Bond University Ltd v Limgold Pty Ltd, Nista Pty Ltd; Limgold Pty Ltd, Nista Pty Ltd & Anor v Bond University Ltd [1998] QCA 214

IN THE COURT OF APPEAL [1998] QCA 214 SUPREME COURT OF QUEENSLAND Brisbane Appeal No. 196 of 1998 [Bond University Ltd. v. Limgold P/L & Ors.] BETWEEN: BOND UNIVERSITY LIMITED (ACN 010 694 121) (Plaintiff) Appellant AND: LIMGOLD PTY. LTD. (ACN 010 652 794) and NISTA PTY. LTD (ACN 001 890 615) (First Defendants) First Respondents AND: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED (Second Defendant) Second Respondent Appeal No. 199 of 1998 [Limgold P/L & Ors. v. Bond University Ltd.] BETWEEN: LIMGOLD PTY. LTD. (ACN 010 652 794) and NISTA PTY. LTD (ACN 001 890 615) (First Defendants) First Appellants AND: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED (Second Defendant) Second Appellant AND: BOND UNIVERSITY LIMITED (ACN 010 694 121) (Plaintiff) Respondent de Jersey C.J. Davies J.A. Helman J. Judgment delivered 24 July 1998 -- 1 of 39 -- Judgment of the Court 1. APPEAL NO. 196 OF 1998 DISMISSED WITH COSTS TO BE TAXED. 2. APPEAL NO. 199 OF 1998 ALLOWED TO THE FOLLOWING EXTENT: (A) DECLARATION MADE BY THE TRIAL JUDGE AS TO BOND UNIVERSITY LIMITED'S TENANCY AT WILL VARIED, SUBSTITUTING FOR THE SUM OF $3.5M THE SUM OF $5M. (B) THE TRIAL JUDGE'S ORDER THAT LIMGOLD PTY. LTD. RECOVER FROM BOND UNIVERSITY LIMITED THE SUM OF $6.618M TOGETHER WITH INTEREST OF $1.13M SET ASIDE; AND IN LIEU THEREOF IT IS ORDERED THAT LIMGOLD PTY. LTD. RECOVER FROM BOND UNIVERSITY LIMITED THE SUM OF $17.48M TOGETHER WITH INTEREST AT SEVEN PER CENT PER ANNUM ON $12.18M OF THAT AMOUNT FROM 31 DECEMBER 1994 AND ON THE BALANCE OF $5.3M FROM 31 DECEMBER 1995. 3. BOND UNIVERSITY LIMITED PAY THE OTHER PARTIES' COSTS OF AND INCIDENTAL TO APPEAL NO. 199 OF 1998 TO BE TAXED. 4. BOND UNIVERSITY LIMITED PAY THE OTHER PARTIES' COSTS OF AND INCIDENTAL TO THE TRIAL OF BOND UNIVERSITY LIMITED'S CLAIM TO BE TAXED. 5. BOND UNIVERSITY LIMITED PAY THREE-QUARTERS OF LIMGOLD PTY. LTD.'S TAXED COSTS OF AND INCIDENTAL TO PURSUING ITS COUNTERCLAIM AT TRIAL. CATCHWORDS: ESTOPPEL - whether respondents estopped from denying that the appellant has a 99 year lease over land - effect of the documentary evidence - effect of the oral evidence - elements of liability in estoppel - whether those elements satisfied on the evidence. PROCEDURE - whether trial judge justified in asking particular questions of witnesses - whether trial judge's findings of credit against some witnesses correct. LAND LAW - whether trial judge correct as to the period notice required to terminate tenancy at will - weight to be given to the factual conclusions of a trial judge - amount of annual rental payable - whether base figure of $5M appropriate - whether discount should have been applied to that base figure. INTERPRETATION - whether trial judge correct in his construction of a subordination deed - meaning of the word "surplus" - whether correct starting point involved working from profit or working from cash - whether trial judge correct in making deductions for the cost of capital -- 2 of 39 -- equipment. Property Law Act 1974, s.137 Austotel Pty. Ltd. v. Franklins Selfserve Pty. Ltd. (1989) 16 N.S.W.L.R. 582 Waltons Stores (interstate) Limited v. Maher (1988) 164 C.L.R. 387 Winter Garden Theatre Ltd. v. Millennium Productions Ltd. [1948] A.C. 173 Warren v. Coombes (1979) 142 C.L.R. 531 Counsel: Mr. D. F. Jackson Q.C., with him, Mr. P. H. Morrison Q.C. and Mr. J. D. McKenna, for Bond University Limited Mr. P. A. Keane Q.C., with him, Mr. L. F. Kelly, for Limgold Pty. Ltd., Nista Pty. Ltd. and The Long-Term Credit Bank of Japan, Limited Solicitors: Minter Ellison for Bond University Limited Clayton Utz for Limgold Pty. Ltd., Nista Pty. Ltd. and The Long-Term Credit Bank of Japan, Limited Hearing Dates: 9 June 1998, 10 June 1998 and 11 June 1998 -- 3 of 39 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Brisbane Before de Jersey C.J. Davies J.A. Helman J. Appeal No. 196 of 1998 [Bond University Ltd. v. Limgold P/L & Ors.] BETWEEN: BOND UNIVERSITY LIMITED (ACN 010 694 121) (Plaintiff) Appellant AND: LIMGOLD PTY. LTD. (ACN 010 652 794) and NISTA PTY. LTD (ACN 001 890 615) (First Defendants) First Respondents AND: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED (Second Defendant) Second Respondent Appeal No. 199 of 1998 [Limgold P/L & Ors. v. Bond University Ltd.] BETWEEN: LIMGOLD PTY. LTD. (ACN 010 652 794) and NISTA PTY. LTD (ACN 001 890 615) (First Defendants) First Appellants AND: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED (Second Defendant) Second Appellant AND: BOND UNIVERSITY LIMITED (ACN 010 694 121) (Plaintiff) Respondent REASONS FOR JUDGMENT - THE COURT Judgment delivered 24 July 1998 -- 4 of 39 -- 2 The appellant in Appeal No. 196 of 1998, Bond University Limited ("BUL") is a company limited by guarantee. It conducts Bond University on the land or part of the land the subject of this appeal.1 The first respondents in this appeal are Limgold Pty. Ltd. ("Limgold") and Nista Pty. Ltd. ("Nista"), the owners of the land on which the University is conducted. They were, at relevant times, jointly owned by Bond Corporation Holdings Ltd. ("Bond") and EIE International Corporation ("EIE") who were parties to a joint venture, to which we will refer in more detail below but which included the purchase of the land, and were later owned solely by EIE. The second respondent to this appeal is The Long-Term Credit Bank of Japan, Limited ("LTCB") which became a mortgagee of the land by registered mortgages in October 1992 and June 1993 to secure loans which it had made to EIE. In July 1993, acting under those securities, it appointed receivers and managers to Limgold and Nista. In Appeal No. 199 of 1998 Limgold and Nista are the first appellants, LTCB is the second appellant and BUL is the respondent. In the first appeal the question is, in substance, whether the respondents are estopped from denying that the appellant has a 99 year lease over the land on terms pleaded and more specifically set out in draft orders handed up to this Court. The two questions in the second appeal are, on the assumption that the learned trial judge was correct in concluding that there was no such estoppel, whether his Honour was correct as to the period of notice required to terminate BUL's tenancy at will and the rent which BUL was liable to pay during that period of notice; and whether his Honour was correct in his construction of a subordination deed between BUL and Limgold dated 14 May 1990. 1 The land claimed by BUL is lots 931, 932, 925, 926 and 927. -- 5 of 39 -- 3 The estoppel claim (a) the establishment of the joint venture It is common ground between the parties that no agreement for lease between Limgold and Nista on the one hand and BUL on the other was entered into. However BUL contends, and contended below, that by reason of conduct of Limgold and Nista, which it particularized, it was induced to form and maintain an assumption that it was or would be entitled to a 99 year lease of the land, or alternatively an exclusive right to occupy the land for that period, in reliance on which it acted to its detriment, and consequently that Limgold and Nista, are estopped from denying that entitlement. It is accepted that, for this purpose, Bond and EIE ("the joint venturers") and later EIE alone were effectively the mind and will of Limgold and Nista. It is convenient therefore to refer, for the most part, to the joint venturers rather than to Limgold and Nista. In order to understand BUL's claim and the learned trial judge's conclusion with respect to it it is necessary to explain something of the early history of this matter. Prior to 29 July 1986 Bond was a large Australian public company which, either by itself or its subsidiaries, carried on a number of apparently successful businesses including land development and EIE was a large and apparently successful foreign company carrying on a land development business in Australia. On that date they entered into heads of agreement for a joint venture described as: "To build and establish a private profit making university on the land and to further develop that part of the land which is not required for the university." The corporate entity intended to be used for the joint venture was Limgold but it was said in the agreement that it may also include a unit trust. It was also said in the agreement that the appropriate structure would be "based on maximizing interest and returns from the venture for the parties". This agreement was superseded by an agreement between Bond Brewing Investments Pty. -- 6 of 39 -- 4 Limited (a wholly owned subsidiary of Bond) and EIE dated 4 October 1986. The objective under that agreement was expressed in terms similar to that set out above. Each was given a pre-emptive right to buy out the interest of the other and, as we will mention later, this occurred in 1992 after Bond had been, for some time, unable to continue to finance its share of the venture. Although, as appears later, BUL was not incorporated until 12 February 1987, a University Advisory Council was established in 1986 to advise on the appropriate structure for the University. A number of members of the Advisory Council later became directors of BUL. The minutes of a meeting of that Council of 30 September 1986 noted the need for returns to investors and for the University to operate successfully to pay rent on its premises to the main vehicle. And in a memorandum to that Council of 28 October 1986 Mr. Orr, who became the project manager of BUL, emphasized "The need to ensure that a sufficient cash flow was available to the university for it to be able to operate successfully and to pay rent on its premises to the main vehicle" and that "The university would be responsible for rent to be paid to the Public Unit Trust on the buildings it occupied." As appears from an information statement dated 26 November 1986 prepared, apparently, by the joint venturers it was envisaged that, of the total area of 300 hectares the University would occupy 100 hectares, the balance to be developed for residential purposes to be called the Burleigh Forest Estate. The 100 hectares set aside for the University, it was envisaged, would include a research park to which companies would be attracted to establish research activities over a number of fields. It was also envisaged that the University would operate as a non-profit company as a "break even" operation but that returns to investors would be derived from a public unit trust which would have overall responsibility for development of the Burleigh Forest Estate and would own the University buildings and -- 7 of 39 -- 5 lease them to the University. These purposes were further reflected in a letter from the joint venturers' accountants to the First Assistant Commissioner of Taxation on 28 November 1986 seeking a number of income tax and sales tax advantages. In particular it stated that a public property trust, which would raise the required funds to acquire the property and construct the University buildings, would derive income by means of a long-term lease to the University which would pay market rental to the public property trust, market rental being described as based on arm's length market values. Although, as appears from the documents to which we have so far referred, the joint venture was one with a view to profit, it was readily accepted by Bond and EIE that the joint venturers also had other motives in establishing a university. Mr. Alan Bond, widely seen as the public face of Bond wished, as his Honour found, to be associated with a work of some prestige as part of his entrepreneurial activity; and EIE, as a foreign entity concerned at the possibly unfavourable local response to its very substantial dealings in land holdings, wished to make some gesture of goodwill to deflect it. These were described by the learned trial judge as philanthropic motives. Nevertheless, Mr. John Bond who was Mr. Alan Bond's son and, it appears, relevantly in charge of Bond's interest in the joint venture, whose evidence the learned trial judge thought unduly favourable to BUL, conceded that there was no intention at any stage, on behalf of Bond, to grant a lease to BUL other than on proper commercial terms consistent with the discharge of its obligations to its shareholders. BUL was incorporated on 12 February 1987, directors who, it was proposed, would govern it were appointed on 22 May 1987 and it commenced operating the University on 15 May 1989. The cost of building the University buildings and of funding its operations substantially exceeded original estimates and initial enrolments to the University were substantially fewer than originally projected. All -- 8 of 39 -- 6 of these expenses were borne by the joint venturers, and later by EIE alone, BUL being in no position to make any payment for its use and occupation of the land. The increasing cost contributed to the financial failure of Bond resulting in its interest being bought by EIE with funds borrowed from LTCB and, ultimately, the failure of EIE and the appointment of receivers by LTCB. In the meantime BUL has remained in possession of the land to the present time without having paid anything for its use or occupation. (b) the claim and its resolution below It is in this context that it is necessary now to examine a little more closely BUL's claim and how it was resolved by the learned trial judge. BUL made alternative claims in this respect. First it claimed that at all times between 22 May 1987 and 15 May 1989 BUL and Limgold and Nista (effectively the joint venturers) shared a common intention and assumption that BUL was or would be entitled to occupy specified land2 from the commencement of its first teaching year pursuant to a lease for 99 years at a rental of 10 per cent of the capital cost to the joint venturers but with a deferral of that rental until BUL made a nett profit and then only to the extent of that profit. It was this claim which was the subject of the orders sought by BUL in this appeal. An estoppel arising from such common assumption would entitle BUL to a lease notwithstanding that it never made a profit, and so never paid rent, possibly even one which it could sell. In the alternative, it claimed that at all times from 22 May 1987 the parties shared a common intention and assumption that BUL was or would be entitled to exclusive occupation of the land from the commencement of its first teaching year for 99 years, presumably whether it paid for it or not. Then it was alleged that the joint venturers by their conduct induced BUL to form and maintain its intention and assumption. So in each case the allegation was that the common intention and assumption, induced on BUL's part by conduct of the joint venturers, existed from 22 May 1987. -- 9 of 39 -- 7 These allegations were denied by Limgold and Nista. BUL went on to allege reliance and detriment but, for reasons which we will explain, it is unnecessary to consider those allegations. 2 See fn.1. The learned trial judge rejected BUL's contention of an assurance of either result; a lease for 99 years under which rent would be deferred indefinitely until BUL made a nett profit and then only to that extent; or an exclusive right to possession irrespective of payment therefor. His Honour found, on the contrary, an assurance of a long-term lease subject to the condition that the lease should be reasonably affordable by the joint venturers. In so finding his Honour was accepting the joint venturers' denial that the assurance was one of long-term occupation qualified as to payment therefor by BUL's capacity to pay but unqualified by its financial effect, however disastrous, on the joint venturers. -- 10 of 39 -- 8 BUL's contention, which it maintained in this Court, seems unlikely. It may even be doubted whether the directors of either of the joint venturers, or at least of Bond, could enter into any such arrangement consistently with their duty to its shareholders.3 And Mr. John Bond, as we have already indicated, said that it was certainly not his intention to enter into a lease other than on commercial terms. Nevertheless it is necessary to consider whether, by their conduct as alleged, the joint venturers gave any such assurance. (c) some common ground 3 If, as appears on its face, it was one which would plainly have been commercially disadvantageous to the joint venturers: H.A.J. Ford, R.P. Austin and I.M. Ramsay, Principles of Corporations Law (Sydney: Butterworths, 1995), at [8.060]; Charterbridge Corp. Ltd. v. Lloyds Bank Ltd. [1970] Ch. 62 at 74; Wayde v. New South Wales Rugby League Ltd. (1985) 180 C.L.R. 459 at 469-70; 61 A.L.R. 225 at 232; Re a company, ex. parte Burr [1992] B.C.L.C. 724 at 731; H.A.J. Ford, Principles of Company Law 5th ed. (Sydney: Butterworths, 1990), at [539], [540]. Before turning to that conduct and other conduct which may be inconsistent with any such assurance two matters of common ground between the parties to this appeal should be stated. The first is that both BUL and the joint venturers intended from the outset and throughout the duration of the joint venture, and so did EIE for some time after it acquired Bond's interest, that BUL would be granted a long-term lease. However, to state the common intention of the parties in that way is incomplete and, -- 11 of 39 -- 9 without more, is as consistent with that result only on commercial terms as it is with BUL's pleaded contentions. The second is that the joint venturers, and later EIE, acted at all times in good faith to achieve that result consistently with their own commercial interests. To this day BUL has made no payment for its use and occupation the capital cost of which, it was agreed, was about $200M and has received loans totalling $94,297,211.11 to defray its operating expenses. Meanwhile both Bond and EIE have failed financially. (d) the documentary evidence It is convenient to consider the conduct of the joint venturers, from which the terms of any assurance of long-term occupation by BUL may be inferred, and any consequent assumption made by BUL, by reference first to the contemporaneous documents for it may be thought that they would yield the most reliable evidence of these at this stage. We say this bearing in mind three unusual aspects of the case. The first is that witnesses were invited to and did express their understanding of the basis on which BUL occupied the land, unrelated to any contemporaneous documentary evidence of conduct by the joint venturers which may have induced any such understanding or any documentary evidence of any such understanding by BUL. The second is that BUL has sought on appeal to challenge some findings of credit by the learned trial judge. And the third, to which we have already referred, is that, though BUL's allegation is that the common intention and assumption relied on existed from 22 May 1987, most of the conduct of the joint venturers said to have induced that intention and assumption in BUL occurred after that date. The documents to which we have already referred which, it seems, came to BUL's notice, some of which were relied on by it in its statement of claim, appear plainly to contemplate a lease to BUL only -- 12 of 39 -- 10 at a commercial rental. Then, in a letter by Price Waterhouse, accountants, on behalf of Bond to the Commissioner of Taxation dated 2 March 1988, relied on in this Court by BUL, it was said in respect of the proposed trust: "Investors in the vehicle will derive income via trust distributions from arm's length commercial rental payments made by the university land and building users to the trust." The second meeting of the University Council held on 16 June 1988 considered and approved a proposal for a lease, having a commencement date sometime in May the following year, for either 99 years or 20 years, depending on the availability of stamp duty relief, at a rental for the first year of 10 per cent of the capital cost of land and improvements leased with bi-annual CPI increases. That this was still the understanding of the parties on 24 November 1988 is borne out by a letter, written on BUL's behalf by Feez Ruthning solicitors to the First Assistant Under Treasurer on that date seeking stamp duty relief and enclosed in the letter from Professor Watts, the first Vice-Chancellor of BUL, to the Hon B. S. Littleproud, Minister for Education, on 28 November 1988. After referring to the above rental terms the former letter said: "Such a lease is a necessary underpinning of the costs of developing the university presently borne by its sponsors Bond Corporation Holdings Limited and EIE Development Co. Limited. The rental will be established on a fixed percentage basis and therefore the amount of the rental which the university company has to bear will be directly and immediately affected by all costs incurred by the public trust." See also a document dated 23 September 1988 prepared on behalf of BUL by Mr. Fox, one of its directors, for the purpose of seeking stamp duty relief which stated: "The leasing arrangements are on arm's length terms and it is proposed that an agreement to lease will be entered into whereby 10% of the total cost to the trust of all construction will be set as the first year's rent. That rent will be increased bi-annually according to CPI ...". -- 13 of 39 -- 11 At this stage it was envisaged that the land would be owned by a public trust but that concept was abandoned soon after this. However there is nothing from which it could be inferred that this affected the parties' contemplation that BUL would pay a market rental for use and occupation of the land from May 1989. In a long-term financing memorandum circulated for the Council meeting of 26 January 1989 it was noted that to that date approximately $125M had been expended in acquisition, development, establishment and running of BUL; that the rental payable by BUL would be 10 per cent of capital costs escalating at CPI every two years; and that BUL would need a long-term loan facility of $394M drawn down over seven years to finance working capital, loss in initial years, lease payments and interest. It appears from these documents that BUL's expectation up to January 1989 was that it would enter into a long-term lease of land from May 1989 at a rental of 10 per cent of capital cost escalating at CPI every two years. There is no mention of any qualification to that. By 28 March, however, it was noted in an internal memorandum of Bond of that date that BUL might have some difficulty in paying rent at 10 per cent and would need support by way of donations so that its effective rent would be 6.5 per cent of capital cost. It is not clear that this was brought to the attention of BUL. However it appears from a minute of a meeting, with a view to obtaining government finance for BUL, between Professor Watts and BUL's financial consultant Mr. Perry on behalf of BUL and the Premier and the Under Treasurer on 28 March 1989, that Professor Watts may have had some expectation, or at least hope, that the rental would be reduced. The memorandum reads: "We were asked what security of tenure we had and we explained that this would be 'quiet enjoyment' provided we met our obligations. Our financial obligations are a lease -- 14 of 39 -- 12 at 10 per cent escalating but that this is likely to be reduced." Then on 31 March Mr. Perry wrote to the Under Treasurer enclosing an information document for prospective long-term lenders to BUL which included, as one of the purposes for which finance was sought, "to provide adequate funding to meet lease payments to the Property Owner" and annexed a "Summary of Lease Terms" which was substantially in the terms approved by BUL at its meeting on 16 June 1988 but with the following addition: "It is proposed that the Property Owner will donate amounts equal to 3.5% of the cost to ensure the nett cash outflow is 6.5% of cost during the term of the BUL loan." The reference to the BUL loan is presumably a reference to the loan sought. It may also be noted, from an internal memorandum of Bond of 18 April 1989, that Bond was considering the introduction of another equity partner in the joint venture in order to inject further capital which indicates that, at the rental then contemplated, Bond considered the venture to be sufficiently profitable to attract other venture partners. The documentary evidence to 15 May 1989 remains inconsistent with BUL's contentions. At the highest for BUL it supports a common assumption of a long-term lease, of 99 or 20 years duration from May 1989 of an unspecified area4 at a rental of 10 per cent of capital cost in the first year escalating at CPI every two years thereafter but with a reduction in the rental to 6.5 per cent of capital cost, during the term of a prospective loan to BUL from a third party, in order to reduce BUL's cash outflow to the owner during that period. In a document prepared on behalf of BUL in June 1989 for the purpose of circulation to prospective lenders with a view to obtaining such a loan it was said, with respect to such proposed lease: -- 15 of 39 -- 13 "The proposed lease provides for a 99 year lease of the campus and buildings from the Property Owner to BUL. Lease payments commencing at 10 per cent of the completed cost escalating by CPI at two yearly intervals are proposed. The lease payments will commence in 1989. Rent reviews to market will occur in year 5, 10 and 20 and each 10 years thereafter. 4 The land to be leased was not identified in any documents before 15 May 1989. During the initial years a significant portion of the rent paid will be donated from the Property Owner to BUL to minimize its cash flow requirement." At another part of the document that anticipated donation is described as follows: "It is anticipated that the Property Owner would in turn donate amounts equal to 2.0% of the contemplated cost of the assets during the proposed term of the financing thereby ensuring the nett cash flow requirement is only 8.0% of the capital cost p.a." Appendix 3 to the document is a summary of proposed lease terms, substantially in the terms approved at the meeting of BUL on 16 June 1988 but with an additional term substantially in the form of the last quoted passage. However in a document prepared on behalf of Bond and EIE also in June 1989 seeking development finance, after referring to a proposed lease to BUL for 100 years at a rental of 10 per cent of capital cost with bi-annual reviews it is said: "... however initial rentals will be reduced to assist BUL's cash flows in its early years. Currently rent payable is anticipated to be 6.5% of capital cost until such time as BUL has repaid its debt facilities." So, while the joint venturers were contemplating a lease for 100 years and the possibility of donating 3.5 per cent of the capital cost component of the rent during the term of BUL's loan, if obtained, from a third party, BUL itself was seeking finance on the basis of a lease for 20 or 99 years -- 16 of 39 -- 14 and that that donation would be only two per cent of that component. In the meantime, as we have said, the University commenced operating on 15 May 1989 with initial enrolments, and consequently income, substantially less than projected. On 26 May 1989 each of the joint venturers wrote to BUL promising short-term funding to meet its debts. Each said: "It is understood that such funding was not contemplated as part of the support to be provided to your company, and we do not consider it to be part of our ongoing obligations. This support is therefore committed for a maximum of eight weeks, or until short-term finance is in place, whichever is the earlier." This was, presumably, because it had been expected that BUL would obtain finance from a third party. The letters also promised assistance to BUL in obtaining finance from third parties. Nevertheless the limited nature of the commitment caused the directors of BUL, in letters from Michael Perry and Associates and Ms. Nosworthy, a director, to foreshadow the winding up of BUL on the ground of insolvency unless some greater certainty of funding was provided. Letters extending the joint venturers' financial commitment in this respect were written on 18 July 1989 and 11 September 1989, in each case on the understanding that it was not part of the original plan. It may be added that, from the documents to this point, it appears that nor was it part of the original plan that BUL would not be able, commencing in its first teaching year, to pay rental at 10 per cent of the capital cost of the project. On 18 January 1990 EIE gave a further commitment to BUL to provide operating expenses up until 30 June 1990 in accordance with approved budgets and subject to effective steps being taken to improve the financial and business management of BUL. By this time Bond was making no further financial contribution to the joint venture. To return to the documents relating to a proposed lease, also in June 1989, as BUL has pleaded, the joint venturers forwarded to BUL a document headed "University: Real Property Leasing -- 17 of 39 -- 15 Plan" which contemplated that about 70 hectares5 would be leased to BUL for 99 years at a rental of 10 per cent of land and capitalized construction cost with CPI increases. The document contained the following: "Rental deferral: Part of financing exercise only." This appears to be another reference to the fact that rental deferral was being considered only for the term of a proposed loan from a third party to BUL. 5 Identified as lots 931 and 932. There is no record of this document being discussed at a meeting of BUL. However in July, Mr. Fox prepared leasing heads of agreement which he sent to Ms. Nosworthy (although she does not remember receiving it), Professor Watts and Mr. John Bond, all of whom were also directors of BUL suggesting that they agree at the next Council meeting to execute the document in that form. The terms of rental, the term and the land the subject of the draft were the same as in the preceding document but no provision with respect to rental deferral was included. On 14 December 1989 BUL, no doubt with the agreement of the joint venturers, entered into an agreement with Westpac Banking Corporation which recited that Limgold and Nista had agreed to grant BUL a lease of land on which the premises the subject of the agreement stood and by which BUL agreed, immediately following the grant of such lease, to grant a sublease to Westpac for a term of 10 years at a specified rent. However it was, of course, common ground between the parties to this appeal that no such agreement had been made between Limgold and Nista on the one hand and BUL on the -- 18 of 39 -- 16 other. By April 1990 Bond had produced new draft heads of agreement for lease proposing a term of 50 years with two further options of 40 years, commencing on 15 May 1989 at a rental of 10 per cent of capital cost but with a rent free period of unspecified duration. This appears to be the document alleged in paragraph 39 of the statement of claim to have been drawn up by the joint venturers with BUL's knowledge.6 There is no documentary evidence of its approval or disapproval by BUL. 6 The land the subject of the document was identified only by colouring on a plan which was never tendered. By the Council meeting of 25 September 1990 the parties were plainly no closer to agreement on the terms on which BUL should occupy land. It was recorded in the minutes that, in the current absence of any agreement at all, the solicitor who was present to advise the Council indicated a preference for adoption of a short-term agreement. It was accordingly resolved that a draft short-term lease be presented for consideration at the next meeting and that a statement explaining the basis of a proposed longer term agreement also be prepared. At its meeting of 2 November 1990 the Council noted that the first draft of the proposed short- term lease was now being considered by representatives of Bond and, in view of the lack of progress on the preparation of a statement which would explain the basics of a longer term arrangement, the joint venture representatives undertook to prepare a document for the information of Council. It was noted at the Council meeting in March 1991 that the lease issue had still not been -- 19 of 39 -- 17 resolved. However a draft short-term lease had been prepared and approved by Bond and it was noted that it was now with EIE for approval. It was also noted that the short-term lease arrangements would not prejudice negotiations for a long-term lease. It was resolved that arrangements for a long- term lease be progressed. At a meeting of the executive of the Council on 26 April 1991 it was "noted that EIE required further discussions with Bond before an agreement on arrangements for the lease could be reached by the Joint Venture partners." EIE apparently lodged a caveat over the land, in order to secure a loan, which the Council of BUL considered for the first time at its meeting of 31 May 1991. It resolved to instruct Feez Ruthning to lodge a caveat on the land on its behalf and to request the joint venturers to give their consent to it until a long-term lease was agreed to. Such a caveat was lodged on 27 June.7 On 22 July 1991 Ms. Nosworthy, as Chancellor of BUL, wrote letters to each of the joint venturers expressing BUL's increasing concern at the lack of progress towards securing long-term tenure. She wrote: 7 The caveat was over lots 931, 932, 925, 926 and 927. "It has always been the Council's understanding and I believe common ground between the Council and the joint venturers, that the University would be granted a long-term lease of the campus land." She went on to say that a caveat had been lodged claiming an interest for BUL as lessee. She then sought the joint venturers' assistance in affording BUL long-term protection without BUL having to resort to the institution of legal proceedings to prevent the caveat from lapsing. -- 20 of 39 -- 18 Bond replied on 25 July indicating "some sympathy" for BUL's claim.8 But by this time, however, it seems that EIE was effectively in control of the joint venture, Bond not having been able to contribute financially since the end of 1989. There was further discussion at the meeting of the Council on 26 July 1991 about a long-term caveat, the Chancellor indicating that she had written to Bond and EIE requesting their consent to one and an undertaking was given to write to EIE regarding a long-term lease. Bond had now failed and EIE was seeking funds to purchase its interest. On 20 December Mr. Wran on behalf of EIE confirmed his discussions with Ms. Nosworthy on behalf of BUL that, once the acquisition by EIE of Bond's interest in the joint venture had been completed EIE would undertake to discuss BUL's tenure early in the New Year. However he also indicated that the owner would not consent to the caveat and that EIE's mortgage would be registered subject to it, BUL having consented to its registration. At the meeting of the Council on 31 December 1991 the Chancellor reported that, once settlement of the acquisition by EIE of Bond's interest had been achieved EIE would be seeking to negotiate with BUL on the question of a lease. It was noted that EIE had indicated that a medium term lease would be possible to be followed by a longer term commitment if the University was managed in such a way as to achieve a surplus of income over expenditure. 8 But expressing surprise at the inclusion of lots 926 and 927 which, it said, were never contemplated to form part of the University campus. -- 21 of 39 -- 19 The parties did not appear to get any closer to an agreement for lease, or even a common understanding as a basis for such agreement, after 1991. The only relevant event, or series of events, after that date involved a proposal for a lease by Mr. Ogawa in 1993 on behalf of EIE but acting upon instructions of LTCB. That proposal, which was for a lease for 10 years, was discussed at a meeting of the Council of 28 May 1993. Thereafter counter proposals were exchanged but they led to nothing. The significance of these events, for present purposes, is that at no stage was it asserted on BUL's behalf that it already had an entitlement to a 99 year lease on the basis of assurances given by the joint venturers. On the contrary, Professor Messel on behalf of BUL, during the course negotiations, put a proposal for a 99 year lease as "a good negotiating ploy". (e) the effect of the documentary evidence The effect of the documents appears to be that: 1. until at least January 1989 BUL and the joint venturers had a common intention and assumption that they would enter into a long-term lease, of 20 or 99 years, from May 1989 at a rental for the first year of 10 per cent of the capital cost of land and improvements with bi-annual CPI increases thereafter. That the identity of the land to be leased was, however, never agreed appears from later differences of view about this. 2. By about March 1989 and thereafter for a time the parties appear to have had a common intention and assumption that, during the term of a proposed loan to BUL from a third party, the joint venturers would reduce by "donation" the rental to something less than 10 per cent of capital cost, variously put at 6.5 per cent and 8 per cent; but in other respects the assumption in 1 remained. 3. No external finance having been obtained for BUL and the financial position of all parties having -- 22 of 39 -- 20 deteriorated, by April 1990 they appeared to be negotiating afresh, having no common assumption. In particular the conduct of BUL at its meetings in September and November 1990 and also in 1993 appears to be inconsistent with any assumption of entitlement to a long- term lease of the kind alleged. 4. There is no evidence in any of the documents which would support any common assumption that BUL would occupy land, for a long term, rent free until it made a nett profit and then at a rental only to the extent of that nett profit; and even less an assumption that it would occupy it for a long term whether it paid rent or not. On the contrary the documents indicate a continuing intention by the joint venturers, known to BUL, of obtaining a commercial return from the venture including from the occupation of land by BUL. (f) the oral evidence Perhaps unsurprisingly there were a number of witnesses who accepted, in effect, the absence of any assurance by the joint venturers and assumption by BUL of the kind alleged or whose evidence, at least, was not inconsistent with those absences. Professor Watts, for example, who was the first Vice-Chancellor of BUL and remained only until June 1990, although he gave evidence of assurances by the joint venturers of permanent tenure for the University, and that he would not have acted as he did if he had thought that there was some risk, nevertheless said that he accepted the risk to the continued occupation of BUL of financial failure by the joint venture partners (which in fact occurred). More generally, his evidence was inconsistent with such assurances as were alleged. At first he thought that the proposal for a lease for 99 years commencing in May 1989 at a rental of 10 per cent of capital cost for the first year increasing thereafter bi-annually at CPI rates, which he agreed was discussed at a finance committee meeting of BUL on 10 June 1988, had not been discussed at the -- 23 of 39 -- 21 Council meeting of 16 June 1988. However when taken to the minutes of that meeting he conceded that they were correct. He also said that, at meetings at which a lease was discussed, he emphasized the need to define capital cost on which the rental was based and the rate of such rental. This evidence is significant for its failure to object to rental at a fixed rate of capital cost or to the fact that a lease on such a basis should commence in May 1989. Professor Watts' explanation for this appears to be general assurances by the joint venturers of their commitment to the success of the University. But the basis on which he approached Mr. Littleproud seeking stamp duty relief and the Premier seeking finance was inconsistent with any such assurance as was alleged. Professor Lovering, who was a director of BUL from 17 March 1988 to 22 January 1989, agreed that there was never any promise of a lease though it seemed a possibility. Ms. Nosworthy, who was a director from 17 March 1988 to 11 February 1992 and Chancellor from 1990 to the end of that period, appeared to have an incomplete recollection of early events. She could not recall any representations made in respect of stamp duty relief for the lease and conceded that some of the correspondence was inconsistent with her own impressions. As we have already mentioned, she could not recall receiving the draft leasing heads of agreement in July 1989 and was uncertain about some other documents. Her initial information about the nature of BUL's occupation, it seems, came from Professor Watts. And although she spoke in general terms of assurances by representatives of Bond and EIE that the rent would not be paid in the initial years, she conceded that BUL was totally dependent on the goodwill and financial capacity of the joint venturers in respect of both rental and funds in those years. She suggested no commitment by them in that respect. She also conceded that the difficulties in drafting any lease were caused by the difficulty in arriving at a formula which could be sustained by the joint venturers by which, of course, she meant -- 24 of 39 -- 22 terms on which a lease could be granted consistently with the financial interests of the joint venturers. Although Mr. Bond was one of those witnesses whose evidence his Honour thought unduly favoured BUL, as we have already mentioned he conceded that there was no intention on behalf of Bond to grant a lease other than on proper commercial terms consistent with the discharge of its obligations to its shareholders; there was no suggestion, he agreed, of the subordination of the interests of the shareholders to some notion of philanthropy. Mr. Fox who was a Bond Corporation employee particularly involved with BUL in trying to formulate the terms of a lease, and also a director of BUL agreed that, in discussions with Professor Watts, the basis was that the joint venturers would do what they could to assist the University with rental bearing in mind their own commercial responsibilities. And he agreed that those discussions were never finally resolved as to the extent to which the joint venture parties would be able to assist the University in that respect. There are other passages in the evidence of some of those and other witnesses which, BUL submitted, supported its contention that there was a commitment by the joint venturers or at least a common intention and assumption of the kind which it alleged. But it was, on the whole, evidence of a general kind in which witnesses gave their understanding of the basis of BUL's occupation of the land, unrelated to any document or to anything specifically said on behalf of Bond or EIE; and to the extent that it was said to rely on anything it was said to rely on what was not said rather than on what was said or written. The general feeling among those involved in the venture, in the early stages, appears to have been one of euphoria. It is unsurprising, in those circumstances, that they spoke in terms of analogies with Harvard and Yale and of the University being there for a long time. Bond and EIE were seen by -- 25 of 39 -- 23 those associated with BUL as spectacularly successful companies. Failure of the venture was not contemplated. Such general evidence was, at best, of only marginal relevance to the alleged common intention or assumption induced by conduct by the joint venturers. BUL also sought to distinguish between the joint venturers provision of funds to BUL for operating expenses, in respect of which it conceded there was no commitment except when given in the letters to which we have referred, and their attitude to BUL's occupation of the land, in respect of which it was alleged that there was a commitment that it should be rent free or rent free until BUL made a profit and then only to the extent of that profit. But on the whole the witnesses did not make any such distinction. Professors Watts and Lovering, for example, spoke in terms of the joint venturers' commitment to the total success of the University. Moreover it is difficult to see any logical distinction between the two in the sense that both equally affected the commercial interests and ultimately the survival of the joint venturers and the success or failure of BUL. The oral evidence therefore tended to support rather than contradict the documentary evidence and failed to support the alleged common intention and understanding. Two further matters should be mentioned in the context of consideration of the oral evidence. The first is criticism made by BUL in this Court of questions asked of witnesses by the learned trial Judge which, it was said, elicited evidence upon which the learned trial judge based his qualification of affordability, a qualification which it was submitted was never pleaded. This criticism was met by a criticism from the respondents of the conduct of BUL's counsel at trial who, it was said, had persistently led his own witnesses over the objection of the respondent's counsel and the remonstrations of the learned trial judge. As to the former, we think that his Honour was justified in the circumstances in asking the questions which he did. The issue which he pursued in his questions related, in effect, to the -- 26 of 39 -- 24 question whether either of the assurances and assumptions which BUL alleged, and which was denied, was made out. The question whether any such assurances, whilst being qualified as to BUL's financial commitment, were unqualified as to the joint venturers' financial commitment, was not explored or at least fully explored, perhaps deliberately, by BUL's counsel who was content, as we have mentioned, to seek from witnesses their understanding of the position unrelated to any specific conduct of either party. And while there is some substance in the latter criticism we do not think that it has a sufficient bearing on the result of this appeal to warrant further consideration. The second is BUL's attack on the learned trial judge's findings of credit against some witnesses. His Honour found the evidence of most of the Bond and some of the EIE witnesses less than satisfactory; that they appeared in demeanour too eager to favour BUL's case. He thought that the Bond witnesses were particularly unimpressive. He went on to describe aspects of their demeanour which led to his conclusions. We can see nothing in what those witnesses said which would cause us to doubt the correctness of his Honour's conclusion in this respect and the advantage which his Honour had in observing the demeanour of those witnesses should not be discounted. The oral evidence as a whole and in particular, that part of it which the learned trial judge accepted after making appropriate credibility findings based on, amongst other things, demeanour, supported rather contradicted the effect of the documentary evidence which may therefore be accepted as the effect of the evidence as a whole. (g) the relevant principle and its application to the facts The parties accepted as a correct statement of principle Priestley J.A.'s modified proposition 5 in Austotel Pty. Ltd. v. Franklins Selfserve Pty. Ltd.:9 9 (1989) 16 N.S.W.L.R. 582 at 610, Kirby P. agreeing in the proposition at 685. -- 27 of 39 -- 25 "5. For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable." This statement derived in part from the following statement in the joint judgment of Mason C.J. and Wilson J. in Waltons Stores (Interstate) Limited v. Maher:10 "One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it': per Dixon J. in Grundt; see also Thompson. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption." To make the joint venturers liable in estoppel, therefore, it was necessary to find an assumption by BUL which the joint venturers created or encouraged and which BUL relied on. That is, as we have shown, the way in which BUL pleaded its case. But, as we have also shown, the assumption which it alleged was one which was neither made by BUL nor encouraged by the joint venturers. And the only assumptions which it did make with respect to a lease, and which were arguably encouraged by the joint venturers, were ones which were not relied on in this case. The appellant submitted that the learned trial judge found that there was a common intention and assumption by the parties that a long-term lease would be granted to BUL. That is correct and, indeed, that was common ground between the parties as we have indicated. However, as we have also mentioned, that is an incomplete statement; and a complete statement of the common intention and assumption, which included that it be on commercially sustainable rental terms, which were, for a time, specifically expressed in the way we have indicated, is inconsistent with that pleaded. His Honour's 10 (1988) 164 C.L.R. 387 at 404; see also Brennan J. at 429, Deane J. at 451-2. -- 28 of 39 -- 26 condition of reasonable affordability to the joint venturers is another way of completing the statement of that common intention and assumption. In view of those conclusions it is unnecessary to consider questions of reliance or detriment or other equitable matters raised by the joint venturers. The estoppel claim must fail and so must BUL's appeal. We turn to Appeal No. 199 of 1998, in which Limgold and Nista are the first appellants and LTCB is the second appellant. They each challenge the learned judge's orders specifying three years as the period of notice for determination of BUL's tenancy at will, and $3,500,000.00 per annum as the rent to be paid, if demanded, under that tenancy. Limgold separately challenges his Honour's determination that in calculating the "surplus" referred to in the Subordination Deed, various amounts should be deducted from BUL's profit rather than from its cash reserves - and as to certain deductions. Period of Notice The learned judge found that BUL was a tenant at will, so that the period within which it might lawfully be required to vacate the premises would be a "reasonable" period, allowing for "the nature of the tenancy, the circumstances surrounding the creation of the tenancy, the terms of the tenancy, and any proper implication from the agreement of the parties with respect to the tenancy" (s.137(2) Property Law Act 1974). He likened the approach apt to section 137 to the approach at common law, which allows a tenant at will "a reasonable time to wind up (its) activities having regard to all the circumstances",11 designed not to prolong the tenancy but to facilitate adjustment to the new situation 11 Winter Garden Theatre Ltd. v. Millennium Productions Ltd. [1948] A.C. 173 at 181. -- 29 of 39 -- 27 created by the need to vacate.12 He recognised that BUL bore the onus of establishing that reasonable period, and considered the onus discharged, leading to his determining three years as the requisite period. The appellants have challenged only his Honour's ultimate conclusion. They contend that the onus was not discharged, and that no more than six months notice should be required. Because the appellants contend that the onus was not discharged, it is necessary to examine his Honour's approach in more detail. 12 Ibid at 205. The judge worked from the premise that "being a University, it would plainly have substantial inertia by reason of its nature". It had been allowed to remain "with the expectant hope that secure long tenure would be granted if circumstances permitted". The parties would, he inferred, have proceeded on the basis that a notice to quit would allow "reasonable notice to permit (BUL) to make alternative arrangements and if possible to keep its University intact". Alternative premises would likely be rented, but finding them, making suitable structural alterations, and organising and effecting a removal, would take some time. On the other hand, as his Honour found, BUL had not "seriously searched for alternative accommodation when it should have done so" (that is when Mr. Allpass, the receiver, rejected its claim to an entitlement to a lease), and should not be allowed to benefit from what the judge styled its "deliberately obstructive behaviour" (during negotiations). He concluded, however, that some "suitable cautionary liberality" was warranted, and set three years as the period. The appellants point to the absence from his Honour's reasons of any detailed analysis, by -- 30 of 39 -- 28 reference to "time lines" and the like, of the period necessary to wind up operations on the present site and move, intact as a University, to another. There was evidence of the time taken to establish the existing University, and that was not entirely irrelevant to the present issue just because BUL would likely now move to established premises. The absence of the very specific type of evidence to which the appellants refer did not mean that the judge was left merely to speculate about the time required. The application of commonsense and ordinary experience to the combination of relevant circumstances to which his Honour referred, permitted the selection of a reasonable period - albeit that the process was by nature imprecise. Determining such a period involved the evaluation of a number of relevant circumstances, and was ultimately factual. The facts were clearly established and are not challenged: only whether any, and if so what conclusion might be drawn from them. The respondent contended that we should substitute our own view, if different from that of the learned judge, relying on Warren v. Coombes.13 That case does, however, acknowledge the appropriateness of ordinarily according weight to the results of an evaluative process carried out at first instance (see, especially, page 551: "the appellate court will give respect and weight to the conclusions of the trial judge"). For the appellants, it was submitted that allowing three years was insupportably liberal, especially bearing in mind that BUL has occupied the site for more than four years since rejecting what his Honour found to be an offer of reasonable terms for continued occupancy, and the judge's finding that BUL had not seriously searched for alternative accommodation. On the other hand, while the issues involved in this litigation remained undetermined, it is reasonable to accept, as Professor Mortley claimed, that BUL "simply (did not) know where it (stood) ... (they) couldn't talk seriously to anybody. 13 (1979) 142 C.L.R. 531 at 551. -- 31 of 39 -- 29 (They didn't) know what resources (they had) available ...". There was nothing factually inaccurate in his Honour's listing of the relevant circumstances. He did not omit any. The evidence also contained a lot of detailed other information bearing on some of those circumstances, and his Honour no doubt bore that in mind. As an example, concerning the time necessary to move the University because of its standing as such, there was evidence of its long-term arrangements with students, including degree courses of up to ten semesters (three semesters per annum), there being more than one thousand students enrolled in the expectation that the University would be located at the Gold Coast and offer them a complete course of study. These and other circumstances covered by the comprehensive evidence in the case lend support to the approach his Honour took. In the result, we are not satisfied that the determination of three years as the "reasonable" period for the giving of notice, in terms of section 137 of the Property Law Act, was not a course reasonably open to the learned judge. It was factually supported by evidence, and sufficiently justified by the reasons he specified. His approach to the matter shows no error of fact or law. While it might be felt that allowing three years was on the generous side, the conclusion was still, in our view, reasonably open, and even allowing for the approach discussed in Warren v. Coombes, (supra) not properly susceptible of revision on this appeal. In short, this is not a case where we find ourselves "unable to agree" with the judge's conclusion, so that we should substitute an alternative conclusion.14 Rental during the notice period The learned judge made the following declaration: 14 Ibid at 553. -- 32 of 39 -- 30 "THAT the plaintiff is a tenant at will of the lands presently occupied by it such tenancy being determinable only on three years' notice subject to the payment of rent, if demanded, of three million five hundred thousand dollars ($3,500,000) per annum payable quarterly in advance and of all repairs and maintenance costs relating to the tenanted property; but otherwise on one months' notice." The judge recognised that he should determine rental in an amount "reasonable according to the current commercial circumstances of the parties",15 worked from a base figure of $5M per annum, and then discounted that figure back to $3.5M "for the unsettled nature of the outgoing tenant's occupancy during that period as it is to be used largely for the purposes of winding down operations on this site". 15 Winter Garden Theatre, supra at 181. The appellants contend that no such discount should have been made from the base figure of $5M, pointing out that the effect of the order is to afford BUL certainty for that period, a period over which it might be expected profitably to operate the University, not run it down. They contend that the effect of allowing the discount is to compel the landowner to share the financial burden of winding down the University operation on this site, especially unjustified in light of the judge's conclusion that BUL had unreasonably rejected the 1993 proposal for a lease. The respondent did not accept those contentions, and asserted that in any case his Honour worked from too high a base, $5M rental, relating to a 25 year term (his Honour's judgment pages 234-5) being necessarily too high for a three year term. His Honour considered $5M to be an appropriate rental, although, as he said, it "(did) not reflect a commercial return on the value of the asset" (page 235). He set the figure in reliance on the evidence of a valuer, Mr. Cox, adjusting Mr. Cox's primary position to take account of matters raised in cross-examination. -- 33 of 39 -- 31 He preferred Mr. Cox's evidence to competing valuation evidence, and offered reasons for that, including the question of demeanour, among others. His Honour was entitled to work from that base figure of $5M, for purposes of determining a rental for this three year tenancy. None of the criticisms levelled at his Honour's decided preference for Mr. Cox's evidence could warrant our taking a different approach. (Mr. Cox, incidentally, set market rental in excess of $5M, at $5.4M.) But the learned judge should not then have applied a discount. The reason he assigned was not valid: the occupancy would not be "unsettled", and the premises were not to be used "largely for ... winding down operations". The right of occupancy is certain. For that period of three years, BUL will presumably carry on the University operation in the full sense, and profitably, concurrently preparing for its movement, intact, at the end of that period, elsewhere. The reasons assigned by the judge cannot be sustained. The "current commercial circumstances of the parties", the consideration mentioned in Winter Garden Theatre and which applied here, did not warrant allowing any particular discount below the level of a commercial rental. The above declaration made by his Honour should therefore be varied by substituting, for the reference to the amount of $3.5M, the amount of $5M. Subordination Deed By way of counterclaim, Limgold sought repayment by BUL of $94,413,500.51, a debt which accrued because of interest-free loans of operating funds during the establishment of the University, and admittedly owing, but claimed not to be payable because of a deed of subordination which suspended BUL's obligation to repay. The relevant parts of the deed follow: "RECITALS: A. Limgold has lent BUL certain sums of money for operating and capital equipment expenses and Limgold will continue to fund BUL to enable it to meet its operating and capital equipment expenses upon certain conditions having been met. These past and future loans together with interest at a commercial floating rate to be agreed between the parties are together called -- 34 of 39 -- 32 the 'Loans'. B. The parties wish to record their agreement in relation to the repayment of the Loans and the subordination of the debt in favour of other creditors. AGREEMENT 1. Unless otherwise agreed in writing by the parties to this Deed, the Loans are subordinated to the debts of all other creditors of BUL and will not be repayable unless: (a) BUL obtains finance of an amount and on terms and conditions reasonably acceptable to BUL which enables BUL to repay the Loans and BUL agrees to use its best endeavours to obtain such finance; or (b) if after paying or providing for all other creditors and operating expenses as reflected and recorded in the accounts of BUL in any financial year and if after paying or providing for additional capital equipment and other expenditure as agreed between Limgold and BUL there is a surplus in any financial year from which the Loans or any portion thereof may be repaid; or (c) upon the liquidation of BUL and following the payment in full of all other creditors of BUL there are funds remaining to enable the Loans to be repaid in whole or in part and then only to the extent of such funds." The learned judge concluded that BUL was obliged to pay the sum of $7.748M, being the accumulation of "surpluses" to date in terms of clause 1(b) ($6,618,000.00) and interest of $1,130,000.00. The amount of $6,618,000.00 comprised $2.907M, the amount of the first surplus, achieved in 1994, and the second of $3.711M achieved in the following year. The first issue arising on appeal is whether his Honour correctly used BUL's profit as the starting point prior to making the deductions envisaged by clause 1(b). Limgold contended that the starting point should be cash. His Honour observed that "the deed itself prescribed what is meant by 'surplus'." It does not, however, in terms specify the starting point for the calculation. The judge went on to say that "as all would agree, it clearly assumes the income to be the starting point ...". There was, however, disagreement between the parties as to the correct starting point, and the judge adopted BUL's position which involved working from profit, whereas Limgold had urged working from cash. -- 35 of 39 -- 33 Clause 1(b) contemplates working from a fund of money: after making deductions for other creditors etc., there may then be a "surplus" from which Limgold may be paid. It is prima facie odd to postulate profit rather than cash as that starting point: one would ordinarily think of making a payment from a reserve of cash, not profit. The BUL accounts, to which the provision refers, specify the cash available each year, so that a calculation from that point may readily be undertaken. The argument against working from cash is that appropriating remaining cash to the discharge of the debt to Limgold would "drive the University to its financial knees". But as clause 1(b) confirms, the parties contemplated that Limgold may agree to "(pay) or (provide) for additional capital equipment and other expenditure" for BUL, and the deed may be read as contemplating BUL's continued financial operation, closely monitored by Limgold, while reserving to Limgold all surplus monies. BUL would therefore be left in the position of having to borrow for its operating expenses, and practically speaking, in consultation with Limgold, but in view of the history of the matter, there seems no improbability about the parties having proceeded on that basis. The second aspect on which his Honour's approach was challenged concerns deductions he made for the cost of capital equipment. Clause 1(b) provides that allowance be made "for additional capital equipment and other expenditure as agreed between Limgold and BUL". His Honour held that the words "as agreed ... " related to both "capital equipment" and "other expenditure". He pointed to textual considerations, such as the absence of the word "for" before "other expenditure". The natural reading of the clause is consistent with his Honour's construction. Further, if BUL's contrary construction were correct, BUL might always frustrate the possibility of achieving any surplus by purchasing capital equipment. It seems unlikely that Limgold, plainly interested in carefully monitoring the recovery of such a substantial debt, would have left that possibility open. -- 36 of 39 -- 34 His Honour then held, however, that reference to expenditure "as agreed" in clause 1(b) extended to expenditure which "should have been agreed". As to the period after the appointment of a receiver to Limgold in 1993, there was, he held, "no evidence of any agreement, express or implied, as to the items within this category" - that is, as relevant, expenditure on capital equipment. There was no challenge to that finding on appeal. Yet his Honour concluded that Limgold would, if asked, have agreed to the relevant expenditure. As he put it: " ... the relationship of the parties ... supports an implication that Limgold would not have withheld its consent to any reasonable expenditure of this kind. This issue was not raised or argued and there is no direct evidence on which it could be found whether any of the provisions for expenditure came within this description. However, it is clearly established that in general BUL's financial plight was such that it is very unlikely that it would have been spending unreasonably in this area so that the necessary approval should have been given to all the items that have been included in the accounts. Limgold has not proved the contrary of this prima facie position." The terms of clause 1(b) are in this respect plain. It is not to the point to consider whether if the prospect of agreement had been raised, agreement would have eventuated. The only question is whether the expenditure was in fact agreed. His Honour's clear conclusion that there was not any agreement, express or implied, put an end to the inquiry. There was no difference between the parties as to the adjustment necessary to the judgment in the event that we disturbed his Honour's approach in these two respects. This construction of the deed leads to a "surplus", within clause 1(b), of $12.18M for the year 1994, and a progressive surplus of $17.48M in 1995. It follows that Limgold is entitled to be paid $17.48M, together with interest at seven per cent per annum (there was no dispute about the allowance of that rate) on $12.18M from 31 December 1994 and on $5.3M from 31 December 1995. In lieu of his Honour's order that Limgold recover from the plaintiff $6,618,000.00 together with interest of $1,130,000.00, it should therefore be ordered that Limgold recover from the plaintiff the sum -- 37 of 39 -- 35 of $17,480,000.00 together with interest at seven per cent per annum on $12,180,000.00 of that amount from 31 December 1994, and on the balance of $5,300,000.00 from 31 December 1995. Orders The appeal of BUL (No. 196 of 1998) is dismissed with costs to be taxed. Although the trial judge reserved costs, BUL sought those costs in its notice of appeal. BUL should now be ordered to pay the other parties' costs of and incidental to the action, to be taxed. The appeal by Limgold Pty. Ltd. and Nista Pty. Ltd. and The Long-Term Credit Bank of Japan Limited (No. 199 of 1998) is allowed to the following extent: (a) vary the declaration made by the trial judge as to Bond University Limited's tenancy at will, substituting for the sum of $3,500,000.00, the sum of $5M; (b) set aside the trial judge's order that Limgold Pty. Ltd. recover from Bond University Limited $6,618,000.00 together with interest of $1,130,000.00; and order in lieu thereof, that Limgold Pty. Ltd. recover from Bond University Limited the sum of $17,480,000.00 together with interest at seven per cent per annum on $12,180,000.00 of that amount from 31 December 1994 and on the balance of $5,300,000.00 from 31 December 1995. Bond University Limited is ordered to pay the other parties' costs of and incidental to the appeal to be taxed. The learned judge reserved the costs of the trial. Limgold seeks an order on appeal that BUL -- 38 of 39 -- 36 pay three-quarters of its costs of pursuing the counterclaim at the trial. Such an order would be reasonable in view of Limgold's measure of success on the appeal. There will therefore be an order that Bond University Limited pay three-quarters of Limgold Pty. Ltd.'s taxed costs of and incidental to pursuing its counterclaim at the trial. -- 39 of 39 --