New South Wales Supreme Court CITATION : Aspro's Pty Limitied v Robert Frederick Hayter & Ors [2005] NSWSC 512 HEARING DATE(S) : 23, 24, 25 May 2005 JUDGMENT DATE : 1 June 2005 JURISDICTION : Equity Division JUDGMENT OF : Bergin J DECISION : Rectification ordered CATCHWORDS : Application for rectification of the Rent Review clause of a lease - Whether the plaintiff has established an identical corresponding contractual intention different from that which is in the Lease - Common mistake Australasian Performing Right Association Ltd v Austarama Television Pty Ltd [1972] 2 NSWLR 467 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 CASES CITED : Maralinga Pty Limited v Major Enterprises Pty Limited (1973) 128 CLR 336 Pukallus v Cameron (1982) 180 CLR 447 Aspro's Pty Limited (Plaintiff) Robert Frederick Hayter (First Defendant) PARTIES : Judith Anne Hayter (Second Defendant) Keith Fountain (Third Defendant) FILE NUMBER(S) : SC 1383/04 M. McCulloch SC (Plaintiff) COUNSEL : Marcus Young (Defendants) Ebsworth & Ebsworth (Plaintiff) SOLICITORS : Dixon Holmes Du Pont (Defendants) LOWER COURT JURISDICTION : - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BERGIN J 1 JUNE 2005 1383/04 ASPRO'S PTY LIMITED V ROBERT FREDERICK HAYTER & ORS JUDGMENT 1 The plaintiff, Aspro's Pty Limited, seeks rectification of a lease between it as lessee and the defendants, Robert Frederick Hayter, Judith Anne Hayter and Keith Fountain, as lessors (the Lease) in respect of premises located at 414 Bourke Street, Surry Hills (the leased premises). The plaintiff claims that the rent review clause, clause 6.2, does not express the true agreement between the parties. The basis of the plaintiff's claim is that there was a common mistake or alternatively that there was a unilateral mistake made by the plaintiff. 2 The Lease is dated 14 September 1998 and is for a period of 20 years. The leased premises are commercial premises from which the plaintiff operates a franchise business under an agreement with Video Ezy Australia Pty Limited that involves the hiring and sale of pre-recorded video cassette tapes and DVDs. The plaintiff also owns and operates another Video Ezy franchise from premises in Redfern. 3 In early 1997 the principal of the plaintiff, Peter Aspres, decided to establish a Video Ezy business in Surry Hills. In looking for premises he made contact with the real estate agency, Nationwide Realty in Elizabeth Street, Surry Hills. Mr Aspres there met with Mr Martin Vogt and explained to him that he was looking for ground floor commercial retail space of around 300-400m². It was in about August 1997 that Mr Vogt contacted Mr Aspres and they went together to inspect the leased premises. At the premises Mr Vogt introduced Mr Aspres to the first defendant, Robert Frederick Hayter, and after viewing the upstairs area of the premises Mr Aspres had a conversation with Mr Hayter in which they discussed various aspects of the building. There is no issue that the building needed substantial work to be done prior to occupancy. The leased premises are owned by the defendants, and at this time Mr Hayter's company, Ausfers Pty Ltd, a retailer in sheepskin products, was on a month-to-month tenancy, after the expiration of its lease. 4 After further inspections of the premises Mr Aspres formed the view that the renovation and refurbishment of the premises before occupancy would require the expenditure of at least $100,000. It was in the latter part of 1997 or early 1998 that Mr Vogt advised Mr Aspres that Mr Hayter had "come down to $120,000 per annum for the building". Mr Aspres advised Mr Vogt that he did not need the whole building and requested Mr Vogt to ask Mr Hayter if he could lease the ground floor space on Fitzroy Street for $50,000 a year. He also requested advice as to whether there were any heritage issues with the building. A couple of days later Mr Vogt advised Mr Aspres that Mr Hayter preferred the whole building to be leased and also suggested that Mr Aspres should do his own investigations in relation to any heritage issues. 5 Some short time later, Mr Vogt telephoned Mr Aspres and advised him that Mr Hayter was being "realistic" and was aware of how much work had to be done on the building. He said, "we could probably secure the premises at $110,000" inclusive of outgoings. After Mr Aspres received the artist's impression of the renovated and refurbished premises, he met with Mr Hayter at the premises. He provided Mr Hayter with a copy of the plans and advised him that he would be happy to pay $90,000 to $95,000 but he wanted a "rent free period". Mr Aspres claims Mr Hayter then advised him that he knew that he proposed to spend a lot of money refurbishing the building but that "we are not in a position to offer you any free rental period" because they were depending upon the income. Mr Aspres said, "you can't expect me to spend all this money with no compensation whatsoever". Mr Hayter then said "I've told you Pete, if you can come up with another solution that does not affect our cash flow we will look at it". Mr Aspres advised that he would see what he could come up with and get back to Mr Hayter. 6 A short time after that meeting Mr Aspres had a telephone conversation with Mr Vogt in which Mr Vogt advised him that Mr Hayter had said he would "take $95,000 plus outgoings but no free rent period". There was further discussion concluding with Mr Aspres suggesting he would obtain a better estimate of the costs of the renovations. 7 On a further visit to the leased premises Mr Aspres met with Mr Hayter and Mr Aspres claims a conversation to the following effect took place: Aspres: I was just looking for a fire hydrant to see if the fire rating will cost $100,000 or $150,000. Bob, whether it is me or someone else, there will be expense in re-letting the building. That is why it is not realistic for me to take the building as is. Hayter: I told you Pete, come up with something and we'll think about it. Aspres: Well, how about keeping the rent flat for five years then a CPI increase in the sixth year, that way you get a tenant on the day you move out of here paying rent straight away and I can spread out some of the renovating costs over the 20 year lease. Otherwise Bob, we can't justify the expense. Hayter: Well, as long as it does not affect our cash flow, I'll ask Keith. So what you are asking for is $95,000 a year rent plus outgoings and the rent to remain flat for five years and the CPI – 2%, 3%, 4% whatever it is, to kick in on the sixth year. How about CPI or 5%, whichever is greater? Aspres: I don't think you can have both in there. You have to choose one or the other. I'd prefer CPI over the 5%, but Bob I'd still prefer a rent free period, because spending over $100,000 in one go is worth a lot more in 20 years time. Hayter: I'll speak to Keith, if we can finish the deal off today you can keep these couches! Aspres: That would be nice Bob but I'm not sure where we'd put them in the video store. 8 Ultimately there was little dispute about the majority of this conversation. However Mr Hayter claimed that he did not agree to the proposal. In his affidavit evidence of 17 September 2004, he claimed that he informed Mr Aspres of the following: My bottom line is very clear. I've come down from a net rent of $120,000 a year to $95,000, plus outgoings. The rent is to be increased by the CPI on an annual basis, and to start paying this from year 6 allowing you a break for the first five years in paying the CPI increases, but the CPI was to be calculated from the start of the lease. That is the line in the sand. 9 Mr Aspres spoke with Mr Vogt on the telephone and advised him that he had spoken with Mr Hayter and offered an initial rent of $95,000 per annum and that Mr Hayter would not give him a rent free period while he was carrying the building works. Mr Aspres informed Mr Vogt that he had proposed to pay flat rent for $95,000 for the first five years with a CPI increase at the commencement of the sixth year and each year from then on. Mr Vogt advised that he would speak to Mr Hayter and come back to Mr Aspres. Later the same day Mr Vogt telephoned Mr Aspres and said "Well done. Bob agreed to the flat rent for five years then an annual increase of CPI, whatever that may be, in year six". Mr Vogt advised that he would prepare the leasing advice and forward it to Mr Aspres' solicitor. Mr Aspres then advised Mr Vogt that his solicitor was Peter Skouteris and provided his details. 10 Mr Vogt prepared a Leasing Advice (the First Advice) which he sent to Mr P Pryor of Murphy & Maloney the solicitors for the defendants at the time and to Mr Skouteris. The covering letter was dated 11 February 1998 and was in the following terms: We attach the following Lease Advice Notice in relation to the above. Please note that Peter Aspres is currently in the process of setting up a new company for this particular business, and therefore we make note that the details in the Lease Advice Notice may not apply, his solicitor will confirm this with you. In addition we confirm the CPI increases will apply at the commencement of year 6, and the net rent of $95,000 will only be subject to the CPI of that year, and not an average of the CPI's of the past 5 years as we touched on yesterday. Overall this is a fantastic rental for this property, and under the circumstances the lessors have had to provide very little incentive for such a lengthy deal. 11 The Lease Advice Notice included the following: LEASE ADVICE NOTICE PROPERTY ADDRESS: 414 Bourke Street, Surry Hills LEASE TERM: 20 Years OPTION PERIOD : N/A INITIAL RENTAL: $95,000 net. LEASE COMMENCEMENT: 1st August 1998 RENT COMMENCEMENT : 1st August 1998 INCREASES : Annual increases to CPI commencing year 6. Only to increase to the CPI of that year, this is not an accumulative increase USE : Ground level retail use Level one commercial use. GUARANTEES : A Bank Guarantee equal to three months rental. SPECIAL CONDITIONS: * The lessee is responsible for the cost of preparing the lease, should the lessee not proceed for any reason, then any costs to date will be at the tenants cost. The lessor requires the following upon acceptance, and prior to commencement of any works: * One months rental deposit. * Bank Guarantee, (to be arranged) equal to three months rent. The lessor will require the following references; * Bank. * Business The lessor will allow the lessee to sublet to other tenants. This lease is subject to DA & BA approval by council. 12 Mr Aspres telephoned his solicitor to advise him that there would be a "leasing advice coming through" as he had "done a deal" on the Surry Hills place about which he had spoken previously to Mr Skouteris. Mr Skouteris telephoned Mr Aspres probably around 11 February 1998 and informed him that he had received the First Advice for a 20 year lease for rent at $95,000 commencing on 1 August with "flat rent for five years only CPI in the sixth year" and that it was "not cumulative". By this time Mr Aspres had obtained from Mr Vogt a "Disclosure Statement" which included the following: Rent: Ninety Five Thousand Dollars ($95,000) Method of Calculating Rent: 1. Commencement Date: 1/8/1998 2. Rent Reviews: Frequency: Annually after the 5th year in accordance with increases in the CPI. 13 Mr Hayter and Mr Aspres met by chance at the leased premises when Mr Hayter advised Mr Aspres that the defendants would like to have some say in who was to sublet the building. Mr Aspres agreed that it was "a fair concern" and that perhaps the defendants could allow the Council to determine whether to permit a certain use of the building. Mr Hayter asked Mr Aspres to contact his solicitor to deal with that aspect of the matter. 14 On 12 February 1998 Murphy & Maloney wrote to Mr Hayter and Mr Fountain in the following terms: We enclose herewith copy Lease Advice Notice received from the Agent. We note the following: 1. As you know, we have been concerned about the length of the lease term particularly where you do not know the tenant or the trading background of the tenant. You should make further enquiries in this regard. 2. The proposed lease is " ground level retail use and level one commercial use". This is particularly vague. We understood that the premises were to be used as a video retail outlet. If the use was expressed in these vague terms then the Lessee could merely assign the lease to some other party and some form of use could be incorporated which was merely retail or commercial. If you do not want the building to be used for activities which you consider undesirable then you will need to be more careful about the permitted use of the building. 3. The rental is net but the agent has not specified that the lessee is to pay outgoings. Will you please confirm that the lessee is to be responsible for - (a) all council rates, water rates and land tax; (b) all insurance in relation to the building; (c) all repairs and maintenance both internal and external (including painting) but excluding work of a structural nature. 4. We note that the amount of the guarantee is for 3 months only. 5. We also note that the lease is subject to DA and BA approval by council. We do not believe that the lease should be subject to BA approval. If the lessee obtains Development Approval then any subsequent building alterations should be minimal and the lessee should comply with whatever requirements are laid down by council. 6. You will note that the rental does not increase until the expiration of 5 years and then the rental only increases according to CPI during the whole of the term of the lease. In the sixth year the rental merely increases by the percentage increase in the CPI over the CPI in the preceding year. At this stage we suggest that you do the following: (i) Obtain further references concerning the lessee and the trading background of the lessee. (ii) Be more particular about the permitted use of the building. (iii) Check the terms of the proposed Development Application. We note that the lease is not expressed to commence until the 1st August but we presume that the lease will need to be signed well before that date as the lessee wishes to renovate the property. Will you please confirm the foregoing terms so that we can prepare the appropriate letter of advice to the solicitor for the lessee. 15 It is clear from the evidence that Mr Hayter had some discussions with Murphy & Maloney after receipt of the letter of 12 February 1998. That appears clear from a letter of 17 February 1998 from Murphy & Maloney to Mr Hayter which refers to "our recent telephone discussions". That letter enclosed a copy of a letter forwarded to Nationwide Realty that day. The letter to Mr Hayter advised that once Murphy & Maloney received "confirmation of the matters set out" in the letter to Nationwide Realty, they would then be in a position to prepare the lease. The letter that was sent to Nationwide Realty was dated 17 February 1998 and was in the following terms: We refer to your memorandum of the 11th February last and are instructed as follows: 1. The proposed use is to be a video retail outlet on the ground floor and commercial offices on the first floor. We understand that our clients are prepared to allow other commercial use on the first floor but presumably it will be necessary to specify the nature of the commercial purposes in the Development Application. 2. The lessee is to pay outgoings as follows: (i) All Council rates, water rates, land tax. (ii) All insurances in relation to the building. (iii) All repairs and maintenance both internal and external (including painting) but excluding work of a structural nature except such work as may be necessary to conform to any Development Approval or Building Approval obtained by the tenant. 3. The owners are prepared to make the lease subject to the lessee obtaining Development Approval for the aforesaid permitted uses but the lessee will have to comply with any of the conditions in relation to the Development Approval. The lease will not be conditional upon the obtaining of Building Approval. 4. We understand that you are obtaining details as to the trading background and antecedents of the lessee. We await your further confirmation of the foregoing. 16 On 17 February 1998 Mr Vogt sent a further Lease Advice Notice (the Second Advice) to Murphy & Maloney. The covering letter was in the following terms: Further to our recent discussions with Mr Hayter we provide for your reference the attached revised Lease Advice Notice. Please be advised that we are currently waiting on the following: · Deposit · References · Profile We will keep you informed should there be any relevant issues to discuss regarding this matter. 17 The Second Advice differed from the First Advice in the following way: (1) Under the heading "Increases" the sentence "only to increase to the CPI of that year, this is not an accumulative increase" was no longer present; (2) The entry next to the heading "Use" was changed to read "Ground level: warehouse area: proposed video outlet. Current retail area: proposed retail or café. Level 1: proposed offices"; and (3) Under the heading "Special Conditions" the requirement for the Lease to be subject to "BA" approval was removed. 18 There was further correspondence between the solicitors for the respective parties prior to the execution of the Lease with various changes being made to the use of the premises and the permission to sublet. There was also the inclusion of an additional sentence in the Lease dealing with alterations in which the plaintiff agreed to carry out refurbishment of the premises "in an amount of not less than one hundred thousand dollars ($100,000) prior to commencement of the Lease" 19 When Mr Aspres attended his solicitor's office to sign the Lease, Mr Skouteris had red tabs on the Lease indicating the point at which Mr Aspres was to sign it. Mr Skouteris then briefly recited the main points of the Lease including the term, the rent and the insurance. He also said "the rent is $95,000 per annum with CPI starting in the sixth year". Mr Aspres noticed that there was a requirement for a personal guarantee and after further discussion with Mr Skouteris that was crossed out of the Lease. 20 The Lease was executed for the first time in April 1998 as between the plaintiff and Mr Hayter and Mr Fountain. It was re-executed later in the year to include the second defendant, Judith Anne Hayter, as one of the lessors. The second lease changed the commencement date of the Lease from 1 August 1998 to 17 August 1998 and also changed the terminating date from 31 July 2018 to 16 August 2018. There were no other substantive changes that affect the issues in this case. The relevant parts of the Lease the subject of this application for rectification are as follows: "1.11 Rent Review Date": The dates set out in item 6 ITEM 6: Rent Review Dates: (Clause 1.1) 1st August, 2003 and thereafter on the 1st August in each successive year. ITEM 7: Method of Rent Review: (Clause 6.1) Review to CPI 6.2 Review to CPI On the Rent Review Date the Lessor may at his option increase the annual rental per annum for the next ensuing twelve (12) month period commencing from the review date to an amount represented by "A" in the following formula: A = B x C where: D B = The initial annual rental payable at the commencement hereof. C = The Index Number for the quarter immediately prior to the Rent Review Date. D = The Index Number for the quarter immediately prior to the date of commencement of this Lease. In this sub-clause "Index Number" shall mean the Consumer Price Index Number for the Sydney (all groups) released from time to time in the Commonwealth Statistician's Summary of Australian Statistics together with any supplementary summary. In the event that there is any suspension or discontinuance of the Consumer Price Index by the Commonwealth Authorities then "Index Number" shall mean the New South Wales male basic wage or minimum wage applicable for the City of Sydney. If the system or practice of the determination of the New South Wales male basic wage or minimum wage applicable for the City of Sydney shall also cease then "Index Number" shall mean such Index published at the relevant dates and which reflects fluctuations of the cost of living in Sydney and which the parties may mutually agree upon and if they are unable to agree then such Index as may be determined by the President (or other officer of similar status) at the relevant times of the Commonwealth Institute of Valuers (NSW Division) or some other person nominated by him whose decision shall be conclusive and binding. 21 The plaintiff commenced renovation and refurbishment of the leased premises on 18 August 1998 and completed it in about 28 days. It is apparent that the plaintiff commenced operating the business from the leased premises in late September or early October 1998. 22 On about 1 August 2003 Mr Aspres received a letter from the defendants with two annexures dated 25 July 2005. The covering letter advised that there was enclosed a "breakdown of rent adjusted for CPI and GST plus outgoings, commencing 2003" together with a monthly breakdown including 2% rent discount. The letter stated that it was from "Bob and Keith" but it was not signed. The "breakdown" reflected the CPI commencing in the sixth year without any accumulation in years 1 to 5. 23 On 27 August 2003 Mr Aspres sent a fax to Mr Hayter in relation to the letter of 1 August 2003 which was in the following terms: Could you please send back a copy of your letter which relates to the new monthly rent, that includes option one and option two, dated 25 July 2003 with both yours and Keith's signatures on them please. Regardless of you continuing not to supply me with the original information relating to your calculation of your outgoings I have deposited a sum of $1,300 into your account which will cover any rental increases and GST. However, we still require you to comply with the solicitor's letter dated 21 August 2003. We will continue to comply with every requirement of the lease and are also in the process of making the Bank Guarantee good, even though you had no right to garnish the account in the first place. We will have the building inspection report completed shortly and we will then be filing for arbitration on all unresolved issues. 24 On 12 September 2003 Mr Hayter wrote to Mr Aspres with terms which included the following: I note that one of the documents, dated 25 July 2003, appeared to be some working paper on the tentative figures for the year 2003 and 2004, which was intended to be for discussion between Mr Fountain, me and our solicitor, which should not have been sent to you. I have already spoken with Mr Fountain who informed me that he might have sent that to you by mistake. If that is the case, please disregard the contents of that document. 25 Mr Aspres' evidence was that after the adjusted rental review invoices were sent to him he contacted Mr Hayter and asked to talk to him about the rental. He gave evidence that Mr Hayter said: "You and I obviously have got a poor communication record. I am acting on the advice that I have been given. There is nothing I can do". After this conversation Mr Aspres spoke with Mr Skouteris who advised him that he had made a mistake and informed him that he should obtain independent legal advice and seek rectification of the Lease. 26 Mr Aspres then contacted Mr Hayter again and informed him that Mr Skouteris had admitted that he had made a mistake to which Mr Hayter responded: "that's the advice I have been given". Mr Aspres suggested that it would be better not to end up in Court to which Mr Hayter responded "I'll tell you again, this is the advice that I have been given". 27 Mr Hayter gave affidavit evidence that after the disputation arose at the time of the rental review a conversation took place in the following terms: Aspres: I think your way of calculating the rent review must be either a joke or a mistake. I don't remember I agreed to any increase by 17% come year 6 of the lease. Hayter: There has never been a joke or a mistake in my mind about this. I had always been prepared to keep the rent flat for the first five years but, on rent review in the sixth year, the calculation of CPI increases was to start from the beginning of the lease. Otherwise, our investment returns would have gone backwards in real terms. If there is any joke, the joke is on you Peter, with your faked outrage, and I think you knew about this all along and you are just faking it to have another go at shifting the deal struck by us more than five years ago. Aspres: I've got a letter from Keith talking about an increase of 2.3%. You can't change your position now. Hayter: Peter, you are a builder. Have you ever sent out a wrong invoice and then say "I made a mistake and here is the correct one". You are just unbelievable. Common Mistake 28 The plaintiff claims rectification of clause 6.2 to delete: D = The Index Number for the quarter immediately prior to the date of commencement of this Lease. and to insert: D = The Index Number for the quarter ending 30 June 2002. 29 There is no issue between the parties that for the plaintiff to achieve rectification of clause 6.2 on the basis of common mistake, it must show that by common mistake clause 6.2 of the Lease failed to give effect to the true agreement between the parties: Maralinga Pty Limited v Major Enterprises Pty Limited (1973) 128 CLR 336 per Mason J at 350. It is necessary for the plaintiff to establish a concurrent intention of the parties when the lease was executed: Pukallus v Cameron (1982) 180 CLR 447 per Brennan J at 456, or put another way, "an identical corresponding contractual intention on each side, manifested by some act or conduct from which one can see that the contractual intention of each party met and satisfied that of the other": Australasian Performing Right Association Limited v Austarama Television Pty Ltd [1972] 2 NSWLR 467 at 473; established by clear and convincing proof: Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 345. 30 The plaintiff accepts that it must establish that Mr Hayter's evidence is not to be believed for it to succeed on this aspect of its case. The reason for that is that Mr Hayter gave evidence in general terms that at no stage did he agree to rent being reviewed in the sixth year on a non-accumulative basis. Mr Hayter knew that Mr Aspres "wanted" a lease for 20 years at a rental fixed at $95,000 for five years with a rental review commencing only in the sixth year, to be reviewed on CPI as applicable for the immediate preceding year. This has been referred to as the non-accumulative review. 31 Mr Hayter was cross-examined on what his understanding was of the "deal" that he had struck with Mr Aspres. That evidence included the following (tr 106): Q. You were going to receive the $95,000 from whatever date was the commencement date of the Lease? A. That's correct. Q. You accept, don't you, that in the negotiations that took place between you and Mr Aspres he, Mr Aspres, was keen to secure initially a rent free period? A. Yes, he was. Q. And later when you refused to consider such a concession he asked you to consider a freeze on the rent that is so that the rent didn't increase over five years? A. He suggested that, yeah. Q. What I am trying to get to at the moment with your agreement is, if you are prepared to, is that you understood that what he was hoping to achieve in this latter aspect, that is the $95,000 fixed for five years, was so that his rental didn't increase over that period? A. For the first five he wanted that but I didn't agree to it immediately but I decided I had to give it, I give him a holiday on that period of time and that was so he didn't have to pay the amount of money for the first five years. Q. Mr Hayter, you spoke a moment ago in an answer you gave using the term rental holiday, what did you mean by that? A. Not having to pay rent for a period of time which was what Peter was looking for. Q. With the exception of the last portion of the answer, "what Peter was looking for" … A. Wait a moment. No, I am confusing it. See that is what happens here. The holiday was to do with the proposition that Peter had put up to me. Q. Can you elaborate please? A. The CPI would start from the fifth year of the lease but it would (sic) be accumulative from the start of the lease because we couldn't, I wasn't prepared to sacrifice that sort of money. Q. What sort of money did you believe you were sacrificing? A. Well, it adds up to, with the multiplication of all this it certainly adds up to a lot of money. 32 Mr Hayter gave evidence that he performed a calculation during the course of negotiations which resulted in him concluding that, if he were to give to Mr Aspres what he was seeking (a non-accumulative rent review in the 6th year) it would cost $300,000. The review Mr Hayter claimed in his evidence he agreed to was a rental "holiday" or "break" was really only a deferral of the payment of the increases in the first to fifth years, with the review including the CPI increases over all of those years but only paid in the sixth year. He was cross examined further about this so-called rental holiday (tr 112): Q. What was the holiday or break you believed you were giving him? A. It was simply, all it was the fact that he didn't have to pay the money until the fifth year, see it was a very, it wasn't much I wasn't giving, much away. Q. You weren't giving anything away, were you? A. A little bit. Q. What was the little bit, can you explain it? A. He didn't have to, you know, he got five years without any CPI. Q. I see? A. But it was, but he had to pay it at the end of the fifth year, but he was not happy to pay it, I suppose it wasn't very much, but that was the deal I offered. 33 Mr Hayter claimed throughout his cross-examination that he was confused (tr 106, 116, 121, 122, 129, 141). The defendants' counsel, Mr Marcus Young, submitted that Mr Hayter presented as a very confused man but that such confusion was caused by the lapse of time between the date upon which the deal was struck and the date upon which he was giving his evidence. I accept that in reviewing Mr Hayter's evidence I must take into account the fact that he was being asked to recall events and conversations that took place six years ago. However I am not satisfied that such factor was the real cause of Mr Hayter's numerous resorts to claims that he was confused. 34 It was fairly conceded by Mr Young that it appeared on the evidence that Mr Fountain obviously held the view that the rent review was on a non-accumulated basis, differently from that which is in the Lease (tr 171). However Mr Young submitted that it is not known how Mr Fountain reached that conclusion (tr 172). 35 Mr Hayter's evidence in respect of the letter of 12 September 2003 included the following (tr 122-124): Q. Just on that subject matter, given the time, may I ask you this question: What, about any working calculation performed by Mr Fountain using this new format, did you need to discuss with your solicitor? A. None. Oh, we did, yeah. No. I did at some stage of the game. I think at a later date. Q. Are you able to answer that question: What was it about the calculation and the document that it was being embodied in that you needed to discuss with your solicitor? A. No. No. Nothing on that. It was when Peter's – that's right I'm confused. When Peter sent me a copy of this, that is when I got in touch with my solicitor . ….. Q. Go to the second paragraph and you will see that, in the middle of that page, that sentence commences: "I note that one of the documents dated 25 July 2003", et cetera? A. Wait a minute . ….. Q. And read on. In the second line you say "which was intended to be for discussion between Mr Fountain, me and our solicitor"? A. Yeah. Q. The question I want to ask you is very simple: What was it about that document which you believed you would want to take up with your solicitor? A. Well, that was the document – where does it say "take up with the solicitor"? Q. The third line of the second paragraph. A. Third line? Oh, yeah. That's right, because we were going to go and take it to the solicitor. Well, I wanted to – I don't know. Q. Is that your answer? "I don't know"? A. No. Sorry. I don't know. Q. If you are speaking to yourself I will remain quiet? A. No. No. I am talking to myself. I think – well, because it was from Peter, when I got it, I thought – well I mean, at that stage, with the relationship we had with Peter, I needed to talk to a solicitor about everything. Q. Is that the answer you want to give in response to my question? A. Yes. Q. You don't want to add anything to it? A. No I don't think so. 36 Mr Hayter was further cross examined about this letter (tr 127-128): Q. Mr Hayter, I thought you already told her Honour that the document which was being prepared by Mr Fountain you anticipated would be a forum for discussion between you and Mr Fountain, on the one hand, and your solicitor, Mr Junn, on the other. Am I right or wrong in that understanding? A. Well, I'll accept that. Q. It had nothing to do with Mr Aspres sending you a letter at all at this stage, I suggest? A. Yes, it was. That was the reason I sent it on. Q. When you say the reason you sent it on, what did you send on, and to whom? A. The layout of the letter to Mr Junn. Because it came from Peter, I just sent it on to him. That I had been doing with everything that I got from Peter. There was other stuff that went with it. Q. So we are plain about this, are you referring to the correspondence you received from Mr Aspres on or about 12 September 2003? A. Yes, yes, yes. Q. Could I direct your attention to your letter of 12 September 2003, in which you assert, in correspondence with Mr Aspres, that the document which he sent you was intended to be for discussion between Mr Fountain and you and your solicitor; correct? A. Yes, yes. Q. We have established that the solicitor was Mr Junn? A. Yes. Q. The purpose of those discussions, at the time the document was to be prepared, was for the purpose of having Mr Junn tell you whether you were within your rights claiming the rent that the notice was going to provide? A. No. It was simply a layout. It wasn't to do with the amount of money of the thing. Q. Mr Hayter, could you explain what about the layout of the document required the advice of a solicitor? A. Well, it wasn't actually what was in the letter it was simply a factor I sent the letter on because it had come from Peter Aspres. Q. No, what your letter says is look, Peter, this was sent by mistake, it was supposed to me, Keith and my solicitor? A. Yeah. Q. Mr McCulloch wants to know what on earth your solicitor had to do with any of that? A. Ok. Well he wanted to have a look at it. Q. The solicitor? A. Mm. Q. Is that because you had already spoken to your solicitor about whether or not the rent review clause entitled you to claim more than one year's CPI? A. Yes. 37 I do not accept Mr Hayter's evidence in respect of the content of the letter of 12 September 2003. Further I do not accept that the explanation given in the second paragraph of the letter about which he was cross-examined was true. It is quite clear that Mr Fountain was of the view that the rent review was to be calculated on the basis as Mr Aspres understood to be the agreement between the parties and not on the basis that appeared in the Lease. I am also satisfied that when Mr Hayter consulted with a different solicitor from the firm that had acted for him on the Lease, he was given advice that he could require Mr Aspres to pay a rent review different from that which Mr Fountain had sent out. The suggestion that Mr Hayter and Mr Fountain would discuss with Mr Junn the "layout" is an extraordinary suggestion and one that I simply do not accept. 38 Mr Hayter shifted his ground from time to time during his cross- examination to best suit his claimed position. He attempted to resort to Mr Vogt's Second Advice in support of his position. The Second Advice did not surface until the subpoenaed material from Murphy & Maloney was reviewed on the morning of the first day of the trial. Mr Young, counsel for the defendants, did not ask Mr Aspres about that Second Advice. He did cross examine Mr Vogt about it who gave evidence that he faxed it to Murphy & Maloney and that he faxed it to the plaintiff's solicitor. Mr Young called for a copy of the Second Advice. It was not produced. Mr Skouteris gave evidence that he did not receive the Second Advice. 39 Mr Vogt gave evidence that he did not have any discussion with Mr Hayter about the exclusion from the Second Advice of the sentence relating to the non-accumulation rent review. His evidence was that he spoke with Mr Hayter in relation to the clarification of the rent in that he had asked him to put council rates and water rates into the document and that the use was to be expanded upon. Mr Vogt said that in his time in real estate he had never heard of a formula such as that propounded by Mr Hayter in this case being used for rental review. He gave the following evidence (tr 63): Q. You removed the only explanation that was there, didn't you? A. It says there, it says there are annual increases to CPI commencing year 6, there is no need for any additional explanation. Q. You were asked did you remove it? A. I as a result removed it, there is no need for it to be there, it doesn't matter, there is no need for it to be there. 40 Mr Vogt accepted that when he prepared the First Advice he thought it was necessary to include it and was cross examined as follows (tr 63): Q. Then at some subsequent point you thought it was no longer necessary to say that, is that right? A. I will say that I put it in there and I have taken it out, it is not an essential part of this. I don't know why I put it in, it was obviously based on a discussion initially when the offer was being made to clarify what was being presented and once that is clear there is really no need for it to be there and that's not unusual for solicitors when you instruct solicitors. Q. In all conversations you had with Mr Hayter on the subject of CPI Mr Hayter made it clear that he wasn't going to forego five years worth of CPI increase, that's the case, isn't it? A. No, that was never discussed. 41 It was submitted on behalf of the defendants that the Second Advice together with the covering letter is evidence that establishes that it is far more probable that in 1998 Mr Hayter understood that he had struck a deal in relation to rental review consistently with that which is in the Lease. It was submitted that the clear inference from those two documents is that Mr Hayter telephoned Mr Vogt after he received the First Advice and had a conversation that caused Mr Vogt to delete from the Second Advice the sentence explaining non accumulation because Mr Hayter had indicated his disagreement with what had been recorded in this regard in the First Advice. Mr Vogt was an interesting witness who became rather irritated during cross-examination. He also has the burden of having not been paid his full commission on the services he provided to the defendants. However he denied that he was willing to give evidence in the proceedings in order to see Mr Hayter "brought low". The possible explanations he gave for removing the sentence included the suggestion that its continued presence was unnecessary but also the less impressive suggestion that it was for the sake of neatness. 42 In this case, as in many that involve allegations that something was said or done years ago, the contemporaneous documents provide assistance. The clear instructions to Mr Vogt in relation to the changes to be made came from the Murphy & Maloney letter of 17 February 1998. The solicitors required from Mr Vogt "confirmation of the foregoing". It is clear that Mr Vogt spoke to Mr Hayter prior to the Second Advice. The Second Advice was amended in the very manner as suggested by the solicitors. The inclusion in Mr Vogt's letter of 11 February 1998 of the explanation of the rental review agreement makes it highly probable that if such agreement had been altered in the suggested manner, an explanation would be found in the covering letter of the Second Advice or even within the advice. Mr Vogt denied that there was any discussion with Mr Hayter in relation to the removal of the sentence and I accept that evidence. Whatever be the reason that the sentence was taken out or dropped out I am satisfied that it was not because Mr Hayter said that he disagreed with the agreement as reflected in the First Advice and its covering letter. 43 I accept Mr Skouteris' evidence that he did not ever see the Second Advice and that, at all relevant times, he was intending that the Lease include a rental review clause different to that which was in the Lease and consistent with the agreement reached as reflected in the First Advice. He candidly admitted that he did not read the rental review clause carefully and that he made a mistake. 44 It was clear that Mr Hayter did not ever receive a copy of the Second Advice prior to the signing of the Lease. However, he sought to rely upon it in his cross-examination as though he had seen it in 1998. His evidence was as follows (tr 114-118): Q. … Certainly by the time the Leasing Advice Notice was sent out first that was an occasion which you appreciated that you had done a deal in principle, is that right? A. Yes. … Q. When did you first see a copy of any Lease Advice Notice? A. On, I don't know, it was early February. Q. Isn't it the fact that you got some correspondence from your solicitor which referred to a Lease Advice Notice which that firm of solicitors had received? A. Yeah. Now, can I say something? Q. If it is in answer to the question, yes? A. Well, it is. It was, I think that was in response to me ringing Mr Vogt and telling him that first it came out, the one that came out then was incorrect. Q. I'm not certain I understand that answer Mr Hayter. Why do you answer my question that way? A. Because that is how it is. Q. Isn't this the fact; that you have answered my question that way because you appreciate that from the file of Murphy & Maloney produced on subpoena there is material which tended to show that you received correspondence from that firm relating to the Leasing Advice Notice and that thereafter a second Leasing Advice Notice was issued by Mr Vogt at least to Murphy & Maloney? A. Yeah. Q. You see, that's the fact, isn't it, because there was not one word of any of these other conversations with Mr Vogt which you have alluded to in your earlier answer in either of the affidavits you have sworn, is there? A. Isn't there? No, I don't think so. Q. Please take all the time you wish if you need it and refresh your memory? A. No, I didn't, I haven't mentioned that. Q. This is the position, isn't it, that until those documents surfaced yesterday, you had forgotten if ever you knew of them, of their existence entirely? A. No, it jogged my memory, yeah. Q. It jogged your memory? A. Yeah. ….. Q. I want to make it plain between us that this is the fact, as I suggested to you: that you did not ask Mr Vogt to issue a Second Leasing Advice Notice to contain amended information concerning the rent review clause? A. I think I did. Q. You say you think you did? A. Hmm. Q. Yet we did not hear one peep of it in your affidavit do we? A. No. Q. If it happened, it would have been, in this transaction, the single most important event, so far as you were concerned; would you agree? A. I'm not sure. Q. One which it would be inherently unlikely that you would have forgotten if it had, in fact, occurred. A. I forget a lot of things. Q. What I suggest, more probably than not happened, was that you rang Mr Vogt to give him a hurry along to respond to the solicitor's letter so that they could get the Lease underway? A. I can't remember. Q. That's the fact, isn't it Mr Hayter? A. I can't remember. 45 Mr McCulloch SC pressed further and the following evidence was given (tr 140-141): Q. You never had the opportunity of checking Mr Vogt's Second Lease Advice Notice to see whether it corresponded with the conversation which you say you had with him about rent review, did you? A. Yeah, well, I got this thing and I spoke – no I spoke to him about it. No I didn't get it. I spoke to him about it. Q. When you say you spoke to him about it, you are now referring, as "it", to the First Leasing Advice Notice, aren't you? A. No this is the second one, isn't it? Q. You told her Honour a moment ago that you had not seen the Second Lease Advice Notice which is exhibit 1. That was your evidence wasn't it? A. Look, I'm sorry I don't know what I'm: I'm confused. Q. You did tell me that you did not ever receive that document? A. Yes. Q. I suggest to you that you didn't see the document because you had no discussion with Mr Vogt about the lease advice notice, other than one which was aimed at getting the document from Mr Vogt to Mr Pryor as quickly as possible? A. I don't know. 46 The letter from Murphy & Maloney to Mr Hayter dated 12 February 1998 included paragraph 6, which for ease of reference, is extracted again: You will note that the rental does not increase until the expiration of 5 years and then the rental only increases according to CPI during the whole of the term of the Lease. In the sixth year merely increases by the percentage increase in the CPI over the CPI in the preceding year. 47 In all the correspondence that followed there was no mention of any change to the rental review mechanism referred to in this letter. 48 Mr Young submitted that there was a failure to cross-examine Mr Hayter in relation to the circumstances in which he executed the Lease, and that the plaintiff is unable to succeed without having established what happened at such execution. It was submitted that without this cross-examination, the fact of the execution of the Lease is powerful evidence that clause 6.2 was read and understood at the time of execution as reflecting the agreement that had been reached. That submission may have more force in respect of claim of unilateral mistake but on this aspect of the claim, if I am satisfied that there is clear and convincing proof that the parties agreed to something different to that which is in the rental review clause of the Lease, there is less force in it. Mr McCulloch SC submitted that there is ample evidence of the circumstances surrounding the execution of the Lease from the solicitors' letters, the evidence of Mr Skouteris and that of Mr Vogt and indeed the evidence of Mr Hayter. It seems to me that the most appropriate approach is to take the execution into account as one factor to be weighed in the balance when deciding the necessary issues. 49 Mr Hayter sought to distance Mr Fountain from any proper understanding of the Lease. He said this (tr 130): Q. Did the suggestion that a figure different to that contained in the draft document which apparently emanated from Mr Fountain and found its way to Mr Aspres, did the suggestion that the figures in there might be wrong come from your solicitor? A. No. Q. Was it something that you yourself appreciated as soon as you saw the document? A. Well, I wasn't sure of the figures or what they represented, why they were there, I mean I wasn't sure of that. Then when we added it up we realised it was wrong, even Keith if he was using it as figures as an example, I suppose that would be, like, like it but Keith did not know or understand the finer details of all the work that was going on down here. Q. Mr Fountain indeed told you that he had sent a copy of the document containing the calculation to Mr Aspres? A. He mentioned that, yeah. 50 Mr Fountain sent the rental review to Mr Aspres by certified mail. This was not an administrative slip. Not only did he send it to him by certified mail, he also sent it to him by ordinary mail to the leased premises. It is clear that Mr Fountain went to some lengths to ensure that Mr Aspres received the rental review documents. Hardly the actions of a man who, according to Mr Hayter, was supposed only to be putting together the "layout" for discussion with Mr Hayter and their solicitor. 51 I do not accept Mr Hayter's evidence. He took refuge in suggestions of confusion when I have no doubt that this refuge was sought because he realised that the cross examiner was moving to the point of irresistible conclusion that he had agreed to that which Mr Aspres had put forward. His suggestion of why he wrote the second paragraph of the letter of 12 September 2003 is in my view quite fanciful. That letter was just a ruse. If Mr Fountain had made a mistake in sending that invoice out, it would be expected that Mr Fountain would be called. He was not. He is a defendant and lessor whose conduct in sending the letters out on 1 August 2003 is corroborative evidence that the plaintiff may rely upon in Mr Fountain's absence. I believe that he was not called because his evidence could not assist the defendants on this aspect of the matter. 52 Mr Hayter's evidence in relation to the so-called "holiday" included the following (tr 111): Q. What did you think at the time you were performing this calculation he was giving you in return for which you should have agreed to anything by way of a reduction? A. Yeah, well that he was, what in the end I decided to do, say alright, you can have this holiday, this break and then you start paying the thing, just to get the deal through and it got it through. 53 When pressed as to what the holiday or break was Mr Hayter had to admit that it really wasn't much at all or it was only "a little bit". It is very difficult to reconcile this so called "little bit" as being the quid pro quo for the requirement on the plaintiff to spend "at least" $100,000 on the building, remembering that all the plaintiff originally wanted was the shopfront to operate the video store rather than a lease of the whole building. Mr Hayter would have me believe that the deal he agreed to was that the plaintiff's rental was going to increase each year but that the increase for each of the first five years was not to be paid until the 6th year. This is hardly a "freeze" of the rental or a "fixed" rental. It is a deferral of the payment of the increases with the possible penalty of a higher payment than if it had been calculated in the particular year. 54 An exquisite example of Mr Hayter resorting to the refuge of a claim of confusion is the following exchange in cross-examination in relation to the paragraph of Murphy & Maloney's letter of 12 February 1998 dealing with the rent review clause. For ease of reference that paragraph is extracted again: 6. You will note that the rental does not increase until the expiration of 5 years and then the rental only increases according to CPI during the whole of the term of the lease. In the sixth year the rental merely increases by the percentage increase in the CPI over the CPI in the preceding year. 55 Mr Hayter's evidence in cross-examination was as follows (tr 121-122): Q. So, you say that you understand paragraph 6 of this letter of 12 February to correspond with what appeared later in the second lease advice notice with respect to rent review; is that right? A. Yeah, I think it is. Q. Do you agree that the final sentence of paragraph 6 makes it plain that, in respect of the first rent review, being the rent review conducted in the sixth year, "the rental merely increases by the percentage increase in the CPI over the CPI in the preceding year"? A. Well, that is – I mean, I'm having trouble with the way that's written, but I'm just assuming that's what we originally planned on. Q. If the letter had said that, in the sixth year, the rental merely increases by the percentage increase in the CPI in the preceding year, I take it you would have had no trouble understanding that? A. No. I'd have been all right with that, yes. Q. Because that would have conveyed to you, that formula of words I have used, the fact that the percentage would have been the percentage for the preceding year only; correct? A. No. Is that what it says? I'm really confused here. Q. I will start again. I just want you to focus on the -- A. The last paragraph. Q. I just want you to focus, just for the moment, on the last sentence in the paragraph numbered 6, on page 2 of this letter? A. Yeah, I've got it. Q. Do you see that it says "the rental merely increases" -- A. Yeah. Q. You would have understood the term "merely" -- A. Yeah. Q. --as indicating to you that it was something less than some other position; correct? A. Yeah. Q. So it is on the smaller end, rather than the bigger end, of increases? A. Yeah. It's confusing. I'm confused with it. Q. When you read the sentence as a whole, do you agree that it was telling you that, in the sixth year, the only increase in rental would be by reference to the percentage increase in the CPI over the immediately preceding CPI period? A. Well, I'm still confused with it, but all I can say is, when I looked at this, and as I look at it now, it looks exactly the same as what – it means the same as what that lease advice was. 56 I have absolutely no doubt that Mr Hayter understood that this paragraph meant that the rental reviews were to commence only in the 6th year and that "then", meaning from then on, all future increases were to be according to the CPI. The last sentence of the paragraph is crystal clear in setting out that the rent for the 6th year was to increase by the percentage increase in the CPI over the CPI in the preceding year. I have no doubt that Mr Hayter understood that to be the case when he read it in 1998 and when he read it in the witness box. I also have no doubt that he understood that to be the case when he signed the Lease. 57 The confirmation of the rental review agreement reached between the parties, as spelt out by Mr Vogt in his fax of 11 February 1998 and paragraph 6 of the solicitor's letter of 12 February 1998, together with the absence of any correspondence to any different effect, taken with the clear indication in Mr Fountain's letters of 1 August 2003 sent on two occasions to Mr Aspres, is powerful evidence of what occurred in February 1998. The wording of the Second Advice (even without the extra sentence) and the Disclosure Statement, in my view, make it very clear that the parties agreed that rent reviews were to occur and apply "after the 5th year" and not before. I accept Mr Aspres as a witness of truth and I accept that his evidence is far more reliable than that of Mr Hayter. It is clear to me on the evidence and I am convinced that the parties agreed that there would be no increases to the rent for the first five years of the Lease and that the rent review occurring in the 6th year would only apply to that year. As the plaintiff has made out its case on the basis of common mistake there is no utility in considering the submissions in relation to the alternative claim of unilateral mistake. 58 I am satisfied on all the evidence that the plaintiff has discharged its onus to obtain rectification of clause 6.2 of the Lease as sought in the Amended Summons. The parties are to bring in Short Minutes of Order together with an agreed costs order at 9.30 on 7 June 2005. If the parties are unable to agree on a costs order I will hear argument on 7 June 2005. *************** 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.