Bensons Property Group Pty Ltd v Key Infrastructure Australia Pty Ltd [2021] VSCA 69

What the court decided

Key Infrastructure Australia Pty Ltd (KIA) agreed with Bensons Property Group Pty Ltd (Bensons) to procure a planning permit for a site in Port Melbourne [2], [3]. Under a development management agreement, Bensons was to pay KIA a fee of $2 million (plus GST), in instalments, if KIA procured a planning permit by the sunset date [4]. The sunset date was 31 December 2016 [3]. If KIA missed the deadline, any instalment paid had to be repaid [4]. Bensons had an option, but no obligation, to take a council decision to the Victorian Civil and Administrative Tribunal (VCAT) [5].

On 18 May 2016, Bensons' solicitors wrote to KIA's solicitors [39]. The letter said that Bensons did not approve any proceeding in VCAT and that any proceeding by KIA without Bensons' express prior written consent, which was refused, would breach the agreement [40]. KIA had lodged an application with VCAT that day, withdrew it and lodged a second application on 5 July 2016 [6]. The trial judge's finding that KIA withdrew in response to the letter was not challenged [48]. VCAT directed the council to issue the permit on 22 December 2016, and the council issued it on 6 February 2017, after the sunset date [6].

The trial judge, Robson J, held that the permit had not issued within time [8]. He also held that the letter prevented KIA from securing the permit by the sunset date, so that Bensons either could not rely on the time limit or was liable in damages for breach of an implied term to cooperate [9]. KIA had received $2.232 million from a later sale of the site and business [74]. Finding that KIA had fully mitigated its loss, the judge awarded nominal damages [9], [97]. Bensons' claim for repayment of its instalments failed [85].

The Court of Appeal (Niall, Emerton and Sifris JJA, in joint reasons) held that leave to appeal should be granted, the appeal allowed and KIA's notice of contention dismissed [13], [194], [195]. It said that the trial judgment should be set aside and that Bensons should have judgment on its cross-claim requiring KIA to refund the first and second instalments [195].

On ground 1, which it upheld, the Court held that the prevention principle could apply only by reference to the agreement and the obligations it imposed [101]. It cannot be applied as a free-standing principle of law with remedies independent of the contract [101]. The Court said that whether conduct is wrongful is judged against the contract's terms, commonly an obligation to cooperate or to use best endeavours [111], [112]. In its opinion, the principle can come into play only where there is a breach of a contractual term [114]. The judge had, however, gone on to find a breach of an implied duty to cooperate [115]. The Court therefore said that success on ground 1 did not by itself mean that Bensons must succeed in the appeal [116].

Bensons accepted that the agreement contained an implied term to cooperate and that the negative covenant would generally be implied [119]. The Court said the better view is that this duty is an implied term, as it had held in Adaz Nominees Pty Ltd v Castleway Pty Ltd [107]. As an implied term, it rests on necessity and must give way to the express terms [108].

Bensons argued that the implied term is breached only by conduct that makes satisfaction of a condition impossible [118]. The Court rejected that argument, and with it ground 3 [129]. It held that conduct may breach the contract by hindering or preventing fulfilment of a condition, even where performance remains possible [127]. The Court reasoned that freedom to engage in conduct that substantially impedes the other party's opportunity to satisfy the conditions would undermine the bargain [128].

The Court upheld ground 2, which challenged the finding that the letter deprived KIA of a substantial chance of obtaining the permit in time [130], [184]. It held that the letter breached the duty to cooperate neither as a positive obligation nor as a negative covenant [155]. KIA's performance did not require Bensons' consent or approval, and Bensons had no active role in the permit process [153]. The Court said the negative covenant not to interfere does not readily translate into an obligation to construe the agreement correctly [154]. It observed that an erroneous construction may amount to a repudiation, but the duty to cooperate is not a catchall for any repudiatory breach [156]. A case based on anticipatory breach was not relied on [158], [180].

Independently, the Court held that the letter did not prevent KIA from meeting the permit condition [131], [176]. Even if the letter had been a breach, KIA had to establish that it was an operative reason it withdrew the first application and did not re-apply for seven weeks [161]. After the letter KIA sought advice on its prospects in VCAT [168]. By 8 June 2016 KIA's counsel had advised it, without qualification, to proceed in VCAT [169]. The Court held that, apart perhaps from its initial response, KIA was not impeded to any material degree by the letter [174]. It said the real problem for KIA was the terms of the agreement and Bensons' decision not to fund the VCAT application [182]. It described as "entirely speculative" the contention that the permit would have issued in time had the first application stayed on foot, noting that KIA had not run a loss of chance case [177].

On ground 4, the Court said that for the same reasons Bensons did not cause KIA any loss [185]. KIA had not established that it would have obtained the permit by the sunset date if the letter had not been sent [186].

On the notice of contention, the Court agreed with the judge that Bensons' failure to meet KIA and refusal to fund the VCAT proceeding did not breach the duty to cooperate [189], [190]. It also agreed that a duty of good faith could not be implied, because KIA had not shown it was necessary [192].

Why it matters

In this decision the Court of Appeal held that the prevention principle depends on a breach of an identified contractual obligation, often an implied duty to cooperate, and cannot be applied as a free-standing principle. It also held that the duty to cooperate is not confined to conduct making performance impossible.

Where performance needs no consent or active step from the other party, the decision indicates that asserting a wrong construction of the contract will not readily be a breach of the duty to cooperate. The Court suggested, without deciding the point because it was not argued, that such conduct may instead be analysed as a possible repudiation.

The decision also indicates that a party relying on prevention must show that the conduct was an operative reason for its failure to meet the condition.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.