New South Wales Supreme Court CITATION : Fox Entertainment Precinct Pty Ltd v Centennial Park and Moore Park Trust [2004] NSWSC 214 revised - 26/03/2004 HEARING DATE(S) : 09/02/04, 10/02/04, 11/02/04, 12/02/04, 13/02/04 JUDGMENT DATE : 26 March 2004 JURISDICTION: Equity Division Commercial List JUDGMENT OF : Barrett J DECISION : Claims for rectification of lease dismissed. Judgment for defendant on cross-claim for rent. CATCHWORDS : EQUITY - rectification for mistake - whether parties under common mistake - whether one party took unconscionable advantage of unilateral mistake by other party - CONTRACT - "further assurance" clause in commercial contract - effect and operation of clause Budget Stationery Supplies Pty Ltd v National Australia Bank Ltd (1996) 7 BPR 14,891 Australian Gypsum Ltd v Australian Plaster Co Ltd (1930) 45 CLR 54 Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329 Fowler v Fowler (1859) 4 De G & J 250 GPI Leisure Corporation Ltd v Herdsman Investments Pty Ltd [1990] ANZ ConvR 367 Kelly v Ollis [2003] NSWSC 1032 CASES CITED : Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Pukallus v Cameron (1982) 150 CLR 447 Re Freehouse Pty Ltd (1997) 26 ACSR 662 Sande v Medsara Pty Ltd [2004] NSWSC 147 Taylor v Johnson (1983) 151 CLR 422 Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 Tutt v Doyle (1997) 42 NSWLR 10 PARTIES : Fox Entertainment Precinct Pty Limited - Plaintiff Centennial Park and Moore Park Trust - Defendant FILE NUMBER(S) : SC 50163/03 COUNSEL : Mr A J Meagher SC/Ms K Richardson - Plaintiff Mr P M Wood/Mr G K J Rich - Defendant SOLICITORS : Allens Arthur Robinson - Plaintiff Clayton Utz - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BARRETT J FRIDAY, 26 MARCH 2004 50163/03 – FOX ENTERTAINMENT PRECINCT PTY LIMITED v CENTENNIAL PARK AND MOORE PARK TRUST JUDGMENT Background 1 The plaintiff, Fox Entertainment Precinct Pty Limited ("Fox"), and the defendant, Centennial Park and Moore Park Trust (a corporation constituted by statute which I shall call "the Trust"), are the parties to two leases dated 27 June 2002. The leases together cover the parcel of land which, for many years, was the site of the Sydney Showground at Moore Park, each lease being a lease of a separate part of that parcel. 2 In April 1996, Fox (then called Fox Studios Australia Pty Limited) as lessee and the Royal Agricultural Society of New South Wales (a predecessor of the Trust) as lessor had entered into a 40 year lease of the total parcel. The permitted use of the land under the April 1996 lease was "as a Studio, as a Family Entertainment Complex and for carparking facilities only". "Studio" was defined to include facilities for film, video and multimedia production. The definition of "Family Entertainment Complex" referred to an area for public entertainment including things such as restaurants, retail areas, cinemas and attractions. 3 In the years following the grant of the April 1996 lease, the demised premises were developed in such a way that the studio and the Family Entertainment Complex (or "FEC") came to house distinct but complementary operations. Both areas were open to the public. The studio was used for film and television production but also provided guided tours and entertainments for paying visitors. The FEC was freely accessible to the public in the expectation that persons coming to it would become patrons of its various commercial establishments. 4 During 2001, a restructuring of the lease arrangements was proposed as part of a wider rearrangement of the parties' relationships. As regards the site, the rearrangement involved, in its broadest form, formal subdivision of the parcel into two parts, one housing the bulk of the studio which would no longer be open to the public and the other (which would be open to the public) consisting of the original FEC plus the remainder of the original studio. There were to be to be two new leases, one for the part of the studio no longer accessible by the public and the other for the enlarged FEC. Part of the rationale for the change was that each segment and the business conducted on it would become capable of disposal independently of the other, should a desire to effect any such disposal arise. 5 Two new leases were in due course executed in conformity with a contract made on 7 March 2002. Execution of the leases on 27 June 2002 followed grant of formal approvals necessary to effect the subdivision. The process of negotiation and drafting that culminated in the contract of 7 March 2002 had begun in October 2001 when the parties which, since 1998, had owned the lessee company (The News Corporation Limited ("News") and Lend Lease Corporation Limited ("Lend Lease")) entered into heads of agreement setting out a basis on which they would pursue the restructure proposal. 6 As plaintiff in these proceedings, Fox contends that one of the leases executed on 27 June 2002 (being the lease relating to the enlarged FEC area, which I shall call "non-studio lease") does not correctly reflect the agreement reached between landlord and tenant. Fox says that it is entitled to rectification of the non-studio lease on the basis of common mistake or its own unilateral mistake or, alternatively, pursuant to a "further assurance" clause in a deed designated "Deed of Restructure and Consent". 7 The several claims advanced by Fox depend heavily on findings the court is invited to make about things that were said and written in negotiations during the period October 2001 to March 2002. The main negotiator on behalf of Fox was Mr Harvey. He is now the chief executive of Fox and, during the period in question, was its chief financial officer. The solicitors acting for Fox were Allens Arthur Robinson ("Allens"). The partner of that firm who played the leading role and drafted relevant documents (or supervised their drafting) is Mr Clarke. Other solicitors, principally Ms Poole and Ms Holthouse, assisted him. For the Trust, the main negotiator was Mr Duncan, a senior officer of the New South Wales public service who was at the relevant time the director (effectively, chief executive officer) of the Trust. The solicitors acting for the Trust were Clayton Utz, the responsible partner being Mr Craven. He also had other solicitors assisting him, the main assistant being Ms Rees. Evidence was given by Mr Harvey, Mr Clarke, Mr Duncan and Mr Craven, as well as by Mr Williams (Mr Harvey's predecessor as chief executive officer of Fox) and Mr Walker (a member of the board of the Trust). The first four were cross examined, as was Mr Walker. The provision in question 8 The provision of the non-studio lease that Fox seeks to have rectified is the clause dealing with "turnover rent" which is one component of the overall rent payable. The other component - "minimum rent" - is a stated sum subject to periodic adjustment by reference to market value and inflation in a way that is not unusual in commercial leases extending beyond a relatively short term. In conceptual terms, "turnover rent" is rent additional to the quantified "minimum rent" and is calculated under the provisions of the lease by reference to the revenues derived by the tenant from operations conducted on the demised premises. As included in the new and separate non-studio document executed on 27 June 2002 in conformity with the parties' contract dated 7 March 2002, the provision with respect to turnover rent is as follows: "3.5 (b) In addition to the Minimum Rent, the Lessee must pay to the Lessor in respect of each Relevant Period rent equal to the amount (if any) by which 5% of the Revenue for the Relevant Period exceeds the Minimum Rent for the Relevant Period provided that the total amount of the Minimum Rent and Turnover Rent payable under this Clause in respect of any Relevant shall not exceed and is limited to 133% of the aggregate of: (i) the minimum rent for the Relevant Period under the Studio Lease; and (ii) the Minimum Rent for the Relevant Period, provided that for the purposes of clause 3.5(b)(i): (A) the minimum rent under the Studio Lease must be calculated in accordance with clauses 3.2, 3.3 and 3.4 of the Studio Lease as those clauses existed on the date of execution of the Non-Studio MCI Agreement (provided that, if clause 3.2(d) of the Studio Lease applies, the amount will be the lesser of the minimum rent which may be agreed under the clause and the amount of minimum rent which could have been reached by the application of the formula in clause 3.2(c)(ii) of the Studio Lease as the clause existed on the date of execution of the Non-Studio MCI Agreement); (B) the Lessor must provide the Lessee with sufficient information in relation to the minimum rent under the Studio Lease to enable the Lessee to calculate that minimum rent and must procure the consent of the lessee under the Studio Lease to disclosure of that information; and (C) if at any time during the Term the Studio Lease is terminated, then the amount to be inserted in this clause 3.5(b) is the amount of the minimum rent which would have been payable under the Studio Lease as at the date of termination of the Studio Lease, adjusted in respect of each Rent Period after the date of termination of the Studio Lease in accordance with the provisions of clause 3.2(c) or, if applicable, clause 3.2(d) (disregarding in each case the references to odd or even numbered Rent Periods) of the Studio Lease." 9 The rectified form of this provision for which Fox contends is set out in paragraph 33 of the further amended statement of claim filed on 10 February 2004. It is as follows (the underlining shows the changes Fox says should be made): "3.5 (b) In addition to the Minimum Rent, the Lessee must pay to the Lessor in respect of each Relevant Period rent equal to the amount (if any) by which 5% of the Revenue for the Relevant Period exceeds the aggregate of the Minimum Rent for the Relevant Period and the minimum rent for the Relevant Period under the Studio Lease, provided that the total amount of the Minimum Rent and Turnover Rent payable under this Clause in respect of any Relevant Period and the minimum rent for the Relevant Period payable under the Studio Lease shall not exceed and is limited to 133% of the aggregate of: (iii) the minimum rent for the Relevant Period under the Studio Lease; and (iv) the Minimum Rent for the Relevant Period, provided that for the purposes of this clause 3.5(b) (i) : (A) the minimum rent under the Studio Lease must be calculated in accordance with clauses 3.2, 3.3 and 3.4 of the Studio Lease as those clauses existed on the date of execution of the Non-Studio MCI Agreement (provided that, if clause 3.2(d) of the Studio Lease applies, the amount will be the lesser of the minimum rent which may be agreed under the clause and the amount of minimum rent which could have been reached by the application of the formula in clause 3.2(c)(ii) of the Studio Lease as the clause existed on the date of execution of the Non-Studio MCI Agreement); (B) the Lessor must provide the Lessee with sufficient information in relation to the minimum rent under the Studio Lease to enable the Lessee to calculate that minimum rent and must procure the consent of the lessee under the Studio Lease to disclosure of that information; and (C) if at any time during the Term the Studio Lease is terminated, then the amount to be inserted in this clause 3.5(b) is the amount of the minimum rent which would have been payable under the Studio Lease as at the date of termination of the Studio Lease, adjusted in respect of each Rent Period after the date of termination of the Studio Lease in accordance with the provisions of clause 3.2(c) or, if applicable, clause 3.2(d) (disregarding in each case the references to odd or even numbered Rent Periods) of the Studio Lease." The alleged defect in the provision 10 Central to Fox's case is a proposition to the general effect that there existed at all material times an intention that the two new leases entered into in 2002, taken together, should not entail any departure from the basis of rent computation reflected in the lease of the parcel as a whole entered into in 1996 – or, more precisely, that there should be no departure except as expressly agreed to deal with certain specific matters identified and negotiated in the context of the 2002 restructure. Since Fox thus contends that the 1996 lease was the source of a bargain as to rent to be carried over into the two new leases with unaltered effect (or altered only in particularly identified respects), it is necessary to set out the 1996 provision with respect to turnover rent: "In addition to the Minimum Rent, the Lessee must pay to the Lessor in respect of each Relevant Period, rent equal to the amount (if any) by which 5% of the Revenue for the Relevant Period exceeds the Minimum Rent for the Relevant Period provided that the amount payable under this Clause in respect of any Rent Period shall not exceed and is limited to 133% of the Minimum Rent for the Relevant Period." 11 The general thrust of this 1996 provision with respect to turnover rent is, I think, intelligible enough without access to the detailed definitions of the terms starting with capital letters, although it is relevant to note that "Revenue" was defined as the aggregate of moneys received from the sale of goods and services to the public in the non-studio area (for things such as food and drink, cinema and other entry tickets and merchandise), the sale of tickets to members of the public for tours of the studio area and car parking fees. The "Revenue" concept thus reflected an assumption – perfectly valid under the 1996 arrangements – that both the studio and the FEC would generate receipts which formed part of the overall revenue by reference to which the "turnover rent" component of the total rent under the single lease would be calculated. 12 The restructure that involved the closing of most of the studio area to the public and the substitution of two new leases for the 1996 lease had the consequence that, for the future, nothing relevant to "Revenue" would be produced by the area that became the subject of the separate lease of the reduced studio. All components of such "Revenue" would come solely from the area the subject of the new non-studio lease. Any maintenance of the pre-existing rental basis under the two new leases therefore involved something more than mere reproduction of the original turnover rent provision in each of the new leases. For one thing, the concept was meaningless in relation to the reduced studio area that would cease to be revenue generating. Second, the 1996 provision referred, in two aspects of the turnover rent calculation, to its minimum rent (being the minimum rent for the whole parcel), whereas unadorned and unqualified references to minimum rent in the new and separate non-studio lease would be references only to the minimum rent for the part of the whole parcel the subject of that separate lease. I should explain, in the latter connection, that the minimum rent under the 1996 lease, in respect of the period of four years commencing 1 January 1999, was $2,500,000 per annum and that the minimum rents under the new studio lease and the new non-studio lease were $559,441 and $1,940,559 respectively. Those two represented a split of the original $2,500,000. 13 It is the contention of Fox that two mistakes occurred in the preparation of the non-studio lease. The first mistake arose because the formula for calculating turnover rent under the non-studio lease was the same as under the 1996 lease, that is, 5% of revenue minus the minimum rent for the relevant period. This failed to recognise that the reference to "Minimum Rent" in the new non-studio lease was a reference to the minimum rent provided for therein ($1,940,559) as distinct from the minimum rent of $2,500,000 for the whole parcel. Bearing in mind that, under the new system, all revenue was derived from the area covered by the non-studio lease and none arose from the studio, the "Revenue" referred to in the non-studio lease represented the totality of the revenue generated by the parcel as a whole, yet the deduction from it was the minimum rent of $1,940,559 under the new non-studio lease, rather than the minimum rent of $2,500,000 applicable to the parcel as a whole under the 1996 lease. 14 The second mistake in the new non-studio lease, according to Fox, occurred in the "cap" provision contained in the proviso. As incorporated into the non-studio lease, the proviso limited total rent for the area the subject of that lease – that is, minimum rent and turnover rent together under the non-studio lease – to 133% of the aggregate of the minimum rent for that period under the non-studio lease and the minimum rent for that period under the studio lease. Fox says that the thing subjected to this limit represented by 133% of the combined minimum rents under both leases should have been the aggregate of three things rather than two, the three being the minimum rent under the public area lease, turnover rent under the public area lease and minimum rent (being the only rent) under the studio lease. The third, it is said, was omitted by mistake. 15 The effect of the two mistakes Fox says were made in the preparation of the non-studio lease may be illustrated by an example. Assume that, in respect of a particular period, the initial minimum rent figures under the two new leases apply. These, as I have said, are $559,441 per annum for the studio lease and $1,940,559 per annum for the non-studio lease, representing a simple split, as between the two areas, of the minimum rent of $2,500,000 under the 1996 lease. Assume also that annual revenue in respect of the period in question is $70,000,000. Had the 1996 lease continued, the first step in calculating turnover rent in accordance with the provision of that lease set out at paragraph [10] above would have been to calculate 5% of revenue. The result would have been $3,500,000. The excess of that $3,500,000 over the minimum rent under the 1996 lease ($2,500,000), being an excess of $1,000,000, would have been the turnover rent payable in addition to the minimum rent, subject to the limitation in the proviso. The proviso limited the additional rent element represented by turnover rent to 33% of the minimum rent, that is, 33% of $2,5000,000, being $825,000. Applying the proviso, the $1,000,000 that was the turnover rent without regard to the proviso would have been reduced to equate with the proviso sum of $825,000. Total rent, on that basis, would have been the minimum rent of $2,500,000 plus the turnover rent of $825,000 as limited by the proviso, that is, an overall sum of $3,325,000. 16 This may be contrasted with the position under the two new leases. Under the non-studio lease as executed, the first step in the calculation of turnover rent is to determine the amount by which 5% of revenue (again, $3,500,000) exceeds the minimum rent under the non-studio lease itself (being $1,940,559). That excess is $1,559,441 and, subject to the effect of the proviso, that is the amount of the turnover rent. The proviso in the non-studio lease imposes a cap upon the aggregate of minimum rent and turnover rent payable under that lease. The cap is 133% of the aggregate of the minimum rent under the studio lease ($559,441) and the minimum rent under the non-studio lease itself ($1,940,559) – that is 133% of $2,500,000 which is $3,325,000. This cap limits the aggregate of the minimum rent under the non-studio lease ($1,940,559) and the prima facie turnover rent under that lease, which has already been calculated at $1,559,441 – that aggregate being $3,500,000. Because the aggregate of $3,500,000 to be capped is greater than the cap of $3,325,000, the cap applies to make the non-studio lease's minimum rent plus turnover rent the equivalent of the cap, that is, $3,325,000. Because the minimum rent is $1,940,559 and the capped aggregate of minimum rent and turnover rent is $3,325,000, the turnover rent alone is seen to represent the difference of $1,384,441. But, of course, the landlord receives separately under the studio lease the minimum rent reserved by that lease, being $599,441. In the aggregate, therefore, the total rent for the site is minimum rent of $1,940,559 under the non-studio lease, turnover rent of $1,384,441 under the non-studio lease and minimum (indeed only) rent under the studio lease of $559,441. The overall return is therefore $3,884,441. 17 As these examples show, the annual rent for the whole parcel in respect of the hypothetical period under examination would be $3,884,441 under the two new leases, compared with $3,325,000 under the 1996 lease. The new leases, reflecting what Fox says are the two errors in the preparation of one of them, thus involve, on the figures used for the purposes of the above examples, a financial disadvantage to Fox to the extent of $559,441. 18 Fox contends that such disparity and disadvantage to it were unintended and were the product of the two errors in the non-studio lease. Its thesis is that the two new leases were drafted without an appreciation of the full implications for the turnover rent provisions of the substitution of two leases for a single lease. To set matters right, according to Fox, the non-studio lease needs to be corrected in two ways: first, the figure to be subtracted from 5% of revenue to determine the prima facie turnover rent (that is, the turnover rent unaffected by the cap imposed by the proviso) should, as in the 1996 lease, be the minimum rent for the whole parcel (that is, the minimum rent under the non-studio lease plus the minimum rent under the studio lease); and, second, the proviso which is the source of the cap should refer to 133% of the minimum rent for the whole parcel (again, the minimum rent under the non-studio lease plus the minimum rent under the studio lease). 19 Fox's claims based on mistake are a claim that, by common mistake, Fox and the Trust failed to give effect to their true intentions in the non-studio lease and, in the alternative, a claim that Fox alone was under a mistake when it entered into the non-studio lease, that the trust knew (or must have known) about that mistake and that the Trust allowed Fox to enter into the non-studio lease knowing that it was labouring under the mistake. It is appropriate to deal with these clams before considering the alternative based on the "further assurance" clause. The legal principles 20 To succeed in its claim for rectification on the basis of common mistake, Fox must show that Fox and the Trust shared a continuing common intention as to the operation of the rent calculation provisions. Success for Fox on the alternative basis of unilateral mistake entails, of necessity, a finding that Fox and the Trust did not share a common intention. In advancing the alternative cases, Fox thus embarks upon the task of making good mutually exclusive propositions. The Trust seeks this as entailing a task of enormous difficulty for Fox, but I must say that I do not see the difficulty as particularly acute. It is true that Fox sets out to establish, on the one body of evidence, two different conclusions. But it seeks to establish the second (as to unilateral mistake) only if it fails in establishing the first (as to common mistake). In the end, the evidence will be seen to support the first conclusion, the second conclusion or neither of them and the case will, as to Fox's mistake contentions, be decided accordingly. 21 In advancing a rectification claim based on alleged common mistake, Fox undertakes an exacting task. It must show the existence of a common intention of the parties that was at odds with the instrument to which they committed themselves; and it must be so by "clear and convincing proof". Authoritative guidance as to the correct approach to a rectification claim of this kind is provided by members of the High Court in Pukallus v Cameron (1982) 150 CLR 447. Wilson J said (at p 452): "The case raises no issue as to the principles which govern the rectification of a contract. Those principles are not in dispute. There need not be a concluded antecedent contract, but there must be an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake is omitted therefrom: Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at p.664; Slee v Warke (1949) 86 CLR 271 at p.280; Joscelyne v Nissen [1970] 2 QB 86, at p.98; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, at p.350. So long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression, notwithstanding the views expressed to the contrary in Joscelyne at p.98, and Maralinga at p.350. The opposing view is argued by Mr Bromley QC in an article in the Law Quarterly Review vol 887 (1987) p.532. It is unnecessary to pursue the distinction in the present case because the representation of the respondent and its acceptance by the appellants plainly established such an accord. The second principle governing the rectification of a contract which is material to this case is that which requires the plaintiff to advance 'convincing proof' that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms. The Court must not assume for itself the task of making the contract for the parties." Brennan J said (at p 456): "Although the remedy of rectification is no longer held to depend upon proof of an antecedent concluded contract, Slee at p.280; Maralinga at p.336, it is necessary to show a concurrent intention of the parties, existing at the time when the written contract is executed, as to a term which would have been embodied in the contract if the parties had not made a mistake in expressing their intention. Proof of such an intention is necessary to 'displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties' Maralinga at p.351." 22 To these observations may be added that of Mason J in Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at p 350: "What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. And there has been a firm insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral, except in cases of a special class to which I shall later refer. It is now settled that the existence of an antecedent agreement is not essential to the grant of relief by way of rectification. It may be granted in cases in which the instrument sought to be rectified constitutes the only agreement between the parties, but does not reflect their common intention ( Shipley Urban District Council v. Bradford Corporation [1936] Ch 375; Slee v. Warke (1949) 86 CLR 271). But this circumstance does not affect what I have already said." 23 In Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329, Mahoney A-P emphasised that what is to be identified is an intention, being, in the case of an agreement between two parties, the intention of both of them. Only if the document fails to give effect to what is seen to be the common intention of those parties will rectification be ordered. 24 In the case of unilateral mistake, where the actuating misapprehension is said to have operated upon one party but not the other, rectification is generally not permissible. There is, however, an exception where the party not under the misapprehension is guilty of fraud, whether actual, constructive or equitable. The relevant principle was stated by Mason ACJ, Murphy and Deane JJ in Taylor v Johnson (1983) 151 CLR 422 at 432-433 as follows: "The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension. ... In such a situation it is unfair that the mistaken party should be held to the written contract by the other party whose lack of precise knowledge of the first party's actual mistake proceeds from wilful ignorance because, knowing or having reason to know that there is some mistake or misapprehension, he engages deliberately in a course of conduct which is designed to inhibit discovery of it." 25 While this statement is concerned, in a direct sense, with rescission, it is equally applicable where a plaintiff seeks rectification. The members of the High Court quoted observations of Buckley LJ (with whom Brightman LJ agreed) in Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 at 514-516 concerning the requirements for rectification in case of unilateral mistake: "Undoubtedly I think in any such case the conduct of the defendant must be such as to make it inequitable that he should be allowed to object to the rectification of the document. If this necessarily implies some measure of 'sharp practice', so be it; but for my part I think that the doctrine is one which depends more upon the equity of the position. The graver the character of the conduct involved, no doubt the heavier the burden of proof may be; but, in my view, the conduct must be such as to affect the conscience of the party who has suppressed the fact that he has recognised the presence of a mistake. For this doctrine - that is to say the doctrine of A. Roberts & Co. Ltd. v Leicestershire County Council [1961] Ch. 555 - to apply I think it must be shown: first, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, mistakenly, it did contain; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. If these requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A's intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake." This formulation has been followed in Australia: see, for example, Budget Stationery Supplies Pty Ltd v National Australia Bank Ltd (1996) 7 BPR 14,891 and Re Freehouse Pty Ltd (1997) 26 ACSR 662. 26 In his recent judgment in Sande v Medsara Pty Ltd [2004] NSWSC 147, Burchett AJ referred to cases in which the Court of Appeal of this Court and the Court of Appeal of Victoria have applied the Taylor v Johnson principle. Those cases are Tutt v Doyle (1997) 42 NSWLR 10 and Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1. The comments of Burchett AJ in relation to them were as follows: "In Tutt v Doyle (1997) 42 NSWLR 10, the Court of Appeal applied Taylor v Johnson to a situation where what was in question was the rectification of a conveyance. Meagher JA (with whom Brownie AJA agreed) said at 12-13: '[T]he real question involved in the case emerges: is it unconscionable for one party knowingly to take advantage of another party's mistake? An affirmative answer seems to me to flow from the High Court's decision in Taylor v Johnson ... . True, in that case the only equitable remedy under consideration was rescission... . But I do not read the High Court as saying that once the ground of unconscionability is made out, it becomes a case of rescission or nothing.' In Leibler v Air New Zealand Ltd (No. 2) [1999] 1 VR 1, the Court of Appeal of Victoria upheld an order for rectification, on the ground of a unilateral mistake, where the mistaken party's solicitor had erroneously deleted from an agreement a clause which should only have been amended, not deleted, and the other party, knowing that a mistake had been made, concluded the agreement without drawing attention to the mistake. Winneke P and Phillips JA said (at 4): 'His Honour found...that, when the parties executed the shareholders' agreement not long afterwards, the one was continuing to labour under the mistake that cl. 10.9 had not been deleted but merely amended and the other remained aware that the former was labouring under that mistake. His Honour found further that although cl. 10.9 had been solely for the benefit of the respondents and had been deleted by the respondents' own solicitors (albeit by mistake), the appellants ought to have drawn the mistake to their attention and, not having done so, had acted unconscionably. In short, his Honour made all the findings of fact necessary to sustain an order for rectification... .' Kenny JA summarised the principles involved in the following terms (at 14): 'The principles which govern an application for rectification of a contract on the ground of unilateral mistake can be briefly stated. If (1) one party, A, makes an agreement under a misapprehension that the agreement contains a particular provision which the agreement does not in fact contain; and (2) the other party, B, knows of the omission and that it is due to a mistake on A's part; and (3) lets A remain under the misapprehension and concludes the agreement on the mistaken basis in circumstances where equity would require B to take some step or steps, depending on those circumstances, to bring the mistake to A's attention; then (4) B will be precluded from relying upon A's execution of the agreement to resist A's claim for rectification to give effect to A's intention [here her Honour cited Taylor v Johnson and numerous other authorities]. Whether or not the mistake must be one which operates in favour of B or merely to the detriment of A is not entirely clear... .' 27 Burchett AJ also referred to the position in Canada: "In Canada, the law goes at least as far as these authorities in favour of an application for rectification, and may go somewhat further. In Anderson v Brouwer Claims Canada & Co Ltd [2002] BCSC 1043, Chamberlist J said (at para 72), citing Downtown King West Development Corp v Massey Ferguson Industries Ltd 28 OR (3d) 327: 'Where the mistake is unilateral, that is of one party only, rectification formerly was allowed only in cases where the non-mistaken party was aware of the other party's mistake and consciously sought to take advantage of it by means of conduct bordering on fraud or involving sharp practice. More recently, these limits on the availability of the remedy have been relaxed so that where one party is mistaken as to the terms of an agreement, and the other knows of the mistake and does not draw it to the attention of the mistaken party, it suffices that it would be inequitable to allow the non-mistaken party to insist on the binding force of the document, either because this would benefit him or because it would be detrimental to the mistaken party: see Thomas Bates and Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505.' His Honour went on to indicate the existence of a question whether actual knowledge of the mistake was required, and to express his own view in the following terms: 'Equity and fair dealing in modern commercial transactions require that this form of relief be available in situations where one party may not actually have known of the other's mistake but the mistake was of such a character and accompanied by such circumstances that the party had good reason to know of it and to know what was intended.'" 28 I have referred to the requirement for "clear and convincing proof" where common mistake is alleged. The same requirement applies in a case of alleged unilateral mistake. In such a case, this requirement extends not only to the making of the mistake but also to precise correspondence between the mistake made and the mistake identified by the plaintiff for the purposes of the rectification claim – in other words, the plaintiff must show, by convincing proof, that a particular mistake was made and that it is precisely that mistake and no other that was known to and unconscientiously taken advantage of by the defendant. These matters are emphasised in the judgment of Kenny JA in Leibler v Air New Zealand Ltd (No 2) (above). 29 The requirement for "clear and convincing proof" was recently referred to by Young CJ in Eq in Kelly v Ollis [2003] NSWSC 1032. After quoting the statement of the requirement by McLelland AJA in Commissioner of Stamp Duties v Carlenka Pty Ltd (above), Young CJ in Eq said: "The phrase 'clear and convincing proof' is a key element in this statement. This indeed is a modernization of the requirement in the older authorities that the case for rectification must be established by 'strong irrefragable evidence' (per Lord Thurlow in Shelburne (Countess) v Inchiquin (Earl) (1784) 1 Bro CC 338, 341; 28 ER 1166, 1168)." 30 In Australian Gypsum Ltd v Australian Plaster Co Ltd (1930) 45 CLR 54 at p.64 Rich, Starke and Dixon JJ approved a statement by Lord Chelmsford in Fowler v Fowler (1859) 4 De G & J 250 at p.265 that the plaintiff must establish the alleged intention "in the clearest and most satisfactory manner". The insistence upon a high degree of proof in this area is a recognition of two realities: first, that persons who take the trouble to record their agreement in writing (particularly when they are, as here, assisted by lawyers) must generally be presumed to intend their written bargain to prevail over what they have not written; and, second, that it is easy for one such party, upon becoming dissatisfied after the event with some element of the written compact, to seek to brand it as inaccurate. Fox's assertions as to the essentials of the mistake claims 31 In advancing its common mistake claim, Fox states the common intention and agreement of the parties at paragraph 23 of the further amended statement of claim: "When the Public Precinct Lease and the Studio Lease were signed, it was the common intention and agreement of all relevant parties that: (a) the only changes in relation to the rent provisions for the Site under the Original Lease and for the Site under the Public Precinct Lease and the Studio Lease were: (i) the bringing forward of a market rent-review period from 1 January 2003 to 1 July 2002; (ii) the establishment of a ratchet provision for the review of minimum rent; (iii) conforming amendments to the definition of 'Revenue' in the Public Precinct Lease (to reflect the closure of the Backlot); and (iv) provisions included in the Public Precinct Lease to allow the lessee to obtain details of the Studio Minimum Rent and to deal with the situation where the Studio Lease was amended or terminated during the term of the Public Precinct Lease; (b) otherwise, the restructure would not result in any change in the mechanism by which the total rent payable for the Site would be calculated; ie. there would be minimum rent payable for the Site and turnover rent payable up to a maximum of 33% of the minimum rent for the Site; (c) specifically, the total rent payable for the Site under both the Public Precinct Lease and the Studio Lease for a relevant period was as follows: (i) Minimum Rent for the Site, apportioned as follows: (A) the Minimum Rent payable under the Public Precinct Lease (and since the amendments this is subject to an earlier market review and subject to a ratchet); plus (B) the Minimum Rent payable under the Studio Lease; plus (ii) turnover rent ; (A) calculated as 5% of Revenue generated at the Public Precinct minus the Minimum Rent payable for the Site; (B) but, the maximum turnover rent payable is 33% of the Minimum Rent of the Site. (collectively, the true intentions of the parties ) PARTICULARS Letter from Michael Harvey to Peter Duncan dated 27 February 2002. Additional particulars will be provided in affidavits to be filed by the plaintiff later this week." 32 Fox's unilateral mistake claim is pleaded as follows at paragraph 33E of the Further amended statement of claim: "Alternatively, if paragraph 23 does not reflect CPMPT's intention at the time of entering into the Public Precinct Lease and the Studio Lease, FEP [ie, Fox] says: (a) that FEP's belief at the time of entering into the Public Precinct Lease and the Studio Lease was as set out in paragraph 23 above; (b) at the time of execution of the Public Precinct Lease CPMPT knew that FEP held that belief; PARTICULARS (i) Email dated 21 February 2003 [scil. 2002] from Alex Rees of Clayton Utz to Andrew Clarke and Victoria Poole of Allens and response email dated 22 February 2003 [scil. 2002] from Andrew Clarke of Allens to Alex Rees and Clive Craven of Clayton Utz (ii) Conversation between Michael Harvey, Peter Duncan and others at CPMPT's offices held on 22 February 2002, referred to in paragraph 27 of Michael Harvey's affidavit of 27 November 2003 (iii) Letter from Michael Harvey on behalf of FEP to Peter Duncan of CPMPT dated 27 February 2002 (iv) Further particulars may be provided following discovery and inspection. (c) at the time of execution of the Public Precinct Lease CPMPT knew that the Public Precinct Lease did not give effect to FEP's belief set out in (a) above and as such that FEP was mistaken; PARTICULARS FEP repeats the particulars to paragraph 33E(b) above (d) CPMPT failed to bring the mistake to FEP's attention; and (e) the mistake was detrimental to FEP." 33 To succeed in one of its mistake claims, Fox must establish by "convincing proof" the existence of the precise common intention stated in paragraph 23 of the further amended statement of claim or that Fox alone had that precise intention and that the Trust's state of mind in relation thereto was as pleaded in paragraph 33E. 34 Having referred to the quoted parts of the further amended statement of claim, I should record that certain parts of the claims advanced in that pleading were eventually not pressed by Fox. Fox did not pursue any claim based on the Fair Trading Act 1987. Nor did it pursue a claim based on the proper construction of the lease provisions as written. Claims based on estoppel and unconscionable conduct were pressed only to the extent that they formed part of the unilateral mistake case. Fox did press its claim based on a "further assurance" clause in the "Deed of Restructure and Consent" acknowledging, however, that that claim overlapped to a large extent with the rectification claim based on common mistake. The documentary evidence 35 I now turn to the evidence, concentrating on the period September 2001 to March 2002 which is the period of the negotiations that led to the contract for the creation of the new leases. The desirable course is to review first the contemporary documentary evidence and then to move on to what was said in affidavits and cross-examination. 36 The earliest contemporary document of relevance to the course of negotiations is a report by Mr Duncan to the members of the Trust dated 21 September 2001. Mr Duncan reported that discussions had recently taken place with Fox and "it is likely that some changes will be made, particularly to the backlot area and the commercial areas". He attached for members' information a summary of existing lease provisions. This contained the following by way of summary of the rent position under the 1996 lease: "Minimum rent: $2,500,00 pa commencing 1st January 1999 Turnover rent: Amount by which 5% of revenue exceeds minimum rent but capped at 33% of minimum rent." 37 In October 2001, News and Lend Lease prepared draft heads of agreement intended to embody an understanding between them, as the participants in the Fox studios joint venture. That draft did not, of course, directly affect the relationship between Fox and the Trust. But, to the extent that it was a draft affecting the constituents of one side of the Fox-Trust negotiations, it does serve to throw some light indirectly upon those negotiations. The draft envisaged, among other things, subdivision of the whole parcel covered by the 1996 lease into two lots and the creation of a new lease for each such lot with the "ground rent payable to the CPMPT to be apportioned" between the new studio area lease and the new non-studio lease in accordance with a stated formula based on area, although not involving a simple apportionment in direct proportion to the respective areas. This section includes the statement, "No turnover rent will be payable in respect of the New Studio Area". 38 A copy of the News-Lend Lease draft heads of agreement was sent by Mr Clarke of Allens to Mr Craven of Clayton Utz under cover of a letter dated 11 October 2001, commenting that the draft was "consistent with the terms of the discussions we've had to date, although some of the interposed steps have been adjusted (and may continue to be)". Mr Clarke invited questions and comments from Mr Craven. 39 On the same day, 11 October 2001, Mr Craven sent an email to Mr Clarke saying that he had reviewed the draft heads of agreement "in respect of those matters that appear to impact the Whole of Government position" and communicating certain comments and questions. These included questions about the precise areas of the two proposed lots. With respect to rent, Mr Craven said, in numbered item 5: "I have checked the split of the base rent under clause 7.1 and note that it recognises the special nature of the core 10 hectares. I further note, as previously discussed, the turnover rent will only be payable on the non-Studio Area. One small point is that clause 4.1(b), where it speaks of nominal rent, seems to be inconsistent with clause 7.1." 40 On 12 October 2001, Mr Clarke sent Mr Craven a revised draft of the News-Lend Lease heads of agreement. Mr Clarke's covering letter made responses to the points raised in Mr Craven's email. Against item 5, Mr Clarke said, "Noted". The revised draft reflected no change with respect to the rent. 41 On 15 October 2001, Mr Clarke made a rough handwritten note of a telephone conversation he had on that day with Mr Craven. Because it contains incomplete sentences and dot points, the note was probably written by Mr Clarke while he was actually on the telephone. Part of it reads: " turnover rent/minimum rent there's a cap which currently puts [sic] $91m turnover on Non-Studio area at moment This produces cap in excess" 42 News and Lend Lease signed heads of agreement on 16 October 2001. In relation to the rent matter presently relevant, the executed heads of agreement were in the same form as the draft already mentioned. 43 On 22 October 2001, a meeting of the members of the Trust received a report on the News-Lend Lease proposals. The minutes of the meeting record that several persons attended the meeting for the purpose. They included Mr Williams (CEO of Fox) and Mr Craven. The minutes record that Mr Williams was invited to "update the Trust". Mr Williams is reported to have referred to the proposal to close the backlot and to effect a subdivision, following which "there will be two leases identical to the original lease which have direct relationships to the Trust". 44 On Thursday 25 October 2001, Mr Craven wrote to Mr Duncan of the Trust and Mr Clements of the Department of State and Regional Development. The letter refers to an aspect of the discussion at the meeting of the Trust on 22 October 2001: "I was asked a question about turnover rent by one of the Trustees at Monday afternoon's meeting at the Trust's offices. You will recall that turnover rent only applies to the Non-Studio Business, not to the Studio Business. With the reduction of Non-Studio space an issue arose as to whether that could reduce the turnover rent for the Trust. I answered a question on this issue by advising that any loss of revenue from the Backlot would be irrelevant to the amount of turnover rent because of the cap placed on turnover rent. I had been told that the turnover of the Non-Studio Business would produce substantially more turnover rent but for this cap and, hence, a small loss in revenue due to the closure of the Backlot would not make any difference in the end to the amount of turnover rent payable to the Trust because of the cap. Of course, what I overlooked was that entry to the Backlot for the last 12 months or more has been free. Hence, its closure will have no impact. Indeed, the re-use of that part of the Backlot in the Non-Studio area should increase revenue, but the cap will ensure that the amount of the turnover rent will not increase." 45 Mr Clarke made a handwritten file note of a conversation with Mr Craven and Ms Lees (also of Clayton Utz) on 5 November 2001 which included the following: "Turnover Rent we to talk to M Harvey about the capacity for CPTMPT [sic] to not get at least same" 46 There is then a note in the margin: "133% of increase in studio is the issue – valuatn [scil. valuation] likelihood" 47 On 22 November 2001, Mr Clarke sent a letter to the "Fox Studios Restructure Working Group", the members of which were Mr Williams (CEO of Fox), Mr Harvey (CFO of Fox), Ms McDonnell (Fox's internal lawyer), Mr Philip of News and persons at Lend Lease and its solicitors, Freehills. The letter was accompanied by a number of documents, including, as item 1, a consolidation of the existing lease (i.e, the lease dating from 1996) and: "2. First draft Studio Headlease (called the 'Studio Lease'), marked against the Consolidated Showground Headlease, as described in 1. above. 3. First draft of the Non-Studio Headlease (called the 'Family Entertainment Complex Lease'), marked to show changes against the Consolidated Showground Headlease described in 1. above." 48 The drafts relating to the new studio area and the new non-studio area took the form of a copy of the 1996 lease marked to show deletions, additions and variations. In the draft for the new studio area, all the provisions with respect to turnover rent are shown as deleted. In the draft for the new studio area, the operative provision on turnover rent is the 1996 form (set out at paragraph [10] of these reasons) without amendment, although there are some changes in the preceding provision which contain definitions and machinery measures. 49 A paper prepared for the Trust's November meeting contained a report on the restructure proposal. A section beginning, "In summary, the restructure involves the following" contains this item: "3. re-allocating the Minimum Rent for the 2 areas in accordance with clause 7.1 of the Heads of Agreement. This re-allocation recognises the special nature of the original core 10 hectares of Studio Use Area. Turnover rent will only apply to the reduced Non-Studio Use Area;" 50 This was amplified later in the paper as follows: "2. Rent Fox Moore Park pays the Trust a Minimum Rent of $2.5m per annum plus turnover rent of 5% of revenue generated on the Non Studio Area. Turnover Rent is capped at 133% of the Minimum Rent paid in that year. The Minimum Rent will be split between the Studio and Non Studio Areas as described above. It is understood that the amount of the Turnover Rent will not be reduced as a result of the changed areas because entry fees have not been charged for the Backlot for the last year or so. In any event, even if such fees were being charged, the high revenue being generated by the Non Studio Area is such that the 133% cap on this element of the rent will always apply to reduce what otherwise would have been the Turnover Rent but for the cap. One small point to note is that the 133% cap will need to be increased to reflect the lesser amount of Minimum Rent payable on the smaller Non Studio Area." 51 Mr Clarke's file note of a meeting on 27 November 2001 with Mr Harvey, Ms McDonnell and persons from Lend Lease and Freehills contains the following: "FEC Lease same comment on early termination check numbering in 3.4 Turnover rent is TR = 33% of greater of $2.5m and the M.R. Check template on the base plate in consolidated if its wrong, amend it and 3.4 of the FEC leave as well" 52 On 28 November 2001, Mr Harvey sent Mr Clarke an email as follows, headed "Subdivision": "Further to yesterday, the sub division is not going to be finalised until March next year. The rounded areas and calculations of rent as follows: Studio 13.2h $559,441 Public 11.1h $1,940,559 Total 24.3h $2,500,000 I assume that we can finalise once we approach completion, when the final measurements will be taken." 53 On 30 November 2001, Mr Clarke sent a letter to Mr Craven (copied to Mr Williams, Mr Harvey, Ms McDonnell plus News and Lend Lease representatives) including drafts of documents, including forms of the 1996 lease marked to show how the original document would be adapted to become a lease for the new studio area and a lease for the new non-studio area. These drafts of the two proposed leases were revised versions of the drafts previously sent by Mr Clarke to "Fox Studios Restructure Working Group". Mr Craven and his client had not seen those earlier versions. The drafts of 30 November 2001 were the first submitted to Clayton Utz. 54 The operative clause in relation to turnover rent in the 30 November 2001 draft of the proposed new non-studio area lease was as follows (with underlining showing changes from the 1996 version): "(b) In addition to the Minimum Rent, the Lessee must pay to the Lessor in respect of each Relevant Period, rent equal to the amount (if any) by which 5% of the Revenue for the Relevant Period exceeds the Minimum Rent for the Relevant Period provided that the total amount of the Minimum Rent and Turnover Rent payable under this Clause in respect of any Relevant Period shall not exceed and is limited to 133% of the Minimum Rent for the Relevant Period greater of : (i) $2,500,000; (ii) the Minimum Rent for the Relevant Period. " In the draft of the new studio lease, the turnover rent provisions were entirely omitted. 55 A memorandum prepared by Mr Craven contains notes made at a meeting of 5 December 2001 attended by him, Mr Clarke and others from Allens and Clayton Utz. Among the notes is one relating to rent calculation. The note is, however, cryptic, as it consists mainly of figures requiring explanation. It is desirable to leave consideration of this note until the affidavit and oral evidence are addressed. Ms Rees' note of the same meeting is in evidence and will be considered at the same time. 56 By letter dated 6 December 2001, Mr Clarke reported to his client (and to Lend Lease and News) on the meeting of 5 December 2001. Under the heading "Turnover Rent", he said: "Clive is not happy that the turnover rent formulation in clause 3.4(b) of the Family Entertainment Complex Lease will be acceptable to the CPMPT. This is a key issue for the government, which does not want to see any reduction in the rental streams as a result of the restructure. The key issue is that CPMPT misses out on any increase in the Studio Area base rent being included in the cap. While there is logic in his concern, he accepts that we cannot tie the two leases together for this purpose. We left it on the basis that we would need to think about this issue some more from the Non Studio Business point of view and would get back to him. In a sense, this is the largest issue outstanding at the moment." 57 Also by letter dated 6 December 2001, Mr Craven reported to Mr Duncan of the Trust and Mr Clements of the Department of State and Regional Development on the meeting of 5 December 2001. In relation to turnover rent, Mr Craven said: "I discussed with Allens the need to increase the turnover rent percentage cap to accommodate the split of Minimum Rent between the Studio and non-Studio Areas. They did not agree with me and at first tried to convince me that retaining the cap at 133% on $2.5m, until the Minimum Rent on the Non-Studio turnover increased from $1.7m to above that figure, was a benefit to us. After a lot of discussion I think I convinced them that that was an incorrect approach and they have taken the point away and will respond." 58 Mr Craven took this matter up again with Mr Duncan and Mr Clements in a letter sent by email of 7 December 2001. The letter began as follows: "Further to our meeting late Wednesday afternoon with Allens, I have reviewed the rent provisions, particularly the cap on turnover rent in Allen's redrafted lease in detail. As a result of that review, I now agree in part with what Allens were putting to us, but also disagree in part. I thought it best to put in writing my understanding of what Allens are proposing to clarify the position. I have used examples based on assumptions to illustrate the different position." 59 Mr Craven then expressed an opinion that the provisions as drafted by Allens "will benefit the Trust in the short term but, I think, disadvantage it in the long term". Mr Craven went on to discuss the workings of the rent provisions in some detail, comparing them with the then existing position under the single lease of 1996. The email concluded: "If my figures are correct, the proposed restructure of the rent clause would give an initial and substantial benefit, but that benefit would be reduced over time and, I think, would result in a lower rental after some years. Thus the status quo would not have been achieved. We need to discuss this issue further. Perhaps Peter, we should talk to PWC about this issue and related rent issues." 60 On 10 December 2001, Ms Poole of Allens emailed to Mr Williams, Mr Harvey and Ms McDonnell of Fox, plus Freehills and Lend Lease personnel, a draft letter and amended lease clauses prepared for transmission to Mr Craven. She requested "your comments as soon as possible". 61 On 11 December 2001, Mr Craven emailed to Mr Clarke (with copies to Mr Duncan and Mr Clements) a letter containing comments on the draft documents, noting that these were subject to such instructions as he might receive from his client. In relation to turnover rent, this letter merely said: "My client is currently reviewing the Turnover Rent provisions." 62 Ms Poole sent an email to Mr Craven on the same day, 11 December 2001, saying that his letter of that date was being reviewed. Ms Poole also attached "suggested clauses to address some of the issues raised at our meeting last week". The letter also said, under the heading "Turnover Rent": "The Schedule sets out amendments to clause 3.4(b) of the FEC Lease to take account of your concern." The schedule contained a suggested clause 3.4(b) for the public area lease as follows: "In addition to the Minimum Rent, the Lessee must pay to the Lessor in respect of each Relevant Period, rent equal to the amount (if any) by which 5% of the Revenue for the Relevant Period exceeds the Minimum Rent for the Relevant Period provided that the total amount of the Minimum Rent and Turnover Rent payable under this Clause in respect of any Relevant Period shall not exceed and is limited to 133% of the greater aggregate of: (i) $2,500,000 the minimum rent for the Relevant Period under the Studio Lease ; and (ii) the Minimum Rent for the Relevant Period provided that the calculation for the purposes of paragraph (i) is in accordance with the formula contained in the Studio Lease on the Effective Date, as annexed to this Lease at Appendix [*]. The Lessor must provide the Lessee with sufficient information in relation to the minimum rent under the Studio Lease to enable the Lessee to calculate that minimum rent and must procure the consent of the lessee under the Studio Lease to disclosure of that information. " 63 On 18 December 2001, Mr Craven wrote to Mr Duncan and Mr Clements, enclosing a copy of his letter of 11 December 2001 to Mr Clarke and a copy of Mr Clarke's letter of the same date to Mr Craven (including the redrafted lease clauses). The introductory part of the letter contained the following: "On 11 December we gave our preliminary comments on the redrafted Studio and Non Studio leases. Allens responded on the same date to issues raised in our initial meeting with them on 4 December. Both letters are enclosed. On 14 December we met with PWC, who had been appointed by the Trust to advise on rent. Enclosed is a copy of their advice. This followed our preliminary advice on 7 December (enclosed) on Fox's proposed changes to the rent to accommodate the split site. Fox has recently proposed an alternative (see enclosed 11 December letter from Allens)." 64 Under the heading "Non-Studio Lease", Mr Craven said: "We have previously made comments to Allens on this Lease. Such comments were made subject to receipt of further instructions from both of you. We need to also discuss the PWC advice on turnover rent and News/Fox's later proposal in the Allens letter of 11 December." Mr Craven concluded by identifying several "major (commercial) outstanding issues". Among these was "Division of rental between the 2 sites, and in particular the calculation of turnover rent for the Non-Studio site." 65 Mr Clarke subsequently sent out new drafts of the various restructure documents, including the two leases. These were, on 21 December 2001, sent to the Fox, News and Lend Lease representatives, as well as to Mr Craven. Mr Clarke said that the documents "should now reflect the position agreed by all parties except in relation to the following outstanding issues". Among the matters following was the comment that Mr Craven has indicated that certain matters remained to be agreed, including: "Division of rental between the 2 sites, and in particular the calculation of turnover rent for the Non Studio site." 66 On 14 January 2002, Ms Poole sent an email to Mr Harvey and Ms McDonnell of Fox listing what "we think are the outstanding issues in relation to the restructure of Fox Studios". Among those described as "issues on which we have a position (i.e. have proposed clauses) but which are still being considered by the Government" was "turnover rent on the FEC lease". "We" here referred, clearly enough, to Fox and its solicitors. 67 Mr Duncan prepared a paper in advance of a meeting of the Trust held on 11 February 2002. This read in part as follows: "The Trust has engaged PriceWaterhouseCoopers (PWC) to provide commercial advice in relation to the Fox proposals. PWC's initial advice recommended base rent of $2.5 million is split 50/50 between Studio and Non-studio and removing the turnover cap. Fox Studios has proposed a revised formula which splits the base rent 22%/78% between Studio and Non Studio. However, the proposed arrangement may financially disadvantage the Trust over the long term. The determination of the rental formula will have long term financial implications for the Trust that could also impinge on the 'Direct State Assistance' provided by the Ministerial Corporation for Industry (MCI) through the Fox Industry Assistance Showground Agreement. The issue of rent will be a contentious issue in the negotiation with News/Lend Lease. However it is considered that if News/Lend Lease are to sub divide the site and sell off the lease on the public (non studio area) of the site a commercial return closer to market value should be provided to the Trust. It is also considered that any new rental position should be one that is auditable and transparent. The previous agreement was the subject of a Performance Audit Report by the Audit Office and an extract from the report is provided. ( Attachment A ) Mr Duncan also said: "Current discussions with DSRD and Fox indicate that increasing site rental in this sub division process will be strongly resisted." 68 Among Mr Duncan's recommendations to the Trust was that the Trust should support the proposed subdivision on several bases, one of which was "Rent payable to the Trust is not reduced and if possible improved." 69 On 23 January 2002, Ms Poole sent Ms Rees an email saying, in relation to the issue of turnover rent, "We understand that our proposal is being considered by the Government …" 70 On 30 January 2002, Ms Poole updated her colleagues within Allens on what she had been told of a discussion between Mr Harvey and Ms McDonnell of Fox and Mr Harris, Director General of the Department of State and Regional Development. One of two "big outstanding issues" was described as follows: "the Government is still reviewing the rent allocation and is getting a report from PwC on the rent (?? Don't know what aspect) which will be available next week. Fox stated that they would not agree to any increase in the rent. MCI indicated that any perception of a decrease or change in the rent would be unacceptable to the Government." 71 On the same day, Ms Rees emailed Mr Clarke and Ms Poole the result of Clayton Utz's completion of review of the restructure documents. No reference was made to the subject of turnover rent. A file note made the following day by Ms Poole refers to her discussion with Mr Craven and Ms Rees and includes the following: "rent proposed split of min rent OK PwC doing paper for CPMPT re turnover rent". 72 On 2 February 2002, Mr Harvey sent an "update briefing" to relevant persons within Fox. He said, among other things: " Rent – we understand that the Centennial Park Trust may use this as an opportunity to improve their position in regards to a higher rent from the public areas. We have been advised that they will be presenting a proposal to us later this week. Clearly we will resist this, however until we see what they are proposing, I will not comment further." 73 A file note made by Mr Clarke of a discussion with Mr Craven and Ms Rees on 8 February 2002 said, in relation to rent: " still floating around with Gov't T/o rent on non-studio area meeting with PwC yesterday final report due Mon." 74 Mr Clarke wrote to Mr Harvey and Ms McDonnell of Fox (plus the Lend Lease and Freehills representatives) on 8 February 2002 reporting the conversation on that day with Mr Craven and Ms Rees. The account in the letter is, naturally enough, more detailed than the brief contemporaneous file note: "The rent clause remains outstanding. PWC have given a draft report but it has been sent back to prepare a final report which is due for receipt by the CPMPT either tonight or first thing Monday morning. The CPMPT has a board meeting Monday night at which they will consider the rent report. It is expected that the PWC report will recommend an increase in the turnover rent, presumably by removing the cap, with respect of the Non-Studio Area. I indicated to Clive that obviously any move in that direction would be disappointing to joint venture parties and that I couldn't predict which way the discussions would then head. The CPMPT would need to involve Michael in those discussions immediately." 75 On the same day (8 February 2002), Ms Poole sent to Mr Harvey, Ms McDonnell and the Lend Lease and Freehills representatives (as well as Mr Clarke and Ms Holthouse) "final versions of the proforma variations of each of the Studio and the FEC Area Leases as prepared by Victoria Holthouse", showing changes since the drafts circulated on 21 December 2001. Attention was drawn to certain features, including: "We have not amended clause 3.5 (turnover rent) in the FEC lease but will wait for the government's response." 76 Mr Clarke recorded on 11 February 2002 notes of a conversation with Mr Craven and Mr Peters (of Lend Lease). Under the heading "Rent" appears the following: " PwC report is being delivered today Not talking about Studio Rent dealing with Non-Studio Rent need to ensure CPMPT not to be disadvantaged need to prove that rent is not going down. Second: The CPMPT wants to see if there is an increase for rent both minimum & turnover ($2m min + 5% turnover w/o cap). They say, cap results in the rent being $300,000 less than it would otherwise be if it were uncapped (based on today's turnover)." 77 On the evening of 11 February 2002, a meeting of the Trust took place. The minutes record the following: "The Director reiterated that the current arrangement with News Ltd is base rent plus capped turnover, (totalling $3.35m). PricewaterhouseCoopers (PWC) had examined this arrangement on behalf of the Trust and advised that $4.23 million is a more appropriate, yet conservative, estimate of market rent. PWC suggests raising the base rent and raising turnover cap to optimise market-based return. It was noted that January 2003 is the first review of the market rate for the site and PWC recommends setting up the processes now in preparation. The removal of the capped turnover would be desirable but News Ltd and Dept of State and Regional Development are unlikely to support this. The Trust considered the implications of this and acknowledged that while it needed to preserve its revenue stream, it is not the sole player in the issue and that other industry development issues are involved. The Trust agreed to maintain a firm position on the need to protect the public interest and the Parklands' revenue stream. 1. The Trust noted the advice of the Director and PWC and the current status of discussions on rent and related issues as a result of the request to subdivide the Fox Studios leased area. 2. The Trust supports the proposed subdivision on the basis that: · News Limited not be released from its guarantor role on both sites · Rent payable to the Trust is consistent with market value, and that the cap on turnover be removed as a way of achieving this. · Capital works undertaking in the original agreement is maintained. 3. The Trust agreed that the issue of public access to heritage sites such as Busby's Bore must also be acknowledged in discussions." 78 Mr Clarke made notes of separate telephone conversations on 13 February 2002 with Mr Peters of Lend Lease and Mr Philip of News. In the note of the conversation with Mr Peters there appears: "Rent – still open issue." 79 The note of the conversation with Mr Philip says: " discussed the guarantee issue also discussed additional rent" 80 It is necessary to interpolate here an explanation of the various references to a role played by PricewaterhouseCoopers ("PwC"). That role had its genesis in the meeting of the Trust held on 22 November 2001 at which Mr Williams of Fox explained the restructure proposal. As a result of that meeting and further consideration, Mr Duncan was instructed by the Trust to obtain advice from PwC regarding rent. A memorandum sent by Mr Duncan to Mr Redman of PwC on 8 November 2001 refers to a meeting on the previous day between Mr Duncan, Mr Redman and Mr Clements (Department of State and Regional Development) at which Mr Redman had been informed that the Trust was "considering the impact of the closure of the Fox Studios backlot and the separating of the current lease into two separate sub-leases". After referring further to the proposal, Mr Duncan said that the Trust was "requesting commercial advice on the current arrangements and the possible future commercial opportunities for the Trust". He also said that it was not the Trust's intention "to try to block future change but to optimise outcomes for the Trust in the medium to long term". Mr Duncan then identified some issues: " · What is the commercial value of the site given the last two years trading? · Trust needs a model for going forward · Some possible questions: base rent with or without turnover rent, do we wish to retain turnover component, stamp duty implications, GST issue for trust in 2004, do we wish to link new leases, can the Trust require some additional rights if a sale of lease occurs ie parking or show ring space usage. · Do we wish to put conditions on a future sale?" 81 At a meeting of the Trust held on 28 November 2001, Mr Duncan reported that PwC had advised that "the Trust is not receiving the appropriate level of market value and that it should be 7% - 8% to be commercially viable rather than the 3% currently received". He also said that the Ministerial Corporation for Industry had been advised that "the Trust would be keen to maximise its return to the Trust from a landlord perspective". 82 A draft of PwC's report to the Trust was sent to Mr Duncan on 19 December 2001. That draft, after referring to Fox's proposal to restructure the lease, suggested that "the Trust in giving it's [sic] approval to the proposed subdivision, seek amendment to the rental provisions" in certain stated ways. The final report of PwC was dated 19 February 2002 and differed from the draft. An aspect of the Fox proposal was briefly referred to as follows: " The proposal from Fox to restructure the current lease agreement and to effectively subdivide the site uses and redevelop the Backlot, will result in the studio area increasing from 10.0ha to 13.2ha with the non-studio area reducing from 14.3ha to 11.1ha, without adjustment to the rent payable to CPMPT." 83 The PwC advice went on to observe that the proposed changes gave rise to a situation of "added business opportunities for the Film Studio site" and "increased commercial development of the retail precinct". The advice continued: "Accordingly, to give the Trust a more equitable return from ongoing non-studio related commercialisation, and the opportunity to recoup increased repair and maintenance costs external to the Showground site (as a result of increased user numbers in and around the area not calculable at the time of entering into the agreement), we suggest that the Trust seek amendment to the rent provisions as recommended below before granting it's [sic] approval to the proposed subdivision." 84 Two "options of rent adjustment" were then set out. The details of them are unimportant. The significant point is that the PwC report centred upon ways in which the Trust might seek to negotiate a higher rent or more favourable rent calculation method for the site as a whole, with the splitting of the area between two leases as a catalyst in such an attempt. PwC followed up with a memorandum to Mr Duncan on 22 February 2002 discussing certain aspects in greater detail. 85 On 21 February 2002, Mr Craven and Ms Rees sent an email to Mr Clarke and Ms Poole that should be quoted in full: "The Trust has now provided us with its position in relation to the Fox Studios Restructure. Their position is as follows: A conservative estimate of market rent for the non-studio area is $4.23 million (current maximum rent including turnover is $3.325 million). PWC has suggested raising the minimum rent payable to the Trust to $3.325 million. This would ensure, as Fox has suggested, that there is no adverse impact on the Trust under the restructure proposal. In addition, and to move towards a market rental return, PWC has also suggested that the turnover cap be lifted. If this occurred the total rent would be $3.7 million, assuming turnover remained at $74 million. The Trust has noted and understands that in January 2003 the first review of the market rate for the site will occur since Fox's occupation of the site. The Trust suggests the process for this market review be commenced immediately in preparation for the 2003 review. The Trust acknowledged that this issue is a whole of Government issue and that other industry development considerations are involved. However, the Trust is committed to protecting its potential revenue stream and ensuring that commercial assets return the market value and are not subsidised by public parklands. The Trust approves the proposed subdivision only on the basis that: 1. News Limited not be released from its guarantor role on both sides. 2. Rent payable to the Trust is consistent with market value, and that the cap on turnover be removed as a way of achieving this. 3. The Capital works undertaking from the original MCI Agreement is maintained. 4. The issue of public access to heritage sites such as Busby's Bore is acknowledged and addressed in discussions. Please telephone us to discuss the above, once your clients have had an opportunity to consider the Trust's position." Ms Poole copied the above email to Mr Harvey, Ms McDonnell and the Lend Lease and Freehills representatives on the day of its receipt. 86 Mr Clarke replied on 22 February 2002 to the email of 21 February 2002 from Mr Craven and Ms Rees. Again, the email should be quoted in full: "Thank you for sending the email below. Suffice to say that I think we need to discuss it before I seek instructions on it. Are we able to do so as early tomorrow morning as possible please so that I am in a position to be able to respond to the inevitable questions I will receive at the opening of the day? One comment bears a response however. You say in your note that Fox has suggested that there be no adverse impact on the Trust under the restructure proposal. To be fair, the only position put by FSA is that there be no adverse impact to either party in the allocation of rent. I wouldn't want it thought that FSA had intended or permitted that concept to be interpreted as allowing protection of one party to the detriment of the other. Not much may turn on it as a political or practical matter – the conditions your client have raised will need to be dealt with in order for the proposal to proceed. I think it would be helpful in that process for the request by your client to substantially increase the rent not to be called anything else or, more particularly, not to be supported on the basis that it refers to any suggestion or invitation on FSA's part. That may just get a few hackles up, that's all. So, if we can deal with the substantive issues as soon as possible that would be appreciated. As you know, this request, and the rent component of it in particular, is not likely to be easily met by FSA and, as a result of its timing, is likely to cause significant difficulty in the partners' commercial and tax planning. Do you know if the Trust has raised these issues directly with FSA or either partner, as we suggested last week would be politic?" 87 Ms Poole sent Mr Clarke an email on the same day reporting a discussion she had had with Mr Harvey: "I spoke with Michael Harvey last night. He has an 11am meeting with Peter Duncan today. He said the proposal was not what Peter had indicated it would be and therefore wants to speak directly with Peter. Just he and Catherine will attend the meeting. He wants to clarify that the proposal applies only to the non-studio side (in which case he believes the proposal makes the FEC commercially non-viable). We also need to clarify that this proposal overrides/substitutes our proposal ie the clause we inserted in the FEC Lease which ties calculation of the turnover rent to the studio lease. Michael Peters has escalated the proposal up the line at Lend Lease – his response was that it is not the outcome that the parties want. Let me know if I can do anything to help today." 88 Ms Poole reported to Mr Clarke later in the day as follows: "Michael Harvey met with Peter Duncan (Clive Craven in attendance) who confirmed that the proposal related to the FEC area. Michael said the proposal was unacceptable. He is meeting with PwC this arvo to get a copy of the report. Kim Williams rang Cootes-Travis (?) in the Treasurer's office who was unaware of the proposal and said it must be coming from CPMPT, not the government. Michael suggested a possible fall back position of waiting until the rent review under the lease (2003) and then getting an independent review (as provided for under the terms of the lease) or agreeing to bring that independent review forward 6 months – he has not suggested this to the government yet." 89 The same meeting was the subject of a report emailed by Mr Craven to Mr Clements (and copied to Mr Duncan) which, in relation to rent (described as "the major concern discussed this morning"), said: "PricewaterhouseCoopers produced their final report, as you are aware, on 19 February 2002. It provided for several options in relation to rent. Part of their advice was carried through to the Trust's position reflected in their letter to me and my email yesterday to Allens referred to above. As you are aware, Fox/Lend Lease proposed that the existing Minimum Rent of $2.5 million per annum be split as to approximately $560,000 to the Studio Site and approximately $1.94 million to the Non-Studio Site. Further, as you are aware, the Non-Studio Site rent is uplifted by the Turnover Rent. Currently Fox pays approximately $3.325 million total rent to the Trust, made up of the $2.5 million Minimum Rent and the balance being Turnover Rent. The Trust's position is not to change the Minimum Rent payable on the Studio Site but to move towards a market rent on the Non-Studio Site. PricewaterhouseCoopers estimates the total market rent to be $4.23 million. With a view to moving towards the market rent on the site, PricewaterhouseCoopers have suggested that the cap on the 5% Turnover Rent be removed which would result in the total rent increasing from approximately $3,325 million to $3.7 million, assuming a Revenue (turnover) of $74 million. Both rents will be subject to a market review in January 2003. I note in passing that both leases contain a ratchet provision such that the Minimum Rent can never be less than the Minimum Rent immediately before a market review, i.e. it can never decrease. This morning Peter confirmed that there would be no change to the rental provisions of the Studio Lease. In relation to the Non-Studio Area, he proposed the following: 1. The Minimum Rent for the Non-Studio Area be increased to the total rent currently being paid on that site, namely approximately $2.765 million per annum. Michael Harvey agreed that this would make no difference to the amount of rent paid in the short term but argued that, potentially, it could have an impact later on in the lease. That could only occur if the rent review early next year determined the Minimum Rent to be less than this figure ($2.765 million) and the Revenue (turnover) reduced substantially such that the additional Turnover Rent was insufficient to increase the higher Minimum Rent to $2.765 million. The Trust's position was that by raising the Minimum Rent to what is currently being paid on the Site gave it certainty of a rental return. Accordingly, its rent would not be affected by agreeing to the changes on the site and the restructuring that will be taking place to increase the return on the site to Fox/Lend Lease. 2. The 2003 review take place in accordance with the terms of the Lease. Nobody disagreed with this. 3. The cap on the Turnover Rent be removed, not now but at the time, if at all, the Non-Studio Lease was transferred to another party, thus ensuring that at least at that time full market rent would be payable. Fox was of the view that it was already paying more than market rental for the Non-Studio Area and this change would be a further impediment in its transfer of its lease. It was apparent that Fox had spoken to Treasury, who had said that they did not know anything about the proposed changes to the rental provisions. Fox asked to see the PricewaterhouseCoopers' report and speak to them. Peter has arranged a meeting with PricewaterhouseCoopers at 4.30 today for Fox to discuss its report on market rental. I will attend that meeting with Peter and Peter or I will update you." 90 Minutes of a meeting of the Trust held on 25 February 2002 record the following: "The Director advised that meetings had been held with Fox CEO, Mr Michael Harvey, on Friday 23 February 2002 and that Fox would not agree to remove the cap and had objected to the PWC market rent assessment. Subsequent to this meeting PWC provided Fox with their methodology of determining market rent. In a further telephone meeting on the 23 February 2002 involving PWC, the Trust Director, Mr Harvey (Fox Studios) and Mr Craven (Clayton Utz), Fox offered to bring forward the market rent review to be completed by July 2002 to determine the new market rent. This issue was discussed at length and questions were raised regarding the possibility the Trust revenue stream could be negatively impacted via the bringing forward of the market rent review. The Director was asked to get legal advice on this matter to ensure there is no negative impact to Trust income. After discussion the Trust RESOLVED to agree to bring forward the market valuation of rent to be implemented by 1 July 2002. This agreement was on the condition that legal opinion was obtained to ensure that the Trust rental return from the studio and non studio area of Fox Studios could not be less than the minimum rent payable in the immediately preceding rent period." 91 The following day, 26 February 2002, Mr Duncan wrote to Mr Craven. The letter reads in part as follows: "I wish to advise that the Trust has noted that News Limited has agreed to remain guarantor for both the Studio and Non Studio sites. The capital works undertaking in the original agreement is to be maintained and the Heritage Council has made a determination on the access to heritage sites. Therefore the Trust would agree to the Fox proposal to bring forward a market rent valuation on the following basis: 1. Market review of the Minimum Rent for the Family Entertainment Complex will occur on and be effective from 1 July 2002 in lieu of 1 January 2003. 2. Subsequent reviews of the Minimum Rent will occur on 1 July every 4 years instead of 1 January. 3. The ratchet provision, which now applies to the CPI review, referred to in clause 3.2(c) must apply to the market rent review. With the following clause to be added to the lease: "At no time will the Minimum Rent be less than the Minimum Rent payable in the immediately preceding Rent Period'. 4. Market review of the Studio Lease shall occur and be effective from 1 July 2002 in lieu of 1 January 2003. Subsequent reviews of the Minimum Rent for the Studio shall occur on 1 July every 4 years." 92 Mr Craven sent a copy of Mr Duncan's letter to Mr Clarke and Ms Poole on 26 February 2002, commenting: "The Studio Lease and the Family Entertainment Complex Lease will both require amendments in respect of the rent provisions." 93 Ms Rees followed up with an email to Mr Clarke and Ms Poole on the same day: "Further to our facsimile which attached the Trust's position in relation to the minimum rent, we note that the Family Entertainment Complex Lease needs to provide for the situation where the Studio Lease is terminated, particularly in the context of clause 3.5(b). If the Studio Lease is terminated a review of a notional Studio Lease will need to be conducted in order to obtain the aggregate figure which is applied to the cap in clause 3.5(b). If you have any queries in relation to the above please call either Clive or me." 94 Mr Harvey wrote to Mr Duncan on 27 February 2002 referring to Mr Duncan's letter to Mr Craven and saying: "In response, Fox agrees to the following: 1: The market review of the minimum rent for the Family Entertainment Complex will occur on and be effective from 1 July 2002. 2: Subsequent reviews of the minimum rent will occur on 1 July every 4 years. 3: The ratchet provision, which now applies to the CPI review referred to in clause 3.2C will apply to the market rent review. We agree with your suggestion that the following clause be added to the lease 'At no time will the minimum rent be less than the minimum rent payable in the immediately preceding rent period.' 4: The market review of the Studio Lease shall occur and be effective from 1 July 2002 in lieu of 1 January 2003. 5: Subsequent reviews of minimum rent for the Family Entertainment Complex and the studio shall occur on 1 July every 4 years. For clarification Peter, we offer the following comments: A: The capital works undertakings in the original MCI documentation have been adjusted to reflect the second tranche of expenditure being incurred from 1 October 2001 to 1 October 2005 and per our verbal discussions, I assume this is in accordance with your wishes. B: We are arranging a meeting between ourselves, our heritage advisers, NSW Planning and the Heritage Office to discuss the Section 60 determination, as no previous discussion has taken place. C: Apart from the changes to the lease noted above re the minimum rent and rent reviews, there will be no other changes to the rental mechanisms as stated in the current lease documentation. Peter, I hope that we have now finalised this negotiation. Thank you for your efforts in attempting to reach an agreeable solution. I look forward to catching up with you upon my return from the United States in 2 weeks time." 95 On 1 March 2002, Ms Holthouse of Allens emailed to Mr Craven and Ms Rees, as well as to Fox, Lend Lease and Freehills representatives "revised proforma Studio and Family Entertainment Complex Leases, showing the changes made to reflect Peter Duncan's fax relating to the Trust's position on minimum rent and Alex Rees' e-mail of 26 February". The accompanying draft of the non-studio area lease contained a revised turnover rent clause (clause 3.5(b)) as follows: "In addition to the Minimum Rent, the Lessee must pay to the Lessor in respect of each Relevant Period, rent equal to the amount (if any) by which 5% of the Revenue for the Relevant Period exceeds the Minimum Rent for the Relevant Period provided that the total amount of the Minimum Rent and Turnover Rent payable under this Clause clause in respect of any Relevant Period shall not exceed and is limited to 133% of the aggregate of: (i) the minimum rent for the Relevant Period under the Studio Lease; and (ii) the Minimum Rent for the Relevant Period, provided that the calculation for the purpose of clause 3.5(b)(i) is in accordance with the formula contained in the Studio Lease as in which came into effect on the Restructure Date date of execution of the Non-Studio MCI Agreement , a copy of which has been provided to the Lessee and signed by the parties for identification. The Lessor must provide the Lessee with sufficient information in relation to the minimum rent under the Studio Lease to enable the Lessee to calculate that minimum rent and must procure the consent of the lessee under the Studio Lease to disclosure of that information. For the purposes of this clause 3.5(b), if at any time during the Term the Studio Lease is terminated, then the amount to be inserted in clause 3.5(b)(i) is the amount of the minimum rent which was payable under the Studio Lease as at the date of termination of the Studio Lease ." 96 Ms Rees replied by email on 4 March 2002. In relation to clause 3.5(b), she said: "Clause 3.5(b) of the FEC Lease provides that if at anytime the Studio Lease is terminated during the Term, then the amount to be inserted in clause 3.5(b)(i) is the amount of the minimum rent which was payable at the date of termination of the Studio Lease. What happens if the Studio Lease is terminated during the early part of the term? Please refer to our previous comments (email 26/2/02) about a rental review of a notional studio lease and provide us with appropriate language." 97 Ms Poole emailed Mr Craven and Ms Rees later on the same day saying, among other things, "we will provide the drafting in relation to clause 3.5(b) of the FEC lease as agreed in our phone conversation this afternoon". Still later on the same day, Ms Holthouse emailed to Mr Craven and Ms Rees new draft leases. Clause 3.5(b) of the lease of the non-studio area lease was in the form transmitted by email on 1 March 2002 but with the following added at the end: "adjusted in respect of each Rent Period after the date of termination of the Studio Lease in accordance with the provisions of clause 3.2(c) or, if applicable, clause 3.2(d) (disregarding in each case the references to odd or even numbered Rent Periods)." 98 This, it seems, reflected an approach Mr Clarke had discussed with Ms Poole, as recorded in an email from him to Ms Holthouse and Ms McDonnell: "On the issue of the deemed notional studio. I settled some words with Victoria Poole the other day which should address that point. If not please let me know. I suggest the reference in an early shut down scenario be to the rent at the time of the shutdown with CPI adjustments." 99 The next day, 5 March 2002, Ms Holthouse emailed Mr Craven and Ms Rees as follows: "Thanks for your call this afternoon in relation to the basis of calculation of turnover rent in the FEC Lease (clause 3.5(b)). The issue you raised was whether we can or should draft provisions to deal with a possible renegotiation of the minimum rent under the Studio Lease some time in the future. As drafted, such a change to the minimum rent arising from a new agreement between the parties (other than as a result of the operation of the market review and CPI review clauses) would flow on to the calculation of the turnover under clause 3.5(b). For example, if in the future the parties agreed to reduce the minimum rent under the Studio Lease to $1.00, then the amount to be included in the calculation of the 133% would be $1.00 (as increased by market or CPI). Conversely, if the minimum rent was agreed to be $100 million, then the greater amount would be included in the calculation. You suggested that we may need to consider whether somehow to 'iron out' these consequences in the drafting of clause 3.5(b) so that the turnover calculation is not affected by such changes. In our view, there is little point in attempting to draft for these possibilities now. Clause 3.5(b) as drafted addresses the 2 fundamental planks of the agreement between our clients on this point: first, that whatever happens on the Studio side will flow on to the FEC turnover provisions; and second, that CPMPT will not be worse off. In fact, with the addition of the ratchet provision on a market review, CPMPT will only be better off as the rent cannot fall below the previous year's rent. If in the future our clients renegotiate the rental payable on the Studio on terms not currently contemplated by the lease, the entire rental structure will probably need to be revisited at that time. Accordingly I do not propose to amend clause 3.5(b). I also confirm that you are happy with our drafting on the rent review provisions on each of the leases and the new variation of the head lease (other than the 2 minor typographical changes Alex has mentioned, which we have corrected). Accordingly, I will amend each of the variations of the leases (6 in all) in identical terms to the proforma leases I sent to you last night." 100 On 6 March 2002, Ms Holthouse emailed Mr Craven and Ms Rees as follows: "Following our discussions on the turnover rent provisions yesterday, I have revisited the drafting of clause 3.5(b) to see if I could clarify what we all mean. Although I have not yet discussed the redrafting with Fox and Lend Lease, I thought it would be helpful if we could settle the language of the clause in the meantime. I think that my redrafting clarifies that the Studio Lease minimum rent is to be calculated based on the document as it stands on the date of the restructure – this is clause 3.5(b)(A) and (B) and the slightly amended definition of 'Studio Lease'. (C) has not changed since yesterday. I think that this does address the point you raised yesterday about 'extra-lease' changes to the rent deal in the future. Do you agree? Please give me a call to discuss as soon as you have had a chance to review the clause." 101 A redrafted document accompanied this email. In that document, clause 3.5(b) was altered by omitting the proviso which appeared in the immediately preceding draft and replacing it with the following: "provided that for the purposes of clause 3.5(b)(i): A The minimum rent under the Studio Lease must be calculated in accordance with clauses 3.2, 3.3 and 3.4 of the Studio Lease as those clauses exist on the date of execution of the Non-Studio MCI Agreement; B The Lessor must provide the Lessee with sufficient information in relation to the minimum rent under the Studio Lease to enable the Lessee to calculate that minimum rent and must procure the consent of the Lessee under the Studio Lease to disclosure of that information; and C If at any time during the Term the Studio Lease is terminated, then the amount to be inserted in clause 3.5(b)(i) is the amount of the minimum rent which would have been payable under the Studio Lease as at the date of termination of the Studio Lease, adjusted in respect of each Rent Period after the date of termination of the Studio Lease in accordance with the provisions of clause 3.2(c) or, if applicable, 3.2(d) (disregarding in each case the references to odd or even numbered Rent Periods) of the Studio Lease." 102 At 4.44 pm on 6 March 2002, Ms Holthouse emailed Mr Craven, referring to a discussion they had had on that afternoon, and saying that she had "attempted to draft the exclusion language for 3.5(b) as follows". There then followed: "provided that for the purposes of clause 3.5(b)(i): (A) the minimum rent under the Studio Lease must be calculated in accordance with clauses 3.2, 3.3 and 3.4 of the Studio Lease as those clauses existed on the date of execution of the Non-Studio MCI Agreement ( provided that, if clause 3.2(d) of the Studio Lease apples, the amount of the minimum rent which may be agreed under that clause must not exceed the amount of minimum rent which would have been reached by the application of the formulate in clause 3.2(c)(ii) of the Studio Lease ); …" 103 On 6 March 2002, Clayton Utz sent to the Trust a "sign-off" letter headed "Fox Studios Restructure – Updated Rent Position". This letter consisted of three sections, the first headed "Current Rental Position for the Whole Site", the second headed "Increased Rent for the Whole Site" and the third headed "New Position post Restructure for the Studio and Family Entertainment Complex Leases". It is pertinent to quote the last of these sections in full: "Accordingly, the 133% cap will only be applicable to this Family Entertainment Complex Lease. To ensure that the 133% cap does not apply only to the lower Minimum Rent payable for the separated Family Entertainment Complex, clause 3.5(b) provides that that cap applies to the aggregate of the Minimum Rent for the studio Lease and the Minimum Rent for the Family Entertainment Complex Lease. If the Studio Lease is terminated before the Family Entertainment Complex Lease, then the amount in lieu of the Minimum Rent for the Studio Lease will be the last Studio rent adjusted in respect of each Rent Period by the CPI Review usually only applicable each second Rent Period." 104 The agreement was executed on 7 March 2002. The form of clause 3.5(b) contained in it is set out at paragraph [8] above. 105 Before turning to the affidavit and oral evidence concerning events leading up to execution of contractual documents on 7 March 2002, I should note certain documents of or relating to the Trust created after that date. The first is an undated document relating to the Trust entitled "Agency Revenue Estimates". Against "Fox Studios – Base Rent", it includes $2,500,000 for each of 1999/2000, 2000/2001 and 2001/2002. There is an estimate of $2,500,000 for 2002/2003 and projections of $2,924,000 for each of 2002/2003 to 2006/2007. Turnover rent is shown as $794,000 (actual) for 2000/2001, $1,253,000 (actual) for 2001/2002, $825,000 (estimate) for 2002/2003, $825,000 (projection) for the same year, $1,105,050 (estimate) for 2003/2004 and $965,050 (estimate) for each of 2004/2005, 2005/2006 and 2006/2007. Budget estimates also in evidence are to the same effect in respect of 2002/2003. 106 Finally, so far as documents are concerned, I refer to an email of 11 August 2003 from Mr Gunthorp, an officer of the Department of Commerce, to Mr Duncan's successor as director of the Trust (copied also to Mr Clements and another). The email reports a conversation Mr Gunthorp had with Mr Tony Shaw, a consultant who worked with the Trust during the time the restructure was being negotiated and implemented. The email was as follows: "I spoke to Tony Shaw on Friday regarding my understanding on the turnover rent (TOR) that you might (or perhaps should) be receiving this year and in subsequent years. My reading of the Amended Lease puts your Minimum Rent at $2.216M and your maximum TOR at $1.673m. I understand that it was believed that the maximum TOR was approx. $965,000 as per the old version of the lease which covered all three components on the site. Tony called me back today to say he agrees with my calculations but thinks that perhaps there was a mistake in the drafting of the new lease clause (3.5(b)). He also said that he thinks Fox/Lend Lease believe it is the $965,000 figure as it was in the Information Memorandum given to the possible buyers. Subject to take legal advice on this, it would appear that you are entitled to (or even obliged to demand) rent of $3.889m from Fox for the FEC if they reach the revenue figure of approx. $78m. Moreover, you would be entitled to TOR on the same basis from the new lessee. (Despite the Info Memorandum, presumably they should have done their own thorough analysis of the lease documents.) If you would like to understand how I have reached the figures above I would be happy to go through them with [sic]." Mr Harvey's evidence 107 Against the background of this documentary evidence, I turn to the affidavit and oral evidence, beginning with that of Mr Harvey who, as I have said, was the main negotiator for Fox and the person who instructed Allens. In his affidavit, Mr Harvey refers to having met with Allens personnel on 10 December 2001 to discuss the issues raised in Mr Clarke's letter of 6 December 2001 (see paragraph [56] above). Mr Harvey said that it was he who said that it was necessary to tie the two leases together. Mr Harvey refers to having received amended draft lease clauses from Allens on 10 December 2001 (see paragraph [60] above), which he approved for despatch to Clayton Utz. With the benefit of hindsight, he saw that the proposed wording substantially increased the turnover rent. Mr Harvey confirms having received a copy of the letter of 11 December 2001 from Mr Craven to Mr Clarke (see paragraph [61] above), and a copy of an email of 21 December 2001 from Mr Clarke and Ms Poole to Mr Craven with new drafts of restructure documents. Mr Harvey also received an email from Ms Rees to Ms Poole dated 9 January 2002, the email from Mr Clarke of 8 February 2002 (paragraph [74] above) and the email from Clayton Utz to Allens of 21 February 2002, being the email saying that PwC had suggested raising the minimum rent to $3.325 million (paragraph [85] above). 108 Mr Harvey also gave evidence about the meeting he and Ms McDonnell had with Mr Duncan and Mr Craven on 22 February 2002, being the meeting the subject of Ms Poole's email of that day to Mr Clarke (paragraph [88] above) and Mr Craven's email of the same day to Mr Clements (paragraph [89] above). Mr Harvey's affidavit contains the following account of a conversation at that meeting: "Either Peter Duncan or Clive Craven said: PwC have prepared a report for us on market rent for the Site. Our position is that the cap on Turnover Rent should be lifted so that we can move towards a market rent. I said: Any increase in rent is unacceptable to us. Fox Studios cannot sustain any increase in rent. The public precinct is losing money and cannot sustain any increase in rent. There is no justification for removing the cap or increasing the rent in any form simply as a result of this restructure. Peter Duncan said: I will send you a copy of the PwC report." 109 Mr Harvey deposes to having received a copy of the PwC report also on 22 February 2002 and of having discussed it on the telephone with Mr Redman of PwC. Mr Harvey further deposes to having had a conversation with Mr Duncan on or about 25 February 2002 in which he said words to the following effect: "A market review of the rent is due to occur on 1 January 2003. I don't believe there should be any increase in rent as a result of the restructure. However, as a compromise we will agree to the market review occurring 6 months earlier. This will ensure that from the date of entering into the new lease, CPMPT is not disadvantaged in any way, and is receiving market rent." 110 Mr Harvey received a copy of Mr Duncan's letter of 26 February 2002 to Mr Craven (see paragraph [91] above) and says that, upon receiving it, he believed that the issue of rent had been resolved on the basis that there would be no increase in rent arising from the restructure but the market review was to occur six months earlier than it would have under the original arrangements. 111 On 27 February 2002, after writing the letter at paragraph [94] above, Mr Harvey went overseas. While away from Australia, he received a number of relevant emails. He does not refer in his affidavit to having replied to any of them. 112 In cross-examination, Mr Harvey was taken through the successive iterations of the turnover rent clause for the separate non-studio lease, as drafted by Allens. He agreed that he had relied on Allens and not on Clayton Utz or the Trust to protect Fox's interests and that, to the extent that he had, at the time, misunderstood the effects of drafts, neither Clayton Utz nor the Trust had caused the misunderstanding. Mr Harvey was then asked about his expectations as to the course negotiations might take after he became aware in late December 2001 that the Trust had retained PwC: "Q. Did you think, at that stage at least, that the trust might try and use the restructure to improve their position from what it was under the original lease, so far as it concerned rent? A. When we learnt that, yes, we assumed that. Q. So you braced yourself, did you, for some negotiation about whether they could get more rent from you in one form or another using Price Waterhouse in that process? A. I don't know if we braced ourselves for negotiations, because our view was pretty plain, what we didn't see the restructure as a reason for them to increase the rent. HIS HONOUR: Q. I notice you have said a number of times "we". Does that mean I? A. I - the people I was dealing with. We, as in Fox generally. WOOD: Q. This wasn't going to be a proposed restructure under which every aspect was commercially or financially neutral vis-a-vis the original lease, was it? A. That was our intention. Q. If that was your intention, how did you explain the proposal that you wanted News to be released from their guarantee? A. I don't - the guarantee issue, I don't recall having specific discussions about the guarantee, although I know that it was an important thing for the trust from their documentation. From a financial perspective the key issue for us was making sure that the financial aspects of the site remained consistent. Q. It is plain as a pikestaff, isn't it, that News, to get rid of its guarantee, was going to be of potential commercial significance to the trust? A. Well, the News guarantee was there. Yes, there were discussions about potential release of it, but at the end of the day it was accepted that it wasn't going to be released. Q. Didn't you see that the trust position was similar in the sense that they were going to use these negotiations on the restructure to try and get a different position than the one they had under the original lease? A. It became clear once we found PWC was doing work on it. Q. This is bread and butter in the world of commercial negotiations; everyone is trying to improve their position if they can? A. Well, that wasn't our intention at the time. Q. Would you agree in the world of commercial negotiation parties are always trying to improve their position? A. I would agree." 113 Later, Mr Harvey said that by 8 February 2002 it was "abundantly clear" that the Trust was going to try to improve its position from what it was in the original lease. The cross-examination continued: "Q. But it was clear, at that stage at least, that the trust were trying to talk you into a completely different regime governing rent, that being the regime that existed previously; would you agree? A. Well, yes. Their proposal was to remove the cap. Q. And to drive it towards a market rent rather than the formula that was in the existing lease of part minimum rent and part-- A. Well, they had a view that they were getting under market rent and we had a view they were getting over market rent and the key issue for me out of this e-mail was No. 2, that the cap on turnover be removed as a way of achieving what they believe was a market rent." And later: "Q. It is pretty clear around 22 February that you and Mr Duncan are well away from any agreement on the terms of this turnover rent clause or rent clause generally; would you agree? A. The key issue outstanding was the rent and the trust viewed that the market rent was a lot higher than what it was and they proposed removing the cap as a way to moving towards what they considered was the market rent." 114 Mr Harvey was subsequently cross-examined regarding acceleration of rent reviews under the new leases, compared with the old lease: "Q. Then the proposal of the trust to agree to a Fox proposal to bring forward market rent valuation, in accepting No.1 there, the market rent review for the Family Entertainment Complex, was going to be advanced by six months? A. Yes. Q. And that was more likely than not, wasn't it, a proposal that would increase the rent payable to the trust? A. It was by an independent valuation, so it could have gone either way, I assume. Q. Having regard to the way the property market in Sydney, so far as you understood it, had operated from 1996 up until 2001, it was pretty obvious to you, wasn't it, that rent was going to go up? A. Well, we prepared a submission and it may have gone up. The point of offering that was to make sure from the day this lease was entered into that the trust was getting an independently determined market rent and that was our concession. If it went up, it went up and we would have been worse off for a period of six months and that was a risk we were prepared to take. Q. It was a six month advance on whether that risk would come home or not come home; correct? A. Yes. Q. The second one was a corollary of that being an advancement by six months for subsequent reviews? A. Sorry? Q. Being an advancement by six months of subsequent reviews? A. Yes. Q. No.3 was something that could operate only one way and that is to protect or advance the interest of the trust. Do you agree? A. Yes. Q. So you were prepared to change from the original regime, under the original lease, to one that was going to protect or advance the trust interests so far as the ratchet was concerned, the CPI review? A. Yes. Q. Then in No. 4 there are two aspects to it. There's the advancing by six months of the Studio lease rent review, correct? A. Yes. Q. Again, that had the same consequence that there could have been a risk to Fox in having a review that went up six months earlier? A. Yes. Q. And the second limb to that is the corollary of advancing subsequent rent reviews? A. Yes. Q. At this stage one is down to a negotiation on the detail concerning the rent clause; would you agree? A. Well, no. This wasn't a negotiation specifically on the rent clause. This was a commercial negotiation on rent generally. Q. One thing, it wasn't trying to transpose the wording in the regime from the original lease and putting it into these two leases without any commercial or financial change. Do you agree? A. No, because - no; I disagree with that. As you said before, in an negotiation sometimes you have to negotiate things. We conceded on the market valuation bringing that forward to ensure from the day the lease was entered into that the trust would be getting market rent and we conceded on the ratchet clause." 115 Set out at paragraph [94] above are the terms of a letter written by Mr Harvey to Mr Duncan on 27 February 2002. This is the letter that plays a central part in Fox's common mistake claim as pleaded in paragraph 23 of the further amended statement of claim. Mr Harvey was referred in cross-examination to paragraph C of that letter and its statement that, apart from particular matters, "there will be no other changes to the rental mechanisms as stated in the current lease documentation". The cross-examination continued: "Q. Can you tell his Honour what you meant by current lease documentation in that letter? A. The lease, the current lease that was enclosed. Q. Meaning the original lease? A. Correct. Q. You weren't referring there to the various versions of the draft documentation that had been sent and negotiated from 30 November right up until this stage between Clayton Utz and Allens? A. No. Q. But there had been detailed negotiations over four or five versions, there had been four or five versions exchanged between the parties or seen by yourself over that point in time? A. There had been numerous versions, yes. Q. And there had been many changes made to the rental mechanisms in those versions? A. No, I don't believe. The rental mechanism applied to the rent generally. The calculation that we believed should be was that basically it stay at 2.5 plus the turnover rent and what we agreed was still that should give that outcome with these couple of things stated in 1 to 5 being the only changes. Q. What about the changes to the definition of revenue? There had been extensive changes to those-- A. But the changes to revenue were only reflective of the Backlot not being there. Q. So you say it has got nothing to do with the rental mechanism that is in the original lease? A. Not what I meant there, no. Q. You didn't intend to capture that at all, you didn't intend to capture that when you wrote that sentence about current lease documentation? A. No. Q. Did you really expect that at this stage you would say to Allens go and get the original lease back out again, get the rental provisions and make these four, five changes, are the five changes on page 803 and that is what we are going to use? A. Yes. Q. Were you aware that Allens didn't do that but used the 11 December version that had been sent to Clayton Utz which had many changes in it from the original list? A. The drafting of the lease provisions was the responsibility of Allens, I didn't go back and cross-reference every version or whatever to what I said in this letter. This letter was an outcome of a commercial negotiation between us and the Trust, between myself and Peter Duncan which for all intents and purposes started on the Friday morning and ended on the Wednesday, so commercially the only changes to the way the rent was calculated which would give rise to the total rent payable were the ones we agreed to here. Q. But you weren't going to abandon, as you understood it, this complicated set of provisions that had grown over time relating to the calculation of turnover? If you don't understand that I will be more specific about it? A. Can you be. Q. Remember on 22 November? A. Yes, yep. Q. That particular clause had a reference to the way the cap worked? A. Yes. Q. And that was different than the reference in the November version of the clause? A. Yes. Q. Where the cap was working by reference to the greater of 2.5 million and the minimum rent, do you remember that? A. Yes. Q. Then that got changed a number of times thereafter up until 11 December to work out a way that you thought accommodated the Trust concerns about the cap? A. It got changed numerous times to give effect to what we thought was going to give rise to a $3.325 million rent outcome. Q. It was changed a number of times to give effect to what you wanted? A. Yes. Q. All those attempts at drafting you didn't think were going to be abandoned and go straight back to the original lease so far as it concerned the rental provision, did you? A. No but to me this was a commercial negotiation and this was a commercial letter which set the parameters for changes to the lease. Q. So, to get your commercial thinking and objective into the final legal form you left it up to Allens to do so? A. Yes. Q. And you didn't rely upon Mr Duncan to draft it for you? A. No, I didn't. Q. You didn't rely upon Clayton Utz to draft it for you? A. No. Q. You didn't depend upon Mr Duncan's view of the world before you were happy with it? A. Only to the extent that the commercial negotiation, commercially negotiated outcomes were met but -- Q. In terms of you being satisfied that the position you were able to make up your own mind of whether the clause regarding rent protected Fox's position or exposed it, weren't you? A. Yes. Q. Equally insofar as you had any doubt about it you were able to seek the advice on Allens to make sure Fox's position was protected? A. Yes." Mr Williams' evidence 116 Mr Williams was the chief executive officer of Fox during the early part of the relevant events. He relinquished that position in December 2001 when he became chief executive officer of Foxtel Management Pty Ltd. 117 Mr Williams deposes to a meeting with Mr Duncan shortly before 18 October 2001 in which he informed Mr Duncan of the proposed restructure, including the subdivision of the site. Mr Williams deposes to having said: "Despite the loss of money, we are sympathetic to the needs of the Trust and to maintaining its income position. We will try to ensure that the Trust rental position will not be harmed." Mr Williams subsequently addressed a meeting of the Trust at Mr Duncan's invitation. Mr Clarke's evidence 118 Mr Clarke and his assistants, Ms Poole and Ms Holthouse, prepared the various drafts of the rent provisions and the restructure documentation generally, beginning with the October 2001 heads of agreement between News and Lend Lease. 119 Mr Clarke deposes to a conversation with Mr Craven on 15 October 2001, being the conversation his note of which has already been mentioned (see paragraph [41] above). Mr Clarke recalls a discussion on that occasion about turnover rent to the following effect: "There is a cap on the turnover rent which currently applies to 133% of the minimum rent on the whole of the site. If the lease is split, the minimum rent on the lease for the non-studio area will be less than the minimum rent on the whole site, thereby reducing the quantum of the cap." 120 Mr Clarke added in cross-examination that, as early as 15 October 2001, Mr Craven had pointed out to him that a simple repetition of the original rent clause but limited to the non-studio site would not be acceptable to the Trust. 121 Mr Clarke also gave evidence of a conversation with Mr Craven on 18 October 2001 in which Mr Craven said (in Mr Clarke's words) that the Trust "needed no change in the rent". They, of course, were early days. 122 Speaking of his overall intention in drafting the heads of agreement, Mr Clarke said: "A. My intention was to result in the rent payable under the Studio lease and the non Studio lease not adversely, producing the same result, no detriment to either side. Q. Before and after? A. Before and after the restructure." 123 When it came to the first draft of the two new lease documents (that is, the draft of 30 November 2001), the course adopted by Allens was to reproduce, as clause 3.4(b) of the non-studio lease, the corresponding provision of the 1996 lease without amendment (although there were some changes to the earlier definition of "Revenue" which fed into the workings of clause 3.4(b)). Mr Clarke agreed in cross-examination that that approach would not have been consistent with the intention he had described. It would have worked to the detriment of the Trust, although it appears that he did not recognise that at the time and, when the matter was discussed by him and Mr Craven at the meeting of 5 November 2001, he did not agree when Mr Craven put that proposition: indeed, he suggested to Mr Craven that it would work to the benefit of the Trust: "Q. You had the view this was beneficial to the trust and not detrimental? A. I was attempting to put that spin on it, correct. Q. When you say "spin", what do you mean by that? A. We had - the clause operates from the tenant of the FEC site's perspective, it's an increase in rent and that was the argument I was putting to Mr Craven. He didn't buy it. It wasn't a particularly compelling argument. Q. You were putting that because you thought that was part of your proper function as a commercial lawyer, to try and get the best outcome for your client, wasn't it? A. In part." 124 Mr Clarke was asked about what his reactions would have been had Mr Craven accepted his argument: "Q. If you were putting some spin on this, would you have been happy if Mr Craven had said: Yes, that's fine from our point of view? A. Because we were trying to get the lease - yes is the answer. Q. If you accepted that, that would have been inconsistent with your intention that that party suffers a detriment as a result of this change? A. I understand that." 125 Mr Clarke testified that, after the meeting of 5 December 2001, he realized that he would have to obtain instructions from his client on the issue of turnover rent since the position taken from Mr Craven was "a blockage". He did this by his letter of 6 December 2001 noting, "Clive is not happy with the turnover rent formulation in clause 3.4(b) ….". 126 Mr Clarke acknowledged that Mr Craven's letter of 11 December 2001 was the first response from the Trust on the draft documentation provided by Allens. So far as it dealt with turnover rent, the letter merely said that the Trust was reviewing the situation: "Q. Over on 602, on 11 December Mr Craven wrote back for the first time, I think, to your proposed documentation and said on 604 that, against item 22, his client was currently reviewing the turnover rent provisions. Do you remember seeing that? A. Yes, I do. Q. At that stage there wasn't, in your mind, any agreement between the parties as to what the provisions of the turnover rent clause should say? A. Between the parties? Q. Between the trust on the one hand and Fox on the other? A. No, they hadn't spoken. Q. You agree with that? A. Yes, I do." 127 Mr Clarke became aware of the Trust's subsequent requests for a guaranteed minimum rent and abolition of the cap on turnover rent, following receipt of the PwC advice. He did not see the PwC report but by late January 2002 was aware of the Trust's attempts to take advantage of an opportunity to obtain a better position on rent as a price for its agreement to the restructure. These matters were elucidated in cross-examination of Mr Clarke: "Q. When the trust came back in late February with the suggestion that perhaps there could be other changes relating to ratchet provisions advancing the market review date, did you see those as something upon which you would have to get instructions from your client to see whether they would agree or disagree with those proposals? A. Yes. Q. Because up until that stage at least the position between your client and the trust was fluid on the commercial deal that was going to be struck between them, wasn't it? A. I don't think so. Q. Well, no one had ever said: We agree with your 11 December 2001 version of this draft we are just looking at here on page 612? A. Yes, I agree. Q. Before you submitted any other draft of that clause, you had learned that Price Waterhouse had come up with the proposal of moving to a new minimum rent and abolition of a cap, isn't that right? A. Could you remind me of the dates? Q. Yes. We are looking at 11 December 2001. That's one date? A. That's one date, yes. Q. You didn't submit another draft or prepare another draft of that clause until February, did you? A. That sounds correct." 128 As at 8 February 2002, there had not been any further drafting of the turnover rent clause for the separate non-studio lease since 11 December 2001 (full drafts had been produced on 30 November 2001 and some revised clauses on 11 December 2001). Mr Clarke agreed that that part had been left untouched pending resolution of the Trust's attempts to negotiate a more favourable position. He also agreed that the Trust was "trying to negotiate into a position that bears little resemblance to the original lease provision". This, he accepted, was part of a wider negotiation which included, among other things, Fox's desire to have News released from guarantee obligations it had in respect of the lessee's performance under the 1996 lease – or, more precisely, a desire that that feature not be replicated when two leases came to replace the 1996 lease. 129 Finally, Mr Clarke was taken to the various revisions of the rent clause for the non-studio lease that emerged in late February and early March 2002. He confirmed that all emanated from Allens. He also confirmed that they were, from the perspective of the position Fox sought to achieve, deficient and that the deficiencies were the product of drafting within Allens, without any of the wording having been given or proposed by Clayton Utz to Allens. The cross-examination concluded: "Q. But in terms of the mistakes that you say were made in this, Mr Craven didn't cause you to make those mistakes in any way, did he? A. No, I don't believe he caused me to make a mistake. Q. Equally, there was nobody from the Trust that caused you to make those mistakes at all, was there? A. No. Q. At no stage did you say to Mr Craven or anyone else from Clayton Utz 'we should put words into this clause 3.5 B so that the Studio minimum rental is a deduction from the calculation provision'? A. No, I wish I had. Q. I am sure you did. And at no stage did you say to Mr Craven or anyone else from Clayton Utz 'we should put into the introductory part of the cap provision a reference to Studio minimum rental and aggregate that with minimum rent under the lease', is that right? A. That's right, it didn't occur. Q. There was no one, Mr Duncan, or anyone from the Trust, that ever suggested those words should be put there, was there? A. No." 130 The last answer was amplified in re-examination: "MEAGHER: Q. You were asked whether Mr Craven caused you to make the mistake and you said you didn't believe that he did. When you answered the question in what sense did you use the word 'caused'? A. He did not put the words, he didn't put the words in my mouth. We put a draft to him which we discussed on many occasions. We only ever discussed on the basis of the last provision. The error had been made by me before then." Mr Duncan's evidence 131 I refer next to Mr Duncan's evidence. He was, as I have said, the director of the Trust at material times and the person with primary responsibility for the restructure within the Trust. Mr Duncan refers in his affidavit to the Trust's decision, towards the end of November 2001, to seek advice from PwC as to rent and to the Trust's desire to maximize its return from the site. On the particular subject of turnover rent, Mr Duncan had in his mind two issues: first, that the method of calculating turnover rent would have to reflect the reality that there was to be a smaller area generating turnover; and second, that the split of the site might effectively reduce the total amount of rent the Trust could earn from the non-studio area if the cap on the total rent for that area was calculated on a smaller base. 132 Mr Duncan received the 6 December 2001 draft of the turnover rent clause submitted by Allens to Clayton Utz. He also received Mr Craven's letter of 7 December 2001 expressing the opinion that, under that draft, there would be "an initial and substantial benefit" to the Trust but that the benefit "would be reduced over time". In cross-examination, Mr Duncan said that he had calculated the initial benefit thus mentioned as being of the order of $300,000 to $400,000 per annum by way of increase in cap on the turnover rent and that, although this was not reflected in the minutes, he had reported this to the Trust "at or around" its February 2002 meeting. The figure he reported was a figure he had received from Mr Craven. He did not calculate it himself. This part of Mr Duncan's cross-examination includes the following: "Q. And do you say that as at the end of March 2002, you believed that as a result of this process of splitting the one lease into two leases, assuming minimum rent, total minimum rent for the two sites remained the same and assuming the same revenue, that there was a benefit to the Trust by the application of the relevant formulas? A. Yes. Q. And do you say that you believed, in effect, therefore, that all other things being equal, the result of the restructure was to give the Trust a benefit of between three and four hundred thousand dollars? A. At least. Q. At least. And you say that you never reported that fact in writing to the Trust? A. Not in writing, no. Q. And do you say that the only time you reported it to the Trust at all was at a meeting on 11 February? A. It was - yes, it was at the time we were discussing the Price Waterhouse report. Q. I take it, therefore, that you believed, as a result of the outcome of the negotiations, that Fox had agreed to increase the rental on the overall site by three to four hundred thousand dollars a year? A. They had agreed to a formula, or they presented us with a formula that derived that. Q. That had that consequence? A. That had that consequence, yes. Q. But did you believe Fox understood it had the consequence that you believed it had? A. Only because they had to because they derived the formula. I had no reason to doubt that. Q. You say you had no reason to doubt that? A. That's right." 133 Mr Duncan put great store by Mr Craven's letter emailed on 7 December 2001 (paragraph [58] above) as the source of his understanding as to the existence of the so-called "offer on the table". In the course of cross-examination, it was pointed out to him that Mr Craven, having made a comparison and analysis, commented that the draft received from Allens would not achieve "the status quo". The cross-examination continued: "Q. What did you understand him to mean by the status quo? A. I could only assume that the rental plus turnover would not be achieved, so we would go backwards. Q. What did you understand him to mean by the status quo? A. As the rent goes forward you would hope the status quo goes forwards, so you don't go backwards with your rent. Q. The status quo is the position under the original lease, isn't it? A. Well, I wasn't - I wasn't - well, it could have been. I guess so. I wasn't thinking of the original lease. I was thinking more of this offer on the table. Q. The analysis in this e-mail is an analysis which compares the position under the original lease? A. Yes. Q. With the position under the restructured leases? A. That's right, that's right. Q. And you understood him to be saying in this e-mail at the end of the day that the result of what was proffered at this point in time would not achieve the status quo? A. I assume so, yes. Q. And you understood at this time that what was sought to be achieved by both parties was the status quo? A. Well, not - it couldn't be because they were offering an initial increase so they weren't offering the status quo. Q. Well, what Mr Craven was telling you was that the first attempt to achieve that result didn't achieve it, wasn't he? A. Yes, that's what he is saying here. Q. And he said to you, 'We need to discuss this issue further'? A. Yes. Q. You never discussed it with him, did you? A. Yes, we discussed it with Price Waterhouse, I am sure. Q. You never discussed it with Mr Craven, did you? A. Mr Craven came to a meeting with Price Waterhouse. Q. When was that? A. I can't recall when that meeting was. He was definitely at a meeting with Price Waterhouse." 134 Mr Duncan received from Mr Craven and reviewed the revised draft clause 3.4(b) sent by Ms Poole on 11 December 2001. He saw this revision as addressing the two main concerns he had had about the impact of the split on rent. He also saw the revision as "simply representing a fair and logical method of calculating the rental for the FEC Area within the model used for the rental arrangements for the Site". But there was, in his mind, still the wider issue of the PwC review on behalf of the Trust and it is clear that he did not concentrate closely on the revised draft. He understood that a copy of the 11 December 2001 draft had been sent to PwC before their letter of 19 December 2001 letter was formulated and received. 135 Mr Duncan subsequently made efforts to have the whole of the rent arrangements overhauled to put matters on to a market rental footing. When eventually committing the Trust to the new documentation, Mr Duncan relied on the Clayton Utz "sign-off" letter of 6 March 2002 (see paragraph [103] above). 136 Mr Duncan was later taken to Mr Craven's letter of 18 December 2001 to him and Mr Clements in which Mr Craven referred to his "preliminary advice" of 7 December "on Fox's proposed changes to the rent to accommodate the split site" and then said, "Fox has recently proposed an alternative (see enclosed 11 December letter from Allens)". Mr Duncan accepted that he received the Allens letter thus mentioned. Mr Duncan was taken to the statement in the letter of "major outstanding issues": "Q. If you go over to page 628, what he describes as the major commercial outstanding issues, do you see that? A. Yes. Q. Did you understand him to be meaning by that that they were issues which you as the client had to resolve? A. Well, I understood they were the ones that he would have to negotiate from me as a client. They were issues he was advising me as they came up. Q. They were matters which you as the client had to address? A. Well, I would assume we would have addressed it with advice from Clayton - from Price Waterhouse and Clayton Utz's involvement. Q. One of the matters that he described was the division of the rental between the two sites and, in particular, the calculation of turnover rent? A. Yep. Q. Do you agree that as at this date, you regarded that as an issue which was outstanding? A. It was certainly an issue that we were discussing with Price Waterhouse. Q. You received with the Clayton Utz letter the first or draft Price Waterhouse Coopers advice which is dated 19 December at page 630, do you agree? A. Yes. Q. And if you go to page 631, one has what Price Waterhouse Coopers were describing as the proposed rent changes? A. Right. Q. And you understood those to be changes proposed from the position which obtained under the original lease, didn't you? A. Yes. Q. Not changes which were proposed to any draft which was on the table? A. I would assume so because their brief was to save the original lease. Q. And so when they were suggesting that the base rent be split equally, they were talking about the base rent under the original lease? A. Yes. Q. At page 633, where they say, 'We have attached a schedule which demonstrates the proposed amendments relative to the current arrangements', you understood the current arrangements to be those which existed under the original lease? A. I believe so. Q. So that Price Waterhouse Coopers were giving you advice as to what changes you should seek to make from the position which obtained under the original lease? A. In the big picture, yep, yes. Q. When you read the Price Waterhouse Coopers draft report of 19 December, you did not understand it to be addressing or analysing at all any so-called draft offer from Fox? A. I don't recall going into it in that detail but that would have been the assumption, I assume. Q. When you say you don't recall going into it in that detail, do you mean, 'I don't recall reading the Price Waterhouse Coopers report in that detail'? A. I recall reading the recommendations of the report and talking to them about the report so I did read the report. Q. What did you mean then, when you say you don't recall going into it in that detail? A. My memory of that report is we needed to look at going towards a market rent, that we weren't getting market rent and that we needed to look at options that they were putting forward. They were saying we were getting relatively low rentals for the site. Q. What is your recollection about this report? That you received it, that you read the recommendations, you formed the view you have and then you moved on? A. No, my recollection is that we needed to discuss this report further and it was also very important for the Trust to understand that we weren't meeting market rent and that this was a case to look at different options. Q. Did the report have any particular impact on you, do you say? A. I - I suppose I felt the report was probably more aggressive than I expected in the way of rent. I was quite shocked at how low the rent was. Q. At this point in time, you understood that as between the solicitors, Clayton Utz had indicated to Allens that it was awaiting instructions on the subject of rent from the Trust? A. Yes. Q. And you understood that Clayton Utz had not considered or responded to the proposal which was presented by Allens on 11 December? A. Yes. Q. And that remained the position until 22 February 2002, didn't it? A. I can't recall when - when Clayton Utz got involved but the 22nd of February was when the contents of this report were discussed, that's correct. With - with both Fox and there was a telephone hook-up with Price Waterhouse and Clayton Utz, I think. MEAGHER: Q. I suggest to you that the subject of rent was not addressed either between Fox and the Trust or Clayton Utz and Allens to your knowledge until -- A. Definitely not. Q. 22 February or thereabouts? A. Definitely not 2001, Fox and the Trust may have been through Allens or Clayton Utz but I don't have evidence otherwise." 137 Mr Duncan was asked whether he understood receipt of a revised draft on 11 December 2001 meant that the immediately preceding draft the subject of Mr Craven's analysis of 7 December "was in effect to be put aside". He replied: "Well, I don't see it that way. I see it as layers, that there were changes made to the draft, the draft rolls on, I don't see it as different documents from the point of view of starting from scratch again." 138 Speaking of his understanding at the end of February 2002, Mr Duncan said he believed he had achieved an increase in the cap on turnover rent. The cross-examination continued: "Q. And do you say that you believed that you had also obtained, as part of the commercial negotiation, a change in the way the turnover rent was calculated? A. That's correct. Q. And does it follow that you say that this benefit of three to four hundred thousand dollars, which you say you believed you had achieved, was the product of an increase in the cap on turnover rent and a change in the way it was calculated? A. That's correct, that's the way it was explained to me." 139 Mr Duncan was then cross-examined about the 22 February 2002 meeting between himself and Mr Harvey (with Mr Craven and Ms McDonnell in attendance). Mr Duncan agreed that Mr Harvey had rejected a request for removal of the cap on turnover rent. He also conceded that Mr Harvey "may have" said that he would not agree to any increase in rent. But, Mr Duncan said, he regarded that refusal as a refusal by reference to "the offer on the table since December" (referring to the draft clause analysed and evaluated in Mr Craven's letter of 7 December 2001 as modified by the Allens redraft of 11 December 2001), rather than by reference to the overall rent for the site as a whole under the 1996 lease: "Q. But as a result of your negotiations with Mr Harvey on 22 February, you understood clearly that his commercial position was that there would be no increase in the rent from that which was produced by the existing formula, didn't you - and existing formula, I mean the original lease existing formula? A. I didn't get that impression at all. I had the offer on the table and we were working on that and trying to vary it." And later: "Q. As at February 2002, you understood the position of Fox to be that it wouldn't agree to any increase in the rent over that which obtained under the original lease, didn't you? A. Not at all because I was advised in - by the advisors in December that there could be an agreed increase. Q. You say that, do you? A. Yes, I do. … Q. I should put to you even at this stage that if the position is that you held this belief that you say you held, that is that you had secured a three to four hundred thousand dollar benefit by an increase in the turnover rent, I suggest to you that you knew that that was not something which Fox had consciously agreed to? A. I had no idea that they had not consciously agreed because the formula was given to our advisors by their legal advisors, so I had no idea that they hadn't agreed to it. Q. I suggest that is not a truthful answer, Mr Duncan. A. I - I can only say that I had no idea. Q. Your position, as I understand it, is that you maintain that at the end of this process-- A. Yes. Q. --you believed you had achieved a change in the formula for the calculation of turnover rent? A. Yes. Q. And an increase in the cap on the level of turnover rent? A. As a result of that change, yep. Q. And that in consequence, assuming the same minimum rent levels and assuming the same revenue levels, the outcome to the Trust after the restructure would be significantly better than it was before the restructure? A. It would have been better if the revenue had stayed the same. Q. And do you recall subsequently, that is at any stage after March 2002, doing calculations to work out what the Trust was entitled to under the two leases? A. No, I didn't do calculations. I took the advice I was given and relayed it to the Trust. Q. You know such calculations were done, don't you? A. That's right. Q. And you signed off on them? A. That's right, I had a letter sent to me in March with-- Q. March when? A. Around 6th of March, before we signed the document." 140 Mr Duncan was questioned about a document he had prepared on or about 6 March 2002 as a submission to the Premier. This consisted of less than two pages and was a very short summary of the several agreements which together effected the Fox Studio restructure. It contained the following paragraph: "Similarly, it is also proposed that the lease between Fox and the Royal Agricultural Society, since consigned to the Centennial Park and Moore Park Trust (The Trust), is restated and two leases, consistent with the original lease, are created, one for each area." 141 Mr Duncan said that he had not referred in this document to the increase of potentially $300,000 to $400,000 per annum because it could not be regarded as "guaranteed for the term of the lease". A fuller version of his explanation was: "A. Because the advisors were telling me that there was potential in the long term for the turnover rent not to be a benefit to the Trust and I was very wary of that because there was no way I could guarantee or in fact know turnover, except for the previous financial year. We could only get turnover the October after the previous financial year." 142 Referring to the 6 March 2002 contract documents and the Clayton Utz "sign-off" letter of that date, Mr Duncan confirmed that he understood the effect to be an increase in the cap on the turnover rent. The cross-examination continued: "Q. You don't seriously suggest that you ever negotiated that with Mr Harvey, do you? A. No, it was done between the advisors. That was done in the course of the variations. Q. Did it ever occur to you that you might speak to Mr Harvey and just make sure that that is what he intended? A. Not at all. Q. Why didn't you do that? A. Because it was his people that were putting it forward. Q. You took the view they were big boys and if they made a mistake, so be it, is that-- A. No, I didn't take that view. I simply didn't question it. Q. You didn't question it, you say. Do you say that Mr Harvey didn't say anything to you that might have suggested to you that perhaps he was under a mistake? A. I don't recall that he did, that would suggest that he made a mistake." 143 Mr Duncan was next taken to a report he prepared for the Trust concerning the results of a rent review completed in December 2002, that is, some nine months after the execution of the contracts providing for the two new leases. In a comparison of the positions before and after the rent review, Mr Duncan referred to "existing rent" in a way that reflected a turnover rent component equal to 33% of the aggregate of the base rents for the studio and non-studio areas. He could not say why there was no reference to the apprehended or potential increase of the order of $300,000 or $400,000 per annum which, on his earlier account, he had said he understood to be the product of the new lease provisions. The report was, he said, consistent with the position under the single 1996 lease but not with his understanding of the position that had been incorporated into the new leases by means of the drafting that had first appeared on or about 6 December 2001. Mr Duncan said that he had not personally checked the figures in the report and that it had been prepared by Mr Shaw. The views of Mr Shaw as to the operation of the rental provisions has already been noticed (see the reference at paragraph [106] above to Mr Gunthorp's email of 11 August 2003). Mr Shaw, of course, was not involved in the process of negotiation and drafting that culminated in execution of the agreements of 7 March 2002. Mr Duncan was taken to a report to the Trust's Finance Committee of February 2003 in which again there were figures not reflecting the potential annual benefit of $300,000 to $400,000. But this too was prepared by Mr Shaw. 144 The cross-examination of Mr Duncan next traversed his frame of mind from early 2002 on the question of increase in rent: "Q. Certainly by 2 January or thereabouts 2002 the position was that this question of turnover rent and the split of the minimum rent had been flagged as an issue for commercial negotiation? A. That's right. Q. And your view was that it was likely to be a contentious issue in the negotiations? A. Yes. Q. Meaning what? A. Well, Ken Williams in his earliest advice to me said he didn't want to increase the rent? Q. Therefore you thought what? A. That was his initial position and ongoing negotiation position. Q. If there was to be any increase in the rent, it would obviously have to be fought out to be secured, one way or the other? A. It would have to be negotiated, yes. Q. When you say negotiated do you mean discussed and dealt with by the parties expressly? A. Or their representatives, yes. Q. By the qualification you intend to include Clayton Utz do you? A. Definitely. Q. The document I have shown you is a document you prepared and signed in early January 2002? A. Yes. Q. If I could then take you to volume 2, if you go to page 642, that is a paper which you presented for the meeting of the board which was held on 11 February, is that right, is that a document you prepared for the Trust meeting on 11 February? A. Yes, it looks like it. Q. It is dated 22 January? A. Yes. Q. At this stage do you say you held - please would you address my attention rather than looking at the document- do you say at this stage, that is early January, you had already formed the view that Fox had offered you this benefit of 3 to $400,000 a year? A. It was an offer on the table, yes. Q. Is that what you say you understood? A. Yes. Q. I suggest that is an untruthful answer, what do you say to that? A. Well, I disagree because I was advised in December of what the fact was. Q. You say you believed at this time that Fox had made an offer which involved increasing the rent by 3 to 400 thousand dollars? A. That's correct. Q. Do you say you believed that it had done so consciously? A. Well, they made the offer, I didn't have any reason to believe it was unconsciously. Q. You say you had no reason to believe it wasn't unconscious? A. That I had no reason to believe they didn't mean what they offered. Q. If you had any reason to believe they didn't mean what they offered what would you have done? A. If I had reason to believe that they didn't mean it I would have advised the Trust that it looks like there had been an error. Q. What sort of things would you have regarded as a reason to cause you to do that? A. Some sort of advice from my advisors that somebody has made a mistake. Q. What about something from Fox saying we won't agree to any increase in the rent? A. I don't recall receiving that." 145 Mr Duncan was then taken to his report of 22 January 2002 to the Trust stating that, in the negotiations then in progress, "the issue of rent will be a contentious issue" and that "increasing site rental on this subdivision process will be strongly resisted". Mr Duncan agreed that, at the time he wrote this, he believed he had an offer regarding rental increase in the form of the draft and clauses of 6 December 2001: "Q. You say at this point in time you believed you had an offer from Fox? A. That's right. Q. To increase the rent 3 or 400 thousand dollars? A. That's right, in fact I think it was more in the potential, that is what I felt it would have worked out to be. Q. Why didn't you, as you said before, say to your solicitor, look, you better check on this because I am getting mixed messages from the commercial people from what you say you are getting from the lawyers? A. We were trying to discuss that issue with Price Waterhouse and get around to another formula and that is in fact why we had Price Waterhouse working. Q. It would have been very simple for you to speak to your lawyer or to speak to Mr Harvey to make sure these mixed messages you were getting were resolved, wouldn't it? A. I would have spoken to the lawyer about the issue. Q. Did you? A. I can't recall the exact words but we certainly, was explained to me, the situation. Q. Do you say you spoke to Mr Craven and said to him look I am getting mixed messages, these people are taking the position that they won't increase the rent, yet you tell me I have an offer for a significant increase in rent? A. No, I was talking, I was definitely talking to him about the Trust getting market return and that is where all our discussion was based and that is why we did the work with Price Waterhouse. Q. At the end of this process, that is end of March, do you regard yourself as having pulled a swifty on Fox and Lend Lease? A. Not at all, had no idea. Q. What do you mean you had no idea? A. I had no idea until the end of last year they disagreed with it, some 18 months down the track or more." 146 Mr Duncan further said that, on his understanding, the offer he believed the Trust to have came from a negotiation relating to rent between the solicitors: "Q. Could you address my question? Did you believe there had been any negotiation at all between the Trust and News or Lend Lease on the subject of rent? A. Yes I did. Q. When did you believe as at January 2002 that negotiation had taken place? A. In December when I had advice from Clayton Utz that they had an offer on the table. Q. I want you to be clear about this, is this the extent of what you understood the negotiation had been? A. Yes, the negotiation between those two parties. Q. Between Clayton Utz and? A. Allens. Q. How was the fact of this negotiation reported to you? A. Through an e-mail. Q. Through an e-mail from who? A. From a representative of Clive Craven. Q. When? A. In December 2001. Q. Was that the extent of the reporting? A. Yes, other than the discussions we had in meetings, yes. Q. Well, then, was there reporting in discussions at meetings? A. There were discussions on the issue of rent in meetings. Q. With Mr Craven? A. Yes. Q. What I am seeking to understand? A. Yes. Q. Is what you say as at January were the sources of your understanding that there will be negotiation about this subject of rent between Clayton Utz and Allens? A. That's right. Q. What were the sources of your understanding? A. An e-mail, principally in December. Q. Anything else? A. Not to my knowledge, no." 147 However, Mr Duncan also explained that, when he wrote in his report to the Trust dated 22 January 2002 that "increasing site rental on this subdivision process will be strongly resisted", he intended the word "increasing" to refer, by way of starting point, to the position under the 1996 single lease: "Q. And you recorded that understanding at page 643 of this note, didn't you, that the current discussions indicate that increasing site rental will be strongly resisted? A. Yes. Q. And when you wrote 'increasing', you meant increasing from the existing position under the original lease? A. Yes." 148 Logically, the next question was why Mr Duncan expected that any increase in rent above that under the 1996 single lease would be "strongly resisted" if, at the same time, he believed he had an "offer on the table" of a rental regime more favourable to the Trust than that provided for in the 1996 lease: "Q. If you believed at this time that you had an offer on the table to increase the cap on the turnover rent by nearly $560,000? A. Yes. Q. Why did you only use the words 'if possible'? A. Well, because the advice that I had in December was that that may not be sustainable, it was a short term only advantage and there was calculations in that to show that was the case, that in the long term we would not get that turnover rent." 149 The cross-examination of Mr Duncan subsequently moved to his knowledge of a meeting in which he did not participate: "Q. Can I ask you this; do you remember being told some time after 30 January that at the meeting between Fox and members of the Department there had been agreement to the way in which Fox were proposing the capital expenditure be split subject to the Trust approval? A. Yes, I believe we were advised about that. Q. Do you recall also being told they had reached some agreement in relation to the drafting of what was referred to as a super rent clause? A. I don't recall a super rent clause, I don't recall that wording. Q. Do you recall being told that in relation to the rent issue that Fox had been told that the government and the Trust were getting the report from PriceWaterhouseCoopers which would be available in the next week or so? A. That's correct, I think this was happening and they would have been aware of it, yes. Q. But do you recall this being reported to you? A. I don't, I'm sorry, I don't recall that. Q. Do you recall being told that at this meeting Fox stated they wouldn't agree to any increase in the rent? A. I couldn't say that, as I said, I don't recall that conversation or documentation, but I would not be surprised to have that said. Q. That was your understanding of Fox's position at that time? A. Yep." 150 Mr Duncan was also taken to the final PwC report dated 19 February 2002. He confirmed that, on his understanding, PwC had been furnished with a copy of the 11 December 2001 draft of the turnover rent clause. He said that they were given that "to ensure that they were informed". Mr Duncan acknowledged that the PwC report proceeded on the basis that it was Fox's proposal to restructure the "current lease agreement" by subdividing the site "without adjustment to the rent payable to CPMPT", however, he said he could not recall noting that feature of the report and, "If I did, I would have corrected it". This referred to his belief as to the existence of the "offer on the table" entailing a rent regime potentially more favourable to the Trust. Mr Duncan further confirmed that the PwC report went to the members of the Trust: "Q. So that this document went to the members of the Trust? A. Yes. Q. With that statement? A. It appears to have done, yes. Q. And it wasn't corrected in the course of the meeting? A. Well, it was in that I had told the Trust that there was a three to four hundred thousand dollar benefit involved through turnover rent. Q. Do you say you specifically drew their attention to the fact that this was not right? A. No, I don't. I don't. I didn't raise that issue in relation to this document." 151 Regarding the exchange of emails between Clayton Utz and Allens on 21 and 22 February 2002 (paragraphs [85] and [86] above), Mr Duncan testified that he had seen a copy of the Clayton Utz email of 21 February but had not seen the Allens reply of 22 February in which Mr Clarke said: "You say in your note that Fox has suggested that there be no adverse impact on the Trust under the restructure proposal. To be fair, the only position put by FSA is that there be no adverse impact to either party in the allocation of rent " [emphasis added] 152 Mr Duncan's evidence in cross-examination about the meeting of 22 February 2002 at which he and Mr Craven were present for the Trust and Mr Harvey and Ms McDonnell were present for Fox: "Q. Later, on the morning of the 22nd, you had a meeting with Mr Harvey, didn't you? A. Yes. Q. And you said to him that you wanted the minimum rent under the non-Studio area lease to be increased to about 2.7 million dollars? A. That was our advice from Price Waterhouse. Q. And you made that offer because you were seeking to achieve effectively a guaranteed minimum rent of 3.325 million which was the existing rent having regard to revenue? A. Yes. Q. In other words, you wanted a guarantee of the current position to accommodate decreases in revenue? A. I wanted to avoid the volatility of turnover. Q. That is all you sought at that time? A. Well, we also said we would give him the Price Waterhouse report, we were talking about moving towards a market rent and that was the position that Price Waterhouse were recommending we take. Q. You said to him, 'We don't want the cap on the turnover rent to be changed at the moment. We are going to leave that until you sell this site', is that right? A. I think there was an option for that. We talked about an option there. We didn't say - Price Waterhouse were recommending taking it on as a negotiation process. I said to him it might be an option to do that, you know, if that is untenable to you now, put it in as part of the sale process and it wouldn't affect Fox directly. Q. The effect of what you said to him was, 'We are content if you leave the cap where it is at the moment, we will look at changing it in the future'? A. We would move it towards market rent. Q. Is that right? A. Yes. Q. So of the variables involved in the machinery for calculation of rent, you were seeking to adjust the minimum rent? A. Yes. Q. You weren't seeking to adjust the turnover cap? A. Yes, we just said we were but not at that time. Q. Not at that time? A. The offer was made that way. Originally we said remove it and Michael said no, that wasn't appropriate, he didn't agree with it. Q. Now, Michael Harvey responded in the meeting to what you said, didn't he? A. I am sure he would have, yes. Q. I want to read to you what he says in his affidavit he said, and you can tell us whether you accept that he said something to this effect, he said that any increase in the rent is unacceptable to us? A. He would have said something like that, yes. Q. And that Fox can't sustain any increase in the rent? A. Saying the same thing, yes. Q. He said something to the effect that the public precinct is losing money and cannot sustain any increase in the rent? A. I am sure that would have been said, yes. Q. He said there is no justification for removing the cap or increasing the rent in any form simply as a result of the restructure? A. I can't be certain of that but he would have had a line like that, yes, I can't be certain of those exact words. Q. But he said something that communicated that to you as an effect? A. That view, that view, yeah. Q. This is a man who you believe has put an offer on the table offering to increase the cap? A. Yeah. Q. Did you say to him, hang on Michael, there is something inconsistent between the position you have just expressed and the fact that you have made me this offer to increase the cap? A. We were talking about removing the cap. Q. Is that your explanation for saying why you didn't say to him there seems to be some inconsistency between the position you are taking? A. Look, I can't recall that inconsistency coming to my mind in that discussion. Q. You have agreed that he said something to the effect that any increase in rent is unacceptable? A. Yes. Q. How did you reconcile that with what you understood the position to be, as you assert? A. Because he was saying every time we met and discussed it and Kim Williams had said it before him. Q. You say you took no notice of him? A. It was just the line in the process, yeah, that was their negotiating position and ours was at that meeting to get market rent return, so whilst he was saying that we were saying market rent return and that yes, we suggested the exchange of the reports. Q. Can you explain how you could understand a statement that any increase in rent is unacceptable to us to be consistent with a statement that we were are prepared to increase the cap on the turnover rent by $460,000? A. Well, we weren't sure that was going to happen, I was very suspicious that that would turn out to be a plus for the Trust. Q. That is your answer, is it? A. Yes. Q. Did it occur to you, do you say, to raise with Mr Harvey the fact that there may be an inconsistency in his position? A. No. Q. Did it occur to you to say, look, how can you say an increase in rent is unacceptable to you if you were happy to increase the cap by over 500,000? A. Because we weren't certain it would be increased by that much money. Q. But this is a different matter, if the cap is removed you have the same uncertainty, don't you? A. Not really because we are talking about putting the rent up as well, basic rental. Q. One of the things you were proposing was that the cap be removed? A. Yes, one of the elements of the package. Q. He said that there is no justification for changing the cap? A. And I put to him a whole lot of justification. Q. Why didn't you say to him, you can not maintain there is no justification for maintaining the cap if you have already offered to increase it by over half a million dollars? A. I have know answer other than what I have previously given and I didn't understand it would be half a million dollars in the term of the lease. Q. One explanation for why you didn't say that to him is that you didn't have this belief you assert you had a about the offer on the table? A. I disagree with that. Q. That is one explanation remaining? A. That is your explanation. Q. You say that isn't the explanation? A. Yes, definitely. Q. Do you accept looking back on it now that the fair and honest thing to do, assuming you had this belief, would have been to raise this inconsistency with Mr Harvey? A. If I had this belief I would have raised it with Clayton Utz first and sought their advice on the matter. Q. Did you do that? A. No, because I didn't have that belief. Q. When you say 'that belief', what do you mean? A. That they were being inconsistent, that they had made, you know, some mistake or something, I don't know. Q. Do you accept that if you had formed the view that there were some inconsistencies between the position he was putting orally and the position you believed was on the table, the fair and honest thing to do would have been to raise the matter with Mr Harvey? A. Mr, Clayton Utz -- OBJECTION. ALLOWED. QUESTION READ. A. No, I don't accept that. Q. Why not? A. I would have raised it with Clayton Utz. Q. Why would you have raised it with Clayton Utz? A. Because they were the people running the negotiations, we were having a meeting out of the negotiations and I would have taken it back to that process. Q. That's the way you say it, is it? A. That is what I would have done. I always take it back to the process that has been established. Q. Do you say you would have regarded the fair and honest thing to do to have been raised the matter with Mr Craven? A. Yes." 153 Mr Duncan was also asked about the correspondence of 26 and 27 February 2002 (his own letter of 26 to Mr Craven, which Mr Craven copied to Fox through Allens, and Mr Harvey's response of 27 direct to Mr Duncan). The questioning about Mr Harvey's letter was as follows: "Q. If you go to the second page of it, Mr Harvey says: 'Apart from the changes to the lease noted above re the minimum rent and rent reviews there will be no other changes to the rent mechanism as stated in the current lease documentation.' A. Yes. Q. You will see he uses the word 'lease', singular? A. Yes. Q. Did you note that? A. Yes. Q. The changes to the minimum rent and rent reviews were to be changes which applied to the whole site, weren't they? A. Yes. Q. You understood the current lease documentation he was referring to, to be the original lease, didn't you? A. No I understood that to be the documentation we were working through the versions of the leases. Q. I suggest that is an untruthful answer. A. That's all I can say that is my understanding of the situation. Q. Can I suggest to you if you had the belief which you say you had at this time that you had an offer on the table which gave you an increase in the cap? A. Yeah. Q. You would have believed that there was a serious inconsistency between the position which Mr Harvey had taken in the discussions with you to this point in time and the offer and position taken by that offer, do you agree? A. No, I don't, I believe -- Q. I suggest that if you had appreciated that inconsistency you would have felt duty-bound as a matter of good faith and honesty to raise that matter with Mr Harvey? A. If I felt there was a problem I would have raised it immediately with Clayton Utz. Q. With a view to them taking it up with Allens? A. Exactly. Q. I suggest to you, you didn't feel this was a problem is that because you didn't have the belief that you assert? A. That I didn't have the belief? Q. That you had this offer on the table containing a concession in respect of the turnover cap? A. That is not correct. It was certainly on the table." Mr Craven's evidence 154 Mr Craven gave evidence about the meeting of 5 December 2001 attended by him and Ms Rees with Mr Clarke, Ms Poole and others. Mr Craven deposed: "I expressed my opinion that the first draft of the rental provisions in the FEC lease disadvantaged the Trust. I attempted to convince Andrew Clarke that the Trust would be disadvantaged. Andrew Clarke, on the other hand, tried to convince me that the Trust would benefit from the Fox/Lend Lease interest's proposal as set out in the first draft. During the meeting, Andrew Clarke said words to the following effect in respect of the rental provisions in the first draft of the FEC lease: 'I do not agree with you. The Trust will benefit from retaining the cap at 133% on $2.5 million until the minimum rent on the non-studio area increases from $1.7 million to above $2.5 million.' At the end of the meeting, I was unconvinced that the Trust would obtain the benefit to which Andrew Clarke referred and he took my position away to think about it further before responding." 155 In the course of cross-examination, Mr Craven confirmed that the reference in his email of 7 December 2001 to "the status quo" was a reference to the position under the 1996 lease. He saw that position as his client's "minimum objective". He understood Fox's position, at least initially, to be that there should be no increase in rent from that position: "Q. When did you first become aware that that was Fox's position? A. I think in the heads of agreement. Q. And did your understanding of that change? A. The deal changed in several respects, yes. Q. But did your understanding that Fox was taking the position that it wouldn't agree to an increase in the rent change? A. It changed I guess on the - I think it was the meeting of the 5th of December when we were offered a benefit or told we were getting a benefit which was equal to a payment in - well, equal to an additional payment of the Studio rent being 560,000 odd." This, clearly enough, is a reference to Mr Clarke's attempt to convince Mr Craven that the 30 November 2001 draft entailed a benefit for the Trust. 156 Mr Craven regarded the PwC report and the use made of it by the Trust as marking a new phase of negotiation. He acknowledged that, by means of item 2 in the email of 21 February 2002 from himself and Ms Rees to Mr Clarke and Ms Poole (see paragraph [85] above), the Trust was seeking removal of the rental cap as a means of achieving a rent consistent with market rent. That same email attributed to Fox a suggestion that there should be no adverse impact on Fox under the restructure, to which Mr Clarke said in his reply of 22 February 2002 that the only position put by Fox was that "there be no adverse impact to either party in the allocation of rent". It will be recalled that Mr Duncan had no recollection of having seen that statement by Mr Clarke. But Mr Craven, as the recipient of the email, remembered seeing the statement and was cross-examined about it: "Q. He was asserting to you that the only position that was being put by Fox in the negotiations was that there be no adverse impact to either party in the allocation of rent, wasn't he? A. That's right. Q. You understood that to mean that he was saying that in the process of the restructure the position in relation to rent should be the same whether there was one lease or two leases? A. Yes, I saw it as a very emotional response early in the morning to a fairly late request by us. Q. Did it ever occur to you that you should ring him up and say, hang on, you have made an offer to us which gives us an increase in the cap of half a million dollars? A. No, I didn't. Q. Why didn't you do that? A. Because I guess it was in the midst of very close to closure and we were trading issues left, right and centre. Q. But fair dealing and honesty would have required that you do that, wouldn't it? A. Well, I didn't think that that was the position, I didn't seem to see the need to respond to this particular one. Q. But you say that at this stage you thought that there was a draft on the table which involved a significant detriment to Fox? A. Yes. Q. And this e-mail makes it clear to you that Mr Clarke wasn't aware of it, doesn't it? A. I didn't see it as that at the time. Q. Just explain how he could possibly say to you that the only position put by Fox is that there be no adverse impact to either party if in fact he had, he consciously had put a position which involved a detriment of over $500,000 per annum? A. It was in the context of the transaction where they were asking a lot from us and we were giving some of those things and taking other things. It was a commercial transaction and the rent was open for discussion, at this stage was fairly emotive. Q. Did you just decide that notwithstanding that he appeared to be under a misapprehension as to the effect of what he provided to you, it was in your client's interest that you said nothing to him? OBJECTION. WITHDRAWN. Q. This e-mail made it clear to you that Mr Clarke wasn't aware that he had put a position on behalf of his client which involved adverse impact to his client, didn't it? A. It appears to say that, yes. Q. That's what it sighs [scil. says] in clear terms, isn't it? A. Yes, it is. Q. He couldn't have said that to you if he was conscious of the fact that he had done that, that is -- WITHDRAWN Q. He could not have said what he said there if he understood the effect of the 11 December draft, could he? A. He shouldn't have said it. Q. And he couldn't have said it? A. I wouldn't have expected him to say it. Q. You regarded him as an honest man, didn't you? A. Yes. Q. And intelligent? A. Yes. Q. Doesn't it follow that you appreciated when you read this e-mail that he hadn't picked up the effect of the 11 December draft? A. It didn't, I didn't appreciate that at the time, no. Q. You did, didn't you, Mr Craven? A. No, I didn't. Q. You appreciate it now, don't you? A. I appreciate what you are putting to me, yes. Q. You appreciate a fair reading of that e-mail produces that appreciation, don't you? A. Yes. Q. And I suggest to you that you consciously chose not to communicate with Mr Clarke on this subject notwithstanding that you appreciated that he was acting on a misapprehension as to the effect of the 11 December document? A. At this stage we weren't talking about the 11 December document, we were talking about the PriceWaterhouseCoopers proposal. Q. Is that your explanation for not communicating with Mr Clarke about the 11 December document at this stage? A. Yes. Q. Did you at any stage communicate to him about the 11 December document? A. Not that I am aware of. Q. Why not? A. Because it went off the table very quickly after it fixed my problem. Q. You say as at 6 March you believed you achieved a result for your client which increased the rent by over $500,000 a year? A. Correct. Q. You appreciated at that time that Mr Clarke didn't appreciate that, didn't you? A. No, I didn't. Q. You appreciated that Fox didn't appreciate that, didn't you? A. No, I didn't. Q. I suggest to you that on receipt of the e-mail of 22 February from Mr Clarke what honesty and fair play required that you do was to ring him and tell him that he appeared to be under a misapprehension as to the effect of the 11 December document? A. No, I say that the 22 February e-mail from Andrew was a response to the one immediately before which dealt with the PWC report where a totally different proposal was put on the table. Q. But he was saying, I won't labour this, he was saying the only position put by Fox is that there be no adverse impact to either party? A. That was his position all along, on not only rental but on every other issue." 157 Mr Craven agreed in cross-examination that the 11 December 2001 draft rental provision – said to be regarded on the Trust's side as "the offer on the table" – was never discussed between the solicitors and he did not believe that it had been discussed between the clients. He also said that he believed the ramifications of the draft, in terms of increased rent, were known to Mr Clarke. Then followed: "MEAGHER: Q. How could you have believed that it was known to Andrew Clarke if he said to you in the e-mail of 22 February that the only position put by Fox is that there should be no adverse impact to either party in the allocation of rent? A. I am not sure. Q. Well, you can't answer that satisfactorily, can you? A. I had understood that Andrew Clark knew what he put to us and I had assumed that all the other parties copied on this document knew what was being put to us." 158 Mr Craven was questioned about his meeting with Mr Clarke on 11 February 2002: "Q. At this meeting I suggest to you that you said to Mr Clarke something to the effect that what had to be achieved or ensured was that the Trust would not be disadvantaged and that that you needed to be able to prove to them that the rent was not going down? A. I may have said that but I don't recall. Q. Did you say to him during that meeting, by the way, the offer you have made on my estimation means that the rent will go up by half a million dollars? A. I can't recall to either. Q. Why didn't you say that to him? A. I don't recall the meeting, I'm sorry, but obviously I attended a meeting. Q. I suggest to you that at that meeting Andrew Clark said nothing to indicate that he thought that a possible outcome for his client was that the rent would increase? A. He may have but I don't recall. I understand at this stage Fox were aware, Fox, Lend Lease and everybody was aware that the Trust was seeking an increase of rent, pursuant to the Price Waterhouse arrangements. Q. You were also aware from what had been said to you by Mr Duncan and Mr Clements that Fox were saying they wouldn't countenance an increase in the rent, weren't you? A. I am not sure. Q. That was your understanding in February, wasn't it? A. It may have been, yes. Q. That was inconsistent with a conscious proffering of a draft which increased the turnover cap by half a million dollars a year, wasn't it? A. It would appear to be, yes, well, what had been put on the table on 11 December was just left on the table, we then went off and there were a series of meetings with PriceWaterhouseCoopers on an alternative rental proposition obviously of pressure from the trustees and others and then there was a, basically there was very little discussion about the rent until that report, until the, I think it was the 21st e-mail. Q. And then you attended a meeting the following day? A. Correct." 159 Cross-examination regarding the meeting of 22 February 2002 between Mr Harvey and Mr Duncan at which Mr Craven was present was as follows: "Q. You attended a meeting in the morning with Mr Duncan and Mr Harvey? A. Yes correct. Q. And at that meeting Mr Harvey made it clear that Fox would not countenance an increase in the rent, didn't he? A. That's right. Q. And he also said that Fox wouldn't countenance an increase in the turnover cap? A. That's right. Q. Then how consistent with that stated position to you in a commercial negotiation could you possibly not communicate with Mr Clarke about the 11 December draft and its effect? A. They were all in the context of the PWC proposal. Q. But you understood Mr Harvey to be putting Fox's general commercial position, didn't you? A. No, I saw PWC, sorry, Fox responding to the PWC proposal. Q. What was the point from Mr Harvey's point of view of saying he wouldn't countenance an increase in the rent on the basis of something Price Waterhouse said if the fact was he believed he offered to increase it by half a million dollars a year? A. My understanding was he would not increase the rent in accordance with the PWC proposal. Q. Did you think in this meeting perhaps I should tell him about the offer he has already made which involves the half million dollar benefit? A. No. Q. Why not? A. I was only I guess peripheral to the rent discussions at that time. Q. You say you appreciated that at that time, don't you? A. Yes. Q. Why didn't you proffer that? A. On reflection I am not sure. Q. You should have, shouldn't you? A. In the context of what subsequently has arisen, yes, but I had understood that they knew what was going on. Q. How could you possibly understand that they knew what was going on if he said in a meeting he would not agree to any increase in the rent? A. I am not sure on reflection but I -- Q. Do you regard yourself as having engaged in some sharp practice in this transaction? A. Certainly not. Q. You appreciated as a result of the outcome of the negotiations on the morning of the 22nd that Mr Harvey had rejected the suggestion that the turnover cap be removed? A. Yes. Q. And he had rejected the suggestion that there be any increase in the rent? A. Yes. Q. And -- A. I guess. Q. Then he came back in the afternoon with a proposal which involved bringing the market rent review forward? A. That's right. Q. On what basis at that point in time could you have believed that Fox had consciously agreed to any other alterations to the rent? A. Well, I must admit I compartmentalised the two proposals. We had dealt with the 30 November and 11 December drafts. They were then put to one side. Christmas arrived. Holidays. Came back. At that stage PWC had been through I understand a number of draft reports where the rent had gone up and down very substantially and then we had been asked to put a proposal to Fox so I guess I didn't consciously think of that position at the time. Q. But the way in which you understood the negotiations had proceeded from 22 February was that the starting point was the position under the original lease and the Trust sought to negotiate improvements to that position, is that right? A. Yes it was. Q. And those suggested improvements were rejected? A. The, what, the deletion of the cap rejected, yes. Q. And increase in rent was rejected, expressly? A. It would appear, yes. Q. There was no discussion in any meeting you attended on 22 February about the 11 December draft or its effect? A. No, it just, not that aspect of it, no. Q. Not at all, although you say that you appreciated that aspect of it and kept it to yourself, do you? A. I don't think I consciously dealt with that, I was still on what I call the PWC option at that stage." (Mr Craven subsequently clarified that when he answered, "Yes" to the question, "You say that you appreciated that at the time, don't you?" he was agreeing with the proposition that at the time of the meeting with Mr Harvey he believed the "offer" had been made in December). 160 Mr Craven saw Mr Harvey's letter of 27 February 2002 to Mr Duncan replying to Mr Duncan's of 26 February 2002. He was asked about item C saying that, concerning minimum rent and rent reviews, "there will be no other changes to the rental mechanisms as stated in the current lease documentation": "Q. That was a reference you understood to the original lease as it then existed, was it? A. I had understood we just went back to where we left it. Q. But there had been no discussion about going back to where it was left, had there? A. No. Q. And the only current lease documentation was the original lease, wasn't it? A. Well, there was lease documentation floating around all over the place. Q. But the only binding lease documentation which answered the description of current, was the existing lease? A. Certainly I read it as the documentation, the current lease documentation on the table. HIS HONOUR: Q. Are you saying the current, the then current draft? A. Yes, what I saw that letter was a rejection almost in total of the PWC issue, so we then went back to where we were. MEAGHER: Q. In a context where at the earlier point of time you had been seeking to negotiate to the objective of the status quo? A. No, to seek the negotiation of no less than the status quo, we couldn't go backwards, we were going backwards in a number of other ways." 161 It was explained in re-examination that the reference to "going backwards in a number of other ways" was a reference to concessions on other aspects of the restructure: "Q. In your answer at line 40 you refer to, 'We were going backwards in a number of other ways'. Could you tell his Honour what other ways you were referring to in that answer? A. Well, there were obviously the implications of the closure of the Backlot to which I have referred and the revenue and other implications of that and more importantly, we were effectively agreeing to subdivide a single block into two leases which was I guess the - well, would lead to a request down the line for a sale of that to a commercial operator, presumably, whereas it has been seen as an adjunct to a Studio. That was probably the biggest problem that the government had with this. They had seen this as one site allocated to News for Studio purposes." 162 The cross-examination in relation to the letter of 27 February 2002 concluded as follows: "Q. I suggest to you when you read this letter it caused you to believe that Mr Harvey didn't appreciate that he had agreed on your understanding, to offer you an increase in the turnover cap of over half a million dollars? A. No, I saw it as a rejection of the PWC thing. Q. How could you see it as that in a context where at the commercial level Fox had said we will not countenance an increase in the rent? A. Well, we had got to a certain status in early December and we had then gone to investigate or rather the Trust had gone to investigate other options which included very substantial increases in rent and they had come up with this compromise which was delete the cap. That was never going to be accepted. It was rejected. We then want back to the original documentation that was on the table. Q. How could you understand Mr Harvey -- WITHDRAWN Q. Did it strike you as somewhat strange that Mr Harvey in this letter of 27 February hadn't referred to the fact that the rental turnover cap was to be increased by half a million dollars a year? A. I didn't turn my mind to it at the time, I saw it as a rejection of the PWC proposal. Q. This goes further than that, it is suggesting what the position will be going forward, isn't it, it says "apart from the changes to the lease noted above there will be no other changes"? A. Yes but I had read it as a rejection of the PWC proposal which had taken us, taken two, two and a half months of our time. Q. Do you agree that you could not consistently with the fact that Mr Harvey had expressed the view only two or three days earlier that there should be no increases in the rent have believed at this time that he was conscious that the 11 December draft produced an increase in the rental cap? A. I had just assumed that Fox and Lend Lease, Allens and Freehills knew what they put on the table back on 11 December. Q. I suggest to you that is not a truthful answer Mr Craven? A. Well, that's what I put to you." Mr Walker's evidence 163 Mr Walker was at all material times a member of the Trust and of its Finance Committee. He deposed to having been informed by Mr Duncan in early 2002 to the following effect: "The Trust will receive $3.7 million rental for the entire site under the new lease arrangements, which means that the Trust will be $300,000 - $400,000 better off than it is under the current lease." 164 In cross-examination, Mr Walker said that he understood the result referred to by Mr Duncan to be the result of negotiations. Mr Walker was taken to a number of internal Trust documents and reports relevant to the matter of rent after the restructure, being documents that did not reflect any expectation of greater rent after the restructure. Even so, he understood, from what he was told by Mr Duncan, that the Trust's negotiating stance was that "the Trust would not acquiesce to the subdivision unless it received a higher rent"; and that "the product of the negotiations was that we would receive an amount in excess of what we were currently caped at". The cross-examination continued: "Q. Was the effect of what was said to you that: As a result of the market reviews that we have negotiated, it is likely that we will receive rent of $3.7 million or thereabouts? A. It wasn't, in our view, a market review at that time. It was a negotiated review and it, in my mind, was firm, not that we might not, we would receive a higher amount in the order than that. Q. When you say "in the order", in the order of $3.7 million? A. In the order of 300,000 or 400,000 more than that. Q. Was it your understanding, of what was said to you, that that would be the result of the market valuation that the valuer general would do? A. My understanding was: We had gone into negotiations, from our view, with our advice of a higher amount and this was the negotiated final figure. Q. You said that something was said to you which caused you to believe that you were going to get a rent increase in the order of 300,000 to 400,000; is that right? A. Yes." Mr Walker also said that this belief or expectation did not relate to the result of the market review that was to be carried out. Findings – the common mistake claim 165 The common intention upon which Fox bases its common mistake claim is set out in paragraph 23 of the further amended statement of claim: see paragraph [31] above. In asserting that this was the common intention, Fox relies on the letter of 27 February 2002 from Mr Harvey to Mr Duncan. That letter set out lease features which correspond with those of the common intention asserted by Fox, so far as particular positive matters are concerned, and then said: "Apart from the changes to the lease noted above re the minimum rent and rent reviews, there will be no other changes to the rental mechanisms as stated in the current lease documentation." 166 It is clear from the evidence that, when Mr Harvey thus spoke of "the current lease documentation", he intended to refer to the 1996 lease and to indicate that, apart from the enumerated matters, the scheme of the two new leases, viewed together, would correspond with that of the 1996 single lease. This was not only the intention that Mr Harvey sought to convey by the letter of 27 February 2002 but also the intention that Fox, through him, possessed at the time. 167 I am therefore satisfied that Fox's intention (or belief) was as stated in paragraph 23 of the further amended statement of claim. I am not, however, satisfied that the Trust shared that intention. For present purposes, the mind of the Trust may be equated with the mind of Mr Duncan, except insofar as there is evidence of a collective view to be extracted from minutes of meetings of the Trust. I am satisfied that, when he first addressed the issue of the restructure, Mr Duncan took the 1996 lease as a starting point, so far as concerned the lease and rental aspects of a wider composite transaction, but was acutely aware that the change in use of a significant part of the overall site so as to reduce the size of the revenue producing section introduced a factor that, of necessity, meant that there could not be a simple split of one lease into two. That was a matter that was obviously referred to at the Trust's meeting on 22 October 2001 (a relatively early point in the process), as is shown by Mr Craven's letter of 25 October 2001 referring to what he had said on that occasion in answer to a question and correcting or qualifying that answer. The matter was discussed in the paper prepared for the Trust's November meeting (see paragraph [50] above). There was a reference to a need to increase the 133% cap to take account of the reduced minimum rent on the smaller non-studio area. 168 These issues must be taken to have been in Mr Duncan's mind when he received Mr Craven's letters of 6 and 7 December 2001. The first of these concentrated on aspects of the wider proposal and draft documents not involving the leases, as to which Mr Craven said he would write separately "in the next few days", at the same time commenting briefly on the discussion and disagreement that he had had with Mr Clarke about the need to increase the turnover rent cap to accommodate the reduction in the revenue producing area. Details of the lease and rent matters were taken up in Mr Craven's letter of 7 December 2001 to Mr Duncan. 169 The letter of 7 December 2001 set out in full the text of clause 3.4(b) contained in the 30 November 2001 draft lease received by Clayton Utz from Allens. In introducing the verbatim version of that clause set out in his letter, Mr Craven said: "The Non-Studio Lease which will have a Turnover Rent component will now be calculated as follows". The letter also set out at some length Mr Craven's calculations and analysis which led him to conclude that what he termed "the proposed restructure of the rent clause" would give to the Trust an initial and substantial benefit which, however, would be reduced over time and, in Mr Craven's view, would result in a lower rent after some years, so that "the status quo would not have been achieved". 170 Mr Duncan, it must be remembered, had not been involved in any negotiations or discussions on lease and rental matters direct with Fox representatives. He knew that Mr Craven had been in discussion with Mr Clarke and had received draft documents from him. The letter of 7 December 2001 from Mr Craven acquainted Mr Duncan for the first time with the words of the clause under which turnover rent "will now be calculated" and provided him with an analysis of the financial impact of "the proposed restructure of the rent clause", including that "the status quo would not have been achieved". 171 Mr Duncan's evidence is that he took the position outlined in Mr Craven's letter of 7 December 2001 to be in the nature of an "offer" by Fox. I am satisfied that he did, in reality, see it in that way. He knew that a simple split into two leases would not work, so far as turnover rent was concerned, and that some new concepts and methodology would have to be employed in that area. It was therefore understandable that the turnover rent clause relayed to him by Mr Craven, as extracted from draft documents presented by Fox's solicitors to the Trust's solicitors, should have been regarded by Mr Duncan as representing a formal proposal by Fox as to the way in which the turnover rent issue should be resolved. That proposal emanating from Fox was, as Mr Craven pointed out, a proposal that departed from the status quo represented by the composite position for the site as a whole under the single 1996 lease. Mr Duncan could thus see that a form of negotiation had begun. The negotiation was, in his perception, something initiated by Fox. In addition, the fact that Mr Craven had gone to the trouble of subjecting the provision to the detailed analysis he in fact made must have given Mr Duncan the firm impression that this was not some merely transient piece of illustrative or preliminary drafting. 172 I am satisfied that, as a result of Mr Craven's letter of 7 December 2001 and discussion with Mr Craven, Mr Duncan was genuinely of the opinion that he had before him, in that letter, a proposal from Fox and that it was open to him to pursue negotiations on that footing. To the extent that he absorbed the revised draft of clause 3.4(b) sent by Allens to Clayton Utz on 11 December 2001, Mr Duncan would not have seen it as altering the sense or intent of the draft discussed in the 7 December 2001 letter. The only modification was to substitute a reference to the aggregate of the minimum rents under the two leases for a fixed sum of $2,500,000 to cater for the possibility of increases in accordance with the rent review provisions in the two leases. This could only have been viewed as something of drafting or technical significance and as correcting or removing an anomaly. 173 By the early part of December 2001, in any event, the Trust was itself in what might be termed negotiating mode, so far as rent was concerned. It had, at the meeting of 22 October 2001, decided to seek advice from PwC regarding rent. In the memorandum of 8 November to Mr Redman of PwC, Mr Duncan referred to the Trust's objective "to optimal outcomes for the Trust in the medium to long term". Mr Duncan's failure to concentrate closely on the redrafted clause 3.4(b) of 11 December 2001 (which he did not receive until 18 December 2001 when receipt of the PwC advice was imminent) may be taken to be a product of the pre-occupation with the PwC possibilities that had by then developed. 174 Mr Harvey's letter of 27 November 2002, relied upon by Fox in the particulars to paragraph 23 of the further amended statement of claim, said that, apart from stated matters, there were to be "no other changes to the rental mechanisms as stated in the current lease documentation". Mr Duncan's evidence is that he understood "current lease documentation" to refer to the draft lease documentation the subject of Mr Craven's letter of 7 December 2001 setting out in full the proposed turnover rent clause for the separate non-studio lease, as modified, in a drafting sense, by the draft of 11 December 2001. It is quite understandable that Mr Duncan should have viewed matters in that way. The turnover rent clause in the 1996 lease simply would not have worked if carried across without modification into each of the new leases. As I have said, Mr Duncan knew that some new concepts and methodology would be necessary in that area as a result of the split. The only thing of which Mr Duncan was aware, by way of lease documentation applicable to the split site, was the content of the letter of 7 December 2001 plus the minor redraft of 11 December 2001. 175 That Mr Duncan considered himself to have what he termed "an offer on the table" is borne out by the evidence of Mr Walker, a member of the Trust and its Finance Committee. He was told by Mr Duncan during the period preceding 7 March 2002 that: "The Trust will receive $3.7 million rental for the entire site under the new lease arrangements, which means that the Trust will be $300,000 - $400,000 better off than it is under the current lease." A person in Mr Duncan's position would not have said this to a person in Mr Walker's position unless he believed himself to have good grounds for doing so. Mr Walker also understood from Mr Duncan at the time that the Trust was intent upon achieving a higher rent as a quid pro quo for agreeing to the subdivision. This was, in any event, consistent with the decision of the meeting of the Trust to retain PwC to advise generally on rental matters; and with the Trust's subsequent attempts to use the PwC report as a negotiating tool to obtain a higher rent. 176 Mr Duncan's position is further borne out by the evidence of Mr Craven. Mr Craven referred to what he understood to be Fox's departure, on 5 December 2001, from its original position that there should be no increase in rent compared with the position under the 1996 lease. At that meeting, Mr Clarke had pointed to a supposed benefit to the Trust from the rental provisions he was proposing. Mr Craven's evidence is that he had said to Mr Clarke that the draft provisions disadvantaged the Trust and that Mr Clarke disagreed, adding that the Trust would benefit from them. Mr Clarke agreed in cross-examination that he was, as he put it, "attempting to put that spin on it" – in other words, that he wished, if he could, to have Mr Craven believe that the Trust would achieve a rental advantage through the rental structure in the draft documents. It is very significant, to my mind, that Fox's solicitor took that position rather than saying something to the effect that neither benefit nor detriment was intended from either perspective. It is also significant that Fox's solicitor said in cross-examination that he would have been content if Mr Craven had accepted the "spin". 177 Mr Craven was cross-examined closely about Mr Clarke's email to him of 22 February 2002 saying that Fox's position was that "there should be no adverse impact to either party in the allocation of rent". It is clear that Mr Craven did not attach much weight or importance to this. He described the email as "a very emotional response early in the morning to a fairly late request by us". Mr Clarke's statement was viewed as part of an ongoing negotiation. Mr Craven did not regard it as representing some fundamental principle transcending all negotiation. Indeed, it would have been extremely odd had he done so. Mr Clarke's stance in the early stages of the discussions on rent on 5 December 2001 had been one of trying to convince Mr Craven that the draft rent clauses presented on behalf of Fox conferred a benefit on the Trust. He was not, at that time, espousing any governing principle of neutrality and nothing had happened in the meantime that should have made Mr Craven think that some such governing principle had somehow come into play. 178 Mr Duncan's view of the "offer on the table" was that it entailed potential benefit to the Trust, as distinct from clear or certain benefit, although it appears that the understanding Mr Walker obtained from him was more definite. The uncertain nature of the benefit should, I think, be accepted as a reason why rent budgets and projections within the Trust took account of only the acceleration of the review to market rent relevant to total rent under the studio lease and the minimum rent component under the non-studio lease. 179 Having regard to the whole of the evidence and, in particular, to the elements of it traversed at paragraphs [167] to [178], I am satisfied that the Trust never subscribed to any underlying intention or governing principle that neither party should, in the restructure, obtain a benefit or suffer a detriment so far as rent generally and turnover rent in particular were concerned. The Trust saw the entirety of the restructure proposal as involving general negotiation. It also saw the draft documentation the subject of the report in Mr Craven's letter of 7 December 2001 (as modified on 11 December 2001) as conveying a statement of Fox's opening position in the negotiation, so far as turnover rent was concerned. This position prevailed on both 7 March 2002 when the relevant contract was made and on 27 June 2002 when the new non-studio lease was granted. 180 It follows that Fox, as plaintiff, has not established, by "clear and convincing proof" or at all, the common intention and agreement of Fox and the Trust pleaded in paragraph 23 of the further amended statement of claim. Findings – the unilateral mistake claim 181 I have already said that I am satisfied that Fox's intention (or belief) was as stated in paragraph 23 of the further amended statement of claim. The other elements of Fox's unilateral mistake claim are (a) that the Trust knew of Fox's intention (or belief); (b) that the Trust knew that the final form of the non-studio lease did not give effect to Fox's intention (or belief) and that Fox was accordingly mistaken; (c) that the Trust failed to bring the mistake to Fox's attention; and (d) that the mistake was detrimental to Fox. 182 An unstated but important and necessary part of the cause of action is that, as stated by Mason ACJ, Murphy and Deane JJ in Taylor v Johnson (above), the Trust "deliberately sets out to ensure that the first party [Fox] does not become aware of the existence of his mistake or apprehension" – or, according to the formulation in Tutt v Doyle (above), that "it is unconscionable for one party [the Trust] knowingly to take advantage of another party's [Fox's] mistake". 183 The matters upon which Fox relies to establish elements (a) and (b) above are, first, the exchange of emails between Clayton Utz and Allens' personnel on 21 and 22 February 2002, second, a conversation between Mr Harvey and Mr Duncan at the meeting on 22 February 2002 attended by them, Ms McDonnell and Mr Craven and, third, Mr Harvey's letter of 27 February 2002. 184 Taking the last of these first, it is the contention of Fox that Mr Harvey's letter of 27 February 2002 made the Trust aware that Fox was accepting a stated position in relation to reviews of rent to market and a "ratchet" provision but otherwise expected the two new leases to reflect "rental mechanisms" corresponding with those under the 1996 lease, being "the current lease documentation". For reasons I have already stated, I am not satisfied that Mr Duncan (and, through him, the Trust) understood the reference in Mr Harvey's letter to "the current lease documentation" to be a reference to the 1996 lease, as distinct from the 30 November 2001 draft of the new leases, as modified by the further drafting submitted by Allens on 11 December 2001. 185 As for the exchange of emails between Clayton Utz and Allens on 21 and 22 February 2002 (the second matter said to satisfy elements (a) and (b)), Fox places reliance on Mr Clarke's statement, in response to the Clayton Utz's ascribing to Fox the suggestion that there be no adverse impact on the Trust under the restructure proposal: "To be fair, the only position put by FSA is that there be no adverse impact to either party in the allocation of rent." As I have previously said, Mr Craven did not regard this as representing some fundamental principle transcending all negotiation. And, for reasons I have already stated, it would have been extremely odd had he done so. 186 The conversation between Mr Harvey and Mr Duncan at the meeting on 22 February 2002 (the first matter relied upon) included, on Mr Harvey's evidence, a statement by him: "Any increase in rent is unacceptable to us. Fox Studios cannot sustain any increase in rent. The public precinct is losing money and cannot sustain any increase in rent. There is no justification for removing the cap or increasing the rent in any form simply as a result of this restructure." Mr Duncan accepted, in cross-examination, that Mr Harvey may have said words to this effect but that he understood the benchmark to which Mr Harvey was referring as that set by "the offer on the table since December", being the 30 November 2001 draft leases and the minor modification of 11 December 2001. As Mr Duncan said: "I had the offer on the table and we were working on that and trying to vary it." Mr Duncan maintained his denial of any understanding of Fox's position as being that it would not agree to any increase in rent over that which applied under the 1996 lease. 187 Taken individually and together, the three matters upon which Fox relies to establish by "clear and convincing proof" the existence of the elements (a) and (b) in the above description of Fox's unilateral mistake claim do not do so. 188 Having reached this point, I need not consider elements (c) and (d) or the question whether the Trust engaged in some form of "sharp" or unconscionable conduct. Those questions and the residual elements of the pleaded claims based on estoppel and unconscionable conduct relevant to them do not now arise. I would say, however, that the circumstances seem to me to have involved no more than an open and straightforward course of commercial negotiation in which drafting prepared by Fox's solicitors was taken at face value by the Trust and its solicitors on the understandable and unexceptionable assumption that the drafting meant what it said. Various negotiating positions were taken from time to time and, in the end, each side both obtained and gave concessions. I do not regard the conduct of anyone involved – principals or solicitors – as warranting the epithet "sharp" or anything similar. 189 Because of my conclusions in relation to elements (a) and (b) of the unilateral mistake claim, as set out above, Fox does not succeed in that claim. The "further assurance" claim 190 It remains to consider Fox's claim under the "further assurance" provision in the "Deed of Restructure and Consent", being, as stated in paragraph 29B of the further amended statement of claim, clause 14.6 of that deed. I have not been able to find a copy of that deed, as executed, among the documents admitted into evidence. There is, however, a version described as "final form – unexecuted" which appears to be accepted by the parties as reflecting the terms of the executed deed. I proceed on that basis. There are fifteen parties to the deed, including Fox (under its former name, Fox Studios Australia Pty Limited) and the Trust. Clause 14.6 is as follows: " Further assurances Each party must, immediately on demand by any other party, perform all acts and execute all agreements, assurances and other documents and instruments as that other party reasonably requires to perfect the rights and powers afforded, created or intended by the parties to be afforded to or created in favour of that other party by this Deed." 191 The deed as a whole deals with a wide variety of matters making up a very complex composite transaction. As regards what it calls, in a heading (declared by clause 1.4 to be for convenience only and not to affect interpretation), the "Lease restructure", the deed says, in clause 7.1: "The parties agree to take all actions necessary to implement the following actions in the following order, all with effect on and from the Restructure Date." 192 There follow 33 paragraphs, (a) to (gg), each of which refers to an action by one or more persons. The paragraph immediately relevant to the creation of the new non-studio lease appears to be paragraph (c), being one of only three paragraphs involving the Trust. Paragraph (c) is as follows: "CPMPT and FMP execute a Real Property Act variation in the Agreed Form of the Showground Lease registered on the title to the FEC Area, which amends the Showground Lease with respect to the FEC Area." "CPMPT" refers to the Trust and "FMP" refers to a company called "Fox Moore Park Pty Limited". According to clause 1.3, a reference to the "Agreed Form", in relation to a document, is a reference to the form of a settled document initialled on behalf of News and Lend Lease at the time of execution of a deed dated 7 March 2002 between News, Lend Lease, the Ministerial Corporation for Industry and the Trust entitled "Implementation Deed". Argument before me appears to have proceeded on the basis that a form of lease document in relation to the non-studio area incorporating the turnover rent provision now in contention was the subject matter of paragraph (c) of clause 7.1 and had been initialled on behalf of News and Lend Lease on 7 March 2002. 193 This, it seems to me, raises an immediate difficulty for Fox in this part of its case. Assuming that clause 7.1 incorporated a promise by the Trust to Fox (by which I mean the present plaintiff, then called Fox Studios Australia Pty Limited) that the Trust would join with Fox Moore Park Pty Limited (a company quite distinct from the present plaintiff) in executing a document in a precisely identified and already existing form, performance of that promise by the Trust could not have involved anything more or less than execution by it of that very document. The fact that that document contained some faulty provision (assuming that it did) would be beside the point when it came to the question with which the so-called "further assurances" provision in clause 14.6 was concerned. 194 The label "further assurance" (or, as here, "further assurances") seems to be applied in present day drafting to a variety of provisions that go beyond a covenant for further assurance strictly so called, being the kind of covenant that s.78(1)(A) of the Conveyancing Act 1919 causes to be implied in a conveyance for value by a party expressed to convey as beneficial owner – in essence, a covenant to do whatever the conveyee or a successor may reasonably require for the purpose of "further or more perfectly assuring the subject-matter expressed to be conveyed and every part thereof to the person to whom the conveyance is expressed to be made and to those deriving title under him". In such a case, the "subject-matter expressed to be conveyed" will, of course, be set out in the conveyance's parcels (or description of the land or interest conveyed) and the only issue to be taken up under the covenant for further assurance will be whether the mechanics of conveyance actually employed have been exhaustive or whether something remains to be done for the purpose of "further or more perfectly assuring" the defined subject matter to the person identified as entitled to it. 195 Even a more widely cast provision of the present kind, expressed to be a means of ensuring that a party subjected to a request under it does whatever the requesting party reasonably requires "to perfect the rights and powers afforded, created or intended by the parties to be afforded or created" in favour of the requesting party "by this Deed", cannot operate upon some subject matter wider than that delineated by the deed itself. The closing words of the present clause – "by this Deed" – must be emphasised. 196 In GPI Leisure Corporation Ltd v Herdsman Investments Pty Ltd [1990] ANZ ConvR 367, Young J had occasion to consider the following provision: "Each party shall make, execute and do or cause to be made, executed and done all necessary agreements, deeds and acts which may be necessary to protect, secure or otherwise give effect to the terms of this Agreement." His Honour observed that the description "further assurance" for the provision was in reality a misnomer because "this is not a selling and buying agreement at all, but rather one which regulates the rights between the co-venturers". Moreover, by tying its operation to "this Agreement" (or, as in the present case, "this Deed") and concerning itself with the matters effected (and, in the present case, intended to be effected) by the particular instrument, such a provision does not contemplate that its operation will pay attention to matters outside the document's purview. 197 So far as the new non-studio lease is concerned, the Deed of Restructure and Consent cannot be regarded as having intended anything beyond that for which it made express provision, namely, that the Trust and Fox Moore Park Pty Limited should execute a form of document identified in March 2002 by means of initialling by representatives of News and Lend Lease. Once that act of execution was performed, the "rights … intended by the parties to be afforded to or created … by this Deed" in favour of Fox, as one of the parties referred to in the opening words of clause 7.1 (and presumably thereby a recipient of a covenant in terms of that clause given by each other party to the deed), had been fully satisfied. The clause, as drafted, does not refer to or seek to underwrite some unspecified intention at large to be found by some explained process outside "this Deed". 198 Clause 14.6 cannot, as a matter of its proper construction and correct application, form a basis for the grant of the relief Fox now seeks. Conclusion 199 As previously noted, the claims on the basis of alleged common mistake, unilateral mistake and breach of the "further assurance" clause were eventually the only claims pressed by Fox. No entitlement to relief on any of these bases has been established by Fox, with the result that all claims in the further amended statement of claim must be dismissed with costs. 200 There is a cross-claim. The Trust claims rent on the basis of the non-studio lease as written or, more precisely, the amount by which rent on that basis exceeds rent calculated on the basis of the rectified form of lease for which Fox contends, Fox having already paid rent on the latter basis. It was accepted by Fox that if, as has happened, it was unsuccessful in its claims, the Trust would be entitled to judgment for that excess. There will be judgment for the Trust for unpaid rent and interest accordingly but, since further rent may have accrued due since the cross-claim was filed, the appropriate course is to direct that short minutes of orders disposing of the proceedings as a whole be brought in within 21 days. ********** Last Modified: 03/30/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.