Ashington Holdings Pty Ltd v Wipema Services Pty Ltd

[1999] NSWCA 456

Reported Decision: (2000) NSW ConvR 55-928

New South Wales

Court of Appeal

CITATION:	ASHINGTON HOLDINGS PTY LTD v WIPEMA SERVICES PTY LTD [1999] NSWCA 456 revised - 21/12/99
FILE NUMBER(S):	CA 40757/98
HEARING DATE(S):	27 September 1999
JUDGMENT DATE:	10 December 1999
PARTIES :	ASHINGTON HOLDINGS PTY LTD V WIPEMA SERVICES PTY LTD
JUDGMENT OF:	Mason P at 1; Handley JA at 41; Fitzgerald JA at 42

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S) :	1339/98
LOWER COURT JUDICIAL OFFICER:	Young J

COUNSEL:	Appellant: B Coles QC and M Ashhurst Respondent: M Skinner
SOLICITORS:	Appellant: Dobes & Andrews Respondent: Taylor Kelso
CATCHWORDS:	CONTRACTS - Discharge - Lease - Option to renew lease exercised - Breakdown of negotiations between lessor and lessee regarding renewal of the lease leading to cessation of rent payments - Whether there was an enforceable agreement to lease - Tender by appellant to respondent of document in form of lease in same terms as original lease - Refusal by respondent to execute ; ESTOPPEL BY CONVENTION - Registration of strata plan pertaining to leased property following renewal of option - Whether the registration of the strata plan altered the premises making performance of the lessor’s obligations impossible - Whether lessee’s consent to registration estops it from taking this stance.
DECISION:	Appeal upheld. See par 40.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA40757/98
ED 1339/98

MASON P
HANDLEY JA
FITZGERALD JA

Friday 10 December 1999

ASHINGTON HOLDINGS PTY LIMITED
v WIPEMA SERVICES PTY LIMITED

The appellant was the owner of premises at 16 O’Connell Street, Sydney, and the respondent was the lessee of Level 7. In addition to rent, the lease required the respondent to pay the appellant 8.09% of the “additional outgoings”, as defined in cl 23 of the lease. On 27 October 1997, the respondent exercised an option to renew its lease for a further term of three years commencing on 1 March 1998.

After the respondent exercised its option, the appellant caused the registration of a strata plan, No. 55932, under the Strata Schemes (Freehold Development) Act 1973. On 20 November 1997, when the strata plan was registered, Level 7 of the building, except for two areas of common property containing lifts and stairs, became Lot 8.

During the period between its exercise of its option to renew the lease and the registration of the strata plan, the respondent consented in writing to the registration of the strata plan.

After the option was exercised and the strata plan was registered, the parties continued with negotiations concerning a long-term lease of Lot 8 by the respondent. The negotiations broke down and the respondent vacated the building shortly before 28 February 1998, when its then current term expired. It has not paid rent since. Prior to the expiration of the respondent’s original lease, the appellant commenced proceedings against the respondent in the Equity Division. It sought a declaration that there was an “enforceable agreement to lease” between the parties and an order for specific performance.

On 11 May 1998, while the proceedings were part-heard, the appellant tendered to the respondent for execution a document in the form of a lease, already executed by the appellant, which was literally in the “same terms” as the original lease except for the insertion of new title details and omission of the option to renew. The respondent refused to execute the tendered document. The appellant’s summons was dismissed and the appellant was ordered to pay the respondent’s costs of the Equity Division proceeding.

In October 1998, the appellant instituted this appeal. Its notice of appeal sought to set aside the orders made by Young J and claimed damages in lieu of specific performance. Lot 8 was sold in early 1999. The respondent argued a preliminary point that it was not open to the lessor to change its tack in the Court of Appeal and to seek damages at common law.

The principal submissions are that by virtue of the registration of the strata plan the “demised premises” have altered and performance of the lessor’s obligations has become impossible; and that the lessee’s consent to such registration does not estop it from taking this stance.

HELD by Mason P (Handley JA concurring), upholding the appeal and remitting the proceedings to the Equity Division for assessment of damages:

There is no substance in the respondent’s preliminary argument that it was not open to the appellants to seek damages in the Court of Appeal instead of specific performance. The nature and extent of breach of contract are issues which can be litigated in the Equity Division when the matter is remitted there for assessment of damages.
Bosaid v Andry [1963] VR 465, Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444, Commonwealth v McCormack (1984) 155 CLR 273, Rodger v The Comptoir D’Escompte de Paris (1871) LR 3 PC 465 (referred)

It is not necessary to assess whether the changes to the rights of the lessor and lessee brought about by the registration of the strata title were significantly different from the obligations under the new lease proffered for the lessee’s execution. The changes were the direct consequence of the situation brought about and intended to be brought about by the joint action of the parties when the lessor (with the lessee’s cooperation) proceeded to obtain registration of the new strata plan.
Hollies Stores Ltd v Timmis [1921] 2 Ch 202 (considered), Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67, Noyes v Klein (1984) 3 BPR 9216, Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548, Verdi La Fortuna Pty Ltd v Mabrouk Pty Ltd [1992] NSW Conv R ¶55-632 (referred)

The situation is one of estoppel by convention. The parties conducted their relations on the basis of an agreed state of facts, namely that the landlord’s title to the demised premises was its title to lot 8 in the new strata plan. The lessee’s consent was to the registration of the strata plan and everything that necessarily flowed from it. It was not open to the lessee to rely upon the direct and intended consequences of its consent as constituting a repudiation by the lessor or as the basis for contending that performance of the option agreement had been frustrated or otherwise rendered impossible.
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 (referred)

HELD by Fitzgerald JA, dismissing the appeal with costs:

The appellant is not entitled to recover damages from the respondent. An estoppel by convention binds both parties to the position which they have mutually adopted. However the lease which the appellant was willing to grant to the respondent during the Equity Division proceedings did not give substantial effect to that relationship. The lease document tendered for the respondent’s execution did not contain the terms of a lease to which the respondent was contractually entitled and to which it was contractually obliged to accept. Regard must particularly be had to the practical consequences of registration of the strata plan. Application of provisions in the Strata Scheme (Freehold Development) Act 1973 and the Strata Schemes Management Act 1996 considered.
Foran v Wight (1989) 168 CLR 385, Bahr v Nicolay [No.2] (1988) 164 CLR 604 (discussed)

ORDERS:

1) Appeal upheld.

2) Set aside the orders made by Young J, including the order as to costs.

3) Declare that in the events which happened, the registration of Strata Plan 55932 did not constitute a repudiation of the agreement formed upon the exercise of the option to renew Lease E907098.

4) Remit the proceedings to the Equity Division to assess the damages payable by the respondent to the appellant.

5) Order that the respondent pay the appellant’s costs of the proceedings to date in the Court below and in this Court, and to have (if qualified) a certificate under the Suitors’ Fund Act 1951.

**********

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA40757/98
ED 1339/98

MASON P
HANDLEY JA
FITZGERALD JA

Friday 10 December 1999

ASHINGTON HOLDINGS PTY LIMITED
v WIPEMA SERVICES PTY LIMITED

JUDGMENT

1    MASON P: This dispute concerns an option to renew the lease of commercial premises at 16 O’Connell Street, Sydney. The appellant (hereafter referred to as the lessee) was held to have exercised the option. However, the claim for specific performance by the respondent (hereafter referred to as the lessor) was dismissed by Young J on the ground that the conversion of the building to strata title had made it impossible for the lessor to tender a new lease in the same terms as the old lease. 2    The lessee is the service company of a city firm of solicitors. In 1992 it took a registered lease (the original lease) from the registered proprietor Permanent Trustee Australia Ltd. The original lease was registered E907098 and was for a term of six years commencing on 1 March 1992 and terminating on 28 February 1998. The demised premises were described as part of volume 1882 folio 143 “Being Level 7, 16 O’Connell Street, Sydney”. No plan was annexed to the original lease nor was evidence tendered as to the precise bounds of the demised premises. 3    The covenants in the original lease are those commonly found in a commercial lease of a high-rise city building. The annual rent was originally $104,951, subject to the lessor’s right to annual review after 1 March 1996. Clause 23 required the lessee to contribute to annual increases in “the outgoings of the Building” as defined, by paying “as rent” an amount equal to 8.09% of the amount of additional outgoings. There were covenants by the lessor, expressed in terms of the lessor’s (best) endeavours, as to cleaning (cl 6) and keeping lifts and air conditioning plant working and available for use during particular hours (cl 11.4 and cl 11.5). 4    Clause 20 contained an option to renew for a further term of three years, subject to the lessee giving written notice not less than three months and not more than six months prior to the expiration of the term. Subject to the due exercise of the option, cl 20 required the lessor to grant a new lease on various conditions, including:

(a) The covenants, conditions and restrictions of the Lease for the said further term shall be the same as in this Lease with the exception that this option to renew shall be excluded. …

The clause contains a mechanism for determining the rent for the further term if the parties are unable to agree.

5    By 1997 the appellant had become the registered proprietor. Its certificate of title (which had acquired the folio identifier 1/125121) recorded that it held its interest subject to the original lease. The register identified the lease by its registration number and contained reference to its expiry date and the existence of the option of renewal for three years. 6    On 27 October 1997 the lessee gave formal notice of exercise of the option. This was done to protect the lessee’s position in the event (which occurred) that negotiations between the parties as to a new and longer lease on different terms did not come to fruition. The learned trial judge held that the option had been duly exercised and that the parties were bound by an agreement to grant and to take a fresh lease in the same terms as the original lease, excluding the option to renew. 7    During the negotiations in late 1997, the building was being refurbished extensively in connection with the lessor’s proposal to convert to strata title. The lessee was aware of this proposal and, as will be seen, gave a formal consent to registration of the strata plan. 8    On 20 November 1997 strata plan 55932 was registered. Lot 8 covered the entirety of level 7 except for two portions of common property containing lifts and stairs. These areas would have been outside the demised premises in the original lease. The certificate of title that issued for lot 8 showed the appellant as the registered proprietor, subject inter alia to the registered lease in favour of the respondent. 9 The procedures relating to registration of a strata plan are set out in the Strata Schemes (Freehold Development) Act 1973 (the 1973 Act). For present purposes, it is sufficient to observe that s16(2) provides that the Registrar-General may refuse to register a strata plan unless consents in writing to the registration signed by various persons are lodged in the office of the Registrar-General. These persons include the lessee under any lease recorded in the folio of the register relating to the land comprised in the plan. The lessee gave such consent in early November 1997 when a letter addressed to the Registrar of the Land Titles Office was handed to the lessor’s building manager. The letter stated:

16-18 O’Connell Street, Sydney
Folio identifier 1/125121
As tenants under lease no E907098 registered upon the above title we hereby consent to the registration of the strata plan approved by Sydney City Council and signed by the Council’s clerk. …

10    The term of the original lease expired on 28 February 1998 and the lessee vacated the premises shortly before that date. 11    As indicated, in late 1997 and early 1998 the parties were negotiating a new lease for level 7 (lot 8). These negotiations proceeded after November 1997 (BB 59) on the basis that the strata plan had been registered, a fact of which the lessee was well aware. 12    However, on 22 December 1997 the lessee’s solicitors asserted that:

So far as the option for renewal is concerned, we make it clear that Wipema is only bound to take a new lease if it is in identical terms to the old. It would appear that your client, by registering a strata plan for the building on 20 November last, after the option was exercised, has put it out of its power to give Wipema such a lease.

This contention was challenged by the lessor. The lessee was reminded that it had consented to the registration of the strata plan.

13    By mid January 1998 it was clear that the parties could not agree about rent for the long term lease they were discussing. It is equally clear that the lessee perceived that the lessor might commence proceedings for specific performance or damages (cf BB 56Q) in relation to the exercised option. In that context, the lessee confirmed its stance that registration of the strata plan had made it impossible for the lessor to implement the agreement for lease constituted by the exercise of the option. Accordingly, the lessee purported to terminate that agreement (BB 56N). As indicated, the lessee vacated the premises shortly before the expiry date of the original lease. It is unnecessary to decide the point, and I refrain from doing so, but in all likelihood this was a repudiation of the agreement if it remained on foot and if it had not been repudiated by the lessor when the strata plan was registered. 14    The lessor did not accept it as a repudiation. Instead it commenced proceedings in the Equity Division in February 1998. It sought declarations that there was an enforceable agreement to lease and that its action in obtaining registration of the strata plan did not constitute a repudiation of that agreement. The lessee filed a cross-claim seeking inter alia a declaration that it was impossible to renew the lease on the same conditions as the original lease. 15 On 23 April 1998 Young J reminded the parties that s63 of the Supreme Court Act 1970 ordinarily meant that in a vendor/purchaser suit, the Court would not merely make declarations, but would insist that the moving party seek specific performance, or damages, or both (Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286). The lessor amended its summons on 14 May 1998 to include a prayer for specific performance. The lessee countered with additional points of defence which asserted that specific performance should be refused on various grounds, including the ground that in all the circumstances damages at law were an adequate remedy for the lessor. 16 When the matter was before Young J on 23 April 1998, his Honour held that the service of the notice of exercise of option had created an agreement to lease for a further term of three years. This finding is not challenged in the appeal. 17 Young J then addressed the lessee’s alternative submission that registration of the strata plan meant that it was impossible for the agreement to be performed, or that it was void for uncertainty, or that it had been repudiated by the lessor. Various issues were discussed in the judgment given on that date, but the upshot was that the proceedings were adjourned to enable the lessor to submit a lease that properly complied with its obligations under clause 20 of the original lease. 18 On 11 May 1998 the lessor tendered an executed copy of a new lease purportedly in compliance with its obligation under cl 20 of the original lease. The new lease was verbally identical to the original lease with two exceptions. First, it properly excluded the option clause itself. Secondly, it changed the description of the demised premises from “Level 7, 16 O’Connell Street, Sydney” to “Folio identifier 8/SP55932 being Level 7, 16 O’Connell Street, Sydney”. 19    The lessor’s principal submission before Young J at the adjourned hearing on 22 July 1998 and before this Court was that it had complied with its obligation under the option clause by tendering a lease which corresponded to the form of the original lease, save for the matters mentioned above. (The omission of the option clause was never a point of dispute.) 20    Young J delivered further reasons for judgment on 4 September 1998. He held that the lessor’s duty to tender a lease whose covenants, conditions and restrictions “shall be the same as in” the original lease was not necessarily satisfied by mere repetition of identical words in the relevant parts of the original lease. He cited Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67 at 71, Noyes v Klein (1984) 3 BPR 9216 at 9232 and Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 570. These cases demonstrate that literal reproduction of the words of an earlier lease may involve a change of substance, for example because the new lease does not (in terms) speak from its inception but from the inception of the former lease. 21 The learned judge held that the proffered new lease was not in substance the same as its predecessor. Several points of difference in effect were identified. I shall refer to the detail of reasoning below. His Honour also held that the lessee’s consent to registration of the strata plan did not entail consent to “radical alterations in its rights to a renewed lease”. 22    Having found that there was a binding contract to enter into a new lease, but that that contract had become impossible to perform, his Honour dismissed the lessor’s summons and granted the lessee a declaration that, in the events which happened, it was impossible to renew the lease pursuant to cl 20 on the same covenants, conditions and restrictions. At a later stage in the proceeding his Honour dealt with costs. 23    The lessor promptly filed a notice of appeal. In it, the lessor sought to set aside the orders made by Young J and claimed damages in lieu of specific performance. The change from specific performance to damages was doubtless prompted by the inevitable delay during the pendency of an appeal and it was related to the lessor’s intention to sell its interest in the demised premises. Lot 8 was sold in early 1999. 24    The lessee took a preliminary point, arguing that it was not open to the lessor to change its tack in the Court of Appeal and now to seek damages at common law. There is no substance in this point. If performance of the contract was not rendered impossible by the registration of the strata plan, then there was undoubtedly a breach by the lessee prior to institution of the proceedings in the Court below. The nature and extent of that breach, whether there was any failure to mitigate, and the extent of damages flowing from it are all matters which the parties will be free to litigate if this Court overturns the orders made by Young J and remits the proceedings to the Equity Division for assessment of damages. 25    The lessor’s conduct of the proceedings below was not inconsistent with its right to claim damages at common law (see Bosaid v Andry [1963] VR 465 at 486-7 and Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 461-2). The possibility of the lessor abandoning its claim for specific performance in favour of damages at common law was always on the cards (cf pars 13 and 15 above). 26    The fact that the lessor has now elected to seek damages as on a repudiation after the dismissal of its proceedings by Young J provides no barrier if his Honour was in error, given that such election at its highest affects only the quantum of damages. If the lessee was in breach, then the breach occurred before the proceedings were commenced, not that that would have mattered in the final analysis (cf Pt 20 r1(3A)). If Young J had found in the lessor’s favour, specific performance would have been granted. In those circumstances, “one of the first and highest duties of all Courts is to take care that the act of the Court does no injury to any of the Suitors” (Commonwealth v McCormack (1984) 155 CLR 273 at 276, citing Rodger v The Comptoir D’Escompte de Paris (1871) LR 3 PC 465 at 475). 27 The lessee’s principal submissions are that by virtue of the registration of the strata plan the “demised premises” have altered and performance of the lessor’s obligations has become impossible; and that the lessee’s consent to such registration does not estop it from taking this stance. In essence, the lessee supports the reasoning of Young J. 28    It is convenient at the outset to refer to a decision relied upon by the lessee which was cited and applied by Young J. In Hollies Stores Ltd v Timmis [1921] 2 Ch 202, there was a lease to a company with three named persons guaranteeing its obligation to pay rent. An option to renew on the same terms was exercised. One of the guarantors had died and the lessee offered another guarantor in his place. Alternatively, the lessee offered to pay the entire rent for the new term in advance. The lessor refused to grant the lease on the ground that the conditions on which it was to be granted had become incapable of performance. This contention was upheld by Russell J who held that the lessor could not be compelled to grant a different lease even though the rent was equally well secured. One infers that the decision would have been different if, for example, one of the guarantors had merely fallen on hard times. The practical effect of the guarantee would have been different, but this would not have meant that the proffered lease did not conform. If the inference is correct, it demonstrates that the proposition that a difference in practical enjoyment of terms would not be pushed too far. 29 Whether or not the decision in Hollies is good law in the light of cases such as Mark Mayne, Noyes and Showa Shoji can be determined when it is necessary to do so. The matter is not precluded by the passing reference to Hollies in Verdi La Fortuna Pty Ltd v Mabrouk Pty Ltd [1992] NSW Conv R ¶55-632. 30 In my view, the proper approach to the issues presented in this appeal is to view the matter as the parties did in late 1997. They were concerned only with the demised premises. The lessee had exercised the option and both sides knew that this represented the fall back position if the negotiations for a different lease came to nothing. The parties also knew that the building was being refurbished and that a strata scheme was in preparation, being a scheme which used as its basis the strata plan approved by Sydney City Council. The lessee obviously perceived it to be in its interests to facilitate this process and accordingly it consented to the registration of the strata plan. 31 Some of the matters referred to in the preceding paragraph occurred after the option had been duly exercised. Nevertheless, the time for performance of the contract to grant the new lease in accordance with cl 20 lay in the future, in the sense that the occasion for executing the new lease would arise towards the end of the original term if the pending negotiations for a radically different lease came to nothing. Neither party intended to proceed to execute the new lease on the “same” terms as the original lease so long as they were negotiating with a view to a completely different lease. By the stage that those negotiations broke down in January 1998, the strata plan had been registered, bringing about changes in the “congeries of rights” of the lessor and lessee (the phrase is Young J’s). 32    Young J regarded the changes as significant in practical effect and the lessee’s submissions sought to emphasise their significance. 33    I shall indicate below why I consider it unnecessary to detail the extent of those changes. I content myself with the following observations as to the materiality of the changes:
¨ I am not persuaded that the physical area of the demised premises has changed. The alterations to the lessor’s rights over the building as a whole were not relevant to the position as between lessor and lessee. It is true that the strata scheme clearly excludes from lot 8 the space occupied by boundary walls and the slab of the ceiling above and the floor below level 7. But this involved no reduction in the area of exclusive occupation previously enjoyed by the lessee. It is not self evident that the original lease gave rights to occupy any of the solid spaces forming the physical boundaries to the interior of level 7, even the exterior walls and windows (cf cl 10.1(1), (n) and (o)). ¨ The original lease itself apparently excluded “the common areas” (cf cl 10.1(j)). ¨ The lessor’s covenants with respect to use of lifts and air conditioning and the cleaning of the premises were always expressed in terms of its (best) endeavours. Those obligations remained in identical terms in the new lease proffered by the lessor. The fact that the lessor could be put into breach through the conduct of the owners corporation did not alter the substantive or formal operation of the covenants any more than would be the position if the lessor had subcontracted its obligations to cleaning and maintenance firms. The same point can be made about the changed operation of provisions like cl 10.1(n) and 17 which, when read with s133B(2) of the Conveyancing Act 1919, preclude the lessor from unreasonably withholding consent to alterations and improvements of the demised premises (cfTelstra Corp Ltd v Capetan Pty Ltd (1996) 7 BPR 97,593). ¨ The commencement of the strata scheme undoubtedly altered the quantum of the lessor’s outgoings referable to level 7, if only because lot 8 became separately rateable (the 1973 Act, s92). Furthermore, the amount payable by the lessee would have changed because the unit entitlement of lot 8 under the strata scheme is 7.2% compared with 8.09% being the lessee’s share of total incorrect outgoings for the building under the original lease. It was submitted that there was uncertainty as to whether the lessor’s new obligation to pay levies by the owners corporate was an “outgoing of the building”, although I would think it strongly arguable that it was. (See Leisure Resort Holdings Pty Ltd v Leisure Resort Group Pty Ltd (1994) NSW Titles Cases ¶80-030. Lang v Asemo Pty Ltd [1989] VR 773 is distinguishable having regard to the limited terms of the relevant covenant (see at 779).

The lessee, adopting the reasoning of Young J, submits that these matters gave substantially different effect to cl 23 (which obliged the lessee to pay a share of the outgoings). Again, I would doubt this. After all, cl 23 was never intended to deal with a position fixed in concrete in 1992. Outgoings necessarily vary with needs and with obligations as they apply from time to time. A new tax may be a proper outgoing. Care should be taken not to confuse the constant substantive effect of the relevant covenant and its varying impact from time to time.

34    It may well be that the shift to a strata scheme threw up questions of interpretation and application of cl 23. Indeed, it may even be that the lessor became unable to treat some of its outgoings referable to lot 8 as “outgoings of the building” for the purpose of clause 23 (I am speaking hypothetically and am not to be taken to be expressing a view either way). If that was the case, then it was the lessor’s problem because the value of cl 23 to the lessor was diminished. But it was not a problem in relation to the lessor’s strict, literal and substantial compliance with its duty under cl 20 to tender a new lease containing the same covenants, conditions and restrictions as the original lease. 35    It is however quite unnecessary to consider whether any of these changes due to the registration of the strata scheme represented departures of substance from the obligations under the new lease proffered for the lessee’s execution. That is because all of these changes were the direct consequence of the situation brought about and intended to be brought about by the joint action of the parties when the lessor (with the lessee’s cooperation) proceeded to obtain registration of the new strata plan. 36    The strata scheme was registered during the currency of the original lease. To the extent that it had a practical impact upon the enjoyment by lessor and lessee of their rights under the then current lease, the parties must be taken to have intended this and to have intended it as and from commencement of the scheme. By the time negotiations for a new lease had fallen through and the parties had reverted to their rights under the exercised option, the strata scheme had become an established part of their mutual relations. It is irrelevant that third party rights and obligations were also involved, with the intrusion of the owners corporation. This was a classic situation of estoppel by convention (cfCon-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244-5) because the parties conducted their relations on the basis of an agreed state of facts, namely that the landlord’s title to the demised premises was its title to lot 8 in the new strata plan. The lessee’s consent was to the registration of the strata plan and everything that necessarily flowed from it, and this is sufficient to dispose of the lessee’s arguments. It was not open to the lessee to rely upon the direct and intended consequences of its consent as constituting a repudiation by the lessor or as the basis for contending that performance of the option agreement had been frustrated or otherwise rendered impossible. 37 The lessee sought to advance a separate argument based upon s44 of the Strata Schemes Management Act 1996. That section provides that the by-laws for a strata scheme bind the owners corporation, the owners and other persons including the lessee of a lot, to the same extent as if the by-laws had been signed and sealed by each such party. Section 44(2) provides that there is an implied covenant by the lessee in a lease of a lot to comply with the by-laws for the strata scheme. 38 By operation of law, s44 brought about the situation whereby the by-laws acquired inter alia the status of implied covenants in the lease between the parties. The lessee submitted that this was a radical departure from the arrangement embodied in the original lease. Let that be conceded. It does not follow that the form of the new lease required to be executed by the lessee differed in any respect. To the extent that there was a relevant departure, it came about at the inception of the strata scheme on 20 November 1997 through the conduct of the lessor in procuring registration of that scheme, being conduct to which the lessee consented for its own purposes. 39    The appeal should be upheld and the proceedings remitted to the Equity Division for assessment of damages. 40    I propose the following orders:

(1) Appeal upheld.
(2) Set aside the orders made by Young J, including the order as to costs.
(3) Declare that in the events which happened, the registration of Strata Plan 55932 did not constitute a repudiation of the agreement formed upon the exercise of the option to renew Lease E907098.
(4) Remit the proceedings to the Equity Division to assess the damages payable by the respondent to the appellant.
(5) Order that the respondent pay the appellant’s costs of the proceedings to date in the Court below and in this Court, and to have (if qualified) a certificate under the Suitors’ Fund Act 1951 .

41    HANDLEY JA: I agree with Mason P. 42    FITZGERALD JA: The circumstances giving rise to this appeal are substantially referred to in the reasons for judgment of the President, with which Handley JA has agreed. However, it is desirable for me to record some matters to explain my conclusion. 43    The appellant was the owner of premises at 16 O’Connell Street, Sydney, and the respondent was the lessee. In addition to rent, the lease required the respondent to pay the appellant 8.09% of the “additional outgoings”, as defined in cl 23 of the lease. 44    On 27 October 1997, the respondent exercised an option to renew its lease for a further term of three years commencing on 1 March 1998. So far as presently material, the option to renew provided for the “covenants, conditions and restrictions” of the lease granted after the option was exercised to “be the same as in” the lease containing the option “with the exception that this option to renew shall be excluded …”. Provision was made for the rent, which was not to be less than the rent “payable immediately prior to the expiration of” the original term, to be the “current market rent”, and to be determined by valuation if the parties were unable to agree. 45    After the respondent exercised its option, the appellant caused the registration of a strata plan, No. 55932, under the Strata Schemes (Freehold Development) Act 1973. On 20 November 1997, when the strata plan was registered, Level 7 of the building, except for two areas of common property containing lifts and stairs, became Lot 8. According to the “schedule of unit entitlement” included in the strata plan which was registered, the “unit entitlement” of Lot 8 is 7.2% of the aggregate unit entitlement of the property. See the definitions of “schedule of unit entitlement” and “unit entitlement” in subs 5(1) and subss 8(1)(c) & (4) of the Strata Schemes (Freehold Development) Act 1973. Lot 8’s “unit entitlement” is not material to the outcome of this appeal. Although subs 8(4A) does not appear to be applicable, it seems that unit entitlements would have been allocated to the lots in the strata plan in proportion to their respective values when the strata plan was registered. See also s 183 of the Strata Schemes Management Act 1996. 46 During the period between its exercise of its option to renew the lease and the registration of the strata plan, the respondent consented in writing to the registration of the strata plan. See subs 16(2) of the Strata Schemes (Freehold Development) Act 1973. 47 I agree with the President that the respondent’s consent to the registration of the strata plan gave rise to an estoppel which precludes the respondent from relying on the mere fact of registration of the strata plan to escape its contractual obligation to accept a further lease. Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146. 48 After the option was exercised and the strata plan was registered, the parties continued with negotiations concerning a long-term lease of Lot 8 by the respondent. It was not argued that those negotiations abrogated any contract then existing pursuant to the respondent’s exercise of the option. Cf British Guiana Corporation v da Silva (1965) 1 WLR 248. The negotiations broke down, and the respondent vacated the building shortly before 28 February 1998, when its then current term expired. It has not paid rent since. 49 On 10 February 1998, prior to the expiration of the respondent’s original lease or the respondent vacating the premises, the appellant commenced a proceeding against the respondent by summons in the Equity Division. The summons was later amended, twice. In its final form, the amended summons sought a declaration that there was an “enforceable agreement to lease” between the parties and an order for the specific performance of that agreement. Damages were not claimed at any time. 50 On 11 May 1998, while the proceeding was part-heard, the appellant tendered to the respondent for execution a document in the form of a lease, already executed by the appellant, which was literally in the “same” terms as the original lease. Details of presently immaterial differences are set out in para 18 of the President’s judgment. 51 The appellant’s claim for specific performance in the Equity Division and its case on this appeal were conducted on the footing that the lease which the appellant was willing to grant, and which the respondent was contractually obliged to accept, was a lease in the terms of the executed lease document which the appellant tendered for the respondent’s execution. 52 The rent for which the tendered document provided was the same as that “payable immediately prior to the expiration of” the initial term, which was the minimum payable during “the further term” in accordance with subcl 20(b) of the original lease. The tendered document also provided that there would be no rent reviews. 53 As in the original lease, clause 23 of the tendered document provided:

“CONTRIBUTIONS TO INCREASES IN OUTGOINGS
23.1 the term “the outgoings of the Building” where used herein shall mean the total sum of all outgoings, costs and expenses of the Lessor properly or reasonably assessed or assessable charged or chargeable paid or payable or otherwise incurred in respect of the Building (including in such term, for the purposes of this sub-clause, the curtilage of the Building and all levels thereof including, but without limiting the generality of the foregoing, those levels below ground level, whether used for the parking of motor vehicles or otherwise) and in the control, management and maintenance of the Building and in particular but without limiting the generality of the foregoing shall include:
(a) all rates taxes charges and assessments duties impositions and fees at any time or from time to time payable to any government, local government, semi-government or other competent authority in respect of the land or the Building; provided that State Land Tax shall be payable at Lessor’s rate.
(b) all charges for and costs in relation to the supply of water sewerage and the removal of all waste and other garbage from the building and the land;
(c) all amounts payable in respect of insurances effected from time to time by the Lessor and relating to the Building and the use and occupancy thereof and the equipment and appliances therein including without limiting the generality of the foregoing plate glass insurance, public risk insurance; insurance for fire and loss of rental and insurance for machinery breakdowns and pressure vessel collapse or explosion.
(d) the cost of operating and supplying all services from time to time provided by the Lessor for tenants and occupiers of the Building including lifts and air-conditioning and the cost of regular maintenance and for the repair of all lifts, air-conditioning and other plant and equipment required in connection with any of such services;
(e) all charges for all services supplied to the Building including but not limited to lighting, power, heating, air-conditioning and ventilation incurred in connection with the building, and in particular, but without limiting the generality of the foregoing, in connection with the forecourt, entrances, vestibules, corridors, passages, stairways landings, lifts, water-closets, wash-rooms and lavatories in the Building;
(f) all proper and reasonable costs (including wages and other employment overheads) of the operation maintenance and supply of any services normally provided in buildings of a similar nature from time to time provided by the Lessor for the tenants and other occupiers of the Building including caretaking supervision, security, lifts, air-conditioning, ventilation and other plant and machinery in the Building, the provision of hot and cold water and supplies for the wash-rooms and lavatories of the Building and cleansing, maintaining, decorating and shrub and plant hire and landscaping the land and any amenities and services thereon;
(g) the proper and reasonable cost of the maintenance repair and renovation of all carpets, window coverings, plant and equipment in the Building including amounts paid under proper and reasonable service and maintenance contracts in connection therewith;
(h) The cost of repairs, redecoration and maintenance of the Building but not including repairs and maintenance of a structural nature except such as are recovered from any lessee or other occupier of the Building;
(i) a management fee to cover the Lessor’s cost of managing the Building not exceeding the minimum rate for management service such as determined or recommended from time to time by the Real Estate Institute of New South Wales or an amount equivalent to that which would be charged by members of that Institute experienced in such work as to which amount the decision of the Lessor shall be final and binding upon the Lessee which fee shall be charged upon the gross collections of rent fees Operating Expenses any other monies paid or payable by all lessees and other occupiers of the Building to the Lessor in respect of any part or parts of the Building.
23.2 The term “lease year” where used herein shall mean any period of twelve (12) months ending 31 December 1991.
23.3 The term “the additional outgoings” in relation to any lease year shall mean the amount (if any) by which the outgoings of the Building computed in respect of that lease year exceed the aggregate of the following sums:
(a) rates, taxes, charges and assessment payable to the Council of the City of Sydney or other Local Government authority in respect of the year 31 December, 1991;
(b) land tax payable to the State of New South Wales in respect of the year ended 31 December, 1991;
(c) rates, taxes, charges and assessments payable to the Water Board for the year ended 31 December, 1991;
(d) all the remainder of the outgoings of the Building in respect of the year ended 31 December, 1991.

23.4 The additional outgoings shall be computed in respect of each lease year subsequent to the lease year ending 31 December, 1991.
23.5 The Lessee covenants that the Lessee will pay to the Lessor or the Lessor’s agent as rent (in addition to the rent) an amount equal to the percentage stated in Item 9 of the Reference Schedule of the amount of additional outgoings.
23.6 Any statement by the Lessor or any of its officers or those of any company which shall be managing the property certifying the base outgoings in respect of any lease year and giving reasonable details of the outgoings of the Building which the lessor or its agents serves upon the Lessee shall be prima facie evidence of the matters therein contained.
23.7 Prior to the commencement of and from time to time during each lease year the Lessor may estimate or re-estimate the amount of additional outgoings for that lease year and advise the Lessee of the amount of the Lessee’s proportion of such estimated increases payable by the Lessee and the Lessee shall pay such amount by monthly instalments in advance on the first day of each and every month during the remainder of the lease year together with the rent hereby reserved. As soon after the expiration of each lease year as the necessary information is available to calculate the actual amount of the additional outgoings in respect of that lease year the Lessor shall calculate such increases and the amount of the Lessee’s proportion thereof payable by the Lessee in pursuance of this clause and the difference between the amount so payable by the Lessee and the amount paid by the Lessee in respect of such lease year shall be paid by the Lessee to the Lessor or by the Lessor to the Lessee as the case may be to the intent that the Lessee shall have paid the correct proportion of the amount of the additional outgoings for the lease year in question. Such payments by the Lessor and Lessee shall be payable notwithstanding the fact that this Lease has in the meantime expired or been determined prior to such payment having been demanded or made”

As in the original lease, the percentage stated in item 9 of the reference schedule in the tendered document was 8.09%.

54    The respondent refused to execute the tendered document. 55    The judgment from which this appeal is brought, which dismissed the appellant’s summons, was delivered on 4 September 1998. Subsequently, the appellant was ordered to pay the respondent’s costs of the Equity Division proceeding. 56    Later in October 1998, the appellant instituted this appeal. 57    Early this year, before the appeal came on for hearing, the appellant sold Lot 8. 58    Both parties accepted that, if there continued to be an enforceable contract between the parties after the registration of the strata plan, that contract is now at an end. 59    There are three possible conclusions as to how termination of the contract occurred. One possible conclusion is that the respondent repudiated the contract by its vacation of the premises, non-payment of rent and refusal to enter a further lease, and the appellant terminated the contract for that repudiation. That could not have occurred prior to the respondent’s refusal to sign the executed lease document which the appellant tendered for the respondent’s execution during the course of the Equity Division proceeding. Another possible conclusion is that the appellant repudiated the contract because it was unwilling to grant the respondent a lease other than a lease in the terms of the executed lease document which the appellant tendered to the respondent for its execution during the course of the Equity Division proceeding and the appellant sold Lot 8 before the parties’ respective rights and obligations were finally determined. The third possible conclusion is that the contract was abandoned or abrogated. DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 434. The outcome of this appeal does not depend on which of those possibilities is correct. 60 The appellant no longer seeks the relief claimed in its amended summons. It is therefore convenient to ignore any objections which might exist or have existed to the grant of a specific performance decree or other equitable or declaratory relief to the appellant. Instead of the relief claimed in the amended summons, the appellant’s notice of appeal seeks orders allowing the appeal and setting aside the orders made in the Equity Division, that the appellant be granted leave to amend its amended summons to claim common law damages for the respondent’s alleged breach of contract, that “the respondent pay the appellant damages for breach …”, that the “matter be remitted to the Master to assess the damages payable by the respondent”, and that “the Respondent pay the Appellant’s costs of the appeal and of the proceedings below”. 61 The respondent objected to the amendment and consequential orders sought by the appellant. 62 At the time when the appellant commenced its proceeding in the Equity Division, the respondent had not vacated the premises, failed to pay any rent which was due, or refused to execute the lease document which was later tendered for its execution. Any breach by the respondent at that time was an “anticipatory breach”. The appellant, which could only have taken advantage of an anticipatory breach if it was willing to grant to the respondent the lease to which it was contractually entitled, Bahr v Nicolay [No.2] (1988) 164 CLR 604; Foran v Wight (1989) 168 CLR 385. does not suggest that an anticipatory breach by the respondent caused it any loss. 63 Whether or not such an anticipatory breach which is not accepted entitles the other party to nominal damages is of no present significance. Even if the appellant first became entitled to damages for breach of contract after it had commenced its proceeding in the Equity Division, leave may be given to amend to claim damages. Supreme Court Rules 1970, Part 20, rules (1), (2) and (3A). 64 It is theoretically possible that the appellant also suffered other loss after the respondent vacated the premises. For example, the sale price of Lot 8 might have been less than the appellant could have obtained if the respondent was in possession at that time as lessee, paying rent. Again, any such damage was suffered after the appellant had commenced its proceeding in the Equity Division. However, in the absence of any evidence that the appellant suffered such a loss, or even any submission in the appellant’s argument that that might have occurred, I consider that that possibility should be ignored when considering the appellant’s application for leave to amend. 65 For similar reasons, I consider that there is no legitimate basis for considering any other theoretically possible loss by the appellant when deciding whether it should be given leave to amend. 66 If the appellant is granted leave to amend, the date of commencement of its proceeding in the Equity Division “so far as concerns [its] cause of action” for damages for breach of contract “shall …be the date on which the amendment is made”. Part 20, rule (3A). Obviously, the appellant’s cause of action for lost rent is presently complete and, therefore, will be complete at that time. 67 The respondent nonetheless submitted that, in the circumstances, it is not open to the appellant to substitute a cause of action for damages for breach of contract for its claim for specific performance. 68 The foundation for that submission was the proposition that the proposed damages claim is inconsistent with the appellant’s existing claim for specific performance. This proposition seemed to be based on the assumption that the necessary foundation for the appellant’s claim to damages are conclusions that the respondent repudiated the contract and that the appellant terminated the contract for that repudiation. An argument was advanced that the respondent did not repudiate the contract because it did not evince an intention not to accept a lease if it was contractually obliged to do so.DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245. 69 Even if the latter proposition is correct, the assumption with which it is associated is incorrect in relation to the appellant’s claim for damages for lost rent. That claim is not dependent upon the appellant’s termination of the contract for the respondent’s repudiation of it, See Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245. but could have been combined, cumulatively or alternatively, with the claim for specific performance with total consistency between the two claims. 70 However, that consistency between the claim for specific performance and a damages claim related to lost rent raises an obstacle to the appellant’s application for leave to amend. Since the appellant chose not to advance a damages claim in the Equity Division, or to adduce any evidence to quantify such a claim or even establish that it sustained a loss, why should this Court, again in the absence of evidence of loss, Supreme Court Act, 1970, subs75A(7) to (9). grant the appellant leave to amend to litigate that claim in the present proceeding? 71 Although it is reasonable to infer that the appellant lost rent for a period after the respondent vacated the premises, two factors in particular trouble me. 72 One is that the appellant might be estopped from commencing an action for damages if this appeal is dismissed. Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. 73 My other major concern is that, as sought by the appellant, the other members of the Court propose that the respondent be ordered to pay all costs of the proceedings to date. To my mind, such an order penalises the respondent for the appellant’s decision not to claim damages in the Equity Division. No doubt, if the amendment is permitted and the appellant establishes loss, it will seek a further costs order against the respondent. 74 While those matters are insufficient reason not to agree with the orders proposed by the other members of the Court, there is another issue to be considered in connection with the appellant’s application to amend to claim damages for breach of contract. 75 The respondent was not bound to accept a lease if the parties’ contract was frustrated by the registration of the strata plan, as the trial judge held, or if, as the respondent alternatively argued, the registration of the strata plan made the parties’ agreement uncertain because it necessitated their future agreement on the terms of the further lease to be granted and accepted, and not merely on the formulation of terms which had already been agreed. 76 Both propositions relied on by the respondent necessarily involve a conclusion that the lease which the appellant was willing to grant to the respondent did not contain the terms of a lease to which the respondent was contractually entitled and which it was contractually obliged to accept. 77 As noted earlier, Para 50 neither in the Equity Division nor this Court did the appellant suggest that it was ever willing to offer the respondent a lease in different terms from the executed lease document which it tendered for the respondent’s execution during the course of the Equity Division proceeding. Unless the respondent was contractually obliged to accept a lease in those (or perhaps substantially similar terms), the appellant cannot obtain either specific performance or damages for lost rent. Bahr v Nicolay [No.2] 164 CLR 604, 619ff; Foran v Wight 168 CLR 385, 397-398, 410-411, 420, 422, 426, 434, 442, 456. The same result follows from a conclusion that the respondent’s non-payment of rent was not a breach of contract unless the appellant was willing to grant the respondent the lease to which it was contractually entitled or a conclusion that, if it was unwilling to grant the respondent the lease to which it was contractually entitled, the appellant could not establish a cause of action. Bahr v Nicolay [No.2] 164 CLR 604; Foran v Wight 168 CLR 385. 78 The estoppel to which reference was earlier made Para 46. does not assist the appellant, but merely provides the starting point for its contention that a lease in the terms of the executed lease document which the appellant tendered to the respondent for execution was the lease to which the respondent was contractually entitled, and contractually obliged to accept, after registration of the strata plan. The critical comparison is not between the lease to which the respondent would have been entitled if the strata plan had not been registered and the lease which the appellant was willing to grant to the respondent but between the lease which the appellant was willing to grant to the respondent and the lease to which the respondent was contractually entitled, and contractually obliged to accept, after the strata plan was registered. 79 The appellant did not tender performance of its obligation to grant the respondent the lease to which it was contractually entitled, and which it was contractually obliged to accept, prior to 1 March 1998, the date when the further term was to commence. The respondent’s conduct had made it unnecessary for the appellant to tender performance at that time. Foran v Wight 168 CLR 385. Nonetheless, it remained necessary for the appellant to be willing on reasonable notice to grant the respondent the lease to which it was contractually entitled while the contract remained on foot Foran v Wight 168 CLR 385., as it did until the appellant sold Lot 8. 80 Because the appellant was willing to grant to the respondent only a lease in the terms of the executed lease document which the appellant tendered for the respondent’s execution, it is necessary to determine whether a lease in those terms would have satisfied the appellant’s obligation and the respondent’s entitlement. 81 The principal enactments which attached presently material consequences to the registration of the strata plan and affected the lease to which the appellant was entitled, and contractually obliged to accept, are the Strata Scheme (Freehold Development) Act 1973 (the “Development Act”) and the Strata Schemes Management Act 1996 (the “Management Act”). Some of the material statutory provisions apply directly, while others concern the operation of by-laws for the strata scheme which accompanied the strata plan when it was registered. Development Act, subs 8(4B). While there is nothing to indicate that it knew the contents of the actual by-laws applicable to the strata scheme when it consented to the registration of the strata plan, because the respondent is controlled by practising solicitors it is reasonable to infer that it knew that registration of the strata plan would bring by-laws into operation. Further, it seems that the applicable by-laws are those in the material Schedule to the Management Act. 82    The terms of the Development Act and the Management Act are plainly complementary and the Acts are clearly intended to operate in conjunction. It is unnecessary to discuss either statute comprehensively. 83    When a strata plan is registered, the property to which the strata plan applies is divided into lots and common property, Development Act, subs7(2). each lot is accorded a unit entitlement, Development Act, s8. so much of the property as is not comprised in any lot becomes common property, Development Act, subs 5(1) definition of “common property”, and subss7(2) and (2A). an owners corporation is constituted, Management Act, s11. the common property is vested in the owners corporation on behalf of the owners of the lots, Development Act, ss 18 and 20. and the owners corporation has the control, management and administration of the common property. Management Act, s 61. See also s 54. By-laws registered when the strata plan is registered come into force at that time. Management Act, s 41. 84 By virtue of s 92 of the Development Act, Lot 8 is separately rated on the basis of its unit entitlement as a proportion of the aggregate unit entitlement of the building and the rate is payable by the owner of Lot 8. 85    By virtue of s 93 of the Development Act, an owners corporation is liable for certain charges or fees for water, sewerage, drainage or effluent services provided to the building. 86 By Chapter 3 Part 2 of the Management Act, an owners corporation has obligations to maintain the common property and other property vested in it, and has power to carry out certain other work required to be carried out by an owner or lessee of a lot. 87 By s 87 of the Management Act, an owners corporation is also required to obtain certain insurances and may take out other insurances. 88    Expenditures by an owners corporation in respect of work which was required to be carried out by an owner or lessee of a lot can be recovered directly from the owner or lessee. Management Act, s 63. 89 Broadly speaking, other expenditures are required to be made by an owners corporation in accordance with Chapter 3 Part 3 of the Management Act, which requires the establishment of administrative Management Act, s 66. and sinking funds. Management Act, s 69. Provision is made for an owners corporation to levy contributions on owners of lots for payment into each fund. Management Act, s 67 and 70, and Chapter 3, Part 3, Division 2. The “unit entitlement” of a lot determines the proportion of the total contributions payable to each fund in respect of the lot. Management Act, subs 78(2). 90 By s 65 of the Management Act, an owners corporation can enter a lot for the purpose of carrying out specific work. 91 Section 116 of the Management Act prohibits the owner or lessee of a lot from altering the structure of a lot without prior notice to the owners corporation, or interfering with the support or utilities provided to other lots or common property. 92 Section 117 of the Management Act prohibits the owner or lessee of a lot from using that lot or common property unreasonably. 93 The respondent relied on by-laws 1, 3, 5, 7, 8, 9, 12 and 13 of the by-laws which came into force when the strata plan was registered. While I consider it unnecessary to discuss those by-laws, the general effect of by-laws should noted. 94 Subsections 44(1) and (2) and ss 47 and 245 of the Management Act provide:

“44. Who is required to comply with the by-laws
(1) The by-laws for a strata scheme bind the owners corporation and the owners and any mortgagee or covenant chargee in possession (whether in person or not), or lessee or occupier, of a lot to the same extent as if the by-laws:
(a) had been signed and sealed by the owners corporation and each owner and each such mortgagee, covenant chargee, lessee and occupier, and
(b) contained mutual covenants to observe and perform all the provisions of the by-laws.

(2) There is an implied covenant by the lessee in a lease of a lot of common property to comply with the by-laws for the strata scheme.
…


47. Can an owners corporation add to or amend the by-laws?
An owners corporation, in accordance with a special resolution, may, for the purpose of the control, management, administration, use or enjoyment of the lots or the lots and common property for the strata scheme, make by-laws adding to, amending or repealing the by-laws for the strata scheme.

…

245 Contracting out prohibited
(1) The provisions of this Act have effect despite any stipulation to the contrary in any agreement, contract or arrangement entered into after the commencement of this section.
(2) No agreement, contract or arrangement, whether oral or wholly or partly in writing, entered into after the commencement of this section operates to annul, vary or exclude any of the provisions of this Act.”

(The contract which resulted from the respondent’s exercise of its option was entered into after the commencement of s 245 of the Management Act on 1 July 1997).

95 Statutory provisions broadly analogous to subs 44(1) in other legislation have caused considerable difficulty; for example, provisions concerning the effect of articles of association of a corporation. Although it has long been accepted that the various statutory provisions which have been enacted concerning the effect of a corporation’s articles of association create a contractual relationship between each member and the corporation, there was considerable judicial disagreement concerning whether, by the articles, members also contracted with each other. Further, where a contract between members has been recognised, it has generally been confined to the relationship of members in their capacity as members. See, for example, Rayfield v Hands [1960] 1 Ch 1; Robertson v FCT (1952) 86 CLR 463, 479-480 (Williams J); O’Donnell v Thor Industries Pty Ltd (1977) 136 CLR 297, 307 (Jacob J); Kathleen Investments (Aust) Ltd v Australian Atomic Energy Commission (1977) 139 CLR 117, 151 (Barwick CJ). 96 While the High Court has now concluded that such statutory provisions “regulate the relations of the members among themselves as members” as well as “the relations of the members … with the company”, Bailey v New South Wales Medical Defence Union (1995) 143 ALR 1, 7. the position is not without complexity, as the following passage from the joint judgment of Brennan CJ, Deane and Dawson JJ in Bailey v New South Wales Medical Defence Union (1995) 143 ALR 1., from which those quotes are taken, illustrates. Their Honours said: 143 ALR 1, 7-9.

“Whilst the articles of association of a company regulate the relations of the members amongst themselves as members and with the company, … they do not preclude a member from contracting individually with the company upon terms which may or may not be defined by reference to the articles. Such a contract has been called a special contract to differentiate it from the deemed covenants to which [the statutory provision] refers, which regulate the position of a member as a member and not as an individual (See Hickman v Kent and Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 881 at 899-900). Even if the terms of a special contract are to be determined by reference to the articles, an alteration to those articles will not necessarily mean an alteration to the terms of the contract. It will depend upon the intention of the parties to the contract, namely, the member and the company. Thus, a special contract may import as a term one or more of the articles upon the basis that they may be altered by the company and an alteration of the articles in those circumstances will alter the terms of the contract. On the other hand, a special contract may be concluded upon the basis of the articles but with the intention that the terms of the contract are not to be varied by an alteration to the articles. That will not confine the statutory power of the company to alter its articles, but the company in acting upon the basis of an alteration may be acting in breach of contract. That, we think, was what Lindley MR had in mind in Allen v Gold Reefs of West Africa Ltd [1990] 1 Ch 656 at 673 when, in speaking of special contracts, he said that a “company cannot break its contracts by altering its articles”. Put another way, a company cannot unilaterally vary its contracts by altering its articles unless that is the basis upon which the contract was made (See Hickman v Kent and Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 881 at 900).
…
In Baily v British Equitable Assurance Co [1904] 1 Ch 374 the Court of Appeal held that a special contract existed between a policy holder and a mutual life insurance company with respect to the manner in which profits were, upon the basis of the by-laws of the company, to be divided. The by-laws were amended, but the court held that a division according to the alteration would amount to a breach of contract. Cozens-Hardy LJ in delivering the judgment of the court said:

“The rights of a shareholder in respect of his shares, except so far as they may be protected by the memorandum of association, are by statute made liable to be altered by special resolution: see Allen v Gold Reefs of West Africa …

But the case of a contract between an outsider and the company is entirely different, and even a shareholder must be regarded as an outsider in so far as he contracts with the company otherwise than in respect of his shares. It would be dangerous to hold that in a contract of loan or a contract of service or a contract of insurance validly entered into by a company there is any greater power of variation of the rights and liabilities of the parties than would exist if, instead of the company, the contracting party had been an individual. A company cannot, by altering its articles, justify a breach of contract.”

The decision of the Court of Appeal was reversed in the House of Lords 14 upon the basis that there was no contract between the company and the policy holder that the company’s practice in the division of profits would be unalterable, but no doubt was cast upon the passage from the judgment of the Court of Appeal set out above.
It is clear that where the articles of a company embody a cooperative scheme governing individual members’ dealings with the company with respect to such matters as the marketing of the members’ produce, the existence of a contract outside the articles with each participating member is more readily discernible. In Heron v Port Huon Fruitgrowers’ Co-operative Association Ltd (1922) 30 CLR 315 there was a cooperative scheme for the marketing by a company of fruit grown by members of the company upon terms which were to be found in the company’s articles. Isaacs J described the relationship between the fruitgrowers and the company as follows [at 341-2]:

“Here, as already shown, the company is merely an agency company, and, though the only shareholders are to be orchardists and fruitgrowers … yet the business of the company is selling the fruit of individuals, and, when shareholders and “others” employ the company to sell their fruit, they stand in the capacity of principals, of clients, of independent contractors, and as such employers, on the same footing. The right to charge for the service is not a charge against him quâ member, but quâ employer. The right to receive the proceeds is not quâ member, but quâ employer. The fruitgrower cannot stand on both sides of the line at once, and be individually both agent and principal.”


…

There can be no doubt that during each of the years in which Mr Crawford suffered injury there was a contract of insurance between the union and Dr Bailey. Nor, in our view, can there be any real doubt that, notwithstanding that its terms were largely to be found in the company’s articles, the contract was made individually with Dr Bailey as an insured and was therefore a special or actual contract which was distinct from the covenants which were deemed to arise from the articles under the relevant companies legislation.”

97 So far as presently material, s 44 of the Management Act had multiple effects when the strata plan was registered. Section 44 created contractual relationships between (i) the appellant and the owners corporation; (ii) the respondent and the owners corporation; and (iii) the appellant and the respondent. In each instance, the parties’ rights and obligations were subject to alteration by the owners corporation under s 47 of the Management Act. 98 Section 44 also implied a covenant by the respondent into its then lease of Lot 8 to comply with the by-laws, as amended from time to time under s 47, which covenant would have prevailed over any inconsistent provisions in that lease by virtue of s 245 of the Management Act. If the parties had entered a further lease pursuant to the respondent’s exercise of its option in accordance with the executed lease document tendered by the appellant for the respondent’s execution, that lease also would have impliedly incorporated the by-laws as amended from time to time, and would only have operated according to its express terms to the extent that those terms were consistent with those by-laws. 99 As a result of registration of the strata plan, aspects of the lease relationship between the appellant and the respondent, for example, aspects which affected the common property, were effectively “novated” so that a contractual relationship came into existence between the respondent and the owners corporation. The relationship between the respondent and the owners corporation was not only unaffected by the terms of the relationship between the appellant and the respondent but the owners corporation could have altered both relationships by virtue of s 47 of the Management Act. In addition, the respondent came under statutory, as well as contractual obligations. See, for example, ss 116 and 117 of the Management Act. 100 The trial judge found for the respondent because, in his Honour’s opinion, the respondent’s rights and obligations in respect of Lot 8 and the common property after the strata plan was registered were radically different from its rights and obligations under the lease which was in operation when the respondent exercised its option, which, apart from the option clause, was in materially identical terms to the only new lease which the appellant was willing to grant to the respondent. 101 The rent provided for in the executed lease document which the appellant tendered to the respondent for execution was the minimum rent to which the appellant was entitled in accordance with the parties’ contract. 102 Further, the respondent, as lessee of Lot 8, was not directly liable financially to the owners corporation other than in exceptional circumstances. See s 63 of the Management Act. 103    Rates payable by the appellant under s 92 of the Development Act in respect of the lots (including Lot 8) would have been “outgoings of the Building” for the purpose of cl 23 of the lease which the appellant was willing to grant to the respondent, but so would the rates previously payable by the appellant in respect of the entire land and building. See subcl 23(1)(a) and (3). The evidence did not disclose whether the registration of the strata plan increased the rates payable by the appellant. 104    Charges for water, sewerage and similar services were “outgoings of the Building” for the purpose of cl 23, See subcl 23.1(b). as were amounts “payable in respect of insurances … relating to the Building and the use and occupancy thereof and the equipment and appliances therein”. See subcl 23.1(c). Liability to pay for the services was transferred to the owners corporation by s 93 of the Development Act and liability for at least some of the insurances was transferred to the owners corporation by s 87 of the Management Act. Again, the evidence did not disclose whether registration of the strata plan increased the amounts payable in respect of services and insurances, which the owners corporation doubtless passed on to the appellant and the owners of other lots by way of levies. 105    Permissible expenditures by the owners corporation are not necessarily restricted to expenditures which are “outgoings of the building” within the meaning of subcl 23.1, and levies by the owners corporation are not restricted to the recoupment of expenditures which meet that description. 106    The President considers it “strongly arguable” See para 33. that levies would be an “outgoing of the building” within the meaning of subcl 23.1. I agree that they would be. Cf Leisure Resort Holdings Pty Ltd v Leisure Resort Group Pty Ltd (1994) NSW Titles Cases 80-030, which is referred to by the President in para 33. 107    While the appellant was only required to contribute 7.2% of the levies in respect of Lot 8, in accordance with the “unit entitlement” of that Lot, cl 23 of the lease which the appellant required the respondent to accept would have obliged it to pay 8.09% of the appellant’s total contributions in respect of the whole property. 108    The evidence did not disclose whether the registration of the strata plan increased the “additional outgoings” within the meaning of subcl 23.3 in respect of a “lease year”, See subcl 23.2. This clause is an obvious mistake which can be corrected by the ordinary processes of construction: Fitzgerald v Masters (1956) 95 CLR 420, 426-427. and would, for that reason, necessarily have financially disadvantaged the respondent See subcl 23.5. if it had accepted the lease which the appellant was willing to grant to it. 109 It was common ground that the lease to which the respondent was contractually entitled and which it was contractually obliged to accept was one which was in substance Cf. Mehmet v Benson (1965) 113 CLR 295. the “same as” its original lease. The appellant did not submit that, because of the registration of the strata plan, it could not grant the respondent such a lease. On the contrary, it argued that it could not only do so, contrary to the opinion of the trial judge, but that the lease which it had offered to the respondent when it tendered the executed lease document for execution was not only in identical terms to the original lease but the “same” in substance. 110 As seems obvious, and the other members of the Court accept See para 20 of the President’s reasons for judgment., a later lease might be different in substance from an earlier lease although the later lease reproduces the words of the earlier lease. Whether or not the two leases are the same in substance as well as language depends on what, if any, change in circumstances has occurred. In the present case, the changed circumstances were the registration of the strata plan and the ensuing consequences. 111 It is necessary to compare the lease which the respondent would have received if it had accepted the executed lease document which the appellant had tendered for its execution with the lease to which it was contractually entitled, and contractually obliged to accept, in order to establish whether they are substantially the same. The question is not whether either the lease which the appellant was contractually obliged to grant and the respondent was contractually obliged to accept or the lease which the appellant was willing to grant to the respondent was the same “in substance” as the original lease between the parties, i.e., a lease which gave effect, in substance, to their original relationship of lessor and lessee. The question is whether the lease which the appellant was willing to grant to the appellant would have given effect, in substance, to their relationship of lessor and lessee after the strata plan was registered. The content of the parties’ relationship of lessor and lessee as it existed during the balance of the original term was altered by the registration of the strata plan. Whether or not ss 44 and 245 of the Management Act varied the parties’ contract with respect to the lease which the appellant was obliged to grant and the respondent was obliged to accept, the estoppel by convention to which reference has been made had the same practical effect. Such an estoppel binds both parties to the position which they have mutually adopted. See para 36 of the President’s reasons for judgment. 112    In my opinion, the critical question whether the lease which the appellant was willing to grant to the respondent gave substantial effect to the parties’ relationship after registration of the strata plan must be answered in the negative having regard to the consequences of registration of the strata plan to which reference has been made. It is not to the point, in my view, that some or all of the differences between the lease which the appellant was offered and the lease to which it was entitled might never have had practical significance. 113    If, contrary to my opinion, the question is whether the lease which the appellant was willing to grant to the respondent gave substantial effect to the parties’ relationship of lessor and lessee as it originally existed, I would nonetheless reach the same ultimate conclusion for the same fundamental reason. 114    Accordingly, I am of opinion that the appellant is not entitled to recover damages from the respondent. 115    I would dismiss the appeal with costs.

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