Charbel CJ Pty Limited v Owners Corporation Strata Plan 69470

[2005] NSWCA 241

CITATION:	Charbel CJ Pty Limited & Anor v Owners Corporation Strata Plan 69470 [2005] NSWCA 241
HEARING DATE(S):	Tuesday 14 July 2005
JUDGMENT DATE:	10 August 2005
JUDGMENT OF:	Mason P; Tobias JA; Brownie AJA
DECISION:	(1) Appeal allowed; (2) Set aside Orders 1 and 2 made by Burchett A-J on 17 March 2005 and in lieu thereof order that (a) The first appellant by itself its servants and agents be restrained from causing or permitting smells, fumes or gases to be discharged from premises known as Lot 1 in commercial strata plan 69948 which unreasonably interfere with the use and enjoyment of the Shared Areas of the Building, the other Retail Shop or the Residential Flat Building as those terms are defined in the Strata Management Statement registered on 10 March 2003 (b) The second appellant by itself its servants and agents be restrained from causing or permitting smells, fumes or gases to be discharged from premises known as Lot 2 in commercial strata plan 69948 which unreasonably interfere with the use and enjoyment of the Shared Areas of the Building, the other Retail Shop or the Residential Flat Building as those terms are defined in the Strata Management Statement on 10 March 2003 ; (3) Set aside Order 3 made by Burchett A-J on 17 March 2005 and in lieu thereof order that (a) The appellants pay two thirds of the respondent's costs of the proceedings at first instance (b) Each party pay its own costs of the appeal

CATCHWORDS:	PROPERTY- Strata plans - Strata Management Statement provided that "owners" of commercial lots in strata building must not use lots as fast food outlets - Lots used by lessees as fast food outlets - Proper construction of Statement - Whether obligation in Statement imposed upon lessees or proprietors only - Whether lessees in breach of covenant contained in s 28W(2)(b) of Strata Schemes (Freehold Development) Act 1973 - PROCEDURE - Whether leave should be granted to raise point not taken in court below
LEGISLATION CITED:	Strata Schemes (Freehold Development) Act 1973 Environmental Planning and Assessment Act 1979 Strata Schemes Management Act 1996
CASES CITED:	Whitehouse v BHP Steel Ltd [2004] NSWCA 428 Hypec Electronics Pty Ltd v Mead [2004] NSWCA 221 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
PARTIES:	Charbel CJ Pty Limited Idya Pty Limited Owners Coproration Strat Plan 69470
FILE NUMBER(S):	CA 40273/05
COUNSEL:	1&2A: Mr S T White SC/Mr P Bolster R: Mr C Birch SC
SOLICITORS:	1A: Elias Gates & Associates, Revesby 2A: Cumberland Frank, Parramatta R: Roper & Steggall, Manly

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 1607/04
LOWER COURT JUDICIAL OFFICER:	Burchett AJ

CA 40273/05
DC 1607/04

MASON P
TOBIAS JA
BROWNIE A-JA

Wednesday 10 August 2005

CHARBEL CJ PTY LTD & ANOR v OWNERS CORPORATION STRATA PLAN 69470

Judgment

1 MASON P: I agree with Tobias JA.

2 TOBIAS JA: Located at Nos. 43-45 North Steyne, Manly is a five storey building (the building) known as "Villa Marie". The building has at street level a central foyer giving access by lift to a number of residential apartments on the four floors above. Situated on either side of the foyer, and fronting North Steyne, are two commercial lots being Lots 1 and 2 in Strata Plan 69948 (SP 69948).

3 The registered proprietor and, therefore, the owner of each of Lots 1 and 2 in SP 69948 was PCP Ensor No. 2 Pty Ltd (PCP). As such it was recorded in the Register as being entitled to an estate in fee simple in each of those lots: see the definition of "Proprietor" in s 5(1) of the Strata Schemes (Freehold Development) Act 1973 (the Act).

4 By lease the term of which commenced on 1 May 2003, PCP leased Lot 1 to Charbel CJ Pty Ltd (Charbel) for a term of five years, expiring on 30 April 2008 but subject to two consecutive five-year options. Clause 6.1 of that lease provided that Charbel

"must only use the Premises for the Permitted Use."

The "Permitted Use" was stated in the lease to be

"Seafood restaurant and takeaway in compliance with by-laws of the Building and the Strata Management Statement."

A copy of the Strata Management Statement (the SMS) was annexed to the lease. Pursuant to the lease, Charbel operated a seafood restaurant known as "Sea King Seafood Café".

5 On 18 June 2003 Manly Council granted development consent to Charbel pursuant to the Environmental Planning and Assessment Act 1979 (the EP&A Act) to the use of Lot 1 as a "Seafood Café".

6 Lot 2 was leased by PCP to Idya Pty Ltd (Idya) for a term of five years commencing 1 October 2003 and expiring on 30 September 2008 but also subject to two consecutive five-year options. That lease was relevantly in identical terms to Charbel's lease. In particular, 6.1 provided that Idya

"must only use the Premises for the Permitted Use."

The "Permitted Use" was defined in the lease as being

"Restaurant in compliance with by-laws of the Building and the strata management statement …"

Again, the SMS was annexed to the lease.

7 Pursuant to its lease, Idya operated the business known as "Oporto Chicken" being the use in respect of which development consent was granted by Manly Council on 7 July 2003. It is to be noted that in respect of Lot 2 an Occupation Certificate was issued pursuant to the EP&A Act on 26 November 2003 in which the use was described as "Restaurant".

8 Because the building comprised residential apartments as well as commercial/retail premises, it was subject to two strata plans. That part of the building which was Lot 1 DP 1047991, comprising the retail or commercial part thereof, was subdivided into lots and common property by SP 69948 which was registered on 10 March 2003. The residential part of the building became Strata Plan 69470 (SP 69470) which was registered on 3 March 2003. The respondent is the owners corporation for the strata scheme comprised in SP 69470 as established on the registration of that plan by s 81 of the Strata Schemes Management Act 1996 (the Management Act).

9 The respondent complained that each of Charbel and Idya (together the appellants) was operating its respective restaurant as a fast food outlet. It was alleged that in so doing each appellant was in breach of cl 19(1)(a) of the SMS by which they were alleged to be bound as a consequence of the provisions of s 28W of the Act. The appellants denied that each was using its respective shop for the offending purpose. The respondent further alleged that the appellants were also in breach of cl 18.1(a) of the SMS which related to the affixing of signs upon the building and cl 19.2(a) which prohibited the making of noise and emitting of smells, fumes or gases which unreasonably interfered with the use or enjoyment of, inter alia, the residential lots in SP 69470. These allegations were also denied by the appellants.

10 As a consequence of these denials, the respondent instituted proceedings in the Equity Division of the Supreme Court seeking appropriate injunctive relief. The proceedings were heard by Burchett A-J who, in his judgment of 10 March 2005, held:

(a) that the appellants were using their respective commercial lots as fast food outlets;

(b) that the appellants were each bound by cl 19.1(a) of the SMS and were therefore in breach of the prohibition contained therein that the commercial lots must not be used as fast food outlets;

(c) that the signage erected by the appellants was not in breach of cl 18.1(a) of the SMS;

(d) that the appellants were bound by and in breach of so much of cl 19.2(a) of the SMS as prohibited the emitting of smells which unreasonably interfered with the use and enjoyment of the residential lots.

11 However, his Honour declined to grant an injunction restraining the appellants from breaching cl 19.2(a) with respect to the emission of smells because he proposed to grant an injunction restraining them from causing or permitting their respective lots in SP 69948 to be used for the conduct of a fast food outlet.

12 Much of the hearing before the primary judge was taken up with the factual issue as to whether the appellants were in fact conducting a fast food outlet upon their respective lots. His Honour's finding that they were doing so is not the subject of further challenge. Nor is his finding that the appellants were in breach of cl 19.2(a) of the SMS and that that breach was continuing.

13 However, the appellants do challenge the primary judge's finding in [10(b)] above that each was bound by and in breach of cl 19.1(a) of the SMS in using its respective lot as a fast food outlet. Accordingly, they appeal against the granting by his Honour of the injunctions to which I have referred.

The relevant statutory provisions

14 Section 28R(1) of the Act provides that the Registrar-General must not register a plan as a strata plan creating a strata parcel unless the Registrar-General also registers a strata management statement for the building and site concerned. In compliance with that provision the SMS was duly registered on 10 March 2003. It was common ground that the purpose of a strata management statement was to regulate the relationship between separate strata plans and their lot holders where a building was (as was the building in the present case) the subject of one strata plan with respect to the residential portion thereof and another strata plan in respect of the retail or commercial portion.

15 The effect of the SMS is set out in s 28W of the Act which, relevantly, provides as follows:

"(1) A registered strata management statement, as in force for the time being, relating to the management of a building has effect as an agreement under seal containing the covenants referred to in subsection (2) entered into by each person who for the time being is:
(a) a body corporate of a strata scheme for part of the building, or
(b) a proprietor, mortgagee in possession or lessee for the time being of any of the lots in such a strata scheme, and
(c) any other person in whom the fee simple of any part of that building or its site (being a part affected by the statement) is vested for the time being, or the mortgagee in possession or lessee of any such part.
(2) The covenants referred to in this section are:
(a) a covenant by which those persons jointly and severally agree to carry out their obligations under the registered strata management statement as from time to time in force, and
(b) a covenant by which those persons jointly and severally agree to permit the carrying out of those obligations."

The relevant provisions of the SMS

16 The SMS is divided into a number of parts, each of which is subdivided into further parts. Part A is headed "INTRODUCTORY" of which Parts 1 and 2 are presently relevant.

17 Part 1 is headed "PARTIES BOUND" and is in the following terms:

"This Statement has effect as an agreement under seal binding:
(a) the Owners;
(b) a proprietor, mortgagee in possession or lessee for the time being of any of the lots either in the Residential Flat Building or the Retail Shops; and
(c) any other person in whom the fee simple of any part of the Building or its site (being a part affected by this Statement) is vested for the time being, or the mortgagee in possession or lessee of any such part."

18 Part 2 is headed "DEFINITIONS AND INTERPRETATION" of which the following definitions are relevant:

" ' Owners ' means the Residential Owner and the Retail Owner and ' Owner ' means any of those persons.
…
' Residential Flat Building ' means the residential lots and car spaces being lots 1-11 in the Residential Strata Scheme.
' Residential Lot ' means lot 100 in the stratum plan.
' Residential Owner ' means the owner of the Residential Lot or (after registration of the Residential Strata Scheme) the owners corporation of the Residential Flat Building.
' Residential Strata Scheme ' means the strata scheme constituted on registration of the residential strata plan and this Statement.
…
' Retail Lot ' means lot 101 in the stratum plan.
' Retail Owner ' means the owner of the Retail Lot or (after registration of the retail strata scheme) the owners corporation of the Retail Shops.
' Retail Shops ' means the two (2) commercial lots fronting 43-45 North Steyne, Manly and the utility lot being Lots 1, 2 and 3 in the strata plan constituted on registration of the retail strata plan."

19 For completeness, it should be noted that the stratum plan referred to in the definitions of "Residential Lot" and "Retail Lot" was DP 1047991 and that Lot 100 in that plan became SP 69470, whereas Lot 101 became SP 69948. The reference in the definition of "Retail Shops" to the two commercial lots fronting 43-45 North Steyne is a reference to Lots 1 and 2 in SP 69948 being the lots leased by PCP to Charbel and Idya respectively.

20 Part B of the SMS relates to those matters required to be included in a strata management statement by the combined operation of s 28S(2) and cl 2 of Sch 1(c) to the Act. Part C includes "other matters" as permitted by cl 3(1) of Sch 1(c) which, relevantly, permits a strata management statement to include provisions regulating, inter alia, the use of any part of the relevant building: see cl 3(1)(a).

21 Part 13 of the SMS is headed "OBLIGATIONS AND RIGHTS OF THE PARTIES". Relevantly, cl 13.2 is in these terms:

" Nature of Owner's Obligations
(a) The obligations under this Statement are several and not joint and several, and each Owner must promptly comply with its obligations contained or implied in this Statement."

22 Part 19 is headed "RETAIL SHOPS". The critical provision, cl 19.1(a), is in the following terms:

" Retail Use
(a) The Residential Owners and the Retail Owners acknowledge that the Retail Shops may be used and open for trade as restaurants or other commercial use in accordance [with] current trading hours approved by Manly Council. The owners of the Retail Shops must not use the Retail Shops as a fast food outlet."

23 The relevant construction issue before the primary judge, and this Court, was whether the expression "The owners" at the commencement of the second sentence of cl 19.1(a) was confined, as the appellants submitted, to the proprietor of the Retail Shops or whether, as the primary judge found, and the respondent sought to support, the expression included the appellants as the lessees of those shops. As the appellants relied on a number of other provisions in the SMS, it is appropriate at this point either to set them out where appropriate or summarise them.

24 Clause 19.1(b) provides that the Retail Owners may jointly do a number of things in relation to the Retail Shops such as vary, modify, repair, renew or replace a Shared Facility or a Shared Area in relation thereto. Clause 19.1(c) empowers the Retail Owners to erect or attach a new sign on or about the ground floor of the building.

25 Clause 19.2 is headed "Obligations of Retail Shop Owners". Subclauses (a) and (b) thereof are in the following terms:

"(a) The owners and occupiers of the Retail Shops must not make noise, emit smells, fumes or gases that might unreasonably interfere with the use and enjoyment of the Shared Areas of the Building, the other Retail Shop or the Residential Flat Building.
(b) The owners and occupiers of the Retail Shops must keep floors and walls in their lots covered, or treated to stop the transmission of noise that might unreasonably disturb another owner or occupier ….
(c) The cost of maintaining, repair and replacing mechanical ventilation and ducting in the Retail Shops must be borne by the respective Retail Owner." (emphasis added)

26 Clause 19.3, which is headed "Lease of Road Widening Area" relevantly provides:

"(a) The Residential Owners and the Retail Owners acknowledge that the road widening area identified in the stratum plan as 'RW' may be leased by the owner or occupiers of the Retail Shops on terms and conditions approved by Manly Council and used as additional seating and dining area. …
(b) The Retail Owners ( and lessees and occupiers of the retail lot ) must do the following at its own cost in connection with the road widening area the subject of this Part 19 during the term of the lease: …" (emphasis added)

27 A perusal of the SMS reveals that apart from those obligations set out in the preceding two paragraphs, every other obligation referred to in the other parts of the SMS are imposed in terms only upon an "Owner". Relevantly, an "Owner" is defined to mean a "Retail Owner" which, after registration on 10 March 2003 of the retail strata scheme SP 69948, is defined to mean the owners corporation of the Retail Shops. Accordingly, the reference in the opening words of cl 19.1(a) to "the Residential Owners and the Retail Owners" is a reference to, in the case of the former, the owners corporation of SP 69470 (which is the respondent), and in the latter, the owners corporation of SP 69948.

The primary judge's reasoning on the construction issue

28 The primary judge posed the question concerning the correct construction of the last sentence of cl 19.1(a) in the following terms (at [25]):

"Is the obligation in the second sentence a free-standing obligation affecting only 'owners', leaving lessees free to ignore it, or is it a qualification upon a permission to use the premises, relevantly, 'as restaurants'? "

29 His Honour acknowledged the appellants' argument that a literal construction of the prohibition in the second sentence of the use of the Retail Shops as a fast food outlet was that it identified the parties bound by that prohibition as only the "owners" of the Retail Shops. Given that the drafter of the SMS, where it was intended that an owner should include a lessee or an occupier, had expressly so provided, such as in cl 19.2(a) and (b) and cl 19.3(b), it must follow that the drafter had used the word "owners" in the last sentence of cl 19.1(a) deliberately so as to exclude lessees and/or occupiers of the commercial lots.

30 However, his Honour considered that this argument lost some force given the provisions of Pt 1 of the SMS whereby it was provided that it had the effect of an agreement under seal binding, inter alia,

"a proprietor, mortgagee in possession or lessee for the time being of any of the lots … in … the Retail Shops."

31 Accordingly, his Honour expressed the view (at [27]) that

"[c]lause 19.1(a) does not, in fact, use language in a strict manner. The first sentence has the Retail Owners 'acknowledg[ing]' that the Retail Shops may be used as restaurants and in other ways, which is really a right conferred on them and acknowledged by the Residential Owners; and in the second sentence, the precision of defined expressions is suddenly abandoned by the use of the word 'owners' with a small 'o'. The Defendants' argument treats that word as equivalent to a reference to an owner in fee simple, in contrast to a lessee. But no owner of a lot in a strata plan has more than a limited interest, by virtue of the inherent nature of a stratum in a building, and a lessee owning the goodwill of the business of a shop is also an 'owner', who may without impropriety in the use of language be described as an owner of the shop."

32 It is appropriate to interpolate at this point that the primary judge's reference to a lessee who owns the goodwill of the business of a shop as being also "an owner" of the shop, runs counter to the actual words of the second sentence of cl 19.1(a) which refers to the "owners" of the "Retail Shops" which in turn is defined relevantly to mean Lots 1 and 2 in SP 69948. Accordingly, it is the owner of the lot rather the owner of the business carried on upon the lot to which the second sentence of cl 19 is directed.

33 The primary judge then continued in these terms (at [28]):

"The most striking feature of the drafting of cl 19.1(a) seems to me to be its unity. It is one provision, though expressed in two sentences, the second being plainly a qualification upon the width of the first. This explains the rather loose use of the word 'acknowledge' – if in the opening sentence the acknowledgment can only really relate to the Residential Owners, there is a corresponding acknowledgment by the Retail Owners in the following sentence, so there really is an acknowledgment by each, even if not very happily expressed. When the clause is read in that light, no sensible basis appears for restricting the qualification to the operation of the shops by the owners themselves, while leaving lessees – and if lessees, why not also mortgagees in possession? – entirely unrestricted. To understand it as doing so would be to defeat the plain apparent meaning expressed by the two sentences together, … It would be consistent with a fair and reasonable operation of the provision in accordance with its apparent purpose to read it as intended to apply, whether by its own force or by virtue of Part 1 of the Statement, to lessees as well as to the defined Retail Owners. "

Was the primary judge's construction of the second sentence of cl 19.1(a) correct?

34 There is, of course, much to be said for the primary judge's view that the apparent purpose of the second sentence of cl 19.1(a) of the SMS is to prohibit the use of each of the Retail Shops as a fast food outlet so that any party bound by the SMS should also be bound by that prohibition. Accordingly, as lessees are so bound, the purpose so articulated would be defeated if the word "owners" were to exclude the lessees of the owners of the relevant lots.

35 The appellants submitted that, even on their construction of the provision, as lessees they could not necessarily continue to ignore the prohibition. By using the leased premises as fast food outlets rather than restaurants, they were in apparent breach of cl 6.1 of their respective leases. By failing to require those breaches to be remedied, PCP (as both lessor and "owner" of each of the lots) was in breach of the second sentence of cl 19.1(a), as a consequence whereof the respondent could institute proceedings for an injunction restraining PCP from continuing to permit the Retail Shops to be used by the appellants as fast food outlets.

36 It is true that upon such a construction the onus would be upon PCP to remedy the breach but if it failed to do so, there is no reason why the respondent could not obtain appropriate injunctive relief to enforce its obligation as the owner of the Retail Shops. In this respect, the appellants submitted that the obligation in the second sentence of cl 19.1(a) imposed upon the owners of the Retail Shops prohibited them from either using the shops for the prohibited purpose themselves or permitting an occupier or lessee to use the shops for that purpose. There was no reason to believe that, if such proceedings were instituted, PCP would not cross-claim for injunctive relief against the appellants as its lessees to restrain them from breaching cl 6.1 of their respective leases.

37 Accordingly, albeit in a somewhat indirect way, it was submitted his Honour erred in adopting a construction of the expression "owners" in the second sentence of cl 19.1(a) upon the basis that to do otherwise would permit the appellants as lessees to operate their respective businesses as fast food outlets "entirely unrestricted".

38 In my opinion there is substance in this submission. Although the respondent contended that the success of any proceedings instituted by it against PCP of the nature of those referred to above would be "dubious" because the latter would be entitled to argue that it had leased the shops only for a use which did not contravene the second sentence of cl 19.1(a), the argument overlooks, in my respectful view, that on this construction of that provision PCP as owner of the Retail Shops is prohibited from permitting those premises to be used as fast food outlets albeit in breach of the leases.

39 The respondent, as did the primary judge, also relied upon the provisions of Pt 1 of the SMS whereby lessees for the time being of any of the lots in the Retail Shops were bound by the SMS as an agreement under seal. However, in my opinion the extent to which a lessee is so bound is dependant upon the nature of the obligation in question and the manner in which that obligation is expressed. If an obligation is expressed only to bind a proprietor, then the provisions of Pt 1 cannot, in my opinion, be construed to bind a lessee to an obligation which is expressed only to bind some other party. In the present case, the position would be different if the second sentence of cl 19.1(a) simply read:

"The Retail Shops must not be used as a fast food outlet."

In effect, this is how the respondent wishes the provision to be construed. In my opinion, this would be to rewrite it.

40 It is true, as the primary judge observed and the respondent submitted, that the expression "owners" as used in the second sentence of cl 19.1(a) is not one which is defined in Pt 2 of the SMS. Nevertheless, when one notes that in cl 19.2(a) and (b) and cl 19.3(a) the expression "owners and occupiers of the Retail Shops" has been used on the one hand and that in cl 19.3(b) the reference to "Retail Owners" (which, by definition, is the owners corporation of SP 69948), has been expressly extended to include "lessees and occupiers of the retail lot", it would be quite inconsistent with the manner in which the drafter has utilised the expression "owners and occupiers" to construe the expression "owners" in the second sentence of cl 19.1(a) as including, by implication as it were, lessees and occupiers.

41 It seems to me that the drafter is using the expression "owner" as referring to a proprietor of a lot in the Retail Shops and, as such, a proprietor is bound by the SMS as Pt 1(b) provides. Furthermore, the primary judge's difficulty with mortgagees in possession is accommodated by the references to "occupiers" in the expression "owners and occupiers", as an occupier would, clearly, include a mortgagee in possession as well as a lessee. Accordingly, the fact that a mortgagee in possession and a lessee are bound by the SMS as an agreement under seal, as provided in Part 1 thereof, has the consequence that they are each bound by those obligations in the substantive parts of the SMS which are expressly imposed upon "occupiers" as in cl 19.2(a) and (b) and cl 19.3(b). Equally, a proprietor of a lot who is also bound by the SMS as an agreement under seal, must comply with those obligations which are directed towards "owners".

42 Finally, I cannot, with respect, agree with the primary judge that the language used in the SMS in general and cl 19.1(a) in particular is not used in a "strict manner". Furthermore, I cannot agree with his Honour's finding (in [28]) that the most striking feature of the drafting of cl 19.1(a) is its unity except in the following sense. The first sentence of cl 19.1(a) is an acknowledgment by each of the owners corporations of the two strata plans that the Retail Shops may be used as restaurants or other commercial uses as approved by Manly Council. It is expressed in passive terms.

43 On the other hand, the second sentence of cl 19.1(a) is expressed in the active voice and contains a prohibition of a specific use. It would not make sense for that prohibition to be one which was merely acknowledged by the Residential Owners and the Retail Owners, as is the case with respect to the first sentence. Because of its active nature, it is a prohibition of a specified use by a specified party. That party is the owner or the proprietor of the lots comprising the Retail Shops as defined. In my opinion, the drafter of the sentence has adopted the approach that it is the owners or proprietors of the relevant lots who have direct control over their use. Therefore, it was logical for the obligation not to use the Retail Shops for the proscribed use to be imposed only upon those persons, who as owners or proprietors of the relevant lots, are in the sole position to exercise that control by limiting the uses to which the lots can be put by those whom they permit to occupy them.

44 By way of contrast, cl 19.2(a) and (b) impose the obligations there referred to not only upon the owners but also upon the occupiers of the Retail Shops. That is entirely consistent with the nature of the obligations contained in those provisions. In terms of the making of noise or the emitting of smells, it is the occupier who has immediate and direct control over such matters as well as with respect to the keeping of floors and walls covered or treated to stop the transmission of noise that would unreasonably disturb others. It is the occupier who is in a position to directly control the noise and smells and, therefore, is together with the owner who controls the occupier, the party upon whom the foregoing obligations are, properly and logically, imposed.

45 On the other hand, the obligations referred to in cll 13.1(a), 14.1, 15.1, 16.1, 17.2, 17.3 and 18.1 are, by their nature, understandably imposed only upon "the Owners" as it is only they who have direct and primary control over the subject matter of those obligations. As I have attempted to illustrate in [43] above, the same observation applies to the obligation referred to in the second sentence of cl 19.1(a).

46 It follows in my opinion that the primary judge erred in holding that the appellants were in breach of the second sentence of cl 19.1(a) of the SMS. Accordingly, the injunction granted by his Honour upon the basis that there was such a breach must be set aside.

A new issue is raised

47 The respondent sought to advance an argument based upon a breach by the appellants of the covenant contained in s 28W(2)(b) of the Act. The appellants objected submitting that that issue was now being raised for the first time during the hearing of the appeal. Accordingly, the respondent sought the Court's leave to raise it. That application was opposed.

48 Essentially, the respondent's contention was that even if the appellants were not bound by cl 19.1(a) of the SMS, they were each bound by the covenant contained in s 28W(1)(b). It further submitted that the appellants were in breach of that covenant because, in using their respective premises as fast food outlets, they were, in a practical sense, causing PCP as the proprietor of those premises to breach its obligation under the second sentence of cl 19.1(1) of the SMS not to permit the Retail Shops to be used for that purpose. In this way, the respondent argued, the appellants were in breach of the covenant whereby they had agreed to permit PCP to carry out its obligation under the second sentence of cl 19.1(a).

49 Whatever the merit of the argument, it must first be decided whether leave ought to be granted to the respondent to raise this issue given the manner in which the trial was conducted. The appellants objected to the granting of such leave because the respondent, so they submitted, had had numerous opportunities to raise the issue at first instance but failed to do so. Had they done so, the appellants would have sought to establish by evidence that PCP was at all times aware that the appellants were conducting their respective businesses in the Retail Shops as fast food outlets. Hence, the appellants submitted, the respondent was bound by the way it conducted its prosecution of the matter before the primary judge and should not now be permitted raise on the appeal a new issue which, whether deliberately or by inadvertence, it had failed to advance during the hearing below.

50 The relevant principles were recently summarised by me in Whitehouse v BHP Steel Ltd [2004] NSWCA 428 at [65]-[68] and in Hypec Electronics Pty Ltd v Mead [2004] NSWCA 221 at [71]-[74] where the relevant authorities are collected. Essentially, the principle governing a case such as the present is that articulated by Latham CJ, Williams and Fullager JJ in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438 where their Honours said:

"Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards."

51 Further, if prejudice is claimed, a court is likely to give effect to that claim unless the circumstances clearly point to there being in fact no prejudice.

52 Relevant to this last point, the respondent submitted that in its final address in reply before the primary judge, it made reference to s 28W(2)(b) and relied upon the same argument now sought to be raised on the appeal (see Black 230 R-W). However the effect of s 28W(2)(b) was raised by the respondent at the trial in the context of responding to the appellants' submission in address that the obligation in the second sentence of cl 19.1(a) was confined to the proprietors of the lots comprising the Retail Shops and did not extend to lessees.

53 It was thus argued by the respondent before the primary judge that because the appellants as lessees had agreed, pursuant to the covenant contained in s 28W(2)(b), to permit the proprietor to carry out its obligation under the second sentence of cl 19.1(a) and as the appellants were engaged in the use of the proprietor's property, the second sentence of cl 19.1(a) should be construed in such a way that the lessees, as well as the proprietor, were bound to ensure that that property was not used for the prohibited purpose. In other words, the argument, although founded on the covenant contained in s 28W(2)(b), was directed to the true construction of the second sentence of cl 19.1(a) and was not being advanced as an independent breach by the appellants of the covenant. Certainly, no amendment of the Statement of Claim was made to allege a breach of that covenant by the appellants as distinct from, and independently of, the pleaded breach of cl 19.1(a) of the SMS.

54 The respondent further submitted that the appellants had raised this same argument in oral submissions at the hearing of the appeal as a consequence whereof there was no unfairness to the them in their being met in reply on the appeal with the same argument they with which they were met in reply at the trial. However, as I have observed in the preceding paragraph, the respondent's reliance before the primary judge upon the covenant in s 28W(2)(b) was not on the basis that an alleged breach thereof by the appellants constituted an independent source of relief.

55 Thus the appellants, in reliance upon the principles to which I have referred, submitted that leave should not be granted for had the issue been raised below in a timely fashion and as an independent ground for relief, evidence could have been tendered which by any possibility could have prevented the point from succeeding. That evidence, the appellants submitted, could have established that PCP had given at least tacit permission to each of them to conduct fast food outlets from each of the Retail Shops. If such permission had been given, so the appellants contended, there could be no contravention by them of the covenant contained in s 28W(2)(b).

56 In my opinion, this submission of the appellants should be accepted. It is clear from the evidence that even though the leases from PCP to each of the appellants did not expressly grant permission to the lessees to use their respective premises as a fast food outlet, it is likely that, at the least, evidence of PCP's observation of the manner in which the appellants conducted their respective businesses from the Retail Shops would have conveyed to it that they were using those premises for the proscribed purpose.

57 The respondent's argument with respect to s 28W(2)(b) is based upon the proposition that the appellants, by using their respective premises for a purpose that breached the restriction in the second sentence of cl 19.1(a) of the SMS, were in a practical sense, "causing" PCP to breach its obligation under that provision. However, if it be assumed that the appellants could have called evidence to establish that PCP at all material times knew of the offending use by the appellants and did nothing to restrain it, it would not be possible for the respondent to maintain that the appellants were "causing" PCP to breach that obligation or that they were in any other way "preventing" PCP from carrying out its obligation under the second sentence of cl 19.1(a). Given that it was at all times within PCP's power to restrain the appellants' offending conduct as being in breach of cl 6.1 of the leases, the former had total control over whether or not it conducted itself so as to conform to its obligations.

58 The respondent nevertheless submitted that it did not matter what action, if any, PCP as proprietor of the lots comprising the Retail Shops may have taken to restrain its lessee's offending conduct; if the lessee was still using the premises so as to result in a breach by PCP of the subject prohibition, then it would be in breach of its agreement contained in the covenant to permit the carrying out by PCP of its obligation in the second sentence of cl 19.1(a) of the SMS.

59 However, in my opinion this submission should be rejected. In my view s 28W(2)(b) does not have the effect contended for by the respondent, namely, that where a lessee engages in conduct which amounts to a breach of a proprietor's obligations under a strata management statement, the lessee will be in breach of the covenant contained in s 28W(2)(b), even where the proprietor knew of the offending conduct and took no steps to rectify it where it was within its power to do so. It must be remembered that in the present circumstances, as I have found, the obligation in the second sentence of cl 19.1(a) not to use the Retail Shops for the conduct of a fast food outlet was imposed specifically upon a proprietor, as opposed to a lessee, because it is the proprietor who is in a position to control or limit the uses to which its own property can be put by those whom it permits to occupy them.

60 In circumstances where a lessee engages in conduct that amounts to a breach by the proprietor of its obligations and the proprietor with knowledge of that conduct does not exercise its control, then it cannot be meaningfully asserted that the proprietor was not permitted to carry out its obligations by the conduct of the lessee. Rather, the proprietor was not permitted or was prevented from doing so by its own inaction in remedying what it knew to be a breach of its own obligations and in therefore permitting the conduct which constituted that breach to continue. It is not to the point in the present case that it was the appellants who triggered the breach of the second sentence of cl 19.1(a) by commencing to use the Retail Shops for the prescribed use.

61 The position would be a fortiori if the evidence established, as it possibly may have, that PCP as proprietor was aware of, and thus permitted and condoned, that use as and from the commencement of the term of the lease.

62 For the foregoing reasons, I am of the opinion that leave should not be granted to the respondent to raise as a separate issue a breach by the appellants of the covenant contained in s 28W(2)(b). While it seems that this issue was obliquely raised by the respondent in oral submissions in reply at the trial, it was not advanced as an independent or determinative ground for relief and the respondent should not be permitted to advance it on that basis now.

The appellants' breach of cl 19.2(a)

63 As I have already noted, the appellants do not challenge the primary judge's finding (at [35]) that they were each in breach of cl 19.2(a). In this respect, his Honour considered that the relevant smells were

"a more or less inevitable consequence of the carrying on of fast food outlets."

64 However, the primary judge was not prepared to grant specific injunctive relief with respect to those smells given that he had injuncted the appellants from causing or permitting the Retail Shops to be used for the conduct of fast food outlets. As that injunction should, in my opinion, be set aside, the respondent seeks specific injunctive relief with respect to his Honour's finding that the appellants have breached cl 19.2(a).

65 As I have indicated, the appellants do not challenge his Honour's finding of breach and have accepted that injunctive relief should be granted. They have proposed forms of orders which reflect the provisions of cl 19.2(a) and which the respondent agrees are appropriate. Accordingly, those orders should be made.

Costs

66 The primary judge ordered the appellants to pay the respondent's costs of the proceedings at first instance. Notwithstanding that the appellants have, in my opinion, succeeded in this Court on the construction issue, nevertheless they accept that they should pay part of the respondent's costs at first instance given that most of the hearing time was taken up with a contested issue as to whether the appellants were, in fact, using the Retail Shops as fast food outlets and their lack of success in relation to cl 19.2(a). The Court was informed that the whole of the evidentiary material went to the fast food issue although there was some evidence (particularly from valuers called by each side) which was directed towards the exercise of his Honour's discretion to grant the relief sought by the respondent on the basis that there had been a breach of the second sentence of cl 19.1(a). Accordingly, the appellants accepted that they should pay one half of the respondent's costs at first instance.

67 The respondent submitted that a more appropriate order would be for the appellants to pay two thirds of its costs at first instance as that was a more accurate assessment of the time taken up at the hearing, including addresses, with the issue of whether the appellants were in fact operating their businesses as fast food outlets. From a reading of the papers, it seems to me that that assessment is more accurate than that of the appellants. Accordingly, I would propose that the appellants pay two thirds of the respondent's costs at first instance.

68 So far as the costs of the appeal are concerned, in my opinion the appellants have been successful in having the injunction granted by the primary judge set aside. On the other hand, they have had to submit to an injunction in a form which may or may not ultimately require them to cease their use of the Retail Shops as fast food outlets. That will depend on whether they can deal technically with the problem of smells from their activities so as to meet the terms of the injunctions to be granted. In these circumstances, the appellants propose that each party should pay its own costs of the appeal. As the respondent indicated that it was not prepared to oppose such an order, it should be made.

Conclusion

69 For the reasons set forth above, I would propose the following orders:

(1) Appeal allowed;

(2) Set aside Orders 1 and 2 made by Burchett A-J on 17 March 2005 and in lieu thereof order that:

(a) The first appellant by itself its servants and agents be restrained from causing or permitting smells, fumes or gases to be discharged from premises known as Lot 1 in commercial strata plan 69948 which unreasonably interfere with the use and enjoyment of the Shared Areas of the Building, the other Retail Shop or the Residential Flat Building as those terms are defined in the Strata Management Statement registered on 10 March 2003;

(b) The second appellant by itself its servants and agents be restrained from causing or permitting smells, fumes or gases to be discharged from premises known as Lot 2 in commercial strata plan 69948 which unreasonably interfere with the use and enjoyment of the Shared Areas of the Building, the other Retail Shop or the Residential Flat Building as those terms are defined in the Strata Management Statement on 10 March 2003.

(3) Set aside Order 3 made by Burchett A-J on 17 March 2005 and in lieu thereof order that:

(a) The appellants pay two thirds of the respondent's costs of the proceedings at first instance;

(b) Each party pay its own costs of the appeal.

70 BROWNIE A-JA: I agree with Tobias JA.

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