New South Wales Supreme Court CITATION : The Stuart Park (D580060) Reserve Trust v Emibarb Pty Ltd [2006] NSWSC 603 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 18, 19, 20, 24, 26 and 27 April 2006, 1, 3, 4 and 8 May 2006 JUDGMENT DATE : 23 June 2006 JUDGMENT OF : Bergin J DECISION : Rectification refused. CATCHWORDS : [LEASES] - [RECTIFICATION] Suit for rectification of an agreement for lease and deed of lease on basis of mutual mistake - plaintiffs claim drafting error - whether the relevant mind is that of the employees of the council or the councillors - whether plaintiffs have established by clear and convincing proof that the parties had a concurrent intention at the time the lease was executed. Aspro's Pty Ltd v Hayter & Ors [2005] ANZ ConvR 425 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 CASES CITED : Taylor v Johnson (1983) 151 CLR 422 Telstra Corporation v Hurstville City Council (2002) 118 FCR 198 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 The Stuart Park (D580060) Reserve Trust - First Plaintiff The Council of the City of Wollongong - Second Plaintiff PARTIES : Emibarb Pty Ltd - First Defendant Vania Harrison - Second Defendant Harry Haralambides - Third Defendant FILE NUMBER(S) : SC 50094/05 COUNSEL : Mr TGR Parker SC, Mr TW Marskell - First and Second Plaintiffs Mr DE Grieve QC, Ms M Stubbs - First, Second and Third Defendants SOLICITORS : Clayton Utz - First and Second Plaintiffs Watkins Tapsell - First, Second and Third Defendants - 29 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J 23 JUNE 2006 50094/05 THE STUART PARK (D580060) RESERVE TRUST & ANOR v EMIBARB PTY LTD & ORS JUDGMENT 1 The Lagoon Seafood Restaurant in Wollongong (the Restaurant) was established in 1986 and by the year 2000 had been the annual winner of the American Express Best Restaurant Award (Southern Region) for 14 consecutive years and had been inducted into the American Express Hall of Fame on two occasions. When the Restaurant was first established the building in which it was housed was a fairly basic 1930's building which over time was renovated, refurbished and improved. The land on which the Restaurant was situated is Crown land known as the Stuart Park Reserve. 2 The first plaintiff, the Stuart Park (D580060) Reserve Trust, is a reserve trust established under s 92(1) of the Crown Lands Act 1989 (NSW) (the Act) and is the trustee of the Stuart Park Reserve (the Trustee). The Trustee is the owner of the fixtures and fittings on the land including the buildings in which the Restaurant operated. The second plaintiff, the Council of the City of Wollongong (the Council), was appointed to manage the affairs of the Trustee pursuant to s 95(1)(a) of the Act. It is accepted in these proceedings that the Council was acting on behalf of the Trustee in its negotiations for and entry into the Agreement for Lease and Deed of Lease (Lease documents). I have referred to the plaintiffs jointly as no issue is taken in respect of their separate identity or relevant knowledge. 3 The first defendant, Emibarb Pty Ltd (Emibarb), was established in 1986 and has operated the Restaurant since that time. The second defendant, Vania Harrison, is a director and shareholder of Emibarb and is the wife of George Harrison, a shareholder and former director of Emibarb. The third defendant, Harry Haralambides, is a director of Emibarb and is Mr Harrison's brother. Mr Harrison was elected as Lord Mayor of the Council in 1999 and at that time resigned as a director of Emibarb. Mr Harrison remained in the office of Lord Mayor until 2002 when he entered voluntary bankruptcy and resigned as Lord Mayor. Mr Harrison was the principal of the legal firm Harrison & Associates in Wollongong. At the time of his voluntary bankruptcy Mr Harrison ceased to practise. 4 The plaintiffs seek rectification of the Lease documents executed in March 2003 to commence on 11 July 2006. The basis of the claim for rectification is mutual mistake in relation to the rent review clause. The plaintiffs claim that the common intention was that the rent review clause would provide for a market rental, to be determined excluding the tenant's fixtures and fittings but including the landlord's fixtures and fittings, discounted by various percentages over the period of the proposed lease. The defendants deny that there was a common intention at the time the Lease documents were executed and claim that they understood that the Council had offered a ground rental, to be determined by ignoring both the landlord's and tenant's fixtures and fittings, discounted by various percentages over the period of the proposed lease. There were lengthy negotiations in respect of the Lease documents and the plaintiffs claim that the defendants' denial of the existence of a common intention must be disbelieved and/or rejected. In those circumstances it is necessary to detail the history between the parties and the negotiations that led to the alleged common mistake. The 1986 Lease 5 Between 1986 and 1996 the land and buildings on the Reserve were leased to Emibarb with an option for a further term of ten years from the expiration of the Lease "at a rent to be agreed upon between the parties" or in default of such agreement "at a rent determined at the then market rent of the Premises". The Lease provided that the basis of the determination of market rent was: on a willing Lessor/Lessee basis with vacant possession by a member of the Australian Institute of Valuers appointed by the President thereof and any improvements effected to the Premises by the Lessee during the term hereof shall not be taken into account in assessing the rent for any renewed lease PROVIDED HOWEVER that the rent payable during the term of any renewed lease shall not be less than the rent payable hereunder immediately prior to the expiration of the term of the lease hereby granted. The renewed lease (if any) shall otherwise contain the same terms and conditions as are contained herein PROVIDED HOWEVER that it shall not contain this nor any other covenant for further renewal. The cost of any rent determination as referred to herein shall be borne and paid for equally by the Lessor and Lessee. 6 The rent clause in the Lease provided for a payment of a yearly rent of $18,210 for the first two years and thereafter as increased by CPI (cl 2). The Lease also provided that in the event of total or partial destruction or damage of the Premises by fire or other means the Lessee could elect to rebuild and repair the Premises. In the event of such election the Lessor was not able to terminate the Lease (cl 4.1.1). During the 10 year period to 1996, Emibarb refurbished and renovated the Restaurant. The 1996 Lease 7 On 13 February 1996 Harrison & Associates wrote to the Town Clerk enclosing Emibarb's notice exercising the option for renewal of the Lease for a further term of 10 years. The solicitor for the Council at that time, Peedom, Brody & Ward solicitors, prepared a draft lease and forwarded it to Harrison & Associates on 21 January 1997. On 23 January 1997 Harrison & Associates responded noting that the draft lease was not in identical terms to the lease pursuant to which the option was exercised. That letter advised that in those circumstances "all terms and conditions are subject to negotiation" and that Harrison & Associates would advise the Council in due course as to the amendments required. 8 It is apparent that there was a conference between Mr Harrison and the General Manager of the Council at which there was discussion in relation to the prospect of Emibarb obtaining an option for a further 10 years in the 1996 Lease. On 26 February 1997 Harrison & Associates requested the Council's solicitors to include a 10 year option in the proposed lease, subject to the Minister's consent, which was required for a lease of Crown land. 9 One of the arguments put forward for a further 10 year option was that unless there was a further option Emibarb would be restricted in carrying out further major improvements to the Restaurant which were required to continue attracting tourism and to cater for increased patronage. It was suggested that without the option the Restaurant would have to wind down its operation to the eventual "shut-down" in year 10, 2006. The Council would not agree to a further option of 10 years and the 1996 Lease was signed on 21 March 1997 granting a lease to Emibarb for the period 11 July 1996 to 10 July 2006. Request for a 10 year option 10 It is apparent that Emibarb gave consideration to selling its business and notified the Council of that proposal in a letter dated 6 June 2000. On 15 September 2000 Harrison & Associates advised the General Manager of the Council that Emibarb had decided not to sell the business and was to continue operating the business. At that time Harrison & Associates advised the Council that estimated expenses of $102,880 were required for extensive structural works to the Restaurant. The Council was invited to carry out the works or if it required Emibarb to do so it was suggested that Emibarb would require an incentive to justify the "enormous expenditure". That letter requested an option for a further term of 10 years. 11 On 9 November 2000 Mr M R Harben, the Property Manager of the Council, wrote to Mr Harrison, at Harrison & Associates, indicating that the Department of Land and Water Conversation (the Department) had provided advice to the Council on matters necessary for consideration in deciding whether a 10 year option should be granted and that in order to progress the matter Emibarb was to provide a business plan and reasons why a competitive tendering process should not be followed upon the expiry of the 1996 Lease. That letter also contained the following: Any proposed new lease, or the granting of a further option period of ten (10) years, will require the lessee company to pay current market rent to be determined prior to the commencement of that lease or option term. If your client company's request is approved, the rent will be determined by Council at that time and will reflect the current market value of Council's asset. Your client company is requested to indicate its willingness to proceed on this basis. 12 On 14 December 2000 Mrs Harrison wrote to Mr Rod Oxley, the General Manager of the Council in terms that included the following: Emibarb agrees for the independently determined current market rental which should be determined by a mutually agreed independent valuer should be made publicly available which will no doubt serve to evidence that Council and Emibarb have fulfilled their obligations requiring transparency and openness in this transaction. Insurance 13 Dennis Williams, the Legal and Risk Branch Manager of the Council, suggested to Mr Harrison that an insurance broker, Graham Quinton, could probably assist Emibarb in relation to the insurance of the Restaurant. At a meeting at the Restaurant in December 2000, Mr Quinton suggested to Mr Harrison that an additional $100,000 should be added to the insurance of $1.1 million cover for the building. In a telephone conversation that day with Mr Harrison, Mr Williams referred to a Rushtons valuation and said that $1.2 million was "more than the amount that Rushtons put on the building" and, according to Mr Harrison, Mr Williams said that $1.2 million would more than cover reinstating the building. Insurance in the amount of $2 million was taken out, being $1.2 million for the building and $800,000 for Emibarb's fixtures and fittings. The fire 14 On 9 January 2001 the Restaurant was completely destroyed by fire. Various meetings occurred that day including a meeting between Mr Harrison and Mr Oxley in which Mr Harrison asked Mr Oxley about the best way to rebuild the Restaurant. Mr Harrison suggested that the Restaurant could be "up and running" by June if Emibarb obtained a construction certificate. Mr Oxley advised that he could not do that in the "current political climate" and that Emibarb would have to submit a new development application (DA) and that it was an opportunity to build a new building and to get a much better layout for the Restaurant. 15 On 10 January 2001 Mr Harben requested from Mr Harrison advice as to the directors' intentions regarding the future of the Restaurant. He informed Mr Harrison that Council would be serving a notice on Emibarb requiring it to reinstate the building on the same footprint. At a meeting with Mr Harben on 11 January 2001, Mr Harrison advised Mr Harben that there was not much time left on the 1996 Lease and that Emibarb did not want to put time and expense into rebuilding unless there was a further 10 year option. In a letter dated 11 January 2001 Mr Harben, on behalf of the Council, notified Emibarb that Council required the damage to the whole of the premises to be repaired and that Emibarb was required to lodge a DA. Mr Harben also advised that he would prepare a report for consideration by Council at its February meeting in relation to Emibarb's request for an option period of 10 years. Resolution to approve 10 year option – 19 February 2001 16 The Administrative, Works & Community Services Committee of the Council prepared a report for the consideration of the Councillors at the Council meeting on 19 February 2001. That report set out some of the history to the relationship with Emibarb and included the following: Proposal During the currency of this lease, the lessee company has transformed an almost derelict building (Attachment 4) into an asset which has become a focus for both residents and visitors in the City and one which represents significant value to the City and its community (Attachment 5). From that point of view alone, there is substantial argument to support the lessee company's on-going occupation of the premises. In 1996 Council expressed serious concerns about the rental determined for the first year of the new lease granted pursuant to the original option. At that time the General Manager advised Council that this anomaly occurred as a result of the wording of the original lease agreement which did not allow for the rent to be determined taking into account the value of the improvements. This issue is to be addressed in terms of the granting of a further option to extend the lease by conditioning any new lease as follows:- (i) rental to be determined by a Registered Valuer appointed by Council on the basis of the value of the land and the improvements erected on that land (thus reflecting value to Council as the improvements become the property of Council upon expiry of the current lease). (ii) payment to the landlord is to include 6% of gross turnover in excess of a nominated amount on an annual basis. (iii) annual rent and threshold reviews to CPI with review to market at the commencement of year 6. (iv) Turnover to be verified with the production of audited statements to Council on an annual basis. … Financial Implications As detailed above, it is proposed that any new lease entered into pursuant to the option proposed to be granted will be subject to a rent which more accurately reflects the value of Council's asset. Whilst it is difficult to assess what that rent will be in the year 2006, it will be substantially more than the rent which is being paid under the current lease. 17 The Minutes of the Council meeting on 19 February 2001 included the following: 49. MOVED Councillor King seconded Councillor Darling that Council approve the lessee company's request for a further option to lease the subject premises for ten (10) years commencing 11 July 2006 subject to the following terms and conditions - 1. Approval be sought from the Minister for Land and Water Conservation. 2. Compliance by the lessee company with Council's notice issued 11 January 2001 pursuant to clause 8.2-4 of the Amendments and Conditions of the lease, ie. repair of the fire damaged building, and re-establishment of the Lagoon Seafood Restaurant business. 3. The rental at the commencement of the option term to be determined as set out in the report. An AMENDMENT was MOVED by Councillor Martin seconded Councillor Mott that the lease continue to run its full term and that prior to the expiry of the current lease, the issue be brought to Council for further determination. 50. A PROCEDURAL MOTION was MOVED by Councillor Darling seconded Councillor Yates that the AMENDMENT and MOTION be PUT. The AMENDMENT on being PUT to the VOTE was LOST. The MOTION was PUT and CARRIED. 18 By letter dated 23 February 2001 Mr Harben notified Emibarb that Council had approved Emibarb's request for a further option subject to the conditions (i) to (iv) as outlined above. That letter also advised of the Council's concern in relation to the execution of allegedly unauthorised work and alleged use of the premises in contravention of the current lease. The letter also suggested that a business plan would be important in obtaining the Minister's consent to the new Lease. 19 On 6 April 2001 Murray Dribbus, a solicitor at Harrison & Associates, wrote to Mr Oxley suggesting that the determination of rental for the option period should be by two specialist retail valuers appointed by Emibarb and the Council who would be instructed to: decide what is the current market rent on an effective rent basis that would be reasonably expected to be paid for the Premises on the relevant Market Review Date if they are unoccupied and offered for renting for the Permitted Use having regard to the terms and conditions of this lease and other matters relevant to the assessment of the current market rent (disregarding the goodwill of the Lessee's business and the value of the Lessee's fixtures and fittings) but taking into account the lessee's structural improvements and rent concessions and other benefits that are frequently or generally offered to prospective lessees of unoccupied restaurants. 20 On 30 April 2001 Mr Harben responded to Mr Dribbus advising that the intent of Council concerning the granting of a new lease was explained in his previous letter of 23 February 2001 and that: The rent for any new lease will be determined by Council prior to expiry of the current lease in accordance with Council's resolution of 19 February 2001 and therefore I cannot agree to the proposal set out in your letter of 6 April 2001. 21 Emibarb instructed Mr John Tambakis, chartered accountant, to prepare a business plan for the restaurant who advised that the return on the funds to be invested would become attractive after 16 years and that the investment should be looked at over a period of 30 years to produce an acceptable return. Request for 20 year Lease 22 In May 2002 Mr Harrison met with Mr Brian Dooley, the regional director of the Department, and explored with him the possibility of Emibarb securing a 30 year lease. Mr Dooley advised that it would be more likely that a 20 year lease would be given favourable consideration if a sound commercial argument in support was put forward. 23 In April 2002 the Council instructed the law firm, McCabe Terrill in Sydney, in relation to a number of matters relating to the Restaurant, including the insurance claim and "some solutions" to be considered by the Council. By letter dated 29 May 2002, McCabe Terrill referred to the very slow progress of the insurance claim and the options available to Council in respect of the rebuilding of the Restaurant. That letter included the following: 21. Depending upon the nature of the rebuilding, the cost of rebuilding, and the amount to be funded by Emibarb itself in respect to the rebuilding, it may be that there is little motivation to Emibarb to rebuild. Emibarb may even elect to take an indemnity payment option under the policy. It is in Council's interests that rebuilding take place as expeditiously as possible to ensure payment of rent and to ensure proper utility of the public reserve facility. 22. One option, which may be of interest to Council, and which may ensure the building is expedited and the interests of Emibarb and Council are properly protected is for Council to consider, at this stage, a renegotiation of the lease such that Council and Emibarb agree that a new lease is entered into to ensure the ongoing commercial viability of the restaurant which ought encourage and motivate Emibarb to promptly repair the site. That is not to suggest that there is any evidence that Emibarb is not acting expeditiously or promptly, but it may be a way of going forward, and a way that Council can ensure some continued positive cooperation in the rebuilding. It is in Council's interests that the rebuilding take place expeditiously. … 27. On the other hand it is also prudent that Council ensure the ongoing viability of the site. Options arise either to discharge the Insured for the remainder of their obligations under the lease, upon the benefit of insurance funds being assigned to Council and Council undertaking the rebuilding and subsequent reletting of the premises or alternatively that Council consider entering into negotiations with Emibarb to extend the current term of the Lease to allow some ongoing commercial benefit of rebuilding the premises. 24 On 9 July 2002 Mr Tambakis wrote to Mr Harben emphasising that reopening the restaurant was a long-term investment for Emibarb and should only be undertaken if a lease of a "minimum" of 20 years was offered. Resolution approving the grant of a 20 year lease – 22 July 2002 25 On 15 July 2002 the Administrative Works & Community Services Committee met and considered a report of Mr Harben dated 4 July 2002. A number of recommendations were made in respect of the request from Emibarb for the grant of a new 20 year lease including the following: It would appear that there are three (3) options that might be considered by Council: 1. Rely on the current resolution of Council – the company has already secured an agreement from Council to the grant of a new ten (10) year lease upon expiry of the current lease on 10 July 2006 and such agreement effectively gives the company a fourteen (14) year term from the current date. However, it now appears likely that the company will not resume trading from rebuilt premises until the middle of 2003 based on the best case scenario so the "term" then considered for mortgage purposes would be reduced by one year to a term of thirteen (13) years. 2. Agree to the grant of a new twenty (20) year lease from expiry of the current lease – if the current request of the company is acceded to, it will be able to offer its financier collateral in the form of a lease for a term of twenty-three (23) years. 3. Agree to the grant of a new twenty (20) year lease to take effect from the date building works are completed – the Department of Land and Water Conservation has indicated that it would be prepared to support a case for a new twenty (20) year lease but this would mean executing a new lease to commence immediately the rebuilding is completed and trading from it is resumed. The conditions of any new lease executed as a result of Council's consideration of Emibarb's current request are to be negotiated but generally will conform with the intent outlined in the report considered by Council on 19 February 2001. It is proposed that the terms and conditions be negotiated and that the outcome of those negotiations be the subject of a further report to Council for final approval. In essence however, the rental for the remainder of the current lease has been fixed and the rental for any new lease granted will be determined by Council at the appropriate time. Notwithstanding the options identified, the company's request, if granted, constitutes a satisfactory solution to the problems which currently serve to frustrate Council and Emibarb from bringing about the reinstatement of the restaurant at earliest date. The request of Emibarb, if granted will permit (a) Council to achieve all of its objectives associated with reinstatement of the restaurant at no cost to Council and (b) Emibarb to reinstate the restaurant, confident in the knowledge that a sufficient term of lease is available in which to recover its substantial outlay. 26 The report also included the following: Financial Implications Any new lease entered into in accordance with the request of Emibarb Pty Ltd and the approval of Council and the Minster for Land and Water Conservation will provide for the payment of current rental value to be determined at the appropriate time. This matter is however, to be the subject of a further report to Council. 27 The Minutes of the meeting of Council on 22 July 2002 record the unanimous resolution to adopt the recommendations made in the report including the following: 2. Council approve the granting of a new twenty (20) year lease to Emibarb Pty Ltd commencing 11 July 2006 subject to agreement on terms and conditions and the approval of the Minister for Land and Water Conservation. 3. Council authorise the General Manager to negotiate the terms of any new lease granted and that the outcome of such negotiations be reported to Council at earliest date for final approval. 28 By letter dated 24 July 2002 Mr Harben advised Emibarb that Council had approved the granting of a new 20 year lease subject to the prior reinstatement of the Restaurant, the reaching of agreement on terms and conditions and the approval of the Minister. The letter also advised Emibarb that Council had authorised the General Manager to negotiate the terms of any new lease and that the outcome of such negotiations was to be reported to Council at the earliest date for final approval and that Ministerial approval would not be sought until such time as the terms and conditions had been finalised. Emibarb was requested to meet with the Council to deal with the matters outlined in the letter. 9 August 2002 – Meeting and Letter 29 On 9 August 2002 Mr and Mrs Harrison met with Mr Harben and Mr Williams. On the same day Mr Harben wrote to Mrs Harrison in terms that included the following: I am forwarding to you a summary of those issues discussed and the agreements reached for inclusion in any new lease to be granted in accordance with Council's resolution of 22 July 2002. 1. Council and Emibarb Pty Limited will enter into an agreement to lease which will provide for the granting of a twenty (20) year lease to commence 11 July 2006, provided that The Lagoon Seafood Restaurant building is reconstructed in accordance with approved plans and the resumption of trading as a restaurant/kiosk from that building. 2. The essential terms and conditions of this lease are as follows: Term Twenty (20) years commencing 11 July 2006. Rental Current market rent and 5% of gross turnover in excess of $5,000,000 (excluding GST) and the gross turnover is to be verified with the production of audited statements to Council on an annual basis – rent to be determined by negotiation and if agreement cannot be reached by an independent consultant valuer appointed by the President of the Australian Institute of Valuers (costs to be shared equally between the two parties in respect of the latter). Rent Reviews Rent and gross turnover figure to be adjusted to CPI on an annual basis with reviews to market at the commencement of Years 6, 11 and 16. 30 The letter also advised that the proposal was subject to the approval of the Minister and that under the Act the proposal had to be advertised and the Minister had to consider any submissions prior to making a final determination on whether to grant consent. 20 August 2002 Letter 31 Mrs Harrison replied to Mr Harben by handwritten letter dated 20 August 2002 in the following terms: I refer to your letter of 9th August 2002. We agree with the terms and conditions as set out in your letter with the exception that, on the advise (sic) of our accountant, the company will pay current market rent and pay 5% of gross turnover in excess of $7,000,000.00 (excluding GST). The gross turnover is to be verified with production of statements certified by our accountant on an annual basis. 32 On 29 August 2002 Mr Harben wrote to Mrs Harrison advising that the Council would instruct its solicitor to begin preparation of the agreement to lease and the lease documents. That letter included the following: Council acknowledges that you have agreed, on behalf of the lessee company, to accept the terms and conditions outlined in my letter dated 9 August 2002 but that you wish to have the gross turnover figure increased to $7M. I am not prepared to agree to this increase for the reasons outlined in my recent telephone conversation with Mr George Harrison ie. the increase from the previously stated turnover figure in 2000 of $3.5M to $7M represents growth in the business of almost 14% and that Council's preferred amount of $5M is indexed annually and adjusted at each rent review. Mr Peedom instructed by Council 33 On 2 September 2002 Mr John Peedom, solicitor, attended upon Mr Williams to receive instructions to prepare the Lease documents. Mr Peedom's note of that meeting recorded that Mr Williams instructed that "an agreement had now been reached for the company to rebuild the restaurant and to take a new 20 year lease from the termination of the current lease subject to that rebuilding having been completed". Mr Williams instructed Mr Peedom that rental had not been agreed and that he should leave that part of the agreement "blank". 34 In late August early September 2002 the Department advised the Council that "in principle" approval had been given by the Director General to the proposal to grant a new 20 year lease to Emibarb. The proposal was to be advertised in the Illawarra Mercury and Mr Harben advised Mr Oxley that in the interim he had asked the administration to prepare the Lease documents on the basis that all agreements were to be subject to the Minister's consent. First draft of Agreement for Lease and Deed of Lease 35 On 19 September 2002 Mr Peedom forwarded the draft Lease documents to the General Manager for approval and for referral to Emibarb. Those documents consisted of a draft Agreement for Lease and a draft Deed of Lease that included Annexures A and B. Annexure A consisted firstly of a schedule of items and secondly of amendments and additions to a "printed form". Annexure B was the "printed form". 36 Clause 13 of the Agreement for Lease included the following: 13 LEASE Grant of Lease 13.1 On completion of the construction, the landlord must grant and the tenant must take a lease of the property at the rent, for the term and subject to the provisions of the attached lease. Commencement 13.2 The lease will commence on the date of completion of the construction or on any other date to which the landlord or tenant agree. Rent 13.3 The rent payable under the lease from the commencement date to the first rent review date is to be current market rent as at the commencement date determined in accordance with clauses 5.12 to 5.20 inclusive of annexure A to the attached lease. The date for completion shall be taken to be the rent review date for the purpose of the periods referred to in clauses 5.13 and 5.15 of that annexure. 37 The schedule of items in Annexure A recorded the lease period of 20 years, the commencement date at 11 July 2006 and the termination date at 10 July 2026. The item dealing with rent was left blank except that it included the 5% of turnover exceeding the threshold sum of $5 million. The rent review item (item 16) referred to a review on each fourth anniversary of the commencement date at "current market rent" and each other anniversary at CPI. There was also provision for how the percentage of the gross turnover was to be calculated. 38 The printed form, Annexure B, provided the various methods by which rent was to be reviewed. The method by reference to current market rent was contained in clause 5.12 as follows: 5.12 In this case the rent is to be the current market rent. This can be higher or lower than the rent payable at the rent review date and is the rent that would reasonably be expected to be paid for the property, determined on an effective rent basis, having regard to the following matters: 5.12.1 the provisions of this lease; 5.12.2 the rent that would reasonably be expected to be paid for the property if it were unoccupied and offered for renting for the same or a substantially similar use to which the property may be put under this lease; 5.12.3 the gross rent, less the landlord's outgoings payable by the tenant; 5.12.4 where the property is a retail shop, rent concessions and other benefits that are frequently or generally offered to prospective tenants of unoccupied retail shops; and 5.12.5 the value of goodwill created by the tenant's occupation and the value of tenant's fixtures and fittings are to be ignored. Council Resolution – 23 September 2002 39 The Administrative Works & Community Services Committee met on 16 September 2002 and considered a report of Mr Harben dated 3 September 2002. That report recommended that: "The terms and conditions of the proposed new lease to be granted to Emibarb Pty Limited as set out in the following report be approved". The report then set out the "essential terms and conditions", including the following: 2 The essential terms and conditions of this lease are as follows: TERM Twenty (20) years commencing 11 July 2006. RENTAL Current market rent and 5% of gross turnover in excess of $5,000,000 (excluding GST) and the gross turnover is to be verified with the production of audited statements to Council on an annual basis – rent to be determined by negotiation and if agreement cannot be reached, by an independent consultant valuer appointed by the President of the Australian Institute of Valuers and Land Economists (costs to be shared equally between the two parties in respect of such determination). The lessee company has made representations to Council to have the gross turnover figure increased to $7,000,000. This request has not been agreed to by Council officers as set out in the letter to Mrs Vania Harrison dated 29 August 2002 (Attachment 1). RENT REVIEWS Rent and gross turnover figure to be adjusted to CPI on an annual basis with reviews to market at the commencement of Years 6, 11 and 16. 40 The Minutes of the Council Meeting of 23 September 2002 record the Resolution that "the terms and conditions of the proposed new lease to be granted to Emibarb Limited as set out in the report be approved". 26 September 2002 Meeting 41 It is apparent that Mr and Mrs Harrison met with Mr Williams on 26 September 2002 in relation to the proposed lease. On 30 September 2002 Mr Williams prepared a report for Mr Harben in relation to matters raised by Mr and Mrs Harrison with him at that meeting. That report included the following: 1. Method for Calculation of Commencement Rental Under the Lease Mr Harrison is concerned that Emibarb, after having expended $2m of insurance funds and more than $1m of funds sourced by Emibarb on new Lagoon Restaurant premises, should not be subject to a current market rental determination for the new lease commencing 11 July 2006, which fails to take into account the contribution which the company has made to the creation of the new asset. In the absence of an alternative proposal from Mr Harrison, he was advised that he should formulate an appropriate agreement on which a valuer must determine the current market rental, taking into account the amount of contribution which Emibarb has made to the creation of the asset for which the market rental is being determined. This would be considered by Council. 42 On 30 September 2002 Mr Harben advised Mr Williams that he did not see any reason why the provision in the lease for determination of current market rent should be amended. 30 September 2002 Meeting 43 On 30 September 2002 there was a meeting at the Council's premises between Mr and Mrs Harrison, the then Lord Mayor, Councillor Alex Darling, Mark Hanson, two Council planners and Mr Harben. Mr Harben's file note of that meeting recorded the following: Both Mr & Mrs Harrison indicated that the conditions of the new lease have not been agreed to and that Council was holding them up. I denied this and reminded them that the conditions of the lease had in fact been agreed to excluding the gross turnover amount to be used for calculation of the turnover component of the rental ie Council asked for 5% of turnover in excess of $5M and Emibarb countered with 5% of turnover in excess of $7M. This was reported to Council on 23 September 2002 and Council's resolution effectively sets the gross turnover figure at $5M (minute 406). … In general terms Mr Harrison is adamant that special consideration should be given to the level of investment that Emibarb is required to make when it comes time to determine the current market rental for the leased premises. I insisted that the lease was clear on this issue and that quite frankly I didn't think this should be an issue. Consideration has been given to Emibarb's position in this matter and that is precisely why Council resolved to grant a new twenty (20) year lease. In addition to that, the current lease has until June 2006 before it expires and the tenant would continue to enjoy a "concessional" rental if it was able to get back up and running within that period. Mr Harrison said that he had been told prior to the meeting that I was being inflexible on this issue and that if that continued to be the case then Council and Emibarb would end up in court. I didn't understand this and told him so. I also added that it was my view that any dispute as to the determination of the rental could adequately be handled at the appropriate time under the provisions of the lease. Mr Harrison continued to express his concern about this issue. 44 On 1 October 2002 Mr Williams met with Mr Peedom and advised him that there were three outstanding issues: (1) the calculation of rent for the new Lease; (2) the amount of the bank guarantee; and (3) whether or not Mr Haralambides was to be a guarantor. Mr Williams requested a copy of the Lease to send to the Department and on 2 October 2002 Mr Peedom forwarded a copy of the Lease to Mr Williams for referral to the Department. Final Draft Form of Lease documents 45 On 4 October 2002 Mr Williams wrote to Mrs Harrison enclosing the Lease documents prepared by Council in "final draft form", for Emibarb's perusal and comment prior to execution. The rent item in Annexure A to the Deed was amended to increase the turnover to $5.5 million indexed to CPI. The rent review clause was amended so that at each sixth anniversary of the commencement date the rent was to be reviewed on current market rent method and each other anniversary at CPI. The clause in relation to how the percentage of turnover was to be calculated remained within Annexure B. Meeting 26 November 2002. 46 On 26 November 2002 a meeting was held in the office of the Lord Mayor between the Lord Mayor, Mr Darling, Mr Oxley, Mr Williams and Mrs Harrison. There was apparently a television crew interviewing Mr Oxley at the Council premises prior to the meeting and during the interview, which went to air that evening, Mr Oxley had, according to Mrs Harrison, insinuated that Emibarb was not serious about rebuilding the Restaurant. 47 Mrs Harrison wrote to the Council on 27 November 2002 setting out the detailed history of what Emibarb had done since the fire and suggested that the statements by Mr Oxley were not accurate. The letter included the following: Recently Council granted to Kolco Pty Limited a 50-year lease to establish a restaurant, two function centres, a kiosk and other faculties (sic) to accommodate the City Beach Surf Club. Council was told that the developer was spending in the vicinity of $4,500,000.00 to establish what would otherwise become a public facility. To enable the developer to recoup his capital expenditure the developer was granted a 50-year lease over the land with 25 years free rent and 25 years half rent. I believe that this establishes a clear precedent that should have been extended to Emibarb in a fair comparison basis. Emibarb intends to invest an amount in excess of $3,000,000 in the rebuilding of the Lagoon Restaurant, and in order to do so; Emibarb has to recoup this capital expenditure over the duration of its lease. We have heard that Council is somehow intending to charge over $150,000 per annum for the new lease, which is wildly in excess of what Council is entitled to receive for the asset that they own (that is, a refurbished 1930's beach hut), or should have owned if the fire had not occurred. If Council persists with expectations of extortionate rentals, then this obviously leaves little incentive for Emibarb to invest over $3,000,000. Council (as Emibarb's lessor) owes a duty to both Emibarb and the ratepayers to see that the facility of the Lagoon Seafood Restaurant is reinstated in the quickest possible time. To achieve this objective Council has a responsibility to extend such "reasonable" terms and conditions under the lease that would allow Emibarb to take a reasonable commercial risk to recoup its capital investment. Any prudent commercial entity in this circumstance would need some incentive to spend its $3,000,000, recoup its capital and make a return after weighing up the relative risk elements of the venture. At our meeting of 26 November 2002, some council officers argued that there was no obligation on Emibarb to spend $3,000,000. They are correct in their clinical interpretation of some parts of the lease, however that is not a very commercial approach. In order to ensure success of the Restaurant, a capital amount in excess of the $1,200,000.00/$900,000 required by Council for the building reinstatement has to be invested. We note that Council only required Emibarb to insure the building for $1,200,000.00/$900,000 yet the current estimate for the building reinstatement is in the order of $2,200,000. Would Council invest $1,000,000 to cover their shortfall? Council took the liberty of taking down our Claude Neon signs and other signs giving directions to the restaurant without first obtaining Emibarb's approval. This step more than anything has instilled fear that the restaurant would never be rebuilt. Constant statements that are being made to the media by some hopeful aspirants to political office, as well as the threat by some Council officers that the Lagoon Restaurant site is going to be turfed over has given a mistaken and misrepresented but firm belief to our consultants, sub-contractors and our bankers, and not to mention our customers who are eagerly awaiting for the re-opening of our restaurant, that it will never be rebuilt. Walter Leo Dobrow enters the debate 48 Walter Leo Dobrow (Mr Dobrow) is a valuer by occupation. He first met with the Harrisons in 1996 when he assisted Emibarb in respect of a dispute in relation to the rental to be paid under the 1996 Lease. At that time the Council had proposed a rental of $150,000 per annum. The parties were unable to agree and the determining valuer was appointed and determined a rental of approximately $42,000 per annum. 49 Mr Dobrow became aware of disputation in relation to the proposed Lease to Emibarb through reports in the local newspaper. Mr Harrison telephoned Mr Dobrow in September/October 2002 and he and Mrs Harrison subsequently attended Mr Dobrow's home. During that meeting Mrs Harrison advised Mr Dobrow that she was very concerned about the rent review provisions in the proposed new Lease. Mr Dobrow suggested that he would be available to assist both parties. At about the time that Mr Dobrow was contacted by Mr Harrison he telephoned Mr Oxley and advised him that he had noticed that there was a dispute between the Council and Emibarb reported in the press. He suggested that he was happy to assist both parties on an in confidence and without prejudice basis and that he would not be asking for any fee. Mr Oxley said that he would be happy for Mr Dobrow to look at the matter. 50 At another meeting with Mr and Mrs Harrison in about late October or early November 2002, Mr Dobrow said to Mrs Harrison: There are three items of capital improvements which are relative to the site. These are the original building, the upgraded building, which comprised the original building on the premises at the commencement of the 1986 lease, plus those improvements made by Emibarb, and the newly constructed building. It is my view that the public are only entitled to receive rental under the proposed lease on the capital value of the upgraded building only, and the demised land, from 11 July 2006. One of the simpler options in looking at a rental review under the proposed lease is to look at the land value alone or ground lease basis. The value of the upgraded building is not going to add much to the land value alone because of the age of the building, and the fact that the upgraded improvements were made to what was originally and basically a beach hut and were fairly ad hoc. I can also see practical difficulties in valuing a unique building like the Lagoon. It will be very difficult to find comparable properties of this size and location. It is my view that the rental return of the ground value is about 6% to 10%. This would be a much more straight forward way of determining the rent payable. 51 During that meeting Mrs Harrison advised Mr Dobrow that the Restaurant could not afford to pay more than about $75,000 in annual rent and that the business would simply not be viable and would "go broke" if it had to pay substantially more than that. Mr Dobrow's letter of 29 November 2002 52 On 29 November 2002 Mr Dobrow forwarded a letter to Mr Oxley and to Mrs Harrison. That letter included the following: Although there are many and various issues contained within this matter, ranging from personalities to political agenda, to material public benefit, we feel that the salient impediments to having this matter moving forward to the benefit of both parties is as follows, The proposed rent review does not provide clear guidance to a Determining Valuer for the capital works paid for by the tenant over and above those improvements that the Council are fairly entitled to. In the absence of detailed guidance within the lease, a Determining Valuer would be compelled to utilise the principles of the Hudson case and simply value what he sees as at the relevant review date. On the proposed rent review basis, the Determining Valuer would apply a rental on both the capital value of the Council's improvements as well as the capital value of the Lessee's improvements. In essence, the Lessee would be charged rental on the buildings and capital works that he paid for. 53 The letter then set out what were described as "three distinct items of capital improvements relative to the site". It referred to the original building, the upgraded building and the newly constructed building. The letter included the following: 1. The original building owned by Council, and subsequently upgraded by Emibarb. a. The Council (and the public) are entitled to receive rental on (1) the capital value of the original building, and (2) the demised land from the lease commencement date up until 10 July 2006. 2. The upgraded building (which includes the original building and the upgraded works paid for by Emibarb). The Council would have inherited the upgraded building on 11 July 2006 (less Lessee's fixtures and fittings that can be removed under the renewed lease expiring 10 July 2006). a. Up until the time of that inheritance, it would appear that the intention of the parties was that the Lessee would not be charged rental on the additional improvements and upgrading that the Lessee had made to the original building. (This is considered a fairly moot point, as the last rental reviewed would be carried out to the lease expiry in July 2006). That is, the "current" rental would reflect the capital value of the original building owned by Council including the value of the demised land. b. The public and Council are entitled to receive rental on the capital value of the upgraded building and the demised land from 11 July 2006. The above clause 2b is the most important comment within this entire situation, and one which both parties have to completely understand. 3. The newly constructed building incorporating (1) a component comprising of the upgraded building and the demised land, and (2) the additional improvements paid for by the Lessee. a. In all fairness the public and Council are entitled to receive rental on the capital value of the upgraded building only (and the demised land) from 11 July 2006. b. There must be an incentive for the Lessee to expend his own money to provide additional improvements, which will allow for (i) The Lessee to amortise the cost of the Lessee's improvements over the term of the lease, and (ii) provide incentive for the Council to inherit the newly constructed building at the end of lease term c. It would be incongruous for the Lessor to charge rental on the Lessee's improvements. The analogy in that case would be like taking your money to the Bank and depositing $100,000, and then the bank charging you 7% on your own $100,000. This appears to be exactly the situation that has occurred in this case. There must be clear distinction and understanding between the parties in regard to what rental return the Council is fairly entitled to. The Rent Review to Market The market rental review clause of the lease should provide clear direction to a Determining Valuer in regard to what improvements should be valued. It should clearly show the intention of the parties. There are number of options available, some of these are considered to be as follows. a . Current market rent less fixed percentage for the lessee's improvements : Direct the Determining Valuer to determine the Current Open Market Rental on the current improvements as existing as at the time of the review. ie the newly constructed building. Then take an arbitrary percentage away from that reviewed rental to reflect the additional improvements paid for by the lessee. For example - 50% of the rental value of the improvements existing as at the time of the rental review, or whatever appropriate percentage. (The benefit of this approach is that it provides clear direction to the Determining Valuer, and allows him (or her) to value something that he can physically inspect, rather than a hypothetical situation). b. Current market rent of a hypothetical upgraded building : Direct Valuer to determine a Current Open Market Rental Value on only a hypothetical upgraded building, ie an older style 1930's beach hut upgraded in the mid 1980's. (Which is really what the Council are entitled to), or c. Summation method: Direct the Valuer to determine the Capital Value of a hypothetical upgraded building as at the time of the rental review, (ie by the Summation Method of Valuation, providing an area of the upgraded building to determine the depreciated capital value of the improvements, and an area of the currently demised land to determine the land value), and then adopt an appropriate rate of return for this type of property. There are numerous recent Court cases providing guidance for a reasonable rental return on Council land, which is 6%. … These cases also support a capitalisation rate of 10% for any premium to be paid, that is, in order to calculate an up-front single payment for the rental due for the term of the lease. We have also spoken to some of the Valuers who have been involved in the above cases to confirm the valuation methodology. However we do not consider that an up-front single payment for the rental would be applicable in this matter. Our view is that option "a" should be preferred due to the fact that there may be difficulties and differing interpretations of what the "upgraded building" should have been, ie newly painted and refurbished or a moderate degree of fair wear and tear, the effect of the internal heights and configuration/layout, etc. Also a Determining Valuer may be influenced by the quality, style and size of the existing improvements. 54 Mr Dobrow then referred to be provisions of clause 5.12 of the proposed lease and in particular 5.15.4 (which should have been 5.12.5) which provided that be value of the goodwill created by the tenant's occupation and the value of the tenant's fixtures and fittings were to be ignored. The letter then continued: The above Clause does not direct the valuer to disregard the value of the Lessee's improvements. Therefore the Valuer would be compelled to provide a rental based upon the entirety of the property that he would inspect as at the rent review date. This situation is considered unfair. … Recommendations: The parties should re-visit the Rent Review to Market provisions of the lease, including the proposed turnover provisions. If required we are prepared to do the following; · Provide a rent review clause that we consider would provide a clear direction to a Determining Valuer. · Provide further comments on the terms and conditions of lease proposed by Council. · We would be happy to attend a Council meeting to clarify any matter raised above. 55 On 12 December 2002 Mr Oxley responded to Mrs Harrison's letter of 27 November 2002. That letter included the following: The provisions under the agreement for lease for calculation of rental for the initial period of the lease and from time to time under the lease, is a standard method of calculation for commercial leases in New South Wales and for this reason the method is considered to be appropriate for the lease with Emibarb. The agreement for lease (with draft lease) was forwarded to Emibarb under cover of Council's letter of 4 October 2002, with a request for perusal and comment (by Emibarb) prior to being executed on behalf of the company. To date Council is not in receipt of a response to that letter from Emibarb. … I advise that Council received a letter on 11 December 2002 from Dobrow Valuations which requests the parties to revisit the rent review to market provisions of the draft lease including the proposed turnover provisions. Although the letter outlines the general justification for such request, it does not contain details of an alternative formula for determination of rental to be included within the agreement for lease and the lease. Although Council remains available to receive requests for alternative considerations of matters with which it deals, you must comprehend that this time: · Council has prepared an agreement for lease and a lease which contain the standard method for rental determination for premises which is used throughout New South Wales; · an approval on behalf of the Minister to the grant of the lease has been granted on the basis of the formula for calculation of rentals being as provided within the draft documentation; · the officers of Council do not regard the request for amendment of the formula for calculation of rental to be justified. … The request of Emibarb to be considered properly will require: · Dobrow Valuations to prepare a justification for and formulation of an alternative rental formula; · Council will probably be required to engage an expert valuer to assess Dobrow's proposals; · a recommendation to be submitted to Council for amendment of the draft lease provisions and the officers of Council to be persuaded to see merit in the Dobrow submissions; · approval of the Minister to be sought should Council resolve to accept the amendment. Should Emibarb wish to proceed to renegotiate the agreement for lease and the lease rental formula, then Emibarb should instruct its consultant valuer to submit a comprehensive submission to Council in respect thereof. Alternatively, Council requests that Emibarb advise when it will execute the agreement for lease to commence rebuilding works on the Stuart Park site. 56 On 18 December 2002 Wayne Douglass of the Council sent to Mr Dobrow the comments made by the Department on the proposed Lease. Mr Dobrow met with Mr Oxley on 20 December 2002 at Brighton Le Sands. Mr Dobrow had prepared some sketch drawings of the original building, the upgraded building and the proposed building and during this meeting Mr Dobrow said to Mr Oxley: Firstly, you could try to give the valuer photos of the upgraded building, being the 1932 building plus the "add ons" and to give parameters and guidance in the lease to the valuer to value the property as if those buildings were there and on site at the date of review. The upgraded building is the value of the asset the public would receive in 2006, at the end of the current lease. This is quite difficult because the valuer will have to make an assessment of the value of an old, tired building in 2006 that is no longer physically there and he will have to work from photos and descriptions. Secondly, the other approach you could take is that the valuer could operate on the basis of the Hudson case, and approach the valuation by valuing what he sees at the date of valuation, and then allow a discount to bring the value back to a fair rental value reflective of the upgraded building, that is, what the public would inherit in 2006. This would require the valuer to value the building at its current market rental at the date of valuation, then to deduct a proportion which reflects the difference in value between the new building that will be constructed on the site, which is larger, and better, than the upgraded building. Thirdly, you can work on the land value alone, ignoring all improvements, which is working on a ground lease basis. I do not believe the upgraded building on the land would have added much value in any case. The valuation on this ground lease basis would be on land value alone. 57 During this discussion Mr Dobrow suggested that ground leases were in the vicinity of 6% to 10% of the value of the land and expressed the opinion that it was not fair to Emibarb to seek market rental because Emibarb would be making very substantial contributions to the construction of the new building. He likened this approach to taking savings to the bank and depositing them and then having the bank charge interest on the deposit. Mr Oxley advised Mr Dobrow that he was obtaining advice from Council's property managers. 9 January 2003 Ultimatum 58 On 9 January 2003 Mr Oxley wrote to Mrs Harrison in terms that included the following: Council requires the tenant to comply with the following timeframes which it considers to be reasonable in the circumstances: 1. on-site building works must be commenced within 45 days of the date of this letter; and 2. reinstatement of the building, including all improvements comprising or erected on the leased site must be completed eight months after the date on which the building works are substantially commenced. Should the tenant be in agreement with the foregoing or if it does not agree with the foregoing, it should reply in writing to Council before 5pm on Friday, 17 January 2003 advising of its agreement or alternatively it should advise the periods of time which it does agree to comply with. The alternative periods of time submitted by the tenant will be considered by Council with a view to reaching an agreement with the tenant on the periods of time which are mutually agreeable to the tenant and to Council. In the event that the tenant either fails to reply to this letter or replies to this letter but does not submit periods of time which are reasonable and acceptable to Council, then Council will be entitled to issue a notice under section 129 of the Conveyancing Act to bring about the termination of the lease. Following termination of the Lease, it is the intention of Council to recover the former leased site and proceed to reinstate the restaurant premises using funds provided under the policy of insurance … Mr Rusbourne instructed by Emibarb 59 Mr and Mrs Harrison instructed Mr Peter Rusbourne, solicitor, of Watkins Tapsell Solicitors to respond to Mr Oxley's letter. By letter dated 17 January 2003 Mr Rusbourne suggested that it was in Council's and Emibarb's interests to resolve the outstanding matters and rebuild the Restaurant. The letter also requested that no notice be issued under s 129 of the Conveyancing Act 1919. Mr Dobrow's letter – 15 January 2003 60 Mr Dobrow prepared a further letter for Mr Oxley and Mrs Harrison, the final draft of which is dated 15 January 2003. Although that letter suggests that there were amendments "agreed in principle by both parties" it is obvious that some of those matters were not in fact the subject of agreement between the parties. The letter proposed that there should be amendments to the Lease, including the following: Insert clause 5.12.6 "The valuer is to value the premises as inspected as at the date of inspection. That is, the valuer is to make no deduction for any additional improvements carried out by the Lessee to the original building nor from the rebuilding after the fire of 2001." Insert clause 5.12.7 "The following table is provided as guidance to the demarcation between the lessee's fixtures in clause 5.12.5 (and elsewhere within the lease), and the demised premises. It is not intended to be conclusive but provides assistance to the determining valuer". Lessee's fixtures Lessor's property All kitchen fit out including benches, stoves, shelves, cooking plant and air handling units. The main building and demised land Internal walls Cool room fit out including cooling plant and equipment Bathroom and toilet fit outs Air conditioning plant and equipment Entry fit out and fixed tiles throughout the premises Carpets The Bar (excluding fridges) Kiosk and Bistro fit out including display cabinets, fridges, shelves, cooking plant and air handling units. BBQ area including floor tiles 61 The letter also suggested amendment to the Agreement to lease including the following: Clause 13.3.2 "The rental determined under annexure A for each rent review period in accordance with clauses 5.12 to 5.20 inclusive shall be reduced by a rate of 30% to compensate the lessee for the additional building area that he has constructed at his own cost. The percentage above includes adjustments between an old and a new building as well as the rental value of the demised land area located below the additional building constructed by the lessee. This clause is not to be provided to the determining valuer as it (sic) not a relevant matter for the purpose of determining the current market rental, and shall remain within the agreement to lease or other separate legal form." From the sketch plans provided for the "existing" upgraded building, I have deduced a gross building area of 909 square metres. From similar plans of the proposed building I have deduced a gross building area of 1,391 square metres. The difference is illustrated as follows: "Existing" upgraded building 909 square metres 65.34% Proposed building 1391 square metres We do not consider that a difference of the building areas alone should be utilised as the compensation rate. As mentioned earlier, adjustments for the age and condition of the building, as well as the underlying land value should be reflected in the one overall compensation rate. In this regard we comment as follows. We refer you to our previous letter where we have advised that the public/Council would have inherited in 2006 an older style building, upgraded but tired, and probably needing some further renovation work. Where the current situation is that the public/Council will achieve a market rental based upon a relatively new/modern building on the next market review in 2006. Fairly, this should have the effect of increasing the compensation rate. Offsetting the above adjustment would be the fact that the public/Council should receive a rental for the land located below the additional 482 square metres constructed by the Lessee. This would have the effect of decreasing the compensation rate. In weighting up the above considerations we consider that a rate of 30% would be a fair rate to utilise in the current circumstances. Meeting 23 January 2003 62 On 23 January 2003 Mr Dobrow met with Mr Oxley, Mr Williams, Mr Douglass and Mr Peedom. Mr Douglass discussed the 15 January letter with Mr Dobrow and later that afternoon Mr Douglass wrote to Mr Oxley in the following terms: Further to our meeting this morning, I have held further discussion with Wal and am satisfied that the principle of discounting the rent is acceptable in the circumstances. The new building will be some 482 sq metres larger and will be an asset to the community and council notwithstanding the 20 year lease. Wal acknowledged that in his original discussions with you, he was not aware of the extent of the difference in area of the buildings. I suggested that the proposed 30% discount for the full lease term could be considered high and put to him that a reduction from 30% to 25% after 10 years and a further reduction to 20% after 15 years could be reasonable. He thought this would be a reasonable response from Council. Subject to you being comfortable with these figures, I will contact him and he can put it to the lessees for consideration. 63 That afternoon Mr Oxley responded to Mr Douglas in writing stating that he was "comfortable with what you were proposing". 64 On 23 January 2003 Mr Oxley responded to Mr Rusbourne's letter of 17 January 2003 agreeing that it was in Council's and Emibarb's interest for the outstanding matters to be resolved properly. He invited Mr Rusbourne to secure from Emibarb all of the information required to permit Mr Rusbourne's firm to implement "meaningful and consistent commitments on behalf of Emibarb". Mr Dobrow's letter of 6 February 2003 65 On 6 February 2003 Mr Dobrow wrote to the Council, to the attention of Mr Williams and Mr Douglass and a copy to Emibarb, advising that he had met with Emibarb's solicitors and the Harrisons on 24 January 2003. He advised Council that he had carried out some investigations in relation to the opportunity to fix the rental for the first review only and made the following comments: A reasonable rental in July 2006 should be around $75,000 net with the lessee responsible for land tax, council rates, water rates, insurance, structural repairs and maintenance, amongst other costs specified within the lease. … As we have discussed with Council earlier, and in this regard we consider that in order to finally resolve the issues between the parties then an agreed rental for the first review only, should be sufficient to entice to the lessee to accept the majority of the proposals made by Council for the lease of the Lagoon site. Mr Rusbourne's letter dated 5 February 2003 66 On 12 February 2003 Mr Rusbourne forwarded to Mr Douglass a letter of 5 February 2003 addressed to the General Manager. That letter included the following: 1.23 An additional clause 13.5 must be inserted as requested by Mr Dobrow as clause 13.3.1. In addition the details as to the variation in the size of the building must be included. … 2.14 Clause 5.12 must be amended to indicate Landlord and Tenant's fixtures and fittings and as requested by Mr Dobrow, the valuer, should make no deduction for additional improvements carried out by the Tenant to the original building nor from the rebuilding after the damage and destruction of the premises in 2001. We note that a Schedule of Tenant's fixtures and Landlord's fixtures have been indicated and such Schedule should be included in the Lease. Mr Peedom's instructions 67 On 18 February 2003 Mr Williams wrote to Mr Peedom instructing him to prepare an appropriate response to Mr Rusbourne's letter of 5 February 2003. He was instructed to require Emibarb to advise Council in writing of its final agreement with the contents of his letter by 28 February 2003. The letter of instructions to Mr Peedom included the following: 7. Lease Rental At a discussion held by Council officers and yourself with Mr Dobrow, it was agreed for a reduction in rental to be paid by Emibarb during the term of lease commencing 2006. Mr Dobrow offered to submit a substitute clause for calculation of rental, however this has not been provided. Council's position is therefore that the rental to be paid during the first 10-year term of lease is to be that calculated initially and after five years in accordance with the provisions of the draft lease which has been submitted to Emibarb. By an agreement to be entered into outside the lease, the rental determined is to be reduced by an amount of 30%. The rental for the third term of five years is to be determined on the same basis discounted by 25%. The rental for the fourth term of five years is to be determined on the same basis discounted by 20%. 68 On 18 February 2003 Mr Douglass wrote to the General Manager of the Council in relation to Mr Dobrow's suggestion that a reasonable rent in July 2006 should be $75,000. Mr Douglass suggested that it was totally unrealistic and not indicative of fair market value of the rent that would have applied to the Restaurant. Mr Douglass recommended that any negotiations in respect of the rental should be within a range between $160,000 and $220,000 subject to the agreed discount. Mr Rusbourne's letter 19 February 2003 69 On 19 February 2003, as a result of a request from Mr Peedom to provide some "actual wording" for clauses 5.12.6 and 5.12.7, Mr Rusbourne wrote to Mr Peedom in terms that included the following: 2.14 Clause 5.12: We note that you have requested that we provide a proposed clause and we suggest the following: "5.12.6. The valuer is to value the Property and to make no deduction for any additional improvements carried out by the Tenant in reinstating the building that had previously been destroyed by fire on 9 January 2001. 5.12.7. The valuer will take into account the following table of Tenant's fixtures and fittings and landlord's fixtures and fittings (such table not exhaustive): Tenant's Fixtures and Fittings: All kitchen fit out including benches, stoves, shelves, cooking plant and equipment, refrigeration and cool room plant and equipment, exhaust equipment, air conditioning plant and equipment, carpets and floor coverings, decorations, kiosk and bistro fit out and display cabinets, fridges, shelves, cooking plant and all barbeque stoves. Landlord's Fixtures and Fittings: All of the structure of the building, internal walls, bathroom and toilet fit outs, entry fit out (but not including decorations hanging on the walls) and fixed tiles, bars (excluding fridges) and a barbeque area including fixed floored tiles. 70 Mr Peedom forwarded a copy of Mr Rusbourne's letter to Mr Williams and on 20 February 2003 Mr Williams provided instructions that were recorded in Mr Peedom's file note as follows: In relation to the lease rental, he said that the agreement reached was that there would be a separate deed or the like providing that after the valuer had determined the current market rent in accordance with the terms of the lease, the rent during the first 10 years of the term would be reduced by 30%, during the next 5 years would be reduced by 25% and during the 4th term of 5 years, would be reduced by 20%. I said that Mr Rusbourne had proposed that that agreement be incorporated in the agreement for lease and I said that I believed that was appropriate. 71 Mr Williams asked Mr Peedom to send him a copy of the letter he proposed to send to Mr Rusbourne for his approval. Mr Peedom's letter – 21 February 2003 72 On 21 February 2003 Mr Peedom sent a draft of the letter that he proposed to send to Mr Rusbourne to Mr Williams for his approval. That letter included the following: 2.14 We note that you have elaborated on this matter in your letter of 19 February 2003. A new sub-clause 16.6 will be added as follows: 16.6 Clause 5.12: Add: "Despite clause 5.12.5 the current market rent is to have regard to the following fixtures and fittings: 5.12.6 tenant's fixtures and fittings comprising all kitchen fit-out (including benches, stoves, shelves, cooking, plant and equipment) refrigeration, cool room, exhaust and air-conditioning plant and equipment, carpets and floor coverings, decorations, kiosk and bistro fit-out (including display cabinets, refrigerators, shelves and cooking plant and equipment) and all barbeque stoves; and 5.12.7 landlord's fixtures and fittings including all of the structure of the building including all of the structure of the building, internal walls, bathroom, toilet and entry fitouts (excluding decorations hanging on walls), fixed tiles, bars (excluding refrigerators) and the barbeque area including fixed floor tiles. 73 Mr Williams telephoned Mr Peedom on receipt of this letter to discuss the contents with him and gave him instructions in relation to the amendments. The way in which the letter was set out in Mr Peedom's draft is of some significance in this case. Clause 2.14 commenced towards the bottom of page 5 of Mr Peedom's letter. Clause 5.12.6 was included on that page. Clause 5.12.7 in relation to the landlord's fixtures and fittings was at the top of page 6. When Mr Williams and Mr Peedom discussed the amendments to item 16 of the letter, Mr Williams advised Mr Peedom that the tenant's fixtures and fittings were not be taken into account in the determination of the current market rent. To accommodate this change the preamble to the proposed addition was changed from: Despite clause 5.12.5 the current market rent is to have regard to the following fixtures and fittings. to: For the removal of doubt the value of the following fixtures and fittings are to be ignored: 74 There was no discussion about ignoring the landlord's fixtures but the effect of the insertion of the new preamble of the clause meant that the tenant's fixtures and fittings and the landlord's building and fixtures and fittings were to be ignored. Mr Peedom gave evidence that this was a mistake and it occurred because he failed to turn the page to page 6 and read the balance of the clause in the context of the new words at the beginning of the clause. This mistake remained in the letter when it was forwarded to Watkins Tapsell on 21 February 2003. The repetition of the words "including all of the structure of the building" in clause 5.12.7 also remained in the letter. 75 Mr Peedom's letter also included the following paragraph: We are further instructed that clause 13.2 of the agreement for lease is to be amended by adding: "However, the rent determined under this clause 13.2 and reviewed under clause 5.4 of the lease is to be reduced: 13.2.1 During years 1 to 10 of the lease period, by 30%; 13.2.2 During years 11 to 15 of the lease period, by 25%; and 13.2.3 During years 16 to 20 of the lease period, by 20%, of the rent fixed by the methods stated at item 16 in the Schedule to the lease. This clause continues for the benefit of the tenant after completion of this agreement." 76 When Mr Rusbourne received the letter from Mr Peedom he forwarded it to Mr and Mrs Harrison for their comments. Instructions were provided in writing and all that was said in relation to paragraph 2.14 of Mr Peedom's letter was "Noted". Mrs Harrison's letter included the following: I note with some interest the terms of the reduction of rent proposed by Council. My instructions are: i. To insist on the 35% that was carefully worked out by Mr Dobrow as being the percentage of the additional area that will be constructed by Emibarb and ii. There must be a commencement rental that is not to exceed $75,000.00 per annum. Otherwise how is Emibarb going to be able to do its business plan to raise money if it is unable to know what its commitments are going to be? Meeting 25 February 2003 77 Mr Rusbourne met with Mr and Mrs Harrison on 25 February 2003. Mr Haralambides claimed that he was at this meeting but that he arrived late. Mr Rusbourne did not have a recollection of him being present although Mr and Mrs Harrison were adamant in their evidence that Mr Haralambides was present. 78 Mrs Harrison gave affidavit evidence that Mr Haralambides arrived about 15 minutes after the meeting commenced. She recalled discussing the percentage reduction and claimed to have said to Mr Rusbourne: "I am not happy about this reduction. We are building a building which is 35% bigger and I feel we should still be compensated for that. I still want that deduction kept at that level". Mrs Harrison claimed that Mr Rusbourne then said: "Vania, they have made some compromises and we have to make some too. It looks like they have given you what you wanted and they have traded that off by reducing the amount of the discount you get in the rent reviews under the lease and I don't think that they are going to move on this". Mrs Harrison claimed she then said: "I am not happy about this" to which Mr Haralambides said: "Vania, Mr Rusbourne is happy with it. I don't think you have any more time to press this further without risking losing the lease. I think Council are very serious about their ultimatum to Emibarb. I think we should sign the lease". Mrs Harrison claimed she then said: "no, I still want you to try to get 35%, Peter. Just write to them and see what their response is. I still want a guaranteed commencement rental of $75,000 in the lease". Mrs Harrison claimed that Mr Rusbourne then said: "I don't believe there is any point going back to them with a demand for $75,000. They have already made as many concessions as I believe they are going to". 79 Mrs Harrison claimed Mr Haralambides then said "Vania, Council have come our way" and that she then said: "no, Emibarb is still building a building which is 35% bigger than what council had before. I still want Emibarb to be compensated for that and I still want you to go back and ask for it". Mr Rusbourne then said: "Vania, we only have two days left. I don't think they will change on this point". Mrs Harrison then said: "I still want you to ask for it". Mr Rusbourne then said: "I will write to them in relation to this. There are also some errors in Mr Peedom's correspondence and I will draw these to his attention". 80 Mrs Harrison was challenged in cross-examination in relation to her understanding at the time of the meeting with Mr Rusbourne that the rental was to be on the land or ground rent (tr 316-319). She claimed that it was always an option and pointed to a portion of Mr Dobrow's letter or 15 January 2003 in support of such claim and gave the following evidence (tr 319-321): Q. Tell us where it talks about ground rental first. Are you referring to the material in the box? A. Going down from the box where it says: "We do not consider that a difference of the building areas alone should be utilised as the compensation rate. As mentioned earlier, adjustments or the age and condition of the building as well as the underlying land value should be reflected in the one overall compensation rate." That meant we had to be compensated for the extra size of the building we were giving council and be compensated for the new building we were giving council. If you take both of those away, you are left with ground rent. That is not a bad thing. Back in 1996 a valuer would have given them rent of 165,000. They are probably getting the calculation of the rent just on the calculation of the ground rent. Q. Does that mean you understood the reference to rental at the top of the page was a reference to ground rental? A. No, I didn't know what that referred to. As I said previously with the 25 per cent I didn't know how that ground rent was going to be calculated. Q. You told us before you didn't understand these letters and now you understand these letters as meaning a ground rental? A. I understood that as being one of the options. This is one of the scenarios. They were confusing. I didn't know which one we were going to go with. I wanted it all explained because I wanted to be sure what my rent was going to be in 2006 and no one could tell me. Q. Your position was there were various options and one of them was a ground rent? A. Yes. Q. By 25 February 2003 had the ground rent been selected out of the available options in your mind? A. Yes. Q. Had council agreed to that as you understood it? A. Council drafted it. Q. So you considered that there had been options on the table and that council had agreed to it, namely, the ground rent between 16 January and 25 February? A. That's correct. Q. When did you understand that council had agreed to that? A. On Friday 21 February. Q. So up until that point there was still a number of options available, is that your position? A. Yes, well actually there were still options up to the time we actually signed the agreement before accepting those terms, which was the Friday after the 28th. So up until the 28th we were still negotiating. Q. As of the 21st, at least your position is that there had been various options put on the table, one of which was ground rent? A. Yes. Q. And you wanted ground rent? A. Yes. Q. And you didn't want anything else? A. No, that is incorrect. I just wanted a formula that would translate into me knowing what the rent was going to be and the rent to be a reasonable rent that Emibarb could afford. Q. What you didn't want was rental calculated by reference to the reinstated building and then discounted by a percentage? A. That was one of the options. I can't say I didn't want that. As long as what we were going to be compensated for reflected that. Q. Did you want a ground rent, that is started at ground rent and discounted to a percentage? A. Yes. Q. Was that option on the table as you understood it on 21 February 2003? A. I don't know whether that was an option then. It was put in that letter of 21 February. Q. I am asking you about the letter prior to that letter being sent. Was it one of the negotiation matters? One of the matters in negotiation between you and the council at that stage as you saw it that it would be a discounted ground rent? That is, a ground rent determined by a valuer which would then be discounted by a percentage? A. A percentage to reflect our capital contribution. If it was that on the ground rent or the building it did not matter. Q. Please. I am asking you a specific question about a specific proposal. You have no difficulty telling us when you thought ground rent was an issue. You say that was something raised by Mr Dobrow and also available and part of discussions from the time he raised it from January 2001 (sic) right up until 21 February 2003, that is what you told us? A. Yes. Q. Now I'm putting to you something different, a discounted ground rent, you understand that, do you not? A. Yes. Q. What I am asking you is when that was put on the table as part of the negotiation possibilities, if it ever was? A. Previous to the 21st? Q. Yes? A. No. Q. You never expected to get a ground rent in any event in your negotiations with the council from January 2001 right up to immediately before 21 February 2003, to get ground rent that was then discounted by percentage, did you? A. I didn't, I don't know what I would have got, no. Q. No one on your side or the council's side, or Mr Dobrow, had ever suggested any such arrangement during that period of time, had they? A. It was always talked about, a percentage being taken off to reflect our contribution so what it alluded to whether it was ground rent-- Q. Discounted ground rent was never discussed or suggested by anyone from January 2001 right up until 21 February 2003, correct? A. Yes. I can't recall that. Q. It was never discussed, was it? A. I can't say that it wasn't, but I can say I can't recall if it was or not. 81 Mr Harrison gave affidavit evidence that at the meeting on 25 February 2003 Mrs Harrison said that she was not happy about the reduction in the discount of the rent that the Council was proposing. He recalled Mrs Harrison saying that she wanted to reject that clause and ask for 35% reduction in the rent. In response to that statement Mr Harrison claimed that Mr Rusbourne said: Vania, Council have made a concession to us. They have removed the tenant's improvements and you are not paying rent on the building, which is what you wanted all along, and Council have, on the other side of the ledger, taken away from Emibarb the deductions in the rent you have asked them for. It's give-and-take and we are pretty close to solving this stalemate. 82 Mr Harrison claimed that Mrs Harrison then appeared to be upset and said to Mr Rusbourne: "no, I am still not happy about it. I still don't have a guaranteed starting rent so I know precisely what the rent is going to be. I still want to see if you can get a starting rent of $75,000". Mr Harrison claimed Mr Haralambides said: "Vania, I think Council are deadly serious about this ultimatum. This is the second deadline they have given you, and I think they mean it this time. They have moved your way, but they have taken away from Emibarb as well. I think this negotiation is over and you should not risk losing the lease when you have worked so hard in the Lagoon. I think you should take it". Mr Harrison claimed that Mrs Harrison said: "no, I want Mr Rusbourne to try". Mrs Harrison then said to Mr Rusbourne: "I want you to specifically tell Council that they are getting a building that is 35% larger than what they otherwise would have had at the end of the lease, and to insist that Emibarb is compensated for that by a 35% reduction in the rent the valuer decides. I also want you to try and get a rent at the same rent we are paying now for the same period the restaurant has been out of business and then go to the process involving the valuer after that time". 83 Mr Harrison claimed that Mr Rusbourne then said that he would write to Mr Peedom. He said that he would advise him "that you will be proceeding with the lease but I will also point out to him that there are some matters in his letter that are incorrect and those matters cannot be accepted as put. I will also raise with Mr Peedom the matters you instructed me to. Otherwise you should be happy that Council has made these concessions. They obviously mean business. I don't believe they will give you the 35% reduction in the rent as they have compromised, but if you insist, I will put it to them, bearing in mind the very limited time we have before the deadline expires. You should now proceed as quickly as possible to build the restaurant within the timeframe provided by Council. Take advantage of the goodwill that Council has now extended more positively and get back into business". Mr Harrison claimed that Mrs Harrison then said: "OK". 84 Mr Haralambides did not recount the conversations at the meeting in any real detail in his affidavit. His memory was obviously vague and he was unable to recall the time at which he arrived at this meeting. Although he claimed that at the time of the meeting he understood that the Council was proposing to determine the rent by excluding landlord's and tenant's fixtures and fittings he did not give any detail of the basis upon which he reached that understanding. His affidavit evidence was that when Mrs Harrison requested a 35% reduction in the rent, he said: "Vania, they have made a concession in relation to the building. But they have given less of a deduction in the percentage we get off at each rent review, going down to 20%. I think Council are serious about this ultimatum. Peter says this is a good compromise that should keep everyone happy. This has dragged out long enough and if we don't make this deadline I think we will lose our opportunity to get a lease for the Lagoon". 85 In cross-examination Mr Haralambides said that he did not recall the time the meeting took place on 25 February 2003 and that he could not disagree with the suggestion that it took place between 2.30 pm and 4 pm. [Mr Rusbourne's file note records the time of the meeting as 2.30pm to 4.25pm]. He was shown his mobile telephone records and accepted that he could not have been at the meeting at any time before 4 pm on that day (tr 333). Notwithstanding this evidence he still claimed to have attended the meeting. Mr Haralambides gave evidence in cross-examination of a conversation he claims he had with Mr Rusbourne on 19 March 2003 when he attended his office to sign the Lease documents. Although he recorded the fact of the meeting in his affidavit he did not mention the conversation he recounted for the first time in cross-examination. All that he said in his affidavit was that he recalled that at the meeting on 19 March 2003 "there was a discussion about the Agreement for Lease and the Lease". In cross-examination the following evidence was given (tr 331-332): Q. How many meetings did you attend with Mr Rubourne? A. Two Q. When did those meetings take place? A. One was on 25 February. The other was the 19 March. Q. The one on 19 March was just a signing wasn't it? A. Signing the lease, yes. Q. No discussion at that meeting about the terms of the lease was there? A. There was, just on what the final lease was. From the previous meeting we had on the 25th there were certain things that we had asked for and on that date were just seeing the final lease on that day. Q. No discussion on 19 March 2003 about the rent provisions of the lease, was there? A. There was. Q. On the 19 March? A. On the 19. Q. What was said about that? A. Just that the final. Q. First of all, who raised the topic? A. Mr Rusbourne. Q. What did he say? A. That the final rental clause was based on the building being excluded and we had agreed to the reduction of the rental, it was to be at a stepped reduction on the land value. Q. Did Mr Rusbourne tell you that it was to be a discounted ground rent did he? A. Yes. Q. Have you referred to that statement by Mr Rusbourne in your affidavit? Look at para 9 of your affidavit. A. Um, no, in my affidavit I haven't referred to that. Q. If that had been sent by Mr Rusbourne it would have been, as you understood the issues in this case, of absolute critical importance to this case do you agree? A. Please repeat that? Q. Had it been said, on your understanding of the issues in this case, that would have been a critically important matter in your case and Emibarb's case, as guarantor, correct? A. Yes. Q. Why did you not refer to it in your affidavit then if it was a critically important matter? A. I don't know. Q. I suggest to you the reason is you are just making it up? A. Well I disagree. Q. Are you able to offer any explanation for how this critically important matter was omitted from your affidavit? A. Um, I would say it was just an oversight. Q. On your part? A. Yes. Q. So you were asked, were you, when you prepared this affidavit, to remember all that you could about the meetings that you attended? A. Yes. Q. And you just forgot that critically important conversation, is that right? A. Yes. 86 Mr Rusbourne gave affidavit evidence that when he received Mr Peedom's letter of 21 February 2003 he read paragraph 2.14 and understood it to mean, "that a valuer in determining the market rent would ignore the fixtures and fittings whether they were the landlords or the tenants". He gave evidence that he marked that paragraph with a tick because he did not consider it to be an issue. Mr Rusbourne set out in his affidavit the conversation that he claims to have had with Mr and Mrs Harrison on 25 February 2003. There is nothing recorded in that affidavit in relation to clause 2.14 which contained the alleged mistake. There was however the following included in paragraph 118: We then discussed 2.19. In relation to the percentage reduction Vania said to me: "I am happy that they have now included a clause but I am not happy with the way it has been drafted. We are building a 35% bigger building at our expense and want the rent to be initially reduced by 35%. Please go back and ask for it". I said: "I will try but they are giving us something now that they haven't agreed on before. We are pretty close to reaching a deal". 87 Mr Rusbourne was also cross-examined about this meeting and I will deal with that evidence later in this judgement. Mr Rusbourne's letter 26 February 2003 88 Pursuant to the instructions received at the meeting on 25 February 2003 Mr Rusbourne wrote to Mr Peedom on 26 February 2003. That letter included the following: 2.1 The provisions in regard to use have been discussed with the Department of Land and Water Conservation. No amendment is sought. However we note that the additional clause inserted by you has a typographical error and should have the word "not" inserted for each of the bullet points. … 3.1 We note your comments in regard to the Agreement for Lease and a variation of the market rent determination. Our client has requested that the market rent determination be initially reduced by thirty-five percent (35%) having regard to the additional area of the building being completed pursuant to the Agreement for Lease. The additional area equates to thirty-five percent (35%). The building will be the property of the Council and is provided without expense to the Council. Mr Rusbourne did not notice the repetition of the words "including all of the structure of the building" in paragraph 5.12.7 of Mr Peedom's letter of 21 February 2003 and did not mention it in his letter to Mr Peedom. Mr Peedom's letter 27 February 2003 89 On 27 February 2003 Mr Peedom responded to Mr Rusbourne's letter and in respect of the proposed 35% reduction advised that it was "Not agreed". That letter concluded: We are specifically instructed that our client's position remains as set out in the last paragraph of our letter of 21 February 2003. Please confirm by 28 February 2003 that your client accepts the matters set out in our letter of 21 February 2003 as varied by this letter. Mr Rusbourne's letter 28 February 2003 90 On 28 February 2003 Mr Rusbourne wrote to Mr Peedom confirming that Emibarb "confirms and accepts that a final agreement has been reached, on the terms of your letter of 21 February 2003 as varied in your letter of 27 February 2003". Mr Rusbourne requested Mr Peedom to submit amended documentation for execution as soon as possible. Final Lease documents 91 On 14 March 2003, Mr Peedom forwarded to Mr Rusbourne the amended Agreement for Lease for execution by Emibarb and the guarantors. Mr Peedom advised that he was not able to produce a marked up copy but noted the clauses that had been amended. The Agreement for Lease included the following: 13. LEASE Grant of lease 13.1 On completion of the construction, the landlord must grant and the tenant must take a lease of the property at the rent, for the term and subject to the provisions of the attached lease. The landlord can substitute for the plan attached to that lease a plan which accurately defines the building and the licensed areas as constructed. Rent 13.2 The rent payable under the lease from the commencement date to the first rent review date is to be the current market rent as at the commencement date determined in accordance with clause 5.12 to 5.20 inclusive of annexure A to the attached lease. The commencement date shall be taken to be the rent review date for the purpose of the periods referred to in clauses 5.13 and 5.15 of that annexure. However, the rent determined under this clause 3.2 and reviewed under clause 5.4 of the lease is to be reduced: 13.2.1 during years 1 to 10 of the lease period, by 30%; 13.2.2 during years 11 to 15 of the lease period, by 25%; and 13.2.3 during years 16 to 20 for the lease period, by 20%, of the rent fixed by the methods stated at item 16 to the Schedule to the lease. This clause continues for the benefit of the tenant after completion of this agreement. 92 Annexure A to the Deed of Lease left blank the amount of rent but included the 5% of turnover exceeding the threshold sum of $5.5 million. The rent review item fixed the review date at each fifth anniversary at current market rent and each other anniversary at CPI. Annexure A also included the clause to which I have already referred in item 16.6 relating to 5.12 in the same terms as contained in Mr Peedom's letter of 21 February 2003, that is, providing for the valuation method to ignore the tenant's fixtures and fittings and the landlord's fixtures and fittings. 93 On 19 March 2003 Mr Rusbourne met with Mr and Mrs Harrison and Mr Haralambides and the Lease documents were executed. Council meeting/ resolution 24 March 2003 94 On 24 March 2003 Mr Peedom forwarded the lease documents executed by Emibarb to the General Manager of the Council requesting that the Lord Mayor and the General Manager execute the documents under Council's Common Seal. The Council met on 24 March 2003 to consider two sets of recommendations, one contained in an initial report and the other contained in a late business report. The first set of recommendations was as follows: Council formally notify Emibarb that: 1. it considers Emibarb to be in a position to commence and complete the reconstruction of a new Lagoon Restaurant building to replace the former building which was substantially damaged by fire on 9 January 2001; 2. if Emibarb completes the construction works in accordance with the provisions of the Agreement for Lease, Council will accept those works as satisfying the tenant's obligation under the current lease to repair the damage; and 3. if Emibarb fails to complete the construction works in accordance with the Agreement for Lease and to repair the damage in accordance with the current lease, Council will exercise powers provided by the lease to terminate the lease and to recover possession of the site. 95 The report set out the history of the "lengthy process of events" referring to the delayed reinstatement of the Restaurant and included the following: In order to create circumstances whereby the lessee is provided with sufficient incentive to commence and undertake the substantial task of reinstating the Lagoon Restaurant, it has been necessary for Council to enter into supplementary negotiations with the lessee for an extension of its tenure of the site. At this time all that has been required to be completed by both parties in order to provide Emibarb with an opportunity to commence its reinstatement of the Lagoon Restaurant has been completed. It is now the responsibility of Emibarb to reinstate the Lagoon Restaurant in accordance with the provisions of the Agreement for Lease. In order to protect Council's interests and to ensure timely completion of the reinstatement of the restaurant, it is necessary for Council to formally notify Emibarb that it must complete the reinstatement of the Lagoon Restaurant in accordance with the Agreement for Lease. Council's notice must also provide that in the event that the company fails to fulfil the reinstatement of the Lagoon Restaurant building, then Council will be in a position to proceed to implement the powers available to it to terminate the current lease. Termination of the current lease by Council would remove the right of the company to claim legal possession of the site and remove any legal liability it had to undertake building works thereon. Council would then be in a position to recover possession of the site and proceed with reinstatement of the Lagoon Restaurant premises as it may determine appropriate. In implementing the action recommended in this report, Council must understand that the protection of rights and the entitlements of parties in contractual matters can become the subject of dispute and litigation by either party. Council is advised that action it may take to terminate the current lease may produce a threat (or implementation) of legal action by Emibarb in an attempt to preserve its position and to protect its perceived interests. The success or otherwise of such action cannot be assessed at this time. 96 The late business report contained the following recommendation: 2. Authority be granted for the use of the Common Seal of Council on the Agreement for Lease (and lease) which was granted by Council by resolution of 22 July 2002. 97 The Minutes of the Council Meeting contain the following: RESOLVED on the motion of Councillor Pocock seconded Councillor King that- 1. Council formally notify Emibarb that - a. it considers Emibarb to be in a position to commence and complete the reconstruction of a new Lagoon Restaurant building to replace the former building which was substantially damaged by fire on 9 January 2001; b. if Emibarb completes the construction works in accordance with the provisions of the Agreement for Lease, Council will accept those works as satisfying the tenant's obligation under the current lease to repair the damage; and c. if Emibarb fails to complete the construction works in accordance with the Agreement for Lease and to repair the damage in accordance with the current lease, Council will exercise powers provided by the lease to terminate the lease and to recover possession of the site. 2. Authority be granted for the use of the Common Seal of Council on the Agreement for Lease (and lease) which was granted by Council by resolution of 22 July 2002. 98 On 16 June 2003 the Department of Lands advised the General Manager of the Council that: Approval has now been given to the amended agreement for lease and lease submitted with your letter of 26 March 2003. The Agreement for Lease and Deed of Lease documents are now returned for execution of the Lease and return to this Office for endorsement of Minister's consent. When a market rental figure for the new lease is determined in 2006, this matter will again need to be referred to the department for additional approval pursuant to section 103 of the Crown Lands Act 1989. 99 Mrs Harrison was provided with a copy of this letter and wrote to Mr Rusbourne on 16 June 2003 enclosing a copy of the letter and in terms that included the following: The Minister clearly says that when the market rent is determine (sic) in the year 2006, that is at the expiration of our current lease, the new rental will again need to be referred to the department for approval under section 103 of the Crown Lands Act This reference does raise some fears. Perhaps this is only some internal reference between Council and the Lands Department and should not concern us. If, however the Lands Department has another say in the year 2006 it would be of serious concern to me. 100 On 17 June 2003 Mr Oxley wrote to the General Manager of the Crown Lands Department in terms that included the following: On this basis, it was agreed by the trust and Emibarb for the rental under the new 20-year lease to be calculated for the whole building in accordance with the provisions of the draft Lease but that this amount be then reduced by 30% for the first 10 years of the lease, by 25% for the subsequent five-year term and by 20% for the final 5-year term of the Lease in recognition of the financial contribution by Emibarb to reinstate the new premises. I concede that the negotiations on how to accommodate the rental to be paid for the most appropriate premises was not contained within the draft Agreement for Lease, previously endorsed by your department because the negotiation on this matter took place after that date. You will appreciate that Council as trust manager of Stuart Park Reserve Trust considered itself to be the responsible party to undertake the negotiations which it considers to have been concluded appropriately in the circumstances. In conclusion I note that although it is not possible to determine at this time the market rent applicable to the new premises at the commencement of the new lease in 2006, it is anticipated that the proportion of rental which Council will be entitled to receive may be in the order of $200,000 per annum. Given that the current entitlement of Council if it was to be required to reinstate the premises from the insurance funds available could be no more than $2m, the Agreement which has been reached implies that Council will receive an annual return initially in the order of 10% per annum. This return will increase as the proportion of the adjustment of rental decreases during the term of the lease. I trust that the foregoing information and understanding you have gained of Council's actions in this matter will enable you to recommend the approval of the Minister to the grant of lease to Emibarb Pty Ltd for 20 years. 101 Mrs Harrison was provided with a copy of this letter and at the request of Mr Harrison signed a letter to the Council that Mr Harrison advised had been drafted by Mr Rusbourne. That letter was dated 18 June 2003 and was in the following terms: I have received a copy of Council's letter to the General Manager – Crown Lands dated 17 June 2003. Subject to receiving the formal Agreement for Lease I am proceeding with the reinstatement of the Lagoon Restaurant and construction of the new building in accordance with that Agreement for Lease. Emibarb Pty Limited will be investing substantial moneys in carrying out the construction in reliance upon the Lease and Agreement for Lease. Emibarb has been out of business for a substantial period of time and suffered financial hardship as a result of the period of time that it has not been able to trade. The market rent will be determined in July 2006 in accordance with the Agreement for Lease and Lease and I cannot comment upon what that rent would be apart from to say it must be determined at that time and I cannot see that the Council can comment upon the rent as it has done so in its letter to the Lands Department. I await your reply enclosing the Agreement for Lease so that I may proceed with obtaining the construction Certificate and insurance moneys, and commencement of construction. Although it was intended to send this letter to Council a decision was made not to send it after Mr Harrison had a discussion with Mr Williams about whether Emibarb should involve itself in the correspondence between the Council and the Crown Lands Department. 102 On 27 June 2003 Mr Douglass wrote to Mrs Harrison and Mr Haralambides: I refer to the letter of 16 June 2003 from the Department of Lands advising that approval had been given to the amended Agreement for Lease and Lease as previously endorsed by Council and your company. The second paragraph of that letter refers to the provision under Section 103 of the Crown Lands Act 1989 that specifically provides that notwithstanding any prior approval to the Lease, the Lease shall not proceed unless "the price agreed on, the rent reserved, …" is approved by the Minister. As no rental has been determined at this time, the provisions of Section 103 apply to the Lease. Therefore in accordance with the provisions of the Lease, market rent will be determined by an independent consultant valuer engaged by Council and the rent payable shall be in accordance with clause 13.2 of the Agreement for Lease. Notwithstanding the requirement to refer the agreed rent to the Department for approval, such approval is expected to be a mere formality subject to that rent being consistent with the advice of the independent valuer. I trust that this explanation clarifies the processes that must be followed prior to the Lease being enacted. "Error of drafting" discovered 103 In May 2004 an officer of the Council discovered what was described by Mr Williams as "an error of drafting" in the Lease documents. 104 On 2 August 2004 Mr Peedom wrote to Mr Rusbourne in the following terms: We refer to the agreement for lease which was executed on 17 June 2003. We note that clause 16.6 of the lease (which is attached to the agreement for lease) contains a mistake which was overlooked by both parties upon execution. In accordance with the agreement made between the parties, clause 16.6 should read: "16.6 Clause 5.12: Add: 'For the purposes of clauses 5.12.5 and 12.3: 5.12.6 tenant's fixtures and fittings comprise all kitchen fit-out (including benches, stoves, shelves, cooking plant and equipment), refrigeration, cool room, exhaust and air-conditioning plant and equipment, carpets and floor coverings, decorations, kiosk and bistro fit-out (including display cabinets, refrigerators, shelves and cooking plant and equipment) and all barbeque stoves; and 5.12.7 landlord's fixtures and fittings include all the structure of the building, internal walls, bathroom, toilet and entry fit-outs (excluding decorations hanging on walls), fixed tiles, bars (excluding refrigerators) and the barbeque area including fixed floor tiles". Accordingly, we enclose two copies of an amended agreement for lease. The amended documents are identical to the agreement for lease except for the amendment to clause 16.6. Please arrange to have your client execute the enclosed documents and return them to us within 14 days. 105 Mr Rusbourne telephoned Mr Peedom and asked for an explanation in relation to his letter. On 9 August 2004 Mr Peedom wrote a further letter to Mr Rusbourne in the following terms: The amendment is necessary to correct an error which occurred in the drafting of clause 5.12 of annexure A to the deed of lease. Clause 5.12 does not currently reflect the agreement reached between our clients in respect of those fixtures and fittings which are to be ignored in determining rent and which are to be removed at the end of the lease. The correction identifies, in clause 5.12.6 the tenant's fixtures and fittings which are to be ignored under clause 5.12.5 for the purpose of determining the current market rent. Landlord's fixtures and fittings are to be ignored for that purpose. The correction also identifies, in clause 5.12.7, those things that the tenant has fixed to the property but which must not be removed by the tenant when the lease ends under clause 12.3. 106 On 26 August 2004 Mr Rusbourne wrote to Mr Peedom in the following terms: In order to fully advise our client please provide details and copies of correspondence regarding the following: 1. the approval process for the Lease with Council and the Minister; 2. when did you understand that a mistake had arisen? 3. what documentation was forwarded to the Landlord for approval? 4. what documentation was forwarded to the Minister for approval? We require further information from you and will subsequently need further instructions from our client. We note the clause was prepared and submitted by you, and a further review of the documentation, and execution of the documentation, will involve additional time and expense. We confirm that at this stage we do not admit that a mutual mistake has been made and cannot advise our client without the details as indicated above. Proceedings commenced 107 The plaintiffs commenced these proceedings on 10 June 2005 in which they seek the following declaration: 1. A declaration that the common intention of the Second Plaintiff (on behalf of the First Plaintiff), First Defendant, Second Defendant and Third Defendant at the time of entry into the Agreement for Lease dated 17 June 2003 was that any rent review by reference to current market rent to determine the rent payable on the commencement date of the lease, the terms of which are annexed to the Agreement for Lease, would: (a) ignore the First Defendant's fixtures and fittings; and (b) have regard to the First Plaintiff's fixtures and fittings. 108 The Plaintiffs seek the following order: An order that Clause 16.6 of the lease be rectified to read as follows: "16.6 Clause 5.12: Add "For the removal of doubt the value of the following fixtures and fittings are to be ignored: 5.12.6 tenant's fixtures and fittings comprise all kitchen fit-out (including benches, stoves, shelves, cooking plant and equipment), refrigeration, cool room exhaust and air-conditioning plant and equipment, carpets and floor coverings, decorations, kiosk and bistro fit-out (including display cabinets, refrigerators, shelves and cooking plant and equipment) and all barbecue stoves." 5.12.7 landlord's fixtures and fittings include all the structure of the building, internal walls, bathroom, toilet and entry fit-outs (excluding decorations hanging on walls), fixed tiles, bars (excluding refrigerators) and the barbeque area including fixed floor tiles". 109 The proceedings were heard on 18, 19, 20, 24, 26 and 27 April 2006 and 1, 3, 4, and 8 May 2006. Mr TGR Parker SC, leading Mr TW Marskell, of counsel, appeared for the plaintiffs and Mr DE Grieve QC, leading Ms M Stubbs, of counsel, appeared for the defendants. 110 The Summons included a claim that the defendants knew that the Lease did not reflect the plaintiffs' intention and that they allowed the plaintiffs to enter into the Lease in ignorance of that fact. Mr Parker referred to this claim as the "Taylor and Johnson claim". That was a reference to the High Court's decision in Taylor v Johnson (1983) 151 CLR 422 in which the relevant principle was stated by Mason ACJ, Murphy and Deane JJ at 432-433 as follows: The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension …. In such a situation it is unfair that the mistaken party should be held to the written contract by the other party whose lack of precise knowledge of the first party's actual mistake proceeds from wilful ignorance because, knowing or having reason to know that there is some mistake or misapprehension, he engages deliberately in a course of conduct which is designed to inhibit discovery of it. 111 That claim was abandoned on the sixth day of the trial, 27 April 2006, after Mr and Mrs Harrison, and Mr Haralambides had been cross-examined and during the cross-examination of Mr Rusbourne (tr 368-369). 112 The plaintiffs now claim that, at the time the parties signed the Lease documents, all parties were under the mistaken belief that there was a clause excluding the tenant's fixtures and fittings but including the landlord's building and fixtures and fittings (the landlord's fixtures and fittings) in the method of valuation of the current market rental. The plaintiffs claim that at the time they executed the Lease documents the defendants did not notice that clause 16.6 excluded both the tenant's fixtures and fittings and the landlord's fixtures and fittings from the valuation method for the current market rental. 113 To achieve rectification of clause 16.6 of Annexure A to the Deed, the plaintiffs must prove that through common mistake, the Lease signed by the parties did not give effect to their mutual intention or true agreement; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 (per Barwick CJ at 345.8 and Mason J at 350.3). As was said in Aspro's Pty Ltd v Hayter & Ors [2005] ANZ ConvR 425 at 428: 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. Mistake 114 The draft of the letter of 21 February 2003 to Mr Williams included both the tenant's fixtures and fittings and the landlord's fixtures and fittings as matters to be taken into account in the valuation to be undertaken for the purposes of fixing the rent under clause 5.12 of the Lease (the valuation method). When Mr Williams read that clause he immediately understood that there was a mistake in that, up until that time, the parties had proceeded on the basis that it was only the landlord's fixtures and fittings that were to be included in the valuation method. He immediately circled the paragraph at the bottom of page 5 and wrote the word "no" next to clause 5.12.6, the tenant's fixtures and fittings. Mr Williams advised Mr Peedom that the clause did not reflect what was intended. 115 During the conversation with Mr Williams, Mr Peedom suggested that the preamble to the clause could be changed to insert the words "for the removal of doubt the value of the following fixtures and fittings are to be ignored". Mr Peedom's evidence was that after he changed the preamble he made an error in not turning the page, to page 6, to read the clause as a whole including clause 5.12.7 which referred to the landlord's fixtures and fittings. That error was compounded by his failure to read through the clause at any stage thereafter to appreciate the exclusion of both the landlord's and the tenant's fixtures and fittings from the valuation method. Mr Williams did not read the clause after he had asked Mr Peedom to change it and I accept the evidence of both Mr Peedom and Mr Williams that this exclusion of the landlord's fixtures and fittings from the valuation method was a mistake. 116 I am also satisfied that Mr Oxley and Mr Douglass did not appreciate that the effect of the clause was to exclude both the landlord's and the tenant's fixtures and fittings. I am satisfied that Mr Douglass was of the view that the proposal to which he had agreed was a valuation method whereby the rent was to be determined on the current market rental of the building and land discounted by 30% then by 25% and 20% at the agreed intervals. There is convincing proof that the officers of the Council, as opposed to the Councillors, were of the mistaken belief at the time the Lease documents were signed that the Lease contained a valuation method that excluded the tenant's fixtures and fittings but included the landlord's fixtures and fittings. The mind of the Council 117 The plaintiffs did not call any of the Councillors in their case in chief in respect of their understanding of the terms of the proposed 20 year lease and in particular their understanding of the valuation method under the proposed lease. It was submitted that as at January 2003 the decision-makers within the Council were Mr Oxley and Mr Douglass because they were conducting the negotiations. It was submitted that it was the states of mind of those two officers that the court should consider in determining the Council's intention. The defendants submitted that it is the Councillors whose states of mind are relevant in respect of the alleged mistake because it was the Councillors who were asked to approve the use of the Common Seal of the Council on the Lease. 118 In support of the defendants submission reliance was placed upon the following statement by Lord Reid in Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170: I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company he is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent. In that case any liability of the company can only be a statutory or vicarious liability. 119 One of the resolutions passed on 24 March 2003 was Resolution 2 in the following terms: Authority be granted for the use of the Common Seal of Council on the Agreement for Lease (and lease) which was granted by Council by resolution of 22 July 2002. 120 The plaintiffs submitted that this resolution on 24 March 2003 was not a resolution approving the terms of the Lease but merely authorising the use of the Common Seal on the Lease. It was submitted that the Council had already approved the essential terms of the proposed lease in July and September 2002. It was also submitted that the Council had delegated the authority to negotiate the lease to Mr Oxley. That is true but the Council also resolved that Mr Oxley was to report back to it for its "final approval". The history of the negotiations and the resolutions passed by Council establish that, as at September 2002, Council had agreed to grant to Emibarb a 20 year lease with a rental determination that was quite different to that which was included in the proposed lease. The resolution of September 2002 did not include a stepped rental reduction. This was something quite new and had not been approved by the Council. Accordingly on 24 March 2003 the Councillors had before them a proposed lease that was different in one of the essential terms to that which had been agreed to by the Council in September 2002. 121 The application of the principle in Tesco Supermarkets Ltd v Nattrass will depend upon the facts of the particular case. In a rectification suit it may well be possible to establish the operative mind of a council through its resolutions and business papers: Telstra Corporation v Hurstville City Council (2002) 118 FCR 198 per Sundberg and Finkelstein JJ at 221. In this case, having regard to the history of the resolutions and the need for the Council to approve the different terms of the proposed lease, the operative mind is that of the Councillors who voted in favour of the resolution. To decide whether the Council mistakenly apprehended that the proposed lease contained a clause in which the tenant's fixtures and fittings were excluded from the valuation method and the landlord's fixtures and fittings were included with a stepped discount over the period of the lease, it is necessary to consider what the Councillors understood when they passed the resolution on 24 March 2003. The Councillors 122 The plaintiffs called Lord Mayor Councillor Darling in their case in chief. Councillor Darling gave evidence that on 25 March 2003 he was handed two copies of the Lease documents for execution. His affidavit evidence was that "the execution of such a document by the Council is a formality" and that he signed both copies in the places designated for his signature. Councillor Darling did not give any evidence in chief in relation to the Council meeting on 24 March 2003 or the resolution that was passed at that Meeting. In cross-examination Councillor Darling gave evidence that he did not consider it necessary to read the Lease and admitted that he was prepared to sign leases without the faintest idea of their content (tr 54). He gave no evidence in relation to his understanding of the contents of the Lease as at March 2003 other than to say that at no time prior to the 24 March 2003 meeting of the Council, or during the course of it, did he know that the rent Emibarb was to pay would be based upon the land value only. However, he gave no evidence in relation to what he understood the rental was to be based upon. 123 The defendants called a number of Councillors who gave evidence in relation to the Council Meeting on 24 March 2003 and their understanding of the rental provisions of the proposed lease. Councillor King 124 Former Councillor Victoria Anne King (Councillor King) is an accountant and served as a Councillor from 1987 to March 2004. During that period Councillor King was Deputy Lord Mayor for 5 years. Councillor King gave evidence about the way in which the Councillors who were members of the Australian Labor Party would "caucus" on matters prior to the Council meetings. She understood that Emibarb was under a contractual obligation to reinstate the building and recalled that the "matter" between the Council and Emibarb had been going on for some months. 125 At all times up to 24 March 2003 Councillor King understood that the rental on the proposed lease was to be calculated having regard to the current market value of the building as reinstated, however when she read the Lease documents she understood that there was a difference. She gave evidence that she discussed the differences in the Lease in caucus with other Councillors and at a prior meeting with the General Manager. She agreed that she was conscious of the difference between the terms of the Lease documents as submitted to Council for the meeting and what the Council had resolved. She asked her caucus colleagues' permission to clarify these matters on the floor of the Council (tr 283). In her affidavit sworn on 22 March 2006 Councillor King gave the following evidence: 20. When I read the relevant terms of the Agreement for lease and the relevant terms of the Lease prior to the Council Meeting of 24 March 2003, I understood clearly that the basis on which Emibarb Pty Ltd was to pay rent was the market rent of the ground only. I understood the rent was based on the market review of the value of the land only because the building was going to be written off in the same way that the Council allowed the Citybeach development 20 or 25 years rent-free to allow it to write off its capital investment in the building it was constructing. I understood that Emibarb Pty Limited was contributing to the building over the length of the lease and this was the concession that they were being given. 21. There was a short debate in relation to the Motion where Council ultimately approved of the Lease to Emibarb Pty Ltd. I recall asking questions in the course of debate on the Motion on whether the Council should approve the Agreement for Lease and Lease. Although I do not now recall the precise words, I recall, saying words to the effect "does the rent review clause in the lease take into account the capital invested by Emibarb? Does the rent review clause allow a "write-off" like the Citybeach development?" I recall the answer to these questions from Council officers was "yes". I also recall saying words to the effect "using Citybeach development as a comparison, how long will it take to recover the capital invested by Emibarb?" 22. To the best of my recollection, during the debate on the Motion referred to in the previous paragraph, I recall that Kiril Janovski also asked questions, and I also recall that Kerrie Christian asked questions. Although I do not now recall the questions which were asked by Kiril Janovski, to the best of my recollection Kerrie Christian said "has the Lagoon complied completely with the conditions of the DA?" I also recall that there may have been discussion about the rent in relation to the kiosk at Belmore Basin ,known as "Diggies", in Wollongong, although I do not now recall the identity of the Councillor or Councillors who discussed this issue. 126 Councillor King gave the following evidence in cross-examination (tr 278-280): Q. When you attended the council meeting on 24 March 2003 you had no reason to believe that the other councillors had made the same discovery that you say you had made from reading the lease; correct? A. "Had not made the same discovery" are the words you used? Q. Yes. A. No. Q. You are agreeing with me? A. No, I disagree with you, sorry. I had conversation with other councillors and they had seen - they also were aware of the difference. Q. I see. Which councillor or councillors was that? A. There was discussion in our caucus and there was discussion - I had discussion with the general manager. Q. You tell us? Start with councillors; which councillor or councillor said that? A. Who were in our caucus? Q. Yes. A. Councillor Hunt, councillor Kershaw, councillor Brown, councillor Yates, and I didn't have a discussion with councillor Jinowski who was in our caucus. Q. But the councillors you mentioned you say you had a discussion involving each of those about the difference between the form of the-- A. Lease. Q. --lease and what council had previously resolved; is that right? A. In caucus. Q. Did you refer to that in your affidavit? A. No. Q. Why not? A. It was your question that prompted my memory. Q. So this conversation that you had with the other caucus members had been something you had forgotten when you made your affidavit; is that right? A. I didn't recall it at the time, yes. Q. So you had forgotten on 22 March 2006; is that right? A. Yes. Q. And you'd still forgotten it on 27 March when you made your supplementary affidavit? A. Yes. Q. And now you claim to be able to remember it? A. I recall a general conversation in caucus, yes. Q. I didn't ask you about a general conversation. A. About this item. I can't remember the detail. Q. I see. But I thought you said, in answer to my earlier questions, you had said that this was a conversation about the difference between the form of the lease as submitted-- A. Yes. Q. --and the resolution? A. Yes. I had gone to the general manager. … Q. All right. Tell us now what you can recollect about this conversation; who said what? A. I can recall going to the general manager getting advice. Q. No, just the caucus. A. Yes. Q. Just tell us about the caucus information? A. I went to caucus and shared with them the information. Q. Who said what? … Q. What Mr Parker is asking you is to tell me, as best you can, the substance of what was said by you, and by anybody, any other person at the caucus meeting. Just take yourself back and see if you can do that for me. A. When I entered caucus I shared with the caucus-- Q. "I said"? A. I said that I had been to the general manager, that I had a copy of the new lease. There were changes in the lease. That they gave the concessions that were required that would be comparative to other leases given by the city. I recall the caucus giving me permission to ask questions-- Q. No, who, please? A. I can't remember who. Q. One of the people said something to you, did they? A. I recall having a conversation with councillor Hunt but I can't recall whether it was at caucus or at my office. … Q. No, you are just being asked what you said and what is said at the meeting? A. I said that I had this information on the lease. That I was concerned there had been differences and that I wanted to ask questions on the floor of council to clarify that this lease was one that gave the same concessions as did other leases in the city, such as City Beach. I was given permission by caucus and I don't recall-- Q. Somebody said-- A. Somebody said. Q. --what? A. That I could ask the same questions in open council, to ensure that I got the same answers as I did in private consult, conversation/consult with Mr Oxley. 127 Councillor King also gave the following evidence in cross-examination (tr 288-289): Q. Do you recall in detail that conversation or any part of that? A. In open Council? Q. Yes? A. I recall asking the question whether the concessions that were given by this new lease that was now before us were the same as we had given to City Beach. Taking into consideration the increased development costs. Q. Anything else? A. I can't remember anything else. Q. Did you in any of your conversations with Mr Oxley identify the concessions as being a ground rent? A. I had the lease with me when I went to see Mr Oxley. Q. No I am asking about what you said to him. Did you ever say to Mr Oxley 'look this is a ground rent'? A. I don't recall. Q. You are being asked whether you used the words- A. Was it a ground rent. Q. Yes, ground rent? A. I don't recall using those words. Q. Do you recall using those words with any of your fellow Councillors? A. I don't recall using the term ground rent. 128 Councillor King's recollection of Councillor Janovski asking questions during the debate at the Council meeting appears to be erroneous because the Minutes record an apology and leave of absence as having been granted to Councillor Janovski. 129 It was submitted that Councillor King was unable to explain how the supposed comparability with the City Beach development required or justified a ground rent. That may be so, but that does not mean that Councillor King had not formed the view that it was a ground rent. I accept Councillor King's evidence that Mr Parker's question prompted her to recall that she had discussions in caucus in relation to the difference between Council's previous resolutions in respect of current market rental of the reinstated building, and the ground rent that was contained in the proposed lease. Ultimately, of course, the rental clauses in the lease provided not merely for a ground rent but for a ground rent with a stepped reduction. This aspect of the matter was not explored with Councillor King. 130 Councillor King appears to have misapprehended the rental provisions of the Lease that was approved but not on the mistaken basis claimed. Councillor Hunt 131 Another Councillor called by the defendants was Councillor Ian Hunt, an accountant by profession and a Councillor from 1995 to 2004. In his affidavit sworn on 23 March 2006, Councillor Hunt gave evidence that after reading the documents for the meeting on 24 March 2003 he was aware "that the basis upon which the Lease was calculated was the land value alone, because Emibarb was providing the building for rent". Councillor Hunt could not recall the precise words that were said by Councillors or the debate that took place at the Council meeting. 132 In cross-examination Councillor Hunt said that he understood, in 2001, that the rent for the premises was to be calculated at current market value of the premises as reinstated. He voted in favour of that proposal, however his position changed in respect of that matter during the course of the intervening period, although he was not able to put a specific date on when he changed his attitude. When he read the Lease in March 2003 he understood it was a rent calculated on land value alone. He understood that the Lease was a ground rent and not a discounted ground rent (tr 485). At no time did he believe that Emibarb would pay less than a ground rent (tr 486). He believed that Council and Emibarb were prepared to sign a lease in the terms he was presented with. He gave the following evidence in cross-examination (tr 503-504): Q. Was it your belief on 21 March that there was any substantial issue between the parties which required your decision as to the rent to be paid under the lease? A. We were never required to consider the quantum of the rent. Q. Is the answer to my question No? A. Could I have the question again? Q. Was there as at 21 March 2003 as you understood it any issue between the parties which required your decision as to the amount of rent to be paid under the lease? A. No, there was no - there was nothing that I had to consider as a councillor, I'll go back to my first answer because it's not part of what we do. Q. And it follows from that that you had no reason to read carefully the provision - the parts of what you call the supporting papers which dealt with rent, isn't that right? A. I read the documentation, as I've said, and noted the value. The value was to exclude tenants and landlords fixtures, that's what I understood I was being asked to - to sign a lease - to agree to a lease in those terms. I'd read it and I understood it. 133 Mr Parker also cross-examined Councillor Hunt in respect of his understanding of clause 16.6 in Annexure A to the Deed. The following evidence was given (tr 507-508): Q. Clause 16.6, as it is set out on those two pages, does not say for what purpose the fixtures and fittings are to be ignored, does it? A. No, it doesn't. Q. When you read this document how did you know that it referred to rental purposes? A. I guess my layman's understanding of the value or the cost of a lease is linked to the value of the asset being leased. Q. But when you read this document you understood that clause 16.6 was setting out amendments and additions to a printed form? A. Yes. Q. Now when you read this document and, in particular, that it was proposing amendments and additions to clause 5.12 of the printed form, correct? A. Yes. Q. And how did you know when you read this document that clause 5.12 of the printed form dealt with rent? A. Because it deals with value and value is linked to represent quantum. Q. How do you know clause 5.12 deals with value-- A. Because it says there "to remove any doubt value is" - the value of those assets are those fixtures and fittings are to be ignored it says that. Q. Excepting that, how did you know that clause 5.12 dealt with value for the purpose of determining rent as opposed for some other purpose? A. In my naive fashion I couldn't think of any other reason why it would be included. Q. Did you read clause 5.12 to find out? A. I have no recollection of reading clause 5.12. 134 The plaintiff relied on this evidence to submit that Councillor Hunt appeared to have been "primed" to identify clause 16.6 of the draft additions to the printed form but had plainly not read the printed form itself. Accordingly, it was submitted, he was unable to explain why by reference to clause 16.6 alone he had thought it had referred to rent. I do not accept that Councillor Hunt appeared to be "primed". Councillor Hunt did not appreciate that the rent in the Lease was a ground rent with a stepped reduction. Accordingly, he appears to have misapprehended the Lease that he was approving but not on the claimed mistaken basis. Councillor Pocock 135 The other Councillor called by the defendants was Councillor Violet Pocock. Councillor Pocock was a Councillor from 1999 to 2004. Her evidence was more extraordinary than the other Councillors in that she understood that the rent was a ground rent, rather than a discounted ground rent, not only in 2003 but at all times from 2001. There is no doubt that such an understanding is totally inconsistent with business papers and resolutions passed by the Council in 2001 and 2002. It is very difficult to know what to make of Councillor Pocock's evidence except perhaps that she too misapprehended the rental provisions of the proposed lease but not on the basis of the mistake as claimed. Councillor Wood 136 The plaintiffs called three Councillors in reply. The first Councillor was Anne Francis Wood who was a Councillor in 2003 and attended the meeting on 24 March 2003. Councillor Wood did not read the Agreement for Lease to acquaint herself with its provisions relating to the rental determination and she was unable to say for how long the Lease was debated at the Meeting on 24 March 2003. Councillor Wood did not deny that Councillor King raised the matters she claimed she raised at the Meeting, but gave evidence that she did not hear Councillor King raise those matters. She said that when she flicked through the papers of the meeting of 24 March 2003 her understanding was that the rental was to be discounted starting at 30% and coming back to 20% as the Lease went on. Councillor Martin 137 The next Councillor called by the plaintiffs was Councillor David Martin, a school principal and former Councillor. He did not give any evidence in relation to the meeting or the Lease documents. However, Mr Greive asked him about an approach Mrs Harrison made to him with a letter. He did recall that Mrs Harrison approached him and gave him a letter and made some representations to him of a general nature. He thanked her and told her he would read the letter. He voted against the proposal to place the Council's seal on the Lease because he was of the opinion that the provisions relating to the payment of rent were unsatisfactory. This evidence was not explored further. Councillor Griffiths 138 The third Councillor called by the plaintiffs was Councillor Karen Ann Griffiths who is presently a Councillor and was a Councillor in 2003. Councillor Griffiths gave evidence that she understood that the Council wanted Emibarb to pay rent on both the land and the building. However Councillor Griffiths accepted in her cross-examination that she did not read the Agreement for Lease in any detail and did not read it enough to determine what rent was being paid under the Lease. She did not look at the rental provisions. 139 The evidence of the Councillors does not prove, let alone prove convincingly, that the Council was under the mistaken belief at the time it passed the resolution on 24 March 2003 that the Lease documents contained a clause whereby the valuation method excluded the tenant's fixtures and fittings and included the landlord's fixtures and fittings. On the other hand, if it is the Council officers whose states of mind are relevant, the plaintiffs have established convincingly that they mistakenly apprehended that the Lease that was before the Council for approval and execution contained a provision for the determination of rental excluding the tenant's fixtures and fittings but including the landlord's fixtures and fittings with the stepped rental reduction. Was the mistake noticed by the defendants? 140 Mr George Harrison claimed that he noticed the exclusion of the landlord's fixtures and fittings in Mr Peedom's letter of 21 February 2003. Mrs Harrison claimed that she noticed the exclusion of the landlord's fixtures and fittings prior to the meeting with Mr Rusbourne. Mr Dobrow gave evidence that he had a discussion with Mr Harrison on 25 February 2003 in which the exclusion was discussed. Mr Haralambides claims that Mr Rusbourne discussed with him the valuation method at the time that he executed the Lease on 19 March 2003. In this summary form it can be seen that the defendants claim they understood that the plaintiff had proposed a land value only rent, or ground rent, and that they understood it was a serious proposal. 141 Mr Grieve submitted that for the plaintiff to establish a case for rectification, they would have to prove that each of these witnesses gave false evidence. A similar submission was made in relation to the evidence given by Mr Rusbourne with which I will deal later. Mr Parker submitted that it is not necessary to make such a finding to be satisfied that the evidence of each of these witnesses should be rejected. It is necessary therefore to analyse the evidence of each of these witnesses to determine whether the plaintiff has established by "convincing proof" that the defendants understood that only the tenant's fixtures and fittings were to be excluded and that they did not notice that the clause in the proposed Lease excluded both the tenant's and the landlord's fixtures and fittings from the valuation method. Vania Harrison's evidence 142 The plaintiffs submitted that Mrs Harrison's evidence in relation to her understanding of the proposed rent clauses was totally inconsistent with the documentary evidence and with the evidence of other witnesses called by the defendant. The plaintiffs went further to submit that Mrs Harrison was not a witness of truth and that I should give no credence to her evidence on any disputed issue of fact. 143 In her affidavit sworn on 15 February 2006 Mrs Harrison set out the history of the negotiations between Emibarb and the Council in relation to the proposed rental for the new 20 year lease. Mrs Harrison claimed that she was concerned to avoid the problems that had been experienced in 1996 in relation to the rental dispute and was also concerned to determine what the "actual" rental would be. 144 Mrs Harrison gave evidence that at the meeting on 8 August 2002 between herself, her husband, Mr Williams and Mr Harben, Mr Williams said that Emibarb would have a 20 year lease and that it would be at "market rental". She then gave the following evidence in paragraph 23 of her affidavit: When Mr Williams referred to market rental, I assumed he was referring to market rental on the land alone, excluding Emibarbs' improvements, because Emibarb was providing the new building. That was the position under the 1986 Lease and the 1996 Lease. 145 The letter from Council to Emibarb dated 9 August 2002 also referred to the rental as "current market rent". When Mrs Harrison wrote to the Council in response to that letter on 20 August 2002 she agreed that Emibarb would pay "current market rent". In paragraph 24 of her affidavit she claimed that she used the term "current market rent" to mean market rental on the "land alone". The plaintiffs submitted that Mrs Harrison's evidence in relation to her understanding of the term "current market rent" was "totally implausible". Mrs Harrison was cross-examined in relation to the Council's letter of 9 August 2002 as follows (tr 294-295): Q. Can I just go back to this briefly. At the beginning of that page, it contains a reference to current market rent, which is what I was asking you about on Monday? A. Yes. Q. Now, when you received that letter, did you or did you not think you knew what Mr Harben meant by current market rent? A. Yes. Q. What did you think he meant by that? A. I thought he meant that current market rent to be worked out with other current market rents, about the same time. Whether it be current market rent on a landlord providing the building, or current market rent on the lessee providing the building, or current market rent on Crown land, to make allowance for the fact that a lessee had contributed to the cost of that property. So that's what I believed what current market rent was. 146 In further cross-examination on this topic Mrs Harrison gave the following evidence (tr 300-301): Q. In your affidavit you have said that when, on 8 August 2002, Mr Williams, in a conversation with you referred to market rental, you assumed that he was referring to market rental on land alone. That's in paragraph 23 of your affidavit? A. Yes. It could have meant less than ground rental, because the others were paying less than ground rental. So if it meant market rent on land alone, it could have meant more than say zero dollars, because the land is worth something, so if market rent was based on the land – it wouldn't be a considerable sum, but a sum that we were already paying market rent on land alone and that was at the time $50,000; and now it is around $68,000 and that's on land alone. It's not zero. Two of the others were paying zero. Q. My question to you is: you did not understand the phrase, when you used it in this letter, current market rent, as meaning a ground rent. Correct? A. Incorrect. Q. I thought what you had just told us that what you thought it meant was something different from ground rent. Am I wrong about that? A. But I also thought it could mean ground rent as well. It could mean ground rent, it could be minus ground rent, to take into account the fact that we had built everything on there. Q. I'm not asking what it could have meant. I thought we started today by you saying it was clear in your mind what it did mean to you? A. It meant - - Q. Was it, or was it not, clear in your mind what that meant, that is current market rent? A. Yes. Q. And what was it, or was it not, something different from a ground rent? A. I can't answer that with a yes or a no answer. I have to - - Q. Alright? A. - - explain how I thought. 147 Mr Parker then took Mrs Harrison to her handwritten letter dated 20 August 2002 in response to the Council's letter of 9 August 2002 and the following evidence was given (tr 301): Q. In that letter you agreed with the terms and conditions except the turnover component? A. Yes. Q. In particular you agreed with current market rent? A. Yes. Q. And I want to suggest to you that at that time you clearly understood that current market rent was to be a rental calculated by reference to the premises as reinstated? A. No. 148 Mrs Harrison gave evidence that she became very concerned after she read clause 5.12 of the draft lease that was forwarded to her on 19 September 2002. Her concern was that there would be "full market value" with no provision for recognition of Emibarb's contribution. She said that she was very worried and wanted a rental that was "definite", at least for the first year, so that she was able to prepare a business plan and be sure that the business could be viable. There were a number of factors worrying her, including the loss of goodwill because the premises had been closed for 18 months and would possibly be closed for another 18 months. There were other restaurants opening nearby and there was the difficulty of rebuilding a customer base in changed circumstances. These concerns were exacerbated when Mr Harrison informed Mrs Harrison in October 2002, that he had understood from conversations with Council Officers that there could be rental of something between $200,000 and $300,000. 149 On 24 September 2002 Emibarb received a letter from the Council in relation to the 20 year lease and the way in which the rent was to be determined. At a meeting with Mr Williams and her husband on 26 September 2002, Mrs Harrison claimed that she said to Mr Williams that Emibarb was happy to pay market rent on land alone because Emibarb was providing a new building. She also gave evidence in her affidavit that she said to Mr Williams that this was what Emibarb was paying under the existing lease and because Emibarb was also providing the building, it should be excluded from the rental determination. She also asked why Emibarb could not have a fixed rent to start to "know where we are going". Mrs Harrison claimed that at this meeting she referred to the figure of $75,000 as being a fair rental. Mr Williams gave evidence that Mrs Harrison "may well have said all of the things" she claimed she said at this meeting but that he did not recall Mrs Harrison referring to the figure of $75,000 at this meeting (tr 161). He said that his first recollection of the $75,000 being mentioned was in Mr Dobrow's letter of 6 February 2003. 150 I am satisfied that Mrs Harrison was concerned that Emibarb should only have to pay $75,000 in rental and that such concern was present in 2002. Mr Dobrow gave evidence that, when Mrs Harrison came to see him at his home in late October or early November 2002, she said to him that "the restaurant cannot afford to pay more than about $75,000 in annual rent. The business will simply not be viable and will go broke if it has to pay substantially more rent than this". That figure did not find its way into Mr Dobrow's letter until 6 February 2003. Mr Rusbourne was also instructed in writing on 23 February 2003 by Mrs Harrison that there "must be a commencement rental that is not to exceed $75,000 per annum". 151 Mr Parker submitted that not only was Mrs Harrison's claim that the words "current market rent" meant "land alone" totally implausible but also that the following evidence given by Mrs Harrison was "absurd" having regard to the terms of Mr Rusbourne's letter of 5 February 2003 (tr 324-325): Q. As you understood all Mr Rusbourne was asking for was detail as to how big the variation was, details which would specify in more precision what the variation in the size of the building was to be, not a discount, correct? A. Incorrect. Q. The letter does not ask for a discount, does it? A. It does. I instructed Mr Rusbourne. Q. Where does the letter ask for a further discount which is specified in Mr Dobrow's clause 13.3.2? A. It asks a further clause should be put in. Q. Where does it ask for a discount. A. That clause is asking for a discount and it says in addition. Q. Which clause? A. Mr Dobrow's. Q. Yes? A. Is asking for a discount. Q. You told us you understood Mr Dobrow's clause to be starting from current market value as reinstated and discounted from that. I thought your evidence a little while ago was that you had asked for some further discount in this letter, am I wrong? A. You are right. Q. Where in your letter did you ask for a further discount, that is further in addition to the one Mr Dobrow had already asked for? A. 1.23. Q. Which sentence? A. In addition the detail as to variation in the size of the building must be included. Q. You say that asks for a further discount? A. Yes. Q. How much? A. That was still one area that had to be discussed but first we had to establish we were not going to settle just for 30 per cent. Q. What do you mean, you had to settle but whether you were not just going settle for 30 percent? A. 30 percent was not enough discount for what we had put in. Q. But 30 per cent the clause 13.3.2 provided for wasn't it? A. Yes. Q. You told us you understood it that way at the time this letter was sent? A. Yes. Q. That is what the letter asked for isn't it? A. Yes. Q. And that was all the discount that this letter asked for, correct? A. No, incorrect. Q. So Mr Rusbourne has got it wrong – he has not clearly reflected your instructions you wanted further discount, is that right? A. He did ask for further discount. When you say "this letter", Mr Dobrow's or Mr Rusbourne's? Q. No, Mr Rusbourne's? A. Mr Rusbourne did ask for a further discount, as did Mr Dobrow. 152 I do not agree that Mrs Harrison's evidence was "totally implausible" and/or "absurd". One of the problems in this case is that the intervention of Mr Dobrow and the numerous copies of his letter of 15 January 2003 made clarity rather elusive. That lack of clarity was compounded by Mr Peedom's use of a Deed containing amendments to the printed form with the necessity for cross-referencing. Indeed Mr Peedom gave the following evidence (tr 41): Q. Didn't it become apparent to you during the course of the dialogue which ensued from early October 2002 until end February 2003 that your predilection in favour of endeavouring to adapt the Law Society's standard terms and conditions rather than to (sic) undertaking the task of drafting a tailor made lease from start to finish was the source of much confusion and misunderstanding which obtained throughout that period? A. It could have been. 153 Mr Parker submitted that Mrs Harrison's claim that Mr Dobrow had suggested ground rent should reflect poorly upon her credit. It is true that during her cross-examination Mrs Harrison claimed that Mr Dobrow had referred to ground rent. The letters that Mr Dobrow wrote, dated 29 November 2002 and 15 January 2003 do not in terms make reference to ground rent. However Mr Dobrow gave evidence that when Mr and Mrs Harrison came to see him in late October/November 2002 he did refer to a concept similar to ground rent. One of the options he referred to was a "simple way" to look at "land value alone" or a "ground lease" basis. I accept that was a matter discussed with Mrs Harrison in late 2002. 154 In her affidavit evidence Mrs Harrison claimed that she did not mind what method was used so long as Emibarb was not going to be paying more than $75,000. In November 2002 she understood that Mr Dobrow had put a proposal that the valuer would determine the value of the premises as they were at the time of the valuation with two deductions, one to reflect Emibarb's investment and the second to recognise that Emibarb was providing Council with a bigger building. 155 Mrs Harrison said that when she read the letter of 21 February 2003 from Mr Peedom she understood that the rental was going to be a ground rental. She said that after she read the lease she had a conversation with Mr Harrison in which she worked out that if the land value was $1 million and if 10% of that was $100,000, reduced by 30%, the rental in the first year would be around $70,000. She said that she wanted to get advice to make sure that it would work out at that level. She also said that she wanted to make it very clear that Emibarb could only pay $75,000. Notwithstanding this evidence, the letter of instruction sent to Mr Rusbourne in response to Mr Peedom's letter did no more than state that clause 2.14 was "noted". The letter did not seek advice in relation to the level of the rental nor did it refer to the calculation of a 30% reduction to 10% of $1 million. 156 Mrs Harrison's evidence was that at the meeting with Mr Rusbourne on 25 February 2003 she wanted Mr Rusbourne to press for a 35% deduction. In response to this, Mrs Harrison said that Mr Rusbourne had advised her that the Council had made some compromises and that Emibarb had to make some too. Her evidence was that Mr Rusbourne said that it looked like "they have given you what you wanted and they have traded that off by reducing the amount of the discount you get in the rent reviews". Mrs Harrison said that Mr Rusbourne advised her that he did not think that the Council was going to move on that. 157 Mr Parker submitted that one of the matters that reflects poorly on Mrs Harrison's credit generally was "her acceptance that a discounted ground rent was never a possibility prior to receipt of Mr Peedom's letter of 21 February 2003 (tr 321.5-33) before seeking refuge in a lack of recollection when pressed (tr 321.35-55)". The evidence relied upon in that submission is extracted earlier but repeated here for ease of reference: Q. Now I am putting to you something different, a discounted ground rent, you understand that, do you not? A. Yes. Q. What I am asking you is when that was put on the table as part of the negotiation possibilities, if it ever was? A. Previous to the 21st? Q. Yes? A. No. Q. You never expected to get a ground rent in any event in your negotiations with the council from January 2001 right up to immediately before 21 February 2003, to get a ground rent that was then discounted by a percentage, did you? A. I didn't, I don't know what I would have got, no. Q. No one on your side or the council's side, or Mr Dobrow, had ever suggested any such arrangement during that period of time, had they? A. It was always talked about, a percentage being taken off to reflect our contribution so what it alluded to whether it was ground rent-- Q. Discounted ground rent was never discussed or suggested by anyone from January 2001 right up until 21 February 2003, correct? A. Yes. I can't recall that. Q. It was never discussed, was it? A. I can't say that it wasn't, but I can say I can't recall if it was or not. 158 That evidence was given after Mr Parker had asked Mrs Harrison what it was that she wanted in respect of the rental determination under the Lease, and it seems to me only fair to Mrs Harrison to consider that evidence which was given immediately prior to the passage which was utilised to attack Mrs Harrison's credit generally. That evidence is as follows (tr 320-21): Q. And you wanted ground rent? A. Yes. Q. And you didn't want anything else? A. No, that is incorrect. I just wanted a formula that would translate into me knowing what the rent was going to be and the rent to be a reasonable rent that Emibarb could afford. Q. What you didn't want was rental calculated by reference to the reinstated building and then discounted by a percentage? A. That was one of the options. I can't say I didn't want that. As long as what we were going to be compensated for reflected that. Q. Did you want a ground rent, that is started at ground rent and discounted to a percentage? A. Yes. Q. Was that on option on the table as you understood it on 21 February 2003? A. I don't know whether that was an option then. It was put in that letter of 21 February. Q. I am asking you about the letter prior to that letter being sent. Was it one of the negotiation matters? One of the matters in negotiation between you and the council at that stage as you saw it that it would be a discounted ground rent? That is, a ground rent determined by a valuer which would then be discounted by a percentage? A. A percentage to reflect our capital contribution. If it was that on the ground rent or the building it did not matter. 159 I am not satisfied the evidence relied upon in respect of the discounted ground rent is demonstrative of a witness "seeking refuge", as Mr Parker put it, in a lack of recollection. The cross-examination was sophisticated and wide-ranging and on a number of occasions Mrs Harrison claimed that what she was trying to achieve was certainty of rental in the first year so that she could prepare a business plan and obtain funding in the knowledge that Emibarb would be able to operate a viable business in the light of the rental it had to pay. That, of course, was never achieved. When Emibarb was given the ultimatum in Mr Peedom's letter of 21 February 2003, it had to agree to the terms proffered in that letter by 28 February 2003. 160 There was also an attack made on Mrs Harrison's evidence in relation to Mr Dobrow's status. Reliance was placed on two letters in which Mrs Harrison had referred to Mr Dobrow's role. The first letter was to Mr Quinton, an insurance broker, on 3 December 2002 in which Mrs Harrison wrote that she had "employed an expert valuer, Mr Dobrow, to negotiate on behalf of Emibarb". The second statement was made in a letter to Mr Rusbourne of 17 January 2003 in which Mrs Harrison wrote that in an endeavour to reach "an amicable settlement with Council we retained a consultant Mr Dobrow who was a Sydney valuer and who negotiated with council and spoke with Mr Oxley". 161 Mrs Harrison was cross-examined in relation to this aspect of the matter and gave the following evidence (tr 303): Q. I want to suggest that in early December your view was that you had employed Mr Dobrow to negotiate on behalf of Emibarb; is that right? A. No, that's wrong. 162 Mrs Harrison was then shown the letter to Mr Quinton, referred to above, and gave the following evidence: Q. You there say "I employed an expert valuer, Mr Dobrow, to negotiate on behalf of Emibarb"? A. Yes. Q. Why did you tell Mr Quinton that, if that wasn't true? A. I had hoped to employ him, that's how I introduced myself to Mr Dobrow and asked if he would consider acting for us in negotiations with the Council. And I must have had in my mind when I wrote this letter, but Mr – sorry -- Q. Mr Dobrow, did he take up that invitation? A. No, he made it clear to me at the first meeting that he wouldn't act for me in that capacity. 163 Mrs Harrison was cross-examined further in relation to the letter to Mr Quinton and agreed that it was written after her meetings with Mr Dobrow, but prior to his letter of 29 November 2002. She was then cross-examined further (tr 304): Q. So if your account - so the explanation can't be that Mr Dobrow had still not told you that he would not act for you, and would only adopt a neutral role, because according to you that conversation took place the very first time you met him - paragraph 51 of your affidavit? A. That's correct, he did tell me that, but inadvertently I referred to him in the capacity of having employed him when I relayed it to Mr Quinton, because I was hoping that he would, but he wouldn't. But I still had it in my head. Q. When you wrote to Mr Quinton it was only a few days after you had first met Mr Dobrow; correct? A. Yes. Q. The first conversation that you had with Mr Dobrow would have been clear in your mind at that time? A. Yes. So I'm saying that I wrote this inadvertently. I made a mistake in referring to him as if I had employed him. 164 Mrs Harrison was then taken to the letter to Mr Rusbourne, referred to above, and was cross-examined as follows (tr 305): Q. You were intending to convey to Mr Rusbourne that Mr Dobrow had negotiated with council as a result of a retainer from Emibarb? A. Well, I'm sorry, that is incorrect. Q. That's incorrect too, is it? A. Yes. Q. How did you come to make that mistake? A. Because we did start off wanting to retain him. Q. How did you come to make that mistake when you wrote the letter to Mr Rusbourne? A. I don't know. Q. If it was so clear to you that Mr Dobrow was acting independently and wasn't retained by either side, how could you have written in your letter to Mr Rusbourne that he was retained by your side? A. It must have been an easier way to represent Mr Dobrow. How else - well, we could have been more specific, but I think we just inadvertently referred to him like that. I didn't think Mr Rusbourne had to know if he was acting for one side or the other, or whether he was acting for both. I think that was probably the reason. 165 Mr Dobrow's status was the subject of some dispute. Mr Williams refused in cross-examination to accept that Mr Dobrow was acting independently of Emibarb (tr 127). He said that he did not believe Mr Dobrow when he said that he was not retained by Emibarb and was willing to help the parties. He said that people did not work for nothing and that Mr Dobrow was not present on any account of the Council. In those circumstances he expressed the view that "he was working for nothing or he was working for Emibarb, but he wasn't working for Council" (tr 127). Mr Peedom on the other hand accepted that, at the meeting on 23 January 2003, Mr Dobrow made it plain that he was not retained by Emibarb but was acting pursuant to his offer to mediate between the parties (tr 38). 166 It does seem that Mr Dobrow, at least, believed that he was not retained by either of the parties, notwithstanding Mrs Harrison's representations in her letters to Mr Quinton and to Mr Rusbourne. The fact that Mrs Harrison described Mr Dobrow as having been "employed" by Emibarb was, it seems to me, a statement of her belief at the time she wrote the letter, notwithstanding that Mr Dobrow had said that he wished to be independent of each of the parties in an attempt to assist them. The statement made in the letter to Mr Rusbourne in January 2003 was a statement referring to what had happened previously in trying to reach a settlement with the Council. It appears that at that time Mrs Harrison believed that Mr Dobrow was involved in the process as a result of Emibarb having retained him. I am of the view that the evidence that Mrs Harrison gave, that it was "wrong" to suggest in early December 2002 her view was that she had employed Mr Dobrow, is inconsistent with her letter to Mr Quinton. That letter exposes her belief at the time and it seems to me that her evidence, claiming that she did not have that belief, cannot be accepted. 167 Mrs Harrison's claim in her evidence that her description of Mr Dobrow's status in her letter to Mr Quinton was a "mistake" is in my view unable to be accepted. It does not seem to me to have been a "mistake" of her understanding of Mr Dobrow's role at the time. It may have been a mistaken belief having regard to Mr Dobrow's claim that he was not retained, but that is not what Mrs Harrison was suggesting. I will take this matter into account although I do not regard it as being of great significance. 168 It was also submitted that Mrs Harrison's credit is adversely affected by her claims that Mr Haralambides was present at the meeting with Mr Rusbourne on 25 February 2003. As appears from the evidence referred to later, it is very difficult to believe that Mr Haralambides arrived 15 minutes after the meeting commenced as claimed by Mrs Harrison. Mr Rusbourne's evidence was that he could not recall Mr Haralambides being present at the meeting. Mr Grieve submitted that Mr Rusbourne's recollection was reliant upon his file note in which he noted only Mr and Mrs Harrison being present. It was submitted that such notation was probably made at the commencement of the meeting and that he may not have amended that part of the note at the time that Mr Haralambides arrived. The mobile phone records to which reference is made below establish that at least during the period in question Mr Haralambides was on the move and not stationary at his office in Marrickville. It is apparent from those records, as cross-examined upon, that he made a call in the mobile network zone of Marrickville at 3.10 pm and another call in the mobile network zone of Tempe at 3.28 pm. 169 It is possible that Mr Haralambides made his way to Kirrawee, where Mr Rusbourne's office is, after he made the call from Tempe, but I am not satisfied that he was present 15 minutes after the meeting commenced as Mrs Harrison claimed. Mr Haralambides was quite firm in his recollection of having been present at two meetings with Mr Rusbourne although Mr Rusbourne gave evidence that he could only "recall" the one meeting at which Mr Haralambides was present. On balance, I accept that Mr Haralambides was present at the meeting on 25 February 2003, but not until about 4pm. According to Mr Rusbourne's note the meeting took place between 2.30 pm and 4.25 pm. Although the meeting took approximately two hours the notes Mr Rusbourne made run to just over one page. 170 I am not satisfied that Mrs Harrison's recollection of Mr Haralambides arriving at the meeting earlier than he did means that I should disbelieve her evidence that she understood the Council had put a proposal which excluded the landlord's fixtures and fittings from the valuation method. However there were parts of Mrs Harrison's evidence that were less than persuasive, for instance, her explanation about Mr Dobrow's status. However that lack of persuasiveness does not tip the balance in favour of rejecting Mrs Harrison's evidence on other matters. I believe that some of her evidence was reconstructed having regard to later events. In this regard I do not accept that at the time she wrote the letter of 20 August 2002, her mind was focused on whether the building would be included in the valuation method. I believe her main aim was to obtain a definite figure for the rental in the first year so that she could prepare a business plan. I am comfortably satisfied that she was advocating not only to Mr Dobrow, but also to Mr Williams and Mr Rusbourne, that Emibarb could only afford to pay $75,000. I accept her evidence that she did not mind what method was used in reaching that figure, that is, whether it was discounted current market rent including a valuation method that took into account the new building or a land only or ground rent, or a discounted ground rent, so long as the figure in the first year was no greater than $75,000. 171 In those circumstances the letter of instruction dated 23 February 2003 that simply "noted" the change is explicable. Even with that change, that is excluding the building from the valuation method, Mrs Harrison was not in a position to be certain about the rental that would be charged in the first year of the new lease. It is also understandable that with this lack of certainty Mrs Harrison was pressing for a further discount to 35%, against the advice of Mr Rusbourne. A most important factor in deciding whether Mrs Harrison understood that there was a change in the valuation method in Mr Peedom's letter of 21 February 2003 is Mr Rusbourne's evidence which is dealt with below. Although it is far from straightforward, I am satisfied on the balance of probabilities, that at the time the Lease documents were executed Mrs Harrison believed that the landlord's fixtures and fittings were to be excluded from the valuation method. Put another way, I am not satisfied that the plaintiffs have established by convincing proof that at the time the Lease documents were executed Mrs Harrison believed that they reflected a valuation method excluding tenant's fixtures and fittings but including landlord's fixtures and fittings. George Harrison 172 The plaintiffs claim that Mr Harrison made admissions in his evidence that support the Council's case and flatly contradict Emibarb's case. It is necessary to analyse the evidence that was given by Mr Harrison in this regard. Mr Harrison was cross-examined on his knowledge and appreciation of the contents of Mr Rusbourne's letter of 5 February 2003 to the Council. He gave the following evidence in cross-examination (tr 205-206): Q. … This is a letter from Mr Rusbourne to the council commenting on the, then, draft of the agreement for lease and putting forward proposals for inclusion in that lease? A. Yes. Q. You saw a copy of this letter when it was sent? A. I did. Q. Did you, in fact, see a draft of this letter before it was sent? A. I did. Q. It was a very important letter in your mind, was it not? A. It was. Q. You saw this letter as an offer which was capable of acceptance by the council? A. That's correct. Q. So that if the council were to write back and say, "Yes, we agree to all of this", as you saw it, Emibarb would be bound to an agreement for lease in those terms, is that correct? A. That's correct. Q. It was for that reason you considered it carefully? A. Yes. Q. You ensured, before it was sent, that there was nothing in it which did not reflect Emibarb's position, is that right? A. That's right. Q. Please go to page 2297 and ignore the handwritten annotation. Paragraph 2.14 states:- "Clause 5.12 must be amended to indicate to the landlord tenant fixtures and fittings and as requested by Mr Dobrow, the valuer, should make no deduction for additional improvements carried out by the tenant to the original building nor from the rebuilding after the damage and destruction of the premises in 2001." A. Yes. Q. You were happy with that? A. Yes. Q. As you understood it, that provides for a valuation to be carried out on the basis of a reinstatement of the premises at reinstated current market value? A. Correct. Q. You were quite content for that to be put forward on Emibarb's behalf, weren't you? A. Yes. 173 At that stage of the evidence it was clear that Mr Harrison had admitted that he understood that Emibarb was putting to the Council that the valuation method for determining the rent was to be carried out on the basis of a valuation of the premises at reinstated current market value. But that is not how the evidence was left. Further cross-examination occurred and Mr Harrison gave the following evidence (tr 206): Q. Because your belief was, that it represented the agreement between the parties at that stage with respect to that matter, isn't that right? A. That is not correct. Q. Whether you thought it reflected something that the parties had at that stage agreed, you would have been perfectly happy for the council to come back and say, yes, to that, would you not? A. Yes. We moved on from 17 January, we are now in February. We moved on from that. Q. And would you accept that, by the time this letter was sent to you, Emibarb were happy for the rental to be calculated, first, by taking a figure which represented the valuation on a current market basis as reinstated and then by applying some discount factor to it? A. Yes. Q. And that situation did not change, so far as you were concerned, between then and March 2003, did it? A. In March 2003 there were a number of offers and rejections of those offers. There were several offers and rejections of offers between now and March. Q. Please listen to the question. You have agreed with me that you were happy at the date this letter was sent for the rent to be calculated by the method that I have put to you, correct? A. Correct. Q. What I am suggesting to you is, that you remained happy for the rent to be calculated by that method throughout the period, from the time this letter was sent up until March 2003? A. Yes. Q. The only debate that affected the rent was how big the discount was going to be? A. That's right, that was the heart of it. Q. That was the issue in contention, wasn't it? A. That was the heart of it. Q. Not how the valuation was to be done, isn't that right? A. Yes. We accepted, for simplicity, that it was easier for the valuer to look at the building, to value it, subject to those deductions. Q. And that was a matter, as far as you were concerned, that had been discussed and agreed, the only issue to be debated was how big the discount was to be, isn't that right? A. That's correct. 174 That evidence was given at the end of the day and immediately after it the Court adjourned. It was clear on this evidence, at that stage, that Mr Harrison agreed that the only issue in relation to the determination of the rental was the size of the discount after the valuation of the building as reinstated. On the following day, when Mr Harrison's cross-examination continued, Mr Parker asked Mr Harrison about the meeting with Mr Rusbourne on 25 February 2003 after Mr Peedom's letter of 21 February 2003 had been received. Mr Harrison agreed that Mr Peedom's letter put forward a stepped rent reduction with which Mrs Harrison was not happy. He agreed that Mrs Harrison instructed Mr Rusbourne to specifically inform the Council that they were getting a building that was 35% larger than they otherwise would have had at the end of the Lease, and that he should insist that Emibarb be compensated for that by a 35% reduction in the rent (tr 217). He then gave the following evidence (tr 217-218): Q. Now at the time she said that your understanding was that the figure which was to be reduced, that is which was to have the 35 percent or whatever applied to it, was the current market value of the land as improved, that is as reinstated and rebuilt by Emibarb, wasn't it? A. That's correct, yes. 175 At this stage, the evidence established that even at the meeting on 25 February 2003, when Mrs Harrison gave instructions to Mr Rusbourne to request a 35% deduction, the valuation method to be utilised as understood by Mr Harrison was a valuation of the building as reinstated with a percentage discount to be agreed. However Mr Harrison was cross-examined further and gave the following evidence (tr 218-220): Q. It was not your understanding at that time that the amount which was to be reduced was a ground rent? A. But we were aware of that. Q. Isn't that just inconsistent with what you have said? A. Inconsistent with what? … Q. You thought that the rent was going to be calculated by reference to current market value of the premises as reinstated and then reduced by a percentage, correct? A. No, no. We didn't think that. HER HONOUR: Q. You just told me that a moment ago. You said that the current market value of the land as improved was what the valuer would value and apply the discounts, now is that right or not? OBJECTION. HER HONOUR: Q. Do you remember that evidence that you just gave? A. I did-- Q. Mr Grieve will fix up anything that he wants to tidy up later. You don't have to argue your case, Mr Grieve is there to do it. A. Thank you, your Honour. PARKER: Q. That was not a ground rent, was it? A. I'm sorry, but when the question was given to me I misunderstood the question. Sorry about that. Q. What do you now say you thought the question asked you? A. Well, I think you asked me the question that was to be a 35 percent deduction from the improved land, the improvements built on the land and I answered that incorrectly. I'm sorry. Q. It was not your understanding on 25 February 2003 that the rent under this lease was to be a discounted ground rent, was it? A. It was and it was our understanding that it was a ground rent and we requested 35 percent off. Q. If it was to be a ground rent, on your understanding whatever was built would be irrelevant, correct? A. That is correct, yes. Q. And the conversation that you have recounted that you say took place in which Vania said that she wanted a 35 percent reduction because the building was 35 percent bigger than the council might have expected was totally nonsensical if you accept that what you understood was that there was to be a ground rent, wasn't it? A. No, that's not correct. Q. Well, it made no sense to reduce a ground rent by reference to a building when the existence of the building or otherwise was irrelevant to the ground rent as you have just agreed with me, would it? A. Well, the council was getting a 35 percent bigger building. Q. Would that make any sense? A. It does make sense. 176 It was submitted that evidence such as this coming from an adult witness would be quite implausible but coming from a former solicitor with 27 years experience is quite absurd. Mr Parker submitted that the earlier evidence of Mr Harrison should be accepted as the truth, that is, both at the time that he read the 21 February 2003 letter and at the time he was at the meeting with Mr Rusbourne on 25 February 2003 he understood that the valuation method was to be on the basis of the reinstated building with a deduction. What flows from that evidence, if accepted, is that Mr Harrison did not notice the mistake in the letter which removed the landlord's fixtures and fittings from the valuation method. 177 The factual complexity of having to prove that Mr and Mrs Harrison did not notice the change in Mr Peedom's letter is compounded by some evidence given by Mr Dobrow. That evidence was not in Mr Dobrow's affidavit and it was given orally by leave in examination-in-chief. It related to a conversation that he claimed to have had with Mr Harrison on 25 February 2003. Mr Harrison gave evidence in his affidavit sworn on 16 February 2006 as follows: 132. I recall Mr Dobrow telephoned me several days after the meeting at Watkins Tapsell on 25 February 2003. I do not now recall the precise date of that telephone call. Mr Dobrow said to me "Mr Rusbourne sent me a copy of Council's letter to Emibarb dated 21 February 2003. Kel [Mr Dobrow's wife] sent it on to me at Pukapunyal. I see they adopted one of the valuation mechanisms I suggested. Ground rent is probably the easiest way to go about it. They have been a bit harsh in reducing a way the percentage deduction, but it seems to me to have been a good commercial result for you". I said "Vania is still not that happy, but I think Emibarb would have lost the Lease if we had not agreed. Vania signed off on it before Council's time expired". 178 Mr Harrison was cross-examined about the date on which this conversation took place with focus upon the last sentence in the paragraph. Logically that sentence suggests that this conversation must have taken place on or after 28 February 2003 because that was the date of expiry of the Council's time limit and that was the date upon which Mrs Harrison gave instructions to Mr Rusbourne to accept the offer in Mr Peedom's letter of 21 February 2003. Mr Harrison's evidence in relation to this was far from satisfactory. It was as follows (tr 548-550): Q. Would you read that to yourself, please, and then would you agree with me that that conversation took place after 28 February, 2003? A. This telephone conversation took place within a day or two after the meeting we had with Harry, Vania and Mr Rusbourne, which I think my affidavit has the wrong date. It's the 25th February. Q. That's been changed. I want to suggest to you it didn't take place until after 28 February 2003? A. My recollection is that it took place between a day or two of the meeting we had with Mr Rusbourne, Vania and Harry. Q. Are you sure, or not sure? A. When I prepared my affidavit, I recalled that a telephone call was made by Mr Dobrow, and I placed it within a day or two, because I recall that it was after we had our meeting with Mr Rusbourne. Q. Are you sure? A. I am certain-- Q. That it occurred before 28 February 2003? A. --I'm certain that it happened within a day or two of the meeting we had with Mr Rusbourne, and Harry and Vania. Q. Are you able to just answer my question, please? A. Can you ask me the question again? Q. Did it, or did it not, happen before 28 February 2003? A. Sorry, that's what I'm saying. It happened before. I'm sorry, your Honour. Q. Have a look at the last statement you have recorded yourself as making? A. I beg your pardon? Q. Have a look at the last statement that you recorded yourself as making: "Vania is still not that happy, but I think Emibarb would have lost the lease if we had not agreed. Vania has signed off on it before council's time expired". That was a reference to the last minute that is on the 28 February acceptance by Emibarb of council's terms? A. When we-- HER HONOUR: Just focus, Mr Harrison. Look at the last sentence. Mr Parker is suggesting to you, because that signing off occurred on the 28th when Watkins Tapsell notified the council of it, Mr Parker is suggesting to you that the conversation must have occurred either on the 28th or, after the 28th. What do you say to that? A. The conversation, to the best of my recollection, happened within a day or two after-- HER HONOUR: Listen to the question. On the 28th or after the 28th? A. Prior to the 28th. PARKER: Q. I want to suggest to you it can't possibly have occurred then, because you were referring, in the conversation as you recounted it, what you did on the 28th which was actually to accept council's terms? A. Well, can I give you an explanation for that? The reason was that when we left the meeting of 25 February, with Harry and Vania and myself, we were fairly convinced in our own minds that council would have told us to get lost with the counter offer that was put to them. And perhaps, in my mind, that's what I was referring to here. Q. Council's time expired on 28th February, didn't it? A. Yes, it did expire on 28 February. Q. On the 26th Emibarb instructed Mr Rusbourne to go back with a counter offer; correct? A. That's correct. Q. It was not until the 28th, shortly before the time expired, that Emibarb accepted council's terms; correct? A. Correct. Q. And that's what you were referring to, in the last sentence of the conversation which you have recounted, isn't it? A. That's correct, yes. Q. Therefore, the conversation must have taken place after then, namely after 28 February 2003? A. That's incorrect. HER HONOUR: I suppose it could have occurred on the date? PARKER: Yes, it could have. Q. That conversation must have taken place after Vania gave the final instructions to Mr Rusbourne to accept the council's proposal, correct? A. Look, I don't quite agree with you, because I recall having a number of conversations with Mr Dobrow after the 25th February, and in my mind, perhaps, the several conversations that I have had would all have merged into this statement. But I definitely recall that shortly after the meeting of 25 February, that Vania and Harry attended and myself, I had a telephone call from Mr Dobrow to the effect that-- HER HONOUR: Just a minute, please. Look, the question that has been put to you - have a look at the last sentence - it must have been, must it not, after Vania gave instructions to Mr Rusbourne to accept the council's terms that you had this conversation? A. Yes, your Honour. Q. And Mrs Harrison gave those instructions on the 28th? A. Yes. Q. So does it follow, that this conversation must have happened either on the 28th, or after it? A. It could have, your Honour. PARKER: Q. Must have. Right? A. It must have happened, yes. Q. It follows that you were wrong in your earlier evidence in which you maintain this conversation took place before 28 February? A. I still stand by the evidence I gave that I spoke to Mr Dobrow. HER HONOUR: Focus on the question for me, Mr Harrison, please. PARKER: Q. It follows that you are wrong in your evidence that you gave earlier to the effect that this conversation had taken place before 28 February 2003. True? A. No. 179 If the statement in the last sentence of paragraph 132 of Mr Harrison's affidavit had not been made then it would have been open to Mr Harrison to claim that the conversation with Mr Dobrow had occurred prior to 28 February 2003. However, while he maintained that the statement in the last sentence was made, his claim that the conversation took place at a time prior to 28 February 2003 must be rejected. Mr Parker submitted that even if I accept that the conversation between Mr Harrison and Mr Dobrow occurred it "goes nowhere". It was submitted that this is because there is no evidence that Mr Harrison advised anyone of the content of that conversation and Mr Harrison is not a director of Emibarb albeit that he is a shareholder. I agree with that but it does have some significance because there was an attack on Mr Harrison's credit and that of Mr Rusbourne in respect of events in June 2003 after the copy of the Council's letter to the Crown Lands Department was provided to Mr and Mrs Harrison. If I accept that Mr Harrison informed Mr Dobrow in the conversation in February 2003 that he had read the clause a couple of times and understood it was a ground rent it will affect how I view his evidence of the events of June 2003. 180 There is little in this case that is straightforward. I have dealt below with Mr Dobrow's evidence in relation to the conversation he claimed to have had with Mr Harrison in February 2003. I accept that Mr Dobrow did have a conversation in terms the substance of which he gave in his evidence in chief. It follows that Mr Harrison was aware in February 2003 that the landlord's fixtures and fittings were to be ignored in the valuation method. The letter from the Council to the Crown Lands Department in June 2003 was a little ambiguous in that it said that the rental "was to be calculated for the whole building in accordance with the provisions of the draft Lease". The letter also indicated that it was not possible to "determine the market rent" as at 2006 but that the Council anticipated that the rental may be in the order of $200,000. That does not mean that the valuation method took certain things into account and not others. On that aspect of the matter, the letter was silent. The letter that was drafted by Mr Harrison for Mrs Harrison to sign, that was not sent as a result of a conversation with Mr Williams, did not deal with the method of valuation either. However it suggested that the "market rent" would be determined "in accordance with the Agreement for Lease and Lease". The use of the expression "market rent" does not mean that the author of the letter understood that the landlord's fixtures and fittings were to be included in the valuation method. I am not satisfied that these letters reflect adversely upon Mrs Harrison's evidence, nor am I satisfied that they suggest that Mr Harrison did not notice the change in Mr Peedom's letter of 21 February 2003. 181 It is true that Mr Harrison's evidence in relation to the date upon which he had the conversation with Mr Dobrow was far from satisfactory. I am satisfied that he was attempting to stonewall the cross-examiner and that performance does reflect badly on Mr Harrison's credit. However having regard to Mr Dobrow's evidence, which I have accepted, this poor performance does not have a great impact on the outcome of this litigation. 182 I am satisfied that the plaintiff has not demonstrated by convincing proof that Mr Harrison (as far as his state of mind might be relevant) believed at the time Emibarb executed the Lease documents that they contained a provision for taking into account the landlord's fixtures and fittings and excluding the tenant's fixtures and fittings in the valuation method. Harry Haralambides' evidence 183 Mr Haralambides gave evidence that Mr Rusbourne advised him on 19 March 2003 that the final rental clause was based on the building being excluded and that Emibarb had agreed to the reduction of the rental. I accept that Mr Haralambides was present, at least for a short while, at the meeting with Mr Rusbourne on 25 February 2003. I am simply unsure what to make of Mr Haralambides' evidence in respect of his understanding of what was in the Lease. As I have said earlier, his affidavit evidence was vague as to how he came to an understanding of what was in Mr Peedom's letter or the Lease. In those circumstances it follows that the plaintiff has not discharged its onus to establish by convincing proof that Mr Haralambides, as a director of Emibarb and guarantor to the Lease, had an understanding at the time the Lease documents were executed that the valuation method for the rental excluded the tenant's fixtures and fittings and included the landlord's fixtures and fittings. Mr Dobrow's evidence 184 The conversation that Mr Dobrow said that he had with Mr Harrison was fixed at 25 February 2003 by reason of some phone records of his mobile phone that he had access to after he swore his affidavit. He gave evidence that after he looked at the phone records they jogged his memory in relation to the conversation on 25 February 2003. His evidence in relation to the content of that conversation was as follows (tr 426-427): Q. Now, can you tell us to the best of your recollection what was said in that conversation using, if you will, direct speech. I said words to the effect, he said words to the effect etcetera? A. "I have had a look at the"-- Q. Who is speaking, you or him? A. I'm speaking to George Harrison. "I have had a look at the letter dated 21 February 2003, from Peedoms, outlining the changes to the proposed lease, and I have made some notations and in particular in relation to 2.14, you need to ensure that where they have the words 'for the removal of doubt the value', my view is it should be the rental value to make it clear. And at 5.12.7, they exclude the lessor's fixtures and fitting, including the structures of the building which has a typographical error there that needs fixing, but in the earlier clause it excludes the tenant's fixtures and fittings. Now that has relevance in relation to"-- Q. Is this you talking? A. This is talking to George, going through this document. "In relation to 2.19 they have included a reduction of the discount over a period of time that in essence what this offer to you proposes is a ground lease with a further reduction from that ground lease at the percentages shown at 2.19". Q. Did you say anything else? A. I did. I said "this document appears to be getting pretty close to council's final offer to you. If you read the last paragraph, there is a veiled threat there that council could resolve to withdraw its offer, and that you need to consider whether the amount of money you are going to spend on, not only restituting the building, but throwing additional money in would allow you to amortise the 2 million odd dollars that you are going to put into this property and amortise I mean by providing a remunerated rate or investment rate for your 2 million dollars, as well as replace that 2 million dollars, because at the end of that 20 years time, no one is going to give you a cheque for 2 million dollars, that would have already gone into the building and you need to recover that on an accumulated basis". Q. Now, did he respond? A. He said that he had looked at that clause and was aware of that proposal. Q. How did he put it. You have gone into third person. Did he say it in first person terms? A. "Well, I read that, and I read it twice, and it really seems to be a ground lease with the deduction being reduced over time". I said "that's correct. It is a ground lease. That's what they are offering you and then you have a 2.19, the reduction of 30 per cent, as I have suggested to the parties, they have reduced that to 25 per cent for years 11 to 15, and then down to 20 per cent from years 16 to 20". Q. Was anything else said? A. In essence, that would have been the essence of that conversation. 185 Mr Dobrow's explanation for the absence of this conversation from his affidavit was that he had "quite a lot on his plate" and that he did not recall the conversation at the time of preparing his affidavit (tr 433). Mr Parker cross-examined Mr Dobrow in relation to the portion of his evidence in which he claimed that the Council was offering a reduction of 30% as he had "suggested". Mr Parker suggested to Mr Dobrow that he had not suggested to the parties that there be a discounted ground rent. Mr Dobrow gave evidence that when he made the statement that he had "suggested" something to the parties he was probably referring to his letter of 15 January 2003, clause 13.3.2 (tr 466). That part of Mr Dobrow's letter referred to a reduction of 30% to compensate the lessee for additional building area. The clause did not however suggest a ground rent. 186 It was submitted that Mr Dobrow's evidence of his conversation with Mr Harrison should not be accepted for a number of reasons. The first is that the evidence was not contained in his affidavit and that his explanation for failing to include it was "feeble" especially from a self-described experienced witness (tr 432, 433 and 438). The suggested "feeble" explanation for not including it in his affidavit was that referred to above, that he had a lot of work on his plate. To be fair to Mr Dobrow it is appropriate to set out the following evidence in relation to his explanation (tr 433): Q. That being so, would you care to tell us why you did not recount the conversation which you have recounted to us this afternoon in your affidavit? A. Yes. During the time frame for preparation of the affidavit I had quite a lot of work on my plate. When I had met with Clayton Utz their specific instructions was (sic) that I was not to read my file and bring myself to become acquainted with my file. I met with Clayton Utz and provided access to my files to them. Soon after that meeting with Clayton Utz I met with Watkins Tapsell. They assisted in the preparation of the affidavit. The same offer was provided to Clayton Utz in the preparation of a statement of which they declined. Q. Would you mind answering my question? A. What was that? Q. Can you explain why you didn't include it in your affidavit? A. I didn't at the time recall preparing my affidavit. Q. You didn't ten weeks ago but you recall it now? A. That's correct. 187 When Mr Dobrow swore his affidavit he referred to Mr Peedom's letter of 21 February 2003 that was the subject of the alleged conversation with Mr Harrison on 25 February 2003. The affidavit provided as follows: 45. On or about 25 February 2003, I recall receiving a facsimile while I was at Puckapunyal. My wife Kelly Dobrow sent it to me. That facsimile was a copy of a letter from Peedoms, Solicitors, to Watkins Tapsell, Solicitors dated 21 February 2003. I also recall receiving a copy of this document through the post while I was at Puckapunyal. A copy of the facsimile I received is at Exhibit "WD 1", pages 276-283. I read that letter shortly after I first received it. I noted from page 5 of the letter that Mr Peedom expressly drew Emibarb's attention to the fact that the Council was insisting upon a new sub-clause 5.2 to replace the proposal by Emibarb in their letter dated 19 February 2003. I made a notation being the word "no" at the bottom of that page. My notation of the word "no" refers to the word "value", which I enclosed in a circle. I made this notation of the word "no" in relation to the word "value" because I thought that the correct wording was "rental value". I refer to page 6 of that letter. I made a notation being a "?" next to paragraph 5.12.7. That referred to the duplication of the words "including all the structure of the building" in that paragraph. That appeared to be an error in drafting. I read paragraph 2.14 of Mr Peedom's letter, which provided that a new sub-clause 16.6 was to be included in the new lease to the effect provided in Mr Peedom's letter. 188 It is clear that at the time Mr Dobrow swore his affidavit in February this year, his attention was directed to the actual letter and his notations upon it. The fact that he did not recount the conversation with Mr Harrison in his affidavit is of significance. However, I am of the view that Mr Dobrow's explanation of not recalling the conversation at the time should be accepted. It is clear that when he had access to his phone records and noticed the entry on 25 February 2003 that his memory was prompted. The fact that Mr Dobrow is a "self-described experienced witness" as Mr Parker put it, is neither here nor there when one considers the way in which his attention was obviously focused on what he understood of the letter and what his notations on the letter meant. 189 The second basis upon which it was submitted that Mr Dobrow's evidence should be rejected was that as a person professing to be acting even-handedly for both the Council and Emibarb, his attempt to explain why he had not drawn the change to Council's attention was "totally unconvincing". The evidence relied upon in support of this submission is as follows (tr 457-458): Q. You say that when you saw Mr Peedom's letter of 21 February 2003 you appreciated immediately that it provided for a discounted ground rent, do you? A. That's correct. Q. And you told us on Thursday that you had said so to Mr Harrison, correct? A. That's correct. Q. Now you have already agreed with me that a discounted ground rent would have sold the Council short, correct? Q. Do you recall that? A. Yes, I do, your Honour. Q. And would have sold the public short, correct? A. At that point in time, correct. Q. And did you, after making the discovery that the lease as submitted by Mr Peedom provided for a discounted ground rent, tell anyone from the Council that you had noticed that … Q. Did you tell anyone from Council? A. No, I didn't, your Honour. Q. You saw yourself as acting for both parties in this transaction, didn't you? A. I was there assisting both parties. Q. You told us you saw yourself as trying to be even-handed between both parties, didn't you? A. Correct. Q. Why, if you had that view, did you not tell the Council that its latest proposal sold it and the public seriously short? A. Because there were other aspects other than just the discounted ground rental being considered. One of the key aspects to this is the amount of capital works going into the project. Q. But you have told us that it was a fundamental proposition that clause 2(b) was a fundamental proposition, 2(b) in your letter of 29 November 2002 was a fundamental proposition, correct? A. Correct. Q. And it was essential for both parties to bear that in mind in negotiating? A. That's correct. Q. And here, according to you, was the Council suddenly departing from that and giving away a large amount of money? Q. Do you agree with that proposition? A. I don't agree with that proposition, your Honour, because … Q. You recognised that the substitution of a discounted ground rent for a discounted market value rent was likely to result in a much lower rental, didn't you? A. That's correct. Q. And you, therefore, recognised that over the period of 20 years that would result in the Council giving away a large amount of rental income to which it was entitled, correct? A. Yes, and the Council are getting something in return offsetting … 190 Earlier in his evidence Mr Dobrow was asked whether he rang anyone from the Council's side in relation to Mr Peedom's letter (tr 429). He gave the following evidence in cross-examination: Q. You saw yourself as independent of both parties right through the period including the whole of February 2003? A. That's correct. Q. You have told us just now about a telephone conversation you say you had with Mr Harrison about the matters you noticed in the letter of February 2003. Did you ring anyone on the council's side of the record and give them the benefit of your thoughts on that letter at that time? A. No, I did not. Q. Why did you not if you thought you were independent of both parties? A. Because of the letter of offer from council. Q. You saw yourself as an honest broker in this matter? A. That's correct. 191 The change to a discounted ground rental was not such that I regard as requiring or expecting Mr Dobrow to immediately telephone the Council to ask them why they were doing this or suggest perhaps they should not be doing it or suggest that perhaps they had made a mistake. As Mr Dobrow said in his evidence, sometimes parties keep particular elements in their negotiations back until the end of the negotiations so as to "close a deal" and he did not see the change as being anything "extraordinary" (tr 460). I disagree with the submission that Mr Dobrow's explanation for not making contact with Council was "totally unconvincing". 192 The next basis upon which it was submitted that Mr Dobrow's evidence in relation to the 25 February 2003 conversation with Mr Harrison should be rejected was that although he purported to recall that conversation, he could not recall the slightest detail of other telephone conversations that he had at the same time with either Emibarb or anyone else. The evidence relied upon in this regard was as follows (tr 433-434): Q. Do you recall now who the call was to that is recorded at line 94? A. No, I don't, not at line 94. Q. What about line 93? A. It is the same number and the answer is the same: No. Q. Do you in fact recall who any of the calls were to shown on the list apart from the calls to Mr Harrison? A. Yes, there are calls to my home number. There is calls to a client in Bondi Junction. Call to my wife and my wife's mobile. Call to the Army Reserve that I was company commander of, amongst others. Q. Do you recall what the conversation with the client in Bondi Junction was? A. On the specific matter, no. Q. So putting aside the calls to your wife and Army Reserve and just focussing on the calls shown on the list to clients or to people that you cannot identify, would it be fair to say that the only call that you claim to be able to remember the details of in terms of what it was about and what was said, is the call to Mr Harrison that you have given evidence about this afternoon? A. Yes, that's correct. 193 The fact that Mr Dobrow was not able to recall the conversation with the client does not mean that his evidence in relation to the conversation with Mr Harrison should be rejected. The position is different in relation to the conversation with Mr Harrison because Mr Dobrow had available to him not only his phone records but also the letter that he had with him at Puckapunyal with his notations on it to assist in respect of the content of that conversation. I am not satisfied that Mr Dobrow's inability to recall his conversation with the client on 25 February 2003 impacts adversely on his evidence in relation to the conversation with Mr Harrison that day. 194 The next basis upon which it was submitted that Mr Dobrow's evidence in relation to the conversation with Mr Harrison on 25 February 2003 should be rejected was that his evidence was not corroborated by Mr Harrison. It is true that Mr Harrison gave evidence of a conversation with Mr Dobrow that did not contain the detail to which Mr Dobrow went in the conversation he gave in evidence in chief. However, Mr Harrison gave evidence that Mr Dobrow had referred to "ground rent" in his conversation. It is true that the terms of the conversation as deposed to by each person are different but I am not satisfied that difference is one which should lead me to reject Mr Dobrow's evidence. Mr Parker was critical of Mr Dobrow's evidence in a number of respects including an explanation as to why a discounted ground rent was commercially feasible. It was submitted that his explanation was "evasive and ultimately illogical". Mr Dobrow gave evidence in cross-examination that he did not see the change as outside the realm of where the parties were going and that he believed that there was justification in the "trade-off" of getting the additional larger new building (tr 461-462). He suggested that there were a number of reasons that a larger building was something that could rationally cause one to adopt a ground rent as opposed to a discounted ground rent. Those reasons included clarity for a determining valuer down the track, ease of finding comparable sales and a simplistic approach to keep the parties out of Court. He accepted however that he did not ever suggest to the parties that there should be a discounted ground rent (tr 463-464). 195 The suggested illogicality stems from the proposition that the size of the building would be irrelevant to a ground rent. That is a proposition of some force, however the fact that there was a larger building being provided together with the amount of capital that was being invested was something that was permissible to be considered in observing that a discounted ground rent was not out of the question. The pure assessment of ground rent would not take into account the size of the building. Mr Dobrow's explanation does not seem to me to be evasive and totally or ultimately illogical having regard to the fact that he was looking at a broader picture and a basis upon which the Council may have held this back until the final moments to do the "deal". 196 In further support of a submission that Mr Dobrow's approach to certain matters in his cross-examination reflected poorly on his credit, the following was said: His refusal to accept that 20% discount to current market rent was proposed in his meeting with Mr Oxley on 20 December 2003 until confronted by his own notes of that meeting (T 445.33 to TT 446.58) 197 I am not satisfied that the evidence referred to in that section of the transcript supports the proposition that Mr Dobrow accepted that he proposed a 20% discount to Mr Oxley at the meeting of 20 December 2003. The evidence was as follows: Q. When you discussed the matter with Mr Oxley, he agreed, in principle, with the proposal you put forward, namely that one would start with the rental value of the whole building as rebuilt and extended and then reduce it by a percentage, correct? A. That's correct. Q. And you suggested to him that 30% was the right figure? A. I don't believe that I came to a conclusion that being 30% by 20 December, we were still talking in hypothetical terms. Q. Did he mention a percentage? A. I can't recall Q. Did he mention a figure of 20 percent? A. Again, I can't recall. He could well have done but it is only hypothetical at that stage. Q. Would you please go back to volume 7 (shown). Do you have your exhibit there? A. I do have my exhibit here. Q. Would you please go to page 229? A. Yes, I am at 229. Q. See on the side, if you turn the folder around and look at it so the document is on the side, there are some figures at the top of the page with "300,000" on the top? A. Yes. Q. This is a note of your conversation with Mr Oxley on 20 December, isn't it? A. That's what I believe it to be, correct. Q. The 300,000 represented what you then though the rent would be for the whole of the premises as reinstated and rebuilt and extended by Emibarb, correct? A. No, absolutely not. Q. Well, what did the 300,000 represent? A. It was just something that was an example figure that Rod and I would have, through out discussions, scribbled down. I would have no idea what the rental value of that sort of premises would be at that point in time. I had not investigated the market. My purpose there was to get the parties together, not to provide valuation advice as to what precise rental. Q. You have then in the next line written "minus 20 percent or $60,000"? A. Yes. Q. Does that refresh your recollection that in your discussions with Mr Oxley, the percentage reduction that was being talked about was 20 percent? A. For the purpose of the hypothetical approach, correct, but it could well have been 50 percent in any case. Q. It could have been any percentage, but the one that you discussed with Mr Oxley was 20, wasn't it? A. In that example, correct. 198 As I said above I do not accept that this evidence proves that Mr Dobrow refused to accept 20% discount as a proposal until confronted with his notes. I accept Mr Dobrow was speaking in hypotheticals and that he used 20% in this example. I do not see this evidence as reflecting poorly on Mr Dobrow's credit. Another matter that was submitted to reflect poorly on Mr Dobrow's credit was that he did not advise Clayton Utz in conference of his conversation with Mr Harrison on 25 February 2003 and of certain observations in relation to the contents of Mr Peedom's letter. One of the matters that impacts upon this submission is the evidence given by Ms McKinnon in the plaintiff's case in reply. She accepted in her cross-examination that no question was asked of Mr Dobrow by herself or Mr Lucas as to whether he had at any time seen a copy of Mr Peedom's letter. In those circumstances this submission seems to me to be without foundation. 199 I accept that Mr Dobrow had this conversation with Mr Harrison. That means that Mr Harrison had read the subject clause and understood it to be a ground rent. As I have said above this finding has limited impact on my assessment of Mr Harrison's credit and less impact on the outcome of this litigation. Peter Rusbourne 200 Mr Rusbourne was admitted as a solicitor on 22 December 1983. He has been a partner with Watkins Tapsell since 1984. He was first contacted by Mr and Mrs Harrison on 1 October 2002 in relation to the negotiations between Emibarb and the Council in respect of the proposed 20 year lease, but was not firmly retained until January 2003. It was on 17 January 2003 that he was retained in relation to Council's letter to Emibarb earlier that month, demanding that it commence building works within 45 days. On 17 January 2003 it is apparent that the topic of rent was discussed. The file note prepared by Mr Rusbourne on that day records the following: Rent – what amount wanted - not put amount up yet. want rent – fixed for 5 yrs. - first 3 yrs same as rent previously paid re 50,000 - next 2 yrs 75,000. 201 Mr Rusbourne had a conversation with Mr Dobrow on 24 January 2003 in which Mr Dobrow advised that Council was "coming back on the rent". Mr Rusbourne gave affidavit evidence of the events leading up to the receipt of Mr Peedom's letter on 21 February 2003. He said that when he received that letter he read clause 2.14 and understood that the valuer was to ignore both the tenant's and the landlord's fixtures and fittings in the valuation method. In the affidavit evidence of his meeting with Mr and Mrs Harrison on 25 February 2003 there is no mention of a discussion in relation to clause 2.14. There was a conversation deposed to in that affidavit in relation to clause 2.19, referred to above and repeated here for ease of reference: 118. We then discussed 2.19. In relation to the percentage reduction Vania said to me: "I am happy that they have now included a clause but I am not happy with the way it has been drafted. We are building a 35% bigger building at our expense and want the rent to be initially reduced by 35%. Please go back and ask for it." I said: "I will try but they are giving us something now that they haven't agreed on before. We are pretty close to reaching a deal." 202 Mr Rusbourne's evidence was that on 26 February 2003 Mr Harrison telephoned him and said the following: We want an agreement by Friday. I have gone through Peedom's letter. Firstly we want the land tax to be included in the outgoings. Secondly, we want the percentage reduction of rent at 35%. Thirdly, we want the rent to stay the same as it is in the current lease for the same period as we were closed. That is from the fire until we reopen. We want certainty of rent for that period of time. Fourthly, we want a period of time to complete the works from when the agreement is signed. Fifthly, we want to promote custom in the park, to do this we want the same clause in this lease as was in the old lease plus the additions in Peedom's letter. Sixthly, in relation to the lessor's costs. What are the costs in normal circumstances? Lastly, the outside area, we need a plan of subdivision for the lease. 203 Although Mr Rusbourne did not give evidence in his affidavit of any discussion with Mr and Mrs Harrison in relating to the change in the basis for rental valuation in Mr Peedom's letter he did give oral evidence of this in cross-examination. That evidence was as follows (tr 397-398): Q. Did you advise your clients of the change made by clause 2.14? A. Not at this time. It was when I had the meeting with them on the 25th or 26th. Q. What did you tell them at the meeting on the 25th about that matter? A. Can I refer to my statement? Q. Try to answer from recollection first. What did you tell them? A. I went through Peedom's letter with them. Q. What did you tell them about clause 2.14? A. The rent determination was not including landlord's fixtures and fittings and not including tenants' fixtures and fittings. Q. Did you tell them it was ground rent? A. Yes. Q. As opposed to current market rent which everyone had been negotiating for up until that point? A. Yes. Q. What did they say? A. I can't recall. Q. Did you recount that particular piece of advice that you have just told us about in your affidavit? A. I am not sure. I would have to look at my affidavit. 204 It is clear that the affidavit does not refer to any such discussion at the meeting with Mr and Mrs Harrison on 25 February 2003. The plaintiffs submitted that this evidence should not be accepted firstly, because it was not included in Mr Rusbourne's affidavit and he could not explain why that was so, secondly, because Mrs Harrison did not give evidence that this conversation occurred at the meeting on 25 February 2003 and finally, because of the absence from the file note of the meeting on 25 February 2003 of any reference to this advice and an inability to explain the absence from that note. 205 It is true that Mrs Harrison did not give evidence that such a conversation occurred at the meeting with Mr Rusbourne on 25 February 2003. Mrs Harrison did give evidence in her affidavit that Mr Rusbourne had said that Council had made some compromises and that it looked like they had "given you what you wanted and they have traded that off by reducing the amount of discount you get on the rent reviews". However, there was no evidence given by Mrs Harrison that there was specific reference to removal of the landlord's fixtures and fittings or mention of a "ground rental". 206 Mr Harrison's affidavit evidence in relation to the meeting included the following (par 128): Mr Rusbourne went through Mr Peedom's letter dated 21 February 2003 and during the course of this discussion I recall him making references to Emibarb's letter dated 23 February 2003. I recall Vania saying "I am not happy in the reduction of the rent which Council now proposes. It is not enough. Emibarb is building a much bigger building than Council would get at the end of the lease. Emibarb should be compensated for that as well. I want to reject that clause and ask for a 35% reduction in the rent." Mr Rusbourne said "Vania, Council have made a concession to us. They have removed the tenant's improvements, and you are not paying rent on the building, which is what you wanted all along, and Council have, on the other side of the ledger, taken away from Emibarb the deductions in the rent you had asked them for. Its give and take and we are pretty close to solving this stalemate". Vania appeared upset. She said "no, I am still not happy about it. I still don't have guaranteed starting rent so I know precisely what the rent is going to be. I still want you to see if we can get a starting rent of $75,000.00." … Mr Rusbourne said "OK I will write to Mr Peedom and advise him that you will be proceeding with the lease but I will also point out to him that there are some matters in his letter that are incorrect and those matters cannot be accepted as put. I will also raise with Mr Peedom the matters you instructed me to. Otherwise you should be happy that Council has made these concessions. They obviously mean business. I don't believe they will give you the 35% reduction in the rent as they have compromised, but if you insist, I will put it to them, bearing in mind the very limited time we have before their deadline expires. You should now proceed as quickly as possible to build the restaurant within the time frame provided by Council. Take advantage of the goodwill that Council has now extended move positively and get back into business. 207 Mr Rusbourne was cross-examined as to why he did not include the conversation in his affidavit. He gave the following evidence (tr 399-400): Q. Given that understanding of the issue, you thought it crucial to include in your affidavit a recounting of that conversation, correct? A. I now see that I have should have done that, yes. Q. When did you make your affidavit? 13 February 2006? A. Yes. Q. Ten weeks ago. If it was obvious to you today, it was obvious to you then? A. Yes. Q. Your appreciation as to the issue about what your clients believed on 25 February 2003 has not changed in the ten weeks since February 2006? A. No. Q. Would you like to look at your affidavit and tell us whether you have recounted the conversation in it? A. I can't remember. I would need to look at the exhibit as well. Q. I am only asking about the affidavit and recounting the conversation, so I can't see you need to look at the exhibit. Perhaps just look at the affidavit. A. There is nothing in my affidavit on that point. Q. When you made this affidavit as an experienced solicitor, you knew that it was or your belief was that it was vital that it should be as accurate and complete as it could be, correct? A. Yes. Q. According to you it's incomplete in a vital respect, is it not? A. Yes. Q. Do you have any reason to offer for why it was incomplete in that vital respect? A. I would have discussed the whole letter and document with them. I have not put down the entire conversation. No. I have no other recollection. Q. I am not asking about your recollection of events in 2003. I am asking why when you made this affidavit ten weeks ago you did not include a recounting of this vital conversation which you agreed with me you knew you ought to do? A. I don't know. I have no explanation. Q. You can't offer any explanation at all? A. No. Q. I suggest to you the conversation you have just recounted in the witness box did not take place? A. That is not correct. Q. Did you make a note of this vital conversation? A. Can I look at my exhibit? Q. Before you do, in your normal practice you agree with me this is a normal thing you would have made a note of? A. Yes. … Q. Have you noted the conversation in that note? A. No, I have not. … Q. This is a note of your advice to your client and their instructions to you about Mr Peedom's letter and the earlier correspondence, was it not? A. Yes. Q. It does not include any reference to clause 2.14? A. No, it does not. Q. That was because you did not give any advice to your clients on that occasion about clause 2.14, did you? A. Yes, I did. We discussed it. Q. What explanation do you have to offer for why if you gave that advice, and I assume you are referring to the conversation which you recounted earlier, you did not record it in your note? A. My explanation is that we were looking at the things that were in contention rather than the things that had been agreed. I understood that had been agreed. I don't have a reason as to why I don't have a file note of that. 208 Of course the word "vital" used by Mr Parker in his cross-examination was to be understood as "vital" to the issues in this case. There is no doubt that a significant issue in this case is whether or not Mrs Harrison, and to a lesser extent Mr Harrison, comprehended that Mr Peedom's letter had removed the landlord's fixtures and fittings from the determination of the valuation process. That is a "vital" issue. At the time Mr Rusbourne was making his notes and preparing a response to Mr Peedom's letter, the issue of their understanding, vis-à-vis the issues in this case, had not arisen. Certainly it was an important aspect of what the Council was offering and one that was a significant change to that which had been offered in its agreement to lease that had been forwarded in the latter part of 2002. It has to be remembered that there were the intervening events of January 2003 with Mr Dobrow's faxes on 15 January 2003 and the desire expressed by Mrs Harrison to have rental of $75,000, a matter that Mr Dobrow raised with Council in his letter of 6 February 2003. It does not seem to me that the absence from the note is fatal to Mr Rusbourne's evidence that he did have a conversation with his clients in relation to clause 2.14. 209 It seems to me that Mr Rusbourne's credit and credibility is a significant matter in this case. A number of matters were raised by Mr Parker to suggest that I should not accept Mr Rusbourne's evidence that he discovered the change in Mr Peedom's letter. The first of these matters was Mr Rusbourne's failure to pick up or notice the duplication of the words that appeared in clause 5.12.7. It seems to me that Mr Rusbourne's failure to pick up the duplication in 5.12.7 does not mean that he did not read the clause at all. I regarded his evidence in relation to this aspect of the matter as honest and persuasive. The duplication in clause 5.12.7 was an obvious error and he did not draw it to Mr Peedom's attention. He said that he read the clause but he did not read the error and did not see the error. In those circumstances he accepted that he could not have read the clause carefully (tr 348). He was then cross-examined (tr 352): Q. And I ask you again: How is it, if you did not read those words carefully, that you were able to form the view that this was a ground rent valuation? A. By the words at the commencement. "These things were being ignored". Q. Is there anything more you want to say in answer to the question I asked you? A. No. We had a list of fixtures and fittings, tenant's fixtures and fittings, landlord's fixtures and fittings, and this was something that had gone backwards and forwards already. 210 There is no doubt that the evidence is quite accurate in that these paragraphs relating to the fixtures and fittings had been the subject of documentation between the parties for some time. Mr Rusbourne was then cross-examined in relation to the suggested illogicality and/or irrelevance of a percentage reduction for the size of the building when the method of valuation for rental was a ground rental. He gave the following evidence (tr 356): Q. If it was a ground rent, the valuer would ignore any building which was built, either which might have been built under the reinstated obligation or had been built, wouldn't the valuer? A. Yes. Q. So there would be no commercial sense in then taking that figure which the valuer arrived at and then deducting further because Emibarb had built another building, do you agree? A. No. Q. Why not? A. This was part of a counteroffer being put by the council for a stepped reduction in the rent. At the end of the lease the council would have the building. … Q. Please explain to me how consistently with what you have told us you understood the commercial basis of this proposed percentage reduction to be there would be any sense in applying that percentage reduction to a ground rent where the valuer under a ground rent would have no regard to the value of the building? A. We had asked for certain matters to be taken into account and ignored a certain percentage reduction for the term of the lease. What the council responded with was taking out the fixtures and fittings but giving us a stepped reduction perception. I saw it as part of the overall offer. 211 Mr Rusbourne was asked about the content of the letter of instruction provided to him by Mrs Harrison dated 23 February 2003. Mrs Harrison had instructed Mr Rusbourne to insist on a 35% discount as being the percentage of the additional area that was to be constructed by Emibarb. In cross-examination in relation to this aspect of Mrs Harrison's letter, Mr Rusbourne gave the following evidence (tr 397): Q. What they have said in clause 2.19 they did not understand to be a change to ground rent because they have referred to something which was irrelevant if ground rent was in question? A. Yes, I can only agree with you on that. Q. So the only factor in this letter which bore on the question was a factor which counted against them having appreciated that matter as you understood it, correct? A. If you look at that clause in isolation, yes; if you look at the letter in full as to what had been asked and what was responded to, then no. 212 Mr Rusbourne was cross-examined in relation to the Council letter to the Crown Lands Department on 17 June 2003 as follows (tr 356, 358, 359-361): Q. In June 2003 you received a copy of correspondence which had taken place between council and the department about the approval of the lease, correct? OBJECTION Q. (Shown volume 10 page 3270) [letter dated 17 June 2003 from Council to the Department of Lands]. You see that letter? A. Yes, I did. Q. Did you see it before you had the conversation with George that you deposed to in par 169 of your affidavit? A. Yes, I did. Q. … you understood that council in negotiating the lease had intended to have as the starting point a rental calculated by reference to the building as built and then discounted, did you not? A. Yes. … Q. You understood that to be a reference to what the council had agreed on the trust's behalf with Emibarb in February and March 2003, did you not? A. From this letter, yes. Q. And the letter went on to say that the rental under the new 20-year lease was to be calculated for the whole building in accordance with the provisions of the draft lease? A. This letter says that, yes. Q. When you read the whole building, you understood that to mean the building as it was to be rebuilt by Emibarb, is that not right? A. Yes. … Q. When you read that paragraph you understood that the department was being told that the rent would be calculated by starting with the current market rent of the premises as rebuilt and then discounting that amount by the percentage referred to in the letter, correct? A. Yes. … Q. You agreed with me that when you got this letter in June 2003 you understood the department was being told that the rent was going to be calculated in a particular way? A. Yes. Q. I am suggesting to you that the way your understanding was in June 2003 was the same, namely, that you thought the rent was to be calculated in that way as well? A. No. That's not correct. Q. Did you think that the council had been saying something inaccurate to department in this letter? A. I didn't think it reflected the agreement reached between Emibarb and the council. Q. And therefore you saw it as inaccurate? A. Yes. 213 Mr Parker then asked Mr Rusbourne what steps he took to draw that inaccuracy to the council's attention. It was at this stage that objection was taken and after some legal debate the court adjourned for the day. It was the following morning that Mr Parker advised that the plaintiffs were abandoning the "Taylor and Johnson claim" (tr 368-369). Mr Rusbourne's cross-examination on the topic continued the following day with reference to Mr Rubourne's affidavit evidence of a conversation with Mr Harrison in June 2003. That affidavit evidence was as follows: 169. On 17 June 2003 I spoke with George in relation to the letter from the Department of Lands (annexed at paragraph 168 above). I kept a file note of our conversation. In particular George said: "I have read the letter from the Department of Lands regarding the Minister's consent. It says that is general now and can be varied in 2006 because the Local Government Act. What are our rights if the Minister does not agree on the rent, on compensation or on limits on compensation." I said: "I can not advise you on this. You will need to get a barrister's opinion who is familiar with the Local Government Act. We can write to Council or you can do a letter to Council. I would suggest Craig Leggat barrister". He said: "Speak with Craig Leggat and get a fee for the advice." He then said: "Council have sent me a copy of their letter to the Department. Council are saying that the rent may be in the order of $200,000.00. Can you do a letter for me to send to Council." I said: "Yes, how did you get a letter." He said: "I got it from Council directly. Council said I could have a copy. The rent in the letter is too high but Council cannot say what the rent will be until we have built and they have valued the rent." 214 The letter that Mr Rusbourne was referring to at the beginning of this paragraph (referred to as annexed at par 168 of his affidavit) was a letter from Mrs Harrison enclosing the letter from the Department of Lands to the Council dated 16 June 2003 in which the following appeared: When a market rental figure for the new lease is determined in 2006, this matter will again need to be referred to the department for additional approval pursuant to section 103 of the Crown Lands Act 1989. 215 The letter referred to in the latter part of paragraph 169 is the letter dated 17 June 2003 from the Council to the Department of Crown Lands. It is apparent from the context of this paragraph that Mr Rusbourne did not have a copy of that letter at the time he spoke with Mr Harrison although in the cross-examination extracted above, he said he did have a copy of that prior to his conversation with Mr Harrison. The further cross-examination of Mr Rusbourne was as follows (404-405): Q. In your affidavit, paragraph 169, you deposed to a conversation you had with George on 17 June 2003? A. Yes. Q. Among other things you record him saying in reference to the letter: I got it from council directly, council said I could have a copy. The rent in the letter is too high, but council cannot say what the rent will be until we have built and they have valued the rent. That is the way you have recorded the conversation? A. Yes. Q. And you made a note of that conversation as well? A. Yes, I did. Q. What Mr Harrison said to you about the council not being able to say what the rent was until they, that is Emibarb, had built was nonsense if one was dealing with a ground rent, was it not? A. Yes. Q. Did you tell Mr Harrison that? A. No, I did not, I had not seen the letter. Q. Yesterday you told me that you read the letter before you had the conversation with Mr Harrison? A. I read the letter from the Department of Lands. Q. No. The letter from council, don't you remember saying that yesterday? A. If you could give me a minute. Q. "Q. In June 2003 you received a copy of correspondence which had taken place between council and the department about the approval of the lease? A. Correct." After an objection you were shown 3270. "Did you see that letter? OBJECTION. A. Yes, I did. Q. Did you see it before you had the conversation with George that you depose in your paragraph 169 of your affidavit? A. Yes, I did." So you had seen the letter in the conversation before? A. Yes. Q. Why did you suggest you had not? A. There are so many dates going on. I am sorry if I am making mistakes. Q. I think you agreed with me that the statement attributed to George is nonsense if you didn't say anything about the ground rent? A. I didn't say anything to him that it was a nonsense, no. Q. Why not? A. I don't know. Q. May suggest to you it was because at the time you had the conversation you did not think it was a ground rent, you thought it was a current market value? A. No, that is not correct. Q. That would explain, would it not, why it would have been relevant to current market value as we have defined it to say council will not know until we have built, would it not? A. It would be relevant to that. Q. Are you able to offer any other explanation other than the one I have put to you as to why you did not correct your client on that important matter? A. On 17 June? Q. Yes. A. No. 216 I am of the view that this evidence reflects accurately the true position in June 2003. That is, that at the time Mr Rusbourne spoke with Mr Harrison as deposed to in paragraph 169 of his affidavit, he did not have a copy of the letter from the Council to the Department of Crown Lands dated 17 June 2003, but he did have a copy of the letter from the Department of Lands to the Council dated 16 June 2003 as sent to him by Mrs Harrison. In those circumstances I do not regard the fact that he did not inform Mr Harrison that his suggestion was "nonsense" as reflecting adversely on Mr Rusbourne's credit. 217 The letter that Mr Rusbourne wrote to Mr Peedom in August 2004 after Mr Peedom advised that there had been a "mistake" in clause 16.6 "which had been overlooked by both parties", prima facie, may appear inconsistent with the change having been noticed. However it must be remembered that this correspondence occurred about 18 months after the Lease documents were executed. Mr Rusbourne's statement that "at this stage we do not admit that a mutual mistake has been made" may have been made merely to protect his clients' interests until the further material and documentation was provided and reviewed. There was no cross-examination in relation to this letter and in those circumstances I do not intend to draw any inference adverse to Mr Rusbourne and/or the defendants in respect of the contents of this letter. 218 Mr Rusbourne accepted that at a meeting on 24 January 2003 with Mr and Mrs Harrison and Mr Dobrow his instructions were that the valuation was to occur by reference to the premises as rebuilt with a discount of 30%. However, he said that when he received Mrs Harrison's letter after Mr Peedom's letter of 21 February 2003 those instructions changed (tr 345). He received instructions that the 30% should change in circumstances when he understood Mr Peedom's letter to propose a discounted ground rental. He accepted that was radically different to the previous position (tr 346). 219 The plaintiffs claim that Mr Rusbourne did not notice the change to the valuation method in Mr Peedom's letter. I do not accept that. I am of the view that Mr Rusbourne did notice the difference and that he understood that both landlord's and tenant's fixtures and fittings were to be "ignored" in the valuation process. It is curious that he did not include, in his affidavit, the conversation that he had with his clients in relation to that change. It is less curious that it was not in his file note. It would appear that his affidavit relied upon his file note and in those circumstances the lack of inclusion of the conversation is perhaps explicable. Mr Parker submitted that I do not have to find that Mr Rusbourne gave false evidence and that I would be satisfied that he was simply mistaken. Mr Rusbourne was given every opportunity to agree that the conversation at the meeting with Mr and Mrs Harrison on 25 February 2003 did not take place in the terms he suggested in his cross-examination, but he resisted it. 220 Mr Rusbourne seemed to me to be a very balanced and honest witness. He made the concession when the duplication in clause 5.12.7 was pointed out to him that it must mean that he did not read that particular clause "carefully". As I have said, that does not mean that he did not read it at all. He also made concessions along the way in respect of Mr Parker's cross-examination of what was relevant or irrelevant, including the matters raised in relation to his conversation with Mr Harrison on 17 June 2003. Ultimately, however, and on the balance of probabilities, I believe that Mr Rusbourne did say to Mr and Mrs Harrison on 25 February 2003 that the rent determination did not include landlord's or tenant's fixtures and fittings and that it was a "ground rent", or words to that effect. 221 I do not accept that once a ground rent had been offered that any percentage reduction was illogical or irrelevant. One significant factor was that Mrs Harrison wanted a rental that was certain or definite for the purposes of preparing her business plan and obtaining finance. There were many facets to the negotiations, and I accept Mr Rusbourne's evidence that he saw the offer in Mr Peedom's letter as something that the Council was giving to Emibarb in respect of the ground rental but counter balancing it with requiring a stepped rent reduction as opposed to the 30% requested by Emibarb. 222 There is little doubt that up until the receipt of Mr Peedom's letter of 21 February 2003 the parties had proceeded upon the basis that the valution method would exclude the tenant's fixtures and fitting and include the landlord's fixtures and fittings. The "heart" of the negotiations up to that time (as Mr Harrison put it (tr 206)) was the amount of the discount. It was not commercially unreasonable to take the view that Mr Dobrow took that the Council had held this change, or offer, back until the end of the negotiations to conclude the deal. I do have some reservations about the evidence of Mr and Mrs Harrison and Mr Haralambides and there are some curiosities to the evidence given by Mr Rusbourne in relation to the conversation on 25 February 2003 and 17 June 2003. However, the plaintiffs have the onus of establishing by "convincing proof" that the defendants did not notice the change in the letter and proceeded on the same mistaken belief as the plaintiffs at the time the lease was executed. I am not satisfied that the plaintiffs have discharged that onus in the circumstances of this case. Conclusion 223 I refuse to grant the relief sought by the plaintiffs. The Summons is dismissed. If the parties are unable to agree on a costs order I will hear argument on a date to be fixed by arrangement with my Associate by no later than 30 June 2006. ***************************************** - 30 - 23/06/2006 - judgment - Paragraph(s) front page 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.