Case: Butt v M'Donald (1896) 7 QLJ 68
Outcome: cited
The respondents admit they breached an implied term of the Offer Letter, namely that the respondents would not seek to prevent performance of the Offer Letter or withhold its benefits: Butt v M'Donald (1896) 7 QLJ 68, 70-71 cited and referred to in Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd [1979] HCA 51 ; (1979) 144 CLR 596 , 607; Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 and CGU Workers Compensation (NSW) Ltd v Garcia (2007) 69 NSWLR 680. The event which the respondents said gave rise to the breach was the execution of the Woolworths' Letter of Offer on 18 March 2008. However, despite the generous admission of the respondents, I cannot accept that execution of the 18 March 2008 letter constituted a breach of the Butt v M'Donald term. 52 As noted earlier, there is no obligation in contract not to enter a later agreement containing terms inconsistent with a prior contract. Butt v M'Donald does not hold otherwise because it states only that a party will be in breach if it withholds benefits or frustrates the performance of another. In other words, the implied term will be breached only when the party does something that: (1) positively impairs or frustrates another party's ability to perform its obligations; or (2) actually deprives (not just possibly will deprive) the other of a contractual benefit. Entering into an inconsistent contract such as the Woolworths' deal here in itself does neither where, as here, the party subjecting itself to the conflicting obligations is still free to choose which it will perform (confer the benefit) and the date for performance has not yet come due. For example, the respondents could have changed their minds on 19 March 2008 and decided that it would be better to give the lease to Coles and instead breach their agreement with Woolworths. Then they could have changed their minds again on 20 March 2008 and so on. Thus, there was no breach on 18 March of which I can be independently satisfied, notwithstanding the respondents' admission. 53 For its part, Coles submitted that the respondents breached the Offer Letter on 27 March 2008 (see [37 (17)] above) when they informed Coles that they had ceased negotiations but that that breach "was the intended culmination and inevitable consequence of earlier breaches of terms of the Offer Letter" - namely: 1. clause 26 which obliged FKP to enter into an AFL; 2. an implied obligation to act in good faith to do all things necessary to grant Coles a lease ("the good faith breach"); 3. the clause of the Offer Letter which obliged FKP to keep the terms of the Offer Letter confidential. 55 Whether an implied obligation of good faith independently exists and to what extent it might differ from the Butt v M'Donald term are complicated and hotly debated issues in contract law. Moreover, it would not be a simple matter to determine the extent of the respondents' obligation under cl 26 to negotiate and accept an AFL and Lease. (Indeed, that is always a problem in Masters v Cameron heads-of-agreement type cases where later negotiations break down.) For example, at what point could Coles throw its hands up and say that the respondents were unreasonably refusing to negotiate or accept an AFL or Lease such that the default terms ought to apply? 56 Fortunately, it is not necessary to resolve the issues between the parties by reference to the admitted Butt v M'Donald breach or the first two breaches alleged by Coles because I am satisfied on the evidence that more straightforward breaches exist. First, the evidence that the respondents did not and could not obtain the necessary development approvals by 1 October 2008 necessarily implies that those approvals were not obtained by the 1 March 2008 date specified in the Offer Letter. Accordingly, I find that the respondents breached cl 14(b)(5) on 1 March 2008. 57 Secondly, the respondents breached the confidentiality clause of the Offer Letter on 26 February 2008. At the end of the Offer Letter, a clause headed "Confidentiality" provided, in part, as follows: The terms and conditions of this offer are strictly confidential ( Confidential Information ). The Lessor must: (i) not disclose any of the Confidential Information to any person, firm or body corporate; (ii) not directly or indirectly use, reproduce or deal with the Confidential Information for any purpose without the prior written consent of the Lessee, except on a confidential basis to professional consultants of the Lessor; ... In any case, where the Lessor must obtain the Lessee's prior written consent, the Lessee is entitled to withhold the giving of its consent for any reason in its discretion, or to give its consent subject to such conditions as the Lessee imposed in its discretion. 58 The respondents admit that they breached this clause when, on 26 February 2008, they disclosed to Woolworths terms of the offer that Coles had agreed (1) to enter into a 20 year lease with an option to take a lease for two further 10 year terms (cll 4 and 5), (2) to pay a percentage at 2% of annual gross sales (excluding GST) in excess of $37,000,000 (cl 7(b)) and (3) to participate in base rent reviews every five years during the term and options to the average of total base and percentage rents payable in the preceding three years (cl 7(d)). That they would admit this is not surprising because during the course of the trial Mr McCoy gave evidence during cross-examination, corroborated by certain of his emails which were tendered as exhibits, that he did in fact disclose this information to a representative of Woolworths on or about 26 February 2008.