New South Wales Supreme Court CITATION : Wasada Pty Limited v State Rail Authority of New South Wales [2003] NSWSC 894 HEARING DATE(S) : 25/8/03-26/8/03, 28/8/03, 25/9/03 JUDGMENT DATE : 14 October 2003 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Landlord entitled to possession of premises CATCHWORDS : LANDLORD AND TENANT - allegation of entitlement to renewal of lease on particular rental basis - no question of principle Fair Trading Act 1987 LEGISLATION CITED : Real Property Act 1900 Trade Practices Act 1974 CASES CITED : Watson v Foxman (2000) 49 NSWLR 315 PARTIES : Wasada Pty Limited - Plaintiff State Rail Authority of New South Wales - Defendant FILE NUMBER(S) : SC 3089/03 COUNSEL : TS Hale SC; TH Thawley - Plaintiff B Coles QC; G Curtin - Defendant SOLICITORS : Kemp Strang - Plaintiff Henry Davis York - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J 14 OCTOBER 2003 3089/03 WASADA PTY LIMITED v STATE RAIL AUTHORITY OF NEW SOUTH WALES JUDGMENT 1 HIS HONOUR: In this case the plaintiff asks the Court to decide that it is entitled in equity to a lease of certain land in Waverton for a term which will expire on 28 February 2011 at a rental which is, broadly, the market rental from time to time of the Land in its unimproved state. It seeks the Court's decision that a Notice to Quit which the State Rail Authority of New South Wales ("SRA") gave it on 22 April 2003, is invalid. Alternatively, it seeks certain orders for restitutionary relief, or under the Trade Practices Act 1974 (Cth) or the Fair Trading Act 1987, connected with the value of buildings which have been erected on the Land. The Site 2 The SRA has at all relevant times been the registered proprietor of a parcel of land ("the Land") which is very approximately rectangular in shape (though tapering at its southern end), and lies immediately to the east of Waverton railway station. The long side of the rectangle runs in a north-south direction. Bay Road lies on its northern boundary. As one goes south from Bay Road, the level of the Land drops. 3 In 1984 there was a service station building constructed on the eastern part of the Bay Road frontage of the Land. A taxi truck business operated from a lower level of that service station. The western part of the Bay Road frontage of the Land, immediately adjoining the railway station, was vacant. This was because there had been contingency plans in existence for decades to increase the number of railway tracks from two to four, and to run the extra tracks through the western part of the Land. Further south on the site were three structures containing garages, in a poor state of repair. 4 The Land (though not including a block about 16m x 17m which lay on the Bay Road frontage and at the western side of the block), was occupied on a yearly tenancy, determinable on three months notice, by Waverton Car Park and Service Station Pty Ltd. That company in turn sub-let most of the land which was let to it to Mayled Nominees Pty Limited, a company owned by Mr and Mrs Mayled, which operated a business called Tower Taxi Trucks from the site. Either Mayled Nominees Pty Limited or Waverton Car Park and Service Station Pty Ltd also further sub-let the garages on a weekly basis, and conducted a casual on-site car park. Proposed Rental Increase 5 In January 1984 the SRA notified Waverton Car Park and Service Station Pty Ltd that it had decided to increase the rental of the part of the Land which was leased, from $5,500 per annum to $26,520 per annum. 6 This claim for a significant increase in rental set off various events. Mr and Mrs Mayled were unwilling to the pay significantly increased rental. They did not sign any document agreeing to the increase. Though Waverton Car Park and Service Station Pty Ltd told the SRA, with much reluctance, that it would agree to the increased rental, no documentation was signed formalising an increase payable by that company. 7 The General Manager of Tower Taxi Trucks, for several years prior to 1984, had been Mr Michael Sprague. His brother-in-law, Mr Michael Bugden, has been a member of the Institute of Chartered Accountants since 1974. He had had experience working for KPMG, auditing companies, including ones involved in property development. In 1984 he had gone into business as a project manager, managing building, development and property transactions for clients. He looked after tasks involving approval, design, construction and marketing for clients. He was a man who had extensive experience of business affairs and transactions. 8 Mr Sprague and Mr Bugden agreed with the Mayleds in principle that, in some way, Mr Sprague and Mr Bugden would arrange to purchase the business of Tower Taxi Trucks, that Mr Bugden and interests associated with him would contribute half of the purchase price of the business in return for a 50% share, and that Mr Sprague and interests associated with him would contribute the remaining 50% of the purchase price in return for a 50% share. 9 In 1984 Mr Peter Hatton, through his wife's company Hilrest Pty Ltd, conducted a retail liquor store in leased premises in Bay Road Waverton, located just to the west of the railway station. The lease of those premises was due to expire, and the landlord's plans were such that it was unlikely to be renewed. Mr Sprague visited the liquor store from time to time. Mr Hatton became aware that the management of Tower Taxi Trucks was unhappy about the rental increase which the SRA wanted. Mr Sprague introduced Mr Hatton to Mr Bugden in about mid-1984. Mr Hatton put a proposal to them that the Tower site be upgraded to include a new truck depot and storage, and also a retail liquor store, which his business would occupy. Mr Hatton offered to contribute half the costs of the redevelopment, and said he could arrange a meeting with the SRA to present the proposal for a new development and a new lease. Mr Bugden told him that they were interested, but needed to get a new lease before they could complete the purchase of Tower. Mr Hatton suggested that he could propose the new lease to the SRA at the same time as proposing the new development. 10 Mr Hatton knew Mr David Hill, the then Chief Executive of the SRA. Through that contact, a meeting was arranged between Mr Hatton and Mr Declan Wood, who was then the Chief Property Manager of the SRA. In all, Mr Hatton had two meetings with Mr Wood. Though there is no documentary record of the meetings, Mr Hatton's evidence that he had two such meetings is corroborated by Mr Graham Truelove, who was then an assistant to the Chief Executive of the SRA. Mr Truelove made arrangements connected with each meeting, and took Mr Hatton to each meeting, though he did not stay for the discussion at the meetings. 11 The plaintiff's case is based upon representations it says were made by Mr Wood to Mr Hatton, at the second of the meetings. In assessing Mr Hatton's evidence about the meetings, one needs to place them into the context of documentary records of what was occurring concerning the leasing of the Land and the advancement of plans for the development of the land. The Documentary Context for Evidence about the Meetings 12 On 12 December 1984 Mr Wood wrote to Mr Mayled, referring to a letter of 12 September 1984 expressing a wish to take over the tenancy. It continued: "… The Authority is prepared to transfer this tenancy to you under similar terms and conditions of the present Agreement. Rental will remain at $26520 per annum with the payment of rates, taxes and outgoings being your responsibility. It should be noted and understood that the Authority is presently engaged in a proposal which effects this site and as such, the Authority is only prepared to allow the site to be occupied until 30th June 1985. Should you desire to enter into a tenancy on this understanding, I will arrange for the necessary documents to be prepared. …" (The proposal affecting the site which Mr Wood refers to in this letter was a proposal that part of the Land not affected by the proposal for quadruplication of the railway line should be transferred to North Sydney Council for use as public open space.) 13 Mr Sprague, as General Manager of Tower Taxi Trucks, replied to this letter on 22 January 1985 confirming acceptance of the transfer on those conditions. Despite having said that, he raised two questions concerning the conditions. The first was whether the SRA really intended to require payment of rates taxes and outgoings. As well, concerning the tenancy term he said: "The existing agreement (dated 1 March 1984) provides for yearly tenancy with three months notice to terminate. The proposed tenancy provides for occupation until 30th June 1985. Please advise if this means that Tower Taxi Trucks will be required to vacate the site at this date or that the tenancy agreement would revert to an agreed notice period to vacate after 30th June 1984. As you will appreciate the tenancy period in the proposed agreement is of critical importance to us as we have sub-leased this site for over 12 years. Any sudden or unplanned move away from the site will be very detrimental to us. We therefore respectfully request that the tenancy term be extended to 1 year with 3 months notice. In this regard we would be prepared to work our tenancy term in with your development plans for the site." 14 Mr Sprague and Mr Bugden established a new company called Wonsana Pty Ltd ("Wonsana"). It was first registered on 19 December 1984. Directors were appointed including Mr Sprague, Mr Bugden and a business associate of Mr Bugden's called Gary Horne. On 1 February 1985 Wonsana entered an agreement with Mayled Nominees Pty Ltd to purchase the business of Tower Taxi Trucks. One clause of that agreement made completion conditional upon and interdependent with the grant by the SRA to Wonsana, "of a lease of the premises for a term concluding on 30th June 1985 and thereafter from month to month from the date of completion at a monthly rental of TWO THOUSAND TWO HUNDRED AND TEN DOLLARS ($2,210) and containing such reasonable covenants terms and conditions as the solicitors for the said lessor shall require." 15 Mr Wood replied to Mr Sprague on 6 February 1985 saying: "I refer to your letter of 22nd January 1985 and advise the following in relation to the points raised therein: 1. The payment of rates, taxes and outgoings have always been the responsibility of the Authority's Tenants. … 2. The tenancy will be on a firm basis until 30th June 1985 and will continue on a monthly basis until vacation is sought. This will be expressed on the document as a monthly tenancy with one (1) month's notice to quit. Please advise whether this clarifies the situation. It is intended to commence any tenancy in your favour from 1st March 1985 subject to Waverton Car Park & Service Station P/L meeting their obligations and paying rent to the end of February. Advice is also required as to the name or names in which the tenancy document is to be prepared." 16 A handwritten note on the SRA's file copy of that letter says: "It is noted that the letter signed by Mr Wood under date 12/12/84 provided for a specific termination on 30/6/85; however I understand that Mr Wood subsequently advised Mr Sproule that tenancy should be permitted to continue on a monthly basis after this date." (Mr Sproule was one of Mr Wood's subordinates at the SRA, who had some responsibility for this file.) 17 Mr Sprague replied to Mr Wood on 25 February 1985, thanking him for his letter of 6 February 1985, and saying: "We advise that we wish the SRA to proceed to draw up a tenancy document covering our occupation of the above site. The name to be included on the document as tenants is: WONSANA PTY LIMITED, trading as Tower Taxi Trucks 94A Bay Road Waverton All other relevant information as may be required is available on request. We would appreciate receiving from you a suitable document for perusal prior to signature." 18 On 16 April 1985 Mr Hatton met with Mr Watts, the Director of Development of North Sydney Council. Mr Hatton put to Mr Watts a proposal that the Land be developed so as to provide three separate leasehold areas – one for Tower Taxi Trucks, one for the Council's care control and management, and one for "cellars and other shops". Mr Watts' file note records: "I indicated general support for the concept which is in a preliminary stage of negotiations and I outlined to Mr Hatton the types of Development Controls that the Council would probably wish to impose on any development of the site. I explained that the Council would probably wish to see the shops built to the street alignment with awnings, giving covered access to the railway station entrance, the Towers Taxi Trucks probably relocated under the existing concrete slab, away from the street, open space being provided for care control and management of Council, renovation of all existing structures on the site, together with landscaping. Mr Hatton undertook to obtain more detailed surveys of the area and to put further proposals to the Council shortly." 19 On 26 April 1985 Mr Sprague wrote to Mr Wood. The letter began: "Following the recent meetings we outline below a proposal to upgrade the above site, in accordance with guidelines given to us by the State Rail Authority. These proposals are incorporated into a site plan and supported by photographs which are attached to this proposal." The letter then proceeded to list some proposed items of repair and the cleaning up of the site, and continued: "Following our discussions, we met with Mr S Watts (Director of Development) North Sydney Council and discussed the proposed upgrade of the site." It then set out certain proposals for transferring part of the site to the Council for a public park, and continued: " BUILDING We propose to erect a building and upgrade the existing garage on the site for the following purposes:- · As a shop for a licensed spirit merchant, who currently occupies a shop on the western side of Waverton Station. · As a replacement office and storage area for the existing taxi truck operation. The design and size of the building has not yet been finalised, however the sketch on the attached plan gives an indication of the location and size. We note that the scale of 1:1000 on the SRA drawings appears incorrect. It is in fact drawn to 1:500. This means that the proposed building will be approximately 25m x 15m (375m2). The final design specifications, and materials will be incorporated into a development and building approval application to North Sydney Council and subject to SRA approval. We have discussed the plan with Mr Watts of North Sydney Council who informed us that the plan is in agreement with Council policy and would be supported by the Aldermen. The plan has not been submitted to the Aldermen for approval. LEASE PROPOSAL We propose the following:- · that Tower Taxi Trucks (incorporated as Wonsana Pty Ltd) be given a lease over the area designated in the site plan for a minimum period of 5 years with an option to extend for a further 5 years; · that we be able to sublet a part of the proposed building to Mr Peter Hatton (the existing spirit merchant previously referred to) for the same period; · the rental currently being paid ($26,520 per year plus rates, taxes and outgoings) continue for a three year period with a review period to reflect market rates, thereafter." 20 The plan enclosed with the letter of 26 April 1985 is, I infer, one dated April 1985, which showed, amongst other things, a proposed shopping block which ran along the Bay Road frontage of the Land, for 25m from the western edge of the Land, and was 15m deep. It also identified part of the Land, at its eastern extremity, which was intended to be maintained and developed by the North Sydney Council. 21 At the time the SRA had a body called the Property Advisory Board ("PAB") which consisted of four persons external to the SRA and three persons from within the SRA. The primary function of the PAB was to provide independent and prompt advice in relation to significant property matters arising in the ordinary course of the SRA's business. While there was no obligation on the SRA to accept recommendations of the PAB, in practice recommendations of the PAB were only rarely not accepted. 22 After receipt of Mr Sprague's letter of 26 April 1985, Mr Wood wrote a note on 8 May 1985 to the Manager - Tenancies: "This proposal may resolve the long standing problem of the eyesore at Waverton. Please submit to Branches for clearances and prepare a brief report to the Chief Exec. Also please prepare a submission to the PAB to be subject to obtaining Branch clearances. I would like the PAB submission to be ready for the June meeting." 23 On 29 May 1985 a memorandum from Mr Wood to the General Manager, Administration and Property stated that Wonsana had become the direct tenant of the Land (excluding the block of about 16m by 17m which lay on the Bay Road frontage and at the western edge of the block). It said that Tower Taxi Trucks had submitted for the Authority's consideration: "… a proposal whereby the site would be upgraded with substantial renovations to all existing improvements, landscaped and shop and office premises erected on the street frontage. A lease for a term of up to 10 years is proposed. … … the tenant proposes to erect shops and replacement office on the street frontage and this will involve the utilisation of the area shown by yellow outline on plan (A). … The matter has not as yet been referred to the Branches or the Premier's Property Management Unit however, prior to this being done it is considered that the proposal should be placed before the Property Board with a view to it recommending that direct negotiations be entered into with Tower Taxi Trucks for the granting of a lease for a term of up to 10 years. Any such lease would be, of course, subject to the approval of the Executive Council … The rental for the first 3 years is recommended at $26520 per annum with a review period to reflect market rates thereafter, or plus rates and taxes." The "area shown by yellow outline on plan (A)" was the block of about 16m by 17m on the Bay Road frontage and at the western side of the Land. Also enclosed with that memorandum was another plan, identified as "plan (B) submitted by the tenant" , which is the plan I have described in paragraph 20 above. 24 On 29 May 1985 the General Manager, Administration and Property authorised the proposal being submitted to the PAB. 25 A meeting of the PAB on 6 June 1985 resolved: "It is recommended that negotiations commence with Tower Taxi Trucks with a view to it being granted a lease of the site for a term of up to ten (10) years subject to the clearance by the Branches and the Premier's Property Management Unit. The rental for the first three (3) years is recommended at $26,520 per annum with a review period to reflect market rates thereafter, all plus rates and taxes." 26 On 19 June 1985 Mr Wood wrote a memorandum to Mr Hill, presumably because he was aware of the personal acquaintance between Mr Hatton and Mr Hill. It attached the minutes of the PAB meeting of 6 June 1985, and said: "Items which may be of particular interest to you include:- … Item 2 Waverton – the lease proposal includes the relocation of Mr Hatton." 27 On 21 June 1985 Mr Wood wrote to Wonsana saying: "I refer to your letter of 26 April 1985 giving details of your Company's proposals to upgrade the site and redevelopment of the street frontage area. These proposals are currently under consideration and I will advise the Company further in this regard at a later date. In the meantime, it is necessary to regularise the Company's existing occupation as taken over from Waverton Car Park & Service Station Pty Limited. Accordingly, forwarded herewith in duplicate is Agreement to Let and Take No 85.0412, providing for a monthly tenancy at the rate of $2210.00 per month plus rates and taxes. Please have the original of the Agreement completed under seal by the Company and returned to this Office …" 28 The document enclosed with that letter was an Agreement to Let or Take, which provided that Wonsana was tenant from month to month of the same land which had been occupied by Waverton Car Park and Service Station Pty Ltd, at a monthly rental of $2,210 (a figure which equates to $26,520 per annum). 29 On 4 July 1985 Mr Wood sent a memo to the heads of various departments within the SRA, informing them of the proposal, providing both a verbal description of the development being proposed (which drew attention to the fact that the area at the western end of the Land which was currently vacant, was part of the land proposed to be built on for the shopping block) and a copy of the plan which Tower had provided. This plan was the plan dated April 1985, referred to in paragraph 20 above. The memo stated that: "The Chief Executive has approved a recommendation from the Authority's Property Advisory Board that the Company be granted a lease of the combined sites for a term of up to ten years, subject to Branch conditions and other requirements. In the circumstances, please let me have details of any special conditions which your Branch will require to be incorporated in the proposed lease document … Your final Branch response within two months of the date of this memo is requested; otherwise it will be taken that your Branch has no special conditions to be incorporated …" 30 Replies to that memorandum were given by its various addressees, as follows: OFFICER DATE IN 1985 Fire Protection Manager 8 July Chief Mechanical Engineer 9 July Stores and Supply Manager 7 July Outdoor Advertising Manager 8 July Chief Development Manager 7 August General Manager Passenger Services 12 August General Manager Workshops 22 August Chief Development Manager (revised response) 27 August Chief Signals and Communications Engineer 30 August Chief Electrical Engineer 30 October Chief Civil Engineer Design section 20 November There were some other Departmental heads who replied, but whose date of reply is not recorded. 31 While most of the recipients of the memo had no objections or suggestions, the Chief Engineering Manager and the Chief Operations Manager both requested a breaking clause in the lease. The Chief Development Manager initially replied on 7 August 1985, saying: "The studies being undertaken by this Branch indicate that quadruplication of the line at least between North Sydney and Chatswood will be required in the next few years to enable extra services, including Interurban trains, to be run on the North Shore line … In these circumstances, this Branch considers that any lease of the area concerned should not extend beyond 1 January 1995." The Chief Development Manager modified that response on 27 August 1985, saying, "This Branch has no objection to the proposal for a 10 year lease but on the condition that there is a 5 year breaking clause." The response of the Chief Civil Engineer, design section, on 20 November 1985 was that: "… as it is unlikely that the proposed quadruplication will proceed within the next ten (10) years, this Branch has no objections to Wonsana Pty Ltd being granted a lease of the combined sites for a term of up to ten (10) years provided [certain structural and engineering conditions were met]." 32 On 22 July 1985 Mr Sprague wrote to Mr Wood, returning the signed original of the Agreement to Let and Take. The letter concluded: "As mentioned in your letter you are presently processing a proposal by Tower to upgrade the site and redevelop the street frontage area. We are anxious to commence this work, particularly the upgrade and beautification of the garages facing the station and we would appreciate your early reply to our proposal so that the overdue work can commence." The "your letter" here referred to is Mr Wood's letter to Wonsana of 21 June 1985 (paragraph 27 above). The "proposal" referred to is the proposal set out in Mr Sprague's letter to Mr Wood of 26 April 1985. 33 On 27 August 1985 Mr Wood wrote a note to one of his subordinates re "Waverton" saying "Please prepare letter of approval to lodge DA as indicated on submission plans with the usual proviso of no commitment." 34 In September 1985 a draft agreement between Wonsana and Mr Hatton was drawn up, relating to his proposed occupancy of part of the building proposed to be erected. The draft agreement included a recital that the SRA had agreed to grant a lease "on the terms and conditions to be agreed between the parties." It made provision for granting to Mr Hatton a sublease for a term of 4 years 11 months and 29 days at an annual rental of $100, with an option to renew for a further term of 4 years 11 months and 29 days. The terms of that sublease were to be consistent with the head lease, save that Mr Hatton would reimburse the lessee for his proportion of the outgoings of the building. While the draft agreement was never executed, it provides some indication of the type of instructions which were given to the solicitors drafting the document around September 1985. 35 On 21 November 1985 Mr Hatton lodged with the Council an application for a development approval for the site. That application was accompanied by a letter from Mr Wood to Wonsana dated 22 October 1985, saying: "I refer to your Company's occupation of the above land, and in particular to your recent advice that you intend to approach the local Council, seeking its Development Consent of your Company's proposed redevelopment of the site, as shown by red edging on the attached plan. Accordingly, you may use this letter as an authority to approach Council with a view to obtaining such consent. It must be clearly understood that this letter in no way binds the Authority to any agreement to lease the subject land to your Company." The land "shown by red edging on the attached plan" was the whole of the Land, including the block about 16m x 17m on the Bay Road frontage and at the western side of the block which had not been let to Waverton Car Park and Service Station Pty Ltd. 36 The development is described in a little more detail in a report which a Council investigation officer made on 21 April 1986, when recommending approval of the development application. He described it as an application: "… for the erection of a 2-storey building comprising 4 shops at the level of Bay Road, and space for the operation of a taxi-truck business on the lower ground level. 16 car parking spaces are proposed at ground level." 37 A plan which is part of the report shows that the shopping centre was to run from, substantially, the western boundary of the Land, at the Bay Road frontage. The 16 car parking spaces were located south of that shopping centre. Because of the fall of the Land, those car parking spaces were on ground level. 38 The report recorded the floor areas of the proposed development as being: "Retail area (4 tenancies + service area): 408.23m2 Commercial area (Tower Taxi Trucks): 333.23m2" 39 The area shown on the plan attached to the development application report as occupied by the new shopping centre does not seem, on a visual comparison, to be substantially different to the area occupied by the proposed shopping block on the plan dated April 1985 (apart from the fact that there was a small kink in the eastern most wall of the plan attached to the Council report). 40 The report also includes the statement: "Enquiry to the Property Office of the State Rail Authority on 8th April, 1986, advised that the SRA would approach Council once the development proposal was finalized in respect to the land for open space purposes. It was also advised that any lease to Wonsana Pty Ltd would be for 15 years and/or would include a "break" provision should the land be required for the proposed quadruplication of the Railway." 41 On 27 February 1986 Mr Wood wrote to the Property Management Unit of the Premier's Department saying that Wonsana had: "… submitted a proposal whereby the site would be upgraded with substantial renovations to all existing improvements, landscaped, with shop and office premises erected on the street frontage over an area of about 25 metres x 15 metres. This involves use of the area shown by yellow colour on the subject plans. The Chief Executive has approved a recommendation from the Authority's Property Advisory Board that negotiations be commenced with the company for a lease of the combined sites for a term of up to ten years. … Will you please advise whether your Unit has any objections to the beforementioned proposals." The "area shown by yellow colour" was the area approximately 15m x 17m at the western end of the Bay Road frontage of the Land. 42 The Property Management Unit of the Premier's Department replied on 18 April 1986, raising no objection to the proposals. 43 On 9 May 1986 the Council gave its approval to the Development Application. 44 On 30 May 1986 Mr Sprague, on the letterhead of Tower Taxi Trucks, wrote to Mr Wood, under the heading "94A Bay Road Waverton", saying: "We hereby authorize Mr Peter Hatton to discuss on our behalf the tenancy arrangements available on the above site. Any negotiations held and arrangements made will be subject to our final concurrence and ratification." Mr Sprague wrote another letter, in identical terms, on 4 June 1986. Both the letter of 30 May 1986, and the letter of 4 June 1986, appear on the file of the State Rail Authority. 45 North Sydney Council issued a building permit for the development on 7 August 1986. 46 On 9 October 1986 the SRA wrote to Mr Sprague, offering a lease of the Land, for ten years, with a six months Breaking Clause after the first five years, and the term to commence on 1 March 1986. Rent from 1 March 1986 was to be at the rate of $30,000 per annum for the first two years. There were to be rent reviews every two years, with the rent for the first year of the review period being the then market rental of the land, and for the second year of a review period the rental for the preceding year increased by a CPI factor. This offer was subject to Executive Council approval. 47 Wonsana replied to that letter on 19 January 1987. The reply said: "We confirm our company's intention to accept this offer with conditions as specified in the letter and in our earlier submissions to the SRA, and we wish to proceed immediately to sign the lease agreement, which we understand has now received executive approval. …. We request that a six monthly breaking clause be included in the lease to cover the possible introduction of quadruplication on the line passing through the lease property. The rental referred to in clause 6 of your letter will be, as agreed, payable from the date of the lease signature. We have now achieved approval from North Sydney Council to proceed with demolition and construction. We therefore would appreciate it if the lease document could be executed by both parties as soon as possible." Contrary to what that letter said, it had never been "agreed" that the rental of $30,000 per annum would be payable from the date of the lease signature. 48 On 24 February 1987 Mr Hatton called on an officer of the SRA. The officer's file note says: "He is in the process of borrowing money for the development and has encountered difficulty in securing a loan for the effective lease period of just over 3 ½ years ie 10 years with a breaking clause (after 5 years) from 1.6.86. Also, he was unaware of the C.C.E's requirement to remove the buildings in the event of the land being required for quadruplication … . This aspect could cost the lessee a considerable amount." 49 On 19 March 1987 Mr Bugden, stating that he was acting on behalf of Wonsana, wrote to the SRA concerning the proposed lease terms. He said, "You will see that the SRA has approved a lease, potentially for 10 years, which is to take effect from 1 March 1986. I am writing to you because I think the proposal is unfair. I have been negotiating with the SRA since 1985 to obtain a lease of the land. We have obtained development approval from North Sydney Council, but of course the proposed development cannot proceed until the lease has been actually granted. The SRA is presently receiving rent of $26,520 per annum plus rates, part of the land being used for the taxi truck business conducted by Wonsana Pty Ltd. I can see no reason why the commencement date should be backdated over a year. When the lease is actually prepared and signed it will probably be another couple of months. The effect of this will be that the term of the lease will be about eight and three quarter years. Also, because of the breaking clause the lease might be terminated after five years ie, three and three quarter years from now. We will be spending a substantial sum of money in developing the property and I think we will not be able to get our money back if we have a lease of potentially 3¾ years . I realise that the breaking clause is only to provide for quadruplication but it is still a possibility that it will occur. It would seem to me that the SRA will suffer no prejudice if the ten year lease is granted with effect from the date upon which it is signed. The SRA has been receiving rent and will continue to do so until the commencement of the lease. Another matter is that we are unable to obtain our finance until the lease is granted and therefore cannot start building. The building will take about six months, so six months of the term will have expired before we start earning money from the proposed development. We have put an enormous amount of time and money in this proposal and we ask that you give it your earnest consideration." (emphasis added) 50 A note on the SRA's file copy of that letter, dated 23 April, says: "CPM subsequently discussed with Mr Bugden – he will accept offer of lease from 1.3.86 for expediency + legal costs. To deliver letter 24/4. FH&P to draft lease." The Lease 51 The lease from the SRA to Wonsana was entered on 7 June 1988. That lease was for ten years commencing 1 March 1986. The rental provisions were as outlined in the letter of 9 October 1986, save only that it was made clear that the market rental of the Land, which was to be the basis for the rent reviews, was a market rental assessed without having regard to any building structure or other improvement erected on the premises by the lessee, or the value of any goodwill attributable to the lessee's business or any tenant fixtures. 52 The "break" clause in Clause 3 of the lease, was in the following terms: "THE Lessor may by six (6) months notice in writing given at any time and expiring at any time after the expiration of the first five (5) years of the term require the Lessee to quit and deliver up possession of the demised premises and upon the expiration of the said notice the tenancy hereby created shall cease and determine but without prejudice to the rights and remedies of the Lessor in respect of any breach by the Lessee of any covenants conditions or restrictions on the part of the Lessee herein expressed or implied and without giving rise to any claim for compensation whatsoever on the part of the Lessee." Thus, the break clause could be exercised not only if quadruplication of the railway line occurred, but in any circumstances which SRA might choose. It meant that the lessee had security of tenure only for the first five years of the term. Given that the term started on 1 March 1986, and the lease was entered in June 1988, it meant that Wonsana had less than three years security of tenure. 53 The lease included the provisions of a memorandum, Clause 9 of which required the Lessee to yield up the premises "at the expiration or sooner determination of the term". Clause 30 of the lease said: "If the Lessor permits the Lessee to continue in occupation of the demised premises after the expiration of the said term the Lease shall continue as a tenancy from month to month only at a rent proportionate to the rent hereby reserved for the final year of the term and subject to the covenants conditions and restrictions referred to in this Lease." Wasada Pty Ltd 54 Wasada Pty Ltd ("Wasada") was incorporated on 6 May 1987, as a shelf company. On 29 June 1987 control of it passed to Mr Bugden and three other men, namely Mr Gary Horne, Mr Wayne Horne, and Mr Ross Purkiss. These three men were business associates of Mr Bugden. The shares in Wasada were held by interests connected with Mr Bugden and these three other men. Wasada entered the picture because Mr Sprague became unwilling to make the financial commitment which would be involved in carrying through the development. 55 In about March 1987 preparatory work for construction of the new building commenced. By mid-August 1987 demolition, excavation and piling had been completed, and tenders were out for the balance of the work. Sub-tenants were found for three of the shops. On 3 March 1988 the building was completed and the shops were handed over to the sub-tenants for fit out. All this happened even though SRA had not, at that time, executed a lease of the Land to Wonsana. 56 On 10 April 1987 Wonsana received, from Security Pacific Australia Pty Ltd, ("Security Pacific") a letter of offer of finance, in the sum of $207,300, for the purpose of constructing the new building on the Land. It was a five-year, interest only loan, with interest at 16.25% per annum. That facility was, in some fashion not gone into in the evidence, made available to Wasada. Over the period beginning in mid-September 1987 and ending around May 1988, Wasada presented progress certificates to Security Pacific, for drawings under the facility. (Drawings continued to be made after the buildings were completed, because of credit allowed to Wasada by suppliers of goods and services for the building work.) 57 In June 1987 Wonsana sent to Wasada an invoice for the expenses it had incurred in connection with the development of the Land. It said: "These amounts are now refundable as Wasada Pty Ltd are proceeding to complete the development. We understand that an agreement whereby Wonsana Pty Ltd assigns its interest in the SRA lease to Wasada Pty Ltd is currently being prepared." Wasada paid to Wonsana the amount of that invoice, $19,131.18. 58 Constructing the building cost Wasada of the order of $220,000. The early proposal of Mr Hatton, that he pay half the costs of the redevelopment, came to be refined so that Hilrest Pty Ltd paid approximately 43% of the construction costs. In return for Hilrest making that contribution to construction costs, it was to be entitled to a sublease of a particular shop in the development, for a nominal rental, but on the basis that it paid its proportion of the outgoings of the building. Mr Hatton's understanding was that, after the 10 years of the initial lease had expired, Hilrest would have to have paid rent as well as outgoings. (In fact, once the 10 years of the lease had expired, Hilrest continued in occupation of the shop, without paying a commercial rental.) 59 On 7 August 1987 Phillips Fox, on behalf of both Wonsana and Wasada, wrote to the SRA. The letter set out the then situation: "Two of the current directors of Wonsana (for family reasons) do not wish to be involved in the development of the land but wish to continue their involvement with the Tower Taxi Trucks' business. The other two directors of Wonsana (Mr Michael Bugden and Mr Gary Horne) will be involved in the development of the land together with Mr Ross Purkiss and Mr Wayne Horne. As only two of the current Wonsana directors will have a direct financial involvement in the development it is desirable for a number of reasons that Wonsana does not carry out the actual development and therefore does not become the lessee." The letter requested that the lease issue to Wasada Pty Ltd. 60 That request was evidently unacceptable to the SRA. Hence, when the lease was granted, it was granted to Wonsana, and was immediately assigned to Wasada. The assignment took the form of a Real Property Act transfer of lease document, which was registered. Though that document says that the date of transfer was 31 March 1988, this is impossible, as the lease did not come into existence until 7 June 1988. 61 In addition, on 6 June 1988 Wonsana, Wasada and the SRA entered a Deed of Covenant and Consent, which related to the transfer of the lease. That Deed included (Clause 4.2) a covenant by Wasada that it would perform all of Wonsana's obligations under the lease in the same manner as if Wasada had been party to the lease. Events After Grant of the Lease 62 In November 1988 the SRA gave authority to Wasada to approach the necessary instrumentalities for the purpose of gaining development consent for the demolition, renovation or construction of garages on the Land. Work of that kind was subsequently done, but at the cost of Wonsana. 63 On 17 November 1989 Mr Bugden sent to Mr Hatton a draft letter to the SRA for his comment. The draft letter said: "We refer to our letter on 1 May 1989 wherein we gave notice of our intention to further discuss with you the market rental review of the above property which became effective on 31 March 1989. As we discussed with you, we have sought expert advice on the matter. This advice has highlighted several onerous conditions in the lease that substantially affect the amount of rent payable. At the outset we wish to make the point that we are willing to pay the rental (even though SRA missed the notice date to increase the rental), however to make it more commercially viable to us, we require an extension of the term as originally promised to us. The major lease condition, to which we object, is the existence of a breaking clause (Clause 3) in the lease which effectively means that the SRA can terminate the lease FOR ANY REASON after 1 March 1991 after giving six months notice. We must point out that the following verbal assurances were given to us by the Chief Property Officer (Mr Gary Burns) when the lease was executed: 1. That the SRA will only terminate the lease after the expiration of five years should they then require it for track duplication purposes; 2. That the lease terms would be extended by two years (to February 1998), because the lease was not issued until March 1988, two years after the original letter of offer from the SRA (March 1986). No work was able to be started on site until after the lease was executed effectively losing the first two years of the lease. The impact of these items not being in the lease meant that the lease term was shortened to 8 years. If the breaking clause was invoked in March 1991 (5 years after letter of offer of March 1986) then the lease would effectively run for 3 years. This length of time is insufficient to recoup the cost of the new building on the site and, in the view of our advisors, significantly affects the market rent payable by Wasada to the SRA. During this time, 1 March 1986 to 1 March 1988, we continued to pay the new higher rental even though we had no lease and could not start work on the new building. Accordingly, we request the following: 1. That the SRA consent to include an additional clause in the lease to read: "The lessor agrees that such notice required under Clause 3 can only be given to the lessee provided that the lessor produces evidence of intention by the lessor to proceed to quadruplication of the existing line. The lessor further agrees that the lease will not be terminated pursuant to Clause 3 for any reason other than that of track quadruplication." 2. That the term of the lease be amended to read: "term of 10 years commencing on 1.3.88 and terminating on 29.2.1998 with an option to extend the lease for a further 10 years thereafter." And that Clause 3 be amended to read: "The Lessor may by six (6) months notice in writing given at any time and expiring at any time after the first seven (7) years of the term …" After you have had the opportunity to review this, please contact me." 64 On 9 March 1992 Wasada wrote to Mr Shaw, of Shaw Consulting, enclosing a letter from the SRA increasing the rental from $46,200 per annum to $60,000 per annum, and other documentation. The letter requested "Please review the above and advise me if, in your opinion, Wasada should challenge the latest increase to $60,000 per annum and/or the best method to achieve a ten-year extension to the lease." 65 On 29 September 1995 Mr Bugden wrote to Rail Estate, on the letterhead of Wasada Pty Ltd, saying: "We wish to apply for an extension of the above lease which expires on 1 March 1996. As per Rail Estate's advice to us, we can apply for such an extension within six months of the date of expiry. We would appreciate your advice on the procedure to extend." 66 On 2 February 1996 the SRA wrote to Mr Bugden, acknowledging receipt of a facsimile on 12 January 1996, and saying: "We are still waiting for three internal State Rail clearances to be received. Once all clearances have been received, we will consider the offer of a fresh five year lease over the demised premises. Should we not be in a position to offer a fresh lease prior to 1 March 1996, your current lease will continue on a month-to-month basis in accordance with clause 30 of your current lease." 67 On 8 September 1996 Mr Bugden wrote to Mr Hatton enclosing a letter he intended to send to the SRA. Mr Bugden said, concerning that letter: "The offer is to keep the rental fixed at the current rent of $71,930 until 31 July 1998. This is 10 years from July 1988 when the actual lease started. From 1 August 1998, the rental increases 20% to $86,316 for 5 years with no increases. As we have discussed, if the Rail Estate rent increases from $71,930 to $155,000 Wasada will actually lose money by taking on the new lease. Wasada only receives rent of $177,200 and pays out $155,000 in rent. Also this $177,200 assumes that Hilrest pays $45,000 per year, where currently you pay nil rent and only pay your share of outgoings. The $45,000 is the rent put on your shop by the Rail Estate valuer. It is therefore in both our interests that we get the lower rent from Rail Estate. Wasada has an outstanding investment of $333,759 which we need to get back over the next 5 years. To do this we need the rent to stay low. This doesn't include what you paid towards the building. If we are successful in getting the rent set at $86,316 instead of $155,000 then Hilrest can continue the same arrangement as we had up to end of the previous lease, where Hilrest pays nil rent and only its share of outgoings. Give me a call to discuss it before I send it." 68 On 18 February 1997 Wasada wrote to the SRA. That letter included the following: "I refer to various correspondence concerning the extension of the above lease. We wish to bring to your notice several matters that we consider relevant to the decision concerning the new lease terms and conditions. … At the time of approval of the lease in 1986 Tower Removals jointly owned by the Directors of Wasada had occupied the site on an expired lease for nearly 15 years. We wished to upgrade the premises but SRA advised that SRA policy was not to grant leases beyond 10 years. This concerned Wasada because the costs of the improvements and the risks of not recouping the cost of improvements over the initial term. In addition we were concerned that the inclusion of a 6 month breaking clause 3 could result in significant loss to Wasada. We were assured by senior officials in SRA that these clauses were mere formality and the special conditions surrounding our tenancy, including our previous 15 years occupancy of the site and the fact that we were only erecting a small building, meant that the lease would be extended by SRA at the end of the initial term, without reference to clause 9 of the Memorandum of Lease, provided that we complied with all lease terms. … The original approval for the lease confirmed March 1, 1986 as the commencement date of the lease, however the lease was not signed until June 7, 1988. This was due to the absence of key documentation including the title details and a dispute between SRA and North Sydney Council over ownership. Due to this Wasada was unable to finalise its design and commence construction. Through no fault of Wasada, the demised premises were not income producing until September 1988, a delay of over two years. At the time we received approval from SRA to have the lease commence March 1, 1988, however we were required to wait an additional 6 months for formal SRA Board approval. We decided not to wait for formal approval, because we were assured of the extension of the lease at the end of the initial term. The term of the lease has now extended almost 12 months beyond the initial expiry date of February 29, 1996. We request that consideration be given to further extending this 12 months to September 30 1998 … For the above reasons the cost of the improvements erected by Wasada on the lease area has only been amortised by 50% over the initial term of the lease. … Wasada seeks to ensure that the additional costs described under item 4 and 5 above are recovered and in addition ensure that the renewed lease terms reflect the available lease area that Wasada can utilise … We therefore respectively [sic] request that the rental formula to be applied for the new term of the lease is such that will enable Wasada to recoup its initial outlay and to reflect that portion of the site that is able to be used according to the restrictions placed on the site." 69 On 19 March 1997 SRA wrote to Wasada saying it would recommend a lease for five years at a rental of $155,000 per annum. 70 On 17 September 1997 Mr Bugden wrote to SRA proposing a further lease for five years from 1 August 1998, at a rental of $71,930 until 31 July 1998, and $86,316 from 1 August 1998 to 31 July 2003. The arguments put forward in that letter in favour of such proposal were assertions that Wasada had not recovered all its investment in the building, and that Wasada should be "given the opportunity to recoup this investment over the next 5 years". 71 On 29 October 1997 SRA wrote to Wasada saying that due to a change in operating policy the lease would not be renewed, and occupation would remain on a month to month basis, at the current rent. 72 On 24 November 1997 Wasada replied, objecting to the decision not to renew the lease. One basis of objection was stated to be: "When the initial lease was being negotiated in 1985/86 it was represented to Wasada and the principal subtenant, by Rail Estate that, at the end of the initial 10 years of the lease, Wasada would be offered another lease term. The only exception to the extension was to be the decision by SRA to construct the quadruplication of the line. The same representation was also given in respect of the breaking clause in the original lease. It was on the basis of this representation that Wasada entered the lease, the principal subtenant Hilrest and the other subtenants entered the sublease. Without this representation Wasada and the subtenants would not have expended in excess of $1 million to construct the existing building, refurbish the garages, construct the parking area and to fit out the shops." 73 By January 1998 Wasada was expecting to be engaged in litigation with SRA about the Waverton site, and planning how to go about the tactics of that litigation. In the first part of 1998 Wasada obtained a QC's opinion that the present case was a "classic case of proprietary estoppel". This conclusion, though not the facts or reasoning upon which it was based, was communicated to SRA. 74 There matters remained until November 2002, when solicitors for SRA wrote to Wasada questioning whether there was a basis for any estoppel. The solicitors requested Wasada to provide evidence of the basis of any alleged estoppel. On 22 April 2003 SRA served Wasada with a Notice to Quit the premises on 31 May 2003. At the time of service of that Notice, Wasada was paying rent at the rate of $78,619.68 per annum, inclusive of GST. 75 These proceedings were begun on 30 May 2003. On that day Nicholas J granted an interlocutory injunction restraining the SRA from taking possession of the premises or requiring Wasada to give up possession. Mr Hatton's Evidence – First Meeting 76 In this and the next paragraph I set out the substance of Mr Hatton's evidence concerning the first meeting he had with Mr Wood. That evidence has not been contested. The meeting took place in late 1984. Mr Hatton explained that the interests he was representing wanted to clean up the old site on the eastern side of Waverton railway station, to demolish the old building closest to the road, to erect a new building close to the road, and to refurbish the existing garages. He said that what they planned was a small building with a replacement office and storage area for the existing Tower Taxi Truck operations, and a shop for his liquor store. He said that if they were going to spend that type of money, they would need a lengthy lease so that they could recoup their costs. At the time of that meeting no plans had been drawn up, and no detailed costings had been carried out for the proposed development, but Mr Hatton was able to tell Mr Wood that it was his view that it would take "a substantial amount of money" to develop the site. 77 Mr Wood told Mr Hatton that carrying out such a development was complicated. He said that the first step was to regularise the current arrangement between the SRA and the tenant. He said that he understood that Wonsana had just taken over as the tenant, and was holding over on a month-to-month basis. He said that some sort of formal arrangement would need to be arrived at with Wonsana. An interim lease of some kind was, he said, the kind of formal arrangement he had in mind. He said the tenant would also need to clean up the site. As well, Mr Wood explained that he would need to check with a number of different departments within the SRA to see if there were any existing or likely plans which would prevent the development, that it would then be necessary to obtain formal SRA and Council approval for the development and the building, and that all this would take a while. Mr Wood said that subject to the various departments indicating that they did not have an interest or plans over the site, he could not see any reason why the development and long-term lease could not proceed. He also said, however, that Mr Hatton would need to write to him with a formal and detailed proposal. Mr Wood said he would let Mr Hatton know the details for the new interim lease, but that it should be similar to the current lease. Mr Hatton said that there should be no problem in formalising the leasing arrangement. Mr Hatton's Evidence – Second Meeting 78 Mr Hatton says that in about April 1985 he attended a meeting with Mr Sprague, Mr Bugden and an architect, Mr Fyfe. Mr Fyfe discussed some plans which he had prepared, and gave details of some changes to the site boundaries which had been requested by the North Sydney Council. These changes included a dedication of the eastern parts of the site to the Council for the purposes of a park, and the inclusion of the area fronting Bay Road directly next to the station. Mr Hatton says he asked Mr Fyfe to prepare a detailed plan and proposal to deliver to Mr Wood at the SRA, outlining the matters discussed at that meeting. A consensus was reached between himself, Mr Bugden and Mr Sprague that the much larger development, which incorporated the land directly next to Waverton Station, should be proceeded with. A short time later there was a further meeting between Mr Hatton, Mr Sprague and Mr Bugden to discuss the design for a larger building than had originally been proposed. 79 Mr Hatton swore two affidavits in the proceedings. The first, sworn 29 May 2003, was used for the interlocutory injunction hearing before Nicholas J as well as for the hearing before me. The second, sworn 5 June 2003, added to his earlier evidence in some respects. His later affidavit gave the following evidence about the meeting in April 1985 between Mr Hatton, Mr Sprague, Mr Bugden and Mr Fyfe: "Fyfe: I have prepared plans showing a 375 square metre building on the site and I have included the refurbishment for garages and the landscaping of the site in the plans. Council has indicated that they will require two changes to the site boundaries before they will approve the development. They want the eastern portion of the current site to be dedicated to the Council for a public park and they want the area fronting Bay Road directly next to the station to be included in the site. Currently, this area is not included in the site. They are keen to ensure that the new building will include the whole frontage to the footpath on one level. They've also raised an issue about the ownership of the road area and the bridge and who should pay for the cost of rebuilding the bridge over the train line. Hatton: Please prepare a detailed proposal to Declan Wood outlining the matters we have discussed including the list of issues raised by the Council. Wood has indicated to me that he needs a full proposal from Tower to continue the negotiations with Tower on the new lease. After the proposal is sent and assuming that we wish to proceed with the larger development I will set up another meeting with Wood at the SRA to put a proposal for a revised lease area and a bigger building to address Council concerns. Are you interested in constructing a bigger building on the site if I can arrange a longer lease? Bugden: We are interested in a bigger building but first we will need to complete a costing for the larger building and calculate what lease term is required to offset the cost. Hatton: You prepare a financial assessment and report back." 80 Mr Hatton also says that during that meeting Mr Fyfe outlined the costs of constructing a 375 square metre building, but he cannot recall the exact amount referred to by Mr Fyfe. 81 In his earlier affidavit Mr Hatton said that a short time later there was a further meeting between himself, Mr Sprague and Mr Bugden. In his later affidavit he said that Mr Fyfe was also in attendance at that meeting. His later affidavit said that the substance of the conversation at that meeting was as follows: "Fyfe: I have finished the plan for the larger building. It is approximately three times the size of the previous building and with the refurbishing of the garages, will cost around $500,000.00. With the rental that the development would earn, a minimum lease of 25 years with a rent based only on the land value would be required to make the development worthwhile. Hatton: Are we agreed to proceed with building the larger building if I am able to get a 25 year lease from SRA? If so, I want to split the cost of the building 43-57 and I don't want to pay any rent on my shop. Bugden: Yes. Michael and I agree. Go ahead and set up a meeting with Wood to put the proposal to the SRA." 82 In his later affidavit Mr Hatton gives a fuller account of the conversation he had with Mr Wood at the second meeting in June or July 1985 than he had given in his first affidavit. He says that since swearing his previous affidavit he had been able to recall further aspects of the conversation. Set out below is the account of the conversation contained in his second affidavit. In it, I include, shown as struck out, a few words which appeared in the first account of the conversation which did not occur in the second account, and, shown in italics, the words which appeared in the second account which did not appear in the first account. Wood: "I've checked with the relevant departments, they've all come back to me and indicated that they don't have any current interest or plans over the site. The only possible barrier to erecting a building is quadruplication. Quadruplication is a process where the current two sets of tracks are turned into four. This would occur if the SRA wanted to increase the capacity of the North Shore line. However, the plans have been on the board since the 19th Century and we think it's unlikely that this will occur. It's a very expensive process and it would involve substantial work. There are no plans to do so at the moment. If we can overcome this problem in the building construction, the way should be clear to gain a development approval. One of our requirements is the inclusion of a six month breaking clause in the lease but that would only ever be relied on by the SRA if quadruplication needed to occur." Hatton: "We would like to build a larger building than the building I proposed last time we met. It would cost about $500,000.00 and would create several extra retail shops. Since we last spoke I have spoken to the planning people at the Council, and they are for the idea as it the development we are proposing would utilise all the road frontage and would provide additional shops. They have some requirements though that we have to meet. As a sweetener though they have suggested that we dedicate part of the site as a public park. They have also indicated that they want us to include the rest of the land lying between the station and the current building in the development in order to ensure that the whole of the frontage is developed and has one level footpath. The Council is very happy for an approved development a development of the type we have discussed to go ahead as they are concerned about the site in its current state. It's a very expensive proposition for us though, and we would need a 25 year lease with rent calculated on land value only to go to the expense of the development." Wood: " If the Council is for the idea I assume that you have community support." Hatton: " Yes. I attended a Precinct Committee meeting a short time ago. There are 5 committee members including the deputy mayor and they voted unanimously for the development. There were about 50 people at the meeting and no-one voiced any opposition. There were lots of positive comments." Wood: "It would be good to get the Council off our backs, I am aware of their issues. We would also be happy to have the site maintained and upgraded. We would require though that you refurbish the garages." Hatton: " What is the nature of the disagreement between the SRA and the Council?" Wood: " Essentially, both sides say the other owns the bridge over the railway line and should pay to fix it up. They are also unhappy with the state of dilapidation of the site and they want it cleaned up. If the Council is happy with the development we could at least clear up that part of the problem. We would support the inclusion of the extra land in the new lease. I will write to you confirming this so that you can continue with the development. We can't give you a 25 year lease though. We have had a lot of trouble with long-term leases in the past. A couple of long-term leases in the City and at Chatswood have been a problem and the SRA has had to buy back at a big loss the remainder of the leases when we have had to do work at the stations. We want to avoid that in the future. The best we can do is a 10 year lease with a 6 month breaking clause. However, if you pay your rent and quadruplication doesn't occur, this will be as good as a 25 year lease or better. The lease will just tick over as long as quadruplication isn't required and we will just roll over the lease to a new 10 year lease at the expiration of the first lease. As you are developing the property at your expense, we will keep the lease at the unimproved land value only. This would be adjusted every few years based on increases in the rental value of the land only. I know that you would prefer a written document but you will just have to accept my assurance that the lease will be rolled over after 10 years. We know you are paying for the construction of the building and we are aware how much that costs. We also know how much it would cost to renovate the garages and platform perimeter. Unfortunately though I can't give you a written document, just my oral assurance." Hatton: " How would the rental increase you referred to work?" Wood: " Basically, every two or three years we would increase the rent based on rises in the value of the land. We wouldn't consider the cost of the buildings as you have constructed them but if the rental value of the land rose, we would pass that on. We would also increase the rental to take account of rises in the CPI. We will start the lease off on an amount of $26,500.00 per annum." Hatton: "Thanks for that. On the basis of what you've told me we will start work and get some plans and a proposal together." Wood: "If you want to proceed, it is important that Wonsana sign a new interim lease to enable me to progress the matter. Without that, I can't take the process any further. I can't give you a letter confirming these matters until I get approval from the various interested departments. That is likely to take a while." 83 The essential elements of this conversation, for the various causes of action on which the plaintiff sues, are a representation that a further lease (or leases) would be granted after the expiry of the initial 10 year term, and that the basis of the rental of that lease (or leases) would be a rental calculated on the land value only. I am not persuaded that any such representations were made. 84 The plaintiff in the present case needs to overcome the well recognised difficulties of proving the making of a representation, through oral evidence alone, after a very long period of time: Watson v Foxman (2000) 49 NSWLR 315. Mr Hatton had had not occasion to recall the events of 1984 and 1985 about which he was giving evidence until shortly before he swore his affidavit in May 2003. Accurate recollection, after a period of around 18 years, concerning a topic which has not been thought about in the interim, is something which has some intrinsic unlikelihood. 85 More importantly in the present case, Mr Hatton's evidence does not fit very well with the objectively ascertainable evidence 86 A theme of Mr Hatton's affidavit evidence, and also of his oral evidence, was that there was a proposal for a smaller building, the 375 square metre building, which was first propounded by the men proposing to develop the site. The proposal for that 375 square metre building was one which the Council was not happy with, so it was modified to relate to a larger building, which was later constructed. According to this theme in Mr Hatton's evidence, the letter of 26 April 1985 related to the smaller building, while the proposal which he put to Mr Wood in the June/July 1985 meeting, related to the larger building. He accepted that the letter of 22 July 1985 (paragraph 32 above) was one which urged the SRA to continue to evaluate the proposal put forward in the letter of 26 April 1985 (paragraph 19 above), but said in cross-examination that that was because it was necessary to keep two proposals alive, one for the smaller building, and the other proposal for the larger building, in case the proposal for the larger building proved not acceptable. 87 This account does not square with the objective evidence. The proposal which was being put forward in the letter of 26 April 1985 was for a building which was substantially identical, so far as the ground space which it occupied, to the building which was eventually constructed. The building proposed by the letter of 26 April 1985 was one which had dimensions of 25 metres, and so had occupied 375 square metres of ground space. Because it was a 2-storey structure, the available floor space exceeded 375 square metres. Mr Hatton correctly remembered that the proposal for a larger building than one which had originally been proposed came from the Council – but it had, as is shown by the April 1985 plan referred to in paragraph 20 above, already been formulated by the time of 26 April 1985 was written. It was that proposal for a larger building which was being put to the SRA in the letter of 26 April 1985, concerning which Mr Sprague requested a lease term of five plus five. It was that proposal which Mr Wood set about processing through the bureaucratic approval machinery of the SRA. He never processed any modified or different proposal through the machinery. And the processing of that proposal began with Mr Wood's request, on 8 May 1985, for the proposal to be submitted to branches, reported on to the Chief Executive, and for the drawing up of a submission to the PAB (paragraph 22 above). In other words, it began well before any June/July meeting. 88 Further, in cross-examination Mr Hatton was not as firm about what he was led to expect, so far as the term of the lease went, as he was in his affidavit evidence: "Q. How long did you think the lease would tick over for? A. Well I thought we would be there for at least two terms and if we were lucky three, providing nothing happened and nobody wanted the site." Q. Well did Mr Wood say to you that he wouldn't give you a letter saying what would happen after the 10 years was up? A. He said he couldn't confirm anything after 10 years. Q. What did he say exactly about that? A. Umm -- Q. Did he say, let me help you, "I can't confirm what will happen after 10 years"? A. He said he couldn't confirm what would happen after 10 years but, as I say, with quadruplication and the tenancy, if Council was happy, the site was maintained and it wasn't needed by any other departments, if would just tick over. Q. Did he say how long? A. He said possibly another 10 years. Q. Possibly another 10 years? A. He said the same sort of lease, a similar lease. Q. But he was not precise, I take it, is this right, about how long it might necessarily tick over for? A. A similar lease, it would be 10 years twice a year." Another part of Mr Hatton's cross-examination was: "Q. On the basis that Mr Wood couldn't give you any assurance, is that what you mean? A. On the basis that he said we will get a 10 year lease and it would be very unlikely, if quadruplication didn't happen it would be very unlikely we would be moved off the site and the lease would just tick over and I said thanks for that." 89 Mr Hatton gave evidence: "Q. Did he say he cannot give you a letter confirming any of the things that you had discussed, according to you, at this meeting? A. He didn't say he couldn't give me a letter. I mean he couldn't guarantee it then because he had to go to the Department, he had to go to Premier's Department, so he was just – " This is not the Language of Firm and Clear Representations 90 There is also some internal contradiction, between the beginning of Mr Hatton's affidavit account of the conversation and the very end, about whether, by the time of the meeting about which he gives evidence, approval had already been obtained from the various interested departments. The fact of the matter is that it was only on 4 July 1985 that Mr Wood sought approval from the various departments to the April 1985 proposal, and by the end of July the giving of those approvals was nothing like complete – see paragraphs 29 and 30 above. 91 There is also a serious lack of sense in what, on Mr Hatton's version, Mr Wood was saying. If there had been significant problems for the SRA in granting long term leases, of which Mr Wood was well aware, he is hardly likely to have given to Mr Hatton an assurance the effect of which would be to create the potential for exactly those problems to arise on the Waverton site. 92 Another problem with Mr Hatton's evidence is that there is no single piece of paper which is anything like contemporaneous which corroborates it. The entire files to the SRA relating to the Waverton site were put in evidence, and there is no piece of paper in those files which makes reference to either: (a) any representation that the lease to Wasada or Wonsana would be extended beyond the 10 year term of the lease, or (b) a representation that although the SRA could not grant a lease of the premises to Wonsana for 25 years, it would grant a lease of the premises to Wonsana for an initial period of 10 years which upon expiring would be renewed for further periods up to a total of at least 15 years (including the initial 10 year period) provided that the rent had been paid and quadruplication had not occurred. It may be that there were some notes created and not retained on the file, but even so the absence of a note creates problems for acceptance of the plaintiff's case. As well, no one on behalf of Wonsana or Wasada produced any contemporaneous notes to support the making of the representation. 93 At the first meeting between Mr Hatton and Mr Wood, Mr Hatton was told that he would need to write to Mr Wood with a formal and detailed proposal. Yet, according to Mr Hatton's evidence, the proposal for the larger building, made at the June/July 1985 meeting, was never presented as a formal and detailed proposal. 94 The terms of the draft agreement between Wonsana and Mr Hatton, drawn up in September 1985 (paragraph 34 above) do not sit well with Mr Hatton's evidence. They suggest that it was understood that the terms and conditions between SRA and Wonsana were at that stage not agreed upon, and that the subleases which Mr Hatton would receive would be ones calculated by reference to 10 year term. 95 If Mr Wood's representations were of the critical kind which the plaintiff's case would have it to be, it is also strange that there was no attempt on the part of either Wonsana or Wasada to seek to record them in writing. This is particularly so when the representations related to matters which would occur more than 10 years after the date when the representations were said to have been made. The obvious risks of SRA employees no longer being in the same organisational positions in 10 years time, of illness, death, or ordinary forgetting, suggests that it would have been, at the least, prudent to have recorded the representations in writing. There are some respects in which Wonsana and Wasada have not been prudent – Wonsana was prepared to purchase the Tower Taxi Trucks business for $150,000 when it had very insecure tenure to the Waverton site, and Wasada constructed the building on the Waverton land before any lease was issued to it, and without any formal agreement for lease – yet these examples of imprudence give rise to a real possibility that, rather than relying on the representation which Mr Hatton says was made, Wasada was taking its chances in being able to obtain an extension of lease at the end of the term. 96 There is an inherent unlikelihood in Mr Wood having behaved in the way in which Mr Hatton says he behaved. There was a procedure whereby the SRA could grant a lease only after all its internal procedures had been gone through, the proposal had been submitted to the PAB, the proposal had been submitted to the Premier's Department, and approval of the Executive Council was obtained. Mr Wood had no authority to commit the SRA to renew a lease, without these procedures having been gone through. No credible reason is suggested as to why he might have done so in the present case. 97 Mr Bugden gave evidence that Mr Hatton had passed on to him the substance of what Mr Hatton says was said by Mr Wood, soon after the event. This evidence was allowed on the basis that the statements which Mr Hatton made to Mr Wood were not evidence of the truth of what Mr Hatton said – the statements were allowed into evidence on that basis because they were part of Wasada's case of reliance. However I am not persuaded that that evidence is correct either. Mr Bugden's complaint about the lease terms in his letter of 19 March 1987 (paragraph 49 above) would be proceeding on a completely false premise, about needing to recoup the capital expenditure in 3¾ years, if there was a firm assurance that Wonsana could have a renewal of the lease for a further 10 years at its expiry. The same point can be made about Mr Hatton's complaint on 24 February 1987 (paragraph 48 above) that the "effective lease period" was just over 3½ years. Mr Bugden's draft letter, sent to Mr Hatton on 17 November 1989 (paragraph 63 above) refers only to representations said to have been made by Mr Byrnes. If Mr Wood had assured Mr Hatton that the lease would definitely be extended, and on terms where rental was calculated by reference to unimproved value of the land only, that would have been a far more powerful argument to have put. 98 Likewise, the request to Mr Shaw for advice as to the best method to achieve a 10 year extension to the lease (paragraph 64 above) makes no mention of any clear assurance that there would be such an extension. 99 When the time for extension of the lease came, the correspondence (paragraphs 65-67 above) makes no mention of any assurance by Mr Wood, like the representations sued on. 100 Wasada's letter of 18 February 1997 (paragraph 68 above) contains passages which bear some family resemblance to the allegations made in the present case, but the request made (that the lease be extended to September 30 1998) is far less than would be justified if the representations sued on had actually been made. As well, that letter contains one statement ("We were assured by senior officials in SRA that these clauses were mere formality") which seems unlikely, and is not borne out by any evidence in this case. 101 Mr Wood has given evidence. He has only the sketchiest actual recollection of the transaction involving the Waverton site, and cannot remember the meetings with Mr Hatton. He said that normally, if anything important happened at a meeting he would record it in a note. He gave evidence: "Q. And might we take it that had Mr Hatton in these circumstances asked you about the prospect of a lease rolling on and on and on, the likelihood is that you would have formed the view that it would have rolled on and on? A. It was not at all uncommon for the railways when a lease expired to negotiate first with the tenant. Q. So had somebody asked you in 1985 whether at the expiry of a lease they could expect a new lease, the chances are that you would have told them yes you can? A. Yes." 102 These responses fall short of an unconditional assurance that a new lease would be granted, and say nothing about the rental at which any new lease would be granted. Mr Wood denied that there was any policy of the SRA at that time to not grant leases of more than 10 years, and said that there was no reason why a proposal for a lease of 20 years, or 25 years, could not have been put to the PAB. There is some objective support for 10 years not being an absolute limit for leases granted by the SRA in the Council report on this development (paragraph 40 above), which refers to advice to the Council from the SRA that the lease to Wonsana would be for 15 years. Mr Wood also gave evidence: "Q. And you would not be in any position to deny that one of the things that Mr Hatton might have said to you is if I get an extension, it will be on the unimproved value? A. If he were to suggest it, I would have told him no." 103 Mr Wood gave evidence: "Q. It is likely is it not, that you would have conveyed to this person, that the lease would to use your phrase, "roll on and on and on"? A. Subject to qualification, yes." 104 He later identified that qualification as being "subject to the rent being based on market value at that time." Mr Wood continued: "Q. So you take the view do you, that although you have absolutely no recollection of the meeting, or what was said, you could not have said that at the end of a period of ten years the lease will continue to roll over? A. I could not have said that. Q. You don't think you've said that? A. I could not have said that." 105 When Mr Wood had no recollection of the meeting, evidence of this type is of close to negligible weight, at least when it is not accompanied (as Mr Wood's evidence was not accompanied) by evidence of having a regular practice relating to the topic in question. I regard Mr Wood's evidence as having achieved for the SRA little more than avoiding the adverse inference which would have arisen had the SRA not called him. 106 Another difficulty in the way of accepting the plaintiff's case concerning the making of the representations is that Mr Hatton's account of his motive for seeing Mr Wood on the second occasion is heavily influenced by his understanding that the cost of the larger building then being proposed was such that it could not be adequately recouped with a 10 year lease. He attributes the costings of the larger building to Mr Fyfe, and the view that "with the rental that the development would earn, a minimum lease of 25 years with a rent based on the land value would be required to make the development worthwhile." No costings of the building, or cash flow projections showing how it was anticipated the cost of the building would be recouped were tendered. Nor was Mr Fyfe called. The usual inference arises that his evidence would not have been helpful to the plaintiff. 107 As well, Mr Bugden was one of four directors of Wasada. While one of those directors has died, the others are still alive (though at least one of them is in the United States). Though this is a matter which goes to reliance rather than to the making of a representation, these remaining directors were not called, and there is no evidence on the basis of which it could be concluded that Mr Bugden alone counted as the mind of Wasada for the purpose of the Waverton lease. 108 The negotiation of the lease for the initial 10 years continued well after June/July 1985. Both Mr Hatton, and Mr Bugden, were aware that, even when the terms of the lease for the initial 10 years were agreed in principle, it was necessary for the lease to be approved by various authorities higher than Mr Wood. There is a considerable oddity about Mr Wood having given firm assurances in June/July 1985 that a lease would be granted at the end of the 10 year term, and on what basis that further lease would be granted, when the terms of the initial 10 year lease were still subject to negotiation. The SRA's letter of 22 October 1985 (paragraph 35 above) in its final paragraph does not sit well with Mr Wood having given Mr Hatton a firm assurance in July 1985 of the kind for which Mr Hatton contends. 109 While there was a lack of precision in the evidence about just when in June or July the second meeting is said to have occurred, the more natural reading of the plaintiff's evidence on this topic has the meeting occurring before 22 July. If the meeting occurred prior to 22 July, it is odd that Mr Sprague's letter of 22 July 1985 (paragraph 32 above) made no mention of the proposal put forward at that meeting, and indeed urged the SRA to give an early reply to the proposal put forward in Mr Sprague's letter of 26 April 1985. 110 Mr Hatton suggested that the letter of 22 July 1985 sought to keep alive the proposal for the smaller building as a fallback position, in case the new proposal for the larger building did not proceed. But this suggestion does not seem a particularly plausible one, when a significant part of the reason for the proposal for the smaller building not proceeding was that the Council was opposed to it. 111 The fact that the lease was entered in a form which contained Clauses 9 and 30 (set out in paragraph 43 above), is certainly not a matter which makes the plaintiff's case one which could not possibly succeed – it is the essence of a case of estoppel that one party is precluded from insisting on its strict legal rights. However the presence of these clauses, which both Wonsana and Wasada agreed to abide by, still counts against success of the plaintiff's case. Particularly is this so when Mr Bugden received detailed advice from Phillips Fox about the terms of the lease before it was entered, which expressly stated that the lease was for a term of 10 years, and there was no option for renewal. 112 One minor puzzle about the plaintiff's case is that it appears from Mr Sprague's letter to Mr Wood of 26 April 1985 (paragraph 19 above) that there had been some discussions between representatives of the intending developers and the SRA shortly before the date of that letter. No evidence in the case gives any clue what those discussions might have been. Another minor puzzle is why it was that, in May and June 1986 Mr Hatton needed to be given specific written authority by Wonsana, which was to negotiate but not to bind, when he went to see Mr Wood (paragraph 44 above) – yet no such written authority was given in relation to the earlier meetings which Mr Hatton had with Mr Wood. 113 For all these reasons, I am not persuaded that the plaintiff has made out its case concerning the making of the representations which Mr Hatton alleges. When that is so, all the various causes of action upon which the plaintiff sues must fail. 114 In particular, in light of this conclusion it is not necessary to examine how it could be that Wasada could take the benefit of representations made to Wonsana, in light of Wasada's contractual obligation to perform, amongst other things, Wonsana's obligations under Clause 9 and Clause 30 of the Lease (see paragraph 61 above). Wasada submitted that it was a privy of Wonsana, and hence could have the benefit of representations made to Wonsana. 115 The SRA has filed a cross-claim seeking an order for possession, and mesne profits. No separate arguments have been mounted by the plaintiff, beyond those on which its own claim is based, to challenge the entitlement of SRA to issue the Notice to Quit, or the adequacy of the Notice. I conclude that Wasada's tenure of the premises ended on 31 May 2003, that SRA is entitled to possession of the premises, and that SRA is entitled to be paid mesne profits for the period from 1 June 2003 until possession is actually rendered. 116 No evidence has been directed to the questions of by what date an order for possession ought require delivery up of the premises, or the rate at which mesne profits should be payable. I shall stand the proceedings over for a short period of time to give the parties the opportunity to consider what they wish to do about these matters. Orders 1. Declare that State Rail Authority of New South Wales is entitled to possession of land situated and known as 94A Bay Road, Waverton comprising part of Folio Identifier 3/224574 and Volume 3893 Folio 71 being Lot 1 in Deposited Plan 746295. 2. Direct the matter be restored before me, on a date to be arranged with my Associate by appointment made within 7 days of delivery of these reasons for judgment, for argument about any further orders which might be appropriate. ********** Last Modified: 10/17/2003 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.