Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Yule v Smith [2012] NSWCA 191
• Hearing dates: 1 June 2012
• Decision date: 27 June 2012
• Before: Macfarlan JA at [1]; Sackville AJA at [2]; Young AJA at [80]

Decision

1. Appeal allowed.

2. Set aside the orders made by the primary Judge on 10 August 2011.

3. Mr Smith to pay Ms Yule's cost of the appeal.

4. Mr Smith, if otherwise qualified, have a certificate under the Suitors Fund Act 1951.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: PRACTICE AND PROCEDURE - Orders made under s 73 of the Civil Procedure Act 2005 giving effect to Heads of Agreement - whether respondent had complied with conditions precedent in Heads of Agreement - construction of Heads of Agreement - whether Council had "certified" that work on the site had physically commenced and that development consent was still current - orders under s 73 set aside.
• Legislation Cited: Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 (Cth), s 86(1); Civil Procedure Act 2005 (NSW), s 73; Environmental Planning and Assessment Act 1979 (NSW), s 80A(1)(b), s 80A(1)(c), s 80A(1)(d), s 92, s 95(4), s 96A(1), s 99(1), s 99(3), s 99(4), s 99(5), s 121B, s 123, s 124, s 125; Local Government (Consequential Provisions) Act 1993 (NSW), s 4 and sch 2; Property Relationships Act 1984 (NSW), s 9; Environmental Planning and Assessment Regulation 2000 (NSW), regs 264, 266; Environmental Planning and Assessment (Savings and Transitional) Regulation 1998 (NSW), reg 23
• Cases Cited: Coalcliff Community Association Inc v Minister for Urban Affairs and Planning (1999) 106 LGERA 243; Hilltop Planners Pty Ltd v Great Lakes Council [2003] NSWLEC 214; 127 LGERA 333; Kendall Street Developments Pty Ltd v Byron Shire Council (No 2) [2004] NSWLEC 530; 138 LGERA 360; Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; 149 CLR 537; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1
• Texts Cited: W Carter et al, Contract Law in Australia (5th ed, 2007)
• Category: Principal judgment
• Parties: Beverley Anne Yule (Appellant); Darcy Peter Smith (Respondent)
• Representation: Counsel: L M Byrne with M S Rennie (Appellant); E C Muston (Respondent); Solicitors: Malouf Solicitors (Appellant); Brown Abrahams Burreket (Respondent)
• File Number(s): 2008/278833

Decision under appeal

• Jurisdiction: 9111
• Citation: Yule v Smith [2011] NSWSC 598
• Date of Decision: 2011-06-22 00:00:00
• Before: Macready AsJ
• File Number(s): 2008/278833

Judgment

1 MACFARLAN JA: I agree with Sackville AJA.

2 SACKVILLE AJA: This is an appeal from final orders made by an Associate Justice of the Supreme Court (Macready AsJ), dismissing proceedings brought by the appellant ("Ms Yule") against the respondent ("Mr Smith"): Yule v Smith [2011] NSWSC 598. In the proceedings, Ms Yule claimed that she and Mr Smith had lived together in a bona fide domestic relationship for some 20 years, between May 1986 and September 2006. She sought orders adjusting property interests pursuant to s 9 of the Property Relationships Act 1984 ("PR Act").

3 The order dismissing the proceedings was made on Mr Smith's motion. Mr Smith claimed, and the primary Judge accepted, that the parties had settled the proceedings on terms recorded in Heads of Agreement dated 21 May 2010. His Honour found that Mr Smith had complied with his obligations under the Heads of Agreement and was entitled under s 73 of the Civil Procedure Act 2005 ("CP Act") to orders giving effect to the terms of the Agreement, including an order dismissing the proceedings.

4 Ms Yule contends on the appeal that the primary Judge misconstrued the Heads of Agreement and should have found that Mr Smith failed to comply with his obligations under the Agreement. She says that the orders made by the primary Judge should be set aside, Mr Smith's motion should be dismissed and the principal claim should proceed to a final hearing.

Background

5 It appears that Mr Smith was for many years a successful property developer, undertaking commercial and residential projects in areas between Hornsby and Newcastle. Ms Yule's claims under the PR Act were founded on her financial and non-financial contributions to the domestic relationship. These were said to include contributions to the acquisition of resources by corporations of which Mr Smith was a shareholder.

6 Ms Yule instituted the proceedings under the PR Act on 20 May 2008. The proceedings predated the commencement of the Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 (Cth) ("2008 Act"), which inserted Part VIIIAB into the Family Law Act 1975 (Cth) (dealing with financial matters relating to de facto relationships). The ongoing proceedings in the Equity Division were not affected by the Commonwealth legislation: 2008 Act, s 86(1).

7 The parties participated in a mediation which took place on 21-22 May 2010. Ms Yule was represented by a solicitor and senior counsel. Mr Smith was represented by a solicitor and counsel. At the conclusion of the mediation, Ms Yule and Mr Smith signed the "Heads of Agreement", the terms of which are set out below (at [11]).

8 A dispute subsequently arose as to whether Mr Smith had complied with his obligations under the Heads of Agreement. On 13 August 2010, Mr Smith filed a motion pursuant to s 73 of the CP Act seeking orders giving effect to the terms of the Heads of Agreement. The primary Judge in substance made the orders sought by Mr Smith.

9 Ms Yule has not sought any relief in relation to the Heads of Agreement, whether in the form of orders setting it aside or otherwise. As I have recorded, her position on the appeal is that it is enough for her purposes to set aside the orders made by the primary Judge.

CP Act

10 Section 73 of the CP Act provides as follows:

"(1) In any proceedings, the court:

(a) has and may exercise jurisdiction to determine any question in dispute between the parties to the proceedings as to whether, and on what terms, the proceedings have been compromised or settled between them, and

(b) may make such orders as it considers appropriate to give effect to any such determination.

(2) This section does not limit the jurisdiction that the court may otherwise have in relation to the determination of any such question."

Heads of Agreement

11 The Heads of Agreement signed by the parties included words that had been struck out and handwritten annotations. The extract below incorporates both, with the handwritten material in italics.

"Yule & Smith - 2857 of 2008

1. That within 3 months the Defendant transfer to the Plaintiff all of his right, title and interest in the property at ** **** ****, North Gosford ("the [Property]"), unencumbered with all council and water rates paid and land tax paid.

2. That the Defendant provide to the Plaintiff, the following:

2.1 stamped DA plans for the [Property] within 21 days;

2.2 a letter from Gosford Local Council certifying that the DA for the [Property] is still current within 21 days, and

2.3 a letter from Gosford Local Council certifying that there has been practical/physical commencement of the [Property] within 21 days;

2.4 a bank cheque for $150,000 made payable to the Plaintiff or as she may direct in writing at the same time the [Property] is transferred to the Plaintiff pursuant to paragraph 1.

3. That the plaintiff indemnifies the Defendant from and in respect of all actions, claims, suits and demands as may be made against the Defendant by Corrinn Westley in relation to moneys loaned by Corrinn Westley to the Defendant.

4. That the Plaintiff and the Defendant release the other from all debts owing from one to the other, including any obligation of the Defendant to account to the Plaintiff for profits received by him or paid to him (or at his discretion) arising from any partnership venture.

5. That the Plaintiff releases the Defendant and the following from all claims in respect of any monies whatsoever owed to the Plaintiff howsoever arising:

5.1 DP Smith Enterprises Pty Ltd;

5.2 DP Smith (Holdings) Pty Ltd;

5.3 DP Smith (Homes) Pty Ltd;

5.4 Bayside Estate Pty Ltd;

5.5 JOLMS Pty Ltd;

5.6 DP Smith Superannuation Fund;

5.7 BA Yule & DP Smith Superannuation Fund;

5.8 Smith Superannuation Fund.

6. That there be no order as to costs.

NOTATION:

Noted that neither party may seek the entry of orders in accordance with these Heads of Agreement until compliance by the Defendant with paragraphs 2.1 to 2.7 inclusive herein."

The [Property]

12 It is common ground that the [Property] (C/T Folio Identifier ****) at all material times was (and remains) a vacant block of land in a residential area of North Gosford. Mr Smith is the registered proprietor. The Property is unencumbered.

13 On 21 February 1991, the Council advised Mr Smith or his representatives that it had determined, pursuant to s 92 of the Environmental Planning and Assessment Act 1979 ("EPA Act"), to grant consent to Development Application No **** in respect of the Property. The development consent was for the construction of 47 "dwelling residential flat buildings" and was expressed to be valid for a period of "24 months for commencement of the development".

14 The conditions of development consent included the following:

"25. Satisfactory arrangements are to be made for the provision of water and sewer services to the land and possible payment of water and sewer contributions.

...

43. Payment prior to the issue of a building consent of a contribution in accordance with Council's policy for the acquisition and improvement of land for public open space in the locality.

(Note that the amount calculated under the current provisions of the policy is $138,915.00 and that details of the policy and method of calculation are available on request.)"

15 At the time development consent was granted, s 99(1) of the EPA Act provided that any such consent would lapse two years after the date from which it operated. A consent authority had power to extend the period during which a consent would remain in force: s 99(3). However, a development consent for a building or the carrying out of a work did not lapse if building, engineering or construction work was physically commenced on the land to which the consent applied before the date on which the consent lapsed: s 99(4).

16 On 29 April 1993, the Council advised Mr Smith's architects that it had approved, pursuant to s 99(3) of the EPA Act as then in force, a twelve month extension to the operation of the development consent. The consent was therefore to expire on 28 February 1994. The Council further advised that it had no power to grant a further extension and that if:

"the development has not been physically commenced by 28 February 1994 and you still wish to proceed with the project, it will be necessary for you to submit a development application for Council's consideration."

17 On 16 February 1994, in response to an inquiry from Mr Smith, the Council advised that:

"recent changes to Local Government Law and, in particular, the savings provision in Schedule 3 of the Local Government (Consequential Provisions) Act 1993 automatically extends all existing development consents that have not lapsed by 1 July 1993 so that they will lapse five (5) years from the date the development consent operated.

Consequently Development Application No **** will now lapse on 28 February 1996."

18 This letter was a reference to legislation which amended s 99(1) of the EPA Act to provide that a development consent lapsed five years from the date on which it operated: Local Government (Consequential Provisions) Act 1993, s 4 and sch 2.

Events Following Execution of the Heads of Agreement

19 On about 27 May 2010, Mr Smith executed a transfer of the Property in favour of Ms Yule as transferee. On the same day, he forwarded to his solicitors the certificate of title to the Property, in contemplation of settlement with Ms Yule.

20 Under cover of a letter dated 28 May 2010, Mr Smith delivered to Ms Yule's solicitors stamped plans for the Property showing that development consent had been granted. It is not now in dispute that the delivery of the plans was in conformity with cl 2.1 of the Heads of Agreement. It is also not in dispute that Mr Smith was willing and able at all material times to pay the sum of $150,000 to Ms Yule, as required by cl 2.4 of the Heads of Agreement.

21 Mr Smith's letter of 28 May 2010 to Ms Yule's solicitors enclosed a letter dated 6 February 1996 from Gosford Local Council addressed to him. The letter of 6 February 1996 reads as follows:

"I refer to your letter dated 5 January 1996 and advise that an inspection of the above property by Council's Development Engineer confirmed that work has commenced in accordance with approved Engineering Plans. The development has achieved 'physical commencement' within the meaning of the Environment Planning & Assessment Act and is therefore ongoing unless Council has issued a notice to complete under Section 99 of the Act."

22 The expression "physical commencement" presumably was intended as a reference to the language of s 99(4) of the EPA Act. The second sentence of the letter was intended to refer to s 99(5) of the EPA Act, which provided that where development had commenced within the period specified in s 99(1) (that is, while the consent was current), but had not been completed, the consent authority, at any time after the expiration of the period, could issue a notice requiring completion of the development within a reasonable period, being not less than twelve months.

23 Mr Smith did not forward to Ms Yule's solicitors a copy of his letter to the Council of 5 January 1996, to which the Council had replied on 6 February 1996. However, the letter of 5 January 1996 is as follows:

"Further to your letter dated December 22, 1995 I refer to paragraph wherein in you state

'Further you are advised Council's records reveal that Development Consent **** is due to lapse on the 28 February 1996 and you advised to seek confirmation of physical commencement from Council's Town Planning Department'.

Please see attached letter from Ronald S Toft, Consulting Engineer ...

I feel I have achieved physical commencement which is verified by R.S. Toft in the attached letter.

Would you please confirm same."

24 On 31 May 2010, Mr Smith's solicitors forwarded to Ms Yule's solicitors a letter of the same date sent by the Council to Mr Smith. The Council's letter is as follows:

"Physical Commencement DA**** - Proposed Forty Seven (47) Dwelling Residential Flat Buildings... North Gosford.

I refer to your telephone call of 31 May 2009 [sic] and advise that the information contained in Council's correspondence of 6 February 1996 which states that physical commencement of the above development is ongoing is still relevant."

25 On 8 June 2010, Ms Yule's solicitors asked Mr Smith's solicitors to provide an authority signed by Mr Smith authorising the Council to disclose information to her concerning the Property. Mr Smith's solicitors replied on 23 June 2010, declining to provide the Authority. The solicitors asserted that Mr Smith had complied with his obligations under the Heads of Agreement. The solicitors also stated that Mr Smith would produce, on or before 21 August 2010, an executed transfer of the Property and a bank cheque for $150,000 in favour of Ms Yule.

26 On 16 June 2010, Ms Yule sent an email to the Council asking a series of questions concerning the conditions imposed on the development consent relating to the Property. The letter noted that the Council had advised that she could not access the file without the owner's consent. Nonetheless, Ms Yule listed a number of matters of concern to which she invited the Council to respond.

27 On 1 July 2010, the Council provided a detailed reply to Ms Yule's email. The Council advised (among other things) that:

• a building application and plans had been lodged with the Council in respect of the land, but the application had been refused on 7 March 1996 due to non-payment of fees;
• the contribution for the provision of water and sewerage services referred to in Condition 25 had not been paid and the required contribution was currently estimated to be $166,108.30, subject to quarterly review; and
• the contribution relating to public open space land referred to in Condition 43 had been reduced to $55,914.11, subject to quarterly indexation.

28 On 14 July 2010, Mr Smith's solicitors forwarded draft consent orders to Ms Yule's solicitors. The letter stated that the draft orders gave effect to the Heads of Agreement and sought Ms Yule's agreement to the orders. Mr Smith's solicitors repeated this request by letter dated 19 July 2010.

The Motion

29 No agreement having been reached between the parties, Mr Smith filed a motion on 11 August 2010 seeking an order pursuant to s 73 of the CP Act that judgment be entered in the proceedings in the terms recorded in an attached document (Attachment A). Attachment A incorporated the following orders and notations:

"1. The Court ORDERS that within 7 days, [Mr Smith] transfer to [Ms Yule] all of his right, title and interest in the [Property] ... unencumbered.

2. The Court ORDERS that at the same time as the transfer contemplated by Order 1, [Mr Smith] provide to [Ms Yule] a bank cheque for $150,000...

3. The Court ORDERS that the proceedings otherwise be dismissed with no order as to costs.

4. The Court NOTES the agreement between [Ms Yule] and [Mr Smith]:

a) That [Ms Yule] indemnifies [Mr Smith] from and in respect of all actions, claims, suits and demands as may be made against [Mr Smith] by Corrinn Westley in relation to moneys loaned by Corrinn Westley to [Mr Smith].

b) That [Ms Yule] and [Mr Smith] release one another from all debts owing from one to the other, including any obligation of [Mr Smith] to account to [Ms Yule] for profits received by him or paid to him (or at his discretion) arising from any partnership venture.

5. The Court NOTES that prior to 1 June 2010, [Mr Smith] provided to the Plaintiff the following:

a) stamped plans for the ...[Property];

b) a letter from Gosford Local Council certifying that the DA for the ... [Property] is still current, and

c) a letter from Gosford Local Council certifying that there has been substantial commencement of the ... [Property]."

Proceedings Before the Primary Judge

30 Mr Smith's motion was heard on 9 December 2011. The parties subsequently filed written submissions in support of their respective submissions.

31 The primary Judge delivered judgment on 22 June 2011. His Honour found (at [25]) that Mr Smith had complied with the requirements stated in cl 2 of the Heads of Agreement and concluded (at [26]) that the Court should make an order pursuant to s 73 of the CP Act enforcing the Heads of Agreement. His Honour directed the parties to bring in short minutes of order.

32 Final orders were made on 10 August 2011 entering judgment in the terms recorded in a document described in the orders as Annexure A. Annexure A included the following:

"3. The Court NOTES that the proceedings under Section 20 of the Property (Relationships) Act 1984 have been settled upon terms whereby the parties agree to the transfer of property in accordance with that agreement and ORDERS:

a) Within twenty eight (28) days, [Mr Smith] transfer to [Ms Yule] all of his right, title and interest in the [P]roperty....

b) At the same time as the transfer contemplated by Order 1(a) [sic], [Mr Smith] provide to [Ms Yule] a bank cheque for $150,000.00 ...

4. The Court ORDERS that the proceedings otherwise be dismissed with no order as to costs."

In addition, Annexure A noted the agreement between the parties in terms corresponding to those recorded in cll 3-5 of the Heads of Agreement.

Primary Judgment

33 The primary Judge rejected an argument advanced on behalf of Ms Yule that Mr Smith had not complied with his duty to make full disclosure of his financial circumstances prior to the Heads of Agreement being executed. His Honour accepted (at [16]) that it was "probably true" that Mr Smith was obliged to make full and frank disclosure of all material facts at or prior to the mediation. However, contrary to Ms Yule's submissions, that duty did not extend to disclosing the cost of developing the Property pursuant to the development consent. In particular, his Honour (at [17]) did not accept that Mr Smith was obliged to disclose the amounts payable to the Council or other agencies pursuant to Conditions 25 and 43 of the development consent. Ms Yule intended to resell the Property and, with advice, she should have made her own assessment of the costs of development.

34 The primary Judge also rejected Ms Yule's submission that Mr Smith had failed to comply with cll 2.2 and 2.3 of the Heads of Agreement. His Honour found that the Council's letter of 31 May 2010, read with its letter of 6 February 1996, constituted certification that the development consent (incorrectly referred to in the Heads of Agreement as the "DA") was still current and that physical commencement of work had taken place. His Honour reasoned as follows:

"19. [Ms Yule] submitted that at the time, the relevant provision was s 95(4) of the Environmental Planning and Assessment Act 1979:

'Development consent for the erection of a building...does not lapse if building, engineering or construction work relating to the building ... is physically commenced on the land to which the consent applies before the date on which the consent would otherwise lapse...'.

20. [Ms Yule] submitted that it is clear from the section that it is a question of fact as to whether building, engineering or construction work has been physically commenced on the land. Whether the consent has lapsed is probably a mixed question of fact and law: see Tobias JA in Hunter Development Brokerage Pty Ltd v Cessnock Council (2005) 63 NSWLR 124, at [19].

21. There was evidence before me demonstrating the work that was done to achieve what was said to be substantial commencement of the development. Having regard to that evidence, this has been achieved. Mrs Yule's attitude to this issue was that it was not this court's task to decide that question even if the court had jurisdiction to do so. According to Mrs Yule all this court has to do is decide whether Mr Smith has complied with clause 2.2 of the Heads of Agreement such that it should order specific performance.

22. It is clear that the correspondence does not use the word 'certified'. It is to be noted that there is no statutory obligation for the Gosford Council to so certify and that a consideration of the correspondence before and after the letter of 31 May 2010, details of which are set out above, makes it clear that Gosford Council was clearly of the opinion that physical commencement of the work contemplated by the development was achieved.

23. It can hardly be suggested that in the context of the present case and the clause that it was incumbent on Mr Smith to obtain some declaratory order from the Land and Environment Court that the development consent had not lapsed in accordance with the Environmental Planning and Assessment Act 1979. ...

24. Plainly the present clause does not require that. It requires something less.

25. In my view, having regard to the available correspondence and noting that it is not suggested that the time limits in the Heads of Agreement are of the essence or have been made of the essence, there has been compliance with clause 2.2 and 2.3 of the Heads of Agreement."

Submissions on Appeal

Ms Yule's Submissions

35 Ms Byrne, who appeared with Ms Rennie for Ms Yule, submitted that satisfaction by Mr Smith of cll 2.2 and 2.3 was a condition precedent to the performance by Ms Yule of the Heads of Agreement. This was made clear by the handwritten notation to the Heads of Agreement preventing either party from seeking the entry of orders until Mr Smith complied with cll 2.1 to 2.3. Ms Byrne further submitted that each sub-clause imposed a separate obligation on Mr Smith. Thus, unless Mr Smith complied with the obligations imposed by both cll 2.2 and 2.3, he was not entitled to orders giving effect to the Heads of Agreement and the primary Judge had erred in making such orders.

36 According to Ms Byrne, Mr Smith had not complied with cl 2.2 as the Council had never certified that the development consent for the Property was still current in May 2010. The letter of 31 May 2010 did not certify or even mention in any form of words that the development consent for the Property was still current. The letter merely said that the information contained in the letter of 6 February 1996 "which states that the physical commencement of the above development is ongoing" is still relevant. That form of words gave no assurance that the Council accepted that the original 1991 consent remained in force.

37 Nor had the Council certified that there had been practical/physical commencement of work on the Property. The letter of 6 February 1996 was no more than the opinion of a council officer at the time and did not establish the objective fact that work had physically commenced before the date on which the consent otherwise would have lapsed. It was the objective fact of physical commencement that mattered for the purposes of s 95(4) of the EPA Act.

38 Ms Byrne also submitted that the primary Judge had exceeded the jurisdiction conferred by s 73 of the CP Act by purporting to find that work on the Property had physically commenced by February 1996. Section 73 only permitted the Court to determine a question in dispute as to whether and on what terms proceedings have been compromised or settled. It did not permit a finding as to whether work had in fact physically commenced so as to satisfy s 95(4) of the EPA Act.

39 Finally, Ms Byrne submitted that even if the primary Judge had not erred in construing the Heads of Agreement, his Honour erred in exercising the discretion conferred by s 73 to make orders enforcing the Heads of Agreement. Ms Byrne principally relied on what was said to be Mr Smith's failure to disclose material facts, in particular that conditions 25 and 43 of the development consent required the expenditure of substantial sums if the development was to proceed. The primary Judge's discretion miscarried because he incorrectly found that any non-disclosure by Mr Smith was not material to Ms Yule's decision to enter into the Heads of Agreement.

Mr Smith's Submissions

40 Mr Muston, who appeared for Mr Smith, submitted that the primary Judge correctly interpreted the Council's letters of 6 February 1996 and 31 May 2010 as stating the Council's opinion that physical commencement of work on the Property had been achieved. It followed, having regard to s 95(4) of the EPA Act, that the Council was stating its opinion that the 1991 development consent had not lapsed and remained in force. This was sufficient to satisfy both cll 2.2 and 2.3 of the Heads of Agreement.

41 Mr Muston contended that this conclusion was supported by circumstances known to both parties at the time they executed the Heads of Agreement. The circumstances included that the Property was the subject of development consent; the consent would have lapsed if work had not physically commenced; Ms Yule had no intention of carrying out the work but intended to resell; and the existence of a valid development consent was likely to increase the value of the Property.

42 According to Mr Muston, it was not necessary for the letters to use the expression "certify" or "certification" for Mr Smith to comply with cll 2.2 and 2.3 of the Heads of Agreement. Since the Council could never give an absolute guarantee that physical commencement of the work had taken place, it was sufficient for the Council to express its opinion that s 95(4) of the EPA Act had been satisfied. Clause 2.2 and 2.3 were not to be construed as requiring the Council to "do the impossible".

43 Mr Muston submitted that, properly construed, cll 2.2 and 2.3 created only a single obligation. Both provisions required a certification that work on the Property had physically commenced and thus had not lapsed. Read this way, cl 2.3 was "almost entirely repetitious of [cl] 2.2 as satisfaction of one would almost inevitably lead to the other being similarly satisfied".

44 The primary Judge's finding of fact that work had actually physically commenced did not involve any error. The finding, which was made in response to submissions put on behalf of Ms Yule, was not material to the outcome of Mr Smith's application under s 73 of the CP Act.

45 Mr Muston said that Ms Yule's submissions relating to the primary Judge's failure to exercise his discretion in her favour were misconceived. He submitted that s 73 of the CP Act does not confer a discretion on the court to withhold relief in relation to an agreement which is found to be binding on the parties. The primary Judge therefore had no residual discretion to release Ms Yule from binding contractual obligations. In any event, even if there were a discretion, it could not have been exercised in Ms Yule's favour. She had available to her all the information needed to assess the value of the Property and, through her advisers, was well aware of the matters that would need to be taken into account. He pointed out that the Council was obliged to maintain a register containing details of development consents, including any conditions to which the consent was subject and whether the consent had been revoked, surrendered or modified: Environmental Planning and Assessment Regulation 2000, regs 264, 266 (which had counterparts in earlier Regulations).

Reasoning

Approach to Construction

46 There was no dispute between the parties as to the approach to construction. Both accepted that the text of the document had to be closely examined, but that it was permissible to take into account the circumstances in which the Heads of Agreement came to be executed, at least if those circumstances could be inferred from the text. In addition, they accepted that the legislative framework relating to the currency of development consents was relevant to the construction of the Heads of Agreement, which had clearly been drafted with that framework in mind.

47 Since the parties were in substantial agreement as to the approach, there is no occasion to consider in this appeal the observations made by a three member bench of the High Court, when dismissing an application for special leave to appeal in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1.

Construction of the Heads of Agreement

48 The parties in the present case entered into Heads of Agreement at the conclusion of a mediation at which they were endeavouring to settle the dispute between them. That dispute had been initiated by Ms Yule seeking orders for an adjustment of property rights pursuant to the PR Act. Given that the Heads of Agreement is a relatively brief document which appears to have been drafted under time pressures, it is perhaps not surprising that the language is in some respects ambiguous and that, on one view, the document is incomplete.

49 The (understandable) signs of haste are evident in the erroneous reference in cl 2.2 to the "DA" still being current, when what was clearly meant (as the parties to the appeal accept) was the development consent granted in 1991. Similarly, cl 2.3 refers to practical/physical commencement without identifying expressly why such commencement was important or relating it to the terms of s 99(4) (now s 95(4)) of the EPA Act.

50 The most obvious apparent omission is that, although the Heads of Agreement contains mutual releases, it does not state explicitly that Ms Yule releases Mr Smith from the claims made by her for property adjustment. Nor does the Agreement specifically state that if Mr Smith complies with the obligations in cll 1 and 2, orders will be made dismissing the proceedings instituted by Ms Yule.

51 Be that as it may, it is clear from the document itself that the Heads of Agreement was intended to resolve the ongoing dispute between the parties. In return for releases, Ms Yule was to receive a transfer of the Property and a sum of money. Both parties and their advisors were aware (as can be inferred from the terms of the Heads of Agreement) that a development consent had been granted in respect of the Property. Similarly, both parties were aware (and in any event it was notorious) that in order for the consent not to have lapsed, it was necessary for work on the Property to have physically commenced before the date the consent otherwise would have lapsed.

52 Furthermore, both parties knew that the Property consisted of vacant land and that the development consent provided for the erection of a large number of units on the land. The Heads of Agreement was clearly drafted on the basis that the existence of a current development consent could have a material effect on the value of the Property.

53 It will be recalled that cl 2 required Mr Smith to provide to Ms Yule:

"2.2 a letter from Gosford Local Council certifying that the DA [sic] for the [Property] is still current within 21 days, and

2.3 a letter from Gosford Local Council certifying that there had been practical/physical commencement of the [Property] within 21 days."

54 On the appeal, the parties were at issue over whether these provisions created two distinct obligations or, as Mr Smith submitted, only a single obligation. It is difficult to resist the conclusion that, as a matter of form and language, cll 2.2 and 2.3 create separate and distinct obligations with which Mr Smith was required to comply. In form each sub-clause is directed to a requirement to produce a certificate from the Council dealing with a separate issue. Clause 2.2 requires Mr Smith to provide a letter from the Council certifying that the development consent issued some 19 years earlier remained current at the date of the certificate. Clause 2.3 requires Mr Smith to provide a letter certifying that work had been physically commenced on the Property.

55 There is nothing in the language of the Heads of Agreement to suggest that the sub-clauses deal with one and the same matter or, to use Mr Muston's expression, that they are simply examples of "linguistic overkill". In particular, there is nothing to suggest that compliance with cl 2.3 (that is, certification that there has been practical/physical commencement) constitutes compliance with cl 2.2 (that is, certification that development consent is still current). On the contrary, if this is what was intended, one of the two sub-clauses in the Heads of Agreement would be entirely redundant.

56 This conclusion is strongly reinforced by the legislative framework governing development of the Property. The provisions of the EPA Act formed part of the commercial context in which the parties negotiated the terms of the Heads of Agreement. If it matters, the relevant provisions of the legislation must have been known to the parties. Mr Smith was an extremely experienced property developer with decades of experience in dealing with local authorities. Ms Yule was not a developer, but was represented at the mediation by senior counsel and thus had the benefit of skilled advice.

57 Under the legislation in force in February 1996, a development consent would not lapse by effluxion of time if work on the land had physically commenced before the date on which the consent would otherwise lapse: EPA Act s 99(4) (now s 95(4)). However, physical commencement of the work was a necessary but not sufficient condition for the continued operation of the development consent after the date the consent would otherwise have lapsed.

58 For example, at all material times, the EPA Act contained provisions empowering a consent authority, in certain circumstances, to revoke a development consent: EPA Act, s 99(5) (as at 1996); see now s 96A(1); Environmental Planning and Assessment (Savings and Transitional) Regulation 1998, reg 23. (Where consent was revoked, the developer had rights of appeal and might be entitled to compensation, but nothing presently turns on this.) Thus even if work on the Property had been physically commenced before February 1996, the 1991 development consent might have ceased to operate at some time before 2010 because the Council had exercised its power to revoke the consent.

59 There were other circumstances in which the development consent might have lapsed. The Council's letter of 6 February 1996 stated that the development had achieved physical commencement and was therefore ongoing "unless Council has issued a notice to complete under [s] 99[(5)] of the EPA Act". The statutory mechanisms for enforcement of a notice to complete work within a specified time did not include revocation of a development consent: see Hilltop Planners Pty Ltd v Great Lakes Council [2003] NSWLEC 214; 127 LGERA 333, at 343-344 [48]-[49], per Talbot J; EPA Act, ss 123-125. However, dealings between a developer and a consent authority relating to a notice to complete in certain circumstances could result in the developer being estopped from denying that the development consent had lapsed: Hilltop Planners, at 344-346 [52]-[60]. (Notices to complete are now dealt with in s 121B of the EPA Act, Item 16.)

60 Since 1998, the EPA Act has empowered a consent authority to impose a condition of development consent that requires the surrender of a consent or the cessation of development (including the removal of works used in connection with the development) or that limits the period during which development may be carried out: see s 80A(1)(b), (c), (d); Kendall Street Developments Pty Ltd v Byron Shire Council (No 2) [2004] NSWLEC 530; 138 LGERA 360. The 1991 development consent predated the enactment of these provisions. Nonetheless, a prospective purchaser of the Property might want assurance from the Council that the development consent is not subject to a condition that renders it effectively inoperative.

61 In my opinion, cll 2.2 and 2.3 of the Heads of Agreement clearly required Mr Smith to produce letters from the Council certifying two separate, albeit related matters:

• first, that the development consent for the Property was still current; and
• secondly, that work on the Property had physically commenced.

62 I accept that, in order to comply with cll 2.2 and 2.3, Mr Smith would not necessarily have had to produce two separate letters from the Council, provided that a single letter certified the two separate matters identified in the sub-clauses. The question of compliance with cll 2.2 and 2.3 of the Heads of Agreement is to be determined as a matter of substance, not merely by the form of any letters from the Council.

63 I am also prepared to accept that Mr Smith could have complied with cl 2.3 by providing a letter from the Council stating that, in the Council's view, work had been physically commenced in the Property for the purposes of s 99(4) of the EPA Act (as it stood in 1996) such as to prevent the 1991 development consent lapsing by effluxion of time. It is true that Council's opinion that work had physically commenced could not be decisive as to whether the statutory criterion was satisfied. The question posed by the old s 99(4) (now s 95(4)) was whether in fact work of the requisite kind had physically commenced and had been lawfully undertaken before the development consent lapsed: Coalcliff Community Association Inc v Minister for Urban Affairs and Planning (1999) 106 LGERA 243. But the Council could do no more than express its opinion that work had (lawfully) physically commenced before the consent lapsed. The better view is that such an expression of view by the Council would constitute certification "that there has been practical/physical commencement of the [Property]" for the purposes of cl 2.3 of the Heads of Agreement. It would constitute an assurance, so far as the Council was able to give it, that work had physically commenced by a particular date.

64 If this is correct, the Council's letters of 6 February 1996 and of 31 May 2010, both of which were provided by Mr Smith to Ms Yule's solicitors, constituted certification that satisfied the requirements of cl 2.3. The earlier letter stated, on the basis of an inspection of the Property, that work had commenced in accordance with approved engineering Plans and that the development had achieved "physical commencement within the meaning of the EPA Act". The letter was plainly intended to convey the Council's view that relevant work on the Property had physically commenced for the purposes of s 99(4) of the EPA Act and that, accordingly, the 1991 development consent would not lapse on 28 February 1996 as otherwise would be the case.

65 The Council's letter of 31 May 2010 was expressed somewhat cryptically. It did not, for example, explain why and for what purpose the statement in the 1996 letter that "physical commencement of the above development is ongoing" was still "relevant". However, read in context, particularly by reference to the legislation, the letter conveyed that from the Council's perspective nothing had changed since 1996 as to whether work on the Property had physically commenced for the purposes of s 99(4) (now s 95(4)) of the EPA Act. Council's view was still that work physically commenced no later than February 1996.

66 Thus, if the only question was whether Mr Smith had satisfied cl 2.3 of the Heads of Agreement, I would have concluded that he had done so. But that is not the only question. Mr Smith was also obliged to satisfy cl 2.2.

67 The difficulty facing Mr Smith in this respect is that the Council's letter of 31 May 2010 simply did not address the currency of the 1991 development consent. It confirmed the relevance of the earlier statement that physical commencement of the work was "ongoing", but that confirmation dealt only with the Council's view that physical commencement of the work had taken place. The letter reaffirmed the Council's view that (lawful) physical commencement of work on the Property had occurred such as to prevent the consent lapsing by effluxion of time. But it said nothing about whether the consent was actually in force at the date of the letter. The letter made no reference to whether any action had been taken between 1996 and 2010 that might have caused the consent to be revoked or otherwise to have lapsed.

68 Mr Muston accepted that the Council's letter of 31 May 2010 did not expressly state that the 1991 development consent was in force at that date. However, he submitted that the letter implied that the consent was still in force. He contended that there would have been no point in the Council confirming that work had physically commenced on the Property if the consent, for one reason or another, was no longer in force.

69 In my opinion, the Council's letter of 31 May 3010 did not necessarily imply that the development consent in respect of the Property was still in force on that date. The letter, in terms, was directed to one issue only, namely whether work had physically commenced on the Property. A reader of the letter without particular knowledge of the Property or its planning history, would not necessarily assume that the Council's view was that the original consent was still in force. The reader might infer, for example, that the Council had not been asked to address the currency of the development consent or that, if it had, the Council wished to avoid expressing an opinion on that question. Accordingly, I do not accept that the letter should be read as Mr Muston submitted it should.

70 In any event, even if the letter of 31 May 2010 can be read as implying that the Council believed the 1991 development consent to be current, it still fell short of "certifying" that this was the case. The primary dictionary definition of "certification" is "Sure information; assurance" (Shorter Oxford English Dictionary). The concept of certification, for the purposes of cl 2.2 of the Heads of Agreement, contemplated an express assurance by the Council that it considered the development consent to be in force. While a particular form of words might not have been necessary, something more was required than an implication in a letter dealing with a separate topic. The mere fact (if it be a fact) that a reader of the 31 May 2010 letter might have inferred that the Council believed the development consent to be current does not convert the letter into the kind of assurance contemplated by cl 2.2.

71 The obvious commercial purpose of the certification required by cl 2.2 was to provide Ms Yule with a letter from the Council that would satisfy a prospective purchaser of the Property that the development consent (evidence of which was to be provided to Ms Yule pursuant to cl 2.1 of the Heads of Agreement) was still in force. No doubt, as was pointed out in argument, a prospective purchaser would undertake further inquiries before entering into a binding contract of sale. Such a purchaser could have inspected the register maintained by the Council to determine whether the development consent was in force and, if so, the conditions of development consent. But a letter from the Council certifying that the consent was in force might have been very important in inducing a prospective purchaser to expend the time and resources required to investigate the merits of purchasing the Property or of meeting the asking price.

72 For these reasons, I consider that Mr Smith did not comply with cl 2.2 of the Heads of Agreement within the time specified or, indeed, at all.

73 Mr Muston expressly acknowledged in his written submissions in this Court that Mr Smith had not submitted to the primary Judge that orders should be made under s 73 of the CP Act even if Mr Smith had failed to comply with his obligations in cl 2 of the Heads of Agreement. No submission was made on the appeal that the orders made by the primary Judge should stand if this Court concluded that Mr Smith had not complied with cl 2.2 of the Heads of Agreement. It follows that the orders made by the primary Judge must be set aside.

74 It is therefore not necessary to consider whether compliance with cl 2.2 of the Heads of Agreement was a condition precedent to performance of Ms Yule's obligations as to the operation of the releases incorporated in the Agreement. That issue may arise at a later stage of these proceedings. It should be determined if and when it becomes necessary to do so.

Other Issues

75 Since Ms Yule has succeeded on the question of construction of the Heads of Agreement, her alternative arguments do not arise for decision. However, it is appropriate to record my view that the primary Judge did not commit an appellable error by making a finding that work had physically commenced on the Property before 6 February 1996. His Honour seems to have made the finding because of the way in which Ms Yule's case was put at trial. In any event, the finding had no bearing on the outcome of Mr Smith's application for relief under s 73 of CP Act.

76 I do not think it appropriate to resolve Ms Yule's contention that the primary Judge had a discretion under s 73 of the CP Act and that discretion miscarried because his Honour should have found that Mr Smith failed in his duty to disclose at the mediation all material facts. The question of a possible non-disclosure may also arise for consideration at a later stage of the proceedings, but in a somewhat different context. An expression of opinion by this Court would not necessarily be helpful.

Conclusion

77 For the reasons that I have given, the primary Judge was in error in making orders pursuant to s 73 of the CP Act, giving effect to the terms of the Heads of Agreement. The following orders should be made:

1. Appeal allowed.

2. Set aside the orders made by the primary Judge on 10 August 2011.

3. Mr Smith pay Ms Yule's costs of the appeal.

4. Mr Smith, if otherwise qualified, have a certificate under the Suitors Fund Act 1951.

78 As I have noted, Ms Yule has thus far not sought any relief in relation to the Heads of Agreement. It appears to have been assumed that if orders made pursuant to s 73 of the CP Act are set aside, the principal proceedings will continue and proceed to a hearing. Whether this is so may depend on the status of the Heads of Agreement having regard to the finding that Mr Smith did not comply with cl 2.2 within the time specified.

79 It is unfortunate that all issue relating to the continuing effect of the Heads of Agreement were not presented to the primary Judge for determination. On the hearing of the appeal, this Court raised with the parties whether it was feasible for the Court to resolve all outstanding issues concerning the Heads of Agreement: cf CP Act, ss 56(1), 59, 60, 61(1). Neither party considered that it was feasible to do so, since it was unclear what legal and factual questions would have to be resolved. Accordingly, any further issues relating to the Heads of Agreement will have to be resolved in the Equity Division or such other forum as may be appropriate.

80 YOUNG JA: I agree with Sackville AJA.

81 Since there will clearly be further contention between the parties in the Court over this matter, I should express the hope that more attention will be paid to the vital distinctions in the area of what might be called conditions precedent. The term "condition precedent" was too loosely used in argument before us. It is necessary to distinguish between a condition precedent to contract and a condition precedent to performance, between what is a condition and what is a contingency and between a condition precedent and concurrent condition. Then it is necessary to assess the consequences of failure to comply with the condition which may be that there is no contract, it may be that the contract will not be specifically performed, but that there will be a remedy in damages, or it may be that insistence on performance is premature (see, for example, J W Carter et al, Contract Law in Australia (5th ed, 2007), at [13.16] ff; Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; 149 CLR 537.

**********

Decision last updated: 28 June 2012