FEDERAL COURT OF AUSTRALIA

Tameeka Group Pty Ltd v Landan Pty Ltd (No 3) [2016] FCA 733

ORDERS

THE COURT ORDERS THAT:

1.    The proceedings are dismissed.

2.    The applicants pay the respondents’ costs of the proceedings.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

inroduction

1    The development known as “Quay North” is located at 17-19 Horton Street, Port Macquarie. In 2004, Landan Pty Limited (Landan), the first respondent to these proceedings, was registered for the purpose of developing that site into a mixed commercial/residential building. Once completed, it contained thirty six residential units and nine commercial shops. Shop 1 in that development is at the heart of these proceedings.

2    Shop 1, 17-19 Horton Street, Port Macquarie (the Premises) was the subject of a lease to Tameeka Pty Ltd (Tameeka) entered into in 2010 and the subject of a deed of option entered into at about the same time pursuant to which Tameeka Group Pty Ltd (Tameeka Group) was granted an option to purchase the Premises. Tameeka operated a restaurant known as The Fig in the Premises.

3    These proceedings centre around the option contained in the option deed and whether it remains open for acceptance given events that have occurred. If the option does remain open for acceptance, the applicants allege that the granting of a new lease of the Premises by Landan to Gran-Dia Investments Pty Limited (Gran-Dia) amounted to a breach of contract and/or unconscionable conduct in breach of s 21 of the Australian Consumer Law (ACL) being Sch 2 to the Competition and Consumer Act 2010 (Cth) (the CC Act) and/or a conspiracy by lawful means by the respondents which has caused damage to Tameeka Group or 2444 on the Green Pty Ltd (2444), Tameeka Group’s nominee under the option deed.

4    The option has an exercise date ending on 30 June 2016. Accordingly, it was agreed between the parties that the hearing of these proceedings should proceed by way of separate questions and that all issues of liability in the proceedings should be determined prior to any trial, if necessary, in respect of all issues of quantum of damages.

ThE applicants’ claims and the issues for determination

5    The applicants’ claims are set out in their further amended statement of claim. The respondents rely on their defence to the further amended statement of claim. In summary, the issues that arise between the parties are:

(1)    whether the option deed is valid and enforceable such that Tameeka Group or its nominee is entitled to exercise the call option between 1 June 2015 and 12.00 pm on 30 June 2016. Relevant to that issue are the following matters raised by the respondents by way of defence:

(a)    is there an implied term in the option deed or the option (as varied) between Landan and Tameeka Group that the option deed was only exercisable within the relevant period if, at the time of exercise, Landan and Tameeka, or its valid assignee, continued to be bound as landlord and lessee under the lease between them; or

(b)    is there an implied term in the deed of variation or, in the alternative, a collateral oral contract to the deed of variation, that the option in the option deed was exercisable at any time in the relevant period but only if, as at 1 June 2015 Tameeka had paid rent up to that date and Landan and Tameeka or its valid assignee continued to be bound as landlord and lessee pursuant to the lease entered into in 2013;

(2)    if the option deed is valid and enforceable then the following further issues arise for determination:

(a)    whether the lease entered into on or about 15 May 2015 between Landan as lessor and Gran-Dia as lessee in relation to the Premises is an existing tenancy for the purposes of the contract for sale annexed to the option deed;

(b)    if the lease between Landan and Gran-Dia is an existing tenancy as provided in the contract for sale then whether the conduct of entering into that lease:

(i)    constituted a breach by Landan of the implied terms of the option deed that the parties would exercise good faith in the performance of the option contained in that deed and/or that Landan would not take any step which would have the effect of reducing the commercial value of the call option;

(ii)    constituted conduct in trade or commerce in connection with the supply or possible supply or acquisition of services which was in all the circumstances unconscionable and a contravention by Landan of s 21 of the ACL and, if so, whether Gran-Dia, Mr Corbett and Ms Preston aided, abetted, counselled or procured the contravention by Landan of s 21 of the ACL;

(iii)    in the alternative, constituted a conspiracy by lawful means among each of the respondents to injure the applicants.

The parties AND The witnesses

6    Before setting out the facts it is helpful to explain the parties to the proceedings, the witnesses and other relevant people and their roles.

7    The applicants are two companies: Tameeka Group and 2444. The sole director, secretary of and shareholder in Tameeka Group is Paul Barr. The directors of 2444 are Luigi Perri (who is also known as Lou Perri) and Philip Pye, Mr Perri is the secretary of 2444 and Messrs Pye and Perri are equal shareholders in 2444. Tameeka Group is the grantee of the option contained in the option deed and 2444 has been nominated by Tameeka Group, to its exclusion, to exercise the option.

8    Tameeka is also a company in the control of Mr Barr who is its sole director and secretary. It is not a party to the proceedings. The shares in Tameeka are held by Mr Barr and Tameeka Group. Tameeka was the lessee of the Premises. A liquidator was appointed to Tameeka on 12 May 2015.

9    The respondents are Landan, Gran-Dia, Malcolm Corbett and Diane Preston:

(1)    Mr Corbett is the sole director and secretary of Landan and has been since 22 August 2007. Its current shareholders are Elkava Pty Ltd, a company controlled by Mr Corbett and which is the trustee of Mr Corbett’s superannuation fund, and Mr Corbett and Ms Preston. Landan was originally registered for the purpose of developing the site at 17-19 Horton Street, Port Macquarie. At the time of its registration its shares were held equally by Mr Corbett and Messrs Patrick Broderick, John Phillips and Blake Cannavo;

(2)    Ms Preston is Mr Corbett’s daughter. For about 15 years she has worked for Mr Corbett and the entities he controls for approximately two and half days per week undertaking book work, accounting and other administrative tasks;

(3)    Mr Corbett and Ms Preston are the directors and secretaries of Gran-Dia. Its shares are held by Mr Corbett, Ms Preston, Judith Anne Corbett, Grant Corbett, Christopher Corbett and Matthew Corbett. Gran-Dia is the trustee of the Corbett Family Trust.

10    Graham Falvey of Falvey Kay (formerly Falvey Associates) at all relevant times was and is the solicitor for Tameeka, Tameeka Group, Mr Barr, Mr Perri, Mr Pye and 2444.

11    Michael Flaherty at all relevant times was and is the solicitor for Landan, Gran-Dia, Mr Corbett and Ms Preston.

12    Murray Thompson is Mr Corbett’s accountant and has been solely responsible for Mr Corbett’s financial affairs in that capacity since about 1990. Prior to that and from about 1972 he assisted another accountant in the practice in which he worked with Mr Corbett’s financial affairs.

13    There are a number of factual matters in dispute. In those circumstances, prior to setting out facts, it is appropriate to make some preliminary observations about the evidence given by the witnesses and their demeanour.

14    Messrs Barr, Perri and Pye gave evidence on behalf of the applicants. The applicants also relied on the evidence of a certified real estate valuer, Mr Jeff Rogers, to establish the market value of the Premises as at 1 July 2015 and the fair market rental of the Premises as at 15 May 2015. Mr Rogers’ evidence on those two matters was tendered without objection and he was not cross examined.

15    Messrs Corbett and Thompson gave evidence on behalf of the respondents. Ms Preston was not called to give evidence.

16    The evidence in chief was given by affidavit and each of Messrs Barr, Pye, Perri, Corbett and Thompson were cross examined.

17    The evidence, which is set out below, reveals a number of disagreements about the content of key discussions that took place, on the one hand, between Messrs Corbett and Barr and, on the other, between Messrs Corbett and Perri. There are no contemporaneous notes of or documents relating to those conversations made by the parties to those conversations and only a few documents created at about the time of some of the conversations by the parties’ lawyers.

18    Having observed the witnesses in cross examination I did not form a favourable impression of Mr Barr or Mr Perri.

19    Mr Barr did not present well as a witness. He was at times evasive in giving his evidence, not answering the questions that were put, he did not present as a frank witness, was argumentative with the cross examiner when he formed the view that a question being put or the answer to it would not assist the applicants’ case and his recollection of events was, in my opinion, selective at times.

20    I found Mr Perri to be a most unsatisfactory witness. I formed this view because:

(1)    there were inconsistencies in his evidence about critical issues, for example how and when he became aware of the existence of a lease for the Premises to a related entity of Landan and the terms of that lease;

(2)    he was evasive in the way he answered questions, often not answering the questions asked and at one point saying to the cross examiner “I’m not sure where you’re going with this”. I formed the view that where Mr Perri was concerned that an answer to a question may not assist the applicants’ case he would not answer it directly;

(3)    he was defensive in the way he answered some of the questions put to him;

(4)    some of the answers he gave did not ring true. For example, his evidence that he knew there was an option in place in relation to the Premises because the negotiations he had with Landan some six or seven years earlier, which included discussions about a lease and option arrangement, led him to infer that the same arrangement must be in place with Tameeka and Tameeka Group; and his evidence that when the possibility of the nomination under the option was raised with him by Mr Pye he did not raise the existence of a lease to a Landan related entity even though on his evidence he was aware of its existence.

21    It is also relevant to say something about Mr Corbett. He presented as a frank witness who answered the questions that were put, including being prepared to give answers that did not assist his case. It was apparent that he was endeavouring to give a full account of his recollection of matters.

the facts

Landan

22    Landan was the developer of Quay North. As noted above, its shares were held by Mr Corbett and Messrs John Phillips, Patrick Broderick and Blake Cannavo. In late 2004, Messrs Corbett and Broderick acquired Mr Cannavo’s shares in Landan.

23    Following completion of the development, Landan commenced the sale of the residential and commercial premises. By about mid 2007, it had sold 35 residential units and four of the nine commercial premises. At about that time, Messrs Broderick and Phillips informed Mr Corbett that they wished to exit Landan as they were not willing to continue to provide funding to meet borrowing costs. Mr Corbett agreed to acquire their shares in Landan. Thereafter all of the shares in Landan were held by Mr Corbett, Ms Preston and Elkava Pty Ltd.

24    On 19 June 2007 Landan transferred the properties at 302A, 304A, 305A, 305B, 401A and 402B at 59 Clarence Street, Port Macquarie, which were all in the Quay North development, to Gran-Dia. Stamp duty was paid on each. Mr Corbett explained that those transfers occurred at the time of the breakup with the partners in Landan when it was open to each of the partners in Landan to purchase any of the available residential units.

25    As at late 2007 Landan held one residential unit and five commercial premises in the development. Mr Corbett decided those properties should be retained by Landan because the prevailing market conditions would not allow for sales at prices that he considered satisfactory.

Mr Thompson

26    Mr Thompson has sworn an affidavit in the proceedings in which he relevantly gives the following evidence:

(1)    in advising Mr Corbett about his financial arrangements and those of his family two main strategies were developed: the establishment of a self managed superannuation fund into which Mr Thompson encouraged Mr Corbett to maximise contributions and the establishment of a family trust for the purpose of asset protection and as a tax efficient way of dealing with income from those assets;

(2)    in about mid 2004, Mr Corbett discussed his investment in Landan with Mr Thompson informing him that he wanted to enter into the development project, of the identity of his partners, that he intended the investment to be short term and that the plan was to sell the residential and commercial units once the development was complete and to then wind up the company;

(3)    in about mid 2007 Mr Corbett told Mr Thompson that Landan still retained several commercial shops and a residential unit in the development, that that there was no prospect of selling them at the time for a reasonable price and that his remaining partners had agreed to sell their shares in Landan to him;

(4)    Mr Corbett told Mr Thompson that it was his intention to realise all property owned by Landan and then wind it up. Mr Thompson agreed with this approach and told Mr Corbett that Landan was not the preferable vehicle in which to hold investments on behalf of the family and that the preferable vehicle for those investments and assets was Gran-Dia as trustee for the Corbett Family Trust. In cross examination, Mr Thompson said that he was not sure when he first had such a discussion with Mr Corbett – he had the discussion on several occasions and the first occasion could have been as far back as 2004;

(5)    Mr Thompson said that when he informed Mr Corbett of the benefits of transferring assets held by Landan to Gran-Dia Mr Corbett would say that he did not wish to transfer the properties as the stamp duty was too high;

(6)    on more than one occasion Mr Thompson had a conversation with Mr Corbett to the following effect:

Mr Corbett    I cannot see the sense in paying all that stamp duty, the market will improve and we will be able to sell if we wait it out.

Mr Thompson    Well if the shops ever become vacant, you could always lease them to Gran-Dia with the hope that Gran-Dia could sublease them for a higher rental. That would give you more flexibility through Gran-Dia.

Mr Thompson explained in cross examination his comments were made in the context of tax planning and that what he meant by “more flexibility” was that, because Gran-Dia was the trustee of the Corbett Family Trust which was a discretionary trust, it could distribute income in wide ways whereas Landan’s income could only be distributed to its shareholders.

27    Relevantly, on about 1 July 2008 Mr Corbett transferred one of the commercial premises, shop 5 at Quay North, from Landan to Gran-Dia. Gran-Dia was required to pay stamp duty of $17,540 on the transfer. At that time, Mr Corbett decided not to transfer the remaining four commercial premises and one residential unit from Landan to Gran-Dia as he did not want Gran-Dia to have to meet the further cost of stamp duty that would have been incurred on those transfers.

The lease and the option deed for the Premises

28    Mr Corbett met Mr Barr in early 2010. Shortly after that meeting, Mr Barr expressed interest in leasing the Premises so that he could open a restaurant. Mr Corbett recalls that in the course of his discussions, Mr Barr said to Mr Corbett that he was only interested in leasing the Premises if Mr Corbett also agreed to grant an option to purchase the Premises.

29    When discussing the possible purchase price for the Premises pursuant to an option to purchase Mr Corbett and Mr Barr had a conversation to the following effect:

Corbett:    I am not really interested in selling the shop, but if you really wanted it, I would have to get at least $1,350,000.

Barr:    Would you be happy for the option price to be $1,250,000 if I pay you $100,000 cash to grant the option?

Corbett:    Okay, I will get my solicitor to draft the documents.

30    Mr Barr agreed that there was a discussion about the payment by him of $100,000 to Mr Corbett as part of moving forward with the option to purchase the Premises. Mr Barr accepted that Mr Corbett never made a demand for payment of $100,000 and that the payment of the $100,000, which was made by Mr Barr, was a “side agreement” between him and Mr Corbett not included in the formal agreements that were subsequently entered into by the parties.

31    Commencing on 15 March 2010 correspondence passed between the solicitors for Tameeka and Mr Barr on the one hand and Landan on the other. On 23 March 2010 Mr Flaherty provided Mr Falvey with the lease in duplicate, lessor’s disclosure statement, NSW Retail Tenants Guide and a deed of option. In that letter Mr Flaherty noted that the “Leases must be signed and returned to us prior to your client executing the Deed of Option”.

32    The correspondence that then passed between those solicitors disclosed that one of the issues that arose in relation to the option to purchase was the payment of GST on the sale of the Premises should the option to purchase be exercised. That issue, in turn, depended on the ultimate purchaser of the Premises. On 15 April 2010 Mr Falvey said in relation to this issue:

…the Purchaser of the real estate will most definitely not be Tameeka Pty Ltd and will most almost certainly be Tameeka Group Pty Ltd.

On that basis we ask that you make the minor amendment to the Deed of Option to show the Grantee as Tameeka Group Pty Ltd (ACN 120 830 819) and also provide us with an amended front page of the Contract showing the Purchaser as Tameeka Group Pty Ltd (ACN 120 830 819).

It follows, of course, that the sale will be the supply of a going concern and the sale price will be $1,250,000.

33    Mr Flaherty provided amended documents to Mr Falvey. Thereafter, Mr Falvey sought some further amendments to the documents including an amendment to the deed of option to reflect that the option could be exercised by either Tameeka Group as grantee or its nominee.

34    On 23 April 2010 Mr Flaherty sent an email to Mr Falvey in which he said:

Please see attached amended Option. The amendment requested at 7 has been made and the definition of nominee has been amended as discussed.

The contract for sale contains an indemnity with respect to GST.

I am instructed my client requires the lease to be signed and returned prior to or in conjunction with the Deed of Option.

…

35    By letter dated 27 April 2010 Mr Falvey provided Mr Flaherty with the executed disclosure statement, executed lease, executed deed of option with draft contract annexed and a trust account cheque in favour of Landan for the option fee of $100. Mr Falvey informed Mr Flaherty that “it is a requirement that both the Lease and the Deed of Option be entered into simultaneously as the Lessee and the Grantee will only proceed with each transaction simultaneous with the other”.

36    By letter dated 4 May 2010 Mr Flaherty provided Mr Falvey with the deed of option signed by Landan and informed Mr Falvey that the lease had been lodged for registration.

37    By lease dated 27 April 2010 Landan as lessor, Tameeka as lessee and Mr Barr as guarantor entered into a lease of the Premises (the First Lease). The relevant terms of the First Lease were as follows:

(1)    the lease was to commence on 1 July 2010 and to end on 30 June 2013;

(2)    there was an option to renew for a period of five years from 1 July 2013 to 30 June 2018. The option could be exercised between 1 January 2013 and 31 March 2013;

(3)    the rent for the lease period was $148,000 per annum plus GST payable monthly in advance. The rent upon exercise of the option to renew was to be:

(a)    $170,000 per annum plus GST from the commencement date, i.e. 1 July 2013, to the first rent review date;

(b)    after the first year the rent was to be reviewed annually with the rent increasing by 5% on each anniversary;

(4)    there was a rent free period from 1 July 2010 to 30 September 2010;

(5)    the share of outgoings to be paid by the lessee was recorded as “NIL save for Item 22 Clause 4”. Item 22 Clause 4 provided that:

The tenant must pay all charges relating to services to the leased premises including telephone, electricity, gas, water usage, trade waste removal and air-conditioning servicing and maintenance. In respect of any services which are not separately metered to the leased premises the tenant must pay a fair proportion as reasonably determined by the landlord.

38    By deed of option dated 4 May 2010 between Landan as grantor, Tameeka Group as grantee and Mr Barr as guarantor (the Option Deed) Landan granted Tameeka Group a call option to purchase the Premises (the Call Option). The Option Deed includes the following terms:

(1)    the “Nominee” is defined as the person “nominated by the Grantee pursuant to the Call Option Nomination Notice PROVIDED THAT such person shall be registered for GST and SHALL NOT be either Tameeka Pty Limited ACN 092 988 657 or any other entity then being the Lessee of the premises”. A call option nomination notice is annexed to the Option Deed;

(2)    the “Call Option Fee” is the fee of $100;

(3)    the “Call Option Period” is the period commencing on the date of the Option Deed and ending on 30 June 2013;

(4)    the “Contract” is the Contract for Sale of Land marked annexure “A” and attached to the Option Deed;

(5)    the terms of the Call Option are included in clause 2 which relevantly provides:

2.1    In consideration of the payment by the Grantee to the Grantor of the Call Option Fee as expressly set out in the Schedule, the Grantor grants to the Grantee the Call Option to require the Grantor to sell the Property on the terms and conditions set out in this Deed and in the Contract.

2.2    The Call Option:

(a)    can only be exercised during the Call Option Period and in this respect time is of the essence;

(b)    can only be exercised by the Grantee or the Nominee delivering the following to the Grantor:

(i)    a Notice of Exercise of Call Option duly executed by the Grantee or the Nominee, as the case may be; and

(ii)    a counterpart of the Contract completed with the name of the Purchaser and dated with the date of the exercise of the Call Option; and

(iii)    if the Notice of Exercise of Call Option is executed by the Nominee there must be forwarded with the notice the Call Option Nomination Notice duly executed by the Grantee irrevocably certifying to the Grantor that the Grantee has nominated the Nominee to the exclusion of the Grantee as its Nominee to exercise the Call Option.

…

2.4    On the exercise of the Call Option there is concluded between the Grantor and the Grantee or the Nominee, as the case may be, a contract for the sale and purchase of the Property on the terms and conditions set out in the Contract. The Grantor and the Grantee acknowledge and agree that the exchange of counterparts of the Contract is intended only to record permanently the detailed terms of the Contract and that it is their intention that the parties to the Contract be and are bound by the Contract on the date and by virtue of the exercise of the Call Option.

…;

(6)    the governing law of the Option Deed is the law in force in New South Wales.

39    Annexure A to the Option Deed is a contract for the sale of land of the Premises. Relevantly that contract:

(1)    includes Landan as vendor and Tameeka Group as purchaser;

(2)    records that the Premises are sold subject to existing tenancies;

(3)    on page 1 it is noted that the sale is not a “GST: Taxable Supply”. This is because the sale “… is the supply of a going concern under section 38-325”.

(4)    clause 13.4 provides that:

13.4    If this contract says this sale is the supply of a going concern –

13.4.1    The parties agree the supply of the property is a supply of a going concern;

13.4.2    The vendor must, between the contract date and completion, carry on the enterprise conducted on the land in a proper and business-like way;

…

(5)    special condition 39 relates to GST. It provides:

39.1    The vendor and purchaser agree that the sale of the business under this agreement is the supply by the vendor to the purchaser of ‘a going concern’ within the meaning of the relevant legislation.

39.2    The purchaser warrants that he is registered under the provisions of the said Act.

39.3    The vendor undertakes to carry on the business the subject of this agreement until completion.

39.4    In the event that, for any reason whatsoever, the sale is deemed, by any competent authority, to be a taxable supply, then the purchaser acknowledges that the price referred to herein is exclusive of GST and shall indemnify the vendor with respect to any GST payable.

39.5    The parties acknowledge that the provisions of this clause shall not merge on completion.

40    It is common ground between Mr Corbett and Mr Barr that prior to signing the First Lease and the Option Deed, pursuant to the side agreement referred to in [29] and [30] above, Mr Barr provided $100,000 in cash to Mr Corbett.

41    After the First Lease and the Option Deed were executed, Tameeka commenced operating The Fig Restaurant from the Premises.

Shop 4A, Quay North

42    In about February 2012 Mr Barr approached Mr Corbett seeking to lease Shop 4A at Quay North for the purpose of opening a bar in those premises. Mr Barr also sought to enter into a deed of option to purchase shop 4A.

43    On 31 May 2012 a lease for a term of five years commencing on 1 May 2012 and ending on 30 April 2017 was entered into for shop 4A by Landan as Lessor and Tameeka as Lessee. The lease included an option for five years. A deed of option between Landan as grantor, Tameeka Group as grantee and Mr Barr as guarantor was also entered into for shop 4A. That deed was in the same terms as the Option Deed. The option to purchase shop 4A had to be exercised by 30 April 2015.

44    As at December 2013, there was no business trading from shop 4A. Mr Barr was concerned that he may have difficulty in obtaining a liquor licence for those premises. Accordingly, he approached Mr Corbett to ascertain if he would be agreeable to assigning the lease for shop 4A to a company associated with Mr Lok Speekman who had, over the years, been Mr Barr’s employee, manager and business partner at various businesses, including at The Fig Restaurant where he had worked as manager and employee for the last year of its operation. In cross examination Mr Barr gave evidence that it would have been easy to get a liquor licence in a different name. Hence he was proposing Mr Speekman and his company as the assignee. The assignment of the lease of shop 4A never occurred.

Exercise of the option under the First Lease and variation of the Option Deed

45    In May 2013 Mr Corbett received a letter dated 16 May 2013 from Mr Barr in his capacity as a director of Tameeka. That letter was directed “To Whom It May Concern” and related to the Premises. In the letter Mr Barr, as director of and in the name of Tameeka, notified his wish to “take up the expired lease option…and to renew the lease as per the original terms, i.e. to June 30 2018” and said that “in association with this request I would also like to revise and extend…, the Option to Purchase, namely for a further three year period”.

46    In about June or July 2013 Messrs Barr and Corbett had a conversation about extending the option period which Mr Barr says was to the following effect:

Mr Barr:    Mal, I would still like to buy the premises but I am not in a position to do so at the moment financially. Would you agree to give me an extension?

Mr Corbett:    Yes.

47    Mr Corbett’s evidence is that at that time he also said to Mr Barr:

I am prepared to extend but it would have to be conditional upon you not being able to exercise the option unless you pay me rent for at least two years and still being there when you exercise the option, if you decide to.

And that Mr Barr responded:

OK

48    In cross examination Mr Barr said that he had “a fair few” conversations with Mr Corbett about exercising the option in the First Lease and extending the Call Option both before and after the despatch of his letter dated 16 May 2013 over a period of about a month. Mr Barr said they talked about a lot of things including his letter of 16 May 2013 and that Mr Corbett referred back to his lawyer quite a bit. He said that he could only recall part of the discussions that he had at the time with Mr Corbett. However, he could not specifically recall any discussion with Mr Corbett about a condition being included in the Option Deed to the effect that the right to exercise the Call Option would be conditional on rent being paid for at least two years and that Tameeka was to be in the Premises at the time the Call Option was exercised.

49    I prefer the evidence of Mr Corbett over that of Mr Barr in relation to the conversation that took place about the condition on which Landan would extend the option period. I have set out above my overall impression of Mr Barr as a witness. In the case of this conversation, Mr Barr did not deny that the conversation took place in the terms set out by Mr Corbett. It was simply that he could not recall that part of the conversation but he could recall other aspects of his conversations with Mr Corbett at around that time. I find that the conversation as recounted by Mr Corbett did take place.

50    On 11 June 2013 Mr Flaherty provided a lease in duplicate and other related documents for the Premises to Mr Falvey. In response on 13 June 2013, Mr Falvey wrote to Mr Flaherty saying, among other things:

In the course of telephone discussions with Paul Barr of our client about the matter he also advised that, apparently, the parties have agreed that the existing Deed of Option (whereby your client granted to our client or its nominee an option to purchase the freehold of the subject property) was to be varied by extending the option expiry date.

Currently, the option expiry date is 30 June this year and we understand the parties have agreed it will be extended by three (3) years to the 30 June 2016.

51    Mr Flaherty responded to that letter on the same day noting in relation to the extension of the expiry date for the option to purchase that his client would consider extending the expiry date for three years to 30 June 2016 “conditional upon the option not being capable of exercise before 1 June 2016”.

52    On 14 June 2013 Mr Falvey responded to Mr Flaherty noting in relation to the extension of the option to purchase the Premises that:

Our client understood the time for exercise of the option was to be after 1 June 2015 and not 1 June 2016. Please clarify.

53    By letter dated 19 June 2013 Mr Flaherty informed Mr Falvey that Landan agreed that the time for exercise of the option was to be after 1 June 2015.

54    In cross examination, Mr Barr accepted that the reference in the letter from Mr Falvey dated 14 June 2013, to the effect that their client understood that the time for exercise of the option was to be after 1 June 2015 and not 1 June 2016, referred to Mr Barr’s understanding. He also accepted that his understanding about when the Call Option could be exercised could only have come from discussions he had with Mr Corbett and that there was, at the very least, a conversation between him and Mr Corbett in which it was said that the exercise of the Call Option was not to be until 1 June 2015. That is, a period two years after commencement of the lease the subject of the exercise of the option. This further reinforces the view I have reached that the conversation as recounted by Mr Corbett about the terms on which he agreed to an extension of the period for exercise of the Call Option took place.

55    On 26 June 2013 Mr Falvey provided Mr Flaherty with an executed lease for the Premises and an executed deed of variation of the Option Deed and other related documents. The lease had to be returned to Mr Falvey as Mr Barr had not executed it as guarantor. The fully executed lease was then returned by Mr Falvey to Mr Flaherty under cover of a letter dated 3 July 2013 with Mr Barr having signed as guarantor. On 30 July 2013 the deed of variation of the Option Deed executed by Landan was provided to Mr Falvey.

56    The registered lease was provided by Mr Flaherty to Mr Falvey on 20 August 2013. The further lease of the Premises dated 3 July 2013 was for a period of five years commencing on 1 July 2013 and ending on 30 June 2018 (the Second Lease). It included the following terms:

(1)    the rent at commencement was $170,000 plus GST payable monthly in advance and was to be reviewed annually with the rent increasing by 5% on each anniversary;

(2)    there was an option to renew for a further period of five years from 1 July 2018;

(3)    the commencement rent for the option period was to be 105% of the rent payable immediately before the commencement date and was to be reviewed annually with the rent increasing by 5% on each anniversary;

(4)    the lessee’s share of outgoings was “nil save for Item 22 Clause 4” which provided that:

The tenant must pay all charges relating to services to the lease premises including telephone, electricity, gas, water usage, trade waste removal and air conditioning servicing and maintenance. In respect of any services which are not separately metered to the lease premises the tenant must pay a fair proportion as reasonably determined by the landlord.

57    The deed of variation of the Option Deed between Landan and Tameeka Group dated 1 August 2013 (the Deed of Variation) provided that:

(1)    the Call Option Expiry Date set out in Item 1 of the Schedule is varied so that it is now 12.00 pm on 30 June 2016 the “time of which is of the essence”;

(2)    the definition of “Call Option Period” in clause 1.1 of the Option Deed was varied to:

Call Option Period means the period commencing on 1 June 2015 and ending on the Call Option Expiry Date;

(3)    the guarantor by executing the Deed of Variation acknowledged and accepted the terms of that deed and agreed that his obligations as guarantor pursuant to the Option Deed remained in full force and effect notwithstanding the Deed of Variation.

Tameeka falls into arrears

58    Prior to August 2014, Tameeka was having difficulty with paying the rent for the Premises, shop 4A and a storeroom which it occupied on time. As at 27 August 2014 Tameeka had been in arrears of rental:

(1)    for the Premises in the sum of $33,804.55 and had been so for in excess of 14 days;

(2)    for shop 4A in the sum of $9,228.60 and had been so for in excess of 14 days; and

(3)    in relation to the store room in the sum of $410 and had been so for in excess of 14 days.

59    Tameeka was notified of these arrears by Landan’s solicitor by letter dated 27 August 2014 and was requested to immediately remedy its breaches. Mr Barr acknowledged that Tameeka was behind in rent, although he did not accept that the amounts referred to in the letter from Landan’s solicitors dated 27 August 2014 were correct. Subsequently an arrangement was entered into by which Tameeka agreed to reduce the arrears at the rate of $10,000 per week until the arrears were paid in full.

Tameeka goes into liquidation

60    According to Mr Corbett, in about April 2015 he had a conversation with Mr Barr to the following effect:

Mr Barr:    I have too many debts. I am planning to put the company into liquidation. I know a liquidator in Port Macquarie who will co-operate and work with me.

Mr Corbett:    Well what is going to happen with the shops?

Mr Barr:    Nothing. I plan to close The Fig and my other two restaurants in town on a Friday and have them re-opened early the following week with a different company.

Mr Corbett:     How can you do that if you go into liquidation?

Mr Barr:    We will set up the other company but my name won't be on it. We will probably use Lok's name. The new company will do a deal with the liquidator to buy the businesses and take them over. All I need from you is to agree to grant the new company a lease.

Mr Corbett:    I don't know about that. Anything you plan to do must be approved by my lawyer.

61    In his affidavit sworn 18 April 2016, Mr Barr said that he could not specifically recall the conversation recounted by Mr Corbett but that at the time he did have conversations with Mr Corbett about a new lease for shop 1 in the name of another company. In cross examination, Mr Barr agreed that he had a conversation with Mr Corbett where he said words to the effect:

What I want to do is and what I plan to do is close The Fig and the other two restaurants on Friday and open them the following week in a different company

And:

I will probably use a company in the name of Lok Speekman.

And Mr Corbett then said:

I would have to qualify the person.

62    Mr Corbett says that in about the first three weeks of May 2015 he received many telephone calls from Mr Barr during which they had conversations to the following effect:

Mr Barr:    Would you agree to the new lease for the Fig to be transferred to Lok?

Mr Corbett:     I really don’t know anything about it. It all needs to go through my lawyer.

63    On 14 May 2015 Mr Corbett received a text message from Mr Barr in which he said: “Lok ringing you soon” Mr Corbett did not receive a call from Mr Speekman but on the same day he received an email from Mr Speekman with a subject line “Shop 1 Quay North Lease” in which Mr Speekman wrote:

Hello i would like to express interest in potentially leasing the mentioned premise. Please let me know what information you require.

Thank you for your time.

Lok Speekman.

On 14 May 2015 Mr Corbett received a further text form Mr Barr in which he said “No word to Lok from Michael”. I infer that the “Michael” referred to in the text was Mr Flaherty.

64    On 15 May 2015 Mr Flaherty received an email from Mr Speekman with a subject line “Lease for Shop 1 Quay North” in which Mr Speekman wrote:

My full name is

Lok William Speekman

23 Swift Street Port Macquarie 2444

My lawyers contact is gfalvey@falveykaylawyers.com.au

…

Thank you for your time.

Lok

65    It is clear that Messrs Corbett and Barr had a conversation where Mr Barr said that he was going to close his restaurants, appoint a liquidator to his company and that he would like to have a lease issued for the Premises in the name of another company controlled by Lok Speekman. Given the attempts to have Mr Speekman liaise with Mr Flaherty I accept that Mr Corbett must have referred Mr Barr to his solicitor as he recounts in his version of the conversation that took place.

66    On 6 May 2015 Mr Corbett received an email from Scott Newton of Shaw Gidley. In that email Mr Newton said:

As discussed, I have been approached by Paul Barr to consent to act as Liquidator of the above Company. Paul’s plan, as I currently understand it is to cease trading this afternoon, then appoint me as the Liquidator. With this in mind, I would not be looking to trade on the business and as such incur rent, I simply look to realise the assets of the Company, for the benefit of it’s (sic) creditors. This asset realisation would include stock and plant & equipment of the Fig Restaurant. Ideally this would be to any alternative tenant should you find one in the short term, so as to save on any costs of transport and removal of assets from site.

I trust the above is of assistance in terms of what is my understanding of the proposed course of action moving forward.

67    On 12 May 2015 Tameeka went into liquidation.

68    The liquidator’s letter to creditors dated 13 May 2015 encloses a list of Tameeka’s creditors which shows that Tameeka owed a total of $1,126,103.99 to its creditors. That list included $21,000.23 shown as owing to Landan. According to Mr Corbett, as at 12 May 2015, Tameeka owed Landan $27,159.97 for outstanding rental. Of that amount, $16,984.05 related to the Premises and the balance related to shop 4A and the storeroom.

Termination of the Second Lease

69    By letter dated 13 May 2015 the liquidator of Tameeka informed Landan that, in accordance with s 568A of Corporations Act 2001 (Cth), he did not propose to exercise rights in relation to the Second Lease and enclosed a notice of disclaimer of onerous property. In his letter the liquidator also wrote:

At the time of writing, the plant, equipment which is subject to a General Security Interest in favour of the National Australia Bank, remain in situ. I have engaged an independent valuer to value these assets.

Please confirm the following:

1.    Whether you have a party who may be interested in leasing the premises and would be willing to purchase the assets from me in my capacity as Liquidator.

2.    Whether you wish to purchase these assets from me in my capacity as Liquidator.

3.    In the absence of the above, whether you would allow me to conduct an on site auction of these assets from the premises.

70    Later on 13 May 2015 Mr Flaherty wrote to the liquidator of Tameeka giving him notice that Landan terminated the leases for the Premises and for shop 4A, 17-19 Horton Street, Port Macquarie. Mr Flaherty also informed the liquidator that Landan had no interest in purchasing Tameeka’s assets which were located in the Premises and was not aware of any party who wished to purchase the assets and take a lease of the Premises but that his client had no objection to the liquidator holding an auction of those assets from the Premises.

Lease of the Premises to Gran-Dia

71    Mr Corbett’s evidence is that he has had conversations with Mr Thompson where he has said that he really did not want to pay stamp duty on transferring the shops to Gran-Dia and that Mr Thompson replied:

Well you could grant Gran-Dia a lease if the shops ever become vacant and then Gran-Dia could sub-lease the shops to new tenants.

72    Mr Corbett gave evidence in cross examination that he does not recall when he first started having conversations with Mr Thompson about the transfer of properties from Landan to Gran-Dia and whether it was in 2004 but said that it was very early. While Mr Corbett first said that he was not sure if he had conversations with Mr Thompson about Gran-Dia subleasing commercial properties from Landan, in re-examination he clarified that it was years later, that is after entry into of the First Lease, that he had a general discussion with Mr Thompson about Landan leasing property to Gran-Dia and Gran-Dia then subleasing the property. Because of the timing of those conversations the First Lease was not entered into in that way.

73    As a result of what Mr Thompson had previously told him about the granting of leases to Gran-Dia, after he became aware of the liquidation of Tameeka, Mr Corbett decided to lease the Premises and shop 4A to Gran-Dia. That decision was Mr Corbett’s alone and, according to Mr Corbett, Ms Preston was not involved in it. Mr Corbett did not get any accounting or legal advice prior to entry into the lease with Gran-Dia.

74    On 15 May 2015 Landan as landlord and Gran-Dia as lessee entered into:

(1)    a lease of the Premises (the Gran-Dia Lease) ; and

(2)    a lease of shop 4A.

75    Other than the rent payable, those leases are in substantially identical terms. The Gran-Dia Lease includes the following terms:

(1)    it is for a period of 10 years commencing on 15 May 2015;

(2)    the rent payable is $60,000 plus GST payable monthly in advance to be reviewed annually with the rent increasing by CPI on each anniversary;

(3)    there is an option to renew for a further period of ten years from 15 May 2025;

(4)    the rent to be paid during the option period is to be reviewed annually with the rent increasing by CPI on each anniversary;

(5)    Gran-Dia’s share of outgoings is recorded as nil but it must pay all charges relating to services to the leased premises including “telephone, electricity, gas, water usage, trade waste removal and air conditioning servicing and maintenance” and it must pay a fair portion as reasonably determined by the landlord of those services which are not separately metered to the leased premises.

76    In cross examination Mr Corbett gave the following evidence about the Gran-Dia Lease:

(1)    Mr Corbett had the Gran-Dia Lease prepared as soon as the Premises became available;

(2)    he accepted that the rental of $60,000 was below market but he picked that amount because he thought it was an amount that Gran-Dia would be able to pay to Landan;

(3)    his intention was to have Gran-Dia rent out the Premises for the highest amount it could get which he hoped would be at least $100,000 more than the rental being paid by Gran-Dia to Landan;

(4)    if the lease was not to a related party, Mr Corbett would not have agreed to a rental of $60,000 per annum and outgoings at nil nor would he have agreed to a 10 plus 10 year lease with CPI increases unless it was to a company of significant standing;

(5)    if Mr Corbett was a hypothetical purchaser of the Premises he said he would probably not buy the Premises with the Gran-Dia Lease on title because the rent for 20 years was $60,000 plus CPI increases, the owner has to pay the outgoings and there is no personal guarantee of the obligations in the lease;

(6)    on a hypothetical basis, Mr Corbett agreed that if the Call Option was open to be exercised then the incoming purchaser would be bound by the Gran-Dia Lease;

(7)    Mr Corbett did not agree that he caused Gran-Dia to enter into the lease to deter either Tameeka Group or its nominee from exercising the Call Option;

(8)    at the time of entry into the Gran-Dia Lease Mr Corbett thought that the Call Option was no longer valid and that the Premises could be leased;

(9)    Mr Corbett agreed that he also held the view that the Call Option could still possibly be exercised but he did not accept that he arranged for the Gran-Dia Lease to be executed because he wanted to prevent that possibility arising;

(10)    although Mr Corbett supposed a consideration for entering into the Gran-Dia Lease was because he did not want a property he thought was valued at $2m to be sold for $1.25m, it was not an important consideration. The more important consideration for entering in to the Gran-Dia Lease was for financial planning;

(11)    Mr Corbett would protect his family at all times financially. His concern to protect his family from losing the Premises for $1.25m “contributed to it”.

Meetings between Mr Barr and Mr Corbett after the liquidation of Tameeka

77    Mr Barr and Mr Corbett agree that they met three times after Tameeka went into liquidation, twice in Sydney and once in Port Macquarie, but disagree about the dates of the first two of those meetings and to a degree about what was said at those meetings and by whom.

78    Mr Corbett says that he met Mr Barr around 22 to 25 May 2015 at Hills Flowers Nursery coffee shop and that during that meeting there was a conversation to the following effect:

Mr Barr:    Will you agree to grant the lease to Lok?

Mr Corbett:    Paul, as I have said before, nothing can happen without the approval of my solicitor.

Mr Barr:    What about the option?

Mr Corbett:    I thought the option was over. You stopped paying rent and moved out.

Mr Corbett:    Will you give me a letter confirming it is over so that there can be no doubt where we stand?

Mr Barr:    I will give you the letter if you pay me back my $100,000.

Mr Corbett:    I would give you back the $100,000 but it would have to be less all the outstanding rent you owe me.

Mr Barr:    OK, I will get it organised.

Mr Barr does not agree that this meeting took place around 22 to 25 May 2015 but says that it took place in June 2015. He says that at the first meeting in June 2015 he had a conversation to the following effect with Mr Corbett:

Mr Corbett:    I’ll give you back the $100,000 less the rent owing if you give up the option.

Mr Barr:    I’ll think about it

Mr Corbett:     If you agree, I’ll need time to get the money together.

Mr Barr denies that at the first meeting Mr Corbett said that he “thought the option was over”. However, he accepts that there was a discussion about the amount of $100,000 paid by him to Mr Corbett and about a letter.

79    There was then a further meeting between Mr Corbett and Mr Barr at Crema Cafe in Port Macquarie. Mr Corbett says this meeting took place on or about 28 May 2015. However, Mr Barr once again places the meeting in June 2015. Mr Corbett says that a conversation took place to the following effect:

Mr Barr:    Mal, you really need to help me on this, we need to move quickly. You need to agree to the lease to Lok.

Mr Corbett:    Paul, I have already told you, I am not getting involved with it. If you want anything to be done, it has to be done properly and sent to my lawyer for approval. What about the letter regarding the option.

Mr Barr:    I haven't had a chance to get to it but I will.

Mr Barr says that at the second meeting Mr Corbett said:

I will give you back the $100,000 less the rent owing if you give up the option.

In cross examination Mr Corbett agreed that at the second meeting he had, in effect, said this.

80    The third meeting took place on 17 June 2015 when Messrs Corbett and Barr once again met at the Hills Flowers Nursery coffee shop. Messrs Corbett and Barr agree this was the date of the third meeting. Mr Corbett says that at that meeting he had a conversation with Mr Barr to the following effect:

Mr Corbett:    Have you got the letter regarding the option?

Mr Barr:    I have changed my mind. As you're not going to deal with the Liquidator and give Lok the lease, I am thinking about exercising the option.

Mr Corbett :    I don't think you can even do that anymore. Even if you can, that won't give you control of the shop because I have leased it to one of my companies. I think you would really be better off to get some of the $100,000 back."

Mr Barr:    What's in the lease?

Mr Corbett:    It’s for 10 years at $60,000 per year.

Mr Barr:    Why have you done that?

Mr Corbett:    I did it because it is better for me for my family trust to be involved. It is better for the trust and also for tax.

Mr Barr:    Well we will just have to see about that.

81    In cross examination Mr Barr said that the meeting was a short meeting. He recalls that Mr Corbett had injured himself. He agreed that at the meeting he said that he or Tameeka Group was going to exercise the option and that Mr Corbett said even if he could exercise the option he would not get control of the shop because he had leased it to one of his companies and that he would be better off getting his $100,000 back. Mr Barr did not recall asking Mr Corbett what was in the new lease but did recall that Mr Corbett told him that he had put a lease in place for ten years at $60,000 a year. Mr Barr otherwise denied the conversation was as Mr Corbett set out.

82    Mr Barr’s version of the conversation at the 17 June 2015 meeting is to the following effect. At the start of the conversation Mr Corbett said words to the following effect:

I fell off a table and just got out of hospital.

Later on in the conversation Mr Barr said:

Tameeka Group intends to exercise the option.

The conversation continued:

Mr Corbett:    The gloves are now off and I have to protect my family.

Mr Barr:    What do you mean the gloves are off?

Mr Corbett:    I have put a lease in place from Landan to another company that I own for 10 years with a 10 year option for $60,000 per year.

Mr Barr:    You’re the most money driven person I have ever met.

83    Mr Corbett does not agree that Mr Barr’s version of the conversation is accurate. In cross examination, Mr Corbett said that Mr Barr’s reference to him falling off a table was not historically correct but that he had been to hospital. Mr Corbett recalled Mr Barr telling him that Tameeka Group was considering exercising the option but he did not recall telling Mr Barr that there was a lease from Landan to another of his companies in place for the Premises for 10 years with a 10 year option at a rental of $60,000 a year and said that by that time Mr Barr already knew about the Gran-Dia Lease. He must have been mistaken about this as on his own version of the conversation he raised the Gran-Dia Lease. Mr Corbett denied saying words to the effect that “the gloves are now off and I have to protect my family” because this is not the sort of language that he uses. I accept that is so. Such a statement would be at variance with the manner and tenor of the evidence given by Mr Corbett.

84    There is disagreement between Mr Corbett and Mr Barr about what was said at the meeting on 17 June 2015. However, it is clear that Mr Barr informed Mr Corbett that he or Tameeka Group was going to exercise the Call Option, that Mr Corbett questioned Mr Barr about whether he could exercise the Call Option, that Mr Corbett told Mr Barr of the existence of the Gran-Dia Lease and that the lease was for 10 years at rental of $60,000 per year and that Mr Corbett told Mr Barr that he would be better off getting some of his $100,000 back than exercising the Call Option. On this last matter Mr Corbett’s evidence is that he did not think that the Call Option was still open to be exercised. When he said to Mr Barr “[e]ven if you can, that won’t give you control of the shop…” he was, in my opinion, postulating a counter factual view which, given his other evidence, he did not accept. My view is not altered by the slightly equivocal evidence given by Mr Corbett in cross examination (referred to at [76(9)] above). That evidence suggests that Mr Corbett may have held some doubt about the status of the Call Option but, viewed in light of the whole of the evidence, his firmer view was that the Call Option could no longer be exercised.

85    By letter dated 18 June 2015, that is the day after the meeting between Messrs Corbett and Barr, Mr Falvey wrote to Mr Flaherty in relation to the Call Option. That letter included the following:

…

Pursuant to the original Deed of Option, as varied by Deed of Variation dated 1 August 2013, our client has until 12.00 pm on 30 June next year to exercise the option.

Our client is most concerned that, following the recent termination of the Lease of the premises between your client and Tameeka Pty Ltd, your client proposes to act most inappropriately and enter into a spurious Lease with a related entity for a substantially below market rent and then have that Lessee enter into a Sub-Lease with a further party at the current market rent.

We put you on notice that any conduct taken by your client to seek to in any way impinge on, or devalue, the clear equitable right of our client with respect of the property will not be tolerated. If necessary, our client will take all and any legal steps required to protect its ongoing equitable interest as Grantee pursuant to the Deed of Option.

…

86    By letter dated 25 June 2015 Mr Flaherty responded to Mr Falvey’s letter dated 18 June 2015. As well as defending the allegations made against Landan in the letter dated 18 June 2015 that letter recorded:

…

Further, my client’s principal received a telephone call yesterday evening from a gentleman named Lou and was informed that he intended to “buy” the option from your client and exercise it as a nominee directly.

In the event your client is proposing to “sell” or otherwise purport to deal with the option, I assume your client will provide complete disclosure of all matters to a third party, particularly the lease status with respect to the property. To assist your client in this regard, I enclose herewith a copy of the current lease for the premises.

87    By letter dated 26 June 2015 from Mr Falvey to Mr Flaherty the following was raised on behalf of Tameeka Group in relation to the Call Option:

Turning to the exercise of the option itself, we are aware that our client has been in discussion with another party about giving that client the right to exercise the option and we expect that may happen within the next couple of weeks or so. We appreciate your “reminder” to our client to “provide complete disclosure of all matters to a third party – particularly the lease status with respect to the property” and you can be assured our client has done that and will continue to do so.

We understand that, presently, the interested third party is obtaining more detailed advice from counsel preparatory to the likely exercise of the option.

Mr Perri, Mr Pye and 2444

88    Messrs Perri and Pye, who are the directors of 2444, have given evidence in the proceedings. Mr Perri has sworn two affidavits in which he gives the following evidence:

(1)    he has known Mr Corbett since about 2006. Over the years Mr Corbett has been a patron of the restaurant owned and operated by Mr Perri in Port Macquarie - The Stunned Mullet;

(2)    in about 2007 and 2008 Mr Perri had discussions with Mr Corbett about leasing the Premises. Mr Perri had plans to develop an eating precinct from the Premises and had lodged a development application with the Port Macquarie Hastings Council. However, he did not proceed with the business plan;

(3)    in about May 2015 Mr Perri became aware that the company which owned and operated The Fig Restaurant from the Premises, Tameeka, had gone into liquidation;

(4)    on about 22 May 2015 Mr Perri contacted Mr Corbett by telephone to discuss his future plans for the Premises. They had a conversation to the following effect:

Mr Perri:    Hi Mal, I was hoping to discuss the premises at Quay North.

Mr Corbett:    I am not sure what is happening with Paul however I can't be seen to be involved in his plan. He still wants to go back in and I just cannot be part of that. I don't want to be part of it.

Mr Perri:    I am not sure what you are referring to, however, it may be best if we meet to discuss the options that are available at Quay North. Market conditions were certainly different in 2008/9 as to where they are now.

Mr Corbett:    No hard feelings Lou. That was a commercial decision. I am happy to meet up. I also need to meet up with Paul and the liquidator as well, however, I have no times set with them. I have a strata meeting next Thursday so 10am at Crema we-can have a discussion then?";

(5)    Mr Perri understood that when Mr Corbett spoke about “Paul” he meant Mr Barr who operated The Fig Restaurant through Tameeka. He was also aware that Mr Barr or perhaps a related party may have had an option to purchase the Premises;

(6)    on 28 May 2015 there was a meeting between Mr Corbett and Mr Perri at Crema Café, Port Macquarie during which Mr Perri said they had a conversation to the following effect:

Mr Corbett:    The rent Paul was paying was $190,000.00 and it was up for review shortly.

Mr Perri:    I'd like to pursue my original concept or plan as derived and approved by Council. I would be happy to lease initially, however, I will only proceed if I'm offered an opportunity to purchase the freehold.

Mr Corbett:    The current rent is $190,000.00 per year plus outgoings. I won't be considering any less than that and I already have an interested party at that level. I will be in a position to offer you the freehold but not at the original price agreed with Paul.

Mr Perri:    So I take it that the option with Paul no longer exists?

Mr Corbett:    There are things in place to prevent Paul from exercising the option which I can't discuss at present, however, I certainly won't be selling it for the price agreed on the option.

Mr Perri:    So I take it that you have put another lease in place to prevent Paul from exercising the option and making it difficult for anyone to realise the option or obtain finance?

Mr Corbett:    Yes

Mr Perri:    Is the lease to a related party?

Mr Corbett:    Yes

Mr Perri:    Ok, you may recall my original concept and plans for the site? I was keen on developing the site based on those original plans and will only proceed if I can purchase the freehold. There's too much capital investment required and I require the security of the freehold otherwise it just doesn't stack up.

Mr Corbett:    I believe Paul was thinking about doing the same. I should have matters resolved with Paul shortly and that will be possible.

Mr Perri:    I'd be happy to consider options, however, I will not proceed without an assurance of freehold. I'd be happy doing some JV if that made things easier in the interim?

Mr Corbett:    You mean a partnership? I'd consider it if I was a little younger. I wouldn't be interested in developing the site at this point in my life.

Mr Perri:    Ok, well let's look to continue discussing the terms or deal and see if we can proceed. I'll call you next week.

Mr Corbett:    Ok, let's chat next week.

    And that during the discussion Mr Corbett also said:

I am about to finalise a sale which will clear all my debts and place me in a very comfortable position.

(7)    following the discussion at Crema Café, Mr Perri and Mr Corbett walked around to the Premises and had a walk through with Gloria Dekker from LJ Hooker to inspect the tenancy and fitout;

(8)    Mr Perri says that he had a number of subsequent discussions with Mr Corbett by telephone in the week following the meeting at Crema Café and that during one of those discussions they had a conversation to the following effect:

Mr Perri:    Hi Mal, have you had any further thoughts on our discussions?"

Mr Corbett:    I have and at this point I won't be selling the property, however, I am happy to enter into a lease.

Mr Perri:    Ok, I did indicate that I required some assurance of freehold. Is that going to be a possibility in the future?

Mr Corbett:    I need the income initially so I won't be selling it. I need the income and I still don't know what is happening. Let's have another chat next week.

Mr Perri:    Ok, let's see how things evolve next week. Speak soon.

(9)    in his second affidavit Mr Perri maintains he had a telephone conversation with Mr Corbett as set out in the preceding sub paragraph and denies that he made mention of Mr Falvey or any arrangement to be nominated to assume the option in that conversation but that he did say words to the following effect:

Tameeka Group has nominated my entity to exercise the option. I trust that we can proceed without delay.

(10)    on or about 28 December 2015 Gabriel Omid Darzi, the owner of the Sicilian Restaurant in Taree, came into Mr Perri’s restaurant, The Stunned Mullet, for dinner. Messrs Perri and Darzi had a discussion which turned to The Fig and the Premises. Mr Perri said he had seen an article in the Port Macquarie news earlier in the year which said that Mr Darzi was looking to open a restaurant in the Premises and that he had a conversation with Mr Darzi to the following effect:

Mr Darzi:    Hi Lou, how are you? How has business been for you?

Mr Perri:    It’s been very busy. Gabriel, I don’t mean to pry, how did things go for you at The Fig?

Mr Darzi:    I looked at it. Mal offered me the property at $220,000 a year and a purchase price of $2 million. I considered it, however, found another property that suited me better.

(11)    2444 was in a position to exercise the option on Friday 22 April 2016 by delivering the nomination notice, signed counterpart contract for sale of land and a cheque for the deposit.

89    Mr Perri also gave evidence that the option to purchase the Premises was first raised with him by Mr Pye in about June 2015. Mr Perri recalls that Mr Pye asked him if he would like to get involved in exercising an option to purchase the Premises and that he responded that he did want to take part.

90    Mr Corbett does not agree with Mr Perri’s evidence. Mr Corbett’s evidence is that:

(1)    the first involvement that he recalls with Mr Perri was when he discussed the possible leasing of the Premises with Mr Perri in about 2009. Although Mr Corbett has seen Mr Perri around Port Macquarie, he says he has not had any commercial dealings with him since that time;

(2)    in relation to the conversation that Mr Perri says he had with Mr Corbett on about 22 May 2015, Mr Corbett says that he recalls having a telephone conversation with Mr Perri around that time but that the conversation was to the following effect:

Mr Perri:    Mal, I hear things are happening with The Fig. Is there any point in us meeting to discuss?

Mr Corbett:    Not really Lou. I don’t know what is going on with Paul. There might be some point in catching up later when it sorts out.

Mr Corbett does not recall saying the other things attributed to him by Mr Perri in that conversation and believes that he did not say them because:

(a)    he was not particularly interested in Mr Perri. He did not know him well and had little to do with him and so would not have discussed private business matters with him;

(b)    at the time, Mr Corbett was very much occupied with dealings between his solicitor and the liquidator of Tameeka in relation to the fixtures and fittings that remained in the Premises; and

(c)    Mr Corbett was concerned to ensure that the details of any arrangement or proposals went through his solicitor, particularly given Mr Barr’s pursuit of him to agree to his proposal for Mr Speekman to take over the lease of the Premises;

(3)    he met with Mr Perri on about 28 May 2015 but that he did not have the conversation that was described by Mr Perri at that time. Mr Corbett recalls a short conversation with Mr Perri at the time which was to the following effect:

Mr Perri:    Have you heard anything further? Are we able to discuss me taking over The Fig?

Mr Corbett:    No Lou – I still do not know what is going to happen with the liquidator. Until that is sorted out I am really unable to make any decision as to who will get the shop.

Mr Corbett says that although his recollection is not precise he does not recall saying the other words attributed to him by Mr Perri at that time and believes he did not do so for the same reasons set out at [90(2)] above. Mr Corbett also points out that it would be incorrect for him to say that Tameeka’s lease of the Premises provided for rent at a specified amount plus outgoings as Tameeka’s lease of the Premises provided for a rental inclusive of outgoings;

(4)    he denies having the conversation attributed to him by Mr Perri at [88(8)] above. Mr Corbett says that the further contact he recalls having with Mr Perri was limited to a telephone conversation on or about 24 June 2015 when Mr Perri called him and they had a conversation to the following effect:

Mr Perri:    I am intending to take over the option from Tameeka to purchase shop 1. I will be actioning the contract and paying the deposit in a few days.

Mr Corbett:    What do you mean?

Mr Perri:    I have been in discussion with Paul Barr and his solicitor, Graham Falvey, and have come to an arrangement to be nominated to assume the option.

Mr Corbett:    I suggest you seek independent legal advice and get full disclosure before finally committing. Also, if you have anything else to discuss with me, you should contact my solicitor.

(5)    Mr Corbett says that he did not have the conversation with Mr Darzi described by Mr Perri at [88(10)] above.

91    There is a disagreement between Messrs Perri and Corbett about the nature of the discussions they had. However, based on the evidence given by both it is clear that:

(1)    they had a telephone discussion on or about 22 May 2015 when, at the very least, the topic of what was happening with the Premises was raised and at which time Mr Perri raised an interest in discussing the Premises;

(2)    there was a face to face meeting between Mr Corbett and Mr Perri at Crema café on about 28 May 2015. It is not clear how or when that meeting was arranged. What happened at the meeting is in dispute; and

(3)    there seems to have been a further telephone conversation between Mr Corbett and Mr Perri but again what was discussed in that conversation is in dispute.

92    In cross examination, by reference to the letter dated 25 June 2015 from Mr Flaherty to Mr Falvey referred to in [86] above, Mr Perri accepted that he had a conversation with Mr Corbett on or around or shortly before 25 June 2015. Mr Perri’s evidence was that:

(1)    in the course of that conversation he indicated that Tameeka Group was in a position to nominate his entity to exercise the option;

(2)    he accepted that during the conversation Mr Corbett told him to get independent legal advice and full disclosure before finally committing and that Mr Corbett said that if he had anything else to discuss with him he should contact his solicitor; and

(3)    what Mr Corbett told him during that conversation raised a concern.

93    In cross examination Mr Perri gave evidence that he had discussions with Mr Pye in relation to the possibility of taking on a nomination to exercise the option to purchase the Premises. He recalls that conversation was sometime in June 2015. Mr Perri said that Mr Pye did not tell him that he was aware that there was a lease of the Premises to Gran-Dia during that conversation. Nor did Mr Perri tell Mr Pye that there was a lease of the Premises to a related entity of Landan in place at that meeting despite, on his evidence, having been made aware of that fact by Mr Corbett on about 28 May 2015. Surprisingly, Mr Perri did not think it was an important piece of information to share with Mr Pye at the time.

94    Mr Perri’s evidence about how and when he became aware of the existence of the Gran-Dia Lease was confused and contradictory. His evidence was that:

(1)    Mr Pye did not tell him about the Gran-Dia Lease at a later point in time;

(2)    Mr Barr did not tell him about the Gran-Dia Lease;

(3)    Mr Falvey was Mr Perri’s solicitor and had been for some eight years. Upon registration of 2444, Mr Falvey acted for 2444. Mr Perri says that Mr Falvey did not tell him about the existence of the lease of the Premises to Gran-Dia;

(4)    according to Mr Perri the person who brought the Gran-Dia Lease to his attention was Mr Corbett during a conversation that took place a few weeks after the meeting that took place on 28 May 2015. He does not believe that he was informed about the existence of the Gran-Dia Lease by anybody other than Mr Corbett at any time in May, June or July 2015;

(5)    Gran-Dia was brought to Mr Perri’s attention by Mr Corbett in his capacity as the entity that was being nominated to exercise the option not in his capacity as a prospective tenant;

(6)    he does not believe that he was made aware of the entity Gran-Dia until the commencement of these proceedings.

95    Mr Perri gave evidence in cross examination that, while Mr Corbett did not expressly mention the option at the meeting on 28 May 2015, in his earlier dealings with Mr Corbett the proposed structure was for a lease of the Premises with an option to purchase the Premises from Landan. That proposal did not proceed but Tameeka “inherited” the same concept and Mr Perri assumed that the arrangement with Tameeka was exactly the same as he had proposed. Mr Perri said that at his meeting with Mr Corbett on 28 May 2015 Mr Corbett confirmed there was an option in place when he said “I will be in a position to offer you the freehold but not at the original price agreed with Paul”. As a result of his meeting on 28 May 2015 Mr Perri’s understanding was that Mr Corbett had leased the Premises to a related party.

96    Mr Perri said that he became aware of the detail of the Gran-Dia Lease upon doing his due diligence which he described as the process of looking at everything in front of him and assessing the terms and the commercial viability of a proposal. Mr Perri undertook his due diligence in relation to the acceptance of the nomination by 2444 under the Deed of Option before registering 2444 and before accepting the nomination. He said that he became aware of the detail of the Gran-Dia Lease sometime in June but after his conversation with Mr Pye.

97    I have set out my observations and the opinion I formed about Mr Perri as a witness above. To the extent there is an inconsistency between the evidence of Mr Corbett and Mr Perri, I prefer the evidence of Mr Corbett. That being the case, I do not think the conversation alleged to have taken place on 28 May 2015 in the form set out by Mr Perri in his affidavit sworn 29 January 2016 and reproduced at [88(6)] above took place. I do not think Mr Corbett said the things attributed to him by Mr Perri in that conversation. I accept Mr Corbett’s denials and his version of the conversation.

98    Mr Pye, the second director of 2444, also gave evidence. Mr Pye has sworn one affidavit in which he gives the following evidence:

(1)    he has known Mr Perri for approximately 10 years and he and Mr Perri have owned and operated local businesses in Port Macquarie in that time;

(2)    he has known Mr Barr since approximately 2005 and met him when Tameeka took over the operation of The Beach House in Port Macquarie, a local bar and restaurant. Mr Pye’s business, Pye Provedores, was a supplier of various food lines to The Beach House when Tameeka took it over and it continued to supply that business;

(3)    Pye Provedores also supplied food lines to The Fig which operated from the Premises and The Pier On Clarence, both of which were owned and operated by Tameeka;

(4)    from 2014 onwards, Tameeka had difficulties paying its bills to Pye Provedores and the amount Tameeka owed to Pye Provedores continued to increase;

(5)    from his regular discussions with Mr Barr, Mr Pye was aware that Tameeka Group, another company associated with Mr Barr, had an option to purchase the Premises. In or about early 2015 Mr Pye had a conversation with Mr Barr to the following effect:

Mr Pye:        Do you want to give the option to me to pay for your bill?

Mr Barr:    I’ll think about it.

Mr Pye:        What are you going to do with it. It’s no good to you.

Mr Barr:    I’ve got it all covered Phil.

(6)    Mr Pye says that he had similar discussions with Mr Barr in the time leading up to Tameeka going into liquidation in May 2015;

(7)    Pye Provedores lodged an informal proof of debt with Tameeka’s liquidator for a total amount of $115,074.87;

(8)    after Tameeka went into liquidation Mr Pye received a telephone call from his lawyer, Mr Falvey, who is also Mr Barr’s lawyer. Mr Falvey said words to the following effect to Mr Pye:

I’ve had a discussion with Paul Barr and he asked me to contact you to see if you are interested in taking over the option for The Fig.

(9)    Mr Pye intends to cause 2444 to exercise the option prior to its expiry but he does not want to exercise it while the property is subject to a lease for $60,000 per annum.

99    Mr Pye was cross examined. The following further evidence was given in cross examination:

(1)    Mr Pye operates Pye Provedores, which supplies food products to restaurants and cafes around the North Coast of New South Wales, with a partner, Mr Larry Williams, who came into the business some time in 2011 to 2013. Mr Williams is not involved in the proposed transaction the subject of these proceedings;

(2)    when a new customer wants to open up an account with Pye Provedores that customer needs to complete a standard form account application and, if it is a company, a director’s guarantee. Generally once the credit application together with the director’s guarantee is provided then an account is opened for that customer and the customer can order goods. There was no director’s guarantee provided by Mr Barr for Tameeka;

(3)    Mr Pye was interested in taking over the option for the Premises because it was a way to get some money back. That is, he would be able to do things to get the $100,000 owing to Pye Provedores back. On the other hand, he said that when Mr Falvey contacted him there was no discussion that he was being offered the option in exchange for the debt. In Mr Pye’s mind taking the option on from Tameeka Group was how he was going to get some of the money back that he was owed by Tameeka. He also said it was not getting money back from Tameeka but it was “an opportunity to get a property that was all and it suited me to be able to get it at a price that was on the option and that I was happy with”;

(4)    after speaking to Mr Falvey, Mr Pye had a conversation with Mr Barr. In that conversation he told Mr Barr that he was interested in the option and that he wanted “to get Lou involved”. Mr Pye said he then had a conversation with Mr Perri;

(5)    Mr Pye said he had one other conversation with Mr Barr in relation to taking over the option and to make sure it was ok. He said that he told Mr Barr that he would have to see Mr Falvey “to make sure it was written down correctly”;

(6)    Mr Barr did not tell Mr Pye that he was giving him the option because of the debt owed by Tameeka to Pye Provedores. According to Mr Pye, Mr Barr did not say why he was giving him the option, he did not say what he expected to get in return for giving Mr Pye the option or that he wanted anything out of giving Mr Pye the option;

(7)    Mr Pye said that his lawyer, Mr Falvey, told him what Mr Barr wanted to get out of the option but that he did not discuss that with Mr Barr. Mr Pye said it was not necessarily to excuse the liability or the debt owed by Tameeka to Pye Provedores. He said he thought Mr Barr was providing him with the opportunity to exercise the option to “do the right thing by” him;

(8)    Mr Pye was willing to take over the option because he thought it was an opportunity. It was a good property and he thought he could develop it and “hopefully do alright out of it”. By develop Mr Pye meant that he could buy it and then do as he wished: “cut it up or sell it, lease it as is or whatever”;

(9)    Mr Pye had become aware of the option price from Mr Barr “some time ago” and he was interested in taking over the option to purchase the Premises at $1.25 million because it was “an opportunity to make money”. In his mind he thought the Premises were worth approximately $1.5 million to $1.6 million;

(10)    Mr Pye said that after speaking to Mr Falvey he spoke with Mr Perri. He wanted to speak with Mr Perri because he knew that he had originally obtained a DA on the Premises some years prior. He does not know how he knew that – whether it was because Mr Perri had told him. Mr Pye’s evidence about when he spoke to Mr Perri was confused. Ultimately he said he had a number of conversations with Mr Perri and he was not sure if he spoke to Mr Perri before or after he spoke to Mr Barr. He said he had to speak with Mr Perri before he did anything with Mr Barr that is, before taking up the option;

(11)    Mr Pye said these conversations probably occurred towards the end of May. From that time, Mr Falvey was acting for Mr Pye in putting together a deal for him to be nominated to exercise the option to purchase the Premises. In May 2015 Mr Pye was aware that Tameeka had gone into liquidation and was no longer operating from the Premises.

100    On or about 8 July 2015 Tameeka Group by executing the call option nomination notice irrevocably nominated 2444 to its exclusion as its nominee to exercise the Call Option which had been granted to Tameeka Group by Landan pursuant to the Option Deed. By its execution of the call option nomination notice, 2444 consented to its nomination. At the time of accepting the nomination, which was signed by Mr Perri in his capacity as director and secretary of 2444 and Mr Pye in his capacity as a director of 2444:

(1)    on his own evidence, Mr Perri was aware of the details of the Gran-Dia Lease. He accepted the nomination notwithstanding the existence of the Gran-Dia Lease because it was a “fantastic deal”; and

(2)    Mr Pye was aware of the Gran-Dia Lease and that it was for a period of 10 years and for rental of $60,000 a year.

101    Mr Pye could not reveal to the Court why it was that he did not wish to exercise the option subject to the Gran-Dia Lease because to do so he would have to reveal privileged communications with his lawyer. For the same reasons he could not provide any evidence about why he accepted the nomination notwithstanding his awareness of the Gran-Dia Lease.

102    By letter dated 10 July 2015 Mr Falvey informed Mr Flaherty that Tameeka Group had formally nominated 2444 to exercise the Call Option and that a copy of the executed call option nomination notice and the executed notice of exercise of call option would be provided at the time of exercise of the Call Option.

103    On 13 August 2015, the same date as these proceedings were commenced, Tameeka Group and 2444 entered into a deed pursuant to which:

(1)    Tameeka Group irrevocably appointed 2444 as its nominee to exercise the Call Option;

(2)    Tameeka Group irrevocably authorised 2444 to utilise the executed call option nomination notice and exercise the Call Option at a time as 2444 may think fit and Tameeka Group acknowledged that in providing the irrevocable authority it forever waived any entitlement it may have had to itself exercise the Call Option;

(3)    Tameeka Group acknowledged that in the event that 2444 successfully exercised the Call Option and completed the purchase of the Premises then it was not obliged to account to Tameeka Group for the $100,000 paid by Tameeka Group to Landan; and

(4)    in the event that Landan, whether by way of settlement or court order repays the $100,000 and whether that payment is to Tameeka Group or 2444, that money will be deposited into Falvey Kay’s trust account and disbursed firstly in reimbursement to 2444 of all legal costs and disbursements incurred by it with respect to or arising as a result of the likely or actual Federal Court proceedings and secondly the balance, if any, to Tameeka Group.

Attempts by Gran-Dia to rent the Premises

104    There is evidence before me that on 5 June 2015 Gran-Dia entered into a leasing agency agreement with D.R. Munro Nominees Pty Ltd (D.R. Munro Nominees). The leasing agency agreement was signed by Mr Corbett on behalf of Gran-Dia. It was suggested that advertisements were placed in the Port Macquarie Express and the Mid Coast Observer by D.R. Munro Nominees. However, Mr Corbett seemed to be unaware of that and the documents that are in evidence do not unequivocally demonstrate that the advertisements were placed for the Premises. The emails exchanges with Fairfax Media have a handwritten notation “Re: O.B.J.’s” and the newspaper extract from the Port Macquarie Express dated 3 June 2015 does not include an advertisement for the Premises but does include an advertisement for Outback Jacks which says “own your own bar & grill Port Macquarie franchise now available”.

105    Commencing in early June there was exchange of correspondence between D.R. Munro Nominees, parties interested in leasing the Premises and Mr Corbett. This included an exchange about the level of rental Mr Corbett wished to achieve which seemed to be $210,000 including outgoings and GST.

106    While one of the discussions with a potential lessee got to the stage of final agreement to conditions to be reflected in a lease and communication to Mr Flaherty from D.R. Munro Nominees about the agreement, neither that lease nor any other was entered into by Gran-Dia for the Premises. Mr Corbett’s evidence is that the Premises were not for lease and that was his clear instruction to D.R. Munro Nominees. Notwithstanding those instructions, according to Mr Corbett, D.R. Munro Nominees continues to “line people up” to lease the Premises.

107    Given that an agency agreement was entered into with D.R. Munro Nominees it can be inferred that at least shortly after the Premises became vacant by reason of Tameeka’s liquidation Mr Corbett was looking to lease them. However, I accept that Mr Corbett subsequently gave instructions, presumably as a result of the issues that have arisen and that are the subject of these proceedings, that the Premises were not for lease. Those instructions can also be inferred from the fact that the Premises have not been leased, notwithstanding interest in them, and from an email from David Munro of D.R. Munro Nominees dated 17 December 2015 to a prospective lessee in relation to the Premises in which he says:

I had a meeting with the owner of Lot 1 Quay North Ex Fig, unfortunately we do not have any positive news in regard to the legal proceedings which are still destined to go to Court in April 2016, the result is difficult to predict.

If you wish to hang in, the Owner would certainly look at leasing to you favourably, however, this is a risk you would have to consider.

…

108    It was put to Mr Corbett in cross examination that because the correspondence from D.R. Munro Nominees to and about prospective lessees for the Premises sent in June 2015 nominated Landan or its nominee as the lessor that the Gran-Dia Lease was signed in June 2015 and not on 15 May 2015. Mr Corbett denied that was the case. I accept his evidence.

Valuation of the Premises

109    There is evidence of the value of the Premises before the Court provided by Jeff Rogers, a certified practising real estate valuer. Mr Rogers’ report was admitted into evidence insofar as he provides a fair market value of the Premises as at 1 June 2015 and a fair rental value of the Premises as at 15 May 2015. Those values are:

(1)    fair market value of the Premises as at 1 June 2015 - $2,100,000; and

(2)    fair market rental as at 15 May 2015 - $170,000 per annum gross excluding GST.

Is the Option Deed Valid and enforceable?

110    The first issues that arise for consideration concern the matters raised by the respondents by way of defence in relation to the construction of the Option Deed and the Deed of Variation. In particular are any of the implied terms contended for by the respondents or the collateral oral contract to the Deed of Variation made out as a matter of law.

Legal principles

111    A written agreement will, unless it was executed by fraud, mistake or misrepresentation, usually be binding on the parties to it. In Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 the High Court relevantly held at [33] to [36]:

33    The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondents' case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified. The respondents attempted neither.

34    There are reasons why the law adopts this position. First, it accords with the “general test of objectivity [that] is of pervasive influence in the law of contract”. The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions

35    Secondly, in the nature of things, oral agreements will sometimes be disputable. Resolving such disputation is commonly difficult, time-consuming, expensive and problematic. Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. At least, it will do so unless relief is afforded by the operation of statute or some other legal or equitable principle applicable to the case. …

36    The conclusion that the respondents are bound by the written loan agreements may leave open the possibility that an earlier consensus reached by the parties was in each case a collateral agreement (made in consideration of the parties later executing the written agreement), but that has never been the respondents' case. In another case it may leave open the possibility that the contract is partly oral and partly in writing. But that cannot be so here. The oral limited recourse terms alleged by the respondents contradict the terms of the written loan agreement. If there was an earlier, oral, consensus, it was discharged and the parties' agreement recorded in the writing they executed. ...

    (footnotes omitted)

112    In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 (Electricity Generation Corporation) a majority of the High Court (French CJ, Hayne, Crennan and Kiefel JJ) in considering the construction of the agreement before them said at [35]:

… The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

(footnotes omitted)

113    Relevant to the issues that arise are the authorities relating to collateral contracts. Both parties rely on Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 147 where Isaacs J said “[t]he truth is that a collateral contract, which may be either antecedent or contemporaneous … being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it…”. That principle was referred to with approval in Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 where the High Court (Dixon, Fullagar and Taylor JJ) at 517 said the following about the nature of a collateral agreement:

… A collateral agreement made in consideration of a main agreement cannot effectively subsist unless it is consistent with the main agreement. Once an agreement is made in writing it is treated, unless the parties are shown otherwise to intend, as the full expression of their obligations. If it is established that the writing was intended to contain only part of a fuller agreement it may be otherwise. That, however, is not the present case. But it may be established that an entirely separate agreement was made by the parties. One of them may give a collateral promise in consideration of the other entering into the principal agreement. But if such a collateral agreement is to have effect as a contract it must be consistent with the provisions of the main agreement, the making of which by the other party provides the consideration. If the promise sought to modify, control or restrict the principal agreement it would detract from the very consideration which is alleged to support the promise.

114    The effect of the authorities is that if there is a collateral contract it must be consistent with the main contract. It cannot conflict with it. The two contracts must be able to stand together.

115    The last area of principle that is relevant to these issues is the circumstances in which a court will imply terms into a contract. The principles in relation to when a court will imply a term into a contract are well established. The leading authority is BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 (BP Refinery (Westernport)). A majority of the Privy Council (Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel) held that the conditions for implying a term in fact are that:

(1)    the term 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; and

(5)    it must not contradict any express terms of the contract.

116    The principles set out in BP Refinery (Westernport) were adopted in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 (Codelfa) at 347 (per Mason J) and have been applied in numerous cases since then.

The First Lease and the Option Deed

117    On the evidence before me the First Lease and the Option Deed were returned executed by Mr Falvey on behalf of Tameeka and Mr Barr on 27 April 2010. Landan executed the First Lease and the Option Deed on 4 May 2010. The evidence is that prior to their execution Landan required the First Lease to be signed and returned prior to or in conjunction with the Option Deed and that Tameeka required the First Lease and the Option Deed to be executed simultaneously. The First Lease bears the date 27 April 2010 and the Option Deed bears the date 4 May 2010.

118    Landan submits that the First Lease was collateral to the Option Deed or vice versa. That is, without the promise to lease and the guarantee by Mr Barr contained in the First Lease the Option Deed would not have been entered into by the parties. It also submits that the First Lease does not contradict the terms of the Option Deed, can co-exist with the Option Deed and was executed at the same time as or shortly before the Option Deed.

119    It is clear that the parties intended to enter into the First Lease and the Option Deed at or about the same time. It is also the case in my opinion that the two agreements are not inconsistent with each other, were executed at or about the same time and can, as Landan submits, co-exist. By the First Lease Landan leases the Premises to Tameeka for a period of three years at an agreed rental on the terms contained in the First Lease. By the Option Deed Landan grants Tameeka Group, a company related to Tameeka, or its nominee an option to purchase the Premises from it at an agreed price during the currency of the term of the First Lease. The First Lease was collateral to the Option Deed. However, that finding does not resolve the issues between the parties.

120    In its defence Landan contends that it was an implied term of the Option Deed that the Call Option was exercisable at any time within the Call Option period but only if at the time of exercise Landan and Tameeka (or its valid assignee) continued to be bound as lessor and lessee pursuant to the First Lease. Landan relies on the terms of the First Lease and the Option Deed to make good that proposition and points to the following terms:

(1)    clause 2.2 of the Option Deed insofar as it provides that the Call Option can only be exercised by Tameeka Group or the Nominee delivering to Landan a notice of exercise of call option executed by Tameeka Group or the Nominee and a counterpart of the contract completed with the name of the purchaser and dated with the date of exercise of the Call Option;

(2)    clause 2.5 of the Option Deed which provides that any attempt by Tameeka Group to exercise the Call Option other than by complying with cl 2 is invalid;

(3)    clause 1.1 of the Option Deed which defines “Nominee” to be the person nominated by Tameeka Group provided that person is registered for GST and shall not be Tameeka or any other entity that is at the time lessee of the Premises;

(4)    clause 2.4 of the Option Deed which provides that on the exercise of the Call Option there is a concluded contract for sale between Landan and Tameeka Group or its Nominee for the sale and purchase of the Premises on the terms set out in the contract annexed to the Option Deed; and

(5)    the contract for sale annexed to the Option Deed insofar as it identifies Tameeka Group as the purchaser, provides that the Premises will be sold subject to existing tenancies and that the sale is not a taxable supply because it is GST free as it is the sale of a going concern under section 38-325.

121    Landan submits that:

(1)    the reason for the requirement in the Option Deed that any nominee be registered for GST and that the nominee could not be Tameeka or any other entity then being the lessee is that it was within the parties’ common contemplation that, in the event the Call Option was exercised, the Premises would be sold as a going concern;

(2)    the words “or any other entity then being the lessee of the premises” included in the definition make clear that, in the event Tameeka transferred the First Lease to a new entity (and the transfer was registered), the new entity could not be the “the Nominee” under the Option Deed because, if it were, it would defeat the parties’ clear intention that the Premises be sold “as a going concern”;

(3)    the assignment and transfer provisions in the Retail Leases Act 1994 (NSW) and the First Lease provide a mechanism for Landan to consent to the First Lease being assigned and a transfer registered. They do not take away from the fact that the parties contemplated that a lease would be in place and the relationship of landlord and tenant would continue to exist if the Call Option was exercised;

(4)    the “existing tenancies” referred to in the contract for sale is the tenancy arising from the First Lease existing at the time the Option Deed was entered into; and

(5)    the provision that the sale is to be GST free because it is the supply of a going concern is consistent with and recognises that the Call Option could only be exercised if the relationship of landlord and tenant continued to exist at the time the Call Option was exercised.

122    Landan relies on the decision in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29 (Tim Barr) in which it submits Barrett J implied a term to similar effect to that for which it now contends. In that matter one of the issues before the Court was whether an option to purchase, which was granted contemporaneously with a lease and contained in the same document, had an existence independently of the lease so that if the lease no longer subsisted at the relevant date the option nevertheless remained alive and available to be exercised by the plaintiff in that case.

123    Relevantly the call option in Tim Barr provided at clause 15.7 that on its 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 purchaser respectively under the Contract”. After setting out the issue before him and reviewing some of the relevant authorities Barrett J said at [196] to [198] and [200] to [201]:

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.

…

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”.

124    In making his findings Barrett J construed the particular terms contained in the agreement before him. He did not imply a term in the way contended for by the respondents. In that regard I do not think that the judgment in Tim Barr offers much assistance to the respondents. In order to determine whether a term of the nature contended for by the respondents is implied into the Option Deed it is necessary to consider the terms of that agreement.

125    I do not think the term contended for by Landan can be implied into the Option Deed.

126    As a starting point and by way of context I note that the Option Deed is in writing, both parties were legally represented in the preparation of the Option Deed and no term approximating to the implied term was included in the Option Deed. It can be inferred that the parties must have turned their minds to the terms to be included in the Option Deed. While it was in the common contemplation of the parties that, without the Option Deed there would be no lease and vice versa, it does not follow that there was an implied term that at the time of exercise of the Call Option the relationship of landlord and tenant between Landan and Tameeka or its valid assignee had to exist. This is for a number of reasons:

(1)    first, the First Lease contemplated that Tameeka could, subject to the requirements of the relevant clause, assign the First Lease. Thus on the terms of the First Lease it was possible that Tameeka would not be in the relationship of lessee at the time of exercise of the Call Option. To the extent the alleged implied term extends to Tameeka’s valid assignee, that does not assist;

(2)    secondly, while the contract for sale annexed to the Option Deed contemplated a sale as a going concern it also provided for the purchaser to indemnify Landan in the event that GST was deemed to be payable on the sale. In other words it was in contemplation of the parties that the sale may be subject to GST if for example the Premises were not sold as a going concern. Further the sale could still be a supply of a going concern for GST purposes if Tameeka or its assignee were not in occupation as lessee but another party was in occupation as lessee with such relationship arising from a new lease entered into, for example, after termination of the lease with Tameeka for breach;

(3)    thirdly, in my opinion the implied term is not required to give business efficacy to the Option Deed. There is no necessary connection between the identity of the lessee and the Option Deed. The Option Deed entitles the grantee or its nominee to purchase the Premises on the terms of the contract for sale annexed to it. The grantee takes subject to existing tenancies but the identity of the lessee is not required to make the Option Deed operate effectively. It operates effectively without the addition of the implied term;

(4)    fourthly, the term which Landan seeks to imply is “not so obvious that it goes without saying”.

The Second Lease and the Deed of Variation

127    The next set of issues which arise relate to the Second Lease and the Deed of Variation and the effect of my findings about the conversation which took place between Mr Corbett and Mr Barr in about May or June 2013 which are set out at [49] above. I have found that a conversation in the terms set out by Mr Corbett took place and that therefore there was an oral agreement between Mr Corbett and Mr Barr to the effect that Landan would agree to extend the period in which the Call Option could be exercised but that the Call Option would not be exercisable unless Tameeka had paid rent for at least two years from the time of entering into the Second Lease and was still in occupation of the Premises at the time of exercise of the Call Option.

128    After this conversation took place Landan, Tameeka, Tameeka Group and Mr Barr entered into the Second Lease for a term of five years and the Deed of Variation whereby the Call Option period was amended to the period commencing on 1 June 2015 and ending on 30 June 2016. Tameeka and Tameeka Group executed the Second Lease on 26 June 2013 and Mr Barr signed it as guarantor on 3 July 2013. Tameeka Group and Mr Barr signed the Deed of Variation on 26 June 2013 and Landan signed it on 30 July 2013.

129    The respondents contend that it was an implied term of the Option Deed (as varied) that the Call Option was exercisable at any time in the Call Option period (as varied) but only if, at the time of exercise of the Call Option, Landan and Tameeka (or its valid assignee) continued to be bound as landlord and lessee under the Second Lease. The respondents accept that the conversation between Mr Corbett and Mr Barr which I have found took place is not relevant to the question of whether there is an implied term in the Deed of Variation.

130    In the alternative, the respondents contend that it was a collateral oral contract to the Deed of Variation or, in the alternative an implied term of the Deed of Variation, that the Call Option was exercisable at any time in the Call Option period (as varied) but only if, as at 1 June 2015 Tameeka had paid rent up to that date and at the time of exercise of the Call Option, Landan and Tameeka (or its valid assignee) continued to be bound as landlord and lessee under the Second Lease.

131    The first question is whether there was an implied term in the Option Deed (as varied). I do not think that the term contended for by Landan can be implied into the Option Deed (as varied). By way of context it is once again relevant to note that the Deed of Variation was in writing. The implied term now contended for by Landan was not included in it. I have already found that such a term was not implied into the Deed of Option when first entered into. For the same reasons I am not persuaded that a term to the effect that the Call Option was exercisable at any time in the Call Option period (as varied) but only if, at the time of exercise of the Call Option, Landan and Tameeka (or its valid assignee) continued to be bound as landlord and lessee under the Second Lease can be implied into the Option Deed (as varied).

132    The issue of whether there was an oral collateral contract to the Deed of Variation arising from the conversation between Mr Corbett and Mr Barr gives rise to different considerations and a different result. Having found that the conversation took place the question is whether the collateral oral contract is inconsistent with the main agreement that is the Deed of Variation.

133    Based on the conversation as I have found it Mr Barr made a promise to Landan through Mr Corbett that Tameeka would continue to pay rent for two years and be in occupation of the Premises as lessee at the time of exercise of the Call Option which was consideration for Landan entering into the Deed of Variation with Tameeka Group. Landan entered into the Deed of Variation because of or in consideration of the promise made by Mr Barr in the oral collateral contract. The applicants submit that such an agreement is inconsistent with the main agreement, namely the Deed of Variation, and so cannot stand as a collateral contract. I do not agree. The oral collateral contract is not inconsistent with the Deed of Variation itself. The Deed of Variation amends the Option Deed; the oral collateral contract adds a further condition to the exercise of the Call Option. One needs to look at the existing conditions and the new condition to determine if there is any inconsistency.

134    The existing conditions in clause 2 of the Option Deed are that the Call Option can be exercised by Tameeka Group or its nominee by delivering the following to Landan:

(1)    an executed notice of exercise of Call Option;

(2)    a counterpart of the contract for sale completed with the name of the purchaser and the date of exercise of the Call Option; and

(3)    if the notice of exercise of Call Option is executed by a nominee of Tameeka Group the Call Option nomination notice duly executed by Tameeka Group.

135    The oral collateral contract contended for by Landan adds to those existing requirements a requirement that the Call Option can only be exercised if as at 1 June 2015 Tameeka had paid rent up to that date (i.e. for two years) at the time of exercise of the Call Option and Landan and Tameeka continued to be bound as landlord and lessee pursuant to the Second Lease. In my opinion the additional requirement for exercise of the Call Option is not inconsistent with the Option Deed (as varied). The additional conditions can coexist with those included in clause 2. Nor is the collateral oral contract inconsistent with the Call Option period (as varied). To the contrary it is entirely consistent. The requirement that Tameeka pay rent up to 1 June 2015 is in line with the commencement of the Call Option period, being 1 June 2015. The collateral oral contract does not conflict with clause 2 of the Option Deed (as varied) or any other term, they being terms which relate to the guarantee provided by Mr Barr and might otherwise be described a “boiler plate” clauses. The two agreements can stand together.

136    In their written submissions the applicants refer to the definition of “Nominee” in cl 1.1 of the Option Deed and submit that by that definition the parties expressly contemplated that another lessee may be in possession of the Premises at the date of exercise of the Call Option. The applicants submit that there is no basis on which to construe the Call Option, whether on its own or collateral to the leases, as requiring Tameeka to still be in possession of the Premises at the date of exercise of the Call Option. But this submission does not take account of the oral collateral contract which I have found. The oral collateral contract is not inconsistent with the definition of “Nominee” in the Option Deed (as amended). The result of the oral collateral contract is that Tameeka must be the lessee at the time of exercise of the Call Option but it does not constrain who may be nominated as “Nominee” under the Option Deed (as amended).

137    I am satisfied that there was an oral collateral contract on the terms contended for by Landan. Tameeka went into liquidation on 12 May 2015. The liquidator of Tameeka disclaimed the Second Lease on 13 May 2015. Landan then terminated the Second Lease on 13 May 2015. By that date, Tameeka was no longer paying rent under the Second Lease and it was no longer in occupation of the Premises. As a result, the Call Option was no longer capable of being exercised because Tameeka had not continued to pay rent for two years i.e. to 1 June 2015 and Landan and Tameeka were no longer bound as landlord and lessee. Given this finding I do not propose to consider whether the terms which I have found constitute the oral collateral contract are in the alternative, implied terms in the Deed of Variation or whether the Option Deed was frustrated and Landan discharged from any further obligation in respect of it.

138    It follows that the applicants are not entitled to exercise the Call Option between 1 June 2015 and 30 June 2016. That is in effect the end of the matter and the applicants’ claim must therefore fail.

Other claims

139    Given my findings above, while it is not necessary for me to consider the other claims advanced by the applicants relating to liability, for completeness I do so below.

Was the Gran-Dia Lease an existing tenancy?

140    The applicants allege that, assuming the Call Option is valid and enforceable, the Gran-Dia Lease is not an existing tenancy within the meaning of the contract for sale annexed to the Option Deed. They submit, based on the judgment in Electricity Generation Corporation at [35], that the correct approach to construction is to consider the surrounding circumstances known to the parties and the commercial purpose or objects to be secured by the contract and to approach construction on the basis of a business like interpretation.

141    The applicants point to the fact that the contract for sale annexed to the Option Deed provided for an agreed contract price and that it was subject to “existing tenancies” and that, at the date of entry into the Option Deed, it was contemplated that the First Lease would shortly be in force. That lease was an arms’ length lease on ordinary commercial terms. Thus the applicants contend that objectively the parties intended that at the date of the exercise of the Call Option, if there was an existing tenancy, it would be an arms’ length lease on ordinary commercial terms. The applicants submit that, the corollary of their submissions is that, if the Gran-Dia Lease is an existing tenancy then the underlying commercial purpose of the Call Option is defeated because a reasonable purchaser would not pay the contract price for a property that is subject to a lease on the terms of the Gran-Dia Lease.

142    The term “existing tenancies” is not defined in the contract for sale, which is a standard form contract. By their submission the applicants suggest that an existing tenancy should be an arms’ length lease on ordinary commercial terms. However, there is nothing in the contract for sale to suggest that the term “existing tenancies” would be construed in this way.

143    The starting point in construing a contract is to consider the natural meaning of the words. In Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1935) 53 CLR 618 a majority of the High Court (Rich, Dixon, Evatt and McTiernan JJ), in considering the terms of a contract of reinsurance, held at 636 that:

… The contract must be interpreted like any other contract, and the natural meaning of the language must receive its effect unless upon a proper application of the rules of interpretation, a contrary intention is found to be contained within the instrument. Preconceptions as to what the transaction involves of its own nature, or what the parties are likely to have intended ought not to be allowed to deprive the language in which the reinsurance is expressed of its natural meaning and effect.

144    In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 the High Court (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) held at [40] that it is not subjective beliefs of the parties about their rights and liabilities that govern contractual relations but that what matters is what each party by their words and conduct would have led a reasonable person in the position of the other party to believe. The Court continued:

The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.

145    The natural meaning of the words “existing tenancies” is the tenancy existing at the time the contract for sale is entered into. There is nothing to suggest any contrary intention or meaning. The applicants attempt to impose a narrower meaning by reference to the principles which have been laid down by the High Court that the meaning of a commercial contract will be determined by what a reasonable business person would have understood the terms to mean. But those principles will have little role to play in relation to the standard form contract for sale annexed to the Option Deed in which the term in issue appears. The effect of the construction contended for by the applicants would mean that “existing tenancies” could never include tenancies between a vendor and a related party or any other party on terms other than terms that could be classified as “ordinary commercial terms”. That could not be the case.

146    In the case of the particular contract for sale annexed to the Option Deed intended to be between Landan as vendor and Tameeka Group or its nominee as purchaser there is nothing to suggest that the term “existing tenancies” should be given any meaning other than its natural meaning. There is no ambiguity in the words. The commercial context is the provision of an option to acquire a property on the terms of the contract annexed to the Option Deed which was the standard form contract for sale and which provided for the property to be sold subject to existing tenancies, whatever they may be. I do not think that the construction contended for by the applicants can be made out. The term “existing tenancies” are those tenancies in existence at the time of entry into the contract for sale. The Gran-Dia Lease would therefore be an existing tenancy.

Claim for breach of contract

147    The applicants allege that there were two implied terms in the Option Deed as varied: that the parties would exercise good faith in the performance of the Option Deed and that Landan would not take any step which would have the effect of reducing the commercial value of the Call Option.

148    In Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 a majority of the High Court (Gleeson CJ, Gummow, Kirby and Hayne JJ) at [36] said the following about the implication of terms to require a party to do all things necessary to fulfil obligations under contracts:

It was submitted that the restraint in Art 7.1 was ancillary to and bolstered the licence provisions in Art 5. The law already implies an obligation by the respondents to do all such things as are necessary on their part to enable Peters WA to have the benefit of those licence arrangements. It is not now necessary to consider the basis of the implication. The law also implies a negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises made in Art 5. But, as will later appear, the restraint cannot be said to be referable only to the continuing licensing arrangements, notwithstanding their common duration. In any event, such matters are better considered in an analysis of the reasonableness of the restraint rather than as an element in the process of reasoning by which the occasion for any analysis of such reasonableness is avoided.

(footnotes omitted)

149    I accept that as a matter of law a term would be implied into the Option Deed to cooperate and do all things necessary to enable the other party to have the benefit of the contract. The respondents accept in their submissions that such a term would be implied.

150    The position in relation to the terms pleaded by the applicants, in particular the alleged term of good faith, is not so clear cut.

151    In Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 the New South Wales Court of Appeal after looking at the development of the case law in relation to implying obligations of good faith and reasonableness into contracts said commencing at [163]:

163    This necessarily brief survey of the case law post Alcatel Australia indicates that obligations of good faith and reasonableness will be more readily implied in standard form contracts, particularly if such contracts contain a general power of termination. Clearly, however, the cases where these terms are to be implied are not limited to standard form agreements. Alcatel Australia itself, which involved a 50 year lease agreement of commercial premises, provides an example of a one off contract where such terms were implied.

164    There also appears to be increasing acceptance (Saxby Bridge Mortgages aside) that if terms of good faith and reasonableness are to be implied, they are to be implied as a matter of law. We consider that to be correct. The argument by Mr Archibald, senior counsel for Burger King Corporation, proceeded on that basis. He submitted, however, that the pre-conditions for the implication of a term at law had not been satisfied in this case, and that the implication was unnecessary as the contract comprehensively dealt with the rights of the parties. This raises the question of when a term will be implied at law.

165    Traditionally, specific terms have been implied as a matter of law into contracts of a certain class. Examples include contracts between employer/employee (implied term not to disclose secret processes), for the sale of goods (implied terms of reasonable fitness and merchantable quality and that payment and delivery of goods are concurrent obligations), for the provision of work and materials, between landlord and tenant (implied term that premises will be reasonably fit for habitation) and in contracts of carriage by sea (an implied warranty of seaworthiness): see Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 448; Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 at 487; Professor Glanville Williams, “Language and the Law” (1945) 61 Law Quarterly Review 384 at 403. Of course, some of these are implications now codified by statute: for example, contracts for sale of goods under the Sale of Goods Act 1923 (NSW).

166    The Development Agreement does not fall into any of the traditional class of cases where terms have been implied as an incident of the contract.

167    For a term to be implied at law in a new category of case, it must be both reasonable and necessary: see Castlemaine Toohey and Byrne. In Byrne, McHugh and Gummow JJ explained the meaning of necessity in this context. They said at 450:

“Many of the terms now said to be implied by law in various categories of case reflect the concern of the courts that, unless such a term be implied, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined. Hence, the reference in the decisions to ‘necessity’. … This notion of ‘necessity’ has been crucial in the modern cases in which the courts have implied for the first time a new term as a matter of law.” (emphasis added)

152    In Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 Barrett J set out a summary of the principles relating to the implication of a term of good faith at [62] to [63] and [67] to [68] as follows:

62.    An additional term implied by law into commercial contracts is a term requiring the exercise of good faith in the performance of the contract. This is now in this State a legal incident of every such contract: Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187. It takes its place beside the terms referred to in Peters (WA) Ltd.

63.    But what are the content and effect of such an implied term? This question was the subject of discussion by the Court of Appeal in Burger King. Sheller, Beazley and Stein JJA referred to the observation of Sir Anthony Mason in his 1993 Cambridge Lecture (see now (2000) 116 LQR 66 at 69) that the concept “embraced no less than three related notions”, being:

(1)    an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself);

(2)     compliance with honest standards of conduct; and

(3)     compliance with standards of conduct which are reasonable having regard to the interests of the parties.

…

67.    Viewed in this way, the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para 187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms.

68.    In many ways, the implied obligation of good faith is best regarded as an obligation to eschew bad faith. …

153    In Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 327 ALR 45 (Marmax Investments) a Full Court of this Court (Middleton, Foster and Gleeson JJ) considered the terms of a franchise agreement and whether there was an implied term to act in good faith and an implied term to do all things necessary to enable the other party to the contract to have the benefit of it and not do anything that would derogate from the benefit of the contract. Commencing at [121] their Honours summarised the position in relation to implying terms by law and necessity as follows:

121.    The implication of a contractual duty to cooperate and “to do all such things as are necessary…to enable the other party to have the benefit of the contract” is well established: Secured Income Real Estate (Aust) Ltd v St Martins Investment Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 (“Secured Income”); Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169 (“Barker”) at [26] and [37] (French CJ, Bell and Keane JJ) and [61] (Kiefel J).

122    Whether an implied duty of good faith is implied by law into contracts generally has not been resolved: Barker at [42]; cf Specialist Diagnostic v Healthscope [2012] VSCA 175; (2012) 305 ALR 569 at [86]. Even so, we accept that the authorities relied upon by the primary judge would support the implication of such a term in this case.

123    In Barker, discussing the implication of contractual terms in law, French CJ, Bell and Keane JJ said at [28] and [29]:

[28]    An implication in law may have evolved from repeated implications in fact. As Gaudron and McHugh JJ observed in Breen v Williams (1996) 186 CLR 71, some implications in law derive from the implication of terms in specific contracts of particular descriptions, which become "so much a part of the common understanding as to be imported into all transactions of the particular description.": (1996) 186 CLR 71 at 103, quoting Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 449 per McHugh and Gummow JJ. The two kinds of implied terms tend in practice to “merge imperceptibly into each other”: (1996) 186 CLR 71 at 103, quoting Glanville Williams, “Language and the Law – IV”, Law Quarterly Review, vol 61 (1945) 384, at p 401. That connection suggests, as is the case, that the “more general considerations” informing implications in law are not so remote from those considerations which support implications in fact as to be at large. They fall within the limiting criterion of “necessity”, which was acknowledged by both parties to this appeal. The requirement that a term implied in fact be necessary “to give business efficacy” to the contract in which it is implied can be regarded as a specific application of the criterion of necessity. The present case concerns an implied term in law where broad considerations are in play, which are not at large but are not constrained by a search for what “the contract actually means.”

[29]    In Byrne v Australian Airlines Ltd, McHugh and Gummow JJ emphasised that the “necessity” which will support an implied term in law is demonstrated where, absent the implication, “the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined” ((1995) 185 CLR 410 at 450) or the contract would be “deprived of its substance, seriously undermined or drastically devalued”: (1995) 185 CLR 410 at 453. See also Jarratt v Commissioner of Police (NSW) (2005) 224 CLR 44 at 68 [78] per McHugh, Gummow and Hayne JJ. The criterion of “necessity” in this context has been described as “elusive”: (Crossley v Faithful and Gould Holdings Ltd [2004] ICR 1615 at 1627 [36]) and the suggestion made that “there is much to be said for abandoning” (Pell, Treitel: The Law of Contract, 13th ed (2011), p 231 [6-043]) the concept. Necessity does, however, remind courts that implications in law must be kept within the limits of the judicial function. They are a species of judicial law-making and are not to be made lightly. It is a necessary condition that they are justified functionally by reference to the effective performance of the class of contract to which they apply, or of contracts generally in cases of universal implications, such as the duty to cooperate. Implications which might be thought reasonable are not, on that account only, necessary: University of Western Australia v Gray (2009) 179 FCR 346 at 376–377 [139]–[142] The same constraints apply whether or not such implications are characterised as rules of construction.

124    At [36], the plurality said that the broad concept of “necessity” in this context could be defined “by reference to ‘what the nature of the contract itself implicitly requires’ [referring to Liverpool City Council v Irwin [1977] AC 239 at 254 per Lord Wilberforce]. It may be demonstrated by the futility of the transaction absent the implication. It is not satisfied by demonstrating the reasonableness of the implied term.”

…

129    The concept of “necessity” has significance for determining the content of the implied terms in this case. As was observed by Gummow, Hayne, Heydon and Kiefel JJ in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [168], care must be exercised in identifying both the content and operation of an implied obligation to cooperate lest it be at odds with the terms upon which the parties have expressly agreed.

154    A term to act in good faith would not be implied by law in every commercial contract. Whether it should be implied into the Option Deed is a question of whether the term is reasonable and necessary. While the term is reasonable I do not think it is necessary. The benefit provided under the Option Deed is the right to acquire the Premises on the terms agreed in the contract for sale annexed to the Option Deed. It is not a right to make a profit or a right to a commercial or profitable deal. The right to acquire the Premises on the terms agreed is not rendered nugatory without the implied term to act in good faith nor is such a term required to make the contract effective. The right to acquire the Premises can be exercised by the grantee subject to complying with the conditions for exercise. The exercise of the Call Option can proceed absent such a term. The enjoyment or benefit conferred by the Option Deed is not rendered nugatory by the absence of such a term. I do not find that a term that the parties would exercise good faith in the performance of the Option Deed is implied into the Option Deed.

155    I turn then to consider whether the term that is implied as a matter of law into the Option Deed, namely the obligation to cooperate and do all things necessary to enable the other party to have the benefit of the contract, has been breached. The other party to the Option Deed is Tameeka Group. As noted above, the benefit under the Option Deed is the right to acquire the Premises on the terms of the contract for sale annexed to the Option Deed. The obligation to cooperate must attach to that right.

156    That obligation cannot mean that Landan was precluded from entering into a new lease for the Premises. Tameeka had gone into liquidation and Landan must have had the right to minimise its damage occasioned by the loss of rental income. The next issue is whether entering into the Gran-Dia Lease was a breach of the obligation. I do not think it is. It does not interfere with Tameeka Group’s right to acquire the Premises on the terms of the contract for sale annexed to the Option Deed which provides that the sale is subject to existing tenancies and is not specific about the identity of any lessee from time to time. There is no such breach by Landan.

Claim pursuant to s 21 of the ACL

157    The applicants allege that in entering into the Gran-Dia Lease Landan has acted unconscionably within the meaning of s 21 of the ACL.

158    Section 21 of the ACL relevantly provides as follows:

Unconscionable conduct in connection with goods or services

(1)    A person must not, in trade or commerce, in connection with:

(a)    the supply or possible supply of goods or services to a person (other than a listed public company); or

(b)    the acquisition or possible acquisition of goods or services from a person (other than a listed public company);

engage in conduct that is, in all the circumstances, unconscionable.

…

(3)    For the purpose of determining whether a person has contravened subsection (1):

(a)    the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and

(b)    the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.

(4)    It is the intention of the Parliament that:

(a)    this section is not limited by the unwritten law relating to unconscionable conduct; and

…

159    Section 22 of the ACL sets out a non exhaustive list of the matters to which the Court may have regard in determining whether a person has contravened s 21.

Are the Option Deed and Deed of Variation a service?

160    The first issue that arises for determination is whether the Option Deed and the Deed of Variation are services for the purposes of s 21. Section 2 of the ACL defines services as follows:

services includes:

(a)    any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce; and

(b)    without limiting paragraph (a), the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under:

(i)    a contract for or in relation to the performance of work (including work of a professional nature), whether with or without the supply of goods; or

(ii)    a contract for or in relation to the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction; or

(iii)    a contract for or in relation to the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; or

(iv)    a contract of insurance; or

(v)    a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or

(vi)    any contract for or in relation to the lending of money;

but does not include rights or benefits being the supply of goods or the performance of work under a contract of service.

161    The applicants submit that the definition is broad enough to pick up the rights conferred on the grantee and nominee under the Call Option which confers a right, benefit or privilege on Tameeka Group or its nominee to exercise the option to acquire the Premises on the terms of the contract for sale annexed.

162    The respondents submit that although the definition of “services” is drawn in wide terms it should not be given an expansive construction and that, in any event, the Option Deed did not, of itself, either when originally entered into or in 2013 when amended, involve the “supply” of a right, in relation to or an interest in the Premises. The respondents rely on the judgment of the Victorian Court of Appeal in Mercier Rouse Street Pty Ltd v Burness & Others [2015] VSCA 8 at [183] to [189] where Santamaria JA (with whom Warren CJ and Neave JA agreed) said:

183.    On its proper construction, the definition of ‘services’ cannot be taken to include the obligations of a vendor of land to transfer that land to the purchaser upon payment of the purchase price.

184.    First, although the definition is drawn in wide terms, it should not be given an expansive construction. As the Full Court of the Federal Court commented in respect of comparable Federal legislation in Queensland Aggregates Pty Ltd v Trade Practices Commission:

… the repeated use, in the operative sections of the Act, of the words ‘goods or services’, the content of operative sections of the Act and the ordinary meaning of the word ‘services’, combine to raise real doubt as to whether it was a legislative intent, to be derived from the statute, that the word should be given the full extended meaning which the definition contained in s 4 of the Act would prima facie ascribe to it … In the view we take, the sweepingly general provisions of the definition of ‘services’ contained in s 4 of the Act should not be given an expansive construction.

185.    Second, the ordinary and natural meaning of the word ‘services’ should be taken into account. The Shorter Oxford English Dictionary defines the word, relevantly, as follows: ‘IV. 1. The action of serving, helping, or benefiting; conduct tending to the welfare or advantage of another … 4. Supply of the needs of (persons, occas. of things)’. Black’s Law Dictionary (8th ed) defines service as including ‘an intangible commodity in the form of human effort, such as labour, skill, or advice.’ The Macquarie Dictionary defines ‘service’ as ‘an act of helpful activity’. In all of these cases, the use of the word’ service’ to describe the obligations of a vendor of land to deliver a transfer to a purchaser would not be appropriate.

186.    It is true that courts have found that the definition of ‘services’ covers interests in real property such as the grant of a lease, a licence or a mortgage. As noted above, the ACL, as with earlier versions of the Fair Trading Act, defines ‘services’ inclusively and includes ‘any rights (including rights in relation to, and interests in, real or personal property’. Several cases were discussed in argument that, it was said, permitted the Court to conclude that the ‘services’ did include the obligations of a vendor to a purchaser to deliver title.

…

188.    In my opinion, the O’Bryans are correct to observe that, to the extent that in these cases courts have held that there had been a supply of ‘services’, the transaction in issue bestowed an ongoing benefit (such as a continuing right of occupation) in relation to real property. The present transaction did not involve an ongoing relationship between the parties such as exists where there is a mortgage, or a lease or a licence. The transaction was in relation to land; it was not in relation to ‘services’.

189.    The contextual meaning must not be disregarded. The fundamental term ‘services’ necessarily controls all that it is defined to include. The ‘rights’ that are referred to in (a) must still be ‘rights’ that are in the nature of ‘services’.

(footnotes omitted)

163    The definition of services in s 4(1) of the CC Act, which is the same as the definition included s 2 of the ACL, was recently considered by a Full Court of this Court (Allsop CJ, Mansfield and Middleton JJ) in Obeid v Australian Competition and Consumer Commission (2014) 226 FCR 471 (Obeid). That matter concerned two notices issued by the Australian Competition and Consumer Commission (ACCC) to the appellants pursuant to s 155(1)(c) of the CC Act. A New South Wales government department had invited certain companies to lodge expressions of interest for exploration licences. The appellants contended that the rights under the expressions of interest were not a service because they were not in trade or commerce as required by the definition in s 4(1) of the CC Act. At [39] the Full Court said that in terms of “services” there was at the very least the “right to participate in the EOI Process” being a right, benefit or privilege being provided by the Minster in trade or commerce. After setting out a comparison of the former definition and the definition as it presently stands the Full Court continued at [49] to [53]:

49    There was some criticism made by the appellant of the primary judge for failing to take into consideration the differences in the Swanson Committee Report (referred to by the primary judge at [61]), and the subsequent legislation that was introduced into Parliament in 1976, and after the proroguing of Parliament, introduced again in 1977. Undoubtedly there were differences in the terms of the legislation introduced into Parliament following upon the Swanson Committee Report, both in 1976 and 1977, but these differences do not affect the conclusion of the primary judge at [71] and [72]:

[71]    There is nothing in the Swanson Committee Report or in the explanatory memorandum for either of the 1976 Bill or the 1977 Act which suggests that the definition of “services” adopted in the 1977 Act primarily by the inclusion of the Rights Extension was intended to be limiting of the definition in the 1974 Act. To the contrary, the intention appears to have been to ensure that the meaning was extended to include interests in land to the extent constitutionally possible, in line with the express provisions relating to leases and licences in ss 4H and 47(8) as well as s 53A.

[72]    The amendments contained in the Revised Contracts Extension do not materially alter the Contracts Extension. I consider that the Revised Contracts Extension extends the ordinary meaning of “services” and that there was no intention to limit its scope by the adoption of the Rights Extension.

50    The appellants also relied heavily on the argument that the word “includes” was exhaustive or exclusive, so as to limit the operation of the definition “services” to situations where the supplier of the services is in trade or commerce. We do not accept that argument for the following reasons.

51    Throughout the different definitions in s 4(1) the draftsperson has been mindful of the distinction between “includes” and “means”. Usually a definition that uses the word “includes” is not intended to be exhaustive. Merely because a definition is expressed to “include” a number of items that fall within the ordinary meaning of a word does not mean the definition is necessarily exhaustive: see Federal Commissioner of Taxation v St Hubert’s Island Pty Ltd (In Liq) (1978) 138 CLR 210, 216. Where, as in s 4(1), a pattern has been established as to the use of “includes” and “means”, the Court would normally accept that distinction as being deliberately adopted: see Cohns Industries Pty Ltd v Deputy Federal Commissioner of Taxation (1979) 9 ATR 759 at 760-761.

52    Looking at the text of the definition “services” there is no reason to conclude the term “includes” is exhaustive. Whilst it includes services that would come within the ordinary meaning of that word, it also includes services not within the ordinary meaning (eg rights or interests in relation to real or personal property). The historical context described by the primary judge confirms that the term “includes” is not meant to be exhaustive.

53    Therefore, in interpreting the term “services”, unless a contrary intention appears in the substantive provisions being applied, the ordinary meaning of the term “services” is to be adopted along with the specified services in the definition itself.

164    In my opinion the Call Option confers a right, benefit or privilege that is, or is to be, granted in trade or commerce. The right, benefit or privilege that is granted, or is to be granted, is the entitlement to acquire the Premises at an agreed price upon exercise of the Call Option pursuant to cl 2 of the Option Deed. As the Full Court said in Obeid, the definition of services should not be read exhaustively. The Full Court specifically observed at [52] that while the definition includes services that would come within the ordinary meaning of that word it also includes services not within the ordinary meaning “e.g. rights or interests in relation to real or personal property”. There is no contrary intention in the substantive provision, s 21, which would dictate a different outcome.

Was the unconscionable conduct “in connection with” the supply of the service?

165    The respondents submit that the only conduct that could said to have been in connection with the supply or possible supply of the services was the alleged “demand” for $100,000 by Mr Corbett at the time of entry into the Option Deed. I do not think that the term “in connection with” can be so narrowly construed. In Australian Competition and Consumer Commission v Woolworths (South Australia) Pty Ltd (2003) 198 ALR 417 Mansfield J said at [55], albeit in the context of s 87B of the Trade Practices Act, that the expression “in connection with” was:

… given a wide scope of operation by Kitto J in Berry v Federal Commissioner of Taxation (1953) 89 CLR 653 at 658-659, as requiring ‘a substantial relation, in a practical business sense’. The test does not necessarily require an immediate causal relationship: per Wilcox J in Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 at 479-480.

I agree. The alleged conduct does not have to take place at the time of the supply or acquisition of the services. That would impose a temporal limitation which I do not think is contemplated by the section.

Third parties

166    The respondents submit that the conduct in s 21 of the ACL is not concerned with the impact of conduct on third parties. They rely on the judgment in Monroe Topple & Associates v Institute of Chartered Accounts in Australia (2002) 122 FCR 110 at [114] to [116] where Heerey J held that the conduct in s 51AC(1) of the Trade Practices Act was not directed to conduct in trade or commerce generally but rather to conduct in trade or commerce in connection with the supply or acquisition of goods or services to or from a person. That is, it is concerned with dealings between the supplier and consumer or between the acquirer and supplier and not with third parties. The respondents submit that 2444 is a third party and that there was no supply of services to it. Rather, the option deed and the deed of variation were supplied to Tameeka Group.

167    The applicants submit that Tameeka Group can complain about the unconscionable conduct until the Call Option is exercised and 2444 can complain about unconscionable conduct after the exercise of the Call Option such that it is not a third party.

168    The Option Deed and the Deed of Variation were entered into with Tameeka Group. The service supplied was the right, benefit or privilege that is granted, or is to be granted, to acquire the Premises pursuant to the Call Option as contained in the Option Deed and varied by the Deed of Variation. Tameeka Group as grantee, or its nominee, could exercise the Call Option but at the time of supply of the service the only party known to Landan was Tameeka Group. While a nominee may be appointed at some time in the future at the date of supply of the service that entity is unknown and in those circumstances it is difficult to see how a service can be supplied or acquired by an unidentified entity that may or may not be appointed at some date in the future.

169    In my opinion the supply of the service, that is the right to acquire the Premises, was to Tameeka Group. At the time of entry into the Option Deed and the Deed of Variation there was no nominee identified and no other party to whom the service could be or was supplied. 2444 is thus a third party and there was no supply of services to it.

Was Landan’s conduct unconscionable?

170    In Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 Foster J considered s 51AC of the Trade Practices Act 1974 (Cth) (the Trade Practices Act), the predecessor to s 21 of the ACL. At [113] his Honour said:

113.    There is a body of authority in this Court which establishes the following propositions:

(a)    The scope of s 51AC is wider than that of s 51AA. The meaning of unconscionable for the purposes of s 51AC is not limited to the meaning of the word according to established principles of common law and equity;

(b)    The ordinary or dictionary meaning of unconscionable, which involves notions of serious misconduct or something which is clearly unfair or unreasonable, is picked up by the use of the word in s 51AC. When used in that section, the expression requires that the actions of the alleged contravenor show no regard for conscience, and be irreconcilable with what is right or reasonable. Inevitably the expression imports a pejorative moral judgment; and

(c)    Normally, some moral fault or moral responsibility would be involved. This would not ordinarily be present if the critical actions are merely negligent. There would ordinarily need to be a deliberate (in the sense of intentional) act or at least a reckless act.

(citations omitted)

171    In Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 the New South Wales Court of Appeal considered the operation of the Contracts Review Act 1980 (NSW). In that context Allsop P (as his Honour then was) (with whom Bathurst CJ and Campbell JA agreed) said the following at [291] in relation to the term unconscionable:

Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at 583 [121]; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 140 [30]; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301 at 316-317 [44]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; factors similar to those that are relevant to the CRA are relevant: Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [124]; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity: National Exchange at 140 [30]; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at 143 [44]. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances.

172    In Australian Competition and Consumer Commission v South East Melbourne Cleaning Pty Limited (In Liq) [2015] FCA 25 at [116] Murphy J provided the following guide to considering a claim under s 21 of the ACL:

Dealing first with the principles of law, amongst other things, the following matters underpin a proper approach to unconscionability under the ACL:

(a)    The Court must first and foremost have regard to the language of the statute rather than judicial explanations of unconscionability: PT Ltd at [101]; Director of Consumer Affairs Victoria v Scully and Another (2013) 303 ALR 168 (“Scully”) at [45] per Santamaria JA (Neave and Osborn JJA agreeing).

(b)    “Unconscionability” is not a term of art but simply means “something not done in good conscience”: Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 (“Lux”) at [41] per Allsop CJ, Jacobson and Gordon JJ; Scully at [36]; Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at [33] per Tamberlin, Finn and Conti JJ.

(c)    The court should have due regard to the remedial and beneficial objects of the legislation: Investec Bank v Naude [2014] NSWSC 165 (“Investec”) at [54] per McDougall J.

(d)    The court must have regard to the non-exhaustive and non-prescriptive list in s 22(1) although the presence of one or more of these matters will not be determinative to an unconscionability enquiry: Scully at [41]. However these matters may nevertheless assist the court in illuminating the scope and meaning of unconscionable conduct: Scully at [42]; Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536 at [76] per Macaulay AJA (with whom Harper and Hansen JJA agreed).

(e)    The court is not constrained by the general equitable concept of unconscionability although equity’s exploration of unconscionable conduct may assist the court: s 21(4)(a) ACL; Investec at [55]; Scully at [40].

(f)    In determining unconscionability, the court is prevented from having regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention: s 21(3)(a) ACL.

(g)    Whether or not conduct is unconscionable will depend on careful consideration of all of the conduct and involves standing back and looking at the whole episode: Lux at [44].

(h)    The Court’s task involves evaluating conduct by reference to a normative standard of conscience which may develop and change over time and which must be understood and applied in the context in which the circumstances arise: Lux at [23] and [41]; Scully at [56].

(i)    Notions of moral obloquy or moral tainting are relevant, but it must be recognised that it is conduct against conscience by reference to the norms of society that is in question: Lux at [41]. The task of statutory construction must focus on the text of the statute and a number of the factors in s 22 of the ACL do not necessarily involve dishonesty, sharp practice or conscious wrongdoing (eg s 22(1)(a), (b), (c), (e), (f), (h) and (j)). While conduct involving dishonesty, sharp practice or conscious wrongdoing is no doubt unconscionable, conduct which does not involve those factors may still be regarded as unconscionable. Substituting a test of “a high level of moral obloquy” for the standard of “unconscionability” is of doubtful assistance in determining whether the statutory prohibition has been contravened: PT Ltd at [101]-[106].

(j)    As “unconscionability” in this context is predicated on “conduct”, a person’s conduct is to be distinguished from the consequences that that conduct may have on the lives of other people: Scully at [39]; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at [19] per French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ.

(k)    A determination of unconscionability involves a broadly based value judgment, applied to the facts on which reliance is placed, to the extent that they are proved: Investec at [59]; Lux at [23].

173    I have set out my findings of fact above and will now turn to a consideration of whether, based on the evidence, Landan’s conduct was unconscionable.

174    The conduct that is said to constitute the unconscionable conduct was as follows:

(1)    the alleged demand by Mr Corbett that Tameeka Group pay $100,000 as consideration for entry into the Option Deed, which was paid;

(2)    the entry into of the Gran-Dia Lease by Landan and Gran-Dia on the terms included in that lease (see [75] above) and in circumstances where Gran-Dia proposes to enter into a sublease of the Premises to a third party at a reasonable market rental, which Mr Corbett considered would be $210,000 per annum including outgoings and GST;

(3)    on or about 17 June 2015 Mr Corbett informed Mr Barr that in order to prevent Tameeka Group exercising the Call Option Landan had entered into a long term lease with a related company at a low market rental of $60,000 per annum and would then have the related company sublet the Premises at a reasonable market rental. I note that is not the evidence. Mr Corbett did not say that Landan had entered into the lease in order to prevent Tameeka Group exercising the Call Option. I have found that Mr Corbett informed Mr Barr of the existence of the lease and of its principal terms but he did not provide the motive alleged for entering into the lease. I have preferred Mr Corbett’s version of that conversation over that of Mr Barr;

(4)    Landan and Gran-Dia entered into the Gran-Dia Lease so as to substantially reduce or attempt to substantially reduce the value of the property for a period of 10 years, to prevent Tameeka Group or its nominee from leasing the Premises for 10 to 20 years, to substantially reduce or attempt to substantially reduce the market rental which Tameeka Group or its nominee would receive for the Premises over a period of 10 to 20 years, to cause Tameeka Group or its nominee to receive approximately $90,000 per annum less in rental from the Premises if the Call Option was exercised, to prevent or attempt to prevent Tameeka Group or its nominee from exercising the Call Option, to put commercial pressure on Tameeka Group or its nominee not to exercise the Call Option, to deter Tameeka Group or its nominee from exercising the Call Option, to obtain a financial advantage for Landan in retaining the property, to obtain a financial advantage for Gran-Dia and to cause loss and damage to Tameeka Group or its nominee;

(5)    the evidence before the Court is that the current value of the Premises is $2 million and that the market rental as at 15 May 2015 was $170,000 per annum gross excluding GST. The applicants allege that the following evidence of Mr Corbett establishes the unusual nature of the entry into of the Gran-Dia Lease and its uncommercial terms:

(a)    it is a related party lease and there was no meeting of directors of Gran-Dia prior to entering into the lease. Mr Corbett simply told Ms Preston, the other director of Gran-Dia, to sign the lease. There was no discussion;

(b)    there was no lessor disclosure document issued in relation to the Gran-Dia Lease as required by the Retail Leases Act 1994 (NSW);

(c)    Gran-Dia did not immediately have the money to pay the rent. The first rental instalment was not paid until 19 June 2015 meaning that Gran-Dia was in breach of the lease from its commencement as rent was payable monthly and in advance;

(d)    no legal or accounting advice was given in respect of the lease. It was prepared and executed two days after the liquidation of Tameeka; and

(e)    the low amount of rent, the terms about outgoings, the 10 year term, the lack of a director’s guarantee and the basis of rental increases were not commercial terms and would deter a purchaser from purchasing the Premises;

(6)    on 20 July 2015 Landan advised Tameeka Group and 2444, through its solicitors, that the Call Option was not open for exercise, that it had expired and that it was not valid and enforceable.

175    Against those matters, the following matters need to be considered:

(1)    there was no demand by Mr Corbett for payment of $100,000 from Mr Barr. Rather, Mr Corbett and Mr Barr agreed that Mr Barr would pay the sum of $100,000 at the time of entry into the Option Deed;

(2)    it is not in issue that Landan and Gran-Dia entered into the Gran-Dia Lease and that it is Gran-Dia’s intention to sublease the Premises to a third party at a market rent which should be substantially more than the rental of $60,000 being paid by Gran-Dia under the Gran-Dia Lease. Mr Corbett’s evidence is that:

(a)    he entered into the Gran-Dia Lease and a similar lease for shop 4A, when they became vacant as a result of Tameeka’s liquidation, because of the discussions he had with his accountant, Mr Thompson;

(b)    Mr Thompson had recommended that, if Mr Corbett did not wish to transfer the Premises, or any other property held by Landan, to Gran-Dia because of stamp duty, then Landan could, if the properties became vacant, lease them to Gran-Dia and Gran-Dia could sublease them to new tenants. Mr Thompson’s evidence was that he had conversations to that effect with Mr Corbett and that his comments were focused on tax planning because it was his view that if Gran-Dia, the trustee of the Corbett Family Trust, held the property as registered proprietor or lessee, rather than Landan, it had more options in terms of distribution of income;

(c)    his discussions with Mr Thompson about the possibility of leasing property to Gran-Dia, rather than transferring it, were after entry into the First Lease. It was because of the timing of those conversations that the First Lease was not entered into in the way suggested by Mr Thompson, that is via a sublease with Gran-Dia;

(d)    the Gran-Dia Lease was prepared within days of the liquidation of Tameeka because Mr Corbett wanted it prepared as soon as the Premises became available;

(e)    Mr Corbett accepted that the rental of $60,000 was below market but he picked that amount because he thought it was an amount that Gran-Dia would be able to pay to Landan;

(f)    the deterrence of Tameeka Group or its nominee from exercising the Call Option was not one of the reasons that Mr Corbett caused the Gran-Dia Lease to be entered into;

(g)    at the time of entry into of the Gran-Dia Lease Mr Corbett thought that the Call Option was no longer valid and that the Premises could be leased. Despite some equivocation evident from his discussion with Mr Barr on 17 June 2015, his view has consistently been and, his firmer belief seems to have been, that the Second Lease was at an end and the Call Option no longer able to be exercised;

(h)    Mr Corbett accepted, hypothetically, that, if the Call Option was capable of being exercised, the effect of the Gran-Dia Lease would be to deter the exercise of the Call Option;

(i)    Mr Corbett agreed that he also held the view that the Call Option could still possibly be exercised as at 15 May 2015 but he did not accept that he arranged for the Gran-Dia Lease to be executed because he wanted to prevent that possibility arising;

(j)    although Mr Corbett supposed that a consideration for entering into the Gran-Dia Lease was because he did not want the property that he thought was valued at $2 million being sold for $1.25 million, that was not an important consideration. The more important consideration for entering into the Gran-Dia Lease was for financial planning; and

(k)    Mr Corbett would protect his family at all times financially and his concern to protect his family from losing the Premises for $1.25 million “contributed to it”.

176    In evaluating whether the conduct is unconscionable I must also have regard to the non exhaustive and non prescriptive list in s 22(1) of the ACL although the presence of one or more of those matters is not determinative of an unconscionability enquiry. The factors relied on by the applicants are that Landan used unfair tactics (s 22(1)(d)), unreasonably failed to disclose its intended conduct (s 22(1)(i)) and did not act in good faith (s 22(1)(l)). By reference to those matters:

(1)    while his evidence is not unequivocal and there is evidence that Mr Corbett may have held some residual doubt, in my opinion, the stronger belief held by Mr Corbett was that the Call Option was at an end. Mr Corbett’s evidence has consistently been that he believed the option was no longer valid and he entered into the Gran-Dia Lease with that belief. Further, his evidence is that he entered into the Gran-Dia Lease for tax and financial planning purposes following the discussions that he had with Mr Thompson. This was the first opportunity he had to implement the structure that had been discussed. In those circumstances it is difficult to see how he used unfair tactics in entering into the Gran-Dia Lease;

(2)    Mr Corbett did not disclose as at 15 May 2015 that he intended to enter into the Gran-Dia Lease. However, in his view at that time the Second Lease was at an end and the option was no longer valid or enforceable. In those circumstances he did not need to disclose anything to Tameeka Group about his intended actions;

(3)    the concept of good faith does not require the interests of a contracting party to be subordinated or put second to those of the other. In Paciocco v Australian and New Zealand Banking Group Limited (2015) 236 FCR 199 a Full Court of this Court (Allsop CJ, Besanko J and Middleton J) said at [290] in relation to the concept of good faith:

The standard of fair dealing or reasonableness that is to be expected in any given case must recognise the nature of the contract or relationship, the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty. That a normative standard is introduced by good faith is clear. It will, however, not call for the same acts from all contracting parties in all cases. The legal norm should not be confused with the factual question of its satisfaction. The contractual and factual context (including the nature of the contract or contextual relationship) is vital to understand what, in any case, is required to be done or not done to satisfy the normative standard.

Given that Mr Corbett acted on the basis that he believed that the Call Option was at an end, I do not think it can be said his actions lacked good faith. He entered into the Gran-Dia Lease in circumstances where Tameeka had gone into liquidation leaving the Premises vacant and he believed he was free to do so and based on the discussions he had with his long time accountant, Mr Thompson. The terms of the Gran-Dia Lease are not in dispute. They were struck on the basis of Mr Corbett acting to preserve value for his family trust in line with the discussions he had with Mr Thompson. If in those circumstances Landan was precluded from entering into the Gran-Dia Lease it would mean Landan would have to prefer the interests of Tameeka Group over its own interests.

177    Looking at the whole of the circumstances, I do not think that Landan acted unconscionably in entering into the Gran-Dia Lease. At the time of entering into the Gran-Dia Lease Mr Corbett believed the Call Option was at an end; he acted on the advice he had received about financial and tax planning, this was the first opportunity he could do so. He was not required to put Tameeka Group’s commercial interests before his own and he cannot be criticised for acting in his family’s best interests. The fact that the terms of the Gran-Dia Lease include a rental that is below market rental does not of itself make the conduct of Landan entering into that lease unconscionable, given the circumstances in which it was entered into.

178    This is not a case of parties of unequal bargaining position. They were in equal bargaining positions at all times: when Mr Barr agreed to pay Mr Corbett $100,000 prior to entry into the Option Deed, there was no demand as alleged; when the First Lease and Option Deed were entered into; and when the Second Lease and Deed of Variation were entered into. It was not a relationship where one party could take advantage of another. This was a case of equal parties in a contractual relationship; one party believed it was no longer bound by that relationship and took steps to implement a structure which had been subject of discussion with its accountant. Whilst Mr Corbett accepted hypothetically that the existence of the Gran-Dia Lease would be a deterrent to exercising the Call Option, the fact remains that Mr Corbett believed that the Call option was not open for exercise.

179    In my view, Landan, in receiving the payment of $100,000 from Mr Barr at the time of entry into the Option Deed and in entering into the Gran-Dia Lease, has not in all the circumstances acted unconscionably. Given that finding the claim for accessorial liability by Gran-Dia, Mr Corbett and Ms Preston does not arise for consideration.

Lawful conspiracy claim

180    The principles relating to the tort of lawful conspiracy have been set out in the judgment of Foster J in Danthanarayana v Commonwealth Bank of Australia [2014] FCA 552 at [69] to [75]. In particular at [74] his Honour said:

74    Thus, for a combination or acts done in furtherance of the combination to be actionable, where the end is not in itself unlawful (the present case) and the means are not unlawful (also the present case) and no threat of illegality is made in furtherance of the combination (also the present case), the parties to an alleged conspiracy must have been impelled to combine, and to act in pursuance of the combination, by a desire to harm the plaintiff and this must have been the sole, the true or the dominating or main purpose of their conspiracy. It is not sufficient to adopt a course of action which inevitably interferes with the plaintiff in the exercise of his calling and thus injures him without having the requisite purpose.

181    In order to succeed in their claim the applicants must establish that:

(1)    there was an agreement to enter into the Gran-Dia Lease on the terms contained in that lease;

(2)    that:

(a)    the sole, true, dominating or main purpose in entering into the Gran-Dia Lease was to injure Tameeka Group or its nominee in order to achieve any one or more of the following outcomes:

(i)    either substantially reduce or attempt to substantially reduce the value of the Premises for a period of 10 years;

(ii)    prevent Tameeka Group or its nominee from leasing the Premises for 10 to 20 years;

(iii)    substantially reduce or attempt to substantially reduce the market rental which Tameeka Group or its nominee would receive for the Premises over a period of 10 to 20 years;

(iv)    cause Tameeka Group or its nominee to receive approximately $90,000 per annum less in rental from the Premises if the Call Option was exercised;

(v)    prevent or attempt to prevent Tameeka Group or its nominee from exercising the Call Option;

(vi)    put commercial pressure on Tameeka Group or its nominee not to exercise the Call Option;

(vii)    deter Tameeka Group or its nominee from exercising the Call Option;

(viii)    obtain a financial advantage for Landan in retaining the property and/or obtain a financial advantage for Gran-Dia; or

(ix)    cause loss and damage to Tameeka Group or its nominee; and

(b)    the entry into of the Gran-Dia Lease constituted a conspiracy among the respondents to injure Tameeka Group or its nominee in order to achieve the outcomes referred to at (a) above; and

(3)    it was carried into effect by the respondents.

182    There is no dispute that the Gran-Dia Lease was entered into or that it was carried into effect by the respondents. Landan and Gran-Dia are a party to the Gran-Dia Lease and it was signed by Mr Corbett and Ms Preston in their capacity as directors.

183    However, the evidence does not support a finding in terms of [181(2)] above. Contrary to the applicants’ submission no inference can be drawn from the evidence that the sole, true, dominating or main purpose in entering into the Gran-Dia Lease was to injure Tameeka Group or its nominee. The evidence is that:

(1)    Mr Corbett believed that the Call Option was at an end;

(2)    Mr Corbett, having received tax planning advice from Mr Thompson, acted on that advice and entered into the Gran-Dia Lease when the Premises became vacant following the liquidation of Tameeka;

(3)    Mr Corbett entered into the Gran-Dia Lease for financial planning purposes;

(4)    Mr Corbett did not enter into the Gran-Dia Lease to deter exercise of the Call Option.

184    I have not found that Mr Corbett told Mr Perri, as alleged, that he had put another lease in place to prevent Mr Barr from exercising the Call Option and to make it difficult for anyone to exercise the Call Option. Nor have I found that Mr Corbett told Mr Barr that “the gloves are off”.

185    The applicants’ claim against the respondents for breach of the tort of conspiracy by lawful means cannot be made out.

conclusion

186    In light of my findings I will dismiss the proceedings and order that the applicants pay the respondents’ costs of the proceedings.

Associate:

Dated:    22 June 2016

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