Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd

[1999] NSWSC 264

CITATION:	Advance Fitness v Bondi Diggers [1999] NSWSC 264
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	5173/98
HEARING DATE(S):	9, 11 & 23 March 1999
JUDGMENT DATE:	30 March 1999
PARTIES :	Advance Fitness Corporation Pty Ltd (P) v Bondi Diggers Memorial & Sporting Club Ltd (D)
JUDGMENT OF:	Austin J

COUNSEL :	R Dubler (P) P W Taylor SC & S Gregory (D)
SOLICITORS:	Corrs Chambers Westgarth (P) Abbott Tout (D)
CATCHWORDS:	Landlord and tenant - landlord's obligation to repair - covenant to comply with head-lease - covenant for quiet enjoyment - implied covenant not to derogate from grant - no obligation to consent to safety work; Contract - implied term - implied duty to cooperate to achieve contractual objectives - implied duties of fair dealing and good faith - no implied duty upon landlord to consent to fire safety work
DECISION:	Claim for principal relief denied

CASES CITED
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Alden v Latimer Clark Muirhead & Co [1894] 2 Ch 437
Aussie Traveller Pty Ltd v Marklea Pty Ltd [1991] 1 QldR 1
Ayling v Wade [1961] 2 QB 228
BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1997) 180 CLR 266
Bradford House Pty Ltd v Leroy Fashion Group Ltd (1983) 46 ALR 305
Brilee Consultants Pty Ltd v Tibal Holdings Pty Ltd (1984) 3 BPR [97184] at 9274
Browne v Fowler [1911] 1 Ch 219
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215
Grenada Theatres Ltd v Freehold Investments (Leytonstone) Ltd [1959] 2 All ER 176
Hart v Windsor (1843) 12 M&W 68
Hawkins v Clayton (1988) 164 CLR 539
Hill v Harris [1965] 2 QB 601
Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1
Hughes Bros Pty Ltd v Trustees of Roman Catholic Church (Archdiocese of Sydney) (1993) 31 NSWLR 91
Kohua Pty Ltd v Tai Ping Trading Pty Ltd (1985) 3 BPR [97,240]
Liverpool City Council v Irwin [1971] AC 239
MacKay v Dick (1881) 6 App Cas 251
Martin’s Camera Corner Pty Ltd v Hotel Mayfair Ltd [1976] 2 NSWLR 15
Reid House Pty Ltd v Beneke (1987) 5 ACLC 451
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Sarson v Roberts [1895] 2 QB 395
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Sutton v Temple (1843) 12 M&W 52
Wettern Electric Ltd v Walsh Development Agency [1983] 2 All ER 629


THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

30 MARCH 1999

5173/98 - ADVANCE FITNESS CORPORATION PTY LTD V BONDI DIGGERS MEMORIAL & SPORTING CLUB LTD

JUDGMENT
Introduction
1 This is an expedited matter in which the plaintiff as tenant seeks an unusual form of relief against the defendant as landlord. By way of principal relief, the plaintiff seeks an order that the defendant provide its consent to Waverley Council to permit the plaintiff to carry out such fire safety works as the Council may require as a condition of permitting the plaintiff to remain in occupation of the demised premises. The plaintiff claims to be entitled to such relief either under the express terms of its lease from the defendant, or by virtue of the defendant’s implied covenant not to derogate from the grant of the lease. Alternatively, the plaintiff says that if the defendant is not obliged by the lease to consent to the works, it is at least obliged by an implied contractual term to co-operate, or not to refuse to co-operate unreasonably or for an extraneous purpose.
2 For reasons which I shall give, my opinion is that the plaintiff has failed to identify any duty owing by the defendant which would entitle the plaintiff to the principal relief which it seeks. However, I propose to make findings on the issues of fact which arose at the hearing, in case the matter goes further. I shall first deal with the facts, and then the contentions of the parties with respect to whether the defendant owes any duty to the plaintiff which would entitle the plaintiff to an order that the defendant consent to fire safety works.
The parties
3 The plaintiff is a company wholly owned by Mr Keiran Barry, who is its sole director. It conducts a health and fitness centre in the defendant’s premises, 232 Campbell Parade, Bondi. The business consists of a gymnasium on the first floor with access to a swimming pool on the ground floor. The plaintiff offers memberships for periods ranging from a month to a year. Members have access to the gym facilities and pool, and to circuit classes, personal training and general fitness programs.
4 The defendant is the Bondi Diggers Club. It owns the building at 232 Campbell Parade. The building is a five storey building comprising a car park, offices, the swimming pool and a café on the ground floor; the gym, a cool room, loading dock, cellar and storage on the first floor; and bars, an auditorium, a snooker room, a restaurant and a function room on the second, third and fourth floors. The fourth floor also contains some Telstra equipment.
The witnesses
5 While much of the evidence at the hearing was documentary, oral evidence was given by five witnesses. It is appropriate that I give my overall assessments of the witnesses.
6 I found Mr Barry to be a truthful and reliable witness, as was the gym’s receptionist Linda Ormrod.
7 The defendant’s President, Mr Arthur Dunne, was a generally unsatisfactory witness. His oral evidence was sometimes at variance with his affidavit on important matters of fact. For example, in his affidavit sworn on 2 February 1999 he denied aspects of a conversation with Mr Barry on 30 July 1998, but in cross-examination he appeared at one point to agree that the conversation took place as deposed to by Mr Barry (T51.35, 52.50). I do not conclude that he deliberately falsified his evidence. Mr Dunne is an elderly man. His demeanour in the witness box suggested a degree of confusion. For example, he found it difficult to locate the correct pages in the papers which were before him. His answers in cross-examination suggested to me that he did not always understand the questions and their significance, nor recollect the context in which the question was placed. I have reached the conclusion that I should prefer the evidence of Mr Barry to Mr Dunne’s evidence wherever they are at variance.
8 Mr Mahony, the defendant’s solicitor, is a partner in the firm Abbott Tout. In the witness box he gave the impression of attempting, as one would expect, to recall the facts clearly and accurately. He frankly admitted his own mistake in failing to advise the defendant on the effect of clause 15.1 of the Headlease dated 23 October 1991. I found him to be a reliable witness, though this is not to say that I accepted every part of his evidence.
9 Mr Perry, a director of the defendant, also appeared to me to be a truthful witness. While his recollection of the events of December 1998 and January 1999 appeared at times to be vague, this may be because the events which were a principal part of his evidence were informal discussions by the defendant’s directors at which views were exchanged and the direction of the defendant’s strategy was confirmed, but no specific motions were put or carried.
The defendant’s sale and lease back of the premises, and the sublease to the plaintiff
10 In about 1991 the defendant sold the building at 232 Campbell Parade to companies called Junemar Nominees Pty Ltd and Vitarni Pty Ltd, and took a lease back of the building. It appears that this transaction was a method of providing finance to the defendant. The lease from Junemar Nominees and Vitarni to the defendant dated 23 October 1991 (‘Headlease’) was for a term of ten years from 12 November 1991, with an option to renew for a further ten years until 11 November 2011. It contained an option for the Club to repurchase the building.
11 The Headlease contained the following relevant provisions:
‘5.1 The Lessee will during the whole of the term and otherwise so long as the Lessee may remain in possession or occupation when where and as often as shall be necessary maintain replace repair and keep the whole of the demised premises in good and substantial repair order and condition (having regard to their condition following the carrying out of the works referred to in Clause 15.1 of the Lease) damage by explosion, earthquake, aircraft, riot, civil commotion, fire, flood, lightning, storm, tempest, act of God and war damage only excepted unless any insurance moneys are irrecoverable through the neglect default or misconduct of the Lessee. This covenant shall not impose on the Lessee any obligation in respect of any structural maintenance, replacement or repair except where the same is rendered necessary by any act neglect default or omission on the part of the Lessee or the Lessee’s use or occupancy of the demised premises.
15.1 The parties acknowledge that the Lessee has received a Notice pursuant to Section 317D(1) of the Local Government Act 1919 from the Council of the Municipality of Waverley and dated 29th August, 1991 requiring certain improvements to be made to the demised premises.
The Lessee hereby undertakes at their cost to attend to the improvements and alterations as referred to in the aforestated Notice to the satisfaction of the Council of the Municipality of Waverley within six (6) calendar months of the date hereof and to provide to the Lessor within the period of six (6) calendar months aforesaid a Certificate from the Council of the Municipality of Waverley pursuant to Section 317AE of the Local Government Act 1919.’
12 Clause 4.4 of the Headlease authorised the defendant to sublease or license the demised premises on certain conditions. The Headlease was registered as No.E129040.
13 By a sublease registered No.3558120 dated 29 September 1995 the defendant subleased part of the building, comprising the gym premises, to the plaintiff for a term of four years commencing on 1 November 1994, with an option to renew for a further period of three years (‘Sublease’). The Sublease contained the following relevant provisions:
‘5.1 The Sub-Lessee will during the whole of the Term and otherwise so long as the Sub-Lessee may remain in possession or occupation when, where and so often as shall be, maintain, replace, repair and keep the whole of the Demised Premises in good and substantial repair, order and condition. Notwithstanding any other provision to the contrary herein contained the obligations of the Sub-Lessee contained in this Clause 5.1 shall be expressly read and construed subject to:
(a) reasonable wear and tear and acts of nature or other cause outside the control and liability of the Sub-Lessee other than those which would be covered by the insurances to be taken out by the Sub-Lessee pursuant to Clause 7.1; and
(b) the condition of the Demised Premises as at the date of commencement of the Term.
6.1 The Sub-Lessee will at all times comply with all statutes, ordinances, proclamations, orders and regulations present or future including the Registered Clubs Act and regulations or notices issued by any public authorities affecting or relating to the Demised Premises but only to the extent that same arises as a result of the use of the Demised Premises and provided further that except as specified in Clause 5.2 the Sub-Lessee shall not be obliged to perform any works of a structural nature unless caused as a result of the Sub-Lessee’s use of the Demised Premises.
8.1 The Sub-Lessee by paying the rent hereby reserved and duly and punctually observing and performing the covenants, obligations and provisions in this Sub-Lease, shall and may peaceably possess and enjoy the Demised Premises during the Term without any interruption or disturbance from the Sub-Lessor or any other person or persons lawfully claiming by, from or under the Sub-Lessor.
11.4 The Sub-Lessee will ensure that simultaneously with any persons becoming members of the Sub-Lessee those same persons become members of the Sub-Lessor (‘the Club Membership’) and that membership of the Sub-Lessee is conditional upon payment of all fees for Club Membership.
13.1 The Sub-Lessor covenants with the Sub-Lessee: …
(b) The Sub-Lessor will observe and perform the obligations, covenants and agreements contained in the Lease No.E129040.’
14 After taking occupation of the gym premises, the plaintiff adopted a general practice when signing up new members, according to which persons joining the gym were asked to complete applications to join both the gym and club. The applicant would pay an application fee sufficient to cover membership of both the gym and the club, and the plaintiff would draw a cheque representing new membership fees payable to the club from time to time, which it would lodge at the club’s office together with the relevant application forms. Initially the club would process the applications once per month at the monthly board meeting.
15 By a letter to the managing director of the defendant dated 5 August 1998, the plaintiff’s solicitor purported to exercise the plaintiff’s option to take a renewed lease of the demised premises for a further term of three years. In the present proceedings the plaintiff seeks a declaration as to the efficacy of the exercise of its option to renew the lease, and an order for specific performance of the defendant’s obligation to grant a new lease. At the hearing counsel indicated that there is now no dispute that the option has been effectively exercised. On its face the letter of 5 August 1998 appears to be effective for that purpose. I therefore proceed on the basis that the plaintiff is entitled, at least in equity, to occupy the gym premises as sub-lessee until 31 October 2001, subject to the terms of the sublease.
The defendant’s early dealings with Waverley Council on fire safety
16 The building at 232 Campbell Parade was constructed in the 1960s and 1970s, prior to the introduction of Ordinance No.70 which introduced more explicit fire safety requirements for buildings. By the 1990s, its non-compliance with Council’s requirements had become a matter of concern for the Council.
17 On 29 August 1991, well before the plaintiff took possession of the gym premises, the defendant was served with a notice under s.317D of the Local Government Act 1919 requiring building works to be done to ensure that adequate provision for fire safety was made in the building. The specified work related to the following matters:
• replacement of defective fire safety doors;
• installation of exit signs and directional signs, and display of notices outlining offences relating to fire stairs;
• provision of a system of emergency lighting to stairways and corridors;
• enclosing of the existing lift shaft with fire resistant walls and ceiling, and self-closing fire doors, together with a warning sign;
• provision of additional exits from levels two of the building;
• replacement of certain doors and replacement of a wall with non-combustible material.
18 At the time of service of the notice, the defendant was head-lessee rather than owner of the building. As I have indicated, clause 15.1 of the Headlease expressly obliged the defendant to attend to this notice. It did not do so. Much later, a document headed ‘Chronology of Events’ which was prepared by the defendant’s solicitor, Mr Mahony, and distributed at an extraordinary general meeting held on 19 October 1998, purported to explain the defendant’s failure to comply with the notice on the ground that it was the owners’ rather than the defendant’s responsibility to comply with the notice. That is contrary to clause 15.1 and was acknowledged by Mr Mahony in his evidence at the hearing to be untrue. The evidence does not make it clear why the Council did not enforce the 1991 notice against the defendant.
19 On 13 January 1995 the Council served a further notice on the defendant, under s.139 of the Local Government Act 1993, for the purpose of ensuring that adequate provision for fire safety was made in the building. The 1995 notice was less specific than the 1991 notice. It ordered the defendant as owner to prepare and submit to the Council particulars of the works which the defendant considered necessary in order to make proper provision for egress in the event of fire, the prevention of the spread of fire, the suppression of fire, the safety of persons accommodated in the building and the prevention of the spread of fire from adjoining properties.
20 After receipt of Council’s order of 13 January 1995, the defendant commissioned a fire safety report by City Building Surveyors Pty Ltd, which it submitted to the Council, and subsequently the defendant executed some minor fire safety works. Council wrote to the defendant on 11 May 1995 noting that the requirements of its order had not been satisfied, and on 17 August 1995 the defendant’s secretary/manager wrote to the Council saying that the Club had attended to emergency lighting and exit signs and had developed a management manual and emergency procedures, and was giving induction training to its staff. The letter referred to the legal action then current between the Club and the owners of the building with respect to the Club’s option to repurchase (see below), and inquired whether the Council had forwarded a copy of its order to the building’s owner, ‘to ensure responsibility and liability rests with the owner or the Club as lessee’. Council wrote to the defendant again on 11 July 1996 reiterating its opinion that the building did not provide a reasonable level of fire safety and seeking a further audit and a new proposal for upgrading.
21 It appears that in light of the proceedings between the defendant and the owners with respect to the defendant’s option to repurchase the building, the Council elected not to enforce its fire safety requirements temporarily, pending developments in the court case.
The defendant’s repurchase of the building and the Redwood deal
22 On 5 April 1995 the defendant purported to exercise its option to repurchase the building from Junemar Nominees and Vitarni. The owners refused to comply the notice. The defendant successfully took proceedings in this Court to enforce the option. Subsequently there was a dispute as to the price at which the defendant could purchase the building, the owners claiming that the building was worth $7 million. On 28 July 1996 an independent valuation fixed the current market value at $4,275,000, and it was agreed that the purchase would proceed at this figure. The defendant found it very difficult to obtain finance for the purchase, and realised that if it failed to do so the owners would be very happy not to sell or to sell at a much higher price.
23 In this context the defendant negotiated a project management agreement with Redwood Developments (NSW) Pty Ltd (‘Redwood’), preferring Redwood’s development proposal over one submitted by the plaintiff. Under this agreement, which was entered into on 14 November 1997:
(1) the defendant would contribute $800,000 to the purchase price for the building, and Redwood would contribute $1,325,000 on the security of a second mortgage (cl 2(a));
(2) the defendant would borrow the balance of the purchase money, namely $2,150,000, from the Bank of Western Australia Limited on the security of a first mortgage;
(3) the defendant would consent to a development application to the Council for redevelopment of the building as residential apartments in Strata subdivision, with new club premises for the defendant on the ground floor (cl 5(b));
(4) once the development application was approved and vacant possession of the building was obtained, Redwood would commence redevelopment and take full responsibility for the mortgage payments payable by the defendant to the Bank of Western Australia (cls 8, 9(a));
(5) the defendant was required to use its best endeavours to obtain vacant possession of the building (cl 6);
(6) on completion of the redevelopment the defendant would be the owner of the ground floor of the building under the Strata subdivision, unencumbered by any mortgage (cl 12);
(7) Redwood would reimburse the defendant, from the proceeds of sale of the Strata units, its original contribution of $800,000 plus $200,000 for stamp duty (cl 16(c)).
24 It will be seen that as structured, the project management agreement gave real benefits to the defendant once it obtained development approval for the redevelopment, and vacant possession of the premises - namely, that thereafter the defendant would cease to make mortgage repayments and a development process would commence which would lead to the defendant receiving new club premises and a payment of $1million. After the Council approved the development application on 11 October 1998, the only obstacle to the realisation of these benefits was the continued occupation of the premises by the tenants of the gym, café and restaurant. Therefore there was a clear financial incentive for the defendant to remove the plaintiff from its occupation of the gym premises.
Waverley Council’s fire safety requirements, 1998, and the reports of fire safety experts
25 The making of the project management agreement with Redwood gave the defendant access to the funds necessary to complete the repurchase of the building. As earlier indicated, Council had stayed its hand on fire safety requirements pending resolution of the dispute about ownership of the building. That dispute having been resolved, during February 1998 the Council advised the defendant that it required that a fire safety audit of the building be carried out.
26 The defendant procured a report by A J Dean & Associates Pty Ltd dated May 1998 (‘Dean Report’). Though it purports only to be a ‘supplementary’ fire safety assessment report, the Dean Report is a 21 page document, with 47 pages of appendices. The Report contains a six page list of non-compliances of the building with relevant regulatory requirements. Some of the non-compliances appear to be minor, but many of them appear to be major structural problems pointing to such matters as deficiency of construction materials, the integrity of service shafts and the construction of external and internal walls. Appendix C to the report is a list of 69 items of recommended works, rated according to their priority, the total estimated cost of execution being $348,800. Once again, some of the items in the list are relatively minor while others are costly. For example, one of the recommended works is to provide conforming infill constructions to seal openings in the redundant service shafts in the building, and to protect landing openings in the active shafts with complying doors, the estimated cost of this work alone being $70,000.
27 Directors of the defendant, together with Mr Mahony and consultants, met with Council officers on 19 May 1998 to lodge the Dean Report. There is some conflicting evidence as to what occurred at the meeting. A subsequent report to Council from the Director Planning and Environmental Services dated 22 June 1998 states that Council received a request from the defendant’s solicitor for the issue of an order to close the premises, and indicates that the request was made at the meeting of 19 May 1998. In their evidence Mr Dunne and Mr Mahony both denied that any such request was made at the meeting. In my opinion, however, while a specific and direct request may well not have been made, it is likely that things were said which caused the author of the report to the Council of 22 June 1998, David Mumford, to form the reasonable belief that the defendant requested that an evacuation order be made. There is the evidence of the text of the report of 22 June 1998; further, the Dean Report was tabled at the meeting, indicating a need to spend a very large sum of money to render the building fire safety compliant; and the evidence indicates on balance that the defendant could not afford to expend any substantial amount on fire safety repairs. Little more would need to be said to give rise to an inference that, there being no other option, the defendant would acquiesce in an evacuation order. When one takes into account the fact that by that time it was clearly in the defendant’s interest to obtain vacant possession of the building as soon as practicable, as Mr Dunne and Mr Mahony well knew, and the issue and implementation of a fire safety evacuation order would achieve that purpose, it is reasonable to conclude that Mr Dunne and Mr Mahony recognised that an evacuation order would suit the defendant and that they acted in a manner consistent with the defendant’s perceived interest at the meeting.
28 By a letter dated 20 May 1998 Abbott Tout acknowledged on behalf of the defendant that fire safety works were necessary but stated that the defendant did not have the capacity to fund the works. After the meeting a joint inspection of the building was carried out by Mr Mumford on behalf of the Council and Inspector C O’Brien on behalf of the New South Wales Fire Brigades, who made their written report on 3 June 1998. The Fire Brigades departed from the recommendations in the Dean Report by advocating the installation of an automatic wet pipe sprinkler system rather than the upgrading of the existing thermal fire alarm to a smoke detection fire alarm system.
29 Mr Mumford brought the matter before Council by his report of 22 June 1998. He noted in his report that the proposed redevelopment of the building may not proceed and that it would be unacceptable for the building to remain in its present state until the leases of the gymnasium and café expired. He reviewed the options available to Council, which included: prosecution of the defendant; serving a new order on the defendant directing them to carry out the works recommended in the Dean Report and by the Fire Brigades; the Council carrying out the necessary works itself; and the Council issuing an evacuation order to close down the building. He rejected prosecution because of the extended history of the matter, recommended against a further compliance procedure because of the club’s financial inability to comply, recommended against the Council doing the work because it would be extremely difficult to recover the costs, and consequently recommended an evacuation order. Mr Mumford’s report indicates that, even if Council had been stirred into action by the defendant, it had developed its own analysis of the appropriate course of action. The Planning, Housing and Public Works Committee of the Council accepted that recommendation on 21 July 1998.
30 By letter to the defendant of 24 August 1998, the Council gave notice that it intended to make Order No.6 (Fire Safety) in the table to section 121B of the Environmental Planning and Assessment Act 1979, having regard to deficiencies in the building with respect to fire safety which the letter listed. The list of deficiencies included structural matters such as a lack of adequate fire structural resistance and fire compartmentation in the building, and substandard egress from the building. The letter indicated that the proposed order would require the defendant to submit plans to Council incorporating the works described in the Dean Report, with a number of listed modifications, along on the lines of the Fire Brigades’ recommendations. Abbott Tout replied to the Council’s notice by a letter of 28 August 1998. In that letter Abbott Tout indicated that the defendant did not have and realistically could not raise the funds required to carry out the works; and while it may be able to comply with the notice by submitting plans for a proposal which it would be unable to put into effect, the defendant was loathe to expend its meagre funds in doing so.
31 Abbott Tout wrote a further letter to the Council dated 4 September 1998, this time formally making representations under s 121(I) of the Environmental Planning and Assessment Act 1979 in response to the Council’s notice of 24 August 1998. The letter reiterated that the defendant was not in a financial position to carry out works of the kind to which the plan required by the Council would relate. It expressed the apprehension that in those circumstances, complying with the notice by producing a plan could amount to misrepresentation. The letter submitted that an order requiring the submission of a plan would in the circumstances be a futile step. It suggested that Council’s order should require not only the submission of plans but also that the work referred to in the plans be actually undertaken and completed within a reasonable time. The letter suggested that an order expressed in that way would avoid the necessity of Council issuing a further order requiring the works to be carried out, if the order proposed in Council’s notice was complied with by the submission of plans but no action was taken to implement the plans.
32 Notwithstanding these submissions, on 7 September 1998 Council issued an Order No.6 (Fire Safety) to the defendant requiring it to submit plans of the kind specified in its notice of 24 August 1998 within one month from 7 September 1998. Council’s order noted that if Council rejected the plans it might prepare its own particulars of works and order the owner to carry them out, and if plans were not supplied pursuant to the order the Council could issue an Order No.10 and/or 11 to cease the use of the premises.
33 The defendant did not comply with the Order No.6 by submitting plans even though its failure to do so constituted an offence under s 125(1) of the Environmental Planning and Assessment Act 1979. Consequently on 9 October 1998 Council issued an Order No.10 (To Cease the Use of the Premises), that order being authorised by the table to s 121B of the Environmental Planning and Assessment Act 1979. The order required evacuation of the premises within 60 days of 9 October 1998, and indicated that failure to comply would constitute an offence. On 12 October 1998 Abbott Tout wrote to the Council, referring to the Order No.6 which the Council had issued on 7 September 1998, but not referring to the Order No.10 which had been issued on 9 October 1998. Abbott Tout’s letter of 12 October 1998 informed the Council that the defendant had instructed its fire safety consultants to provide an estimate of the costs of preparing the plans which Council had required. The letter said that on receipt of that information, the defendant would seek a contribution to the cost from the tenants of the building. The letter stated that as the defendant had not received details of cost, it was not in a position to make arrangements to enable the Council’s Order No.6 to be complied with, and requested an extension of time.
34 It appears that the plaintiff became aware of the moves in Council to issue a fresh notice and orders by no later than 30 July 1998, when there was meeting between Mr Barry and the Mayor of Waverley during which they discussed whether the Council’s order which would close the club could be delayed. On 4 August 1998 the plaintiff’s solicitors, Corrs, wrote to Abbott Tout notifying them that the plaintiff had exercised its option to renew the sublease and indicating that the plaintiff had been advised that the Council was considering the issuing of an order which would prohibit occupation of the building. Having received no reply, Corrs wrote again to Abbott Tout on 12 August 1998 indicating that the plaintiff’s inquiries had revealed that the Council proposed to issue an order prohibiting occupation of the building in the near future, because of the defendant’s failure to comply with fire safety orders which had previously been issued. The letter said that Council indicated that in principle they were willing to allow the plaintiff to continue in occupation provided that certain works were done, and that the plaintiff intended to commission a report from a fire safety consultant to identify works necessary to put the premises in a state which would satisfy the Council.
35 Abbott Tout replied on 26 August 1998 indicating that the Council already had the Dean Report and the view of the Fire Brigades, and that a further report would be superfluous and a waste of money. In that letter Abbott Tout stated that if an order were made for the building to be vacated, then
‘any such order will affect our client, as the major occupier of the building, more so than it will affect your client. Your client can therefore be assured that our client will take all steps and actions which are reasonable and proper in the circumstances, once our client has been made aware of the exact nature of those circumstances.’
36 Given the negotiations which had already taken place between the defendant and the Council, and the project management agreement between the defendant and Redwood, these observations can only be regarded as misleading. In fact, the defendant had acted in a way which had encouraged the Council to make an evacuation order because the president and Mr Mahony correctly perceived it to be in the defendant’s commercial interest to secure vacant possession of the building.
37 The defendant provided the plaintiff with a copy of the Council’s notice of 24 August 1998 under cover of a letter of 3 September 1998, indicating that the club would make a representation to Council and that it would keep the tenants fully up-to-date with all developments as they occurred. However, it appears that the club did not give the plaintiff a copy of its representations to Council of 4 September 1998, in which (as already indicated) it suggested that Council should issue an order requiring that work be undertaken as well as requiring that plans be submitted, until Abbott Tout wrote to Corrs on 13 October 1998, enclosing the submission of 4 September 1998 together with other correspondence and the Council’s subsequent orders. Abbott Tout’s letter to Corrs of 13 October 1998 indicated that the defendant did not intend to appeal against the Council’s Order No.10, and that it was not in a position to fund the cost of complying with the order.
38 The letter referred to clause 6.1 of the Sublease and stated that the plaintiff must evacuate the demised premises in accordance with the Order No.10 on or prior to 8 December 1998. The letter of 13 October 1998 does not on its face comply with the pre-requisites for the exercise of a right of re-entry or forfeiture of a lease set out in s 129 of the Conveyancing Act 1919, as Corrs pointed out in their letter to Abbott Tout of 25 November 1998 and Abbott Tout acknowledged in their letter of 8 December 1998. Additionally, in my opinion clause 6.1 of the Sublease does not apply in a case where an order is made by a public authority as a result of the use of the whole building by all of its users, rather than as a specific result of the use of the demised premises by the plaintiff (see letter from Corrs to Abbott Tout dated 2 November 1998 and letter from Abbott Tout to Corrs dated 11 November 1998). Further, Abbott Tout’s letter of 13 October 1998 appears to connect the requirement for evacuation of the premises with the requirement imposed by the Council through its Order No.10. Council subsequently extended the Order No.10 and eventually withdrew it for the purpose of issuing a fresh order. It is therefore plausible to conclude that the demand for evacuation contained in the letter of 13 October 1998 has been superseded. For all these reasons it appears to me that the letter of 13 October 1998 could not be regarded as sufficient to entitle the defendant as landlord to re-enter and take possession of the demised premises.
39 By November 1998 Mr Barry had established a line of communication with the Council. Mr Alexander Pollock, one of the tenants of the café in the building, had also made contact with the Council, as had his solicitors, Verekers. The plaintiff and Mr Pollock commissioned a report by Trevor R Howse & Associates Pty Ltd dated 6 November 1998 (‘Howse Report’). The report, a document of some 18 pages, was prepared to provide recommendations as to the manner and scope of works which would be acceptable and necessary to permit the gymnasium and café to remain open. It reviewed the report by City Building Surveyors of February 1995 and the Dean Report, and the views of the Fire Brigades and of the Council. It made recommendations on the basis that the gymnasium and café remain open but the club premises would be vacated. It expressed the opinion that if certain ‘base building works’ and other works in the tenant-occupied areas were carried out, the resulting upgrading would afford a level of fire and occupant safety commensurate with regulatory objectives, which would allow the remaining tenants to trade in safe conditions. The base building works involved sealing up service shafts with fire resisting construction, installing some fire resistant door sets and replacing lift landing doors, removing combustible material, upgrading the automatic detection and alarm system by additional smoke detectors and alarm bells, upgrading the emergency lighting and installing further exit signs. The report did not provide costings for the work, but clearly the work recommended would be substantially less expensive than the schedule of work set out in the Dean Report.
40 The Howse Report was supplied to the Council. On 2 December 1998 Abbott Tout wrote to the Council expressing the initial view that the Howse Report was ‘significantly flawed’ and indicating that further expert evidence which had been commissioned would be forwarded when available. Then on 11 December 1998 Abbott Tout sent to the Council a report by Stastra Page ECS Pty Ltd, consulting engineers, which expressed the opinion that the existing essential engineering services in the building were no longer capable of functioning to a satisfactory performance standard that would provide for safe and orderly evacuation of the building in the event of an emergency, particularly a fire condition. That report recommended that the building should no longer be occupied until existing essential services were returned to full operating standard, and recommended an emergency warning and inter-communication system, fire protection of the electricity supply and upgrading of the emergency lighting and exit signage.
41 Notwithstanding the report by Stastra Page ECS, Mr P J Brennan, the Council’s Manager Development and Control wrote to Verekers on 14 December 1998 responding to the Howse Report. Mr Brennan said that subject to the consent of the club, the Council would permit the occupation of the café and gymnasium on the following conditions:
(1) all work recommended in the Howse Report be carried out to the satisfaction of the Council’s fire safety officer;
(2) all combustible materials be removed from the rear stair;
(3) the remainder of the building be vacated and all services decommissioned and all combustible materials removed;
(4) lighting and power circuits be inspected and where necessary, brought into a good state of repair;
(5) the gas isolating valve be repaired if necessary;
(6) ventilation of the gym and its changing room be investigated and a report submitted to Council for its consideration, containing recommendations for any necessary repairs.
42 This letter reflects a substantial change of opinion on the part of the Council. The Council’s notice of 24 August 1998, and the orders which followed it, had been made on the basis that the work recommended in the Dean Report would be necessary, at very considerable expense. The difference may be explained, in part, by the fact that the Dean Report assumed full occupation of the building whereas the Howse Report assumed that the only remaining occupants would be the tenants of the gym and café. Whatever be the explanation for the change of attitude, it was effectively endorsed, subject to a few additional requirements, by the Fire Brigades in their letter to the Council dated 23 February 1999.
43 Prior to its letter to Verekers of 14 December 1998, the Council granted an extension of time for compliance with its Order No.10 to midnight on 3 January 1999. On 8 December 1998 Abbott Tout wrote to Corrs noting the extension of time, requesting Corrs’ confirmation that the plaintiff understood that rent would not abate even though it gave up possession of the demised premises pursuant to the order, and threatening to seek declaratory relief if confirmation was not received. It appears that no such confirmation was given, but no relief is sought by the plaintiff from the defendant on this question.
44 When Abbott Tout received a copy of the Council’s letter to Verekers of 14 December 1998, in which the Council accepted the Howse Report, they responded to the Council by letter of 18 December 1998 stating that the defendant was ‘amazed and extremely concerned at Council’s abdication of its statutory responsibilities’, by making the defendant the apparent consent authority for the purposes of the proposed works. The letter also complained about a lack of due process in that the Council decided to issue the letter of 14 December 1998 without receiving the further expert report, by Stephen Grubits & Associates, which Abbott Tout indicated would be forthcoming. The letter expressed the defendant’s view that the building would not be safe for long term occupancy under the conditions expressed in the Howse Report.
45 By letter to the Council of 24 December 1998 Abbott Tout confirmed that the defendant was not in a position to grant the consent sought in the letter of 14 December 1998, and asserted that the Council’s emergency order remained in full force and effect and would require the whole building to be evacuated by 3 January 1999. The letter sought on behalf of the defendant’s directors a meeting with the Council in the week beginning 28 December 1998.
46 In view of the present litigation, the Council wrote to Abbott Tout on 4 January 1999 granting a further extension of the time for compliance with the Order No.10 to 28 February 1999. In that letter the Council stated that it would be preferable if the auditorium on level 4 and the lounge on level 5 were not occupied but if they were, their use and the number of persons occupying the rooms should be severely restricted and appropriately supervised. Abbott Tout wrote to Council on the same day, expressing concern about the building being left vacant, and seeking an indemnity from Council if it were to require evacuation. Abbott Tout’s letter enclosed a report, also dated 4 January 1999, by Stephen Grubits and Associates Pty Ltd, consulting fire safety engineers, which reviewed and commented upon the Howse Report (‘Grubits Report’).
47 By its letter of 25 February 1999, Council granted a further extension until 14 March 1999. Then on 2 March 1999 the Council wrote to each of the solicitors for the parties, referring to its letter of 14 December 1998 which had indicated that with the consent of the owners, Council would permit occupation of the café and gymnasium if the work in the Howse Report was done. The new letter referred to Council’s paramount concern for the protection of the public from fire danger, noted the length of time that the matter had been outstanding and also noted that the owner’s consent to the work referred to on 14 December 1998 had not been furnished. The letter stated that Council proposed on 15 March 1999 to issue a fresh emergency order (Order No.10) requiring cessation of use and evacuation of the whole of the premises other than the Telstra facility on the roof area. The Court has not been informed whether the fresh order has been issued.
48 The Grubits Report found that the methodology used in the Howse Report was based on opinion rather than rigorous scientific analysis, and therefore that the Howse Report was unable to demonstrate that the statutory requirements regulating the fire upgrading of existing buildings had been satisfied. It also found that if the building were to be partially occupied the potential would exist for ‘fire scenarios’ that could result in structural collapse damaging adjoining property, causing hazardous conditions for fire fighting personnel and threatening the lives of people carrying out maintenance activities. The Report also found that the cost of achieving the recommended level of fire safety would be in the order of $160,000 for base building works. It annexed letters from a consulting structural engineer and a consulting engineer.
49 A supplementary report by the same company also dated 4 January 1999 commented specifically on fire safety issues that would arise if the defendant vacated the building leaving only the café and gymnasium in occupation, with the electrical service to the vacated portion not disconnected. This brief report concludes that electrical service failures are a significant contributor to fire starts in buildings, and that if a fire breaks out in a vacated portion of the building due to an electrical failure, immediate human intervention will not be available to extinguish the fire.
50 Subsequently the defendant obtained a further report from A J Dean and Associates dated 25 January 1999 (‘Second Dean Report’), reviewing the Howse Report. The Second Dean Report found the fundamental approach of the Howse Report to be generally sound, but it identified some inconsistencies. One of the concerns expressed in the Second Dean Report is that the unoccupied portions of the building would be more prone to threats of arson, but no details had been provided in the Howse Report to address this threat. The Report states that the estimated cost of implementation of the proposals in the Howse Report, together with the additional matters identified in the Second Dean Report and in the reports of Stephen Grubits and Associates, would be in the order of $211,000.
51 Trevor Howse & Associates responded the Grubits Report and the Second Dean Report by a further report dated 8 March 1999 (‘Second Howse Report’). The Second Howse Report generally concurred with the opinions expressed in the Second Dean Report, though it noted amongst other things that the threat of arson is considered to be an issue outside the scope of fire and life safety regulatory objectives. The Report concluded by confirming the authors’ opinion that the tenants could remain in the premises provided the base building works and tenant works which had been identified in the earlier Howse Report were carried out satisfactorily.
52 It is difficult for a lay person fully to assess the conflicting opinions of the fire safety experts. In my opinion, however, the two Dean Reports exhibit a depth and thoroughness of analysis, and an impartiality of approach, which is not quite so obvious in the Grubits and Howse Reports, which rather convey a flavour of advocacy in the interests of their respective clients. Since, however, the Second Dean Report generally agrees with the approach in the Howse Report, though adding requirements which would increase the cost of the works, I believe the correct conclusion is that a way could be found to permit the gym and café to remain occupied after the defendant leaves the premises, if there were a mutual desire to achieve that objective. But clearly the Council would need to be satisfied of the detailed adequacy of any such mutual proposal. It is not surprising that Council’s letter of 2 March 1999 exhibits a cautious approach.
The defendant’s treatment of the plaintiff during 1998
53 The defendant completed the very difficult negotiations which led to the repurchase of the building late in 1997, after entering into the project management agreement with Redwood on 14 November 1997. Abbott Tout wrote a long letter to Mr Colin Stokes, the secretary/manager, on 3 March 1998, summarising the effect of the agreement with Redwood and making it clear that it was in the defendant’s interests to obtain vacant possession as soon as possible. The letter suggested that the defendant should make arrangements for alternative club accommodation and commence negotiations with all lessees. The defendant proceeded to negotiate a licence to occupy part of the Bondi Golf Club, and in due course a draft licence agreement was submitted in November 1998.
54 By a letter dated 5 March 1998 the Mr Stokes wrote to the plaintiff informing it that the board of the defendant had resolved that a new lease would not be offered to the plaintiff after the expiry of its lease on 31 October 1998, unless the plaintiff exercised its option to renew. The letter informed the plaintiff that the club wished to refurbish and redevelop the building as soon as possible, and that should the plaintiff wish to surrender the lease before 31 October 1998, the club would accept an early surrender.
55 Mr Stokes and Mr Dunne met with Mr Barry on 6 March 1998. Mr Stokes handed Mr Barry the letter of 5 March 1998 and Mr Barry asked whether they would be offering any compensation. When Mr Dunne told him that no compensation would be offered, Mr Barry made it clear that he would stay until the end of his lease. Mr Dunne advised him to consider moving to the Bondi Golf Club.
56 The defendant was approached by representatives of the Bondi Golf Club on 19 June 1998. He told them that he may be interested in taking premises there once his lease expired. One of the Golf Club’s representatives said he had gained the impression from members of the defendant’s board that the plaintiff may need to move well before the date of expiry of the lease.
57 Then on 30 July 1998 Mr Barry had the meeting with the Mayor of Waverley, mentioned earlier. The Mayor told him of the impending procedure towards an evacuation order and said that he could delay the order only until the end of September. At about the same time Mr Barry had a meeting with Mr Dunne and Mr Stokes. He asked them whether there was any truth in the rumour that the club would be forced to close down due to fire safety requirements. They both said ‘no’, and Mr Dunne told him that the Council was considering a number of options. Mr Dunne also said he had suggested to the Council that it do the works and that the club pay it back over time. Both Mr Dunne and Mr Stokes denied that the Council was planning to issue an evacuation order. They both agreed to keep Mr Barry informed. In his affidavit Mr Dunne denied aspects of this conversation. But for the reasons already given, I prefer the evidence of Mr Barry to the evidence of Mr Dunne whenever they disagree.
58 It is clear that in this meeting Mr Dunne and Mr Stokes deliberately misled Mr Barry as to the current state of their negotiations with the Council and as to their understanding of the Council’s intentions. They knew that the Council had received the report of 22 June 1998 recommending the implementation of a procedure which would lead to an evacuation order, and that the Planning Housing and Public Works Committee of Council had resolved on 21 July 1998 to approve that course of action. They were also well aware that the plaintiff intended to remain in occupation under its lease and that it had the right to exercise an option for renewal for a further three years, thereby frustrating their plan to secure vacant possession of the building as soon as possible for the purposes of redevelopment. In my opinion the purpose of Messrs Dunne and Stokes in deliberately misleading Mr Barry on 30 July 1998 was to delay his discovery of the truth with respect to the Council’s intentions until it was too late for him to reverse the process. When the plaintiff discovered the Council’s intention, Corrs wrote to Abbott Tout on 4 and 12 August. Abbott Tout did not reply until 26 August 1998, and when they did so, their reply was misleading in the manner pointed out above. Their delay in replying and the misleading nature of their letter tends to confirm the conclusion that the defendant had embarked on a course of misleading the plaintiff so as to prevent it from interfering with implementation of the Council’s intentions.
The extraordinary general meeting
59 On about 13 August 1998 notices were delivered to the defendant requisitioning an extraordinary general meeting, but the defendant did not act on the notices, after taking legal advice. Then on 9 September 1998 a second requisition for a general meeting was delivered to the club’s office. The purpose of the requisitioned meeting was to consider a proposed resolution which would seek a report from the board of the club dealing with, and providing specific information in respect of, the proposed redevelopment, the relocation of the club during the redevelopment, the club’s compliance with fire safety requirements, and the club’s financial position and business plans. An extraordinary general meeting was convened in response to the requisition, to be held on 19 October 1998. The notice of meeting was accompanied by a report by the President, referring to the club’s financial difficulties and ‘traumatic meetings’, and the board’s actions in the interests of the ‘supportive and loyal members’.
60 It appears that at about the time of the convening of the meeting, Mr Barry noticed a number of changes in the day to day relationships between the gym and its members and the club. At about 7.30am on 2 October 1998, he observed the club’s pool cleaner collecting money from people entering the pool. Under the terms of the Sublease, clause 3.4, the plaintiff had the exclusive use of the swimming pool between 6.00 and 8am each day for no charge. When Mr Barry told the pool cleaner to stop charging the gym’s members, the pool cleaner said ‘you aren’t my boss, I’ll ask the President’. For the period between 2 October and at least 7 October 1998, and possibly later, the gym members continued to be charged for use of the pool before 8am. Eventually the defendant acknowledged that it was not entitled to impose such a charge and it ceased to do so. The evidence indicates that the charging for use of the pool was authorised by Mr Dunne and was in breach of the clear provisions of the lease.
61 On about 8 September 1998, after the first requisition for a meeting and just prior to delivery of the second, the defendant’s board resolved that applicants for membership would thereafter be given only a provisional membership which would not entitle them to vote. Mr Barry was not told of this decision at the time, and discovered it only when he read Mr Dunne’s affidavit of 2 February 1998 sworn in these proceedings.
62 Late in September 1998 the plaintiff submitted 58 applications for membership of the club from people who had purchased memberships of the gym. On about 8 October 1998 Mr Barry was informed by an office employee of the club, in response to his inquiry, that those applications for membership would not be granted, even though the names of the applicants had been entered in the club’s computer and the plaintiff’s cheque had been banked. The employee told him that she had been instructed by the Vice-President of the club to remove the names from the computer.
63 Prior to the annual general meeting of 11 May 1998, the club had admitted about 80 new members associated with Redwood. There is some evidence to suggest that the processing of these applications may have influenced the election of directors at the meeting. Mr Barry says that a large number of tradesmen whom he had not seen at the club before, attended the extraordinary general meeting on 19 October 1998. The requisitioned resolutions were not carried at the meeting, a transcript of which indicates that it was a lively affair.
64 On 5 November 1998 Mr Dunne arrived at the gym and sought to inspect the premises without notice. Mr Barry refused to allow him to do so, and told him to contact the plaintiff’s solicitor. There was heated exchange between them. In retrospect the incident is a minor one, which was blown out of proportion in subsequent correspondence between the solicitors of the parties. If Mr Barry was obliged to allow inspection, it is not surprising that his immediate reaction was to refuse, since the relationship of the parties was already very tense and he was given no opportunity to consider his legal rights. The only remaining significance of the episode is to show Mr Dunne’s aggressive and unreasonable attitude and state of mind at the time.
65 On 6 November 1998 the doorman of the club put up a sign at the front desk, past which entrants to the gym had to pass. The sign said ‘Casual visitors living within 5Ks of this club are not allowed entry for any reason’. Subsequently members of the gym who were not able to produce evidence of their club membership were refused permission to enter the building. In a letter dated 25 November 1998 Abbott Tout maintained that the defendant was obliged to refuse access in this way pursuant to s 45 of the Registered Clubs Act. Whatever may be the precise requirements of that Act, it is striking that a dramatic change in practice was adopted by the defendant shortly after the controversial extraordinary general meeting and immediately after Mr Dunne was refused entry to inspect the gym. The doorman told Mr Barry that he had instructions from the President and the board to stick to the guidelines in the sign, and that this had happened because Mr Barry had refused to allow Mr Dunne to look around the gym. The doorman said ‘you’ve obviously pissed them off because they also said the staff in the gym aren’t allowed in the office to photocopy or for any other reason and that we are not allowed to give out the phone number of the gym if anyone inquires’. The doorman said ‘the board’s attitude is that if you and Alex [the café owner] won’t go along with them and leave peacefully they will do whatever it takes to get you out of here ASAP’.
66 It would have been open to the doorman to check the names of those who wished to gain access the gym against the register of members kept inside the main entrance to the club. Mr Barry has given evidence that nevertheless, a number of gym members who did not have their club membership cards were refused admission to the club and consequently to the gym after the sign was put up. Mr Barry’s evidence is corroborated by evidence of Linda Ormrod, the gym’s receptionist.
67 On 8 December 1998 Abbott Tout wrote to Corrs purporting to invoke the rent review clause in the sublease, by increasing the rent to $104,190 per annum as from 1 November 1998. The letter was supported by a rental valuation by DTZ Bayleys as at 31 October 1998, supporting that figure as the gross market rental value for the subject property. By letter dated 17 October 1998 Corrs wrote to Abbott Tout asserting that the nominated rental was not a bona fide assessment of the current market rent and enclosing a valuation report by TJ Davis & Associates determining the current market rent as at 1 November 1998 at $42,200.
68 A final relevant event occurred on 16 January 1999, after the commencement of these proceedings. When Mr Barry and Mr Pollock arrived at the club premises at 6.30am, they were unable to unlock the door, because the padlock had been changed without any notice to them.
69 These various events generated a chain of correspondence between Abbott Tout and Corrs, which resolved very little.
70 Some of the incidents recounted above, if considered in isolation, would be regarded as petty and trivial. Others would not, if taken in isolation, imply any oppressive purpose. When they are put together, however, they reveal a systematic and concerted course of conduct on the part of officers of the defendant, particularly Mr Dunne. In my opinion his objective at all times after his meeting with Mr Barry on 6 March 1998, but with particular intensity after the requisition for an extraordinary general meeting was lodged on 9 September 1998, was to make it difficult for Mr Barry to conduct his business in the building and thereby to force or encourage him to vacate the premises.
71 Mr Dunne was guilty of coercive and objectionable business practice, and also of misleading conduct. It may be that his conduct exposes the defendant to some form of legal liability if loss or damage can be proved to flow from it. But that is not the issue which the Court must address in these proceedings. The question for the Court to consider is whether this misconduct entitles the plaintiff to the relief which it seeks, principally an order directing the defendant to consent to the carrying out of fire safety repair work to satisfy Waverley Council’s requirements. It cannot be assumed that general misbehaviour in a commercial relationship justifies relief of that specific kind.
The defendant’s consideration of the proposals in the Howse Report
72 As earlier mentioned, the Council responded to the Howse Report, accepting the recommendations in the report subject to the consent of the owners, in its letter of 14 December 1998.
73 Abbott Tout indicated to the Council as early as 2 December 1998 that the defendant regarded the Howse Report as flawed, and objected on safety and other grounds to the Council’s decision reflected in its letter of 14 December 1998 (see Abbott Tout’s letters of 11, 18 and 24 December 1998, and 4 January 1999).
74 That correspondence indicates that the defendant consistently took the view, after it received a copy of that Howse Report late in November 1998 and in particular, after the Council’s letter of 14 December 1998, that it would not consent to the works proposed in the Howse Report. For reasons which I shall indicate, it may be legally relevant to determine whether the defendant behaved reasonably in refusing to consent to those proposed works.
75 The principal witness for the defendant was Mr Dunne. However, it emerged from his oral evidence that he was away on holidays from about 17 December to 24 January 1999, and had no involvement in any decision on behalf of the defendant during that time. That was a rather crucial time, which began shortly after the Council’s letter which broadly accepted Howse Report, and continued until well after the present litigation had been initiated. In those circumstances the defendant sought leave to adduce further evidence from another director, Mr Tony Perry. After hearing argument, I permitted the additional evidence to be adduced.
76 Mr Perry’s evidence is that during the period from 15 December 1998 to 28 February 1999 he attended approximately five meetings of the board of directors of the defendant. He says those meetings discussed the response which should be taken to the Council’s letter of 14 December 1998. He says that as a director, he was concerned about safety issues which may arise if the club were to vacate the building leaving only the gym and café occupied, with respect to fire safety and other matters.
77 Other evidence of the so-called board meetings during that period suggest that they were anything but formal meetings. Typed, properly formatted minutes of meetings of the board in 1997 and 1998 were tendered in evidence. There is a typed minute of a monthly board meeting held on 12 January 1999, attended by Mr Perry, but there is no indication that the question of consent to the proposals in the Howse Report was discussed at that meeting. Indeed, apart from the cryptic note ‘fire report from Grubits & Associates has been cited’, the items minuted appear to be of a routine kind. There is nothing in the minute to indicate any discussion whatever of the turbulent events with respect to these proceedings which must have been of concern to board members in January. There are some handwritten notes in evidence, but they do not appear to be even rudimentary board minutes and may be nothing more than notes of conversations or aides memoire.
78 On balance, I doubt whether any formal board meeting was called during the period December 1998 to February 1999 beyond the routine monthly meetings of the board. However, I find that there were discussions of the events surrounding the present litigation by members of the board at the club. Mr Perry hesitated to say that he had been involved in issuing instructions to write a particular letter. However, taken as a whole his evidence implies that the directors were involved in a process of decision-making outside the formal monthly board meetings, by which they agreed to the course of action that Mr Mahony in fact took on the defendant’s behalf. Mr Mahony took his principal instructions from Mr Dunne and previously , Mr Stokes, who set the defendant on the course which led to the decisions of December 1998 and January 1999. But in my opinion the evidence of Mr Mahony and Mr Perry, taken together, leads to the conclusion that the directors, in their informal meetings during Mr Dunne’s absence, confirmed and approved Mr Mahony’s correspondence.
79 Abbott Tout’s letter to the Council of 18 December 1998 referred to the opinion of Stastra Page ECS Pty Ltd and the interim opinion of Stephen Grubits & Associates. The letter concluded that if the defendant’s experts’ evidence, and the advice of the Fire Brigades when received in final form, were to the effect that if certain works were undertaken by those wishing to remain in the building, it would be safe for those persons to continue in occupation, then the defendant’s consent would be granted, subject to the decision of its insurers.
80 In my opinion, although it may be said that the concerns expressed in that letter about the Council’s failure to observe ‘due process’ were somewhat extreme, the letter’s insistence on the relevance of the forthcoming reports of experts and the concerns about safety and insurance reflected in the letter, were in fact considerations influencing the directors of the defendant, and were reasonable considerations.
81 Mr Mahony met with Mr Brennan of the Council on 9 February 1999, and subsequently a meeting was arranged between Council officers and representatives of AJ Dean & Associates and Stephen Grubits & Associates on 24 February 1999. A summary of the meeting by Stephen Grubits & Associates states that after considering the various experts’ reports, the club was of the opinion that the safest option from the fire safety perspective would be to vacate the whole of the building in accordance with the requirements of the Council’s emergency order. However, the club was not opposed to the proposed partial occupation if a level of fire safety could be achieved that would not leave it exposed to public criticism or negligence claims in the event of a disaster. That is not an unreasonable attitude. At the meeting of 24 February 1999 the experts agreed on modifications to the earlier proposals in order to provide an adequate level of fire safety should a fire commence in the café or gymnasium while the upper levels of the building were occupied by maintenance personnel.
82 I find on the evidence as a whole that the directors of the club who were present at the relevant times, acting with the assistance of Mr Mahony and experts including Mr Jones of Stephen Grubits & Associates, were able to make coherent and rational decisions during the period of Mr Dunne’s absence on vacation, albeit decisions made in informal circumstances. The grounds for those decisions, as exhibited in the letters of Abbott Tout of 18 December 1998 and 5 February 1999 and the letter of Stephen Grubits & Associates of 25 February 1999 recording the meeting with Council officers of the previous day, imply that the defendant’s decisions during the period from mid-December to the end of January 1999 were not unreasonable. True it is that refusal to consent suited their commercial purpose of securing vacant possession by means of the evacuation order, and that earlier conduct in which Mr Dunne participated had been a unjustified attempt to make it difficult for the plaintiff to carry on business and hence secure vacant possession of the gym. But on the evidence I am unable to conclude that the primary or causative purposes of those directors who, during Mr Dunne’s absence, made the decision with respect to consent, were anything other than the purposes articulated in Abbott Tout’s letters - broadly speaking, purposes of avoiding an increase in the fire risk and in the defendant’s potential liability.
83 The plaintiff submitted that a decision by the defendant to permit a party to be held on the club’s premises on 30 January 1999 showed that the defendant was not really concerned about fire safety in spite of its protestations. Whether that decision was or was not a wise one, I do not regard it as undermining my conclusion as to the defendant’s primary purpose in refusing its consent. Allowing the party was a very limited and temporary risk at a time when the club was still in occupation of the building and therefore in a position to exercise a degree of control over its use.
The plaintiff’s contentions
84 In all these circumstances, the question is whether the plaintiff is entitled to the principal relief which it seeks, namely an order that the defendant provide its consent to Waverley Council for the plaintiff to carry out such fire safety works as Waverley Council may require as a condition of permitting the plaintiff to remain in occupation of the premises.
85 The plaintiff puts its case broadly in two ways. First, the plaintiff says that the defendant as landlord is obliged under the terms of the sublease to carry out the repairs, and the defendant having failed to do so within a reasonable time, the plaintiff is entitled at its option to do the requisite repairs itself. This contention has two limbs: that the defendant is under the requisite obligation to do the work, and that as the defendant has failed to carry out its duty the plaintiff is entitled to do the work itself. The plaintiff’s submissions have concentrated principally on the first limb of this contention, by seeking to identify the sources of the defendant’s alleged obligation. The plaintiff says that there are four sources of the obligation, namely:
(a) clause 15.1 of the Headlease, made applicable by clause 13.1 of the Sublease;
(b) clause 5.1 of the Headlease, made applicable by clause 13.1 of the Sublease;
(c) the express covenant to give quiet enjoyment contained in clause 8.1 of the Sublease;
(d) the implied covenant not to derogate from the grant.
86 The plaintiff’s second contention is that if, contrary to its first contention, the Court finds that neither the plaintiff nor the defendant is required to do the fire upgrade work, then the Court should nevertheless find that the defendant as landlord is obliged to co-operate and permit the plaintiff as tenant to effect the work at its option and expense; or at least the landlord is obliged not to refuse to co-operate unreasonably or for extraneous purposes such as to achieve early vacant possession. The plaintiff seeks to derive the implied obligation to co-operate (or not to refuse to co-operate unreasonably or for improper purposes) from the covenant for quiet enjoyment, the implied term not to derogate from the grant, and implied terms of the kind referred to in the MacKay v Dick (1881) 6 App Cas 251, 263. The notion that there is contractual duty of good faith or fair dealing is also relevant to this contention.
87 The defendant denies that there is any express or implied contractual obligation which would require it to carry out any work in response to such statutory requirements as arise with respect to fire safety under the Environmental Planning and Assessment Act 1979 (NSW). Further, the defendant says that if there is any relevant contractual obligation, it cannot be unqualified and must be in a form which gives the defendant a discretion whether or not to consent, provided it acts reasonably, and in this case it has done so Finally, the defendant says that even if there is an obligation with which it has not complied, the only appropriate remedy for the defendant is damages, and there is no basis for an order directing the defendant to consent to the carrying out of works.
88 Before dealing with these various contentions, I wish to make some observations about the relevant law at a more general level.
The landlord’s duties under property and contract law
89 Part of the plaintiff’s argument is that there are express provisions of the Sublease, importing provisions of the Headlease, which impose relevant obligations on the defendant. The assessment of that part of the plaintiff’s contentions depends on construction of the Sublease in accordance with established cannons of construction. Additionally however, the plaintiff seeks to rely on various implied terms. That part of the plaintiff’s contentions brings into application some parts of the law which are in a relatively fluid state.
90 Traditionally the law of landlord and tenant was reasonably clear, and also quite restrictive, on the question of implied covenants by the landlord. The courts held that there was no implied covenant by the landlord that the demised premises were fit for any particular purpose. This was so even if the lease contemplated use of the demised premises for a particular purpose, and contained a covenant by the tenant not to use the demised premises for any purpose other than the stated one: Hill v Harris [1965] 2 QB 601. In that case the tenant as sub-lessee covenanted to use the demised premises only for the purposes of a retail tobacco and confectionery shop, but that use was inconsistent with a provision in the head-lease; it was held that the landlord was not liable for breach of any implied covenant. Similarly in Sutton v Temple (1843) 12 M&W 52, 152 ER 1108, the tenant of pasture land whose cattle died because of paint which had been spread with manure before the commencement of the tenancy, failed to establish breach of covenant by the landlord. In Hart v Windsor (1843) 12 M&W 68, 152 ER 1114 the tenant of an unfurnished house infested with bugs failed to establish breach of an implied covenant of fitness by the landlord. Those cases were accepted as correct in Wettern Electric Ltd v Walsh Development Agency [1983] 2 All ER 629, but they were held to be inapplicable on the facts, which concerned a licensor and licensee, and the court implied a term as to fitness by the application of standard principles for the implication of contractual terms.
91 The law’s refusal to imply a covenant as to fitness went so far that there was not even an implied covenant by the landlord of residential premises that the demised premises would continue to be fit for habitation throughout the term of the lease. In Sarson v Roberts [1895] 2 QB 395 the tenant failed to recover damages from the landlord when his family contracted scarlet fever from other occupants of the house which contained the demised premises. The Court of Appeal specifically rejected a submission that there was an implied covenant that the premises would continue to be fit for occupation during the term of the lease. It appears that the courts’ refusal to imply a term as to fitness in leases was maintained even where the landlord was aware, when the lease was entered into, that the tenant was entering into the lease for the exclusive purpose of using the demised premises in a particular way: Bradford House Pty Ltd v Leroy Fashion Group Ltd (1983) 46 ALR 305.
92 As Waddell J said in Brilee Consultants Pty Ltd v Tibal Holdings Pty Ltd (1984) 3 BPR [97184] at 9274, it is arguable that the law should impose on landlords an obligation to keep the demised premises fit for occupation during any lease which is for a substantial term. But the law of landlord and tenant does not do so. Waddell J specifically rejected the contention that the lessor in that case was under an implied obligation to comply with so much of a fire safety order issued by the relevant council as would be necessary to avoid closure of the premises.
93 However, it must be recognised that a commercial lease is not merely a demise of a proprietary interest in land. Typically the lease, or the agreement for lease which it reflects, records as a matter of contract the overall commercial relationship between the parties, not merely their proprietary relationship as landlord and tenant. As a matter of contract, the agreement of the parties may modify or override the bare principles of the law of landlord and tenant. Thus, if the lease contains a promise by the tenant that it will use the demised premises in a particular way, which necessarily involves the use of heavy machinery (for example, a promise that the premises be used as a printery in which rolls of paper must be moved by fork lift), the lease may well contain an implied warranty that the floor of the premises is sufficiently strong to permit the normal conduct of the business and the use of heavy machinery for that purpose. Here the commercial arrangement between the parties goes beyond a mere covenant by the tenant not to use the premises other than for the stated use. These principles were accepted by Smithers J in the Bradford House case (at 314), though in that case the implication of such a term was excluded because of an express provision dealing with the use of heavy machinery. A similar implied term was read into a commercial licence in the Wettern Electric case.
94 Therefore as I understand the law, it is permissible and necessary for the Court, where the parties to a lease are in a commercial contractual relationship such as they are in the present case, to consider whether any implied term arises under the principles applicable to commercial contracts, rather than limiting its attention to the implied covenants recognised by the law of landlord and tenant. Thus, it is correct for the plaintiff to submit that the Court should have regard not only to the implied term not to derogate from the grant, but also to implied contractual terms such as the one referred to in MacKay v Dick .
95 The general principles governing the implication of contractual terms have been addressed by the High Court and the Privy Council in some well-known cases: BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1997) 180 CLR 266, esp at 283; Hawkins v Clayton (1988) 164 CLR 539, 573; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215; Byrne v Australian Airlines Ltd (1995) 185 CLR 410. Criteria for ascertaining the presumed intention of the parties were stated by the Privy Council in the BP Refinery case (at 283) in a frequently cited passage:
‘(1) [the implication] must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’
96 One kind of term which may be implied by following this approach is the one described in the MacKay v Dick (at 263) in the following way:
‘As a general rule … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.’

97 Recently substantial academic attention has been given to the content of implied terms, and in particular, to the question whether the kinds of terms which are implied to give business efficacy to contracts might be unified and broadened into an implied term of good faith or reasonableness in the performance of obligations and the exercise of rights. The idea that there is a contractual doctrine of good faith emerging in Australian law was explored by Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. In that case the question was whether a contractual power in a building contract which permitted the principal to take over the builder’s work was required to be exercised reasonably. In Priestley JA’s view the requirement of reasonableness was an implication in fact as to the actual intention of the parties to the contract having regard to the surrounding circumstances. His Honour said that ‘reasonableness in performance’ in the exercise of a contractual power of this kind had much in common with the notions of good faith which are regarded in many civil law systems of Europe and in all States of the United States as necessarily implied in many kinds of contract. He remarked that although this implication has not yet been accepted to the same extent in Australia, as part of judge-made Australian contract law, there are many indications that the time may be fast approaching when the idea will gain explicit recognition in the same way as it has in Europe and the United States. Handley JA (at 279-280) said that he agreed generally with ‘much of what Priestley JA has written’. Renard Constructions was applied by Kirby P and Priestley JA in Hughes Bros Pty Ltd v Trustees of Roman Catholic Church (Archdiocese of Sydney) (1993) 31 NSWLR 91.
98 Priestley JA’s remarks were taken up by Finn J in Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1, 36ff. After analysing the law, Finn J expressed the opinion (at 37) that ‘fair dealing’ is a major (if not openly articulated) organising idea in Australian law. He said that the implied duty of good faith is an accepted idea in the contract law of the United States and probably of Canada, and that its more open recognition in our contract law is now warranted. He referred to Sir Anthony Mason’s lecture, ‘Contract and its Relationship with Equitable Standards and the Doctrine of Good Faith’ (The Cambridge Lectures, 1993 (8 July 1993)).
99 In Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Sheller JA (with whom Powell and Beazley JJA agreed) reviewed these and other cases and said (at 369):
‘The decisions in Renard Constructions and Hughes Bros mean that in New South Wales a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as part of a contract.’
100 In that case a landlord had commissioned a report from a fire engineer, who reported that works were needed for fire safety reasons. At the landlord’s invitation, the local council inspected the premises and found that they did not comply with fire safety requirements. The council specified particular work which it required to be carried out. Under the lease the tenant was obliged to observe and perform all lawful requirements pursuant to State legislation. The tenant purported to challenge the council’s determination but the landlord declined to permit the tenant to proceed in its name as owner. It was contended that the lease contained an implied term that the landlord would co-operate with the tenant so as to facilitate the bringing of appeal proceedings in the landlord’s name to test whether the council’s order was lawful. As Windeyer J remarked at first instance (at 361), that was really a claim for an implication of a term of fair dealing. Sheller JA said that there was no reason why a duty of good faith should not be implied as part of the lease. He held, however, that the landlord was not acting unconscionably or in breach of an implied term of good faith in the circumstances of that case, where the landlord merely took steps to ensure that the requirements for fire safety contained in its expert’s report should be put in place.
101 In the present case, therefore, I must consider not only whether the defendant as landlord is subject to an implied obligation arising out of the express covenants of the lease (including the covenant for quiet enjoyment), and whether its implied obligation not to derogate from its grant is applicable to the present circumstances. I must also consider whether, having regard to the principles enunciated in the BP Refinery case, the landlord is subject to an implied term of the kind described in MacKay v Dick or more broadly, an implied duty of good faith which may be relevant to the plaintiff’s claim for relief.
Clause 15.1 of the Headlease and clause 13.1 of the Sublease
102 The plaintiff’s contention is that clause 15.1 imposed an obligation on the defendant in favour of the plaintiff, because it was imported into the Sublease by clause 13.1. A covenant in a sub-lease by the sub-lessor to ‘observe’ the obligations in the head-lease is effective to permit the sub-lessee to require the sub-lessor to perform obligations (such as an obligation to repair the exterior of the premises demised by the sub-lease) imposed on the sub-lessor by the head-lease: Ayling v Wade [1961] 2 QB 228.
103 However a general provision such as clause 13.1 must be construed in light of the other provisions of the Sublease in the circumstances which existed at the time of entry into that instrument. The Sublease was dated 29 September 1995, although the term commenced on 1 November 1994. By the latter date the Council’s requirements under the notice of 29 August 1991 had been outstanding for over three years. Over four years had passed by the time of execution of the Sublease, and on 13 January 1995 the Council had served a new and different notice on the defendant. In my opinion clause 13.1 of the Sublease cannot be construed to mean that the defendant thereby undertook, in effect, to resuscitate the 1991 notice and comply with it for the benefit of the plaintiff, so many years after it had been issued. The covenant in clause 15.1 to comply with the Council’s notice was an obligation which the plaintiff undertook to perform within six calendar months of the date of the headlease, namely 23 October 1991. I construe the covenant to provide a certificate under s 317AE of the Local Government Act to the headlessor within six months as ancillary to and consequential upon performance of the covenant to comply with the notice, not identifying a separate and independent obligation. The obligation created by clause 15.1, limited in time as it was, did not endure to create a right to performance in the plaintiff when the Sublease commenced, nor when the Sublease instrument was executed. Clause 13.1 must be taken to be subject to an implied qualification that the defendant’s undertaking to observe the Headlease applies only as far as the provisions of the Headlease remained applicable at the time when that promise took effect. So construed, clause 13.1 does not enable the plaintiff to enforce clause 15.1 of the Headlease against the defendant in this case.
104 It is not necessary for me to consider whether, if clause 15.1 had indirectly applied through clause 13.1, it would entitle the plaintiff to assert a right to carry out the works in the Howse Report to satisfy the rather different requirements which the Council asserted some seven years after the 1991 notice was issued. My view, however, is that the Council’s 1998 requirements are so different from its 1991 requirements, in the manner explained in the affidavit of Mr Jones sworn on 4 March 1999, that one cannot move from non-compliance with the 1991 notice to any relevant conclusion about the obligations of the defendant to the plaintiff in 1998 and 1999. The mere fact (if it were established) that the 1998 requirements may not have been imposed by Council if the 1991 notice had been complied with, would not of itself be sufficient for me to conclude that clause 15.1 imports an obligation to comply with the Council’s 1998 and 1999 requirements; and in any case, my view is that this fact has not been established, given the differences between the 1991 and 1998 requirements as explained in Mr Jones’ affidavit.
Clause 5.1 of the headlease and clause 13.1 of the sublease
105 The plaintiff submits that the work necessary to meet Council’s fire safety requirements falls within clause 5.1 of the Headlease, which the defendant is bound to the plaintiff to observe having regard to clause 13.1 of the Sublease. The work in question, recommended by the Howse Report and referred to in Council’s letter to Verekers dated 14 December 1998, is partly work on the premises occupied by the defendant, and partly work to the premises occupied by the building’s tenants.
106 The defendant’s covenant to observe and perform its obligations under the Headlease must be construed together with the other relevant provisions of the Sublease. They include clause 5.1 of the Sublease, by which the plaintiff covenants as tenant to keep the demised premises in good and substantial repair, order and condition having regard to their condition at the date of commencement of the term. In my opinion, clause 13.1 must be read subject to the more specific provision of clause 5.1 of the Sublease. Therefore to the extent that some of the required work is properly described as repairs to the demised premises, it is the responsibility of the plaintiff under the Sublease, subject only to the limiting proviso to clause 5.1 which refers to the condition of the premises at the commencement of the term.
107 The plaintiff says that clause 5.1 of the Headlease applies, via clause 13.1, and that the work required by the Council’s letter of 14 December 1998 and the Howse Report does not involve ‘structural maintenance, replacement or repair’ for which the defendant is generally not liable under clause 5.1. If this submission is correct, the obligation may be qualified by clause 5.1 of the Sublease, to the extent that the works relate to the demised premises.
108 In deciding whether the works in the Howse Report are properly described as structural works, I must have regard to the principles enunciated in such cases as Grenada Theatres Ltd v Freehold Investments (Leytonstone) Ltd [1959] 2 All ER 176. The distinction between structural and non-structural repairs requires the Court to make a practical judgment as to whether the work, having regard to its nature and extent, interferes with or alters the framework or structure of the building. Older case law, referred to by Jenkins LJ in that case at page 181, tended to describe all non-structural work as ‘decorative’, but the modern connotation of that word may be too limited to allow it any continuing utility. Having particular regard to their extent, my opinion is that works in the Howse Report include a structural element, particularly as they involve construction of walls and similar sealing structures, and fire doors: see especially the Howse Report, paragraphs 6.2.1(i), (ii), (iv), (vi); 6.2.2(ii), (iii), (iv); 6.2.3(i), (ii), (iii), (viii), (ix). I note the evidence that Mr Dwyer, in his affidavit of 8 March 1999, that in his opinion the works do not involve structural maintenance, replacement or repair but are merely ‘fire safety upgrading works’. I have given consideration to Mr Dwyer’s opinion but it does not deflect me from my conclusion. While an expert’s opinion on the facts relevant to the Court’s construction of a repair clause may be of assistance, I cannot allow an expert’s opinion to replace the Court’s own conclusion as to the proper classification of the building work as structural or non-structural repairs, especially when the factual basis for the opinion and the expert’s understanding of the meaning of the terms are not articulated.
109 One consequence of my conclusion is that the plaintiff has no obligation under the Sublease to carry out the fire safety work to the extent that the work is structural. Another is that the defendant has no such obligation under clause 5.1 of the Headlease and clause 13.1 of the Sublease, except to the extent that the work is rendered necessary by an act, neglect, default or omission by the defendant. The plaintiff says that there is such a default or omission, namely the defendant’s failure to comply with clause 15.1 by failing to carry out the Council’s 1991 requirements. The difficulty with that submission is the absence of any convincing evidence to link the Howse requirements to the 1991 Council notice. In the absence of that evidence (and in view of the evidence given by Mr Jones in his affidavit of 4 March 1999), I am unable to conclude that the work recommended in the Howse Report (or for that matter, any of the work referred to in the Council’s notice of 7 September 1998) has been ‘rendered necessary’ by the default or omission of the defendant when it failed to comply with the Council’s 1991 notice.
110 It seems to me that, if one accepts that of the work recommended by the Howse Report is necessary to keep the building in good and substantial repair, then that part of the work which relates to non-structural repairs to the building outside the demised premises (that is, other than work in the gym) is work which the defendant is responsible to carry out under clause 5.1 of the Headlease and clause 13.1 of the Sublease. But that is rather less than the whole of the works, and is insufficient to give the plaintiff an entitlement to the relief which it seeks.
Covenant for quiet enjoyment - Sublease clause 8.1
111 A breach of the covenant for quiet enjoyment occurs whenever the landlord causes substantial interference with the enjoyment of the demised premises through an act or omission that is either deliberate or negligent in the sense that its consequences were reasonably foreseeable: Martin’s Camera Corner Pty Ltd v Hotel Mayfair Ltd [1976] 2 NSWLR 15; Kohua Pty Ltd v Tai Ping Trading Pty Ltd (1985) 3 BPR [97,240]; P Butt , Land Law (3rd ed 1996), p305-308. In Reid House Pty Ltd v Beneke (1987) 5 ACLC 451 it was recognised that the execution of fire safety works could amount to a breach of the covenant for quiet enjoyment, since in that case the work involved depriving the tenant of space by the construction of corridors. This was so even though the work was done in compliance with the Council’s requirements. But the question in the present case is a different one. Here the question is not whether performance of the fire safety works will interfere with the tenant’s quiet possession, but whether the landlord is obliged by that covenant to permit the works to be carried out.
112 Further, the breach of the covenant in that case was the performance of the works. Here the plaintiff says that the breach arose through the landlord failing to expend money for eight years on fire safety, bringing with it the reasonably foreseeable consequence of upsetting the quiet enjoyment of the demised premises by the plaintiff. In my opinion the evidence does not establish a breach by the defendant of the covenant for quiet enjoyment after the grant of the Sublease. The interference with the plaintiff’s quiet enjoyment of the demised premises arises from the act of the Council in issuing the emergency order, and is not an ‘interruption or disturbance from the [defendant] or any other person lawfully claiming by from or under the [defendant]’. It may well be that the defendant’s failure to make fire repairs prior to and after the commencement of the Sublease led to the Council’s action; or at least, that if the defendant had made proper expenditure the Council would not have acted. But the defendant’s conduct or omission has not itself interrupted or disturbed the plaintiff’s peaceful possession and enjoyment of the demised premises. The Council’s decision was its own decision taken in the exercise of its statutory discretion.
The defendant’s implied covenant not to derogate from its grant
113 Professor Butt ( Land Law , 3rd ed 1996) at paragraph 1553 has explained the law on this subject as follows:
‘Where the landlord remains in possession or control of premises which are ancillary to the leased premises (such as a roof, stairway or drains), and keeping the ancillary premises in repair is necessary for the proper enjoyment of the leased premises, then the landlord must take reasonable care to ensure that the ancillary premises are kept in repair, or at least that they are not in a condition that causes damage to the defendant or to the leased premises.’
114 These principles have been applied in such well-known cases as Alden v Latimer Clark Muirhead & Co [1894] 2 Ch 437 and Browne v Fowler [1911] 1 Ch 219. The principles were recently considered and applied by the Queensland Court of Appeal in Aussie Traveller Pty Ltd v Marklea Pty Ltd [1991] 1 QldR 1.
115 The plaintiff says that the landlord’s obligation to keep the ancillary premises in repair must include an obligation to make necessary repairs or upgrades to prevent the building being condemned. The plaintiff says there is no difference in principle between allowing the premises to fall into such disrepair with respect to stairs, drains or the roof that their disrepair interferes directly with the tenant, and letting matters reach the point where the Council interferes; a fortiori where such a consequence was reasonably foreseeable at the time of the grant of the lease.
116 To the extent that this submission relies on the implied covenant not to derogate from the grant, as opposed to a broader implied contractual term, my opinion is that it fails, for effectively the same reasons as were given in analogous circumstances by Waddell J in the Brilee Consultants case. Considering a submission that there was an implied term in a commercial lease which would oblige the landlord to comply with fire safety requirements, Waddell J said (at 9274):
‘However, the implied obligations the general law does impose on lessors in relation to the condition of premises are very limited indeed. An account of them is to be found in Woodfall, Landlord & Tenant 28th ed) p 618 ff. Nothing is to be found in that account which would support the terms sought to be implied in the present case. Indeed it is clear that in cases such as the present, there is only a limited implied obligation on a lessor to keep demised premises in repair. What the plaintiff seeks to establish in the present case is, of course, an implied term which goes further, namely, one which obliges the lessor to alter and add to the premises so as to comply with statutory requirements as to fire precautions.
These considerations are, in my opinion, sufficient to reject the notion that any of the implied terms put forward for the plaintiff should be implied as a legal incident of a lease for a substantial term of business premises in reliance upon principles of the kind applied in [ Liverpool City Council v Irwin [1971] AC 239].’
117 This is not a case where the interference with the plaintiff’s quiet enjoyment comes from another tenant whose conduct the defendant as landlord is able to correct or terminate, as in the Aussie Traveller case. Here the interference comes from the order of the Council.
Implied contractual terms
118 The plaintiff submits that since the fire repair work is required to permit it to continue to occupy the demised premises, the defendant is at least obliged either:
• to co-operate and permit the plaintiff to effect such work at its option and expense; or
• not to refuse to co-operate unreasonably or for an extraneous purpose.
119 To the extent that such an obligation does not flow from the covenant for quiet enjoyment and the implied covenant not to derogate from the grant, the plaintiff says that the obligation arises from an implied term. The implied term may be of the kind referred to in MacKay v Dick , or may be an implied obligation to exercise contractual power reasonably and in good faith.
120 The plaintiff’s contention is that the parties agreed that the plaintiff would have quiet enjoyment of the demised premises as lessee. That agreement implies that the plaintiff’s possession will be protected against interference by the co-operative efforts of the parties, and therefore that the parties will co-operate to remove the threat to the plaintiff’s quiet enjoyment which is constituted by the Council’s emergency order.
121 In my opinion this attempt to imply a term on the authority of MacKay v Dick fails, because compliance with the Council’s fire safety requirements cannot be classed as something the parties have agreed ‘shall be done’. Nor can it be said that the parties have agreed that the plaintiff’s quiet possession will be preserved to such a degree that they must comply with the requirements of a statutory authority, whatever may be the content of those requirements or the cost of meeting them. The express terms of the Sublease deal with the rights and obligations of the parties with respect to repairs and compliance with the requirements of statutory authorities. Therefore there is no room here for the operation of MacKay v Dick .
122 Nor, in my opinion, is there any room for the application of any obligation of fair dealing, good faith or reasonableness. Accepting for the sake of analysis that the parties in this case are subject to a contractual duty of good faith, I do not regard the defendant’s conduct, in its commercial context, as inconsistent with such a duty. I have found that the defendant through its President and other officers, engaged in conduct designed to make it difficult for the plaintiff to carry on business in the demised premises, with a view to securing vacant possession of the building. But I have also found that the defendant’s conduct in provisionally declining to consent to the works proposed in the Council’s letter of 14 December 1998 was not unreasonable. To adapt the words of Sheller JA in the Alcatel Australia case, expressed in a broadly analogous factual context (at 369):
‘In a commercial context it cannot be said, in my opinion, that a property owner acts unconscionably or in breach of an implied term of good faith in a lease of the property by taking steps to ensure that the requirements for fire safety advised by an expert fire engineer should be put in place’.
123 This, in effect, is what the plaintiff did in obtaining and seeking to rely upon the Second Dean Report and the reports by Stephen Grubits & Associates, and, through Mr Mahony, encouraging those experts to have their meeting with officers of the Council on 24 February 1999. Any inclination I might have to contribute to the emerging law on the contractual duty of good faith is thwarted by this lack of factual substratum.
Plaintiff’s entitlement to specific relief
124 I conclude, therefore, that the defendant had no duty to consent to the carrying out of fire repair works to meet the Council’s requirements, though it may have a duty arising out of clause 5.1 of the Headlease to make some non-structural repairs to the building, other than the demised premises, to the extent that such work was necessary to keep the building in good and substantial repair, order and condition.
125 In view of my conclusions as to the defendant’s obligations under the law of landlord and tenant and the law of contract, it is not necessary for me to decide whether there would be a proper basis for a mandatory order of the kind sought by the plaintiff, if the requisite duty had been established. But I note that the form of the relief sought by the plaintiff presents a difficulty. It would obviously be unacceptable for the Court to order the defendant to give its consent for work to be carried out on its own premises, without giving the defendant a means of objecting to the scope or quality of the work. As soon as the Court’s orders are qualified by allowing for such recourse, one comes up against the longstanding reluctance of courts to make orders which might lead to constant supervision of the performance of the contract - an especially strong reluctance in the case of a contract which involves building work.
Conclusions
126 In the result the plaintiff’s summons fails so far as it seeks an order that the defendant consent to the fire safety works required by Waverley Council (paragraph 6 in the Summons).
127 The plaintiff’s counsel indicated that the plaintiff seeks orders in accordance with paragraphs 2, 3 and 5 of the Summons as well as paragraph 6. I understand that the plaintiff does not now seek orders for damages and interest (paragraphs 8 and 9 respectively). Paragraphs 3 and 5 relate to whether the plaintiff has effectively exercised its option to extend the Sublease for a further three year term from 1 November 1998, and paragraph 2 relates to whether the defendant has given the plaintiff an effective notice to quit the demised premises. As I understand counsels’ submissions, there is now no dispute about these matters. If that is so, there may be no good reason to make any of the orders, except by consent. However, I will hear submissions as to whether there is any good reason for making orders 2, 3 and 5, though I note that the reason will have to be particularly convincing in the case of order 5, which is an order in the nature of specific performance rather than a declaratory order. I shall also hear the submissions of the parties on the question of costs.
128 It may initially seem to be unfair that the plaintiff’s case fails, even though I have found officers of the defendant to be guilty of improper commercial conduct. But fairness does not require that in all the circumstances of this case, such misconduct should entitle the plaintiff to compel the defendant to consent to substantial work which it does not wish to have done to the building which it owns - nor, in my opinion, does the law.

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