Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2) [2009] NSWSC 629 (7 July 2009)

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NEW SOUTH WALES SUPREME COURT

CITATION:
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2) [2009] NSWSC 629

JURISDICTION:

FILE NUMBER(S):
1790/00

HEARING DATE(S):
01.08.08, 13.10.08, 03.12.08, 03.02.09, 12.03.09, 16.04.09, 20.04.09 (final submissions received 5pm 23.04.09)

JUDGMENT DATE:
7 July 2009

PARTIES:
Macquarie International Health Clinic Pty Ltd - plaintiff/cross-defendant
Sydney South West Area Health Service - defendant/cross-claimant

JUDGMENT OF:
Nicholas J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable

COUNSEL:
R E Dubler SC/S Philips - plaintiff/cross-defendant
G K Burton SC/P Bruckner - defendant/cross-claimant

SOLICITORS:
S Moran & Co - plaintiff/cross-defendant
Bolzan & Dimitri - defendant/cross-claimant

CATCHWORDS:
CROSS-CLAIM – contracts – agreements to lease real property and construct a private hospital and car park thereon – termination of agreement – cross-defendant in default of agreements by reason of failure to complete car park – whether claims under agreements accrued prior to termination – whether agreements provided right to recover damages after termination – questions turn on own facts – no general principles involved – whether cross-defendant entitled under terms of hospital lease or on restitutionary grounds to recover expenditure for car park completion

LEGISLATION CITED:
Conveyancing Act 1919

CATEGORY:
Principal judgment

CASES CITED:
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Lumbers v W Cook Builders Pty Ltd (In liq) [2008] HCA 27; (2008) 232 CLR 635
McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457
Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827
Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516
Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315

TEXTS CITED:

DECISION:
pars 175 - 179

JUDGMENT:

1790/00 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2)

1 His Honour: These reasons relate to the determination of Area Health’s cross-claim against Macquarie. Unless otherwise stated paragraph numbers referred to in these reasons are taken from the judgment delivered 23 July 2008.

(i) Rent payable under cl 3.5 of the construction deed at the rate of $33,000 per month for the period 1 July 1999 to 17 March 2000 in the sum of $282,096.77, and interest to date.

(ii) An amount payable under cl 2.2 of the car park lease for a shortfall of 240 car spaces at $6,000 per car space in the sum of $1,440,000, and interest to date.

(iii) Damages for loss and expense incurred in completing the works required for compliance with conditions of Council’s development approval for the construction of the car park for which Macquarie was responsible under the 96 agreements. Damages are also claimed for expenditure incurred in seeking amendment to the development application for the opening of the car park, and for rectification and other work for the car park and New Hospital Road. The total amount of damages claimed is about $820,000, with interest to date.

3 Macquarie denies liability on all claims. Further, it claims against Area Health the right to a refund of $5,338,080 of the amount spent in improving the sites under cl 2.1 of the hospital lease, or on restitutionary grounds, alternatively, that this amount be set off against any amount for which it is liable under the cross-claim.

4 Area Health claims that under cl 3.5 of the construction deed Macquarie was obliged to pay to it a sum equivalent to rent at the rate of $33,000 per month for the period during which completion of the car park was delayed beyond 30 June 1999 until 17 March 2000, the date of termination of the construction deed and the related 96 agreements.

5 There was no issue that 30 June 1999 was the relevant date, although it was not a date for completion as specified in the timetable. (Its selection was explained by Area Health’s Senior Counsel (T p 4899 – 4900), and noted by Windeyer J (judgment 28 March 2000, par 8.))

6 Macquarie admitted that it had made no payment under this clause, but denied that it was liable to do so on the ground that construction of the car park had been completed by 30 June 1999. In its defence to the claim under the cross-claim Macquarie advanced additional grounds.

7 I have found that by 30 June 1999 Macquarie failed to complete construction of the car park (pars 482, 515). It was accepted that Macquarie had also failed to substantially commence construction of the hospital by that date. I therefore found that there were breaches of cl 2.1 of the construction deed by Macquarie which were events of default under cl 16.4(b) of the car park lease (par 515).

8 I also found that Macquarie’s failure to complete construction of the car park by 30 June 1999 rendered it liable to make the payment required by cl 3.5 (par 518), and its failure to make the payment was an event of default under cl 16.4(c) of the car park lease (par 519). I considered the interrelationship of the construction deed and the car park lease in the course of deciding that the requirement to make the deposit under cl 3.5 was a failure to pay rent within s 129(8) Conveyancing Act 1919 (pars 552 – 559). I said (par 557):

“The authorities to which I have referred indicate that the modern concept of rent is a contractual obligation to pay for the use of land. Macquarie’s obligations under the car park lease for the use of the land upon which it was required to build the car park included the obligation to comply with the terms of the construction deed which, in turn, included the requirement to make the payment under cl 3.5. By cl 16.4(c) car park lease the failure to make such payment is an event of default which, unremedied, may entitle Area Health to terminate the lease and re-enter. It is accepted that the terms of each of the 96 agreements are inter-related with the others. In my opinion, the payment of the amount required under cl 3.5 construction deed was intended by the parties to be part of the consideration for the right to use the defined premises under the car park lease. “

9 Area Health submitted that Macquarie’s liability to make the deposit accrued on 30 June 1999 when it had failed to complete construction of the car park and continued thereafter until termination on 17 March 2000. Thus it was put that Macquarie’s liability to Area Health was incurred prior to, and was not discharged by, termination.

“3.1 The Tenant must at its own cost and expense and as expeditiously as possible carry out and complete or cause to be completed the Works in a proper and workmanlike manner in accordance with the Plans and Specifications approved by the Council and any other relevant authority, the terms of the development and building approval approved under clause 4.2 and the requirements of any other relevant authority. To this end the Tenant may take partners which in its opinion are of a quality, experience and substance sufficient to ensure the Project is completed.

3.4 If the Tenant fails to complete the Works and has not admitted its first patient so that the Rent Commencement Date does not occur on or before Scheduled Rent Commencement Date then the Tenant must pay to the Landlord on the same day in each successive month until the Rent Commencement Date additional rent of $33,000 per month (and a proportional amount calculated on a daily basis for any part of a month) for the period from and including the Scheduled Rent Commencement Date until but excluding the Rent Commencement Date. Such additional rent shall be paid in advance in monthly instalments, the first of which shall be on the Scheduled Rent Commencement Date and each subsequent instalment on the same day in each successive month until the Rent Commencement Date and the Landlord shall refund any proportion overpaid within 14 days of the Rent Commencement Date.

3.5 If the Tenant fails to complete any stage of the Works identified in the Timetable by the date specified for completion in the Timetable, then the Tenant must deposit with the Landlord a sum equal to rent at the rate referred to in clause 3.4 of this deed for the period measured in days by which the date of completion of the stage of the Works is later than the date for completion specified in the Timetable. The Landlord may apply such funds against the Tenant’s obligations under clause 3.3 of this deed when they fall due.”

(It was common ground that “clause 3.3” was a misprint for “clause 3.4”.)

“3.6 Any deposit not applied under clause 3.5 of this deed must be refunded once the Rent Commencement Date has occurred, the Tenant has complied with clause 3.4 of this deed and has paid the amount due under clause 2.2 of the Hospital Lease.”

12 In cl 1.1 the Rent Commencement Date was defined as the date when the hospital works are completed to a stage where the hospital is substantially fit for occupation and use by Macquarie, and the first patient is admitted. The Scheduled Rent Commencement Date was defined as meaning the scheduled date for the Rent Commencement Date as set out in the timetable.

13 Clause 2.1 required Macquarie to commence, carry out and complete the works in accordance with the timetable.

14 Under cl 7.1 the obligation to pay money was an essential term. Non-compliance was an event of default for which the deed may be terminated (cl 7.3 and cl 7.4(b)).

15 Macquarie denied Area Health’s entitlement to recover the amount claimed on the ground that it was only ever entitled to receive it as a deposit, and to deal with it in accordance with cl 3.5 and cl 3.6. It was put that the deed was silent as to the disposal of any money paid under cl 3.5 in the event of termination and, because the events contemplated in cl 3.5 and cl 3.6 did not happen, Area Health could not claim the unpaid funds for its own benefit.

16 Further, it was submitted that the termination of the 96 agreements discharged Macquarie’s obligation to make the payment, and left Area Health to its right to claim damages for loss, if any, resulting from Macquarie’s non-performance. It was put that, absent provision to the contrary, the overdue payments could not be claimed after Area Health elected to bring the construction deed to an end, in accordance with the principles considered, e.g. by Diplock LJ in Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827, p 849. Macquarie also submitted that any deposit payable under cl 3.5 was in the nature of an advance payment in anticipation of a future liability to pay additional rent under cl 3.4, and such payment was merely conditional in that it was refundable under cl 3.6 upon the happening of the events referred to therein. Thus, it was argued, Area Health had no accrued right to payment prior to termination.

17 Alternatively, Macquarie submitted that, in the circumstances, although its liability to make a deposit may have been accruing since 30 June 1999, the time for actually making the payment had not occurred as at the date of termination. It argued that, as a matter of construction of cl 3.5, the phrase “... the Tenant must deposit with the Landlord a sum equal to rent at the rate referred to ...”meant that Macquarie was required to make only one payment by way of deposit, and not several payments referable to the period of delay. As I understood the submission, it was put that the amount of the deposit could only be calculated and paid after the date of completion of the car park was known, and as there was no completion before termination there was no sum payable under the clause.

18 Essentially, although put in different ways, Macquarie’s defence was that it was not open to Area Health to enforce the obligation to pay money under cl 3.5 as its right had not unconditionally accrued prior to termination.

19 The relevant principles were stated by Dixon J in McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, pp 476 – 477:

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected.”

20 Area Health’s claim against Macquarie depends upon the nature of the obligation under cl 3.5. If liability to pay the sum of money accrued prior to termination Area Health is entitled to claim it as a debt due. If the unpaid sum was payable prior to termination Area Health is entitled to sue for a liquidated amount, rather than claim damages for breach of contract.

21 I have earlier referred to my opinion that the amount required under cl 3.5 was intended by the parties to be part of the consideration for the right to use the defined premises under the car park lease (par 557). The contractual intention behind cl 3.5 was to secure completion of a stage by the agreed date failing which Macquarie was to compensate Area Health for its delay by depositing a sum equal to the rent referred to in cl 3.4. Of course, Macquarie had the use of the site for the period of delay. The verb “deposit” should be understood in context to mean “pay” the prescribed sum, which thereafter might be dealt with pursuant to the last sentence of cl 3.5, and cl 3.6 if those provisions became operative.

22 The language of cl 3.5 shows that Macquarie’s obligation to deposit the sum arose upon its failure to complete any stage, in this case the car park, on the specified date. Furthermore, it follows from my earlier findings (pars 552 – 559) that Macquarie was liable to make the payments and its failure to do so was an act of default which, unless remedied, entitled Area Health to terminate, that the right to have the payments made accrued prior to termination on 17 March 2000. The liability continued to accrue until the date of completion of the stage or of termination. The language also makes it clear, in my opinion, that liability is unconditional.

23 In my opinion, Macquarie was liable to make the deposit or to pay the sum upon failure to complete a stage of the works by the date specified for completion in the timetable. The amount of the sum payable is $33,000 per month and a proportional amount calculated on a daily basis for any part of a month for the period measured in days from the specified completion date to the actual date of completion. Under the clause liability to pay accrued on a daily basis until the end of the period, being the actual date of completion. Termination ended the period, but did not operate to discharge Macquarie’s liability to pay the total amount which had become due and payable by that time. In other words, the right to the sum claimed had been unconditionally acquired prior to the date of termination thus entitling Area Health to recover it from Macquarie as a debt (McDonald pp 476 – 477).

24 This interpretation of cl 3.5 is consistent with the contractual intention evidenced in cl 3.4 under which the defaulter is required to pay additional rent in advance on a monthly basis for the period between the Scheduled Rent Commencement Date and the Rent Commencement Date. In my opinion, the requirement in cl 3.5 to “... deposit with the Landlord a sum equal to rent at the rate referred to in clause 3.4 ...” was intended to have similar effect, thus requiring payment of $33,000 on a monthly basis for the prescribed period. So understood, it has a congruent operation with cl 3.4. I consider it highly improbable that the parties intended that a payment regime consequent upon failure to complete a stage by the specified time would be different to that which was consequent upon failure to complete the works under cl 3.4.

25 Furthermore, in my opinion, the provision in cl 3.5 which enables application of the fund against Macquarie’s obligations under cl 3.4 when they fall due, and the requirement to refund the deposit not so applied in the circumstances referred to in cl 3.6, cannot be reasonably understood to qualify Macquarie’s liability to make the payment upon failure to complete the car park by the specified date. It is self evident that the cl 3.5 provision operates in circumstances where Macquarie failed to complete the works and was liable to pay additional rent under cl 3.4. These circumstances did not arise. Nor did the events happen which would attract the operation of cl 3.6 so as to require Area Health to refund the deposit.

26 In my opinion, in the circumstances of this case, Area Health had an immediate and unconditional right to payment under cl 3.5, which was unaffected by these provisions, and was not discharged on termination.

27 For these reasons, Macquarie’s denial of liability should be rejected. Accordingly, I hold that, under cl 3.5, Macquarie became liable to pay Area Health the sum of $33,000 per month from 1 July 1999 until the date of termination, 17 March 2000, with interest thereon in an amount to be agreed or assessed. Area Health is entitled to judgment on this claim.

“7. The Cross-Defendant continues to fail to pay, in breach of the terms of the project documents specified below, the amounts claimed in the notices of default as follows:

(c) Interest pursuant to Clause 4.5 of the Car Park Lease dated 2.12.96 on $1,440,000 @ 2% per annum above the unsecured overdraft rate for amounts over $100,000 from 14 February 2000 to the date of judgment and continuing ...”

29 In its written submissions of 16 December 2008 (pars 21, 22) Area Health applied to amend par 7(b) by adding the following claims in the alternative based on different numbers of car spaces.

Car spaces shortfall		Amount payable
(i) 219		$1,314,000
(ii) 212		$1,272,000
(iii) 174		$1,044,000

In each case interest at court rates from 8 June 1999 to date of judgment was also claimed.

“2.2 The Managing Tenant agrees to pay to the Landlord an amount calculated in accordance with the following formula on 14 February 1999:

If the Car Park has not been erected by the date upon which the payment is required to be made under this clause 1.2 the ‘B’ shall be the number of car parking spaces to be erected in the Car Park based on the Plans and Specifications in their then latest form as approved by all relevant authorities. Once the Car Park has been erected the number of car parking spaces in the Car Park shall be determined and an adjusting payment made so that after the adjustment the Managing Tenant has paid the amount calculated in accordance with the above formula.”

31 I have found that Area Health failed to prove Macquarie’s liability under cl 2.2 as alleged in the notice of default to make a payment of $1,440,000 in respect of a shortfall of 240 car spaces by 14 February 1999 (par 460). I was not persuaded, on the evidence, that on or before this date the car park had been erected, and the number of car parking spaces in it was 960 (pars 457, 458).

32 Area Health’s claim is for a liquidated amount which it says is a debt due and payable. To succeed it must establish that its right to payment was unconditionally acquired prior to termination (McDonald p 476 – 477).

33 The outcome turns on the proper construction of cl 2.2. As I have said (pars 475, 476, 538) it is to be given a businesslike interpretation, with a congruent operation to the various components of the whole.

34 Area Health’s claims are calculated on the basis that each is the product of the determination and adjustment process required by the second sentence of the proviso for which Macquarie became liable prior to termination.

35 In short, Area Health submitted that, as a matter of fact, the car park “... is as erected as it will ever be”, having reached that stage on 7 June 1999 when certified to be practically complete. It put that, in the circumstances, the car park had been erected within the meaning of the second sentence of the proviso and, accordingly, it was entitled to rely upon the envisaged calculation process to establish a debt payable by Macquarie. The shortfall component in each alternative claim was calculated with reference to evidence of the number of car parking spaces in the car park as built. The alternative claims reflect the fact that different conclusions were reached by various people as to the number of car parking spaces in the car park left as it was.

36 On this issue I was, and remain, of the opinion that the intended meaning of the word “erected” in the context of cl 2.2 where appearing in its natural and ordinary meaning, namely “built”, and that under this clause the wider question whether the car park has been brought to completion and was operational does not arise (par 452).

“The proviso is directed to the situation where the car park has not been completed by the date. In such case the “B” is taken from the approved plans and specifications in their then latest form, and the amount to be paid calculated accordingly. The second sentence is intended to be read with the first. It requires a fresh calculation to be made once the car park has been erected, with reference to the number of car parking spaces then in it. It also allows for the making of a consequential adjusting payment. “

“... Once the Car Park has been erected the number of car parking spaces in the Car Park shall be determined and an adjusting payment made so that after the adjustment the Managing Tenant has paid the amount calculated in accordance with the above formula.”

39 The calculation process is to take place “... Once the Car Park has been erected ...”. The car park is the proposed car park being the structure to be erected in accordance with the plans, specifications and relevant approvals (cl 1.1, cl 8.1(b) and cl 10.1 of the car park lease).

40 In my opinion, the ordinary meaning of the phrase, in context, supports the conclusion that it refers to the point of time when the proposed car park has actually been erected or built. The language is unqualified. It does not refer to a car park which has been partially erected, or erected to some (unspecified) stage when building work ceased. A conclusion that the car park had been erected within this provision, although the structure fell short of what was proposed and required to be built, would not accord with commercial common sense and the intention of the parties, and would lead to uncertainty as to the point of time at which it may be found that the car park had been erected, and when the calculation process was to take place.

41 It follows, in my opinion, that this provision requires identification of the number of car parking spaces in the car park at the time stated i.e. when the car park has been erected. The determination of the actual number of car parking spaces in the structure at this time is necessary for the calculation of any amount to be paid as an adjustment to ensure that Macquarie has paid according to the formula. It was not until the car park had been erected that the exercises of determination, and calculation of any adjusting payment, were to take place. Thus the process for the ascertainment of any debt payable by Macquarie depended upon completion of the proposed structure.

42 In my reasons for holding that Area Health failed to prove Macquarie’s liability to make the payment under cl 2.2 as alleged in the notice of default (par 460) I said:

“457. In my assessment, the evidence does not establish a safe basis for the finding, on the balance of probabilities, that on or before 14 February 1999 there were 960 car parking spaces in the car park. Indeed, I accept Macquarie’s submission to the effect that the weight of the evidence is against a finding that the car park had been erected within the meaning of cl 2.2 on or before that date. However, in my opinion the evidence supports the inference that the car park had been erected by 7 June 1999 when practical completion was certified.”

43 The issue then under consideration required attention to the meaning and application of the formula and the first sentence of the proviso. To decide the issue it was not necessary to resolve the meaning of the second sentence. To decide the present claim requires that this be done.

44 After further consideration of the issue of construction of cl 2.2, and of the evidence, I am satisfied that it was incorrect to express the opinion that the evidence supports the inference that the car park had been erected by 7 June 1999 when practical completion was certified. On reflection, it cannot reasonably be said that the car park had been erected within cl 2.2 when the section described in condition 62, an integral component of the proposed structure, had not been built. Furthermore, if in truth the structure did not include the section as at 7 June 1999, the certificate of practical completion does not support the inference that the car park had been so erected at that time. In any event the significance of the certificate, if relevant, would have to be ascertained with regard to the contract between Macquarie and the building contractor which was not in evidence and was not referred to in submissions.

45 This revision on my part does not affect the decision against Area Health that it failed to prove the alleged event of default had occurred. The statement of opinion is properly categorised as an obiter dictum, and was not essential to the determination of the issue then under consideration.

46 I found (par 459) that as the car park had not been erected by 14 February 1999 and 1225 spaces was the number derived from the latest approved plans and specifications, the result was that the calculation left a negative amount.

47 Approval had been given for 1225 car parking spaces in the proposed car park (par 459). On 24 December 1997 the Land and Environment Court ordered that condition 62 of the development application be deleted and replaced with the following:

“The section of the building shown on Exhibit B within grids 1-8 and from the exterior along Grose Street to centre between grids B and C is not to be completed until the construction of the second stage of the hospital, the medical centre and the consulting rooms has commenced.”

Its effect was to forbid completion of the identified section of the structure until construction of stage 2 of the private hospital had commenced.

48 There was no commencement of construction of the private hospital. It appears that building work on the car park structure ceased about 7 June 1999, the date on which Macquarie’s contractor certified practical completion. According to Pace, the number of car parking spaces in the structure as at 21 December 1999 was about 988.

49 As at the date of termination on 17 March 2000 there had been no completion of the section described in condition 62. Completion of the sections was necessary to discharge the obligation to erect the car park as proposed under the car park lease. The situation then was that the car park had not been erected within the meaning of the second sentence of cl 2.2 with the consequence that the occasion for the calculation process thereunder had not been reached. Termination prior to erection of the car park precluded the application of this provision.

50 For the above reasons Area Health’s submissions must be rejected. As I have said, the phrase “... Once the Car Park has been erected” refers to the point of time when the proposed car park has been erected, and not to the point of time when work ceased at a stage when the structure was but part of that proposed.

51 Accordingly, I propose to order that the claim under par 7(b) of the cross-claim be dismissed. It is unnecessary to decide whether the amendments sought by Area Health should be allowed as the claims thereunder must suffer the same fate.

52 Having regard to my decision on the question of erection, the question of whether there had been a determination under the provision does not arise. However, I will briefly indicate my view about it.

53 The person by whom the determination is to be made is not identified. The determination is the foundation for the calculation of any adjusting payment which is to be made to ensure compliance by Macquarie with the requirement to pay in accordance with the formula. In my opinion, the proper construction of cl 2.2 supports the conclusion that the determination is intended to be the product of a consensual exercise between both parties to lay a mutually accepted foundation for the calculation. It would be inconsistent with that intention, and contrary to commercial commonsense, that one party would be obliged to accept the unilateral decision of the other as to the number of spaces for the purpose of this calculation which is to be made to fix any adjustment which Macquarie may be liable to pay. Both parties have an interest in the outcome. It is logical to conclude that it was intended that both would participate in the process which results in it. Accordingly, in my opinion, the evidence shows that there was no determination made within the meaning of cl 2.2.

54 Damages are claimed for the recovery of expenditure incurred by Area Health in respect of numerous items arising out of the failure of Macquarie to comply with development approval conditions for the car park. Particulars are pleaded in par 8 of the cross-claim. As liability is in issue it is necessary to deal with each claim in turn, with regard to the following background.

55 It is convenient to recall the following passages from the judgment delivered 23 July 2008.

“463. Macquarie accepted that it did not comply with council’s conditions of consent to the car park development application (the conditions) in that it failed:

(i) to construct and commission traffic signals at the intersection of New Hospital Road and Carillon Avenue (conditions 5 and 12);

(ii) to construct and commission traffic signals at the intersection of Carillon Avenue and Missenden Road (condition 8);

(iv) to construct Link Road from end of New Hospital Road to Lucas Street (condition 13); and

(v) to perform roadwork in Church and Mallet Streets (conditions 10, 11, 14, 15).

(Corresponding conditions to the hospital development application are conditions 11, 15 and 16.)

472. The conditions referable to the New Hospital Road/Carillon Avenue traffic lights, the Carillon Avenue/Missenden Road traffic lights, the surfacing of New Hospital Road, the construction of Link Road, and the roadwork in Mallet Street required each to be operational prior to issuing a certificate of classification for the car park, or completed prior to its operation.

467. Clause 2.1 construction deed required Macquarie to commence, carry out and complete the “Works” in accordance with the timetable. This was an essential term of the deed (cl 7.1), and of the car park lease (cl 16.2). Failure to comply was an event of default under the deed (cl 7.4(b)), the car park lease (cl 16.4(b)), and the hospital lease (cl 17.4(c)).

477 Analysis of the definition of “Works” shows that construction of the car park is to be understood to include, where appropriate, all ancillary works and activities associated therewith. The latter were to be carried out in accordance with the relevant development and building approvals. The carrying out and completion of the works under cl 3.1 were to be in accordance with the terms of such approvals. In this case, the effect of the approvals was such that the legitimate operation of the building as a car park depended upon the substantial commencement of the hospital, and compliance with the conditions. It is clear from the terms of the approvals that contravention of the conditions made it unlawful to use the premises for the purpose of a car park.

478 In my opinion, on a common sense approach to the ordinary and unambiguous language of the relevant provisions of the construction deed, there can be no doubt that the contractual intention underlying cl 2.1 and the timetable was that completion was reached when the work had been finished, and nothing further was to be done for it to be used for the purpose for which it was built, namely as a commercial car park. Accordingly, in my opinion, under the construction deed fulfilment of the obligation to complete construction of the car park necessitated completion of all ancillary works and associated activities in accordance with the approvals whereby the car park became lawfully operational for its intended purpose, being usage for an approved 1225 spaces. This is what was required under cl 10.1 car park lease and cl 3.6 car park sub-lease earlier referred to.”

56 In par 482 I held that non-compliance with the conditions constituted failure by Macquarie to complete construction of the car park in accordance with the timetable in breach of cl 2.1 and, thus, the event of default as alleged in the default notices.

57 I concluded (par 515) that, by 30 June 1999, Macquarie had failed to complete construction of the car park. Accordingly, I found there were breaches of cl 2.1 of the construction deed by Macquarie which were events of default under cl 16(4)(b) of the car park lease. I proceeded to hold (par 599) that Area Health had lawfully terminated the construction deed, car park lease, hospital lease and car park sub-lease, and was lawfully entitled to re-enter on 17 March 2000.

58 The contractual right to terminate was exercised under each of cl 7.3 of the construction deed, cl 16.3 of the car park lease and cl 17.3 of the hospital lease.

59 Area Health terminated the 96 agreements in the exercise of its contractual power to do so. The agreements included express statements of the parties’ rights and obligations which were intended to operate after termination. The following provisions, relied upon by Area Health, are relevant:

(a) the Tenant indemnifies the Landlord against any liability or loss arising and any reasonable cost incurred (whether before or after termination of this deed) in connection with the Tenant’s breach of this deed and the termination of this deed including the Landlord’s loss of the benefit of the Tenant performing its obligations under this deed from the date of that termination until the Terminating Date; and”

“9.1 The Tenant is liable for and indemnifies the Landlord against liability or loss arising from, and cost incurred in connection with:

(a) damage, loss, injury or death caused or contributed to by the act, negligence or default of the Tenant or of the Tenant’s Employees and Agents; and

(b) the Landlord doing anything which the Tenant must do under this deed but has not done or has not done properly.”

“Each indemnity is independent from the Tenant’s other obligations and continues during this lease and after it expiries or is terminated. The Landlord may enforce an indemnity before incurring expense.”

“Each indemnity in this agreement is a continuing obligation, separate and independent from the other obligations of the Tenant and survives termination of this agreement.”

“It is not necessary for the Landlord to incur expense or make payment before enforcing a right of indemnity conferred by this agreement.”

“The Managing Tenant must erect the Car Park and ancillary services in accordance with the Construction Deed.”

(a) the Managing Tenant indemnifies the Landlord against any liability or loss arising and any reasonable cost incurred (whether before or after termination of this lease) in connection with the Managing Tenant’s breach of this lease and the termination of this lease including the Landlord’s loss of the benefit of the Managing Tenant performing its obligations under this lease from the date of that termination until the Terminating Date; and”

“If a party breaches or repudiates this lease, nothing in this clause 16 will prejudice the right of the other party to recover damages or exercise any other right.”

“Expiry or termination of this lease does not affect any rights in connection with a breach of this lease before then.”

60 The separate claims are detailed in the summary which was part of Exhibit 25. I deal with them in the order in which they appear in the summary.

A(i) Traffic signals at intersection of New Hospital Road and Carillon Avenue

61 By conditions 5 and 12 of the car park development consent, Macquarie was required to install traffic lights and pedestrian facilities at the intersection of New Hospital Road and Carillon Avenue prior to commencement of construction or excavation of the car park. In breach of cl 2.1 and cl 3.1 of the construction deed it failed to do so.

62 Area Health claims the sum of $21,260 being the amount it paid to Lawson & Meyer Electrical Pty Ltd to complete the traffic signals on invoice dated 23 May 2000. It relies upon the terms of the invoice to show that all components related to work for commencement of operation of the traffic lights.

63 Macquarie does not dispute an amount of $13,420. It disputes the item “Variation Value: As per letter of the 28/3/2000 ... $2,160”, and the item “Install pipes across access road ... $5,680” on the ground that there was insufficient information to show that they related to the completion of the traffic signals.

64 Additionally, Macquarie denied liability on the application of what it said was the ordinary principle in building contracts (submission 06/04/09 par 21):

“... that where there has been failure to complete by the builder, the owner is not entitled to damages for the cost of the unperformed work, as such, or as an “accrued unconditional right”. The owner has to bring into account the value of the work performed by the builder and the owner’s damages will be his overall loss on the contract. This involves comparing the position of the owner arising from the determination of the contract with the position the owner would have been in had the contract been fully performed.”

“... has for several years obtained the benefit of the improvements, including revenue from the car park, which it would not have received but for its own termination.”

65 Accordingly, Macquarie submitted that to sustain this claim (and the other claims in par 8 of the cross-claim) for damages for failure to complete the car park, evidence was required of Area Health’s overall loss consequent upon Macquarie’s failure to perform, including evidence of the benefit of the car park for which credit should be given. As I understood the submission it was put that, absent such evidence, this claim (and the other claims in par 8 of the cross-claim) must be rejected.

66 In my opinion, Macquarie’s position is untenable. It ignores the contractual provisions referred to above, which operate after termination. The effect of cl 7.8(a), cl 9.1, cl 10.3 and cl 10.4 of the construction deed and/or of cl 16.8(a), cl 16.11 and cl 19.5 of the car park lease requires Macquarie to indemnify Area Health against any loss arising, and any reasonable cost incurred, in connection with Macquarie’s breach of the relevant agreement and the termination thereof. Whether taken alone or in combination, these provisions afford the contractual basis for Area Health’s claim(s). Similar submissions were made in denial of liability for the other claims for damages, and must suffer the same fate. It is unnecessary to deal with them separately in considering the other claims.

67 In my opinion it is sufficient, and appropriate, to treat the claim as one for indemnity under cl 7.8(a) and/or cl 9.1 of the construction deed, and cl 16.8(a) of the car park lease. Accordingly, the relevant question is whether the claim is one for loss arising, or for reasonable cost incurred, in connection with Macquarie’s breach, act, or default. As a matter of construction, the phrase “... in connection with ...” is of wide import; there is no reason why its ordinary meaning should be read down.

68 In my opinion the terms of the invoice support the finding, which I make, that the amount of $21,260 was a cost to Area Health for work in connection with Macquarie’s failure to complete the traffic signals in breach of its obligation to do so. The invoice states that it was submitted as an invoice “... to complete traffic signals”. Thereunder, the contract value and balance owing was stated. It is plain that the items described as “Variation Value” and “Install pipes across access road (See rate as per list of variation items)” represent variations of the contract for completion of the signals. Contrary to Macquarie’s submission the invoice, read as a whole, shows that these items were expenses incurred under this contract and inseverable from it. That is sufficient to bring them with the scope of the indemnity provisions.

69 Accordingly, I find Macquarie liable to pay Area Health the sum of $21,260, as claimed, plus interest.

70 By condition 8 of the car park development consent Macquarie was required to make operational the traffic signals at the intersection of Carillon Avenue and Missenden Road prior to issuing a certificate of construction for the car park. Condition 11 of the private hospital development consent was in substantially similar terms. In breach of cl 2.1 and cl 3.1 of the construction deed it failed to do so.

71 Area Health claims the sum of $360,130 as detailed in the summary to Exhibit 25 being the amount it paid for completion of the work which Macquarie had failed to undertake. Quantum was not in dispute. The relevant particulars are as follows:

12.07.02	RTA NSW	$8,450	Paid	23.07.02
21.02.03	Wispkhan Pty Ltd	$170,000	Paid	27.02.03
29.03.03	Wispkhan Pty Ltd	$179,180	Paid	09.04.03
15.05.03	Transporting & Planning Associates	$2,500	Paid	15.05.03
	Total	$360,130

72 Macquarie submitted that, absent evidence explaining the circumstances in which the invoices were issued, the Court would not be satisfied that the purpose for which the expenditure claimed had been incurred was to comply with the relevant condition rather than for some other, unrelated, purpose. It was put that as construction did not take place until 2003, long after Area Health commenced operating the car park under an interim occupation certificate issued 23 June 2000, it may be inferred that the signals were installed as part of the redevelopment of the public hospital. Reference was made to Exhibit P, which included documents relating to the development application in respect of the proposed redevelopment of the public hospital, and the notice of determination and conditions thereof dated 22 November 1999, and to Exhibits 27, 28 and 29 which included documents concerning the redevelopment and related applications. In particular, Exhibit 28 is the notice of determination of the development application and conditions for the car park proposed for use with the public hospital issued on 11 July 2002. It was submitted that these exhibits supported the likelihood that consent for the redevelopment of the public hospital was conditional upon construction of the traffic signals the subject of this claim.

74 After termination and repossession of the car park, Area Health obtained a consent order in the Land and Environment Court on 16 June 2000 that condition 8 be deleted and replaced with a condition that traffic signals be installed at the intersection of Missenden Road and Carillon Avenue, and be operational, within 12 months from the date of the interim occupation certificate, i.e. by 23 June 2001. Area Health’s application to delete this condition was refused on 4 March 2002. As the invoices show, the work necessary for compliance with the condition was commenced in about July 2002 and continued until about May 2003.

75 There was no evidence that it was a condition of consent to the redevelopment of the public hospital and, in particular, of the related car park, that the traffic signals be installed. I am satisfied that there is nothing in Exhibits P, 27, 28 and 29 which supports the existence of such a condition. Furthermore, contrary to Macquarie’s submissions, I am satisfied that Area Health carried out the work in order to comply with condition 8 and as a direct consequence of Macquarie’s failure to do so under the 96 agreements.

76 The contractual provisions earlier referred to render Macquarie liable to Area Health for this claim. Accordingly, I find Macquarie liable to pay Area Health the sum of $360,130 as claimed, plus interest.

77 Under this head Area Health claims the sum of $53,573 for costs incurred in relation to the work for the completion of the sub-surface and surface of New Hospital Road, and also claims the sum of $300,393.18 for costs incurred in relation to a retaining wall along this road. It was accepted that the costs were incurred, and were reasonable.

78 Before dealing separately with each claim, I refer to matters common to both.

79 By condition 12 of the car park development consent Macquarie was required to undertake the full construction of New Hospital Road prior to commencement of construction or excavation of the car park. It accepted that it failed to comply with this condition. Dr Wenkart agreed that the road was left unsealed (T p 691). I have earlier held (pars 478, 486) that completion of the car park under the construction deed necessitated completion of all ancillary works and associated activities in accordance with the approvals whereby the car park became lawfully operational. Clause 3.2(c) of the construction deed required Macquarie to bear the costs of construction and maintenance of New Hospital Road.

80 The claim for recovery of costs for roadway surfacing is evidenced by the invoices detailed in the summary of Exhibit 25, which amount in total to $53,573.

81 The invoice from Simmons Civil Contracting of 28 April 2000 was for the total amount of $42,062, which included $34,356 for work ordered on 31 March 2000, and $7,706 in respect of a payment to Pace Property. Macquarie contested liability for the Pace Property payment. However, as I understood its submission (16.07.07 ch 4 pars 45-52) in light of my findings which led to the rejection of Macquarie’s claims for relief, including the finding that its operation of the car park was unlawful and without consent, Macquarie now should be taken to accept liability for the total amount under this invoice.

82 Macquarie also accepts liability for the payment to Connell Wagner Pty Ltd of $2,915 under invoice dated 23 May 2000, and for the payment to Simmons Civil Contracting of $2,856 under invoice dated 26 June 2000 as being expenditure resulting from its default in performance (submission 06.07.07 ch 4 par 52).

83 Macquarie disputed the balance of the claim which amounts to $5,740, and is evidenced by invoices from Connell Wagner Pty Ltd rendered between 17 July 2000 and 24 November 2000 in various amounts. It was put that there was no evidence to show that the work was done to remedy Macquarie’s default, and the invoices themselves cast no light on the subject matter for which the work was charged.

84 Macquarie’s objection is without substance. Analysis of the wording of the Connell Wagner Pty Ltd invoices, including the undisputed invoice of 23 May 2000, provides ample support for the finding, which I make, that all relate to work necessary for the completion of New Hospital Road. In terms, they are expressed to be in respect of professional services “Prince Alfred Private Hospital: New Hospital Road” rendered during the period which commenced prior to 11 June 2000 and ended 27 October 2000. Given re-entry on 17 March 2000, and the admitted failure to comply with condition 12, and absent evidence otherwise, the only rational conclusion open is that the work to which these invoices related was necessitated by Macquarie’s default. The conclusion that Connell Wagner Pty Ltd was then engaged on such work is reinforced by the reference in the report of Mr Alan Ring to its specifications for a New Hospital Road retaining wall dated July 2002.

85 I hold that Macquarie is liable to Area Health for the sum of $53,573 as claimed, plus interest.

86 The claim for recovery of costs for the retaining wall requires reference to the following additional matters.

87 Pursuant to cl 3.2(d) of the construction deed an easement was granted upon which Macquarie was to construct New Hospital Road along the eastern boundary of lots 11 and 12. The agreed width of the easement was 11.15 metres. During construction of the road Macquarie built an embankment along its eastern edge.

88 The nature and condition of this structure was described by Mr James Thorpe, surveyor, in his affidavit of 12 October 2006, and Mr Alan Ring, a person of wide experience in the construction industry, in his affidavit of 26 November 2003. Their evidence was read without objection, and was neither challenged nor contradicted. I accept it.

89 Mr Thorpe’s survey of 11 January 2003 shows that the distance from the eastern boundary of lots 11 and 12 to the top of the embankment to the east of New Hospital Road exceeds 11.15 metres along the entire length of the road. It demonstrated that the embankment encroached upon the Royal Prince Alfred Hospital site.

90 Mr Ring inspected the site on 5 February 2003. He observed a “loc a bloc” retaining wall under construction along part of the eastern side of the road. He described the remaining 80 metres as generally a steeply cut batter at a slope of 60 degrees of varying height. To the exposed surface a thin “biscuit” of sprayed concrete of varying thickness had been applied. He saw this as a temporary protection for the batter to reduce the risk of slope failure in the short term. His view was that in its current state it was intended only as a temporary measure and not as a permanent structure, and certainly not a structure that would allow parking of cars close to the top of the batter. He thought that in the long term the construction of a more structurally sound and permanent retention of the excavation was required.

91 Mr Ring stated that compliance with Australian standards and safety requirements in the long term required retention of the slope with a properly designed structural retaining wall. He approved the specification for a new retaining wall as prepared by Connell Wagner Pty Ltd in July 2002 as adequate and comprehensive, and that its construction cost as allocated on 2 August 2002 in the sum of $260,423 was fair and reasonable. His report included photographs which demonstrated the deterioration of the biscuit, and partial collapse of the embankment.

92 Dr Wenkart, in evidence, accepted that Macquarie was obliged to build a retaining wall (T p 685) within the easement (T p 691). He agreed that at the time of practical completion of the car park the embankment had not been properly finished (T p 691) and what was proposed as an appropriate solution was battering of the earth and shock treatment (T p 691).

(ii) Area Health has failed to show that at the date of termination Macquarie, in breach of its contractual obligations, had constructed an embankment which was defective.

94 As to the pleading point, in my opinion the allegation in Particular A(iii) of the cross-claim of failure to “otherwise properly build New Hospital Road” when read with its preface is wide enough to encompass this claim. The pleading is sufficient. To avoid surprise it was for Macquarie to press for further particulars of the claim(s) under this head. In any event, no prejudice was suffered by Macquarie in the ventilation of the claim during the trial. Dr Wenkart was cross-examined on the issue without objection (e.g. T p 684-693). There was ample opportunity to meet the claim with evidence if there was any. This ground is without merit.

95 The other ground of dispute is that it was not demonstrated that the embankment was defective at the time of termination on 17 March 2000. It was put that, at that time, the structure was incomplete, and merely an interim solution, and as it was not necessary for the lawful operation of the car park it was not work required for completion of construction of the car park under the 96 agreements.

96 This ground must also be rejected. It does not survive analysis of the terms of condition 12 and, at least, of cl 3.1 of the construction deed which requires completion in a proper and workmanlike manner of the “Works” which are defined to include all ancillary works and activities associated therewith. In my opinion, and as a matter of common sense, satisfaction of condition 12 that “full construction of the road be completed prior to commencement of construction or excavation of the car park” involved completion in a proper and workmanlike manner of a retaining wall of the kind approved by Mr Ring. The condition allowed for adequate temporary construction traffic arrangements, but there was no evidence that Macquarie sought or obtained the necessary agreement of the Director of Public Works and Services if it was truly intended that the embankment was only an interim measure.

97 In my assessment, Mr Ring’s evidence established that compliance with condition 12 and cl 3.1 required construction of a properly designed structural retaining wall fit for the long term retention of the slope and excavation which Macquarie did not build. I am satisfied that the embankment as left by Macquarie was already deteriorating with risk of failure in the short term. Indeed, Dr Wenkart accepted that the embankment should be replaced by an appropriate retaining wall.

98 In my opinion the cost of the retaining wall was a reasonable cost incurred by Area Health in connection with Macquarie’s breach of cl 2.1 and cl 3.1 of the construction deed and condition 12, for which Macquarie is liable under the indemnity provisions.

99 I therefore hold that Macquarie is liable to Area Health in the sum of $300,393.18, as claimed, plus interest.

100 Area Health claims the sum of $15,615 as detailed in the summary of Exhibit 25.

101 Macquarie denies liability on the ground that there is no evidence that the invoices were for work done in connection with its defaults under the 96 agreements. In particular, it submitted that the invoices themselves do not indicate that the work was that which Macquarie was required to perform.

103 The invoice from N Parcel & Co for $5,970 which was paid on 13 June 2000 states that it is for temporary fencing “... to new car parking station as per instructions (Mr T Kenny) ...”. There was no other evidence about it, and it does not appear that it was required by any consent condition. In my opinion the circumstances in which Area Health arranged for this work were left as matters of speculation. As Area Health has failed to discharge its onus of proof that its expenditure on this item is attributable to Macquarie’s default, I reject this part of the claim.

104 The invoice from Tract Consultants Pty Ltd for $1,730 received on 4 September 2000 was for professional fees for preparation of a development application for the car park. The invoice from that company for $1,200 received on 22 December 2000 was for professional fees for preparation of landscape plans for the car park.

105 Condition 19 required preparation of a detailed landscape plan indicating the proposed treatment in the setback area to Church Street and various other matters around the new car park building, with approval to be given prior to the issuing of building approval.

106 Condition 1(b) of the occupation certificate of 23 June 2000 required provision of landscaping in accordance with condition 19 within 30 days and completion of the work within 60 days of council’s approval of those details.

107 In its letter to council of 29 September 2000 Atkinson Capital Insight Pty Ltd referred to the fact that Tract Consultants Pty Ltd had been engaged by Pace Property for the original landscape design of the private hospital and car park. It enclosed the landscape plan for approval in accordance with condition 1(b).

Correspondence between 23 October 2000 and 12 December 2000 (Exhibit A, Vol 10, pp 3872-3875) establish that Tract Consultants Pty Ltd was engaged to carry out the work required under condition 19.

108 The whole of the evidence establishes, in my opinion, that this was work which, in breach of the 96 agreements, Macquarie failed to do. I therefore hold Macquarie liable to pay Area Health the total sum of $2,930 for these components, plus interest.

109 The invoice from Ove Arup & Partners of 9 April 2001 for $720 states that it is “... For undertaking site survey and documentation of Mallet Street pedestrian refuge”. The invoice from Ozpave of 26 June 2002 for $5,995 states that it is for “... the preparation and pouring of Concrete Pedestrian Refuge Island ...”.

110 Condition 11 required provision of a pedestrian refuge complete with pram ramps in Mallet Street prior to operation of the car park. Following repossession, Atkinson Capital Insight Pty Ltd acknowledged the need for compliance in its letter to council of 19 June 2000. Thereafter there was correspondence with South Sydney City Council and Marrickville Council concerning this work, until approval was obtained and the work was carried out as described in the invoices (Exhibit A, Vol 10).

111 The description of the work in each invoice supports the finding, which I make, that each was for work necessitated by Macquarie’s default. The correspondence puts the matter beyond doubt. It follows that Macquarie is liable to Area Health for the amounts paid under them in the total sum of $6,715, plus interest.

112 In conclusion, I hold that the total amount for which Macquarie is liable to Area Health under claim A(v) is $9,645 plus interest.

B Damages for expenditure in negotiating with South Sydney Council and applying to Land and Environment Court in relation to the car park

113 Area Health claims the sum of $22,795.60 as detailed in the summary of Exhibit 25. It is accepted that the costs were incurred and are reasonable.

114 The relevant background is recorded in the judgment of 23 July 2008 as follows:

“658. On 24 August 1999 council informed Macquarie that it could not grant an interim certificate of occupancy for the car park and prohibited its operation pending fulfilment of outstanding conditions. The default notices were given on 13 September and 15 September 1999. The car park was opened unlawfully by Macquarie on 24 September 1999. The events of default were denied in Mr Klinger’s letter of 29 September 1999, and Macquarie took no action for remediation or rectification under cl 16.6 car park lease and cl 17.6 hospital lease.”

“439. On 10 February [2000] council informed its solicitors that before occupancy would be permitted, Macquarie was required to comply with all conditions referred to in its letter of 1 November 1999.

440. On 17 March [2000] the notices of termination were served on Macquarie, and Area Health took possession of the car park. This happened upon the expiry of the six month period within which Macquarie was allowed to sell and assign its interests in the leases (cl 16.6(d) car park lease and cl 17.6(d) hospital lease).

441. On 16 June [2000] the Land and Environment Court, in proceedings initiated by Pace and taken over by Area Health ordered, by consent, variations to the development consent conditions for the car park which deferred the requirement for building traffic lights, and the need for Area Health to grant an easement for Link Road. The Court also ordered deletion of condition 2 which required substantial commencement of the adjoining private hospital prior to issuing a certificate of classification by council to allow the operation of the car park.

442. On 23 June [2000] council issued an interim certificate of occupancy for the car park for 600 spaces.

659. On 1 November 1999 Macquarie was ordered to cease use of the car park. On 21 December 1999 Macquarie sought council’s permission to operate the car park with 600 spaces, and relief from compliance with some of the approval conditions, including condition 2, in circumstances that there was no “... reasonable assurance a private hospital will be constructed on the site”. It appears that it was with regard to this changed circumstance that the Land and Environment Court ordered the conditions to be varied or deleted, thereby enabling council on 23 June 2000 to permit Area Health to use the car park for 600 spaces. In other words, the situation at this time was brought about by Macquarie’s defaults which resulted in re-entry under the leases.”

115 It should be tolerably plain from the above that Macquarie’s defaults which led to termination directly resulted in the need for Area Health to negotiate with council, and to proceed in the Land and Environment Court, to enable it to lawfully operate the car park. This it did with the advice and assistance of its solicitors, Bolzan & Dimitri, and consultants Ove Arup & Partners. The orders made by consent by the Land and Environment Court on 16 June 2000 paved the way for the provision of the occupation certificate on 23 June 2000. The orders, inter alia, postponed compliance with conditions 8, 13 and 15 for periods of 12 months, 9 months and 12 months respectively.

116 The invoice from Bolzan & Dimitri of 19 June 2000 for $17,110.60 was for professional services between 11 May and 19 June 2000 for dealing with council, and involvement in the proceedings in the Land and Environment Court.

117 On 22 June 2000 Area Health paid council the sum of $75 as a fee for the occupation certificate for the car park.

118 The invoice of Ove Arup & Partners of 23 June 2000 for $950 was for the preparation of evidence on traffic for the Land and Environment Court, and subsequent advice on approval conditions. Their invoice of 1 January 2001 for $4,660 was for undertaking traffic surveys and documentation of results.

119 Macquarie denied liability on the ground that (submission 25.05.07 ch 4 par 67):

“67. Macquarie does, however, submit that necessarily encompassed by the claim is a recognition that the costs of obtaining the interim occupation certificate can only be pursed in lieu of a claim for work to comply with all Council conditions, irrespective of whether or not they were required in order to secure the interim occupation certificate. In other works, it cannot be right to say that Macquarie was obliged to comply with all of the Conditions of Consent of Council, irrespective of whether or not they had any relevance to the opening of the car park, as well as a claim for altering the conditions of consent to permit the early occupation of the car park.”

120 To the extent that I understand the submission, in my opinion it should be rejected. It overlooks the self-evident intended scope and purpose of the indemnity provisions. I am satisfied that Area Health’s expenditure under the invoices which evidence this claim is within the description of a loss arising or any reasonable cost incurred in connection with Macquarie’s default under, for example, cl 7.8(a) of the construction deed. Once the connection is established, as it has been in this case, so too is Macquarie’s liability.

121 I therefore hold that Macquarie is liable to Area Health in the sum of $22,795.60 as claimed, plus interest.

C Damages for expenditure for quality testing, rectifying defects in respect of construction, and completion of the car park and New Hospital Road

122 Area Health claims the sum of $37,928.56 as detailed in the summary of Exhibit 25.

123 In support of each amount claimed under this head, Area Health submitted that it was for expenditure incurred as a result of Macquarie’s breach of cl 2.1 and cl 3.1 of the construction deed to complete construction of the car park and ancillary works.

124 Macquarie denied liability on the ground that there is no evidence that the invoices were for work done in connection with its defaults under the 96 agreements, or for the purpose of remedying defective work. In addition, it submitted that the invoices were for work which Macquarie was prevented from doing by reason of the termination and/or was work which was an ordinary incident of possession of the car park and/or arose from the operation of the car park post termination.

125 Some background matters have particular relevance to the claim overall. Macquarie was in breach in failing to complete construction of the car park by 30 June 1999. At the time of re-entry on 17 March 2000 construction of the car park was incomplete, and its operation by Macquarie was unlawful. As a result, it became necessary for Area Health to undertake work for completion of the car park to the stage where its operation was lawful. Such work resulted in the issuing of the occupation certificate on 23 June 2000, which permitted lawful operation of the car park. Further work was required, and undertaken, to comply with outstanding consent conditions, and to rectify defective work left by Macquarie.

127 The invoice from K & W Signs of 14 June 2000 for $18,670 was for the installation of traffic signs at the car park. Consent conditions 33 and 34 required this work be done. I infer that it was necessary for the lawful operation of the car park. I find that it was work which Macquarie failed to do and, accordingly, hold Macquarie liable to pay Area Health the sum of $18,670 for these items, plus interest.

128 The invoice from Warren Smith & Partners of 15 June 2000 for $700 was for the provision of design and construction certification for the installed storm water drainage system. In my opinion it is highly probable that this work was necessary to ensure compliance with consent condition 29 which required completion and certification of a storm water drainage system. I find that Macquarie’s default obliged Area Health to undertake and pay for this work. It follows that Macquarie is liable to pay Area Health the sum of $700 for this item, plus interest.

129 The invoice from Scott Wilson Irwin Johnston Pty Ltd of 30 June 2000 for $1,260 is for the certification of mechanical and electrical services at the car park. It is self-evident that the construction and operation of the car park required the installation of many and various services of such kinds. I infer that certification of such services was required in order to ensure compliance with relevant consent conditions e.g. conditions 43, 44, and 45 which related to the ventilation system. I am satisfied that the work the subject of this invoice was work which Macquarie, in breach, failed to do. Accordingly, Macquarie is liable to pay Area Health the cost of this item in the sum of $1,260, plus interest.

130 The invoice from K & W Signs of 26 June 2000 for $2,565 was for the installation of traffic signs relating to the use of the car park. For reasons given in upholding Area Health’s claim in respect of the invoice from K & W Signs of 14 June 2000, I hold Macquarie liable to pay Area Health the sum of $2,565 for this item, plus interest.

131 The invoice from Network Security Pty Ltd of 6 September 2000 for $867.90 was for the installation of a boom gate and a controller board, and for the reconditioning of a boom gate. Consent condition 31 envisaged the installation of boom gates; condition 1(a) of the occupation certificate required installation of boom gates within fourteen days. In my opinion the work described in the invoice was work Area Health was obliged to pay for as a result of Macquarie’s default. I hold Macquarie liable to pay Area Health the sum of $867.90 for this item, plus interest.

132 The invoice from Northrop Holmes of 27 October 2000 for $360 was for professional services in providing an inspection and report regarding a cracked wall in the car park. With regard to the proximity of the date of the invoice to the cessation of work by Macquarie before construction was completed, absent evidence otherwise, I find it highly probable that the wall became cracked because of Macquarie’s defective workmanship. I therefore find Macquarie is liable to pay Area Health the sum of $360 for this item, plus interest.

133 The invoice from Northrop Holmes of 27 November 2000 for $300 was for professional services in providing an inspection and details regarding remedial work to concrete spalling. Adopting an approach similar to that taken in dealing with the last mentioned item, I am satisfied that the invoice demonstrates that the concrete spalling required remediation, which, absent evidence otherwise, probably resulted from Macquarie’s defective workmanship. I therefore find Macquarie is liable to pay Area Health the sum of $300 for this item, plus interest.

134 The invoice from Unisearch of 5 March 2001 for $1,017.66 was for an inspection and report for the measurement of slip resistance at the car park. Absent evidence otherwise, I accept Area Health’s submission that it is probable that this work was for rectification of the structure left by Macquarie. Alternatively, it is open to conclude that it was work undertaken within a reasonable time after the issue of the occupation certificate to ascertain whether or not the degree of slip resistance complied with applicable standards for the operation of this car park and, if so, I find it was reasonable in the circumstances for Area Health to have it done.

135 I find Macquarie liable to pay Area Health the sum of $1,017.66 for this item, plus interest.

136 The invoice from Network Security Pty Ltd of 8 August 2000 for $950 was for the variation to access control by moving the boom gate to the next entrance and related matters. With regard to the description of the work and to the date on which it was done as shown on the invoice, I am persuaded that it was necessary for the efficient operation of the car park, and also as envisaged by consent condition 31 which required location of boom gates to be well inside the site to prevent vehicles queuing on the street.

137 I therefore find Macquarie liable to pay Area Health the sum of $950 for this item, plus interest.

138 The account from Seton Australia paid 6 June 2001 for $1,590 was for yellow speed humps. I find, as a matter of common knowledge, that these devices are usually an inherent part of an operating car park which are included for the purposes of traffic management and public safety. I conclude that completion of construction of the car park in this case involved installation of the speed humps the subject of this account. Absent evidence otherwise, I find that Macquarie failed in its obligation to install them. It follows that Macquarie is liable to pay Area Health the sum of $1,590 for this item, plus interest.

139 The invoice from Network Security Pty Ltd of 11 April 2001 for $6,833 is for cabling for transmission of the video signal to the camera at the car park. The description in the invoice supports the inference that the camera had been left, presumably by Macquarie, either without the necessary cabling, or with cabling so defective as to require replacement. In any event, I am satisfied the work was necessary for the useful operation of the camera which would have been an inherent feature of the car park had Macquarie proceeded to complete its construction. I am satisfied that the need for this work to be done resulted from Macquarie’s failure to complete. I therefore find Macquarie is liable to pay Area Health the sum of $6,833 for this item, plus interest.

140 The invoice from Northrop Holmes of 28 June 2002 for $585 was for professional services by way of a preliminary inspection, and a report and remedial details in relation to “Queen Mary Car Park”. There is no other evidence about this item and the circumstances in which Area Health arranged for this work were left as matters for speculation. In my opinion it does not support a finding that Macquarie should be liable to Area Health for its costs. Area Health’s claim for this item is rejected.

141 The invoices from Stemar Engineering of 10 January 2003 for the total sum of $2,230 were for the installation of “Hilti” hollow block wall fixings, and remedial work by the installation of steel work to concrete stairs and an adjacent concrete block wall. Area Health submitted that these descriptions from the invoices support the inference that structural defects in the concrete stairs were then appearing, and required support, and that reinforcement to the block walls was required by means of “Hilti” fixings which justified recovery from Macquarie. Similar to the conclusion as to the last mentioned item, in my opinion this evidence is insufficient to discharge Area Health’s onus of proof that its expenditure on these items is attributable to Macquarie’s default. I reject the claims for these items.

142 In conclusion, I hold that the total amount for which Macquarie is liable to Area Health under claim C is $35,113.56, plus interest.

143 The amounts, plus interest, for which Macquarie is liable to pay Area Health under this claim are:

(1)	A(i)	$21,260
(2)	A(ii)	$360,130
(3)	A(iii)	$353,966.18
(4)	A(v)	$9,645
	Total	$745,001.18

(5)	B	$22,795
(6)	C	$35,113.56

	Total all claims	$802,909.74

Macquarie’s claim for repayment of approximately $5,338,080 under cl 2.1 of the hospital lease

145 As a ground for denying Area Health’s claims for any relief under the cross-claim Macquarie in its defence to the cross-claim, pleaded, relevantly, as follows:

“13 The cross-claimant is itself in breach of Clause 2.1 of the Hospital Lease.

(ii) Although it has purported to terminate the Hospital Lease the cross-claimant has failed to repay the cross-defendant approximately $5,338,080.00.”

146 In Macquarie’s written submissions the amount claimed was described (par 98) “... as that part of the amount of $5,500,000, referred to in cl 2.1 of the Hospital Lease as rent paid in advance for 103 years, which relates to the balance of the Term which is unexpired at the date of Termination, being 17 March 2000.”

147 The issue intended to be raised by the pleading was not ventilated in Macquarie’s earlier, extensive, written and oral submissions in support of its defences to the cross-claim. However, although the issue was lately revived, no prejudice was done to Area Health, and it now falls for determination.

“2.1 On or before the Rent Commencement Date the Tenant must pay to the Landlord the sum of $5,500,000 which sum represents all rental payable under this lease other than that referred to in clause 2.2 of this lease and clause 3.5 of the Construction Deed paid in one lump sum in advance (being $53,920.00 per annum).

(a) constructs car parking for at least 1200 cars on the land comprised in Folio Identifier 11/809663; and

then the cost to the Tenant of carrying out those works will be off set against the payment of $5,500,000 referred to in this clause and the Tenant will only be liable to pay to the Landlord the balance. The Landlord is not liable to pay any amount to the Tenant if the cost of these works exceeds $5,500,000.

If this lease is terminated for any reason prior to the Terminating Date then the Landlord must refund to the Tenant the rent actually paid under this clause 2.2 which relates to the balance of the Term which is unexpired at the date of termination.”

“2.2 In addition to the payment referred to in clause 2.1, the Tenant must pay to the Landlord annually:

149 Macquarie contended that, prior to termination, in carrying out the works referred to in sub-pars (a), (b), and (c) of cl 2.1 (the works) it incurred costs of about $12,000,000 of which the amount of $5,500,000 should be treated as equivalent to rent actually paid. Accordingly, it was claimed that Area Health was obliged to refund the sum of $5,338,080 being so much of the amount of the total rent payable under cl 2.1 which related to the unexpired period at the date of termination.

151 The essence of the bargain was expressed in recital A of the construction deed as follows:

“The Landlord and Tenant entered into a Heads of Agreement on 15 September 1989 under which it was agreed that the Tenant would develop the Hospital and a Car Park and for that purpose the Landlord would grant the Tenant a lease of the Land.”

152 Each lease was for a term of 103 years ending on 30 November 2099, the “Terminating Date”.

153 Under cl 3.1 of the construction deed Macquarie undertook, at its own cost and expense, to carry out and complete the construction of the hospital and the car park. Under cl 3.8(a) it was required to clear the land referred in each of the leases. Under cl 3.8(b), read with cl 5.2(d) HOA, Macquarie was required to remove the Telecom cable at its cost.

154 The interrelationship of the 96 agreements was considered in the judgment of 23 July 2008 (pars 646-650). Further, I said (par 662):

“662 ... The object of the 96 agreements was to achieve completion of both the car park and the private hospital within essential time limits. The rights and obligations of the parties with respect to the construction of one building were inseverable from those with respect to the construction of the other. The agreements did not intend the completion of one development and not the other. Macquarie’s right to develop a car park was subject to its obligation to develop a private hospital, and vice versa ...”

155 Under cl 10.2 of the car park lease Macquarie was required to erect the car park and ancillary services in accordance with the construction deed. Under cl 11.1 of the hospital lease Macquarie was required to erect the hospital and ancillary services in accordance with the construction deed.

156 The relevant history is that the 96 agreements were lawfully terminated on 17 March 2000 prior to the commencement of construction of the private hospital, and prior to completion of construction of a car park for at least 1200 cars.

157 In rejecting Macquarie’s claim for relief against forfeiture I considered its complaint that Area Health would gain the windfall benefit of the car park. I said (par 664):

“664. ... However, I am unpersuaded, having regard to the overall circumstances in which Area Health exercised its right to terminate the 96 agreements, that intervention by the Court would be justified merely because Area Health obtained the car park (Tanwar, par 62). Under cl 17 car park lease (cl 17 hospital lease) Macquarie had agreed to exposure to the risk of the operation of the provisions for termination and/or re-entry in the event of default. Accordingly, any improvements, such as the erection of the car park, were at risk should Macquarie bring about a situation of default which entitled Area Health to exercise its right to terminate. Furthermore, the parties had agreed (cl 16.9 car park lease, cl 17.9 hospital lease) for the payment of compensation to Macquarie upon termination for the balance of the term. In these circumstances, equity does not intervene to prevent the exercise of the right to terminate and re-enter (Tanwar, par 67).”

158 Macquarie cleared the land, removed the Telecom cables, and built a car park. It appears that costs to Macquarie for the car park amounted to $11,335,452 of which $3,272,862 was paid to its demolition contractor for work which I assume included clearing the land. The cost to Macquarie for removal of the cable was $338,879.

160 Macquarie submitted that in circumstances where it had paid $5,500,000 in costs for carrying out the works, and termination had precluded completion of a car park with at least 1200 spaces, Area Health was obliged under cl 2.1, or on restitutionary grounds, or pursuant to an implied term, to refund the sum claimed. As I understood the submission, it was put that where, as in this case, the parties must be taken to have known that the likely costs of carrying out the works would exceed $5,500,000 they must have envisaged that once these costs had been incurred a right of set off would be engaged thereby relieving Macquarie from the obligation to pay any sum by way of rent in advance. In other words, once the right was engaged, it was correct to say that the rent had actually been paid by the incurring of the costs of construction.

161 Further, it was said (submissions par 116) “... that the costs of construction incurred by Macquarie at that time were being paid in exchange for, or in consideration of, the right of offset and therefore the progressive payment of the advance lump sum rent”. The submissions proceeded to the effect that, under this clause, Macquarie’s construction costs to the amount of $5,500,000 are to be taken to be the rent actually paid or equivalent to rent actually paid, and Area Health is liable to refund so much of that amount as is calculated to relate to the unexpired term of the lease. Additionally, it was put (submissions par 111) that “... the right to be repaid advance rent after termination for whatever reason would be normally implied into a Lease or would arise upon principles of unjust enrichment, at least where the advance rent is severable to [sic] certain periods of occupation” i.e. the costs of construction should be treated as a refundable payment of advance rent either made under the lease or under principles of unjust enrichment.

162 Finally, it was put that if found liable to refund the amount claimed, the court should set off that liability against any cross-claim for which Area Health was successful.

163 Macquarie’s case as pleaded was that Area Health was in breach of cl 2.1 in that it failed to make the refund claimed. In my opinion, the claim cannot be sustained, and must be rejected.

164 The obligations of both parties under this clause were discharged upon termination of the hospital lease upon the defaults of Macquarie. By this time, of course, the construction of the hospital had not commenced, no rent had been paid under cl 2.1, and the car park did not contain 1200 spaces. In the events which happened, cl 2.1 had no operation.

165 In any event, in my opinion, Macquarie’s submissions reflected a basic misunderstanding of the terms of the clause although they are expressed in language which is ordinary and unambiguous.

166 Liability to pay the sum of $5,500,000 in one lump sum in advance crystallises on or before the “Rent Commencement Date”, the date when the hospital was substantially fit for occupation and use and the first patient was admitted (cl 1.1). The proviso which allows for an offset of costs of carrying out the work against the lump sum contemplates that these works had been completed before the rent commencement date. The language evidences the parties’ intention that entitlement to an offset is conditional upon the carrying out by Macquarie of each and all of the works described. It also expressly limits any offset to one to be made against the payment of the $5,500,000 referred to in the clause.

167 It follows, in my opinion, that unless and until the works had been carried out no entitlement to an offset would arise. For example, if by the time Macquarie had become liable to pay the lump sum the car park contained less than 1200 spaces, there would be no entitlement to the offset.

168 The circumstances for Area Health’s liability to make a refund is also expressed with clarity. The requirement is to ”... refund the rent actually paid under this clause ...” in an amount calculated with regard to the unexpired balance of the term at the date of termination. Unless such rent had been actually paid, there was nothing to refund. There is nothing in cl 2.1 which supports the proposition that the parties had agreed to treat the cost of the works incurred by Macquarie as equivalent to rent actually paid. Accordingly, Macquarie’s claim that Area Health was in breach of cl 2.1 as alleged is rejected.

169 As regards the implication of a term, the submission barely went further than an assertion that one should be implied. It must be rejected. No plausible attempt was made to establish satisfaction of the conditions for implication stated, for example, in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, pp 282-283.

170 The hospital lease taken alone, or with the other interrelated 96 agreements, was effective in business terms without the implication of a term having the effect suggested. I have already referred to the requirements of the construction deed and of the car park lease under which Macquarie undertook, at its cost, to carry out the works identified in cl 2.1. This is what it agreed to do in consideration for Area Health leasing the sites to it. It is simply incorrect to contend, as Macquarie did (submissions pars 100, 116), that it had agreed to undertake these works in return for receiving a reduction of liability for advance payment of rent equal to the cost of undertaking them. Furthermore, the agreed scheme for compensation on termination for the car park and the hospital, which is found in cl 16.9 of the car park lease and cl 17.9 of the hospital lease respectively, contradicts the existence of an implied term as claimed.

171 The claim for restitution must also fail. In substance Macquarie’s submissions were repetitive of those which I rejected in declining relief against forfeiture (pars 664, 665). In my opinion there is nothing unconscionable in Area Health refusing to pay Macquarie the amount claimed for the works in question. The respective rights and obligations of the parties under the 96 agreements have been fully canvassed. When account is taken of the legal relationship which existed between the parties under which the works were carried out, it cannot be said that termination resulted in some windfall or benefit to Area Health by which it was unjustly enriched.

172 Area Health, in performance of its obligations, provided the land for Macquarie to develop and carry out the works. Each lease regulated the consequences of termination, and any improvements Macquarie made were at risk of the operation of the relevant provisions. The compensation provisions under both leases operated in circumstances, as in this case, where termination was the consequence of Macquarie’s defaults, leaving Area Health with the premises being the land leased together with all improvements erected thereon (cl 1.1). There is no provision under which Macquarie could claim a lump sum by way of compensation for the costs of the works if the agreements were terminated. In the circumstances in my opinion, there is nothing unjust in concluding that the carriage of risk between the parties should be left entirely within the limits of the 96 agreements.

173 In the circumstances of this case, no basis was established to justify interference by the court with the contractual relationship of the parties. (See generally Lumbers v W Cook Builders Pty Ltd (In liq) [2008] HCA 27; (2008) 232 CLR 635; Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516; Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315.)

174 For the above reasons Macquarie’s claim for repayment of approximately $5,338,080 under cl 2.1 of the hospital lease is rejected.

175 On the claim under cl 3.5 of the construction deed, Macquarie is liable to pay Area Health the sum of $33,000 per month from 1 July 1999 to 17 March 2000, plus interest.

176 Area Health failed in its claim under cl 2.2 of the car park lease, and its claim under pars 7(b) and 7(c) of the cross-claim should be dismissed.

177 On the claim for damages under par 8 of the cross-claim Macquarie is liable to pay Area Health the sum of $802,909.74, plus interest.

178 Macquarie failed on its claim for repayment of approximately $5,338,080, under cl 2.1 of the hospital lease.

179 It is appropriate that the parties endeavour to agree on the quantification of interest in respect of the claims on which Area Health succeeded, following which Area Health should bring in short minutes of orders to give effect to these conclusions.

180 The quantum of costs of the entire proceedings remains outstanding. Taking a broad approach with regard to the overall outcome, my present view is that the ordinary rule should apply, and, accordingly, Macquarie should pay Area Health’s costs of the proceedings.

181 Should the parties fail to agree on the questions of interest or costs they will have the opportunity to address me on these issues. Arrangements should be made with my associate by 4pm 17 July 2009 to re-list the matter.

Supreme Court of New South Wales

Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2) [2009] NSWSC 629 (7 July 2009)