Supreme Court New South Wales

• Medium Neutral Citation: Foote & Ors v Acceler8 Technologies Pty Ltd & Ors [2012] NSWSC 635
• Hearing dates: 4, 5 and 6 June 2012
• Decision date: 22 June 2012
• Jurisdiction: Equity Division
• Before: Pembroke J

Decision

See paragraph [53]

• Catchwords: CONTRACT - construction - conditional agreement to lease - option given to one party to terminate if conditions not satisfied - conditionality not absolute; CONTRACT - void for uncertainty - agreement apparently incomplete as to essential matter - mechanism for curing omission - matter left for determination of one of contracting parties - not agreement to agree - not incomplete; CONTRACT - void for uncertainty - unworkability - applicable principles - agreement prepared without legal assistance - necessity to strive for contractual intention - agreement enforceable
• Legislation Cited: Health Practitioners Regulation National Law (NSW); National Health Act 1953 (Cth); Retail Leases Act 1994
• Cases Cited: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130; Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600; Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39; British Bank for Foreign Trade Ltd v Novinex [1949] 1 KB 623; Byrne v Australian Airlines [1995] HCA 24; (1995) 185 CLR 410; Condor Developments Pty Ltd v Helsby [2010] WASCA 16; Coulls v Bagot's Executor & Trustee Co Ltd [1967] HCA 3; (1967) 119 CLR 460; F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Rep 53; G Percy Trentham v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25; Godecke v Kirwan [1973] HCA 38; (1973) 129 CLR 629; Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235; Hillas & Co Ltd v Arcos [1932] All ER Rep 494; May & Butcher Ltd v R [1934] 2 KB 17n; Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571; NZI Insurance Limited v Baryzcka [2003] SASC 190; (2003) 85 SASR 497; Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601; Peatties Road v Hanson [2004] NSWSC 831; Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153; Secured Income Real Estate v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596; Seven Network (Operations) Limited v Warburton (No 2) [2011] NSWSC 386; Software AG (Australia) Pty Ltd v Racing & Wagering Western Australia [2009] FCAFC 36; Sudbrook Trading Ltd v Eggleton [1983] AC 444; Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699; Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597; Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106; Transfield Pty Ltd v Feiersinger [1988] NSWCA 160; Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429; Vodaphone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15; Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32
• Category: Separate question
• Parties: Cameron Andrew Foote - first plaintiff; Gary Paul McGraw - second plaintiff; Matthew Paul McGraw - third plaintiff; Acceler8 Technologies Pty Ltd ATF The A8 Trust - first defendant; Kathy Leigh Shannon - second defendant; Lane Business Group Pty Ltd - third defendant; Berwickshire Pty Ltd - fourth defendant
• Representation: Counsel: S A Benson with P G Wallis and B D Eurell - for the plaintiffs; K E Morrissey - for the first and second defendants; M G McHugh with T V Flaherty - for the third and fourth defendants; Solicitors: Stoddart Legal - for the plaintiffs; Cook & Braham - for the first and second defendants; Gadens Lawyers - for the third and fourth defendants
• File Number(s): 2012/045262

Judgment

Introduction

1 This is a case about the enforceability of a written agreement dated 26 October 2011. The document is described as an agreement to lease. Its subject is shop premises in Tenterfield owned by the first defendant (the Owner). The second defendant (Ms Shannon) is the sole director and shareholder of the Owner. The plaintiffs entered into the agreement with the Owner so as to secure those premises for use by them as a pharmacy.

2 The third and fourth defendants are the owners of the solitary existing pharmacy in Tenterfield. For understandable commercial reasons they have taken all legitimate steps open to them to prevent or oppose the plaintiffs being in a position to conduct a competing pharmacy business in Tenterfield. That has included entering into an agreement with the Owner to pay double the rent that the plaintiffs agreed to pay. I will return later to the sequence of events and the subsequent agreement that was entered into between the Owner and the third and fourth defendants. The threshold issue however concerns the proper construction and effect of the Special Conditions of the plaintiffs' agreement. All defendants contend that by reason of the operation of those Special Conditions, the agreement is now at an end.

Conditional Agreement

3 Those Special Conditions are in the following terms:

1 In this condition, unless the context otherwise requires, the following expressions have the meaning set out below:

Term Definition

Approval means the issue of a written approval from Medicare Australia to supply pharmaceutical benefits under section 90 National Health Act 1953.

ACPA means the Australian Community Pharmacy Authority established under the National Health Act 1953.

Medicare means the pharmaceutical benefits branch of Medicare Australia.

2 This agreement is conditional upon the Tenant:

(a) receiving a positive recommendation from the ACPA to be approved to supply pharmaceutical benefits from the Premises by 23 December 2011; and

(b) being granted Approval by Medicare to supply pharmaceutical benefits from the premises on or before 28 February 2012.

3 The Tenant must by the 6th of November 2011, submit or cause to be submitted an application to Medicare to establish a new approval in respect to the Premises together with all necessary supporting information in support of that application as required by Medicare.

4 The Tenant must act diligently and make all other submissions as may be necessary on its part and cause such submissions as may be necessary by the applicant to be made to obtain a recommendation from the ACPA that the application for new approval be approved and must use its best endeavours to ensure the Approval in respect of the Premises is granted.

5 If clauses (a) and (b) of this special condition are not satisfied for any reason other than the failure of the Tenant to comply with its obligations under this agreement, the Tenant may terminate this agreement by giving written notice to the Owner.

4 The defendants contend that when the agreement is construed as a whole, Special Condition 2 should be read as if the conditionality to which it refers is absolute. On this analysis the agreement comes to an end, or is voidable at the instance of either party, if either of the events described in Special Condition 2(a) and (b) is not achieved by the specified date. Their primary contention seems to be that as the positive recommendation from the ACPA required by Special Condition 2(a) was not received by 23 December 2011, the agreement came to an end on 24 December 2011 without further ado. This must be the effect of their submission that "without compliance [with Special Condition 2(a)] there is simply no enforceable agreement". I am afraid that I am unable to accept this construction.

5 The error of the defendants' approach is that it focuses attention on the opening words of Special Condition 2, "This agreement is conditional upon...", without paying due regard to the overall scheme reflected in the combined operation of Special Conditions 2, 3, 4 and 5. It is, I think, a strained, unconvincing and ultimately untenable construction of the Special Conditions. And it is inconsistent with the reasoning in Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153 and Peatties Road v Hanson [2004] NSWSC 831 (Gzell J), the facts of both of which involved similar contractual provisions. It matters not, in my view, whether the agreement in question is a contract for sale of land or an agreement to lease. Nor do I see any difference in principle between the conditional agreement in this case and a contract for sale of land that is conditional on the approval of a plan of subdivision.

6 What matters are the express words of the whole of the Special Conditions. This is not a case like Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 where the relevant clause was in such simple and absolute terms that the trial judge was able to make an unchallenged finding that the parties would not have been bound by the agreement to lease if the requisite approvals were not obtained: [2] and [11]. Rather, this case is closer to Sandra Investments v Booth in which (at 161-162) Gibbs CJ characterised the relevant clause as follows:

The provisions of Clause 24 show unequivocally that the parties intended that the consequence of a failure to obtain the council's approval should be that the purchaser would have the option either to cancel the contract or to proceed to carry it into effect.

7 Similarly, the evident purpose of the Special Conditions of the agreement in this case is to provide an opportunity to the plaintiffs to withdraw from their contractual arrangement if they do not receive either the recommendation contemplated by Special Condition 2(a) or the approval contemplated by Special Condition 2(b). The right to terminate given by Special Condition 5 is expressed to be a right given to the plaintiffs, not the Owner. That right is obviously for the plaintiffs' benefit. It is commercially rational that the plaintiffs should have such a right given that they entered into the agreement to enable them to conduct a pharmacy at the premises. If they are not permitted to do so because they fail to obtain either the requisite recommendation or the requisite approval, it makes sense that they should have the right to withdraw and terminate.

8 True it is that the Owner is vulnerable to delay. But the Owner is protected by the positive obligations imposed on the plaintiffs by Special Conditions 3 and 4. That was the bargain. If the plaintiffs failed to comply with those obligations, they forfeited the right to terminate pursuant to Special Condition 5. In that event, the plaintiffs would be bound to accept a grant of lease of the premises notwithstanding that they may not have been authorised to supply pharmaceutical benefits from the premises.

9 In my view, and with only one possible exception, there is in the operation of the Special Conditions, no question of the Owner itself having any right to terminate. No such right is expressed. Nor do I think it can be implied. The possible exception is that a failure by the plaintiffs to comply with their obligations under Special Conditions 3 and 4 could be a sufficiently serious breach of the agreement to justify termination by the Owner. However, that question does not arise in this case. The plaintiffs did not fail to comply with their obligations under Special Conditions 3 and 4.

10 For those reasons, I cannot accept the construction of the Special Conditions for which the defendants contend. The legal consequence of the plaintiffs not receiving by 23 December 2011 the positive recommendation from the ACPA contemplated by Special Condition 2(a), was not to bring the agreement automatically to an end. Nor did it give the Owner a right to terminate the agreement. It did no more than enliven the plaintiffs' right to terminate pursuant to Special Condition 5.

Subsequent Events

11 In the events which occurred, the plaintiffs elected not to exercise their right to terminate. They kept the agreement on foot. They made this clear by Mr McGraw's email sent on 21 December 2011. He explained that, through no fault of the plaintiffs, their application had been deferred until the next meeting of ACPA in about a month's time. He stressed the plaintiffs' 100% commitment and stated that he would keep Ms Shannon informed of progress.

12 On 20 January 2012, the plaintiffs received the requisite positive recommendation from ACPA for which they had been waiting. They then requested the Owner to prepare a lease. The execution of a lease and the grant of occupation of the premises were the next steps. They were necessary for the fulfilment by the plaintiffs of Special Condition 2(b) and were implicitly contemplated by it. I return to the significance of these matters in paragraphs [38] - [44] below.

13 In the meantime on 31 December 2011, the Owner entered into a competing and inconsistent agreement to lease with the third and fourth defendants on terms more favourable to the Owner. And on 27 January 2012 those parties entered into a lease. The plaintiffs now seek an order for the specific performance of their prior agreement with the Owner. Subject to what follows, they are prima facie entitled to such relief.

14 In addition to their contentions about the effect of the Special Condition 2, the defendants resist an order for specific performance on the ground that, in any event, the plaintiffs' agreement with the Owner is void for uncertainty. This is put on two bases. The first is that the agreement is incomplete and amounts to an agreement to agree because its terms do not enable the commencement date of the proposed lease to be clearly ascertained. The second is that the agreement is unworkable and incapable of meaningful operation. Both these bases require analysis of the regulatory context within which the recommendation and approval process contemplated by Special Condition 2 is intended to operate.

Regulatory Context

15 The regulatory regime for the approval of pharmacists and pharmaceutical premises is a significant part of the background against which the structure and content of the Special Conditions must be considered. The operation of that regime was considered in Bowen v Alsanto Nominees Pty Ltd at [4] - [9]. It is not difficult to see why it is a continuing source of difficulty in relation to agreements to lease in this area of commerce. That is because the statutory approval for the supply of pharmaceutical benefits from particular premises necessarily requires the applicant to have a legal right to occupy those premises. Yet agreements to lease for premises that are proposed to be used for the supply of pharmaceutical benefits are commonly conditional on the obtaining of the requisite approvals. In Bowen v Alsanto Nominees the agreement to lease sought to address the problem by a term which stated that "Occupation for fit out purposes will be granted subject to the execution and return of the Lease". Whatever that clause meant, it represented an acknowledgement by the parties of the tension that exists between the desire for conditionality and the steps that must be taken to satisfy the conditionality.

16 Special Conditions 2(a) and (b) in this case have their origin in Section 89 of the National Health Act 1953 (Cth). It is convenient to set out the summary of the statutory regime in Bowen v Alsanto Nominees Pty Ltd at [4] - [7]:

4 ... Section 89 of the National Health Act 1953 (Cth) (the National Health Act) provides that a person is not entitled to receive a pharmaceutical benefit unless it is supplied by an approved pharmacist, at or from premises in respect of which the pharmacist is approved. Under s90, the Secretary to the Department of Health may approve a pharmacist to supply pharmaceutical benefits at or from particular premises. Pharmaceutical benefits are drugs or medicinal preparations for which benefits will be paid by the Commonwealth.

5 The Secretary can generally only approve a pharmacist if the Australian Community Pharmacy Authority (ACPA) has recommended that approval, and the pharmacist is permitted under relevant State or Territory law to carry on business as a pharmacist.

6 The function of ACPA is to consider applications by pharmacists for approval to supply pharmaceutical benefits at or from particular premises and to make recommendations to the Secretary as to whether or not a pharmacist should be approved. In making its recommendations, ACPA must comply with the rules determined by the Minister under s99L of the National Health Act. The relevant rules set out location-based criteria which must be met in order for the ACPA to recommend approval. The rules provide for the relocation of an existing approval or the establishment of a new approval.

7 Since 1 July 2006, approvals to provide pharmaceutical benefits at or from specific premises and applications for relocation of such approvals have been governed by the National Health (Australian Community Pharmacy Authority Rules) Determination 2006. Schedule 2 of the Determination provides that to approve a relocation, ACPA must be satisfied of various matters including that the applicant has a legal right to occupy the premises.

17 To that summary, I should add that in 2011 the Minister made Determination No PB65 pursuant to the National Health Act. It provides that the ACPA must recommend that an applicant be approved under Section 90 of the Act in relation to particular premises if, among other things, the requirements of Schedule 2 are satisfied. Schedule 2 requires the ACPA to be satisfied that:

(a) the applicant had, on the day the application was made, and has, on the day the Authority makes a recommendation in relation to the application, a legal right to occupy the proposed premises on or after the day the application was made; and

(b) the proposed premises, on the day the application was made and on the day the Authority makes a recommendation in relation to the application:

(i) could be used for the operation of a pharmacy under applicable local government and State or Territory laws relating to land development; and

...

(c) within 6 months after the day on which the Authority makes a recommendation in relation to the application, the applicant will be able to begin operating a pharmacy at the proposed premises; and

(d) the proposed premises are not directly accessible by the public from within a supermarket.

18 It is reasonably clear therefore, having regard to the regulatory context, why Special Conditions 2(a) and (b) provided for different dates. That is because it was first necessary that the plaintiffs receive a positive recommendation to be approved to supply pharmaceutical benefits from the premises. The parties contemplated that this would be achieved by 23 December 2011 although it in fact occurred on 20 January 2012. It was then necessary that approval be obtained from Medicare to supply pharmaceutical benefits from the premises. A further two months was allowed to obtain this approval. The date nominated in Special Condition 2(b), namely 28 February 2012, was obviously intended to allow time for the execution of a lease, the grant of occupation of the premises, the conversion of the premises from their existing use, the obtaining of any necessary local government approvals, the fit-out of the premises for use as a pharmacy and ultimately the approval of the premises by Medicare.

Incompleteness - Handover Date

19 That is the context against which the defendants raise the first issue of uncertainty. It relates to the supposed absence of any agreement as to the commencement date for the proposed lease. The point arises because Clause 7 of the Section of the agreement headed "Commercial Terms", states: "Lease commencement: Four weeks after handover date". Clause 8 states: "Handover Date: TBA". And Clause 9 states: "Rent Commencement: On Handover date". Lease commencement in this context means the commencement of the term of the lease. Thus rent becomes payable on handover which is four weeks before the commencement of the term of the lease. On its face however, the language of Clause 8 suggests that there is a gap in relation to an essential matter on which the parties were bound to agree. All parties submitted that the acronym "TBA" should be construed to mean "to be announced" or "to be advised".

20 The omission of an essential term, without any means of curing the omission except by the further agreement of the parties, will be fatal to the validity and enforceability of an agreement: Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597 at 607 (Menzies J); Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 at [85] - [95] (Young CJ in Eq); May & Butcher Ltd v R [1934] 2 KB 17n at 20 (Lord Buckmaster).

21 In any given case, the essential terms that require the parties' agreement will of course vary, depending on the nature of the particular agreement: Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 at 68 (Ormiston J); Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 at 619. In the case of a lease or agreement to lease, the essential terms will usually be the parties, the premises, the term and the rent: NZI Insurance Limited v Baryzcka [2003] SASC 190; (2003) 85 SASR 497 at 506. Agreement about the term of a lease necessarily connotes agreement on both its commencement and duration.

22 There is however a well recognised exception to the requirement for agreement on all essential terms. That is where the agreement provides a mechanism for the determination of the omitted matter and the operation of that mechanism does not require the further agreement of the parties: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600; Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 202 (J D Phillips J). I have reached the conclusion that this is such a case. In my view, it is not fatal that Clause 8 states: "Handover Date: TBA".

23 Handover is a shorthand expression for the grant of occupation of the premises to the plaintiffs. Occupation of the premises is governed by Clause 23. It provides:

23 Occupation of the Premises will not be granted [by the Owner] until the lease documentation has been executed to the satisfaction of the Owner's solicitors.

24 I have reached the view that, properly construed, and having regard to Clause 23, the determination of the Handover Date is a matter for the Owner. When Clause 23 is properly construed, it can be seen that it imposes an obligation on the Owner to grant occupation of the premises. It is not a mere discretionary power that may or may not be exercised. Nor does it require the agreement of the plaintiffs. In Godecke v Kirwan [1973] HCA 38; (1973) 129 CLR 629 at 642, Walsh J (with whom Mason J agreed) said that "there is no reason in principle for holding that there cannot be any binding contract if some matter is left to be determined by one of the contracting parties". Similar opinions were expressed in Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 at 726 (Harman LJ), 733 (Pearson LJ) and 735 (Buckley J). See also Thorby v Goldberg at 605 (Kitto J). I am of the same view.

25 The failure to stipulate the Handover Date was not inadvertent. It is the necessary consequence of the condition stated in Special Condition 2(a). The parties must have recognised that it was premature to specify a Handover Date unless and until the plaintiffs received a positive recommendation from the ACPA to be approved to supply pharmaceutical benefits from the premises. Only then would it be necessary to move to the next stage of obtaining Medicare approval for the premises. Only then would handover, by the grant to the plaintiffs of occupation of the premises, be required. The date stipulated in Special Condition 2(b) indicates that the parties contemplated a further two months for approval for the premises to be obtained.

26 I should add that the grant of occupation of the premises by the Owner is necessarily conditioned by express and implied obligations. The express obligation is that stipulated in Clause 23, namely that the grant of occupation will not occur until the lease documentation has been executed to the satisfaction of the Owner's solicitors. The implied obligation is the duty of the Owner (including its solicitors) to do all things reasonably necessary to give to the plaintiffs the benefit of the agreement: Secured Income Real Estate v St Martins Investment Pty Ltd [1979] HCA 51; (1979) 144 CLR 596; Byrne v Australian Airlines [1995] HCA 24; (1995) 185 CLR 410 at 422 (Brennan CJ, Dawson and Toohey JJ) and 442-3 (McHugh and Gummow JJ). This of course is a reciprocal obligation.

27 Such an implied term is necessary in this case for the reasonable or effective operation of the parties' agreement. It is, to my mind, so obvious that it goes without saying; capable of clear expression; reasonable and equitable; and necessary for business efficacy. The parties' agreement is embodied in a relatively informal contract document, prepared by Mr McGraw without the involvement of lawyers. It is self-evidently not a formal contract that is complete on its face. And it includes both terms of the agreement to lease as well as terms of the intended lease.

28 In this case, no Handover Date was inserted for the reasons that I explained in paragraph [25]. It was a function of the regulatory regime. The selection of the date was therefore given to the Owner. And the Owner was bound to act reasonably. Indeed, the Owner had just as much commercial incentive as the plaintiffs to act reasonably and expeditiously in relation to the nomination of the Handover Date. From that date, the rent became payable. For those reasons, the failure to specify a particular date for the Handover Date does not, in my view, render the agreement void for uncertainty.

Unworkability - General Principle

29 The second issue on which the defendants rely to resist an order for specific performance depends on the concept of unworkability. It arises because of the tension which I endeavoured to explain in paragraph [15] above. The point was encapsulated in the following written submissions of the third and fourth defendants:

23 The Handover Date triggers the Lease and Rent Commencement Dates. It must be assumed that Handover is determined by satisfaction of the approval conditions - yet this cannot be the case as 2(b) requires approval by Medicare and that can only happen after the lease is granted. The process is that approval is granted the day the applicant commences trading which requires the approval of the premises by the Pharmacy council of NSW which advises Medicare.

24 Here the tenant must enter into possession to fit out the premises. Pursuant to the agreement this would require execution of the lease (cl 23), the owners approval of the fit out works (cl 19), local authority approval of the fit out works (cl 20).

30 The principles that apply where it is alleged that the terms of an agreement are unworkable are well known. The first duty of courts in this area of law is to strive for contractual intention and not to adopt a narrow or pedantic approach. I summarised the principles in Seven Network (Operations) Limited v Warburton (No 2) [2011] NSWSC 386 at [38] - [40] as follows:

[38] There must be such a lack of clarity that the clause is unworkable; that it cannot be given effect in a meaningful way. Lord Denning once said that before a clause is held to be void for uncertainty, it must be "utterly impossible" to put a meaning on the words: Fawcett Properties Ltd v Buckingham County Council [1961] AC 636 at 678. A M Gleeson QC approved this particular statement in a paper delivered in 1984. See Contractual Uncertainty (1985) 1 Australian Bar Review 74.

[39] Perhaps the clearest statement of the principle is that by Lord Wright in Scammell (G) & Nephew Ltd v Ouston [1941] AC 251 at 268:

The first is that the language used was so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention. The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract.

[40] Sir Garfield Barwick cited this passage when he made his frequently quoted observation that courts must strive for a contractual intention, and not adopt a narrow or pedantic approach in doing so, especially in commercial arrangements: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at 436-7. Thus the first duty of a court is to give effect to the parties' contract and not to be too quick to strike it down.

31 To find that an agreement is void for uncertainty should be a last resort. If that occurs, it will be a recognition that despite the parties' best intentions, and the court's best endeavours, the language is so imprecise or obscure that the court is unable to attribute to the parties any clear intention or definite meaning. In the passage from Lord Wright's speech in Scammell (G) & Nephew Ltd v Ouston set out above, his Lordship emphasised that the position must be such that "the court has no choice". And he added that "Such a position is not often found". See also Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571 at 589 (Mason J); Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 135 (Kirby P); Helmos Enterprises v Jaylor at [100] and [111] (Young CJ in Eq).

32 A related consideration is that which was explained in the well-known judgment of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109. He said that where contractual language is open to two constructions, the court should prefer that which avoids consequences which appear to be capricious, unreasonable, inconvenient or unjust "even though the construction adopted is not the most obvious, or the most grammatically correct". He also added that it is "permissible to depart from the ordinary meaning of words" so far as is necessary to avoid an inconsistency between one provision and the rest of the instrument. That statement of Gibbs J has been repeatedly approved. See Vodaphone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [64]; Software AG (Australia) Pty Ltd v Racing & Wagering Western Australia [2009] FCAFC 36 at [33]; Condor Developments Pty Ltd v Helsby [2010] WASCA 16 at [43].

33 Perhaps another factor is the principle that "where a contract is partly executed, a plea of uncertainty will rarely succeed": Helmos Enterprises v Jaylor at [107]. See also Booker Industries v Wilson Parking at 615-6 (Brennan J); Sudbrook Trading Ltd v Eggleton [1983] AC 444 at 460 (Templeman LJ); G Percy Trentham v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25 at 27 (Steyn LJ); F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Rep 53 at 57 (Denning MR); British Bank for Foreign Trade Ltd v Novinex [1949] 1 KB 623 at 630. This is a principle with practical appeal but I have not found it necessary to base my decision on it. In any event, I do not think that it could apply unless the party alleging uncertainty had already received some material benefit pursuant to the contract - which is not really this case.

Agreements Prepared by Non-Lawyers

34 One final consideration is that this agreement was prepared by Mr McGraw, a pharmacist, without legal assistance. It may be that the importance of not adopting a narrow or pedantic approach, and of looking at the substance not merely the form, is even greater in the case of agreements prepared by non-lawyers, as this one was. The court's objective is to divine the intention of business people who intended to agree and thought that they had agreed. Allowance must be made for levels of imprecision that one would not expect from a competent lawyer. And credit should be given for the fact that the parties understood their subject matter and knew, or should be taken to have known, what they were endeavouring to achieve. The circumstances call for an approach which is sympathetic not hyper-critical; understanding not pedantic; sensible but not overly fastidious. To do otherwise could only bring the law into disrepute.

35 In Hillas & Co Ltd v Arcos [1932] All ER Rep 494, Lord Tomlin referred at 499 to the essential principle that "the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains". In the same case, Lord Wright said at 503:

But it is clear that the parties both intended to make a contract and thought they had done so. Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects.

36 The number of decisions that repeat the aphorism that the law should not incur the reproach of being the "destroyer of bargains" is too numerous to mention. It is possible however that the point has added force in relation to agreements prepared by non-lawyers. Samuels JA indirectly reflected this approach in Transfield Pty Ltd v Feiersinger [1988] NSWCA 160, page 2, when he said of the agreement in that case, which had been drawn up by lawyers, that it was "vulnerable to rigorous analysis and to a construction more stringent, perhaps, than one would accord to a purely commercial document in which lawyers had no hand". On the other hand, in Australian Broadcasting Commission v Australasian Performing Right, Gibbs J said (at 110) that in his opinion Lord Wright's statement should not be understood as "limited to documents drawn by businessmen for themselves without legal assistance".

37 In practice, courts tend to be less forgiving in the case of agreements prepared by lawyers, and more generous in the case of agreements prepared by business people. However the real point of difference, and the practical explanation for the perception that there may be a different standard is, I think, that "one [can] not sensibly approach these cases in the same way": Pagnan SpA v Feed Products Ltd at 611 (Bingham J), approved in Helmos Enterprises v Jaylor at [89]. Nonetheless, whether or not an agreement is drafted by lawyers, the paramount legal duty is to strive for contractual intention and not to adopt a narrow or pedantic approach. Indeed, even where the agreement is mired in obscurity and inconsistency, and even where it constitutes a "Serbonian Bog" - to quote Newnes JA in Condor Developments v Helsby at [44] - the court must wade into it and "do its best to make some sense of the agreement".

Unworkability - Special Condition 2(b)

38 Of course there are limits and it will occasionally be impossible to make sense of the agreement. But when these guiding principles are taken into account, the difficulty for which the defendants contend can be seen to be illusory. The starting point is the requirements of the statutory regime. Those requirements must be considered against Clauses 7, 8 and 9 of the agreement and the Special Conditions. Taken together, they make clear what the parties must be taken to have contemplated in order to satisfy the Special Conditions. An orderly sequence of events emerges. Following receipt of the positive recommendation required by Special Condition 2(a), it was necessary for the Owner's solicitors to prepare the lease documentation. That is in fact what Mr McGraw requested as soon as he received notification of the ACPA recommendation. It was the first step in obtaining the approval required by Special Condition 2(b). When the lease documentation was executed to the satisfaction of the Owner's solicitors, the Owner could be expected to nominate the Handover Date and to grant occupation of the premises to the plaintiffs from that date. In doing so, the Owner was obliged to act reasonably. And it was in its own interest to do so because from the Handover Date, the obligation to pay rent would commence to run. The plaintiffs would then be able to carry out their fit out. Approval of the premises would then be sought (and presumably obtained) pursuant to Special Condition 2(b).

39 The whole process from satisfaction of Special Condition 2(a) to satisfaction of Special Condition 2(b), including fit out and statutory approval of the premises, was anticipated to take two months. And a period of four weeks after Handover Date was allowed for fit out, after which time the term of the lease would commence to run.

40 The defendants contend that this sequence of events is inconsistent with the opening words of Special Condition 2 of the agreement which state that "This agreement is conditional upon" the receipt of the recommendation stipulated in paragraph (a) and the grant of approval stipulated in paragraph (b). They submit, in effect, that it is utterly impossible to give effect to Special Condition 2 in a meaningful way having regard to its express language and the necessary approval steps that I have explained. The essence of the supposed problem is said to be that the approval under Special Condition 2(b) can only happen after the lease is granted. Yet completion of the agreement to lease, and therefore the grant of a lease, appears to be conditional upon the obtaining of that approval.

41 This is not the insoluble conundrum that the defendants insist it must be. The parties clearly intended that if the premises were not approved under Special Condition 2(b), then the plaintiffs would not have to proceed and could elect to terminate their contractual arrangement. Equally, the parties obviously knew that in order to obtain the approval of the premises under Special Condition 2(b), it was necessary that the plaintiffs be given occupation of the premises to undertake the fit out. The agreement expressly contemplated that occupation of the premises would be granted when the lease documentation was executed to the satisfaction of the Owner's solicitors.

42 I do not think that the defendants' approach represents a fair or reasonable reading of Special Condition 2 in its overall context. It could not have been intended that Special Condition 2 be read strictly, literally and in isolation from the practical effect of the requirements for satisfaction of paragraph (b). Special Condition 2(b) was not simply a condition precedent to the Owner's obligation to complete the agreement to lease by the grant of a lease to the plaintiffs. Such a construction does not sit comfortably with the fact that the parties must be taken to have known that the requisite approval of the premises under Special Condition 2(b) necessitated fit out by the plaintiffs and the grant to them pursuant to the lease of occupation of the premises.

43 The conditionality which is expressed in the opening words of Special Condition 2 should be taken to refer to the conditionality of the parties' actual and intended contractual arrangements - both the agreement to lease and the proposed lease. In my view, the parties have used the term "conditional" in its broadest sense to cover the legal consequences of the failure to obtain the positive recommendation in Special Condition 2(a) and the approval in Special Condition 2(b). In both cases, the plaintiffs were given the right to terminate. The parties did not distinguish between conditions precedent and conditions subsequent. Nor did they spell out that, strictly speaking, the right of termination applies to the agreement to lease in one case and to the contemplated lease in the other. But that is manifestly obvious when one understands, as the parties must be taken to have understood, the way in which the approval process in Special Condition 2 must operate.

44 When the parties said in the opening words of Special Condition 2, that "This agreement is conditional" they were intending to refer to their agreement in the broadest sense. That agreement necessarily included the lease which they knew and intended would have to come into existence in order to enable Special Condition 2(b) to be satisfied. And when they said in the concluding words of Special Condition 5 that "the Tenant may terminate this agreement", they were also intending to refer to their agreement in the broadest sense, including the lease which they knew was a necessary step in obtaining the approval contemplated by Special Condition 2(b).

The Consideration Fallacy

45 A further ground on which the defendants contended that specific performance should be refused was that the plaintiffs had not paid the holding deposit. Clause 10 stated:

10 Holding Deposit: Equivalent to two (2) weeks rental (holding deposit will be credited to 1st months rent if application successful).

46 In reality, the plaintiffs and Ms Shannon on behalf of the Owner overlooked the holding deposit. The amount was only $440. The plaintiffs forgot to pay it and Ms Shannon forgot to ask for it, or follow it up. By late December 2011, when she had caused the Owner to enter into the subsequent agreement for lease with the third and fourth defendants, she no longer regarded it as necessary for the plaintiffs to pay the deposit. In January, they tendered a cheque for $440 but Ms Shannon did not accept it.

47 The defendants' submissions on this issue, like the submissions in support of every other defence, were primarily advanced by the third and fourth defendants. Much of their argument seemed to depend on the contention that the plaintiffs had furnished no consideration and that equity will not assist a volunteer. The submissions seemed to fluctuate between a contention that there was no valuable consideration and therefore no valid and enforceable agreement and a contention that the failure to pay the $440 was a discretionary ground for refusing specific performance.

48 I reject both arguments. First, the agreement contained no express requirement for the payment of the holding deposit by any particular date. Indeed, it is not clear whether the payment of the holding deposit was a term of the agreement to lease or a term of the lease. The bracketed words suggest however that it was expected to be paid before the rent commenced to run, namely from Handover Date. Second, and in any event, when the obligation to pay the holding deposit is properly construed and characterised it is apparent that it could never, in my opinion, have been an obligation whose failure to perform might have amounted to a breach of an essential term - unless, perhaps, time were made of the essence by a notice given by the Owner.

49 Third, the particular circumstances make it inappropriate to regard the non-payment as a discretionary ground for refusing specific performance. It was overlooked by both parties and only thought of after the Owner had entered into a competing and inconsistent agreement with the third and fourth defendants. Prior to Ms Shannon's mistaken view in late December that she was entitled to treat the agreement as at an end, she had not asked for payment and did not seem concerned that she had not received the sum of $440.

50 Fourth, the submissions about the absence of consideration confused two separate things. The consideration for the agreement to lease was constituted by the mutual promises of the parties. In consideration for the Owner's promise to grant a lease of the premises, the plaintiffs promised to accept the grant of lease on the terms set out in the agreement. There is a difference between the non-existence of consideration and the non-performance of a contractual obligation. An arrangement that is called an "agreement" but which is not supported by consideration, is not a legally enforceable agreement at all. When the issue is whether there is valuable consideration, the law's concern is with the content of the supposed agreement not with its performance. Most agreements are supported by valuable mutual promises. But if the supposed agreement consists of nothing more than a gratuitous promise by one party, unsupported by any countervailing promise, payment, forbearance or other conduct by the other party, there is no valid and enforceable agreement: Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 at 499 (Windeyer J).

51 However that is not this case. The promises of each party were supported by consideration. The non-payment of the holding deposit in the circumstances of this case therefore has no relevant legal consequence. The deposit is of course still payable but there is no ground for refusing specific performance simply by reason of its non-payment prior to late December 2011.

Retail Leases Act

52 The final submissions of the third and fourth defendants virtually abandoned any reliance on non-compliance with the Retail Leases Act 1994 as a discretionary ground for refusing specific performance. And the first and second defendants added nothing on the topic. The submissions did not even identify any particular statutory non-compliance. The most that was done was to suggest that the plaintiffs should bear some responsibility for any (unidentified) non-compliance with the requirements of the Act because they were responsible for drafting the agreement. I reject this ground.

Conclusion & Orders

53 For all of those reasons, I have reached the view that the agreement dated 26 October 2011 between the plaintiffs as "Tenant" and the first defendant as "Owner" is valid and enforceable. The plaintiffs are entitled to the declarations and orders sought in paragraphs 1, 2 and 3 of the Amended Statement of Claim. The defendants should pay the plaintiffs' costs.

54 I do not think that it is necessary or desirable to make the further orders sought by the plaintiffs, namely orders that spell out precisely and in minute detail the steps that should be followed to give effect to the agreement. It would be unwise to be too prescriptive. Ms Shannon knows what she has to do. I formed a favourable impression of her and am confident that she will ensure that the agreement is performed. It is just as much in her interest, as it is in the plaintiffs' interest, that the requirements of Special Condition 2(b) be satisfied as soon as possible. No criticism should attach to Ms Shannon for her view, mistaken as it turned out to be, that the agreement came to an end because Special Condition 2(a) was not satisfied by 23 December 2011. Her position is understandable. She recognises that she made a judgment without the benefit of legal advice and that she took a risk in doing so.

55 I have not determined the other issues raised in the Amended Statement of Claim because the parties joined in requesting me to determine first the plaintiffs' primary claim. That request occurred after some but not all of the witnesses had given evidence. It was precipitated by the revelation, which was not clear on the pleadings, that all of the plaintiffs' other claims, including its claims against the third and fourth defendants, were in the alternative to their primary claim. The parties recognised that if I found in the defendants' favour on the primary claim, it would be necessary to continue the hearing at a future date. They also recognised that if I found in favour of the plaintiffs on the primary claim, but was reversed on appeal, it would be necessary to hear the balance of the evidence and determine the plaintiffs' alternative claims. They have accepted these risks and I was prepared to accommodate them.

Amendments

25 June 2012 - Second Defendant deleted as "Owner" in first sentence.
Amended paragraphs: 53

Decision last updated: 25 June 2012