Kazas and Associates Pty Ltd v Multiplex (Mountain Street) Pty Ltd

[2002] NSWSC 840

Reported Decision: (2003) NSW ConvR 56-052

New South Wales

Supreme Court

CITATION:	Kazas & Associates Pty Ltd v Multiplex (Mountain Street) Pty Ltd [2002] NSWSC 840
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 3340/02
HEARING DATE(S):	9 and 10 September, 2002
JUDGMENT DATE:	12 September 2002
PARTIES :	Edward Kazas & Associates Pty Ltd - Plaintiff Multiplex (Mountain Street) Pty Ltd - Defendant
JUDGMENT OF:	Palmer J

COUNSEL :	J.S. Wheelhouse - Plaintiff J. Stoljar - Defendant
SOLICITORS:	Landerer & Co - Plaintiff Clayton Utz - Defendant
CATCHWORDS:	LEASES - IMPLIED TERM - DEROGATION FROM GRANT - QUIET ENJOYMENT - Quia timet injunctions sought to restrain redevelopment of building in such a way as would interfere with tenant's implied rights - principles upon which term is implied in a lease discussed - whether substantial interference with plaintiff's rights.
CASES CITED:	- Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1 - BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 - Browne v Flower [1911] 1 Ch 219 - Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 - Gordon v Lidcombe Developments Pty Ltd [1966] 2 NSWR 9 - "Lessee's Ancillary Rights" Young CJ in Eq (2000) 74 ALJ 384 - Nelson v Walker (1910) 10 CLR 560 - Owen v Gadd [1956] 2 QB 99 - Pwllbach Colliery Co Ltd v Woodman [1915] AC 634 - Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 11,173
DECISION:	Plaintiff entitled to injunctive relief.

1    The Plaintiff is the lessee of premises known as Suite 1 on the first floor of a property at 22-36 Mountain Street, Broadway (“the Building”). The Defendant is the original lessor’s successor in title and purchased the property in October 2001 for the purpose of a very substantial redevelopment of the Building. 2    The Defendant’s redevelopment is about to commence, although the timing of the various stages of the work is not yet determined and is not really ascertainable with any precision. The Plaintiff says that the redevelopment plans contain a number of proposals implementation of which will constitute a substantial breach of the covenant for quiet enjoyment in its lease. In addition, the Plaintiff says, implementation of the proposals will render the leased premises materially less fit for the particular purpose for which the grant or demise was made so that the Defendant would thereby be derogating from the grant in the lease. Alternatively, the Plaintiff says that the proposed works would interfere with rights granted by terms necessarily to be implied in the lease. 3    The Plaintiff, therefore, seeks a quia timet injunction restraining the Defendant from carrying out certain aspects of the proposed redevelopment during the continuation of the Plaintiff’s tenancy. The Plaintiff’s lease expires on 30 November 2003 and there is no question but that the Plaintiff will then have to give up vacant possession of the premises to the Defendant. 4    The Defendant says that implementation of its redevelopment plans will be adjusted to cause as little inconvenience to the Plaintiff as possible. It says that its proposals will not entail any substantial or unreasonable interference with the Plaintiff’s quiet enjoyment of the premises nor will they render the premises materially less fit for the purpose for which the demise was made. It denies that any terms are to be implied in the lease. 5    Further, the Defendant says that if there will be a breach of the lease occasioned by implementation of its redevelopment plans, nevertheless the Plaintiff should be left to its remedy in damages. 6    Finally, the Defendant says that the Court should refuse to grant any injunction in the exercise of its discretion on the ground of disproportionate hardship to the Defendant. 7    There is a minor issue as to the costs of the Defendant’s Cross Claim alleging non-payment of rent by the Plaintiff. Outstanding rent was paid by the Plaintiff on the last business day before commencement of the trial so that the Cross Claim is no longer pursued. 8    The Plaintiff commenced these proceedings on 26 June 2002. Because the Defendant’s redevelopment of the Building is due to commence in September, the proceedings were expedited and brought on for an urgent final hearing. Both parties desire the earliest possible determination of the case. I shall therefore deal with submissions and matters of detail in the evidence somewhat more by way of summary than would be the case if judgment could be delivered at a little more leisure. I should add, however, that my task has been made lighter by the assistance which I have received from Mr Wheelhouse of Counsel, who appears for the Plaintiff, and from Mr Stoljar of Counsel, who appears for the Defendant. 9    It will be convenient to deal first with the facts giving rise to the dispute, then with the evidence as to how the proposed redevelopment will affect the conduct of the Plaintiff’s business in the premises and finally with the relevant principles of law applicable to determination of the Plaintiff’s rights.

The facts

10    Since 1974, the Plaintiff has carried on business as a designer and wholesaler of men’s and women’s fashion garments and accessories. Its business is directed to the upper end of the fashion market. Prior to 1993, the Plaintiff had a substantial manufacturing operation which produced its designs. In the early 1990s it moved its production operation to Hong Kong and thereafter began to look for smaller premises to accommodate its offices, showrooms and warehouse. 11    In 1993, the Plaintiff’s sole director and controller, Mr Edward Kazas, began negotiations with the former owner of the Building, a company called Baresque Pty Ltd (“Baresque”). The Building at that time was an old warehouse, partly burnt out, and was apparently little more than a shell. 12    Negotiations between Mr Kazas and the director of Baresque, Mr Blaiklock, continued for some time through their respective solicitors. It is clear from the correspondence in evidence that the Plaintiff was insisting on certain features and facilities being provided in order to make the Building and the demised premises suitable for the special needs of its business, and that Baresque was willing to comply in order to secure the Plaintiff as a tenant. 13    A letter dated 25 October 1993 from Baresque to the Plaintiff sets out the principal matters upon which the parties had agreed. In so far as they are presently relevant, they may be summarised thus:


– the Plaintiff was allocated two car spaces, “one of these spaces to be under the carport ”;

– Baresque agreed to construct an entrance foyer to the lift lobby on the ground floor of the Building, with walls of aluminium or glass.

14    The letter contained the following passages:
“ Operations
The Lessee shall have the right to 24-hour seven day a week access to the offices, loading dock and car park. In return, the Lessee shall strictly observe all reasonable security arrangements for the dock and common areas of the building as required by the Lessor from time to time.
…
Goods Access
The lessor shall provide a goods access passage from goods lift to the tenancy.
Lessee to use this passage and the corridor to carpark side of passenger lift for all movements of goods and equipment. Transfer is not to be through the main foyer or first floor lift lobby for these purposes.”
15    Mr Kazas says – and I accept – that the Plaintiff’s requirement for a stylish foyer to the Building was due to its desire to have a setting for its business which would favourably impress visiting clients in the fashion industry, fashion photographers, journalists and the like. In keeping with the stylish foyer, the Plaintiff spent a very considerable sum in fitting out and furnishing its premises in a style and to a quality consistent with its image as a couturier. 16    Mr Kazas also says – and I accept – that pursuant to his discussions with Mr Blaiklock prior to the commencement of the lease, Baresque built a special corridor on the first floor of the Building running from the goods lift on the northern wall down the length of the Building to give entry to the Plaintiff’s warehouse. The corridor is of a particular width and has sanded timber floors so that it provides easy transportation of garments by means of specially constructed moveable racks and trolleys. The construction of this corridor by Baresque is referred to in a letter dated 3 November 1993 from its solicitors to the Plaintiff’s solicitors. 17    Some of the terms of the letter of 25 October 1993 found expression directly or indirectly in the lease itself, which commenced on 1 December 1993 for a term of five years, with an option to renew for one further term of five years. 18    The following are the relevant provisions of the lease. “The Building” was defined as:
“… 22-36 Mountain Street, Broadway together with any modifications, extensions or alterations from time to time and together with the fittings, fixtures and other improvements and conveniences, amenities and appurtenances thereof from time to time other than Lessees’ fixtures.”

“The Common Areas” were defined as:
“… those parts of the Building not demised and which are intended for common use as entrances, passages, halls, courts, patios, plazas, galleries, arcades, lavatories, tea rooms, stairways, ramps, platforms, loading bays, loading docks, passenger lifts, goods lifts and escalators (in the case of lifts and escalators when in working order) and such other places or facilities as may be designated from time to time by the Lessor for use by the Lessee in common with others.”


Clause 5.01 and the Schedule to the lease provided that the lessee would not without consent use the demised premises for any purpose other than for carrying on the business of “offices, warehouse and showrooms for the wholesaling of clothing” .

Clause 5.07 provided:
“ HOURS OF ACCESS : The Lessee shall have access to the Demised Premises and to the loading dock of the Building and car park 24 hours 7 days each week so long as the Lessee shall strictly observe all reasonable security requirements for the dock and common areas laid down by the Lessor from time to time. If the Lessee does not observe such requirements the Lessor may lock the doors to the Building outside the hours of 8.00 am to 6.00 pm Monday to Friday and throughout public holidays, Saturday and Sunday.”

The special corridor on the first floor is referred to in Clause 5.09, which provided:
“ GOODS ACCESS : The Lessee shall use the goods access passage from the goods lift to the Demised Premises to be provided by the Lessor for all movements of goods and equipment which must not be made through the main foyer in the Building or the lift lobby on the first floor. The Lessee shall use its best endeavours to ensure that its employees, carriers and visitors do not park in the loading dock area other than for the purposes of loading and unloading.”

Clause 12.01 provided:
“ QUIET ENJOYMENT : The Lessee paying the rent hereby reserved and duly and punctually observing and performing the covenants obligations and provisions in this lease on the part of the Lessee to be observed and performed, shall and may peaceably possess and enjoy the Demised Premises for the term hereby granted without any interruption or disturbance from the Lessor or any other person or persons lawfully claiming by from or under the Lessor.”

Clause 14.05 provided:
“ ACCESS FOR DELIVERY OF GOODS : The Lessee shall use and permit to be used for the receipt, delivery or other movement of any goods, wares or merchandise or articles of bulk or quantity only such parts of the Demised Premises and the common areas of the Building and at such times as the Lessor may from time to time permit and the Lessee will comply with all reasonable requirements of the Lessor in regard to such matters.”

Clause 17.01 provided:

“The Lessor agrees to provide the Lessee, its duly authorised servants, agents and invitees with parking facilities for the number of motor vehicle(s) specified in Item 6 of the Reference Schedule in an area designated by the Lessor from time to time within the Land and the said area is to be used only for the parking of a motor vehicle on the following conditions:

(a) The Lessee, its duly authorised servants, agents, licensees and invitees shall have the right to park one motor vehicle only in each of the spaces allotted from time to time by the Lessor and not elsewhere on the land and they shall access such designated spaces by the routes directed by the Lessor.

(b) The Lessee, its duly authorised servants and agents shall park in the allotted spaces at their own risk …”

Clause 18.01 provided that the lessor was to carry out certain works “to the Demised Premises” including “creation of an entrance foyer from the lift lobby and the provision of the walls and aluminium/glass (or equivalent) front door to the Demised Premises” [sic]. There is no dispute that the “entrance foyer” and the “lift lobby” referred to are on the ground floor and give access to the Building from Mountain Street.

19    The Plaintiff exercised its option to renew the lease on the same terms as in the original lease, other than for the deletion of the option clause and the clauses relating to the carrying out of the lessor’s original works. As I have noted, the current term expires on 30 November 2003.

The Defendant’s redevelopment proposals

20    Mr Kazas says that at the commencement of the lease the Plaintiff paid to Baresque more than $35,000 towards Baresque’s costs of carrying out the works to the Building required in the lease. This evidence was unchallenged. 21    I turn now to the Defendant’s redevelopment proposals and how they affect the Plaintiff’s premises and the conduct of its business therein. I have been greatly assisted in this regard by a view of the premises and of the Building which was conducted in the presence of the parties’ representatives. 22    The Defendant purchased the Building for the purpose of carrying out a very substantial redevelopment comprising 83 residential strata units and 81 commercial strata units. There is a warehouse behind the Building which the Defendant has also acquired and this will be demolished in order to erect a six level building. The development will, in effect, comprise two related buildings, namely, the subject property at 22-36 Mountain Street, which is to be completely refurbished and extended, and the new six level building adjoining it. The total cost of the development will exceed $64M. 23    On 8 May 2002, South Sydney Council granted a Deferred Commencement Consent for the project. The Consent is subject to a great many conditions as to how the work is to be carried out. The Defendant is required to formulate plans for the carrying out of certain work in a manner which will cause the least possible disruption and inconvenience to those who might be affected. The Defendant has not yet formulated many of these plans. Nevertheless, it proposes to commence construction as soon as it is legally and practically able. 24    The aspects of the refurbishment of the Building which particularly affect the Plaintiff are as follows.

The loading dock, the goods lift and the first floor corridor

25    Since the commencement of the Plaintiff’s lease there has been a loading dock comprising two bays opening onto Mountain Street by means of roller doors. Vehicles unloading goods sent to the Plaintiff’s premises may conveniently drive into the loading dock and unload the goods near a goods lift which is close by on a raised platform in the loading dock. The goods may then be taken by the goods lift up to the first floor of the Building and carried along a corridor which runs the length of the Building and gives immediate and convenient access to that part of the Plaintiff’s premises which is used as a warehouse. This is the corridor which was specially constructed by Baresque to suit the requirements of the Plaintiff, to which I have referred earlier. Similarly, goods to be despatched from the Plaintiff’s business may be easily taken from the warehouse, down the corridor to the goods lift, thence transported to the loading dock and then loaded onto vehicles. 26    Many of the goods received and despatched by the Plaintiff are dresses and other garments which are placed in plastic bags and hung from specially constructed moveable racks. When delivered to the Plaintiff, these racks may be wheeled directly onto the goods lift and then along the corridor on the first floor to the Plaintiff’s warehouse. The same racks are used to carry goods from the warehouse to be loaded directly into the vehicles in the loading dock. 27    The Defendant’s redevelopment requires the demolition of one of the loading bays, namely the northern bay, and the complete removal of the goods lift. The Defendant does not know exactly when that work will commence but, when it does commence, the goods delivered for the Plaintiff at the loading dock will cease to be transported by the goods lift to the first floor and taken along the corridor. They will have to be carried along another corridor on the ground floor into an area which is presently the foyer and which has only a small passenger lift accommodating about four persons. 28    There is a debate as to how practical it will be to transport goods to the first floor in the passenger lift. Mr Kazas says, and the Defendant accepts, that garments which are transported hanging from the movable racks cannot be carried in the passenger lift because the lift is too small to take the racks. However, some of the garments and other goods are transported in cardboard boxes of various sizes. The Defendant says that the smaller boxes could fit into the passenger lift, but its principal solution to the whole problem is that all goods which cannot conveniently be carried in the passenger lift can be carried up to the first floor via the stairs which adjoin the passenger lift. The Defendant says that it will procure its workmen on the site, when available, to carry these goods up the stairs. Alternatively, if the Plaintiff wishes to engage its own labour, the Defendant will reimburse it for the cost. 29    Mr Kazas says that this proposal is entirely unsatisfactory. He says that the Plaintiff’s goods are delicate, high fashion garments, some very expensive, which are easily damaged or spoilt by crushing or being soiled in transport. It was to accommodate the Plaintiff’s special need for easy transport of such goods to and from the loading dock in clean conditions, says Mr Kazas, that Baresque constructed the corridor on the first floor. The method of transporting these goods now proposed by the Defendant, he says, would not only be difficult and very time consuming, it would also create substantial risk of damage to the goods. 30    I agree. In my opinion, it would be unjustifiably disruptive of the Plaintiff’s normal business operations to have to wait upon the convenience, availability and willingness of construction workers to carry delicate and easily damaged goods up and down the stairs. Workers may not be available whenever a delivery to or from the Plaintiff’s premises is required, and they may well have other priorities on the site; they may feel that carrying around dresses and handbags is not within the proper scope of their duties; they may not handle these items with the same care as would the Plaintiff’s staff. 31    Nor, in my opinion, is it a satisfactory solution for the Plaintiff to engage labour as and when required to transport goods up and down the stairs, later to be reimbursed by the Defendant. As appears from schedules prepared from delivery dockets and invoices, deliveries to and despatches from the Plaintiff’s premises are very frequent, occurring on most days of the week, often more than once per day. Doubtless some deliveries and despatches are urgent or must be arranged on short notice or do not occur at the prearranged time. The Plaintiff could not reasonably be expected to make separate arrangements to engage casual labour each time a delivery or despatch was expected: it would simply be too impractical, time consuming and unreliable. 32    The Defendant’s proffered solution “of last resort” is to construct a temporary lift of the same dimensions as the existing goods lift, in the vicinity of the present passenger lift, which could then be dismantled on expiry of the Plaintiff’s tenancy. The cost of such a temporary lift is said to be between $50,000 and $100,000. 33    The Defendant says that, in any event, the Plaintiff’s difficulties in transporting goods to and from the loading dock are more imaginary than real, because the schedule prepared from delivery documents and other records during the period from 1 January to 1 July 2002 shows that the Plaintiff’s goods received into or despatched from the loading dock are not so numerous or heavy that it would be a great inconvenience for the Plaintiff to have to transport them up and down the stairs or in the passenger lift rather than by means of the goods lift. 34    I do not accept this contention, for two reasons. First, it was not put to Mr Kazas that the deliveries and despatches shown in the schedule for a period of six months were representative of the volume and frequency of deliveries and despatches in a normal year or indicative of the volume and frequency of deliveries and despatches over the remainder of the term of the lease. Indeed, it appears that the Plaintiff has placed a very substantial order with a supplier in Hong Kong which will result in deliveries to the Plaintiff of some 61,000 items, beginning in October or November this year. There may be up to ten shipments involved in this order. The Defendant says that the goods lift will not be removed until January 2003 so that the Plaintiff should have no difficulty taking delivery of these shipments. That may be so, but it is quite unknown when the Plaintiff will have to despatch the goods from its premises to various retail outlets. In any event, it is not to the point to focus attention on one particular delivery or despatch as if it were the only problem to be solved. I cannot feel justified in assuming that the volume and frequency of despatches and deliveries in the period from 1 January to 1 July 2002, including as it does the Christmas holiday period, is a reliable indication of the normal volume and frequency of deliveries and despatches and of the normal use of the loading dock and the goods lift. 35    Second, and even more importantly, the contention focuses only on volume and frequency of deliveries and despatches: it does not give sufficient consideration to the particularly delicate nature of the goods to be transported and to the Plaintiff’s special need for a convenient means of transportation which is likely to cause as little damage as possible. It is this special need which led to Baresque constructing the corridor on the first floor prior to the commencement of the lease to a specification acceptable to the Plaintiff. The Plaintiff’s special need would be disregarded entirely if all goods had to be transported manually, as the Defendant suggests. 36    As to the demolition of the northern loading bay, the evidence is that this would be done in order to provide a secure car parking space for Mr Kazas. Originally, an electrical sub-station was to be located in part of the northern bay but Mr Palandri, the Defendant’s Business Development Manager, now says that this sub-station is to be located in another area. It appears that a vehicle loading or unloading goods could park in the southern bay and the goods could be loaded from, or unloaded onto, the raised platform at the end of the southern loading bay, rather than loaded from, or unloaded onto, the adjoining bay as presently occurs. If the northern bay is occupied by a car space, there would still be sufficient room left for some goods to be placed on the floor of the bay during the process of loading and unloading, if that were more convenient. 37    If the electrical sub-station is located as indicated by Mr Palandri, I am satisfied that the demolition of the northern bay would not, in itself, cause significant inconvenience to the Plaintiff’s operations, despite Mr Kazas’ evidence to the contrary. 38    However, the process of demolishing the northern bay could result in unreasonable interference with the Plaintiff’s operations in the southern bay, particularly if building rubble and materials are left in positions which interfere with the operations in that bay. In other words, whether or not there would be an actionable interference in the Plaintiff’s operations in the southern bay would depend upon the way in which the Defendant carries out its demolition of the northern bay.

The foyer and lift lobby

39    I have recounted in paragraph 15 the reasons that the Plaintiff required Baresque to renovate the foyer and the lift lobby. That Baresque considered it a sufficiently reasonable requirement and the expense in carrying it out justified is evident by the fact that the work was actually done. From my view of the Building, it appears to me that the foyer can, indeed, be described as stylish and that until the Building was substantially vacated by other tenants following upon the Defendant’s acquisition, it must have been well maintained. 40    The Plaintiff has conducted, and will continue to conduct, fashion shows in its premises as well as other events at which clients and the fashion media will attend. The Defendant’s redevelopment plans require the decommissioning of the passenger lift and the demolition of the foyer for conversion into retail premises. Alternative access to the upper floors of the Building will eventually be provided by a passenger lift, but while that work is being carried out the existing foyer would become virtually “a bomb site”. 41    The Defendant says that visitors to the Plaintiff’s premises during demolition of the foyer will still be able to go through the foyer, but they will have to walk up the stairs to the Plaintiff’s premises. The Defendant says that that will not be an undue or unreasonable inconvenience. 42    The Plaintiff says that that proposal is entirely unsatisfactory. The whole purpose for which the foyer was refurbished at the commencement of the lease will be defeated. Further, some of its clients are elderly and will find it difficult to walk up the stairs. All in all, the impression created upon clients and the fashion media will be prejudicial to the Plaintiff’s business. 43    In my opinion, whether the interference with the Plaintiff’s business occasioned by the destruction of the foyer and the lift lobby will be substantial depends upon its timing and duration. At this stage, the Defendant is quite unable to say when this work will commence. If it commences shortly, so that the foyer and the lift lobby will be demolished for the remaining year or so of the Plaintiff’s tenancy, then in my opinion the interference with the Plaintiff’s business would be substantial and unreasonable, for the reasons given by the Plaintiff and referred to in the preceding paragraph. However, if work commenced a month or less before the Plaintiff vacated the premises, then it could be regarded as a temporary inconvenience and not unreasonable since the Plaintiff would doubtless be winding down its operations from the premises at that time in any event.

Car spaces

44    The Plaintiff has, from the commencement of its lease, had the use of two car spaces as provided in Clause 17.01 of the lease. Originally, both car spaces were located in a car park on the eastern side of the property, part of which is covered by a carport. One of the Plaintiff’s car spaces was located under the carport. 45    Mr Kazas says that about four years ago he had a discussion with Mr Blaiklock, the result of which was that he was permitted to park his car in a lock-up garage in the car park, in consideration of an additional payment of $1,460.64 per annum. There has been no amendment to the lease to reflect this agreement. 46    Mr Wheelhouse submits that this agreement operated to amend the lease so that there is now an express term in the lease to the effect that part of the Plaintiff’s demised premises is the present lock-up garage in which Mr Kazas parks his car. Quite apart from its difficulties in law, I am unable to accept this submission for the following threshold reasons. 47    There is no evidence of the content of the discussions which constituted the alleged agreement. It is possible that the agreement was, in character, no more than a revocable licence granted by Baresque to use a particular part of the common areas, as defined, for an additional consideration. It is possible that the agreement was nothing more than the exercise of Baresque’s right, under Clause 17.01, to designate the lock-up garage as one of the two car spaces to be provided under that clause – a designation which provided enhanced security for the Plaintiff and for which it was prepared to pay a premium. In those circumstances, I am unable to be satisfied that whatever discussions took place between Mr Kazas and Mr Blaiklock resulted in an amendment to the lease rather than an arrangement made in accordance with and pursuant to the provisions of Clause 17.01. 48    The question remains, however, whether the Defendant’s proposals as they affect the Plaintiff’s car parking spaces will breach the covenant for quiet enjoyment or some implied term or will constitute a derogation from the grant in the Plaintiff’s lease. For this reason it is necessary to review briefly the effect of the Defendant’s redevelopment proposals on the Plaintiff’s use of its car parking spaces. 49    Mr Kazas says that in the fashion industry it is common for people such as himself to carry around large amounts of cash. For this reason, he is extremely concerned about the security of his car parking. The present arrangement affords him acceptable security because he can park in a locked and secure garage in the car park, and can then go from the garage through the car park to a back entrance in the Building. There is a large steel grille security gate which bars access to the car park from a side street leading off Mountain Street. 50    There is no evidence as to whether the metal grille gate and the lock-up garage in the car park were in existence at the commencement of the lease in 1993. The lease itself refers only to the provision of car parking spaces, not to the provision of any security for car parking. Indeed, Clause 17.01(b) stipulates that the lessee and its servants and agents park in the allotted spaces at their own risk. 51    The Defendant’s redevelopment requires the complete demolition and removal of the car park. The Defendant proposes that secure parking for Mr Kazas will be provided in a lock-up garage to be erected in the northern bay of the loading dock. The second car space to which the Plaintiff is entitled under the lease, and which is used by an employee, will be relocated to a position just outside the northern bay of the loading dock but still on the land at 22-36 Mountain Street. The Defendant says that the car parking to be provided for Mr Kazas is even more secure than the present arrangement because he will now be able to drive into a lock-up garage within the Building, exit that garage and go directly to the Plaintiff’s premises without having to go outside the Building. 52    Mr Kazas says that this will be unsatisfactory because the new parking areas will be very close to Mountain Street, which is regarded as unsafe at certain times. 53    In my opinion, this issue may be disposed of quite shortly. There can be no implied term in the lease as to the Plaintiff’s entitlement to car spaces because there is an express term which regulates the parties’ rights in that regard, namely Clause 17.01. That clause entitles the lessor to allot car spaces “in an area designated by the Lessor from time to time within the Land” . There is nothing in the matrix of facts and circumstances existing at the commencement of the lease which suggests that the parties intended the car parking spaces to have particular security features. It is true that Item 6 of the Schedule referred to in Clause 17.01 says that one of the car spaces is to be “under the carport” but, in my opinion, that is no more than a designation of location under Clause 17.01 which can be changed by the lessor from time to time under the terms of that clause. 54    In short, the reallocation of car spaces proffered by the Defendant is in accordance with, not in derogation of, the express grant of car space rights under the lease. I cannot see any basis upon which reallocation of the car spaces could be said to be a breach of the covenant for quiet enjoyment.

The applicable principles of law

55    In the following discussion I have been greatly assisted by an insightful article by the present Chief Judge in Equity, “Lessee’s Ancillary Rights” (2000) 74 ALJ 384, in which his Honour reviews and analyses the leading authorities and the problems which they throw up. 56 As his Honour observes, when a problem arises between a lessor and a lessee as to whether the lessor can do something which affects the lessee’s use and enjoyment of the demises premises, or whether the lessee can do something which affects the lessor’s property, there are several ways in which the Court can approach the issues. As the problem will arise almost invariably because there is no express provision in the lease regulating the matter, the solution will have to be found by recourse to an implication. The routes by which one reaches that implication have different street names, such as “necessarily implied term in the contract”, “non-derogation from the grant” and “implied grant” but in truth, these names simply mark adjacent lanes on the same highway, not different roads leading in different directions. 57 The essence of each of these approaches is to take account of all the relevant factual circumstances in which the parties were placed at the time that the lease was granted, including prior negotiations to the extent that they establish background facts known to both parties, and then to find what reasonable people in the parties’ position would have decided upon as a contractual term providing the fairest and most practical solution to the particular problem which has now arisen. This manner of solving the problem is called a search for the common intention of the parties but, in truth, it is a means by which the Court is able to find a just solution to a problem which never occurred to the parties at all and which, had it occurred to them, may very well have produced disagreement rather than a common intention. This is the means used to resolve problems arising from absence of express terms in every sort of contract, whether it be a contract for the grant of a limited interest in land such as an easement or a lease, whether it be a contract for the sale of the fee simple, or whether the contract be one dealing with any other kind of subject matter: see e.g. Pwllbach Colliery Co Ltd v Woodman [1915] AC 634, at 646-647; Browne v Flower [1911] 1 Ch 219, at 224-6; Gordon v Lidcombe Developments Pty Ltd [1966] 2 NSWR 9, at 14; Nelson v Walker (1910) 10 CLR 560, at 572; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, at 352. 58 In the context of contracts for the creation of interests in land, whether limited or unlimited, it may well be time to regard the tags “necessarily implied term”, “implied grant” and “non-derogation from the grant” as denoting distinctions without differences, leading more to confusion than to consistent application of an over-arching principle. Most law students can recite by heart the rubric for the implication of a term in a contract conveniently formulated, though not invented, in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26. In my opinion, this is the rubric which should be applied when a dispute arises by reason of want of an express term in a contract creating an interest in land. 59 Translated into the context of a lease, the test will be: in the light of all relevant factual circumstances at the time of grant of the lease:


– is the alleged term reasonable and equitable;

– is it necessary to give business efficacy to the lease, “business efficacy” in this context meaning implementation in a practical and businesslike way of the intended use of the demised premises by the lessee consistently with the reasonable use of the whole property by the lessor and any other occupiers;

– is the term so obvious that it goes without saying;

– is it capable of clear expression;

– does it contradict any express term of the lease.

60    In the present case, the implied term is said to be: the lessor will not, during the term of the lease, remove or change the loading dock, the goods lift, the first floor corridor, the passenger lift or the foyer as they were at the commencement of the lease in such a way as will substantially interfere with the conduct of the Plaintiff’s business in the demised premises, without first providing alternative facilities to substantially the same standard. In the light of the circumstances existing at the commencement of the lease, does this term satisfy the test for necessary implication? 61    In my opinion, the term is reasonable and equitable. Baresque and the Plaintiff had bargained and agreed that the Building would be altered by the improvement of the first floor corridor and the refurbishment of the foyer as a condition of the Plaintiff taking up the lease. The improvement of the corridor was required by the Plaintiff for the efficient conduct of its business in the premises: it needed a convenient means of transporting its delicate, easily damaged goods to and from a loading dock without risk of injury. It needed a foyer decorated to a standard which would complement, not detract from, its image as a couturier. The Plaintiff paid over $35,000 to Baresque in return for these and other improvements to the Building and to the demised premises. It is reasonable and equitable, in my view, to imply a term in the lease preventing Baresque or its successor from depriving the Plaintiff of the substantial benefit of the conditions upon which it had agreed to take the lease and for which it had paid. 62    The term is necessary to implement, in a practical and businesslike way, the use of the demised premises by the Plaintiff. Prior to the commencement of the lease the Plaintiff was obviously concerned that the premises and the Building generally provide a certain level of efficient operation. The alterations to the means of goods transportation and to the foyer and lift lobby must have been seen by the Plaintiff and Baresque alike as achieving a satisfactory means of implementing the Plaintiff’s purpose consistently with Baresque’s use of the Building. The implied term is necessary to prevent a substantial interference with the means which both the Plaintiff and Baresque agreed upon as enabling the Plaintiff to operate its business at a satisfactory level of efficiency. 63    In my opinion, Baresque having agreed upon the alterations to the Building in accordance with the Plaintiff’s requirements so as to induce it to take up the lease, and the Plaintiff having paid Baresque a substantial sum towards its costs of meeting those requirements, it goes without saying that the parties would have agreed that Baresque could not, during the term of the lease, substantially depart from the Plaintiff’s requirements made known prior to the commencement of the lease without providing satisfactory alternatives. If it were otherwise, the very purpose of the Plaintiff entering into the lease in the first place would be defeated. 64    The term is capable of clear expression in the manner set out in paragraph 60. 65    The term does not contradict any express term of the lease. The Defendant submits that the terms of Clause 14.05 permit it, from time to time during the term of the clause, to refuse permission to the Plaintiff to use any part of the Common Areas for the movement of goods. The Common Areas include the first floor corridor, the goods lift and the loading dock. I am unable to accept this submission. 66    Clause 14.05 obliges the lessee to comply with “all reasonable requirements of the Lessor in regard to such matters” . “Such matters” means the giving or refusing of permission by the lessor as to the use of Common Areas, referred to earlier in the clause. The giving or refusing of permission must, therefore, be reasonable. It cannot be reasonable for the Defendant to refuse permission to the Plaintiff to use the loading dock, the goods lift, the first floor corridor and the foyer when use of those Common Areas was part of the basis upon which the Plaintiff agreed to enter into the lease. Nor can it be reasonable when Clause 5.09 expressly requires that the Plaintiff transport its goods via the first floor corridor and, by necessary implication, the loading dock and the goods lift. 67    Clause 14.05 is, in my opinion, ancillary and subject to such other terms in the lease as may be relevant, including Clause 5.09 and the alleged implied term. 68    For these reasons, I am satisfied that there is a term to the effect stated in paragraph 60 which must be implied in the lease.

Whether breach of implied term

69    The Courts have used a number of different phrases to describe that level of interference by a lessor with a lessee’s rights which will be actionable. Sometimes it is said that a lessor cannot derogate from the grant by doing something that will render the demised premises “unfit or materially less fit from a reasonable point of view for the particular purpose for which the demise was granted” : Browne v Flower at 226. 70 In order to support an injunction to restrain a lessor from continuing an interference said to be in derogation of the lessor’s grant and in breach of the covenant for quiet enjoyment, Street J in Gordon v Lidcombe Developments Pty Ltd concluded that it was necessary to establish that the lessor’s act had affected the demised premises to the extent that they were “for practical purposes to be fairly regarded as having been rendered unfit” for the purpose for which they were demised: at pp.15-16. 71    In the context of alleged breaches of the covenant for quiet enjoyment, it is often said that the breach must be a “substantial interference” with the ordinary and lawful enjoyment of the demised premises: see e.g. Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 11,173 at 11,177; Owen v Gadd [1956] 2 QB 99. 72 Each of such phrases, and phrases like them, are founded entirely upon subjective judgments: it is not possible to measure the difference between “material” and “substantial” and it does not assist much to expand the phrases by adding more words of entirely subjective content, as did Street J in Gordon v Lidcombe . 73    In the end, I do not think there is much to be gained from such an analysis of the differences as was carried out by McPherson JA in Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1, at 8ff. One focuses upon the purpose for which the premises were demised – for example, in the case of business premises, the nature of the business conducted, the particular features of the premises and the lessor’s property by means of which it is conducted, and the manner in which it may reasonably and efficiently be conducted having regard to those features. One then looks at how much the business, so conducted, will be prejudiced by the lessor’s interference. It is clear that none of the tests propounded require the lessee to establish that the premises will be rendered totally unfit for their intended use so that the lessee has no remedy if the lessor can show that, despite the interference, the lessee’s business can still be carried on by some expedient or another, however inefficiently or uneconomically. But whether the interference is “substantial” or “material”, whether it warrants an injunction or only a remedy in damages, and whether it is reasonable or unreasonable for the purpose of determining the terms of discretionary relief, are all questions of fact and degree decided on the basis of an overall impression derived from the totality of the evidence. 74 In the present case, I am firmly of the view that removal of the goods lift and any obstruction to the first floor corridor will be a substantial interference with the Plaintiff’s rights, in breach of the implied term referred to in paragraph 60. The reasons will have been made clear from paragraphs 25 to 35 of this judgment. 75 I do not think that the conversion of the northern loading bay into a car parking space will, in itself, constitute a breach of the implied term, for the reasons set out in paragraphs 36 and 37 above. The Plaintiff’s rights to use of the loading dock are not absolute and unqualified and they are sufficiently and reasonably preserved by retention of the southern loading bay and some remaining space in the northern bay upon which goods may still be placed. 76 I am of the view that decommissioning the passenger lift and demolishing the foyer, if carried out more than a month from the expiry of the Plaintiff’s lease, will constitute a breach of the implied term, for the reasons which I have set out in paragraphs 39 to 43. I appreciate that allowing such interference for a month may appear somewhat arbitrary given the fact that I have made no allowance at all for interruption to goods access via the goods lift and the first floor corridor. The reason is, however, that I think it realistic to assume that the frequency of visits to the Plaintiff’s premises by clients and the media will probably sharply decline during the time that the Plaintiff is winding up its business in the premises and commencing to set up in new premises. The inconvenience to all concerned would, I think be relatively short. On the other hand, the process of moving the Plaintiff’s stock out of the premises could reasonably continue until the last day of the term of the lease, so that it would still be necessary for the Plaintiff to use the goods lift and the first floor corridor until that time.

Noise, dust, disturbance and scaffolding

77    The Plaintiff seeks quia timet injunctions restraining the Defendant from breaching its covenant for quiet enjoyment by creating noise, dust or disturbance by reason of work to be done on the fire rating and the removal of asbestos in the course of the redevelopment work. The Plaintiff also seeks an injunction restraining the erection of hoardings or scaffolding around the Building. 78    As I have noted, the conditions attaching to the Council’s Deferred Commencement Consent to the redevelopment require the Defendant to formulate plans for the control and management of noise, dust and other disturbance. The Defendant has not yet formulated these plans. 79    The Plaintiff’s right to quiet enjoyment under Clause 12.01 of the lease is not absolute and unqualified, even though the clause prohibits the lessor from creating “any interruption or disturbance” . The clause cannot be applied strictly and literally so that the lessor may not so much as sneeze outside the demised premises without committing a breach. The clause must be interpreted to avoid impracticality and absurdity, so that only unreasonable interruptions or disturbances are prohibited. 80    It is not possible to say at this time whether the noise, dust or other disturbance which will be created in the course of the redevelopment will, of necessity, be unreasonable in all of the circumstances as they are at that time. The Court will not grant an injunction which will restrain the Defendant from creating any noise, dust or disturbance whatsoever, as the result would be to enjoin any work whatsoever on the development – a right to which the Plaintiff could have no conceivable claim under Clause 12.01. Neither will the Court grant an injunction restraining “unreasonable noise, dust or disturbance” because it would be impossible for the Defendant to know in advance whether any particular conduct would constitute a contempt of Court. 81    The same considerations apply to the Plaintiff’s complaint concerning scaffolding and hoardings. It is unknown at present what the scaffolding and hoardings will comprise and how they might affect the Plaintiff’s business. 82    In my view, the Plaintiff’s application for quia timet injunctions to restrain these activities of the Defendant is premature. The Plaintiff will have to wait and see how the Defendant carries out its redevelopment works.

Relief

83    The Defendant says that injunctions should be refused in any case because damages will be an adequate remedy and because the grant of an injunction would work disproportionate hardship upon the Defendant. I am unable to accept these submissions for the following reasons. 84    Mr Stoljar points to the last available financial statements of the Plaintiff which show that in the year ended 30 June 1998 sales of some $141,000 were made, and in the previous financial year none at all were made. He says that the financial losses which the Plaintiff says it might suffer must be trifling. 85    The size of the Plaintiff’s operation, which I saw on the view, and abundant other evidence in the case as to the size of orders placed and the frequency of goods received and despatched indicate overwhelmingly that the Plaintiff has a very substantial business. For whatever reason, the Plaintiff’s financial statements obviously do not show the whole picture. 86    If injunctions are refused, the Plaintiff will be required to continue its business in the demised premises, possibly for more than a year, in conditions which are likely to prove highly adverse and which expose it to the risk of significant loss. Alternatively, the Plaintiff can simply pack up and move now – a highly disruptive event in itself, again with serious financial consequences to the Plaintiff. 87    I see no reason in justice why the Plaintiff should be placed in this position and then left, at some later stage, to start another difficult and expensive litigation against the Defendant to prove and recover economic loss. 88    Intertwined with this consideration is the question of hardship to the Defendant if the injunctions are granted. As Mr Wheelhouse rightly points out, the Defendant decided to acquire the Building for the purpose of the redevelopment with its eyes wide open to the difficulties which it might encounter with tenants such as the Plaintiff. No doubt the Defendant carefully weighed the risks and possible costs and still found the project viable. 89    Further, apart from an estimate that it would cost between $50,000 and $100,000 to erect a temporary goods lift, I have no evidence at all as to what additional costs and expenses the Defendant might incur if the injunctions were granted. As Mr Stoljar properly conceded, in the scale of a $64M development, $50,000 to $100,000 in additional cost is not a weighty consideration. 90    For these reasons, I am satisfied, as a matter of discretion, that the Plaintiff is entitled to injunctive relief.

Orders

91    The injunctions sought are quia timet in nature and it is quite possible, as the Defendant has suggested, that the Defendant may find means to proceed with its redevelopment of the Building and even to demolish the goods lift, the first floor corridor, the foyer and the passenger lift, while providing practical alternatives to substantially the same standard. 92    In the meantime, however, the Plaintiff is entitled to injunctions restraining the Defendant, until expiry of the Plaintiff’s lease, from removing the goods lift and obstructing or preventing use of the first floor corridor. The Defendant should be restrained, for a period up to one month prior to the expiry of the Plaintiff’s lease, from demolishing the foyer and the passenger lift. Justice to the Defendant will be served if the Defendant is given liberty to apply, so that if practical alternatives to substantially the same standard are provided, the injunctions may be modified or dissolved. 93    As to the costs of the Cross Claim, all that is before the Court is that a claim in respect of unpaid rent was made, it was defended by the Plaintiff and, shortly before the hearing commenced, the amount claimed in the Cross Claim was paid. There is no evidence as to whether the payment was made without admission of liability. In the light of this exiguous evidence, I can assume only that the Plaintiff capitulated, so that the costs of the Cross Claim should follow the result. 94    I will stand the proceedings over for the bringing in of Short Minutes of Order to reflect these reasons. On that occasion I will hear argument, if any, as to the costs of the proceedings.

– oOo –

Last Modified: 09/13/2002