Softwash Castle Towers Pty Ltd v Queensland Investment Corporation

Eastern Nitrogen Ltd v FCT [1999] FCA 1536; (1999) 43 ATR 112 Eon Metals NL v Commissioner of State Taxation (WA) (1991) 22 ATR 601 FCT v Phillips [1978] FCA 28; (1978) 8 ATR 783 Government Insurance Office of New South Wales v RJ Green & Lloyd Pty Ltd [1966] HCA 6; (1966) 114 CLR 437 CASES CITED : Metal Manufactures Ltd v FCT [1999] FCA 1712; (1999) 43 ATR 375 Multiplex Constructions Pty Limited v Irving [2004] NSWCA 346 National Vulcan Engineering Insurance Group Ltd v Pentax Pty Limited t/as Lif-Rig [2004] NSWCA 218 Temples Wholesale Flower Supplies v FCT [1991] FCA 162 Wincant Pty Ltd v South Australia [1997] SASC 6287; (1997) 69 SASR 126

PARTIES : Softwash Castle Towers Pty Ltd (Plaintiff) Queensland Investment Corporation (Defendant)

COUNSEL : C J Leggat SC with B M Zipser (Plaintiff) J W J Stevenson SC with D A McLure (Defendant)

SOLICITORS : Tiernan & Associates (Plaintiff) Allens Arthur Robinson (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20404/2007 Softwash Castle Towers Pty Ltd v Queensland Investment Corporation

JUDGMENT 1 HIS HONOUR: By lease dated 22 November 2002 ("the lease") the defendant leased premises to the plaintiff known as shop 298 Castle Towers Shopping Centre, Castle Hill in Sydney ("the premises"). The lease commenced on 21 January 2003. It was for a term of five years with two five-year options to renew. Clause 30.4(e) of the lease provided as follows: "30.4(e) If the Landlord terminates the Lease under this clause, the Landlord must pay the Tenant compensation for the fitout of the Premises if the Tenant was required under the Lease to fitout the Premises, whether or not the demolition of the premises is carried out." 2 In August 2006 the defendant gave notice to the plaintiff pursuant to that clause that the lease would terminate on 14 February 2007. A dispute arose between the plaintiff and the defendant as to the amount of compensation that the defendant was required to pay to the plaintiff in the circumstances. The plaintiff commenced these proceedings by statement of claim filed on 9 November 2007. An amended statement of claim was filed on 27 March 2008. The plaintiff claims $2,145,053 as the amount of compensation payable to it. The defendant does not dispute that the plaintiff is entitled to compensation in accordance with the clause but disputes the amount that is claimed. This dispute arises from the differing contentions about what is meant by the expression "compensation for the fitout of the premises". The principal issue is whether the individual items claimed by the plaintiff are compensable. There are other subsidiary issues as well. 3 At the hearing of the proceedings the parties agreed that there were a series of questions that should be answered by me in the first instance. These are dealt with below. The effect of this approach was to limit the proceedings to the real issues in dispute so that any calculations of the amount of the compensation due to the plaintiff could be done by the parties with the benefit of my answers. Before turning to those questions it is necessary to consider some of the background material in more detail. Background

4 The plaintiff was incorporated on 3 September 2002. It proposed to conduct a carwash from the premises. By 13 September 2002 its directors had become Peter Kamvounias, Dimitri Kouklidis and Peter Gacomi ("the directors"). On the same day the plaintiff entered into a deed ("the Dynaservice-Softwash Deed") with Dynaservice Pty Ltd ("Dynaservice"). Dynaservice and the plaintiff had common directors. Between about July 2002 and March 2003 there was a fitout of the premises. Most of the fitout was carried out by Dynaservice pursuant to its obligations in the Dynaservice-Softwash Deed. Those works commenced in approximately September or October 2002. 5 The plaintiff was obliged by the terms of the Dynaservice-Softwash Deed to pay Dynaservice $1,650,000 plus GST for its services. The plaintiff had no assets of its own. In this respect each of the directors borrowed money from a bank to pay that amount to Dynaservice. The proper characterisation of the way in which the directors did so, and its relationship to the calculation of the plaintiff's entitlement to compensation for the fitout, is at the heart of some of the questions that are called up for consideration. This is referred to later. 6 In September 2002 the plaintiff commenced purchasing goods and services in connection with the fitout. At about this time also the plaintiff created the Softwash-Castle Towers Unit Trust through which it proposed to conduct the business of the carwash. On about 3 March 2003 the plaintiff commenced trading at the premises. It ceased trading on or about 18 February 2007 and vacated the premises on or about 16 March 2007. Between January and May 2007 the plaintiff took steps to sell the assets of the business although not all assets were sold. 7 The terms "compensation" and "fitout" are not defined in the lease. Clause 35 of the lease defined "fitout works" as "the works to be carried out by the Tenant described in the Fitout Guidelines and all other works necessary to fitout the Premises". "Fitout Guidelines" is defined to mean "the design guidelines and criteria, rules and safety requirements and other documents adopted by the Landlord from time to time for the fitting out of premises in the Centre". 8 The two significant areas of dispute relate first to a car washing machine unit that was installed upon the premises and secondly to the construction and installation costs of the fitout, including the installation of that machine. These are not the only issues in dispute. The washing machine unit 9 The following questions are posed for consideration with respect to this item of equipment: "(1) Did the plaintiff transfer legal ownership of the washing machine unit to the partnership in the financial year ending 30 June 2004?

(2) Did the plaintiff transfer the beneficial interest in the washing machine unit to the partnership in the financial year ending 30 June 2004?

(3) If the answer to question 1 or 2 is yes, is the plaintiff precluded from recovering compensation for the washing machine unit?

(4) If the answer to question 3 is no, is the plaintiff entitled to compensation for the washing machine unit in circumstances where the plaintiff removed the washing machine unit and sold it following termination of the lease?" 10 It is convenient to deal with the defendant's submissions on these questions first. According to the defendant, the plaintiff's 2003 tax return and financial statements record total income of $23,305.12, total expenses of $280,913.47 (including depreciation of $166,228), plant and equipment of $1,625,626 and issued units of trust capital of $1,815,000. The defendant submitted that this last amount represents the money paid into the business by the unit holders and used by the plaintiff to meet its obligation to pay Dynaservice the sum of $1,815,000 pursuant to the Dynaservice-Softwash Deed. 11 Nicholas Gacomi was employed by the plaintiff from October 2003. He is a qualified accountant. He became co-manager of the business in February 2004. From mid-July 2004 he commenced doing the weekly bookkeeping and prepared the end of year financial statements. From that time he made the majority of the executive management decisions for the business in consultation with Mr Kamvounias and Mr Kouklidis. Prior to the preparation of the 2004 tax return, Mr Gacomi realised that in circumstances where the business was experiencing trade losses, it was of no benefit to the business to continue to depreciate the fitout and construction costs. The other directors agreed with him. Consequently, the plaintiff's accountant was instructed to cease claiming for depreciation of plant and equipment in the tax return. 12 The plaintiff's 2004 tax return and financial statements record total income of $207,334, total expenses of $286,486 (including depreciation of $9,918), plant and equipment of $34,085 and issued units of trust capital of $1,000. The five most valuable items of plant and equipment that appeared in the plaintiff's 2003 depreciation schedule do not appear in the 2004 schedule. 13 In 2004 a tax return was lodged for a partnership consisting of Peter Gacomi, his wife Effie Gacomi, Peter Kamvounias, his wife Kathy Kamvounias and Veria Investments Pty Ltd (a company of which Dimitri Kouklidis and his wife were the directors and shareholders). At the time, the directors and unit holders of the plaintiff were Mr Gacomi, Mr Kamvounias and Mr Kouklidis. 14 The depreciation schedule annexed to the 2004 partnership tax return lists the same five items of plant and equipment that appeared in the plaintiff's 2003 tax return. In the 2004 tax return, the partnership recorded income of $48,000 for leasing the plant and equipment back to the plaintiff and claimed a depreciation deduction of $271,842. This led to an overall loss of $223,843. Each of the partners then set off his or her or its share of that loss against taxable income in personal tax returns. This arrangement continued in the 2005, 2006 and 2007 financial years. 15 In 2003 and 2004, the same accountant appears to have prepared all the relevant tax returns. From 2005 onwards, the tax returns were prepared by Gan Business Developers, which employed Nicholas Gacomi. According to the defendant's submission, it is clear from these matters that around the time the 2004 tax returns were prepared, the directors of the plaintiff must have decided that ownership of the plant and equipment should be transferred to the partnership (evidently created for that purpose), so as to maximise the taxation advantages that could accrue from that arrangement. The defendant contended that in consideration for the partners being assigned ownership of the plant and equipment, the unit holders evidently accepted a reduction in the value of their units from $1,815,000 to $1,000. Whatever may have been the consideration for the transaction, the plan was executed and the relevant parties arranged their affairs accordingly. 16 On 24 December 2008, the plaintiff's solicitors instructed Mr Alameddine of Macquarie Accounts to consider whether the above transactions should be reversed and the plant and equipment re-assigned to the plaintiff. On 10 March 2009 Mr Gacomi posted amended tax returns to the ATO. Whatever the effect of the amended tax returns might be as between the plaintiff and the tax office, they are not, according to the defendant's submission, capable of altering the fact that at the date when the plaintiff's entitlement to compensation arose, it did not own the plant and equipment. The plaintiff cannot therefore be entitled to compensation for it. 17 The defendant perceives that the plaintiff appears to contend, on the assumption that the plant and equipment were fixtures in the leased premises, that it was legally impossible for it to transfer the plant and equipment to a third party. The plaintiff cites Metal Manufactures Ltd v FCT [1999] FCA 1712; (1999) 43 ATR 375 in support of that proposition. However, according to the defendant, that decision is not authority for the contention advanced. The question whether an item fixed to land becomes a part of the land is to be determined by the degree and object of the annexation. In Metal Manufactures, the Federal Court held that the relevant items were fixtures. Each case turns on its own facts. In this case, no evidence is offered by the plaintiff as to the degree of annexation of the plant and equipment. 18 In any event, cl 21.2 of the lease required the plaintiff to remove "tenant's fittings", which undoubtedly includes the fitout. Further, cl 21.5(c) provided that if the plaintiff failed to comply with its obligations under cl 21.2, the defendant could do so and "deal with the [plaintiff's] fittings as if they were the property of the [defendant]". The premise of cl 21.5(c) is that unless and until the tenant failed to perform its obligations under cl 21.2, property in "tenant's fittings" was vested in the tenant. The unavoidable implication is that property in tenant's fittings (i.e. the fitout) did not pass to the defendant upon their installation at the premises. Parties to a lease are able to agree as to whether fixtures form part of the realty. They did so in this case. Accordingly, the plaintiff was capable of transferring, and did transfer, the legal interest in the fitout to the partnership. 19 Even if the plaintiff was not able to transfer its legal interest in the fitout to the partnership, it plainly intended that, from 1 July 2004, the partnership would have the beneficial ownership of it, so as to entitle the partnership to an annual rental in respect of the plaintiff's continued use of the fitout. This, at the very least, created in the partnership an equitable proprietary interest in the fitout. Alternatively, the plaintiff is to be taken as having assigned its rights to remove the fitout under cl 21.2 to the partnership. Whatever may be the correct characterization of the transaction, it actually occurred, and has the result that the cost of the plant and equipment was not, at the date of termination of the lease, lost to the plaintiff. 20 In summary, according to the defendant's case, the plaintiff claims compensation for plant and equipment that it did not own at the date when the entitlement to compensation arose on 14 February 2007. The plaintiff is not entitled to compensation for items of fitout it did not own at that date. The plaintiff cannot have sustained a loss of an item of fitout when the termination occurred, if it did not have any interest in the item at that time. If the plaintiff chose to sell an item of fitout years before the termination, or to transfer or assign it to a related entity for no consideration, it could hardly claim to have suffered a loss of that item years later when the termination occurred. 21 Next, even if the plaintiff were entitled to compensation notwithstanding the transfer, it did not lose the washing machine unit. On the date of termination of the lease the plaintiff was entitled (indeed required by cl 21.2) to remove it. The plaintiff did this and sold it and accordingly did not lose the washing machine unit. The value of the unit was the price for which it was sold so that the plaintiff suffered no loss. The defendant therefore contended that the plaintiff was not entitled to compensation for losses associated with the cost of originally purchasing the unit. (It should be noted that this submission on one view appears to be contradicted by the partnership Capital Allowance (Depreciation) Worksheets for the 2007 tax year that contain an entry under "Disposals" of $165,000 on 14 February 2007 relating to the washing machine unit. This is discussed below). 22 With respect to the defendant's first submission the plaintiff disputed both the proposition that it had transferred the car washing machine unit to another entity in the financial year ended 30 June 2004 and that it was not in the circumstances entitled to compensation in respect of its purchase price. 23 The plaintiff contended that the term "compensation for the fitout" includes compensation for the purchase of assets that are part of the fitout and construction and installation costs. This is because "fitout" of the premises includes assets: see for example the definition of "Tenant's Fittings" in cl 1.1 of the lease, which includes "plant, equipment and other fixtures or fittings which the Tenant has installed". The plaintiff must purchase assets as part of the fitout in order to comply with its obligation to "conduct the Permissible Use": see cl 16.8 of the lease. The site-specific nature of certain items of the obligatory fitout means that there is limited value to the plaintiff in such items once the defendant terminates the lease. In the circumstances, there is no reason why compensation for the fitout should not include compensation for the purchase of assets that are part of the fitout. 24 It was the plaintiff's primary submission that it was at all times the true owner of the unit and that to the extent to which the financial accounts of the plaintiff suggested otherwise they are in error. It is to be observed that the defendant was not able to gainsay that assertion, by establishing ownership of the unit by some entity beyond the plaintiff, other than by reference to the way that the unit is characterised in the plaintiff's financial accounts and those of the partnership. For example, there is no document, such as a contract for sale or an invoice or receipt, which evidences the transfer of the unit out of the ownership of the plaintiff to the partnership. The defendant's contentions arise therefore by inference from the accounting and financial treatment of the unit in the books of the plaintiff and the partnership. 25 In the absence of direct evidence of a transaction by which the plaintiff disposed of the unit, the plaintiff submitted that the various financial and accounting records were inadequate for the defendant's purposes in the face of the plaintiff's assertion of the existence of the error. For example, the plaintiff submitted that a mere journal entry in financial accounts does not give rise to a transfer of assets. In Temples Wholesale Flower Supplies v FCT [1991] FCA 162, at [19] - [20] the Full Federal Court stated: "In Whim Creek Consolidated (NL) v FCT (1977) 17 ALR 421 a debit to an advance account in the books of a company was held to be a payment. But the reason for that holding, as appears from the joint judgment of the Full Federal Court at 429, was that it was expressly found that "there was an agreed set-off" of the sum in question. As Mason J said in Brookton Co- operative Society Ltd v FCT (1981) 147 CLR 441 at 455 ; 35 ALR 293 at 302:

'Payment of a dividend may occur in a variety of ways not involving payment in cash or by bill of exchange, as for example, by an agreed set-off, account stated or an agreement which acknowledges that the amount of the dividend is to be lent by the shareholder to the company and is to be repaid to the shareholder in accordance with the terms of that agreement. It is, however, well settled that the making of a mere entry in the books of a company without the assent of the shareholder does not establish a payment to the shareholder: Manzi v Smith (1975) 132 CLR 671 at 674 ; 7 ALR 685.'

This portion of his Honour's judgment was agreed in by all other members of the court. The passage in Manzi v Smith to which Mason J referred as authority for the proposition stated by him appears in the judgment of Barwick CJ. In the judgment of Jacobs J in that case (CLR at 675; ALR at 687), there is the following passage:

'The entries made through the journal and the books of the company did nothing except alter the manner in which the internal accounts of the company were expressed…. On the one hand there was no agreement at the time of the various dealings or subsequently that only the balance on accounts should be owed from day to day; on the other hand there was no agreement that by the alterations in the expression of the accounts… there should be any alteration in legal rights .'

A similar view of book entries was taken by a Full Court of this court in FCT v P Iori & Sons Pty Ltd 87 ATC 4775, where Beaumont J (at 4788-9) said:

'It is accepted by the respondent, correctly I think, that a payment could be established only if the journal entries relied upon were underpinned by a valid agreement to the effect that payment of its contributions be accepted by the trustees in a form other than by actual cash or by cheque…. But, in my view, there was no valid agreement made in the present case. It is hardly necessary to add that it is not enough for the respondent to demonstrate its intention to make contributions to the fund. The respondent must go further and establish an actual agreement to the relevant effect : in a revenue context and otherwise, 'the intention of a man cannot be considered as determining what it is that his acts amount to' (per Lord Buckmaster in J /s& R O'Kane v Inland Revenue Commissioners (1920) 12 TC 303 at 347).' (Emphasis added) 26 The plaintiff emphasised that there is no other evidence that it transferred the car washing machine unit to the partnership. For example, there is no written sale agreement, there is no evidence of an oral sale agreement, there are no relevant minutes of a directors' meeting and the plaintiff did not receive any payment or other consideration in respect of the alleged transfer. Further, in February 2007 the plaintiff sold the car washing machine unit in accordance with a written sale agreement between it and a third party. (This is referred to in more detail below). The fact that the plaintiff sold the car washing machine unit is inconsistent with its having transferred it to the partnership in the financial year ending 30 June 2004. 27 In any event, in circumstances where the car washing machine unit was a fixture on the premises in the financial year ending 30 June 2004, the plaintiff could not have transferred legal ownership of it to a third party in this period without the defendant's consent (which it neither sought nor obtained). Furthermore, not only was the unit a fixture but it was securely attached to the premises by bolts or cement blocks otherwise than by resting on its own weight: Metal Manufacturers Ltd v FCT (supra) at [166]. The plaintiff contended that: 1. The object and purpose of the affixation was for the better enjoyment of the premises as a car wash: Metal Manufacturers Ltd v FCT at [169] and [177].

2. The land on which the washing machine unit was installed was modified to adapt to its better use: Metal Manufacturers Ltd v FCT at [181].

3. The washing machine unit was "fixed with the intention that it shall remain in position … for an indefinite or substantial period": Wincant Pty Ltd v South Australia [1997] SASC 6287; (1997) 69 SASR 126 at 142. There are cases where five years has been held to be a sufficient period of time: see Eon Metals NL v Commissioner of State Taxation (WA) (1991) 22 ATR 601 at 607-608.

4. Had the lease not been terminated by the defendant, it is unlikely that the washing machine unit would have been moved from the premises during or after the period of the Lease (15 years) in order to be used at another place: Eon Metals NL v Commissioner of State Taxation (WA) at 609. 28 The plaintiff submitted that the car washing machine unit may have been a tenant's fixture, being "those fixtures which the tenant has fixed into the premises for the purposes of conducting its trade or undertaking, but did not become an inherent part of the original structure itself, as an accessory to it": Wincant Pty Ltd v South Australia at 143. However, a tenant's fixture is still a fixture for the purpose of the principle stated in par [30] below. 29 In circumstances where the car washing machine unit was a fixture, it became part of the premises (Metal Manufacturers Ltd v FCT at [166]) or "intrinsically part of the land": Eon Metals NL v Commissioner of State Taxation (WA) at 604. An "item which is originally a chattel becomes in law land by virtue of having been fixed to it": Wincant Pty Ltd v South Australia at 142. The tenant cannot then transfer legal ownership to a third party while it remains a fixture, at least without the landlord's consent. Thus, any intended transfer contemplated by the plaintiff and a third party in the year ending 30 June 2004 would have been ineffective to pass legal ownership of the washing machine unit from the plaintiff to the third party (Metal Manufacturers Ltd v FCT at [201]; Eastern Nitrogen Ltd v FCT [1999] FCA 1536; (1999) 43 ATR 112 at [27] and [38]). 30 Further, "an agreement conferring a right to a fixture not contemplated for severance will rank as an interest in land and so will only be enforceable if evidenced in writing": Eastern Nitrogen Ltd v FCT at [37]. There was no agreement in writing or evidence of it. 31 The plaintiff next submitted that ownership of an asset by a tenant at the termination of the lease is not a pre-condition to entitlement to compensation. Among other reasons, cl 30.4(e) does not expressly say so. Where a tenant has incurred an expense in relation to the purchase of an asset that is part of the fitout, the question of whether or not the tenant owns the asset at the time of termination does not affect the fact that the tenant incurred the expense. The purpose of cl 30.4(e) is to compensate the tenant for the expense incurred. 32 The plaintiff submitted that there might be other cases where a tenant spends money on the purchase of an asset, but chooses not to be the legal owner of the asset: see FCT v Phillips [1978] FCA 28; (1978) 8 ATR 783. In circumstances where the tenant has spent money on the purchase of an asset, it would be an odd result if the tenant's entitlement to compensation depended on it being the entity that is the legal owner of it. Further, in circumstances where the tenant had spent money on the purchase of an asset (although not the legal owner of it) and had spent money installing it in the leased premises, it is unclear why the tenant should be entitled to compensation for the latter expense, but not the former. Consideration 33 Compensation is something given or received as an equivalent for loss. It is analogous to an indemnity. Clause 30.4(e) contemplates the payment of compensation "for the fitout of the Premises", which must mean, in the context of the lease, payment of compensation for the loss of the fitout. This follows because the termination of the lease brings the tenant's ability to exploit the fitout as part of the demised premises to an end. The clause does not in terms specify whether it is concerned with compensation for the cost of the fitout or for the value of the fitout. This is presumably because fitout is not defined and because it is not clear whether the word is used as a verb or a noun. In that context it seems apparent that fitout used as a verb would be related to cost, whereas fitout used as a noun would be related to value, but this is not necessarily so. The plaintiff relied upon a series of definitions and dictionary meanings as support for the proposition that "compensation for the fitout of the Premises" means "compensation for the tenant's loss with regard to the fitout of the premises". The defendant submitted that the answer was to be found by calculating "recompense for that part of the cost of the fitout as was, at the date of early termination of the lease, lost to the plaintiff". Senior counsel for the defendant accepted that these formulations meant the same thing. He submitted that I "may come to the view that there is not any significant difference in the way the two matters are formulated in the light of the particular questions posed for [my] determination". 34 The defendant also emphasised that it is essential to recognise that the clause provides compensation for the fitout, not compensation in respect of the fitout, nor compensation arising from the fitout nor compensation for loss caused by the fitout. Expressions such as "in respect of", "arising from" and "caused by" have recognised meanings in commercial contracts, especially insurance contracts, and operate to widen the ambit of a term's application: Government Insurance Office of New South Wales v RJ Green & Lloyd Pty Ltd [1966] HCA 6; (1966) 114 CLR 437 at 445. It has been held that "liability for" provides a narrower ambit of cover than "liability in respect of": Multiplex Constructions Pty Limited v Irving [2004] NSWCA 346 at [10]; National Vulcan Engineering Insurance Group Ltd v Pentax Pty Limited t/as Lif-Rig [2004] NSWCA 218 at [11]. While self-evident, it is essential to recognise that the term provides compensation for the fitout, not compensation for loss generally caused by the termination of the lease. 35 The four questions that the parties have referred for consideration under the present head are a reflection of these issues. For example, the payment of compensation to the plaintiff for any loss it suffered, calculated as the cost of the fitout, would not seem to be inconsistent with a transfer or assignment of the legal or beneficial ownership in the capital item to a related entity. Correspondingly, if the plaintiff still retains a legal or beneficial interest in the capital item, can it have suffered any loss if it has been able to redeem it for its value by sale on the open market? 36 It is not in dispute that there is no primary evidence of a sale or transfer of either the legal or beneficial interest in the washing machine unit by the plaintiff to the partnership. The issue only arises inferentially by reason of the treatment of the item for taxation purposes in the financial accounts and income tax returns of the plaintiff and the partnership. As at the date of termination of the lease in accordance with the clause, these records show that the partnership was the entity that was claiming a depreciation allowance for the item. The defendant asserts that this is sufficient to establish that the plaintiff did not retain an interest in it, whereas the plaintiff contends that the records contained errors at that time, which have since been, or are in the course of being, corrected. 37 The authorities upon which the plaintiff relies are not to my mind to the point. The burden of those authorities is that a mere entry in the books of a company without the assent of the shareholder does not establish a payment to the shareholder. The cases cited stress the need for there to be an anterior agreement that supports or underpins the state of the books or records in question. In the present case, however, the search is not for a payment or its equivalent that corresponds to the state of the books but is a search for whether or not the state of the books arguably establishes the existence of the anterior agreement. Nothing in the cases upon which the plaintiff relies suggests that it is impermissible to seek to infer the existence of an agreement for the transfer or assignment of an item of property to or from a particular entity from the way in which the item is characterised in financial records of one or other of those entities. If this is correct then the financial records support the inference that the plaintiff was neither the legal nor the beneficial owner of the unit when the lease was terminated. However, other material is also relevant. 38 In contrast to that inference is the (apparently) wholly contradictory fact that the plaintiff sold the item to a third party for valuable consideration by an agreement made on 22 February 2007. The sale price was $165,000. As the plaintiff submits, the fact that the plaintiff sold the car washing machine unit is inconsistent with its having transferred it to the partnership in the financial year ending 30 June 2004. There is a further contradiction, however. Not only does the unit appear in the partnership income tax returns for the years from 2004 to 2007, the return for 2007 suggests that the unit was disposed of by the partnership on 14 February 2007 for $165,000. There is no corresponding item in the income tax returns or financial statements of the plaintiff that clearly supports a payment to it for a sum of $165,000, although somewhat persuasively the financial statements for the plaintiff for the year ended 30 June 2007 indicate that its bank account had a balance of $193,386. The date of disposal in the partnership accounts corresponds to the date of termination of the lease in accordance with the notice of termination given to the plaintiff. 39 Mr Nicholas Gacomi said at par 135 of his affidavit sworn 6 June 2008, "[o]n 14 February 2007 we sold the equipment for $165,000". That affidavit does not in terms refer to any mistake in the accounts. However, at par 155 Mr Gacomi refers to the "Depreciation worksheet" in the plaintiff's 2003 income tax return. That document included both the cost of the car wash machinery and construction and installation as items of plant and equipment. At par 155(c) he said this: "(c) In circumstances where the business was experiencing trading losses, it was of no benefit to the business to continue to depreciate the fit out and construction costs. Instead, it would be better to capitalize the items in their entirety and use them as part of the cost base of the items in the case of their future sale.

The directors of [the plaintiff] agreed with my view. I then instructed the accountant to cease claiming for depreciation of plant and equipment in the tax returns". 40 Mr Gacomi's affidavit of 10 March 2009 also refers to this issue. It annexes copies of two letters in cognate terms to the Australian Taxation Office dated 11 February 2009 with respect to the plaintiff and the partnership. The second of the letters is relevantly as follows: " Amended Income Tax Returns 2004 - 2007

We request that you amend the above Partnership's Income Tax Returns for the financial years ended 30 June 2004, 2005, 2006 and 2007. The income and expense items lodged on the original tax returns were incorrect due to numerous errors processed by the prior accountant for the entity. These errors have been corrected in these amendments and we request that you amend the tax returns at the labels indicated on the schedule attached as follows". 41 The effect of the proposed amendments is to relocate the washing machine unit in the financial accounts of the plaintiff for income tax purposes. Although the author of the letters was not cross-examined about them, I have little confidence that the "relocation", as I have described it, was anything other than a response by those standing behind the plaintiff to a realisation that the "location" of the washing machine unit in the financial accounts of the partnership might present a difficulty for the plaintiff in these proceedings. 42 Paragraph 4 of Mr Gacomi's affidavit of 27 March 2009 also refers to the topic. He said in part: "As stated in an earlier affidavit, in February 2007 I took steps to sell (on behalf of [the plaintiff]), and sold, the car wash machine unit. On about 23 February 2007 I received payment of $165,030 in respect of the sale. I banked the money into [the plaintiff's] bank account". 43 A bank statement is annexed to that affidavit and records a deposit of $165,035 [sic] into the plaintiff's account at the St George Bank on 23 February 2007. Prior to that deposit there had been $60,818.90 in the account. The evidence does not reveal that the proceeds of sale were transferred elsewhere. 44 The defendant emphasised that in the financial year ending June 2004 the plaintiff transferred the plant and equipment and the capital line of installation costs to the partnership for accounting and taxation purposes. Thereafter, the documents show that the partnership even charged rent for the equipment. This is said to be clearly inconsistent with the retention of an interest in it by the plaintiff. In addition, and no doubt significantly from the individual partners' points of view, the partnership claimed a deduction on the depreciation of the equipment which resulted in a loss, which was distributed to the partners and which they claimed in their individual tax returns. The plaintiff did not show the loss incurred from the sale of the car washing unit in its financial statements for the year ended 30 June 2007. The defendant does not accept that the state of the financial records was the result of some form of illegitimate manipulation or caused by an accountant's error but instead contends that the records precisely reflect what happened in fact. This then created what the defendant describes as a fundamental difficulty for the plaintiff in this case, which it lately recognised and which it is attempting now to undo or unravel. 45 Mr Gacomi was cross-examined about this as follows: "Q. You know that that partnership from 30 June 2004 itself claimed depreciation on the very item of equipment that I have taken you to in the 2003 tax return of the plaintiff? A. Yes, I'm aware of that now.

Q. You know that the application in the books of the partnership of that deduction for depreciation resulted in the partnership suffering a loss for the year ended 30 June 2004 and all following years? A. I was unaware in 2004. It was subsequently some time after that, that I was aware of the partnership.

Q. You know that those losses were distributed from year to year to the various members of the partnership? A. Yes.

Q. Each of them including in 2006 and 2007 you claimed a tax deduction in your own records for that loss? A. Yes. " 46 The defendant submitted that in all of these circumstances the evidence shows that the plaintiff and the partnership rearranged their affairs to achieve a revenue advantage. This is not a case where the plaintiff merely made journal entries that only appeared to transfer the assets. For example, upon the transfer of the plant and equipment to the partnership, the value of the unit holders' units was reduced from $1,815,000 to $1,000. That suggests that the plaintiff could not have owned and did not own the washing machine unit when the lease was terminated. 47 I disagree. There would seem to be no doubt that the item was treated for depreciation purposes before termination as the partnership's asset. There would appear to have been no appreciation of the existence of the so-called error until a realisation emerged that the depreciation of the item by the partnership may have a potentially significant adverse impact upon the plaintiff's claim for compensation. The contract for the sale of the unit is at odds with this to the extent that the plaintiff is shown as the vendor and that the evidence demonstrates that the sale price went into its account following the sale. However, even despite this, and somewhat curiously, the partnership depreciation schedule appears to refer to the disposal of the unit, although the partnership does not record the sale as income. 48 The evidence establishes that the car washing machine was treated by the directors of the plaintiff and their partnership in solemn documents that were lodged with the Australian Taxation Office as being from some time prior to 30 June 2004 until after 30 June 2007 either owned by the partnership or at least in some awkward and unexplained fashion available to be depreciated in its taxation returns. Whether it be curious or not, the plaintiff has put in train steps to rectify this, and at one level neither its relationship with the Australian Taxation Office nor the ultimate fate of the proposed amended returns is particularly germane to the present inquiry. The uncontradicted evidence is that the plaintiff sold the unit and banked the proceeds. The evidence upon which the defendant relies is all derivative or inferential having regard to the state of the accounts of the plaintiff and the partnership. There is no direct evidence that satisfies me that the plaintiff disposed of or assigned either the legal or beneficial interest in the washing machine unit to the partnership or that it did not continue to own it until sold on 22 February 2007. I therefore answer questions 1 and 2 "no". 49 I would not have been satisfied that such a conclusion was unavailable by reason of the washing machine unit being or becoming a fixture. The letter from the defendant's solicitors dated 19 April 2007 proceeded upon the basis that several items installed at the premises as part of the fitout should be removed by the plaintiff as part of what was described in the letter as the defit. This assumed that the plaintiff could deal with the items as removable chattels. The plaintiff did not contend otherwise and Mr Gacomi's evidence makes it clear that the plaintiff took considerable steps and expended much effort in its attempts to remove and dispose of items that were attached to the land. The terms of cl 21 of the lease also support that conclusion. 50 Question 3 does not arise. However I would not have considered that the plaintiff would have been precluded from recovering compensation for the washing machine unit. The plaintiff paid for the unit in the first place and for its installation upon the premises. That was part of the fitout. The business conducted by the plaintiff at and from the premises utilised that fitout and the benefit of the fitout was lost to the plaintiff when the lease was terminated. It was a loss that became compensable according to the clause of the lease that authorised the termination. Even though the plaintiff's accounting and financial records are curious, it was exploiting the car washing machine in the conduct of the business and had done so at all times up to the date of termination. The plaintiff's inability to continue to exploit the machine commercially created a loss to its business that is compensable in accordance with cl 30.4(e). 51 I disagree with the defendant's contention that the plaintiff cannot have sustained a loss in circumstances where the item was not owned at the date of termination. It will be recalled that the defendant's contentions in this respect were that the plaintiff is not entitled to compensation for items of fitout that it did not own at that date and that it cannot have sustained a loss of an item of fitout when the termination occurred, if it did not have any interest in the item at that time. If the plaintiff chose to sell an item of fitout years before the termination, it could hardly claim to have suffered a loss of that item years later when the termination occurred. 52 In my opinion these arguments incorrectly emphasise the need for some form of proprietary interest as a condition precedent to the recovery of compensation under the clause. The clause to my mind does not suggest that such a condition needs to be satisfied. "Compensation for the fitout" is in my opinion an expression that accommodates or includes a loss of use of, or access to, the fitout following termination, whether calculated by reference to cost or value, but independently of a legal or beneficial interest. The clause is not concerned with disruption or interruption. "Compensation for the fitout" rather suggests compensation in return for something that is taken away or lost and which was caused by or resulted from the termination of the lease in accordance with the clause. The fact that the plaintiff will presumably if not undoubtedly end up with a loss will in the circumstances of this case have been caused by the termination of the lease and not by the accounting exercises in which it and the partnership engaged. This was a decision that the plaintiff and its directors took for reasons that were apparently attractive and beneficial at the time. A termination of the lease by the defendant pursuant to cl 30.4(e) was presumably, at least theoretically, something which was taken account of when that decision was made. The plaintiff did not become disentitled to be compensated for the fitout as a consequence. 53 Question 4 should be answered "yes". The plaintiff is entitled to compensation for the washing machine unit even in circumstances where it had removed the unit and sold it following termination of the lease. That compensation would be calculated as the difference, if any, between the sale price of the unit and its value in the hands of the plaintiff at the date of termination. This is examined below in more detail in the answer to question 14(a). "Construction/installation costs" 54 The following questions are proposed for consideration with respect to these costs: "(5) Did the plaintiff transfer legal ownership of the asset represented by the capitalised value (in its financial statements for the year ended 30 June 2003) of the cost of the items referred to in the invoice issued by Dynaservice for $1,014,382 or $922,166 ex-GST ("the Dynaservice Invoice") to the partnership in the financial year ending 30 June 2004?

(6) Did the plaintiff transfer the beneficial interest in the asset referred to in paragraph 5 to the partnership in the financial year ending 30 June 2004?

(7) If the answer to question 5 or 6 is yes, is the plaintiff precluded from recovering compensation for the items referred to in the Dynaservice Invoice?

(8) Did the plaintiff pay Dynaservice $922,166 ex-GST or $860,909 ex-GST in respect of the Dynaservice Invoice?

(9) The parties agree that a component of the payment in respect of the Dynaservice Invoice was a payment of $100,000 for negotiation of the lease and establishment of the project. Is the plaintiff entitled to compensation for that part of the payment in respect of the Dynaservice Invoice under clause 30.4 of the lease?

(a) If the answer to question 8 is $922,166 ex-GST and the answer to question 9 is yes, the plaintiff is entitled to compensation of $831,874.19;

(b) If the answer to question 8 is $922,166 ex-GST and the answer to question 9 is no, the plaintiff is entitled to compensation of $744,319;

(c) If the answer to question 8 is $860,909 ex-GST and the answer to question 9 is yes, the plaintiff is entitled to compensation of $776,612;

(d) If the answer to question 8 is $860,909 ex-GST and the answer to question 9 is no, the plaintiff is entitled to compensation of $686,403." 55 The items in the Dynaservice Invoice are described in the following way: "1 Modular Construction Composed of 1 28 M. Tunnel 1 Power Plant Room 1 Waste & Water Recycling System 1 Polishing & Detailing Bay 1 Computer Control Room 1 Amenity & Storage Room 1 Customer Waiting & Light Snack Room 1 Small Serving Kitchinet [sic] 1 Combined Toilet & Powder Room 1 Combined Disabled & shower Room Electrical System Configuration . . ." 56 Despite the heading "construction/installation costs" the parties agree that the Dynaservice Invoice includes the provision of what senior counsel for the defendant described as "items of hardware" as well. This fact does not affect the analysis that follows. 57 As discussed earlier, the washing machine unit, its ancillary components and the cost of installing it were all treated by the plaintiff as capital expenditure and consequently depreciated. The defendant contends that, as with the washing machine unit, the capitalised value of the cost of the items in the Dynaservice Invoice was also transferred to the partnership in the financial year ending 30 June 2004. The defendant contends that because the plaintiff transferred that asset to the partnership it now has no entitlement to compensation for it. The defendant relies in this respect upon the same reasoning adopted by it with respect to the washing machine unit and its treatment in the financial and taxation records of the plaintiff and the partnership. The putative transfer is said to be evidenced by the state of these records. The plaintiff does not contest that the records contain the entries or are in the form for which the defendant contends. The plaintiff does dispute that the records are evidence of a transfer of the capitalised value of the work, and relies upon the arguments raised by it in relation to the car washing machine. 58 There does not appear to be any difference in principle between the car washing machine and the capitalised value of the items in the Dynaservice Invoice. The only difference of a factual nature is that there has not been any recorded sale by the plaintiff of this asset that corresponds to the apparent sale of the car washing machine pursuant to the contract dated 22 February 2007. In all other relevant respects the evidence suggests that the partnership claimed this item as its own for accounting purposes and that the plaintiff ceased to do so from and after 2004. Despite the submissions of the plaintiff that this was capable of being described as an "accounting fiction" I have not been able to accommodate precisely how, or to accept the proposition that, the partnership could claim the benefit of the depreciation deduction in the way that it did. The ability to depreciate a capital item for taxation purposes is itself a recognition of an otherwise unrecoverable loss that is incurred as the item's value decreases. Those losses would ordinarily only be losses to someone or something with an interest in the item in question. 59 There is to my mind something artificial about the submission that the records of the plaintiff and the partnership contained errors and that these errors explained the true position. The so-called errors were not discovered or appreciated until after the termination of the lease and the explanation of why the items were given the accounting treatment that Mr Gacomi described does not seem to me to amount to an error at all. The evidence that he gave at par 155(c) of his affidavit, referred to earlier, is significant for what it does not say, particularly the obvious proposition that the plaintiff would not simply relinquish the benefit of claiming depreciation without some provision otherwise for the retention of that benefit in some fashion if possible. The utilisation of the benefit in the hands of the partnership appears to be the obvious way for this to have been achieved. However, as earlier discussed, these matters arise in the context of the dealings and relationship between the plaintiff and the Australian Taxation Office and are not determinative of the plaintiff's entitlement to compensation in accordance with cl 30.4(e) of the lease. 60 In my opinion questions 5 and 6 should be answered "no". 61 Although it does not arise I would have answered question 7 "no". This is for the same reasons given previously in answer to question 3. The terms of cl 30.4(e) do not mean that compensation for the fitout is limited or restricted only to items utilised in the fitout in which the plaintiff retains an interest at the date of termination. Even the formulation preferred by the defendant, that compensation for the fitout means "recompense for that part of the cost of the fitout as was, at the date of early termination of the lease, lost to the plaintiff", does not in terms limit the payment of compensation to items that were owned by the plaintiff at that time, because the original cost or expense of the fitout will be notionally lost to the plaintiff if it is no longer able to utilise it in the conduct of a business for which it was created. The clause extends to provide compensation for such losses, not for losses generally caused by the termination of the lease, such as loss of goodwill or disruption or, where applicable, costs of relocation. It is the plaintiff's interest in the fitout that is the focus of the clause. At the date of termination of the lease the plaintiff still had a compensable interest in the fitout that it was liable to lose. The Dynaservice Invoice costs represented a portion of the fitout costs and those costs were lost. The plaintiff would have been entitled to compensation for the fitout to the extent that it included those costs. 62 The controversy that produces question 8 is not apparent. Further information and submissions will be necessary. 63 Question 9 should be answered "no". The recognition and acceptance by the parties that a component of the Dynaservice Invoice was a payment of $100,000 for negotiation of the lease and establishment of the project means that it was not part of the fitout. It falls outside the terms of cl 30.4(e). I did not understand the plaintiff to argue strongly against such a conclusion. 64 With respect to question 10 the defendant contended that the plaintiff did not pay Dynaservice $922,166 ex-GST in respect of the items claimed in the Dynaservice Invoice. According to the defendant it is said to be "likely that it paid only $860,909" and that that sum is calculated as follows: (1) The plaintiff paid Dynaservice a total amount of $1,750,000;

(2) $1,750,000 less $803,000 for the washing machine unit produces a figure of $947,000;

(3) $947,000 less GST is $860,909. Leaving aside the washing machine unit, the total of the four most valuable assets listed in the 2003 depreciation schedule is $860,909. 65 Not all of the $860,909 paid by the plaintiff was for the fitout. The payment included the $100,000 component for Dynaservice negotiating the lease with the defendant dealt with in response to question 9. This reduces the fitout cost in the invoice to a maximum of $760,909. Depreciated at the agreed prime cost rate of 2.5% for 47 months produces a figure of $74,506, leaving a depreciated amount of $686,403. 66 I also do not understand the plaintiff to argue against this analysis. No submissions in reply were offered despite a suggestion that the plaintiff would approach this issue in that way. If I am in any way mistaken in that regard I shall hear the plaintiff further upon the issue if desired. Borrowing Costs 67 The following questions are proposed for consideration with respect to these costs: "(11) Is the cost of borrowing money to fund the payments to Dynaservice compensable under clause 30.4 of the lease?

(12) If the answer to question 11 is yes, were the borrowing costs claimed in item 4 incurred by or on behalf of the plaintiff or by its directors on their own account? The determination of this question entails the following subsidiary question:

(a) Was the money borrowed by the directors to acquire units in the Softwash unit trust, or, was the money borrowed by the directors to make a loan to the plaintiff on the same terms that the directors borrowed the money from their respective financial institutions?

(13) Is the plaintiff not entitled to compensation under clause 30.4 for the borrowing costs, because the plaintiff has failed to prove which components of the borrowing costs are attributable to items of fitout lost as a result of the early termination of the lease and/or because the plaintiff has failed to establish what allowance ought be made for, and has failed to make any allowance for, that part of the borrowing costs as is attributable to the period during which the lease subsided?" 68 The plaintiff argued in favour of the proposition that these costs fell within the terms of cl 30.4(e) in the following ways. 69 In 2002 and 2003 the directors of the plaintiff borrowed over $1.7 million from banks to finance the fitout of the premises. Interest expenses and charges were incurred in the loan accounts from which the money was drawn. As at 31 December 2008 the interest amounted to approximately $380,800. The plaintiff contends that these borrowing costs fall within the expression "compensation for the fitout". 70 On 17 September 2002 the plaintiff's solicitor wrote to the defendant's solicitor enclosing a copy of the certificate of registration of the plaintiff, a copy of a resolution by Mr Wampfler appointing Peter Gacomi, Dimitri Kouklidis and Peter Kamvounias as directors, and a copy of a resolution whereby Mr Wampfler resigned as a director of the plaintiff. These documents revealed that the plaintiff was registered on 3 September 2003. The plaintiff argued that in those circumstances the defendant, through its solicitor, should have appreciated that as a recently registered company it either had, or probably had, no assets. 71 The letter of 17 September 2002 recorded that "Peter Gacomi and Peter Kamvounias have signed the Lease as Guarantors". Yet on 15 October 2002 the defendant's solicitor sent a letter to the plaintiff's solicitor requiring six people to guarantee the plaintiff's obligations under the lease, being Peter Gacomi, his wife Effie Gacomi, Peter Kamvounias, his wife Cathy Kamvounias, Dimitri Kouklidis and his wife Pareskevi Kouklidis. The plaintiff argued that the fact that the defendant required six people as guarantors is consistent with knowledge or concern on its part that the plaintiff had, or may have had, no assets. The defendant would also have known from the nature of the permitted use of the premises that the fitout costs would be high. 72 The defendant would also have become aware that the plaintiff's rent was to be paid by Mr Wampfler for an initial period from 21 January 2003 to 1 March 2003 and thereafter by Peter Gacomi. The plaintiff argued that this was consistent with knowledge that the plaintiff was a "start up" company with no assets and that as a result in the first few months of operation the directors of company would pay rent. 73 On 11 July 2003 Peter Gacomi sent a letter to the defendant. The letter stated in part that "the proprietors actually borrowed funds prior to the construction of premises to provide for the costs of building them", and since April 2003 the amount borrowed was $1,750,000. The letter also recorded interest payments as an outflow or expense of the business. The document appears to record both a contemporaneous understanding and intention that interest payments on the money borrowed were an expense of the business, and that this was communicated to the defendant. 74 It appears that around March 2004 Peter Gacomi provided another document to the defendant. A copy is on the defendant's file. On the first page of the document Mr Gacomi wrote: "Total project cost thus far $1,845,000. All funds used were borrowed by each individual proprietor." 75 The last six pages of the document are tables. There are two tables entitled "Break even point" in which Mr Gacomi records "interest expense - loan" as an expense of the plaintiff and four tables entitled "Desired financial objective" in which Mr Gacomi again records "interest expense - loan" as an expense of the plaintiff. Again, these documents both recorded a contemporaneous understanding or intention by the author that interest payments on the money borrowed were an expense of the business and communicated this information to the defendant. 76 On 23 May 2006 the defendant's solicitor wrote a letter to the plaintiff in which it foreshadowed that the defendant would issue "a termination notice pursuant to clause 30.4 of the Lease". The reply dated 27 July 2006 from the plaintiff's solicitor recorded that "our client…has invested approximately $2 million into the fitout of the Premises...". On 9 August 2006 the defendant issued the termination notice under cl 30.4(e) of the lease. 77 The plaintiff therefore argued that in all of the circumstances of the case and taking the above matters into account, it is fair and reasonable when calculating compensation for the plaintiff for this particular fitout to allow the costs of financing it because it was within the reasonable contemplation of the parties and within the foresight of the defendant at the time the lease was signed that the plaintiff would be likely to need to borrow money at interest in order to provide it with funds to finance it. Furthermore, in July 2003 (if not earlier) the defendant became aware of the plaintiff's borrowing costs. In these circumstances, at the time the defendant gave notice in August 2006 that it was terminating the lease, it knew that the plaintiff's losses associated with the fitout included borrowing costs. 78 The defendant's response to these submissions was as follows. First, the cost of borrowing money to fund the payments to Dynaservice is not the fitout, or a loss of the fitout, within the meaning of cl 30.4(e) of the lease. The value of the fitout is not affected by the finance arrangements made by the directors of the plaintiff. 79 Secondly, the directors' borrowing costs are not the plaintiff's losses. No evidence has been adduced to prove a loan agreement between the plaintiff and the directors. The financial statements of the plaintiff at the relevant time do not record any liability on the part of the plaintiff to the directors for directors' loans. To the contrary, the financial statements record the payments by the directors as the value of units issued in the trust. The amount payable by the plaintiff to Dynaservice to procure the lease and the equipment, to complete the building works and to provide a training programme for staff was $1,815,000. This is precisely the sum shown in the plaintiff's accounts for 2003 as the value of the issued units in the trust capital. Further, the amounts actually paid by the directors to Dynaservice were $626,250 for each of Messrs Gacomi and Kouklidis, and $417,500 for Mr Kamvounias. These figures correspond (precisely) to the proportions in which the men agreed to hold their units in the trust, namely 37.5 per cent to each of Messrs Gacomi and Kouklidis and 25 per cent to Mr Kamvounias. The directors' borrowings are therefore properly characterised as borrowings to acquire units in the trust. Being the directors' borrowings, it was open to them to claim a personal deduction in respect of the interest on those borrowings, which they apparently did. The plaintiff did not. 80 Thirdly, the borrowing costs were not caused by the termination of the lease. The borrowing costs were incurred at the commencement of the lease because the directors chose to borrow money to fund their venture. Consideration 81 In my opinion the plaintiff's arguments are untenable and the defendant's arguments are unassailable. The defendant's knowledge or expectation of, or acquiescence in, the fact or possibility that the plaintiff may have been required to finance its entry into the lease with the defendant using borrowed moneys cannot, without more than is available from the facts of the present case, be converted into a proposition that the cost of those funds attracts attention as "compensation for the fitout" within the meaning of cl 30.4(e). Although not described as a term of the agreement, the language of the plaintiff's submission, drawing upon what is said to have been in the reasonable contemplation of the parties, vaguely suggests an argument to that effect. There is also reference to what might be considered to be fair and reasonable. 82 The fact that a commercial contracting party borrows funds to finance the venture does not attract for that reason alone a different species of reciprocal obligation on the part of the other contracting party. The plaintiff and the defendant were at arms length. The relevant termination clause operated to compensate the plaintiff for the fitout. Nothing in the clause itself or the surrounding circumstances could in my view give rise to an obligation on the part of the defendant to compensate the plaintiff for interest incurred in acquiring funds for that purpose. 83 In any event I consider that the financial records and accounting material upon which the defendant relies speaks with one voice. The coincidences to which the defendant draws attention are powerful. The cost of the units and the proportions in which they became held by the directors when compared to the amount that was borrowed suggest emphatically and convincingly that the funds were acquired for a purpose other than to finance the cost of the fitout. The plaintiff was effectively capitalised by the sums paid by the directors for subscriptions to the units in the trust and the directors claimed the borrowing costs as deductions of their own. 84 In these circumstances question 11 should be answered "no". It is unnecessary to answer question 12. Question 13 should be answered "no" for the fundamental reasons given in response to question 11 and not because of a failure by the plaintiff to prove which particular borrowing costs might have been (arguably) attributable to particular items of the fitout or a failure to prove the particular time before the lease was terminated to which they might (arguably) have been related. The plaintiff's formal position with respect to questions 12 and 13 was that the language of the questions was "not acceptable to it" so that those questions would not be addressed. Balance of items 85 The following questions remain for consideration: "(14) Is the plaintiff entitled to compensation under clause 30.4 of the lease for:

(a) Items of fitout it was able to remove from the premises following termination of the lease?

(b) Items 61, 63-73 of the plaintiff's quantum schedule?"

86 Question 14(a) does not to my mind ask the right question. It may be necessary to require the parties to make further submissions about it, subject to the following observations. As I trust my earlier reasoning will already have revealed, the plaintiff's entitlement is one to be compensated "for the fitout" and that in this respect it is common ground that the plaintiff expended money on plant and equipment and on the costs of installing these items as part of the fitout. If that expenditure was lost to the plaintiff on termination of the lease it is compensable under the clause. Calculation of the compensable loss "for the fitout" may involve more than an historical appraisal of what was spent at that time. This is because of the parties' recognition that depreciated values may apply in the calculation of the loss and because the plaintiff accepted that it would be required to mitigate its loss. It is also because the amount of compensation is to be calculated at the time of the termination. 87 The plaintiff conceded that my answer to question 1 would also produce the answer to question 14. The defendant argued that the plaintiff suffered no loss if it could re-sell a particular item of plant or equipment recovered from the premises because the sale price would represent the value of that part of the fitout to the plaintiff and a sale would cancel the loss. I am not able to accept that submission. The value of the plaintiff's interest in an item of plant or equipment installed as part of the fitout calculated at the date of termination will be the value attributed to that item in the plaintiff's financial and accounting and taxation records, or possibly the records of the partnership in the unusual circumstances of this case. If the plaintiff is able to remove the item and dispose of it at or above that value it will have suffered no loss. If it is only able to recover a portion of its value on sale it will have suffered a loss and will in that respect be entitled to "compensation for the fitout". However, the plaintiff will be required to give credit to the defendant for any such sum recovered on the sale of an item purchased for and installed as part of the fitout. 88 Subject to these matters I consider that the answer to question 14(a) is "yes". 89 The items called up for consideration in question 14(b) are as follows: 61. Management costs during construction - $31,600.

66. Legal work associated with deed and lease - $1230.

70. Legal work associated with shareholder agreement - $800.

73. Bank guarantee charges to 31 December 2008 - $6,297.64. 90 The parties made no oral submissions on these items. In my opinion items 63 to 73 inclusive could not on any basis be compensable as "for the fitout". Item 61 would be compensable within the terms of cl 30.4(e) subject only to establishing that the costs related to the fitout and not to some other "construction" unrelated to it. For example, the establishment of an entitlement to these costs would presumably require production of invoices or timesheets referrable to the particular work involved rather than some merely ad hoc pro rata allocation of directors' remuneration on an hourly or daily basis. I would expect the parties to be able to agree on that issue. Conclusions 91 The questions are answered as follows: 1. No.

10. $686,403 although I recognise that some further submissions may be required.

14(b) See par [90]. 92 I indicated that the provision of my answers to these questions might leave some issues still to be resolved. I will therefore publish these reasons and await the parties' suggestions for the further conduct of the matter. Any listing of the matter should be arranged to suit the parties' convenience in consultation with my Associate.

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