West End Motor Group Pty Ltd v Fisher

[1999] NSWSC 1071

CITATION:	West End Motor Group Pty Ltd v Fisher [1999] NSWSC 1071
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	2673/97
HEARING DATE(S):	29 March - 1 April, 6-7 April and 19 April 1999
JUDGMENT DATE:	9 November 1999
PARTIES :	West End Motor Group Pty Ltd (formerly W A Fisher Enterprises Pty Ltd) (P & 1XD) William Austral Fisher (D1 & XC) W A Fisher Pty Ltd (D2) Terry J Dodd (2XD) Alan John Potter (3XD)
JUDGMENT OF:	Hamilton J

COUNSEL :	P Hallen SC and M K Meek (P & XDs) R Dubler (1 & 2D & XC)
SOLICITORS:	Schrader & Associates (P & XDs) Corrs Chambers Westgarth (1 & 2D & XC)
CATCHWORDS:	EQUITY [76] [77] - General principles - Mistake - Equitable relief - Rectification - Generally - Pre-existing concluded oral contract or common intention sufficient - Nature of evidence required and onus of proof - Convincing proof required.
CASES CITED:	Bush v National Australia Bank (1992) 35 NSWLR 390 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Lief Investments Pty Limited v Conagra International Fertiliser Company 16 July 1998, NSW CA, unreported Pukallus v Cameron (1982) 180 CLR 447 Re BT Property Trust 31 March 1998, Hamilton J, unreported, noted in (1998) 72 ALJ 933
DECISION:	Plaintiff found entitled to rectification.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

TUESDAY, 9 NOVEMBER 1999

2673/97 WEST END MOTOR GROUP PTY LIMITED (formerly W A FISHER ENTERPRISES PTY LIMITED v WILLIAM AUSTRAL FISHER & ANOR

JUDGMENT

His Honour:

1    These are proceedings for the rectification of three leases. The matter arises in the following way. For many years up to 1995 the W A Fisher Group of companies conducted successful motor distributorships in the Parramatta district. Until 1995 the controller and managing director of the companies in the Group was the first defendant. The leases upon which this case focuses are of properties in Church Street, North Parramatta. There are four adjoining properties. Three of them front Church Street (“the three Church Street properties”), the other is behind them in Seville Street, which is a side street, that property being known as No 1 Seville Street. The three Church Street properties are collectively known as 584 - 594 Church Street. Sometimes (in valuations and elsewhere) they are also described collectively as 588 Church Street. But the properties are on three separate titles and are known respectively as 584 - 586 Church Street, 588 - 590 Church Street and 590 [sic] - 594 Church Street. Of the three Church Street properties, the first two are owned by the second defendant, W A Fisher Pty Ltd, and the third by the first defendant, Mr Fisher, personally.

2    Prior 20 May 1992, although the three Church Street properties had been used for the purposes of the business, formal written leases of them had not existed. On 20 May 1992 written leases of the three Church Street properties were executed (“the 1992 leases”). Each was expressed to be for a term of three years commencing on 1 July 1990 and terminating on 30 June 1993. It is clear, and not contested between the parties, that the intention at that time was that the total rent of the three Church Street properties should be in round terms $150,000 per annum, being 10 per cent of the total value assigned by a valuation to the three Church Street properties. In the 1992 lease of 584 - 586 Church Street (being the land comprised in certificate of title folio identifier 1/550732) the rent appeared as $150,000 per annum. In the 1992 lease of 588 - 590 Church Street (being the land comprised in certificate of title Volume 11771 Folio 136) the rent was recorded as $8,500 per annum. In the 1992 lease of 590 - 594 Church Street (being the land comprised in folio identifiers 1/783086 and 2/783086) the annual rent was recorded as $1. Each of the 1992 leases contained an option for renewal for two further terms each of three years. The last mentioned property was described in the 1992 lease of it as 1 Seville Street. It is agreed that this is an error and that the address should have appeared as 590 - 594 Church Street. The folio identifiers are the correct references to the title of the latter property. The 1992 leases were not in very good order. As well as there being the misstatement of the address of the property the subject of the third lease, the rents stated in the first two leases were also erroneous. The $150,000 stated in the lease of 584 - 586 Church Street was incorrect because this was the whole intended rental for the three Church Street properties and was meant to be divided equally between this property and 588 - 590 Church Street, not all attributed to 584 - 586 Church Street. The rent in the 1992 lease of 588 - 590 Church Street was wrong because it was intended to be half of the $150,000. The $8,500 wrongly inserted was in fact meant to be the rental of 1 Seville Street, which was the subject of a fourth and separate lease. This situation was corrected by two formal instruments in registrable form of variation of lease executed on 24 November 1992. The first reduced the $150,000 rent stipulated in the lease of 584 - 586 Church Street to $75,000 per annum. The second increased the rent of 588 - 590 Church Street from $8,500 to $75,000 per annum. This produced the situation that the rent of the three Church Street properties was, as intended, $150,001 per annum, $75,000 each being borne by 584 - 586 Church Street and 588 - 590 Church Street respectively and the rent of 590 - 594 Church Street being a nominal $1 only. Each of the three leases provided for the payment of full outgoings by the lessee. Each of the 1992 leases also contained a rent review clause which provided that the rent should be increased each year by the greater of 7 per cent or an amount proportionate to the increase in the Consumer Price Index; there was no provision for a review to market.

3    There is no doubt on the evidence that the arrangement of the rent of the three properties in this fashion was a conscious decision. There is some contest as to the degree of participation of Mr Fisher in that decision. In short, the difference is that Mr Fisher says in effect that he did not want that arrangement and protested against it, but that his accountants and/or lawyers insisted that it be arranged in that way; other witnesses suggest that at the very least Mr Fisher was fully aware and approving of the arrangement of the rentals in that way, or even that the arrangement emanated from him. I do not accept his evidence in this regard.

4    The general manager of the business from the middle of the 1980s was Mr Terry Dodd. As Mr Fisher grew older it is quite plain that Mr Dodd played a greater and greater part in the running and decision making of the businesses. However, it is apparent if one looks at the minutes of the directors’ meeting of the WA Fisher Group of companies held on 4 May 1993, which are in evidence, that, as late as 1993, Mr Fisher was still playing an active role both at directors’ meetings and in the running of various aspects of the businesses, and I so find. That is material because, when the 1992 leases expired in July 1993, the options contained in them were not in fact exercised. The lessee simply continued to hold over under the existing leases. This had the consequence that the existing rentals continued to be paid and there was not an increase of 7 per cent as there would have been at the commencement of the fourth year of the extended term, had the options been exercised. Nor was there thereafter any increase in the rentals payable under the 1992 leases so long as the properties continued to be subject to their provisions. Mr Fisher alleges that he was ignorant of this, or that it was engineered by Mr Dodd for his own purposes. I find that this was not so, and that Mr Fisher either made or approved of that decision.

5    By the middle of 1993 Mr Fisher’s own affairs were in some disorder. He had contracted to buy a property at Pulpit Point for some $2,000,000 and was in a situation where he could not complete that purchase because he did not have sufficient cash funds, and the degree to which the companies’ properties were already encumbered meant that a lender could not be found who would advance the necessary funds upon the security of the companies’ properties. Up to about this time the accountants to Mr Fisher and the companies had been Billerwell Powers & Smith. At this time Mr Fisher had a report upon his affairs prepared by Arthur Andersen which is dated 25 May 1993 and is in evidence. Thereafter Arthur Andersen acted as Mr Fisher’s accountants. As a result of their recommendations in the report he set out to sell his interest in the businesses The obvious purchaser was Mr Dodd, and it was with Mr Dodd that he negotiated. Negotiations led to the preparation by Mr Dodd of a preliminary proposal document which is dated 26 January 1994 and subsequently to “Heads of Agreement” which were ultimately executed by both Mr Fisher and by Mr Dodd, in the latter case on 31 October 1994 (“the heads of agreement”). The deal was in essence that Mr Dodd should purchase the controlling interest in the company W A Fisher Enterprises Pty Limited, which was the operating company, held by Mr Fisher. It was, of course, important, that the company under Mr Dodd’s control should have its tenure of the relevant real estate secured by the grant of new leases. It should be understood that at all times that there were more properties involved than the three Church Street properties and the adjoining 1 Seville Street. The heads of agreement contained the following provision:

“5 Rent for the Company’s premises will be payable at the rate currently paid under the existing leases. Leases will be varied to reflect a new five year term and a five year option. The leases will be amended to reflect that the lessee will not be liable for capital improvements. The lessors will require a personal guarantee and a three month bank guarantee. All outgoings will be paid by the lessee. Rental increases will be at a fixed 5 per cent per annum. The payment of the deferred settlement [of the purchase by Mr Dodd] will be tied to the lease [sic]. Under the terms of the new leases, you will also be granted a first right of refusal on the purchase of the properties.”

6    On 9 February 1995 Mr Dodd sent a fax to “Paul Brown/Glen Hughes” at Corrs Chambers Westgarth (“CCW”), who were acting as Mr Fisher’s solicitors. This attached “a schedule which sets out the total rentals to be paid under the Transaction Documents … No variations to those rents are acceptable”. The schedule showed a rent for 584 - 594 Church Street of $171,735 and for 1 Seville Street of $9,732. These represented the rentals then current under the 1992 leases respectively for the three Church Street properties collectively and 1 Seville Street. It shows the three Church Street properties being treated as one entity.

7    Although the rental to be paid was clearly stipulated in the heads of agreement, dissension arose as to what the rents should be. On 15 February 1995 Arthur Andersen called a meeting to settle the question of the rents.

8    As to that meeting Mr Dodd in his affidavit of 11 August 1997 deposed as follows:

“46 I attended the meeting at the officers of Andersens at approximately 4 pm on 15 February, 1995. The meeting was between myself, the defendant, John Murphy and Ken Barton.
Murphy said: ‘There is a problem with the rents as they should have been higher’.
I said: ‘The rentals had remained the same since the leases expired on 30 June, 1993. There was a bone of contention with the June, 1994 accounts and it had been agreed, prior to execution of those accounts that there was no increase in the rentals as the leases were on a month to month basis. All negotiations had been conducted on those constant rentals and this was covered by numerous amounts of correspondence.’
Murphy said: ‘Bill had thought that the rentals should have been higher and wanted the rents increased by 7% prior to signing. All of Bill’s financial proposals have been on right rentals.’
I said: ‘The rentals being received are market value and we have done our projections based on actual rents. I can’t believe that we are discussing this as it has been clearly documented in the past. Financially I’m in no position to pay in excess of the actual rents currently applicable. The matter has gone on for too long and settlement constantly delayed by you, not me and now you are trying to screw more out of me than was agreed under the heads of agreement which says that the current rental would be the rental payable.’
Mr Fisher and Barton left the room and Murphy and I had a further discussion.
I said: ‘You are trying to force me to pay more rent than agreed by these delaying tactics and to cut Fisher some slack because Barton made incorrect rental projections to Fisher’s financier. Fisher has been unco-operative throughout this whole matter and I’m not prepared to pay any more than was agreed under the heads of agreement. I will not settle if the terms of the heads of agreement are not adhered to with regard to the rents.’
47 Murphy then left the room. After about 10 to15 minutes Murphy returned to the room and said:
‘If the rents are accepted by Bill, would you agree to give Bill some comfort to the second rent review going to market.’
I said: ‘So the rents will be as per the existing lease, the same as the schedules I have sent to yourselves and Corrs, in return the second rent review will be a market review to ensure that Fisher is getting at least market rent for his properties, and all other reviews will be 5% of C.P.I.’
Murphy said: ‘Yes. All fisher wants to do is ensure that he was at least getting a fair rental for his properties.’
I said: ‘If I can agree to this, can we proceed to settlement without any further problems.’
Murphy said: ‘Yes.’”

9    In a further affidavit sworn on 4 September 1997 Mr Dodd amplified his account of the meeting as follows:

“[T]hat conversation continued with word (sic) to the following effect:
Dodd: If there is a market review, how will the Church Street properties be treated?
Murphy: Bill will be entitled to a market review after two years to ensure he is receiving a fair market rent for the properties at that time. Any increase as a result of the review will be reflected in the rental paid for the properties 584-590 Church Street but not for 590-594 Church Street. All Bill is concerned with is that after two years, if there is an upward movement in market rents, he is receiving market rents for his properties.
Dodd: So the existing least arrangements will continue and a market review ill be done in two years to ensure Fisher is receiving at least market rent for all his properties. The Church Street site will be assessed as a total site and the rent for the total site will be reflected in the two properties owned by Fisher’s companies and the rent on the property owned by Fisher personally will remain at its nominal rate.
Murphy: Yes, but you must understand that if the market assessment is higher than the rents being paid at that time, you will have to pay higher rent. Bill wants to ensure that he is getting market rental to underpin the values of his properties.
Dodd: Then the leases will continue as they are and any increase will be reflected in the rents paid to Fisher’s companies as opposed to Fisher personally.
Murphy: That’s right.
This meeting was the first time a mid term market review was raised … However I did not object to such a review.”

10    It is Mr Murphy’s affidavit as to that meeting that is vital from the defendants’ point of view, since on all accounts Mr Dodd and Mr Murphy were alone together when the operative portion of the discussion took place. This affidavit was sworn on 16 September 1997, after both of Mr Dodd’s affidavits. As to large parts of the extracts from Mr Dodd’s affidavits which I have set out above, Mr Murphy by his affidavit either conceded that those things, or words to that effect, had been said, or that it was likely that they had been. Mr Murphy’s substantive account of the meeting was as follows:

“4 My understanding at that stage was that the existing lease arrangements had been put in place by Mr Dodd, the leases had expired approximately two years ago and the rentals had simply stayed in place at the same rent as in the expired leases.
5 When the meeting commenced I put forward Mr Fisher’s position which was essentially that ‘all rents are too low’. My recollection is that Mr Dodd replied in words to the effect that: ‘the rents should remain the same and I am not in a position to pay anything more than the current rental figures.’
6 When a stalemate was reached between Mr Fisher and Mr Dodd, I together with Mr Fisher and Mr Barton went to a separate room to discuss our position. …
7 I then went back to the room with Mr Dodd while Mr Barton and Mr Fisher remained in the other room. I discussed the matter with Mr Dodd in words to the following effect:
I said: ‘If Bill agrees to keep the rents as they are for two years, will you agree to having the rents in each of the leases increase to either market rent or by 5% whichever is the greater after the two years?’
Mr Dodd said: ‘Yes. I’ll agree to that.’
8 At some point Mr Fisher and Mr Barton joined the meeting and there was discussion between Mr Dodd and Mr Barton about arranging settlement.”

Mr Murphy claimed that whilst he was outside the room with Mr Fisher the “$2.00” lease was specifically discussed between them, and that after the meeting he believed that Mr Fisher would receive a substantial rental increment on the review to market by the rent of the third property going from $2 to market rental.

11    On 15 February 1995, after that meeting, Mr Dodd wrote to Messrs Brown and Hughes at CCW as follows:

“Rents will be as per my schedule sent to your office by fax on 9.44 am on February 9. To ensure that we obtain correct amount for the Bank Guarantees on each lease please advise immediately the exact rental for each lease (totalling $352,428 p.a.).
The only variation to the lease is to be a market rate determination or 5% (whichever is the greater) after 24 months. The remaining annual increases will be as previously agreed ie 5% at 12, 36 and 48 with market rate determination at 60 mths as per the existing leases. Both market rate determinations are to be as per the existing leases. Commencement dates will be 17 February 1995.
It is also required that the attached schedule showing ‘Proposed Transactions’ be added to the Share Sale Agreement as an additional addendum and that this is to be reflected in clause 10.2 Dodd’s warranty.”

One of the tables in the attached schedule was as follows:

“PROPERTY DESCRIPTION Ann Rents Mthly Rent
1 Ferris Street 27,478 2,290
187 George Street 70,984 5,915
1 Seville Street 9,732 811
584-594 Church Street 171,735 14,311
2 Ferris Street 72,500 6,042
TOTAL ANNUAL RENT 352,429 29,369”

12    On 16 February 1995 CCW wrote to Mr Schrader of Schrader & Associates (who was acting as Mr Dodd’s solicitor) as follows:

“Please find enclosed amendments for the Leases. In order to amend the Leases it will be necessary to insert pages headed 7, 8a, 8b, 8c, and 9 in the place of the existing pages 7, 8 and 9. Also enclosed is the summary of lease particulars and execution page for each Lease.
Please note that on instructions from our client and subject to confirmation from you that the properties in Church Street are amalgamated into the one property, the rental figures are as follows:
1 1 Seville Street $9,732.00
2 588-590 Church Street $2.00
3 584-586 Church Street $171,731.00
4 590-594 Church Street $2.00
5 2 Ferris Street $72,500.00
6 1 Ferris Street $27,478.00
7 187 George Street $70,984.00”

The distribution in this schedule of the rents of the three Church Street properties was erroneous and did not reflect any discussion that anyone has ever suggested took place between the parties, though it is to be noted that it, too, treated the three Church Street properties in a global way. The replacement page 8 contained a clause 2.09 relating to market rent determination. The effect of this was that, in the case of any lease at nominal rent, that rent would undoubtedly go to market on the market review. The rent under the leases of the other of the three Church Street properties would go to market or increase by 5 per cent, more likely the latter, unless there was a very sharp rise in the rental market, so that there would be a very sharp increase in the overall rental of the three Church Street properties.

13    On 17 February 1995 a settlement meeting was held at the offices of CCW. That meeting was a very confused one by reason of additional errors that had crept into the leases and the need for last minute correction of them and some feeling of heat, generated by the situation that even now the achievement of finality was being threatened by the errors in the documents. During the course of that meeting Mr Dodd says that he listed the rentals of the seven properties and continued:

“I further said: ‘This is exactly as agreed under the heads of agreement. The property 590 - 594 Church Street will remain at $2.00 and any increase as a result of the market review will be reflected in the rental paid for the properties at 584 - 586 Church Street and 588 - 590 Church Street.’
Barton and Mr Fisher said: ‘That’s correct.’”

Both Mr Barton and Mr Fisher deny hearing this said or assenting to it.

14    Mr Dodd receives some corroboration from Mr Alan Potter, a fellow director of the plaintiff. Mr Potter deposed in his affidavit that at the 17 February meeting he heard Mr Dodd assert that when the review to market took place under the three Church Street leases, the global market rent would be distributed between two leases and the third would remain at a nominal rent. He says that Mr Hughes assented to this. Under cross examination he conceded that he was not certain who had assented on behalf of the Fisher camp, but remained firm that he had heard Mr Dodd make the statement and had heard the assent. He had been told by Mr Dodd that this was the arrangement. If accepted, he corroborates that Mr Dodd spoke of this understanding at the 17 February meeting and that this was Mr Dodd’s understanding after his conversation with Mr Murphy.

15    If Mr Dodd’s version of what was agreed or intended as to the rentals is correct, nobody noticed the inappropriateness of the inclusion of clause 2.09 in the leases of all of the three Church Street properties without any modification or proviso to give effect to the agreement or intent he contends for.

16    On 15 March 1995, CCW wrote to the Commissioner of Stamp Duties a letter concerning the seven leases. The letter included the following:

“In relation to the variations on the rent, we have not used the CPI as the Leases expressly provide for a 5% increase each year. Accordingly, we have calculated the total rent over the term of the Leases based on a 5% increase in each Lease, each year.
The properties referred to as Folio Identifier 1/550732, Folio Identifier 1/783086 and 2/783086, and Volume 11771 Folio 136 (now being Folio Identifier 1/128009) all comprise one site known as 584-594 Church Street, North Parramatta. The total rent for these three titles is $171,736. The total outgoings for these three titles are $25,415. However, for commercial reasons we have allocated rent and outgoings as per the attached schedule. We ask that, for the purposes of stamp duty, these three titles be assessed globally as this is indicative of the market rent and market outgoings for these titles taken as a whole.
We have calculated (see attached) stamp duty to be $7,673,40 and we ask that the documents be stamped accordingly.”

The relevant portion of the attached schedule is as follows:

“Property Base Rent Term Total Rent
per year (years) @ 5% over Term
1 Ferris Street 27,478 5 151,833.28
2 Ferris Street 72,500 5 400,608.26
187 George Street 70,984 5 392,231.40
1 Seville Street 9,732 5 53,775.44
584-586 Church St 85,867 5 474,469.36
588-590 Church St 85,867 5 474,469.36
590-594 Church St 2 5 11.05”


Those who participated in preparing the letter were less than entirely clear about the source of their instructions, but said they were attempting to state the true situation to the Commissioner, which I accept. If a market rent were to be attributed to 590 - 594 Church Street after the review to market, the statements in the letter would not be true

Contentions

17    When the time for the rent review came, the defendants claimed that they were entitled to have the rentals of the three Church Street properties (including the nominal rental) individually reviewed to market. The plaintiff claimed that it was entitled to have the leases of the three Church Street properties rectified so that the overall rental of the three should be assessed to market globally, then divided equally between the leases of 584 - 586 and 588 - 590, leaving the rent of 590 - 594 nominal. It made this claim on the basis that it had established a concluded antecedent agreement to that effect or alternatively that that was the common intention of the parties at the time of the execution of the leases: see the decisions of the Court of Appeal in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 and Lief Investments Pty Limited v Conagra International Fertiliser Company 16 July 1998, unreported; and also the statements of Hodgson J (as his Honour then was) in Bush v National Australia Bank (1992) 35 NSWLR 390 at 406 - 408 and in my own judgment in Re BT Property Trust 31 March 1998, unreported, noted in (1998) 72 ALJ 933. Mr Fisher has cross claimed for the rent of 590 - 594 Church Street reviewed to market against the plaintiff and against Mr Dodd and Mr Potter as guarantors under that lease.

The witnesses

18    I did not have the impression that any of the witnesses who gave oral evidence was attempting deliberately to mislead the Court. However, in my view, the quality of their evidence differed very considerably. The four most important witnesses were Mr Dodd, Mr Fisher, Mr Murphy and Mr Potter.

19    Mr Dodd. Mr Dodd I found an impressive witness, straightforward, facing up to and dealing with the questions he was asked and able to make admissions against interest when that was required.

20    Mr Fisher. Mr Fisher on the other hand was a very unimpressive witness. It became apparent during the course of his evidence that he had some difficulty of hearing, although this was not revealed at the commencement of his evidence. That said, I did not have the impression that the problems with his evidence arose in any significant way from that difficulty. Mr Fisher prevaricated and was very difficult to bring to the point when it came to answering particular questions. He showed determination to repeat various themes that were in his mind, often when being asked about quite different matters. One of these themes was a constant denial of any responsibility on his part for various things that had occurred. He constantly suggested that matters had been left in the hands of his accountants or his solicitors, not in the sense that he had left them to carry them out in detail, but in the sense that he left matters entirely to them and did not participate in the decisions that were taken. He often said that he did not know of these decisions. I have already indicated that I do not accept that he was unaware of what was occurring when the rentals of the three Church Street properties were arranged so that one bore only a nominal rent and the rentals of the other two were increased accordingly to give the desired overall rental. His repeated answers suggesting that this was the idea of other people, that it was forced upon him, that he did not know what it was about and that he constantly asked why it was, I simply do not accept. The other person in respect of whom he claimed to have abdicated decision making is Mr Dodd. It is apparent that there was a close relationship between them over the years and even now Mr Fisher acknowledges that he was a very good manager. The relationship between them really seems to have degenerated only over the transaction now in dispute. However, Mr Fisher was prepared to state on oath on a number of occasions that Mr Dodd had carried out acts such as obtaining valuations for his own purposes, with the suggestion that this was in derogation of the interests of the companies or Mr Fisher. When challenged about these in cross examination he was unable to substantiate any of them or even give any reason for having had or sworn to the stated belief. I do not accept these allegations as factual. I have already adverted to the minutes which show continuing participation by Mr Fisher in a real way in the business as late as 1993. I do not accept that important decisions were taken except by him or with his concurrence up to and including early 1995. Bearing in mind his demeanour and the whole of his evidence, including the above features, I find his evidence quite unreliable. It may be that the acuity of his mind has degenerated somewhat with age, even since the events that are in question in these proceedings. However that may be, I am not prepared to rely upon his word in respect of any important matter

21    Mr Murphy. The other most important witness for the defendants was Mr Murphy. I certainly do not think that Mr Murphy set out to give any untrue evidence. However, I am of the view that there are matters that detract from the reliability of his evidence. He was brought into the meeting of 15 February 1995 as a negotiator specifically to break the impasse as to rental levels between Mr Dodd and Mr Fisher. However, it is apparent from his evidence that he never had detailed knowledge about the leases and the particular rents. I accept that he was aware of the overall rentals then being paid; that the rental under one lease was a “peppercorn” rental. He says that he was aware that the rent foregone on the peppercorn property was somehow or other spread among all the leases (not specifically the leases over the other two Church Street properties). He was quite unaware, he says, of how this operated. What he was clear about was that Mr Fisher wanted more rent; he appears to have believed that Mr Fisher felt that the rents were too low, both because the annual increment had not taken place after the terms of the 1992 leases had expired and because Mr Fisher believed that the rental level said to be market rent at the time was in fact an undervalue of the rent. When pressed, Mr Murphy was clear that there was a difference, in this particular case (although in most cases there would not be), between market rental under all the leases and market rental on all the properties. Whether he was clear about this or had it in his mind on 15 February 1995 is another question and I have doubts as to the extent to which he did. Even under cross-examination, whilst acknowledging the difference, he kept blurring in the answers he gave the distinction between “properties” and “leases”, both in his evidence concerning the relevant conversations and generally. Furthermore, he conceded that, whilst he was clear as to what his intention was when speaking to Mr Dodd, he could not be clear about the words used. I believe that the evidence he gave, whilst given honestly, had a large element of reconstruction in the light of what he now knew to be the significances.

22    Mr Potter. I also accept Mr Potter as a reliable witness. He was prepared to make concessions where appropriate but adhered to the bulk of his affidavit evidence.

23    The evidence of Mr Barton and Mr Hughes I do not regard as being as central as that recounted above. As I have already said, I do not think that either of those gentlemen set out to deceive. But where there is conflict, I prefer the evidence of Mr Dodd, Mr Potter and Ms Dunn to that of Mr Barton and Mr Hughes.

Conclusions

24    The long and short of the matter is that when it comes to the conversation of 15 September 1995, particularly the vital conversation at which Mr Dodd and Mr Murphy alone were present, bearing in mind what I have said about the quality of the evidence of the witnesses and my observations of them, and bearing in mind all the circumstances of the matter, I accept Mr Dodd’s account of that conversation. One of the circumstances that is of particular importance in leading me to that conclusion is that Mr Dodd was at all times resolute that he could not afford to pay any more rent. I have no doubt that, unlike Mr Murphy, Mr Dodd had very squarely in his mind the nominal rent, and the consequential inflation of rent above market on the two adjoining properties. Whilst it is reasonable to believe that as a compromise to prevent the deal from going off he would agree to a review in two years to market rent or five per cent, whichever was the greater, on the basis that the rent of the two Church Street properties bearing inflated rents would be treated as the rental of the whole of the three Church Street properties, I find it against the probabilities that he would accept a formula which was prone to produce a rent result likely to be well over market if the inflated rents were increased by five per cent and the third property went from nil to market rental. I also regard the three contemporaneous documents referred to in [11], [12] and [16] as tending to support the plaintiff’s case.

25    Furthermore, Mr Dodd says that he spoke at the settlement meeting on 17 February 1995 of the peppercorn rent remaining unchanged on Mr Fisher’s property after the market review of the Church Street properties. He says that Mr Fisher and Mr Barton assented. Mr Potter also deposes that Mr Dodd said something to that effect at that meeting and received an assent from Mr Hughes. It is put by Mr Dubler, of counsel for the defendants, that these assertions should be taken to be “a deliberately concocted lie”. He says that I should reject Mr Dodd’s account of his conversation with Mr Murphy on 15 February 1995 by reference to this untruthfulness and its effect on Mr Dodd’s credit. I have already indicated that I accept Mr Dodd as a witness of truth and that I accept his version of the conversation with Mr Murphy. I also accept Mr Potter as a reliable witness. I accept that he heard the $2 rent spoken of and heard an assent by someone on the defendants’ part, perhaps Mr Hughes. This may have been the same exchange Mr Dodd spoke of, or it may have been another one. By reason of the differences in the evidence of Mr Dodd and Mr Potter in this regard, it does not smack of concoction. As I have said in [13], that meeting was a very confused one. The course of events and the locations of and distances between the various participants at any time are not at all clear. I accept that Mr Dodd made this assertion, very likely on more than one occasion, and that there was assent on behalf of the defendants.

26    In view of the foregoing, I find that the plaintiff has established in the requisite way that there was a concluded antecedent agreement to the effect claimed by the plaintiff at the time that the leases were executed. In making that finding I bear in mind that there must be convincing proof that the executed documents do not embody the final intention of the parties: Pukallus v Cameron (1982) 180 CLR 447; Lief Investments supra. If it were necessary, I should find that there was a common intention to that effect at that time. Short minutes should be brought in to give effect to my conclusion and disposing of the cross claim. Costs and any ancillary matters can be dealt with when the minutes are brought in.

…oOo…

Last Modified: 11/10/1999