construction Deed. First, SLHD apparently assented to it without any reservation. Second, the Stage 1 Level 4 and Stage 1 Level 5 Plans contained 204 beds. Third, the services provided for in the Stage 1 Level 1 Plan encompassed the services in the Initial Proposal.

12. [239]

    I accept that the Stage 1 Plans did not provide for completion of the medical centre. However there is nothing to suggest either that it was not to be built or that it would only be built at Macquarie’s option. It is specifically referred to in the description of the development in the Statement of Environmental Effects to which I have referred at [38]-[41] above.

13. [240]

    The consent to the lodgement of the Development Application thus did not mean that Macquarie was not obliged ultimately to carry out the whole development. Rather, it permitted Macquarie to build the hospital in stages in the manner indicated in the plans. Macquarie was not entitled as it contended at the hearing to, in effect, stop the development midstream. This is not a matter of environmental planning law but rather a matter of contract. The obligation on Macquarie was to carry out the Works as required by cl 3.1. In the present case that involved carrying out the Works in accordance with the Initial Proposal as varied (by the Development Application) and in accordance with (among other matters) the standards required by cl 4.2 and cl 3.2.

14. [241]

    What is critical in the present case is the Building Application. In my opinion, the obligation on Macquarie as an essential term was to lodge a Building Application and obtain building approval sufficient to commence construction of the hospital. That is consistent with the sequential steps referred to in the Timetable.

15. [242]

    The obligation to lodge the Building Application is contained in cl 4.1. It seems to me, at the risk of repetition, that that means it was obliged to lodge a Building Application necessary to carry out the Works, namely the construction and fitting out of the hospital in accordance with the Initial Proposal as amended or varied.

16. [243]

    In the present case the Initial Proposal was varied by the Development Application. However, as the Development Application in effect provided that the development could take place in stages it seems to me that the building application necessary was one to complete Stage 1 of the development as described in the Development Application.

17. [244]

    However, the Building Application did not do this. I have set out the differences between the Building Application plans and the Stage 1 Development Application plans at [70]-[72] above. The position was summarised by Mr Harrison in par (60) of his report which I have set out at [205] above. Significantly, a number of items which were not included in the Building Application plans were services which were expressly provided for in the Initial Proposal and were required to be included by virtue of the opening words of cl 4.2 of the Construction Deed. Thus, in contrast to the Initial Proposal and the Stage 1 development plans which included diagnostic services (cl 3.1.3 of the Initial Proposal) and a physiotherapy centre (cl 3.1.2 of the Initial Proposal), the Building Application did not include these features.

18. [245]

    Fundamentally, as senior counsel for Macquarie accepted, the Building Application did not provide a fabric for the 394 bed hospital, associated services and the medical centre to be built. If it had in fact provided for the fabric for the 394 bed hospital, leaving aside the absence of services contemplated by the Initial Proposal, it would have been an application for the carrying out of the Works in accordance with cl 4.1. However, it did not provide such a fabric, and neither the Initial Proposal nor the Development Application contemplated a partly built hospital to operate on “an interim basis” (to adopt the words used in the submission of senior counsel for Macquarie).

19. [246]

    It follows that unless it can be shown that SLHD agreed with the Building Application as a variation of the Works, Macquarie did not prepare and lodge a Building Application in accordance with cl 4.1. It is important that Macquarie did not assert that SLHD was estopped from asserting this fact, nor was it suggested that it waived its rights to insist on a Building Application which complied with cl 4.1: Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 at [56]. Macquarie expressly submitted that if it was wrong in its primary construction that the Building Application complied with cl 4.1, SLHD had agreed to a variation of the Initial Proposal to enable the hospital to be constructed in the manner envisaged by that application (see the submission which I have summarised at [226] above).

20. [247]

    As I have said, the case was not put that by consenting to the lodgement of the Building Application, SLHD waived its rights to require a Building Application conforming with the requirements of cl 4.1 as distinct from agreeing to a variation of the Works such that the Building Application was compliant. Leaving aside the question of consideration for any such variation, something not raised by SLHD, the question whether the conduct of the parties led to a variation or a waiver depends on their intention as ascertained by reference to what reasonable persons in their respective positions would understand them to be from their verbal and non-verbal conduct: J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [5.590].

21. [248]

    It does not seem to me that SLHD, by indicating its consent to the lodgement of the Building Application, was agreeing to a variation of the Works such as to permit Macquarie to fulfil its contractual obligations by constructing a hospital of the nature of that set out in the Building Application, whether on a temporary basis or, as Macquarie contended, on a permanent basis at its option (see [212]-[216] above). It should be noted in relation to submissions set out at [214] above that whatever else be the case, the Building Application was not in accordance with the Initial Proposal as it did not contain all the services provided for in that proposal, nor did the Initial Proposal envisage a partly built structure.

22. [249]

    The plans attached to the Building Application were received by SLHD on 1 August 1997. Prior to that time discussions between the parties seemed to concentrate on demolition, bulk excavation and the construction of the car park. However, the letter of 27 August 1997 from SLHD to Pace Property (see [62] above) sought an undertaking that consent as landlord to the Building Application would not be interpreted as an approval as landlord to the detailed plans and specifications for construction that accompanied the Building Application. The letter stated that the consent was limited to one of principle to facilitate timely submission of the Building Application in question coupled with the statement that Macquarie had at all times indicated that it believed it was obligated to obtain SLHD’s approval post-Building Application and prior to construction (to the plans and specifications). A similar qualification was put in relation to the layout, functionality and internal design. This is hardly the language of contractual variation.

23. [250]

    On 28 August 1997 the Building Applications were lodged without SLHD’s consent.

24. [251]

    I have set out the relevant portions of the letter of 3 September 1997 from SLHD to Pace Property (at [66] above). It referred to Macquarie’s assertion that it was contractually obliged to obtain approval post-Building Application to detailed plans and specifications and that that was not SLHD’s understanding. The letter referred to the failure to give the undertaking sought in the letter of 27 August and noted the agreement that Dr Wenkart would provide such a letter confirming the undertaking.

25. [252]

    The letter from Dr Wenkart apparently was not forthcoming, but SLHD stated in its letter of 12 September 1997 that SLHD was “prepared to take you at your word” and consent was provided on the basis that a letter would be received “confirming our right to approve of outstanding core issues”. Although there was nothing to suggest that either the letter of undertaking or letter of confirmation were received or for that matter followed up, this correspondence would not indicate to a reasonable person that SLHD had agreed to a contractual variation to the effect that a hospital constructed only in accordance with the Building Application plans would comply with Macquarie’s obligations under the contract, rather than providing a limited and conditional waiver to enable a timely application to be lodged.

26. [253]

    I do not think the expressions “not in contract” and “for future fitout” in various parts of the Building Application plans require a contrary conclusion. There is nothing to suggest that those words were written on the plan with the express concurrence of SLHD. Indeed, the reference to “not in contract” seems to me more likely to refer to the contract between the builder, Baulderstone Hornibrook Pty Ltd, and Macquarie rather than the Construction Deed. Further, assuming that SLHD gave its consent to the application in circumstances where it had in its possession plans containing these notations, the fact remains that any consent was given subject to the express reservations to which I have referred above.

27. [254]

    It follows that there was no agreement to vary the Works to provide for construction in accordance with the Building Application. Absent any reliance on doctrines of estoppel or waiver, it also follows that Macquarie did not obtain building approval in accordance with cl 4.1 of the Construction Deed and thus that particular milestone in the Timetable was not completed.

28. [255]

    Even if I am incorrect in this conclusion, I am of the view that in circumstances where there was no dispute that a new Building Application (a Construction Certificate) was required to enable the construction of the hospital, SLHD was entitled to vary the Timetable to provide a new date for that milestone to be completed.

29. [256]

    The power to grant an extension was contained in cl 2.5 of the Construction Deed. The primary submission of Macquarie was that an extension could not be granted in respect of a step in the Timetable that had been completed. It is convenient to first deal with the authorities which were submitted to support the proposition.

30. [257]

    Brooke v Clarke involved the validity of an assignment of copyright in certain works after the period for which copyright was granted had expired and no extension had been granted prior to expiration. In dealing with the possibility of an extension Lord Ellenborough CJ stated (at 148) that “[t]he word extension imports the continuance of an existing thing” rather than “recreating an expired right”.

31. [258]

    Esso Research and Engineering Co v Commissioner of Patents involved an extension of a patent. Section 53(2) of the Patents Act 1952 (Cth) provided that when an appeal had been instituted in respect of the patent application, the time in which the application could be accepted would be extended until three months after the determination of the appeal. The question which arose was whether in respect of an appeal instituted after the time for acceptance of the patent had expired, s 53(2) of the Act would operate to grant such an extension. In holding that it did, Fullagar J made the following remarks (at 351):

32. [259]

    In Parke Davis Pty Ltd v Sanofi (No 2) a majority of the Full Court of the Federal Court held there was no power to extend the time for the expiry of a patent under s 90(1) of the Patents Act after the date the patent had in fact expired. Deane J dissented. After referring to the appellant’s reliance on Brooke v Clarke and the statement by Fullagar J in Esso Research and Engineering Co v Commissioner of Taxation that a provision for extending a prescribed period should prima facie be construed as operating only while the original prescribed period is still current, he went on to make the following remarks (at 503):

33. [260]

    An appeal was allowed: 152 CLR 1. The plurality made the following remarks (at 7-8):

34. [261]

    These cases demonstrate that as a matter of statutory interpretation the question of whether there is a power to grant an extension after the matter or thing sought to be extended has expired is a matter of construction of the provision in the context in which it appears. Similarly, the question of whether cl 2.5 empowered SLHD to grant an extension of a step in the Timetable once the step had been completed or needed to be redone because of events outside Macquarie’s control involves construing cl 2.5 in the context of the Construction Deed as a whole.

35. [262]

    It is clear from the terms of the Construction Deed that the parties intended that the completion of the hospital and the associated Works would be carried out pursuant to a series of milestones, with completion of each milestone being an essential term. The purpose of the Construction Deed in my opinion was to ensure that the hospital was built expeditiously and to give SLHD the power to invoke the default procedures if that did not occur, as well as to avoid any disputes as to whether delay by Macquarie in the carrying out of its contractual obligations was reasonable or otherwise.

36. [263]

    In my opinion, the Building Application (or applications) required by the original Timetable was one which enabled the next steps in the Timetable, commencement and completion of the bulk excavation of the land and construction of the hospital and car park, to be undertaken. Thus, a Building Application in respect of the hospital must be sufficient to enable construction to occur. The Building Application lodged with the Council on 17 September 1997 was effective to allow that approval to be given on 17 September 1998, subject to an Environmental Site Assessment (Contamination Assessment).

37. [264]

    However, due to the delays between 1998 and 2016, the building approval was ineffectual to achieve its objective, namely to commence the construction of the hospital. In circumstances where it was thus necessary to lodge a fresh application and to obtain a further approval, it seems to me that cl 2.5 permitted SLHD to extend its Timetable and to provide for a fixed date for the lodgement of the Construction Certificate.

38. [265]

    In that context it is to be noted that the pre-condition to the exercise of the power was that there was delay to the Works caused by an event beyond the control of Macquarie. In the present case there was no issue that the pre-condition was met. Indeed, it was not disputed that an extension could be granted and would be required in respect of uncompleted activities. The power would normally not extend to activities which had been completed, simply for the reason that it would not be necessary for those activities to be undertaken again. However, where because of the lapse of time the particular activity had to be redone, that activity could be made the subject of an amended Timetable in accordance with cl 2.5. Apart from the use of the word “extension” there is nothing in the express words of cl 2.5 which precludes this.

39. [266]

    In that context it must also be remembered that there is nothing to suggest that the obligation of both Macquarie and SLHD in cl 4.2 and cl 4.4 would not apply to the replacement Building Application. If these steps were to apply it would seem to me that cl 2.5 could operate to enable SLHD to require a Timetable within which those steps were to be carried out.

40. [267]

    In contending for a contrary construction, senior counsel for Macquarie first contended that the effect would be to impose a timetable requirement as an essential term in respect of a matter which had already been completed. Whilst that may be a consequence it does not seem to me unreasonable, having regard to the fact that the time for lodgement of a Building Application was always regarded as an essential term. Additionally, it does not seem to be unreasonable that SLHD had the benefit of the milestone in circumstances where as a result of the delay the particular activity had to be redone.

41. [268]

    Further, I do not think that the power to set a new Timetable was entirely unconstrained. First, it did not seem to be disputed by either party that the power could not be exercised for an extraneous or improper purpose. In addition I am of the view that cl 10.8 of the Construction Deed, which imposes an obligation of the utmost good faith in the exercise of contractual powers under the contract, applies to the exercise of the power in cl 2.5.

42. [269]

    Although on its face there may be some inconsistency between what is described as an “absolute and unfettered discretion” in cl 2.5 and the provisions of cl 10.8, in my opinion the discretion in cl 2.5, although described as absolute and unfettered, should be read as subject to the good faith obligation. In Re Media, Entertainment and Arts Alliance; Ex parte the Hoyts Corporation Pty Ltd (1993) 178 CLR 379; [1993] HCA 40, the Court stated (at 386-387) that a conflict involving apparently inconsistent provisions is one which “is to be resolved, if at all possible, on the basis that one provision qualifies the other and, hence, that both have meaning and effect”. That was stated to be “an aspect of the general rule that an instrument must be read as a whole”: see also Forbes v Git [1922] 1 AC 256 at 259.

43. [270]

    In Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140; [1930] HCA 10, Isaacs J stated (at 151) that such inconsistency is to be resolved by looking at the instrument as a whole to see what its “substantial effect” is. To that I would add, in accordance with the authorities to which I have referred at [229] above, that that must be done having regard to the context and purpose of the provisions.

44. [271]

    The Construction Deed related to the construction of a major hospital and medical centre and the grant of a lengthy lease to operate the hospital in circumstances where both the Construction Deed and the Leases expressly obliged the parties to act in the utmost good faith towards each other. It would be an unusual construction if the power in cl 2.5, which arose in circumstances where there had been a delay caused by an event beyond the control of Macquarie, was not subject to such an obligation. In Burger King Corporation v Hungry Jacks Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187, the Court was prepared to imply a term of good faith and reasonableness to a clause granting the appellant a right of approval within its sole discretion. The Court stated (at [176]) that if “full force” was given to the clause in question it would allow Burger King to give or withhold approval at its whim including capriciously, or with the sole intent of engineering a default under the agreement. The same situation would apply in the present case, with the principal difference being that in the present case there is an express term rather than the need for a term to be implied to this effect.

45. [272]

    I am conscious of the opening words in cl 10.8, “Without limiting the generality of any other provision of this deed”, but it does not affect my view. It seems to me that the opening words of cl 10.8 make it clear that the clause does not operate to override other express rights or obligations in the Construction Deed as distinct from operating on contractual powers conferred on one or other of the parties. It is not necessary to decide whether cl 10.8 applies to a decision whether or not to exercise the power. Once the power is exercised, the question is whether cl 10.8 applies to any Timetable date set as a consequence of the exercise of the power. In my opinion it does.

46. [273]

    My opinion as to the application of cl 10.8 in the present circumstances is consistent with the reasoning of the primary judge in concluding that the times imposed by the September 2017 Timetable were reasonable (see [131]-[134] above). Neither her Honour’s conclusion on this issue nor her reasoning on the point was challenged on appeal.

47. [274]

    It is not necessary to deal in any detail with the content of the obligation. It was dealt with in the context of cl 10.8 in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 (the 2010 decision): see Allsop P (at [11]-[19]) and Hodgson JA (at [146]-[148]). Allsop P summarised the content of the obligation (at [12]) as including an obligation to act honestly and with fidelity to the bargain, obligations not to act dishonestly and not to undermine the bargain entered into and an obligation to act reasonably and with fair dealing having regard to the interests of the parties and the provisions, aims and purposes of the contract, objectively ascertained.

48. [275]

    Once it is appreciated that the setting of a new Timetable date must be done having regard to that obligation, the submission that the setting of a new date for the Construction Certificate places Macquarie in a position of disadvantage loses much of its force. There is nothing unreasonable in requiring Macquarie to comply with a milestone as an essential term, providing that the date is set in accordance with the obligations to which I have referred above.

49. [276]

    Senior counsel for Macquarie also contended that the exercise of the power under cl 2.5 could be reviewed under cl 2.2(b). He submitted that otherwise the discretion under cl 2.5 would be entirely unfettered. He submitted that cl 2.2(a) was only engaged if there was loss or damage to the Works and that all that could be extended was the date for completion of the hospital even though the damage may necessitate fresh Building Applications. He said that in those circumstances the construction preferred by the primary judge led to incoherence between cl 2.5 and cl 2.2(a): (see [164] and [210] above).

50. [277]

    There are a number of difficulties with this submission. As senior counsel for Macquarie submitted, having regard to cl 2.3, cl 2.2(a) could only operate after construction had commenced. It follows that a Building Application sufficient to commence construction had already been obtained and acted upon. In those circumstances I would accept that neither cl 2.2(a) nor cl 2.5 could be used to impose a new Timetable for obtaining a Building Application.

51. [278]

    In the present case because no construction has been commenced, cl 2.2(a) can have no operation and any rights Macquarie has to an extension are governed by cl 2.5. There is nothing incoherent in the operation of cl 2.2(a) and cl 2.5 in permitting SLHD to propose a new Timetable for the lodgement of a Building Application where no construction has been commenced and the Building Application previously obtained is not sufficient to enable it to do so.

52. [279]

    Further, I do not agree that the exercise of the power in cl 2.5 is reviewable under cl 2.2(b). The structure of cl 2.2 is that if an event described in cl 2.3 occurs, SLHD is obliged to give a fair and reasonable extension which can be independently reviewed. Clause 2.5 provides an entirely different regime including discretionary powers to grant an extension. It is difficult to see what criteria a construction programmer appointed under cl 2.2(b) would use to determine whether or not the power under cl 2.5 should have been exercised and if so on what terms. Once it is accepted that the power under cl 2.5 is required to be exercised in good faith, it does not seem to me that the exercise of that power will be reviewable by an independent construction programmer pursuant to a provision which, on its face, does not extend to a decision under cl 2.5.

53. [280]

    Reliance was also placed on what was described as an “absurd” result if SLHD was entitled to set a new date for completion of the obligation to lodge a Development Application. It was suggested that if a new date was set for the obtaining of development approval and the approval was not given by that date, then cl 4.12 would operate to terminate the agreements even if Macquarie had already spent a considerable amount of money in connection with the project. The example is entirely hypothetical because in the present case it was accepted that the Development Application remained on foot. Questions of modification are expressly dealt with in cll 4.13 and 4.14. It was not suggested that modification could not take place after the Development Application was approved and in that context reference to compliance with the Timetable in cl 4.14(c) must refer to outstanding steps post-Development Application approval.

54. [281]

    Further, to the extent that a new date for the lodgement of a Development Application was nominated, SLHD, acting in good faith, would be required to determine the date by which the Development Application was to be lodged to take into account any money spent by Macquarie on the development and any loss it would suffer if the agreement was terminated by virtue of cl 4.12. In addition, if it became apparent that through no fault of Macquarie the nominated date for lodgement could not be achieved, Macquarie could request a further extension under cl 2.5.

55. [282]

    As to the submission that it was more than likely that there would be more than one Development Application needed during the course of construction (see [211] above), as I have indicated the requirement in the Timetable related to the Development Application and Building Application (or applications) sufficient to move to the next milestone in the Timetable. In the present case the Building Application obtained some 20 years earlier was not sufficient for this to occur. It was that fact that enabled SLHD to impose a fresh date.

56. [283]

    For these reasons the primary judge was correct in concluding that SLHD was entitled to vary the Timetable to provide for a new date for the issue of a Construction Certificate.

The second issue – whether non-compliance with the Notice of Default gave SLHD the right to terminate the Agreement

1. [284]

   Senior counsel for Macquarie submitted that the principles surrounding the operation of s 129 of the Conveyancing Act were correctly set out by Hodgson JA in the 2010 decision at [307]-[324]. He referred in particular to the following observations by Hodgson JA at [323]-[324]:

2. [285]

   He submitted that a necessary corollary of these observations is that where there is uncertainty as to the precise scope or extent of a particular obligation, it is not sufficient for the landlord to merely demand by way of remedy that the tenant comply with the obligation in a general and unparticularised fashion. He submitted that that was consistent with the authorities referred to by Hodgson JA, particularly Gerraty v McGavin (1914) 18 CLR 152; [1914] HCA 23 and Dogan v Morton (1935) 35 SR (NSW) 142.

3. [286]

   In dealing with what was described as the specificity issue, he referred to the statement in the February 2017 notice that cl 2.1 of the Construction Deed had been breached for failure to lodge a Construction Certificate with SLHD by 17 February 2017. He submitted that the underlying contractual promise was more complex, comprising the obligation to carry out the Works in accordance with the Timetable and the complexities which that entailed. He referred in that context to the fact that in the present proceedings there were alternative cases presented by SLHD. He submitted that in those circumstances it was necessary for SLHD to indicate precisely what the necessary requirements to comply with the contractual obligations were. He submitted referring to the judgment of Hodgson JA at [327] that the case did not involve a number of ways to comply with an obligation, stating that there was only one way to comply. However, he submitted that in a case such as the present where SLHD propounded three alternative cases, it was necessary to specify what was required.

4. [287]

   So far as timing was concerned, he submitted that the authorities made it plain that one central object of s 129 is to afford a reasonable and sufficient time to remedy the breaches. He submitted that because the Notice of Default required that the breach be remedied within 28 days rather than the period of six to eight months which the primary judge found was reasonable, insufficient time to remedy the breach was given in the notice.

5. [288]

   Senior counsel for Macquarie submitted that the primary judge erred in concluding that the amount of time which in fact elapsed between the Notice of Default and the Notice of Termination was the relevant period. In Macquarie’s written submissions it was argued that to the extent the primary judge relied on statements in Billson v Residential Apartments Ltd [1992] 1 AC 494 at [508], her Honour erred as that decision did not support the proposition that the Court can disregard the reasonableness or otherwise of any period of time which was specified in the notice.

6. [289]

   In its written submissions, Macquarie contended that the authorities establish that the Court is not able to disregard the point of time actually specified in the notice, and submitted that if the period specified is not reasonable the notice is bad. It was submitted that her Honour erred in concluding that the time actually specified in the default notice was not the relevant question.

7. [290]

   In dealing with the default notices served under the Construction Deed, senior counsel for Macquarie submitted that the notices made no reference to the fact that SLHD’s right to exercise a power to terminate the Construction Deed would be deferred consistent with what was a reasonable time for the purposes of s 129. He submitted that if the Construction Deed was terminated the Leases would become “sterile”. In these circumstances he submitted that both the Construction Deed termination notices and the s 129 notices were bad. He noted that in the earlier proceedings, SLHD accepted that the Construction Deed notice fell with the invalid s 129 notices (see the 2010 decision at [333]).

8. [291]

   Senior counsel for SLHD pointed out that the s 129 notices outlined Macquarie’s obligations under cl 2.1, stating that to remedy the alleged defect it was necessary to lodge a Construction Certificate with SLHD by 20 March 2017.

9. [292]

   He submitted that the primary judge accepted the submission that Macquarie was obliged under the Construction Deed to build the hospital as approved by the Development Application, unless and until it sought and obtained a modification of that approval (PJ [381]), and submitted that fact made the remedy of the asserted defaults easily identifiable. He referred to her Honour’s conclusion (which I have set out at [137] above), submitting that Macquarie had approval for a seven storey hospital and a nine storey medical centre. He stated that it was common ground that the approval required modification, but that exactly what modifications Macquarie sought was a matter for it.

10. [293]

    Senior counsel referred to the two modification applications in March and May 2017 to which I have referred at [102] and [105] above.

11. [294]

    He submitted that the primary judge was entirely correct as a matter of legal principle in taking into account what Macquarie knew or ought to have known in assessing the requisite specificity of the s 129 notices. He referred to the judgment of Hodgson JA in the 2010 decision at [322]-[323] which he said was consistent with this proposition.

12. [295]

    Senior counsel for SLHD agreed that if Macquarie had the view that only Stage 1 was required, all it needed to do was to get a Construction Certificate for Stage 1, and whether its claim was correct could be adjudicated. However, he submitted that there was no reference to Stage 1 in any internal communications of Macquarie as to what it was obliged to carry out. He submitted that the documents disclosed that Macquarie had no intention of only building Stage 1 and that there was no document which suggested it regarded itself as contractually entitled to stop once it completed Stage 1. Although he accepted that SLHD had alternative cases in the present proceedings, he stated that that had nothing to do with what was being articulated at the time the notice was given.

13. [296]

    Senior counsel for SLHD referred to the correspondence and events to which I have referred at [78]-[85] above. He noted that Macquarie did not respond to the letter of 25 September 2015 (see [79] above) asserting that it did not know what it had to do. He also referred to the letter of 16 October 2015 from SLHD to Macquarie (see [80] above) in which SLHD again insisted on compliance with the contractual regime. He noted that the draft RFP to which I referred at [85] above was a “radically different” proposal, involving 16 levels of residential apartments on what SLHD regarded as hospital space.

14. [297]

    Senior counsel for SLHD referred to Macquarie’s letter to SLHD of 12 April 2016, concerning the requirements for a s 96 modification to the Development Application and SLHD’s response of 14 April (see [87]-[88] above). He also referred to Mr Wenkart’s memorandum to which I have referred at [89] above, the design meeting and the draft programmes to which I have referred at [94] above. He also referred to the memorandum from Mr Crook to Mr Coburn of February 2017 to which I have referred at [95] above.

15. [298]

    In these circumstances senior counsel for SLHD submitted that the primary judge was correct in her conclusion (PJ [168]) that the “larger” project was given priority by Macquarie in early 2017. He submitted that the correspondence to which he referred and the reasons given by SLHD for refusing to consent to the modification application (see [106] above) also demonstrated that her Honour was correct in concluding that Macquarie was well aware of what was required of it under the contract.

16. [299]

    In relation to the question of the reasonableness of time allowed by the notice, he submitted that the primary judge was correct in pointing out that the question is the reasonableness of the time in fact allowed to remedy defaults, not the time specified in the notice itself. He submitted that that was consistent with the decision of the Full Court of the Supreme Court in Dogan v Morton and of this Court in Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) [2019] NSWCA 312.

17. [300]

    Senior counsel for SLHD noted that the argument put by Macquarie was based on the proposition that the primary judge found that the 28 days was not a reasonable time to remedy the defects. He referred to ground 9 of the grounds of appeal and par (73) of Macquarie’s written submissions in chief where it was stated that the primary judge found that six to eight months was a reasonable time and in so doing in effect found that the period of 28 days in the notice was unreasonable. He submitted that the primary judge did not make that finding because she did not consider the question, given the fact that she was able to resolve the issue without dealing with it. He referred in that context to Macquarie’s argument that it would take at least six months to remedy the defaults in the February notice and a further two months to remedy the defaults in the April notice. He noted that the primary judge referred to the arguments put by SLHD to the contrary; that reasonable time had to be assessed by reference to the significant time which had elapsed prior to the issue of the February notices (PJ [386]), that the reasonableness was informed by the times chosen by the parties in the hospital lease (PJ [388]) and that Macquarie had no intention of rectifying the default and hence it was not necessary to provide for a period of greater than 28 days. He said it was in that context that her Honour made the finding (at PJ [407]) that Macquarie was afforded a reasonable time to remedy the breach, but emphasised that there was no finding that 28 days was not a reasonable time.

18. [301]

    He further submitted that irrespective of the validity of the notice under the lease, the default and termination provisions in the Construction Deed were not affected by s 129. He submitted that s 129 did not impact on the regime laid out in the Construction Deed. He submitted that the fact that termination of the Construction Deed might have some impact on the lease was not to the point.

19. [302]

    In this context he referred to the statement of the primary judge (at PJ [371]) that in circumstances where Macquarie was not seeking relief against forfeiture there could be a finding that the termination of the Construction Deed was valid even if the termination of the Leases was not. He submitted that Hodgson JA did not determine that issue in the 2010 decision, referring to his Honour’s remarks at [333]-[335].

20. [303]

    Senior counsel for Macquarie submitted that if the primary judge thought 28 days was a reasonable time for compliance with the notice she would have said so. He submitted that SLHD submitted in the Court below that 28 days was reasonable and the primary judge found for it on an alternate basis. He submitted that if SLHD sought to contend that 28 days was reasonable it would have been necessary for it to file either a cross-appeal or a Notice of Contention.

21. [304]

    He also submitted that the primary judge did not find the 28 days was adequate on the basis suggested by Sir Nicolas Browne-Wilkinson in Billson v Residential Apartments Ltd, that where it was plain that the tenant would not do what was required by the notice a shorter period was adequate.

22. [305]

    Senior counsel for Macquarie accepted the statement of principle about surplusage that “the time beyond the reasonable time does not infringe the law”. He submitted, however, that the cases establishing that proposition were cases where the lease was controlling, but that in the present case the Leases were “wholly dependent” on the Construction Deed because the Leases could only be used for the purpose of the hospital. He rejected the proposition that the time specified in cl 7.6 of the Construction Deed had any relevance to the length of time which was reasonable for the purpose of s 129. He submitted that s 129 could not be avoided by collateral agreement.

Consideration

1. [306]

   Section 129 of the Conveyancing Act and Sch 6 of that Act are in the following terms:

2. [307]

   The requirement that a notice under s 129 must describe the particular act or omission constituting the alleged breach and indicate the acts or omissions which are necessary to remedy it is well established: see the 2010 decision at [323]. In Gerraty v McGavin, Griffiths CJ cited with approval the following passage of the judgment of Collins LJ in Penton v Barnett [1898] 1 QB 276:

3. [308]

   Isaacs J (at 164) emphasised that the breach does not mean the covenant or promise which was broken but what is alleged to be a breach of that covenant or promise. He stated that the notice must do what the landlord “would have to do if he had brought an action, namely, specify what he says is ‘the particular breach,’ and not merely state that there has been ‘a breach’”, and that “[i]f he does that, he is not bound to go further and instruct the tenant how to repair it”: see (1914) 18 CLR 152 at 164; see also Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907 at 925; Fox v Jolly [1916] 1 AC 1 at 11 per Lord Buckmaster LC. As was stated by Hodgson JA in the 2010 decision at [323], the standard of particulars or the degree of specificity depends upon the circumstances, including the nature of the covenant alleged to have been breached and the tenant’s actual or constructive knowledge.

4. [309]

   In the present case the notice alleged a breach, namely, a contravention of cl 2.1 of the Construction Deed, and required remedy by lodging a Construction Certificate before 5.00pm on 20 March 2017. That in my opinion made it clear what was required, namely, the lodgement of the Construction Certificate. SLHD was not required to inform Macquarie of what was to be inserted in the Certificate.

5. [310]

   Further, Macquarie was well aware of what SLHD required. It was set out in the letter of 19 January 2016 from SLHD to Macquarie, to which I have referred at [82] above and the letter which accompanied the amended timetable to which I have referred at [93] above. It is also demonstrated by Mr Robinson’s instruction to Mr Brady of 24 September 2016 (see [94] above) which drew a distinction between the hospital SLHD “want[s] us to build in line with the lease conditions” and the expanded proposal.

6. [311]

   Senior counsel for Macquarie submitted that the notice was not sufficient, having regard to the alternative cases run by SLHD at the trial and on the appeal. However, at the time the notice was issued there was no question of alternative cases being advanced. The fact there may have been a dispute as to what was required by the Construction Certificate did not mean that any further particularity was required. If Macquarie proposed a certificate on its view of the requirements of the Construction Deed and SLHD disagreed, the question of whether there was compliance with the notice could have subsequently been litigated. Potential disputes as to what was required did not mean that greater particularity was necessary.

7. [312]

   It follows that the primary judge was correct in her conclusion that the notice in respect to the Leases was sufficiently specific to comply with the requirements of s 129 of the Conveyancing Act.

8. [313]

   There are two preliminary matters. First, SLHD contended that the primary judge did not make a finding that 28 days was not a reasonable time to remedy the breach. I think that is correct, but it does not follow that her Honour made a finding that 28 days was in fact a reasonable time. Her Honour noted the submission made by SLHD that Macquarie’s contention that the time allowed to remedy the default was unreasonable should be rejected (PJ [385]) and the submissions in support of that proposition (PJ [386]-[391]). However in her conclusion on the question of reasonableness, she stated that the relevant question was the time allowed to remedy the default and concluded that it was adequate (PJ [406]-[407]). It was on that basis that she concluded the notices issued under the Leases complied with s 129 of the Conveyancing Act. However her approach to the notice under the Construction Deed was somewhat different. She made the following remarks (PJ [408]):

9. [314]

   On one view this paragraph, and particularly the comment that a reasonable time was specified, could be viewed as that stating 28 days was a reasonable time for remedying the default. If it was reasonable for the purpose of the Construction Deed, it would seem to follow that it was reasonable for the purpose of the notices in respect of the Leases.

10. [315]

    However I am of the view that her Honour’s remarks at PJ [408] must be read in the context of her earlier finding that the relevant period was the period between the date of the notices and the date of termination. It thus seems to me that if SLHD sought to contend that the judgment should be affirmed on the basis that 28 days was a reasonable time, it would have been necessary to file a Notice of Contention.

11. [316]

    The second preliminary matter is that it was not disputed that the time in fact allowed to remedy the default prior to termination was reasonable.

12. [317]

    Macquarie’s position was essentially that irrespective of the question of whether the period between the giving of the date of the notice and the date of termination was a reasonable time in which to remedy the default, the period of 28 days for remedying the default referred to in the notice was inadequate and the notice was defective for that reason. Reliance was placed in particular on the decision of the Full Court in Harris v Thallon (1926) 26 SR (NSW) 456. The notice in that case was in the following terms:

13. [318]

    Street CJ, with whom the other members of the Full Court agreed, stated (at 461) that the notice was insufficient as it did not give the defendant notice that she had a reasonable time to effect the repairs and did not inform her of what her legal position would be if she did not effect them. He rejected the submission that the fact the tenant was given 14 days within which to do the work the subject of the notice, instead of being told she was entitled to a reasonable time, did not prejudice her, as the notice would be a mere empty threat if 14 days was not enough. He stated it was true that the notice directed attention to s 129, but stated that all tenants are not lawyers and should be told in plain terms what the law is and what their legal liability would be if they did not comply with the notice.

14. [319]

    Harris v Thallon was distinguished in a subsequent decision of the Full Court in Dogan v Morton. The notice in that case drew attention to s 129 and concluded that the lessor might re-enter “in the event of the lessee’s failing to comply with the notice within a reasonable time which is seven days from the date hereof”. The Court held that the notice was valid. After referring to Harris v Thallon, Davidson J, with whom the other members of the Court agreed, made the following remarks (at 149-150):

15. [320]

    In Glebe Administration Board v Tasker [1964] NSWR 1307, Collins J, in noting that Sch 6 of the Conveyancing Act did not require a fixed time for compliance with the notice but only a reasonable time, held that there was no requirement in a s 129 notice to specify a fixed time for compliance.

16. [321]

    In Hovan’s Hotel Pty Ltd v Cherry (Supreme Court (NSW), Bryson J, 14 March 1994, unrep), the defendant sent a notice under s 129 requiring the plaintiff to carry out repairs and appearing to allow 26 or 27 days for compliance. The evidence did not establish that this was a reasonable time. In that context Bryson J made the following remarks:

17. [322]

    His Honour also made the following remarks concerning the form of the notice:

18. [323]

    The remarks of Bryson J referred to in the immediately preceding paragraph were cited with approval in Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrators Appointed). In that case Meagher JA, with whom Brereton JA and Emmett AJA agreed, stated (at [59]) that a notice under s 129 did not need to fix a time as a reasonable time.

19. [324]

    In Giacomi v Nashvying Pty Ltd [2007] QCA 454, the Queensland Court of Appeal held that a notice which fixed a time less than a reasonable time to remedy a breach and which failed to contain a notice in the prescribed form under the Property Law Act 1974 (Qld), namely, that “[t]he lessor will be entitled to re-enter or forfeit the lease in the event of the lessee failing to comply with this notice within a reasonable time”, was invalid. It appears that the latter matter was the reason for the Court’s conclusion that the notice was invalid: [2007] QCA 454 at [61]-[63]. A similar conclusion was reached by Wallace J (as his Honour then was) in Johnson v Senes and Berger [1961] NSWR 566 at 567.

20. [325]

    Macquarie also relied on the decision of the English Court of Appeal in Horsey Estate Limited v Steiger [1899] 2 QB 79. In that case a notice was issued requiring, among other things, substantial repairs within a reasonable time. Two days after the service of the notice a writ for possession was issued. It was held that two days was not reasonable notice as a pre-condition for seeking an order for possession. The decision provides little assistance in the present case.

21. [326]

    It seems to me that the following matters are established by the authorities.

22. [327]

    I have set out one of the February default notices in respect of the Leases at [97] above. The Notices of Default in respect of the other leases and the April notices were in the same form. Although cl 1 of the notice required the breach to be remedied by 20 March 2017, the notice conformably with Sch 6 to the Conveyancing Act stated that SLHD would be entitled to re-enter or forfeit the lease in the event of Macquarie failing to comply within a reasonable time, referring to s 129 of the Conveyancing Act. In these circumstances, consistent with Dogan v Morton and Hovan’s Hotel Pty Ltd v Cherry, the date of 20 March can be disregarded. Further, it does not seem to me that the validity of the notice is affected by the expression of what SLHD considered to be a reasonable time. It sought to make clear, as did the landlord in Dogan v Morton, what it considered to be a reasonable time and adds further emphasis to the fact that what was sought to be given was a reasonable time.

23. [328]

    It follows that the notice was valid. It not being disputed that a reasonable time had elapsed between the date of the notice and the date of termination, it follows that SLHD validly terminated the Leases.

24. [329]

    It was accepted that if the Leases were validly terminated, the Construction Deed was also validly terminated.

25. [330]

    In these circumstances, it is not necessary to deal with the difficult question of whether the Construction Deed could be terminated notwithstanding that the Leases remained on foot.

The third issue – The breach of duty of co-operation

1. [331]

   It was contended finally that the primary judge erred in her conclusion that SLHD, in purporting to terminate the Transaction Documents, had not breached its implied obligation of co-operation: Mackay v Dick (1881) 6 App Cas 251.

2. [332]

   Senior counsel for Macquarie submitted that the primary judge erred in her conclusion that there was no breach where the defaulting party was bona fide seeking to exercise its rights under the contract. He submitted that even if the Timetable was ineffective, Macquarie still had the obligation to complete work on the hospital. He submitted that Macquarie was prevented from doing so by SLHD’s purported termination. He pointed to the fact that SLHD’s assistance was necessary in consenting to the lodgement of applications including the modified Development Application. He also pointed to the evidence of Macquarie’s banking expert, Mr Ballantyne, who stated that it would not be possible to obtain finance until the issues surrounding the validity of the Construction Deed and the Leases were resolved. He submitted in that context that SLHD’s denial of the existence of the contract amounted to a breach of the duty to co-operate. He submitted, referring to Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25, that Macquarie was released from submitting a Construction Certificate application to SLHD and seeking its consent to it as SLHD had evinced a clear intention not to co-operate.

3. [333]

   Senior counsel for SLHD that submitted the primary judge was justified in concluding that providing a party was bona fide exercising its perceived rights then there was no failure to co-operate.

4. [334]

   He submitted that Macquarie was not dispensed from future performance and that it was a matter for them whether to perform or not. He submitted that Macquarie did not need co-operation from SLHD for the first stage, namely, the lodgement of a modified application with SLHD. He noted that until the first day of the trial Macquarie was asserting that the breach of the obligation was the failure to approve the May modification. He stated that Macquarie did not seek to lodge an amended modification prior to termination.

Consideration

1. [335]

   It is strictly unnecessary to deal with this issue but I do not think there has been a breach of the implied duty to co-operate. If the termination was invalid it would amount to a repudiation of the Leases and the Construction Deed by SLHD. However, SLHD on this hypothesis has not accepted the repudiation and the parties remained bound by their obligations under the Construction Deed. The next steps were either the submission of the s 96 modification to SLHD for consent (cl 4.13 of the Construction Deed) or the lodgement of a Construction Certificate application with SLHD (cl 4.2 of the Construction Deed). It was accepted that SLHD was entitled to reject the May modification. In these circumstances there was nothing required by SLHD until at least a further draft modification was provided to it. It follows that as at the date of termination there had been no breach of the implied term.

2. [336]

   I do not think the decision of the High Court in Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd assists Macquarie. The principle which can be derived from that case was summarised by Kitto J in the following terms (at 250):

3. [337]

   In the present case the modification or for that matter the Construction Certificate not having been presented to SLHD for its consent, the time for giving the consent had not arrived. In those circumstances there was no breach of the obligation to co-operate.

Conclusion

1. [338]

   In the result I would make the following orders:

   1. (1)

      Appeal dismissed.

   2. (2)

      The appellant pay the respondent’s costs of the appeal.

2. [339]

   BELL P: I agree with the Chief Justice.

3. [340]

   McCALLUM JA: I agree with the Chief Justice.