MK & JA Roche Pty Ltd & Ors v Metro Edgley Pty Ltd & Anor [2005] NSWCA 39 (3 March 2005)

CITATION: M.K. & J.A. Roche Pty. Ltd. & Ors. v. Metro Edgley Pty. Ltd. & Anor. [2005] NSWCA 39

FILE NUMBER(S):

40751/04

HEARING DATE(S): 17 December 2004

JUDGMENT DATE: 03/03/2005

PARTIES:

MK & AJ Roche Pty. Limited - 1st appellant

Michael Kevin Roche, Christopher John Roche, William Tomothy Roche, Kevin Michael Roche and Gabrielle Mary Roche - 2nd appellants

Metro Edgeley Pty. Limited - 1st respondent

Multiplex Construction Pty. Limited - 2nd respondent

JUDGMENT OF: Beazley JA Hodgson JA Ipp JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 50069/04

LOWER COURT JUDICIAL OFFICER: Einstein J

COUNSEL:

Mr. D. Hammerschlag SC with Mr. V.F. Kerr for appellants

Mr. C.R.C. Newlinds SC with Ms. R. Francois for respondents

SOLICITORS:

Lane & Lane, Sydney for appellants

Clayton Utz, Sydney for respondents

CATCHWORDS:

CONTRACT - Construction - Whether provision for automatic rescission on non-satisfaction of conditions self-executing or required the giving of notice - Election - Need for awareness of circumstances entitling party to terminate contract - Need for action adverse to the other party - Sufficiency of terms of notice that contract terminated

ESTOPPEL - Conventional estoppel - Whether distinct from equitable estoppel - Need for reliance by and detriment to party seeking to raise estoppel - Requirement that party against whom estoppel asserted play such a part in adoption of the assumption that it would be unjust if it were left free to ignore it.

LEGISLATION CITED:

DECISION:

1. Appeal allowed. 2. Cross-appeal dismissed. 3. Orders below set aside. 4. Matter remitted to the Equity Division to determine the issues of conventional estoppel and election indicated in this judgment, the liability of the Guarantors, the issue of specific performance, and costs of the proceedings. 5. Respondents to pay the appellants' costs of the appeal and cross-appeal, and to have a certificate under the Suitors' Fund Act if otherwise eligible. 6. Liberty to the respondents to make written submissions as to orders 4 and 5 within 7 days, any response by the appellants to be provided within a further 7 days.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40751/04

ED 50069/04

BEAZLEY JA

HODGSON JA

IPP JA

Thursday 3 March 2005

M.K. & J.A. ROCHE PTY. LTD. & ORS. V. METRO EDGLEY PTY. LTD. & ANOR.

HEADNOTE

FACTS

In December 2002, the Luna Part Reserve Trust (LPRT) entered into a Deed of Agreement for Lease and Sub-lease of the Luna Park Reserve to Luna Park Sydney Pty Limited (LPS) and Metro Edgely Pty Limited (Metro) for Metro to undertake the development of Luna Park, including the construction of the Waterfront Brasserie (WB).

In September 2003 M.K & J.A Roche Pty Limited (Roche) purchased a forty-year lease of the WB under an agreement that provided that Roche was to pay a $2 million deposit on entry into the agreement, the Roche family as Guarantors were to provide Guarantees, and Metro was to perform certain building works for the WB.

Clause 2A of the agreement outlined conditions precedent to the agreement; and cl.2A(b) provided for automatic rescission if these conditions were not satisfied by 31 December 2003 (or such later date if Metro notified Roche in writing (on one or more occasions) up to the Sunset Date (31 December 2004). The agreement also contained a clause that provided for the refund of the deposit if Roche lawfully rescinded or terminated the agreement.

Metro carried out works under the agreement from late 2003 until 25 May 2004. On 18 December 2004, Metro gave written notice to Roche that the date in cl.2A(b) of the agreement was extended to 31 March 2004.

On 2 March 2004, a meeting between representatives from Metro and Roche occurred at which, according to witnesses for Metro, verbal notice was given to Roche that this date was further extended to 30 June 2004.

On 31 March 2004, several conditions precedent were still not fulfilled, but both parties continued to cooperate on the building work in order to satisfy these conditions.

On 10 May 2004, Roche became aware that non-satisfaction of the cl.2A conditions precedent terminated the contract, but continued to work with Metro. On 21 May 2004, Roche sent a letter detailing the conditions giving rise to automatic rescission, and claiming the $2million deposit. Metro’s reply alleged that oral notice for extension was given on 2 March 2004, and that from 31 March until 21 May 2004 both parties had participated in the building works. It also purported to give written confirmation of the extension agreed to on 2 March 2004.

Roche and members of the Roche family (the Guarantors) commenced proceedings against Metro and Multiplex for a declaration that certain contracts were of no force and effect and for a refund of a $2 million deposit. Metro and Multiplex cross-claimed for declarations that the agreement was still on foot and for orders specifically enforcing that agreement.

The primary judge upheld the cross-claim, finding that the agreement was valid and subsisting, having been validly extended to 30 September 2004. He ordered that Roche specifically perform the Development Contract and pay the costs of proceedings incurred by Metro and Multiplex.

On appeal, issues to be considered included:

(i) whether rescission for failure to fulfil conditions precedent (cl.2A) required notice, and whether rescission entitles Roche to a return of the deposit;

(ii) whether the conversation of 2 March 2004 constituted an oral agreement to extend the completion date for the conditions precedent;

(iii) whether, if an election to terminate was required, the letter of 21 May 2004 effected termination;

(iv) whether Roche was precluded from terminating because it had elected to affirm the agreement;

(v) whether conventional estoppel prevents Roche from asserting the agreement was rescinded or terminated;

(vi) whether the Guarantors were discharged; and

(vii) whether the order fro specific performance should have been made.

HELD

1. The use of the term “automatically” in cl.2A(b) clearly shows the parties’ intention that automatic rescission was to be effected, without the requirement for notice; and this clear intention should prevail in construction of the contract (subject to conventional estoppel, addressed separately)[44]. The principle in Suttor v Gundowda Pty Limited [1950] HCA 35; (1950) 81 CLR 418 at 440-442 is to be only a guide to the construction of a contract, rather than applied irrespective of the parties’ intention [42].

2. Adequate reasons were given by the primary judge in concluding that the verbal exchange of 2 March 2004 did not amount to a notice of date extension; and there was no failure to refer to critical evidence [49]: Mifsud v Campbell (1991) 21 NSWLR 725 at 728.

3. The letter of 21 May 2004 clearly indicated an intention to treat the contract as at an end and was sufficient notice to effect rescission, had notice of reliance on cl.2A been necessary [56].

4. Roche’s actions prior to 21 May 2004 could be sufficient to amount to a binding election to affirm the contract: Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634. However, as the primary judge failed to make findings regarding Roche’s awareness of circumstances giving rise to a right to terminate the contract, it is appropriate to refer this aspect of the matter back for specific determination as to whether the requirements for election in Sargent are satisfied in this case [65,67].

5. There is still an all-or-nothing doctrine of common law, as distinct from equitable, estoppel by representation and conventional estoppel: Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101. Either estoppel requires the party relying on the estoppel to have “placed himself in a position of significant disadvantage if departure from the assumption be permitted”: Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394. Both Metro and Roche acted as if the contract was still in force, but because the primary judge did not determine whether the requirements for estoppel were made out, the matter needs to be referred back for first-instance consideration [76].

6. A finding in favour of Metro on conventional estoppel and election would require consideration as to whether the Guarantors remain bound [78].

7. The order for specific performance was premature in light of the fact that the conditions precedent had not been satisfied; and this is also an issue that could be addressed when the matter is re-considered [79].

ORDERS

1. Appeal allowed.

2. Cross-appeal dismissed.

3. Orders below set aside.

4. Matter remitted to the Equity Division to determine the issues of conventional estoppel and election indicated in this judgment, the liability of the Guarantors, the issue of specific performance, and costs of the proceedings.

5. Respondents to pay the appellants’ costs of the appeal and cross-appeal, and to have a certificate under the Suitors’ Fund Act if otherwise eligible.

6. Liberty to the respondents to make written submissions as to orders 4 and 5 within 7 days, any response by appellants to be provided within a further 7 days.

**********

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40751/04

ED 50059/04

BEAZLEY JA

HODGSON JA

IPP JA

Thursday 3 March 2005

M.K. & J.A. ROCHE PTY. LTD. & ORS. V. METRO EDGLEY PTY. LTD. & ANOR.

Judgment

1 BEAZLEY JA: I have had the advantage of reading in draft the judgment of Hodgson JA.

2 I agree with his Honour’s reasons, save for a qualification that I have in relation to his Honour’s views as to election: see paragraphs [65]-[70]. In my opinion, the question whether there was conduct amounting to a binding election to keep the contract on foot until the Sunset Date is a question of fact. It is possible that there may have been conduct that extended the contract but which did not amount to an irrevocable election. However, in the absence of any factual findings by the trial judge, it is not possible to say more than that there is an issue that remains to be determined. The question of the operation of cl.48 is also a matter upon which no decided view can be proffered at this stage.

3 The reservation that I have expressed in relation to the election issue does not, of course, affect the outcome of the appeal and I agree with the orders proposed by Hodgson J.

4 HODGSON JA: On 18 August 2004 and 27 August 2004, Einstein J gave reasons for judgment in proceedings in which the appellants M.K. & J.A. Roche Pty. Limited (Roche) and members of the Roche family (the Guarantors) sued the respondents Metro Edgely Pty. Limited (Metro) and Multiplex Construction Pty. Limited (Multiplex) for a declaration that certain contracts were of no force and effect and for a refund of a $2 million deposit; and in which Metro and Multiplex cross-claimed for declarations to the effect that an agreement called the Development Contract was still on foot and for orders specifically enforcing that agreement.

5 On 30 August 2004, pursuant to those reasons, the primary judge made the following declarations:

1. The agreement entitled “Waterfront Brasserie Development Contract, Luna Park” dated 26 September 2003 made between the Plaintiffs and the Defendants (the “Development Contract”) is valid and subsisting.

2. The date referred to in clause 2A(b) of the Development Contract has been validly extended to 30 September 2004.

He also ordered that the summons be dismissed, that the appellants specifically perform the Development Contract, and that the appellants pay the respondents’ costs of the proceedings.

6 Roche and the Guarantors appeal from that decision. Metro and Multiplex have put on a cross-appeal.

CIRCUMSTANCES

7 In December 2002, the Luna Park Reserve Trust (LPRT) entered into a Deed of Agreement for Lease and Sub-lease of the Luna Park Reserve to Luna Park Sydney Pty. Limited (LPS) and Metro, providing to the effect that Metro would develop Luna Park and that LPRT would then grant a lease of the site for forty years to LPS.

8 Included in the proposed development was the construction of a bar and brasserie, to be known as the Waterfront Brasserie.

9 In September 2003, Metro accepted an offer from Roche to purchase a forty-year lease of the Waterfront Brasserie for $18.5 million plus GST, under a transaction including the following elements:

1. Roche to enter a Development Contract with Metro for certain building works for the Waterside Brasserie in accordance with agreed plans (prepared to satisfy Roche’s requirements).

2. Roche to provide the fit-out of the Waterside Brasserie at its cost.

3. Roche to pay $2 million on entry into the Development Contract, $11 million on practical completion of the building work, $4 million on practical completion of the fit-out, and the balance of $1.5 million on the granting of certain licences.

4. Roche to receive a sub-lease of the Waterside Brasserie from LPS for forty years (less one day) at a peppercorn rent.

5. Guarantees by the Guarantors.

10 On 26 September 2003, two agreements relevant to these proceedings were executed: the Development Contract involving Metro, Roche, the Guarantors and Multiplex, and the Fit-out Deed, involving Roche, Metro and the Guarantors.

11 The Development Contract (in which Metro is described as the Developer) contained the following recitals:

A. The Developer has entered into the Agreement for a Lease, pursuant to which LPRT is required to grant to LPS the Leases upon the Date of Luna Park Practical Completion.

B. Roche intends to enter into the Agreement for Waterfront Brasserie Sublease with LPS and the Developer to receive the Waterfront Brasserie Sublease which is conditional upon the Works being carried out.

C. Metro intends to agree with LPS under the Agreement for Waterfront Brasserie Sublease to carry out the Works.

D. The parties have agreed that Roche will engage the Developer, and the Developer separately undertakes to Roche under this Contract, to design, construct and finance the Works on the Site for the benefit of Roche on the terms set out in this Contract. .

E. In consideration of the Developer entering into this Contract at the request of the Guarantors the Guarantors have agreed to guarantee the performance of the obligations of Roche under this Contract.

F. In consideration of Roche entering into this Contract at the request of Multiplex, Multiplex has agreed to provide a covenant to Roche in accordance with this Contract.

12 Clause 2A of the General Conditions of Contract included in the Development Contract was in the following terms:

2A. CONDITIONS PRECEDENT

(a) The obligations of the parties under this Contract (other than this clause 2A) are conditional on satisfaction of the following conditions precedent:

(i) LPRT executing the Deed of Consent to Waterfront Brasserie Sublease;

(ii) the Financier granting its consent to this Contract, the Deed of Agreement to Waterfront Brasserie Sublease and the Deed of Consent to Waterfront Brasserie Sublease and the parties and the Financier executing any documents required by the Financier as a condition to it granting such consent (unless the Financier advises that its consent is not required to this Contract, the Deed of Agreement to Waterfront Brasserie Sublease and the Deed of Consent to Waterfront Brasserie Sublease);

(iii) the execution of the Agreement [or Waterfront Brasserie Sublease] by LPS, the Developer, Roche and the Guarantors;

(iv) the rescission of the Development Agreement between the Developer and Multiplex Investments Limited dated on or about 26 June 2003;

(v) the parties to the Independent Certifiers Deed and Roche entering into a deed amending the Independent Certifiers Deed whereby Roche agrees to be bound by the Independent Certifiers Deed; and

(vi) LPRT and LPS Providing a waiver in respect of their rights to the Roche Fit-out during the term of the Second Mortgage and a consent (if necessary) to the Second Mortgage, on terms satisfactory to the Developer.

(b) This Contract will be deemed to be automatically rescinded and of no force and effect if the condition precedents are not satisfied by 31 December 2003 (or such later date the Developer may notify Roche in writing (on one or more occasions) up to the Sunset Date).

(c) Roche will promptly after the date of this deed furnish to Metro all information required by Metro in order to satisfy the conditions precedent described in clause 1A(a) including, without limitation, the requirements of LPRT under the Agreement for Lease in relation to the grant of the Waterfront Brasserie Sublease to Roche.

13 The “Sunset Date” was defined in the Development Contract as being 31 December 2004.

14 Clause 5 of the General Conditions of Contract was in the following terms:

5 DEPOSIT

Roche will pay the Deposit to the Developer on the date of the Contract as security for the performance of Roche's obligations under the Contract. The Deposit will be:

(a) released to and used by the Developer to assist the Developer to carry out the Works until the Deposit is applied, forfeited or refunded in accordance with this clause 5;

(b) applied by the Developer towards the payment of the Contract Sum payable by Roche under clause 42 of the Contract if Roche is not in default under the Contract as at the Settlement Date;

(c) released and irrevocably forfeited to the Developer if Roche defaults under the Contract or the Agreement for Waterfront Brasserie Sublease resulting in the lawful termination of the Contract; and

(d) refunded to Roche if Roche lawfully rescinds or terminates the Contract pursuant to a right of rescission, or termination due to a default of the Developer, under the Contract.

15 The “Deposit” was defined in the Development Contract as being $2 million; and in fact Roche paid $2 million to Metro on about 26 September 2003.

16 Clause 48 of the General Conditions of Contract was in the following terms:

48 WAIVER OF CONDITIONS

Except as provided at law or in equity or elsewhere in the Contract, none of the terms of the Contract shall be varied, waived, discharged or released, except with the prior consent in writing of Roche in each instance.

17 The interpretation clause in the General Conditions of Contract contained some statements as to general principles to be applied in construing the contract, including the following:

The clause headings and sub-clause headings in these General Conditions of Contract shall not form part of these General Conditions of Contract and shall not be used in the interpretation of the Contract.

...

No rule of construction applies to the disadvantage of a Party on the basis that the Party put forward the Contract or any part.

18 The obligations of Roche under the Development Contract were guaranteed by the Guarantors.

19 The Fit-out Deed provided for the fit-out of the Waterside Brasserie at Roche’s expense.

20 Clause 1A of the Fit-out Deed was in the following terms:

1A. Condition Precedent

(a) The obligations of the parties under this deed (other than this clause 1A) are conditional on satisfaction of the conditions precedent to the Development Contract.

(b) This deed will be deemed to be automatically rescinded and of no force and effect if the Development Contract is rescinded due to the conditions precedent under the Development Contract not being satisfied.

21 Clause 13 of the Fit-out Deed was in the following terms:

13. Rescission or Termination

If the Development Contract is terminated or rescinded this deed will be determined to be rescinded or terminated.

22 The Fit-out Deed contained similar provisions concerning its interpretation to those in the Development Contract, and again the obligations of Roche were guaranteed by the Guarantors.

23 Commencing in about late 2003, Metro proceeded to carry out works under the Development Contract, and it continued to do so until 25 May 2004 and thereafter.

24 On 18 December 2003, Metro gave written notice to Roche that the date of 31 December 2003 in cl.2A(b) of the Development Contract was extended to 31 March 2004.

25 On 2 March 2004, there was a meeting involving representatives of Metro and Roche at which, according to witnesses for Metro, verbal notice was given to Roche that this date was further extended to 30 June 2004.

26 As at 31 March 2004, several of the conditions precedent referred to in cl.2A of the Development Contract had not been satisfied. However, between 31 March 2004 and 21 May 2004, building work continued in accordance with the plans approved by Roche, and the solicitors for the parties continued to work towards satisfaction of the conditions precedent.

27 On 10 May 2004, according to evidence given for Roche, Roche received legal advice that the effect of cl.2A was that non-satisfaction of the conditions precedent by 31 March 2004 put at end to the contract, a matter of which Roche was previously unaware (according to this evidence).

28 On 21 May 2004, Roche sent Metro a letter in the following terms:

WATERFRONT BRASSERIE DEVELOPMENT CONTRACT LUNA PARK ("DEVELOPMENT CONTRACT") AND LIQUOR LICENCE AND FIT-OUT WORKS , DEED OF AGREEMENT WATERFRONT BRASSERIE, LUNA PARK ("FITOUT DEED")

As you are aware clause 2A of the Development Contract provided that “(a) The obligations of the parties under this Contract (other than this clause 2A) are conditional on satisfaction of the following conditions precedent:

(i) LPRT executing the Deed of Consent to Waterfront Brasserie Sublease;

(ii) The Financier granting its consent to this Contract, the Deed of Agreement to Waterfront Brasserie Sublease and the Deed of Consent to Waterfront Brasserie Sublease and the parties and the Financier executing any documents required by the Financier as a condition to its granting such consent (unless the Financier advises that its consent is not required to this Contract, the Deed of Agreement to Waterfront Brasserie Sublease and the Deed of Consent to Waterfront Brasserie Sublease);

(iii) The execution of the Agreement for Waterfront Brasserie Sublease by LPS, the Developer, Roche and the Guarantors;

(iv) The recission (sic) of the Development Agreement between the Developer and Multiplex Investments Limited dated on or about 26 June 2003;

(v) The parties to the Independent Certifiers Deed and Roche entering into a deed amending the Independent Certified Deed whereby Roche agrees to be bound by the Independent Certifiers Deed; and

(vi) LPRT and LPS providing a waiver in respect of their rights to the Roche Fitout during the term of the Second Mortgage and a consent (if necessary) to the Second Mortgage, on terms satisfactory to the Developer.

(b) This Contract will be deemed to be automatically rescinded and of no force and effect if the condition precedents are not satisfied by 31 December 2003 (or such later date the Developer may notify Roche in writing (on one or more occasions) up to the Sunset Date)."

Clause 1A of the Fit-out Deed provides that:

“(a) The obligations of the parties under this deed (other than this clause 1A) are conditional on satisfaction of the conditions precedent to the Development Contract;

(b) This deed will be deemed to be automatically rescinded and of no force and effect if the Development Contract is rescinded due to the condition precedent under the Development Contract not being satisfied."

By letter dated 18 December 2003 Metro notified Roche and the guarantors that the date of 31 December 2003 referred to in clause 2A(b) of the Development Contract was extended to 31 March 2004. No further notice of extension of time was received prior to 31 March 2004 (or in fact to date).

Conditions 2A(a)(i), (iii) and (v) have not been fulfilled and, nor as far as Roche is aware, have conditions 2A(a)(ii), (iv) and (vi).

As the conditions precedent provided in clause 2A of the Development Contract were not fulfilled by the extended date, namely 31 March 2004, the Development Contract was rescinded at expiry of the deadline of 31 March 2004. Accordingly the Fit-out Deed was also rescinded on that day. The Deed of Consent to Waterfront Brasserie Sublease and the annexed Deed of Agreement for Waterfront Brasserie Sublease have not yet been executed by Luna Park Reserve Trust or Luna Park Sydney and therefore have not come into existence. Even if this view is incorrect the provisions of clause 1A of the Deed of Agreement for Waterfront Brasserie Sublease, which are in similar terms to the terms of clause 2A of the Development Contract, also rescind the Deed of Agreement for Waterfront Brasserie Sublease.

Please return the deposit of $2million to Roche in accordance with clause 5(d) of the Development Contract within a reasonable time and, in any event, by 5.00pm on Friday, 4 June 2004.

If you have a view that the Development Contract and the Fit Out Deed have not come to an end based on a construction different to that which Roche has or otherwise, we invite you to let us know what it is and the reasons for it. In that event it might be appropriate for the parties to co-operate in obtaining a definitive court ruling (perhaps by way of Construction Summons) so that any risk of a party acting upon an erroneous construction would be eliminated. Roche would not wish to nor be seen to wish to act on any erroneous construction or application of any of the contracts.

29 On 24 May 2004, Metro responded with the following letter:

WATERFRONT BRASSERIE DEVELOPMENT CONTRACT - LUNA PARK ("DEVELOPMENT CONTRACT") AND LIQUOR LICENCE AND FIT-OUT WORKS DEED OF AGREEMENT WATERFRONT BRASSERIE, LUNA PARK ("FITOUT DEED'")

I refer to your letter dated 21 May 2004.

On 2 March 2004, well before 31 March 2004, you, Chris Roche, BIll Roche and your architect attended a meeting at our offices with me, Raymond Yeo and Paul Boonzaaier, at which your architect tabled your fitout working plans for the Brasserie building.

At that meeting, prior to the consideration of your plans, we notified you orally that we were, by that oral notification, further extending the date in clause 2A(b) of the Development Contract until 30 June 2004. You, Chris Roche and Bill Roche in your personal capacities, as guarantors, and representing MK & JA Roche Pty Ltd, accepted that oral notification and agreed to it.

Accordingly, by your acceptance of and agreement to, the oral notice that you were given and by your conduct, you agreed to the extension and to waive the requirement that the notice be given in writing.

That agreement regarding the extension and waiver has been further confirmed by your conduct following the meeting. Since that meeting and after 31 March 2004 until as recently as the past week, you have actively participated in the development of the Brasserie building. In this regard you have attended meetings and participated in regular telephone discussions about matters such as the application for development consent for your fitout, the Place of Public Entertainment Licence, your fitout design and the design of the building. You have also provided us with information in relation to the liquor licence application for the building. Your conduct clearly evidences your acceptance and agreement of the Valid extension of the date in clause 2A(b) of the Development Contract and your agreement that it has been properly extended. On the basis of and in reliance on your conduct we have actively pursued the fulfilment of our obligations under the Development Contract and incurred considerable expense.

To the extent that it is necessary to give you written confirmation of the agreed extension (which I understand is not the case), this letter is written confirmation of the notice that was given to you on 2 March 2004 extending the date in clause 2A(b) of the Development Contract (as amended) to 30 June 2004.

For the reasons I have stated, the Development Contact and the Fit-Out Deed are both still on foot and we have every intention of complying with our obligations under them. We expect you to comply with your obligations. Any endeavours on your part to avoid those agreements will be vigorously opposed.

Given your enthusiasm for the site and the positive way that we have been working together thus far, I was extremely surprised to receive your letter of 21 May 2004. I can only assume that you are encountering commercial issues, and I suggest we meet urgently to discuss any issues and how they may be resolved. Please could you telephone me on 9256 5054 to arrange a time to meet within the next 48 hours.

30 On 1 June 2004, Metro gave Roche written notice purporting to further extend the date in cl.2A(b) of the Development Contract to 30 September 2004.

DECISION OF PRIMARY JUDGE

31 Before the primary judge, Roche and the Guarantors contended that the deadline for fulfilment of the conditions precedent had not been extended beyond 31 March 2004, that the conditions precedent had not been satisfied by that date, and that therefore the agreement was thereby “automatically rescinded” without the necessity of any notice to that effect; and alternatively that the letter of 21 May 2004 was an effective Notice of Rescission. In either event, Roche contended it was entitled to return of the deposit.

32 The Guarantors contended in addition that, if the contract was still effective because it had been varied without their consent, they were discharged.

33 Metro and Multiplex contended inter alia that, on the true construction of cl.2A of the Development Contract, non-fulfilment of the conditions precedent by the relevant date did not result in automatic rescission or termination, but gave rise to an election whereby Roche could either terminate or not terminate the contract; that the letter of 21 May 2004 was ineffective to terminate the contract; that Roche had prior to that date affirmed the Development Contract and had thereby lost any entitlement to terminate it; and that Metro had effected an extension of the date for satisfaction of the conditions precedent to 30 September 2004.

34 The primary judge upheld all these contentions of Metro and Multiplex; but he rejected an additional contention by Metro and Multiplex that there had been an oral extension of the date in cl.2A(b), effected on 2 March 2004.

GROUNDS OF APPEAL

35 Roche and the Guarantors appeal on the following grounds:

CONSTRUCTION

His Honour erred in finding that Clause 2A(b) of the Development Contract was required to be construed as making the Development Contract not void but voidable.

2. His Honour erred in failing to construe the Development Contract in accordance with its clear, natural and unambiguous meaning.

3. His Honour erred in failing to deal with or give reasons with respect to the following arguments put to his Honour with respect to construction of Clause 2A(b) of the Development Contract:

(a) the meaning and effect of a contractual provision depends on the particular words used and if they are unequivocal then there is no room for deviation;

(b) the word "automatically", which means “self moving or self acting; mechanical or occurring independently of volition", must render the phrase "automatically rescinded and of no force and effect" as meaning void and not voidable at the instance of a party;

(c) to construe "automatically rescinded" as meaning voidable was inconsistent with the Sunset Date since it would permit the Development Contract to extend beyond the Sunset Date; and

(d) the Development Contract distinguishes between automatic rescission and rescission pursuant to a right of rescission, which indicate the parties intended "automatically rescinded and of no force and effect" as meaning void and not voidable at the instance of a party.

4. His Honour erred in failing to find that by reason of the non satisfaction of the conditions precedent in Clause 2A(a) of the Development Contract, the contract had been automatically rescinded.

5. His Honour erred in finding that notice of rescission by the First Appellant was required to bring the Development Contract to an end notwithstanding the terms of the Development Contract.

6. His Honour erred in not finding that at least one of the conditions that had not been satisfied was outside of the control of the parties.

7. His Honour erred in not finding that the correct principle to be applied was that a party relying on non-satisfaction of a condition precedent would not be permitted to rely on it only if such non satisfaction was caused by that party.

8. His Honour erred in not finding that the Development Contract was automatically rescinded given that:

(a) conditions precedent were not satisfied;

(b) at least one of such conditions was (and so accepted by the Respondents) outside the control of the Appellants; and

(c) it was not alleged by the Respondents that any condition had not been not satisfied as a consequence of anything done or not done by the Appellants.

21 MAY 2004 LETTER

9. His Honour erred in finding that the 21 May 2004 letter from the First Appellant to the First Respondent did not, insofar as, if it was necessary for the First Appellant to give notice of avoidance, so effect an avoidance of the Development Contract.

10. His Honour failed to give adequate reasons as to why the 21 May 2004 letter did not effect an avoidance of the Development Contract.

11. His Honour erred in that, insofar as his Honour gave reasons, they were on a basis which was not the subject of submission by either party.

12. His Honour erred in failing to deal with or give reasons with respect to the following arguments put to his Honour with respect to whether the 21 May 2004 letter effected an avoidance of the Development Contract

(a) the letter was in almost exactly the same terms as the letter in Suttor v Gundowda [1950] HCA 35; (1950) 81 CLR 418 which was described by the High Court as "the cancellation" (at 442.8);

(b) that is how the officers of the Respondents understood the letter; and

(c) the form of letter was prudent and what would be expected of a party to avoid an assertion of repudiation.

ELECTION

13. His Honour erred in finding that the First Appellant had, between 1 April and 21 May 2004, conducted itself in a fashion which was justifiable only on the footing that an election had been made to affirm the Development Contract.

14. His Honour erred in failing to find that between 1 April and 10 May 2004 the First Appellant:

(a) was unaware of circumstances which had rendered the Contract void or discharged, entitling it to avoid the Development Contract;

(b) engaged in words and conduct which did not constitute the exercise of a right under the Development Contract but rather merely acted in ignorance of the fact that the Development Contract was void or voidable or had been discharged

and, accordingly, did not elect to affirm the contract.

15. His Honour erred in failing to find that between 10 May and 2l May 2004 the First Appellant:

(a) was unaware of circumstances which had rendered the Contract void or discharged, entitling it to avoid the Development Contract;

(b) did not engage in words or conduct which constituted the exercise of a right under the Development Contract,

and, accordingly, did not elect to affirm the contract.

16. His Honour erred in failing to find that, by reason of clause 48 of the Development Contract, no conduct of the First Appellant, other than its consent in writing, was capable of constituting an election to affirm the Development Contract.

ESTOPPEL

17. His Honour erred in finding that the facts before the court justified a finding in favour of the First Respondent reached under the rubric of waiver meaning 'estoppel'.

18. His Honour erred in failing to identify the nature of the 'estoppel', the legal elements making up the 'estoppel' or the facts relied upon that established those elements.

19. His Honour erred in failing to identify the assumption made by the Respondents and from which the Appellants were not permitted to resile.

20. His Honour erred in failing to identify the part played by the Appellants in the adoption of the (unidentified) assumption.

21. His Honour erred in failing to identify the acts or omissions of the Respondents which were based upon the (unidentified) assumption.

22. His Honour erred in failing to identify the detriment which would be suffered by the Respondents if the Appellants were allowed to set up rights against them inconsistent with the (unidentified) assumption.

23. His Honour failed to identify the basis upon which it would be unfair or unjust if the Appellants were left free to ignore the (unidentified) assumption.

24. His Honour erred in failing to find that the Appellants played no part in the adoption of an assumption by the Respondents that the Development Contract remained on foot after 31 March 2004.

25. His Honour erred in failing to find that the Respondents did not engage in any material acts or omissions between 1 April and 21 May 2004 in reliance on an assumption that the Development Contract remained on foot after 31 March 2004.

26. His Honour erred in failing to find that the Respondents would suffer no relevant detriment if the Appellants were permitted to assert that the Development Contract was automatically rescinded and of no force and effect after 31 March 2004.

27. His Honour erred in failing to find that it would not be unfair or unjust for the Appellants to be permitted to assert that the Development Contract was automatically rescinded and of no force and effect after 31 March 2004.

1 JUNE 2004 LETTER

28. His Honour erred in finding that the 1 June 2004 letter sent by the First Respondent constituted a valid extension of the date for satisfaction of the conditions precedent to 30 September 2003.

DEPOSIT

29. His Honour erred in failing to find that the First Appellant was entitled, on and from 1 April 2004, to the return of the $2 million deposit paid by it.

GUARANTEES

30. His Honour erred in failing to deal with the Second Appellants Amended Defence to the Amended Cross Claim insofar as it related to discharge of the guarantees.

36 Metro and Multiplex cross-appeal on the following grounds:

1. His Honour should have concluded, based on all of the evidence, that at the meeting on 2 March 2004 the Cross Respondents/Appellants were told by the Cross Appellants/Respondents that the time for the conditions precedent to be fulfilled was extended.

2. His Honour erred in concluding in paragraph 78 of his judgment that there was not a great deal that came forward in terms of a proper foundation for an attack on the credit of any of the witnesses called by either party and that any attacks upon credit of each of the material witnesses were mounted on "disparate grounds, none of them was of sufficient weight to enable a positive finding on the critical issue".

3. His Honour should have found, based on all of the evidence, that the evidence proffered by the various witnesses called on behalf of the Cross Respondents/Appellants to the effect that nothing at all was said at the meeting on the topic of an extension of time, was false.

4. In those circumstances his Honour should have concluded that there had been an oral verification of any extension of time the effect of which was either/or:

(a) to found an estoppel by representation;

(b) a representation which entitled the Cross Appellants/Respondents to relief under the Trade Practices Act;

(c) amounted to an oral variation of the primary contract; and/or

(d) was sufficient conduct to extend the time for performance of the conditions precedent.

37 Metro and Multiplex also rely on a Notice of Contention containing the following grounds:

1. The facts as found by his Honour were sufficient to justify a finding of conventional estoppel, the effect of which would be to preclude the Appellants from asserting that the time for performance of the conditions precedent had not been validly extended.

2. His Honour should have found as a matter of fact that from 1 April 2004 the Appellants were in fact aware of the legal consequences of there having been no written notice extending the condition precedent period. The effect of such a finding justifies a conclusion of “representation estoppel” as pleaded by the Respondents.

38 I will consider the issues in the following order. First, I will consider two major issues of construction, namely whether cl.2A gives rise to an automatic rescission or whether notice is required; and whether rescission of the contract under cl.2A entitles Roche to a return of its deposit. Next, I will consider the issues arising under the cross-appeal, namely whether the date in cl.2A(b) was extended on 2 March 2004 by reason of conversations on that date, supported by some estoppel. Next, I will consider whether, if an election to terminate was required, the letter of 21 May 2004 was sufficient to effect a termination, and whether Roche was precluded from terminating because it had elected to affirm the agreement. Next, I will consider the issue raised by the Notice of Contention, namely whether there was a conventional estoppel preventing Roche from asserting that the agreement was rescinded or terminated. Then I will consider whether the Guarantors were discharged. Finally, I will consider whether the order for specific performance should have been made.

CONSTRUCTION OF CLAUSE 2A

Submissions

39 Mr. Hammerschlag SC for the appellants submitted that, in holding that the non-fulfilment of the conditions precedent did not give rise to an automatic rescission, the primary judge had relied on what was said in Suttor v. Gundowda Pty. Limited [1950] HCA 35; (1950) 81 CLR 418 at 440-442, to the effect that, where a contractual provision is to the effect that a contract is void upon the happening of an event that may be caused by the default of one party, then the provision is to be construed as making the contract voidable at the option of a party who is not in default. However, Mr. Hammerschlag submitted, the question was one of construction and must depend on the particular words of the particular contract: see Sandra Investments Pty. Ltd. v Booth [1983] HCA 46; (1983) 153 CLR 153 at 161 and 165. A contract could be construed as providing for automatic termination even though the event could possibly be caused by the default of one party, and that party could be precluded from taking advantage of the clause by direct application of the principle that a party cannot be permitted to take advantage of its own wrong: see Rudi’s Enterprises Pty. Ltd. v. Jay (1987) 10 NSWLR 568 at 576-580.

40 Mr. Hammerschlag submitted that the wording of cl.2A(b), and in particular the use of the word “automatically”, was such as to plainly exclude the need for a notice. This was also supported by the inclusion in the agreement of a Sunset Date: the primary judge’s construction would mean that, if the Developer had extended the date to the Sunset Date, the agreement would continue beyond the Sunset Date unless one or other party gave a Notice of Termination, and that could not have been intended. It was also supported by the circumstance that the agreement itself distinguishes between automatic rescission and rescission pursuant to a right of rescission: see cl.5(d). The construction was also supported by the circumstance that the Developer, and only the Developer, is given the right to extend the deadline.

41 Mr. Newlinds SC for the respondents submitted that most of the elements of the conditions precedent were within the control of one or both parties. Accordingly, the primary judge was correct to apply what was said in Suttor. Mr. Newlinds also referred to New Zealand Shipping Co. Ltd. v. Société des Ateliers et Chantiers de France [1919] AC 1, at 4, 9, 12-13 and 15; Meehan v. Jones [1982] HCA 52; (1982) 149 CLR 571 at 591-2; and Sandra Investments.

Decision

42 In my opinion, the first question to be considered is whether Suttor establishes a principle of law to be applied irrespective of the apparent intention of the parties, or rather establishes a principle to guide the construction of a contract, which can give way to sufficiently clear expressions of intention to the contrary. I say at once that in my opinion it is the latter.

43 Suttor concerned a contract for the sale of a pastoral property that provided that, in the event of the consent of the Treasurer not being obtained within two months of the date of contract or such further period as might be mutually agreed upon by the parties, the contract should be deemed to be cancelled. The High Court held that the non-receipt of the Treasurer’s consent by the relevant date did not effect an automatic cancellation of the contract because the relevant clause should be construed as making the contract not void but voidable, the question of who might avoid it depending upon the event. The following reasoning appears in the joint judgment of Latham CJ, Williams J and Fullagher J at 440-442:

In the second place, although cl.12 in terms provides for an automatic avoidance of the contract on the occurrence of a specified event, that is (even if no agreement for an extension of time were made) by no means the end of the matter. The effect of contractual provisions of this character was discussed and explained in New Zealand Shipping Co. Ltd. v. Societe des Ateliers et Chantiers de France . Lord Atkinson said:- "It is undoubtedly competent for the two parties to a contract to stipulate by a clause in it that the contract shall be void upon the happening of an event over which neither of the parties shall have any control, cannot bring about, prevent or retard. For instance, they may stipulate that if rain should fall on the thirtieth day after the date of the contract, the contract should be void. Then if rain did fall on that day the contract would be put to an end by this event, whether the parties so desire or not. Of course, they might during the currency of the contract rescind it and enter into a new one, or on its avoidance immediately enter into a new contract. But if the stipulation be that the contract shall be void on the happening of an event which one or either of them can by his own act or omission bring about, then the party, who by his own act or omission brings that event about, cannot be permitted either to insist upon the stipulation himself or to compel the other party, who is blameless, to insist upon it, because to permit the blameable party to do either would be to permit him to take advantage of his own wrong, in the one case directly, and in the other case indirectly in a roundabout way, but in either way putting an end to the contract."

Where the event in question is one which cannot occur without default on the part of one party to the contract, the position is clear. The provision is then construed as making the contract not void but voidable: only the party who is not in default can avoid it, and he may please himself whether he does so or not. In the present case the happening of the event (not obtaining the Treasurer's consent) may be brought about by failure on the part of either party to take certain necessary steps (provision of particulars by the vendor or making of application by the purchaser) to obtain the Treasurer's consent, or it may be brought about without any default on the part of either party. In fact, although there was some argument to the contrary, it was, we think, brought about without any default on the part of either party. Such a case is perhaps not quite so clear as the simpler case where the event cannot occur without default on one side or the other. But we are of opinion that the New Zealand Shipping Case requires the same construction to be given to the contract in both classes of case. The provision in question is to be construed as making the contract not void but voidable. The question of who may avoid it depends on what happens. If one party has by his default brought about the happening of the event, the other party alone has the option of avoiding the contract. If the event has happened without default on either side, then either party may avoid the contract. But neither need do so, and, if one party having a right to avoid it does not clearly exercise that right the other party may enforce the contract against him. This is, we think, the view of Lord Shaw and Lord Wrenbury in the New Zealand Shipping Case, and it is consistent with what was said by Lord Finlay L.C. The language of Lord Atkinson may perhaps be regarded as expressing a different view, but we doubt whether his Lordship had in mind the precise point which arises here and which did not arise in the New Zealand Shipping Case. Although the effect of a provision in a contract may differ according to the events which happen, its construction cannot differ according to the events which happen. If "void" means "voidable," it means "voidable" whatever happens. It cannot very well mean "voidable" if an event happens through the default of one party, and "void" if the event happens without default by either party.

44 That passage could be read as setting out a principle of law rather than a mere guide to construction, but to so read it would in my opinion be against very well-established principles concerning the construction of contracts, including the principle that, if words used in a contract are unambiguous, the Court must give effect to them: Australian Broadcasting Commission v. Australasian Performing Rights Association [1973] HCA 36; (1973) 129 CLR 99 at 109. The passages referred to earlier in Sandra Investments are to similar effect. Accordingly, I respectfully agree with what Samuels JA (with the concurrence of Priestly JA and McHugh JA) said in Rudi’s Enterprises, particularly in the following passage at 579:

I cannot think that the Court in Suttor intended to lay down the proposition that parties could not stipulate for automatic termination of a contract save upon the occurrence of an event which, objectively, lay beyond their control. Effect must be conceded to the parties’ intention.

45 Thus, as asserted in Rudi’s Enterprises, where the parties have clearly stipulated for automatic termination upon the occurrence of an event which could occur either without the default of either party or with the default of one or other party, and if the event occurs through the default of one party, then, although in general terms this would mean automatic termination, the party whose default caused the event can be prevented from taking advantage of this by direct application of the principle that a party cannot take advantage of its own wrong, rather than through construing the contract contrary to its clear meaning.

46 I appreciate that, in some circumstances, this could give rise to uncertainty. If one has such a contract and the invalidating event occurs through the default of one party, that party will be in doubt as to whether performance of the contract is or is not required of it, unless some notice is given by the party not in default. However, I do not think this consideration does more than generally support the Suttor approach to construction.

47 In my opinion, the Suttor principle of construction applies most powerfully if the invalidating event can occur only through a breach of contract by one or other party. The lesser the likelihood that the disabling event occur through the breach of one or other party, as distinct from some cause outside the control of the parties, the less powerfully does the principle apply. In the case of cl.2A of the Development Contract, it appears that there are many matters outside the control of the parties that could cause the non-fulfilment of the conditions precedent. So in my opinion, the Suttor principle does not apply at full strength. In my opinion, the wording of cl.2A(b), and particularly the use of the word “automatically”, clearly shows that the parties’ intention, as manifested by the words they chose, was that the contract would be automatically rescinded and that no notice was required; and that intention should prevail in the construction of the contract.

48 However, I would add that this conclusion is subject to the effect of the respondents’ argument based on conventional estoppel, raised by their Notice of Contention; and for that reason I will address questions that arise only if the contract was not automatically rescinded.

CONSTRUCTION: RETURN OF DEPOSIT

49 In my opinion, the effect of automatic rescission under cl.2A is that the conditions precedent to the contract are never satisfied, so that the contractual terms, apart from cl.2A itself, never take full effect. That includes the term concerning the deposit. Accordingly, the deposit would have to be returned.

EXTENSION ON 2 MARCH 2004

50 The primary judge, in dealing with the question of what happened on 2 March 2004, first noted that Michael, Christopher and William Roche, each gave evidence denying absolutely that there was any discussion at the meeting of 2 March 2004 regarding an extension of the time of the conditions precedent. He then dealt with the evidence given by the respondents’ witnesses, Mr. O’Regan, Mr. Yeo and Mr. Boonzaaier. He then continued:

Dealing with the issue

78 This is one of those cases where the court can only decide on the balance of probabilities aided by the whole of the evidence. There is not a great deal that came forward in terms of a proper foundation for an attack of the credit of any of the witnesses called by either party. Whilst a number of attacks upon the credit of each of the material witnesses called by the opposing parties were mounted on disparate grounds, none of them was of sufficient weight to enable a positive finding on the critical issue.

The onus

79 At the end of the day the onus of proving that Mr O’Regan had said words to the effect that Multiplex was at that moment [or words reflecting the notion "hereby"] extending the date for satisfaction of the conditions precedent, rests upon the defendants. In my view the defendants have not established on the balance of probabilities that words to this effect were said.

80 It is particularly difficult to reach a finding of fact in terms of whether anything at all was said on the day regarding an extension of time of the conditions precedent. There are cases where the Court simply is unable, even on the balance of probabilities, to reach a finding of fact one way or the other as between two groups of parties, each swearing by its witnesses to what amounts to a 180 degree diametrically opposite version of the events. This is one of those cases. The matter therefore falls to be decided by looking at which party bears the onus of proving the particular facts. Here that onus rests upon the defendants and has not been discharged.

81 However even if the court had been in a position, which it is not, to accept one or more of the versions given by Messrs O’Regan, Mr Yeo or Mr Boonzaaier on the balance of probabilities, I would have had great difficulty in accepting from their evidence that what had been communicated was sufficiently precise, unambiguous and unequivocal [so as to reflect a statement that the developer would not still proceed to formally give the written notice which was required to be given by the terms of clause]. In short it would have been necessary to be quite clear as by using the words "hereby", or even better, as by stating "we here and now extend [the time] and take it that you will not require the formal written extension to be given".

Submissions

51 Mr. Newlinds submitted that the primary judge did not give adequate reasons for his decision, in that he made no decision as to what was said at the meeting, and did not justify his conclusion against the contention of the respondents. Furthermore, Mr. Newlinds submitted, this was not a case where there was just conflicting oral evidence, as the primary judge suggested. The primary judge should have taken into account the following factors, supporting the respondents’ contention that verbal notice was given on 2 March 2004: first, this was a very large and important contract, making it unlikely that the need for an extension would simply have been overlooked; second, Mr. Yeo’s diary had a note “Brasserie validity” at both 31 December 2003 and 31 March 2004, and the requisite notice had in fact been given in December 2003; next, there were reasons for rejecting the evidence given by the Roches, including a file note dated 10 May 2004, tending to contradict Michael Roche’s evidence that he did not realise the non-compliance with cl.2A until told by his solicitor; and finally, the circumstance that everyone proceeded after 31 March 2004 on the basis that the contract was still on foot.

Decision

52 In my opinion, the primary judge in his reasons addressed the correct question, namely whether words were said amounting to the giving of notice that, by those words, the relevant date was extended. It was not necessary for him to decide exactly what was said, if he came to the conclusion that he could not be satisfied that words to that effect were said. Furthermore, in my opinion the primary judge did give sufficient reasons for coming to that conclusion. I do not think that any of the matters referred to by Mr. Newlinds were of such significance as to amount to a failure to refer to critical evidence of the kind discussed in Mifsud v. Campbell (1991) 21 NSWLR 725 at 728. Accordingly, in my opinion this Court should not set aside the primary judge’s conclusion on this matter; and it is not necessary to consider whether verbal notice would, by reason of some estoppel, have been sufficient.

SUFFICIENCY OF LETTER OF 21 MAY 2004

53 I have decided that the contract did provide for automatic rescission, so that notice was not necessary. However, I also decided that this was subject to the possible effect of a conventional estoppel. It is therefore appropriate to consider whether, if notice of reliance on cl.2A was necessary in order that there be an effective rescission, the letter of 21 May 2004 was sufficient notice.

Submissions

54 Mr. Newlinds submitted that the letter did not do what it was essential for such a letter to do, namely to assert that, by the letter itself, the contract was being ended. Indeed, the letter was very careful not to do that; but rather it asserted that the contract had been automatically terminated on 31 March 2004, not brought to an end on 21 May 2004 by the letter itself. Indeed, it did not even unequivocally assert automatic termination, but left open the possibility of a different construction. The letter was expressed very carefully so that it could not amount to a repudiation of the contract, and it thereby failed to do what it was necessary for such a letter to do.

Decision

55 I would first note that there was a letter sent in Suttor in terms that the consent of the Treasurer had not been obtained within the period provided by the contract, and that “therefore the contract is no longer effective after” that date. The High Court held that, because the consent of the Treasurer had been obtained before the letter was sent, the cancellation came too late. However, the High Court did say that, by this letter, the defendant had “purported to cancel the contract”, thus suggesting that the letter in its terms was sufficient.

56 In my opinion, the letter of 21 May 2004 did clearly indicate an intention to treat the contract as at an end, and the circumstance that it did so in terms that the automatic rescission had taken effect does not deprive the letter of efficacy.

WAS THE CONTRACT AFFIRMED PRIOR TO 21 MAY 2004?

57 Again, although I have held that the contract on its true construction would have come to an end automatically on 31 March 2004, it is appropriate to consider this question because of my view that this effect of the contract is subject to the issue of conventional estoppel raised by the respondents’ Notice of Contention. As noted earlier, the primary judge decided in effect that the contract had been affirmed prior to 21 May 2004.

Submissions

58 Mr. Hammerschlag submitted that the conduct of Roche after 31 March 2004 amounted at its highest to a recognition of the contract, and was not conduct justifiable only if an election had been made to affirm the contract, and certainly could not be characterised as a communication to Metro of such an election. The primary judge identified only two pieces of evidence showing conduct justifiable only if an election had been made to affirm the contract, namely concessions by the Roche brothers that between 31 March and 21 May 2004 both parties conducted themselves as if the contract was still on foot, and Mr. Accardo’s evidence that the work carried out by Metro after 31 March 2004 related directly to the Roche fit-out. The first matter did not amount to identification of conduct justifiable only if an election had been made to affirm the contract; and evidence as to what Metro did could not amount to an election by Roche, particularly having regard to Mr. Jago’s evidence that all construction-related issues arising from the impact of the Roche fit-out on the base building work, other than one minor matter, were resolved by 19 March.

59 Furthermore, he submitted, even if there had been an election not to terminate the contract on the basis that the conditions precedent had not been satisfied by 31 March, this did not amount to an election not to terminate the contract because the conditions precedent had not been satisfied by (say) 21 May 2004.

60 Mr. Hammerschlag also submitted that cl.48 of the Development Contract provided that none of the terms of the contract should be waived without the prior consent in writing of Roche; and since no such consent was given, no conduct of Roche could amount to a waiver of its right to avoid the contract for failure of the conditions precedent.

61 Mr. Newlinds submitted that there was conduct by Roche between 31 March and 21 May 2004 which was justifiable only if an election had been made to affirm the contract, namely communication by their architects to the builder changing the plans giving rise to changes to the building works; the absence of any communication to prevent the building works continuing so as to give effect to Roche’s plans and to changes agreed upon prior to 31 March 2004; site meetings attended by Roche’s architects in which arrangements were made concerning the future progress of the work; and communications between the solicitors for the parties dealing with the conditions precedent, causing legal costs to be incurred by the respondents as well as the appellants.

Decision

62 In my opinion, the relevant principle is that stated by Mason J in Sargent v. ASL Developments Ltd. [1974] HCA 40; (1974) 131 CLR 634 at 658:

If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon. It is with these considerations in mind that the law attributes to the party the making of a choice, though he be ignorant of his alternative right. For reasons stated earlier the affirming party cannot be permitted to change his position once he has elected.

63 The question of Roche’s awareness of the circumstances giving rise to the right to treat the contract as at an end was not specifically addressed by the primary judge. Roche’s evidence was that it knew of its right to treat the contract as at an end on 10 May 2004, so that if conduct amounting to an election between that time and 21 May 2004 had been identified, that would it seems have amounted to a binding election. However, the judgment did not identify relevant conduct within that period of about eleven days.

64 In his evidence in the case, Michael Roche at one stage conceded that he was aware from 31 March 2004 that the condition numbered (iii) in cl.2A had not been satisfied, and was also aware that no written notice of extension of time beyond 31 March 2004 had been given. In circumstances where Michael Roche was the person most concerned on behalf of Roche with the matter, that evidence, if accepted, may have satisfied the requirement stated in Sargent that the party know of circumstances giving rise to the right to terminate the contract. However, the primary judge made no finding on this.

65 I am inclined to think that the matters referred to by Mr. Newlinds, although not specifically referred to by the primary judge, would be sufficient to satisfy the other aspect of the requirements referred to in Sargent. The attending at site meetings, making arrangements for the continuation of works in accordance with plans approved by Roche, the notification of a change of plans, and the continued procuring of co-operation by the respondents to achieve satisfaction of the conditions precedent (involving the incurring of legal costs), all seem to be matters adverse to the respondents to which Roche would have had no entitlement but for the continued operation of the contract. However, again, there is the difficulty that there is no express finding on these matters by the primary judge.

66 I do not think the other points raised by Mr. Hammerschlag succeed. The contract cannot fully take effect unless and until conditions precedent are satisfied; but I am inclined to think that the right to rescind for non-satisfaction of the conditions precedent, prior to the Sunset Date, is tied to the particular date specified in cl.2A(b) or any extended date; that is, that if the right to rescind for non-satisfaction of the conditions precedent by that date is lost, there is no right to rescind prior to the Sunset Date, unless the Developer in the meantime gives notice in writing of some other date prior to the Sunset Date. As regards cl.48 and waiver, I am inclined to think that this clause does not preclude the operation of the doctrine of election, which, although sometimes loosely referred to as waiver, is in my opinion a different concept.

67 For reasons I will give, the matter will have to be the subject of further first-instance consideration; so in my opinion the appropriate course is to refer this aspect back for specific determination of whether the two requirements for election set out in the passage from Sargent quoted above are satisfied in this case.

CONVENTIONAL ESTOPPEL

Submissions

68 Mr. Newlinds submitted that there was a conventional estoppel or common assumption estoppel which had the effect of preventing Roche from asserting that the contract automatically came to an end on 31 March 2004. Quite independently of whether Roche knew of circumstances falling within cl.2A, the primary judge’s finding that both parties continued between 31 March 2004 and 21 May 2004 to conduct themselves as if the contract was still on foot gave rise to a common law estoppel by assumption to the effect that the contract was not automatically terminated on 31 March 2004. Mr. Newlinds referred to the following passage from Con-Stan Industries Australia Pty. Ltd. v. Norwich Winterthur Insurance (Australia) Ltd. [1986] HCA 14; (1986) 160 CLR 226 at 244-5:

Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognized: Thompson v. Palmer; Grundt v. Great Boulder Pty. Gold Mines Ltd; Legione v. Hateley; Amalgamated Investment & Property Co. Ltd (In liq.) v. Texas Commerce International Bank Ltd.; Spencer Bower and Turner, Estoppel by Representation 3rd ed. (1977), pp. 157-177. But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship: Dabbs v. Seaman. In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v. Kettle; Spencer Bower and Turner, Estoppel by Representation 3rd ed., pp. 167-168

He submitted that the view there expressed that this kind of estoppel did not apply to assumptions as to rights as distinct from pure facts was no longer good law: see Eslea Holdings Ltd. v. Butts (1986) 6 NSWLR 175 at 185-189. Mr. Newlinds also referred to Heggies Bulkhaul v. Global Minerals Australia [2003] NSWSC 851; (2003) 59 NSWLR 312 at [147]- [154].

69 Mr. Newlinds submitted that the common law doctrine of conventional estoppel did not require proof of reliance and/or detriment, as shown by the passage from Con-Stan; and it had not been subsumed in any over-arching doctrine of equitable estoppel, as contemplated in The Commonwealth v. Verwayen [1990] HCA 39; (1990) 170 CLR 394 at 411 and 440: see Giumelli v. Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [7], Byron Shire Council v. Vaughan [2002] NSWCA 158 at [90].

70 Mr. Hammerschlag submitted that the better view was that there was one over-arching doctrine of estoppel, with the appropriate remedy being the minimum necessary to prevent injustice from unconscionable conduct. In this case, the respondents were seeking to hold Roche to a very large ($18.5 million) contract involving a forty-year lease, on the basis of minor and unquantified reliance over a short period of time. If there was any remedy, it would be an enquiry as to the damage suffered.

Decision

71 The first matter to be considered is whether there is still an all-or-nothing common law estoppel, distinct from the equitable estoppel under which the appropriate relief is the minimum relief required to do equity and avoid unconscionable conduct. In my opinion, having regard to the comments in Giumelli referred to by Mr. Newlinds, it is appropriate for this Court to proceed on the basis that there is still an all-or-nothing doctrine of common law estoppel by representation and conventional estoppel. I also accept that there can be such an estoppel as to rights and not merely as to facts: see Eslea and Heggies, and cases there cited.

72 However, I do not accept Mr. Newlinds’ submission that reliance and detriment are not essential for the existence of conventional estoppel. The passage from Con-Stan refers inter alia to Grundt v. Great Boulder Proprietary Gold Mines Ltd. [1937] HCA 58; (1937) 59 CLR 641, in which Dixon J makes it clear that the relevant principle is that “the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations” (at 674), this involving both (1) action such that the party relying on the estoppel would suffer a detriment if the other party were afterwards allowed to set up rights inconsistent with the assumption; and also (2) that the party against whom the estoppel is asserted “must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it” (at 675). See also Thompson v. Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547. In my opinion, common law estoppel by representation or conventional estoppel still requires that the party relying on the estoppel must have “placed himself in a position of significant disadvantage if departure from the assumption be permitted”: see Verwayen at 444.

73 In the present case, the primary judge did find to the effect that both parties acted on the assumption that the contract had not automatically come to an end on 31 March 2004; so that, if Metro would be at significant disadvantage if departure from the assumption were permitted, and if Roche played such a part in the adoption of the assumption that it would be unfair to permit Roche to depart from it, then the elements of conventional estoppel would be made out.

74 Accordingly, in order to determine the applicability of this doctrine, it would be necessary for there to be findings as to whether there was significant detriment to Metro arising from the adoption of the assumption between 31 March 2004 and 21 May 2004, and whether Roche played such a part in the adoption of that assumption that it would be unfair or unjust now to permit a departure from that assumption; and the primary judge did not make those findings.

75 If these findings (of detriment, and Roche’s part in adoption of the assumption) are made, the result would in my opinion be that Roche is estopped from asserting that the Development Contract was automatically rescinded on non-satisfaction of the conditions precedent by 31 March 2004. The estoppel would not of itself preclude Roche from asserting that non-fulfilment of the conditions by 31 March 2004 was a basis for rescinding the contract, because the estoppel would go only to the continuing existence of the contract, not to its immunity from rescission. However, if the election to affirm the contract was also established, as discussed above, this would mean that the contract could not have been rescinded by notice on 21 May 2004.

76 Accordingly, in my opinion the matter should be referred back for first-instance consideration of both conventional estoppel and election. The respondents would need to succeed on both these issues to succeed in the case, because if they do not succeed on conventional estoppel, then automatic rescission would have taken effect; while if they do not succeed on election, the notice of 21 May 2004 would have been effective. Because the case could go to the High Court, it would also be appropriate for the judge to reach a view on what would be the appropriate remedy if there is now just one over-arching doctrine of estoppel, under which the appropriate relief is the minimum required to prevent injustice.

77 I would add that, in my opinion, cl.48 of the contract dealing with waiver does not exclude the operation of conventional estoppel.

GUARANTEES

78 If there is a finding in favour of the respondents on the basis of a combination of conventional estoppel and election, there would be a real question as to whether the Guarantors remain bound. In my opinion, that would require consideration of whether any of the Guarantors were themselves bound by the relevant conventional estoppel, and also whether any other provisions of the guarantee were sufficient to maintain the liability of the Guarantors, notwithstanding that, but for a conventional estoppel as between Metro and Roche, the contract would have been automatically discharged. This is a matter that would need to be addressed, if there is a finding in favour of the respondents on conventional estoppel and election.

ORDER FOR SPECIFIC PERFORMANCE

79 In my opinion, it was premature to order specific performance when it had not been proved that the conditions precedent had been satisfied. Now that the Sunset Date has passed, that is a question that could be further addressed when the matter is further considered.

CONCLUSIONS

80 In the result, the appeal will be allowed and the cross-appeal dismissed. Although the appellants have not entirely succeeded, and although the further hearing may result in orders adverse to them, I think the measure of success is sufficient to carry the costs of the appeal and the cross-appeal. However, I would reserve leave for written submissions on costs if there is any additional point which the respondents would wish to raise. I would also reserve liberty for submissions as to whether or not the matter should be remitted to Einstein J: see Minister for Immigration v. Wang [2003] HCA 11, 77 ALJR 786; Amalgamated Television Services v. Marsden (No.2) [2003] NSWCA 186, 57 NSWLR 338, at [31] to [48].

81 For those reasons, in my opinion the following orders should be made.

1. Appeal allowed.

2. Cross-appeal dismissed.

3. Orders below set aside.

4. Matter remitted to the Equity Division to determine the issues of conventional estoppel and election indicated in this judgment, the liability of the Guarantors, the issue of specific performance, and costs of the proceedings.

5. Respondents to pay the appellants’ costs of the appeal and cross-appeal, and to have a certificate under the Suitors’ Fund Act if otherwise eligible.

6. Liberty to the respondents to make written submissions as to orders 4 and 5 within 7 days, any response by the appellants to be provided within a further 7 days.

82 IPP JA: I agree with Hodgson JA.

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LAST UPDATED: 03/03/2005