Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29 (5 February 2010)

Last Updated: 8 February 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29


JURISDICTION:
Equity Division

FILE NUMBER(S):
2002/62056

HEARING DATE(S):
16/06/08, 17/06/08, 18/06/08, 19/06/08, 20/06/08, 23/06/08, 24/06/08, 25/06/08, 26/06/08, 27/06/08, 30/06/08, 04/07/08, 28/07/08, 29/07/08, 27/08/08, 28/08/08, 24/11/08, 25/11/08, 26/11/08, 27/11/08, 28/11/08, 10/06/09, 11/06/09, 24/08/09, 25/08/09, 26/08/09, 27/08/09
Written submissions: 1 September 2009

JUDGMENT DATE:
5 February 2010

PARTIES:
Tim Barr Pty Limited - First Plaintiff
Timothy James Barr - Second Plaintiff
Narui Gold Coast Pty Limited - Defendant

JUDGMENT OF:
Barrett J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr R G McHugh SC (to 4/7/08; from 24/11/08 to 18/5/09; from 24/8/09); Mr I M Barker QC (from 28/7/08 to 28/8/08); Mr J E Lazarus (to 4/7/08; from 24/11/08) - Plaintiffs
Mr M L Einfeld QC/Mr R E Dubler SC/Mr A C Harding (to 27/6/08); Mr A C Harding (30/6/08); Mr I M Neil SC/Mr A C Harding (from 28/7/08) - Defendant

SOLICITORS:
Corrs Chambers (to 25/2/09); Tzovaras Legal (from 26/2/09 to 24/11/09); J T Law Pty Limited (from 25/11/09) - Plaintiffs
Verekers - Defendant


CATCHWORDS:
LANDLORD AND TENANT – leases and tenancy agreements – construction and interpretation – option to purchase included in lease – option exercisable within five year term of lease - whether option survives earlier termination of lease – LANDLORD AND TENANT – lessee’s covenants – as to permitted use of land – as to existence of necessary consents for permitted use – whether covenants breached – whether breach capable of being remedied - MISTAKE – equitable remedies – rectification – whether lessee’s covenant as to permitted use should be rectified for common mistake – ENVIRONMENT AND PLANNING – “existing use” rights – whether establishment of tree plantation permitted on land previously used for cattle grazing and pasture protection - LANDLORD AND TENANT – termination of the tenancy – frustration: application of to leases – whether frustration – re-entry and forfeiture – when right of re-entry becomes enforceable – CONTRACTS – discharge and breach – application of contract principles to leases – where lessee’s covenant agreed to be essential term – breach thereof – whether lease terminated for fundamental breach – separateness of right of re-entry and right to terminate contract – Conveyancing Act 1919 s 129(1) relevant to former but not latter - ESTOPPEL – estoppel by convention – whether available in the face of an “entire agreement” clause by reference to pre-contract consensus – whether such consensus existed in fact – ELECTION – principles discussed – whether lessor elected to affirm lease despite lessee’s breach of covenant – LANDLORD AND TENANT – relief against forfeiture – principles discussed – whether court should grant relief against forfeiture to lessee – whether lessor’s exercise of right to terminate was unconscionable – CONTRACTS – implied terms – term requiring good faith – whether implied – whether any such term can qualify express term making lessee’s covenants essential terms – CONTRACTS – implied terms – term requiring co-operation – scope of such term – EQUITY – fraudulent and innocent misrepresentation – alleged misrepresentation by lessee – whether lessor thereby induced to grant lease – causation and reliance – CONVEYANCING – the contract and conditions of sale – terms of contract arising from exercise of option to purchase included in lease – contractual mechanism for determination of price – construction and interpretation - LANDLORD AND TENANT – option to purchase included in lease – implied terms – whether implied term that lessee not entitled to exercise option if in breach of lease covenant – applicability of Conveyancing Act 1919 s 133E to any such implied term – EQUITY – equitable remedies and equitable defences – specific performance – unclean hands – EQUITY – fiduciary obligations – whether fiduciary duties existed – whether such duties breached – knowing involvement in breach – EQUITY – equitable remedies – constructive trust – effect on third party – whether third party with prior equitable interest will be unfairly prejudiced by recognition of constructive trust – whether such prior interest exists - EVIDENCE – where key participants not called to give evidence – available inferences – whether fear of reactivation of criminal charges sufficient explanation

LEGISLATION CITED:
Conveyancing Act 1919, ss 118, 129(1), 129(2), 129(6), 133C, 133E
Corporations Law, Division 1 Part 2D.1
Environmental Planning and Assessment Act 1979, ss 5, 109
Evidence Act 1995, s 128
Grantees of Reversions Act 1540 (Imp)
Land Titles Legislation Amendment Act 2001
National Parks and Wildlife Act 1974, ss 91B, 118D(1)
Native Vegetation Conservation Act 1997, ss 7(4), 33
Real Property Act 1900
Threatened Species Conservation Act 1995, s 91
Trade Practices Act 1974 (Cth), ss 52, 87
Tweed Local Environmental Plan 1987
Tweed Local Environmental Plan 2000

CATEGORY:
Principal judgment

CASES CITED:
Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 50
Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Amann Aviation Pty Ltd v Commonwealth of Australia (1990) 22 FCR 527
Apriaden Pty Ltd v Seacrest Pty Ltd [2005] VSCA 139; (2005) 12 VR 319
Asia Television Ltd v Yau’s Entertainment Pty Ltd [2000] FCA 254: (2000) 48 IPR 283
Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460
Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604
Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; [1998] HCA 59; (1998) 195 CLR 566
Batson v De Carvalho (1948) 48 SR (NSW) 417
BBF Toowoomba Pty Ltd v Nebrean Pty Ltd [2001] QSC 313; (2002) Q ConvR 54-560
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266
Breen v Williams [1996] HCA 57; (1996) 186 CLR 71
Brown v Heffer [1967] HCA 40; (1967) 116 CLR 344
Budget Stationery Supplies Pty Ltd v National Australia Bank Ltd (1996) 7 BPR 14,891
Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558
Butt v McDonald (1896) 7 QLJ 68
Campbell v Payne and Fitzgerald (1953) 53 SR (NSW) 537
CF & SP Pty Ltd v FAI General Insurance Co Ltd (unreported, NSWSC, Bryson J, 17 December 1998)
Chan v Cresdon [1989] HCA 63; (1989) 168 CLR 242
Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178
Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 635; (2008) 14 BPR 26,279
City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140; [2001] WASCA 140; (2001) 24 WAR 146
Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337
Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329
Commissioner of Taxes (Queensland) v Camphin [1937] HCA 30; (1937) 57 CLR 127
Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312
Dem Compagnie Pty Ltd v Telxon Australia Pty Ltd [2004] NSWCA 66
Distronics Ltd v Edmonds [2002] VSC 454
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 194
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Firth v Halloran [1926] HCA 24; (1926) 38 CLR 261
Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420
Foran v Wight [1989] HCA 51; (1989) 168 CLR 385
Forder v Cemcorp Pty Ltd [2001] NSWSC 281; (2001) 51 NSWLR 486
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122
Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101
Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215
Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10; (2008) 234 CLR 237
Halloran v Firth (1926) 26 SR (NSW) 183
Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd [2003] NSWSC 851; (2003) 59 NSWLR 312
Henville v Walker [2001] HCA 52; [2001] HCA 52; (2001) 206 CLR 459
Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409
Hospital Products Ltd v United States Surgical Corporation (1984) HCA 64; [1984] 156 CLR 41
Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26
Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190
Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145; (2009) 257 ALR 336
Kham & Nate’s Shoes No 2 Inc v First Bank of Whiting 908 F 2d 1351 (1990)
KLDE Pty Ltd v Commissioner of Stamp Duties (Queensland) [1984] HCA 63; (1984) 155 CLR 288
Krell v Henry [1903] 2 KB 740
Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406
Liristis Holdings Pty Ltd v Wallville Pty Ltd [2001] NSWSC 428: (2001) 10 BPR 18,801
Lobb v Vasey Housing Auxiliary (War Widows’ Guild) [1963] VicRp 38; [1963] VR 239
Longmuir v Kew [1960] 1 WLR 862
Mackay v Dick (1881) 6 App Cas 251
Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449
Manly Council v Byrne [2004] NSWCA 123
Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336
Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447
Matthey v Curling [1922] 2 AC 180
McDrury v Luporini [1999] NZCA 309; [2000] 1 NZLR 652
McWilliam v McWilliams Wines Pty Ltd [1964] HCA 6; (1964) 114 CLR 656
Metropolitan Life Insurance Co v RJR Nabisco Inc 716 F Supp 1504 (1989)
Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) NSW ConvR 56-172
Murrell v Fulton [1962] VicRp 18; [1962] VR 118
National Carriers Ltd v Panalpina (Northern) Ltd [1980] UKHL 8; [1981] AC 675
Natwest Markets Australia Pty Ltd v Tenth Vandy Pty Ltd [2008] VSCA 207; [2008] VSCA 207; (2008) 21 VR 68
North Sydney Municipal Council v Boyts Radio & Electrical Pty Ltd (1989) 16 NSWLR 50
Norwegian American Cruises A/S v Paul Mundy Ltd (The “Vistafjord”) [1988] 2 Lloyd’s Rep 343
Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17; (2002) Aust Contract R 90-143
Owendale Pty Ltd v Anthony [1967] HCA 20; (1967) 117 CLR 539
Payne v Parker [1976] 1 NSWLR 19
Pilmer v The Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165
Raffety v Schofield [1897] 1 Ch 937
Re Equity Trustees Executors and Agency Co Ltd and Considine’s Contract [1932] VicLawRp 18; [1932] VLR 137
Re Freehouse Pty Ltd (1997) 26 ACSR 662
Robertson v Wilson (1958) 75 WN (NSW) 503
Rowell v Larter (1986) 6 NSWLR 21
Royal Agricultural Society of New South Wales v Sydney City Council (1987) 61 LGRA 305
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436
R V Ward Ltd v Bignell [1967] 1 QB 534
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603
Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634
Scanlan’s New Neon Ltd v Toohey’s Ltd [1943] HCA 43; (1943) 67 CLR 169
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Service Station Association Ltd v Berg Bennett & Associates [1993] FCA 445; (1993) 45 FCR 84
Shearer v Wilding (1915) 15 SR (NSW) 283
Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359
Sherwood v Tucker [1924] 2 Ch 440
Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620
Shiell v Symons [1951] SASR 82
Shiloh Spinners Ltd v Harding [1973] AC 691
Shire of Perth v O’Keefe [1964] HCA 37; (1964) 110 CLR 529
State Rail Authority v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170
Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489
Taggett v Council of the Shire of Tweed [1993] NSWCA 260
Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315
Taylor v Oakes Roncoroni & Co (1922) 127 LT 267
Tennent v Moukhlina [2008] NSWADTAP 83
Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd [2010] VSC 2
Thearle v Keeley (1958) 76 WN (NSW) 48
The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17
Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1980] EWCA Civ 3; [1981] 1 WLR 505
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2004] NSWSC 986; (2004) 51 ACSR 129
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 645
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 654
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 49
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 769; (2009) 258 ALR 598
Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41
Trustees Executors and Agency Co Ltd v Peters [1960] HCA 16; (1960) 102 CLR 537
United Australia Ltd v Barclays Bank Ltd [1941] AC 1
United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177
Victoria University of Technology v Wilson [2004] VSC 33
W&R Pty Ltd v Birdseye [2008] SASC 321; (2008) 102 SASR 477
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387
Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514
Warlam Pty Ltd v Marrickville Municipal Council [2009] NSWLEC 23; (2009) 165 LGERA 184
Warner v Sampson [1959] 1 QB 297
Waste Recycling & Processing Corporation v Global Renewables (Eastern Creek) Pty Ltd [2009] NSWSC 453
Woodall v Clifton [1905] 2 Ch 257
Ying v Song [2009] NSWSC 1344

TEXTS CITED:
William O Douglas and Jerome Frank, "Landlords' Claims in Reorganizations" (1933) 42 Yale Law Journal 1003
Elizabeth Cooke,"The Modern Law of Estoppel" Oxford (2000)
Matthew N C Harvey, "Estoppel by convention – an old doctrine with new potential" (1995) 23 ABLR 45
F G Myers and B M Hogan, "Evatt and Beckenham’s Conveyancing Precedents and Forms", 3rd edition (1951)
New South Wales Law Reform Commission, "Report on Options in Leases" (1967)
B H McPherson, "Fiduciaries: Who Are They?" (1998) 72 ALJ 288

DECISION:
First plaintiff not entitled to specific performance by defendant of any contract for sale and purchase of the Cudgen Paddock.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


BARRETT J

FRIDAY 5 FEBRUARY 2010

2002/62056 TIM BARR PTY LTD & ANOR v NARUI GOLD COAST PTY LTD

JUDGMENT

Introduction

1 These proceedings concern a parcel of land known as the Cudgen Paddock which forms part of a property of more than 800 hectares called “Kings Forest” situated near Kingscliff on the far north coast of the State.

2 Central to the matters in contention is a lease of the Cudgen Paddock dated 23 June 2000 between Narui Gold Coast Pty Ltd (“NGC”) as lessor and Tim Barr Pty Ltd (“TBPL”) as lessee (after these proceedings were commenced, NGC changed its name to “Project 28 Pty Ltd” but it is convenient to continue to refer to it as “NGC”).

3 TBPL and its principal, Timothy Barr (“Barr”), are the plaintiffs and cross-defendants. NGC is the defendant and cross-claimant. NGC has been, at all material times, the registered proprietor under the Real Property Act 1900 of the fee simple in the whole of Kings Forest. The lease dated 23 June 2000 affecting the Cudgen Paddock section of Kings Forest was duly registered under that Act.

4 The part of the lease dated 23 June 2000 of particular relevance is that by which an option to purchase the Cudgen Paddock was granted by NGC to TBPL. The plaintiffs contend that TBPL exercised the option on 17 April 2003 and that a contract for the sale and purchase of the Cudgen Paddock thereupon came into force between NGC as vendor and TBPL as purchaser. The plaintiffs seek, as principal relief, an order that NGC specifically perform that contract for sale.

5 NGC, for its part, says that there was never any valid exercise of the option to purchase by TBPL. Its principal contentions are:

(a) that the lease was forfeited by re-entry by the lessor or otherwise terminated following the service of a notice dated 3 May 2002, that is, before the purported exercise of the option by TBPL on 17 April 2003; or

(b) alternatively, that the lease was otherwise validly terminated by the lessor before 17 April 2003; or

(b) alternatively, that the lease was void ab initio or should be set aside; or

(c) alternatively, that the lease was discharged by frustration

and that the option to purchase was likewise terminated, void, frustrated or should be set aside.

6 The question whether the lease ceased to be operative will turn in part on whether certain provisions of the lease were breached and, if so, whether the breach was such as to found a right to terminate and whether any such right was exercised.

7 There is also a question whether the option to purchase, although granted contemporaneously with the lease and contained in the same document, had an existence independently of the lease so that, if the lease itself no longer subsisted at 17 April 2003, the option nevertheless remained alive and available to be exercised by TBPL at that date.

8 If the option to purchase continued to subsist on 17 April 2003, it will be necessary to consider whether certain factors operated to defeat TBPL’s purported exercise, including:

(a) breach of an implied term to the effect that there should be no exercise of the option if TBPL was in breach of an essential term of the lease;

(b) breach of an implied term that the purchase price inserted into the sale contract by TBPL upon exercise of the option should be the market value

9 A number of issues arise in relation to any entitlement NGC, as lessor, may have had to put an end to the lease or now has to claim rescission or setting aside of the lease. These include:

(a) the significance of the intervention of rights of a third party to which TBPL itself granted an option to purchase the subject matter of the option held by TBPL from NGC;

(b) whether an implied duty of good faith on the part of NGC precluded its attempted termination of the lease;

(c) whether the court will grant relief in respect of any such termination on the basis that the termination was unconscionable;

(d) whether TBPL is entitled to relief against forfeiture in respect of any termination of the lease for breach;

(e) whether the breaches upon which NGC relied bringing the lease to an end, if established, occurred in such circumstances that they were waived by NGC or NGC is estopped from relying on them.

10 If, after all those matters (and various incidental questions) have been determined, it appears that TBPL has, as against NGC, a prima facie right to specific performance of a contract for the sale of the Cudgen Paddock arising from exercise of the option, it will be necessary to address the discretionary question whether TBPL was guilty of disentitling conduct such that that form of relief should be refused.

11 A central question will be whether TBPL was knowingly concerned in breaches of duties owed by other persons to NGC. The relevant duties are said to have been owed by both Barr and Shigeo Narui (“Shigeo”). The alleged duties, as pleaded, are described as “fiduciary and statutory duties owed to [NGC] to (a) act honestly and in good faith; (b) act in the best interests of [NGC]; (c) prevent putting themselves in a position of conflict between their own interests and [NGC’s] interests; (d) disclose to [NGC] any potential conflict of interest; and (e) act with reasonable care and skill”.

12 A number of incidental matters will also require attention. The several issues will be addressed in turn, although not in the order just stated.

Provisions of the lease

13 By the lease, NGC leased the Cudgen Paddock to TBPL for a term of five years expressed to have a “commencing date” of 26 June 2000 and a “terminating date” of 25 June 2005, “with an option to purchase set out in clause 15”. The lease contained no provision with respect to rent and no covenant by TBPL as lessee to pay rent.

14 Clause 15 was in these terms:

“15. CALL OPTION

15.1. Call Option Fee. The tenant shall pay the Call Option Fee to the Landlord when the tenant executes this lease.

15.2. Grant of Call Option. In consideration of the Call Option Fee paid by the tenant to the landlord the landlord grants to the tenant the Call Option to require the landlord to enter into the Contract.

15.3. Nature of Call Option. The Call Option constitutes an irrevocable offer by the Landlord to enter into the Contract for the sale and purchase of the Premises which may be accepted or terminated by the tenant strictly in accordance with this clause otherwise the Call Option and this offer will lapse,

15.4. Exercise. The Call Option may be exercised by the tenant.

15.5. Exercise of Call Option by Tenant. The Call Option may be exercised at any time during the Call Option Period by serving at the Notice Address of the landlord by personal delivery or pre-paid security post or certified mail:

(a) Call Option Exercise Notice signed by the tenant or its Authorised Representative;

(b) two copies of the Contract (which must be prepared by the tenant) executed by the tenant or its Authorised Representative; and

(c) a bank cheque for an amount equal to the deposit less the Call Option Fee, drawn in favour of the stakeholder named in the Contract;

or the tenant may exercise the Call Option during the Call Option Period by serving a Call Option Exercise Notice by facsimile in which case the Contract and bank cheque referred to in paragraphs (b) and (c) of this clause must be delivered personally or by pre-paid security post or certified mail, within two business days of services of the Call Option Exercise Notice.

15.6. Time of Service. Service on the landlord under clause 15.5 of the documents required to exercise the Call Option is deemed to be a notice given to the landlord.

15.7. Binding Contract. On exercise of the Call Option the party bound by the Call Option as landlord at that date and the party exercising the Call Option shall become immediately bound as vendor and as purchaser respectively under the Contract.

15.8. Date of Contract. The Contract shall be dated with the date on which the tenant exercises the Call Option and the tenant authorises the landlord to date, and the landlord must date, the Contract with that date.

15.9. Return of Contract Within two business days after receipt of the Call Option Exercise Notice, the landlord must execute the two copies of the Contract and return one executed copy of the Contract to the tenant's solicitors.

15.10. Call Option Fee. The Call Option Fee paid by the tenant to the landlord shall be and shall remain the property of the landlord whether or not the Call Option is exercised and the Call Option Fee will be and will be deemed to be a part payment of the deposit and purchase price payable under the Contract.

15.11. Voluntary Termination. If the tenant has not exercised the Call Option, then the tenant may at any time before the Call Option Expiry Date give a Notice to the landlord stating that the tenant will not be exercising the Call Option and from the date of service of that notice, the Call Option is terminated.

15.12. Purchase Price. The Purchase Price to be included in the Contract is to be an amount equal to the market value of the premises. In the event that the landlord and tenant can not agree upon the market value of the premises then within 21 days of the tenant delivering the Call Option Exercise Notice to the landlord, then either party may request the Law Society of New South Wales to appoint an independent valuer for the purpose of establishing the market value of the premises. The cost of any person appointed is to be borne equally between the parties and the determination of the valuer shall be binding upon the parties.”

15 Several definitions in clause 1 are relevant to the interpretation of clause 15 as follows:

“Call Option Fee means the amount of $1.00.”

“Call Option means the option to purchase the Premises leased granted by the Lessor to the Lessee in clause 15.”

“Call Option Commencement Date means the date of commencement of this Lease.”

“Call Option Expiry Date means the date of the expiry of the term of the Lease.”

“Call Option Period means the period commencing on the Call Option Commencement Date and terminating at 5pm on the Call Option Expiry Date.”

“Contract means the contract for the sale and purchase of the Property leased that will be entered into by the Lessor as seller and the Lessee as buyer upon the exercise of the Call Option and more or less upon the following terms and conditions -

(i) using the printed Standard Contract for the Sale of Land for New South Wales;

(ii) the settlement date shall be the day 45 days from the date of the Contract;

(iii) title to the Premises shall not pass until the settlement date; and

(iv) the purchase price will be for an amount calculated in accordance with the terms of this lease.”

16 It is necessary to set out a number of other provisions of the lease. The first is clause 4.1:

“The tenant must not use the Premises otherwise than for the purpose of the planting and cultivation of Lemon Myrtle Trees.”

17 Clause 4.3 was in these terms:

“Should the use to which the Premises are put by the tenant require the Licence consent or approval of any competent Authority then the tenant warrants to the landlord that it has prior to entering into this Lease obtained such licence, consent or approval and the tenant will at its expense maintain such licence, consent or approval as valid and operative during its occupation of the Premises or do anything else that may be necessary so that the use is lawful and properly complies with all requirements of any statutory or other competent body or authority. The tenant will comply with all conditions attaching to any such licence, consent or approval.”

18 Clause 4.5 provided:

“The tenant acknowledges and agrees that it is the tenant’s responsibility to comply with all statutory or other competent authority requirements with respect to the use to be put to the Premises.”

19 Clause 7.1 was as follows:

“Subject to the following, the tenant will not during the continuance of the Lease assign or transfer this Lease or demise, sub-let, part with, share the possession of, or grant any licence affecting, or mortgage, charge or otherwise deal with, or dispose of the Premises or any part thereof, or by any act or deed procure the Premises or any part thereof to be assigned, transferred, demised, sub-let unto shared or put into possession of any person or persons.”

20 The next relevant provision is clause 8.1:

“In the event that:

(a) any money payable by the tenant to the landlord remains unpaid for a period of 14 days after the date on which the same ought to have been paid (although no formal or legal demand will have been made);

(b) the tenant commits permits or suffers to occur any default in or breach of the due and punctual observance and performance of the provisions of this Lease and such default is continued for 2 weeks after the landlord serves on the tenant a notice specifying the breach and if the breach is capable of remedy requiring the tenant to remedy the breach and if not, then requiring the tenant to make compensation in money for the breach, or in case the repairs required by such notice are not completed within the time therein specified;

(c) if the tenant is a company, an order is made or a resolution is passed for the winding up of the tenant (except for the purpose of reconstruction or amalgamation with the prior written consent of the landlord which will not be unreasonably withheld) or if the tenant goes into liquidation or makes an assignment for the benefit of or enters into an arrangement or composition with its creditors or stops payment of or is unable to pay its debts within the meaning of the Corporations Law or if a manager or receiver of any of its assets be appointed or an inspector be appointed pursuant to the Corporations Law;

(d) if the execution is levied against the tenant,

then in any one or more of such events the landlord will have the right by itself or its authorised agent at any time thereafter and without notice to or demand on the tenant and notwithstanding prior waiver or failure by the landlord to take action in respect of any such matter thing or default whether past or continuing to re-enter into and upon the Premises or any part thereof in the name of the whole and thereby determine the estate of the tenant but without prejudice to any action or other remedy which the landlord has or may have for arrears of rent or breach of any covenant or provision or for damages as a result of any such event and thereupon the landlord will be freed and discharged from any action suit claim or demand by or obligation to the tenant under or by virtue of this Lease.”

21 Clause 9.1 provided:

“It is expressly agreed notwithstanding anything else herein contained that each of the following covenants are essential terms of the Lease:

(a) clause 4 relating to the tenant’s use of the Premises;

(b) clause 5 relating to the maintenance and repair of the Premises; and

(c) clause 7 relating to assignment and sub-letting.”

22 Clause 18, so far as relevant, was as follows:

“The tenant covenants as follows:

(a) to take all steps and to do all things to ensure that as a result of the use and occupation of the premises by the tenant that the premises are not rezoned or reclassified by any local authority or other competent body or authority, particularly with respect to the Native Vegetation Conservation Act 1997;”

NGC’s notice of 3 May 2002

23 It is desirable to set out in full the notice dated 3 May 2002 served on TBPL by NGC:

“ Notice of Re-Entry

To Tim Barr Pty Ltd (ACN 093 360 260) of c/- Essential Consulting and Business, 2A Bellambi Street, Northbridge in the State of New South Wales, the Lessee pursuant to the Lease of property described as 76/DP755701, 272/DO755701 and 326/DP755 701.

Pursuant to the Lease of the abovementioned property dated the 23^rd day of June 2000 from Narui Gold Coast Pty Limited (ACN 003 919 613) (‘the Lessor’) to Tim Barr Pty Ltd (‘the Lessee’) the Lessor hereby gives the Lessee notice that:

1. The Lessee is in breach of the following covenant contained in the Lease:

Clause 4.3 –‘Should the use to which the Premises are put by the tenant require the licence, consent or approval of any competent Authority then the tenant warrants to the landlord that it has prior to entering into this lease obtained such licence, consent or approval and the tenant will at its expense maintain such licence, consent or approval as valid and operative during its occupation of the Premises or do anything else that may be necessary so that the use is lawful and properly complies with all the requirements of any statutory or other competent body or authority. The tenant will comply with all conditions attaching to any such licence, consent or approval.’

2. The Lessor will re-enter and take possession of the abovementioned property following 14 days from service of this Notice.

Dated this 3^rd day of May 2002.

(sgd) Hickey Lawyers

Lessor’s Solicitor

(sgd) Richard Hamilton”

24 This notice of 3 May 2002 was served under cover of a letter of the same date from NGC’s solicitors to TBPL, as follows:

“We act on behalf of Narui Gold Coast Pty Limited.

We enclose by way of service Notice of Re-Entry pursuant to clause 8.1(b) of the Lease.

The warranty breached by you induced our client to enter into the Lease. Further, as is detailed in the enclosed Notice, it was a warranty contained in the Lease.

The warranty (detailed in the enclosed Notice) is incapable of being remedied given the required licences, consents or approvals of any competent Authority were required to be obtained by you prior to entering into the lease. This was not done.

Without prejudice to our client’s position that this breach cannot be remedied, we are instructed to put you on notice our client will (pursuant to clause 8.1(b) of the lease) re-enter and take possession of the property following 14 days from service of the enclosed Notice.

Pursuant to clause 13 of the Lease the Notice is taken to have been served on the day following the posting of the Notice (being the date of this letter.”

25 While, as will be explained in due course, the notice of 3 May 2003 may be taken to have been given specifically by reference to clause 8.1 of the lease and with a view to producing legal consequences through that clause, it also represents, in a wider sense, an unequivocal indication of NGC’s intention that, after the expiry of the stated period of fourteen days, the lease will be at an end. That is relevant to certain of the contentions regarding termination.

TBPL’s action of 17 April 2003 to exercise the option

26 It is also desirable to describe at this early stage the steps taken by TBPL to exercise the option to purchase created by clause 15 of the lease. A letter dated 17 April 2003 sent by TBPL’’s then solicitor to NGC was in these terms:

“Dear Sir,

Exercise of Option to Purchase in lease number 7312674

Property: Lots 76, 272 and 326 in DP755701, NSW (Property)

I enclose the following documents for the purpose of exercising the option to purchase the above property as contained in clause 15 of the registered lease number 7312674 (Lease:)

Call Option Exercise Notice;

Contract for the sale of land (in duplicate) signed by Tim Barr Pty Limited (TBPL); and

Bank cheque for $179,999 being 10% deposit reduced by the Call Option Fee (of $1.00) under the Lease.

We draw your attention to the following issues:

1. Stakeholder/depositholder

As Hickey Lawyers have at all relevant times acted for Narui in relation to the Property (including in relation to the issue of notices under the Lease) Hickey Lawyers have been nominated as the stakeholder under the contract. Accordingly, the bank cheque is drawn in favour of Hickey Lawyers as the stakeholder.

Should Narui Gold Coast Pty Limited wish to nominate an alternate stakeholder please immediately contact us and we will provide a replacement bank cheque payable to your nominated stakeholder in exchange for the enclosed cheque.

2. Price

For the purpose of the procedures set out in clause 15.12 of the lease, TBPL nominates $1,800,000 as the market value of the Property. It is acknowledged that this price is subject to any determination clause 15.12 of the Lease.

If it is determined under clause 15.12 that the value of the Property is greater than $1,800,000, a further bank cheque to top up the deposit amount under the contract will be provided.

I look forward to receiving a fully executed contract by 23 April 2003.

Completion of the contract is anticipated to take place by 1 June 2003.”

Yours faithfully”

27 The first of the enclosed documents was as follows:

“ CALL OPTION EXERCISE NOTICE

TO: NARUI GOLD COAST PTY LTD ACN 003 919 613

C/- Walter McDermid & Staff

Chartered Accountants

Level 2, Corporate Centre One

2 Corporate Court

BUNDALL QLD 4217

TAKE NOTICE that TIM BARR PTY LTD ACN 093 360 260 exercises the Call Option granted to it pursuant to the Call Option contained in Lease dated the 23^rd day of June 2000 (Lessee [sic]).

The following documents are delivered in accordance with the lease:

(a) A Contract for Sale of Land (in duplicate);

(b) Bank cheque for the deposit less the option fee payable to the Stakeholder.

DATED this 17^th day of April 2003.

EXECUTED by TIM BARR PTY

LIMITED ACN 093 360 260 by its

sole director and sole company

secretary: (sgd) Tim Barr

Signature of sole director and

Sole company secretary ­­_______________________

Timothy Barr”

28 The second enclosure was a contract for the sale of land executed by TBPL by means of the signature of Barr who was described as its sole director. The contract was in the form of the 2000 edition approved by the Law Society and the Real Estate Institute. NGC was named as vendor and TBPL as purchaser. The price was expressed to be “$1,800,000 (subject to clause 15.12 of the registered Lease no. 7312674)”. The deposit was stated to be $180,000 and the balance $1,620,000. The “depositholder” was stated to be “Vendor’s solicitor”. The item “Tenancies” under the heading “CHOICES” was marked “yes” and there was a reference to the lease of 23 June 2000 in favour of TBPL, a copy of which was included as part of the contract. A number of other documents were also annexed.

29 The third document sent with the letter of 17 April 2003 was a bank cheque issued by the ANZ Bank in favour of “Hickey Lawyers” in the sum of $179,999.

Persons and entities

30 I should next identify a number of persons and entities referred to in the judgment:

“Austcorp”: Austcorp Group Ltd, a property development and investment company.

“Barr”: Timothy Barr, the second plaintiff; sole director and shareholder of TBPL (the first plaintiff) and BPM.

“BPM” Barr Project Management Pty Ltd, a company of which Barr was the sole director and shareholder; acted as NGC’s project manager at Kings Forest.

“Mr Bolster”: Paul Bolster, a solicitor; partner in the firm of Bolster & Partners based at the Gold Coast.

“Mr Brinsmead”: Paul Brinsmead, a solicitor; partner in the firm Hickey

Lawyers based at Bundall in Queensland.

“Mr Broyd”: Director of Developing Services, Tweed Shire Council.

“the Council”: Tweed Shire Council (Kings Forest is within Tweed Shire).

“Mr Glazebrook”: Jim Glazebrook, a town planner and development

consultant based at Murwillumbah.

”Hickeys”: Hickey Lawyers, a firm of solicitors based at Bundall.

“Hiroyuki”: Hiroyuki Narui, variously described as the “president” and the “chairman” of Narui Norin.

“Mr Hung” Edgar Hung, an officer of Austcorp.

“Mr Hynes”: Robert Hynes, a solicitor; partner in the firm of Hynes Harnett based at Surfers Paradise.

“Leda”: the Leda Group of Companies, a property development group.

“Mr McDermid”: Jeffrey McDermid, a chartered accountant; principal of Walter McDermid & Staff.

“NGC”: Narui Gold Coast Pty Ltd, the defendant and cross-claimant.

“Narui Norin”: Narui Norin Co Ltd, a Japanese company and the ultimate holding company of NGC.

“NPWS”: National Parks and Wildlife Service, a statutory authority.

“Shigeo”: Shigeo Narui, a vice-president of Narui Norin and sometime director and secretary of NGC.

“TBPL”: Tim Barr Pty Ltd, the first plaintiff and first cross-defendant; a company of which Barr was the sole director and shareholder.

Background facts

31 It will be necessary to traverse a number of factual issues. The basic facts are, however, uncontroversial.

32 At all material times up to September 2003, NGC was a wholly owned subsidiary of Narui Norin and the directors of NGC were Japanese nationals resident in Japan. Hiroyuki, the president of Narui Norin, was not formally a director of NGC until 8 September 2000. It is clear, nevertheless, that, within the Narui Norin group organisation, Hiroyuki was the principal decision maker for and in relation to NGC.

33 Shigeo was a director of NGC from April 1992. He was an executive employee of Narui Norin and had his home in Japan. He reported to Hiroyuki and was the executive with the most significant ongoing role in relation to NGC and its affairs. Shigeo made periodic visits to Australia to attend to the affairs of NGC with particular reference to the Kings Forest property.

34 Hiroyuki did not speak, read or write English. Shigeo had some command of spoken English but does not appear to have been fluent. There are suggestions in the evidence that he was embarrassed to try to speak English and preferred to remain silent when he could. Shigeo appears to have read and written English competently, although his practice was to keep his own written business notes in Japanese. An unsuccessful attempt was made by TBPL to tender what were said to be translations of a quantity of these: see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 645.

35 NGC acquired Kings Forest in 1990 with a view to undertaking a very large residential development. To the extent that it was used at all, the property was, at that time, used for rural activities.

36 In February 1992, BPM, a company wholly owned and controlled by Barr, was retained by NGC as project manager for Kings Forest. Two months later, Shigeo became a director of NGC. Barr’s task (or, more accurately, that of BPM) was, in the first instance, to prepare a development application leading to a grant of development consent by the Council in relation to NGC’s large residential proposal.

37 Barr became, in substance, the coordinator of a team of consultants that was in due course retained by NGC (through Barr himself) to work on this project with a view to the preparation of a development application and the obtaining of development consent. Barr worked with minimal supervision. Shigeo visited Australia and the site periodically. It appears that Shigeo, during his visits, was only rarely involved directly with consultants, the Council and other outsiders; and that he left these matters very substantially to Barr. Barr prepared frequent and regular written reports for Shigeo. Many of these are in evidence. There is, however, a complete absence of written instructions or other communications by Shigeo to Barr.

38 It was obvious from the outset that a key element of the project’s success would be an ability to clear what was, in substance, a mixture of grazing land and bushland. Steps directed towards clearing particular areas were undertaken from time to time but there was an awareness that various legislative constraints stood in the way of clearing activities, including those concerned with the protection of native fauna and flora.

39 The development of the proposal that NGC should grant a lease to Barr or a company controlled by him (ultimately, TBPL) was connected with the ambition to secure the benefits, from the development perspective, of cleared land. The challenge was not only to clear land in the first place but also to preserve cleared land from the effects (adverse to the development plans) of regrowth of native vegetation. The planting of trees was seen as a way of securing the benefits of clearing.

40 At the time the lease was granted by NGC to TBPL on 23 June 2000, another transaction of significance occurred. Barr and Shigeo entered into an agreement that may conveniently be referred to as a joint venture agreement. That agreement is evidenced by a document as follows:

“23 June 2000

Mr S Narui

Dear Mr Narui

This letter is to confirm that my contractual arrangements with S Narui is to be fully bounded in a fifty/fifty share arrangement for all profits eventuating from the Lemon Myrtle Joint Venture at Cudgen Paddock.

We are each to deposit $150,500.00 in full payment to the set up of 2.1 million Lemon Myrtle operations totalling $301,000 and share all costs and benefits leading from Queensland University and R & D Research Development and full harvesting all distillery costs and mulch returns during harvesting and also the water with Lemon Myrtle essence to be sold to the market.

I confirm TIM BARR PTY LTD will purchase the tractor that S. Narui purchased personally with our first return from the oil production and the agreed amount will be $A28,000.00. Also the company will purchase back from S. Narui One Slushier for $A6,000 & One Generator 15 kW for $A5,000 under the same arrangement.

I also confirm that the five year lease capacity lease arrangement with Narui Norin Head Office and TimBarr Pty Ltd will be fifty/fifty beneficial to S. Narui.

I hereby declare my sole man truth to the above conditions and my working relationship with S Narui on a business and contractual partnership basis.

Yours faithfully

(sgd) T Barr

Timothy Barr

Manager

Barr Project Management Pty Ltd as Manager

Tim Barr Pty Ltd as Lessee

ACN 093 960 260

S Narui

(sgd) Shigeo Narui

Signature of Acceptance

23 June 2000”

41 Efforts by Barr on behalf of NGC to obtain development consent for the major residential project were ultimately fruitless, although Barr made a false representation to Shigeo that such a consent had been forthcoming. On 20 December 2001, Hickeys, as solicitors for NGC, instructed Barr and BPM to cease undertaking further tasks for NGC. NGC thus effectively dismissed Barr.

42 On that same day, 20 December 2001, TBPL entered into a relationship with an outside party concerning the Cudgen Paddock. TBPL granted to Leda an option to purchase the freehold. That option later lapsed and, on 19 March 2003, TBPL granted a twofold option to another outside party, Austcorp, being an option to purchase the lease and an option to purchase the Cudgen Paddock. Austcorp purported to exercise that option on 16 April 2003, nominating its wholly owned subsidiary Austcorp Project No 3 Pty Ltd as purchaser. On the following day, 17 April 2003, TBPL purported to exercise, as against NGC, the option to purchase created by clause 15 of the lease.

43 Meanwhile Leda, which had been in a commercial relationship with TBPL by virtue of the option granted on 20 December 2001, had entered into negotiations with NGC. In September 2002, Leda made an offer to purchase Kings Forest. Negotiations continued thereafter on other possibilities related to the exploitation of the land by Leda. Eventually, on 10 September 2003, agreements were entered into between Leda, Narui Norin and others pursuant to which, among other things, Leda purchased the whole of the issued share capital of NGC.

44 In May 2009, Austcorp became subject to voluntary administration having first entered into a series of agreements with Mr Chow Chan Lum and interests associated with him by which Austcorp disposed of its interest in the Cudgen Paddock and Mr Chow assumed control of these proceedings for TBPL. As part of those arrangements, Mr Chow came to own all the shares in TBPL.

45 The effectiveness of TBPL’s purported exercise of the clause 15 option to purchase on 17 April 2003 is the central issue in these proceedings. Although NGC and TBPL are, on the surface, the parties to the dispute and the proceedings, the real protagonists, in an economic sense, are now Leda and Mr Chow.

46 It will be necessary to trace several particular strands of the factual circumstances in greater detail. The first concerns actions taken towards obtaining development consent for NGC’s ambitious proposal. The second concerns actions – in large measure parallel – that culminated in the granting of the lease (and the related option to purchase) by NGC to TBPL in relation to the Cudgen Paddock portion of the Kings Forest property. Third, it will be relevant to note the events that led to the development and adoption of a joint venture between Barr and Shigeo with respect to the trees to be planted on Cudgen Paddock when leased to TBPL. Fourth, it will be necessary to say something about official intervention to halt activities on the Cudgen Paddock at certain times. Thereafter, attention will be given to the events that led to the purported termination of the lease by NGC and the purported exercise by TBPL of the option to purchase.

47 Before these factual matters are addressed however, reference should be made to some unusual circumstances in relation to the litigation.

The absent witnesses

48 The persons most closely and intimately involved in relevant events were Barr and Shigeo. A significant part was also played by Hiroyuki. Yet none of these persons gave evidence – and this was so in the case of Barr even though he is one of the two plaintiffs.

49 It is necessary to consider separately the implications of the absence of evidence from each, against the background of the general principle most often associated with Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 and stated as follows in Manly Council v Byrne [2004] NSWCA 123 at [51]:

“[I]f a witness is not called two different types of result might follow. The first is that the tribunal of fact might infer that the evidence of the absent witness, if called, would not have assisted the party who failed to call that witness. The second is that the tribunal of fact might draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn.”

50 Three conditions must be satisfied for this principle to be applied. They are stated in Payne v Parker [1976] 1 NSWLR 191 at 201:

“Whether the principle can or should be applied depends upon whether the conditions for its operation exist. These conditions are three in number: (a) the missing witness would be expected to be called by one party rather than the other, (b) his evidence would elucidate a particular matter, (c) his absence is unexplained.”

The absence of Barr

51 NGC submits that the first of the three conditions is satisfied in relation to Barr. That must be so: his role in contemporary events and his status as a plaintiff provide more than an adequate basis for an expectation that he would give evidence in the plaintiffs’ case. As to the second condition it is, of course, necessary to have regard to particular matters in need of elucidation and to consider the matter separately in relation to each. That said, however, it is clear that there is a myriad of matters in these proceedings that would be elucidated by evidence from Barr.

52 That leaves the third condition and the question whether there is, in the relevant sense, an explanation of Barr’s absence.

53 The reason Barr did not give evidence was referred to in a ruling on evidence on 26 June 2008 (Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 654). In the context of a question whether inability to test Barr by cross examination on certain matters might be productive of a danger of the kind referred to in s 136 of the Evidence Act 1995, there was reference to “influences upon Mr Barr which may be taken to have activated his decision not to give evidence”:

Mr Barr was arraigned in the District Court in October 2005 upon an indictment containing nine counts arising out of events forming part of (or, in one case, occurring after) the series of events with which the present proceedings are concerned. He pleaded guilty to one charge (that involving subsequent events) and was required to enter into a bond to be of good behaviour, apparently without being convicted. In relation to the eight other charges, there was a plea of not guilty and the District Court was later informed that the Deputy Director of Public Prosecutions had directed that there be no further proceedings in relation to the indictment containing the eight counts, whereupon the District Court discharged him. It is suggested that the discharge related to his bail. At all events, Mr Barr has been advised that he is susceptible to future prosecution for the alleged offences which the Crown elected in 2005 not to pursue.

It was submitted on behalf of Mr Barr that, in these circumstances, his decision not to give evidence in these proceedings is understandable and rational and should not, as it were, be held against him. The submission made on behalf of the defendant, however, is that fear that cross-examination in these present proceedings might cause Mr Barr to give self-incriminating evidence is not a real or genuine fear. Given the structure and effect of s 128 of the Evidence Act, he could not be compelled to give evidence that may tend to prove that he committed an offence. Furthermore, if he elected to give such evidence, it would be under the protection of a certificate given under s 128 so that, by operation of s 128(7), the evidence could not be used against him in the criminal proceedings that it is feared may be re-activated.

It was submitted on behalf of Mr Barr in response to this that, even if he had the benefit of a s 128 certificate given in these proceedings, there would be no obstacle to evidence he gave here being used by prosecution authorities to enhance material already held by them so that, for example, they might embark on new lines of inquiry or otherwise pursue courses not previously considered. That of itself might be considered a prejudice or danger to Mr Barr, even if evidence adduced from him under the protection of a s 128 certificate could not be tendered in any reactivated or new criminal proceedings.”

54 Substantially the same submissions were made on TBPL’s behalf in relation to the matter with which I am now concerned – namely that, even if Barr had the protection that s 128 of the Evidence Act may create (so that evidence given in these proceedings could not be used against him in any later criminal proceedings against him), the prosecuting authority would not be prevented by s 128 or in any other way from using evidence given in these proceedings in coming to a decision whether or not to resuscitate criminal charges which, it is said, are still capable of being pursued.

55 It should be said at once that Barr could not obtain, in relation to any evidence he gave voluntarily in the plaintiffs’ case, the kind of protection that can become available through s 128 of the Evidence Act. Section 128, according to its terms, applies “if a witness objects to giving particular evidence, or evidence on a particular matter, on the ground that the evidence may tend to prove” that the witness committed an offence or is liable to a civil penalty. The operation of the section hinges upon the circumstance that the person “objects” to giving evidence.

56 As is shown by the comprehensive and incisive analysis of s 128 by Ward J in the recent case of Ying v Song [2009] NSWSC 1344, a person who agrees to testify and volunteers evidence does not, in the relevant sense, “object” to the giving of that evidence. The “object” concept is based on unwillingness or aversion and is not satisfied by someone who chooses to testify by giving potentially self-incriminating evidence, even if the person feels forced to do so in order to counter or explain criticisms of the person.

57 In the absence of any suggestion of steps to compel Barr to testify, the possibility that s 128 of the Evidence Act would have afforded him any measure of protection in relation to evidence he gave may be put aside.

58 NGC argues that, since the decision not to proceed with the charges was made in 2005, the possibility that the Director of Public Prosecutions would decide to reactivate them is remote in the extreme. I do not see any basis on which I can reach that conclusion. I do not know why the prosecution decided in 2005 not to proceed and I do not know what might or might not prompt a reversal of that decision. In short, I have no evidence at all about Barr’s susceptibility to become the subject of revived or new criminal charges.

59 TBPL says that the situation is not really one in which Barr has decided not to give evidence. Rather, it is said, counsel for the plaintiffs (in substance, TBPL, since Barr is really a party in name only) has made a decision not to seek to adduce evidence from Barr and that is the reason for his absence. I accept that up to a point but it is, I think, of no real relevance. The question is as to inferences, if any, that should be drawn adversely to TBPL by reason of its not calling Barr as a witness, whether because so advised by counsel or because Barr refuses to expose himself to what he perceives, on advice, to be the danger of re-activation of the criminal charges.

60 There are aspects of the facts of this case that may well involve criminal conduct on the part of Barr. Absence of evidence voluntarily given by him on those matters may be explained by his fear that the apparently dormant prosecution may be revived. But that explanation is not sufficient to avoid the adverse inference that flows from that absence. As Young J observed in Rowell v Larter (1986) 6 NSWLR 21 at 24, the so-called right to silence is purely a defensive matter and is a privilege that an accused person has in criminal proceedings. Also, in Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 50, the Court of Appeal took the view that the pendency of a Royal Commission enquiring into events in which a person had been involved was not a sufficient explanation of the absence of evidence from the person in civil proceedings. Giles JA said at [667] with the concurrence of Mason P and Beazley JA:

“Let it be assumed that the pendency of the Royal Commission could be judicially known. I do not think one could go further, and speculate upon its potential for Mr Adler and Mr Williams. A generalised assertion that Mr Adler and Mr Williams were justified in not entering the witness box in these proceedings, in which the most serious allegations were made against them, for fear that evidence they gave would in an unelucidated way rebound to their disadvantage in the investigations of the Royal Commission, in the report of the Royal Commission, and in whatever followed from the report, is not in my opinion an answer to the Jones v Dunkel reasoning.”

61 That is, in essence, the position here. One cannot speculate upon the matter of reactivation of the criminal charges against Barr. There is nothing more than a fear that evidence Barr might give “would in an unelucidated way rebound to [his] disadvantage”. That, as Giles JA said, is not an answer to Jones v Dunkel reasoning. The absence of evidence from Barr may therefore lead, in certain areas, to inferences adverse to TBPL’s case in the way stated at paragraph [49] above.

The absence of Shigeo and Hiroyuki

62 Neither Shigeo nor Hiroyuki gave evidence. Given their positions within and in relation to NGC and the centrality to the proceedings of a number of events in which they were intimately involved, one would certainly have expected each to have been called by NGC to give evidence in its case. There are numerous aspects of the factual circumstances of the case on which each could have shed considerable light. The first two conditions in the extract at paragraph [50] above are clearly satisfied in relation to both Shigeo and Hiroyuki.

63 That leaves the third question, that is, whether the absence of each is unexplained.

64 In the case of Shigeo, the absence is unexplained, in the sense that the court simply does not know why he has not given evidence.

65 In the case of Hiroyuki, the court was made aware of requests made of him by NGC’s solicitors that he attend to give evidence and of his response that he had “no intention of doing so in the future, either in person or by video link”: see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 769; (2009) 258 ALR 598 at [8]. Hiroyuki’s absence is thus, in one sense, explained by the fact that he was asked to give evidence and that he simply refused to do so. But what is needed to avoid the possibility of adverse inferences by reason of absence is a legitimate explanation for absence, in that the explanation represents some objectively reasonable basis for non-attendance. Simple refusal does not represent an objectively reasonable basis.

66 The absence of evidence from Shigeo and Hiroyuki may therefore lead, in certain areas, to inferences adverse to NGC’s case.

67 I return now to the particular factual matters warranting detailed exploration.

NGC’s development application

68 NGC acquired Kings Forest in about 1990. In February 1992, BPM was retained as project manager for Kings Forest. Two months later, Shigeo was appointed a director of NGC. He was based in Japan but visited Australia from time to time to attend to the affairs of NGC. While at the site, he lived in the house occupied by Barr.

69 Heilbronn & Partners Pty Ltd was commissioned by Barr, on behalf of NGC, in August 1997. Their task was to prepare a development application in respect of the Kings Forest land. The project was, of course, a large and ambitious one but, by February 1998, a group of consultants was at work. Those involved included Mr Sippel of Heilbronn (surveyors and town planners), Mr Bolster (solicitor), Mr Sutherland of Gilbert & Sutherland (environmental consultants with particular reference to soil and water) and Mr Warren of James Warren & Associates (ecological consultants, specialising in fauna and flora management).

70 At a meeting with representatives of the Council and various government agencies in March 1998, the consultants, in company with Barr, identified a number of issues relevant to any development proposal, including the presence of threatened species of both flora and fauna, the results of soil mapping and water assessment, possible constraints on effluent disposal and access arrangements for electricity and telecommunications services. The discussion was about a new town of 15,000 inhabitants and some 4,500 dwellings. It was obvious that such a massive project would have major impacts involving numerous complex aspects of planning and preparation.

71 In a September 1998 report to Shigeo, Barr turned his attention to Kings Forest as a whole. He informed Shigeo that he regarded a development application as “very crucial” and expressed confidence that “by working closely with the conservationists and the authorities we can seek an approval that will suit Narui Company in the future”. He went on to explain steps being taken.

72 In a report of 24 September 1998, Barr told Shigeo that he had emphasised to the consultants the urgency of preparing a development application and that they “feel that November is more likely [than October] the submission date for our DA application”. In his October report, Barr said, under the heading “Development Application”, that “[o]ur application documentation is coming together nicely”. Minutes of a meeting of the consultants held on 28 October 1998 show, however, that attention was devoted to a very large number of matters which, of their nature, must have been recognised as necessary preliminaries to lodgment of any development application. The minutes of the meeting record that Shigeo (who was not present) was “expecting an approval in about June 1999 but lodged December 1998”.

73 Any such expectation, if Shigeo held it at all, could only have been given to him by Barr. It was, however, entirely unrealistic. This is because of the clearly stated position of the Council. A letter of January 1998 from the Council makes it clear that the Council had at an earlier point flagged to Barr on several occasions the need for a development control plan to be prepared “for the development of this major landholding”. Correspondence of February 1998 between Barr and NPWS made it clear that a species impact statement would be needed in connection with any development application. In September 1998, when Barr was assuring Shigeo that a development approval could be expected and that an application would likely be lodged in November, the Council was emphasising to Barr the need for a development control plan before the preparation of a development application. On 27 November 1998, Mr Broyd of the Council wrote to Barr to “advise on what I consider to be, in general terms, the most productive planning approach for the Kings Forest development”:

“Firstly, I reaffirm my advice provided on a number of previous occasions – including my letter of 17 September 1998 – that a Development Control Plan must precede the preparation and lodgment of a Development Application.”

74 After referring to other matters, Mr Broyd summarised the position as follows:

“Hence, again I reiterate the crucial importance of the sequential steps in the process of:

1 the completion and understanding of the analyses by expert consultants as to constraints and opportunities for the site;

2 the obtaining of director-general’s specifications for the preparation of a Local Environmental Study, the obtaining of consultants’ quotes, the selection of consultants, and thereby achieving an independent LES for Council;

3 The non-lodgment of a Development Application until the Local Environmental Study, preparation, exhibition and adoption of the resultant draft Local Environmental Plan, and the preparation of a draft Development Control Plan have been completed.”

75 The Council thus made it clear to Barr in November 1998 that the path to a development approval would be long and potentially difficult, with a number of major matters to be attended to before any development application could be lodged. Yet Barr, in his report to Shigeo of 30 November 1998, continued to deliver his message of confidence. He referred to none of the preliminary steps that the Council regarded as essential. He said that it had become more likely that “our submission would be towards the end of December rather than the middle of December”. He put this delay down to the need to modify a road, although he did also make some reference to “fauna investigations”. By the end of his discussion of the matter, his position was that the application would be lodged “early next year”.

76 In a report to Shigeo dated 4 December 1998, Barr said:

“Tweed Shire Council have requested a number of criterias that they wish to discuss and receive to DA submission. I have asked Peter Sippel to respond accordingly to state that this is not as per our previous agreement between Council. We feel that it is very unfair that Council are moving the goal post on us, in requesting such criterias in prior to submitting our EIS report on the fauna and flora. Council have requested non-lodgment of the DA until the local environment studies are completed by Council and preparation and exhibition to the public are completed. I have enclosed Council letter for your perusal and we will negotiate better terms with Tweed Shire Council.”

77 It is not clear which, if any, letter from the Council Barr enclosed. The report of 4 December 1998 continued:

“I am quite satisfied to report that the full documentation is coming together nicely. However, there are a lot of restraints that we have to discuss prior to finalising our Master Plan and our Development Application and the engineers have pointed out a number of criterias that they would like to investigate prior to finalising the traffic flow of Kings Forest.”

78 In the section of the report of 26 February 1999, dealing with the question of the development application for Kings Forest as a whole, Barr began by referring to problems with the consultants’ fee structure. He went on:

“I feel very confident in reporting to you and explaining that all consultants including Neil Sutherland are in an acceptable position in continuing on with their Development Application submission ready to be submitted by Mid April 1999.”

79 In his report to Shigeo dated 31 March 1999, Barr said that there were “issues relating to the correct documentation to be finalised and submitted” in relation to the development application for Kings Forest. He continued:

“However, with the correct documentation we are in a very strong position to seek approval as Council have now informed us that they will support our DA fully if we submit it as per their request. The only hurdle that I foresee is David Broyd requesting a LES prior to approving Narui Company’s DA. This will not be undertaken until October 1999 which is not good enough for us and I am now fighting this issue to bring it forward to complete the LES to get the zonings and all the correct planning approvals within the State Government and Tweed Shire Council for a speedy approval for Narui’s DA application.”

80 On 6 April 1999, Mr Sippel of Heilbronn sent to Barr, at Barr’s request, a summary of the “major elements in progress to date in relation to liaison and submissions with Tweed Shire Council in respect of the development application”. These were:

1 Four “major consultation workshops” (apparently already held) in relation to the master planning of the estate.

2 Preparation and submission to the Council of a farm management plan for the total site, including liaison with NPWS.

3 Preparation and submission to the Council of an acid sulphate management plan prepared by Gilbert & Sutherland.

4 Preparation and submission of a report on local environment plan amendments to site zonings as proposed by the Council as a prerequisite to development application.

5 In depth meetings with the Council’s senior planning and development manager regarding format for local environmental study on site and constraints mapping approach to onsite data capture and development impact.

6 Compilation of a fully integrated geographic information system of site constraints and master plan.

7 Performance of a major design cherret workshop on site master plan developing three master plan options for site.

8 A digital best option master plan for site integrated with the GIS.

81 After referring to particular aspects of these matters, Mr Sippel continued:

“Digital Data from the constraints mapping will be conveyed to Council in early May dependent on the finalisation of the species impact statement for site, to enable Council and client to agree major site constraints thus allowing agreement with Council to be reached on refinement of zone use areas.

Following agreement on the foregoing it is expected that the formal submission of a development application to Council will be made in late August 1999”.

82 Several versions of this letter are in evidence. In some of them, “late August 1999” reads “late April 1999”. The typewriting has obviously been altered. I say this because, in the versions referring to April, there is an unexplained space after “April 1999” of a size to accommodate the longer “August 1999”. Barr faxed a copy of one version or the other to Shigeo on 6 April 1999. Since his covering letter says that “all documentation will be lodged late April”, it may safely be inferred that he sent the version referring to April rather than August. Since Mr Bolster referred in a letter of 8 April 1999 to anticipated lodgement in August 1999, it may be inferred that Mr Sippel’s original also referred to August. Barr also sent to Shigeo a copy of Mr Bolster’s letter – or more precisely, a doctored version in which “August” had again been changed to “April”. The change must have been made by Barr in each case.

83 Whether an estimate of lodgement in August 1999 was, in early April 1999, a realistic estimate is open to serious question. On 27 April 1999, Mr Broyd of the Council wrote to Barr saying:

“It is crucial at this stage that I reiterate the process which should be followed for this most crucial site for the future development in Tweed Shire and hopefully gain a mutual understanding and agreement with yourself and your client regarding this process.”

84 Mr Broyd, after referring to particular matters, continued:

“Below I endeavour to summarise in general terms the process which should be followed:

1. The completion of analysis of major constraints by your clients consultants – notably flora and fauna by Mr Jim Warren and Acid Sulfate Soils/Stormwater Management by Gilbert and Sutherland – anticipated completion by mid May.

2. The preparation of a brief by Council concurrent with the finalisation of the environmental constraints analyses to engage consultants to comprehensively review the environmental constraints analyses to form the relevant component contents of the Local Environmental Study and to comprehensively respond to Council’s resolution of March 1998. There is provision in Council’s 1998/99 budget to undertake these tasks and Council’s brief will be sent to three (3) consultants for submissions and selection;

3. The preparation of a brief for consultants to undertake the remainder of the preparation of the local environmental study and also embodying the environmental analyses outcomes referred to above. This brief preparation, consultants selection and study preparation is programmed for the June/July/August/September period but I strongly emphasise is strongly subject to funding and professional resource capability. There would also be concurrent workshops and discussions involving your client and your clients consultants so that there is a combined and iterative process.

4. The above process of environmental constraints analyses and local environmental study preparation will be integrated with the preparation of the draft Local Environmental Plan that responds to Council’s resolution of March 1998 and Development Control Plan and Section 94 Developer Contributions Plan. The master plan would be embodied in the Development Control Plan and therefore be exhibited as an integral part thereof. It is anticipated that the public exhibition of the draft Local Environmental Plan, draft Development Control Plan and draft Section 94 Developer Contributions Plan would occur concurrently in late 1999.

5. This provides a basis then to submit a comprehensive development application in late 1999/early 2000. Whilst clearly your client has the prerogative to submit a development application for whole or part of the land at any time, my position would be that such a development application should not be approved until the comprehensive process explained above has been completed to a stage where Council adoption of the draft Local Environmental Plan, draft Development Control Plan and draft Section 94 Contributions Plan. Any development application submitted would therefore have to be in accordance with those Plans to enable my position to be one of recommending approval.”

85 Mr Broyd then said:

“There are two further matters which I wish to emphasise very strongly:

1. That the above process completion depends upon decisions by Council and myself on the Council budget for 1999/2000 and the related funding capability of the studies and planning explained and in terms of the Strategic Planning Unit work programming and priorities.

2. The absolutely crucial need for best practice urban design to be applied to the development planning of Kings Forest.”

86 As of April 1999, therefore, the Council foresaw a need to follow a particular sequential process. It informed Barr of that need, referring explicitly to events in the “June/July/August/September period” and to things anticipated to occur concurrently “in late 1999”, so that there would exist “in late 1999/early2000” a basis for submitting a comprehensive development application. All that was, however, subject to items 1 and 2 mentioned at the end of the letter, which involved matters beyond the control of NGC and its advisers.

87 By early May 1999, Barr was warned that the project was over budget. He wrote to Mr Bolster on 4 May 1999 enclosing financial details and a list of tasks ordered by month, culminating in “D/A Submitted” in August 1999 (although at the top of the document appears: “Development Application submitted to Council REVISED DATE 28 April 1999” – a date by then past). Barr said in his letter that he needed to discuss with Mr Bolster “our approach in completing the D/A submission to Council because Narui San [ie, Shigeo] thinks D/A may be lodged early June 1999 but David Broyd’s LES will be used as delay tactics”.

88 The tactic blaming Mr Broyd for delay was implemented in Barr’s report of 7 May 1999 to Shigeo:

“I cannot believe that David Broyd could be such a dictator in trying to make more difficulty in our DA submission to Tweed Shire Council. We have worked very hard in preparing our full Development Application in finalising all the criterias and operations in fine tuning our successful DA application to Tweed Shire Council. The LES and LEP are Tweed Shire Council’s responsibility and he can in no way stop us from submitting our Development Application to Tweed Shire Council.

I have a meeting with Max Boyd and the General Manager to discuss the ridiculous suggestions by David Broyd and I feel that it is totally unfair that we are a victim of this bureaucratical power play with Tweed Shire Council. Please refer to Paul Bolsters letter to Council sent last Thursday.”

89 According to Barr’s letter of 29 May 1999 to Shigeo, however, things were by then much improved. He said:

“David Broyd will accept our D/A submission ASAP.”

90 Barr’s report to Shigeo dated 7 June 1999 began:

“We are in our final stage of completing our Development Application and we have now been peer reviewing all documentation and relevant information accordingly.”

91 Barr went on to give details.

92 In his report of 19 June 1999, Barr stated:

“We have submitted our D/A report to Tweed Shire Council ...”

93 After referring to “their letter of acknowledgement”, Barr foreshadowed “lengthy negotiations and questions” and continued:

“... however, I am very confident that David Broyd will complete them by September as he has now seen our A that has been very well prepared and submitted for approval and our D/A will now make sure that he does complete all three items that will complement our DA to be approved with no excuses in the future.”

94 The “three items” were “the LES, the LEP and the DCP [that] have not been completed by Tweed Shire Council” – in other words, the local environmental study, the local environmental plan and the development control plan all of which, according to Mr Broyd’s letter of 27 April 1999, were among the essential prerequisites to the lodgment of a development application by NGC.

95 There is in evidence what purports to be a letter dated 8 June 1999 from Mr Broyd of the Council to Shigeo confirming receipt of “your full Development Application submission”. It goes on to refer to a number of matters that will have to be attended to and concludes:-

“Thank you once again and hopefully we can resolve all problems in allowing Narui Gold Coast full approval this year to commence with Kings Forest development accordingly.”

96 This is no doubt “their letter of acknowledgement” referred to in Barr’s report to Shigeo. The supposed letter is a forgery. It is not established that Barr ever gave or showed it to Shigeo or anyone else.

97 Mr Anderson, a Council officer, recorded a telephone conversation with Barr on 25 June 1999 in which Barr confirmed that NGC was continuing with the preparation of a development application for 3,500 lots, a total of 4,700 dwellings, a golf course and a town centre. Mr Anderson’s file note continues:

“I reiterated previous verbal and written advice to Mr Barr to the effect that Council does not consider that an adequate, valid and conforming development application can be prepared until such time as the necessary forward planning is completed and I again suggested that he should delay completion and lodgement of the development application until the necessary forward planning had been completed. Mr Barr advised that he was likely to be lodging a development application in about mid August and that if Council did not deal with it the matter was likely to end up in the Land and Environment Court.

I explained that this was not Council’s intention and that Council was simply seeking to ensure that having particular regard to the scale of this development and the sensitive nature of the site, appropriate planning outcomes were achieved promptly and that this could only be achieved by following the proper planning process. I therefore suggested that an urgent meeting be arranged between the Director, Development Services, Manager Strategic Planning, myself, Mr Barr and his solicitor, Mr Paul Bolster with a view to discussing the various issues and agreeing on an appropriate approach. Mr Barr agreed to this course of action and I therefore referred him to the Directors’ Secretary with a view to setting up a meeting as soon as possible.”

98 In his report to Shigeo dated 29 June 1999, Barr said:

“Council have requested some changes to our D/A and I will have a meeting with them today again to discuss in detail.

Council does not want to approve our D/A until Council have internally completed there [sic] DCP & LES. I do not accept this reasoning ...”

99 Barr’s statement of 19 June 1999 to Shigeo that the development application had been lodged was a false statement. Barr later represented Mr Anderson’s comments as a request for changes to a lodged application when they were in fact concerned with the content of an application yet to be prepared and lodged.

100 In his report of 2 July 1999, Barr said that there had been “lengthy meetings with Council explaining our procedure in detail where we have put forward our case in requesting approval in full from Tweed Shire Council this year”. He went on to say that the Council could not grant an approval without prior completion of a local environmental study, a local environmental plan and a development control plan which are “the complete responsibility of Tweed Shire Council and clearly they did not have the funds nor the manpower to undertake it to date ...”. Barr then discussed possible approaches and said that “in November this year Council have assured us that they will have all statutory documents in place for approvals and then they can approve our DA immediately after all the necessary requirements are in place”.

101 A letter to Barr from Mr Broyd of the Council dated 5 July 1999 confirms that a meeting took place on 29 June 1999. Mr Broyd referred to steps taken by the Council towards completion of the prerequisites for lodgment of a development application. His expectation was that this would be “well advanced early in the year 2000”. Mr Broyd then said:

“During the above meeting, you confirmed that it was the intention of Narui to lodge a development application for the whole or the majority of the Kings Forest site by about mid Augusts 1999 and in this regard I confirm my strong urging that finalisation and lodgement of the development application be deferred until such time as the planning process outlined above is substantially completed which is anticipated to be towards the end of December 1999.”

102 Mr Broyd’s letter concluded:

“You are therefore requested to confirm that you will defer lodgement of the development application to allow the proper, strategic planning process to be completed on a co-operative and integrated basis with a view to ensuring that the best planning outcomes are achieved in the interest of all parties and as a means of avoiding a potential Land and Environment Court Appeal and resultant delays and costs for both Narui and Council. It would be appreciated if you could advise of your intentions in writing as soon as possible.”

103 In a report to Shigeo dated 13 August 1999, Barr referred to “our development application” having been submitted to the Council three months earlier. He referred to ongoing meetings with the Council to give it “a full understanding of our documentation”. A similar message was conveyed in a report of 26 August 1999.

104 In a letter of 26 August 1999 to Shigeo, Barr referred to the Council’s concern for fauna protection with respect to the Wallum froglet. He discussed methods of inhibiting their breeding and expansion of their habitat. Reference was also made to other concerns expressed by the Council.

105 A letter from Mr Broyd to Barr dated 29 November 1999 referred to proposed lodgment of a development application for “the total site” during February 2000. Mr Broyd counselled against this, referring, in particular, to the need for a Ministerial decision on the draft local environmental plan.

106 In a circular to the consultants dated 14 February 2000, Barr exhorted them to efforts to ensure that the development application was lodged by 1 March 2000.

107 On 9 March 2000, Barr informed Shigeo, under a heading “DA Procedure”, that the Council required “four additional amended copies for approval”. A request to that effect appears from a letter of 15 February 2000 ostensibly from Dr Griffin, general manager of the Council. However, that letter is a forgery.

108 On 5 April 2000, Barr informed Shigeo that “all items of concern within Tweed Shire Council” had been “finalised” and that Mr Broyd had “no concerns with our DA”. In a report of 8 May 2000, Barr said that the “final recommendation report” would be “put up to Council on the 31^st May 2000”.

109 On 15 April 2000, Barr advised Shigeo that he had asked Dr Griffin to provide NGC with a letter detailing the “correct procedure regarding our D/A approval”. There is in evidence a letter purportedly from Mr Jardine of the Council, on behalf of Dr Griffin, meeting this description. It is dated 17 April 2000. The letter is a forgery.

110 A letter dated 2 June 2000 addressed to Barr and ostensibly signed by Dr Griffin and Mr Anderson, acting director development services of the Council, stated that NGC’s development application in relation to Kings Forest Stage 1 had been approved. Supposed conditions of approval were said to be attached. There was reference to the meeting of Council held on 31 May 2000. The letter and the accompanying conditions were forgeries.

111 Statements of Hiroyuki admitted into evidence confirm that, on 1 June 2000, Shigeo telephoned Hiroyuki and informed him that development consent had been granted.

112 A development application was lodged on 3 January 2001. It was signed by Shigeo on behalf of NGC. More will be said of this application later. A revised application was lodged on 5 April 2001. Again, it will be necessary to say more about it later. The development application was withdrawn on 30 August 2001.

113 There was never any valid grant of development consent to NGC in respect of any part of King’s Forest.

114 I have referred in this section to several forgeries: the doctored copies of letters from Mr Sippel and Mr Bolster in which “August” was changed to “April”; the letter of 8 June 1999 supposedly from Mr Broyd to Shigeo; the letter of 15 February supposedly from Dr Griffin; the letter of 17 April 2000 supposedly from Mr Jardine on behalf of Dr Griffin; and the letter conveying development consent and accompanying conditions dated 2 June 2000. Given the circumstances in which the several false documents were created and their terms (in several areas incongruous and inept), I have no hesitation in finding that Barr played a central part in their creation. He obviously relied on them for his own ends. TBPL submits that there is a basis for finding that Shigeo was implicated in some or all of them. I am not satisfied that there is substance in that allegation, even though Shigeo and Barr did become co-participants in the plantation joint venture.

Development of the lease proposal

115 Between 1998 and the first half of 2000, substantial clearing was undertaken on the Cudgen Paddock. This was done by BPM on NGC’s behalf. Problems with the Council arose at an early stage. By April 1998 the Council was complaining about land clearing activities already completed on the Cudgen Paddock. Mr Sippel argued in a letter to the Council that what had been done was consistent with prior agricultural land use. That explanation was not accepted by the Council. Barr’s April 1998 report to Shigeo made clear Barr’s view that NGC had “taken a chance” in clearing the property “but we have been informed that no legal action will be taken”.

116 In July 1998, Barr reported to Shigeo under a heading “Property Cleanup” that the Cudgen Paddock had been “manicured” and “looks wonderful for presentation”. He continued:

“We only need to fence it and graze cattle and maybe purchase a few goats to look after the bracken and the regrowth of weeds for self-maintenance in the future.”

117 Speaking of “the wetlands”, Barr informed Shigeo that these had been “attended to and made to look very natural with pine needles spread over tree stumps and grass has regenerated in areas to full satisfaction”. After referring to a proposal to remove all necessary timber from the sandpit paddock, Barr continued:

“Tweed Shire Council would like to see a Farm Management Plan from Narui Company regarding the Cudgen Paddock and how we are going to remove all the Pines that need to be milled in stages and time duration, which we have prepared and submitted.”

118 On 4 February 1999, the Council returned to the matter of the clearing that had already occurred on Cudgen Paddock. As I have said, Mr Seppel, on NGC’s behalf, took the stance that clearing was consistent with the prior agricultural use. Steps had been put in train to obtain statements from persons familiar with activities on the land in the past. It appears, however, that no such statements had been provided to the Council by 4 February 1999, since, in its letter of that date, the Council required that a development application be submitted for the clearing works already completed and that this be done within twenty-one days.

119 Barr did not mention this last matter when he reported to Shigeo on 26 February 1999. He merely commented, “We have now killed most of the native vegetation at Cudgen Paddock and finalised a good seed mixture to spread”.

120 Barr reported to Shigeo in May 1999:

“We have completed the entire Cudgen Paddock destumping and burning the stockpile of heads.”

121 The Council wrote to Barr on 7 June 1999 about the unauthorised clearing. The Council said that, on the basis of the facts known to it, development consent was needed for the change of use from “Forestry” to “Agriculture”. It suggested two courses that might avoid proceedings in the Land and Environment Court: first, submission of a development application seeking retrospective approval for the works to date; or, second, submission of a proposed rehabilitation plan. The letter also said:

“In any event, you are requested to stop all work in the affected area immediately until such time as the matter is resolved.”

122 Barr’s attitude was made clear in his report to Shigeo dated 26 August 1999. He said that the Council “are only time wasting or bluffing Narui Company in stipulating that they are going to take us to Court over illegal land clearing”. He went on to refer to progress with fertilising of the Cudgen Paddock.

123 Barr had taken steps to investigate plantation use of the Cudgen Paddock. In October 1999, Holeberth Pty Ltd prepared a feasibility study concerning the establishment of a tea tree (melaleuca alterifolia) plantation. In his report to Shigeo dated 1 October 1999, Barr said:

“I have also discussed with a tea tree farm operator who would like to plant tea tree plants for harvesting purposes within the Cudgen Paddock and give you a royalty or a rental. This might be quite feasible as this tea tree is not Melaleuca environmental protection, this is purely for harvesting for tea tree oil ...”

124 By 19 November 1999, according to Barr’s report of that date to Shigeo, test plots of tea tree had been planted. Barr referred to progress of these plantings in his subsequent reports. The report of 19 November 1999 also said that establishment of a tea tree plantation would cost between $500,000 and $700,000 and that such a venture “would be a great investment not only Narui Company to participate but our saviour for native vegetation within Cudgen Paddock”. In a report of 16 December 1999, Barr said that a plantation could produce “an incredible return for Narui Company and an investor wishing to participate”.

125 In January 2000, Barr reported to Shigeo that the Cudgen Paddock was suitable for growing both “lemon myrtle” and “lemon scented tea trees” and made a recommendation to proceed with “this tea tree/myrtle operation”. By March 2000, Barr was referring to lemon myrtle alone.

126 As native vegetation continued to regrow, Barr emphasised to Shigeo the need to proceed with planting of the Cudgen Paddock. In a report to Shigeo dated 2 March 2000, Barr raised, under a heading “Lemon Myrtle”, the need for a decision whether to proceed with planting of lemon myrtle on the Cudgen Paddock. Two benefits were foreseen for NGC: profit from the crop and control of native vegetation regrowth. There was a desire to retain the benefit of the land clearing and to put in place measures to prevent regeneration of bushland.

127 In the 2 March 2000 report to Shigeo, Barr proposed a particular approach to the lemon myrtle possibility:

“I would like to arrange a leasing operation with Narui Company and I would be undertaking this with your support and approval.”

128 The proposal for a lease to Barr was thus born. The idea that NGC might joint venture with an outside party to establish a plantation had been superseded. Barr now saw a lease to himself as the preferred course.

129 On 16 March 2000, Barr apparently wrote to Hiroyuki, addressing him as “Chairman, Narui Norin Group of Companies”. It was unusual for Barr to approach Hiroyuki directly. His practice was to report to Shigeo. Enclosed with Barr’s letter to Hiroyuki was what Barr referred to as “my draft agreement between my company Barr Project Management and Narui Norin head office”. The letter referred in some detail to the advantages of controlling native vegetation by cultivation. Barr recommended that lemon myrtle be planted, with “a lease royalty” being paid annually for ten years. He said that a lease would relieve Narui of the burden of ongoing maintenance and holding charges. Barr also said:

“I look forward to your favourable response in entering into a lease agreement between my company Barr Project Management and Narui Head Office and assuring you of my ongoing commitment for Narui Company in looking after the total Kings Forest project to the best interest for Narui Head Office.”

130 A document in the nature of heads of agreement accompanied Barr’s letter of 16 March 2000 to Hiroyuki. It envisaged a lease of the Cudgen Paddock for ten years, with an option to renew for a further five years and an option to purchase after the initial ten years “at current market value”.

131 On 22 March 2000, Barr wrote to Shigeo who was in Japan but apparently due to arrive at Kings Forest “this weekend”. The letter read in part as follows:

“I have enclosed a lease agreement for your perusal only at this stage where you can absorb and understand the lease agreement between Barr Project Management and Narui Norin Head Office as per our discussions and your recommendations. It would be a good idea if we discuss this in detail during your visit and it might also be a good idea to discuss with the Chairman and the President our intentions in accordance with my draft letter and lease agreement between our two companies.

I thank you for your support and I believe this Lemon Myrtle is a fantastic opportunity to commence. They need to purchase 300,000 seedlings to be grown in the nurseries. These would be looked after and then planted as we require to do so in accordance with our lease agreement. I await your confirmation in forwarding the $11,200.00 deposit as per my invoice faxed to you.”

132 Another letter from Barr to Hiroyuki was dated 24 March 2000. It was in the same terms as that of 16 March 2000 but the accompanying draft document was different. It may be that the letter of 16 March 2000 was never sent. The draft enclosed with the second letter envisaged a lease term of five years, with an option to purchase “after or during” the five years “at a negotiated with a satisfied price” [sic]. Certain other provisions were also different from those of the earlier draft.

133 The draft sent by Barr to Hiroyuki was obviously subjected to some scrutiny in Japan. This is borne out by a fax Barr sent on 26 May 2000 to Mr Takaku of Narui Norin:

“Dear Mr Takaku

Please refer to the revised contract as per the President’s request. I changed No 2.

I hope this all meets with your satisfaction.”

134 Hiroyuki, although not then a director of NGC, signed the document sent with Barr’s fax of 26 May 2000. It is dated 6 June 2000, but it is unlikely that the date was placed on it by Hiroyuki as he did not speak, read or write English. There is, however, no reason to doubt that the signing occurred on 6 June 2000. Statements of Hiroyuki admitted into evidence establish that Shigeo spoke by telephone with Hiroyuki on 1 June 2000 and informed him that the Kings Forest development consent had been granted (this was in fact not so there was no more than a forged consent). It was in the course of this conversation that Shigeo asked Hiroyuki to sign the document.

135 In a “confidential letter” of 17 June 2000 to Shigeo, Barr referred for the first time to a proposal that the lease be taken by “a new company that I will form ASAP called Tim Barr Pty Ltd”. He proposed this because “we do not want any exposure with past history of trading companies because Barr Project Management company has traded for the past twelve years it is dangerous to hold the lease under this company”. He said that this had been explained to him “by Jeff Macdermitd [sic] and Robert Hynes in the meeting I had on Friday afternoon”. Mr McDermid was an accountant. Mr Hynes was a solicitor. Their roles will be addressed presently.

136 Barr went on to say in the letter of 17 June 2000 to Shigeo that the “lease signed by Narui head office” (obviously the document of 6 June 2000 signed by Hiroyuki) was too advantageous to the tenant and that he had therefore “agreed for Robert [Hynes] acting for Narui company to draw up a new lease”.

137 The instructions given by Barr to Mr Hynes were mentioned in a letter he sent to Shigeo on 19 June 2000:

“I have instructed Robert Hynes to prepare a new lease agreement as part of the signed agreement between TIMBARR PTY LTD and Narui Company. This ensures the security for Narui Company to make sure that this is a five year lease and this is purely for the advantage of Narui Company. At present it can be interpreted as an additional five years but to make sure for Head Office security and happiness I have asked them to prepare a full contractual lease which needs to be signed by two parties again as part of the additional attachment and then it will be a formal lease agreement.”

138 The lease prepared by Mr Hynes was executed ostensibly by Hiroyuki as “sole director/sec” of NGC and by Barr as “sole director sec” of TBPL. It bears the date 23 June 2000, although it appears that execution by Hiroyuki for NGC occurred at a later time. Hiroyuki was not formally a director of NGC on that date (he became a director in September 2000) but his authority to act for NGC is not questioned. TBPL had been registered as a company just a few days earlier, on 19 June 2000.

139 A letter from Mr Hynes’ firm (also dated 23 June 2000) enclosed the lease and summarised its terms. The letter was addressed to “The Directors, Narui Gold Coast Pty Ltd” at a post office box at Kingscliff used by Barr, as shown by, for example, his periodic reports to Shigeo. The letter concluded:

“This is a summary of the more pertinent obligations set out in the lease. If you are satisfied with all of the terms of the lease then you should sign where we have indicated.”

140 If, as its content suggests, the letter enclosing the lease was sent to this post office box, it may be taken to have been received by Barr. If, on the other hand, it was collected from Mr Hynes’ office, the only person likely to have collected it was Barr or a messenger sent by Barr, given that it was Barr alone who had given instructions to Mr Hynes in relation to the preparation of the lease.

141 Mr Hynes’ firm wrote a letter of 20 July 2000 to Barr as follows:

“We refer to your attendance at our office earlier today.

We confirm that we are to proceed to stamping and registration of the lease.

Firstly, however we return the copy lease to you for further execution by the lessor and yourself where we have indicated. We have also included a further execution page which should be attached as the last page to the copy of the lease that is being held in Japan. This is required to enable us to attend to registration of the lease. The lease in its current form is however still legal and binding against both parties.

You should request the landlord to return to us both copies of the lease. Once we have attended to the stamping and registration of the lease we will forward a final copy to both parties for safe keeping.”

142 From this letter it may be inferred that the lease as originally prepared had already been executed by both parties and that one copy was being held in Japan (or that Mr Hynes had been told this).

143 Mr Takaku of Narui Norin sent Barr a fax dated 7 August 2000:

“Dear Mr Tim Barr

Please receive parts of the contract signed by our president.

I will send you this original today.”

144 Faxed with this covering letter was the last page of the lease Mr Hynes had prepared, containing clause 20 and the spaces for execution by lessor and lessee. The common seal of “Tim Barr Pty Ltd” is stated to have been affixed in the presence of “Timothy Barr”, whose signature is appended above the word “Director” and through an impression of the seal. It is inconceivable that Mr Takaku did not appreciate that the person he addressed “Dear Mr Tim Barr” was the person who had signed the accompanying execution page of the lease as director of “Tim Barr Pty Ltd”.

145 There is no evidence of how the final lease document reached Japan for signature by Hiroyuki for NGC. NGC says that because there is evidence that Shigeo departed Australia for Japan on 24 June 2000 – the day immediately after the date of the letter from Mr Hynes enclosing the lease for execution – it should be inferred that Shigeo took the lease with him. That is possible but the possibility is reduced if Mr Hynes’ letter of 23 June 2000 was sent by post to the post office box. In that event, it is unlikely that the letter would have arrived in time to be taken by Shigeo to Japan on 24 June 2000. Theories about how the lease reached Hiroyuki in Japan are all speculative.

146 Mr Hynes’ firm sent a bill dated 28 July 2000 for $1,858.00 addressed to “Narui Gold Coast Pty Limited” at Melaleuca Drive, Duranbah. This appears to be an account rendered since it shows the $1,858.00 as “1 – 30 days past due” and contains as narration, “30/06/00 NAR00259 – INV No 1251”. This may well indicate that invoice No 1251 dated 30 June 2000 had previously been rendered to NGC under file number NAR00259 – the NAR00258 reference also appears on the letters of 23 June 2000 and 20 July 2000.

147 It seems quite clear that Barr was the only person who communicated with Mr Hynes. It seems likely that Barr told him that he was conveying NGC’s instructions. In any event, the lease provisions on which NGC relies as a basis for terminating the lease were included in Mr Hynes’ document but not in the earlier informal version sent by Barr to Hiroyuki in March 2000.

148 TBPL commenced planting on the Cudgen paddock in July 2000.

Development of the joint venture proposal

149 At an early stage of the plantation proposal, Barr’s idea was that the tea tree or lemon myrtle venture should be undertaken by NGC and an outside party. But Barr’s thinking changed. In his report to Shigeo of 28 January 2000, Barr said:

“I would like to recommend that I can borrow $150,000 from the bank as part of a second mortgage and be part of this tea tree/myrtle operation and we can also manage it and Narui Head Office can be 1/3 partner, you can be 1/3 partner and I can be 1/3 partner.”

150 He later referred to an expectation of “a fantastic cash flow for all investors”.

151 In his report of 2 March 2000 to Shigeo in which he raised the matter of a lease, Barr said, as already noted, that he wished to arrange the lease “with your support and approval”, describing the proposal as a “fantastic opportunity for us to proceed with this Lemon Myrtle exercise, not only benefiting Narui Company who would be receiving royalty for leasing but also our own Lemon Myrtle operations will remediate and clear up any native vegetation ...”:

“This would be a win win situation for all parties involved.”

152 Reference has already been made to Barr’s letter of 22 March 2000 in which he suggested that Shigeo discuss with Hiroyuki “our intentions” and asked that Shigeo forward $11,200 deposit for trees.

153 On 5 April 2000, Barr made another request of Shigeo:

“Could you please make a payment today directly to the nursery for $10,700 for 300,000 trees and then this will assure that we can have full control of the market and then we can fine tune all contractual conditions. I will pay you back half by the end of next week once the bank approvals my loan.”

154 In the immediately preceding sentence, Barr had said:

“... we must establish an [sic] lemon myrtle operation and maintain it at all times for not only a very highly profitable harvesting operation but also the saviour of the Cudgen Paddock for Narui Company.”

155 Barr also said:

“I also await Head Office’s contractual bonding with Barr Project Management and then we can plant lemon myrtle seedlings ...”

156 He concluded:

“I thank you for your support and belief in our lemon myrtle plantation and I look forward to having a successful partnership joint venture with your good self for many years to come.”

157 Barr’s bank loan was approved in May 2000. In an undated letter to Shigeo sent after that event and marked “confidential”, Barr said that he was awaiting confirmation that “the President” (that is Hiroyuki) “releasing the Cudgen Paddock to Barr Project Management” as there was a need to proceed with lemon myrtle planting. Barr then said:

“Please do not have any ideas that this is purely a beneficial exercise for myself, I cannot do it without you, you are my partner and we will do this together on a very successful business working relationship. If we do not undertake this it is very difficult to save the Cudgen Paddock from native vegetation regrowth.

...

I look forward to your trust and belief in a great relationship between two parties that will always be kept above board and it will be very successful in seeing the returns in the very near future.”

158 In the confidential letter just mentioned, Barr went on to refer to contacts with “Steven and Wayne” (Stephen Rose and Wayne Galland of Enterprise Kings Pty Ltd) who were providers of expertise in relation to lemon myrtle cultivation. It was envisaged that their company would be contracted to provide services. Barr also said:

“I look forward to your response regarding this matter and I can assure you that it is going to be a very successful operation and I am looking forward to being part of a wonderful partnership for the future.”

159 On 17 June 2000, Barr sent Shigeo a “confidential letter regarding the lemon myrtle operations at Kings Forest Cudgen Paddock”. This has already been mentioned since it contained the first reference to the proposal that a lease be taken by TBPL. The letter also referred to arrangements for the plantation:

“[T]he new company Tim Barr Pty Ltd [will be] only used for this Lemon Myrtle operation only and Steve and Waynes company will sign an agreement with Tim Barr Pty Ltd and I will have a contractual agreement with your self in place because I told Jeff we do not want to expose S Narui involvement in Narui Gold Coast Pty Ltd financial tax records each year they both agreed.

...

The new lease will just protect Narui company and yours and mine money investment out laid ...”

160 Later in the confidential letter of 17 June 2000 to Shigeo, Barr referred to the possibility that “you and I” might be able to participate in the profits of a lemon myrtle product manufacturing operation in New Zealand, with the potential promoter of that business “happy to give you and I (Ten) 10% of the company just to ensure a continued supply of Lemon Myrtle oil for his production company”.

161 Ultimately, Barr wrote a letter to Shigeo dated 23 June 2000 which Shigeo also signed by way of “signature of acceptance” to bring the joint venture agreement into existence. The document is set out at paragraph [40] above. This joint venture agreement bears the same date as the lease from NGC to TBPL.

162 On 3 August 2000, an agreement was entered into between TBPL and Enterprise Kings Pty Ltd, the company controlled by Stephen Rose and Wayne Galland. Enterprise Kings undertook to provide certain services in relation to TBPL’s business, described as

“cultivate the Cudgen Paddock and grow Lemon Myrtle trees for the distillation of ‘Lemon Myrtle tree oil’”.

163 On 19 September 2000, Enterprise Kings entered into an agreement with Tea Tree Produce Pty Ltd for the acquisition of 2.1 million seedlings of leptospermium petersonii, the botanical name of lemon scented tea tree.

164 An undated document on the letterhead of Tea Tree Produce Pty Ltd (a seedling nursery) refers to a “total order” of “2.1M @ 0.08c/each” and a total costs of $168,000 plus cost of seed. Then follows an analysis of payments made to January 2001 and payments still to be made.

165 An undated document records “lemon myrtle cash flow” for the period May to August 2000. A number of payments are listed as having been made by BPM. Three items are recorded as “Tim paid personally”, while five items are listed as “Narui San paid personally”. “Tim” is Barr. “Narui San” is Shigeo. It is thus clear that each of them was spending his own money on the lemon myrtle project. A report by Barr to Shigeo dated 4 July 2000 referred to a bank transfer of $3,600 having been received from Shigeo for a tractor. The cash flow document shows Shigeo as having “paid personally” $29,500 for “Tractor Ford”.

166 From August 2000, BPM began invoicing TBPL monthly for “Project Management regarding the Cudgen Paddock Lemon Scented operations for Tim Barr Pty Ltd”.

167 In a letter sent to Charles Harrison in May 2001, Barr said that he and “Mr Narui” – obviously Shigeo – had “outlaid $150,000 each personally to establishing and prepare the total set up within the Cudgen Paddock”. The letter went on to outline a basis on which Harrison could be “1/3 joint owner of the total operation on sight”. There is nothing to suggest that Harrison accepted this proposal.

The stop work orders and interim protection orders

168 Given the nature of the land, the NPWS played a central role in assessments relevant to the decision of the Council whether to grant the development consent sought by NGC in respect of Kings Forest.

169 On 10 May 2001, the NPWS wrote to the Council noting that the development application that had been submitted (which included a request for development consent in relation to the plantation) would require its concurrence and noting a number of deficiencies. The letter referred to concerns about likely impacts of the plantation on threatened species. In a letter of 20 June 2001 to Barr, the NPWS expressed concern about the clearing and destruction of threatened species habitat, including that of the Wallum froglet. The NPWS warned that “further activities” on the Cudgen Paddock could constitute offences under the Threatened Species Conservation Act 1995 or the National Parks and Wildlife Act 1974. It recommended that further work be deferred until development consent or a section 91 licence had been obtained.

170 The NPWS inspected the site on 28 June 2001. The very next day, a stop work order in respect of the whole of Kings Forest was issued by NPWS under the Threatened Species Conservation Act. It required the immediate cessation for forty days of any activity “which may result” in the harming of the Wallum froglet or other threatened species or damage to their habitat.

171 NWPS officers and Council officers (specifically, Mr Enders) inspected the property on subsequent occasions. A second stop work order was issued by the NPWS on 8 August 2001. It applied for a further period of forty days and applied to the whole of Kings Forest with the exception of what appears to have been the plantation as it then existed on part only of the Cudgen Paddock. On the expiry of the second stop work order, a third was issued. It covered a period of forty days from 18 September 2001 and extended to the same land as the second.

172 On 2 August 2002, the Minister for the Environment, acting under s 91B of the National Parks and Wildlife Act, made an interim protection order in respect of Kings Forest, including the Cudgen Paddock. It operated for a period of twelve months and had the effect of prohibiting a wide range of activities upon and in relation to the land. Virtually everything that would have been necessary to develop further plantation was within the order, although watering of the existing plantation by hand or from a water tanker was allowed.

173 On 24 September 2002, the Council commenced proceedings in the Land and Environment Court against TBPL, Barr and NGC seeking, among other relief, an order that TBPL, Barr and NGC enter into agreements with the Council to undertake rehabilitation work to restore cultivated areas of the Cudgen Paddock. On 6 February 2004, NGC reached an agreement with the Council to settle these proceedings as between itself and the Council on a “without admissions” basis. The settlement required NGC to remove the tea trees on the Cudgen Paddock but only in circumstances where the Land and Environment Court determined against TBPL and Barr that the trees should be removed or this court determined that NGC had the right to lawful possession of the Cudgen Paddock. The first condition has not been satisfied. Satisfaction of the second depends on the outcome in these proceedings.

174 On 14 November 2003, the Minister for the Environment made a further interim protection order. This was confined to the Cudgen Paddock. The second order was also for a period of twelve months. Its terms were essentially the same as those of the first such order.

Did the option exist independently of the lease?

175 Having referred to aspects of the factual background, I proceed to the matters in issue. It is convenient to deal first with the question whether, if the lease was effectively terminated before 17 April 2003 when TBPL purported to exercise the option created by clause 15, the option survived the termination of the lease so as to be available for exercise. If, the lease ceased to be operative before 17 April 2003 and the option had no existence independently of the lease, then the option ceased to exist before 17 April 2003.

176 The operative part of the lease reads:

“The lessor leases to the lessee the property referred to above ... With an OPTION TO PURCHASE set out in Clause 15.”

177 It is that option to purchase that is, by clause 1(b), designated the “Call Option”. Its nature is stated in clause 15.3 (see paragraph [14] above). By clause 15.5, the option “may be exercised at any time during the Call Option Period” by serving a notice as stated in that clause. The “Call Option Period” is, according to clause 1(f), the period “commencing on the Call Option Commencement Date” (being “the date of commencement of this Lease”) and “terminating at 5pm on the Call Option Expiry Date” (being “the date of the expiry of the term of the Lease”).

178 The “term of the Lease” is, clearly enough, the term of five years from the “commencing date” of 26 June 2000 to the “terminating date” of 25 June 2005. It follows, in my view, that the option to purchase must be taken to have subsisted and been available for exercise until the conclusion of that period of five years, unless, as a matter of construction, some other provision of the lease operates to compel the contrary conclusion.

179 Provisions of the lease other than clause 15 contain various time specifications. Clause 5.5 obliges the tenant to maintain fences “during the term of this Lease”. Clause 6.1 obliges the tenant to keep certain insurances current “at all times during the occupation of the Premises”. Under clause 7.1, the tenant must not assign, sub-let or part with possession “during the continuance of the Lease”. The lessor’s obligation to allow quiet enjoyment by the lessee is expressed by clause 11.1 to relate to “the term granted”. By clause 16, the lessor agrees that “at the expiration or earlier termination of the Lease”, the lessee shall have a reasonable time to remove any lemon myrtle trees on the premises; while the lessee, under clause 17, agrees that “at the expiration or earlier termination of this Lease” and after removal of the trees, it will restore the premises. Clause 18(d) says that the lessee must not allow regrowth on the premises “either during the term of the lease or at the expiration or earlier termination of the term of the lease”.

180 Many clauses contain no time specification. Thus, the lessee’s obligations to pay outgoings (clause 3.1), not to use the premises otherwise than for a stated purpose (clause 4.1), to comply with statutory requirements with respect to the use of the premises (clause 4.5), not to engage in certain dangerous or noxious activities (clause 4.6), not to make alterations or additions to the premises (clause 5.4) and to maintain accessways (clause 5.6) are not defined or limited by reference to time.

181 In some of the cases just noticed, it is obvious that the obligation is intended to extend only to the period during which the lessee is entitled to possession of the land. I refer, of course, to obligations that cannot be performed except through possession of the land. In at least one such case, it is possible for the obligation to be performed whether or not a right to possession of the land subsists: the lessee is capable of paying outgoings whether or not the lease and the right of possession continue.

182 Some of the provisions noted in paragraph [179] to which a time qualification attaches are also, of their nature, incapable of being performed unless the lessee’s right to possession subsists. Thus, while the lessee’s obligation to maintain fences is expressed by clause 5.5 to apply “during the term of this Lease”, the obligation is one that the lessee could not perform (and could not be expected to perform) if the right to possession were lost before the expiry of the term. Similarly, the lessor cannot give quiet enjoyment under clause 11.1 if the lessee’s right to possession (and therefore to enjoy) has come to an end.

183 Re-entry and termination are dealt with in clause 8.1. In certain specified events, the lessor may “re-enter into and upon the Premises” and “thereby determine the estate of the tenant”. In clause 8.2, “determine this Lease” seems to be regarded as synonymous with “determine the estate of the tenant”.

184 In summary, therefore, the provisions of the lease contemplate determination of the lessee’s estate and of the lease itself before the expiry of the five year term. Expiry and earlier determination of the term are in several places recognised as distinct events. There is also resort variously to the words “during the continuance of the Lease” and the words “during the term of the Lease”. For reasons already mentioned, the particular words used may take their precise significance from the fact that determination within the term will deprive the lessee of the right to possession that would otherwise have continued up to expiry of the term.

185 The factor just mentioned has been recognised as relevant to the construction of provisions by which a lessee is given an option to renew. Such a provision will generally be approached on the footing that, if no specific time is limited for exercise, exercise may only occur during the currency of the lease or, at least, while the relationship or lessor and lessee subsists. The reason was stated by Menzies J in Trustees Executors and Agency Co Ltd v Peters [1960] HCA 16; (1960) 102 CLR 537 at 552-553:

“When parties are negotiating a lease, it is highly probable that they are dealing with their relationship as landlord and tenant and it is highly improbable that they would intend that after that relationship had ended, the tenant could exercise an option to renew a lease that had already come to an end. To bind the "landlord" to renew the "lease" when it had run out and he was no longer landlord would require very clear words indeed.”

186 Renewal involves continuation of the relationship of landlord and tenant. Where that relationship has come to an end – and particularly if it has come to an end in consequence of some breach of the lease provisions sufficiently serious to produce that result – it is unlikely that the parties contemplated its later reestablishment through exercise of a right to renew.

187 The same considerations do not apply to a lease provision creating an option for the tenant to purchase. Menzies J said (at 553):

“Where the option granted is not to renew a lease but to buy the freehold, it has been said that it is ‘outside of the terms which regulate the relations between the landlord as landlord and the tenant as tenant’ (per Peterson J. in In re Leeds & Batley Breweries and Bradbury's Lease; Bradbury v. Grimble & Co. [(1920) 2 Ch 548 at 551, 552] and ‘is not itself one of the incidents of a tenancy strictly speaking’ (per Sargant L.J. in Sherwood v. Tucker [(1924) 2 Ch 440 at 450]. In Rider v. Ford [(1923) 1 Ch 541] Russell J. decided that an option in a lease to purchase the freehold without any limitation as to time exists so long as a relationship of landlord and tenant continues and could be exercised notwithstanding that the original lease had run out; in Shearer v. Wilding [(1915) 15 SR (NSW) 283], Harvey J. took a different view and decided that an option to purchase the freehold contained in a lease could be exercisable only during the currency of the lease. He said: ‘It is contended that in this respect the terms of the proviso are free from ambiguity, and that there is nothing to justify the Court in inferring that the option can only be exercised during the currency of the lease. In my opinion the proper conclusion is that the parties to the lease intended that the option should only be exercised during its currency. There is nothing to show that it was intended to give Dooley more than an option of purchase as incident to his lease. I think that from the reference to the subject-matter of the option as `the said demised premises' the Court is justified in holding that the subject-matter of the purchase which the parties had in contemplation was the land while still subject to the demise. It appears to me to be unreasonable to suppose that it was intended that Dooley should have an option of purchase which could be exercised at any time during his lifetime, when the parties were dealing at arms length and negotiating in the character of prospective lessor and lessee. I think that prima facie the intention was that the option should only be exercised during the currency of the lease [(1915) 15 SR (NSW) 283 at 286].”

188 Menzies J did not need to determine this question but nevertheless expressed an inclination towards the view taken by Harvey J in Shearer v Wilding (1915) 15 SR (NSW) 283. The decision in that case was that an option unlimited as to time was only exercisable during the currency of the lease. As made clear by the extract from Harvey J’s judgment quoted by Menzies J, an influential factor was that the subject matter of the option was described as “the said demised premises”, from which it was inferred that the intention was that the lessee should have “an option of purchase as incident to his lease”.

189 In the present case, of course, the option is not unlimited as to time. It is not a question of reading it down in order to deal with the possibility that it would otherwise be of indefinite duration. The option is expressed to subsist until 5pm on “the date of the expiry of the term of the Lease”. The subject matter of the option, according to clause 15.3, is “the Premises”, that is, “the Property leased and described” at the start of the lease (also, the definition of “Call Option” in clause 1(b) refers to “the option to purchase the Premises leased ...”). The question is whether there is any basis for holding, as a matter of construction, that the time limit expressed by reference to 5pm on the date of expiry of the particular period of five years is to be read as if the words “or sooner determination of the lease” were added; or, in other words, that the relationship of landlord and tenant must continue to exist when the option is exercised at or before the stated point of expiry.

190 A different but conceptually somewhat similar issue arose in Sherwood v Tucker [1924] 2 Ch 440. The lease in that case gave the lessee an option to purchase “during the three years hereby provided for”, being a term commencing on 25 December 1914. The lessor and lessee agreed on two occasions to extend the term. The question before the court was whether the deadline for exercise of the option to purchase had been correspondingly extended. It was held that it had not been.

191 Pollock MR drew a distinction between the demise of the premises by the landlord to the tenant and the “separate and independent” option contract, albeit one contained in a lease executed by the parties. Warrington LJ said (at 446-447):

“It has frequently been held and may be treated as perfectly well settled that an option of purchase is not to be regarded as a provision incident to the relation of landlord and tenant, but is a matter collateral to and independent of it.”

192 Warrington LJ went so far as to regard as applicable an observation of Romer LJ in Woodall v Clifton [1905] 2 Ch 257 at 279 that an option to purchase contained in a lease was “concerned with something wholly outside the relation of landlord and tenant”, so that the benefit of it could not be enforced against the landlord by an assignee of the original tenant pursuant to the Act 32 Hen 8 c 34 (the Grantees of Reversions Act 1540 the provisions of which, with respect to the imposition of the burden of lessors’ covenants upon assignees of reversions, are now reflected in s 118 of the Conveyancing Act 1919: see generally Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd [2003] NSWSC 851; (2003) 59 NSWLR 312).

193 In the present case, I do not consider that the description of the subject matter of the option to purchase as the “Property leased” or the “Premises leased” should, of itself, be taken as indicating that the lessor’s obligation under the option provision continues to be operative only while that subject matter remains leased under the lease. Rather “Property leased” and “Premises leased” identify the property comprised in the grant of the option as that which is made subject to the lease at the lease’s inception – that is, the property referred to in the operative words:

“The lessor leases to the lessee the property referred to above.”

194 The words “Property leased” and “Premises leased” do no more then incorporate by reference into the option provisions of clause 15 the description of the property at the start of the lease. Those provisions operated from inception upon and in relation to the property that was the subject of the demise that also took effect at inception. The option and the demise were each expressed to have the same five-year period of operation.

195 The same conclusion flows from the description of the grantor and grantee of the option as “the landlord” and “the tenant”. Those expressions are defined in such a way that NGC, its successors and assigns are “landlord” and TBPL, its successors and assigns are “tenant”. Again, mere labelling, as a matter of economical drafting, cannot be regarded as injecting particular meaning into provisions in which the labels are employed.

196 Much more significant is clause 15.7 which contains a particular time specification. Clause 15.7 states the effect of exercise of the option. It says that, upon exercise, “the party bound by the Call Option as landlord at that date and the party exercising the Call Option shall become immediately bound as vendor and as purchaser respectively under the Contract”.

197 NGC attaches particular significance to the words “as landlord” and “at that date”. I agree that this formulation conveys a wealth of meaning. Had it been intended, as TBPL submits, that NGG or its successor or assign for the time being owning the land should, upon exercise of a separate and free-standing option, become bound as vendor, clause 15.7 would simply have said, “the landlord . . . shall become immediately bound as vendor”. That would have been consistent with the labelling approach to which I have referred. Instead, the words actually employed focus upon the party bound by the option, at the date of its exercise, “as landlord” and say that it is that party that becomes immediately bound as vendor. This must connote something beyond mere designation by label. I do not accept TBPL’s submission that the particular form of words used is simply an example of the use of defined terms.

198 The words “as landlord” in clause 15.7, coupled with the words, “at that date”, must be accepted as indicating an intention of the parties that there could be no effective exercise of the option unless the party bound by the option at the time of any purported exercise (“at that date”) was then bound “as landlord”, with “landlord” having its ordinary signification of a person from whom the person’s land is held by another under lease.

199 It is significant that the effect of exercise, as prescribed by clause 15.7, is that “the party bound by the Call Option as landlord at that date” (being the date of exercise) “shall become immediately bound as vendor”. The clause envisages automatic assumption by “the party bound by the Call Option as landlord at that date” of a new and separate position in which that person is “bound as vendor” (I do not suggest that the new position as vendor would extinguish the pre-existing status of lessor, at least until completion of the sale and purchase: Murrell v Fulton [1962] VicRp 18; [1962] VR 118).

200 The party in question cannot become “bound as vendor” as a result of exercise of the option unless “bound by the Call Option as landlord at” the date of exercise. The concept of being “bound . . . as landlord” at the date of exercise is one of occupying the position of lessor under a lease subsisting at that date.

201 It must follow from the structure and terms of clause 15.7 that the option is to be regarded as having no longer subsisted so as to be available to be exercised if and when NGC, within the specified period of five years, ceased to be “bound ... as landlord”.

202 NGC points to certain matters of a practical kind in support of this construction. NGC says, in effect, that one would have to find very strong words indeed to warrant the conclusion that, after termination of a lease and departure of the lessee from the property, the lessor could be required to sell to the long-departed tenant because of exercise of an option to purchase granted upon the creation of the now terminated lease. NGC points to a passage in Longmuir v Kew [1960] 1 WLR 862 at 863 in which Cross J said of an option to purchase clause included in a lease of a house:

“It would be quite ridiculous to suppose that, had the tenant gone out of possession in 1944 and gone to live in some other part of the country and the landlord had relet the premises to somebody else, the tenant at some future date years afterwards could claim to purchase the property.”

203 But that, like other cases to which I have referred, was one in which the option to purchase was, on its face, of indefinite duration. Moreover, the lease was for a five year term from 26 May 1939, so that the reference to the tenant’s vacating in 1944 and purporting to exercise the option to purchase “years afterwards” was really a reference to the possibility of a perpetual option hanging over the head of the grantor.

204 Notions of what is “quite ridiculous” in one context are of limited use in others. As counsel for TBPL pointed out, there is nothing “ridiculous” about a landowner granting an option to purchase on terms that it may be exercised at any time within the following five years; and this is so whether the grantee of the option is also granted a lease for the same term.

205 In the end, it is a matter of construing the parties’ agreement. For reasons I have stated by reference to clause 15.7, the parties to this case showed and recorded an intention that TBPL was to have an option to purchase, exercisable at any time within the period ending at 5pm on 25 June 2005, but only if, at the time of exercise, NGC was bound as “landlord”, in the general sense of that term, vis-à-vis TBPL.

206 I am therefore of the opinion that, if the lease was validly and effectively terminated in consequence of NGC’s notice of 3 May 2002 or had otherwise come to an end before TBPL purported to exercise the clause 15 option to purchase on 17 April 2003 (so that NGC was then no longer bound by the Call Option as “landlord”), that purported exercise was not effective to cause a contract for sale and purchase of the Cudgen Paddock to come into existence between NGC as vendor and TBPL as purchaser.

207 It therefore becomes necessary to consider several possible bases on which the lease may have ceased to be binding upon the parties before TBPL purported to exercise the option to purchase on 17 April 2003.

Bases on which the lease may have ceased to be binding

208 NGC puts forward a number of arguments that the lease was no longer operative when TBPL purported to exercise the clause 15 option to purchase on 17 April 2003, so that, consistently with the conclusion just stated, the option was, at that point, no longer in existence and available to be exercised by TBPL.

209 One contention of NGC is that the lease had been discharged by frustration. This is said to have been the result of the making of the stop work orders and the first interim protection order: see paragraphs [168] to [174] above.

210 Second, NGC says that it validly terminated the lease for breach by TBPL of clause 4.1, clause 4.3, clause 4.5 or clause 7.1 (or several of those clauses), being provisions declared by clause 9.1 to be “essential terms of the Lease”. Clause 4.1 said that the tenant “must not use the Premises otherwise than for the purpose of the planting and cultivation of Lemon Myrtle Trees”. Clause 4.3 was concerned with the obtaining of necessary consents or approvals for the tenant’s use of the land. Clause 4.5 was similar. Clause 7.1 was concerned with alienation of the demised premises.

211 The third contention of NGC is that the lease was terminated for breach of clause 18(a). That clause imposed requirements upon the tenant as to user.

212 Fourth, NGC says that, by the time TBPL purported to exercise the option to purchase on 17 April 2003, NGC had validly and effectively rescinded the lease (or is now entitled to an order avoiding the lease ab initio) because of actionable misrepresentation or misleading or deceptive conduct or both.

The frustration argument

213 Before turning to questions of breach of the lease covenants, I consider NGC’s argument that the lease was discharged by frustration. NGC says that the lease had, as its purpose, from NGC’s perspective, the control of native regrowth on the Cudgen Paddock; that it was the assurance of this benefit, conveyed by Barr to Shigeo and by Shigeo to Hiroyuki, that persuaded NGC to grant the lease; and that the imposition of the stop work orders under the Threatened Species Conservation Act and the interim protection orders under the National Parks and Wildlife Act made unlawful and therefore legally impossible the clearing and other works on the land necessary to achieve the control of native regrowth.

214 The first question to be addressed here is whether the doctrine of frustration applies to leases as it does to contracts as such.

215 In Firth v Halloran [1926] HCA 24; (1926) 38 CLR 261, two judges of the High Court (Knox CJ and Gavan Duffy J) endorsed without qualification a decision of the Full Court of the Supreme Court of New South Wales (Halloran v Firth (1926) 26 SR (NSW) 183) that the doctrine of frustration does not apply to a demise by which an estate in land is created and passed to the lessee. Isaacs J was of the view that the fact that a lease creates more than a contractual obligation does not necessarily mean that the doctrine of frustration is excluded. Higgins J disposed of the appeal without finding it necessary to consider the question. The fifth member of the court, Rich J, merely agreed that the appeal should be dismissed, that being the opinion of all other judges.

216 In Re Equity Trustees Executors and Agency Co Ltd and Considine’s Contract [1932] VicLawRp 18; [1932] VLR 137, Cussen ACJ, referring to then recent House of Lords authority (Matthey v Curling [1922] 2 AC 180), expressed a clear preference for the views of Knox CJ and Gavan Duffy J over those of Isaacs J in Firth v Halloran. Later first instance decisions in Australia treated the matter as free from binding authority (see for example, Shiell v Symons [1951] SASR 82; Robertson v Wilson (1958) 75 WN (NSW) 503) or as governed only by English authority to the effect that a lease cannot be frustrated (Thearle v Keeley (1958) 76 WN (NSW) 48; Lobb v Vasey Housing Auxiliary (War Widows’ Guild) [1963] VicRp 38; [1963] VR 239).

217 More recently, the House of Lords has held that the doctrine of frustration is in principle applicable to leases: see National Carriers Ltd v Panalpina (Northern) Ltd [1980] UKHL 8; [1981] AC 675. In addition and as discussed at paragraphs [230] and following below, the High Court has held that general principles of contract law apply to leases so that a lease, like any other contract, may be terminated for fundamental breach. In The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17, however, the particular question of frustration, considered by some members of the court almost sixty years earlier in Firth v Halloran, was expressly reserved.

218 In City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140; (2001) 24 WAR 146, the Full Court of the Supreme Court of Western Australia dealt with on their merits submissions that a lease was frustrated by the introduction of a planning restriction which precluded the activity that the lessee was required to pursue on the leased land. Firth v Halloran and The Progressive Mailing House Pty Ltd v Tabali Pty Ltd, although apparently referred to in submissions, were not mentioned in the judgments. Ipp J (with whom Malcolm CJ and Wallwork J agreed) said that “[t]he cases in which the doctrine of frustration could properly be applied to leases are extremely rare”. His Honour said that “one reason” for this is that “a lease is more than a contract, it conveys an estate in land”. That had been given in many earlier cases as the reason why the doctrine of frustration did not apply at all to leases. The fact that a lease creates a leasehold estate means that it cannot be said that what was agreed or contemplated by the parties has been rendered impossible or frustrated.

219 Given the conclusions stated by members of the High Court in Firth v Halloran – with all five judges holding that the appeal should be dismissed, two of the five (Knox CJ and Gavan Duffy J) expressing the opinion view that the doctrine of frustration does not apply to lease, the third judge (Isaacs J) not accepting that proposition, the fourth (Higgins J) adopting no position at all on the matter and the fifth (Rich J) merely concurring in the dismissal without stating any reasons at all – I do not consider that a judge of this court sitting at first instance is bound by the doctrine of precedent to adopt any view in relation to the question. Nor, clearly enough, was Firth v Halloran productive of “seriously considered dicta of a majority” of the High Court, to adopt the description made relevant by Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [134].

220 On the whole and particularly in light of the approach actually taken by the Full Court of the Supreme Court of Western Australia in City of Subiaco v Heytesbury Properties Pty Ltd (above), I am of the opinion that it cannot be said today, as an abstract proposition, that the doctrine of frustration has no application to leases, in the sense that a lease can in no circumstances whatsoever be discharged by frustration. In the end, however, I do not need to come to any firm conclusion on this question since I am of the view that, even if the doctrine can apply to a lease, the present case is not one in which it operates.

221 A contract will be regarded as discharged by frustration if some supervening event makes performance of the contract impossible or pointless. It is the latter basis – that performance became pointless – that NGC relies upon in this case. There is no suggestion that any aspect of performance of the lease covenants was rendered impossible by the intervention of the stop work orders and the interim protection orders.

222 NGC points, as I have said, to the purpose for which it granted the lease, that is, in order to create a means of keeping down the regrowth of native vegetation. NGC refers to aspects of the antecedent correspondence in which Barr advocated the grant of a lease as a means of securing that benefit to NGC. But there was no provision of the lease directed towards that end. TBPL submitted to a requirement that it not use the land otherwise than for the planting and cultivation of lemon myrtle trees. It also accepted certain other constraints upon its freedom of action upon and in relation to the land. But it did not covenant, either directly or indirectly, to plant lemon myrtle trees or otherwise to keep down native vegetation; nor, for that matter, did it undertake any other positive obligation with respect to its use of the land.

223 The cases in which a contract has been held to be frustrated because its performance has become pointless are exemplified by Krell v Henry [1903] 2 KB 740 which involved a contract for the hire of rooms overlooking Pall Mall for the days (but not the nights) in June 1902 on which the Coronation procession of Edward VII was scheduled to pass. When the procession was cancelled because of the King’s illness, it was held that the event “regarded by both contracting parties as the foundation of the contract” had been removed and that the contract had thereby been frustrated.

224 In Krell v Henry, the English Court of Appeal drew attention to the four questions that must be addressed in a case of this kind. That approach was endorsed by the High Court in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337. The four questions are:

1. What was the substance of the contract, being the assumption or condition or state of things which was necessary for the fulfilment of the contract?

2. Was that condition or state of things prevented?

3. Was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties?

4. Was the change so unexpected that, if performed, the contract would be radically different from that which was contracted?

225 But, as Latham CJ observed in Scanlan’s New Neon Ltd v Toohey’s Ltd [1943] HCA 43; (1943) 67 CLR 169, the relevant principle is tightly constrained. The Chief Justice said at 191-192:

“Whenever a man takes a lease of premises, he and his lessor expect that he will be able to use the premises, but it is well established that he is not excused from paying rent because the premises are destroyed. When a man agrees to buy a pair of boots for himself, both parties expect that he will be able to wear them. If he has an accident, so that he can no longer wear boots, he nevertheless still has to pay for them. If a man buys or hires a motor car, both parties know that he expects to be able to drive it. The stoppage of the sale of petrol, which would make it impossible for him to drive it, does not excuse him from his obligation to pay the purchase money or the hire for the agreed period. I am unable to find in the statement of the law actually made in Krell v Henry [(1903) 2 KB at p 749] (whatever may have been intended) any principle which would prevent a party to any of the contracts mentioned from successfully relying upon the defence of frustration.

It will perhaps be said that nobody would ever think of applying Krell v Henry in such cases. I agree. But why? Simply because the general rule is applied, viz. that a man who makes a promise is bound to perform it or to pay damages if he fails to do so, and that he cannot excuse himself by relying upon circumstances dehors the contract for the purpose of showing that he did not mean what he clearly said, or that he should be excused from performance because the contract did not work out in the manner expected by one or even by both of the parties.”

226 When regard is had to the assumption or condition or state of things that was necessary for the fulfilment of the lease between NGC as lessor and TBPL as lessee, it cannot, on the evidence, be said that the positive activities of TBPL in clearing the land and planting trees that would keep down native vegetation was necessary for the fulfilment of the lease. The lease did not, in terms, contemplate even indirectly the control of native regrowth. There was, at most, a prohibition upon use of the land by TBPL otherwise than for the planting and cultivation of lemon myrtle trees. It would have been quite consistent with the lease provisions for TBPL not to use the land at all and to allow it to revert to nature (subject to the obligation to comply notices or orders of competent authorities that that might have prompted: clause 5.3(d)).

227 NGC’s contention that, because of the stop work orders and the interim protection orders, the continuation of the lease failed to achieve the vegetation controlling purpose that was an important consideration in its decision to grant the lease amounts to an argument that it should be excused from performance because the lease did not work out in the way expected by it (and perhaps expected also by TBPL). That, as Latham CJ said, is not enough to excuse the disappointed party from its commitment. In advancing the argument, NGC relies upon circumstances outside the lease in an attempt to show that it did not mean what it clearly said, that is, that TBPL should enjoy possession as lessee and have a leasehold estate accordingly provided that the use to which it put the land (if it used it at all) was confined to the planting and cultivation of a particular kind of tree.

228 NGC’s contention that, by reason of the making of the stop work orders and the interim protection orders, the lease was discharged by frustration fails.

The significance of “essential term” status

229 In approaching the question of breaches of the lease covenants, it is relevant to note that most of the particular terms of the lease said by NGC to have been breached by TBPL were declared by clause 9.1 to be “essential terms” of the lease: see paragraph [21] above.

230 In The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (above), Mason J said at 29, after referring to decisions in Australia and Canada, the decision of the House of Lords in National Carriers Ltd v Panalpina (Northern) Ltd (above) and an article by William O Douglas and Jerome Frank entitled “Landlords’ Claims in Reorganisations” at (1933) 42 Yale LJ 1003, that “the law of landlord and tenant had outgrown its origins in feudal tenure”, with the result that “the ordinary principles of contract law, including that of termination for repudiation or fundamental breach, apply to leases”. Other members of the court took the same view and the principle that a landlord may resort to a contractual remedy by way of termination for the tenant’s fundamental breach of contract is now an established part of Australian law. The principle is consistent with the earlier decision of the High Court in Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 and has been confirmed by the court on several subsequent occasions, including most recently in Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10; (2008) 234 CLR 237.

231 The relevant notion of “fundamental breach” was said by Mason J in Progressive Mailing House at 31 to comprehend “breach of a condition or breach of another term or terms which is so serious that it goes to the root of the contract”. In the Gumland Property Holdings case, the court (Gleeson CJ, Kirby J, Heydon J, Crennan J and Kiefel J) stated two related propositions of significance and confirmed their applicability to leases (at [58]):

1 Under general contractual principles, an innocent promisee can terminate the contract, and recover loss of bargain damages, where there is repudiation, or a fundamental breach, or a breach of condition — ie a breach of an essential term.

2. Under these principles it is possible by express provision in the contract to make a term a condition, even if it would not be so in the absence of such a provision — not only in order to support a power to terminate the contract but also to support a power to recover loss of bargain damages.

232 The import of the second of these propositions is that lessor and lessee may themselves choose to confer on a particular term the status of a condition or essential term breach of which by the lessee will amount to repudiation productive of a right of the lessor to terminate. In the Gumland Property Holdings case, the High Court thus endorsed, as equally applicable to leases, the statement of Gibbs CJ in Shevill v Builders Licensing Board at 627 that the parties to a contract may stipulate that a term will be treated as having a fundamental character although in itself it may seem of little importance; and effect must be given to any such agreement. Gibbs CJ had in turn approved the statement of Owen J in Campbell v Payne and Fitzgerald (1953) 53 SR (NSW) 537 at 539 that a right to forfeit a lease might arise “in the case of any breach of covenant however trifling, if the parties had agreed that a breach of that covenant should create a forfeiture”.

233 It is thus clear that, if the parties to a lease choose to designate a term “essential”, their bargain in that regard must be respected whatever might be the objective or intrinsic importance of the particular term. I would observe, in any event, that each of clauses 4.1, 4.3, 4.5 and 7.1 of the present lease, being the relevant clauses designated “essential terms” by clause 9.1, is objectively and intrinsically of central importance to the bargain.

234 Because breach of an essential term by the lessee gives rise to a contractual right of the lessor to terminate the lease and, by that means, to put an end to the relationship of landlord and tenant, such a breach makes available to the lessor an alternative to the traditional legal remedy of re-entry and determination of the leasehold estate by taking away the possession that would otherwise be the sole preserve of the lessee by virtue of that estate.

235 It follows that in this case, as in Natwest Markets Australia Pty Ltd v Tenth Vandy Pty Ltd [2008] VSCA 207; (2008) 21 VR 68, the lease confers on the lessor two distinct rights. Clause 8.1 confers a right of re-entry and forfeiture in the traditional way in case of any breach of covenant by the lessee; and clause 9.1 makes available to the lessor, according to contract law principles, a quite separate right of termination for breach of a provision deemed by the parties, through clause 9.1 itself, to be “essential”.

236 I do not accept a submission made on behalf of TBPL that, as a matter of construction (based on the words “any default in or breach of the due and punctual observance and performance of the provisions of this Lease”, with emphasis on “any”), clause 8.1 deals comprehensively and exhaustively with breach by the lessee, regardless of the nature and importance of the breach, so that rights of the lessor in case of any breach whatsoever by the lessee, including breach of an essential term, are confined to those provided by clause 8.1 (compare Amann Aviation Pty Ltd v Commonwealth of Australia (1990) 22 FCR 527). I do not accept the submission because such a construction fails to afford due weight to clause 9.1 and its genesis in the case law to which I have referred. It is noteworthy that judges have, on several occasions (for a recent example, see Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd [2010] VSC 2 at [5]), used the label “Shevill clause” or “anti-Shevill clause” to describe, by reference to its case law origin, a provision obviously adopted to bring into play the general law principles elucidated in, in particular, Shevill v Builders Licensing Board (above) and The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (above). Clause 9.1 is such a provision and must be given an operation independently of clause 8.1 accordingly.

Section 129 of the Conveyancing Act and essential terms

237 Section 129(1) of the Conveyancing Act 1919 applies to the exercise of the lessor’s clause 8.1 right but not to exercise of the independently existing right flowing from clause 9.1 as a matter of general law. That section is as follows:

“A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a) specifying the particular breach complained of, and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and

(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach.”

238 The reference here to “forfeiture” is a reference to forfeiture of the leasehold estate: see Warner v Sampson [1959] 1 QB 297 where Lord Denning MR traced the history of the concept of forfeiture in relation to leases and leaseholds. The right contemplated by s 129(1) is a “right of re-entry or forfeiture” created by the lease itself (that is the force of the words “under any proviso or stipulation in a lease”). The relevant right is accordingly a specific right to re-take possession from the tenant or to deprive the tenant of the leasehold estate. Each of these rights is distinct in nature from the right that a contracting party has to terminate the contract for fundamental breach. Where the relevant contract is a lease, termination in exercise of such a right destroys the tenant’s right to possession and the leasehold estate. But that destruction is a consequence of the ending of the contract, not of the exercise of a right of re-entry or forfeiture “under any proviso or stipulation” in the lease, that being the matter with which s 129(1) is concerned.

239 I adopt, in this respect, the analyses made by Meagher JA in Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447 at 14,457 (Kirby P and Powell JA concurring) and by Williams AJA in Apriaden Pty Ltd v Seacrest Pty Ltd [2005] VSCA 139; (2005) 12 VR 319 at [66] ff.

The implications of NGC’s express reliance on one breach

240 NGC’s notice dated 3 May 2002 relied expressly on only one breach of the lease covenants. The notice stated that the lessee was in breach of clause 4.3 and that, because of that breach, the lessor would re-enter and take possession of the land after fourteen days from service of the notice.

241 This raises two related questions: whether it was open to NGC to rely on other breaches of the lease provisions as a basis for termination; and whether the notice dated 3 May 2002 was capable of having any effect other than the specific effect contemplated by clause 8.1.

242 As to the first matter, both parties referred to the observation of Dixon J in Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 at 377-378 that a party to a contract who refuses further to observe its stipulations (in other words, a terminating party) can rely on a breach of conditions committed beforehand by the other party as absolving him from the contract; and that the terminating party, by stating a wrong reason for his refusal, does not deprive himself of a justification which in fact exists. It was submitted by TBPL, however, that the terminating party may not rely on an unexpressed breach of conditions if the party knew of that breach.

243 TBPL sought to support this submission by reference to the following passage in the judgment of Gyles J in Asia Television Ltd v Yau’s Entertainment Pty Ltd [2000] FCA 254: (2000) 48 IPR 283 at [79]:

“The applicants submitted that they were also entitled to support the validity of the termination by non-payment of instalments of licence fee, even though this was not put forward as a ground for termination at the time, appealing to the principle that circumstances in existence at the time of termination of the agreement which could have justified the innocent party in terminating the contract may justify the termination by subsequent proof of these circumstances: Shepherd v Felt & Textiles Australia Ltd, above, at 371, 373, 377–8. As I have found the termination valid, it is unnecessary for me to resolve this issue. I should say, however, that I have grave doubt as to whether that principle has any application to breaches which are well known to all parties at the time of the notice of termination but are not relied upon . . .”

244 TBPL also referred to the following part of the judgment of Gleeson CJ, Gaudron J and Gummow J in Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 at [29]

”The proposition that the dismissal of an employee may be justified upon grounds on which the employer did not act and of which the employer was unaware when the employee was discharged is but an application of what, in Shepherd, Dixon J identified as a rule of general application with respect to the discharge of contract by breach” [emphasis added].

245 TBPL placed reliance also on a passage in the judgment of Handley JA in Dem Compagnie Pty Ltd v Telxon Australia Pty Ltd [2004] NSWCA 66 at [63]:

“However Mr Young submitted that this did not matter and cited in support Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359. That case establishes that termination of a contract for breach can be supported by evidence of breaches which were not relied upon by the terminating party at the time and of which it was not then aware” [emphasis added].

246 TBPL emphasises the highlighted words in these two passages. It says that those words make it clear that ignorance by the terminating party of the alternative circumstance allowing termination is an essential element of the right to rely later on that alternative circumstance as a justification for termination effected, in terms, on some other basis.

247 I do not accept TBPL’s submissions in this respect. The two passages just quoted do no more than to confirm the right of the terminating party to rely later on some circumstance justifying termination of which the party was not aware at the time of termination. They do not make lack of awareness an essential ingredient. Indeed and as was noted in submissions made on behalf of NGC, Dixon J’s formulation in Shepherd v Felt and Textiles Australia Ltd made it clear that the right to rely on an alternative basis may be availed of whether or not the alternative basis was known to the terminating party at the time of termination. Dixon J’s formulation was in these terms:

“But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract” [emphasis added].

248 Dixon J quoted with approval the following passage in the judgment of Greer J in Taylor v Oakes Roncoroni & Co (1922) 127 LT 267 at 269:

"It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not" [emphasis added].

249 Anderson J derived support from both these statements when he said in W&R Pty Ltd v Birdseye [2008] SASC 321; (2008) 102 SASR 477 at [278]:

“It is not necessary for W&R to have been aware of all the repudiatory conduct when it gave the notice of termination.”

250 These are principles about discharge of a contract. I proceed therefore on the basis that, even though NGC referred in the notice of 3 May 2002 to breach of clause 4.3, it was open to NGC to rely on any extant breach, at least insofar as its action was calculated to terminate for breach of an essential term (although to the extent that there was an attempt to resort to clause 8.1, NGC is of necessity confined to the clause 4.3 breach alleged in the notice). It follows that the inquiry into breaches of the lease cannot be confined to the question of breach of clause 4.3, being the particular provision mentioned in the notice.

The contractual significance of the notice of 3 May 2002

251 As I have said, the fact that the notice of 3 May 2002 was framed specifically by reference to clause 8.1 of the lease raises the question whether it was capable of having any effect other than the particular effect contemplated by that clause. More specifically, the question is whether, if breach of an essential term existed, the notice had the effect of putting an end to the contract even though it was, in terms, a notice prompted by clause 8.1 of the lease and s 129(1) of the Conveyancing Act.

252 I have mentioned the principle - confirmed by the High Court in Gumland Property Holdings (above) to be applicable to leases - that an innocent promisee can terminate the contract and recover loss of bargain damages where there is repudiation or a fundamental breach or a breach of condition – ie, a breach of an essential term. The choice whether to treat the contract as discharged rests with the innocent promisee.

253 To make that choice, the party must, by unequivocal words or conduct, make it plain that the party treats the contract as at an end. Thus, for example, an unpaid seller of goods who re-sells them thereby puts an end to the original contract for sale (R V Ward Ltd v Bignell [1967] 1 QB 534); and a vendor of land terminates as against a defaulting purchaser by proceeding to advertise the property for re-sale (Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409).

254 The notice of 3 May 2002 made it clear that NGC was treating the lease as at an end at the expiration of the stated period of fourteen days. It is true that that message was conveyed in terms referring to clauses 4.3 and 8.1. But that is beside the point. By giving the notice, NGC communicated in an unequivocal way its decision to bring the contract constituted by the lease to an end. If, in contractual terms, it was open to NGC to terminate the contract because of breach of any of the terms deemed essential, then the giving of the notice must be taken to have brought about termination. NGC.

255 I would add that I accept the related submission of NGC that its actions in serving defences and cross-claims in these proceedings before 17 April 2003 (the date of the purported exercise of the clause 15 option to purchase by TBPL) also entailed an unequivocal message that it treated the lease as at an end.

256 I turn now to the alleged breaches of the lease terms.

Alleged breach of clause 4.1 of the lease

257 In dealing with the several alleged breaches of lease covenants by TBPL upon which NGC relies as justification for its termination of the lease by the notice of 3 May 2002, I begin by considering clause 4.1. That clause, as already noted, said:

“The tenant must not use the Premises otherwise than for the purpose of the planting and cultivation of Lemon Myrtle Trees.”

258 It is common ground that the trees actually planted and cultivated by TBPL were lemon scented tea trees (leptospermium petersonii), not lemon myrtle trees (backhousia citriadora). The two types of tree are different. For example, one has distinctly petalled flowers while the flowers of the other are of a wispy appearance. Each has commercial value. Oil extracted from the leaves of the first has antibacterial and antifungal properties. The latter is sought after mainly for the lemon essence derived from its leaves and used in soaps and cosmetics.

259 On the face of things, therefore, TBPL contravened clause 4.1 by using the land for the planting and cultivation of trees other than lemon myrtle trees.

260 TBPL contends, however, that, as a matter of construction, the parties’ reference in clause 4.1 to lemon myrtle trees must be understood as a reference to lemon scented tea trees. Alternatively, TBPL says that the lease should be rectified by substituting a reference to lemon scented tea trees for the reference to lemon myrtle trees in clause 4.1.

261 I am not persuaded that the matter may be dealt with simply as one of construction. Regard cannot be had to evidence of “the antecedent oral negotiations and expectations of the parties” in order to construe a written contract: Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 606; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (above) at 352. Nor is evidence of surrounding circumstances admissible to contradict the language of the contract when it has a plain meaning (Codelfa at 352). The court can, however, supply, omit or correct words where to do so is necessary in order to avoid absurdity or inconsistency and thereby to give affect to the parties’ intention as manifested by the document itself, read as a whole: Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420.

262 In the present case, however, there is nothing elsewhere in the lease that indicates an intention of the parties to refer in clause 4.1 to lemon scented tea trees rather than lemon myrtle trees. The document would make perfect sense and operate in a perfectly coherent way whether it referred, in clause 4.1, to either species of tree. There is, within the four corners of the document, no basis for displacing and correcting the clear reference to lemon myrtle trees in that clause.

263 If there is to be a correction, it can only be according to equitable principles concerning rectification of instruments. Two principles are potentially relevant: first, that equity will decree rectification if it is clearly and convincingly proved that the common intention of the parties as to what should be recorded in the instrument was different from what was actually recorded so that the instrument, as completed, fails to give effect to that common intention as to its content: Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336; Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329; and, second, that rectification may be granted if the actuating misapprehension was that of one party only, and the other party is guilty of fraud, whether actual, constructive or equitable: Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1980] EWCA Civ 3; [1981] 1 WLR 505; Budget Stationery Supplies Pty Ltd v National Australia Bank Ltd (1996) 7 BPR 14,891; Re Freehouse Pty Ltd (1997) 26 ACSR 662.

264 TBPL relies on the first basis only. It says that the common intention of itself and NGC, as manifested by events culminating in the execution of the lease, was that the lease should, in clause 4.1, prohibit use of the land except by the planting and cultivation of lemon scented tea trees, not lemon myrtle trees.

265 There is, as I have said, evidence that Barr tended to refer to the two types of tree interchangeably and that, by March 2000, he was referring to lemon myrtle alone. This was in circumstances where Holebeath Pty Ltd had, in October 1999, prepared a feasibility study based on yet another species (melaleuca alterfloria). Also, there had been in late 1999 test plantings of both lemon myrtle and lemon scented tea tree.

266 By the time the lease was prepared and executed, Barr had already placed an order for 300,000 seedlings and had, in his report of 22 March 2000, informed Shigeo of the need for Shigeo to provide “the $11,200 deposit as per my invoice faxed to you”. There is in evidence an invoice dated 10 March 2000 from Tea Tree Produce Pty Ltd for a deposit of $11,520 for 300,000 lemon scented tea tree seedlings. If this is what Barr referred to in his report to Shigeo as “my invoice faxed to you”, then Shigeo must be taken to have been put on notice that the 300,000 seedlings ordered were lemon scented tea tree, not lemon myrtle.

267 TBPL relies on this for its argument that NGC was on notice that the subject matter of the plantation project was in fact lemon scented tea tree, not lemon myrtle; and that the intention of NGC, in entering into the lease, related to the former and not the latter. There are two problems with this argument. First, it is not shown that the invoice of 10 March 2000 was faxed by Barr to Shigeo; and second, it is not shown that any communication of such a copy to Shigeo was in reality communication to NGC.

268 The invoice of 10 March 2000 is addressed to “Bob Wylie, Tweed Heads”. The invoice does not mention Barr, TBPL, NGC, Kings Forest, the Cudgen Paddock or anything or anyone else obviously connected with this case. There is no reference to “Bob Wylie” in any other part of the voluminous evidence before me, except for a reference by Barr to “Stephen Rose alias Bob Wylie” in a letter of 7 January 2002. The meaning of this is not explained and, on the basis of exposure to a great volume of Barr’s prose exhibiting egregious malapropisms and worse, there are necessarily real doubts that he used “alias” in its true sense to indicate that “Bob Wylie” was an assumed name used by Stephen Rose of Enterprise Kings. In short, there is nothing in the evidence to identify “Bob Wylie” or to show that any “Bob Wylie” had any connection with relevant events. Barr could no doubt have thrown light on this had he given evidence, but TBPL has not attempted to lead evidence from him. Bearing in mind my earlier conclusions on the significance of that, I infer that anything said by Barr would not have assisted TBPL’s attempt to link the “Bob Wylie” invoice with Barr’s 22 March 2000 report to Shigeo.

269 The invoice is for $11,520, but the amount requested by Barr from Shigeo is $11,200 (on 5 April 2000, Barr asked that Shigeo “make a payment today directly to the nursery for $10,700 for 300,000 trees”; and he did so in a context clearly referring to “an [sic] lemon myrtle operation”). The invoice referred to in Barr’s report is described as “my invoice faxed to you”. But there is no reference to an invoice in the fax cover sheet accompanying Barr’s report in which “my invoice faxed to you” is mentioned. The fax cover sheet refers to “my letter and report with attached contract and consolidated properties offer”, thus drawing attention to readily identifiable accompanying documents that do not include any invoice.

270 NGC submits and I accept that the unavoidable sense of Barr’s written communication is that the invoice to which he referred had been sent by fax to Shigeo on an earlier occasion. Barr referred in his letter to the draft lease agreement as being “enclosed”. In relation to what the cover sheet calls “consolidated properties offer”, Barr says, “I put forward this letter . . . “. In relation to each, therefore, there is an unmistakable indication that the particular document actually accompanied the letter and report sent under cover of the fax cover sheet. No such indication is given in relation to what is simply called “my invoice faxed to you”.

271 It is TBPL that seeks rectification of the lease. It is therefore for TBPL to prove that it was the common intention of NGC and TBPL to refer in clause 4.1 to lemon scented tea trees and not to lemon myrtle trees. To the extent that TBPL seeks to discharge that onus by showing that the invoice of 10 March 2000 addressed to Bob Wylie referred to trees ordered by Barr for the purposes of proposed the Cudgen Paddock plantation and came to the notice of Shigeo, it has failed to do so.

272 There is the added point that, even if the invoice did relate to trees ordered by Barr and came to the notice of Shigeo, it cannot be accepted that NGC thereby came to have, as to the type of trees to be referred to in the lease, the information that Barr had placed a purchase order for lemon scented tea tree seedlings. The communication by Barr to Shigeo by way of request for money to cover the deposit for seedlings occurred in the course of the development and crystallisation of the joint venture arrangement between Barr and Shigeo. Barr’s request for $11,520 or $11,700 was not a request directed to NGC. It was a request addressed to Shigeo personally in his capacity as co-venturer with Barr in the cultivation project. If Barr did in fact fax to Shigeo the invoice addressed to Bob Wylie referring to lemon scented tea tree seedlings, he did not do so with any intention or expectation that the content would come to the notice of NGC. On the contrary, he intended to communicate with Shigeo with whom he was pursuing the cultivation project in circumstances where there was no need for communication with NGC except in order to obtain the lease of the land on which the project was to be pursued.

273 There was communication by Barr directly with Hiroyuki before the lease was entered into. I refer to Barr’s letter of either 16 or 24 March 2000. This was without doubt communication to NGC. But in that letter, Barr referred expressly to lemon myrtle, not lemon scented tea tree. There is nothing to suggest that NGC, in the person of Hiroyuki, ever had any intention based on lemon scented tea trees.

274 I note also that there is in evidence an invoice for 1,800,000 lemon scented tea tree seedlings apparently ordered by BPM on behalf of TBPL. However, there is no suggestion that that invoice came to the notice of NGC.

275 It is beside the point, in the rectification context, to say, as TBPL does, that it made no difference to NGC which of the two species of tree was planted on the land. It may well be that lemon scented tea trees would have suited NGC just as well as lemon myrtle trees. Each, as well as many other species, may have been acceptable to NGC. Its desire was merely to see native regrowth controlled. Any planting achieving that end would have satisfied NGC’s requirement.

276 Where rectification is sought, however, it is necessary to prove a particular intention as to the content of the instrument and that that intention was common to the parties (in the sense that both held it). If it is proved that TBPL intended that clause 4.1 should be drawn so as to restrict use of the land to the planting and cultivation of lemon scented tea trees but that the intention of NGC was that the clause should impose a restriction on user such as to allow the planting and cultivation of anything that would keep down native vegetation, then the necessary commonality of intention as to content is not proved. It would, in those circumstances, be consistent with the intention of NGC, but not that of TBPL, for use to be restricted to the sowing of cereal crops or the establishment of a banana plantation. A lease imposing a restriction on user to that effect might well have been consistent with the intention of NGC but would have been inconsistent with the intention of TBPL.

277 TBPL’s claim to have clause 4.1 rectified fails.

278 The conclusion in this part of the case is that TBPL’s use of the land by planting and cultivating lemon scented tea trees was a breach of clause 4.1 of the lease.

Alleged breach of clauses 4.3 and 4.5 of the lease

279 Clause 4.3, like clause 4.1, is declared by clause 9 to be an essential term of the lease. Clause 4.3 is set out at paragraph [17] above. Clause 4.5 is set out at paragraph [18].

280 Clause 4.3 is a curious provision. It consists of three parts. The first is, in terms, a warranty by TBPL that a particular state of affairs exists at the time of its entering into the lease, namely, that it has already obtained any licence, consent or approval of any competent authority that is required because of the use to which the demised premises “are put” by TBPL. Given the structure of the provision as a warranty which, as it were, speaks at the time the lease is entered into, the reference to the use to which the demised premises “are put” must be, as TBPL submits, a reference to the use which, as at that time, the premises are to be put – which can only be a reference to the sole permitted use recognised in clause 4.1.

281 The second aspect of clause 4.3 imposes an ongoing obligation on the tenant. The ongoing obligation relates to “such licence, consent or approval” – clearly enough, that which is the subject of the warranty already mentioned – and requires that the tenant “maintain” it “as valid and operative” during the tenant’s occupation of the property. The ongoing obligation is thus an obligation to maintain as valid and operative the licence, consent or approval warranted to have been obtained before the lease was entered into.

282 The third aspect of clause 4.3 also imposes an ongoing obligation on the tenant, but not one concerned with the subject matter of the opening warranty. The obligation is to do “anything else” – that is, anything beyond maintaining the licence, consent or approval with which the first and second aspects are concerned – that “may be necessary” so that “the use” is lawful and complies with stated requirements. The reference to “the use” is obviously a reference back to the use of which the clause has already made mention, that is, for reasons stated, the sole use permitted by the lease at its inception, being the clause 4.1 use.

283 Clause 4.3 does not impose on the tenant an obligation to obtain and maintain such licences, consents and approvals as are from time to time required in connection with the uses to which the land is at any time put. I do not accept NGC’s submission to the contrary. Nor is there, from the landlord and tenant viewpoint, any need for such an ambulatory provision. The lease permits a single and narrowly defined use of the land by the lessee. If the lessee uses the land otherwise than for the purpose of the planting and cultivation of lemon myrtle trees, the lessee breaches clause 4.1 and rights of the lessor, including those flowing from the status of the clause 4 provisions as essential terms, become exercisable by the lessor accordingly. The lessor does not need the protection of a covenant by the lessee to obtain and maintain official licences and the like for activities beyond the scope of the sole permitted use, since its right to resort to landlord’s remedies is assured merely because the land has become the subject of use other than the sole permitted use.

284 The same is true of clause 4.5. It is concerned with statutory and other official requirements “with respect to the use to be put to the Premises”. The wording is inelegant. Having regard to the force of “to be put”, there can, I think, be no real doubt that the intended form is “the use to which the Premises are to be put”. Again, therefore, the focus is upon the single use allowed by clause 4.1. That alone constituted, at the date of the lease, the use to which the premises were to be put.

285 The structure and effect of clauses 4.3 and 4.5 thus pay attention to the use of the property for the purpose of the planting and cultivation of lemon myrtle trees. They are not concerned with activities actually engaged in after the commencement of the term.

286 NGC contends that, at the time the lease was entered into, use of the Cudgen Paddock for the planting and cultivation of lemon myrtle trees was unlawful in the absence of both development consent granted by the Council under the Environmental Planning and Assessment Act 1979 and a licence pursuant to Part 6 of the Threatened Species Conservation Act 1995. It is common ground that neither such consent or licence was in force at that time or at all. It is the contention of TBPL that, in the particular circumstances existing, the planting and cultivation of lemon myrtle trees did not attract a requirement for either form of statutory permission.

Threatened Species Conservation Act

287 As in force at the relevant time, s 118D(1) of the National Parks and Wildlife Act 1974 provided:

“A person must not, by an act or an omission, do anything that causes damage to any habitat (other than a critical habitat) of a threatened species, population or ecological community if the person knows that the land is a habitat of that kind.

Penalty: 1000 penalty units or imprisonment for one year or both.”

288 By virtue of definitions in the National Parks and Wildlife Act, the expressions collected together in the composite phrase “threatened species, population or ecological community” took their meaning from schedules to the Threatened Species Conservation Act which refer specifically to numerous kinds of both fauna and flora.

289 Section 91 of the Threatened Species Conservation Act, as in force at the material time, provided, so far as is currently relevant:

(1) The Director-General may grant a licence authorising a person to take action that is likely to result in one or more of the following:

. . .

(d) damage to a habitat of a threatened species, population or ecological community.

. . .

(3) Despite sub-section (1), a licence under this part is not required for the carrying out of routine agricultural activities unless the actions are, or are of a class of actions, that the regulations prescribe may be carried out only under the authority of a licence under this part.”

290 No regulation of the kind contemplated by s 91(3) was in force at any material time.

291 It was provided by s 91(6) of the Threatened Species Conservation Act that it was a defence to a prosecution for an offence under Part 8A of the National Parks and Wildlife Act (in which s 118D appeared) “if the accused proves that the the action constituting the alleged offence . . . was a routine agricultural activity”. (An alternative defence based on the existence of a “property management plan approved by the Director-General for the purposes of this Act” need not be examined since it is clear that, although steps had been taken towards the preparation of such a plan, no relevant approval was ever given.)

292 While both parties made detailed and sophisticated submissions on this aspect, I am of the opinion that the matter may be dealt with shortly. Clause 4.3 begins with the words, “Should the use to which the Premises are put by the tenant require the Licence consent or approval of any Competent Authority”. The focus is, as I have said, on the sole permitted use of planting and cultivating lemon myrtle trees. The question posed by the opening words is therefore whether “use” by planting and cultivating lemon myrtle trees “requires” any licence, consent or approval of a competent authority. In other words, does that particular “use” give rise to a requirement for a licence, consent or approval in the absence of which the “use” may not be undertaken?

293 The provisions of the National Parks and Wildlife Act and the Threatened Species Conservation Act are not, in terms, concerned with the “use” of land. They are concerned with any act or omission that “causes damage to any habitat” of a relevant kind on land. The planting and cultivation of one lemon myrtle tree or twenty lemon myrtle trees or 300,000 or 1.2 million such trees on the leased land might or might not cause damage to a relevant habitat. It would all depend on the location of the planting, what was there beforehand and what was actually done in the course of the planting and cultivation. The point of particular relevance is that the “use” of land for the purposes of such planting and cultivation does not, of itself, attract a need for any licence, consent or approval of any competent authority under that particular legislative regime; and this is so even though, depending on precise circumstances, an offence may be committed if, in the course of the use, a particular act is committed at a particular place within the relevant land and the perpetrator of that act does not then have a particular kind of licence.

294 The same analysis holds good for clause 4.5 which, again, is concerned with the particularly permitted “use” as distinct from things actually done in the course of putting the land to that use.

295 NGC’s contentions concerning clauses 4.3 and 4.5 advanced by reference to the native habitat protection legislation therefore fail.

Environmental Planning and Assessment Act 1979

296 The Environmental Planning and Assessment Act, by contrast, is directly concerned with the use of land. That Act deals in various ways with the “development” of land, a concept that, by virtue of the statutory definition of “development”, includes the use of land. Among the objects stated in s 5 of the Act is “the promotion and co-ordination of the orderly and economic use and development of land”.

297 It is common ground that the land the subject of the lease was, at 23 June 2000, zoned 2(c) Urban Expansion under the Tweed Local Environmental Plan 2000 (which I shall call “LEP 2000”). There is also no dispute that the planting and cultivation of lemon myrtle trees was within the following definition of “agriculture” in LEP 2000:

“’Agriculture’ includes horticulture and the use of land for any purpose of husbandry, including the keeping or breeding of livestock, poultry or bees, and the growing of fruit, vegetables or the like. It does not include forestry, or the use of an animal establishment or a retail plant nursery.”

298 Agriculture is, under LEP 2000, a use that is permissible with development consent. As TBPL concedes, therefore, the planting and cultivation of lemon myrtle trees prima facie required development consent, as at 23 June 2000. TBPL maintains, however, that continuing use rights applied at that time to allow that use without development approval.

299 Continuing use rights derive from s 109 of the Environmental Planning and Assessment Act:

“(1) Nothing in an environmental planning instrument operates so as to require consent to be obtained under this Act for the continuance of a use of a building, work or land for a lawful purpose for which it was being used immediately before the coming into force of the instrument or so as to prevent the continuance of that use except with consent under this Act being obtained.

(2) Nothing in subsection (1) authorises:

(a) any alteration or extension to or rebuilding of a building or work, or

(b) any increase in the area of the use made of a building, work or land from the area actually physically and lawfully used immediately before the coming into operation of the instrument therein mentioned, or

(c) without affecting paragraph (a) or (b), any enlargement or expansion or intensification of the use therein mentioned, or

(d) of the use therein mentioned in breach of any consent in force under this Act in relation to that use or any condition imposed or applicable to that consent or in breach of any condition referred to in section 80A (1) (b), or

(e) the continuance of the use therein mentioned where that use is abandoned.

(3) Without limiting the generality of subsection (2) (e), a use is presumed, unless the contrary is established, to be abandoned if it ceases to be actually so used for a continuous period of 12 months.”

300 LEP 2000 came into force on 6 April 2000. The question posed by s 109(1) is therefore whether use for the purpose of planting and cultivating lemon myrtle trees was a use for a lawful purpose for which the land was being used immediately before 6 April 2000. It is common ground that, because LEP 2000 replaced Tweed Local Environmental Plan 1987, it will be possible to conclude that the relevant use was lawful at 6 April 2000 only if the land had existing use or continuing use rights at 29 January 1988.

301 It is not disputed that, for more than twenty years (and perhaps as long as seventy or eighty years) up to 29 January 1988, the land had been continuously and lawfully used for the purpose of cattle grazing and pasture improvement. The lawful purpose for which the land was being used on 29 January 1988 was therefore either a narrow purpose of cattle grazing and pasture improvement (which would not include a purpose of planting and cultivation of lemon myrtle trees) or a more broadly stated purpose of agriculture in, for example, the sense in which it is defined by LEP 2000 which, it is accepted, extends to the planting and cultivation of such trees. The parties take different views as to whether the matter should be approached according to a broad or a narrow appreciation of the scope of the relevant purpose.

302 This dilemma has occupied the attention of courts on many occasions. It was referred to by McHugh JA in an often cited passage in his judgment in Royal Agricultural Society of New South Wales v Sydney City Council (1987) 61 LGRA 305 at 309-310:

“Because ‘existing use’ provisions are incompatible with the main objects of the legislation of which they form part, the courts have had to develop principles which reconcile the right of owners to have the full benefit of the existing use of land with the right of the local authority to enforce the conflicting objectives of town planning legislation. The courts have done so by refusing to categorise an ‘existing use’ so narrowly that natural changes in the method of using the land or carrying on a business or industry will render an existing use right valueless. At the same time, the courts have been concerned not to categorise the purpose of an existing use so widely that the land or premises could be used for a prohibited purpose which was not part of its use at the commencement of the legislation. Accordingly, a test has

been devised which requires the purpose of the use of land to be

described only at that level of generality which is necessary and

sufficient to cover the individual activities, transactions or processes carried on at the relevant date. Thus the test is not so narrow that it requires characterisation of purpose in terms of the detailed activities, transactions or processes which have taken place. But it is not so general that the characterisation can embrace activities, transactions or processes which differ in kind from the use which the activities etc as a class have made of the land.”

303 In North Sydney Municipal Council v Boyts Radio & Electrical Pty Ltd (1989) 16 NSWLR 50, Kirby P said at 59, after referring to that statement of McHugh JA and other authorities (including Shire of Perth v O’Keefe [1964] HCA 37; (1964) 110 CLR 529):

“From these authorities the following matters of approach emerge:

1. Defining the “existing use” depends upon a detailed examination of the facts of each case. Inevitably there will be borderline cases where the characterisation of the use which is protected will be controversial and upon which minds may differ.

2. Nevertheless, the general approach to be taken is one of construing the “use” broadly. It is to be construed liberally such that confining the user to precise activity is not required. What is required is the determination of the appropriate genus which best describes the activities in question.

3. In determining that genus, attention should be focused on the purpose for which the determination is being made. This is a town planning purpose. It therefore considers the use from the perspective of the impact of the use on the neighbourhood. This is because the regulation of the use within the neighbourhood is the general purpose for which planning law is provided.”

304 A useful conspectus of findings in several of the significant cases is provided by Biscoe J in the recent case of Warlam Pty Ltd v Marrickville Municipal Council [2009] NSWLEC 23; (2009) 165 LGERA 184 at [19] (citations omitted):

“The following characterisations of uses are illustrative. The use of premises for pottery making was not categorised more generally as a use for the purpose of light industry. The use of premises for professional offices need not ordinarily be categorised with greater particularity (such as by reference to the particular profession). The general term “shop” is an insufficient description of a purpose. Thus, premises used as a butcher’s shop were not properly to be categorised more generally as a shop. Similarly, premises used as a retail food shop were not to be categorised more generally as a neighbourhood village retail shop. The use of the Sydney showground was for the purposes of a showground and speedway and could not properly be described as for the purpose of open air concerts, notwithstanding that five concerts had been held there over 25 years. Premises which warehoused electrical goods and other goods were categorised as a warehouse, notwithstanding that that would permit the storage of goods not previously stored. Premises used as a milk bar with takeaway food were not classified as a café or refreshment room.

305 Both parties referred to Taggett v Council of the Shire of Tweed [1993] NSWCA 260. It was there held by the Court of Appeal (Handley JA with whom Clarke JA and Sheller JA concurred) that the only existing use was for grazing cattle and that to characterise it as either agriculture generally or mixed farming would involve a level of generality more than sufficient to cover the activities carried on at the relevant date; also that each of the alternative characterisations would be so general as to embrace activities which differed in kind from activities being undertaken at the relevant date. Handley JA there resorted to analysis and terminology drawn from the observations of McHugh JA in Royal Agricultural Society quoted above.

306 Finally, I refer to an observation of Menzies J in Shire of Perth v O’Keefe (above). His Honour said, at 536, that the purpose for which the premises were being used at the relevant date was that of pottery making and that, while pottery making falls within the description of light industry, it does not follow, either in logic or in town planning, that use for one purpose that falls within light industry is to be regarded as use for any purpose that falls into that category.

307 Applying to the present case the criteria emerging from the case law, I am of the opinion that use of the leased land by TBPL for the purpose of planting and cultivating lemon myrtle trees would not have been, in terms of s 109(1) of the Environmental Planning and Assessment Act, “the continuation of a use of [the land] for a lawful purpose for which it was being used” on 29 January 1988. As at that date, the purpose for which the land was being used was that of cattle grazing and pasture improvement. That purpose may well have entailed a number of particular activities such as fencing, the construction of dairies and stockyards, irrigation and the clearing of some vegetation. Pursuit of those particular activities would be comprehended by the broader purpose of cattle grazing and pastures improvement. But to add a purpose of planting and cultivating trees with a view to the harvesting of their leaves would be to introduce a level of generality that was more than necessary and sufficient to cover the activities carried on at the relevant date. The relevant genus is not agriculture in a general sense. The activities involved in the planting and cultivation of the trees would differ in kind from those involved in cattle grazing and pasture protection.

308 I am therefore of the opinion that use of the leased land by TBPL for the purpose of planting and cultivating lemon myrtle trees was not, as at 23 June 2000, a use within s 109(1) of the Environmental Planning and Assessment Act, with the result that the land could not have been lawfully put to that use in the absence of development consent. TBPL had not obtained before 23 June 2000 and did not obtain at any time a development consent for the use of the leased land for the purpose of planting and cultivating lemon myrtle trees. TBPL was therefore in breach of both clause 4.3 and clause 4.5 of the lease. The consequences and ramifications of those breaches will be considered presently.

309 The conclusion I have reached with respect to the non-availability to TBPL of the benefit of s 109(1) of the Environmental Planning and Assessment Act makes it unnecessary to address a number of submissions concerning s 109(2).

Alleged breach of clause 7.1 of the lease

310 It may be that the alleged breach of clause 7.1 of the lease, although pleaded, was ultimately not pressed by NGC. I deal with it nevertheless.

311 Clause 7.1 is set out at paragraph [19] above. Clause 7 as a whole is declared by clause 9.1 to be one of the “essential terms” of the lease.

312 Two actions of TBPL may have entailed breach of clause 7.1. First, TBPL may have breached the clause by sharing possession of the demised premises with Shigeo or the Barr-Shigeo joint venture or giving Shigeo or the joint venture an interest in it. Second (and assuming that the lease had not been validly terminated at an earlier time), it may be that TBPL breached the clause when, on 19 March 2003, it granted to Austcorp an option to purchase the Cudgen Paddock and an option to purchase the lease. Although the Austcorp option was granted a considerable time after the service of NGC’s notice dated 3 May 2002, NGC’s action in serving particular pleadings in October and December 2003 may have amounted to termination on the basis of breach of the clause 7.1 essential term.

313 I do not accept the first possibility. The joint venture agreement between Barr and Shigeo was entered into at the same time as the lease was granted by NGC to TBPL. Its content is set out at paragraph [40] above. The capacity in which Barr signed the joint venture agreement is equivocal. It should, I think, be inferred that he intended to bind himself, BPM and TBPL so that each would be committed to Shigeo in respect of the aspects of the venture relevant to him or it. In addition, the penultimate paragraph is intended, clearly enough, to ensure that Shigeo had from the inception of the lease a beneficial interest in it – in other words, TBPL was entering into the lease at the outset for the benefit of both itself and Shigeo. No interest was given to Shigeo at a time after clause 7.1 had come into operation; nor is it shown that, in connection with the joint venture, anyone but TBPL had possession of or a licence in respect of the land. The joint venture was, in terms, a profit sharing venture.

314 In relation to the option to purchase granted by TBPL to Austcorp on 19 March 2003, NGC pleads that there was a dealing with the lease in breach of clause 7.1. The aspect of the clause relied on is that covered by the words ”or otherwise deal with”.

315 The “otherwise deal with” prohibition applies to “the Premises or any part thereof”. The expression “Premises” is defined as meaning “the Property leased and described at (A)” and including certain fixtures, fittings and the like. The prohibition created by the words “or otherwise deal with” is part of a larger prohibition: “or mortgage, charge or otherwise deal with, or dispose of the Premises or any part thereof”.

316 This form of words draws a distinction between, on the one hand, “mortgage, charge or otherwise deal with” and, on the other, “dispose of”. The words “or otherwise deal with”, following immediately after “mortgage, charge”, indicate that the prohibition upon “dealing” is as to transactions that are not mortgages or charges but have some affinity with mortgaging and charging. Furthermore, the separate reference to disposal, following after the composite reference to mortgaging, charging or otherwise dealing, indicates that disposal is distinct from that which is contemplated by “otherwise” dealing. I accept the submission of TBPL that the “otherwise deal” prohibition, as a matter of construction, extends only to dealings that are analogous with mortgages and charges; and that it does not represent some form of residual catch-all. Had it been intended to have that effect, the “otherwise deal with” prohibition would have come after the prohibition on disposal, not before.

317 By virtue of the demise, TBPL had a leasehold estate in the relevant land. By virtue of its option to purchase, it had an equitable interest in the freehold or freehold reversion held by NGC. It may be accepted that, by granting to Austcorp both an option to purchase the Cudgen Paddock and an option to purchase the lease, TBPL caused Austcorp to have an equitable interest in both the leasehold and the freehold or freehold reversion. But TBPL did not thereby “otherwise deal with” the “Premises” as contemplated by clause 7.1.

318 If indeed NGC presses its contention that there was a breach by TBPL of clause 7.1 of the lease, it has failed to make good that contention.

Alleged breach of clause 18 of the lease

319 Clause 18, so far as relevant, is set out at paragraph [22] above.

320 NGC’s position is that the imposition of the stop work orders and the interim protection orders caused the affected land to be “reclassified”. NGC also says that TBPL, by bringing about that “reclassification”, breached clause 18(a).

321 I must say at once that I am not satisfied that the events on which NGC relies amounted to or effected any “reclassification” of the land. It is true that the lease itself sheds no light on the meaning of “reclassified”. But the concept, of its nature, involves some alteration to an existing classification. Something cannot be “reclassified” unless it is “classified” in the first place. By reason of its reclassification, it comes to be placed in a category different from its original category. And in terms of clause 18(a), of course, the only relevant “reclassification” is one “by” a local authority or other competent body or authority. The relevant reclassification concept is, to my mind, similar to that involved in the alternative referred to in clause 18(a) by use of the word “rezoned”, that is, movement from one defined category to another.

322 Submissions refer to the particular piece of legislation referred to in clause 18(a), being the Native Vegetation Conservation Act 1997 (now repealed). That act made provision for a form of classification of land. Land could become, for the purposes of the Act, “State protected land” or “regional protected land”. The possibility that land within one category might become instead land within the other was recognised by s 7(4) which stated that State protected land ceased to be regional protected land if so identified in a regional vegetation management plan, being a plan made by the relevant Minister under s 33. The process by which action of the Minister under s 33 caused land to become regional protected land and to cease to be State protected land might well have been within the concept of “reclassification” referred to in clause 18(a) of the lease.

323 The events relied upon by NGC as “reclassification” are the making of stop work orders under the Threatened Species Conservation Act and the making of interim protection orders under the National Parks and Wildlife Act. Each stop work order, by its terms, required the immediate cessation for forty days of any activity that may result in damage to the habitat of threatened species. The interim protection orders had the effect of prohibiting specified acts and activities upon the relevant land while the order continued in force.

324 While the stop work orders and the interim protection orders affected what could lawfully be done upon the land, in that they precluded certain activities, they did not, in my opinion, bring about any “reclassification” of the land itself. The government instrumentalities by which the orders were made did not administer any system of land classification. The making of the orders did not cause the land to be removed from one recognised category of land and placed instead in another. Nor did it cause some different regime of relevant control to be substituted for a pre-existing regime. There was no more than the imposition of a restriction on the activities that could lawfully be conducted on the land.

325 The allegation of breach of clause 18(a) is not made out.

Is NGC precluded from relying on TBPL’s breaches of the lease covenants?

326 According to conclusions already stated, TBPL committed breaches of clause 4.1, clause 4.3 and clause 4.5 of the lease. Breach of clause 4.1 occurred when and because TBPL used the land for the purpose of planting and cultivating lemon scented tea trees. A breach of each of clause 4.3 and clause 4.5 occurred because TBPL did not have, at the time the lease was entered into, a development consent from the Council for the use specified in clause 4.1, that is, use for the purpose of planting and cultivating lemon myrtle trees.

327 It is the contention of TBPL that NGC is precluded from relying on these breaches as a basis for terminating the lease. TBPL advances, in broad terms, two arguments. The first argument applies to both clause 4.1 and clause 4.3. TBPL says that NGC is estopped from relying on the breaches. Second (an in relation to clause 4.3 only), TBPL maintains that NGC waived its right to assert valid termination on the basis of the breaches and affirmed the lease.

328 I shall deal with these matters separately

Estoppel – clauses 4.1 and 4.3

329 TBPL relies on both estoppel by convention and estoppel by representation.

330 As to the former, TBPL adopts (and NGC does not question) the formulation of the matters necessary to establish estoppel by convention stated by Brereton J in Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) NSW ConvR 56-172 at [47] and approved by Tobias JA (with whom Mason P and Campbell JA agreed) in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at [200]:

“Accordingly, all the elements necessary to found a conventional estoppel have been established . . . :

Moratic assumed that the only rent payable by it under the lease was that reserved by clause 4.1;

The Gordons adopted the same assumption;

Both parties conducted their relationship on that basis;

Each party knew that the other was conducting the relationship on that basis; and

Departure from that assumption would occasion detriment to Moratic.”

331 The essential ingredient is the existence and pursuit of a common understanding in the sense that each party, to the knowledge and with the concurrence of the other, proceeds on the basis of the shared assumption that their relationship is to be conducted on that understanding.

332 As to clause 4.1, TBPL says that, from about late 1999 to May 2002, TBPL, Barr and NGC, to the knowledge of each of the others of them, conducted their relationship on the basis of certain mutual assumptions. They assumed that, whatever the lease might say, the land could be used and was to be used for the planting and cultivation of lemon scented tea trees. In relation to clause 4.3, TBPL says that there was another mutual assumption, that is, that the use of the land for the cultivation of lemon myrtle trees (or, for that matter, lemon scented tea trees) did not require any development consent.

333 As to the first of the mutual assumptions thus postulated, TBPL points to elements of the evidence pre-dating the execution of the lease on 23 June 2000, including the “Bob Wylie” invoice and other matters noticed in the context of TBPL’s claim for rectification of the lease (see paragraphs [264] to [276] above). For the reasons canvassed in that connection, I am not persuaded that those elements establish the existence of any antecedent mutual assumption or common intention that lemon scented tea trees were to be planted rather than lemon myrtle trees. That relieves me of the need to consider the question whether a mutual assumption that pre-dates the making of the relevant contract can found a conventional estoppel warranting departure from the terms of that written contract: see, for example, the differing views of McPherson JA and Holmes J in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 194 and, at an earlier time, those of Kirby P and McHugh JA in State Rail Authority v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170.

334 In this particular case, however, it is noteworthy that the lease contains an “entire agreement” clause (clause 14.2):

“The tenant expressly acknowledges that this Lease contains the entire agreement as concluded between the parties . . . “

335 Einstein J has on two recent occasions expressed the view that no estoppel by convention based on pre-contractual conduct can be established in the face of such an “entire agreement” clause: see Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 635; (2008) 14 BPR 26,279 at [141] and Waste Recycling & Processing Corporation v Global Renewables (Eastern Creek) Pty Ltd [2009] NSWSC 453 at [77]. This is consistent with the observation of McLelland J in Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190 at 196 that an “entire agreement” clause “itself gives rise to an estoppel by convention which excludes any antecedent estoppel which might otherwise have had effect”. In Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407, however, the Court of Appeal observed that an “entire agreement” clause would not prevent the operation of an equitable estoppel as distinct from a common law estoppel; and that any decision about the effect of such a clause upon the availability of estoppel by convention should await an occasion for the exploration of the true nature of that estoppel. As indicated in the judgment of Mason J and Deane J in Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 430, estoppel by convention was originally a common law estoppel. But that seems to have changed. In “The Modern Law of Estoppel”, Oxford (2000), Elizabeth Cooke says at 31, citing Norwegian American Cruises A/S v Paul Mundy Ltd (The “Vistafjord”) [1988] 2 Lloyd’s Rep 343, that “estoppel by convention seems to have moved house, from the common law tradition to equitable estoppel”, a trend noticed in this country by Matthew N C Harvey in “Estoppel by convention – an old doctrine with new potential” (1995) 23 ABLR 45. Hence, no doubt, the desire of the Court of Appeal to leave the question of the true nature of the estoppel until some occasion requiring its detailed examination.

336 This is not such an occasion, given my conclusion, already stated, that it has not been established that there was any antecedent mutual assumption of the parties that lemon scented tea trees were to be planted rather than lemon myrtle trees.

337 When regard is had to the evidence of events after the lease was entered into, it cannot be seen that Barr or TBPL was working on an assumption that the planting envisaged and authorised by the lease was the planting of lemon scented tea trees. NGC points to a number of matters. First, in the management agreement made by TBPL with Enterprise Kings on 3 August 2000, there was a recital that by the lease TBPL had agreed to cultivate “Lemon Myrtle trees for the distillation of Lemon Myrtle oil”. In a letter of 28 August 2000 to NGC’s consultants, Barr said that the Cudgen Paddock was to be used as a “short term Lemon Myrtle plantation for oil production”. An environmental impact statement prepared by Mr Sippel in relation to the plantation on Barr’s instructions in August or September 2000 referred only to a lemon myrtle plantation. Furthermore, when, at Barr’s instigation, an application for development consent affecting Kings Forest as a whole was submitted to Tweed Shire Council in January 2001, it included, in relation to the Cudgen Paddock, a request for approval of a lemon myrtle plantation.

338 It is accordingly not shown that TBPL – let alone NGC – proceeded after 23 June 2000 on an assumption, whenever formed, that clause 4.1 of the lease referred to lemon scented tea trees and not to lemon myrtle trees. The argument based on estoppel by convention as regards clause 4.1 therefore fails.

339 In relation to clause 4.3, TBPL’s contention with respect to estoppel by convention is that both parties assumed that the proposed use of the land for tree cultivation did not require any development consent. TBPL points, in this connection, to clause 20.1(a) of the lease which expressly contemplated that TBPL might make application to the Council for consent to build temporary sheds and storage facilities on the land. It is pointed out that there is no similar provision with respect to the establishment and conduct of the plantation, with the result, it is submitted, that the parties must be taken to have assumed, as at the time the lease was entered into, that no application for development consent was necessary in that connection.

340 This submission is not maintainable in the face of the conclusions I have stated about the way in which clause 4.3 operated. The clause contained, as already noticed, a warranty by TBPL that it had obtained “prior to entering into this Lease” any licence, consent or approval of a competent authority required for the use of the property for the planting and cultivation of lemon myrtle trees. It also contained a promise by TBPL as to the maintenance of “such” licence, consent or approval, that is, the licence, consent or approval obtained “prior to entering into this Lease” and necessary in connection with the lemon myrtle use. Clause 4.3 was thus framed in terms that did not require that there be obtained, after the lease had been entered into, any licence, consent or approval required for lemon myrtle cultivation. The licence, consent or approval had to be in place before execution of the lease. There was therefore no need for a clause similar to clause 20.1(a).

341 TBPL next says in relation to clause 4.3 that both Barr and Shigeo believed that the land enjoyed existing use rights allowing the establishment and conduct of the plantation without any development consent. For that reason, it is contended, they must be taken to have proceeded on a mutual assumption that no development consent was required.

342 In relation to NGC’s state of mind on this matter, TBPL points only to evidence of Mr Paddon who was employed in or about June 2000 to drive a tractor and do other work in relation to the plantation. He had, over the preceding six months been a farm labourer on Kings Forest. Mr Paddon says that, when Shigeo approached him about working on the plantation, he asked Shigeo whether “Narui Company or Tim” had “a permit to cultivate on that scale” (the precise signification of “that scale” does not emerge from Mr Paddon’s evidence). According to Mr Paddon, Shigeo replied:

“No, no, no need. It’s all under existing land use rights. It’s OK.”

343 Mr Paddon was not cross-examined on this part of his affidavit.

344 As for the state of mind of Barr and TBPL, reliance is placed by TBPL on several aspects of the evidence, mainly a statement reportedly made by Barr to Mr Enders, an officer of the Council, in July 2001, a statement made by Barr in a report to Shigeo dated 6 August 2001 and a statement made by Barr in a letter of 8 May 2002 to the NPWS. There is also certain evidence from Mr Glazebrook.

345 Mr Enders, in a file note dated 10 July 2001, refers to a meeting on site at the Cudgen Paddock with Barr and officers of the NPWS. By then, of course, there was an established plantation of lemon scented tea trees. According to Mr Enders, Barr said that he had been advised by the solicitor, Mr Bolster, that he “didn’t need consent for these works”; and he told Barr that his initial thoughts were that consent was required because there had been an alteration in use or an intensification of existing use. Mr Enders made this view very clear in a letter of 17 July 2001 sent to NGC at Barr’s post office box which Barr must have read. In a subsequent letter of 3 September 2001 addressed to Barr, Mr Enders said that the plantation development “could not be undertaken under continuing use provisions of Section 109 of the Environmental Planning and Assessment Act 1979”.

346 In his 6 August 2001 report to Shigeo denouncing the first of the stop work orders as “harassment” and “a witch hunt, a smoke screen and unconstitutional in an Australian democracy” involving an “over-bureaucratical use of power”, Barr made the following observation (quite irrelevant, of course, to the matters that had given rise to the stop work order):

“We have undertaken what we believe is existing Land Use Rights and continue our operations within Kings Forest under the guidelines of our ecologist and solicitors at all times.”

347 In the letter of 8 May 2002 to the NPWS, Barr referred to the Cudgen Paddock as “fully operating under existing Land Use Rights and farming practices”.

348 In relation to Mr Enders’ account of what was said to him by Barr about existing use rights, it is relevant to refer to Mr Bolster’s evidence. In his affidavit of 23 December 2004, Mr Bolster said that he received from Barr the letter of 28 August 2000 to the consultants (of whom he was one) in which there was reference to use of the Cudgen Paddock as “a short term Lemon Myrtle plantation for oil production”. Mr Bolster further deposed that, in a subsequent conversation with Barr, he said:

“You can’t grow tea trees on the Cudgen Paddock because a tea tree plantation is not within the existing use rights and even if you can, you can’t distil. If you have any prospects of doing the plantation, you will need a DA and you’ll have to put the distillation operation in the old shed near Duranbah Road.”

349 In the course of oral testimony, Mr Bolster gave further evidence in chief on this matter:

“Q. In your affidavit you related a conversation relating to the possibility of Mr Barr having use rights in the Cudgen paddock for growing a tea tree plantation?

A. Yes.

Q. You told him he couldn't do it?

A. Yes.

Q. Did you have any discussions with Mr Barr about other uses for Cudgen paddock other than tea trees?

A. Yes.

Q. What was that discussion?

A. Early on in the piece, and I'm thinking 1998 or somewhere around, then I had a discussion with him and I think Mr Heaton about the use of the entire property but in particular the Cudgen paddock and the fact that it had existing use rights for the pine plantation and the grazing of cattle and pasture improvement. I advised them that they were able to continue with those.”

350 Later in his examination in chief, Mr Bolster was taken to a letter of 8 May 2002 sent by Barr to representatives of Leda in which he said that he had been advised by Mr Bolster that “I could continue planting this [a reference back to ‘my trees’] under existing use land rights”. Mr Bolster denied having ever had such a discussion with Barr.

351 In the course of cross-examination, Mr Bolster referred to conversations he had had with Barr about existing use rights. He said that he had referred, in that connection, to cattle grazing and pasture improvement (there was also some reference to the growing of pine trees all of which, however, had been removed by the time Mr Bolster had his discussions with Barr). Mr Bolster made it clear that he had investigated the history of the use of the particular land and had applied, in general terms, the form of analysis outlined at paragraph [307] above. He maintained under cross-examination that, to the extent that he had given Barr advice about existing use rights, it was advice based on the narrow view that only cattle grazing and pasture improvement were permissible, that he had never advised that a wide concept of “agriculture” was comprehended by the existing use concept and that he had certainly never told Barr that existing use rights allowed the establishment and operation of a lemon myrtle or lemon scented tea tree plantation.

352 On the basis of Mr Bolster’s evidence, I cannot conclude that Barr had been advised by him that the establishment and operation of a lemon myrtle or lemon scented tea tree plantation on the Cudgen Paddock would be protected by existing use rights so that the land could be used for such plantation purposes without development consent. Because Barr did not give evidence, there is no way of knowing what he claims was said to him by Mr Bolster on the subject. The question of the need for development consent and the availability of the existing use exception is a legal question. Mr Bolster was, from 1998 until about December 2001, NGC’s solicitor and took instructions, at the direction of Shigeo, almost exclusively from Barr (there were, on Mr Bolster’s evidence, “less than a dozen” occasions on which Shigeo was involved but Shigeo rarely spoke and left things very largely to Barr). There is no suggestion that Barr obtained information or an understanding about existing use rights from anyone else. It is therefore reasonable to infer that Mr Bolster was the source of all knowledge that Barr had on the matter. That, coupled with Mr Bolster’s unchallenged evidence of what he said and did not say to Barr on the subject, leads inexorably to a finding that Barr did not, at any material time, have any basis for an assumption that the Cudgen Paddock could lawfully be used for the particular plantation operations without a development consent.

353 There is then the evidence of Mr Glazebrook, a town planner engaged by Barr on behalf of NGC in January 2001. Mr Glazebrook deposed that he said to Barr on a number of occasions during 2001 that development consent was not necessary for the lemon scented tea tree plantation. Mr Glazebrook also deposed, however, that in early September 2001, Barr instructed him on behalf of TBPL to prepare and submit to the Council a development application in relation to cultivation of lemon scented tea trees on the Cudgen Paddock – thus recognising, at the least, that any reliance on existing use rights was problematic. Mr Glazebrook did not complete that task and, in any event, his involvement began more than six months after the commencement of the lease and therefore sheds no real light on the state of Barr’s understanding at the time the lease covenants came into force.

354 It follows that, although TBPL points to several contemporary occasions on which Barr said to others that existing use rights allowed the establishment and operation of the plantation without development consent, there is no basis for a finding that Barr actually held that opinion or belief, as distinct from merely making what was, in the circumstances, a convenient assertion. There is accordingly no basis for a finding that Barr (or TBPL) in fact entertained and acted in accordance with the particular assumption upon which TBPL relies in this part of its case. Indeed, by 28 August 2000, Barr was informing the consultants that the development application on which they were working for Kings Forest as a whole should include an aspect under which “Cudgen paddock to be short term Lemon Myrtle plantation for oil production”. Why, one might ask, would Barr have given that instruction if he had believed that no development consent was needed for that use?

355 Returning to Shigeo, there is no indication of any source from which he might have obtained the apparent understanding to which he referred in the conversation deposed to by Mr Paddon. Mr Bolster did not suggest that he ever gave advice on the subject of existing use rights direct to Shigeo. The strong likelihood is that, when Shigeo spoke with Mr Paddon, he was merely relaying something said to him by Barr. In the case of Shigeo also, however, there is no way of knowing whether he actually held the view he supposedly expressed to Mr Paddon, as distinct from fobbing Mr Paddon off with a convenient answer to a perhaps inconvenient question – an answer, perhaps, that he had been primed by Barr to give should that question be raised.

356 In summary, therefore, I cannot find that, even if NGC is properly regarded in the particular context as being of the same state of mind as Shigeo, TBPL (whose state of mind no doubt corresponded with that of Barr) and NGC together shared and pursued an assumption that use of the Cudgen Paddock for the purpose of planting and cultivating either lemon myrtle trees or lemon scented tea trees was legally permissible in the absence of a development consent.

357 It is necessary to consider briefly TBPL’s alternative estoppel claim based on estoppel by representation. TBPL says that NGC, by its conduct, represented two things: first, that, notwithstanding the terms of the lease, the land could be used for the planting and cultivation of the trees; and, second, that, notwithstanding clause 4.3, the use of the land without the licence, consent or approval of the Council would not and did not breach the lease. TBPL maintains that, on the basis stated by Brennan J in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 428-429, TBPL was induced by NGC’s representation to adopt assumptions corresponding with those central to TBPL’s conventional estoppel case (in essence, that it could plant lemon scented tea trees rather than lemon myrtle trees and it was not necessary to obtain development consent), that TBPL acted in reliance on those assumptions (as NGC knew and intended that it would) and that TBPL’s action was such as to be productive of detriment if the expectations engendered by the assumptions were not fulfilled.

358 These contentions of TBPL fail. For reasons already stated, TBPL did not hold or labour under the postulated assumptions. In addition, the fact that Barr, the alter ego of TBPL, was the main actor in all relevant events means that it is not possible to identify any relevant representation made to TBPL by NGC.

Election – clause 4.3 – the principles

359 Despite references in submissions to waiver and affirmation in relation to the breach of clause 4.3, TBPL really relies on the doctrine of election. The relevant principle is that stated as follows by Mason J in Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 655-656:

”A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performance creates a right of election.

Essential to the making of an election is communication to the party affected by words or conduct of the choice thereby made and it is accepted that once an election is made it cannot be retracted (R. v. Paulson [1921] 1 AC 271 at p 284 ; Tropical Traders Ltd. v. Goonan [1964] HCA 20; (1964) 111 CLR 41 at p 55 ). No doubt this rule has been adopted in the interests of certainty and because it has been thought to be fair as between the parties that the person affected is entitled to know where he stands and that the person electing should not have the opportunity of changing his election and subjecting his adversary to different obligations.

A person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once. He may keep the question open, so long as he does not affirm the contract or continuance of the estate and so long as the delay does not cause prejudice to the other side. An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other (Tropical Traders Ltd. v. Goonan). So, words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election to affirm the contract.”

360 An example of the working of the principle appears in a passage in the judgment of Meagher JA in the Court of Appeal, referred to by Deane, Toohey, Gaudron and McHugh JJ, in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 39:

“On 26 June 1989 [Immer] could have taken one of three courses: it could have rescinded the deed, but it did not do that; it could have done nothing at all, in which case its contractual right of rescission would have survived; or it could have taken the course, inconsistent with the first of those courses, of keeping the deed on foot. It chose the third course.”

361 As elucidated in the speech of Lord Atkin in United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 29-31, the doctrine of election precludes the alternative course of action when some conclusive step securing one outcome is taken in a way that is incompatible with attainment of the alternative outcome. An example is where a breach of contract causes to arise in one party a right to terminate for that breach or to continue performance and sue for damages. In such a case, the point of no return comes when the wronged party chooses one fork in the road by terminating or takes the other fork by tendering further performance consistent with the continuation of the contract, seeking in some way to rely on the contract or suing for damages. Once the particular conclusive step is taken, the alternative road becomes barred.

362 In the particular context of landlord and tenant, observations of Windeyer J in Owendale Pty Ltd v Anthony [1967] HCA 20; (1967) 117 CLR 539 at 557 are instructive:

“The essence of the doctrine, in cases between landlord and tenant, is that where a lease contains provisions for forfeiture and a right of re-entry upon breach of a covenant by the lessee, then, upon a breach occurring, the lessor can either take advantage of his right of forfeiture and re-entry or waive this and treat the lease as still subsisting. If, with knowledge of a breach, giving him a right of re-entry, he does an act inconsistent with his avoiding the lease, he is deemed to have elected not to avoid it. Anything which a landlord does or says which is an unequivocal recognition of the continued existence of the lease when he was aware of facts which would have given him a right of re-entry will amount to a waiver of that right. One act which, by the common law, is always regarded as unequivocal, and therefore necessarily a waiver of a right of re-entry on account of a breach of covenant by the lessee, is the lessor's acceptance, with knowledge of the fact of the breach, of rent accrued due after the breach. Apart from any special term in the lease - a question to which I shall come later - or any statutory modification of the common law, acceptance of rent due in respect of a current period is an obvious recognition of a tenancy then subsisting.”

363 TBPL submits that NGC, by various aspects of its conduct, elected to affirm the lease and the lease covenants despite the breach of clause 4.3 and that it did so, in a way actually or impliedly communicated by it to TBPL, before it served the notice dated 3 May 2002. TBPL says that, because NGC thus followed a course that acknowledged the continued subsistence and efficacy of the lease, it was not open to it, on 3 May 2002 or afterwards, to purport to assert rights inconsistent with the continuing subsistence of the lease.

Election – clause 4.3 – the effect of the notice of 3 May 2002

364 It is important to consider, in this connection, the terms of the lease and the statutory context in which they took effect. Clause 9.1, as has been seen, states that certain provisions of the lease are “essential terms”. These essential terms included the whole of clause 4 and thus clause 4.3. Their characterisation as essential terms brings into play contractual principles allowing termination for fundamental breach. Separately and in addition, clause 8.1 provides that, in any of certain stated events, NGC may re-enter into and upon the demised premises and thereby determine the estate of the tenant. The separateness of these remedies is discussed at paragraphs [237] to [239] above.

365 The content of NGC’s notice dated 3 May 2002 is set out at paragraph [23] above. As mentioned earlier, the notice was obviously based on clause 8.1 but also conveyed a central message that the lessor would consider the lease as at an end once the specified period of fourteen days had elapsed.

366 To the extent that it purported to resort to clause 8.1, NGC embarked upon the process described in that clause by the words “the landlord will have the right . . . to re-enter into and upon the Premises . . . and thereby determine the estate of the tenant . . .”. Those circumstances fell within s 129(1) of the Conveyancing Act 1919 (see paragraphs [237] above).

367 Section 129(1) has the effect of making a right of re-entry for breach arising from a provision of a lease unenforceable by the lessor “unless and until” two things have happened: first, the lessor has served a notice in compliance with the section; and, second (and if the breach is capable of remedy), the lessee has failed within a reasonable time after service of the notice to act in the way specified in the concluding words of the section.

368 I should pause, at this point, to deal with a submission of TBPL, based on the second aspect of s 129(1), that the notice dated 3 May 2002 was not a valid and effective notice under that section. The submission proceeds on the footing that the breach of clause 4.3 referred to in the notice was capable of being remedied at any time by obtaining a development consent from the Council for the particular lemon myrtle use and that the fourteen days specified in the notice was not a reasonable time in which to remedy the breach in that way.

369 As discussed at paragraphs [280] to [282] above, clause 4.3 contained a warranty by PBPL that there existed at the time the lease was entered into a particular licence, consent or approval (being such as was required by reason of the sole permitted use for the purpose of planting and cultivation of lemon myrtle trees), coupled with an ongoing obligation to maintain that particular pre-existing licence, consent or approval and an ongoing obligation to do “anything else” (that is, anything over and above the maintenance of the particular licence, consent or approval warranted to exist at inception) that may be necessary to make lawful the pursuit of the lemon myrtle use. The second of the ongoing obligations (described in the earlier discussion of clause 4.3 as the “third aspect”) did not operate at all in relation to any licence, consent or approval required at inception of the lease for the permitted use for the purpose of planting and cultivating lemon myrtle trees. This is because it has not been shown that “anything else” – that is, anything beyond development consent granted by the Council – was at any time “necessary” to allow the planting and cultivation of lemon myrtle trees.

370 Given the structure of clause 4.3 and its effect as a warranty as to an existing state of affairs, there was, in May 2002, nothing that could be done to remedy the breach consisting of the absence, at inception of the lease and contrary to the warranted state of affairs, of a development consent for the planting and cultivation of lemon myrtle trees. Had such a development consent been obtained in May or June of 2002 or thereafter, the breach that occurred immediately upon the execution of the lease would not have been cured, although that circumstance would no doubt have been a powerful factor in any consideration of the question of relief against forfeiture.

Consequences if the notice complied with s 129(1)

371 I therefore consider the better view to be that the breach of clause 4.3 was not within s 129(1)(b) which commences with the words “if the breach is capable of remedy” (the alternative possibility, namely, that the breach was “capable of remedy”, will be considered presently). It follows that section 129(1)(b) did not make it necessary for the notice of 3 May 2002 to require TBPL to remedy the breach and that the question of “reasonable time” raised by the concluding words of s 129(1) did not arise. The notice of 3 May 2002 was not defective because of the fourteen-day specification within it. All that the notice had to do was to specify the breach in accordance with s 129(1)(a). Viewed in a context where both parties obviously knew that no licence, consent or authority of any competent authority had been obtained in relation to the clause 4.1 use, it clearly did that.

372 Before returning to the implications of s 129(1), I digress further to mention s 129(6)(c)(i), a provision to which both parties referred in submissions. Section 129(6)(c)(i) provides:

“(6) This section does not extend:

...

(c) to a condition for forfeiture on the taking in execution of the lessee’s interest in any lease of:

(i) agricultural or pastoral land”.

373 This provision is irrelevant to this case. Even if, as seems likely, the Cudgen Paddock should be regarded as “agricultural or pastoral land”, clause 8.1 cannot possibly be seen as “a condition for forfeiture on the taking in execution of the lessee’s interest in“ the lease of that land. I emphasise the words “on the taking in execution of the lessee’s interest”. The right of re-entry arising under clause 8.1 is not even remotely concerned with the levying of execution against TBPL’s leasehold interest.

374 I return therefore to the implications of s 129(1) of the Conveyancing Act to the case TBPL seeks to make in relation to the breach of clause 4.3 by reference to the doctrine of election. A significant impact of s 129(1) upon the operation of that doctrine was identified by the New Zealand Court of Appeal in the important case of McDrury v Luporini [1999] NZCA 309; [2000] 1 NZLR 652. In that case, the tenants had failed to comply with a lease covenant requiring them to apply a particular quantity of fertiliser to the leased farm property. Relying on that breach, the lessors gave notice under the New Zealand equivalent of s 129(1). In the meantime, however, they had continued to accept rent. That, as Windeyer J said in Owendale Pty Ltd v Anthony (above), was an obvious recognition by the lessors of an existing tenancy and thus inconsistent with the exercise of a right to rely on the lessees’ earlier breach as a basis for contending that the lease had come to an end.

375 In a judgment delivered by Tipping J, the Court of Appeal took as the “fundamental starting point” the proposition that it is not the lessee’s breach that is waived; rather it is the lessor’s right to forfeit and re-enter. Tipping J continued (at 664):

“The lessor is not waiving the lessee's wrong; rather the lessor is choosing between two inconsistent remedies for that wrong. The choice is between affirming the lease and bringing the lease to an end. It is axiomatic that the whole question of waiver only arises, in the present context, following a breach of the lease by the lessee. If, with full knowledge of the breach, the lessor, having the right to forfeit, unequivocally indicates that the lease will not be forfeited, the law holds the lessor to that choice by the doctrine of waiver in its present sense of election.”

376 It is thus made clear that there can be no election destructive of the lessor’s right to put an end to the leasehold estate by forfeiture and re-entry unless and until the lessor has that right in enforceable form. Tipping J then referred to the significance, in the particular context, of the notice made necessary by the equivalent of s 129(1) of the Conveyancing Act. He put the matter thus (at 664-665):

“[N]o choice is open or required unless and until the innocent party has an unconditional right to cancel. Of course earlier conduct inconsistent with cancellation may create an estoppel, but there can be no question of election until each of the two inconsistent alternatives has unconditionally accrued. There is no doctrine of anticipatory election. No unconditional right to forfeit

accrues unless and until the required statutory notice has been given and has expired unfulfilled. Until then the lessee is entitled to restrain any purported forfeiture and re-entry. That there is no unconditional right to forfeit until then is also clear from the ability of the lessee to avoid forfeiture by compliance with the notice. At best, any earlier right vested in the lessor is contingent and defeasible. It would be contrary to the whole foundation of the doctrine of waiver by election to regard the lessor as having made a binding election before the right to forfeit unconditionally accrues.

377 The conclusion of the court was stated at 665 in this way:

“It follows that acceptance of rent in the period prior to the issue of the statutory notice cannot amount to an election not to forfeit. This is because no unconditional right to forfeit has yet arisen. Whether acceptance of rent in these circumstances may be evidence upon which an estoppel could be asserted does not arise upon this appeal as no question of estoppel was argued before us. The Luporinis' acceptance of rent during the running of the statutory notice cannot, for similar reasons, be regarded as an election not to exercise their contingent remedy of forfeiture. Equally, there can be no question of an estoppel during this period. The very service of the notice makes it clear that the lessors were asserting a right to forfeit if the notice was not complied with.”

378 The reasoning in McDrury v Luporini was accepted by Moynihan J in BBF Toowoomba Pty Ltd v Nebrean Pty Ltd [2001] QSC 313; (2002) Q ConvR 54-560. His Honour said at [13]:

“In addition to the facts already canvassed, particularly the assurance in the fax of 1 August, it should be noted that the applicant was invoiced for the August rent on 26 July 2001 and paid it by direct deposit to the respondent's bank account on 1 August. It is convenient to mention at this stage that I am not persuaded this constitutes a waiver since the remedy of forfeiture was contingent on non-compliance with the notice given on 26 July; cf McDrury v Luporini [1999] NZCA 309; [2000] 1 NZLR 652.”

379 TBPL does not point to any action of NGC after the service of the notice dated 3 May 2002 which could be construed as inconsistent with reliance on any right to forfeit and re-enter that became enforceable following the service of the notice. It was not possible for NGC to make an election destructive of its right to forfeit and re-enter until that right had come to exist in enforceable form as a consequence of the service of the notice dated 3 May 2002. That being so and in the light of the principles clearly stated by the New Zealand Court of Appeal, I am of the opinion that whatever (if anything) NGC may have done after the inception of the lease and before 3 May 2002 consistently with the premise that the lease remained on foot, the doctrine of election did not operate to deny to NGC any right of forfeiture and re-entry that became enforceable in consequence of the service of the 3 May 2002 notice. This assumes, of course, the correctness of the view expressed at paragraph [371] above that the breach of clause 4.3 was not capable of being remedied.

Consequences if the notice did not comply with s 129(1)

380 At this point I return to the alternative possibility, that is, that TBPL’s breach of clause 4.3 was capable of being remedied by the subsequent obtaining of a development consent, according to the meaning of “remedy” preferred by Sugerman J in Batson v De Carvalho (1948) 48 SR (NSW) 417 at 427. If that is the correct characterisation, the notice of 3 May 2002 was not a valid s 129(1) notice and produced no statutory consequences. This is because it did not, as made necessary by s 129(1)(b), require the lessee to remedy the breach. But the notice nevertheless operated as an unequivocal indication by the lessor of its choice to put an end to the lease and therefore brought about termination.

381 The analysis based on McDrury v Luporini (above) is irrelevant to the alternative presently under consideration. Because clause 4.3 warranted the existence of necessary approvals as at commencement of the lease, the right to terminate for breach of the clause 4.3 essential term accrued to NGC immediately the lease was entered into. That right was available at all times thereafter, unless and until lost. NGC will be seen to have lost the right if, being aware of facts constituting the breach giving rise to the right, it did something amounting to unequivocal recognition of the continued existence of the lease and thereby elected not to take advantage of the right by terminating the lease.

382 It is important to emphasise, however, that, as Mason J said in Sargent v ASL Developments Ltd (above), conduct is capable of amounting to a binding election only if it is consistent solely with the continued existence and efficacy of the contract. His honour referred to Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41 where Kitto J said (at 55):

“Any act done by it and consistent only with the continuance of the contract on foot the law would hold to constitute an election against rescinding.” [emphasis added]

383 This must be borne steadily in mind when assessing the conduct of NGC in the period before 3 May 2002 on which TBPL relies.

384 TBPL relies on the actions of NGC in submitting to the Council, in January and April 2001, applications for development consent in respect of use compendiously described as “rural use plus subdivision and residential development”. It is not clear from the documents in evidence precisely which land was covered by these applications but it appears likely that it was, in each case, a larger area that included the Cudgen Paddock. At all events, each application may be accepted as having contemplated use of the Cudgen Paddock for plantation purposes. TBPL infers from a letter from the Council dated 15 January 2001 that a lemon myrtle plantation and processing plant were included in the application of 2 January 2001 since the letter refers specifically to those aspects (only part of the application itself seems to be in evidence). In the case of the application dated 9 April 2001, the Council’s response of 7 May 2001 says (somewhat curiously under a heading “Lemon Myrtle Cropping and Processing”):

“The application seeks approval for the cropping of lemon scented Tea Tree . . . and processing of this material . . .”

385 I therefore accept that both the application of 2 January 2001 and that of 9 April 2001 sought development consent in respect of plantation use of the Cudgen Paddock. Moreover, each application was an application made by NGC. It was named as “applicant” and Barr signed for the “applicant” as “project manager”, while the section for consent of owner carried NGC’s name and Shigeo’s signature. It may also be accepted that NGC, by submitting the applications, showed a desire that there should be development consent for plantation and related activities on the Cudgen Paddock.

386 But this says nothing about the lease or NGC’s attitude to the lease. By demonstrating the desire that there should be development consent for plantation activities, NGC took a stance that was consistent with its own interest in seeing trees planted to check native regrowth. It was by no means an essential ingredient of what NGC did that the lease to TBPL should continue or, for that matter, even exist. There was good reason for NGC, in its own right, to wish to have approval for plantation use. The situation was not one in which TBPL, as lessee, applied for development consent and NGC, as owner, gave its consent to the making of the application. Had that happened, it might have been possible to conclude that NGC had in some way elected to treat the lease as continuing. In the events that actually happened, NGC did not even recognise the existence of the lease, let alone act in a way “consistent only with” the continuance of the lease on foot.

387 Thus, if, contrary to my inclination to think that NGC regularly and validly proceeded under clause 8.1 and s 129(1), the true position is that NGC had available to it, in relation to the breach of clause 4.3, only the general law right of termination for breach of an essential term, I am of the opinion, first, that it validly and effectively exercised that right by means of the notice of 3 May 2002 and, second, that the conduct of January and April 2001 on which TBPL relies in arguing that NGC had, by election, lost the right to do so did not in truth have that effect. Accordingly, if the contractual right of re-entry created by clause 8.1 was not effectively exercised, the general law right to terminate by acceptance of repudiation was effective; and it was the notice dated 3 May 2002 that was operative under each alternative.

Relief against forfeiture

388 TBPL says that the court should, in its discretion, grant relief against forfeiture of the lease. It also says that there should be relief against forfeiture of the option to purchase, although that possibility will, I suppose, arise for consideration if any grant of such relief in respect of the lease does not entail the preservation also of the option.

389 Section 129(2) of the Conveyancing Act creates a statutory basis for the grant by this court of relief against forfeiture in respect of the leases:

“Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit.”

390 The statutory jurisdiction is, in general terms, co-extensive with the inherent power of a court of equity to relieve against forfeiture. Attention will therefore be directed mainly to the inherent power.

391 Given that NGC relies principally on the right to terminate for breach of an essential term, there is a threshold question whether relief against forfeiture, according to the inherent power of a court of equity, is available where a lease is terminated by the lessor on that basis, that is, where an end is put to the relationship of landlord and tenant by resort to the law of contract regarding termination for fundamental breach rather than by re-entry and forfeiture in exercise of a landlord’s rights in that respect. It cannot be suggested that the statutory jurisdiction under s 119(2) is available in such a case.

392 In Liristis Holdings Pty Ltd v Wallville Pty Ltd [2001] NSWSC 428: (2001) 10 BPR 18,801, I expressed the view (at [116]) that relief against forfeiture was available in relation to deprivation by way of contractual termination. The deprivation in that case, as in this, was a consequence of breach by a lessee of essential terms of the lease. Because the effect of the contractual termination was to put an end to the lessee’s leasehold estate, the basis for the exercise of the well-recognised equitable jurisdiction to negate unfair forfeiture existed. Relief against forfeiture in the general equitable sense (but not pursuant to s 129(2) of the Conveyancing Act) may be awarded to a lessee deprived of the leasehold estate either by re-entry and forfeiture or by contractual termination of the lease. It is therefore appropriate to emphasise here the principles of equity.

393 The equitable jurisdiction to grant relief against forfeiture is today based on the principle that equity will prevent reliance on a legal right where that reliance is unconscionable: see Legione v Hateley (above); Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489. In the first of those cases, Mason J and Deane J identified a number of “subsidiary questions” the answers to which might assist in deciding whether the facts justify the intervention of a court of equity:

“In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser’s breach? (2) Was the purchaser’s breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage of other adverse consequences did the vendor suffer by reason of the purchaser’s breach? (4) What is the magnitude of the purchaser’s loss and the vendor’s gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?”

394 In the present context, references to “lessor” and “lessee” should be substituted for the references to “vendor” and “purchaser”.

395 Subsequently, however, it was emphasised by Gleeson CJ, McHugh J, Gummow J, Hayne J and Heydon J in Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at [44] that what was said by Mason J and Deane J respecting the “subsidiary questions” must be “treated with care”. Their Honours continued at [44] – [46]:

“. . . That to which the questions are said to be ‘subsidiary’ is the basic issue presented earlier in their joint judgment. This is expressed as:

‘... the respondent's submission that she is entitled to relief against the forfeiture of her interest in the land upon terms that she pay to the appellants the amount of $30,188.24 that was tendered to them on 15 August 1979 and not accepted, being the balance of the purchase moneys under the contract.’ [emphasis added]

But what, if any, was the interest in the land enjoyed by Tanwar as purchaser? If there was such an interest, did it attract the exercise of the jurisdiction to relieve against forfeiture? What is the relationship between, on the one hand, the attitude of equity respecting forfeiture, and, on the other hand, the attitude of equity respecting the observance of express time stipulations?

Without answers to these questions, the significance for this appeal of the basic issue expressed in Legione, and thus the relevance of the five “subsidiary questions”, cannot be assessed. But the answers are to be supplied only by a patient examination of several fundamentals, the understanding of which by equity courts has changed across time.”

396 The majority in Tanwar Enterprises went on (at [55]) to refer to the treatment by Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691 of the “appropriate” considerations guiding exercise of equity’s jurisdiction to relieve against forfeiture for breach of covenants added by way of security for the production of a stated result. His Lordship said (at 723 – 724):

“The word ‘appropriate’ involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.”

397 The majority also said (at [58] – [60]):

“What Lord Wilberforce in Shiloh Spinners called ‘the special heads of fraud, accident, mistake or surprise’ identify in a broad sense the circumstances making it inequitable for the vendors to rely upon their termination of Tanwar's contracts as an answer to its claim for specific performance. No doubt the decided cases in which the operation of these ‘special heads’ is considered do not disclose exhaustively the circumstances which merit this equitable intervention. But, at least where accident and mistake are not involved, it will be necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation. Tanwar's situation falls beyond that pale. The statement by Mason CJ in Stern respecting the insignificance of subsequent events for which the vendors were in no way responsible is fatal to the main thrust of Tanwar's case.

It should be made clear that what is said above does not support any proposition that the circumstances must be ‘exceptional’ before equity intervenes. In their joint judgment in Stern, Deane and Dawson JJ, with reference to what had been said by Mason and Deane JJ in Legione, said, in a passage which puts the point of present significance:

‘Mason and Deane JJ were not saying that there must be unconscionable conduct of an exceptional kind before a case for relief can be made out. Rather, what was being said was that a court will be reluctant to interfere with the contractual rights of parties who have chosen to make time of the essence of the contract. The circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable — or, more accurately, unconscientious — conduct’.

Thus, it remains for Tanwar to show that it is against conscience for the vendors to set up the termination of the contracts. . . .”

398 Translated to the present context, this means that it is for TBPL to show, in the face of NGC’s established right to terminate the lease for breach, that it is necessary for the court to intervene to avoid the effects of unconscionable or unconscientious conduct by NGC in setting up the termination; that it is necessary to inquire whether NGC itself contributed in some significant extent to TBPL’s breach or derived some wholly disproportionate benefit from relying on it as a basis for termination; and that attention must also be given to the “subsidiary questions” identified in Legione v Hateley.

399 TBPL contends that, insofar as NGC may seek to rely on the breach of clause 4.1 to sustain its termination of the lease, relevant unconscionability is involved. TBPL says that the planting of lemon scented tea trees rather than lemon scented myrtle trees has not been shown to be the source of any harm or prejudice to NGC and that either type of tree served NGC’s purpose of keeping down native regrowth, with the result that NGC suffered no real grievance because of the breach. I accept that submission.

400 In relation to the breach of clause 4.3, TBPL relies on several factors which it says support the grant of relief against forfeiture. It says (a) that the breach was not deliberate or wilful; (b) that there is no evidence that NGC suffered damage because of the breach; (c) that there is a substantial disparity between the value of the property of which forfeiture is claimed and the (nil) damage caused by the breach; and (d) that the breach was capable of remedy yet NGC prevented TBPL from remedying it.

401 NGC’s response in relation to (a) is that there is no evidence from which the court can infer that the breach was not deliberate or wilful. TBPL attempts to show, by reference to aspects of the evidence already canvassed, that Barr genuinely believed, in June 2000, that existing use rights made development consent for the plantation use unnecessary. As stated at paragraph [354] above, however, there is no basis for a finding that Barr actually held any such opinion. In the absence of evidence from Barr on the matter, the submission of NGC must be accepted.

402 As to (b), NGC says that there is indeed evidence that it suffered damage because of the breach of clause 4.3. Again, I accept NGC’s submission. It is easy to infer that any grant of development consent as envisaged by clause 4.3 would only have been made if the concerns that ultimately led to the imposition of the stop work orders and the interim protection orders had first been resolved in some way satisfactory to the Council and the NPWS. The correspondence with the Council made it clear at all times that the NPWS was a principal actor in relation to the processes surrounding NGC’s attempts to obtain development consent for its major residential proposal. It would likewise have been a principal actor in relation to the obtaining by TBPL of the development consent for the establishment and cultivation of the plantation that clause 4.3 said had been granted before the creation of the lease. It follows that, if the development consent represented by clause 4.3 to exist had in fact existed when the lease was granted, the stop work orders and interim protection orders would, in all likelihood, never have been imposed and the Council would never have made NGC a defendant in the Land and Environment Court. Those consequences to NGC, including the obligation that it accepted upon settlement of the Land and Environment Court proceedings as between the Council and itself, would not have been visited upon NGC but for TBPL’s breach of clause 4.3.

403 There is a factual dispute as to whether the activities of clearing that precipitated the stop work orders and the interim protection orders occurred after TBPL became the lessee or while BPM was managing the property for NGC. It is not necessary to resolve that issue. The important point is that a development application lodged before the grant of the lease would not have been granted unless and until the concerns that ultimately prompted the stop work orders and the interim protection orders had been resolved.

404 There is also the point, in relation to (b) above, that, by May 2002, some 60% or 70% of the cultivated area on the Cudgen Paddock had become overgrown by vegetation of various kinds, including native vegetation. Evidence of this was given by Mr Twomey. It is true that the lease did not impose on TBPL any positive obligation to cultivate the Cudgen Paddock. But TBPL, by giving the clause 4.3 covenant in the context of the clause 4.1 statement of permitted use, may be taken to have instilled in NGC an expectation that the way was clear for TBPL to proceed with the plantation project. Given the way in which Barr promoted to NGC the advantages it would derive, in terms of control of native vegetation, from the granting of the lease and the establishment of the plantation, NGC may be regarded as having acted upon an expectation of TBPL’s ability to proceed to do so without the intervention of the Council or the NPWS. The destruction of NGC’s expectation was obviously detrimental to it.

405 In relation to (c) at paragraph [400] above, I accept the submission of NGC that loss of an opportunity to purchase at market value does not entail deprivation of any real worth.

406 In relation to (d) above, TBPL relies on events of February and March 2002 which culminated in a statement by NGC’s solicitor to a surveyor and planning consultant retained by TBPL that NGC would not consent to the lodgement by TBPL of a development consent for the plantation. Those events are described and assessed at paragraphs [426] to [436] of these reasons concerning the implied contractual duty of co-operation pleaded by TBPL. For reasons there discussed, it cannot be said that NGC prevented TBPL obtaining development consent of the character envisaged by clause 4.3, that is, consent for the sole permitted use of the land recognised in clause 4.1.

407 TBPL has thus not made out any basis for the grant of relief against forfeiture in respect of the lease. I do not consider any separate issues to arise on the question of relief against forfeiture in respect of the clause 15 option.

Relief on the basis of unconscionability

408 It is convenient to deal at this point with a related claim made by TBPL. It is submitted on TBPL’s behalf that a court of equity has a distinct power to restrain any unconscionable equitable exercise of a right to terminate a contract. Reference is made to the reference by Mason CJ in his dissenting judgment in Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 394 to “the court’s power to grant relief in respect of any termination which happens to be unconscionable”.

409 Given that, for reasons stated, relief against forfeiture in the full sense may be granted in a case of the present kind, it is doubtful whether there is scope for the operation of any separate jurisdiction to restrain unconscionable exercise of a right to terminate a contract. In any event, the matters TBPL puts forward in support of the proposition that there was unconscionable termination are not made out. First, it says that the termination was unconscionable because of NGC’s reliance on breach of clause 4.3 in circumstances where TBPL had sought to remedy the breach and NGC had prevented it doing so. This matter is dealt with at paragraphs [426] to [436] of these reasons in a way that does not accept the propositions on which TBPL relies. Second, TBPL says that the termination was unconscionable because NGC and TBPL had together proceeded on the assumption that the absence of development consent would not breach the lease. That proposition cannot be supported in the face of the findings on the alleged estoppel by convention in relation to clause 4.3.

An implied obligation to act in good faith?

410 I deal next with the contention of TBPL that, if NGC was otherwise entitled to terminate the lease as it purported to do by means of the notice dated 3 May 2002, the termination entailed breach by NGC of an implied term requiring it to act in good faith in exercising rights available to it as lessor.

411 TBPL contends that NGC breached such an implied term by terminating the lease:

(a) in order to prevent TBPL from exercising the option to purchase;

(b) in order to give NGC a clear and unencumbered title to the Cudgen Paddock so that it could sell the whole of Kings Forest to a third party or develop it itself; and

(c) in order to put Kings Forest beyond the reach of creditors of Narui Norin and to deprive those creditors of the opportunity of recovering the substantial part of the debts owed to them by Narui Norin.

412 TBPL relies on well-known decisions of the New South Wales Court of Appeal for the proposition that every commercial contract carries within it an implied obligation on each party to act in good faith and reasonably towards the other in exercising or enforcing rights: see Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558.

413 Although reservations have been expressed about such a sweeping proposition of contract law (for example, by Gummow J in Service Station Association Ltd v Berg Bennett & Associates [1993] FCA 445; (1993) 45 FCR 84 at 96 and by Kirby J and Callinan J in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436 at [87] and [155] respectively), the Court of Appeal decisions I have mentioned cause me to pay attention to it here as I did in Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17; (2002) Aust Contract R 90-143. This accords, I think, with the approach most recently indicated by the Court of Appeal in United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177. Allsop P (with whom Ipp JA and Macfarlan JA agreed) reviewed the previous decisions of the Court of Appeal, as well as other authorities, and said (at [61]):

“Whilst this necessarily incomplete review of authorities reveals that the law in Australia is not settled as to the place of good faith in the law of contracts, this Court should work from the position that it has said on at least three occasions (not including Renard) that good faith, in some degree or to some extent, is part of the law of performance of contracts. It is unnecessary to go beyond this proposition to gain assistance in the construction of this particular clause of this contract. Many issues arise in respect of any implication (whether as a matter of fact or by law) of any term requiring performance of a contract, or the exercise of contractual rights, in good faith. Those issues need not be explored here in a case dealing with an express clause as part of a dispute resolution clause.”

414 It is important to remember, however, that, particularly in the case of a formal written contract such as the lease in this case, an implied term is, of its nature, incapable of rising above the express terms. In the Burger King case, the Court of Appeal approved (at [173]) the observation in Kham & Nate’s Shoes No 2 Inc v First Bank of Whiting 908 F 2d 1351 (1990) at 1357 that “[p]rinciples of good faith ... do not block use of terms that actually appear in the contract”. There must be something more. As the Court of Appeal pointed out, this was explained in Metropolitan Life Insurance Co v RJR Nabisco Inc 716 F Supp 1504 (1989) at 1517:

“In other words, the implied covenant will only aid and further the explicit terms of the agreement and will never impose an obligation ‘which would be inconsistent with other terms of the contractual relationship’. ... Viewed another way, the implied covenant of good faith is breached only when one party seeks to prevent the contract’s performance or to withhold its benefits. ... As a result, it thus ensures that parties to a contract perform the substantive, bargained-for terms of their agreement.”

415 This limitation is inherent in the nature of an implied term. As the Privy Council pointed out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266, an implied term must not contradict any express term. It follows that implication of a particular term is not permissible if the implied term would conflict with an express term.

416 NGC makes the point that, in this case, the express terms include clause 9.1 which gives to certain of the lessee’s covenants the status of “essential terms” of the lease. Among those covenants is clause 4.3 upon which NGC relied in giving the notice dated 3 May 2002.

417 As has been seen, the parties thus chose to adopt, in relation to certain specific breaches by the lessee, a contractual regime precluding inquiry into the seriousness or substantiality of a particular breach and making that breach available as a basis for termination regardless of its intrinsic quality. In the case of clause 4.3, as affected by clause 9.1, the parties’ bargain is simply that breach of the clause by the lessee may be relied upon by the lessor as a fundamental breach so as to justify summary action to put an end to the lease; and this is so even if the breach is of a trifling or unimportant kind.

418 The contractual framework expressly and deliberately embraced by the parties is inconsistent with the notion that the lessor’s right to terminate summarily for breach of clause 4.3 was qualified by some implied term of the kind for which TBPL contends.

419 I proceed nevertheless to a brief consideration of the matters said by TBPL to entail breach of the supposedly implied term.

420 The problem for TBPL in relation to each such matter is lack of evidence. To establish action in breach of an obligation of good faith performance, it is necessary to show in some way the quality of the action. For TBPL to say, as it does, that NGC acted otherwise than in good faith because it terminated the lease in order to prevent TBPL’s exercising the option, TBPL must point to evidence establishing such a purpose on the part of NGC. But TBPL refers to no evidence that NGC or any officer of NGC ever turned their minds to the prevention of the exercise of the option in the context of terminating the lease.

421 The second matter said by TBPL to be relevant to breach of the alleged term requiring good faith performance is NGC’s purpose of obtaining a clear title to the Cudgen Paddock to facilitate sale or development of Kings Forest as a whole. Again, there is a lack of evidence. It is not relevant to refer to evidence that may support a finding that NGC wanted Barr and TBPL off the land. Such a desire is simply inherent in termination as such. It is not surprising that, on 3 May 2002, NGC took action to evict a tenant whose actions on the land had been the subject of continuing complaint by the Council and significant intervention by the NPWS (by way of the stop work orders of 29 June 2001 and 8 August 2001) and were to lead to an interim protection order some three months later and Land and Environment Court proceedings against NGC and others some four months later. But a desire to be rid of a troublesome tenant, even if established, in no way implies a desire to obtain a clear title to facilitate sale or development.

422 The third matter relied upon by TBPL is that termination of the lease formed part of a plan to defraud Japanese creditors of Narui Norin. Again there is a lack of evidence. TBPL points to the transaction entered into on 10 September 2003 between Leda, Narui Norin and others pursuant to which, among other things, Leda purchased the whole of the issued share capital of NGC. NGC makes the valid point that, even if this did somehow defraud Narui Norin’s creditors, there is nothing at all to show that any such purpose existed sixteen months earlier when the lease was terminated. There is, in my view, considerable substance in the submission advanced on behalf of NGC that “the alleged fraud on the Japanese banks is, in truth, an elaborate construct, built entirely from documents, unexplained by a single witness and propelled by nothing more than avid speculation”.

423 Let it be assumed that the implied term for which TBPL contends did form part of the lease and that NGC, by terminating as it did through the notice of 3 May 2002, breached that term. What follows? The submission made by TBPL is that the breach would cause the termination to be in effective. It is not at all clear that this would be so. If the power to terminate had arisen and been exercised according to the express terms, there is no apparent reason why the termination should not be recognised, even if it entailed breach of the implied term. In the Burger King case, one of the findings was that termination of an agreement involved breach of an implied term of good faith performance. Damages for breach of contract were awarded but there was no finding that the contract remained on foot.

An implied obligation to co-operate?

424 TBPL says that NGC breached an implied term of the lease requiring it to do all that was reasonably necessary on its part to secure performance of the contract (this is the formulation by Mason J in Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (above) at 607, based on Mackay v Dick (1881) 6 App Cas 251) and to enable TBPL “to have the benefit of the contract” (to quote words used by Griffith CJ in Butt v McDonald (1896) 7 QLJ 68 at 70-71). Mason J said in Secured Income Real Estate:

“It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contacting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.”

425 TBPL’s contention is, in essence, that it asked NGC to give necessary concurrence in a development application that TBPL wished to submit to the Council in respect of plantation use of the Cudgen Paddock, that NGC refused to do so and that NGC thereby breached an implied term requiring it to co-operate with TBPL in actions directed towards securing for TBPL the full benefit of the right on TBPL’s part that was the corollary of its clause 4.1 obligation not to use the property otherwise than for the purpose of planting and cultivation of lemon myrtle trees. This is, in general terms, the form of the implied term found by Bryson J in CF & SP Pty Ltd v FAI General Insurance Co Ltd (unreported, NSWSC, Bryson J, 17 December 1998), a case on which TBPL relies. Bryson J there said, in analogous circumstances:

“All that is asked of the lessor is that it give its consent in writing, and all that it is asked to consent to are applications for approvals of the lessee’s doing things which the lessee may do according to the terms of the lease, and in those circumstances the lessor may not withhold its consent.”

426 It is necessary to look at aspects of the evidence. In February 2002, Barr, on behalf of TBPL, commissioned Aspect North, a Lismore firm of surveyors and planners, to prepare a development application. Instructions were given by Barr to Aspect North by a letter dated 8 February 2002 which began:

“Please receive enclosed development application information for your company’s perusal. Could you please complete the lemon scented development application to be submitted to Tweed Shire Council.”

427 In an explanation of the background, Barr said:

“[W]e have cultivated and planted our existing 600,000 lemon scented trees under existing Land Use Rights.”

428 Barr also said:

“[M]y contract under the lease agreement . . . gives me full authorisation as land owner to submit a development application to Tweed Shire Council so therefore there will be no requirement from Narui Gold Coast Pty Ltd to sign the application.”

429 Neither party has identified to me as being in evidence the “development application information” said to have been enclosed with this letter. It may be, however, that whatever Barr enclosed had been prepared by Mr Glazebrook who had been retained by TBPL in November 2001 to prepare a development application for the tea tree plantation but had not proceeded far because he was concerned about a conflict with his duty to NGC which had been, since January 2001, a client of his in relation to matters concerning Kings Forest.

430 Mr Adam Smith of Aspect North wrote to Barr on 6 March 2002 referring to the instructions to prepare a development application and to “our meeting last week”. Mr Smith said that Barr should “confer with your solicitor in order to gain formal owners [sic] consent for the lodgement of the application”.

431 Mr Anthony Hart, then a director of Aspect North, gave evidence under subpoena in the plaintiffs’ case. He said in evidence in chief that both he and Mr Smith had spoken to Barr about the need to obtain NGC’s concurrence in the development application Barr wished to progress for TBPL. Mr Hart also referred to steps he had himself taken in that direction:

“Q. Did you have any involvement yourself in trying to get owner's consent from Narui Gold Coast?

A. Yes, I did.

Q. Can you tell his Honour what that was?

A. As best I can recall I had phoned Hickey Lawyers to Mr Paul Brinsmead and asked him for the gaining of a signature that we could have placed on the owner's consent form, or at least a letter of authority. During this time I was advised that the owner's consent or the owner's authority would not be forthcoming.

Q. When you say you were advised, who was it that told you that?

A. Paul Brinsmead.

Q. And as best you can, trying to do it in inverted commas, in speech marks, what did Mr Brinsmead say?

A. As best I can recall it was, ‘We haven't got a hope of getting the owner's consent because it's not, it is in dispute’.”

432 Hickeys were, at the time, NGC’s solicitors. There is no suggestion that whatever Mr Brinsmead of that firm said to Mr Hart was said otherwise than with the authority of NGC.

433 In the course of cross-examination, Mr Hart was asked when the conversation with Mr Brinsmead occurred:

“Q. And you have no recollection, do you, of just when it was that you had your conversation with Mr Brinsmead?

A. I can't tell you from exactly which day or which month at the moment but I would have file notes of that, yes.

Q. Would you? And it might have been March, it might have been the next month or perhaps even the month after that, would that be right?

A. I think so, yes.”

434 With the evidence in this state, it has not been shown that the refusal of NGC communicated through Mr Brinsmead to Mr Hart on behalf of TBPL occurred before 3 May 2002, being the date on which NGC took action to terminate the lease. Indeed, Mr Hart’s evidence establishes, as to timing, no more than that the conversation took place in March or April or May 2002. NGC has, however, made an admission in its defence as follows:

“Narui admit that in March 2002 Tony Hart on behalf of TBPL asked Narui’s solicitors for consent to lodge a development consent for the plantation and that Mr Hart was informed such consent would not be forthcoming.”

435 It is thus admitted by NGC that both events – Mr Hart’s asking and Mr Hart’s being informed – occurred in March 2002. This precludes any finding that the statement on behalf of NGC was conveyed after 3 May 2002. It is also clear that development consent to which the admission relates is that which TBPL, by the letter of 8 February 2002, asked Aspect North to prepare.

436 There is an insurmountable problem here for TBPL. Any implied contractual obligation of co-operation to which NGC was subject in relation to TBPL’s obtaining of development consent for the leased land could only have extended to the obtaining of consent to use of the land consistently with the lease, that is, in terms of clause 4.1, for the planting and cultivation of lemon myrtle trees. The instruction TBPL gave Aspect North by the letter of 8 February 2002 was to “complete the lemon scented development application to be submitted to Tweed Shire Council”. That TBPL, through Barr, was here referring to lemon scented tea trees is made clear by the later the reference to “600,000 lemon scented trees” having already been planted. This, coupled with the acceptance by both parties that the trees in fact planted by TBPL were lemon scented tea trees leads to the firm conclusion that the co-operation sought of NGC by TBPL by means of Mr Hart’s approach to Mr Brinsmead and refused by NGC through Mr Brinsmead was co-operation directed towards obtaining of development consent for the cultivation of lemon scented tea trees.

437 No implied term of the kind for which TBPL contends could possibly have obliged NGC to give that co-operation. Due effectuation of the lease and due carrying of its provisions into effect did not require of anyone steps to make lawful the cultivation of lemon scented tea trees as distinct from lemon myrtle trees. I have already found that the planting and cultivation of lemon scented tea trees by TBPL entailed breach by it of clause 4.1. There was no implied contractual requirement and could have been no wider expectation that NGC should facilitate such a breach.

438 It follows that, even if the term for which TBPL contends on the basis of Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (above) is properly to be implied, the refusal of NCG conveyed through Mr Brinsmead did not amount to breach of that term.

439 A concluding comment on this aspect is that, as with the allegedly implied contractual obligation of good faith, there is no clear basis for concluding that breach of an implied obligation to co-operate would have caused NGC’s termination of the lease to be ineffective. Such a breach may have attracted an award of damages. Indeed, NGC makes a claim for damages on that basis. But that, of course, is quite a separate matter.

Summary of conclusions on termination

440 I pause at this point to re-state the following conclusions:

1. TBPL breached both clause 4.1 and clause 4.3 of the lease.

2. Each breach was a breach of an essential term giving rise, without more, to a right of NGC to terminate the lease according to principles concerning termination of contracts for breach of that quality.

3. If the breach of clause 4.3 was not, in terms of s 129(1)(b) of the Conveyancing Act, “capable of remedy”, NGC’s notice dated 3 May 2002 was a valid and effective notice under that section in respect of the breach of clause 4.3 and service of the notice made enforceable NGC’s clause 8.1 right to re-enter and determine TBPL’s leasehold estate, which right was exercised by NGC so as to put an end to TBPL’s leasehold estate.

4. If the breach of clause 4.3 was, in terms of s 129(1)(b), “capable of remedy”, NGC’s service of the notice dated 3 May 2002.

(a) did not cause the clause 8.1 right to become enforceable; but

(b) was conduct of NGC making it plain that it treated the lease as at an end so that TBPL’s leasehold estate was terminated.

5. The notice of 3 May 2002 was effective as mentioned in 4(b) by reference to both the breach of the clause 4.1 essential term and breach of the clause 4.3 essential term even though it was framed by reference to clause 8.1 (and breach of clause 4.3) and did not mention the breach of clause 4.1.

6. In any event, service by NGC of defences and cross-claims in these proceedings before 17 April 2003 constituted (or confirmed) a clear choice of NGC to terminate the lease.

7. NGC was not disentitled by estoppel, election or otherwise, as at 3 May 2002 or afterwards, from exercising the clause 8.1 right of re-entry or the general law right to terminate the lease for breach of an essential term.

8. Neither of those rights was rendered unavailable by reason of breach of any implied contractual obligation of good faith or breach of any implied contractual obligation of co-operation.

9. The breach of clause 4.1, viewed alone, would merit relief against forfeiture but the breach of clause 4.3, viewed alone, does not merit relief against forfeiture, with the result that relief against forfeiture in respect of the deprivation suffered by TBPL by reason of NGC’s action in terminating the lease will not be granted.

10. The lease of 23 June 2000 was not in force and subsisting on 17 April 2003.

441 I should add that, in final oral submissions, NGC did not place reliance on the clause 8.1 right of re-entry. My conclusions with respect to the general law right to terminate for breach of an essential term nevertheless lead to the position stated in 10 above.

442 The consequence of the stated conclusions is that, on 17 April 2003, NGC was not, in terms of clause 15.17 of the lease, “bound by the Call Option as landlord”, with the result that the purported exercise of the clause 15 option by TBPL on that date did not cause NGC to become “bound as vendor” in accordance with clause 15.17 and was ineffective to bring any contract for sale into existence.

443 These conclusions are sufficient to dispose of the proceedings. TBPL’s central claim for an order for specific performance of a contract for sale arising from purported exercise of the clause 15 option on 17 April 2003 fails.

444 It is desirable, however, that I deal with a number of other issues arising on the pleadings on which submissions were made. This is in case the matter is taken on appeal.

Misrepresentation

445 In the discussion under this heading, I proceed on the assumption that, contrary to the conclusions just stated, the clause 15 option did not become unavailable by reason of termination of the lease in consequence of NGC’s service of the notice of 3 May 2002.

446 NGC contends that TBPL, by proffering to NGC some days before execution a draft lease containing clause 4.3 and then executing the final document containing that clause, TBPL made to NCG a representation of an existing state of affairs as described in clause 4.3, which representation was false. In view of earlier findings, it may be accepted that any such representation was false.

447 NGC relies, in this part of the case, on both general law principles and statutory provisions. As far as the general law is concerned, the applicable rule is that an innocent person who is induced by operative misrepresentation of another to enter into a contract with that other may, at his or her option, either rescind the contract or affirm it and continue to be bound: Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 at 222. NGC says that it exercised a right of rescission thus arising by serving the notice dated 3 May 2002, the letter that accompanied that notice, its defence to the statement of claim filed 9 August 2002 or its cross claim of 10 July 2002.

448 The statutory remedy sought by NGC is an order under s 87(2)(a) of the Trade Practices Act 1974 (Cth) declaring the lease void. Such an order is said to be warranted by the misleading or deceptive conduct of TBPL in contravention of s 52 of that Act in making to NGC the false representation in terms of clause 4.3.

449 TBPL maintains that an element essential to the success of both the general law claim and the statutory claim is lacking. According to the general law, the claim based on misrepresentation is not maintainable unless the representee relied on the misrepresentation in entering into the contract so that there was, in the relevant sense, inducement by the representation: Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215. For the statutory remedy to be available, it must be shown that the plaintiff is, in terms of s 87(1), a person who has suffered or is likely to suffer loss or damage “by” contravening conduct. Cases on identical words in s 82 of the Trade Practices Act establish that reliance by the representee is essential, such that contravening conduct was causative of loss or damage: Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514. A concept of remoteness based on reasonable foreseeability also plays a part: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459.

450 TBPL says that it is not open to the court to find that NGC relied on any representation in terms of clause 4.3 when entering into the lease. NGC contends that there was relevant reliance.

451 TBPL says that there is a complete absence of evidence that the existence of the clause 4.3 warranty acted as a material inducement to NGC. Hiroyuki was the controlling mind of NGC. It was he who signed the lease for NGC. Yet Hiroyuki was not called to give evidence on the matter of reliance.

452 In addition, TBPL points out, there is no evidence that Hiroyuki was aware of the content of clause 4.3. He could not speak or read English. There is no evidence that he had the lease translated to him. Indeed, there is evidence to the contrary. Hiroyuki said in a statement of 6 April 2005 admitted into evidence:

“I was not provided with any translation of this document [the final form of lease] at any time and accordingly was unaware of its contents.”

453 NGC, in response, draws attention to the proposition approved in Gould v Vaggelas (above) that if a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract, there arises a fair inference that the person was induced to do so by the representation; which inference may, of course, be rebutted by evidence. With that proposition in mind, NGC goes on to say that the relevant state of mind is that of NGC, not Hiroyuki alone, so that account must be taken of the state of mind of Shigeo also. NGC submits that TBPL cannot show that Shigeo did not rely on the representation.

454 NGC points, in this regard, to evidence that, at some time before 22 or 23 March 2000, Barr and Shigeo had discussions about a lease. It is also shown that Barr sent “a lease agreement” to Shigeo with his letter of 22 March 2000 – for Shigeo’s “perusal only”. This was no doubt one of the two versions (of 16 March 2000 and 24 March 2000) sent by Barr direct to Hiroyuki (although there is, as I have said, some doubt whether the first was actually sent). All this may be accepted, but it throws no light on the matter at hand. The forms of so-called “lease agreement” of 16 March 2000 and 24 March 2000 were obviously drafted by Barr himself. Neither contained any representation in the terms eventually included in clause 4.3 of the lease drawn by Mr Hynes; nor was there any even faintly similar content.

455 In any event, I cannot accept that Shigeo was a decision maker in relation to the lease such as to make his state of mind relevant to an assessment of inducements to which NGC was subject. Hiroyuki’s evidence is that he was himself the decision maker and that Shigeo had no authority to make decisions of any significance. That, coupled with the absence of any basis for concluding that Shigeo actually saw the final form of lease before it was signed (I have said that the proposition that he carried it with him to Japan is mere speculation), leads me to reject the possibility that the presence of clause 4.3 in that final form influenced, through Shigeo, the decision of NGC to enter into the lease. It was Hiroyuki who signed for NGC and it was his associate Mr Takaku with whom Barr dealt in that connection. In human terms, Hiroyuki is relevant to this part of the case and Shigeo is not. I have already dealt with Hiroyuki’s position.

456 I cannot find that the misrepresentation in clause 4.3 of the final form of lease played any part in inducing NGC to enter into that lease. NGC has therefore not shown that it had an entitlement to rescind on the basis of that misrepresentation or now has an entitlement to relief under s 87 of the Trade Practices Act on account of that misrepresentation.

457 I now deal briefly with a related claim advanced by NGC, namely, that it is entitled to an order under s 87 of the Trade Practices Act making the lease void because, after the lease had been entered into, TBPL, in contravention of s 52, made to NGC an ongoing representation by its silence that it continued to maintain all licences, consents and approvals to ensure that the use of the land was lawful and complied with all requirements of statutory or competent bodies or authorities, when this was not the case.

458 TBPL’s response, which I accept, is that this misconstrues the effect of clause 4.3. To the extent that it had any ongoing force, clause 4.3 imposed an obligation to maintain as valid and operative the licence, consent or approval warranted to have been obtained before the lease was entered into – in terms, the licence, consent or approval that in fact did not exist at all. Otherwise, the clause spoke only of the position existing at commencement and I do not consider the circumstances to have been such as to engender in NGC any legitimate expectation that subsequent silence on TBPL’s part should be broken to provide periodic updates or re-assurance. In short, I see no basis for a finding that silence could, in the circumstances, be of itself misleading or deceptive.

459 In any event and in relation to the crucial matter of reliance, NGC cannot say (and does not seek to say) that the subsequent silence of TBPL induced it to enter into the lease in the first place. Rather, it is the contention NGC that the misleading or deceptive silence was productive of loss or damage to it because it contributed to NGC’s refraining from terminating the lease, as it was entitled to do. TBPL submits and I accept that any such contention is beyond NGC’s pleaded case – in addition to which there is no evidentiary basis for a finding that NGC at any relevant time made a decision to refrain from terminating the lease.

460 NGC’s alternative basis for the grant of relief under s 87 of the Trade Practices Act is therefore not established.

Issues concerning exercise of the option

461 I proceed now to another series of questions rendered moot by my conclusions summarised at paragraphs [440] and [442] above about termination of the lease and the option but which should be dealt with in case the matter is taken further.

462 If, contrary to those conclusions, the clause 15 option to purchase was valid, subsisting and available for exercise by TBPL on 17 April 2003, several questions arise on the pleadings:

1 Whether the sum of $1,800,000 was validly and effectively determined by TBPL as the market value of the land and inserted into the contract accordingly.

2. Whether it was an implied term of clause 15 of the lease that in any valid exercise of the option TBPL was to act in good faith when inserting the amount of the purchase price and was required to insert a price which TBPL genuinely believed based on reasonable grounds to be the market value of the land.

3. Whether it was an implied term of the lease and the option that TBPL was not entitled to exercise the option if, at the time of exercise, it was (a) in breach of the lease in any respect; or alternatively (b) in breach of an essential term of the lease; or alternatively (c) in breach of the lease in such a way that the breach had the effect of actually or potentially depressing the market value of the land at the date of exercise of the option (particular reference is made to those provisions of the lease in respect of which NGC alleges the breaches already discussed).

463 It is the contention of NGC that the terms outlined are implied and that $1,800,000 was not the market value of the land.

The nature and effect of exercise of the option

464 I must say at once that I do not think it necessary to determine questions 1 and 2 above. Under a combination of clause 15.5(b) and clause 15.12, it was clearly for the tenant, when exercising the option to purchase, to insert into the contract delivered as part of the exercise process, a purchase price “equal to the market value of the premises”. When clause 15.12 refers to “the Purchase Price to be included in the Contract”, it refers to the process of preparation of the contract. Under clause 15.5(b), that process is to be undertaken by the tenant (“which must be prepared by the tenant”), so that insertion of a price is one of the things that the tenant must do in order to exercise the option in conformity with clause 15.5. In exercising the option, the tenant will, of necessity, insert a figure representing some estimate of the land’s market value, whether or not based on the opinion of a valuer (there is obviously no requirement that a valuation be sought or obtained by the tenant).

465 I note, however, that there is, on the evidence, a basis for a finding that Barr may well have had reasonable grounds for a view that $1,800,000 was the market value in April 2003. I refer to the report of Mr Sharpe, a registered valuer, which was admitted as evidence of Barr’s state of mind on the question of value (see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 49); although it is to be observed that, in a letter of 11 April 2003 to Mr Hung of Austcorp, Barr referred to $1.8 million as “a deflated market value”.

466 It is also relevant to note that Barr did not, when preparing the form of contract and inserting the price, actually represent that $1.8 million was either the market value or the contract price. What he actually inserted was “$1,800,000 (subject to clause 15.12 of the registered Lease no. 7312674)”.

467 Clause 15.12 makes it clear that the sum inserted by the tenant is not the purchase price if, within twenty-one days after delivery of the notice of exercise, the landlord does not agree that that sum is the market value of the land. By providing in clause 15.12 a mechanism for the determination of market valuer by an “independent valuer” and permitting that mechanism to be activated by either party if the parties cannot agree the market value within twenty-one days of “the tenant delivering the Call Option Exercise Notice to the landlord”, clause 15 shows an intention that completion of the clause 15.5 steps is to bring into existence a contract for sale in the form delivered by the tenant pursuant to clause 15.5(b) under which the purchase price is the sum inserted by the tenant before delivering that form of contract subject, however, to a twofold proviso: first, that if within the period of twenty-one days after completion of the clause 15.5 steps the parties do not agree that the sum inserted by the tenant is the market value but agree that some other sum is the market value, then that agreed sum shall be the purchase price; and, second, that if within that period of twenty-one days the parties do not agree that the inserted sum or any other sum is the market value, then the market value determined by an independent valuer appointed in the specified way shall be the purchase price.

468 Clause 15.12 is predicated on lack of agreement as to amount within the twenty-one day period. The words used are “the landlord and the tenant can not [sic] agree”. Implicit in these words is a requirement that the parties attempt to agree and an acknowledgement that, if they do agree within the period, then effect will be given to their agreement in that the amount they agree will be the price. But if they do not so agree, the price will be the market value fixed by an independent valuer appointed in the specified manner and the content of the parties’ contract will be defined accordingly.

469 This is a case of the kind considered by the High Court in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600. The structure of the parties’ agreement is such that steps taken by the tenant pursuant to clause 15.5 (including insertion of a price into the form of contract called for by clause 15.5(b)) cause a contract for sale to come into effect in the context of a collateral contractual regime for the fixing of the purchase price if there is not agreement by both parties that the sum inserted by the tenant is the market value. The parties are, at that point, bound as vendor and purchaser to complete in due course a contract for sale at a price which is the sum inserted by the tenant (if the landlord is content to accept that as the market value), a different sum agreed by the parties within the specified period to be the market value or, in default of both of the foregoing, the market value determined by the appointed independent valuer.

470 It is necessary at this point to refer briefly to events following steps taken by TBPL’s solicitor on 17 April 2003 with a view to fulfilling clause 15.5. The steps of 17 April 2003 are described at paragraphs [26] to [29] above.

471 On 23 April 2003, Hickeys, on behalf of NGC, wrote to TBPL’s solicitor saying that because the lease had been rescinded or terminated, the option to purchase was no longer in existence or available to be exercised. Hickeys returned the documents enclosed with the letter of 17 April 2003 from TBPL’s solicitor, including the bank cheque. By a subsequent arrangement (concurred in by NGC, through Hickeys, without prejudice to its principal contention), the money intended by TBPL to be the deposit was placed in a controlled moneys account where it remains.

472 On 1 May 2003, Hickeys (still reserving their client’s position) wrote to TBPL’s solicitor referring to clause 15.12 and saying:

“Our client contends the market value of the land referred to in the documents received from your client is far in excess of the amount nominated by your client.”

473 There was thus, within twenty-one days after the taking of clause 15.5 steps by TBPL, manifestation of lack of agreement between the parties as to the market value. TBPL’s solicitor replied on 2 May 2003:

“On the same without prejudice basis as your letter and so that we can ascertain whether the parties may be able to agree upon the market value of the land in question, we ask that you please advise us what your client considers to be the market value and provide us with copies of any documents in support of that value.”

474 The response of Hickeys on 6 May 2003 was that NGC “does not intend to enter into correspondence with your client as to the market value of the land in question”.

475 At that point, it was clear that the parties were unable to agree the market value. TBPL’s solicitor then wrote to the President of the Law Society, Mr Benjamin, enclosing a copy of the lease, drawing attention to clause 12.2 and asking that an independent valuer be appointed. Hickeys declined to enter into correspondence with TBPL’s solicitor regarding the appointment of a valuer but did on 19 June 2003 write to TBPL’s solicitor expressing the view that the nomination of a valuer should not proceed until the “the validity of the lease, and consequently the option, is determined by the Supreme Court”. These proceedings were on foot at that time. Hickeys had approached the Law Society direct and informed it of this attitude on NGC’s part.

476 To this point, the President of the Law Society has not appointed an independent valuer and no steps have been taken with a view to procuring such an appointment.

477 In these circumstances, it is my opinion that if, contrary to my earlier conclusions, the clause 15 option was available to be exercised on 17 April 2003 and if exercise was not precluded by the matter postulated in point 3 at paragraph [462] above, the steps taken by TBPL on that date must be regarded as having brought into existence a contract for sale under which the purchase price is such sum as a valuer yet to be appointed by the president of the Law Society determines to be the market value of the land.

Did breach of an implied term deny the right to exercise the option?

478 I return now to the matter in point 3 at paragraph [462] above. NGC says that an implied term of the kind there set out (that is, to the effect of (a) or (b) or (c)) is necessary to give business efficacy to the lease and the option. TBPL disputes this, saying that the conditions for the implication of terms are not satisfied as to any of the three alternatives. Those conditions, as stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (above) are:

“. . . for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

479 It has long been common for options in leases, particularly options to renew (but including options to purchase), to be subject to an express condition as to the absence of breaches of covenant on the tenant’s part. Thus, for example, “Evatt and Beckenham’s Conveyancing Precedents and Forms”, 3^rd edition (1951) by F G Myers and B M Hogan contains, at page 531, a form of option to renew as follows:

“”. . . that if at any time during the said tenancy hereby created the tenant shall be desirous of having a lease of the said premised for a term of [twenty-one] years . . . and shall give to the landlord notice in writing to that effect then and in such case (provided the tenant shall have duly observed and performed the agreements on his part hereinbefore contained up to the date of such notice) the landlord will grant to the tenant a lease a lease of the said premises accordingly . . . “ [emphasis added].

480 The lease considered in Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122 contained wording as follows:

“If the tenant shall desire to take a renewed lease of the demised premises for a further term of five (5) years from the expiration of the term of this lease and of such desire shall prior to the expiration of the said term give to the lessors three (3) calendar months’ previous notice in writing and shall in the meantime duly and punctually pay the rent reserved by this lease at the time herein appointed for payment thereof and shall duly perform and observe the covenants and agreements by and on the part of the tenant contained in this lease up to the expiration of the term hereby granted the lessors will . . . demise to the said tenant the premises hereby demised for a further term . . .” [emphasis added].

481 The decision in that case adopting a strict and literal construction of the quoted provision caused the New South Wales Law Reform Commission to say in its ”Report on Options in Leases” (1967):

“The result of the judgment of the Full Court would appear to be that a breach of a covenant, however trivial and however long before the time of exercise of the option the breach may have occurred, prevents the exercise of the option although the lessor may have waived the breach so far as concerns forfeiture of the original term. Such a condition could operate harshly, especially where the option is an option to purchase the leased property.”

482 The decision had another effect as well. It caused solicitors acting for lessees to be careful to seek either deletion of such a condition or the adoption of a modified form operating only by reference to any breach subsisting and unremedied at the time of exercise of the option. Those efforts must, over the years, have met with success, given that an Appeal Panel of the Administrative Decisions Tribunal said in 2008 (in Tennent v Moukhlina [2008] NSWADTAP 83 at [21]):

“Clause 19 of the Lease granted an Option for Renewal to the lessee provided it was exercised not more than 9 months and not less than 6 months prior to the expiration of the term. It required that the notice be given in writing. The clause was in the usual terms. The lessor promised to grant a renewed lease if there was no subsisting breach or non-observance of any of the covenants on the same terms, subject to agreement as to the rent for the new term. The clause provided that if the parties were unable to agree on the rent, the commencement annual rental shall be the market rental at the commencement date, to be determined by reference to the rent review procedure set out in cl 18.2 of the Lease. The final due date for giving of notice was therefore 10 May 2006” [emphasis added].

483 The provision thus described by the Appeal Panel in 2008 as “in the usual terms” was much more benign, from the tenant’s viewpoint, than the provisions from the mid-twentieth century already quoted.

484 The decision in Raffety v Schofield [1897] 1 Ch 937 is instructive. The provisions of an agreement for lease required that the tenant “forthwith proceed” with certain building works on the land and to complete them by 1 June 1896 (which date was, however, later extended). The landlord was entitled to terminate the agreement if the tenant did not comply with the provision concerning building work. Another clause gave the tenant an option to purchase the land at a fixed price, exercisable by 9 August 1897. On 30 December 1896, the tenant purported to exercise the option. On 27 January 1897, the landlord purported to terminate the agreement on the ground that, beyond demolishing a few existing structures, the tenant had done nothing to progress the building works. It was held that the tenant was thereby in breach of the covenant regarding building. The court then addressed the question of the validity of the exercise of the option to purchase and concluded (at 942):

“Now, it was clearly not a condition precedent to the exercise of the option that the defendant should not have made default under the building agreement; so that the option was well exercised, and a binding contract was thereby come to between the plaintiff and the defendant for sale and purchase of the property.”

485 Against this background, it is not possible to say that any of the implied terms for which NGC contends is, as it were, a natural or expected incident of a contract under which a landlord grants to the tenant an option to purchase the leased property. Landlords and tenants stipulate for various forms of condition qualifying the tenant’s right to exercise an option created by the lease, whether to renew or to purchase. Sometimes they stipulate for no condition at all. There is nothing in the nature of their relationship or of the circumstances in which they contract to suggest some unspoken intention that any qualification should apply. And in the case of an option to purchase the exercise of which leads to the completion of a sale that puts an end to the parties’ relationship, it cannot be postulated that any demonstrated proclivity of the tenant not to perform ongoing contractual promises should be of any concern to the landlord.

486 That raises the question whether there is anything peculiar to the circumstances of this case that might give rise to the implication of any of the terms for which NGC contends. The answer must be that, even when regard is had to the particular context, none of the terms is necessary to give business efficacy to the lease and the option, that the lease and the option are perfectly effective without all of them and that none of them passes the “so obvious it goes without saying” test.

487 My conclusion on this part of the case is accordingly that TBPL’s exercise of the option to purchase on 17 April 2003 would not have been precluded or defeated by the existence of any breach of the lease condition then or at any earlier time subsisting.

Conveyancing Act, s 133E

488 The conclusion just stated as to absence of any implied term avoids the need to consider whether, as TBPL contends, the fact that NGC did not serve on TBPL a notice under s 133E of the Conveyancing Act would have removed the right that NGC otherwise had to rely on a breach of lease covenants comprehended by the implied term as a basis for refusing to recognise TBPL’s exercise of the option. I proceed nevertheless to give brief attention to that matter and to state my view that s 133E would not have operated in the particular circumstances and therefore would not have interfered with the effectuation of the implied term.

489 Section 133E of the Conveyancing Act, as amended by the Land Titles Legislation Amendment Act 2001, is in these terms:

“(1) This section applies to a lease that contains:

(a) an option exercisable by the lessee, and

(b) provision by which the lessee’s entitlement to the option is made to depend on performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised.

(2) Despite any provision of the kind referred to in subsection (1) (b), no breach by the lessee of any relevant obligation precludes the lessee’s entitlement to the option unless:

(a) the prescribed notice has been served on the lessee in respect of the breach, and

(b) the lessee’s rights are extinguished in relation to the notice.

(3) In subsection (2):

breach of an obligation includes, where the obligation requires any thing to be done, any neglect or failure to do the thing concerned.

obligation includes any agreement, covenant, condition or stipulation by which the lessee is required to do or refrain from doing any thing.

prescribed notice means a notice in writing:

(a) specifying the lessee’s breach of the relevant obligation and served on the lessee:

(i) within 14 days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or

(ii) within 14 days after the breach, if the breach occurred after the giving of that notice, and

(b) states that, subject to any order of the court under section 133F, the lessor proposes to treat the breach as precluding the lessee from entitlement to the option.

(4) For the purposes of subsection (2) (b), the lessee’s rights are extinguished in relation to a prescribed notice:

(a) if an order for relief against the effect of the breach in relation to the lessee’s entitlement to the option is not sought from the court within one month after service of the prescribed notice, or

(b) if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or

(c) if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose.”

490 Under s 133C, a reference to an option contained in a lease extends to an option of the kind included in clause 15 of the lease of 23 June 2000.

491 Were it necessary for me to decide the matter, I would be of the opinion that a finding that one of the terms referred to in point 3 at paragraph [462] above was an implied term of the lease would not have been sufficient to cause the lease to be one to which s 133E applied. Even assuming that the implied term to be one “by which the lessee’s entitlement to the option is made to depend on performance by the lessee” of the clause or clauses of the lease comprehended by the implied term, two problems would confront any submission that section 133E applied. First, it would be necessary to conclude that the implied term was a “provision” that the lease “contains”; and, second, it would be necessary to conclude that the obligation breach of which was relevant to the operation of the implied term was a “specified obligation”.

492 The word “contains” used in relation to “provision” and the word “specified” used in relation to “obligation” carry with them a strong message of explicit expression and identification. This is particularly so where, as in the s 133E context, the question whether there is an entitlement to exercise the option depends on whether or not a particular kind of notice has been given within a particularly specified (and very short) time after purported exercise. The parties simply will not know, at that point, what, if any, implied terms supplement the express terms of their contract. Only a decision of a court can establish the existence of an implied term. It follows that implied terms cannot have been in contemplation when the scheme of the legislation was devised.

Specific performance

493 Because, on the view I have taken, TBPL’s purported exercise of the clause 15 option was ineffective because the option was no longer available to be exercised at 17 April 2003, the question of specific performance, at the suit of TBPL, of a contract for sale constituted by exercise of the option does not arise. Again however, it is desirable that I deal with submissions on that subject in case the matter is taken further.

494 In the discussion that follows, I proceed on the basis that any contract for sale arising upon exercise of the clause 15 option was as described at paragraph [469] above, that is, a subsisting contract for the sale of the property at a price to be fixed in the way for which the contract itself provides. As is made clear by the decision in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (above), the most that can be awarded by way of specific performance of such a contract is the kind of order discussed in Brown v Heffer [1967] HCA 40; (1967) 116 CLR 344 at 350, that is, an order confined to the taking of the proper steps to cause the price to be fixed by the agreed mechanism and, if and when that has been achieved, to transfer the land for that price.

495 Consideration of the barriers to specific performance postulated by NGC must be against that background.

TBPL’s alleged “iniquities”

496 NGC points to five “iniquities” on Barr’s part (or, more accurately, on the part of TBPL) which, it says, should cause the court to withhold specific performance at the suit of TBPL. The implicit assumption, which I accept, is that because TBPL was, at material times, wholly owned and controlled by Barr, conduct of Barr is relevant to the question of discretionary withholding of the equitable remedy sought by TBPL. There is, of course, a question whether the allegedly disentitling conduct bears a sufficiently close relationship to the equity on which TBPL relies to be relevant to the enforcement of that equity.

497 First, NGC says, there were breaches of fiduciary duties owed by both Barr and Shigeo to NGC and that TBPL was a knowing participant in those breaches.

498 Second, NGC says that Barr acted dishonestly towards NGC by lies, forgeries and deceptions related to his representation that he had sought and then obtained development consent for NGC’s major residential project.

499 Third, NGC relies on what it terms abuse by Barr of his relationship with NGC in order to conduct the plantation that was the purpose of the lease. Reference is made to Barr’s use of NGC’s land for the planting of test plots before the lease was entered into, Barr’s fraudulent use of his connection with NGC to borrow funds that he needed to pursue his secret joint venture with Shigeo and Barr’s dishonest use of NGC’s resources to establish the plantation at a saving of $300,000 to the joint venture. The relevant action of Barr alleged by NGC here is forgery and delivery to the Commonwealth Bank of a guarantee by NGC and supporting documents by which NGC was exposed to potential liability to that bank.

500 Fourth, NGC says that Barr “betrayed his position with” NGC in his dealings with Austcorp , in that he divulged to Austcorp information that was confidential to NGC.

501 Fifth, NGC points to action by Barr in an attempt to dissuade Shigeo from participating in these proceedings so as to further TBPL’s claims.

502 Because the first of these matters has ramifications going beyond the “unclean hands” question, it is desirable that it be addressed immediately.

Fiduciary duty

503 It is submitted by NGC that both Barr and Shigeo stood in a fiduciary relationship to it at the time of the grant of the lease the option and that, in and about the granting of the lease and the option, each breached fiduciary duties owed to NGC. As a result, it is said, NGC had an equity entitling it to rescind the lease (including the clause 15 option) and is entitled to a declaration that it has validly done so; or an order rescinding or setting aside the lease. NGC also considers itself entitled to a declaration that the lease (including the clause 15 option) was held by TBPL on a constructive trust for NGC. As mentioned above, breaches of fiduciary duty are also relied upon by NGC in arguing that “unclean hands” TBPL’s part would preclude an order for specific performance in favour of TBPL and against NGC.

504 In the case of Shigeo, it must be accepted that he was a fiduciary of NGC when the lease was granted by NGC to TBPL in June 2000. He became a director of NGC in April 1992 and continued in office beyond June 2000.

505 In addressing the proposition that Barr was a fiduciary of NGC, it is necessary to go back in more detail to certain of the factual matters already mentioned.

506 Barr was aware of NGC’s interest in clearing as much of Kings Forest as possible. The plan was, after all, to establish a substantial town or, at least, to obtain the approvals necessary to proceed with such a development. Cleared land was obviously more desirable than bushland or forest.

507 A risk was taken in clearing the Cudgen Paddock. The Council complained strenuously about what it regarded as unauthorised development by clearing. NGC responded by arguing that existing use rights justified what had been done.

508 By October 1999, Barr had formed a view that a plantation would serve NGC’s objective of preventing regrowth of native flora, thereby preserving the advantages obtained by clearing. Barr was also aware that cultivation of either lemon myrtle trees or lemon scented tea trees could produce commercial advantages by way of exploitation of the oil produced by the trees. While there was, in late 1999, an idea that NGC might joint venture with some outside party, Barr eventually decided that he should have the advantage of a plantation’s produce wholly for himself. Hence the idea of the lease ultimately taken by TBPL.

509 Barr, however, was short of capital. He had to resort to borrowing to obtain $150,000 to put towards the plantation project. That was not enough. It was no doubt for that reason that he originally envisaged that he, Shigeo and “Narui Head Office” would be equal partners in the venture. After January 2000, however, there was no reference to Narui Norin being a partner. The plan became one under which Barr and Shigeo would each contribute an initial $150,000. Barr’s shortage of cash is made clear by his requests of 22 March 2000 and 3 April 2000 that Shigeo provide the $11,200 (or $10,700) needed for the initial 300,000 trees (the source of this need is something that will need to be addressed in another context).

510 It is significant that Barr dealt directly with Hiroyuki in seeking the lease. Before his first approach to Hiroyuki (on 16 or 24 March 2000), however, Barr outlined the leasing proposal to Shigeo (on 2 March 2000), saying that he “would be undertaking this with your support and approval”. This may be an indication that Barr saw Shigeo as a co-venturer with him. Or Barr may have been simply asking for Shigeo’s support in the approach he was making to Hiroyuki. That the former may have been the situation is suggested by the content of Barr’s 22 March 2000 letter to Shigeo saying that it would be a “good idea” for him to discuss with Hiroyuki “our intentions” – presumably intentions of Barr and Shigeo. That there was, by then, some form of arrangement between them is borne out by the next paragraph in which Barr sought Shigeo’s confirmation of payment of $11,200 deposit for trees (something repeated in his 3 April 2000 letter). Since NGC was not to be involved in the plantation project, it cannot have been envisaged that this would be paid by NGC or Narui Norin. Shigeo was involved personally.

511 Barr’s confidential letter to Shigeo dated 17 June 2000 manifested an intention of Barr to have a “contractual agreement” with Shigeo and a desire not to “expose S Narui involvement”. That was consistent with an approach under which Barr or, more precisely, his company TBPL would be the apparent operator of the proposed plantation, with Shigeo as a kind of sleeping partner.

512 The terms of the joint venture were subscribed to by Barr and Shigeo in the document of 23 June 2000 (see paragraph [40] above). That document made it perfectly clear that Shigeo was to have a one-half profit share in the plantation venture; also that the lease would be “fifty/fifty beneficial to S. Narui”.

513 It is thus established that when Hiroyuki, representing NGC, granted the lease to TBPL, Barr and Shigeo had come to an arrangement under which they would be the beneficial owners of the cultivation project. There is a question about what Hiroyuki actually knew at that point. His knowledge is relevant because it must, in my view, be accepted that he, although not an officer of NGC, was the person who made decisions for it. It is appropriate to proceed on the basis that Hiroyuki, as the responsible officer of the holding company, Narui Norin, was the guiding mind and will of NGC.

514 In approaching findings about Hiroyuki’s state of mind, the court has, apart from contemporary documents, only his untested statements ruled admissible on 6 August 2009 (see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 769; (2009) 258 ALR 598). That evidence must be treated with care. Taken at face value, it indicates that Hiroyuki signed the lease because Shigeo had explained to him the advantages of having a plantation operator keep down native vegetation; that Hiroyuki did not know that the lessee was Barr’s company; that Hiroyuki did not know of the partnership arrangement between Barr and Shigeo; and that Hiroyuki did not know that Shigeo had a financial interest in the plantation venture. Hiroyuki’s statements also indicate that had he known that Shigeo stood to gain financially from the granting of the lease, he would not have signed it.

515 Hiroyuki did not read, write or speak English but he had staff members who did. Any such staff member who read Barr’s letter of 16 or 24 March 2000 and the accompanying form of agreement (and the lease as finally drafted) must have known of Barr’s personal involvement. In the case of the lease, the lessee’s name “Tim Barr Pty Ltd” would, of itself, have been enough to make the connection; and this would have been so even if only the execution page was sent to Japan, as the evidence seems to indicate may have been the case: the lessee’s name “Tim Barr Pty Ltd” appears on that page. I have already observed that it is inconceivable that Mr Takaku of Narui Norin did not appreciate that Barr was the person who had signed the execution page of the lease as director of the company bearing his own name. In the case of the earlier document and its covering letter of 16 or 24 March 2000, there was quite unambiguous reference by Barr to “my draft agreement between my company Barr Project Management and Narui Norin head office”. A person conversant with the English language, able to read English and generally familiar with the situation at Kings Forest must have been aware that the proposal put forward by Barr to Narui Norin by the letter of 16 or 24 March 2000 and subsequently by submission of the lease itself for execution by NGC involved a transaction between NGC and a company owned by Barr.

516 But such knowledge on the part of Mr Takaku or any other Narui Norin staff member able to read English does not mean that the information was imparted to Hiroyuki. Shigeo was Hiroyuki’s principal adviser in relation to Kings Forest. Shigeo was also a trusted family member. It is therefore likely that anything apparently submitted at Shigeo’s instigation would be accepted by Hiroyuki at face value and would be regarded as acceptable and in order from Narui Norin’s viewpoint. It is therefore quite conceivable that if the relevant English speaking staff member knew that Shigeo – who, after all, spoke, read and wrote English - had cleared the signing of a particular English language document, he or she would not see it as necessary or appropriate to inform Hiroyuki of its content.

517 In his written communication of 22 March 2000, Barr suggested to Shigeo that he should “discuss with the Chairman and the President [ie, Hiroyuki] our intentions in accordance with my draft letter and lease agreement between our two companies”. There is no evidence that Shigeo did so. There was a strong disincentive for Shigeo to inform Hiroyuki of his own role as a co-venturer with Barr in the plantation project. He must have known that such a personal involvement on his part would attract the strong disapproval of his Japanese employer and, in particular, of Hiroyuki. At the same time, however, it is virtually certain that Shigeo had discussed the lease proposal with Hiroyuki. I have already referred to the telephone conversation of 1 June 2000 in which Shigeo asked Hiroyuki to sign the preliminary lease document or heads of agreement submitted by Barr. It is most unlikely that Hiroyuki, sitting in his office in Japan, would have signed any document concerning Kings Forest without some form of clearance or recommendation from Shigeo, the Narui Norin executive with direct and particular responsibility for that part of the Narui Norin business.

518 Shigeo, for his part, could not have hoped to keep from Hiroyuki the fact that Barr’s own company was the prospective lessee. Barr had written direct to Hiroyuki to that effect on 16 or 24 March 2000. Shigeo knew this. Shigeo must have assumed that Mr Takaku or some other English speaking member of the head office staff might translate Barr’s letter for Hiroyuki or at least inform him of its content. It must be assumed that a letter in English addressed by Barr to Hiroyuki and received at head office would be brought to Hiroyuki’s attention in some way.

519 The likelihood is (and I find) that, despite his later statements to the contrary, Hiroyuki was aware that the lease proposal and the documents he was signing in relation to it on behalf of NGC were in favour of Barr’s own company; but that he was, as he says, unaware of Shigeo’s involvement as a partner in the plantation project.

520 In the case of Shigeo, it is clear, as I have said, that, as a director of NGC, he stood in a fiduciary relationship to NGC. He was a director of NGC from April 1992. For that reason, he owed to NGC in June 2000 both fiduciary duties and the duties imposed by Part 2D.1 of the Corporations Law as then in force. In relation to Barr, the position is different. It is not suggested that he was an officer of NGC owing statutory duties. The proposition is simply that that he owed fiduciary duties to NGC.

521 It was Barr’s company, BPM, that was retained as project manager by NGC. BPM owed duties to NGC accordingly. They were contractual duties and no doubt included duties to preserve and protect the subject matter of the managed property. NGC maintains, however, that both Barr and Shigeo, in the course of management of the property, reported to NGC matters concerning such management and were aware that NGC relied on them to keep it informed about matters affecting the management of Kings Forest. That, NGC says, was sufficient to cause Barr, as well as Shigeo, to owe NGC duties to act honestly and in good faith, to act in the best interests of NGC, to avoid a position of conflict between their own interests and those of NGC and to act with reasonable care and skill.

522 There is a question whether, as NGC maintains, Barr himself had undertaken or agreed to act for or on behalf or in the interests of NGC in the exercise of powers or discretions affecting the interests of NGC in a legal or practical sense. These words were used by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) HCA 64; [1984] 156 CLR 41 at 96 – 97 to describe the “critical feature”.

523 This formulation was questioned by Mr Justice B H McPherson in his article “Fiduciaries: Who Are They?” (1998) 72 ALJ 288. He saw the content of the description of the relationship as no more than the content of the description of the duty, apart from the element concerned with undertaking or agreeing. The emphasis, in his opinion, should be on circumstances and the question whether they are such as to imply a requirement to act for or on behalf of or in the interests of another person, with the indicia being reliance and dependence.

524 In Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 at 113, Gaudron J and McHugh J said, in a passage approved by McHugh J, Gummow J, Hayne J and Callinan J in Pilmer v The Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165 at [74]:

“In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations -- not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict.”

525 The source of the obligation lies in the ascendancy that, in the circumstances, one person has over the other or the vulnerability in which the second person stands in relation to the first.

526 In the present case, the circumstances were that NGC, the owner of a large tract of land in northern New South Wales, was wholly owned and controlled by Narui Norin and had no officer of its own active in Australia, except for Shigeo during his periodic visits. Within the corporate group of which NGC formed part, Hiroyuki was the officer responsible for NGC and NGC’s decision-maker. He was based in Japan and did not speak, write or read English. Shigeo reported to Hiroyuki and it was to Shigeo that Hiroyuki looked for information relevant to NGC’s affairs. Shigeo was himself fairly unfamiliar with Australia and Australian conditions. He was dependent on local assistance. Shigeo obtained that assistance overwhelmingly from Barr.

527 According to the case advanced by NGC in these proceedings, the circumstances just mentioned are sufficient to justify the conclusion that Barr stood in a fiduciary relationship to NGC. TBPL disagrees. The crucial issue, in my view, is whether the reliance undoubtedly placed upon Barr by Shigeo and the ascendancy of Barr and vulnerability of Shigeo that it entailed was in reality reliance by NGC itself. It is necessary, at this point, to go back to the untested statements of Hiroyuki. He says that it was on Shigeo that he relied to manage Kings Forest in the interests of NGC and Narui Norin. Hiroyuki did not see Barr’s regular reports to Shigeo; he was not even aware that Barr was sending such reports. Hiroyuki made decisions concerning Kings Forest on the basis of advice given to him by Shigeo and sometimes by others within Narui Norin. Shigeo produced his own written reports concerning Kings Forest. He provided these to subordinates of Hiroyuki. Hiroyuki himself did not see them. He relied on Shigeo to bring to his attention anything of particular importance.

528 Shigeo played an administrative role for Hiroyuki and was the link between, on the one hand, Hiroyuki and Narui Norin and, on the other, Barr and others directly engaged in Australia on tasks concerning the property. Bearing that in mind and in the circumstances just described, I must prefer the submission of TBPL that it is not open to the court to find that NGC relied on advice and guidance of Barr in such a way as to cause Barr to occupy a position of ascendancy over NGC, so that NGC was vulnerable to Barr. Barr’s influence was upon Shigeo and it was Shigeo upon whom Hiroyuki (and therefore NGC) relied. There is virtually no evidence of communications between Shigeo and Hiroyuki. There is no basis for finding that Barr exercised any form of ascendancy in or affecting the NGC decision-making undertaken by Hiroyuki.

529 I proceed, therefore, on the footing that, while Shigeo, being a director, stood in a fiduciary relationship to NGC and therefore owed to NGC both fiduciary duties and the statutory duties I have mentioned, no corresponding duties were owed to NGC by Barr.

Breach of duty?

530 The catalogue of duties pleaded by NGC (see paragraph [11] above) goes beyond fiduciary duties as such. It may be accepted, however, that Shigeo owed all of those duties to NGC. The duty to act honestly, in good faith, in the best interests of NGC and with reasonable care and skill were duties imposed by Division 1 of Part 2D.1 of the Corporations Law. They may also be equitable duties that are not fiduciary duties. For present purposes, however, it is necessary to concentrate on fiduciary duties alone, so far as Shigeo is concerned. This is because the principal claims NGC advances on the basis of breach of duty by Shigeo are constructive trust claims.

531 It is the contention of NGC that Shigeo breached the fiduciary duty he owed to NGC because he, without the informed consent of NGC, derived benefit when NGC granted the lease of 23 June 2000 (including the clause 15 option) to TBPL. By virtue of the joint venture agreement he entered into with Barr on the same day, Shigeo was to have a half interest in the lease. This is the force of the penultimate paragraph of the agreement, as confirmed by Shigeo, referring to the lease being “fifty / fifty beneficial to S. Narui”.

532 The relevant duty of a fiduciary is the duty not to use the fiduciary position as an unauthorised source of personal profit unless he or she has the informed consent of the beneficiary of the duty to do so. In Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178, Deane J said at 199:

“Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee.”

533 A fiduciary will avoid a finding of liability to account if, after the fiduciary has disclosed to the person to whom the duty is owed all relevant facts known to the fiduciary, that person consents to the relevant acquisition by the fiduciary. There was debate before me on the question whether the putatively wronged beneficiary of the fiduciary duty must, in order to prove breach of duty, establish absence of full disclosure by the fiduciary and consent by that beneficiary or whether it is for the person seeking to resist a finding of breach of fiduciary duty to establish, by way of defence, that disclosure was made and consent was given. The latter is the correct approach. This is because, as Brennan CJ, Gaudron J, McHugh J and Gummow J made clear in Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 467, the fiduciary has no duty to obtain an informed consent from the person to whom the fiduciary duty is owed, rather “the existence of an informed consent would have gone to negate what otherwise was a breach of duty”.

534 The aspect of the Barr–Shigeo joint venture agreement recognising that Shigeo was to have a one-half interest in the lease (including the option it contained) involved Shigeo’s obtaining an obvious advantage from NGC’s granting of the lease and option. He thereby derived personal profit from the grant of the lease and option by NGC. That must be accepted as having amounted to a breach of fiduciary duty by Shigeo unless TBPL, as the party seeking to resist the finding of breach, establishes that Shigeo made relevant and full disclosure to NGC and NGC, in turn, consented to the obtaining of the benefit by Shigeo.

535 TBPL again points to Barr’s letter of 22 March 2000 to Shigeo with which he enclosed a copy of the preliminary lease document and said:

“It would be a good idea if we discuss this in detail during your visit and it might also be a good idea to discuss with the Chairman and the President our intentions in accordance with my draft letter and lease agreement between our two companies.”

536 The reference here to the “lease agreement between our two companies” is clearly a reference to the preliminary lease document Barr had prepared for submission to Hiroyuki and wished to discuss with Shigeo during Shigeo’s apparently forthcoming visit to the property (in his 22 March 2000 letter to Shigeo, Barr referred to “picking you up this week end”). The reference to “my draft letter” is unexplained. No light is cast on it by the remainder of the evidence. It is, I suppose, conceivable that Barr was referring to a draft of the letter that was eventually signed by both him and Shigeo on 23 June 2000 to create the joint venture. But there is no evidence to support a finding that a draft of that letter existed at that time or that it was to such a draft that Barr was referring.

537 There is likewise no evidence that Shigeo discussed with “the Chairman and the President” – that is, Hiroyuki – what Barr referred to as “our intentions”. Hiroyuki’s statements admitted into evidence suggest that he was, at the time, unaware that Barr and Shigeo were contemplating the joint venture that was formed by the letter of 23 June 2000 and that he did not know of the joint venture after its formation. Shigeo, of course, had good reason not to act on any suggestion that he tell Hiroyuki about the joint venture proposal and discuss it with him. Shigeo, as an executive employee of Narui Norin, must have known – or, at least apprehended – that Hiroyuki would not countenance his deriving a private benefit from a transaction to be entered into the wholly owned subsidiary, NGC.

538 Barr’s suggestion that Shigeo discuss “our intentions” with Hiroyuki is thus one that Shigeo would most likely have ignored in case he should get himself into trouble within the Narui Norin hierarchy.

539 I cannot find that Shigeo informed Hiroyuki (and therefore NGC) of the matters disclosure of which to NGC would have been relevant to a conclusion of informed consent by NGC to a breach of fiduciary duty by Shigeo through participation in the joint venture with Barr.

540 TBPL next submits that disclosure of those matters to NGC occurred by means of communication by Barr to Mr Hynes and Mr McDermid. TBPL relies, in this regard, on Barr’s “confidential” letter of 17 June 2000 to Shigeo in which he said that the “lease signed by Narui head office” was too advantageous to the tenant and that he had therefore “agreed with Robert [Hynes] acting for Narui company to draw up a new lease”. Barr also said in that letter that, as a result of matters explained to him by Mr Hynes and Mr McDermit, he intended to have “the new company Tim Barr Pty Ltd” take the lease of the Cudgen Paddock. Barr went on to explain to Shigeo that “Steve and Waynes company” – the supplier of trees – would “sign an agreement with Tim Barr Pty Ltd” and “I will have a contractual arrangement with your self in place because I told Jeff [McDermid] we do not want to expose S. Narui involvement in Narui Gold Coast Pty Ltd financial tax records each year they both agreed”.

541 The “they” who “both agreed” may be taken to be Mr Hynes and Mr McDermid. It is their acknowledgement that Barr was to have a “contractual arrangement” with Shigeo to avoid exposure of Shigeo’s “involvement in Narui Gold Coast Pty Ltd financial tax records each year” that TBPL puts forward as evidence of informed consent by NGC to Shigeo’s breach of fiduciary duty by participation in the joint venture by Barr.

542 There are two problems for TBPL here. First, one cannot know precisely what was said to Mr Hynes and Mr McDermid and what it was that they supposedly “agreed”. Second, it is not possible to conclude that either of them had NGC’s authority sufficient to enable him to receive disclosures intended for NGC.

543 It is clear from the evidence that Mr McDermid’s firm had some form of ongoing retainer to attend to NGC’s taxation affairs. In a report to Shigeo dated 15 March 2000, when the introduction of the new goods and services tax regime was imminent, Barr referred to a meeting with Mr McDermid “where he informed me of a lot of tax incentive savings for Narui Company regarding the GST”. There are other references in the evidence to taxation services provided by Mr McDermid’s firm to NGC.

544 In the case of Mr Hynes, Barr’s report of 15 March 2000 said to Shigeo, also in the context of goods and services tax, that he would “like to use” Mr Hynes in the future, from which it may be inferred that the relationship was quite new as at 17 June 2000.

545 The inference that should be drawn, and which I do draw, is that Barr consulted each of Mr McDermid and Mr Hynes for Barr’s own purposes related to his taking of the lease. His account of the advice they gave about using a new company, instead of BPM (in case some default from the past should come to haunt BPM), is entirely consistent with their being advisers to Barr. The same is true of the advice they reportedly gave about TBPL entering into an agreement with “Steve and Waynes company” and having a “contractual agreement with your self in place”. These were not aspects of concern or importance to NGC. They were the concerns of Barr.

546 It is true that Mr Hynes prepared the lease that was ultimately executed and that Barr purported to instruct him on behalf of NGC; also that Mr Hynes opened his file and sent his bill in such a way as to imply that NGC was his client. But no officer of NGC instructed him. The only contact he had, so far as the evidence shows, was contact with Barr – the person he had advised regarding structuring of his own transactions in which the lease from NGC played a central part. Mr Hynes’ real client was Barr. Barr wanted to present to Hiroyuki a professionally drawn lease. He also had a distinct interest of his own in seeing a valid lease in place. It suited Barr to have a solicitor prepare a lease in circumstances where he had a basis for saying that it had been prepared for NGC.

547 With the evidence as it is, I cannot find that such disclosure (if any) as Barr made to Mr McDermid and Mr Hynes of matters the disclosure of which to NGC might have caused Shigeo’s conduct not to have entailed breach of fiduciary duty was disclosure to NGC.

TBPL’s complicity and its consequences

548 NGC submits that Barr knowingly participated in the breach by Shigeo of the fiduciary duty owed by Shigeo to NGC; and that TBPL also did so. Given that TBPL was wholly owned and controlled by Barr and had no mind or will but his, I accept that, if Barr was relevantly complicit in Shigeo’s breach, then so too was TBPL.

549 Under the so-called second limb of Barnes v Addy (above), a defendant is liable if that defendant assists a trustee or other fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary.

550 The relevant concept of knowledge was explained by Gleeson CJ, Gummow J, Callinan J, Heydon J and Crennan J in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (above) at [177] – [178]. A person will have “knowledge” of a fiduciary’s dereliction, in the relevant sense, if (a) the person has actual knowledge; or (b) the person wilfully shuts his or her eyes to the obvious; or (c) the person wilfully and recklessly fails to make such inquiries as an honest and reasonable man would make; or (d) the person has knowledge of circumstances which would indicate the facts too an honest and reasonable man.

551 The members of the High Court also explained in Farah Constructions the relevant concept of “dishonest and fraudulent design” (what I have called “dereliction”). Their Honours made it clear (at [181]) that not every breach of trust or of fiduciary duty is to be regarded as within the concept. Some breaches are well-intentioned. Others are trivial. Some merit dispensation because the person owing the duty acted honestly and reasonably and ought fairly to be excused. What is necessary is some element of dishonesty or fraud in the equitable sense.

552 NGC submits that Barr (and therefore TBPL) should be taken to have had actual knowledge of all relevant aspects of Shigeo’s conduct – in essence, that he supported the lease proposal and was party to the actions that caused NGC, through Hiroyuki, to grant the lease to TBPL; and that Barr knew that Shigeo was to obtain for himself, through the related and apparently contemporaneous joint venture arrangement, a one-half interest in the lease and the option. NGC submits in the alternative that Barr (and therefore TBPL) had knowledge of circumstances which would indicate the facts to an honest and reasonable man.

553 By his letter of 22 March 2000 to Shigeo, Barr showed that he considered it a “good idea” for Shigeo to have a discussion with Hiroyuki about “our intentions”. As I have said, it is not possible to say precisely what it was that Barr thought Shigeo should discuss. Yet there is no suggestion that Barr took any care to ensure that Shigeo did have relevant discussion with Hiroyuki. That, to my mind, is sufficient to justify in relation to Barr (and therefore TBPL) the second of the findings suggested by NGC, that is, that he had knowledge of circumstances which would indicate to an honest and reasonable person the facts amounting to breach of fiduciary duty by Shigeo. The facts in question are, of course, that Shigeo was to obtain, through his side-deal with Barr and TBPL, an interest in the lease that Barr wished NGC, at the instigation of Hiroyuki, to grant to TBPL; and that NGC, whether through Hiroyuki or otherwise, had not given its informed consent to the obtaining of that personal benefit by Shigeo.

554 Barr and, through him, TBPL had knowledge of circumstances which would indicate to honest and reasonable persons that participation by Shigeo in the way in which he participated transgressed ordinary standards of honest behaviour. Shigeo’s taking of the personal benefit he obtained from a combination of the grant of the lease (including the clause 15 option to purchase) by NGC to TBPL and the contemporaneous making of the joint venture agreement between himself and Barr can on no view be classed as well intentioned or as trivial or as conduct honestly and reasonably engaged in. It was within the relevant concept of “dishonest and fraudulent design”.

555 Shigeo occupies, as against NGC, the position of a defaulting fiduciary and therefore must hold for the benefit of NGC the advantage he derived in breach of duty. That advantage is the one-half interest in the lease granted by NGC to TBPL and the option to purchase included in it. And TBPL, as legal owner of the lease and option, must hold them subject to, at the least, a constructive trust in favour of NGC as to an undivided one-half interest.

556 That, however, is not the end of the matter. The knowing complicity of TBPL in Shigeo’s breach of duty in relation to the grant of the lease and option by NGC means that TBPL should not be allowed to retain any benefit from that transaction. Such retention would be against conscience. TBPL must therefore be regarded as holding the lease and the associated option to purchase, as to the whole, upon a constructive trust for NGC (subject, however, to a possibility to be considered presently).

557 These conclusions tend to overshadow other consequences of Shigeo’s breach of fiduciary duty. I nevertheless return briefly to the question of unclean hands and observe that the first of the “iniquities” alleged by NGC against TBPL (see paragraph [497]) has been established; also that that “iniquity” bore a sufficiently close relationship to the equity asserted by NGC to be relevant to the enforcement of that equity. TBPL’s involvement in Shigeo’s breach of fiduciary duty in connection with the creation of the lease and the clause 15 option operated upon and in relation to TBPL’s subsequent exercise of that option. The connection was of the quality referred to in Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145; (2009) 257 ALR 336 at [28] per Hodgson JA and [2] per Allsop P.

558 That particular finding of “unclean hands” against TBPL would be, of itself, sufficient to warrant the withholding of an order for specific performance against NGC and in favour of TBPL. There is no need to address the other alleged “iniquities”.

Intervention of third party rights

559 I return to the prima facie position stated at paragraph [556] that TBPL should be regarded as having held the lease and the clause 15 option, as to the whole, upon a constructive trust for NGC.

560 TBPL says that a constructive trust should not be imposed in favour of NGC because this would cut impermissibly across established third party rights. The rights said to be relevant are rights of Austcorp which, TBPL says, should be regarded as an “innocent” party for these purposes.

561 It will be recalled that, on 19 March 2003, TBPL granted to Austcorp an option to purchase the lease and an option to purchase the freehold of the Cudgen Paddock; and that Austcorp purported to exercise that option on 16 April 2003, nominating its wholly owned subsidiary Austcorp Project No 3 Pty Ltd as purchaser. That purported exercise occurred on the day immediately before that on which TBPL purported to exercise the clause 15 option.

562 TBPL contends that, from either the grant of the option to Austcorp on 19 March 2003 or the exercise of that option on 16 April 2003, Austcorp (or in the latter case, one assumes, its nominated subsidiary) derived an interest in the freehold of the Cudgen Paddock and that it would be inappropriate to recognise any constructive trust in favour of NGC inconsistent with that interest.

563 One matter canvassed in submissions is whether it was determined at an earlier stage of these proceedings that Austcorp had an interest in the Cudgen Paddock. In Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2004] NSWSC 986; (2004) 51 ACSR 129, Palmer J said (at [49]):

“By means of the option deed [ie, the deed of 19 March 2003], Austcorp advanced its commercial interest in the land by acquiring from TBPL an interest in the nature of a proprietary interest, although that interest is contingent on TBPL successfully enforcing its option against Narui [ie, NGC].”

564 It is accepted by both parties that, by virtue of the clause 15 option, TBPL had an equitable interest in the land. The rationale was explained by Latham CJ in Commissioner of Taxes (Queensland) v Camphin [1937] HCA 30; (1937) 57 CLR 127 at 132:

“When an option to purchase property has been given for value and the option contract is one which would be specifically enforced in equity, a court of equity attaches to it the consequence that it creates an equitable interest in the property which is the subject matter of the option (London and South Western Railway Co. v. Gomm (1882) 20 Ch. D. 562). The contract remains a contract imposing an obligation on the person giving the option, but, when it is an option relating to land and capable of specific performance, the ordinary doctrine of a court of equity results in the person giving the option becoming a trustee of the land for the intended objects of the trust (Central Trust and Safe Deposit Co. v. Snider (1916) 1 A.C. 266, at p. 272).”

565 NGC argues that Austcorp, by contrast, at no stage had an equitable interest in the strict sense and that it was for this reason that Palmer J said merely that it had an interest “in the nature of” a proprietary interest. NGC’s submission is put on the basis that a conditional option to purchase land is really the same as a conditional contract to purchase land and that, unless and until the condition is satisfied, the purchaser does not have an equitable interest by virtue of the contract. NGC relies on the decisions of the High Court in McWilliam v McWilliams Wines Pty Ltd [1964] HCA 6; (1964) 114 CLR 656 and Brown v Heffer (above).

566 For reasons I sought to state in Forder v Cemcorp Pty Ltd [2001] NSWSC 281; (2001) 51 NSWLR 486, I do not think that such an analysis based on those two cases is supportable in the light of later High Court authority. Even though, as the majority pointed out in Tanwar Enterprises Pty Ltd v Cauchi (above) at [53], such thinking is “is bedevilled by circularity”, an equitable interest was traditionally seen to be the concomitant of an entitlement to specific performance. But in the light of later cases such as Legione v Hateley (above), KLDE Pty Ltd v Commissioner of Stamp Duties (Queensland) [1984] HCA 63; (1984) 155 CLR 288, Chan v Cresdon [1989] HCA 63; (1989) 168 CLR 242, Stern v McArthur (above) and Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604, a right to a lesser equitable remedy in respect of land (in particular, injunction) may be regarded as giving rise to an equitable interest. It should therefore be accepted that Austcorp, as from the time it took the option granted to it by NGC, had an equitable interest in TBPL’s own proprietary interest, in that Austcorp was in a position to obtain an injunction restraining TBPL from dealing with that proprietary interest in a way that would preclude its meeting the claims of Austcorp resulting from exercise of Austcorp’s option.

567 To the extent that Austcorp may therefore be said to have had an interest in NGC’s land, the interest was, of its nature, one that did not and could not exist independently of the interest in that land enjoyed by TBPL by virtue of the clause 15 option. Austcorp held through or under TBPL. It had, at best, a right to seek the assistance of equity against TBPL to prevent disposition or dissipation by TBPL of its own interest or against NGC to prevent interference by NGC with TBPL’s interest.

568 Submissions were made on the question whether the existence of an interest of Austcorp of the kind just described should cause the court to withhold recognition of a constructive trust in favour of NGC in respect of TBPL’s interest in the land.

569 As Ward J observed in Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 at [143], the High Court said in both Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566 and Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 that, before a constructive trust is imposed, the court should decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust. In the former case, Gaudron J, McHugh J, Gummow J, Hayne J and Callinan J said, at [42]:

“An equitable remedy which falls short of the imposition of a trust may assist in avoiding a result whereby the plaintiff gains a beneficial proprietary interest which gives an unfair priority over other equally deserving creditors of the defendant: cf Re Polly Peck International Plc [No 2] [1998] EWCA Civ 789; [1998] 3 All ER 812 at 826-827; Fortex Group Ltd v MacIntosh [1998] 3 NZLR 171; Dobbs Law of Remedies, 2nd ed (1993), vol 1, §5.18(3); Goode, "Proprietary Restitutionary Claims" in Cornish et al (eds), Restitution: Past, Present and Future (1998) 63, at pp 65-67.”

570 Guided by the approaches thus taken by the High Court, Ward J said (at [145]:

“As a general statement of principle, a constructive trust will be treated as coming into existence at the time of the conduct which gives rise to the trust. In such a case, the doctrine of priorities would apply and, where the equities are equal, the beneficiary of the constructive trust would be entitled to priority over the holder of a later equitable interest or an unsecured creditor of the constructive trustee.”

571 After reviewing a number of decided cases, her Honour observed (at [151]):

“What is not clear is in what circumstances the presence of third party interests will cause the court either not to impose a constructive trust at all or only to impose a constructive trust shaped to commence from the time of judicial determination (as was done in Muschinski) rather than at an earlier time.”

572 Ward J then referred to two cases acknowledging the High Court’s concerns in the Bathurst City Council case as to the circumstances in which imposition of a constructive trust might accord unfair priority. The first is Distronics Ltd v Edmonds [2002] VSC 454 where Warren J (as she then was) said:

“The plaintiffs sought the declaration of a constructive trust as their primary relief. They sought also, and alternatively, equitable compensation and an account of profits. Mindful of the clarification of the relief expressed by the High Court in Bathurst City Council I must consider whether there are other means available to resolve the controversy between the parties. If a constructive trust is imposed it must be capable of being moulded so as to be effective from the date of judgment subject to appropriate orders to protect third parties such as the Buxton interests and any mortgagee including the repayment of moneys owed.”

573 Warren J ordered equitable compensation.

574 Subsequently, in Victoria University of Technology v Wilson [2004] VSC 33, Nettle J said (at [216]):

“In Distronics Ltd v Edmonds [sic], Warren J (as her Honour then was) refused to impose a constructive trust over land the subject of a joint venture development, because she could not be satisfied that it would not unfairly advantage the plaintiffs over third party creditors of the defendant company. Likewise here, I do not think that I can be satisfied that the imposition of a constructive trust over the software would be devoid of the risk of giving the university unfair priority over third party investors. And as will be seen, I do not consider that it is necessary to make such an order in order to do equity to the university.”

575 Having referred to these two Victorian cases, Ward J then said in Australian Building & Technical Solutions (at [165]):

“There appears to be no authoritative guidance as to what is meant by “unfair priority”, in the context of equally deserving third parties or those having legitimate claims or needing protection.”

576 Although, as her Honour says, there is no authoritative guidance on this matter, the circumstances of this case seem to me to suggest a clear – and negative - answer to the question whether Austcorp is, in the particular context, an “equally deserving” third party.

577 The Austcorp option was created by a deed the parties to which were TBPL (therein called “Tim Barr”), Barr and Austcorp. The deed was dated 19 March 2003. It contained definitions of “Lease” and “Tim Barr Call Option” referring to the lease dated 23 June 2000 the subject of these proceedings and the option to purchase created by clause 15 of the lease. Recital G to the deed read in part as follows:

“G. Tim Barr considers that:-

(a) the Lease is subsisting, valid and enforceable but this is disputed by Narui in litigation in the Equity Division of the Supreme Court of New South Wales, Sydney;

(b) The Tim Barr Call Option is subsisting, valid and enforceable but if the litigation results in the Lease being declared unenforceable, the Tim Barr Call Option will not be enforceable.”

578 Austcorp can thus be seen to have been on notice that, as TBPL itself knew, TBPL’s entitlement to the lease was in question; also of TBPL’s view (which is curious, in light of the stance taken by TBPL in these proceedings) that, if TBPL were shown not to be entitled to the lease, then it would not be entitled to the option either.

579 Other aspects of the evidence make it clear that Austcorp knew more than the bare fact of the existence of the dispute recited in the deed. The relevant officer of Austcorp was Mr Hung. He was in charge of the negotiations with Barr that led to the deed of 19 March 2003.

580 On 5 March 2003, Barr emailed to Mr Hung a form of agreement, referred to as a “proposal”. The terminology used makes it clear that Barr was not the author, but that is beside the point. The document contained a definition of “Court Proceedings” referring to these present proceedings and separate proceedings in relation to another part of Kings Forest involving Charles Harrison. Each proceeding was identified by its court file number. Clause 4 of the document made certain provisions:

“In the event that Narui [ie, NGC] contests the validity of the exercise of the Land Option [ie, the clause 15 option] on any grounds including on any one or more of grounds [sic] in the Court Proceedings.”

581 It is not suggested that this document was signed by Austcorp. But its receipt by Mr Hung must be taken to have alerted Austcorp (if it was not already aware) to the fact that there were various grounds alleged by NGC in these proceedings as a basis for its contention that there had been no valid exercise of the clause 15 option.

582 In his affidavit of 20 September 2007, Mr Hung deposed that he was not aware, as at the date of exercise of the Austcorp option (16 April 2003), of NGC’s allegation in the then current amended defence to further amended statement of claim of the existence of the joint venture agreement between Barr and Shigeo and various allegations of false representations by Barr. In the course of cross-examination, however, it was established that Mr Hung was in fact aware of a number of relevant matters in April 2003. He knew that one of the issues in the proceedings was whether TBPL had engaged in plantation activities on the land without necessary development consent. When shown a contemporary letter of advice from Austcorp’s solicitors, Mr Hung accepted that he was aware of a like issue concerning a licence from NPWS, as well as an issue regarding alleged misleading and deceptive representations by TBPL. Mr Hung also accepted under cross-examination that he had received a copy of the pleading and was aware of its content, at least in general terms.

583 The equitable interest in the land accruing to Austcorp by virtue of the deed of 19 March 2003 had no existence independently of the equitable interest that accrued to TBPL by reason of the grant of the clause 15 option. Austcorp knew that, on one basis or another, these proceedings might result in a finding that TBPL had no such interest. Austcorp accepted that, in that eventuality, it would have no interest either. Austcorp’s interest was made to depend on the outcome of the attacks mounted by NGC upon TBPL and TBPL’s interest.

584 Because Austcorp chose to occupy that position, I accept the submission of NGC that this is not really a case of contest between competing interests of NGC and Austcorp. Austcorp’s position was, in reality, that if NGC prevailed against TBPL in such a way that NGC’s land was not burdened by TBPL’s interest under the clause 15 option, then NGC would likewise prevail against Austcorp, in the sense that Austcorp’s dependent interest would also be obliterated.

585 But even if Austcorp’s interest conflicted with NGC’s prima facie right to a constructive trust as against TBPL, the conclusion would be that Austcorp was not, as against NGC, an “equally deserving” third party. It was a third party with actual notice of NGC’s claims and, while it may not have known all the details of the claims and of the precise bases on which they were advanced, it could not be said that NGC would attain “unfair priority” if NGC’s claims were vindicated by the imposition of a constructive trust superior to TBPL’s interest as the holder of the clause 15 option and therefore superior also to Austcorp’s interest derived from TBPL’s interest.

586 The existence of Austcorp’s rights would therefore not have deterred the court from imposing the constructive trust referred to at paragraph [556] above.

Conclusions

587 As stated at paragraph [443] above, TBPL’s central claim for an order for specific performance of a contract for sale arising from purported exercise of the clause 15 option on 17 April 2003 fails. This is because of the conclusions stated at paragraphs [440] and [442].

588 The balance of these reasons (from and including paragraph [445]) proceed on the assumed basis that the clause 15 option did not become unavailable by reason of termination of the lease by NGC. On that assumed footing, the result would have been that the steps taken by TBPL on 17 April 2003 were effective to bring into operation a contract for sale as described at paragraph [469] above but a decree of specific performance of that contract would have been refused, as a discretionary matter, because of TBPL’s complicity in Shigeo’s breach of the fiduciary duty owed by him to NGC; added to which that complicity on TBPL’s part would have resulted in recognition of a constructive trust, in favour of NGC, of the whole of TBPL’s interest arising from exercise of the clause 15 option, which constructive trust would have been imposed regardless of the rights of Austcorp.

589 In summary, therefore, TBPL is not entitled to any relief in relation to the Cudgen Paddock and TBPL’s claims must be dismissed.

590 I shall invite submissions in due course on the question whether findings on additional matters are necessary or desirable (particularly as to NGC’s cross claim) and as to the precise orders that should be made to give effect to these reasons and to dispose of the proceedings. It will also be necessary for submissions to be made on the question of costs.

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