The letter requested that the lease issue to Wasada Pty Ltd.
60 That request was evidently unacceptable to the SRA. Hence, when the lease was granted, it was granted to Wonsana, and was immediately assigned to Wasada. The assignment took the form of a Real Property Act transfer of lease document, which was registered. Though that document says that the date of transfer was 31 March 1988, this is impossible, as the lease did not come into existence until 7 June 1988.
61 In addition, on 6 June 1988 Wonsana, Wasada and the SRA entered a Deed of Covenant and Consent, which related to the transfer of the lease. That Deed included (Clause 4.2) a covenant by Wasada that it would perform all of Wonsana's obligations under the lease in the same manner as if Wasada had been party to the lease.
Events After Grant of the Lease
62 In November 1988 the SRA gave authority to Wasada to approach the necessary instrumentalities for the purpose of gaining development consent for the demolition, renovation or construction of garages on the Land. Work of that kind was subsequently done, but at the cost of Wonsana.
63 On 17 November 1989 Mr Bugden sent to Mr Hatton a draft letter to the SRA for his comment. The draft letter said:
"We refer to our letter on 1 May 1989 wherein we gave notice of our intention to further discuss with you the market rental review of the above property which became effective on 31 March 1989.
As we discussed with you, we have sought expert advice on the matter. This advice has highlighted several onerous conditions in the lease that substantially affect the amount of rent payable.
At the outset we wish to make the point that we are willing to pay the rental (even though SRA missed the notice date to increase the rental), however to make it more commercially viable to us, we require an extension of the term as originally promised to us.
The major lease condition, to which we object, is the existence of a breaking clause (Clause 3) in the lease which effectively means that the SRA can terminate the lease FOR ANY REASON after 1 March 1991 after giving six months notice.
We must point out that the following verbal assurances were given to us by the Chief Property Officer (Mr Gary Burns) when the lease was executed:
1. That the SRA will only terminate the lease after the expiration of five years should they then require it for track duplication purposes;
2. That the lease terms would be extended by two years (to February 1998), because the lease was not issued until March 1988, two years after the original letter of offer from the SRA (March 1986). No work was able to be started on site until after the lease was executed effectively losing the first two years of the lease.
The impact of these items not being in the lease meant that the lease term was shortened to 8 years. If the breaking clause was invoked in March 1991 (5 years after letter of offer of March 1986) then the lease would effectively run for 3 years.
This length of time is insufficient to recoup the cost of the new building on the site and, in the view of our advisors, significantly affects the market rent payable by Wasada to the SRA. During this time, 1 March 1986 to 1 March 1988, we continued to pay the new higher rental even though we had no lease and could not start work on the new building.
Accordingly, we request the following:
1. That the SRA consent to include an additional clause in the lease to read:
"The lessor agrees that such notice required under Clause 3 can only be given to the lessee provided that the lessor produces evidence of intention by the lessor to proceed to quadruplication of the existing line. The lessor further agrees that the lease will not be terminated pursuant to Clause 3 for any reason other than that of track quadruplication."
2. That the term of the lease be amended to read:
"term of 10 years commencing on 1.3.88 and terminating on 29.2.1998 with an option to extend the lease for a further 10 years thereafter."
And that Clause 3 be amended to read:
"The Lessor may by six (6) months notice in writing given at any time and expiring at any time after the first seven (7) years of the term …"
After you have had the opportunity to review this, please contact me."
64 On 9 March 1992 Wasada wrote to Mr Shaw, of Shaw Consulting, enclosing a letter from the SRA increasing the rental from $46,200 per annum to $60,000 per annum, and other documentation. The letter requested "Please review the above and advise me if, in your opinion, Wasada should challenge the latest increase to $60,000 per annum and/or the best method to achieve a ten-year extension to the lease."
65 On 29 September 1995 Mr Bugden wrote to Rail Estate, on the letterhead of Wasada Pty Ltd, saying:
"We wish to apply for an extension of the above lease which expires on 1 March 1996. As per Rail Estate's advice to us, we can apply for such an extension within six months of the date of expiry.
We would appreciate your advice on the procedure to extend."
66 On 2 February 1996 the SRA wrote to Mr Bugden, acknowledging receipt of a facsimile on 12 January 1996, and saying:
"We are still waiting for three internal State Rail clearances to be received. Once all clearances have been received, we will consider the offer of a fresh five year lease over the demised premises.
Should we not be in a position to offer a fresh lease prior to 1 March 1996, your current lease will continue on a month-to-month basis in accordance with clause 30 of your current lease."
67 On 8 September 1996 Mr Bugden wrote to Mr Hatton enclosing a letter he intended to send to the SRA. Mr Bugden said, concerning that letter:
"The offer is to keep the rental fixed at the current rent of $71,930 until 31 July 1998. This is 10 years from July 1988 when the actual lease started. From 1 August 1998, the rental increases 20% to $86,316 for 5 years with no increases.
As we have discussed, if the Rail Estate rent increases from $71,930 to $155,000 Wasada will actually lose money by taking on the new lease. Wasada only receives rent of $177,200 and pays out $155,000 in rent. Also this $177,200 assumes that Hilrest pays $45,000 per year, where currently you pay nil rent and only pay your share of outgoings. The $45,000 is the rent put on your shop by the Rail Estate valuer. It is therefore in both our interests that we get the lower rent from Rail Estate.
Wasada has an outstanding investment of $333,759 which we need to get back over the next 5 years. To do this we need the rent to stay low. This doesn't include what you paid towards the building.
If we are successful in getting the rent set at $86,316 instead of $155,000 then Hilrest can continue the same arrangement as we had up to end of the previous lease, where Hilrest pays nil rent and only its share of outgoings.
Give me a call to discuss it before I send it."
68 On 18 February 1997 Wasada wrote to the SRA. That letter included the following:
"I refer to various correspondence concerning the extension of the above lease. We wish to bring to your notice several matters that we consider relevant to the decision concerning the new lease terms and conditions.
… At the time of approval of the lease in 1986 Tower Removals jointly owned by the Directors of Wasada had occupied the site on an expired lease for nearly 15 years. We wished to upgrade the premises but SRA advised that SRA policy was not to grant leases beyond 10 years. This concerned Wasada because the costs of the improvements and the risks of not recouping the cost of improvements over the initial term. In addition we were concerned that the inclusion of a 6 month breaking clause 3 could result in significant loss to Wasada. We were assured by senior officials in SRA that these clauses were mere formality and the special conditions surrounding our tenancy, including our previous 15 years occupancy of the site and the fact that we were only erecting a small building, meant that the lease would be extended by SRA at the end of the initial term, without reference to clause 9 of the Memorandum of Lease, provided that we complied with all lease terms. …
The original approval for the lease confirmed March 1, 1986 as the commencement date of the lease, however the lease was not signed until June 7, 1988. This was due to the absence of key documentation including the title details and a dispute between SRA and North Sydney Council over ownership. Due to this Wasada was unable to finalise its design and commence construction. Through no fault of Wasada, the demised premises were not income producing until September 1988, a delay of over two years. At the time we received approval from SRA to have the lease commence March 1, 1988, however we were required to wait an additional 6 months for formal SRA Board approval. We decided not to wait for formal approval, because we were assured of the extension of the lease at the end of the initial term. The term of the lease has now extended almost 12 months beyond the initial expiry date of February 29, 1996. We request that consideration be given to further extending this 12 months to September 30 1998 …
For the above reasons the cost of the improvements erected by Wasada on the lease area has only been amortised by 50% over the initial term of the lease. … Wasada seeks to ensure that the additional costs described under item 4 and 5 above are recovered and in addition ensure that the renewed lease terms reflect the available lease area that Wasada can utilise …
We therefore respectively [sic] request that the rental formula to be applied for the new term of the lease is such that will enable Wasada to recoup its initial outlay and to reflect that portion of the site that is able to be used according to the restrictions placed on the site."
69 On 19 March 1997 SRA wrote to Wasada saying it would recommend a lease for five years at a rental of $155,000 per annum.
70 On 17 September 1997 Mr Bugden wrote to SRA proposing a further lease for five years from 1 August 1998, at a rental of $71,930 until 31 July 1998, and $86,316 from 1 August 1998 to 31 July 2003. The arguments put forward in that letter in favour of such proposal were assertions that Wasada had not recovered all its investment in the building, and that Wasada should be "given the opportunity to recoup this investment over the next 5 years".
71 On 29 October 1997 SRA wrote to Wasada saying that due to a change in operating policy the lease would not be renewed, and occupation would remain on a month to month basis, at the current rent.
72 On 24 November 1997 Wasada replied, objecting to the decision not to renew the lease. One basis of objection was stated to be:
"When the initial lease was being negotiated in 1985/86 it was represented to Wasada and the principal subtenant, by Rail Estate that, at the end of the initial 10 years of the lease, Wasada would be offered another lease term. The only exception to the extension was to be the decision by SRA to construct the quadruplication of the line. The same representation was also given in respect of the breaking clause in the original lease.
It was on the basis of this representation that Wasada entered the lease, the principal subtenant Hilrest and the other subtenants entered the sublease. Without this representation Wasada and the subtenants would not have expended in excess of $1 million to construct the existing building, refurbish the garages, construct the parking area and to fit out the shops."
73 By January 1998 Wasada was expecting to be engaged in litigation with SRA about the Waverton site, and planning how to go about the tactics of that litigation. In the first part of 1998 Wasada obtained a QC's opinion that the present case was a "classic case of proprietary estoppel". This conclusion, though not the facts or reasoning upon which it was based, was communicated to SRA.
74 There matters remained until November 2002, when solicitors for SRA wrote to Wasada questioning whether there was a basis for any estoppel. The solicitors requested Wasada to provide evidence of the basis of any alleged estoppel. On 22 April 2003 SRA served Wasada with a Notice to Quit the premises on 31 May 2003. At the time of service of that Notice, Wasada was paying rent at the rate of $78,619.68 per annum, inclusive of GST.
75 These proceedings were begun on 30 May 2003. On that day Nicholas J granted an interlocutory injunction restraining the SRA from taking possession of the premises or requiring Wasada to give up possession.
Mr Hatton's Evidence - First Meeting
76 In this and the next paragraph I set out the substance of Mr Hatton's evidence concerning the first meeting he had with Mr Wood. That evidence has not been contested. The meeting took place in late 1984. Mr Hatton explained that the interests he was representing wanted to clean up the old site on the eastern side of Waverton railway station, to demolish the old building closest to the road, to erect a new building close to the road, and to refurbish the existing garages. He said that what they planned was a small building with a replacement office and storage area for the existing Tower Taxi Truck operations, and a shop for his liquor store. He said that if they were going to spend that type of money, they would need a lengthy lease so that they could recoup their costs. At the time of that meeting no plans had been drawn up, and no detailed costings had been carried out for the proposed development, but Mr Hatton was able to tell Mr Wood that it was his view that it would take "a substantial amount of money" to develop the site.
77 Mr Wood told Mr Hatton that carrying out such a development was complicated. He said that the first step was to regularise the current arrangement between the SRA and the tenant. He said that he understood that Wonsana had just taken over as the tenant, and was holding over on a month-to-month basis. He said that some sort of formal arrangement would need to be arrived at with Wonsana. An interim lease of some kind was, he said, the kind of formal arrangement he had in mind. He said the tenant would also need to clean up the site. As well, Mr Wood explained that he would need to check with a number of different departments within the SRA to see if there were any existing or likely plans which would prevent the development, that it would then be necessary to obtain formal SRA and Council approval for the development and the building, and that all this would take a while. Mr Wood said that subject to the various departments indicating that they did not have an interest or plans over the site, he could not see any reason why the development and long-term lease could not proceed. He also said, however, that Mr Hatton would need to write to him with a formal and detailed proposal. Mr Wood said he would let Mr Hatton know the details for the new interim lease, but that it should be similar to the current lease. Mr Hatton said that there should be no problem in formalising the leasing arrangement.
Mr Hatton's Evidence - Second Meeting
78 Mr Hatton says that in about April 1985 he attended a meeting with Mr Sprague, Mr Bugden and an architect, Mr Fyfe. Mr Fyfe discussed some plans which he had prepared, and gave details of some changes to the site boundaries which had been requested by the North Sydney Council. These changes included a dedication of the eastern parts of the site to the Council for the purposes of a park, and the inclusion of the area fronting Bay Road directly next to the station. Mr Hatton says he asked Mr Fyfe to prepare a detailed plan and proposal to deliver to Mr Wood at the SRA, outlining the matters discussed at that meeting. A consensus was reached between himself, Mr Bugden and Mr Sprague that the much larger development, which incorporated the land directly next to Waverton Station, should be proceeded with. A short time later there was a further meeting between Mr Hatton, Mr Sprague and Mr Bugden to discuss the design for a larger building than had originally been proposed.
79 Mr Hatton swore two affidavits in the proceedings. The first, sworn 29 May 2003, was used for the interlocutory injunction hearing before Nicholas J as well as for the hearing before me. The second, sworn 5 June 2003, added to his earlier evidence in some respects. His later affidavit gave the following evidence about the meeting in April 1985 between Mr Hatton, Mr Sprague, Mr Bugden and Mr Fyfe:
"Fyfe: I have prepared plans showing a 375 square metre building on the site and I have included the refurbishment for garages and the landscaping of the site in the plans. Council has indicated that they will require two changes to the site boundaries before they will approve the development. They want the eastern portion of the current site to be dedicated to the Council for a public park and they want the area fronting Bay Road directly next to the station to be included in the site. Currently, this area is not included in the site. They are keen to ensure that the new building will include the whole frontage to the footpath on one level. They've also raised an issue about the ownership of the road area and the bridge and who should pay for the cost of rebuilding the bridge over the train line.
Hatton: Please prepare a detailed proposal to Declan Wood outlining the matters we have discussed including the list of issues raised by the Council. Wood has indicated to me that he needs a full proposal from Tower to continue the negotiations with Tower on the new lease. After the proposal is sent and assuming that we wish to proceed with the larger development I will set up another meeting with Wood at the SRA to put a proposal for a revised lease area and a bigger building to address Council concerns. Are you interested in constructing a bigger building on the site if I can arrange a longer lease?
Bugden: We are interested in a bigger building but first we will need to complete a costing for the larger building and calculate what lease term is required to offset the cost.
Hatton: You prepare a financial assessment and report back."
80 Mr Hatton also says that during that meeting Mr Fyfe outlined the costs of constructing a 375 square metre building, but he cannot recall the exact amount referred to by Mr Fyfe.
81 In his earlier affidavit Mr Hatton said that a short time later there was a further meeting between himself, Mr Sprague and Mr Bugden. In his later affidavit he said that Mr Fyfe was also in attendance at that meeting. His later affidavit said that the substance of the conversation at that meeting was as follows:
"Fyfe: I have finished the plan for the larger building. It is approximately three times the size of the previous building and with the refurbishing of the garages, will cost around $500,000.00. With the rental that the development would earn, a minimum lease of 25 years with a rent based only on the land value would be required to make the development worthwhile.
Hatton: Are we agreed to proceed with building the larger building if I am able to get a 25 year lease from SRA? If so, I want to split the cost of the building 43-57 and I don't want to pay any rent on my shop.
Bugden: Yes. Michael and I agree. Go ahead and set up a meeting with Wood to put the proposal to the SRA."
82 In his later affidavit Mr Hatton gives a fuller account of the conversation he had with Mr Wood at the second meeting in June or July 1985 than he had given in his first affidavit. He says that since swearing his previous affidavit he had been able to recall further aspects of the conversation. Set out below is the account of the conversation contained in his second affidavit. In it, I include, shown as struck out, a few words which appeared in the first account of the conversation which did not occur in the second account, and, shown in italics, the words which appeared in the second account which did not appear in the first account.
Wood: "I've checked with the relevant departments, they've all come back to me and indicated that they don't have any current interest or plans over the site. The only possible barrier to erecting a building is quadruplication. Quadruplication is a process where the current two sets of tracks are turned into four. This would occur if the SRA wanted to increase the capacity of the North Shore line. However, the plans have been on the board since the 19th Century and we think it's unlikely that this will occur. It's a very expensive process and it would involve substantial work. There are no plans to do so at the moment. If we can overcome this problem in the building construction, the way should be clear to gain a development approval. One of our requirements is the inclusion of a six month breaking clause in the lease but that would only ever be relied on by the SRA if quadruplication needed to occur."
Hatton: "We would like to build a larger building than the building I proposed last time we met. It would cost about $500,000.00 and would create several extra retail shops. Since we last spoke I have spoken to the planning people at the Council, and they are for the idea as it the development we are proposing would utilise all the road frontage and would provide additional shops. They have some requirements though that we have to meet. As a sweetener though they have suggested that we dedicate part of the site as a public park. They have also indicated that they want us to include the rest of the land lying between the station and the current building in the development in order to ensure that the whole of the frontage is developed and has one level footpath. The Council is very happy for an approved development a development of the type we have discussed to go ahead as they are concerned about the site in its current state. It's a very expensive proposition for us though, and we would need a 25 year lease with rent calculated on land value only to go to the expense of the development."
Wood: " If the Council is for the idea I assume that you have community support."
Hatton: " Yes. I attended a Precinct Committee meeting a short time ago. There are 5 committee members including the deputy mayor and they voted unanimously for the development. There were about 50 people at the meeting and no-one voiced any opposition. There were lots of positive comments."
Wood: "It would be good to get the Council off our backs, I am aware of their issues. We would also be happy to have the site maintained and upgraded. We would require though that you refurbish the garages."
Hatton: " What is the nature of the disagreement between the SRA and the Council?"
Wood: " Essentially, both sides say the other owns the bridge over the railway line and should pay to fix it up. They are also unhappy with the state of dilapidation of the site and they want it cleaned up. If the Council is happy with the development we could at least clear up that part of the problem. We would support the inclusion of the extra land in the new lease. I will write to you confirming this so that you can continue with the development.
We can't give you a 25 year lease though. We have had a lot of trouble with long-term leases in the past. A couple of long-term leases in the City and at Chatswood have been a problem and the SRA has had to buy back at a big loss the remainder of the leases when we have had to do work at the stations. We want to avoid that in the future. The best we can do is a 10 year lease with a 6 month breaking clause. However, if you pay your rent and quadruplication doesn't occur, this will be as good as a 25 year lease or better. The lease will just tick over as long as quadruplication isn't required and we will just roll over the lease to a new 10 year lease at the expiration of the first lease. As you are developing the property at your expense, we will keep the lease at the unimproved land value only. This would be adjusted every few years based on increases in the rental value of the land only.
I know that you would prefer a written document but you will just have to accept my assurance that the lease will be rolled over after 10 years. We know you are paying for the construction of the building and we are aware how much that costs. We also know how much it would cost to renovate the garages and platform perimeter. Unfortunately though I can't give you a written document, just my oral assurance."
Hatton: " How would the rental increase you referred to work?"
Wood: " Basically, every two or three years we would increase the rent based on rises in the value of the land. We wouldn't consider the cost of the buildings as you have constructed them but if the rental value of the land rose, we would pass that on. We would also increase the rental to take account of rises in the CPI. We will start the lease off on an amount of $26,500.00 per annum."
Hatton: "Thanks for that. On the basis of what you've told me we will start work and get some plans and a proposal together."
Wood: "If you want to proceed, it is important that Wonsana sign a new interim lease to enable me to progress the matter. Without that, I can't take the process any further. I can't give you a letter confirming these matters until I get approval from the various interested departments. That is likely to take a while."
83 The essential elements of this conversation, for the various causes of action on which the plaintiff sues, are a representation that a further lease (or leases) would be granted after the expiry of the initial 10 year term, and that the basis of the rental of that lease (or leases) would be a rental calculated on the land value only. I am not persuaded that any such representations were made.
84 The plaintiff in the present case needs to overcome the well recognised difficulties of proving the making of a representation, through oral evidence alone, after a very long period of time: Watson v Foxman (2000) 49 NSWLR 315. Mr Hatton had had not occasion to recall the events of 1984 and 1985 about which he was giving evidence until shortly before he swore his affidavit in May 2003. Accurate recollection, after a period of around 18 years, concerning a topic which has not been thought about in the interim, is something which has some intrinsic unlikelihood.
85 More importantly in the present case, Mr Hatton's evidence does not fit very well with the objectively ascertainable evidence
86 A theme of Mr Hatton's affidavit evidence, and also of his oral evidence, was that there was a proposal for a smaller building, the 375 square metre building, which was first propounded by the men proposing to develop the site. The proposal for that 375 square metre building was one which the Council was not happy with, so it was modified to relate to a larger building, which was later constructed. According to this theme in Mr Hatton's evidence, the letter of 26 April 1985 related to the smaller building, while the proposal which he put to Mr Wood in the June/July 1985 meeting, related to the larger building. He accepted that the letter of 22 July 1985 (paragraph 32 above) was one which urged the SRA to continue to evaluate the proposal put forward in the letter of 26 April 1985 (paragraph 19 above), but said in cross-examination that that was because it was necessary to keep two proposals alive, one for the smaller building, and the other proposal for the larger building, in case the proposal for the larger building proved not acceptable.
87 This account does not square with the objective evidence. The proposal which was being put forward in the letter of 26 April 1985 was for a building which was substantially identical, so far as the ground space which it occupied, to the building which was eventually constructed. The building proposed by the letter of 26 April 1985 was one which had dimensions of 25 metres, and so had occupied 375 square metres of ground space. Because it was a 2-storey structure, the available floor space exceeded 375 square metres. Mr Hatton correctly remembered that the proposal for a larger building than one which had originally been proposed came from the Council - but it had, as is shown by the April 1985 plan referred to in paragraph 20 above, already been formulated by the time of 26 April 1985 was written. It was that proposal for a larger building which was being put to the SRA in the letter of 26 April 1985, concerning which Mr Sprague requested a lease term of five plus five. It was that proposal which Mr Wood set about processing through the bureaucratic approval machinery of the SRA. He never processed any modified or different proposal through the machinery. And the processing of that proposal began with Mr Wood's request, on 8 May 1985, for the proposal to be submitted to branches, reported on to the Chief Executive, and for the drawing up of a submission to the PAB (paragraph 22 above). In other words, it began well before any June/July meeting.
88 Further, in cross-examination Mr Hatton was not as firm about what he was led to expect, so far as the term of the lease went, as he was in his affidavit evidence:
"Q. How long did you think the lease would tick over for?
A. Well I thought we would be there for at least two terms and if we were lucky three, providing nothing happened and nobody wanted the site."
Q. Well did Mr Wood say to you that he wouldn't give you a letter saying what would happen after the 10 years was up?
A. He said he couldn't confirm anything after 10 years.
Q. What did he say exactly about that?
A. Umm --
Q. Did he say, let me help you, "I can't confirm what will happen after 10 years"?
A. He said he couldn't confirm what would happen after 10 years but, as I say, with quadruplication and the tenancy, if Council was happy, the site was maintained and it wasn't needed by any other departments, if would just tick over.
Q. Did he say how long?
A. He said possibly another 10 years.
Q. Possibly another 10 years?
A. He said the same sort of lease, a similar lease.
Q. But he was not precise, I take it, is this right, about how long it might necessarily tick over for?
A. A similar lease, it would be 10 years twice a year."