Chauhan v Jaynrees Services Pty Ltd

[2008] NSWSC 969

CITATION:	Chauhan v Jaynrees Services Pty Ltd [2008] NSWSC 969
HEARING DATE(S):	2-4 September 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
EX TEMPORE JUDGMENT DATE:	4 September 2008
DECISION:	Defendant entitled to have plaintiffs co-operate to amend By-Law 41.
CATCHWORDS:	CONTRACTS [129]- Repudiation- Whether acts of liensee amount to repudiation of licence to occupy common property of strata units- Held "No". REAL PROPERTY [450]- Strata title- By-law giving exclusive use of designated common property to owner of lot 3- Lot 3 licensing same to owner of lot 4- Nature of licence- Lot 3 promising to assist in amending by-law- Scope of obligations
LEGISLATION CITED:	Strata Schemes (Freehold Development) Act 1973, ss 20, 21 Strata Schemes Management Act 1996, s 52
CASES CITED:	Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 82 ALJR 345 Lewis & Allenby (1909) Ltd v Pegge [1914] 1 Ch 782 North Shore Gas Company Ltd v Commissioner of Main Roads (1967) 120 CLR 118 North Wind Pty Ltd v Proprietors - Strata Plan 3143 [1981] 2 NSWLR 809 Owners - Strata Plan 43551 v Walter Construction Group Limited (2004) 62 NSWLR 169 Provident Capital Ltd v Zone Development Pty Ltd (2001) 10 BPR 19,133 Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 Shevill v Builders Licensing Board (1982) 149 CLR 620 Young v Owners - Strata Plan No 3529 (2001) 54 NSWLR 60
PARTIES:	Raman Chauhan and Daxa Chauhan (Plaintiffs/Cross-Defendants) Jaynrees Services Pty Limited (Defendant/Cross-Claimant)
FILE NUMBER(S):	SC 2067/08
COUNSEL:	C R de Robillard (Plaintiffs/Cross-Defendants) S Reuben (Defendant/Cross-Claimant)
SOLICITORS:	McCooe Raves & Poole (Plaintiffs/Cross-Defendants) Pitcher Walton (Defendant/Cross-Claimant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Thursday 4 September 2008 [revised 12 September 2008]

2067/08 – CHAUHAN v JAYNREES SERVICES PTY LTD

JUDGMENT

1 HIS HONOUR: This is a dispute between the proprietors of two strata lots of a 27 storey building on the outskirts of the city of Sydney once known as Caltex House situated at 187 Kent Street, Sydney. The plaintiffs are the proprietors of lot 3 in the relevant strata plan. The defendant is the registered proprietor of lot 4. The respective premises are on the ground floor of the relevant building. By by-law 41 of the relevant strata plan, lot 3 has the benefit of exclusive use rights of an area of common property being a balcony area adjacent to Kent Street on the same level as lot 3. The area has been constantly referred to in the evidence as "exclusive use area (b)" and I will continue to refer to it as such.

2 The defendant originally had purchased lots 2, 3 and 4 in the strata plan, it would appear as an investment. By contract bearing date 3 February 2003 which was completed on 14 April 2003, the defendant transferred lot 3 to the plaintiffs. On the date of completion, 14 April 2003, the parties entered into a licence agreement with respect to exclusive use area (b). It is necessary to set out some terms of the contract and some terms of the licence agreement.

3 The contract contained the following special conditions of particular relevance:

(i) Special condition 34.1 (bb)
“The Purchaser agrees to vote in favour of and not vote against any resolution or special resolution to grant any of Lots 2, 3 and 4 in the Strata Plan an exclusive use right in the same terms and for the same area (and simultaneous with the surrender of) an exclusive use right granted prior to the date of this Contract to another one of Lots 2, 3 or 4 in the Strata Plan.”
(ii) Special condition 54.1
“On the completion date, the Purchaser must execute and deliver to the Vendor, a valid form of Proxy in a form required by the Vendor naming the Vendor (or its nominee appointed in writing from time to time) as the Purchaser’s Proxy holder and entitling the Vendor (or its nominee appointed in writing from time to time) to attend and vote at any meeting of the Owners Corporation. Such Proxy must:
(a) Apply throughout and be irrevocable during the period of 12 months from the date of completion of the sale of the property.
(b) Entitle the Vendor to vote at any meeting of the Owners Corporation in relation to any motion for a resolution to implement or which may affect the implementation of any of the matters referred to in clauses 34, 47, 49 and 62 including without limitation relating to the raising of levies for the Owners Corporation and the Strata Scheme.”
(iii) Special condition 54.3
“The Purchaser must not do anything (or request anyone to do anything) which could:
(a) Prevent the Vendor exercising a vote in respect of the matters referred to in paragraph (b) of clause 54.1.
(b) Invalidate the Proxy given under clauses 54.1 or 54.2.
(c) Otherwise affect the implementation of the matters referred to in clause 54.1.”
(iv) Special condition 54.4
“The Purchaser will promptly execute any further documents and do whatever the Vendor may reasonably require so as to allow the Vendor to vote on behalf of the Purchaser and the Property in respect of any matter referred to in clause 54.1(b).”
(v) Special condition 61.2
“The Purchaser acknowledges that it is purchasing the property subject to the Licence Agreement attached as attachment “H” which has been granted or shall be granted by the Vendor to the Owner for the time being of Lot 4 in the Strata Plan in respect of the exclusive use area (b) referred to in By-Law 41 and on the terms referred to in that Licence Agreement. The Purchaser agrees to do all things and sign all documents reasonably requested by the Vendor or the Owner for the time being of Lot 4, including signing a Licence Agreement on the same terms as are contained in attachment “H” between the Purchaser as Licensor and the Owner of Lot 4 as Licensee so as to be fully bound by the terms of that Licence.”
(vi) Special condition 62.3
“In addition to the licences referred to in special condition 61.1 and 61.2 and the warranties made by the Vendor in special conditions 62.1 and 62.2 the Purchaser acknowledges that the Vendor has agreed to grant similar licences and has made similar warranties to other Purchasers in relation to other exclusive use areas attached to Lots 2, 3 and 4 of the Strata Plan and in particular but without limitation in relation to the exclusive use area (b) referred to in By-Law 41 of the Strata Plan in favour of the Purchaser of lot 4 (all of such licences and warranties being referred to as the “post contractual obligations”). The Purchaser must not vote against any resolution or special resolution of the Owners Corporation in relation to giving effect to these post contractual obligations.”
(vii) Special condition 62.5
“For the avoidance of doubt the Purchaser acknowledges that the Vendor is the Owner of Lots 2, 3 and 4 in the Strata Plan and that attached to each Lot are certain areas of Common Property over which the Vendor has been granted exclusive use rights by the Owners Corporation pursuant to the By-Laws of the Strata Plan. The Vendor proposes to facilitate any Purchasers of Lots 2, 3 and 4 in moving the Owners Corporation to convert some or all of these exclusive use areas into lots and transfer such lots on conversion to the Purchasers of Lots 2, 3 and 4 as agreed between the Vendor and those Purchasers. In the alternative, the Vendor proposes to facilitate any Purchasers of Lots 2, 3 and 4 in moving the Owners Corporation to attach those exclusive use rights to other lots in the Strata Plan. The Purchaser agrees not to vote against any resolution or special resolution of the Owners Corporation that would have the effect of implementing the post contractual obligations and the Purchaser agrees to appoint the Vendor as its proxy to vote in relation to any resolution or special resolution concerning such post contractual obligations.”
(viii) Special condition 62.6
“For the further avoidance of doubt the Purchaser agrees to do all things and sign all documents reasonably required by the Vendor:
(a) To grant the licences referred to in clause 61.
(b) To move the Owners Corporation to pass the resolution referred to in clause 62.1 and 62.2.
(c) To move the Owners Corporation to pass the resolution referred to in clause 62.3 and without limitation including the proposed transfer to the Purchaser of lot 4 the benefit of the exclusive use rights and area referred to in By-Law 41 of the Strata Plan. It is hereby acknowledged by the Purchaser that it is purchasing the property excluding those exclusive use rights and the exclusive use area (b) referred to in By-Law 41 of the Strata Plan.”
(ix) Special condition 62.8
“The Vendor and the Purchaser agree that clauses 61 and 62 shall not merge on completion.”

4 Special condition 62.3 of the contract imposed post contractual obligations on the plaintiffs and the defendant in relation to the licensing of exclusive use area (b) back to Jaynrees Services Pty Ltd or a subsequent purchaser of lot 4 in the Strata Plan.

5 Special condition 62.6 included a specific acknowledgment by the plaintiffs they were purchasing lot 3 excluding those exclusive use rights and the exclusive use area (b) referred to in By-Law 41 of the Strata Plan and that they would do all things and sign all documents reasonably required by the defendant to move the Owners Corporation to pass the resolution referred to in special condition 62.3.

6 Attached to the contract was a form of licence agreement in relation to exclusive use area (b) which was subsequently signed by the parties on completion of the purchase of the property.

7 The licence agreement contained, inter alia, the following clauses:

“2.1 The Licensor grants to the Licensee an irrevocable exclusive licence to exercise the Licensor’s rights under By-Law 41 in respect of the Licensed Area as if the Licensee were named as the Owner of Lot 3 therein with the intent that the Licensee shall have the exclusive use and enjoyment of the Licensed Area and be subject to all of the obligations and conditions attached to that area which would otherwise be borne by the Licensor as the Owner of Lot 3.
4.1 The Licensee must
4.1.1 comply with the By-Laws of the Strata Plan and in particular By-Law 41 as if the Licensee was named in place of the Owner of Lot 3 in that By-Law; and
4.1.2 use the Licensed Area only in accordance with this Licence and By-Law 41.
6.1 The Licensee cannot dispose of or deal with this Licence without the Licensor’s consent such consent not to be unreasonably withheld.
6.2 A person taking a transfer of this Licence must enter into such documents as the Licensor requires so as to become fully bound by the terms of this Licence and upon so doing the Licensor agrees to release the Licensee from any future liability under this Licence.
6.3 The Licensor agrees that it will not consent to or vote in favour of any resolution or special resolution which has the effect of repealing or amending By-Law 41 without the Licensee’s written consent.
7.2 In the alternative the Licensor agrees to do all things and sign all documents reasonably necessary to assist the Licensee in moving the Owners Corporation to pass a resolution or special resolution to grant the exclusive use rights in respect of the Licensed Area as referred to in By-Law 41 to the Licensee as Owner of Lot 4 simultaneously with the surrender of such exclusive use rights in respect of the Licensed Area as are currently enjoyed by the Licensor as the Owner of Lot 3 without further consideration but at the cost of the Licensee.”

8 The defendant says that the plaintiffs have declined to fulfil their obligations under the contract and licence agreement and it commenced proceedings in this Court to compel them to do so. Those proceedings were determined by Smart AJ on 20 October 2006. In the course of his Honour’s reasons, the learned judge said:

“33. Under the Licence Agreement the Chauhans cannot use exclusive use area (b). They have granted Jaynrees exclusive use and enjoyment of that area for the earliest of the last day of the term of 99 years and the date the Strata Scheme is terminated. I do not agree that there was a time limit under the contract and the licence during which Jaynrees could seek to achieve the transfer of exclusive use area (b) – the balcony – from Lot 3 to Lot 4 and the alteration of By-law 41 to achieve this. There are a number of ways this could be done. The Chauhans are not entitled to oppose this.
35. The Chauhans complained that while they had the exclusive use and enjoyment of this area, Jaynrees had failed to have the area transferred to them, either by adding it to Lot 3 or creating a separate Lot and transferring it to them. The Chauhans submitted that Jaynrees could not complain about their failures when it had failed in its obligations to them. The Chauhans, although present at the Extraordinary General Meeting on 9 December 2003 did not ask Jaynrees as to exclusive use area (ad) being, in effect, transferred to Lot 3. I repeat the penultimate and last sentence of the preceding paragraph. I am not persuaded that Jaynrees failed in its obligations to the Chauhans.
41. The Chauhans submitted that this provision indicated that the permissible use of the exclusive use area (b) was as part of a café and that Jaynrees sought to enlarge the permissible use to include a Restaurant/Bar. A bar tends to attract customers.
46. The Chauhans cannot and never have been able to prevent Jaynrees or any purchaser of Lot 4 from seeking to obtain the consent of the Owners Corporation to use exclusive use area (b) as a restaurant and bar in conjunction with Lot 4. That is a matter for decision by the Owners Corporation. It would have to take into account the terms of By-law 36 and the contentions of all Lot owners.
55. I summarise my conclusions thus:
1. The terms of the contract of sale and purchase especially Special Condition 62.6 are wide enough to require the Chauhans to execute a further form of proxy in favour of Jaynrees enabling it to move the Owners Corporation to pass the following resolutions:
(i) By-law 41.1 is amended by the substitution of “Lot 4” for “Lot 3” wherever appearing.
(ii) By-law 41.1 is amended by inserting in sub-para (e) the figure 4 after the word Lot. (This is a clerical correction).
2. It is unnecessary for me to consider a proxy in wider terms and empowering other alterations as set out in the Special Conditions as Jaynrees is content with the resolutions suggested.
3. While it was incorrect in the Contract of Sale and Purchase and in the licence agreement to create the impression that Jaynrees was the sole owner of Lot 2 the defect could have been remedied by Coogee View signing a further Deed and Jaynrees would have been given the opportunity to procure the agreement of Coogee View. In any event, as from April 2005 Coogee View has signed the requisite agreement and any defect has been remedied.
4. I do not regard the contentions advanced by the Chauhans as correct except to the limited extent indicated.”

9 A formal order containing his Honour’s declarations and orders was taken out on 20 December 2006. Declaration 1 was as follows:

“THE COURT
1. DECLARES that upon the true construction of the Licence Agreement of 14 April 2003 between the Plaintiff as Licensee and the Defendants as Licensors and in the events which have happened the Plaintiff is entitled to the exclusive use and enjoyment of the area referred to as exclusive use area (b) referred to in By-law 41 of Strata Plan 61897 as if the Plaintiff was named as the owner of Lot 3 so long as the Defendants remain the owners of Lot 3 and that the Defendants are subject to the obligation upon sale by them of Lot 3 to procure the Purchasers from them to grant a licence to the Plaintiff in the same terms as the Licence Agreement of 14 April 2003 earlier mentioned.”

10 His Honour then also made an injunction compelling the present plaintiffs to execute various proxies and restrained them from personally voting on the matter the subject of the proxy at any meeting of the Owners Corporation and made consequential orders including costs. The present plaintiffs sought leave to appeal, but on 4 February 2007 the Court of Appeal refused leave to appeal.

11 However, the plaintiffs soon realised that there was a loophole. The provisions of s 52(1) of the Strata Schemes Management Act 1996 required the plaintiffs to give a written consent before a by-law conferring a privilege on the plaintiffs could be amended. The solicitor for the plaintiffs pointed this out to the relevant meeting and pointed out that there was no such written consent. The defendant had, in fact, asked for such a consent but its request was either ignored or not processed. The point was upheld at the meeting and the resolution was not passed.

12 It may well have been appropriate for the present defendant to have gone back to Smart AJ and have his Honour’s orders explicitly cover the extra document, but the defendant may have been concerned that there did not appear to be any reservation of liberty to apply or further consideration. However, it needs to be remembered, as found by his Honour, that the present plaintiffs had not only to provide proxies, but had covenanted in the original contract to do all that was necessary to bring about the purpose of the original agreement which was that the defendant was to achieve, if at all possible, an alteration of by-law 41 so that the use of exclusive use area (b) would pass from lot 3 to lot 4. This was the basis of the original contract. The reason for the licence agreement was to hold the fort until it had been consummated and the present plaintiffs had quite clearly agreed to do things that would bring this about.

13 Instead, we find that, not only did they take the point on s 52(1) of the 1996 Act, but also it would seem that the female plaintiff canvassed proxies for the relevant meeting. She did not give evidence before me. There is no evidence as to what those proxies were, but a fair inference is that they were open proxies and they were then used against the present defendant succeeding on the resolution to alter by-law 41. However, as if that were true it would be a matter of contempt of court, it is probably better not to say anything further about it, at least at this stage.

14 The aftermath of that meeting was that there were a spate of letters exchanged between the various solicitors.

15 Indeed, one has to go back to 29 March 2006 when the defendant's solicitors wrote to the plaintiffs' solicitors advising that the defendant had now negotiated a lease for lot 4 including a licence agreement in respect of exclusive use area (b) to one Natasha Grace. The letter concluded:

“In accordance with the terms of the licence agreement dated 14 April 2003, our client hereby seeks your clients' consent to the transfer of the licence agreement. Kindly advise what further documentation you require in order that your clients may consent to the transfer of the lease."

16 This was answered on 12 April 2006 and the gravamen of the answer was to ask for information as to the full name and address of the proposed lessee, a copy of any development application lodged with the Sydney City Council and a statement in writing signed by the proposed lessee providing full details of how she anticipates using exclusive use area (b). The matter then seemed to lapse but not completely because, somehow or other, the lease to Natasha Grace became registered early in 2007.

17 On 30 April 2007 an almost identical letter was written by the defendant's solicitors to the plaintiffs' solicitors advising that a lease had been negotiated of lot 4 including a licence in respect of exclusive use area (b) to Rockwall Catering Pty Ltd (Rockwall) and seeking the plaintiffs' consent. On 10 May 2008 the defendant again wrote saying:

“We refer to our letter of 30 April 2007 …. We note that we have not heard from you ... We now advise that the proposed lessee will be Asia Pacific Security Corporation Holdings Pty Ltd which has as its directors Adam Pisk and Paul Alexander White who are the same directors of the previously proposed lessee Rockwall Catering Pty Limited. If we do not have any response from you by 5pm, 11 May 2007 we will assume that your clients consent … ."

18 There was further correspondence, which I need not refer to. The next relevant letter is that of 17 May 2007 from the plaintiffs' solicitors to the defendant's solicitors in which they said that they would only consider consent for the use of the balcony area on the basis that there is a new licence agreement between the plaintiffs and the person who will exercise the exclusive rights. There was reference to by-law 41.1(d), which I will go to shortly. The plaintiffs’ solicitors say that the draft agreement that had been sent was inadequate and they suggested that the defendant’s solicitors might draft a tripartite agreement between the respective clients and Asia Pacific Security Corporation Holdings Pty Ltd (Asia Pacific). On 1 June 2007 the defendant's solicitors replied. They disagreed with the plaintiffs' solicitors’ analysis of by-law 41. However, they enclosed a draft tripartite agreement for the plaintiffs’ consideration. Thereafter silence reigned until October 2007.

19 By-law 41 reads as follows:

“ 41 Exclusive Use Area (b)
41.1 The owner of lot 3 has the exclusive use and enjoyment of the area shown on the Strata Plan as Exclusive Area (b), including operable wall, subject to the following conditions:
(a) subject to (c), that owner is responsible for the proper maintenance of, and for keeping in a state of good and serviceable repair, the said Exclusive Use Area (b), including operable wall and light fittings, finishes and hand rail within or on the boundaries of the said area, and any replacements of those items;
(b) that owner may replace those items and install in Exclusive Use Area (b) any tables chairs and other equipment and plant reasonably required by it for operation of a café within the Exclusive Use Area (b) and lot 3. It will be responsible for the maintenance, repair and upkeep of any such items in the same way as it is responsible for the items referred to in clause 40.1(a);
(c) the Owners Corporation rather than the owner of lot 3 is responsible for the replacement or renewal of the said operable wall and hand rail whenever reasonably required;
(d) the owner of lot 3 may authorise other persons to exercise its rights under this by-law 41 and it will be responsible for ensuring that they fully and punctually comply with these conditions; and
(e) the owner of lot must indemnify and keep indemnified the Owners Corporation against all claims and liability arising from an exercise of rights under this by-law 41.”

20 The key focuses of the argument in connection with by-law 41.1 are (b) and (d), (b) speaking in terms of the operation of a cafe and (d) authorising the owner of lot 3 to allow other persons to exercise its rights under the by-law.

21 The present round of proceedings was commenced by the plaintiffs by summons on 28 March 2008. It was given a short return date by the then Duty Judge. The parties came to an arrangement that there be an early final hearing rather than an interlocutory stoush. The relief claimed in the annexure to the summons was:

“1. A declaration that the plaintiffs by Notice of Termination dated 11th March 2008 and served on 13th March 2008 have validly terminated the Licence Agreement dated 14th April 2003 between the plaintiffs and the defendant.
2. A declaration that the plaintiffs are entitled to exclusive use and the enjoyment of the area shown and described as "Exclusive Use Area (b)" pursuant to By-Law 41 of the registered By-Laws of Strata Plan 61897.”

There were then noted a series of subsidiary orders and a claim for costs.

22 By cross-claim and cross-summons filed 8 April 2008, the defendant sought an order that the plaintiffs/cross-defendants do all things and sign all documents necessary to pass a special resolution in respect of exclusive use area (b), the subject of a proxy ordered to be given by the court in proceedings 4774/05, including the signing by the plaintiffs/cross-defendants as the owners of lot 3 in the strata plan of a written consent pursuant to s 52(1) of the Strata Schemes Management Act in respect of the special resolution. It also sought subsidiary orders including an order that the plaintiffs/cross-defendants be restrained from obtaining and collecting proxies from other members of the strata plan to enable them to vote against the subject matter of the special resolution, and an order that the plaintiffs/cross-defendants deliver up possession of exclusive use area (b) and damages.

23 The reason for the initial haste was that there have been disagreements about possession of the area which involve some alleged physical contact between the parties in mid-March 2008. However, for reasons that are not necessary to go into, I was not given details as to exactly what did happen on that occasion. However, the defendant/cross-claimant claims damages for being excluded from that area from 18 April 2008 to date. The damages it seeks are calculated on the basis that under its agreement with the lessee, there was to be a discount of 10 percent rent if exclusive use area (b) was unavailable to be occupied.

24 No particulars were given about the alleged repudiation which was said to justify the termination.

25 There was correspondence between the parties’ solicitors leading up to the giving by the plaintiffs a notice of termination of the licence agreement in March 2008.

26 On 26 February 2008, the plaintiffs’ solicitors wrote to the defendant’s solicitors a letter which, omitting formal parts, was as follows:

“ RE: CHAUHAN & JAYNREES SERVICES PTY LTD
Our clients were advised last week by Mr Paul White a Director of Asia Pacific Security Corporation Holdings Pty Limited that that company or a related corporation intends to shortly open and operate a café from Lot 4 and the balcony area. Mr White also advised our clients that he was of the view that no Council consent was necessary before his company did this.
Such a use (café) is in direct competition with our clients’ business.
By Law 41 of Strata Plan 61897 (“By-Law 41”) does not allow the balcony to be utilized as a café attached to Lot 4. It only allows such use if the café is attached to Lot 3, our clients’ Lot.
An examination of the Asia Pacific Security Corporation Holdings Pty Limited lease reveals that “Café” is not an approved use under that lease. In the circumstances (putting aside the matter of Council consent) it is open to your client to vary the lease and allow Asia Pacific Security Corporation Holdings Pty Limited to utilize lot 4 as a café, however it is not open to your client to authorize or allow Asia Pacific Security Corporation Holdings Pty Limited or any related corporation, sub-lessee or licensee of that company to utilize the balcony area as a café with lot 4.
It is an essential condition of the April 2003 Licence Agreement that your client comply with By-Law 41 and only use the Licensed Area in accordance with By-Law 41 (conditions 4.1.1 and 4.1.2).
Given the potential loss and damage to our clients that may result from a breach of Conditions 4.1.1 and 4.1.2 of the April 2003 Licence Agreement we are instructed to seek immediate confirmation that:
1 your client has not consented to the balcony area being utilized as part of a café operated from Lot 4, and
2 that it will not consent to the balcony area being utilized as part of a café operated from Lot 4.
This matter is of extreme importance to our clients, and on the basis of their discussions with Mr White last week, it is also urgent and non-receipt of this confirmation by your client by 4pm on Wednesday the 27th February will be regarded by our clients as repudiation of the April 2003 Licence Agreement.”

27 The reply on 29 February 2008 simply said:

“We refer to your letter of 26 February 2008 and are extremely concerned at the mischief which your clients are now attempting to create. You will recall in the Supreme Court proceedings your clients swore an affidavit verifying their defence which stated at clause 18 “The Contract and Licence Agreement was entered into on reliance that the area (b) would if used by the Plaintiff or its Assignees would be used as a cafe”. Your present contention that our client is not entitled to use the balcony area as a café is astounding to say the least. Any attempt by your client to claim a repudiation of the Licence Agreement will be defended by our client and will result in further litigation between the parties.”

28 The plaintiffs’ solicitors replied on 6 March 2008:

“RE: CHAUHAN and JAYNREES SERVICES PTY LTD
We refer to your letter of the 29th February 2008 which was in response to our letter of the 26 February.
In our letter of the 26th February after specifically drawing your attention to the importance of this matter to our clients we advised that non receipt of the confirmation requested in that letter would be regarded by our clients as repudiation of the April 2003 Licence Agreement. We assume from your response of the 29th February 2008 that your client will not be providing the confirmations sought in our letter of the 26th February. If we are wrong in this assumption then please notify us immediately.
Our clients are considering their position following the repudiation of the April 2003 Licence Agreement by your client and will shortly confer with Counsel to consider whether they will now terminate the April 2003 Licence Agreement. We shall contact you after that conference has occurred.
In the meantime we are instructed to comment on the content of your letter of the 29th February.
With respect, it is not our clients actions that are mischievous. They have been advised by the current occupant of your client’s property that that occupant intends to open a business in direct competition with our clients’ business and in doing so it intends to utilize the balcony area. If there is any mischief in these events, it does not lie with our client, rather it is shared between your client and its tenant.
You have drawn our attention to the Supreme Court Proceedings and the Affidavit our clients swore verifying their defence, in particular Clause 18. You correctly record Clause 18 of our clients’ defence, however you have neglected to put this Clause in context. Clauses 15 through to 18 were a defence in the alternative and for the sake of the record it is appropriate to record the content of those Clauses,
15 By way of further or alternative defence the Defendants say that the Plaintiff has failed or neglected to perform its bargain and cannot whilst in default of the agreement insist on performance by the Defendants.
16 The use of the area (b) provided by the by law 41.1(b) is in respect of rights to use area (b) as café.
17 It is an implied or an express term of the contract or licence agreement that the rights associated with lot 3 in respect of area (b)
a Be used in accordance with the terms of the by law
b That any transfer or lease not be made with the intention of breaching any by law and be consistent with it.
18 The contract and licence agreement was entered in to on reliance that the area (b) would if used by the Plaintiff or its assignees would be used as a café.
In his judgment in the Supreme Court Proceedings Smart AJ at paragraph 42 stated:
“ I accept that By Law 41.1(b) indicates that Exclusive Use Areas (b) was intended to be used for operation of a café in conjunction with Lot 3.”
This is the essence of the matter. What is now likely to occur is that the Exclusive Use Area will not be utilized as a café in conjunction with Lot 3, it will be utilized as a café in conjunction with Lot 4. The effect on our clients’ business is obvious and that is the reason why they regard the matter with such importance.
We are finally instructed to re-invite your clients to immediately provide the confirmations sought in our letter of the 26th February.”

29 The notice of termination was as follows:

“ NOTICE OF TERMINATION
To:
The Secretary
Jaynrees Services Pty Ltd
c/- Plus Advisory (Sydney)
Suite 306; 1-3 Burbank Place
Baulkham Hills NSW 2153
By Licence Agreement dated 14th April 2003 entered into between ourselves (as Licensor) and Jaynrees Services Pty Ltd (as Licensee) in relation to certain exclusive use rights to the common property of Strata Plan 61897 (“the April 2003 Licence Agreement”) the Licensee was granted certain rights and accepted certain obligations. The Licensee has repudiated the April 2003 Licence Agreement. We rely on such repudiation and hereby terminate the April 2003 Licence Agreement, effective immediately.
Dated 11th day of March 2008
Raman Chauhan (Sgd) Daxa Chauhan (Sgd)”

30 The defendant put up arguments on estoppel by representation that the notice purporting to terminate the licence was invalid because it did not specify the repudiation.

31 I do not consider that this submission has merit. Unless a notice includes a demand to rectify default, there is no need to specify the alleged repudiation.

32 The proceedings came on before me on 2-4 September 2008. Mr C R de Robillard of counsel appeared for the plaintiffs and Mr S Reuben of counsel appeared for the defendant.

33 The case proceeded speedily on the first day up until lunch time when counsel for the plaintiffs sought and applied for an adjournment until the next day, on the basis that the matter was proceeding so quickly that he needed further time to prepare for his cross-examination. For the reasons I then gave, I stood the matter over to the next day on the basis that the plaintiffs pay the costs thrown away by the adjournment. I provisionally assessed those at $15,000 and directed that they be paid by 3 November 2008.

34 Although that may seem harsh, that was deliberately done on the basis that when a case is fixed before this Court, it should proceed from go to whoa without undue interruption. There may well be a very good reason why the adjournment is sought, but if there is, then it must be at the cost of the party who seeks the adjournment and not otherwise. The case then continued.

35 An hour before the hearing commenced on the first day, the plaintiffs' counsel let me have written submissions. Paragraph 12 under heading (B) of those submissions merely said:

“Whatever the effect of the ‘License Agreement’, there is no dispute that the Agreement came into force as from 14 April 2003. The Chauhans contend that the said Agreement was formally terminated for repudiation on 13 March 2008."

36 After about two hours of cross-examination of the principal witness for the defendant, I asked the plaintiffs’ counsel for particulars of the alleged repudiation. Given that the particulars were received orally, they are not expressed with the same precision as one would expect of them in a formal written document, but the following is a good paraphrase of what is recorded on pp 79 and 80 of the transcript:

(1) There was a breach of clause 6.1 of the licence agreement by the grant of a sub-licence to Asia Pacific without consent.

(2) There was a breach in granting a sub-licence to Natasha Grace.

(3) The defendant placed itself in a position where it became a straw entity unable to perform its obligations under the licence.

(4) The defendant has expressed the view and has taken steps to implement the operation of a cafe on exclusive use area (b) contrary to by-law 41.1(b).

(5) Clause 62 of the contract has been breached with the threat to run a cafe next door to the plaintiffs.

(6) Relevant consent was not obtained from Asia Pacific but was only obtained in respect of Rockwall.

37 However, when counsel for the plaintiffs commenced his final address the case was presented quite differently. Counsel went back to ss 20 and 21 of the Strata Schemes (Freehold Development) Act 1973, and argued that in “the real world of this building”, to use his words, the rights to use exclusive use area (b) flowed from this Act. He further put that the Act gave only very limited powers to authorise use of common property, that was partly carried out by by-law 41 but there could be no rights created in the common property other than in accordance with the Act. He then put that the whole licence agreement really should be considered to be void.

38 This is rather odd for a number of reasons, one is that there is not a slightest mention of it in the summons, though Mr de Robillard says that para 2, the declaration that the plaintiffs are entitled to the exclusive use and enjoyment of exclusive use area (b) comprehends it. Even if this is literally true, such an argument after all the evidence is put up would only be available if it was fairly flagged beforehand so that necessary evidence and submissions could be put.

39 Secondly, the argument runs contrary to what was decided by Smart AJ whose declaration that I have set out earlier is predicated on the basis that the licence agreement is valid.

40 The second way the plaintiffs’ counsel has put this argument is that this Court could not for policy and discretionary reasons enforce a scheme that overcomes the policy of the strata titles legislation. Again, it seems to me that that matter was never raised before Smart AJ and his Honour has treated the contract and the licence agreement as the governing documents.

41 There was argument presented by both sides as to what was the true nature of the right of exclusive use. I was referred to the decision of the Court of Appeal in Owners - Strata Plan 43551 v Walter Construction Group Limited (2004) 62 NSWLR 169 in which Spigelman CJ discusses the cases to that date. Also, there is the decision of Santow J in Young v Owners - Strata Plan No 3529 (2001) 54 NSWLR 60 and a decision on the previous Act of Rath J in North Wind Pty Ltd v Proprietors - Strata Plan 3143 [1981] 2 NSWLR 809.

42 Although Rath J in the last mentioned case considered that the rights flowed from a by-law such as 41 were probably contractual, I agree with Mr Reuben that the same is not necessarily the case under the present Act. The rights under the present Act appear to be statutory, and I believe - I would not like to be held to this in subsequent proceedings - that the rights are probably proprietary sui generis, rather like the proprietary right that was referred to by the High Court of Australia in North Shore Gas Company Limited v Commissioner of Main Roads (1967) 120 CLR 118. However, the problem with ascribing a contractual character to the right is that that would make it a chose in action, and the better view appears to be that one cannot at law deal with or assign a chose in action otherwise than transferring it in whole: see for instance Tolhurst, The Assignment of Contractual Rights (Oxford, 2006) at p 48.

43 There can only be partial assignments of a chose in action in equity. However, if the matter is treated as a proprietary right, then there would seem to be no difficulty in granting licences or sub-licences. But it is significant that the only textbook on licences of which I am aware, namely Dawson and Pearce, Licences Relating to the Occupation or Use of Land (Butterworths, London, 1979) makes no mention at all of sub-licences.

44 However, for the purpose of the present case, it seems to me that at least because of the way in which Smart AJ dealt with the matter, one must treat the licence agreement of 14 April 2003 as giving rights to the defendant over the area in question. If there can be a licence, then other interests can also be carved out so that sub-licences would, subject to the matter of there being consent, be also in order.

45 It follows from what I have just said that I do not consider that the arguments put, based on the Strata Schemes (Freehold Development) Act as to the validity of the licence can affect the reasons of this case. Accordingly, I turn to the question as to whether the licence agreement has been terminated because of repudiation.

46 The law as to repudiation is relatively clear, though usually the difficulty is deciding whether as a matter of fact there has been repudiation. In Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 at 71, Lord Wright said that repudiation was not to be lightly inferred. That reference was approved by Wilson J in the High Court of Australia in Shevill v Builders Licensing Board (1982) 149 CLR 620 at 633. It is interesting to note that in the Shevill case, the mere fact that the tenant had been in substantial arrears of rent for a substantial period was not enough to constitute repudiation of a lease.

47 More recently, in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 82 ALJR 345 at 355, four Justices of the High Court said that repudiation was a term that could be used in different senses. Their Honours went on to say at 355 [44]:

“First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a matter substantially inconsistent with the party's obligations. It may be termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it."

48 It seems to me that this is the sense in which I have to judge repudiation in the instant case.

49 Accordingly, I need to turn to the various heads that were outlined in the particulars, both individually and together.

50 As to (1) and (2), Mr de Robillard kept saying that there had been no consent to the various sub-licences. However, that is not quite what clause 6.1 of the licence agreement refers to. It says that the licensee cannot dispose of or deal with this licence without the licensor's consent. It then says that such consent is not to be unreasonably withheld. There are of course difficulties in the words "dispose of or deal with". One would have thought that disposition means a transfer of the whole interest and that just as a sub-lease is not a disposition under the classic cases of landlord and tenant law, so a sub-licence would not be a disposition within the meaning of clause 6.1.

51 Mr Reuben says that one must construe the words "deal with" ejusdem generis with "disposition". This is really where one starts to tackle the nature of the licence because the creation of a new interest, especially a new interest in equity, is quite a different concept to disposing. I do not consider that I need to decide this matter because I have already set out the requests for consent and how they were responded to. The clause doesn't affect a licensee if the consent is unreasonably withheld. “Withheld” means, according to cases such as Lewis & Allenby (1909) Ltd v Pegge [1914] 1 Ch 782, 787 and Provident Capital Ltd v Zone Development Pty Ltd (2001) 10 BPR 19,133, that the consent is not in fact given within a reasonable time of the request and the furnishing of information.

52 Accordingly, if a licensor or landlord does not indicate his or her consent within a reasonable time, then the consent is taken to have been withheld.

53 The question as to whether the withholding of consent is reasonable or not is a question of fact. The onus of proving that the consent has been unreasonably withheld is upon the licensee or tenant: see the Provident Capital case. In the instant case I consider that one has to look at the whole situation in the light of the circumstances that existed between the parties as held by Smart AJ.

54 Smart AJ held effectively that although the plaintiffs remain the registered proprietors in the fee simple of lot 3 and although by-law 41 refers to the use of exclusive use area (b) in connection with lot 3, the contractual arrangement between the parties expressed in both the contract for sale (many of the provisions of which survived completion) and the licence agreement was that as between themselves the parties were to treat the defendant and not the plaintiffs as the beneficial owner of exclusive use area (b). On this basis the material that was sent in response to the request for consent was not objectively a reasonable response.

55 Furthermore, the request was made in the case of the Rockwall (Asia Pacific) lease by the plaintiffs' solicitor that there be a tripartite agreement. A draft was sent but then nothing happened within a reasonable time or at all. I do not consider that there has been established any breach in respect of the first two matters referred to by Mr de Robillard.

56 As to (3), Mr de Robillard put that the defendant had placed itself in a position where it would become a straw entity. The evidence clearly is that the defendant is a trustee company. As such, it has on its balance sheet no assets. However, it has the legal interest in the property concerned and it also has the right of indemnity against the trust assets. Mr de Robillard did show in his cross-examination that there was some fuzziness, to use a relatively neutral word, about the beneficial interests. It would also seem that some of the beneficial interests are held by companies incorporated outside of Australia. Notwithstanding that, the assets are in New South Wales and the right of indemnity is against the assets in New South Wales. Furthermore, at all times right from the beginning, the defendant has been in this position. It has not been demonstrated that it is a straw entity unable to perform its obligations. There is no history of default of obligations or that the rights which it has against the trust property are not adequate. Accordingly, I cannot see how the third matter is established.

57 As to (4) and( 5), that is that the defendant has the intention to take steps to operate a cafe in the area other than in conjunction with lot 3, again it has not - apart from what happened immediately before the scuffle in March 2008 - actually done anything. Secondly, the argument depends on reading by-law 41.1(d) on the basis that the plaintiffs have the legal right to lot 3 and therefore the right to control. This completely ignores the other documents in the case and any equitable rights.

58 Finally, as to (6), that the consent was asked for in respect of Rockwall and not Asia Pacific, the letters that I have already set out show that in the process of asking for consent, it was pointed out that the identity of the licensee was changing to a company which had the same directors as the one previously named. It is not at all unusual in commercial life that separate companies with the same parties be formed to operate particular enterprises and so, again, I cannot see anything in this point.

59 Accordingly, when one looks at the matters that have been raised individually, there is nothing in them which would justify the final steps of a repudiation, and it must follow that no different result flows from considering all the matters together.

60 The plaintiffs' case essentially omits the vital circumstances that the parties agreed back in 2003, that although the rights at law to exclusive use area (b) would pass to the plaintiffs on the transfer to them of the fee simple in lot 3, the process would be put in train to amend the by-laws so that that area would become attached to lot 4. It was never intended between the parties that the plaintiffs would ever have any beneficial interest in exclusive use area (b) and this is reinforced by Smart AJ's finding, particularly at para 33.

61 The plaintiffs’ case proceeds basically on the false assumption that they have that right at law and that the defendant's sole rights come under the licence agreement. Thus they falsely think that if there is a fundamental breach of the licence agreement, then their right to use the area revived. This is quite incorrect but even if it was correct, I do not find any repudiation. Accordingly, in my view the plaintiffs' case must fail.

62 So far as the cross-claim is concerned, it seems to me that from what Smart AJ said and from what I have just said, the defendant/cross-claimant is entitled to the relief which it seeks. It seems to me that the rights of the parties as found by Smart AJ and myself require that the plaintiffs do everything in their power to bring about the alteration of by-law 41. That includes giving consent under s 52(1) of the Strata Schemes Management Act and not soliciting other members of the building to vote against that particular resolution. It may be that a meeting is held to deal with a series of resolutions, and it may be as was suggested in this case that the plaintiffs are very anxious to solicit proxies against some of the other resolutions, and there is no problem about doing that, but where there is a problem is getting a proxy which is so wide that it enables the plaintiffs to vote against the resolution in the name of another unit holder.

63 A submission was made by Mr de Robillard that s 52(1) means that whenever a resolution is put up which affects the common property, there must be the written consent of every owner. He puts that under s 20 of the Strata Schemes (Freehold Development) Act, the Owners Corporation is the agent for each owner. It was put that each owner has some sort of proprietary interest in the common property, and accordingly they need to give their written consent. Whilst semantically one can just make out that argument, in my view s 52(1) applies so that only the written consent of the lot or lots concerned is required, namely the lots in which special privileges relate to under the by-law, and in this case of course that means lot 3.

64 Finally, the question arises as to damages. According to MI 17, the defendant claims, on the basis of its loss of rent since 18 April 2008 a total of $28,620, this includes an amount for a locksmith of $649, which I do not think is appropriate. The debt would carry interest at the court rate of 10 percent which for the period is something like $580. It would seem that the appropriate amount of damages is $28,551. Mr de Robillard says that there is not sufficient evidence of this. The only evidence is in the most recent affidavits and statements of Mr Rohan Youngman where there is no contrary evidence. The evidence seems consistent with the other material that I have and accordingly I am satisfied that that is the appropriate amount.

65 I have not dealt with every submission made. However, I believe that I have fully dealt with all the matters on which the submissions focussed.

66 One further matter was that Mr Reuben said that if he was successful he should get costs on the indemnity basis. The reason for this was, he put, that when the case was examined it was completely hopeless. Furthermore, the grounds of the case kept switching. In addition, it can be seen that the plaintiffs had already lost on some of the arguments before Smart AJ and were re-litigating it when they were perhaps lucky that there wasn't just a motion for attachment after the last judgment. Mr de Robillard put that that was very harsh, that the case was arguable as shown by material in the cross-examination and that no such order should be made. However, in my view, this is one of the cases where the case put up by the plaintiffs was so hopeless that there should be an order for indemnity costs.

67 Accordingly, I turn to the pleadings, the summons of 28 March 2008 is thus dismissed with costs. On the cross-claim I make orders 1 to 4. I order that the plaintiffs/cross-defendants pay to the defendant/cross-claimant damages in the amount of $28,551. I reserve further consideration. I order that the plaintiffs/cross-defendants pay the costs of the proceedings on the indemnity basis. The exhibits should remain with the exhibits clerk for 28 days and then be handed out.

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