Australian Retirement Communities Pty Ltd v Port Phillip Pty Ltd

SUPREME COURT OF VICTORIA

COMMERCIAL LIST Not restricted

F4792	No. 2052 of 1997
AUSTRALIAN RETIREMENT COMMUNITIES PTY.	Plaintiff
LTD. (ACN 005 259 361)
v
PORT PHILLIP PTY. LTD. (ACN 057 988 351)	Defendant

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JUDGE	Chernov, J.
WHERE HELD	Melbourne
DATE OF HEARING	3-5, 10-11 August 1998
DATE OF JUDGMENT	4 December 1998
CASE MAY BE CITED AS	Australian Retirement Communities Pty. Ltd. v. Port Phillip Pty. Ltd.
MEDIA NEUTRAL CITATION	[1998] VSC 164

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PRACTICE and PROCEDURE - Separate trial of questions - Before trial of the proceeding - Rules of the Supreme Court, r.47.04.

CONTRACT - Management Agreement - Right to terminate - Ambiguity - Construction
- Objective intention of the parties - Commercial objective - Matrix of fact -
Circumstances surrounding the formation of the contract.

ESTOPPEL - Estoppel by convention - Nature and effect - Representation - Adoption of conventional basis for transaction - Assumed state of affairs - Departure unfair or unjust in all the circumstances.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr H.C. Berkeley, QC and	Herbert Geer & Rundle
Mr A.A. Monichino
For the Defendant	Mr R.C. Macaw, QC and	Russell Kennedy
Mr P.J. Marzella

HIS HONOUR:

The proceeding

By three written agreements dated 6 May 1993, the defendant, Port Phillip Pty. Ltd., appointed the plaintiff, Australian Retirement Communities Pty. Ltd., to complete the construction of and to develop, manage and market a retirement village consisting of over 160 units, known as the Port Phillip Retirement Village (the Village) situated in Altona. This case is essentially concerned with one of those agreements, namely, the Management Agreement (the Agreement) pursuant to which, the defendant engaged the plaintiff for ten years to develop, manage and market the Village. Clause 7.1(f) and paragraph (E) of the Agreement provide that if (at any time) "the expenses and costs of marketing and of the service company (associated with the Village) exceed the costs of those items as set out in the Project Budget” (which was annexed to the Agreement), the defendant became entitled to determine the Agreement. On 2 May 1997, the defendant gave the plaintiff a termination notice on the stated basis that the costs of marketing and of the service company exceeded the costs of those items as set out in the Project Budget. The plaintiff contends that such costs as were incurred in respect of those items did not exceed the budgeted amounts and that the defendant had no lawful basis for seeking to terminate the Agreement. It further contends that its act in so giving the notice of termination, constituted a repudiation of the Agreement. The defendant, on the other hand, claims that it was entitled to terminate the Agreement and that the plaintiff had breached the contract during its purported performance and had engaged in misleading and deceptive conduct. It counterclaims for damages.
The actual arithmetical calculation to determine whether the relevant costs have exceeded the corresponding items in the budget would be a relatively straightforward exercise. The difficulty lies in determining what are the relevant expenses and costs for the purposes of cl.7.1(f). That, in turn, depends on the meaning to be given to that clause and other relevant parts of the Agreement. The parties have agreed that the difficulty to which I have referred, throws up a number of questions which are essentially concerned with the construction of the Agreement. Thus, they have raised a discrete set of issues which can be conveniently dealt with separately from the remainder of the proceeding and in particular, the determination of the counterclaim. The resolution of those issues should enable the parties to determine through an accounting exercise, whether the relevant costs exceeded the corresponding budgeted items. In the circumstances, I made orders pursuant to Rule 47.04 of the Rules of this Court that certain preliminary questions be tried and determined before the trial of the action. I will set out the questions later when I have dealt with the background to the dispute, which I now proceed to summarise in chronological order.
Background

(i) Defendant's purchase of Village

In the early 1990s, New Life Retirement Villages (Altona) Pty. Ltd. sought to develop the Village on approximately 4.329 hectares in Altona. It proposed to build 167 units for sale to retirees. The company got into financial difficulties soon after it commenced the building of units and on 20 December 1991, went into external administration. The Australia & New Zealand Banking Group Ltd. (ANZ Bank), as a secured creditor, appointed a receiver and manager who took charge of the project. By September 1992, one stage of the project was almost complete, in the sense that 22 units with access roads and utility services, had been build and one of the units had been sold and was occupied by Mr and Mrs Lloyd. In November 1992, the defendant purchased the Village project from the ANZ Bank.
Twenty five per cent of the shares in the defendant were, at all relevant times, held by Mainpoint Pty. Ltd. (Mainpoint) which was owned by Fenlight Pty. Ltd. which was, in turn, owned by family members of Edward Christian Sent (Sent) who, although bankrupt at that time, was the driving force behind the defendant's acquisition of the Village.

(ii) Plaintiff/defendant negotiations

The defendant had no expertise in the building and development of retirement villages. Consequently, it approached the plaintiff, which had considerable experience as a builder and manager of retirement villages. It promoted itself as such generally and to the defendant in particular, during their negotiations. At all relevant times, the plaintiff's managing director was Ian Edward Ball (Ball). Negotiations between the parties took place in late-1992. At one stage the possibility of a joint venture was discussed, but ultimately, the plaintiff took up the position of, inter alia, managing the development, operations and marketing of the Village.

(iii) Terri Hynes

As will be seen later, the characterisation of payments that were made to Terri Hynes (Hynes), an employee at the Village, will be relevant to the resolution of some of the issues. Consequently, it is convenient to mention briefly at this point, her role with the organisation. Before the involvement of the defendant in the project, she had been employed by the receiver and manager to market the units in the Village. She continued to be employed in that capacity by the defendant until early May 1993, when she handed that function over to the new marketing personnel, namely, Betty Lorraine Humphries (Betty Humphries) and her husband, Malcolm Humphries. As will be seen later, an issue between the parties is whether the salary paid to Hynes between November 1992 and May 1993, should be treated as part of the marketing costs for the purposes of cl.7.1(f).

(iv) Marketing and commission

Although the defendant relied on the plaintiff to develop, manage and market the Village, it put in place its own entity, Mainpoint, to look after its interests and to provide it with various services in that connection, including accountancy services. The accountant employed by Mainpoint was Sandra Joy Porter (Porter). The parties agreed that Mainpoint would become entitled to be paid a commission on the sale of units of 2.5% and that a like commission would be paid to the plaintiff, as part of the remuneration for its services. Both commissions would be payable only upon sale of a unit.
During their negotiations, the parties agreed that the plaintiff would select and direct the staff which was to undertake the marketing of the units. The plaintiff, however, did not hold a real estate agent's licence (and neither did the defendant) so that the marketing staff had to be employed and paid for by the defendant. It is convenient to mention at this point, that I am satisfied on the evidence, that the function of marketing units in a retirement village such as the one in question, involves skills that are different from those required to market, say, domestic houses and involves activities that go beyond merely signing up a purchaser. It includes many and various follow-up activities by the marketing staff to ensure that the (elderly) purchaser was happily settled into the unit and the new environment. The need to ensure that the new purchaser was able to cope with the transition from the normal home to a new type of accommodation, was important not only because the new purchaser had to be properly accommodated, but also because the other unit holders had to be comfortable with the new resident. It was necessary to enhance the reputation of the Village so as to ensure that the value of the units was at least maintained and that they were saleable.

(v) Marketing costs and service company funding

Although the function of developing and marketing the Village was to be undertaken by the plaintiff, it was the defendant who was to pay two major sets of costs during this phase. One was the cost of marketing, since, for reasons already mentioned, it was the defendant which employed and paid the marketing staff. The other cost that had to be borne by the defendant in relation to the Village, was the cost of the subsidy that had to be paid to the service company which was set up to cater for the needs of the occupants of the Village. In general terms, it was anticipated that once the Village was fully occupied, the service company would be fully funded by a levy which was to be paid by all residents on a pro rata basis. During the development stage, however, because only a few residents would occupy the Village, it was obviously not possible to require them to bear all the costs of the service company. Hence, it was proposed to divide the service company costs by the notional number of units at the Village and require the occupants to pay only their respective share of the cost, calculated on that basis. The balance was to be met by the defendant. That subsidy became known as service company funding. As the occupancy of the Village increased, the amount of service company funding required from the defendant, would progressively decline.

(vi) Early budgets

The plaintiff's financial controller was Charles Anthony Edward Saul (Saul) who, during the period of negotiations leading up to the execution of the Agreement, prepared a number of feasibility studies and budgets relating to the operation of the Village. Those budgets culminated in the Project Budget, which was adopted by the parties as part of the Agreement and to which I will refer in more detail later. They were forwarded to the defendant and in particular, to Porter, in October and December 1992 and January 1993.
The budgets prepared by Saul dealt with a range of projected and anticipated costs of the venture, including construction, marketing, the service company, various fees, statutory charges and other items. By February 1993, the budget was more or less finalised and, so far as is relevant, the figures in it, but not the precise description of the costs items, were reproduced in the Project Budget which was accepted by the parties for the purposes of the Agreement and the other two agreements signed by them on 6 May 1993.
Agreement
In the context briefly summarised above, the parties executed three agreements on 6 May 1993, namely, the Agreement, the Project Agreement and the Construction Agreement, each of which annexed the Project Budget. The document which is most relevant for the purposes of this proceeding, however, is the Agreement. I will refer below to some of its more relevant provisions.

(i) Acknowledgment of plaintiff's expertise

It is acknowledged in the Agreement, that the plaintiff was in the business of developing and managing retirement villages and procuring marketing personnel "for the marketing of retirement villages" (Recital B). It is also recognised, in Recital C, that the plaintiff was to provide management services for the Village which, in the normal course of events, would involve the supervision of the operations of the service company.

(ii) Marketing personnel

The Agreement provides that the marketing personnel were to be provided or nominated by the plaintiff (but whose salaries were to be paid by the defendant). That the plaintiff had expertise in the provision of such personnel was, as I have said, acknowledged in the Agreement.
By cl.1.1(g), "marketing personnel" is defined as Betty Humphries, Malcolm Humphries and such other persons nominated by the plaintiff from time-to-time by notice in writing. Because it was the plaintiff who was to nominate the marketing staff (and in this way play an effective role in the marketing of the Village), the plaintiff indemnified the defendant against any loss arising from, inter alia, the negligence of such staff (cl.3.1).

(iii) Plaintiff's obligations

The plaintiff's obligations under the Agreement, apart from those recognised in provisions such as Recitals B and C, are described in cl.2. The plaintiff was to:
(a)        Carry out all the obligations of the defendant set out in the Service Agreement (to which I will refer shortly).
(b)        Provide personnel to attend all meetings of the service company as the representative of the defendant.
(c)         Attend to all reasonable requests and requirements of the residents of the Village.
(d)        Procure the marketing personnel to prepare a marketing plan for the marketing and sale of the units.
The defendant, on the other hand, agreed by cl.2.2, that during the currency of the Agreement it would not interfere with the plaintiff in the implementation of its policy in respect of the day-to-day administration and operation of the Village. Thus, it was made clear in the Agreement that the overall management and marketing of the Village was to be in the hands of the plaintiff.

(iv) Plaintiff's remuneration

The plaintiff's remuneration is dealt with in cl.4 of the Agreement. It was to be paid, inter alia, the fee of $150,000 by monthly instalments, starting on the commencement date, namely, 6 May 1993.

(v) Service Agreement

A draft Service Agreement which was to be entered into between the defendant and the unit owner was annexed to the Agreement as attachment "B". "Service Agreement" is defined in the Agreement as the agreement being attachment "B" including "such variations thereto as agreed from time-to-time (between the plaintiff and the defendant)". In general terms, attachment "B" provided that the service company would pay on behalf of the residents such costs as insurance, rates and maintenance and other costs and charges relating to the Village, that it would keep books of account and employ a general manager who would, inter alia, collect the service charges and maintenance contributions from the residents The draft Service Agreement also contemplated that the service company would provide to residents a range of services which one would expect to be provided to retired persons, such as nursing care, information and booking facilities and a bus for the purpose of transporting them to outdoor locations.
Under the draft agreement, the resident was to pay the service company the service charge and/or maintenance contribution payable in respect of the particular resident's unit, "calculated in the manner provided in the Second Schedule hereto". Clause 1 of the Second Schedule provided for the calculation of the service charge by the division of the total expenses of the service company by the "number of Lots for the time being on the Plan of Subdivision". Clause 3 of the Schedule dealt with how the costs of the service company were to be funded during the transitional stage of the project, namely, between the time of the making of the Service Agreement and the defined "Completion Date" (by which time it was anticipated that the Village would be fully occupied and the residents would pay all the expenses incurred on their behalf by the company). It is common ground that for the purposes of the proposed Service Agreement, the defined "Completion Date" can be taken to be 6 May 1996 (notwithstanding that the first certificate of occupancy was issued on 6 May 1992).
For reasons which I mention in the context of answering Question A(c), cll.1 and 3 of the Schedule were never implemented according to their terms. What occurred, was that the defendant funded the net costs of the service company as and when the requirement arose.

(vi) Defendant's right to terminate Agreement

Clause 7.1 of the Agreement, by paragraphs (B) and (E), gives the defendant the right to terminate the Agreement prematurely in certain circumstances, which include those in cll.7.1(c), (d) and (f), namely, where:

"(c)

at the end of a stage of construction of the Village the cost of the construction of that stage has exceeded the Proprietor's budgeted cost by a figure in excess of 20% in excess of that budgeted cost as set out in the Project Budget;

(d)

in the Proprietor's opinion (formed on reasonable grounds) the likely profit to be made on the project will be more than $1,000,000 less than the profit projected in the Project Budget;

(f)

the expenses and costs of marketing and the service company exceed the costs of those items as set out in the Project Budget."

The most contentious of these provisions is cl.7.1(f), which I will deal with later in the context of the relevant question. As the plaintiff submits, (and, as I understand it, the defendant agrees) cl.7.1(f) was inserted for the protection of the defendant.
(vii) Project Budget

The Project Budget, which was annexed to the Agreement, provides for the following costs in relation to the development, management and marketing of the Village:
"FEES AND CHARGES

ENGINEER $ 40,000
ARCHITECT $ 60,000
VAL/QS $ 20,000
FINANCE $ 40,000
LANDSCAPE $ 50,000
LEGAL $179,000
INSURANCE CONTRACTORS $ 25,000
INS HBA $ 25,000
LAND TAX $ 80,000
RATES $100,000
PARKS/GARDENS $ 50,000
TOWN PLANNING $ 10,000
PERMITS $ 25,000
MARKETING SALARIES $300,000
MARKETING/ADV $400,000
SEV CO. FUNDING $300,000
ARC PROJECT MGT 3% $278,064
ARC SALES COMM 2.5% $459,888
MAINPOINT MGT $200,000
MAINPOINT COMM $459,888
$3101839"

It will be noted that there are only two items which are, in terms, described by reference to "marketing", namely, "Marketing Salaries" and "Marketing/Adv(ertising)". Similarly, only one item deals, in terms, with the service company subsidy, namely, “Se(r)v(ice) Co(mpany) Funding”. The February 1993 budget showed those costs in the following terms:
"Schedule of fees and non-construction costs
Professional Fees

Engineering/surveying 40,000
Architecture 60,000
Valuations and QS fees 20,000
Finance 40,000
Landscaping bonds 50,000

Legals

Say 1000 per contract 150

150,000 360,000
Statutory fees and charges

Stamp Duty: Land 5.5% Assume nil 0

Insurances: Contractors all risk and house builders liab 50,000

Council and MMBW rates, land tax 180,000

Council Parks and Gardens contribution 5% Allow 50,000

Town Planning and Building Permit fees/amendment 35,000
315,000
Service Company setup and Marketing
Salaries: 2 marketing persons 3 yrs. plus incentives 300,000
Marketing and advertising fund. brochures 400,000

Service Company setup and funding 300,000
1,000,000
Other fees

Construction fees 3% of cons 9,213,805 276,414

ARC marketing

2.5% sales

18,386,500

459,663 736,077

Total fees and non-construction costs 2,411,077"

It will be readily apparent when one compares the February budget and the Project Budget, that in the later one, the three relevant items, namely, the salaries relating to marketing and advertising costs and the service company funding, are not set out under the heading "service company setup and marketing" as they were in the earlier document. Nevertheless, they are listed consecutively as they were before and, in terms, refer to marketing in the case of two of them and to service company funding in relation to the third item.
Conduct of the Village
After the Agreement was signed, the development, management and marketing of the Village was conducted under the overall management of the plaintiff. I will analyse some aspects of those operations later in the context of the relevant questions. For the moment, I will give a short overview of the key activities that were conducted in relation to the Village between May 1993 and May 1997.

(i) Service company

The service company, which was to cater for the needs of the residents, was established only in August 1993. Until then, the matter was dealt with by a committee. It is common ground that the defendant subsidised the operations of the service committee and later, the service company, to the extent that the levy on the residents did not cover its costs.
Although the service company was a separate legal entity and, in legal terms, its general manager was answerable to it, its overall operations were supervised by the plaintiff consistently with the fact that it and not the defendant, had the relevant expertise in that area as well as the ultimate responsibility for the successful promotion of the Village. During the period in question, there were several managers of the Village. The impression that I formed from the evidence, was that great difficulty was experienced in obtaining and then retaining, a good manager for the Village. There were occasions when the plaintiff had to arrange for temporary management and generally had to oversee that activity at closer quarters than would otherwise have been the case.
The services that were provided by the company to the residents included, as I have said earlier, the payment on their behalf of expenses, such as rates and insurance premium, and external maintenance of the units. It also employed and paid for a nurse, gardening staff and provided amenities to the residents such as the operation of a mini bus to take residents to locations outside the Village. The provision of such services was contemplated by Schedule 1 of the Service Agreement. Pro rata costs were recovered from the residents by a levy which was struck at the beginning of each financial year pursuant to a budget prepared by Saul for the service company and at least inferentially, approved by the plaintiff. The shortfall was paid by the defendant.
The day-to-day accounting work for the service company was undertaken by the Village manager who arranged for the payment of service company costs and allocated them in the books of the company. The manager was assisted in that task by Richard McArthur (McArthur) who was the defendant's accountant and who advised the manager on accounting matters, including the allocation of costs.
Saul prepared the final accounts for the service company for the financial years 1994 to 1996, on the basis of draft accounts that were provided to him, principally by McArthur. Those accounts included as expenses of the service company, such items as rates, transfer to Long Term Maintenance (LTM), transfer to the Bus Reserve and repairs and maintenance. There is a dispute between the parties as to whether those and like items are relevant expenses for the purposes of cl.7.1(f) and I will deal with this later in the context of answering the relevant question.

(ii) Marketing staff
The Humphries

Although the Agreement provides that marketing personnel were to sign an Employment Contract (which formed attachment "A" to the Agreement), the Humphries who were employed as such, did not sign any such agreement. They were, according to the evidence, employed as marketing personnel by the defendant on a part-time basis. They were also employed during that period (on a part-time basis) by the plaintiff. Each of them was to receive a salary of $22,500 for 19 hours week-per-week. Not surprisingly, the work that was in fact carried out by the Humphries in relation to the Village did not accord precisely with the original plan. For example, overtime was worked by them and they were paid additional sums for that pursuant to the timesheets which they submitted for such overtime work at week-ends. They also performed the function of manager of the Village on a number of occasions. The evidence shows that they were or one of them was the effective manager of the Village between about May 1993 and January 1994 and between 23 December 1994 and 5 March 1995. In relation to one of those periods, the plaintiff sent the defendant an invoice for $5,000 for the Humphries' time as interim managers of the Village. The defendant paid that invoice and that payment was allocated in the defendant's books of account for the year ending 30 June 1995 to "service company subsidy" under the heading "Consultancy Fee".
Other marketing staff
In addition to the Humphries, others were employed from time-to-time to market and sell the units in the Village. I will deal later with their employment in the context of the particular issue being considered. I mention some of those staff now for the purpose of completing the general picture of what transpired at the Village after the plaintiff took over the management of its development and marketing. Such staff included Stephen Reeves (Reeves) a son of Betty Humphries, Sandra Laird (Laird), Robert Atkins (Atkins) and Kenneth Terry (Terry). Reeves was employed at the Village principally as a gardener and handyman, but during some of the period, he was also involved in the marketing of units. The defendant says that when it calculated the actual marketing costs of the project for the purpose of determining whether it was entitled to give the notice of termination, the only salaries of Reeves (and of the Humphries) that it took into account, were those that were referable to their marketing activities.
Laird was, for some of the relevant period, a manager of the Village. Thereafter, she was employed for a short time as part of the sales team and then left to pursue marketing of village units elsewhere. She returned to the Village as part of its marketing staff in January 1997. Atkins and Terry were employed on a casual basis during some of the week-ends in January 1997.

(iii) Defendant's take over of marketing

In accordance with the Agreement, the plaintiff provided or selected the marketing staff, until early 1997, when the defendant effectively took over that function. Although neither party before me dwelt on this point, the evidence suggests that by late-1996, the units were not selling as quickly as the defendant (and probably the plaintiff) would have liked, yet the costs of developing and marketing the Village, were rising. It was in this context that the parties discussed the possible buy-out of the plaintiff by the defendant. In December 1996, the plaintiff agreed in principle to a cost-saving measure put forward by the defendant which involved its marketing staff being replaced by that of the defendant, so as to enable the defendant to pool its marketing resources in marketing the Village and another retirement village in Williamstown. Although no firm agreement had been reached between the parties on this matter, in early 1997, the defendant employed Laird, Atkins and Terry at the Village. The plaintiff says that their salaries should not be regarded as part of the actual marketing salaries for the purposes of cl.7.1(f) because they were not "marketing personnel" within the definition of that term and cl.1.1(g) of the Agreement since they were not nominated by the plaintiff under that clause. I will deal further with this point in the context of answering the relevant question.

(iv) Management meetings/Analysis Reports

The plaintiff and the defendant held monthly management and marketing meetings after May 1993. They were usually attended by Ball on behalf of the plaintiff, the Humphries, Sent, Porter and, in relation to certain financial matters, McArthur. The topics discussed at those meetings included construction progress and changes, the status of sales, budgeting issues and other like matters. The principal purpose of the meetings was to see whether the costs of the project were in line with budget. Part of the material that was put before these meetings consisted of Analysis Reports which were prepared by the defendant. They showed, inter alia, actual costs against budget. Some of the budget figures were taken from the Project Budget, but on the other hand, there were a number of budget items in those reports which varied from the Project Budget and which were, in effect, revised budget estimates. Hence, it was not necessarily the case that the Analysis Reports compared in each case, actuals with Project Budget figures. The Analysis Reports assume some significance in the defendant's case. As will be seen later, it contends that by not objecting to or challenging the accuracy of the figures in the Analysis Reports, the plaintiff is now estopped from contending that those figures did not represent actual costs. Ball said in his evidence, and I accept, that the Analysis Reports were only part of the material presented at the meetings; they were usually found at the back of the bundle of documents that were distributed. He said that since he had no skills in analysing financial figures, he did not analyse the Analysis Reports. He merely asked McArthur whether the project was on budget and was usually told that that was the case. In those circumstances in particular, he had no interest in the content of the Analysis Reports.
Porter said in her evidence, which was not challenged, that the defendant prepared the reports on the following bases:
(a)        They included all salaries paid to "marketing personnel" from November 1992, without making allowances for non-marketing work by such employees.
(b)        The calculation of the service company subsidy was made on the basis of actual payments by the defendant for or on behalf of the service company (being the difference between actual expenses of the service company and the residents' levy).
(c)         The inclusion of the service company subsidy from November 1992.
(d)        The inclusion of LTM, transfer to Bus Reserve, residents' rates and repairs and maintenance in the calculation of the service company subsidy.
She said that the purpose of presenting those financial statements was to give the parties the opportunity to monitor expenses against budget. Although in general terms that was probably the case, there is no evidence that the basis on which the reports were prepared, was discussed at the meetings or explained to the plaintiff. I have already noted that not all the budget figures in those reports were figures taken from the Project Budget.
Notice of termination
The take-over of the marketing of the Village by the defendant occurred, as I have said, at a time when the parties were discussing the possibility of the defendant buying-out the plaintiff's interest in the Agreement. On 10 February 1997, Ball wrote to the defendant stating, inter alia, that the plaintiff was not prepared to agree formally to the defendant controlling marketing activities at the Village unless the parties reached agreement as to whether the defendant would buy-out the plaintiff's interest in the Agreement. He said that absent such agreement, "we intend to continue to honour our obligations under the Management Agreement as we have done in the past."
The defendant’s formal response came by way of its notice of termination, which was sent under cover of its letter of 2 May 1997. It is plain that the defendant sought to exercise its right under cl.7.1(f) to terminate the Agreement on the basis that the actual expense and costs of relevant items exceeded the corresponding amounts in the Project Budget. The plaintiff sought on a number of occasions to obtain from the defendant its calculations of the actual costs, but the defendant refused to provide that information.
Questions
After the defendant refused to give undertakings sought by the plaintiff to take no further step to terminate the Agreement pending the determination of a number of issues, including the proper construction of the Agreement and the defendant's entitlement to terminate it, the plaintiff issued the present proceeding and, in the circumstances that I have described earlier, the parties have sought answers to the following questions:

A. Upon the proper construction of the Management Agreement:-
(a)        Does the expression in cl.7.1(f) "the costs of those items as set out in the Project Budget" mean in relation to marketing:

(i) ARC sales commission 2.5% $459,888
(ii) Marketing salaries $300,000
(iii) Marketing/advertising $400,000
(iv) Legal $179,000
(v) Mainpoint commission $459,888
(b)        Does the expression in cl.7.1(f) "the costs of those items as set out in the Project Budget" mean in relation to the service company:

(i) Service company funding $300,000
(ii) Rates $100,000
(c)         Does the expression in cl.7.1(f) "the expenses and costs of the service company" mean the liability of the defendant to pay the expenses and costs of the service company pursuant to cl.3 ("transitional provisions") of the Second Schedule to the Service Agreement attached to the Management Agreement and marked "B"; or some other and what expenses and costs.
(d)        Does cl.7.1(f) apply if the combined costs of the defendant of marketing and of the service company exceed the cost of those items as set out in the Project Budget.

B.          For the purpose of cl.3 of the Second Schedule to the Service Agreement was the completion date 6 May 1994 or some other and what date.
C.         Is the right (if any) of the defendant to give a notice of termination to be determined as at 2 May 1997.
D.         Upon the proper construction of the Management Agreement does the expression in cl.7.1(f) "the expenses and costs of marketing" include:-

(a) In relation to Betty Humphries and Malcolm Humphries the whole of the salaries paid to them by the defendant;
(b) Alternatively part of the said salaries proportionate to the amount of their working time that was devoted to marketing (or depending upon some other and what basis);
(c) such part of the salary paid to:
(i)         Sandra Laird;
(ii)        Bob Atkins;
(iii)       Ken Terry;

as was paid for work at the Village on or after 8 January 1997 being
the work referred to in Exhibit 8A.

E. Is the commencement date for ascertaining the expenses and costs of:-

(a) marketing;
(b) the service company
the 6 May 1994 or some other and what date.
F. Is the plaintiff estopped as alleged in paragraphs 16AF, 17AJ and 17B of the Further Amended Defence dated 31 July 1998 from denying the matters or asserting the matters (as the case may be) alleged in paragraphs 16AB, 16AC, 17AB, 17AC, 17AD, 17AE, 17AF, 17AG and 17A of the Further Amended Defence.
G. Upon the proper construction of the Management Agreement, if when calculating "the expenses and costs of the service company" for the purposes of cl.7.1(f) it is proper to exclude any items of expenditure of the service company, should one also exclude that proportion of the resident's levy which represents such excluded items.

I proceed to analyse the issues raised in respect of each of the questions and provide my answers to them.
Question 1

A(a) Upon the proper construction of the Management Agreement does the
expression in cl.7.1(f) "the costs of those items as set out in the
Project Budget" mean in relation to marketing:

(i) ARC sales commission 2.5% $459,888
(ii) Marketing salaries $300,000
(iii) Marketing/advertising $400,000
(iv) Legal $179,000
(v) Mainpoint commission $459,888?

There are two possible meanings that could be given to the relevant words. One, as is contended for by the plaintiff, is that they are referable to any costs in the Project Budget which are properly characterised as marketing costs. The other meaning that could be given to those words is that they are limited to costs which are, in terms, identified in the Project Budget as marketing. This construction is pressed by the defendant.
The plaintiff says:
(a) The clause was inserted at the last moment at the request of the defendant's solicitors and if they intended to confine the category of costs to those described in the Project Budget as marketing, they could have easily said so. In fact this was not done.
(b) The starting point for the operation of the clause is the determination of the actual costs of marketing incurred during the operation of the Village. Those costs are then to be compared with the costs in the Project Budget which are characterised as the corresponding marketing costs. Thus, the determination of which costs in the Project Budget are marketing costs for the purpose of the clause, is to be resolved by applying the same test that is to be applied in determining the actual marketing costs. Such an analysis, says the plaintiff, is dictated by the structure of cl.7.1(f) which begins with a reference to actual marketing costs and then contrasts them with the costs of like items in the Project Budget. The plaintiff submits that "marketing" is a generic term which includes any activity entered into for the purpose of making contact with a prospective buyer and thereafter carried out for the purpose of bringing about a contract of sale and its completion. Thus, it includes salaries, advertising, agent's commission and legal expenses.
Dealing with the plaintiff's first contention, in my view, the late insertion of cl.7.1(f) into the Agreement is not relevant to the question of construction, if for no other reason than that the solicitors' letter makes it plain that the parties had agreed on the terms of that clause during the negotiations, but had left it out of the final draft through inadvertence.
In relation to the plaintiff's second point, in my view, the aim of cl.7.1(f) is to give the defendant the right to terminate the Agreement if the relevant actual costs identified by the plaintiff in the Project Budget were exceeded during the conduct of the Village. It was, after all, the plaintiff who put forward the budget and on the basis of the figures in it, the Agreement was entered into and the right was given to the defendant to terminate the plaintiff's employment if its budget was exceeded. For the purpose of determining whether the defendant was entitled to give notice under that clause, one looks first at the Project Budget to determine what are the budgeted marketing costs which are to be contrasted with the corresponding actual costs. Put another way, one starts with ascertaining what are the marketing costs for the purposes of the Project Budget and then contrasts them with actuals.
In my opinion, on a plain reading of the Project Budget, the marketing items which are put forward (or are included) for the purpose of being compared with corresponding actuals, are those which are in terms so described or identified in it, namely, marketing salaries and marketing advertising. Such a construction is consistent with the structure and description of the various cost items in the Project Budget. First, the Project Budget draws a distinction between the marketing costs identified in terms and other costs which may arise out of marketing activities, such as sales commission and legal costs. Secondly, the costs which are, in terms, identified as marketing costs, are not fixed by reference to the success or otherwise of the marketing activity, more particularly, they are not fixed by reference to the number of units sold. On the other hand, sales commission and legal costs arise only as a result of marketing activity and are fixed by reference to and are variable with, the number of units sold. As the defendant has pointed out, it would be contrary to the protective purposes of the clause to include as budgeted expenses of marketing, costs which have a fixed relationship with the number of units sold because that would reward the plaintiff for lack of marketing success and penalise it for achieving higher prices than expected. Thus, if the plaintiff is correct and commission is to be included in marketing expenses contemplated by cl.7.1(f), then the lower the sales, the lower is the commission paid to the plaintiff and, therefore, the less is the chance of actuals exceeding the budget. In this way, the plaintiff would be "rewarded" by lack of marketing success. Similarly, if the sales happened to be well above budget, the plaintiff would be paid more commission than expected. It would mean, however, that there would be a greater prospect of actuals exceeding budget with a consequence that the plaintiff would be penalised for sound performance. That is unlikely to have been contemplated by the parties. Thirdly, sales commission is separately dealt with in the Agreement as "consultant's remuneration" (cl.4). Similarly, legal expenses are dealt with as a direct cost to the defendant rather than as a cost to the service company in cl.5.1.

To the extent that an ambiguity exists as to the true meaning of the clause, the surrounding circumstances in which it was created may be looked at for the purpose of establishing, inter alia, the presumed intention of the parties (Codelfa Construction Pty. Ltd. v. State Railway Authority of N.S.W. (1982) 149 C.L.R. 337, 352). Such circumstances confirm that the parties intended that marketing costs in the Project Budget be confined to those so described in terms. It will be recalled that in the earlier budgets, marketing salaries and advertising were placed under the heading "service company set-up and marketing", thereby indicating that so far as the budgets were concerned, marketing costs were confined to those so described. On the other hand, sales commission and legal costs were placed under different headings, namely, "professional fees" (in respect of legals) and "other fees" (in respect of commission) thereby showing that relevantly, they were not part of the costs which the budgets classified as "marketing". In the Project Budget all those items were placed under the more general heading of "Fees and charges", but the identification of the marketing costs was retained as was the sequential order in which they appeared in the earlier budgets. In my view, the taking away of the relevant sub-headings in the Project Budget does not show that the parties intended to expand the criteria for determining what are marketing costs for the purposes of the Project Budget. On the contrary, the retention of the identification, in terms, as to what are the marketing costs included in the budget and the grouping of them as described earlier, confirm that the sales commission and legal costs were to remain separate.
Consequently, I am of the view, that on a proper construction of the Agreement, the sales commission and legal costs do not form part of marketing costs in the Project Budget for the purposes of cl.7.1(f). Therefore, the answer to each of the several parts of the question under consideration is:
(i)         No.
(ii)        Yes.
(iii)       Yes.
(iv)       No.
(v)        No.
Question 2

A(b) Upon the proper construction of the Management Agreement does
the expression in cl.7.1(f) "the costs of those items as set out in
the Project Budget" mean in relation to the service company:

(i) Service company funding $300,000
(ii) Rates $100,000?

Just as the marketing costs were identified in the Project Budget, so were the service company costs as "Se(r)v. Co. Funding". It is fairly clear that at the time of the Agreement, the defendant's concern was to know what subsidy it would have to provide during the relevant period of the operation of the Village. That subsidy was described as service company funding, being the shortfall of service company expenses after taking into account levy receipts. Rates are not, in terms, identified in the Project Budget as service company expenses or costs. That is unsurprising, bearing in mind that although the service company was to pay rates on behalf of the residents, it was to recoup that cost from them by way of a levy. Consequently, that item of expense in the context of calculating service company funding, would be revenue neutral. In any event, one would not expect it to be shown as a separate service company expense in the budget when the net figure is set out in it as service company funding. On the other hand, as the defendant submitted, one would expect that "Rates" would be shown in the Project Budget as a separate item as representing those rates which are charged to the defendant on land which it has not yet developed and in respect of which it was to bear the costs.
Consequently, in my view, the answer to the first part of the question should be, yes and the answer to the second part of the question should be, no.
Question 3

A(c) Upon the proper construction of the Management Agreement does
the expression in cl.7.1(f) "the expenses and costs of the
service company" mean the liability of the defendant to pay the
expenses and costs of the service company pursuant to cl.3
('transitional provisions") of the Second Schedule to the Service
Agreement attached to the Management Agreement and marked
"B"; or some other and what expenses and costs?

The Agreement provides that service company funding would be calculated pursuant to the relevant parts of the Service Agreement (a draft of which constituted annexure "B" to the Agreement), more particularly, cl.3 of its Second Schedule when read in conjunction with cl.1. But at the time of the signing of the Agreement, or at least almost immediately thereafter, it became apparent to the parties that cll.1 and 3 could not operate in the way envisaged by their terms.
In view of the importance of these provisions, I shall set them out fully.

"1. PROPORTION OF SERVICE CHARGE AND
MAINTENANCE CONTRIBUTIONS
The Service Charge and maintenance contribution payable by the Resident pursuant to the provisions of Clause 3 of this Service Agreement and this Schedule:
(a) shall be such part of the total expenses incurred by the service company as shall be calculated by reference to the formula: P=T/N
Where P is the amount for which the Resident shall be liable
T is the total expenses incurred by the service company
N is the number of Lots for the time being on the Plan of Subdivision but shall not include any Lot occupied by any person or persons employed by or who works for the service company or any Lot set aside for use in common by the members of the service company or any lot owned by the Vendor and created for the purposes of the development of a subsequent stage of the Village.
(b) shall be due and payable by the Resident at the expiration of seven days from the date of notice from the service company of the amounts payable or at such other time as the Directors of the service company shall fix.

.	3.	TRANSITIONAL PROVISIONS
3.1	Until the Completion Date the Vendor undertakes to assume responsibility for meeting all financial obligations of the service company, save and except that the Vendor shall not be under any obligation to make provision for maintenance items of a substantial but infrequent nature. In consideration for the foregoing undertaking given by the Vendor, the service company agrees until the Completion Date to pay to the Vendor all service charges and maintenance contributions received from all Residents.
3.2	As soon as practicable after the Completion Date the service company shall cause accounts to be prepared in respect of its financial position at the Completion Date. After all proper adjustments have been made in respect of liabilities incurred but not paid and in respect of all prepayments, the Accountant preparing such accounts shall certify whether or not any deficiency exists in the funds of the service company. If a deficiency is certified to exist then the amount of such deficiency shall be paid forthwith by the Vendor to the service company.
3.3	After the Completion Date the Vendor will pay a service charge and maintenance contribution (calculated in accordance with this Schedule) in respect of each Lot in respect of which the service company has not entered into a Service Agreement with the owner, or occupier thereof."

The operation of cl.3.1 was, at least so far as the recoupment of the expenses and costs was concerned, dependent upon the proposed method of calculation of the service charge under cl.1 of the Schedule. Clause 1, however, could not and, on the evidence, was not intended by the parties, to operate literally during the development stage of the project. In practical terms, the arrangement proposed in cll.1 and 3 could work sensibly once the project was completed, but not during its development stage. For example, if one assumes that Stage 1 consisted of 20 units only, the Plan of Subdivision would show 21 Lots, being referable to the 20 units and to the residual land (which would be regarded as one lot). If cl.1 of the Schedule were to be applied literally, the 20 unit holders would effectively have to share all the expenses of the service company. This difficulty was obviously recognised by the parties and cl.1 of the Schedule was never implemented in accordance with its terms. The same applied to cl.3. Clause 3.1 of the Schedule involved the defendant undertaking the responsibility for making the payments and then being reimbursed by way of residents' levies which were to be calculated in accordance with cl.1. The two clauses were interdependent; so that if cl.1 could not operate according to its terms, then neither could cl.3.1 For similar reasons, cll.3.2 and 3.3 could also not operate according to their terms.
The parties conducted their affairs on the basis that during the development phase, the service charge, which was to be paid by the residents, would be calculated by dividing the total cost of the service company by a figure representing the total number of (proposed) units to be constructed. The amount so arrived at would represent the service charge to be paid by each resident, and the balance would be paid by the defendant. What occurred almost from the outset was that the net costs of the service company (after it recouped its proportion of the costs from the residents pursuant to the new arrangement) were funded by the defendant. The evidence establishes that when the service company was out of funds, it arranged for the defendant to pay its expenses and shortly after year end, there was an adjustment between it and the service company which usually resulted in the defendant making up the shortfall in the company's income for the year.
In practice, therefore, the transitional provisions of the Service Agreement were never applied. The funding occurred by way of calls upon the defendant to pay those amounts by way of subsidy.
Consequently, I answer the question posed by saying that the expression in cl.7.1(f) “the expenses and costs of the service company” means the liability of the defendant to pay the amounts required to meet the shortfall between the total expenditure of the service company and its total receipts.
Question 4

A(d) Upon the proper construction of the Management Agreement does cl.
7.1(f) apply if the combined costs of the defendant of marketing and of
the service company exceed the cost of those items as set out in the Project
Budget?

It is common ground that the answer to that question is, yes.
Question 5

B. For the purpose of cl.3 of the Second Schedule to the Service Agreement was the completion date 6 May 1994 or some other and what date?

I have already mentioned that the parties now agree that the answer to that question is, 6 May 1996.
Question 6

C. Is the right (if any) of the defendant to give a notice of termination to be determined as at 2 May 1997?

It is common ground between the parties that the answer to that question is, yes.
Question 7

D. Upon the proper construction of the Management Agreement does the expression in cl.7.1(f) "the expenses and costs of marketing" include:-
(a) In relation to Betty Humphries and Malcolm Humphries the whole of the salaries paid to them by the defendant;
(b) Alternatively part of the said salaries proportionate to the amount of their working time that was devoted to marketing (or depending upon some other and what basis)?

I have already expressed the view, that on a proper construction of the Agreement, the term "expenses and costs of marketing" in cl.7.1(f) is constituted by marketing salaries and advertising expenses. For immediate purposes, advertising is not relevant. The present question is whether, as the defendant contends, all salaries paid to persons who were "marketing personnel" as defined in the Agreement, should be classified as marketing salaries or whether marketing salaries should be confined to salaries paid to personnel in respect of the marketing of units.
The term "marketing salaries" is not defined in the Agreement. But it is clear enough, in my view, that it contemplates that the marketing of units in the Village would be carried out by "marketing personnel", a term which is defined to include the Humphries and anyone else nominated by the plaintiff by notice in writing and approved by the defendant to carry out marketing functions. Although the definition does not, in terms, state that such personnel are to engage in marketing, the inescapable inference is that such employees would perform that function. This is confirmed by Recital B which refers to the plaintiff being in the business of procuring "personnel for the marketing of retirement villages" and by cl.3 of the Agreement which requires the plaintiff to procure "marketing personnel" who were to enter into the "Employment Contract" as defined which, in turn, deals with the employees' duties in respect of the marketing of units in the Village.
Thus, the relevant scheme of the Agreement was that marketing personnel would perform the function of marketing the units. In my view, the salaries paid to those who performed that function, are properly described as "marketing salaries" for the purposes of the Project Budget and are, therefore, "expenses and costs of marketing" for the purpose of cl.7.1(f). But it does not necessarily follow that all salaries paid to personnel who are so designated are "marketing salaries". Taking a hypothetical case, if such personnel performed no marketing functions at all, but performed some other work, they would no longer relevantly be "marketing personnel" and the moneys paid to them by way of salaries would clearly not constitute "marketing salaries". In the case of the Humphries, for example, the evidence shows that during two discrete periods, they acted as temporary managers of the Village and the plaintiff and the defendant settled the accounts as between themselves, accordingly. The plaintiff was reimbursed by the defendant at least in respect of one of those periods. In my view, even if one could say that, strictly speaking, they remained "marketing personnel" during the two periods to which I have referred, the function or the work performed by the Humphries in relation to the Village, was not marketing work. Thus, the payments made to them in respect of that work would not be properly described as "marketing salaries". Consequently, such payments would not be "expenses and costs of marketing" for the purposes of cl.7.1(f).
The determination of what part of the Humphries' salaries is to be included in "expenses and costs of marketing", involves the characterisation of the function or work performed by them. If, properly characterised, a substantial part of the work falls into the category of managing the Village or some other non-marketing function, then the salaries paid to them in respect of that work would not be "expenses and costs of marketing". On the other hand if, on a proper characterisation of their activities, the conclusion is reached that the Humphries, say, managed the Village and marketed the units, an appropriate proportion of their salary would be included as part of the "expenses and costs of marketing".
Any characterisation of the functions performed by a member of the marketing personnel does not necessarily mean that a detailed examination of every item of work performed by that employee has to be examined and, where it is concluded that some items of work cannot be properly described as marketing, a corresponding reduction should be made from their salaries for the purpose of calculating the expenses and costs of marketing. For example, if the Humphries have, from time-to- time, driven the bus which took the residents shopping, such an activity may not be described as marketing, but it would not necessarily follow that their salaries should be reduced by an amount attributable to the time spent by them on driving the bus (for the purpose of determining what part of their salaries form part of the expenses and costs of marketing). In order to determine whether their salaries constitute marketing expenses, nothing more is required than a determination of whether, broadly, such salaries related to marketing activities undertaken by them. That will obviously require some examination of their activities, but it would not warrant an analysis of every task undertaken by them to see if it was truly a marketing function. Thus, they could still be described as "marketing personnel" who performed a marketing function, notwithstanding that occasionally they engaged in an activity which was not, strictly speaking, a marketing function, such as driving the Village bus.
It follows that part (a) of this question is to be answered, no. As to part (b), in my view, the answer is that only such portion of the salaries paid to the Humphries as is referable broadly to the performance by them of a marketing activity, constitutes "expenses and costs of marketing" for the purposes of cl.7.1(f).
Question 8

D(c) Upon the proper construction of the Management Agreement does
the expression in cl.7.1(f) "the expenses and costs of marketing"
include such part of the salary paid to:
(i)         Sandra Laird;
(ii)        Bob Atkins;
(iii)      Ken Terry;

as was paid for work at the Village on or after 8 January 1997 being the
work referred to in Exhibit 8A?

The exhibit referred to is a witness statement of Porter of 10 August 1998, which establishes that after early January 1997, Laird performed marketing functions at the Village (having taken over from Jackie Devidal (Devidal)) and that Atkins and Terry were engaged as casual week-end marketing staff (the latter working for only one week-end).
It is common ground that the defendant took into account in calculating the actual expenditure on marketing salaries, the amounts paid to the above persons. There is also no dispute between the parties that Laird, Atkins and Terry were paid those salaries in respect of marketing work performed by them. Laird was, for practical purposes, a full-time marketing employee while Atkins and Terry were casual week- end workers.
The dispute between the parties about those payments centres around whether the employees were nominated by the plaintiff for the purposes of the Agreement. It will be recalled that "marketing personnel" is defined as including "persons as shall be nominated by the (plaintiff) ... by notice in writing to the (defendant) and ... approved by (the defendant)". It is common ground that the three employees were not nominated by the plaintiff in writing or otherwise in any formal sense.
As I understand the plaintiff's case, no point is taken about the fact that those employees were not nominated in writing. The argument seems to be that since they were not nominated by the plaintiff, their salaries after 8 January 1997, do not form part of the expenses and costs of marketing for the purposes of cl.7.1(f).
I am satisfied on the evidence, that casual week-end marketing staff at the Village was almost never formally nominated by the plaintiff, yet part-time and casual employees were used to the knowledge of both parties. Although the plaintiff became aware of the employment of, for example, casual employees, there was no relevant formality between the parties in relation to their engagement. There is no evidence that the plaintiff complained about the use of such staff or that it requested that their employment be terminated. Such flexible approach to the use of marketing employees was not confined to casual staff. The evidence shows that there was a substantial degree of informality in the hiring and changeover of nearly all marketing staff. It was usually carried out either by consensus or discussions between the parties, but there was no practice of the plaintiff making nominations as to the marketing staff. For example, some employees such as Devidal, left their employment as marketing staff at the Village, but returned later to resume that role. Her return to the marketing position took place without the plaintiff making any nomination.

So far as the employment of Laird is concerned, the evidence shows that she was employed for a period as the manager of a service company. She then resigned from that position and later became involved in marketing at the Village between about January 1996 and August 1996, when she ceased working there. In about October 1996, the defendant commenced negotiations with the plaintiff to buy-out its rights under the Agreement. During the course of those negotiations, the defendant proposed to the plaintiff's representatives that it would re-engage Laird in a marketing role at the Village (and that Atkins would be engaged for casual week- end marketing work). No disagreement or doubt was then or ever voiced by the plaintiff in relation to such employment of Laird and Atkins. I am satisfied on the evidence, that the plaintiff was content with that proposal. In fact, it was the plaintiff that suggested the timetable for Laird's take-over of marketing responsibilities from Devidal.
The provisions in the Agreement requiring marketing staff to be nominated by the plaintiff, were inserted for the protection of the plaintiff which was responsible for the work of such employees. It also had an obvious vested interest in ensuring that units were sold. I am satisfied on the evidence, that the plaintiff obtained the contemplated level of protection in relation to the employment of the three marketing personnel in question. In my view, the totality of the evidence makes it clear that the plaintiff tacitly accepted the engagement of Laird and the use of staff like Atkins and Terry for casual week-end marketing services. Put another way, I am satisfied on the evidence, that the plaintiff approved the use of the three marketing personnel whatever may be said as to the plaintiff's state of satisfaction, or lack of it, about the defendant taking over the marketing function in early 1997.
It is also necessary to keep in mind that it was a major plank of the Agreement that (subject to the plaintiff having the protection referred to earlier in respect of marketing employees) the actual marketing salaries were to be taken into account in determining whether the plaintiff's relevant budgetary costs were exceeded for the purpose of calculating whether the defendant had the right to terminate the plaintiff's position under the Agreement. For reasons I have given earlier, the protection that the Agreement afforded to the plaintiff in respect of the three relevant marketing employees, has been satisfied in substance. In those circumstances, therefore, all their 1997 marketing salaries are to be taken into account in making the relevant calculations.
Consequently, the answer to question D(c) should be that the expenses and costs of marketing for the purpose of cl.7.1(f) include the salaries paid to Laird, Atkins and Terry after 8 January 1997, for the work carried out by them as described in Exhibit 8A.
Question 9

E. Is the commencement date for ascertaining the expenses and costs of marketing and the service company 6 May 1993 or some other and what date?

Clause 7.1(f) does not, in terms, state from what date the actual expenses and costs referred to in it are to be calculated. The period of the Agreement, however, is ten years from the commencement date which is defined, so far as is relevant, as 7 May 1993. Consequently, the inference is open that if at any point in time during the period of ten years commencing 7 May 1993, the relevant expenses and costs exceed those in the Project Budget, the defendant gains the right to terminate the Agreement under cl.7.1(f). On that basis, the commencing date for the purposes of ascertaining the expenses and costs in that clause, would be 7 May 1993.
The defendant, however, contends that the relevant commencement date is the date when the defendant acquired its interest in the Village, namely, 13 November 1992. It points to two principal matters in support of this claim.
One is that this conclusion is to be readily inferred from the terms of the Agreement, inasmuch as "Project Budget" is defined to mean the annexed budget for the "construction, development, marketing and management of the project". "Project" is defined as being "project of the acquisition marketing construction and development of the Village". Thus, it is said, the Project Budget was prepared in respect of a period which commenced with the acquisition of the Village, namely, 13 November 1992. Consequently, since the Agreement intended to compare like with like, the actual costs contemplated by cl.7.1(f) must be those which were incurred from 13 November 1992.
The second matter relied on by the defendant is that if there is an ambiguity in cl.7.1(f) in relation to this issue, resort may be had to the circumstances surrounding the making of the Agreement, more particularly, the cash flows prepared by Saul in respect of the various budgets. The defendant claims that those cash flows show that the figures in those budgets date from 13 November 1992. Consequently, it says, the Project Budget was prepared on the basis that the relevant expenses were calculated from 13 November 1992.
The plaintiff, on the other hand, contends that the relevant commencement date is 6 or 7 May 1993. In support of that contention, it points to the definition of "commencement date" in the Agreement to which reference has already been made. Further, it says that cl.2 of the Agreement makes it clear that the plaintiff's obligation under it (including the procuring of marketing personnel) was to commence only on the defined commencement date. Similarly, its entitlement to monthly payments under cl.4 of the Agreement was also to commence on the defined commencement date. The plaintiff says further that the defendant's contention that the relevant expenses are to be calculated from 13 November 1992, would mean that the plaintiff agreed to having expenses and costs taken into account in respect of a period before its own obligation came into existence. The plaintiff says that this was unlikely to have been intended by the parties, particularly bearing in mind that the aim of cl.7.1(f) was to protect the defendant from any overspending brought about by the plaintiff.
Moreover, even if one were to look at Saul's earlier spreadsheets and compare them with those supporting the Project Budget, it is obvious that while the earlier ones may have gone back to 13 November 1992, because they include the payment of the sum of $400,000 by the defendant for the Village in November 1992, no such amount is included in the spreadsheets that is referable to the Project Budget. This shows, says the plaintiff, that the Project Budget was not based on expenses and costs going back to November 1992.
The plaintiff says there is another reason why the spreadsheets in relation to the Project Budget do not go back to November 1992, but use only anticipated or prospective figures. Such spreadsheets show monthly marketing expenses of $8,133. The plaintiff says that the defendant would not have incurred such costs prior to May 1993, even if one assumed that the wages paid to Hynes were to be included. She was paid a total of approximately $27,000, so that the allocation of $8,133 to monthly salaries commencing in month one, could not have been a reflection of her wages between November 1992 and May 1993. Similarly, there were no other marketing expenses disclosed for the earlier period which would have justified the figure of $8,133 per month between November 1992 and May 1993. Thus, the marketing costs in those spreadsheets are prospective costs used for the purposes of the Project Budget.
In my view, on a proper construction of the Agreement, the commencing date for ascertaining the expenses and costs of marketing and the service company for the purposes of cl.7.1(f) is 7 May 1993. The defendant made the point on a number of occasions during the hearing that in relative terms, it had no experience in operating and marketing retirement villages, whereas the plaintiff put itself forward as an expert in the area. Hence, the plaintiff was appointed to manage the Village. The risk to the defendant was that the plaintiff's actions in so managing the Village could result in an overrun in the relevant costs. Consequently, cl.7.1(f) was inserted. Its obvious purpose was to protect the defendant against the overrun of certain costs. This risk to the defendant did not start until 7 May 1993, because it was only then that the plaintiff assumed its obligations under the Agreement.
From the plaintiff's point of view, it subjected itself to the risk of having its services terminated if the relevant costs incurred during its management of the Village, exceeded the corresponding budgeted costs. The plaintiff was to have a direct input into the running of the Village and would, therefore, have at least the opportunity of having an influence over the incurring of the relevant expenses. The defendant's preferred construction of the clause, namely, that the commencement date for ascertaining the relevant costs was 13 November 1992, would mean that the plaintiff exposed itself to the risk of termination in respect of costs over which it had no direct or indirect control. Similarly, if the defendant is correct in its construction argument, it would obtain the protection of the clause in relation to a period in respect of which the plaintiff played no relevant role and which was beyond that contemplated by that clause.
In those circumstances, it is likely that the parties intended that the plaintiff's position could only be terminated if the relevant expenses and costs that were incurred during its period of management, exceeded the corresponding costs in the Project Budget. In other words, the expenses and costs referred to in cl.7.1(f) were prospective expenses and costs, incurred after 7 May 1993.
Hence, it is my view, that on a proper construction of the Agreement the relevant commencement date is 7 May 1993.
But even if one had to go to the spreadsheets of Saul for the purpose of resolving the ambiguity that arises in this context in relation to cl.7.1(f), it becomes fairly apparent that those spreadsheets, which were prepared for the purpose of the Project Budget, do not contain a reference to the payment of $400,000 (reflecting part of the purchase price of the Village paid by the defendant in November 1992). By way of contrast, the earlier spreadsheets did contain that figure, thereby indicating that those earlier spreadsheets may well have been calculated from the date of the defendant's acquisition of the Village. The absence of a reference to this in the spreadsheets prepared for the Project Budget, tends to confirm that the Project Budget was not based on the period commencing 13 November 1992.
In my view, however, there is no need to resort to the spreadsheets for the purpose of resolving the question in issue. The inference that the starting date for the calculation of the expenses and costs referred to in cl.7.1(f) is the commencement date of the Agreement, can be sufficiently deduced from its terms in the way I have summarised earlier.
Consequently, the answer to this question should be that the relevant commencement date is 7 May 1993.
Question 10

F. Is the plaintiff estopped as alleged in paragraphs 16AF, 17AJ and 17B of the Further Amended Defence dated 31 July 1998 from denying the matters or asserting the matters (as the case may be) alleged in paragraphs 16AB, 16AC, 17AB, 17AC, 17AD, 17AE, 17AF, 17AG and 17A of the Further Amended Defence.

There are three sets of estoppel alleged by the defendant in its Further Amended Defence.

(A) The plaintiff is estopped from denying that all the wages and salaries of personnel (presumably, marketing personnel,) including what was paid to the Humphries, Reeves, Laird and Hynes, were part of the expenses and costs of marketing (wages estoppel).
Although, in its pleadings, the defendant does not so state in terms, I assume that the marketing expenses and costs in relation to which the estoppel is supposed to operate, are those contemplated by cl.7.1(f). I say this because otherwise it is difficult to see what would be the point of determining if such wages fell within marketing expenses generally. After all, the dispute relates to whether the circumstances justified the plaintiff giving a notice under cl.7.1(f).
[Paragraphs 16AB, 16AC and 16AF of the Further Amended Defence.]

(B)

The plaintiff is estopped from denying that certain items of expense (expense items), namely, the Council and Melbourne Water rates, the LTM, the transfer to the Bus Reserve, repairs and maintenance and sundry items were part of the expenses and costs of the service company (expense items estoppel).

I make the same assumption in relation to this estoppel as I did in respect of the wages estoppel, namely, that the calculation is being made for the purpose of cl. 7.1(f).
[Paragraphs 17AB-17AF and 17AJ of the Further Amended Defence.]

(C)

The plaintiff is estopped from asserting that for the purposes of cl.7.1(f) the "expenses and costs of the service company" are not represented by the contributions required to be made by the defendant to the service company to meet the difference between the actual expenses and costs of the service company and its receipts (service company funding estoppel).
[Paragraphs 17AG, 17A and 17B of the Further Amended Defence.]

I will proceed to examine separately the case in relation to each of the three estoppels.

(A) Wages estoppel

Although in its pleadings the defendant contends that this estoppel operates in respect of all the salaries of personnel, including those of the Humphries, Reeves, Laird and Hynes, the case was fought on the basis that the estoppel was limited to the salaries of the five-named employees. The final submissions were similarly limited. Consequently, I propose to deal only with the issue insofar as it concerns those employees, who can be divided into the following groups:
(i)         the Humphries, Reeves, Laird
(ii)        Hynes
(i)         The Humphries, Reeves, Laird
In paragraph 16AB of the Further Amended Defence, the defendant alleges that the plaintiff "represented to the defendant, and further, the defendant was led to assume and believe that the entire wages and salaries of personnel (including the Humphries, Reeves and Laird) were part of the expenses and costs of marketing and both the plaintiff and the defendant so treated those wages and salaries ...". In its Particulars that relate to this assertion, the defendant relies essentially on the failure by the plaintiff to object to the inclusion of the entire wages and salaries of those personnel in the financial accounts (including the Analysis Reports) which were accepted by the parties at their regular management meetings. As I understand the defendant's final submissions, it does not press this point in relation to the salaries of Reeves and Laird. In respect of the Humphries, however, it claims that it (and the plaintiff) assumed that the whole of the salaries paid to them were part of the expenses and costs of marketing.
Turning first to the question of whether there was any relevant representation by the plaintiff to the defendant, I am satisfied on the evidence, that there was no such representation made. The defendant relied in this respect principally on the Analysis Reports and on the memorandum of 5 August 1993, from the defendant to the management committee. Thus, they were the defendant's documents. I am satisfied on the evidence, that the Analysis Reports were not relevantly seen or analysed by the plaintiff. I accept Ball's evidence, that he never looked at their contents other than in a general way, partly because he was not skilled at analysing them, but principally because he was interested only in seeing if the project as a whole was on budget, as distinct from reviewing the several items shown in the documents. On the question of whether the project was on target, he sought assurances from McArthur and was almost invariably told that the project costs did not vary materially from the budget. Put shortly, his receipt and cursory examination of the accounts and his failure to raise any queries do not, in the circumstance, amount to any relevant representation by him.
Furthermore, the Analysis Reports were not prepared for the purpose of determining whether the salaries of the Humphries were properly characterised as expenses and costs of marketing. On the defendant's own evidence, these Reports were put forward for the purpose of comparing the whole of the expenditure to date in relation to all aspects of the project, including construction, management and marketing, with the corresponding budgeted figures. As I have already said, in many instances, the budgeted figures were not those taken from the Project Budget, but included amounts which were the product of the defendant's revision. There was no suggestion in the evidence, that the accounts were put forward as representing expenses and costs that formed part of the marketing expenses and costs for the purpose of cl.7.1(f), or more generally.
In those circumstances, the failure by the plaintiff to raise an objection to the inclusion of all of the Humphries' salaries in those accounts, does not amount to a representation by it to the defendant that those wages were part of the relevant expenses and costs in cl.7.1(f), or otherwise. The same conclusion applies to the contention of the defendant that by reason of the plaintiff's failure to raise those objections, it induced in the defendant the assumptions contended for. Arguably, the plaintiff may have accepted the basis on which the accounts for the project (and for the service company) were prepared, but that stops well short of it being a representation to the defendant that the accounts properly characterised the salaries and wages of the Humphries for the purposes of cl.7.1(f), or otherwise.
As to the memorandum of 5 August 1993, it was prepared on behalf of the defendant by Porter, but there is a dispute between the parties as to whether it was ever received by the management committee. The resolution of this issue is not critical to the determination of this aspect of the case, but it is relied on by the defendant as showing that the plaintiff represented to the defendant, and itself acted on the assumption, that the composition of the expenses and costs of the service company was as is shown in that memorandum. In my view, the evidence does not establish on the balance of probabilities, that the document was handed over at any of the meetings of the management committee. Porter first said that she handed it over or tabled it at a meeting of the committee on 6 August 1993. But when it was pointed out to her that the minutes of that meeting did not show her as being present, she agreed that it was unlikely that the document was so tabled. She then said that she believed that the document was produced at the next meeting, but the relevant minutes do not record such an event and it is fair to say that, not surprisingly, she had no independent recollection of whether the document was actually presented by her to the meeting. The evidence of Ball and Malcolm Humphries was that although they attended the management committee meetings, they had no recollection of sighting this document. They said in evidence, that they had not seen it before it was shown to them shortly before they gave evidence. In the circumstances, I am not satisfied on the evidence, that the document was in fact presented to a management committee meeting. It follows that I am not satisfied on the evidence, that the plaintiff sighted this document.
I mention for completeness the timesheets that were filled in by the Humphries on which the defendant relies and which are referred to in the Particulars. The evidence establishes that the Humphries only filled in the timesheets for week-end work. Consequently, that material does not assist the defendant.

(ii) Hynes

In paragraph 16AC of the Further Amended Defence, the defendant makes an allegation in respect of Hynes' wages similar to the one it makes in paragraph 16AB of its Defence in respect of the Humphries. The matters relied upon to establish the allegation in relation to Hynes, include:
(a)        During pre-contract discussions between Sent (on behalf of the defendant) and Ball (on behalf of the plaintiff), it was agreed that Hynes would proceed to market and sell units and the defendant would pay the plaintiff a commission on sales made by Hynes, including those made before the contract.
(b)        Failure by the plaintiff to make objections in respect of the accounts to which I have referred to earlier.
(c)         The defendant paying the plaintiff commission on reservations of units at the Village made by Hynes prior to the date of the contract.
As to the first matter, I am not satisfied on the evidence, that the conversation between Sent and Ball relied on by the defendant constituted a representation that the Hynes wages were to be taken into account as part of the expenses and costs of marketing for the purpose of cl.7.1(f). At the beginning of the hearing, the defendant said that its case on this point was that in or about February 1993, Ball and Sent agreed that any sales made by Hynes would be for the credit of the plaintiff for the purpose of, inter alia, estimating its commissions on sales. It claimed that after that agreement, and consistently with it, the marketing salaries in the budget were increased from $250,000 to $300,000. The evidence shows, however, that the discussions between Ball and Sent on this question took place in about October 1992, before the defendant acquired the Village and that they were held in the context of negotiations between the parties about the possibility of them working together to develop the Village. The evidence does not support the contention that the Sent/Ball discussions resulted in the budget item for salaries being increased from $250,000 to $300,000 or that the defendant agreed with the plaintiff that Hynes would proceed to
market and sell units.
Furthermore, I am satisfied on the evidence, that although she stayed on at the Village after the defendant acquired it, she remained there only for the purpose of providing the impression of continuity to the only residents there, Mr and Mrs Lloyd and to those who had expressed to her an interest in acquiring a unit in the Village.
As to the defendant's claim that it paid the plaintiff commission on reservations of units made by Hynes prior to the date of contract, the evidence shows that when the plaintiff assumed management of the Village, Hynes gave it a list of names of people who were interested in acquiring units. Eventually, two units were sold to persons on that list. The evidence does not establish, however, that Hynes made any "reservations" of units prior to May 1993. The term "reservation" was used by the parties to describe the situation where a village unit was informally reserved for a prospective purchaser who had verbally agreed to buy the unit on the condition that he or she would sell their existing home.
For the reasons given by me in the context of the defendant's claim in respect of the Humphries, the plaintiffs failure to object to the relevant parts of the Analysis Reports did not amount to it making the representation or the assumption contended for by the defendant.

(iii) Conclusion as to wages estoppel

In the circumstances, therefore, it is my view, that the plaintiff is not estopped from asserting that in calculating the expenses and costs of marketing for the purpose of cl.7.1(f), not all of the salaries of the Humphries and Hynes are to be taken into account. Thus, the answer to the question, insofar as it is concerned with the estoppel alleged in paragraph 16AF of the Further Amended Defence is, no.

(B) Expense items estoppel

I am satisfied on the evidence, as to the following matters:

(a)

The accounts of the service company which were prepared by Saul and which were audited, show that the expense items were part of the costs of the company.

(b)

As I have already indicated, the defendant paid the ongoing expenses of the service company as and when they arose, except when the company had its own funds from the levy. In such circumstances, it paid particular items of expense. At year end, an adjustment was made and the defendant paid the shortfall by way of supplementary service company funding or, as happened on a few occasions, the defendant was credited with overpayment. The shortfall was calculated by reference to, inter alia, the expense items which, as I have said, were included as part of the cost structure of the service company. Put another way, the service company funding or subsidy was calculated on the basis that the expense items were the costs of the service company as shown in its accounts.

(c)

The payments made by the defendant from time-to-time by way of or on account of the service company subsidy were made at the effective direction of the plaintiff, generally through Saul. Although he prepared the accounts for the service company as an independent accountant and was paid for that service by the service company, he was at all relevant times the financial controller of the plaintiff and in that capacity, had general control over the financial operations of the Village, including the service company. It was, in fact, the plaintiff's role to supervise the Village manager and the performance of the service company. In respect of the financial matters, the plaintiff carried that out through Saul. Thus, for example, he wrote to McArthur on 3 March 1997, on the plaintiff's letterhead, directing him as to the manner of keeping and preparing accounts for the service company and as to how monthly deficits should be met (through the funding by the defendant). It was also Saul who calculated the residents' levy on the basis of budgets.
Porter's evidence was that Saul was accepted by the plaintiff and the defendant as the service company's accountant because he was the plaintiff's accountant who had experience in financial matters relating to service companies of retirement villages operated by the plaintiff. Consistently with this, there are numerous letters in evidence, written by Saul on the letterhead of the plaintiff, which relate to the financial matters of the service company, including its budgets, financial statements and sundry matters, all of which, in one way or another, related ultimately to the service company funding which the defendant had to provide. Although he prepared the company's financial accounts as its accountant (and not as the plaintiff's accountant) he supervised and generally directed the financial affairs of the company on the plaintiff's behalf.
In the end of year accounts, prepared by Saul and pursuant to which the service company and the parties conducted their respective affairs in relation to the Village, he took account of the expense items (or at least some of them) as part of the expenses of the company. Where, on the basis of those figures, the accounts showed a shortfall, that was shown as a "contribution" by the defendant. The making of this "contribution" by the defendant enabled the income and expenditure report of the company to show a nil balance. In the circumstances, as a matter of reality, the defendant made the subsidy payments pursuant to the overall supervision and the effective request, of the plaintiff.
(d) Both parties proceeded on the basis that the service company accounts as prepared by Saul, accurately reflected its financial transactions and showed the funding which was ultimately required to be injected by the defendant so as to produce a nil balance. I say "ultimately", because the exercise of ascertaining how much further funding, if any, was required to produce a nil balance in the accounts, was carried out after the close of the financial year.

I am satisfied on the evidence, that both parties accepted the accounts as being accurate; they showed the expense items as cost items of the company. Not only was no objection taken to that by the plaintiff, but Saul, for instance, agreed in cross- examination that in preparing the accounts, he attempted to account accurately for all items of service company expenditure, including the expense items. Moreover, Ball said in cross-examination that he effectively accepted that the accounts reflected service company funding requirements which had to be met by the defendant. Thus, I am satisfied on the evidence, that it was the plaintiff who was effectively responsible for the preparation of the service company accounts, or alternatively, effectively sanctioned them as being correct and as being the basis on which the defendant was to settle its subsidy payments. As I have mentioned, those accounts included the expense items and formed the basis of the calculation of the subsidy that had to be paid by the defendant. Put another way, the plaintiff and the defendant proceeded on the basis that the accounts accurately showed the expenses and costs of the service company and the defendant paid the subsidy on that basis (and later issued its notice of termination assuming the figures in the accounts were accurate).
In Amalgamated Investment & Property Co. Ltd. (in liquidation) v. Texas Commerce International Bank Ltd. [1982] 1 Q.B. 84, Lord Denning, having, at 121, adopted what Dixon, J. said in Grundt & Ors. v. Great Boulder Proprietary. Gold Mines Ltd. (1937) 59 C.L.R. 641, 657, 677, said, at 122, "All these (various estoppels) can now be seen to merge into one general principle shorn of limitations. When the parties to a transaction proceed on the basis of an underlying assumption - either of fact or of law - whether due to misrepresentation or mistake makes no difference - on which they have conducted the dealings between them - neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give such remedy as the equity of the case demands".
In Grundt, supra, Dixon, J. said, at 674, "The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations". One condition for the operation of this rule is that the applicant for relief must have so acted or abstained from acting upon the footing of the state of affairs assumed, that it would suffer a detriment if the opposite party were afterwards allowed to set up rights against it inconsistent with the assumption. His Honour said that the purpose of the doctrine was to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting.
At 675-677, his Honour stated that before anyone can be estopped, he had to play such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. His Honour then referred to what he had earlier said in Thompson v. Palmer (1933) 49 C.L.R. 507, 547, namely:
"Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations (or because of other circumstances where it would be unfair for him to depart from the assumed position)."
Dixon, J. emphasised that belief in the correctness of the facts or state of affairs assumed, is not always necessary. He referred to what lsaacs, J. said in Ferrier v. Stewart (1912) 15 C.L.R. 32, 44-46, where his Honour found that there was an estoppel simply because the parties adopted a conventional basis for the transaction. He said that in that particular case, the parties impliedly agreed that when the promissory note should be completed by the endorsements, it should be assumed to have been issued and endorsed by the parties in due order. From this assumption the endorsee was not permitted to depart, although all parties had been aware of the actual state of affairs.
In Con-Stan Industries of Australia Pty. Ltd. v. Norwich Winterhur Insurance (Australia) Ltd. (1986) 160 C.L.R. 226, the Court said, at 244, that "Estoppel by convention is a form of estoppel founded not on a representation of fact and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying." In that case, however, the doctrine had no application for two reasons. First, there was no evidence that the parties adopted the alleged assumption. Secondly, estoppel by convention required the assumed state of affairs to be an assumed state of facts, but on the evidence in that case, the assumption was as to the legal effect of the conduct of the parties and not an assumption of fact. The apparent limitation by that decision, of the doctrine of estoppel by convention to an assumption of facts as distinct from law, is now generally regarded as binding dicta (see Eslea Holdings Ltd. (formerly IPEC Holdings Ltd.) v. Butts (1986) 6 N.S.W.L.R. 175, 186; Riseda Nominees Pty. Ltd. v. St. Vincent's Hospital (Melbourne) Ltd. [1998] 2 V.R. 70, 76-77).
That the proposed departure from the assumed state of affairs is unjust or unconscionable and is a basis for the operation of estoppel by conduct (or convention) was also recognised by Deane, J. in Commonwealth v. Verwayen (1990) 170 C.L.R. 394, 442-446. Similarly, Hedigan, J. in Bridge Wholesale Acceptance Corporation (Australia) Ltd. v. Lagarna Pty. Ltd. (unreported, Supreme Court of Victoria, 30 November 1993), after reviewing the relevant authorities, said that estoppel by convention is founded not on representation of fact made by a representor and believed by a representee, but upon an agreed state of facts, the truth of which has been assumed by the convention of the parties as the basis of the transaction between them. When the parties have acted in their transaction upon agreed assumptions that a given set of facts is to be accepted between them as true, then, as regards that transaction, each will be estopped as against the other in questioning the truth of the statement of the facts so assumed (if to do so would be unjust or unconscionable).
In Verwayen, supra, at 445, Deane, J. stated that the critical question of whether departure from the common assumption would be unconscionable, must be resolved not by reference to a "preconceived formula", but by reference to all the circumstances of the case, including the conduct of the party sought to be restrained, the reasonableness of the party seeking relief, as well as the nature and extent of the detriment which the applicant would sustain "by acting upon the assumption if departure from the assumed state of affairs were permitted".
In the present case, I am satisfied on the evidence, that both parties conducted their affairs and in particular, the defendant paid the subsidy, on the basis that the service company accounts were accurate and that, therefore, they properly contained the expense items. I am also satisfied that the plaintiff procured those accounts to be prepared, albeit at the formal request of the service company and that it regarded them as accurate in its dealings with the defendant. The defendant also regarded them as being accurate and acted accordingly. This situation prevailed for some years and it would be, in my view, unjust or unconscionable for the plaintiff now to resile from that position. The defendant would obviously suffer a significant prejudice from this change in position. It has paid the subsidy on the basis that the expenditure items formed part of the expenses of the company. If that position were altered and some or all of the expense items were removed from the accounts of the service company, it would mean that the defendant overpaid the subsidy; it is unlikely now to recoup that excess. (It also made its calculations for the purpose of determining whether it was entitled to issue the notice of termination on the basis that the accounts were accurate. An obvious injustice to it would flow if the plaintiff were now to claim that the accounts were not accurate to the extent that the expense items were included in them.)
In the circumstances, therefore, it is my view, that the plaintiff is estopped from denying that the expense items were part of the expenses and costs of the service company. Hence, the answer to question F is, yes to the extent that it relates to paragraphs 17AJ and 17AB to 17AF of the Further Amended Defence.

(C) Service company funding estoppel

For reasons which I have summarised in relation to the analysis of the claim for the expense items estoppel, the parties proceeded on the basis that the service company funding which was provided by the defendant from time-to-time as described by me earlier, constituted the "expenses and costs of the service company" for the purposes of cl.7.1(f). It was a critical expense item which had to be borne by the defendant. The item corresponded with a like item that the plaintiff produced in the Project Budget and against which it was prepared to be, in effect, judged for the purposes of cl.7.1(f). On the evidence, both parties proceeded on the footing that the service company subsidy which was paid by the defendant virtually at the behest, or at least, with the sanction or approval, of the plaintiff, was to be one of the items of expense and costs within the meaning of that clause.
Consequently, the answer to question F, insofar as it relates to paragraphs 17B, 17A and 17AG, is yes.
Question 11

G. Upon the proper construction of the Management Agreement, if when calculating "the expenses and costs of the service company" for the purposes of cl.7.1(f) it is proper to exclude any items of expenditure of the service company, should one also exclude that proportion of the resident's levy which represents excluded items.

In light of the answer to question F, this question need not be considered.

"(c)	at the end of a stage of construction of the Village the cost of the construction of that stage has exceeded the Proprietor's budgeted cost by a figure in excess of 20% in excess of that budgeted cost as set out in the Project Budget;
(d)	in the Proprietor's opinion (formed on reasonable grounds) the likely profit to be made on the project will be more than $1,000,000 less than the profit projected in the Project Budget;
(f)	the expenses and costs of marketing and the service company exceed the costs of those items as set out in the Project Budget."

ENGINEER	$ 40,000
ARCHITECT	$ 60,000
VAL/QS	$ 20,000
FINANCE	$ 40,000
LANDSCAPE	$ 50,000
LEGAL	$179,000
INSURANCE CONTRACTORS	$ 25,000
INS HBA	$ 25,000
LAND TAX	$ 80,000
RATES	$100,000
PARKS/GARDENS	$ 50,000
TOWN PLANNING	$ 10,000
PERMITS	$ 25,000
MARKETING SALARIES	$300,000
MARKETING/ADV	$400,000
SEV CO. FUNDING	$300,000
ARC PROJECT MGT 3%	$278,064
ARC SALES COMM 2.5%	$459,888
MAINPOINT MGT	$200,000
MAINPOINT COMM	$459,888 $3101839"

Engineering/surveying	40,000
Architecture	60,000
Valuations and QS fees	20,000
Finance	40,000
Landscaping bonds	50,000

Legals	Say 1000 per contract 150	150,000 360,000
Statutory fees and charges
Stamp Duty: Land 5.5%	Assume nil	0

Insurances: Contractors all risk and house builders liab	50,000
Council and MMBW rates, land tax	180,000
Council Parks and Gardens contribution 5% Allow	50,000
Town Planning and Building Permit fees/amendment	35,000 315,000
Service Company setup and Marketing
Salaries: 2 marketing persons 3 yrs. plus incentives	300,000
Marketing and advertising fund. brochures	400,000
Service Company setup and funding	300,000 1,000,000
Other fees

Construction fees	3% of cons	9,213,805	276,414
ARC marketing	2.5% sales	18,386,500	459,663 736,077

(i)	ARC sales commission 2.5%	$459,888
(ii)	Marketing salaries	$300,000
(iii)	Marketing/advertising	$400,000
(iv)	Legal	$179,000
(v)	Mainpoint commission	$459,888?

(B)	The plaintiff is estopped from denying that certain items of expense (expense items), namely, the Council and Melbourne Water rates, the LTM, the transfer to the Bus Reserve, repairs and maintenance and sundry items were part of the expenses and costs of the service company (expense items estoppel).
I make the same assumption in relation to this estoppel as I did in respect of the wages estoppel, namely, that the calculation is being made for the purpose of cl. 7.1(f).
[Paragraphs 17AB-17AF and 17AJ of the Further Amended Defence.]
(C)	The plaintiff is estopped from asserting that for the purposes of cl.7.1(f) the "expenses and costs of the service company" are not represented by the contributions required to be made by the defendant to the service company to meet the difference between the actual expenses and costs of the service company and its receipts (service company funding estoppel).
[Paragraphs 17AG, 17A and 17B of the Further Amended Defence.]

[1998] VSC 164

4 December 1998