Randwick City Council v Nancor Trading Co. Pty Ltd [2002] NSWCA 108

Reported Decision : (2002) 120 LGERA 261 (2003) NSW ConvR 56-036

New South Wales Court of Appeal

CITATION : Randwick City Council v Nancor Trading Co. Pty Ltd [2002] NSWCA 108 FILE NUMBER(S) : CA 40655/01 HEARING DATE(S) : 27 February 2002 JUDGMENT DATE : 1 May 2002

PARTIES : Randwick City Council (Appellant) Nancor Trading Co. Pty Ltd (Respondent) JUDGMENT OF : Mason P at 1; Stein JA at 2; Santow JA at 63

LOWER COURT JURISDICTION : District Court LOWER COURT DC 204/00 FILE NUMBER(S) : LOWER COURT Rolfe DCJ JUDICIAL OFFICER :

COUNSEL : R Forster SC/A J Thompson (Appellant) P Brereton SC/M Cohen (Respondent) SOLICITORS : Bowen & Gerathy (Appellant) Stephen Wawn & Associates (Respondent) CATCHWORDS : LOCAL GOVERNMENT - powers, functions and duties of councils generally - call for tender for the operation of kiosk - tender accepted - kiosk demolished by council - CONTRACT - general contractual principles - offer and acceptance - agreement of terms - Masters v Cameron (1954) 91 CLR 353 - whether acceptance of tender was conditional - whether a legally binding agreement existed - intention of parties at time of making agreement - construction of the terms of the licence agreement - whether draft plan of management was part of the terms and conditions of the tender - CROSS-APPEAL - costs - District Court Rules, Part 39A rule 25(4) - COSTS - D District Court Rules, Part 39A rule 25(4) LEGISLATION CITED : Local Government Act 1993 Local Government (Tendering) Regulation Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 Brunninghausen v Glavanics (1999) 46 NSWLR 538 CASES CITED: Masters v Cameron (1954) 91 CLR 353 Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 Solle v Butcher [1950] 1 KB 671 Taylor v Johnson (1983) 151 CLR 422 DECISION : 1. Appeal allowed in part. 2. The verdict and judgment for the plaintiff in the sum of $469,506.46 be set aside and in lieu thereof substitute a verdict and judgment for the plaintiff in the sum of $407,061.00. 3. Set aside his Honour's orders as to costs made on 21 August 2001 and substitute therefor an order that the appellant pay the respondent's costs of the trial on a solicitor and client basis. 4. Order the appellant to pay 80% of the respondent's costs of the appeal. 5. Cross-Appeal allowed with costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40655/01 DC 204/00

MASON P STEIN JA SANTOW JA

Wednesday, 1 May 2002 RANDWICK CITY COUNCIL v NANCOR TRADING CO. PTY LIMITED

The Council was the Manager and Trustee of the Bundock Park Reserve Trust. The Clovelly Beach Kiosk (the kiosk) was located within this reserve.

In July 1997 the Council called for tenders for the use by way of licence of the kiosk. Although the respondent's first tender was unsuccessful, the Council later re-advertised the invitation to tender on 17 November 1997. In so doing, it invited the respondent, Nancor Trading Co. Pty Limited (Nancor), by way of letter dated 17 November 1997 to submit a fresh tender.

Nancor completed the tender form and lodged it by the required date. It tendered in the amount of $37,000.00 per annum for the right to licence and operate the kiosk. The tender form included the condition that 'the term of the licence will be one (1) year with a five (5) year option'.

The Council resolved on 9 December 1997 to accept Nancor's tender and wrote a letter to that effect on 15 December 1997. The letter set out Council's resolution and concluded by congratulating the respondent on its successful tender and wished it well in its new business.

Thereafter numerous meetings and discussions took place between the parties in an effort to negotiate the form of the licence agreement, and also other matters pertaining to its terms. However, during the course of these discussions (and without notice to the respondent) on 13 March 1998 the Council commenced to demolish the kiosk. On 12 May 1998 the Council resolved to withdraw the offer of a licence to the respondent for the operation of the kiosk and proceeded to completely demolish the building.

At the trial Rolfe DCJ held that the case fell within the second category identified in Masters v Cameron (1954) 91 CLR 353. His Honour rejected the submission on behalf of the Council that it was not the intention of the parties to make a concluded bargain until the licence agreement was executed. In particular, his Honour was satisfied that the parties entered into a final and binding agreement when Council accepted the tender by its letter dated 15 December 1997.

Although it was contended on behalf of the Council that the Draft Clovelly Beach Plan of Management was included in the tender documents, his Honour was not satisfied that this was so. His Honour held that the agreement reached between the parties on 15 December 1997 did not include compliance with the draft plan of management. In any event, the partial demolition of the kiosk on 13 March 1998 frustrated and rendered impossible any requirement of the respondent to comply with the draft.

His Honour found in favour of the respondent and concluded that the appropriate award was $350,000, which together with interest from 13 March 1998 to the date of the trial, amounted to the sum of $469,505.46.

On appeal the appellant raised three grounds:

1. His Honour should not have found that the parties entered into a binding agreement. 2. If there was an agreement, it was subject to a term which led to the agreement being brought to an end or frustrated thus limiting damages to the period before that event. 3. That his Honour erred in relation to the award of interest.

In relation to the issue of the award of interest, both parties reached agreement during the appeal which acknowledged an error by the trial judge. The respondent cross appeals on his Honour's orders as to costs.

Held On the appeal, per Mason P, Stein JA and Santow JA agreeing:

1. Rolfe DCJ was correct to conclude that a legally binding agreement was made on 15 December 1997 when the Council accepted the respondent's tender. 2. Whether the parties intended to be bound upon acceptance on 15 December 1997 is to be ascertained by applying an objective test.

- Solle v Butcher [1950] 1 KB 671 applied - Taylor v Johnson (1983) 151 CLR 422 applied 3. In this case, the tender specification document uses the language of offer and acceptance by Council. The specification also requires the licence fee to be payable as from the date of occupation 'notwithstanding the fact that the licence agreement may not have been executed'. It follows that the parties must have intended that there be legal consequences of an acceptance of the tender even if a licence agreement was not yet executed. 4. The 'note' on the front page of the draft licence agreement does not contemplate, nor permit, any substantive departure from the terms of the accepted tender. 5. The draft licence agreement submitted by the Council significantly and impermissibly departed from the accepted tender. 6. The ground of appeal that his Honour was in error in finding that the draft plan of management of the reserve was not part of the terms and conditions of the tender lacks any substance. On the Cross-Appeal, per Mason P, Stein JA and Santow JA agreeing: 1. His Honour erred in his order that the Council should pay the respondent's costs on a party and party basis up to 24 May 2001 and thereafter on a solicitor and client basis. 2. The respondent was entitled to the costs of the action on a solicitor and client basis in accordance with Part 39A rule 25(4) of the District Court Rules. Orders: 1. Appeal allowed in part. 2. The verdict and judgment for the plaintiff in the sum of $469,506.46 be set aside and in lieu thereof substitute a verdict and judgment for the plaintiff in the sum of $407,061.00. 3. Set aside his Honour's orders as to costs made on 21 August 2001 and substitute therefor an order that the appellant pay the respondent's costs of the trial on a solicitor and client basis. 4. Order the appellant to pay 80% of the Respondent's costs of the appeal. 5. Cross-Appeal allowed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40655/01 DC 204/00

MASON P STEIN JA SANTOW JA

Wednesday, 1 May 2002 RANDWICK CITY COUNCIL v NANCOR TRADING CO. PTY LIMITED Judgment

1 MASON P: I agree with Stein JA. 2 STEIN JA: Introduction 3 This is an appeal by the Randwick City Council (the Council) from a judgment delivered by Judge Rolfe in the District Court on 21 August 2001 in favour of the respondent, Nancor Trading Co. Pty Limited. His Honour found a verdict in favour of the respondent/plaintiff in the sum of $469,506.46 including interest. 4 There are three grounds of appeal. First, that his Honour should not have found that the parties entered into a binding agreement. Secondly, that if there was an agreement, it was subject to a term which lead to the agreement being brought to an end or frustrated, thus limiting damages to the period before that event. Thirdly, that his Honour erred in relation to the award of interest. 5 During the appeal, the parties came to an agreement on the issue of the award of interest which acknowledged an error by the trial judge. The agreement is that in the event that the appeal is otherwise dismissed, the judgment should be varied by substituting a verdict in favour of Nancor in the sum of $407,061 in lieu of the verdict entered in the District Court. Accordingly, it will not be necessary to address ground 3 of the Notice of Appeal. 6 The respondent was given leave to file in court a cross-appeal concerning the costs order made by his Honour.

Facts 7 The Council was the manager and trustee of the Bundock Park Reserve at Clovelly Beach. Located within the reserve was the Clovelly Beach Kiosk (the kiosk). In July 1997 the Council called for tenders for the use of the Kiosk. The respondent tendered unsuccessfully. However, in late October 1997 the successful tenderer withdrew. The Council then readvertised the tender on 17 November 1997. In so doing, it invited the respondent to submit a fresh tender. The tender was advertised in newspapers on 17, 18 and 19 November 1997 and was to close on 24 November 1997. 8 The Council's letter to the respondent of 17 November 1997 enclosed 'the tender specification, licence agreement and tender form'. At the trial the Council contended that the draft Clovelly Beach Plan of Management was also included with the letter but his Honour concluded that he was not satisfied that it was. 9 The respondent submitted a tender on 23 November 1997. It completed the printed tender form offering $37,000 per annum, or a licence fee in that amount, for the right to licence and operate the kiosk. The tender form included the term of the licence (1 year) with a five (5) year option. 10 The tender form also included a reference to the tender being in accordance with the specification issued by the Council and dated 11 November 1997 and an acceptance by the tenderer of the terms and conditions contained in the specification. The tender specification was for a one (1) year licence commencing on 1 January 1998. Licence conditions (1 – 25) were included in the tender specification. They included, inter alia, a five year option. 11 The specification also referred to the 'draft licence agreement' which was attached for information. It stated that execution of the licence agreement was required prior to occupation. 12 The draft licence document enclosed with the specification contained the following note: (Note: This document has been prepared for the guidance of intending tenderers and the final deed to be entered into may differ from this document, based on legal advice and the tenders submitted and accepted by Council). 13 The draft licence agreement was substantially in accordance with the specification. 14 On 9 December 1997 the Council resolved to accept the respondent's tender. Accordingly, it wrote to the respondent on 15 December 1997 setting out Council's resolution as follows: That the tender of Parks and Cafes [Nancor] for the operation of the Kiosk located Clovelly Beach for a one (1) year period with a five (5) year option commencing 1 January 1998 at an initial annual rental of $37,000 be accepted.

The letter continued: The licence is being prepared by Council's solicitors and I will contact you in the near future to execute the licence and arrange for you to collect the keys to the premises. The terms of the licence require the licence fee to be paid in monthly instalments, in advance. The first monthly instalment of $3,084.00 being due on 1 January, 1998 and an account will be raised from that date. Council congratulates you on your successful tender and wishes you well in your new business. 15 On 19 December 1997 the Council sent the respondent a draft licence agreement 'for consideration'. This form of licence agreement contained significant departures from the terms of the draft licence agreement included with the tender specification documents. Importantly, the option was reduced from 5 years to 4 years; reviews of licence fees for the years subsequent to year 1 would be market reviews and not in accordance with the Consumer Price Index; and the licence could be determined by the Council if the premises were to close for demolition, without any provision for compensation. There were other discrepancies. 16 There followed a meeting between the parties on 23 December 1997. The respondent complained about the form of certain clauses in the agreement and raised other matters. 17 A further meeting occurred on 13 January 1998 wherein the respondent complained about the changes to the licence agreement. The Council representative, Mr Dwyer, indicated that he would speak to the Council and get back to the respondent. It appears that Mr Vescio, a senior officer at the Council, acknowledged most of the respondent's complaints and so indicated, at least in the respects he set out in notations he made to the memorandum of 15 January 1998. Mr Vescio noted that the licence agreement should be amended to adhere to the term 'offered' by the Council in its specification for the tender. 18 Accordingly, Mr Dwyer informed the respondent that the Council did not appear to have a problem with the changes and the licence document would be available in a couple of weeks. However, the licence agreement was not made available notwithstanding a number of attempts by the respondent to obtain it from the Council. 19 In the meantime, the Council indicated that it would carry out necessary repairs to the kiosk to make it safe for occupation and use by the respondent. This work was to take place on 16 March 1998. 20 The respondent continued to press the Council for the licence agreement but, it is fair to say, was continually fobbed off with excuses. Indeed, the document was not faxed to the respondent until 13 March 1998. However, something of much greater consequence happened on that day. Without notice to the respondent, the Council commenced to demolish the kiosk. The respondent's architect attended the next day and found that the front of the building had been substantially demolished. 21 Apparently, Mr Vescio, and Mr Dwyer of the Council, had no forewarning of the partial demolition of the kiosk by the engineering department of the Council. It came as a complete surprise to them. No doubt it was a calculated pre-emptive strike by that department of the Council. 22 Between 19 March and 8 April 1998 further discussions took place between the parties about the possibility of rebuilding the kiosk. However, on 8 April 1998 the respondent was told, for the first time, that it was Council's intention to completely demolish the building. This was reaffirmed to the respondent at a meeting with the Mayor and others on 21 April 1998. On 12 May 1998 the Council resolved that it withdraw the offer of a licence to the respondent for the operation of the kiosk and would proceed to complete the demolition of the building.

The judgment of Rolfe DCJ 23 His Honour held that the case fell within the second category identified in Masters v Cameron (1954) 91 CLR 353 at 360. That is, where the parties had completely agreed on all of the terms of their bargain and intend no departure or addition to the agreed terms, but nevertheless have made performance conditional upon the execution of a formal agreement. 24 In particular his Honour said: Although it was submitted on behalf of the Council that it was the intention of the parties not to make a concluded bargain until the licence agreement was executed, I reject this submission. First of all, I consider the submission inconsistent with paragraphs 1 and 3 of the Notice of Grounds of Defence. More importantly, I am satisfied on the evidence that the parties entered into a binding agreement when Council accepted the plaintiff's tender by its letter dated 15 December 1997. The Agreement required certain matters to be complied with by the plaintiff as was clear from the tender documentation, specifically the execution of a formal licence agreement. In this regard I am satisfied that the failure of the parties to enter into a licence agreement was entirely the fault of the Council, not the plaintiff. First of all, the council produced a draft licence agreement that did not conform with the draft licence agreement which was part of the tender documentation. I have already referred to the areas of departure earlier in this judgment. For its part, the plaintiff sought to have these points of departure addressed by the Council. I am satisfied that both Mr Dwyer and Vescio recognised that the plaintiff's complaints in this regard were legitimate. Thus, the parties were attempting to finalise these matters when the Council, unilaterally and without consulting the plaintiff, partially demolished the Kiosk on 13 March 1998 so as to make it unfit for occupation and use by the plaintiff. 25 His Honour's point about the pleadings was appropriate. In its defence the Council admitted that the respondent tendered for a licence to use and occupy the kiosk and that it accepted the respondent's tender (see paras 6 and 7 of amended statement of claim and para 1 of defence). 26 However, the statement of defence argued that the acceptance of the tender was conditional upon certain things, including the execution of a licence agreement which did not occur. 27 Notwithstanding the 'pleading point', his Honour went on to consider whether a final and binding agreement was made between the parties and held that there was when the Council accepted the respondent's tender by its letter dated 15 December 1997. 28 His Honour said that he was not satisfied that the agreement reached between the parties on 15 December 1997 included compliance with the draft plan of management. In any event, the partial demolition of the kiosk on 13 March 1998 frustrated and rendered impossible any requirement of the respondent to comply with the draft plan. 29 The trial judge then proceeded to assess damages and concluded that an appropriate award was $350,000, which together with interest from 13 March 1998 to the date of trial amounted to a verdict of $469,506.46. His Honour used the 13 March 1998 as the relevant date because that is when he found that the loss of the bargain crystallised (see the supplementary judgment of 21 August 2001).

Was there a binding agreement? 30 It is the submission of Mr Forster SC, on behalf of the Council, that it is clear from the tender documents that the parties intended that they enter into a licence agreement. This is plain from the invitation to tender, which enclosed a draft form of licence agreement and the reference in the specification to the draft agreement. There was also specific reference in clause B15 of the specification to the requirement of execution of the licence agreement prior to occupation. 31 Counsel also relies on the 'Note' at the foot of the draft licence agreement accompanying the tender documents. His Honour did not refer to it. The contents of the note have already been set forth by me earlier in these reasons. Mr Forster relies on the reference in the note to the document being for the 'guidance of intending tenderers' and the indication that the final document may differ from the draft 'based on legal advice'. 32 The Council acknowledges that the draft licence agreement submitted on 19 December 1997 differed in a number of respects from the draft. This fact was used to support a submission that no final and binding agreement had been made on 15 December 1997. Reliance was also placed upon the negotiations of the parties thereafter which dealt with aspects of the draft licence. Again, it was submitted that this is indicative of there being no concluded agreement on 15 December 1997. 33 It was submitted on behalf of the appellant that his Honour asked himself the wrong question. He should have asked whether the parties had completely agreed on all of the terms of their bargain and intended no departure or addition thereto. The appellant says that the answer to that question must be in the negative because the terms of the licence agreement had by no means been agreed upon. Terms remained to be negotiated by the parties. 34 On behalf of the respondent Mr Brereton SC submits that the trial judge's conclusion that a legally binding agreement was made on 15 December 1997, when the Council accepted the respondent's tender, was correct. The fact that the parties contemplated that the agreement would be ultimately consummated by a form of legal grant of a licence to use and occupy the kiosk did not detract from the existence of a binding agreement made on 15 December 1997. 35 The question is really one of whether the parties intended to be bound upon acceptance on 15 December 1997 notwithstanding their mutual contemplation that further documentation would be involved. 36 According to Mr Brereton's submission, the test is an objective one, see Solle v Butcher [1950] 1 KB 671 at 691 per Denning LJ and Taylor v Johnson (1983) 151 CLR 422 at 428 – 429. This is correct, as is the respondent's concession that the context to be considered may include events occurring after the alleged date of the contract, because this may assist in pin-pointing when a contract was made. For example, it may help in determining when parties moved from a state of negotiation to agreement. 37 It is the respondent's submission that upon communication of the acceptance by the appellant of the respondent's tender on 15 December 1997, there was a binding contract in force which required the Council to grant to the respondent a licence upon the terms set out in the tender documentation. Mr Brereton submits that this can be supported either on the basis of the second category of Masters v Cameron or on what has become known as the fourth category. That is, that a legally binding preliminary agreement has been concluded but the parties expect to make a further agreement which, by consent, might include further terms. However, in the interim the parties are to be bound by what they have agreed. See Sinclair Scott & Co v Naughton (1929) 43 CLR 310, Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 at 628 and on appeal at 634 – 635 of the same report. More recently see Handley JA in Brunninghausen v Glavanics (1999) 46 NSWLR 538 at 545, with whom Priestley JA and I agreed. 38 An analysis of the relevant evidence of the dealings between the parties starts with the Council's invitation to treat of 17 November 1997. This included the enclosure of relevant tender material, including the 'licence agreement', not then referred to as a 'draft'. At that time the parties contemplated that the licence agreement for the use and occupation of the kiosk would commence on 1 January 1998. 39 The tender specification stated the activity approved under the licence and contained twenty-five detailed and comprehensive conditions applicable to the licensee. The specification provided for the licence fee and its review, as well as an option for a further five years. With regard to the fee, the document uses the language of offer (by the tender) and acceptance by Council, see Blue AB 208N. The specification also requires the licence fee to be payable as from the date of occupation 'notwithstanding the fact that the licence agreement may not have been executed'. Where the specification requires execution of the licence agreement prior to occupation, it also qualifies this by indicating that if there is a delay in execution, the successful tenderer is required to make the first months' payment on occupation and to continue to pay each monthly payment. It follows from this that the parties must have intended that there be legal consequences of an acceptance of the tender even if a licence agreement was not executed. 40 The specification also referred to the 'draft licence agreement' which was attached. 41 What does the 'note' mean on the front page of the draft licence agreement included with the tender specification? Is it no more than an illustration of an earlier licence so as to 'guide' tenderers? Does it mean that the terms of the licence agreement are still to be negotiated and may depart from the 'draft'? Or does the 'note' on the document lead to a different conclusion? To my thinking, the clue as to its meaning is in the words 'based on legal advice and the tender submitted and accepted by Council'. 42 First, alterations to the draft are permissible so long as they do not depart from the agreement constituted by the acceptance of the successful tender. This means that the draft deed may be amended in order to comply with the specification and accepted tender. For example, it would need to include the 5 year option and the method of review of the licence fee, both matters covered by the tender and specification as accepted. Second, the note would permit variations to the draft which were necessary to comply with the requirements of the law. 43 The note does not in my opinion contemplate, nor permit, any substantive departure from the terms of the accepted tender. This is for good reason. Tenders under the Local Government Act 1993 are strict. Clause 19 of the Local Government (Tendering) Regulation requires that a Council must ensure that every contract it enters into as a result of a tender accepted by the Council be in accordance with the tender. A tender can only be varied in the limited circumstances set forth in the regulations. There are obvious good policy reasons for these requirements.

44 The form of acceptance of the tender by the Council in its letter of 15 December 1997 needs to be examined. When it is, it is apparent that it uses the language of tender and acceptance. The Council resolution is set forth. It is to the effect that 'the tender' of the respondent for the operation of the kiosk for 1 year with a 5 year option from 1 January 1998 at a 'initial rental of $37,000 be accepted'. 45 The letter refers to the licence being prepared. It does not suggest the contemplation of any additional or altered terms or negotiation. The letter also states that first monthly instalment of $3084.00 as being due on 1 January 1998. The letter adds Council's congratulations on the success of the tender. The letter clearly speaks in terms of a final acceptance. It does not say that there is more for us to reach agreement upon. Certainly not with respect to the terms of the licence because its terms were spelt out in the specification and supplemented by the draft licence which accompanied the tender documents. 46 Certainly the 'note' to the draft licence did not permit the Council to insist on the form of licence agreement sent to the respondent on 19 December 1997. This departed substantially from the accepted tender. It was even inconsistent with Council's letter of acceptance by its purported reduction of the option period by one year. Further, the 'note' did not entitle the Council to move the goalposts on the licence fee review clause from CPI to market. The same applies to the purported inclusion of a clause permitting demolition of the kiosk without providing for compensation. 47 The draft licence agreement submitted by the Council significantly and impermissibly departed from the accepted tender. It seems that Mr Vescio, from the Council's side, accepted that the Council was not entitled to insist on these changes to the form of licence contemplated by the tender specification. Indeed, Mr Vescio is one of the few Council officers who emerges from this litigation with his reputation intact. His Honour believed him to be an impressive witness and it is clear that he was trying to do the right thing.

48 In my opinion, there was clearly a binding concluded agreement between the parties upon the acceptance of the tender by the Council on 15 December 1997. It was either an agreement under the second category or under the fourth and extended category of Masters v Cameron, but as to which category matters not.

The contract and the Plan of Management 49 It is a ground of appeal that his Honour was in error in finding that the draft plan of management of the reserve was not part of the terms and conditions of the tender. It is submitted that his Honour should have held that the agreement was subject to the terms and conditions of the plan of management. Further, that he should have held that the plan called for the demolition of the kiosk, then if that came to pass, the agreement came to an end and the respondent was only entitled to damages up to the date of demolition only. 50 In my opinion this ground of appeal is lacking in any substance. 51 In evidence was a draft plan of management for Clovelly Bay prepared by a consultant to the Council and dated February 1996. Including attachments it is close to 200 pages long. It is not apparent as to when and if this draft was adopted by the Council as a plan of management in accordance with the Local Government Act. No adopted plan of management was put into evidence. Large slabs of the draft plan are purely aspirational or merely indicative of future possibilities and options. 52 At page 37 of the draft plan there is a passing reference to: · Demolish existing kiosk, however a heritage assessment and records of the kiosk should be made prior to its demolition. · Provide a kiosk facility that compliments [sic] the bay. 53 Another reference in an attachment to the document notes that an entrance space to the reserve could be created through demolition of the kiosk, but adds 'Heritage assessment of kiosk required prior to demolition' and 'locate kiosk facilities elsewhere'. 54 How it could be said that the content of the draft management plan could become a term and condition of the contract belies belief. The draft plan does not speak in contractual language. Its language cannot possibly be interpreted so as to provide a term or condition of the agreement which would permit the Council to demolish the kiosk at its will and frustrate the contract it had entered into by acceptance of the tender. Why anyone in their right mind would enter into a one year licence with a 5 year option, involving significant expense and investment, on the basis that Council could demolish the kiosk at any time it chose beggars belief. 55 The tender documents did not refer to the possibility of demolition, although they did refer to the plan of management for Clovelly Beach. But, as his Honour found, no such document was included with the tender documents. That finding is not challenged. It is not to the point that the respondent was somehow aware of the draft plan, as his Honour mentioned.

The Cross-Appeal 56 The respondent cross appeals on his Honour's orders as to costs. Rolfe DCJ ordered the Council to pay the respondent's costs on a party and party basis up to 24 May 2001 and thereafter on a solicitor and client basis. It is the submission of the respondent that his Honour should have, in accordance with Part 39A rule 25(4) of the District Court Rules, ordered the Council to pay the whole of the respondent's costs on a solicitor and client basis. 57 On 24 May 2001 the respondent served an offer of compromise on the Council wherein the respondent was prepared to accept the amount of $330,000 plus costs. The offer was not accepted and the respondent has done better. The trial commenced on 26 June 2001, more than 28 days after the offer was made, therefore it is rule 25(4) which applies rather than rule 25(4A). 58 Rule 25(4) provides: Where an offer is made by a plaintiff 28 days or more before the hearing of the action commences, and the offer is not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court in an exceptional case and for the avoidance of substantial injustice otherwise orders, the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim assessed on a solicitor and client basis. 59 It has not been suggested that the court would find that this was an exceptional case or, for the avoidance of substantial injustice an order in accordance with r 25(4) should not be made on a solicitor client basis. Indeed, counsel for the appellant made no submission on the cross-appeal. 60 It seems likely that his Honour simply applied the wrong sub-rule and the respondent was entitled to the costs of the action on a solicitor and client basis in accordance with Part 39A rule 25(4) of the District Court Rules. Accordingly, the cross-appeal should be upheld with costs.

Costs of the Appeal 61 Consideration needs to be given to the costs of the appeal. The appellant has failed in relation to its two substantial grounds but succeeded on its interest ground, that issue being conceded by Mr Brereton at the hearing. What implications for the costs of the appeal should this situation produce? The respondent suggests that, bearing in mind the preparation of written submissions and the small time taken by the issue at the hearing, it would be appropriate that the appellant be ordered to pay 90% of the respondent's costs of the appeal. Mr Forster submits that whilst not much court time was taken at the hearing on the interest issue, substantial effort was needed to prepare the evidence and written argument on interest for the appeal. He suggests that the discount on costs should be closer to one-third. 62 It seems to me that it would be appropriate to discount the respondent's costs by 20% to allow for the appellant's success on the interest point. Accordingly, I would order that the appellant pay 80% of the respondent's costs of the appeal.

Proposed Orders

1. Appeal allowed in part.

2. The verdict and judgment for the plaintiff in the sum of $469,506.46 be set aside and in lieu thereof substitute a verdict and judgment for the plaintiff in the sum of $407,061.00.

3. Set aside his Honour's orders as to costs made on 21 August 2001 and substitute therefor an order that the appellant pay the respondent's costs of the trial on a solicitor and client basis.

4. Order the appellant to pay 80% of the respondent's costs of the appeal.

5. Cross-Appeal allowed with costs. 63 SANTOW JA: I agree with Stein JA. **********

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