Graham v Markets Hotel Pty Ltd - [1943] HCA 8

GRAHAM AND ANOTHER

APPELLANTS; PLAINTIFFS,

THE MARKETS HOTEL PROPRIETARY

RESPONDENT. LIMITED

ON APPEAL FROM THE SUPREME COURT OF Landlord and TenantSub-lease-Covenant to repair, maintain and keep all buildings

and to yield up in repair-Licensed premises-Inherent structural defect- Laratory-Removal during term of sub-lease-Non-restoration at expiration of term-Breach of covenant-Measure of damagesConstruction of lavatory- Statutory requirements-Consequential alterations-Remodelling of premises- Cost-Liability of sub-lessee-Value of reversion-Diminution-Conveyancing Act 1919-1939 (N.S.W.) (No. 6 of 1919-No. 18 of 1939), 8. 133A (1).

The plaintiffs were the lessees of a licensed hotel in Sydney. They granted a sub-lease which was assigned to the defendant. When the sub-lease was granted there was in the basement of the hotel a lavatory which could be approached only by steep and dangerous steps and was badly lighted and poorly ventilated. The sub-lease contained a covenant that the sub-lessee would repair, maintain and keep all buildings and all internal and external walls, sewers, drains and appurtenances and would yield up in repair at the end of the term. During the term the lavatory was dismantled and closed by the sub-lessee and another lavatory was installed in adjoining premises which were leased by the defendant and to which the plaintiffs had no title. At the end of the term the demised premises were yielded up without any lavatory what- ever. In order to continue the demised premises as a hotel and to obtain a new licence therefor it was necessary under the Liquor Act 1912 (N.S.W.) for the plaintiffs to instal sanitary accommodation. This they did in the course of an extensive remodelling of the premises, at a cost of £3,078, in accordance with plans prepared in conformity with statutory and departmental require- ments and approved by the Licensing Court. The plaintiffs claimed that the

67 CLR 568

defendant had broken the covenant to yield up in repair and sued for damages. The trial judge held that the above-mentioned facts did not constitute a breach of covenant and gave judgment for £100 in respect of other matters. This judgment was confirmed by the Full Court of the Supreme Court. On appeal,

(1) That the dismantling of the lavatory and the failure to yield up the demised premises with a lavatory was a breach of the covenant to maintain, inter alia, the lavatory and to yield up the demised premises in repair.

(2) That the measure of damages for this breach of covenant was the cost of providing sanitary accommodation of the capacity and quality as demised, including the cost of consequential alterations and applications but did not include the cost of improvements unconnected with the re-establishment of sanitary accommodation of that capacity and quality.

(3) That the relevant structural alterations were rendered necessary by the defendant's breach of covenant and, therefore, did not come within the scope of S. 133A of the Conveyancing Act 1919-1939 (N.S.W.).

Decision of the Supreme Court of New South Wales (Full Court), Graham V. The Markets Hotel Pty. Ltd., (1943) 43 S.R. (N.S.W.) 98 60…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1943] HCA 8
Decision Date: 24 May 1943

CaseChat Overview and Summary

The appellants, the lessees of a licensed hotel, appealed to the High Court of Australia from a decision of the Supreme Court of New South Wales. The dispute concerned a sub-lease granted by the appellants to one Costin, which was subsequently assigned to the respondent company. The core of the disagreement was the respondent's failure to yield up the demised premises with a usable lavatory at the expiration of the sub-lease, despite a covenant to repair, maintain, and keep the buildings and appurtenances in good condition, and to yield them up in repair.

The legal issues before the High Court were whether the dismantling and non-restoration of the lavatory constituted a breach of the sub-lease covenant, and if so, what was the appropriate measure of damages. Specifically, the court had to determine if the cost of extensive remodelling and installation of new sanitary accommodation, necessitated by statutory requirements and the removal of the original lavatory, was recoverable from the respondent. The court also considered the application of section 133A of the Conveyancing Act 1919-1939 (N.S.W.) to the assessment of damages.

The High Court, by majority, found that the respondent's actions did constitute a breach of the covenant. The court reasoned that the covenant imposed an obligation to maintain and yield up the premises with a lavatory, and the removal of this facility, even if it was inconvenient or outdated, was a breach. The court held that the measure of damages should be the cost of providing sanitary accommodation of the capacity and quality that was demised, including consequential alterations reasonably necessary for its re-establishment. However, the court clarified that damages should not extend to the cost of improvements unconnected with the re-establishment of the original sanitary accommodation. Furthermore, the court determined that the structural alterations were rendered necessary by the respondent's breach, and therefore, section 133A of the Conveyancing Act, which limits damages to the diminution in the value of the reversion, did not preclude recovery in this instance, as the alterations were not made irrespective of the state of repair.

Consequently, the High Court set aside the decision of the Full Court and the £100 verdict, remitting the case to the trial judge for a reassessment of damages in accordance with the principles established. The appellants were awarded the costs of the proceedings in the Supreme Court and the High Court.

Orders